[House Report 107-370]
[From the U.S. Government Publishing Office]
107th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 107-370
======================================================================
CLASS ACTION FAIRNESS ACT OF 2002
_______
March 12, 2002.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Sensenbrenner, from the Committee on the Judiciary, submitted the
following
R E P O R T
together with
ADDITIONAL AND DISSENTING VIEWS
[To accompany H.R. 2341]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to whom was referred the
bill (H.R. 2341) to amend the procedures that apply to
consideration of interstate class actions to assure fairer
outcomes for class members and defendants, to outlaw certain
practices that provide inadequate settlements for class
members, to assure that attorneys do not receive a
disproportionate amount of settlements at the expense of class
members, to provide for clearer and simpler information in
class action settlement notices, to assure prompt consideration
of interstate class actions, to amend title 28, United States
Code, to allow the application of the principles of Federal
diversity jurisdiction to interstate class actions, and for
other purposes, having considered the same, reports favorably
thereon with an amendment and recommends that the bill as
amended do pass.
CONTENTS
Page
The Amendment.................................................... 2
Purpose and Summary.............................................. 6
Background and Need for the Legislation.......................... 7
Hearings......................................................... 22
Committee Consideration.......................................... 22
Vote of the Committee............................................ 22
Committee Oversight Findings..................................... 26
Performance Goals and Objectives................................. 26
New Budget Authority and Tax Expenditures........................ 26
Congressional Budget Office Cost Estimate........................ 27
Constitutional Authority Statement............................... 28
Section-by-Section Analysis and Discussion....................... 28
Agency Views..................................................... 36
Changes in Existing Law Made by the Bill, as Reported............ 38
Markup Transcript................................................ 45
Additional Views................................................. 121
Dissenting Views................................................. 123
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE; REFERENCE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Class Action
Fairness Act of 2002''.
(b) Reference.--Whenever in this Act reference is made to an
amendment to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provision of title
28, United States Code.
(c) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; reference; table of contents.
Sec. 2. Findings and purposes.
Sec. 3. Consumer class action bill of rights and improved procedures
for interstate class actions.
Sec. 4. Federal district court jurisdiction of interstate class
actions.
Sec. 5. Removal of interstate class actions to Federal district court.
Sec. 6. Appeals of class action certification orders.
Sec. 7. Effective date.
SEC. 2. FINDINGS AND PURPOSES.
(a) Findings.--The Congress finds as follows:
(1) Class action lawsuits are an important and valuable
part of our legal system when they permit the fair and
efficient resolution of legitimate claims of numerous parties
by allowing the claims to be aggregated into a single action
against a defendant that has allegedly caused harm.
(2) Over the past decade, there have been abuses of the
class action device that have harmed class members with
legitimate claims and defendants that have acted responsibly,
and that have thereby undermined public respect for our
judicial system.
(3) Class members have been harmed by a number of actions
taken by plaintiffs' lawyers, which provide little or no
benefit to class members as a whole, including--
(A) plaintiffs' lawyers receiving large fees, while
class members are left with coupons or other awards of
little or no value;
(B) unjustified rewards being made to certain
plaintiffs at the expense of other class members; and
(C) the publication of confusing notices that
prevent class members from being able to fully
understand and effectively exercise their rights.
(4) Through the use of artful pleading, plaintiffs are able
to avoid litigating class actions in Federal court, forcing
businesses and other organizations to defend interstate class
action lawsuits in county and State courts where--
(A) the lawyers, rather than the claimants, are
likely to receive the maximum benefit;
(B) less scrutiny may be given to the merits of the
case; and
(C) defendants are effectively forced into
settlements, in order to avoid the possibility of huge
judgments that could destabilize their companies.
(5) These abuses undermine our Federal system and the
intent of the framers of the Constitution in creating diversity
jurisdiction, in that county and State courts are--
(A) handling interstate class actions that affect
parties from many States;
(B) sometimes acting in ways that demonstrate bias
against out-of-State defendants; and
(C) making judgments that impose their view of the
law on other States and bind the rights of the
residents of those States.
(6) Abusive interstate class actions have harmed society as
a whole by forcing innocent parties to settle cases rather than
risk a huge judgment by a local jury, thereby costing consumers
billions of dollars in increased costs to pay for forced
settlements and excessive judgments.
(b) Purposes.--The purposes of this Act are--
(1) to assure fair and prompt recoveries for class members
with legitimate claims;
(2) to protect responsible companies and other institutions
against interstate class actions in State courts;
(3) to restore the intent of the framers of the
Constitution by providing for Federal court consideration of
interstate class actions; and
(4) to benefit society by encouraging innovation and
lowering consumer prices.
SEC. 3. CONSUMER CLASS ACTION BILL OF RIGHTS AND IMPROVED PROCEDURES
FOR INTERSTATE CLASS ACTIONS.
(a) In General.--Part V is amended by inserting after chapter 113
the following:
``CHAPTER 114--CLASS ACTIONS
``Sec.
``1711. Judicial scrutiny of coupon and other noncash settlements.
``1712. Protection against loss by class members.
``1713. Protection against discrimination based on geographic location.
``1714. Prohibition on the payment of bounties.
``1715. Clearer and simpler settlement information.
``1716. Definitions.
``Sec. 1711. Judicial scrutiny of coupon and other noncash settlements
``The court may approve a proposed settlement under which the class
members would receive noncash benefits or would otherwise be required
to expend funds in order to obtain part or all of the proposed benefits
only after a hearing to determine whether, and making a written finding
that, the settlement is fair, reasonable, and adequate for class
members.
``Sec. 1712. Protection against loss by class members
``The court may approve a proposed settlement under which any class
member is obligated to pay sums to class counsel that would result in a
net loss to the class member only if the court makes a written finding
that nonmonetary benefits to the class member outweigh the monetary
loss.
``Sec. 1713. Protection against discrimination based on geographic
location
``The court may not approve a proposed settlement that provides for
the payment of greater sums to some class members than to others solely
on the basis that the class members to whom the greater sums are to be
paid are located in closer geographic proximity to the court.
``Sec. 1714. Prohibition on the payment of bounties
``(a) In General.--The court may not approve a proposed settlement
that provides for the payment of a greater share of the award to a
class representative serving on behalf of a class, on the basis of the
formula for distribution to all other class members, than that awarded
to the other class members.
``(b) Rule of Construction.--The limitation in subsection (a) shall
not be construed to prohibit any payment approved by the court for
reasonable time or costs that a person was required to expend in
fulfilling his or her obligations as a class representative.
``Sec. 1715. Clearer and simpler settlement information
``(a) Plain English Requirements.--Any court with jurisdiction over
a plaintiff class action shall require that any written notice
concerning a proposed settlement of the class action provided to the
class through the mail or publication in printed media contain--
``(1) at the beginning of such notice, a statement in 18-
point Times New Roman type or other functionally similar type,
stating `LEGAL NOTICE: YOU ARE A PLAINTIFF IN A CLASS ACTION
LAWSUIT AND YOUR LEGAL RIGHTS ARE AFFECTED BY THE SETTLEMENT
DESCRIBED IN THIS NOTICE.'; and
``(2) a short summary written in plain, easily understood
language, describing--
``(A) the subject matter of the class action;
``(B) the members of the class;
``(C) the legal consequences of being a member of
the class;
``(D) if the notice is informing class members of a
proposed settlement agreement--
``(i) the benefits that will accrue to the
class due to the settlement;
``(ii) the rights that class members will
lose or waive through the settlement;
``(iii) obligations that will be imposed on
the defendants by the settlement;
``(iv) the dollar amount of any attorney's
fee class counsel will be seeking, or if not
possible, a good faith estimate of the dollar
amount of any attorney's fee class counsel will
be seeking; and
``(v) an explanation of how any attorney's
fee will be calculated and funded; and
``(E) any other material matter.
``(b) Tabular Format.--Any court with jurisdiction over a plaintiff
class action shall require that the information described in subsection
(a)--
``(1) be placed in a conspicuous and prominent location on
the notice;
``(2) contain clear and concise headings for each item of
information; and
``(3) provide a clear and concise form for stating each
item of information required to be disclosed under each
heading.
``(c) Television or Radio Notice.--Any notice provided through
television or radio (including transmissions by cable or satellite) to
inform the class members in a class action of the right of each member
to be excluded from the class action or a proposed settlement of the
class action, if such right exists, shall, in plain, easily understood
language--
``(1) describe the persons who may potentially become class
members in the class action; and
``(2) explain that the failure of a class member to
exercise his or her right to be excluded from a class action
will result in the person's inclusion in the class action or
settlement.
``Sec. 1716. Definitions
``In this chapter--
``(1) Class action.--The term `class action' means any
civil action filed in a district court of the United States
pursuant to rule 23 of the Federal Rules of Civil Procedure or
any civil action that is removed to a district court of the
United States that was originally filed pursuant to a State
statute or rule of judicial procedure authorizing an action to
be brought by one or more representatives on behalf of a class.
``(2) Class counsel.--The term `class counsel' means the
persons who serve as the attorneys for the class members in a
proposed or certified class action.
``(3) Class members.--The term `class members' means the
persons who fall within the definition of the proposed or
certified class in a class action.
``(4) Plaintiff class action.--The term `plaintiff class
action' means a class action in which class members are
plaintiffs.
``(5) Proposed settlement.--The term `proposed settlement'
means an agreement that resolves claims in a class action, that
is subject to court approval and that, if approved, would be
binding on the class members.''.
(b) Technical and Conforming Amendment.--The table of chapters for
part V is amended by inserting after the item relating to chapter 113
the following:
``114. Class Actions........................................ 1711''.
SEC. 4. FEDERAL DISTRICT COURT JURISDICTION OF INTERSTATE CLASS
ACTIONS.
(a) Application of Federal Diversity Jurisdiction.--Section 1332 is
amended--
(1) by redesignating subsection (d) as subsection (e); and
(2) by inserting after subsection (c) the following:
``(d)(1) In this subsection--
``(A) the term `class' means all of the class members in a
class action;
``(B) the term `class action' means any civil action filed
pursuant to rule 23 of the Federal Rules of Civil Procedure or
similar State statute or rule of judicial procedure authorizing
an action to be brought by one or more representative persons
on behalf of a class;
``(C) the term `class certification order' means an order
issued by a court approving the treatment of a civil action as
a class action; and
``(D) the term `class members' means the persons who fall
within the definition of the proposed or certified class in a
class action.
``(2) The district courts shall have original jurisdiction of any
civil action in which the matter in controversy exceeds the sum or
value of $2,000,000, exclusive of interest and costs, and is a class
action in which--
``(A) any member of a class of plaintiffs is a citizen of a
State different from any defendant;
``(B) any member of a class of plaintiffs is a foreign
state or a citizen or subject of a foreign state and any
defendant is a citizen of a State; or
``(C) any member of a class of plaintiffs is a citizen of a
State and any defendant is a foreign state or a citizen or
subject of a foreign state.
``(3) Paragraph (2) shall not apply to any civil action in which--
``(A)(i) the substantial majority of the members of the
proposed plaintiff class and the primary defendants are
citizens of the State in which the action was originally filed;
and
``(ii) the claims asserted therein will be governed
primarily by the laws of the State in which the action was
originally filed;
``(B) the primary defendants are States, State officials,
or other governmental entities against whom the district court
may be foreclosed from ordering relief; or
``(C) the number of proposed plaintiff class members is
less than 100.
``(4) In any class action, the claims of the individual class
members shall be aggregated to determine whether the matter in
controversy exceeds the sum or value of $2,000,000, exclusive of
interest and costs.
``(5) This subsection shall apply to any class action before or
after the entry of a class certification order by the court with
respect to that action.
``(6)(A) A district court shall dismiss any civil action that is
subject to the jurisdiction of the court solely under this subsection
if the court determines the action may not proceed as a class action
based on a failure to satisfy the requirements of rule 23 of the
Federal Rules of Civil Procedure.
``(B) Nothing in subparagraph (A) shall prohibit plaintiffs from
filing an amended class action in Federal court or filing an action in
State court, except that any such action filed in State court may be
removed to the appropriate district court if it is an action of which
the district courts of the United States have original jurisdiction.
``(C) In any action that is dismissed under this paragraph and is
filed by any of the original named plaintiffs therein in the same State
court venue in which the dismissed action was originally filed, the
limitations periods on all reasserted claims shall be deemed tolled for
the period during which the dismissed class action was pending. The
limitations periods on any claims that were asserted in a class action
dismissed under this paragraph that are subsequently asserted in an
individual action shall be deemed tolled for the period during which
the dismissed action was pending.
``(7) Paragraph (2) shall not apply to any class action brought by
shareholders that solely involves a claim that relates to--
``(A) a claim concerning a covered security as defined
under section 16(f)(3) of the Securities Act of 1933 and
section 28(f)(5)(E) of the Securities Exchange Act of 1934;
``(B) the internal affairs or governance of a corporation
or other form of business enterprise and arises under or by
virtue of the laws of the State in which such corporation or
business enterprise is incorporated or organized; or
``(C) the rights, duties (including fiduciary duties), and
obligations relating to or created by or pursuant to any
security (as defined under section 2(a)(1) of the Securities
Act of 1933 and the regulations issued thereunder).
``(8) For purposes of this subsection and section 1453 of this
title, an unincorporated association shall be deemed to be a citizen of
the State where it has its principal place of business and the State
under whose laws it is organized.
``(9) For purposes of this section and section 1453 of this title,
a civil action that is not otherwise a class action as defined in
paragraph (1)(B) of this subsection shall nevertheless be deemed a
class action if--
``(A) the named plaintiff purports to act for the interests
of its members (who are not named parties to the action) or for
the interests of the general public, seeks a remedy of damages,
restitution, disgorgement, or any other form of monetary
relief, and is not a State attorney general; or
``(B) monetary relief claims in the action are proposed to
be tried jointly in any respect with the claims of 100 or more
other persons on the ground that the claims involve common
questions of law or fact.
In any such case, the persons who allegedly were injured shall be
treated as members of a proposed plaintiff class and the monetary
relief that is sought shall be treated as the claims of individual
class members. The provisions of paragraphs (3) and (6) of this
subsection and subsections (b)(2) and (d) of section 1453 shall not
apply to civil actions described under subparagraph (A). The provisions
of paragraph (6) of this subsection, and subsections (b)(2) and (d) of
section 1453 shall not apply to civil actions described under
subparagraph (B).''.
(b) Conforming Amendments.--
(1) Section 1335(a)(1) is amended by inserting ``(a) or
(d)'' after ``1332''.
(2) Section 1603(b)(3) is amended by striking ``(d)'' and
inserting ``(e)''.
SEC. 5. REMOVAL OF INTERSTATE CLASS ACTIONS TO FEDERAL DISTRICT COURT.
(a) In General.--Chapter 89 is amended by adding after section 1452
the following:
``Sec. 1453. Removal of class actions
``(a) Definitions.--In this section, the terms `class', `class
action', `class certification order', and `class member' have the
meanings given these terms in section 1332(d)(1).
``(b) In General.--A class action may be removed to a district
court of the United States in accordance with this chapter, without
regard to whether any defendant is a citizen of the State in which the
action is brought, except that such action may be removed--
``(1) by any defendant without the consent of all
defendants; or
``(2) by any plaintiff class member who is not a named or
representative class member without the consent of all members
of such class.
``(c) When Removable.--This section shall apply to any class action
before or after the entry of a class certification order in the action,
except that a plaintiff class member who is not a named or
representative class member of the action may not seek removal of the
action before an order certifying a class of which the plaintiff is a
class member has been entered.
``(d) Procedure for Removal.--The provisions of section 1446
relating to a defendant removing a case shall apply to a plaintiff
removing a case under this section, except that in the application of
subsection (b) of such section the requirement relating to the 30-day
filing period shall be met if a plaintiff class member files notice of
removal within 30 days after receipt by such class member, through
service or otherwise, of the initial written notice of the class
action.
``(e) Review of Orders Remanding Class Actions to State Courts.--
The provisions of section 1447 shall apply to any removal of a case
under this section, except that, notwithstanding the provisions of
section 1447(d), an order remanding a class action to the State court
from which it was removed shall be reviewable by appeal or otherwise.
``(f) Exception.--This section shall not apply to any class action
brought by shareholders that solely involves--
``(1) a claim concerning a covered security as defined
under section 16(f)(3) of the Securities Act of 1933 and
section 28(f)(5)(E) of the Securities Exchange Act of 1934;
``(2) a claim that relates to the internal affairs or
governance of a corporation or other form of business
enterprise and arises under or by virtue of the laws of the
State in which such corporation or business enterprise is
incorporated or organized; or
``(3) a claim that relates to the rights, duties (including
fiduciary duties), and obligations relating to or created by or
pursuant to any security (as defined under section 2(a)(1) of
the Securities Act of 1933 and the regulations issued
thereunder).''.
(b) Removal Limitation.--Section 1446(b) is amended in the second
sentence by inserting ``(a)'' after ``section 1332''.
(c) Technical and Conforming Amendments.--The table of sections for
chapter 89 is amended by adding after the item relating to section 1452
the following:
``1453. Removal of class actions.''.
SEC. 6. APPEALS OF CLASS ACTION CERTIFICATION ORDERS.
(a) In General.--Section 1292(a) is amended by inserting after
paragraph (3) the following:
``(4) Orders of the district courts of the United States
granting or denying class certification under rule 23 of the
Federal Rules of Civil Procedure, if notice of appeal is filed
within 10 days after entry of the order.''.
(b) Discovery Stay.--All discovery and other proceedings shall be
stayed during the pendency of any appeal taken pursuant to the
amendment made by subsection (a), unless the court finds upon the
motion of any party that specific discovery is necessary to preserve
evidence or to prevent undue prejudice to that party.
SEC. 7. EFFECTIVE DATE.
The amendments made by this Act shall apply to any civil action
commenced on or after the date of the enactment of this Act.
Purpose and Summary
H.R. 2341 is intended to provide meaningful improvements in
litigation management by allowing Federal courts to hear large
interstate class actions and by establishing new protections
for consumers against abusive class action settlements. In
making these improvements, H.R. 2341 does not limit access to
the courthouse or alter any existing State or Federal
substantive law. Furthermore, it will help prevent a handful of
State courts from usurping the authority of other States and
the rights of their citizens.
H.R. 2341 has two core purposes. First, it amends the
current Federal diversity-of-citizenship jurisdiction statute
(28 U.S.C. Sec. 1332)--to allow large interstate class actions
to be adjudicated in Federal courts. Currently, Federal courts
have jurisdiction over (a) lawsuits dealing with a Federal
question and (b) cases meeting current diversity jurisdiction
requirements--matters in which all plaintiffs are citizens of
jurisdictions different than all defendants, and each claimant
has an amount in controversy in excess of $75,000. H.R. 2341
would change the diversity jurisdiction requirement for class
actions, generally permitting access to Federal courts in class
actions where there is ``minimal diversity'' (that is, any
member of the proposed class is a citizen of a State different
from any defendant) and the aggregate amount in controversy
among all class members exceeds $2 million. In that way, H.R.
2341 recognizes that large interstate class actions deserve
Federal court access because they typically effect more
citizens, involve more money, and implicate more interstate
commerce issues than any other type of lawsuit.
Second, it implements long needed protections for consumers
against abusive settlements. These protections are established
in the ``Consumer Class Action Bill of Rights'' (Bill of
Rights), which is located in Section 3 of the bill. The Bill of
Rights would: (1) establish new ``Plain English'' requirements
(non-legal jargon) so that class members can better understand
class action settlement notices and how these notices effect
their rights; (2) enhance judicial scrutiny of coupon
settlements; (3) provide judicial scrutiny over settlements
that would result in a net monetary loss to plaintiffs; (4)
prohibit unjustified payments, also known as bounties, to class
representatives; and (5) protect out-of-state class members
against settlements that favor class members based upon
geographic proximity to the courthouse.
Background and Need for the Legislation
Class actions are an important part of our legal system.
They can promote efficiency by allowing plaintiffs with similar
claims to adjudicate their cases in one proceeding. They may
lead to the adjudication of homogeneous groups of smaller
claims alleging harms to a large number of people, which would
otherwise go unaddressed because the cost to individuals of
suing would far exceed any possible benefit to the individual.
However, because class actions empower one individual to
represent the interests of thousands (and sometimes millions)
of other people without their permission or supervision, there
is substantial risk of serious abuse. Unfortunately, that abuse
has become pervasive in certain county courts. Even more
unfortunately, because interstate class actions often have
nationwide ramifications, those abuses are impacting persons
(both class members and defendants) having little or no
relationship to the jurisdictions in which these abuses are
occurring. In short, even though these abuses are occurring
primarily in our State court system, the impact is national in
scope.
Concerns for the Rights of Class Members
Recent developments in class action practice have created
concern about the rights of class members in some of these
lawsuits.\1\ For instance, a class action filed against an
airline resulted in coupon rewards for class members for $25
when they purchased another airline ticket for more than
$250.\2\ In Boston, a class action against a Boston bank
resulted in an award of $8.76 to each class member; however,
each class member was also deducted $90 from their bank account
to pay their attorney fees.\3\ In Mississippi, an infamous
class action settlement resulted in extreme disparate rewards
for class members from different States with identical
injuries.\4\ In other class actions, named representatives of
the class have received disparate awards, which diverges the
interest of the class representatives and other members of the
lawsuit.\5\ While class actions require that class members
affirmatively opt-out of the lawsuit, recent studies have
indicated that most adults are unable to understand notices
explaining this requirement.\6\ While these abuses have been
commonplace under the current system, the Bill of Rights in
Section 3 of H.R. 2341 establishes important rules to prevent
these abuses.
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\1\ Hearings on H.R. 1875 and H.R. 2005: the ``Interstate Class
Action Jurisdiction Act of 1999'' and ``Workplace Goods Job Growth and
Competitiveness Act of 1999'' Before the House Comm. on the Judiciary,
106th Cong., 1st Sess. 57 (prepared statement of John Beisner) (July
21, 1999).
\2\ Harry Levins, Airlines Send Coupons To Customers Certificates
Are Part of Settlement of Suit Alleging Price-Fixing, St. Louis Post
Dispatch, Dec. 23, 1994, at B3.
\3\ Hearings on Class Action Lawsuits: Examining Victim
Compensation and Attorney's fees Before the Senate Comm. on the
Judiciary Subcomm. on Administrative Oversight and the Courts, 105th
Cong., 2nd Sess., Hrg. 105-504 (Oct. 30, 1997) (opening statement of
the Hon. Herb Kohl).
\4\ Stephen Labaton, Top Asbestos Makers Agree to Settle 2 Large
Lawsuits, The New York Times, Jan. 23, 2000, at Sec. 1 p. 22.
\5\ C. Krislov, Scrutiny of the Bounty: Incentive Awards for
Plaintiffs in Class Litigation, 78 Ill.B.J. 286 (1990) (``[m]any
commentators have said that awarding representatives any more than the
proportionate amount of the class recovery creates an unacceptable
conflict between the class and representatives. ''). See also: Warren &
Stuckey, Recent Developments in Class Actions: Attorneys' Fees, Partial
Settlements, and Awards to Named Plaintiffs, 430 PLI/Lit 625, 663
(1992).
\6\ J. Willging, L. Hooper, and R. Niemic, An Empirical Analysis of
Rule 23 to Address the Rulemaking Challenges, 71 N.Y.U.L.Rev. 74, at
134 (``[m]any, perhaps most, of the notices present technical
information in legal jargon . . . and most notices [were] not
comprehensible to the lay reader.'').
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Class Action Certification Standards
Class actions were initially created in State courts of law
and equity, and in 1849 became statutory with the advent of the
Field Code, which several States adopted. In 1938, a Federal
class action rule was first enacted in the form of Federal Rule
of Civil Procedure 23.\7\ Rule 23 was substantially amended in
1966, and granted courts more flexibility in certifying class
actions.\8\
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\7\ The original rule 23 recognized three types of class actions:
the ``true'' class action involving joint rights in which a class
decision was res judicata; the hybrid category involving several rights
relating to specific property; and the ``spurious'' class action
involving several rights affected by common questions, as to which the
result was res judicata only as to the parties actually joined.
\8\ See Fed. R. Civ. Proc. 23.
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Today, the vast majority of Federal and State courts have
adopted (sometimes with minor modifications) the 1966 version
of Federal Rule 23. Indeed, only six States (Georgia, North
Carolina, Nebraska, South Carolina, and Wisconsin) follow rules
substantially different from Federal Rule 23, and even the
courts of most of those States tend to look to the Federal rule
and Federal court precedents for guidance on the circumstances
in which cases should be certified for class treatment. (Two
States--Mississippi and Virginia--have never adopted rules
authorizing class actions.)
Rule 23 Class Action Requirements (Federal Rules of Civil Procedure)
As amended in 1966, rule 23 of the Federal Rules of Civil
Procedure prescribes the conditions under which class action
suits may be brought in the Federal courts. Rule 23(a) outlines
the prerequisites for a class action. They are (1) the class is
so numerous that joinder of all members is impracticable; (2)
there are questions of law or fact common to the class; (3) the
claims or defenses of the representative parties are typical of
the claims or defenses of the class; and (4) the representative
parties will fairly and adequately protect the interests of the
class.
In addition to meeting these prerequisites, an action may
only be maintained as a class action if one of the following
three conditions outlined in rule 23(b) are met: (1) the
prosecution of separate actions by or against individual
members of the class would create a risk of either inconsistent
or varying adjudications with respect to individual members of
the class which would establish incompatible standards of
conduct for the party opposing the class, or adjudications with
respect to individual members of the class which would as a
practical matter be dispositive of the interests of the other
members not parties to the adjudications or substantially
impair or impede their ability to protect their interests; (2)
the party opposing the class has acted or refused to act on
grounds generally applicable to the class, thereby making
appropriate final injunctive or corresponding declaratory
relief with respect to the class as a whole; or (3) the court
finds that the questions of law or fact common to the members
of the class predominate over any questions affecting only
individual members, and that a class action is superior to
other available methods for the fair and efficient adjudication
of the controversy. The matters pertinent to the findings
include: (A) the interest of members of the class in
individually controlling the prosecution or defense of separate
actions; (B) the extent and nature of any litigation concerning
the controversy already commenced by or against members of the
class; (C) the desirability or undesirability of concentrating
the litigation of the claims in the particular forum; and (D)
the difficulties likely to be encountered in the management of
a class action.
Rule 23(c) outlines the notice requirement for actions
brought under rule 23(b)(3). Members of any class must be
provided with the ``best notice [of the action] practicable
under the circumstances, including individual notice to all
members who can be identified through reasonable effort.''
After notice has been made class members are automatically
included in the action unless they affirmatively opt-out of the
class. Information on how to opt-out is also supposed to be
clearly communicated by this notice.
Class Certification Dilemmas of Interstate Class Actions
Large interstate class actions create the potential for
considerable abuse, particularly when the case involves parties
from multiple States and/or requires the application of the
laws of many States.\9\ For example, some State courts
routinely certify classes before the defendant is even served
with a complaint and given a chance to defend itself.\10\ Other
State courts employ very lax class certification criteria,
rendering virtually any controversy subject to class action
treatment.\11\ There are instances where a State court, in
order to certify a class, has determined that the law of that
State applies to all claims, including those of purported class
members who live in other jurisdictions.\12\ This has the
effect of making the law of that State applicable nationwide.
---------------------------------------------------------------------------
\9\ Hearings on H.R. 1875: The ``Interstate Class Action
Jurisdiction Act of 1999'' Before the House Comm. on the Judiciary,
106th Cong., 1st Sess. (July 21, 1999) (prepared statement of Hon.
Walter Dellinger, III, Esq.).
\10\ Hearings on ``Mass Torts and Class Action Law-suits'' Before
the House Comm. on the Judiciary Subcomm. on Courts and Intellectual
Property, 105th Cong., 2nd Sess. (March 5, 1998) (prepared statement of
John W. Martin, Jr.).
\11\ Id.
\12\ Avery v. State Farm Mut. Auto Ins. Cos., 746 N.E. 2d 1242 (Ill
5th Dis. Court of Appeals); See also: Matthew L. Wald, Suit Against
Auto Insurer Could Affect Nearly All Drivers, The New York Times, Sep.
27, 1998, at sec. 1 p. 29.
---------------------------------------------------------------------------
Certain county courts that do not rigorously enforce class
action certification rules have encouraged plaintiffs to forum
shop for the court which is most likely to certify a purported
class. In many instances, the fact that a class is certified
will determine the outcome of the case.\13\ Because the cases
are brought on behalf of thousands (and sometimes millions) of
claimants, the potential exposure for a defendant is enormous.
Plaintiffs' counsel can use this potential exposure to coerce
settlements that offer minimal benefits to the class members.
These settlements also result in hefty attorneys' fees.\14\
---------------------------------------------------------------------------
\13\ H.R. Report No. 106-320, 106th Cong., 1st Sess., at 8 (1999).
\14\ Stuart Eskenazi, Consumer activists: Bell deal a 'ripoff' //
Phone company defends offer of services to settle class action suit,
Austin American-Statesman, April 17, 1998, at A1.
---------------------------------------------------------------------------
The inability of our Federal and State judicial systems to
draw together all class actions that are filed on a particular
subject for coordinated adjudication is injuring the rights of
both plaintiffs (that is, the unnamed class members) and
defendants in such cases.\15\ In the Federal court system,
class actions asserting the same claims on behalf of the same
or overlapping classes may be transferred to one district for
coordinated or consolidated pretrial proceedings.\16\ When
these class actions are pending in State courts, however, there
is no corresponding mechanism for cogently adjudicating the
competing suits. Instead, a settlement or judgment in any of
the cases makes the other class actions moot.\17\ This creates
an incentive for each class counsel to obtain a quick
settlement of the case, and an opportunity for the defendant to
play the various class counsel against each other and drive the
settlement value down.\18\ Again, the loser is the putative
class member whose claim is extinguished by the settlement,
benefitting the lawyer seeking large fees. \19\ This has led to
phenomena commonly referred to as ``copycat'' class actions,
where identical actions are filed in multiple jurisdictions by
the same pool of plaintiffs.\20\ H.R. 2341 is intended to
prevent these abuses by allowing large interstate class action
cases to be heard in Federal court.
---------------------------------------------------------------------------
\15\ Working Papers of the Advisory Committee on Civil Rules on
Proposed Amendments to Civil Rule 23, Vol. 3, at 32 (May 1, 1997)
(hereinafter ``Advisory Committee Working Papers'') (statement of Prof.
Samuel Isaacaroff, University of Texas Law School) (noting that ``rival
State court proceedings'' in class actions are ``emerging as real
problem spots''); Id., Vol. 4, at 88 (comments of consumer advocate
Stephen Gardner) (describing the duplication of rival State class
action proceedings in State and Federal courts).
\16\ See 28 U.S.C. 1407.
\17\ Hearings on H.R. 1875 and 2005: the ``Interstate Class Action
Jurisdiction Act of 1999'' and ``Workplace Goods Job Growth and
Competitiveness Act of 1999'' Before the House Comm. on the Judiciary,
106th Cong., 1st Sess. 57 (July 21, 1999) (prepared statement of John
Beisner).
\18\ Id.
\19\ Id.
\20\ H.R. Rep. No. 106-30, 106th Cong., 1st Sess, at 9 (1999).
---------------------------------------------------------------------------
Federal Diversity Jurisdiction
While Federal courts have jurisdiction over questions or
disputes concerning Federal law, article III of the
Constitution empowers Congress to establish Federal
jurisdiction over any law when there is diversity--disputes
``between citizens of different States.'' Diversity
jurisdiction is premised on concerns that State courts might
discriminate against out of State defendants. Since 1806, with
some exceptions, the Federal courts have followed the rule of
Strawbridge v. Curtiss, which states that Federal jurisdiction
lies only where all plaintiffs are citizens of States different
than all defendants.\21\ This is known as the ``complete
diversity'' rule.\22\ In a class action, only the citizenship
of the named plaintiffs is considered for determining
diversity, which means that Federal diversity jurisdiction will
not exist if the named plaintiff is a citizen of the same State
as the defendant, regardless of the citizenship of the rest of
the class.\23\ Since the early days of the country, Congress
has imposed a monetary threshold--now $75,000--for Federal
diversity claims.\24\ However, the amount in controversy
requirement is satisfied in a class action only if all of the
class members are seeking damages in excess of the statutory
minimum.\25\
---------------------------------------------------------------------------
\21\ Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 (1806).
\22\ The Supreme Court has regularly recognized that the decision
to require complete diversity, and to set a minimum amount in
controversy, are political decisions not mandated by the Constitution.
See, e.g., Newman-Green, Inc. v. Alfonzo-Larrian, 490 U.S. 826, 829 n.1
(1989). It is therefore the prerogative of the Congress to broaden the
scope of diversity jurisdiction to any extent it sees fit, as long as
any two adverse parties to a lawsuit are citizens of different States.
See State Farm Fire & Cas. Co. v. Tashire, 386 U.S. 523, 530-31 (1967).
\23\ See Snyder v. Harris, 394 U.S. 332 (1969).
\24\ See 28 U.S.C. Sec. 1332(a).
\25\ See Zahn v. International Paper Co., 414 U.S. 291 (1973).
---------------------------------------------------------------------------
These jurisdictional statutes were originally enacted years
ago, well before the modern class action arose. As a result,
State courts typically resolve most class actions--the largest,
most diverse lawsuits in our civil justice system. Attorneys
often name irrelevant parties to their class actions in an
effort to ``destroy diversity''--that is, to keep the case from
qualifying for Federal diversity jurisdiction. In fact,
plaintiff's counsel have made statements about a case to
prevent a defendant from removing the case to Federal court
(e.g., ``plaintiffs seek only a very small amount of money in
this case '').\26\ After 1 year, however, the same counsel will
recant those statements, since at that point, current statutes
bar removal of the case to Federal court.\27\
---------------------------------------------------------------------------
\26\ Hearings on H.R. 1875 and 2005: the ``Interstate Class Action
Jurisdiction Act of 1999'' and ``Workplace Goods Job Growth and
Competitiveness Act of 1999'' Before the House Comm. on the Judiciary,
106th Cong., 1st Sess. 57 (July 21, 1999) (prepared statement of John
Beisner).
\27\ Id.
---------------------------------------------------------------------------
Standards for Removal of Interstate Class Actions to Federal District
Court
The general Federal removal statute provides, inter alia,
that any civil action brought in a State court of which U.S.
district courts have original jurisdiction, may be removed by
the defendant(s) to the appropriate Federal court.\28\ Removal
is based on the same general assumption as diversity
jurisdiction, that an out-of-state defendant may become a
victim of local prejudice in State court.\29\
---------------------------------------------------------------------------
\28\ See 28 U.S.C. Sec. 1441(a).
\29\ See David P. Currie, Federal Jurisdiction at 140 (3rd ed.
1990).
---------------------------------------------------------------------------
A defendant must file for removal to Federal court within
30 days after receipt of a copy of the initial pleading (or
service of summons if a pleading has been filed in court and is
not required to be served on the defendant).\30\ An exception
exists beyond the 30-day deadline when the case stated by the
initial pleading is not removable. If so, a notice of removal
must be filed within 30 days of receipt by the defendant of ``a
copy of an amended pleading, motion, order, or other paper from
which it may first be ascertained that the case [is
removable].''
---------------------------------------------------------------------------
\30\ See 28 U.S.C. Sec. 1446(b).
---------------------------------------------------------------------------
Jurisdictional Dilemmas of Interstate Class Actions
These jurisdictional statutes were originally enacted years
ago, well before the modern class action arose. For example,
under current law a citizen of one State may bring in Federal
court a simple $75,001 slip-and-fall claim against a party from
another State. But if a class of $25 million consumers living
in all 50 States brings claims collectively worth $15 billion
against a manufacturer, the lawsuit usually must be heard in
State court. As former Attorney General Walter Dellinger
articulated in 1999 before the Committee on the Judiciary, if
Congress were to enact an entirely new Federal diversity
jurisdiction statute and consider anew which kinds of cases
most warrant access to Federal courts, there would be little
legitimate debate that interstate class actions would be at or
near the top of the list.\31\ Those cases typically have the
most money in controversy, involve the most people, and have
the most interstate commerce ramifications. In short, they are
the types of cases that most clearly fit the historic rationale
for Federal diversity jurisdiction. Thus, it is an extreme
anomaly that current law essentially excludes these cases from
our Federal courts while allowing access to others.
---------------------------------------------------------------------------
\31\ Hearings on H.R. 1875 and H.R. 2005: the ``Interstate Class
Action Jurisdiction Act of 1999'' and ``Workplace Goods Job Growth and
Competitiveness Act of 1999'' Before the House of Comm. on the
Judiciary, 106th Cong., 1st Sess. 57 (July 21, 1999) (prepared
statement of Hon. Walter Dellinger, III, Esq.).
---------------------------------------------------------------------------
As a result of this exclusion, the number of class actions
filed in State courts has been mushrooming in recent years.
Although data is difficult to gather, several studies provide a
clear picture of the growing problem concentrated in certain
State courts. For example:
A major empirical research project by RAND's
Institute for Civil Justice (``ICJ'') observed that
over a several year period, there was a ``doubling or
tripling of the number of putative class actions'' that
was ``concentrated in the State courts.'' \32\
---------------------------------------------------------------------------
\32\ Hearings on H.R. 2341: the ``Class Action Fairness Act of
2001'' Before the House Committee on the Judiciary, 107th Cong., 2nd
Sess. (Feb. 6, 2002) (prepared statement of John Beisner).
Another survey revealed that while Federal
court class actions had increased by 340 percent over
the past decade, State court class action filings had
increased 1,315 percent. Typically, the new State court
filings were on behalf of proposed nationwide or multi-
state classes.\33\
---------------------------------------------------------------------------
\33\ Id.
A study submitted to the House Judiciary
Committee in 1999 indicated that the local courts of
six small, rural Alabama counties were experiencing a
tidal wave of class action filings, many seeking relief
on behalf of purported nationwide classes concerning
matters of national significance.\34\
---------------------------------------------------------------------------
\34\ Hearings on ``Mass Torts and Class Action Law-suits'' Before
the House Comm. on the Judiciary Subcomm. on Courts and Intellectual
Property, 105th Cong., 2nd Sess. (March 5, 1998) (prepared statement of
John W. Martin, Jr.).
The final report on the RAND/ICJ study on
class actions concluded that class actions ``were more
prevalent'' in certain States ``than one would expect
on the basis of population.'' \35\
---------------------------------------------------------------------------
\35\ Hearings on H.R. 2341: the ``Class Action Fairness Act of
2001'' Before the House Committee on the Judiciary, 107th Cong., 2nd
Sess. (Feb. 6, 2002) (prepared statement of John Beisner).
A new study (the ``Harvard Journal study'')
examined data from the dockets of three State courts
widely viewed as class action magnets--Madison County,
Illinois; Jefferson County, Texas; and Palm Beach
County, Florida--confirms that the filing of State
court class actions is increasing rapidly in numbers
wildly disproportionate with their populations. The
most dramatic increase occurred in Madison County, a
southwest Illinois county with a population of 250,000,
where the number of class actions increased by 1,850%
between 1998 and 2000. The majority of class actions in
all three counties were brought on behalf of nationwide
classes. In Madison County, for example, 81% of the
cases filed during the survey period sought to certify
nationwide classes. In Jefferson County, the number was
57%.\36\
---------------------------------------------------------------------------
\36\ Id.
That same study confirms the theory that a
select group of State courts had become national
magnets for interstate class actions. For example, the
study found that the three county courts examined were
monopolized by a small cadre of plaintiffs' counsel who
did not reside or practice in those counties. Further,
the study determined that the vast majority of the
class actions filed in those counties had no real nexus
to the jurisdiction.\37\
---------------------------------------------------------------------------
\37\ Id.
The nature of the problem is illustrated by the lengths to
which counsel will go in order to keep their cases in their
favorite local courts--and out of the Federal courts. The
current jurisdictional rules can be used to game the system and
keep interstate class actions out of Federal court. During a
February 6, 2002, hearing, the Committee received detailed
testimony about how attorneys often name irrelevant parties to
class actions filed in State court in an effort to ``destroy
diversity'' and keep the case from qualifying for Federal
diversity jurisdiction.\38\ One witness, testifying on her
experiences of owning a small drugstore in Jefferson County
Mississippi, which was repeatedly dragged into national class
actions against pharmaceutical manufacturers.\39\ According to
Mrs. Bankston, her drugstore was a target because if filled FDA
approved prescriptions, was located in Jefferson County
Mississippi, and kept accurate records.\40\
---------------------------------------------------------------------------
\38\ Hearings on H.R. 2341: the ``Class Action Fairness Act of
2001'' Before the House Committee on the Judiciary, 107th Cong., 2nd
Sess. (Feb. 6, 2002) (prepared statement of Hilda Bankston).
\39\ Id.
\40\ Id.
---------------------------------------------------------------------------
The consequence of these jurisdictional limitations is not
merely to eliminate the Federal forum for adjudication of
interstate class actions. Because the alternative Federal forum
is not available, considerable class action abuse is occurring
in many State courts.\41\ Some State courts are not properly
supervising class settlements.\42\ The result is that class
counsel become the primary beneficiaries of those settlements;
the class members (the persons on whose behalf the actions were
brought) get little or nothing--or in some cases, even
worse.\43\
---------------------------------------------------------------------------
\41\ Hearings on H.R. 2341: the ``Class Action Fairness Act of
2001'' Before the House Committee on the Judiciary, 107th Cong., 2nd
Sess. (Feb. 6, 2002) (prepared statement of John Beisner).
\42\ Id.
\43\ Id.
---------------------------------------------------------------------------
According to the Institute for Civil Justice/RAND study,
class counsel in State court consumer class action settlements
(i.e., non-personal injury monetary relief cases) frequently
walk off with more money than all of the class members
combined.\44\ Last year, an editorial in the Tampa Tribune
referred to this phenomenon as ``jackpot justice''--settlements
that provide little, if any relief, to the class members, make
their lawyers rich, and ultimately result in higher prices for
consumers.\45\ (In contrast, a Federal Judicial Center study
found that ``[i]n most [class actions handled by Federal
courts], net monetary distributions to the class exceeded
attorneys' fees by substantial margins.'')\46\
---------------------------------------------------------------------------
\44\ Id.
\45\ Patrick Slevin, Class-action lawsuit abuse threatens quality
of life for all Floridians, The Tampa Bay Tribune, Sep. 16, 2000 at 15.
\46\ Hearings on H.R. 2341: the ``Class Action Fairness Act of
2001'' Before the House Committee on the Judiciary, 107th Cong., 2nd
Sess. (Feb. 6, 2002) (prepared statement of John Beisner).
---------------------------------------------------------------------------
In the now infamous Bank of Boston settlement, an Alabama
State court judge approved a settlement that awarded up to
$8.76 to individual class members, while the class counsel
received more than $8.5 million in fees.\47\ One class member
testified before the Senate Subcommittee on Administrative
Oversight and the Courts that she was charged a mysterious $80
miscellaneous deduction that she later learned was an expense
used to pay the class lawyers' fee.\48\ In her testimony, that
witness expressed disbelief at the notion that ``people who
were supposed to be my lawyers, representing my interests, took
my money and got away with it.'' \49\
---------------------------------------------------------------------------
\47\ Hearings on Class Action Lawsuits: Examining Victim
Compensation and Attorney's fees Before the Senate Comm. on the
Judiciary Subcomm. on Administrative Oversight and the Courts, 105th
Cong., 2nd Sess., Hrg. 105-504 (Oct. 30, 1997).
\48\ Id.
\49\ Id.
---------------------------------------------------------------------------
While the Bank of Boston settlement is the best-known (and
perhaps the most egregious) example, witnesses who appeared
before the Committee noted an abundance of other settlements
that provided millions of dollars to the lawyers--but only
pennies to the class members:
In a case in Madison County, Illinois,
involving cable late fees, the customers received no
compensation for billing problems; the cable operator
was required to change its late fee policies
prospectively; and plaintiffs' counsel received $5.6
million for their efforts.\50\
---------------------------------------------------------------------------
\50\ Final Order of Settlement, Unfried v. Charter Communications,
Inc., No 99-L-48 (granted December 21, 2000).
In a California State court case regarding
the size of computer monitor screens, the court
approved a settlement that offered $13 rebates to
consumers who purchased new monitors. Their lawyers
received approximately $6 million in fees.\51\
---------------------------------------------------------------------------
\51\ Jerry Heaster, Enough Already With Lawsuits, Kansas City Star,
July 10, 1999 at C1.
The settlement of a suit involving souvenirs
and merchandise sold at NASCAR Winston Cup stock car
races gave consumers coupons toward the purchase of
more merchandise; their lawyers were eligible to
receive more than $2 million.\52\
---------------------------------------------------------------------------
\52\ Robert D. Mauk, Lawyers Win Big In Class Action Suits: Is It
Justice Or Greed?, Charleston Daily Mail, June 19, 2001.
Customers in a suit against a telephone
company in Texas State court received three optional
phone services for 3 months or a $15 credit if they
already subscribed to those services. The lawyers
pocketed $4.5 million in fees.\53\
---------------------------------------------------------------------------
\53\ Editorial, We All Pay Dearly For Costly Class Actions, Corpus
Christi Caller-Times, January 8, 2001.
A very recent class settlement that has
received considerable attention arose in a case
alleging that a video rental company improperly
assessed late fees. Under the proposed settlement
(which has reportedly received preliminary approval
from the Jefferson County, Texas court), customers
would receive varying benefits. For example, a customer
who claimed payment of $30 in late fees would get two
free movie rentals and five $1 coupons good toward the
purchase of non-food items. Initially, the video rental
company announced that the various coupons to be issued
would have a face value of $460 million, but the
company has now acknowledged that fewer than 10 percent
of the coupons will be used and that it will not be
changing its late fee policy. Plaintiffs' class counsel
proposed that they be paid $9.25 million in fees and
expenses. One commentator observed that ``the real
winners in the settlement are the lawyers who sued the
company,'' who will be paid ``in cash, not coupons.''
\54\
---------------------------------------------------------------------------
\54\ David Koenig, Blockbuster tried to settle class action
lawsuits over late fees, Associated Press, June 6, 2001.
Although class action certification standards do not differ
radically throughout America's Federal and State courts,
certain county courts in the State systems have shown very lax
attitudes toward class certification.\55\ The record indicates
that some State court judges have certified classes before the
defendant was even served with the complaint and given an
opportunity to defend itself.\56\ Other State court judges
simply do not rigorously apply the appropriate class
certification prerequisites, such that they will afford class
treatment to virtually any kind of case, even though doing so
will trample the due process rights of the unnamed class
members and/or defendants.\57\ Indeed, the record contains
examples of cases in which Federal courts denied class
certification based on due process concerns, but State courts
subsequently certified classes anyway.\58\
---------------------------------------------------------------------------
\55\ Hearings on H.R. 2341: the ``Class Action Fairness Act of
2001'' Before the House Committee on the Judiciary, 107th Cong., 2nd
Sess. (Feb. 6, 2002) (prepared statement of John Beisner).
\56\ Hearings on ``Mass Torts and Class Action Law-suits'' Before
the House Comm. on the Judiciary Subcomm. on Courts and Intellectual
Property, 105th Cong., 2nd Sess. (March 5, 1998) (prepared statement of
John W. Martin, Jr.).
\57\ Hearings on H.R. 2341: the ``Class Action Fairness Act of
2001'' Before the House Committee on the Judiciary, 107th Cong., 2nd
Sess. (Feb. 6, 2002) (prepared statement of John Beisner).
\58\ Hearings on H.R. 1875 and H.R. 2005: the ``Interstate Class
Action Jurisdiction Act of 1999'' and ``Workplace Goods Job Growth and
Competitiveness Act of 1999'' Before the House of Comm. on the
Judiciary, 106th Cong., 1st Sess. 57 (July 21, 1999); Hearings on
``Mass Torts and Class Action Law-suits'' Before the House Comm. on the
Judiciary Subcomm. on Courts and Intellectual Property, 105th Cong.,
2nd Sess. (March 5, 1998).
---------------------------------------------------------------------------
The power of the class device often corners defendants into
settling any class action rather than contest its merits.\59\
One witness at the Committee's February 6, 2002, hearing
detailed his experiences of copy-cat class actions being filed
by the same lawyers in the same State courts at the same
time.\60\ The witness indicated that these cases were routinely
settled without regard to their merit.\61\ While the witness
represented one of the largest technology corporations in the
world, it is evident that the costs associated with class
actions that are routinely settled without regard to their
merit pose no purpose to the American consumer other than
passing off an additional cost and possibly preventing
innovation and access to new markets.\62\
---------------------------------------------------------------------------
\59\ Hearings on H.R. 2341: the ``Class Action Fairness Act of
2001'' Before the House Committee on the Judiciary, 107th Cong., 2nd
Sess. (Feb. 6, 2002) (prepared statement of Peter Detkin)
\60\ Id.
\61\ Id.
\62\ Hearings on H.R. 2341: the ``Class Action Fairness Act of
2001'' Before the House Committee on the Judiciary, 107th Cong., 2nd
Sess. (Feb. 6, 2002); Hearings on H.R. 1875 and H.R. 2005: the
``Interstate Class Action Jurisdiction Act of 1999'' and ``Workplace
Goods Job Growth and Competitiveness Act of 1999'' Before the House of
Comm. on the Judiciary, 106th Cong., 1st Sess. 57 (July 21, 1999);
Hearings on ``Mass Torts and Class Action Law-suits'' Before the House
Comm. on the Judiciary Subcomm. on Courts and Intellectual Property,
105th Cong., 2nd Sess. (March 5, 1998).
---------------------------------------------------------------------------
Some State courts have effectively made themselves the
arbiters of the laws of other States, raising serious
federalism concerns.\63\ To facilitate the certification of
nationwide or multi-state classes, some State courts have
declared the laws of their forum to apply to all claims in the
action, even where that home State law is inconsistent with the
laws of other jurisdictions that should be applied.\64\ Some
years ago, the U.S. Supreme Court declared this practice to
constitute a denial of due process, but it continues. In other
nationwide or multi-state class actions, a single State court
decides the law of many other jurisdictions, effectively
telling other States what their laws are with no input from the
judiciaries of those other jurisdictions.\65\ Again, this
practice means that a State court, which has no accountability
to the residents of any other State, is dictating applicable
laws to out-of-state residents.\66\
---------------------------------------------------------------------------
\63\ Hearings on H.R. 2341: the ``Class Action Fairness Act of
2001'' Before the House Committee on the Judiciary, 107th Cong., 2nd
Sess. (Feb. 6, 2002) (prepared statement of John Beisner).
\64\ Id.
\65\ Id.
\66\ Id.
---------------------------------------------------------------------------
Perhaps the best-known example of this phenomenon is Avery
v. State Farm Mut. Auto Ins. Cos., a case involving allegations
that an automobile insurance company breached its policyholder
contracts nationwide by requiring the use of less expensive
non-original equipment manufacturer parts in making accident
repairs--a standard industry practice.\67\ In that case, an
Illinois county court certified a nationwide class, and at
trial, a jury awarded a verdict of $1.18 billion against
defendant State Farm. The Avery case received broad media
attention because the judge granted class certification and
allowed the jury verdict to stand, even though several
insurance commissioners testified that a ruling in favor of the
nationwide proposed class by an Illinois court would actually
contravene the laws and policies of other States. Some of those
States have enacted laws encouraging (or even requiring)
insurers to use less expensive, non-OEM parts in making covered
accident repairs to motor vehicles as a means of containing the
cost of auto insurance coverage. In upholding the Avery jury's
award last year, an Illinois court of appeals discounted
testimony from ``[f]ormer and current representatives of State
insurance commissioners [who] testified that the laws in many
of our sister States permit and in some cases . . . [even]
encourage competitive price control.'' \68\ According to the
appellate court, this testimony was irrelevant because of the
trial court's finding that the parts were inferior.\69\
According to The New York Times, the import of the Illinois
decision was to ``overturn insurance regulations or State laws
in New York, Massachusetts, and Hawaii, among other places''
and ``to make what amounts to a national rule on insurance.''
\70\
---------------------------------------------------------------------------
\67\ 746 N.E.2d 1242 (Ill. Ct. App. 2001).
\68\ Id. at 1254.
\69\ Id.
\70\ Mathew J. Wald, Suit Against Auto Insurer Could Affect Nearly
All Drivers, N.Y. Times, Sept. 27, 1998 Sec. 1, at 29.
---------------------------------------------------------------------------
The Harvard Journal study found that in the three county
courts examined, the class actions sought to have locally
elected judges in county courts set policies in areas as
diverse as warranties, land use rights, plumbing licenses,
environmental protection, advertising campaigns, bank billing
practices, employee investment plans, and numerous other broad-
ranging issues for 49 other States--and 3,065 counties--in
addition to their own.\71\ While some of these cases may seem
trivial (e.g., movie rental late fees, the price of Barbie
dolls), even those cases (particularly if decided wrongly)
could dramatically affect commerce by limiting how companies
can market and charge for their products.
---------------------------------------------------------------------------
\71\ S. Rep. No. 106-420, 106th Cong., 2nd Sess., at 20 (2000).
---------------------------------------------------------------------------
An important question thus emerges: who should have
responsibility for handling such large-scale, interstate class
actions involving issues with significant national commerce
implications--(a) Federal judges selected by the President and
confirmed by the U.S. Senate or (b) State court judges often
elected by a few thousand voters in a rural county? As the
Senate Judiciary Committee has noted, ``[c]learly, a system
that allows State court judges to dictate national policy from
the local courthouse steps is contrary to the intent of the
Framers when they crafted our system of federalism.'' \72\
---------------------------------------------------------------------------
\72\ Id.
---------------------------------------------------------------------------
In addition to federalizing substantive law, State courts
are also federalizing procedural class action law. A study
produced at the Committee's February 6, 2002, hearing, provided
specific details of county courts where the most questionable
class actions are frequently filed and resolved.\73\
Essentially, there is a race to the bottom--class action
lawyers find the State courts with the most lax attitude toward
class actions and file their cases there.\74\ As a result,
certain State courts hear a highly disproportionate amount of
nationwide or multi-state class actions and thereby effectively
dictate Federal class action policy (even though they have no
charter to do so).\75\
---------------------------------------------------------------------------
\73\ Id.
\74\ Id.
\75\ Id.
---------------------------------------------------------------------------
A dramatic example of this phenomenon was provided in the
testimony of Dr. John B. Hendricks at the March 1998 House
Subcommittee hearing.\76\ He offered a docket study of State
court class actions in one jurisdiction showing (a) that class
actions had become disproportionately large elements of the
dockets of some county courts, (b) that many of the class
actions were against major out-of-state corporations lacking
any connection with the forum county, and (c) that the proposed
classes in those cases typically were not limited to in-state
residents and often encompassed residents of all 50 States. Dr.
Hendricks identified one State court judge who had granted
class certification in 35 cases over the preceding 2 years. As
Dr. Hendricks stated, ``[t]hat's a huge number of cases when
one considers that during 1997, all 900 Federal district court
judges in the United States combined certified a total of only
38 cases for class treatment.'' \77\ The study did not identify
any instance in which that judge had ever denied class
certification. Standing alone, that court clearly was playing a
radically disproportionate role in setting national class
action policy.
---------------------------------------------------------------------------
\76\ Hearings on ``Mass Torts and Class Action Law-suits'' Before
the House Comm. on the Judiciary Subcomm. on Courts and Intellectual
Property, 105th Cong., 2nd Sess. (March 5, 1998) (prepared statement of
John B. Hendrichs). The Alabama has since issued rulings which the
Alabama legislature have enacted to curb such abuses.
\77\ Id.
---------------------------------------------------------------------------
The current concentration of class actions in State courts
is resulting in enormous waste and is putting class members'
interests at risk. For example, with increasing frequency,
counsel are filing overlapping or ``copycat'' class actions--
cases that assert basically the same claims on behalf of
basically the same class members.\78\ Sometimes these class
actions are brought by attorneys vying to wrest the potentially
lucrative lead role away from the lawyers who filed the
original class actions. In other instances, the ``copy cat''
class actions are an exercise in forum-shopping. The lawyers
file duplicative actions before multiple courts in an effort to
find a receptive judge who will rapidly certify a class. When
such ``copycat'' cases are filed in various Federal courts,
they may be consolidated before a single Federal judge through
the multidistrict litigation provisions of 28 U.S.C. Sec. 1407,
thereby assuring consistent treatment of legal issues and
uniform management of the cases.\79\ But when ``copycat'' class
actions are filed in multiple State courts in multiple
jurisdictions, they must be litigated separately--there is no
consolidation mechanism.\80\ As a result, State courts and the
counsel involved ``compete'' to control the cases, often to the
detriment of the unnamed class members and defendants.\81\
Counsel also use these ``copycat'' cases to ``forum shop,''
presenting the same class certification and other issues to
different courts, always trying to obtain better results than
they achieved in another ``copycat'' case.\82\
---------------------------------------------------------------------------
\78\ Hearings on H.R. 2341: the ``Class Action Fairness Act of
2001'' Before the House Committee on the Judiciary, 107th Cong., 2nd
Sess. (Feb. 6, 2002) (prepared statements of John Beisner and Peter
Detkin).
\79\ Hearings on H.R. 2341: the ``Class Action Fairness Act of
2001'' Before the House Committee on the Judiciary, 107th Cong., 2nd
Sess. (Feb. 6, 2002) (prepared statement of John Beisner).
\80\ Hearings on H.R. 2341: the ``Class Action Fairness Act of
2001'' Before the House Committee on the Judiciary, 107th Cong., 2nd
Sess. (Feb. 6, 2002) (prepared statements of John Beisner and Peter
Detkin).
\81\ Id.
\82\ Id.
---------------------------------------------------------------------------
The lax attitudes of some county courts and those courts'
ineffectiveness in managing class litigation has, not
surprisingly, resulted in dramatic increases in the number of
purported class actions being filed in State courts.\83\ And
also not surprisingly, the record suggests that many of those
numerous new cases are of questionable merit.\84\ In interviews
conducted for a study on class actions by the RAND
Corporation's Institute for Civil Justice, many attorneys
(including some plaintiffs' counsel) observed that ``too many
non-meritorious [class action lawsuits] are [being] filed and
certified'' for class treatment.\85\
---------------------------------------------------------------------------
\83\ Hearings on H.R. 2341: the ``Class Action Fairness Act of
2001'' Before the House Committee on the Judiciary, 107th Cong., 2nd
Sess. (Feb. 6, 2002) (prepared statement of John Beisner).
\84\ Id.
\85\ Id.
---------------------------------------------------------------------------
Certification of interstate class actions under these
circumstances is inconsistent with the constitutional theory of
providing Federal diversity jurisdiction where there is the
potential for discrimination against an out-of-state defendant.
Yet, without the ability to remove these cases to Federal
court, a defendant has no realistic opportunity to challenge
the propriety of class certification. In many instances, the
mere fact that a class is certified will determine the outcome
of the case.\86\ Because the cases are brought on behalf of
thousands (and sometimes millions) of claimants, the potential
exposure for a defendant is enormous. As noted above,
plaintiffs' counsel can use this potential exposure to coerce
settlements that offer minimal benefits to the class members,
but which result in hefty attorneys' fees. When a class action
is heard in Federal court, an interlocutory appeal may be taken
to challenge an order granting or denying class
certification.\87\ This is not the case in many State courts;
in those jurisdictions, a defendant who believes that class
certification was improper in a case may not challenge the
certification until having fully litigated the class action on
its merits. When faced with the option of settling a case soon
after certification or litigating a case to its conclusion,
many times the economics of the situation leads defendants no
logical choice but to settle non-meritorious claims.
---------------------------------------------------------------------------
\86\ Hearings on H.R. 2341: the ``Class Action Fairness Act of
2001'' Before the House Committee on the Judiciary, 107th Cong., 2nd
Sess. (Feb. 6, 2002) (prepared statement of Peter Detkin).
\87\ See Fed. R. Civ. Proc. 23(f).
---------------------------------------------------------------------------
There is now an increasing recognition that the
jurisdictional laws that are keeping most class actions out of
Federal court should be corrected:
The leading Federal civil procedure treatise
has declared that current principles governing Federal
diversity jurisdiction over class actions make no
sense: ``The traditional principles in this area have
evolved haphazardly and with little reasoning. They
serve no apparent policy. . . .'' \88\
---------------------------------------------------------------------------
\88\ 14B Charles A. Wright, et al., Federal Practice and Procedure,
Sec. 3704, at 127 (3d ed. 1998)(emphasis added).
In a 1999 decision, the U.S. Court of Appeals
for the Eleventh Circuit ``apologi[zed]'' for its
``seemingly arbitrary'' and ``anomal[ous]'' ruling
sending a large interstate class action back to State
court, noting that ``an important historical
justification for diversity jurisdiction is the
reassurance of fairness and competence that a Federal
court can supply to an out-of-state defendant facing
suit in State court.'' \89\ Observing that the out-of-
state defendant in that case was confronting ``a State
court system [prone to] produce[] gigantic awards
against out-of-state corporate defendants,'' the court
stated that ``[o]ne would think that this case is
exactly what those who espouse the historical
justification for section 1332 would have had in
mind.'' \90\
---------------------------------------------------------------------------
\89\ Davis v. Cannon Chevrolet-Olds, Inc., 192 F.3d 792, 797 (11th
Cir. 1999) (emphasis added).
\90\ Id.
In that same case, Judge John Nangle,
formerly the chair of the Federal Judicial Panel on
Multidistrict Litigation, concurred: ``Plaintiffs'
attorneys are increasingly filing nationwide class
actions in various State courts, carefully crafting
language . . . to avoid . . . the Federal courts.
Existing Federal precedent . . . [permits] this
practice . . . , although most of these cases . . .
will be disposed of through ``coupon'' or ``paper''
settlements. . . . virtually always accompanied by
munificent grants of or requests for attorneys' fees
for class counsel. . . . [T]he present [jurisdictional]
case law does not--accommodate the reality of modern
class action litigation and settlements.'' \91\
---------------------------------------------------------------------------
\91\ Id. at 798-99.
Similarly, in an opinion by Judge Anthony
Scirica (who currently chairs the Federal Judicial
Conference's Standing Committee on Rules and
Procedure), the U.S. Court of Appeals for the Third
Circuit observed that ``national (interstate) class
actions are the paradigm for Federal diversity
jurisdiction because, in a constitutional sense, they
implicate interstate commerce, foreclose discrimination
by a local State, and tend to guard against any bias
against interstate enterprises,'' but that ``at least
under the current jurisdictional statutes, such class
actions may be beyond the reach of the Federal
courts.'' \92\
---------------------------------------------------------------------------
\92\ In re Prudential Ins. Co. America Sales Practice Litig., 148
F.3d 283, (3d Cir. 1998) (emphasis added).
Even attorneys and scholars associated with
the plaintiffs' bar have acknowledged a need to expand
Federal court jurisdiction over class actions. For
example, at the March 1998 House hearing, Prof. Susan
Koniak of the Boston University School of Law stated
that such a move would be ``a good idea. . . . Often
these [state] courts are picked, and they are in the
middle of nowhere. You can't have access to the
documents, and I don't think it's a full answer, but I
think it should be done.'' \93\ Similarly, Elizabeth
Cabraser, one of the foremost members of the
plaintiffs' class action bar, testified that ``much of
the confusion and lack of consistency that is currently
troubling practitioners and judges and the public in
the class action area could be addressed through the
exploration, the very thoughtful exploration, of
legislation that would increase Federal diversity
jurisdiction, so that more class action litigation
could be brought in the Federal court.'' \94\
---------------------------------------------------------------------------
\93\ Federal News Service Transcript, Mass Torts and Class Actions:
Hearing before the Subcomm. on Intellectual Property and the Courts,
House Comm. on the Judiciary (March 9, 1998), at 19 (``FNS
Transcript'').
\94\ Id.
Increasingly, the media has joined the chorus
as well. Several months ago, the Washington Post
editorialized that ``no portion of the American civil
justice system is more of a mess than the world of
class actions . . . [n]one is in more desperate need of
policymakers' attention.'' \95\ And within the past few
days, the Washington Post endorsed H.R. 2341, noting
that ``nowhere is the need for civil justice reform
greater than in the high-stakes arena of class actions,
where irrational rules have allowed trial lawyers to
enrich themselves at the expense of businesses--many
guilty of no misconduct--and without benefit to the
lawyers' supposed clients.'' \96\
---------------------------------------------------------------------------
\95\ Editorial, Actions Without Class, The Washington Post, Aug.
27, 2001, at A14.
\96\ Id.
In general, Federal courts are better equipped to deal with
the complex proceedings often triggered by the filing of an
interstate class action. While our Federal judicial system is
facing substantial burdens, State courts are as well. The civil
caseload in State courts has grown much more rapidly than the
Federal court civil caseload. Federal courts have more
resources to meet this challenge. Virtually all Federal court
judges have two or three law clerks on staff; State court
judges often have none. Federal court judges are usually able
to delegate some aspects of their class action cases (e.g.,
discovery issues) to magistrate judges or special masters; such
personnel are usually not available to State court judges. And
as noted above, while Federal courts can transfer and
consolidate similar class actions from various States before a
single judge in the interest of efficiency; State courts lack
such consolidation authority and therefore must engage in the
wasteful exercise of separately handling such overlapping
cases.
Effect of H.R. 2341 on Existing Law
H.R. 2341 would amend the diversity jurisdiction and
removal statutes applicable to class actions where there is a
substantial risk of discrimination against out-of-state
defendants. It amends 28 U.S.C. Sec. 1332 to grant original
jurisdiction in the Federal courts to hear interstate class
actions where any member of the proposed class is a citizen of
a State different from any defendant. (A change from ``complete
diversity'' to ``minimal diversity.'') However, to ensure that
cases that are truly local in nature are not swept into the
Federal courts, the bill would exempt from its reach: (1) cases
in which a ``substantial majority'' of the class members and
the ``primary defendants'' are citizens of the same State and
the claims will be governed primarily by that State's law; (2)
cases involving fewer than 100 class members or where the
aggregate amount in controversy is less than $2 million; and
(3) cases where the primary defendants are States or State
officials, or other governmental entities against whom the
district court may be foreclosed from ordering relief.
H.R. 2341 would also establish new rules governing the
removal of class actions filed in State court. Existing removal
procedures would apply, with four new features. First, named
plaintiffs would be permitted to remove class actions to
Federal court and unnamed plaintiffs would be permitted to
remove certified class actions, in which their claims are being
asserted, to Federal court. Under current rules, only
defendants are allowed to remove. Second, parties could remove
without the consent of any other party. Current removal rules--
which apply only to defendants--require the consent of all
defendants. Third, removal to Federal court would be available
to any defendant, regardless of whether any defendant is a
citizen of the State in which the action was brought. Fourth,
the current bar to removal of class actions after 1 year would
be eliminated, although the requirement that removal occur
within 30 days of notice of grounds for removal would be
retained.
Under H.R. 2341, if a removed class action is found not to
meet the requirements for proceeding on a class basis, the
Federal court would dismiss the action without prejudice.
Plaintiffs would then be permitted to re-file their claims in
State court, presumably in a form amended either to fall within
one of the types of class actions over which the district court
is not to exercise jurisdiction, one which could be maintained
as a class action under Federal Rule 23, or as an individual
action. The re-filed case would once again be eligible for
removal if original Federal jurisdiction exists. The statute of
limitations on individual class members' claims in such a
dismissed class action would not run during the period the
action was pending in Federal court, nor would that of claims
in new class actions filed by the same named plaintiffs in the
same State venue.
Hearings
The full Committee conducted a full day of hearings on H.R.
2341 on February 6, 2002. Testimony was received from four
witnesses: Peter Detkin, Esq.; John Beisner, Esq.; Mrs. Hilda
Bankston; and Andrew Friedman, Esq..
Committee Consideration
On March 6 and March 7, 2002, the Committee met in open
session and ordered favorably reported the bill H.R. 2341, as
amended, by a recorded vote of 16-10, a quorum being present.
Vote of the Committee
The following votes occurred during Committee deliberation
on H.R. 2341:
1. An amendment offered by Mr. Boucher and Mr. Goodlatte to
strike the pleading requirements in Section 3 and change the
date of the short title to 2002. ADOPTED: voice vote.
2. An amendment offered by Mr. Conyers to make foreign
corporations citizens of States where American corporations
purchased by a foreign corporation are incorporated. DEFEATED:
voice vote.
3. An amendment offered by Mr. Watt to prohibit unnamed
plaintiffs from removing class actions from State court to
Federal court until the State class action is certified.
ADOPTED: voice vote.
4. An amendment offered by Mr. Frank to require Federal
district courts to remand any removed class action that is
dismissed for failure to satisfy the requirements of Federal
Rule 23 to the State court from which the class action was
removed and permit the State court to certify the class action
pursuant to the rules of that State. DEFEATED: rollcall vote of
9 ayes to 14 nays.
ROLLCALL NO. 1
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Hyde........................................................
Mr. Gekas.......................................................
Mr. Coble....................................................... X
Mr. Smith (Texas)...............................................
Mr. Gallegly....................................................
Mr. Goodlatte................................................... X
Mr. Bryant...................................................... X
Mr. Chabot......................................................
Mr. Barr........................................................
Mr. Jenkins..................................................... X
Mr. Cannon...................................................... X
Mr. Graham......................................................
Mr. Bachus...................................................... X
Mr. Hostettler.................................................. X
Mr. Green....................................................... X
Mr. Keller...................................................... X
Mr. Issa........................................................ X
Ms. Hart........................................................ X
Mr. Flake.......................................................
Mr. Pence....................................................... X
Mr. Conyers..................................................... X
Mr. Frank....................................................... X
Mr. Berman...................................................... X
Mr. Boucher..................................................... X
Mr. Nadler......................................................
Mr. Scott....................................................... X
Mr. Watt........................................................ X
Ms. Lofgren.....................................................
Ms. Jackson Lee.................................................
Ms. Waters...................................................... X
Mr. Meehan...................................................... X
Mr. Delahunt....................................................
Mr. Wexler......................................................
Ms. Baldwin..................................................... X
Mr. Weiner......................................................
Mr. Schiff...................................................... X
Mr. Sensenbrenner, Chairman..................................... X
-----------------------------------------------
Total....................................................... 9 14
----------------------------------------------------------------------------------------------------------------
5. An amendment offered by Mr. Watt to strike the removal
provision. DEFEATED: rollcall vote of 9 ayes to 15 nays.
ROLLCALL NO. 2
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Hyde........................................................
Mr. Gekas....................................................... X
Mr. Coble....................................................... X
Mr. Smith (Texas)............................................... X
Mr. Gallegly....................................................
Mr. Goodlatte................................................... X
Mr. Bryant...................................................... X
Mr. Chabot......................................................
Mr. Barr........................................................ X
Mr. Jenkins..................................................... X
Mr. Cannon......................................................
Mr. Graham......................................................
Mr. Bachus......................................................
Mr. Hostettler.................................................. X
Mr. Green....................................................... X
Mr. Keller...................................................... X
Mr. Issa........................................................ X
Ms. Hart........................................................ X
Mr. Flake....................................................... X
Mr. Pence.......................................................
Mr. Conyers..................................................... X
Mr. Frank....................................................... X
Mr. Berman...................................................... X
Mr. Boucher..................................................... X
Mr. Nadler...................................................... X
Mr. Scott....................................................... X
Mr. Watt........................................................ X
Ms. Lofgren.....................................................
Ms. Jackson Lee.................................................
Ms. Waters...................................................... X
Mr. Meehan......................................................
Mr. Delahunt.................................................... X
Mr. Wexler......................................................
Ms. Baldwin.....................................................
Mr. Weiner......................................................
Mr. Schiff...................................................... X
Mr. Sensenbrenner, Chairman..................................... X
-----------------------------------------------
Total....................................................... 9 15
----------------------------------------------------------------------------------------------------------------
6. An amendment offered by Mr. Schiff to exclude private
attorney general actions from the provisions of the bill.
DEFEATED: rollcall vote of 11 ayes to 17 nays.
ROLLCALL NO. 3
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Hyde........................................................
Mr. Gekas....................................................... X
Mr. Coble....................................................... X
Mr. Smith (Texas)............................................... X
Mr. Gallegly....................................................
Mr. Goodlatte................................................... X
Mr. Bryant...................................................... X
Mr. Chabot...................................................... X
Mr. Barr........................................................ X
Mr. Jenkins..................................................... X
Mr. Cannon......................................................
Mr. Graham...................................................... X
Mr. Bachus......................................................
Mr. Hostettler.................................................. X
Mr. Green....................................................... X
Mr. Keller...................................................... X
Mr. Issa........................................................ X
Ms. Hart........................................................ X
Mr. Flake....................................................... X
Mr. Pence.......................................................
Mr. Conyers..................................................... X
Mr. Frank....................................................... X
Mr. Berman...................................................... X
Mr. Boucher..................................................... X
Mr. Nadler...................................................... X
Mr. Scott....................................................... X
Mr. Watt........................................................ X
Ms. Lofgren.....................................................
Ms. Jackson Lee.................................................
Ms. Waters...................................................... X
Mr. Meehan......................................................
Mr. Delahunt.................................................... X
Mr. Wexler......................................................
Ms. Baldwin..................................................... X
Mr. Weiner...................................................... X
Mr. Schiff...................................................... X
Mr. Sensenbrenner, Chairman..................................... X
-----------------------------------------------
Total....................................................... 11 17
----------------------------------------------------------------------------------------------------------------
7. An amendment offered by Mr. Nadler to prohibit the court
from sealing class action court records relevant to public
health or safety. DEFEATED: rollcall vote of 9 ayes and 16
nays.
ROLLCALL NO. 4
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Hyde........................................................
Mr. Gekas.......................................................
Mr. Coble....................................................... X
Mr. Smith (Texas)............................................... X
Mr. Gallegly....................................................
Mr. Goodlatte................................................... X
Mr. Bryant...................................................... X
Mr. Chabot...................................................... X
Mr. Barr........................................................
Mr. Jenkins..................................................... X
Mr. Cannon...................................................... X
Mr. Graham...................................................... X
Mr. Bachus......................................................
Mr. Hostettler.................................................. X
Mr. Green....................................................... X
Mr. Keller...................................................... X
Mr. Issa........................................................
Ms. Hart........................................................ X
Mr. Flake....................................................... X
Mr. Pence....................................................... X
Mr. Conyers.....................................................
Mr. Frank.......................................................
Mr. Berman...................................................... X
Mr. Boucher..................................................... X
Mr. Nadler...................................................... X
Mr. Scott....................................................... X
Mr. Watt........................................................ X
Ms. Lofgren.....................................................
Ms. Jackson Lee.................................................
Ms. Waters......................................................
Mr. Meehan...................................................... X
Mr. Delahunt.................................................... X
Mr. Wexler......................................................
Ms. Baldwin..................................................... X
Mr. Weiner...................................................... X
Mr. Schiff...................................................... X
Mr. Sensenbrenner, Chairman..................................... X
-----------------------------------------------
Total....................................................... 9 16
----------------------------------------------------------------------------------------------------------------
8. A motion by Chairman Sensenbrenner to favorably report
H.R. 2341 as amended. ADOPTED: rollcall vote of 16 ayes to 10
nays.
ROLLCALL NO. 5
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Hyde........................................................
Mr. Gekas.......................................................
Mr. Coble....................................................... X
Mr. Smith (Texas)............................................... X
Mr. Gallegly....................................................
Mr. Goodlatte................................................... X
Mr. Bryant...................................................... X
Mr. Chabot...................................................... X
Mr. Barr........................................................
Mr. Jenkins..................................................... X
Mr. Cannon...................................................... X
Mr. Graham...................................................... X
Mr. Bachus......................................................
Mr. Hostettler.................................................. X
Mr. Green....................................................... X
Mr. Keller...................................................... X
Mr. Issa........................................................
Ms. Hart........................................................ X
Mr. Flake....................................................... X
Mr. Pence....................................................... X
Mr. Conyers.....................................................
Mr. Frank....................................................... X
Mr. Berman...................................................... X
Mr. Boucher..................................................... X
Mr. Nadler...................................................... X
Mr. Scott....................................................... X
Mr. Watt........................................................ X
Ms. Lofgren.....................................................
Ms. Jackson Lee.................................................
Ms. Waters......................................................
Mr. Meehan...................................................... X
Mr. Delahunt.................................................... X
Mr. Wexler......................................................
Ms. Baldwin..................................................... X
Mr. Weiner...................................................... X
Mr. Schiff...................................................... X
Mr. Sensenbrenner, Chairman..................................... X
-----------------------------------------------
Total....................................................... 16 10
----------------------------------------------------------------------------------------------------------------
Committee Oversight Findings
In compliance with clause 3(c)(1) of rule XIII of the Rules
of the House of Representatives, the Committee reports that the
findings and recommendations of the Committee, based on
oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated in the
descriptive portions of this report.
Performance Goals and Objectives
H.R. 2341 does not authorize funding. Therefore, clause
3(c) of rule XIII of the Rules of the House of Representatives
is inapplicable.
New Budget Authority and Tax Expenditures
Clause 3(c)(2) of House rule XIII is inapplicable because
this legislation does not provide new budgetary authority or
increased tax expenditures.
Congressional Budget Office Cost Estimate
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, the Committee sets forth, with
respect to the bill, H.R. 2341, the following estimate and
comparison prepared by the Director of the Congressional Budget
Office under section 402 of the Congressional Budget Act of
1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, March 11, 2002.
Hon. F. James Sensenbrenner, Jr., Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 2341, the Class
Action Fairness Act of 2002.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Lanette J.
Walker (for Federal costs), who can be reached at 226-2860, and
Page Piper/Bach (for the private-sector impact), who can be
reached at 226-2940.
Sincerely,
Dan L. Crippen, Director.
Enclosure
cc:
Honorable John Conyers, Jr.
Ranking Member
H.R. 2341--Class Action Fairness Act of 2002.
H.R. 2341 would expand the types of class-action lawsuits
that would be heard initially in Federal district courts. CBO
estimates that implementing the bill would cost the Federal
district courts about $6 million a year, subject to
appropriation of the necessary funds. The bill would not affect
direct spending or receipts, so pay-as-you-go procedures would
not apply. H.R. 2341 contains no intergovernmental mandates as
defined in the Unfunded Mandates Reform Act (UMRA) and would
impose no costs on state, local, or tribal governments.
H.R. 2341 would impose a private-sector mandate by
requiring that any notice concerning a proposed settlement of a
class action provided to the class members through the mail or
in printed media contain certain information in plain, easily
understood language and in a specific format. The bill also
would require certain notices provided through television or
radio to explain specific information in plain, easily
understood language. According to the Association of Trial
Lawyers of America, such notices are currently provided, but
are not always in plain English language and tabular format as
required by the bill. Therefore, CBO estimates that the direct
cost, if any, to comply with the mandates would be minimal and
would fall well below the annual threshold established by UMRA
($115 million in 2002, adjusted annually for inflation).
Under H.R. 2341, most class-action lawsuits would be heard
in a Federal district court rather than a state court.
Therefore, CBO estimates that the bill would impose additional
costs on the Federal district court system. While the number of
cases that would be filed in Federal court under this bill is
highly uncertain, CBO expects that at least a few hundred
additional cases would be heard in Federal court each year.
According to the Administrative Office of the United States
Courts, class-action lawsuits tried in Federal court cost the
government, on average, about $20,000. This estimate includes
discretionary costs for salaries and benefits for clerks, rent,
utilities, and associated overhead expenses, but excludes the
costs of the salaries and benefits of judges. CBO estimates
that implementing H.R. 2341 would increase the courts' workload
and result in additional costs of about $6 million annually.
CBO also estimates that enacting this bill could increase
the need for additional judges. Because the salaries and
benefits of district court judges are considered mandatory,
adding more judges would increase direct spending. However,
H.R. 2341 would not--by itself--affect direct spending because
separate legislation would be necessary to authorize an
increase in the number of judges. In any event, CBO expects
that enacting the bill would not require a significant increase
in the number of Federal judges, so that any potential increase
in direct spending from subsequent legislation would probably
be less than $500,000 a year.
The CBO staff contacts for this estimate are Lanette J.
Walker (for Federal costs), who can be reached at 226-2860, and
Paige Piper/Bach (for the private-sector impact), who can be
reached at 226-2940. This estimate was approved by Peter H.
Fontaine, Deputy Assistant Director for Budget Analysis.
Constitutional Authority Statement
Pursuant to clause 3(d)(1) of rule XIII of the Rules of the
House of Representatives, the Committee finds the authority for
this legislation in article III, section one of the
Constitution.
Section-by-Section Analysis and Discussion
Section 1--Section 1 sets forth the short title of the
bill--the ``Class Action Fairness Act of 2002''--and specifies
that any reference to an amendment or repeal of existing law
shall be to a section of title 28, of the United States Code.
Section 2--Section 2 contains the findings of the Congress
in support of the bill.
Section 3--Section 3 establishes a ``Consumer Class Action
Bill of Rights'' as part of a new chapter 114 in title 28 of
the United States Code. These provisions are as follows:
Sec. 1711. Judicial scrutiny of coupon and other noncash
settlements--requires the court to conduct a hearing to
determine whether a coupon or noncash settlement is fair,
reasonable, and adequate for class members.
Sec. 1712. Protection against loss by class members--
requires the court to make a written finding that non-monetary
benefits to class members outweigh the monetary loss in any
proposed settlement where a class member is obligated to pay
sums to class counsel that would result in a net loss to the
class member.
Sec. 1713. Protection against discrimination based on
geographic location--prohibits settlements providing greater
awards to class members on the basis that they are in closer
geographic proximity to the court.
Sec. 1714. Prohibition on the payment of bounties--
prohibits settlements providing additional awards to certain
class representatives other than awards approved by the court
for reasonable time or costs associated with the class member's
obligation as a class representative.
Sec. 1715. Clearer and simpler settlement information--
establishes a new ``Plain English'' requirement for any written
and broadcast notices concerning a proposed class action
settlement. The new sections of 28 U.S.C. Sec. 1713(c)(A)-(D)
mandates that each notice to the class explain in ``plain,
easily understood language,'' the subject matter of the class
action and the legal consequences of being ia member of the
class. If the notice concerns a proposed settlement, according
to new 28 U.S.C. Sec. 1713(c)(1)(C), then the notice must also
explain in ``plain easily understood language,'' the benefits
of settlement to the class, the rights that class members will
lose through the settlement, the obligations of defendants
under the proposed settlement, the dollar amount class counsel
are seeking in attorneys' fees (or, if not possible, a good-
faith estimate of the fees that the class counsel will
request), and an explanation of how attorneys' fees will be
calculated. The notice must also include any other material
information regarding the class action. Such ``material mater''
would include any other information a reasonable person would
want to know before deciding whether the participate in a class
action or proposed settlement.
The proper test for determining if class notice is written
in ``plain, easily understood language'' is reasonableness--
i.e., whether a reasonable person would find the language in
the notice to be ``plain, easily understood language.'' The
Committee intends that class counsel bears the burden of
proving that a reasonable person would find that the notice
includes all of the requirements listed in this section in
``plain, easily understood language.''
Sec. 1716. Definitions--establishes definitions for class
action, class counsel, class members, plaintiff class action,
proposed settlement, and contains a technical and conforming
amendment.
Section 4--Section 4 amends 28 U.S.C. Sec. 1332 to re-
designate section 1332(d) as section 1332(e). The bill creates
a new subsection (d) which gives the Federal courts original
jurisdiction over class action lawsuits in which the matter in
controversy exceeds the sum or value of $2 million, exclusive
of interest and costs, and either (a) any member of the
plaintiff class is a citizen of a State different than any
defendant; (b) any member of the plaintiff class is a foreign
state and any defendant is a citizen of a State; or (c) any
member of the plaintiff class is a citizen of a State and any
defendant is a citizen or subject of a foreign state. For
purposes of this new section, the term ``foreign state'' is
defined as in 28 U.S.C. Sec. 1603(a).
Pursuant to section 1332(d)(3), the Federal district courts
are directed not to exercise diversity jurisdiction over class
actions where (A) the substantial majority of the members of
the proposed plaintiff class and the primary defendants are
citizens of the State in which the action was originally filed
and the claims asserted will be governed primarily by the law
of that same State (``intrastate'' case); (B) the primary
defendants are States, State officials, or other governmental
entities against whom the district court may be foreclosed from
ordering relief (``state action'' case); or (C) the number of
members of all proposed plaintiff classes in the aggregate is
fewer than 100 (``limited scope'' case).
Pursuant to new section 1332(d)(4), the claims of the
individual class members in any class action shall be
aggregated to determine whether the amount in controversy
exceeds the sum of value of $2 million (exclusive of interest
and costs). The Committee intends this section to be
interpreted expansively. If a purported class action is
removed, the named plaintiff(s) should bear the burden of
demonstrating that the removal was improvident (i.e., that the
applicable jurisdictional requirements are not satisfied). If a
Federal court is uncertain as to whether the matter in
controversy in a purported class action exceed the sum or value
of $2 million, the court should err in favor of exercising
jurisdiction over the case.
Overall, the new section 1332(d) is intended to expand
substantially Federal court jurisdiction over class actions.
For that reason, its provisions should be read expansively;
they should be read as stating a strong preference that
interstate class actions be heard in a Federal court if so
desired by any purported class member or any defendant.
Consistent with this overriding intent, the provisions of
the new section 1332(d)(3)(A) should be read narrowly. A
purported class action should be deemed a case that falls
outside Federal jurisdiction only if virtually all members of
all proposed classes are residents of a single State of which
all ``primary defendants'' are also citizens. For example, a
case in which a proposed class of 1000 persons sues a North
Carolina citizen corporation presumably would fit this
exception if 997 of those persons were North Carolina citizens.
For the purposes of the section 1132(d)(3)(A) carve out,
the only parties that should be considered ``primary
defendants'' are those who are the real ``targets'' of the
suit; that is, the parties that would be expected to incur most
of the loss if liability is found. For example, an executive of
a corporate defendant who, in the interest of completeness, is
named as a co-defendant in a class action against his employer
normally should not be deemed a ``primary defendant.'' In most
instances, the executive would not be the real ``target'' of
the purported class action; his employer company would be.
Moreover, no defendant should be considered a ``primary
defendant'' for purposes of this analysis unless it is the
subject of legitimate claims by all class members. To
illustrate, if named as a defendant, a dealer, agent, or sales
representative of a corporate defendant should not be deemed a
``primary defendant'' unless that dealer, agent, or sales
representative is alleged to have actually participated in the
purported wrongdoing with respect to all class members (e.g.,
the defendant is alleged to have sold a purportedly defective
product to all class members). Merely alleging that a defendant
conspired with other class members to commit wrongdoing will
not be sufficient to cause a person to be a ``primary
defendant.''
Similarly, the language in section 1332(d)(2) should also
be interpreted narrowly. For example, if a court is uncertain
as to whether ``all matters in controversy'' in a purported
class action do not in the aggregate exceed the sum or value of
$2 million, the court should err in favor of exercising
jurisdiction over the matter. Pursuant to section
1332(d)(3)(C), the same is true in cases in which it is unclear
whether the number of a proposed plaintiff class members is
less than 100. Further, Federal courts should be cautious to
decline Federal jurisdiction under section 1332(d)(3)(B) only
where it is relatively clear that States, State officials, or
other governmental entities are primary defendants against whom
the court may be foreclosed from ordering relief. In assessing
that issue, courts should apply the same guidance regarding the
term ``primary defendants'' discussed above with regard to
intrastate actions.
It is the Committee's intention with regard to each of
these exceptions that the party opposing Federal jurisdiction
shall have the burden of demonstrating the applicability of an
exemption. For example, if a plaintiff seeks to have a
purported class action remanded for lack of Federal diversity
jurisdiction under section 1332(d)(3)(C), that plaintiff should
have the burden of demonstrating that ``the number of proposed
class members is less than 100.''
New section 1332(d)(5) clarifies that the diversity
jurisdiction provisions of this section shall apply to any
class action before or after the entry of a class certification
order by the court. This allows Federal jurisdiction to apply
when changes are made to the pleading which bring the case
within Federal court jurisdiction.
New section 1332(d)(6) details the procedures governing
cases removed to Federal court on the sole basis of new section
1332(d) jurisdiction. Pursuant to new section 1332(d)(6)(A),
the district courts are directed to dismiss any civil action
subject to Federal jurisdiction if it is determined that the
civil action may not proceed as a class action because it fails
to satisfy the condition of rule 23 of the Federal Rules of
Civil Procedure. Notwithstanding this subsection, new section
1332(d)(6)(B) clarifies that the action may be amended and re-
filed in State court, it may be removed it is an action over
which the district courts of the United have original
jurisdiction. The Committee has concluded that the
alternative--forbidding re-removal--would be bad policy. That
approach would allow lawyers to ask a State court to review and
overrule the class certification decision of a Federal court,
since Federal and State court class certification standards
typically do not differ radically. Allowing a State court to
certify a case that a Federal court has already found non-
certifiable would set a troubling (if not constitutionally
suspect) precedent under which State decisions would serve as
points of appellate review of Federal court decisions.
Moreover, since Federal court denials of class certification
typically involve explicit or implied determinations that
allowing a case to be litigated on a class basis would likely
result in the denial of some or all of the parties' due process
rights, there should be no room constitutionally for a State
court to reach a different result on class certification
issues.
In addition, new section 1332 (d)(6)(C) provides that, if a
dismissed case is re-filed by any of the original named
plaintiffs in the same State court venue in which it was
originally filed, the statute of limitations on the claims
therein will be deemed tolled during the pendency of the
dismissed case. This applies to both Federal and State statutes
of limitations. A new class action filed either in a different
venue or by different named plaintiffs would not enjoy the
benefits of this provision.
However, if a class action is dismissed under this section
and an individual action is later filed asserting the same
claims, the statute of limitations will be deemed tolled during
the pendency of the dismissed class action, regardless of where
the subsequent individual case is filed.
In the new section 1332(d)(7), the act provides two
exceptions to the grant of original jurisdiction over cases
described in new section 1332(d)(2). The first excepts from its
reach any claims concerning a covered security as that term is
defined in section 16(f)(3) of the Securities Act of 1933 or
section 28(f)(5)(E) of the Securities Exchange Act of 1934.
These claims are essentially claims against the officers of a
corporation for a precipitous drop in the value of its stock,
based on fraud. The Committee recognizes that Congress has
previously enacted legislation governing the adjudication of
these claims.\97\ So as not to disturb the existing legal
framework for litigating in this context, claims involving
covered securities are not included in the new section
1332(d)(2) jurisdiction.
---------------------------------------------------------------------------
\97\ See P.L. 104-67, the Private Securities Litigation Reform Act
of 1995, and P.L. 105-353, the Securities Litigation Uniform Standards
Act of 1998.
---------------------------------------------------------------------------
The second exception to the new section 1332(d)(2)
jurisdiction is for class actions solely involving claims that
relate to matters of corporate governance arising out of State
law. This exclusion recognizes that class actions regarding
business governance issues are more of an internal business
nature and do not present the same sorts of risks of abuse as
do other forms of class actions.
However, the Committee intends that this exception be
narrowly construed. By corporate governance litigation, the
Committee means litigation based solely on (a) State statutory
law regulating the organization and governance of business
enterprises such as corporations, partnerships, limited
partnerships, limited liability companies, limited liability
partnerships, and business trusts; (b) State common law of the
duties owed between and among owners and managers of business
enterprises; and (c) the rights arising out of the terms of the
securities issued by business enterprises.
This exemption would apply to a class action relating to a
corporate governance claim filed in the court of any State.
That is, it will apply to a corporate governance class action
regardless of the forum in which it may be filed, and
regardless of whether the law to be applied is that of the
State in which the claim is filed. So, what constitutes ``the
internal affairs or governance of a corporation or other form
of business enterprise'' applies to all forms of business
enterprises. For example, a proxy fight would be a matter of
corporate governance for any business, whether it is organized
as corporation (stock, mutual, or other form), a partnership or
any other form of business and would fall within the internal
affairs exception. On the other hand, whether the terms of a
contract constitute an unfair trade practice is not a matter
dealing with internal corporate governance and would be covered
under paragraph (2), regardless of whether the business was
organized as a corporation (either stock, mutual, or other
form), a partnership of any other form of business.
For purposes of this exception, the phrase ``the internal
affairs or governance of a corporation or other form of
business enterprise'' is intended to refer to the internal
affairs doctrine which the United States Supreme Court has
defined as ``matters peculiar to the relationships among or
between the corporation and its current officers, directors and
shareholders. . . .'' \98\ The phrase ``other form of business
enterprise'' in intended to include forms of business entities
other than corporations, including, but not limited to, limited
liability companies, limited liability partnerships, business
trusts, partnerships and limited partnerships.
---------------------------------------------------------------------------
\98\ Edgar v. Mite Corp., 457 U.S. 624, 645 (1982). See also Ellis
v. Mutual Life Ins. Co., 187 So. 434 (Ala. 1939); McDermott v. Lewis,
531 A.2d 206, 214-15 (Del. 1987); Draper v. Paul N. Gardner Defined
Plan Trust, 625 A.2d 859, 865-66 (Del. 1993); NAACP v. Golding, 679
A.2d 554, 559 (Ct. App. Md. 1996); Hart v. General Motors Corporation,
517 N.Y.S.2d 490, 493 (App. Div. 1987); Amberjack, Ltd., Inc. v.
Thompson, 1997 WL 613676 (Tenn. App. 1997).
---------------------------------------------------------------------------
The exception to section 1332(d)(2) jurisdiction created by
the act is also intended to cover disputes over the meaning of
the terms of a security, which is generally spelled out in some
formative document of the business enterprise, such as a
certificate of incorporation or a certificate of designations.
The reference to the Securities Act of 1933 contained in new
section 1332(d)(7)(A) is for definitional purposes only. Since
the law contains an already well-defined concept of a security,
this provision simply imports the definition contained in the
Securities Act.
New section 1332(d)(8) provides that for purposes of this
new section and section 1453 of title 28, an unincorporated
association shall be deemed to be a citizen of a State where it
has its principal place of business and the State under whose
laws it is organized. This provision is added to ensure that
unincorporated associations receive the same treatment as
corporations for purposes of diversity jurisdiction. The U.S.
Supreme Court has held that ``[f]or purposes of diversity
jurisdiction, the citizenship of an unincorporated association
is the citizenship of the individual members of the
association.'' \99\ This rule ``has been frequently criticized
because often * * * an unincorporated association is, as a
practical matter, indistinguishable from a corporation in the
same business.'' \100\ Some insurance companies, for example,
are ``inter-insurance exchanges'' or ``reciprocal insurance
association.'' They therefore, have been viewed by Federal
courts as unincorporated associations for purposes of diversity
jurisdiction purposes. Since such companies are nationwide
companies, they are deemed to be citizens of any State in which
they have insured customers.\101\ Consequently, these companies
can never be completely or even minimally diverse in any case.
It makes no sense to treat an unincorporated insurance company
differently from, for example, an incorporated manufacturer for
purposes of diversity jurisdiction. New section 1332 (d)(8)
corrects this anomaly.
---------------------------------------------------------------------------
\99\ United Steelworkers of America v. Boulingy, Inc., 382 U.S. 145
(1965).
\100\ See. e.g., 3A J. Moore & J. Lucas, ``Moore's Federal
Practice,'' para. 17-25, 17-209 (1987 rev.) (``Congress should remove
the one remaining anomaly and provide that where unincorporated have
entity status under State law, they should be treated as analogous to
corporations for purposes of diversity jurisdiction.'')
\101\ Tuck v. United Services Automobile Ass'n., 859 F. 2d 842
(10th Cir. 1988).
---------------------------------------------------------------------------
Section 5--Section 5 of the act governs the procedures for
removal from State court of interstate class actions over which
the Federal court is granted original jurisdiction in the new
section 1332(d). The general removal provisions currently
contained in chapter 89 of title 28 would continue to apply to
such class actions, except where inconsistent with the
provisions of the act. For example, under new section 1453(b),
the general requirement contained in section 1441(b) that an
action be removable only if none of the defendants is a citizen
of the State in which the action is brought would not apply to
the removal of class actions. Imposing such a restriction on
removal jurisdiction would subvert the intent of the act by
allowing a plaintiff to defeat removal jurisdiction by suing
both in-state and out-of-state defendants. This would
essentially perpetuate the current ``complete diversity'' rule
in class actions that the new section 1332(b) rejects. The act
does not, however, disturb the general rule that a case may
only be removed to the district court of the United States for
the district and division embracing the place where the action
is pending.\102\ In addition, the act does not change the
application of the Erie doctrine, which requires Federal courts
to apply the substantive law dictated by applicable choice-of-
law principles in actions arising under diversity jurisdiction
---------------------------------------------------------------------------
\102\ See 28 U.S.C. 1441(a).
---------------------------------------------------------------------------
New section 1453(b) also would permit removal by any
plaintiff class member who is not a named or representative
class member of the action for which removal is sought.
Generally, removal by the plaintiff is not permissible, under
the theory that as the instigator of the suit the plaintiff had
the choice of forum from the outset. When a class action is
filed, however, only the named plaintiffs and their counsel
have control over the choice of forum; the vast majority of the
real parties in interest--the unnamed class members on whose
behalf the action is brought and the defendants--have no voice
in that decision. This provision thus extends to those unnamed
class members of class action that have been certified the same
flexibility to choose the forum as offered to the defendant.
Also, by operation of new section 1453(b), removal may occur
without the consent of any other party. This revision will
combat collusiveness between a corporate defendant and a
plaintiffs' attorney who may attempt to settle on the cheap in
a State court at the expense of the plaintiff class members.
Similarly, it will prevent a plaintiffs' attorney from
recruiting a ``friendly'' defendant (a local retailer, for
example) who has no interest in joining a removal action and
may therefore thwart the legitimate efforts of the primary
corporate defendant in seeking removal.
New section 1453(c) is intended to confirm that the
provisions of section 1453 are to apply to any class action
regardless of whether an order certifying classes or denying
certification of classes has been entered. However, a plaintiff
who is not a representative class member can only seek removal
after the class has been certified. Named plaintiffs and
defendants can remove at any time.
New section 1453(d) provides that a plaintiff class member
who wishes to remove a purported class action to Federal court
must do so within 30 days after receiving the initial written
notice of the class action. The provision also indicates that a
class member who is not a named plaintiff in a class action may
not remove the case until the State court has certified a class
in the action.
New section 1453(e) confirms that 28 U.S.C. Sec. 1447
generally applies to the removal of a purported class action.
However, the provisions of section 1447(d) shall not apply.
That section states that ``an order remanding a case to the
State court from which it was removed is not reviewable on
appeal or otherwise. . . .'' The Committee wishes to ensure
that the appellate courts have an opportunity to supervise the
expansion of Federal jurisdiction over class action established
by this legislation and to contribute to the precedents
interpreting the provisions of this act. Therefore, the non-
reviewability provisions of section 1447(d) will not apply in
the event of a removal of a class action to Federal court.
In order to be consistent with the exceptions to Federal
diversity jurisdiction granted under new section 1332(b),
section 1453(f) provides that the new removal provisions shall
not apply to claims involving covered securities, or corporate
governance litigation. The parameters of this section and that
of section 1332(b)(3) and (4) are intended to be coterminus.
Section 5(b) amends current section 1446(b) to clarify that
the 1-year limit otherwise imposed on removal of suits filed
pursuant to section 1332 has no application to class actions;
that is, the bill permits a defendant to remove to Federal
court more than 1 year after commencement of a suit in State
court. This change to present law is intended to prevent gaming
of the current class action system by a plaintiffs' attorney.
In the most extreme example, under current law a plaintiffs'
attorney could file suit against a friendly defendant, and the
1-year limit after which no removal may be sought under any
condition would commence. On the 366th day from filing suit,
the plaintiff's attorney serves an additional defendant. It is
now too late for the new defendant to remove, regardless of
whether diversity jurisdiction exists, and irrespective of the
practical merits of the case. Similarly, after the expiration
of the current 1-year period, amendments could be made to
dismiss diverse parties, increase the amount of the damages
pled, or otherwise change the case so that it would then fall
within the jurisdiction of the Federal courts. Under new
section 1446(b) these cases could be removed when changes to
the pleadings are made which bring the case within Federal
court jurisdiction.
Section 6--Several years ago Federal Rule 23 was amended to
add a provision, section (f) which authorized for the first
time discretionary review of orders granting or denying class
certification. In the Committee's view, that change has been
very successful, allowing appellate courts to be a full
participant in the development of the governing principles of
class certification. The Committee is concerned, however, that
the various Federal Circuit Courts of Appeal have been
inconsistent in the extent to which they have exercised their
discretion to review class certification orders. The Committee
believes that both fairness to the parties and the need to
develop stronger, clearer class certification precedents
strongly favors the more frequent appellate review of class
certification rulings. Section 6 of the bill therefore
establishes that the parties to a class action may take an
immediate appeal as of right from any district court ruling
granting or denying a motion for class certification. While the
matter is pending on appeal, the presumption shall be that
other activity in the litigation shall be stayed. However, upon
a finding that specific discovery must be taken to preserve
evidence or to prevent undue prejudice to a party, the district
court may order that such discovery may proceed.
Section 7--Section 5 provides that the amendments made by
the act shall apply to actions commenced on or after the date
of its enactment.
Agency Views
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italics, existing law in which no change
is proposed is shown in roman):
TITLE 28, UNITED STATES CODE
* * * * * * *
PART IV--JURISDICTION AND VENUE
* * * * * * *
CHAPTER 83--COURTS OF APPEALS
* * * * * * *
Sec. 1292. Interlocutory decisions
(a) Except as provided in subsections (c) and (d) of this
section, the courts of appeals shall have jurisdiction of
appeals from:
(1) * * *
* * * * * * *
(4) Orders of the district courts of the United
States granting or denying class certification under
rule 23 of the Federal Rules of Civil Procedure, if
notice of appeal is filed within 10 days after entry of
the order.
* * * * * * *
CHAPTER 85--DISTRICT COURTS; JURISDICTION
* * * * * * *
Sec. 1332. Diversity of citizenship; amount in controversy; costs
(a) * * *
* * * * * * *
(d)(1) In this subsection--
(A) the term ``class'' means all of the class
members in a class action;
(B) the term ``class action'' means any civil
action filed pursuant to rule 23 of the Federal Rules
of Civil Procedure or similar State statute or rule of
judicial procedure authorizing an action to be brought
by one or more representative persons on behalf of a
class;
(C) the term ``class certification order'' means an
order issued by a court approving the treatment of a
civil action as a class action; and
(D) the term ``class members'' means the persons
who fall within the definition of the proposed or
certified class in a class action.
(2) The district courts shall have original jurisdiction of
any civil action in which the matter in controversy exceeds the
sum or value of $2,000,000, exclusive of interest and costs,
and is a class action in which--
(A) any member of a class of plaintiffs is a
citizen of a State different from any defendant;
(B) any member of a class of plaintiffs is a
foreign state or a citizen or subject of a foreign
state and any defendant is a citizen of a State; or
(C) any member of a class of plaintiffs is a
citizen of a State and any defendant is a foreign state
or a citizen or subject of a foreign state.
(3) Paragraph (2) shall not apply to any civil action in
which--
(A)(i) the substantial majority of the members of
the proposed plaintiff class and the primary defendants
are citizens of the State in which the action was
originally filed; and
(ii) the claims asserted therein will be governed
primarily by the laws of the State in which the action
was originally filed;
(B) the primary defendants are States, State
officials, or other governmental entities against whom
the district court may be foreclosed from ordering
relief; or
(C) the number of proposed plaintiff class members
is less than 100.
(4) In any class action, the claims of the individual class
members shall be aggregated to determine whether the matter in
controversy exceeds the sum or value of $2,000,000, exclusive
of interest and costs.
(5) This subsection shall apply to any class action before
or after the entry of a class certification order by the court
with respect to that action.
(6)(A) A district court shall dismiss any civil action that
is subject to the jurisdiction of the court solely under this
subsection if the court determines the action may not proceed
as a class action based on a failure to satisfy the
requirements of rule 23 of the Federal Rules of Civil
Procedure.
(B) Nothing in subparagraph (A) shall prohibit plaintiffs
from filing an amended class action in Federal court or filing
an action in State court, except that any such action filed in
State court may be removed to the appropriate district court if
it is an action of which the district courts of the United
States have original jurisdiction.
(C) In any action that is dismissed under this paragraph
and is filed by any of the original named plaintiffs therein in
the same State court venue in which the dismissed action was
originally filed, the limitations periods on all reasserted
claims shall be deemed tolled for the period during which the
dismissed class action was pending. The limitations periods on
any claims that were asserted in a class action dismissed under
this paragraph that are subsequently asserted in an individual
action shall be deemed tolled for the period during which the
dismissed action was pending.
(7) Paragraph (2) shall not apply to any class action
brought by shareholders that solely involves a claim that
relates to--
(A) a claim concerning a covered security as
defined under section 16(f)(3) of the Securities Act of
1933 and section 28(f)(5)(E) of the Securities Exchange
Act of 1934;
(B) the internal affairs or governance of a
corporation or other form of business enterprise and
arises under or by virtue of the laws of the State in
which such corporation or business enterprise is
incorporated or organized; or
(C) the rights, duties (including fiduciary
duties), and obligations relating to or created by or
pursuant to any security (as defined under section
2(a)(1) of the Securities Act of 1933 and the
regulations issued thereunder).
(8) For purposes of this subsection and section 1453 of
this title, an unincorporated association shall be deemed to be
a citizen of the State where it has its principal place of
business and the State under whose laws it is organized.
(9) For purposes of this section and section 1453 of this
title, a civil action that is not otherwise a class action as
defined in paragraph (1)(B) of this subsection shall
nevertheless be deemed a class action if--
(A) the named plaintiff purports to act for the
interests of its members (who are not named parties to
the action) or for the interests of the general public,
seeks a remedy of damages, restitution, disgorgement,
or any other form of monetary relief, and is not a
State attorney general; or
(B) monetary relief claims in the action are
proposed to be tried jointly in any respect with the
claims of 100 or more other persons on the ground that
the claims involve common questions of law or fact.
In any such case, the persons who allegedly were injured shall
be treated as members of a proposed plaintiff class and the
monetary relief that is sought shall be treated as the claims
of individual class members. The provisions of paragraphs (3)
and (6) of this subsection and subsections (b)(2) and (d) of
section 1453 shall not apply to civil actions described under
subparagraph (A). The provisions of paragraph (6) of this
subsection, and subsections (b)(2) and (d) of section 1453
shall not apply to civil actions described under subparagraph
(B).
[(d)] (e) The word ``States'', as used in this section,
includes the Territories, the District of Columbia, and the
Commonwealth of Puerto Rico.
* * * * * * *
Sec. 1335. Interpleader
(a) The district courts shall have original jurisdiction of
any civil action of interpleader or in the nature of
interpleader filed by any person, firm, or corporation,
association, or society having in his or its custody or
possession money or property of the value of $500 or more, or
having issued a note, bond, certificate, policy of insurance,
or other instrument of value or amount of $500 or more, or
providing for the delivery or payment or the loan of money or
property of such amount or value, or being under any obligation
written or unwritten to the amount of $500 or more, if
(1) Two or more adverse claimants, of diverse
citizenship as defined in section 1332(a) or (d) of
this title, are claiming or may claim to be entitled to
such money or property, or to any one or more of the
benefits arising by virtue of any note, bond,
certificate, policy or other instrument, or arising by
virtue of any such obligation; and if (2) the plaintiff
has deposited such money or property or has paid the
amount of or the loan or other value of such instrument
or the amount due under such obligation into the
registry of the court, there to abide the judgment of
the court, or has given bond payable to the clerk of
the court in such amount and with such surety as the
court or judge may deem proper, conditioned upon the
compliance by the plaintiff with the future order or
judgment of the court with respect to the subject
matter of the controversy.
* * * * * * *
CHAPTER 89--DISTRICT COURTS; REMOVAL OF CASES FROM STATE COURTS
* * * * * * *
Sec.
1441. Actions removable generally.
* * * * * * *
1453. Removal of class actions.
* * * * * * *
Sec. 1446. Procedure for removal
(a) * * *
(b) The notice of removal of a civil action or proceeding
shall be filed within thirty days after the receipt by the
defendant, through service or otherwise, of a copy of the
initial pleading setting forth the claim for relief upon which
such action or proceeding is based, or within thirty days after
the service of summons upon the defendant if such initial
pleading has then been filed in court and is not required to be
served on the defendant, whichever period is shorter. If the
case stated by the initial pleading is not removable, a notice
of removal may be filed within thirty days after receipt by the
defendant, through service or otherwise, of a copy of an
amended pleading, motion, order or other paper from which it
may first be ascertained that the case is one which is or has
become removable, except that a case may not be removed on the
basis of jurisdiction conferred by section 1332(a) of this
title more than 1 year after commencement of the action.
* * * * * * *
Sec. 1453. Removal of class actions
(a) Definitions.--In this section, the terms ``class'',
``class action'', ``class certification order'', and ``class
member'' have the meanings given these terms in section
1332(d)(1).
(b) In General.--A class action may be removed to a
district court of the United States in accordance with this
chapter, without regard to whether any defendant is a citizen
of the State in which the action is brought, except that such
action may be removed--
(1) by any defendant without the consent of all
defendants; or
(2) by any plaintiff class member who is not a
named or representative class member without the
consent of all members of such class.
(c) When Removable.--This section shall apply to any class
action before or after the entry of a class certification order
in the action, except that a plaintiff class member who is not
a named or representative class member of the action may not
seek removal of the action before an order certifying a class
of which the plaintiff is a class member has been entered.
(d) Procedure for Removal.--The provisions of section 1446
relating to a defendant removing a case shall apply to a
plaintiff removing a case under this section, except that in
the application of subsection (b) of such section the
requirement relating to the 30-day filing period shall be met
if a plaintiff class member files notice of removal within 30
days after receipt by such class member, through service or
otherwise, of the initial written notice of the class action.
(e) Review of Orders Remanding Class Actions to State
Courts.--The provisions of section 1447 shall apply to any
removal of a case under this section, except that,
notwithstanding the provisions of section 1447(d), an order
remanding a class action to the State court from which it was
removed shall be reviewable by appeal or otherwise.
(f) Exception.--This section shall not apply to any class
action brought by shareholders that solely involves--
(1) a claim concerning a covered security as
defined under section 16(f)(3) of the Securities Act of
1933 and section 28(f)(5)(E) of the Securities Exchange
Act of 1934;
(2) a claim that relates to the internal affairs or
governance of a corporation or other form of business
enterprise and arises under or by virtue of the laws of
the State in which such corporation or business
enterprise is incorporated or organized; or
(3) a claim that relates to the rights, duties
(including fiduciary duties), and obligations relating
to or created by or pursuant to any security (as
defined under section 2(a)(1) of the Securities Act of
1933 and the regulations issued thereunder).
* * * * * * *
CHAPTER 97--JURISDICTIONAL IMMUNITIES OF FOREIGN STATES
* * * * * * *
Sec. 1603. Definitions
For purposes of this chapter --
(a) * * *
(b) An ``agency or instrumentality of a foreign
state'' means any entity--
(1) * * *
* * * * * * *
(3) which is neither a citizen of a State
of the United States as defined in section 1332
(c) and [(d)] (e) of this title, nor created
under the laws of any third country.
* * * * * * *
PART V--PROCEDURE
Chap. Sec.
111. General Provisions......................................... 1651
113. Process.................................................... 1691
114. Class Actions.............................................. 1711
* * * * * * *
CHAPTER 114--CLASS ACTIONS
Sec.
1711. Judicial scrutiny of coupon and other noncash settlements.
1712. Protection against loss by class members.
1713. Protection against discrimination based on geographic location.
1714. Prohibition on the payment of bounties.
1715. Clearer and simpler settlement information.
1716. Definitions
Sec. 1711. Judicial scrutiny of coupon and other noncash settlements
The court may approve a proposed settlement under which the
class members would receive noncash benefits or would otherwise
be required to expend funds in order to obtain part or all of
the proposed benefits only after a hearing to determine
whether, and making a written finding that, the settlement is
fair, reasonable, and adequate for class members.
Sec. 1712. Protection against loss by class members
The court may approve a proposed settlement under which any
class member is obligated to pay sums to class counsel that
would result in a net loss to the class member only if the
court makes a written finding that nonmonetary benefits to the
class member outweigh the monetary loss.
Sec. 1713. Protection against discrimination based on geographic
location
The court may not approve a proposed settlement that
provides for the payment of greater sums to some class members
than to others solely on the basis that the class members to
whom the greater sums are to be paid are located in closer
geographic proximity to the court.
Sec. 1714. Prohibition on the payment of bounties
(a) In General.--The court may not approve a proposed
settlement that provides for the payment of a greater share of
the award to a class representative serving on behalf of a
class, on the basis of the formula for distribution to all
other class members, than that awarded to the other class
members.
(b) Rule of Construction.--The limitation in subsection (a)
shall not be construed to prohibit any payment approved by the
court for reasonable time or costs that a person was required
to expend in fulfilling his or her obligations as a class
representative.
Sec. 1715. Clearer and simpler settlement information
(a) Plain English Requirements.--Any court with
jurisdiction over a plaintiff class action shall require that
any written notice concerning a proposed settlement of the
class action provided to the class through the mail or
publication in printed media contain--
(1) at the beginning of such notice, a statement in
18-point Times New Roman type or other functionally
similar type, stating ``LEGAL NOTICE: YOU ARE A
PLAINTIFF IN A CLASS ACTION LAWSUIT AND YOUR LEGAL
RIGHTS ARE AFFECTED BY THE SETTLEMENT DESCRIBED IN THIS
NOTICE.''; and
(2) a short summary written in plain, easily
understood language, describing--
(A) the subject matter of the class action;
(B) the members of the class;
(C) the legal consequences of being a
member of the class;
(D) if the notice is informing class
members of a proposed settlement agreement--
(i) the benefits that will accrue
to the class due to the settlement;
(ii) the rights that class members
will lose or waive through the
settlement;
(iii) obligations that will be
imposed on the defendants by the
settlement;
(iv) the dollar amount of any
attorney's fee class counsel will be
seeking, or if not possible, a good
faith estimate of the dollar amount of
any attorney's fee class counsel will
be seeking; and
(v) an explanation of how any
attorney's fee will be calculated and
funded; and
(E) any other material matter.
(b) Tabular Format.--Any court with jurisdiction over a
plaintiff class action shall require that the information
described in subsection (a)--
(1) be placed in a conspicuous and prominent
location on the notice;
(2) contain clear and concise headings for each
item of information; and
(3) provide a clear and concise form for stating
each item of information required to be disclosed under
each heading.
(c) Television or Radio Notice.--Any notice provided
through television or radio (including transmissions by cable
or satellite) to inform the class members in a class action of
the right of each member to be excluded from the class action
or a proposed settlement of the class action, if such right
exists, shall, in plain, easily understood language--
(1) describe the persons who may potentially become
class members in the class action; and
(2) explain that the failure of a class member to
exercise his or her right to be excluded from a class
action will result in the person's inclusion in the
class action or settlement.
Sec. 1716. Definitions
In this chapter--
(1) Class action.--The term ``class action'' means
any civil action filed in a district court of the
United States pursuant to rule 23 of the Federal Rules
of Civil Procedure or any civil action that is removed
to a district court of the United States that was
originally filed pursuant to a State statute or rule of
judicial procedure authorizing an action to be brought
by one or more representatives on behalf of a class.
(2) Class counsel.--The term ``class counsel''
means the persons who serve as the attorneys for the
class members in a proposed or certified class action.
(3) Class members.--The term ``class members''
means the persons who fall within the definition of the
proposed or certified class in a class action.
(4) Plaintiff class action.--The term ``plaintiff
class action'' means a class action in which class
members are plaintiffs.
(5) Proposed settlement.--The term ``proposed
settlement'' means an agreement that resolves claims in
a class action, that is subject to court approval and
that, if approved, would be binding on the class
members.
* * * * * * *
Markup Transcript
BUSINESS MEETING
WEDNESDAY, MARCH 6, 2002
House of Representatives,
Committee on the Judiciary,
Washington, DC.
The Committee met, pursuant to notice, at 10:54 a.m., in
Room 2141, Rayburn House Office Building, Hon. F. James
Sensenbrenner, Jr. [Chairman of the Committee] presiding.
Chairman Sensenbrenner. The Committee will be in order.
[Intervening business.]
Now, next on the agenda, pursuant to notice, I now call up
the bill H.R. 2341, the ``Class Action Fairness Act of 2001,''
for purposes of markup and move its favorable recommendation to
the House.
Without objection, the bill will be considered as read and
open for amendment at any point.
[The bill, H.R. 2341, follows:]
Chairman Sensenbrenner. And the Chair recognizes himself
for 5 minutes for purposes of a statement.
Last August, the Washington Post editorial board wrote
that: ``No portion of the American civil justice system is more
of a mess than the world of class actions. None is in more
desperate need of policymakers' attention.''
Today we are directing the overdue attention of this
Congress to class action reform. The bill attempts to clean up
the class action mess by expanding Federal diversity
jurisdiction over interstate class actions to help curb the
serious abuses that continue to take an enormous toll on our
legal system and economy.
This legislation also implements necessary safeguards
against the unwieldy settlements that give lawyers millions of
dollars in fees while individual class members receive a small
fraction of any settlement award, leaving them forever bowed
with little or no remedy.
A quick examination of our current legal system shows that
the need for this legislation is clear. Currently, attorneys
lump thousands and sometimes millions of speculative claims
into one class action and race to any available State
courthouse in the hopes of a rubberstamp settlement. With the
filing of State court class actions having increased 1,000
percent over the past 10 years, it is an aspect of our civil
justice system that has gone wild, and its results have been
dreadful.
The current system has transformed certain State courts
into the epicenter for class action abuse. It is widely known
that there are a handful of State courts notorious for
processing even the most speculative class actions. This is
particularly troubling because the impact of these cases is
often contradictory to other State laws. This is exactly what
diversity jurisdiction was intended to prevent.
Because of the cost, distraction, and potential
embarrassment associated with litigation, many defendants are
willing to settle class actions regardless of their merit. The
cost of these settlements is then passed off to the American
consumer in the form of higher prices for goods and services
and to employees in the form of diminished returns on their
retirement plans.
While some trial lawyers may improve their financial
situation, the net effect of this is a drain on our national
economy that prevents American consumers from realizing the
benefits of unfettered innovation, then access to new markets.
H.R. 2341 addresses some of these problems by updating
antiquated Federal jurisdictional rules, which have led to
State courts having jurisdiction over most class actions.
Currently, the Federal rules provide Federal Court jurisdiction
for disputes dealing with Federal laws and disputes based on
complete diversity. That means that all plaintiffs and
defendants are residents of different States and that every
plaintiff's claim is valued at $75,000 or more.
Not surprisingly, few class actions meet these
requirements. This legislation would apply new diversity
standards to class actions by changing the diversity
requirements to any plaintiff and any defendant residing in
different States where the aggregate of all claims is at least
$2 million.
Another important element of the bill is to provide long-
needed protections for class members from abusive settlements.
Too often we have heard stories about how creative attorneys
use class actions to game the system at their clients' expense.
The Consumer Class Action Bill of Rights would prohibit the
payment of bounties to class representatives, bar the approval
of unreasonable net loss settlements, and establish a plain-
English requirement clarifying class members' rights.
Additionally, the bill would require greater scrutiny of
coupon settlements and settlements involving out-of-State class
members.
With regards to Enron, there are many ongoing
investigations, and there certainly will be many lawsuits to
follow. It is important to note that nothing in this bill will
limit the right of Enron employees to seek redress in court.
Under current law, lawsuits against the company will be
heard in Federal bankruptcy court under the old bankruptcy law,
for the same reasons Federal courts should be able to resolve
many of these class actions.
Federal courts protect the interests of all parties and, in
addition, section 4 of the bill specifically excludes a number
of Federal securities and State-based corporate fraud lawsuits.
The bottom line is that this bill is a common-sense
approach to promote national litigation, efficiency, and
fairness to all potential plaintiffs. I urge my colleagues to
put aside previous positions and support this legislation.
I recognize the gentleman from Michigan, Mr. Conyers.
Mr. Conyers. Thank you, Mr. Chairman. I appreciate the fact
that so far trial lawyers have only been knocked a couple of
times.
This is a repeat of what we've done in the 105th Congress,
and the 106th Congress, and now here we are in the 107th
Congress, with essentially the same objective of, in effect,
federalizing class actions. This--is this a good thing?
This is not a good thing.
This bill may not be leading consumers where they want to
go. The bill I think has been placed on what could be called a
fast track. And it goes on in the midst of, in effect, reducing
the claims of people in a circumstance and in an environment
where we ought to be providing more safeguards for citizens,
consumers, and stockholders, employees. We're doing just the
opposite.
Now, is there some reason that this is going to help most
people in the country? Or maybe this is just a simple rules
change that doesn't go as far as I'm afraid--as I think it's
going.
Now, changes have been made by conservatives on behalf of
corporations--this is not class warfare--in the last 5 years
that have the result of making it much harder for employees,
for example, who are scammed out of their retirement savings to
get any relief. Great for Enron. They're in bankruptcy, so this
doesn't apply. But what everybody else and all other
corporations?
I can remember back to the awful period of 1994 in which
the Congress of that year reduced the consequences for
corporate bad actors in the area of securities fraud. And what
did the securities people who engaged in rip-off who were very
grateful--and now we want to do it, in effect, from my point of
view, for every irresponsible national and multinational
company in the country.
From this perspective, this would be a good time to put on
more corporate responsibility, and not less. Our citizens need
more protections against being swindled, not less.
And this bill, seen from that point of view, takes us in
exactly the opposite direction.
Now, keep in mind, there's no crisis in the State courts. I
don't know if I heard that asserted or not. We have not
received any testimony--none--that class actions are
overwhelming the State court system. The reason that you've not
heard that is because they are not.
However, we do know that because of Congress' recently
increasing propensity to federalize State crimes, we're facing
a real workload crisis in the Federal judiciary. The result for
victims will be far slower access to justice, which may be
precisely the result that some corporate defendants would
desire.
Now, what about the federalism concern? We're lawyers;
constitutional questions reside in this Committee. And even
though some may describe this as a procedural fix, a simple
one, this measure before us could have the effect of wiping out
virtually all State class action statutes. Now, you wouldn't
want to do that, would you? This means that even if the vast
majority of plaintiffs are even from the same State or a
particular State is impacted by an action, citizens would be
unable to obtain recourse in their own courts.
If there are specific problems, then we ought to consider
fixing the problems not doing what we're doing, which is, in
effect, banning State class actions. We owe it to our
constituents and our consumers to protect them from Firestone
tires, the Dalkon Shield, the little storytelling tobacco CEOs
and many others.
And so, ladies and gentlemen of the Committee, please
carefully consider the legislation that is before you.
Chairman Sensenbrenner. The gentleman's time has expired.
Are there amendments?
The gentleman from----
Mr. Watt. Mr. Chairman?
Chairman Sensenbrenner.--Virginia, Mr. Boucher.
Mr. Boucher. Mr. Chairman, I have an amendment----
Mr. Watt. Mr. Chairman?
Chairman Sensenbrenner. The clerk will report the
amendment.
The Clerk. Amendment to H.R. 2341----
Mr. Boucher. Mr. Chairman, I ask unanimous consent that the
amendment be considered as read.
Chairman Sensenbrenner. Without objection, so ordered.
[The amendment follows:]
Chairman Sensenbrenner. And the gentleman is recognized for
5 minutes.
Mr. Boucher. Thank you very much, Mr. Chairman.
I am pleased to join with my Virginia colleague, Mr.
Goodlatte, as principal co-sponsor of the legislation that is
the subject of our markup today. And I'm pleased to offer this
amendment on behalf of myself and Mr. Goodlatte.
The amendment makes two changes in the Class Action
Fairness Act, one that is technical in nature and another that
is both important and substantive.
First the amendment simply updates the short title of the
bill to read the ``Class Action Fairness Act of 2002'' rather
than 2001.
Secondly, the amendment will delete all of section 1716,
which had proposed specific pleading requirements in class
action lawsuits. All of the language on page 10 of the bill--
the subsections on particularity, on State of mind, and on stay
of discovery pending resolution of a motion to dismiss--will be
removed from the bill under this amendment.
During the Committee's hearing on this measure, some
members were troubled by aspects of the bill that would
establish specific pleading requirements in class actions. In
response to the concerns that have been raised about the scope
and the effect of this special pleading language, I'm offering
this amendment that strikes that section of the bill.
Some Members were concerned that the bill as introduced
would have required that plaintiffs' counsel state with
particularity how the class members allegedly were injured and
the recovery that they are seeking.
Some Members suggested that such a requirement would impede
the filing of class action lawsuits.
Some Members have also expressed concern about the state of
mind pleading requirement. As introduced, the bill would have
required the initial pleading, in cases involving a defendant's
particular state of mind, to state with particularity the facts
which, if proven, would demonstrate that the defendant acted
with a required mental state.
Some Members suggested that obtaining these facts at an
early stage in the class action litigation would prove onerous
and difficult.
Concern was also expressed about the pleading provision
that would stay discovery while a motion to dismiss on the
pleadings was pending.
In the end, while I think all of these special pleading
provisions were defensible and were in pursuit of appropriate
policy, they are clearly not at the core of this bill and are
not essential to achieving the real purposes of the class
action reform. A prolonged debate on heightened pleading
requirements would simply cloud the discussion and distract the
Committee from focusing on the real and practical benefits that
class action reform will produce for litigants, for consumers,
and for the American economy.
In the effort to facilitate approval of the bill, both here
and on the floor of the House, I urge adoption of this
amendment, which will remove from the bill those provisions
relating to pleading with particularity and stay of discovery
pending consideration of motions to dismiss.
These are the provisions that seem to be causing some
hesitation among Members of Congress, and with these provisions
removed, I hope we will enjoy the support of those Members when
the bill comes to final passage.
Thank you, Mr. Chairman. I urge adoption of this amendment,
and I yield back.
Chairman Sensenbrenner. Further discussion on the Boucher
amendment?
The other gentleman from Virginia, Mr. Goodlatte.
Mr. Goodlatte. Mr. Chairman, move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Goodlatte. Thank you, Mr. Chairman. And I will be very
brief.
I join with the gentleman from Virginia in offering this
amendment. The provisions which are struck from the bill by
this amendment were not included in the legislation that passed
this Committee in the last Congress. And while I think there
are considerable merits to pleading with particularity, I also
acknowledge that one of the purposes of this legislation is not
to impede the ability of people to bring class action lawsuits,
but rather to make sure that the lawsuits are brought properly
and in the proper forum.
This particular provision of the bill is not at the core of
those provisions. And as such, I think it would be a wise step
to remove them from the bill. And I urge my colleagues to
support the amendment.
Mr. Watt. Mr. Chairman?
Chairman Sensenbrenner. For what purpose does the gentleman
from North Carolina, Mr. Watt, seek recognition?
Mr. Watt. I move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Watt. Thank you, Mr. Chairman.
I want to, at the risk of jeopardizing passage of the
amendment, rise also in support of it. [Laughter.]
It does a couple of things that I think are important, but
illustrates a couple of things, too.
Number one, the changing of the dates should remind us that
this is not the first time we've seen this bill or some version
of it. It's been around for a long time. So it's nice to update
the dates on the bill when we have them.
But more importantly and substantively, the second part of
the proposed amendment is something that I was--in fact, I
already had an amendment at the desk, planning to try to
strike. And I'm sure it wasn't going to pass with me being the
sponsor, so I want to thank the two gentlemen from Virginia for
sparing me the indignity of having my amendment go down.
[Laughter.]
Thank you. I yield back.
Chairman Sensenbrenner. The question is on the Boucher
amendment.
Mr. Conyers. Wait a minute, Mr. Chairman.
Chairman Sensenbrenner. Does the gentleman from Michigan
have more to say?
Mr. Conyers. Yes, I do.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Conyers. I'm sorry for taking 5 whole minutes as we
move on this bill, but Mr. Watt was going to have introduced
this. I'm happy that he didn't. God knows what might have
happened. [Laughter.]
But the authors of the bill realize quite appropriately
that this was way, way out of line. Too bad they can't bring
that same kind of concern to the heart of the bill, the heart
of the bill of federalizing class actions, in effect, through
procedural actions of this kind--the particularity, state of
mind, intent.
And so I hope that nobody here thinks that this takes care
of the problem, because it doesn't. It doesn't take care of the
problem at all.
But I just wanted everybody to know that sweetness and
light is not flowing from this bill as a result of the Boucher
and Goodlatte amendment.
And I return the balance of my time.
Ms. Jackson Lee. Mr. Chairman?
Chairman Sensenbrenner. The gentlewoman from Texas, Ms.
Jackson Lee.
Ms. Jackson Lee. Thank you, Mr. Chairman.
Let me add my appreciation for the improvement that this
particular amendment offers to the legislation. I will have
some subsequent amendments. And clearly, I think the passion
with which the Ranking Member speaks is worthy of our
consideration. And I guess it's because I have experienced in
recent months the dilemma of thousands of employees now left
without remedy, particularly in the Enron case. That case
happens to be a case before the bankruptcy court, but it
certainly begs the question of what happens when thousands of
employees are plagued and victimized by actions which they
cannot address because of their individual inadequacies,
financial inadequacies, and need the structure of a viable
class action, if you will, vehicle, that I don't consider to be
abused by those who absolutely have the right and reason to
access the court system.
So I'm glad that we have moved in the direction of
lessening the burden on constructive and innocent plaintiffs.
But I do think that we should be concerned of whether we're
barring the courthouse door by those who by necessity have to
enter in the form of a class action.
I yield back the balance of my time.
Chairman Sensenbrenner. The question is on the amendment
from the gentleman from Virginia, Mr. Boucher.
Those in favor will say aye.
Opposed, no.
The ayes appear to have it. The ayes have it, and the
amendment is agreed to.
Are there further amendments?
Mr. Conyers. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from Michigan, Mr.
Conyers?
Mr. Conyers. I do have an amendment at the desk.
Chairman Sensenbrenner. The clerk will report the
amendment.
The Clerk. Amendment to H.R. 2341, offered by Mr. Conyers
and Ms. Jackson Lee. Page 17, line 10, strike the quotation
marks and second period. Page 17----
Chairman Sensenbrenner. Without objection, the amendment is
considered as read and open for amendment at any point.
[The amendment follows:]
Chairman Sensenbrenner. The gentleman from Michigan is
recognized for 5 minutes.
Mr. Conyers. Thank you, Mr. Chairman.
This is an amendment to prevent companies who may try to
use this legislation to avoid State liability by
reincorporating as a foreign entity. Yes, corporations do that,
and with increasing frequency they're doing it.
And here's how it works: The corporations set up paper
companies, and let's take Bermuda, which is a frequently used
site, for a nominal fee.
But the company--nothing else changes. The company
continues to be owned by United States shareholders, continues
to do business in the exact locations. The production goes on
in the same place.
The only thing different is that new foreign company
escapes substantial tax liability under this bill, under this
bill, under these economic circumstances that we find that
we're reading about in the paper almost every day. We've got a
bill here that would allow companies to escape their national
liability by reincorporating in a foreign country.
And this amendment attempts to prevent this. It is, I
think, a modest amendment.
The new so-called foreign company escapes substantial tax
liability under this bill and could more easily avoid legal
liability as well. And these are the same companies that are
stamped ``made in the USA'' on their products and, at the same
time, are avoiding United States taxes and minimizing or making
more difficult those who may seek legal redress to bring them
to court after merely shuffling around some corporate
documents.
I name a company: Stanley Works, which has made hammers and
wrenches in the State of Connecticut for 159 years. According
to a report last month in the New York Times, the company now
plans to become a Bermuda corporation so it can cut its taxes
by how much? $30 million each year.
And so, clearly, there's a big rush to Bermuda with
companies.
And dare I raise the name Global Crossing? Yes, they're one
of them. Foster Wheeler, Cooper Industries, Ingersoll-Rand, who
are all announcing plans to reincorporate in Bermuda to avoid
tax liability.
Now, these companies are a slap in the face of every
citizen who has to meet their tax obligations next month, to
every person in our military who is sacrificing much more than
money to defend our country and its citizens.
So this amendment responds to this egregious behavior by
treating the former U.S. company as a domestic corporation for
class action purpose.
And so I hope that this amendment will address the
irresponsible conduct, unpatriotic conduct, of a handful of
companies whom--we should not permit profits to trump in these
kinds of situations.
I thank you for the time, Mr. Chairman.
Ms. Jackson Lee. Mr. Chairman?
Chairman Sensenbrenner. Discussion on the Conyers
amendment?
The gentleman from Virginia, Mr. Goodlatte.
Mr. Goodlatte. Thank you, Mr. Chairman.
Mr. Chairman, I must strongly oppose this amendment. This
is not a modest amendment as described by the gentleman from
Michigan.
These are the very kinds of cases that most belong in
Federal court. And attempting to redefine the home base of the
corporation just for the purposes of class action lawsuit--
won't affect any other lawsuits brought against them--and it
certainly will not affect their tax liability.
I share the gentleman's concern that this is a tax dodges,
but that should be dealt with in the Ways and Means Committee.
And his amendment will not change that.
All this is intended to do is to keep class action lawsuits
with clearly nationwide implications involving decisions on
plaintiffs in a multitude of States from being brought in
Federal court. This whole--the premise of this entire
legislation is to bring the kinds of lawsuits that our Founding
Fathers intended to be heard in Federal court, involving not
just diversity of jurisdiction but a wide degree of diversity
of jurisdiction, in Federal court.
And the fact of that matter is, it is simply a Federal rule
that requires that you allege $75,000 per plaintiff that keeps
most of these class actions from being heard in the
jurisdiction where they should be heard.
The primary purpose of this bill is to change that to
require a $2 million aggregate allocation for all of the
plaintiffs in the class. And the purpose of this amendment is
to subvert the clear intent of the legislation to have complex
litigation involving parties from many States, involving, in
many instances, billions of dollars in dispute, brought in the
courts that were designed to be able to handle those cases and
to stop the forum shopping that takes place right now, where
the plaintiffs' attorney can chose from literally 4,000
different jurisdictions in the United States in which to bring
the action.
So I urge my colleagues to oppose this amendment. It is
something that would give State courts jurisdiction over cases
that involve U.S. companies that have been purchased by foreign
companies. These are generally large, nationwide lawsuits that
we're talking about that affect these companies. And they're
precisely the kind of actions that should be brought in Federal
court. It doesn't limit anybody's right to bring a class
action. It simply limits their ability to forum shop, and it
limits the ability of the plaintiffs to choose judges that are
most favorable to certifying class actions and applies a more
nationwide standard.
I urge my colleagues to oppose the amendment.
Chairman Sensenbrenner. The question is on the Conyers
amendment.
Ms. Jackson Lee. Mr. Chairman?
Chairman Sensenbrenner. The gentlewoman from Texas, Ms.
Jackson Lee.
Ms. Jackson Lee. Thank you very much, Mr. Chairman. I rise
to support the Conyers-Jackson Lee amendment, and I beg to
differ from the distinguished colleague from Virginia.
What is happening with the class action legislation that
has been proposed and has now shown its face in a completely
new year and possibly new look is that this legislation is
about benefit with no burden.
Clearly, it is giving a gift to major corporations, large
entities, who have been upset by the number of successful
plaintiff actions, few and far in-between, might I add? If you
use the State court systems in Harris County, for example, a
pretty litigious community, in Houston, you'll find that in
most instances, the defense--defendants in civil cases prevail.
So this is not a circumstance where we have a runaway court
system and plaintiffs are winning in large numbers across the
Nation. So we are excising an extra-added benefit where none is
deserved. This legislation will probably get out of this
Committee and, frankly, will help those who need little help.
What we're saying in this legislation is that, in addition
to the benefit that you're going to give, you're going to allow
companies to abscond from the United States and benefit not
only from running away from the courthouse, but they will also
benefit by large dollars of tax relief.
The Ranking Member mentioned Stanley Works. That was going
to be about $30 million to about $80 million.
Mr. Goodlatte. Will the gentlewoman yield?
Ms. Jackson Lee. I'd be happy to yield in just a moment to
my good friend.
Tyco would be saving $400 million a year. And, obviously,
coming from Houston, Texas, all of us are concerned about what
we call SPEs, 2,800 to 3,000 that were utilized by own
constituent, Enron.
And so, to the distinguished gentleman, I'm not
understanding why we're giving so much benefit with no burden.
I'll be happy to yield to the gentleman for a moment.
Mr. Goodlatte. Well, I thank the gentlewoman for yielding.
But the fact of the matter is that this bill nor the amendment
offered by the gentleman from Michigan has anything to do with
the tax burden on the corporations. It has to do with whether
or not we're going to have a fair and uniform standard for
determining whether or not class action lawsuits that involve
millions of plaintiffs in a multitude of States can be heard in
a uniform fashion that prohibits plaintiff attorneys from
shopping for the one favorable judge in the one rural county in
one particular State that has a long track record of having
certified class actions.
If they choose to do that, that's fine. But then any party
to the case, under this bill, would then be able to remove that
case to Federal court provided they meet the diversity
requirements provided in the legislation.
And it has absolutely nothing to do with the matters that
you describe. And you're simply trying to draw a distinction
between different types of corporations that has no merit in
class action law.
Ms. Jackson Lee. Well, reclaiming my time, I thank the
gentleman for his perspective on the amendment, but I believe
that this is a legislative initiative. This legislation simply
gives benefit with no burden.
And what we're suggesting, that if these companies want to
abscond to a foreign jurisdiction, then they should be governed
by State laws. And they should not have the ability to benefit
from not paying taxes.
Most of us know that we are committed to death and taxes.
Our corporate friends obviously don't find that kind of
definitiveness. They can abscond and take money wherever they
are and also take benefits.
This class action legislation gives, as I believe, benefits
where none are necessary. If you looked at the documentation of
how many corporations were abused by class action lawsuits,
you'd find a paltry number of victories.
I happen to believe that the Microsoft case should've ended
as it is. I believe that Microsoft is more productive unbroken-
up, if I may use bad English.
I happen to support, hopefully, a resolution of that case.
That is one example, however, of a class action case taken up
by States and not by individuals.
And so this, I believe, legislation is detrimental to the
judicial system. And I frankly believe any amendment that we
can utilize to suggest that anybody who takes advantage of
this, therefore, cannot take advantage by absconding to a
foreign territory and then also be advantaged by this
particular legislation that you're passing.
I would only ask my colleagues to consider the purposes of
what we're doing, to look at the economics of it, to balance
who is benefiting and who is being burdened by it. And I
frankly think that here's another example of providing
corporate opportunities for companies to leave the United
States, be incorporated on foreign territories, not pay their
taxes and take the benefit of class action legislation that
they do not need.
I yield back the balance of my time.
[The prepared statement of Ms. Jackson Lee follows:]
Prepared Statement of the Honorable Sheila Jackson Lee, a
Representative in Congress From the State of Texas
Good morning Chairman Sensenbrenner and Ranking Member Conyers:
I am proud to join Mr. Conyers in offering this amendment, which
would deny corporations who relocate to foreign countries simply to
avoid paying income taxes from enjoying the benefits of this bill.
As the saying goes, ``death and taxes are the only guarantees in
life''. You and I could never avoid paying taxes, but we try to
minimize them to the best of our ability. The same philosophy applies
to companies.
However, there is a growing trend in this country where American
companies are incorporating in Bermuda, or other countries that do not
have income taxes, to avoid paying taxes altogether while maintaining
the benefits and security of doing business in the United States. But
these companies don't actually relocate to Bermuda. Rather, they are a
Bermuda corporation only on paper.
But the tax benefits are profound. Tyco International, a
diversified manufacturer headquartered in New Hampshire but
incorporated in Bermuda, saved more than $400 million last year in
taxes alone. And Stanley Works, a Connecticut manufacturer for 159
years, will cut its tax bill by $30 million a year to about $80
million.
Although it is a growing trend, some companies hesitate to
incorporate in Bermuda because of patriotism issues, especially after
the tragedies of September 11. But low and behold, ``profits trump
patriotism''.
Enron Corp had set up an estimated 2,800 to 3,000 ``special purpose
entities'' (SPEs) in an attempt to hide amounting debt and losses and
to avoid paying taxes. As a matter of fact, Enron had not paid any
income taxes in the last five years. And due to the nature of these
transactions, and the fact that these SPEs were created as a separate
entity from Enron, government officials have been unable to acquire
more information to determine the extent of liability.
Allowing companies who relocate to foreign countries simply to
avoid paying taxes and still benefit from class actions in a federal
forum would enable a defendant corporation to avoid accountability and
result in the plaintiff class having a more difficult time seeking
redress.
Again, Mr. Chairman, this amendment would attempt to bring justice
within the reach of the victims aggrieved by these corporate giants.
Thank you.
Chairman Sensenbrenner. The time of the gentlewoman has
expired.
Mr. Watt. Mr. Chairman? Mr. Chairman?
Chairman Sensenbrenner. For what purpose does the gentleman
from North Carolina seek recognition?
Mr. Watt. I move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Watt. And I yield to Mr. Conyers.
Mr. Conyers. I thank the gentleman for yielding.
Not only is this bill disingenuous but this debate is
disingenuous as well. The innocence of one of the authors from
Virginia is not surprising. But consider the favorite
relocation point in the immediate hemisphere: Bermuda. Members
of the Committee, they have no corporate tax. They have no
corporate tax.
Now as crazy as it is, we already have a tax code that
encourages corporations to relocate overseas. That ought to be
disturbing. It encourages it. It isn't neutral. It encourages
corporations to relocate.
Now, what this bill does and what my amendment tries to
correct, is the bill is now encouraging corporations to
relocate for yet an additional reason. And that reason is to
escape legal liability as well as escaping tax liability.
So what we're doing here is continuing to encourage people
to get out of the country and relocate.
This is just a little innocent change here. What's wrong
with companies relocating in Bermuda, folks? I mean, they've
been here for many years, most of them, and now they want to go
to Bermuda to avoid the class action situation.
So one of the authors of the bill says, ``Not a problem.
It'll stop forum shopping.'' But what it's doing is creating
another reason--to me, another wrong reason--for companies to
relocate in name only. We're not talking about plants moving
out of the U.S.; they'll still be here.
Are taxpayers going to be happy about this? I don't think
so. And I don't think some of these complicated responses are
going to work on ordinary people when they find out what the
bottom line is.
And so, I am not happy that this amendment is being
resisted as something that's pernicious and that this bill is
really, in fact, a good thing for companies and for citizens. I
don't think it is for either one.
And I return any time back to----
Mr. Watt. I yield back, Mr. Chairman.
Chairman Sensenbrenner. The gentleman from Texas, Mr.
Smith.
Mr. Smith. Mr. Chairman, I move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Smith. Mr. Chairman, I yield my time to the gentleman
from Virginia, Mr. Goodlatte.
Mr. Goodlatte. I thank the gentleman for yielding.
Very briefly, this is a most disingenuous amendment and the
arguments offered for it are way off the mark.
The legislation provides that if a lawsuit is brought
against the company that the gentleman cited in the State of
Connecticut as a plaintiff would have the right to do, any
party, plaintiff or defendant in the suit, would be able to
remove the case. Not to Bermuda but to the United States
District Court for the State of Connecticut. And it has
absolutely nothing to do with the tax status of any corporation
or the State in which--or nation in which is or was or in the
future will be incorporated. It simply has to do with having a
fair and uniform standard applied for how class action lawsuits
will be brought and making sure that the most complex cases are
brought in the United States Federal courts, in the same
jurisdiction in which the original lawsuit was brought.
I yield back.
Mr. Conyers. Would----
Mr. Smith. Mr. Chairman, I yield back the balance of my
time, too.
Chairman Sensenbrenner. The question is on the Conyers
amendment.
Those in favor will say aye.
Opposed, no.
Noes appear to have it. Noes have it, and the amendment is
not agreed to.
Are there further amendments?
Mr. Watt. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from North Carolina,
Mr. Watt.
Mr. Watt. Mr. Chairman, I have an amendment at the desk.
Chairman Sensenbrenner. The clerk will report the
amendment.
Mr. Watt. Watt number 4.
The Clerk. Amendment to H.R. 2341----
Mr. Watt. I ask unanimous consent the amendment be
considered as read.
Chairman Sensenbrenner. Have the clerk start passing it out
a bit for----
The Clerk.--offered by Mr. Watt. Page 18, line 13, insert--
--
Chairman Sensenbrenner. Without objection, the amendment is
considered as read.
[The amendment follows:]
Chairman Sensenbrenner. And the gentleman from North
Carolina is recognized for 5 minutes.
Mr. Watt. Thank you, Mr. Chairman.
I believe that this an amendment that the sponsors of the
bill are planning to accept, so I'll very brief.
The original bill that was introduced and passed the House
floor one time before had a provision in it that allowed
removal basically by anybody, even before they were determined
to be a member of the class or even before the class had been
certified. We were successful in amending the bill on the floor
of the House to at least require that the removal wait until
after the class was certified and that the person who was
attempting to remove the case to Federal court be a member of
the class. And Mr. Boucher agreed that that was probably a wise
thing to do.
Unfortunately, this new bill went back to the original
language of the old bill rather than picking up the amended
language that I think everybody had agreed to. And this just
gets it back to the form that passed the House floor the last
time.
Mr. Boucher. Would the gentleman yield?
Mr. Watt. I'm happy to yield to the gentleman from
Virginia.
Mr. Boucher. I thank the gentleman from North Carolina for
yielding. I was pleased to work with the gentleman last year in
structuring the language that he has offered in this amendment.
It relates to plaintiff removal opportunities. It provides that
plaintiffs who are not named or representative class members
may remove the action to Federal court at a time prior to the
State court entering a class certification order. Other
plaintiff class members would only be able to remove after the
certification order has been entered by the State court.
I think this language strikes a reasonable balance. I
commend the gentleman from North Carolina for bringing this
matter to our attention once again. And I urge adoption of the
amendment.
Mr. Goodlatte. Would the gentleman yield further?
Mr. Watt. I'm happy to yield to the gentleman from
Virginia.
Mr. Goodlatte. I have no objection to the amendment.
Mr. Watt. I yield back, Mr. Chairman.
Chairman Sensenbrenner. The question is on the adoption of
the amendment by the gentleman from North Carolina, Mr. Watt.
Those in favor will signify by saying aye.
Opposed, no.
The ayes appear to have it. They ayes have it.
And the Committee will recess until 9:30 tomorrow morning.
Please be prompt.
[Whereupon, at 11:50 a.m., the Committee recessed, to
reconvene at 9:30 a.m., Thursday, March 7, 2002.]
* * * * *
The Committee met, pursuant to notice, at 9:35 a.m., in
Room 2141, Rayburn House Office Building, Hon. F. James
Sensenbrenner, Jr. [Chairman of the Committee] presiding.
Chairman Sensenbrenner. The Committee will be in order.
When the Committee recessed yesterday, the bill H.R. 2341,
the Class Action Fairness Act, was being considered. A motion
had been made to report the bill favorably, and the bill was
open for amendment at any point. Are there further amendments?
The gentleman from Massachusetts.
Mr. Frank. Mr. Chairman, I have an amendment at the desk.
Chairman Sensenbrenner. The clerk will report the
amendment.
The Clerk. Amendment to H.R. 2341, offered by----
Mr. Frank. I ask unanimous consent it be considered as
read.
Chairman Sensenbrenner. Let's look at it first.
The Clerk.--offered by Mr. Frank and Mr. Meehan and Mr.
Berman. Page 19, line 20, strike the quotation marks and second
period. Page 19, insert the following after line 20----
Chairman Sensenbrenner. Without objection, the amendment is
considered as read.
Chairman Sensenbrenner. The gentleman from Massachusetts is
recognized for 5 minutes.
Mr. Frank. Thank you, Mr. Chairman.
When I was first approached and this issue was described to
me, it was described, and I agreed with a major part of it,
which was that if in fact you were dealing with an issue that
involved nationwide issues, it would be better to have it tried
in Federal court rather than in State court. That is, I agreed
with an amendment to the diversity rule that would prevent
technical obstacles to removal to Federal court when in fact
subsequently the issue ought to be decided in Federal court.
But as we looked at the bill, it became clear that it went
further than that. I think there would be a good deal of
support--there's a good deal of support for the current bill.
But there would be even more support for a bill which said,
when we are talking about a class action suit that has national
implications, it ought to be tried in Federal court rather than
State court.
But the way bill is worded, if someone, a defendant, takes
advantage of the removal proceedings, which are a change in the
law, and moves it into Federal court, which would now encompass
a much larger number of cases, and the Federal court finds that
it does not meet the Federal class action standards, that then
ends it, and it cannot be renewed in State court.
And what the amendment says is that if it is removed under
these changes to Federal court, and the Federal court finds
insufficient basis for going forward, that's without prejudice
to the ability of the plaintiffs to refile it in State court.
So we have a bill that meets at least one of the stated
objectives, which is, if there's going to be a trial on an
issue like this, it ought to be in Federal court, not State
court. But I don't think we ought to be acting now to prevent
the States from trying State class action cases on these sorts
of economic issues if the Federal courts don't want to do it.
I must say, to go beyond that, it is one thing, I think, to
say that when there's this kind of diversity, it should go to
Federal court. It's another to say that if the Federal court
decides it doesn't meet class action standards, we forbid the
State to do it.
I cannot think of a more massive vote of no confidence in
the courts or the States. It is really quite extraordinary.
We've commented from time to time about the variability of
people's belief in States' rights. I think this makes it just
conclusive, because what this says is, we will have the Federal
courts decide not whether or not to try the case, but whether
or not the case ought to be tried. And the only justification
for that is the belief that the State courts are irresponsible;
that the State courts, if left to their own devices, when the
Federal courts have turned it down, will inappropriately deal
with class action cases.
And I am surprised that so many of my colleagues are
prepared to write into law what is really a very severe
condemnation of the courts of at least some States. It may not
be--obviously, it's not of all States, but it is of some of the
States.
I also believe that, at this point in America's economic
situation, the notion that the business sector needs more
protection from the consumers is wrong. I have supported in the
past efforts to change the balance. I have supported efforts to
limit and prohibit frivolous suits or at least make them less
likely. But this bill, if my amendment is defeated, says that
we will, as a Congress, tell the States that there are
apparently significant numbers of cases--because if it wasn't
significant, we would not be taking the time of this Committee
and bringing it to the floor next week--that there are
significant number of cases where we will tell the States: No,
you cannot do that. You cannot try this case. Citizens of your
State may come before you and want to do something, but we will
not let you do that. We, the Congress, will simply block that
lawsuit.
The alternative is to say that, as I said, if in fact the
Federal courts find substantively that it ought to be dealt
with because it's a multistate issue on the Federal level, it
can be. But the Federal courts will not be empowered, as this
law without the amendment would empower them simply to prevent
the State courts from considering cases which they believe are
in the interests of the citizens of their State to have
litigated.
Mr. Goodlatte. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from Virginia.
Mr. Goodlatte. I move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Goodlatte. Thank you, Mr. Chairman.
I speak in strong opposition to this amendment. It would
defeat the purpose of the legislation, which is to stop forum
shopping amongst 4,000 different jurisdictions.
Basically what the gentleman's amendment does, and he has
expressed his concern previously and offered this amendment the
last time the bill moved through the Committee, and we defeated
it at that time, and I would urge my colleagues to defeat it
again. But what the amendment does is give the plaintiff, the
class action attorney and the named plaintiff, two bites of the
apple. The purpose of this is to say, if you're going to pick a
jurisdiction you want to bring this lawsuit in--and with a
nationwide class action lawsuit, you can pick from thousands of
different jurisdictions, and you pick your favorite judge and
your favorite jurisdiction, and anybody in the case, plaintiff
or defendant, who chooses to do so, can remove it to Federal
court. If the Federal court says that the case does not rise to
certification as a class, what the gentleman is suggesting is,
okay, you go back to that favorite court that you picked and
resume the process that you originally sought out to the bring
the case in.
That is entirely contrary to what we're trying to do here,
which is to achieve some standardization in this process. I
think this amendment constitutes a full endorsement, not a
correction, of the rampant class action abuse that is occurring
in State courts today. When I say that, I do not cast a
condemnation on all State courts. I am simply observing what
any good attorney representing a plaintiff in one of these
cases would do: Look for the court that you think is most
favorable to your cause.
The problem is that, in these class actions, that
constitutes several thousand jurisdictions. And all we're
trying to do is say, look, you can go ahead and do that, but in
order to achieve balance and fairness, we're going to allow any
party in the case, plaintiff or defendant, to remove the case
to Federal court.
And we corrected the concern raised by the gentleman from
North Carolina, Mr. Watt, to say that if someone has not yet
been identified as a part of the class as a plaintiff, they
can't remove the case to Federal court under those
circumstances. But anybody who's a named party to the case,
plaintiff or defendant, before certification, or anybody who
has been certified as part of the class after certification,
can remove the case to Federal court. That eliminates the forum
shopping.
The second thing that it does is that eliminates the abuses
because it makes sure that we're going to have more standard
application of class action rules. This amendment, I think, is
based on the myth that most States have class action rules that
are radically different from Federal class action rules, and
that if a Federal judge says a case may not proceed as a class
action under the Federal rule, counsel should be able to take
their case back to State court and try their luck under State
rule. The fact of the matter is that most States have very
similar rules, but they have widely varying application of the
rules based upon the judge who makes that application. And the
plaintiffs' attorneys know, across the country, which of those
judges--there aren't a huge number, but there are certainly
plenty of alternatives amongst the States in which to bring
these actions and get it in the hands of a judge or a
jurisdiction that has historically been favorable to certifying
class actions.
And that is where we have seen most of the abuse, where we
have seen most of the cases that result in coupon settlements
or settlements where the plaintiffs even have to wind up paying
money in the cases, and all the other abuses that we heard
during the hearings and that we've heard during the first day
of debate on this issue.
Mr. Frank. Would the gentleman yield?
Mr. Goodlatte. I would yield.
Mr. Frank. The question I have is, does that not mean that,
according to the gentleman from Virginia, the appellate courts
of all the States are of no real value? You talk about
thousands of jurisdictions. Those are the trial courts, I
suppose, in the States. There are appellate systems. Does the
gentleman mean that we should put no faith in the appellate
systems of the 50 States to protect against these kinds of
abuses?
Mr. Goodlatte. Well, in cases that are truly State class
action lawsuits, we should rely on that. But in cases where you
have individuals from many, many jurisdictions, cases that
really should be in Federal court under diversity because
that's what the diversity provisions in the Constitution were
intended for, under current rules, can't be brought in Federal
court.
Mr. Frank. I'm not changing that part of the bill.
Mr. Goodlatte. Well, I----
Mr. Boucher. Would the gentleman from Virginia yield to me?
Mr. Goodlatte. Well, if the gentleman--I'm about out of my
time, if he would seek time.
The fact of the matter is----
Chairman Sensenbrenner. The time of the gentleman has
expired.
For what purpose does the gentleman from Virginia seek
recognition?
Mr. Boucher. Mr. Chairman, I rise in opposition to the
amendment.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Boucher. Thank you very much, Mr. Chairman.
I'll be brief in my remarks in opposition to this
amendment. First, to the point that was just raised by the
gentleman from Massachusetts, with respect to appeals to State
courts from decisions of the trial court to certify a class, in
many if not most States, there is not interlocutory right of
appeal, meaning that the sole decision to certify the class is
not appealable until the entire trial has taken place.
And so even in those instances where a certification
wrongly occurs, all of the parties go to the expense of a full
trial before the question of whether or not the certification
was proper can be heard by the State court. And that is a major
shortcoming in many States.
Let me say a few other words about the difficulties that
this amendment poses. Frankly, if it's adopted, the basic
reform that we're seeking will simply not be achieved. Some
cases should not be certified as class actions at all, either
in State courts or in Federal courts.
Federal Rule of Civil Procedure 23, which governs class
actions in Federal courts, is narrowly drawn so as to protect
the rights of both plaintiffs and defendants to traditional due
process as their claims are litigated. Rule 23 says that cases
that are overly broad because of conflicting laws that
establish the rights of individual plaintiffs that are
purported members of the class or because of factual
differences in the circumstances of the individual class
members will not be certified as class actions.
To certify cases such as that, that are that broad, as
class actions does violence to the rights of the plaintiffs who
are the purported class members. And so rule 23 is narrowly
drafted in such a way as to make sure that their rights are
protected and that only those cases that should be certified
because of clear commonality in the issues of law and fact will
be certified as class actions.
When cases are denied class action status, either in State
or Federal court, the plaintiffs then are free to file their
individual claims, and so no one will be denied a right to
recover simply because the class that that person is
purportedly a part of is denied class action status.
Another class action could also be filed after the original
certification of class action is denied. The case could be
reconfigured as a State-centered class action under the terms
of the bill that we've put forward and could go forward as a
class action in State court. Or it could be reconfigured in
such a way as to comply with the requirements of rule 23 and
then proceed as a Federal class action.
But if the gentleman's amendment is adopted, any case
which, because of its broad scope cannot meet the requirements
of Federal Rule 23, and, therefore, is dismissed as a class
action in Federal court, could then be certified as a class
action in the State court from which it was removed. That State
court could then certify the class, and no further removal to
Federal court would occur.
Under this amendment, the cases that are truly national in
scope, which it is our purpose to have removable to Federal
court, would still be heard in State court. And that is the
fundamental problem with the amendment that the gentleman has
put forward.
Some States would continue to apply their often unique laws
in a way that governs the rights of plaintiff class members who
live in States that have laws under which exactly the opposite
result would be obtained.
We have a long list of examples of situations where courts
applying their unique law have bound plaintiffs who live in all
50 States, even in instances where most of the other States
have laws that would reach exactly the opposite result. And one
of the major goals of this reform is to prevent that event from
occurring.
The extraterritorial application of State law that practice
reflects does very serious damage to our traditional principles
of federalism and actually constitutes a kind of reverse
federalism in which one State can apply its law to the
exclusion of the laws of other States that would dictate a
contrary result for the residents of those States.
Under the gentleman's amendment, this practice would
continue. And that practice does serious damage to federalism
and would assure that this reform is not achieved.
And so I oppose the amendment, and I would urge Members of
the Committee to reject it.
Chairman Sensenbrenner. The gentleman's time has expired.
Mr. Watt. Mr. Chairman?
Chairman Sensenbrenner. For what purpose does the gentleman
from North Carolina seek recognition?
Mr. Watt. I move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Watt. I won't take 5 minutes, Mr. Chairman. I actually
was intending to stay out of this debate, but got provoked by
my colleague from Virginia, whose definition of federalism is a
fascinating one and a very convenient one, as many Members of
this Committee and this Congress are prone to do.
Basically what he said was, if we don't like the result at
the State level or if federalism or if States actually have a
different opinion or a different way of doing things, then we
ought to federalize something. That is not an adequate
justification, in my opinion, for federalizing something. And I
think it's absolutely inconsistent with what I've heard a
number of my colleagues on this Committee say they believe in.
So I'll yield back.
Chairman Sensenbrenner. The question is on the Frank
amendment.
Those in favor will say aye.
Opposed, no.
The noes appear to have it.
Mr. Frank. rollcall, Mr. Chairman, please.
Chairman Sensenbrenner. A rollcall is requested. The
question is on the adoption of the amendment offered by the
gentleman from Massachusetts, Mr. Frank. Those in favor will,
as your names are called, answer aye. Those opposed, no. And
the clerk will call the roll.
The Clerk. Mr. Hyde?
[No response.]
The Clerk Mr. Gekas?
[No response.]
The Clerk. Mr. Coble?
Mr. Coble. No.
The Clerk. Mr. Coble, no.
Mr. Smith?
[No response.]
The Clerk. Mr. Gallegly?
[No response.]
The Clerk. Mr. Goodlatte?
Mr. Goodlatte. No.
The Clerk. Mr. Goodlatte, no.
Mr. Bryant?
Mr. Bryant. No.
The Clerk. Mr. Byrant, no.
Mr. Chabot?
[No response.]
The Clerk. Mr. Barr?
[No response.]
The Clerk. Mr. Jenkins?
Mr. Jenkins. No.
The Clerk. Mr. Jenkins, no.
Mr. Cannon?
Mr. Cannon. No.
The Clerk. Mr. Cannon, no.
Mr. Graham?
[No response.]
The Clerk. Mr. Bachus?
[No response.]
The Clerk. Mr. Hostettler?
Mr. Hostettler. No.
The Clerk. Mr. Hostettler, no.
Mr. Green?
[No response.]
The Clerk. Mr. Keller?
Mr. Keller. No.
The Clerk. Mr. Keller, no.
Mr. Issa?
Mr. Issa. No.
The Clerk. Mr. Issa, no.
Ms. Hart?
[No response.]
The Clerk. Mr. Flake?
[No response.]
The Clerk. Mr. Pence?
Mr. Pence. No.
The Clerk. Mr. Pence, no.
Mr. Conyers?
Mr. Conyers. Aye.
The Clerk. Mr. Conyers, aye.
Mr. Frank?
Mr. Frank. Aye.
The Clerk. Mr. Frank, aye.
Mr. Berman?
Mr. Berman. Aye.
The Clerk. Mr. Berman, aye.
Mr. Boucher?
Mr. Boucher. No.
The Clerk. Mr. Boucher, no.
Mr. Nadler?
[No response.]
The Clerk. Mr. Scott?
Mr. Scott. Aye.
The Clerk. Mr. Scott, aye.
Mr. Watt?
Mr. Watt. Aye.
The Clerk. Mr. Watt, aye.
Ms. Lofgren?
[No response.]
The Clerk. Ms. Jackson Lee?
[No response.]
The Clerk. Ms. Waters?
Ms. Waters. Aye.
The Clerk. Ms. Waters, aye.
Mr. Meehan?
[No response.]
The Clerk. Mr. Delahunt?
[No response.]
The Clerk. Mr. Wexler?
[No response.]
The Clerk. Ms. Baldwin?
Ms. Baldwin. Aye.
The Clerk. Ms. Baldwin, aye.
Mr. Weiner?
[No response.]
The Clerk. Mr. Schiff?
Mr. Schiff. Aye.
The Clerk. Mr. Schiff, aye.
Mr. Chairman?
Chairman Sensenbrenner. No.
The Clerk. Mr. Chairman, no.
Chairman Sensenbrenner. Are there additional Members who
wish to cast or change their vote?
The gentleman from Wisconsin?
Mr. Green. Nay.
The Clerk. Mr. Green, nay.
Chairman Sensenbrenner. The gentlewoman from Pennsylvania?
Ms. Hart. No.
The Clerk. Ms. Hart, no.
Chairman Sensenbrenner. The gentleman from Alabama?
Mr. Bachus. No.
The Clerk. Mr. Bachus, no.
Chairman Sensenbrenner. The gentleman from Massachusetts?
Mr. Meehan. Aye.
The Clerk. Mr. Meehan, aye.
Chairman Sensenbrenner. Are there further Members in the
chamber who wish to cast or change their votes? If not, the
clerk will report.
The Clerk. Mr. Chairman, there are 9 ayes and 14 nays.
Chairman Sensenbrenner. And the amendment is not agreed to.
Are there further amendments?
Mr. Watt. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from North Carolina,
Mr. Watt.
Mr. Watt. Mr. Chairman, I have an amendment at the desk.
It's Watt 7.
Chairman Sensenbrenner. The clerk will report the
amendment.
Mr. Watt. Number 7.
Chairman Sensenbrenner. Watt 7.
The Clerk. Amendment to H.R. 2341, offered by Mr. Watt.
Beginning on page 17, omit line 16 through line 3 on page 20.
[The amendment follows:]
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Watt. Thank you, Mr. Chairman.
I ask unanimous consent that the word ``omit'' be changed
to delete.
Chairman Sensenbrenner. Without objection, the modification
is agreed to.
Mr. Watt. Thank you, Mr. Chairman.
I, as the chairman of the ``States' Rights Caucus,'' and
perhaps the only remaining Member on this Committee of it----
[Laughter.]
--and as an unapologetic former plaintiffs' attorney, do
not, obviously, feel as kindly toward this bill as the
supporters of it, probably not even as kindly toward it as Mr.
Frank has expressed that he might, with some changes being made
to it.
I considered kind of tampering with this around the edges
and offering a series of amendments but decided that I should
do this with integrity and honesty, and so I want to save my
colleagues the trouble of saying this: This amendment will, in
fact, if it is passed, gut this bill. [Laughter.]
It would remove the removal provisions from the bill, and
that is exactly what my intentions are.
And I'm not going to be original about this. I want to just
read from my 1999, September 23, 1999, statement on the floor
about the last version of this bill.
Chairman Sensenbrenner. Without objection, the statement
will be included in the record.
[The statement of Mr. Watt follows:]
Prepared Statement of the Honorable Melvin L. Watt, a Representative in
Congress From the State of North Carolina
on september 23, 1999, mr. watt (n.c.) made the following statement
on the house floor:
``Mr. Watt of North Carolina. Mr. Chairman, I thank the gentleman
for yielding time to me.
Mr. Chairman, let me make several points, as many as my time will
allow me to make, about this bill, and encourage my colleagues to vote
against this proposal.
First of all, I practiced law for a number of years before I ever
thought about running for Congress. There is just a basic fairness
argument that I think we all need to be aware of.
If a plaintiff is injured, he goes and hires a lawyer, they
cultivate, research, put together a case, decide where the appropriate
place is to litigate that case, spend months and months preparing for
the case, file the case. Two days later somebody who has done
absolutely nothing to get that case to trial under this bill has the
ability to walk in and move that case to another forum. There is just
something patently unfair about that. I just want us to focus on that.
The second point I would make is that in 1994 when my Republican
colleagues came riding into the House, one of the principles that they
gave major lip service to was the whole notion that there was too much
going on at the Federal level, that we needed to decentralize
government, that our whole system of Federalism was in jeopardy, and we
needed to return power to the States.
Time after time after time since 1994 we have seen our Republican
colleagues say, well, we do not like the result that we got at the
State level, so let us federalize this and let us juste take it over,
an absolute erosion of States' right in the criminal law area.
In the area of tort reform they have tried to do it, in the area of
juvenile law they have tried to do it. We do not even have a juvenile
court, a juvenile judge, a juvenile counselor, and yet, we have tried
to federalize juvenile law, and the people who are behind that are the
very same people who in 1994 were railing and rhetorically saying, this
is terrible, to federalize all this stuff. We need to be returning
rights and responsibilities to the most local level, to the State
level, the local level, the individual level. Here we are again in this
matter trying to bring something else into a Federal court.
The third point I want to make, the Federal courts are hopelessly
backlogged. The cannot handle the business they are doing now. We
cannot get the Senate to confirm enough people to fill the vacancies
that exist on the Federal bench. Even if they did fill them, there
would not be enough judicial power to handle all of these cases.
Yet, here we are in our infinite wisdom saying that the Federal
courts know better; the State law, the Federal law, we know everything
at this level. This is absolutely contrary to the horse that my
colleagues rode into this House on, the States' rights horse. We should
not sanction this. It is just a bad idea.
The final point I want to make, and I will talk about this a little
bit more in the context of an amendment that I have to offer, is that
even if this were a good idea, this bill is so badly drafted, there are
some irrationalities in the drafting of the bill, that we are going to
try to correct some of them during the course of the debate, and
hopefully we will get some of those things worked out.
But there are some just severe unintended, or maybe they are
intended. I never know whether my colleagues are accomplishing things
that they intend or accomplishing things that they do not intend, since
they told me they intended to preserve States' rights, and they keep
cutting the legs from under it.''
Mr. Watt. I don't object to it being included in the record
in its totality. In fact, my plan is to offer it in its
totality, but I want to read excerpts from it, with the
Chairman's permission. And I'll do this quickly, just quickly.
First of all, I practiced law for a number of years before
I ever thought about running for Congress. There is just a
basic fairness argument that I think we all need to be aware
of.
If a plaintiff is injured, he goes and hires a lawyer. They
cultivate, research, put together a case, decide where the
appropriate place is to litigate that case, spend months and
months preparing for the case, file the case. Two days later,
somebody who has done absolutely nothing to get that case to
trial, under this bill, has the ability to walk in and move
that case to another forum.
There is something patently unfair about that.
I just want us to focus on that.
The second point I want to make is that in 1994, when my
Republican colleagues came riding into the House, one of the
principles that they gave major lip service to was the whole
notion that there was too much going on at the Federal level,
that we needed to decentralize government, that our whole
system of federalism was in jeopardy, and we needed to return
power to the State. But time after time after time since 1994,
we have seen our Republican colleagues say, ``Well, we do not
like the result that we got at the State level, so let us
federalize this and let us just take it over,'' an absolute
erosion of States' rights in the criminal area.
And in the area of tort reform, they have tried to do it.
In the area of juvenile law, they have tried to do it. We
do not even have a juvenile court, a juvenile judge, a juvenile
counselor, and yet we have tried to federalize juvenile law.
And the people who are behind that are the very same people who
in 1994 were railing and rhetorically saying, ``This is
terrible, to federalize all this stuff.''
We need to be returning rights and responsibilities to the
most local level, to the State level, the local level, the
individual level. Here we are again in this matter, trying to
bring something else into a Federal court.
The third point I want to make: The Federal courts are
hopelessly backlogged. They cannot handle the business that
they are doing now.
And then I go on to talk about some of the drafting
problems with this bill, and there are serious drafting
problems with it that have not been resolved since it was
introduced originally and reintroduced and again reintroduced
this time.
I think we're making a major mistake, both in terms of
historical precedent and in terms of the federalism that many
of the people on this Committee have given lip service to.
And I encourage you to gut this bill. Pass this amendment.
I yield back.
Chairman Sensenbrenner. The gentleman's time has expired.
The question is on the gutting amendment offered by the
gentleman from North Carolina. [Laughter.]
Those in favor will say aye.
Opposed, no.
The noes appear to have it.
Mr. Watt. Recorded vote, Mr. Chairman.
Chairman Sensenbrenner. The recorded vote is demanded. The
question is on adoption of the amendment by the gentleman from
North Carolina. Those in favor will, as your names are called,
answer aye. Those opposed, no. And the clerk will call the
roll.
The Clerk. Mr. Hyde?
[No response.]
The Clerk. Mr. Gekas?
Mr. Gekas. No.
The Clerk. Mr. Gekas, no.
Mr. Coble?
[No response.]
The Clerk. Mr. Smith?
Mr. Smith. No.
The Clerk. Mr. Smith, no.
Mr. Gallegly?
[No response.]
The Clerk. Mr. Goodlatte?
Mr. Goodlatte. No.
The Clerk. Mr. Goodlatte, no.
Mr. Bryant?
[No response.]
The Clerk. Mr. Chabot?
[No response.]
The Clerk. Mr. Barr?
[No response.]
The Clerk. Mr. Jenkins?
[No response.]
The Clerk. Mr. Cannon?
[No response.]
The Clerk. Mr. Graham?
[No response.]
The Clerk. Mr. Bachus?
[No response.]
The Clerk. Mr. Hostettler?
Mr. Hostettler. No.
The Clerk. Mr. Hostettler, no.
Mr. Green?
[No response.]
The Clerk. Mr. Keller?
Mr. Keller. No.
The Clerk. Mr. Keller, no.
Mr. Issa?
Mr. Issa. No.
The Clerk. Mr. Issa, no.
Ms. Hart?
[No response.]
The Clerk. Mr. Flake?
[No response.]
The Clerk. Mr. Pence?
[No response.]
The Clerk. Mr. Conyers?
Mr. Conyers. Aye.
The Clerk. Mr. Conyers, aye.
Mr. Frank?
Mr. Frank. Aye.
The Clerk. Mr. Frank, aye.
Mr. Berman?
Mr. Berman. Aye.
The Clerk. Mr. Berman, aye.
Mr. Boucher?
Mr. Boucher. No.
The Clerk. Mr. Boucher, no.
Mr. Nadler?
Mr. Nadler. Aye.
The Clerk. Mr. Nadler, aye.
Mr. Scott?
Mr. Scott. Aye.
The Clerk. Mr. Scott, aye.
Mr. Watt?
Mr. Watt. Aye.
The Clerk. Mr. Watt, aye.
Ms. Lofgren?
[No response.]
The Clerk. Ms. Jackson Lee?
[No response.]
The Clerk. Ms. Waters?
Ms. Waters. Aye.
The Clerk. Ms. Waters, aye.
Mr. Meehan?
[No response.]
The Clerk. Mr. Delahunt?
Mr. Delahunt. Aye.
The Clerk. Mr. Delahunt, aye.
Mr. Wexler?
[No response.]
The Clerk. Ms. Baldwin?
[No response.]
The Clerk. Mr. Weiner?
[No response.]
The Clerk. Mr. Schiff?
Mr. Schiff. Aye.
The Clerk. Mr. Schiff, aye.
Mr. Chairman?
Chairman Sensenbrenner. No.
The Clerk. Mr. Chairman, no.
Chairman Sensenbrenner. Are there additional Members who
wish to cast or change their vote?
The gentleman from North Carolina?
Mr. Coble. No.
The Clerk. Mr. Coble, no.
Chairman Sensenbrenner. The gentleman from Tennessee?
Mr. Bryant. I vote no.
The Clerk. Mr. Bryant, no.
Chairman Sensenbrenner. The gentleman from Wisconsin?
Mr. Green. Mr. Green votes no.
The Clerk. Mr. Green, no.
Chairman Sensenbrenner. The gentleman from Georgia?
Mr. Barr. No.
The Clerk. Mr. Barr, no.
Chairman Sensenbrenner. The other gentleman from Tennessee?
Mr. Jenkins. No.
The Clerk. Mr. Jenkins, no.
Chairman Sensenbrenner. The gentlewoman from Pennsylvania?
Ms. Hart. No.
The Clerk. Ms. Hart, no.
Chairman Sensenbrenner. The gentleman from Arizona?
Mr. Flake. No.
The Clerk. Mr. Flake, no.
Chairman Sensenbrenner. Are there additional Members who
wish to cast or change their votes? If not, the clerk will
report.
The Clerk. Mr. Chairman, there are 9 ayes and 15 nays.
Chairman Sensenbrenner. And the amendment is not agreed to.
Are there further amendments?
The gentleman from California, Mr. Schiff.
Mr. Schiff. Mr. Chairman, I have a modest, nongutting
amendment at the desk. [Laughter.]
Chairman Sensenbrenner. The clerk will report the
amendment, and the Members will decide whether his statement is
accurate. [Laughter.]
Mr. Schiff. Okay, it may not be modest. [Laughter.]
The Clerk. Amendment to H.R. 2341, offered by Mr. Schiff
and Ms. Lofgren.
Chairman Sensenbrenner. Without objection, the amendment is
considered as read.
[The amendment follows:]
Chairman Sensenbrenner. and the gentleman is recognized for
5 minutes.
Mr. Schiff. Mr. Chairman, this bill, while attempting to
reform class action law has a far more reaching effect on
California, and perhaps at least one other State, because of
our current statutes.
Californians have chosen to enact strong unfair competition
laws that protect consumers by prohibiting deceptive business
practices. These laws are often enforced by the California
attorney general, but sometimes the attorney general does not
act and California laws allow a citizen to act as a private
attorney general.
These cases are not class action lawsuits. They're lawsuits
brought by private citizens and based entirely on California
law. They have more limited rights and remedies than class
actions, and there's no certification of a class in these
private attorney general lawsuits.
Unfortunately, this bill would force all of these cases
into Federal court as well. It does so because of an expansive
definition of class action, which includes private citizens
that represent the interests of the general public.
This amendment would merely amend the definition of class
action lawsuits so that laws like that in California, and I
believe at least one other State, would not be negated.
And so this is, I think, a modest States' rights amendment.
It would allow these private attorney general lawsuits to go
forward in State court.
Attempting to eliminate class action abuses is certainly an
admirable goal. But allowing a corporation that does millions
of dollars of business in California and avails itself of all
the protections of California law, and then may easily avoid
California State courts when it comes to a consumer protection
action brought by a California private attorney general, is an
unjust result for California consumers.
And I would urge the Committee to consider this amendment,
its limited scope, the fact that it does not gut the bill, but
does preserve the ability of States like California to enact
private attorney general laws.
Mr. Goodlatte. Mr. Chairman?
Chairman Sensenbrenner. Does the gentleman yield back?
Mr. Schiff. Yes.
Chairman Sensenbrenner. The gentleman from Virginia?
Mr. Goodlatte. I move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Goodlatte. Thank you, Mr. Chairman.
This is the gutting-over-time amendment, and I must
strongly oppose it. A rose by any other name would smell as
sweet, and a class action suit by any other name is still a
class action suit.
It is true that only a few States have this private
attorney general action. However, if this amendment were
passed, it would open the door for any State to adopt a similar
provision and pursue it in that fashion.
The fact of the matter is, if this is a truly California
private attorney general action, with only California parties,
it could not be removed to Federal court if this legislation
were enacted into law. But if it includes a multitude of
parties, not only California citizens but citizens of other
States and defendants of other States, it fits into the same
diversity jurisdiction concept that was written into our
Constitution and which this bill seeks to fulfill by changing
the statutory requirement from $75,000 per plaintiff to $2
million for the entire class.
And the fact of the matter is, if you have a multitude of
plaintiffs seeking action in this regard, it is effectively the
same thing as a class. When those actions seek monetary relief,
they are basically the same as class actions. Thus, H.R. 2341
would treat such cases as class actions for jurisdictional
purposes. This amendment would seek to strike that language in
an effort to prevent the removal of such cases to Federal
court.
This bill is designed to make sure that Federal court, the
court best able to handle a multitude of jurisdictions involved
in the case, has the opportunity to do so where appropriate.
And I'd also point out to the gentleman that the U.S. district
judge has, under this legislation, wide latitude in remanding
back to State court any actions that that judge feels are
inappropriately brought into Federal court. And, therefore, I
don't see the need for this amendment.
I would urge my colleagues to oppose it.
Chairman Sensenbrenner. Does the gentleman yield back?
Mr. Goodlatte. I do.
Mr. Watt. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from North Carolina,
Mr. Watt.
Mr. Watt. Thank you, Mr. Chairman. I move to strike the
last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Watt. Thank you, Mr. Chairman. I think I'd be remiss as
the chairman of the ``States' Rights Caucus'' not to rise in
support of the gentleman's amendment. And I yield the balance
of my time to Mr. Schiff.
Mr. Schiff. I thank the gentleman for yielding, and I'm
proud to join the ``States' Rights Caucus'' of the Judiciary
Committee. [Laughter.]
I want to respond just very briefly to the comment that
this doesn't gut the bill, but it is the first step on a long,
multistate conspiracy that eventually could gut the bill.
The fact of the matter is, the amendment simply provides
that a State like California that passes a private attorney
general law to protect its consumers ought not to have that
right taken away by the Federal Government and certainly ought
not to have that right taken away by Federal Government without
any proof of abuse of that law, merely by the speculation that
49 other States may decide to follow that same course and then
there would pandemonium.
The fact of the matter is, under this bill, if a
corporation that does 90 percent of its business decides to
incorporate in Delaware instead of California, it does 90
percent of its business in California and undertakes actions
which are injuring the consumers in California, and a private
attorney general brings a lawsuit to enjoin that action, to
seek restitution for the damage done to Californians, this
Committee is prepared to say no, the States don't have the
right to do that; we're going to take that away.
Mr. Goodlatte. Would the gentleman yield?
Mr. Schiff. I will be glad to yield to the gentleman in
just a moment.
It seems to me that that is an extraordinary action to take
for a Committee that is normally very respectful of the rights
of States, particularly vis-a-vis protecting their consumers.
And while this may only affect California and one other State
currently, we are effectively cutting off this method of
recompense in the future for others.
And I'd be delighted to yield.
Mr. Watt. I'm happy to yield to the gentleman from
Virginia.
Mr. Goodlatte. I appreciate the gentleman.
I'd just ask the gentleman if he thinks it appropriate that
a $75,000 slip and fall case involving a California resident
and a Nevada company, which can be brought in Federal court, if
the gentleman thinks it isn't appropriate that a multimillion
dollar case involving a multitude of plaintiffs ought also to
be able to be brought in Federal court.
Mr. Watt. Just reclaiming my time, I'll tell the gentleman
that, really, if you believe in the principles that we've been
operating under in this country for years and years, there
really shouldn't be a different answer on those. The amount of
money really shouldn't be driving this and that's----
Mr. Goodlatte. If the gentleman yield further, are you----
Mr. Watt. That's really where you have this going now.
Mr. Goodlatte. Are you saying that you would eliminate the
diversity----
Mr. Watt. No, I'm not saying that. I'm saying we've had the
diversity rules in place for years and years and years, and
this goes so far beyond any diversity rules that are in place
now, you are radicalizing and revolutionizing the whole process
here.
And this bill doesn't have anything to do with the
diversity rules. If you believed in the diversity rules, you
wouldn't need this bill. The diversity rules stay in place and
continue to be in place.
And this novel argument that you're making, that over time,
the States will decide to do something that we don't like, is
exactly what the Founding Fathers decided was important for the
States to be able to do.
And you're coming in, making it sound like you are the
defender of good here. The Founding Fathers set up this system
so that exactly what you're saying might happen over time can
happen over time, because they believed that the States had as
much sense as the people up here, sitting in this Judiciary
Committee.
Mr. Frank. Will the gentleman yield?
Mr. Watt. I yield to the gentleman from Massachusetts.
Mr. Frank. I thank the gentleman from North Carolina.
The gentleman from North Carolina is one of the Members I
admire most, and I hate to think of him as ever being lonely,
so I have a suggestion. Namely, as Chair of the ``States'
Rights Caucus,'' I suggest that he establish memberships by the
week, unlike other caucuses. [Laughter.]
And I think that's the only way he can avoid being the
continuing only member of his caucus. [Laughter.]
Mr. Watt. I think membership by the week, unfortunately, is
way, way too long.
Mr. Frank. By the bill?
Mr. Watt. It ebbs and flows by the moment----
Mr. Delahunt. Will the gentlemen yield?
Mr. Watt.--depending on whether they think it's convenient
to their cause or not or convenient to their purpose. They want
to change the laws of federalism if they don't agree with the
States are doing.
And that's exactly what Mr. Goodlatte has just admitted his
concern is about this amendment.
Mr. Delahunt. Will the gentleman yield?
Mr. Watt. And we're sitting here accepting it, as if that's
something that is good.
I yield to the other gentleman from Massachusetts.
Mr. Delahunt. Yes, I just want to remind the gentleman from
North Carolina that I am the co-chair of the ``States' Rights
Caucus,'' and I want to be acknowledged----
Mr. Watt. On which day? [Laughter.]
Mr. Delahunt.--as such.
And I'm beginning to think my friend and colleague from
Massachusetts is right, but maybe we can make it hourly, as
opposed to weekly.
I'd just like to----
Chairman Sensenbrenner. The gentleman's time has----
Mr. Delahunt. I move to strike the last word.
Chairman Sensenbrenner. The gentleman from Texas, Mr.
Smith.
Mr. Smith. Thank you, Mr. Chairman. I move to strike the
last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Smith. Mr. Chairman, I oppose this amendment and yield
to the gentleman from Virginia, Mr. Goodlatte.
Mr. Goodlatte. I thank the gentleman for yielding to me to
allow me the opportunity to defend myself against this assault.
I would just say to the purported chairman of the ``States'
Rights Caucus'' that he has States' rights turned on its head,
if you think that it's appropriate for one State court judge to
decide the laws of the 49 other States. What about the rights
of those States to have their laws determined in the very forum
that our Founding Fathers recognized as the appropriate place
to determine disputes between residents of different States--
the Federal courts.
That's why diversity jurisdiction was created. Class action
lawsuits were not known at that time. There's only been an
explosion of class action lawsuits in the last couple of
decades.
And this legislation is long overdue to address the problem
that those cases most needing to be heard in Federal court, to
resolve disputes among citizens of a variety of States, can be
heard in the jurisdiction appropriate for it.
This legislation has everything to do with States' rights,
and that is protecting the rights of States to be heard in an
independent forum.
Mr. Watt. Will the gentleman from Texas yield?
Mr. Smith. I'll be happy to yield to the gentleman from
North Carolina.
Mr. Watt. I just--I don't want to disagree with my
colleague from Virginia. There are some abuses taking place.
The problem I have is that this bill will allow manifold
abuses in the opposite direction than the ones that are taking
place now.
And this is one of the cases--the amendment that's under
debate is one of those cases. The attorney general in this
State files a lawsuit in California, and that lawsuit is going
to end up in Delaware or Mississippi or Massachusetts or
somewhere, just because of the provisions of this bill.
And you say you are defending the integrity of the system.
That's not defending the integrity of the system. That's
corrupting the system.
Mr. Smith. Mr. Chairman, I'll reclaim my time and yield to
the gentleman from Virginia.
Mr. Goodlatte. Just to respond briefly, the gentleman has
completely mischaracterized how the bill will operate. If the
lawsuit can be removed, it's going to be removed to the U.S.
District Court for the Southern or Northern District of
California. It's not going to be removed to Mississippi or
Alabama or any other place.
And that Federal court judge, if he believes it is more
appropriately heard in the California State courts, has an
abundance of discretion in this legislation to remand the case
back to the State courts, if he feels it's primarily a State
court action.
All this bill does is allow for the removal to Federal
courts of truly Federal diversity questions involving
plaintiffs from a multitude of different States and defendants
from a multitude of different States. And it certainly is not
going to accomplish what the gentleman describes.
I think it's a very fair and reasonable measure to give
real meaning to diversity in class action lawsuits.
Mr. Smith. Mr. Chairman, I'll yield back the balance of my
time.
Chairman Sensenbrenner. The question----
Mr. Delahunt. Mr. Chairman?
Chairman Sensenbrenner. For what purpose does the
gentleman----
Mr. Delahunt. I move to strike the last word.
Chairman Sensenbrenner.--from the Commonwealth of
Massachusetts seek recognition?
Mr. Delahunt. I move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Delahunt. I intend to yield to my friend from North
Carolina----
Mr. Watt. If you yield to me on the front end, I'll get out
of your way. I just want to read----
Mr. Delahunt. Okay.
Mr. Watt.--the language that the gentleman----
Chairman Sensenbrenner. Would the gentleman turn his mike
on so the reporter can hear every word you're saying?
Mr. Watt. On the top of page 18, let me read exactly what
this bill says: A class action may be removed to a district
court of the United States.
That can be in Mississippi, Delaware, Alabama.
So this--if the gentleman is saying I'm misstating what the
bill does, he needs to read the bill.
I yield back. Thank you.
Mr. Boucher. Would the gentleman yield to me, the gentleman
from Massachusetts? Just for a moment? [Laughter.]
I accept silence as consent. [Laughter.]
Mr. Delahunt. For the gentleman from Virginia, I will
yield, for a moment.
Mr. Boucher. Thank you very much.
Let me simply say to the gentleman from North Carolina that
venue is a separate requirement and also would have to be
observed in these matters. And so you can look at the language
that the gentleman from North Carolina has cited, and, yes, it
does not designate a specific United States district code, but
the venue rules clearly do.
Mr. Watt. Will the gentleman yield briefly to me?
Mr. Delahunt. I yield to Mr. Watt.
Mr. Watt. And the point I'm making is, if you've got a
class member who has done absolutely nothing, who lives in
Alabama, an appropriate venue for that case may well be
Alabama, even though the attorney general is representing 80
percent of the people in the class in the State of California.
So that doesn't address this. You may like for this problem
to go away, but that's one of those issues that--I mean, I
didn't go item-by-item, as I did in the last markup, and try to
amend this bill. I just did one fell swoop, and I did it
honestly and on top of the table.
Mr. Berman. Would the gentleman yield for----
Mr. Delahunt. I'll yield to the gentleman.
Mr. Berman. Thank you.
The gentleman from North Carolina refers to the attorney
general. I thought this amendment was focused on private
attorney generals. Does this bill have the impact of affecting
actions brought by the elected attorney general? Does the bill
which the gentleman from California seeks to amend--in other
words, I guess I'm asking the gentleman from North Carolina,
when you say ``the attorney general,'' do you mean under the
private attorney general concept or the actual elected attorney
general?
Mr. Watt. I assume that this bill applies to any class
action.
Mr. Berman. Including those----
Mr. Watt. I don't see anything contrary in the bill.
Mr. Delahunt. I yield to the gentleman from California, Mr.
Schiff.
Mr. Schiff. I thank the gentleman for yielding.
The California business and professional code section
dealing with unfair competition empowers the attorney general
to take action or, in the absence of attorney general action, a
city or a county or a person acting in the public interest. The
bill does have a provision in it that says--that excludes an
action by a State attorney general. So this would only, as I
read it, negate that section of the California law applies when
a citizen becomes a private attorney general, not the State
attorney general himself or herself.
Mr. Delahunt. Reclaiming my time, I just want to mention to
my friend from California that the concept of devolution in
States' rights used to be in vogue here in this particular
institution back in 1994, '95, '96. And it's really been in
decline over the course of the past several years. We might
just put it--might as well just call it the end of federalism,
the way we're heading.
But it was--an observation was made relative to your
amendment that this is gutting over time. If you had served on
this particular Committee during the course of the last six
years, you would have seen that proposals continue to come
forward that erode the entire concept of class action, because
they have really become a nuisance, class action suits, for
corporate America. And maybe it's just about time we get
legislation before us just to abolish them.
With that, I'll----
Mr. Frank. Will the gentleman yield to me?
Mr. Delahunt. I'll yield back to my friend from
Massachusetts.
Mr. Frank. Historically, let me make the record clear,
because I was here in '95. It has never been the mainstream
Republican argument to be for States' rights. They want to
decide it at whatever level of government the business
community is likeliest to get its----
Chairman Sensenbrenner. The time of the gentleman to make
Republican arguments is expired. [Laughter.]
The question is on the----
Mr. Weiner. Mr. Chairman?
Chairman Sensenbrenner. For what purpose does the gentleman
from New York, Mr. Weiner, seek recognition?
Mr. Weiner. I move to strike the last word to yield to the
gentleman from California, Mr. Schiff.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Schiff. I thank the gentleman for yielding.
A very brief clarification on the point that was raised:
The bill proposes to exclude this--its application when the
State attorney general acts; however, it does not make
reference to other provisions that are within the California
code.
So actions under California law for unfair competition that
are brought not only by a person acting in the interest of a
public who is not attorney general, but also by the district
attorney or by the city attorney--would appear to be swept
within the ambit of the bill.
So the bottom line is, although this bill might not impact
an action brought by the California attorney general himself,
if an action was brought by the district attorney or the city
attorney or by a private person acting as an attorney general,
then it could be removed out of a California court, even though
the claim is purely based on California law and diversity is
incomplete.
So it does have fairly broad action in negating the work of
the California Legislature.
And I yield back to the gentleman.
Mr. Weiner. I yield the balance of my time to the gentleman
from New York, Mr. Nadler.
Mr. Nadler. And I yield my time to the gentleman from
Massachusetts, who didn't have a chance to finish his remark,
pointing out that Republican Members----
Chairman Sensenbrenner. The time belongs to the other
gentleman from New York, Mr. Weiner----
Mr. Nadler. He yielded to me.
Chairman Sensenbrenner.--and only he can yield it.
Mr. Nadler. He yielded it to me.
Chairman Sensenbrenner. Yes.
Mr. Nadler. Fine. Mr. Chairman, reclaiming the time we just
wasted---- [Laughter.]
Mr. Chairman, I simply want to point out--I want to
complete the remark I assume Mr. Frank had started to make
before he was cut off, which is that the Republican reverence
for States' rights is not constant but is very consistent. That
is, they want power at whatever level of government, on any
given subject, that would be more hostile to consumers, most
hostile to anyone trying to enforce safety regulations, and
most friendly to big business and corporations trying to evade
regulation.
And that's what the record shows, and that's what this bill
is all about. And I'll yield back.
Chairman Sensenbrenner. The gentleman from New York, Mr.
Weiner, has 2 minutes and 32 seconds left. Do you wish to yield
back or use it?
Mr. Weiner. I will gladly yield back, Mr. Chairman.
Chairman Sensenbrenner. Okay.
Mr. Bryant. Mr. Chairman? Mr. Chairman, I have a brief
statement.
Chairman Sensenbrenner. For what purpose does the gentleman
from Tennessee seek recognition?
Mr. Bryant. Move to strike the requisite number of words.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Bryant. Let me say that what the proponents of this
amendment are saying is that when a State adopts a statute that
creates a cause of action, they should not--we should not be
able to remove that Federal court even though the law allows
that. And that's essentially an argument to eliminate
completely the diversity jurisdiction provisions of Article
III.
And I know our States' rights folks over there on that side
don't like to recognize the existence of the Constitution, but
it is there. And Article III does allow this diversity or this
removal process.
And any case that is brought pursuant to diversity, removed
to Federal court, is, by definition, a State claim. And that's
exactly what we're talking about here. Otherwise it would be a
Federal claim with exclusive jurisdiction in the Federal
courts.
Without this provision, there'd be a giant loophole in the
bill. And I just think it's a bad amendment.
And I would like to correct one point that's being made
over there, that a case could be removed from a State court in
California to a Federal court in Mississippi or Alabama or any
State under this proceeding. That's simply not the cases.
Mr. Watt. Would the gentleman yield?
Mr. Bryant. Well, let me make my point here, and I'll be
happy to yield.
Under the bill, it says that, on page 18, line 1, it
begins: A class action may be removed to a district court of
the United States in accordance with this chapter.
Now, you're reading only--you stopped reading awhile ago
about ``to a district court of the United States.'' You didn't
read the rest of the sentence, which said: with this--in
accordance with this chapter.
Now, this chapter is chapter 89, title 28, chapter 89,
which says, in addition to 30 days and all that, and it sets
parameters for how you remove a case, it says a defendant or a
defendant's desire to remove any civil action or criminal
prosecution from a State court shall file in the district court
of the United States or the district and division within which
such action is pending notice of removal.
In other words, if a State--if a private action is filed in
the Northern District of California in, let's say, San
Francisco court, if you were to remove that, you'd be limited
to removing that only to the Northern District Federal court of
California, not even the Southern District.
So I think that is an incorrect assessment of this law. And
if that's the only reason you're going to vote against it, then
you should vote for it.
Mr. Watt. Would the gentleman yield?
Mr. Bryant. I would yield my time back--or, I would yield
my time to Mr. Watt.
Mr. Watt. I thank the gentleman for yielding.
And I have to advise the gentleman that is he is guilty of
exactly what he has accused me of, because he stopped reading
in the middle sentence, too.
He should read the rest of the sentence, which says,
``without regard to whether any defendant is a citizen of the
State in which the action is brought.'' Which means that,
basically, you can remove it wherever you want to. You don't
even have to have diversity anymore.
So this argument that this about diversity jurisdiction is
shot down by the very language of--that you stopped reading in
the middle of the sentence on, just like you accused me of
stopping reading in the middle of the sentence. You don't even
have to have diversity because this is done without regard to
where the citizen lives.
Mr. Bryant. Well, let me reclaim my time. And I would just
say, I think you're misreading that completely. We're talking
about the defendant here. It's done without regard to where the
defendant is located. The chapter that will decide where this
case is to be determined, that provision is in the chapter of
the existing code, which says that it only can be removed to
the district and division of that district where the action,
the State action, is pending.
So I don't think there's any question. We have, perhaps----
Mr. Schiff. Will the gentleman yield?
Mr. Bryant.--a legitimate disagreement.
But I think the law is clear that it will only be, in the
example I gave, to the Northern District of California.
So I think it's----
Mr. Schiff. Will the gentleman yield?
Mr. Bryant. Yes, I'd be happy to yield to the gentleman
from California.
Mr. Schiff. I thank the gentleman for yielding.
I think both the strengths and weaknesses of this amendment
are being overstated. We come back to the fact, at the end of
this debate, that it is a modest amendment, after all.
What this is really about is not removing diversity
jurisdiction. Diversity jurisdiction remains. What is at stake
in the bill and in the amendment is what happens when there is
incomplete diversity, when there are parties from different
States but not completely different States, so that the
plaintiff may be a Californian, bringing a private attorney
general action in California, against a majority of defendants
what are Californians, but because the diversity is not
complete, because one of the defendants that does 90 percent of
their business in California is actually incorporated in
Delaware, it can be taken out of the California courtroom.
So you have quintessentially California action with a
California cause of action----
Mr. Bryant. Let me reclaim my time.
Mr. Schiff.--removed to Federal court.
Mr. Bryant. Let me reclaim my time so that I can say that--
--
Chairman Sensenbrenner. The gentleman's time has expired.
Mr. Bryant.--is not the case. That's not the case.
Chairman Sensenbrenner. The question is on the amendment
offered by the gentleman from California, Mr. Schiff.
Those in favor will signify by saying aye.
Opposed, no.
The noes appear to have it.
Mr. Schiff. Mr. Chairman, I request a rollcall.
Chairman Sensenbrenner. The rollcall will be ordered.
The question is on the adoption of the Schiff amendment.
Those in favor will, as your names are called, answer aye.
Those opposed, no. And the clerk will call the roll.
The Clerk. Mr. Hyde?
Mr. Gekas?
Mr. Gekas. No.
The Clerk. Mr. Gekas, no.
Mr. Coble?
Mr. Coble. No.
The Clerk. Mr. Coble, no.
Mr. Smith?
Mr. Smith. No.
The Clerk. Mr. Smith, no.
Mr. Gallegly?
[No response.]
The Clerk. Mr. Goodlatte?
Mr. Goodlatte. No.
The Clerk. Mr. Goodlatte, no.
Mr. Bryant?
Mr. Bryant. No.
The Clerk. Mr. Byrant, no.
Mr. Chabot?
[No response.]
The Clerk. Mr. Barr?
Mr. Barr. No.
The Clerk. Mr. Barr, no.
Mr. Jenkins?
Mr. Jenkins. No.
The Clerk. Mr. Jenkins, no.
Mr. Cannon?
[No response.]
The Clerk. Mr. Graham?
[No response.]
The Clerk. Mr. Bachus?
[No response.]
The Clerk. Mr. Hostettler?
Mr. Hostettler. No.
The Clerk. Mr. Hostettler, no.
Mr. Green?
Mr. Green. No.
The Clerk. Mr. Green, no.
Mr. Keller?
Mr. Keller. No.
The Clerk. Mr. Keller, no.
Mr. Issa?
Mr. Issa. No.
The Clerk. Mr. Issa, no.
Ms. Hart?
Ms. Hart. No.
The Clerk. Ms. Hart, no.
Mr. Flake?
[No response.]
The Clerk. Mr. Pence?
[No response.]
The Clerk. Mr. Conyers?
Mr. Conyers. Aye.
The Clerk. Mr. Conyers, aye.
Mr. Frank?
Mr. Frank. Aye.
The Clerk. Mr. Frank, aye.
Mr. Berman?
Mr. Berman. Aye.
The Clerk. Mr. Berman, aye.
Mr. Boucher?
Mr. Boucher. No.
The Clerk. Mr. Boucher, no.
Mr. Nadler?
Mr. Nadler. Aye.
The Clerk. Mr. Nadler, aye.
Mr. Scott?
Mr. Scott. Aye.
The Clerk. Mr. Scott, aye.
Mr. Watt?
Mr. Watt. Aye.
The Clerk. Mr. Watt, aye.
Ms. Lofgren?
[No response.]
The Clerk. Ms. Jackson Lee?
[No response.]
The Clerk. Ms. Waters?
Ms. Waters. Aye.
The Clerk. Ms. Waters, aye.
Mr. Meehan?
[No response.]
The Clerk. Mr. Delahunt?
Mr. Delahunt. Aye.
The Clerk. Mr. Delahunt, aye.
Mr. Wexler?
[No response.]
The Clerk. Ms. Baldwin?
Ms. Baldwin. Aye.
The Clerk. Ms. Baldwin, aye.
Mr. Weiner?
Mr. Weiner. Aye.
The Clerk. Mr. Weiner, aye.
Mr. Schiff?
Mr. Schiff. Aye.
The Clerk. Mr. Schiff, aye.
Mr. Chairman?
Chairman Sensenbrenner. No.
The Clerk. Mr. Chairman, no.
Chairman Sensenbrenner. Are there additional Members in the
chamber who wish to change or cast their vote?
The gentleman from Ohio?
Mr. Chabot. No.
The Clerk. Mr. Chabot, no.
Chairman Sensenbrenner. The gentleman from South Carolina?
Mr. Graham. No.
The Clerk. Mr. Graham, no.
Chairman Sensenbrenner. The gentleman from Arizona?
Mr. Flake. No.
The Clerk. Mr. Flake, no.
Chairman Sensenbrenner. Further Members who wish to cast or
change their vote? If not, the clerk will report.
The Clerk. Mr. Chairman, there are 11 ayes and 17 nays.
Chairman Sensenbrenner. And the amendment is not agreed to.
Are there further amendments?
The gentleman from New York, Mr. Nadler.
Mr. Nadler. Thank you, Mr. Chairman. I have an amendment at
the desk.
Chairman Sensenbrenner. The clerk will report the
amendment.
The Clerk. Amendment to H.R. 2341, offered by Mr. Nadler.
Page 10, add the following after line 23 and redesignate the
succeeding section accordingly:
Mr. Nadler. Mr. Chairman, I ask unanimous consent that
reading of the amendment be dispensed with.
Chairman Sensenbrenner. Without objection, so ordered.
[The amendment follows:]
Chairman Sensenbrenner. And the gentleman is recognized for
5 minutes.
Mr. Nadler. Mr. Chairman, this amendment is about sealing
secret information that could be used to protect the health and
safety of others. This amendment would prohibit a court from
sealing the records of a class action case if the records are
relevant to public health and safety.
I've been concerned for a number of years about records
from lawsuits that affect public health and safety being sealed
off from the public in the settlement of a lawsuit. To me,
there's no justification for this practice.
More often than not, the whole reason--the reason why a
class action lawsuit is filed is because a number of people
have been harmed by a large corporation. They come together to
recover damages by proving that a company behaved in a way that
is harmful to their health and safety.
So what happens? The company settles the lawsuit, pays the
people it harms, and then tells them to shut up and continues
with the dangers, people figuring a few every now and then,
we'll bring a class action suit, they'll pay off the people
bringing the suit, and they'll continue. And the cost of
settlements is a cost of doing business.
But meanwhile, many hundreds of thousands of people
continue being harm by the secret practice that continues to go
on. They force the plaintiffs never to discuss the problems
with anyone else. More people end up getting hurt. This is
reprehensible.
The Firestone tire situation is a case in point. One of the
main reasons why there was not timely public disclosure of the
dangers of Firestone tires is because Firestone insisted on a
series of gag orders when settling product liability lawsuits.
And let me read here from an article in the September
something-or-other--September 25th, 2000, addition of the Legal
Times article on Firestone. It says: ``One of the principle
roadblocks to timely public disclosure of the danger of
Firestone tires has been a series of gag orders the company
insisted on as a condition of settling product liability
lawsuits in the early 1990's.''
``Simply put, Firestone made a calculated determination
that they would compensate victims so long as the plaintiffs
agreed not to share their stories with other victims or the
public. Congress was given the opportunity to address this very
problem in 1995 when an amendment was offered that would
prevent such gag orders if the public safety need outweighed
the privacy interests of the litigants.''
``Unfortunately, the amendment was defeated, with opponents
arguing that the information was proprietary information that
does not belong in the public domain.''
The reality is that the release of such information in the
Firestone case 7 or 8 years ago potentially could've saved
scores of human lives.
We should not allow this to happen again. We can't blame
the people who settled their cases for recovering damages and
agreeing to the gag orders as a condition of getting the money.
But as a result, the public was kept in the dark, and many more
people were injured.
This should not happen again. It's important for the people
to be aware of the health and safety hazards that may exist so
that other people can make informed choices about their lives,
and, I might add, so that public agencies, perhaps, can crack
down on such dangers.
Too often, critical information is sealed from the public
and other people are harmed as a result. When it comes to
health and safety, public access to the information that is
adduced in class action lawsuits is absolutely essential.
I urge my colleagues to accept this amendment. I yield
back.
Mr. Goodlatte. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from Virginia, Mr.
Goodlatte.
Mr. Goodlatte. I move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Goodlatte. Thank you, Mr. Chairman.
I must oppose this amendment. I think that this discretion
should be left in the hands of the judge. Settlements often
include private information that deter individuals from
entering settlements. Publicizing these details would have a
chilling effect on individuals interested in settlement rather
than protracted and expensive litigation.
Furthermore, settlements are reviewed by the court.
Releasing details will have the effect of opening judicial
determination to public scrutiny----
Mr. Nadler. Well, that's terrible.
Mr. Goodlatte.--possibly affecting the outcome or judgment
from the bench in future settlements with similar facts.
This amendment would eliminate an effective negotiating
tool for plaintiffs and force more cases to be litigated at the
expense of the client and to the benefit of his or her lawyer.
There are plenty of cases where the information that the
gentleman describes definitely should be made public. And I
share the gentleman's concern in that regard.
But there are also plenty of cases in which terms of
settlement do not need to be made public and always requiring,
as a matter of law, that it be done so, handcuffing the judge
in the case and creating a chilling effect on the ability of
the parties to settle is not a good idea.
I urge opposition to the amendment.
Chairman Sensenbrenner. The question is on the----
Mr. Scott. Mr. Chairman? Move to strike the last word.
Chairman Sensenbrenner. The Committee is recessed.
[Recess.]
Chairman Sensenbrenner. The Committee will be in order.
Pending when the Committee recessed was the amendment of
the gentleman from New York, Mr. Nadler, to the bill H.R. 2341.
For what purpose does the gentleman from Virginia seek
recognition?
Mr. Scott. Move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Scott. Mr. Chairman, I rise in support of the
amendment, and yield the balance of the time to the gentleman
from New York.
Mr. Nadler. Thank you, Mr. Chairman.
I just wanted to comment or reply to the comments of, I
think it was the gentleman Virginia, who first of all said that
one of problems with this amendment was that it would open
judicial rulings to public scrutiny, which I think it might
very well do, and I don't think it's a terrible thing. I think,
in fact, it's one of the things we normally like to do with
judicial rulings.
But second of all, his other major point was that he agrees
that gag orders should not be issued when it would affect the
public health and safety, but sometimes have to be, and you
have to leave that to the discretion of the judge. And
unfortunately, he said, we can't have an amendment that doesn't
leave it to the discretion of the judge. But this amendment,
sir, does leave it to the discretion of the judge.
And maybe it hasn't been read in its entirety. Let me read
the relevant part. It says: Any access to such record may not
otherwise be restricted--and I'm reading line 7 now--except by
a court order issued pursuant to a finding of fact by the court
that one such order would not restrict the disclosure of
information which is relevant to public health or safety, or,
two, the public--A, the public interest in disclosing potential
health or safety hazards is clearly outweighed by a specific
and substantial interests in maintaining the confidentially of
the information or records in question; and, B, the order is no
broader than necessary to protect the privacy interests
asserted.
So in other words, what this amendment does is command the
judge that he must make a finding of fact where a gag order is
requested. And if he finds that the privacy interest is broader
than the public interest or the order, then he must issue the
gag order. If he finds that the public interest in health and
safety outweighs the privacy interests asserted, he may not
issue the gag order. He also has to find out that the gag order
is drafted as tightly as possible.
So this amendment seems to do exactly what the gentleman
from Virginia thinks is the proper thing to do, so I hope he
and the other Members on both sides of the aisle will vote for
this amendment.
I thank the gentleman for yielding, and I yield back to
him.
Chairman Sensenbrenner. The question is----
Mr. Delahunt. Mr. Chairman?
Chairman Sensenbrenner. Has the gentleman from
Massachusetts been recognized earlier on this amendment?
Mr. Delahunt. No, I have not.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Delahunt. I move to strike the last word.
Mr. Chairman, I find it interesting that the argument is
put forth that when it comes to settlements, we can encourage
discretion and trust those judges. Yet, there has been a
history, a record, that this Committee, when it comes to
imposing criminal sentences, we really can't trust those same
judges. And that's why, again and again and again, from this
Committee, we continue to report out favorably proposals for
mandatory sentences.
I really find an inconsistency there. But then again,
earlier, in the previous amendment, we talked about the
inconsistency when it comes to States' rights. So I guess
there's a consistency in terms of the inconsistency.
But maybe, I don't know, maybe the sponsor of the amendment
can help me with that? I just find it amazing--amazing.
And of course, we hear from the opponent of the amendment
that it will have a chilling effect, in terms of settlement. I
don't know, maybe the gentleman from Virginia or maybe the
gentleman from New York can point us to some----
Mr. Nadler. Will the gentleman yield?
Mr. Delahunt. Yes, I yield to the gentleman from New York.
Mr. Nadler. First of all, I find it amazing, too.
But, second of all, I think the only chilling effect the
amendment might have is that a corporation that is really
grossly ashamed of shameful and terrible conduct would be,
might be, reluctant to allow that to go public as part of a
settlement.
But I frankly think that in such a case----
Mr. Delahunt. Reclaiming my time, you mean, for example, in
the case of Firestone? Is that what the gentleman is
suggesting?
Mr. Nadler. Yes. I mean, that was a clear case. There are
other cases, too. But that's the only conceivable chilling
effect. If the conduct that is admitted, in effect, or even not
admitted--because a settlement can say, listen, just let's get
this off our heads without admitting any facts.
That conduct might not be so opprobrious and then they----
Mr. Delahunt. Reclaiming my time, is the gentleman from New
York aware of any survey, any data, any research done in terms
of a chilling effect?
Mr. Nadler. No, sir.
Mr. Delahunt. In terms of settlements?
Mr. Nadler. No, sir.
Mr. Delahunt. If there were somehow disclosure?
Mr. Nadler. No, sir.
Mr. Delahunt. I see. Well, I guess my questions go
unanswered, and I'll yield back my time.
Chairman Sensenbrenner. The question is on the Nadler
amendment----
Mr. Watt. Mr. Chairman? Mr. Chairman?
Chairman Sensenbrenner. For what purpose does the gentleman
from North Carolina seek----
Mr. Watt. I move to strike the last word, briefly.
Chairman Sensenbrenner. The gentleman is--was the gentleman
recognized on this amendment before?
Mr. Watt. I haven't even been here on this amendment, so I
know I wasn't----
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Watt. I thank the Chairman for yielding time. And I
just wanted to ask Mr. Nadler, perhaps, if he would make the
first sentence of his amendment also subject to the same
requirements that he has made the rest of it.
There is an absolute bar to sealing a class action opinion
or order, which I think may go--I could conceive of situations
where that would go too far. And I'm wondering if the gentleman
might consider making the first part of the amendment also
subject to the same finding of fact order that the second part
of the amendment is subject to?
Mr. Nadler. Would the gentleman yield?
Mr. Watt. I yield.
Mr. Nadler. Thank you. I don't think you're reading it
correctly, sir. And that's certainly not the intent.
The first sentence says: No order or opinion may be sealed.
The second sentence goes on to say under what circumstances
it can't be sealed. Any court reading this would understand
that the first sentence is subject to the second sentence,
because the whole point of the amendment is to do that.
And if you read the first sentence to be independent of the
rest of the amendment, the rest--the amendment would have no
meaning at all; the rest of the amendment would have no
meaning. So I see no possibility of reading it that way.
But if it concerns you, I'll be happy to make that more
clear after it gets out of Committee.
Mr. Watt. I do think that the first sentence could be read
independently, because the second sentence really is dealing
with discovery and other things, not necessarily the opinion
itself. And I do think it's important----
Mr. Nadler. Would the gentleman yield?
Mr. Watt. I'll yield, yes.
Mr. Nadler. Mr. Chairman, I ask unanimous consent to amend
the amendment by adding the following phrase at the conclusion
of the first sentence--let me read the first sentence as I
would amend it: No order or opinion of the court in the
adjudication of a class action may be sealed except as provided
in this section.
Chairman Sensenbrenner. Without objection, the amendment is
so modified.
Mr. Watt. I thank the gentleman. I think that clears it up.
Mr. Nadler. Thank you.
Mr. Watt. And I think it makes it a better amendment.
Chairman Sensenbrenner. Does the gentleman yield back? The
gentleman from North Carolina?
Mr. Watt. I yield back, yes.
Chairman Sensenbrenner. The question is on the Nadler
amendment as modified.
Those in favor will say aye.
Opposed, no.
The noes appear to have it.
Mr. Nadler. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from New York.
Mr. Nadler. rollcall vote, please.
Chairman Sensenbrenner. rollcall is ordered. Those in favor
of the Nadler amendment will, as your name is called, answer
aye. Those opposed, no. And the clerk will call the roll.
The Clerk. Mr. Hyde?
[No response.]
The Clerk. Mr. Gekas?
[No response.]
The Clerk. Mr. Coble?
Mr. Coble. No.
The Clerk. Mr. Coble, no.
Mr. Smith?
Mr. Smith. No.
The Clerk. Mr. Smith, no.
Mr. Gallegly?
[No response.]
The Clerk. Mr. Goodlatte?
Mr. Goodlatte. No.
The Clerk. Mr. Goodlatte, no.
Mr. Bryant?
Mr. Bryant. No.
The Clerk. Mr. Byrant, no.
Mr. Chabot?
Mr. Chabot. No.
The Clerk. Mr. Chabot, no.
Mr. Barr?
[No response.]
The Clerk. Mr. Jenkins?
[No response.]
The Clerk. Mr. Cannon?
[No response.]
The Clerk. Mr. Graham?
[No response.]
The Clerk, Mr. Bachus?
[No response.]
The Clerk. Mr. Hostettler?
Mr. Hostettler. No.
The Clerk. Mr. Hostettler, no.
Mr. Green?
[No response.]
The Clerk. Mr. Keller?
Mr. Keller. No.
The Clerk. Mr. Keller, no.
Mr. Issa?
[No response.]
The Clerk. Ms. Hart?
[No response.]
The Clerk. Mr. Flake?
[No response.]
The Clerk. Mr. Pence?
Mr. Pence. No.
The Clerk. Mr. Pence, no.
Mr. Conyers?
[No response.]
The Clerk. Mr. Frank?
[No response.]
The Clerk. Mr. Berman?
Mr. Berman. Aye.
The Clerk. Mr. Berman, aye.
Mr. Boucher?
Mr. Boucher. No.
The Clerk. Mr. Boucher, no.
Mr. Nadler?
Mr. Nadler. Aye.
The Clerk. Mr. Nadler, aye.
Mr. Scott?
Mr. Scott. Aye.
The Clerk. Mr. Scott, aye.
Mr. Watt?
Mr. Watt. Aye.
The Clerk. Mr. Watt, aye.
Ms. Lofgren?
[No response.]
The Clerk. Ms. Jackson Lee?
[No response.]
The Clerk. Ms. Waters?
[No response.]
The Clerk. Mr. Meehan?
[No response.]
The Clerk. Mr. Delahunt?
Mr. Delahunt. Aye.
The Clerk. Mr. Delahunt, aye.
Mr. Wexler?
[No response.]
The Clerk. Ms. Baldwin?
Ms. Baldwin. Aye.
The Clerk. Ms. Baldwin, aye.
Mr. Weiner?
[No response.]
The Clerk. Mr. Schiff?
Mr. Schiff. Aye.
The Clerk. Mr. Schiff, aye.
Mr. Chairman?
Chairman Sensenbrenner. No.
The Clerk. Mr. Chairman, no.
Chairman Sensenbrenner. Are there further Members in the
room who wish to cast or change their vote?
The gentleman from Utah, Mr. Cannon?
Mr. Cannon. No.
The Clerk. Mr. Cannon, no.
Chairman Sensenbrenner. The gentleman from South Carolina,
Mr. Graham?
Mr. Graham. No.
The Clerk. Mr. Graham, no.
Chairman Sensenbrenner. The gentleman from Tennessee, Mr.
Jenkins?
Mr. Jenkins. No.
The Clerk. Mr. Jenkins, no.
Chairman Sensenbrenner. The gentlewoman from Pennsylvania,
Ms. Hart?
Ms. Hart. No.
The Clerk. Ms. Hart, no.
Chairman Sensenbrenner. Further Members who wish to--the
gentleman from Arizona, Mr. Flake?
Mr. Flake. No.
The Clerk. Mr. Flake, no.
Chairman Sensenbrenner. The gentleman from Massachusetts,
Mr. Meehan?
Mr. Meehan. Yes.
The Clerk. Mr. Meehan, aye.
Chairman Sensenbrenner. The gentleman from Wisconsin, Mr.
Green.
Mr. Green. No.
The Clerk. Mr. Green, no.
Chairman Sensenbrenner. The gentleman from New York, Mr.
Weiner?
Mr. Weiner. Aye.
The Clerk. Mr. Weiner, aye.
Chairman Sensenbrenner. Anybody else who wishes to cast or
change their vote? If not, the clerk will report.
The Clerk. Mr. Chairman, there are 9 ayes and 16 nays.
Chairman Sensenbrenner. And the amendment is not agreed to.
Are there further amendments? If not, the question occurs on
the motion to report the bill H.R. 2341 favorably as amended.
The Chair notes a reporting quorum is present.
All in favor will say aye.
Opposed, no.
The ayes appear to have it.
Mr. Nadler. Mr. Chairman, a recorded vote, please?
Chairman Sensenbrenner. A recorded vote on the motion to
report favorably is ordered. Those in favor will, as your names
are called, answer aye. Those opposed, no. And the clerk will
call the roll.
The Clerk. Mr. Hyde?
[No response.]
The Clerk. Mr. Gekas?
[No response.]
The Clerk. Mr. Coble?
Mr. Coble. Aye.
The Clerk. Mr. Coble, aye.
Mr. Smith?
Mr. Smith. Aye.
The Clerk. Mr. Smith, aye.
Mr. Gallegly?
[No response.]
The Clerk. Mr. Goodlatte?
Mr. Goodlatte. Aye.
The Clerk. Mr. Goodlatte, aye.
Mr. Bryant?
[No response.]
The Clerk. Mr. Chabot?
Mr. Chabot. Aye.
The Clerk. Mr. Chabot, aye.
Mr. Barr?
[No response.]
The Clerk. Mr. Jenkins?
Mr. Jenkins. Aye.
The Clerk. Mr. Jenkins, aye.
Mr. Cannon?
[No response.]
The Clerk. Mr. Graham?
[No response.]
The Clerk. Mr. Bachus?
[No response.]
The Clerk. Mr. Hostettler?
Mr. Hostettler. Aye.
The Clerk. Mr. Hostettler, aye.
Mr. Green?
Mr. Green. Aye.
The Clerk. Mr. Green, aye.
Mr. Keller?
Mr. Keller. Aye.
The Clerk. Mr. Keller, aye.
Mr. Issa?
[No response.]
The Clerk. Ms. Hart?
Ms. Hart. Aye.
The Clerk. Ms. Hart, aye.
Mr. Flake?
[No response.]
The Clerk. Mr. Pence?
Mr. Pence. Aye.
The Clerk. Mr. Pence, aye.
Mr. Conyers?
[No response.]
The Clerk. Mr. Frank?
[No response.]
The Clerk. Mr. Berman?
Mr. Berman. No.
The Clerk. Mr. Berman, no.
Mr. Boucher?
Mr. Boucher. Aye.
The Clerk. Mr. Boucher, aye.
Mr. Nadler?
Mr. Nadler. No.
The Clerk. Mr. Nadler, no.
Mr. Scott?
Mr. Scott. No.
The Clerk. Mr. Scott, no.
Mr. Watt?
Mr. Watt. No.
The Clerk. Mr. Watt, no.
Ms. Lofgren?
[No response.]
The Clerk. Ms. Jackson Lee?
[No response.]
The Clerk. Ms. Waters?
[No response.]
The Clerk. Mr. Meehan?
Mr. Meehan. No.
The Clerk. Mr. Meehan, no.
Mr. Delahunt?
Mr. Delahunt. No.
The Clerk. Mr. Delahunt, no.
Mr. Wexler?
[No response.]
The Clerk. Ms. Baldwin?
Ms. Baldwin. No.
The Clerk. Ms. Baldwin, no.
Mr. Weiner?
Mr. Weiner. No.
The Clerk. Mr. Weiner, no.
Mr. Schiff?
Mr. Schiff. No.
The Clerk. Mr. Schiff, no.
Mr. Chairman?
Chairman Sensenbrenner. Aye.
The Clerk. Mr. Chairman, aye.
Chairman Sensenbrenner. Other Members in the room who wish
to cast or change their vote?
The gentleman from Utah, Mr. Cannon?
Mr. Cannon. Aye.
The Clerk. Mr. Cannon, aye.
Chairman Sensenbrenner. The gentleman from South Carolina,
Mr. Graham?
Mr. Graham. Aye.
The Clerk. Mr. Graham, aye.
Chairman Sensenbrenner. The gentleman from Tennessee, Mr.
Bryant?
Mr. Bryant. Aye.
The Clerk. Mr. Bryant, aye.
Chairman Sensenbrenner. Anybody else who wish to cast or
change their vote?
The gentleman from Arizona, Mr. Flake?
Mr. Flake. Aye.
The Clerk. Mr. Flake, aye.
Chairman Sensenbrenner. The gentleman from Massachusetts,
Mr. Frank?
Mr. Frank. Aye. No. [Laughter.]
Chairman Sensenbrenner. Anybody else who wish to cast or
change their vote?
Can we make sure that Mr. Frank is recorded how he really
wants to vote?
The Clerk. Mr. Frank, no.
Chairman Sensenbrenner. Okay, the clerk will report.
The Clerk. Mr. Chairman, there are 16 ayes and 10 nays.
Chairman Sensenbrenner. And the motion to report favorably
is agreed to. Without objection, the bill will be reported
favorably to the House in the form of a single amendment in the
nature of a substitute incorporating the amendments adopted.
Without objection, the Chair is authorized to move to go to
conference pursuant to House Rules. Without objection, the
staff is directed to make any technical and conforming changes.
And all Members will be given 2 days as provided by the House
Rules in which to submit additional dissenting, supplemental,
or minority views.
Additional Views
Section 4 of this bill has a far more reaching effect than
``federalizing'' Consumer Protection Class Actions. Section 4
``federalizes'' any State cause of action that is brought on
behalf of the general public.
California, like many other States, has enacted strong
antitrust laws that prohibit unfair combinations and unlawful
restraints of trade.\1\ California has chosen to allow its
District Attorneys, along with the California Attorney General,
to enforce these laws in State courts.
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\1\ See California Business and Professions Code sections 16700, et
seq. and 17000, et seq.
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This bill usurps California's choice. Under Section 4(a)'s
expansive definition of ``class action,'' a District Attorney
who attempts to enforce State antitrust laws on behalf of the
general public is subject to the act's constraints.
The Federal Government should not be forcing local
prosecutors to try state antitrust lawsuits in Federal court.
Nor should the Federal Government force local prosecutors to
comply with Federal class certification requirements or risk
dismissal of their State antitrust actions.
Put simply, H.R. 2341 is a stealthy attempt to chill State
and local antitrust law enforcement. That effort is contrary to
long-standing legal doctrines of our nation. It will also
adversely impact competition and business development in the
high tech sector, which is vital to this nation's future. I,
therefore, strongly oppose H.R. 2341.
Zoe Lofgren.
Dissenting Views
We strongly oppose H.R. 2341, the ``Class Action Fairness
Act of 2001.'' Although the legislation is described by its
proponents as a simple procedural fix, in actuality it
represents a major rewrite of the class action rules that would
bar most forms of state class actions. H.R. 2341 (or its
predecessor version) \1\ is opposed by both the state \2\ and
federal \3\ judiciaries, as well as consumer and public
interest groups, including Public Citizen \4\ and Consumers
Union.\5\
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\1\ H.R. 2341 is the third time class action legislation has been
offered in Congress. During the 105th Congress, the Full Committee
marked-up and reported out on a party line vote the ``Class Action
Jurisdiction Act of 1998,'' which was also similar in most respects to
H.R. 2341. The bill, however, was never considered by the Full House
during the 105th Congress. In 1999, after a hearing and mark-up, the
House Committee on the Judiciary reported out, by a 15-12 vote, the
``Interstate Class Action Jurisdiction Act of 1999,'' which was similar
in most respects to H.R. 2341 under consideration today. On September
23, 1999 the House passed the legislation 22-207. It was never voted on
in the Senate.
\2\ See Letter from David A. Brock, President, Conference of Chief
Justices (July 19, 1999) (on file with the minority staff of the House
Judiciary Committee) [hereinafter Conference of Chief Justices letter]
(stating that ``H.R. 1875, in its present form, is an unwarranted
incursion on the principles of judicial federalism.'').
\3\ See Letters from Leonias Ralph Mecham, Secretary, Judicial
Conference of the United States (July 26, 1999 & August 23, 1999)
(letters on file with the minority staff of the House Judiciary
Committee) [hereinafter Judicial Conference letter] (stating that on
July 23, 1999, the Executive Committee of the Conference voted to
express its opposition to the class action provisions in H.R. 1875).
\4\ See Letter from Joan Claybrook, President, Public Citizen
(March 5, 2002)(letter on file with minority staff of the House
Judiciary Committee).
\5\ See Letter from Sally J. Greenberg, Senior Product Safety
Counsel, Consumers Union (March 5, 2002)[hereinafter Consumers Union
Letter](letter on file with minority staff of the House Judiciary
Committee).
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By providing plaintiffs access to the courts in cases where
a defendant may have caused small injuries to a large number of
persons, class action procedures have traditionally offered a
valuable mechanism for aggregating small claims that otherwise
might not warrant individual litigation. This legislation will
undercut that important principle by making it far more
burdensome, expensive, and time-consuming for groups of injured
persons to obtain access to justice. Thus, it would be more
difficult to protect our citizens against violations of fraud,
consumer health and safety, and environmental laws, to name but
a few important laws. The legislation goes so far as to prevent
state courts from considering class action cases which involve
solely violations of state laws, such as state consumer
protection laws.
As Consumers Union has written, ``This `class action
reform' legislation is especially inappropriate and ill-timed
right now. With the bankruptcy of Enron leaving many investors
and employees of the company with vastly diminished retirement
savings, while Enron's executives sold stock and made millions
of dollars months before the stock value plummeted, these
investors deserve the right to hold any corporate wrongdoers
accountable. This is no time to constrict legal remedies by
curtailing access to the courts, including state courts.\6\
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\6\ See Consumers Union Letter
---------------------------------------------------------------------------
H.R. 2341 provides for the removal of state class action
claims to Federal court in cases involving violations of state
law where any member of the plaintiff class is a citizen of a
different state than any defendant.\7\ The only exceptions
provided in H.R. 2341 are that Federal courts are directed to
abstain from hearing a class action where (1) a ``substantial
majority'' of the members of the proposed class are citizens of
a single state of which the primary defendants are citizens and
the claims asserted will be governed primarily by laws of that
state (``an intrastate case''); (2) all matters in controversy
do not exceed $2,000,000 or the membership of the proposed
class is less than 100 (``a limited scope case''); or (3) the
primary defendants are states, state officials, or other
government entities against whom the district court may be
foreclosed from ordering relief (``a state action case'').\8\
In the event the district court determines that the action
subject to its jurisdiction does not satisfy the requirements
of Federal Rule of Procedure 23, under the bill the court must
dismiss the action,\9\ which has the effect of striking the
class action claim.\10\
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\7\ H.R. 2341, Sec. 4(a). Current law requires there to be complete
diversity before a state law case is eligible for removal to Federal
court, that is to say that all of the plaintiffs must be citizens
residing in different states than all of the defendants. See Stawbridge
v. Curtiss, 7 U.S. (3 Cranch) 267 (1806). In Snyder v. Harris, 394 U.S.
332 (1969), the Supreme Court held that the court should only consider
the citizenship of named plaintiffs for diversity purposes, and not the
citizenship of absent class members.
\8\ H.R. 2341, Sec. 4(a). The legislation also excludes securities-
related and corporate governance class actions from coverage and makes
of number of other procedural changes, such as easing the procedural
requirements for removing a class action to Federal court (i.e.,
permitting removal to be sought by any plaintiff or defendant and
eliminating the 1-year deadline for filing removal actions) and tolling
the statute of limitation periods for dismissed class actions.
\9\ H.R. 2341, Sec. 4(a).
\10\ While the class action may be refiled again, any such refiled
action may be removed again if the district court has original
jurisdiction.
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H.R. 2341 also contains a so-called ``Consumer Class Action
Bill of Rights.'' This includes some nominal safeguards, such
as judicial scrutiny of coupon and other noncash settlements,
protection against a proposed settlement that would result in a
net loss to a class member, protection against discrimination
based on geographic location, prohibition on class
representatives receiving a greater share of the award and
plain English requirements. However, the bill fails to do
anything to address the greatest consumer abuse ``sweetheart''
deals which payoff one class in order to eradicate future
claims which were not even before the court.\11\
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\11\ These include collusive settlements, in which the parties
agree to a far broader settlement than was originally sought in order
to insulate defendants from future liability, and coupon and other
deficient settlements which provide little in the way of real relief to
plaintiffs. For example, In re Prudential Insurance Company of America
Sales Practice Litigation, 962 F. Supp. 450 (D. N.J. 1997) (class
action based on misrepresentations to customers regarding future
premiums for which settlement was approved releasing defendant from any
abusive sales practice), involved a class action case which as filed
was based only on misrepresentations to customers regarding future
premiums, but as settled, released defendants from all claims
concerning abusive sales practices.
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H.R. 2341 will damage both the Federal and state courts. As
a result of Congress' increasing propensity to federalize state
crimes, the Federal courts are already facing a dangerous
workload crisis. By forcing resource intensive class actions
into Federal court, H.R. 2341 will further aggravate these
problems and cause victims to wait in line for as much as 3
years or more to obtain a trial. Alternatively, to the extent
class actions are remanded to state court, the legislation
effectively only permits case-by-case adjudications,
potentially draining away precious state court resources. For
these and the other reasons set forth herein, we dissent from
H.R. 2341.
I. H.R. 2341 Will Damage the Federal and State Court Systems
A. Impact on Federal Courts
Expanding Federal class action jurisdiction to include most
state class actions, as H.R. 2341 does, will inevitably result
in a significant increase in the Federal courts' workload. As
the Justice Department observed last Congress, ``[c]lass action
cases are among the most resource-intensive litigation before
the judiciary [and enactment of the bill] could move most of
this litigation into the Federal judicial system. Addressing
the resulting caseload could require substantial additional
Federal resources.'' \12\
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\12\ See Letter from L. Anthony Sutin, Acting Assistant Attorney
General, U.S. Department of Justice Office of Legislative Affairs, to
the Honorable Howard Coble, Chairman, Subcommittee on Courts and
Intellectual Property, House Judiciary Committee 1 (June 18, 1998) (on
file with the minority staff of the House Judiciary Committee).
---------------------------------------------------------------------------
In actuality, the workload problem in the Federal courts
continues to be at an acute stage. For example, in 2001, the
Federal courts faced the following:
On February 2, 2002, 68 judicial vacancies
existed, or over 10% of the Federal judicial
positions.\13\
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\13\ See generally Judicial Nominations, Department of Justice,
Office of Legal Policy, available at http://www.usdoj.gov/olp/
judicialnominations.htm (last viewed February 2, 2002).
On average, Federal district court judges had
416 civil filings pending.\14\
---------------------------------------------------------------------------
\14\ See Admin. Office of the U.S. Courts, Annual Report of the
Director of the Administrative Office of the United States Courts
(2000).
It is because of these and other workload problems that
Chief Justice Rehnquist took the important step of criticizing
Congress for taking actions which have exacerbated the courts'
---------------------------------------------------------------------------
workload problem:
I also criticized Congress and the president for their
propensity to enact more and more legislation which
brings more and more cases into the Federal court
system. This criticism received virtually no public
attention. . . . [I]f Congress enacts, and the
president signs, new laws allowing more cases to be
brought into the Federal courts, just filling the
vacancies will not be enough. We will need additional
judgeships.\15\
---------------------------------------------------------------------------
\15\ Chief Justice William Rehnquist, An Address to the American
Law Institute, Rehnquist: Is Federalism Dead? (May 11, 1998), in Legal
Times (May 18, 1998).
Further, the Judicial Conference of the United States also
has serious reservations regarding this legislation. In a
letter last Congress opposing class action legislation, the
---------------------------------------------------------------------------
Judicial Conference stated the following:
While it is difficult to predict with precision the
impact that the federalization of class actions will
have on the Federal judicial system, one can predict
with confidence that it will impose a very substantial
burden . . . the federalization of class actions holds
the potential for increasing significantly the number
of such cases currently being litigated in the Federal
system.\16\
---------------------------------------------------------------------------
\16\ See supra note 2.
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B. Impact on the State Courts
In addition to its impact on the Federal courts, the
legislation will also undermine state courts. This is because
in cases where the Federal court chooses not to certify the
state class action, the bill prohibits the states from using
class actions to resolve the underlying state causes of action.
It is important to recall the context in which this legislation
arises--a class action has been filed in state court involving
numerous state law claims, each of which if filed separately
would not be subject to Federal jurisdiction (either because
the parties are not considered to be diverse or the amount in
controversy for each claim does not exceed $75,000). When these
individual cases are returned to the state courts upon remand,
hundreds if not thousands of potential new cases may be
unleashed.\17\
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\17\ To counter this problem, Congressman Berman, Frank, and Meehan
offered an amendment at the Judiciary Committee markup that provided
that if after removal, the Federal court determines that no aspect of
an action that is subject to its jurisdiction may be maintained as a
Federal class action, the court shall remand the action to the State
court without prejudice. This amendment would respond to the most
serious complaint leveled by class action defendants by allowing the
Federal court the first opportunity of certifying but not denying the
State court jurisdiction over the class action if the court determined
it did not meet the Federal requirement. The amendment was defeated 9
to 14.
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In addition to these workload problems, the legislation
raises constitutional issues. H.R. 2341 does not merely operate
to preempt an area of state law, rather it unilaterally strips
the state courts of their ability to use the class action
procedural device to resolve state law disputes. As the
Conference of Chief Justices stated, the legislation in essence
``unilaterally transfer[s] jurisdiction of a significant
category of cases from state to Federal courts'' and is a
``drastic'' distortion and disruption of traditional notions of
judicial federalism.\18\
---------------------------------------------------------------------------
\18\ See id.
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In this regard, the courts have previously found that
efforts by Congress to dictate such state court procedures
implicate important Tenth Amendment federalism issues and
should be avoided. For example, in Felder v. Casey \19\ the
Supreme Court observed that it is an ``unassailable proposition
. . . that States may establish the rules of procedure
governing litigation in their own courts.'' Similarly in
Johnson v. Fankell \20\ the Court reiterated what it termed
``the general rule `bottomed deeply in belief in the importance
of State control of State judicial procedure . . . that Federal
law takes State courts as it finds them' '' \21\ and observed
that judicial respect for the principal of federalism ``is at
its apex when we confront a claim that Federal law requires a
State to undertake something as fundamental as restructuring
the operation of its courts'' and ``it is a matter for each
State to decide how to structure its judicial system.'' \22\
---------------------------------------------------------------------------
\19\ 487 U.S. 131, 138 (1988) (finding Wisconsin notice-of-claim
statute to be preempted by 42 U.S.C. Sec. 1983, which holds anyone
acting under color of law liable for violating constitutional rights of
others).
\20\ 520 U.S. 911 (1997) (holding that Idaho procedural rules
concerning appealability of orders are not preempted by 42 U.S.C.
Sec. 1983).
\21\ Id. at 919 (quoting Henry M. Hart, Jr., The Relations Between
State and Federal Law, 54 Colum. L. Rev. 489, 508 (1954)).
\22\ Id. at 922. See also Howlett v. Rose, 496 U.S. 356, 372 (1990)
(quoting Henry M. Hart, Jr., The Relations Between State and Federal
Law, 54 Colum. L. Rev. 489, 508 (1954) for the proposition that Federal
law should not alter the operation of the state courts); New York v.
United States, 505 U.S. 144, 161 (1992) (stating that a law may be
struck down on federalism grounds if it ``commandeer[s] the legislative
processes of the States by directly compelling them to enact and
enforce a Federal regulatory program''); Printz v. United States, 117
S.Ct. 2365 (1997) (invalidating portions of the Brady Handgun Violence
Protection Act requiring local law enforcement officials to conduct
background checks on prospective gun purchasers).
---------------------------------------------------------------------------
These same constitutional concerns were highlighted by
Professor Laurence Tribe in his testimony regarding the
constitutionality of a proposed Federal class action rule
applicable to state courts included in tobacco legislation
proposed during the 105th Congress. He observed, ``[f]or
Congress directly to regulate the procedures used by state
courts in adjudicating state-law tort claims--to forbid them,
for example, from applying their generally applicable class
action procedures in cases involving tobacco suits--would raise
serious questions under the Tenth Amendment and principles of
federalism.'' \23\
---------------------------------------------------------------------------
\23\ The Global Tobacco Settlement: Hearings Before the Senate
Comm. on the Judiciary, 105th Cong., (1997) (statement of Laurence H.
Tribe, Tyler Professor of Law, Harvard Law School).
---------------------------------------------------------------------------
Arguments that the bill is nonetheless justified because
state courts are ``biased'' against out of state defendants in
class action suits also lacks foundation.\24\ First, the
Supreme Court has already made clear that state courts are
constitutionally required to provide due process and other
fairness protections to the parties in class action cases. In
Phillips Petroleum Co. v. Shutts,\25\ the Supreme Court held
that in class action cases, state courts must assure that: (1)
the defendant receives notice plus an opportunity to be heard
and participate in the litigation; \26\ (2) an absent plaintiff
must be provided with an opportunity to remove himself or
herself from the class; (3) the named plaintiff must at all
times adequately represent the interests of the absent class
members; and (4) the forum state must have a significant
relationship to the claims asserted by each member of the
plaintiff class.\27\
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\24\ Of course the entire premise of the argument would need to be
based on bias by the judges, since the juries would be derived from
citizens of the state where the suit is brought, whether the case is
considered in state or Federal court.
\25\ 472 U.S. 797 (1985).
\26\ The notice must be the ``best practicable, reasonably
calculated, under all the circumstances, to appraise interested parties
of the pendency of the action and afford them an opportunity to present
their objections.'' Id. at 812 (quoting Mullane v. Central Hanover Bank
& Trust Co., 339 U.S. 306, 314-15 (1950)).
\27\ See id. at 806-810. These findings were reiterated by the
Supreme Court in 1995 in Matshusita Elec. Indust. Co. v Epstein, 516
U.S. 367 (1995) (state class actions entitled to full faith and credit
so long as, inter alia, the settlement was fair, reasonable, and
adequate and in the best interests of the settlement class; notice to
the class was in full compliance with due process; and the class
representatives fairly and adequately represented class interests).
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Secondly, it is important to note that as fears of local
court prejudice have subsided and concerns about diverting
Federal courts from their core responsibilities increased, the
policy trend in recent years has been towards limiting Federal
diversity jurisdiction.\28\ For example, less than 6 years ago
Congress enacted the Federal Courts Improvement Act of
1996,\29\ which increased the amount in controversy requirement
needed to remove a diversity case to Federal court from $50,000
to $75,000. This statutory change was based on the Judicial
Conference's determination that fear of local prejudice by
state courts was no longer relevant \30\ and that it was
important to keep the Federal judiciary's efforts focused on
Federal issues.\31\ In this same regard, the American Law
Institute has found ``there is no longer the kind of prejudice
against citizens of other states that motivated the creation of
diversity jurisdiction,'' \32\ and the most recent Federal
Courts Study Committee report on the subject concluded that
local bias ``is no longer a major threat to litigation
fairness'' particularly when compared to other types of
prejudice that litigants may face, such as on account of
religion, race or economic status.\33\ Indeed, in 1978, the
House twice passed legislation that would have abolished
general diversity jurisdiction.\34\
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\28\ Ironically, during the 105th Congress, the Republican Party
was extolling the virtues of state courts in the context of their
efforts to limit habeas corpus rights, which permit individuals to
challenge unconstitutional state law convictions in Federal court. At
that time Chairman Hyde stated:
I simply say the state judge went to the same law school,
studied the same law and passed the same bar exam that the
Federal judge did. The only difference is the Federal judge
was better politically connected and became a Federal
judge. But I would suggest . . . when the judge raises his
hand, State court or Federal court, they swear to defend
the U.S. Constitution, and it is wrong, it is unfair to
assume, ipso facto, that a State judge is going to be less
sensitive to the law, less scholarly in his or her decision
---------------------------------------------------------------------------
than a Federal judge.
142 Cong. Rec. H3604. (daily ed. April 18, 1996).
---------------------------------------------------------------------------
\29\ 28 U.S.C. Sec. 1332(a) (West Supp. 1998).
\30\ The Judicial Conference of the United States, Long Range Plan
for the Federal Courts, Recommendation 7 at 30 (1995).
\31\ Id.
\32\ American Law Institute, Study of the Division of Jurisdiction
Between State and Federal Courts 101, 106 (1996).
\33\ Federal Courts Study Committee, Report of the Federal Courts
Study Committee 40 (April 2, 1990). See also, Ball, Revision of Federal
Diversity Jurisdiction, 28 Ill. L. Rev. 356 (1988); Bork, Dealing with
the Overload in Article III Courts, 1976, 70 F.R.D. 231, 236-237
(1976); Butler & Eure, Diversity in the Court System: Let's Abolish It,
11 Va.B.J. 4, (1995); Coffin, Judicial Gridlock: The Case for
Abolishing Diversity Jurisdiction, 10 Brookings Rev. 34 (1992); Currie,
The Federal Courts and the American Law Institute, 36 U. Chi. L. Rev.
1, 1-49 (1968); Feinberg, Is Diversity Jurisdiction An Idea Whose Time
Has Passed?, N. Y. St. B. J. 14 (1989); Frankfurter, Distribution of
Judicial Power Between United States and State Courts, 13 Corn. L. Q.
499 (1928); Frankfurter, A Note on Diversity Jurisdiction--In Reply to
Professor Yntema, 79 U. Pa. L. Rev. 1097 (1931); Haynsworth, Book
Review, 87 Harv. L. Rev. 1082, 1089-1091 (1974); Hunter, Federal
Diversity Jurisdiction: The Unnecessary Precaution, 46 UMKC L. Rev. 347
(1978); Jackson, The Supreme Court in the American System of
Government, 38 (1955); Sheran & Isaacman, State Cases Belong In State
Courts, 12 Creighton L. Rev. 1 (1978).
\34\ See 124 Cong. Rec. 5008 (1978); 124 Cong. Rec. 33, 546 (1978).
The legislation was not considered in the Senate.
---------------------------------------------------------------------------
Thirdly, as the legislation is currently written, it
assumes a defendant will be automatically subject to prejudice
in any state where the corporation is not formally incorporated
(typically Delaware) or maintains its principal place of
business. In so doing, it can be said the bill ignores the fact
that many large businesses have a substantial commercial
presence in more than one state, through factories, business
facilities or employees. For example, if General Motors or Ford
were to be sued by a class of plaintiffs in Ohio, where they
have numerous factories and tens of thousands of employees, it
does not seem reasonable to expect the defendants to face any
great risk of bias.\35\ Similarly, if the Disney Corporation,
one of Florida's largest employers, were to face a class action
brought by a class of plaintiffs in a Florida court, it would
make little sense to involve the Federal courts of concern of
local prejudice.\36\ Yet under H.R. 2341, both of these
hypothetical cases would be subject to removal to Federal
court.\37\
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\35\ General Motors and Ford both have their principal place of
business in Michigan and are incorporated in Delaware.
\36\ Disney's corporate headquarters are located in Burbank,
California, and it is incorporated in Delaware.
\37\ With increasing frequency, companies are setting up paper
companies in places like Bermuda for a nominal fee. The company
continues to be owned by the U.S. shareholder and continues to do
business in the exact same U.S. locations. This allows the company to
escape substantial tax liability and possibly avoid legal liability. To
stop this abuse, Representative John Conyers, Jr. offered an amendment
at the Judiciary Committee markup, which would allow former U.S.
companies to be treated as domestic corporations for class action
purposes. This amendment was defeated by voice vote.
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It is for these reasons that the State courts believe that
the enactment of the legislation goes against the underlying
judicial principles of our system of government. Specifically,
the Conference of Chief Justices said in a letter opposing a
predecessor version of the bill, ``So drastic a distortion and
disruption of judicial federalism is not justified, absent
clear evidence of the inability of the state judicial systems
to process and decide class action cases in a fair and
impartial manner and in timely fashion.'' \38\
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\38\ Letter from Chief Justice David A. Brock , President of the
Conference of Chief Justices to Congressman Henry J. Hyde, Chairman of
the Committee on the Judiciary (July 19, 1999)(on file with the House
Judiciary Committee Democratic Staff).
---------------------------------------------------------------------------
II. H.R. 2341 Will Weaken Enforcement of Laws Concerning Consumer
Health and Safety, the Environment, and Civil Rights
H.R.2341 will have a serious adverse impact on the ability
of consumers and other harmed individuals to obtain
compensation in cases involving widespread harm. At a minimum,
the legislation will force most state class action claims into
Federal courts where it is likely to be far more expensive for
plaintiffs to litigate cases and where defendants could force
plaintiffs to travel long distances to attend proceedings.
It is also likely to be far more difficult and time
consuming to certify a class action in Federal court. In 1999,
fourteen states, representing some 29% of the nation's
population,\39\ adopted different criteria for class action
rules than Rule 23 of the Federal rules of civil procedure.\40\
In addition, with respect to those states which have enacted a
counterpart to Rule 23, the Federal courts are likely to
represent a far more difficult forum for class certification to
occur. This is because, as noted above, in recent years a
series of adverse Federal precedent, has made it more difficult
to establish the predominance requirement of rule 23(b)(3)
necessary to establish a class action under the Federal rules.
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\39\ See Hearing on H.R. 1875 Before the House Comm. On the
Judiciary, 106th Cong. (1999)(statement of Brian Wolfman, Staff
Attorney, Public Citizen)[hereinafter Wolfman testimony](stating ``H.R.
1875 is an unwise and ill-considered incursion by the Federal
Government on the jurisdiction of the state courts. It works a radical
transformation of judicial authority between the state and Federal
judiciaries that is not justified by any alleged `crisis' in state-
court class action litigation.'').
\40\ See supra note 2.
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Further, the legislation will inevitably result in
substantial delay before civil class action claimants are able
to obtain a trial date in Federal court. Given the backlog in
the Federal courts and the fact that the Federal courts are
obligated to resolve criminal matters on an expedited basis
before civil matters,\41\ even where plaintiffs are able to
successfully certify a class action in Federal court, it will
take longer to obtain a trial on the merits than it would in
state court.
---------------------------------------------------------------------------
\41\ Speedy Trial Act of 1974, 18 U.S.C. Sec. Sec. 3161-3174
(1994).
---------------------------------------------------------------------------
The legislation also poses unique risks and obstacles for
plaintiffs that they do not face under current law. Because the
Federal courts are required to dismiss cases they choose not to
certify, plaintiffs will be foreclosed from forming a
reconstituted class in state court upon remand which conforms
to the legislation's requirements.\42\
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\42\ For example, if certification had been denied by the Federal
court because a particular conflict among the class members made it
impossible to meet the ``adequate representation'' requirement of
Federal Rule of Civil Procedure 23(a)(4), the plaintiffs in the
remanded action would likely be prohibited from narrowing the class in
an effort to resolve that conflict.
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Consumers may also be disadvantaged by the vague terms used
in the legislation. The terms ``substantial majority'' of
plaintiffs, ``primary defendants,'' and claims ``primarily''
governed by a state's laws \43\ are new and undefined phrases
with no precedent in the United States Code or the case law. It
will take many years and conflicting decisions before these
critical terms can begin to be sorted out. The vagueness
problems will be particularly acute for plaintiffs--if they
guess incorrectly regarding the meaning of a particular phrase,
their class action could be permanently preempted and barred.
However, if a defendant guesses wrong and jurisdiction does not
lie in the Federal courts, the defendant will be no worse off
than they are under present law, and will have benefitted from
the additional time delays caused by the failed removal motion.
---------------------------------------------------------------------------
\43\ H.R. 2341 Sec. 4, 107th Cong. (2001).
---------------------------------------------------------------------------
The legislation goes so far as to federalize all consumer
protection actions, regardless of whether or not they involve
large classes of nationwide plaintiffs, or even a class of
plaintiffs at all. For instance, some states have laws that
protect consumers by prohibiting deceptive business
practices.\44\ These laws may be enforced by the State Attorney
General or, if the State Attorney General does not act, the
state citizens may act as a private attorney general. Although
such a suit may have been brought by private citizens, this
legislation may force the case into Federal court because the
private citizen also represents the interest of the ``general
public''.\45\
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\44\ Michigan and California are two states that have ``private
attorney general'' suits.
\45\ H.R. 2341 Sec. 4(a). Representatives Lofgren and Schiff
introduced an amendment to address this issue. The amendment limited
the bill to affect only consumer class actions. This amendment failed
11 to 17.
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The net result of these various changes is that under the
legislation it will be far more difficult for consumers and
other harmed individuals to obtain justice in class action
cases at the state or Federal level. This means, as noted
above, it will be far more difficult for consumers to bring
class actions in state court involving violations of fraud,
health and safety laws, and environmental laws.\46\
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\46\ For example, in an incident in Washington state, the parent
company of Jack-in-the-Box restaurants agreed to pay $14 million in a
class-action settlement. The class included 500 people, mostly
children, who became sick in early 1993 after eating undercooked
hamburgers tainted with E. coli bacteria. The Washington Superior Court
in King County approved the settlement on September 25, 1996.
---------------------------------------------------------------------------
Another example of a state class action is a recent case in Richmond,
California. On July 26, 1993, a railroad tank car filled with Oleum, a
sulfuric acid compound, leaked from General Chemical's Richmond,
California plant when a valve malfunctioned during unloading. A cloud
of chemicals formed over a heavily-populated community in North
Richmond, and over 24,000 people sought medical treatment in the days
immediately following the leak. Individual plaintiffs received up to
$3,500 in compensation.
H.R. 2341 also poses unique risks and obstacles for
plaintiffs that they do not face under current law. Under H.R.
2341, if the district court determines that the action subject
to its jurisdiction does not satisfy the requirements of
Federal Rule of Civil Procedure 23, the court must dismiss the
action. This has the effect of striking the class action claim
and forcing all states to conform to Federal class actions
standards.\47\ While the class action may be refiled again, any
such refiled action may be removed again to Federal court.
Therefore, even if a state court would subsequently certify the
class, it could be removed again, creating a revolving door
between Federal and state court--hardly a desirable result. As
Consumers Union has written about this feature of the bill
stating, ``This legal `ping-pong' could well deprive consumers
of access to their own state courts, and ultimately deny them
their day in court through the class action process--in many
cases their only effective remedy.'' \48\
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\47\ In this regard, it is unfortunate the Majority rejected an
amendment offered by Representatives Conyers, Berman and Meehan which
would have largely eliminated the federalism problem by amending the
bill to simply allow the Federal courts the first opportunity of
certifying a class action, but not to deny state court jurisdiction
over the class action if the court determined it did not meet Federal
requirements. This would have responded to the most serious complaint
leveled by corporate defendants, that class actions encourage a race to
the court house by permitting the Federal courts to use their powers to
consolidate class actions into a single forum in the appropriate
circumstances.
\48\ See Consumers Union letter.
---------------------------------------------------------------------------
Consumers will also be disadvantaged by the vague terms
used in the legislation. The terms ``substantial majority'' of
plaintiffs, ``primary defendants,'' and claims ``primarily''
governed by a state's laws \49\ are new and undefined phrases
with no antecedent in the United States Code or the case law.
It will take many years and conflicting decisions before these
critical terms can begin to be sorted out.
---------------------------------------------------------------------------
\49\ H.R. 2341, Sec. 4(a).
---------------------------------------------------------------------------
The net result is that under the legislation it will be far
more difficult for consumers and other harmed individuals to
obtain justice in class action cases at the state or Federal
level. The types of cases affected by this legislation range
from consumer fraud and health and safety to environmental and
civil rights actions. The following are examples of important
class actions previously brought at the state level, but which
could have been forced into Federal court under H.R. 2341,
where the actions may be delayed or rejected:
In the Baptist Foundation of Arizona case, a
mirror image of the Enron scandal, the Foundation
issued worthless notes and sold them in many Arizona
communities. Approximately 13,00 investors in Baptist
Foundation of Arizona case loss millions of dollars in
this scheme in ``off the books'' transactions with sham
companies that were controlled by the Foundation and
corporate insiders. As it was, the victims were able to
bring a successful state class action suit against
Arthur Anderson which resulted in a $217 million
settlement. If H.R. 2341 was law, this case would have
been forced into Federal court because the legislation
provides no exemption for state securities claims.\50\
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\50\ Craig Harris, Andersen settles Baptist Suit, azcentral.com
(March 2, 2002), http://www.arizonarepublic.com; Settlement Sum Revives
Hope for Baptist Investors: Andersen to pay $217 million (March 3,
2002)http://www.arizonarepublic.com.
The proposed legislation would also make it
far more difficult to maintain class action cases such
as the Firestone/Ford Explorer tire liability case. A
lawsuit is currently pending in South Carolina state
court against Firestone and Ford charging that the two
companies were ``negligent and careless'' in producing
and distributing tires that went on Ford vehicles. On
December 28, 2001, the Circuit Court in Greenville,
South Carolina certified the lawsuit as a class action,
allowing South Carolina residents to join the lawsuit
against Firestone and Ford. If the proposed legislation
was enacted, this case could automatically be removed
from state court to federal court at the election of
the defendant making it difficult to keep the lawsuit
---------------------------------------------------------------------------
as a class action.
Foodmaker Inc., a Delaware corporation and
the parent company of Jack-in-the-Box restaurants,
agreed to pay $14 million in a state class-action
settlement involving a violation of Washington's
negligence law. The class included 500 people, mostly
children and Washington residents, who became sick in
early 1993 after eating undercooked hamburgers tainted
with E. coli 0157:H7 bacteria. The victims suffered
from a wide range of illnesses, from more benign
sicknesses to those that required kidney dialysis.
Three children died.\51\
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\51\ The settlement was approved on 25 September 1996 in King
County, Washington Superior Court. ``Last Jack in the Box Suit
Settled,'' Seattle Times, October 30, 1997 at B3.
Equitable Life Assurance Company, an Iowa
corporation, agreed to a $20 million settlement of two
class-action lawsuits involving 130,000 persons filed
in Pennsylvania and Arizona state courts. The class
action alleged that Equitable misled consumers, in
violation of state insurance fraud law, when trying to
sell ``vanishing premium'' life insurance policies in
the 1980's. Equitable sold the policies when interest
rates were high, informing potential customers that
after a few years, once the interest generated by their
premiums was sufficiently high, their premium
obligations would be terminated. However, when interest
rates dropped, customers ended up having to continue to
pay the premium in full.\52\
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\52\ See David Elbert, ``Lawsuits to Cost Equitable $20 Mill,'' Des
Moines Register, July 19, 1997 at 12 and ``Cost of Settling Lawsuits
Pulls Equitable Earnings Down,'' Des Moines Register, August 6, 1997 at
10.
On July 26, 1993, a California plant operated
by General Chemical, a Delaware corporation with
offices in New Jersey, erupted leading to a hazardous
pollution cloud when a valve malfunctioned during the
unloading of a railroad tank car filled with Oleum, a
sulfuric acid compound. The cloud settled directly over
North Richmond, California, a heavily-populated
community, resulting in over 24,000 residents needing
medical attention. General Chemical entered into a
settlement for violation of California negligence law
with 60,000 North Richmond residents who were injured
or sought treatment for the effects of the cloud, or
were forced to evacuate their homes. Individual
plaintiffs received up to $3,500 in compensation.\53\
---------------------------------------------------------------------------
\53\ See Mealey's Litigation Reports: Toxic Torts, $180 Million
Settlement of Toxic Cloud Claims Wins Judges O.K., November 17, 1995 at
8.
On April 21 of this year, Nationwide entered
into a state class action settlement concerning a
redlining discrimination claim with the Toledo, Ohio
Fair Housing Center. The lawsuit had been brought in
Ohio state court by residents living in Toledo's
predominately black neighborhoods, and charged that
Nationwide redlined African-American neighborhoods by
discouraging homeowners in minority neighborhoods from
buying insurance and by denying coverage to houses
under a certain value or a certain age. As a result of
the settlement, Nationwide agreed to modify its
underwriting criteria, increase its agency presence,
step up its marketing in Toledo's black neighborhoods.
Nationwide also agreed to place up to $2 million in an
interest-bearing account to provide compensation to
qualified class members, and agreed to deposit $500,000
with a bank willing to offer low-interest loans to
residents buying homes in Toledo's black
neighborhoods.\54\
---------------------------------------------------------------------------
\54\ See Toledo Fair Hous. Ctr. v. Nationwide Mut. Ins. Co., No
CI93-1685, Ohio Comm. Pls, Lucas County; see also ``Nationwide and Ohio
Fairhousing Announce Attempt to Settle Class Action,'' Mealey's
Insurance Law Weekly, April 27, 1998 at 3.
Under current law, class action claims
against managed care must often distinguish between
ERISA and non-ERISA patients. Non-ERISA patients have a
full range of remedies available to them under state
law. On the other hand, ERISA patients have a very
limited set of remedies--the cost of the benefit
denied, which in most cases is woefully inadequate. The
managed care reform debate in Congress includes the
elimination of the ERISA preemption which would allow
patients who receive their health care from their
employer to hold their HMO accountable if it denies
care. However, legislation such as H.R. 2341 would move
in the opposite direction by enacting legislation which
would deny more patients access to justice in state
court.\55\ Moreover, the House passed the Patients Bill
of Rights legislation, H.R. 2653, which contained
severe restrictions on class actions against HMO's such
as limiting class action lawsuits under ERISA and RICO
to participants in a group health plan established by a
sign plan sponsor. This restriction was contained in
the Norwood Amendment to the Patients Bill of Rights.
---------------------------------------------------------------------------
\55\ One example is Kaitlin v. Tremoglie, et al., No. 002703 (Pa.
Comm. Pls., Philadelphia Co. 1997). On June 23, 1997, Harold Kaitlin
filed a class action in Pennsylvania State court against his
psychiatrist, David Tremoglie, and Keystone Health Plan East Inc., his
HMO, alleging that thee psychiatrist had treated hundreds of patients
without a medical license. The case was filed on behalf of himself and
all other patients treated by Tremoglie at the Bustleton Guidance
Center. The suit alleges that the class was treated by an unlicenced
and fraudulent psychiatrist who unlawfully prescribed powerful
medications not suitable for their illness and that the HMO failed to
verify that Tremoglie was a licensed psychiatrist, failed to supervise
him, and referred patients to him.
The regulation of funeral homes, cemeteries
and crematoria should remain an issue best handled by
state courts. However, federalizing of such class
actions under this bill likely would force these
families to travel untold miles from their homes--in
some cases into entirely different states--just to
exercise their legal rights. For example, the largest
operator of funeral homes in the United States is the
defendant in a state class action in Florida accuses
Services Corporation International, a Texas Corporation
and owner of Menorah Gardens, of breaking open burial
vaults and dumping the remains in a wooded area,
crushing vaults to make room for others, mixing body
parts from different individuals, and digging up and
reburying remains in locations other than the plots
purchased.\56\ Similarly, in Georgia, Tri-State
Crematory failed to cremate bodies and return remains
to loved ones. Although the issues raised in this class
action are clearly state issues, such a class action
would be removable to Federal court under H.R. 2341.
---------------------------------------------------------------------------
\56\ Joel Engelhardt, State Seeks Control of Menorah Gardens, The
Palm Beach Post, March 2, 2002 at 1A.
---------------------------------------------------------------------------
Conclusion
H.R. 2341 will remove class actions involving state law
issues from state courts--the forum most convenient for victims
of wrongdoing to litigate and most familiar with the
substantive law involved--to the Federal courts--where the
class is less likely to be certified and the case will take
longer to resolve. In our view, this incursion into state court
prerogatives is no less dangerous to the public than many of
the radical forms of ``tort reform'' and ``court stripping''
legislation previously rejected by the Congress.
Contrary to supporters' assertions, H.R. 2341 will not
serve to prevent state courts from unfairly certifying class
actions without granting defendants an opportunity to respond.
This is already barred by the Constitution,\57\ and the few
state trial court decisions to the contrary have been
overturned.\58\ H.R. 2341 also cannot be seen as merely
prohibiting nationwide class actions filed in state court. The
legislation goes much further and bars state class actions
filed solely on behalf of residents of a single state, which
solely involve matters of that state's law, so long as one
plaintiff resides in a different state than one defendant--an
extreme and distorted definition of diversity which does not
apply in any other legal proceeding.
---------------------------------------------------------------------------
\57\ See supra notes 26-28 and accompanying text.
\58\ See Ex Parte State Mut. Ins. Co., 715 So.2d 207 (Ala. 1997);
Ex Parte Am. Bankers Life Assurance Co. of Florida, 715 So.2d 207 (Ala.
1997) (holding that classes may not be certified without notice and a
full opportunity for defendants to respond and that the class
certification criteria must be rigorously applied).
---------------------------------------------------------------------------
This legislation would seriously undermine the delicate
balance between our Federal and state courts. At the same time
it would threaten to overwhelm Federal courts by causing the
removal of resource intensive state class action cases to
Federal district courts, it also will increase the burdens on
state courts as class actions rejected by Federal courts
metamorphasize into numerous additional individual state
actions. We therefore strongly oppose H.R. 2341.
John Conyers, Jr.
Howard L. Berman.
Jerrold Nadler.
Robert C. Scott.
Melvin L. Watt.
Zoe Lofgren.
Sheila Jackson Lee.
Maxine Waters.
Martin T. Meehan.
William D. Delahunt.
Tammy Baldwin.