[Congressional Record Volume 143, Number 10 (Thursday, January 30, 1997)]
[Senate]
[Pages S897-S898]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                 THE CLASS ACTION FAIRNESS ACT OF 1997

 Mr. KOHL. Mr. President, I introduce the Class Action Fairness 
Act of 1997. This legislation is necessary to address a troubling and 
growing problem in class action litigation--unfair and abusive 
settlements that ignore the best interests of injured plaintiffs while 
unscrupulous defendants and attorneys reap the rewards.
  Let me give you an example of this situation. It involves a class 
action settlement that affected a constituent of mine, Martha Preston 
of Baraboo, WI. Ms. Preston was a member of a class action lawsuit 
filed in Alabama State Court against BancBoston Mortgage Corp. The suit 
alleged that the bank was holding an excess balance of Ms. Preston's 
money in her mortgage escrow account. As with many class members in 
this case--and in most class action lawsuits--Ms. Preston did not 
actually initiate the suit or even have knowledge that her mortgage 
company was being sued on her behalf. But a group of lawyers who 
claimed to represent her and all other people in a similar situation 
filed the suit on behalf of the class and negotiated a settlement of 
the suit, as they are allowed to under the law.
  The settlement they negotiated provided that the bank would refund 
the excess money that it was holding and provide a small amount of 
compensation to the plaintiffs for lost interest. Pursuant to the 
settlement, Ms. Preston received a check for $4.38 to compensate her 
for the interest she would have earned had the excess money been 
invested. A few months later, a miscellaneous disbursement of $80.94 
showed up on her escrow account. That $80 went to pay the class action 
attorneys their fee for getting her $4.38. So Ms. Preston ended up 
losing $75 as the result of a lawsuit filed without her knowledge and 
that purported to be to her advantage.
  Unfortunately, Ms. Preston's losses did not end there. She was 
understandably upset at what happened to her. So she found an attorney 
who was willing to represent her pro bono. She sued the attorneys who 
had negotiated the agreement that cost her $75. No sooner had she sued 
them for what they had done, than these attorneys turned around and 
sued her and her pro bono attorneys in Alabama--a State she has never 
visited--for abuse of process and malicious prosecution and asked for 
$25 million in damages against her. Both of these lawsuits are ongoing; 
indeed the suit that Ms. Preston filed is now the subject of a petition 
for a writ of certiorari to the Supreme Court. Not only did Ms. Preston 
lose $75, but now as a result of trying to defend herself from being 
fleeced she is defending a $25 million lawsuit against her.
  The Preston case is especially egregious. Unfortunately it is not 
uncommon. The system of class action law suits has created a climate 
where this kind of abuse is possible.
  A class action is a lawsuit in which an attorney not only represents 
an individual plaintiff but, in addition, seeks relief for all those 
individuals who have suffered an injury similar to the plaintiff. For 
example, a suit brought against a pharmaceutical company by a person 
suffering from the side effects of a drug can, if the court approves it 
as a class action, be expanded to cover all individuals who used the 
drug.
  Often, these suits are settled. The settlement agreements provide 
money and/or other forms of compensation. The attorneys who brought the 
class action suit also get paid for their work. All class members are 
usually notified of the terms of the settlement and frequently--but not 
always--given the chance to withdraw from the agreement if they do not 
want to be part of it. A court must ultimately approve a settlement 
agreement.
  Many of these suits are brought and settled fairly and in good faith. 
Unfortunately, we also know that there are a few unscrupulous lawyers 
who file class actions in search of big attorney fees rather than to 
get compensation for victims. And the class action system does not 
adequately protect class members from such predatory acts. The primary 
problem is that the client in a class action is a diffuse group of 
thousands of individuals scattered across the country. The group is so 
diffuse that it is incapable of exercising meaningful control over the 
litigation. As a result, while in theory the class action lawyers must 
be responsive to their clients, in practice, the lawyers control all 
aspects of the litigation.
  Moreover, when a class action is settled, the amount of the attorneys 
fee is negotiated between the plaintiffs' lawyers and the defendants. 
But in most cases the fee is paid by the class members--the only party 
that does not have a seat at the bargaining table.
  In addition, class actions are now being used by defendants as a tool 
to limit their future liabilities. Class actions are being settled that 
cover all individuals exposed to a particular substance but whose 
injuries have not yet manifest themselves. As Prof. John Coffee of 
Columbia Law School has written, ``the class action is providing a 
means by which unsuspecting future claimants suffer the extinguishment 
of their claims even before they learn of their injury.''
  In light of the incentives that are driving the parties, it is easy 
to see how the class members can be left out in the cold. Plaintiffs 
attorneys and corporate defendants can reach agreements that satisfy 
their respective interests--and even the interests of the name class 
plaintiffs--but that short sell the interests any class members who are 
not vigilantly monitoring the litigation.
  Although members of class actions get notices of settlements, the 
settlements are often written in incomprehensible legalese. Let me give 
you an example of a recent notice:

       ``The Rebate payable to the eligible member [sic] of the 
     Open Class and the Closed Class shall be an amount equal to 
     (i) the Average Surplus, as determined by the above 
     subparagraph, multiplied by (ii) 50% multiplied by (iii) 3% 
     multiplied by (a) 1 if the loan was serviced for at least 1 
     year but less than . . . .''

  Even well trained attorneys are hard pressed to understand these 
notices. But these long, finely printed and intricate letters are being 
sent to class members. And on the basis of these notices, people's 
legal rights are being eliminated and in cases like Ms. Preston's they 
are being injured.
  We all know that class action suits can result in significant and 
important benefits for class members and for our society. Class actions 
have been used to desegregate racially divided schools, to obtain 
redress for victims of employment discrimination, and to compensate 
individuals exposed to toxic chemicals or defective products. Class 
actions increase access to our civil justice system because they enable 
people to pursue claims that collectively that would otherwise be too 
expensive to litigate.
  The difficulty in any effort to improve a basically good system is in 
weeding out the abuses without causing undue damage. The legislation I 
propose attempts to do this. It does not limit anyone's ability to file 
a class action or to settle a class action. It seeks to address the 
problem in two ways. First, it requires that State attorneys general be 
notified about potential class action settlements that would affect 
residents of their states. With this systematic notification in place, 
the attorneys general can intervene in cases where they think the 
settlements are unfair. Second, the legislation requires that class 
members be notified of a potential settlement in clear, easily 
understood English--not legal jargon.
  Let me emphasize the limited scope of this measure: we do not require 
that State attorney generals do anything with the notice that they 
receive. No obligations are imposed upon them at

[[Page S898]]

all, although we are hopeful that they will act when appropriate. 
Moreover, we do not give the attorneys general any new or special 
rights to intervene in the settlements. They must work within current 
law.
  The simple goal of this legislation is to provide better information 
and better consumer protection through greater knowledge. We do not 
want to close the courthouse door to meritorious cases, but merely 
assure that people are provided with meaningful information so that 
they can defend themselves.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 254

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

     SECTION 1. SHORT TITLE.

       This section may be cited as the ``Class Action Fairness 
     Act of 1997''.

     SEC. 2. NOTIFICATION REQUIREMENT OF CLASS ACTION 
                   CERTIFICATION OR SETTLEMENT.

       (a) In general.--Part V of title 28, United States Code, is 
     amended by inserting after chapter 113 the following new 
     chapter:

                      ``CHAPTER 114--CLASS ACTIONS

``Sec.
``1711. Notification of class action certifications and settlements.

     Sec. 1711. Notification of class action certifications and 
       settlements

       ``(a) For purposes of this section, the term--
       ``(1) `class' means a group of similarly situated 
     individuals, defined by a class certification order, that 
     comprise a party in a class action lawsuit;
       ``(2) `class action' means a lawsuit filed pursuant to rule 
     23 of the Federal Rules of Civil Procedure or similar State 
     rules of procedure authorizing a lawsuit to be brought by 1 
     or more representative individuals on behalf of a class;
       ``(3) `class certification order' means an order issued by 
     a court approving the treatment of a lawsuit as a class 
     action;
       ``(4) `class member' means a person that falls within the 
     definition of the class;
       ``(5) `class counsel' means the attorneys representing the 
     class in a class action:
       ``(6) `electronic legal databases' means computer services 
     available to subscribers containing text of judicial opinions 
     and other legal materials, such as LEXIS or WESTLAW;
       ``(7) `official court reporter' means a publicly available 
     compilation of published judicial opinions;
       ``(8) `plaintiff class action' means a class action in 
     which the plaintiff is a class; and
       ``(9) `proposed settlement' means a settlement agreement 
     between the parties in a class action that is subject to 
     court approval before it becomes binding on the parties.
       ``(b) This section shall apply to)
       ``(1) all plaintiff class actions filed in Federal court; 
     and
       ``(2) all plaintiff class actions filed in State court in 
     which--
       ``(A) any class member resides outside the State in which 
     the action is filed; and
       ``(B) the transaction or occurrence that gave rise to the 
     lawsuit occurred in more than one State.
       ``(c) No later than 10 days after a proposed settlement in 
     a class action is filed in court, class counsel shall serve 
     the State attorney general of each State in which a class 
     member resides and the Department of Justice as if they were 
     parties in the class action with--
       ``(1) a copy of the complaint and any materials filed with 
     the complaint and any amended complaints;
       ``(2) notice of any future scheduled judicial hearing in 
     the class action;
       ``(3) any proposed or final notification to class members 
     of--
       ``(A) their rights to request exclusion from the class 
     action; and
       ``(B) a proposed settlement of a class action;
       ``(4) any proposed or final class action settlement;
       ``(5) any settlement or other agreement contemporaneously 
     made between class counsel and counsel for the defendants;
       ``(6) any final judgment or notice of dismissal;
       ``(7)(A) if feasible the names of class members who reside 
     in each State attorney general's respective State and their 
     estimated proportionate claim to the entire settlement; or
       (B) if not feasible, a reasonable estimate of the number of 
     class members residing in each attorney general's State and 
     their estimated proportionate claim to the entire settlement; 
     and
       ``(8) any written judicial relating to the materials 
     described under paragraphs (3) through (6).
       ``(d) A hearing to consider final approval of a proposed 
     settlement may not be held earlier than 120 days after the 
     date on which the State attorneys general and the Department 
     of Justice are served notice under subsection (c).
       ``(f) Any court with jurisdiction over a plaintiff class 
     action shall require that--
       ``(1) any written notice provided to the class through the 
     mail or publication in printed media contain a short summary 
     written in plain, easily understood language, describing--
       ``(A) the subject matter of the class action;
       ``(B) the legal consequences of joining the class action.
       ``(C) if the notice is informing class members of a 
     proposed settlement agreement--
       ``(i) the benefits that will accrue to the class due to the 
     settlement;
       ``(ii) the rights that class members will lose or waive 
     through the settlement;
       ``(iii) obligations that will be imposed on the defendants 
     by the settlement;
       ``(iv) a good faith estimate of the dollar amount of any 
     attorney's fee if possible; and
       ``(v) an explanation of how any attorney's fee will be 
     calculated and funded; and
       ``(D) any other material matter; and
       ``(2) any notice provided through television or radio to 
     inform the class of its rights to be excluded from a class 
     action or a proposed settlement shall, in plain, easily 
     understood language--
       ``(A) describe the individuals that may potentially become 
     class members in the class action; and
       ``(B) explain that the failure of individuals falling 
     within the definition of the class to exercise their right to 
     be excluded from a class action will result in the 
     individual's inclusion in the class action.
       ``(g) Compliance with this section shall not immunize any 
     party from any legal action under Federal or State law, 
     including actions for malpractice or fraud.
       ``(h)(1) A class member may refuse to comply with and may 
     choose not to be bound by a settlement agreement or consent 
     decree in a class action lawsuit if the class member resides 
     in a State where the State attorney general has not been 
     provided notice and materials under subsection (c). The 
     rights created by this subsection shall apply only to class 
     members or any person acting on their behalf, and shall not 
     be construed to limit any other rights affecting a class 
     member's participation in the settlement.
       ``(2) Nothing in this chapter shall be construed to impose 
     any obligations, duties, or responsibilities upon State 
     attorneys general'' or the attorney general of the United 
     States.
       (b) Technical and Conforming Amendment.--The table of 
     chapters for part V of title 28, United States Code, is 
     amended by inserting after the item relating to chapter 113 
     the following:

``114. Class Actions                                            1711''.

     SEC. 3.

       APPLICABILITY.
       This section and the amendments made by this section shall 
     apply to all class action lawsuits filed after or pending one 
     year after the date of enactment of this Act.

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