[Senate Hearing 106-465]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 106-465

 
                 THE CLASS ACTION FAIRNESS ACT OF 1999

=======================================================================

                                HEARING

                               before the

        SUBCOMMITTEE ON ADMINISTRATIVE OVERSIGHT AND THE COURTS

                                 of the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                                   on

                                 S. 353

   A BILL TO PROVIDE FOR CLASS ACTION REFORM, AND FOR OTHER PURPOSES

                               __________

                              MAY 4, 1999

                               __________

                          Serial No. J-106-22

                               __________

         Printed for the use of the Committee on the Judiciary




                    U.S. GOVERNMENT PRINTING OFFICE
63-965                      WASHINGTON : 2000






                       COMMITTEE ON THE JUDICIARY

                     ORRIN G. HATCH, Utah, Chairman

STROM THURMOND, South Carolina       PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa            EDWARD M. KENNEDY, Massachusetts
ARLEN SPECTER, Pennsylvania          JOSEPH R. BIDEN, Jr., Delaware
JON KYL, Arizona                     HERBERT KOHL, Wisconsin
MIKE DeWINE, Ohio                    DIANNE FEINSTEIN, California
JOHN ASHCROFT, Missouri              RUSSELL D. FEINGOLD, Wisconsin
SPENCER ABRAHAM, Michigan            ROBERT G. TORRICELLI, New Jersey
JEFF SESSIONS, Alabama               CHARLES E. SCHUMER, New York
BOB SMITH, New Hampshire

             Manus Cooney, Chief Counsel and Staff Director

                  Bruce Cohen, Minority Chief Counsel

                                 ______

        Subcommittee on Administrative Oversight and the Courts

                  CHARLES E. GRASSLEY, Iowa, Chairman

JEFF SESSIONS, Alabama               ROBERT G. TORRICELLI, New Jersey
STROM THURMOND, South Carolina       RUSSELL D. FEINGOLD, Wisconsin
SPENCER ABRAHAM, Michigan            CHARLES E. SCHUMER, New York

                       Kolan Davis, Chief Counsel

                 Matt Tanielian, Minority Chief Counsel

                                  (ii)



                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Grassley, Hon. Charles E., U.S. Senator from the State of Iowa...     1
Kyl, Hon. Jon, U.S. Senator from the State of Arizona............    33
Thurmond, Hon. Strom, U.S. Senator from the State of South 
  Carolina.......................................................    33
Sessions, Hon. Jeff, U.S. Senator from the State of Alabama......    34
Torricelli, Hon. Robert G., U.S. Senator from the State of New 
  Jersey.........................................................    35
Kohl, Hon. Herbert, U.S. Senator from the State of Wisconsin.....37, 38

                    CHRONOLOGICAL LIST OF WITNESSES

Statement of Eleanor D. Acheson, Assistant Attorney General, 
  Office of Policy Development, U.S. Department of Justice, 
  Washington, DC.................................................    40
Panel consisting of John P. Frank, Lewis and Roca, Phoenix, AZ; 
  and E. Donald Elliott, Prof. of Law, Yale Law School, New 
  Haven, CT......................................................    52
Panel consisting of Stephen G. Morrison, general counsel, Policy 
  Management Systems Corp., Columbia, SC; Richard A. Daynard, 
  Prof. of Law, Northeastern University School of Law, Boston, 
  MA; and John H. Beisner, O'Melveny and Myers, LLP, Washington, 
  DC.............................................................   107

                ALPHABETICAL LIST AND MATERIAL SUBMITTED

Acheson, Eleanor D.:
    Testimony....................................................    40
    Prepared statement...........................................    47
Beisner, John H.:
    Testimony....................................................   123
    Prepared statement...........................................   125
Daynard, Richard A.:
    Testimony....................................................   116
    Prepared statement...........................................   118
Elliott, E. Donald:
    Testimony....................................................    95
    Prepared statement...........................................    96
Frank, John P.:
    Testimony....................................................    52
    Prepared statement...........................................    55
Grassley, Hon. Charles:
    Article: ``Federalist Society's Study On Class Actions: Part 
      I,'' Vol. 1 No. 1, Spring 1999.............................     5
    Article: ``Federalist Society's Study On Class Actions: Part 
      II,'' Vol. 1 No. 2, Spring 1999............................    21
Morrison, Stephen G.:
    Testimony....................................................   107
    Prepared statement...........................................   109

                                APPENDIX
                          Proposed Legislation

S. 353 A bill to provide class action reform, and for other 
  purposes.......................................................   141

                         Questions and Answers

Responses of Eleanor Acheson to Questions from Senators:
    Grassley.....................................................   154

                                 


    Thurmond.....................................................   160
    Torricelli...................................................   162
    Kohl.........................................................   163
Responses of John P. Frank to Questions from Senators:
    Thurmond.....................................................   167
    Kohl.........................................................   168
Responses of Prof. E. Donald Elliott to Questions from Senators:
    Grassley.....................................................   171
    Thurmond.....................................................   171
    Kohl.........................................................   172
Responses of Stephen Morrison to Questions from Senators:
    Grassley.....................................................   180
    Kohl.........................................................   186
Responses of Richard A. Daynard to Questions from Senators:
    Torricelli...................................................   191
    Kohl.........................................................   193
Responses of John H. Beisner to Questions from Senators:
    Grassley.....................................................   246
    Kohl.........................................................   256




                 THE CLASS ACTION FAIRNESS ACT OF 1999

                              ----------                              


                          TUESDAY, MAY 4, 1999

                               U.S. Senate,
           Subcommittee on Administrative Oversight
                                    and the Courts,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:05 p.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Charles E. 
Grassley (chairman of the subcommittee) presiding.
    Also present: Senators Thurmond, Sessions, and Kyl [ex 
officio].

 OPENING STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S. SENATOR 
                     FROM THE STATE OF IOWA

    Senator Grassley. I want to say good afternoon to 
everybody, and I would like to thank everybody for coming to 
this hearing about class action abuse and S. 353, the Class 
Action Fairness Act of 1999.
    We have party caucuses that go on usually until 2:15 p.m. 
or a little bit past that on Tuesdays. So since we have such a 
full schedule of people to hear this afternoon, I want to start 
on time and I will stop wherever we are for people, 
particularly Mr. Torricelli or Mr. Kohl, who will represent and 
speak for the Democrats. I will let them speak when they get 
here, regardless of where we are in the process because it is 
only fair for them to have an opening statement as well.
    Although we had a joint hearing with the House earlier this 
year on bankruptcy reform, this is the first Senate only 
subcommittee hearing with Senator Torricelli as the ranking 
member. So I welcome his participation and hope to work closely 
with him during this Congress and beyond what is on the agenda 
of this subcommittee. Although the subcommittee did not take up 
the bankruptcy reform bill, I have had a very close working 
relationship with Senator Torricelli on that major piece of 
legislation.
    The topic of our hearing today is an important subject that 
lately has received considerable attention. More and more 
people recognize that the class action system is being abused 
and that the people who are supposed to be helped by this 
process are instead getting used. Ultimately, the current 
system is benefiting lawyers and not your average class member.
    This subcommittee held a hearing about a year ago to 
examine the problems occurring with class actions and how the 
process is being abused at the expense of the plaintiff class 
and defendants. We heard about scenarios where plaintiffs are 
misled into accepting settlements which either offer them 
little of value or even cost them money, while the class 
lawyers get rich. We heard about settlements where plaintiffs 
receive coupons of little value or with redemption restrictions 
making them practically useless. Yet, their lawyers receive 
millions of dollars in attorneys' fees.
    We heard about attorneys searching the newspapers and the 
Federal Register for possible cases, determining which ones 
they can reap the most from, then recruiting potential 
plaintiffs so that they can bring their lawsuits. Those things 
are already on the record. We also heard about the increased 
concentration of class actions in State courts, particularly in 
courts which are more susceptible to approving class 
certifications without adequately considering whether a class 
action would be fair to all class members.
    We heard about plaintiff lawyers gaming the system to avoid 
removal to Federal court by manipulating the pleadings and by 
finding a token plaintiff or defendant to defeat procedural 
requirements. We heard about lawyers using the State court 
system to get the lowest settlement amount possible for 
defendants and the highest amount in attorneys' fees for the 
plaintiff class lawyers. The abuse list goes on, and I am sure 
that we are going to hear more about this today.
    That is why Senator Kohl and I introduced the Class Action 
Fairness Act. Our bill takes the first step at curbing class 
action lawsuit abuses. It requires that settlement notices be 
written in plain English and include the amount and sources of 
attorneys' fees. It requires notification of State attorneys 
general of any proposed class settlement that affects their 
residents so that they can object if the settlement terms are 
unfair. It penalizes frivolous class action filings by 
requiring to impose rule 11 sanctions, although the nature and 
extent of such actions remain discretionary.
    Our bill discourages settlements that give attorneys 
exorbitant fees based upon hypothetical over-valuation of 
coupon settlements by providing that class action attorneys' 
fees be based on a reasonable percentage of damages actually 
paid to class members. It allows attorneys' fees to be based on 
an hourly rate so that reasonable fees are available in all 
kinds of cases, including those involving injunctive relief.
    Our bill also allows more class action lawsuits to be 
removed from State court to Federal court either by a defendant 
or an unnamed class member. Currently, class lawyers can avoid 
removal if the individual claims are for just less than $75,000 
or if just one class member is from the same State as a 
defendant. Consequently, plaintiff class lawyers gravitate 
toward those State courts which permit class actions to proceed 
with little or no scrutiny, and lawyers play games with the 
procedural requirements to stay in those State courts.
    On the other hand, Federal courts consistently give closer 
scrutiny to class settlements and to whether it is fair for a 
case to proceed as a class action. They are better equipped to 
deal with multi-State issues. With their ability to consolidate 
related cases, the Federal courts can bring about more 
efficiencies and prevent a race to settlement between competing 
cases.
    Not only do I believe that the changes in our bill better 
protect the due process rights of unnamed plaintiffs and 
defendants, I believe that the fact that we are dealing with 
multi-State plaintiffs makes the Federal courts an appropriate 
forum for these kinds of cases. This is especially true because 
I don't believe State courts should be dictating national 
policy or imposing their State's laws on other State citizens 
in these multi-State cases. In fact, I believe that to the 
extent there is some federalization of class standards, it is 
reasonable to do with uniformity rather than having individual 
State courts setting different standards, which only breeds 
gaming of the judicial system and forum-shopping.
    Today, we will hear from witnesses that there is a clear 
constitutional basis to having these multi-State class actions 
proceed in Federal court. But our bill also takes into account 
federalism concerns by making sure that the purely State cases 
remain in State court, thus allowing State courts to retain 
their ability to adjudicate class actions that involve their 
citizens. I want to make it clear, our bill does not prevent 
any claim from being heard, nor does it close the courthouse 
door to any plaintiff.
    Now, I have heard from lawyers who say that the plaintiff 
class is obtaining the best value for their case by winning in 
settlement a bunch of coupons. How can that be? How can a 
lawyer tell me that the plaintiff class got a great deal where 
the attorneys negotiated a settlement valued by the court at 
millions of dollars, of which the class got only coupons, the 
terms of which are so restrictive they are basically useless, 
and the lawyers got all the cash?
    Witnesses have testified to Congress that these coupons 
allow the class lawyers to claim that a settlement is worth 
much more than it really is worth, and therefore they can claim 
more in attorneys' fees. Again I ask, if coupons are better for 
the clients, why aren't the lawyers paid in coupons?
    These coupon deals are so pervasive that even one of my 
staffers got a notice telling him that as a member of a 
plaintiff class in a lawsuit against a mortgage company, he had 
won in settlement a coupon for $100 off the next financing or 
refinancing of his mortgage with this company. But he doesn't 
want to refinance his mortgage at this time, and certainly not 
with the company that ripped him off in the first place. So you 
tell me what use to this staff person is this coupon worth 
$100. And I am sure that those attorneys are not going to be 
paid with coupons to refinance their mortgages.
    What I see happening is lawyers negotiating for something 
of little to no value for their clients, but keeping what does 
have value--in other words, cash--for themselves. The way I see 
it, the class plaintiffs receive no benefit whatsoever and, in 
fact, plaintiffs forfeit their right to sue. And the reason the 
plaintiffs' bar is so opposed to any regulation is because we 
are talking about taking away their gravy train.
    Moreover, I find it remarkable that some still maintain 
that the class action problems we are seeing--State court 
abuse, attorney misconduct, and consumer exploitation--just 
happen to be anecdotal. That is not the case. The RAND study, a 
study by Stateside Associates, and statistics recently compiled 
by the Federalist Society confirm that more and more class 
action lawsuits are being filed, that they are increasingly 
concentrated in State courts, and that abuses are occurring 
with class actions.
    For example the RAND study found that the problems are 
intrinsically inherent in the class action system, stating 
that, ``It is generally agreed that fees drive plaintiffs' 
attorneys' filing behavior, that defendants' risk aversion in 
the face of large aggregate exposures drives their settlement 
behavior * * * In other words, the problems with class actions 
flow from incentives that are embedded in the process itself.''
    The House and Senate committee hearing records are replete 
with examples of class action abuses. The Judicial Conference 
has recognized that the process is being misemployed. They have 
been studying how to fix the class action system for quite some 
time now. Something has to be done, and our bill is one good 
first step.
    Today, the subcommittee will continue in its examination of 
class action abuse. We will look at how the Grassley-Kohl bill 
can address some of these problems, and listen to suggestions 
on how to make our bill better and how to further address the 
class action phenomenon. I am looking forward to hearing from 
all of our distinguished witnesses.
    Without objection, I would like to place in the record the 
Federalist Society's study on class actions already referred 
to.
    [The study referred to follows:]
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    Senator Grassley. Because he has to go very quickly, I want 
to call on the Senator from Arizona for purposes of an 
introduction.

  STATEMENT OF HON. JON KYL, A U.S. SENATOR FROM THE STATE OF 
                            ARIZONA

    Senator Kyl. Well, thank you very much, Mr. Chairman, and 
thank you for the legislation you have sponsored and for 
holding this hearing. I appreciate my colleagues allowing me to 
proceed out of turn. As a member of the full committee but not 
this subcommittee, I appreciate your courtesy.
    I simply wanted to preliminarily introduce a member of your 
third panel, John P. Frank, from my State of Arizona, a 
distinguished member of the bar, a partner in the firm of Lewis 
and Roca there, and a member of the firm's special litigation 
group. In fact, Mr. Chairman, he has been involved in more than 
500 appeals in the Arizona Supreme Court, the Ninth Circuit and 
the U.S. Supreme Court. That is about as many appeals as I have 
made to the chairman of our full committee here, so I know that 
is a lot of appeals.
    John Frank was a law clerk to Justice Hugo Black. He was an 
Assistant Professor of Law at Indiana University, and then a 
Professor of Law at Yale University. He has been named to the 
National Law Journal's list of the 100 Most Influential Lawyers 
in the country, not once, not twice, but three times.
    In all of the good things I can say about him, of course, 
there is one thing that is a black mark on his record, but I 
will not fail to mention it. He has for many years, and 
currently serves as General Counsel to the Arizona Democratic 
Party. With that one exception, his record, however, is 
outstanding. [Laughter].
    In fact, I had the opportunity for a time to serve as 
General Counsel to the Republican State Party at the same time 
that John served for the Democrats, and we worked together on a 
number of matters.
    But to conclude, Mr. Chairman, John Frank is Chairman of 
the Senior Advisory Board to the Ninth Circuit Court of 
Appeals. And in addition to writing 11 books on legal history 
and constitutional law, he served on the Civil Procedure 
Committee of the Judicial Conference from 1960 to 1970, which, 
of course, meant that he was a member of that committee in 1966 
when it promulgated the present rule 23 on class actions.
    He is eminently qualified to speak to the subject of your 
bill. His conclusions and his testimony here are eminently 
balanced and sensible. I commend them to you, and again 
preliminarily introduce to you John P. Frank, of Phoenix. Thank 
you for the opportunity to do that at this point.
    Senator Grassley. We thank Mr. Frank for coming, and thank 
you, Senator Kyl.
    Senator Thurmond.

STATEMENT OF HON. STROM THURMOND, A U.S. SENATOR FROM THE STATE 
                       OF SOUTH CAROLINA

    Senator Thurmond. Thank you, Mr. Chairman. I am pleased 
that the subcommittee is holding this hearing today on S. 353, 
the Class Action Fairness Act. I think this is important 
legislation that is needed to help reform our class action 
system. I appreciate your work, Mr. Chairman, on this issue.
    Class action lawsuits are an extremely important aspect of 
our court system. We generally think of lawsuits as involving a 
few named persons. However, in class actions, hundreds or 
thousands of people are often involved. A major reason for 
class actions is to allow aggrieved people to combine together 
to bring a lawsuit that would not be worth bringing on their 
own. By combining together, the case can generate enough money 
to compensate attorneys, and the results sometimes can be quite 
beneficial for plaintiffs.
    Unfortunately, however, there are sometimes abuses, and the 
abuses appear to be increasing. There is a great incentive on 
the part of lawyers representing the defendants to settle 
because of the huge potential liability of their company from 
all of the combined claims. These settlements are often quite 
good for the attorneys for the plaintiffs, but not necessarily 
for the plaintiffs themselves. Indeed, the plaintiffs are often 
secondary to the attorneys.
    In a hearing here by Senator Grassley in this subcommittee 
in the last Congress on this issue, we heard from witnesses who 
received essentially worthless coupons, while their attorneys 
made millions. A key reform of this bill would combat this 
problem by linking attorneys' fees to the plaintiffs' actual 
recovery. This issue is especially important because a number 
of class action lawsuits arise in State courts, especially 
courts that have proven to be very receptive to class action 
lawsuits.
    Class action lawsuits are important for many litigants, but 
they should not be used as social tools to effect social 
change. This hearing is important to discuss the bill's efforts 
for reform in this area, and I am pleased to have the witnesses 
with us here today.
    Thank you, Mr. Chairman.
    Senator Grassley. Thank you, Senator Thurmond.
    The Senator from Alabama.

STATEMENT OF HON. JEFF SESSIONS, A U.S. SENATOR FROM THE STATE 
                           OF ALABAMA

    Senator Sessions. Thank you, Mr. Chairman. I want to say 
that I believe that class actions can be extraordinarily 
effective tools in helping us deal with legal problems 
confronting America. Sometimes, the error, or negligence, 
committed by the defendant is applicable to thousands, or even 
hundreds of thousands of different individuals. Therefore, 
100,000 lawsuits would not be appropriate, when one case could 
settle for all the parties involved in those issues.
    The concept of class action has been around a long time, 
and I think it is a good concept. What has happened, however is 
that over the years good advocates have figured out ways to 
file those actions in circuits and in methods that maximize the 
benefit to their client. And I respect them for that, but it is 
up to us in Congress to make sure that we create laws that 
guarantee fairness across the board.
    I would like to note one case, for example, from my State 
of Alabama, Hoffman v. Bank of Boston Mortgage Corporation, a 
class action filed by a Chicago attorney in the circuit court 
of Mobile, AL. The case alleged that the bank did not promptly 
post interest to real estate escrow accounts. A settlement was 
agreed to that limited the maximum recovery for class members 
to $9 each.
    After the State approved the settlement, the bank disbursed 
more than $8 million to the class action attorneys in legal 
fees and credited most of the accounts of the victims with 
paltry sums. The legal fees, equal to 5.3 percent of the 
balance in each account, were debited to the accounts. So they 
debited everybody's account, these class action victims, with 
the legal fees.
    For many accounts, the debit to the account exceeded the 
credit they obtained. For example, Dexter J. Kamowitz, of 
Maine, did not initiate the class action against Bank of 
Boston. However, he received a credit of $2.19 under the class 
action settlement. At the same time, the class action attorneys 
debited his account for $91.33 for legal fees, producing a net 
loss of $89.14. Such results often produced outrage from class 
members in other States affected by the action.
    Judge Frank Easterbrook, of the Seventh Circuit, has asked, 
``What right does Alabama have to instruct financial 
institutions in Florida to debit the accounts of citizens in 
Maine and other States?'' So this bill would eliminate some of 
those abuses and help us deal with them. I know there are six 
rural counties in Alabama which are seen as good counties to 
file lawsuits in. There have been 91 class actions filed in 
these six counties in the last number of years, I believe, from 
1995 to 1997. And you ask why would a New York attorney or 
someone from Chicago do that.
    Well, a good attorney is out to find the best forum, if he 
can, to file his case in, and many of them have found these 
forums to be most advantageous. But you are setting a legal 
principle and establishing penalties nationwide, and I think in 
interstate matters that the class action really would be better 
done in Federal court, where you have less possibility of home 
cooking, a fairer system, a uniform system of law.
    And although I certainly think we need to be careful about 
expanding Federal jurisdiction--we have Federal jurisdiction in 
cases with de minimis interstate commerce nexus, but when a 
national corporation is dealing with clients in every State in 
America, that is quintessentially an interstate operation and 
it is the kind of thing that I think is appropriate in Federal 
court.
    Thank you for your leadership, Mr. Chairman. I am pleased 
to join with you in support of this and I look forward to the 
testimony, and if we can improve this piece of legislation, I 
look forward to that. Thank you, sir.
    Senator Grassley. We have a statement from Senator 
Torricelli which we will insert into the record at this point.
    [The prepared statement of Senator Torricelli follows:]

            Prepared Statement of Senator Robert Torricelli

    Thank you Senator Grassley.
    I want to say first that I have great respect for my colleagues 
Senator Grassley and Senator Kohl, and I don't doubt their commitment 
to finding a solution to the problem of collusive class action 
settlements where the attorneys receive more than the plaintiffs.
    However, I'm not sure how the bill before us addresses that 
problem. In fact, there are a few provisions in this bill that could 
greatly hinder the ability of plaintiffs to obtain class action relief 
at all.
    Class actions are an essential part of our legal system.

   They are necessary for administering many of the complex 
        cases that move through our courts.
   And they are often the most economical and efficient method 
        for managing the claims of a group of similarly injured people.
   Many times they are the only hope for the injured because 
        they allow people to pool resources against big defendants.

    Class actions have been an important tool to accomplish policy 
changes in a variety of areas including civil rights, antitrust, 
consumer fraud and tort law.

   The 1997 Texaco employment discrimination case was one of 
        the more notable cases in which this was true in recent years.
   As you may recall, Texaco was found liable for 
        discriminating against its African-American employees. Indeed, 
        we all heard the tapes documenting the racial epithets used by 
        Texaco's management.
   The Texaco plaintiffs could never have afforded to pursue 
        this case as individuals, but were able to use a class action 
        to obtain just compensation for the discrimination against 
        them.
   And perhaps more importantly, they were successful in 
        altering Texaco's systemic discriminatory practices.

    This is a perfect example of why we need to tread carefully in 
reforming the class action system.
    I am concerned that this bill sweeps too broadly and, in so doing, 
would result in more harm than good.
    My concerns center on two areas.
    First, the bill drastically lowers the threshold for removing a 
case to federal court.

   The proponents claim there are problems with the current 
        requirement of complete diversity, but I disagree that the 
        solution is to change the law to the complete opposite end of 
        the spectrum, which is minimal diversity.
   Minimal diversity would allow for removal of cases to 
        federal court if any class member is a citizen of a different 
        from any defendant.
   Let me give you an example of the kind of cases that will be 
        affected by this bill.
                             tobacco cases
    Class action lawsuits have been an indispensable tool in recent 
efforts to hold the tobacco industry accountable.
    Most tobacco class action litigation occurs in state courts. This 
arrangement makes sense because the cases typically involve purely 
state law claims.
    But this bill will allow tobacco companies to routinely remove or 
at least attempt to remove cases to federal court where it is more 
difficult for class certification to occur.
    In general, the tobacco industry prefers to litigate in federal 
court and this bill corresponds perfectly with their strategy.
                              gun violence
    Another example of class actions that will be affected is in the 
area of gun violence.
    Litigation is the primary way to ensure that the gun industry takes 
responsibility for the safety of its products.
    It would be a disservice to the more than 100 thousand individuals 
injured by firearms each year to hinder the progress of these suits by 
giving gun manufacturers the option of removing the case to federal 
court where the result will be increases in costs and significant 
delay.
    My second concern is that in transferring so many class actions--
among the most resource-intensive of all litigation--to federal court, 
we will place a tremendous burden on federal courts.

   Federal judges have already seen their caseloads rise 
        substantially over the last five years.
   The number of civil and criminal filings per district 
        judgeship climbed 16 percent to 484.
   The number of appeals filed grew 11 percent.
   Despite these increases, no new judgeships have been created 
        in 8 years and there are currently 65 vacancies in the Federal 
        Judiciary.
   These discouraging statistics prompted Chief Justice 
        Rehnquist to call the federal judiciary ``a victim of its own 
        success.'' In short, people like federal courts so much that 
        they want to pursue their cases there.
   In the past few years, Congress has continued to expand 
        federal jurisdiction to areas that were typically the exclusive 
        province of state courts. Yet, Congress has failed to provide 
        the courts with the resources they need to handle them.

    I will conclude my remarks by quoting again from Justice Rehnquist. 
He made these remarks in response to legislative proposals to increase 
the jurisdiction of the federal court:

          If the ill effects from these bills were confined to the 
        increase of the workload of the federal judiciary, they would 
        still be of concern to judges and to the legal profession. But 
        there is a much broader question involved. How much of the 
        complex system of legal relationships in this country should be 
        decided in Washington, and how much by state and local 
        governments?

    That is a fundamental question of which we must not lose sight. 
Thank you.

    Senator Grassley. It is my privilege now to call on our 
first witness, and that is Senator Kohl. Senator Kohl has 
worked very closely and hard with me on this subject and I 
appreciate his cooperation, and I would like to hear your 
testimony at this point.

 STATEMENT OF HON. HERB KOHL, A U.S. SENATOR FROM THE STATE OF 
                           WISCONSIN

    Senator Kohl. Thank you, Mr. Chairman. Mr. Chairman and 
members of this subcommittee, let me thank you for convening 
this hearing today on class action abuses. Mr. Chairman, it has 
been a pleasure working with you on legislation to help ensure 
that victims stop being shortchanged, while their lawyers line 
their pockets with exorbitant fees.
    Let me just give you one disturbing example offered by one 
of my constituents, Martha Preston, of Baraboo, WI, who 
testified before this subcommittee less than 2 years ago and 
whose case I believe Senator Sessions referred to just a few 
minutes ago. Ms. Preston was an unnamed member of a class 
action lawsuit against her mortgage company. While she did not 
initiate the suit, the class action lawyers were supposed to 
represent her. Instead, they negotiated a settlement that was, 
at best, a bad joke.
    Initially, she ``won'' 4 dollars and change. A few months 
later, however, her lawyers went into her escrow account and 
secretly took $80--20 times the compensation that she has 
received. In total, her lawyers managed to pocket over $8 
million in fees, but never explained to the court or to their 
own clients that the class, not the defendant, were paid the 
attorneys' fees.
    Naturally outraged, she and others sued the class lawyers, 
but her suit was turned away on a technicality by a divided 
Federal court, even though Judge Easterbrook and other 
dissenting judges blamed the class action lawyers for, 
``pulling the wool over the State judge's eyes,'' and 
complained that unfair class action settlements are too easily, 
``crammed down the throats'' of overmatched victims.
    Adding insult to injury, the lawyers turned around and sued 
her in Alabama, a State she had never visited, and demanded an 
unbelievable $25 million. So not only did she lose $75, she was 
forced to defend herself from a $25 million lawsuit. Mr. 
Chairman, in the words of Woody Allen, ``this is a travesty of 
a mockery of a sham of justice.''
    Even class action lawyers admit there is a problem. The 
National Association of Consumer Advocates complains that, 
``some * * * newcomers have brought with them a relatively new 
brand of consumer advocacy, one in which the lawyers stand 
first, if not alone, in the benefits line at the time of 
settlement. Simply put, many consumer class actions are now 
being settled on the basis of what the lawyers get and not what 
the consumers in the class get.'' And Public Citizen agrees 
that, ``all too often, class action settlements are approved 
with little or no judicial scrutiny,'' citing a study finding 
that 90 percent of all class settlements are approved without 
amendment.
    Fortunately, there are a few steps that we can take to weed 
out the worst abuses, while still protecting what is basically 
an effective process for vindicating rights. We don't want to 
close the courthouse doors to important class action claims, 
and we don't have to.
    Mr. Chairman, that is why you and I have introduced the 
Class Action Fairness Act of 1999. This measure, which you 
described so eloquently, protects victims from being dragged 
into lawsuits, unaware of their rights and unarmed on the legal 
battle field. By promoting more disclosure and closer scrutiny, 
it gives regular people back their rights and their 
representation.
    Mr. Chairman, I hope my own balanced record on these types 
of issues adds credibility to our measure. Just today, I 
reintroduced the ``Sunshine in Litigation Act,'' which 
addresses the growing use of secrecy orders by Federal courts 
that too often allow vital public health and safety information 
that is discovered in litigation to be covered up, to be 
shielded from mothers, fathers and children whose lives 
potentially are at stake. Unlike our class action reform, this 
is a proposal that trial lawyers support and some business 
groups resist.
    Whether it be secrecy in courts or class action reform, 
doing what is right is what counts. And regardless of where the 
special interests line up, our Class Action Fairness Act is a 
terrific place to start. Of course, this is not a final 
product; we continue to remain open to further negotiations. 
But, Mr. Chairman, this is a balanced approach that corrects 
the worst abuses while still preserving the benefits of class 
actions. So I look forward to working together with you and 
others to move this forward.
    Thank you, Mr. Chairman.
    Senator Grassley. And I accept your offer, obviously, as we 
do continue our partnership on this bill.
    Senator Thurmond or Senator Sessions, any questions from 
either one of you?
    Senator Sessions. No, Mr. Chairman. Thank you, Senator 
Kohl, for your comments.
    Senator Grassley. Thank you very much, Senator Kohl.
    [The prepared statement of Senator Kohl follows:]

                Prepared Statement Senator Herbert Kohl

    Mr. Chairman and members of the Subcommittee, let me thank you for 
convening this hearing today on class action abuses. Mr. Chairman, it 
has been a pleasure working with you on legislation to help ensure that 
victims stop being shortchanged, while their lawyers line their pockets 
with exorbitant fees.
    Let me give you just one truly disturbing example, offered by one 
of my constituents--Martha Preston of Baraboo, WI--who testified before 
this Subcommittee less than two years ago. She was an unnamed member of 
a class action lawsuit against her mortgage company. While she did not 
initiate the suit, the class action lawyers were supposed to represent 
her. Instead, they negotiated a settlement that was, at best, a bad 
joke.
    Initially, she ``won'' four dollars and change. A few months later, 
however, her lawyers went into her escrow account and secretly took 
$80--20 times the compensation she received. In total, her lawyers 
managed to pocket over $8 million in fees, but never explained to the 
court or to their own clients that the class--not the defendant--would 
pay the attorneys' fees.
    Naturally outraged, she and others sued the class lawyers. But her 
suit was turned away on a technicality by a divided Federal court, even 
though Judge Easterbrook and other dissenting judges blamed the class 
lawyers for ``pulling the wool over the state judge's eyes'' and 
complained that unfair class action settlements are too easily 
``crammed down the throats'' of overmatched victims.
    Adding insult to injury, the lawyers turned around and sued her in 
Alabama--a state she had never visited--and demanded an unbelievable 
$25 million. So not only did she lose $75, she was forced to defend 
herself from a $25 million lawsuit. Mr. Chairman, in the words of Woody 
Allen, ``this is a travesty of a mockery of a sham of justice.''
    In too many cases, victims are dragged into lawsuits unaware of 
their rights and unarmed on the legal battlefield. In the end, they get 
little or nothing, while their lawyers cash in. Some of these suits may 
be frivolous. Even when the claims are real, defendants often collude 
with class lawyers--leaving defendants with protection from future 
lawsuits under unreasonably favorable terms, class lawyers with padded 
wallets, and class members out of luck. And courts, who never hear from 
anyone looking out for the victims' best interests, often don't give 
class actions the close scrutiny they deserve.
    Even class action lawyers admit there's a problem. The National 
Association of Consumer Advocates complains that ``some * * * newcomers 
have brought with them a relatively--new brand of consumer advocacy--
one in which the lawyers stand first, if not alone, in the benefits 
line at the time of settlement. Simply put, many consumer class actions 
are now being settled on the basis of what the lawyers get and not what 
the consumers in the class get.'' And Public Citizen agrees that ``all 
too often class action settlements are approved with little or no 
judicial scrutiny,'' citing a study finding that 90 percent of all 
class settlements are approved without amendment.
    Fortunately, there are a few steps we can take to weed out the 
worst abuses, while still protecting what is basically an effective 
process for vindicating rights. We don't want to close the courthouse 
doors to important class action claims. And we don't have to.
    Mr. Chairman, that's why you and I have introduced the Class Action 
Fairness Act of 1999. This measure promotes more disclosure and closer 
scrutiny. And it gives regular people back their rights and their 
representation.
    First, it invites third parties--namely, state Attorneys General--
to look out for consumers by requiring they be notified about proposed 
class settlements that would affect residents of their states. This 
provision has been endorsed by Wisconsin's Attorney General Jim Doyle, 
who also is President of the National Association of Attorneys General. 
Second, it promotes better disclosure to class members, by requiring 
notice in plain English--not legal jargon--of the terms of a proposed 
settlement, including the source of attorneys' fees. Third, it makes 
class lawyers think twice about ``scam'' settlements by limiting 
attorneys' fees to a reasonable percentage of the actual damages 
received by class members, rather than letting them reap big fees based 
on inflated ``estimates'' of the value of unlikely-to-be-used $5 
coupons.
    Finally, it permits unnamed plaintiffs or defendants to remove 
multi-state class actions to Federal court, where judges are likely to 
give closer scrutiny and have the ability to consolidate related cases, 
in order to prevent a ``race to settlement'' between competing cases 
and competing class lawyers.
    Let me emphasize the limited scope of this legislation. Unlike some 
proposals out there to move from ``opt-out'' to ``opt-in'' procedures, 
we do not close the courthouse door to any class action. And we do not 
require that state attorneys general do anything with the notice they 
receive. We do not deny reasonable fees for class lawyers. Nor do we 
mandate that every class action be brought in Federal court.
    These proposals have earned a broad range of support. Even Judge 
Paul Niemeyer, the Chair of the Judicial Conference's Advisory 
Committee on Civil Rules, who has testified before Congress on this 
issue, expressed his support, calling this a ``modest'' measure, noting 
in particular that increasing federal jurisdiction over class actions 
will be a positive ``meaningful step.''
    Mr. Chairman, I hope my own balanced record on these types of 
issues adds credibility to our measure. Just today, I've reintroduced 
the ``Sunshine in Litigation Act,'' which addresses the growing use of 
secrecy orders by Federal courts that too often allow vital public 
health and safety information that is discovered in litigation to be 
covered up, to be shielded from mothers, fathers and children whose 
lives are potentially at stake. Unlike our class action reform, this is 
a proposal the trial lawyers support and some business groups resist.
    Whether it be secrecy in courts or class action reform, doing what 
is right is what counts. And, regardless of where the ``special 
interests'' line up, our Class Action Fairness Act is a terrific place 
to start. Of course, this is not a final product. We continue to be 
open to further limitation of the removal provision, and you have 
indicated that you may be able to live without the mandatory Rule 11 
penalties, which inexplicably raise loud concerns.
    But Mr. Chairman, this is a balanced approach that corrects the 
worst abuses, while still preserving the benefits of class actions. I 
look forward to working together to move it forward. Thank you.

    Senator Grassley. Three or four administrative matters 
before we call the next three panels, and I will obviously call 
the next three panels separately. Everybody's full written 
testimony will be put in the record as submitted to us, so your 
entire statement will become part of the printed record. 
Therefore, we ask you to summarize your oral testimony in 5 
minutes. That is when the red light goes on, and then obviously 
if you are in the middle of a sentence or in the middle of a 
paragraph, finish it, but we would like to keep everybody to 
the limit so we get through because there will be a lot of 
questions to be asked and we want Members to be able to 
participate.
    One other administrative thing, and that is that for 
Members who are here or for Members who aren't here, you can 
expect that we won't be able to ask all of our questions 
orally, so some will be submitted for answers in writing. We 
would like to have those answers provided to us in writing 
within 2 weeks from today. If that is an inconvenience for 
somebody, tell us what would be a good time for you and we will 
try to accommodate you, but normally we would like to do that 
in 2 weeks.
    On our second panel now, I introduce Assistant Attorney 
General Eleanor Acheson, who will be testifying about the 
Justice Department's views. I welcome you and thank you for 
your cooperation in providing testimony for your Department and 
for your participation in the hearing. I would ask you to 
proceed.

 STATEMENT OF ELEANOR D. ACHESON, ASSISTANT ATTORNEY GENERAL, 
   OFFICE OF POLICY DEVELOPMENT, U.S. DEPARTMENT OF JUSTICE, 
                         WASHINGTON, DC

    Ms. Acheson. Thank you, Senator Grassley. Good afternoon. I 
appreciate the opportunity to appear before the Subcommittee on 
Administrative Oversight and the Courts to lay out the 
Department of Justice's views regarding the proposed Class 
Action Fairness of 1999, S. 353.
    I have submitted a more extensive written statement for the 
record. That statement describes the Department's concerns with 
each of the sections of the bill. To keep my oral statement 
short, I will focus on those provisions of S. 353 that would 
effectively federalize class actions, and then address whatever 
questions you have, Senator Grassley, or any of the other 
Members. By so limiting my opening statement, however, I don't 
mean to minimize our other concerns that are described in the 
written statement.
    Sections 3 and 4 of S. 353 would effectively federalize 
most State class actions by providing Federal jurisdictions for 
class actions in which any plaintiff is diverse from any 
defendant in the action. S. 353 further provides that if a 
State class action is removed to Federal court and then is not 
certified as a class action under Federal rules, the Federal 
court is to remand the case to the State court, stripped of its 
class allegations. In other words, even if the case could have 
proceeded as a class action under the law of the State, S. 353 
would effectively require the State to try each individual 
claim separately.
    The ability to consolidate large numbers of claims in court 
is tremendously important. When there are large numbers of 
individuals, each of whom has been significantly harmed, but 
the potential recovery is insufficient to support an individual 
lawsuit, a class action is virtually the only way these 
individuals can seek redress through the legal system. 
Plaintiffs, defendants, and the system of justice all benefit 
from the efficiencies resulting from consolidated consideration 
of multiple claims with common questions of fact and law.
    Because the class action mechanism is so important, we 
should be cautious in curtailing access to it, do so only on 
indications of clear and undisputed failures or abuse, and make 
sure that any limitations or changes to this procedure are 
closely tailored to the specific problems identified.
    S. 353 is apparently intended to address a perception that 
State courts are too ready to certify class actions. Of course, 
State courts are subject to the constraints of due process, as 
are Federal courts. We do not believe that a difference between 
State and Federal class certification standards justifies 
Federal action. To the extent that there have been concerns 
about ex parte certifications in State courts, the States 
themselves appear to be remedying that situation.
    S. 353 also apparently is intended to address concerns that 
certification of nationwide class actions by State courts 
permits individual States to impose their own law on the Nation 
as a whole and leads to extorted settlements and other abuses 
by class action attorneys. If this is indeed an endemic 
problem, legislation addressing State certification of 
nationwide classes may be in order, but S. 353 does not take 
this approach.
    Instead of focusing on what the appropriate limits on State 
authority to bind out-of-state plaintiffs ought to be, S. 353 
would permit removal to a Federal court of nearly all State law 
cases that otherwise would be heard in State court. Implicit in 
this provision is the belief that class certification is more 
difficult to obtain in Federal court, since otherwise removal 
to Federal court would not reduce the possibility of extorted 
settlements.
    Again, we do not believe that Federal policy concerning 
class actions is sacrosanct. States, within the constraints of 
due process, should be free to establish their own policies. 
Moreover, the instances generally cited as evidence of abusive 
or collusive class action settlements can and have occurred in 
Federal as well as State courts. If the Congress believes that 
courts are approving unjustifiable class action settlements, 
Congress certainly has the authority to address that issue in 
Federal class actions, and provide models for States to follow, 
if appropriate.
    There are certainly examples of class actions in which 
settlements appear to provide benefits primarily to lawyers and 
defendants rather than to the injured plaintiffs. There are 
class actions in which the purported nationwide reach of the 
State court seems problematic. Perhaps there are particular 
classes of cases--the Judicial Conference has been considering 
whether mass torts constitute such a class--that appropriately 
should be tried in Federal court, even absent the traditional 
grounds for Federal jurisdiction.
    We would be pleased to work with the members of this 
subcommittee and with the Congress to determine whether there 
are specific, systemic problems with class actions that warrant 
a Federal response and to help craft such a response.
    Thank you.
    Senator Grassley. Thank you very much. I will start out 
with questioning and we will have 5-minute rounds of 
questioning, and I thank you for your timeliness as well.
    Your testimony makes reference to perceived abuses in class 
actions. Yet, both the House and Senate have received abundant 
testimony regarding these abuses. Moreover, as I referred to in 
my opening statement, there have been several studies 
documenting that class action filings are dramatically on the 
rise. Many academics and judges acknowledge that the class 
action rule has gone beyond what was originally intended.
    So my question to you--really, two questions and then a 
question that kind of summarizes--Are you saying that there is 
no systemic problem with the class action system? Are you 
saying that there are no real issues of consumer exploitation 
and attorney misconduct in regard to class actions? And does 
the Justice Department have any data indicating that the 
information that we have about the tidal wave of State court 
actions is just plain wrong?
    Ms. Acheson. I am certainly not saying that the studies 
that you refer to don't indicate that there are some problems. 
I think my answer, Senator, is no to your first two questions. 
And with respect to your third question about there being a 
tidal wave of class actions in State courts, I think I would 
say that, first of all, a tidal wave of any kind of litigation 
in any particular forum doesn't necessarily in and of itself 
indicate that there are any problems.
    Getting back to your first question, it is clear, I 
believe, that there are certainly excesses, abuses and failures 
of courts and court systems, it would appear, to in some cases, 
both respect to procedural aspects--we have talked about the ex 
parte certification--and some substantive aspects, effectively 
police class actions. Nobody is disputing that there are those 
cases.
    They occur both in State and Federal courts, however, and 
one of our points about this bill and the problems that it 
intends to target, which I think we would all agree should 
appropriately be addressed, is that this bill doesn't, in 
federalizing class actions, in taking State class action cases 
into the Federal court, necessarily address those problems.
    And so I think that is what we are saying. We are not 
saying that there aren't problems. I think we are saying, and I 
think the RAND study----
    Senator Grassley. Maybe you could help us by suggesting, 
since there are some problems, what you might suggest to fix as 
to what you consider to be a problem.
    Ms. Acheson. Well, first of all, I don't purport to be an 
expert in this area, but it looks as if the studies that have 
been done--I have not read the Federalist Society study, but we 
will certainly look at that immediately--indicate a couple of 
problems that do exist. One of them, which has been the 
procedural problems that sometimes occur, it appears, at least, 
in certain State court systems are beginning to be addressed by 
State courts themselves.
    Senator Sessions didn't refer to this, but one of the 
problems procedurally has been a practice--I don't know whether 
it was just in some counties in Alabama, but of ex parte 
certification of class actions. Perhaps that occurs in other 
State systems, but now the Supreme Court of Alabama has fixed 
that problem and it is no longer appropriate as a procedural 
way to go forward.
    On the more substantive side, it seems to me that another 
of the problems that have been identified, and I think people 
rightly are concerned about, is the extent to which a State 
court that has jurisdiction of a nationwide class action can 
effectively apply its State law to out-of-state plaintiffs. And 
while there are some Supreme Court cases which indicate the 
limits that due process allows in such circumstances, I would 
think that Congress could appropriately legislate within those 
limits and cut back to some extent there.
    So it would seem to me that might be one approach to get to 
the business that is much commented on, which is how 
appropriate is it for a State court somewhere to be binding an 
out-of-state plaintiff.
    Senator Grassley. Could I ask you one more question while I 
still have time?
    Ms. Acheson. Absolutely, Senator.
    Senator Grassley. You raise concerns about federalizing 
class actions. Aren't multi-State plaintiff class actions 
exactly the kind of cases that should be in Federal court? 
Wouldn't you agree, as Professor Elliott will testify, that the 
Constitution's only limitation on diversity jurisdiction is 
Article III's requirement that controversies be between 
citizens of different States, but rules governing complete 
diversity, minimum amount in controversy, and removal are 
really political decisions not mandated by the Constitution? 
Those latter words are his.
    Because we are dealing with interstate class actions 
involving plaintiffs and defendants from many different States, 
shouldn't the Federal courts be at the very least an option for 
these litigants? Don't you think that due process dictates 
that?
    Ms. Acheson. Well, I guess, Senator, I would say that I 
don't believe due process dictates that. I would agree with 
Professor Elliott that I think the Constitution allows it, but 
I certainly don't think due process dictates it. I think that 
there are federalism interests that are implicated here that we 
need to be concerned about because there certainly are both 
sets of circumstances and absolutely fully competent State 
court systems and groups of judges who can handle class action 
cases.
    And somewhere between what the Constitution would allow and 
some of the excesses that I know occur and have been vividly 
described here today, I think we can craft some lines and some 
sets of rules that would get at some of the abuses that have 
been described, but perhaps not have the effect of pushing so 
many cases into the Federal system.
    Senator Grassley. Senator Thurmond.
    Senator Thurmond. Thank you very much, Mr. Chairman. Mr. 
Chairman, I have another engagement and have to leave. I 
understand Mr. Steve Morrison, a distinguished attorney from 
South Carolina, is one of the witnesses here today, and I wish 
to welcome him. I would like to ask unanimous consent that I 
may submit some questions for the record.
    Senator Grassley. Yes. Senator Thurmond is an example that 
I just spoke about that there will be some questions submitted 
for answer in writing.
    [The questions of Senator Thurmond are located in the 
appendix.]
    Senator Grassley. The Senator from Alabama.
    Senator Sessions. Thank you. Ms. Acheson, I am 
disappointed, I guess, that your statement is so strongly 
adverse to this. It strikes me that we have a magnificent legal 
system in America, but it is appropriate to reform it and 
change it as we have evidence to suggest that there are 
problems.
    I think this administration is basically resisting all 
attempts to reform tort law in America, and I think we need to 
reach an accord where we can communicate on how to make it 
better. That is just an observation. You probably disagree with 
that, but I think we are not giving serious thought to it and 
we need to work together to get some changes.
    Let's take a typical class action, maybe a credit card 
interest error, maybe a product defect, a medical defect that 
is sent to 50 different States in America. Just as a matter of 
public policy, wouldn't it be better that that case be settled 
and handled in a Federal court, where the U.S. Supreme Court 
may ultimately decide an issue, as opposed to the plaintiffs 
being able to search 50 States and then finding the most 
favorable law and then find the county or circuit within that 
State that would be most favorable to their lawsuit and filing 
it there? Just conceptually, isn't this the kind of case that 
would be more appropriate in Federal court?
    Ms. Acheson. Well, I think it is hard, on a relatively 
bare-bones hypothetical, Senator, to really get into all the 
competing interests. But the way that you have presented the 
matter, it would seem to me that probably in a case where you 
do have victims/plaintiffs in all 50 States, it might well be 
the type of a case that would be most effectively and 
appropriately handled in a Federal court. But it sort of 
depends on what law would be applied because it may well be 
that that Federal court is applying, unless there is some basis 
for Federal jurisdiction, simply the law of one of the 50 
States where the occurrence, whatever it was, the accident, the 
fraud, the negligence, the whatever, took place.
    So I think that one thing that really needs to be examined 
is what is really the culprit here. Is the culprit people 
searching out the best substantive law, or is the culprit 
people searching out the weakest sort of procedural structures 
that they can manipulate?
    Senator Sessions. Well, good lawyers are going to seek the 
most favorable forum in the whole world, if you allow them to. 
They are not good lawyers if they don't, and I think it is our 
job to make sure we have got a system that creates a favorable 
forum for both parties, not just one party.
    We have certainly had complaints and evidence to suggest 
that plaintiff lawyers and defendants have gotten together in 
pre-trial negotiations and agreed to settlements that provide 
little for the victims, but allow large attorneys' fees for the 
attorneys. And then they find a favorable State court somewhere 
and go in and present a settlement, and little has been done by 
the judge to go behind that settlement to make sure it is just. 
Are you familiar with that problem?
    Ms. Acheson. That is certainly one of the problems that has 
been written about. I can't say I am personally familiar, but 
you are absolutely right. It is one of the specific problems 
that many people identify.
    Senator Sessions. Well, I believe we have a situation in 
which we have a class of cases that would be appropriate in 
Federal court because not only some specific act of interstate 
commerce is involved, but the entire matter is usually deeply 
involved in interstate commerce. You have a Federal court 
system that therefore can provide a universal system of law 
that private industries and businesses can know what the law is 
and protect themselves better, and would avoid aberrational 
results.
    I mean, why would you say these lawyers from Chicago want 
to file a lawsuit like this in a rural county in Alabama? The 
six counties in Alabama--I don't believe any of them have over 
20,000 people in them. Why would they pick those counties to 
file lawsuits if they didn't think there was some specific 
advantage?
    Ms. Acheson. I assume you are right in that. I assume you 
are right, and I would only say this just to underscore the 
main theme of our comment. One is we are absolutely not opposed 
to class action reform. Two, we are simply concerned that 
particularly with regard to the two or three major problems 
that have been articulated that this legislation does not get 
at it. And, three, Senator, we are more than ready to sit down 
and address specifically your concerns of how to get at some of 
these problems.
    What we are concerned about is that federalizing is not the 
answer because there really isn't any whole system of law that 
a Federal court or any State court can apply in some of these 
cases. I think the question is what can we do substantively, 
but also what can we do to have appropriate cases be in the 
Federal system and to shore up the State systems with respect 
to the kind of policing that may need to happen in some of 
these areas. But we, I want to underscore again, are more than 
ready to work with you and with the chairman of this 
subcommittee on this issue.
    Thank you very much.
    Senator Sessions. Well, we have criminal laws and other 
laws that are very tenuously connected, lawsuits over 
employment that have tenuous interstate commerce connections. 
But often the class actions are just intrinsically interstate 
commerce and I think they are most appropriate for this 
handling.
    Thank you.
    Senator Grassley. Right now, there are State courts that, 
in dealing with large class actions, are dictating the laws of 
other jurisdictions. Does it make sense to you that a court in 
Illinois is dictating to a resident of Massachusetts what their 
law means?
    Ms. Acheson. Well, I am not sure whether or not it makes 
sense to me. I guess, Senator Grassley, what I believe our 
concern is is that this bill does not necessarily address that 
problem. If that case were brought in the Federal court in 
Illinois and was determined to be appropriate for class 
handling, the Federal court might well be applying the 
substantive law of Illinois or Oklahoma or----
    Senator Grassley. That gets to my point. Isn't the Federal 
court in these instances better suited to do this?
    Ms. Acheson. I am not sure why that is intrinsically so.
    Senator Grassley. Well, I mean isn't that what Federal 
courts are supposed to do when they preside over Federal 
diversity cases?
    Ms. Acheson. Well, there are class actions and other kinds 
of group actions brought in the Federal court on Federal bases, 
and then when there is diversity, obviously, they deal with the 
State law. But State courts have for 200-plus years dealt with 
the laws of their sister States. I mean, I think that just on 
that sort of precept alone, there is nothing that is magical 
about the Federal courts.
    Senator Grassley. Well, I am in a situation, not a real 
situation but a hypothetical situation, of my constituents--
explaining to them that their rights were adjudicated in a suit 
that they never knew about, never consented to participate in. 
It was heard by a State court judge who is elected by people in 
another State and has no accountability to the citizens of my 
State of Iowa, and there is nothing an Iowa citizen or court 
can do about it if the case is settled. To me, that is a 
problem. You don't see that as a problem?
    Ms. Acheson. No. I do see that--first of all, I certainly 
see it as a multi-layered problem that people might well have 
objections to. What I think I am trying to say, Senator, is 
that whether it is in Federal court or State court I don't 
think is the answer to that problem. I think the answer to that 
problem is some of the notification provisions and the whole 
idea of clearer notice to parties, the opportunity to opt out.
    If somebody does get notice, they know what the benefit of 
staying in might be and what the consequences of getting out 
and seeking to bring their action might be. I think there are 
some other ways to get at that very problem. But simply 
changing the forum doesn't change--the Federal court may be 
stuck with exactly some of the same procedural shortcomings 
that you are talking about. There is no guarantee, because a 
matter is in Federal court, that the non-in-state plaintiff is 
going to know any more, is going to be any further informed or 
better protected just based on which court it is in.
    Senator Grassley. Well, thank you very much.
    Do you have another question?
    Senator Sessions. I would just like to say that Texas is 
also a favorite spot, and they have had a 338-percent increase 
in these filings. Alabama is not the only one. I didn't want to 
suggest that, but we do have a problem and I have been made 
aware of it. I had the Attorney General from New Hampshire come 
down 3 years ago when I was Attorney General of Alabama and 
wanted my assistance to help intervene in one of these class 
actions that involved his constituents in New Hampshire.
    What you say about this, in theory, is correct, but our 
Founding Fathers were practical people. They created separation 
of powers and they understood home cooking. That is really why 
we have diversity jurisdiction, so out-of-state defendants can 
get a less home-flavored court and jury. Isn't that what we 
have really got here in these class actions, a classic 
diversity case, but because of its unusual nature can be pled 
in such a way that it doesn't implicate the diversity rules? 
Isn't that why we ought to make some reform?
    Ms. Acheson. Well, I certainly think that based on some of 
the examples that have been given here, it would seem to me to 
be certainly, if not right over the edge, casting a shadow on 
abuse of the law, if not the spirit. In those cases, we should 
come up with some reforms.
    Senator Sessions. Thank you, Mr. Chairman.
    Senator Grassley. Thank you, Ms. Acheson. We appreciate 
your cooperation.
    Ms. Acheson. Thank you, Senator.
    [The prepared statement of Ms. Acheson follows:]

                Prepared Statement of Eleanor D. Acheson

    Good afternoon. I appreciate the opportunity to appear before this 
Subcommittee on Administrative Oversight and the Courts to express the 
Justice Department's views regarding the proposed Class Action Fairness 
Act of 1999 (S. 353).
                              introduction
    The Class Action Fairness Act of 1999 (S. 353) proposes to deal 
with perceived abuses in state class actions by effectively 
federalizing class actions. Sections 3 and 4 of S. 353 are 
substantively identical to H.R. 3789, a bill considered by the House in 
the last Congress. Last October, the Administration issued a Statement 
of Administration Policy that stated that the Attorney General would 
recommend that the President veto H.R. 3789 if it were presented to 
him. See Statement of Administrative Policy (issued Oct. 5, 1998). S. 
353 raises the same concerns as H.R. 3789. Moreover, it includes a 
number of additional provisions that raise additional concerns on 
policy and its constitutional grounds. Accordingly, the Department 
strongly opposes S. 353.
    Before addressing the specific provisions of S. 353, I would like 
to review the importance of class action procedures and the 
significance of the provisions of S. 353 that would federalize most 
class actions. When there are large numbers of individuals, each of 
whom has been significantly harmed, but the potential recovery is 
insufficient to support an individual lawsuit, a class action is 
virtually the only way these individuals can seek redress through the 
legal system. Even when the harm to some or all of the individual 
victims might justify individual lawsuits, class actions are by far the 
most efficient means of resolving large numbers of claims that have 
common questions of fact and law. Indeed, court systems can be 
overwhelmed by large numbers of similar claims, delaying and even 
denying justice to plaintiffs. Class actions provide efficiency 
benefits to defendants as well, permitting resolution of multiple 
claims in one proceeding. Plaintiffs, defendants, and the system of 
justice all also benefit from the reduction in or elimination of 
inconsistent verdicts. Because the class action mechanism is so 
important, we should be cautious in curtailing access to it, do so only 
on indications of clear and undisputed failures or abuse, and make sure 
that any limitations or changes to this procedure are closely tailored 
to the specific problems identified.
    S. 353 would address perceived abuses in class actions by 
federalizing them--providing federal jurisdiction and removal authority 
for almost all non-securities class actions. We do not believe that the 
case has been made that there are abuses intrinsic to state court class 
actions that justify the wholesale removal of these cases from state 
courts. There have been cases raising concerns from state courts, but 
also from federal courts, and the anecdotes about state cases seem to 
reflect problems with individual judges or particular locales rather 
than systemic problems in states' handling of class actions. Unless the 
claimed abuses of class actions are peculiarly a state court or state 
law problem, federalization would not address the problems.
    A related, and, we believe, crucial aspect of our consideration of 
S. 353 is that we live in a federal system. states should be able to 
create the remedies in their courts that the states conclude best serve 
the interests of their citizens. S. 353 would federalize class actions 
involving only state law claims--claims based on federal law already 
can be brought in federal court under federal question jurisdiction. We 
should await evidence of clear necessity before the federal government 
interferes with the authority of states to set their own law and 
procedures in their courts, and that evidence should demonstrate that 
the states have broadly overreached or are unable to address the 
problems themselves.
    Finally, we are all aware that federal class actions standards have 
been narrowed considerably by court interpretation in the past decade 
or so. There is much debate over whether this is a good or bad thing, 
but the very existence of the debate makes clear that there are public 
policy choices to be made. There is nothing sacrosanct about federal 
choices. When assertions are made that states certify class actions 
that ``should not'' be certified, or approve settlements that ``should 
not'' be approved, we need to be sure that such statements are not 
simply expressions of policy differences. In a system of federalism, 
state public policy choices should not be overridden without a showing 
of compelling national need. There must be evidence of harm to 
interests of national scope that require a federal response, and even 
with such evidence, federal preemption should be limited to remedying 
specific problems with tailored solutions, something that S. 353 does 
not do.
    There are certainly examples of class actions in which settlements 
appear to provide benefits primarily to lawyers and defendants rather 
than to the injured plaintiffs. There are class actions in which the 
purported nationwide reach of a state court seems problematic. Perhaps 
there are particular classes of cases--the Judicial Conference has been 
considering whether mass torts are such a class--that appropriately 
should be tried in federal court even absent the traditional grounds 
for federal jurisdiction. We would be pleased to work with the Members 
of this subcommittee and with the Congress to determine whether there 
are specific systemic problems with class actions that warrant a 
federal response and to attempt to craft such a response.
    I would now like to turn to the specific provisions of S. 353.
                  section 2--notification requirements
    Section 2 of the bill requires notification of the Attorney General 
and state attorneys general of proposed settlements in class actions, 
requires that hearings on proposed settlements be delayed for 120 days 
after notification, imposes plain language requirements on class 
notices, and limits attorneys' fees in class actions. We have the 
following concerns about the provisions in this section.
1. Notification of the Attorney General
    Requiring notice to the Attorney General of all class 
certifications and settlements is unnecessary and burdensome, both to 
the litigants and the Attorney General. Under this provision, the 
Department is likely to be inundated with notices in cases in which the 
Federal government has no interest. We note that the statute does not 
indicate what the Attorney General is supposed to do with the notices 
or the information contained in them. In addition, despite the 
provision in the bill that these notice requirements impose no legal 
obligations on the Attorney General, the Attorney General's silence in 
response to notices may in some cases be interpreted as acquiescence, 
if not approval.
2. Instructing State-court judges as to the timing of hearings on 
        proposed class action settlements
    Section 2's requirements concerning notice of proposed settlements 
in state court class actions and hearings on those proposals implicate 
constitutional principles of federalism. Section 2 would require, for 
example, that judges in state as well as Federal courts to wait at 
least 120 days after service of settlement documents on state and 
Federal attorneys general before convening any hearing to evaluate the 
fairness of a proposed class-action settlement. Such procedural 
directions to state judges, although constitutional in our view, could 
be subject to significant constitutional challenge as an impermissible 
infringement on the states' sovereign authority to determine the manner 
in which state courts adjudicate state law claims.\1\
---------------------------------------------------------------------------
    \1\ See Johnson v. Frankell, 117 S. Ct. 1800, 1805 (1997) 
(recognizing a ``general rule, bottomed deeply in belief in the 
importance of state control of state judicial procedure, * * * that 
federal law takes the state courts as it finds them'') (internal 
quotations omitted). But see also Printz v. United States, 117 S. Ct. 
2365, 2371 (1997) (noting that at least some types of Federal 
instructions to state courts are exempt from the general proscription 
against the commandeering of State governmental institutions).
---------------------------------------------------------------------------
3. Notice and attorneys fees provisions
    The notification provisions of section 2 would create a number of 
difficulties in class actions. First, it is often difficult to 
determine the current residence of all members of a plaintiff class. 
This would necessitate providing notice to the attorneys general of all 
fifty States in order to ensure that agreements are enforceable against 
class members who generally could not otherwise opt out. The 120-day 
advance notice requirement follows general practice in most cases, but 
would not permit an expedited settlement even if the court and parties 
agreed in a particular case that it was necessary.
    Finally, the proposed limitation on attorneys' fees could create a 
number of problems. It is not clear why class actions brought under 
particular substantive rules of law should have different attorneys' 
fees rules than other cases involving the same rules of law. For 
example, it is not clear why Title VII class actions involving classes 
of current and former federal employees, which the Department defends 
on behalf of the United States, should have different attorneys' fees 
rules than all other Title VII cases. Title VII, like other employment 
discrimination statutes, has its own fees provision and there is a 
well-established body of law concerning what is and is not permitted. 
One of the principles established by that body of law is rejection of 
the kind of proportionality set forth in proposed section 1714(a). 
Courts recognize that civil rights cases often concern equitable rather 
than monetary relief, and that attorneys may be unwilling to pursue 
these cases (or Title VII cases subject to caps on recovery) if they 
will not be paid for their efforts. Proposed subsection 1714(b), which 
permits courts to base attorneys' fees on a reasonable lodestar 
calculation, provides some, but not enough, correction. A reasonable 
lodestar is often the beginning rather than the end of fee calculations 
in Title VII cases. Multipliers are available for particularly 
complicated cases or for experienced plaintiffs' counsel. The interests 
of both plaintiffs, the courts, and even defendants are best served by 
not discouraging experienced and knowledgeable counsel from taking on 
these cases.
 sections 3 and 4--class action jurisdiction and removal from state to 
                             federal court
    Under current law, Federal district courts have jurisdiction in 
diversity cases only when all plaintiffs are diverse from all 
defendants. That is, no plaintiff can be a citizen of any State of 
which any defendant is a citizen. Section 3 of S. 353 would change that 
rule for class actions alleging State law claims. Under S. 353, Federal 
district courts would have jurisdiction in such cases as long as any 
class member was a citizen of a State different from any defendant. 
Section 4 of S. 353 would permit any defendant (without the concurrence 
of the other defendants) to remove such a case from State to Federal 
court. Once removed to Federal court, the case would be governed by 
Federal law concerning class actions. In the event that the Federal 
district court did not certify the proposed class, S. 353 provides that 
the case would be remanded to State court stripped of its class 
allegations.
    S. 353 provides exceptions for corporate governance and securities 
class litigation. The legislation also permits Federal courts to 
abstain from hearing class actions against State government entities or 
officials against whom Federal courts may not be able to order 
relief.\2\ S. 353 also permits Federal courts to abstain from hearing 
class actions in which the ``primary defendants'' and a ``substantial 
majority'' of the members of the plaintiff class are from the same 
State and that State's law governs the action. This exception is not 
likely to produce a significant reduction in the number of State class 
actions subject to removal. Defendants in class actions are likely to 
be corporate entities whose citizenship has no necessary relationship 
to where claims against them arise, so the exception for cases in which 
plaintiffs and defendants are predominately citizens of the same State 
is likely to apply to few cases.
---------------------------------------------------------------------------
    \2\ This latter exception appears to be superfluous in light of 
Pennhurst State School & Hospital v. Halderman, 465 U.S. 89 (1984). In 
that case, the Supreme Court held that the Eleventh Amendment forbids 
Federal courts from ordering States and State officials to conform to 
State law.
---------------------------------------------------------------------------
    Because the exceptions in S. 353 are likely to be insignificant, 
the effect of this statute would be to grant defendants the option of 
State or Federal court in almost all State class actions. In addition, 
since cases not certified in Federal court would be remanded to State 
court stripped of their class allegations, the bill would effectively 
federalize class action standards. This latter result would not be 
affected by the provision in the legislation that permits plaintiffs to 
file amended class actions upon remand, since S. 353 appears to permit 
defendants to remove the amended action to Federal court once again.
    The bill apparently is intended to address a perception that State 
courts are too ready to certify class actions. Of course, State courts 
are as subject to the requirements of due process as Federal courts.\3\ 
If there are class action procedures in State courts that protect the 
due process rights of the parties but are objectionable on policy 
grounds, these policy issues should be addressed in the State courts 
and legislatures. We do not believe that a mere difference between 
Federal and State class certification standards justifies Federal 
action. We live in a federal system and the States should be free to 
provide the remedies they consider appropriate in their courts. To the 
extent that S. 353 is directed at concerns about ex parte class 
certifications in certain states, state legislatures and courts are the 
appropriate bodies to address these concerns.\4\
---------------------------------------------------------------------------
    \3\ In Phillips Petroleum Co. v. Shutts (472 US 797, 821-22 (1985), 
the court held that for a forum state to apply its law to non-residents 
in a nationwide class action, the state ``must have a significant 
contact or significant aggregation of contacts to the claims asserted 
by each member of the plaintiff class, contacts `creating state 
interest,' in order to ensure that the choice of law is not arbitrary 
and unfair.'' The court held that if this test was not satisfied, 
violations of the Due Process Clause of the Fourteenth Amendment and 
the Full Faith and Credit Clause of Article IV would result.
    \4\ Indeed, the complaints about ex parte class certification have 
focused on one county in a particular state, and the Alabama Supreme 
Court has dealt with that problem. See Ex parte Equity Nat'l Life Ins. 
Co., 715 So.2d 192 (Ala. 1997); Ex parte Citicorp Acceptance Co., 715 
So.2d 199 (Ala. 1997); Ex parte First Nat'l Bank, 717 So.2d 342 (Ala. 
1997).
---------------------------------------------------------------------------
    S. 353 also apparently is intended to address concerns that 
certification of nationwide class actions by State courts permits 
individual States to impose their own law on the nation as a whole and 
leads to extorted settlements and other abuses by class action 
attorneys. If this indeed is an endemic problem, legislation addressing 
State certification of nationwide classes may be in order, but S. 353 
does not take this approach. Instead of focusing on what the 
appropriate limits on state authority to bind out-of-state plaintiffs 
ought to be, S. 353 simply would permit removal to Federal court of 
nearly all State law class actions that otherwise would be heard in 
State court. Implicit in this provision is the belief that class 
certification is more difficult to obtain in Federal court, since 
otherwise, removal to Federal court would not reduce the possibility of 
``extorted'' settlements. Again, we do not believe that Federal policy 
concerning class actions is sacrosanct and that the States, within the 
constraints of due process, should be precluded from establishing their 
own policies. Moreover, the instances generally cited as evidenced of 
abusive or collusive class action settlements have occurred in federal 
as well as state courts. If the Congress believes that courts are 
approving unjustifiable class action settlements, Congress certainly 
has the authority to address the issue in federal class actions and 
provide models for states to follow if appropriate. Finally, a recent 
study by the Federal Judicial Center found that ``there were not 
objective indications that settlement was coerced by class 
certification.'' See Thomas E. Willging, et al., Empirical Study of 
Class Actions in Four Federal District Courts: Final Report to the 
Advisory Committee on Civil Rules (Federal Judicial Center 1996), at 
60, 90 (1996).
    We note that S. 353 would permit the removal to Federal court of 
cases concerned solely with State law that are most appropriately tried 
in State court. For example, a class action brought under State law 
concerning a corporation's operations within the State would be 
removable to Federal court solely because a primary defendant happened 
not to be a citizen of the State, even if the defendant had substantial 
operations in the State. This bill would undermine the efforts of State 
courts to address State and local matters by allowing litigants to 
circumvent and render irrelevant the State court system. In our view, 
this provides further demonstration of why federalization of class 
actions is not an appropriate remedy for perceived class action abuse.
    We also are concerned about the potential impact of this 
legislation on the Federal judiciary at a time when the Chief Justice 
of the United States has expressed serious concern about the marked 
expansion of caseloads of Federal courts. See Chief Justice Rehnquist, 
The 1997 Year-End Report on the Federal Judiciary at (I)(A). 
Preliminary data from RAND's ongoing study of class actions suggest 
that more than half of such litigation is in State courts. Class 
actions are among the most resource-intensive litigation before the 
judiciary. A study of class actions in Federal court by the Federal 
Judicial Center showed that class actions took two to three times the 
median time of a civil case from filing to disposition and consumed 
almost five times more judicial time than other civil cases. FJC, 
Empirical Study of Class Actions in Four District Courts at 7. By 
expanding Federal court jurisdiction for class actions and permitting 
removal from State courts, this bill could move most of this litigation 
into the Federal judicial system, potentially requiring substantial new 
Federal resources. Responsibility in this area should continue to be 
shared among both the Federal and State judicial systems.
    In addition to these policy concerns, we believe that the bill's 
displacement of State-law class certification procedures could be 
subject to constitutional challenge on federalism grounds. As a general 
matter, Congress has the power to prescribe the manner in which Federal 
courts, in the exercise of their diversity jurisdiction, handle issues 
such as class action certification, ``which, though falling within the 
uncertain area between substance and procedure, are rationally capable 
of classification as either.'' Hanna v. Plumer, 380 U.S. 460, 472 
(1965). However, sections 3 and 4 of S. 353 would expand the Federal 
courts' diversity jurisdiction in a highly selective fashion. Putative 
class actions that failed to meet the federal standard for class 
certification would be returned to state court in disaggregated form 
for individualized adjudications. The resulting displacement of States' 
decisions as to the proper role of class action procedures in the 
adjudication of State-law claims could be attacked as an impermissible 
form of federal interference in States' decisions as to how to 
structure the operations of the their own courts. Although we believe 
that these provisions are constitutional and that such a challenge 
should not succeed under current doctrine, there is a strong likelihood 
of constitutional litigation on this point.
                           section 5--rule 11
    Section 5 of S. 353 would amend Rule 11 of the Federal Rules of 
Civil Procedure to require judges to impose sanctions upon finding a 
violation of Rule 11, instead of leaving the issue to the judge's 
discretion as is the case now. This provision would apply to all civil 
litigation, not simply class actions. We strongly oppose this provision 
for a number of reasons.
    First, we believe that, barring an emergency requiring prompt 
legislation, amendment of the rules of procedure should proceed through 
the processes of the Rules Enabling Act, 28 U.S.C. Sec. Sec. 2071, et 
seq. That act was created by Congress for the precise purpose of 
affording fair and thorough consideration, with an opportunity for 
comment by the public at large, to proposals for rules amendments. The 
Department strongly supports the Rules Enabling Act process. To the 
extent that any amendment to Rule 11 is necessary, it would be 
appropriate for the Advisory Committee on Civil Rules to make a 
proposal to the Judicial Conference Standing Committee on Rules of 
Practice and Procedure for consideration. Accordingly, we urge that the 
change proposed in S. 353 be submitted to the Judicial Conference or an 
appropriate committee of the Conference for review in the first 
instance, rather than being pursued directly through legislation.
    Our second reason for objecting to the proposed modification of 
Rule 11 is that the modification is not directed at the problem S. 353 
is intended to address. The modification appears intended to deter 
frivolous class actions, but Rule 11 applies to civil litigation 
generally. The impact on class actions of the proposed change is likely 
to be minuscule compared to its impact on other aspects of civil 
litigation. While we do not necessarily agree that class actions are a 
greater source of frivolous lawsuits than other kinds of civil actions, 
if any measures are to be taken to deter frivolous class action claims, 
the measures should be directed specifically at that issue.
    We also object to the proposed modification of Rule 11 on 
substantive grounds. In 1983, sanctions under Rule 11 were made 
mandatory, as S. 353 would make them again. In 1993, sanctions once 
again were made discretionary in response to the ``increased 
disruption'' caused by the mandatory sanctions provision enacted in 
1983. See Proposed Amendments to the Federal Rules of Civil Procedure: 
Hearing Before the Subcomm. On Courts and Admin. Practice of the Senate 
Comm. on the Judiciary, 103d Cong. 9-10 (1993) (statement of Sam C. 
Pointer, Jr., Chief District Judge for the Northern District of Alabama 
and Chairman, Advisory Committee on Civil Rules). Judge Pointer 
observed that the empirical studies of the Federal Judicial Center 
``amply support [the Advisory Committee's] conclusion that there has 
been an excessive and unproductive amount of Rule 11 activity'' under 
the 1983 version of the rule. Judge Pointer further noted that the 
Judicial Conference accepted the view that ``explicit discretion to 
decline imposition of sanctions is needed in order to deal with the 
problem of Rule 11 motions that raise technical, insignificant 
violations.'' Judge Pointer also recognized the concerns of the civil 
rights bar that ``the 1983 version of Rule 11 had been used by defense 
counsel and some courts to `chill' the development of potentially 
meritorious, yet untested and novel, claims.'' Thus, ample deliberation 
and research supported the change from mandatory to discretionary 
sanctions in 1993. No such research demonstrates the need for the 
revision to Rule 11. S. 353 would accomplish, particularly outside of 
the Rules Enabling Act process. For these reasons, the proposed 
revision to Rule 11 is unwarranted.
                               conclusion
    As discussed in my testimony, there may be discrete problems with 
class actions that need to be addressed. We would be happy to work with 
Members of this subcommittee and with the Congress to address any such 
problems. Nevertheless, we do not believe that federalization of class 
actions and imposition by the federal government of numerous 
requirements in state court class actions litigation is appropriate for 
the reasons we have set forth, and accordingly the Department of 
Justice strongly opposes enactment of S. 353.

    Senator Grassley. Our next panel is Mr. John Frank and 
Professor Don Elliott. Mr. Frank is a partner with the Phoenix 
law firm of Lewis and Roca. He is the witness that was 
introduced by Senator Kyl, and he is the last living member of 
the committee which created the class action rules in the 
period of time of 1963 to 1966. Mr. Frank will be able to 
provide us with a unique insight into the class action rules.
    Mr. Elliott is a partner at the Washington, DC, office of 
Paul, Hastings, Janofsky and Walker, and is currently an 
adjunct professor at Yale Law School. Previously, Mr. Elliott 
was at the Yale Law School as a professor, 1981 to 1994, 
specializing in a number of subjects, including complex 
litigation, class action, and constitutional law.
    Welcome to both of you. I think we will start with you, Mr. 
Frank.

PANEL CONSISTING OF JOHN P. FRANK, LEWIS AND ROCA, PHOENIX, AZ; 
 AND E. DONALD ELLIOTT, PROFESSOR OF LAW, YALE LAW SCHOOL, NEW 
                           HAVEN, CT

                   STATEMENT OF JOHN P. FRANK

    Mr. Frank. Thank you, Mr. Chairman. I appreciate the 
opportunity to be here very much. This has been a subject of 
deepest interest to me. You are right; in the 1960's, I was on 
the committee. I dissented at that time because I thought it 
would lead to fraud, and I must say the results seem to 
indicate that.
    In more recent years, there has been 7 years of work by 
subsequent committees, headed by Judge Patrick Higginbotham, 
Judge Paul Niemeyer and Judge Scirica. All of them have invited 
me to participate as an emeritus member, so I have participated 
in all of the meetings and the hearings on this subject in the 
last several years. I have the report of the Federal Judicial 
Center, and the RAND report was sent to me for comment before 
it became final. So it is a matter of deepest interest. I 
strongly support this bill.
    Senator Sessions, you may be perhaps amused to know that 
you are not the only Alabamian nor the first to have doubts on 
this subject. I cannot give you orally, because the time is too 
short, the history of this matter, except to say that 
originally when we created this rule, we assumed that the 
largest class would be 100 people. And we were looking at 
airplane crashes and the Ringling Brothers fire at Hartford, 
CT.
    The growth of this to involve thousands and thousands of 
people was totally beyond the anticipation of the rule.
    But I return to Senator Sessions. Senator, at page 8--if 
you have my statement, at page 8a, when Justice Black, whose 
clerk I was and whose very close friend I was, so that we 
corresponded for all the years of his life, made his decision 
in Snyder v. Harris requiring that each party have the 
jurisdictional amount, and thus frankly cutting down on class 
actions, I wrote him an applauding note and sent him a copy of 
my dissent to the rule. And he responded, ``Thanks for sending 
me your dissent to Rule 23(b)(3) concerning which I wrote in my 
opinion in Snyder v. Harris. I certainly agree with you that 
the rule is a very poor one, and I am glad to know that you 
agreed with me at the time it was passed.''
    To add to your collection of oddities, Senator Grassley, I 
have inserted at page 15 of my statement an illustration of a 
check that some victorious member of a class who, for his joy 
in being in a class, got a check, a copy of which I enclose, 
for $.08, with counsel receiving a very large sum.
    Let me use the balance of my time to speak briefly to the 
bill itself because there simply isn't time to make a 
comprehensive statement here for you. But let me turn to the 
bill.
    First, I have made some technical suggestions to the staff 
where I think, Senator Grassley, you can do even more to 
tighten down on that fee subject. There are some details there 
that I would not use in this precious time, but they are there. 
I do think one thing you ought to give real thought to is you 
have unleashed the injunction thing without putting an 
effective control on the fees there, and all that is going to 
do is shift the cases from damage cases to injunction cases, 
which is already happening. And I submit that a little 
tightening there would be an improvement and carry out your 
wish, which I strongly applaud.
    On the fee subject, as I say, I have covered it. Coupons 
ought to be abolished. You are absolutely right. This business 
of giving people a coupon for what would amount for the 
discount they would get on the merchandise anyway and then 
paying a large fee is simply scandalous. Also, I think, 
Senator, and members of the committee, you ought to take up the 
subject of fluid recovery.
    I would like to make one or two other points. May I do so? 
I am not sure if the light tells me that I am done.
    Senator Grassley. Yes.
    Mr. Frank. Fluid recovery is what is being done--the sort 
of thing Senator Thurmond objected to, I think, where there is 
nothing to give the class, so you take the amount of money and 
give it to some charity and then pay a large fee to the client. 
That is wrong. That is the kind of social policy that ought to 
be made by the Congress or by the administrative agencies and 
should not be the subject of the whimsical jurisdiction of some 
class action judge.
    I have one very gray point to take up, Senator Grassley--
two, if I may, briefly. One, the problem with the Department of 
Justice. Clearly, if the Department is going to veto the bill, 
it is a waste of time; you probably will have trouble getting 
two-thirds.
    Those problems can be solved. Ms. Acheson was very clear 
that they are ready to talk. I submit that if you think it 
wise, you might arrange informally to have Judge Higginbotham 
of the Fifth Circuit and Judge Pointer of your circuit, who are 
the two most experienced judges in America on the Federal-State 
relation problem in class actions, and who have administered a 
great number of the cases with both Federal and State 
participating, together with the Department of Justice and some 
technical member of your group--let me nominate Senator Kyl--to 
see if you can't work out a compromise with Justice. I suspect 
you could, and if I can personally be of any assistance, I 
would like to.
    The only other subject I can take up, with the indulgence 
of your time, Senator Grassley, goes to you, but it is major. I 
respectfully submit that it is probably not a good idea to have 
this rule 11 thing tacked on here because what you are doing--
you have got plenty of opposition from the class action bar as 
it is. I am responsible more than any other bar member in the 
country for the 1993 revision of rule 11, and it is working 
rather well and was supported by the Litigation Section of the 
ABA and countless other groups all over America. You don't need 
two wars.
    What is more important is it is not a good solution to the 
problem that is troubling you, and I ask leave to state briefly 
what I submit would be a better solution. In the committees of 
the last 7 years, we have repeatedly taken up the subject of 
the small case--I gave you the example of the $.08, the $.38; 
you gave the $10 case--whatever they may be, the trivial case 
which ought not be in the Federal courts at all.
    The slang expression for these cases in the committee 
dialogue was the ``t'ain't worth it cases.'' They are just not 
worth putting in the Federal system. They are not worth putting 
in any system. They are just fee engenderers and there is 
nothing else to them. It is the biggest complaint you have and 
it is a good one.
    I submit that this bill should provide, as earlier drafts 
of the pending rule has provided--and it should have stayed 
there--that it would be very constructive to put a ``t'ain't 
worth it'' provision into your statute and provide that the 
court, before certifying a class, should ensure that the 
prospect of financial reward to members of the class is large 
enough to be worth undertaking it in the first place, so that 
the $.02, $.08, $15 trivial cases would be barred from being in 
this category at all.
    I submit that that will get to, Senator Grassley, what you 
wisely want. You will get rid of the frivolous cases that way 
and still keep it within the orbit of class actions without 
taking on a side war that I greatly fear would result in 
defeating the whole bill. And it is a good bill and you ought 
to do it, and I thank you for letting me say so.
    Senator Grassley. We will consider your recommendation as 
well on that point.
    [The prepared statement of Mr. Frank follows:]
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    Senator Grassley. Professor Elliott.

                 STATEMENT OF E. DONALD ELLIOTT

    Mr. Elliott. Thank you very much, Mr. Chairman. If I could 
begin with a very brief personal note, in 1989 I was confirmed 
as general counsel of EPA by the Senate, and I remember, Mr. 
Chairman, in our courtesy calls you said to me, why would 
anyone leave a professorship at Yale to go be a general counsel 
at EPA? And I must say, Senator, I wanted to tell you that in 
some of the dark hours at EPA I remembered that comment.
    But I am here today as a longtime teacher of complex 
litigation and class actions at Yale Law School, where I have 
been a successor of John Frank's since 1981. I am a qualified 
supporter of class actions, although I think there are some 
abuses under the Federal rules, as well. But I am here 
primarily because I am very concerned that some recent 
decisions have restricted the rights of litigants in the large 
multi-party cases that I agree with Senator Sessions really 
ought to be in the Federal courts, to remove those kinds of 
cases into the Federal courts where they belong.
    And I do disagree with the Department of Justice's 
position. I was very disappointed with it. I do not think this 
legislation effectively federalizes. I think that is a little 
bit too simplistic. My view as both a litigating lawyer and a 
professor of civil procedure is that we have struck a really 
brilliant balance in cases. We give the plaintiff the first 
choice of where they file the case, but that is not an 
unlimited choice. It is balanced by the defendant's right to 
remove. And that is true in all kinds of cases and it is one of 
the core reasons we have diversity jurisdiction.
    Unfortunately, for a variety of reasons that we could get 
into if you are interested, that right to removal has become 
more apparent than real in complex class action cases. It is 
pretty easy for a good lawyer to join some parties that will 
defeat complete diversity, and thereby make a complex case, 
including a class action case, one that can't be removed to 
Federal court.
    So I think what we are really talking about in the removal 
provisions here is not effectively federalizing litigation, but 
restoring the balance between the plaintiff's right to pick and 
the defendant's right to remove the case to Federal court if 
there is too much home cooking or too much of what we sometimes 
call the home court advantage.
    I don't think there is any real serious question about the 
constitutional authority of the Congress to do something like 
that. And I think it is important to realize that removal is, I 
think, a really brilliant part of our jurisprudence. It not 
only guarantees reality and the appearance of fairness to the 
litigants directly involved, but I think sometimes it is not 
fully recognized that it creates a kind of incentive that 
gently discourages the State courts from going too far through 
the device of competition.
    Senator Grassley, you will be glad to know that we in 
academia are again rediscovering some of the virtues of the 
market, and I think increasingly market approaches to a variety 
of areas are coming back into fashion. And in a sense, that is 
what removal does. It doesn't override the States' decision to 
have any kind of class action rule they want. It simply says if 
there is a little competition and an alternative to go to 
Federal court, then States are not able to go too far.
    In a sense, it is like the school choice plans. You know, 
you try to improve the public schools by giving somebody an 
opportunity to go elsewhere if the State is not using its 
monopoly in the right way. And I think the removal provisions 
of this bill are definitely a step in the right direction.
    I also disagree with the Justice Department interpretation 
that if cases are remanded from Federal court that they are 
necessarily stripped of the class action allegations. It is 
true that those allegations are stricken, but once the case 
goes back to State court, if it is appropriate for State 
certification, I don't see why those class action allegations 
couldn't come back in. So I think that is a provision that 
needs to be clarified in terms of its intent.
    Since time is short, let me just wind up. You mentioned 
that there might be some areas for further thought as the 
process goes forward, and let me mention two or three. First of 
all, part of the problem we have in terms of removal in class 
action cases is created by--and these are not in my written 
statement. I apologize, but just in thinking about it last 
night, part of the problem is created by the 1996 amendments to 
28 U.S.C. 1446(b), the removal statute that provides an 
absolute 1-year limitation on the right to remove to Federal 
court in diversity cases. In these complex class action cases, 
you are not going to get to the question of who the proper 
parties are within that year.
    Another provision that is a problem is 28 U.S.C. 1359, 
which is the collusive joinder provision. It provides that you 
can't add fictive parties for purposes of establishing Federal 
jurisdiction. But it does not provide you can't add parties 
collusively for the purpose of defeating Federal jurisdiction. 
So when you take those two together, the reality of what 
happens is you can avoid joinder by sticking some parties in 
there as named plaintiffs who are going to be non-diverse.
    And there are several different ways to fix that problem. 
One way which I would support is to abolish the complete 
diversity requirement. I agree with Senator Sessions. These are 
the kinds of cases, particularly when they are multi-party 
cases, that fundamentally belong in the Federal courts and 
really respond to the core purposes for which we have Federal 
diversity jurisdiction.
    I will just finish up by saying I also think that the 
limitations on the extraterritorial of State courts in class 
action cases, which I heard the Justice Department saying they 
might support--I think that is also an area that would be 
helpful.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Elliott follows:]

                Prepared Statement of E. Donald Elliott

    As a long-time teacher of complex civil litigation and class 
actions at Yale Law School, as well as a practicing attorney 
specializing in complex litigation, I am greatly concerned that recent 
decisions by some federal courts have restricted the rights of 
litigants in large, multi-party class actions to remove these cases to 
a neutral federal forum on grounds of diversity of citizenship. The 
main purposes for which diversity jurisdiction was created--preserving 
the appearance as well as the reality of no bias in favor of local 
litigants--are particularly relevant in large class-action litigation 
against out-of-state corporations. However, overly rigid 
interpretations of the judge-made requirement for ``complete 
diversity'' of citizenship among all parties in class actions have made 
it virtually impossible to remove class actions to federal court.
    I believe that removal is a brilliant innovation in our federal 
jurisprudence, and I strongly support the provisions of S. 353 that 
would make removal to federal court in class actions cases a reality 
again by revising the complete diversity requirement. The removal 
option not only guarantees the reality and the appearance of fairness 
to the litigants directly involved, but--even more importantly--the 
removal option gently discourages abuses in the state courts by 
offering litigants a competitive choice to take their business 
elsewhere. Like other governmental programs that improve systems by 
giving users the option to go elsewhere if they are dissatisfied, 
removal does not override state court autonomy to choose whatever law 
or class action rule the state may like; keeping a removal option alive 
merely provides potential competition from an alternative forum. 
Finally, I believe that removal may be important for an additional 
reason: in many instances overall efficiency in terms of speed and 
reduced transaction costs can be enhanced by concentrating complex 
cases in a single federal forum for resolution.
    Thank you very much for the opportunity to discuss the important 
issues presented by the proposed legislation being considered by this 
Subcommittee today--S. 353, the Class Action Fairness Act of 1999. I am 
particularly interested in the provisions of the bill concerning the 
expansion of our diversity jurisdiction statutes to allow removal so 
that more interstate class actions to be heard by our federal courts.
    I approach this subject from two different but related 
perspectives. First, I have taught complex civil litigation and class 
actions at Yale Law School since 1981--first, as a tenured professor 
ultimately holding the Julien and Virginia Cornell Chair in 
Environmental Law and Litigation, and since 1994, part-time as an 
adjunct professor at Yale while also practicing. I have spent a great 
deal of academic energy thinking and writing about how particular 
jurisdictional and procedural rules affect the resolution of complex 
disputes (particularly in environmental, toxic tort and medical and 
consumer product injury cases), and have served as an adviser to the 
Federal Courts Study Committee. Second, as a partner focusing on 
complex environmental litigation at Paul, Hastings, Janofsky & Walker 
LLP, I have had some experience confronting the practical effects of 
the current jurisdictional regime.

 I. The Rising Tide of State Class Actions Is A Product Of The Federal 
 Courts' Reluctance To Take Jurisdiction Over Interstate Class Actions

         a. there is a class action crisis in the state courts
    The flood of class-action litigation in our state courts across the 
United States is too well documented to warrant significant discussion, 
much less debate.\1\ Many out-of-state defense lawyers have had the 
experience of arriving at a state courthouse, only to see their 
opponent drive up in a car bearing a campaign sticker from the judge's 
last election. Why should we consider the state-court class-action 
explosion a crisis? For one simple reason: because the class action 
device has the (often realized) potential to put its heavy thumb on the 
scales of justice, affecting not only procedure but also in many 
instances the outcome of lawsuits. As I once observed in an article in 
the University of Chicago Law Review, judges often are inclined to 
certify cases for class-action treatment not because they believe a 
class trial to be more efficient than an individual trial, but because 
they believe class certification will simply induce the defendant to 
settle the case without trial.\2\ Chief Judge Richard Posner of the 
U.S. Court of Appeals for the Seventh Circuit has made the same point 
more recently and more bluntly: in his words, the mere act of 
certifying a class ``often, perhaps typically, inflict[s] irreparable 
injury on the defendants.'' \3\ When a class is certified in state 
court, where an out-of-state defendant has little confidence in the 
prospect of a fair and impartial trial on the merits, the coercive 
power of class certification is all the greater. Plainly, the judicial 
system is supposed to provide procedures and a forum for dispute 
resolution; it is not supposed to coerce particular outcomes.
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    \1\ Among other places, the ever-increasing rate at which state-
court class actions are being filed against out-of-state corporate 
defendants has been documented in Working Papers of the Advisory 
Committee on Civil Rules on Proposed Amendments to Civil Rule 23, Vol. 
1, at ix-x (May 1, 1997) (``Advisory Committee Working Papers'') 
(memorandum of Judge Paul V. Niemeyer to members of the Advisory 
Committee on Civil Rules); and Deborah Hensler, et al. (Institute for 
Civil Justice), Preliminary Reports of the RAND Study of Class Action 
Litigation, at 15 (May 1, 1997) (``ICJ Report'') (stating that the 
``doubling or tripling of the number of putative class actions'' has 
been heavily ``concentrated in the state courts'').
    \2\ See E. Donald Elliott, Managerial Judging and the Evolution of 
Procedure, 53 U. Chi. L. Rev. 306, 323-24 (1986).
    \3\ In re Rhone-Poulenc Rorer, Inc., 51 F.3d 1293, 1295 (7th Cir. 
1995).
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 b. the federal courts have played a significant role in precipitating 
              the class action crisis in the state courts
    Notwithstanding Chief Justice Marshall's admonition that the 
federal courts must assume jurisdiction over cases that come within the 
federal jurisdictional confines of the Constitution and applicable 
statutes,\4\ the clear trend in the federal courts over the past 
several years has been to decline jurisdiction over interstate class 
actions in any and every way possible. For example, federal courts have 
given a very strong reading to the judge-made rule requiring ``complete 
diversity''--the principle of federal diversity jurisdiction stating 
that no plaintiff in a lawsuit can be a citizen of the same state as 
any defendant. This rule may be quite sensible in other contexts, but 
in class actions, it virtually assures that large class actions will be 
kept out of federal court. The result has been that class-action 
plaintiffs' attorneys can evade the federal court system simply by 
naming (in addition to the real parties) a defendant with no connection 
to the class action other than shared citizenship with the named 
plaintiff. Blessing this practice, the U.S. Court of Appeals for the 
Eleventh Circuit recently considered a class action in which an Alabama 
citizen filed a class-action complaint against a Florida auto leasing 
company alleging the existence of a fraudulent pricing scheme. The 
Alabama plaintiff also named an Alabama auto dealership, which had no 
involvement in the development of the alleged pricing scheme, and which 
had virtually no connection whatever with any putative class member 
other than the single named plaintiff. Despite the conceded fact that 
98 percent of the 17,000 ``plaintiffs'' involved in the case were 
unconnected to the non-diverse Alabama defendant, and therefore that 
the focus of virtually all--but not technically all--of the trial 
court's efforts would be on parties that were completely diverse, the 
Eleventh Circuit sent the case back to state court.\5\
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    \4\ See Cohens v. Virginia, 19 U.S. (6 Wheat.) 264, 403 (1821) 
(``It is most true that this Court will not take jurisdiction if it 
should not; but it is equally true, that it must take jurisdiction if 
it should. The judiciary cannot, as the legislature may, avoid a 
measure because it approaches the confines of the constitution. We 
cannot pass it by because it is doubtful. With whatever doubts, with 
whatever difficulties, a case may be attended, we must decide it, if it 
be brought before us. We have no more right to decline the exercise of 
jurisdiction which is given, than to usurp that which is not given.'').
    \5\ See Triggs v. John Crump Toyota, Inc., 154 F.3d 1284 (11th Cir. 
1998).
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    The federal courts have also relied on the present diversity-
jurisdiction statute's amount-in-controversy requirement--under which 
only cases that put more than $75,000 in issue may be heard in federal 
court--to keep interstate class actions out of federal court. 
Interpreting a previous (but fundamentally identical) version of the 
diversity-jurisdiction statute, the Supreme Court held in 1973 that the 
amount-in-controversy requirement must be met by each and every class 
member in a class action.\6\ The Supreme Court did not address the 
issue of how certain categories of relief (such as attorney's fees, 
punitive damages, and injunctive relief) should be calculated for 
jurisdictional purposes, however. Unfortunately, many (though not all) 
lower courts have addressed this issue quite restrictively from a 
jurisdictional standpoint. For example, in cases where defendants have 
attempted to remove cases to federal court on the ground that a class-
action complaint requests attorney's fees in excess of the required 
jurisdictional amount, a number of courts have held that the amount of 
fees requested cannot be attributed to all the class members, and 
therefore that such cases cannot be heard in federal court.\7\ 
Similarly, in cases where defendants have attempted to remove cases to 
federal court on the ground that a complaint seeks punitive damages 
well above $75,000, courts have held that the amount of alleged 
punitive damages cannot be applied to the claims of all class members, 
and therefore have remanded such cases to state court.\8\ And in cases 
where defendants have attempted to remove cases to federal court on the 
ground that a defendant's cost of complying with the injunctive relief 
requested by the plaintiff exceeds the jurisdictional amount, at least 
one federal appeals court has held that the amount-in-controversy 
requirement is not met and that the case therefore cannot proceed in 
federal court.\9\
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    \6\ See Zahn v. International Paper Co., 414 U.S. 291 (1973).
    \7\ See Meritcare, Inc. v. St. Paul Mercury Ins. Co., 166 F.3d 214 
(3d Cir. 1999) (citing cases); but see In re Abbott Laboratories, Inc., 
51 F.3d 524 (5th Cir. 1995).
    \8\ See, e.g., In re Brand Name Prescription Drugs Antitrust 
Litig., 1997 U.S. App. LEXIS 22267, at *26 (7th Cir. 1997) (``the right 
to punitive damages is a right of the individual plaintiff, rather than 
a collective entitlement of the victims of the defendant's 
misconduct''); Gilman v. BHC Securities, Inc., 104 F.3d 1418, 1430 (2d 
Cir. 1997) (to same effect); but see Allen v. R & H Oil & Gas Co., 63 
F.3d 1326, 1335 (5th Cir. 1995) (permitting aggregation of punitive 
damages for purposes of satisfying jurisdictional amount requirement); 
Tapscott v. MS Dealer Serv. Corp., 77 F.3d 1353, 1359 (11th Cir. 1996) 
(same holding).
    \9\ See Packard v. Provident Nat'l Bank, 994 F.2d 1039, 1050 (3d 
Cir. 1993) (``allowing the amount in controversy to be measured by the 
defendant's costs would eviscerate Snyder's holding that the claims of 
class members may not be aggregated in order to meet the jurisdictional 
threshold'').
---------------------------------------------------------------------------
    The federal courts' contribution to the class action crisis is not 
limited to an increasingly narrow reading of the two statutory 
requirements for federal diversity jurisdiction. Federal courts also 
have demonstrated an increasing willingness, in the absence of 
congressional direction to the contrary, to seek out procedural 
technicalities on the basis of which to decline jurisdiction even when 
the two statutory requirements of diversity jurisdiction are satisfied. 
One very recent example of this phenomenon is an unpublished remand 
order issued by the U.S. District Court for the District of 
Arizona.\10\ In that case, the plaintiff filed a class-action lawsuit 
in Arizona state court attacking a marketing practice of an auto 
manufacturer. To dissuade the manufacturer from removing the case to 
state court, the plaintiff named an Arizona auto dealer as a defendant 
and declined to state the amount of damages she sought. The 
manufacturer removed the case, arguing that the diversity-of-
citizenship requirement was satisfied because the Arizona auto dealer 
had no connection with putative class members other than the named 
plaintiff herself, and that the plaintiff's request for attorney's 
fees, punitive damages, and injunctive relief were all sufficient to 
satisfy the amount-in-controversy requirement. The district court 
rejected these arguments and remanded the case to state court.
---------------------------------------------------------------------------
    \10\ Dixon v. Ford Motor Co., Civ. A. 99-456 (D. Ariz.).
---------------------------------------------------------------------------
    Within weeks of the remand order, the plaintiff filed a sworn 
disclosure statement disclosing that, in fact, she would not seek any 
relief from or make service upon the Arizona dealer defendant. 
Intrigued, counsel for the manufacturer asked the plaintiff's attorney 
to stipulate that the plaintiff sought damages of $75,000 or less. The 
attorney refused to stipulate. The manufacturer therefore removed the 
case to federal court again, relying on the federal statute permitting 
re-removal of cases upon the discovery of ``other paper'' showing that 
the requirements of federal jurisdiction are met. The manufacturer 
pointed out that the plaintiff had expressly disclaimed any right to 
relief against the only non-diverse defendant, and that the plaintiff's 
refusal to stipulate to damages less than the jurisdictional amount 
gave rise to an inference that she sought damages in excess of the 
jurisdictional amount. The district court agreed with the manufacturer 
both that there now was complete diversity of citizenship, and that the 
plaintiff's refusal to stipulate created an inference that her claimed 
damages exceeded $75,000. Nonetheless, the district court remanded the 
case to state court, all for the exceedingly technical reason that the 
attorney's refusal to stipulate did not constitute ``other paper'' upon 
which removal could occur under the relevant provision of our removal 
statutes (28 U.S.C. Sec. 1446(b)).
    In short, because there is no clear congressional mandate 
permitting interstate class actions to proceed in federal court, some 
federal courts are straining to avoid them.

 II. The Constitutional Purposes Of Diversity Jurisdiction Support The 
  Extension Of Federal Jurisdiction To Cover Interstate Class Actions

a. interstate class actions implicate all three concerns identified by 
        the framers as justifications for diversity jurisdiction
    Let me make clear at the outset that the decision whether or not to 
extend diversity jurisdiction to cover interstate class actions is a 
political decision, and not a constitutional one. The Constitution's 
only limitation on diversity jurisdiction is Article III's requirement 
that controversies be ``between citizens of different states.'' The 
Supreme Court has regularly recognized that the decision to require 
complete diversity, and the decision to set a minimum amount in 
controversy, are political decisions not mandated by the 
Constitution.\11\ It therefore is the prerogative of Congress to 
broaden the scope of diversity jurisdiction to any extent it sees fit, 
as long as any two adverse parties to a law suit are citizens of 
different states.\12\
---------------------------------------------------------------------------
    \11\ See, e.g., Newman-Green, Inc. v. Alfonzo-Larrian, 490 U.S. 
826, 829 n.1 (1989) (``The complete diversity requirement is based on 
the diversity statute, not Article III of the Constitution''); Owen 
Equip. & Erection Co. v. Kroger, 437 U.S. 365, 373 n.13 (1978) (to same 
effect).
    \12\ See State Farm Fire & Cas. Co. v. Tashire, 386 U.S. 523, 530-
31 (1967).
---------------------------------------------------------------------------
    In my view, extending diversity jurisdiction to cover interstate 
class actions is not only permissible, but desirable in light of the 
purposes that animated the framers of the Constitution in adopting the 
constitutional diversity jurisdiction principle. Diversity jurisdiction 
generally is thought to be premised on three considerations, each of 
which I discuss in turn.
The impermissibility of locality discrimination
    Perhaps the most important reason why the framers in 1787 thought 
it important to replace the Articles of Confederation with a new 
Constitution was the conviction that a loose confederation of states 
was a weaker form of government, and less protective of basic 
liberties, than a single, unified nation. As Judge Henry Friendly 
explained, diversity jurisdiction was an important component in the 
framers' plan to create a stronger union out of the old confederation; 
its central purpose was (and is) to protect citizens in one state from 
the injustice that might arise if they were forced to litigate in the 
courts of another state.\13\ Quoting James Madison, Judge Friendly 
believed diversity jurisdiction to be essential to a strong union 
because it ``may happen that a strong prejudice may arise in some state 
against the citizens of others, who may have claims against them.'' 
\14\ A century and a half after Madison, Justice Frankfurter put a more 
practical face on Madison's understanding: ``It was believed that, 
consciously or otherwise, the courts of a state may favor their own 
citizens. Bias against outsiders may become embedded in a judgment of 
the state court and yet not be sufficiently apparent to be made the 
basis of a federal claim.'' \15\
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    \13\ See Henry J. Friendly, The Historic Basis of Diversity 
Jurisdiction, 41 Harv. L. Rev. 483 (1928).
    \14\ Id. at 492-93.
    \15\ Burford v. Sun Oil Co., 319 U.S. 315, 316 (1943) (Frankfurter, 
J., dissenting on grounds unrelated to diversity jurisdiction).
---------------------------------------------------------------------------
    A number of scholars have argued, persuasively in my view, that the 
problem with local bias is based not only on the existence of such 
bias, but also on the possibility of a perception of such bias. Chief 
Justice Marshall himself recognized the constitutional significance of 
even the perception of bias:

        However true the fact may be, that tribunals of the states will 
        administer justice as impartially as those of the nation, to 
        the parties of every description, it is not less true, that the 
        constitution itself either entertains apprehensions of this 
        subject, or views with such indulgence the possible fears and 
        apprehension of suitors, that it has established national 
        tribunals for the decision of controversies between * * * 
        citizens of different states.\16\
---------------------------------------------------------------------------
    \16\ Bank of United States v. Devaux, 9 U.S. (5 Cranch) 61, 87 
(Marshall, C.J.).

Thus, diversity jurisdiction not only was designed to protect against 
bias, but to shore up confidence in the judicial system by preventing 
even the appearance of discrimination in favor of local residents.\17\ 
Given this function, diversity jurisdiction should not be construed as 
parsimoniously as the recent federal decisions described above have 
done; instead, as others have recognized, the ``prophylactic'' function 
of diversity jurisdiction demands that it be extended liberally to 
cases in which legitimate concerns about locality discrimination might 
arise.\18\
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    \17\ See, e.g., Adrienne J. Marsh, Diversity Jurisdiction: 
Scapegoat of Overcrowded Federal Courts, 48 Brooklyn L. Rev. 197, 201 
(1982).
    \18\ See James W. Moore & Donald T. Weckstein, Diversity 
Jurisdiction: Past, Present and Future, 43 Tex. L. Rev. 1 (1964).
---------------------------------------------------------------------------
    In my view, these concerns are particularly weighty in the context 
of class actions against large, out-of-state corporations. Whatever 
one's view of the value of diversity jurisdiction generally (and I 
served as an adviser to the Federal Courts Study Committee, which 
expressed some doubt about the value of diversity jurisdiction in the 
modem era in the context of suits between individual citizens), there 
is no doubt in my mind that a federal forum which is perceived as 
neutral and unbiased will enhance the quality of justice in the context 
of large class actions against multiple parties, many of which are out-
of-state corporations.
The undesirability of discrimination against interstate businesses
    Part and parcel of the political failure of the Articles of 
Confederation was the economic failure of that regime. It had become 
clear by 1787 that, if individual states were permitted to enter into 
separate economic treaties with one another, and to impose tariffs and 
other restrictions on the free flow of goods across state lines, the 
economic health of the United States would falter. Discrimination 
against out-of-state business entities by means of state judicial 
processes was regarded as an equally great threat to the growth and 
economic health of the nation. As one commentator put it:

        No power exercised under the Constitution * * * had greater 
        influence in welding these United States into a single nation 
        [than diversity jurisdiction]; nothing has done more to foster 
        interstate commerce and communication and the uninterrupted 
        flow of capital for investment into various parts of the Union, 
        and nothing has been so potent in sustaining the public credit 
        and the sanctity of private contracts.''\19\

    \19\ John J. Parker, The Federal Jurisdiction and Recent Attacks 
Upon It, 18 A.B.A. J. 433, 437 (1932); see also John P. Frank, 
Historical Bases of the Federal Judicial System, 13 Law & Contemp. 
Probs. 3, 27 (1948).
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The importance of fostering confidence in the judicial system
    Last, but certainly not least, the availability of a federal forum 
enhances the perception (among litigants and others) that justice is 
not meted out according to what one commentator has called ``the Good 
Old Boy System.''\20\ Northwestern University law professor Martin 
Redish has compared the judicial system to a baseball game, and pointed 
out that in the same way sports fans would not trust an umpire to call 
balls and strikes fairly if he were affiliated with the home team, the 
public cannot be expected to have confidence in a judicial system 
without the life tenure and other protections of the federal 
judiciary--a system, like that in effect in 38 states,\21\ where judges 
are beholden to their constituents and campaign contributors. 
Litigating lawyers typically refer to this as the ``home court'' 
advantage.
---------------------------------------------------------------------------
    \20\ Working Papers of the Advisory Committee on Civil Rules on 
Proposed Amendments to Civil Rule 23, Vol. 4 (May 1, 1997) (comments of 
consumer advocate Stephen Gardner).
    \21\ See Erwin Chemerinsky, Federal Jurisdiction Sec. 1.5m at 34 
(2d ed. 1994).
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    One important way in which the federal courts preserve public 
confidence in the judicial system is by maintaining procedures designed 
to minimize inconsistent results. Unlike state courts, the federal 
judiciary has the ability to consolidate numerous complex lawsuits 
involving similar allegations in a single district before a single 
judge.\22\ By contrast, related state court cases that are not 
susceptible to consolidation often reach differing (and seemingly 
random) results, permitting class-action plaintiffs' attorneys to take 
multiple bites at the apple in the hope that, despite a number of 
losses on a particular issue, they will rack up a handful of lucrative 
wins. One recent example of this phenomenon involved a series of cases 
filed in state court against Ford Motor Company concerning the quality 
of paint on Ford cars and trucks. All of these cases were removed to 
federal court, where they stayed--except for one case, which a federal 
district judge in Texas remanded twice to state court. The removed 
cases were consolidated before a single federal judge in New Orleans, 
where all pretrial matters were conducted in a coordinated fashion. The 
Texas case proceeded on its own, in state court. After the completion 
of years of discovery, the federal judge issued what has already become 
a leading opinion, denying class certification in the consolidated 
federal cases.\23\ Reviewing an identical record, an elected state 
judge in Texas reached the opposite conclusion and certified a 
class.\24\ What can litigants and the public take from such a result, 
other than a sense of randomness and inconsistency?
---------------------------------------------------------------------------
    \22\ See 28 U.S.C. Sec. 1407 (providing for consolidation by the 
Judicial Panel on Multidistrict Litigation).
    \23\ See In re Ford Motor Co. Vehicle Paint Litig., 182 F.R.D. 214 
(E.D. La. 1998).
    \24\ See Ford Motor Co. v. Sheldon, 965 S.W.2d 65 (Tex. App.--
Austin 1998), writ granted.
---------------------------------------------------------------------------
    Other witnesses today and at other hearings have noted the practice 
followed by many state judges of simply certifying classes as a matter 
of course,\25\ the apparent willingness of state judges to approve 
class settlements that seem to benefit no one other than the 
plaintiff's attorneys,\26\ and the fervor--demonstrated perhaps most 
recently in the breast-implant class litigation in federal court in 
Alabama and in Louisiana state court--with which state judges often 
advance cases that compete with previously filed (and possibly even 
certified) class actions in federal courts. All of these developments 
can have no other consequence than a serious erosion of public 
confidence and trust in the judicial process.
---------------------------------------------------------------------------
    \25\ See Advisory Committee Working Papers, Vol. 3, at 39 
(testimony of Lewis Goldfarb, Chrysler Corporation) (noting that many 
state judges ``almost see it as their civic duty to certify classes'').
    \26\ See Lawrence W. Schonbrun, The Class Action Con Game, 
Regulation, Fall 1997, at 50.
---------------------------------------------------------------------------
    But in my view, the issue transcends whether individual state 
courts cases certifying classes are right or wrong, or what standards 
particular states adopt for certifying class actions. At the structural 
level, it is important to have the option--as we do in other areas of 
law--to remove cases to federal court. Removal is a brilliant 
innovation in our federal jurisprudence. It maintains the autonomy of 
state to develop their own law and their own procedures (without 
federal preemption) while at the same time creating a gentler incentive 
to keep them from going too far. The existence of a removal provision 
creates what economists call ``potential competition.'' Removal is like 
the use of economic incentives, rather than command-and-control 
regulation, in environmental regulation, or like a school choice 
voucher program that improves the public schools by giving students an 
option to go elsewhere. Removal does not override the states' freedom 
of action. It merely breaks a monopoly and creates a kind of 
competitive market discipline. If a state goes too far, and its 
decisions are perceived by litigants as unfair for whatever reason, the 
litigants may go to another forum that they perceive as more neutral.
    Unfortunately, in the field of class actions, the option to remove 
to federal court has been more apparent than real, because of the 
decisions regarding diversity jurisdiction discussed above. In my view, 
the most important provisions of S. 353 are those that would make 
removal to federal court--which is available as a matter of course in 
other major litigation--available in class actions as well. As I stated 
above, this is important not only to insure fairness to the litigants 
themselves in the cases that are removed, but will, in the long run, I 
believe, exercise a salutary effect on improving the quality of justice 
in the state courts.
   b. the current statute is too blunt an instrument to achieve its 
purpose of ensuring that ``important'' cases have an available federal 
                                 forum
    As I have already explained, the current diversity-jurisdiction 
statute contains two requirements, neither of which is constitutionally 
required: ``complete'' diversity of citizenship, and a minimum amount 
in controversy. Intuitively, these two requirements serve a single 
purpose: to ensure that ``important'' cases qualify for a federal 
forum, while protecting the federal docket from cases too trivial to 
merit the attention of overburdened federal judges. As the class-action 
explosion demonstrates, however, the current two statutory requirements 
are not up to their task. Perversely, under the present system, any 
legally insignificant dispute that happens to involve citizens of 
different states and a minimum amount in controversy--say, a slip-and-
fall case involving a Virginia citizen and a Maryland grocery store 
owner, or a contract dispute between a businessman in Kansas City, 
Missouri, and his supplier in Kansas City, Kansas--qualifies for 
federal jurisdiction. But the Texas lawsuit against, Ford Motor 
Company--a lawsuit that, according to the plaintiffs' attorneys, 
involved hundreds of thousands of class members, each with tens of 
thousands of dollars in alleged damages--somehow is not ``important'' 
enough to warrant the federal courts' time.
    Clearly, this result is indefensible. It is time we realized--in 
academia, in the profession, and in Congress--that the two current 
requirements of diversity jurisdiction are simply proxies for 
``importance.'' It is true that these proxies, because they have been 
in force for many years, have come to be embedded in the legal culture. 
But there is nothing sacred--and certainly nothing constitutional--
about them. They are merely proxies, and highly imperfect ones at that. 
More important than fealty to these proxies is that we remember the 
underlying purpose they are intended to serve: to provide a federal 
forum for cases that are sufficiently large and important, judged 
against the three constitutional purposes I have described above. 
Interstate class actions clearly are important on any measure. 
Accordingly, I strongly support the proposed amendments.

                            III. Conclusion

    I appreciate the opportunity to testify today before this 
Subcommittee. Please allow me to summarize. Interstate class actions 
are filed at a rate that increases every year. More and more, they are 
filed in state court in an effort to capitalize on the political 
goodwill that many local class-action plaintiff's attorneys have with 
their local elected judges. And federal courts, lacking any clear 
guidance from Congress, are bending over backwards to decline 
jurisdiction over these cases. This has created strong pressure on out-
of-state defendants to settle cases, regardless of the merits of the 
claims involved. This situation is a real and tangible threat to due 
process in this country, and I urge Congress to take immediate steps to 
address the threat by restoring the right to remove these cases to a 
neutral, federal forum.

    Senator Grassley. Thanks to both of you, and we will have 
5-minute rounds of questions as well for this panel.
    I will start with you, Mr. Frank. I would like to have you 
comment on the Justice Department's concerns regarding 
diversity removal provisions in the bill. Do you think that the 
Justice Department's criticisms are justified?
    Mr. Frank. I think not, and I must acknowledge to you, sir, 
that I have been the principal defender of diversity through 
many Congresses for many years. That is one of the reasons you 
are keeping it. So I am very strongly in support of the 
diversity jurisdiction generally.
    At the same time, I have some sympathy with the feeling of 
the Department, evidently, that they don't want to inundate the 
system with cases. I also have a sense, as you gentlemen with 
more experience have, with the practical politics of the 
situation, because the plain gut fact of the matter is that you 
are either going to work this out with Justice or you won't get 
the bill through, I would fear.
    And I listened to Ms. Acheson with very great interest. She 
and I had spoken before the meeting, and I heard her repeatedly 
encouraging discussions to see if some compromise can't be 
worked out. And I think that that is just, as I earlier 
suggested, essential.
    I noted Senator Sessions nodding to me when I mentioned 
Judge Pointer of his State, who has done more than any other 
single judge in America to make the systems work well together, 
and by having joint hearings. And I am also a member of the 
Council of the American Law Institute. There is a bill to work 
out integration of State and Federal systems. Charlie Wright 
could be a useful guy for this discourse.
    So I take the liberty of suggesting that while I personally 
believe strongly in the bill as it stands, I suggest that 
tactically it shouldn't be difficult to work out with Justice 
some way which would get away from perfectly outrageous 
situations. I have included an essay in my own statement on 
that Bank of Boston case that you spoke about. Of course, that 
is appalling, and we have just got to put a stop to that. And 
if there is no way to do it but running a steam roller through 
it, then please run a steam roller. But I think you could work 
something out.
    Senator Grassley. Thank you.
    Professor Elliott, you heard the critics of our proposal 
argue that it would federalize class action procedures, so that 
if a Federal court denies certification, a State court can't 
turn around and certify the same class. Do you believe that 
most State courts already look to the Federal law as a class 
action procedural issue?
    Mr. Elliott. Overwhelmingly, they do. I think that is part 
of the problem. In many, many, many States, as a litigating 
lawyer, I think my clients and I would not particularly care 
whether we are in the Federal court or the State court because 
there are very similar rules. We do have some situations--and 
it is kind of a race to the bottom--where certain jurisdictions 
have developed rules that are extremely favorable to the 
plaintiff, and cases that have very little connection with that 
forum tend to get filed in those few areas.
    But I think in the overwhelming majority of jurisdictions, 
the rule is pretty similar to the Federal rule, or even more 
restrictive than the Federal class action rule. But, again, I 
think that is why the approach of removal which is used in this 
bill is really such a good one because you are not going to 
remove a case to Federal court solely because of a difference 
in class action standards. You are going to make a decision 
based on the overall mix of whether or not the State court and 
the State judge and the State jury and the State procedural 
system as a whole is perceived as reasonably fair.
    And if not, I think it is important, particularly in multi-
State cases with out-of-state corporate defendants, that there 
be an opportunity to remove that case to a more neutral forum. 
I don't think that is federalizing the rule. I think it is 
really just the core purposes of diversity jurisdiction.
    And let me note I have not been as strong a supporter of 
diversity jurisdiction as John Frank. I was one of the advisers 
to the Federal Court Study Committee that recommended some 
contracting of diversity jurisdiction. But if we have diversity 
jurisdiction at all, in my opinion, these kinds of cases where 
you have out-of-state, multi-State corporate defendants are 
really the core purposes for which diversity jurisdiction is 
created.
    And I think it is ultimately very ironic that the simple 
slip-and-fall case between two citizens of different States can 
be in Federal court, and the kind of case that involves many, 
many people throughout the country and many corporations can't 
be effectively brought in the Federal court because of these 
problems with the removal provisions.
    Senator Grassley. Professor Elliott, would you please 
comment on the Justice Department's testimony of how far--well, 
this isn't just the Justice Department's testimony. How far 
will this legislation go toward addressing problems associated 
with class actions? I would also ask Mr. Frank that as well.
    Mr. Elliott. I think it is a useful first step, but I don't 
believe it goes far enough. I think there is plenty more work 
to be done in this area. As I indicated, I think there are 
abuses even under the Federal rule, but as a very moderate, 
balanced first step, restoring the right to remove cases back 
into the Federal court I think is a good first step.
    Senator Grassley. Would you like to comment, Mr. Frank?
    Mr. Frank. I simply feel that it is a very long and a very 
good first step, and I take the liberty of complimenting you on 
it, especially on that portion that you mentioned earlier. You 
are keeping the true State cases in State courts. In my State, 
for example, there is a pending class action about water 
rights. Now, that belongs in the State court. It involves our 
water. The plaintiffs are people involved in the State. It is a 
very legitimate State class action. You have protected that 
very, very thoroughly.
    I have made my technical suggestions, which I respectfully 
submit would perhaps strengthen the bill and go squarely to 
where you want to go, Senator Grassley, and I hope you can 
consider them.
    Senator Grassley. The Senator from Alabama.
    Senator Sessions. Thank you, Mr. Chairman. I agree with 
you, Professor Elliott, that really this is the heart and soul 
of what diversity is about. It is precisely the kind of case 
that is in harmony with the philosophy, I believe, of 
diversity, and it is appropriate.
    I recall an individual who got elected chief justice of the 
Alabama Supreme Court and was narrowly defeated by a few votes 
this last time for reelection, but when he was in private 
practice, he made a closing argument that was presented in the 
Alabama Lawyer in which he said, looking at his jury, he wanted 
them to return a verdict, a big verdict, a verdict so big that 
it would have to be written by the president of that New York 
corporation personally. And he wanted it so big, that the 
executive would cry when he wrote it.
    There is a sense sometimes that juries can be inflamed 
against foreign defendants, and sometimes you end up with 
bizarre verdicts that are not always helpful. That is why we 
had some diversity to begin with, and I think we are moving 
away from that.
    Mr. Frank, I would also note for you Judge Higginbotham is 
a University of Alabama graduate. So your three people there--
Justice Black, and Higginbotham, and Judge Pointer--are all 
University of Alabama graduates.
    Mr. Frank. It is clear that Judge Higginbotham is very 
enthusiastic about that, and one of the meetings of the 
committee under his chairmanship was at the University of 
Alabama and I was allowed to give a lecture in the Black Room 
that is now in the building there. I hope you have seen it. It 
is really very nice.
    Senator Sessions. It is very nice. Thank you for your 
continual interest in this. Like any piece of legislation, 
obviously, you had concerns that interested me. Some of the 
concerns you had at that time, you now believe have proven to 
have been correct, is that right?
    Mr. Frank. Yes.
    Senator Sessions. So you would say to the legislative body, 
based on your personal experience and the experience we have 
had over these years, that it is time for us to improve the law 
so we can minimize those concerns?
    Mr. Frank. Yes, though I don't want to claim I have a 
crystal ball. Let me say nobody in America in the 1960's ever 
anticipated that we were going to get this massive growth. I 
repeat, what we thought we were dealing with was small matters.
    May I add one other word? I am keenly aware that the 
Committee on Civil Procedure and the special committee headed 
by Judge Scirica has recently recommended that there be further 
study of the mass tort problem. I have read it. They have sent 
it to me. I strongly endorse that proposal of Judge Scirica, 
and at the same time that is no reason why you have to paralyze 
action on this particular difficulty. This is a subset of the 
problem; it is a severe abuse. And you are very wise in doing 
just what you are doing.
    Thank you.
    Senator Sessions. I thank you for that, and I agree 100 
percent. We had hearings on the asbestos litigation. I believe 
200,000 asbestos cases have been concluded; 200,000 are 
pending, and another 200,000 expected. Seventy percent of 
asbestos companies, 25 companies, are in bankruptcy, and only 
40 percent of the money paid out by the asbestos companies has 
gotten to the victims.
    In mass tort, we have got to do better. For those who love 
the law, we need some professors to be outraged about that. 
This money should have gone to victims and not the bureaucrats 
and lawyers in between, in my view. But that is to some degree 
another subject.
    With regard to the Department of Justice, I hope your 
optimism is not too great, Mr. Frank, because I am not sure 
they want legislation. But I certainly would be prepared to 
work with you or the chairman, if he chose. I have spent some 
time personally with Judge Pointer, who I think is one of the 
country's finest district judges, and he believes that this is 
not an undue burden on the Federal courts; a necessary burden, 
I assume he would call it. And he thinks your suggestions are 
on the right track.
    Mr. Elliott, with regard to the attorneys' fees, aren't 
there circumstances in which there is a conflict of interest 
between the attorney and the clients, the thousands they may 
represent? Would you explain why we can't always rely on a fee 
agreement to be a fair setting of attorneys' fees?
    Mr. Elliott. I would be glad to, and I certainly agree with 
you that there is an inherent conflict between the attorney and 
the clients in class action cases. That is one of the reasons 
that we have the provisions that are unique in rule 23(e) in 
the Federal system requiring that the settlement agreements and 
the fee agreements have to be approved by the court because in 
a class action case, although you have some representative 
parties that are in some of the academic literature referred to 
as decorative figureheads, you can't really count on them to 
negotiate an agreement. So these fee agreements are not really 
negotiated with class action members in the way that they would 
be in a normal situation.
    And along those lines, Senator Sessions, let me just make 
one remark. You mentioned the asbestos cases, and as you 
continue to draft this legislation, I think we have to be 
careful that we cover what are sometimes called quasi-class 
actions. I was involved in defending the--and the closing 
argument you mentioned reminded me of the times I had heard 
that.
    I was involved in defending the 8,800-plaintiff Baltimore 
asbestos cases, at the time one of the largest asbestos cases 
ever. That was not filed as a class action.
    Senator Sessions. 8,800 individual lawsuits?
    Mr. Elliott. 8,800. They just named 8,800 consolidated 
cases. And if you were to have a situation where your 
legislation granted removal, but it was limited to those cases 
that are class actions, you might create incentives for people 
to file these cases in the State courts under liberal joinder 
provisions, but simply to name 8,800 people.
    So I think you need to think as the process goes forward 
about how this gets drafted so that we are really dealing with 
the multi-party cases, not just those that are formally class 
actions. I mean, we had a situation where people were using 
consolidation as an alternative to class actions, and you can 
get to pretty much the same result that way in many cases.
    Senator Sessions. Thank you.
    Senator Grassley. The last question was something I was 
going to ask Mr. Frank, so I just wondered if you want to 
comment on the last question that he asked just to have a 
confirmation of everything we have talked about here today.
    Mr. Frank. I think Mr. Elliott has done this so well, and 
John Beisner is coming before you and he speaks for me very 
well. I do reiterate what I took the liberty of saying before. 
I really believe that if the right people expert in this field 
spent an afternoon together, they would solve this problem and 
come back to you with a proposal that could be unanimously 
accepted. It just isn't that difficult.
    Some of the cases should stay in State courts, some of them 
shouldn't. You have made a brave step. Perhaps something 
further can be done, and it so needs to be done. Please don't 
let this valuable bill die because of a quarrel over that very 
important question. It just has got to be compromised somehow.
    Thank you.
    Senator Grassley. Thank you, and I say thank you to the 
entire panel. Your contribution is very worthwhile for this 
project that we are going forth on.
    Now, on our fourth and final panel, I would call Mr. Steve 
Morrison, Professor Richard Daynard, and Mr. John Beisner. Mr. 
Morrison is a partner with the Columbia, SC, law firm of 
Nelson, Mullins, Riley and Scarborough, as well as general 
counsel for Policy Management Systems Corporation. He is the 
witness that Senator Thurmond has referred to as being a 
constituent of his, and Senator Thurmond is glad to have Mr. 
Morrison here. He also serves as board chairman of the Lawyers 
for Civil Justice.
    Professor Daynard is a professor at Northeastern University 
School of Law and is active in tobacco-related studies and 
litigation. He has published numerous articles dealing with 
tobacco liability.
    Mr. Beisner is a partner in the Washington, DC, office of 
O'Melveny and Myers, and he has defended over 250 class action 
lawsuits in both Federal and State court.
    I would ask Mr. Morrison to start.

   PANEL CONSISTING OF STEPHEN G. MORRISON, GENERAL COUNSEL, 
   POLICY MANAGEMENT SYSTEMS CORP., COLUMBIA, SC; RICHARD A. 
 DAYNARD, PROFESSOR OF LAW, NORTHEASTERN UNIVERSITY SCHOOL OF 
LAW, BOSTON, MA; AND JOHN H. BEISNER, O'MELVENY AND MYERS, LLP, 
                         WASHINGTON, DC

                STATEMENT OF STEPHEN G. MORRISON

    Mr. Morrison. Thank you, Mr. Chairman. Mr. Chairman, I am 
an old trial lawyer. I have had the privilege of trying over 
200 cases to jury verdict in over 20 States in the United 
States, and I have seen home cooking in various places and I 
have seen some excellent judges and fundamental fairness.
    Your bill restrikes the appropriate balance of fundamental 
fairness in class actions by allowing for the use of diversity 
jurisdiction to remove the case to Federal court. It is what 
the Framers intended and it is what we need as practicing 
lawyers.
    Nicholas Negroponte, who is head of the media lab at the 
Massachusetts Institute of Technology, a fellow who foresaw the 
digital world that we are in now, wrote a book called Being 
Digital in 1996. He says if you are going to look to the 
future, looking straight ahead with your head down, you don't 
always see things. To see the future appropriately, you need to 
see it from peripheral vision because some of the things that 
come at you really come out of left field.
    I think out of left field, we have had a situation where 
class actions have increased so dramatically from 1988 to 
1998--up 1,000 percent in some areas, 300 percent in other 
areas. The RAND study says most of them are in State courts. 
The focus has been on State court litigation.
    So, Mr. Chairman, what I say is what is happening out 
there? Has corporate conduct really changed? Is the business 
world significantly more evil in more multiples across the 
country, in the United States? No, absolutely not.
    What has changed is an attitude toward entrepreneurial 
litigation which is going to the lowest common denominator, 
that is the jurisdiction where they can get the best possible 
judge with the least possible rigor in the class certification 
process. Entrepreneurial litigators are bringing these cases in 
hometown jurisdictions. Now, why are they doing that? They are 
bringing them in hometown jurisdictions because the whole ball 
game in class action is about class certification.
    When I am litigating a class, if I can prevent it from 
being certified, or at least get enough rigor in the class 
process by which you have a rational certification of people 
that are really injured, really in like situation, whose cases 
can be tried together rationally, then you can come up with a 
rational settlement or, better yet, a rational trial process by 
which you can go to a verdict.
    There is a case down in Tennessee that is commented upon in 
several of the articles that are before you where a class 
action involving 23 million people nationwide was certified on 
the same day it was filed. What do you think the defendant has 
to do under those circumstances? The defendant is forced to 
settle with a 23-million-person multiplier in that situation. 
That is legal blackmail in a State court. You know those 23 
million people didn't all live in Tennessee, nor were all the 
defendants in Tennessee. But there were enough defendants and 
enough plaintiffs in Tennessee to allow that to go forward. 
That was wrong.
    And, you know, when we looked further into it, we found 
that within 10 days before that, the same lawyer in the same 
court in the same State of Tennessee had filed a case against 
the music industry for a class action. That is abusive, and 
that is what is going on. So we have a huge increase in 
monetary demands, no change in corporate behavior, and an 
entrepreneurial litigation going on.
    Why? It is because the States are less rigorous. It is 
because the States are less able to manage this litigation. 
They have not been set up for it, they have not had the 
training in it, they do not have the clerks in it. Mr. 
Chairman, when I go to a State court in a small county, I am 
frequently confronted with a judge in a mass tort situation, 
class action or other mass tort, where the judge the next day 
will be hearing a divorce case, and the case right before mine 
was a juvenile crime case and the case right after mine is a 
slip-and-fall in a grocery store.
    Now, the State courts have to deal with that. There are 
wonderful, brilliant State court judges in all of our States 
and they have to deal with justice on an individual level in 
that State, in that locality. That makes sense. But does it 
make sense for them to be handling a nationwide class action? 
No, it does not. That is what diversity jurisdiction is all 
about.
    Now, when we take a look at what is happening, we get this 
certification, we get the blackmail multiplier in there. And 
then what we really have to do is look at who runs the case 
once that is done. Well, Mr. Chairman, the person who runs the 
case is the self-appointed chief executive officer of the case; 
it is a lawyer. There are no clients.
    In fact, in the Federalist documents there is a quote from 
William Lerache, who is probably one of the major class action 
plaintiff lawyers in the country, saying it is wonderful not to 
have a client. If your client is going to get $.08 at the end 
of the case, there is no client, there is no accountability. 
Now, that person has not been elected by a board of directors, 
not been elected by the shareholders, not been elected by the 
voters. That entrepreneurial litigator is then negotiating a 
class settlement that is really about that person's fee.
    If I might just conclude, so who is getting tromped on 
here? The people that are really getting tromped on are the 
consumers. The consumer then ends up paying a huge fee for an 
$.08 settlement. The disclosure didn't come out on the fee. The 
disclosure didn't come out in plain English. The notification 
didn't come out in plain English.
    And what is the solution to all of this? Interstate class 
actions should be in the Federal courts. Why? Mr. Chairman, the 
Federal courts are particularly able to handle these. They were 
designed for multi-State issues, to deal with them. They have a 
sensitivity toward the substantive law of each State.
    Moreover, if you look at what is happening in the 
peripheral vision, the aggregation of large numbers of claims, 
as Senator Thurmond said in his opening statement, is creating 
social policy. In essence, the courts are being used by 
aggregating large numbers of claims to make public policy, 
absent an elected representative, absent a legislator.
    Why is that significant? The Federal courts are 
extraordinarily sensitive to separation of powers, and so they 
are sensitive to the law of each State. They have a mechanism 
by which we are not going to duplicate these class action 
lawsuits, so there is a mechanism to manage them. Most of the 
Federal judges have two or three law clerks. Most of the 
Federal judges have a docket that is more manageable. They work 
extraordinarily hard, but the variety and size of cases is in a 
narrower band.
    They are in a situation where, if they can have this 
appropriate jurisdiction, eliminating the sham defendant or the 
false joinder, as you have done here, and the amount in 
controversy claim-shaving abuse, all you do is take appropriate 
Federal actions in the U.S. district courts where they belong. 
I strongly endorse this bill as a very powerful first step and, 
as Professor Frank said, a long first step toward class action 
reform.
    Thank you.
    Senator Grassley. Thank you, Mr. Morrison.
    [The prepared statement of Mr. Morrison follows:]

               Prepared Statement of Stephen G. Morrison

    Thank you for this opportunity to speak to you today about the 
merits of S. 353, the Class Action Fairness Act of 1999. This important 
legislation at least partially addresses one of the most serious 
problems raised by class action litigation in our nation's legal 
system, and I therefore urge the members of this Subcommittee to give 
their careful consideration and support to this legislation.
    Before spelling out the reasons for my support of this legislation, 
let me tell you about the multiple perspectives that I bring to this 
subject. Indeed, I have seen the subject matter of this legislation--
class actions--``up close and personal'' from four very distinct 
vantage points. First, I am a partner and practitioner trial attorney 
with the law firm of Nelson, Mullins, Riley & Scarborough in Columbia, 
South Carolina. In that role, I have had considerable involvement with 
the adjudication of class action litigation. Second, I am the General 
Counsel of Policy Management Systems Corporation, a publicly traded 
(NYSE) technology computer systems and technology services company. 
Third, I currently serve as Board Chairman of the Lawyers for Civil 
Justice (LCJ), a national coalition of the leading corporate counsel 
and defense bar organizations. Finally, I recently served as President 
of the Defense Research Institute, an organization of 21,000 lawyers 
defending civil cases in America's civil courts every day. My firm 
which has over 200 lawyers in North Carolina, South Carolina, and 
Georgia has been involved in defending dozens of state and federal 
class actions. My own personal experience in handling state and federal 
class actions involving both national and ``local'' issues and classes 
in managing multidistrict litigation forms the primary basis for my 
testimony.

       I. The Number Of Class Actions Has Increased Exponentially

    When it comes to class actions, there may be room for legitimate 
debate on a lot of issues. But there is no room for dispute on a key 
point--over the past several years, the number of putative class action 
lawsuits filed has skyrocketed. I have seen that phenomenon in my own 
legal practice. I have seen that phenomenon as a general counsel, both 
in dealing with the legal docket of my company and in corresponding 
with fellow general counsels of other companies. And I have seen that 
phenomenon in my work with Lawyers for Civil Justice, whose members 
have spent many hours discussing and analyzing the burgeoning ``class 
action problem.'' Personally, I have experienced the explosive increase 
in class action suits through the over fifty class action cases 
recently or currently handled by my firm; multiple state court class 
action cases filed against Policy Management Systems Corporation over 
the cost of photocopying hospital and other medical records; and the 
alarming increase in state court class actions filed against corporate 
members of Lawyers for Civil Justice.
    There's a lot more than just anecdotal evidence of this trend. Both 
this Subcommittee and its House counterpart held hearings last year in 
which ample evidence of the class action tidal wave was supplied. For 
example, the record of those hearings reflect statements from the 
Federal Judicial Conference's Advisory Committee on Civil Rules 
observing that over the past few years, U.S. companies have experienced 
300-1,000 percent increases in the number of purported class actions 
filed against them.\1\ And a study by the highly regarded RAND 
Corporation confirms this trend.\2\
---------------------------------------------------------------------------
    \1\ Working Papers of the Advisory Committee on Civil Rules on 
Proposed Amendments to Civil Rule 23, Vol. 1, at ix-x (``Working Papers 
1'') (memo to members of the Standing Committee on Rules and Procedure 
and the Advisory Committee on Civil Rules from Judge Paul V. Niemeyer).
    \2\ Deborah Hensler et al., Preliminary Results of the RAND Study 
of Class Action Litigation 15 (May 1, 1997) (``RAND Report'').
---------------------------------------------------------------------------
    Let me also observe that it is not only the number of these cases 
that has grown--the size of those cases has also grown. It is not 
unusual for the proposed classes in these cases now to encompass 
millions of Americans. And not surprisingly, with the number of class 
members growing in the average case, the monetary demands are growing 
as well. Thus, it is not unusual for a company to be served with a 
class action lawsuit seeking damages of a billion dollars or more.
    This dramatic increase in the number of state court class actions 
and the size of the awards being sought is puzzling to say the least. 
Obviously, it is not attributable to any radical change in corporate 
behavior. I see no evidence that our nation's business leaders suddenly 
lost their moral compass, such that it is rampant corporate wrongdoing 
that is prompting these lawsuits. Instead, I think it is clear that the 
explosion of class action filings can only be attributed to the fact 
that certain members of the plaintiffs' bar have discovered that some 
of our state courts can be a fertile playing field for class 
litigation.
               b. the class action device is being abused
    Given the immense stakes involved in nearly all class actions, one 
might think that these class actions would generally be filed and 
litigated in the federal district courts. After all, a core function of 
the federal courts is to adjudicate claims between the citizens of 
different states that involve substantial amounts of money. But there 
is compelling evidence that the recent growth in the number of class 
actions is primarily a state court phenomenon. The RAND Report notes 
that the ``doubling or tripling of the number of putative class 
actions'' has been ``concentrated in the state courts.'' \3\
---------------------------------------------------------------------------
    \3\ See, e.g. RAND Report, supra note 2, at 15.
---------------------------------------------------------------------------
    The reason for this explosion of state court class actions is 
simple. State courts in a number of jurisdictions have exhibited a 
relatively lax attitude toward class action lawsuits--that is, many 
local courts are willing to certify for class treatment cases that do 
not meet the basic, generally accepted class action requirements.\4\ 
Not surprisingly, some members of the class action plaintiffs' bar have 
seized this obvious opportunity. They have taken their lawsuits to 
state courts that are less likely to exercise the rigorous case 
management necessary to ensure that all parties (including unnamed 
class members) receive due process. Having discovered an open door in 
state courts, plaintiffs' counsel are filing class action lawsuits that 
they would never have seriously considered bringing a few years ago.
---------------------------------------------------------------------------
    \4\ At the same time, federal courts have laid down clearer, firmer 
rules, governing when a matter may be afforded class treatment. The 
recent decisions of the U.S. Supreme Court in Amchem Products v. 
Windsor, 117 S.Ct. 2231 (1997), the Fifth Circuit in Castano v. 
American Tobacco Co., 84 F.3d 734 (5th Cir. 1996), the Sixth Circuit in 
In re American Medical Sys., Inc., 75 F.3d 1069 (6th Cir. 1996), the 
Seventh Circuit in In re Rhone-Poulenc Rorer, Inc., 51 F.3d 1293 (7th 
Cir.) (Posner, J.), cert. denied, 116 S.Ct. 184 (1995), the Ninth 
Circuit in Valentino v. Carter-Wallace, Inc., 97 F.3d 1227 (9th Cir. 
1996), the Eleventh Circuit in Andrews v. American Tel. & Tel. Co., 95 
F.3d 1014 (11th Cir. 1996), have reminded federal district courts of 
the importance of taking the requirements of Rule 23 seriously; that 
is, matters may be certified for class treatment only if they clearly 
meet the certification prerequisites set forth in Fed. R. Civ. P. 23.
---------------------------------------------------------------------------
    In interviews for the RAND Report, many attorneys (including some 
plaintiffs' counsel), observed that ``too many non-meritorious [class 
action lawsuits] are [being] filed and certified'' for class 
treatment.\5\ As a result, U.S. corporations (both large and small) are 
being forced to expend substantial resources defending an onslaught of 
cases, most of which do not come close to satisfying the class action 
prerequisites. By readily obtaining certification of huge classes in 
state courts, plaintiffs' attorneys are able to create enormous 
financial exposure and to thereby force settlements of cases that 
otherwise would not be taken seriously.
---------------------------------------------------------------------------
    \5\ RAND Report, supra note 2, at 22.
---------------------------------------------------------------------------
    But corporations are not the only victims here. Class actions are 
supposed to be brought on behalf of class members--usually consumers. 
But in the class actions we are seeing today, class members are the 
forgotten participants. No one checks to see if the putative class 
members really want to have their claims asserted in a class action. No 
one asks the class members how or where they wish their claims to be 
asserted. No one confers with class members to find out if they wish to 
have their claims litigated. And most importantly, no one obtains input 
from class members about how they wish to have their claims settled (if 
at all). In short, consumers' claims are being used by attorneys as 
business ventures. Consumers have little or no control over how their 
claims are being used. Thus, not surprisingly, they exercise little or 
no control over what happens to their claims.
1. Defendants' due process rights are being ignored
    The record shows that many state courts do not give a fair shake to 
either class action defendants or the members of the putative classes--
only class counsel are benefited. The state court abuses of the class 
action device have become open and notorious. As defendants in state 
court class actions, U.S. companies are being denied fundamental due 
process rights. Let me describe a few types of problems defendants 
commonly incur in these courts.
    Some state courts ignore the due process rights of out-of-state 
corporate defendants. In these jurisdictions, the defendant is not 
afforded a fair opportunity to contest the claims brought against it. 
The most outrageous example of this is the ``drive-by class 
certification'' in which a state court judge grants plaintiffs' motion 
to certify his claims for class treatment before the defendant even has 
a chance to respond to the motion (or, indeed, in some instances has 
even been served with the complaint).
    For example, I noted in the record of the House hearings last year 
discussion of a lawsuit filed against a major car manufacturer in a 
Tennessee state court.\6\ Plaintiffs filed several inches of documents 
with their complaint. Astoundingly, by the time the court closed on the 
very day that the action was filed, the judge had entered a nine-page 
order granting certification of a nationwide class of 23 million 
vehicle owners--one of the largest class actions ever certified by any 
court.\7\ In the order, the court stated that it had conducted ``a 
probing, rigorous review'' of the matter. I am not sure how you could 
possibly do that in a few hours on the day a case is filed. And I am 
quite sure that you could not do ``a probing, rigorous review'' when 
the defendant was never even notified about the lawsuit before that 
order was entered and was provided no opportunity to tell its side of 
the story. Only a few days earlier, the same plaintiffs' attorney had 
filed another multistate class action--one alleging antitrust 
violations in the music/compact disc industry--before the very same 
Tennessee state court.\8\ Once again, in that major class action, the 
trial court entered an order granting class certification on the same 
day the complaint had been filed, long before the defendants were 
notified of the lawsuit and certainly before they had been afforded any 
opportunity to respond to the request for class certification.
---------------------------------------------------------------------------
    \6\ Sweet v. Ford Motor Company, Civil Action No. L-10463 (Cir. Ct. 
for Blount County, Tenn.) (filed Jul. 10, 1996).
    \7\ See Order Granting Nationwide Class Certification, Sweet v. 
Ford Motor Company, Civil Action No. L-10463 (Cir. Ct. for Blount 
County, Tenn.) (filed Jul. 10, 1996).
    \8\ Robinson v. EMI Music Distribution. Inc., Civil Action No. L-
10462 (Cir. Ct. of Blount County, Tenn.) (filed July 8, 1996).
---------------------------------------------------------------------------
    Another common problem with state court class actions is the ``I 
never met a class action I didn't like'' phenomenon. Although most 
state courts will at least give the defendant a chance to respond to a 
class certification motion, many of them employ standards that are so 
lax that virtually every class certification motion filed is granted, 
even where it is obvious that the case cannot, consistent with basic 
due process principles, be tried to a jury as a class action. This 
problem is evidenced by the frequency with which state courts are 
readily certifying cases as class actions, while federal courts 
conclude that the very same cases cannot be litigated on a class basis. 
For example, I am aware of cases in which a state-court judge certified 
a nationwide class of persons who allegedly claimed that the house 
siding they had purchased was defective. Later, however, a federal 
district court judge presented with the same case rejected any prospect 
of certifying a class in that matter, finding that affording class 
treatment in that case obviously would deny the due process rights of 
the defendants and the purported class members.\9\
---------------------------------------------------------------------------
    \9\ Compare Naef v. Masonite Corp., No. CV-94-4033 (Circuit Court, 
Mobile County, Alabama), with In re Masonite Hardboard Siding Prods. 
Litig., 170 F.R.D. 417, 424 (E.D. La. 1997).
---------------------------------------------------------------------------
2. Consumers are being used and their rights are being trampled
    The real purpose of the vast majority of class action lawsuits is 
to make money--not for consumers, but for the lawyers bringing the 
suit. As a result, consumers often are exploited and rarely receive 
substantial awards, while class action counsel frequently walk away 
with millions. For instance:

   The Chicago Tribune reported that in a class action against 
        Arista Records seeking to recover the prices paid for albums by 
        the rock duo Milli Vanilli (that contained the voices of other 
        performers), class members obtained a settlement recovery of $1 
        to $3 each. But the court awarded the lawyers $675,000. And for 
        those lawyers, that was not enough. They petitioned the court 
        to increase their fee to $1.9 million.
   Business Today reported that in a class action against a 
        cereal maker regarding the use of a food additive that had not 
        injured any consumer, the consumers received (in settlement) a 
        coupon entitling them to free cereal (if they bought more 
        cereal). Meanwhile, the lawyers for the class were paid nearly 
        $2 million in fees--approximately $2,000 per hour.
   The Baton Rouge (La.) Advocate reported that in a settlement 
        of a state court class action involving toxic pesticide fumes 
        from a chemical plant, the residents of a New Orleans 
        neighborhood each received a few thousand dollars. But the 
        class action lawyers walked away with over $25 million in legal 
        fees and expenses.
   An article in the San Diego Union Tribune criticized the 
        settlement of a state court class action in which the author 
        had received 93 cents and her class counsel had received 
        $140,000.
   The Chicago Tribune reported that one state court class 
        action settlement with a mortgage bank yielded an $8.5 million 
        payment to the class attorneys, but a $91.33 debit to the class 
        members' mortgage escrow accounts.

    I am also very disturbed by the circumstances (discussed in more 
detail below) in which class counsel waive the rights of the class 
members (whose rights they are supposed to protect) in an effort to 
make a case more amenable to class treatment. In short, in order to 
achieve the class counsel's personal objective--to create a class 
action business venture--counsel frequently jettison purportedly viable 
claims and take other actions that are adverse to the interests of 
class members.
    These reports are particularly disturbing because they reveal how 
grossly the class action device has been distorted. The class action 
device was intended to protect consumers. It was not created to enable 
lawyers to get rich.
    Before going any further, let me say that I am pleased that S. 353 
addresses the issues of consumer exploitation and attorney misconduct 
in a number of its provisions.\10\ For example, the class notices that 
class member receive frequently are written in small print and 
legalese. Since those notices typically are telling class members that 
they are about to give up important legal rights (unless they take 
appropriate action), it is imperative that they understand what they 
are doing and the ramifications of their actions. The bill requires 
notice of proposed settlements in all class actions, as well as all 
class notices, must be in clear, easily understood English and must 
include all material settlement terms, including the amount of 
attorneys' fees.
---------------------------------------------------------------------------
    \10\ However, I would urge the Congress to work with the courts 
through the rule making process rather than legislatively amending Rule 
11 of the Federal Rules of Civil Procedure. Specifically, Congress 
should be cautious in the area of ``mandatory'' judicial sanctions. I 
would urge leaving discretion with the federal judges as to when and 
whether sanctions are appropriate in each case.
---------------------------------------------------------------------------
    The bill also requires that state attorney generals be notified of 
any proposed class settlement that would affect residents of their 
states. The notice would give state attorney generals the opportunity 
to object if the settlement terms are unfair.
    Senate Bill 353 requires that attorneys' fees in class actions be 
based on a reasonable percentage of damages actually paid to class 
members, the actual costs of complying with the terms of the settlement 
agreement, as well as any future financial benefits. In the 
alternative, the bill provides that, to the extent the law permits, 
fees may be based on a reasonable hourly rate. This provision would 
discourage settlements that give attorneys exorbitant fees based on 
hypothetical overvaluation of coupon settlements, yet allows for 
reasonable fees in all kinds of cases.

      II. Federal Courts Are The Appropriate Forum For Litigating 
                        Interstate Class Actions

    State courts are simply not the appropriate tribunals for many 
class action lawsuits, particularly those with interstate commerce 
dimensions. In many (if not most) instances, state court class action 
cases involve putative class members from multiple jurisdictions suing 
defendants from outside the forum state. This engenders the bizarre 
situation in which a state court in one state (e.g., Massachusetts) is 
interpreting the state law of another (e.g., South Carolina) and 
resolving the claims of South Carolina residents. What business does a 
Massachusetts court have dictating to South Carolina what its laws mean 
and in resolving the claims of its citizens? It is far more appropriate 
for a federal court to interpret the laws of various states, which is 
inherently what the constitutional concept of diversity jurisdiction is 
all about. Other state courts have adopted a different, equally 
unsatisfactory approach. They apply their own state's laws to all 
claims asserted in a purported class action, even though the class is 
comprised primarily of out-of-state residents and even though the laws 
of those class members' respective home states may be radically 
different.\11\
---------------------------------------------------------------------------
    \11\ See, e.g., Snider v. State Farm Mut. Auto. Ins. Co., No. 97-C-
114 (Ill. Cir., Williamson Co.) (order certifying nationwide class of 
state-law based claims).
---------------------------------------------------------------------------
    In addition to these problems, many state courts have neither the 
complex litigation experience nor the support staff necessary to 
address the complex, technical issues normally presented by class 
actions. And perhaps most importantly, they lack any mechanism for 
coordinating parallel litigation. Once a purported class action is 
filed, counsel in other jurisdictions often file ``copycat'' cases--
purported class actions asserting basically the same claims on behalf 
of basically the same class members. Because state courts have no 
mechanism to consolidate cases, as do the federal courts, defendants 
are unfairly required to expend substantial resources defending these 
duplicative lawsuits. In such circumstances, there is no mechanism for 
achieving coordination and avoiding inconsistencies in results. Indeed, 
in some instances, the two state courts are forced to compete, each 
vying to control the litigation. This situation often works against the 
interests of the class members, as class counsel in the various cases 
sacrifice class members' rights in an effort to jockey for controlling 
position. The situation is also unfair to defendants, potentially 
giving the same classes several bites at the apple against a class 
action defendant.
    If, however, overlapping or similar class actions are filed in two 
different federal courts, the multidistrict litigation process permits 
the transfer and consolidation of those cases for pretrial purposes, 
particularly the coordination of discovery. This is a much more 
efficient and effective system that does not needlessly waste judicial 
or corporate resources. Federal courts are by far the more appropriate 
forum in which to adjudicate class actions. Virtually all federal 
judges have two or three law clerks on their staff; state court judges 
typically have none. Federal court judges are usually able to delegate 
some aspects of their cases (e.g. discovery issues) to magistrate 
judges or special masters; it is not the norm for such personnel to be 
available to state court judges.
    The current law has been manipulated by plaintiffs' lawyers making 
removal of class actions to federal court virtually impossible. The 
state court class action environment has led to a sad reality: as a 
practical matter, the most important question determining the outcome 
of a class action lawsuit has now become, not the merits of the claims 
or the propriety of class treatment, but whether the case can 
successfully be removed to federal court. Because of the lackadaisical 
way in which some state courts treat class actions, a class action that 
stands practically no chance of succeeding in a federal court can 
result in a multi-million (or billion) dollar judgment if it ends up in 
state court. Thus, the fight over the existence of federal jurisdiction 
becomes, as a practical matter, the entire game. The lawyers who file 
class action lawsuits recognize this. Accordingly, they have become 
increasingly adept at manipulating their pleadings to keep their 
putative class actions out of federal court. Tactics include:

          (1) Filing a complaint that, fairly read, gives rise to a 
        claim under some federal statute, thereby qualifying the case 
        for the assertion of federal question jurisdiction. To disguise 
        this fact, the complaint will omit any explicit reference to 
        the federal claim, or may even expressly disclaim any intent to 
        pursue an available federal claim.
          (2) On the diversity side, lawyers who want to keep a high-
        stakes class action out of federal court often manipulate the 
        parties in an attempt to destroy complete diversity. Under 
        traditional principles of diversity jurisdiction as applied to 
        class actions, ``complete diversity'' exists only if the state 
        of citizenship of all named plaintiffs is completely different 
        than the state of citizenship of all named defendants. To 
        destroy this, lawyers whose primary target is an out-of-state 
        deep-pocket corporation sometimes name a token defendant who 
        resides in the same state as one or more of the named 
        plaintiffs. For example, a lawyer wanting to sue a company in 
        Texas state court may name as a codefendant a Texas-based 
        employee of that company.
          The inherently fraudulent nature of this tactic is obvious: 
        although all putative class members may conceivably have a 
        claim against the defendant corporation, few (if any) of the 
        putative class members had any dealings with the token in-state 
        defendants, meaning that a classwide judgment against these 
        defendants is impossible. As all parties recognize, the 
        corporation is the only real target of the lawsuit. The in-
        state defendants are there only to facilitate the remand of the 
        action to state court on the basis of the ``absence of complete 
        diversity.'' Once the jurisdictional battle is over, these 
        defendants usually fall by the wayside.
          (3) Alternatively, lawyers sometimes include on the 
        plaintiffs' side of the case a named plaintiff who lives in the 
        same state as the defendant. Thus, a defendant may, under the 
        present law be served with a complaint in Alabama state court 
        which purports to be brought by three Alabama residents and one 
        resident of its home state. Again, the manipulative intent here 
        is clear. Why would a plaintiff who has a grievance against a 
        company within his or her home state travel all the way to some 
        other forum to file a lawsuit? Obviously, the reason is that 
        her lawyers are trying to prevent the corporation from 
        defending against this inherently nationwide controversy in a 
        federal court.
          (4) The ``amount-in-controversy'' prong of the federal 
        diversity requirement also is the subject of frequent 
        manipulation. The U.S. Supreme Court's decision in Zahn v. 
        International Paper \12\ has been interpreted as holding that, 
        in a putative class action, the ``jurisdictional amount'' 
        requirement (now $75,000) is met only if each and every 
        putative class member's individual claim is worth that amount. 
        Exploiting this general rule, class action complaints often 
        declare over and over again that all putative class members 
        seek less than the jurisdictional amount (sometimes $74,999).
---------------------------------------------------------------------------
    \12\ 414 U.S. 291 (1973).
---------------------------------------------------------------------------
          In recent years, some exceptions to the basic Zahn rule have 
        developed. For example, some federal courts of appeals have 
        held that class actions that seek punitive damages in excess of 
        the jurisdictional amount may meet the amount-in-controversy 
        requirement.\13\ In response, class action complaints now 
        purport to ``waive'' any and all claims that might conceivably 
        give rise to a punitive damage award (or at least limit 
        punitive damages to a lesser amount).
---------------------------------------------------------------------------
    \13\ See Tapscott v. MS Dealer Serv.--Corp., 77 F.3d 1353, 1359 
(11th Cir. 1996).

    These kinds of ``claims-shaving'' tactics raise disturbing issues 
of adequacy-of-representation and due process. While a single plaintiff 
suing solely in his own name surely is the ``master of his complaint'' 
and may limit the claims he asserts or the relief he seeks in order to 
stay in state court, a litigant (and his counsel) who seeks to 
represent large numbers of other people in a class action is 
constrained by his fiduciary obligations to the absentee members of the 
class. As several courts have recognized, it is inherently improper for 
a class action lawyer to unilaterally ``waive'' otherwise available 
claims that absentee claimants might wish to assert simply in the name 
of forum-shopping.\14\ Nevertheless, it happens every day--class 
counsel sacrifice the claims of unnamed class members in order to keep 
their cases in state courts.
---------------------------------------------------------------------------
    \14\ See, e.g., Epstein v. MCA, Inc., 126 F.3d 1235 (9th Cir. 
1997); Ex parte Russell Corp., 1997 WL 641325 (Ala. Oct. 17, 1997).
---------------------------------------------------------------------------
    Crafty lawyers can exploit still other tricks to deprive an out-of-
state class action defendant of its right to defend itself in a federal 
forum. For example, under current law, all defendants must consent to 
the removal of a case to federal court. If one defendant objects, the 
case cannot be removed. Accordingly, plaintiffs' lawyers sometimes join 
a ``plaintiff-friendly'' person or entity as a defendant, with the 
understanding the nominal defendant will use his status to veto any 
removal attempt.
    Another abuse stems from the requirement that any lawsuit be 
removed to federal court within one year after its ``commencement.'' 
Lawyers sometimes quietly file putative class actions in state courts 
that have no deadline for providing service, and then decline to serve 
the defendant until the one year deadline has expired. Alternatively, 
they include statements in their complaint designed to insulate the 
case from removal (such as assertions that only a nominal per-claimant 
amount is sought), wait one year, and then file an amended complaint 
that raises the amount-in-controversy or eliminates other impediments 
to removal only after the one year deadline has expired.
    These pleading tactics (and others like them) invariably are 
employed in purported class actions that, by virtue of the inherent 
diversity of the real parties in interest and the amounts actually at 
stake, ought to be litigated in federal court. They are complicated 
lawsuits that require the substantial resources and expertise that the 
federal courts are uniquely situated to devote to them (and that state 
courts, which spend most of their time handling smaller matters, are 
not institutionally well-suited to handle). They are also lawsuits that 
present exceedingly high-stakes for the defendant, and therefore give 
rise to the risks of parochialism and prejudice that the federal court 
system is designed to prevent (but that, regrettably, infect some state 
court systems).
    Such pleading tactics are intended to mask the inherently federal 
character of these lawsuits. They elevate the deliberately manipulated 
``form'' of the lawsuit over its actual substance. They should be 
outlawed. The bulk of today's class actions--large cases with 
interstate commerce implications--plainly belong in the federal courts. 
Accordingly, I urge this Subcommittee to vote favorably on S. 353.
    S. 353 addresses and resolves the problems associated with the 
adjudication of class actions in state courts by allowing more class 
action lawsuits to be removed from state court to federal court. The 
bill allows unnamed class members to remove to federal court class 
actions in which their claims are being asserted (within 30 days after 
they are formally notified about the class action). (This is a critical 
change, because if a state court is not protecting the class members' 
interests, this will be the only viable mechanism by which 
unrepresented class members can get their day in court.) It also allows 
defendants to remove to federal court.
    With these removal possibilities in mind, the bill would create a 
modest expansion of federal jurisdiction over class actions. Under the 
bill, a class action would qualify for federal jurisdiction if the 
total damages exceed $75,000 and parties include citizens from multiple 
states. However, the bill provides that cases remain in state court 
where the substantial majority of class and primary defendants are from 
the same state and that state's law would govern, or the primary 
defendants are states and a federal court would be unable to order the 
relief requested.
    Lastly, the bar on removing cases to federal court after one year 
would not apply to class actions (although a defendant would still have 
to remove within 30 days after first becoming aware of federal 
jurisdiction).

                            III. Conclusion

    The state court class action crisis has reached epidemic 
proportions. In order to close the floodgates on the filing of 
meritless class actions and recraft a legal tool that has been 
manipulated beyond recognition to the benefit of few and the greater 
detriment of millions of American consumers, the legislative system 
must provide the federal courts with the ammunition to enforce their 
right to hear interstate class actions cases. Under current law, most 
interstate class actions cannot be heard in federal court. The current 
statutes also allow plaintiffs' attorneys to game the system to keep 
class actions out of federal court. And finally, under the existing 
law, there is no mechanism by which class members can insist that their 
claims be heard in federal court. S. 353 would make modest procedural 
changes, but it would not alter substantive law.
    This legislation will clearly improve the efficiency of the 
judicial system because federal courts have special procedural tools 
for dealing with the complex litigation and are better able to manage 
claims involving parties from multiple states. Furthermore, the overall 
workload of our judicial system because allowing more interstate class 
actions to be heard in federal court will permit consolidation of 
duplicative, competing and overlapping cases. America needs class 
action reform badly. S. 353 is a balanced, modest approach to 
correcting class action abuse.
    The title of this bill--the ``Class Action Fairness Act''--is very 
appropriate. But it also points out a unique twist in the present class 
action environment. As members of Congress, you hear the word ``fair'' 
all the time. Usually, however, deciding what is fair involves choosing 
between two or more parties with vested interests. If the Government 
needs to close one of two defense facilities, the two cities in which 
those facilities are based will make arguments about why the other 
city's facility is the one that should be closed. And it may be left to 
Congress to decide what is ``fair''--to decide which city's facility 
should be closed. What is undeniable in that debate, however, is that 
both cities have a vested interest in the outcome. They both have 
community investments and jobs at stake.
    What is strange about the current class action situation is that it 
is not ``fair'' to any of the parties with proper, vested interests. 
For all the reasons I have set forth above, it is not ``fair'' to the 
class members whose claims are at stake. And it is not ``fair'' to the 
defendants against whom those claims are being asserted. At present, 
the system is irrationally designed to benefit primarily the parties 
involved who really do not have a proper, vested interest--the 
attorneys who bring these lawsuits. I therefore applaud this 
legislative initiative and urge its passage.
    Again, I thank the Committee for permitting me to present my views 
on this problem that is challenging our legal system.

    Senator Grassley. Professor Daynard.

                STATEMENT OF RICHARD A. DAYNARD

    Mr. Daynard. Thank you, Mr. Chairman. Like everyone else 
who has spoken today, I too find that there are class action 
abuses, some of them, particularly the one that has frequently 
been referred to, but others as well, I think quite outrageous. 
Where I disagree with most people who have spoken, but agree 
with Ms. Acheson, is that this is the wrong remedy for class 
action abuse. I think there are better remedies.
    I, too, would be happy to think with you or anyone else on 
the subject of the appropriate remedies. I think this is the 
wrong one, and I think the example of tobacco cases makes that 
clear. In the case of tobacco cases, the removal provisions of 
Senate bill 353 would impede justice by preventing plaintiffs 
from ever getting their day in court. That would be the 
practical effect.
    Beginning with the first lawsuits against the tobacco 
industry in 1954, and continuing for the next 4 decades, the 
industry managed to avoid ever paying damages to a single 
afflicted smoker, non-smoker, or family member. Its principal 
strategy was to use or abuse every possible procedural device 
for the purpose of discouraging plaintiffs' attorneys from 
bringing such cases through guaranteeing that their expenses 
will exceed any possible recovery.
    As an attorney for R.J. Reynolds Tobacco Company wrote 
following the dismissal of several individual cases, ``The 
aggressive posture we have taken regarding depositions and 
discovery in general continues to make these cases extremely 
burdensome and expensive for plaintiffs' lawyers, particularly 
sole practitioners. To paraphrase General Patton, the way we 
won these cases was not by spending all of our money, but by 
making that other son-of-a-bitch spend all of his.''
    Now, to counter the tobacco industry's ``bankrupt the 
plaintiff lawyer'' tactics, plaintiffs' lawyers eventually 
began bringing class actions in both State and Federal courts 
on behalf of afflicted smokers and non-smokers. These class 
actions for the first time raised the amount of the possible 
recovery above the cost of bringing the cases, allowing 
plaintiffs' attorneys to prudently make the investment of time 
and money needed to even the playing field, thereby giving 
their clients a chance to have their cases heard on the merits.
    This is indeed the principal historic justification for all 
23(b)(3) class actions, to recruit effective advocates for 
injured parties who would otherwise be without redress. 
Unfortunately, the Federal courts have been unwilling to permit 
individual tobacco victims to band together in class actions.
    Beginning with the Fifth Circuit's reversal of the trial 
court's class certification in Castano v. American Tobacco Co. 
in 1996, Federal courts have uniformly refused to certify these 
cases. They have articulated various reasons. Ironically, three 
of the reasons cut strongly against the remedy that you have 
provided in Senate bill 353.
    First, as the Castano court noted, there have been so few 
tobacco cases actually going through the courts that it is 
often difficult to know how the supreme courts of the various 
States, which are the ultimate arbiters of State-based common 
law under the doctrine of Erie Railroad v. Tompkins, would 
decide various legal issues that they present. Indeed, the 
court repeatedly refers to the Castano case, a national class 
action on behalf of all addicted smokers, as an immature tort. 
And it suggests quite reasonably that State courts should have 
the first crack at addressing these State law issues.
    Second, there is a concern expressed by the Federal courts 
in these cases that the Seventh Amendment may stand in the way 
of a viable class action trial plan to the extent that such a 
plan may risk having a later jury reconsider an issue decided 
by a previous jury. Whether or not that concern is justified is 
a matter of Federal constitutional law. It is simply irrelevant 
in State class actions, since the Seventh Amendment has not 
been held binding upon the States under the 14th Amendment. 
While various States may have similar constitutional 
provisions, the interpretation of those provisions are entirely 
a matter for the courts of each State and may well be less 
restrictive than the Seventh Amendment.
    Third, the Federal courts have been concerned about--and it 
is provided in the Federal rules, in rule 23(b)(3)(D)--they are 
concerned about the difficulties likely to be encountered in 
the management of the class actions. While it is perfectly 
appropriate for Federal courts to exercise their discretion to 
decline class certification in light of such difficulties, it 
is not appropriate for them to decide that the cases would also 
be too difficult for State courts to bother with.
    Yet, section 4 of 353 contemplates exactly that, that class 
actions could be removed from State courts, stripped of class 
action status, perhaps because of manageability problems, and 
then remanded to State court as a collection of individual 
actions. This would be an extraordinarily paternalistic act on 
the part of the Federal courts with respect to the State 
courts, telling them that they, the State courts, would have 
such difficulties running the case as a class action that they 
may not even try.
    The arrogance of this assertion becomes particularly clear 
if there are hundreds or thousands of named plaintiffs rather 
than just a handful. Many State courts could well decide that 
their docket control needs require the case to run as a class 
action. Yet, Senate bill 353 could easily end up preventing the 
State from operating its court docket in a cost-efficient 
manner, a result that I believe may well be forbidden by the 
Tenth Amendment.
    The State court tobacco cases, on the other hand, have been 
proceeding well. As might be expected, some classes have been 
certified, while others have not. And I mention in my written 
testimony at least four cases that have been certified and are 
important cases. The tobacco companies have, of course, notice 
that they are vulnerable to class actions in State court, but 
not in Federal court.
    The primary defendants in tobacco cases are from different 
States, guaranteeing that all tobacco class actions would be 
removable under Senate bill 353, all of them. Whatever the 
reasons for the uniform run of Federal court decisions, and 
whether or not these are justified in terms of the needs, 
capacities and priorities of the Federal court system, to send 
tobacco class actions to Federal court is to send them to their 
death. That is the practical effect. That is why section 4 of 
Senate bill 353 could well be entitled ``The Tobacco Industry 
Relief Act of 1999.''
    Now, like Mr. Frank, I too have some thoughts about section 
5 on rule 11. I won't go through them here. I think that rule 
11 would have the unintended effect of essentially stymieing 
the development of the law, both common law and statutory 
interpretation and constitutional law. And I think that is also 
very ill-advised.
    Thank you.
    Senator Grassley. Thank you, Professor Daynard.
    [The prepared statement of Mr. Daynard follows:]

         Prepared Statement of Richard A. Daynard, J.D., Ph.D.

    My name is Richard Daynard. For the past 30 years I have been a law 
professor at Northeastern University School of Law. For much of this 
time I taught and thought about the nature of the legal process. For 
the last 15 of these years I have specialized in toxic torts and 
complex litigation, and especially in tobacco litigation.
    I would like to comment today on two aspects of S. 353, section 4 
(removal jurisdiction) and section 5 (Rule 11). Though my comments on 
section 4 are brief, my comments on section 5 are even briefer, and I 
would like to begin with those.
                               section 5
    Section 5 would make sanctions mandatory for Rule 11 violations, 
and would make lawyers financially responsible if they are found that 
they have made a ``[]frivolous argument for the extension, 
modification, or reversal of existing law or the establishment of new 
law.''
    This section would tend to stunt the natural processes for 
developing, extending, and refining legal doctrine, processes that all 
of us learned about in law school, and that Justice Cardozo, Prof. Karl 
Llewellan, and many others have described so well. The common law, 
constitutional law, and even the interpretation of specific statutes 
have developed as they have, thanks in no small part to the willingness 
of lawyers to challenge, and even radically challenge, existing 
doctrines and interpretations. Buick v. McPherson, Erie R.R. v. 
Tompkins, Baker v. Carr, Brown v. Board of Education--the list could go 
on, covering every field of law and many thousands of cases, where the 
law as it is today is the result of creative lawyers having thought and 
argued ``outside the box'', challenging the then-accepted paradigms, 
conventional wisdom, and politically correct thinking about what the 
law is and should be.
    Under Section 5 these organic processes, what Oliver Wendell Holmes 
called ``the life of the law'', would atrophy. Lawyers would be 
frightened to challenge the status quo, because it is often impossible 
to know in advance how a particular judge will respond to a creative, 
but perhaps politically incorrect, argument. The judge might accept the 
argument, might recognize the argument as nonfrivolous but reject it 
anyhow, or might reject it and find it frivolous. There is simply no 
way an attorney can know for sure which way the judge will respond. 
Section 5 strongly encourages the attorney to ``play it safe'' by not 
making the argument at all, even though the law (that is, all of us) 
might have benefited had the argument been made and accepted by the 
trial judge, or by a higher court on appeal. With the processes of 
legal development and refinement stymied, the law becomes stagnant and 
grows increasingly distant from justice.
    Not only is Section 5 poisonous to the natural processes of legal 
development; it is also totally unnecessary. Lawyers do not 
intentionally make frivolous arguments. ``Frivolous arguments'' are a 
subset of ``losing arguments'', and no one in his right mind 
intentionally makes a losing argument. Indeed, the fear of losing the 
case, and in the instance of contingency fee plaintiffs' attorneys of 
losing one's investment, is more than sufficient to discourage 
attorneys even from playing close to the line.
                               section 4
    Section 3 provides original federal district court jurisdiction for 
almost all class actions--those in which any class member is a citizen 
of a different state than any defendant. Abstention is required if the 
substantial majority of the plaintiff class are citizens of the same 
state as the ``primary defendants'', and the case is based primarily on 
that state's laws.
    This section, by itself, is benign. However, it provides the 
necessary predicate for Section 4, which permits any defendant or any 
plaintiff class member to remove any class action that is within the 
federal court's original jurisdiction.
    Unlike Section 5, Section 4 does not impede justice by interfering 
with the development of legal doctrine. Rather, in a range of cases, 
and particularly in tobacco cases, it impedes justice by preventing 
plaintiffs from ever getting their day in court.
    Beginning with the first lawsuits against the tobacco industry in 
1954 and continuing for the next four decades, the industry managed to 
avoid ever paying damages to a single afflicted smoker, nonsmoker, or 
family member. Its principal strategy was to use or abuse every 
possible procedural device, for the purpose of discouraging plaintiffs' 
attorneys from bringing such cases by guaranteeing that their expenses 
will exceed any possible recovery. As an attorney for R.J. Reynolds 
Tobacco Company wrote, following the dismissal of several individual 
cases, ``the aggressive posture we have taken regarding depositions and 
discovery in general continues to make these cases extremely burdensome 
and expensive for plaintiffs' lawyers, particularly sole practitioners. 
To paraphrase General Patton, the way we won these cases was not by 
spending all of [RJR]'s money, but by making that other son of a bitch 
spend all of his.'' Haines v. Liggett Group, Inc., 814 F. Supp. 414 
(D.N.J. 1993).
    To counter the tobacco industry's bankrupt-the-plaintiff's-lawyer 
tactics, plaintiffs' lawyers eventually began bringing class actions--
in both state and federal courts--on behalf of afflicted smokers and 
nonsmokers. These class actions for the first time raised the amount of 
the possible recovery above the cost of bringing these cases, allowing 
plaintiffs' attorneys to prudently make the investment of time and 
money needed to even the playing field, thereby giving their clients a 
chance to have their cases heard on the merits. This is, indeed, the 
principal historic justification for Rule 23(b)(3) class actions: to 
recruit effective advocates for injured parties who would otherwise be 
without redress.
    Unfortunately, the federal courts have been unwilling to permit 
individual tobacco victims to band together in class actions. Beginning 
with the 5th Circuit's reversal of the trial courts class certification 
in Castano v. American Tobacco Co., 84 F.3d 734 (1996), federal courts 
have uniformly refused to certify these cases. They have articulated 
various reasons.
    Ironically, three of the reasons given cut strongly against S. 353. 
First, as the Castano court noted, there have been so few tobacco cases 
that it is often difficult to know how the supreme courts of the 
various states--the ultimate arbiters of state-based common law under 
the doctrine of Erie Railroad v. Tompkins--would decide various legal 
issues that they present. Indeed, the court repeatedly refers to the 
case, a national class action on behalf of all addicted smokers, as 
``an immature tort''. And it suggests, quite reasonably, that state 
courts should have the first crack at addressing these state law 
issues.
    Second, there is a concern that the Seventh Amendment may stand in 
the way of a viable class action trial plan, to the extent that such a 
plan may risk having a later jury reconsider an issue decided by a 
previous jury. Whether or not that concern is justified as a matter of 
federal constitutional law, it is irrelevant in state class actions, 
since the Seventh Amendment has not been held binding upon the states 
under the Fourteenth Amendment. While various states may have similar 
constitutional provisions, the interpretations of those provisions are 
entirely a matter for the courts of each state, and may well be held 
less restrictive than the Seventh Amendment.
    Third, the courts have been concerned about ``the difficulties 
likely to be encountered in the management'' of the class actions. 
While it is appropriate for federal courts to exercise their discretion 
to decline class certification in light of such difficulties, see Rule 
23(b)(3)(D), it is not appropriate for them to decide that the cases 
would also be too difficult for state courts to bother with. Yet 
Section 4 of S. 353 contemplates exactly that--that class actions could 
be removed from state court, stripped of class action status (perhaps 
because of manageability problems), and then remanded to state court as 
a collection of individual actions. This would be an extraordinarily 
paternalistic act on the part of the federal courts with respect to the 
state courts--telling them that they (the state courts) would have such 
difficulties running the case as a class action that they may not even 
try. The arrogance of this assertion becomes particularly clear if 
there are hundreds or thousands of named plaintiffs, rather than just a 
handful: many state courts could well decide that their docket control 
needs require the case to run as a class action. Yet S. 353 could 
easily end up preventing the state from operating its court docket in a 
cost-efficient manner--a result that may well be forbidden by the Tenth 
Amendment.
    The state court tobacco cases, on the other hand, have been 
proceeding well. Some classes have been certified, while others have 
not. Among those that have been certified are Broin v. Philip Morris 
Companies, Inc., an action by a class of nonsmoking flight attendants 
tried in a Florida state court in 1997, and eventually settled by the 
tobacco industry for a $300 million research fund, waiver of the 
statute of limitations, and a de facto concession in the individual 
follow-on cases that environmental tobacco smoke causes a variety of 
disease; Engle v. R.J. Reynolds Tobacco Co., an action by a class of 
nicotine-addicted afflicted Florida smokers which has been in trial in 
a Florida state court since July, 1998; Scott v. American Tobacco Co., 
a class of addicted Louisiana smokers scheduled for trial in Louisiana 
state court this coming fall; and Richardson v. Philip Morris 
Companies, Inc., a class of addicted and of afflicted Maryland smokers, 
certified as a class by a Maryland trial judge in January 1998 and 
presently under appeal in the Maryland courts.
    The tobacco companies have, of course, noticed that they are 
vulnerable to class actions in state court, but not in federal court. 
The ``primary defendants'' in tobacco cases are from different states, 
guaranteeing that all tobacco class actions would be removable under S. 
353. Whatever the reasons for the uniform run of federal court 
decisions, and whether or not these are justified in terms of the 
needs, capacity, and priorities of the federal court system, to send 
tobacco class actions to federal court is to send them to their death. 
That is why Section 4 of S. 353 could well be entitled, ``The Tobacco 
Industry Relief Act of 1999.'' Thank you.
Academic preparation
    Massachusetts Institute of Technology (1970-1980): Ph.D. in Urban 
Studies and Planning (specializing in Law and Social Policy): Columbia 
University Sociology Department (1968-1970): M.A., Faculty Fellow; 
Harvard Law School (1964-1967): J.D. cum laude, Harvard Legal Aid 
Bureau; Columbia College (1960-1964): A.B. summa cum laude, Phi Beta 
Kappa, Siff (University-wide) Prize in Philosophy of Science, Kinne 
Prize in Humanities, Regents Scholarship; Bronx High School of Science 
(1957-1960): Mathematics Award, Honor Society.
Professional employment
    Northeastern University School of Law: Assistant Professor of Law 
(1969-1972); Associate Professor of Law (1972-1973); Professor of Law 
(1973-present). Hon. Henry J. Friendly, United States Court of Appeals 
for the Second Circuit, New York City (July 1967-August 1968). Law 
Clerk; Columbia University School of Law (September 1968-June 1969); 
Associate in Law (teaching fellow); Tufts New England Medical Center; 
Instructor in Psychiatry (1976-1989). Consultant, Consumers Union, New 
York Office (1979); Consultant and Lecturer (1986-Present); Expert 
Witness before various state insurance commissions (1988).
Bar admissions/recognition
    New York 1967; U.S. Court of Appeals, 6th Cir. 1986; U.S. Supreme 
Court 1986; U.S. Court of Appeals, 11th Cir. 1987, U.S. Court of 
Appeals, 5th Cir. 1996; Who's Who in American Law (6th ed., 1989; 7th 
ed., 1992; 8th ed., 1994, 9th ed. 1996, and 10th ed., upcoming); Who's 
Who in America (51st ed., 1997); Who's Who in the World (15th ed., 
1998); Who's Who in Finance and Industry (31st ed., 1999); The 
Gleitsman Foundation Certificate of Special Recognition, (1998); 
Smoking or Health Award, American Lung Association of Massachusetts 
(1991).
Smoking and health responsibilities
    President, Group Against Smoking Pollution of Massachusetts (1983-
); President, Stop Teenage Addiction to Tobacco (1995-), Vice President 
(1991-1995), Board of Directors (1990-); President, Clean Indoor Air 
Educational Foundation (1984-1992), Tobacco Control Resource Center, 
Inc. (1993-); Chairman, Tobacco Products Liability Project (1984-); 
Editor-in-Chief, Tobacco Products Litigation Reporter (1985-); 
Associate Editor, Tobacco Control: An International Journal (1998-); 
Member, Advisory Committee on Tobacco Policy and Public Health (Koop-
Kessler Committee) (1997); Advisory Board, Tobacco Divestment Project 
(1990-); Member, American Society of Heating, Refrigeration and Air 
Conditioning Engineers, Standing Committee on Indoor Air Ventilation 
(SSPC-62), and Subcommittee on Health and Comfort (1992-); Member, 
National Coordinating Committee on Tobacco Policy Research (1990-1993); 
Secretary, Tobacco Control Council, National Association for Public 
Health Policy (1990-); Advisory Board, Foundation for a Smoke-Free 
America (1989-); Board of Directors, Americans for Nonsmokers Rights 
(1991-); Member, Harvard Institute for the Study of Smoking Behavior 
and Policy, Study Group (1986-1989); Chair, New England Tobacco Control 
Professionals Study Group (1989-1990).
    Principal Investigator, Robert Wood Johnson Foundation's Americans 
with Disabilities Act Smokefree Policy Research and Evaluation Project 
(1994-1995); Principal Investigator, Massachusetts Tobacco Control 
Program's (MTCP) Legal Policy Research Project (1994); Principal 
Investigator, MTCP Americans with Disabilities Act Smokefree 
Demonstration Project (1994-96), Principal Investigator, National 
Cancer Institute's Legal Interventions to Reduce Tobacco Use (1995-); 
Principal Investigator, Robert Wood Johnson Foundation Legal and 
Political Strategies and Local Tobacco Control; peer reviewer, medical 
and public health journals and book publishers, University of 
California Tobacco Related Disease Research Program, and 1995 Surgeon 
General's Report; submitted amicus curiae briefs in four appellate 
cases, as well as to the U.S. Supreme Court; wrote model for 
Massachusetts ordinances banning smoking in public places (1975).
    Testified (or submitted testimony) before congressional and state 
legislative committees, Federal interagency Committee on Smoking & 
Health, administrative agencies, and local governmental bodies in 
several states; Appeared on national television and radio programs 
(including ``Nightline,'' ``Today,'' ``This Week with David Brinkley,'' 
``McNeil-Lehrer,'' ``Frontline,'' ``Crossfire,'' ``Inside Business,'' 
CBS, NBC and ABC Evening News, and ``All Things Considered''), on 
British, German, and Spanish television, on British, Canadian, 
Australian, and Korean radio, and on local programs in many cities; 
extensively quoted in national magazines and newspapers (including 
Time, Business Week, Barrons, New York Times, Washington Post, and Wall 
Street Journal), in the international press, in wire service stories, 
in syndicated columns, in regional newspapers throughout the U.S., and 
in legal and medical publications; Subject of feature articles in Wall 
Street Journal (April 20, 1987), New York Times (February 14, 1988), 
and Boston Sunday Globe (May 1, 1994).
    Delivered Ford Hall Forum lecture with Surgeon General Koop 
(October 10, 1985); lectured on tobacco products liability to doctors 
at several local hospitals and at the Royal Society of Medicine, 
London, to attorneys in bar committee and continuing legal education 
meetings, to public health students at Harvard and Boston University, 
to meetings of local lung, public health, and civic associations, and 
to annual conferences of Stop Teenage Addiction to Tobacco (1986-); 
Mellon lecture at University Of Pittsburgh Law School (1987); presented 
papers at 6th World Conference on Smoking and Health (Tokyo, 1987); 
Keynote address at Asian-Pacific Conference on Control of Cigarette 
Smoking (Teipei,1989); Keynote Address, 7th World Conference on Tobacco 
and Health (Perth, 1990); chaired or co-chaired 11 nationwide meetings 
of plaintiffs' attorneys and public health advocates, three ATLA 
section meetings, and several press conferences; invited speaker, 
American Public Health Association, 1986, 1988, 1989, 1990, 1992; 1996; 
1997; American Society for Preventive Oncology (Washington, 1989); 
Commentator, Association for Consumer Research (New Orleans, 1989), on 
effects of cigarette advertising on smoking behavior; 15th 
International Cancer Congress (Hamburg, 1990); International Symposium 
on the Control of Tobacco-Related Cancer and Other Diseases (Bombay, 
1990); Workshops on Passive Smoking and Nonsmokers' Rights, 7th World 
Conference on Tobacco and Health (Perth, 1990); World Conference on 
Lung Health (Boston, 1990); Faculty, Fifth Summer Conference, Stanford 
Center for Research in Disease Prevention (July, 1990); International 
Conference on Cancer Prevention (Bethesda, 1991); leader, Workshop on 
Legal issues in Tobacco Control, ``Tobacco Use: An American Crisis,'' 
Wash., D.C. (January 1993); Conference on ``Tobacco Use: An American 
Crisis'' (Washington, 1993) National Workers' Compensation and 
Occupational Medicine Seminar (Hyannis, 1993); American Society of 
Addiction Medicine (Atlanta, 1993); American Trial Lawyers Ass'n 
(Tucson, 1994); Mass. Tobacco & Youth Conference (Boston, 1994); 
President's Cancer Panel (Virginia, October 5, 1994); 9th World 
Conference on Tobacco and Health (Paris, 1994); European Conference on 
Tobacco and Health (Helsinki 1996); 10th World Conference on Tobacco 
and Health (Beijing 1997): lecturer to business executives on legal 
implications of smoking in the workplace at conferences sponsored by 
the New Hampshire, Massachusetts, Connecticut and Indiana Lung 
Associations (1986-); St. Louis ASSIST Coalition (1994), and at 
conferences an Connecticut, Rhode Island and Massachusetts sponsored by 
the Environmental Protection Agency (1994-); lectured to faculty 
seminar at Johns Hopkins University Department of Epidemiology (1995); 
lectured to National Dental Tobacco-Free Steering Committee (Bethesda, 
1996); Harvard Law School Conference on the Tobacco Settlement: Should 
Tort Law Be on the Table? (Cambridge, Mass. 1997).
Selected publications
    ``Tobacco Products Liability Litigation as an Antismoking 
Strategy,'' in Aoki, M. et. al. Smoking and Health 1987, 409-413; 
``Tobacco Liability Litigation as a Cancer Control Strategy,'' 80 J. 
Nat. Cancer Institute 9 (1988); ``The Cipollone Documents,'' 24 Trial 
50 (November, 1988) (with Laurie Morin); ``Up from the Ashes: Cigarette 
Litigation and the Dewey Decision,'' 5 Toxics Law Reporter 630 (1990); 
``Proving Causation in Lawsuits Involving Environmental Tobacco 
Smoke,'' in Proceedings of Pre-conference Workshop on Passive Smoking 
(1990) 84-89; ``Worldwide Litigation,'' in Tobacco & Health 1990: The 
Global War, 189-191; ``Product Warnings--Tobacco'' (with Laurie Morin) 
in Handling Product Warning Cases (Wiley, 1991); ``Health Hazards of 
Secondhand Smoke'' (with Stanton Glantz), Trial (June 1991) 37-39; 
``Recent Developments in Tobacco Litigation--1991,'' 1 Tobacco Control: 
An International Journal, 1992; 1:37-45; ``Tobacco Litigation--Purpose, 
Performance, and Prospects,'' in National Cancer Institute Monograph: 
International Conference on Cancer Prevention: Facts, Maybes, and 
Rumors (1992, #12, 53); ``Redress for Injury Caused by Environmental 
Tobacco Smoke'' (with Edward Sweda), 28 Trial #3, 50 (March 1992); 
``Judicial Action for Tobacco Control,'' in Roemer, R., ed., 
Legislative Action to Combat the World Smoking Epidemic (1992); 
``Controlling Cancer by Suing Tobacco Companies: The Potential for 
India in the Light of the U.S. Experience,'' Control of Tobacco-related 
Cancers and Other Diseases, International Symposium, 1990, P.C. Gupta, 
J.E. Hamner, III and P.R. Murti, Eds, (Oxford University Press, Bombay, 
1992); ``Cipollone Ruling Sends Industry a Message: Say Goodbye to 
Federal License to Lie,'' 20 Prod. Safety & Liab. Rptr. 712 (1992); 
``Tobacco in Court'' (edited special issue and wrote two articles), 17 
World Smoking and Health #2 (1992); ``When Cigarettes Start Fires: 
Industry Liability,'' (with Andrew McGuire) 28 Trial 411, 44 (1992); 23 
Trial Lawyers Quarterly 22 (1993); ``Report of the Tobacco Policy 
Research Study Group on Tobacco Litigation'' (with others), 1 Tobacco 
Control 537 (Supp. 1992); ``Tobacco Use as a Sociologic Carcinogen: The 
case for a Public Health Approach.'' (with Thomas Novotny, Patricia 
Shane, and Gregory Connolly), in Cancer 1992 (V. DeVita, ed.); 
``Chipping Away at the Legal Immunity of Tobacco Companies,'' 
Priorities 11 (Summer 1993); ``Smoking Out the Enemy: New Developments 
In Tobacco Litigation,'' 29 Trial 16 (November 1993); ``Tobacco 
Products Liability Suits in Massachusetts--a Neglected Opportunity,'' 1 
J. Mass. Aca. Trial Attys #3 50 (Jan. 1994) (with Friedman); ``Second-
hand Smoke and the ADA: Ensuring Access for Persons with Breathing and 
Heart Disorders,'' 13 St. Louis Univ. Public Law Rev. 635 (1994) (with 
Mark Gottlieb and Jennifer Lew), ``Catastrophe Theory and Tobacco 
Litigation,'' 3 Tobacco Control 59 (1994); ``The Third Wave of Tobacco 
Liability Cases,'' 30 Trial (November 1994); ``The Third Wave of 
Tobacco Litigation in the U.S. and Beyond,'' World Health Organization 
Tobacco Alert (April 1995) (with Graham Kelder and Mark Gottlieb); 
``The Tobacco Industry Under Fire,'' Trial (November 1995) (with 
Kelder); ``Tobacco Industry Tactics,'' British Medical Bulletin 
(January, 1996) (with Sweda); ``Waiting to Exhale: Tobacco Companies 
Hold Their Breath Over a New Legal Challenge That Could Have a Crushing 
Effect,'' The Boston Sunday Globe Focus Section (February 11, 1996) 
(with Kelder), ``Tobacco Litigation as a Public Health and Cancer 
Control Strategy,'' Journal of the American Medical Women's Association 
(March 1996) (with Kelder): ``The Role of Litigation on the Effective 
Control of the Sale and Use of Tobacco: Litigation as Substitute for 
and Supplement to Conventional Means of Regulation Thwarted by the 
Tobacco Industry,'' 8 Stanford Law & Policy Review 1 (1997) (with 
Kelder), ``The Many Virtues of Tobacco Litigation, Trial (November 
1998) (with Kelder); ``A Year of Living Dangerously: The Tobacco 
Control Community Meets the Global Settlement,'' Public Health, 
(November/December 1998) (with Michele Bloch and Ruth Roemer).
    Richard A. Daynard holds a J.D. from the Harvard Law School and a 
Ph.D. in Urban Studies and Planning (specializing in Law and Social 
Policy). Since 1969, he has been a Professor of Law at the Northeastern 
University School of Law. Professor Daynard has been involved in a 
number of organizations devoted to the study of tobacco and public 
health policy and implementation. He has served as President of the 
Group Against Smoking Pollution of Massachusetts (GASP) from 1993-
present; Chairman of the Tobacco Products Liability Project from 1984-
present; President of the Tobacco Control Resource Center from 1984-
present; Editor-in-Chief of the Tobacco Products Litigation Reporter; 
and President of Stop Teenage Addiction to Tobacco (STAT) from 1996-
present, among others. He has published numerous articles in such 
journals as The Journal of the American Medical Association; Tobacco 
Control: An International Journal; Cancer; Trial; and Tobacco and 
Health. His experience and expertise on tobacco law, policy, and 
litigation places him in the middle of the public debate over smoking, 
leading to appearances on Nightline; Today; This Week with David 
Brinkley; Frontline; Crossfire, the ABC, NBC, CBS, CNN, MS-NBC, CNBC, 
and FOX news programs; and on National Public Radio, ABC, CBS, and BBC 
radio programs.

    Senator Grassley. Now, Mr. Beisner.

                  STATEMENT OF JOHN H. BEISNER

    Mr. Beisner. Thank you, Mr. Chairman. I very much 
appreciate the opportunity to participate in this hearing this 
afternoon. What I would like to do is spend a few minutes 
highlighting parts of my written testimony and to respond to 
some of the points made earlier by the Justice Department.
    The first point I would like to make is that the Justice 
Department, particularly in its written testimony, seems to be 
saying that we don't see much of a problem out there with class 
actions. I think that statement was tempered somewhat by the 
oral statements of Ms. Acheson this afternoon, and I hope that 
that is a breakthrough, as Mr. Frank suggested earlier, for 
discussions on that subject. Hopefully, that will be a major 
outcome of this hearing today.
    I was particularly struck by Ms. Acheson's describing the 
hypotheticals that both of you presented to her as being, 
``over the edge'' at one point. I am sure that the people back 
at my office this afternoon will be happy to hear that the 
cases that we are working on are deemed by the Justice 
Department to be, ``over the edge,'' because let me assure you 
that I have got a hundred on my docket that are exactly like 
the hypotheticals you were putting. These are not hypotheticals 
that are drawn out of the air. These are what these cases 
really are.
    And I fear that part of the problem may be that we need to 
perhaps do a better job of getting some more information to the 
Justice Department on this subject. Between this subcommittee 
and the House subcommittee, you have now had four hearings on 
this subject. This is the first one the Justice Department, I 
believe, has participated in, and I think that perhaps we may 
have an information flow problem here and we need to be getting 
more information to the Justice Department so that there is a 
better understanding of this issue.
    The second point I would make is that I am deeply troubled 
by what seemed to be in the Justice Department's testimony 
somewhat of a direct assault on the notion of Federal diversity 
jurisdiction. The Justice Department's testimony suggests that 
when a State law-based lawsuit is removed to Federal court, the 
State where the lawsuit was originally filed is somehow 
deprived of its right to resolve that controversy.
    That argument ignores what Federal diversity jurisdiction 
is all about. It is a mechanism by which a State law-based 
claim may be moved from a local court to a Federal court to 
ensure that all the parties are going to have a level playing 
field and to ensure that interstate commerce interests are 
protected. This isn't a concept that the courts made up. It is 
not something that Congress came up with. It is in Article III 
of the Constitution.
    As Professor Elliott testified earlier, that concept is 
particularly applicable to these sorts of interstate class 
actions. And, again, it is disturbing to me to hear the Justice 
Department seemingly suggest that that constitutional concept 
should be ignored in these sorts of cases.
    A third point I would make is that it is also somewhat 
troubling to me what the Justice Department seems to be 
suggesting as an alternative to the legislation that is being 
proposed here because I think that alternative really may be 
quite an affront to States' rights, as opposed to this 
legislation.
    The Department suggests that we should instead be talking 
about legislation--and I am quoting their written testimony 
here--``focusing on the appropriate limits on State authority 
to bind out-of-state plaintiffs.'' Now, under that approach, we 
would actually be curtailing the authority of State courts. 
Such legislation, I fear, although I haven't seen exactly what 
the Justice Department is talking about, might be a declaration 
that, contrary to the Full Faith and Credit Clause of the 
Constitution, State court judgments wouldn't be honored 
nationwide.
    Besides being constitutionally suspect, I fear that such an 
approach is unfair. Basically, what I think Justice is saying 
in their testimony is that it would be preferable to have a 
statute that would prevent State courts from issuing judgments 
that apply to out-of-state plaintiffs, while at the same time 
encouraging State courts to be able to issue judgments that 
would be applicable to out-of-state defendants.
    Finally, as has been discussed by a number of witnesses, we 
have this issue of whether the jurisdictional removal 
provisions of S. 353 would federalize all class actions. And 
others have noted, I really think that that suggestion ignores 
the current class action landscape. They have already been 
federalized. The oddity here, though, is that they have been 
federalized by State courts.
    We are not talking about the Federal Government coming in 
and telling States what to do, which is what you normally think 
of when you hear the word ``federalism.'' It is State courts 
going in and telling 49 other States what their laws are. I 
wanted to note that a shining example of this appeared last 
September 27 in the New York Times, on page 29 to be precise. 
In a full-page article, the Times reported on a multi-billion-
dollar class action that is now pending in a county court in 
downstate Illinois.
    The banner headline on that article said, ``Suit Against 
Auto Insurer Could Affect Nearly All Drivers.'' The article 
said that all kinds of people are alarmed about this lawsuit. 
It quoted Public Citizen as being alarmed. Ralph Nader was 
alarmed. The attorneys general of Massachusetts, New York, 
Pennsylvania and Nevada were all alarmed. The National 
Association of State Insurance Commissioners were alarmed.
    Well, why were all these people alarmed? Well, their 
concern is that this county court in Illinois is on the verge 
of telling all of the other States what their auto insurance 
laws are going to be. In the context of this nationwide class 
action, that court is set to decide whether auto insurance 
companies' use of after-market auto parts, as opposed to the 
auto parts made by the original vehicle manufacturers, in 
repairing insureds' vehicles is fraudulent behavior.
    The problem is that some States encourage or require 
insurance companies to use those sorts of after-market parts as 
a way of lowering insurance costs. Nevertheless, the Illinois 
court is set to apply Illinois law to all 50 States, and 
according to the Times article may thereby, ``overturn 
insurance regulations or State laws in New York, Massachusetts 
and Hawaii, among other places.''
    In short, this Illinois court, which was elected by and is 
accountable only to the 61,000 residents of Williamson County, 
IL, is going to make what amounts to a national rule of 
insurance. That is the sort of federalization that we are 
talking about with State court class actions.
    Thank you.
    [The prepared statement of Mr. Beisner follows:]

                 Prepared Statement of John H. Beisner

    In hearings over the past eighteen months, this Subcommittee and 
its House counterpart have heard considerable evidence of a severe 
state court class action crisis. The record reflects an explosion in 
the number of such cases being filed, prompted largely by a lax 
attitude toward class actions among some state courts. Some state 
courts operate without basic class certification standards and in 
disregard of fundamental due process requirements, resulting in injury 
to both unnamed class members as well as to corporate defendants. 
Another problem is that certain state courts are ``federalizing'' such 
litigation. By their laxity, they have become magnets for a 
disproportionate share of interstate class actions and are thus 
dictating national class action policy. Further, in litigating 
multistate class actions, those state courts are also frequently 
dictating the substantive laws of other jurisdictions. Considerable 
waste and inconsistent judicial rulings are occurring because there is 
no mechanism for coordinating overlapping, ``competing'' class actions 
(i.e., cases in which the same claims are asserted on behalf of 
basically the same classes) pending simultaneously in state courts 
around the country.
    Witnesses at a March 5, 1998 House hearing (representing widely 
varied interests) expressed broad agreement that the wisest, least 
disruptive solution was the expansion of diversity jurisdiction over 
interstate class actions, allowing more such cases to be heard in 
federal courts. As one witness noted, ``you have heard today from 
professors, from plaintiff's lawyers, from defense lawyers, from 
consumer representatives, from business people, from a whole range. And 
it is striking * * *. that * * * you've heard from everyone * * * that 
* * * increasing the ambit of * * * diversity jurisdiction * * * to 
[encompass more class actions] is a good idea.''
    S. 353's jurisdictional/removal provisions would be a significant 
step toward resolving the state court class action crisis. They would 
fix a technical flaw in our current diversity jurisdiction statutes 
(enacted before the modern day class action) that bars federal courts 
from hearing most interstate class actions--the judicial system's 
largest lawsuits, often involving millions of dollars disputed among 
thousands of parties residing in multiple jurisdictions. This change 
would also make more broadly available the statutory mechanisms by 
which federal courts (but not state courts) may coordinate overlapping, 
competing class actions. Those provisions would allow both plaintiffs 
and defendants greater access to our federal courts without undesirable 
side effects. The bill would not alter any party's substantive legal 
rights. The bill would leave purely local disputes to the exclusive 
purview of state courts. And the bill would still allow state courts to 
hear class actions when parties prefer that forum.
    The notice provisions of S. 353 would lessen the possibility that 
class actions will injure the interests of unnamed class members (as 
they now often do). The bill's attorney's fee limitations have 
potential to curtail some of the most egregious fee abuses, 
particularly some counsel's tendency to claim fees on the basis of 
speculative, amorphous benefits to a class.
    I very much appreciate this opportunity to participate in today's 
discussion of S. 353, the Class Action Fairness Act of 1999.
    At the outset, I want to disclose the sources of my perspectives on 
this subject. Basically, I am an ``in-the-trenches'' class action 
litigator. Over the past 19 years, I have been involved in defending 
over 250 class action lawsuits on a wide variety of subjects before the 
federal and state courts of 28 states at both the trial court and 
appellate level. On the basis of that experience, I wish to share a few 
thoughts about the problems that exist in the class action arena and 
about the respects in which I believe that S. 353 would be a positive, 
effective response to those problems.

        I. There Is A Continuing State Court Class Action Crisis

    It is exceedingly ironic that although class actions are probably 
one of the most complex procedural devices in our legal system, the 
general public has an acute awareness of what they are. From the 
citizen perspective, class actions are not pretty. Jury researchers--
the people who survey potential jurors in anticipation of trials--will 
tell you that in most locales, the general public tends to view class 
actions as a blight on our legal system. Citizens correctly perceive 
that not all class actions are bad. But if you ask for a definition of 
a class action in those jury research settings (as I have on occasion), 
you will probably get an answer like: ``Class actions are lawsuits in 
which the lawyers get all of the money and the people don't get 
anything.'' And you will also be told that class actions are usually 
lawyer-manufactured. The public senses that these lawsuits do not get 
started like a normal lawsuit does--a person walking into the lawyer's 
office and asking that redress for an injury be pursued. Instead, the 
public perceives that class actions are initiated when a lawyer gets an 
idea about filing a lawsuit (e.g., by reading about an issue in the 
newspaper) and then goes off to find somebody to front the lawsuit 
(i.e., the named plaintiff or class representative).
    I do not mean to suggest that Congress should legislate in this 
highly technical legal arena based on such public perceptions. But for 
better or worse, the record shows that these perceptions are 
disturbingly accurate. And those perceptions of class actions are 
adversely skewing the public view of our legal system as a whole. 
Because of their size and scope, class actions receive disproportionate 
amounts of press attention. But even more significantly, class actions 
regularly touch more citizens than virtually any other aspect of our 
legal system. Indeed, given the proliferation of class actions in 
recent years, each of us sitting in this room--whether we know it or 
not--is a class member in numerous pending class actions. If you have 
ever bought a product or used a service, there are multiple class 
actions on file in which somebody is supposedly trying to vindicate 
your rights in some way. And because of the notice rules, citizens get 
a lot of mail about these cases--the only mail that most people ever 
get from a court. Most of the legalese that they see in those notices, 
they do not fully comprehend. But what they do understand is that their 
rights are often being manipulated to benefit other interests.
    To understand the class action abuse problem, one need only 
consider for a moment the general concept that we are discussing. If I 
told you that the House had just passed a new bill that would allow 
lawyers to bring lawsuits without first obtaining permission from the 
parties on whose behalf the lawsuit supposedly was being brought, you 
presumably would be shocked. How could the House possibly conclude that 
we should allow lawyers to bring lawsuits not authorized by the 
claimants?
    Rightly or wrongly, that's exactly what class actions are. They are 
a giant anachronism. In the midst of a legal system in which individual 
rights are paramount--a system in which a lawyer normally cannot do 
much of anything without the informed consent of his or her client--we 
have this device through which a lawyer can walk into a court and say: 
``I am bringing claims on behalf of millions of people, even though I 
don't know exactly who or where they are and even though I have not 
obtained their permission to bring this lawsuit on their behalf.''
    Clearly, such a device invites abuse. It permits lawsuits in which 
the claimants play little or no role; lawsuits in which the lawyers 
call all of the shots without really even hearing the views and desires 
of their clients. Further, it allows attorneys to bring lawsuits where 
the real parties in interest have manifested no interest in suing. 
Plainly, such lawsuits present great risk that the lawyers who bring 
them will substitute their interests for those whose claims are at 
issue. In short, class actions are a powerful, abuse-inviting device 
that must be carefully policed by the courts to avoid legal 
catastrophe. Unfortunately, at least in many of our state courts, that 
careful supervision is not occurring.
 a. congress has already amassed an ample record of class action abuse
    This hearing is not the first occasion on which Congress has 
received indications of state court class action abuse. Over the past 
eighteen months, Congress has been bombarded with warnings that 
something is badly amiss with class actions. The alarm bells have been 
ringing. Almost daily, there are press reports about class actions 
being used to deny (not protect) due process rights--instances in which 
the legitimate interests of both class members and defendants are being 
ignored or injured.
    In October 1997, this Subcommittee held a hearing on class action 
abuses. Last year, the Subcommittee on Intellectual Property and the 
Courts of the House Judiciary Committee held two such hearings (one in 
March and another in June). The record that emerged from those three 
sessions indicates that the alarm bells are ringing for good cause: 
state court class action abuse is rampant.
    Those earlier hearings amply documented several serious problems:

   Some courts (particularly state courts) are not properly 
        supervising proposed class settlements. The result is that 
        class counsel become the primary beneficiaries; the class 
        members (the persons on whose behalf the actions were brought) 
        get little or nothing--or worse. For example, at all three 
        hearings last year, there was discussion of the now infamous 
        Bank of Boston class action settlement. At this Subcommittee's 
        October 1997 hearing, both Senator Herb Kohl (D.--Wis.) and his 
        constituent, Martha Preston, a member of the class, described 
        the settlement as a ``bad joke.'' \1\ At a March 1998 House 
        hearing, Ralph G. Wellington, a Philadelphia attorney, 
        elaborated, noting that the state court in that case approved a 
        class settlement under which
---------------------------------------------------------------------------
    \1\ Opening Statement of Sen. Herb Kohl, ``Class Action Lawsuits: 
Examining Victim Compensation and Attorneys' Fees,'' S. Hrg. 105-504 
(Oct. 30, 1997).

        [m]ost of the 700,000 [class members] received minimal direct 
        economic benefit; some received no direct benefit at all. 
        Indeed, most had their mortgage escrow accounts * * * deducted 
        in order to pay several million dollars to the class counsel 
        who had been approved to protect their interests. In short, 
        having been included in a lawsuit they never envisioned, they 
        had their own money from their own escrow accounts taken to pay 
        class counsel for what many believe to have been a very dubious 
        benefit.\2\
---------------------------------------------------------------------------
    \2\ Unless otherwise noted, quotations attributed to witnesses at 
the ``March 1998 Hearing'' are from the prepared statements of those 
persons submitted for the hearing.

   According to several data sources, there has been an 
        explosion in the number of state court class actions in recent 
        years. Witnesses tied this phenomenon to the tendency of 
        certain state courts to have an ``anything goes'' attitude 
        toward class actions. At the March 1998 House hearing, Rep. 
        James Moran (D.--Va.) observed that ``[o]pportunistic lawyers 
        have identified those states and particular judges where the 
        class action device can be exploited.'' And offering specific 
        examples, he decried the fact that ``legitimate business 
        enterprises * * * are being severely harmed by existing class 
        action practice'' and that ``[i]n other cases, where businesses 
        may be legitimately at fault, injured consumers receive little, 
        while the plaintiffs attorneys are enriched.'' Similarly, John 
        W. Martin, Jr., then the Vice President-General Counsel of Ford 
        Motor Company, observed that ``[t]he real purpose of the vast 
        majority of class action lawsuits is to make money--not for 
        consumers, but for the lawyers bringing the suit.'' Noting 
        specific state court examples, he urged that ``[a]s a result, 
        consumers are exploited and rarely receive substantial awards, 
        while class action counsel frequently walk away with 
        millions.''
   The lax attitude toward class actions manifested by some 
        state courts has constitutional (due process) ramifications. 
        For example, Mr. Martin cited cases in which state courts had 
        engaged in ``drive-by class certification[s]''--situations in 
        which judges ``grant[] plaintiffs' motion to certify his claims 
        for class treatment before the defendant even has a chance to 
        respond to the motion (or, indeed, has even been served with 
        the complaint).''
   He also expressed concern about the `` `I never met a class 
        action I didn't like' phenomenoe''--state courts that ``employ 
        standards that are so lax that virtually every class 
        certification motion is granted, even where it is obvious that 
        the case cannot, consistent with basic due process principles, 
        be tried to a jury as a class action.'' He cited examples of 
        cases in which state courts had certified classes that federal 
        courts had found uncertifiable. In some of those cases, the 
        federal court cited due process or other constitutional reasons 
        for finding class certification inappropriate; yet, the state 
        courts charged ahead.
   Because the class action device is such a powerful tool, it 
        can give an attorney unbounded leverage. John L. McGoldrick, 
        Senior Vice President and General Counsel of Bristol-Myers 
        Squibb Company, observed at the March 1998 House hearing that 
        where class actions are not properly controlled by the courts 
        handling them, there can be ``the perverse result that 
        companies that have committed no wrong find it necessary to pay 
        ransom to plaintiffs' lawyers because the risk of attempting to 
        vindicate their rights through trial simply cannot be justified 
        to their shareholders. Too frequently, corporate decisionmakers 
        are confronted with the implacable arithmetic of the class 
        action: even a meritless case with only a 5 percent chance of 
        success at trial must be settled if the complaint claims 
        hundreds of millions of dollars in damages.''
   The fundamental problem is the failure of some state courts 
        to manage class actions so as to avoid the considerable 
        potential for abuse. Rep. Moran testified that ``[m]any state 
        courts lack the complex litigation training, experience and 
        resources necessary to deal with [interstate class actions]'' 
        and that ``state court judges, who are elected in most states, 
        are more prone to bias when the defendant is a large, out of 
        state corporation.'' As Mr. McGoldrick put it, ``[i]n some 
        places, state court judges do not appreciate the raw power of 
        the class action device and the need to circumscribe its usage. 
        As a result, the rights of both defendants and the class 
        members on whose behalf the actions were brought get ignored.''
   This situation has encouraged the all too frequent filing of 
        frivolous class actions in state courts. For example, Mr. 
        Martin offered specific examples illustrating that due to the 
        erosion of state court class action standards, ``class actions 
        that are being filed assert claims that are utterly without 
        merit (or marginal at best).'' And he noted that in interviews 
        conducted for a study on class actions by the RAND 
        Corporation's Institute for Civil Justice, ``many attorneys 
        (including some plaintiffs' counsel) observed that `too many 
        non-meritorious [class action lawsuits] are [being] filed and 
        certified' for class treatment.''
   The current situation in which class action litigation is 
        being focusing in state courts is resulting in enormous waste, 
        inconsistent results, and the risk of harm to class members' 
        interests. More specifically, both Mr. McGoldrick and Mr. 
        Martin noted the problems created whenever overlapping or 
        ``copycat'' class actions are filed, a frequent occurrence. 
        When such ``copycat'' cases are pending in different federal 
        courts, they may be consolidated before a single judge through 
        the Judicial Panel on Multidistrict Litigation, thereby 
        ensuring uniform management of the litigation and consistent 
        treatment of all legal issues. But when duplicative class 
        actions are filed in two or more state courts in different 
        jurisdictions, the ``competing'' class actions must be 
        litigated separately in an uncoordinated, redundant fashion 
        because there is no mechanism for consolidation of state court 
        cases. As a result, state courts may ``compete'' to control the 
        cases, often resulting in harm to all parties involved. Counsel 
        also ``forum shop,'' going from court to court trying to obtain 
        a different result on class certification or other issues. And 
        class counsel in the various cases may compete with each other 
        to achieve a settlement, a phenomenon that can work to the 
        disadvantage of the class members.
   Mr. Martin observed that ``[t]he `anything goes' mentality 
        in state courts has led to a sad reality: as a practical 
        matter, the most important question determining the outcome of 
        a class action lawsuit has now become, not the merits of the 
        claims or the propriety of class treatment, but whether the 
        case can successfully be removed to federal court.'' He then 
        offered numerous examples of ways in which lawyers who file 
        class action lawsuits manipulate their pleadings to keep their 
        purported class actions out of federal court (e.g., by naming 
        defendants who defeat diversity but who have no real role in 
        the litigation, by waiving class claims that might give rise to 
        federal jurisdiction, by changing claims after the one-year 
        removal deadline has passed).
         b. the state court class action crisis has not abated
    Little has changed since last year's class action-related hearings, 
except that we now have more data confirming that the state court class 
action crisis is for real. Most notably, a new publication--Class 
Action Watch--recently printed the results of a survey of major company 
experiences with class actions.\3\ In particular, the survey found that 
the number of class actions pending against the responding companies 
had increased dramatically over the ten-year period 1998-1998. As 
indicated by other data collection efforts, that growth was most 
pronounced among state court class actions. Over the ten-year period, 
the number of state court class actions pending against the respondents 
rose by 1,042 percent--a greater than ten times increase.\4\ In 
contrast, the growth of pending federal cases was substantially less--
only around 338 percent.\5\
---------------------------------------------------------------------------
    \3\ Analysis: Class Action Litigation--A Federalist Society 
Survey,'' Class Action Watch (Federalist Society Litigation and 
Practice Group, Class Action Subcommittee) at 1 (Vol. 1, No. 1).
    \4\ Id. at 5.
    \5\ Id.
---------------------------------------------------------------------------
    The survey also provided strong support for the contention that if 
state courts in a particular locale begin manifesting an ``laissez-
faire'' attitude toward class actions, they will become a magnet for 
such matters. For example, the survey noted that for years, the level 
of class action activity in Texas was relatively low. But of late, some 
Texas intermediate appellate courts have issued class certification-
related decisions suggesting that Texas courts have a lower threshold 
for class certification than do our federal courts (even though Texas 
has adopted the federal class action rule and supposedly follows 
federal class action precedents). The effects of these decisions are 
not surprising. While the surveyed companies had experienced a 110 
percent growth in the number of pending Texas state court class actions 
in the five-year period 1988-1993, that growth recently has accelerated 
dramatically.\6\ In the more recent five-year period (1993-1998), those 
companies reported a 338 percent increase in the number of class 
actions pending against them in Texas state courts.\7\
---------------------------------------------------------------------------
    \6\ Id. at 7.
    \7\ Id.
---------------------------------------------------------------------------
    The survey also indicated that as the Texas courts seemingly became 
less rigorous about class actions, they were more frequently being 
called upon to hear class actions involving non-Texas residents. For 
example, the survey noted that both in 1988 and 1993, certified classes 
were almost always confined to Texas residents.\8\ By 1998, however, 
nationwide class actions were relatively common in Texas state 
courts.\9\
---------------------------------------------------------------------------
    \8\ Id. at 8.
    \9\ Id. The survey also contains data supporting the view of Mr. 
McGoldrick and others noted above that class actions provide 
extraordinary leverage to force settlements, regardless of whether 
those settlements make sense for either the class members or the 
defendants. Id. at 7-8.
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     c. other problems with state court class actions are emerging
    Over the past year, several other problems attributable to state 
court class actions have become increasingly apparent. I would like to 
focus on just two:
1. Overly broad classes put class member rights at risk
    Because of the entrepreneurial motivations that underlie most class 
actions, it is not surprising that counsel try to make them as broad as 
possible. In short, why sue for a class of 1,000 people when you can 
sue for a class of 20 million people? A 20-million person class gives 
an attorney far more leverage against the defendant. And it creates the 
potential for a much larger pot of attorneys' fees (with no 
significantly larger investment).
    The problem with this approach is that it causes the entire lawsuit 
to proceed on a lowest common denominator basis. The ``average'' claim 
becomes the claim by which the entire action is judged; class members 
with larger, more serious claims are simply lumped into the group and 
not given individual attention. Further, to make the litigation work as 
a class action, class counsel begin ``shaving off'' (i.e., waiving) the 
more complicated claims that may preclude trying the matter on a class 
basis. For example, certain legal theories requiring individual proof 
(e.g., fraud claims requiring individual demonstrations of reliance) 
may be thrown overboard. Likewise, claims for certain types of injuries 
(e.g., personal injury, property damage) may be excluded from the scope 
of the action. These ``shortcuts'' can be devastating for certain class 
members.
    Let me use as an example a recently filed class action lawsuit that 
has garnered considerable attention--the now infamous ``toothbrush'' 
class action. According to a press release, this lawsuit, which is 
pending in state court in Chicago, assails the American Dental 
Association and several toothbrush manufacturers for failing to warn of 
the risk of a toothbrush-related injury known as ``toothbrush 
abrasion'' \10\ According to a press report, the ``hard evidence'' that 
backs this lawsuit is, in significant part, a toothpaste commercial 
that claimed that 36 million people brushed their teeth too hard.\11\ I 
suspect that a lot of people have reacted to this lawsuit in the manner 
of one letter to the editor:
---------------------------------------------------------------------------
    \10\ The attorneys who brought the lawsuit have even set up a 
website regarding the action--at ``www.toothbrush.com.'' Among other 
things, it advises that if one suspects that he/she has toothbrush 
abrasion, they should ``[f]irst, take care of your health'' and then 
second, call for more information about the lawsuit at 1-877-SORE GUMS.
    \11\ Not Too Abrasive, But Suit Causes Ache, Chicago Tribune, April 
14, 1999, at Business 1.

        I wonder if one can sue this attorney and his client for being 
        abrasive and irritating. Any attorneys out there want to take 
        up the challenge? We could make it a class-action suit against 
        all ridiculous lawsuits such as this.\12\
---------------------------------------------------------------------------
    \12\ Rubs the Wrong Way, Chicago Sun-Times, April 22, 1999, at 30.

    Admittedly, I know little about this lawsuit. But if it is like 
most actions of this general type, the proposed class includes (a) a 
few people who actually claim to have suffered physical injury and (b) 
millions of people who simply claim to be at risk of injury. This 
paradigm poses two major problems. The people who claim actual injury 
are going to get lost in the lawsuit. If the matter actually gets 
adjudicated or settled on a class basis, the focus will be on the 
biggest group--the people who supposedly are just ``at risk.'' If the 
case is tried, the jury likely would find for the defendants under this 
apparently bizarre theory. Or if the case is adjudicated in plaintiffs' 
favor or is settled, the remedy will focus on the ``at risk'' group 
(e.g., something like warnings and/or new toothbrushes). But what 
happens if somebody out there actually sustained physical injury? What 
if there actually are a few people who rightfully should have been 
warned by a dentist that they have a very rare dental situation 
requiring an unusual dental hygiene regimen?
    Unless those persons are properly notified of what is going on in 
the lawsuit and closely follow the content of the notices (assuming 
that is possible), they will be out in the cold. If the case is tried 
and the class loses, their rights to pursue their claim's for actual 
injury likely will be extinguished. Or even if plaintiffs win or obtain 
a settlement, the relief probably will not address their actual injury 
at all. And they will not be able to obtain individualized relief 
because the class victory or the settlement will preclude them from 
seeking more.
    In some cases, class counsel seek to avoid these potential results 
by excluding people who actually have sustained personal injury, 
limiting the purported class to people who are merely at risk. But that 
approach creates another similar problem. If the case proceeds on a 
class basis and the class loses, all of the class members probably will 
be precluded from pursing claims if in fact they do experience actual 
injury in the future, in which case they may have a more compelling 
individual case to present to a jury. (For example, in the toothbrush 
case, if a jury found the warnings provided by the defendants to be 
adequate, each class member presumably would be precluded from arguing 
to the contrary in a personal injury action in the future.) Likewise, 
if the case is resolved (by settlement or trial) on the basis of 
minimal relief, each class member likely would be precluded from later 
asserting claims against the defendants if the risk came to fruition--
if they discover later that they have actually experienced dental 
injury of some sort.
    Federal courts have become sensitive to this problem and 
increasingly have refused to proceed with class actions that put class 
members' rights at risk in this manner.\13\ In contrast, state courts 
generally have been oblivious to this problem. Indeed, I am not aware 
of any state court that has even attempted to address this issue.
---------------------------------------------------------------------------
    \13\ See, e.g., In re Ford Motor Co. Bronco II Prod. Liab. Litig., 
177 F.R.D. 360, 368 (E.D. La. 1996) (denying class certification 
because requested relief ``does not encompass death, injury, property 
damage or other consequential damage''; noting that ``by attempting to 
tailor their action in such a way as to improve their ability to 
establish commonality, class representatives may in fact create an 
adequacy problem''); Feinstein v. The Firestone Tire and Rubber Co., 
535 F. Supp. 595, 600-01 (S.D.N.Y. 1982).
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2. State courts are ``federalizing'' substantive and procedural law
    I have heard criticisms that S. 353 would ``federalize'' all class 
actions. That criticism overlooks a perversity of the current class 
action landscape--class actions have already been federalized by the 
state courts.
    When I say ``federalized,'' I do not mean that the federal 
government has come in and told states what they are supposed to do. 
What I am talking about is ``false federalism''--the current situation 
in which one state court goes around telling the other 49 state courts 
what their laws should be. When state courts preside over class actions 
involving claims of residents of more than one state (especially 
nationwide class actions) as they are increasingly inclined to do, they 
end up dictating the substantive laws of other states, sometimes over 
the protests of officials in those other jurisdictions.
    A shining example appeared on page 29 of the September 27, 1998 
edition of the New York Times. In a full-page article, the Times 
reported on a multi-billion dollar class action pending in a rural 
county court in down state Illinois.\14\ The headline says: ``Suit 
Against Auto Insurer Could Affect Nearly All Drivers.''
---------------------------------------------------------------------------
    \14\ In the trial court, the action is captioned Snider v. State 
Farm Mut. Auto. Ins. Co., No. 97-L-114 (Ill. Cir. Ct., Williamson 
County).
---------------------------------------------------------------------------
    The article says that all kinds of people are ``alarmed'' about 
this lawsuit. Public Citizen is ``alarmed.'' Ralph Nader is 
``alarmed.'' The Attorneys General of Massachusetts, New York, 
Pennsylvania, and Nevada are ``alarmed.'' The National Association of 
State Insurance Commissioners is ``alarmed.'' Why are all of these 
people ``alarmed?'' Their concern is that the rural county court in 
Illinois is on the verge of telling all of the other states what their 
auto insurance laws are going to be. In the context of a nationwide 
class action, that court is set to decide whether auto insurance 
companies' use of ``aftermarket'' auto parts (as opposed to auto parts 
made by the ``original equipment manufacturer'' (``OEM'')) in repairing 
insureds' vehicles is fraudulent behavior. The problem is that some 
states encourage or require insurance companies to use non-OEM parts, a 
policy intended to lower insurance rates. Nevertheless, the Illinois 
court is set to apply Illinois law to all other fifty states, and 
according to the Times article, may thereby ``overturn insurance 
regulations or state laws in New York, Massachusetts, and Hawaii, among 
other places.'' In short, this Illinois county court, which was elected 
by and is accountable only to the 61,000 residents of Williamson 
County, Illinois, is going ``to make what amounts to a national rule on 
insurance.'' The Illinois Supreme Court has declined to stop the 
court;\15\ the U.S. Supreme Court has also refused to intervene.\16\
---------------------------------------------------------------------------
    \15\ See Insurance Indus. Litig. Reporter, April 1, 1998, at 18 
(noting that the Illinois Supreme Court had denied petitions to halt 
the action).
    \16\ See Speroni v. State Farm Mut. Auto. Ins. Co., 119 S. Ct. 276 
(1998).
---------------------------------------------------------------------------
    Another example of this phenomenon is a class action now pending in 
the state court for Coosa County, Alabama.\17\ That suit was brought on 
behalf of the over 20 million people who have certain types of airbags 
in their motor vehicles. The lawyers therein are asking that the court 
order that the design of those federally-mandated airbags be declared 
faulty. That court may be the ablest and the most conscientious in our 
judicial system. But from a federalism policy standpoint, this 
situation defies logic. Why should an Alabama state court tell 20 
million people in all 50 states what kind of airbag that they may have 
in their cars? What business does an Alabama state court have in 
presiding over this purportedly nationwide action when fewer than 2 
percent of the claimants are Alabama residents and none of the out-of-
state defendants even do business in the court's district? That Alabama 
court is accountable only to the 11,000 residents of the county that 
elects the court. Nevertheless, if counsel in that case have their way, 
that court will be dictating national airbag policy.
---------------------------------------------------------------------------
    \17\ This lawsuit is captioned Smith v. General Motors Corp., et 
al., Civ. A. No. 97-39 (Cir. Ct. Coosa County, Ala.). Although the 
trial court initially certified a nationwide class in this action 
before the defendants were even served, the court subsequently lifted 
that order.
---------------------------------------------------------------------------
    Under the current situation, procedural class action law has also 
been federalized to a large extent--in the same perverse way. Even 
though only a minority of state courts are routinely failing to 
exercise sound judicial judgment on class action issues, those courts 
have become magnets for a wildly disproportionate share of the 
interstate class actions that are being filed. In short, attorneys file 
their class actions in the minority of courts that are most likely to 
have a ``laissez-faire'' attitude toward the class device. That 
distinct minority of state courts are essentially setting the national 
norm; they are effectively dictating national class action policy.
    The new Class Action Watch testimony (discussed previously) tends 
to confirm this observation. But anyone doubting that this phenomenon 
is occurring need look no further than the testimony of Dr. John B. 
Hendricks at the March 1998 House hearing. He offered a docket study of 
state court class actions in one jurisdiction showing (a) that class 
actions had become disproportionately large elements of the dockets of 
some county courts, (b) that many of the class actions were against 
major out-of-state corporations lacking any connection with the forum 
county, and (c) that the proposed classes in those cases typically were 
not limited to in-state residents and often encompassed residents of 
all 50 states. Dr. Hendricks identified one state court judge who had 
granted class certification in 35 cases over the preceding two years. 
As Dr. Hendricks stated, ``[t]hat's a huge number of cases when one 
considers that during 1997, all 900 federal district court judges in 
the United States combined certified a total of only 38 cases for class 
treatment.'' The study failed to uncover any instance in which that 
judge had ever denied class certification. Clearly, that court alone 
was playing a radically disproportionate role in setting national class 
action policy.\18\
---------------------------------------------------------------------------
    \18\ The Alabama Supreme Court has recently issued several rulings 
that may dampen this behavior. But when such action is taken in one 
state, counsel simply move the class action show to another 
jurisdiction where the courts have shown a lax attitude toward 
regulating the class device.
---------------------------------------------------------------------------

 II. S. 353 Is A Modest, Well-Reasoned Answer To The State Court Class 
                             Action Crisis

    From the record now before Congress, one could develop strong 
support for far reaching (some would say ``radical'') responses to the 
state court class action crisis. For example, Congress could enact 
federal legislation simply prohibiting state courts from using the 
class action device at all. Or Congress could perform major surgery on 
the class device itself (e.g., change procedural rules to allow class 
actions to be used only to pursue injunctive relief (not monetary 
damages) and thereby eliminate the economic incentives that encourage 
abuse of the device).
    Instead, S. 353 takes a middle-of-the-road course, proposing very 
modest changes. Nevertheless, its multi-pronged approach should be 
effective in addressing many of the most serious class action problems 
that have been identified.
              a. provisions expanding federal jurisdiction
    At the March 1998 House hearing, the witnesses were asked their 
views about a suggestion that the state court class action crisis could 
be quelled by expanding federal diversity jurisdiction to accommodate 
more class actions with interstate implications:

   Prof. Susan Koniak, a member of the faculty at the Boston 
        University Law School who described herself as being from the 
        ``plaintiffs' bar,'' responded that expanding federal 
        jurisdiction over class actions would be

        a good idea. There's the polybutylene pipe case, which is one 
        of the biggest class actions, was in Union City, Tennessee, in 
        the state court, where no one could get there, you couldn't fly 
        in to object. And that's common. 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.\19\
---------------------------------------------------------------------------
    \19\ See Federal News Service Transcript, Mass Torts and Class 
Actions: Hearing before the Subcomm. on Intellectual Property and the 
Courts, House Comm. on the Judiciary (March 9, 1998), at 19 (``FNS 
Transcript'').

   Former U.S. Attorney General Dick Thornburgh concurred, 
---------------------------------------------------------------------------
        noting that

        [m]ost of the complaints that arise out of alleged inequitable 
        treatment in these suits in state courts are in states where 
        the judges are elected, and must * * * depend on contributions 
        which come from potential party litigants.

He stated that an expansion of federal jurisdiction over class actions 
is warranted because ``federal courts have shown a much greater 
propensity to bring some sensible adjudication to the creation of 
classes and the progress of class cases.'' \20\
---------------------------------------------------------------------------
    \20\ Id. at 19-20.

   In her prepared oral remarks, Elizabeth Cabraser, a leading 
---------------------------------------------------------------------------
        plaintiffs' class action attorney, opined 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. Not because 
        the federal courts necessarily have superior judges, but 
        because the federal courts have nationwide reach; they have the 
        statutory mechanisms that they need to manage this litigation, 
        so litigation can be transferred and coordinated in a single 
        forum.\21\
---------------------------------------------------------------------------
    \21\ Id. at 33-34.

   Both Mr. Martin and Mr. John Frank indicated their support 
        for expanding federal diversity jurisdiction over purported 
        class actions. And Mr. McGoldrick concluded the inquiry by 
---------------------------------------------------------------------------
        telling the Subcommittee:

        [Y]ou have heard [today] from professors, from plaintiff's 
        lawyers, from defense lawyers, from consumer representatives, 
        from business people, from a whole range. And it is striking to 
        me that those of us who frequently disagree--my friend Ms. 
        Cabraser and I frequently disagree--but you've heard from 
        everyone the notion that diversity jurisdiction, increasing the 
        ambit of it to permit class actions, is a good idea. And it 
        seems to me that that's something this committee should weigh 
        heavily in its deliberations.\22\
---------------------------------------------------------------------------
    \22\ Id. at 42.

    S. 353 embraces the simple, elegant response to the state court 
class action crisis considered by this diverse group of witnesses--a 
correction of the fact that federal courts lack jurisdiction to 
adjudicate interstate class actions, lawsuits that typically involve 
millions of dollars in dispute among thousands of parties residing in 
multiple jurisdictions. That change would aid resolution of the current 
state court class action crisis by eliminating restrictions that have 
forced both unnamed class members and defendants to have their claims 
heard before some tribunals that are ill-equipped to handle complex 
litigation and otherwise less vigilant about due process rights. 
Further, as Ms. Cabraser noted at the March 1998 House hearing, the 
change would make available in most class actions the ``statutory 
mechanisms'' that federal courts (but not state courts) may wield ``to 
manage [class] litigation,'' so that overlapping, competing class 
actions ``can be transferred and coordinated in a single forum.'' \23\ 
And most importantly, the change would contribute to greater uniformity 
in the standards for deciding whether a controversy may be afforded 
class treatment.
---------------------------------------------------------------------------
    \23\ See 28 U.S.C. Sec. 1407 (statute providing for transfer and 
consolidation of actions through multidistrict litigation mechanism).
---------------------------------------------------------------------------
    As drafted in S. 353, this solution would be implemented without 
undesirable side-effects. The bill would not alter any party's 
substantive legal rights. The bill would not permit removal of truly 
local disputes; such matters would remain within the exclusive purview 
of the relevant state courts. And the bill would not preempt state 
courts' authority to hear class actions of any sort; if the parties 
prefer to litigate a particular interstate class action before an 
appropriate state court, they may do so.
    The jurisdictional changes envisioned in S. 353 are entirely 
consistent with the current concept of federal diversity jurisdiction. 
At present, the statutory ``gatekeeper'' for federal diversity 
jurisdiction--28 U.S.C. Sec. 1332--essentially allows invocation of 
diversity jurisdiction in cases that are large (in terms of the 
``amount in controversy'') and that have interstate implications (in 
terms of involving citizens from multiple jurisdictions). By nature, 
class actions typically fulfill these requirements. Because they 
normally involve so many people and so many claims, class actions 
invariably put huge sums into dispute and implicate parties from 
multiple jurisdictions. Yet, because section 1332 was originally 
enacted before the rise of the modern day class action, it did not take 
account of the unique circumstances presented by class actions. As a 
result, that section, as a technical matter, tends to exclude class 
actions from federal courts.\24\ That technical omission would be 
corrected by S. 353.
---------------------------------------------------------------------------
    \24\ At present, class actions not presenting federal questions 
often may not be brought in or removed to federal courts under 
diversity jurisdiction theories because of two U.S. Supreme Court 
decisions interpreting section 1332. First, in Snyder v. Harris, 394 
U.S. 332, 340 (1969), the Court ruled that in determining whether the 
parties satisfied the diversity prerequisite, a court should look only 
to the named parties (ignoring the unnamed class members). That ruling 
allows class proponents to avoid federal diversity jurisdiction by 
naming as plaintiffs parties who are non-diverse with a defendant, even 
though a significant number of the unnamed class members (if not the 
vast majority of class members) do not share the defendant's 
citizenship. Second, in Zahn v. International Paper Co., 414 U.S. 291 
(1973), the Court held that the ``amount in controversy'' requirement 
in section 1332 is satisfied in a purported class action only if each 
and every member of the purported class is shown separately to satisfy 
the jurisdictional amount threshold (presently $75,000). That ruling 
means that even though class actions invariably are huge controversies, 
involving millions (or billions) of dollars of claimed damages, they 
cannot be heard in federal court. For example, an action involving 
100,000 class members may put millions of dollars at stake, but it 
would not be subject to federal jurisdiction unless each class member 
had $75,000 at issue or a total of $7.5 billion for the purported 
class!
---------------------------------------------------------------------------
    S. 353 would make this correction by amending 28 U.S.C. Sec. 1332 
(the diversity jurisdiction statute) to extend federal diversity 
jurisdiction to cover any class action (with an aggregate amount in 
controversy in exceeding $75,000) in which there exists ``partial 
diversity'' between plaintiffs (including all unnamed members of any 
plaintiff class) and defendants, an approach wholly consistent with 
Article III of the Constitution.\25\ This expanded jurisdiction, 
however, would not encompass disputes that are not interstate in 
nature--cases in which a class of citizens of one state sue one or more 
defendants that are citizens of that same state would remain subject to 
the exclusive jurisdiction of state courts. Further, federal courts 
would be required to abstain from hearing certain local cases and state 
action cases. Thus, contrary to what has been argued by some critics, 
the bill would not move all class actions into federal court. 
Consistent with existing diversity jurisdiction precepts, it would 
preserve exclusively to state court jurisdiction what are primarily 
local controversies.
---------------------------------------------------------------------------
    \25\ See, e.g., State Farm Fire & Cas. Co. v. Tashire, 386 U.S. 
523, 530-31 (1967) (``in a variety of contexts, [federal courts] have 
concluded that Article III poses no obstacle to the legislative 
extension of federal jurisdiction, founded on diversity, so long as any 
two adverse parties are not co-citizens''). In State Farm, the Court 
noted that the concept of ``minimal diversity'' providing the basis for 
diversity jurisdiction in the class action context had already been 
discussed in Supreme Tribe of Ben-Hur v. Cauble, 255 U.S. 356 (1921). 
On several subsequent occasions, the Court has reiterated its view that 
permitting the exercise of federal diversity jurisdiction where there 
is less than complete diversity among the parties is wholly consistent 
with Article III. See, e.g., Carden v. Arkoma Associates, 494 U.S. 185, 
199-200 (O'Connor, J., dissenting) (``Complete diversity * * * is not 
constitutionally mandated.''); Newman-Green, Inc. v. Alfonzo-Larrian, 
490 U.S. 826 (1989) (``The complete diversity requirement is based on 
the diversity statute, not Article III of the Constitution.''); Owen 
Equipment & Erection Co. v. Kroger, 437 U.S. 365 (1978) (``It is 
settled that complete diversity is not a constitutional 
requirement.''); Snyder v. Harris, 394 U.S. 332, 340 (1969) (in a class 
action brought under Fed. R. Civ. P. 23, only the citizenship of the 
named representatives of the class is considered, without regard to 
whether the citizenship of other members of the putative class would 
destroy complete diversity).
---------------------------------------------------------------------------
    The amendments also would facilitate the removal to federal court 
of any purported class action that falls within the additional grant of 
federal diversity jurisdiction over class actions described above. The 
bill would not change the existing diversity jurisdiction removal 
procedures applicable to purported class actions, save for three 
exceptions intended to correct some of the tactics used by counsel to 
avoid federal jurisdiction over interstate class actions.\26\ In 
addition, the bill would authorize unnamed class members (not just 
defendants) to remove cases. This even-handed change would allow class 
members to move cases to federal court (within a reasonable time after 
notice is given) if they are concerned that the state court has not or 
will not adequately protect the absent class members' interests.
---------------------------------------------------------------------------
    \26\ First, the legislation would amend 28 U.S.C. Sec. 1441(b) to 
confirm defendants' ability to remove all purported class actions 
qualifying for federal jurisdiction under the revised section 1332 (as 
discussed above) regardless of the state in which the action was 
originally brought.
    Second, 28 U.S.C. Sec. 1446(b) would be amended to provide that a 
defendant could remove a putative class action at any time (even at a 
date more than one year after commencement of the action), so long as 
the action is removed within 30 days after the date on which the 
defendants may first ascertain (through a pleading, amended pleading, 
motion order or other paper) that the action satisfies the 
jurisdictional requirements for class actions (as set forth in the 
proposed section 1332(b)). This provision is intended to prevent 
parties from filing cases as individual actions and then recasting them 
as purported class actions (or as broader class actions) after the one-
year deadline for removal has passed.
    Third, S. 353 would amend 28 U.S.C. Sec. 1446(a) to allow any class 
action defendant to remove an action. At present, an action typically 
may be removed only if all defendants concur. This provision is 
intended to address situations in which local defendants with little at 
risk or defendants ``friendly'' to the named plaintiffs may preclude 
other defendants with substantial exposure from gaining access to 
federal court.
---------------------------------------------------------------------------
    To avoid leaving before federal courts controversies not warranting 
the attention of the federal judiciary, the legislation would require a 
federal court to dismiss any case (that is in federal court solely due 
to the expanded diversity jurisdiction provisions) that it has 
determined may not be afforded class treatment. However, the bill 
specifies that an amended action may be refiled in state court. 
Further, the bill also protects the interests of the unnamed class 
members by specifying that federal tolling law will apply to the 
limitations periods on the claims asserted in the failed class action.
                        b. the notice provisions
    The bill contains provisions (a) requiring that any formal, court-
ordered notice to the class contain a ``short summary written in plain, 
easily understood language'' and (b) otherwise detailing the required 
contents of such notices. Further, the bill requires that the Attorney 
General of the United States and the attorneys general of any states in 
which class members reside be notified of any proposed class action 
settlement. As noted above, many state courts have not been vigilant 
about protecting the rights of unnamed class members, particularly 
those with claims that arguably may be more significant than the claims 
of the average class member. Further, some courts have not adequately 
balanced attorney compensation with what has been achieved for the 
class.
    Many of these problems will be alleviated if the federal courts are 
allowed to hear more interstate class actions. However, expanding 
public awareness of proposed class actions and proposed settlements 
thereof will lessen the possibility that class actions will injure the 
unnamed class members that they are intended to benefit.
                     c. attorney's fees provisions
    As was detailed previously, attorney's fees are the root cause of 
the tidal wave of class actions that we are experiencing and of the 
most serious class action abuses that we are seeing. S. 353 would limit 
such fees to a ``reasonable percentage of the amount of'' (a) damages 
actually paid to the class, (b) future financial benefits to the class 
attributable to the cessation of alleged improper conduct, and (c) 
costs actually incurred by defendants in complying with terms of any 
order or agreement. Reasonable lodestar fees will be available in any 
event.
    These are very modest fee limitations. They do not address the fact 
``percentage of fund'' fee awards in class actions are usually wholly 
unwarranted. Allowing plaintiffs' counsel to receive a significant 
percentage of the recovery in an individual lawsuit might be justified 
as bearing some relationship to the amount that an attorney 
legitimately should expect for prosecuting the claim (particularly when 
the attorney and his/her client presumably have agreed on the 
percentage). But a major purpose of a class action device is to achieve 
efficiencies--to prosecute large numbers of claims simultaneously with 
substantially reduced effort for all involved. Thus, counsel 
prosecuting a class action cannot reasonably expect a substantial 
percentage of whatever fund is created as a result of prosecuting a 
whole class of claims--there must be a substantial discount reflecting 
the efficiency of the class exercise. Otherwise, counsel are receiving 
a major, totally unjustifiable windfall.
    In short, if enacted, the attorney's fees provisions in S. 353 will 
not substantially slow the engine driving class action growth. However, 
the bill's provisions are modest steps in the right direction. They do 
have the potential to curtail some of the more egregious fee abuses, 
especially the tendency by some counsel to claim fees on the basis of 
theories of speculative, amorphous benefits to the class.

                            III. Conclusion

    Thank you again for the opportunity to comment on S. 353. I 
respectfully urge the Subcommittee to recommend the bill favorably to 
the full Judiciary Committee.

    Senator Grassley. Thank you very much for your testimony.
    The Senator from Alabama, would you lead off?
    Senator Sessions. Thank you.
    Mr. Morrison, you talked about lawyers not talking to their 
clients in these cases. They don't know who they are. When I 
was attorney general, there was an election contest actually 
involving the very justice I just mentioned who made that 
closing argument before he was president of the Alabama Trial 
Lawyers Association. But at any rate, the lead plaintiff on the 
case was dead for 6 months. They filed a class action in the 
name of only one plaintiff, as I recall, so obviously they 
hadn't been consulting with their client. And there is just no 
pattern of that.
    Mr. Morrison. There is no pattern.
    Senator Sessions. I mean, the lawyers take over the case, 
and it is their case and they run it and there is no input from 
the client.
    Mr. Morrison. That is right, exactly, Senator Sessions, and 
that is how you get coupon settlements, $.08 settlements, 
future vague medical monitoring settlements. Those aren't about 
the health and welfare and well-being of so-called victims. 
Those are about the entrepreneurial litigator cashing out. In 
essence, what many lawyers have found--and let's just call a 
spade a spade--is that having a class action is better than 
having a ``dot com'' company go public in these days. That is 
what it is all about.
    Senator Sessions. Big money, that is for sure.
    I would like to ask you, Mr. Beisner, about this power. I 
remember back in law school, Dean Harrison used to ask a 
question: in the conflict of laws, may the isle of Tobago bind 
the whole world? Can a county in Chicago actually do this, a 
county court, in effect, under our system of respect for 
verdicts in many cases, be able to do that?
    Mr. Beisner. My understanding, although I am not involved 
in the case, is that this is going to happen. The Illinois 
Supreme Court has declined to intervene, and indeed the parties 
involved took the issue to the U.S. Supreme Court, which also 
declined to intervene. So it is going to happen.
    Senator Sessions. Under the current state of law, this 
complex public policy question will be decided by a county 
court in Illinois?
    Mr. Beisner. That is correct.
    Senator Sessions. With regard to the question of the mass 
tort, this is something I am not sure I can articulate the 
difference. What is the difference in the problem that we as 
policymakers deal with when you have a breast implant-type 
situation, which I guess was filed as a class action--or let's 
take asbestos that was not. Is there a distinction here?
    Mr. Beisner. Well, I think that if you are talking about 
the difference between mass torts and the use of class actions 
in that context and class actions generally--and I don't want 
to over-generalize here, but I think the main difference is 
that frequently or most often in a mass tort situation, you 
have people who are saying I have been injured in some way. You 
often in those cases have the sorts of people who may well go 
to a lawyer and say, I have a problem, would you please try to 
find a remedy here.
    These are claims that at least to some extent are going to 
be filed and are going to be part of the system anyway, and the 
challenge to the courts in those circumstances is how are we 
going to process those. When you are talking about non-mass 
tort class actions, I think you are often there getting more 
into the arena of lawyer-manufactured cases. Those are the 
instances where the claim is probably most apparent only in the 
mind of the lawyer who brought the case and where the vast 
majority of people out there probably don't care a whit about 
whether this claim is asserted.
    Senator Sessions. Now, asserted that you have 60 or 100 
cases like this. Are you serious? I mean, you personally are 
working on 100 cases?
    Mr. Beisner. Yes.
    Senator Sessions. Give me an example of what you are 
talking about, the kind of litigation.
    Mr. Beisner. I can give you an example of one which is in 
your home State of Alabama, in Coosa County, to be 
straightforward about that. And this is a case----
    Senator Sessions. I don't think that was one of the six 
counties.
    Mr. Beisner. No, it is a different one.
    Senator Sessions. But it is not much bigger than those.
    Mr. Beisner. It was a class action involving well over 20 
million in all 50 States, and it is basically anybody who has 
an airbag in their vehicle. And they brought this lawsuit 
against GM, Chrysler and Ford, and they are basically asking 
that GM, Chrysler and Ford send back $500 to all of these 
people because they claim the airbag is defective in those 
vehicles.
    So what you have there is the potential that in this one 
court, where the judge has been elected by the 11,000-or-so 
residents of Coosa County, he will be presiding over this 
multi-billion-dollar trial, if the judge decides to go forward 
with it, deciding whether or not basically everybody's airbag 
out there is defective. And, indeed, that judge and that court 
will be setting our Federal airbag policy.
    Senator Sessions. Well, I think that is extraordinary, and 
it does raise serious questions. I think those are the kinds of 
decisions that may--well, let me ask you, it didn't get in 
Coosa county because the plaintiffs and the defendants somehow 
agreed that this would be a good place to try it? One party got 
to select the county, is that right?
    Mr. Beisner. That is correct.
    Senator Sessions. So, presumably, they searched all over to 
find the county they wanted to file in. They could have filed 
it in any county virtually in the United States?
    Mr. Beisner. That is correct, and we attempted to remove it 
to Federal court because none of the auto company defendants 
really do any business--there aren't even any auto dealers in 
that county. But because they named as a defendant an auto 
dealer in Alabama, we were unable to remove that case to 
Federal court.
    Senator Sessions. Mr. Chairman, that is a dramatic 
statement. What he has said is, as I understand it--correct me 
if I am wrong--this statement that you have a right to remove 
is really a hollow thing because you can almost always in a 
case like this add a non-diversity defendant.
    Mr. Beisner. And I could assure you the auto dealer who was 
named in that lawsuit didn't have a great deal to do with how 
the airbag in those vehicles was designed.
    Senator Sessions. But because he was a defendant, there was 
not complete diversity?
    Mr. Beisner. That is correct.
    Senator Sessions. Mr. Morrison, how do you see that as a 
policy?
    Mr. Morrison. Senator, as a policy what is happening is 
sham defendants, fraudulent defendants, are being joined in to 
prevent removal to Federal court. And I was struck earlier when 
the testimony of the Justice Department was finished and you 
were asking questions about the six counties in your State. If 
you had those same six counties and you had an extraordinarily 
high incidence of cancer, the public would want you to look 
into it and figure out what was going on.
    What you have is the legal equivalent of a high incidence 
of cancer in those six counties because people are self-
selecting those counties, designing lawsuits to stay in those 
counties, and taking the class actions in those specific 
counties. Alabama is not the only place. I could name counties 
just about in every State where there is a friendly jurist or a 
friendly loosening of the rules that takes place, where people 
will design the case to stay before that judge, get it 
certified, get the blackmail settlement and basically go public 
with the attorneys' fees.
    Senator Sessions. I understood it, I think, but I did not 
really comprehend the depth of it that a plaintiff who has got 
an action in every airbag in America can search the whole 
United States to find the single county where there may be only 
one judge that he knows is favorable and bring the lawsuit 
there and get a verdict that binds the world. It is really 
pretty dramatic and I appreciate you sharing that with us.
    Senator Grassley. I will start with Mr. Morrison. I have 
just got a couple of short questions. Both the Justice 
Department and Professor Daynard have suggested that if this 
bill is passed, some people will not get their day in court. 
Are they right?
    Mr. Morrison. No, sir. I couldn't disagree more with that 
suggestion. This bill--and I think the genius of the bill is it 
doesn't have anything to do with the substantive rights of the 
individual. It doesn't change that individual's rights. If the 
individual has a claim under South Carolina law, my home State, 
or a claim under Michigan law, where I grew up, then that claim 
still exists and they have the right to pursue that claim 
vigorously in the Federal court, with full respect for that 
substantive law, or in the State court if that is the 
appropriate place for it and it is an appropriate State class 
action.
    Moreover, the door is not slammed. I think Professor Frank 
said it best. There are plenty of class actions that are, in 
fact, local class actions. A local water pollution case, a 
local water rights case, a local case against a county or a tax 
assessor where something has gone wrong--those are local State 
class actions and should be brought.
    This bill does nothing to diminish the substantive legal 
rights of one human being. What it does allow for is a fair 
adjudication of those rights in an appropriate forum. What it 
does allow for is the removal of interstate class actions. That 
is all it does. It is a very modest proposal with no damage to 
alleged victims.
    Senator Grassley. Mr. Beisner, your comments?
    Mr. Beisner. I am not sure there is much I can add to what 
Mr. Morrison said, but I think that one of the things we need 
to recognize is that the reason why in Federal courts, as 
Professor Daynard was suggesting earlier, some class actions 
are not certified is because frankly in a lot of instances the 
plaintiffs' counsel become over-ambitious with what they are 
doing. They try to mix together people whose claims really 
aren't common, and the Federal courts have been calling counsel 
on that and saying we are not going to allow you to do that.
    Frankly, that is the issue that I think is presented in a 
lot of these cases. I think that if the classes are properly 
crafted, that issue would not exist. And so to suggest that 
State courts are allowing classes Federal courts are not, I 
don't think is a fair comparison. I think that the problem is 
that the Federal courts are beginning to say you have got to 
craft these classes more carefully, and they are right from a 
due process standpoint.
    Senator Grassley. Mr. Beisner, let me ask you, the Justice 
Department, as you heard, suggests that the passage of the 
diversity removal provisions in the bill would somehow infringe 
on the State courts' ability to offer redress to their 
citizens. Is that accurate?
    Mr. Beinser. Again, I think the answer to that question 
really goes back to what Mr. Morrison was saying earlier. It 
will not prevent States from providing redress. Substantive law 
would not be affected by this bill. States may pass whatever 
statutes they wish to provide remedies for whatever sort of 
wrongdoing may exist out there. This won't affect that in the 
least.
    Senator Grassley. I thank you all for coming today. I think 
that this hearing has shown that there is a real problem with 
class actions. I think the Senator from Alabama has been 
impacted very heavily by this testimony, and I think that we 
should move forward with our bill to address this phenomenon. I 
think that fundamental fairness demands it, and I look forward 
to working with other Senators on the Judiciary Committee and 
with Senator Kohl and others to make this bill a reality. And I 
receive in advisement the suggestions of people today, the 
witnesses that we have had who have been willing to help as 
well.
    Thank you all very much. The subcommittee is adjourned.
    [Whereupon, at 4:02 p.m., the subcommittee was adjourned.]
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