[Senate Hearing 107-939]
[From the U.S. Government Printing Office]


                                                        S. Hrg. 107-939

 
                        CLASS ACTION LITIGATION

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

                                HEARING

                               before the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 31, 2002

                               __________

                          Serial No. J-107-98

                               __________

         Printed for the use of the Committee on the Judiciary


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                              WASHINGTON : 2003

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                       COMMITTEE ON THE JUDICIARY

                  PATRICK J. LEAHY, Vermont, Chairman
EDWARD M. KENNEDY, Massachusetts     ORRIN G. HATCH, Utah
JOSEPH R. BIDEN, Jr., Delaware       STROM THURMOND, South Carolina
HERBERT KOHL, Wisconsin              CHARLES E. GRASSLEY, Iowa
DIANNE FEINSTEIN, California         ARLEN SPECTER, Pennsylvania
RUSSELL D. FEINGOLD, Wisconsin       JON KYL, Arizona
CHARLES E. SCHUMER, New York         MIKE DeWINE, Ohio
RICHARD J. DURBIN, Illinois          JEFF SESSIONS, Alabama
MARIA CANTWELL, Washington           SAM BROWNBACK, Kansas
JOHN EDWARDS, North Carolina         MITCH McCONNELL, Kentucky
       Bruce A. Cohen, Majority Chief Counsel and Staff Director
                  Sharon Prost, Minority Chief Counsel
                Makan Delrahim, Minority Staff Director

                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

Feingold, Hon. Russell D., a U.S. Senator from the State of 
  Wisconsin, prepared statement..................................   106
Feinstein, Hon. Dianne, a U.S. Senator from the State of 
  California.....................................................    19
Grassley, Hon. Charles E., a U.S. Senator from the State of Iowa, 
  prepared statement.............................................   108
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah......     4
Kohl, Hon. Herbert, a U.S. Senator from the State of Wisconsin...     6
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont.     1
Thurmond, Strom, a U.S. Senator from the State of South Carolina, 
  prepared statement.............................................   151

                               WITNESSES

Bankston, Hilda, Jefferson County, Mississippi...................    17
Bland, F. Paul, Jr., Staff Attorney, Trial Lawyers for Public 
  Justice, Washington, D.C.......................................     7
Dellinger, Walter, O'Melveny and Myers, Washington, D.C..........    10
Henderson, Thomas J., Chief Counsel, Lawyers, Committee for Civil 
  Rights Under Law, Washington, D.C..............................    12
Mirel, Lawrence H., Commissioner, District of Columbia, 
  Department of Insurance and Securities Regulation, Washington, 
  D.C............................................................    13
Wahl, Shaneen, Port Charlotte, Florida...........................    15

                         QUESTIONS AND ANSWERS

Responses of Walter Dellinger to questions submitted by Senator 
  Hatch and Senator Grassley.....................................    26
Responses of Walter Dellinger to questions submitted by Senator 
  Kohl...........................................................    36
Responses of Thomas J. Henderson to questions submitted by 
  Senator Leahy and Senator Sessions.............................    41

                       SUBMISSIONS FOR THE RECORD

AEGON USA, Inc., Patrick Baird, President and CEO, statement.....    52
American Council of Life Insurers, Philmore Anderson, Senior Vice 
  President, Government Relations and Kimberly Olson Dorgan, Vice 
  President Federal Relations, Washingont, D.C., statement.......    55
America's Community Bankers, Washington, D.C., statement.........    56
Bankston, Hilda, Jefferson County, Mississippi, statement........    59
Bland, F. Paul, Jr., Staff Attorney, Trial Lawyers for Public 
  Justice, Washington, D.C., statement...........................    63
Buffalo News, Protection for Plaintiffs, July 31, 2002, editorial    85
Dellinger, Walter, O'Melveny and Myers, Washington, D.C., 
  prepared statement.............................................    86
Henderson, Thomas J., Chief Counsel, Lawyers Committee for Civil 
  Rights Under Law, Washington, D.C., statement..................   118
Interclaim Holdings, Ltd, Irving Cohen, Chief Operating Officer, 
  statement......................................................   128
Kovacs, Karen Ann, Holyoke, Massachusetts, statement and poem....   131
Mirel, Lawrence H., Commissioner, District of Columbia, 
  Department of Insurance and Securities Regulation, Washington, 
  D.C., statement................................................   134
Omaha World Herald, July 29, 2002, editorial.....................   143
Preston, Martha, Baraboo, Wisconsin, letter......................   145
South Dakota Chamber of Commerce and Industry, David Owen, 
  President, statement...........................................   147
Times Union, Albany, New York, Three Star Edition, dated July 28, 
  2002, editorial................................................   149
U.S. Chamber of Commerce, and U.S. Chamber Institute for Legal 
  Reform, statement..............................................   155
Wahl, Shaneen, Port Charlotte, Florida...........................   162

                        CLASS ACTION LITIGATION

                              ----------                              


                        WEDNESDAY, JULY 31, 2002

                                       U.S. Senate,
                                Committee on the Judiciary,
                                                   Washington, D.C.
    The Committee met, Pursuant to notice, at 10:23 a.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Patrick 
Leahy, Chairman of the Committee, presiding.
    Present: Senators Leahy, Kohl, Feinstein, Hatch, Sessions, 
and McConnell.

OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM 
                      THE STATE OF VERMONT

    Chairman Leahy. If we might come to order. I see all of you 
here. I appreciate the fact that we had to move this time 
somewhat to accommodate the funeral, as you mentioned earlier, 
and I applaud Senator Kohl in requesting this hearing and 
Senator DeWine, of course, as ranking member. I hope this 
hearing will present a fair and balanced view of class action 
litigation in our State and Federal courts.
    It is my attention to undertake a deliberate and careful 
review of information from parties actually involved in class 
action litigation to provide a realistic picture of the 
benefits and problems with class action litigation.
    Unfortunately, I believe that some special interest groups 
have distorted the state of class action litigation by relying 
on a few anecdotes in their ends-oriented attempt to justify 
moving almost all class action cases involving state law into 
Federal court; in other words intending to really trample over 
any kinds of States' rights in these areas.
    I hope this hearing will focus fairly on the hard evidence 
and facts in most class action cases. We should remember that 
our State-based tort system remains one of the greatest and 
most powerful vehicles for justice anywhere in the world. One 
reason for that is the availability of class action litigation 
to let ordinary people band together to take on powerful 
corporations and, in some instances, even their own Government.
    I remember after the breakup of the Soviet Union a group of 
legal experts from now the new country of Russia came to visit 
with me and other Senators, and they said, ``We have to ask you 
a question. We understand that there are instances where people 
sue your Government, and the Government loses. Is that 
possible?''
    I said, ``Yes, it happens quite often.''
    They said, ``Well, do they not just then fire the judges or 
do it over again?''
    I said, ``No, we have an open and clear form of 
litigation,'' and that was the most amazing thing to them, that 
an ordinary person could go in, bring suit against their 
Government, and if they had the law and the facts on their 
side, they won.
    We have defrauded investors--matters of some interest 
lately--deceived consumers, victims of defective products, 
asbestos survivors, smokers, and thousands of other ordinary 
people have all been able to rely on class action lawsuits 
under our State-based tort system to seek and receive justice.
    I am old enough to remember the civil rights battles of the 
1950's and 1960's and the impact of class actions to vindicate 
basic rights through our courts.
    The landmark Supreme Court decision Brown v. Board of 
Education was a culmination of appeals from four class action 
cases; three from Federal court decisions in Kansas, South 
Carolina and Virginia, and one from a decision by the Supreme 
Court of Delaware. Only the Supreme Court of Delaware, the 
State court, unlike the Federal courts, only the State court 
got the case right by deciding for the African-American 
plaintiffs. The Supreme Court of Delaware, a State court, 
understood before any Federal court, that separate, but equal 
is inherently unequal.
    More recently, the tobacco class action litigation has 
contributed to fundamentally change the very dynamics of 
tobacco and public health. For the first time, that class 
action litigation uncovered and presented serious and credible 
evidence about the tobacco industry's 45-year campaign of 
deception about the dangers of cigarettes. As a result of class 
action settlements negotiated by the State attorneys general 
and the private bar, it brought about profound changes in the 
tobacco industry.
    The tobacco industry is now finally admitting on its 
Internet websites that smoking causes cancer and is addictive. 
Before the litigation, the executives of these same companies 
denied under oath, before Congress, that smoking was addictive. 
The suits made them change their mind.
    The very existence of the multi-state tobacco settlements 
is a credit to class action under our State-based civil justice 
system.
    In fact, without the use of class action, does anybody 
believe the tobacco companies would have ever come to a 
negotiating table? Without that, the States would not have 
settlement payments for the next 25 years. Thousands, if not 
millions, of lives will be saved because of future public 
health improvements made in the tobacco litigation.
    Another example of class action litigation serving the 
public interest is the Firestone Tire debacle. The national 
tire recall was started, in part, from the disclosure of 
internal corporate documents on consumer complaints of tire 
defects and design errors that were discovered in litigation 
against Bridgestone/Firestone, Inc.
    Plaintiffs' attorneys turned this information over to the 
National Highway Traffic Safety Administration, triggering an 
investigation. As a result, Bridgestone/Firestone recalled 6.5 
million tires after they were linked to 101 fatalities, 400 
injuries, 2,226 consumer complaints. Later, the NHTSA warned 
that another 1.4 million tires may be defective.
    As reported by TIME Magazine at the time, it is doubtful 
that the internal corporate consumer complaint information 
would ever have been seen except for the civil process.
    Plaintiffs' lawyers in this type of setting tend to work 
without pay. Defense lawyers, in this case corporation lawyers, 
are paid by the hour, and the corporations have an absolute 
right to have the best defense they can afford, and they do. 
The plaintiffs' lawyers tend to work without pay for the 
possibility of obtaining a portion of the proceeds if 
successful.
    In the class actions, if you think that, if you case-by-
case, you may only have a small amount of it, and so people 
think you will not bring a case because you can just cheat each 
person a little, but if you cheat thousands of people just a 
little, it is still cheating. That is what happened in the 
tobacco cases--stockholders and small investors.
    I worry about restricting the legal rights of people and 
leaving them no way to bring about their claims. I am hesitant 
to restrict legal rights and remedies in an area of corporate 
irresponsibility and executive misconduct. I was down at the 
White House signing yesterday, the Sarbanes-Oxley Act, and I 
heard bipartisan demands for holding corporate wrongdoers 
accountable for their actions. I am not too eager to give them 
a new shield, especially when hardworking Americans are being 
left with over $7 trillion in stock market losses.
    Just a few months ago, a group of investors recovered 
millions in lost investments under State corporate fraud laws 
in a State class action case. In Baptist Foundation of Arizona 
v. Arthur Andersen, these are elderly investors. They banded 
together to successfully recoup $217 million from Arthur 
Andersen for questionable accounting practices surrounding an 
investment trust. This is just one example of how State-based 
class action litigation can hold corporate wrongdoers 
answerable.
    I look forward to hearing from our witnesses. I may have 
some disagreements with Senator Kohl about the solutions in 
this area, but I do that respectfully because he is one of the 
hardest-working members of this committee, and he a need his 
counterpart on the Republican side have approached these issues 
very judicially and very carefully and in a way that should be 
looked at by the rest of the Senate. That is why I accommodated 
him with this hearing.
    What I thought I would do now is turn to my friend, the 
ranking member of this committee. One thing I should note, 
Senator Hatch and others, I would hope that we can find some 
way--we have been working quietly with your staff, mine, and 
others--find a way to fairly compensate those suffering and 
developing afflictions from asbestos. These cases, nobody seems 
to know where they are going. The Supreme Court issued a 
challenge to help with asbestos litigation, and I am committed 
to work with Senators on both sides of the aisle to see if we 
can find a way out of this specific area of asbestos litigation 
with legislation and do it in such a way that it does not 
become a Christmas tree for everybody's pet theory from either 
the right to the left.
    Senator Hatch?

STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM THE STATE 
                            OF UTAH

    Senator Hatch. Thank you, Mr. Chairman.
    I am happy to hear you say that because there are many 
people who are not suffering who are getting awards in the 
asbestos litigation, and there are going to be thousands, if 
not millions, of people who are suffering who might not get 
compensated, and we have got to solve that problem, and it all 
comes down to class action reform.
    I also share your high opinion of Senators Kohl and 
Sessions for the work that they are doing on this committee, 
and the hard work that they have put in. I would like to thank 
you and Senator Kohl for scheduling this hearing on this 
important topic of class action litigation, and I am also 
pleased that the chairman has agreed to hold a hearing in 
September on the problems with asbestos litigation. I am 
hopeful that we can work together on these issues.
    Over the past decade, it has become clear that abuses of 
the class action system have reached epidemic levels. In recent 
years, it has become equally clear that the ultimate victims of 
this epidemic are poorly represented class members and 
individual consumers throughout the Nation. The Class Action 
Fairness Act of 2002 represents a modest, measured effort to 
remedy the plague of abuses, inconsistencies and inefficiencies 
that infest our current system of class action litigation.
    Now it is essential that we address the abuses that are 
running rampant in our current class action litigation system. 
Frequently, plaintiff class members are not adequately informed 
of their rights or of the terms and practical implications of a 
proposed settlement. Too often judges approve settlements that 
primarily benefit the class counsel, rather than the class 
members. There are numerous examples of settlements where class 
members received little or nothing, while attorneys received 
millions of dollars in fees.
    Multiple class action suits asserting the same claims on 
behalf of the same plaintiffs are routinely found in different 
State courts causing judicial inefficiencies and encouraging 
collusive settlement behavior. State courts are more frequently 
certifying national classes leading to rulings that infringe 
upon or conflict with the established laws and policies of 
other States.
    Despite the mountains of evidence demonstrating the 
drastically increasing harms caused by class action abuses, I 
am sure that several here today and in the Senate will attempt 
to deny the existence of any problem at all. Others will try to 
confuse the issue with spurious claims that proposed reforms 
would somehow disadvantage victims with legitimate claims or 
further worsen class action abuses. Others may even contend 
that past legislative reforms have contributed to recent 
financial debacles and that the proposed reforms will encourage 
more. Such claims are nothing more than red herrings intended 
to divert today's debate from the real issue.
    Now, in this regard, let me emphasize a few points 
regarding S. 1712. First, this bill does not seek to eliminate 
State court class action litigation. Class action suits brought 
in State courts have proven, in many contexts, to be an 
effective and desirable tool for protecting civil and consumer 
rights. Nor do the reforms that we will discuss today in any 
way diminish the rights or practical abilities of victims to be 
heard or to band together to pursue their claims against large 
corporations. In fact, we have included several consumer 
protection provisions in our legislation that I feel strongly 
will substantially improve plaintiffs' chances of receiving a 
fair result in any settlement proposal.
    There are three key components to S. 1712. First, the bill 
implements consumer protections against abusive settlements by: 
One, requiring simplified notices that explain to class members 
the terms of proposed class action settlements and their rights 
with respect to the proposed settlement in ``plain English''; 
No. 2, enhancing judicial scrutiny of coupon settlements; 
three, providing a standard for judicial approval of 
settlements that would result in a net monetary loss to 
plaintiffs; four, prohibiting ``bounties'' to class 
representatives; and, five, prohibiting settlements that favor 
class members based upon geographic proximity to the 
courthouse.
    Second, the bill requires that notice of class action 
settlements be sent to appropriate State and Federal 
authorities to provide them with sufficient information to 
determine whether the settlement is in the best interests of 
the citizens they represent.
    Finally, the bill amends the diversity of citizenship 
jurisdiction statute to allow large class actions to be 
adjudicated in Federal court by granting jurisdiction in class 
actions where there is ``minimal diversity'' and the aggregate 
amount in controversy among all class members exceeds $2 
million.
    Although some critics have argued that this amendment to 
diversity jurisdiction somehow violates the principles of 
federalism is inconsistent with the Constitution, I fully agree 
with Mr. Dellinger, our former Solicitor General, who will 
testify today that it is ``difficult to understand any 
objection to the goal of bringing to the Federal court cases of 
genuine national importance that fall clearly within the 
jurisdiction conferred on those courts by Article III of the 
Constitution.''
    Last, I would like to express my appreciation to the many 
individuals who have shared with me the details of their 
experiences with class action litigation. In particular, I am 
grateful to those victims of various abuses of the current 
system who have come forward and told us their stories in the 
hope that something possible might come out of their terrible 
experiences. In particular, I would like to acknowledge Irene 
Taylor of Tyler, Texas, who is here today. Ms. Taylor was 
bilked out of approximately $20,000 in a telemarketing scam 
that defrauded senior citizens out of more than $200 million. 
In a class action brought in Madison County, Illinois, the 
attorneys purportedly representing Mrs. Taylor negotiated a 
proposed settlement which will exclude her from any recovery 
whatsoever.
    I would also like to recognize Martha Preston of Baraboo, 
Wisconsin. Ms. Preston cannot be here for health reasons, but 
has sent us a letter that I will submit for the record. Ms. 
Preston was involved in the famous Bank of Boston case brought 
in Alabama State courts, which involved the bank's failure to 
post interest to mortgage escrow accounts in a prompt manner. 
Although Ms. Preston did receive a settlement of about $4, 
approximately $95 was deducted from her account to help pay the 
class action's legal fees of $8.5 million. Notably, Ms. Preston 
testified before this committee 5 years ago, asking us to stop 
these abusive class action lawsuits, but it appears that, at 
least thus far, that her plea has not been heard.
    I would like to ask unanimous consent that written 
statements from Martha Preston, the Chamber of Commerce, 
America's Community Bankers, Irving Cohen, Patrick Baird and 
the American Council of Life Insurers be inserted in the record 
for today's hearing, Mr. Chairman.
    Chairman Leahy. Without objection.
    Senator Hatch. I look forward to hearing from the witnesses 
today. I am due on the floor right now. Hopefully, I can come 
back, but I am certainly going to be very interested in this 
hearing and what is said here today.
    Thank you, Mr. Chairman.
    Chairman Leahy. Thank you. As this hearing was at the 
request of Senator Kohl, I will hear from him, and then we will 
start with the witnesses, if that is all right.
    Senator Kohl?

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

    Senator Kohl. I thank you, Mr. Chairman, for calling 
today's hearing on class action abuse. We have a simple story 
to tell. Consumers are frequently getting the short end of the 
stick in class action cases, often recovering coupons or pocket 
change while their lawyers reap millions.
    Our remedies are simple and straightforward. First, class 
action notices should be written in plain English so consumers 
understand their rights and their responsibilities. Second, 
State attorneys general should be notified of proposed class 
action settlements in order to stop abusive cases if they want. 
Third, a class action consumer bill of rights will help limit 
unfair settlements.
    Finally, we would allow some class action lawsuits to be 
removed to Federal court. This is only common sense. These are 
national cases affecting consumers in 50 States. If the court 
rules were being drafted today, these are exactly the types of 
cases which we would want and expect to be tried in Federal 
court.
    Stories of nightmare class action settlements that affect 
consumers around the country are all too frequent. For example, 
the suit against Blockbuster Video yielded dollars off coupons 
for future video rentals for the plaintiffs, while their 
attorneys collected over $9 million. In California State court, 
a class of 40 million consumers received $13 in rebates on 
their next purchase of a computer or monitor; in other words, 
they had to purchase hundreds of dollars more of the 
defendants' product to redeem the coupons. In essence, the 
plaintiffs in this case received nothing, while their attorneys 
took almost $6 million in legal fees. We could list many, many 
more examples.
    I believe that no one can argue that the class action 
process is not in serious need of reform. We do not claim that 
this bill is perfect. We are happy to entertain other proposals 
in an effort to address a class action problem, but we do feel 
that we are on the right track. The consumer protections in our 
bill go a long way to stopping cases like the one involving 
Martha Preston of Baraboo, Wisconsin, who was a member of the 
Bank of Boston case. When her class action suit was over, Mrs. 
Preston had technically won the case, but ended up owing $75 to 
her lawyers and defending a lawsuit that her own lawyers filed 
against her in State court. Under our bill, that would never 
happen again.
    I thank you, Mr. Chairman.
    Chairman Leahy. Thank you. If the witnesses could join us 
up here, please. First, will be Mr. Paul Bland, who worked for 
this committee as chief nominations counsel just a few years 
ago. He is now a staff attorney for Trial Lawyers for Public 
Justice in Washington, and he was named San Francisco Trial 
Lawyer of the Year for his work in Ting v. AT&T. The Court, 
certifying the class action, declared AT&T's arbitration clause 
unconscionable and unenforceable for 7 million California 
residents because it limited consumer damages and banned class 
actions. He was also named Maryland Trial Lawyer of the Year, 
and he knows this place well, as does the next witness, Walter 
Dellinger, who served as Solicitor General for the 1996-1997 
term of the Supreme Court.
    He is a partner with O'Melveny and Myers. He has argued 
nine cases before the Supreme Court, including physician-
assisted suicide, Brady Act, Religious Freedom Restoration Act, 
line item veto. All of us know Professor Dellinger, and he has 
been extraordinarily helpful to this committee over the years.
    Thomas Henderson is of the Lawyers' Committee for Civil 
Rights Under Law. He has 20 years of experience at handling 
complex civil litigation, largely in the areas of class action, 
individual civil rights cases, school desegregation, employment 
discrimination and so forth.
    Lawrence Mirel is the Commissioner of the District of 
Columbia Department of Insurance and Securities Regulation, 
which has the responsibility of regulating securities brokers 
in the business of insurance in the District of Columbia. For 
the past 15 years, he has been in private practice dealing at 
length with insurance issues from taxation to health care, and 
we welcome you here.
    Mrs. Shaneen Wahl--and it is Wahl? Did I pronounce that 
correctly?
    Ms. Wahl. You did fine.
    Chairman Leahy. Thank you.--Port Charlotte, Florida. She is 
a class action plaintiff in litigation against an out-of-State 
insurance company that tripled her health insurance rates after 
she was diagnosed with breast cancer.
    Of course, Mrs. Hilda Bankston of Jefferson County, 
Mississippi. They own Bankston Drugstore, which has been named 
a defendant in lawsuits filed by individual plaintiffs against 
makers of Fen-Phen diet drug. We are glad to have you here, of 
course.
    So why do we not start, Mr. Bland, with you, please.

STATEMENT OF F. PAUL BLAND, JR., STAFF ATTORNEY, TRIAL LAWYERS 
              FOR PUBLIC JUSTICE, WASHINGTON, D.C.

    Mr. Bland. Thanks very much, Mr. Chairman, and thank you 
very much for giving me the opportunity to appear.
    In the dozen years since I left my employment with the 
committee and Senator Biden, I have been able to see class 
action litigation from two different sides. I have represented 
plaintiffs in a number of consumer and toxic tort class 
actions, and I have also represented objectors to more than a 
dozen phony class action settlements. I have had a chance to 
see both the best and the worst of class action practice, I 
think.
    When I have represented plaintiffs, I have been involved in 
cases where we have recovered millions of dollars, in some 
cases tens of millions of dollars, for people who were cheated 
by large companies, people who were seriously harmed, people 
who had their houses destroyed by pollution, people who lost 
their savings.
    To read the papers recently, you would think that Enron, 
and WorldCom, and some of the recent scandals have sort of 
invented or revealed a new problem not previously known in the 
country of corporate wrongdoing, but for people who have 
represented consumers on the front lines, and particularly low-
income people, we were not surprised at all.
    I have seen some cases where large and powerful companies 
have really engaged in outrageous frauds, where they have 
simply targeted a group of people, and they particularly are 
likely to target low-income people for rip-offs, where they 
will hit everybody the same way, but the cases tend to involve 
so little money, that it would be impossible to challenge the 
cases on an individual basis, and also the frauds are usually 
set up in a way that it is not that easy to figure out. So the 
vast majority of consumers would never know what had happened. 
They would never be able to figure it out unless you had 
someone who was able to put in the time and the effort to do 
that.
    Now the reality is that in those cases class actions are 
often the only way that those people are going to recover 
anything, the only way that they are going to be protected. I 
just did a case where we had a trial, where one of the issues 
in the trial was actually whether class actions are needed in 
order to protect people's rights. AT&T, effective last August, 
adopted a new standard form contract that requires all AT&T 
customers with claims of a certain size to go to arbitration. 
Generally, arbitration clauses are legal and enforceable right 
now under the law.
    But under State law, if a clause is set up in such a way 
that the consumer cannot effectively vindicate their rights; in 
other words, if a contract is set up in such a way that 
consumers are never going to be able to go forward, then those 
contracts can be struck down as unconscionable.
    So AT&T's contract had all of these provisions. They said 
they limited the remedies you could get, they shortened the 
limitations periods below the consumer protection laws, they 
had a secrecy provision, they required the consumers to pay 
thousands of dollars to arbitrate significant claims, but they 
also banned class actions, and we argued that the ban on class 
actions was going to prevent people from effectively 
vindicating their rights.
    So we went forward, and we took discovery of class actions 
that had previously been brought against AT&T and other long-
distance companies. There were a number of cases where 
consumers have recovered millions of dollars from the phone 
companies. In several of these cases, AT&T had actually paid 
out 100 cents on the dollar to give you a sign that these were 
meritorious cases, that these were not sham cases.
    AT&T basically stipulated that none of those cases could 
have been brought on an individual basis. Rather than have us 
bring in all of the lawyers in these cases and to establish 
this through testimony, they just walked away from that issue 
and just acknowledged none of these cases could have been 
brought on an individual basis. They would have been able to 
keep all of that money, and all of those people would have been 
ripped off successfully without those class actions.
    At the same time, I have seen some incredible abuses of the 
class action process. I have seen cases where 99 percent or 
more of the consumers would get nothing from the case. They 
would get no money at all. I have seen cases where the 
defendant would walk away from a fairly serious scam without 
paying out anything and that the company would walk away free 
and that the only people who would get money would be the 
lawyers on both sides, as the chairman points out.
    Our firm has broken up a number of these deals. We force 
parties to fix these deals. We have come into cases and slashed 
the attorneys' fees by more than 50 percent. We have come into 
some of these cases and gotten judges to completely rework them 
so that the coupons would be thrown out and instead there would 
be guaranteed sums of money given to the plaintiffs.
    But the key to beating these cases is the judges. The 
judges really have all of the power in this, and they have the 
tools to do this under existing law, but a lot of judges do not 
really take the effort to exercise that, and the biggest factor 
in this is how burdened the judges are and how much is going 
on.
    A quick case in point, is the case that we got involved in, 
in Chicago, where a Federal court had a coupon settlement 
before it. It was the case where the escrow for a bank had 
supposedly been set up unfairly in order to rip off the 
consumers and that the cases involved a very small amount of 
money, maybe $10 per person. So there was going to be a coupon 
that if you took out another loan with the bank, you would get 
a small reduction off your closing costs.
    The only way you would find out about the coupon was if you 
got the New York Times because that is where it was advertised. 
That is where the notice was for the vast majority of the 
plaintiffs, but the class of people was in Texas, was banking 
out of Texas. So to get anything from the settlement, you had 
to buy the New York Times , which is not that common for 
Texans, right? Then you had to find the settlement on Page C-
38. It is an eighth-of-a-page ad, little, tiny print. So you 
would have to be a really aggressive Texan to find this, and 
then you had to go out and take out a new loan for over 
$100,000 to get 100 bucks back.
    We objected to this settlement. It was approved by the 
Federal court in Chicago. It was approved by the Seventh 
Circuit Court of Appeals. The trial judge entered an order 
sealing the redemption rates to find out how many people ever 
use the coupons, and the main reason this happened was because 
the same Federal court had 50 identical class actions in front 
of it. If the court was going to decide these cases, it would 
have taken them forever. The court was overburdened, and it let 
it all go, and that is what is going to happen if these cases 
are pushed into Federal court in a lot of cases.
    [The prepared statement of Mr. Bland appears as a 
submission for the record.]
    Chairman Leahy. Thank you. I am going to have to ask the 
witnesses to try to stay close to their time because we are 
going to have a series of roll call votes, and we are going to 
have to do this in kind of a rolling way. We have also been 
joined by Senator Carper from Delaware. I appreciate him being 
here.
    Mr. Dellinger, please go ahead, sir.

STATEMENT OF WALTER DELLINGER, O'MELVENY AND MYERS, WASHINGTON, 
                              D.C.

    Mr. Dellinger. Senator Leahy, it was over 20 years ago that 
I first testified before this committee, but this is the first 
time I have had the pleasure of doing so with you serving as 
chair.
    There is much that we agree about at this table this 
morning, Mr. Chairman, and with your statements. I think, 
having looked at the statements, there is widespread agreement 
that class actions are valuable. They are an indispensable tool 
for the administration of justice of allowing those with small 
claims to bring those claims together, and I do not think 
anyone disputes the value of class actions and the good that 
has been done by many class actions, nor I think is there 
disagreement, as Paul Bland noted, with the fact that there 
have been some very abusive situations.
    What is at issue here is really not whether class actions 
are a good or bad thing, but where a certain category of class 
actions ought to be tried and what kind of rights for 
plaintiffs in class actions ought to be protected by a bill of 
rights. This is the single most critical point. This bill will 
not eliminate a single class action that satisfies the 
standards for basic fairness that are set out already in the 
Federal rules governing class actions. What it will do is to 
ensure that all nationwide class actions satisfy those basic 
requirements.
    Now, if this committee were starting with a blank slate to 
decide what parts of the potential Article III jurisdiction 
ought to be actually conferred by statute on the Federal 
courts, cases covered by this class action bill would be among 
the very first to be included. Of course, you would start with 
giving Federal courts jurisdiction over the most important 
Federal laws, especially the civil rights laws where civil 
rights plaintiffs could be adversely affected by hostility by 
local prejudice, which is one of the reasons for having a 
system of lower courts.
    But after that, in the category that the Framers of the 
Constitution carefully created to have a Federal court system, 
where the citizens of different States were affected to avoid 
even the appearance of local prejudice, cases involving 
citizens of different States, you would choose to accord 
Federal court access to those multi-State class actions, the 
large amount in controversy, that have national economic 
implications and potentially affect every single State.
    The case for giving access to Federal Courts would be a 
compelling one even if there were no abuses of the kind that 
Senator Hatch mentioned, Senator Kohl, Mr. Bland, but that 
makes it critically important. It is not the case that State 
courts generally are a problem. It is not the case that State 
courts are incompetent or unfair or not to be entrusted because 
the problem can reside in a handful of State courts; indeed, in 
a handful of counties in State courts. There are 3,000 counties 
in the United States, and if only three of those counties are 
engaging in abusive practices, like one county where class 
action filings are up 1,850 percent over the past 3 years, what 
you have is a national bucket with three holes in it, and that 
is why it is a national problem, as it is adversely affecting 
the national economy.
    There is no federalism interest served in confining these 
important national class action to local courts. Under 
federalism, each State decides for itself. Under multi-State 
class actions confined to State court, with no access to the 
courts of the Nation, the courts of one county in one State can 
determine the rights of those in all of the other States.
    Let me be clear about this. The voters of California, and 
Vermont, and Alabama, and West Virginia, and Wisconsin, and 
Delaware had no voice whatsoever in choosing the State court 
judges in Madison County, Illinois, or Jefferson County, 
Mississippi, courts that are using national class actions to 
determine the rights and affect the rights of citizens in all 
of those States.
    As much as I respect my colleagues here, and Paul Bland and 
Tom Henderson who address the issues I address are outstanding 
lawyers, their argument will basically come down to a single 
word, ``burden''; that there is too great a burden on the 
Federal courts, and therefore the Federal courts will be more 
likely to approve abusive settlements or it will squeeze out 
civil rights cases.
    The Federal judges disagree. The two committees of the 
Federal judiciary who have addressed this problem have said 
quite clearly and emphatically, the Advisory Committee on Civil 
Rules, cases of nationwide scope could be brought into Federal 
court with unduly burdening the Federal courts or invading 
State control. Large nationwide and multi-State class actions, 
say the judges on the Advisory Committee, are the kind of 
national litigation consistent with the purposes of diversity 
and appropriate to the jurisdiction of the Federal Courts.
    Having courts available allows capital from the whole 
Nation to be invested anywhere in the Nation with the assurance 
that you will get a fair, neutral, national judge.
    Thank you.
    [The prepared statement of Mr. Dellinger appears as a 
submission for the record.]
    Chairman Leahy. Thank you very much, Mr. Dellinger. As 
always, we appreciate your testimony--I might say that not only 
the testimony you gave here, but as I said, many, many Senators 
on both sides of the aisle have had the opportunity to call you 
and ask you for your advice and opinion.
    Mr. Henderson, you are also no stranger to the proceedings 
here, and we appreciate you being here.
    Please go ahead, sir.

   STATEMENT OF THOMAS J. HENDERSON, CHIEF COUNSEL, LAWYERS' 
     COMMITTEE FOR CIVIL RIGHTS UNDER LAW, WASHINGTON, D.C.

    Mr. Henderson. Thank you, Mr. Chairman.
    As indicated, I am chief counsel for the Lawyers' Committee 
for Civil Rights Under Law. The Lawyers' Committee is a 
nonpartisan, nonprofit civil rights legal organization formed 
at the request of President Kennedy to involve the private bar 
in providing legal services to address racial discrimination 
and its victims.
    I would like to thank the chairman and the members of the 
committee for holding these important hearings on class actions 
and for providing the opportunity for us to provide our 
analysis of this legislation on civil rights litigation and our 
clients across the country.
    The Lawyers' Committee also exclusively brings class 
actions in Federal court, seeking injunctive and monetary 
relief. Class actions are essential to the enforcement of the 
Nation's civil rights laws and are often the only means by 
which persons can prove and obtain relief for this systemic 
discrimination.
    The mission of the Lawyers' Committee does not involve 
State tort, contract or consumer law. We could simply have 
remained simply a bystander in what might appear to be another 
monumental dispute about tort reform, but this legislation is 
not about tort reform; rather, it concerns the role and 
availability of the courts and of class actions and of the 
access to justice for those who have no alternative but to rely 
on the courts for the protection of their rights and freedoms.
    It is our belief that the proposals referred to as the 
Class Action Fairness Act are unjustified and unjustifiable 
attempts by Congress to impose Federal judicial regulation on 
matters of law committed to the States under our Constitution. 
The legislation would result in wholesale removal of State law 
class actions from State courts to the Federal courts. This 
would represent an epic reallocation of judicial responsibility 
that will further impair the ability of Federal courts to carry 
out the essential functions they are to serve under the 
Constitution.
    The legislation will substantially expand the caseload of 
the Federal courts to include hundreds, if not thousands, of 
complex cases that do not involve questions of Federal law. The 
Federal court dockets are already significantly overburdened, 
and those courts are ill-equipped even to handle the volume of 
cases now on their dockets. Imposing substantial numbers of new 
cases on the modest numbers of Federal judges we have will clog 
their dockets, making it more difficult to have any and all 
cases decided. Moreover, this legislation would also increase 
the number of complex and therefore time-consuming cases that 
those courts must decide.
    Empirical studies have shown that class actions, on 
average, consume almost five times more of the judicial time 
that typical civil cases. Overburdened dockets will exacerbate 
pressure to improperly dispose of cases by dismissal, a problem 
that particularly affects civil rights cases and which the 
Supreme Court has consistently sought to correct. In many 
districts, it is already difficult for civil rights plaintiffs 
with meritorious cases to survive even pretrial motions and 
have the opportunity to go to trial. Compressing virtually all 
substantial class actions in the Federal court and imposing 
additional burdens on their prosecution would also increase 
pressure on courts to dispose of class actions by denying 
certification altogether.
    Although Congress determined that victims of discrimination 
have damage remedies available, that enforcement of the law 
required that victims have damage remedies available, some 
Courts of Appeals have interpreted class action rules to make 
certification rare, if not impossible, where these 
congressionally mandated remedies are sought.
    The legislation also creates additional problems, both the 
Senate and House bills would impose difficult and costly notice 
requirements to Federal and State officials that will further 
complicate and delay disposition of class actions without 
corresponding benefits.
    Further, the outright prohibition on settlements in which 
named plaintiffs receive amounts different from class members 
is not reasonable in all instances and prohibiting complete 
relief to named plaintiffs would deter people from playing that 
role and therefore defer class actions.
    The bill passed in the House would go even further and 
particularly target adversely civil rights cases, resulting in 
the dismissal of a number of those cases because they would be 
required to plead specific facts and yet be denied discovery of 
the opportunity to obtain those facts.
    Further, it would impose mandatory appeals of interlocutory 
class action certification decisions, and that makes no sense. 
There is now a provision for discretionary review of those 
orders.
    I thank you, Mr. Chairman.
    [The prepared statement of Mr. Henderson appears as a 
submission for the record.]
    Chairman Leahy. Thank you very much, Mr. Henderson.
    Mr. Mirel, thank you for being here. Is it Mirel or Mirel?
    Mr. Mirel. It is Mirel.
    Chairman Leahy. Mirel.
    Mr. Mirel. Thank you for asking.
    Chairman Leahy. I like to make sure I get them correct, and 
you do a great service in coming here to testify, and I 
appreciate you being here. Please go ahead.

  STATEMENT OF LAWRENCE H. MIREL, COMMISSIONER, DEPARTMENT OF 
  INSURANCE AND SECURITIES REGULATION, DISTRICT OF COLUMBIA, 
                        WASHINGTON, D.C.

    Mr. Mirel. Thank you, Mr. Chairman and members of the 
committee.
    My name is Lawrence Mirel. I am commissioner of Insurance 
and Securities for the District of Columbia. As you know, the 
business of insurance is regulated primarily by the States. 
Although the District of Columbia is not a State, I have the 
authority of a State insurance commissioner, and I am a full 
and active member of the National Association of Insurance 
Commissioners, although I am speaking today on my own behalf 
and not on behalf of the NAIC.
    The laws that we enforce in our department are laws that 
were passed primarily by this Congress between 1900 and 1974 
and by the Council of the District of Columbia, with the 
approval of the Congress, since 1974.
    I am concerned with the impact of class action lawsuits 
against insurance companies that limit and interfere with my 
ability, and the ability of my State insurance commissioner 
colleagues, to carry out our statutory duties. These duties 
include protecting the public and assuring that insurance is 
available to, and affordable by, consumers.
    As State insurance Commissioners, our primary function is 
to protect the public. I, and my colleagues, see ourselves as 
consumer advocates, and the laws we administer give us that 
responsibility and authority. Our expert staffs are 
knowledgeable about the stringent laws that govern the 
operations of insurance and about the complex financial rules 
that insurance companies must follow.
    We receive and act upon consumer complaints against 
insurance companies. We make sure that insurance contracts are 
fair, understandable, and in accordance with the law. We go 
after companies that do not treat their customers properly or 
that are engaged in fraud, and that we have substantial legal 
authority to do this.
    Large-scale nationwide litigation against major insurance 
companies frequently goes around or simply ignores the rule of 
State regulators. Class action lawsuits against insurers can, 
and often do, directly impact our statutory authority to 
regulate the business of insurance and to protect our 
constituents.
    Moreover, these suits, whether successful or not, can have 
a major effect on the cost, and even the availability, of good 
insurance products to the public. That is because they are 
frequently designed to produce a small, sometimes negligible 
benefit to a large class of policyholders, and incidently large 
legal fees to the lawyers who bring them, without regard to the 
impact on the insurance market as a whole and the cost to the 
insurance-buying public.
    Consider some of these examples. In Texas, two of the 
State's largest automobile insurance companies decided to 
settle a $100-million class action lawsuit brought against them 
over a longstanding, industrywide practice of rounding up to 
the nearest dollar for auto insurance premiums. Although the 
insurance premiums were calculated according to specific 
instructions from the Texas Department of Insurance, because of 
mounting legal expenses and negative publicity, the companies 
decided to settle for $36 million. The policyholders received 
funds of about $5 apiece, while the lawyers took home almost 
$11 million.
    More than 20 nationwide class action lawsuits are currently 
pending in one or two New Mexico trial courts, claiming that 
insurance companies are misleading policyholders by not 
disclosing the annual percentage rate, the APR, of the fees 
charged for processing installment payments and premiums. In 
the District of Columbia, and in most, if not all, States, 
companies are allowed to charge small processing fees for 
allowing customers to make these modal payments on their annual 
premiums, so long as these charges are disclosed and are 
reasonable. They are simply a convenience to consumers.
    There has never been a complaint about them in the District 
of Columbia or in any other jurisdiction so far as I know, but 
facing potential billions of dollars in liability costs, as 
well as the threat of massive costs of defending themselves, 
these insurance companies are under tremendous pressure to 
settle. One modal premium case against Primerica has already 
been settled, with $7.5 million paid to the plaintiffs' 
attorneys and nothing to class members at all.
    There are other examples which are mentioned in my 
testimony, but I do want to say that I am pleased that this 
committee is considering the issue and that it is considering 
this bill, which is a good start, in my view, toward dealing 
with some of these problems. The bill, in particular, I am 
pleased does provide notice to State regulators, such as 
myself, and that, I think, is important because we need to 
understand what is happening out there. Because when these 
lawsuits are won or when they are settled for large amounts of 
money, that money is paid by consumers. They are the ones who 
end up paying, that are engendered by insurance companies to 
pay the settlements or the judgments. There is no magic pot of 
money out there. It comes right from the pockets of the 
consumers who pay insurance premiums.
    So thank you for allowing me to testify today, and I 
appreciate the work that this committee is doing.
    [The prepared statement of Mr. Mirel appears as a 
submission for the record.]
    Chairman Leahy. I thank you very much for being here.
    Our next witness is Ms. Shaneen Wahl. If I might just note 
parenthetically, and as a personal thing, I commend you for 
your courage in battling both breast cancer and your health 
insurance company at the same time, and winning both of them.
    My wife and I were honorary chairs of the Race for the Cure 
this past weekend in Vermont, and it was very satisfactory to 
see so many old friends who have battled breast cancer and won. 
I just mention that for anybody that might be listening. Do the 
exams your doctors tell you to, and for the men in the 
audience, do not forget men can get breast cancer too.
    Ms. Wahl. That is true.
    Chairman Leahy. Go ahead, Ms. Wahl.

       STATEMENT OF SHANEEN WAHL, PORT CHARLOTTE, FLORIDA

    Ms. Wahl. Good morning, Mr. Chairman and members of this 
committee. I feel very special that you have invited me here to 
speak today. My name is Shaneen Wahl, and I am about to turn 53 
years old, and soon thereafter I will achieve my sixth year as 
a breast cancer survivor.
    In the early 1990's, my husband's job as a VP of Sales and 
Marketing for a large home builder ended, and he was unable to 
find another acceptable job during the real estate crunch. 
Nobody wanted a guy in his mid-fifties. We had been faithfully 
saving for our retirement since we were married over 27 years 
ago. At that time, we examined our finances, and it appeared 
that we would really be able to retire early. We confirmed our 
determination with a financial planner. What, at first, had 
appeared to be a catastrophe turned out to be the beginning of 
our American dream.
    We knew that as a part of retiring, we would need health 
insurance, so we purchased a policy in 1993 from American 
Medical Security. We bought an RV and began traveling, and our 
dream had become a reality. The premium for our zero-deductible 
policy in 1993 was $194 per month. In September 1996, I was 
diagnosed as suffering from breast cancer. That was the 
beginning of our American nightmare. By the time of our 1998 
renewal, the monthly premium had risen 300 percent to $588.
    Late in 1998, we received a letter from American Medical 
Security telling us that we would be canceled, but if we would 
reapply, we would be guaranteed a new policy. So we did that. 
At that next renewal, we received a notice that our monthly 
premium for our new policy, with a $500-each deductible, would 
be $1,180.
    Chairman Leahy. A month?
    Ms. Wahl. A month. Most people assume it is a year.
    I began making phone calls and writing letters. I could not 
believe what had just happened. I was told by Florida's 
Department of Insurance and other departments of insurance that 
they had no laws that would prohibit American Medical Security 
or, for that matter, many other health insurers, from charging 
such predatory premiums.
    American Medical Security had chosen to circumvent Florida 
State regulatory and Federal laws by using a loophole in the 
Florida insurance law to permit out-of-State group health 
insurance companies to exempt themselves from regulation. We 
bit the bullet and paid the $1,180 each month, since I could 
not go to another insurance company because of my breast cancer 
history.
    Then, in August of 2000, we received the next premium 
increase, $1,881 per month, and that is over $22,000 per year. 
I was livid. My husband and I drove to American Medical 
Security's home office in Green Bay, Wisconsin, to challenge 
the increase since there was no one in Government who could 
help me.
    I knew then that I could not just sit there and let this 
happen to me and to other families. I had to do something. I 
became my own advocate, and I began my effort to get the laws 
changed, and that same determination is what brings me here 
today. My hero, Florida's Commissioner of Insurance Tom 
Gallagher, has been working since 1993 to pass laws that would 
put a stop to the egregious tactics my insurance company is 
using. His hands have been tied due to the aggressive lobbying 
by health insurance companies and their deep pockets that allow 
them to hire the big-gun, high-priced corporate attorneys to 
fight any change to State laws.
    Tom Gallagher is a hero, but the Department of Insurance 
initially lost its regulatory action before an administrative 
law judge. Last week, Tom Gallagher did suspend American 
Medical Security's license to do business in the State of 
Florida for 1 year. That, however, has been reversed 
temporarily since the insurance company did go to court just a 
couple of days ago, and they are back in business.
    Commissioner Gallagher's action is a very positive move 
toward bringing insurers under the law. However, it really just 
amounts to a very, very large fine, and it does nothing to help 
the policyholders like me recover millions of dollars lost due 
to American Medical Security's outrageous conduct.
    My attorney, Jeff Liggio and his team won the Florida class 
action against American Medical Security, and they will recover 
the money we, and the other members of the class, lost as a 
result of the company's greed and misconduct. State class 
actions allow consumers to take on the big and powerful 
corporations. Class actions can, and do, accomplish what our 
statutorily and budgeted-limited public servants, even the 
great ones like Tom Gallagher, cannot.
    As it is, people who have been wronged by these insurance 
companies are morbidly fearful of coming forward to complain. 
They think that they will be further penalized in their 
premiums if they do. Some even fear bodily harm. They also 
think that they do not have the means by themselves to take on 
the big insurance companies and their high-priced corporate 
attorneys to fight for their rights and be reimbursed of what 
they have lost.
    If you take away the option of being able to use the 
vehicle of a State class action or make it so difficult that it 
will no longer be a viable process, the people who are victims 
of corporate wrongdoing will be powerless and hushed even 
further, and that is what these insurance companies want. They 
want the people they have wronged to just disappear.
    I thank you and would be happy to answer any questions.
    [The prepared statement of Ms. Wahl appears as a submission 
for the record.]
    Chairman Leahy. Thank you very much.
    What has happened, as you can hear by these bells, we have 
a roll call vote in, this bell indicates, approximately just a 
little over 5 minutes left in this roll call. That would give 
us time, first, to hear Ms. Bankston, who has been waiting here 
patiently, and so why do you not take your 5 minutes now, Ms. 
Bankston, and if the Senators have to go vote, feel free. I 
will hear that, and then we will recess while we vote until we 
come back. Go ahead.

   STATEMENT OF HILDA BANKSTON, JEFFERSON COUNTY, MISSISSIPPI

    Ms. Bankston. Thank you, Mr. Chairman and members of the 
committee. I am so pleased to be here today to have an 
opportunity to share with you what has been a personal 
nightmare for me since I faced my first class action lawsuit in 
Mississippi.
    While I have never been a plaintiff in any class action 
lawsuits that I know of, I do believe I have been a victim of 
the system since the first suit was filed against Bankston Drug 
Store in 1999. Let me explain. My husband and I lived the 
American dream until 3 years ago, when we were caught up in 
what has become an American legal nightmare.
    I was born in Guatemala and moved to the U.S. in 1958. I 
met my husband Mitch, a Navy seaman, while I was serving as a 
Marine at Camp Lejeune in North Carolina. We were married there 
in 1964. After we left the military, Mitch attended college and 
pharmacy school at Ole Miss while I worked as a seamstress. In 
1971, we put down roots in Fayette, Mississippi, bought a local 
drugstore and fulfilled Mitch's lifelong dream. He worked hard 
and built a solid reputation as a caring, honest pharmacist. We 
raised two sons. Our life was good.
    Then, in 1999, we were named in the national class action 
lawsuit brought against the manufacture of Fen-Phen. Let me 
stop here to explain why we were brought into this suit. While 
I understand that class actions are not allowed under 
Mississippi State law, what is permitted is the consolidation 
of lawsuits. These consolidations involve Mississippi 
plaintiffs or defendants who are included in cases along with 
plaintiffs from across the country. We filled prescriptions of 
these FDA-approved drugs for patients in Jefferson County. We 
kept accurate records of prescriptions dispensed for 5 years, 
as required by law, providing the trial lawyers with a data 
base of potential clients.
    By naming us, the only drugstore in Jefferson County, the 
lawyers could keep the case in a place known for its lawsuit-
friendly environment. I am not a lawyer, but that sure seems 
like a form of class action to me. It is my understanding that 
legislation before the Senate will cover Mississippi 
consolidations, like those I have been named in, as well as 
national class actions filed in other lawyer-friendly State 
courts.
    From the moment we learned that we had been named as a 
defendant in the Fen-Phen case, Mitch became extremely 
concerned about what our customers would think. In our small 
town, news travels fast and reputation is everything. Within 3 
weeks, my husband, a 58-year-old in good health, died suddenly 
of a massive heart attack. In the midst of my grief, I was 
called to testify in the first Fen-Phen trial.
    Since then, Bankston Drugstore has been named as a 
defendant in hundreds of lawsuits brought by the individual 
plaintiffs against a variety of pharmaceutical manufacturers. 
Fen-Phen, Propulsid, Rezulin, Baycol. At times, the bookwork 
became so extensive that I lost track of the specific cases, 
and today, even though I no longer own the drugstore, I still 
get named as a defendant time and again.
    Jefferson is a poor county, and the attorneys handling 
these claims have aggressively marketed their actions, the same 
as winning the lottery. Some days I cannot open the newspaper 
without seeing ad after ad recruiting potential plaintiffs with 
a warning that ``time is of the essence'' if folks want the 
promise of big payouts. Nor are their efforts hurt by rumors 
that five plaintiffs in the first Fen-Phen case split $150 
million. Plus it is well-known in the community that trial 
lawyers point to multi-million-dollar homes that are built by 
successful lead plaintiffs as an inducement for signing on.
    Sadly, the lawsuit frenzy has done more harm than good to 
our community. Businesses will not relocate to Jefferson County 
because of fear of litigation, and the county's lawsuit-
friendly environment has driven liability insurance rates 
through the roof, giving small business owners all over Fayette 
additional headaches they do not need, an dour doctors are 
leaving the State en masse.
    No small business should have to endure the nightmares I 
have experienced. Class action attorneys have caused me to 
spend countless hours retrieving information for potential 
plaintiffs. I have searched record after record and made copy 
after copy for use against me. I have had to hire personnel to 
watch the store while I was dragged into court on numerous 
occasions to testify. I have endured the whispers and questions 
of my customers and neighbors wondering what we did to end up 
in court so often, and I have spent many sleepless nights 
wondering if my business would survive the tidal wave of 
lawsuits cresting over it.
    I am not a lawyer, but to me, something is wrong with our 
legal system when innocent bystanders are used by lawyers 
seeking to strike it rich in Jefferson County or anywhere else.
    In closing, I would like to ask you to think about the 
victims of lawsuit abuse. My husband Mitch and I are only two 
of thousands throughout this country. It is not just small 
business like ours, but it is also the plaintiffs who end up 
with nothing or consumers who pay more for products or for 
insurance. We are the ones who need your help.
    I urge you to pass legislation that reforms our legal 
system and prevents lawsuit abuses such as those that have 
plagued by business and my family for years.
    Thank you for your attention. I will be happy to answer any 
questions.
    [The prepared statement of Ms. Bankston appears as a 
submission for the record.]
    Chairman Leahy. Well, thank you, Ms. Bankston, for your 
testimony. Of course, everybody hearing it has to feel the 
same. We regret your loss of your husband. You are absolutely 
right. At that age, that is far too early and far too great a 
loss.
    I will put some statements of other Senators in the record, 
including Senator Feingold.
    [The prepared statement of Senator Feingold appears as a 
submission for the record.]
    Chairman Leahy. We will take a recess at this point so we 
can go vote and then come back.
    Senator Feinstein. Mr. Chairman, four votes.
    Chairman Leahy. We still have to go and vote, and then as 
soon as some can come back, we will just have to figure out how 
we do this.
    Thank you. We stand in recess.
    [Recess.]
    Chairman Leahy. In order, just so everybody will 
understand, we are having a fairly large series of votes, which 
sometimes happens the week before the recess. Senator Kohl is 
still back there.
    I am going to turn to Senator Feinstein, who has questions, 
and we have, as those of you who are used to voting here know, 
that we have also the ability to submit questions for the 
record, and we will keep the record open for a few days to do 
that, but as I also mentioned just now during the break how 
much I appreciate each of you coming here.
    Senator Feinstein and I were talking on the way over to the 
vote about how valuable everybody's testimony has been and how 
interesting it has been.
    Senator Feinstein?

  STATEMENT OF HON. DIANNE FEINSTEIN, A U.S. SENATOR FROM THE 
                      STATE OF CALIFORNIA

    Senator Feinstein. Thank you very much, Mr. Chairman.
    I echo your comments, but I must tell you I think the two 
women really had the long and the short of the argument, in 
very eloquent, crystallizing and dramatic terms. I think we saw 
clearly, through Mrs. Wahl's testimony, the clear need for 
class action. She could not have brought the case on her own.
    On the other hand, we saw the clear need for reform in your 
testimony, and just my profound sorrow over the loss of your 
husband. I really understand how the humiliation and the 
tragedy can enter into what happened, but there we saw Fen-
Phen, a nationally distributed product, where the case is 
brought in a county that is notorious for forum shoppers, and 
it should not have been in that county. The Fen-Phen case, in 
my judgment, should have been in Federal court because it 
impacts everybody. It is interstate commerce. It goes all over 
the United States.
    The question that I have, and Mr. Dellinger, as you know, I 
am a fan of yours so I read your written remarks, and you 
mention on the last page of your written testimony the very 
point I am trying to make. I do not know whether the criteria 
in the Kohl-Grassley legislation are the right criteria. One 
person outside of the State in a case that is worth more than 
$2 million, I do not know whether that should be kind of the 
arbitrary decider of what goes into Federal court.
    Using the case over here with Fen-Phen, should it not be 
based really on the subject matter of the suit, the product 
involved, whether it is an interstate situation or whether it 
is not? Even that I can see is faulty, but the one-case 
standard, the one-petitioner standard, I do not know if it 
holds water. Could you comment on that?
    Mr. Dellinger. Yes, I will, Senator Feinstein. If I may, 
let me first agree with you that I thought that the testimony 
we heard this morning from Ms. Bankston and Ms. Wahl were both 
very, very compelling, and the remark you made to us that their 
testimony was what really focuses it on the two kinds of cases, 
so that I do think that is the proper focus, but I want to note 
that I think that this bill would have made a difference in one 
of those compelling stories and not necessarily in the other.
    We are all grateful that Ms. Wahl got justice achieved 
through her class action, but there is no reason that we know 
to believe that if someone had chosen to remove that to Federal 
court that Federal judges appointed by the Presidents and 
confirmed and reviewed by this committee, would not have also 
given her fairness in that case.
    On the other hand, we know that Ms. Bankston's story would 
have been alleviated by this bill because she would never have 
been joined as a defendant, except that it is now done to 
manipulate the cases to avoid Federal jurisdiction; for 
instance, you say a case like Fen-Phen.
    I think the question you raise is, if I understand your 
question, it is suppose that all of the plaintiffs are from one 
State and just one plaintiff is from another State, should that 
be enough.
    Senator Feinstein. Right.
    Mr. Dellinger. It actually is the case that--or the case in 
which, say, all of the plaintiffs were from California, and the 
defendant is an Illinois company or a North Carolina company.
    Senator Feinstein. Right.
    Mr. Dellinger. I think that really goes to the heart of the 
diversity jurisdiction to allow cases like that to be brought 
into Federal court. If there were two auto drivers, and one of 
them suffered $80,000 in injury, it could be brought in Federal 
court. Here, where you have national capital and businesses and 
jobs being expended throughout the entire Nation, a critical 
part of allowing America to be the world's greatest common 
market was the assurance that if you were an out-of-stater, you 
always had access to Federal court, to a neutral court, not a 
court of the plaintiff's home State.
    So, for a California business person that wants to invest 
in Mississippi or West Virginia or Illinois, they know that 
they will not have to be stuck in the local courts in those 
States if this bill passes and there is a class action. Even if 
all of the plaintiffs happen to be from that State, there is 
still the unfairness to the out-of-State defendant that it is 
the essential function of the diversity jurisdiction to avoid 
and to assure that you could expend your capital nationwide and 
not have to worry about unfair courts.
    So I think that is why the bill is structured to allow a 
situation where one of the defendants is an out-of-State 
defendant to allow those cases to be removed to Federal court.
    Senator Feinstein. Would you allow me, Mr. Chairman?
    Chairman Leahy. Of course. Take whatever time you need.
    Senator Feinstein. Section 4 of the bill also states that a 
class action case would remain in State court if, and I quote, 
``the substantial majority of the members of the proposed 
plaintiff class and the primary defendants are citizens of the 
State in which the action was originally filed.''
    What is the legal meaning then of substantial majority?
    Mr. Dellinger. I do not think it is a number. If you wanted 
me to hazard a guess, I would guess 60 percent sounds 
substantial to me. What it is meant to do is to say, look, if 
there are cases that meet the minimal diversity requirements of 
Article III, but really substantially most of the plaintiffs 
and the primary defendants are from the case, and State law is 
going to be applied, that ought to stay in State court.
    Senator Feinstein. Got it.
    Mr. Bland, do you believe that, for example, Ms. Bankston, 
that they should have been a defendant in a Fen-Phen suit?
    Mr. Bland. I do not know a lot about the Fen-Phen 
controversy. I certainly know that the manufacturer should have 
been defendants in those cases, and frequently the doctors and 
these diet clinics that were convincing, particularly women, to 
use these drugs that were approved for totally different 
purposes for diet----
    Senator Feinstein. This is a pharmacy that dispenses an 
FDA-approved drug.
    Mr. Bland. Well, it is approved for one purpose, and they 
are being dispensed, combined, for a different purpose. It is 
quite possible that the pharmacy should not be there. One way 
of testing that would be it would be fairly easy for the 
defendants to remove the case to Federal court and say it is a 
fraudulent joinder. The Federal courts in Mississippi are 
certainly not considered particularly liberal or friendly 
courts for consumer plaintiffs, and the Fifth Circuit, the 
Court of Appeals for Mississippi, also does not have that 
reputation. If they were fraudulently joined, that would have 
been a good way of testing it.
    But my understanding is that virtually all of the Fen-Phen 
cases, after our first few cases about medical monitoring, were 
not class actions. I mean, the type of case that is class 
action is typically a small case. The Fen-Phen cases are 
particularly women who are have heart valves that failed, 
Senator, and the Fen-Phen cases are significant personal injury 
cases, usually brought on an individual basis.
    To the extent that the pharmacy was fraudulently joined and 
should not have been joined, it is being joined in a whole 
bunch of individual product liability cases, and I think you 
put your finger right on the key point when you said the 
jurisdiction should be based on the subject matter.
    These are products liability cases. Products liability 
historically in America has been a State law body of action. If 
the purpose of this bill is to take a whole bunch of individual 
product liability suits where a lot of people are harmed by the 
same product and move them all into Federal court, then the 
bill is not just about class actions, but it is now going to be 
about every product that harms a lot of people.
    So we could be talking about all of the cases involving 
Bridgestone tires are now going to be moved to Federal court, 
and all of the cases involving asbestos are now going to be in 
Federal court. I think the corporate defendants would like to 
have every single products liability case in Federal court 
because it takes forever to get them resolved, but if that is 
what the bill is doing, I think it is a real problem.
    Senator Feinstein. Let me ask you, as a hot-shot plaintiff 
attorney, how do you avoid forum shopping or do you think forum 
shopping is a good thing, particularly when somebody who at 
least on the appearance of what you said is just an innocent 
bystander so to speak?
    Mr. Bland. I agree that I think there is forum shopping on 
both sides, and I think, to some extent, some of the drive for 
this bill is forum shopping for people who feel they would be 
better in Federal court. I agree that it can be a real problem.
    If people were naming a pharmacy wrongly, there are a lot 
of big defendants in those cases with a lot of lawyers, too, 
who would rather have been in Federal court, they should have 
gone to Federal court and said it was a fraudulent joinder. The 
Federal courts in Mississippi have not been particularly 
friendly toward class actions or toward product liability suits 
in a lot of cases, and if they were fraudulently joined, they 
could have beaten it that way.
    The other thing is that you cannot apply State law in one 
State to claims involving people in other States. Under the 
Supreme Court's decision in Phillips Petroleum v. Shutts, the 
Supreme Court said that due process says that you cannot apply 
Mississippi law to the claims of people in California, unless 
there is a substantial nexus, a real close tie between the law 
of that State and the other State. So California lawyers could 
not say, hey, let us go to Mississippi because they are a bunch 
of rubes down there, and we will be able to use Mississippi 
law, you know----
    Senator Feinstein. Or say that in any event.
    Mr. Bland [continuing]. And get away from people kind of 
thing, but that is sort of the premise that we are getting from 
the tort reform side I think you would have to say, is that 
people are going to the bad States kind of thing.
    Senator Feinstein. No, no, no.
    Mr. Bland. You could not apply Mississippi law.
    Senator Feinstein. That is not the issue.
    Mr. Bland. That is an argument some people are saying.
    Senator Feinstein. This is the issue where there is a 
sympathetic county jurist----
    Mr. Bland. A jury pool.
    Senator Feinstein [continuing]. That is the issue, and jury 
pool.
    Mrs. Bankston, may I ask you this question?
    Ms. Bankston. Yes, ma'am?
    Senator Feinstein. This issue of separating you out, did 
you, and your husband, and your attorneys try to do that? And, 
if so, what happened?
    Ms. Bankston. I do not believe that we had an opportunity 
to go to Federal court.
    Senator Feinstein. No, but did they try to raise the issue 
that Mr. Bland just mentioned, that it is possible to separate 
you out as a kind of--what is the legal term, false----
    Mr. Bland. You remove a case. The defendants, what they 
would have done is they would have said this case should not be 
in State court, we remove it to Federal court, and all they 
have to do is file a petition, and it automatically happens, 
you are in Federal court. And then if the plaintiffs think they 
should not be in Federal court, they have to fight to get back 
into State court. They have to make a motion asking the judge 
to remand them, and those frequently take years.
    Senator Feinstein. Was that done in your case?
    Ms. Bankston. No, ma'am. I believe that if my attorney 
would have had the opportunity, I am sure he would have done 
something like that because we tried every way possible to 
where I would not be included even on the first one. And then 
whenever hundreds and hundreds came in, well, since I am not an 
attorney, I am just at the mercy of my attorney which I trust 
very much, and he has been very good, but I do not think there 
was an opportunity to do it or he would have done it.
    Mr. Dellinger. Senator Feinstein, the problem is not----
    Chairman Leahy. I would note we have got about 4 minutes 
left on this vote, and I want to get my questions asked.
    Mr. Dellinger. The problem is not fraudulently joined, but 
the present rules, the way diversity jurisdiction is now set 
up, a nonfraudulent joinder of someone like Ms. Bankston, under 
the law, will defeat the ability to remove this case to Federal 
court or keep it from being removed there where she would not--
nobody would be interested in having her as a party. The 
problem is the rules allow the joinder. It is not fraudulent.
    That is the very rule that we would effectively change by 
allowing Federal jurisdiction. There would be no reason to 
include her. It is true that she could have gotten out if it 
were shown to be fraudulent, but the problem is the 
nonfraudulent joinder, where you have just got some plausible 
claim to put in the pleadings about the drugstore. That is not 
a fraudulent joinder, and the case is stuck in State court, and 
that is why she is brought into it, just to do that, and the 
rules allow it.
    Senator Feinstein. Thank you. That is very helpful.
    Thanks, Mr. Chairman.
    Chairman Leahy. Thank you. Apparently, they made this a 10-
minute vote.
    I will put a letter from the Conference of Chief Justices 
for State Courts wrote to Congress. They said that, among other 
things, that ``This legislation is so drastic a distortion and 
disruption of traditional notions of judicial federalism it is 
not justified. We have heard only anecdotes of isolated 
problems that are being addressed on an ongoing basis by State 
judicial and legislative bodies. We believe strongly that there 
is no rational basis for drastic an invasion of State judicial 
prerogatives.''
    I realize there are those who disagree with them, and that 
is understandable.
    Professor Dellinger, would this legislation cover the 
consolidation of individual lawsuits in State courts, not just 
class action litigation? Sometimes in State court you might 
have two or three people suing, and they consolidate those. 
Would this allow that transfer?
    Mr. Dellinger. Only if it is more than 100, Senator Leahy, 
it is my understanding, if it is more than 100 and it meets the 
other requirements of the bill.
    Chairman Leahy. Who are you representing today?
    Mr. Dellinger. The Chamber of Commerce has asked me to 
appear. Thank you.
    Chairman Leahy. Mrs. Bankston, I know how difficult it can 
be to run a small business. My parents had a small printing 
business in Montpelier when I grew up. We lived in the front. 
The house was in the front, the business was in the back, and 
you walked through the kitchen door to get to the business, and 
I know how difficult even the paperwork can be.
    I am still not quite sure why you were not removed as a 
defendant in this case. I am going to ask the staff check that 
further because obviously the $150-million judgment they got 
against American Home Products, the maker of Fen-Phen, I do not 
think anybody expected to get that from you or your late 
husband, and I am just wondering why you were not separated 
out.
    But having said that, I know that we have reached the time. 
Senator Sessions will offer material, probably not the whole 
transcript, but a letter from Karen Kovacs.
    [The letter appears as a submissions for the record.]
    Chairman Leahy. We will have available the transcript of 
the Maddox v. Alltell Mobile Communications case. I would have 
to talk to Senator Sessions about the cost of reprinting that 
in the record, and I am getting a signal that we have got about 
3 minutes left on this vote.
    So, with that, I would thank all of you for being here. 
Frankly, I agree with the Senator from California, and this is 
not in any way to detract from Mr. Bland, Mr. Dellinger and Mr. 
Henderson or from Mr. Mirel, your testimony is all very, very 
valuable, but Ms. Wahl and Ms. Bankston really had the polar 
ends of the issue we are facing, and I appreciate both of you 
being here, as I do you four.
    We will leave the record open for a week.
    We stand in recess.
    [Whereupon, at 12:10 p.m., the committee was adjourned.]
    [Questions and answers and submissions for the record 
follow.]
    [Additional material is being retained in the Committee 
files.]
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