[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.
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \7\ 28 U.S.C. Sec. 1441(a).
    \8\ See David P. Currie, Federal Jurisdiction at 140 (3rd ed. 
1990).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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\:
---------------------------------------------------------------------------
    \16\ Coffee supra note 12, at 3-5.
---------------------------------------------------------------------------
          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.
---------------------------------------------------------------------------
    \17\ See Amchem v. Windsor, 117 S. Ct. 2231 (1997).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \12\ See Admin. Office of the U.S. Courts, Annual Report of the 
Director of the Administrative Office of the United States Courts 
(1997).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    \14\ Annual report to the 2nd Circuit Judicial Conference, 
presented June, 1998.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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.
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    \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).
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    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\
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    \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)
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    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.

                                
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