[Congressional Record Volume 145, Number 19 (Wednesday, February 3, 1999)]
[Senate]
[Pages S1166-S1170]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

       By Mr. GRASSLEY (for himself, Mr. Kohl, and Mr. Thurmond):

  S. 353. A bill to provide for class action reform, and for other 
purposes; to the Committee on the Judiciary.


                 The Class Action Fairness Act of 1999

  Mr. GRASSLEY. Mr. President, I rise today to introduce, along with 
Senators Kohl and Thurmond, the Class Action Fairness Act of 1999, a 
bill that will help curb class action lawsuit abuse. Last year, Senator 
Kohl and I introduced the Class Action Fairness Act of 1998, S. 2083. 
That bill was marked up in the Administrative Oversight and the Courts 
Subcommittee on September 10, 1998, and we favorably voted out of 
subcommittee a substitute amendment to the bill. Unfortunately, this 
legislation was not considered further by the Senate because of the 
press of other legislative business scheduled before the full Judiciary 
Committee.
  We are now reintroducing the substitute amendment to last year's 
class action bill, with minor modifications, as the Class Action 
Fairness Act of 1999. This modest bill will go a long way toward ending 
class action lawsuit abuses where the plaintiffs receive very little 
and their lawyers receive a whole lot. This bill will preserve class 
action lawsuits as an important tool that brings representation to the 
unrepresented and result in important discrimination and consumer 
decisions.
  In October 1997, my Judiciary Subcommittee held a hearing on the 
problem of certain class action lawsuit settlements. I found one 
example of class action lawsuit abuse to be particularly disturbing. In 
an antitrust case settled in the Northern District of Illinois in 1993, 
the plaintiff class alleged that multiple domestic airlines 
participated in price-fixing, which resulted in plaintiffs paying more 
for airline tickets than they otherwise would have had to pay.
  In the settlement, all of the class plaintiffs were awarded a book of 
coupons which could be used toward the purchase of future airline 
tickets. These coupons varied in amount and number, based on how many 
plane tickets a particular plaintiff had purchased. The catch was that 
the plaintiff still had to pay for most of any new airline ticket out 
of his or her own pocket. This meant that only $10 worth of coupons 
could be used toward the purchase of a $100 ticket; up to $25 worth of 
coupons for a $250 ticket; up to $50 worth of coupons for a $500 
ticket, and so on. In addition, these coupons could not be used on 
certain blackout dates, which appeared to include all holidays and peak 
travel times.
  Interestingly enough, the attorneys did not get paid with these 
coupon books. Rather, the attorneys were paid cash--$16 million in 
cash. Now, if the coupons were good enough for their clients--the 
people that actually got ripped off--I wonder why those same coupons 
were not good enough for their lawyers.
  Another example of an egregious class action lawsuit settlement was 
highlighted at the subcommittee hearing. Mrs. Martha Preston was a 
member of the plaintiff class in the case Hoffman versus Banc Boston, 
where some plaintiffs received under $10 each in compensation for their 
injuries, yet were docked from $75 to $90 for attorneys' fees. This 
means that attorneys who were supposed to be representing these 
people's best interests, agreed to a settlement that cost some of the 
plaintiffs more money than they received in compensation for being 
wronged.

  These class action lawsuit abuses happen for a number of reasons. One 
reasons is that plaintiffs' lawyers negotiate their own fees as part of 
the settlement. This can result in distracting lawyers from focusing on 
their client's needs, and settling or refusing to settle based on the 
amount of their own compensation.
  During our hearing, evidence was presented that at least one group of 
plaintiffs' lawyers meets on a regular basis to discuss initiating 
class action lawsuits. They scan the Federal Register and other 
publications to get ideas for lawsuits, and only after they have 
identified a wrong, do they find clients for their lawsuits. Instead of 
having clients who complain of harms going to hire attorneys, these 
attorneys find the harms first and then recruit potential clients with 
the promise of compensation.
  On the other hand, the defendants do not always have clean hands. 
Plaintiffs' lawyers say that they are approached by lawyers from large 
corporations who urge them to find a class and sue the corporation. The 
corporations may use the class action lawsuit as a tool to limit their 
liability. Once a lawsuit is initiated and settled, no member of the 
class may sue based on that claim. In other words, if a corporation 
settle a class action lawsuit by paying all class members $10 as 
compensation for a faulty product, the plaintiffs can no longer sue for 
any harm caused by the faulty product. This is one way of buying 
immunity for liability.
  A Rand study on class action litigation stated that,

       It is generally agreed that fees drive plaintiffs' 
     attorney's filing behavior, that defendants' risk aversion in 
     the face of large aggregate exposures drives their settlement 
     behavior. . . . In other words, the problems with class 
     actions flow from incentives that are embedded in the process 
     itself.

  The Rand study also found that the number of class actions is rising 
significantly, with most of the increase concentrated in State courts. 
State courts often are used in nationwide class actions to the 
detriment of class members and sometimes defendants. In fact, State 
courts are more likely to certify class actions without adequately 
considering whether a class action would be fair to all class members. 
In addition, class lawyers sometimes manipulate pleadings to avoid 
removal of the lawsuit to the Federal courts, even to the extent that 
they minimize their client's potential claims. Class lawyers also 
sometimes defeat the complete diversity requirement by ensuring that at 
least one named class member is from the same State as a defendant, 
even if every other class member is from a different State.

  The Class Action Fairness Act of 1999 does a number of things. First, 
it requires that notice of proposed settlements in all class actions, 
as well as all class notices, must be in clear, easily understood 
English and must include all material settlement terms, including the 
amount and source of attorneys' fees. The notices most plaintiffs 
receive are written in small print and confusing legal jargon. In fact, 
a lawyer testified before my subcommittee that even he could not 
understand the notice he received as a plaintiff in a class action 
lawsuit. Since plaintiffs are giving up their right to sue, it is 
imperative that they understand what they are doing and the 
ramifications of their actions.
  Second, our bill requires that State attorneys general be notified of 
any

[[Page S1167]]

proposed class settlement that would affect residents of their States. 
The notice would give a State attorney general the opportunity to 
object if the settlement terms are unfair.
  Third, our bill requires that attorneys' fees in class actions are to 
be based on a reasonable percentage of damages actually paid to class 
members, the actual costs of complying with the terms of a settlement 
agreement, as well as any future financial benefits. In the 
alternative, the bill provides that, to the extent the law permits, 
fees may be based on a reasonable hourly (lodestar) rate. This 
provision would discourage settlements that give attorneys exorbitant 
fees based on hypothetical overvaluation of coupon settlements, yet 
allows for reasonable fees in all kinds of cases, including cases that 
primarily involve injunctive relief.
  Fourth, our bill allows more class action lawsuits to be removed from 
State court to Federal court, either by a defendant or an unnamed class 
member. A class action would qualify for Federal jurisdiction if the 
total damages exceed $75,000 and parties include citizens from multiple 
States. Currently, class lawyers can avoid removal if individual claims 
are for just less than $75,000--even if hundreds of millions of dollars 
in total are at stake--or if just one class member is from the same 
State as a defendant. However, the bill provides that cases remain in 
State court where the substantial majority of class and primary 
defendants are from the same State and that State's law would govern, 
or the primary defendants are States and a Federal court would be 
unable to order the relief requested.
  Fifth, our bill will reduce frivolous lawsuits by requiring that a 
violation of rule 11 of the Federal rules of civil procedure, which 
penalizes frivolous lawsuits, will require the imposition of sanctions. 
However, the nature and extent of sanctions will remain discretionary.
  We need class action reform badly. Both plaintiffs and defendants are 
calling for change in this area. The Class Action Fairness Act of 1999 
is not just procedural reform, it is substantive reform of our court 
system. This bill will remove the conflict of interest that lawyers 
face in class action lawsuits, and will ensure the fair settlement of 
these cases. This bill will preserve the process, but put a stop to the 
more egregious abuses. I urge all my colleagues to join Senators Kohl, 
Thurmond, and me and support this important piece of legislation.
  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. 353

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Class Action Fairness Act of 
     1999''.

     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. Definitions.
``1712. Application.
``1713. Notification of class action certifications and settlements.
``1714. Limitation on attorney's fees in class actions.

     ``Sec. 1711. Definitions

       ``In this chapter the term--
       ``(1) `class' means a group of persons that comprise 
     parties to a civil action brought by 1 or more representative 
     persons;
       ``(2) `class action' means a civil action filed pursuant to 
     rule 23 of the Federal Rules of Civil Procedure or similar 
     State rules of procedure authorizing an action to be brought 
     by 1 or more representative persons on behalf of a class;
       ``(3) `class certification order' means an order issued by 
     a court approving the treatment of a civil action 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) `plaintiff class action' means a class action in 
     which class members are plaintiffs; and
       ``(7) `proposed settlement' means a settlement agreement 
     between or among the parties in a class action that is 
     subject to court approval before the settlement becomes 
     binding on the parties.

     ``Sec. 1712. Application

       ``This chapter 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 
     class action occurred in more than 1 State.

     ``Sec. 1713. Notification of class action certifications and 
       settlements

       ``(a) Not 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 Attorney General of the United States 
     as if such attorneys general and the Department of Justice 
     were parties in the class action with--
       ``(1) a copy of the complaint and any materials filed with 
     the complaint and any amended complaints (except such 
     materials shall not be required to be served if such 
     materials are made electronically available through the 
     Internet and such service includes notice of how to 
     electronically access such material);
       ``(2) notice of any scheduled judicial hearing in the class 
     action;
       ``(3) any proposed or final notification to class members 
     of--
       ``(A)(i) the members' rights to request exclusion from the 
     class action; or
       ``(ii) if no right to request exclusion exists, a statement 
     that no such right exists; 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 the 
     estimated proportionate claim of such members to the entire 
     settlement; or
       ``(B) if the provision of information under subparagraph 
     (A) is not feasible, a reasonable estimate of the number of 
     class members residing in each attorney general's State and 
     the estimated proportionate claim of such members to the 
     entire settlement; and
       ``(8) any written judicial opinion relating to the 
     materials described under paragraphs (3) through (6).
       ``(b) 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 Attorney 
     General of the United States are served notice under 
     subsection (a).
       ``(c) 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 being a member of the class 
     action;
       ``(C) the ability of a class member to seek removal of the 
     class action to Federal court if--
       ``(i) the action is filed in a State court; and
       ``(ii) Federal jurisdiction would apply to such action 
     under section 1332(d);
       ``(D) if the notice is informing class members of a 
     proposed settlement agreement--
       ``(i) the benefits that will accrue to the class due to the 
     settlement;
       ``(ii) the rights that class members will lose or waive 
     through the settlement;
       ``(iii) obligations that will be imposed on the defendants 
     by the settlement;
       ``(iv) the dollar amount of any attorney's fee class 
     counsel will be seeking, or if not possible, a good faith 
     estimate of the dollar amount of any attorney's fee class 
     counsel will be seeking; and
       ``(v) an explanation of how any attorney's fee will be 
     calculated and funded; and
       ``(E) any other material matter; and
       ``(2) any notice provided through television or radio to 
     inform the class members of the right of each member to be 
     excluded from a class action or a proposed settlement, if 
     such right exists, shall, in plain, easily understood 
     language--
       ``(A) describe the persons who may potentially become class 
     members in the class action; and
       ``(B) explain that the failure of a person falling within 
     the definition of the class to exercise such person's right 
     to be excluded from a class action will result in the 
     person's inclusion in the class action.
       ``(d) Compliance with this section shall not provide 
     immunity to any party from any legal action under Federal or 
     State law, including actions for malpractice or fraud.
       ``(e)(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 if the class member resides in a 
     State where the State attorney general has not been provided 
     notice and materials under subsection (a).
       ``(2) The rights created by this subsection shall apply 
     only to class members or any person acting on a class 
     member's behalf, and shall not be construed to limit any 
     other rights affecting a class member's participation in the 
     settlement.
       ``(f) Nothing in this section shall be construed to impose 
     any obligations, duties, or

[[Page S1168]]

     responsibilities upon State attorneys general or the Attorney 
     General of the United States.

     ``Sec. 1714. Limitation on attorney's fees in class actions

       ``(a) In any class action, the total attorney's fees and 
     expenses awarded by the court to counsel for the plaintiff 
     class may not exceed a reasonable percentage of the amount 
     of--
       ``(1) any damages and prejudgment interest actually paid to 
     the class;
       ``(2) any future financial benefits to the class based on 
     the cessation of alleged improper conduct by the defendants; 
     and
       ``(3) costs actually incurred by all defendants in 
     complying with the terms of an injunctive order or settlement 
     agreement.
       ``(b) Notwithstanding subsection (a), to the extent that 
     the law permits, the court may award attorney's fees and 
     expenses to counsel for the plaintiff class based on a 
     reasonable lodestar calculation.''.
       (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. DIVERSITY JURISDICTION FOR CLASS ACTIONS.

       Section 1332 of title 28, United States Code, is amended--
       (1) by redesignating subsection (d) as subsection (e); and
       (2) by inserting after subsection (c) the following:
       ``(d)(1) In this subsection, the terms `class', `class 
     action', and `class certification order' have the meanings 
     given such terms under section 1711.
       ``(2) The district courts shall have original jurisdiction 
     of any civil action where the matter in controversy exceeds 
     the sum or value of $75,000, exclusive of interest and costs, 
     and is a class action in which--
       ``(A) any member of a class of plaintiffs is a citizen of a 
     State different from any defendant;
       ``(B) any member of a class of plaintiffs is a foreign 
     state or a citizen or subject of a foreign state and any 
     defendant is a citizen of a State; or
       ``(C) any member of a class of plaintiffs is a citizen of a 
     State and any defendant is a foreign state or a citizen or 
     subject of a foreign state.
       ``(3) The district court shall abstain from hearing a civil 
     action described under paragraph (2) if--
       ``(A)(i) the substantial majority of the members of the 
     proposed plaintiff class are citizens of a single State of 
     which the primary defendants are also citizens; and
       ``(ii) the claims asserted will be governed primarily by 
     the laws of that State; or
       ``(B) the primary defendants are States, State officials, 
     or other governmental entities against whom the district 
     court may be foreclosed from ordering relief.
       ``(4) In any class action, the claims of the individual 
     members of any class shall be aggregated to determine whether 
     the matter in controversy exceeds the sum or value of 
     $75,000, exclusive of interest and costs.
       ``(5) This subsection shall apply to any class action 
     before or after the entry of a class certification order by 
     the court.
       ``(6)(A) A district court shall dismiss, or, if after 
     removal, strike the class allegations and remand, any civil 
     action if--
       ``(i) the action is subject to the jurisdiction of the 
     court solely under this subsection; and
       ``(ii) the court determines the action may not proceed as a 
     class action based on a failure to satisfy the conditions of 
     rule 23 of the Federal Rules of Civil Procedure.
       ``(B) Nothing in subparagraph (A) shall prohibit plaintiffs 
     from filing an amended class action in Federal or State 
     court.
       ``(C) Upon dismissal or remand, the period of limitations 
     for any claim that was asserted in an action on behalf of any 
     named or unnamed member of any proposed class shall be deemed 
     tolled to the full extent provided under Federal law.
       ``(7) Paragraph (2) shall not apply to any class action, 
     regardless of which forum any such action may be filed in, 
     involving any claim relating to--
       ``(A) the internal affairs or governance of a corporation 
     or other form of entity or business association arising under 
     or by virtue of the statutory, common, or other laws of the 
     State in which such corporation, entity, or business 
     association is incorporated (in the case of a corporation) or 
     organized (in the case of any other entity); or
       ``(B) the rights, duties (including fiduciary duties), and 
     obligations relating to or created by or pursuant to any 
     security (as defined under section 2(a)(1) of the Securities 
     Act of 1933 or the rules and regulations adopted under such 
     Act).''.

     SEC. 4. REMOVAL OF CLASS ACTIONS TO FEDERAL COURT.

       (a) In General.--Chapter 89 of title 28, United States 
     Code, is amended by adding after section 1452 the following:

     ``Sec. 1453. Removal of class actions

       ``(a) In this section, the terms `class', `class action', 
     and `class member' have the meanings given such terms under 
     section 1711.
       ``(b) A class action may be removed to a district court of 
     the United States in accordance with this chapter, except 
     that such action may be removed--
       ``(1) by any defendant without the consent of all 
     defendants; or
       ``(2) by any plaintiff class member who is not a named or 
     representative class member without the consent of all 
     members of such class.
       ``(c) This section shall apply to any class action before 
     or after the entry of any order certifying a class.
       ``(d) The provisions of section 1446 relating to a 
     defendant removing a case shall apply to a plaintiff removing 
     a case under this section, except that in the application of 
     subsection (b) of such section the requirement relating to 
     the 30-day filing period shall be met if a plaintiff class 
     member files notice of removal within 30 days after receipt 
     by such class member, through service or otherwise, of the 
     initial written notice of the class action.
       ``(e) This section shall not apply to any class action, 
     regardless of which forum any such action may be filed in, 
     involving any claim relating to--
       ``(1) the internal affairs or governance of a corporation 
     or other form of entity or business association arising under 
     or by virtue of the statutory, common, or other laws of the 
     State in which such corporation, entity, or business 
     association is incorporated (in the case of a corporation) or 
     organized (in the case of any other entity); or
       ``(2) the rights, duties (including fiduciary duties), and 
     obligations relating to or created by or pursuant to any 
     security (as defined under section 2(a)(1) of the Securities 
     Act of 1933 or the rules and regulations adopted under such 
     Act).''.
       (b) Removal Limitation.--Section 1446(b) of title 28, 
     United States Code, is amended in the second sentence by 
     inserting ``(a)'' after ``section 1332''.
       (c) Technical and Conforming Amendments.--The table of 
     sections for chapter 89 of title 28, United States Code, is 
     amended by adding after the item relating to section 1452 the 
     following:

``1453. Removal of class actions.''.

     SEC. 5. REPRESENTATIONS AND SANCTIONS UNDER RULE 11 OF THE 
                   FEDERAL RULES OF CIVIL PROCEDURE.

       Rule 11(c) of the Federal Rules of Civil Procedure is 
     amended--
       (1) in the first sentence by striking ``may, subject to the 
     conditions stated below,'' and inserting ``shall'';
       (2) in paragraph (2) by striking the first and second 
     sentences and inserting ``A sanction imposed for violation of 
     this rule may consist of reasonable attorneys' fees and other 
     expenses incurred as a result of the violation, directives of 
     a nonmonetary nature, or an order to pay penalty into court 
     or to a party.''; and
       (3) in paragraph (2)(A) by inserting before the period ``, 
     although such sanctions may be awarded against a party's 
     attorneys''.

     SEC. 6. EFFECTIVE DATE.

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

  Mr. KOHL. Mr. President, Senator Grassley and I today introduce the 
Class Action Fairness Act of 1999. This legislation addresses growing 
problems in class action litigation, particularly unfair and abusive 
settlements that shortchange class members while class lawyers line 
their pockets with high fees.
  Let me share with you just a few disturbing examples.
  First, one of my constituents, Martha Preston of Baraboo, Wisconsin, 
was an unnamed member of a class action lawsuit against her mortgage 
company that ended in a settlement. While at first she got $4 and 
change in compensation, a few months later her lawyers surreptitiously 
took $80--twenty times her compensation--from her escrow account to pay 
their fees. In total, her lawyers managed to pocket over $8 million in 
fees, but never explained that the class--not the defendant--would pay 
the attorneys' fees. Naturally outraged, she and others sued the class 
lawyers. Her lawyers turned around and sued her in Alabama--a state she 
had never visited--and demanded an unbelievable $25 million. So not 
only did she lose $75, she was forced to defend herself from a $25 
million lawsuit.
  Second, class lawyers and defendants often engineer settlements that 
leave plaintiffs with small discounts or coupons unlikely ever to be 
used. Meanwhile, class lawyers reap big fees based on unduly optimistic 
valuations. For example, in a settlement of a class action against 
major airlines, most plaintiffs received less than $80 in coupons while 
class attorneys received $14 million in fees based on a projection that 
the discounts were worth hundreds of millions. In a suit over faulty 
computer monitors, class members got $13 coupons, while class lawyers 
pocketed $6 million. And in a class action against Nintendo, plaintiffs 
received $5 coupons, while attorneys took almost $2 million in fees.
  Third, competing federal and state class actions engage in a race to 
settlement, where the best interests of the class lose out. For 
example, in one state class action the class lawyers negotiated a small 
settlement precluding

[[Page S1169]]

all other suits, and even agreed to settle federal claims that were not 
at issue in state court. Meanwhile, a federal court found that the 
federal claims could have been worth more than $1 billion, while 
accusing the state class lawyers of ``hostile representation'' that 
``surpassed inadequacy and sank to the level of subversion'' and 
pursuit of self-interest in ``getting a fee'' that was ``more in line 
with the interests of [defendants] than those of their clients.''
  Fourth, class actions are often filed in state courts that are more 
likely to give inadequate consideration to class certification and 
class settlements. On several occasions, a state court has certified a 
class action although federal courts rejected certification of the same 
case. And in several Alabama state courts, 38 out of 43 classes 
certified in a three-year period were certified on an ex parte basis, 
without notice and hearing. One Alabama judge acting ex parte certified 
11 class actions in 1997 alone. Comparably, only an estimated 38 class 
actions were certified in federal court that year (excluding suits 
against the U.S. and suits brought under federal law). This lack of 
close scrutiny appears to create a big incentive to file in state 
court, especially given the recent findings of a Rand study that class 
actions are increasingly concentrated in state courts.
  Fifth, in nationwide class actions filed in state court, class 
lawyers often manipulate the pleadings to avoid removal to federal 
court, even by minimizing the potential claims of class members. For 
example, state class actions often seek just over $74,000 in damages 
per plaintiff, and forsake punitive damage claims, to avoid the $75,000 
floor that qualifies for federal diversity jurisdiction. Or they defeat 
the federal requirement of complete diversity by naming one class 
member who is from the same state as a defendant, even if all other 
class members are from different states.
  Finally, out-of-state defendants are often hauled into state court to 
address nationwide class claims, although federal courts are a more 
appropriate and more efficient forum. For example, an Alabama court is 
now considering a class action--and could establish a national policy--
in a suit brought against the big three automakers on behalf of every 
American who bought a dual-equipped air bags over an eight-year period. 
The defendants failed in their attempt to remove to federal court based 
on an application of current diversity laws. And, unlike federal 
courts, states are unable to consolidate multiple class actions that 
involve the same underlying facts.
  These examples show that abuse of the class action system is not only 
possible, but real. And the incentives and realities of the current 
system are a big part of the problem.
  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 suffered a similar injury. Prospective class members 
are usually sent notice about the class action, and are presumed to 
join it, unless they specifically ask to be left out. When these suits 
are settled, all class members are notified of the terms of the 
settlement and given the chance to object if they don't think the 
settlement is fair. A court must ultimately approve a settlement 
agreement.
  The vast majority of these suits are brought and settled fairly and 
in good faith. Unfortunately, the class action system does not 
adequately protect class members from the few unscrupulous lawyers who 
are more interested in big attorneys' fees than compensation for their 
clients, the victims. The primary problem is that the client in a class 
action is a diffuse group of thousands of individuals scattered across 
the country, which is incapable of exercising meaningful control over 
the litigation. As a result, while in theory the class lawyers must be 
responsive to their clients, the lawyers control all aspects of the 
litigation.
  Moreover, during a class action settlement, the amount of the 
attorney fee is negotiated between plaintiffs' lawyers and the 
defendants, just like other terms of the settlement. But in most cases 
the fees come at the expense of class members--the only party that does 
not have a seat at the bargaining table.
  In addition, defendants may use class action settlements to advance 
their own interests. Paying a small settlement generally precludes all 
future claims by class members. So defendants have ample motivation to 
give class lawyers the fees they want as the price for settling all 
future liabilities.
  As a result, it is easy to see how class members are left out in the 
cold. Although the judge is supposed to determine whether the 
settlement is fair before approving it, class lawyers and defendants 
``may even put one over on the court, a staged performance. The lawyers 
support the settlement to get fees; the defendants support it to evade 
liability; the court can't vindicate the class's rights because the 
friendly presentation means that it lacks essential information,'' 
Kamilewicz v. Bank of Boston Corp., 100 F.3d 1348, 1352 (Easterbrook, 
J., dissenting) (7th Cir. 1996).
  Although class members get settlement notices and have the 
opportunity to object, they rarely do so, especially if they have 
little at stake. Not only is it expensive to get representation, but 
also it can be extremely difficult to actually understand what the 
settlement really does. Settlements are often written in long, finely 
printed letters with incomprehensible legalese, which even well-trained 
attorneys are hard pressed to understand. And settlements often omit 
basic information like how much money will go toward attorneys' fees 
and where that money will come from. In Martha Preston's case, one 
prominent federal judge found that ``the notice not only didn't alert 
the absent class members to the pending loss but also pulled the wool 
over the state judge's eyes,'' id.

  We all know that class actions can result in significant and 
important benefits for class members and society, and that most class 
lawyers and most state courts are acting responsibly. 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 pursuant claims collectively that would otherwise be too 
expensive to litigate.
  The difficulty in any effort to improve a basically good system is 
weeding out the abuses without causing undue damage. The legislation we 
propose attempts to do this. It does not limit anyone's ability to file 
or settle a class action. It seeks to address the problem in several 
ways. First, it requires that State attorneys general be notified about 
proposed class action settlements that would affect residents of their 
states. With notice, 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.
  Third, it limits class attorneys' fees to a reasonable percentage of 
the actual damages received by plaintiffs or to reasonable hourly fees. 
This will deter class lawyers from using inflated values of coupon 
settlements to reap big fees. Some courts have already embraced this 
standard, which parallels the recent securities reform law.
  Fourth, it permits removal to federal court of certain class actions 
involving citizens of multiple states, at the request of unnamed class 
members or defendants. This provision eliminates gaming by class 
lawyers to keep cases in state court and, through consolidation of 
related cases in federal court, helps prevent a race to settlement 
between competing class actions.
  Finally, it amends Rule 11 of the Federal Rules of Civil Procedures 
to require the imposition of sanctions for filing frivolous lawsuits, 
although the nature and extent of sanctions remains discretionary. This 
provision will deter the filing of frivolous class actions.
  Let me emphasize the limited scope of this legislation. We do not 
close the courthouse door to any class action. We do not require that 
State attorneys general do anything with the notice they receive. We do 
not deny reasonable fees for class lawyers. And we do not mandate that 
every class action be brought in federal court. Instead, we simply 
promote closer and fairer scrutiny of class actions and class 
settlements.

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  These proposals have earned a broad range of support. Even Judge Paul 
Niemeyer, the Chair of the Judicial Conference's Advisory Committee on 
Civil Rules, who has studied class actions closely and testified before 
Congress on this issue, expressed his support for this ``modest'' 
measure, noting in particular that increasing federal jurisdiction over 
class actions will be a positive ``meaningful step.'' Last year, our 
bill passed the Judiciary Administrative Oversight and the Courts 
Subcommittee.
  Mr. President, right now, people across the country can be dragged 
into lawsuits unaware of their rights and unarmed on the legal 
battlefield. What our bill does is give regular people back their 
rights and representation. This measure may not stop all abuses, but it 
moves use forward. It will help ensure that good people like Martha 
Preston don't get ripped off.
  Mr. President, Senator Grassley and I believe this is a moderate 
approach to correct the worst abuses, while preserving the benefits of 
class actions. It is both pro-consumer and pro-defendant. We believe it 
will make a difference.
                                 ______