[Congressional Record Volume 147, Number 158 (Thursday, November 15, 2001)]
[Senate]
[Pages S11946-S11951]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. GRASSLEY (for himself, Mr. Kohl, Mr. Hatch, Mr. Carper, 
        Mr. Thurmond, Mr. Chafee, and Mr. Specter):
  S. 1712. A bill to amend the procedures that apply to consideration 
of interstate class actions to assure fairer outcomes for class members 
and defendants, and for other purposes; to the Committee on the 
Judiciary.
  Mr. GRASSLEY. Mr. President, I rise today to introduce the ``Class 
Action Fairness Act of 2001.'' I am pleased to be joined by Senators 
Kohl, Hatch, Carper, Thurmond, Chafee and Specter. The Class Action 
Fairness Act of 2001 will help curb class action lawsuit abuses and 
protect consumers who find themselves as potential members of class 
action lawsuits. At the same time, the bill will preserve class action 
lawsuits as an important tool that brings representation to the 
unrepresented.
  In the last Congress, Senator Kohl and I introduced S. 353, the 
``Class Action Fairness Act of 1999.'' We worked diligently and in good 
faith to address concerns expressed by members of the Judiciary 
Committee, as well as others interested in this issue. The Judiciary 
Committee marked up and favorably voted out a Hatch/Grassley/Kohl 
amendment in the nature of a substitute. Unfortunately, S. 353 was not 
considered by the full Senate in the 106th Congress because of the 
press of other legislative business.
  Today, we are introducing the bill that the Senate Judiciary 
Committee agreed to in the last Congress, with minor modifications. We 
have also included a few more provisions that will better protect class 
members. I am hopeful that in this Congress, the Senate will consider 
this bill promptly and enact the much needed changes to the current 
system.
  Presently, the class action system is awash with problems. More and 
more class action lawsuits are being filed to the benefit of attorneys, 
where attorneys agree to settlements that give them huge fees while 
their clients get little of value or nothing. A 1999 Rand Report on 
class actions found that state courts often give most of the money in a 
settlement to the lawyers, not the class members they supposedly 
represent. The Judiciary Committee held hearings where we heard about 
settlement after settlement where class members got coupons or nothing, 
but the lawyers got millions of dollars in attorneys' fees. We heard 
about class members being awarded restrictive coupons for airline 
tickets, as well as class members who received a lawyers' bill that was 
higher than the compensation for their injury. But the lawyers got all 
the money in fees.
  Is this fair? I thought the lawyers were supposed to represent their 
clients, not themselves. I am not saying that attorneys should not be 
paid for their work, but it seems to me that lawyers have found class 
actions to be an easy way for them to make money.
  The Judiciary Committee also heard that lawyers game the class action 
rules to keep class actions in certain State courts, particularly 
courts that are quick to certify a class without adequately considering 
the interests of all class members or courts that aren't careful in 
evaluating whether the proposed class meets the required class 
criteria. Those State courts are also more likely to rubber-stamp 
settlement proposals without scrutinizing them for fairness. For 
example, we learned that in some cases members of a class that lived 
closer to the courthouse in which the settlement was filed got a larger 
recovery than others. We also learned about settlements where a bounty 
was paid to class representatives which was disproportionately larger 
than that provided to absent class members.
  It's easy for lawyers to forum-shop and keep these cases in State 
court, for example, attorneys name irrelevant parties to their class 
action suits in an effort to destroy diversity. Attorneys make 
inaccurate statements about the jurisdictional amount to keep the 
defendant from transferring the case to Federal court, but then retract 
them one year later when removal is barred. In addition, similar class 
actions are filed in many State courts and cannot be consolidated, 
increasing the chances for collusive settlements or situations where 
there is a ``race to settlement'' by the attorneys. This also creates 
significant inefficiencies and waste of court resources.
  A much more troublesome effect of this problem is the fact that State 
courts are making decisions for the entire country. The 1999 Rand Study 
and a more recent study by the Manhattan Institute found that most of 
the increase in class action lawsuits is occurring in State courts. 
With this happening, basically State courts are dictating national 
policy. Class actions are usually the cases that involve the most 
people, the most money, and the most interstate commerce issues. But it 
is clear that these cases really belong in Federal court. And there is 
a constitutional basis for this. Article 3, section 2 of the 
Constitution states that controversies between citizens of different 
States should be subject to the jurisdiction of the Federal courts. 
However, the present Federal jurisdiction statutes were originally 
enacted over a century ago, so they do not take the modern day class 
action into account and basically exclude them from the Federal court 
system.
  Consequently, the current system produces aberrant results as to what 
can or cannot proceed in Federal court. For example, right now, a slip 
and fall case worth $75,001 involving two residents from different 
States can be heard in Federal court. But a nationwide class action 
that involves millions of citizens residing in all 50 States, that 
seeks billions of dollars in damages, implicates the laws of every 
State, and involves interstate commerce issues, is mainly confined to 
the State courts. Why should a State county court with an elected judge 
decide these cases, but not a Federal judge?
  By only allowing State courts to hear nationwide class actions, State 
courts can dictate national policy or improperly impose their State's 
laws on the citizens of other States. Let me illustrate this serious 
problem with the State Farm case. In a large class action case brought 
against State Farm on the issue of auto insurers' use of 
``aftermarket'' auto parts in automobile repairs, an Illinois court 
applied Illinois auto insurance law to the other 49 States. Several 
State attorneys general intervened in the case and expressed their 
opposition to the court's application of Illinois law to their 
citizens. The National Association of State Insurance Commissioners and 
Public Citizen also expressed concern over the outcome of this case. 
The reason for this opposition was because State laws and policy on the 
use of aftermarket parts varies widely State by State, yet the Illinois 
State court imposed its auto insurance laws on the other States. The 
ability of a State court to have such a monumental impact on the laws 
of other States, by basically overturning national policy and the laws 
or regulations of the other 50 States is more than troubling.
  So, there are compelling reasons for us to take remedial steps 
regarding the class action system. The Class Action Fairness Act of 
2001 takes a good first step at addressing some of the problems we have 
identified. To address the problem of class members not knowing

[[Page S11947]]

what is going on in a class action or settlement, or not being clear as 
to what their rights are, the Class Action Fairness Act of 2001 has a 
provision that notice to class members needs to contain an explanation 
of their rights and other matters concerning settlement terms, 
including attorneys' fees, in a plain and easy to understand language.
  To address the problem where class members get nothing and attorneys 
get millions, the Class Action Fairness Act of 2001 provides that 
notification of any proposed settlements must be given to the State 
attorneys general or the primary regulatory or licensing agency of any 
State whose citizens are involved. This is so that the State attorney 
general or responsible agency can intervene in the case to ensure that 
settlements are fair. To address the problem of special bounties that 
unfairly impact the absent members of a class, the bill contains a new 
provision that would prohibit the payment of bounties to class 
representatives that are disproportionately larger than that provided 
to absent class members. To address the problem of discrimination 
between class members based on geographic location, the bill contains a 
new provision that prohibits courts from approving settlements that 
award some class members a larger recovery than others based on 
geography.
  To start responding to the issue of outrageous attorneys fees, the 
Class Action Fairness Act of 2001 asks the Judicial Conference to 
report back to Congress in a year after studying attorneys' fees in 
class actions and how judges can do a better job in making sure that 
class action settlements are fair. The bill also includes new 
provisions that protect class members against net losses and require 
the courts to make specific findings as to the fairness of coupon and 
other non-cash class action settlements.
  To respond to the problem where plaintiff lawyers game the system to 
improperly keep class action cases in State court, or where similar 
class action suits are being filed in different State courts, or where 
State courts are imposing their laws on citizens of other States and 
formulating national policy, the Class Action Fairness Act of 2001 
loosens diversity and removal requirements so that class action cases 
with national ramifications can be heard in Federal courts and similar 
class actions can be consolidated. The bill is crafted so that it will 
not harm federalism or deprive State courts of their ability to 
adjudicate cases for their own citizens. That is because there is a 
constitutional basis for class actions to proceed in Federal court. 
Clearly, the Federal courts are a better forum for these kinds of cases 
that are of nationwide importance.
  In conclusion, there is substantial evidence that class action abuse 
is going on and we should do something about it. I think that the Class 
Action Fairness Act of 2001 is a good, balanced bill that addresses 
some of the problems that we've identified. Moreover, there has been a 
lot of compromise to address concerns about the bill. We have also 
improved the bill by adding additional consumer protections. So, the 
Class Action Fairness Act of 2001 will preserve the class action 
process, but put a stop to the more egregious abuses in the system.
  In addition, I'd like to thank my friend Senator Kohl, who has worked 
so closely with me over the years in bringing the issue of class action 
abuse to the forefront. We both share a deep concern over protecting 
the rights of consumers, while making sure that the due process rights 
of all litigants are preserved. I'd also like to thank Senator Hatch, 
who worked with us to move this bill forward in the Judiciary Committee 
last year, and worked on improvements to the bill.
  I urge all my colleagues to join Senators Kohl, Hatch, Carper, 
Thurmond, Chafee and Specter in supporting this important piece of 
legislation.
  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. 1712

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

     SECTION 1. SHORT TITLE; REFERENCE; TABLE OF CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Class 
     Action Fairness Act of 2001''.
       (b) Reference.--Whenever in this Act reference is made to 
     an amendment to, or repeal of, a section or other provision, 
     the reference shall be considered to be made to a section or 
     other provision of title 28, United States Code.
       (c) Table of Contents.--The table of contents for this Act 
     is as follows:

 Sec. 1. Short title; reference; table of contents.
 Sec. 2. Findings and purposes.
 Sec. 3. Consumer class action bill of rights and improved procedures 
              for interstate class actions.
 Sec. 4. Federal district court jurisdiction for interstate class 
              actions.
 Sec. 5. Removal of interstate class actions to Federal district court.
 Sec. 6. Report on class action settlements.
 Sec. 7. Effective date.

      SEC. 2. FINDINGS AND PURPOSES.

       (a) Findings.--Congress finds the following:
       (1) Class action lawsuits are an important and valuable 
     part of the legal system when they permit the fair and 
     efficient resolution of legitimate claims of numerous parties 
     by allowing the claims to be aggregated into a single action 
     against a defendant that has allegedly caused harm.
       (2) Over the past decade, there have been abuses of the 
     class action device that have--
       (A) harmed class members with legitimate claims and 
     defendants that have acted responsibly; and
       (B) undermined public respect for our judicial system.
       (3) Class members often receive little or no benefit from 
     class actions, and are sometimes harmed, such as where--
       (A) counsel are awarded large fees, while leaving class 
     members with coupons or other awards of little or no value;
       (B) unjustified awards are made to certain plaintiffs at 
     the expense of other class members; and
       (C) confusing notices are published that prevent class 
     members from being able to fully understand and effectively 
     exercise their rights.
       (4) Abuses in class actions undermine the national judicial 
     system and the concept of diversity jurisdiction as intended 
     by the framers of the United States Constitution, in that 
     State and local courts are--
       (A) keeping cases of national importance out of Federal 
     court;
       (B) sometimes acting in ways that demonstrate bias against 
     out-of-State defendants; and
       (C) making judgments that impose their view of the law on 
     other States and bind the rights of the residents of those 
     States.
       (b) Purposes.--The purposes of this Act are to--
       (1) assure fair and prompt recoveries for class members 
     with legitimate claims;
       (2) restore the intent of the framers of the United States 
     Constitution by providing for Federal court consideration of 
     interstate cases of national importance under diversity 
     jurisdiction; and
       (3) benefit society by encouraging innovation and lowering 
     consumer prices.

      SEC. 3. CONSUMER CLASS ACTION BILL OF RIGHTS AND IMPROVED 
                   PROCEDURES FOR INTERSTATE CLASS ACTIONS.

       (a) In General.--Part V is amended by inserting after 
     chapter 113 the following:

                      ``CHAPTER 114--CLASS ACTIONS

``Sec.
``1711. Definitions.
``1712. Judicial scrutiny of coupon and other noncash settlements.
``1713. Protection against loss by class members.
``1714. Protection against discrimination based on geographic location.
``1715. Prohibition on the payment of bounties.
``1716. Clearer and simpler settlement information.
``1717. Notifications to appropriate Federal and State officials.

     ``Sec. 1711. Definitions

       ``In this chapter:
       ``(1) Class.--The term `class' means all of the class 
     members in a class action.
       ``(2) Class action.--The term `class action' means any 
     civil action filed in a district court of the United States 
     under rule 23 of the Federal Rules of Civil Procedure or any 
     civil action that is removed to a district court of the 
     United States that was originally filed under a State statute 
     or rule of judicial procedure authorizing an action to be 
     brought by 1 or more representatives as a class action.
       ``(3) Class counsel.--The term `class counsel' means the 
     persons who serve as the attorneys for the class members in a 
     proposed or certified class action.
       ``(4) Class members.--The term `class members' means the 
     persons (named or unnamed) who fall within the definition of 
     the proposed or certified class in a class action.
       ``(5) Plaintiff class action.--The term `plaintiff class 
     action' means a class action in which class members are 
     plaintiffs.
       ``(6) Proposed settlement.--The term `proposed settlement' 
     means an agreement regarding a class action that is subject 
     to court approval and that, if approved, would be binding on 
     some or all class members.

[[Page S11948]]

     ``Sec. 1712. Judicial scrutiny of coupon and other noncash 
       settlements

       ``The court may approve a proposed settlement under which 
     the class members would receive noncash benefits or would 
     otherwise be required to expend funds in order to obtain part 
     or all of the proposed benefits only after a hearing to 
     determine whether, and making a written finding that, the 
     settlement is fair, reasonable, and adequate for class 
     members.

     ``Sec. 1713. Protection against loss by class members

       ``The court may approve a proposed settlement under which 
     any class member is obligated to pay sums to class counsel 
     that would result in a net loss to the class member only if 
     the court makes a written finding that nonmonetary benefits 
     to the class member substantially outweigh the monetary loss.

     ``Sec. 1714. Protection against discrimination based on 
       geographic location

       ``The court may not approve a proposed settlement that 
     provides for the payment of greater sums to some class 
     members than to others solely on the basis that the class 
     members to whom the greater sums are to be paid are located 
     in closer geographic proximity to the court.

     ``Sec. 1715. Prohibition on the payment of bounties

       ``(a) In General.--The court may not approve a proposed 
     settlement that provides for the payment of a greater share 
     of the award to a class representative serving on behalf of a 
     class, on the basis of the formula for distribution to all 
     other class members, than that awarded to the other class 
     members.
       ``(b) Rule of Construction.--The limitation in subsection 
     (a) shall not be construed to prohibit a payment approved by 
     the court for reasonable time or costs that a person was 
     required to expend in fulfilling the obligations of that 
     person as a class representative.

     ``Sec. 1716. Clearer and simpler settlement information

       ``(a) Plain English Requirements.--Any court with 
     jurisdiction over a plaintiff class action shall require that 
     any written notice concerning a proposed settlement of the 
     class action provided to the class through the mail or 
     publication in printed media contain--
       ``(1) at the beginning of such notice, a statement in 18-
     point or greater bold type, stating `LEGAL NOTICE: YOU ARE A 
     PLAINTIFF IN A CLASS ACTION LAWSUIT AND YOUR LEGAL RIGHTS ARE 
     AFFECTED BY THE SETTLEMENT DESCRIBED IN THIS NOTICE.';
       ``(2) a short summary written in plain, easily understood 
     language, describing--
       ``(A) the subject matter of the class action;
       ``(B) the members of the class;
       ``(C) the legal consequences of being a member of the class 
     action;
       ``(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.
       ``(b) Tabular Format.--Any court with jurisdiction over a 
     plaintiff class action shall require that the information 
     described in subsection (a)--
       ``(1) be placed in a conspicuous and prominent location on 
     the notice;
       ``(2) contain clear and concise headings for each item of 
     information; and
       ``(3) provide a clear and concise form for stating each 
     item of information required to be disclosed under each 
     heading.
       ``(c) Television or Radio Notice.--Any notice provided 
     through television or radio (including transmissions by cable 
     or satellite) to inform the class members in a class action 
     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--
       ``(1) describe the persons who may potentially become class 
     members in the class action; and
       ``(2) explain that the failure of a class member to 
     exercise his or her right to be excluded from a class action 
     will result in the person's inclusion in the class action.

     ``Sec. 1717. Notifications to appropriate Federal and State 
       officials

       ``(a) Definitions.--
       ``(1) Appropriate federal official.--In this section, the 
     term `appropriate Federal official' means--
       ``(A) the Attorney General of the United States; or
       ``(B) in any case in which the defendant is a Federal 
     depository institution, a State depository institution, a 
     depository institution holding company, a foreign bank, or a 
     nondepository institution subsidiary of the foregoing (as 
     such terms are defined in section 3 of the Federal Deposit 
     Insurance Act (12 U.S.C. 1813)), the person who has the 
     primary Federal regulatory or supervisory responsibility with 
     respect to the defendant, if some or all of the matters 
     alleged in the class action are subject to regulation or 
     supervision by that person.
       ``(2) Appropriate state official.--In this section, the 
     term `appropriate State official' means the person in the 
     State who has the primary regulatory or supervisory 
     responsibility with respect to the defendant, or who licenses 
     or otherwise authorizes the defendant to conduct business in 
     the State, if some or all of the matters alleged in the class 
     action are subject to regulation by that person. If there is 
     no primary regulator, supervisor, or licensing authority, or 
     the matters alleged in the class action are not subject to 
     regulation or supervision by that person, then the 
     appropriate State official shall be the State attorney 
     general.
       ``(b) In General.--Not later than 10 days after a proposed 
     settlement of a class action is filed in court, each 
     defendant that is participating in the proposed settlement 
     shall serve upon the appropriate State official of each State 
     in which a class member resides and the appropriate Federal 
     official, a notice of the proposed settlement consisting of--
       ``(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 and the estimated proportionate share of the 
     claims of such members to the entire settlement to that 
     State's appropriate State official; 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 State and the estimated 
     proportionate share of the claims of such members to the 
     entire settlement; and
       ``(8) any written judicial opinion relating to the 
     materials described under subparagraphs (3) through (6).
       ``(c) Depository Institutions Notification.--
       ``(1) Federal and other depository institutions.--In any 
     case in which the defendant is a Federal depository 
     institution, a depository institution holding company, a 
     foreign bank, or a non-depository institution subsidiary of 
     the foregoing, the notice requirements of this section are 
     satisfied by serving the notice required under subsection (b) 
     upon the person who has the primary Federal regulatory or 
     supervisory responsibility with respect to the defendant, if 
     some or all of the matters alleged in the class action are 
     subject to regulation or supervision by that person.
       ``(2) State Depository Institutions.--In any case in which 
     the defendant is a State depository institution (as that term 
     is defined in section 3 of the Federal Deposit Insurance Act 
     (12 U.S.C. 1813)), the notice requirements of this section 
     are satisfied by serving the notice required under subsection 
     (b) upon the State bank supervisor (as that term is defined 
     in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 
     1813)) of the State in which the defendant is incorporated or 
     chartered, if some or all of the matters alleged in the class 
     action are subject to regulation or supervision by that 
     person, and upon the appropriate Federal official.
       ``(d) Final Approval.--An order giving final approval of a 
     proposed settlement may not be issued earlier than 90 days 
     after the later of the dates on which the appropriate Federal 
     official and the appropriate State official are served with 
     the notice required under subsection (b).
       ``(e) Noncompliance if Notice Not Provided.--
       ``(1) In general.--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 
     demonstrates that the notice required under subsection (b) 
     has not been provided.
       ``(2) Limitation.--A class member may not refuse to comply 
     with or to be bound by a settlement agreement or consent 
     decree under paragraph (1) if the notice required under 
     subsection (b) was directed to the appropriate Federal 
     official and to either the State attorney general or the 
     person that has primary regulatory, supervisory, or licensing 
     authority over the defendant.
       ``(3) Application of rights.--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) Rule of Construction.--Nothing in this section shall 
     be construed to expand the

[[Page S11949]]

     authority of, or impose any obligations, duties, or 
     responsibilities upon, Federal or State officials.''.
       (b) Technical and Conforming Amendment.--The table of 
     chapters for part V is amended by inserting after the item 
     relating to chapter 113 the following:

``114. Class Actions........................................1711''.....

      SEC. 4. FEDERAL DISTRICT COURT JURISDICTION FOR INTERSTATE 
                   CLASS ACTIONS.

       (a) Application of Federal Diversity Jurisdiction.--Section 
     1332 is amended--
       (1) by redesignating subsection (d) as subsection (e); and
       (2) by inserting after subsection (c) the following:
       ``(d)(1) In this subsection--
       ``(A) the term `class' means all of the class members in a 
     class action;
       ``(B) the term `class action' means any civil action filed 
     under rule 23 of the Federal Rules of Civil Procedure or 
     similar State statute or rule of judicial procedure 
     authorizing an action to be brought by 1 or more 
     representative persons as a class action;
       ``(C) the term `class certification order' means an order 
     issued by a court approving the treatment of some or all 
     aspects of a civil action as a class action; and
       ``(D) the term `class members' means the persons (named or 
     unnamed) who fall within the definition of the proposed or 
     certified class in a class action.
       ``(2) The district courts shall have original jurisdiction 
     of any civil action in which the matter in controversy 
     exceeds the sum or value of $2,000,000, 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) Paragraph (2) shall not apply to any civil action in 
     which--
       ``(A)(i) the substantial majority of the members of the 
     proposed plaintiff class and the primary defendants are 
     citizens of the State in which the action was originally 
     filed; and
       ``(ii) the claims asserted therein will be governed 
     primarily by the laws of the State in which the action was 
     originally filed;
       ``(B) the primary defendants are States, State officials, 
     or other governmental entities against whom the district 
     court may be foreclosed from ordering relief; or
       ``(C) the number of members of all proposed plaintiff 
     classes in the aggregate is less than 100.
       ``(4) In any class action, the claims of the individual 
     class members shall be aggregated to determine whether the 
     matter in controversy exceeds the sum or value of $2,000,000, 
     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 with respect to that action.
       ``(6)(A) A district court shall dismiss any civil action 
     that is subject to the jurisdiction of the court solely under 
     this subsection if the court determines the action may not 
     proceed as a class action based on a failure to satisfy the 
     prerequisites 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 court or 
     filing an action in State court, except that any such action 
     filed in State court may be removed to the appropriate 
     district court if it is an action of which the district 
     courts of the United States have original jurisdiction.
       ``(C) In any action that is dismissed under this paragraph 
     and is filed by any of the original named plaintiffs therein 
     in the same State court venue in which the dismissed action 
     was originally filed, the limitations periods on all 
     reasserted claims shall be deemed tolled for the period 
     during which the dismissed class action was pending. The 
     limitations periods on any claims that were asserted in a 
     class action dismissed under this paragraph that are 
     subsequently asserted in an individual action shall be deemed 
     tolled for the period during which the dismissed action was 
     pending.
       ``(7) Paragraph (2) shall not apply to any class action 
     that solely involves a claim--
       ``(A) concerning a covered security as defined under 
     16(f)(3) of the Securities Act of 1933 and section 
     28(f)(5)(E) of the Securities Exchange Act of 1934;
       ``(B) that relates to the internal affairs or governance of 
     a corporation or other form of business enterprise and that 
     arises under or by virtue of the laws of the State in which 
     such corporation or business enterprise is incorporated or 
     organized; or
       ``(C) that relates to 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 and the regulations issued 
     thereunder).
       ``(8) For purposes of this subsection and section 1453 of 
     this title, an unincorporated association shall be deemed to 
     be a citizen of the State where it has its principal place of 
     business and the State under whose laws it is organized.
       ``(9)(A) For purposes of this section and section 1453 of 
     this title, a civil action that is not otherwise a class 
     action as defined in paragraph (1)(B) shall nevertheless be 
     deemed a class action if--
       ``(i) the named plaintiff purports to act for the interests 
     of its members (who are not named parties to the action) or 
     for the interests of the general public, seeks a remedy of 
     damages, restitution, disgorgement, or any other form of 
     monetary relief, and is not a State attorney general; or
       ``(ii) monetary relief claims in the action are proposed to 
     be tried jointly in any respect with the claims of 100 or 
     more other persons on the ground that the claims involve 
     common questions of law or fact.
       ``(B)(i) In any civil action described under subparagraph 
     (A)(ii), the persons who allegedly were injured shall be 
     treated as members of a proposed plaintiff class and the 
     monetary relief that is sought shall be treated as the claims 
     of individual class members.
       ``(ii) Paragraphs (3) and (6) of this subsection and 
     subsections (b)(2) and (d) of section 1453 shall not apply to 
     any civil action described under subparagraph (A)(i).
       ``(iii) Paragraph (6) of this subsection, and subsections 
     (b)(2) and (d) of section 1453 shall not apply to any civil 
     action described under subparagraph (A)(ii).''.
       (b) Conforming Amendments.--
       (1) Section 1335 (a)(1) is amended by inserting ``(a) or 
     (d)'' after ``1332''.
       (2) Section 1603 (b)(3) is amended by striking ``(d)'' and 
     inserting ``(e)''.

      SEC. 5. REMOVAL OF INTERSTATE CLASS ACTIONS TO FEDERAL 
                   DISTRICT COURT.

       (a) In General.--Chapter 89 is amended by adding after 
     section 1452 the following:

     ``Sec. 1453. Removal of class actions

       ``(a) Definitions.--In this section, the terms `class', 
     `class action', `class certification order', and `class 
     member' shall have the meanings given such terms under 
     section 1332(d)(1).
       ``(b) In General.--A class action may be removed to a 
     district court of the United States in accordance with this 
     chapter, without regard to whether any defendant is a citizen 
     of the State in which the action is brought, 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) When Removable.--This section shall apply to any 
     class action before or after the entry of a class 
     certification order in the action.
       ``(d) Procedure for Removal.--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) Review of Orders Remanding Class Actions to State 
     Courts.--Section 1447 shall apply to any removal of a case 
     under this section, except that notwithstanding section 
     1447(d), an order remanding a class action to the State court 
     from which it was removed shall be reviewable by appeal or 
     otherwise.
       ``(f) Exception.--This section shall not apply to any class 
     action that solely involves--
       ``(1) a claim concerning a covered security as defined 
     under section 16(f)(3) of the Securities Act of 1933 and 
     section 28(f)(5)(E) of the Securities Exchange Act of 1934;
       ``(2) a claim that relates to the internal affairs or 
     governance of a corporation or other form of business 
     enterprise and arises under or by virtue of the laws of the 
     State in which such corporation or business enterprise is 
     incorporated or organized; or
       ``(3) a claim that relates to 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 and the regulations issued 
     thereunder).''.
       (b) Removal Limitation.--Section 1446(b) is amended in the 
     second sentence by inserting ``(a)'' after ``section 1332''.
       (c) Technical and Conforming Amendments.--The table of 
     sections for chapter 89 is amended by adding after the item 
     relating to section 1452 the following:

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

     SEC. 6. REPORT ON CLASS ACTION SETTLEMENTS.

       (a) In General.--Not later than 12 months after the date of 
     enactment of this Act, the Judicial Conference of the United 
     States, with the assistance of the Director of the Federal 
     Judicial Center and the Director of the Administrative Office 
     of the United States Courts, shall prepare and transmit to 
     the Committees on the Judiciary of the Senate and the House 
     of Representatives a report on class action settlements.
       (b) Content.--The report under subsection (a) shall 
     contain--
       (1) recommendations on the best practices that courts can 
     use to ensure that proposed class action settlements are fair 
     to the class members that the settlements are supposed to 
     benefit;
       (2) recommendations on the best practices that courts can 
     use to ensure that--
       (A) the fees and expenses awarded to counsel in connection 
     with a class action settlement appropriately reflect the 
     extent to

[[Page S11950]]

     which counsel succeeded in obtaining full redress for the 
     injuries alleged and the time, expense, and risk that counsel 
     devoted to the litigation; and
       (B) the class members on whose behalf the settlement is 
     proposed are the primary beneficiaries of the settlement; and
       (3) the actions that the Judicial Conference of the United 
     States has taken and intends to take toward having the 
     Federal judiciary implement any or all of the recommendations 
     contained in the report.
       (c) Authority of Federal Courts.--Nothing in this section 
     shall be construed to alter the authority of the Federal 
     courts to supervise attorneys' fees.

     SEC. 7. 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, I rise today to join Senators Grassley, 
Hatch, Carper, and Thurmond in introducing the Class Action Fairness 
Act of 2001. This legislation addresses the growing problems in class 
action litigation, particularly unfair and abusive settlements that 
shortchange plaintiff class members.
  We have worked together on this legislation in past Congresses. In 
fact, last year a similar version of class action reform passed the 
House of Representatives and was approved by the Senate Judiciary 
Committee. Unfortunately, the session ended before we could bring it to 
a vote of the full Senate.
  The problem that this bill addresses is simple. Too often, the class 
action procedure is being hijacked by unscrupulous parties who are more 
interested in making a dollar for themselves than helping the plaintiff 
class members remedy a legitimate harm. Let me give you just one well 
known example of the unfairness this bill attempts to correct.
  A few years ago, a class action lawsuit was begun against the Bank of 
Boston. Martha Preston from Baraboo, WI was an unnamed class member of 
that suit against her mortgage company. The case involved allegations 
that the bank had overcharged its mortgage customers and had kept 
excess money in their escrow accounts. It was ultimately settled. Ms. 
Preston was represented by a group of plaintiffs' lawyers who she had 
never met. The settlement they negotiated for her was a bad joke. She 
received four dollars and change in the lawsuit, while her attorneys 
pocketed $8 million in fees.
  Soon after receiving her four dollars, Ms. Preston discovered that 
her lawyers helped pay for their fees by taking $80 from her escrow 
account. Naturally shocked, she and the other plaintiffs sued the 
lawyers who in turn sued her in Alabama, a State she had never visited, 
for $25 million. Not only was she $75 poorer for her class action 
experience, but she also had to defend herself against a $25 million 
suit by the very people who took advantage of her in the first place.
  In response to this case and many more like it, we developed a 
measured, reasoned response to protect class action plaintiffs against 
a system which is subject to abuse. As in past years, the bill can be 
divided into three main sections, all of which provide enhanced 
protections for individual plaintiffs.
  First, the bill provides that every class action notice be written in 
plain, easily understandable English. Too many of the class action 
notices are written in legalese, designed to make it impossible for the 
average American to comprehend his rights and responsibilities as a 
member of the plaintiff class. The bill requires that a statement be 
included at the beginning of the notice written in large, bold type 
alerting the plaintiff that he is involved in a class action lawsuit 
and that his legal rights are affected by the contents of the notice. 
This means that every class member will understand the subject matter 
of the case and his rights and responsibilities as a participant in the 
lawsuit.

  Further, if the case were settled, the notice to the class members 
would clearly describe the terms of the settlement, the benefits to 
each plaintiff and a summary of the attorneys fees in the case and how 
they were calculated. Currently, none of this information is clearly 
communicated to the class members.
  Second, the bill requires that notice be given to State Attorneys 
General or the appropriate State regulatory authorities about proposed 
class settlements in Federal court which affect their constituents. 
This encourages a neutral third party to weigh in on whether a 
settlement is fair and to alert the court if they do not believe that 
it is. The Attorney General review is an extra layer of security for 
the plaintiffs and is designed to ensure that abusive settlements are 
not approved without a critical review by one or more experts.
  Third, the bill makes it easier to move State class action cases to 
Federal court by changing the diversity rules governing these actions. 
Class action cases often have national implications and are joined by 
plaintiffs from many, if not most, States. Currently, class actions are 
frequently heard by a State court judge in a venue chosen by the 
plaintiffs' attorneys to maximize the chance that the class action will 
be certified.
  For class actions, the certification process is usually more than 
half the battle. Once a set of plaintiffs succeeds in getting a judge 
to certify them as a class, the defendants are often faced with 
extraordinary costs associated with preparing for trial and dealing 
with a multitude of plaintiffs. So, the defendants settle the case at 
terms beneficial to the plaintiffs' attorneys, often at the expense of 
the plaintiffs themselves.
  A recent study on the class action problem by the Manhattan Institute 
demonstrates that class action cases are being brought 
disproportionately in a few counties where plaintiffs expect to be able 
to take advantage of lax certification rules.
  The study focused on three county courts, Madison County, IL; 
Jefferson County, TX; and Palm Beach County, FL, that have seen a steep 
rise in class action filings over the last several years that seems 
disproportional to their populations. They found that rural Madison 
County, IL ranked third nationwide, after Los Angeles County, 
California and Cook County, Illinois, in the estimated number of class 
actions filed each year, whereas rural Jefferson County and Palm Beach 
County ranked eighth and ninth, respectively. As plaintiff attorneys 
found that Madison County was a welcoming host, the number of class 
action suits filed there rose 1850 percent between 1998 and 2000.
  Another trend evident in the research was the use of ``cut-and-
paste'' complaints in which plaintiffs' attorneys file a number of 
suits against different defendants in the same industry challenging 
standard industry practices. For example, within a one-week period 
early this year, six law firms filed nine nearly identical class 
actions in Madison County alleging that the automobile insurance 
industry is defrauding Americans in the way that they calculate claims 
rates for totaled vehicles.

  The system is not working as intended and needs to be fixed. The way 
to fix it is to move more of these cases currently being brought in 
small state courts like Madison County, IL to Federal court.
  The Federal courts are better venues for class actions for a variety 
of reasons articulated clearly in a RAND study. RAND proposed three 
primary explanations why these cases should be in federal court. 
``First, Federal judges scrutinize class action allegations more 
strictly than State judges, and deny certification in situations where 
a State judge might grant it improperly. Second, State judges may not 
have adequate resources to oversee and manage class actions with a 
national scope. Finally, if a single judge is to be charged with 
deciding what law will apply in a multistate class action, it is more 
appropriate that this take place in federal court than in State 
court.''
  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 pursue claims that collectively 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.
  Let me emphasize the limited scope of this legislation. We do not 
close the

[[Page S11951]]

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.
  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 back to regular people their rights and 
representation. This measure may not stop all abuses, but it moves us 
forward. It will help ensure that unsuspecting people like Martha 
Preston don't get ripped off.
  We 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.
  Mr. HATCH. Mr. President, there is little doubt that serious problems 
exist within our Nation's judicial system, especially in the way that 
interstate class action lawsuits are handled and administered in local 
courtrooms across this country. Increasingly, parties to class actions 
have taken to forum shopping to pick sympathetic local courts where, 
more and more often, plaintiffs are offered coupon settlements and 
lawyers are awarded enormous fees.
  According to recent studies, while Federal class action filings over 
the past 10 years have increased over 300 percent, class action filings 
in State courts have increased over 1,000 percent. However, interstate 
class actions involve more citizens in more States, more money, and 
more interstate commerce ramifications than any other type of civil 
litigation. They are the paradigm of what our Framers envisioned when 
they invented Federal diversity jurisdiction, as reflected in Article 
III of the Constitution. These State court statistics are even more 
troubling in light of the fact that many State courts have crushing 
caseloads and far fewer resources available to them than their Federal 
counterparts to manage these important and complex cases.
  The primary reason that interstate class actions have remained in 
State court despite their complex nature is because it is relatively 
easy for plaintiffs' class attorneys to defeat both the statutory 
``complete diversity'' requirement by adding non-diverse parties and 
the $75,000 ``amount in controversy'' requirement by aggregating 
individual claims to be less than this amount. Interestingly, the 
``complete diversity'' requirement was adopted by Congress in the late 
1700s, well before the development of modern class action lawsuits.
  Simply put, the Class Action Fairness Act would allow Federal courts 
to adjudicate class actions where the collective amount in controversy 
is more than $2 million, and where any member of the class of 
plaintiffs is from a different State than any defendant. This means 
that many State class actions may be removed to Federal court. 
Nonetheless, the bill does not extend Federal jurisdiction to encompass 
intrastate class actions, where the claims are governed primarily by 
the laws of the State in which the case is filed and the majority of 
the plaintiffs and the primary defendants are citizens of that State. 
So there is no federalism issue here. All the bill does is to protect 
constitutionally mandated diversity jurisdiction--``suits between 
Citizens of different States.''
  I am aware that there are those that say that the bill would 
``flood'' Federal courts. But, again, according to Article III of the 
Constitution and our Founding fathers, these cases belong in Federal 
court. Critics making the judicial overload argument also ignore the 
fact that this bill does not require that interstate class actions be 
heard in Federal courts. It simply provides the option for either side. 
In jurisdictions where the State courts provide a relatively level 
playing field, there is no reason to believe that all class actions 
will be removed to Federal court.
  I should also point out that this bill would not prohibit any class 
action from being filed. It is merely a process or procedural bill. It 
simply determines the court in which interstate class actions with 
significant national implications should be adjudicated--that is, in 
Federal court.
  I urge my colleagues to adopt this common-sense legislation.
                                 ______