[House Report 108-144]
[From the U.S. Government Publishing Office]
108th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 108-144
======================================================================
CLASS ACTION FAIRNESS ACT OF 2003
_______
June 9, 2003.--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. 1115]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to whom was referred the
bill (H.R. 1115) 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......................................................... 27
Committee Consideration.......................................... 27
Vote of the Committee............................................ 27
Committee Oversight Findings..................................... 31
New Budget Authority and Tax Expenditures........................ 31
Congressional Budget Office Cost Estimate........................ 31
Performance Goals and Objectives................................. 32
Constitutional Authority Statement............................... 32
Section-by-Section Analysis and Discussion....................... 32
Changes in Existing Law Made by the Bill, as Reported............ 47
Markup Transcript................................................ 54
Additional Views................................................. 155
Dissenting Views................................................. 157
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 2003''.
(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. Enactment of Judicial Conference recommendations.
Sec. 8. 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--
(A) harmed class members with legitimate claims and
defendants that have acted responsibly;
(B) adversely affected interstate commerce; and
(C) undermined public respect for the judicial
system in the United States.
(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 the Federal judicial system, the
free flow of interstate commerce, 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. 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. 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. ENACTMENT OF JUDICIAL CONFERENCE RECOMMENDATIONS.
Notwithstanding any other provision of law, the amendments to Rule
23 of the Federal Rules of Civil Procedure which are embraced by the
order entered by the Supreme Court of the United States on March 27,
2003, shall take effect on the date of the enactment of this Act or on
December 1, 2003 (as specified in that order), whichever occurs first.
SEC. 8. EFFECTIVE DATE.
(a) In General.--The amendments made by this Act shall apply to--
(1) any civil action commenced on or after the date of the
enactment of this Act; and
(2) any civil action commenced before such date of
enactment in which a class certification order (as defined in
section 1332(d)(1)(C) of title 28, United States Code, as
amended by section 4 of this Act) is entered on or after such
date of enactment.
(b) Filing of Notice of Removal.--In the case of any civil action
to which subsection (a)(2) applies, the requirement relating to the 30-
day period for the filing of a notice of removal under section 1446(b)
and section 1453(d) of title 28, United States Code, shall be met if
the notice of removal is filed within 30 days after the date on which
the class certification order referred to in subsection (a)(2) is
entered.
Purpose and Summary
H.R. 1115 will provide meaningful improvements in
litigation management and diminish abuse of the class action
device in two ways: (1) by allowing Federal courts to hear
large interstate class actions; and (2) by establishing new
protections for consumers against abusive class action
settlements.
H.R. 1115 has three core components. 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) cases dealing with a Federal
question; and (b) cases meeting current diversity jurisdiction
requirements (i.e., matters in which all plaintiffs are
citizens of jurisdictions different from all defendants, and
each claimant has an amount in controversy in excess of
$75,000). H.R. 1115 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. 1115 recognizes that large
interstate class actions deserve Federal court access because
they typically affect more citizens, involve more money, and
implicate more interstate commerce issues than any other type
of lawsuit.
Second, H.R. 1115 implements long-needed protections for
consumers against abusive settlements. These protections are
established in the ``Consumer Class Action Bill of Rights''
(``Bill of Rights''). The Bill of Rights would: (1) enhance
judicial scrutiny of coupon settlements; (2) provide judicial
scrutiny over settlements that would result in a net monetary
loss to plaintiffs; (3) prohibit unjustified payments, also
known as bounties, to class representatives; and (4) protect
out-of-State class members against settlements that favor class
members based upon geographic proximity to the courthouse.
Third, H.R. 1115, as amended, puts into effect immediately
several critical amendments to Rule 23 of the Federal Rules of
Civil Procedure proposed by the Supreme Court that are intended
to ensure the clarity of class notice and prevent abuse of the
class action device.
Background and Need for the Legislation
The class action device is one of the most important
procedural mechanisms within our civil justice system. It can
promote efficiency by allowing plaintiffs with similar claims
to adjudicate their cases in one proceeding. The device also
enables the adjudication of claims when a large number of
people suffer small harms, claims that might otherwise go
unredressed because the expense of individual litigation would
far exceed any possible benefit. In recent years, however,
class actions have been used with increasing frequency and in
ways that do not promote the interests they were intended to
serve.\1\
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\1\ See generally Deborah Hensler, et. al. (Institute for Civil
Justice), Class Action Dilemmas: Pursuing Public Goals for Private
Gain, RAND (2000).
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Because class actions empower lawyers to represent the
interests of thousands (and sometimes millions) of 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 affecting persons (both class
members and defendants) who have 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.
As the Washington Post noted last year, in urging Congress
to pass class action reform legislation:
When working properly, class actions are an important
component of America's legal system--one that allows
efficient court consideration of numerous identical
claims against the same defendant. In practice, no
component of the legal system is more prone to abuse.
For unlike normal lawyers, who are retained by people
who actually feel wronged, class counsel--having
alleged a product deficiency that caused some small
monetary damage to some discernible group of people--
largely appoint themselves. The ``clients'' may not
even be dissatisfied with the goods or services they
bought, but unless they opt out of a class of whose
existence they may be unaware, they become plaintiffs
anyway. Class actions permit almost infinite venue
shopping; national class actions can be filed just
about anywhere and are disproportionately brought in a
handful of state courts whose judges get elected with
lawyers' money. These judges effectively become
regulators of products and services produced elsewhere
and sold nationally. And when the cases are settled,
the ``clients'' get token payments, while the lawyers
get enormous fees.\2\
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\2\ Editorial, Making Justice Work, Wash. Post, November 25, 2002,
at A14.
Over the last 6 years, this Committee has held five
hearings and amassed considerable evidence regarding increasing
problems with State court class actions.\3\ The resulting
record shows that plaintiffs' lawyers are filing
disproportionate numbers of class actions in a small number of
``magnet'' State courts that have demonstrated a lax attitude
toward class certification standards, a disregard for
fundamental due process requirements, and a willingness to
``rubber-stamp'' class action settlements that offer little if
anything to the class members while enriching their lawyers. In
addition, certain State courts are ``federalizing'' such
litigation; that is, they are issuing orders in nationwide
class actions that essentially dictate the substantive laws of
other States, often disregarding the policy choices made by the
duly-elected authorities in those jurisdictions. The problem is
exacerbated by the growing trend among plaintiffs' counsel of
filing overlapping or ``competing'' class actions in various
State courts around the country (i.e., cases in which the same
claims are asserted on behalf of the same class of persons),
resulting in considerable waste and inconsistent judicial
rulings.
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\3\ See Mass Torts and Class Action Lawsuits: Hearing Before the
Subcomm. on Courts and Intellectual Property of the House Comm. on the
Judiciary, Serial No. 141, 105th Cong., 2d Sess. (Mar. 5, 1998); Class
Action Jurisdiction Act of 1998: Hearing Before the Subcomm. on Courts
and Intellectual Property of the House Comm. on the Judiciary, Serial
No. 121, 105th Cong., 2d Sess. (June 18, 1998); Interstate Class Action
Jurisdiction Act of 1999: Hearing before the House Comm. on the
Judiciary, 106th Cong, 1st Sess. (July 21, 1999); The Class Action
Reform Act of 2001: Hearing Before the House Comm. on the Judiciary,
Serial No. 59, 107th Cong., 2d Sess. (Feb. 6, 2002); The Class Action
Reform Act of 2003: Hearing Before the House Comm. on the Judiciary,
108th Cong., (July 15, 2003).
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RULES GOVERNING CLASS ACTIONS
``Class actions'' have some roots in common law, but they
first appeared in State courts of law and equity. The general
concept was first codified in 1849 when several States adopted
the Field Code.\4\ Rule 23 of the Federal Rules of Civil
Procedure, the rule governing Federal court class actions, was
first adopted in 1938 and provided for a limited range of class
actions.\5\ However, the modern concept of class actions that
are a familiar part of today's legal landscape did not arise
until Rule 23 was substantially amended in 1966, expanding the
availability of the device and providing courts more
flexibility in certifying class actions.
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\4\ The Field Code merely required numerous parties and a common
interest in law or fact. It reads, in part: ``[W]hen the question is
one of a common or general interest of many persons, or when the
parties are very numerous and it may be impracticable to bring them all
before the court, one or more may sue or defend for the benefit of the
whole.'' See Herbert B. Newberg & Alba Conte, Newberg on Class Actions
Chap. 13 (3d ed. 1997).
\5\ For a fuller explanation of the original Rule 23 and its
history, see, e.g., The Class Action Fairness Act of 1999: Hearings on
S. 353. Before the Subcomm. on Administrative Oversight and the Courts
of the Sen. Comm. on the Judiciary, 106th Cong., (May 4th 1999)
(hereinafter ``Hearings on S. 353 ''), (prepared statement of John P.
Frank).
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The Field Code, the original Federal Rule 23, and amended
Federal Rule 23 remain the three models for present-day state
class action rules. Thirty-six States have adopted the basic
Federal class action rule (amended Federal Rule 23), some with
minor revisions. Of the remaining States, most have rules that
are guided by Federal court class action policy and contain
similar requirements. Two States (Virginia and Mississippi)
permit class actions at common law, but have no formal class
rules. Thus, in principle, State and Federal class action
policies ought not to vary so greatly. But application of these
similar rules by State courts has created widely divergent
standards for class actions and opened the door for abuse.
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). Under Rule 23(c)(2), 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 given, 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.
FEDERAL DIVERSITY JURISDICTION
The Constitution extends Federal court jurisdiction to
cases arising under Federal law--for instance, cases raising
issues under the Constitution or Federal statutes or cases
involving the Federal Government as a party--and generally
leaves to State courts the adjudication of local questions
arising under State law. However, the Constitution also
specifically empowers Congress to establish Federal
jurisdiction over one category of cases involving issues of
State law: ``diversity'' cases, or suits ``between citizens of
different States.'' \6\
---------------------------------------------------------------------------
\6\ U.S. Const. art. III, Sec. 2.
---------------------------------------------------------------------------
Diversity jurisdiction is premised on concerns that State
courts might discriminate against out-of-State defendants. As
Assistant Attorney General Viet Dinh testified before the
Committee at a hearing on May 15, 2003, the ``Founders created
diversity jurisdiction to provide a Federal forum preventing
bias against out-of-State defendants and out-of-State
plaintiffs.'' \7\
---------------------------------------------------------------------------
\7\ Hearing on H.R. 1115 Before the House Comm. on the Judiciary,
108th Cong., (May 15, 2003) (prepared statement of Assistant Attorney
General Viet Dinh).
---------------------------------------------------------------------------
Over the years since the First Congress enacted provisions
in the Judiciary Act of 1789 setting forth the parameters of
Federal diversity jurisdiction, two statutory limitations on
that jurisdiction have been constants. The first is the
``amount in controversy'' requirement--now a $75,000 monetary
threshold--to ensure that Federal diversity jurisdiction
extends only to non-trivial State law cases.\8\ 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.\9\
---------------------------------------------------------------------------
\8\ See 28 U.S.C. Sec. 1332(a).
\9\ See Zahn v. International Paper Co., 414 U.S. 291 (1973).
---------------------------------------------------------------------------
The second is the ``complete diversity'' requirement. Since
1806, with some exceptions, the Federal courts have followed
the rule of Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267
(1806), which states that Federal jurisdiction lies only where
all plaintiffs are citizens of States different than all
defendants. 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.\10\
---------------------------------------------------------------------------
\10\ See Snyder v. Harris, 394 U.S. 332 (1969).
---------------------------------------------------------------------------
These procedural limitations regarding interstate class
actions are policy decisions, not constitutional ones. In fact,
the U.S. Supreme Court has repeatedly acknowledged that the
complete diversity and minimum amount-in-controversy
requirements are political decisions not mandated by the
Constitution.\11\ It is therefore the prerogative of Congress
to modify these technical requirements as it deems appropriate.
---------------------------------------------------------------------------
\11\ See, e.g., Newman-Green, Inc. v. Alfonzo-Larrian, 490 U.S.
826, 829 n.1 (1989) (noting that ``[t]he complete diversity requirement
is based on the diversity statute, not Article III of the
Constitution.''); See also, State Farm Fire & Cas. Co. v. Tashire, 386
U.S. 523, 530-31 (1967).
---------------------------------------------------------------------------
STANDARDS FOR REMOVAL OF INTERSTATE CLASS ACTIONS TO FEDERAL DISTRICT
COURT
The general 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.\12\ Removal is
based on the same general assumption as is diversity
jurisdiction that an out-of-State defendant may become a victim
of local prejudice in State court.\13\
---------------------------------------------------------------------------
\12\ See 28 U.S.C. Sec. 1441(a).
\13\ See David P. Currie, Federal Jurisdiction in a Nutshell 140
(West Pub. Co.) 3d. 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).\14\ An exception
exists beyond the 30-day deadline when the case stated by the
initial pleading is not removable. In such a case, if the
circumstances change, 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].'' \15\
---------------------------------------------------------------------------
\14\ See 28 U.S.C. Sec. 1446(b).
\15\ Id.
---------------------------------------------------------------------------
Under current law, a case cannot be removed on the basis of
Federal diversity jurisdiction more than 1 year after the case
was filed, even if plaintiffs make substantial changes to their
pleadings at that point.\16\
---------------------------------------------------------------------------
\16\ Id.
---------------------------------------------------------------------------
STUDIES HAVE DOCUMENTED AN EXPLOSION OF
CLASS ACTIONS IN STATE COURTS
The number of class actions filed in State courts has been
mushrooming in recent years, particularly in a small number of
courts that have developed reputations for being friendly to
class actions. Although data is difficult to gather, several
studies provide a clear picture of the growing problem
concentrated in certain State courts. For example:
LA 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.'' \17\
---------------------------------------------------------------------------
\17\ Class Action Fairness Act of 2001: Hearings on H.R. 2341
Before the House Comm. on the Judiciary, 107th Cong., 2d Sess. (Feb. 6,
2002) (prepared statement of John Beisner).
LAccording to recent studies, Federal court
class action filings have increased by 340 percent over
the past decade. But State court class action filings
have increased more than three times faster--by 1,315
percent. Typically, the new State court filings were on
behalf of proposed nationwide or multi-state
classes.\18\
---------------------------------------------------------------------------
\18\ See Analysis: Class Action Litigation--A Federalist Society
Survey, Class Action Watch at 5 (Vol. 1, No. 1 1998); Deborah Hensler,
et al., Preliminary Results of the RAND Study of Class Action
Litigation 15 (May 15, 1997); see also Advisory Committee Working
Papers (Vol. 1) at ix-x (May 1, 1997) (memorandum of Judge Paul V.
Niemeyer to members of the Advisory Committee on Civil Rules).
LA study submitted to the Committee in 1998
indicated that the local courts of six small Alabama
counties were experiencing a tidal wave of class action
filings, many seeking relief on behalf of purported
nation-wide classes of national significance.\19\
---------------------------------------------------------------------------
\19\ Hearings on ``Mass Torts and Class Action Lawsuits'' Before
the House Comm. on the Judiciary Subcomm. on Courts and Intellectual
Property, 105th Cong., 2d Sess. (March 5, 1998) (prepared statement of
John W. Martin, Jr.).
LThe 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.'' \20\
---------------------------------------------------------------------------
\20\ Deborah R. Hensler, et al., Class Action Dilemmas: Pursuing
Public Goals for Private Gain 19 (1999) (executive summary).
LA study by the Manhattan Institute 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--and confirmed that the filing of State
court class actions is increasing rapidly in numbers
wildly disproportionate to their populations.\21\ 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
percent between 1998 and 2000.\22\ The majority of
class actions in all three counties were brought on
behalf of nationwide classes. In Madison County, for
example, 81 percent of the cases filed during the
survey period sought to certify nationwide classes of
plaintiffs.\23\ In Jefferson County, the number was 57
percent.\24\ A follow-up study found that the number of
nationwide class actions filed in Madison County
continued to grow dramatically in 2001 and 2002.\25\
And within the past 2 weeks, there have been media
reports that the Madison County courts are on track to
set a new record for class action filings this
year.\26\
---------------------------------------------------------------------------
\21\ See John H. Beisner and Jessica Davidson Miller, They're
Making A Federal Case Out Of It . . . In State Court, 25 Harv. J. L. &
Pub. Pol'y 143 (Fall 2001).
\22\ Id. at 170.
\23\ Id. at 169.
\24\ Id. at 186.
\25\ See John H. Beisner and Jessica Davidson Miller, Class Action
Magnet Courts: The Allure Intensifies, 4 BNA Class Action Litig. R. 58
(Jan. 24, 2003).
\26\ Number of Lawsuits is 39 and Counting, Belleville (Ill.) News-
Democrat, May 26, 2003, at 1.
---------------------------------------------------------------------------
ABUSE OF THE CLASS CERTIFICATION DEVICE
IN INTERSTATE CLASS ACTIONS
The Committee believes that the main reason for the
explosion in State court class action filings is a growing
recognition among plaintiffs' lawyers that certain State courts
are particularly friendly to class actions and will readily
certify classes or approve settlements with little--if any--
regard for class certification standards or the interests of
class members. In particular, the Committee is concerned about
four types of abuses that have become commonplace in certain
State courts.
The first type of abuse is the willingness of certain State
court judges to ignore the procedural requirements that govern
class actions. For example, some State courts employ very lax
class certification criteria, rendering virtually any
controversy subject to class action treatment, regardless of
whether the plaintiffs actually present sufficiently common
claims. A small number of State courts go so far as to
routinely certify classes before the defendant is even served
with a complaint and given a chance to defend itself.\27\ In
one lawsuit filed against an auto manufacturer in a Tennessee
State court, for example, the complaint was filed on July 10,
1996. Plaintiffs filed several inches of documents with their
complaint. Amazingly, by the time the court closed that same
day, the judge had entered a nine-page order granting
certification of a nationwide class of 23 million members. The
defendant was not even notified about the lawsuit before the
certification and thus had no opportunity to tell its side of
the story.\28\ Upon checking, the defendant discovered that a
group of record companies had the same experience with the same
judge in an antitrust class action filed several days
earlier.\29\ Similarly, in one of the cases to develop out of
the Firestone tire controversy, a Tennessee State court
certified a nationwide class just 4 days after the defendants
were served with the complaint (and obviously without benefit
of any input from defendants).\30\ In another case, a Kentucky
State court ordered injunctive relief in favor of the class
before the defendant was even notified of the lawsuit.\31\
---------------------------------------------------------------------------
\27\ Mass Torts and Class Action Lawsuits: Hearing Before the
Subcomm. on Courts and Intellectual Property of the House Comm. on the
Judiciary, 105th Cong., 2d Sess. (March 5, 1998) (prepared statement of
John W. Martin, Jr.).
\28\ Hearings on S. 353, (prepared statement of Stephen G.
Morrison).
\29\ Id.
\30\ See Order of National Class Certification, Davison v.
Bridgestone/Firestone, Inc., Case No. 00C2298 (Eighth Cir. Ct., 20th
Jud. Dist., Nashville, Tenn.) (dated Aug. 18, 2000).
\31\ See Order, Farkas v. Bridgestone/Firestone, Inc., Case No. 00-
CI-5263 (Cir. Ct., Jefferson County, KY) (dated Aug. 18, 2000).
---------------------------------------------------------------------------
The second type of abuse is the willingness of certain
State courts to certify nationwide class actions in which they
apply their States' laws to all class members' claims,
including those of class members who live in other
jurisdictions. This practice is an affront to federalism,
because it results in one State court judge effectively making
the law of that State applicable nationwide. 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.\32\ 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.'' \33\ According to the appellate court, this
testimony was irrelevant because of the trial court's finding
that the parts were inferior.\34\ The New York Times observed
that 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.'' \35\
---------------------------------------------------------------------------
\32\ Avery v. State Farm Mut. Auto Ins. Cos., 746 N.E.2d 1242 (Ill.
Ct. App. 2001).
\33\ Id. at 1254.
\34\ Id.
\35\ Matthew L. Wald, Suit Against Auto Insurer Could Affect Nearly
All Drivers, N. Y. Times, Sep. 27, 1998.
---------------------------------------------------------------------------
While it may be the best-known example, Avery is not an
isolated occurrence. As Lawrence Mirel, the Commissioner of the
District of Columbia Department of Insurance and Securities
Regulation testified before the Committee on May 15, 2003,
class action abuse is wreaking ``havoc'' on insurance
regulation, as State court judges second-guess the policy
decisions of other States' insurance regulators.\36\ Of course
insurance regulation is not the only area where this abuse is
occurring. State courts have trampled on federalism principles
in a number of other areas as well, all in an effort to certify
classes that should not be certified. Among the examples are:
---------------------------------------------------------------------------
\36\ Hearing on H.R. 1115 Before the House Comm. on the Judiciary,
108th Cong., (May 15, 2003) (prepared statement of Lawrence H. Mirel).
LEarlier this year, the Supreme Court of
Oklahoma affirmed the certification of a nationwide
product liability class action brought against a car
manufacturer, applying the laws of a single State to
transactions that occurred in all 50 States.\37\ Thus,
in this case, a State court has decided effectively to
override whatever policy determinations another State's
legislature or courts may have made on warranty or
product liability policy to protect their own
residents.
---------------------------------------------------------------------------
\37\ Ysbrand v. DaimlerChrysler Corp., 2003 Okla. LEXIS 17 (Okla.
2003).
LThe Minnesota Court of Appeals recently
affirmed a nationwide class action, applying the laws
of a single State to transactions that occurred in many
different jurisdictions (and virtually none of which
occurred in the State whose laws were applied).\38\ One
judge who decided the case openly acknowledged that the
court was engaging in the ``false federalism'' that has
become part of the State court class action game.
---------------------------------------------------------------------------
\38\ Peterson v. BASF Corp., 2002 Minn. App. LEXIS 275 (Minn. Ct.
App. March 11, 2003).
The sentiment reflected in these cases flies in the face of
basic Federalism principles by embracing the view that one
State court can trump the contrary policy choices made by other
States. Indeed, such examples of judicial usurpation, in which
one State's courts try to dictate its laws to 49 other
jurisdictions, have also been duly criticized by some
congressional witnesses as ``false federalism.'' \39\
---------------------------------------------------------------------------
\39\ See Interstate Class Action Jurisdiction Act of 1999: Hearing
on H.R. 1875 Before the House Comm. on the Judiciary, 106th Cong., 1st
Sess. (July 21, 1999) (prepared statement of Walter Dellinger, former
acting-Solicitor General).
---------------------------------------------------------------------------
In contrast, in recent years, numerous Federal courts
(applying the choice-of-law doctrines of various jurisdictions)
have considered which laws should apply in proposed nationwide
class actions asserting State law-based claims. Those courts
have consistently concluded that in a nationwide or multi-State
class action, the choice-of-law rules of the State in which the
action was originally filed must be applied.\40\ Further, they
have consistently concluded that those choice-of-law rules must
be applied to ``each plaintiff's claims.'' \41\ Based on those
principles, Federal courts have consistently concluded that the
laws of all States where purported class members were
defrauded, injured, or purchased the challenged product or
service must come into play.\42\ Of course, this careful
application of different states' substantive laws by Federal
courts in national class action cases often undermines a key
rationale for treating it as a class action in the first place,
i.e., that the class members share common issues of law. And in
those very few instances in which a Federal district court has
toyed with the idea of engaging in ``false federalism'' (i.e.,
applying a single State's law to all asserted claims), that
notion has been reversed on appeal almost immediately.\43\
---------------------------------------------------------------------------
\40\ See, e.g., In re Bridgestone/Firestone, Inc. Prods. Liab.
Litig., 288 F.3d 1012 (7th Cir. 2002).
\41\ See, e.g., Georgine v. Amchem Prods., 83 F.3d 610, 627 (3d
Cir. 1996); aff'd sub nom. Amchem Prods. v. Windsor, 521 U.S. 591
(1997).
\42\ See, e.g., Georgine, 83 F.3d at 627; Zinser v. Accufix
Research Inst., Inc., 253 F.3d 1180, 1187-90 (9th Cir. 2001); Zapka v.
Coca-Cola Co., No. 99 CV 8238, 2000 U.S. Dist. LEXIS 16552, at *11-13
(N.D. Ill. Oct. 26, 2000); Fisher v. Bristol-Myers Squibb Co., 181
F.R.D. 365, 369 (N.D. Ill. 1998); Dhamer v. Bristol-Myers Squibb Co.,
183 F.R.D. 520, 532-34 (N.D. Ill. 1998); Jones v. Allercare, Inc., 203
F.R.D. 290, 307 (N.D. Ohio 2001); In re Ford Motor Co. Ignition Switch
Prods. Liab. Litig., 174 F.R.D. 332, 346-54 (D.N.J. 1997); Marascalco
v. Int'l Computerized Orthokeratology Soc'y, Inc., 181 F.R.D. 331, 338-
39 (N.D. Miss. 1998); In re Ford Motor Co. Bronco II Prods. Liab.
Litig., 177 F.R.D. 360, 369-71 (E.D. La. 1997); In re Stucco Litig.,
175 F.R.D. 210, 214, 215-217 (E.D.N.C. 1997); Ilhardt v. A.O. Smith
Corp., 168 F.R.D. 613, 619-20 (S.D. Ohio 1996); Harding v. Tambrands
Inc., 165 F.R.D. 623, 629-30, 631-32 (D. Kan. 1996); Walsh v. Ford
Motor Co., 130 F.R.D. 260, 271-75 (D.D.C. 1990); Feinstein v. The
Firestone Tire & Rubber Co., 535 F. Supp. 595, 608 (S.D.N.Y. 1982).
\43\ See, e.g., In re Bridgestone/Firestone, Inc., 288 F.3d at
1024; Szabo v. Bridgeport Machines, Inc., 249 F.3d 672, 674-75 (7th
Cir. 2001); Spence v. Glock, GES.m.b.H, 227 F.3d 308, 313-15 (5th Cir.
2000); In re Am. Med. Sys., 75 F.3d 1069, 1085 (6th Cir. 1996); Castano
v. American Tobacco Co., 84 F.3d 734, 741-43, 749-50 (5th Cir. 1995);
In re Rhone-Poulenc Rorer, Inc., 51 F.3d 1239, 1302 (7th Cir. 1995);
Walsh v. Ford Motor Co., 807 F.2d 1000, 1017-19 (D.C. Cir. 1990).
---------------------------------------------------------------------------
The third type of abuse that is becoming far too prevalent
in State court class action practice is the ``copy-cat'' class
action phenomenon, under which competing groups of plaintiffs'
lawyers (or sometimes the same lawyers) file numerous nearly
identical class actions in State courts around the country. In
the aftermath of the Ford/Firestone recall, for example, nearly
100 substantially identical class actions were filed in various
State courts throughout the country. 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 by the same
lawyers, who 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 and reducing
duplication. Unlike the Federal court system, however, State
courts do not have a mechanism whereby they can cogently
consolidate or adjudicate numerous competing suits filed in
different States. Instead, a settlement or judgment in any of
the cases makes the other class actions moot. 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. Again, the loser is the putative class
member whose claim is extinguished by the settlement, at the
expense of counsel seeking recovery of fees. Unless copy-cat
cases are removed to Federal court, they are litigated
separately in each State court, resulting in judicial waste,
abuse, and disparate outcomes.
The fourth and most widely recognized form of abuse is the
approval of class settlements that provide no real relief for
class members--and only benefit their lawyers. Once again, this
problem is far more prevalent in State courts than in Federal
courts. In a study jointly funded by the plaintiffs' and
defense bars, the Institute for Civil Justice/RAND examined
where the money goes in class settlements. That study indicates
that in State court consumer class action settlements (i.e.,
non-personal injury monetary relief cases), the class counsel
frequently walk away with more money than all class members
combined.\44\ Another in-depth study found that this ``lawyer
takes all'' phenomenon was not occurring in Federal courts--
`[i]n most [class actions handled by Federal courts], net
monetary distributions to the class exceeded attorneys' fees by
substantial margins.'' \45\
---------------------------------------------------------------------------
\44\ Deborah R. Hensler et al., Class Action Dilemmas: Pursuing
Public Goals for Private Gain 15 (1999).
\45\ Federal Judicial Center, Empirical Study of Class Actions in
Four Federal District Courts, 68-69 (1996).
---------------------------------------------------------------------------
Examples of abusive State court settlements abound. In the
now infamous Bank of Boston settlement, an Alabama State court
judge approved a settlement that awarded no more than $8.16 to
individual class members, while the class counsel received more
than $8.5 million in fees.\46\ 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.\47\ 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.'' \48\
---------------------------------------------------------------------------
\46\ Class Action Lawsuits: Examining Victim Compensation and
Attorney's fees: Hearing Before the Subcomm on Administrative Oversight
and the Courts of the Sen. Comm. on the Judiciary, 105th Cong., 2d
Sess., Hr'g. 105-504 (Oct. 30, 1997).
\47\ Id.
\48\ Id.
---------------------------------------------------------------------------
While the Bank of Boston settlement is the best-known (and
perhaps the most egregious) example, witnesses who appeared
before the Committee have noted an abundance of other
settlements that provided millions of dollars to the lawyers--
but only pennies to the class members:
LIn a recent case involving customers who
alleged that they were charged excessive late fees by
Blockbuster, the class members received $1 off coupons
for rentals--at the same time, their attorneys divided
up a $9.25 million fee award. Experts have predicted
that at most, only 20 percent of the class members will
redeem the coupons. The settlement allows Blockbuster
to continue its practice of charging customers for a
new rental period when they return a tape late.\49\ In
this settlement approved by the Texas State court, only
the lawyers got cash.
---------------------------------------------------------------------------
\49\ Scott v. Blockbuster Inc. (No. D162-535, Jefferson County,
Texas, 2001); Judge OKs Blockbuster Plan On Fees, Associated Press,
Jan. 11, 2002.
LIn another recent case, Food Lion settled a
State court class action filed by a consumer group by
offering 28-cent coupons to customers who held an MVP
discount card between 1995 and 1998. The plaintiff
class alleged that Food Lion charged too much sales tax
on discounted products purchased with the discount
card.\50\ Only the lawyers got money.
---------------------------------------------------------------------------
\50\ Attention Shoppers: Food Lion Rebate Due, Greensboro News &
Record, Feb. 25, 2002.
LA manufacturer offered consumers who bought a
dozen Pinnacle golf balls free golf gloves. When the
manufacturer ran out of the golf gloves and substituted
a set of three free golf balls, it was hit with a class
action. The settlement provided that the manufacturer
would send each class member three more free golf
balls. Meanwhile, by order of a State court, the
attorneys who brought the lawsuit received $100,000 in
fees and the persons who served as class
representatives each received $2,500.\51\
---------------------------------------------------------------------------
\51\ Enough Already With the Lawsuits, Kansas City Star, July 10,
1999.
LUnder the settlement in a State court case,
which resulted from allegations regarding changes in
the American Airlines frequent flyer program, members
of the program received vouchers good for $25 to $75
off the price of future travel, or a similarly valued
reduction in the number of miles required for an award.
American also agreed to pay the lawyers up to $25
million in fees. One news article about the settlement
quoted travel experts saying that ``the practical value
of those discounts will be modest,'' and ``American
could end up generating enough extra revenue to more
than offset the cost of the offer.'' \52\
---------------------------------------------------------------------------
\52\ American Airlines Settles Lawsuits Over Frequent Flier
Program, Forth Worth Star-Telegram, June 22, 2000.
LPublishers of the Beardstown Ladies
investment advice books agreed to a settlement
providing plaintiff class members with coupons worth
$15-$25. Plaintiffs alleged that defendants included
false and misleading statements in marketing materials
regarding the success rates of investment strategies
espoused in the books. The coupons allowed claimants to
purchase books from a pre-approved list, which the
publishers retained control over.\53\ All of the cash
paid in this State court-approved settlement went to
lawyers.
---------------------------------------------------------------------------
\53\ See Keimer v. Buena Vista Books: Settlement available at
http://www.beardstownladiessettlement.com.
LIn a suit involving port charges, a sea
cruise line agreed to give vouchers for a future cruise
worth $25 to $55 off a future cruise to 4.5 million
people who sailed on its cruises between April 19, 1992
and June 4, 1997. The vouchers can be used for a future
cruise or redeemed for cash at 15 percent or 20 percent
of face value.\54\ In this State court class action
settlement, only the lawyers received cash payments.
---------------------------------------------------------------------------
\54\ Carnival Cruise Settles Lawsuit, Florida Today, Mar. 16, 2001.
LIn a case alleging flawed television sets,
Thomson Consumer Electronics agreed to reimburse
customers who had receipts documenting repairs, to
provide $50 rebates on the purchase of future products
for consumers who did not repair their problems or did
not have receipts, and to provide $25 rebates on future
products to consumers who did not experience a problem.
Under the terms of the settlement approved by an
Illinois State court, the lawyers reportedly received
$22 million in fees and costs. According to news
reports, more than 2,640 people opted out of the
settlement; some said they opted out because the form
was complicated and others said they opted out because
the attorneys' fees were so high.\55\
---------------------------------------------------------------------------
\55\ Baird v. Thomson Consumer Electronics, Inc. (No. 00-L-00761,
Madison County, Illinois); 2,640 Television Owners Tune Out Class
Action Suit, Belleville (Ill.) News-Democrat, Aug. 19, 2001.
LIn the settlement of a State court class
action involving allegations of overly aggressive fees
and rates by a Minnesota credit card company, class
members received discount coupons with a retail value
of $19.95, an $8 dollar donation in their name to the
Boys and Girls Clubs of America, the right to apply for
a 9.9 percent interest credit card and to join a
promotional travel discount club. They also had the
potential to receive between $10 and $70 in cash. The
company agreed to change its practices, and the lawyers
received $5.6 million in fees.\56\
---------------------------------------------------------------------------
\56\ Fischl v. Direct Merchants Credit Card Bank, N.A. (CT 00-
007129, Hennepin County, Minnesota); Soft Firm: Too Often, The SF Law
Firm Of Lieff, Cabraser, Heimann & Bernstein Strikes Settlements That
Give The Firm Millions Of Dollars In Legal Fees--And Its Class Action
Clients Too Little, S.F. Weekly, May 29, 2002.
LIn one State court class action involving
faulty pipes, lawyers for a group of Alabama plaintiffs
received more than $38.4 million in fees and lawyers
for a class of Tennessee plaintiffs case received $45
million, or the equivalent of about $2,000 an hour. In
contrast, the homeowners only received 8 percent
rebates toward new plumbing--and to get those rebates,
they had to first prove that they had suffered leaks
and then go out and buy a new system.\57\ The money in
the settlement flowed primarily to class counsel.
---------------------------------------------------------------------------
\57\ See Richard B. Schmitt, Leaky System: Suits Over Plastic Pipe
Finally Bring Relief, Especially for Lawyers, Wall St. J., Nov. 20,
1995, at A1.
LIn a group of State court class actions
settled last year, class members alleging that they
were not fully advised of ``energy surcharges'' applied
when they checked into hotels during California's
electricity crisis were given $10 coupons.\58\ Only the
lawyers are receiving cash.
---------------------------------------------------------------------------
\58\ Hotel Chains Settle Class-Action Suit Over Energy Surcharges,
San Diego Union-Tribune, July 4, 2002.
LIn another case, an Illinois State court
approved a coupon settlement of a class action filed
against Southwestern Bell Mobile Systems, Inc.,
alleging that the company failed to fully disclose the
fact that it rounded up customer calls to the next
minute. Under the State court settlement, the class
members received $15 vouchers toward Cellular One
products, while the lawyers took home more than $1
million in fees.\59\
---------------------------------------------------------------------------
\59\ See Michelle Singletary, Coupon Settlements Fall Short, Wash.
Post, Sept. 12, 1999, at H01. For more examples of coupon settlements,
see Hearings on S. 353, Prepared Testimony of Stephan G. Morrison.
LIn a State court class action alleging that
Coca-Cola improperly added sweeteners to apple juice,
defendant agreed to distribute 50-cent coupons toward
the purchase of apple juice. Meanwhile, class counsel
received $1.5 million.\60\
---------------------------------------------------------------------------
\60\ Lawyers Get $1.5 Million, Clients Get 50 Cents Off, Fulton
County Daily Report, Nov. 21, 1997.
LIn a State court action alleging that General
Mills treated oats with a non-approved pesticide, class
members were offered coupons; the attorneys received
$1.75 million.\61\
---------------------------------------------------------------------------
\61\ Cereal Plan Called Soggy, Nat'l Law Journal, May 22, 1995.
As the Washington Post put it last year in an editorial
condemning settlements like those listed above: ``This is not
justice. It is an extortion racket that only Congress can
fix.''\62\
---------------------------------------------------------------------------
\62\ Editorial, Making Justice Work, Wash. Post, November 25, 2002,
at A14.
---------------------------------------------------------------------------
CURRENT JURISDICTIONAL RULES ARE FOSTERING CLASS ACTION ABUSES BY
KEEPING CLASS ACTIONS OUT OF FEDERAL COURTS
The current jurisdictional statutes were originally enacted
years ago, well before the modern class action arose.
Unfortunately, the way they were drafted results in the
exclusion of most interstate class actions from Federal court.
Moreover, the current jurisdictional rules enable plaintiffs'
counsel to evade Federal jurisdiction through manipulative
pleading techniques for two reasons.
First, although the Supreme Court has held that only the
named plaintiffs' citizenship should be considered for purposes
of determining if the parties to a class action are diverse,
the ``complete'' diversity rule still mandates that all named
plaintiffs must be citizens of different States from all the
defendants.\63\ In interstate class actions, plaintiffs'
counsel frequently and purposely evade Federal jurisdiction in
multi-State class actions by adding named plaintiffs or
defendants simply based on their State of citizenship in order
to defeat complete diversity. 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.
One witness, Hilda Bankston, testified regarding her
experiences of owning a small drugstore in Jefferson County
Mississippi, which was repeatedly dragged into lawsuits against
pharmaceutical manufacturers.\64\ According to Mrs. Bankston,
her drugstore was a target because it filled FDA-approved
prescriptions, was located in Jefferson County, Mississippi,
and kept accurate records.\65\ If all it takes to keep a class
action in State court is to name one local retailer that keeps
good records, it is no surprise that few interstate class
actions meet the complete diversity requirement.
---------------------------------------------------------------------------
\63\ See Snyder v. Harris, 394 U.S. 332 (1969).
\64\ Class Action Fairness Act of 2001: Hearings on HR. 2341 Before
the House Comm. on the Judiciary, 107th Cong., 2nd Sess. (Feb. 6, 2002)
(prepared statement of Hilda Bankston).
\65\ Id.
---------------------------------------------------------------------------
Second, in interpreting 28 U.S.C. Sec. 1332(a), some
Federal courts of appeals, relying on a 1974 Supreme Court
decision,\66\ have held that the amount-in-controversy
requirement is normally met in class actions only if each of
the class members individually seeks damages in excess of the
statutory minimum.\67\ That means Federal courts can only hear
class actions in which each plaintiff claims damages in excess
of $75,000.\68\ The Committee believes that requiring each
plaintiff to reach the $75,000 mark makes little sense in the
class action context. After all, class actions frequently
involve tens of millions of dollars even though each individual
plaintiff's claims are far less than that. Moreover, class
action lawyers typically misuse the jurisdictional threshold to
keep their cases out of Federal court. For example, class
action complaints often include a provision stating that no
class member will seek more than $75,000 in relief, even though
certain class members may be entitled to more and even though
the class action seeks millions of dollars in the aggregate.
Under current law, that is frequently enough to keep a major
class action in State court.
---------------------------------------------------------------------------
\66\ See Zahn v. International Paper Co., 414 U.S. 291 (1974).
\67\ See Trimble v. Asarco, Inc., 263 F.3d 946 (8th Cir. 2000);
Meritcare, Inc. v. St. Paul Mercury Ins. Co., 166 F.3d 214 (3d Cir.
1999); Leonhardt v. Western Sugar Co., 160 F.3d 631 (10th Cir. 1998).
\68\ Other Federal courts of appeals have held that for a class
action to be heard in Federal court only one or more named plaintiffs
must have claims exceeding $75,000. See, e.g., Rosmer v. Pfizer, Inc.,
263 F.3d 110 (4th Cir. 2001); Gibson v. Chrysler Corp., 261 F.3d 927
(9th Cir. 2001); Stromberg Metal Works. Inc. v. Press Mechanical, Inc.,
77 F.3d 928 (7th Cir. 2000); In re Abbott Labs., Inc., 51 F.3d 524 (5th
Cir. 1995), aff'd by an equally divided Court, 529 U.S. 333 (2000). In
the view of these courts, the value of the claims of the other class
members is irrelevant--they are deemed to be part of the class as a
matter of supplemental jurisdiction. The Committee stresses, however,
that even in those Circuits following this rule, relatively few class
actions find their way into Federal court because plaintiffs offer
named plaintiffs who do not have $75,000 claims or name a non-diverse
plaintiff or defendant in order to prevent removal of the case to
Federal court.
---------------------------------------------------------------------------
The current anomaly in jurisdictional law has created a
system under which a citizen can bring a ``Federal case'' by
claiming $75,001 in damages for a simple slip-and-fall case
against a party from another State, while a class action
involving 25 million people living in all 50 States and
alleging claims against a manufacturer that are collectively
worth $15 billion must usually be heard in State court (because
each individual class member's claim is for less than $75,000).
Put another way, under the current jurisdictional rules,
Federal courts can assert diversity jurisdiction over a typical
State law claim arising out of an auto accident between a
driver from one State and a driver from another, or a typical
trespass claim involving a trespasser from one State and a
property owner from another, but they cannot assert
jurisdiction over claims encompassing large-scale, interstate
class actions involving thousands of plaintiffs from many
States, defendants from many States, the laws of many States,
and hundreds of millions of dollars--cases that have
significant implications for the national economy.
Not surprisingly, a growing chorus of authoritative sources
are bringing attention to this anomaly and calling for
legislation to correct it.
LThe leading Federal civil procedure law
treatise has noted: ``The traditional principles
[regarding Federal diversity jurisdiction over class
actions] have evolved haphazardly and with little
reasoning. They serve no apparent purpose.''\69\
---------------------------------------------------------------------------
\69\ Charles A. Wrght, et. al., Federal Practice and Procedure
Sec. 3704, at 127 (3 ed. 1998).
LFormer Acting Solicitor General Walter
Dellinger testified in 1999 before the Committee on the
Judiciary that 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,\70\ since they typically have the most
money in controversy, involve the most people, and have
the most interstate commerce ramifications.
---------------------------------------------------------------------------
\70\ Interstate Class Action Jurisdiction Act of 1999 and Workplace
Goods Job Growth and Competitiveness Act of 1999: Hearings on H.R. 1875
and H.R. 2005 Before the House Comm. on the Judiciary, 106th Cong., 1st
Sess. 57 (July 21, 1999) (prepared statement of Walter Dellinger).
LIn a recent Minnesota State appellate court
decision upholding a grant of class certification, a
concurring judge noted that the nationwide class action
before it was a ``poster child for national class
action reform. We have here a Minnesota [state]
district court, applying a New Jersey consumer fraud
statute to a nationwide class of plaintiffs, with few
of those plaintiffs residing in New Jersey. It is
probably a fair assumption that the legislative authors
of the New Jersey consumer protection scheme did not
have in mind midwestern farmers purchasing agricultural
chemicals as the protected class . . . This is not a
recipe for uniformity or consistency, it is fair
neither to claimants nor defendants and it is long past
time for national policy makers to address class action
procedures.''\71\
---------------------------------------------------------------------------
\71\ Peterson v. BASF Corp., 2003 Minn. App. LEXIS 275, at *47-48
(Minn. Ct. App. Mar. 11, 2003).
LThe U.S. Court of Appeals for the Eleventh
Circuit apologized for sending an 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.'' 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 [diversity jurisdiction] would have
in mind. . . .''\72\
---------------------------------------------------------------------------
\72\ Davis v. Cannon Chevrolet-Olds, Inc., 182 F.3d 792, 797 (11th
Cir. 1999).
LIn that same case, Judge John Nangle, the
former chairman of the Judicial Panel for 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]his judge
is of the opinion that the present [jurisdictional
rules] do[] not accommodate the reality of modern class
litigation and settlements.''\73\
---------------------------------------------------------------------------
\73\ Id. at 798.
LIn another case, Judge Anthony Scirica (chair
of the Judicial Conference's Standing Committee on
Rules and Procedure) observed that although ``national
(interstate) class actions are the paradigm for Federal
diversity jurisdiction because . . . they implicate
interstate commerce, foreclose discrimination by a
local state, and tend to guard against any bias against
interstate enterprises, . . . the current
jurisdictional statutes [put] such class actions . . .
beyond the reach of the Federal courts.''\74\
---------------------------------------------------------------------------
\74\ In re Prudential Ins. Co. America Sales Practice Litig., 148
F.3d 283, 305 (3d Cir. 1998).
LAlthough the Judicial Conference of the
United States has at least twice formally opposed any
expansion of Federal jurisdiction over class actions,
the Judicial Conference signaled a significant shift in
a March 26, 2002 letter to Congress.\75\ The letter
acknowledges ``current problems with class action
litigation.'' Further, in that letter, the Conference
for the first time ``recognizes that the use of
[expanded] diversity jurisdiction may be appropriate to
the maintenance of significant multi-state class action
litigation in the Federal courts.''\76\
---------------------------------------------------------------------------
\75\ Letter from Leonidas Ralph Mecham, Secretary, Judicial
Conference of the United States to Chairman Orrin G. Hatch, Sen. Comm.
on the Judiciary, (Mar. 26, 2003).
\76\ Id.
LEven 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.''\77\ 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.''\78\
---------------------------------------------------------------------------
\77\ Fed. News Serv. Tr., Mass Torts and Class Actions: Hearing
Before the Subcomm. on Intellectual Property and the Courts of the
House Comm. on the Judiciary (March 9, 1998), 105th at 19 (``FNS
Transcript'').
\78\ Id.
LIncreasingly, the media has joined the chorus
as well. For example, the Washington Post has
editorialized that ``the existence of . . . `magnet'
courts and troubling settlements, which undermine
public confidence in our judicial system, would be
greatly reduced if Federal courts had jurisdiction over
interstate class actions.''\79\ The Washington Post has
endorsed the legislative effort behind H.R. 1115,
noting last year: ``The House passed a bill in the
107th Congress, which then stalled in the Senate, that
would make it easier for defendants to move class
actions from State to Federal courts and subject them
to more reasonable Federal rules. Passing this bill
would be an important beginning.''\80\
---------------------------------------------------------------------------
\79\ Editorial, Fixing Class Actions, Wash. Post, Mar. 21, 2002, at
A34.
\80\ Editorial, Making Justice Work, Wash. Post, Nov. 25, 2002, at
A14.
The Committee agrees with these and many others who
recognize that the Federal courts are the appropriate forum to
decide most interstate class actions because these cases
usually involve large amounts of money and many plaintiffs, and
have significant implications for interstate commerce and
national policy.
EFFECT OF H.R. 1115 ON EXISTING LAW
H.R. 1115 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. 1115 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
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. 1115, 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 refile 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 refiled 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.
Response to Criticisms of H.R. 1115
Opponents of H.R. 1115 have criticized the bill on several
grounds, arguing that the legislation would: overload the
Federal courts; delay the resolution of class actions; and make
it difficult for injured citizens to obtain justice. None of
these contentions are true.
H.R. 1115 would not overload the Federal courts.
During Committee debate on previous versions of this bill,
the most frequently expressed concern was that its
jurisdictional provisions would overload the Federal judiciary.
That argument, however, ignores the burden of class actions on
our entire national judicial system, which includes both
Federal courts and State courts. In fact, many State courts,
where the critics apparently would like to confine all
interstate class actions, are just as burdened--if not more
so--than the Federal courts, and are less equipped to deal with
complex cases like class actions. Indeed, many State courts
have comparatively crushing caseloads.
Current data indicate that there has been a 7.2 percent
decrease in the number of civil cases pending in our Federal
district courts nationwide since 1997.\81\ The number of new
diversity jurisdiction cases filed in Federal courts has
decreased by more than 11 percent since 1997.\82\ In contrast,
civil filings in State trial courts of general jurisdiction
have increased 30 percent since 1984 (compared to a 4 percent
increase in the Federal courts).\83\ Perhaps most tellingly, in
most jurisdictions, each State court judge is assigned (on
average) over 1,500 new cases each year,\84\ while each Federal
court judge was assigned an average of 454 new cases during
2001.\85\
---------------------------------------------------------------------------
\81\ See Administrative Office of the U.S. Courts, Judicial
Business of the United States Courts 16 (2002) (``Judicial Business'').
\82\ Id. at 24.
\83\ B. Ostrom, et al., Examining the Work of State Courts 10
(Court Statistics Project 2001).
\84\ Id. at 12-13.
\85\ See Administrative Office of the U.S. Courts, 2001 Federal
Court Management Statistics 167 (2002).
---------------------------------------------------------------------------
Critics of the bill also ignore the fact that many State
courts are tribunals of general jurisdiction--they hear all
sorts of cases, including divorce matters, custody disputes,
name change petitions, traffic violations, small claims
contract disputes, minor misdemeanors, and major felonies.
Thus, when a class action is filed before those courts, it
diminishes their ability to provide a broad array of basic
legal services for the local community. The judges presiding
over those State courts have far fewer resources for dealing
with huge, complex cases, like class actions. Federal court
judges usually have two or three law clerks; State court judges
typically have none. Federal court judges usually can delegate
aspects of their cases (e.g., discovery issues) to magistrate
judges or special masters; State court judges typically lack
such resources.
Further, Federal courts regularly decide cases involving
difficult conflict of law questions, and are frequently
required to apply different States' laws in complex cases--not
just class actions. Indeed, it is fair to say that this is
``standard fare'' for the Federal courts. On the other hand,
State courts are not as familiar with these kinds of issues and
have been known to avoid applying different State laws by
simply--and improperly--imposing their own State law on a
nationwide case. Removal of more class actions to the Federal
courts can only lead to more appropriate handling of these
cases, as well as improve the fairness of class action
decisions to both plaintiffs and defendants.
Critics who focus on the Federal courts' workload are
missing the point--class actions are precisely the kind of
cases that should be heard in Federal court. Class actions
usually involve the most people, the most money, and the most
interstate commerce issues. They also usually involve issues
with nationwide implications. Interstate class actions are
certainly no less deserving of a Federal forum than the 24,404
cases to recover a few thousand dollars in student loan
arrearages, the 12,307 individual product liability actions
(typically one-person injury case), the 17,482 Federal personal
injury cases (e.g., single person medical malpractice cases),
or 24,684 civil habeas corpus cases filed in Federal court
during 2001.\86\ Indeed it is noteworthy that there were almost
ten times as many product liability and Federal personal injury
cases (normally one-person claims) filed in Federal court
during 2001 (29,789) as there were class actions (3,092).\87\
Ultimately, regardless of the impact on the Federal court
caseload, large interstate class actions belong in Federal
court.
---------------------------------------------------------------------------
\86\ See Judicial Business, at 130-31.
\87\ See Administrative Office of the U.S. Courts, Federal Judicial
Caseload Statistics 56 (2002).
---------------------------------------------------------------------------
H.R. 1115 will not result in delays for injured consumers
For all of the reasons set forth previously, H.R. 1115
would not overwhelm the Federal courts with class action cases
and thereby delay consumers' redress for their injuries in
Federal court.
Opponents of the bill have presented no data whatsoever
that judicial overload would occur. Although some critics have
asserted that it takes at least 5 years to get a class action
to trial in Federal court, far longer than in State court, in
reality, the median time for final disposition of a civil claim
filed in Federal court is 8.1 months, and the median time to
get to trial in a civil matter in Federal court is 20.4
months.\88\ The record reflects no hard evidence that on
average, State courts proceed more quickly.
---------------------------------------------------------------------------
\88\ Judicial Business at 157.
---------------------------------------------------------------------------
When Congress has expanded Federal court jurisdiction in
other respects, it normally has not (at least in recent years)
had the benefit of any hard data indicating the likely impact
on Federal court workload. For example, the Y2K Act (Pub. L.
No. 106-37) expanded Federal jurisdiction over Y2K class
actions in almost precisely the same manner as proposed in H.R.
1115. Congress enacted that change without knowing its likely
judicial workload impact. Likewise, the Securities Litigation
Reform Act of 1998 (Pub. L. No. 105-353) contained provisions
moving virtually all securities class actions from State courts
into the Federal courts. Once again, Congress enacted that
expansion of Federal jurisdiction without knowing the precise
effects on Federal court workload. In the past, when the case
has been made that Federal court jurisdiction should be
expanded, Congress has simply enacted the expansion with the
understanding that any resulting judicial workload problems
could be addressed later. In sum, there simply is no basis for
the claims that consumers will be worse off in Federal court or
that the resolution of class actions will be delayed because of
the Federal judiciary's workload.
H.R. 1115 does not undermine federalism principles
While some critics have alleged that this bill will somehow
undermine federalism principles, exactly the opposite is true.
H.R. 1115 has been carefully crafted to correct a problem in
the current system that does not promote traditional concepts
of federalism. In fact, it is the current system and the wave
of nationwide State court class actions that has trampled on
the rights of States to manage their legal systems by allowing
State court judges to interpret and apply the laws of multiple
jurisdictions. When State courts preside over class actions
involving claims of residents of more than one State, they
frequently dictate the substantive laws of other States,
sometimes over the protests of those other jurisdictions (as
discussed previously). When that happens, there is little those
other jurisdictions can do, since the judgment of a court in
one State is not reviewable by the State court of another
jurisdiction.
It is far more appropriate for a Federal court to interpret
the laws of various States (a task inherent in the
constitutional concept of diversity jurisdiction), than for one
State court to dictate to other States what their laws mean or,
even worse, to impose its own State law on a nationwide case.
Why should a State court judge elected by several thousand
residents of a small county in Alabama tell New York or
California the meaning of their laws? Why should an Illinois
State court judge interpret decisions by Virginia or Wisconsin
courts? Why should a State court judge be able to overrule
other State laws and policies? Why should State courts be
setting national policy?
H.R. 1115 simply allows more class action cases filed in
State court to be removed to Federal court. H.R. 1115 does not
change substantive law--it is, in effect, a procedural
provision only. As such, class action decisions rendered in
Federal court should be the same as if they were decided in
State court--under the Erie doctrine, Federal courts must apply
State substantive law in diversity cases. Moreover, if Federal
court judges are not familiar with State law on a particular
issue, they have the authority to ``certify'' a question of law
to a State court, e.g., to advise the Federal court how a
State's laws should be applied in an uncharted situation. This
procedure allows the Federal courts to apply State law
appropriately and gives States the ability to manage their
legal systems without becoming bound by other States'
interpretations of their laws.
In short, contrary to critics' contentions, the real harm
to federalism is the status quo--leaving the bulk of class
action cases in State court. Federal courts are the appropriate
forum to decide interstate class actions involving large
amounts of money, many plaintiffs and interstate commerce
disputes. These matters of interstate comity are more
appropriately handled by Federal judges appointed by the
President and confirmed by the Senate. H.R. 1115 simply
restores this proper balance by resolving an anomaly of
diversity jurisdiction. True to the concept of federalism, H.R.
1115 appropriately leaves certain ``intrastate'' class actions
in State court: cases involving small amounts in controversy;
cases with a class of 100 plaintiffs or less; cases involving
plaintiffs, defendants and governing law all from the same
State; cases against States and State officials; and certain
securities and corporate governance cases. As such, H.R. 1115
promotes the concept of federalism and protects the ability of
States to determine their own laws and policies for their
citizens.
Hearings
The full Committee held a hearing on H.R. 1115 on May 15,
2003. Testimony was received from four witnesses: Hon. Viet
Dinh, Assistant Attorney General, U.S. Department of Justice;
John Beisner, Esq., Attorney, O'Melveny & Myers LLP; Lawrence
H. Mirel, Commissioner, District of Columbia Department of
Insurance and Securities Regulation; and Brian Wolfman, Esq.,
Attorney, Public Citizen Litigation Group.
Committee Consideration
On May 21, 2003, the Committee met in open session and
ordered favorably reported the bill H.R. 1115, as amended, by a
vote of 20 ayes to 14 nays, a quorum being present.
Vote of the Committee
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the Committee notes that the
following rollcall votes occurred during the committee's
consideration of H.R. 1115:
1. An amendment offered by Mr. Nadler to prohibit the court
from sealing class action records relevant to public health or
safety. DEFEATED: rollcall vote of 7 ayes and 20 nays.
ROLLCALL NO. 1
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Hyde........................................................
Mr. Coble....................................................... X
Mr. Smith....................................................... X
Mr. Gallegly....................................................
Mr. Goodlatte................................................... X
Mr. Chabot...................................................... X
Mr. Jenkins..................................................... X
Mr. Cannon...................................................... X
Mr. Bachus...................................................... X
Mr. Hostettler.................................................. X
Mr. Green....................................................... X
Mr. Keller...................................................... X
Ms. Hart........................................................ X
Mr. Flake....................................................... X
Mr. Pence....................................................... X
Mr. Forbes...................................................... X
Mr. King........................................................ X
Mr. Carter...................................................... X
Mr. Feeney...................................................... X
Mrs. Blackburn.................................................. X
Mr. Conyers.....................................................
Mr. Berman...................................................... X
Mr. Boucher.....................................................
Mr. Nadler...................................................... X
Mr. Scott....................................................... X
Mr. Watt........................................................ X
Ms. Lofgren.....................................................
Ms. Jackson Lee.................................................
Ms. Waters......................................................
Mr. Meehan......................................................
Mr. Delahunt.................................................... X
Mr. Wexler......................................................
Ms. Baldwin..................................................... X
Mr. Weiner......................................................
Mr. Schiff...................................................... X
Ms. Sanchez..................................................... X
Mr. Sensenbrenner, Chairman..................................... X
-----------------------------------------------
Total....................................................... 7 20
----------------------------------------------------------------------------------------------------------------
2. An amendment offered by Mr. Smith and Mr. Boucher to
apply the provisions of the bill to cases that have been filed
but not certified as a class upon date of enactment. ADOPTED:
rollcall vote of 21 ayes and 9 nays.
ROLLCALL NO. 2
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Hyde........................................................
Mr. Coble....................................................... X
Mr. Smith....................................................... X
Mr. Gallegly.................................................... X
Mr. Goodlatte................................................... X
Mr. Chabot...................................................... X
Mr. Jenkins..................................................... X
Mr. Cannon...................................................... X
Mr. Bachus...................................................... X
Mr. Hostettler.................................................. X
Mr. Green....................................................... X
Mr. Keller...................................................... X
Ms. Hart........................................................ X
Mr. Flake....................................................... X
Mr. Pence....................................................... X
Mr. Forbes...................................................... X
Mr. King........................................................ X
Mr. Carter...................................................... X
Mr. Feeney...................................................... X
Mrs. Blackburn.................................................. X
Mr. Conyers.....................................................
Mr. Berman...................................................... X
Mr. Boucher..................................................... X
Mr. Nadler......................................................
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
Ms. Sanchez..................................................... X
Mr. Sensenbrenner, Chairman..................................... X
-----------------------------------------------
Total....................................................... 21 9
----------------------------------------------------------------------------------------------------------------
3. An amendment offered by Mr. Scott to strike the bill's
prohibition on bounties which disproportionately reward certain
class members. DEFEATED: rollcall vote of 12 ayes and 20 nays.
ROLLCALL NO. 3
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Hyde........................................................
Mr. Coble....................................................... X
Mr. Smith....................................................... X
Mr. Gallegly....................................................
Mr. Goodlatte................................................... X
Mr. Chabot...................................................... X
Mr. Jenkins..................................................... X
Mr. Cannon...................................................... X
Mr. Bachus...................................................... X
Mr. Hostettler.................................................. X
Mr. Green....................................................... X
Mr. Keller...................................................... X
Ms. Hart........................................................ X
Mr. Flake....................................................... X
Mr. Pence....................................................... X
Mr. Forbes...................................................... X
Mr. King........................................................ X
Mr. Carter...................................................... X
Mr. Feeney...................................................... X
Mrs. Blackburn.................................................. X
Mr. Conyers..................................................... 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...................................................... X
Ms. Baldwin..................................................... X
Mr. Weiner...................................................... X
Mr. Schiff...................................................... X
Ms. Sanchez..................................................... X
Mr. Sensenbrenner, Chairman..................................... X
-----------------------------------------------
Total....................................................... 12 20
----------------------------------------------------------------------------------------------------------------
4. An amendment offered by Ms. Jackson Lee and Mr. Conyers
to make foreign corporations citizens of the States where a
domestic corporation acquired by said foreign corporation (via
a corporate repatriation transaction) is incorporated for
purposes of Federal diversity jurisdiction. DEFEATED: rollcall
vote 13 ayes to 20 nays.
ROLLCALL NO. 4
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Hyde........................................................
Mr. Coble....................................................... X
Mr. Smith....................................................... X
Mr. Gallegly....................................................
Mr. Goodlatte................................................... X
Mr. Chabot...................................................... X
Mr. Jenkins..................................................... X
Mr. Cannon...................................................... X
Mr. Bachus...................................................... X
Mr. Hostettler.................................................. X
Mr. Green....................................................... X
Mr. Keller...................................................... X
Ms. Hart........................................................ X
Mr. Flake....................................................... X
Mr. Pence....................................................... X
Mr. Forbes...................................................... X
Mr. King........................................................ X
Mr. Carter...................................................... X
Mr. Feeney...................................................... X
Mrs. Blackburn.................................................. X
Mr. Conyers..................................................... X
Mr. Berman......................................................
Mr. Boucher..................................................... X
Mr. Nadler...................................................... X
Mr. Scott....................................................... X
Mr. Watt........................................................ X
Ms. Lofgren.....................................................
Ms. Jackson Lee................................................. X
Ms. Waters...................................................... X
Mr. Meehan...................................................... X
Mr. Delahunt.................................................... X
Mr. Wexler...................................................... X
Ms. Baldwin..................................................... X
Mr. Weiner...................................................... X
Mr. Schiff...................................................... X
Ms. Sanchez..................................................... X
Mr. Sensenbrenner, Chairman..................................... X
-----------------------------------------------
Total....................................................... 13 20
----------------------------------------------------------------------------------------------------------------
5. A motion by Chairman Sensenbrenner to favorably report
H.R. 1115 as amended. ADOPTED: rollcall vote 20 ayes to 14
nays.
ROLLCALL NO. 5
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Hyde........................................................
Mr. Coble....................................................... X
Mr. Smith....................................................... X
Mr. Gallegly....................................................
Mr. Goodlatte................................................... X
Mr. Chabot...................................................... X
Mr. Jenkins..................................................... X
Mr. Cannon...................................................... X
Mr. Bachus...................................................... X
Mr. Hostettler.................................................. X
Mr. Green....................................................... X
Mr. Keller...................................................... X
Ms. Hart........................................................ X
Mr. Flake....................................................... X
Mr. Pence....................................................... X
Mr. Forbes...................................................... X
Mr. King........................................................ X
Mr. Carter...................................................... X
Mr. Feeney...................................................... X
Mrs. Blackburn.................................................. X
Mr. Conyers..................................................... X
Mr. Berman...................................................... X
Mr. Boucher..................................................... X
Mr. Nadler...................................................... X
Mr. Scott....................................................... X
Mr. Watt........................................................ X
Ms. Lofgren.....................................................
Ms. Jackson Lee................................................. X
Ms. Waters...................................................... X
Mr. Meehan...................................................... X
Mr. Delahunt.................................................... X
Mr. Wexler...................................................... X
Ms. Baldwin..................................................... X
Mr. Weiner...................................................... X
Mr. Schiff...................................................... X
Ms. Sanchez..................................................... X
Mr. Sensenbrenner, Chairman..................................... X
-----------------------------------------------
Total....................................................... 20 14
----------------------------------------------------------------------------------------------------------------
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.
New Budget Authority and Tax Expenditures
Clause 3(c)(2) of rule XIII of the Rules of the House of
Representatives 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. 1115, 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, June 2, 2003.
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. 1115, the Class
Action Fairness Act of 2003.
If you wish further details on this estimate, we will be
pleased to provide them.
The CBO staff contact is 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.
Sincerely,
Douglas Holtz-Eakin.
Enclosure
cc:
Honorable John Conyers, Jr.
Ranking Member
H.R. 1115--Class Action Fairness Act of 2003.
H.R. 1115 would expand the types of class-action lawsuits
that would be initially heard 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 revenues. H.R. 1115 contains no
intergovernmental or private-sector mandates as defined in the
Unfunded Mandates Reform Act (UMRA) and would impose no costs
on State, local, or tribal governments.
Under H.R. 1115, 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
uncertain, CBO expects that 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 $21,000. That figure includes 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. 1115 would cost
about $6 million annually.
CBO also estimates that enacting this bill could increase
the need for additional district judges. Because the salaries
and benefits of district court judges are considered mandatory,
adding more judges would increase direct spending. However,
H.R. 1115 would not--by itself--affect direct spending because
separate legislation would be necessary to authorize an
increase in the number of district 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.
On May 1, 2003, CBO transmitted a cost estimate for S. 274,
the Class Action Fairness Act, as ordered reported by Senate
Committee on the Judiciary on April 11, 2003. Our estimate of
the Federal costs of implementing S. 274 or H.R. 1115 are the
same. Unlike H.R. 1115, the Senate Judiciary bill contains
private-sector mandates. That bill would impose a mandate on
defendants participating in a proposed class action settlement
by requiring them to notify the appropriate State and Federal
officials within 10 days after a proposed settlement is filed
in court. In addition, by requiring that certain notifications
of class members follow a certain format and use easily
understood language, S. 274 would impose a private-sector
mandate on attorneys. CBO found that the total direct costs of
those mandates would fall well below the annual threshold for
private-sector mandates established by UMRA ($117 million in
2003, adjusted annually for inflation).
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.
Performance Goals and Objectives
H.R. 1115 does not authorize funding. Therefore, clause
3(c)(4) of rule XIII of the Rules of the House of
Representatives is inapplicable.
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 I, section 8 and article III,
section 1 of the Constitution.
Section-by-Section Analysis and Discussion
Section 1--Short Title; Reference; Table of Contents.
Section 1 sets forth the bill's title--the ``Class Action
Fairness Act of 2003''--and states that the bill amends title
28 of the U.S. Code and provides a table of contents.
Section 2--Findings and Purposes. Section 2 sets forth
Congress's findings and purposes. As explained in Section 2,
class actions are an important and valuable part of our legal
system. However, over the last decade, class actions have been
subject to a number of abuses that injure both consumer
plaintiffs and defendants, adversely affect interstate
commerce, and undermine public respect for our judicial system.
Such abuses are occurring primarily in State and local courts
in cases that, consistent with fundamental principles of
diversity jurisdiction, should be heard in Federal courts. The
purposes of this Act are to assure fair and prompt recoveries
for class members with legitimate claims by prohibiting unfair
settlements; to restore the intent of the Framers with regard
to diversity jurisdiction by creating Federal jurisdiction for
interstate class actions; to diminish the adverse impacts of
class actions on interstate commerce; and to encourage
innovation and lower consumer prices by diminishing incentives
for attorneys to file frivolous suits.
Section 3--Consumer Class Action Bill of Rights and
Improved Procedures for Interstate Class Actions. Section 3
sets forth a ``Consumer Class Action Bill of Rights'' to
address a number of common class action abuses that have come
to the Committee's attention. In particular, Section 3 would
add the following provisions to 28 U.S.C.:
Section 1711: Judicial scrutiny of coupon and other non-
cash settlements. This provision is aimed at situations in
which plaintiffs' lawyers negotiate settlements under which
class members receive coupons or other non-cash relief of
dubious monetary value, while their lawyers receive enormous
attorneys' fees.
To address this problem, the provision states that a
Federal judge may not approve a coupon or other similar noncash
settlement without first conducting a hearing and determining
that the settlement terms are fair, reasonable, and adequate
for class members. In making that determination, the judge
should consider, among other things, the real monetary value
and likely utilization rate of the coupons provided by the
settlement. In adopting this provision, it is the intent of the
Committee to incorporate that line of recent Federal court
precedents in which proposed settlements have been rejected (in
whole or in part) because the proposed compensation to the
class counsel was disproportionate to the real benefits to be
delivered to class members through the proposed settlement.\89\
---------------------------------------------------------------------------
\89\ See, e.g., Cope v. Duggins, 2001 WL 333102 (E.D. La. 2001)
(rejecting proposed class settlement because attorneys' fees were
disproportionate to class benefits); Schwartz v. Dallas Cowboys
Football Club, Ltd., 157 F. Supp. 2d 561 (E.D. Pa. 2001) (same);
Sheppard v. Consolidated Edison Co., 2000 WL 33313540 (E.D.N.Y. 2000)
(same); Polar Int'l Brokerage Corp. v. Reeve, 187 F.R.D. 108 (S.D.N.Y.
1999) (same).
---------------------------------------------------------------------------
The Committee does not intend, by this provision, to forbid
all non-cash settlements. Such settlements may be appropriate
where they provide real benefits to consumer class members
(e.g., where coupons entitle class members to receive something
of actual value free of charge) or where the claims being
resolved appear to be of marginal merit. However, where such
settlements are used, the fairness of the settlement should be
viewed skeptically by the reviewing court where the attorneys'
fees demand is disproportionate to the level of tangible, non-
speculative benefit to the class members.
Section 1712: Protection against loss by class members.
This provision states that a Federal judge may not approve a
class action settlement in which a class member will be
required to pay attorneys' fees that would result in a net loss
to the class member unless the judge makes a written finding
that the benefits to the class members ``substantially
outweigh'' the monetary loss.
Section 1713: Protection against discrimination based on
geographic location. This provision states that a Federal court
settlement may not award some class members a larger recovery
than others simply because the favored members of the class
live closer to the courthouse in which the settlement is filed
than do the disfavored class members. The provision, which
responds to cases in which settlements have discriminated on
the basis of geography, provides assurance that out-of-State
class members are not disadvantaged by the parochialism of
local judges.
The Committee wishes to emphasize that this provision is
intended solely to prohibit circumstances in which the
preferential payments have no legitimate legal basis. For
example, it is perfectly appropriate for a settlement of an
environmental class action to differentiate settlement payment
amounts based on a claimant's proximity to an alleged chemical
spill. This provision is not intended to affect such a
determination. But where putative class members' claims are
legally and factually indistinguishable, it is inappropriate to
give one class member extra settlement benefits merely because
he or she resides in (or closer to) the county where the court
sits.
Section 1714: Prohibition on the payment of bounties. Under
this provision, a Federal court class action may not be settled
on terms that award special and disproportionate bounties to
the named class representatives. Class representatives will,
however, be able to be compensated for reasonable time and
expenses required to fulfill class-related responsibilities.
Unfortunately, it is not uncommon in class settlements for the
class representatives to receive a share of the damages award
that is disproportionately larger than that provided to absent
class members.
This kind of settlement leads to a divergence between the
interests of the class representatives on the one hand, and
those of all other members of the class on the other. As a
general matter, class actions are deemed to be fair because the
class representatives are identically situated to the absent
class members and therefore can be counted on to protect the
absent class members' interests. But if the plaintiffs' lawyers
and the defendant may arrange for the payment of special
bounties to the class representatives, those representatives
may approve settlements that are not in the best interests of
most class members.
Nevertheless, the Committee is aware that because of the
burdens involved in being a class representative, there is a
risk that legitimate claims may not be brought because of the
unwillingness of any class member to undertake that role.
Section 1714(b) therefore makes it clear that section 1714(a)
is not intended to preclude payments to class representatives
for the reasonable time and costs that they have invested in
serving as the class representative (particularly in providing
deposition testimony or responding to discovery requests), so
long as the court approves such payments.
Section 1715: Definitions. This provision defines various
terms used in this section, including the term ``class
action,'' which is defined to include representative actions
filed in Federal district court under Rule 23 of the Federal
Rules of Civil Procedure, as well as actions filed under
similar rules in State court that have been removed to Federal
court.
Section 4--Federal District Court Jurisdiction For
Interstate Class Actions. Article III of the Constitution
protects out-of-State litigants against the prejudice of local
courts by allowing for Federal diversity jurisdiction when the
plaintiffs and defendants are citizens of different States.
Under prevailing law, however, Federal diversity jurisdiction
over a class action does not exist unless every plaintiff is a
citizen of a different State from every defendant, and
(depending on the judicial circuit) at least one named
plaintiff and every individual member of the purported class
seeks damages in excess of $75,000 as well. This section would
clarify the law--and provide additional protection for out-of-
State litigants--by creating a minimal diversity rule for class
actions and by determining satisfaction of the amount-in-
controversy requirement by looking at the total amount of
damages at stake:
Section 4 amends 28 U.S.C. Sec. 1332 to redesignate 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 from any defendant; (b) any
member of the plaintiff class 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 the plaintiff class is a
citizen of a State and any defendant is a foreign state or 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).
This provision uses a different class action definition
from Section 3 of the bill, specifying that for purposes of the
jurisdictional provisions, a civil action will be deemed to be
a class action if: (1) the named plaintiff seeks monetary
relief on behalf of persons who are not parties to the action
(unless the named plaintiff is the State attorney general); or
(2) the claims at issue seek monetary relief on behalf of 100
or more persons, on the ground that the claims involve common
questions of law or fact and should therefore be jointly tried
in any respect. This definition is intended to encompass so-
called ``private attorney general'' suits such as those in
which an individual seeks to recover on behalf of the general
public. It also includes ``mass actions''--suits that are
brought on behalf of hundreds or thousands of named plaintiffs
who claim that their suits present common questions of law or
fact that should be resolved in a single proceeding in which
large groups of claims are tried together, in whole or in part.
Although private attorney general suits and mass action cases
do not proceed under Rule 23 because they do not involve class
representatives suing on behalf of unnamed persons, they
function very much like class actions. The Committee wishes to
note that if removed to Federal court under these provisions,
these actions would not be required to meet the requirements of
Rule 23 in order to proceed, unless styled as class actions.
Nevertheless, the Federal court would be expected to ensure
that the case proceed in a manner that would protect all
parties' due process rights and fairness considerations. In
short, the use of these devices should not be allowed to permit
an end-run around the due process and fairness considerations
inherent in the Federal class certification requirements.
Pursuant to section 1332(d)(3), the Federal district courts
are directed not to exercise diversity jurisdiction over class
actions in which: (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). The purpose of the
``state action'' cases provision is to prevent States, State
officials, or other governmental entities from dodging
legitimate claims by removing class actions to Federal court
and then arguing that the Federal courts are constitutionally
prohibited from granting the requested relief. This provision
will ensure that cases in which such entities are the primary
targets will be heard in State courts that do not face the same
constitutional impediments to granting relief. The ``limited
scope'' cases provision is intended to allow class actions with
relatively few claimants to remain in State courts.\90\
---------------------------------------------------------------------------
\90\ Under Federal law, a purported class action may involve as few
as 21 class members. See, e.g., Cox v. American Cast Iron Pipe Co., 784
F.2d 1546, 1553 (11th Cir. 1986) (noting that classes encompassing
fewer than 21 persons normally are not subject to class certification);
Tietz v. Bowen, 695 F. Supp. 441, 445 (C.D. Cal. 1987).
---------------------------------------------------------------------------
Federal courts should proceed cautiously before declining
Federal jurisdiction under the subsection 1332(d)(4)(B) ``state
action'' case exception, and do so only when it is clear that
the primary defendants are indeed States, State officials, or
other governmental entities against whom the ``court may be
foreclosed from ordering relief.'' In making such a finding,
courts should apply the guidance regarding the term ``primary
defendants'' discussed below. The Committee wishes to stress
that this provision should not become a subterfuge for avoiding
Federal jurisdiction. In particular, plaintiffs should not be
permitted to name State entities as defendants as a mechanism
to avoid Federal jurisdiction over class actions that largely
target non-governmental defendants. Similarly, the subsection
1332(d)(4)(C) exception for ``limited scope'' cases (actions in
which there are fewer than 100 class members) should also be
interpreted narrowly. For example, in cases in which it is
unclear whether ``the number of members of all proposed
plaintiff classes in the aggregate is less than 100,'' a
Federal court should err in favor of exercising jurisdiction
over the matter.
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 plaintiffs 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 exceeds the sum or
value of $2 million, the court should err in favor of
exercising jurisdiction over the case.
By the same token, the Committee intends that a matter be
subject to Federal jurisdiction under this provision if the
value of the matter in litigation exceeds $2 million, either
from the viewpoint of the plaintiff or the viewpoint of the
defendant, and regardless of the type of relief sought (e.g.,
damages, injunctive relief, or declaratory relief). The
Committee is aware that some courts, especially in the class
action context, have declined to exercise Federal jurisdiction
over cases on the ground that the amount in controversy in
those cases exceeded the jurisdictional threshold only when
assessed from the viewpoint of the defendant. For example, a
class action seeking an injunction that would require a
defendant to restructure its business in some fundamental way
might ``cost'' a defendant well in excess of $75,000 under
current law, but might have substantially less ``value'' to a
class of plaintiffs. Some courts have held that jurisdiction
does not exist in this scenario under present law, because they
have reasoned that assessing the amount in controversy from the
defendant's perspective was tantamount to aggregating damages.
Because H.R. 1115 explicitly allows aggregation for purposes of
determining the amount in controversy in class actions, that
concern is no longer relevant.
The Committee also notes that in assessing the
jurisdictional amount in declaratory relief cases, the Federal
court should include in its assessment the value of all relief
and benefits that would logically flow from the granting of the
declaratory relief sought by the claimants. For example, a
declaration that a defendant's conduct is unlawful or
fraudulent will carry certain consequences, such as the need to
cease and desist from that conduct, that will often ``cost''
the defendant in excess of $2 million. Or a declaration that a
standardized product sold throughout the nation is
``defective'' might well put a case over the $2 million
threshold, even if the class complaint did not affirmatively
seek a determination that each class member was injured by the
product.
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.
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.
For purposes of class actions that are subject to
subsections 1332(d)(3) and (d)(4)(A), the Committee intends
that the only parties that should be considered ``primary
defendants'' are those defendants who are the real ``targets''
of the lawsuit--i.e., the defendants that would be expected to
incur most of the loss if liability is found. Thus, the
Committee intends for the term ``primary defendants'' to
include any person who has substantial exposure to significant
portions of the proposed class in the action, particularly any
defendant that is allegedly liable to the vast majority of the
members of the proposed classes (as opposed to simply a few
individual class members). For example, in a class action
alleging that a drug was defective, the defendant manufacturer
of the drug would be a primary defendant, since it is a major
target of the allegations of the full class. However, if
several physicians who had each prescribed the drug to a
handful of class members were also named as defendants, they
would not be primary defendants. Similarly, in a class action
alleging that a type of ladder was defective, both a defendant
manufacturer that made 60 percent of the ladders at issue and a
defendant manufacturer that made 20 percent of the ladders at
issue would be primary defendants, since both are major targets
of the allegations and have substantial exposure to significant
percentages of the class in the case. However, if two local
hardware stores that each sold a few of the ladders were named
as defendants, they would not be deemed ``primary defendants.''
Merely alleging that a defendant conspired with other class
members to commit wrongdoing will not, without more, be
sufficient to cause a person to be a ``primary defendant''
under this subsection.
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.''
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 that 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
refiled in State court, and it may be removed if 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 refiled 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.\91\ 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.
---------------------------------------------------------------------------
\91\ See Private Securities Litigation Reform Act of 1995, Pub. L.
No. 1104-67, 109 Stat. 737, and Securities Litigation Uniform Standards
Act of 1998, Pub. L. No. 105-353, 112 Stat. 3227.
---------------------------------------------------------------------------
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 . . .'' \92\ 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.
---------------------------------------------------------------------------
\92\ 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.'' \93\ This rule ``has been frequently criticized
because often * * * an unincorporated association is, as a
practical matter, indistinguishable from a corporation in the
same business.'' \94\ 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. Since such companies are nationwide companies,
they are deemed to be citizens of any State in which they have
insured customers.\95\ 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.
---------------------------------------------------------------------------
\93\ United Steelworkers of America v. Boulingy, Inc., 382 U.S. 145
(1965).
\94\ See. e.g., J. Moore & J. Lucas, Moore's Federal Practice
para.para.17-25, 17-209 (1987 rev.) (``Congress should remove the one
remaining anomaly and provide that where unincorporated associations
have entity status under State law, they should be treated as analogous
to corporations for purposes of diversity jurisdiction.'').
\95\ Tuck v. United Services Automobile Assn., 859 F.2d 842 (10th
Cir. 1988).
---------------------------------------------------------------------------
Section 5--Removal of Interstate Class Actions to Federal
District Court. 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.\96\ 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
---------------------------------------------------------------------------
\96\ See 28 U.S.C. Sec. 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. In addition, subsection 1453(d) makes an
additional change to section 1446(b), which requires that
removal occur within 30 days of receipt of ``paper'' (e.g., a
pleading, motion, order, or other paper source) from which it
may be ascertained that the case is removable. Under the
current statute, a defendant may remove an action beyond the
30-day limit if it can prove that prior to that time it had not
received paper from which it could be ascertained that the case
was removable. Section 1453(d) extends this provision to class
members seeking removal, by allowing them to file removal
papers up to 30 days after receiving initial written notice of
the class action. The Committee intends that the term `initial
written notice'' refer to the initial notice of the class
action that is disseminated at the direction of the State court
before which the action is pending. The Committee further
intends that the 30-day period referenced by this section be
deemed to run as to each class member on the thirtieth day
after dissemination of notice to the class (as directed by the
court) is completed.
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 prohibition on remand order
review was added to section 1447 after the Federal diversity
jurisdictional statutes and the related removal statutes had
been subject to appellate review for many years and were the
subject of considerable appellate level interpretive law. 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 through de
novo review of remand orders 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 coterminous.
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
plaintiffs' attorneys from the type of gaming that occurs under
the current class action system. In the most extreme example, a
plaintiffs' attorney could file suit under current law against
a friendly defendant, triggering the start of the 1-year
limitation after which removal may not be sought under any
condition. One year and 1 day after filing suit, the
plaintiff's attorney could then serve an amended complaint on
an additional defendant, at which time it would be too late for
that new defendant to remove the case to Federal court--
regardless of whether diversity jurisdiction exists and
irrespective of the practical merits of the case. The same
unfair result would also occur if plaintiffs' counsel dismisses
non-diverse parties or increases the amount of damages being
pled after the 1-year deadline. By allowing class actions to be
removed at any time when changes are made to the pleadings that
bring the case within section 1332(d)'s requirements for
Federal jurisdiction, this provision will ensure that such
fraudulent pleading practices can no longer be used to thwart
Federal jurisdiction. It is not the intention of the Committee
to change section 1446(b)'s requirements that an action must be
removed within 30 days of being served with the initial
pleading or 30 days after receipt of an amended pleading,
motion, order, or other paper from which it may be ascertained
that the case is one which is or has become removable.
Section 6--Appeal of Class Certification Orders. 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--Effective Date. Section 7, as reported, provides
that the provisions in H.R. 1115 apply to: (1) any civil action
commenced on or after the date of enactment of this
legislation; and (2) any civil action commenced before the date
of enactment in which a class certification order is entered on
or after the date of enactment. This section further specifies
that with regard to cases commenced before the date of
enactment, the 30-day removal period would begin on the date on
which the class certification order is entered by a State
court.
The Committee is concerned that the pendency of this
legislation may cause a race to the State courthouse as counsel
seek to file class actions before the new jurisdictional and
removal provisions become effective. In order to ensure that
this legislation does not have the unintended effect of
increasing class action abuse, section 7 provides for removal
of previously filed class actions that are certified after the
date of enactment.
The Committee believes that there is no logical reason why
these cases should not be covered--the new rules should apply
to all cases certified as class action cases after the date of
enactment, so that plaintiffs and defendants newly swept into a
class action by later certifications are not discriminated
against solely because the filing date occurred before the date
of enactment of the bill. In short, all parties to a case
certified as a class action after the date of enactment of the
bill should receive the benefits of the bill's protections
against abuse. Further, the Committee believes that this
provision will help ensure that the purpose of the legislation
is not undermined by continued abusive State court activity.
Upon the removal of such a case to Federal court in which a
class has already been certified by the State court, it is the
Committee's intent that the Federal court promptly review the
appropriateness of the State court's class certification order,
essentially conducting a de novo review of the State court's
order affording that order no deference. If the State court
order certifying a class is not disturbed by the Federal court,
that conclusion should be subject to immediate appellate review
under section 6 or any other applicable statute or rule
providing for such review. However, an order reversing a State
court class certification order should be subject to review
only if the Federal district court determines that the
certification of a class in the matter would be inappropriate
(as opposed to reversing the order on the grounds that the
plaintiff had failed to comply with one or more requirements
and should be allowed an opportunity to demonstrate
compliance).
Section 8--Adopting Rule 23 Changes. Section 8, as
reported, is intended to put into effect immediately several
critical amendments to Rule 23 of the Federal Rules of Civil
Procedure that pertain to the manner in which Federal courts
handle class actions, particularly proposed class settlements.
A core premise of this legislation is that our Federal
courts have amassed an admirable record in working to minimize
abuses of the class action device. A key part of that record
has been the efforts of the Federal courts' rulemaking
apparatus to develop amendments to the Federal class action
rules that would memorialize ``best practices'' developed by
our Federal courts to ensure that the class action device
serves the purposes for which it is intended.
Last year, several proposed amendments to Rule 23 were
approved by the Advisory Committee on Civil Rules (which
initially drafted the proposed changes), the Standing Committee
on Rules of Practice and Procedure, and the Judicial Conference
of the United States. Then, on April 1, 2003, the Supreme Court
of the United States entered an order adopting those changes in
the form recommended by the Judicial Conference, subject to the
opportunity for congressional review established by 28 U.S.C.
Sec. 2074 (the Rules Enabling Act).
As provided by that section, those changes to Rule 23 will
become effective on December 1, 2003 in the form approved by
the Supreme Court, unless Congress acts to reject or modify
them. Under Section 2074, however, Congress may accelerate the
effective date of an amendment to the Federal Rules of Civil
Procedure promulgated by the Court. See 28 U.S.C. Sec. 2074(a)
(noting that a proposed amendment ``shall take effect no
earlier than December 1 of the year in which such rule is so
transmitted unless otherwise provided by law'') (emphasis
added).\97\ Section 8 is intended to be an exercise of that
prerogative, so as to put into effect the pending Rule 23
amendments simultaneously with the enactment of this
legislation.
---------------------------------------------------------------------------
\97\ On other occasions, Congress has acted to adjust the effective
date of proposed rules, setting effective dates other than what is
provided in the Rules Enabling Act. See, e.g., Pub. L. No. 97-227, 96
Stat. 246 (1982) (adjusting effective date of civil rules amendments
proposed April 28, 1982); Pub. L. No. 96-42, 93 Stat. 326 (1979),
(adjusting effective date of criminal and evidence rules proposed April
30, 1979); Pub. L. No. 93-595, Sec. 3, 88 Stat. 1949 (1975), (adjusting
effective date of proposed civil and criminal procedure rules).
---------------------------------------------------------------------------
The Rule 23 amendments are wholly consistent with the
spirit and purpose of H.R. 1115, particularly given their core
purposes of seeking to minimize abuses of the class action
device and attempting to improve communications with class
members about the litigation being conducted on their behalf.
In their key respects, the amendments would:
LClarify the appropriate timing for
determining whether an action may proceed as a class
action (Rule 23(c)(1)(A)).
LRequire that an order certifying a class
define the class and class claims, issues, or defenses
and appoint class counsel (Rule 23(c)(1)(B)).
LModify the current rules concerning the
content and form of the notice provided to class
members concerning the certification of a proposed
classes, including a requirement that the notice must
state ``in plain, easily understood language'' (Rule
23(c)(2)(A), (B)):
Lthe nature of the action;
Lthe definition of the class certified;
Lthe class claims, issues, and defenses;
Lthat a class member may enter an
appearance through counsel if the member so desires;
Lthat the court will exclude from the
class any member who requests exclusion, stating when
and how members may elect to be excluded; and
Lthe binding effect of a class judgment on
class members under Rule 23(c)(3).
LRequire that any judgment entered in a matter
that has been litigated on a class basis include and
describe the class members (Rule 23(c)(3)).
LAllow an action to be brought or maintained
as a class with respect to particular issues, or allow
a class to be divided into subclasses and each subclass
to be treated as a class (Rule 23(c)(4)).
LSpecify more detailed procedures for
reviewing and approving a proposed class settlement,
including (Rule 23(e)):
La specific requirement that notice must
be directed ``in a reasonable manner'' to all class
members who would be bound;
Lan explicit direction that a settlement
may be approved only ``after a hearing and on finding
that the settlement . . . is fair, reasonable, and
adequate;''
La mandate that all agreements (including
any side agreements) related to the settlement must be
filed with the court;
Lan authorization that courts may permit
class members an opportunity to opt out of a proposed
settlement, even though they may have previously
declined to opt out of the class action; and
La specific authorization for class
members to object to proposed settlements and a
prohibition on withdrawing such objections without
court approval.
LRequire that upon certifying a class, a court
shall appoint class counsel, taking account of
specified criteria, including (Rule 23(g)(1)):
Lcounsel's work on the matter;
Lcounsel's experience;
Lcounsel's knowledge of applicable law;
Lthe resources counsel will commit to
representing the class;
Lcounsel's proposed attorneys' fees terms;
and
Lany other matter pertinent to counsel's
ability to fairly and adequately represent the
interests of the class.
LEstablish a procedure for appointing class
counsel (Rule 23(g)(2)).
LEstablish a procedure for making attorneys'
fee and cost awards in class actions, including a
requirement that any claim for fees or costs be made by
motion, that the claim be subject to objections, that
the motion may be subject to a hearing, and that the
motion must be resolved on the basis of formal factual
findings and conclusions of law, in accordance with
Rule 52(a) (Rule 23(h).
Because a core purpose of this legislation is to permit
more class actions to be subject to the more deliberate
management of such matters typically found in our Federal court
system, the Committee believes that these important
improvements to the Federal court rules governing class action
procedures should become effective simultaneously with H.R.
1115's expansion of Federal diversity jurisdiction over such
cases. In short, the Committee applauds the efforts of the
Federal courts and their rulemaking committees to make these
improvements and believes that they should become effective
without further delay, particularly in light of the changes in
class action jurisdictional rules contained in this
legislation.
The Committee notes that as originally introduced, H.R.
1115 contained a provision concerning the content of notices to
class members. To avoid confusion, those provisions have been
removed from the legislation in favor of the class notice
provisions reflected in the proposed amendment of Fed. R. Civ.
P. 23(c)(2)(A), (B). However, the Committee wishes to stress
that it is deferring to the rule promulgated by the Federal
judiciary with the understanding that improvements are being
made to the form and content of class notices issued by our
Federal courts so as to achieve notifications that are stated
``concisely and clearly'' in ``plain, easily understood
language,'' an objective stated in both the original H.R. 1115
language and the Rule 23 amendments.
The Committee notes that this provision is not intended to
alter the Supreme Court's determination that the amendments to
Rule 23 ``shall govern in all proceedings in civil cases . . .
commenced [after the effective date] and, insofar as just and
practicable, all proceedings then pending.''
The Committee stresses that Section 8 is intended to
express approval of only the Rule 23 amendments contained in
the April 1, 2003 order of the Supreme Court of the United
States and to accelerate the effective date only for those Rule
23 amendments. The other amendments to the Federal Rules of
Civil Procedure and the amendments to the Federal Rules of
Evidence and the Federal Rules of Bankruptcy Procedure
reflected in that Order shall remain subject to the process
contemplated by 28 U.S.C. Sec. 2074 (as to the civil procedure
and evidence rules) and 28 U.S.C. Sec. 2075 (as to the
bankruptcy procedure rules), including their respective
provisions regarding effective dates.
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 for class counsel to bear 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.''
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
Chapter Section
111. General Provisions........................................... 1651
* * * * * * *
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. 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. 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, MAY 21, 2003
House of Representatives,
Committee on the Judiciary,
Washington, DC.
The Committee met, pursuant to notice, at 10:01 a.m., in
Room 2141, Rayburn House Office Building, Hon. F. James
Sensenbrenner, Jr. (Chairman of the Committee) presiding.
[Intervening business.]
Chairman Sensenbrenner. The Committee will be in order. A
working quorum is present.
The next item on the agenda, pursuant to notice, I call up
the bill H.R. 1115, the ``Class Action Fairness Act of 2003,''
for purposes of markup and move its favorable recommendation to
the full House. Without objection, the bill will be considered
as read and open for amendment at any point.
[The bill, H.R. 1115, follows:]
Chairman Sensenbrenner. The Chair recognizes himself for 5
minutes for purposes of an opening statement.
The legislation expands Federal diversity jurisdiction over
interstate class actions and in a manner consistent with the
constitutional intent that the Federal court should provide--
preside over controversies between citizens of different
States. The problem of abuse of State class action suits is now
systemic. It is a threat to the integrity of our civil justice
system and a drain on the national economy. Since this
Committee last reported class action reform legislation in the
107th Congress, the problem has only gotten worse and not
better.
In the last 10 years, State court class actions filing
nationwide have risen over 1,000 percent. In certain magnet
courts known for certifying even the most speculative class
action suits, the increase in filing over the last 5 years is
now approaching 4,000 percent.
The present rules encourage a race to any available State
courthouse in hopes of a rubber-stamp, nationwide settlement
that produces millions in attorneys' fees for the winners of
that race. But as the Department of Justice testified at our
last hearing, the losers in this race are the victims who often
gain little or nothing through the settlement and yet are bound
by it in perpetuity.
As the Washington Post editorial board observed last
November, ``This is not justice. It is an extortion racket only
Congress can fix.''
This Committee has held hearings over the last 2 years on
class action legislation, and we have received valued input
from many perspectives about the present abuse of the current
system. We have heard testimony from a small business owner
repeatedly brought into class action style lawsuits simply
because her drug store filled prescriptions, kept accurate
records, and had the misfortune of being located in a county
court jurisdiction notorious for certifying speculative
nationwide class action claims.
We've heard testimony from a high-tech company subject to
defective product class action suits in State courts throughout
the country for alleged injuries that are either trivial,
highly speculative, or totally non-existent.
We have heard testimony from a State insurance commissioner
who testified that class action verdicts and settlements
imposed by county courts in other States are undermining his
regulatory ability to make insurance available and affordable
to citizens of his jurisdiction.
All of these witnesses and others who testified before the
Committee agreed with the pressing need for this legislation.
Even witnesses who testified against the bill admitted that the
present system has serious flaws and requires congressional
action and an expanded role for the Federal courts to fix it.
H.R. 1115 would address many of these problems with the
present system by applying a new Federal diversity jurisdiction
standard to class action cases. The bill provides for Federal
jurisdiction over class actions where any plaintiff and any
defendant reside in different States and where the aggregate of
all plaintiffs' claims is at least $2 million. These modest
changes will keep large actions of a national character in
Federal court where they belong.
H.R. 1115 also addresses another major area in need of
reform: the incentives for settlements in class action cases
and scrutiny of those settlements. Under current rules, the
first case settled wins. Those left out must either find a way
to join the settlement or forego their claim. This leads to bad
settlements favoring lawyers over consumers in jurisdictions
noted for lax class action requirements.
In the last year, more such one-sided settlements
benefiting only lawyers have occurred, such as: a settlement
with Blockbuster over late fees produced $9.2 million in
lawyers' fees and nothing but dollar coupons for the consumers
represented, only 20 percent of which are likely to be
redeemed; a settlement with Crayola over asbestos included in
crayons produced $600,000 in attorneys' fees and a 75-cent
discount on more crayons.
In order to help prevent abuses like these, the bill aims
to protect plaintiffs by prohibiting the payment of bounties to
class representatives, barring approval of net loss
settlements, requiring better notice to class members about
their rights, and requiring greater scrutiny of coupon
settlements or settlements affecting out-of-State class
members.
The need to restore some common sense and certainty to our
class action system is clear, and the time to act is now. And I
urge the Members to favorably report this bill.
Who wishes to give the minority statement? The gentleman
from Virginia, Mr. Boucher, whom I hope is more persuasive than
others with people seated to my left. [Laughter.]
Mr. Boucher. I'm not sure about that, Mr. Chairman.
Thank you very much for recognizing me and for scheduling
the markup on this legislation today. During the course of the
last Congress, class action reform legislation, which I was
pleased to co-author with my Virginia colleague Congressman
Goodlatte, was reported from this Committee and approved with a
broad bipartisan majority on the floor of the House.
Unfortunately, during the course of the last Congress, the
Senate did not act on class action reform.
In the intervening 2 years, the problems that we're seeking
to address with this measure have grown worse and more voices
have now been raised in support of our modest remedy. Cases
that are truly national in scope are being filed as State class
actions before certain favored judges, who almost--who always
employ a broad approach to class certification. And that broad
approach renders virtually any controversy subject to
certification as a class action.
In such an environment, defendants and plaintiff class
members are routinely denied their range of normal rights, as
there is a rush to certify classes and then a rush to settle
the cases. Plaintiffs suffer a range of harms. In order to
prevent removal of a case to Federal court, the amount sued for
is sometimes kept artificially below the $75,000 Federal
jurisdictional amount, even though a claim and a higher amount
would be justified. Individual plaintiffs are, therefore,
denied their opportunity to recover the full range of damages
to which they might be entitled.
In another effort to avoid removal to Federal court, the
class action complaint sometimes will not assert Federal causes
of action that legitimately could be raised, denying the
plaintiffs an opportunity to have that portion of their claim
heard. Sometimes in the settlement of the cases, the plaintiffs
get mere coupons while their lawyers receive millions in
attorneys' fees. And in at least one case, the plaintiff class
members at the end of the settlement had a deficit of $91
posted to their mortgage escrow accounts while their lawyers
received more than $8 million in attorneys' fees for their
services. The plaintiffs had a net loss because of this class
action suit having been filed and settled. They were literally
worse off than if the class action case had not been filed to
begin with.
Our bill addresses these problems by permitting cases that
are truly national in scope to be removed to the Federal court
even if the diversity of citizenship requirements of current
law are not strictly met. Instead, we look to the center of
gravity of the case. The target of these cases is typically a
large out-of-State corporation. The plaintiffs are usually
consumers who reside in many States. These cases are national
in character, and our bill would permit their removal to
Federal court even if a local defendant has been sued for the
purpose of destroying complete diversity.
In one noted example, also referred to by the Chairman in
his opening statement, there is a drug store owner in the State
of Mississippi who has been sued hundreds of times, not because
anyone expects to recover anything from her, but because her
mere presence in the case as a party defendant destroys
complete diversity of citizenship and prevents the removal of
the case from the Mississippi State court into a Federal court.
The reform that we're putting forward is truly modest. I've
served in the House now for more than 20 years and have seen a
lot of litigation reform measures be considered in this
Committee, and of that broad range of measures--most of which,
by the way, I have not supported--I can truly say that this is
the most modest and it strikes at a problem that is egregious,
that is notorious, and that cries out for this modest remedy.
I'm pleased to be co-authoring this measure with my
colleague Mr. Goodlatte, and, Mr. Chairman, I urge the Members
of this Committee to give their approval. Thank you. I yield
back.
Chairman Sensenbrenner. Without objection, all Members'
opening statements will be included in the record at this
point.
[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
Thank you Chairman Sensenbrenner and Ranking Member Conyers for
convening this hearing today. We are considering H.R. 1115, the Class
Action Fairness Act of 2003. I oppose H.R. 1115 for several policy
reasons including severe infringement on the discretion of the
judiciary. I remain steadfast in my belief that this legislation is yet
another example of the legislature interfering in the affairs of the
judiciary.
The Members of this committee on the other side of the aisle have
always espoused the wisdom of allowing state courts and legislatures to
decide for their own citizens what is best for them. They have
professed that, as much as possible, the Federal government should not
interfere in state business. But H.R. 1115 does exactly that by
broadening Federal jurisdiction over state class action lawsuits.
H.R. 1115 makes severe changes to diversity jurisdiction
requirements. The bill also makes substantial revisions to the rules
governing aggregation of claims. Both of these changes would result in
significantly more state court actions being removed to federal courts
thereby overburdening the federal caseload.
H.R. 1115 also provides a party to a class action lawsuit with the
right to an interlocutory appeal of the court's class certification
decision provided an appeal notice is filed within 10 days. The appeal
would stay discovery and other proceedings during the pendency of the
appeal. This is a substantial change to Rule 23(f) which presently
provides the court with discretion to allow an appeal of the class
certification order without staying other proceedings. The automatic
stay under H.R.1115 provides defendants with another delaying tactic
and another tool to increase the expense for plaintiffs.
These delay tactics and other provisions give a decisive advantage
to well-financed corporate defendants. I am deeply concerned that if we
pass H.R. 1115 we would eliminate the means by which innocent victims
of corporate giants can find justice. First, I believe that before we
consider this legislation, Congress should insist on receiving
objective and comprehensive data justifying such a dramatic intrusion
into state court prerogatives. This legislation has the potential to
damage federal and state court systems. H.R. 1115 will expand federal
class action jurisdiction to include most state class actions. H.R.
1115 will dramatically increase the number of cases in the already
overburdened federal courts.
For example, as of February 2, 2002, there were 68 federal judicial
vacancies. Judicial vacancies mean other courts must assume the
workload. Assuming this additional burden contributes to federal
district court judges having a backlogged docket with an average of 416
pending civil cases. These workload problems caused Supreme Court Chief
Justice Rehnquist to criticize Congress for taking actions that have
exacerbated the courts' workload problem.
H.R. 1115 also raises serious constitutional issues because it
strips state courts of the discretion to decide when to utilize the
class action format. In those cases where a 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.
Federal courts have indicated in numerous decisions that efforts by
Congress to dictate such state court procedures implicate important
Tenth Amendment federalism issues and should be avoided. 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
H.R. 1115 also adversely impacts the ability of consumers and other
victims to receive compensation in cases concerning extensive damages.
The bill has the potential to force state class actions into federal
courts which may result in increase litigation expenses. Corporate
defendants may attempt to force less-financed plaintiffs to travel
great distances to participate in court proceedings. There are also
added pleading costs for plaintiffs. For example, under the bill,
individuals are required to plead with particularity the nature of the
injuries suffered by class members in their initial complaints. The
plaintiff must even prove the defendant's ``state of mind,'' such as
fraud or deception, to be included in the initial complaint. This is a
very high standard to impose on plaintiffs who may not yet have had the
benefit of formal discovery. If the pleading requirements are not met,
the judge is required to dismiss the plaintiff's complaint.
Additionally, plaintiffs under H.R. 1115 will face a far more
arduous task of certifying their class actions in the federal court
system. Fourteen states, representing some 29% of the nation's
population, have adopted different criteria for class action rules than
Rule 23 of the federal rules of civil procedure. Plaintiffs may also be
disadvantaged by the vague terms used in the legislation, such as
``substantial majority'' of plaintiffs, ``primary defendants,'' and
claims ``primarily'' governed by a state's laws, as they are entirely
new and undefined phrases with no precedent in the United States Code
or the case law.
Mr. Chairman, H.R. 1115 is riddled with provisions that are
burdensome to potential plaintiffs and that potentially infringe on the
discretion of state courts. I urge all of my colleagues to reject H.R.
1115 as it is presently written. I commend my colleagues for proposing
numerous amendments to this bill and I hope that these amendments will
address the gross inequities in this legislation.
Chairman Sensenbrenner. Are there amendments?
Mr. Watt. Mr. Chairman?
Chairman Sensenbrenner. Does the gentleman from North
Carolina have an amendment?
Mr. Watt. No, I don't have an amendment. I----
Chairman Sensenbrenner. Are there amendments?
Mr. Goodlatte. Mr. Chairman?
Mr. Watt. I want to strike the last word.
Chairman Sensenbrenner. The gentleman from Virginia, Mr.
Goodlatte.
Mr. Goodlatte. Mr. Chairman, I have an amendment at the
desk.
Chairman Sensenbrenner. The clerk will report the
amendment.
Mr. Watt. Mr. Chairman?
Chairman Sensenbrenner. The clerk will report the
amendment.
The Clerk. Amendment to H.R. 1115, offered by Mr.
Goodlatte. In section 3 of the bill, (1) strike section 1715--
--
Mr. Goodlatte. Mr. Chairman, I ask unanimous consent that
the amendment be considered as read.
Chairman Sensenbrenner. Without objection. Without
objection, so ordered.
[Mr. Goodlatte's amendment follows:]
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Goodlatte. Thank you, Mr. Chairman.
Mr. Chairman, this is an amendment to the legislation that
I have offered following communications from the Judicial
Conference and a recommendation that they have that the
provisions in the bill dealing with plain English--in other
words, requiring that some of the notifications that are sent
to parties in the suit be written in plain English--be made
consistent with the new provisions of rule 23, which the U.S.
Judicial Conference has recommended, and, in fact, this would
incorporate those recommendations which they have adopted as a
Conference into the law and substitute that for the section
1715 that is in my bill. I think this is appropriate and
necessary to maintain consistency, and I would urge my
colleagues to accept this amendment.
Chairman Sensenbrenner. The question is on the Goodlatte--
--
Mr. Watt. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from North Carolina.
Mr. Watt. I move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Watt. I'm just trying to make sure I understand what
we're doing here. This has not been the subject of any hearings
before the Committee or Subcommittee, I take it. Is that right,
Mr. Goodlatte?
Mr. Goodlatte. If the gentleman would yield?
Mr. Watt. Yes.
Mr. Goodlatte. That is not correct. A hearing was held on
this issue last week, and a number of hearings have been held
on the previous----
Mr. Watt. No. I mean this particular amendment.
Mr. Goodlatte. Oh, this particular amendment? No, it's
not----
Mr. Watt. I'm aware of the----
Mr. Goodlatte.--usual that we have hearings held on
individual amendments.
Mr. Watt. Okay. But this is a broad-brushed amendment to
rule 23, or is it some technical amendment to rule 23?
Mr. Goodlatte. It conforms the bill to new changes to rule
23 made by the United States Judicial Conference.
Mr. Watt. Okay.
Mr. Goodlatte. With relation to the plain English language.
We didn't want to have two different plain English
requirements, one that they'd adopted for other rule 23
proceedings and this for class actions. It made more sense to
us to accept their provisions and substitute them into our
bill.
Mr. Watt. Okay. I appreciate it. I----
Mr. Scott. Would the gentleman yield?
Mr. Watt. I'll yield to Mr. Scott.
Mr. Scott. Will the gentleman yield and respond? Could he
briefly tell us what differences there are between rule 23 and
what's in the bill? Or is it essentially the same with just
slightly different language?
Mr. Goodlatte. Let me read to you the changes. They modify
the current rules concerning the content and form of the notice
provided to class members concerning the certification of a
proposed class--of proposed classes, including a requirement
that the notice must state in plain, easily understood language
the nature of the action, the definition of the class
certified, the class claims, issues, and defenses, that a class
member may enter an appearance through counsel if he or she so
desires, that the court will exclude from the class any member
who requests exclusion, stating when and how members may elect
to be excluded, and the binding effect of a class judgment on
class members under rule 23(c)(3).
It specifies more detailed procedures for reviewing and
approving a proposed class settlement including a specific
requirement that notice must be directed in a reasonable manner
to all class members who would be bound; an explicit direction
that a settlement may be approved only after a hearing and on
finding that the settlement is fair, reasonable, and adequate;
a mandate that all agreements, including any side agreements
related to the settlement, must be filed with the court; an
authorization that the courts may permit class members an
opportunity to opt out of a proposed settlement even though
they may have previously declined to opt out of the class
action; and a specific authorization for class members to
object to proposed settlements; and a prohibition on
withdrawing such objections without court approval. That's rule
23(e). And also rule--the first part of that was rule 23(c)(3),
and that second part is rule 23(e).
Mr. Watt. Mr. Chairman, I yield back.
Chairman Sensenbrenner. The question is on the Goodlatte
amendment. Those in favor will say aye. Opposed, no.
The ayes appear to have it. The ayes have it; the amendment
is agreed to.
Are there further amendments? The gentleman from New York.
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. 1115, offered by Mr. Nadler.
Page 9, insert the following after line 23 and----
Mr. Nadler. Mr. Chairman?
The Clerk.--redesignate----
Chairman Sensenbrenner. Without objection, the amendment is
considered as read.
[Mr. Nadler's amendment follows:]
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Nadler. Thank you, Mr. Chairman.
This amendment is designed to prevent the sealing of
information in class action lawsuits that could be used to
protect the health and safety of others. I have been concerned
for a number of years about records from lawsuits that affect
public health and safety being sealed by court order. There is
little justification for this practice. More often than not,
the reason a class action lawsuit is filed is because a number
of people have been harmed by the actions of the negligence or
the alleged actions of a large corporation. These people come
together to recover damages by proving that a company behaved
in a way that is harmful to their health and safety.
So what then happens very often, the company settles the
lawsuit, pays the people it harms, and then tells them to be
quiet, as a condition of the settlement enters a non-disclosure
order. But the companies never change their dangerous
practices. They simply regard the lawsuits as the cost of doing
business and ignore the underlying problem.
Since the companies force the plaintiffs to avoid
discussing the problem with anyone else, more people end up
getting injured. This is reprehensible. If people knew about
the settlement, if people knew about the practice or the
injuries, then the companies might be forced to change their
practices or people would not buy the products of the
companies.
The Firestone tire situation is a case in point. One of the
main reasons there was not timely public disclosure of the
dangers of Firestone tires is because Firestone insisted on a
series of gag orders when settling a whole series of product
liability lawsuits. And let me read from an article in the
September 25, 2000, edition of the Legal Times article on the
Firestone case. It says, ``One of the principal 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 with
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 could have saved human lives. We
cannot 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 who could have avoided it 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 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.
Now, Mr. Chairman, this amendment is reasonably drafted.
The amendment is designed to say that the judge must make a
finding of fact in any case in which a gag order is requested.
If the judge finds that the privacy interests of any of the
litigants is broader than the public interest, the judge must
issue the gag order. If the judge finds that the public
interest and health and safety outweighs the privacy interest
asserted, the judge may not issue the gag order.
The judge also has to draft the gag order as tightly as
possible to prevent the unnecessary disclosure of confidential
information. So this will prevent the unnecessary disclosure of
confidential information but will not allow the sealing of
information that may harm the public.
When it comes to health and safety, public access to class
action lawsuit materials is absolutely essential, and I want to
remind the Chairman--and I want to extend my appreciation to
the Chairman--that in consideration of this bill or a similar
bill last year, the Chairman said, and I quote, ``This is a
very constructive amendment, and we are pleased to support
it.'' And I hope that his reaction today will be similar.
So I thank the Chairman and I yield back.
Chairman Sensenbrenner. The gentleman from Virginia?
Mr. Goodlatte. Mr. Chairman, I move to strike the last
word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Goodlatte. Mr. Chairman, I speak in opposition to this
amendment, in fact, strong opposition. The gentleman from New
York is correct that it was accepted on the floor. It was,
however, defeated in this Committee by a 16-9 vote, and for
good reason. The Committee had it right in the first place.
Although the amendment which would prohibit the court from
sealing class action court records relevant to public health
and safety may seem innocuous enough at first blush, it's both
unnecessary and harmful. The amendment is unnecessary because,
except in very rare circumstances really not relevant here,
court orders and opinions normally are issued publicly and are
readily available to the media.
Now, we just passed an amendment that made the provisions
regarding plain English in class action lawsuits compatible
with rule 23 as it applies to various types of legal
proceedings. This amendment would have the opposite effect. It
would make the protective order provisions of these class
actions inconsistent with other legal proceedings, and it is
far more common in individual lawsuits to find these protective
orders than it is in class actions.
There are a number of reasons why this would have adverse
consequences. First, it would cause invasions of privacy. It
could result in the massive relief of--release of private
information, personal medical records, information about
alcohol or substance abuse treatment, and this information
might be released about non-parties to the litigation, pure,
innocent bystanders.
Second, it could discourage innovation. What innovation is
there--what incentive is there for a company to develop a new
drug or a life-saving chemical process if an enterprising
plaintiff's lawyer can walk in and demand that such information
be made public through this proposed amendment?
Third, it could cause unfair competition. Competitors could
simply file lawsuits in an attempt to gain access to critical
trade secret information, then release that information to the
public in an effort to show that it is no longer secret and
thus can no longer be legally protected.
And, finally, the provision will discourage the settlement
of lawsuits. As noted previously, class action settlements are
never subject to protective order because of the public
approval process. They can't be. But in some class actions,
plaintiffs' counsel seek to obtain through discovery
information about individual claims settlements. If that
information is routinely made public, negotiators in individual
claims cases will know the results of all other similar
negotiations. As a result, there will be nothing to negotiate
in those individual cases. One would simply demand more than
the last person got. As a result, fewer cases will settle and
more cases will be tried. The result will be an increasingly
onerous burden on our judicial system, parties going to trial
in cases that could be and should be settled.
A well-known civil procedures specialist, Harvard Law
School Professor Arthur Miller, has written an article urging
that so-called reform of protective order rules, such as those
proposed here, would wreak havoc on our litigation process. I
would urge my colleagues to oppose the amendment and leave the
discretion to the judge as it exists now.
Mr. Scott. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from Virginia, Mr.
Scott?
Mr. Scott. Mr. Chairman, I yield to gentleman from New
York.
Mr. Nadler. I thank the gentleman.
Mr. Chairman, most of the arguments that were just made
against this amendment are, frankly, facetious and don't
address the wording of the amendment. The amendment doesn't
open up everything and prohibit every sealed order. It says
that no order, opinion, or record of the court in adjudication
of a class action may be sealed or subjected to a protective
order unless the court makes a finding of fact (1) that the
sealing or protective order is narrowly tailored, consistent
with the protection of public health and safety, and is in the
public interest; and (2) if the action by the court would
prevent the disclosure of information, disclosing the
information is clearly outweighed by a specific and substantial
interest in maintaining the confidentiality of such
information.
All this amendment really does is say that you have to show
a good reason for keeping it secret and that the--and that it
has to be narrowly tailored to protect that interest.
Now, everything that Mr. Goodlatte said about revealing
information about individuals and private information is all
nonsense because it wouldn't be revealed. There would be no
reason for a court to reveal any of that. What is necessary to
reveal is that a judgment or a settlement was entered by
Firestone or whoever because of unsafe tires in that Model A-1-
2 was unsafe, so people could avoid buying A-1-2 or could ask
that A-1-2 have proper safety provisions put into them. And
that people are entitled to know.
And lives--I mean, frankly, such protective orders are
not--I mean, the gentleman said they're rare, and then he said
that havoc would be wrought by putting this kind of protection
in. They're not rare and havoc would not be wrought because the
judge in his discretion--the judge in his discretion could
still say there's a good public--there's a good public policy
reason to keep it secret, or there is no good public policy to
keep it secret but there are reasons to keep part of it secret,
to protect private information, to protect proprietary
information. But the fact of the settlement, the fact of what
the basic safety defect or whatever was, if there is, in fact,
the basic safety defect, all this really says is if there's a
public need to know of something that impinges upon the public
health or safety, you can't seal it unless you can convince the
judge that there's a good reason to do so.
Let there be some judicial discretion here. That's what we
decided. That's what the Chairman agreed to on the House floor,
and I think that's the better judgment. And I think the
gentleman for yielding to me.
I yield back.
Chairman Sensenbrenner. Does the gentleman from Virginia
yield back?
Mr. Scott. I yield back.
Chairman Sensenbrenner. The question is on the Nadler
amendment. Those in favor will say aye. Opposed, no.
The noes appear to have it----
Mr. Nadler. Mr. Chairman, I ask for a rollcall vote.
Chairman Sensenbrenner. A rollcall is ordered. The question
is on agreeing to the amendment offered by the gentleman from
New York, Mr. Nadler. 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. 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. Chabot?
Mr. Chabot. No.
The Clerk. Mr. Chabot, no. Mr. Jenkins?
Mr. Jenkins. No.
The Clerk. Mr. Jenkins, no. Mr. Cannon?
Mr. Cannon. No.
The Clerk. Mr. Cannon, no. Mr. Bachus?
Mr. Bachus. No.
The Clerk. Mr. Bachus, no. 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. Ms. Hart?
Ms. Hart. No.
The Clerk. Ms. Hart, no. Mr. Flake?
Mr. Flake. No.
The Clerk. Mr. Flake, no. Mr. Pence?
Mr. Pence. No.
The Clerk. Mr. Pence, no. Mr. Forbes?
Mr. Forbes. No.
The Clerk. Mr. Forbes, no. Mr. King?
Mr. King. No.
The Clerk. Mr. King, no. Mr. Carter?
Mr. Carter. No.
The Clerk. Mr. Carter, no. Mr. Feeney?
Mr. Feeney. No.
The Clerk. Mr. Feeney, no. Mrs. Blackburn?
Mrs. Blackburn. No.
The Clerk. Mrs. Blackburn, no. Mr. Conyers?
[No response.]
The Clerk. Mr. Berman?
[No response.]
The Clerk. Mr. Boucher?
[No response.]
The Clerk. Mr. Nadler?
Mr. Nadler. Aye.
The Clerk. Mr. Nadler, aye. Mr. Scott?
Mr. Scott. Aye.
The Clerk. Mr. Scott, aye. Mr. Watt?
Mr. Watt. Pass.
The Clerk. Mr. Watt, pass. 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?
[No response.]
The Clerk. Ms. Sanchez?
Ms. Sanchez. Aye.
The Clerk. Ms. Sanchez, aye. Mr. Chairman?
Chairman Sensenbrenner. No.
The Clerk. Mr. Chairman, no.
Chairman Sensenbrenner. Members in the chamber who wish to
cast or change their vote? The gentleman from California, Mr.
Berman?
Mr. Berman. Aye.
The Clerk. Mr. Berman, aye.
Chairman Sensenbrenner. The gentleman from North Carolina,
Mr. Coble?
Mr. Coble. No.
The Clerk. Mr. Coble, no.
Chairman Sensenbrenner. Further Members who wish to cast or
change their vote? The gentleman from North Carolina, Mr. Watt?
Mr. Watt. I vote no.
The Clerk. Mr. Watt, no.
Chairman Sensenbrenner. Further Members who wish to cast or
change their vote? If not, the clerk will report. The gentleman
from California, Mr. Schiff?
Mr. Schiff. Aye.
The Clerk. Mr. Schiff, aye.
Chairman Sensenbrenner. Further Members who wish to cast or
change their vote? If not, the clerk will report.
The Clerk. Mr. Chairman, there are 7 ayes and 20 noes.
Chairman Sensenbrenner. And the amendment is not agreed to.
Are there further amendments? The gentleman from Virginia,
Mr. Scott.
Mr. Scott. I have an amendment at the desk.
Chairman Sensenbrenner. The clerk will report the
amendment.
Mr. Scott. Scott 1, AM5.
The Clerk. Amendment to H.R. 1115, offered by Mr. Scott.
Chairman Sensenbrenner. Without objection, the amendment is
considered as read and the gentleman----
Mr. Scott. Mr. Chairman, could she read--make sure we've
got the right one. I have several.
The Clerk. Page 15, lines 14 and 15.
Mr. Scott. Thank you. I would withdraw my reservation.
Chairman Sensenbrenner. Without objection, the amendment is
considered as read.
[Mr. Scott's amendment follows:]
Chairman Sensenbrenner. The gentleman from Virginia is
recognized for 5 minutes.
Mr. Scott. Thank you, Mr. Chairman.
Mr. Chairman, this amendment simply strikes mass torts from
the scope of the bill. The proponents of the class action
reform say they're only interested in changing the rules of
diversity to create additional Federal jurisdiction over class
action suits, but the scope of the bill as written is far
broader than traditional class actions. My amendment would
simply strike what are called ``mass torts'' from being
considered a class action.
Mr. Chairman, my home State of Virginia doesn't even have
class actions, but it does have a process of consolidation for
court management purposes; that is, if you have--you could have
in some cases 150 plaintiffs with the same issue, the court can
consolidate those cases for the purpose of management, but
that's not really a class action.
Under the provisions of the bill, if you've got more than
100 plaintiffs, you are a class action. And just because you've
got 150 plaintiffs in the same case doesn't convert a State
action into a Federal action. I would hope that we would,
therefore, remove the mass torts from the provisions of the
bill.
I yield back.
Chairman Sensenbrenner. The gentleman from Virginia, Mr.
Goodlatte?
Mr. Goodlatte. Mr. Chairman, I move to strike the last
word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Goodlatte. Thank you, Mr. Chairman.
Mr. Chairman, I speak in opposition to this amendment. The
legislation provides for--that for purposes of Federal
diversity jurisdiction and removal action, certain civil
actions shall be deemed to be class actions even though they
may not be so labeled on the court dockets, the principle
being: If it walks like a duck, if it quacks like a duck, it is
a duck. And, therefore, it should be included in the same
coverage that class actions are covered.
This provision is critical to ensuring that plaintiffs'
lawyers cannot avoid the logical reach of H.R. 1115 by
relabeling cases that are effectively class actions as ``mass
actions'' to keep those cases in State court. Mass actions are
effectively class actions because in such matters attorneys
seek to adjudicate substantial numbers of claims simultaneously
in a single trial. They are opt-in class actions in the sense
that they include only those claimants who have affirmatively
consented to the inclusion of their claims in the action.
As empirical evidence now shows, mass actions are an end
run around class action rules because counsel seek to try the
claims in a single trial, that is, on a class basis, even
though the actions do not satisfy the basic fairness, due
process prerequisites for litigating a matter as a class
action.
Mr. Chairman, I would urge my colleagues to oppose this
amendment.
Mr. Scott. Would the gentleman yield?
Mr. Goodlatte. I'd be happy to yield.
Mr. Scott. Thank you. In a class action, one of the
problems that apparently the bill is getting at is that people
don't know the rights being litigated and have nothing to do
with it. In a mass tort in a consolidated trial, everybody has
their own lawyer. Some may be represented by the same lawyers,
but, I mean, everybody is controlling their own destiny. They
don't have to be in the case if they don't want to be. So you
don't have the problem in a consolidated case that you do in
the same--in the class actions.
Mr. Goodlatte. Reclaiming my time, you're correct that you
don't have that particular problem, but there are many other
problems that are abused in class action that are addressed in
this matter that would also be abused in that matter, the
principal one being the issue of whether or not attorneys use
the State courts and the limitations in the Federal rules today
on diversity jurisdiction to restrict cases to Federal court
that could--to State court that could and should be removed to
Federal court because of the nature of the action. And you
shouldn't be able to disguise the case as a mass action when it
has the same effect in that regard as a class action.
Mr. Scott. In this case, however, with the mass
consolidation, each and every one of those cases, if
adjudicated separately, would be, in fact, in State court.
Mr. Goodlatte. That's correct. Just as in a class action
lawsuit, if you brought each and every individual plaintiff
into State court, that case would be heard in State court and
wouldn't be removed to Federal court because it wouldn't meet
the jurisdiction requirements of an individual case or of the
$2 million requirements in this legislation.
Mr. Scott. Well, if you'll yield another time, there may be
some in the case that would not be--might live in another
State. In this case, each and every case has to satisfy--in a
consolidated case has to satisfy its individualized
jurisdiction in State court.
Mr. Goodlatte. Right, and the gentleman should note that in
this legislation, there are restrictions on bringing actions--
removing actions to Federal court who don't meet the criteria
of that diversity. And, secondly, the Federal court judge has
the discretion to bounce the case back to State court if he
thinks it's more appropriate to be heard there. So, again, I
don't think the gentleman's amendment is necessary for the
protection of the ability to handle mass actions in State
courts under appropriate circumstances, but we have to prevent
the abuse of their using this as a manner of getting around the
provisions of the bill with regard to class action. So I would
object to the gentleman's amendment.
Mr. Delahunt. Mr. Chairman?
Chairman Sensenbrenner. Who seeks recognition? The
gentleman from Massachusetts.
Mr. Delahunt. You know, this has to be the most egregious
affront to federalism that I have observed since my service on
this particular Committee. Not only does it do it a disservice
to the Federal system, because I can just imagine if these
cases--I can just imagine a Federal district court judge
sitting on these cases, garden variety tort cases, if you will,
and it's a perfect explanation of why the Judicial Conference
is opposed to this bill as well as their State counterpart, the
Conference of State Supreme Court Justices. To vest in a
Federal district court the authority to deem these cases as a
class action is simply outrageous.
You know, these individual State cases also, unlike the
bill's treatment of genuine class action cases, are not
dismissed without prejudice, so they could be refiled if the
rule 23--in State court if the rule 23 requirements are not
met. Rather, they remain in this limbo.
And as I said, it goes directly against the purpose of what
I understood the proponents to be looking for, which is
efficiency and judicial economy, because in the end it would
require the Federal court to adjudicate these cases on an
individual basis if they fail a certification under rule 23,
and at values at far less than the $75,000 jurisdictional
amount set by Congress for Federal diversity requirements.
I would think that this particular provision should receive
careful consideration by both sides. It's far overreaching and
is an incredible transformation of power to the Federal courts,
a power--authority, by the way, they do not welcome, they're
not looking for. They've been very clear about that. They do
not want it. And the States do not want to cede it.
With that, I yield back.
Chairman Sensenbrenner. The question is on the amendment
offered----
Mr. Chabot. Mr. Chairman? Mr. Chairman?
Chairman Sensenbrenner. The gentleman from Ohio----
Mr. Chabot. Move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Chabot. I yield to the gentleman from Virginia.
Mr. Goodlatte. I thank the gentleman. I'll be very brief.
But I do need to respond to this States rights argument raised
by the gentleman from Massachusetts, because I very strongly
disagree with him.
If there's a $75,000 slip and fall between a Massachusetts
plaintiff and a Connecticut defendant, that can be brought in
the United States District Court for the Eastern District of
Massachusetts without any problem. On the other hand, if there
is a claim for damages of $50,000 to each of a million
plaintiffs, or a $50 billion lawsuit, involving parties of all
50 States, that matter cannot be brought into Federal court
because of the fact that when our Founding Fathers wrote our
Constitution and wrote the provisions for our Federal courts,
they didn't know anything about class action lawsuits. They are
a much more recent development.
Now, there have been abuses--there have been abuses in the
State courts many times where one State court judge in one
jurisdiction has effectively rewritten the law in the other 49
States. That is where States rights come into play here. We are
protecting the rights of the States where the action is not
brought and the plaintiffs in those States and the defendants
in those States to have these cases heard in diversity
jurisdiction.
Finally----
Mr. Delahunt. Will my friend yield?
Mr. Goodlatte. I will in just a second. But finally--and
it's up to the gentleman from Ohio. But, finally, there have
been abuses of mass actions, which is the point of the
gentleman's amendment. And a new study shows that it's used
heavily in a number of States: Mississippi, West Virginia--
they've been used in West Virginia, for example, to consolidate
for trial the claims of as many as 8,000 plaintiffs from over
35 States against over 250 defendants, all without having to
meet the requirements of the class action rules. So you have to
include a protection against that kind of abuse in the
legislation. And if the gentleman from Ohio wishes to yield,
I'd be happy to.
Mr. Chabot. Reclaiming my time, I'll yield to the gentleman
from Massachusetts.
Mr. Delahunt. Well, I'm glad that the gentleman referred me
to a particular study, because up until this particular moment,
I have never heard of any data whatsoever indicating that this
was a problem. But I still go back to the principle. What we're
doing here is eroding the traditional role of the State court
systems. This is absolutely a derogation of the role of the
State--of the States. And I'd remind my friend, you're right,
the Founders didn't have any idea of a class action suit. But
the concept of a class action suit evolved from our common law
and from equity that found its genesis in State decisions. In
State decisions.
And I yield back.
Mr. Chabot. Reclaiming my time, I yield back the time.
Chairman Sensenbrenner. The question is on----
Mr. Watt. Mr. Chairman?
Chairman Sensenbrenner.--the Scott amendment----
Mr. Watt. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from North Carolina,
Mr. Watt.
Mr. Watt. Move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Watt. Thank you, Mr. Chairman.
I first of all want to associate myself with the remarks of
Mr. Delahunt on the States abuse of federalism points that he
has made. I want to associate myself with Mr. Goodlatte in
acknowledging that there have been abuses of the class action
system in the States. But he should also be aware that there
have been substantial abuses of class actions in the Federal
courts, and it takes a very arrogant perspective to believe
that somehow the Federal courts have some lock on the ability
to do things right. It is that that is absolutely inconsistent
with the federalist principles that were in our Founding
Fathers' minds. In fact, they reserved to the States everything
that was not specifically given to the Federal Government for
that reason.
So just because there have been abuses doesn't justify what
you're doing, and I think it is very arrogant to assume that
there are not going to be, have not been abuses in the Federal
system. And it's arrogant to----
Mr. Goodlatte. Would the gentleman yield?
Mr. Watt.--believe that we somehow have a lock on a better
way. And it is also arrogant to believe that you are going to
get a different result in Federal court than you got in State
court, which is really the underlying basis of this
legislation.
My experience in 22 years of practicing law was that I got
some good results in Federal court and some good results in
State court. I got some bad results in Federal court; I got
some bad results in State court. And it is just absolutely
arrogant, in my opinion, to think that we somehow can just take
over anything we want to take over because you've identified
some abuse at the State level.
I'll yield to the gentleman.
Mr. Goodlatte. Would the gentleman yield? First of all, I
take it the gentleman is not referring to me personally when he
says it is arrogant to take this position. Is that correct?
Mr. Watt. No, I'm not referring to you. I'm saying----
Mr. Goodlatte. I thank the gentleman for that reassurance.
Now, let me, if the gentleman would yield further, I agree
with the gentleman's point. We're not trying to guarantee an
outcome in Federal court or State court. All we're saying is
that in the typical action, the plaintiff's attorney can choose
from several different jurisdictions and bring it one of maybe
four, five, six different jurisdictions, and the defendant can
often----
Mr. Watt. With all respect, let me just reclaim my time.
Yes, the plaintiffs can do that, and right now if there is a
basis for removing something to Federal court, the defendants
can remove it to Federal court.
Mr. Goodlatte. But they can't under these cases.
Mr. Watt. And so I just--I disagree. I'll yield to Mr.
Scott.
Mr. Scott. Thank you. And I thank the gentleman for
yielding because I just want to piece together all the stuff on
page 12, which starts off saying ``any civil action,'' so it's
not just mass torts. If you have a situation where the same
defendant has ripped off 150 named people who are suing him for
the same thing, and the damages amount to an aggregate $2
million or more, and one of them happens to be out of State,
according to this you can get removed. At 13, if the number is
more than 100, the defendant can remove everything to Federal
court and subject you to all the delaying tactics that's in
there. Is that right on a civil case on just contracts where
you've ripped--150 people have been ripped off by the same
person, suing the same way, the case gets consolidated, that is
subject to removal to Federal court? It seems to me it is under
the language under 12 and 13 with the ``or'' on line 4 on page
13. And that's why this should not happen and they ought to be
able to remain in State court. And if nobody wants to answer.
Mr. Goodlatte. I'll yield back.
Chairman Sensenbrenner. The gentleman's time has expired.
The question is on the amendment offered by the gentleman from
Virginia, Mr. Scott. Those in favor will say aye? Opposed, no?
The noes appear to have it. The noes have it. The amendment
is not agreed to.
For what purpose does the gentleman from Texas, Mr. Smith,
seek recognition?
Mr. Smith. Mr. Chairman, I have an amendment at the desk.
Chairman Sensenbrenner. The clerk will report the
amendment.
The Clerk. Amendment to H.R. 1115, offered by Mr. Smith of
Texas and Mr. Boucher. Page 20, strike lines 2----
Mr. Smith. I reserve a point of order.
Chairman Sensenbrenner. Point of order is reserved. Without
objection, the amendment is considered as read.
[Mr. Smith's amendment follows:]
Chairman Sensenbrenner. And the gentleman from Virginia
will be recognized for 5 minutes. Texas, I'm sorry.
Mr. Smith. Thank you, Mr. Chairman. This amendment, though,
is offered on behalf of the gentleman from Virginia and me, and
I strongly support this legislation, but I do believe it can be
improved. And that's because there is a loophole in the bill.
As currently drafted, the bill would apply only to cases
filed and certified on or after the date of enactment. This
excludes cases that have already been filed but are waiting for
certification. This does not further the goals of class action
reform.
If this bill is enacted but pending cases that have not
been certified for class treatment are excluded, it would
discriminate against those who may be joined to a class in a
pending case after the date of enactment. This would deprive
them of the protections of the new rules.
Also, unless the loophole is closed, this bill provides
lawyers with an incentive to file frivolous cases in
anticipation of the enactment of the proposed legislation.
These frivolous cases would not be covered by the proposed
legislation and the abuses of the class action system would
continue.
The goal of this bill is to ensure that legitimate
plaintiffs receive fair and prompt recoveries. To ensure this,
the bill also should apply to those cases that are pending but
not yet certified for class action treatment.
This amendment simply closes the loophole that exists in
the underlying bill. It does so by applying the law to cases
that have been filed but where a class certification order is
entered after the date of enactment. This will eliminate any
incentive to rush to the courthouse to avoid the reforms in the
underlying legislation. It will prevent individuals from being
made part of a frivolous suit that is filed in anticipation of
the new laws.
Mr. Chairman, this amendment does not cause the bill to be
applied retroactively. The cases covered by the amendment
already have been filed, with the classes only awaiting
certification. The amendment means that cases that gain class
certification after the date of enactment have the new rules
applied to them.
Mr. Chairman, this amendment has received strong support
from those in the business community, particularly among the
high-tech industry, and I have letters which I'd like to be
made a part of the record from AEA and TechNet.
Chairman Sensenbrenner. Without objection.
[The letters follow:]
Mr. Smith. I'd also like to say that a Member of this
Committee, the gentlewoman from California, Ms. Lofgren, is at
another Committee hearing down the hall, and although she is
not a fan of the underlying bill, she does support this
amendment.
And, with that, Mr. Chairman, I urge my colleagues to
support this amendment and yield back the balance of my time.
Chairman Sensenbrenner. The gentleman from California is--
--
Mr. Watt. I'll withdraw my point of order.
Chairman Sensenbrenner. Okay.
Mr. Boucher. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from Virginia, Mr.
Boucher, for what reason do you see recognition?
Mr. Boucher. Thank you, Mr. Chairman. I rise in support of
the amendment.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Boucher. I'm pleased to join with our colleague from
Texas, Mr. Smith, in offering this amendment. The basic purpose
of our proposal is to prevent a rush to the courthouse to file
often frivolous class action suits as this bill nears passage
in order to get the suit filed before the new rules take
effect. The amendment achieves this goal by applying the new
rules to all suits in which class certification has not
occurred as of the effective date of the new law.
I also find appealing the fact that under this amendment
the numerous new protections for the plaintiff class members
that are contained in the underlying bill will be extended to
the class members in all suits that receive certification of
the class after the effective date of the law.
For both of these reasons, I'm pleased to join with Mr.
Smith----
Mr. Goodlatte. Would the gentleman yield?
Mr. Boucher.--in offering the amendment, and I urge its
adoption.
Mr. Goodlatte. Would the gentleman yield?
Mr. Boucher. And I'd be pleased to yield to the gentleman
from Virginia.
Mr. Goodlatte. I think the gentleman for yielding.
Mr. Chairman, this is a fine amendment, and I would
encourage my colleagues to accept it. It would prevent an
abuse.
Mr. Boucher. Thank you. Mr. Chairman, I yield back.
Chairman Sensenbrenner. The gentleman from North Carolina,
Mr. Watt.
Mr. Watt. I move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Watt. Mr. Chairman, it won't take me that long to say
that this just makes a terrible bill worse, and I yield back
the balance of my time.
Chairman Sensenbrenner. The question is on the amendment--
--
Mr. Delahunt. Mr. Chairman? Mr. Chairman?
Chairman Sensenbrenner. The gentleman from Massachusetts,
Mr. Delahunt.
Mr. Delahunt. I thank the Chair. It's my understand that
the classes, for example, that have not been certified--and we
should be very clear about what we're doing here--include
Enron, Adelphia, WorldCom, and Tyco. That's just simply to name
a few. And what--and I'm looking for information. But what we
will be doing here is taking from--or potentially doing is
taking from State courts, where judges have been presiding over
these cases for a considerable period of time, have dealt with
these issues, and removing them to the Federal court,
sacrificing a year, 2, 3 years, where those that have been
aggrieved by those entities will be further delayed in having
their grievances addressed.
Now, I could be wrong. I see people----
Mr. Berman. Would the gentleman yield?
Mr. Delahunt. I'll yield to Mr. Berman.
Mr. Berman. Wouldn't, one, the civil action commenced on or
after the--the amendments made by this act shall apply to any
civil action commenced on or after the date of enactment of
this act? Number one. Two is certification. One--in other
words, a pending civil--oh, ``and.'' In other words, it has to
be both.
Mr. Delahunt. Right. I just want to--reclaiming my time----
Mr. Berman. This will affect both the civil action filed
after the effect of the act and ones filed before which--for
which there is no class certification on.
Mr. Delahunt. Exactly. I just think--it's clear this
amendment will pass, but I just think we have to be very clear.
And, again, I don't want to represent that I'm sure about my
facts. But I want everyone, when they cast their vote, to think
carefully about the implications because, clearly, it could
result in consequences that we are not aware of, and I would
dare say that this amendment ought not to pass until we have an
opportunity for clarification.
Mr. Scott. Mr. Chairman?
Mr. Delahunt. I yield to the gentleman from Virginia, Mr.
Scott.
Mr. Scott. Thank you. Thank you.
Mr. Chairman, changing the process of the law after a case
has been filed is inherently wrong and unfair. I'm reminded
that when the gentleman, my colleague from Virginia, and I
served in the General Assembly, we would frequently ensure that
legislation that we passed did not affect pending litigation.
And I'm sure that my friend from Virginia campaigned, as I did,
we would bring Virginia values to Washington. So I'm
disappointed that he would support such an amendment, and I
would hope the amendment would be defeated.
Mr. Boucher. Would the gentleman yield? I can't resist a
comment. Oh, I'm sorry, would the gentleman from Massachusetts
yield? Very briefly, as I said to my friend from Virginia in
our side discussion, I frequently differed with that policy.
[Laughter.]
Mr. Boucher. And on occasion it was very clear that
legislation should pass that would have some tangential effect
on pending litigation where it was necessary to address a
larger public policy concern. That is precisely the matter
here, and I'm pleased to support this amendment.
I thank the gentleman----
Mr. Watt. Would the gentleman yield?
Mr. Delahunt. I'll continue to yield to Mr. Watt.
Mr. Watt. I appreciate the gentleman yielding. I just want
to express my hope that, whatever's in the water in other parts
of Virginia, Mr. Goodlatte and Mr. Boucher's part don't flow
down to the eastern part of the State. [Laughter.]
Chairman Sensenbrenner. Well, the Chair will stipulate that
all three gentlemen from Virginia on this Committee are men of
values.
Mr. Delahunt. Just as a final observation, clearly, in
those cases which I enumerated, if my information is correct,
we will be incentivizing those firms to delay certification.
Let's be very clear what we're doing, and I just respectfully
suggest that to my colleagues.
And I'll yield back the----
Chairman Sensenbrenner. The question is on the amendment
offered by the gentleman from Texas, Mr. Smith. Those in favor
will say aye. Opposed, no.
The noes appear to have it----
Mr. Smith. Mr. Chairman, I call for a rollcall vote,
please.
Chairman Sensenbrenner. A recorded vote is ordered. Those
in favor of the Smith amendment 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. Coble?
[No response.]
The Clerk. Mr. Smith?
Mr. Smith. Aye.
The Clerk. Mr. Smith, aye. Mr. Gallegly?
Mr. Gallegly. Aye.
The Clerk. Mr. Gallegly, aye. Mr. Goodlatte?
Mr. Goodlatte. Aye.
The Clerk. Mr. Goodlatte, aye. Mr. Chabot?
Mr. Chabot. Aye.
The Clerk. Mr. Chabot, aye. Mr. Jenkins?
Mr. Jenkins. Aye.
The Clerk. Mr. Jenkins, aye. Mr. Cannon?
[No response.]
The Clerk. Mr. Bachus?
Mr. Bachus. Aye.
The Clerk. Mr. Bachus, aye. Mr. Hostettler?
[No response.]
The Clerk. Mr. Green?
[No response.]
The Clerk. Mr. Keller?
[No response.]
The Clerk. Ms. Hart?
Ms. Hart. Aye.
The Clerk. Ms. Hart, aye. Mr. Flake?
Mr. Flake. Aye.
The Clerk. Mr. Flake, aye. Mr. Pence?
Mr. Pence. Aye.
The Clerk. Mr. Pence, aye. Mr. Forbes?
Mr. Forbes. Aye.
The Clerk. Mr. Forbes, aye. Mr. King?
Mr. King. Aye.
The Clerk. Mr. King, aye. Mr. Carter?
Mr. Carter. Aye.
The Clerk. Mr. Carter, aye. Mr. Feeney?
Mr. Feeney. Aye.
The Clerk. Mr. Feeney, aye. Mrs. Blackburn?
Mrs. Blackburn. Aye.
The Clerk. Mrs. Blackburn, aye. Mr. Conyers?
[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?
[No response.]
The Clerk. 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. Ms. Sanchez?
Ms. Sanchez. No.
The Clerk. Ms. Sanchez, no. Mr. Chairman?
Chairman Sensenbrenner. Aye.
The Clerk. Mr. Chairman, aye.
Chairman Sensenbrenner. Are there Members in the chamber
who wish to cast or change their vote? The gentleman from North
Carolina, Mr. Coble?
Mr. Coble. Aye.
The Clerk. Mr. Coble, aye.
Chairman Sensenbrenner. The gentleman from Utah, Mr.
Cannon?
Mr. Cannon. Aye.
The Clerk. Mr. Cannon, aye.
Chairman Sensenbrenner. The gentleman from Wisconsin, Mr.
Green?
Mr. Green. Aye.
The Clerk. Mr. Green, aye.
Chairman Sensenbrenner. The gentleman from Indiana, Mr.
Hostettler?
Mr. Hostettler. Aye.
The Clerk. Mr. Hostettler, aye.
Chairman Sensenbrenner. Are there further Members--the
gentleman from Florida, Mr. Keller?
Mr. Keller. Aye.
The Clerk. Mr. Keller, 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 21 ayes and 9 noes.
Chairman Sensenbrenner. And the amendment is agreed to.
Are there further amendments? The gentleman from Virginia,
Mr. Scott?
Mr. Scott. I have an amendment at the desk, number 2.
Chairman Sensenbrenner. The clerk will report the
amendment.
The Clerk. Amendment to H.R. 1115, offered by Mr. Scott.
Page 18, line 25, strike the quotation marks and second period.
Page 18----
Mr. Scott. Mr. Chairman, I ask unanimous consent that it be
considered as read.
Chairman Sensenbrenner. All right. Without objection, the
amendment is considered as read.
[Mr. Scott's amendment follows:]
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Scott. Mr. Chairman, this has--this amendment has to do
with what happens if the Federal court decides that the claim
is, in fact, not a class action. The H.R. 1115 instructs the
Federal judge to dismiss the entire case. This amendment would
have him, instead of dismissing the case, sending it back to
State court so that they could proceed with the litigation. The
fact that he has to dismiss the case means that the plaintiffs,
who had a case at one time, don't have a case at all. The
statute of limitations is tolled while it's pending in Federal
court, but they have to file all over again in State court.
You have a yo-yo effect because once it's filed, any
plaintiff can--or defendant can remove it again, and you're
right back--if the Federal court decides it's not a class
action, gets to dismiss it again. So you have a yo-yo. You can
never have your case heard.
If he remands it, you still have the live case. That case
has already been--you've already tried to remove it, didn't do
it, so I guess you've got res judicata there. You can proceed
with the litigation.
At some point in this process, Mr. Chairman, you ought to
be able to proceed with the litigation and try the case. This
will allow at least some progress made. If you've gone to
Federal court and can't try it there, at least you can try it
back in State court.
I would hope that we would adopt the amendment.
Chairman Sensenbrenner. Does the gentleman yield back?
Mr. Scott. I yield back. I'm sorry.
Mr. Goodlatte. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from Virginia, Mr.
Goodlatte?
Mr. Goodlatte. Mr. Chairman, I wish to speak in opposition
to the amendment.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Goodlatte. I thank the Chairman.
Mr. Chairman, I strongly oppose this amendment. The
gentleman uses the yo-yo language. We call this the merry-go-
round amendment because this has the effect of defeating the
whole purpose of H.R. 1115. If you can't achieve a review in a
court of competent jurisdiction, the Federal court, and have
finality to the decision like you can in any other kind of case
because the case can be bounced back to State court, there's no
meaning to the whole effort we're undertaking. The amendment
would constitute a full endorsement, not a correction, of the
rampant class action abuse that's occurring in the State
courts. It's based on the myth that most States have class
action rules radically different from the Federal class action
rule, and that if a Federal judge says that 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 the State rule.
That is, quite frankly, not the case. Federal rules are
similar. What we're trying to cure with this legislation is
abuse of forum shopping where in these nationwide class action
suits, the plaintiffs' attorneys have the opportunity to choose
from 4,000 jurisdictions, and the defense or plaintiffs who
weren't involved in bringing the case but have been made a part
of the case cannot even have the opportunity to have the case
moved to Federal court like they can so many other diversity
cases and then have finality of judgment in the case.
As we've noted, if the Federal court judge feels it's more
appropriate to have the case heard in State court, the judge
can remand it to State court. But a judge is going to apply
fair rules in Federal court. There's never been an argument
made that the Federal rules for class actions are going to
unfairly treat people. It simply ends the abuse of forum
shopping on a massive scale where plaintiffs' attorneys know
the few dozen jurisdictions in the country--and we're talking
about county courts and various places--where there is a great
sympathy for certifying class actions. We don't know what
Federal court it's going to be removed to. Presumably, there
will be different treatment in different places. But at least
they'll have the opportunity to choose an alternative
jurisdiction like they can in lesser cases. And I would
encourage my colleagues to oppose this amendment for the
reasons cited.
Mr. Scott. Would the gentleman yield?
Mr. Goodlatte. Be happy to.
Mr. Scott. If you have 150 plaintiffs in a case in State
Court, and the Federal Court decides that it is not a class
action, when could you ever start the litigation? Where? Where
could they try their case? If the Federal Court decides it is
not a class action, then there are alternatives to bring
individual suits in the State Court or in whatever court they
choose to, but the Federal Court, just as they would in a
$75,000 slip and fall, render a decision which would not
entitle you to go back to the State Courts to bring the action
again, which is what your amendment allows.
Mr. Berman. Would the gentleman yield?
Mr. Goodlatte. I would be happy to yield.
Mr. Berman. You talked about the Federal judge having the
choice between dismissal and remand. Let us assume it is the
case where 95 percent of the plaintiffs are in the State in
which the action is originally brought, the chief defendant is.
It is about an incident that occurred in that State. The
Federal judge says let us not dismiss this case. Let us remand
it back to that court. Can a defendant then remove it again
under this bill?
Mr. Goodlatte. No. No. Courts remand cases to other courts
all the time. It doesn't mean that the party can say, well, I
don't like the remand, I'm bringing it back up to the other
court again.
Mr. Berman. What in this bill prohibits another removal
petition from being filed by one of the defendants?
Mr. Goodlatte. The mere rules of procedure that when a
judge remands a case, it stays remanded. You can't force the
case upon the judge.
Mr. Berman. And if that is not the case, is the gentleman
prepared to change his bill?
Mr. Goodlatte. We would certainly work with the gentleman
if there is a need to make that point clear.
Chairman Sensenbrenner. The question is on----
Mr. Delahunt. I move to strike the last word.
Chairman Sensenbrenner. The gentleman from Massachusetts is
recognized for 5 minutes.
Mr. Delahunt. I just would follow up by saying, in the
hypothetical that was put forth by Mr. Scott, your response was
that the option then was to proceed through individual--I'm
directing this to Mr. Goodlatte--would be to proceed with
individual causes of action, and yet, under a provision within
this particular, within the underlying bill is that I presume
that the defendant could then move within the Federal Court to
have those, if there was in excess of 100 individual cases,
deemed to be a class action; am I correct?
Mr. Goodlatte. No, the gentleman is not correct. You still
have to meet the other diversity requirements of the law. So if
it goes back, if the individual plaintiffs meet the
requirements of the law, they could bring their case in Federal
Court, and more likely they'll bring their case in State Court
if they can't meet those diversity requirements. But if they
can, yes, they can bring an action individually in Federal
Court. That's no different than any class action consideration
on any different type of issue.
One of the issues before the court is are these claims in
common in such a way as to merit being certified as a class?
They'll apply the rules just like they always have. We don't
change those.
Mr. Delahunt. If the gentleman is incorrect in his
understanding, would he be willing to consider a change?
Mr. Goodlatte. We will certainly work with anybody to----
Mr. Delahunt. Thank you. I yield back.
Chairman Sensenbrenner. The question is on the Scott
amendment.
Those in favor will say aye.
Opposed, no.
The noes appear to have it, the noes have it, the amendment
is not agreed to.
Are there further amendments?
The gentlewoman from California, Ms. Sanchez?
Ms. Sanchez. Thank you, Mr. Chairman. I have an amendment
at the desk, the Lofgren-Sanchez amendment.
Chairman Sensenbrenner. The clerk will report the
amendment.
The Clerk. Amendment to H.R. 1115 offered by Ms. Sanchez
and Ms. Lofgren, Page 15, line 14----
Ms. Sanchez. Mr. Chairman----
Chairman Sensenbrenner. Without objection, the amendment is
considered as read.
[Ms. Sanchez's amendment follows:]
Chairman Sensenbrenner. The gentlewoman from California is
recognized for 5 minutes.
Ms. Sanchez. Thank you, Mr. Chairman.
There is no doubt that there are a series of abuses of the
class action system in this country. Most of them involve these
coupon settlements, where lawyers collect big fees, and victims
get nothing but a discount on a future purchase.
But instead of targeting the abuses, this bill follows a
scored-earth approach that targets every class action,
including those brought to include the environment, senior
citizens and minorities. The bill greatly increases the Federal
Court's workload. It makes class actions more expensive and
time-consuming for plaintiffs. It steps on State's rights and
negatively impacts the ability of consumers to engage in class
action lawsuits against major industries.
In addition to all of these reasons that apply nationwide,
H.R. 1115 also intrudes on a very specific State issue.
California, like many other States, has enacted strong consumer
protection and anti-trust laws that prohibit unfair
combinations and unlawful restraints on trade. In addition to
permitting enforcement of laws by the State attorney general,
Californians have chosen to allow their district and city
attorneys, as well as private attorneys general, to enforce
these laws in State Courts.
The private attorney general provision in California's
business and professions code allows private parties to combat
corporate fraud and other crimes. This is critical to protect
consumers, since there are more violations than the California
Attorney General's Office has the capacity to respond to.
It allows my State to protect consumers more broadly than
would otherwise be possible. Yet, this bill seeks to take that
option away. H.R. 1115 negates California's choice under the
guide of class action reform. It does so by defining private
attorney general actions as class actions and removing them to
Federal Court. It takes them out of the jurisdiction of the
State where the harm has generally occurred.
It's appalling to see yet another example of Congress
intruding on State's rights. Members of this Committee often
talk about the importance of letting States decide what is best
for them, but in the end that seems to matter only when it's
convenient for their purposes. Federalism becomes much less
critical when certain issues are on the table.
Here, we have a State that has spoken quite loudly on the
subject, and instead of listening, some Members of Congress are
producing a bill that would run roughshod right over that
State's views. This federalism-when-convenient agenda is not
the way to make policy.
I've also heard proponents of this bill say that if it
quacks like a duck, it must be a duck. Well, these California
cases are not ducks. In one case, the San Francisco District
Attorney's Office successfully settled a major consumer
protection action against Providian Financial Corporation that
netted Californians $300 million. Under this bill, that case
would have been forced into the Federal Court, where the D.A.
would have had to either figure out some way to comply with
rule 23 or lose the case.
That's preposterous. A district attorney bringing a case
under State law, on behalf of the residents of his or her
county against a corporation that does significant business in
the county, should not be forced into Federal Court. The
ability to bring these suits is a powerful tool for local
district attorneys, many of whom have set up consumer
protection units devoted to them.
This bill will undoubtedly have a chilling effect on State
and local consumer protection actions, as well as anti-trust
law enforcement. That is why this very same provision was
opposed last year by the California District Attorney's
Association. This argument or, pardon me, this amendment would
remedy that serious defect in the bill, and I urge my
colleagues to support it, and want to just mention that
Congresswoman Lofgren, unfortunately, cannot be here on markup,
but she strongly supports this amendment as well.
I yield back the balance of my time.
Chairman Sensenbrenner. The gentleman from Virginia, Mr.
Goodlatte.
Mr. Goodlatte. I move to speak in opposition of the
amendment.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Goodlatte. I thank you, Mr. Chairman.
I oppose this amendment for the same reasons that we
opposed the previous amendment regarding mass actions. This is
simply another way around the ability of diverse parties to
have their day in Federal Court. California is presently the
only State with a statute, commonly known as section 17200,
that permits private citizens to bring actions seeking recovery
on behalf of persons who allegedly have been injured, even
though the private citizen bringing the action has himself
suffered no injury at all. The statute permits such actions be
brought concerning any commercial activity that is ``unfair.''
One of the reasons why our Founding Fathers created
diversity jurisdiction in our courts is so that if you have an
issue involving local folks who see all kinds of great benefits
to be derived from bringing an action against individuals in
another State that they could have the opportunity to remove
those matters to Federal Court. That's exactly what this
allows.
If all of the parties in the case that the gentlewoman
described or residents of the State of California, they cannot
be removed, the case cannot be removed under this law. But if
it meets the diversity requirements of the law, then they
should have their opportunity to have their day in Federal
Court, just like anybody else would, and for that reason, I
strongly oppose this amendment.
Mr. Berman. Will the gentleman yield?
Mr. Goodlatte. I'd be happy to yield.
Mr. Berman. Would the gentleman feel differently if he knew
that a Member of this Committee was the author of that State
law in California?
Mr. Goodlatte. No. [Laughter.]
Chairman Sensenbrenner. Would the gentleman yield back?
Mr. Goodlatte. I yield back.
Chairman Sensenbrenner. The question is on the Sanchez
amendment.
Those in favor will say aye.
Opposed, no.
The noes appear to have it, the noes have it, and the
amendment is not agreed to.
Are there further amendments?
The gentleman from Virginia, Mr. Scott?
Mr. Scott. No. 3.
Chairman Sensenbrenner. The clerk will report Scott No. 3.
The Clerk. Amendment to H.R. No. 1115 offered by Mr. Scott.
Page 7, strike line 3 through 14 and redesignate the succeeding
sections accordingly.
Mr. Scott. Mr. Chairman, I can ask that the amendment be
considered as read.
Chairman Sensenbrenner. Without objection, the amendment is
considered as read, and the gentleman from Virginia is
recognized for 5 minutes.
[Mr. Scott's amendment No. 3 follows:]
Mr. Scott. Thank you, Mr. Chairman.
Mr. Chairman, this amendment would strike the prohibition
on so-called bounties in the underlying bill. The current
language in the bill says that a court may not approve a
proposed settlement if a class representative receives a
greater share of the settlement award than other class members.
The only exception is payment for reasonable time or expenses
of the class representative expended in fulfilling his or her
obligations.
This provision ignores the way that many civil rights
actions actually work. In a civil rights case, there may be a
large number of individuals who were harmed by a pattern of
discriminatory denial of jobs. In most cases, because there are
obviously a limited number of jobs, not all of the class
members can be given the same denied job opportunity, plus full
back pay as compensation.
If the prohibition on bounties is not struck from the bill,
victims of discrimination will be discouraged from bringing
their claims as class actions if they hope for a job as part of
their compensation. The relief awarded must be equalized among
the class. The class representative will not be able to get
that relief personally in the process of affording everybody a
remedy.
The very purpose of civil rights class actions is to help
others who have experienced similar discriminatory treatment.
That purpose will be undermined unless we amend the bill, and
the very effect of this provision in the underlying bill will
be to greatly expand the number of individual cases, since
there is no incentive to resolve the issue once and for all by
way of a class action.
This will be bad for businesses because they not only have
an efficient method of resolving similar discriminatory claims
filed against them, but they'll also be required to spend money
to defend each and every case that will be particularly
egregious because, under these cases, they'll have to pay the
civil rights, in civil rights cases, they'll have to pay
attorneys' fees for each and every one they defend. That would
be bad for business, bad for individuals, bad for everybody, so
I hope that this amendment will be adopted, and I yield back
the balance of my time.
Chairman Sensenbrenner. The gentleman from Virginia, Mr.
Goodlatte.
Mr. Goodlatte. I move to speak in opposition of the
amendment.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Goodlatte. Thank you, Mr. Chairman.
Mr. Chairman, I am opposed to this amendment. This is an
area that has been rife for abuse. In many instances, the
bounty provision of the Class Action Fairness Act provides that
when a class action is settled, the terms may not provide a
greater share of the award or class representative on the basis
of the formula for distribution to all other class members than
that awarded to the other class members.
The gentleman correctly notes that if the named plaintiff
or other plaintiffs contribute to the action and incur expenses
or compensation for reasonable time expended, that can be done,
but not simply a bounty, a reward, for being the person to put
their name up.
And I've seen a number of abuses of this. In the State of
Mississippi, there have been class actions where Mississippi
residents were given greater awards than the residents of the
other States whose claims were identical to those in
Mississippi and were all being heard in Mississippi court.
I, myself, was made part of a class action lawsuit against
Massachusetts Mutual Life Insurance Company for not telling
their customers, their insured that if they paid their premiums
on a monthly basis or quarterly basis, they'd pay a small
amount more than they pay on an annual basis. The settlement
that was proposed in the court, and thankfully rejected, but
the settlement proposed gave the named plaintiffs $100,000 and
gave the rest of us notice and promise that they would not do
that in the future.
Mr. Delahunt. Would the gentleman yield?
Mr. Goodlatte. I'd be happy to yield.
Mr. Delahunt. Well, I'm glad that--I presume that you were
one of the intervening objectors that set aside that
settlement, but it clearly demonstrates that there are
mechanisms to deal with the issue of abuse that exist under
current law.
Mr. Goodlatte. I would just point out to the gentleman that
bounties are very common in these cases. They are very commonly
granted, and in the, I don't believe that case has yet been
settled, but in the new proposal, there is also a bounty, a
premium paid to the named plaintiffs in the case. So that goes
on. I can give you other----
Mr. Delahunt. Well, I----
Mr. Goodlatte. It's my time. In a just-settled action
against a film processor, most class members received a roll of
film or a dollar off future processing charges, while the six
named plaintiffs received $2,500.
In one nationwide class action initiated in Beaumont,
Texas, complaining of an entirely theoretical defect in the
floppy disk controllers of Toshiba laptops, even though the
asserted defect had never resulted in injury to any user of the
defendant's product, but facing potential liability of some $10
billion, Toshiba settled the case by giving most class members
small cash payments and coupons worth no more than a few
hundred dollars, while paying the two named plaintiffs $25,000
each.
Incidently, the lawyers received $147.5 million in fees. In
a class action against gulf equipment manufacturers, the
unnamed class members got three new golf balls, while the class
representative got $2,500, and his attorneys got $100,000. If
they do something that positively contributes to advancing the
case, that takes some of their time or reimbursement for
expenses, that should be allowed, but a pure bounty should not
be allowed, and I urge my colleagues to reject it.
Mr. Delahunt. Would the gentleman yield for just a moment?
Mr. Goodlatte. I would continue to yield, yes.
Mr. Delahunt. I wonder would the gentleman, because he
makes a point that has some legitimacy in terms of bounties, I
don't disagree with the gentleman, but I do think that a
suggestion that was put forward by one of the witnesses that
testified before this Committee regarding the use of coupons,
where fees were based upon actual redemption, the value of
actual redemption, would this be a concept that the gentleman
would entertain as this bill moves from this Committee to the
floor?
Mr. Goodlatte. As long as all of the parties are treated
fairly, I don't think the issue needs to be addressed further,
but I've promised to talk to the gentleman about a whole host
of things, so I don't see a reason why I wouldn't continue to
discuss this matter with him as well.
Mr. Watt. Mr. Chairman?
Chairman Sensenbrenner. Without objection, the agenda of
the two gentlemen's discussions is expanded by one. The time of
the gentleman has expired. The gentleman from North Carolina,
Mr. Watt?
Mr. Watt. I move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Watt. Mr. Chairman, I actually don't like bounties
either, and if this provision were limited to bounties, I
probably would be on the side of Mr. Goodlatte. The problem is
that the provision is so accessibly, broadly drawn that it's
going to cover things that go well beyond bounties, and while
Mr. Goodlatte was having a good time while Mr. Scott was
describing the problem that he's trying to address, he still
has not addressed that problem.
If you've got a civil rights case, an employment
discrimination case, and there are monetary damages awarded,
it's one thing to say that the monetary damages or award can't
be disproportionate to the named plaintiff, but if it's about
getting a job, that's part of the award in the case, also, and
you can't take a job and divide it between a thousand employees
equally. I mean, what are they going to do, show up and work
one one-thousandths of the job on a weekly basis? That's part
of the award in the case.
And the way this is drawn at this point, it is just
absolutely too broad because it says that the class
representative can't get a greater share of the award. It's not
limited to monetary awards, it's not, I mean, it's just--so if
there is an attempt to address the bounty issue that is really
a fair attempt to address it, I think I would probably be the
first to try to conspire with the gentleman from Virginia to
try to address that, but this provision is too broad.
Mr. Goodlatte. Would the gentleman yield?
Mr. Watt. Yes, I'm happy to yield.
Mr. Goodlatte. I would be happy to include the gentleman
and the gentleman from Virginia in the discussions that are to
be scheduled----
Mr. Watt. Well, discussions are not going to solve this
problem. You all got a bill here that you have said, you know,
is supposed to be a fair thing. You put a title on this section
calling it a bounty, and you act like we're not operating in
the real world here. This is the real world that we are
supposed to be impacting here that you say this bill is
designed to address. There are people on the Committee who
would like to address the abuses. We are here at the full
Committee, and I guarantee you won't hear another word from you
all about this issue until 2 years from now when this is in
effect.
So the provision is too broad, and you need to correct it.
And you know it's too broad.
Mr. Goodlatte. Will the gentleman yield?
Mr. Watt. Yes.
Mr. Goodlatte. I will again renew my offer, as this
legislation goes to floor, to work with the gentleman----
Mr. Watt. Well, the predicate for that is you acknowledge
that this----
Mr. Goodlatte. If the gentleman doesn't want to participate
in the discussions, he doesn't have to, but if he would like
to, he will. I oppose the amendment.
Mr. Watt. Reclaiming my time.
Chairman Sensenbrenner. The time belongs to the gentleman
from North Carolina.
Mr. Watt. Reclaiming my time.
I would just ask, as a predicate for any discussions we're
going to have, does the gentleman acknowledge that this
language is too broad and would do harm to the plaintiffs in
the cases that Mr. Scott talked about?
Mr. Goodlatte. At this point in time, I do not agree to
that. I will have to look at the issues raised by Mr. Scott,
but I am in good faith offering to do that.
Mr. Watt. Are you reading the language, Mr. Goodlatte, on
Page 7 of the bill that says, ``The court may not approve a
proposed settlement that provides for the payment of a greater
share of the award to a class representative''?
Mr. Goodlatte. Yes, I'll stand by that language at this
point, but I'm also willing to discuss this in further detail
to see if clarification can be made that satisfies the
gentleman. If that doesn't satisfy the gentleman, then vote for
the amendment. I'm voting against it.
Mr. Watt. All right. Well, that's fine. Just yet another
case where this is just a bad piece of legislation, and
arrogance about the whole purpose that----
Chairman Sensenbrenner. The gentleman's time----
Mr. Watt.--disregards what's going on in the real world.
Chairman Sensenbrenner. The gentleman's time has expired.
The question is on the Scott amendment. Those in favor will
say aye.
Opposed, no.
The noes appear to have it. The noes----
Mr. Watt. I ask for a recorded vote.
Chairman Sensenbrenner. A recorded vote is ordered. Those
in favor of the amendment offered by the gentleman from
Virginia, Mr. Scott, labeled Scott No. 3, 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. 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. Chabot?
Mr. Chabot. No.
The Clerk. Mr. Chabot, no. Mr. Jenkins?
Mr. Jenkins. No.
The Clerk. Mr. Jenkins, no. Mr. Cannon?
[No response.]
The Clerk. Mr. Bachus?
Mr. Bachus. No.
The Clerk. Mr. Bachus, no. Mr. Hostettler?
[No response.]
The Clerk. Mr. Green?
[No response.]
The Clerk. Mr. Keller?
Mr. Keller. No.
The Clerk. Mr. Keller, no. Ms. Hart?
Ms. Hart. No.
The Clerk. Ms. Hart, no. Mr. Flake?
Mr. Flake. No.
The Clerk. Mr. Flake, no. Mr. Pence?
[No response.]
The Clerk. Mr. Forbes?
Mr. Forbes. No.
The Clerk. Mr. Forbes, no. Mr. King?
Mr. King. No.
The Clerk. Mr. King, no. Mr. Carter?
Mr. Carter. No.
The Clerk. Mr. Carter, no. Mr. Feeney?
Mr. Feeney. No.
The Clerk. Mr. Feeney, no. Mrs. Blackburn?
Mrs. Blackburn. No.
The Clerk. Mrs. Blackburn, no. Mr. Conyers?
Mr. Conyers. Aye.
The Clerk. Mr. Conyers, 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?
[No response.]
The Clerk. Mr. Meehan?
Mr. Meehan. Aye.
The Clerk. Mr. Meehan, aye. Mr. Delahunt?
Mr. Delahunt. Aye.
The Clerk. Mr. Delahunt, aye. Mr. Wexler?
Mr. Wexler. Aye.
The Clerk. Mr. Wexler, aye. Ms. Baldwin?
Ms. Baldwin. Aye.
The Clerk. Ms. Baldwin, aye. Mr. Weiner?
Mr. Weiner. Aye.
The Clerk. Mr. Weiner, aye. Mr. Schiff?
[No response.]
The Clerk. Ms. Sanchez?
Ms. Sanchez. Aye.
The Clerk. Ms. Sanchez, aye. Mr. Chairman?
Chairman Sensenbrenner. No.
The Clerk. Mr. Chairman, no.
Chairman Sensenbrenner. Further Members in the chamber wish
to cast or change their vote?
The gentleman from Indiana, Mr. Pence?
Mr. Pence. No.
The Clerk. Mr. Pence, no.
Chairman Sensenbrenner. The gentleman from Indiana, Mr.
Hostettler?
Mr. Hostettler. No.
The Clerk. Mr. Hostettler, no.
Chairman Sensenbrenner. The gentleman from Utah, Mr.
Cannon?
Mr. Cannon. No.
The Clerk. Mr. Cannon, no.
Chairman Sensenbrenner. The gentleman from Wisconsin, Mr.
Green?
Mr. Green. No.
The Clerk. Mr. Green, no.
Chairman Sensenbrenner. The gentleman from California, Mr.
Schiff?
Mr. Schiff. Aye.
The Clerk. Mr. Schiff, aye.
Chairman Sensenbrenner. Further Members who wish to cast or
change their vote?
[No response.]
Chairman Sensenbrenner. If not, the clerk will report.
The gentleman from New York, Mr. Nadler?
Mr. Nadler. Aye.
The Clerk. Mr. Nadler, aye.
Chairman Sensenbrenner. The clerk will report, again.
The Clerk. Mr. Chairman, there are 12 ayes and 20 noes.
Chairman Sensenbrenner. And the amendment is not agreed to.
Are there further amendments?
[No response.]
Chairman Sensenbrenner. The gentleman from Virginia, Mr.
Scott?
Mr. Scott. Mr. Chairman, I have one more amendment.
Chairman Sensenbrenner. The clerk will report one more
amendment.
Mr. Scott. No. 4.
The Clerk. Amendment to H.R. 1115, offered by Mr. Scott of
Virginia. Page 19----
Chairman Sensenbrenner. Without objection, the amendment is
read, and the gentleman from Virginia is recognized for 5
minutes.
[Mr. Scott's amendment No. 4 follows:]
Mr. Scott. Thank you, Mr. Chairman. This is on Page 19,
line 9. The amendment removes the provision requiring a stay
for discovery pending removal. Since the intent of the bill
apparently is to determine where the case will be tried, and
not if it can be tried, there is no need to delay discovery
pending that determination. Discovery often aids in settlement
of claims. From discovery information, plaintiffs or defendants
may determine that there may be weaknesses in their evidence
and choose to settle the case or even drop it rather than risk
trial.
Staying discovery unnecessary delays the collection and
assessment of relevant evidence and can only impede the search
for justice. I would particularly note, Mr. Chairman, that even
if the plaintiff wants to proceed in Federal Court or doesn't
care where the case is tried or how the case is tried, any
party can appeal that case to the Federal Circuit Court,
whatever the decision is one way or the other. Anybody can
appeal. And while that's pending, after that decision comes
down, they can appeal it up to the Supreme Court.
And during all of those appeals, you can't even do
discovery. At least while all that's going on, you can proceed
with discovery so when you finally figure out where the case is
going to be tried, you'll be ready for trial. I would hope, Mr.
Chairman, we wouldn't give a perverse incentive to people, one,
to remove and, two, to appeal so that the case can be delayed a
minimum, under this bill, a minimum of 2 years, where you can't
even start discovery.
I would hope that this provision is adopted. I yield back.
Mr. Goodlatte. Mr. Chairman?
Mr. Smith. [Presiding] The gentleman from Virginia.
Mr. Goodlatte. Mr. Chairman, I oppose this amendment and
move to strike the last word.
Mr. Smith. I thank the Chairman.
Mr. Chairman, the provision cited by the gentleman from
Virginia provides that if the court feels there is a need to do
so, the court can order that the discovery continue. It says,
``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, you shouldn't allow a
class whose certification is in question to continue to put
forth discovery requests to defend it.''
Also, under the current bill, the court does not have to
stay discovery, and it seems to me that the abuse is more
likely on the other side. It becomes essentially a fishing
expedition. You don't even have at this point certification
that you have a class action, and yet you're going to have the
discovery proceed as though there were a case when there, in
fact, may or may not be a case, and the court should, in proper
order, determine whether there is an appropriate action be
brought in that court as a class and then do the discovery and
not the other way around. It's going to waste a lot of
resources of the parties involved, and I urge my colleagues to
oppose the amendment.
Mr. Scott. Will the gentleman yield?
Mr. Goodlatte. I would be happy to yield.
Mr. Scott. The gentleman says, talks about the discretion
of the court. My reading of Page 19, line 16, is that
everything shall be stayed unless the court finds that specific
discovery is necessary to preserve evidence or to prevent undue
prejudice.
There may not be any preservation of evidence issue or
undue prejudice. You're just trying to get people on the
record. And if you can't----
Mr. Goodlatte. Reclaiming my time. I would just say to the
gentleman that if there is no case, there shouldn't be a
record. The first step that you've got to take is to establish
that there is indeed a cause of action that can be brought in
that court, and therefore the discovery should not proceed
until such time as you determine that there is an action.
If, on the other hand, the court believes that during an
interlocutory appeal or some other time where there may be a
delay there should be some real harm to the plaintiffs, then
the court can order that the discovery continue, but you
shouldn't require parties to go to the great expense of
participating in discovery when you don't even have an action.
Mr. Scott. Does the gentleman yield?
Mr. Goodlatte. I would be happy to yield.
Mr. Scott. Is a 2-year delay undue prejudice?
Mr. Goodlatte. It would be up to the court to determine
what constitutes that type of a prejudicial circumstance.
Mr. Smith. Do you yield back?
Mr. Goodlatte. I yield back.
Mr. Smith. Are there any others who wish to be heard on
this amendment?
Mr. Watt. Mr. Chairman?
Mr. Smith. The gentleman from North Carolina, Mr. Watt, is
recognized.
Mr. Watt. I move to strike the last word.
Mr. Scott. The gentleman is recognized for 5 minutes.
Mr. Watt. This is yet another instance in which the parties
are doing exactly what they say they don't intend to do--
delaying the lawsuit, delaying the discovery, making it
impossible for justice to be done in the courts so that 5 years
from now they'll be back saying that the whole system is
flawed, and we need to do something even more dramatic.
This--it is just so unfair that it's even hard to even talk
about, and the way this thing is structured, it is just an
invitation to delay. And what I think the proponents of this
bill fail to understand is that delay is costly and
disadvantageous not only to plaintiffs, but it's costly and
disadvantageous in most cases to defendants too.
And you're setting up a system here that really is just, if
you think the processing of these cases now proceeds at a
snail's pace, just wait.
First of all, you're heaping all of this stuff onto the
Federal Courts, where there is not the manpower or womanpower
to absorb it. You're putting all of these procedural delays
into the process that just invite litigants to delay the
process. You're putting all of these appeals processes in,
which means that it will take at least a year to get anything
even heard by the appeals court, and then you've got the nerve
to say that you're trying to deliver expeditious justice in the
courts.
There is something wrong with this picture, and I yield
back.
Mr. Delahunt. Mr. Chairman?
Chairman Sensenbrenner. [Presiding] Who seeks recognition?
The gentleman from Massachusetts?
Mr. Delahunt. Yes, I just want to associate myself with the
remarks of Mr. Watt. I mean, I think we've got to be candid
with ourselves. This is simply an effort to do everything
possible to delay justice on behalf of corporate America. It
truly is. I mean, there is a permissive appeals provision now.
This is a mandatory interloc--an automatic interlocutory
appeal. The average time from filing of an appeal to when it is
finally concluded is a year, but that's the average case.
That's the average case.
Class action suits tend to be significantly more complex.
It's clear that it will take longer. In a large corporation,
undoubtedly, in most cases, would, despite the fact that it is
remotely awarded, would seek certioari in front of the United
States Supreme Court, putting an additional year or two on.
I mean, the reality is, you know, justice--justice delayed
is justice denied. You know, we know what the end result is
going to be, but this again is an example of overreaching. This
is not about efficiency, this is not about justice. It can only
be providing corporate America opportunities not to settle and
not to meet their responsibilities.
I yield to Mr. Scott.
Mr. Scott. Under this amendment, as you suggested, if you
have what is, in fact, a class action and don't care where--you
file it in State Court--don't care where it is, they remove it
to Federal Court, and you're ready to go. They appeal to the
circuit court. You finally get a ruling that, yes, you can try
it in Federal Court. They appeal that to the Supreme Court, and
we wait for certioari. That's denied, and you finally--how much
time can be wasted waiting to start the discovery process by
the invitation to appeal to the circuit court and the Supreme
Court?
Mr. Delahunt. In my opinion, if the gentleman is posing the
question to me, we're talking years. Clearly, at that point in
time, documents are lost, witness's memories become more vague.
It, clearly, as I said, goes to a bottom line where the delay
of justice is justice denied. The kind of cases that were
referred to earlier by the gentleman from New York, Mr. Nadler,
in the case of the Firestone. This is what will be the end
result. These things will not happen.
And irresponsible corporate behavior will never be
revealed.
Mr. Scott. Thank you.
Mr. Carter. Mr. Chairman?
Chairman Sensenbrenner. The gentleman's time has expired.
The gentleman from Texas, Mr. Carter.
Mr. Carter. Mr. Chairman, I move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Carter. Mr. Chairman, this provision that is presently
in this law is a provision that exists in the law of every
State in this union, and the Federal Courts across the board.
It gives the judge the option to make a common-sense judgment
based upon the facts of the case as they stand. There's nothing
that limits this motion from being filed at various stages
during this appeal to make the request that as the time passes,
these things are becoming prejudicial to one or the other party
in this case.
As it is stated in this bill presently, it is a good
statement of how discovery is done as a practical matter in
every court in this country, and I think it's a good law.
Mr. Watt. Will the gentleman yield?
Mr. Carter. Yes, sir, I'll yield to you.
Mr. Watt. I appreciate the gentleman yielding. If that is,
in fact, the case, why do we need this provision which imposes
an additional evidentiary problem, as opposed to letting the
judges make the discretion based on the available standards
that are there.
Mr. Carter. Would the gentleman yield back?
Mr. Watt. Yes.
Mr. Carter. Recovering my time. That's exactly what this
says. This gives the judge the option from day one, and
continuing throughout the appeal process, upon any motion
raised by either party that raises the prejudice against his
case.
You're not taking into effect the fact that, as far as I'm
concerned, most trial judges have pretty decent common sense,
and they have good ability to look at a case to figure out
where it is and what's needed. And I don't think any judge that
is out there is going to try to prejudice somebody's case on
appeal. If it's necessary to maintain their case, the judge is
going to go and let the motion. It may be for individual
discovery to be done, it may be for mass discovery to be done
at the judge's discretion.
Judicial discretion is a great part of what makes our
courts work, and I fully support this.
Mr. Watt. Will the gentleman yield?
Mr. Carter. Yes, sir.
Mr. Watt. Two responses. Number one, this takes away the
common-sense discretion the judges have because it sets up
standards that are much, much higher than common-sense
standards.
Number two, I think the gentleman has forgotten that this
whole exercise is in response to what the proponents of this
bill perceive as being uncommon sense that judges are
exercising. If judges were exercising common sense, maybe this
bill, at least the proponents of this bill, don't think they're
exercising common sense. So I agree with the gentleman. I mean,
most of the judges I know are exercising common sense, which
makes the whole underlying reason for this bill problematic to
me, but you need to be giving that speech to the proponents of
this bill.
Mr. Carter. Retaking my time. I consider this good
language, and I support it.
Chairman Sensenbrenner. Will the gentleman yield back?
Mr. Carter. I yield back my time.
Chairman Sensenbrenner. The chair recognizes the gentleman
from Michigan for a unanimous consent request.
Mr. Conyers. I thank you, Mr. Chairman.
I merely wanted to put in, maybe after this debate is over,
an amendment that I will not proceed with that strikes the
whole automatic interlocutory appeal from this provision. I
have a brilliantly crafted statement, and the amendment itself,
plus letters from the Judicial Conference and the Committee on
Rules of Practice and Procedure from the Judicial Conference.
[The material referred to follows:]
Prepared Statement of the Honorable John Conyers, Jr., a Representative
in Congress From the State of Michigan
amendment on interlocutory appeals
One of the worst provisions in H.R. 1115 is the one that provides a
party the right, in every single case, to an interlocutory appeal of a
court's decision granting or denying class action certification. The
provision also stays discovery and other proceedings in every single
case while the appeal is pending.
The amendment I'm offering strikes that provision in its entirety.
This amendment is consistent with the position taken by the U.S.
Judicial Conference, which has unequivocally stated that the provision
directly conflicts with Rule 23(f) of the Federal Rules of Civil
Procedure and should be struck from the bill.
The current rule 23(f) provides courts of appeals with discretion
to permit an appeal from an order granting or denying class
certification, as well as discretion to say discovery while the appeal
is pending.
This rule was not enacted in a vacuum. The Advisory Committee on
Civil rules conducted an exhaustive study of class actions, taking into
account the views of distinguished state and federal Judges who handle
complex litigation, the defense bar, the plaintiff's bar, corporate
counsel, consumer and civil rights groups, and the nation's leading
academics. The Advisory Committee held days of public hearings on the
topic. Once the Advisory Committee was done with the Rule, it was
reviewed by the Judicial Conference, the U.S. Supreme Court, and
Congress.
There is absolutely no evidence that the current rule has not been
working. In fact, according to the Judicial Conference, the rule works
very well. Under the current rule, appeals have been accepted in
approximately 80% of cases in which they're requested. Since the rule's
inception, a circuit court has never reversed a district court's
decision to deny class certification. There has been no showing that
the federal courts of appeals have not granted review in enough cases,
or that this rule has been unfairly applied to defendants. The Judicial
Conference has stated that its rules committees know of no person,
judge or practitioner, who has expressed dissatisfaction with the
current rule.
My question then is, why change a rule that has proven to work? Why
change a rule that the Judicial Conference itself approves?
Unfortunately, the answer has nothing to do with good policy,
efficient resolution of claims, or the desire to fix bad class action
lawsuits and settlements. Rather, it's a provision written exclusively
for corporate defendants. It will benefit the likes of Ken Lay, Jeff
Skilling, and the investment bankers who allegedly helped them at the
expense of defrauded investors. If this provision had been law when the
Enron shareholder lawsuit was filed, the innocent victims in the case
would have to wait another year or more to get their money back. Enron
shareholders have already endured a discovery delay of approximately 1
+ years because of special rules that apply to securities lawsuits. In
fact, it was during this delay that the accounting firm Arthur Andersen
was caught destroying documents.
Interlocutory appeals are generally disfavored. They are reserved
for cases in which an erroneous decision threatens to impose serious
harm on a litigant. If this provision remains in the bill, however, the
result will be unwarranted, expensive and wasteful interruptions of
class action lawsuits while proving no benefits to parties with
legitimate class certification issues.
I urge my colleagues to vote yes on this amendment and strike this
harmful and nonsensical provision of the bill.
Chairman Sensenbrenner. Without objection, this material
will appear in the Committee record immediately after the
disposition of the current amendment.
Mr. Conyers. Thank you.
Chairman Sensenbrenner. The question is on Scott Amendment
No. 4.
Those in favor will say aye.
Opposed, no.
The noes appear to have it. The noes have it, and the
amendment is not agreed to.
Are there further amendments?
The gentleman from North Carolina, Mr. Watt?
Mr. Watt. I have an amendment at the desk.
The Clerk. The clerk will report the amendment.
Mr. Watt. It's AM 9.
The Clerk. Amendment to H.R. 1115 offered by Mr. Watt. Page
17, strike lines 8 through 11.
Mr. Watt. I ask unanimous consent----
Chairman Sensenbrenner. Without objection, so ordered, and
the gentleman is recognized for 5 minutes.
[Mr. Watt's amendment No. AM9 follows:]
Mr. Watt. Thank you, Mr. Chairman.
I have honestly tried to assess this bill in light of my
own experiences and have tried to vote for or against
amendments based on those experiences, and I'm offering this
amendment based on an experience, based on my belief that it is
just patently unfair to allow none named plaintiffs to come in
and hijack a case after the case is way down the line.
If a class member can remove a case, an unnamed class
member gives the opportunity to defend us, to collude with the
class member and basically control the case. Removing a case
from State to Federal Court is a huge procedural step. A class
member should not be allowed to take this step and then
basically relinquish all responsibility for the case.
Theoretically, the person who filed, the named plaintiffs,
have some real interest in the case. Sometimes, quite often,
individual unnamed plaintiffs are just along for the ride,
which creates some problems, but that's the way the system is
set up.
If a class member chooses to take the responsibility of
removing a case to the Federal Court, that person should be
required to make a showing that he or she is adequate to
represent the class and will live up to the fiduciary
obligations to that class that are implicit in bringing a class
action.
The person should be required to explain to the court why
he or she has come forward and what his or her interests in the
case is. I think it is unfair to allow some person who wanders
into the process late in the process to take over a case, and
so this amendment would basically allow the case to be removed,
it would allow defendants to continue to remove it. It would
allow named plaintiffs to move it, but I think it is basically
unfair to allow an unnamed plaintiff to take that kind of
control over the case.
I will just read, in conclusion, Mr. Chairman, what I said
about this the last time we talked about it. Maybe that'll keep
me from having to think a lot about this, and I'll just tell
you what I said before when I was thinking.
It says, ``I practiced law for a number of years before I
ever got to Congress, and I raised this basic fairness
argument. If the plaintiff is injured, it goes and hires a
lawyer. That lawyer cultivates, researches, puts together the
case, decides where the appropriate place to litigate that case
is, spends months and months preparing for the case, and then 2
days before he's getting ready to go and start the real
processing of the case, somebody from outside a member of the
class comes and hijacks that case, it seems to me that there is
something basically unfair about that, and that's what this
bill allows currently as it's drawn.''
``This amendment would improve it, not enough for me to
support the bill, but at least it would make this provision
better, and I ask my colleagues to support the amendment.''
Chairman Sensenbrenner. Do you yield back?
Mr. Watt. I yield back, yes.
Chairman Sensenbrenner. The gentleman from Virginia, Mr.
Goodlatte?
Mr. Goodlatte. I move to speak in opposition of the
amendment.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Goodlatte. Thank you, Mr. Chairman. I am opposed to
this amendment, and the principle behind this bill is that one
plaintiff is treated the same way as other plaintiffs in the
action.
If you're an attorney, and you go out and recruit a
particular plaintiff in the case, it could be the secretary in
your law firm, and then the case can't be removed by any of the
other hundreds of thousands of plaintiffs in the case because
you've rigged it that way, that's wrong.
Any plaintiff who wants to remove the case to Federal Court
should be able to do that if they meet all of the other
requirements of the law and establish the necessary diversity
to do so, and this would be a very bad precedent to limit that
opportunity.
The other plaintiff may have a whole host of different
reasons for wanting to do so, and it's unlikely somebody is
going to do it unless they have a reason to do that. But,
nonetheless, the principle should stand that if you don't want
that other party in the case because you think they might have
a difference of opinion with you about how the proceedings of
the case should be conducted, don't make them a party to the
case. That's the cure here--not to say that some plaintiffs
have different rights than other plaintiffs, and I strongly
oppose this amendment.
Mr. Scott. Mr. Chairman?
Chairman Sensenbrenner. Does the gentleman yield back?
Mr. Goodlatte. I yield back.
Chairman Sensenbrenner. The gentleman from Virginia, Mr.
Scott?
Mr. Scott. Mr. Chairman, I'd like to ask the gentleman from
North Carolina if one of these unnamed, out of the blue
plaintiffs comes in, is there any requirement that that
plaintiff, if it is removed, provide an attorney if the Federal
Court is not convenient to the attorneys that are leading the
case?
Mr. Watt. Nothing in this bill does that.
Mr. Scott. If it is removed, is there any requirement that
this person provide any representation, representational
leadership in the case?
Mr. Watt. Nothing in this bill does that.
Mr. Scott. If the plaintiff does not like being in the case
in State Court, is there anything that prevents him from
withdrawing from the class?
Mr. Watt. There's plenty of law that says you can opt out
of class action any time you want to, and virtually every
notice I've ever seen in a class action case gives class
members that option.
Mr. Scott. Thank you, Mr. Chairman. I yield back.
Chairman Sensenbrenner. The question is on the Watt
amendment.
Those in favor will say aye.
Opposed, no.
The noes appear to have it. The noes have it. The amendment
is not agreed to.
Are there further amendments?
The gentleman from North Carolina, Mr. Watt?
Mr. Watt. I have an amendment at the desk.
Chairman Sensenbrenner. The clerk will report the
amendment.
Mr. Watt. It's Number----
The Clerk. Amendment to H.R. 1115 offered by Mr. Watt.
Strike Section 5 and----
Chairman Sensenbrenner. Without objection, the amendment is
considered as read, and the gentleman from North Carolina will
be recognized for 5 minutes.
[Mr. Watt's amendment No. AM8 follows:]
Mr. Watt. Thank you, Mr. Chairman.
Although proponents of H.R. 1115 say that they are only
interested in changing the rules of diversity to create Federal
jurisdiction over a majority of State class actions, the bill
also changes the rules of removal of these cases. There is no
jurisdiction for having different removal procedures for class
actions than for other cases. In fact, a lack of uniform
removal procedures would impose additional burdens on the
already overworked Federal judiciary. So this basically strikes
the section that does that.
The Federal Removal Statute provides that notice of removal
must be filed within 30 days after defendant is served with a
copy of the complaint. Essentially, the jurisdictional issue of
which court is an appropriate forum is always resolved prior to
discovery.
1115 allows removal to take place before or after
certification of a class. Allowing removal after certification
simply allows the defendant to learn the plaintiff's case
during discovery and then remove the case right before the
settlement to stall the proceedings or forum shop.
The Federal Removal Statute provides defendants with the
ability to remove to Federal Court; 1115 actually allows any
member of the plaintiff class, as well as defendants, to remove
to Federal Court. That's unprecedented in diversity cases. By
allowing any class member, not just the named class member, to
remove the bill allows defendants to manipulate defendant's
friendly class member to do their dirty work and stall out the
State Court proceedings.
The Federal Removal Statute prohibits appellate review of a
Federal District Court order remanding a removed case back to
the State Court from which it was removed. H.R. 1115, in direct
contrast, creates mandatory appellate review, thereby creating
a new appellate right for class action cases which could result
in a flood of class action cases to the Federal appellate
courts. This appellate right is in addition to the right to
appeal class certification orders also created by H.R. 1115.
This amendment would basically correct those issues, and I ask
my colleagues to support the amendment.
Chairman Sensenbrenner. Do you yield back?
Mr. Watt. 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.
Mr. Chairman, I speak in opposition of this amendment. This
would have the effect of gutting the bill. It's been offered in
this Committee in the 105th Congress, 106th Congress, 107th
Congress, and the proponents of the amendment have offered
nothing new to the Committee today. This would eliminate the
ability of the party defendant to remove the case to Federal
Court in these diversity actions.
If this amendment is adopted, H.R. 1115 would still expand
Federal Court jurisdiction over an interstate class action, but
the amendment would provide that this expanded jurisdiction be
available only to the plaintiffs. That is wrong.
It is the intent that all parties that have traditionally
enjoyed the opportunity to have diversity jurisdiction under
other procedures, the usual $75,000-amount in controversy,
either party can remove the case to Federal Court. That should
apply here. We have a much larger amount that you have to
allege, $2 million, in order to remove it, but it allows
complex cases, involving plaintiffs and defendants, in a
multitude of different jurisdictions, to bring those actions
into Federal Court.
If you limit that to the plaintiffs and only the defendants
can do so, you're going to have the effect of very much
eliminating the fairness and the value of the legislation. I
would urge my colleagues to oppose the amendment.
Chairman Sensenbrenner. Does the gentleman yield back?
Mr. Goodlatte. And I yield back.
Chairman Sensenbrenner. The question is on the Watt
amendment.
Those in favor will say aye.
Opposed, no.
The noes appear to have it. The noes have it. The amendment
is not agreed to.
Are there further amendments?
Ms. Jackson Lee. I have an amendment at the desk that was
originally called Mr. Conyers and Ms. Jackson Lee's.
Chairman Sensenbrenner. The clerk will report the
amendment.
Ms. Jackson Lee. AM1.
The Clerk. Amendment to H.R. 1115 offered by Ms. Jackson
Lee and Mr. Conyers.
Mr. Goodlatte. Mr. Chairman, I reserve a point of order.
Chairman Sensenbrenner. The point of order is reserved.
Without objection, the amendment is considered as read, and
the gentlewoman is recognized for 5 minutes.
[Ms. Jackson Lee's amendment AM1 follows:]
Ms. Jackson Lee. I thank you very much, Mr. Chairman.
We have been using the word abscond over the last couple of
weeks probably incorrectly as it relates to the 55 Texas
legislators. This amendment is to avoid the absconding of
corporations away from a legitimate case. The amendment simply
states that if a U.S. corporation is acquired by a foreign
corporation, the former U.S. corporation is from the State for
purposes of Federal Court jurisdiction. This prevents U.S.
corporations from dodging class action jurisdiction by going
abroad.
A hypothetical would have been if the neighbor that I
represented, Enron, would have been acquired by a foreign
corporation and thousands of employees would have been voided
in their opportunity for a class action on any matter.
This is an equalizing amendment. This is a fair amendment.
This is an amendment that seeks to avoid the closing of the
door of the courthouse, and certainly I think that we can be
sympathetic in light of the fact that we have many more
opportunities for corporations with more resources to remove
their corporate bylaws and/or be bought by a foreign
corporation.
And my point is that they can do it voluntarily or they can
seek or they can be bought or they can seek to be bought to
avoid a massive class action, legitimate class action lawsuits.
And I would ask my colleagues to support this amendment,
and I believe that this would add a sense of fairness to this
legislation.
[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
Mr. Chairman, I propose this amendment to H.R. 1115, to prevent
domestic corporations from escaping liability from class action
lawsuits by incorporating abroad.
Under this amendment, ``a foreign corporation which acquires a
domestic corporation in a corporate repatriation transaction shall be
treated as being incorporated in the State under whose laws the
acquired domestic corporation was organized.''
Simply put, if an American corporation is guilty of corporate
crimes or malfeasance, and thereafter that American corporation is
acquired by a foreign corporation, then the domestic corporation shall
be deemed incorporated in the State where it was incorporated prior to
the acquisition.
To see the benefit of this amendment one need only consider the
hypothetical impact on Enron employees without this amendment. In the
Enron collapse corporate executives criminally failed to disclosure of
corporate decision-making in pension plans, and in other financial
decisions. In the Enron case, executives and senior management staff
were fraudulently encouraging employees to by company stock. At the
same time, those same executives and senior managers were cashing out
millions of dollars shortly before the company declared bankruptcy in
December of 2001. As a result of the corporate executives crimes, 4,500
Enron employees lost their jobs in my home district alone.
Without my amendment, it would be possible for the bankrupt Enron
corporation to agree to be acquired by a foreign company, relinquish
their status as a company incorporated in the United States, avoid the
jurisdiction of federal courts, and avoid liability for their corporate
crimes.
A result this egregious would be a slap in the face to the 4,500
Enron employees who lost their jobs because of corporate wrongdoing and
are undoubtedly entitled to damages. It would also be a slap in the
face to the victims of tobacco companies, negligent automobile
manufacturers, asbestos litigation clients, and any number of other
class action plaintiffs who are opposed by well-financed, business and
legal savvy defendants. This amendment would insure that potential
corporate defendants are unable avoid liability.
Mr. Speaker, I urge the committee to accept my amendment to protect
plaintiffs from evasive defendants.
[Ms. Jackson Lee's amendment follows:]
Mr. Conyers. Would the gentlelady yield?
Ms. Jackson Lee. I would be happy to yield to the
distinguished gentleman.
Mr. Conyers. This is an important and usual amendment that
we try to bring to this legislative proposal, and I'm glad that
you did it this time. I've got a statement that complements
what you've said, and I ask unanimous consent that we can
insert it in the record.
[The prepared statement of Mr. Conyers follows:]
Prepared Statement of the Honorable John Conyers, Jr., a Representative
in Congress From the State of Michigan
Amendment on Corporate Financial Traitors
This amendment is designed to help address the problem of domestic
corporations reincorporating abroad to avoid U.S. taxes and legal
liability. As we fight terrorism at home and abroad, the last thing we
should be doing is passing legislation that helps these corporate tax
traitors.
With increasing frequency, companies are setting up shell companies
in places like Bermuda. The company continues to be owned by U.S.
shareholders and continues to do business in the exact same U.S.
locations. The only difference is that the new foreign company (1)
escapes substantial tax liability and (2) under the bill could more
easily avoid legal liability in state class action cases.
The actions of these companies are a slap in the face of every
citizen who works hard and pays taxes in this country. This amendment
responds to this egregious behavior by treating the former U.S. company
as a domestic corporation for class action purposes.
Apologists for these financial traitors may attempt to argue that
this amendment is unnecessary because the bill only deals with national
class actions. Nothing could be further from the truth.
Under this bill, actions involving state consumer protection laws
brought by residents who all reside in one state could be removable to
federal court simply because a financial traitor has tried to abscond
from the state. That is not a national class action, that is a state
class action that belongs in state court. The fact that a financial
traitor engaged in a sham transaction should be irrelevant as far as
legal liability in these cases is concerned.
The bottom line is simple--as presently written, the bill give a
liability windfall to these foreign tax traitors. Today we have a
chance to send a message that its wrong to pretend you're a U.S.
corporation when you're incorporated in Bermuda. Its wrong to seek the
benefits of corporate citizenship without the responsibility. Its wrong
to engage in sham off shore transactions that leave hard working U.S.
citizens hanging out to dry.
Ms. Jackson Lee. I thank the distinguished gentleman. I
thank you for the work that you've done on this issue. And I
would think in light of all of what we faced in the last 2
years on corporate responsibility and the issues dealing with
some of the major companies like Enron and WorldCom, we know
that there is no action that is beneath some corporate entities
taking, and certainly one of them is to seek a foreign buyer to
avoid possible massive litigation.
I believe, if we're going to be fair with class action
legislation, we should make sure that they retain the former
State of which they were incorporated.
With that, I yield back.
Chairman Sensenbrenner. Does the gentleman from Virginia
insist upon his point of order?
Mr. Goodlatte. No, Mr. Chairman, I do not. I seek
recognition in opposition.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Goodlatte. Thank you, Mr. Chairman.
Mr. Chairman, this amendment isn't just wrong; I don't
think it makes any sense at all in the context of this
legislation. Apparently, this purpose is to discourage
companies from moving their parent entities off-shore to turn
to them into foreign corporations in order to achieve tax
advantages.
Thus, although this amendment doesn't seek to derail the
enactment of the core provisions of the bill, it would preclude
companies owned by foreign or off-shore companies from using
that change. This effort to establish tax policy through
procedural and jurisdictional rules applicable to civil
litigation is truly out of place. I think it is very much a non
sequitur.
It appears that the purpose of the amendment is to punish
companies with off-shore owners by forcing them to litigate
class actions brought against them in State Court, while
companies that have U.S. parents may remove their cases to
Federal Court under the expanded Federal jurisdiction provision
of the bill.
Obviously, making this sort of distinction among companies
based on foreign ownership is constitutionally suspect policy,
but equally important is the fundamental premise of the
amendment that forcing parties to litigate interstate class
actions in State Courts constitutes a sort of punishment.
Although this amendment should be defeated, it does suggest
agreement on the key predicate to H.R. 1115. State Courts are
not an ideal place for parties to litigate class actions. This
amendment should be defeated, but this amendment should be
remembered as confirming the key reasons why the overall bill,
the fundamental provisions of H.R. 1115 should be enacted.
I would also point out that there are good public policy
reasons not to impose these kind of decisions because we have
far greater concern with what legislatures in other countries
do in establishing onerous provisions that they would apply to
foreign corporations, particularly U.S. corporations operating
in their countries, and this would set a very, very bad
precedent in terms of how we write our Federal Rules of Civil
Procedure, and I would urge my colleagues to oppose the
amendment.
Chairman Sensenbrenner. The question----
Mr. Watt. Mr. Chairman?
Chairman Sensenbrenner. The question is on the Jackson
Lee----
Mr. Watt. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from North Carolina,
Mr. Watt.
Mr. Watt. I move to strike the last word.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Watt. I yield to the gentlelady from Texas.
Ms. Jackson Lee. I thank the distinguished gentleman from
North Carolina.
My good friend from Virginia is absolutely wrong.
First of all, there was no mention of tax policies in my
presentation of this particular amendment.
Secondarily, it is what it is, and the point of it is that
if a corporation attempts to abscond by either being bought by
a foreign corporation previously being incorporated in a State
in the United States and litigation ensues, then that
corporation will be assumed to have had the incorporation of
the prior State for basis of Federal Court jurisdiction.
It is only fair that if in a matter of weeks or months this
corporation, because of its resources, has the ability to
reincorporate in an off-shore and/or foreign country to be able
to avoid Federal Court jurisdiction. But what I might say to my
patriots who are here with me in this room, to avoid American
court jurisdiction, to avoid the opportunity for Americans to
redress their grievances, for whatever it might be, then I
think it would be shame on us to not provide a provision that
simply allows them to enter into the Federal Court with the
previous State's jurisdiction.
It is simple. It is straight up. It has nothing to do with
tax policies. It is written to this class action legislation,
and I think that on its face it is fair, and I'd ask my
colleagues to support it.
Mr. Watt. I yield back my time.
Chairman Sensenbrenner. The question is on the Jackson Lee
amendment.
Those in favor will say aye.
Opposed, no.
Ms. Jackson Lee. I'd like a record vote.
Chairman Sensenbrenner. The noes appear to have it.
A record vote will be ordered.
Those in favor of the amendment offered by the gentlewoman
from Texas, Ms. Jackson Lee, 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. 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. Chabot?
Mr. Chabot. No.
The Clerk. Mr. Chabot, no. Mr. Jenkins?
[No response.]
The Clerk. Mr. Cannon?
Mr. Cannon. No.
The Clerk. Mr. Cannon, no. Mr. Bachus?
Mr. Bachus. No.
The Clerk. Mr. Bachus, no. Mr. Hostettler?
Mr. Hostettler. No.
The Clerk. Mr. Hostettler, no. Mr. Green?
[No response.]
The Clerk. Mr. Keller?
[No response.]
The Clerk. Ms. Hart?
[No response.]
The Clerk. Mr. Flake?
[No response.]
The Clerk. Mr. Pence?
[No response.]
The Clerk. Mr. Forbes?
Mr. Forbes. No.
The Clerk. Mr. Forbes, no. Mr. King?
Mr. King. No.
The Clerk. Mr. King, no. Mr. Carter?
Mr. Carter. No.
The Clerk. Mr. Carter, no. Mr. Feeney?
Mr. Feeney. No.
The Clerk. Mr. Feeney, no. Mrs. Blackburn?
Mrs. Blackburn. No.
The Clerk. Mrs. Blackburn, no. Mr. Conyers?
Mr. Conyers. Aye.
The Clerk. Mr. Conyers, aye. Mr. Berman?
[No response.]
The Clerk. 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?
Ms. Jackson Lee. Aye.
The Clerk. Ms. Jackson Lee, aye. 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?
Mr. Wexler. Aye.
The Clerk. Mr. Wexler, aye. 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. Ms. Sanchez?
Ms. Sanchez. Aye.
The Clerk. Ms. Sanchez, aye. Mr. Chairman?
Chairman Sensenbrenner. No.
The Clerk. Mr. Chairman, no.
Chairman Sensenbrenner. Are there Members in the chamber
who wish to cast or change their vote?
The gentleman from North Carolina, Mr. Coble?
Mr. Coble. No.
The Clerk. Mr. Coble, no.
Chairman Sensenbrenner. The gentleman from Wisconsin, Mr.
Green?
Mr. Green. No.
The Clerk. Mr. Green, no.
Chairman Sensenbrenner. The gentleman from Arizona, Mr.
Flake?
Mr. Flake. No.
The Clerk. Mr. Flake, no.
Chairman Sensenbrenner. The gentleman from Florida, Mr.
Keller?
Mr. Keller. No.
The Clerk. Mr. Keller, 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. The gentleman from Indiana, Mr.
Pence?
Mr. Pence. No.
The Clerk. Mr. Pence, no.
Chairman Sensenbrenner. The gentleman from Massachusetts,
Mr. Meehan?
Mr. Meehan. Aye.
The Clerk. Mr. Meehan, aye.
Chairman Sensenbrenner. Further Members who wish to cast or
change their votes?
[No response.]
Chairman Sensenbrenner. If not, the clerk will report.
The Clerk. Mr. Chairman, there are 13 ayes and 20 noes.
Chairman Sensenbrenner. And the amendment is not agreed to.
Are there further amendments?
[No response.]
Chairman Sensenbrenner. If not, a reporting quorum is
present. The question occurs on the motion to report the bill
H.R. 1115 favorably, as amended.
All of those in favor will say aye.
Opposed, no.
The ayes appear to have it.
Mr. Goodlatte. Mr. Chairman, I request a recorded vote.
Chairman Sensenbrenner. A recorded vote is demanded.
Those in favor of reporting H.R. 1115 favorably 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. Coble?
Mr. Coble. Aye.
The Clerk. Mr. Coble, aye. Mr. Smith?
[No response.]
The Clerk. Mr. Gallegly?
[No response.]
The Clerk. Mr. Goodlatte?
Mr. Goodlatte. Aye.
The Clerk. Mr. Goodlatte, aye. Mr. Chabot?
Mr. Chabot. Aye.
The Clerk. Mr. Chabot, aye. Mr. Jenkins?
Mr. Jenkins. Aye.
The Clerk. Mr. Jenkins, aye. Mr. Cannon?
Mr. Cannon. Aye.
The Clerk. Mr. Cannon, aye. Mr. Bachus?
Mr. Bachus. Aye.
The Clerk. Mr. Bachus, aye. 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. 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. Forbes?
Mr. Forbes. Aye.
The Clerk. Mr. Forbes, aye. Mr. King?
Mr. King. Aye.
The Clerk. Mr. King, aye. Mr. Carter?
Mr. Carter. Aye.
The Clerk. Mr. Carter, aye. Mr. Feeney?
Mr. Feeney. Mr. Feeney, aye. Mrs. Blackburn?
Mrs. Blackburn. Aye.
The Clerk. Mrs. Blackburn, aye. Mr. Conyers?
Mr. Conyers. No.
The Clerk. Mr. Conyers, no. 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?
Ms. Jackson Lee. No.
The Clerk. Ms. Jackson Lee, no. Ms. Waters?
Ms. Waters. No.
The Clerk. Ms. Waters, no. Mr. Meehan?
Mr. Meehan. No.
The Clerk. Mr. Meehan, no. Mr. Delahunt?
Mr. Delahunt. No.
The Clerk. Mr. Delahunt, no. Mr. Wexler?
Mr. Wexler. No.
The Clerk. Mr. Wexler, no. 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. Ms. Sanchez?
Ms. Sanchez. No.
The Clerk. Ms. Sanchez, no. Mr. Chairman?
Chairman Sensenbrenner. Aye.
The Clerk. Mr. Chairman, aye.
Chairman Sensenbrenner. Further Members in the chamber wish
to cast or change their vote?
The gentleman from Texas, Mr. Smith.
Mr. Smith. I vote aye.
The Clerk. Mr. Smith aye.
Chairman Sensenbrenner. The gentleman from Arizona, Mr.
Flake.
Mr. Flake. Aye.
The Clerk. Mr. Flake, aye.
Chairman Sensenbrenner. Further Members who wish to cast or
change their vote?
[No response.]
Chairman Sensenbrenner. If none, the clerk will report.
The Clerk. Mr. Chairman, there are 20 ayes and 14 noes.
Chairman Sensenbrenner. And the motion to report the bill
favorably, as amended, 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 substituting, incorporating
the amendments adopted here today.
Without objection, the Chairman 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.
The Committee has accomplished a lot today. The chair
appreciates the perseverance of the Members of the Committee,
and thanks them, and the Committee stands adjourned.
[Whereupon, at 4:22 p.m., the Committee was adjourned.]
Additional Views
I believe there are serious abuses of the consumer class
action system in this country. Too often, abusive coupon
settlements net lawyers large fees while victims are left with
little more than discounts on future purchases. That is why I
would support common-sense reforms if they were targeted at the
abuses.
However, H.R. 1115 follows a scorched earth approach that
targets every class action, including those brought to protect
the environment, senior citizens and minorities. To understand
the breadth of this so-called ``reform,'' one must look no
further than the groups lined up in opposition. They include
Greenpeace, the Natural Resources Defense Council, the American
Cancer Society, the Brady Campaign to Prevent Gun Violence, the
Campaign for Tobacco Free Kids, the Lawyer's Committee for
Civil Rights Under Law, the Leadership Conference on Civil
Rights, the Alliance for Retired Americans, and the Violence
Policy Center, among others. The Judicial Conference and the
State Chief Justices also oppose this bill because of the havoc
it plays on state and Federal courts.
But what is particularly offensive to my home State of
California is that the scorched earth approach does not even
stop at class actions. California, like many other States, has
enacted strong consumer protection laws. See California
Business and Professions Code section 17200, et seq. California
has chosen to allow its District Attorneys, along with the
California Attorney General, to enforce these laws in State
courts. This bill usurps California's choice by forcing local
prosecutors to bring state consumer protection actions in
Federal courts.
Local prosecutors are not abusing the class action system.
In one case, the San Francisco District Attorney's office
successfully settled a major consumer protection action against
Providian Financial Corporation that netted Californians $300
million. Under this bill, that case would have been forced into
Federal court, where the District Attorney would have to comply
with Federal Rule of Civil Procedure 23 or lose the case.
That is preposterous. The Federal Government should not be
forcing local prosecutors to try state antitrust and consumer
protection actions in Federal court. Nor should the Federal
Government force local prosecutors to comply with Federal class
certification requirements.
Put simply, H.R. 1115 is an overreaching attempt to chill
State and local enforcement of consumer protection laws. 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. Unfortunately, the sponsors of this
legislation again rejected an attempt to remove this language.
Accordingly, I must oppose H.R. 1115.
Zoe Lofgren.
Dissenting Views
We strongly oppose H.R. 1115, the so-called ``Class Action
Fairness Act of 2003.'' 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 and massively tilt the
playing field in favor of corporate defendants in both class
action and non-class action cases. H.R. 1115 \1\ is opposed by
both the State \2\ and federal \3\ judiciaries; consumer and
public interest groups, including Public Citizen,\4\ Consumers
Union,\5\ the Consumer Federation of America and U.S. PIRG; \6\
a coalition of the most well known environmental advocates; \7\
health advocates, including the American Heart Association,
Campaign for Tobacco Free Kids, and the American Lung
Association; \8\ and civil rights groups, such as the
Leadership Conference on Civil Rights \9\ and the Lawyers'
Committee for Civil Rights.\10\ It is also opposed by some of
the nation's most prestigious editorial boards.\11\
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\1\ H.R. 1115 is the fourth time class action legislation has been
offered in Congress. However, as discussed later, it is the most far
reaching of any class action bill ever considered by the House, because
it would apply to pending cases. 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 other
respects to H.R. 1115. 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 other respects to H.R. 1115 under consideration
today. On September 23, 1999 the House passed the legislation 222-207.
It was never voted on in the Senate. During the 106th Congress, the
House passed H.R. 2341, the ``Class Action Fairness Act of 2001,''
(identical in most other respects to this bill) by a vote of 233 to
190. While the Senate Judiciary Committee held a hearing on the bill,
it did not take any further action.
\2\ See Letter from Annice M. Wagner, President, Conference of
Chief Justices (March 28, 2002) [hereinafter Conference of Chief
Justices letter] (calling the bill ``an unwarranted incursion on the
principles of judicial federalism'') (on file with the minority staff
of the House Judiciary Committee).
\3\ See Letter from Leonias Ralph Mecham, Secretary, Judicial
Conference of the United States (March 26, 2003) [hereinafter ``Mecham
letter''] (stating the conference's continued opposition to this
legislation); Letter from Anthony J. Scirica, Committee on Rules of
Practice and Procedure of the Judicial Conference of the United States
[hereinafter Scirica letter] (requesting that the Judiciary Committee
withdraw provisions of the bill because they conflict with current
rules of practice and procedure) (both on file with the minority staff
of the House Judiciary Committee).
\4\ See Testimony of Brian Wolfman, Staff Attorney, Public Citizen
Litigation Group, before the House Judiciary Committee (May 15, 2003)
[hereinafter ``Wolfman''].
\5\ See Letter from Sally J. Greenberg, Senior Product Safety
Counsel, Consumers Union (May 14, 2003) [hereinafter Consumers Union
Letter] (on file with the minority staff of the House Judiciary
Committee).
\6\ Letter from Rachel Weintraub, Assistant General Counsel,
Consumer Federation of America, and Edward Mierzwinski, Consumer
Program Director, U.S. Public Interest Research Group (May 14, 2003)
[hereinafter CFA/PIRG letter] (on file with the minority staff of the
House Judiciary Committee).
\7\ Letter from Joan Mulhern, Senior Legislative Counsel,
Earthjustice Legal Defense Fund; Richard Wiles, Senior Vice President,
Environmental Working Group; Debbie Sease, Legislative Director, Sierra
Club; Eric Olson, Senior Attorney, National Resources Defense Council;
Lexi Schultz, Legislative Director, Mineral Policy Center; Anna
Aurillo, Legislative Director, U.S. Public Interest Research Group;
Sara Zdeb, Legislative Director, Friends of the Earth; Rick Hind,
Legislative Director, Greenpeace; Paul Schwartz, National Campaigns
Director, Clean Water Action (April 2, 2003).
\8\ Letter from M. Cass Wheeler, CEO, American Heart Association;
John L. Kirkwood, President and CEO, American Lung Association; and
Matthew L. Myers, President Campaign for Tobacco-Free Kids (March 10,
2003).
\9\ Letter from Leadership Conference on Civil Rights, Lawyers
Committee for Civil Rights under Law, et al. (May 14, 2003) (on file
with the minority staff of the House Judiciary Committee).
\10\ Id.
\11\ See e.g., ``The Class Action Unfairness Act,'' Editorial, New
York Times, April 25, 2003; ``Unfair Federal Fairness Act,'' Editorial,
Milwaukee Journal Sentinel, April 10, 2003; ``Threat to Class
Actions,'' Editorial, Los Angeles Times, April 9, 2003; ``Courts and
torts: Citizens' rights suffer if Congress sends all class-action suits
to Federal court,'' Editorial, Philadelphia Inquirer, May 16, 2003;
``Dubious Class Actions,'' Editorial, Salt Lake Tribune, May 12, 2003;
`` `Fairness' to Whom? Congress Intrudes on State Prerogatives in
Class-action bill,'' Editorial, Columbus Dispatch, May 8, 2003;
``DECLASSE: Nominal Conservatives Assault Onmce Cherished Federalism,''
Editorial, Houston Chronicle, April 29, 2003; and ``Class Action
Unfairness,'' Editorial, Palm Beach Post, May 15, 2003.
---------------------------------------------------------------------------
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, civil rights and environmental
laws. The legislation goes so far as to prevent State courts
from considering class action cases that involve solely
violations of State laws, such as State consumer protection
laws.
In a marked affront to federalism, H.R. 1115 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.\12\ Any plaintiff or defendant could petition a
State court to remove the class action to Federal court as a
matter of right.\13\ The only exceptions provided in H.R. 1115,
directing Federal courts to abstain from hearing a class
action, are: (1) when 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) when 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) when 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'').\14\
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,\15\ effectively striking the class action
claim.\16\
---------------------------------------------------------------------------
\12\ H.R. 1115, Sec. 4(a). Current law requires there to be
complete diversity (all of the plaintiffs must be citizens residing in
different States than all of the defendants) before a State law case is
eligible for removal to Federal court. 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.
\13\ At markup, Mr. Watt offered an amendment, defeated by voice
vote, that would have limited this right to a representative class
member. This would have avoided the perverse result where a plaintiff,
not at all involved in the day-to-day workings of the action, could
derail an entire case by having it removed to Federal court.
\14\ H.R. 1115, 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.
\15\ H.R. 1115, Sec. 4(a).
\16\ While the class action may be refiled again, any such refiled
action may be removed, thereby resulting in a ``merry-go-round'' in
which class members revolve between State and Federal court on
procedural grounds while never reaching a decision on the merits of
their claim.
---------------------------------------------------------------------------
In an amazing act of Congressional arrogance, the
legislation--unlike predecessor versions of the bill and unlike
legislation pending in the Senate \17\--would apply to pending
cases. As such, it would work to the benefit of corporate
criminals and scam artists, like Enron, Adelphia and Tyco--by
throwing pending lawsuits brought by defrauded investors out of
State court, and by subjecting even pending Federal and State
class actions to the new provisions encouraging delay by
defendants (described below).
---------------------------------------------------------------------------
\17\ Introduced on February 4, 2003, S. 274 was marked up and
reported out on June 2, 2003. Two amendments were adopted by the
Senate: Sen. Feinstein's amendment, which modifies that jurisdictional
section of the bill to bring more certainty to the process, and to keep
more cases in State courts if they belong there while still attempting
to solve the forum shopping and other issues addressed by the
underlying bill; and Senator Spector's amendment, which strikes the
language in the bill that would strip courts of jurisdiction over
private attorney general actions brought by citizens or organizations
and over mass tort cases.
---------------------------------------------------------------------------
In addition, the House version has other provisions that are not
included in the Senate legislation. First, H.R. 1115 provides for an
automatic right to appeal orders granting or denying class
certification and States that during the appeal process, all discovery
will be stayed. This is a drastic expansion of Rule 23(f) and could
result in wasteful interruptions in the judicial process. Second, the
House legislation requires that mass torts be removed to Federal court,
perhaps many miles from where the plaintiffs live. In addition, because
mass torts that are not certified are not dismissed, these matter
remain in limbo in the Federal court system.
Finally, a Boucher/Smith amendment was added during the House
Judiciary markup that broadens the application of the legislation to
both civil cases commenced on or after the enactment date and to civil
actions commenced before the enactment date but certified on or after
the enactment date.
In addition, the bill goes far beyond class action
jurisdiction issues and includes numerous additional provisions
that favor corporate defendants over harmed consumers. Among
other things, the bill gives class action defendants in all
cases--Federal and State--new mechanisms to delay and frustrate
justice for victims by allowing a defendant or a class member,
as a matter of right, an appeal of any lower court decision to
certify a class action.\18\ While this appeal is pending, a
victim cannot conduct discovery or otherwise move a case
forward. This will result in unwarranted, expensive and
wasteful interruptions of meritorious cases. The legislation
also includes provisions that would preempt private attorney
general actions and mass tort cases by treating them as class
action claims which are funneled into Federal court.
---------------------------------------------------------------------------
\18\ H.R. 1115, Sec. 6.
---------------------------------------------------------------------------
Proponents of H.R. 1115 have attempted to deflect
criticisms of the bill by incorporating a so-called ``Consumer
Class Action Bill of Rights,'' \19\ which, upon closer
inspection, contains provisions that either do not improve
current law or work to the detriment of consumers. These
provisions would supposedly improve the law for consumers with
respect to coupon settlements and settlement notices, but, in
fact, simply codify a Rule of Civil Procedure already scheduled
to be implemented; and prohibit certain awards to named
plaintiffs, which would actually create a massive disincentive
for civil rights class actions.
---------------------------------------------------------------------------
\19\ H.R. 1115, Sec. 3.
---------------------------------------------------------------------------
H.R. 1115 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. 1115 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 permits only case-by-case adjudications,
potentially draining away precious State court resources. In
many instances, individual actions will not be economically
feasible and hurt victims will be left with no remedy at all.
In our view, it is time for more corporate responsibility,
not less. This bill gives corporate defendants--including
defendants in corporate fraud and civil rights cases--a huge
leg up in class action cases. If we have learned any lessons
from the Enron, Firestone, Dalkon Shield and other product
liability and financial debacles it is that our citizens need
more legal protections against such wrongdoers, not less. Yet
this bill takes us in precisely the opposite direction. For
these and the other reasons set forth herein, we dissent from
H.R. 1115.
I. H.R. 1115 WOULD PREJUDICE PENDING CASES, INCLUDING CASES AGAINST
NOTORIOUS CORPORATE CRIMINALS
This bill is the most extreme and far reaching class action
reform bill ever considered by the House Judiciary Committee.
Unlike predecessor versions of this bill, this legislation
would apply to pending cases \20\--and thereby work to the
benefit of corporate criminals and scam artists, like Enron,
Worldcom, Adelphia and Tyco--by throwing pending lawsuits
brought by defrauded investors out of State court. H.R. 1115
would disrupt these cases and add years of additional
litigation. This means these defrauded victims will have to
wait much longer to get their money back, while the corporate
wrongdoers continue to enjoy the fruits of their ill-gotten
gains.
---------------------------------------------------------------------------
\20\ See supra note 17.
---------------------------------------------------------------------------
This is a terrible precedent that will unfairly
disadvantage plaintiffs in current class action lawsuits. It is
especially troubling that the Committee took this course
without first analyzing what and how many pending cases would
be affected. It is quite possible that the retroactivity of
this bill will cause tens of thousands of pending State cases
to be moved to Federal court all at once, creating a totally
unworkable and unmanageable litigation crisis. Indeed, the bill
would cause a needless waste of resources, as State judges--who
may have overseen a case for years--would have the case yanked
from their docket and instead placed before a Federal judge,
who would have to spend substantial time and resources
acquainting himself or herself with the case.
Examples of pending cases impacted by this bill include the
following:
LTRG Marketing sold fraudulent health
insurance policies to more than 5,000 Floridians who
were left with several million dollars in unpaid
medical bills. According to the lawsuit, TRG was a
scheme where premiums from new subscribers were used to
pay the medical expenses of earlier subscribers. When
enough subscriber dollars had been collected, the
claims payments stopped and TRG took the money and ran.
For Judy Harris, a named plaintiff, TRG abruptly
stopped paying on claims for her cancer treatment in
November 2001, leaving her family with $10,000 in
unpaid medical bills. By using the class action system,
the victims of TRG are banding together to hold TRG
accountable for their fraud.\21\
---------------------------------------------------------------------------
\21\ Lavovere, et al. v. TRG, CA02-14542A1 (Fla.)
LIn April 2002, the bereaved families of
victims of improper cremations filed a class action
lawsuit to protect the interests of families similarly
affected. For years, Tri-State Crematory (based in
Georgia) had foregone cremations and instead, passed
off wood chips, powdered cement and other substances as
ashes to the grieving relatives. As of March 2003,
there are at least 334 improperly handled bodies from
the property. By preserving the interests of all of the
families, the lawsuit gives families time to grieve and
to decide what they want to do.\22\
---------------------------------------------------------------------------
\22\ Oden, et al. v. Taylor Funeral Home, No. 02C-414 (Walker
County, Ga)
LBarnett v. Wal-Mart Stores, Inc. is a pending
lawsuit in King County Superior Court in Washington. It
was filed in September 2001, on behalf of 40,000
present and former hourly employees at Wal-Mart stores
in the State of Washington. Many make only $7.00 to
$10.00 an hour. The lawsuit alleges and challenges Wal-
Mart practices that have the effect of forcing
employees to work without pay, or to work overtime at
only their regular rates of pay, or to work through
part or all of their rest and meal breaks, in violation
of Washington statutory and contract law. Some claims
go back to September 1998, and others go back to
September 1995. The parties have taken the depositions
of more than a hundred witnesses, and a great deal of
other discovery has taken place. Plaintiffs have moved
for class certification, the defendant has responded,
and plaintiffs' reply is being held in abeyance while
Wal-Mart produces computer files that will have to be
analyzed. Almost all of the work to date has focused on
meeting the standards for class certification under
Washington law, and the parties are operating under
scheduling orders issued by the Washington court.
II. FEDERALIZING CLASS ACTIONS WILL HARM CONSUMERS AND DAMAGE THE COURT
SYSTEMS
A. H.R. 1115 Will Weaken Enforcement of Laws Concerning Consumer Health
and Safety, the Environment and Civil Rights
H.R. 1115 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 there will be far more victims to litigate
cases and where defendants could force plaintiffs to travel
long distances to attend proceedings.
It also will be far more difficult and time consuming to
certify a class action in Federal court. In 1999, fourteen
States, representing approximately 29% of the nation's
population, adopted different criteria for class action rules
than Rule 23 of the Federal Rules of Civil Procedure.\23\ In
addition, with respect to those States that 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 in recent years a series of adverse
Federal precedent has made it more difficult to establish the
predominance requirement of Rule 23(b)(3) to establish a class
action under the Federal rules.\24\ The defense bar has as much
as admitted this. To quote from a recent article written by two
corporate class action attorneys: ``As a general rule,
defendants are better off in Federal court . . . there is
generally a greater body of Federal precedent favorable to
defendants.'' \25\
---------------------------------------------------------------------------
\23\ See Conference of Chief Justices letter, supra note 2.
\24\ Federal courts have been narrowly construing Rule 23, thereby
limiting the parties' ability to bring and certify class actions in
Federal courts. For example, in Castano v. American Tobacco Co., 84
F.3d 734 (5th Cir. 1996), the Fifth Circuit prevented the certification
of a nationwide class action brought by cigarette smokers and their
families for nicotine addiction because it found there to be too wide a
disparity between the various State tort and fraud laws for the class
action vehicle to be superior to individual case adjudication.
Similarly, in In re Rhone-Poulenc Rorer, Inc., 51 F.3d 1293 (7th Cir.
1995), cert denied, 516 U.S. 867 (1995), the Seventh Circuit held that
where claims were immature, it is preferable that they be individually
adjudicated. Also, in Georgine v. Amchem Products, Inc., 521 U.S. 591
(1997), the Supreme Court overturned a consensual settlement between a
class of workers injured by asbestos and a coalition of former asbestos
manufacturers because uncommon issues, particularly the disparate
levels of the class members' knowledge of their injuries, as well as
each class member's relatively large amount at stake in the litigation,
meant that class treatment was not superior to individual treatment of
the plaintiffs' claims. Additionally, on June 23, 1999, in Ortiz v.
Fibreboard, 527 U.S. 815 (1999), the Supreme Court again invalidated an
asbestos settlement agreement on the grounds that mandatory limited
fund class treatment under Rule 23(b)(1)(B) is not appropriate unless
the maximum funds available are clearly inadequate to pay all claims.
\25\ Reid and Coutroulis, ``Checkmate in Class Actions: Defensive
Strategy in the Initial Moves,'' Litigation (Winter 2002).
---------------------------------------------------------------------------
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,\26\ even when 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.
---------------------------------------------------------------------------
\26\ Speedy Trial Act of 1974, 18 U.S.C. Sec. Sec. 3161-3174
(1994).
---------------------------------------------------------------------------
The legislation also creates 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 that would conform to the
legislation's requirements.\27\ 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.\28\
---------------------------------------------------------------------------
\27\ 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 would likely
be prohibited from narrowing the class in an effort to resolve that
conflict.
\28\ In this regard, it is unfortunate the Majority rejected an
amendment offered by Representative Scott that largely would have
eliminated the federalism problem. Mr. Scott's amendment would have
allowed the Federal courts the first opportunity to certify a class
action, but if the Federal court determined that the action did not
meet Federal requirements, the State court from which it was removed
would not have been denied jurisdiction over the class action. 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.
---------------------------------------------------------------------------
As Consumers Union has stated about this feature of the
bill, ``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.'' \29\ Moreover, even if the
Federal court certifies the class, plaintiffs still face
further delays because of the mandatory interlocutory appeal
provision.\30\
---------------------------------------------------------------------------
\29\ See Letter from Sally J. Greenberg, Senior Product Safety
Counsel, Consumers Union (March 5, 2002) (on file with the minority
staff of the House Judiciary Committee).
\30\ See supra note 18.
---------------------------------------------------------------------------
The harm to civil rights cases, which are heavily reliant
on class actions for access to justice, would be particularly
problematic. As the Lawyers Committee for Civil Rights under
the Law observed, ``[t]he consequences of the [legislation] for
class action practice in the Federal courts would be astounding
and, in our view, disastrous. Redirecting State law class
actions to the Federal courts will choke Federal court dockets
and delay or foreclose the timely and effective determination
of Federal cases already properly before the Federal courts, in
addition to the newly directed cases.'' \31\
---------------------------------------------------------------------------
\31\ Class Action Fairness Act of 2003: Hearings on H.R. 1115
before the House Comm. on the Judiciary, 108th Cong.(2003) [hereinafter
``Henderson Testimony''] (written testimony of Thomas Henderson, Chief
Counsel, Lawyers' Committee for Civil Rights Under Law).
---------------------------------------------------------------------------
Moreover, as the Lawyers Committee noted, the principal
motivation by the American Tort Reform Association in
advocating this legislation would appear to be to remove the
cases from jury pools that are composed largely of minorities
and those with low incomes. Their report entitled ``Bringing
Justice to Judicial Hellholes 2002'' identifies thirteen
counties/jurisdictions that it describes as ``hellholes,''
where it claims the rules are not applied fairly to defendants.
Although no criteria is put forth to distinguish which
jurisdictions may meet the ``hellhole'' threshold, almost all
of the jurisdictions have populations in which people of color
constitute majorities or near-majorities, and others have
populations with disproportionately low incomes.\32\
---------------------------------------------------------------------------
\32\ Lawyers' Committee for Civil Rights Under Law, The Impact of
the ``Class Action Fairness Act'' on Civil Rights Cases (2003).
---------------------------------------------------------------------------
In addition, the legislation includes provisions that allow
any plaintiff in a class action case to seek to remove to
Federal court, and that extend the time period for removal
beyond that currently permitted. This means that any single
party out of tens of thousands--conceivably even an employee of
a defendant--could unilaterally seek to remove a case, throwing
out thousands of hours or more of work that may have been spent
pursuing a State claim. This again has the effect of making
most efforts to obtain justice in State court simply too risky
to pursue.
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 \33\ 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 are 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
defendants guess wrong and jurisdiction does not lie in the
Federal courts, the defendants will be no worse off than they
are under present law, but rather will have benefitted from the
additional time delays caused by the failed removal motion.
---------------------------------------------------------------------------
\33\ H.R. 1115, Sec. 4.
---------------------------------------------------------------------------
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, and environmental laws.
The following are examples of important class actions
previously brought at the State level, but which could be
forced into Federal court under H.R. 1115, where the actions
would be delayed or rejected:
LIn 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 1,300 investors lost
millions of dollars in this scheme in ``off the books''
transactions with sham companies that were controlled
by the Foundation and corporate insiders. 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. 1115 was law, this case
would have been forced into Federal court because the
legislation provides no exemption for State securities
claims.\34\
---------------------------------------------------------------------------
\34\ 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.
LThe 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 was brought 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 have automatically been
removed from State court to Federal court at the
election of the defendant and would make it difficult
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to keep the lawsuit as a class action.
LFoodmaker 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.\35\
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\35\ 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.
LEquitable Life Assurance Company, an Iowa
corporation, agreed to a $20 million settlement of two
class-action lawsuits involving 130,000 people 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 were still required to pay the
premium in full.\36\
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\36\ See David Elbert, ``Lawsuits to Cost Equitable $20 Mill,'' Des
Moines Register, July 19, 1997 at 12; ``Cost of Settling Lawsuits Pulls
Equitable Earnings Down,'' Des Moines Register, August 6, 1997 at 10.
LOn 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.\37\
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\37\ See Mealey's Litigation Reports: Toxic Torts, $180 Million
Settlement of Toxic Cloud Claims Wins Judges O.K., November 17, 1995 at
8.
LOn April 21, 1999, 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,
and 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.\38\
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\38\ 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.
LUnder 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. However, 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. 1115 moves in the opposite
direction by denying more patients access to justice in
State court.\39\
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\39\ 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 the 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.
LThe regulation of funeral homes, cemeteries
and crematoria should remain an issue best handled by
State courts. However, federalizing such class actions
under this bill likely would force harmed 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 West Palm Beach, Florida. The
action 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.\40\ As noted above, the Tri-
State Crematory failed to cremate bodies and return
remains to loved ones. Although the issues raised in
these class actions are clearly State issues, they
would be removable to Federal court under H.R. 1115.
---------------------------------------------------------------------------
\40\ Joel Engelhardt, State Seeks Control of Menorah Gardens, The
Palm Beach Post, March 2, 2002 at 1A.
---------------------------------------------------------------------------
B. H.R. 1115 Will Damage the Federal and State Court Systems
Impact on Federal Courts
Expanding Federal class action jurisdiction to include most
State class actions, as H.R. 1115 does, will inevitably result
in a significant increase in the Federal courts' workload. As
the Judicial Conference has recently noted: ``the provisions
would add substantially to the workload of the Federal courts
and are inconsistent with federalism.'' \41\ Similarly, in
previous Congresses, the Judicial Conference stated that they
see no ``hard evidence of the inability of State judicial
systems to hear and decide fairly class actions brought in
State courts.'' \42\
---------------------------------------------------------------------------
\41\ Mecham letter, p.2.
\42\ Conference of Chief Justices letter, supra note 2.
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The workload problem in the Federal courts continues to be
severely problematic. For example, in 2003, the situation of
the Federal courts was as follows:
LAs of May 28, 2003, 45 judicial vacancies
existed, or over 5% of the Federal judicial
positions.\43\
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\43\ See generally Judicial Nominations, Department of Justice,
Office of Legal Policy, available at http://www.usdoj.gov/olp/
judicialnominations.htm (last viewed May 28, 2003).
LOn average, Federal district court judges had
494 civil filings pending last year.\44\
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\44\ See Admin. Office of the U.S. Courts, Judicial Caseload
Indicators, available at http://www.uscourts.gov/caseload2002/front/
mar02txt.pdf (2002).
Because of these and other workload problems, Chief Justice
Rehnquist took the important step of criticizing Congress for
taking actions that 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.\45\
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\45\ Chief Justice William Rehnquist, An Address to the American
Law Institute, Rehnquist: Is Federalism Dead? (May 11, 1998), in Legal
Times (May 18, 1998). Rehnquist recently reiterated those concerns.
2002 Year End Report on the Federal Judiciary, available at http://
www.supremecourtus.gov/publicinfo/year-end/2002year-endreport.html
(2003).
H.R. 1115 would result in the removal of most State court
class actions into Federal court. The Federal courts have fewer
than 1,500 judges compared to more than 30,000 judges currently
serving on State courts. The number of Federal civil cases
pending for 3 years or more has doubled since 1999 to more than
34,000. While nobody knows the precise number, there are
thousands of class action lawsuits pending in State courts
around the country that would be added, even if temporarily, to
the Federal docket under H.R. 1115.
Class actions are among the most complex and time-consuming
cases that courts must decide. In fact, studies have shown that
class actions on average consume almost five times more
judicial time than the typical civil case. Adding thousands of
resource-intensive State cases to the Federal courts would
place additional stresses and demands on an already
overburdened system. Compounding the federalism problem, these
new Federal cases will involve issues of primarily State law,
with which State court judges are familiar and Federal judges
are not.
This would result in Federal judges having less time to
devote to the additional class actions, as well as to their
existing caseloads. Class action lawsuits and settlements would
receive even less careful judicial supervision than they
receive today, potentially leading to court approval of even
more collusive settlements, not fewer. In addition, growing
caseloads will delay justice in class actions as well as in
other Federal court cases. Finally, overburdened judges may be
more likely to dismiss class action claims in order to clear
their dockets, even in meritorious cases.
Impact on 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 $2,000,000). When
these individual cases are returned to the State courts upon
remand, hundreds if not thousands of potential new cases may be
unleashed.\46\
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\46\ To counter this problem, Congressman Scott offered an
amendment at the Judiciary Committee markup that provided for remand of
the action to State court without prejudice 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. By
allowing the Federal court the first opportunity to certify the class
action but not denying the State court jurisdiction over the action
once the Federal court determines that the action does not meet Federal
requirements, this amendment addresses a serious complaint leveled by
class action defendants. The amendment was defeated by a voice vote.
---------------------------------------------------------------------------
In addition to these workload problems, the legislation
raises constitutional issues. H.R. 1115 does not merely operate
to preempt an area of State law, it also 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.\47\
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\47\ See supra note 2.
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In this regard, the courts have previously found that
efforts by Congress to dictate State court procedures implicate
important Tenth Amendment federalism issues and should be
avoided. For example, in Fielder v. Casey \48\ 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 \49\ 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' '' \50\ 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.'' \51\
---------------------------------------------------------------------------
\48\ 487 U.S. 131, 138 (1988).
\49\ 520 U.S. 911 (1997).
\50\ Id. at 919 (quoting Henry M. Hart, Jr., The Relations Between
State and Federal Law, 54 Colum. L. Rev. 489, 508 (1954)).
\51\ 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).
---------------------------------------------------------------------------
The Supreme Court's most recent decisions further indicate
that H.R. 1115 is an unacceptable infringement upon State
sovereignty. In United States v. Morrison \52\, the court
invalidated parts of the Violence Against Women Act, claiming
that Congress overstepped its specific constitutional power to
regulate interstate commerce. Despite vast quantities of data
illustrating the effects that violence against women has on
interstate commerce, the Court essentially warned Congress not
to extend its constitutional authority to ``completely
obliterate the Constitution's distinction between national and
local authority.'' \53\ H.R. 1115 ignores the Court's
admonition and subverts the Federal system by hindering the
States' ability to adjudicate class actions involving important
and evolving questions of State law.
---------------------------------------------------------------------------
\52\ 529 U.S. 598 (2000).
\53\ Id.
---------------------------------------------------------------------------
These same constitutional concerns were highlighted by
Professor Laurence Tribe in his testimony during the 105th
Congress regarding the constitutionality of certain aspects of
tobacco legislation, including a proposed Federal class action
rule applicable to State courts. 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.'' \54\
---------------------------------------------------------------------------
\54\ 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 lack foundation.\55\ 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,\56\ 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; \57\ (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.\58\
---------------------------------------------------------------------------
\55\ 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.
\56\ 472 U.S. 797 (1985).
\57\ 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)).
\58\ See id. at 806-10. 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).
---------------------------------------------------------------------------
Second, as fears of local court prejudice have subsided and
concerns about diverting Federal courts from their core
responsibilities have increased, the policy trend in recent
years has been towards limiting Federal diversity
jurisdiction.\59\ For example, several years ago Congress
enacted the Federal Courts Improvement Act of 1996,\60\ 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\61\ and that it was
important to keep the Federal judiciary's efforts focused on
Federal issues.\62\ 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.'' \63\ And finally, 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.\64\ Indeed, in 1978, the
House twice passed legislation that would have abolished
general diversity jurisdiction.\65\
---------------------------------------------------------------------------
\59\ 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).
---------------------------------------------------------------------------
\60\ 28 U.S.C. Sec. 1332(a) (West Supp. 1998).
\61\ The Judicial Conference of the United States, Long Range Plan
for the Federal Courts, Recommendation 7 at 30 (1995).
\62\ Id.
\63\ American Law Institute, Study of the Division of Jurisdiction
Between State and Federal Courts 101, 106 (1996).
\64\ 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).
\65\ See 124 Cong. Rec. 5008 (1978); 124 Cong. Rec. 33, 546 (1978).
The legislation was not considered in the Senate.
---------------------------------------------------------------------------
Third, 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, 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.\66\ Similarly, if the Disney Corporation, one of
Florida's largest employers, were to face a class action in a
Florida court, it would make little sense to involve the
Federal courts out of concern for local prejudice.\67\ Yet
under H.R. 1115, both of these hypothetical cases would be
subject to removal to Federal court.\68\
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\66\ General Motors and Ford both have their principal place of
business in Michigan and are incorporated in Delaware.
\67\ Disney's corporate headquarters are located in Burbank,
California, and it is incorporated in Delaware.
\68\ 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, Representatives Conyers and Jackson Lee 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 a vote of 20-13.
---------------------------------------------------------------------------
III. THE LEGISLATION INCLUDES NUMEROUS PRO-DEFENDANT PROVISIONS THAT
HAVE NOTHING TO DO WITH CLASS ACTION JURISDICTION
In addition to federalizing State class actions on a
retroactive basis, the legislation also includes a series of
unrelated ``give aways'' that will harm injured victims and
have nothing to do with the bill's purported subject matter--
class action jurisdiction.
A. Interlocutory Appeals
Section 6 of H.R. 1115 provides defendants with a
significant mechanism to delay and frustrate an injured
plaintiff's pursuit of justice. The section provides a party
the right, in every case, to an interlocutory appeal of a
court's decision granting or denying class certification, if an
appeal notice is filed within 10 days, and stays discovery
while such an appeal is pending.
This is a marked departure from Federal Rule of Civil
Procedure 23(f), adopted in 1998, which provides courts of
appeals discretion to grant an interlocutory appeal of a class
action certification and discretion to stay discovery. In
describing the rationale for adopting a discretionary standard
as opposed to granting such an appeal as a matter of right,
Circuit Court Judge Anthony J. Scirica, Chairman of the
Committee on Rules and Practice of the Judicial Conference has
noted the following:
[Rule 23(f)] addressed concerns expressed by many
judges and lawyers that interlocutory appeals are often
unnecessary and would be abused as a procedural tactic
to delay proceedings and unfairly increase litigation
expense in many class actions. . . . Interlocutory
appeals in general have been traditionally disfavored
because they can cause unwarranted, expensive and
wasteful interruptions . . . Providing an appeal as of
right [as H.R. 1115 does] might tempt a party to file
an interlocutory appeal solely for tactical
reasons.\69\
---------------------------------------------------------------------------
\69\ Scirica letter, p.2.
Section 6 is completely unnecessary because courts already
possess the power to review significant or controversial class
certification decisions and to stay lower court proceedings.
The courts' discretion is important because many class
certification decisions are clear and non-controversial. As the
Supreme Court noted in Amchem Products Inc. et. al. v. Windsor
et. al., some key aspects of class certification are ``readily
met in certain cases alleging consumer or securities fraud or
violations of the antitrust laws.'' An interlocutory appeal of
class certification decisions in those cases would only add
unnecessary delay and cost to already complex lawsuits.\70\
---------------------------------------------------------------------------
\70\ 521 U.S. 591 (1997)
---------------------------------------------------------------------------
In fact, Courts of Appeals accept Rule 23(f) appeals
frequently. Since its inception, Rule 23(f) appeals have been
accepted about 80 percent of the time they are requested. In
that time, a circuit court has never reversed a district
court's decision to deny class certification. There has been no
showing that the Federal appeals courts have not granted review
in enough cases, or that this rule has been unfairly applied to
defendants.
If H.R. 1115 is enacted, it will retroactively affect
pending cases that have not reached class certification and the
innocent victims will have to wait at least another year to get
their money back. And, if the defendants lose on appeal, they
can seek certiorari to the Supreme Court, which rarely
succeeds, but would tack an additional six to 9 months on the
delay for the harmed victims. Enron shareholders have already
endured a discovery delay of approximately 1\1/2\ years because
of special rules that apply to securities lawsuits. In fact, it
was during this delay that the accounting firm Arthur Andersen
was caught destroying documents. H.R. 1115 would permit
corporate wrongdoers like those in Enron, Worldcom, Tyco,
Adelphia, etc. to delay justice for their victims even further.
B. Private Attorney General and Mass Tort Cases
H.R. 1115 federalizes more than class actions: Under
proposed 28 U.S.C. Sec. 1332(d)(9), this bill would also create
Federal jurisdiction for two additional categories of cases:
(1) private attorney general actions brought by any
organization or citizen; and (2) groups of cases in which 100
or more individuals seeking monetary relief seek to try any
common legal or factual issue together.
Section 4(a)'s proposed new section 1332(d)(9)(A) would
define private attorney general actions as class actions and
allow them to be removed to Federal court if filed in State
court. The provision is obviously aimed at actions under
section 17200 of the California Business and Professions Code,
which has proved an important tool for victims of unfair and
deceptive business practices. In section 17200, the California
Legislature has decided to provide legal standing for
organizations and individuals to act as private attorneys
general; broader than the standing generally allowed in the
Federal courts.
The California Legislature has decided to allow private
parties to combat corporate fraud and other malfeasance on the
theory that the California Attorney General simply does not
have the resources to do it all. That policy choice, in our
system of federalism, should be California's prerogative. H.R.
1115 would override that State policy choice and transfer
California private attorney general actions to Federal court,
where they would be automatically deemed class actions and be
subjected to Federal Rule 23 certification criteria and Federal
standing requirements. This is why the California League for
Environmental Enforcement Now is so strongly opposed to the
private attorney general provision, writing, ``the Act targets
the ability of local residents to bring environmental, public
health, civil rights, and consumer actions on behalf of the
public in State court. We are calling on you to defeat this
legislation that threatens the ability of citizens to protect
State environmental, civil rights, and consumer protection
laws.'' \71\
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\71\ Letter from Michael Schmitz, Executive Director of California
League for Environmental Enforcement Now (CLEEN) (April 24, 2003) (on
file with the minority staff of the House Judiciary Committee).
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California is not the only State that would be affected by this
provision. In Michigan, for instance, the Michigan Consumer Protection
Act (MCPA) gives private citizens the right to seek damages for certain
false, misleading, and deceptive business practices as a ``private
attorney general.'' Mich. Comp. Laws Sec. 445.911 (1976).
To make matters worse, H.R. 1115's minor exclusions for
Federal jurisdiction--for instance, where the aggregate value
of the claims is $2 million or less, or where the number of
affected people is fewer than 100--do not apply to its private
attorney general action provision. In a State as large and
transient as California, any private attorney general action
seeking compensation for all victims of a corporation's instate
misconduct will involve some significant number of out-of-State
victims, virtually all 17200 actions seeking monetary relief
will be removable to Federal court.\72\
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\72\ See proposed 28 U.S.C. Sec. 1332(d)(9) (last sentence).
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H.R. 1115's federalization of individual joinder actions
(e.g. mass tort cases) is equally problematic. Section 4(a)'s
proposed new U.S.C. Sec. 1332(d)(9)(B) would define damages
suits filed in State court by individual plaintiffs as class
actions if, at any time, 100 or more plaintiffs sought to try
any common legal or factual issue.
Under current law dating back to the creation of the
Federal courts, these individual actions could only be tried in
State court. But under H.R. 1115, some of these cases could be
deemed ``individual joinder actions'' and could be removed to
Federal court, away from the trial and appellate courts with
expertise in applicable State law, perhaps many miles from the
town in which the injuries arose, and, if an appeal were ever
filed, to a Federal court of appeals.
Moreover, once the case is in Federal court, the plaintiffs
must meet the certification requirements of Federal Rule of
Civil Procedure 23. However, unlike the bill's treatment of
genuine class actions, these individual State law cases are not
dismissed without prejudice to re-filing in State court if Rule
23's requirements are not met; rather, they remain in limbo in
Federal court. This would require the Federal court to
adjudicate dozens or even hundreds of garden-variety State tort
claims on an individual basis--claims valued at far less than
the $75,000 jurisdictional amount set by Congress for Federal
court diversity cases under 28 U.S.C. Sec. 1332(a).
IV. THE SO-CALLED ``CONSUMER BILL OF RIGHTS'' IS LARGELY MEANINGLESS OR
COUNTERPRODUCTIVE
Finally, we would note that the much touted ``Consumer Bill
of Rights'' includes precious few provisions that will actually
benefit injured consumers. Instead, most of these provisions
are either redundant of current law and practice, or will
actually make it more difficult for victims to obtain justice.
The most highly touted portion of H.R. 1115 is Section
1711, which purports to address inequities in coupon
settlements.\73\ Proponents of the bill assert that there is
widespread misuse of these settlements, allowing plaintiff's
attorneys to recoup large fees while class members are left
with nothing more than a coupon for the defendant's product. It
should be noted at the outset that coupon settlements are
traditionally favored by defendants.\74\ More importantly,
section 1711 does nothing to address the problem. Under the
legislation, a coupon settlement may be approved only after a
court finds that the settlement is ``fair, reasonable, and
adequate'' for class members.\75\ This is identical to the
universal settlement approval standard applicable to all cases,
which requires a court to issue a written finding that a
settlement is ``fair, adequate, and reasonable.'' \76\ Thus, in
the area of coupon settlements--the area most cited by
proponents to justify this legislation--the bill does nothing
to alter or improve current law.
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\73\ H.R. 1115, Sec. 3, proposed 28 U.S.C Sec. 1711.
\74\ Wolfman, pps. 18-19 (``[D]efendants love coupon settlements in
which the coupon will have little or no value. The settlement provides
a modest marketing gimmick for the defendants' products, while ridding
the defendants of potentially troublesome litigation for little more
than the cost of attorneys fees.'').
\75\ H.R. 1115, Sec. 3, proposed 28 U.S.C Sec. 1711.
\76\ Wolfman p. 19.
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Nor does H.R. 1115's provision for ``notice requirements''
to class members improve current law. In fact, H.R. 1115
originally contained a long, detailed notice provision that
would actually confuse consumers--not help them. According to
the Judicial Conference Rules Committee, H.R. 1115's notice
requirements would have ``undermine[d] the bill's stated
objectives by requiring notices so elaborate that most class
members [would] not even attempt to read them.'' \77\
Fortunately, the Committee accepted an amendment conforming the
notice requirements to the Federal Rules of Civil Procedure,
neutralizing yet another harmful provision of the bill. But
again, the final net result is to simply codify current
practice.
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\77\ Scirica letter, p. 3.
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Section 1714 also contains a provision prohibiting ``the
payment of bounties,'' which is harmful to civil rights cases.
In an employment discrimination case, there may be fewer
employment slots denied than there are qualified
applicants.\78\ A plaintiff filing an individual action may
obtain an order placing him or her in the job denied and
receive back pay.\79\ Such a remedy would, of course, be
appropriate under current law for a named plaintiff in a class
action. However, H.R. 1115 would bar such a remedy for named
plaintiffs unless each and every other class member also
receives the same. This may well be an impossibility and will
certainly act as a deterrent to civil rights class actions in
general, and becoming a class representative in particular.
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\78\ Henderson Testimony.
\79\ Id.
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Thomas Henderson, Chief Counsel of the Lawyers Committee
for Civil Rights, has testified as to the damage this bounty
provision would do to civil rights cases:
The prohibition on approving settlements that involve
named plaintiffs receiving amounts different from other
members of the class is not a reasonable or practical
limitation in all instances. In many employment
discrimination cases there are fewer employment
opportunities denied because of discrimination than
there are qualified potential claimants. In those
situations, a person who sues as an individual can
receive a full award of back pay and in a proper case
can obtain an order placing him or her in the job
denied because of discrimination. A class member in
such a situation must share in the total back pay
award, and has only an opportunity to be one of the
persons selected for hire or promotion because not all
can be selected. If the price of trying to protect
others is that he or she must also lose the full
measure of individual relief and take only the same
percentage share as those who never took any action to
challenge the employer, individuals would be deterred
from becoming a class representative. Thus, rather than
a reform, this provision would hinder civil rights
class actions.\80\
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\80\ Id.
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CONCLUSION
H.R. 1115 will remove class actions involving State law
issues from State courts--the forum most convenient for victims
of wrongdoing and with judges 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. 1115 will not
prevent State courts from unfairly certifying class actions
without granting defendants an opportunity to respond. This is
already barred by the Constitution, and the few State trial
court decisions to the contrary have been overturned.\81\ H.R.
1115 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 and that 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 that does not apply in any other legal
proceeding.
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\81\ 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).
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In addition, we are deeply troubled by provisions in the
legislation that would apply the new rules to cases that have
already been filed, and to provisions that will give corporate
wrongdoers massive new abilities to delay meritorious class
actions from proceeding. Also, we object to provisions in the
bill that treat non-class action cases as class actions and
subject them to these harsh, anti-victim rules, and to
provisions in the so-called ``Consumer Bill of Rights'' that
would limit the ability of civil rights victims to take the
lead in seeking relief.
This legislation would seriously undermine the delicate
balance between our Federal and State courts. It would threaten
to overwhelm Federal courts by causing the removal of resource
intensive State class action cases to Federal district courts
while also increasing the burdens on State courts as class
actions rejected by Federal courts metamorphasize into numerous
additional individual State actions. It is one-sided and
includes numerous provisions that have little if anything to do
with the problem of class action jurisdictional lines. We
therefore strongly oppose H.R. 1115.
John Conyers, Jr.
Howard L. Berman.
Jerrold Nadler.
Robert C. Scott.
Melvin L. Watt.
Sheila Jackson Lee.
Maxine Waters.
Martin T. Meehan.
William D. Delahunt.
Robert Wexler.
Tammy Baldwin.
Anthony D. Weiner.
Linda T. Sanchez.