[House Report 105-702]
[From the U.S. Government Publishing Office]
105th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 105-702
_______________________________________________________________________
CLASS ACTION JURISDICTION ACT OF 1998
_______________________________________________________________________
September 10, 1998.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Coble, from the Committee on the Judiciary, submitted the following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 3789]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to whom was referred the
bill (H.R. 3789) to amend title 28, United States Code, to
enlarge Federal Court jurisdiction over purported class
actions, having considered the same, reports favorably thereon
with an amendment and recommends that the bill as amended do
pass.
TABLE OF CONTENTS
Page
The Amendment.............................................. 2
Purpose and Summary........................................ 4
Background and Need for Legislation........................ 4
Hearings................................................... 9
Committee Consideration.................................... 9
Vote of the Committee...................................... 9
Committee Oversight Findings............................... 10
Committee on Government Reform and Oversight Findings...... 11
New Budget Authority and Tax Expenditures.................. 11
Congressional Budget Office Cost Estimate.................. 11
Constitutional Authority Statement......................... 12
Section-by-Section Analysis and Discussion................. 12
Agency Views............................................... 17
Changes in Existing Law Made by the Bill, as Reported...... 18
Dissenting Views........................................... 22
Additional Dissenting Views................................ 34
The amendment is as follows:
Strike out all after the enacting clause and insert in lieu
thereof the following:
SECTION 1. SHORT TITLE AND REFERENCE.
(a) Short Title.--This Act may be cited as the ``Class Action
Jurisdiction Act of 1998''.
(b) Reference.--Whenever in this Act an amendment or repeal is
expressed in terms of an amendment to, or repeal of, a section or other
provision, the reference shall be considered to be made to a section or
other provision of title 28, United States Code.
SEC. 2. JURISDICTION OF DISTRICT COURTS.
(a) Expansion of Federal Jurisdiction.--Section 1332 is amended by
redesignating subsections (b), (c), and (d) as subsections (c), (d),
and (e), respectively, and by inserting after subsection (a) the
following:
``(b)(1) The district courts shall have original jurisdiction of
any civil action, regardless of the sum or value of the matter in
controversy therein, which is brought as a class action and in which--
``(A) any member of a proposed plaintiff class is a citizen
of a State different from any defendant;
``(B) any member of a proposed plaintiff class is a foreign
state or a citizen or subject of a foreign state and any
defendant is a citizen of a State; or
``(C) any member of a proposed plaintiff class is a citizen
of a State and any defendant is a citizen or subject of a
foreign state.
As used in this paragraph, the term `foreign state' has the meaning
given that term in section 1603(a).
``(2)(A) In a civil action described in paragraph (1) in which--
``(i) the substantial majority of the members of all
proposed plaintiff classes are citizens of a single State of
which the primary defendants are also citizens, and
``(ii) the claims asserted will be governed primarily by
the laws of that State,
the district court should abstain from hearing such action.
``(B) In a civil action described in paragraph (1) in which--
``(i) all matters in controversy asserted by the individual
members of all proposed plaintiff classes in the aggregate do
not exceed the sum or value of $1,000,000, exclusive of
interest and costs,
``(ii) the number of members of all proposed plaintiff
classes in the aggregate is less than 100, or
``(iii) the primary defendants are States, State officials,
or other governmental entities against whom the district court
may be foreclosed from ordering relief,
the district court may, in its discretion, abstain from hearing such
action.
``(3)(A) Paragraph (1) and section 1453 shall not apply to any
class action that is brought under the Securities Act of 1933.
``(B) Paragraph (1) and section 1453 shall not apply to a class
action described in subparagraph (C) that is based upon the statutory
or common law of the State in which the issuer concerned is
incorporated (in the case of a corporation) or organized (in the case
of any other entity).
``(C) A class action is described in this subparagraph if it
involves--
``(i) the purchase or sale of securities by an issuer or an
affiliate of an issuer exclusively from or to holders of equity
securities of the issuer; or
``(ii) any recommendation, position, or other communication
with respect to the sale of securities of an issuer that--
``(I) is made by or on behalf of the issuer or an
affiliate of the issuer to holders of equity securities
of the issuer; and
``(II) concerns decisions of those equity holders
with respect to voting their securities, acting in
response to a tender or exchange offer, or exercising
dissenters' or appraisal rights.
``(D) As used in this paragraph, the terms `issuer', `security',
and `equity security' have the meanings given those terms in section 3
of the Securities Exchange Act of 1934.''.
(b) Conforming Amendment.--Section 1332(c) (as redesignated by this
section) is amended by inserting after ``Federal courts'' the
following: ``pursuant to subsection (a) of this section''.
(c) Determination of Diversity.--Section 1332, as amended by this
section, is further amended by adding at the end the following:
``(f) For purposes of subsection (b), a member of a proposed class
shall be deemed to be a citizen of a State different from a defendant
corporation only if that member is a citizen of a State different from
all States of which the defendant corporation is deemed a citizen.''.
SEC. 3. REMOVAL OF CLASS ACTIONS.
(a) In General.--Chapter 89 is amended by adding after section 1452
the following:
``Sec. 1453. Removal of class actions
``(a) In General.--A class action may be removed to a district
court of the United States in accordance with this chapter, except that
such action may be removed--
``(1) by any defendant without the consent of all
defendants; or
``(2) by any plaintiff class member who is not a named or
representative class member of the action for which removal is
sought, without the consent of all members of such class.
``(b) When Removable.--This section shall apply to any class action
before or after the entry of any order certifying a class.
``(c) Procedure for Removal.--The provisions of section 1446(a)
relating to a defendant removing a case shall apply to a plaintiff
removing a case under this section. With respect to the application of
subsection (b) of such section, the requirement relating to the 30-day
filing period shall be met if a plaintiff class member who is not a
named or representative class member of the action for which removal is
sought files notice of removal within 30 days after receipt by such
class member, through service or otherwise, of the initial written
notice of the class action provided at the district court's direction
in accordance with Rule 23(c)(2) of the Federal Rules of Civil
Procedure.''.
(b) Removal Limitations.--Section 1446(b) is amended in the second
sentence--
(1) by inserting ``, by exercising due diligence,'' after
``ascertained''; and
(2) by inserting ``(a)'' after ``section 1332''.
(c) Technical and Conforming Amendments.--The table of sections for
chapter 89 is amended by adding after the item relating to section 1452
the following:
``1453. Removal of class actions.''.
(d) Application of Substantive State Law.--Nothing in this section
or the amendments made by this section shall alter the substantive law
applicable to an action to which the amendments made by section 2 of
this Act apply.
(e) Procedure After Removal.--Section 1447 is amended by adding at
the end the following new subsection:
``(f) If, after removal, the court determines that no aspect of an
action that is subject to its jurisdiction solely under the provisions
of section 1332(b) may be maintained as a class action under Rule 23 of
the Federal Rules of Civil Procedure, the court shall strike the class
allegations from the action and remand the action to the State court.
Upon remand of the action, the period of limitations for any claim that
was asserted in the action on behalf of any named or unnamed member of
any proposed class shall be deemed tolled to the full extent provided
under Federal law.''.
SEC. 4. APPLICABILITY.
The amendments made by this Act shall apply to any action commenced
on or after the date of the enactment of this Act.
SEC. 5. GAO STUDY.
The Comptroller General of the United States shall, by not later
than 1 year after the date of the enactment of this Act, conduct a
study of the impact of the amendments made by this Act on the workload
of the Federal courts, and report to the Congress on the results of the
study.
Purpose and Summary
House Resolution 3789 responds to a serious flaw in the
Judicial Code recently highlighted by the U.S. Court of Appeals
for the Third Circuit: Although ``national (interstate) class
actions are [arguably] the paradigm for federal diversity
jurisdiction because, in a constitutional sense, they implicate
interstate commerce, [invite] discrimination by a local state,
and tend to [attract] bias against [business] enterprise[s],''
most such ``class actions [are] beyond the reach of the federal
courts . . . under the current jurisdictional statutes.'' \1\
Frequently, these interstate class actions are heard by state
courts that are not applying rigorous standards necessary to
avoid abuses, that are ill-equipped to address laws and
claimants from outside their home states, and that are
powerless to consolidate overlapping, ``competing'' class-
action proceedings filed in different jurisdictions.
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\1\ In re Prudential Ins. Co. America Sales Practice Litig., 1998
WL 40956, *16 (3rd Cir. July 23, 1998) (Scirica, J.).
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House Resolution 3789 addresses these problems by expanding
the original jurisdiction of U.S. District courts over most
class actions in which minimal diversity exists among the
parties. Federal removal statutes are also amended pursuant to
the bill in furtherance of this goal.
Background and Need for Legislation
Rule 23
Rule 23 of the Federal Rules of Civil Procedure prescribes
the conditions by which class action suits may be brought.
Paragraph (a) enumerates the prerequisites for a class action.
They are:
1. the class is so numerous that joinder of all
members is impracticable;
2. there are questions of law or fact common to the
class;
3. the claims or defenses of the representative
parties are typical of those of the class; and
4. the representative parties will fairly and
adequately protect the interests of the class.
Paragraph (b) establishes three disjunctive terms by which
class actions may be maintained. First, the prosecution of
separate actions by or against individual members of the class
would create a risk of either: inconsistent or varying
adjudications which would establish incompatible standards of
conduct for the party opposing the class; or adjudications
which, as a practical matter, would be dispositive of the
interests of the other members not parties to the adjudications
or which would substantially impair or impede their ability to
protect their interests.\2\
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\2\ Fed. R. Civ. P. 23(b)(1).
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Second, the party opposing the class has acted or refused
to act on grounds generally applicable to the class, thereby
making appropriate final injunctive relief or corresponding
declaratory relief with respect to the class as a whole.\3\
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\3\ Fed. R. Civ. P. 23(b)(2).
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And third, the court finds that a class action is superior
to other available methods for the fair and efficient
adjudication of the controversy. Matters pertinent to such a
finding include: the interests of members of the class
individually controlling separate actions; the nature and
extent of any litigation already commenced by or against the
class; the desirability or undesirability of concentrating
litigation in the particular forum; and the difficulties likely
to be encountered in the management of a class action.\4\
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\4\ Fed. R. Civ. P. 23(b)(3).
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Again, in addition to the prerequisites mentioned in
Paragraph (a), a class action may be maintained if any of the
three conditions, supra, are satisfied.
Courts are given wide discretion pursuant to Paragraph (c)
in certifying classes, and whether actions may be maintained.
Any order related to this authority may be conditional, and may
also be amended or altered before a decision on the merits.
The most relevant component of Paragraph (c) is the notice
requirement for actions brought under Paragraph (b)(3).
Briefly, members of the relevant class are to be given the best
notice practicable under the circumstances, and they are
automatically included as members of the class and are bound by
any judgment unless they request exclusion from the class.
Paragraph (d) details various orders a court may issue
governing class actions, and Paragraph (e) states that a class
action shall not be dismissed or compromised without the
approval of the court.
Diversity Jurisdiction
The federal diversity statute mandates, inter alia, that
U.S. district courts shall have original jurisdiction of all
civil actions in which the matter in controversy exceeds
$75,000 and is between citizens of different states.\5\ Unless
specified to the contrary by statute, diversity of citizenship
exists only when it is complete; that is, when each plaintiff
is a citizen of a state different from that of each
defendant.\6\
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\5\ 28 U.S.C. Sec. 1332(a)(1).
\6\ Strawbridge v. Curtis, 3 Cranch 267 (1806); see also Charles
Alan Wright, Law of Federal Courts 94-96 (3rd ed. 1976).
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Removal
The general removal statute provides, inter alia, that any
civil action brought in a state court of which U.S. district
courts have original jurisdiction, may be removed by the
defendant(s) to the appropriate federal court.\7\ Removal is
based on the general assumption that an out-of-state defendant
may become a victim of local prejudice in state court.\8\
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\7\ 28 U.S.C. Sec. 1441(a).
\8\ See David P. Currie, Federal Jurisdiction at 140 (3rd ed.
1990).
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In addition, a defendant must file for removal to federal
court within 30 days after receipt of a copy of the initial
pleading (or service of summons if a pleading has been filed in
court and is not required to be served on the defendant).\9\ An
exception exists beyond the 30-day deadline when the case
stated by the initial pleading is not removable. If so, a
notice of removal must be filed within 30 days of receipt by
the defendant of ``a copy of an amended pleading, motion,
order, or other paper from which it may first be ascertained
that the case [is removable].'' In no event may a diversity
(i.e., Sec. 1332) case be removed more than one year from
commencement of the action.\10\
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\9\ 28 U.S.C. Sec. 1446(b).
\10\ Id.
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Issues and Problems in the Current Class-Action Environment
Class-action litigation in the United States has engendered
much criticism in recent years. Scholars, judges, attorneys,
and litigants in increasing numbers argue that the current
system invites frivolity or collusion in the settlement of
suits.\11\
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\11\ Mass Torts and Class Action Suits, 1998: Oversight Hearing
Before the Subcomm. on Courts and Intellectual Property of the House
Committee on the Judiciary, 105th Cong., 2nd Sess. 1-13 (1998) (written
statement of John Frank).
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Frivolous litigation is self-explanatory; a suit which is
essentially meritless is nonetheless filed, usually in state
court, for the purpose of extracting a nuisance settlement from
a deep-pocket defendant. Critics of class-action litigation
have noted that class actions can become blackmail devices--a
means for extracting payments from a corporate defendant as to
claims that have little merit. The enormous power of the class-
action device is readily apparent: An attorney can identify a
theoretical claim, and by styling the suit as a class action,
can assert that he or she is suing on behalf of millions of
people, even though none of them solicited such assistance.
Under this scenario, small individual claims which are
aggregated will create a class action seeking hundreds of
millions of dollars in relief. Class actions of this financial
magnitude--including meritless ones--often compel a defendant
to settle. Few corporations are willing to assume even a slight
risk of losing a hundred-million-dollar-plus verdict if a
settlement of lesser, finite exposure is available.\12\ For
that reason, the key question in a class action is whether a
court will afford a case class treatment. Accordingly, many
federal courts have begun to realize that the mere issuance of
an order certifying a case for class treatment ``often, perhaps
typically, inflict[s] irreparable injury on the defendants.''
\13\
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\12\ Class Action Lawsuits: Examining Victim Compensation and
Attorneys' Fees, 1997: Hearings Before the Subcommittee on
Administrative Oversight and the Courts of the Senate Committee on the
Judiciary, 105th Cong., 1st Sess. 2 (1997) (written statement of
Professor John C. Coffee, Jr., Columbia University School of Law).
\13\ In re Rhone-Poulenc Rorer, Inc., 51 F. 3d 1293, 1295 (7th Cir.
1995).
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As a testament to the prevalence of baseless filings, these
critics cite the practice of some plaintiff attorneys who have
no client at the time they conceive a suit. Instead, these
attorneys review the Federal Register, agency dockets,
newspapers, and the Internet searching for information about
government investigations of consumer products. Once a product
has been identified that ``fits'' a legal theory of liability,
the attorneys will attempt to recruit (frequently by financial
inducement) a coworker, friend, or relative to serve as a named
plaintiff in a suit.\14\ Against this background, it is not
surprising that there has been an explosion in class-action
filings in the recent past. The Advisory Committee on Civil
Rules of the Federal Judicial Conference has observed that,
during the past three years, class-action filings aimed at U.S.
companies have increased by 300% to 1,000% (per company).\15\
Testimony and other data presented to the Subcommittee on
Courts and Intellectual Property and the Committee confirm that
a great majority of these cases has been concentrated in state
courts.
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\14\ Lewis Goldfarb, Selling Res Judicata: Class Action Abuse and
How to Fix It, The Metropolitan Corporate Counsel, Oct. 1997, at 1;
Dick Thornburgh, Enough of Class-Action Abuse, Washington Times, Oct.
30, 1997, at A21.
\15\ Working Papers of the Advisory Committee on Civil Rules on
Proposed Amendments to Civil Rule 23, Vol. 1, at ix-x (memorandum to
members of the Standing Committee on Rules and Procedure and the
Advisory Committee on Federal Rules from Judge Paul V. Niemeyer).
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A collusive class action is designed to enrich counsel, and
may be divided into two categories: one which is ``frivolous,''
meaning counsel has no intention of acquiring any significant
benefits for the class, irrespective of whether the class is
genuinely entitled to compensation; and the other which is
``non-frivolous,'' meaning counsel compromises potentially
valid rights by settling on the cheap in exchange for
substantial attorneys' fees. Attorneys who indulge in collusive
litigation generally employ one of four settlement models \16\:
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\16\ Coffee supra note 12, at 3-5.
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1. Discount Coupon Settlements. Instead of paying
cash to the plaintiff class members, the defendants
issue them discount coupons. This produces a number of
problems. Because courts today normally award a
plaintiff attorney fees equal to approximately one-
third the settlement, the impact of inflating the value
of the settlement is to inflate the value of the fee
award. The plaintiffs' attorney is overcompensated as a
result, since coupons are frequently not exercised by
many class members who do not wish to buy another
version of a defective product, or because the coupons
have no transferability, or because the coupons may be
so modest in amount as to constitute nothing more than
a marketing campaign.
2. Reversionary Settlements. Also known as the
``claims made'' settlement, this technique consists in
the defendant ``temporarily'' placing a settlement
amount in a trust fund for the class, but with the
proviso that any amount not claimed by eligible class
members reverts to the defendant. Under these terms the
defendant has every incentive to require elaborate
documentation to prove the class member's eligibility,
since few members will wade through a thicket of
paperwork to receive a nominal sum from a settlement
which, in the aggregate, may be substantial. The
plaintiff's attorneys are also served by this
arrangement because their fee will typically be based
on the size of the original trust fund prior to any
reversion to the defendants.
3. Future Claims Settlements. In the mass tort
context, a defendant may expose an unknown (but
potentially enormous) number of class members to a
dangerous product. Typically, the latency period is
long, which means that many plaintiffs will not know at
the time of settlement whether they will actually
become ill or, if they do, how debilitated they may
become. Plaintiffs' counsel negotiate more lucrative
payments for claimants (i.e., persons who are not ill
now but may become ill in the future), arguably because
the possibility exists that some or all persons in the
latter category may never become ill. Usually, a
defendant is willing to enter into a class settlement
only if it can buy peace as to all claims arising out
of the matter at issue. Otherwise, it makes more sense
from the defendant's perspective to litigate the
current claims individually on their merits and wait
for future claimants to file their claims if an when
they arise. The massive number of claims in some
situations cause litigants (and even the courts
involved) to work hard toward settlement. The problems
occur when courts do not adequately scrutinize a
proposed settlement to ensure that justice is being
done as to all who have a claim or may have a claim in
the future.
4. Races to Judgment and ``Reverse Auction''
Settlements. Competitive class actions can be filed in
state and federal court by different teams of
plaintiffs' attorneys. In these cases, the first team
of plaintiffs' attorneys to settle ``wins,'' because
the other action will normally be precluded under
principles of full faith and credit and collateral
estoppel or res judicata. Hence, defendants can exploit
this situation by forcing the two teams of competing
plaintiffs' attorneys to bid against each other. Worse
yet, the plaintiffs' team in state court often cannot
litigate the stronger legal claims that are litigiable
only in federal court (because state courts usually
lack subject matter jurisdiction over such federal
claims). In these cases, the state plaintiffs can only
settle--and not litigate--and the evidence suggests
that they will settle cheaply to win the race to
settlement with the federal court plaintiffs.
The federal judiciary applies Rule 23 rigorously in making
class certification decisions.\17\ Plaintiffs' attorneys have
countered by shifting their filings to state courts. Many state
general assemblies have adopted rough equivalents of Rule 23.
Critics maintain that certain state judges, motivated by a
politically-active plaintiff's bar and employing lax standards
for certification (sometimes done ex parte), make it even more
difficult for defendants to respond to frivolous suits.
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\17\ See Amchem v. Windsor, 117 S. Ct. 2231 (1997).
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In addition, out-of-state defendants are frustrated with
their inability to remove cases to federal court where
certification is less likely to occur. A common practice by
plaintiffs' attorneys in state class actions is to recruit a
plaintiff from the same state in which a corporate defendant is
headquartered to serve as a named representative member of the
class; in other words, the recruited plaintiff's name would be
contained in the pleadings, thereby eliminating diversity
between the litigants (courts look to the pleadings to
determine jurisdiction, not to the identity of the putative
unnamed class) \18\. Similarly, if in-state plaintiffs are
listed on the pleadings, plaintiff attorneys will often sue a
local manager, agent, or retailer of an out-of-state
corporation to avoid complete diversity.
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\18\ Snyder v. Harris, 394 U.S. 332 (1969); See also Wright, supra,
at 117.
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Judicial Conference Proposed Amendments to Rule 23
By letter of June 16, 1997, the Committee on Rules of
Practice and Procedure of the Judicial Conference of the United
States notified Representative Henry Hyde, Chairman of the
Committee on the Judiciary, that it had completed its
evaluation of certain proposed amendments to Rule 23. The most
noteworthy Committee recommendation was the creation of a new
Paragraph (f), which would permit the appeal of a U.S. district
court order certifying a class within 10 days of certification.
This recommendation tracks that of Section Three of H.R. 1252,
id. The Supreme Court approved the recommendation, and Chief
Justice Rehnquist forwarded the proposal to Congress pursuant
to the Rules Enabling Act on April 24, 1998. In the absence of
congressional intervention to the contrary, the revision will
take effect on December 1.
Other recommendations involved minor changes, rejections of
other proposals, or admonitions to conduct further study.
In a related matter, Chief Justice Rehnquist has approved
the establishment of an informal working group consisting of
liaisons from the relevant committees of the Judicial
Conference to conduct further study of mass-tort litigation.
Hearings
The Committee's Subcommittee on Court and Intellectual
Property held an oversight hearing on the subject of mass torts
and class actions on March 5, 1998. Testimony was received from
nine witnesses of varied legal backgrounds. The Subcommittee
also held a legislative hearing on H.R. 3789 on June 18, 1998,
at which testimony was received from five witnesses
representing three organizations.
Committee Consideration
On June 24, 1998, the Subcommittee on Courts and
Intellectual Property met in open session and ordered reported
the bill H.R. 3789, as amended, by voice vote, a quorum being
present. On August 5, 1998, the Committee met in open session
and ordered reported favorably the bill H.R. 3789 with an
amendment by a recorded vote of 17 to 12, a quorum being
present.
Vote of the Committee
The following roll calls occurred during Committee
deliberations on H.R. 3789 (August 5, 1998):
An amendment by Ms. Jackson Lee to create a tobacco
``carve-out'' to the bill (i.e., the non-application of the
revisions to the federal diversity and removal statutes for
actions based on harm caused by tobacco products). The Jackson
Lee amendment was defeated by a roll-call vote of 3-16.
AYES NAYS
Ms. Jackson Lee Mr. Coble
Ms. Lofgren Mr. Smith
Mr. Rothman Mr. Canady
Mr. Inglis
Mr. Buyer
Mr. Bryant
Mr. Chabot
Mr. Barr
Mr. Jenkins
Mr. Hutchinson
Mr. Rogan
Mr. Graham
Ms. Bono
Mr. Scott
Mr. Watt
Mr. Hyde
An amendment by Mr. Watt to strike the removal provisions
from the bill. The amendment was defeated by a roll-call vote
of 5-15.
AYES NAYS
Mr. Nadler Mr. Gekas
Mr. Scott Mr. Coble
Mr. Watt Mr. Smith
Ms. Lofgren Mr. Canady
Mr. Rothman Mr. Inglis
Mr. Buyer
Mr. Bryant
Mr. Chabot
Mr. Barr
Mr. Jenkins
Mr. Hutchinson
Mr. Rogan
Mr. Graham
Ms. Bono
Mr. Hyde
The motion to report favorably H.R. 3789, the ``Class
Action Jurisdiction Act of 1998,'' as amended by the amendment
in the nature of a substitute. The motion approved by a roll-
call vote of 17-12.
AYES NAYS
Mr. Sensenbrenner Mr. Conyers
Mr. McCollum Mr. Frank
Mr. Gekas Mr. Schumer
Mr. Coble Mr. Berman
Mr. Smith Mr. Boucher
Mr. Gallegly Mr. Nadler
Mr. Canady Mr. Scott
Mr. Inglis Mr. Watt
Mr. Goodlatte Ms. Lofgren
Mr. Buyer Ms. Jackson Lee
Mr. Chabot Mr. Meehan
Mr. Jenkins Mr. Rothman
Mr. Pease
Mr. Cannon
Mr. Rogan
Mr. Graham
Ms. Bono
Committee Oversight Findings
In compliance with clause 2(1)(3)(A) of rule XI of the
Rules of the House of Representatives, the Committee reports
that the findings and recommendations of the Committee, based
on oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated in the
descriptive portions of this report.
Committee on Government Reform and Oversight Findings
No findings or recommendations of the Committee on
Government Reform and Oversight were received as referred to in
clause 2(1)(3)(D) of rule XI of the Rules of the House of
Representatives.
New Budget Authority and Tax Expenditures
Clause 2(1)(3)(B) of House Rule XI is inapplicable because
this legislation does not provide new budgetary authority or
increased tax expenditures.
Congressional Budget Office Estimate
In compliance with clause 2(1)(3)(C) of rule XI of the
Rules of the House of Representatives, the Committee set forth,
with respect to the bill, H.R. 3789, the following estimate and
comparison prepared by the Director of the Congressional Budget
Office under section 403 of the Congressional Budget Act of
1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, September 9, 1998.
Hon. Henry J. Hyde,
Chairman, Committee on the Judiciary,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 3789, the Class
Action Jurisdiction Act of 1998.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Susanne S.
Mehlman, who can be reached at 226-2860.
Sincerely,
June E. O'Neill, Director.
Enclosure.
cc: Hon. John Conyers, Jr.,
Ranking Minority Member.
H.R. 3789--Class Action Jurisdiction Act of 1998
H.R. 3789 would expand the types of class-action lawsuits
that would be heard initially in federal district court. As a
result, most class-action lawsuits would be heard in federal
district court rather than state court, and the bill would
impose additional costs on the U.S. court system. While the
number of cases that would be filed in federal court under this
bill is highly uncertain, CBO expects that at least a few
hundred additional cases would be heard in federal court each
year. According to the Administrative Office of the United
States Courts, class-action lawsuits tried in federal court
cost, on average, about $7,000. This estimate includes costs
for salaries and benefits for clerks, rent, utilities, and
associated overhead expenses. By comparison, the average cost
for all civil cases heard in federal courts is about $4,000 per
case. (The 94 federal district courts currently handle about
270,000 cases each year.) Thus, CBO estimates that enacting
H.R. 3789 would have only a small effect on the courts'
workload, at a cost of less than $5 million annually.
H.R. 3789 also would require the General Accounting Office
to study the impact of the bill on the workload of the federal
court system and to report to the Congress no later than one
year after the bill's enactment. CBO estimates that this
provision would cost less than $500,000 over the 1999-2000
period, subject to the availability of appropriated funds.
CBO also estimates that enacting this bill could increase
the need for additional judges. Because the salaries and
benefits of district court judges are considered mandatory,
adding more judges would increase direct spending. But H.R.
3789 would not by itself affect direct spending because
separate legislation would be necessary to increase the number
of judges. In any event, CBO expects that enacting the bill
would not require any significant increase in the number of
federal judges, so that any potential increase in direct
spending from subsequent legislation would probably be less
than $500,000 a year.
Because H.R. 3789 would not affect direct spending or
receipts, pay-as-you-go procedures would not apply to this
bill. H.R. 3789 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act and
would impose no costs on state, local, or tribal governments.
The CBO staff contact for this estimate is Susanne S.
Mehlman, who can be reached at 226-2860. This estimate was
approved by Robert A. Sunshine, Deputy Assistant Director for
Budget Analysis.
Constitutional Authority Statement
Pursuant to rule XI, clause 2(1)(4) of the Rules of the
House of Representatives, the Committee finds the authority for
this legislation in Article III, section one of the
Constitution.
Section-By-Section Analysis and Discussion
Summary. Minimalist in approach, H.R. 3789 grants federal
courts jurisdiction over class actions in which there exists
``partial diversity'' between plaintiffs (including all unnamed
members of any plaintiff class) and defendants. This expanded
jurisdiction would not extend to disputes which are not
interstate in nature--for the most part, those in which a class
of citizens in one state sue one or more defendants that are
citizens of that same state. House Resolution 3789 also
explicitly grants a federal court discretion not to hear
several narrow categories of class actions. The bill further
establishes the statutory mechanism for removing to federal
court any purported class action that fits the additional grant
of federal diversity jurisdiction. With few exceptions, the
removal procedures for such cases would be the same as they
presently are for cases removed on diversity jurisdiction
grounds.
Sec. One. Title. Section One contains the short title of the
bill, the ``Class Action Jurisdiction Act of 1998.''
Sec. Two. Amendments to the Jurisdiction of U.S. District
Courts. Section Two amends 28 U.S.C. Sec. 1332 by conferring
original jurisdiction over class action suits on the U.S.
District Courts under any of the following conditions: (1) when
minimal diversity jurisdiction exists (i.e., any one member of
a proposed plaintiff class and any one defendant are citizens
of different States); (2) when any member of a proposed
plaintiff class is a foreign state or citizen of a foreign
state and any defendant is a citizen of a State; or (3) when
any member of a proposed plaintiff class is a citizen of a
State and any defendant is a citizen of a foreign state.
At the same time, the amendments en bloc adopted by the
Subcommittee specify that nothing shall prevent a U.S. District
judge from exercising discretion to abstain from hearing cases
in which:
1. all proposed plaintiff class members are seeking,
in the aggregate, less than one-million dollars in
damages;
2. the number of all proposed plaintiff class members
is fewer than 100; or
3. the primary defendants are states, state
officials, or other governmental entities against whom
a U.S. District court may be foreclosed from ordering
relief pursuant to the Eleventh Amendment.\19\
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\19\ U.S. CONST. amend. XI (``The Judicial Power of the United
States shall not be construed to extend to any suit in law or equity,
commenced or prosecuted against one of the United States by Citizens of
another State, or by Citizens or Subjects of any Foreign State.'')
---------------------------------------------------------------------------
In addition, the Subcommittee amendments en bloc contained
a fourth category of criteria which, if relevant, would also
permit a U.S. District judge, in his or her discretion, to
abstain from hearing a removed case. An amendment offered by
Mr. Frank, which the Committee adopted, revised the application
of this category in a slight but important manner.
By way of background, during the June 18 legislative
hearing on the bill, Subcommittee members expressed concern
that some state-filed actions which technically fulfilled the
minimal diversity requirements of H.R. 3789 were nonetheless so
local in nature as to constitute state actions. To illustrate:
a class action is brought under North Carolina law on behalf of
997 North Carolina depositors and three Floridians who have
been defrauded by a local North Carolina bank. But for the
three Floridians, the case could be maintained in a North
Carolina court under that state's law. Wishing to accommodate
plaintiff classes in such circumstances, the Subcommittee, as
part of its amendments en bloc, decided to allow a U.S.
District judge, in his or her discretion, to abstain from
hearing a case in which a substantial majority of all proposed
plaintiff classes and the primary defendants are citizens of
the same state, and the claims asserted in the action will be
governed primarily by the laws of that state.
In contrast to the other three categories of cases in which
a judge may exercise discretion in making a decision to
abstain, the Frank amendment which the Committee adopted would
require the judge to abstain from hearing such a ``fourth-
category'' case.
Section Two also clarifies that, for the purposes of
determining diversity jurisdiction, a class member will be
deemed a citizen of a state different from a defendant
corporation only if that member is a citizen of a state
different from all states of which the defendant corporation is
deemed a citizen. This provision was added pursuant to the
amendments en bloc, and is designed to close a loophole that,
practically speaking, would otherwise enable corporate
defendants to remove to federal court under almost any set of
factual circumstances. The reason: a corporation is deemed to
be a citizen of any state in which it is incorporated, in
addition to the state which is its principal place of
business.\20\ As a result, by way of illustration, a defendant
incorporated in Delaware but with its principal place of
business in Michigan is sued by a plaintiff class in Michigan.
In the absence of further clarification, the corporate
defendant could argue that it is a citizen of Delaware, thereby
creating diversity jurisdiction and a pretext for removing to
federal court.
---------------------------------------------------------------------------
\20\ 28 U.S.C. Sec. 1332(c)(1).
---------------------------------------------------------------------------
Finally, the Committee adopted an amendment to Section Two
offered by Mr. Coble which specifies that the provisions of
H.R. 3789 shall not apply to so-called ``corporate governance''
claims that are the subject of securities legislation passed by
the Senate \21\ and the House Committee on Commerce \22\ in the
105th Congress. More generally, the Senate and Commerce bills
are intended to reform the process by which ``stock-drop''
suits are brought; that is, litigation by shareholders against
the officers of a corporation for a precipitous drop in the
value of its stock, based on fraud. A noncontroversial feature
of the Senate and Commerce legislation is a carve-out or
exemption for corporate governance claims arising out of state
law. In contrast to stock-drop litigation, these suits are
based on such conduct as misrepresentations contained in proxy
solicitations. The Securities and Exchange Commission, along
with the proponents and opponents of the Senate and Commerce
bills, believe that corporate governance claims are better
adjudicated under state law in state courts, especially the
Delaware Chancery Court which has acquired expertise in this
area. The language in the Coble amendment simply preserves this
carve-out in H.R. 3789.
---------------------------------------------------------------------------
\21\ S. 1260, 105th Cong., 1st Sess. (1997).
\22\ H.R. 1689, 105th Cong., 1st Sess. (1997).
---------------------------------------------------------------------------
Overall, Section Two is intended to expand substantially
federal court jurisdiction over class actions. For that reason,
the provisions should be read expansively; that is, they should
be read as articulating a strong preference that any interstate
class action be heard in federal court if so desired by any
plaintiff or defendant to the litigation.
Consistent with this approach, the provisions requiring a
federal court to abstain from exercising its jurisdiction
should be read narrowly. A class action should be deemed a case
in which a federal court should abstain from exercising its
jurisdiction only if it resembles the hypothetical described
supra--a case in which virtually all of the members of the
proposed class are residents of a single state and have common
citizenship with all of the primary defendants. For purposes of
this provision, the only parties that should be considered
``primary defendants'' are those who are the real ``targets''
of the suit; that is, the parties that would be expected to
incur most of the loss if liability is found. For example, an
executive of a corporate defendant who, in the interest of
``completeness,'' is named as a co-defendant in a class action
against the corporation should not be deemed a ``primary
defendant.'' Moreover, no defendant should be considered a
``primary defendant'' for purposes of this analysis unless it
is the subject of legitimate claims by all class members. To
illustrate, if named as a defendant, an authorized dealer,
agent, or sales representative of a corporate defendant should
not be deemed a ``primary defendant'' unless that dealer,
agent, or sales representative is alleged to have actually
participated in the purported wrongdoing with respect to all
class members (e.g., the defendant is alleged to have sold a
purportedly defective product to all class members).
Similarly, the provisions giving a federal court discretion
not to hear class actions fitting certain criteria should be
interpreted narrowly. For example, if a court is uncertain as
to whether ``all matters in controversy'' in a class action
``do not exceed the sum or value of $1,000,000,'' the court
should err on the side of exercising its jurisdiction. The same
is true of cases in which it is unclear whether the members of
all proposed classes total fewer than 100. By the same token,
courts should abstain where ``States, State officials, or other
governmental entities'' are ``primary defendants'' and there is
a significant risk that the court ``may be foreclosed from
ordering relief'' pursuant to Eleventh Amendment constraints.
The Committee notes that this provision authorizing federal
jurisdiction over putative class actions where only partial
diversity exists is wholly consistent with Article III of the
U.S. Constitution. The U.S. Supreme Court has observed that
``in a variety of contexts,'' [federal courts] have concluded
that Article III poses no obstacle to the legislative extension
of federal jurisdiction, founded on diversity, so long as any
two adverse parties are not co-citizens.\23\
---------------------------------------------------------------------------
\23\ State Farm Fire & Cas. Co. v. Tashire, 386 U.S. 523, 530-31
(1967) (citing American Fire & Cas. Co. v. Finn, 341 U.S. 6, 10 n. 3
(1951); Wichita R.R. & Light Co. v. Public Util. Commn., 260 U.S. 48
(1922); Barney v. Latham, 103 U.S. 205, 213 (1881). The Supreme Court
has reiterated this view on several occasions post-State Farm: See,
e.g., Newman-Green, Inc. v. Alfonzo-Larrian, 490 U.S. 826 (1989) (``The
complete diversity requirement is based on the diversity statute, not
Article III . . . .''); Owen Equipment & Erection Co. v. Kroger, 437
U.S. 365 (1978) (``It is settled that complete diversity is not a
constitutional requirement.'').
---------------------------------------------------------------------------
Sec. Three. Amendments to the Federal Removal Statutes. Section
Three amends 28 U.S.C. Sec. 1441 by ensuring that any class
action brought in state court may be removed to U.S. District
court provided the requirements of Sec. 1332(b), id., are met.
This section also specifies that a state-filed class action may
be removed by any defendant to that action, irrespective of the
wishes of other defendants. This provision is needed to prevent
a plaintiffs' attorney from recruiting a ``friendly'' defendant
(a local retailer, for example) who has no interest in joining
a removal action and may therefore thwart the legitimate
efforts of the primary corporate defendant in seeking removal.
The section clarifies that a one-year limit otherwise
imposed on removal of suits filed pursuant to Sec. 1332 has no
application to class actions; i.e., the bill permits a
defendant to remove to federal court more than one year after
commencement of a suit in state court. Again, this change to
present law was added to prevent gaming of the current class-
action system by a plaintiffs' attorney. For example, under
current law \24\ a plaintiffs' attorney files suit, and the
one-year limit after which no removal may be sought under any
condition commences. On the 366th day from filing suit, the
plaintiff's attorney serves the corporate defendant. It is now
too late for the corporate defendant to remove, irrespective of
the practical merits of the case.
---------------------------------------------------------------------------
\24\ Supra note 9.
---------------------------------------------------------------------------
Section Three makes additional changes to the removal
statute as it applies to class actions. As noted, supra,
Sec. 1446(b) prohibits a defendant from removing to federal
court under any conditions beyond one year from the date an
action is filed. Within the one-year cap, however, a defendant
is required to remove within 30 days of receipt of ``paper''
(e.g., a pleading, motion, order, or other paper source) from
which it may be ascertained that the case is removable. This
means that under the current statute a corporate defendant may
remove beyond the 30-day limit if it can prove that it did not
receive paper from which it could be ascertained that the case
is removable.
Section Three changes this provision in two ways. First, it
enables an unnamed plaintiff to remove to federal court. This
revision will combat collusiveness between a corporate
defendant and a plaintiffs' attorney who settle on the cheap in
state court at the expense of the plaintiff class members.
Second, it requires the party removing to federal court (the
defendant or an unnamed plaintiff) to exercise ``due
diligence'' when removing beyond the 30-day limit. This will
prevent a disgruntled unnamed plaintiff from removing at the
eleventh hour and interrupting a trial or undoing a legitimate
(non-collusive) settlement.
Further, Section Three makes clear that nothing in the
removal section of the bill changes the application of the so-
called Erie Doctrine \25\ to actions arising under diversity
jurisdiction; that is, the standard rule in which a federal
court applies the substantive law dictated by applicable
choice-of-law principles still holds.
---------------------------------------------------------------------------
\25\ Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938).
---------------------------------------------------------------------------
Finally, the section specifies that if ``no aspect'' of an
action removed to federal court may be maintained under Rule
23, the U.S. District court must strike the class allegations
from the action and remand it to state court. Thus, if ``any
aspect'' of an action (e.g., a small sub-class) may be
maintained under Rule 23, the federal court should retain
jurisdiction over the entire action, including those elements
that qualify for class treatment. In this regard, it should be
noted that before a matter is remanded to state court, class
representatives should be encouraged to follow-up proposals for
class certification which they may wish to proffer. In other
words, if an initial class certification is denied in all
respects, the federal court is not required to remand the case
at that point if the class representatives wish to seek
reconsideration of the denial or to propose alternative (e.g.,
narrower) classes.
Further, nothing in this provision (including the
requirement that class allegations be stricken) is intended to
preclude class representatives from amending their complaint
after remand to state court to include new class allegations.
Still, any such allegations may render the action subject to
``re-removal'' if the applicable criteria of H.R. 3789 are met.
Importantly, Section Three states that the period of
limitations for any claim remanded to state court on behalf of
any member, named or unnamed, of any proposed class shall be
tolled to the full extent provided under federal law. The
purpose of this provision is to ensure that the American Pipe
\26\ equitable tolling doctrine fully applies after a case is
remanded to state court, but only to the extent presently
provided under federal law.
---------------------------------------------------------------------------
\26\ American Pipe & Const. Co. v. Utah, 414 U.S. 538 (1974).
---------------------------------------------------------------------------
Sec. Four. Applicability. Section Four applies the terms of the
bill to actions filed on or after the date of enactment.
Sec. Five. GAO Study. Mr. Delahunt offered an amendment, which
the Committee approved by voice vote, to create a new Section
Five of the bill. This section authorizes the Comptroller
General of the United States to conduct a study of the impact
of H.R. 3789 on the workload of the federal courts. The
Comptroller must submit his or her findings to Congress no
later than one year after the date of enactment of the
legislation.
Agency Views
U.S. Department of Justice,
Office of Legislative Affairs,
July 27, 1998, Washington, DC.
Hon. Henry J. Hyde, Chairman,
Committee on the Judiciary,
U.S. House of Representatives,
Washington, DC.
Dear Mr. Chairman: This letter presents the views of the
Justice Department on H.R. 3789, the ``Class Action
Jurisdiction Act of 1998,'' as amended. The Department
continues to strongly oppose this bill.
We previously provided our views on the bill as introduced
in a letter to Chairman Coble, dated June 18, 1998. In that
letter, we focused on our underlying concerns that the
legislation would supplant State court remedies and could
require a substantial increase in Federal judicial resources.
We also noted several specific concerns about the bill. While
the changes to the bill made by the Subcommittee on Courts and
Intellectual Property have improved the bill to some degree and
do respond to some of our concerns, the basic thrust of the
bill has not changed and we remain opposed to it.
We do appreciate that the Subcommittee's revised bill does
address some of the specific concerns raised in our earlier
letter. For example, no longer would the bill be retroactive in
its effect and the claims of individual named plaintiffs would
be tolled while removal proceedings were ongoing. The amended
bill also provides some limitations on the class actions which
could be removed to Federal court.
However, we maintain that the bill, even as amended, very
likely would have the effect of transferring a significant
number of class actions into Federal court and ``federalizing''
class action standards. Class action remedies should be
available in both State and Federal courts. While the
proponents of the bill presented information that they argue
provides a basis for removing class action litigation from
State courts at least in certain circumstances, we do not
believe that there is adequate justification in this context
for infringing on State courts' ability to offer redress to
their citizens. To the extent that concerns exist about the
fairness of procedures in particular States, those concerns are
best addressed at the State level.\1\
---------------------------------------------------------------------------
\1\ Moreover, the extent of the problems raised by proponents
remains unclear. Many of the stated concerns appear to derive from only
a few States and some of those concerns may have been addressed
recently by individual States. For example, the Alabama Supreme Court
has recently clarified the procedures required to properly certify a
class action in that State.
---------------------------------------------------------------------------
Although section2(b)(2) of the revised bill provides some
discretion for individual Federal judges to abstain from
accepting a case for Federal adjudication, the discretion
appears to be quite narrowly drawn. For example, a judge could
abstain from taking Federal jurisdiction if the class were
smaller than 100 members or the aggregate value were less than
$1 million. These are very low thresholds. It is not likely
that this revised provision would significantly limit the
number of cases seeking removal to Federal court.
Moreover, under section 3(f), cases remanded to State court
for failure to satisfy the Federal class action standards of
Rule 23 would have their class allegations struck. While at
least some individual claims would survive (because of the
tolling language), the class action nature of the case in State
court would be eliminated, even if such a class could have been
certified under applicable State standards. This would have the
dual result of federalizing class action standards while
potentially eliminating a viable remedy for individuals
suffering injuries who could not afford to bring suit on their
own.
We believe that the responsibility for handling class
action litigation generally should continue to be shared
between the State and Federal systems and we continue to oppose
this bill.
Thank you for the opportunity to present our views. Please
do not hesitate to call upon us if we may be of further
assistance in evaluating these or related proposals. The Office
of Management and Budget has advised us that from the
perspective of the Administration's program, there is no
objection to the submission of this letter.
Sincerely,
L. Anthony Sutin,
Acting Assistant Attorney General.
cc: Hon. John Conyers, Jr.,
Ranking Minority Member.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3 of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italics, existing law in which no change
is proposed is shown in roman):
TITLE 28, UNITED STATES CODE
* * * * * * *
PART IV--JURISDICTION AND VENUE
* * * * * * *
CHAPTER 85--DISTRICT COURTS; JURISDICTION
* * * * * * *
Sec. 1332. Diversity of citizenship; amount in controversy; costs
(a) * * *
(b)(1) The district courts shall have original jurisdiction
of any civil action, regardless of the sum or value of the
matter in controversy therein, which is brought as a class
action and in which--
(A) any member of a proposed plaintiff class is a
citizen of a State different from any defendant;
(B) any member of a proposed plaintiff class is a
foreign state or a citizen or subject of a foreign
state and any defendant is a citizen of a State; or
(C) any member of a proposed plaintiff class is a
citizen of a State and any defendant is a citizen or
subject of a foreign state.
As used in this paragraph, the term ``foreign state'' has the
meaning given that term in section 1603(a).
(2)(A) In a civil action described in paragraph (1) in
which--
(i) the substantial majority of the members of all
proposed plaintiff classes are citizens of a single
State of which the primary defendants are also
citizens, and
(ii) the claims asserted will be governed primarily
by the laws of that State,
the district court should abstain from hearing such action.
(B) In a civil action described in paragraph (1) in which--
(i) all matters in controversy asserted by the
individual members of all proposed plaintiff classes in
the aggregate do not exceed the sum or value of
$1,000,000, exclusive of interest and costs,
(ii) the number of members of all proposed
plaintiff classes in the aggregate is less than 100, or
(iii) the primary defendants are States, State
officials, or other governmental entities against whom
the district court may be foreclosed from ordering
relief,
the district court may, in its discretion, abstain from hearing
such action.
(3)(A) Paragraph (1) and section 1453 shall not apply to
any class action that is brought under the Securities Act of
1933.
(B) Paragraph (1) and section 1453 shall not apply to a
class action described in subparagraph (C) that is based upon
the statutory or common law of the State in which the issuer
concerned is incorporated (in the case of a corporation) or
organized (in the case of any other entity).
(C) A class action is described in this subparagraph if it
involves--
(i) the purchase or sale of securities by an issuer
or an affiliate of an issuer exclusively from or to
holders of equity securities of the issuer; or
(ii) any recommendation, position, or other
communication with respect to the sale of securities of
an issuer that--
(I) is made by or on behalf of the issuer
or an affiliate of the issuer to holders of
equity securities of the issuer; and
(II) concerns decisions of those equity
holders with respect to voting their
securities, acting in response to a tender or
exchange offer, or exercising dissenters' or
appraisal rights.
(D) As used in this paragraph, the terms ``issuer'',
``security'', and ``equity security'' have the meanings given
those terms in section 3 of the Securities Exchange Act of
1934.
[(b)] (c) Except when express provision therefor is
otherwise made in a statute of the United States, where the
plaintiff who files the case originally in the Federal courts
pursuant to subsection (a) of this section is finally adjudged
to be entitled to recover less than the sum or value of
$75,000, computed without regard to any setoff or counterclaim
to which the defendant may be adjudged to be entitled, and
exclusive of interest and costs, the district court may deny
costs to the plaintiff and, in addition, may impose costs on
the plaintiff.
[(c)] (d) For the purposes of this section and section 1441
of this title--
(1) a corporation shall be deemed to be a citizen
of any State by which it has been incorporated and of
the State where it has its principal place of business,
except that in any direct action against the insurer of
a policy or contract of liability insurance, whether
incorporated or unincorporated, to which action the
insured is not joined as a party-defendant, such
insurer shall be deemed a citizen of the State of which
the insured is a citizen, as well as of any State by
which the insurer has been incorporated and of the
State where it has its principal place of business; and
(2) the legal representative of the estate of a
decedent shall be deemed to be a citizen only of the
same State as the decedent, and the legal
representative of an infant or incompetent shall be
deemed to be a citizen only of the same State as the
infant or incompetent.
[(d)] (e) The word ``States'', as used in this section,
includes the Territories, the District of Columbia, and the
Commonwealth of Puerto Rico.
(f) For purposes of subsection (b), a member of a proposed
class shall be deemed to be a citizen of a State different from
a defendant corporation only if that member is a citizen of a
State different from all States of which the defendant
corporation is deemed a citizen.
* * * * * * *
CHAPTER 89--DISTRICT COURTS; REMOVAL OF CASES FROM STATE COURTS
Sec.
1441. Actions removably generally.
* * * * * * *
1453. Removal of class actions.
* * * * * * *
Sec. 1446. Procedure for removal
(a) * * *
(b) The notice of removal of a civil action or proceeding
shall be filed within thirty days after the receipt by the
defendant, through service or otherwise, of a copy of the
initial pleading setting forth the claim for relief upon which
such action or proceeding is based, or within thirty days after
the service of summons upon the defendant if such initial
pleading has then been filed in court and is not required to be
served on the defendant, whichever period is shorter. If the
case stated by the initial pleading is not removable, a notice
of removal may be filed within thirty days after receipt by the
defendant, through service or otherwise, of a copy of an
amended pleading, motion, order or other paper from which it
may first be ascertained, by exercising due diligence, that the
case is one which is or has become removable, except that a
case may not be removed on the basis of jurisdiction conferred
by section 1332(a) of this title more than 1 year after
commencement of the action.
* * * * * * *
Sec. 1447. Procedure after removal generally
(a) * * *
* * * * * * *
(f) If, after removal, the court determines that no aspect
of an action that is subject to its jurisdiction solely under
the provisions of section 1332(b) may be maintained as a class
action under Rule 23 of the Federal Rules of Civil Procedure,
the court shall strike the class allegations from the action
and remand the action to the State court. Upon remand of the
action, the period of limitations for any claim that was
asserted in the action on behalf of any named or unnamed member
of any proposed class shall be deemed tolled to the full extent
provided under Federal law.
* * * * * * *
Sec. 1453. Removal of class actions
(a) In General.--A class action may be removed to a
district court of the United States in accordance with this
chapter, except that such action may be removed--
(1) by any defendant without the consent of all
defendants; or
(2) by any plaintiff class member who is not a
named or representative class member of the action for
which removal is sought, without the consent of all
members of such class.
(b) When Removable.--This section shall apply to any class
action before or after the entry of any order certifying a
class.
(c) Procedure for Removal.--The provisions of section
1446(a) relating to a defendant removing a case shall apply to
a plaintiff removing a case under this section. With respect to
the application of subsection (b) of such section, the
requirement relating to the 30-day filing period shall be met
if a plaintiff class member who is not a named or
representative class member of the action for which removal is
sought files notice of removal within 30 days after receipt by
such class member, through service or otherwise, of the initial
written notice of the class action provided at the district
court's direction in accordance with Rule 23(c)(2) of the
Federal Rules of Civil Procedure.
* * * * * * *
Dissenting Views to H.R. 3789, Class Action Jurisdiction Act of 1998
We strongly oppose H.R. 3789, the ``Class Action
Jurisdiction Act of 1998.'' Although the legislation is
described by its proponents as a simple procedural fix, in
actuality it represents a major rewrite of the class action
rules that would bar most forms of state class actions. H.R.
3789 is opposed by the Justice Department \1\ and consumer and
public interest groups, including Public Citizen,\2\ the
Alliance for Justice and Consumer Federation of America.\3\ The
legislation is also opposed by the Association of Trial Lawyers
of America.\4\
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\1\ See Letter from L. Anthony Sutin, Acting Assistant Attorney
General, U.S. Department of Justice Office of Legislative Affairs, to
the Honorable Howard Coble, Chairman, Subcommittee on Courts and
Intellectual Property, House Judiciary Committee 1 (June 18, 1998) (on
file with the minority staff of the House Judiciary Committee) (``there
is no compelling justification for supplanting State court rules in
this area. We do not believe State courts should lose their opportunity
to address class actions according to the needs of their citizens.'')
and Letter from L. Anthony Sutin, Acting Assistant Attorney General,
U.S. Department of Justice Office of Legislative Affairs, to the
Honorable Henry J. Hyde, Chairman, House Judiciary Committee (July 27,
1998) (on file with the minority staff of the House Judiciary
Committee).
\2\ Hearing on H.R. 3789 Before the Subcomm. on Courts and
Intellectual Property of the House Comm. on the Judiciary, 105th Cong.
(1998) (statement of Brian Wolfman, Staff Attorney, Public Citizen at
1) (``H.R. 3789 is an unwise and ill-considered broadside incursion by
the federal government on the jurisdiction of the state courts. It
constitutes a radical transformation of judicial authority between the
state and federal judiciaries that is not justified by any alleged
``crisis'' in state court class action litigation.'').
\3\ Letter from Nan Aron, President, Alliance for Justice, to
Members of the House Judiciary Committee 1 (July 14, 1998) (on file
with the minority staff of the House Judiciary Committee) (``This bill
would virtually eliminate plaintiffs' rights to bring class action
litigation in state courts . . .'').
\4\ Hearing on H.R. 3789 Before the Subcomm. on Courts and
Intellectual Property of the House Comm. on the Judiciary, 105th Cong.
(1998) (statement of Richard H. Middleton, Jr. on behalf of ATLA at 1).
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By providing plaintiffs access to the courts in cases where
a defendant may have gained a substantial benefit through small
injuries to a large number of persons, class action procedures
offer a valuable mechanism for aggregating small claims that
otherwise might not warrant individual litigation. This
legislation will undercut that important principle by making it
far more burdensome, expensive, and time-consuming for injured
persons to obtain access to justice in the state courts. In
doing so, it will make it more difficult to protect our
citizens against violations of the consumer health, safety and
environmental laws, to name but a few important laws. The
legislation goes so far as to prevent state courts from
considering class action cases which involve solely violations
of state laws, such as state consumer protection laws.
H.R. 3789 provides for the removal of state class action
claims to federal court in cases involving violations of state
law where any member of the plaintiff class is a citizen of a
different state than any defendant,\5\ and eliminates the
$75,000 per claim amount in controversy requirement ordinarily
needed to permit removal to federal court.\6\ The only
exceptions provided in H.R. 3789 are that federal courts are
directed that they (1) ``should'' abstain from hearing a class
action where the 11substantial majority'' of the plaintiffs are
citizens of a state in which the ``primary defendants'' are
also citizens and the claims will be governed ``primarily'' by
the laws of that state; and (2) ``may'' in their ``discretion''
abstain where the aggregate amount in controversy is less than
$1 million, there are fewer than 100 class members, or the
``primary'' defendants are states or state officials.\7\ H.R.
3789 also mandates in any case where a federal court fails to
certify a class action that the court ``strike the class action
allegations'' before remanding the case to state court.\8\
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\5\ H.R. 3789, Sec. 2(b)(1). Current law requires there to be
complete diversity before a state law case is eligible for removal to
federal court, that is to say that all of the defendants must be
citizens residing in different states than all of the defendants. See
Stawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 (1806). In Snyder v.
Harris, 394 U.S. 332 (1969), the Supreme Court held that the court
should only consider the citizenship of named plaintiffs for diversity
purposes, and not the citizenship of absent class members.
\6\ In Zahn v. International Paper Co., 414 U.S. 291 (1973), the
Court held that ``amount in controversy'' requirement is satisfied only
if each member of the class is seeking damages in excess of the
statutory minimum. But see In re Abbott Labs. 51 F.3d 524 (5th Cir.
1995) (Zahn overruled by supplemental jurisdiction statute, 28 U.S.C.
Sec. 1367).
\7\ H.R. 3789, Sec. 2(b)(2).
\8\ Id. Sec. 3(e). H.R. 3789 also makes a number of changes to ease
the procedural requirements for removing a class action to federal
court, such as permitting removal to be sought by any defendant or
plaintiff and eliminating the one-year deadline for filing removal
motions. Id. Sec. 3.
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Before even considering H.R. 3789, Congress should insist
on receiving objective and comprehensive data justifying such a
dramatic intrusion into state court prerogatives. Although
nothing in the way of such information now exists,\9\ major
studies by the Federal Judiciary Mass Torts Working Group and
by the National Association of State Chief Justices are
expected to be completed by early next year. Congress should
await the results of these studies before acting.
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\9\ The most comprehensive study completed was the 1994/95 Judicial
Center review of class actions which rebutted claims that class actions
constituted frivolous ``strike'' suits and that attorneys were
unreasonably benefitting from class action cases. Willging, et al.,
Empirical Study of Class Actions in Four Federal District Courts--Final
Report to the Advisory Committee on Civil Rules (Federal Judicial
Center 1996). Another study made a single recommendation regarding
interlocutory appeals which has already taken effect. See Working
Papers of the Advisory Committee on Civil Rules on Proposed Amendments
to Civil Rule 23, Compiled by the Judicial Conference Advisory
Committee on Civil Rules (recommending the allowance of interlocutory
appeals of class certifications). The study made no recommendation
regarding federalizing class actions. The other studies cited by H.R.
3789's supporters are incomplete and inconclusive. The much touted Rand
study will not be final until 1999 and the so-called ``Stateside''
study cited by John Hendricks (on behalf of the Chamber of Commerce)
and John Martin (on behalf of Ford) in their testimony only covers six
Alabama's counties, and the problems found in the study have already
been resolved by the Alabama Supreme Court (see infra note 9).
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H.R. 3789 will damage both the federal and state courts. As
a result of Congress' increasing propensity to federalize state
crimes and the Senate's unwillingness to confirm judges, the
federal courts are already facing a dangerous workload crisis.
By forcing resource intensive class actions into federal court,
the bill will further aggravate these problems and cause
victims to wait in line for as much as three years or more to
obtain a trial. Alternatively, to the extent class actions are
remanded to state court, the legislation only permits case-by-
case adjudications, potentially draining away precious state
court resources as well.
We also object to the fact that the bill is written in a
one-sided manner favoring defendants. At the hearings the
Committee received complaints that class action notices can be
incomprehensible and that defendants offer ``sweetheart'' deals
which payoff one class in order to eradicate future claims
which were not even before the court. Yet H.R. 3789 does
nothing to deal with these concerns. Although some of the more
egregious provisions in the original legislation have been
modified through the markup process, the bill continues to
benefit one class of litigants--corporate defendants. For these
and the other reasons set forth herein, we dissent from H.R.
3789.
1. H.R. 3789 Will Damage the Federal and State Court Systems
Impact on Federal Courts
Expanding federal class action jurisdiction to include most
state class actions,\10\ as H.R. 3789 does, will inevitably
result in a significant increase in the federal courts'
workload. As the Justice Department observed, ``[c]lass action
cases are among the most resource-intensive litigation before
the judiciary [and enactment of H.R. 3789] could move most of
this litigation into the Federal judicial system. Addressing
the resulting caseload could require substantial additional
Federal resources.'' \11\
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\10\ H.R. 3789 does so because virtually every significant class
action include class members who may have relocated to another state.
As a result, potential federal jurisdiction would lie in every such
class action.
\11\ See Letter from L. Anthony Sutin, Acting Assistant Attorney
General, U.S. Department of Justice Office of Legislative Affairs, to
the Honorable Howard Coble, Chairman, Subcommittee on Courts and
Intellectual Property, House Judiciary Committee 1 (June 18, 1998) (on
file with the minority staff of the House Judiciary Committee).
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In actuality, the workload problem in the federal courts is
already at an acute stage. For example, in 1997, the federal
courts faced the following:
22,603 civil cases were pending for 3 years or more.
75 judicial vacancies existed, or approximately 10% of the
federal judicial positions.
On average, federal district court judges had 420 civil
filings pending, the highest level in 10 years.\12\
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\12\ See Admin. Office of the U.S. Courts, Annual Report of the
Director of the Administrative Office of the United States Courts
(1997).
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It is because of these and other workload problems that
Chief Justice Rehnquist took the important step of criticizing
Congress for taking actions which have exacerbated the courts'
workload problem:
In my annual report for last year, I criticized the
Senate for moving too slowly in the filling of
vacancies on the federal bench. This criticism received
considerable public attention. I also criticized
Congress and the president for their propensity to
enact more and more legislation which brings more and
more cases into the federal court system. This
criticism received virtually no public attention. And
yet the two are closely related: We need vacancies
filled to deal with the cases arising under existing
laws, but if Congress enacts, and the president signs,
new laws allowing more cases to be brought into the
federal courts, just filling the vacancies will not be
enough. We will need additional judgeships.\13\
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\13\ Chief Justice William Rehnquist, An Address to the American
Law Institute, Rehnquist: Is Federalism Dead? (May 11, 1998), in Legal
Times (May 18, 1998).
Judge Ralph K. Winter, Chief Justice of the Second Circuit,
echoed these concerns when he complained, ``[t]he political
branches have steadily increased our federal question
jurisdiction, have maintained an unnecessarily broad definition
of diversity jurisdiction, and have then denied us resources
minimally proportionate to that jurisdiction . . . The result
is that a court with proud traditions of craft in decision-
making and currency in its docket is now in danger of losing
both.'' \14\ H.R. 3789, by federalizing state class actions,
runs precisely counter to Chief Justice Rehnquist's and Chief
Judge Winters' admonition and risks severely aggravating the
judicial workload crisis.
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\14\ Annual report to the 2nd Circuit Judicial Conference,
presented June, 1998.
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Although H.R. 3789 includes a study of the legislation's
impact on the workload of the federal courts,\15\ this
provision by itself will not alleviate the case load problem.
Unfortunately, the Majority rejected another amendment offered
by Rep. Delahunt (D-MA) which would have delayed the
legislation's effective date until the judicial vacancy rate
was below 3%.\16\ This would have at least insured that judges
were in place to handle the increased work necessitated by H.R.
3789.
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\15\ H.R. 3789, Sec. 5. This provision was added pursuant to an
amendment offered by Rep. Delahunt.
\16\ Rejected by voice vote.
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Impact on the State Courts
In addition to overwhelming the federal courts with new
time intensive class actions, the legislation will undermine
state courts. This is because in cases where the federal court
chooses not to certify the state class action, H.R. 3789
prohibits the states from using class actions to resolve the
underlying state causes of action. It is important to recall
the context in which this legislation arises--a class action
has been filed in state court involving numerous state law
claims, each of which if filed separately would not be subject
to federal jurisdiction (either because the parties are not
considered to be diverse or the amount in controversy for each
claim does not exceed $75,000). When these individual cases are
returned to the state courts upon remand, potential new cases
may be unleashed.
In addition to these potential workload problems, the
legislation raises serious constitutional issues. H.R. 3789
does not merely operate to preempt an area of state law, rather
it unilaterally strips the state courts of their ability to use
the class action procedural device to resolve state law
disputes. The courts have previously indicated that efforts by
Congress to dictate such state court procedures implicate
important Tenth Amendment federalism issues and should be
avoided.
For example, in Felder v. Casey \17\ the Supreme Court
observed that it is an ``unassailable proposition . . . that
States may establish the rules of procedure governing
litigation in their own courts.'' Similarly in Johnson v.
Fankell \18\ the Court reiterated what it termed ``the general
rule `bottomed deeply in belief in the importance of State
control of State judicial procedure . . . that Federal law
takes State courts as it finds them' '' \19\ and observed that
judicial respect for the principal of federalism ``is at its
apex when we confront a claim that Federal law requires a State
to undertake something as fundamental as restructuring the
operation of its courts'' and ``it is a matter for each State
to decide how to structure its judicial system.'' \20\
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\17\ 487 U.S. 131, 138 (1988) (Wisconsin notice-of-claim statute
found to be preempted by 42 U.S.C. Sec. 1983, which holds anyone acting
under color of law liable for violating constitutional rights of
others).
\18\ 520 U.S. 911; 117 S. Ct. 1800; 1997 U.S. LEXIS 3547 (1997)
(Idaho procedural rules concerning appealability of orders held not to
be preempted by 42 U.S.C. Sec. 1983).
\19\ 1997 U.S. LEXIS 3547, *15 (quoting Henry M. Hart, Jr., The
Relations Between State and Federal Law, 54 Colum. L. Rev. 489, 508
(1954)).
\20\ Id. at *21. See also Howlett v. Rose, 496 U.S. 356, 372 (1990)
(quoting Henry M. Hart, Jr., The Relations Between State and Federal
Law, 54 Colum. L. Rev. 489, 508 (1954) for the proposition that federal
law should not alter the operation of the state courts); New York v.
United States, 505 U.S. 144, 161 (1992) (a law may be struck down on
federalism grounds if it ``commandeer[s] the legislative processes of
the States by directly compelling them to enact and enforce a Federal
regulatory program''); Printz v. United States, 117 S.Ct. 2365 (1997)
(invalidating portions of the Brady Handgun Violence Protection Act
requiring local law enforcement officials to conduct background checks
on prospective gun purchasers).
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These same constitutional questions were highlighted by
Professor Laurence Tribe in his recent testimony regarding the
constitutionality of a proposed class action ban included in
pending tobacco legislation, when he stated, ``[f]or Congress
directly to regulate the procedures used by state courts in
adjudicating state-law tort claims--to forbid them, for
example, from applying their generally applicable class action
procedures in cases involving tobacco suits--would raise
serious questions under the Tenth Amendment and principles of
federalism.'' \21\ Public Citizen voiced similar concerns in
the context of H.R. 3789: ``Apart from embodying a massive
affront to the sovereignty and independence of the state court
system, any such intrusion by Congress to a state would raise a
serious constitutional problem in its own right, since the
historic understanding is that Congress has no right to dictate
procedural rules to the states to govern adjudication of state
law claims.'' \22\
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\21\ The Global Tobacco Settlement: Hearings Before the Senate
Comm. on the Judiciary, 105th Cong., 1st Sess. (1997) (statement of
Laurence H. Tribe, Tyler Professor of Law, Harvard Law School).
\22\ Hearing on H.R. 3789 Before the Subcomm. on Courts and
Intellectual Property of the House Comm. on the Judiciary, 105th Cong.
(1998) (statement of Brian Wolfman, Staff Attorney, Public Citizen at
12).
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Arguments that H.R. 3789 is nonetheless justified because
state courts are ``biased'' against out of state defendants in
class action suits are vastly overstated.\23\ First off, the
Supreme Court has already made clear that state courts are
constitutionally required to provide due process and other
fairness protections to the parties in class action cases. In
Phillips Petroleum Co. v. Shutts,\24\ the Supreme Court held
that in class action cases, state courts must assure that: (1)
the defendant receives notice plus an opportunity to be heard
and participate in the litigation; \25\ (2) an absent plaintiff
must be provided with an opportunity to remove himself or
herself from the class; (3) the named plaintiff must at all
times adequately represent the interests of the absent class
members; and (4) the forum state must have a significant
relationship to the claims asserted by each member of the
plaintiff class.\26\
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\23\ Of course the entire premise of the argument would need to be
based on bias by the judges, since the juries would be derived from
citizens of the state where the suit is brought, whether the case is
considered in state or federal court.
\24\ 472 U.S. 797 (1985).
\25\ The notice must be the ``best practicable, reasonably
calculated, under all the circumstances, to apprise interested parties
of the pendency of the action and afford them an opportunity to present
their objections.'' Id. at 812 (quoting Mullane v. Central Hanover Bank
& Trust Co., 339 U.S. 306, 314-315 (1950)).
\26\ Id. at 806-810. These findings were reiterated by the Supreme
Court in 1995 in Matshusita Elec. Indust. Co. v. Epstein, 516 U.S. 367
(1995) (state class actions entitled to full faith and credit so long
as, inter alia: the settlement was fair, reasonable, and adequate and
in the best interests of the settlement class; notice to the class was
in full compliance with due process; and the class representatives
fairly and adequately represented class interests).
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Secondly, it is important to note that as fears of local
court prejudice have subsided and concerns about diverting
federal courts from their core responsibilities increased, the
policy trend in recent years has been towards limiting federal
diversity jurisdiction.\27\ For example, less than two years
ago Congress enacted the Federal Courts Improvement Act of
1996,\28\ which increased the amount in controversy requirement
needed to remove a diversity case to federal court from $50,000
to $75,000. This statutory change was based on the Judicial
Conference's determination that fear of local prejudice by
state courts was no longer relevant \29\ and that it was
important to keep the federal judiciary's efforts focused on
federal issues.\30\ In this same regard, the American Law
Institute has found ``there is no longer the kind of prejudice
against citizens of other states that motivated the creation of
diversity jurisdiction,'' \31\ and a recent Federal Courts
Study Committee report concluded that local bias ``is no longer
a major threat to litigation fairness'' particularly when
compared to other types of prejudice that litigants may face,
such as on account of religion, race or economic status.\32\
Indeed, in 1978, the House twice passed legislation that would
have abolished general diversity jurisdiction.\33\
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\27\ Ironically, last Congress the Republican Party was extolling
the virtues of state courts in the context of their efforts to limit
habeas corpus rights, which permit individuals to challenge
unconstitutional state law convictions in federal court. At that time
Chairman Hyde stated:
I simply say the state judge went to the same law school, studied
the same law and passed the same bar exam that the Federal judge did.
The only difference is the Federal judge was better politically
connected and became a Federal judge. But I would suggest . . . when
the judge raises his hand, State court or Federal court, they swear to
defend the U.S. Constitution, and it is wrong, it is unfair to assume,
ipso facto, that a State judge is going to be less sensitive to the
law, less scholarly in his or her decision than a Federal judge.
142 Cong. Rec. H3604. (daily ed. April 18, 1996).
\28\ 28 U.S.C. Sec. 1332(a) (West Supp. 1998).
\29\ The Judicial Conference of the United States, Long Range Plan
for the Federal Courts, Recommendation 7 at 30 (1995).
\30\ Id.
\31\ American Law Institute, Study of the Division of Jurisdiction
Between State and Federal Courts 101, 106 (1969).
\32\ Federal Courts Study Committee, Report of the Federal Courts
Study Committee 40 (April 2, 1990). See also, Ball, Revision of Federal
Diversity Jurisdiction, 28 Ill. L. Rev. 356 (1988); Bork, Dealing with
the Overload in Article III Courts, 1976, 70 F.R.D. 231, 236-237
(1976); Butler & Eure, Diversity in the Court System: Let's Abolish It,
11 Va.B.J. 4, (1995); Coffin, Judicial Gridlock: The Case for
Abolishing Diversity Jurisdiction, 10 Brookings Rev. 34 (1992); Currie,
The Federal Courts and the American Law Institute, 36 U. Chi. L. Rev.
1, 1-49 (1968); Feinberg, Is Diversity Jurisdiction An Idea Whose Time
Has Passed?, N. Y. St. B. J. 14 (1989); Frankfurter, Distribution of
Judicial Power Between United States and State Courts, 13 Corn. L. Q.
499 (1928); Frankfurter, A Note on Diversity Jurisdiction--In Reply to
Professor Yntema, 79 U. Pa. L. Rev. 1097 (1931); Haynsworth, Book
Review, 87 Harv. L. Rev. 1082, 1089-1091 (1974); Hunter, Federal
Diversity Jurisdiction: The Unnecessary Precaution, 46 UMKC L. Rev. 347
(1978); Jackson, The Supreme Court in the American System of
Government, 38 (1955); Sheran & Isaacman, State Cases Belong In State
Courts, 12 Creighton L. Rev. 1 (1978).
\33\ See 124 Cong. Rec. 5008 (1978); 124 Cong. Rec. 33, 546 (1978).
The legislation was not considered in the Senate.
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Thirdly, as the legislation is currently written, it
assumes a defendant will be automatically subject to prejudice
in any state where the corporation is not formally incorporated
(typically Delaware) or maintains its principal place of
business. In so doing, H.R. 3789 ignores the fact that many
large businesses have a substantial commercial presence in more
than one state, through factories, business facilities or
employees. For example, if General Motors or Ford were to be
sued by a class of plaintiffs in Ohio, where they have numerous
factories and tens of thousands of employees, it does not seem
reasonable to expect the defendants to face any great risk of
bias.\34\ Similarly, if the Disney Corporation,\35\ one of
Florida's largest employers, were to face a class action
brought by a class of plaintiffs in a Florida court, it would
make little sense to involve the federal courts of concern of
local prejudice. Yet under H.R. 3789, both of these
hypothetical cases would be subject to removal to federal
court.
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\34\ General Motors and Ford both have their principal place of
business in Michigan and are incorporated in Delaware.
\35\ Disney's corporate headquarters are located in Burbank,
California, and it is incorporated in Delaware.
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2. H.R. 3789 Will Weaken Enforcement of Laws Concerning Consumer Health
and Safety, the Environment, and Civil Rights
There can be little doubt that H.R. 3789 will have a
serious adverse impact on the ability of consumers and other
harmed individuals to obtain compensation in cases involving
widespread harm. At a minimum, the legislation will force most
state class action claims into federal courts where it is
likely to be far more expensive for plaintiffs to litigate
cases and where defendants could force plaintiffs to travel
long distances to attend proceedings.
It is also likely to be far more difficult and time
consuming to certify a class action in federal court. Fourteen
states, representing some 29% of the nation's population,\36\
have adopted different criteria for class action rules than
Rule 23 of the federal rules of civil procedure.\37\ In
addition, with respect to those states which have enacted a
counterpart to Rule 23, the federal courts are likely to
represent a far more difficult forum for class certification to
occur. This is because in recent years a series of adverse
federal precedent, such as Castano v. American Tobacco Co.,\38\
In re Rhone-Poulenc Rorer, Inc.,\39\ American Medical Systems,
Inc.,\40\ Georgine v. Amchem Products, Inc.,\41\ and Broussard
v. Meineke Discount Mufflers \42\ have made it more difficult
to establish the predominance requirement of rule 23(b)(3)
necessary to establish a class action under the federal rules.
This is why class action expert Beverly Moore, the Editor of
Class Action Reports, warned, ``H.R. 3789 is nothing more than
a forum shopping device for class action defendants, whereby
they seek to remove cases . . . [to] federal judges who can be
expected to deny class certification.'' \43\
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\36\ Three states still use their common law rules, rather than
statutes, to permit class actions (Mississippi, New Hampshire, and
Virginia); four states use Field Code based rules based on the
``community of interest'' test (California, Nebraska, South Carolina,
and Wisconsin); and seven states use class action rules modeled on the
original federal Rule 23 (1938) which creates a distinction among class
members which depends on the substantive character of the right
asserted (Alaska, Georgia, Louisiana, New Mexico, North Carolina, Rhode
Island, and West Virginia). See 3 Herbert B. Newberg and Alba Conte,
Newberg on Class Actions Sec. 13.04 (3d ed.1992 & Supp. 1997).
\37\ Rule 23(a) states four factual prerequisites that must be met
before a court will certify the lawsuit as a class action: (1) size--
the class must be so large that joinder of all of its members is not
feasible; (2) common questions--there must be questions of law or fact
common to the class; (3) typical claims--the claims or defenses of the
representatives must be ``typical'' of those of the class; and (4)
representation--the representatives must fairly and adequately
represent the interests of the class.
After meeting the above prerequisites the class action will not be
certified unless it fits into one of three categories. Under 23(b)(1),
a class action will be allowed if individual lawsuits by or against the
members of the class would create the risk of inconsistent decisions,
or the impairment of the interests of members of the class who are not
a party to the suit. Rule 23(b)(2) certifies class actions for civil
rights cases where the entire class is being discriminated against and
an injunction or declaratory relief is sought. Under 23(b)(3), a class
action will be certified if the common questions of fact and law to
members of the class predominate over any questions that affect only
individual members, and a class action suit is the superior model for
fair and efficient adjudication. This is the most popular method of
certification because the requirements imposed are the least
restrictive.
\38\ 84 F.3d 734 (5th Cir. 1996) (preventing the certification of a
nationwide class action brought by cigarette smokers and their families
for nicotine addiction where there was found to be too wide a disparity
between the various state tort and fraud laws for the class action
vehicle to be superior to individual case adjudication).
\39\ 51 F. 3d 1293 (7th Cir. 1995), cert denied, 116 S. Ct. 184
(1995) (decertifying, under the Erie Doctrine, a nationwide class
action in negligence brought on behalf of hemophiliacs infected with
the AIDS virus through use of defendants' blood clotting products
because of diversity of state laws).
\40\ 75 F.3d 1069 (6th Cir. 1996) (decertifying a proposed
plaintiff settlement class comprised of all U.S. residents implanted
with defective or malfunctioning inflatable penile prostheses that were
manufactured, developed, or sold by defendant company because common
questions of law or fact did not predominate the action to such an
extent that warranted class certification).
\41\ 117 S.Ct. 2231 (1997) (overturning consensual settlement
between a class of workers injured by asbestos and a coalition of
former asbestos manufacturers because of disparate levels of the class
members' knowledge of their injuries and class member's large amount at
stake in the litigation).
\42\ 1998 WL 512926 (4th Cir. Aug. 19, 1998) (rejecting class
certification brought by Meineke franchisees alleging violations of
franchise, tort, unfair trade and other laws).
\43\ Statement of Beverly C. Moore, Jr., Editor, Class Action
Reports, In Opposition to H.R. 3789 at 3-4.
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Further, as noted above, H.R. 3789 will result in
substantial delay before civil class action claimants are able
to obtain a trial date in federal court. Given the current
backlog in the federal courts \44\ and the fact that the
federal courts are obligated to resolve criminal matters on an
expedited basis before civil matters,\45\ even where plaintiffs
are able to successfully certify a class action in federal
court, it will take longer to obtain a trial on the merits than
it would in state court.
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\44\ See supra note 12 and accompanying text.
\45\ Speedy Trial Act of 1974, 18 U.S.C. Sec. 3161-3174 (1994).
---------------------------------------------------------------------------
H.R. 3789 also poses unique risks and obstacles for
plaintiffs that they do not face under current law. Because the
federal courts are required to strike the class allegations in
cases they choose not to certify, plaintiffs are likely to be
foreclosed from forming a reconstituted class in state court
upon remand which conforms to the legislation's
requirements.\46\ Even if a class could somehow be
reconstituted or economically viable individual or aggregate
actions could be maintained in court, under H.R. 3789 they
could run afoul of state statute of limitations requirements.
This is because the legislation only provides that upon remand
the statute of limitations is to be tolled to the extent
provided under federal law \47\--it offers no specific
protection against state statutes of limitation expiring. Even
in those few cases where federal causes of action may be
implicated, the bill's language is of no benefit with regard to
a reconstituted class action because federal law only provides
for tolling of statutes of limitation upon remand for
individual actions, not class actions.\48\
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\46\ For example, if certification had been denied by the federal
court because a particular conflict among the class members made it
impossible to meet the ``adequate representation'' requirement of
Federal Rule of Civil Procedure 23(a)(4), the plaintiffs in the
remanded action would likely be prohibited from narrowing the class in
an effort to resolve that conflict.
\47\ H.R. 3879, Sec. 3 (e).
\48\ Although the so-called American Pipe rule (See American Pipe &
Construction Co. v. Utah, 414 U.S. 538 (1974); Crown, Cork & Seal Co.
v. Parker, 462 U.S. 345 (1983)) tolls the statute of limitations for
newly filed individual claims of putative members of a proposed class
action that ultimately failed to secure certification in federal court,
American Pipe does not permit tolling where, after a first denial of
class certification, the members of the proposed class file a
subsequent class action. See Korwek v. Hunt, 827 F.2d 874, 879 (2d Cir.
1987) (``In sum, we hold that the tolling doctrine enunciated in
American Pipe does not apply to permit a plaintiff to file a subsequent
class action following a definitive determination of the
inappropriateness of class certification.''); Andrews v. Orr, 851 F.2d
146, 149 (6th Cir. 1988) (``The courts of appeals that have dealt with
the issue appear to be in unanimous agreement that the pendency of the
previously filed class action does not toll the limitations period for
additional class actions by putative members of the original asserted
class.''). See also Robbin v. Flour Corporation, 835 F.2d 213, 214 (9th
Cir. 1987); Salazar-Calderon v. Presidio Valley Farmers Association,
765 F.2d 1334, 1351 (5th Cir. 1985); Griffin v. Singletary, 17 F.3d
356, 359 (11th Cir. 1994).
---------------------------------------------------------------------------
Consumers will also be disadvantaged by the vague terms
used in the legislation. The terms ``substantial majority'' of
plaintiffs, ``primary defendants,'' and claims ``primarily''
governed by a state's laws \49\ are new and undefined phrases
with no antecedent in the United States Code or the case law.
It will take many years and conflicting decisions before these
critical terms can begin to be sorted out. Further definitional
problems lie in the bill's open-ended requirements that federal
courts ``should'' and ``may'' abstain from specified state
class actions.\50\ Moreover, since H.R. 3789 fails to provide
for any interlocutory appeal, it will be impossible for
litigants to obtain any meaningful guidance from the federal
appellate courts regarding these terms. The vagueness problems
will be particularly acute for plaintiffs--if they guess
incorrectly regarding the meaning of a particular phrase, their
class action could be permanently preempted and barred by the
statute of limitations. However, if a defendant guesses wrong
and jurisdiction does not lie in the federal courts, the
defendant will be no worse off they are under present law, and
will have benefitted from the additional time delays caused by
the failed removal motion.
---------------------------------------------------------------------------
\49\ H.R. 3789, Sec. 2(b)(2).
\50\ Id.
---------------------------------------------------------------------------
The net result is that under the legislation it will be far
more difficult for consumers and other harmed individuals to
obtain justice in class action cases at the state or federal
level. The following is an illustrative list of important class
actions previously brought at the state level, but which could
be forced into federal court under H.R. 3789, where the actions
may be delayed or rejected:
Protections Against Consumer Fraud and Violations of Health and Safety
Laws
Foodmaker Inc., a Delaware corporation and the parent
company of Jack-in-the- Box restaurants, agreed to pay
$14 million in a state class-action settlement
involving a violation of Washington's negligence law.
The class included 500 people, mostly children and
Washington residents, who became sick in early 1993
after eating undercooked hamburgers tainted with E.
coli 0157:H7 bacteria. The victims suffered from a wide
range of illnesses, from more benign sicknesses to
those that required kidney dialysis. Three children
died.\51\
---------------------------------------------------------------------------
\51\ The settlement was approved on 25 September 1996 in King
County, Washington Superior Court. ``Last Jack in the Box Suit
Settled,'' Seattle Times, October 30, 1997 at B3.
---------------------------------------------------------------------------
Equitable Life Assurance Company, an Iowa
corporation, agreed to a $20 million settlement of two
class-action lawsuits involving 130,000 persons filed
in Pennsylvania and Arizona state courts. The class
action alleged that Equitable misled consumers, in
violation of state insurance fraud law, when trying to
sell ``vanishing premium'' life insurance policies in
the 1980s. Equitable sold the policies when interest
rates were high, informing potential customers that
after a few years, once the interest generated by their
premiums was sufficiently high, their premium
obligations would be terminated. However, when interest
rates dropped, customers ended up having to continue to
pay the premium in full.\52\
---------------------------------------------------------------------------
\52\ David Elbert, ``Lawsuits to Cost Equitable $20 Mill,'' Des
Moines Register, July 19, 1997 at 12 and ``Cost of Settling Lawsuits
Pulls Equitable Earnings Down,'' Des Moines Register, August 6, 1997 at
10.
---------------------------------------------------------------------------
Bristol-Meyers-Squibb, Abbot Laboratories, and
Abbot's subsidiary Johnson & Company agreed to a $230
million settlement of twenty state class-action suits
involving some 1 million injured consumers alleging
infant formula price fixing in violation of the various
states' antitrust laws. The companies, headquartered in
New York and Illinois, illegally colluded and fixed
prices in various regions of the country, causing a
great discrepancy in prices. For example, in Salt Lake,
a one-month supply of formula cost approximately $18,
while the same formula cost $75 in other states. The
class actions brought an end to the price-fixing
scheme, which lowered the price of baby formula in all
regions of the country.\53\
---------------------------------------------------------------------------
\53\ ``Huge Price-Fixing Settlement Means Baby Formula Won't Cost
As Much,'' Salt Lake Tribune, May 28, 1993 at A1.
---------------------------------------------------------------------------
Dairyland Insurance Company, a Wisconsin corporation,
is facing a West Virginia class action filed by well
over 100 persons, mostly West Virginia residents. The
action alleges that Dairyland improperly canceled auto
insurance policies without giving drivers the required
30-day notice and by sending out an ineffective form
which did not provide an unequivocal notice of
cancellation in violation of the West Virginia Unfair
Claims Settlement Practices Act. Plaintiffs are seeking
declaratory relief stating that coverage should exist
for those drivers who coverage was improperly canceled
and that the insurance should cover claims realized in
the interim.\54\
---------------------------------------------------------------------------
\54\ Robert Yoxtheimer, et al. v. Dairyland Insurance Company and
Sentry Insurance Company (Civ. Ac. No. 97-C-1913, Cir. Ct. Kanawha
Co.).
---------------------------------------------------------------------------
GranCare, Inc., a California corporation, and its
Colorado subsidiary, AMS Properties, Inc., are facing a
Colorado class action filed by some 750 individuals,
mostly Colorado citizens, who resided at Cedars Health
Care Center in Lakewood, Colorado from September, 1993
through February, 1998. The action alleges a variety of
problems including facility-wide outbreaks of illness
due to unhygienic conditions, inadequate physical and
mental health care, and inadequate record-keeping. The
class action charges that defendants provided
substandard care to residents at their nursing home
facility in violation of Colorado contract, negligence
and fraud law, as well as the duty of care required
under the state and federal Medicare and Medicaid
programs.\55\
---------------------------------------------------------------------------
\55\ Salas, et. al. v. GranCare, Ins. & AMS Properties d/b/a Cedars
Health Care Center, Civ. Action No. 96-CV-4449 (Dist. Ct, City and Cnty
of Denver, Co.).
---------------------------------------------------------------------------
Protections Against Environmental Harm
On July 26, 1993, a California plant operated by
General Chemical, a Delaware corporation with offices
in New Jersey, erupted leading to a hazardous pollution
cloud when a valve malfunctioned during the unloading
of a railroad tank car filled with Oleum, a sulfuric
acid compound. The cloud settled directly over North
Richmond, California, a heavily-populated community,
resulting in over 24,000 residents needing medical
attention. General Chemical entered into a settlement
for violation of California negligence law with 60,000
North Richmond residents who were injured or sought
treatment for the effects of the cloud, or were forced
to evacuate their homes. Individual plaintiffs received
up to $3,500 in compensation.\56\
---------------------------------------------------------------------------
\56\ ``$180 Million Settlement of Toxic Cloud Claims Wins Judges
O.K.,'' Mealey's Litigation Reports: Toxic Torts, November 17, 1995 at
8.
---------------------------------------------------------------------------
Mobil Corp., a Delaware corporation with offices in
Virginia, entered into a $14 million settlement
agreement with a class of over 10,000 Louisiana
residents relating to a November, 1990 fire at their
oil refinery that scattered debris in St. Bernard Paris
and the Algiers section of New Orleans. The fire lasted
over twelve hours and sent volatile and hazardous
compounds into the air, killing one person and forcing
most residents to evacuate. The settlement included
$13.43 million in compensation payable to residents,
who would each receive between a few hundred dollars
and several thousand dollars, and an additional $1
million permanent endowment. The interest generated by
the endowment will produce at least $50,000 yearly,
which will be given to civic and charitable
organizations in St. Bernard Parish and Algiers.\57\
---------------------------------------------------------------------------
\57\ ``Thousands Ask For Damages in Mobil Fire,'' Saturday State
Times/Morning Advocate, June 22, 1996, at 12A; ``10,000 File Claims in
Fire; Mobil Settlement Deadline Passes,'' New Orleans Times-Picayune,
June 21, 1996, A1.
---------------------------------------------------------------------------
3. H.R. 3789 Fails to Address Defendant and Other Abuses in Class
Action Cases
Rather than responding in an even-handed manner to the
various concerns raised at the hearings by plaintiffs and
defendants alike, H.R. 3789 benefits corporate defendants. The
Department of Justice has written, ``[w]hile the rights of all
parties in class actions must be protected, [H.R. 3789]
provides substantial benefits to defendants at the expense of
plaintiffs.'' \58\ Although the legislation has been modestly
pared back from the initial extreme versions introduced and
reported by the subcommittee, it remains one-sided in its
approach to the issue of class actions. H.R. 3789 does nothing
to deal with the problem of poorly written class action notices
which cannot be understood, and it does nothing to deal with
collusive settlements which protect defendants from future
liability and coupon settlements which provide no tangible
benefits to plaintiffs.
---------------------------------------------------------------------------
\58\ See Letter from L. Anthony Sutin, Acting Assistant Attorney
General, U.S. Department of Justice Office of Legislative Affairs, to
the Honorable Howard Coble, Chairman, Subcommittee on Courts and
Intellectual Property, House Judiciary Committee 2 (June 18, 1998) (on
file with the minority staff of the House Judiciary Committee).
---------------------------------------------------------------------------
Numerous concerns were voiced at the hearings that class
action notices can be incomprehensible to potential plaintiffs
with opt out rights. In their written testimony, Public Citizen
observed that the notice in the John Hancock deceptive sales
practice class action \59\ was ``impenetrable [and] would make
it much less likely that deserving claimants would, in fact,
pursue their claims for redress.'' \60\ Similarly, class action
expert Ralph Wellington testified that ``class notices should
be written in plain language. It is possible to tell class
members clearly and simply what benefit they will receive, how
much money class counsel will receive, and where that money
will come from.'' \61\ Unfortunately, H.R. 3789 completely
ignores this problem, at both the state and federal level.
---------------------------------------------------------------------------
\59\ Oversight Hearing on Mass Torts and Class Action Lawsuits:
Hearing Before the Subcomm. on Courts and Intellectual Property of the
House Comm. on the Judiciary, 105th Cong. (1998) (statement of Brian
Wolfman, Staff Attorney, Public Citizen).
\60\ Id. at 7.
\61\ Oversight Hearing on Mass Torts and Class Action Lawsuits:
Hearing Before the Subcomm. on Courts and Intellectual Property of the
House Comm. on the Judiciary, 105th Cong. (1998) (statement of Ralph G.
Wellington, Esq., Schnader, Harrison, Segal & Lewis, LLP).
---------------------------------------------------------------------------
Serious concerns have also been raised concerning abusive
settlements. These include collusive settlements, in which the
parties agree to a far broader settlement than was originally
sought in order to insulate defendants from future liability,
and coupon and other deficient settlements which provide little
in the way of real relief to plaintiffs. For example In re
Prudential Insurance Company of America Sales Practice
Litigation \62\ involved a class action case which as filed was
based only on misrepresentations to customers regarding future
premiums, but as settled, released defendants from all claims
concerning abusive sales practice.\63\ Any serious effort to
reform class actions should address these issues, whether they
arise at the federal or state level.\64\
---------------------------------------------------------------------------
\62\ 962 F. Supp. 450 (D. N.J. 1997) (class action based on
misrepresentations to customers regarding future premiums for which
settlement was approved releasing defendant from any abusive sales
practice).
\63\ See also Matsushita v. Epstein, supra note 26; Grimes v.
Vitalink Communications Corp, 17 F. 3d 1553, 1563-64 (3d Cir.), cert
denied, 115 S. Ct. 480 (1994) (state court has the power to allow
parties to comprehensive class action settlement to release exclusive
federal securities claims). But see Nat'l Super Spuds v. New York
Mercantile Exchange 660 F. 2d 9, 17-18 (2d Cir. 1981) (rejecting potato
futures class action settlement in which parties sought to release
claims for which they were not authorized to represent class members).
\64\ Public Citizen has pointed to a number of potentially
problematic coupon and other low value settlements involving defective
vehicles, such as (1) the GM pick-up case (In re: General Motors
Corporation Pick-up Truck Fuel Tank Products Liability Litigation, 55
F. 3d 768 (3d Cir. 1995)). in which class action plaintiffs received
only non-transferable and non-marketable discount coupons for future
vehicle purchases; (2) the Ford Bronco case (In re: Ford Motor Co.
Bronco II Products Liability Litigation, 1995 U.S. Dist. Lexis 3507
(E.D. La. 1995)) in which the plaintiffs received only a package of
videos, stickers, and flashlights; and (3) the Chrysler Minivan case
(Hanlon v. Chrysler Corp., 1998 WL 296890 (9th Cir. June 9, 1998)) in
which the plaintiffs received no monetary compensation and essentially
no more than what Chrysler's promise to conform with its obligation to
the federal regulators.
---------------------------------------------------------------------------
Conclusion
H.R. 3789 will remove class actions involving state law
issues from state courts--the forum most convenient for victims
of wrongdoing to litigate and most familiar with the
substantive law involved--to the federal courts--where the
class is less likely to be certified and the case will take
longer to resolve. In our view, this incursion into state court
prerogatives is no less dangerous to the public than many of
the radical forms of ``tort reform'' and ``court stripping''
legislation previously rejected by the Congress and the
Administration.
Contrary to supporters' assertions, H.R. 3789 will not
serve to prevent state courts from unfairly certifying class
actions without granting defendants an opportunity to respond.
This is already barred by the Constitution,\65\ and the few
state court trial court decisions to the contrary have been
overturned.\66\ H.R. 3789 also cannot be seen as merely
prohibiting nationwide class actions file in state court. The
legislation goes much further and bars state class actions
filed solely on behalf of residents of a single state, which
solely involve matters of that state's law, so long as one
plaintiff resides in a different state than one defendant--an
extreme and distorted definition of diversity which does not
apply in any other legal proceeding.
---------------------------------------------------------------------------
\65\ See supra notes 24-26 and accompanying text.
\66\ See Ex Parte State Mutual Ins. Co., Nos. 1960410, et al., 1197
WL 772923 (Ala. Dec. 16, 1997); Ex Parte American Bankers Life Assur.
Co. of Fla., No. 1950705, 1997 WL 773322 (Ala. Dec. 16, 1997) (holding
that classes may not be certified without notice and a full opportunity
for defendants to respond and that the class certification criteria
must be rigorously applied).
---------------------------------------------------------------------------
This legislation would seriously undermine the delicate
balance between our federal and state courts. At the same time
it would threaten to overwhelm federal courts by causing the
removal of resource intensive state class action cases to
federal district courts, it also will increase the burdens on
state courts as class actions rejected by federal courts
metamorphasize into numerous additional individual state
actions. We urge H.R. 3789's rejection.
John Conyers, Jr.
Howard L. Berman.
Jerrold Nadler.
Robert C. Scott.
Melvin L. Watt.
Zoe Lofgren.
Sheila Jackson Lee.
Maxine Waters.
Martin T. Meehan.
William D. Delahunt.
Robert Wexler.
Steven R. Rothman.
Additional Dissenting Views by Representatives Nadler and Jackson-Lee
Relating to H.R. 3789's Impact on Liability Actions Concerning Tobacco,
Guns and Managed Care Organizations
In addition to the general policy concerns we have with
H.R. 3789, as reflected in the dissenting views signed by the
other Members of the Minority, we also oppose this legislation
because of the specific adverse impact it would have on the
ability of injured persons to obtain redress for harms caused
by the tobacco industry, the gun industry, and the managed care
industry. All three of these industries are in the initial
stages of being brought to justice pursuant to a series of
state class action suits, which would become far more
difficult, if not impossible, to bring under H.R. 3789. In
addition, all three industries face serious legislative
challenges at the federal and state level, and we believe it is
inappropriate for Congress to provide them with unilateral new
legal entitlements in the class action area.
Unfortunately, when we offered three separate amendments
which would have carved out the tobacco, gun, and managed care
industries from the legal protections provided under H.R. 3789,
each was rejected by the Republican Majority. Although the
Majority claimed it was inequitable to carve out any particular
industry from the scope of the bill, there is ample precedent
for excluding particular industry segments from liability
legislation,\1\ and there is no reason not to permit comparable
exclusions in this legislation. For these and the other reasons
set forth herein, we offer these additional dissenting views.
---------------------------------------------------------------------------
\1\ Examples of other Republican supported carve-outs include: (1)
H.R. 3789, itself, which carves out an exception for lawsuits brought
under the Securities Act of 1933 and 1934 (see H.R. 3789, Sec. (4); (2)
The Biomaterials Access Assurance Act of 1998, ``which carves out
exceptions for breast implant lawsuits and lawsuits by health care
providers (see Pub. L. 105-230, Sec. 3); (3) last Congress' conference
report on H.R. 956, the ``Common Sense Product Liability Legal Reform
Act of 1996,'' which carves out an exception from the bill's provisions
for lawsuits for ``commercial losses'' (see H.R. Conf. Rep. No. 481,
104th Cong., 2d Sess. 3, 6 (1996), Sec. 101); and (4) the most recent
product liability bill brought to the floor by the Senate Republican
leadership, which contains specific exemptions for tobacco lawsuits,
negligence actions involving firearms or ammunition, and negligent
entrustment actions (see Sec. Sec. 101 & 102 of S. 2236 as introduced
by Senator Gorton on June 26, 1998, and brought to the Senate floor on
June 25, 1998, and on July 9, 1998 where the Senate failed to invoke
cloture).
---------------------------------------------------------------------------
I. Impact on the Tobacco Industry
H.R. 3789 would allow tobacco companies to remove state
class actions involving state causes of action to federal
court. In fact, since the major tobacco companies are all
domiciled in states where class actions are not being brought,
``minimal diversity'' as defined by this bill \2\ will always
exist between the plaintiffs and the tobacco companies. H.R.
3789, therefore, effectively grants the tobacco industry a free
pass to federal court where it will be much more difficult for
plaintiffs to prevail in class action cases. This is why it is
strongly opposed by the Tobacco Products Liability Project, \3\
the Coalition for Workers Health Care Funds, \4\ Americans for
Nonsmokers' Rights, \5\ the National Center for Tobacco-Free
Kids, \6\ and Save Lives, Not Tobacco (a coalition which
includes the American Lung Association and the American Medical
Woman's Association). \7\ We believe there is no justification
in offering additional legal protections for an industry which
has been shown to market addictive and lethal products and
which has been show to intentionally market these products to
minors.
---------------------------------------------------------------------------
\2\ See note 5, infra, and accompanying text of principal
dissenting views.
\3\ Letter from Richard A. Daynard, Professor of Law, Chairman,
Tobacco Products Liability Project, Northeastern University Law School,
to John Conyers, Ranking Member, House Judiciary Committee (July 14,
1998) (on file with the minority staff of the House Judiciary
Committee).
\4\ Letter from David Mallino, Legislative Director, Coalition for
Workers Health Care Funds, to John Conyers, Ranking Member, House
Judiciary Committee (July 15, 1998) (on file with minority staff of
House Judiciary Committee). The coalition represents 2500 multi-
employer health and welfare funds, which are non-profit trust funds
established jointly by labor and management to provide medical care to
approximately 30 million workers, retirees, and their families.
\5\ Letter from Julia Carol, Co-Director, and Robin Hobart, Co-
Director, Americans for Non-Smokers' Rights, to John Conyers, Ranking
Member, House Judiciary Committee (July 15, 1998) (on file with
minority staff of House Judiciary Committee).
\6\ Letter from Matthew Meyers, Executive Vice President and
General Counsel, National Center for Tobacco-Free Kids, to John
Conyers, Ranking Member, House Judiciary Committee (July 15, 1998) (on
file with minority staff of House Judiciary Committee).
\7\ Letter from Paul G. Billings, American Lung Association;
Michele Bloch, American Medical Women's Association; Joan Mulhern,
Public Citizen; William Godshall, SmokeFree Pennsylvania to House
Judiciary Committee Member[s] (July 15, 1998) (on file with minority
staff of House Judiciary Committee).
---------------------------------------------------------------------------
According to the Campaign for Tobacco Free Kids, ``the
tobacco industry prefers to litigate in federal court where the
rules for certifying classes and maintaining class actions are
more favorable to corporate defendants, and they routinely seek
to remove class action lawsuits from state court to federal
court. H.R. 3789 corresponds perfectly with the industry's
litigation strategy, and furthers the industry's goal of
avoiding liability.'' \8\ Similarly, one of the nation's
foremost tobacco liability experts, Professor Richard Daynard
has observed, ``Federal courts have, by and large, been hostile
to class actions on behalf of toxic tort victims in general and
tobacco victims in particular'' and H.R. 3789 ``would have the
practical effect of ending most class actions against the
tobacco companies.'' \9\ Pro-tobacco Wall Street analyst Gary
Black echoed this sentiment when he acknowledged that tobacco
class actions are practically impossible to pursue in federal
court.\10\
---------------------------------------------------------------------------
\8\ Meyers letter, supra note 6.
\9\ Daynard letter, supra note 3.
\10\ Id. (citing July 10, 1998 newsletter). The fact that the
legislation does not directly limit individual actions is of little
import. In Broin v. Phillip Morris, 641 So. 2d 888, 892 (Fla. 3d Dist.
Ct. App. 1994). The Florida Circuit Court observed that if the law
required each class member to sue as individuals ``the result would be
. . . financially prohibitive . . . [and] the vast majority of class
members . . . would be deprived of a remedy.''
---------------------------------------------------------------------------
Had this bill previously been enacted into law it would
have threatened all of the key tobacco class action suits
already brought or being considered. Among other things, H.R.
3789 would have undermined classes of plaintiffs in Engle v.
R.J. Reynolds Tobacco Co.,\11\ a class action on behalf Florida
citizens who have become wrongfully addicted to tobacco, and
Broin v. Phillip Morris \12\ which considered the claims of
some 60,000 flight attendants harmed by second hand smoke. In
addition, the bill would have impacted an additional 12 class
actions filed on behalf of individuals currently pending in
state courts for smoking related claims \13\ and could have
affected five additional state class actions being brought on
behalf of multi-employer Health and Welfare funds, which
provide medical care for approximately 30 million workers,
retirees, and their families.\14\
---------------------------------------------------------------------------
\11\ 672 So. 2d 39 (Fla. Dist. Ct. App. 3d 1996).
\12\ Supra note 10.
\13\ A number of smaller class actions were filed subsequent to the
Fifth Circuit's failure to certify a nationwide class of smokers for
addiction and other claims in Castano v. American Tobacco Co., 84 F.3d
734 (5th Cir. 1996), six of which are currently pending at the state
level. See Brown v. American Tobacco, No. 00711400 (Super. Ct., State
of Calif., Cnty. of San Diego, filed June 10, 1997); Norton v. RJR
Nabisco, No. 48D01-9605-CP-0271 (Madison Super. Ct., State of Ind.,
County of Madison, filed May 3, 1996); Scott v. American Tobacco, No.
96-8461 (Civ. Dist. Ct., Parish of Orleans, State of La., filed May 24,
1996); Tepper v. Philip Morris, No. BER-L-4983-97-E (Super. Ct. of NJ,
Law Division, Bergen Cnty., filed May 28, 1997); Connor v. American
Tobacco, No. CV-96-8464 (2nd Jud. Dist. Ct., Cnty. of Bernalillo, State
of NM, filed Sept. 10, 1996); Hoskins v. RJ Reynolds, No. 110951/96 (S.
Ct., State of NY, Cnty. of NY, filed Sept. 19, 1996).
Six other non-Castano class actions involving tobacco liability are
also pending in state courts. See Morgan v. US Tobacco, No. 68655B
(10th Jud. Ct., Parish of Natchitoches, La.); Scott v. American
Tobacco, No. 96-8461 (Civil Dist. Ct., Parish of New Orleans, La.);
Brammer v. RJ Reynolds, No. 73061 (Iowa Dist. Ct., Polk County, Ia.);
Knowles v. American Tobacco, No. 97-11517 (State of La., Parish of
Orleans); Avallone v. American Tobacco (NJ Super., Atlantic Co. Law
Div.); Richardson v. Philip Morris, No. 96145050/CL212596 (Md. Cir.,
Balto. City (certified)).
\14\ Construction Laborers v. Philip Morris, CA No. 972-8799 (Cir.
Ct. St. Louis, CA, removed to E.D. Mo.--E. Div., CA No. 4:97 CV-02030-
ERW, filed Sept. 2, 1997); Teamsters v. Philip Morris, CA No.
71C019709CP0128 (Cir. Ct. St. Joseph County, filed Sept. 12, 1997);
Multi-Craft Health v. Philip Morris, No. CV-97-0009118 (N.M. Dist.
Court--2nd Jud. Dist. Bernalillo Co., filed Oct. 10, 1997); Operating
Engineers v. Philip Morris, CA No. 97-741291 CZ (Cir. Ct. Cnty. Of
Wayne, filed Dec. 30, 1997); Steamfitters v. Philip Morris, CA No.
92260 Div. 2 (Cir. Ct. of Tenn., filed Jan. 7, 1998). Numerous
additional health and welfare actions are expected to be filed in the
future against the tobacco industry.
---------------------------------------------------------------------------
To the extent there is any single event which has brought
the tobacco industry to the negotiating table with policy
makers it is their fear of private liability in general, and
class actions in particular. That is why the tobacco industry
sought a complete ban on class actions in the now aborted
settlement they reached with the state attorneys general.\15\
By severely limiting state class actions, H.R. 3789 would
provide the tobacco industry indirectly what Congress was
unwilling to give them directly--protection from liability.\16\
---------------------------------------------------------------------------
\15\ See Proposed Tobacco Industry Settlement, 12.3 TPLR 3.203
(June 20, 1997).. In a recent editorial, The New York Times agreed that
class actions were important to controlling the tobacco companies:
``The industry is eager to ban class-action lawsuits because of the
threat they pose to its reprehensible behavior. But shielding the
industry from future class-actions would practically invite more
abuses.'' ``No Immunity for Tobacco,'' N.Y. Times, February 24, 1998,
at A20.
\16\ It has been reported that ``tobacco industry leaders insist
that they will not curb advertising that is attractive to youths
without Congressional approval of a settlement that grants them
substantial liability from immunity.'' Id. Similarly, a spokesman for
the tobacco companies, Mr. Meyer Koplow recently admitted that ``[the
tobacco industry] might return to practices such as cartoon advertising
if Congress fails to grant protection from lawsuits.'' Jessica Lee,
``Health Groups Line Up Against Tobacco Deal,'' USA Today, Feb. 18,
1998, at 9A.
---------------------------------------------------------------------------
II. Impact on Gun Liability
We also oppose H.R. 3789 because it benefits companies
marketing gun products which are dangerous and defective and
have no reasonable use as self defense. It is for these reasons
that the bill is strongly opposed by groups such as Handgun
Control,\17\ the Coalition to Stop Gun Violence,\18\ and the
Violence Policy Center, which has written, ``[c]urrently, the
civil justice system is the only mechanism available to protect
consumers from defect-related death and injury and to ensure
that guns . . . are safe and free from defects in design or
manufacture.'' \19\ Increasingly, the value of that mechanism
will depend upon the openness of our class action rules.
---------------------------------------------------------------------------
\17\ Letter from Dennis Henigan, General Counsel, Handgun Control,
to John Conyers, Ranking Member, House Judiciary Committee (July 16,
1998) (on file with minority staff of House Judiciary Committee).
\18\ Letter from Michael K. Beard, President, Coalition to Stop Gun
Violence, to John Conyers, Ranking Member, House Judiciary Committee
(July 21, 1998) (on file with minority staff of House Judiciary
Committee).
\19\ Letter from M. Kristen Rand, Director of Federal Policy,
Violence Policy Center, to John Conyers, Ranking Member, House
Judiciary Committee (July 14, 1998) (on file with minority staff of
House Judiciary Committee).
---------------------------------------------------------------------------
The victims of gun violence are beginning to sue gun
manufacturers for their injuries. They are particularly
interested in pursuing manufacturers whose guns are clearly
ill-suited for hunting or self defense. In addition, major
American cities, such as Detroit and Chicago, are considering
lawsuits against gun manufacturers to hold them accountable for
the millions of dollars that the public sector must spend
coping with the consequences of gun violence.
At the same time, several of these lawsuits raise important
class action issues. A state class action brought in Texas
ultimately resulted in a $31 million settlement against
Remington.\20\ Another class action is pending in Texas
concerning pistols asserted to have been defectively made and
marketed.\21\ Yet another class action was brought in New York
against manufacturers alleged to have negligently marketed
handguns to unscrupulous dealers who illegally sold the
weapons.\22\ A liability action is also pending in Illinois
brought by the families of three young children who were killed
by juveniles illegally carrying handguns alleged to be marketed
to gang members, and the plaintiffs are considering recasting
this case as a class action.\23\
---------------------------------------------------------------------------
\20\ See Garza v. Remington, 1996 U.S. Lexis 2009 (W.D. Tex. 1996)
(class of shotgun owners sued the Remington Arms Company claiming that
their shotguns barrels were insufficiently strong and susceptible to
bursting during normal usage).
\21\ Spence v. Glock, No. 97-013 (E.D. Tex, filed Aug. 5, 1997).
\22\ Hamilton v. Accu-tek, 935 F. Supp. 1307 (1996).
\23\ Young v. Bryco Arms, No. 98106684 (Cook Co. Ill. Cir. Ct.
1998)
---------------------------------------------------------------------------
We should not handicap these important civil suits before
they have even begun. Gun plaintiffs, like tobacco plaintiffs,
prefer to sue gun manufacturers as part of a class action,
because suing as individuals is often prohibitively expensive.
In addition, gun plaintiffs prefer to sue in state courts,
because federal courts are far less likely to extend the forum
state's laws to cover the plaintiffs' claims. Handgun Control
explains that ``federal courts tend to be very reluctant to
extend state law or apply it to new situations. With gun
litigation, however many cases require courts to extend the
laws, or to apply established law to a new situation.'' \24\
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\24\ Hennigan letter, supra note 17.
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III. Impact on Managed Care Liability
Finally, H.R. 3789 would undermine a series of recent class
action suits against health maintenance organizations resulting
from their alleged fraud, over billing and failure to provide
coverage. Under current law, class action claims against
managed care must often distinguish between ERISA and non-ERISA
patients. Non-ERISA patients have a full range of remedies
available to them under state law. On the other hand, ERISA
patients have a very limited set of remedies--the cost of the
benefit denied, which in most cases is woefully inadequate.
The current managed care reform debate in Congress includes
the elimination of the ERISA preemption which would allow
patients who receive their health care from their employer to
hold their HMO accountable if it denies care. Congress should
not move in the opposite direction by enacting legislation such
as H.R. 3789 which would deny more patients access to justice
in state court. The following are examples of class actions
currently pending in state courts which could be preempted and
possibly terminated by federal courts under the legislation:
On June 23, 1997, Harold Kaitlin filed a class action
in Pennsylvania State court against his psychiatrist,
David Tremoglie, and Keystone Health Plan East Inc.,
his HMO, alleging that the psychiatrist had treated
hundreds of patients without a medical license.\25\ The
case was filed on behalf of himself and all other
patients treated by Tremoglie at the Bustleton Guidance
Center. The suit alleges that the class was treated by
an unlicensed and fraudulent psychiatrist who
unlawfully prescribed powerful medications not suitable
for their illness and that the HMO failed to verify
that Tremoglie was a licensed psychiatrist, failed to
supervise him, and referred patients to him.\26\
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\25\ Kaitlin v. Tremoglie, et al., No. 002703 (Pa. Comm. Pls.,
Philadelphia Co. 1997).
\26\ One of the female patients in the class was treated by the
psychiatrist for depression. While under the influence of medication,
the psychiatrist allegedly took her out for drinks and dinner and had
sex with her. After this patient terminated the contract, the
psychiatrist allegedly harassed her and threatened to harm her and her
children if she reported him.
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Two class actions were brought in Connecticut state
court against CIGNA Healthcare of Connecticut over the
termination of doctors from its HMO in 1994. In Hollis,
the plaintiffs are insureds who had begun treatment
with physicians participating in the plan who were then
removed from the list of participating physicians.\27\
In Napoletano, the plaintiffs are nine physicians who
had treated the plaintiffs in Hollis and were
terminated from their contract for supposedly not
following utilization review procedures.\28\ Both cases
allege violations of the Connecticut Unfair Trade
Practices Act.
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\27\ Hollis v. CIGNA Healthcare of Connecticut, Inc. No. CV-94-
070537 (Conn. Super., 1994).
\28\ Napoletano v. CIGNA Healthcare of Connecticut. Inc., No. CV-
94-0705358 (Conn. Super. 1994).
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Two men who were denied referrals to urologists by
their primary care physicians and were later diagnosed
with prostate cancer filed a class action in 1997 in
Florida against Humana, which is based in Kentucky, on
behalf of all Florida Medicare beneficiaries who joined
Humana's HMO.\29\ The suit sought compensatory damages
or recission. Humana's contracts with its primary care
physicians allegedly created inappropriate financial
disincentives to provide treatment at all or to refer
members to specialists and prohibited physicians from
discussing with members treatments that the HMO did not
wish to cover.
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\29\ Castillo v. Humana Inc., No. 97-1917 (Fla. Cir., 13th Jud.
Cir. 1997).
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Anna Kaplan, a New York patient who was charged by a
North Shore University Hospital for portions of a bill
for covered services left unpaid by Oxford, her HMO, is
seeking class-action status in a lawsuit against both
Oxford and North Shore. The class will include all
Oxford members who were referred to North Shore by
Oxford for covered services, but whose bills have not
been paid or have only been partially paid by Oxford.
Oxford has allegedly failed to pay North Shore for
covered services totaling $10 million. In Kaplan's
case, when North Shore failed to receive the full
amount of the bill from Oxford, the hospital began to
bill Kaplan directly for the unpaid amount. Oxford
personnel have reportedly privately admitted to Kaplan
that she should have no liability for the bill, and
North Shore personnel have also apparently admitted
privately that they are billing Oxford plan members to
pressure Oxford to pay for claims. Kaplan claims here
credit has been ruined by her unpaid bill and she has
been harassed by a collection agency.
Jerrold Nadler.
Sheila Jackson Lee.