[Congressional Record Volume 151, Number 12 (Tuesday, February 8, 2005)]
[Senate]
[Pages S1076-S1086]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
CLASS ACTION FAIRNESS ACT OF 2005
The PRESIDING OFFICER. Under the previous order, the Senate will
resume consideration of S. 5, which the clerk will report.
The bill clerk read as follows:
A bill (S. 5) 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.
The PRESIDING OFFICER. The Senator from Pennsylvania.
Mr. SPECTER. Mr. President, as the Presiding Officer has noted, we
are continuing consideration of class action reform. Yesterday, we had
opening statements, which I led off as chairman of the Judiciary
Committee, and the ranking member, Senator Leahy, made his opening
statement. Senator Hatch spoke. We will be going to an amendment this
morning by Senator Durbin on mass actions.
The class action bill has as its central focus to prevent judge
shopping to various States and even counties where courts and judges
have a prejudicial predisposition on cases. The issue of diversity of
citizenship has been created in the Federal courts to eliminate
favoritism. When diversity jurisdiction was established, it was
undertaken in the context of the claimant from one State,
illustratively, Virginia coming to Pennsylvania, and the concern there
was there might be some favoritism for the local resident in
Pennsylvania. So the jurisdictional amount, when I was in the practice
of law, was $3,000. It is now $75,000 which would put the case in the
Federal court where there would be more objectivity. That is what they
are trying to do here, to eliminate judge shopping.
If the cases which stay in the State court have two-thirds of the
class from that State, it would go into the Federal court. If one-third
or less is not from the State--in the one-third to two-third range--it
would be the discretion of the judge.
As I said yesterday, there is, as far as I am concerned, a very
important purpose here: to put cases in the Federal court to avoid
forum shopping and judge shopping.
With respect to the substantive law, it is my view that the
substantive law ought not to be altered. I commented briefly on the
Bingaman amendment yesterday where I think it is important that the
Federal judges who have the cases would have the discretion to apply
State law. But that will be taken up sometime when we debate the matter
later.
I want to yield now to Senator McConnell for leadership time or time
as he may choose.
Mr. McCONNELL. Mr. President, I thank the chairman of the Judiciary
Committee.
I rise to speak about a case that I believe perfectly illustrates
some of the problems with our current class action system. This case
is, unfortunately, not at all unique. These outrageous decisions happen
all too frequently. The bill currently under consideration will help
fix some of these problems.
I have a chart. It is kind of hard to see. Basically, it is a letter
that a member of my staff recently got. It included a check. The check
is made payable to a member of my staff who received it in the mail. On
the check's ``Pay to the Order of'' line, I have covered up the name of
the staffer so she may remain anonymous.
I also obscured the name of the defendant in this case. Plaintiffs'
lawyers have already soaked them once, and I do not want to give them
the opportunity to do it again. I would hate to see others able to sue
the company because they heard the company settled at least one class
action lawsuit.
Along with this settlement check, my staffer received a letter which
says in part:
You have been identified as a member of the class of . . .
customers who are eligible for a refund under the terms of a
settlement agreement reached in a class-action lawsuit . . .
The enclosed check includes any refunds for which you were
eligible.
Imagine her excitement. As you know, Senate staffers are certainly
not the highest paid people in town. So this woman on my staff told me
she was, indeed, thrilled to anticipate what she might be receiving.
And then she looked at the enclosed check to see just how big her
windfall was. It was a whopping 32 cents. That is right, she received a
check made out to her in the amount of 32 cents. I guess it goes
without saying that she was a little bit disappointed to find out her
newfound riches had disappeared already.
Do not misunderstand me. I am not suggesting my staffer deserved a
bigger settlement check. In fact, she told me she had no complaint
against the defendant, and she never asked to be a part of the lawsuit.
Apparently, she just happened to be a customer of the company that was
sued, and it was determined that she theoretically could bring a claim
against the defendant. So she became a member of ``a class'' who was
due a settlement.
If this does not precisely illustrate the absurdity of the current
class action epidemic in this country, I do not know what does. To
demonstrate just how far out of whack the system is, let's start with
the letter notifying my staffer that she was a member of a class action
lawsuit and had been awarded a settlement.
This letter and check arrived via the U.S. mail. The last time I
checked, it cost 37 cents to send an envelope through the U.S. mail.
The settlement check is only for 32 cents. You can probably see where I
am headed with this. It cost the defendant in a class action suit 37
cents to send a settlement check worth 32 cents. I don't have the
expertise in economics like my good friend and our former colleague
Senator Gramm of Texas, but I can tell you, forcing a defendant to
spend 37 cents to send somebody a 32-cent check does not make much
economic sense, and it certainly defies common sense.
Let me point out the most disturbing element about this lawsuit. My
staffer researched this case, and it may be of interest to all of our
colleagues to note that the unwitting plaintiff received 32 cents in
compensation from this class action lawsuit, and her lawyers pocketed
in excess of $7 million--$7 million. All in all, not a bad settlement
if you happen to be a plaintiff's lawyer rather than a plaintiff.
And in case you think my staffer received an unusually low settlement
in this litigation, let me quote from the letter accompanying the
settlement check:
At the time of the settlement, we estimated that the
average [refund] would be less than $1--
The average refund would be less than a dollar--
for each eligible [plaintiff]. That estimate proved correct.
So you see, while the settlement was being arranged, it was clear
each plaintiff on average would receive less than $1. It was clear that
each plaintiff would receive less than $1. Yet the plaintiffs' lawyers
still rake in more than $7 million.
My colleagues may also be interested to know how much the defendant
was forced to spend defending the lawsuit. Knowing the extent of the
defense costs is instructive in demonstrating how unjust these abusive
suits can be. So we asked the defendant how much it spent defending
this suit that provided each plaintiff with pennies and the lawyers
with millions. Perhaps not surprisingly, the defendant was not willing
to discuss the matter. You see, the defendant told us that if it were
readily known just how much they spent defending the suit, then that
information would almost certainly be used against them in the future.
The defendant feared that if their defense costs were known, then
another opportunistic plaintiff's lawyer would file another one of
these predatory suits, and then that lawyer would offer to settle for
just slightly less than the millions he knew it would cost the
defendant to defend the suit.
This case illustrates how plaintiffs' lawyers exploit and abuse
defendants under the current system. Can there be any doubt that the
current class action system is in need of repair? When the lawyers get
more than $7 million and the plaintiff gets a check for 32 cents,
something is terribly wrong. When defendants fear to disclose how much
they spend fighting these ridiculous suits because to do so would
invite even more litigation, something is terribly wrong. Justice is
supposed to be distributed fairly. This is clearly not a fair way to
distribute justice.
By passing this legislation, we are not going to end every 32-cent
award to
[[Page S1077]]
plaintiffs and multimillion dollar award to lawyers, but we certainly
can curb a great deal of this nonsense.
I know some of my friends on the other side of the aisle will
complain this bill will sound the death knell for class actions in
State court. Nothing could be further from the truth. This is an
important piece of legislation, but it is also a moderate and
reasonable piece of legislation.
Frankly, I liked the original version, but we are where we are today,
and I will talk more about that in a moment. The bill on the floor is
the product of not one, not two, but three carefully crafted
compromises. Not one, not two, but three carefully crafted compromises.
These carefully crafted compromises have us to a point where we can
enact meaningful reform that respects the ability of States to
adjudicate local controversies as class actions while allowing Federal
courts to decide truly national class actions.
The House, frankly, would prefer a stronger bill, and so would I. I
like the original bill that stalled out at 59 votes last year. But the
House also understands that the legislation on the floor is a good
bill.
Therefore, the House is prepared to take this up and pass it without
amendment, assuming that our carefully crafted compromise is itself not
compromised on the Senate floor.
I had an opportunity to talk to Majority Leader Tom DeLay this
morning and he reiterated the statement that he and Chairman Jim
Sensenbrenner made last Friday and it is this: If this bill is passed
without amendment in the Senate, the House will take it up immediately,
pass it, and send it to the President for signature. If it is altered
in any way, the House will then follow the regular order and maybe
sometime during this Congress we will get a class action bill.
Frankly, in my judgment, those who are skeptical of this bill would
be better off with this compromise version than having the House go
through the regular order, in which case they would probably pass a
bill much different from this compromise. We would ultimately have a
conference and in all likelihood, out of that conference might come a
bill more like the one we had last year, which stalled out at 59 votes.
So I would say that for those who are not terribly enthusiastic about
this compromise, it could get a lot worse from their point of view.
This compromise is one that people who have worked on this bill for
years are willing to take, and so our challenge is to keep it clean, to
defeat the amendments that would slow down the process and prevent this
important piece of tort reform legislation from getting to the
President for an early signature. So that is where we are.
We have a marvelous opportunity to demonstrate at the beginning of
this Congress that we are indeed going to be able to accomplish some
important things on a bipartisan basis. This compromise bill appears to
have at least 62 Senators who are for it. Let us hold it together. Let
us keep it as it is and demonstrate to the American public that we can
work together on a bipartisan basis and pass important legislation for
our country.
I yield the floor.
The PRESIDING OFFICER. The Senator from Pennsylvania.
Mr. SPECTER. Mr. President, the next Senator to seek recognition is
Senator Dodd. I am informed Senator Lott will be coming to the floor
shortly to speak, and that soon thereafter Senator Durbin will offer
his amendment. It is now 11:18. That should take the time for floor
action until the hour of 12:30 when we are scheduled under a previous
order to recess for the party caucuses. So I now yield to Senator Dodd.
The PRESIDING OFFICER. The Senator from Connecticut.
Mr. DODD. Mr. President, I begin by thanking our colleague from
Pennsylvania for his leadership on this issue as the new chairman of
the Senate Judiciary Committee, and also to commend our colleague from
Vermont, Senator Leahy, the ranking Democrat on the committee. Despite
their differences on this legislation, we are debating this bill
because the managers have gone through the committee process and have
produced a product for the consideration of the full Senate. I am
pleased this bill is finally before us once again. It has been a year
and a half since we last considered this legislation.
I also commend the two leaders, Senators Frist and Daschle, for
working as early as the fall of 2003 to try and craft a compromise.
Senator Reid of Nevada has picked up on this and I want to particularly
commend Senator Reid. He has some strong reservations about this bill,
as many of our colleagues do, but he has arranged, as the Democratic
leader can, for this matter to come forward. Certainly all of my
colleagues are fully aware that a determined minority can pretty much
stop anything from happening, but the Senator from Nevada, despite his
reservations about this legislation, has worked through the process
with the distinguished majority leader.
The chairman of the committee, the ranking member, and those who are
interested in this bill are trying to move this matter forward. So I
would not want to begin my comments without commending the leaders, but
particularly the Democratic leader, my leader, for putting in the time
and effort to see to it that this matter dealing with class action be a
part of the Senate debate.
The legislation has had a rather long and torturous history, going
back a number of years. I am not going to recite at length that
history. I will only note that several of our colleagues deserve to be
acknowledged for their long and steady persistence in bringing the
Senate to this point. Those Senators include Senator Grassley of Iowa,
Senator Kohl of Wisconsin, Senator Hatch of Utah, and Senator Feinstein
of California. They have worked on the Judiciary Committee, in a very
strong bipartisan fashion, to try and bring this matter up.
I also want to highlight and mention Senator Carper of Delaware who
has been tireless in his support for this effort. Senator McConnell as
well has worked on this issue. Senator Landrieu, and Senator Schumer, I
should mention as well, as a member of the Judiciary Committee, have
also been a part of an effort to try and come up with a bill that could
enjoy broad-based support.
I mentioned Senators Specter and Leahy at the outset of my remarks as
the chairman and ranking member who also worked well together to bring
us to this point. I want to point out to my colleagues, of course, as
someone who was very much involved in the negotiations back in the fall
of 2003, that when the cloture motion failed, as pointed out by the
Senator from Kentucky, within a few moments of that vote this Senator
rose and offered to the majority at that point a willingness to sit
down that day in fact to try and work out differences that would allow
for this bill to go forward.
The distinguished majority leader accepted that offer and we
immediately began a process to put this bill together. In fact, several
of us sent a letter at that time to Senator Frist. The letter was sent
by myself, Senator Landrieu, Senator Schumer, and Senator Bingaman,
outlining four areas that we thought if we could be accommodated in
these areas the bill could go forward in a bipartisan fashion.
I ask unanimous consent that the letter dated November 14, 2003, from
three of my colleagues and me to Senator Frist be printed in the
Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
U.S. Senate,
Washington, DC, November 14, 2003.
Hon. Bill Frist,
Senate Majority Leader,
U.S. Capitol, Washington, DC.
Dear Majority Leader Frist: We agree with the fundamental
principle of the pending class action legislation that would
permit removal of national class actions to federal court.
Under current law, there have been a number of instances of
unjustified forum-shopping and other abuses of the legal
process. We are committed to helping to reform the law to
ensure fair adjudication for all Americans. To that end, we
are writing to outline the policies that need to be addressed
in order to move the Senate toward a bill that can pass
before Congress adjourns for the year.
While we support the general thrust of S. 1751, there are
some instances where the legislation goes beyond the scope of
what we believe must be addressed. It is our view that we are
very close to having a bill that we can support and if we can
satisfactorily address each of the following issues, we can
move forward quickly with you to pass a reform bill.
Based upon our understanding of the issues that have been
discussed by you and the
[[Page S1078]]
Democratic Leader, we believe that most of our concerns are
readily solvable [while a narrow subset may require some
further negotiation to resolve.]
We believe more consideration must be given to the formula
for federal removal. We agree that many types of cases are
best considered in federal court. At the same time, we would
not want the Senate to fashion rules that permit the removal
of cases that are truly single-state cases which are
appropriately considered in state court. Additionally, we
should permit federal court judges to consider a set of
factors that includes both state and federal concerns when
determining whether a case in the ``middlethird'' of the
current formula should be removed.
Mass tort actions that are not brought as class actions
should be removed from the bill. The bill passed by the
Judiciary Committee did not contain this language. We
understand that the peculiarities of state law in two states
may need to be addressed. However, the current mass tort
standard is much broader than necessary to address issues
raised by two of the fifty states. We want to write a rule
that is as precise as possible--in this case, by encompassing
actions that are truly class actions, while at the same time
excluding any cases that are not.
There are several places in the bill that pre-empt current
law or allow for significant deviation from standard
practice. This has the effect of encouraging manipulation or
abuse by either side, and should not be allowed in reform
legislation. The current version of the removal provision
permits removal at any time, even during trial. This includes
a potential ``merry-go-round effect'' of repeated removal and
remand between state and federal courts. Additionally, the
underlying bill does not specify when the court would measure
the plaintiff class and it creates a new appellate review of
remand orders.
In many cases, plaintiffs, who take the risk of coming
forward, should be able to be compensated for that risk. The
bill currently requires their recovery to be precisely the
same as all other members of the class. Different risks and
different damages in civil rights and other claims, should
receive different compensation, upon approval of the trial
judge.
Lastly, the underlying bill simply restates current law in
requiring judges to review coupon settlements. Given the
clear problems that have been raised with abusive coupon
settlements, we believe it is imperative to include stronger
provisions that the attorneys' fees to the actual coupons
redeemed.
While time is short in this session, there is no reason why
the Senate cannot consider this legislation in a bi-partisan
spirit. If we indeed reach agreement, it is critical that the
agreement be honored as the bill moves forward--both in and
beyond the Senate. We are prepared to work with you toward
that end and we look forward to hearing from you soon as
possible as to how we can best move this legislation forward.
Sincerely,
Mary L. Landrieu.
Charles Schumer.
Christopher J. Dodd.
Jeff Bingaman.
Mr. DODD. As a result of that letter, we went through several days of
negotiations on this bill. The four areas that we sought changes in the
bill are the following: Removal of formula including the definition of
mass torts; the so-called merry-go-round problem in the bill; coupon
settlements; and fair compensation for named plaintiffs. Those are the
four areas we identified in the November 14 letter. As a result of our
negotiations, we came back with 12 improvements in this bill, agreed to
by myself, Senators Frist, Grassley, Hatch, Kohl, Landrieu, and
Schumer.
I ask unanimous consent that the list of the 12 changes that was a
result of that negotiation be printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
Summary of Changes to S. 1751 as Agreed to by Senators Frist, Grassley,
Hatch, Kohl, Carper, Dodd, Landrieu, and Schumer
The Compromise Improves Coupon Settlement Procedures
S. 1751 would have continued to allow coupon settlements
even though only a small percentage of coupons are actually
redeemed by class members in many cases.
The compromise proposal requires that attorneys fees be
based either on (a) the proportionate value of coupons
actually redeemed by class members or (b) the hours actually
billed in prosecuting the class action. The compromise
proposal also adds a provision permitting federal courts to
require that settlement agreements provide for charitable
distribution of unclaimed coupon values.
The Compromise Eliminates the So-called Bounty Prohibition in S. 1751
S. 1751 would have prevented civil rights and consumer
plaintiffs from being compensated for the particular
hardships they endure as a result of initiating and pursuing
litigation.
The compromise deletes the so-called ``bounty provision''
in S. 1751, thereby allowing plaintiffs to receive special
relief for enduring special hardships as class members.
The Compromise Eliminates the Potential for Notification Burden and
Confusion
S. 1751 would have created a complicated set of
unnecessarily burdensome notice requirements for notice to
potential class members. The compromise eliminates this
unnecessary burden and preserves current federal law related
to class notification.
The Compromise Provides For Greater Judicial Discretion
S. 1751 included several factors to be considered by
district courts in deciding whether to exercise jurisdiction
over class action in which between one-third and two-thirds
of the proposed class members and all primary defendants are
citizens of the same state.
The compromise provides for broader discretion by
authorizing federal courts to consider any ``distinct'' nexus
between (a) the forum where the action was brought and (b)
the class members, the alleged harm, or the defendants. The
proposal also limits a court's authority to base federal
jurisdiction on the existence of similar class actions filed
in other states by disallowing consideration of other cases
that are more than three years old.
The Compromise Expands the Local Class Action Exception
S. 1751 established an exception to prevent removal of a
class action to federal court when 2/3 of the p1aintiffs are
from the state where the action was brought and the ``primary
defendants'' are also from that state (the Feinstein
formula). The compromise retains the Feinstein formula and
creates a second exception that allows cases to remain in
state court if: (1) more than 2/3 of class members are
citizens of the forum state; (2) there is at least one in-
state defendant from whom significant relief is sought and
who contributed significantly to the alleged harm; (3) the
principal injuries happened within the state where the action
was filed; and (4) no other class action asserting the same
or similar factual allegations against any of the defendants
on behalf of the same or other persons has been filed during
the preceding three years.
The Compromise Creates a Bright Line For Determining Class Composition
S. 1751 was silent on when class composition could be
measured and arguably would have allowed class composition to
be challenged at any time during the life of the case. The
compromise clarifies that citizenship of proposed class
members is to be determined on the date plaintiffs filed the
original complaint, or if there is no federal jurisdiction
over the first complaint, when plaintiffs serve an amended
complaint or other paper indicating the existence of federal
jurisdiction.
The Compromise Eliminates the ``Merry-Go-Round'' Problem
S. 1751 would have required federal courts to dismiss class
actions if the court determined that the case did not meet
Rule 23 requirements. The compromise eliminates the dismissal
requirement, giving federal courts discretion to handle Ru1e
23-ineligible cases appropriately. Potentially meritorious
suits will thus not be automatically dismissed simply because
they fail to comply with the class certification requirements
of Rule 23.
The Compromise Improves Treatment of Mass Actions
S. 1751 would have treated all mass actions involving over
100 claimants as if they were class actions. The compromise
makes several changes to treat mass actions more like
individual cases than like class actions when appropriate.
The compromise changes the jurisdictional amount
requirement. Federal jurisdiction shall only exist over those
persons whose claims satisfy the normal diversity
jurisdictional amount requirement for individual actions
under current law (presently $75,000).
The compromise expands the ``single sudden accident''
exception so that federal jurisdiction shall not exist over
mass actions in which all claims arise from any ``event or
occurrence'' that happened in the state where the action was
filed and that allegedly resulted in injuries in that state
or in a contiguous state. The proposal also added a provision
clarifying that there is no federal jurisdiction under the
mass action provision for claims that have been consolidated
solely for pretrial purposes.
The Compromise Eliminates the Potential For Abusive Plaintiff Class
Removals
S. 1751 would have changed current law by allowing any
plaintiff class member to remove a case to federal court even
if all other class members wanted the case to remain in state
court. The compromise retains current law--allowing
individual plaintiffs to opt out of class actions, but not
allowing them to force entire classes into federal court.
The Compromise Eliminates the Potential for Abusive Appeals of Remand
Orders
S. 1751 would have allowed defendants to seek unlimited
appellate review of federal court orders remanding cases to
state courts. If a defendant requested an appeal, the federal
courts would have been required to hear the appeal and the
appeals could have taken months or even years to complete.
The compromise makes two improvements: (1) grants the
federal courts discretion to refuse to hear an appeal if the
appeal is not in the interest of justice; (2) Establishes
tight deadlines for completion of any appeals
[[Page S1079]]
so that no case can be delayed more than 77 days, unless all
parties agree to a longer period.
The Compromise Preserves the Rulemaking Authority of Supreme Court and
Judicial Conference
The compromise clarifies that nothing in the bill restricts
the authority of the Judicial Conference and Supreme Court to
implement new rules relating to class actions.
The Compromise Is Not Retroactive
Unlike the House bill, the compromise will not
retroactively change the rules governing jurisdiction over
class actions.
Mr. DODD. I will not go through and name each one of them. Some of
them are rather arcane but nevertheless important provisions of this
bill, the point being that we were prepared basically in the fall of
2003 to go forward.
We were notified at that point that the first item of business in
January of 2004, more than a year ago, would be the class action reform
bill. Well, here we are in February of 2005 finally getting to this
matter. There was a prepared bipartisan bill over a year ago on class
action and we are now dealing with exactly the same bill. As the
Senator from Kentucky pointed out, he would have preferred the House
bill, the bill that was not approved when the cloture motion was held,
and reluctantly is supporting this bill.
There are those of us who could not have supported the House bill or
the version that came up in the Senate earlier, but we have worked very
hard to put this compromise together over a year ago. So we could have
dealt with this a long time ago, but nonetheless we are here today and
that is the good news.
I am heartened that the other body has agreed to accept this version
if it goes unamended over the next day or so during the debate and
consideration of this legislation. I am hopeful that will be the case.
Very briefly, I will go through what we have achieved. As I
mentioned, following the vote Senator Frist asked myself and others,
including my good friend from Delaware who is on the floor today, to
enter into discussions with him and other Members to explore whether
there might be some ways of building greater support for this bill.
Senators Schumer and Landrieu joined in writing a letter to the
majority leader, which I have put into the Record already, in which we
laid out the four areas of our concerns. We subsequently entered into
those negotiations among our four offices. Senators Grassley, Kohl,
Hatch, and Carper played very important roles in that consideration.
Those negotiations were very productive. We reached significant
agreement not on the four original areas of concern but on eight others
as well. That point deserves special emphasis. We went into the
negotiations seeking improvement on four issues. We emerged with
significant changes on 12 issues.
The result is a bill that is now before this body. In my view, it is
very fair and balanced, rather modest legislation that addresses a
number of well documented shortcomings in our Nation's class action
system. It shows what we can accomplish in the Senate when we work
together in a bipartisan fashion. As with all good compromises, this
bill is entirely satisfactory to no one and in some respects
unsatisfactory to everyone.
There are those who will say this bill does not go nearly far enough
in rectifying the shortcomings of the class action system in our
country. On the other hand, there are those who believe that the sky is
falling, that the bill severely impairs the ability of people to gain
access to our courts. In my judgment, claims of both sides are vastly
overstated. One of the reasons why I believe this is so is that the
people on both sides of the legislation, proponents and opponents
alike, agree our compromise has made this bill better. It targets more
precisely those problems in need of reform and addresses them in an
appropriate and effective manner.
We will no doubt discuss those problems in more detail in the coming
hours, but allow me to briefly mention two of them. Perhaps the central
problem addressed by the compromise is the forum shopping issue.
Article III of the Federal Constitution sets forth the circumstances
under which cases may be heard in Federal court. Article 2 of Article
III extends Federal jurisdiction to suits ``between citizens of
different States.'' These are known as diversity cases. The Framers had
two separate but related reasons for allowing Federal courts to hear
cases between citizens of different States.
Very simply, one was to prevent the possibility that the courts of
one State would discriminate against the citizens of another State. The
second reason was to prevent the possibility that the courts of one
State would discriminate against interstate business and thereby impede
interstate commerce. Over the years, however, class action rules have
been interpreted in such a way that plaintiffs' lawyers have been able
to keep class actions out of Federal court, even those that are
precisely the kind of cases for which diversity jurisdiction was
created, because of their interstate character. They do this by adding
named plaintiffs or defendants solely based on their State of
citizenship in order to defeat the diversity requirement.
Alternatively, they allege an amount in controversy that does not
trigger the $75,000 threshold for removing cases to Federal court. The
result is frequently an absurd one. A slip-and-fall case in which a
plaintiff alleges, say, $76,000 in damages can end up in Federal court.
At the same time, a case involving millions of plaintiffs from multiple
States and billions of dollars in alleged damages is heard in State
court, just because no plaintiff claims more than $75,000 in damages or
because at least one defendant is from the same State of at least one
plaintiff.
Section four of the bill modifies these diversity rules to allow
Federal courts to hear diversity cases that have a strong interstate
character. In particular, it allows Federal jurisdiction if the amount
in controversy alleged by all plaintiffs exceeds $5 million and if any
member of the plaintiff class is a citizen of a different State than
any defendant. At the same time, the bill creates careful exceptions
that allow cases to remain in State courts where those cases are
primarily intrastate actions that lack national implications.
The legislation attempts to bring diversity rules more in line with
the original purpose of Federal diversity jurisdiction. Cases that are
interstate in nature because they involve citizens of multiple States
and interstate commerce may be heard in Federal courts. Cases that are
not interstate in nature remain in State courts.
A second problem the compromise addresses is the so-called coupon
settlements. As our colleagues may know, a growing number of class
action cases involves these type of settlements. In a typical coupon
settlement, class members receive only a promotional coupon to reduce
the cost of a defendant's products while the lawyers for the class
action receive a rather large fee that is disproportionate to any
client benefit.
For instance, in one case a soft drink company was sued for
improperly adding sweeteners in apple juice. The company agreed to
settle the case. The settlement required it to distribute to customers
a 50-percent coupon off the purchase of apple juice. Meanwhile, class
counsel received $1.5 million in cash.
I have no problem with attorneys earning a fee for their services. In
fact, the compromise bill places no caps at all on attorney fees,
although there were those who wanted to do that.
But what is particularly disturbing about these coupon settlements is
class members typically redeem only a small portion of the coupons
awarded. In fact, over the years only 10 or 20 percent of coupons were
actually redeemed. Yet the attorneys are paid regardless of how many
coupons are cashed in.
In effect, there is a negative incentive for counsel for both
plaintiffs and defendants to enter into such settlements. Counsel for
the plaintiff is paid their fee regardless of the percentage of coupons
redeemed. At the same time, counsel for the defendants know they are
likely to pay in redeemed coupons only a fraction of what they would
pay if they paid cash to settle a case. Meanwhile, the actual class
members--the ones who have actually been aggrieved--receive a benefit
of little or no value at all.
Our compromise takes several steps to remove this negative incentive
to enter into coupon settlements. Most importantly, it states that an
attorney's fee incurred to obtain a coupon
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settlement can only be paid in proportion to the percentage of coupons
actually redeemed. For example, if an attorney's fee for obtaining a
coupon settlement is $5 million but only one-fifth of the coupons are
actually redeemed, the attorney can only recover one-fifth of his or
her fee--roughly $1 million.
In addition, the bill requires that a judge may not approve a coupon
settlement until he or she conducts a hearing to determine whether
settlement terms are fair, reasonable, and adequate for class members.
There are other provisions of the bill that are also important.
In the interest of time--I see my colleague from Mississippi also
wants to speak before our colleague from Illinois offers the first
amendment--I will defer discussing them in detail at this hour.
However, to reinforce my central argument that this is a reasonable,
modest piece of legislation, it is worth mentioning what the bill does
not do.
First, it does not apply retroactively, despite those who wanted it
to. A case filed before the date of enactment will be unaffected by any
provision of this legislation.
Second, this legislation does not distinguish in any way or alter a
pending case.
Third, it does not in any way alter substantive law or otherwise
affect any individual's right to seek equitable and monetary relief.
Fourth, in does not in any way limit damages, including punitive
damages.
Fifth, it does not cap attorney fees.
These are all matters that some people wanted to include in the bill.
And, it also does not impose more rigorous pleading requirements of
evidentiary burdens of proof.
As some of our colleagues have said, this legislation is actually
more court reform than tort reform. Candidly, I think they are more
right than wrong about that. This is more court reform than tort
reform. It stands in very sharp contrast to some of the other
legislation considered by the Senate in the last Congress. That
includes the Energy bill, which extinguished pending and future suits
against makers of MTBE, a highly toxic substance that pollutes ground
water.
It also includes legislation that shielded gunmakers and gun dealers
from many types of lawsuits.
Incredibly, we were about to adopt legislation that would completely
exclude an entire industry even when there was complete negligence on
their behalf of being sued. I suggested when we were about to adopt
those bills that Members think about talking about tort reform. Those
matters cause this Senator deep concern, despite the fact I represent
the largest gun producers in the United States. I cannot imagine my
insurance companies getting a deal as the gun manufacturers were about
to get. Nonetheless, those bills died, as they should have, in my
opinion.
The legislation before the Senate today does not close the courthouse
door to a single citizen in this country. Maybe that citizen will end
up in Federal court rather than State court, but no citizen will lose
the sacred right in America to seek redress or grievance in a court of
law.
When this compromise was written 15 months ago, it was said that it
was critical that this bill be honored as the bill moves forward--both
within and beyond the Senate. I continue to believe that to be the
case.
In the words of the Senator from Kentucky earlier today, as well as
statements made by Speaker Hastert, this Member is assured that, in
fact, the agreements will be kept. In fact, I had a conversation with
the staff of Mr. Sensenbrenner, chairman of the House Judiciary
Committee, who reinforced the notion that if we adopt this bill as it
presently reads, then there will no changes in the House and they will
accept the Senate language. That is good news for those of us who have
worked on this compromise.
Certainly, this is not a perfect bill. No bill is. We all know that,
but I think it strikes a careful balance between remedying the
shortcomings and retaining the strengths of current class action
practice in this country.
Obviously, the bill is not yet through the Senate. But the consent
agreement entered into by the two leaders is an auspicious beginning to
preserving the balance.
Let me, once again, reiterate my thanks to Senator Reid of Nevada,
the distinguished Democratic leader, and for Senator Frist entering
into that agreement which allows us to have this debate, and for all
relevant and germane amendments to be considered to this legislation.
Certainly, that is the way it ought to be done.
Moreover, I note that the leadership of the other body has indicated
its willingness to respect the balance that this bill strikes, as well.
That, too, is a positive development.
I stand in strong support of this legislation. I think it is a good
compromise. It is not a perfect one. I know my colleagues may offer
some amendments that I might have been attracted to under different
circumstances which I may support, but when you try to reach agreement
here, it is not easy. And when you do, I think it is worthy of support,
particularly when those agreements cover as much territory as we did
during the compromise efforts 15 months ago.
As I mentioned at the outset, there were four proposals with which we
ended the negotiations. Those four proposals were adopted, and eight
others were added during that negotiation.
I commend again the leader. I commend Senators Specter and Leahy for
their efforts, and I look forward to this bill passing the Senate and
being adopted by the House and going to the President for his
signature.
I yield the floor.
The PRESIDING OFFICER. The Senator from Mississippi.
Mr. LOTT. Mr. President, I rise today in strong support of the Class
Action Fairness Act of 2005.
Before he leaves the floor, I thank the Senator from Connecticut, Mr.
Dodd, for his comments and for his leadership in this area. He has been
steadfast. He has been involved in the process of moving this bill
forward. A process which involves some give and take and some
compromise.
Surprise, surprise. That is the legislative process. This is not a
perfect bill, as he noted. It is not one that I particularly like. I
would like to make it a lot stronger, but it is a major step forward.
I thank Senator Dodd, and other Senators. Senator Carper has been
involved in that process, and colleagues on this side of the aisle.
I am pleased that the first substantive bill of the year is one that
truly has a chance to make a huge difference in this country, and it is
a bipartisan effort. It is one that I predict, when we go through the
amendment process and get to the end, will have a large vote in
support. I will not be surprised if it gets 70 votes. I hope for that.
That would be a positive step.
If we can hold the line on amendments that may be offered--some that
I would be attracted to, some that Senators such as Senator Dodd would
be attracted to--but we worked out an agreement. We should brush back
those amendments, discourage a whole raft of amendments being
contemplated, and complete our work. The House has indicated they will
accept this product--the compromise we came up with. When was the last
time you heard of that even being possible?
But they have reaffirmed just in the last few days that, yes, if we
can complete it the way it is presently structured, they will take it
up, pass our bill, and send it to the President. That would be a good
way to start this year.
I thank colleagues on both sides of the aisle for the work that has
been done.
Senator Hatch is here managing the legislation. He has worked on this
long and hard, including last year when we had an opportunity that
slipped away from us for a variety of reasons. It was tough last year
to get much of anything done with all of us preoccupied with the
Presidential campaign and our Senate campaigns and the House races.
There is no use going back and rehashing why we didn't get it
completed. We didn't get the job done. But we can do it now.
I thank Senator Hatch for the work he has done on this bill over the
years, and Senator Specter for getting it out of the Judiciary
Committee in good order. I thank Senator Grassley for his usual dogged
determination to not give up on an issue, and he continues to press not
only this but the bankruptcy reform issues.
I am thankful for the way we are starting off this year. I thank the
leadership for working out an agreement to
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bring this bill to the floor. We could very well have had a filibuster.
But Senator Frist, working with Senator Reid, has indicated we are not
going to get into that morass. We are going to step up to this issue,
we are going to address it and debate it, and we are going to get
results. I think that is good.
I believe the American people want us to complete action on this
legislation and pass the bipartisan compromise this week, if at all
possible.
There is no reason for this to be dragged out over a long period of
time. We know there are a few amendments that are going to be offered.
We will debate them. Let us vote and get to the conclusion of this
process in the Senate, and send it to the House so they can take it up.
Why do we need this bill?
Some people would say we have the greatest judicial and jurisprudence
system in the world. Things are working fine. Let us just leave it
alone.
I don't believe things are exactly working just fine. Every system
over a period of time needs some adjustment, and if abuses begin to
occur, we must step up and stop them.
Over the past decade, we have seen a dramatic rise in the number of
interstate class actions being filed in State courts, particularly in
what are called magnet jurisdictions. I regret to say, and acknowledge,
my State is one of the worst abusers. To the credit of our State
legislature and our Governor, Haley Barbour, last year in Mississippi
we passed tort reform legislation. We have gone from being the center
of jackpot justice to being a State that has been praised by legal
journals and the Wall Street Journal as having stepped up to the issue
and dealt with it in a responsible way. They now describe my State in
this way: Mississippi, open for business.
Prior to tort reform though, businesses, industry, manufacturers,
drugstores, etc. would not come to Mississippi to do business. They
were not coming to my State, one of the poorest States in the Nation,
because of the abuses that have been occurring in the legal system.
But now, we have done our part in Mississippi. We still need to do
more, but this is a Federal interstate problem and we in Congress are
going to have to help address it.
Courts where the class action mechanism is routinely and egregiously
abused have been proliferating. In many instances we know the
plaintiffs get little or nothing, and the lawyers have gotten massive
fees. I can cite example after example in my State where awards have
been de minimus or nothing. Jefferson County, MS, in my State is one of
the worst, most abused magnet jurisdictions in the country. Far too
often innocent local business men and women are joined as defendants in
controversies to which they were merely innocent bystanders, all
because plaintiffs' lawyers wanted to file the case in Jefferson County
for the purpose of getting a bigger fee. Often, the cases have no other
relationship to that county or to my State other than this is a good
place to go. This is unconscionable. We have an obligation to our
constituents to put a stop to it.
Before going any further, it is important we take note of the title
of this legislation: Class Action Fairness Act. This is not just some
random title that Senator Grassley or others came up with. The whole
point of the bill is to make the class action mechanism fair for all
involved.
Some of my colleagues will argue today, I am sure, that the system is
already fair. I ask, Is it fair for the plaintiffs in a class action
suit to receive nothing, literally nothing, when the lawyers
representing them receive $19 million? The citation is Shields et al.
v. Bridgestone/Firestone, Inc. et al.
That is an actual case. Is it fair for the claims of residents of
Mississippi, Washington, or Maine to be decided according to Illinois
State law? Of course not. These are just two of the many reasons we
need class action fairness, and we need it now.
Our Nation's judicial system was designed to be the fairest in the
world for all litigation, and we have gotten away from that. These
abuses have called into question the very fairness of our whole system.
It is imperative we act to close these loopholes that have allowed this
process to fail in the way that it has.
Before I talk about the specifics of what this bill does, let me take
a minute to emphasize a few things the bill does not do. We will hear
these allegations over the next few days, I am sure. This bill is not a
tort reform bill, it is a court reform bill. This bill does not alter
in any way substantive law. There may be some here who would want to
debate that. However, I made that point at a meeting earlier today and
I have gone back and checked it with experts. That is an accurate
statement.
Contrary to the scare tactics of the plaintiffs' lawyers, this bill
does not affect an individual's right to seek redress or damages
through the court, and it does not in any way limit damages, either
punitive or compensatory.
What does it do? First, it expands the jurisdiction of Federal courts
over large interstate class actions. Clearly, that is a Federal
jurisdictional issue and one we have a right and a real need to get
into.
Let's be clear. We are only talking about those cases in which the
aggregate amount in controversy exceeds $5 million, in which there are
at least 100 plaintiffs, and in which any plaintiff is a citizen of a
different State from any defendant. This makes basic sense. Where you
have more than 100 class members and where parties to the litigation
are from different States, the Federal courts should have jurisdiction.
This provides fundamental fairness for all involved. The Framers of our
Constitution were concerned about ensuring fairness in cases like this,
worried that State courts could be biased in favor of a home State
party versus another party who was a resident of a different State.
That is the very reason for a Federal diversity jurisdiction.
It only makes sense that we close the loopholes that a growing number
are abusing and exploiting with the result of creating a system that is
having a huge impact in terms of dollar amounts and business and
economic development.
It is also important to note that this bill does not apply to every
class action, only those meeting certain criteria. It is not going to
result in our Federal courts being overwhelmed by a large number of
class actions. We will hear that accusation this week. And it will not
move all class actions to Federal court. In fact, it leaves in State
courts a significant number of class actions. It reserves for State
courts those cases in which all plaintiffs and defendants are residents
of the same State. It reserves for State court those class actions with
less than 100 plaintiffs. Likewise, class actions involving an amount
in controversy of less than $5 million would remain in the State court
as would class actions in which a State government entity is the
primary defendant.
As a part of the compromise worked out with Senator Feinstein last
year, class actions that are brought against a company in its home
State and in which two-thirds or more of the class members are also
residents of that State would remain in State court.
Finally, State courts would retain jurisdiction over class actions
involving local controversies where at least two-thirds of the class
members and one real defendant are residents of the State where the
action is brought. This bill reserves these cases for State court
because it is the right thing to do.
There are other provisions of importance in this bill, including a
consumer class action bill of rights. As many know, part of this
section represents a compromise worked out by Senators Schumer, Dodd,
and Landrieu last year. Notably, it places limitations on contingency
awards for attorneys in coupon settlement cases. By basing these
contingency fees on the value of the coupons that are actually
redeemed, or the amount of time expended by the attorney, it provides
for a far greater protection for plaintiff class members. This
provision takes a big step toward addressing the grossly inequitable
fee awards to attorneys when class members end up with a coupon.
Additionally, by requiring the judge to make a written finding that
the benefits to class members substantially outweigh the monetary loss
from a settlement, the bill provides an added layer of protection for
class members who will suffer a net monetary loss as a result of
payment of attorney's fees.
[[Page S1082]]
Do not get me wrong. I went to law school. I practiced law for a
while. Yes, I was on the defense side of the ledger most of the time.
But I have to admit reluctantly that my brother-in-law--I am really not
related to him by blood; he married my wife's sister--is one of the,
shall we say more famous lawyers in this country, Richard Scruggs. He
has brought a lot of lawsuits I don't like. On occasion he actually
makes a point with some of those lawsuits. I don't want to put him out
of business, but I want some reasonable restraint on how these class
action suits have been abused. He has not been one of the ones who
actually wound up having abused lawsuits in the courts, as he winds up
getting settlements most of the time.
I understand both sides of this equation. I certainly do not want to
take away people's right to sue--individuals or even class actions,
when they are really a class. That is not what has been happening.
There has been an effort to dredge up clients, and it has led to the
next area I will talk about, mass actions.
There is language in this bill dealing with mass actions. I
understand there may be an effort later today or this week to change
this section with an amendment that I understand may be offered. But it
is vital that we retain the mass action section of the bill without an
amendment so that we don't open the door for lawyers to make an end run
around what we are trying to do with class actions in this bill.
The mass action section was specifically included to prevent
plaintiffs' lawyers from making this end run. It will ensure that class
action-like cases are covered by the bill's jurisdictional provisions
even if the cases are not pleaded as class actions.
The amendment that we are hearing may be offered later today is a
little sleight of hand. This is a case where you argue that you're only
changing one word but, in reality, you fundamentally alter what happens
with regard to these mass actions. There are a few States, such as my
State--which do not provide a class action device. In those States,
plaintiffs' lawyers often bring together hundreds, sometimes thousands
of plaintiffs to try their claims jointly without having to meet the
class action requirements, and often the claims of the multiple
plaintiffs have little to do with each other. There was an instance in
my State where you had more plaintiffs in one of these mass actions
than you had people in the county, more than the residents in the
county. Under the mass action provision, defendants will be able to
remove these mass actions to Federal court under the same circumstances
in which they will be able to remove class actions. However, a Federal
court would only exercise jurisdiction over those claims meeting the
$75,000 minimum threshold. To be clear, in order for a Federal court to
take jurisdiction over a mass action, under this bill there must be
more than 100 plaintiffs, minimal diversity must exist, and the total
amount in controversy must exceed $5 million. In other words, the same
safeguards that apply to removal of class actions would apply to mass
actions.
Mass actions cannot be removed to Federal court if they fall into one
of four categories: One, if all the claims arise out of an event or
occurrence that happened in the State where the action was filed and
that resulted in injuries only in that State or contiguous States. That
makes sense. The second exception would be, if it is the defendants who
seek to have the claims joined for trial; third, if the claims are
asserted on behalf of the general public pursuant to a State statute;
and, lastly, if the claims have been consolidated or coordinated for
pretrial purposes only.
Some of my colleagues will oppose this mass actions provision and
will want to gut it by making an effort to confuse mass actions with
mass torts. I realize we are kind of getting into a legalese
discussion, but words make a difference when you are considering a bill
such as this. I am very concerned that the real motive is to render
this provision meaningless, thereby creating a loophole for the trial
lawyers to basically get a class action by another name.
Mass torts and mass actions are not the same. The phrase ``mass
torts'' refers to a situation in which many persons are injured by the
same underlying cause, such as a single explosion, a series of events,
or exposure to a particular product. In contrast, the phrase ``mass
action'' refers to a specific type of lawsuit in which a large number
of plaintiffs seek to have all their claims adjudicated in one combined
trial. Mass actions are basically disguised class actions.
If we enact the amendment that we are hearing may be offered to alter
the mass action section, if we do not keep the mass action section
intact, we will be knowingly creating a loophole that would undermine
our whole effort in getting some responsible reform.
I also understand there is another amendment that will be offered,
and it has been referred to as the choice of law amendment. That has a
good sound, choice of law. To me, that is another word for shopping
around to find the best forum, once again, with no relation to where
the incident occurred or where the plaintiffs live, or the defendants,
or anything.
I have spoken to several of my colleagues about this amendment in the
last week or two, and some of them have even said to me: Don't you
think we should include this amendment? My answer is no. This is a bad
amendment. In my opinion, it is a poison pill. If we accept this choice
of law amendment, basically the plaintiffs' lawyers can go to Federal
court and say: OK, it is in Federal court, but we want to look at
this State law, that State law, or another State law, depending on
which one suits our particular cause the best. If this amendment is
offered and passes, we would certainly have to go to conference then
with the House. It would delay our efforts to get a final bill. And if
we could not come up with a solution in conference that did not include
this amendment, we would not get a bill.
So the phrase ``choice of law'' does sound nice, but the amendment
actually would alter very fundamental legal principles. It would
require Federal courts to apply one State's laws when adjudicating a
nationwide class action. Here is what that means. If a nationwide class
action is brought against a Mississippi company, the judge would be
forced, under this amendment, to choose one State's law to apply to the
whole country. The Mississippi company, which typically conducts
business in Mississippi in compliance with Mississippi law and Federal
law, would not necessarily have the protection of Mississippi law. Even
though the Mississippi law, with which the company complied, differed
from, for example, Nebraska law, the judge could potentially choose to
apply Nebraska law.
So believe me, the proponents of this amendment know exactly what
they are doing. If it were adopted, it would perpetuate the forum
shopping that has been going on in recent years that has led to one of
many areas of abuse.
Let me conclude because I know others want to speak. We want to get
the process started. It is a compromise bill. It is not perfect. There
will be different points of view. I have worked in this area for many
years. I have heard all the arguments. I have heard those arguments on
the floor of the Senate, in committee rooms, and at the family dinner
table.
I want people to be able to get justice and redress. But I do not see
how anybody can argue that there has not been abuse in the area of
class actions and in mass actions. It has certainly been abusive in my
own State. What disgusts me the most is the lawyers it has made
superwealthy while the claimants got almost nothing. We can do better.
This legislation will lead to a better solution.
I yield the floor, Mr. President.
The PRESIDING OFFICER (Mr. Martinez). The Senator from Illinois.
Mr. DURBIN. Mr. President, I say to those of you who are following
the Senate in action, welcome to our first substantive bill. That is
right, this is the first substantive bill that we are considering. Some
might conclude, if it is the first, it must be a very high priority.
Does it have to do with health care in America, the increasing costs
of health care for families and businesses and individuals? No.
Does it have to do with education in America, how to improve our
schools so we can compete in the 21st century? No.
[[Page S1083]]
It must be the Federal Transportation bill then. We know we need
that. We are 2 years late in passing that bill, and we need the money
spent in America to build our infrastructure. Is this the Federal
Transportation bill? No.
No, it does not have anything to do with health care or education or
transportation, despite the fact that every Senator in this Chamber,
when they go back to their States and meet with their people, hears
about those issues.
Senator, what are you going to do about the cost of health insurance?
It is killing my business. Senator, what are you going to do about the
President's No Child Left Behind, an unfunded Federal mandate? We are
having trouble with our school districts back in Illinois and Utah and
other places. What are you going to do about that? Senator, when are
you going to pass the Federal Transportation bill? We need to improve
our highways in Illinois.
Those are the comments we hear. But, no, when it comes to the very
first bill, the highest priority of the Republican leadership in this
Congress, we are going to deal with what they have characterized as a
litigation crisis.
Richard Milhous Nixon, former President of the United States, wrote a
famous book during his public career entitled: ``My Six Crises.'' Well,
if you pay close attention to the Bush administration, you will find
that they are way beyond six crises. They have told us we had a
national security crisis that required the invasion of Iraq; an
economic crisis which required tax cuts for the wealthiest people in
America; a vacancy crisis in the Federal courts, despite the fact that
this Senate had approved 204 of the President's 214 judges he sent to
us. We were told we had a moral crisis requiring constitutional
amendments. And just last week, the President has told us we have a
Social Security crisis.
It is hard to keep up with this White House and all their crises. And
here today, we are told we have a litigation crisis and a sense of
urgency to deal with this bill. Yet the facts do not back it up.
According to the Administrative Office of the U.S. Courts, which is a
part of the Federal judiciary, tort actions in Federal district courts
from 2002 to 2003 dropped by 28 percent.
Over the last 5 years, Federal civil filings have not only decreased
by 8 percent, the percentage of civil filings that are personal injury
cases has declined to a mere 18.2 percent of the total docket.
The same thing is happening at the State level. So the statistics
tell us we are not seeing an onslaught of more and more cases. Just the
opposite is true; that is, in cases filed by individuals.
The study also took a look to find out what American businesses were
doing--American businesses suing other businesses. It turns out
American businesses were 3 to 5 times more likely to file lawsuits than
individuals.
For example, in Mississippi, the State of the Senator previously
addressing the Chamber and one of the States often criticized by tort
reform advocates, Public Citizen found that businesses were more than
five times more likely to file suits than individuals. In that State,
there were 45,891 business lawsuits filed compared to 7,959 lawsuits by
individuals. You sure wouldn't know it listening to the comments on the
floor about a litigation crisis.
Along comes the self-styled group called the American Tort Reform
Association. I think if you lift the lid on the American Tort Reform
Association, you will find a lot of the big business interests in
America. They have come forward and decided that they are going to call
certain areas of America judicial hellholes. For example, their 2004
report labeled the entire State of West Virginia as the No. 4 judicial
hellhole in America. Why? The report states that in one county, Roane
County, WV, which in its first 150 years never had a class action
lawsuit, actually had two class action lawsuits filed in a year and a
half--two in a year and a half, the No. 4 judicial hellhole in America.
Here is another exaggeration by the same group: the No. 6 judicial
hellhole in America, Orleans Parish, LA. According to the report from
the American Tort Reform Association, a strong proponent of this bill,
this county earned the title because ``plaintiffs attorneys are turning
mold into gold'' by representing a class of government attorneys
working in buildings containing toxic mold which caused health
problems. How many class action lawsuits were filed in Orleans Parish
to make them a judicial hellhole? One.
The Senator from Mississippi spoke a few minutes earlier about abuses
in his own State. Take a look at what happened in the State of
Mississippi. In 2002 and 2003, this same American Tort Reform
Association listed Mississippi, its 22nd judicial district, as a
judicial hellhole. In 2004, it didn't make the list. Why? Because the
State actually received five pages of praise from the same group for
changing its State's laws to deal with class action lawsuits. This
Mississippi judicial hellhole became an object of praise and admiration
when they fixed their own problem at the State level.
I can't avoid the topic of judicial hellholes without speaking for a
moment about Madison County, IL. The President was so upset about
Madison County, IL, that he flew to Collinsville a couple weeks ago to
criticize their court system. Let's take a look at Madison County in
terms of real numbers.
In 2004, Madison County ranked No. 1 by the American Tort Reform
Association as the worst judicial hellhole in America. So what do we
find about the class action lawsuits that were filed in Madison County?
Of the class action lawsuits filed in 2002, four were certified to go
forward. All the rest of them languished and did not. Four cases in
2002 went forward. But surely if they are a judicial hellhole, it got
worse. But it didn't. In 2003, only one class action lawsuit was
certified. One. What happened in 2004? Not a single class action
lawsuit has been certified. So when you hear these exaggerations on the
floor about judicial hellholes and all of these class action lawsuits,
it turns out that the No. 1 example of a judicial hellhole--Madison
County, IL--had no class action lawsuits that were certified in 2004.
We know what this is all about. We should get down to the basics. Why
is the U.S. Chamber of Commerce spending over $1 billion to lobby us to
pass this bill? This is the largest amount of money ever recorded for
lobbying activities and the first time that lobbying spending has
passed the $1 billion mark. Why is it so important? According to
Senator Lott and others, it is just a simple thing. We are going to
take class action lawsuits out of State courts and put them in Federal
courts. What is the matter with that? Federal courts are supposed to
represent the Nation. These class action lawsuits have plaintiffs from
all over the country. It seems reasonable.
If that is all there is to it, why would these business interests
spend such an inordinately large sum of money to lobby us to pass it?
Because they know, as we know who have practiced law, that Federal
courts are unfriendly to class actions. Federal courts are less likely,
by their own rulings, to certify a class. In other words, a class of
plaintiffs files a lawsuit in Federal court, it is less likely it will
go forward. That is what this is all about. It isn't about class action
fairness; this is the class action moratorium act.
Also, Federal law favors less liability in case after case. Federal
law discourages Federal judges from providing remedies under State
laws. So the business interests that want to move these cases from
State court to Federal court understand what it is all about. Fewer
cases will survive. Those that do will pay less. That is what their
goal is. That is why they have spent this enormous amount of money
lobbying Congress.
Listen to what the business interests say about the Class Action
Fairness Act before us:
It would simply allow Federal courts to more easily hear
large national class action lawsuits affecting consumers all
over the country.
How harmless. Yet they spent $1 billion lobbying to pass this bill as
the first bill of this Congress--before health care, before education,
before the Federal transportation bill. They know, as we do, that class
action lawsuits in Federal court are much less likely to survive.
Let me give an example, because the problem with talking about class
actions is most people listening say: What in the world is he talking
about?
[[Page S1084]]
Is this a class in school or class of people? Who are you referring to?
Let me give a concrete example.
Charles and Jenny Will live in Granite City, IL, which happens to be
in Madison County. They are an older couple. They live in a small blue
and white wood-frame house. Their main source of income is Social
Security. They are nice people. I am proud to have them as my
constituents. On their walls hang pictures of their kids and the Last
Supper.
Mr. Will has 3 years of Active-Duty service in the U.S. Navy and a
sign in his front yard that he proudly put there saying ``support our
troops.'' He is 71 years old. He is on oxygen, but he moves around
pretty well. He has had some major heart problems, including triple
bypass in 1989, and problems with his leg where the doctors had to
remove a vein for surgery.
Mr. Will is taking nitro tablets and about 15 different medications
daily, two of which are insulin. He was, unfortunately, diagnosed with
diabetes 20 years ago, and he has very few complications--thank
goodness--but it seems to have affected his vision, which is not very
good.
Mr. Will was prescribed the drug Rezulin by his doctor. He remembers
it because the drug was real expensive. He told the doctor he couldn't
afford it, so his doctor gave Mr. Will a bunch of samples to take home.
Rezulin, a drug prescribed for the treatment of type 2 diabetes, became
available in the U.S. in 1997. Warner-Lambert marketed this drug as
``safe as a placebo''--in other words, as safe as a sugar pill.
Three years after Rezulin came to market, the FDA asked Warner-
Lambert to voluntarily remove the drug from the market as they started
noting too high an incidence of liver failure and deadly side effects.
Mr. Will was subsequently taken off Rezulin and prescribed a safer
treatment.
A class action lawsuit was filed in Illinois to protect people living
there like Mr. Will. The case alleged that Warner-Lambert violated the
New Jersey consumer fraud statute by pricing the drug much more in
excess of the price that the drug would have been but for Warner-
Lambert's concealment of the drug's deadly side effects.
This theory is supported by the major insurance companies.
Last year, the case was certified by the State court as a class
action. But it was turned down in Federal Court. That is the problem we
are running into.
Mr. President, I have an amendment I am going to offer. I think I
will wait until after lunch to do that. The Senator from Texas is here
and wishes to speak. We have about 20 minutes remaining.
I yield the floor.
The PRESIDING OFFICER. The Senator from Texas is recognized.
Mr. CORNYN. I will speak generally about the issue of class action
reform contained in S. 5, because I believe the American civil justice
system is, in many ways, at a crossroads. We have an opportunity to
choose between taking a path toward greater freedom and responsibility,
or heading down a path that encourages lawsuit abuse and cripples our
ability to compete in a global economy. Now is the time, I believe--
actually it is past time--to enact the reforms necessary to ensure
America's competitiveness in the 21st century.
I am struck, as I listen to the critics of this bill, many of whom
are the same people who complain about the fact that American jobs are
being sent offshore to places like India, China, and elsewhere, when
one of the very causes of the damage to America's global
competitiveness is our civil justice system.
I think people of good faith and good will agree that the goal of our
civil justice system ought to be getting people who are truly injured
as a result of the fault of another fair compensation. But I think
also, being objective about this issue and some of the examples of
abuses that we have seen, we know too often that this goal is not being
met in the current environment. We see lawsuit abuse particularly in
the class action area and also in the asbestos area. This abuse is
having a damaging impact on our economy. In the asbestos area, we see
people who are sick are getting pennies on the dollar in compensation
because people who are not sick are getting ahead of them in line,
resulting in bankruptcies which have destroyed jobs and pensions for
American workers.
So it is unthinkable to me that anyone could stand here on the Senate
floor and claim there is nothing wrong. That seems to be a common theme
these days, whether we are talking about Social Security or lawsuit
reform, or a variety of subjects. But the truth is that the facts
clearly indicate otherwise.
As the continued spread of democracy and capitalism take root in
countries throughout the world, and as modern travel and information
technology bring our world closer together, there is no question that
the health of America's economy is influenced by the free flow of goods
and services in international markets.
It is a simple fact of life: We live in a global marketplace, where
we do not just compete with businesses across the street, but with ones
on the other side of the world. Our economic strength and ability to
compete now depends on our willingness to confront the burdens that
prevent growth, discourage innovation, and ultimately cost Americans
their jobs.
It is unthinkable to me that anyone can claim a system that
compensates people who truly are injured as a result of the fault of
another so poorly, but makes a handful of lawyers rich, doesn't need to
be fixed. But the system--particularly in the class action area--is
fraught with abuse. I will not detail all of those abuses, since they
have been addressed earlier. But one of the most classic cases is the
coupon settlement. It reminds me of an old country and western song,
where the lawyers get the goldmine and the consumers get the shaft.
We have all seen the numbers relating to the cost of our broken civil
justice system. According to one estimate, the cost of the tort system
in 2003 totaled more than $245 billion, or 2.2 percent of the gross
domestic product. That amounts to a tort tax on every American citizen
of approximately $845 a year.
The percentage of our economy that is devoted to tort law and
resolution of claims through our tort system is far greater than any
other industrialized country. In Britain, for example, the entire tort
system--attorneys' fees, settlement costs, jury awards, and
administrative costs--costs less as a percentage of GDP than America's
plaintiffs' lawyers gross for themselves alone.
This level of stress on the economy and on our civil justice system
itself is unacceptable. But it hasn't always been that way. Class
actions, prior to significant rule changes in the 1960s and 1970s were
not, as they are today, largely a sport for a handful of aggressive
personal injury lawyers to pursue abusive litigation and junk lawsuits.
Take, for example, the change in 1966, from a system where class
members were required to ``opt in'' to a system, where now they are
required to ``opt out.'' By 1971, four times as many class actions were
being filed than had been in 1966. In other words, from 1966 to 1971,
we saw four times the number of class actions brought.
Since that time, recoveries have skyrocketed. This chart behind me
reflects the growth I mentioned a moment ago. You can see that from
1973 to 1975 there were relatively few class action lawsuits and
relatively modest recoveries. But they have obviously ballooned and
appear to be getting bigger year by year.
The problems we increasingly experience with abusive class action
lawsuits call for a significant overhaul of our civil justice system
and particularly our rules providing for the resolution of mass tort
litigation.
I must tell you that the bill we have before us today is clearly a
modest reform. It amounts to an improvement over the status quo, but it
doesn't begin to approach the comprehensive solution America needs.
As it stands, S. 5 provides two primary improvements: It allows
removal of a greater number of class action lawsuits from State court
to Federal court, and it requires judges to carefully review all coupon
settlements and limit attorneys' fees paid in those settlements to the
value actually received by class members.
These two reforms--as modest as they are--are important and will
certainly offer fair but desperately needed
[[Page S1085]]
relief for State courts which are experiencing firsthand the explosion
of class action litigation. It will also provide for greater fairness
for defendants who are currently being dragged into ``magnet
jurisdictions,'' and it will provide greater fairness for class members
who are oftentimes receiving pennies on the dollar, while class counsel
get rich.
Yet, as much of an improvement as this bill is, it falls short of the
ideal. To be effective and fair, I believe class actions and other mass
tort litigation require three things: A level playing field;
transparency, so consumers can have complete, fair, and accurate
information; and a clear relationship between class members and their
lawyers.
First, a level playing field depends on a fair class certification
process. As the current occupant of the chair knows, almost all class
actions settle if certified. The main event in class action lawsuits is
the certification process because ultimately, once certified, most
defendants feel as if they have no choice but to settle because even a
small risk of an adverse judgment, given the large number of class
members, can lead to a ruinous result. They are forced to try to settle
the case on the best terms they can.
Where there is no right to an immediate interlocutory appeal of class
certification and stay on discovery, class certification can cause
settlements that far exceed the case's value on the merits because of
the extortionate effect of the certification process and the threat it
brings to the very livelihood, not to mention the financial life, of
the defendant involved.
States, such as my home State of Texas, have also embraced limits on
appeal bonds. Too often in large class action lawsuits, the judgment
can be so large that the defendant cannot, in effect, buy an appeal
bond with which to appeal the case and correct an erroneous ruling
below. So the defendant is forced to settle because they cannot afford
to appeal--again, not based on the merits, but based on the way class
action lawsuits are structured, without a right to interlocutory
appeal.
The second step toward an effective system, I believe, is information
flow. Class actions require that adequate information be available both
for the sake of the process itself and for policymakers, like us, to
analyze. It is hard for us to do our job when it comes to class action
reform or civil justice reform when some of the information--much of
the information--is simply hidden from public view. Class members
should be fully advised of all aspects of their case, and we should
require that certain relevant information about all class action
settlements be collected and published centrally for examination and
review by analysts and policymakers.
Just as in Government, when it comes to class actions, people deserve
to know what is going on, particularly if it is their case.
The final step, and the most important one to me, is maintaining the
proper relationship between the class members and their attorney. As
the occupant of the chair, the Presiding Officer, knows, this is a
particularly tough issue when it comes to class counsel who may have
one real client, the class representative, with whom they deal but, in
reality, class counsel calls the shots and runs the case. Class members
may not even know they are involved in a lawsuit until they receive a
notice of settlement and perhaps, as we heard, a coupon worth pennies
on the dollar. The opportunity for abuse of that important fiduciary
relationship between the lawyer and the client is very important to
address.
I believe one solution would be to allow members of the class to opt
in instead of opting out because, indeed, in a country that says we do
not promote litigation, although we certainly give fair access to
courts, it just does not make much sense to me to say to the consumers:
You can be a plaintiff in a lawsuit, you can actually be a party to a
lawsuit and not even know about it until the lawsuit is over, which is
what happens today.
Consumers should not have to learn that they are members of a class
action lawsuit by receiving a check for $2.38 in the mail and then find
out in the morning paper that the lawyers who purported to represent
them just collected $5 million. The cases and examples go on and on.
It should also go without saying that the attorneys should be paid at
a level commensurate with the work before them, not based on strictly a
contingency fee which may, indeed, allow huge financial rewards for
relatively modest work actually being done.
I hope those listening, if there are any listening to my comments,
understand my concerns that this modest legislation does not go far
enough to remove the scandal of litigation abuse that too often plagues
our civil justice system and the American economy. I hope they
understand my reservations do not indicate I am not for this bill
because, indeed, I am. I believe S. 5 is an important first step in
reform and an important step in the right direction.
In conclusion, because I know there are others who want to speak,
there will be attempts to offer amendments to this bill. I know Senator
Durbin, but for the loss of his voice, would have been the first to
offer his amendment. I am told Senator Kennedy will be here shortly to
do the same, but as everyone knows who has followed this bill--
certainly Senator Carper who has been an advocate for class action
reform for some time, knows--the compromise reflected by S. 5 is a very
fragile one, and it essentially depends on no amendments being made to
the bill or agreed to the bill. If that happens, it is likely the bill
will go promptly to the House where they will pass it, and it will go
to the President's desk, and we will have an early victory for the
American people in this important area. But there are a number of
amendments that will be offered which, in essence, are poison pills,
that if agreed to will completely destroy any opportunity we have for
this modest reform.
I have my own amendments that I filed, if others are offered and
agreed to, which I believe are important to move the bill in the
direction where I think it ought to go. But the truth is, I am
refraining from urging those amendments at this time because I think
this fragile compromise, as modest as it is, does represent real reform
in moving the bill in the right direction.
Here again, as the Washington Post editorial on August 27, 2001,
points out:
No portion of the American civil justice system is more of
a mess than the world of class action. None is in more
desperate need of policymakers' attention.
That was in 2001, and certainly the situation has not changed today.
I am baffled by those who want to whistle past the graveyard and act
as if there is nothing wrong and that everything is just hunky-dory
when it comes to class action reform. I believe the American people
expect that the civil justice system will operate in their best
interest, not in the best interest of a handful of lawyers.
I am confident the damage that is being done to American
competitiveness is killing jobs that would be created in the United
States but for the fact that people do not want to subject themselves
to an out-of-control class action system. So, instead, jobs are being
created in other countries across the world where they do not have
those same concerns.
This is clearly an area that cries out for reform. It is one that is
long past due.
I congratulate Senator Carper and others on that side of the aisle
who have worked so carefully to try to craft this fragile compromise.
But I want my colleagues to understand--and I think they all do; I
think we all do--that any amendments to this bill will doom it. So I
urge all of my colleagues to vote against any and all amendments;
indeed, even ones that I may like but which I know will have the
ultimate effect of killing the bill. I think it is better to save those
for another day and another time rather than have the prospect of this
bill going down in flames.
Mr. President, I appreciate the time and yield the floor.
The PRESIDING OFFICER. The Senator from Delaware is recognized.
Mr. CARPER. Mr. President, I understand that under the previous
order, the Senate will stand in recess at 12:30 p.m. for our weekly
caucus luncheons. I ask unanimous consent, notwithstanding that
unanimous consent agreement, to proceed for 5 minutes.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. CARPER. Mr. President, before Senator Cornyn leaves the floor, I
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thank him for his kind words, and I am pleased that we are at the point
where we are on this legislation this week. I look forward to both
sides exercising constraint--we cannot let the perfect be the enemy of
the good--and pass the good legislation that has been introduced and
debated this week, with the understanding the House will accept it and
the President will sign it into law.
We heard a fair amount already about the ills of class action
lawsuits. Class action lawsuits, in and of themselves, are not a bad
thing. Class action lawsuits give little people who are harmed, in some
cases by companies, the opportunity--maybe not harmed in a way that the
consumers, the little people, lose their eye, arm, leg, or life, but
they suffer some kind of harm.
The idea behind class action lawsuits is to say when little people
are harmed by big companies or others that those people can band
together and present their grievances to an appropriate court, State or
Federal, and for the people who are harmed to be made whole.
At the same time, it is important that when the plaintiffs are
bringing a class action lawsuit against a defendant from another State,
that the case be heard in a court where both sides can get a fair
shake, the plaintiffs as well as the defendant.
If we go back over a couple hundred centuries in this country, we
ended up with a law that the Congress passed that said if we have a
defendant from one State and plaintiffs from another State, it is not
fair to the defendant to have the case necessarily heard in the home of
the plaintiffs. Someone may have dragged the defendant in across the
State lines and put them in a courthouse or courtroom where there is a
bias toward the local plaintiffs who brought the case against the
defendant from another State, and in an effort to try to make sure that
we are fair to both parties, those who are bringing the accusations and
those who are defending against them, we have the Federal courts which
were established in many cases to resolve those kinds of issues.
Unfortunately, we have seen an abuse of some class action lawsuits in
recent years which led the Congress to begin debating this issue and
considering legislation to address these abuses starting in, I want to
say 1997, 7 years ago. The original problem that was discovered or was
pointed out is this: There seems to be a growing prevalence of
plaintiffs' attorneys who are forum shopping in State or local courts
where the plaintiff class may have an inordinate advantage against the
defendant. I will not go into the examples today, but there are any
number of instances where one can see forum shopping has gone on, a
State or a county courthouse has certified a class, agreed to hear a
case, and it sets up a situation where the defendant company or the
defendant knows they are going to have a hard time getting a fair shake
in that courthouse. As a result, the defendant will agree to a
settlement with the plaintiffs' attorneys. The settlement may richly
reward the plaintiffs' attorneys for bringing the case, the defendant
may cut their losses, but the folks on whose behalf the litigation was
brought in the first place, those who allegedly are harmed, in many
instances get little or nothing for their harm. That is not a fair
situation. It is not fair to the little people on whose behalf the case
has been brought. It is arguably not fair to the defendant because they
are in a courtroom where they do not have a fair chance to defend
themselves. It can be fixed, and it ought to be fixed.
The legislation before us today will not end the practice of class
action lawsuits being litigated and decided in State courts. I believe
the majority of class action lawsuits, even if this legislation is
passed, which I am encouraged that it will, will still continue to be
held in State courts, and they should be. We will have the opportunity
to explain why that is true later on.
Before my 5 minutes expires, I conclude with this: There are any
number of people on both sides of the aisle who would like to offer
amendments to this bill. We have been working for 7 years to try to
pass something that the House, the Senate, and the President will agree
to. The time has come. To the extent that we make a change, whether it
is in a Republican amendment or a Democratic amendment that might be
offered, if we make a change, we invite the other side to retaliate and
to offer their amendments and perhaps to adopt their amendments. For
those of us who want to see this bill passed, I believe this
legislation is about the fairest balance we are going to get, and I
would encourage us to support it. We should consider and debate the
amendments but in the end turn those amendments down.
I look forward to debating each of those amendments, and I hope in
the end we can accomplish three things with this legislation: No. 1,
make sure that where small people are harmed in a modest way, they have
the opportunity to be made whole; No. 2, make sure that the defendants
who are pulled into court on these class action lawsuits have a
reasonable chance of getting a fair shake; and lastly, I am not
interested in overburdening Federal judges. I think most of this
litigation should remain in State court. I believe the compromise we
have struck will do that. Those are our three goals, and I look forward
to the debate that is going to follow.
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