[Senate Hearing 112-108]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 112-108
 
BARRIERS TO JUSTICE AND ACCOUNTABILITY: HOW THE SUPREME COURT'S RECENT 
                 RULINGS WILL AFFECT CORPORATE BEHAVIOR

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

                                HEARING

                               before the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 29, 2011

                               __________

                          Serial No. J-112-31

                               __________

         Printed for the use of the Committee on the Judiciary




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                       COMMITTEE ON THE JUDICIARY

                  PATRICK J. LEAHY, Vermont, Chairman
HERB KOHL, Wisconsin                 CHUCK GRASSLEY, Iowa
DIANNE FEINSTEIN, California         ORRIN G. HATCH, Utah
CHUCK SCHUMER, New York              JON KYL, Arizona
DICK DURBIN, Illinois                JEFF SESSIONS, Alabama
SHELDON WHITEHOUSE, Rhode Island     LINDSEY GRAHAM, South Carolina
AMY KLOBUCHAR, Minnesota             JOHN CORNYN, Texas
AL FRANKEN, Minnesota                MICHAEL S. LEE, Utah
CHRISTOPHER A. COONS, Delaware       TOM COBURN, Oklahoma
RICHARD BLUMENTHAL, Connecticut
            Bruce A. Cohen, Chief Counsel and Staff Director
        Kolan Davis, Republican Chief Counsel and Staff Director


                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Grassley, Hon. Chuck, a U.S. Senator from the State of Iowa......     2
    prepared statement...........................................    89
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont.     1
    prepared statement...........................................   110

                               WITNESSES

Alt, Robert, Senior Legal Fellow and Deputy Director, Center for 
  Legal and Judicial Studies, Heritage Foundation, Washington, DC     9
Cox, James D., Brainerd Currie Professor of Law, Duke University 
  School of Law, Durham, North Carolina..........................    12
Dukes, Betty, San Francisco, California..........................     4
Hart, Melissa, Associate Professor and Director, The Byron White 
  Center for the Study of American Constitutional Law, University 
  of Colorado School of Law, Boulder, Colorado...................     7
Pincus, Andrew, Partner, Mayer Brown, LLP, Washington, DC, 
  statement......................................................     5

                         QUESTIONS AND ANSWERS

Responses of Robert Alt to questions submitted by Senators 
  Grassley, Kohl.................................................    28
Responses of James D. Cox to questions submitted by Senators 
  Klobuchar, Kohl................................................    33
Responses of Melissa Hart to questions submitted by Senators 
  Klobuchar, Kohl................................................    37
Responses of Andrew J. Pincus to questions submitted by Senators 
  Grassley, Klobuchar, Kohl......................................    40

                       SUBMISSIONS FOR THE RECORD

AARP, Washington, DC, statement..................................    50
Alt, Robert, Senior Legal Fellow and Deputy Director, Center for 
  Legal and Judicial Studies, Heritage Foundation, Washington, 
  DC, statement..................................................    53
Boutrous, Theodore J., Gibson, Dunn & Crutcher LLP, Washington, 
  DC, June 28, 2011, letter......................................    61
Constitutional Accountability Center, Elizabeth B. Wydra, Chief 
  Counsel, and Douglas T. Kendall, President, Washington, DC, 
  statement......................................................    68
Cox, James D., Brainerd Currie Professor of Law, Duke University 
  School of Law, Durham, North Carolina, statement...............    74
Dukes, Betty, San Francisco, California, statement...............    82
Examiner, Daniel J. Popeo, May 20, 2010, article.................    87
Greenberger, Marcia D., Co-President, National Women's Law 
  Center, Wasington, DC, statement...............................    93
Hart, Melissa, Associate Professor and Director, The Byron White 
  Center for the Study of American Constitutional Law, University 
  of Colorado School of Law, Boulder, Colorado, statement........   100
HR Policy Association, Michael D. Peterson, Associate General 
  Counsel, Director, Labor & Employment Policy, June 29, 2011, 
  letter.........................................................   108
Mikulski, Barbara A., a U.S. Senator from the State of Maryland, 
  statement......................................................   112
National Council of Chain Restaurants, National Restaurant 
  Association, Retail Industry Leaders Association, Society for 
  Human Resource Management, July 6, 2011, joint letter..........   114
National Employment Lawyers Association (NELA), Eric M. 
  Gutierrez, Legislative & Public Policy Director, Washington, 
  DC, statement..................................................   115
People for the American Way Foundation, Washington, DC, statement   125
Pincus, Andrew, Partner, Mayer Brown, LLP, Washington, DC, 
  statement......................................................   136
The Volokh Conspiracy, Jonathan H. Adler, June 29, 2011, article.   163
Washington Post, Robert Barnes, Staff writer, March 8, 2009, 
  article........................................................   166


BARRIERS TO JUSTICE AND ACCOUNTABILITY: HOW THE SUPREME COURT'S RECENT 
                 RULINGS WILL AFFECT CORPORATE BEHAVIOR

                              ----------                              


                        WEDNESDAY, JUNE 29, 2011

                                       U.S. Senate,
                                Committee on the Judiciary,
                                                     Washington, DC
    The Committee met, pursuant to notice, at 10:19 a.m., Room 
SD-226, Dirksen Senate Office Building, Hon. Patrick J. Leahy, 
Chairman of the Committee, presiding.
    Present: Senators Feinstein, Whitehouse, Franken, 
Blumenthal, and Grassley.

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

    Chairman Leahy. Good morning. This morning we are going to 
highlight several recent Supreme Court decisions, one, to 
examine the impact on the lives of hardworking Americans.
    In my view, each of these decisions give corporations 
additional power to act in their own self-interests and each 
limits the ability of Americans to have their day in court.
    In the tough economic times we are facing around the 
country, it is of particular interest because American 
consumers and employees rely on the law to protect them from 
both fraud and discrimination, and they rely on the courts to 
enforce those laws intended to protect them.
    But, unfortunately, I believe these protections are being 
eroded by an activist court and, actually, the most business-
friendly Supreme Court in the last 75 years.
    Last week, in Wal-Mart v. Dukes, five men on the Supreme 
Court disqualified the claims of 1.5 million women who spent 
nearly a decade seeking justice for sex discrimination by their 
employer, Wal-Mart. They ruled the women did not share enough 
in common to support bringing a class action.
    Perhaps more troubling, they told those women that Wal-Mart 
could not have had a discriminatory policy against all of them 
because it left its payment decisions in the local branches of 
its stores.
    Through this decision, a narrow majority of five justices 
have, again, made it harder to hold corporations accountable 
under our historic civil rights laws.
    Earlier this month, in Janus Capital v. First Derivative 
Traders, the same five justices gave corporations another 
victory by shielding them from accountability even when they 
knowingly lied to their investors. Some have said the Janus 
decision provides Wall Street companies with a license to lie. 
Others have said it is a roadmap for fraud.
    If you lie to your investors, as long as you follow the 
guidelines of the Supreme Court Janus decision, apparently, you 
can get away with it.
    Whichever phrase you use, the decision allows Wall Street 
companies to design new ways to evade accountability from the 
horror inflicted on hardworking Americans who have seen their 
life savings ravaged over the past few years by fraudulent 
investment schemes and corporate misconduct.
    Two months go, in AT&T v. Concepcion, the Supreme Court, in 
another 5-4 opinion, held that companies can take advantage of 
the fine print on telephone bills in other contracts to bar 
customers from bringing class action lawsuits.
    Now, binding arbitration, binding mandatory arbitration 
makes a farce of the American people's constitutional right to 
a jury trial and the due process our Constitution guarantees to 
all Americans, because the arbitration had no transparency, no 
juries, and, of course, what is worse, no appellate review.
    So these cases we are discussing a few examples of how the 
Court's recent decisions are going to hurt individual Americans 
and benefit those who engage in misconduct.
    Over the past few years, the American people have grown 
frustrated with the notion that regardless of their conduct, 
some corporations are considered too big to fail. The Supreme 
Court's recent decisions may make some wonder whether the Court 
has now decided that some corporations are too big to be held 
accountable.
    We have a situation where they are too big to fail, too big 
to be held accountable, and we have a real concern in this 
country. In fact, the unfortunate feeling is that many of the 
justices view plaintiffs as a mere nuisance to corporations.
    I believe that the ability of Americans to band together to 
hold corporations accountable when these things occur has been 
seriously undermined by the Supreme Court. Decisions have been 
praised on Wall Street, but they are hurting hardworking 
Americans on Main Street.
    So I thank the witnesses for being here today.
    Before we start with the witnesses, of course, I would 
yield to my friend, the distinguished Ranking Member, Senator 
Grassley of Iowa.
    [The prepared statement of Chairman Leahy appears as a 
submission for the record.]

STATEMENT OF HON. CHUCK GRASSLEY, A U.S. SENATOR FROM THE STATE 
                            OF IOWA

    Senator Grassley. Thank you very much. Everyone should 
agree that all Americans, whether you are an individual or a 
business entity, must have confidence that when they appear 
before a judge they will receive a fair and unbiased 
adjudication of their claims and defenses.
    Everyone knows how strongly I believe in Congress' 
constitutional duty to conduct oversight of the other branches 
of the government, even including reviewing the Federal 
judiciary, but that review must be fair and objective.
    So I am concerned, given the less than objective title of 
this hearing, and I know the title does not make up the 
testimony, but some might ask whether certain conclusions have 
been reached before this hearing has even started.
    What businesses, just like all litigants, deserve from the 
judiciary and from Congress is a fair hearing, the protection 
of their rights, and a measure of predictability of the law.
    The United States was founded on the principle that all 
persons should receive equal justice under the law. Americans 
believe that the most fundamental requirement for a legitimate 
legal system is that it be staffed by judges and by justices 
who are fully committed to impartially adjudicating the cases 
that come before them, regardless of the identify or the status 
of the litigants.
    This belief should be of no surprise to anyone. A solemn 
pledge of impartiality is mandated by the oath taken by Federal 
judges and justices. And lest we forget, the phrase ``equal 
justice under law'' is engraved above the United States Supreme 
Court Building. Those are more than just pleasant-sounding 
words.
    The fundamental principle of equal justice under the law 
has its origins in the foundations of Western civilization and 
the birth of the concept of representative government.
    Today, the concept of equal justice under the law and a 
truly impartial judiciary are at the heart of our legal system 
and our democratic system of government. Contrary to this 
fundamental principle, it would seem that those who accuse the 
Supreme Court of being biased and pro-business want justices 
and judges appointed who will decide cases based on the empathy 
that they have for certain groups or litigants or certain 
causes.
    The appointment of an individual as a Federal judge or a 
Supreme Court justice because he or she possess empathy or 
sympathy for certain categories of litigants over others is 
misguided, it is unwise, and it is very contrary to the 
fundamental principles upon which our governmental and judicial 
systems are based.
    Under the ethical rules governing Federal judges, judges 
are required to consider the controversies before them 
impartially and must disqualify themselves if their 
impartiality can be reasonably questioned.
    A judge whose rulings are influenced by empathy violates 
his or her oath and the ethical canons governing the conduct of 
judges.
    When it comes to judging, empathy is only good if you are 
the person or the group that the judge has empathy for. In 
those cases, it is the judge, not the law, that determines the 
outcome, and that is a dangerous road to go down if you truly 
believe in the rule of law.
    Individuals with legitimate claims should have a chance to 
make them, but not all individuals have legitimate claims. It 
appears that those who attack the Supreme Court for supposed 
bias in favor of business want to change our system. Under 
their view, it would seem that legal disputes are nothing more 
than political popularity contests where the side with the 
loudest voice or the loudest advocacy groups, wins, 
notwithstanding what the law actually provides.
    Our founders predicted this. They knew that judges and 
justices would be subjected to these kinds of attacks. That is 
why our founders created the system that they did and provided 
for life tenure for Federal judges and justices in Article III 
of the Constitution.
    Under our Constitution and statutes, judges and justices 
must apply the law impartially and call cases as they see them, 
without regard for the status or political views of the 
litigants.
    That is our system, it works, and it is the best that 
mankind has ever known.
    [The prepared statement of Senator Grassley appears as a 
submission for the record.]
    Chairman Leahy. Thank you.
    Our first witness this morning will be Betty Dukes. As many 
of us know, she is the lead plaintiff in a class action case 
alleging discrimination in pay and promotions, Dukes v. Wal-
Mart. When the company opened a store in her hometown of 
Pittsburg, California, Ms. Dukes anticipated many opportunities 
on her horizon. She was hired by Wal-Mart in 1994, was very 
happy about working for the company.
    She had learned about the Walton family and their vast 
business empire in a community college class in the mid 1980's. 
Los Medanos Community College, she was placed on the dean's 
list, obviously made Ms. Dukes and her family quite proud.
    When Wal-Mart hired her, she had nearly 25 years of retail 
experience, including work as a head cashier and then as a 
department manager.
    This May 25 marked her 17th year of working at the 
Pittsburg Wal-Mart store. She still feels positive about her 
work environment, believes in the strength of her case. She 
wants to go to trial and have her voice heard.
    I was struck by what somebody told me was your favorite 
quote, which I think you may hear me using later on. It is, 
``Don't let fear get under your feet for it will carry you 
where you don't want to go.'' That is a great quote.
    We will start with you, Ms. Dukes. We will put your full 
statement in the record, of course, but please go ahead.

      STATEMENT OF BETTY DUKES, SAN FRANCISCO, CALIFORNIA

    Ms. Dukes. Good morning, Mr. Chairman and members of the 
committee. I am Betty Dukes. I am honored to have been invited 
to speak to you this morning.
    The Supreme Court's ruling in the Wal-Mart v. Dukes has 
brought me before this Committee today. I would like to share a 
little of my history as a Wal-Mart employee.
    I grew up in the city of Pittsburg, California and have 
worked at the Wal-Mart store there for 17 years. I had worked 
in the retail industry for nearly 25 years before coming to 
Wal-Mart. Most of my working career has been in the retail 
business.
    From the start of my career with Wal-Mart, I sought 
opportunities for advancement. But during my 17 years at Wal-
Mart, I have received only one promotion. While working at Wal-
Mart, I received numerous awards for outstanding customer 
service and other duties performed well.
    Prior to filing this lawsuit in 2001, there was never any 
posting for management positions in my store. For the first 9 
years that I worked at Wal-Mart, I never saw nor heard of any 
system for applying to get into management.
    After the lawsuit was filed, I learned that my experience 
was typical of what other women had experienced at other Wal-
Mart stores. Once this lawsuit began, I also learned through 
the Wal-Mart workforce database that women were paid less than 
men for doing the same work in Wal-Mart stores.
    Rather than bring a claim just on my behalf, I brought this 
lawsuit on behalf of women who worked at Wal-Mart stores in 
this country. We have evidence that countless numbers of us 
have been subject to the same working conditions and the same 
practice which favored men.
    I had hoped this suit would permit us to get an order from 
the court to stop Wal-Mart from treating women unfairly 
compared to men. I was disappointed last week when the Supreme 
Court blocked us from bringing these claims together in one 
single case.
    We have collected a lot of evidence that women consistently 
receive unequal pay and unequal promotion supporting our 
efforts to try their claims together. Unfortunately, the 
Supreme Court, in a sharply divided decision, did not allow 
this case to go forward.
    Women will now have to pursue smaller class cases or 
individual actions. We will continue to proceed on behalf of as 
many women as possible who are part of the class. But many 
women will give up because it is too hard to sue Wal-Mart on 
their own. It is not easy to take on your own employer. It is 
even more difficult when that employer is the biggest company 
in the world.
    In this country, there are many Betty Dukes who want their 
voices to be heard when they are denied equal pay and equal 
promotions. For many of these women, I am afraid that the 
Court's ruling will leave them without having their due day in 
court.
    Thank you.
    [The prepared statement of Ms. Dukes appears as a 
submission for the record.]
    Chairman Leahy. Thank you very much. And I am sure that a 
number of those women are watching you and your testimony.
    Our next witness is Andrew Pincus, who is well known to 
this committee. He is a partner at the firm Mayer Brown. He 
frequently argues before the Supreme Court, is well known to 
the Court. He previously served in the Department of Justice as 
an assistant attorney general, and, of course, as general 
counsel of the Commerce Department.
    Mr. Pincus, glad to have you here.

   STATEMENT OF ANDREW J. PINCUS, PARTNER, MAYER BROWN, LLP, 
                         WASHINGTON, DC

    Mr. Pincus. Thank you very much, Mr. Chairman, Ranking 
Member Grassley, and members of the committee. It is an honor 
to appear before the Committee today.
    To assess the impact on corporate behavior of the Court's 
recent decisions, I looked at the outcomes in all of the 
Court's cases involving private plaintiffs seeking damages from 
businesses, and this year there was a tie.
    Business parties lost just as many times as they won in 
such cases this year, nine wins for business parties, nine wins 
for plaintiffs suing businesses.
    Indeed, in the cases involving substantive interpretations 
of employment law, business parties lost every case decided by 
the Court.
    I know that some will say business won the most important 
cases, but I wonder if their perception of the importance of 
the cases is not colored by their outcome. If, for example, the 
Court, in the Kasten case, had said in retaliation claims under 
the Federal anti-discrimination laws, complaints must always be 
in writing, I think the reaction would have been, and quite 
justifiably, this is an outrage, it is a process requirement 
that will chill retaliation claims and open the door for 
companies to intimidate workers; or if the Court, in the Staub 
case, had said as long as the actual decisionmaker in an 
employment case did not act with discriminatory intent, even if 
a supervisor had exhibited discrimination, then a 
discrimination claim cannot be brought, I think there, too, 
there would be great concern about that.
    So I do think, in looking at the Court's cases, it is 
important to look at the whole range.
    Turning to some of the cases that have already been these 
subject of discussion, I think it is also important to 
distinguish between legal analysis and policy decisions. All of 
the cases that we are talking about today presented questions 
of statutory interpretation either of laws passed by Congress 
or of the Federal rules governing court procedures. And the 
Supreme Court, of course, does not ask what policy outcome is 
best. Rather, its role is to ascertain the intent of Congress 
using legal principles that have general acceptance by all of 
the members of the Court, although, as the Committee knows, 
they vary somewhat in the emphasis that they give to some of 
those principles.
    Of course, it is possible to have a vigorous policy debate 
regarding the best way to resolve these issues, but the policy 
debate is separate from the legal question before the Court, 
and I think that separation is important.
    In Wal-Mart, Concepcion, and Janus, in my view, the legal 
positions of the plaintiffs that were asserted in those cases 
departed substantially from existing law, and I do not think it 
is that surprising that the Court refused to embark on the 
quite radical courses that were being urged by the plaintiff 
and instead adhere to the principles that had been recognized 
in the Court's prior cases in those three areas.
    In Wal-Mart, for example, the Court confronted an 
unprecedented class action with what the majority found to be a 
failure of proof that there really was a common legal question 
in the case, and the decision very much rested on the 
particular facts that had been adduced in support of the 
commonality issue.
    In Janus, the Court has previously twice rejected aiding 
and abetting claims under Section 10(b) of the Securities and 
Exchange Act, and this case seemed to be a pretty clear attempt 
to avoid those rulings by seeking to impose aiding and abetting 
liability with a different label.
    Again, someone who was alleged to have helped another 
commit a securities violation should be liable is the argument 
and the Court said, ``Well, we have really dealt with that 
issue twice before and reached a decision on it. We are going 
to reach that same decision again today.''
    And, finally, in AT&T v. Concepcion, California, in what 
was really another outlier decision, had applied a state law 
rule different from that of 22 other states to invalidate the 
arbitration clause in this case, and the Court said a state can 
condition the enforcement of an arbitration clause on 
compliance with conditions that will effectively turn 
arbitration into litigation.
    And so just as a state could not say we are happy to 
enforce arbitration clauses as long as the arbitrators are 12 
people picked off the street, sort of just like a jury, because 
that would turn arbitration into a court proceeding, the Court 
said insisting on class action procedures would do exactly the 
same thing.
    The scope of the Court's rulings are going to be debated in 
dozens, if not hundreds of cases in the lower courts, and 
impossible to predict now how they are going to come out.
    But I think one thing is certain. The predictions that are 
being made now about their reach are likely to be incorrect. 
Two years ago, many asserted that the Court's ruling in 
Ashcroft v. Iqbal, which involved the standard for determining 
whether a complaint is sufficient to allow a case to go forward 
in Federal court, was claimed to dramatically restrict access 
to the courts and Congressional action was needed, it said, to 
overturn that decision.
    The Federal Judicial Center just released a decision--an 
analysis 3 months ago finding that, in fact, in those 2 years, 
there has not been any increase in the rates of motions to 
dismiss in cases generally and especially in civil rights and 
employment discrimination cases, which were a particular focus 
of the concern about Iqbal.
    So, again, just a cautionary word. We do not really know 
what these decisions are going to mean until we see how the 
lower courts will interpret them.
    Thank you.
    [The prepared statement of Mr. Pincus appears as a 
submission for the record.]
    Chairman Leahy. Thank you very much.
    The next witness is Professor Melissa Hart. She teaches at 
the University of Colorado School of Law. She specializes in 
employment discrimination and Supreme Court decisionmaking. 
After graduating from Harvard Law School, she clerked for 
Justice John Paul Stevens on the United States Supreme Court.
    Professor, it is good to have you here. Please go ahead.

 STATEMENT OF MELISSA HART, ASSOCIATE PROFESSOR AND DIRECTOR, 
THE BYRON WHITE CENTER FOR THE STUDY OF AMERICAN CONSTITUTIONAL 
   LAW, UNIVERSITY OF COLORADO LAW SCHOOL, BOULDER, COLORADO

    Ms. Hart. Chairman Leahy, thank you. Members of the 
committee, I appreciate the opportunity to talk with you today.
    I have been asked to focus particularly on two cases, Wal-
Mart v. Dukes and AT&T v. Concepcion, and the impacts they 
might have on both access to justice and, consequently, on 
corporate accountability and corporate behavior.
    These cases are very different in the context in which they 
arise. Concepcion is a consumer case involving a cell phone 
agreement. Wal-Mart v. Dukes is a case involving systemwide 
allegations of pay and promotion discrimination in the 
workplace.
    But while the substantive law underlying these two cases is 
very different, they have important similarities that I think 
are relevant to the conversation here today.
    First and most significantly, both of the cases, in 5-4 
decisions, reflect tremendous skepticism--I think it is fair to 
call it hostility--to class action resolution of disputes by 
the current Supreme Court.
    The erosion of the effectiveness of the class action device 
has moved us very far from the intent of the drafters of Rule 
23 in 1966, the current version of the rule. And because the 
class action is the only way to reach many kinds of systemic 
misconduct, the erosion of this tool insulates companies from 
any serious risk of litigation for many kinds of potentially 
illegal behavior.
    So this change, this re-interpretation of Rule 23 that has 
occurred, in particular, in Wal-Mart, has very serious 
consequences potentially for cases outside of the employment 
area, as well as within the employment area.
    A second similarity between these two cases is that they 
both involve what is really part of a trend of Supreme Court 
cases over the past few years that have re-interpreted 
procedural rules in ways that limit the likelihood that the 
substantive merits of the underlying case will ever be heard by 
a decisionmaker.
    One of things I think it is important to keep in mind in 
thinking about these cases is these were not rulings on the 
merits of the plaintiffs' claim. Nobody has said that Betty 
Dukes and the class in Wal-Mart was not discriminated against. 
Nobody has said yet that they were.
    The question was can they put these claims before a 
decisionmaker. And so the procedural devices are being put 
ahead of the substantive law and interpreted in ways that make 
it hard to get to the substantive questions.
    I think, again, looking at Wal-Mart, it is easy to see how 
Rule 23(a), the rule that governs class actions in Federal 
courts by private litigants, has, from 1966 really until last 
week, been understood by lower courts, by the Supreme Court, 
certainly by the rule's drafters, as a threshold inquiry that 
was not supposed to be a high barrier to pursuing a class 
action.
    It was supposed to consider not the merits of the claims 
again, but whether this group of people could put the merits of 
the claims before the Court.
    In the Wal-Mart decision, these five justices interpreted 
Rule 23(a) in a way that actually sets the standards for Rule 
23(a) at higher, more difficult to meet than the standards than 
the Court had already established in earlier cases for the 
substantive law underlying these claims.
    So a class cannot be certified, but if it were certified, 
it would meet the standards set in Watson or in Teamsters for 
winning on the merits, and that is a very troubling turning on 
its head of the relationship between procedural rules and 
substantive rules.
    I think that that is a policy judgment. These judgments 
about how the procedural rules should be used to effect how 
much and what kinds of litigation gets before decision-makers--
and this is true in the arbitration context, as well--that is 
much better made in state legislatures or in this body than by 
courts re-interpreting rules that have not themselves been 
rewritten.
    A final similarity that I think it is important to note in 
thinking about these cases is that, while they are very 
different from each other, they are similar in being very 
typical of the modern world. Every single person sitting in 
this room has signed dozens of contracts like the contract that 
the Concepcions signed. We all agree every day to arbitration 
agreements that we do not know we are agreeing to, and we are 
all going to be bound by these agreements in litigation. And 
the question of how the courts interpret those agreements is 
something that will affect us all.
    Similarly, Wal-Mart, although people love to call it 
unprecedented and focus on the size of the company, Wal-Mart, 
as a type of workplace, is, in fact, the type of workplace that 
more and more workers are working in.
    It is a multi-facility, multinational corporation, with 
decisions made in subjective ways that involve assessment by 
one supervisor of the workers working for him or by one 
regional manager of the workers, without a lot of objective 
standard to that evaluation.
    I think that in light of the ways that these decisions 
might affect people all over the country, it may well be time 
for this Congress to start thinking about changing the law, 
responding to these judicial re-interpretations with new 
standards that return the original intent of Rule 23 and of the 
Federal Arbitration Act.
    Thank you very much.
    [The prepared statement of Melissa Hart appears as a 
submission for the record.]
    Chairman Leahy. Thank you very much, Professor Hart.
    Our next witness is Robert Alt. He is the senior legal 
fellow and deputy director of the Center for Legal and Judicial 
Studies at the Heritage Foundation, where he specializes in 
constitutional law.
    Mr. Alt received his law degree from the University of 
Chicago Law School.
    Mr. Alt, we are glad to have you here. Please go ahead. 
And, again, as with all witnesses, the full statement will be 
placed in the record, but please go ahead.

    STATEMENT OF ROBERT ALT, SENIOR LEGAL FELLOW AND DEPUTY 
 DIRECTOR, CENTER FOR LEGAL AND JUDICIAL STUDIES, THE HERITAGE 
                   FOUNDATION, WASHINGTON, DC

    Mr. Alt. Thank you, Chairman Leahy and Ranking Member 
Grassley, for inviting me to testify before your Committee once 
again.
    I share with Senator Grassley the concern that the title of 
this hearing suggests something of a predetermined conclusion, 
that the recent decisions of the Supreme Court will somehow 
create barriers to justice and accountability and will somehow 
create adverse incentives for corporate behavior.
    I do not believe that the facts support that conclusion.
    Reviewing the business cases from recent terms of the Court 
leads to several important conclusions. One, the Court 
frequently speaks in business cases not in the fractured voice 
characterized by the Court's critics, but in a unanimous or 
super-majoratarian voice.
    Two, far from creating new barriers to justice or 
accountability, the Court's decisions assailed in today's 
hearing reject new, novel, and frequently unsupported theories 
advanced by trial lawyers to circumvent reasonable existing 
requirements--requirements which were designed to prevent 
frivolous litigation and to assure due process to all parties. 
And, three, the designer of many of these requirements was none 
other than Congress.
    With this in mind, it is worth exploring a couple of the 
cases that have been highlighted so far at today's hearings. 
First, Wal-Mart v. Dukes. Largely ignored so far in this 
hearing has been the unanimity of the Court's determination 
that the action could not be brought under Rule 23(b)(2), a 
section addressing injunctive relief, but was more appropriate, 
if appropriate at all, under (b)(3), which permits broader 
claims of monetary damages.
    It is obvious why it is that the claim was brought under 
(b)(2). (b)(3) is--the certification for monetary damages under 
(b)(3) is harder and more costly than under the injunctive 
relief section of (b)(2), and thus the lawyers attempted to 
shoehorn what were predominantly claims for monetary relief 
into the (b)(2) setting.
    But the use of (b)(2) was really, at best, a (b)(3) claim--
as tedious as the (b)(2)/(b)(3) repetition may be--creates very 
real due process concerns for members of the plaintiffs' class 
who are not required under Rule (b)(2) to get adequate notice 
or to have the option to opt out of the litigation.
    It also creates serious due process concerns for Wal-Mart, 
as defendant, which would have been forced to litigate in what 
the Supreme Court correctly recognized to be trial by formula. 
While this might have been convenient for the plaintiffs, it 
creates gross unfairness for the defendant, who is entitled to 
raise statutory defenses to individual claims.
    But perhaps most importantly, in the wake of this decision, 
there are ample opportunities for justice and incentives for 
good corporate behavior. Smaller and better defined class 
actions can be filed, perhaps ones in which the absurdities of 
members of the plaintiffs' class not also being accused of 
discrimination--keep in mind that a number of the supervisors 
in the case were also women, but would have been plaintiffs, as 
the class defined all women who were employees of Wal-Mart--
would be a good place to start.
    Additionally, individual actions supported by Title VIIs 
offer of attorney's fees for prevailing parties would also be 
available. Those who believe they have been injured by Wal-Mart 
will have their day in court.
    The only party who may claim substantial injury in this 
case is the trial bar.
    Then we move to the Janus Capital cases. This case is yet 
another attempt to expand the implied private right of action 
under Rule 10(b)(5), but the Court has already answered that 
question repeatedly, in Central Bank in 1994 and in Stoneridge 
in 2008, finding that it was not appropriate to expand the 
implied right of action under 10(b).
    Equally important, the Court does not operate on a blank 
slate in this area, but on a statutory regime modified by the 
Private Securities Litigation Reform Act. Central Bank was 
decided prior to Congress's consideration of the PSLRA and 
Congress was urged at the time of the PSLRA to extend the 
private right of action to aiders and abetters. You refused to 
do so.
    Instead, under Section 104 of the Act, you directed 
prosecution of aiders and abetters to the SEC in what is now 
Section 78(t)(e). There are ample incentives--once again, 
within the context of Janus, there are ample incentives and 
mechanisms to assure justice.
    Secondary actors are subject to criminal penalties, civil 
enforcement, and add to this that some state securities laws 
permit state authorities to seek fines and restitution from 
aiders and abetters. These mechanisms are hardly toothless. The 
SEC's tools to enforce include obtaining injunctive relief, 
issuing administrative orders, imposing large civil penalties, 
including disgorgement remedies on any companies aiding or 
abetting fraud.
    Contrary to the chairman's statement earlier on, the 
conclusion after Janus is not that if you commit fraud as a 
corporation, you get away with it. As evidence, look at SEC 
enforcement actions between 2002 and 2008, in which it 
collected in excess of $10 billion in disgorgement and 
penalties, much of it distributed to injured investors.
    Chairman Leahy. These were the actions prior to Janus.
    Mr. Alt [continuing]. Yes. This was 2002 to 2008. So there 
is already existing--there is already----
    Chairman Leahy. They were prior to Janus, prior to the 
roadmap in Janus.
    Mr. Alt [continuing]. Once again, the authority----
    Chairman Leahy. I appreciate--well.
    Mr. Alt.--of the SEC to enforce exists after Janus. And, in 
fact, Congress----
    Chairman Leahy. I would appreciate, Mr. Alt, if I might, 
because your time has expired, I appreciate your sarcasm and 
your continuing sarcasm in your testimony, but there are----
    Mr. Alt. Well, I appreciate Congress' determination as to 
who should be enforcing these actions.
    Chairman Leahy. There are those who differ. But I 
appreciate it, and your whole testimony will be placed in the 
record and I thank you for being here, and I mean that 
sincerely, the sarcasm notwithstanding in your testimony.
    [The prepared statement of Mr. Alt appears as a submission 
for the record.]
    Chairman Leahy. Professor Cox joined the faculty of Duke 
Law School in 1979, where he specializes in the area of 
corporate securities law. He has advised the New York Stock 
Exchange, the National Association of Securities Dealers. He 
received his law degree from UC-Hastings, his LLM from Harvard 
University.
    Professor Cox, please go ahead, sir.
    Also, each of you, your full statement will be placed in 
the record. And I should note we may start a series of roll 
calls and we will work around the time so that each will have a 
chance to answer questions and to expand on their testimony any 
way they want.
    I would also note, for each of you, the record will be kept 
open so that if there are things that come up afterwards that 
you have agreed or disagreed with anything I say or anybody 
else says, you will have a chance to respond in the record.
    Professor Cox, go ahead, sir.

 STATEMENT OF JAMES D. COX, BRAINERD CURRIE PROFESSOR OF LAW, 
     DUKE UNIVERSITY SCHOOL OF LAW, DURHAM, NORTH CAROLINA

    Mr. Cox. Thank you very much. No principle in Western 
civilization is more well established than the principle that 
individuals who cause harm to another proximately should bear 
responsibility for that.
    A quick perusal of the case law of securities laws would 
show that this is not the principle that applies in the 
securities areas. Let me just review quickly a few cases here.
    The Stoneridge Supreme Court decision held the following: 
that corporations whose executives knowingly prepared false 
documents to conceal from their customers' auditors that $17 
million in the customers' revenues were fraudulent round-trip 
transactions and did so to retain the customer as a client are 
not responsible to the investors who purchased the customers' 
shares at inflated prices due to the round-trip transactions; 
or the seventh circuit decisions which applied Stoneridge and 
the Central Bank decision: the president of a newspaper 
subsidiary who fraudulently inflates the numbers of subscribers 
and revenues of its subsidiary that he was the CEO of is not 
liable for those who purchased the parent company shares at 
prices inflated as a consequence of the president's reporting 
chicanery, having been incorporated into the consolidated 
financial statements issued by the parent.
    And my favorite is a district court case from the Federal 
court in Utah in which the CEO falsely represented, in a letter 
to the auditor, to prevent the auditor from pursuing 
confirmations that would have uncovered a chain of defalcations 
that were carried out by the CEO and that the auditor, in 
reliance on the CEO's letter, issued an unqualified statement 
only to find out in a few months later the massive fraud, the 
firm collapsed and investors lost their money. The CEO was not 
responsible because of Central Bank and because of Stoneridge.
    Now, the above cases are hardly aberrations, as we have to 
look at what happened in Janus Capital. The issue in Janus 
Capital was whether an investment advisor who prepared a 
prospectus issued by Janus Investment Funds was responsible for 
misstatements contained in the prospectus.
    A divided 5-4 Court held that the advisor did not make any 
statement in the Janus Investment Fund and, therefore, got a 
pass.
    The Court's reasoning for the majority was the following: 
that even when a speech-writer drafts a speech, the content is 
entirely within the control of the person who delivers it and 
it is the speaker who takes credit or blame for what is 
ultimately said.
    However, the analogy fails. When a speech is delivered by a 
human being, then it is one thing to identify who the speaker 
is. But a corporation is not such a being. A corporation can 
only act through individuals and then can act only through the 
symbiosis of the entity structure and structures in which the 
corporation operates.
    Thus, financial reports pass through multiple individuals, 
each of which provides a voice to the inanimate entity.
    The reasoning of Janus Capital is that none of these actors 
makes the statement, because in the eyes of the Court's 
majority, the statement can only be made by the entity. But, of 
course, entities do not speak. Individuals do.
    So let me just point out something else here. It was not 
part of my prepared statement. I have now published 10 papers, 
empirical studies of securities class action frauds. One thing 
we do in our studies is look at how many times we saw any 
evidence of an SEC prosecution, through Nexus, et cetera, like 
that.
    Only in 17 percent of our cases, which are now 900 
settlements, did we find any evidence of an SEC involvement, 
not an enforcement action, but just a report that maybe they 
were carrying out an investigation, 17 percent of those cases.
    We also took a look at what gets recovered in those SEC 
suits--those $10 billion. And let me tell you, that is one 
horse, one rabbit. That is the private plaintiff recover much 
move--and even the SEC admits that they are seriously 
constrained on what they can recover by way of a disgorgement 
and a fine recovery versus what happens in private suits. So 
this is not a fair comparison.
    Let me tell you something else here. The Janus Capital case 
was not an aiding and abetting case. If you go back prior to 
Central Bank, that would have been a classic primary 
participant case. I could give you chapter and verse on that.
    What is happening with the Supreme Court is they are 
perversely interpreting what is aiding and abetting as to 
exclude individuals from responsibility. We can have an 
interesting argument about whether the entity ought to pay 
money in a settlement, but we can have no argument over the 
fact that a person whose chicanery defrauds investors should be 
responsible. And the result of what we see in Central Bank, 
Stoneridge, and now Janus Capital is we give the fraudster a 
pass.
    I see my time is up, but my testimony points out that this 
leads to all kinds of perverse results, with the result that we 
are never holding individuals responsible who ought to be held 
responsible.
    And I believe everybody, regardless of what side of the 
aisle you are on, would agree to the fact that those who 
engineer and carry out the fraud and, by even the most basic 
formulation of primary participant liability should be 
responsible, and the case law does not lead to that result.
    Thank you.
    [The prepared statement of Mr. Cox appears as a submission 
for the record.]
    Chairman Leahy. Thank you very much.
    In both my time in the Senate and previous career as a 
prosecutor, I always felt people who did the wrongdoing should 
be held responsible.
    Ms. Dukes, we can speak about the legal theory of these 
things, but you are the person who is actually involved.
    Can you tell us what united you and other women employees 
at Wal-Mart? How did you come together? What was it that 
happened, because I think about when Justice Ginsberg referred 
to Justice Scalia's opinion, she said it focuses its attention 
on what distinguishes individual class members rather than what 
unites them.
    What were the things that united you?
    Ms. Dukes. An opportunity to have a voice and our complaint 
addressed. As you know, Wal-Mart is a vast corporation. There 
are many Wal-Marts, but we are virtually spread apart.
    It is not that we can come together socially. We come 
together under these premises that we work in an environment 
that is very unfair in the treatment of its employees.
    We have many complaints, but this is just two that have 
come forth. We are trying to untie without having to be under 
the intimidation of losing your job just because you speak out. 
We are in a very intimidating environment.
    So this avenue was one that would have allowed us, without 
the fear of retribution, to come forth and have our complaint 
addressed.
    Chairman Leahy. Are you going to give up now?
    Ms. Dukes. Absolutely not. The best is yet to come.
    Chairman Leahy. Thank you.
    Ms. Dukes. You are welcome.
    Chairman Leahy. Professor Hart, the Wal-Mart decision that 
we just discussed with Ms. Dukes, is it going to make it more 
difficult for victims of discrimination to bring and prove 
their cases when they involve disparate impact of policy or is 
this a one-of-a-kind case?
    Ms. Hart. Well, it is certainly not a one-of-a-kind case. 
Again, I think one of the interesting things that has happened 
both in court and in the majority opinion, and, also, in the 
press following the case is that people have emphasized the 
ways that Wal-Mart is different from other companies, in 
particular, that it is so big.
    And it has been suggested that this case was somehow 
unique. In fact, these kinds of cases, cases challenging the 
excessively subjective decisionmaking, unguided discretion 
given to managers, have been in the lower courts for decades.
    The idea of a claim of excessively subjective 
decisionmaking leading to discrimination was endorsed by the 
Supreme Court in 1988 in the Watson case.
    These kinds of cases have been around for a long time. It 
is true that they are, by their nature, class action cases. 
First, because you have got a systemwide policy that is being 
challenged, not an individual decision, but a systemwide 
policy, and because what you are looking at is the range of 
decisions and the consequences of these decisions, you need the 
class action device to be able to pursue these claims, for a 
couple of reasons, not to get too much into the weeds.
    But the way that these cases can--the important thing that 
these cases does is it opens up discovery for plaintiffs to 
really have a better understanding of how the policy is 
structuring these decisions and what awareness it had, as Wal-
Mart had quite a great deal of awareness, of the consequences 
of these decisions, the kinds of discrimination that were going 
on.
    In an individual case, that kind of discovery would not be 
available to an individual plaintiff. And the threat of 
individual litigation, also, does not lead to self-monitoring 
by a company.
    One of, I think, the most important things about this Wal-
Mart case is that after this suit was filed in 2001, Wal-Mart 
started changing it policies. It recognized that it was making 
bad choices, choices that, in fact, were hurting women, and it 
started changing its policies itself.
    That is one of the good consequences of litigation that you 
lose when you make it impossible to bring suits through this 
procedural technique as class actions.
    Chairman Leahy. But we also hear and some would say that 
there is not a trend here in this Court, but we have held 
hearings on the Lilly Ledbetter sex discrimination case. We 
held hearings on Jack Rouse's age discrimination case.
    In each of these, it seemed that five justices made it more 
difficult for victims of discrimination to hold their corporate 
employers accountable.
    Is there a threat going through this or am I reading too 
much into them?
    Ms. Hart. I fear that you are not reading too much into it. 
I think that it is true that if you look at employment 
discrimination cases in the past few years, although many are 
quick to point out that businesses have won some and lost some, 
plaintiffs have won some and lost some, the general trend has 
been to interpret the substantive law to make it more difficult 
to bring the underlying claims.
    Wal-Mart was a procedural case. Again, nobody has ever 
reached the merits of these claims, but I think there is a fair 
cause for concern that because the very high procedural 
threshold the Court set seems at odds with the substantive 
legal standards that have preexisted this case, the Court may, 
in the future, interpret the substantive law similarly tightly. 
And so that this may very well be at another case in which the 
intent of the Congress that enacted Title 7 and that enacted 
the Civil Rights Act of 1991 is being ignored in these cramped 
interpretations of the substantive law.
    Chairman Leahy. I have a lot more questions, but I run the 
clock on myself, too.
    So I will yield to Senator Grassley.
    Senator Grassley. Thank you, Mr. Chairman. And thanks to 
each of you for your testimony.
    I am going to just ask two of the panel for answers to a 
couple of questions. I would like to have Mr. Pincus first and 
then Mr. Alt to provide your reaction to Professor Hart's 
testimony, and I want you to be very specific.
    Mr. Pincus. It seems to me, Senator Grassley, that a key 
part of Professor Hart's testimony is where she says about the 
Wal-Mart case, and I am quoting, ``It's hard to tell precisely 
what the contours of the decision will turn out to be as it's 
interpreted in other cases,'' and, to me, that is a key 
question, as I mentioned in my statement, with all of these 
cases.
    We just do not know how they are going to be interpreted. I 
think Wal-Mart is perceived by many as an extreme case because 
of the size of the class and the nature of the evidence 
relative to the large number of decision-makers that were 
involved, and I think there is just a real question about how 
it is going to play out as the lower courts get a hold of it.
    Senator Grassley. Mr. Alt.
    Mr. Alt. I would build on Mr. Pincus' statement and simply 
say I think part of the difficulty associated with determining 
what impact it will have is recognizing that it does not 
foreclose class actions against Wal-Mart. It simply foreclosed 
this single omnibus class action, if you will.
    And so you can continue to have class actions, perhaps 
better defined, in which you can raise these sorts of claims, 
you can bring in the sort of evidence that I think Professor 
Hart was talking about that might be necessary to establish the 
sorts of claims that plaintiffs were seeking to make.
    But in these particular cases, if it is brought, 
appropriately, for instance, under (b)(3), it permits Wal-Mart 
the opportunity to raise the sorts of defenses that you would 
expect in an employment discrimination case with regard to the 
particular damages.
    So in terms of that, I am not sure that I would endorse the 
doom and gloom. I think meritorious claims will still be able 
to go forward.
    Senator Grassley. And in the same order for the same two 
panelists, I would like your reaction to Professor Cox's 
testimony and I would ask you to be as specific as possible, as 
well.
    Mr. Pincus. Again, I think it is important to separate 
legal analysis and public policy. As to legal analysis, I think 
Professor Cox and I have a disagreement, just as the majority 
on the Court and the dissenters did about the impact of the 
Stoneridge and Central Bank decisions on the particular issue 
before the Court there.
    But I do think that what the Court ruled in those cases was 
we are going to be very focused on defining who can be liable 
under this implied cause of action, and I think that was 
especially true, as Mr. Alt mentioned, after Congress rejected 
private aiding and abetting liability in 1994 and instead gave 
the SEC authority and then, again, in the Dodd-Frank bill, 
rejected arguments that there should be expanded private 
liability under Section 10(b) and instead further expanded from 
what it had done in 1994, the SEC's power to both bring 
enforcement actions against aiders and abetters and, also, to 
obtain money to deposit fair funds accounts for the benefit of 
people who could prove injury.
    As to policy, I think we also have a disagreement about 
whether the law says that there is a private right of action 
for every wrong. I think it is quite clear that the law does 
not say that there is a private right of action for every 
wrong.
    And especially in the context of aiding and abetting, the 
courts have been very leery, both in the statutory context and 
in the common law context, to create those things because they 
recognize that once you move away from--once you say anyone who 
helps someone do something wrong, even thought that conduct is 
legal, we are going to hold them liable because they had a bad 
intent, their intent was to help the wrongdoer.
    You are opening up private liability very broadly because 
that is an issue that can only be determined after trial. And 
so there is a very significant policy question about whether, 
especially in the class action context, expanding liability 
that broadly is a sensible thing to do rather than make sure 
you have cops on the beat in terms of expanding the SEC's 
enforcement authority, as Congress did.
    Senator Grassley. Mr. Alt.
    Mr. Alt. Just briefly. I would say I think it goes, in 
part, to sort of the understanding of the proper function, my 
disagreement of the Court.
    I think the Court was attempting to adhere to what it is 
that Congress had told them to do. They believed that, in fact, 
Congress considered the question of expanding liability, 
expressly chose not to do it, thought that the best enforcement 
agency was the SEC, and there are good reasons to think that.
    There is ample literature that suggests that securities 
class action litigation actually causes as much harm as good, 
that it actually constitutes, in large measure, a wealth 
transfer from one set of shareholders to another, with the true 
beneficiary being those who create the transaction costs in the 
form of the lawyers.
    And with regard to his evidence that only 17 percent of 
settlements studied had any sort of SEC involvement, well, you 
can go back all the way to Judge Friendly, who talked about the 
problem of blackmail settlements; that, quite, frankly, in a 
lot of class action litigation, the costs associated with 
simply complying with discovery are so high that it is more 
cost-effective for companies to settle.
    That does not necessarily mean that in those cases, there 
is even particularized wrongdoing. So that would be--I will 
wrap it up there.
    Senator Grassley. Thank you, Mr. Chairman.
    Chairman Leahy. Thank you. And the vote has started, but 
Senator Feinstein and I will stay here and we will try to work 
our way around it.
    Senator Feinstein.
    Senator Feinstein. Thank you very much. I am going to be 
very quick.
    Professor Hart, because you speak sort of in a layman's 
language, which I like--I am a non-lawyer--what exactly does 
Wal-Mart say on two things: what a maximum sizes of a class 
should be and, No. 2, what does it do to individual 
supervisorial choice with respect to promotion?
    Ms. Hart. The Wal-Mart decision does not speak clearly to 
the question of what the maximum size of a case will be. There 
is much more in the Wal-Mart decision about what the five-
justice majority disapproves of in this case than about what 
they would approve of in future cases.
    I think some areas for concern include that Justice Scalia 
refers to the idea that perhaps a class would be limited to a 
single supervisor. That, again, ignores the fact that many of 
the kinds of policies being challenged in a case like Wal-Mart 
are systematic companywide policies, not the decisions of a 
single supervisor.
    Under the class action rule----
    Senator Feinstein. Stop, stop, stop for a second. So what 
you are saying is--because this is where I am unclear. The 
company has a policy and a supervisor exercises that policy 
with respect to promotion.
    How much freedom under this case does the supervisor have 
and what level of rights with respect to seniority and that 
kind of thing, if there are any rights, does an employee have?
    Ms. Hart. Again, it will depend very much on how the 
company's policy is structured. In the context of the Wal-Mart 
case, what the plaintiffs alleged--in this way, I think Wal-
Mart is unique. It may not be the only company like this, but 
certainly the evidence of discrimination at Wal-Mart was 
significant. The evidence of gender disparities were really 
startling in terms of the very large number of hourly employees 
who were women, and then the absolutely flipped very small 
number of Wal-Mart managers who were women.
    And the way that the decisionmaking system was structured 
to both give individual managers discretion to just pick their 
friends and, at the same time, create a series of corporate 
standards and a corporate culture that discouraged the 
advancement of women through a variety of policy decisions that 
were highlighted in the complaint.
    Well, when the compliant was filed, for example, one of the 
things that Wal-Mart used to have as a policy was a requirement 
that to be a store manager, you had to be willing to relocate.
    It is obvious to a layperson, I think, why that, in our 
society, discriminates quite significantly against women as 
compared to men.
    Like the refusal, which, again, Wal-Mart has actually fixed 
in the wake of this litigation, but the refusal to post--Ms. 
Dukes talked about the absence of any posting of management 
opportunities, which meant that it was a tap-on-the-shoulder 
system, and there is lots of evidence that tends to favor the 
people who look like the people in charge.
    So if you have men in charge, you are going to end up with 
men being tapped for promotions. And, again, there is lots of 
evidence of how that works.
    So these choices that Wal-Mart was making about how to 
structure its employment policies were choices they were making 
even at the time that they saw the results that they were 
having, and, again, there is lots of evidence that Wal-Mart, in 
fact, had the information about the kinds of gender disparities 
that were happening all over the country, in all 41 regions 
that Wal-Mart operated, that this was not a random thing, and, 
yet, did not respond in any way, again, until this litigation 
was filed.
    And so the benefit of being able to challenge this kind of 
employment practice through class action litigation is that it 
does force accountability. Even if the litigation does not 
proceed, as right now, it is going to have to change its form. 
It led to change just by bring brought and that is so important 
not to lose.
    Senator Feinstein. Thank you.
    Ms. Hart. Thank you.
    Senator Feinstein. Thank you very much, Mr. Chairman. That 
was really helpful. Thank you.
    Chairman Leahy. Thank you. Even those of us who are lawyers 
appreciate it in the----
    Senator Feinstein. In the plain talk.
    Chairman Leahy. Yes. I am going to leave for the vote, but 
Senator Whitehouse, as he has so many other times for me, is 
going to take over the chair, and I will be back. Thank you. 
Thank you all.
    Ms. Hart. Thank you, Chairman.
    Senator Whitehouse. [presiding.] Sort of like a flying 
change in a hockey game. You have to change while the puck is 
still active.
    [Laughter.]
    Senator Whitehouse. Well, I am delighted to have all of you 
here. And reading the recent series of Supreme Court opinions, 
actually going back a few years now, reminds me of my law 
school days, when I was studying for a UCC exam. And as those 
of you who have had the misfortune of either going to law 
school or studying the Uniform Commercial Code know, it is 
about the most tedious and boring possible ordeal.
    So I am plowing my way through this immense book and 
somebody who was a year ahead of me and immensely more 
knowledgeable said, ``You don't need to worry too much about 
that. It's actually a lot simpler than it appears. Indeed, the 
entire UCC can be summarized in two words.''
    I badly wanted to know what that was. So I asked, ``Well, 
what are the two words? '' And the fellow looked down at me in 
my little study carrel and said, ``Bank wins.''
    [Laughter.]
    Senator Whitehouse. And it is starting to seem a little bit 
as if a similar two-word prophecy could be applied to the 
United States Supreme Court's decisions, and that would be 
``corporation wins.''
    I have two questions that I would like to ask across the 
panel. The one is, at some point in human behavior, when an 
action results in a certain thing time after time after time 
after time after time, it becomes reasonable to presume that 
there is no longer a random effect happening and that there is, 
indeed, some intentionality to what is going on.
    And so my first question would be to each of you. Do you 
think we have reached that point at this stage?
    Let me start with Ms. Dukes.
    Ms. Dukes. Let me get a little clarity of your question.
    Senator Whitehouse. Could you turn your microphone on?
    Ms. Dukes. Let me get a little clarity as to the question 
that you asked. Would you make it just a little bit more clear 
for me, if you do not mind?
    Senator Whitehouse. No. I was just trying to determine if 
you think that the--if you were to plot the Supreme Court 
decisions on the ``corporation wins'' graph, are there enough 
of them that come down there that you think it has independent 
significance, it is beyond just a random variation?
    There are going to be times when there will be three or 
four decisions in a row that come down in favor of corporate 
versus individual interests, just in the ordinary nature of 
things, just in the ordinary variation of life and the sort of 
random nature of things.
    But after a while, it becomes increasingly statistically 
improbable that what is happening is random as the events pile 
up and pile up and pile up, and that is true whether you are 
talking about any area of human endeavor.
    It is even true if you are talking about non-human events. 
You start to look for a cause once things no longer fit a 
pattern. And I am wondering if it is your observation--if you 
don't care to comment on it, I can happily go to another 
witness.
    Are we at the point where you think it is reasonable for 
people to conclude that there is more going on than a random 
selection or that, in fact, there is a purpose or an intention 
in the Supreme Court's actions in these repeated decisions that 
favor the interests of corporations?
    Ms. Dukes. Thank you for the clarity of that. I am 
beginning to get the impression, and I believe that many other 
Americans feel the same way, that the Supreme Court, as the 
makeup is now, that it is quite conservative in its opinion.
    I feel that the Supreme Court, really concerning those five 
votes, that we have that dismantled the Wal-Mart v. Dukes case, 
they are definitely leaning on the side of the corporation. It 
is beginning to be obvious that if you can get your case before 
this sitting court, the chances are that the more liberal 
aspect will not survive.
    Senator Whitehouse. Professor Pincus, your view?
    Mr. Pincus. I do not think so, Senator. I think if you look 
at this term's decisions, I think it is really a draw, nine to 
nine.
    Senator Whitehouse. Well, go beyond the term.
    Mr. Pincus. I think if you look at last terms's decisions, 
there were some very significant cases. I think they are 
actually--if you look specifically at cases where individuals 
are seeking damages from corporations, the individuals actually 
won more than they lost.
    So I do not think so. And Justice Breyer was interviewed at 
the beginning of this term in the fall and he was asked this 
very question and he said, ``I really don't think so.'' He said 
he had gone back and looked at the cases from recent terms and 
compared them to prior terms and really did not see a 
difference in the percentage of cases decided either way.
    Senator Whitehouse. Professor Hart, your view?
    Ms. Hart. I think it is a little bit more complicated than 
``corporation wins all the time.'' Obviously, there are lots of 
examples where corporations lose cases.
    I do think that if you look at the trend over the past few 
years, it is very clear that the majority on the Court--and it 
is consistently the same majority--is taking a very restrictive 
view about what it thinks--what kinds of cases it thinks should 
be permitted to go into the Court.
    And I think that is the most disturbing thing, that 
procedural barriers are being set up that were not set up by 
the rules, were not set up by statute, that are being created 
as a policy judgment by this majority on the Court that limit 
the ability of people to bring their claims into court, and 
that really changes our legal system in ways that whether the 
corporation wins or loses in any given case, people are not 
being allowed to bring their cases forward, and that is a 
troubling trend.
    Senator Whitehouse. Professor Alt.
    Mr. Alt. I do not think that the facts support that 
particular trend, and, in fact, if you take a look, there is a 
number of key losses for businesses in the last term, in the 
last several terms.
    If you take a look, I think the Court is all over the map 
on preemption cases. It was all over the map this term in 
preemption cases. And if you take a look, as well, to make that 
sort of claim and to sort of smear, ``it is just the Roberts 
court,'' you have to ignore the fact that a number of these 
pro-corporation cases involved super-majorities--they involved 
decisions written by the most liberal justices on the Court.
    Are we really to believe that there----
    Senator Whitehouse. My time has expired. So let me jump to 
Professor Cox to give him a chance.
    Very briefly, if you could, Professor. I am sorry.
    Mr. Cox. In my narrow world of securities laws, I agree 
with your statement, Senator. And I will tell you, the shrill 
rhetoric, where it used to be limited to the amicus briefs that 
they file over and over again, the Chamber of Commerce filed, 
is now very well found in cases like the Bank of Australia 
case, and, also, in Stoneridge, where the message is aggregate 
litigation is destroying America and destroying America's 
competitiveness, I think that is the theme that is coming 
through, the Supreme Court stating we do not like these suits.
    Senator Whitehouse. All right. My time has expired.
    Senator Franken is here, and I yield to the good Senator 
from Minnesota.
    Senator Franken. Thank you, Mr. Chairman. I ran back to 
vote and ran back as fast as I could. So excuse me if I am a 
little out of breath.
    First of all, as far as Mr. Alt's testimony, let me just 
say that I have always been a big fan of sarcasm. I have used 
it a lot myself.
    [Laughter.]
    Mr. Alt. And I have appreciated your sarcasm in the past.
    Senator Franken. Thank you.
    [Laughter.]
    Senator Franken. But it does have its place and I am 
learning bit by bit exactly what that is as I go. So while I 
have some sympathy for you, I think you have been wise to tamp 
it down since you have been--and I do not mean this 
sarcastically.
    [Laughter.]
    Senator Franken. Mr. Pincus, however, in a recent letter to 
the New York Times, you disparage, sarcastically, the class 
action lawyers who represent consumers, like the Concepcion, 
and I was really wondering why you did that, given that the 
average salary for partners at Mayer Brown is over $1 million. 
I do not think you are in the most credible position to make 
that kind of sarcastic critique.
    Professor Hart, I have introduced the Arbitration Fairness 
Act, which would bar the use of mandatory arbitration clauses 
in consumer and employment contracts.
    Mr. Pincus has testified that the Court's decision in AT&T 
was correctly decided because it is in line with prior 
decisions. Four other justices might disagree.
    Now, while it is true that the case is in line with 
decisions dating back to the early 1990's, the legislative 
history of the Federal Arbitration Act enacted in 1925, I 
think, tells another story.
    As the dissent in the 2001 Circuit City case points out, 
the decisions expanding the reach of the FAA ignore clear 
legislative intent, which is that this was meant to be business 
to business.
    So, in fact, the Arbitration Fairness Act would merely 
restore the original legislative intent of the FAA.
    These are all technical arguments about legislative history 
and precedent and court rulings and what not, but let us put 
all that aside for a moment and let us set this up for anyone 
listening today so they can get a handle on what AT&T really 
did in this case.
    First, they did something that was just wrong. They 
advertised something as free, a free phone, and it was not. 
California law says you cannot advertise something as free and 
make people pay a sales tax on it unless you say so.
    So they bought their cell phone, advertised as free. Then 
they get a $30 charge on it in their bill. They were not asked 
to pay the sales tax when they got the phone for free, that 
they thought they were getting for free.
    Yet, now they have devised a scheme to prevent people 
from--I mean, no one is going to spend time getting 30 bucks 
back. The only way to do this is to do it through a class 
action suit.
    What this does, what this decision does is incentivize 
corporations like AT&T to rip people off $30 at a time, 
hundreds of thousands of people--so they get their 100,000 
people, that is $3 million, and maybe four people will try to 
get their money back, that is 120 bucks.
    Are they not just incentivized to rip off customers? Is 
that not what is going on here?
    Ms. Hart. Is that a question to me or just----
    Senator Franken. Yes. That is a question to you.
    Ms. Hart. I think that decisions like AT&T definitely--they 
make it easier for businesses to set up deals like this and 
know that they really will not--as you said, only four out of 
however many customers is going to actually try to get their 
money back.
    So they are not going to be responsible for their conduct. 
And I think it is particularly disturbing in this case--I just 
want to comment on something you said, which is the intent of 
the Congress in enacting the FAA.
    The decision in AT&T, the Court focused on the idea that 
their interpretation was necessary because of what Congress 
meant in 1925. Well, in 1925, these kinds of contracts, these 
adhesion contracts in which millions of people are buying a 
free phone did not exist.
    This is a different world. And, similarly, the kinds of 
employment discrimination claims that were at issue in Circuit 
City did not exist in 1925. The world has changed and the idea 
that the 1925 legislature meant to be binding employees and 
consumers is nonsense.
    And so I think that this is one of the areas where we are 
really seeing a misuse of this idea of Congressional intent in 
order to insulate from liability companies that engage in 
wrongdoing, which is why a legislative response really is 
needed to address this problem.
    Senator Franken. Thank you. I have that legislative 
response. I have run out of time, Mr. Chairman.
    Senator Whitehouse. We will have one other round while it 
is, I guess, just the two of us, if you would like, because I 
do have another question that I would like to ask.
    Senator Franken. Sure.
    Senator Whitehouse. Which has to do with the fact that in a 
number of these cases, the interest or the institution that is 
on the other side from the corporate interest is the jury and 
the access of Americans to the jury to redress their 
grievances. And over and over again, as Professor Hart has 
pointed out, what have been erected are procedural obstacles, a 
little bit here, a little bit there, but always making it more 
difficult for Americans to get in front of a jury, particularly 
where, I should say, a big corporation is the defendant.
    And I worry about that because my view is that the founders 
put the jury in the Constitution and in the Bill of Rights in 
three separate places for a reason. It was part of the 
structure of government that they were erecting.
    I believe they understood that, as William Blackstone had 
explained, ``the most powerful individual in the state will be 
cautious of committing any flagrant invasion of another's right 
when he knows that the fact of his oppression must be examined 
and decided by 12 indifferent men.''
    Now, the term ``indifferent'' has achieved a slightly 
different meaning since then and it is men and women now, but 
the point is clear that the jury and the fact that the powerful 
may have to face a jury is an important part of our 
constitutional structure.
    It is a particularly important part where money has such 
sway in the executive branch of government, where money has 
such sway in the legislative branch of government. But try 
bribing a juror. Tampering with a jury is a crime. It is 
protected in the American system of government as our last 
chance for a reason.
    De Tocqueville observed, ``The jury is, before everything, 
a political institution. One ought to consider it as a mode of 
the sovereignty of the people.''
    And in that context, I think there is an additional 
constitutional and structural worry in a country that prides 
itself on its operation of government when it is the jury that 
is being drawn further and further away from the ordinary 
American in favor more of the most powerful individuals in the 
state.
    And I wonder if any of you have thoughts on the role of the 
jury. Do you believe that the jury was part of the plan of the 
founders as they set up our institutions of government, that it 
was not just judicial, executive and legislative branches, but 
actually having a jury in there was part of the plan, as 
Blackstone and De Tocqueville have suggested?
    Professor Cox.
    Mr. Cox. I think there is a lot of history that one of the 
benefits of a jury can be quite the opposite of what many would 
here think, and that is kind of a temporizing effect on 
overreaching by both aggressive plaintiffs, but, also, by the 
government.
    So that there is a rich history of that in the literature 
about the temporizing effect of a jury.
    Another thing is the idea of community standards, which are 
implicit in so much of the law, whether it be civil law or 
criminal law. Reasonable person; what is a reasonable person?
    Again, in my own narrow part of the world, which is 
securities law, we find that the roles of juries historically 
have been taken over by the trial judge. So we do not have the 
jury being involved in a lot of crucial factual determinations; 
not just questions about whether something is material, but 
whether there has been truth on the market, whether there have 
been sufficiently cautionary statements, whether the complaint 
alleged a strong inference. It goes on ad infinitum.
    That these are now no longer viewed--while they are 
questions of fact, they are entirely appropriate for a question 
for the judge, and that gets into something with the opening 
statement by the Chairman and that is the question about are we 
a country ruled by law or are we ruled by individual biases, 
and the jury system is designed to make it more toward the law 
side and less by the individual standard side.
    Senator Whitehouse. Echoing what you have said, if I 
remember my De Tocqueville correctly, the chapter in which the 
quote about the jury being a political institution and a mode 
of the sovereignty of the people occurs is the chapter headed 
something like ``On Tempering the Tyranny of the Majority.'' So 
I think it really is built into that.
    My time is expiring. So I will yield back to Senator 
Franken.
    Senator Franken. Thank you.
    In Mr. Pincus' testimony, he states that ``Businesses that 
engage in wrongdoing will remain fully accountable for their 
actions because government enforcement, not private litigation, 
deters corporate wrongdoing.''
    Professor Cox, I want to ask you about this. As an example, 
he mentions that the Wal-Mart litigants are now filing with the 
EEOC. The last time I checked, the EEOC had a backlog of 86,000 
private sector charges and the EEOC has stated that, quote, 
``The private right of access to the judicial forum to 
adjudicate claims is an essential part of the statutory 
enforcement scheme.''
    And relative to the AT&T case, a GAO report found that the 
FCC does not regulate carriers' contract terms. It has few 
rules that address services consumers receive from wireless 
phone carriers. It conducts little monitoring of consumer 
complaints and does not enforce its billing rules for wireless 
carriers.
    Professor Cox, what is your understanding of the role that 
suits by American citizens play in our civil justice system? 
Are they redundant because there are already government 
enforcement mechanisms?
    Mr. Cox. They are hardly redundant. They are necessary. 
This has been something that has been recognized repeatedly by 
the courts, particularly the Supreme Court. We have found that 
Congress has tightened up the ability of private litigants.
    And so whatever Judge Friendly may have said 5 decades ago 
no longer applies after the PSLRA. The idea of the spurious 
strike suits, I think, died more than a decade ago.
    So we do need private litigation. We do not fund our 
government regulators at the level they need to be, and there 
is a lot of institutional creak. Again, our own studies and the 
studies of others have shown the importance of private 
litigation.
    And you find--if I may just go into this just one moment. 
So we have studied the parallel. What are the heuristics of the 
case that is brought by the SEC? And these are all published 
studies.
    We find that the SEC systematically goes after smaller 
capital firms with smaller losses, experiencing financial 
distress, than we find with private litigants.
    So those studies are published, they are out there. The SEC 
picks on the weaklings, not on the strong. So we need the 
private litigants, particularly in the securities area, and I 
have no reason to believe that it would be any different in 
employment areas, consumer areas, et cetera.
    Private litigation is a hallmark for providing access to 
justice in America and that is a wonderful expression and we 
should all get behind it.
    Senator Franken. Thank you. I do not have much time. So, 
Mr. Pincus, just a quick question.
    I know that you said that AT&T has a very friendly, 
consumer-friendly and fair arbitration system that has been 
said to do that.
    How long would it have taken the Concepcions to go through 
the process and get their 30 bucks back?
    Mr. Pincus. It could take them a matter of months to do 
that.
    Senator Franken. Matter of months.
    Mr. Pincus. Yes. Much quicker than the judicial system.
    Senator Franken. So this would be a couple that would, for 
$30, go through a couple of months.
    Mr. Pincus. All it takes, Senator, is there is a form on 
the Website. You make a complaint. The record--because the 
economic disincentives for AT&T, because it has to pay a very 
large bonus if the case is litigated and loses, $10,000 minimum 
plus double attorney's fees, AT&T----
    Senator Franken. No, they do not--if they say we will give 
you your 30 bucks back, they do not have to pay the $10,000. 
Right?
    Mr. Pincus. No. But if the case--if they refuse to do it 
and the case----
    Senator Franken. I know, but they are not going to refuse--
--
    Mr. Pincus. If they wrongfully refuse----
    Senator Franken [continuing.] To do it and pay $10,000. 
They are going to give the $30 back.
    Mr. Pincus. Exactly. Exactly, Senator, and that is why this 
is a perfect system, as the lower courts found in this very 
case. As the district court in the ninth circuit said----
    Senator Franken. All right. But when you say----
    Mr. Pincus [continuing.] This is a perfect system for 
getting--for compensating----
    Senator Franken. But they would get their 30----
    Mr. Pincus.--anyone who complains.
    Senator Franken. But they would get their 30 bucks back.
    Mr. Pincus. If 10,000 people complain, 10,000 people would 
get their $30 back.
    Senator Franken. So you would get your 30 bucks back, is 
that what you are saying, after, what, a month or two or three?
    Mr. Pincus. I think you would file a form and it could take 
as quickly as a week. It depends on the----
    Senator Franken. You could get your $30 back as quickly as 
a week.
    Mr. Pincus. You would get your $30 back and the record 
shows you would also get reasonable fees. So they would get----
    Senator Franken. The Concepcions would have gotten their 30 
bucks back in a number of weeks.
    Mr. Pincus. Yes.
    Senator Franken. All right. Well, then, why--then I do not 
understand that, because you said in your letter that they were 
within their rights to charge the 30 bucks.
    Mr. Pincus. Well, if the Concepcions----
    Senator Franken. So why would they get their 30 bucks back? 
You just testified to the Senate that they would get their 30 
bucks back. Why would they get their 30 bucks back if you wrote 
the New York Times that AT&T had the right to charge them 30 
bucks?
    Mr. Pincus. Well, there is----
    Senator Franken. I mean, I do not understand that. It seems 
to contradict what you said in your letter. What you testify 
here in the Senate contradicts exactly what you wrote in the 
New York Times.
    Let me see what you wrote. You wrote, ``It's my 
understanding that if this charge was, indeed, a sales tax, 
California law allows merchants to pass the cost of sales tax 
on to consumers only''--all right.
    So what I am saying is that you are contradicting yourself. 
You are saying that they--this was a sales tax. They had the 
right to do this. But you are saying that they would have paid 
the $30 back. Why?
    Mr. Pincus. Well----
    Senator Franken. Listen, I have run out of time. I am 
sorry.
    Mr. Pincus. Can I answer, Senator?
    Senator Whitehouse. Yes.
    Mr. Pincus. I apologize for using the example as the way 
the arbitration system works. AT&T settles a lot of----
    Senator Franken. I asked a direct question and you said 
that they would get their 30 bucks back.
    Mr. Pincus. Yes. And the reason for that is AT&T settles 
most claims that are brought in the arbitration--in the--most 
complaints that consumers bring, AT&T tries to work out a 
settlement, because its goal is to have happy customers.
    Senator Franken. I am sorry, but I have to go vote. I 
apologize.
    Mr. Pincus. May I finish my answer?
    Senator Franken. You can finish your answer to the 
chairman.
    Mr. Pincus. Thank you.
    Senator Whitehouse. Although I have to go vote, as well. So 
I am going to give you about 30 seconds.
    Mr. Pincus. AT&T settles a lot of cases that it believes, 
if it litigated, would not have merit because, A, it wants to 
have good customer relations, and, B, it wants to save its own 
cost of litigating settlements.
    So most cases are settled. I do not know exactly what would 
have happened.
    I misspoke by saying that the Concepcions would definitely 
get their money back. But the way the system works is that it 
gives AT&T a huge incentive to settle claims in order to avoid 
the risk that it will have to pay a lot of money later, and 
that is why the lower courts in this case found, both the 
district court and the court of appeals, that injured parties 
were much more likely to get compensated under AT&T's 
arbitration system than they would in a class action.
    Senator Whitehouse. If you would like to supplement that 
answer, the record of the hearing will stay open so that you 
may add more.
    I am sorry to cut you off, but we really are up against a 
relatively hard deadline here.
    I want to close by saying that I think it is regrettable 
that there appears to be this steady addition of troubles, 
toils and snares by the Supreme Court on Americans' road to a 
jury, which is a, to me, baseline constitutional American 
institution of government.
    It is clearly something that is consistent with the 
interests of big corporations who wield disproportionate 
influence in other branches of government to stay away from 
juries, which is the one institution of government with which 
they may not tamper.
    And so there is clearly a strong institutional incentive 
there, and you have also seen very strong institutional 
behavior from the big multinational corporations and others 
trying to deprecate as much as they can and make Americans 
believe that the jury system is not part of their 
constitutional legacy, but is instead a drag on the economy and 
a nuisance and a place where runaway juries entertain frivolous 
lawsuits.
    Indeed, every American who hears the word ``jury'' and has 
the phrase ``runaway jury'' jump into their mind, every 
American who hears the word ``lawsuit'' and has the phrase 
``frivolous lawsuit'' jump into their mind has been the 
successful subject of a long campaign of indoctrination about 
this and of public communication.
    So it is happening out there and I think when the Supreme 
Court is making decisions that are consistent with that 
longstanding practice and pattern, it is worth our attention 
and I applaud Chairman Leahy for holding this hearing.
    As I said, anybody who wishes to add any further 
information to the hearing has a week before we close it.
    But without anything further, we will be adjourned. Thank 
you all very much. I appreciate it.
    [Whereupon, at 11:44 a.m, the hearing was adjourned.]
    [Questions and answers and submissions for the record 
follows.]

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