[Congressional Record Volume 145, Number 126 (Friday, September 24, 1999)]
[Extensions of Remarks]
[Page E1960]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




            INTERSTATE CLASS ACTION JURISDICTION ACT OF 1999

                                 ______
                                 

                               speech of

                         HON. MICHAEL N. CASTLE

                              of delaware

                    in the house of representatives

                      Thursday, September 23, 1999

       The House in Committee of the Whole House on the State of 
     the Union had under consideration the bill (H.R. 1875) to 
     amend title 28, United States Code, to allow the application 
     of the principles of Federal diversity jurisdiction to 
     interstate class actions:

  Mr. CASTLE. Mr. Chairman, I rise today in strong support of H.R. 
1875, the ``Interstate Class Action Jurisdiction Act of 1999'' because 
it contains provisions essential to preserving the reliable body of 
state case law that guides the governance of internal corporate 
affairs, most of which is developed by specialized courts in my state 
of Delaware. The depth and quality of this case law gives boards of 
directors for corporations all over the country the necessary guidance 
and predictability to move forward with multi-million dollar 
transactions according to their business judgment without the threat of 
courts overturning these transactions.
  On July 22, 1998, the House passed H.R. 1689, the ``Securities 
Litigation Uniform Standards Act'' by a vote of 340 to 83. That bill 
contained a non-controversial carve out, constructed with technical 
assistance from the Securities Exchange Commission (SEC), for state 
class actions involving the purchase or sale of securities. Congress 
and the SEC recognized that the states had a well-developed body of law 
on the fiduciary duty of directors to disclose information to 
shareholders in connection with votes and investment actions, such as 
proxy solicitations, mergers, restructures, exchanges and tender 
offers. Therefore, there was no need to remove class actions concerning 
these transactions from state courts to federal courts.
  As originally drafted, the Class Action Jurisdiction Act failed to 
provide for this same protection of state expertise. In fact, it would 
have undone the widely accepted Securities Litigation Uniform Standards 
Act's carve out. Furthermore, because the Class Action Jurisdiction Act 
federalizes a broader range of class actions, adding the Securities 
Litigation Uniform Standards Act carve out would not have been 
sufficient. Therefore, in cooperation with expert corporate law 
attorneys from both the plaintiff and defense bars, legal scholars, and 
Congressman Goodlatte, I drafted an amendment to carve out class 
actions involving securities and internal corporate governance matters. 
The amendment was included in the manager's amendment when the bill was 
marked up in the Judiciary Committee.
  Some of my colleagues have raised concerns that state corporate law 
issues should not be the only ones exempted from ``federalization'' 
under the Class Action Jurisdiction Act. I look forward to the debate 
on whether other class actions should be exempted. However, it is 
important to note that what makes corporate law issues unique is that 
there is no federal corporate law. State incorporation laws act like 
enabling statutes. That is, there is no law unless case law develops 
it. Traditionally, this law has been developed at the state level. 
Delaware, New York, and California particularly have large bodies of 
well-developed state corporate law. Given the structure of the federal 
court system with twelve circuit courts of appeal and the limited 
ability of the Supreme Court to adjudicate conflicts among the 
circuits, the removal of state courts from the adjudicatory process for 
class actions involving corporate law issues could add significant 
uncertainty to the resolution of issues arising under state corporate 
laws.
  The SEC recognized this problem in its testimony concerning the 
Securities Litigation Uniform Standards Act. It stated:

       Preemption of state duty of disclosure claims raises 
     significant federalism concerns. Many state courts, 
     particularly those in Delaware, have developed expertise and 
     a coherent body of case law which provides guidance to 
     companies and lends predictability to corporate transactions. 
     In addition, the Delaware courts, in particular, are known 
     for their ability to resolve such disputes expeditiously--in 
     days or weeks, rather than months or years. Delay in 
     resolving a dispute over a merger or acquisition could 
     jeopardize completion of a multi-billion-dollar transaction. 
     Broad preemption would diminish the value of this body of 
     precedent and these specialized courts as a means of 
     resolving corporate disputes.

  Furthermore, a trend has begun to emulate Delaware by creating courts 
with jurisdiction designed to provide a forum for the resolution of 
disputes involving business entities with expertise and efficiency. New 
York and Pennsylvania have created such courts. This reflects a 
judgment that the coherent articulation and development of state law 
governing business entities is a goal to be pursued, and one best 
addressed by the creation of a forum with subject matter expertise in 
the area. Federalizing class actions involving state corporate law 
would only serve to fracture the development of the law, rather than 
leaving it in the hands of a small number of highly specialized and 
expert jurists, conversant with the history and current trends in the 
development of the law.
  Mass tort product liability law is not a highly specialized area of 
the law requiring adjudication by judges specially trained in the 
subject matter. The issue of whether or not we federalize mass tort 
product liability suits does not jeopardize the completion of multi-
billion-dollar transactions that can determine if U.S. companies will 
continue to compete in the global marketplace.
  Mr. Chairman, I am extremely proud of the corporate law legal 
expertise that has developed in Delaware. It is just one of many 
features that makes Delaware a ``Small Wonder.'' Members may have 
divided opinions on the merits of the overall legislation, but just as 
there was no controversy over the state corporate law carve out when 
the House passed the Securities Litigation Uniform Standards Act, there 
should be no controversy over the need for the corporate law carve out 
in this bill.

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