[House Report 106-320]
[From the U.S. Government Publishing Office]
106th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 106-320
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INTERSTATE CLASS ACTION JURISDICTION ACT OF 1999
_______
September 14, 1999.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______________________________________________________________________
Mr. Hyde, from the Committee on the Judiciary, submitted the following
R E P O R T
together with
DISSENTING AND ADDITIONAL DISSENTING VIEWS
[To accompany H.R. 1875]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to whom was referred the
bill (H.R. 1875) to amend title 28, United States Code, to
allow the application of the principles of Federal diversity
jurisdiction to interstate 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 the Legislation.................... 4
Hearings................................................... 12
Committee Consideration.................................... 12
Vote of the Committee...................................... 12
Committee Oversight Findings............................... 19
Committee on Government Reform Findings.................... 19
New Budget Authority and Tax Expenditures.................. 19
Congressional Budget Office Cost Estimate.................. 19
Constitutional Authority Statement......................... 20
Section-by-Section Analysis and Discussion................. 21
Changes in Existing Law Made by the Bill, as Reported...... 26
Dissenting Views........................................... 31
Additional Dissenting Views................................ 43
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 ``Interstate Class
Action Jurisdiction Act of 1999''.
(b) Reference.--Whenever in this Act reference is made to 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. FINDINGS.
The Congress finds that--
(1) as recently noted by the United States Court of Appeals
for the Third Circuit, interstate class actions are ``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 enterprises'';
(2) most such cases, however, fall outside the scope of
current Federal diversity jurisdiction statutes;
(3) that exclusion is an unintended technicality, inasmuch
as those statutes were enacted by Congress before the rise of
the modern class action and therefore without recognition that
interstate class actions typically are substantial
controversies of the type for which diversity jurisdiction was
designed;
(4) Congress is constitutionally empowered to amend the
current Federal diversity jurisdiction statutes to permit most
interstate class actions to be brought in or removed to Federal
district courts; and
(5) in order to ensure that interstate class actions are
adjudicated in a fair, consistent, and efficient manner and to
correct the unintended, technical exclusion of such cases from
the scope of Federal diversity jurisdiction, it is appropriate
for Congress to amend the Federal diversity jurisdiction and
related statutes to allow more interstate class actions to be
brought in or removed to Federal court.
SEC. 3. 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 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 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) The district courts shall not exercise jurisdiction over a
civil action described in paragraph (1) if the action is--
``(i) an intrastate case,
``(ii) a limited scope case, or
``(iii) a State action case.
``(B) For purposes of subparagraph (A)--
``(i) the term `intrastate case' means a class action in
which the record indicates that--
``(I) the claims asserted therein will be governed
primarily by the laws of the State in which the action
was originally filed; and
``(II) the substantial majority of the members of
all proposed plaintiff classes, and the primary
defendants, are citizens of the State in which the
action was originally filed;
``(ii) the term `limited scope case' means a class action
in which the record indicates that all matters in controversy
asserted by all members of all proposed plaintiff classes do
not in the aggregate exceed the sum or value of $1,000,000,
exclusive of interest and costs, or a class action in which the
number of members of all proposed plaintiff classes in the
aggregate is less than 100; and
``(iii) the term `State action case' means a class action
in which the primary defendants are States, State officials, or
other governmental entities against whom the district court may
be foreclosed from ordering relief.
``(3) Paragraph (1) shall not apply to any claim concerning a
covered security as that term is defined in section 16(f)(3) of the
Securities Act of 1933 and section 28(f)(5)(E) of the Securities
Exchange Act of 1934.
``(4) Paragraph (1) shall not apply to any class action solely
involving a claim that relates to--
``(A) the internal affairs or governance of a corporation
or other form of business enterprise and that arises under or
by virtue of the laws of the State in which such corporation or
business enterprise is incorporated or organized; or
``(B) the rights, duties (including fiduciary duties), and
obligations relating to or created by or pursuant to any
security (as defined under section 2(a)(1) of the Securities
Act of 1933 and the regulations issued thereunder).''.
(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. 4. 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, but without
regard to whether any defendant is a citizen of the State in which the
action is brought, 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 no later than 30 days after receipt by
such class member, through service or otherwise, of the initial written
notice of the class action provided at the court's direction.
``(d) Exceptions.--
``(1) Covered securities.--This section shall not apply to
any claim concerning a covered security as that term is defined
in section 16(f)(3) of the Securities Act of 1933 and section
28(f)(5)(E) of the Securities Exchange Act of 1934.
``(2) Internal governance of business entities.--This
section shall not apply to any class action solely involving a
claim that relates to--
``(A) the internal affairs or governance of a
corporation or other form of business enterprise and
that arises under or by virtue of the laws of the State
in which such corporation or business enterprise is
incorporated or organized; or
``(B) the rights, duties (including fiduciary
duties), and obligations relating to or created by or
pursuant to any security (as defined under section
2(a)(1) of the Securities Act of 1933 and the
regulations issued thereunder).''.
(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 3 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, it shall dismiss the action. An
action dismissed pursuant to this subsection may be amended and filed
again in a State court, but any such refiled action may be removed
again if it is an action of which the district courts of the United
States have original jurisdiction. In any action that is dismissed
pursuant to this subsection and that is refiled by any of the named
plaintiffs therein in the same State court venue in which the dismissed
action was originally filed, the limitations periods on all reasserted
claims shall be deemed tolled for the period during which the dismissed
class action was pending. The limitations periods on any claims that
were asserted in a class action dismissed pursuant to this subsection
that are subsequently asserted in an individual action shall be deemed
tolled for the period during which the dismissed class action was
pending.''.
SEC. 5. 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. 6. 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
H.R. 1875 is intended to correct a technical flaw in the
current Federal diversity-of-citizenship jurisdiction statute
(28 U.S.C. Sec. 1332)--the tendency of that statute to prevent
interstate class actions from being adjudicated in Federal
courts. These types of cases deserve Federal court access
because they typically affect more citizens, involve more
money, and implicate more interstate commerce issues than any
other type of lawsuit. The bill amends section 1332 to expand
Federal court diversity jurisdiction over such cases, and
modifies existing removal statutes to ensure that interstate
class actions initially brought in State courts may be heard by
Federal courts if any of the real parties in interest (the
unnamed class members or the defendants) so desire.
Background and Need for the Legislation
The class action device is a necessary and important part
of our legal system. It promotes efficiency by allowing
plaintiffs with similar claims to adjudicate their cases in one
proceeding; it also leads to the adjudication of homogeneous
groups of smaller claims alleging harms to a large number of
people, which would otherwise go unaddressed because the cost
to individuals of suing would far exceed any possible benefit
to the individual. However, in recent years class actions have
been used with an increasing frequency and in ways that do not
promote the interests they were intended to serve.
Class action certification standards
Class actions were initially created in State courts of law
and equity, and in 1849 became statutory with the advent of the
Field Code, which several States adopted.\1\ In 1938, a Federal
class action rule was first enacted in the form of Federal Rule
of Civil Procedure 23.\2\ Rule 23 was substantially amended in
1966, and granted courts more flexibility in certifying class
actions.\3\
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\1\ The Field Code required numerous parties and a common interest
in law or fact. It reads, in part: ``[W]hen the question is one of a
common or general interest of many persons, or when the parties are
very numerous and it may be impracticable to bring them all before the
court, one or more may sue or defend for the benefit of the whole.''
See Newberg on Class Actions 3d Sec. 13-14 to 13-17 (1997).
\2\ The original Rule 23 recognized three types of class actions:
the ``true'' class action involving joint rights in which a class
decision was res judicata; the hybrid category involving several rights
relating to specific property; and the ``spurious'' class action
involving several rights affected by common questions, as to which the
result was res judicata only as to the parties actually joined.
Testimony of John P. Frank, Senate Committee on the Judiciary, May 4,
1999.
\3\ Current Rule 23 allows a matter to be brought as a class action
in Federal court if (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. In
addition, one of the following must be shown: (1) 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) 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;
or (3) the court finds that a class action is superior to other
available methods for the fair and efficient adjudication of the
controversy.
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The Field Code, the original Federal Rule 23 and amended
Federal Rule 23 remain the three models for present-day State
class action rules: 38 States have adopted amended Federal Rule
23 (sometimes with minor modifications); five still use rules
modeled on the original Federal Rule 23; \4\ and four still use
Field Code-based class rules.\5\ Three States still permit
class actions at common law and have no formal class rules.\6\
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\4\ Alaska, Georgia, New Mexico, North Carolina, and Rhode Island.
\5\ California, Nebraska, South Carolina, and Wisconsin.
\6\ Mississippi, New Hampshire, and Virginia.
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Federal Diversity Jurisdiction
Article III of the Constitution empowers Congress to
establish Federal jurisdiction over diversity cases--cases
``between citizens of different States.'' \7\ The grant of
diversity jurisdiction was premised on concerns that State
courts might discriminate against out-of-State defendants,
particularly out-of-State corporate defendants.\8\ It was
feared that such discrimination would hinder the development
and maintenance of effective interstate commerce. Since 1806,
with some exceptions, the Federal courts have followed the rule
of Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 (1806), which
states that Federal jurisdiction lies only where all plaintiffs
are citizens of States different than all defendants. This is
known as the ``complete diversity'' rule.\9\ In a class action,
only the citizenship of the named plaintiffs is considered for
determining diversity, which means that Federal diversity
jurisdiction will not exist if the named plaintiff is a citizen
of the same State as the defendant, regardless of the
citizenship of the rest of the class. See Snyder v. Harris, 394
U.S. 332 (1969). Congress has also historically imposed a
monetary threshold--now $75,000--for Federal diversity claims.
See 28 U.S.C. Sec. 1332(a). However, the amount in controversy
requirement normally is satisfied in a class action only if
each of the class members individually seeks damages in excess
of the statutory minimum. See Zahn v. International Paper Co.,
414 U.S. 291 (1973).\10\
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\7\ Article III, section 2, states that ``The judicial Power shall
extend to all Cases, in Law and Equity, arising under this
Constitution, the Laws of the United States, and Treaties made, or
which shall be made, under their Authority; . . . to controversies . .
. between citizens of different States. . . .''
\8\ See, e.g., Pease v. Peck, 59 U.S.(18 How.) 518, 520 (1856)
(``The theory upon which jurisdiction in conferred on the court of the
United States, in controversies between citizens of different States,
has its foundation in the supposition that, possibly, the State
tribunal might not be impartial between their own citizens and
foreigners.''); Bank of United States v. Deveaux, 9 U.S. (5 Cranch) 61,
87 (1809).
\9\ The Strawbridge decision construes the language of the 1789
Judiciary Act, not the limits of Article III diversity jurisdiction.
The Supreme Court has regularly recognized that the decision to require
complete diversity, and to set a minimum amount in controversy, are
political decisions not mandated by the Constitution. See, e.g.,
Newman-Green, Inc. v. Alfonzo-Larrian, 490 U.S. 826, 829 n.1 (1989). It
is therefore the prerogative of the Congress to broaden the scope of
diversity jurisdiction to any extent it sees fit, as long as any two
adverse parties to a lawsuit are citizens of different States. See
State Farm Fire & Cas. Co. v. Tashire, 386 U.S. 523, 530-31 (1967).
\10\ Federal appellate courts are divided about Zahn's breadth and
current vitality. For example, appellate courts do not agree about the
extent to which punitive damages and other sorts of relief sought by
all putative class members may be aggregated in order to satisfy the
$75,000 jurisdictional amount requirement. Compare Allen v. R. & H. Oil
& Gas Co., 63 F.3d 1326, 1335 (5th Cir. 1995) (where multiple
plaintiffs file a joint claim for punitive damages, the total sum
claimed should be attributed to each individual plaintiff in
determining whether each has satisfied the jurisdictional amount
requirement); Tapscott v. MS Dealer Serv. Corp., 77 F.3d 1353, 1359
(11th Cir. 1996) (same) with Gilman v. BHC Securities, Inc., 104 F.3d
1418, 1428-1432 (2d Cir. 1997). Even more fundamentally, several
Federal courts have ruled that Congress overruled Zahn by enacting the
Judicial Improvements Act of 1990. See In re Abbott Laboratories, Inc.,
51 F.3d 524, 527-29 (5th Cir. 1995); Stromberg Metal Works, Inc. v.
Press Mechanical, Inc., 77 F.3d 928, 932 (7th Cir. 1996). Other Federal
appellate courts have disagreed with these holdings. See Leonhardt v.
Western Sugar Co., 160 F.3d 631 (10th Cir. 1998); Meritcare Inc. v. St.
Paul Mercury Ins. Co., 166 F.3d 214, 220-22 (3d Cir. 1999). The
enactment of this bill will resolve these serious divisions among our
Federal appellate courts about the state of the law in this arena and
eliminate any ambiguities about congressional intent regarding the
scope of Federal diversity jurisdiction over interstate class actions.
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Standards for Removal of Cases from State Courts
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. See 28 U.S.C.
Sec. 1441(a). Removal is based on the same general assumption
as is diversity jurisdiction that an out-of-State defendant may
become a victim of local prejudice in State court.\11\
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\11\ See David P. Currie, Federal Jurisdiction at 140 (3rd ed.
1990).
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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). See 28 U.S.C.
Sec. 1446(b). 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
case where Federal jurisdiction is based on diversity be
removed more than one year from commencement of the action. Id.
Implications of jurisdictional requirements on interstate class actions
These jurisdictional statutes were originally enacted years
ago, well before the modern class action arose. Their
application in the class action context leads to perverse
results. For example, under current law a citizen of one State
may bring a diversity action in Federal court alleging a simple
$75,001 slip-and-fall claim against a party from another State.
But if a class of 25 million product owners living in all 50
States brings claims collectively worth $15 billion against the
manufacturer, the lawsuit usually must be heard in State court,
because each class plaintiff's claim does not satisfy the
jurisdictional amount requirement and there is not complete
diversity of citizenship. As several witnesses noted during the
Committee's hearings on this legislation, if Congress were to
enact an entirely new Federal diversity jurisdiction statute
and consider anew which kinds of cases most warrant access to
Federal courts, there would be little legitimate debate that
interstate class actions would be at or near the top of the
list. Those cases typically put the most money in controversy,
involve the most people, and have the most interstate commerce
ramifications. In short, they are the types of cases that most
clearly fit the historic rationale for Federal diversity
jurisdiction. Thus, it is an extreme anomaly that current law
essentially excludes these cases from our Federal courts while
allowing access to others.
These current rules can be used to game the system and keep
interstate class actions out of Federal court. The Committee
heard that attorneys often name irrelevant parties to class
actions filed in State court in an effort to ``destroy
diversity'' and keep the case from qualifying for Federal
diversity jurisdiction. For example, a common practice by
plaintiffs' attorneys 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 (even though the
bulk of class members are from another State), thereby
eliminating diversity between the litigants. 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.
Further, counsel make other statements about the case to keep
the defendant from removing the case to Federal court (e.g.,
``plaintiffs seek only a very small amount of money in this
case ''). After one year, however, the attorneys recant those
statements or drop diverse parties, since at that point,
current statutes bar removal of the case to Federal court.
The consequence of these jurisdictional limitations is not
merely to eliminate the Federal forum for adjudication of
interstate class actions. Because the alternative Federal forum
is not available, considerable abuse of the class action device
is occurring in many State courts. Some State courts are not
properly supervising class settlements. The result is that
class counsel become the primary beneficiaries of those
settlements; the class members (the persons on whose behalf the
actions were brought) get little or nothing--or in some cases,
even worse. For example, the record contains testimony about
one case in which class members had money deducted from their
mortgage accounts in order to pay several million dollars to
the class counsel.\12\ In short, the lawsuit that was supposed
to vindicate the class members' rights resulted in their losing
money. To make matters worse, when one class member tried to
complain, the class counsel sued her for $25 million.\13\
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\12\ Prepared Statement of Ralph G. Wellington, Esq., Hearing
before the Subcomm. on Courts and Intellectual Property of the House
Comm. on the Judiciary, ``Mass Torts and Class Action Lawsuits'' (March
9, 1998).
\13\ Oral Statement of Sen. Herb Kohl, S. 353: ``The Class Action
Fairness Act of 1999,'' S. Hrg. No. J-106-22 (May 4, 1999).
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Although class certification standards do not differ
radically among Federal and State courts, some State courts
have shown very lax attitudes toward class certification. The
record indicates that some State court judges have certified
classes before the defendant was even served with the complaint
and given an opportunity to defend itself. Other State court
judges simply do not rigorously apply the appropriate class
certification prerequisites, such that they will afford class
treatment to virtually any kind of case, even though doing so
will trample the due process rights of the unnamed class
members and/or defendants. Indeed, the record contains examples
of cases in which Federal courts denied class certification
based on due process concerns, but State courts subsequently
certified classes anyway.\14\
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\14\ Prepared Statement of John W. Martin, Jr., Hearing before the
Subcomm. on Courts and Intellectual Property of the House Comm. on the
Judiciary, ``Mass Torts and Class Action Lawsuits'' (March 9, 1998).
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Some State courts fail to recognize the power of the class
device and the need to carefully control its usage. One witness
at a Committee hearing noted that where class actions are not
properly controlled by the courts handling them (as is often
the case with State courts), there can be ``the perverse result
that companies that have committed no wrong find it necessary
to pay ransom to plaintiffs' lawyers because the risk of
attempting to vindicate their rights through trial simply
cannot be justified to their shareholders. Too frequently,
corporate decisionmakers are confronted with the implacable
arithmetic of the class action: even a meritless case with only
a 5% chance of success at trial must be settled if the
complaint claims hundreds of millions of dollars in damages.''
\15\ And as another witness noted, ``where businesses may be
legitimately at fault, injured consumers receive little, while
the plaintiffs' attorneys are enriched.''
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\15\ Prepared Statement of John L. McGoldrick, Esq., Senior Vice
President and General Counsel, Bristol-Myers Squibb Company, Hearing
before the Subcomm. on Courts and Intellectual Property of the House
Comm. on the Judiciary, ``Mass Torts and Class Action Lawsuits'' (March
9, 1998).
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Because of the way in which they have overreached in the
use of the class device, some State courts have effectively
made themselves the arbiters of the laws of other States,
raising serious federalism concerns. To facilitate the
certification of nationwide or multi-State classes, some State
courts have declared the laws of their forum to apply to all
claims in the action, even where that home State law is
inconsistent with the laws of other jurisdictions that should
be applied.\16\ Some years ago, the U.S. Supreme Court has
declared this practice to constitute a denial of due
process,\17\ but it continues. In other nationwide or multi-
State class actions, a single State court decides the law of
many other jurisdictions, effectively telling other States what
their laws are with no input from the judiciaries of those
other jurisdictions. Again, this practice means that a State
court, which has no accountability to the residents of any
other State, is dictating applicable laws to out-of-State
residents.
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\16\ See the examples in the Prepared Statement of Hon. Walter E.
Dellinger, III, Esq., Hearing before the House Comm. on the Judiciary,
``H.R. 1875: The Interstate Class Action Jurisdiction Act of 1999''
(July 21, 1999).
\17\ Shutts v. Phillips Petroleum Co., 472 U.S. 797 (1985).
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Some State courts have effectively federalized procedural
class action law as well. As Congressman James Moran testified
at one Committee hearing, ``[o]pportunistic lawyers have
identified those States and particular judges where the class
action device can be exploited.'' Essentially, there is a race
to the bottom--class action lawyers find the State courts with
the most lax attitude toward class actions and file their cases
there. As a result, certain State courts hear a highly
disproportionate amount of nationwide or multi-State class
actions and thereby effectively dictate Federal class action
policy (even though they have no charter to do so).
The current concentration of class actions in State courts
is resulting in enormous waste and is putting class members'
interests at risk. For example, with increasing frequency,
counsel are filing overlapping or ``copycat'' class actions--
cases that assert basically the same claims on behalf of
basically the same class members. When such ``copycat'' cases
are filed in various Federal courts, they may be consolidated
before a single Federal judge through the multidistrict
litigation provisions of 28 U.S.C. Sec. 1407, thereby assuring
consistent treatment of legal issues and uniform management of
the cases. But when ``copycat'' class actions are filed in
multiple State courts in multiple jurisdictions, they must be
litigated separately--there is no consolidation mechanism. As a
result, State courts and the counsel involved ``compete'' to
control the cases, often to the detriment of the unnamed class
members and defendants.\18\ Counsel also use these ``copycat''
cases to ``forum shop,'' presenting the same class
certification and other issues to different courts, always
trying to obtain better results than they achieved in another
``copycat'' case.
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\18\ Working Papers of the Advisory Committee on Civil Rules on
Proposed Amendments to Civil Rule 23, Vol 3, at 32 (May 1, 1997)
(``Advisory Committee Working Papers'') (statement of Prof. Samuel
Isaacaroff, University of Texas Law School) (noting that ``rival state
court proceedings'' in class actions are ``emerging as real problem
spots''); id., Vol. 4, at 88 (comments of consumer advocate Stephen
Gardner) (describing the duplication of rival state class action
proceedings in state and federal courts).
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The lax attitudes of some State courts and those courts'
ineffectiveness in managing class litigation has, not
surprisingly, resulted in dramatic increases in the number of
purported class actions being filed in State courts, according
to data supplied to the Committee.\19\ And also not
surprisingly, the record suggests that many of those numerous
new cases are of questionable merit. In interviews conducted
for a study on class actions by the RAND Corporation's
Institute for Civil Justice, many attorneys (including some
plaintiffs' counsel) observed that ``too many non-meritorious
[class action lawsuits] are [being] filed and certified'' for
class treatment.\20\
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\19\ See Advisory Committee Working Papers, Vol. 1, at ix-x (May 1,
1997) (memorandum of Judge Paul V. Niemeyer to members of the Advisory
Committee on Civil Rules); Deborah Hensler, et al. (Institute for Civil
Justice), Preliminary Results of the RAND Study of Class Action
Litigation, at 15 (``ICJ Report'') (observing that the ``doubling or
tripling of the number of putative class actions'' has been
``concentrated in the state courts'').
\20\ Id.
---------------------------------------------------------------------------
Certification of interstate class actions under these
circumstances is inconsistent with the constitutional theory of
providing Federal diversity jurisdiction where there is the
potential for discrimination against an out-of-State defendant.
Yet, without the ability to remove these cases to Federal
court, a defendant has no realistic opportunity to challenge
the propriety of class certification. In many instances, the
mere fact that a class is certified will determine the outcome
of the case. Because the cases are brought on behalf of
thousands (and sometimes millions) of claimants, the potential
exposure for a defendant is enormous. As noted above,
plaintiffs' counsel can use this potential exposure to coerce
settlements that offer minimal benefits to the class members,
but which result in hefty attorneys' fees. When a class action
is heard in Federal court, an interlocutory appeal may be taken
to challenge an order granting or denying class certification.
See Fed.R.Civ.P. 23(f). This is not the case in many State
courts; in those jurisdictions, a defendant who believes that
class certification was improper in a case may not challenge
the certification until having fully litigated the class action
on its merits. When faced with the option of settling a case
soon after certification or litigating a case to its
conclusion, many times the economics of the situation leads
defendants no logical choice but to settle non-meritorious
claims.
The issues presented by the application of the current
Federal jurisdiction rules in the class action context have
been increasingly identified and criticized by the courts. For
example, in Davis v. Cannon Chevrolet-Olds, Inc., 1999 U.S.
App. LEXIS 17040 (11th Cir. July 26, 1999), the Eleventh
Circuit reluctantly remanded a large interstate class action in
which counsel sued General Motors Acceptance Corp., alleging on
behalf of a proposed nationwide class of thousands of vehicle
owners that GMAC conspired to conceal the fact that when GM
dealers sell extended vehicle warranties, they get part of the
profit. The court concluded that since counsel had expressly
limited each class member's damages demand to less than the
$75,000 jurisdictional amount prerequisite, there was no basis
for Federal diversity jurisdiction over the case. In so ruling,
however, the appellate court noted that, as observed by the
leading Federal civil procedure treatise (Wright & Miller),
``[t]he traditional principles [regarding class action
jurisdiction] have evolved haphazardly and with little
reasoning'' and ``serve no apparent policy.'' The court
therefore offered the following ``apologia:''
We acknowledge that this case and its kin present an
anomaly in our law. An important historical
justification for diversity jurisdiction is the
reassurance of fairness and competence that a Federal
court can supply to an out-of-State defendant facing
suit in State court. GMAC is an out-of-State corporate
defendant facing a multimillion-dollar judgment--
possibly tens or hundreds of millions, once the
plaintiffs have waited out the one-year removal window
and amend their complaint to seek punitive damages
explicitly--in a State court system that has on
occasion produced gigantic awards against out-of-State
corporate defendants. One would think that this case is
exactly what those who espouse the historical
justification for section 1332 would have had in mind,
and that this fact would somehow color the statute's
interpretation. Id. at *14-*15 (citations omitted).
Judge John Nangle, who chairs the Judicial Panel on
Multidistrict Litigation, concurred, echoing criticisms about
the way current jurisdictional statutes are applied to class
actions:
The case at hand is but one example of a growing trend
in class action litigation in this country. Plaintiffs'
attorneys are increasingly filing nationwide class
actions in various State courts, carefully crafting
language in the petitions or complaints in order to
avoid the amount in controversy requirement of the
Federal courts. Existing Federal precedent . . .
mandates that this practice be permitted, although most
of these cases in actuality will be disposed of through
``coupon'' or ``paper'' settlements. Actual monetary
compensation rarely reaches the class members.
Concurrently, and perhaps coincidentally, such
settlements are virtually always accompanied by
munificent grants of or requests for attorneys' fees
for class counsel. . . . [T]his judge is of the opinion
that the present case law does not accommodate the
reality of modern class action litigation and
settlements. Id. at *18-*19 (citations omitted).
Within the past year, another Federal appellate court
highlighted this problem. In an opinion by Judge Anthony
Scirica (who chairs the Judicial Conference's Standing
Committee on Rules and Procedure), the U.S. Court of Appeals
for the Third Circuit observed that although ``national
(interstate) class actions are the paradigm for Federal
diversity jurisdiction because, in a constitutional sense, they
implicate interstate commerce, foreclose discrimination by a
local State, and tend to guard against any bias against
interstate enterprises. . . . Yet . . . at least under the
current jurisdictional statutes, such class actions may be
beyond the reach of the Federal courts.'' In re Prudential Ins.
Co. America Sales Practice Litig., 148 F.3d 283, 305 (3d Cir.
1998).
Effect of H.R. 1875 on Existing Law
H.R. 1875 would amend the diversity jurisdiction and
removal statutes applicable to class actions where there is a
substantial risk of discrimination against out-of-State
defendants. It amends 28 U.S.C. Sec. 1332 to grant original
jurisdiction in the Federal courts to hear interstate class
actions where any member of the proposed class is a citizen of
a State different from any defendant. (A change from ``complete
diversity'' to ``minimal diversity.'') However, to ensure that
cases that are truly local in nature are not swept into the
Federal courts, the bill would exempt from its reach (1)
intrastate cases--cases in which a ``substantial majority'' of
the class members and defendants are citizens of the same State
and the claims will be governed primarily by that State's law;
(2) limited scope cases--cases involving fewer than 100 class
members or where the aggregate amount in controversy is less
than $1 million; and (3) State action cases--cases where the
primary defendants are States or State officials, or other
governmental entities against whom the district court may be
foreclosed from ordering relief.
H.R. 1875 would also establish new rules governing the
removal of class actions filed in State court. Existing removal
procedures would apply, with four new features: (1) Unnamed
class members (plaintiffs) would be allowed to remove to
Federal court class actions in which their claims are being
asserted. Under current rules, only defendants are allowed to
remove. (2) Parties could remove without the consent of any
other party. Current removal rules--which apply only to
defendants--require the consent of all defendants. (3) Removal
to Federal court would be available to any defendant,
regardless of whether any defendant is a citizen of the State
in which the action was brought. (4) The current bar to removal
of class actions after one year would be eliminated, although
the requirement that removal occur within 30 days of notice of
grounds for removal would be retained.
Under H.R. 1875, if a removed class action is found not to
meet the requirements for proceeding on a class basis, the
Federal court would dismiss the action without prejudice.
Plaintiffs would then be permitted to refile their claims in
State court, presumably in a form amended either to fall within
one of the types of class actions over which the district court
is not to exercise jurisdiction, or one which could be
maintained as a class action under Federal Rule 23. The refiled
case would once again be eligible for removal if original
Federal jurisdiction exists. The statute of limitations on
individual class members' claims in such a dismissed class
action would not run during the period the action was pending
in Federal court, nor would that of claims in new class actions
filed by the same named plaintiffs in the same State venue.
Hearings
The Committee held a hearing on H.R. 1875 on July 21, 1999.
Testimony was received from eight witnesses, including a
representative of the Department of Justice. In addition, the
Subcommittee on Courts and Intellectual Property held an
oversight hearing on the subject of mass torts and class
actions on March 5, 1998, and a legislative hearing on
legislation similar to H.R. 1875 (H.R. 3789, 105th Congress),
on June 18, 1998.
Committee Consideration
On July 27 and August 3, 1999, the Committee met in open
session and ordered favorably reported the bill H.R. 1875, with
an amendment, by a recorded vote of 15 to 12, a quorum being
present.
Vote of the Committee
The following roll call votes occurred during Committee
deliberation on H.R. 1875:
An amendment by Mr. Watt to the Goodlatte/Boucher amendment
in the nature of a substitute to H.R. 1875 to eliminate all new
removal authority for interstate class actions. The Watt
amendment was defeated by a roll call vote of 11 to 15.
ROLLCALL NO. 1
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Sensenbrenner............................................... .............. .............. ..............
Mr. McCollum.................................................... .............. .............. ..............
Mr. Gekas....................................................... .............. X ..............
Mr. Coble....................................................... .............. X ..............
Mr. Smith (TX).................................................. .............. .............. ..............
Mr. Gallegly.................................................... .............. X ..............
Mr. Canady...................................................... .............. X ..............
Mr. Goodlatte................................................... .............. X ..............
Mr. Chabot...................................................... .............. X ..............
Mr. Barr........................................................ .............. X ..............
Mr. Jenkins..................................................... .............. X ..............
Mr. Hutchinson.................................................. .............. X ..............
Mr. Pease....................................................... .............. .............. ..............
Mr. Cannon...................................................... .............. .............. ..............
Mr. Rogan....................................................... .............. X ..............
Mr. Graham...................................................... .............. X ..............
Ms. Bono........................................................ .............. X ..............
Mr. Bachus...................................................... .............. X ..............
Mr. Scarborough................................................. .............. .............. ..............
Mr. Vitter...................................................... .............. .............. ..............
Mr. Conyers..................................................... X .............. ..............
Mr. Frank....................................................... X .............. ..............
Mr. Berman...................................................... X .............. ..............
Mr. Boucher..................................................... .............. X ..............
Mr. Nadler...................................................... X .............. ..............
Mr. Scott....................................................... X .............. ..............
Mr. Watt........................................................ X .............. ..............
Ms. Lofgren..................................................... X .............. ..............
Ms. Jackson Lee................................................. .............. .............. ..............
Ms. Waters...................................................... .............. .............. ..............
Mr. Meehan...................................................... X .............. ..............
Mr. Delahunt.................................................... .............. .............. ..............
Mr. Wexler...................................................... .............. .............. ..............
Mr. Rothman..................................................... X .............. ..............
Ms. Baldwin..................................................... X .............. ..............
Mr. Weiner...................................................... X .............. ..............
Mr. Hyde, Chairman.............................................. .............. X ..............
-----------------------------------------------
Total....................................................... 11 15 ..............
----------------------------------------------------------------------------------------------------------------
An amendment by Mr. Conyers, Mr. Berman, and Mr. Meehan to
the Goodlatte/Boucher amendment in the nature of a substitute
to H.R. 1875 to remand actions not certified as a class by a
Federal court to State court, allow the State court to certify
them, and prohibit removal to Federal court. The amendment was
defeated by a roll call vote of 14 to 15.
ROLLCALL NO. 2
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Sensenbrenner............................................... .............. .............. ..............
Mr. McCollum.................................................... .............. .............. ..............
Mr. Gekas....................................................... .............. X ..............
Mr. Coble....................................................... .............. X ..............
Mr. Smith (TX).................................................. .............. .............. ..............
Mr. Gallegly.................................................... .............. .............. ..............
Mr. Canady...................................................... .............. X ..............
Mr. Goodlatte................................................... .............. X ..............
Mr. Chabot...................................................... .............. X ..............
Mr. Barr........................................................ .............. X ..............
Mr. Jenkins..................................................... .............. X ..............
Mr. Hutchinson.................................................. .............. X ..............
Mr. Pease....................................................... .............. .............. ..............
Mr. Cannon...................................................... .............. .............. ..............
Mr. Rogan....................................................... .............. X ..............
Mr. Graham...................................................... .............. X ..............
Ms. Bono........................................................ .............. X ..............
Mr. Bachus...................................................... .............. X ..............
Mr. Scarborough................................................. .............. .............. ..............
Mr. Vitter...................................................... .............. X ..............
Mr. Conyers..................................................... X .............. ..............
Mr. Frank....................................................... X .............. ..............
Mr. Berman...................................................... X .............. ..............
Mr. Boucher..................................................... .............. X ..............
Mr. Nadler...................................................... X .............. ..............
Mr. Scott....................................................... X .............. ..............
Mr. Watt........................................................ X .............. ..............
Ms. Lofgren..................................................... X .............. ..............
Ms. Jackson Lee................................................. X .............. ..............
Ms. Waters...................................................... .............. .............. ..............
Mr. Meehan...................................................... X .............. ..............
Mr. Delahunt.................................................... X .............. ..............
Mr. Wexler...................................................... X .............. ..............
Mr. Rothman..................................................... X .............. ..............
Ms. Baldwin..................................................... X .............. ..............
Mr. Weiner...................................................... X .............. ..............
Mr. Hyde, Chairman.............................................. .............. X ..............
-----------------------------------------------
Total....................................................... 14 15 ..............
----------------------------------------------------------------------------------------------------------------
An amendment by Mr. Watt to the Goodlatte/Boucher amendment
in the nature of a substitute to H.R. 1875 to require removal
to occur within the time provided by State law. The Watt
amendment was defeated by a roll call vote of 5 to 12.
ROLLCALL NO. 3
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Sensenbrenner............................................... .............. .............. ..............
Mr. McCollum.................................................... .............. X ..............
Mr. Gekas....................................................... .............. X ..............
Mr. Coble....................................................... .............. X ..............
Mr. Smith (TX).................................................. .............. X ..............
Mr. Gallegly.................................................... .............. .............. ..............
Mr. Canady...................................................... .............. X ..............
Mr. Goodlatte................................................... .............. X ..............
Mr. Chabot...................................................... .............. .............. ..............
Mr. Barr........................................................ .............. .............. ..............
Mr. Jenkins..................................................... .............. .............. ..............
Mr. Hutchinson.................................................. .............. X ..............
Mr. Pease....................................................... .............. .............. ..............
Mr. Cannon...................................................... .............. .............. ..............
Mr. Rogan....................................................... .............. X ..............
Mr. Graham...................................................... .............. .............. ..............
Ms. Bono........................................................ .............. X ..............
Mr. Bachus...................................................... .............. .............. ..............
Mr. Scarborough................................................. .............. .............. ..............
Mr. Vitter...................................................... .............. X ..............
Mr. Conyers..................................................... X .............. ..............
Mr. Frank....................................................... .............. .............. ..............
Mr. Berman...................................................... .............. .............. ..............
Mr. Boucher..................................................... .............. X ..............
Mr. Nadler...................................................... X .............. ..............
Mr. Scott....................................................... X .............. ..............
Mr. Watt........................................................ X .............. ..............
Ms. Lofgren..................................................... .............. .............. ..............
Ms. Jackson Lee................................................. X .............. ..............
Ms. Waters...................................................... .............. .............. ..............
Mr. Meehan...................................................... .............. .............. ..............
Mr. Delahunt.................................................... .............. .............. ..............
Mr. Wexler...................................................... .............. .............. ..............
Mr. Rothman..................................................... .............. .............. ..............
Ms. Baldwin..................................................... .............. .............. ..............
Mr. Weiner...................................................... .............. .............. ..............
Mr. Hyde, Chairman.............................................. .............. X ..............
-----------------------------------------------
Total....................................................... 5 12 ..............
----------------------------------------------------------------------------------------------------------------
An amendment by Ms. Jackson Lee to the Goodlatte/Boucher
amendment in the nature of a substitute to H.R. 1875 to strike
the text of the bill and instead authorize a study of class
action cases to be conducted within 12 months after the date of
enactment. The Jackson Lee amendment was defeated by a roll
call vote of 8 to 14.
ROLLCALL NO. 4
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Sensenbrenner............................................... .............. .............. ..............
Mr. McCollum.................................................... .............. X ..............
Mr. Gekas....................................................... .............. .............. ..............
Mr. Coble....................................................... .............. X ..............
Mr. Smith (TX).................................................. .............. X ..............
Mr. Gallegly.................................................... .............. X ..............
Mr. Canady...................................................... .............. X ..............
Mr. Goodlatte................................................... .............. X ..............
Mr. Chabot...................................................... .............. X ..............
Mr. Barr........................................................ .............. .............. ..............
Mr. Jenkins..................................................... .............. .............. ..............
Mr. Hutchinson.................................................. .............. X ..............
Mr. Pease....................................................... .............. .............. ..............
Mr. Cannon...................................................... .............. X ..............
Mr. Rogan....................................................... .............. X ..............
Mr. Graham...................................................... .............. .............. ..............
Ms. Bono........................................................ .............. X ..............
Mr. Bachus...................................................... .............. .............. ..............
Mr. Scarborough................................................. .............. .............. ..............
Mr. Vitter...................................................... .............. X ..............
Mr. Conyers..................................................... .............. .............. ..............
Mr. Frank....................................................... .............. .............. ..............
Mr. Berman...................................................... .............. .............. ..............
Mr. Boucher..................................................... .............. X ..............
Mr. Nadler...................................................... X .............. ..............
Mr. Scott....................................................... X .............. ..............
Mr. Watt........................................................ .............. .............. ..............
Ms. Lofgren..................................................... .............. .............. ..............
Ms. Jackson Lee................................................. X .............. ..............
Ms. Waters...................................................... .............. .............. ..............
Mr. Meehan...................................................... X .............. ..............
Mr. Delahunt.................................................... .............. .............. ..............
Mr. Wexler...................................................... X .............. ..............
Mr. Rothman..................................................... X .............. ..............
Ms. Baldwin..................................................... X .............. ..............
Mr. Weiner...................................................... X .............. ..............
Mr. Hyde, Chairman.............................................. .............. X ..............
-----------------------------------------------
Total....................................................... 8 14 ..............
----------------------------------------------------------------------------------------------------------------
An amendment by Mr. Nadler to the Goodlatte/Boucher
amendment in the nature of a substitute to H.R. 1875 to carve
out cases involving harm caused by a firearm or ammunition. The
Nadler amendment was defeated by a roll call vote of 6 to 16.
ROLLCALL NO. 5
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Sensenbrenner............................................... .............. .............. ..............
Mr. McCollum.................................................... .............. .............. ..............
Mr. Gekas....................................................... .............. X ..............
Mr. Coble....................................................... .............. X ..............
Mr. Smith (TX).................................................. .............. X ..............
Mr. Gallegly.................................................... .............. X ..............
Mr. Canady...................................................... .............. X ..............
Mr. Goodlatte................................................... .............. X ..............
Mr. Chabot...................................................... .............. X ..............
Mr. Barr........................................................ .............. .............. ..............
Mr. Jenkins..................................................... .............. .............. ..............
Mr. Hutchinson.................................................. .............. X ..............
Mr. Pease....................................................... .............. .............. ..............
Mr. Cannon...................................................... .............. X ..............
Mr. Rogan....................................................... .............. X ..............
Mr. Graham...................................................... .............. .............. ..............
Ms. Bono........................................................ .............. X ..............
Mr. Bachus...................................................... .............. .............. ..............
Mr. Scarborough................................................. .............. .............. ..............
Mr. Vitter...................................................... .............. X ..............
Mr. Conyers..................................................... .............. .............. ..............
Mr. Frank....................................................... .............. .............. ..............
Mr. Berman...................................................... .............. .............. ..............
Mr. Boucher..................................................... .............. X ..............
Mr. Nadler...................................................... X .............. ..............
Mr. Scott....................................................... .............. X ..............
Mr. Watt........................................................ .............. X ..............
Ms. Lofgren..................................................... .............. .............. ..............
Ms. Jackson Lee................................................. X .............. ..............
Ms. Waters...................................................... .............. .............. ..............
Mr. Meehan...................................................... X .............. ..............
Mr. Delahunt.................................................... .............. .............. ..............
Mr. Wexler...................................................... X .............. ..............
Mr. Rothman..................................................... .............. .............. ..............
Ms. Baldwin..................................................... X .............. ..............
Mr. Weiner...................................................... X .............. ..............
Mr. Hyde, Chairman.............................................. .............. X ..............
-----------------------------------------------
Total....................................................... 6 16 ..............
----------------------------------------------------------------------------------------------------------------
An amendment by Mr. Nadler to the Goodlatte/Boucher
amendment in the nature of a substitute to H.R. 1875 to carve
out cases involving health care providers. The Nadler amendment
was defeated by a roll call vote of 7 to 16.
ROLLCALL NO. 6
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Sensenbrenner............................................... .............. .............. ..............
Mr. McCollum.................................................... .............. .............. ..............
Mr. Gekas....................................................... .............. X ..............
Mr. Coble....................................................... .............. X ..............
Mr. Smith (TX).................................................. .............. X ..............
Mr. Gallegly.................................................... .............. X ..............
Mr. Canady...................................................... .............. X ..............
Mr. Goodlatte................................................... .............. X ..............
Mr. Chabot...................................................... .............. X ..............
Mr. Barr........................................................ .............. .............. ..............
Mr. Jenkins..................................................... .............. .............. ..............
Mr. Hutchinson.................................................. .............. X ..............
Mr. Pease....................................................... .............. .............. ..............
Mr. Cannon...................................................... .............. X ..............
Mr. Rogan....................................................... .............. X ..............
Mr. Graham...................................................... .............. .............. ..............
Ms. Bono........................................................ .............. X ..............
Mr. Bachus...................................................... .............. .............. ..............
Mr. Scarborough................................................. .............. .............. ..............
Mr. Vitter...................................................... .............. X ..............
Mr. Conyers..................................................... .............. .............. ..............
Mr. Frank....................................................... .............. .............. ..............
Mr. Berman...................................................... .............. .............. ..............
Mr. Boucher..................................................... .............. X ..............
Mr. Nadler...................................................... X .............. ..............
Mr. Scott....................................................... .............. X ..............
Mr. Watt........................................................ .............. X ..............
Ms. Lofgren..................................................... .............. .............. ..............
Ms. Jackson Lee................................................. X .............. ..............
Ms. Waters...................................................... X .............. ..............
Mr. Meehan...................................................... X .............. ..............
Mr. Delahunt.................................................... .............. .............. ..............
Mr. Wexler...................................................... .............. .............. ..............
Mr. Rothman..................................................... X .............. ..............
Ms. Baldwin..................................................... X .............. ..............
Mr. Weiner...................................................... X .............. ..............
Mr. Hyde, Chairman.............................................. .............. X ..............
-----------------------------------------------
Total....................................................... 7 16 ..............
----------------------------------------------------------------------------------------------------------------
An amendment by Ms. Waters to the Goodlatte/Boucher
amendment in the nature of a substitute to H.R. 1875 to delay
the effective date of the bill until the Judicial Conference
certifies in writing to Congress that vacancies of Federal
judgeships have fallen to less than 3 percent. The Waters
amendment was defeated by a roll call vote of 10 to 13.
ROLLCALL NO. 7
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Sensenbrenner............................................... .............. .............. ..............
Mr. McCollum.................................................... .............. .............. ..............
Mr. Gekas....................................................... .............. .............. ..............
Mr. Coble....................................................... .............. X ..............
Mr. Smith (TX).................................................. .............. X ..............
Mr. Gallegly.................................................... .............. X ..............
Mr. Canady...................................................... .............. X ..............
Mr. Goodlatte................................................... .............. .............. ..............
Mr. Chabot...................................................... .............. X ..............
Mr. Barr........................................................ .............. .............. ..............
Mr. Jenkins..................................................... .............. .............. ..............
Mr. Hutchinson.................................................. .............. X ..............
Mr. Pease....................................................... .............. .............. ..............
Mr. Cannon...................................................... .............. X ..............
Mr. Rogan....................................................... .............. X ..............
Mr. Graham...................................................... .............. X ..............
Ms. Bono........................................................ .............. X ..............
Mr. Bachus...................................................... .............. .............. ..............
Mr. Scarborough................................................. .............. .............. ..............
Mr. Vitter...................................................... .............. X ..............
Mr. Conyers..................................................... .............. .............. ..............
Mr. Frank....................................................... .............. .............. ..............
Mr. Berman...................................................... X .............. ..............
Mr. Boucher..................................................... .............. X ..............
Mr. Nadler...................................................... X .............. ..............
Mr. Scott....................................................... X .............. ..............
Mr. Watt........................................................ X .............. ..............
Ms. Lofgren..................................................... .............. .............. ..............
Ms. Jackson Lee................................................. X .............. ..............
Ms. Waters...................................................... X .............. ..............
Mr. Meehan...................................................... X .............. ..............
Mr. Delahunt.................................................... .............. .............. ..............
Mr. Wexler...................................................... X .............. ..............
Mr. Rothman..................................................... X .............. ..............
Ms. Baldwin..................................................... X .............. ..............
Mr. Weiner...................................................... .............. .............. ..............
Mr. Hyde, Chairman.............................................. .............. X ..............
-----------------------------------------------
Total....................................................... 10 13 ..............
----------------------------------------------------------------------------------------------------------------
Motion to report H.R. 1875 as amended by the amendment in
the nature of a substitute, as amended. By a roll call vote of
15 yeas to 12 nays, the motion to report favorably was agreed
to.
ROLLCALL NO. 8
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Sensenbrenner............................................... .............. .............. ..............
Mr. McCollum.................................................... .............. .............. ..............
Mr. Gekas....................................................... .............. .............. ..............
Mr. Coble....................................................... X .............. ..............
Mr. Smith (TX).................................................. X .............. ..............
Mr. Gallegly.................................................... X .............. ..............
Mr. Canady...................................................... X .............. ..............
Mr. Goodlatte................................................... .............. .............. ..............
Mr. Chabot...................................................... X .............. ..............
Mr. Barr........................................................ .............. .............. ..............
Mr. Jenkins..................................................... X .............. ..............
Mr. Hutchinson.................................................. X .............. ..............
Mr. Pease....................................................... .............. .............. ..............
Mr. Cannon...................................................... X .............. ..............
Mr. Rogan....................................................... X .............. ..............
Mr. Graham...................................................... X .............. ..............
Ms. Bono........................................................ X .............. ..............
Mr. Bachus...................................................... X .............. ..............
Mr. Scarborough................................................. .............. .............. ..............
Mr. Vitter...................................................... X .............. ..............
Mr. Conyers..................................................... .............. X ..............
Mr. Frank....................................................... .............. .............. ..............
Mr. Berman...................................................... .............. X ..............
Mr. Boucher..................................................... X .............. ..............
Mr. Nadler...................................................... .............. X ..............
Mr. Scott....................................................... .............. X ..............
Mr. Watt........................................................ .............. X ..............
Ms. Lofgren..................................................... .............. X ..............
Ms. Jackson Lee................................................. .............. X ..............
Ms. Waters...................................................... .............. X ..............
Mr. Meehan...................................................... .............. X ..............
Mr. Delahunt.................................................... .............. .............. ..............
Mr. Wexler...................................................... .............. X ..............
Mr. Rothman..................................................... .............. X ..............
Ms. Baldwin..................................................... .............. X ..............
Mr. Weiner...................................................... .............. .............. ..............
Mr. Hyde, Chairman.............................................. X .............. ..............
-----------------------------------------------
Total....................................................... 15 12 ..............
----------------------------------------------------------------------------------------------------------------
Committee Oversight Findings
In compliance with clause 3(c)(1) of Rule XIII 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 Findings
No findings or recommendations of the Committee on
Government Reform were received as referred to in clause
3(c)(4) of Rule XIII of the Rules of the House of
Representatives.
New Budget Authority and Tax Expenditures
Clause 3(c)(2) of House Rule XIII is inapplicable because
this legislation does not provide new budgetary authority or
increased tax expenditures.
Congressional Budget Office Cost Estimate
In compliance with clause 3(c)(3) of Rule XIII of the Rules
of the House of Representatives, the Committee sets forth, with
respect to the bill, H.R. 1875, the following estimate and
comparison prepared by the Director of the Congressional Budget
Office under section 402 of the Congressional Budget Act of
1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, August 18, 1999.
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. 1875, the
Interstate Class Action Jurisdiction Act of 1999.
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,
Dan L. Crippen, Director.
H.R. 1875--Interstate Class Action Jurisdiction Act of 1999.
H.R. 1875 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 $17,000. This estimate includes
discretionary costs for salaries and benefits for clerks, rent,
utilities, and associated overhead expenses, and excludes the
costs for the salaries and benefits of judges. Thus, CBO
estimates that enacting H.R. 1875 could affect the courts'
workload at a cost of about $5 million annually.
H.R. 1875 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 2000-2001
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.
1875 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. 1875 would not affect direct spending or
receipts, pay-as-you-go procedures would not apply to this
bill. H.R. 1875 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 clause 3(d)(1) of Rule XIII 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
Section 1--Section 1 sets forth the short title of the
bill--the ``Interstate Class Action Jurisdiction Act of
1999''--and specifies that any reference to an amendment or
repeal of existing law shall be a reference to a portion of
Title 28 of the United States Code.
Section 2--Section 2 contains the findings of the Congress
in support of the bill.
Section 3--Section 3 amends 28 U.S.C. Sec. 1332 to create a
new subsection 1332(b), granting original jurisdiction in the
Federal courts over class action lawsuits in which (a) any
member of the plaintiff class is a citizen of a State different
than any defendant; (b) any member of the plaintiff class is a
foreign state and any defendant is a citizen of a State; or (c)
any member of the plaintiff class is a citizen of a State and
any defendant is a citizen or subject of a foreign state. For
purposes of this new section, the term ``foreign state'' is
defined as in 28 U.S.C. Sec. 1603(a).
Pursuant to new subsection 1332(b)(2)(A), the district
courts are directed not to exercise this jurisdiction if the
action is an intrastate case, a limited scope case, or a State
action case. An intrastate case is defined as a class action in
which the record indicates that the claims will be governed
primarily by the law of the State in which it was originally
filed, and the substantial majority of the plaintiff class
members and the primary defendants are all citizens of that
same State. A limited scope case is defined as a class action
involving fewer than 100 class members or where the aggregate
amount in controversy is less than $1 million (exclusive of
interest and costs). A State action case is defined as a class
action in which the primary defendants are States, State
officials, or other governmental entities against whom the
district court may be foreclosed from ordering relief.
Overall, the new section 1332(b) is intended to expand
substantially Federal court jurisdiction over class actions.
For that reason, its provisions should be read expansively;
they should be read as stating a strong preference that
interstate class actions be heard in a Federal court if so
desired by any purported class member or any defendant.
Consistent with this overriding intent, the provisions of
the new subsection 1332(b)(2)(A) should be read narrowly. A
purported class action should be deemed an ``intrastate case''
that falls outside Federal jurisdiction only if virtually all
members of all proposed classes are residents of a single State
of which all ``primary defendants'' are also citizens. For
example, a case in which a proposed class of 1000 persons sues
a North Carolina citizen corporation presumably would fit the
``intrastate case'' definition if 997 of those persons were
North Carolina citizens. (Of course, under the ``intrastate
case'' definition, North Carolina law would have to govern
virtually all claims and issues in the case as well.)
For purposes of the ``intrastate case'' carve out, 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 his employer normally
should not be deemed a ``primary defendant.'' In most
instances, the executive would not be the real ``target'' of
the purported class action; his employer company would be.
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, a 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). Normally, merely alleging that a
defendant conspired with other class members to commit
wrongdoing will not, without more, be sufficient to cause a
person to be a ``primary defendant.''
Similarly, the ``limited scope case'' definition also
should be interpreted narrowly. For example, if a court is
uncertain as to whether ``all matters in controversy'' in a
purported class action ``do not in the aggregate exceed the sum
or value of $1,000,000,'' the court should err in favor of
exercising jurisdiction over the matter. The same is true in
cases in which it is unclear whether ``the number of members of
all proposed plaintiff classes in the aggregate is less than
100.'' Further, Federal courts should be cautious to decline
Federal jurisdiction under the ``State action case'' definition
only where it is relatively clear that ``States, State
officials, or other governmental entities'' are ``primary
defendants'' against whom the ``court may be foreclosed from
ordering relief.''
As to each of these definitions, it is the Committee's
intention that the party opposing Federal jurisdiction shall
have the burden of demonstrating the applicability of a carve
out. For example, if a plaintiff seeks to have a purported
class action remanded for lack of Federal diversity
jurisdiction under the ``limited scope case'' provision, that
plaintiff should have the burden of demonstrating that ``all
matters in controversy'' do not ``in the aggregate exceed the
sum or value of $1,000,000, exclusive of interest and costs''
or that ``the number of all proposed plaintiff classes in the
aggregate is less than 100.''
The act provides two exceptions to the grant of original
jurisdiction over cases described in new subsection 1332(b).
The first excepts from its reach any claims concerning a
covered security as that term is defined in section 16(f)(3) of
the Securities Act of 1933 or section 28(f)(5)(E) of the
Securities Exchange Act of 1934. These claims are essentially
claims against the officers of a corporation for a precipitous
drop in the value of its stock, based on fraud. The Committee
recognizes that Congress has previously enacted legislation
governing the adjudication of these claims. See P.L. 104-67,
the ``Private Securities Litigation Reform Act of 1995,'' and
P.L. 105-353, the ``Securities Litigation Uniform Standards Act
of 1998.'' So as not to disturb the carefully crafted framework
for litigating in this context, claims involving covered
securities are not included in the new section 1332(b)
jurisdiction.
The second exception to the new section 1332(b)
jurisdiction is for class actions solely involving claims that
relate to matters of corporate governance arising out of State
law. This exclusion recognizes the peculiar advantages of the
State courts in the adjudication of corporate governance cases,
such as judicial expertise, a coherent body of well-developed
case law, the ability of State courts to resolve these disputes
expeditiously, and the resulting predictability of corporate
transactions.
However, the Committee intends that this exception be
narrowly construed. By corporate governance litigation, the
Committee means litigation based solely on (a) State statutory
law regulating the organization and governance of business
enterprises such as corporations, partnerships, limited
partnerships, limited liability companies, limited liability
partnerships, and business trusts; (b) State common law of the
duties owed between and among owners and managers of business
enterprises; and (c) the rights arising out of the terms of the
securities issued by business enterprises.
This exemption would apply to a class action relating to a
corporate governance claim filed in the court of any State.
That is, it will apply to a corporate governance class action
regardless of the forum in which it may be filed, and
regardless of whether the law to be applied is that of the
State in which the claim is filed.
For purposes of this exception, the phrase ``the internal
affairs or governance of a corporation or other form of
business enterprise'' is intended to refer to the internal
affairs doctrine which the United States Supreme Court has
defined as ``matters peculiar to the relationships among or
between the corporation and its current officers, directors and
shareholders. . . .'' Edgar v. Mite Corp., 457 U.S. 624, 645
(1982). See also Ellis v. Mutual Life Ins. Co., 187 So. 434
(Ala. 1939); McDermott v. Lewis, 531 A.2d 206, 214-15 (Del.
1987); Draper v. Paul N. Gardner Defined Plan Trust, 625 A.2d
859, 865-66 (Del. 1993); NAACP v. Golding, 679 A.2d 554, 559
(Ct. App. Md. 1996); Hart v. General Motors Corporation, 517
N.Y.S.2d 490, 493 (App. Div. 1987); Amberjack, Ltd., Inc. v.
Thompson, 1997 WL 613676 (Tenn. App. 1997). The phrase ``other
form of business enterprise'' in intended to include forms of
business entities other than corporations, including, but not
limited to, limited liability companies, limited liability
partnerships, business trusts, partnerships and limited
partnerships.
The exception to section 1332(b) jurisdiction created by
the Act is also intended to cover disputes over the meaning of
the terms of a security, which is generally spelled out in some
formative document of the business enterprise, such as a
certificate of incorporation or a certificate of designations.
The reference to the Securities Act of 1933 contained in new
section 1332(b)(4)(B) is for definitional purposes only. Since
the law contains an already well-defined concept of a security,
this provision simply imports the definition contained in the
Securities Act.
Section 3(c) of the Act creates a rule of construction for
determining under new section 1332(b) whether diversity of
citizenship exists as to a corporate defendant. Current section
1332(c) provides that for purposes of diversity jurisdiction, a
corporation is deemed to be a citizen of any State in which it
is incorporated and of the State where it has its principal
place of business. Thus, in many instances, the corporation is
a citizen of more than one State. When applying new subsection
(b), a plaintiff 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.
Section 4--Section 4 of the Act governs the procedures for
removal from State court of interstate class actions over which
the Federal court is granted original jurisdiction by section
3. The general removal provisions currently contained in
Chapter 89 of Title 28 would continue to apply to such class
actions, except where inconsistent with the provisions of the
Act. For example, the general requirement contained in section
1441(b) that an action be removable only if none of the
defendants is a citizen of the State in which the action is
brought would not apply to the removal of class actions.
Imposing such a restriction on removal jurisdiction would
subvert the intent of the Act by allowing a plaintiff to defeat
removal jurisdiction by suing both in-State and out-of-State
defendants. This would essentially perpetuate the current
``complete diversity'' rule in class actions that the new
section 1332(b) rejects. The Act does not, however, disturb the
general rule that a case may only be removed to the district
court of the United States for the district and division
embracing the place where the action is pending. See 28 U.S.C.
Sec. 1441(a).
New section 1453(a)(2) would permit removal by any
plaintiff class member who is not a named or representative
class member of the action for which removal is sought.
Generally, removal by the plaintiff is not permissible, under
the theory that as the instigator of the suit the plaintiff had
the choice of forum from the outset. When a class action is
filed, however, only the named plaintiffs and their counsel
have control over the choice of forum; the vast majority of the
real parties in interest--the unnamed class members on whose
behalf the action is brought and the defendants--have no voice
in that decision. This provision thus extends to those unnamed
class members the same flexibility to choose the forum as
offered to the defendant, by specifying that the provisions of
section 1446(a) governing the removal of a case by a defendant
shall apply equally to those plaintiffs. Also, by operation of
new section 1453(a), removal may occur without the consent of
any other party. This revision will combat collusiveness
between a corporate defendant and a plaintiffs' attorney who
may attempt to settle on the cheap in a State court at the
expense of the plaintiff class members. Similarly, it will
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.
In order to be consistent with the exceptions to Federal
diversity jurisdiction granted under new section 1332(b),
section 1453(d) provides that the new removal provisions shall
not apply to claims involving covered securities, or corporate
governance litigation. The parameters of this section and that
of 1332(b)(3) and (4) are intended to be coterminus.
Section 4(b) amends current section 1446(b) to clarify that
the one-year limit otherwise imposed on removal of suits filed
pursuant to section 1332 has no application to class actions;
that is, the bill permits a defendant to remove to Federal
court more than one year after commencement of a suit in State
court. This change to present law is intended to prevent gaming
of the current class action system by a plaintiffs' attorney.
In the most extreme example, under current law a plaintiffs'
attorney could file suit against a friendly defendant, and the
one-year limit after which no removal may be sought under any
condition would commence. On the 366th day from filing suit,
the plaintiff's attorney serves an additional defendant. It is
now too late for the new defendant to remove, regardless of
whether diversity jurisdiction exists, and irrespective of the
practical merits of the case. Similarly, after the expiration
of the current one-year period, amendments could be made to
dismiss diverse parties, increase the amount of the damages
pled, or otherwise change the case so that it would then fall
within the jurisdiction of the Federal courts. Under new
section 1446(b) these cases could be removed when changes to
the pleadings are made which bring the case within Federal
court jurisdiction.
Section 4(b) makes an additional change to section 1446(b),
which requires that removal occur 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. Under the current statute a corporate defendant may
remove beyond the 30-day limit if it can prove that prior to
that time it had not received paper from which it could be
ascertained that the case was removable. Section 4(b)
strengthens this provision by requiring the party attempting to
remove to Federal court to use ``due diligence'' when
ascertaining whether the papers indicate that the case is
removable. This will, among other things, prevent a disgruntled
unnamed plaintiff from removing at the eleventh hour and
interrupting a trial or undoing a legitimate (non-collusive)
settlement.
Section 4(d) of the Act makes clear that nothing in the
removal section of the bill changes the application of the Erie
Doctrine 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. See Erie Railroad Co. v. Tompkins, 304 U.S. 64
(1938).
Section 4(e) amends 28 U.S.C. Sec. 1447 to create a
subsection (f) detailing the procedures governing cases removed
to Federal court on the sole basis of section 1332(b) diversity
jurisdiction. If the Federal court to which a case is removed
determines that the case cannot be maintained as a class action
under Rule 23 of the Federal Rules of Civil Procedures, it is
to dismiss the action. The action may be amended and refiled in
Federal or State court, but if filed in a new State court it
would be removable again if it falls within the original
jurisdiction of the Federal court. The Committee has concluded
that the alternative--forbidding re-removal--would be bad
policy. That approach would allow counsel effectively to ask a
State court to review and overrule the class certification
decision of a Federal court. Federal and State court class
certification standards typically do not differ radically.
Thus, this approach would set a troubling (if not
constitutionally suspect) precedent for allowing State courts
to serve as points of appellate review of Federal court
decisions. Further, since Federal court denials of class
certification typically involve explicit or implied
determinations that allowing a case to be litigated on a class
basis would likely result in the denial of some or all parties'
due process rights, there should be no room constitutionally
for a State court to reach a different result on class
certification issues. If a dismissed case is refiled by any of
the same named plaintiffs in the same State court venue in
which it was originally filed, the statute of limitations on
the claims therein will be deemed tolled during the pendency of
the dismissed case. A new class action filed either in a
different venue or by different named plaintiffs would not
enjoy the benefits of this provision. However, if an individual
action is filed asserting claims that were asserted in a class
action dismissed under this section, the statute of limitations
will be deemed to have been tolled during the pendency of the
dismissed class action, regardless of where it is filed.
Section 5. Section 5 provides that the amendments made by
the Act shall apply to actions commenced on or after the date
of its enactment.
Section 6. Mr. Delahunt offered an amendment, which the
Committee approved by voice vote, to authorize the Comptroller
General of the United States to conduct a study of the impact
of the Act 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.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) 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 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 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) The district courts shall not exercise jurisdiction
over a civil action described in paragraph (1) if the action
is--
(i) an intrastate case,
(ii) a limited scope case, or
(iii) a State action case.
(B) For purposes of subparagraph (A)--
(i) the term ``intrastate case'' means a class
action in which the record indicates that--
(I) the claims asserted therein will be
governed primarily by the laws of the State in
which the action was originally filed; and
(II) the substantial majority of the
members of all proposed plaintiff classes, and
the primary defendants, are citizens of the
State in which the action was originally filed;
(ii) the term ``limited scope case'' means a class
action in which the record indicates that all matters
in controversy asserted by all members of all proposed
plaintiff classes do not in the aggregate exceed the
sum or value of $1,000,000, exclusive of interest and
costs, or a class action in which the number of members
of all proposed plaintiff classes in the aggregate is
less than 100; and
(iii) the term ``State action case'' means a class
action in which the primary defendants are States,
State officials, or other governmental entities against
whom the district court may be foreclosed from ordering
relief.
(3) Paragraph (1) shall not apply to any claim concerning a
covered security as that term is defined in section 16(f)(3) of
the Securities Act of 1933 and section 28(f)(5)(E) of the
Securities Exchange Act of 1934.
(4) Paragraph (1) shall not apply to any class action
solely involving a claim that relates to--
(A) the internal affairs or governance of a
corporation or other form of business enterprise and
that arises under or by virtue of the laws of the State
in which such corporation or business enterprise is
incorporated or organized; or
(B) the rights, duties (including fiduciary
duties), and obligations relating to or created by or
pursuant to any security (as defined under section
2(a)(1) of the Securities Act of 1933 and the
regulations issued thereunder).
[(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 removable 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,
it shall dismiss the action. An action dismissed pursuant to
this subsection may be amended and filed again in a State
court, but any such refiled action may be removed again if it
is an action of which the district courts of the United States
have original jurisdiction. In any action that is dismissed
pursuant to this subsection and that is refiled by any of the
named plaintiffs therein in the same State court venue in which
the dismissed action was originally filed, the limitations
periods on all reasserted claims shall be deemed tolled for the
period during which the dismissed class action was pending. The
limitations periods on any claims that were asserted in a class
action dismissed pursuant to this subsection that are
subsequently asserted in an individual action shall be deemed
tolled for the period during which the dismissed class action
was pending.
* * * * * * *
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, but without regard to whether any defendant is a
citizen of the State in which the action is brought, 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 no later than 30 days after
receipt by such class member, through service or otherwise, of
the initial written notice of the class action provided at the
court's direction.
(d) Exceptions.--
(1) Covered securities.--This section shall not
apply to any claim concerning a covered security as
that term is defined in section 16(f)(3) of the
Securities Act of 1933 and section 28(f)(5)(E) of the
Securities Exchange Act of 1934.
(2) Internal governance of business entities.--This
section shall not apply to any class action solely
involving a claim that relates to--
(A) the internal affairs or governance of a
corporation or other form of business
enterprise and that arises under or by virtue
of the laws of the State in which such
corporation or business enterprise is
incorporated or organized; or
(B) the rights, duties (including fiduciary
duties), and obligations relating to or created
by or pursuant to any security (as defined
under section 2(a)(1) of the Securities Act of
1933 and the regulations issued thereunder).
Dissenting Views
We strongly oppose H.R. 1875, 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.
1875 is opposed by the Justice Department,\1\ both the State
\2\ and Federal \3\ judiciaries, as well as consumer and public
interest groups, including Public Citizen.\4\
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\1\ See Hearing on H.R. 1875 Before the House Comm. on the
Judiciary, 106th Cong. (1999) (statement of Eleanor D. Acheson,
Assistant Attorney General, United States Department of Justice)
[hereinafter Acheson testimony] (stating that ``H.R. 1875 is ill-suited
to serve its sponsors' purposes--solving problems with State court
class action procedures. Instead, H.R. 1875's federalization of class
actions would deny State residents a State forum . . . and overburden
the Federal judiciary with class actions dealing solely with issues of
State law. Because we disagree with a measure having these effects, the
Department of Justice strongly opposes H.R. 1875.'').
\2\ See Letter from David A. Brock, President, Conference of Chief
Justices (July 19, 1999) (on file with the minority staff of the House
Judiciary Committee) [hereinafter Conference of Chief Justices letter]
(stating that ``H.R. 1875, in its present form, is an unwarranted
incursion on the principles of judicial federalism.'').
\3\ See Letters from Leonias Ralph Mecham, Secretary, Judicial
Conference of the United States (July 26, 1999 & August 23, 1999)
(letters on file with the minority staff of the House Judiciary
Committee) [hereinafter Judicial Conference letter] (stating that on
July 23, 1999, the Executive Committee of the Conference voted to
express its opposition to the class action provisions in H.R. 1875).
\4\ See Hearing on H.R. 1875 Before the House Comm. on the
Judiciary, 106th Cong. (1999) (statement of Brian Wolfman, Staff
Attorney, Public Citizen) [hereinafter Wolfman testimony] (stating
``H.R. 1875 is an unwise and ill-considered incursion by the Federal
Government on the jurisdiction of the State courts. It works 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.'').
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By providing plaintiffs access to the courts in cases where
a defendant may have caused small injuries to a large number of
persons, class action procedures have traditionally offered 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 groups of injured
persons to obtain access to justice. 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. 1875 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\ The only exceptions
provided in H.R. 1875 are that Federal courts are directed to
abstain from hearing a class action where (1) a ``substantial
majority'' of the members of the proposed class are citizens of
a single State of which the primary defendants are citizens and
the claims asserted will be governed primarily by laws of that
State (``an intrastate case''); (2) all matters in controversy
do not exceed $1,000,000 or the membership of the proposed
class is less than 100 (``a limited scope case''); or (3) the
primary defendants are States, State officials, or other
Government entities against whom the district court may be
foreclosed from ordering relief (``a State action case'').\6\
In the event the district court determines that the action
subject to its jurisdiction does not satisfy the requirements
of Federal Rule of Procedure 23, under the bill the court must
dismiss the action,\7\ which has the effect of striking the
class action claim.\8\
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\5\ H.R. 1875, Sec. 3(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\ H.R. 1875, Sec. 3(b)(2). The legislation also excludes
securities-related and corporate governance class actions from coverage
and makes a number of other procedural changes, such as easing the
procedural requirements for removing a class action to Federal court
(i.e., permitting removal to be sought by any plaintiff or defendant
and eliminating the one-year deadline for filing removal actions) and
tolling the statute of limitation periods for dismissed class actions.
\7\ H.R. 1875 Sec. Sec. 4(e).
\8\ While the class action may be refiled again, any such refiled
action may be remanded again if the district court has original
jurisdiction.
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H.R. 1875 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,
H.R. 1875 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 effectively only
permits case-by-case adjudications, potentially draining away
precious State court resources.
We also object to the fact that the bill is written in a
one-sided manner favoring corporate defendants at the expense
of harmed victims. At previous hearings on this matter, 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. 1875 does
nothing to deal with these concerns.
We would also note that before even considering H.R. 1875,
Congress should insist on receiving objective and comprehensive
data justifying such a dramatic intrusion into State court
prerogatives, since nothing in the way of such information now
exists.\9\ The results of a pending study by the Rand Institute
is expected by the end of this year. Contrary to assertions by
some proponents, a report by the Federal Judiciary Mass Torts
Working Group did not address the issues raised by this
legislation, nor did it suggest any solutions to problems in
mass tort litigation.\10\
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\9\ The most comprehensive study completed was the 1994/95 Judicial
Center review of class actions which rebutted claims that class actions
constituted frivolous ``strike'' suits and that attorneys were
unreasonably benefitting from class action cases. See 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.
1875's supporters are incomplete and inconclusive. 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
during the 105th Congress 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 67).
\10\ See Judicial Conference letters, supra note 3. In its letters
to the Judiciary Committee expressing concern with H.R. 1875, the
Judicial Conference suggested that further deliberate study of the
complicated issues raised by class actions and mass tort litigation was
needed. Although the Committee accepted an amendment offered by
Representatives Waters and Delahunt authorizing a GAO study on the
legislation's impact on the workload of the Federal courts, we were
disappointed that the Committee rejected, on a largely partisan vote,
an amendment by Representative Jackson-Lee which would have substituted
the current language in H.R. 1875 with an in depth study of the current
use of class actions.
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For these and the other reasons set forth herein, we
dissent from H.R. 1875.
I. H.R. 1875 Will Damage the Federal and State Court Systems
A. Impact on Federal Courts
Expanding Federal class action jurisdiction to include most
State class actions, as H.R. 1875 does, will inevitably result
in a significant increase in the Federal courts' workload. In
its letter to the Judiciary Committee, the Judicial Conference
warned that ``the effect of the class action provisions of
[H.R. 1875] would be to move virtually all class action
litigation into the Federal courts, thereby offending well-
established principles of federalism [and] . . . hold[ing] the
potential for increasing significantly the number of [class
action] cases currently being litigated in the Federal
system.'' \11\
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\11\ See August 23, 1999 Judicial Conference letter, supra note 3.
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The workload problem in the Federal courts is already at an
acute stage. In 1998, 69 judicial vacancies existed, or
approximately 8 percent of the Federal judicial positions. At
year end, on average, Federal district court judges had some
400 civil filings backlogged on its docket.\12\ 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:
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\12\ See Admin. Office of the U.S. Courts, Annual Report of the
Director of the Administrative Office of the United States Courts
(1998).
In my annual report for last year, I criticized the
Senate for moving too slowly in the filling of
vacancies on the Federal bench. This criticism received
considerable public attention. I also criticized
Congress and the president for their propensity to
enact more and more legislation which brings more and
more cases into the Federal court system. This
criticism received virtually no public attention. And
yet the two are closely related: We need vacancies
filled to deal with the cases arising under existing
laws, but if Congress enacts, and the president signs,
new laws allowing more cases to be brought into the
Federal courts, just filling the vacancies will not be
enough. We will need additional judgeships.\13\
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\13\ Chief Justice William Rehnquist, An Address to the American
Law Institute, Rehnquist: Is Federalism Dead? (May 11, 1998), in Legal
Times (May 18, 1998).
Judge Ralph K. Winter, Chief Justice of the Second Circuit,
echoed these concerns when he complained, ``[t]he political
branches have steadily increased our Federal question
jurisdiction, have maintained an unnecessarily broad definition
of diversity jurisdiction, and have then denied us resources
minimally proportionate to that jurisdiction . . . The result
is that a court with proud traditions of craft in decision-
making and currency in its docket is now in danger of losing
both.'' \14\ By federalizing State class actions, H.R. 1875
runs precisely counter to Chief Justice Rehnquist's and Chief
Judge Winters' admonition and risks severely aggravating the
judicial workload crisis.
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\14\ Annual report to the 2nd Circuit Judicial Conference,
presented June, 1998.
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B. 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. 1875
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, thousands upon
thousands of new cases may be unleashed on the State courts. It
is because of concerns such as these that the Conference of
Chief Justices has called H.R. 1875 an ``unwarranted incursion
on the principles of judicial federalism.'' \15\
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\15\ See Conference of Chief Justices letter, supra note 2.
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In addition to these potential workload problems, the
legislation raises serious constitutional issues. H.R. 1875
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. As the Conference of Chief Justices stated, the
legislation in essence ``unilaterally transfer[s] jurisdiction
of a significant category of cases from State to Federal
courts'' and is a ``drastic'' distortion and disruption of
traditional notions of judicial federalism.\16\
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\16\ See id.
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In this regard, the courts have previously found that
efforts by Congress to dictate such State court procedures
implicate important Tenth Amendment federalism issues and
should be avoided. For example, in Felder v. Casey \17\ the
Supreme Court observed that it is an ``unassailable
proposition. . . . that States may establish the rules of
procedure governing litigation in their own courts.'' Similarly
in Johnson v. Fankell \18\ the Court reiterated what it termed
``the general rule `bottomed deeply in belief in the importance
of State control of State judicial procedure . . . that Federal
law takes State courts as it finds them' '' \19\ and observed
that judicial respect for the principal of federalism ``is at
its apex when we confront a claim that Federal law requires a
State to undertake something as fundamental as restructuring
the operation of its courts'' and ``it is a matter for each
State to decide how to structure its judicial system.'' \20\
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\17\ 487 U.S. 131, 138 (1988) (finding Wisconsin notice-of-claim
statute 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 (1997) (holding that Idaho procedural rules
concerning appealability of orders are not preempted by 42 U.S.C.
Sec. 1983).
\19\ Id. at 919 (quoting Henry M. Hart, Jr., The Relations Between
State and Federal Law, 54 Colum. L. Rev. 489, 508 (1954)).
\20\ Id. at 922. 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) (stating that a law may be
struck down on federalism grounds if it ``commandeer[s] the legislative
processes of the States by directly compelling them to enact and
enforce a Federal regulatory program''); Printz v. United States, 117
S.Ct. 2365 (1997) (invalidating portions of the Brady Handgun Violence
Protection Act requiring local law enforcement officials to conduct
background checks on prospective gun purchasers).
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These same constitutional concerns were highlighted by
Professor Laurence Tribe in his testimony regarding the
constitutionality of a proposed Federal class action rule
applicable to State courts included in tobacco legislation
proposed during the 105th Congress. He observed, ``[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\
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\21\ The Global Tobacco Settlement: Hearings Before the Senate
Comm. on the Judiciary, 105th Cong., (1997) (statement of Laurence H.
Tribe, Tyler Professor of Law, Harvard Law School).
---------------------------------------------------------------------------
Arguments that H.R. 1875 is nonetheless justified because
State courts are ``biased'' against out-of-State defendants in
class action suits are vastly overstated.\22\ First, 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,\23\ 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; \24\ (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.\25\
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\22\ 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.
\23\ 472 U.S. 797 (1985).
\24\ See id. at 812 (stating that the notice must be the ``best
practicable, reasonably calculated, under all the circumstances, to
apprize interested parties of the pendency of the action and afford
them an opportunity to present their objections.'') (quoting Mullane v.
Central Hanover Bank & Trust Co., 339 U.S. 306, 314-315 (1950)).
\25\ See 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) (holding that State class actions are entitled to full
faith and credit so long as, inter alia: the settlement was fair,
reasonable, and adequate and in the best interests of the settlement
class; notice to the class was in full compliance with due process; and
the class representatives fairly and adequately represented class
interests).
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Secondly, it is important to note that as fears of local
court prejudice have subsided and concerns about diverting
Federal courts from their core responsibilities increased, the
policy trend in recent years has been towards limiting Federal
diversity jurisdiction.\26\ For example, Congress enacted the
Federal Courts Improvement Act of 1996,\27\ 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 \28\ and that it was important to keep the Federal
judiciary's efforts focused on Federal issues.\29\ The American
Law Institute has also recently found ``there is no longer the
kind of prejudice against citizens of other States that
motivated the creation of diversity jurisdiction,'' \30\ and a
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.\31\ Indeed, in 1978, the House twice passed
legislation that would have completely abolished general
diversity jurisdiction.\32\
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\26\ Ironically, during the 104th 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).
---------------------------------------------------------------------------
\27\ 28 U.S.C. Sec. 1332(a) (West Supp. 1998).
\28\ See The Judicial Conference of the United States, Long Range
Plan for the Federal Courts, Recommendation 7 at 30 (1995).
\29\ See id.
\30\ American Law Institute, Study of the Division of Jurisdiction
Between State and Federal Courts 101, 106 (1996).
\31\ See 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).
\32\ See 124 Cong. Rec. 5008 (1978); 124 Cong. Rec. 33, 546 (1978).
The legislation was not considered in the Senate.
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Thirdly, as the legislation is currently written, it
assumes a defendant will be automatically subject to prejudice
in any State where the corporation is not formally incorporated
(typically Delaware) or maintains its principal place of
business. In so doing, H.R. 1875 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.\33\ Similarly, if the Disney Corporation, 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.\34\ Yet under H.R. 1875, both of these
hypothetical cases would be subject to removal to Federal
court.
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\33\ General Motors and Ford both have their principal place of
business in Michigan and are incorporated in Delaware.
\34\ Disney's corporate headquarters are located in Burbank,
California, and it is incorporated in Delaware.
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II. H.R. 1875 Will Weaken Enforcement of Laws Concerning Consumer
Health and Safety, the Environment, and Civil Rights
There can be little doubt that H.R. 1875 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, represent-
ing nearly one-third of the nation's population,\35\ have
adopted different criteria for class action rules than Rule 23
of the Federal Rules of Civil Procedure.\36\ 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.,\37\ In re Rhone-
Poulenc Rorer, Inc.,\38\ In re American Medical Systems,
Inc.,\39\ Georgine v. Amchem Products, Inc.,\40\ and Broussard
v.
Meineke Discount Mufflers,\41\ have made it more difficult to
establish the ``predominance requirement'' necessary to
establish a class action under the Federal rules. Just this
June, in Ortiz v. Fibreboard,\42\ the Supreme Court again
invalidated a so-called ``limited fund'' asbestos settlement
agreement on technical grounds.\43\
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\35\ 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).
\36\ 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.
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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.
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\37\ 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).
\38\ 51 F. 3d 1293 (7th Cir. 1995), cert denied, 116 S. Ct. 184
(1995) (decertifying, under the Erie Doctrine, a nationwide negligence
class action brought on behalf of hemophiliacs infected with the AIDS
virus through use of defendants' blood clotting products because of
diversity of State laws).
\39\ 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).
\40\ 521 U.S. 591 (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 members' large amount at
stake in the litigation).
\41\ 155 F.3d 331 (4th Cir. Aug. 19, 1998) (rejecting class
certification brought by Meineke franchisees alleging violations of
franchise, tort, unfair trade and other laws).
\42\ 119 S.Ct. 2295 (1999).
\43\ The Court found that mandatory limited fund class treatment
under Rule 23(b)(1)(B) is not appropriate unless the maximum funds
available are clearly inadequate to pay all claims.
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Further, as noted above, H.R. 1875 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 is likely to take longer to obtain a trial on the
merits than it would in State court.
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\44\ See supra note 13 through 15 and accompanying text.
\45\ Speedy Trial Act of 1974, 18 U.S.C. Sec. 3161-3174 (1994).
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H.R. 1875 also poses unique risks and obstacles for
plaintiffs that they do not face under current law. Under H.R.
1875, if the district court determines that the action subject
to its jurisdiction does not satisfy the requirements of
Federal Rule of Civil Procedure 23, the court must dismiss the
action. This has the effect of striking the class action claim
and forcing all States to conform to Federal class actions
standards.\46\ While the class action may be refiled again, any
such refiled action may be removed again to Federal court.
Therefore, even if a State court would subsequently certify the
class, it could be removed again, creating a revolving door
between Federal and State court--hardly a desirable result.
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\46\ In this regard, it is unfortunate the Majority rejected an
amendment offered by Representatives Conyers, Berman and Meehan which
would have largely eliminated the federalism problem by amending the
bill to simply allow the Federal courts the first opportunity of
certifying a class action, but not to deny State court jurisdiction
over the class action if the court determined it did not meet Federal
requirements. This would have responded to the most serious complaint
leveled by corporate defendants, that class actions encourage a race to
the court house by permitting the Federal courts to use their powers to
consolidate class actions into a single forum in the appropriate
circumstances.
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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 \47\ 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. Moreover, since H.R.
1875 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.
---------------------------------------------------------------------------
\47\ H.R. 1875, Sec. 2(b)(2).
---------------------------------------------------------------------------
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 types of cases affected by this legislation range
from consumer fraud and health and safety to environmental and
civil rights actions. The following are examples of important
class actions previously brought at the State level, but which
could have been forced into Federal court under H.R. 1875,
where the actions may be delayed or rejected:
LFoodmaker 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.\48\
---------------------------------------------------------------------------
\48\ 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.
LEquitable 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.\49\
---------------------------------------------------------------------------
\49\ See 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.
LOn 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.\50\
---------------------------------------------------------------------------
\50\ See Mealey's Litigation Reports: Toxic Torts, $180 Million
Settlement of Toxic Cloud Claims Wins Judges O.K., November 17, 1995 at
8.
LOn April 21 of this year, Nationwide entered
into a State class action settlement concerning a
redlining discrimination claim with the Toledo, Ohio
Fair Housing Center. The lawsuit had been brought in
Ohio State court by residents living in Toledo's
predominately black neighborhoods, and charged that
Nationwide redlined African-American neighborhoods by
discouraging homeowners in minority neighborhoods from
buying insurance and by denying coverage to houses
under a certain value or a certain age. As a result of
the settlement, Nationwide agreed to modify its
underwriting criteria, increase its agency presence,
step up its marketing in Toledo's black neighborhoods.
Nationwide also agreed to place up to $2 million in an
interest-bearing account to provide compensation to
qualified class members, and agreed to deposit $500,000
with a bank willing to offer low-interest loans to
residents buying homes in Toledo's black
neighborhoods.\51\
---------------------------------------------------------------------------
\51\ See Toledo Fair Hous. Ctr. v. Nationwide Mut. Ins. Co., No
CI93-1685, Ohio Comm. Pls, Lucas County; see also ``Nationwide and Ohio
Fairhousing Announce Attempt to Settle Class Action,'' Mealey's
Insurance Law Weekly, April 27, 1998 at 3.
---------------------------------------------------------------------------
III. H.R. 1875 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. 1875 solely benefits defendants. H.R.
1875 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.
Numerous concerns were voiced at the hearings that class
action notices can be incomprehensible to potential plaintiffs
with opt-out rights. In previous 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 how much
money class counsel will receive, and where that money will
come from.'' \61\ Unfortunately, H.R. 1875 completely ignores
this problem, since changing the forum will not in any way
improve the treatment of out-of-State or out-of-district class
members.\62\
---------------------------------------------------------------------------
\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.
\61\ Id. (statement of Ralph Wellington).
\62\ See Acheson testimony, supra note 1, at 6. A related case was
settled in early 1998 after two years of litigation in State court
between Nationwide and the Lexington, Kentucky Fair Housing Council.
See Lexington Fair Hous. Council, Inc. v. Nationwide Mut. Ins. Co., No.
96-365, E.D. Ky, Lexington Div.
---------------------------------------------------------------------------
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 \63\ 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 practices.\64\ These cases reflect
specific problems with individual judges rather than systemic
problems with the States' handling of class actions, and any
serious effort to reform class actions should address these
issues, whether they arise at the Federal or State level.\65\
---------------------------------------------------------------------------
\63\ 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).
\64\ See also Matsushita Elec. Indust. Co. v. Epstein, 516 U.S. 367
(1995); Grimes v. Vitalink Communications Corp, 17 F. 3d 1553, 1563-64
(3d Cir.), cert denied, 115 S. Ct. 480 (1994) (holding that a 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).
\65\ See In re General Motors Corporation Pick-up Truck Fuel Tank
Products Liability Litigation, 55 F. 3d 768 (3d Cir. 1995) (overturning
a lower Federal court's approval of a settlement awarding class members
a $1,000 coupon toward future purchases of the defendant's cars); In re
Ford Motor Co. Bronco II Products Liability Litigation, 1995 U.S. Dist.
Lexis 3507 (E.D. La. 1995) (awarding plaintiffs only a package of
videos, stickers, and flashlights); and Hanlon v. Chrysler Corp., 1998
WL 296890 (9th Cir. June 9, 1998) (awarding plaintiffs no monetary
compensation and essentially no more than Chrysler's promise to conform
with its obligation to the Federal regulators).
---------------------------------------------------------------------------
Conclusion
H.R. 1875 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. 1875 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,\66\ and the few
State court trial court decisions to the contrary have been
overturned.\67\ H.R. 1875 also cannot be seen as merely
prohibiting nationwide class actions filed 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.
---------------------------------------------------------------------------
\66\ See supra notes 24-26 and accompanying text.
\67\ See Ex Parte State Mut. Ins. Co., 715 So.2d 207 (Ala. 1997);
Ex Parte Am. Bankers Life Assurance Co. of Florida, 715 So.2d 207 (Ala.
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. 1875's rejection.
John Conyers, Jr.
Howard L. Berman.
Jerrold Nadler.
Melvin L. Watt.
Sheila Jackson Lee.
Martin T. Meehan.
Robert Wexler.
Tammy Baldwin.
Barney Frank.
Robert C. Scott.
Zoe Lofgren.
Maxine Waters.
William D. Delahunt.
Steven R. Rothman.
Anthony D. Weiner.
Additional Dissenting Views
In addition to the general policy concerns we have with
H.R. 1875, 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. 1875. 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 Democrats offered three separate
amendments which would have carved out the tobacco, gun, and
managed care industries from the legal protections provided
under H.R. 1875, 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. 1875, itself, which carves out an exception for lawsuits brought
under the Securities Act of 1933 and 1934 and claims relating to
internal governance of business entities (see H.R. 1875, Sec. 4); (2)
the Y2K bill recently signed by the President excludes any losses for
personal injury or death from the bill's provisions and excludes large
businesses from the punitive damage caps (see Pub. L. 106-32); (3)
``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); (4) the 104th 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
(5) 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. 1875 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 will always exist
between the plaintiffs and the tobacco companies. H.R. 1875,
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 over 70 consumer and public health groups
including the Tobacco Products Liability Project,\2\ the
Coalition for Workers Health Care Funds,\3\ and Save Lives, Not
Tobacco (a coalition which includes the American Lung
Association and the American Medical Woman's Association).\4\
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 shown
to intentionally market these products to minors.
---------------------------------------------------------------------------
\2\ See Hearing on H.R. 1875 Before the House Comm. on the
Judiciary, 106th Cong. (1999) (statement by Richard A. Daynard,
Professor of Law and Chairman, Tobacco Products Liability Project,
Northeastern University Law School) [hereinafter Daynard testimony].
\3\ See Letter from David Mallino, Legislative Director, Coalition
for Workers Health Care Funds, to John Conyers, Ranking Member, House
Judiciary Committee (July 22, 1999) (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.
\4\ See Letter from Cassandra Weich, American Lung Association; Tom
Bantle, Public Citizen; William Godshall, Smoke-Free Pennsylvania; Co-
Chairs of Save Lives, Not Tobacco to House Judiciary Committee Members
(July 22, 1999) (on file with minority staff of House Judiciary
Committee).
---------------------------------------------------------------------------
According to Save Lives, Not Tobacco, ``by permitting the
transfer from State courts to Federal courts, this legislation
will cause interminable delay for class action cases against
the tobacco industry, both increasing the costs of suing the
industry and delaying justice. [The bill] would make it much
harder for injured consumers to take on the tobacco industry in
court.'' \5\ Furthermore, it allows the tobacco industry
``backdoor'' immunity from State class actions.\6\ Similarly,
one of the nation's foremost tobacco liability experts,
Professor Richard Daynard has testified, ``[F]ederal courts are
hostile to tobacco class actions and have never permitted any
to proceed'' and H.R. 1875 ``would have the practical effect of
ending most class actions against the tobacco companies.'' \7\
---------------------------------------------------------------------------
\5\ Id.
\6\ See id.
\7\ Daynard testimony, supra note 2.
---------------------------------------------------------------------------
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, the
bill would have undermined classes of plaintiffs in Engle v.
R.J. Reynolds Tobacco Co.,\8\ a successful class action filed
on behalf of Florida citizens who have become wrongfully
addicted to tobacco, and Broin v. Phillip Morris \9\ which
considered the claims of some 60,000 flight attendants harmed
by second hand smoke. In addition, the bill would have impacted
additional class actions filed on behalf of individuals
currently pending in State courts for smoking-related claims
\10\ and could have affected 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.\11\
---------------------------------------------------------------------------
\8\ 672 So. 2d 39 (Fla. 3d. Dist. Ct. App. 1996).
\9\ 641 So.2d 888 (Fla. 3d Dist. Ct. App. 1994).
\10\ 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). Additionally, other non-Castano class actions
involving tobacco liability are also pending in State courts.
\11\ While defendants in many of these instances sought to remove
the cases to Federal court under Federal question jurisdiction based on
ERISA, the majority of Federal courts rejected this claim, and have
remanded the cases to State courts. In the districts which held for the
defendants, plaintiffs have appealed the decision. 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 presented to Congress two years ago by the tobacco
industry and various State attorneys general.\12\ By severely
limiting State class actions, H.R. 1875 would provide the
tobacco industry indirectly what Congress was unwilling to give
them directly--protection from liability.
---------------------------------------------------------------------------
\12\ 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.
---------------------------------------------------------------------------
II. Impact on Gun Liability
We also oppose H.R. 1875 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,\13\ the Coalition to Stop Gun Violence,\14\ and the
Violence Policy Center, which has written, ``citizen lawsuits--
including class actions--serve as the only safety `regulation'
of the firearms industry . . . lawsuits are the only method to
force manufacturers of defectively manufactured or designed
firearms to make their guns safer.''\15\ Increasingly, the
value of that mechanism will depend upon the openness of our
class action rules.
---------------------------------------------------------------------------
\13\ See Letter from Robert J. Walker, President, Handgun Control,
to John Conyers, Ranking Member, House Judiciary Committee (July 19,
1999) [hereinafter Walker letter] (on file with minority staff of House
Judiciary Committee).
\14\ See Letter from Michael K. Beard, President, Coalition to Stop
Gun Violence, to John Conyers, Ranking Member, House Judiciary
Committee (July 27, 1999) (on file with minority staff of House
Judiciary Committee).
\15\ See Letter from M. Kristen Rand, Director of Federal Policy,
Violence Policy Center, to John Conyers, Ranking Member, House
Judiciary Committee (July 27, 1999) (on file with minority staff of
House Judiciary Committee).
---------------------------------------------------------------------------
The victims of gun violence are beginning to sue gun
manufacturers for their injuries. They are particularly
interested in pursuing manufacturers whose guns are clearly
ill-suited for hunting or self defense. In addition, over 20
American cities as well as the NAACP have filed 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.
For example, a liability action is 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 trying to recast this case
as a class action.\16\
---------------------------------------------------------------------------
\16\ See Young v. Bryco Arms, No. 98106684 (Cook Co. Ill. Cir. Ct.
1998).
---------------------------------------------------------------------------
We should not handicap these important civil suits before
they have even begun. Gun plaintiffs, like tobacco plaintiffs,
prefer to sue gun manufacturers as part of a class action,
because suing as single plaintiffs 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.'' \17\
---------------------------------------------------------------------------
\17\ Walker letter, supra note 13.
---------------------------------------------------------------------------
III. Impact on Managed Care Liability
Finally, H.R. 1875 would undermine a series of recent class
action suits against health maintenance organizations resulting
from their alleged fraud, overbilling and failure to provide
coverage. It is for these reasons H.R. 1875 is opposed by AIDS
Action Council, Families USA, and the Center on Disability and
Health.\18\ 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.
---------------------------------------------------------------------------
\18\ See Letter from AIDS Action Council, Families USA, the Center
on Disability and Health, and eight other public health advocacy groups
(July 9, 1999) (on file with the minority staff of the House Judiciary
Committee) (stating that ``H.R. 1875 would undermine the few grounds on
which patient and consumer State class actions have been filed
successfully--fraud, overbilling, and medical malpractice.'')
---------------------------------------------------------------------------
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. 1875 which would deny more patients access to justice
in State court. The following are just two examples of class
actions in State courts which could be preempted and possibly
terminated by Federal courts under the legislation:
LOn June 23, 1997, Harold Katlin 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.\19\ 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 unlicenced 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.\20\ On June 29, 1999, a Pennsylvania
State court granted class certification.\21\
---------------------------------------------------------------------------
\19\ Kaitlin v. Tremoglie, et al., No. 002703 (Pa. Comm. Pls.,
Philadelphia Co. 1997).
\20\ 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.
\21\ See Mealey's Litigation Reports: Pennsylvania Court Certifies
Class Action Against Keystone for Unlicensed Physician, July 14, 1999
at 1.
LAnna 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, sought class-action status in a
lawsuit against both Oxford and North Shore. The class
included all Oxford members who were referred to North
Shore by Oxford for covered services, but whose bills
had not been paid or had only been partially paid by
Oxford. Oxford had 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 had reportedly privately admitted to Kaplan
that she should have no liability for the bill, and
North Shore personnel had also apparently admitted
privately that they were billing Oxford plan members to
pressure Oxford to pay for claims. Kaplan claimed her
credit has been ruined by her unpaid bill and she has
been harassed by a collection agency. A settlement was
reached on September 30, 1997, and the parties agreed
that the action would be certified as a class action
---------------------------------------------------------------------------
for purposes of the settlement.\22\
\22\ See Mealey's Litigation Reports: New York Class Action Over
Direct Billing to Members After Oxford Failed to Pay Settles, November
20, 1997 at 1.
---------------------------------------------------------------------------
John Conyers, Jr.
Jerrold Nadler.
Sheila Jackson Lee.
Martin T. Meehan.
Barney Frank.
Zoe Lofgren.
Anthony D. Weiner.