[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2341 Referred in Senate (RFS)]

  2d Session
                                H. R. 2341


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             March 14, 2002

  Received; read twice and referred to the Committee on the Judiciary

_______________________________________________________________________

                                 AN ACT


 
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.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; REFERENCE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Class Action 
Fairness Act of 2002''.
    (b) Reference.--Whenever in this Act reference is made to an 
amendment to, or repeal of, a section or other provision, the reference 
shall be considered to be made to a section or other provision of title 
28, United States Code.
    (c) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; reference; table of contents.
Sec. 2. Findings and purposes.
Sec. 3. Consumer class action bill of rights and improved procedures 
                            for interstate class actions.
Sec. 4. Federal district court jurisdiction of interstate class 
                            actions.
Sec. 5. Removal of interstate class actions to Federal district court.
Sec. 6. Appeals of class action certification orders.
Sec. 7. Report on class action settlements.
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 harmed class members with 
        legitimate claims and defendants that have acted responsibly, 
        and that have thereby undermined public respect for our 
        judicial system.
            (3) Class members have been harmed by a number of actions 
        taken by plaintiffs' lawyers, which provide little or no 
        benefit to class members as a whole, including--
                    (A) plaintiffs' lawyers receiving large fees, while 
                class members are left with coupons or other awards of 
                little or no value;
                    (B) unjustified rewards being made to certain 
                plaintiffs at the expense of other class members; and
                    (C) the publication of confusing notices that 
                prevent class members from being able to fully 
                understand and effectively exercise their rights.
            (4) Through the use of artful pleading, plaintiffs are able 
        to avoid litigating class actions in Federal court, forcing 
        businesses and other organizations to defend interstate class 
        action lawsuits in county and State courts where--
                    (A) the lawyers, rather than the claimants, are 
                likely to receive the maximum benefit;
                    (B) less scrutiny may be given to the merits of the 
                case; and
                    (C) defendants are effectively forced into 
                settlements, in order to avoid the possibility of huge 
                judgments that could destabilize their companies.
            (5) These abuses undermine our Federal system and the 
        intent of the framers of the Constitution in creating diversity 
        jurisdiction, in that county and State courts are--
                    (A) handling interstate class actions that affect 
                parties from many States;
                    (B) sometimes acting in ways that demonstrate bias 
                against out-of-State defendants; and
                    (C) making judgments that impose their view of the 
                law on other States and bind the rights of the 
                residents of those States.
            (6) Abusive interstate class actions have harmed society as 
        a whole by forcing innocent parties to settle cases rather than 
        risk a huge judgment by a local jury, thereby costing consumers 
        billions of dollars in increased costs to pay for forced 
        settlements and excessive judgments.
    (b) Purposes.--The purposes of this Act are--
            (1) to assure fair and prompt recoveries for class members 
        with legitimate claims;
            (2) to protect responsible companies and other institutions 
        against interstate class actions in State courts;
            (3) to restore the intent of the framers of the 
        Constitution by providing for Federal court consideration of 
        interstate class actions; and
            (4) to benefit society by encouraging innovation and 
        lowering consumer prices.

SEC. 3. CONSUMER CLASS ACTION BILL OF RIGHTS AND IMPROVED PROCEDURES 
              FOR INTERSTATE CLASS ACTIONS.

    (a) In General.--Part V is amended by inserting after chapter 113 
the following:

                      ``CHAPTER 114--CLASS ACTIONS

``Sec.
``1711. Judicial scrutiny of coupon and other noncash settlements.
``1712. Protection against loss by class members.
``1713. Protection against discrimination based on geographic location.
``1714. Prohibition on the payment of bounties.
``1715. Clearer and simpler settlement information.
``1716. Disclosure of attorney's fees.
``1717. Sunshine in court records.
``1718. Definitions.''.
``Sec. 1711. Judicial scrutiny of coupon and other noncash settlements
    ``The court may approve a proposed settlement under which the class 
members would receive noncash benefits or would otherwise be required 
to expend funds in order to obtain part or all of the proposed benefits 
only after a hearing to determine whether, and making a written finding 
that, the settlement is fair, reasonable, and adequate for class 
members.
``Sec. 1712. Protection against loss by class members
    ``The court may approve a proposed settlement under which any class 
member is obligated to pay sums to class counsel that would result in a 
net loss to the class member only if the court makes a written finding 
that nonmonetary benefits to the class member outweigh the monetary 
loss.
``Sec. 1713. Protection against discrimination based on geographic 
              location
    ``The court may not approve a proposed settlement that provides for 
the payment of greater sums to some class members than to others solely 
on the basis that the class members to whom the greater sums are to be 
paid are located in closer geographic proximity to the court.
``Sec. 1714. Prohibition on the payment of bounties
    ``(a) In General.--The court may not approve a proposed settlement 
that provides for the payment of a greater share of the award to a 
class representative serving on behalf of a class, on the basis of the 
formula for distribution to all other class members, than that awarded 
to the other class members.
    ``(b) Rule of Construction.--The limitation in subsection (a) shall 
not be construed to prohibit any payment approved by the court for 
reasonable time or costs that a person was required to expend in 
fulfilling his or her obligations as a class representative.
``Sec. 1715. Clearer and simpler settlement information
    ``(a) Plain English Requirements.--Any court with jurisdiction over 
a plaintiff class action shall require that any written notice 
concerning a proposed settlement of the class action provided to the 
class through the mail or publication in printed media contain--
            ``(1) at the beginning of such notice, a statement in 18-
        point Times New Roman type or other functionally similar type, 
        stating `LEGAL NOTICE: YOU ARE A PLAINTIFF IN A CLASS ACTION 
        LAWSUIT AND YOUR LEGAL RIGHTS ARE AFFECTED BY THE SETTLEMENT 
        DESCRIBED IN THIS NOTICE.'; and
            ``(2) a short summary written in plain, easily understood 
        language, describing--
                    ``(A) the subject matter of the class action;
                    ``(B) the members of the class;
                    ``(C) the legal consequences of being a member of 
                the class;
                    ``(D) if the notice is informing class members of a 
                proposed settlement agreement--
                            ``(i) the benefits that will accrue to the 
                        class due to the settlement;
                            ``(ii) the rights that class members will 
                        lose or waive through the settlement;
                            ``(iii) obligations that will be imposed on 
                        the defendants by the settlement;
                            ``(iv) the dollar amount of any attorney's 
                        fee class counsel will be seeking, or if not 
                        possible, a good faith estimate of the dollar 
                        amount of any attorney's fee class counsel will 
                        be seeking; and
                            ``(v) an explanation of how any attorney's 
                        fee will be calculated and funded; and
                    ``(E) any other material matter.
    ``(b) Tabular Format.--Any court with jurisdiction over a plaintiff 
class action shall require that the information described in subsection 
(a)--
            ``(1) be placed in a conspicuous and prominent location on 
        the notice;
            ``(2) contain clear and concise headings for each item of 
        information; and
            ``(3) provide a clear and concise form for stating each 
        item of information required to be disclosed under each 
        heading.
    ``(c) Television or Radio Notice.--Any notice provided through 
television or radio (including transmissions by cable or satellite) to 
inform the class members in a class action of the right of each member 
to be excluded from the class action or a proposed settlement of the 
class action, if such right exists, shall, in plain, easily understood 
language--
            ``(1) describe the persons who may potentially become class 
        members in the class action; and
            ``(2) explain that the failure of a class member to 
        exercise his or her right to be excluded from a class action 
        will result in the person's inclusion in the class action or 
        settlement.
``Sec. 1716. Disclosure of attorney's fees
    ``Any court with jurisdiction over a plaintiff class action shall 
require that, if there is a settlement of the class action or a 
judgment for the plaintiffs, the attorneys for the plaintiffs shall 
disclose to each plaintiff--
            ``(1) at the time when any payment or other award is 
        transmitted to the plaintiff in accordance with the settlement 
        of judgment, or
            ``(2) in a case in which no such payment or award is made 
        to a plaintiff, at the time when notice of the final settlement 
        or judgment is transmitted to such plaintiff,
the full amount of the attorney's fees charged by the attorneys for 
services rendered in the action.
``Sec. 1717. Sunshine in court records
    ``No order, opinion, or record of the court in the adjudication of 
a class action, including a record obtained through discovery, whether 
or not formally filed with the court, 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, that disclosing the information is 
        clearly outweighed by a specific and substantial interest in 
        maintaining the confidentiality of such information.
``Sec. 1718. 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. REPORT ON CLASS ACTION SETTLEMENTS.

    (a) In General.--Not later than 12 months after the date of the 
enactment of this Act, the Judicial Conference of the United States, 
with the assistance of the Director of the Federal Judicial Center and 
the Director of the Administrative Office of the United States Courts, 
shall prepare and transmit to the Committees on the Judiciary of the 
Senate and House of Representatives a report on class action 
settlements in the Federal courts.
    (b) Content.--The report under subsection (a) shall contain--
            (1) recommendations on the best practices that courts can 
        use to ensure that proposed class action settlements are fair 
        to the class members whom the settlements are supposed to 
        benefit;
            (2) recommendations on the best practices that courts can 
        use to ensure that--
                    (A) the fees and expenses awarded to counsel in 
                connection with a class action settlement appropriately 
                reflect the extent to which counsel succeeded in 
                obtaining full redress for the injuries alleged and the 
                time, expense, and risk that counsel devoted to the 
                litigation; and
                    (B) the class members on whose behalf the 
                settlement is proposed are the primary beneficiaries of 
                the settlement; and
            (3) the actions that the Judicial Conference of the United 
        States has taken and intends to take toward having the Federal 
        judiciary implement any or all of the recommendations contained 
        in the report.
    (c) Authority of Federal Courts.--Nothing in this section shall be 
construed to alter the authority of the Federal courts to supervise 
attorney's fees.

SEC. 8. EFFECTIVE DATE.

    The amendments made by this Act shall apply to any civil action 
commenced on or after the date of the enactment of this Act.

            Passed the House of Representatives March 13, 2002.

            Attest:

                                                 JEFF TRANDAHL,

                                                                 Clerk.