[Congressional Record Volume 151, Number 9 (Wednesday, February 2, 2005)]
[Extensions of Remarks]
[Page E136]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




         INTRODUCTION OF THE CLASS ACTION FAIRNESS ACT OF 2005

                                 ______
                                 

                           HON. BOB GOODLATTE

                              of virginia

                    in the house of representatives

                      Wednesday, February 2, 2005

  Mr. GOODLATTE. Mr. Speaker, I am pleased to introduce today, along 
with my good friend from Virginia, Mr. Boucher, the Class Action 
Fairness Act of 2005.
  This much-needed bipartisan legislation corrects a serious flaw in 
our Federal jurisdiction statutes. At present, those statutes forbid 
our Federal courts from hearing most interstate class actions--the 
lawsuits that involve more money and touch more Americans than 
virtually any other type of litigation in our legal system.
  The class action device is a necessary and important part of our 
legal system. It promotes efficiency by allowing plaintiffs with 
similar claims to adjudicate their cases in one proceeding. It also 
allows claims to be heard in cases where there are small harms to a 
large number of people, which would otherwise go unaddressed because 
the cost to the individuals suing could far exceed the benefit to the 
individual. However, class actions are increasingly being used in ways 
that do not promote the interests they were intended to serve.
  In recent years, State courts have been flooded with class actions. 
As a result of the adoption of different class action certification 
standards in the various States, the same class might be certifiable in 
one State and not another, or certifiable in State court but not in 
Federal court. This creates the potential for abuse of the class action 
device, particularly when the case involves parties from multiple 
States or requires the application of the laws of many States.
  For example, some State courts routinely certify classes before the 
defendant is even served with a complaint and given a chance to defend 
itself. Other State courts employ very lax class certification 
criteria, rendering virtually any controversy subject to class action 
treatment. There are instances where a State court, in order to certify 
a class, has determined that the law of that State applies to all 
claims, including those of purported class members who live in other 
jurisdictions. This has the effect of making the law of that State 
applicable nationwide.
  The existence of State courts that broadly apply class certification 
rules encourages plaintiffs to forum shop for the court that is most 
likely to certify a purported class. In addition to forum shopping, 
parties frequently exploit major loopholes in Federal jurisdiction 
statutes to block the removal of class actions that belong in Federal 
court. For example, plaintiffs' counsel may name parties that are not 
really relevant to the class claims in an effort to destroy diversity. 
In other cases, counsel may waive Federal law claims or shave the 
amount of damages claimed to ensure that the action will remain in 
State court.
  Another problem created by the ability of State courts to certify 
class actions which adjudicate the rights of citizens of many States is 
that oftentimes more than one case involving the same class is 
certified at the same time. In the Federal court system, those cases 
involving common questions of fact may be transferred to one district 
for coordinated or consolidated pretrial proceedings.

  When these class actions are pending in State courts, however, there 
is no corresponding mechanism for consolidating the competing suits. 
Instead, a settlement or judgment in any of the cases makes the other 
class actions moot. This creates an incentive for each class counsel to 
obtain a quick settlement of the case, and an opportunity for the 
defendant to play the various class counsels against each other and 
drive the settlement value down. The loser in this system is the class 
member whose claim is extinguished by the settlement, at the expense of 
counsel seeking to be the one entitled to recovery of fees.
  Our bill is designed to prevent these abuses by allowing large 
interstate class action cases to be heard in Federal court. It would 
expand the statutory diversity jurisdiction of the Federal courts to 
allow class action cases to be brought in or removed to Federal court.
  Article III of the Constitution empowers Congress to establish 
Federal jurisdiction over diversity cases--cases between citizens of 
different States. The grant of Federal diversity jurisdiction was 
premised on concerns that State courts might discriminate against out 
of State defendants. In a class action, only the citizenship of the 
named plaintiffs is considered for determining diversity, which means 
that Federal diversity jurisdiction will not exist if the named 
plaintiff is a citizen of the same State as the defendant, regardless 
of the citizenship of the rest of the class. Congress also imposes a 
monetary threshold--now $75,000--for Federal diversity claims. However, 
the amount in controversy requirement is satisfied in a class action 
only if all of the class members are seeking damages in excess of the 
statutory minimum.
  These jurisdictional statutes were originally enacted years ago, well 
before the modern class action arose, and they now lead to perverse 
results. For example, under current law, a citizen of one State may 
bring in Federal court a simple $75,001 slip-and-fall claim against a 
party from another State. But if a class of 25 million product owners 
living in all 50 States brings claims collectively worth $15 billion 
against the manufacturer, the lawsuit usually must be heard in State 
court.
  This result is certainly not what the framers had in mind when they 
established Federal diversity jurisdiction. Our bill offers a solution 
by making it easier for plaintiff class members and defendants to 
remove class actions to Federal court, where cases involving multiple 
State laws are more appropriately heard. Under our bill, if a removed 
class action is found not to meet the requirements for proceeding on a 
class basis, the Federal court would dismiss the action without 
prejudice and the action could be refiled in State court.
  In addition, the bill provides a number of new protections for 
plaintiff class members, including greater judicial scrutiny for 
settlements that provide class members only coupons as relief for their 
injuries. The bill also bars the approval of settlements in which class 
members suffer a net loss. In addition, the bill includes provisions 
that protect consumers from being disadvantaged by living far away from 
the courthouse. These additional consumer protections will ensure that 
class action lawsuits benefit the consumers they are intended to 
compensate.
  This legislation does not limit the ability of anyone to file a class 
action lawsuit. It does not change anyone's right to recovery. Our 
legislation merely closes the loophole, allowing Federal courts to hear 
big lawsuits involving truly interstate issues, while ensuring that 
purely local controversies remain in State courts. This is exactly what 
the framers of the Constitution had in mind when they established 
Federal diversity jurisdiction.
  I urge each of my colleagues to support this very important 
bipartisan legislation.

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