[Congressional Record (Bound Edition), Volume 151 (2005), Part 2]
[Senate]
[Pages 1554-1564]
[From the U.S. Government Publishing Office, www.gpo.gov]




                   CLASS ACTION FAIRNESS ACT OF 2005

  The PRESIDING OFFICER. Under the previous order, the hour of 3 p.m. 
having arrived, the Senate will proceed to the consideration of S. 5, 
which the clerk will report.
  The assistant legislative 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.

  Mr. SPECTER. Mr. President, I was about to note that the hour of 3 
o'clock has arrived. According to the previous order, the Senate is to 
take up the legislation on class action. This is legislation which has 
been crafted over a considerable period of time. It had some difficulty 
in achieving 60 votes for so-called cloture to cut off debate so that 
the Senate would take up the issue. It had been negotiated among a 
number of Senators in the past to get the requisite 60 votes, and it is 
represented that if the bill is passed in its current form in the 
Senate, it will be agreeable to the House of Representatives. When I 
choose my words carefully--that has been represented; you never know 
until it gets to the other body and see what they do--but that has been 
the expectation.
  When the issue was negotiated, there were a number of Senators who 
were satisfied with the structure of the bill. But all 100 Senators had 
not assented, agreed to it, including this Senator. We customarily are 
not all involved in negotiations as to the bill so that there is 
obviously latitude, when the matter comes before the Senate, for 
individual Senators to exercise their right to either offer amendments 
or to join in amendments which are offered.
  I support class action reform. I do so essentially to prevent judge 
shopping to States and even counties where courts and judges have a 
prejudicial predisposition on cases. Regrettably, the history has been 
that there are some States in the United States and even some counties 
where there is forum shopping, which means that lawyers will look to 
that particular State, that particular county to get an advantage.
  Diversity jurisdiction was established in the United States so that 
if there was litigation between citizens of different States, there was 
a certain amount in controversy, a jurisdictional amount--that amount 
has risen over the years; when I started the practice of law it was 
$3,000, now it is $75,000--the diversity jurisdiction of the Federal 
courts was established to see to it that if a litigant from California, 
illustratively, came to Pennsylvania and might be in the State court, 
that there would be perhaps some predisposition on the part of State 
court judges to look more favorably upon the local litigant. And the 
Federal courts were viewed as being more impartial. And that thread 
remains to this day.
  The legislation will leave in State courts, if the matter is 
predominantly a State court issue, where there are some two-thirds of 
the class in that State. If there is one-third or less, then the matter 
would go to the Federal court. And if it is between one-third and two-
thirds, then it will be up to the discretion of the Federal judge on a 
series of standards which have been worked out through the leadership 
of Senator Feinstein of California.
  The bill came before the Judiciary Committee last Thursday. And it 
was my request of the Judiciary Committee members at that time that 
amendments not be offered because if you have controversial amendments 
offered in committee, they are customarily taken up again on the Senate 
floor. And the majority leader, Senator Frist, had asked me in my 
capacity as chairman of the committee to get the bill out last Thursday 
so that it could come to the floor today.
  As is well-known publicly, the class action legislation is a priority 
of the President's. It has been the intention of the majority leader to 
put the matter on the agenda at an early time--obviously, February 7 is 
an early date--and reserve sufficient time so that Senators have a full 
opportunity to offer amendments, and we can move through to completion 
of the bill.
  There is an amendment which has been discussed involving a proposal 
by the Senator from New Mexico, Mr. Bingaman, which would make certain 
that substantive rights which are now present in State courts would be 
retained after the enactment of this legislation. State courts use 
State law, and that is substantive law, in certifying class actions. 
And while I have stated my support for moving cases to the Federal 
court for the reasons I have already said, I have made a claim in the 
past and repeated it in the Judiciary Committee meeting last Thursday 
that in moving the cases to the Federal courts, I do not want to see 
changes in the substance of the rights of consumers or other class 
action litigants; that the objective which I think we ought to obtain 
is that the same substantive rights would remain; that this bill should 
not be a vehicle for

[[Page 1555]]

modification of substantive rights, but this bill should provide the 
reform which will take the cases out of State courts, where there has 
been a record of prejudice to defendants, and take them to the Federal 
courts where, in the historical tradition of diversity litigation, to 
take them to the Federal courts where there is a better opportunity for 
an objective determination.
  When this bill was in committee in the past, I had a concern about 
certain of the provisions as to mass actions. The advocates of reform 
legislation were concerned that mass actions might be tried in the 
State courts altogether and provide a procedural context where there 
could not be a fair or appropriate adjudication. That is a highly 
complex subject, and it may be the matter of some concern as we move 
forward on this bill.
  It is my hope that we will not have so-called extraneous amendments, 
that we will focus on issues of class action related to this subject 
matter so that we can have a full debate on the subject. Senators may 
have an opportunity to offer their amendments and the determination of 
the Senate can be made as to what ought to be done on this very 
important litigation matter.
  I seek recognition today to open debate on the Class Action Fairness 
Act of 2005. This bill embodies a carefully balanced legislative 
solution that responds to abuses of the class action litigation device 
in our State courts.
  A key provision in the bill amends the Federal diversity jurisdiction 
statute to allow Federal courts to hear large multi-party, multi-State 
class action disputes. Existing law prevents national lawsuits from 
seeing the inside of a Federal courtroom by virtue of a glitch in the 
way that courts have interpreted the Federal diversity jurisdiction 
statute--a statute that the Congress passed back in 1789.
  Let me illustrate this fundamental problem by looking at two 
hypothetical cases. In the first case, you have a resident of, say, my 
State of Pennsylvania, slip and fall while filling up her car at a New 
Jersey gas station. The plaintiff sprains her ankle, misses work, and 
has medical bills. And her damages total $76,000. Under the existing 
diversity jurisdiction statute, if a plaintiff and a defendant hail 
from two different States, and if the amount in controversy exceeds 
$75,000, as in this example, then the case can be brought in Federal 
district court.
  Diversity jurisdiction for Federal court exists because the Framers 
of our Constitution wanted to encourage interstate commerce, and they 
wanted cases affecting interstate commerce to be adjudicated in our 
Federal courts. They knew that State judges can sometimes play 
favorites, and that if out of State defendants were unable to access 
the neutral forum of a Federal court, that could have a chilling effect 
on interstate commerce.
  But to understand how diversity jurisdiction has been misused, let's 
look at a second case in the class action context. Let's assume there 
are 1,000 plaintiffs who form a class. Let's also say they claim $100 
million in damages against 300 different plumbing operations from 
around the country alleging that the defendants overcharged for 
plumbing services. And let's assume further that while these plaintiffs 
are spread across all 50 States, at least one of the 1 plaintiffs and 
one of the defendants reside in the same State. Although there is 
little doubt that this hypothetical lawsuit affects interstate 
commerce, especially given the number of parties spread throughout the 
country, this case would stay in State court.
  In 1806, the Supreme Court in Strawbridge v. Curtis interpreted the 
diversity jurisdiction statute to require what is known today as 
``complete diversity''. In other words, for diversity jurisdiction to 
exist, all of the named plaintiffs must be citizens of different States 
from all of the defendants. While the complete diversity rule makes 
sense in the context of a relatively smaller lawsuit, it has been used 
to defeat Federal jurisdiction for large interstate class actions 
lawsuits.
  Throughout the years, the Judiciary Committee has received compelling 
evidence showing that certain plaintiffs' lawyers avoid Federal 
jurisdiction by simply naming a defendant in a complaint--such as a 
local pharmacy--to match the citizenship of a local plaintiff. This is 
done despite the fact that the real defendant and vast majority of 
plaintiffs hail from different States.
  It is this awkward result that the bill seeks to fix. Section 4 of S. 
5 amends the current diversity statute to allow larger interstate class 
actions to be heard in Federal court by granting original jurisdiction 
in those class actions where any member of a proposed class is a 
citizen of a different state from any defendant. To be eligible for 
Federal jurisdiction, the class action must cover at least 100 
plaintiffs and involve an aggregate amount in controversy of at least 
$5 million.
  While this provision represents the general rule, the bill contains 
certain exceptions that balance a state's interest in adjudicating 
local disputes. First, if two-thirds or more of the class members are 
from the primary defendant's home State, the lawsuit will remain in 
State court. Conversely, class actions filed in the home State of the 
primary defendant are subject to Federal jurisdiction if less than one-
third of the proposed class members are citizens of that State. For 
cases brought in a defendant's home State in which between one-third 
and two-thirds of the class members are citizens of the forum State, a 
Federal district court judge is given discretion to exercise 
jurisdiction based on consideration of enumerated factors. This three-
tiered test is known as the Home State Exception and represents a 
provision championed by Senator Feinstein during committee markup on 
the bill in the 108th Congress.
  Second, the bill contains the Local Controversy Exception--a 
provision that enables State courts to adjudicate truly local disputes 
involving principal injuries concentrated within the forum State. To 
fall within this exception, a class action must meet the following four 
criteria: 1, the class must be primarily local, meaning that two-thirds 
of the class members reside in the forum State; 2, the lawsuit must be 
brought against at least one real in-state defendant whose alleged 
conduct is central to the class claims and from whom the class seeks 
significant relief; 3, the principal injuries caused by the defendants 
conduct must have occurred within the forum state; and 4, no other 
similar class actions have been filed against any of the defendants in 
the preceding 3 years. This exception is intended to ensure that State 
courts can continue adjudicating truly local controversies involving 
defendants that are out-of-State corporations.
  I believe that modifying the current diversity jurisdiction statute 
is a sensible solution towards minimizing the class action abuses that 
we have witnessed throughout the years. Since the 105th Congress, this 
body has received evidence showing an extraordinary concentration of 
large interstate class action lawsuits in a handful of our State 
courts--certain county courts to be precise.
  The evidence further shows that these courts operate in a manner that 
deprives the rights of truly injured individual plaintiffs and 
defendants. In many cases, courts approve settlements that primarily 
benefit the class counsel, rather than the injured class members. 
Indeed, it has become all too common for certain State courts to 
approve proposed settlements where class members receive little or 
nothing of value, such as a meaningless coupon, while their attorneys 
receive substantial fees. In addition, multiple class action lawsuits 
asserting the same claims on behalf of the same plaintiffs are 
routinely filed in different State courts, thus creating judicial 
inefficiencies and encouraging collusive settlement behavior.
  Unfortunately, the injuries caused by these abuses are not confined 
to the parties who are named in the class action complaint. Rather, 
they extend to everyday consumers who unwittingly get dragged into 
these lawsuits as unnamed class members simply because they purchased a 
cell phone, bought a box of cereal, drove a car fitted with a certain 
brand of tires, or rented a video. What we are really

[[Page 1556]]

talking about here is a system that impacts the vast majority of people 
who live in this country.
  The time has now come for its full consideration of class action 
reform by the Senate. The bill maintains strong bipartisan support in 
this Chamber and has brought many members from both sides of the aisle 
together. Indeed, just last week, the Judiciary Committee reported this 
bill favorably to the floor on a strong bipartisan vote of 13-5. In 
this regard, I would like to applaud my colleagues Senators Grassley, 
Hatch, Carper, and Kohl for their tireless efforts in building 
consensus throughout this body.
  S. 5 balances State and Federal interests in adjudicating disputes. 
This said, we must not lose sight of the fact that we be mindful of the 
substantive rights of individual plaintiffs caught in this balancing 
act--rights that guarantee a citizen access to jury trials for injuries 
sustained at the hands of wrongdoers. In the coming days, I anticipate 
amendments and thoughtful arguments from my colleagues relating to this 
issue. As such, I look forward to the debate and the Senate's full 
consideration of this important legislation.


                          Philadelphia Eagles

  Mr. President, I note the presence of my distinguished colleague, the 
ranking member, the first Democrat ever elected in the State of 
Vermont.
  Mr. LEAHY. Only.
  Mr. SPECTER. Before yielding, let me make one other comment; that is 
my congratulations to the New England Patriots. As a long-standing 
Philadelphia Eagle fan, going back to the days of Franklin Field, as 
those in Philadelphia would understand, where the Eagles played in the 
confines of the ballpark of the University of Pennsylvania and the 
features were Jimmy Brown running for the Cleveland Browns, tackled 
most of the time by Chuck Bednarik of the Philadelphia Eagles, in the 
great championship game of 1960, which the Eagles won 17 to 13. The 
glory days were recounted again in the New York Times. You have to go 
back to 1960 to find glory days for Philadelphia football. But it is 
recounted how Chuck Bednarik tackled Jim Taylor, the great running back 
of the Green Bay Packers, and sat on him until time had expired, and 
the Eagles also won 17 to 13.
  Franklin Field seated a few over 60,000. It is now reputed that about 
900,000 people were there; 900,000 people claim to have been there to 
have seen that game. I was there and am prepared to say so in open 
court and even take an affidavit on it.
  It was a thrilling game yesterday. I was in Jacksonville. It was 
reported by one of the local firms that there were some 60,000 Eagle 
fans in Jacksonville who did not have tickets. And when you moved 
through the city, the green was everywhere, with ``5'' for Donovan 
McNabb and 81 for Terrell Owens. Owens had a spectacular game, 
recovering from an ankle injury in a very short period of time, 
catching nine passes, six in the second half, taking one high over his 
shoulder and doing a 270-degree pirouette, a 30-yard gain. But to the 
credit of Coach Bill Belichick and Quarterback Tom Brady, New England 
is an outstanding team.
  We take great pride in what the Philadelphia Eagles have done and 
what Donovan McNabb has done. He had a high number of completions 
yesterday, but too many of them went to the Patriots, with some three 
interceptions--too many picked off.
  They coined the phrase in Brooklyn decades ago: Wait til next year. 
Wait til next year. But for this year, my congratulations to the New 
England Patriots. My congratulations also to a fighting group of 
Philadelphia Eagles. Wait until next year.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Vermont.
  Mr. LEAHY. Mr. President, I have been in the Senate for 31 years. 
This is one of the most enjoyable colloquies I have ever had.
  I hope that the Philadelphia Eagles and actually all of their fans 
recognize what a great fan they have in the distinguished senior 
Senator from Pennsylvania. We all know him as one of the most 
knowledgeable and best lawyers ever to serve in the Senate in either 
party. But we saw another side of him today. Anybody who can recount 
effortlessly--I say for those reading the Record, it was without a 
single note--the history of the Eagles and give a play by play 
recounting, this recounting was a tour de force of the first order. For 
Eagles fans, I want you to know his legal expertise is every bit as 
good.
  I grew up with a different sport--baseball--in Vermont, where my home 
is only a couple hours' drive from Fenway Park. The distinguished 
Presiding Officer knows what that is like because he is even closer. We 
all will wait for next year and the Red Sox.
  As a child growing up, my father, who had some interest in politics, 
used to say there will be a day when Vermont will actually elect a 
Democrat to the U.S. Senate. Everybody told him this would never happen 
in his lifetime. I am delighted that it did.
  I was thinking about my father today. It was 21 years ago today that 
he left this Earth. He got to see this one and only Democrat, and he 
got to be there twice on election night and twice to see me sworn into 
this body, which even after six times is still one of those moments one 
will never forget.
  We waited in Vermont from 1918--my father was 18 years old when the 
Red Sox won the championship--until this past year. There was some 
celebration. I might mention that I thought maybe there was some 
inspiration from Paul McCartney, who performed in the halftime show. I 
was very disgusted with the halftime show last year--at something 
nobody even noticed until the next day, when people talked about it on 
Web sites. The photographs of Miss Jackson became the most visited Web 
site in America, which gives you some idea of what our priorities are. 
What I found disgusting at that halftime show was Kid Rock ripping a 
hole in the American flag and wearing it as some kind of a poncho and 
then throwing it on the ground at the end of his song. I found that to 
be very offensive.
  I would hope that some of the keepers of morality in this country, 
who have had a wonderful time sending out fundraising letters based on 
something nobody really saw until the next day and spending just as 
much time trying to sell patriotism to everybody, would say how 
disgusted they are at the actions of a rock singer who would so 
desecrate the American flag--to the roaring cheers of too many people 
in the audience. I thought that was outrageous. Perhaps we needed 
somebody from the United Kingdom to come over here and give us a 
rousing halftime show, which it was. Actually, the game got better 
after that. Maybe that is in the eyes of the beholder, too. But I 
appreciate what the Senator from Pennsylvania said.
  I also note that in my 31 years here, it is the first time I heard 
the unanimous consent request Senator Specter made. Perhaps it was made 
before. I have to think that when future historians go back into the 
Record and find that Senators actually did that, they would probably 
applaud that we know what the Record is.
  I recall my days in law school having a summer job and researching 
the Congressional Record for the then-Federal Power Commission, which 
later became the Department of Energy, and trying to figure out what 
was actually said and what was not said, what order it was said in, and 
why some Senators appeared to have said the same thing twice. When I 
came to the Senate, I must admit some of the Senators--no longer with 
us, God rest their souls--would tend to say the same thing twice, but 
that was not intentional on their part, or at least they were unaware 
of it. But I commend the Senator from Pennsylvania for making a 
unanimous consent request that actually will make sense for those who 
read the Record.
  Mr. SPECTER. If the Senator will yield, Senator Leahy and I are very 
concerned about the Record, having been former district attorneys. We 
are very concerned about the Record. We know that every word we say is 
going to be in black and white and be there for a long time, so we like 
it to be accurate.
  Mr. LEAHY. I thank my friend.

[[Page 1557]]


  Mr. SPECTER. I thank my colleague for his kind comments. It is not 
inappropriate to note that on Monday afternoons, when we are not going 
to be taking up amendments but having opening statements, this is a 
little time on the Senate floor for banter and colloquy. Perhaps those 
who see C-SPAN might pause a moment or two longer to hear about Paul 
McCartney or the Patriots or about the Eagles. I was waiting in an 
elevator to go to my seat yesterday at around 5 o'clock, and an 
enormous group came and preempted about 100 fans, including this fan, 
who were waiting to go up so that Paul McCartney and a small group 
could be escorted in. He looked good for an oldtime Beatle.
  Mr. LEAHY. I might say, I worked with Sir Paul and his wife on the 
issue of landmines and landmine removal. I must admit that he has aged 
better than some of us who were Beatle fans when he first started. He 
has his own hair, among other things.
  The Senator is correct to say that sometimes on Monday afternoon, we 
digress. I give fair warning to the Senator from New Hampshire, now 
presiding, that one of these digressions in about 3 or 4 weeks when the 
maple syrup crop comes in, I will be extolling the virtues of Vermont 
maple syrup being the finest in the world. I will also compliment those 
from our neighboring States who do a pretty good job with their maple 
syrup.
  Today, we are considering the first of several bills that I am afraid 
are advanced not with an interest of what is best for the American 
consumer but advanced by corporate special interests to dramatically 
limit the public's access to their courts. I am going to oppose this 
so-called Class Action Fairness Act for a very simple reason: it is not 
fair.
  This legislation would make it harder for citizens to protect 
themselves against violations of State civil rights or consumer, 
health, or environmental protection laws--things we take seriously in 
my own State and most others do in theirs. It will make it harder 
because these cases will be forced out of the local State courts. Aside 
from being convenient, State courts have experience with the legal and 
factual issues involved in these important cases. This legislation 
sweeps these cases into Federal courts, erects new barriers to 
lawsuits, and places new burdens on the plaintiffs.
  Let me give you an example. In the case of legal rights it would take 
from the citizens of my own State, this legislation would deprive 
Vermonters the right to band together to seek relief in their State 
courts--even if the harm occurred in Vermont and the principal 
defendant has a substantial presence in Vermont. That is a highhanded 
override of the rights of the American people. You have to ask who it 
would benefit. Obviously, it benefits the wealthy and powerful special 
interests.
  This legislation also overrides the laws and legislatures in our 
State governments. I find it interesting that many colleagues who have 
spoken over and over again on how we have to stand up for the rights of 
our States are so willing, when some of their corporate backers come up 
with legislation like this, to simply slam the door on their own 
States. Indeed, the National Conference of State Legislatures wrote to 
us last week to note that this bill ``undermines our system of 
federalism, disrespects our State court system, and clearly preempts 
carefully crafted State judicial processes which have been in place for 
decades regarding the treatment of class action lawsuits.''
  I ask unanimous consent that that letter be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                            National Conference of


                                           State Legislatures,

                                 Washington, DC, February 2, 2005.
     U.S. Senate,
     Washington, DC.
       Dear Senator: On behalf of the National Conference of State 
     Legislatures (NCSL), I am urging you to oppose passage of S. 
     5, the ``Class Action Fairness Act of 2005.'' This 
     legislation will federalize class actions involving only 
     state law claims. S. 5 undermines our system of federalism, 
     disrespects our state court system, and clearly preempts 
     carefully crafted state judicial processes which have been in 
     place for decades regarding the treatment of class action 
     lawsuits. The overall tenor of S. 5 sends a disturbing 
     message to the American people that state court systems are 
     somehow inferior or untrustworthy.
       S. 5 amends the Federal Rules of Civil Procedure to grant 
     federal district courts original diversity jurisdiction over 
     any class action lawsuit where the amount in controversy 
     exceeds $5,000,000 or where any plaintiff is a citizen of a 
     different state than any defendant, or in other words, any 
     class action lawsuit. The effect of S. 5 on state 
     legislatures is that state laws in the areas of consumer 
     protection and antitrust which were passed to protect the 
     citizens of a particular state against fraudulent or illegal 
     activities will almost never be heard in state courts. 
     Ironically, state courts, whose sole purpose is to interpret 
     state laws, will be bypassed and the federal judiciary will 
     be asked to render judgment in these cases. The impact of S. 
     5 is that state processes will be preempted by federal ones 
     which aren't necessarily better.
       NCSL opposes the passage of federal legislation, such as S. 
     5 which preempts established state authority. State courts 
     have traditionally and correctly been the repository for most 
     class action lawsuits because state laws, not federal ones, 
     are at issue. Congress should proceed cautiously before 
     permitting the federal government to interfere with the 
     authority of states to set their own laws and procedures in 
     their own courts.
       NCSL urges Congress to remember that state policy choices 
     should not be overridden without a showing of compelling 
     national need. We should await evidence demonstrating that 
     states have broadly overreached or are unable to address the 
     problems themselves. There must be evidence of harm to 
     interests of national scope that require a federal response, 
     and even with such evidence, federal preemption should be 
     limited to remedying specific problems with tailored 
     solutions, something that S. 5 does not do.
       I urge you to oppose this legislation. Please contact Susan 
     Parnas Frederick at the National Conference of State 
     Legislatures at 202-624-3566 or susan.frederick@
ncsl.org for further information.
           Sincerely,

                                      Senator Michael Balboni,

                                New York State Senate, Chair, NCSL
                               Law and Criminal Justice Committee.

  Mr. LEAHY. Here the National Conference of State Legislatures is 
saying to us: Why are you being so heavy-handed that you feel the 100 
Members of the Senate can just wipe out the legislatures of all 50 
States on matters of their States' laws?
  Fourteen State Attorneys General wrote to our Senate leaders today to 
express their collective view that ``despite improvements over similar 
legislation considered in prior years, [they] believe S. 5 still unduly 
limits the right of individuals to seek redress for corporate 
wrongdoing in their State courts.''
  Again, they are saying: What gives you such wisdom in the U.S. Senate 
that you can completely throw out 50 States and say, We know far better 
than they could ever know in their years and decades of experience? The 
letter urges passage of amendments to be offered by Senators Bingaman, 
Pryor, and Kennedy. This letter is signed by the Attorneys General from 
New York, Oklahoma, California, Illinois, Iowa, Kentucky, Maine, 
Maryland, Massachusetts, Minnesota, New Mexico, Oregon, Vermont, and 
West Virginia. I ask unanimous consent that it be printed in the 
Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

         State of New York, Office of the Attorney General, the 
           Capitol,
                                     Albany, NY, February 7, 2005.
     Hon. Bill Frist,
     Majority Leader, U.S. Senate, Dirksen Senate Office Building, 
         Washington, DC.
     Hon. Harry Reid,
     Minority Leader, U.S. Senate, Hart Senate Office Building, 
         Washington, DC.
       Dear Mr. Majority Leader and Mr. Minority Leader: On behalf 
     of the Attorneys General of California, Illinois, Iowa, 
     Kentucky, Maine, Maryland, Massachusetts, Minnesota, New 
     Jersey, New Mexico, New York, Oklahoma, Oregon, Vermont and 
     West Virginia, we are writing in opposition to S. 5, the so-
     called ``Class Action Fairness Act,'' which will be debated 
     today and is scheduled to be voted on this week. Despite 
     improvements over similar legislation considered in prior 
     years, we believe S. 5 still unduly limits the right of 
     individuals to seek redress for corporate wrongdoing in their 
     state courts. We therefore strongly recommend that this 
     legislation not be enacted in its present form.
       As you know, under S. 5, almost all class actions brought 
     by private individuals in state court based on state law 
     claims would

[[Page 1558]]

     be removed to federal court, and, as explained below, many of 
     these cases may not be able to continue as class actions. We 
     are concerned with such a limitation on the availability of 
     the class action device because, particularly in these times 
     of tightening state budgets, class actions provide an 
     important ``private attorney general'' supplement to the 
     efforts of state Attorneys General to prosecute violations of 
     state consumer protection, civil rights, labor, public health 
     and environmental laws.
       We recognize that some class action lawsuits in both state 
     and federal courts have resulted in only minimal benefits to 
     class members, despite the award of substantial attorneys' 
     fees. While we support targeted efforts to prevent such 
     abuses and preserve the integrity of the class action 
     mechanism, we believe S. 5 goes too far. By fundamentally 
     altering the basic principles of federalism, S. 5, if enacted 
     in its present form, would result in far greater harm than 
     good. It therefore is not surprising that organizations such 
     as AARP, AFL-CIO, Consumer Federation of America, Consumers 
     Union, Leadership Conference on Civil Rights, NAACP and 
     Public Citizen all oppose this legislation in its present 
     form.
     1. Class actions should not be ``federalized''
       S. 5 would vastly expand federal diversity jurisdiction, 
     and thereby would result in most class actions being filed in 
     or removed to federal court. This transfer of jurisdiction in 
     cases raising questions of state law will inappropriately 
     usurp the primary role of state courts in developing their 
     own state tort and contract laws, and will impair their 
     ability to establish consistent interpretations of those 
     laws. There is no compelling need or empirical support for 
     such a sweeping change in our long-established system for 
     adjudicating state law issues. In fact, by transferring most 
     state court class actions to an already overburdened federal 
     court system, this bill will delay (if not deny) justice to 
     substantial numbers of injured citizens. Moreover, S. 5 is 
     fundamentally flawed because under this legislation, most 
     class actions brought against a defendant who is not a 
     ``citizen'' of the state will be removed to federal court, no 
     matter how substantial a presence the defendant has in the 
     state or how much harm the defendant has caused in the state.
     2. Clarification is needed that S. 5 does not apply to state 
         Attorney General actions
       State Attorneys General frequently investigate and bring 
     actions against defendants who have caused harm to our 
     citizens, usually pursuant to the Attorney General's parens 
     patriae authority under our respective state consumer 
     protection and antitrust statutes. In some instances, such 
     actions have been brought with the Attorney General acting as 
     the class representative for the consumers of the state. We 
     are concerned that certain provisions of S. 5 might be 
     misinterpreted to impede the ability of the Attorneys General 
     to bring such actions, thereby interfering with one means of 
     protecting our citizens from unlawful activity and its 
     resulting harm. That Attorney General enforcement actions 
     should proceed unimpeded is important to all our 
     constituents, but most significantly to our senior citizens 
     living on fixed incomes and the working poor. S. 5 therefore 
     should be amended to clarify that it does not apply to 
     actions brought by any State Attorney General on behalf of 
     his or her respective state or its citizens. We understand 
     that Senator Pryor will be offering an amendment on this 
     issue, and we urge that it be adopted.
     3. Many multi-State class actions cannot be brought in 
         federal court
       Another significant problem with S. 5 is that many federal 
     courts have refused to certify multi-state class actions 
     because the court would be required to apply the laws of 
     different jurisdictions to different plaintiffs--even if the 
     laws of those jurisdictions are very similar. Thus, cases 
     commenced as state class actions and then removed to federal 
     court may not be able to be continued as class actions in 
     federal court.
       In theory, injured plaintiffs in each state could bring a 
     separate class action lawsuit in federal court, but that 
     defeats one of the main purposes of class actions, which is 
     to conserve judicial resources. Moreover, while the 
     population of some states may be large enough to warrant a 
     separate class action involving only residents of those 
     states, it is very unlikely that similar lawsuits will be 
     brought on behalf of the residents of many smaller states. 
     This problem should be addressed by allowing federal courts 
     to certify nationwide class actions to the full extent of 
     their constitutional power--either by applying one state's 
     law with sufficient ties to the underlying claims in the 
     case, or by ensuring that a federal judge does not deny 
     certification on the sole ground that the laws of more than 
     one state would apply to the action. We understand that 
     Senator Jeff Bingaman will be proposing an amendment to 
     address this problem, and that amendment should be adopted.
     4. Civil rights and labor cases should be exempted
       Proponents of S. 5 point to allegedly ``collusive'' 
     consumer class action settlements in which plaintiffs' 
     attorneys received substantial fee awards, while the class 
     members merely received ``coupons'' towards the purchase of 
     other goods sold by defendants. Accordingly, this ``reform'' 
     should apply only to consumer class actions. Class action 
     treatment provides a particularly important mechanism for 
     adjudicating the claims of low-wage workers and victims of 
     discrimination, and there is no apparent need to place 
     limitations on these types of actions. Senator Kennedy 
     reportedly will offer an amendment on this issue, which also 
     should be adopted.
     5. The notification provisions are misguided
       S. 5 requires that federal and state regulators, and in 
     many cases state Attorneys General, be notified of proposed 
     class action settlements, and be provided with copies of the 
     complaint, class notice, proposed settlement and other 
     materials. Apparently this provision is intended to protect 
     against ``collusive'' settlements between defendants and 
     plaintiffs' counsel, but those materials would be unlikely to 
     reveal evidence of collusion, and thus would provide little 
     or no basis for objecting to the settlement. Without clear 
     authority in the legislation to more closely examine 
     defendants on issues bearing on the fairness of the proposed 
     settlement (particularly out-of-state defendants over whom 
     subpoena authority may in some circumstances be limited), the 
     notification provision lacks meaning. Class members could be 
     misled into believing that their interests are being 
     protected by their government representatives, simply because 
     the notice was sent to the Attorney General of the United 
     States, State Attorneys General and other federal and state 
     regulators.
       Equal access to the American system of justice is a 
     foundation of our democracy.
     S. 5 would effect a sweeping reordering of our nation's 
     system of justice that will disenfranchise individual 
     citizens from obtaining redress for harm, and thereby impede 
     efforts against egregious corporate wrongdoing. Although we 
     fully support the goal of preventing abusive class action 
     settlements, and would be willing to provide assistance in 
     your effort to implement necessary reforms, we are likewise 
     committed to maintaining our federal system of justice and 
     safeguarding the interests of the public. For these reasons, 
     we oppose S. 5 in its present form.
           Sincerely,
         Eliot Spitzer, Attorney General of the State of New York; 
           W.A. Drew Edmondson, Attorney General of the State of 
           Oklahoma; Bill Lockyer, Attorney General of the State 
           of California; Lisa Madigan, Attorney General of the 
           State of Illinois; Tom Miller, Attorney General of the 
           State of Iowa. Gregory D. Stumbo, Attorney General of 
           the State of Kentucky; G. Steven Rowe, Attorney General 
           of the State of Maine.
         J. Joseph Curran, Jr., Attorney General of the State of 
           Maryland; Tom Reilly, Attorney General of the State of 
           Massachusetts; Mike Hatch, Attorney General of the 
           State of Minnesota; Patricia A. Madrid, Attorney 
           General of the State of New Mexico; Hardy Myers, 
           Attorney General of the State of Oregon; William H. 
           Sorrell, Attorney General of the State of Vermont; 
           Darrell McGraw, Attorney General of the State of West 
           Virginia.

  Mr. LEAHY. I know class action issues have been raised by Senators 
Kohl, Feinstein, Schumer, Dodd, Carper, Landrieu, and others. While I 
may disagree with them on some parts of this, I do so respectfully 
because I know how hard they have worked.
  In the last Congress, they were able to negotiate some procedural 
improvements. They reined in some of the worst aspects of previous 
class action bills. One improvement was to restrict the use of 
worthless coupon settlements. I strongly support this improvement, 
which is a targeted provision that goes after a real class action 
abuse, not one that is just made up by special interests.
  Unfortunately, there are other aspects that fail to achieve their 
intended goals. For example, two narrow exceptions have been negotiated 
to allow a few local controversies to remain in State court. But the 
exceptions to removal to Federal court touch on only a thin sliver of 
the class action cases this bill would affect--only when plaintiffs and 
primary defendants are from the same State--and even then it will do 
more harm than good with the complicated formula that will cause costly 
and time-consuming litigation. So this just increases the cost and 
increases the litigation.
  Another provision seeks to reduce the delay plaintiffs can experience 
when a case is removed to Federal court by setting a time limit for 
appeals of remand orders. But no measure is included in the bill to set 
a timeline for the district court to rule on the actual remand motion. 
What this means

[[Page 1559]]

in layman's terms is a party can pluck one of these class actions out 
of State court and put it in Federal court, and if the Federal court 
rules against you on a remand, you have a right to appeal. But what do 
you do if they never rule? The case could sit there year after year and 
with no resolution. Litigants could die. People who have been harmed 
could die. People could move away, and nothing happens.
  Senator Feingold is going to offer an amendment to set a reasonable 
time limit for the district court to rule on remand orders. It does 
nothing to change the bill. It says you cannot pocket veto a case by 
sticking it away in a federal court docket somewhere. You have to rule 
one way or the other. We should all embrace that commonsense 
improvement.
  I am also concerned that this bill will deny justice to consumers and 
others in class actions that involve multiple State laws. The recent 
trend in Federal courts is not to certify class actions if multiple 
State laws are involved. This bill, therefore, could force nationwide 
class actions to Federal court. Once they are removed to Federal court, 
you have a Catch-22. They have to be dismissed because they involve too 
many State laws.
  If this legislation is really about transferring class actions to 
Federal court instead of being a pro-business vehicle for simply 
dismissing legitimate class actions, then the supporters of this 
legislation should want to solve this real Catch-22 problem. Senator 
Bingaman has an amendment to do just that. He is a former attorney 
general. He understands this. I look forward to debating this issue on 
the Senate floor.
  Of course, the legislation covers more than just class actions. 
Individual personal injury actions, consolidated by State courts for 
efficiency purposes, are not class actions. Despite the fact that a 
similar provision was unanimously struck from the bill during the 
markup of class actions legislation in the Judiciary Committee last 
Congress, despite the fact that every single Republican, every single 
Democrat voted to strike this provision, now mass torts are again 
included in the bill. Again, that makes no sense. Federalizing these 
individual cases will delay and possibly deny justice for victims 
suffering real physical injuries. It will be a boon to the makers of 
Vioxx, but certainly will not help those who took Vioxx.
  Mass tort cases are not class actions. They have not been analyzed 
under rule 23's standards or State law equivalents to rule 23. They are 
an important means by which groups of injured people have long been 
able to pursue remedies against those who have harmed them.
  Mass tort cases address injuries to citizens' health from dangerous 
medical products, injuries to their property and their health from 
environmental disasters, and injuries to their rights and liberties 
from widespread mistreatment in the workplace. There are entirely 
different procedural vehicles to reach justice in class actions. They 
should not be lumped in with class actions. Senator Durbin has an 
amendment that would leave mass tort actions in State courts where they 
belong.
  I am old enough to remember the civil rights battles of the 1950s and 
1960s and the impact of class actions in vindicating basic rights 
through our courts. The landmark Supreme Court decision in Brown v. 
Board of Education was the culmination of appeals from four class 
action cases--three from Federal court decisions in Kansas, South 
Carolina, and Virginia, and one from a decision by the State supreme 
court of Delaware.
  Only the supreme court of Delaware--the State court, not the Federal 
court--got the case right by deciding for the African-American 
plaintiffs. The State court justices understood they were constrained 
by the existing Supreme Court law but, nonetheless, held that the 
segregated schools of Delaware violated the 14th amendment. Before any 
Federal court did so, a State court rejected separate and unequal 
schools.
  Today we take that for granted, but it was not because those cases 
went into Federal court that the civil rights of African Americans were 
determined; it was because they were in State court. Indeed, many civil 
rights advocates, including the Lawyers' Committee for Civil Rights 
Under Law, the Leadership Conference on Civil Rights, the Mexican 
American Legal Defense and Education Fund, and the National Asian 
Pacific Legal Consortium, have written to Senators in opposition to 
this legislation and in support of Senator Kennedy's amendment to 
exempt civil rights and wage and hour cases from the bill. I am proud 
to cosponsor his amendment, and I look forward to the debate on it.
  The legislation has also been criticized by nearly all the State 
Attorneys General in this country. I understand that at least 43 of the 
50 State Attorneys General have expressed concern that S. 5 could limit 
their powers to investigate and bring actions in their State courts 
against defendants who cause harm to their citizens because in certain 
instances they file suit as the class representative for the consumers 
of their State.
  I expect Senator Pryor, a distinguished former State attorney general 
himself, to bring this issue to the floor with a clarifying amendment.
  Some special interest groups are distorting the state of class action 
litigation by relying on a few anecdotes in an ends-oriented attempt to 
impede plaintiffs from bringing class action cases. We should take 
steps to correct actual problems as they occur. Simply transferring 
most suits into Federal court will not correct the real problems faced 
by plaintiffs and defendants.
  In fact, this Congress and past Congresses have federalized so many 
criminal cases that used to be in State courts and dumped them into the 
Federal courts that it is increasingly difficult to even get a civil 
case heard in Federal court. So many things are handled by local 
prosecutors, such as Senator Specter and myself when we were 
prosecutors, by local law enforcement, but because they are interesting 
matters, we have succumbed to the temptation to federalize case after 
case that State authorities have always handled very well. These 
criminal cases are now in the Federal courts, and the Federal courts 
are overloaded with them. Now we are going to transfer a whole lot more 
cases into Federal courts.
  Defrauded investors, deceived consumers, victims of defective 
products and environmental torts, and thousands of other ordinary 
people have been able to rely on class action lawsuits in our State 
court system, and there they have sought and received justice. We all 
know that without consolidating procedures such as class actions, it 
might be impossible for victims to obtain effective legal 
representation.
  Companies tend to pay their defense lawyers by the hour. They are 
well paid. Plaintiffs' lawyers in class actions tend to work without 
pay for the possibility of obtaining a portion of the proceeds, if they 
are successful. It may well prove uneconomical for counsel to take on 
cases against governmental or corporate defendants if they must do so 
on an individual basis. It may be that individual claims are simply too 
small to be pursued.
  Sometimes that is what the cheaters count on; it is how they get away 
with their schemes. Cheating thousands of people just a little is still 
cheating, or millions of people just a little creates millions of 
dollars for one person with nothing to stop them from doing it. Class 
actions allow the little guys to band together to afford a competent 
lawyer to redress wrongdoing.
  Whether those regular citizens are getting together to force 
manufacturers to recall or correct dangerous products, or to clean up 
after devastating environmental harms that endanger their children or 
their neighborhoods, or to vindicate the basic civil rights to which 
they are entitled, they are using class actions. Why make it more 
difficult or costly for them to right those wrongs?
  As the New York Times noted in an editorial last week opposing this 
bill, the real objective of this legislation is ``to dilute the impact 
of strong State laws protecting consumers and the environment and to 
make it harder for

[[Page 1560]]

Americans to win redress in court when harmed by bad corporate 
behavior.''
  We have very strong environmental laws in Vermont, and we are very 
proud of them. Now we see this Congress about to say to the Vermont 
Legislature: We can apply much lesser standards; we will just take it 
away from any enforcement you already have.
  I ask unanimous consent that the New York Times editorial be printed 
in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                [From the New York Times, Feb. 2, 2005]

                         Class-Action Lawsuits

       Tort reform is in the eye of the beholder. In the name of 
     reforming the nation's civil justice system, and with scant 
     public debate, President Bush and Congressional Republicans 
     are racing to reward wealthy business supporters by changing 
     the rules for class-action lawsuits. Their real objective is 
     to dilute the impact of strong state laws protecting 
     consumers and the environment and to make it harder for 
     Americans to win redress in court when they are harmed by bad 
     corporate behavior.
       The proposed legislation, the so-called Class Action 
     Fairness Act, will be taken up by the Senate Judiciary 
     Committee on Thursday, with a vote by the full chamber 
     expected as early as next week. Under the bill's sweeping 
     provisions, nearly all major class-action lawsuits would be 
     moved from state courts to already stretched federal courts. 
     New procedural hurdles and backlogs would be destined to 
     delay or deny justice in many cases, and to discourage 
     plaintiffs and plaintiffs' lawyers from pursuing legitimate 
     claims in the first place.
       The proposed lunge to federal courts is so extreme that 
     cases would be removed to federal courts even when a vast 
     majority of the plaintiffs were from one state, the claimed 
     injuries occurred in the state and involved possible 
     violations of state law, and the principal defendant had a 
     headquarters elsewhere but did substantial business in the 
     state.
       In a revealing but disappointing move last year, the 
     measure's proponents rejected a balanced compromise that 
     would have broadened federal jurisdiction while preserving 
     the role of state courts in cases that are more local than 
     national in flavor. Despite some useful provisions aimed at 
     genuine abuses, the bill would reduce the accountability of 
     corporations that violate laws protecting employees, 
     consumers and the environment.
       The measure died in the Senate at the close of the last 
     session. But with President Bush now actively campaigning for 
     its passage, the juggernaut may be unstoppable, particularly 
     since some key Democrats, like Senators Charles Schumer of 
     New York and Christopher Dodd of Connecticut, switched sides 
     last year to back the bill in exchange for some modest 
     revisions. The new Judiciary Committee chairman, Senator 
     Arlen Specter, should at least be willing to entertain a 
     handful of improving amendments. The most crucial would fix 
     the bill's Catch-22: plaintiffs filing class-action suits 
     could be refused a hearing in state court if they came from 
     several different states, and then bounced out of federal 
     court because their complaint called for applying the laws of 
     multiple states.
       The ability of ordinary citizens with similar injuries to 
     band together to take on powerful corporate interests by 
     utilizing the mechanism of class-action lawsuits is one of 
     the shining aspects of the nation's civil justice system. 
     That reality tends to be overlooked amid all the overwrought 
     spinning by the president and others who are trying to drum 
     up concern about a litigation ``crisis'' and to pressure 
     Congress to usurp proper state authority and weaken important 
     protections for ordinary Americans.

  Mr. LEAHY. This so-called Class Action Fairness Act falls short of 
the expectation set forth by its title. It will leave many injured 
parties who have valid claims with no avenue for relief, and that is 
anything but fair to ordinary Americans who look to us to represent 
them in the Senate.
  I seem to have a touch of laryngitis which is an occupational hazard 
for Senators. I will not speak further, but I will come back to this 
issue in the future. I yield the floor.
  The PRESIDING OFFICER. The Senator from Pennsylvania.


                Unanimous Consent Agreement--S. Res. 38

  Mr. SPECTER. Mr. President, I ask unanimous consent that at 5 p.m. 
today the Senate proceed to the consideration of a resolution regarding 
the Iraqi elections, which is at the desk; provided further, that there 
be 30 minutes for debate equally divided between the leaders or their 
designees, and that there be no amendments to the resolution or 
preamble. I further ask unanimous consent that at 5:30 p.m., the Senate 
proceed to a vote on the adoption of the resolution, and that following 
that vote, the preamble be agreed to, without intervening action or 
debate.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. SPECTER. Mr. President, I further ask unanimous consent that 
following the comments of the distinguished Senator from Utah I be 
recognized to speak briefly on the asbestos reform issue.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. SPECTER. I shall be off the floor for a few moments while Senator 
Hatch speaks, but I will return shortly after he completes his remarks.
  Mr. LEAHY. Mr. President, I ask unanimous consent that I be included 
as a cosponsor of S. Res. 38.
  The PRESIDING OFFICER. Without objection, it is so ordered. The 
Senator from Utah.
  Mr. HATCH. Mr. President, I appreciate my two colleagues and their 
remarks on this very important bill. I rise to express my strong 
support for S. 5, the Class Action Fairness Act of 2004. This 
bipartisan bill represents a carefully crafted legislative solution in 
response to the rampant abuses of the class action litigation device 
currently in our State courts.
  The American public will benefit from a system that fairly 
compensates these injured people by those who are injured by unsafe or 
defective products. No one disputes this. We all want a system of 
compensation, but we must make sure the system is fair, reasonable, and 
equitable.
  As well, this legislation helps protect against unfair recoveries 
because, in the end, the public pays when defendant companies are 
forced to pay excessive claims and sometimes must increase prices, 
decrease employment, or even become bankrupt or go out of business. We 
ought to all understand that we all pay for that, and that is why it is 
important we get the laws right and that we correct injustices and 
distortions of the law.
  Before I begin discussing the legislation, I commend the 
distinguished majority leader, Dr. Frist, for bringing this bill up so 
early in the Congress. I also commend President Bush for recognizing 
the importance of this issue in his State of the Union Address. 
Senators Grassley, Kohl, and Carper also deserve recognition for all 
the time and effort they have devoted to this particular bill over the 
last several Congresses, and without their tireless work, we would not 
have the bipartisan compromise bill that we have in S. 5.
  Finally, I must recognize Chairman Specter for placing this bill on 
the Judiciary Committee agenda and reporting this legislation last 
week.
  Over the past decade, it has become painfully obvious that class 
action abuses have reached troublesome proportions in our civil justice 
system.
  It has become equally clear that the true victims of this epidemic 
have been everyday consumers who represent the silent majority of 
unnamed class members. It has become too common an occurrence for 
plaintiff class members not to be adequately informed of their rights 
or of the terms and practical implications of a proposed class action 
settlement.
  Making matters worse, judges too often approve settlements that 
primarily benefit class counsel, the personal injury lawyers, rather 
than the class members--in other words, the victims.
  Efforts to reform our class action system are nothing new to the 
Senate. The Senate Judiciary Committee conducted hearings in the 105th, 
106th, and 107th Congresses, reporting a similar bill from the 
committee in the 106th on a bipartisan basis. Since then, we continue 
to receive substantive evidence demonstrating the drastically 
increasing injustice caused by class action abuses.
  After working extensively with numerous legislative proposals 
throughout the various Congresses, we are now on the verge of taking 
final action on a balanced bill that I would like to spend a little bit 
of time explaining further.
  When I say a balanced bill, I refer specifically to the operation of 
the

[[Page 1561]]

bill's grant of Federal jurisdiction over interstate class actions. 
This key provision is located in section 4 of the bill and corrects a 
flaw in the current application of the Federal diversity jurisdiction 
statute that now prevents most interstate class actions from being 
adjudicated in Federal courts.
  Specifically, section 4 of the bill grants the Federal district 
courts original jurisdiction to hear interstate class actions if, one, 
any member of the proposed class is a citizen of a different State from 
any defendant; two, the amount in controversy exceeds $5 million; and, 
three, the class action lawsuit involves a class of 100 or more 
members.
  Although I believe the three conditions I have noted are more than 
sufficient to achieve the right balance between Federal and State 
interests, S. 5 goes a step further by incorporating two additional 
provisions to accommodate the States' interests in adjudicating local 
disputes.
  First, pursuant to an amendment offered by Senator Feinstein during a 
markup last Congress, Federal jurisdiction would not extend to any case 
in which two-thirds or more of the proposed class members and the 
primary defendants are residents of the State where the action was 
filed.
  This exception keeps in the State courts those class actions that are 
prosecuted by a locally dominated plaintiffs' class with grievances 
against local defendants. In other words, a locally dominated lawyer-
judge set of relationships that seems to be continually resulting in 
unjust treatment in the courts.
  Similarly, the Feinstein amendment also provides that Federal courts 
may, based on a number of carefully proscribed factors, decline to 
exercise jurisdiction in middle tier cases in which two-thirds of the 
proposed class members and the primary defendants are residents of the 
same State.
  To be sure, as part of the recent compromise reached last November 
with Senators Schumer, Dodd, and Landrieu, we further modified the 
Feinstein amendment by adding an additional factor for the Federal 
courts to consider for the middle tier of cases specifically whether 
there is a substantial nexus between the claims and the court selected 
by the plaintiffs.
  I will refer to the Feinstein chart. That chart makes it very clear, 
in my eyes, that tier I, two-thirds or more of the proposed class 
members, are in-State versus in-State primary defendants. That would 
stay in State court.
  Tier II, between one-third and two-thirds of the proposed class 
members are in-State versus in-State primary defendants, and one can go 
to either State or Federal court, subject to the judge's discretion.
  Tier III, where there is one-third or fewer of the proposed class 
members in-State versus in-State primary defendants, those cases go to 
Federal court.
  Although I believe the three conditions I noted are more than 
sufficient to achieve the right balance between Federal and State 
interests, section 5 goes a step further by incorporating these 
additional principles to accommodate States' interests in adjudicating 
local disputes.
  The second point I was making is that States' interests in 
adjudicating local disputes on behalf of their citizens are further 
preserved through a newly created exception to Federal jurisdiction for 
truly local controversies. This provision, which we negotiated on a 
bipartisan basis last November with the three new Democratic sponsors 
of this bill, keeps in the State courts those class action lawsuits 
that satisfy the following four criteria which I will discuss in 
greater detail so there is no confusion on this issue.
  Criterion 1, the proposed class must be primarily local, where more 
than two-thirds of the class members are citizens of the State where 
the suit was filed. This formulation resembles the two-thirds test in 
the Feinstein amendment I just discussed and essentially requires a 
large majority of the injured claimants reside within the State.
  Criterion 2, the class action must be brought against at least one 
real defendant. The local defendant cannot be peripheral. Rather, the 
lawsuit must be brought against at least one defendant with a 
significant basis of liability and from whom significant relief is 
sought. This provision essentially precludes personal injury lawyers 
from evading Federal jurisdiction by simply naming a local defendant 
such as Hilda Bankston, who was unmercifully dragged into scores of 
class action lawsuits simply because her small family-operated pharmacy 
sold the diet drug phen-phen. That was the only reason she was brought 
in, but the real reason was because she was a pigeon sitting in the 
State and they used her as a device to bring all of these suits by many 
people who had nothing to do with the State, nothing to do with her.
  Criterion 3, the principal injuries must have occurred locally. In 
other words, the total extent of the injuries complained of must be 
concentrated within the forum State. By way of an example, a nationwide 
drug lawsuit involving injuries spread throughout the country would 
certainly not qualify for this criteria. On the other hand, this 
criteria would be satisfied by a class action lawsuit involving a 
factory explosion affecting a confined geographic area.
  Criterion 4, no other similar class actions can have been filed 
during the preceding 3 years. This criterion is intended to ensure that 
the exception does not apply to those class actions that are likely to 
be filed in multiple States based on the same or similar factual 
allegations against any of the same defendants.
  When applying all four criteria, the local controversy exception will 
enable State courts to hear local class actions alleging principal 
injuries confined to the forum State and where the lawsuit involved 
litigants who predominately reside within that State. I refer to the 
local controversy provision chart.
  As my colleagues can see, that chart for these tier III people keeps 
truly local claims in State court. With regard to plaintiffs, if two-
thirds or more of the proposed class members are in the State and with 
regard to the defendants at least one in-State defendant from whom 
significant relief is sought--not the Hilda Bankston who was ruined by 
these false suits--and alleged conduct forms a significant basis of 
claims, and the nature of the claim's principal injuries were incurred 
in the State as a result of the alleged significant conduct, then those 
cases can be heard in State court.
  I was interested in the comments of the distinguished Senator from 
Vermont about justice and injustice. The injustices are all on the side 
of those who do not want this bill because they are protecting personal 
injury lawyers rather than the individual claimants.
  The individual claimants will have a right to go to court. It just 
may be that they have to go to Federal court rather than State court.
  Given the addition of Senator Feinstein's three-tiered jurisdictional 
test and agreed-upon local controversy exception, I find it puzzling 
that some have represented this bill will somehow move all class 
actions into Federal court. We just heard some comments like that. 
Nothing could be further from the truth.
  I urge these colleagues to read section 4 of the bill. If they cannot 
find comfort in this language, I urge them to look at studies showing 
that the bill will do nothing of the sort. If they are still skeptical, 
I urge them to talk to the cosponsors of the bill, including our 
Democratic partners, for a completely candid assessment on whether the 
legislation will move all class actions into Federal court. It simply 
will not.
  These actions will be able to be brought, but there will not be the 
same ability to forum shop into favorable jurisdictions that act 
outside the law and allow unjust verdicts such as we have today.
  I think the answer is perfectly clear. This bill moves to Federal 
court larger interstate class actions while keeping in State court 
local matters that are more suited for the States. Although I have 
focused on two provisions in S. 5, I think it is important to note that 
this bill contains many other changes we included so that we could 
build a bipartisan consensus.

[[Page 1562]]

  After we fell one vote shy of invoking cloture the year before last, 
three Democratic Senators who voted against proceeding on the bill 
presented us with a detailed list of issues they wanted resolved before 
they could support class action reform legislation. After extensive 
discussions in November of 2003, we responded to each and every concern 
raised by these Senators and made the appropriate changes that are now 
embodied in S. 5.
  As my colleagues will see, the points we have made show each 
Democratic concern that was raised and how we addressed those concerns.
  S. 5 is a modest bill that will help to put an end to class action 
abuses occurring in some of our State courts. Contrary to the arguments 
from the bill's opponents, S. 5 does not sweep into Federal court every 
conceivable class action. The bill more than adequately accommodates 
the States' interests in adjudicating local disputes.
  I might add that the argument we are going to deprive consumers from 
their day in court is pure bunk. The fact is, under certain 
circumstances, they will have a right to be in State court or have a 
right, through the judge, to be in State or Federal court, and under 
certain circumstances that are much more fair to all litigants 
concerned, they will have to go to Federal court.
  There is nothing wrong with going to Federal court. In fact, when I 
practiced law we loved to have cases that went to Federal court because 
people thought they were more important cases. Frankly, in most cases 
they were. When these cases are important, they will be tried in 
Federal court as well.
  One thing we are concerned about, we think we have a better chance of 
having real justice in these cases in Federal court than to have the 
Hilda Bankstons of this world put out of business under what are false 
pretenses and manipulation of the Federal judicial system.
  This legislation has been crafted and drafted through close 
bipartisan cooperation with several Members on the other side of the 
aisle, and as a result now commands a simple majority of support of 
this body. Despite this support, we are still faced with the 
obstructive tactics from a small minority that will do anything to 
appease the powerful and well-funded personal injury trial bar. I find 
this unfortunate and hope these colleagues can look beyond these 
special interests and do what is right for the country's ailing civil 
justice system.
  I have always belonged to the trial bar and I think most trial 
lawyers are people of dedication and decency who want to do what is 
right, but we have seen in recent years a real subversion of the law by 
some trial lawyers who are interested only in money. In many respects, 
they are not worried about clients but worried about their own 
compensation system. The fact is, we need to do what is right for our 
country's ailing civil justice system.
  The Class Action Fairness Act addresses an abuse of the class action 
system that has grown substantially in the past few years. I am 
referring to the gaming of the judicial system by unscrupulous lawyers 
to evade Federal diversity jurisdiction. In some cases, the filing and 
settling of class action lawsuits has become a virtual wheel of fortune 
with every spin of the wheel potentially worth millions of dollars. 
However, class members do not benefit from these spins of the wheel. 
Rather, it is the class counsels who receive millions of dollars in 
attorneys' fees who are the real winners of this gaming situation and 
of the game.
  It is the sad but true fact that the most class members can expect to 
receive, which is an ironic twist, is a coupon good for the future 
purchase of the very product that was the basis of their claim to begin 
with.
  Again, under the current tort system, it is the class action lawyers 
who are the real beneficiaries. They are the ones who walk away from a 
class action with millions in their pockets while the class members 
walk away with little or nothing at all but these coupons. Before I 
turn to some specific examples of class action lawyers gaming the 
system to the detriment of their clients, let me explain just how this 
game works.
  It starts with a few class action attorneys sitting around a table, 
thinking of an idea for a class action lawsuit. While this idea may 
come from any numbers of sources, it is usually formulated and 
solidified after an examination of the deepest pockets in the corporate 
world. Naturally, they want to make money.
  Once an idea for a class action is formed, it is time to find a lead 
or named plaintiff. The named plaintiff will inevitably be someone who 
is a citizen of the same State as the defendant. Why? This keeps the 
case in State court.
  Why is this essential to winning the game? Because if the suit is in 
State court, the class counsels can file multiple class actions, 
alleging similar claims against similar defendants in multiple 
districts. They do this in search of a judge willing to quickly certify 
the class.
  And because the State courts do not have a method of consolidating 
identical claims like we have in the Federal system, all of those 
claims remain pending in the various State courts around the country. 
The filing of multiple class actions in multiple districts gives the 
class counsel tremendous leverage to play hard ball with the defendant 
companies. By bringing class action upon class action against a 
company, the company is left with no other option but to settle. The 
alternative is to be bled dry by legal fees and face the uncertainty 
that one of the many courts will destroy the company by delivering a 
jackpot award against it.
  While I suppose the class counsel would like to think of it as a game 
of hardball, to companies it must feel a lot like execution; and it 
must feel a lot like what it really is: extortion.
  The real kicker is this: in some cases, many believe the only 
interests served by these settlements are those of the class counsel. 
Again, they will walk away with hundreds of thousands and sometimes 
millions of dollars. And what do the class members recover? Perhaps a 
worthless coupon.
  There you have it, a successful gaming of the State tort system by 
the class action lawyers.
  This is an intolerable practice and one that the Class A Action 
Fairness Act will curb.
  I used to be a plaintiff's attorney. I was a defense lawyer as well. 
I am in no way indicting the actions of all plaintiff attorneys or 
class action attorneys. In many cases, plaintiff attorneys play a vital 
role in protecting the legitimate interests of injured consumers.
  For example, I supported the efforts of the Castano group of 
plaintiff attorneys in the class action case against cigarette 
companies.
  Despite the fine efforts of many, many plaintiffs' lawyers, the 
actions of a powerful minority of plaintiffs' attorneys have created 
the situation we need to remedy with this situation.
  To demonstrate how class action lawyers have manipulated the tort 
system to their benefit, let us take a spin at the wheel and see what 
we come up with.
  Spin the wheel again and we come to the 2003 Cook County, Illinois 
court-approved settlement of Degradi v. KB Holdings, Inc.
  This class action alleged that KB Toys, one of the largest toy 
retailers in the country, manipulated toy prices to lead customers to 
believe that they were paying discounted prices. Specifically, the suit 
alleged that certain products contained an inflated reference price 
that was marked through in red with a lower selling price next to it.
  To settle the suit, the company agreed to hold what amounted to a 
week long sale with a thirty percent discount on selected products. 
However, the company was not obligated under the terms of the 
settlement to advertise the discount. As a result, many of the class 
members eligible to receive the discount were not aware of it until 
long after the sale was over.
  How did the game turn out for the class counsel? They won a whopping 
$1 million in attorneys' fees. And according to an independent analyst, 
KB Toys actually stood to benefit from the settlement because they were 
able to

[[Page 1563]]

drive traffic into the store on the days of the discount.
  All told, this was not a bad spin at the wheel for all parties 
concerned. That is, all parties except for the class members--in other 
words the people who were allegedly injured.
  If you spin the wheel again you land on the in re Microsoft 
Litigation Settlement.
  The wheel has landed on in re Microsoft Litigation Settlement.
  Microsoft has been involved in multiple antitrust class action 
alleging that the computer giant used its control of certain programs 
to price gouge its customers. Ten of the class actions have been 
settled, including the suit brought in Johnson County, KS.
  Under the terms of the settlement, class members who purchased 
Microsoft hardware will receive a $5 or $10 voucher toward the future 
purchase of particular computer hardware or software products.
  If these settlement terms some like something less than a big victory 
for the consumers, wait until you hear about the onerous process they 
have to endure in order to redeem the vouchers.
  First, to even receive a voucher, a class member must first download 
a form from a website established for the purpose of handling the 
settlements, fill it out and mail it in. Then, to redeem the voucher 
itself, the class member must mail in the voucher with a photocopy of 
the original receipt and UPC code.
  So the class members got some hard to redeem $5 and $10 coupons. Who 
then came out the big winners in the game? You guessed it, once again 
it was the class counsel. In these cases, they have received a mind-
boggling sum in attorney's fees to the tune of hundreds of millions of 
dollars.
  With a spin of the wheel, we come to Ramsey v. Nestle Waters North 
America.
  This class action is better known as the Poland Springs Water class 
action. Let me refer to this Poland Spring Chart--this blue section 
which has $1.35 million on it.
  The Ramsey suit alleged that Poland Spring water does not come from a 
spring deep in the woods of Maine as was advertised. Under the terms of 
the settlement approved by the Kane County, IL State court, the named 
plaintiff received $12,000 while the class members received discounts 
or free Poland Spring water of the next 5 years. The company, which 
denied any wrongdoing, agreed to enhance its quality control and make 
approximately $2.75 million in contributions to charities.
  So in this round of the game, the class members got some free water. 
What about the class counsel? They were sitting pretty at the end of 
the game with $1.35 million in attorney's fees.
  As Roger Parloff put it in the Forbes magazine article entitled 
``Springtime for Poland,'' the settlement was ``pretty standard: next 
to undetectable benefits for us--some discount coupons and whatnot and 
$1.35 million cash for the plaintiffs' attorneys.''
  That is right. Class action settlements have become so abusive that 
it is now standard and accepted practice for class counsel to receive 
millions of dollars for getting class members a bottle of water.
  Now we come to the Register.com settlement, approved by the New York 
County, New York State Supreme Court, and affirmed by the New York 
Superior Court in 2003.
  Register.com is the second largest domain registration company for 
the Internet. Those wishing to register a domain name through the 
company may do so for a $35 fee. But if the main name is registered, 
the company holds the Internet address and redirects the link to a 
``Coming Soon'' page featuring promotional advertisements for 
Register.com and other companies until the domain nameholder develops a 
Web site of its own.
  Michael Zurakov, serving as lead plaintiff for the class action, 
claimed that upon developing his own Web site, Register.com delayed in 
switching over the purchased domain name to him and continued to 
redirect the link to the promotional ``Coming Soon'' page for several 
months to sell advertisements. When the class counsel moved to certify 
the class, it was estimated that the class was comprised of 
approximately 3 million members.
  Under the terms of the court-approved settlement, class members 
received $5 coupons to use. Each one got a $5 coupon to use with 
Register.com, assuming that the class member registered with the 
company again. Meanwhile, the lawyers received $642,500 in attorney 
fees--lawyer fees.
  To quote an article appearing in Domains Magazine, ``The munificence 
of this reward may reflect that fact that the claim, while perhaps not 
utterly without a shred of merit, was not exactly the most compelling 
ever heard.''
  However weak the suit, the class counsel had a good day at the game, 
taking home winnings of $642,500, especially compared to the $5 coupons 
each class member, so-called, got. That was the right to redeem, if 
they went to Register.com, and registered a name.
  Cases such as this only further encourage the filing of frivolous 
claims by opportunistic class action counsel who are solely motivated 
by quick settlements that benefit only them.
  Let me go to the Ameritech settlement for $16 million. This is a 
settlement approved by the notorious Madison County, IL, State court, 
one of the most abusive settlements I have ever seen.
  You need to know about Madison County. Madison County is where a lot 
of these class actions go so they can make demand letters and get 
settlements as defense cases. Madison County has judges who seem to be 
in the pockets of the trial lawyers in Madison County who become 
cocounsel in these cases, and, of course, have an instant entree to the 
courts, and almost a guaranteed, outrageous award every time they go 
into court. Most of the time they don't go to court. You will find in 
the end very few actual cases are filed. But the demand letters are 
made. And these companies are so frightened over Madison County, 
because they know they are going to get killed if they go to court, 
that they almost automatically settle as a result of the demand 
letters. They settle for what it would cost them to defend these types 
of cases rather than go through the jackpot justice problem of getting 
slammed in a jurisdiction where apparently justice is not a measured 
factor.
  Here we have the Ameritech settlement approved by the Madison County, 
IL, State court. This is one of the most abusive settlements I have 
ever seen.
  Two suits were filed in Madison County, IL, by the same firm on 
behalf of customers in Michigan, Ohio, and Wisconsin, alleging that 
Ameritech wrongly charged customers for a wire maintenance program 
without informing them that the service was optional.
  The settlement didn't provide customers with refunds for wrongful 
charges. Instead, it gave each class member a $5 pay phone card that 
could only be used at pay phones owned by SBC, the parent company of 
Ameritech, to make local and limited long distance calls within the 
State. Many of the class members complained that the cards were 
worthless to them because there were no SBC pay phones in the area. 
Other class members complained that the cards were worthless to them 
either because they did not use pay phones or because the cards 
contained so many restrictions that they were essentially unusable.
  This was not exactly a sweetheart deal for these consumers. But how 
did the class action counsel come out in this round of the game?
  They had a good spin of the wheel by any measure, winning $16 million 
in lawyer fees, while the class of people, alleged consumers who were 
supposedly abused, really got nothing.
  We can no longer sit idly by and allow abusive settlements to 
continue. What will S. 5 do to help curb the gaming of our tort system?
  First, the bill gives the Federal courts diversity jurisdiction over 
large, national class actions with at least 100 class members seeking 
an amount-in-controversy of $5 million.
  They can still bring their suit, but it will be in Federal court 
where it is much more likely that justice will occur, fairness will 
occur, and decent treatment will occur.

[[Page 1564]]

  As a result of the provision, large and national class actions may 
either be originally filed or removed to Federal court, a forum that is 
better equipped to handle these kinds of cases--and to do so fairly. 
They are not going to be deprived of their rights. They are just going 
to have to make their cases, and they are not going to be able to go to 
Madison County where they will have an automatic win absolutely 
guaranteed in the eyes of most companies which will be outrageous in 
nature as a general rule--or an automatic settlement for defense 
costs--which is as close to distortion as you can get because the 
companies can't afford to go to court in that particular jurisdiction 
with the judges the way they are, the attorneys the way they are, and 
all in cahoots the way they are.
  Second, S. 5 contains provisions for the review and approval of 
proposed coupon settlements before a Federal court. It doesn't mean you 
can't have coupon settlements, but you are sure going to have to get 
the judge's approval. So these phoney coupons are going to be much 
fewer and much more far in between.
  The bill provides that a Federal judge cannot approve a proposed 
coupon settlement until conducting a hearing with a written finding 
that the terms of the settlement are fair, reasonable, and equitable to 
the class members.
  You would think that would be something every court in the land would 
want to do, but, unfortunately, we have had far too many of these class 
actions where that hasn't been the case, or where counsel are the ones 
who are basically mistreated in the end.
  Our courts will no longer be used as a rubberstamp for proposed 
settlements. This provision ensures that the true beneficiaries of a 
settlement are the class members and not the lawyers who drew up the 
settlement.
  It doesn't cost any more money to go to Federal court than it does 
State court. It isn't a tremendous inconvenience; it is just that you 
can expect the Federal judges not to be judges who are sustained by 
financial support by the local lawyers.
  Third, this legislation requires that attorneys' fee awards be based 
on the actual recovery of the class members in coupon settlements. In 
other words, contingency fees must be based on the value of coupons 
actually redeemed by class members. This will give the attorneys an 
incentive to ensure the class members actually get something in the 
settlement they can use.
  If you are going to get bottles of water, then the attorneys can get 
fees based upon how many bottles of water are gotten. I don't think 
many lawsuits would be brought on that basis anymore. Or, if you are 
going to get a coupon, they can get fees based upon how many coupons 
are redeemed. Or, in the case of the SBC coupons, they can get fees 
only to the extent that those coupons are viable and can be utilized, 
and how many of them are actually requested.
  Practically speaking, class counsel will no longer look for a quick 
and hefty attorney fee settlement for themselves in which the class 
members recover relatively worthless coupons.
  The time has come for us to put an end to this unfair system. I have 
heard many of my colleagues on both sides of the aisle decry the state 
of the current tort system. I ask my colleagues to recognize this bill 
as the opportunity that it is, an opportunity to end the abuses of the 
current tort system, or at least to make a start to ending the abuses 
of the current tort system and restoring confidence in our justice 
system.
  Real good lawyers, the honest lawyers, if they bring class action 
lawsuits, will bring suits of viability, suits that mean something, 
suits that are deserving of the awards that are given, not suits just 
for the benefit of the lawyers involved. We have spent literally years 
now negotiating the provisions of this delicate compromise bill. The 
time has come to pass it.
  I might add, this bill has evolved over a number of Congresses. We 
have negotiated with virtually everybody who has wanted to negotiate on 
this bill. We have made change after change after change. It is not a 
major change in our law, but it certainly will bring greater justice in 
our law and greater fairness and greater treatment in our law.
  The fact is, we need this bill to remain intact. The House has 
indicated they will take this bill, if we pass it in its current form, 
and it will become law. There will be some attempts with amendments 
that may have merit that I may even like, but this bill is a result of 
a huge series of compromises that have taken years to achieve. We know 
if any amendment is added to this bill, it is very unlikely the House 
will take it. We are faced with the proposition of the need to vote 
down all amendments on this bill.
  The distinguished Presiding Officer has a number of amendments he 
would like to add to this bill, as a distinguished former supreme court 
justice from the State of Texas, that would improve this bill. But he 
knows if we are going to pass this bill, we cannot take any amendments, 
including his. If we are going to take other amendments, we will have 
to take his. The fact is, we urge all amendments be voted down so we 
can pass this bill and, hopefully, get it to the House and get it 
passed so justice can occur.
  Any Member who stands in the Senate and says consumers are going to 
be hurt by this bill, that we are not allowing suits to be brought, has 
not read the bill or is deliberately distorting what is going on. The 
fact is, suits can be brought, legitimate suits can be brought, there 
will be awards that will be made in legitimate cases, as they should 
be, and we all will be better off as a country if we get the tort 
system so that it does justice, rather than jackpot justice for a few, 
and in a number of instances I have been citing, for lawyers only. 
Unfortunately, we have people gaming this system to such a degree that 
this bill needs to pass. We need to straighten out the mess.
  I yield the floor.
  The PRESIDING OFFICER (Mr. Cornyn). The Senator from Pennsylvania.
  Mr. SPECTER. Mr. President, I congratulate my distinguished 
colleague, Senator Hatch, for the outstanding work he has done on so 
much legislation during his tenure as chairman of the Judiciary 
Committee, including the class action bill, as he has spoken of in some 
detail.

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