[Senate Report 106-420]
[From the U.S. Government Publishing Office]
Calendar No. 732
106th Congress Report
SENATE
2d Session 106-420
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THE CLASS ACTION FAIRNESS ACT OF 2000
_______
September 26 (legislative day, September 22), 2000.--Ordered to be
printed
_______
Mr. Hatch, from the Committee on Judiciary, the submitted the following
R E P O R T
together with
ADDITIONAL AND MINORITY VIEWS
[To accompany S. 353]
The Committee on the Judiciary, to which was referred the
bill (S. 353) a bill to provide for class action reform, and
for other purposes, having considered the same, reports
favorably thereon with an amendment in the nature of a
substitute, and recommends that the bill, as amended, to pass.
CONTENTS
Page
I. Text of S. 353...................................................2
II. Legislative history..............................................5
III. Votes of the Committee...........................................6
IV. Purposes.........................................................8
V. Background and need for legislation.............................10
VI. How S. 353 works................................................23
VII. Section-by-section analysis and discussion of substitute amendme25
VIII.Critics' contentions and rebuttals..............................34
IX. Cost estimate...................................................46
X. Regulatory impact statement.....................................48
XI. Additional views of Senator Kohl................................49
XII. Minority views of Senators Leahy, Kennedy, Biden, Feingold, and
Torricelli......................................................51
XIII.Changes in existing law.........................................61
I. Text of S. 353
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Class Action Fairness Act of 2000''.
SEC. 2. NOTIFICATION REQUIREMENT OF CLASS ACTION CERTIFICATION OR
SETTLEMENT.
(a) In General.--Part V of title 28, United States Code, is amended
by inserting after chapter 113 the following:
``CHAPTER 114--CLASS ACTIONS
``Sec.
``1711. Definitions.
``1712. Application.
``1713. Notification of class action certifications and settlements.
``Sec. 1711. Definitions
``In this chapter the term--
``(1) `class' means a group of persons that comprise parties
to a civil action brought by 1 or more representative persons;
``(2) `class action' means a civil action filed pursuant to
rule 23 of the Federal Rules of Civil Procedure or similar
State statutes or rules of procedure authorizing an action to
be brought by 1 or more representative persons on behalf of a
class;
``(3) `class certification order' means an order issued by a
court approving the treatment of a civil action as a class
action;
``(4) `class member' means a person that falls within the
definition of the class;
``(5) `class counsel' means the attorneys representing the
class in a class action;
``(6) `plaintiff class action' means a class action in which
class members are plaintiffs; and
``(7) `proposed settlement' means a settlement agreement
regarding a class action that is subject to court approval and
would be binding on the class.
``Sec. 1712. Application
``This chapter shall apply to all plaintiff class actions filed in or
removed to Federal court, except any such class action solely
involving--
``(1) claims concerning a covered security as defined under
section 16(f)(3) of the Securities Act of 1933 and section
28(f)(5)(E) of the Securities Exchange Act of 1934;
``(2) claims that relate to the internal affairs or
governance of a corporation or other form of business
enterprise and arises under or by virtue of the laws of the
State in which such corporation or business enterprise is
incorporated or organized; or
``(3) claims that relate to 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).
``Sec. 1713. Notification of class action certifications and
settlements
``(a) Not later than 10 days after a proposed settlement in a class
action is filed in court, class counsel shall serve the State attorney
general of each State in which a class member resides and the Attorney
General of the United States as if such attorneys general and the
Department of Justice were parties in the class action with--
``(1) a copy of the complaint and any materials filed with
the complaint and any amended complaints (except such materials
shall not be required to be served if such materials are made
electronically available through the Internet and such service
includes notice of how to electronically access such material);
``(2) notice of any scheduled judicial hearing in the class
action;
``(3) any proposed or final notification to class members
of--
``(A)(i) the members' rights to request exclusion
from the class action; or
``(ii) if no right to request exclusion exists, a
statement that no such right exists; and
``(B) a proposed settlement of a class action;
``(4) any proposed or final class action settlement;
``(5) any settlement or other agreement contemporaneously
made between class counsel and counsel for the defendants;
``(6) any final judgment or notice of dismissal;
``(7)(A) if feasible the names of class members who reside in
each State attorney general's respective State and the
estimated proportionate claim of such members to the entire
settlement; or
``(B) if the provision of information under subparagraph (A)
is not feasible, a reasonable estimate of the number of class
members residing in each attorney general's State and the
estimated proportionate claim of such members to the entire
settlement; and
``(8) any written judicial opinion relating to the materials
described under paragraphs (3) through (6).
``(b) A hearing to consider final approval of a proposed settlement
may not be held earlier than 120 days after the date on which the State
attorneys general and the Attorney General of the United States are
served notice under subsection (a).
``(c) Any court with jurisdiction over a plaintiff class action shall
require that--
``(1) any written notice provided to the class through the
mail or publication in printed media contain a short summary
written in plain, easily understood language, describing--
``(A) the subject matter of the class action;
``(B) the legal consequences of being a member of the
class action;
``(C) if the notice is informing class members of a
proposed settlement agreement--
``(i) the benefits that will accrue to the
class due to the settlement;
``(ii) the rights that class members will
lose or waive through the settlement;
``(iii) obligations that will be imposed on
the defendants by the settlement;
``(iv) the dollar amount of any attorney's
fee class counsel will be seeking, or if not
possible, a good faith estimate of the dollar
amount of any attorney's fee class counsel will
be seeking; and
``(v) an explanation of how any attorney's
fee will be calculated and funded; and
``(D) any other material matter; and
``(2) any notice provided through television or radio to
inform the class members of the right of each member to be
excluded from a class action or a proposed settlement, if such
right exists, shall, in plain, easily understood language--
``(A) describe the persons who may potentially become
class members in the class action; and
``(B) explain that the failure of a person falling
within the definition of the class to exercise such
person's right to be excluded from a class action will
result in the person's inclusion in the class action.
``(d) Compliance with this section shall not provide immunity to any
party from any legal action under Federal or State law, including
actions for malpractice or fraud.
``(e)(1) A class member may refuse to comply with and may choose not
to be bound by a settlement agreement or consent decree in a class
action if the class member resides in a State where the State attorney
general has not been provided notice and materials under subsection
(a).
``(2) The rights created by this subsection shall apply only to class
members or any person acting on a class member's behalf, and shall not
be construed to limit any other rights affecting a class member's
participation in the settlement.
``(f) Nothing in this section shall be construed to expand the
authority of, or impose any obligations, duties, or responsibilities
upon, State attorneys general or the Attorney General of the United
States.''.
(b) Technical and Conforming Amendment.--The table of chapters for
part V of title 28, United States Code, is amended by inserting after
the item relating to chapter 113 the following:
``114. Class Actions........................................... 1711''.
SEC. 3. DIVERSITY JURISDICTION FOR CLASS ACTIONS.
Section 1332 of title 28, United States Code, is amended--
(1) by redesignating subsection (d) as subsection (e); and
(2) by inserting after subsection (c) the following:
``(d)(1) In this subsection, the terms `class', `class action', and
`class certification order' have the meanings given such terms under
section 1711.
``(2) The district courts shall have original jurisdiction of any
civil action where the matter in controversy exceeds the sum or value
of $2,000,000, exclusive of interest and costs, and is a class action
in which--
``(A) any member of a class of plaintiffs is a citizen of a
State different from any defendant;
``(B) any member of a class of plaintiffs is a foreign state
or a citizen or subject of a foreign state and any defendant is
a citizen of a State; or
``(C) any member of a class of plaintiffs is a citizen of a
State and any defendant is a foreign state or a citizen or
subject of a foreign state.
``(3) Paragraph (2) shall not apply to any civil action in which--
``(A)(i) the substantial majority of the members of the
proposed plaintiff class and the primary defendants are
citizens of the State in which the action was originally filed;
and
``(ii) the claims asserted therein will be governed primarily
by the laws of the State in which the action was originally
filed;
``(B) the primary defendants are States, State officials, or
other governmental entities against whom the district court may
be foreclosed from ordering relief; or
``(C) the number of members of all proposed plaintiff classes
in the aggregate is less than 100.
``(4) In any class action, the claims of the individual members of
any class shall be aggregated to determine whether the matter in
controversy exceeds the sum or value of $2,000,000, exclusive of
interest and costs.
``(5) This subsection shall apply to any class action before or after
the entry of a class certification order by the court.
``(6)(A) A district court shall dismiss any civil action that is
subject to the jurisdiction of the court solely under this subsection
if the court determines the action may not proceed as a class action
based on a failure to satisfy the conditions of rule 23 of the Federal
Rules of Civil Procedure.
``(B) Nothing in subparagraph (A) shall prohibit plaintiffs from
filing an amended class action in Federal court or filing an action in
State court, but any such filed action may be removed if it is an
action of which the district courts of the United States have original
jurisdiction.
``(C) In any action that is dismissed under this subsection and is
filed by any of the original named plaintiffs therein in the same State
court venue in which the dismissed action was originally filed, the
limitation periods on all reasserted claims shall be deemed tolled for
the period during which the dismissed class action was pending. The
limitation periods on any claims that were asserted in a class action
dismissed under this subsection that are subsequently asserted in an
individual action shall be deemed tolled for the period during which
the dismissed action was pending.
``(7) Paragraph (2) 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 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).
``(8) For purposes of this subsection and section 1453 of this title,
an unincorporated association shall be deemed to be a citizen of the
State where it has its principal place of business and the State under
whose laws it is organized.''.
SEC. 4. REMOVAL OF CLASS ACTIONS TO FEDERAL COURT.
(a) In General.--Chapter 89 of title 28, United States Code, is
amended by adding after section 1452 the following:
``Sec. 1453. Removal of class actions
``(a) In this section, the terms `class', `class action', and `class
member' have the meanings given such terms under section 1711.
``(b) A class action may be removed to a district court of the United
States in accordance with this chapter, 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 without the consent of all members
of such class.
``(c) This section shall apply to any class action before or after
the entry of any order certifying a class.
``(d) The provisions of section 1446 relating to a defendant removing
a case shall apply to a plaintiff removing a case under this section,
except that in 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 files notice of removal within 30 days after
receipt by such class member, through service or otherwise, of the
initial written notice of the class action.
``(e) This section shall not apply to any class action solely
involving--
``(1) a claim concerning a covered security as defined under
section 16(f)(3) of the Securities Act of 1933 and section
28(f)(5)(E) of the Securities Exchange Act of 1934;
``(2) a claim that relates to the internal affairs or
governance of a corporation or other form of business
enterprise and arises under or by virtue of the laws of the
State in which such corporation or business enterprise is
incorporated or organized; or
``(3) a claim that relates to 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 Limitation.--Section 1446(b) of title 28, United States
Code, is amended in the second sentence by inserting ``(a)'' after
``section 1332''.
(c) Technical and Conforming Amendments.--The table of sections for
chapter 89 of title 28, United States Code, is amended by adding after
the item relating to section 1452 the following:
``1453. Removal of class actions.''.
SEC. 5. REPORT ON CLASS ACTION SETTLEMENTS.
(a) In General.--Not later than 12 months after the date of enactment
of this Act, the Judicial Conference of the United States, with the
assistance of the Director of the Federal Judicial Center and the
Director of the Administrative Office of the United States Courts,
shall prepare and transmit to the Committees on the Judiciary of the
Senate and the House of Representatives a report on class action
settlements.
(b) Content.--The report under subsection (a) shall contain--
(1) recommendations on the best practices that courts can use
to ensure that proposed class action settlements are fair to
the class members that the settlements are supposed to benefit;
(2) recommendations on the best practices that courts can use
to ensure that--
(A) the fees and expenses awarded to counsel in
connection with a class action settlement appropriately
reflect the extent to which counsel succeeded in
obtaining full redress for the injuries alleged and the
time, expense, and risk that counsel devoted to the
litigation; and
(B) the class members on whose behalf the settlement
is proposed are the primary beneficiaries of the
settlement; and
(3) the actions that the Judicial Conference of the United
States has taken and intends to take toward having the Federal
judiciary implement any or all of the recommendations contained
in the report.
(c) Authority of Federal Courts.--Nothing in this section shall be
construed to alter the authority of the Federal courts to supervise
attorneys' fees.
SEC. 6. EFFECTIVE DATE.
The amendments made by this Act shall apply to any civil action
commenced on or after the date of enactment of this Act.
II. Legislative History
The Senate began consideration of the Class Action Fairness
Act in the 105th Congress. The Senate Judiciary Subcommittee on
Administrative Oversight and the Courts held a hearing on
October 30, 1997. John H. Church, Jr., John C. Coffee, Jr.,
Lewis H. Goldfarb, Paul V. Niemeyer, Martha Preston, and Brian
Wolfman testified at the hearing on issues such as unfair class
settlements, attorneys' fees, and State court abuses. On
September 28, 1998, the Subcommittee on Administrative
Oversight and the Courts approved S. 2083, the ``Class Action
Fairness Act of 1997,'' introduced by Senators Charles Grassley
(R-IA) and Herb Kohl (D-WI), with an amendment in the nature of
a substitute. No further action was taken on S. 2083 in the
105th Congress.
On February 3, 1999, S. 353, ``The Class Action Fairness
Act of 1999,'' was introduced in the 106th Congress by Senators
Charles Grassley (R-IA), Herb Kohl (D-WI), and Strom Thurmond
(R-SC). Five Senators--Senators Spencer Abraham (R-MI), Paul
Coverdell (R-GA), Phil Gramm (R-TX), Jesse Helms (R-NC), and
Jeff Sessions (R-AL)--joined as cosponsors of the bill. S. 353
was referred to the Senate Committee on the Judiciary. On May
4, 1999, the Judiciary Subcommittee on Administrative Oversight
and the Courts held a legislative hearing (S. Hrg. 106-465) on
the bill, and received testimony from Eleanor D. Acheson, John
H. Beisner, Richard A. Daynard, E. Donald Elliot, John P.
Frank, and Stephan G. Morrison.
On June 29, 2000, the Judiciary Committee approved S. 353
with an amendment in the nature of a substitute, offered by
Chairman Orrin G. Hatch (R-UT), Senators Charles Grassley and
Herb Kohl, by a rollcall vote of 11 yeas and 7 nays. S. 353 was
then ordered favorably reported by the Committee without
amendment.
III. Votes of the Committee
Pursuant to paragraph 7 of rule XXVI of the Standing Rules
of the Senate, each Committee is to announce the results of
rollcall votes taken in any meeting of the Committee on any
measure or amendment. The Senate Judiciary Committee, with a
quorum present, met on June 29, 2000, at 10 a.m. to mark up S.
353. Six amendments were rejected by the Committee. The
following rollcall votes occurred on S. 353:
A Leahy amendment to S. 353 to exclude tobacco-related class
actions from the act was rejected 7 yeas to 10 nays.
YEAS NAYS
Leahy Thurmond
Kennedy (Proxy) Grassley
Biden Specter (Proxy)
Feinstein (Proxy) Kyl
Feingold DeWine (Proxy)
Torricelli Aschroft (Proxy)
Schumer (Proxy) Abraham (Pass)
Sessions
Smith
Kohl
Hatch
A Torricelli amendment to S. 353 to exclude from the act class
actions related to firearms injury was rejected 7 yeas to 10
nays.
YEAS NAYS
Leahy Thurmond
Kennedy (Proxy) Grassley
Biden Specter (Proxy)
Feinstein (Proxy) Kyl
Feingold DeWine (Proxy)
Torricelli Aschroft (Proxy)
Schumer (Proxy) Abraham (Pass)
Sessions
Smith
Kohl
Hatch
A Leahy amendment to S. 353 to exclude any class actions
arising under a State environmental protection statute from the
act was rejected 7 yeas to 10 nays.
YEAS NAYS
Leahy Thurmond
Kennedy (Proxy) Grassley
Biden Specter (Proxy)
Feinstein (Proxy) Kyl
Feingold DeWine (Proxy)
Torricelli Aschroft (Proxy)
Schumer (Proxy) Abraham (Pass)
Sessions
Smith
Kohl
Hatch
A Feingold amendment to S. 353 to exclude from the act class
actions arising solely under State consumer protection statutes
was rejected 7 yeas to 10 nays.
YEAS NAYS
Leahy Thurmond
Kennedy (Proxy) Grassley
Biden Specter (Proxy)
Feinstein (Proxy) Kyl
Feingold DeWine (Proxy)
Torricelli Aschroft (Proxy)
Schumer (Proxy) Abraham (Pass)
Sessions
Smith
Kohl
Hatch
A Feingold amendment to S. 353 to alter the bill so that in any
class action brought in or removed to a Federal court under the
jurisdictional provisions of the bill, if the Federal court
determines that the case cannot proceed as a class action, the
court must remand the case to a State court, was rejected 7
yeas to 10 nays.
YEAS NAYS
Leahy Thurmond
Kennedy (Proxy) Grassley
Biden Specter (Proxy)
Feinstein (Proxy) Kyl
Feingold DeWine (Proxy)
Torricelli Aschroft (Proxy)
Schumer (Proxy) Abraham (Pass)
Sessions
Smith
Kohl
Hatch
A Feinstein amendment to S. 353 to authorize 13 new judgeships
for the southwestern border of the United States was rejected 7
yeas to 10 nays.
YEAS NAYS
Leahy Thurmond
Kennedy (Proxy) Grassley
Biden Specter (Proxy)
Feinstein (Proxy) Kyl
Feingold DeWine (Proxy)
Torricelli Aschroft (Proxy)
Schumer (Proxy) Abraham (Pass)
Sessions
Smith
Kohl
Hatch
Motion to report favorably S. 353. The motion was adopted 11
yeas to 7 nays.
YEAS NAYS
Thurmond Leahy
Grassley Kennedy (Proxy)
Specter (Proxy) Biden
Kyl Feinstein (Proxy)
DeWine (Proxy) Feingold
Aschroft (Proxy) Torricelli
Abraham (Proxy) Schumer (Proxy)
Sessions
Smith
Kohl
Hatch
IV. Purposes
Our current class action system is plagued by numerous
problems and abuses that are attributable largely to inadequate
judicial supervision. Most of these problems and abuses are
arising in State court class actions and threaten to undermine
the rights of both plaintiffs and defendants. In too many
cases, plaintiff class members do not know what their rights
are, or what a class action settlement has accomplished. Judges
too readily approve settlements that primarily benefit the
class counsel, not the class members who they supposedly
represent. Attorneys are awarded outrageous attorneys' fees,
while class members receive little or nothing. Often, multiple
class action cases purporting to assert the same claims on
behalf of the same people proceed simultaneously in different
State courts, causing judicial inefficiencies and promoting
collusive activity between plaintiffs, attorneys, and
defendants. Lawyers frequently ``game'' the procedural rules to
keep class actions in State courts before judges carefully
selected for their tendency to readily certify classes
regardless of the procedural irregularities or their penchant
for approving settlements without regard to class member
interests. Increasingly, frivolous class action lawsuits are
being filed with the intent of extorting large, unwarranted
settlements from defendants. And many State courts freely issue
rulings in class action cases that have nationwide impacts,
even when those rulings overturn established State and even
national laws and policies.
The ``Class Action Fairness Act of 2000'' is a modest,
balanced first step to address these and some of the other most
egregious problems in class action practice. The Committee
emphasizes, however, that the act is not intended to be a
``panacea'' that will correct all class action abuses.
The Class Action Fairness Act has four key components:
First, S. 353 implements additional and simplified notice
requirements to better inform plaintiff class members of the
specifics of proposed class action settlements and their rights
with respect thereto. The act requires that notice to class
members be in ``plain English'' and include details about
attorneys' fees and settlement rights and obligations.
Second, S. 353 provides an additional mechanism to
safeguard plaintiff class members' rights by requiring that
detailed notice of class action settlements be sent to the
Attorney General of the United States and State attorneys
general, so that they may voice concerns if they believe that
the class action settlement is not in the best interest of
their citizens. This provision enables an independent third
party to help ensure that unfair class action settlements are
not rubber-stamped by courts.
Third, S. 353 directs the Judicial Conference of the United
States to conduct a review of class action settlements and
attorneys' fees and to present Congress with recommendations
for ensuring that attorneys' fees are determined in a fair and
reasonable way. This provision will help address the problem of
excessive attorneys' fees and will provide legislative
oversight of the Judicial Conference's efforts in this area.
Fourth, S. 353 corrects a flaw in the current diversity
jurisdiction statute (28 U.S.C. 1332), which frequently
prevents interstate class actions from being adjudicated in
Federal courts. One of the primary historical reasons 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.''\1\ Because interstate
class actions typically involve more people, more money, and
more interstate commerce ramifications than any other type of
lawsuit, the Committee firmly believes that such cases properly
belong in Federal court. To that end, this bill (a) amends
section 1332 to allow Federal courts to hear more interstate
class actions on a diversity jurisdiction basis and (b)
modifies the Federal removal statutes to ensure that qualifying
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. Thus, S. 353 makes it harder for plaintiffs' counsel to
``game the system'' by trying to defeat diversity jurisdiction,
creates efficiencies in the judicial system by allowing
overlapping and ``copycat'' cases to be consolidated in a
single Federal court, and places the determination of more
interstate class action lawsuits in the proper forum--the
Federal courts.
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\1\ Davis v. Carl Cannon Chevrolet-Olds, Inc., 182 F.3d 792 (11th
Cir. 1999).
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V. Background and Need for Legislation
As outlined in article III of the Constitution,\2\
diversity jurisdiction was established by the Framers to ensure
fairness for defendants from one State who are sued in the
local court of another State. Interstate class actions--which
often involve millions of parties from numerous States--embody
the precise scenario that diversity jurisdiction was designed
to prevent--local prejudice by a court against out-of-State
defendants. Yet, because of a technical glitch in the diversity
jurisdiction statute (28 U.S.C. 1332), such cases are usually
excluded from Federal court. (That glitch is understandable;
class actions as we now know them did not exist when the
statute's concept was crafted in the late 1700's.)
---------------------------------------------------------------------------
\2\ In the words of article III, ``[t]he judicial power shall
extend to * * * controversies in between citizens of different
states.''
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This Committee believes that the current diversity and
removal standards, as applied in interstate class actions, have
facilitated a parade of abuses, and are thwarting the
underlying purpose of the constitutional requirements of
diversity jurisdiction.
class actions
Although class actions have some roots in common law, the
general concept was first codified in 1849, when several States
adopted the field code.\3\ To successfully plead and prosecute
class actions, the field code merely required that numerous
parties demonstrate a common interest in law or fact.
---------------------------------------------------------------------------
\3\ See Newburg on class actions, 3d Sec. Sec. 13-14 to 13-17
(1997).
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Rule 23 of the Federal Rules of Civil Procedure, the rule
governing Federal court class actions, was initially adopted in
1938.\4\ However, the concept of class actions that are a
familiar part of today's legal landscape did not arise until
1966, when rule 23 was substantially amended to expand the
availability of the device. Under the current law, a class
action can be brought 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.\5\ In
addition, a proponent must show that the proposed class meets
one of three additional requirements set forth in rule 23(b).
For example, for a rule 23(b)(3) damages class actions to be
certified, a proponent must show that ``the questions of law or
fact common to the members of the class predominate over any
questions affecting only individual members, and that a class
action is superior to other available methods for the fair and
efficient adjudication of the controversy.''
---------------------------------------------------------------------------
\4\ For a fuller history of rule 23, see e.g., ``The Class Action
Fairness Act of 1999: Hearings on S. 353 Before the Subcommittee on
Administrative Oversight and the Courts of the Senate Committee of the
Judiciary,'' 106th Cong. (1999) (statement of John P. Frank)
(hereinafter ``Hearings on S. 353 '').
\5\ Alternatively for a rule 23(b)(1) class, the proponent must
show that the prosecution of separate actions by or against individual
members of the class would create a risk of either (i) inconsistent or
varying adjudication which would establish incompatible standards of
conduct for the party opposing the class or (ii) 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 ability
to protect their interests. To obtain certification of a rule 23(b)(2)
class, the proponent is required to show that 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.
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As originally envisioned, class action lawsuits were to be
primarily a tool for civil rights litigants seeking injunctions
in discrimination cases.\6\ John P. Frank, one of two surviving
members of the 1966 Advisory Committee on Civil Rules that
amended rule 23 to reflect its basic current form, testified
that those who wrote the class action rule thought it would
rarely, if ever, apply to products liability or mass tort
cases.\7\ In the 1980's, however, some plaintiffs' lawyers
successfully persuaded judges to expand class actions to the
area of mass torts.\8\ These courts began to expand the types
of claims they were willing to certify as class actions because
they feared that the large number of individual mass tort cases
could slow or stop the judicial system.\9\ Thus, class actions
have evolved from their original primary purpose--to counter
civil rights abuses--and have become a common tool for
plaintiffs' attorneys bringing personal injury or product
liability claims. Yet, while the landscape of class actions has
changed dramatically, the procedural rules regarding which
courts can hear class actions, and, consequently, which
procedural law will apply to such cases have remained the same
since 1966.
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\6\ See hearings on S. 353, statement of John P. Frank (``If there
was a single, undoubted goal of the committee, the energizing force
which motivated the whole rule, it was the firm determination to create
a class action system which could deal with civil rights and,
explicitly, segregation.'').
\7\ Administrative Office of the U.S. Courts, ``Working Papers of
the Advisory Committee on Civil Rules on Proposed Amendments to Civil
Rule 23,'' (vol. 2) (``Advisory Committee Working Papers''), at 260
(1997). The other surviving member--William T. Coleman, Jr.--has
testified to a similar effect. Id. (vol. 3), Nov. 22, 1996, public
hearing transcript at 204 (``I assure you that what the courts have
done with respect to rule 23(b)(3) is far beyond what we * * * ever
intended. To the extent that there's difficulty [with class actions,
it] is not because of anything that was drafted in 1966, but [because]
of how the rule has been handled since that time.'').
\8\ See John C. Coffee, Jr., ``Class Wars: The Dilemma of the Mass
Tort Class Action,'' 95 Colum. L. Rev. 1343, 1358 (1995).
\9\ Id. at 1356-58, 1363-64.
---------------------------------------------------------------------------
diversity jurisdiction
The Constitution extends Federal court jurisdiction to
cases of a distinctly Federal character--for instance, cases
raising issues under the Constitution or Federal statutes, or
cases involving the Federal Government as a party--and
generally leaves to State courts the adjudication of local
questions arising under State law. Nonetheless, the
Constitution specifically extends Federal jurisdiction to
encompass one category of cases involving issues of State law:
``diversity'' cases, or suits ``between Citizens of different
States.'' \10\
---------------------------------------------------------------------------
\10\ U.S. Const., art. III, sec. 2.
---------------------------------------------------------------------------
According to the Framers, the primary purpose of diversity
jurisdiction was to protect citizens in one State from the
injustice that might result if they were forced to litigate in
out-of-State courts.\11\ Quoting James Madison, Judge Henry
Friendly explained that diversity jurisdiction is essential to
a strong Union because it ``may happen that a strong prejudice
may arise in some state against the citizens of others, who may
have claims against them.'' \12\ Justice Frankfurter expressed
a similar understanding of Madison's concerns: ``It was
believed that, consciously or otherwise, the courts of a state
may favor their own citizens. Bias against outsiders may become
embedded in a judgment of the state court and yet not be
sufficiently apparent to be made the basis of a federal
claim.'' \13\
---------------------------------------------------------------------------
\11\ See Pease v. Peck, 59 U.S. (18 How) 518, 520 (1856) (``The
theory upon which jurisdiction is 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.''); see
also Martin v. Hunter's Lessee, 14 U.S. (1 Wheat) 304, 347 (1816); Bank
of the United States v. Deveaux, 9 U.S. (5 Cranch) 61, 87 (1809);
Barrow S.S. Co. v. Kane, 170 U.S. 100 (1898) (``The object of the
provisions of the constitution and statutes of the United States in
conferring upon the circuit courts of the United States jurisdiction of
controversies between citizens of different States of the Union * * *
was to secure a tribunal presumed to be more impartial than a court of
the state in which one litigant resides.''); ``The Federalist,'' No.
80, at 537-38 (Alexander Hamilton) (Jacob E. Cooke, ed. 1961) (``In
order to [ensure] the inviolable maintenance of that equality of
privileges and immunities to which citizens of the union will be
entitled, the national judiciary ought to preside in all cases in which
one state or its citizens are opposed to another state or its citizens.
To secure the full effect of so fundamental a provision against all
evasion and subterfuge, it is necessary that its construction should be
committed to that tribunal which, having no local attachments, will be
likely to be impartial between the different states and their citizens,
and which, owing its official existence to the union, will never be
likely to feel any bias inauspicious to the principles on which it is
founded.'').
\12\ H.J. Friendly, ``The Historic Basis of Diversity
Jurisdiction,'' 41 Harv. L. Rev. 483, 492-93 (1928).
\13\ Burford v. Sun Oil Co., 319 U.S. 315, 316 (1943) (Frankfurter,
J., dissenting).
---------------------------------------------------------------------------
In addition to protecting individual litigants, diversity
jurisdiction has two other important purposes. In his testimony
to the Subcommittee on Administrative Oversight and the Courts,
Prof. E. Donald Elliott of the Yale Law School expressed the
view that diversity jurisdiction was designed not only to
protect against actual discrimination, but also ``to shore up
confidence in the judicial system by preventing even the
appearance of discrimination in favor of local residents.''
\14\ In addition, several legal scholars have also noted that
the Framers were concerned that State courts might discriminate
against interstate businesses and commercial activities, and
thus viewed diversity jurisdiction as a means of ensuring the
protection of interstate commerce.\15\ Both of these concerns--
judicial integrity and interstate commerce--are strongly
implicated by class actions.
---------------------------------------------------------------------------
\14\ Hearings on S. 353, statement of E. Donald Elliott; see also,
Adrienne J. Marsh, ``Diversity Jurisdiction: Scapegoat of Overcrowded
Federal Courts,'' 48 Brooklyn L. Rev. 197, 201 (1989).
\15\ See generally John P. Frank, ``Historical Bases of the Federal
Judicial System,'' 13 Law & Contemp. Probs. 3, 22-28 (1948); H.J.
Friendly, ``The Historic Basis of Diversity Jurisdiction,'' 41 Harv. L.
Rev. 483 (1928).
---------------------------------------------------------------------------
Over the years since the First Congress enacted provisions
in the Judiciary Act if 1789 setting forth the parameters of
Federal diversity jurisdiction, two statutory limitations on
that jurisdiction have evolved. The first is the ``amount in
controversy'' requirement (currently $75,000), which Congress
enacted in order to ensure that diversity jurisdiction extends
only to nontrivial State-law cases.\16\ The second is the
``complete diversity'' requirement, a rule that Federal
jurisdiction lies only when all plaintiffs are diverse from all
defendants.\17\ It is important to recognize that these
procedural limitations regarding interstate class actions were
policy decisions, not constitutional ones. In fact, the Supreme
Court has repeatedly acknowledged that the complete diversity
and minimum amount-in-controversy requirements are political
decisions not mandated by the Constitution.\18\ It is therefore
the prerogative of Congress to modify these technical
requirements as it deems appropriate.
---------------------------------------------------------------------------
\16\ See 28 U.S.C. 1332(a).
\17\ See Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 (1806).
\18\ See, e.g., Newman-Greene, Inc. v. Alfonzo-Larrian, 490 U.S.
826, 829 n.1 (1989) (noting that ``[t]he complete diversity requirement
is based on the diversity statute, not Article III of the
Constitution.''); Owen Equip. & Co. v. Kroger, 437 U.S. 365, 373 n. 13
(1978) (to the same effect).
---------------------------------------------------------------------------
removal
The concept of ``removing'' cases from State courts to
Federal courts shares the premise as diversity jurisdiction--
the notion that an out-of-State defendant in a State court
proceeding should have access to an even-handed Federal
forum.\19\ The general removal statute, 28 U.S.C. 1441(a),
provides that any civil action brought in a State court may be
removed by the defendant(s) to Federal court if the claim could
have originally been brought in Federal court. In other words,
so long as a U.S. district court could exercise original
jurisdiction over the claim, a defendant may remove the case to
Federal court in order to protect itself from local prejudice.
---------------------------------------------------------------------------
\19\ See David P. Currie, ``Federal Jurisdiction'' at 140 (3rd ed.
1990).
---------------------------------------------------------------------------
Section 1446(b) of title 28 outlines the procedure for
removal. Under this provision, a defendant must file papers
seeking removal to Federal court within 30 days after receiving
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). If the original complaint was not
removable, but the plaintiff subsequently amends the pleadings
in such a way that removal becomes proper, then the 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].'' \20\ Under current law, however, a case
can only be removed on grounds of diversity jurisdiction within
a year from commencement of the action.\21\
---------------------------------------------------------------------------
\20\ 28 U.S.C. 1446(b).
\21\ Id.
---------------------------------------------------------------------------
how diversity and removal statutes are abused
The current Federal diversity and removal rules have the
unintended consequence of keeping most class actions out of
Federal court. Moreover, these rules enable plaintiffs' lawyers
who prefer to litigate in State courts to easily ``game the
system'' in order to avoid removal to Federal court. This
defeats the underlying purpose of diversity jurisdiction and
generally recognized principles of federalism, which establish
Federal courts as the major forum for adjudicating cases like
class actions, which involve interstate commerce or otherwise
have nationwide implications.\22\
---------------------------------------------------------------------------
\22\ For an interesting discussion of this issue, see generally,
Victor E. Schwartz, Mark A. Behrens & Leah Lorber, ``Federal Courts
Should Decide Interstate Class Actions: A Call for Federal Class Action
Diversity Jurisdiction Reform,'' 37 Harv. J. on Legis. 485, summer,
2000.
---------------------------------------------------------------------------
The first hurdle to Federal jurisdiction over class actions
is created by the ``complete diversity'' requirement. Although
the Supreme Court has held that only the named plaintiffs'
citizenship should be considered for purposes of determining if
the parties to a class action are diverse, the ``complete''
diversity rule still mandates that all named plaintiffs must be
citizens of different States from all the defendants.\23\ In
interstate class actions, plaintiffs' counsel frequently and
purposely evade Federal jurisdiction in multi-State class
actions by adding named plaintiffs or defendants simply based
on their State of citizenship in order to defeat complete
diversity. Thus, it is no surprise that few interstate class
actions meet the complete diversity requirement.
---------------------------------------------------------------------------
\23\ See Snyder v. Harris, 394 U.S. 332 (1969).
---------------------------------------------------------------------------
The second problem is created by the amount-in-controversy
requirement. In interpreting 28 U.S.C. 1332(a), the Supreme
Court has held that the amount-in-controversy requirement is
normally met in class actions only if each of the class members
individually seeks damages in excess of the statutory
minimum.\24\ That means Federal courts can only hear class
actions in which each plaintiff claims damages in excess of
$75,000. The Committee believes that requiring each plaintiff
to reach the $75,000 threshold makes little sense in the class
action context. Many plaintiffs' class action lawyers have
misused this rule to keep their cases out of Federal court.
They restrict the class claims that no class member may obtain
more than $75,000, even though certain class members may be
entitled to more and even though the class action seeks
millions of dollars in the aggregate. This leads to the
nonsensical result under which a citizen can bring a ``federal
case'' by claiming $75,001 in damages for a simple slip-and-
fall case against a party from another State, while a class of
25 million people living in all 50 States and alleging claims
against a manufacturer that are collectively worth $15 billion
must usually be heard in State court (because each individual
class member's claim is for less than $75,000). Put another
way, under the current jurisdictional rules, Federal courts can
assert diversity jurisdiction over a typical State law claim
arising out of an auto accident between a driver from one State
and a driver from another, or a typical trespass claim
involving a trespasser from one State and a property owner from
another, but they cannot assert jurisdiction over claims
encompassing large-scale, interstate class actions involving
thousands of plaintiffs from multiple States, defendants from
many States, the laws of several States, and hundreds of
millions of dollars--cases that have obvious and significant
implications for the national economy.
---------------------------------------------------------------------------
\24\ See Zahn v. International Paper Co., 414 U.S. 291 (1974).
---------------------------------------------------------------------------
There is a growing chorus of authoritative sources
declaring that something is badly amiss with the manner in
which Federal diversity jurisdictional requirements are applied
to class actions:
The leading Federal civil procedure law treatise has
noted: ``The traditional principles [regarding Federal
diversity jurisdiction over class actions] have evolved
haphazardly and with little reasoning. They serve no
apparent purpose.'' \25\
---------------------------------------------------------------------------
\25\ 14B Charles A. Wright, et al., ``Federal Practice and
Procedure,'' Sec. 3704, at 127 (3d ed. 1998).
---------------------------------------------------------------------------
Recently, the U.S. Court of Appeals for the Eleventh
Circuit apologized for sending an interstate class
action back to State court, noting that ``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.'' Observing that the out-
of-State defendant in that case was confronting ``a
state court system [prone to] produce[] gigantic awards
against out-of-state corporate defendants,'' the court
stated that ``[o]ne would think that this case is
exactly what those who espouse the historical
justification for [diversity jurisdiction] would have
in mind * * * \26\
---------------------------------------------------------------------------
\26\ Davis v. Cannon Chevrolet-Olds, Inc., 182 F.3d 792, 797 (11th
Cir. 1999).
---------------------------------------------------------------------------
In that same case, Judge John Nangle, who chairs the
Judicial Panel for Multidistrict Litigation, concurred:
``Plaintiffs' attorneys are increasingly filing
nationwide class actions in various state courts,
carefully crafting language * * * to avoid * * * the
federal courts. Existing federal precedent * * *
[permits] this practice * * *, although most of these
cases * * * will be disposed of through `coupon' or
`paper' settlements * * * 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 [jurisdictional rules] do[] not
accommodate the reality of modern class litigation and
settlements.'' \27\
---------------------------------------------------------------------------
\27\ Id. at 798.
---------------------------------------------------------------------------
In another case, Judge Anthony Scirica (Chair of the
Judicial Conference's Standing Committee on Rules and
Procedure) observed that although ``national
(interstate) class actions are the paradigm for federal
diversity jurisdiction because * * * they implicate
interstate commerce, foreclose discrimination by a
local state, and tend to guard against any bias against
interstate enterprises, * * * the current
jurisdictional statutes [put] such class actions * * *
beyond the reach of the federal courts.'' \28\
\28\ In re ``Prudential Ins. Co. America Sales Practice Litig.,''
148 F.3d 283, 305 (3d Cir. 1998).
---------------------------------------------------------------------------
The Committee notes that several witnesses at congressional
hearings (including former Carter administration Attorney
General Griffin Bell and Clinton administration Solicitor
General Walter E. Dellinger) and other legal experts agree that
if Congress were to enact the Federal diversity jurisdiction
statute anew, it would undoubtedly conclude that interstate
class actions are among the cases that most warrant access to
the Federal courts because they involve the most people, put
the most money in controversy, and have the greatest
implications for interstate commerce.\29\ In other words, class
actions arguably fit the historic rationale of diversity
jurisdiction better than any other type of civil action.
---------------------------------------------------------------------------
\29\ See generally, Senate hearings on S. 353; House hearings on
H.R. 1875.
---------------------------------------------------------------------------
explosion of class actions in state courts--a system ripe for abuse
The ability of plaintiffs' lawyers to evade Federal
diversity jurisdiction has helped spur a dramatic increase in
the number of class actions litigated in State courts--an
increase that is stretching the resources of the State court
systems. E. Donald Elliott pointed out in his testimony to the
Subcommittee on Administrative Oversight and the Courts that
the flood of class actions in our State courts is too well
documented to warrant significant discussion, much less
debate.\30\ According to recent studies, Federal class action
filings over the past 10 years have increased by more than 300
percent. At the same time, class action filings in State courts
have grown more than three times faster--by more than 1,000
percent.\31\
---------------------------------------------------------------------------
\30\ Hearings on S. 353, prepared statement of E. Donald Elliott.
\31\ See ``Analysis: Class Action Litigation--A Federalist Society
Survey,'' Class Action Watch at 5 (vol. 1, No. 1); Deborah R. Hensler,
et al., ``Class Action Dilemmas: Pursuing Public Goals for Private
Gains,'' 19 (Executive Summary 1999); see also ``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).
---------------------------------------------------------------------------
The reason for this dramatic increase in State court class
actions cannot be found in class action rules--the rules
governing the decision whether cases may proceed as class
actions are basically the same in Federal and State courts.
Forty States have adopted the basic Federal class action rule
(rule 23), sometimes with minor revisions. Of the other States,
some have rules that are more restrictive about the
availability of class actions (e.g., Michigan, Nebraska), and
others have rules that are guided by Federal court class action
policy. (Two States do not have rules or statutes authorizing
class actions.) In short, there are wide variations in Federal
and State court class action policies.
The Committee finds, however, that one reason for the
dramatic explosion of class actions in State courts is that
some State court judges are less careful than their Federal
court counterparts about applying the procedural requirements
that govern class actions. Many State court judges are lax
about following the strict requirements of rule 23 (or the
State's governing rule), which are intended to protect the due
process rights of both unnamed class members and defendants. In
contrast, Federal courts generally do scrutinize proposed
settlements much more carefully and pay closer attention to the
procedural requirements for certifying a matter for class
treatment.\32\
---------------------------------------------------------------------------
\32\ See hearings on S. 353, oral statement of Senator Charles E.
Grassley.
---------------------------------------------------------------------------
Another problem is that a large number of State courts lack
the necessary resources to supervise proposed class settlements
properly.\33\ Many State judges do not have law clerks, and the
explosion of State court class actions has simply overwhelmed
their dockets. Not surprisingly, abuses are much more likely to
occur when State court judges are unable to give class action
cases and settlements the attention they need.
---------------------------------------------------------------------------
\33\ See hearings on S. 353, prepared statement of Stephen G.
Morrison (``I think it is clear that the explosion of class action
filings can only be attributed to the fact that certain members of the
plaintiffs' bar have discovered that some of our state courts can be a
fertile playing field for class litigation.'').
---------------------------------------------------------------------------
The lack of a Federal forum for most interstate class
actions and the inconsistent administration of class actions in
State courts have led to several forms of abuse. The first such
abuse involves settlements in which the attorneys receive
excessive attorneys' fees with little or no recovery for the
class members themselves.
In the now infamous Bank of Boston class action
settlement,\34\ for example, the Bank of Boston was accused of
over-collecting escrow monies from homeowners and profiting
from the interest. The settlement, approved by an Alabama State
court judge, awarded up to $8.76 to individual class members
while the class counsel got more than $8.5 million in fees. To
make matters worse, the fees were simply debited directly from
individual class members' escrow accounts leaving many of them
worse off than they were before the suit. In testimony to the
Subcommittee on Administrative Oversight and the Courts, Martha
Preston recounted how she received $4 from the class
settlement, but was charged a mysterious $80 ``miscellaneous
deduction,'' which she later learned was an expense used to pay
the class lawyers' $8.5 million settlement fee. Ms. Preston
expressed her disbelief over how ``people who were supposed to
be my lawyers, representing my interests, took my money and got
away with it.'' \35\
---------------------------------------------------------------------------
\34\ Kamilewicz v. Bank of Boston, 92 F.3d 507 (7th Cir. 1996).
\35\ ``Class Action Lawsuits: Examining Victim Compensation and
Attorneys' Fees: Hearings Before the Subcommittee on Administrative
Oversight and the Courts of the Senate Committee on the Judiciary,''
105th Cong. (1997) (statement of Martha Preston).
---------------------------------------------------------------------------
There are numerous other and equally disturbing examples of
State court class actions in which class members were short-
changed through coupon settlements. For example:
In one case involving faulty pipes, lawyers for a
group of Alabama plaintiffs received more than $38.4
million in fees and lawyers for a class of Tennessee
plaintiffs case received $45 million, or the equivalent
of about $2,000 an hour. In contrast, the homeowners
only received 8 percent rebates toward new plumbing--
and to get those rebates, they had to first prove that
they had suffered leaks and then go out and buy a new
System.\36\
---------------------------------------------------------------------------
\36\ See Richard B. Schmitt, ``Leaky System: Suits Over Plastic
Pipe Finally Bring Relief, Especially for Lawyers,'' Wall St. J., Nov.
20, 1995, at A1.
---------------------------------------------------------------------------
In another recent case, an Illinois court approved a
coupon settlement of a class action filed against
Southwestern Bell Mobile Systems, Inc., alleging that
the company failed to fully disclose the fact that it
rounded up customer calls to the next minute. Under the
State court settlement, the class members received $15
vouchers toward Cellular One products, while the
lawyers took home more than $1 million in fees.\37\
---------------------------------------------------------------------------
\37\ See Michelle Singletary, ``Coupon Settlements Fall Short,''
Wash. Post, Sept. 12, 1999, at H01. For more examples of coupon
settlements, see hearings on S. 353, prepared statement of Stephen G.
Morrison.
---------------------------------------------------------------------------
A California State court approved a settlement under
which class members, who had alleged that manufacturers
misrepresented the size of computer monitor screens,
received a $13 rebate if they purchased new monitors.
The class attorneys, however, received approximately $6
million in fees.\38\
---------------------------------------------------------------------------
\38\ See id.
---------------------------------------------------------------------------
The Chicago Tribune reported that in a State court
class action against a record company to recover the
prices paid for albums by the group Milli Vanilli (that
contained the voices of other performers), class
members were given a settlement of $1 to $3 each. But
the court awarded the lawyers $675,000. And the lawyers
turned around and petitioned the court for an increase
to $1.9 million.
Several attorneys brought a class action against a
golf equipment manufacturer when it ran out of the
gloves it was giving free for an advertised promotion
and substituted three golf balls. Under the class
settlement, the manufacturer sent class members three
more free golf balls. Meanwhile, the class
representative got $2,500, and the attorneys got
$100,000.\39\
---------------------------------------------------------------------------
\39\ Jerry Heaster, ``Enough Already with the Lawsuits,'' Kansas
City Star, July 10, 1999, at C1.
---------------------------------------------------------------------------
In another case, class action plaintiffs alleged
that discount stores overstated the value of software
bundles that came with computers. In a class
settlement, consumers received coupons worth the lesser
of a 7 percent or $25 discounts off the future
purchases of products from defendants' stores. The
attorneys received $890,000 in fees.\40\
---------------------------------------------------------------------------
\40\ Los Angeles Times, June 8, 1998, at D3.
A second abuse that is common in State court class actions
is the use of the class device as ``judicial blackmail.''
Because class actions are such a powerful tool, they can give a
class attorney unbounded leverage. Such leverage can
essentially force corporate defendants to pay ransom to class
attorneys by settling--rather than litigating--frivolous
lawsuits. This is a particularly alarming abuse because the
class action device is intended to be a procedural tool and not
a mechanism that affects the substantive outcome of a lawsuit.
Nonetheless, State court judges often are inclined to certify
cases for class action treatment not because they believe a
class trial would be more efficient than an individual trial,
but because they believe class certification will simply induce
the defendant to settle the case without trial.\41\ As Judge
Richard Posner of the U.S. Court of Appeals for the Seventh
Circuit has explained, ``certification of a class action, even
one lacking merit, forces defendants to stake their companies
on the outcome of a single jury trial, or be forced by fear of
the risk of bankruptcy to settle even if they have no legal
liability. * * * [Defendants] may not wish to roll these dice.
That is putting it mildly. They will be under intense pressure
to settle.'' \42\ Hence, when plaintiffs seek hundreds of
millions of dollars in damages, basic economics can force a
corporation to settle the suit, even if it is meritless and has
only a 5-percent chance of success.
---------------------------------------------------------------------------
\41\ See E. Donald Elliott, ``Managerial Judging and the Evolution
of Procedure,'' 53 U. Chi. L. Rev. 306, 323-24 (1986).
\42\ In re Rohne-Poulenc Rorer Inc., 51 F.3d 1293, 1299 (7th Cir.
1995).
---------------------------------------------------------------------------
Not surprisingly, the ability to exercise unbounded
leverage over defendant corporations and the lure of huge
attorneys' fees have led to the filing of many frivolous class
actions. Within days after the fight in which Mike Tyson bit
Evander Holyfield's ear, for example, lawsuits were filed.
These were not actions by Holyfield, the only person who really
got hurt--they were class actions filed on behalf of pay-per-
view cable television subscribers alleging that they did not
get their money's worth because the fight was cut short.\43\
---------------------------------------------------------------------------
\43\ See ``Hearings on Mass Torts and Class Actions Before the
Subcommittee on Courts and Intellectual Property of the House Committee
on the Judiciary,'' 105th Cong., (1998) (statement of John W. Martin).
---------------------------------------------------------------------------
Other brow-raising examples of frivolous suits are common.
One such case was brought against Ford Motor Co. in New York
State court. The case involved an inadvertent mistake made by
Ford--it had put a slightly overstated price on the window
stickers on certain vehicles. As soon as Ford discovered the
mistake, the company began sending letters to the affected
customers apologizing for the error and enclosing checks that
more than compensated them. Nonetheless, and fully knowing that
this refund program was already well underway, a class action
lawsuit charging that Ford had committed fraud was filed. Even
worse, the court was asked to immediately enjoin Ford from
continuing its refund efforts--presumably so that the lawyers
could get a cut of the refund money. In this case, the court
properly dismissed the action; nonetheless, Ford was required
to waste time and corporate resources on a lawsuit that clearly
served no legitimate purpose.\44\
---------------------------------------------------------------------------
\44\ See Faden-Bayes Corp. v. Ford Motor Co., index No. 97-601076
(N.Y. Sup. Ct., County of New York) (filed Feb. 28, 1997).
---------------------------------------------------------------------------
A third type of class action abuse occurs when State courts
ignore the due process rights of out-of-State defendants by
denying them the opportunity to contest the plaintiffs' claims
against them. One witness who testified before the Subcommittee
on Administrative Oversight and the Courts blamed this
phenomenon on a ``laissez faire'' attitude of some State
courts.\45\ The most egregious examples of this are the so-
called drive-by class certification cases, in which a class is
certified before the defendant has a chance to respond to the
complaint, or in some cases, has even received the complaint.
In one lawsuit filed against an auto manufacturer in a
Tennessee State court, for example, the complaint was filed on
July 10, 1996. Plaintiffs filed several inches of documents
with their complaint. Amazingly, by the time the court closed
that same day, the judge had entered a 9-page order granting
certification of a nationwide class of 23 million members. The
defendant was not even notified about the lawsuit before the
certification and thus had no opportunity to tell its side of
the story.\46\ And upon checking, the defendant discovered that
a group of record companies had the same experience with the
same judge in an antitrust class action filed several days
earlier.\47\ In Tennessee, this phenomenon is still occurring.
Only a few weeks ago, a Tennessee State court certified a
nationwide class before the defendants were even served (and
obviously without benefit of any input from defendants).\48\
And in another case, a Kentucky State court ordered injunctive
relief in favor of the class before the defendant was even
notified of the lawsuit.\49\
---------------------------------------------------------------------------
\45\ See hearings on S. 353, prepared statement of John H. Beisner.
\46\ See hearings on S. 353, prepared statement of Stephan G.
Morrison.
\47\ Id.
\48\ See Order of National Class Certification, Davison v.
Bridgestone/Firestone, Inc., case No. 00C2298 (Eighth Cir. Ct., 20th
Jud. Dist., Nashville, TN) (dated Aug. 18, 2000).
\49\ See Order, Farkas v. Bridgestone/Firestone, Inc., case No. 00-
CI-5263 (Cir. Ct., Jefferson County, KY) (dated Aug. 18, 2000).
---------------------------------------------------------------------------
A fourth type of class action abuse that is prevalent in
State courts in some localities is the ``I never met a class
action I didn't like'' approach to class certification.\50\
Some State courts that adopt this permissive attitude have even
certified classes that Federal courts had already found
uncertifiable. In one case, for example, a State court judge
certified a nationwide class of persons who claimed that the
house siding they had purchased was defective. Later, a Federal
district court judge presented with the same case rejected any
prospect of certifying a class in that manner, finding that
affording class treatment in that case would clearly violate
the due process rights of the defendants and the purported
class members.\51\
---------------------------------------------------------------------------
\50\ See hearings on S. 353, prepared statement of Stephen G.
Morrison.
\51\ Compare Naef v. Masonite Corp., No. CV-94-4033 (Cir. Court,
Mobile County, AL), with In re Masonite Hardboard Siding Prods. Litig.,
170 F.R.D. 417, 424 (E.D. La. 1997).
---------------------------------------------------------------------------
Yet another common abuse is the filing of ``copy cat''
class actions (i.e., duplicative class actions asserting
similar claims on behalf of essentially the same people).
Sometimes these duplicative actions are filed by lawyers who
hope to wrest the potentially lucrative lead role away from the
original lawyers. In other instances, the ``copy cat'' class
actions are blatant forum shopping--the original class lawyers
file similar class actions before different courts in an effort
to find a receptive judge who will rapidly certify a class.
When these similar, overlapping class actions are filed in
State courts of different jurisdictions, there is no way to
consolidate or coordinate the cases. The ``competing'' class
actions must be litigated separately in an uncoordinated,
redundant fashion because there is no State court mechanism for
consolidating State court cases. The result is enormous waste--
multiple judges of different courts must spend considerable
time adjudicating precisely the same claims asserted on behalf
of precisely the same people.\52\ As a result, State courts and
class counsel may ``compete'' to control the cases, often
harming all the parties involved. In contrast, when overlapping
cases are pending in different Federal courts, they can be
consolidated under one single judge to promote judicial
efficiency and ensure consistent treatment of the legal issues
involved.
---------------------------------------------------------------------------
\52\ For example, in the current controversy concerning Firestone
tires, over 40 virtually identical class actions seeking to represent
the same purported class members have been filed in courts all over the
country. And in the recently publicized HMO cases, multiple overlapping
class actions were filed against each of the major health insurance
companies. No less than 17 class actions have been filed against
Humana, most of which assert similar allegations and claims on behalf
of similarly defined nationwide classes. In the Humana situation, the
Federal cases were consolidated for pretrial proceedings before a
single judge. See In re Humana Inc. Managed Care Litig., 2000 U.S.
Dist. LEXIS 5099 (J.P.M.L. Apr. 13, 2000). There is no parallel
methodology for consolidating State court class actions. Last year
alone, over 11,000 cases were centralized for pretrial proceedings
through the MDL process. See Administrative Office of the U.S. Courts,
``Judicial Business of the United States Courts,'' 31 (2000)
(``Judicial Business'').
---------------------------------------------------------------------------
Many of the abuses taking place in State courts are
magnified by the growing trend among plaintiffs' attorneys to
bring huge class actions on behalf of hundreds of thousands or
even millions of consumers. These cases, which generally
involve overly broad claims, put any class members with real
injuries at risk. The incentive for class lawyers to gather the
largest class possible is clear: why sue on behalf of just
1,000 people when you can sue for 1 million and increase your
intake? The problem with such broad claims, however, is that
the entire lawsuit proceeds on a lowest common denominator
basis. As a result, persons with legitimate injuries will be
lumped in with the ``average,'' often meritless claim and will
not be given individual attention for their grievances.\53\ A
good example of this trend is a class action that was brought
last year in an Illinois State court against the American
Dental Association and several toothbrush manufacturers for
failing to warn of the risk of a toothbrush-related injury
known as ``toothbrush abrasion.'' The ``hard evidence'' in this
suit, which was brought on behalf of 40 million people is a
toothpaste commercial that claimed people brush their teeth too
hard.\54\ Although there may well be a few people in this class
who have actually suffered physical injury from toothbrushes,
they are lumped in with millions of people who simply claim to
be at such a risk. Clearly, those persons who have actual
claims will get lost in the lawsuit, and the class action will
proceed based on the biggest group--those who are ``at risk.''
As a result, if the lawyers reach a settlement, all class
plaintiffs will receive the same award--most likely a coupon
toward new toothbrushes--and any individuals who have actual
claims will forfeit their ability to collect real damages for
their injuries.
---------------------------------------------------------------------------
\53\ See hearings on S. 353, prepared statement of John H. Beisner.
\54\ See ``Not Too Abrasive, But Suit Causes Ache,'' The Chicago
Tribune, Apr. 14, 1999, at Business 1.
---------------------------------------------------------------------------
Class action abuse is also made worse by the trend toward
``nationwide'' class actions, which invite one State court to
dictate to 49 others what their laws should be on a particular
issue, thereby undermining basic federalism principles.\55\
Clearly, a system that allows State court judges to dictate
national policy from the local courthouse steps is contrary to
the intent of the Framers when they crafted our system of
federalism. In one recent case, for example, plaintiffs filed
suit in an Alabama county court on behalf of more than 20
million people alleging that the design of federally mandated
airbags is faulty.\56\ From the standpoint of federalism, this
suit defies logic. Why should an Alabama State court tell 20
million people in all 50 States what kind of airbags they can
have in their cars?
---------------------------------------------------------------------------
\55\ See hearings on S. 353, prepared statement of John H. Beisner.
\56\ See Smith v. General Motors Corp., et al., Civ. A. No. 97-39
(Cir. Ct. Coosa County, AL).
---------------------------------------------------------------------------
The most egregious of such cases are those in which one
State court issues nationwide rulings that actually contradict
the laws of other States. One case reported in the New York
Times, for example, involved a longstanding State Farm practice
(shared by other insurers) of using nonoriginal equipment
manufacturer (OEM) parts to repair cars.\57\ The practice was
fully disclosed to policyholders, and the majority of States
expressly permit insurers to specify non-OEM parts. Indeed, two
States, Hawaii and Massachusetts, actually require the
specification of non-OEM parts. Nonetheless, plaintiffs brought
suit in Illinois State court claiming that all non-OEM parts
used by policyholders were inferior to OEM parts, and that
State Farm had breached its contractual obligation to
policyholders and committed fraud each time it specified such
parts. Even though the plaintiffs eventually dropped their
claim that all non-OEM parts were inferior, and conceded that
this could only be determined on a part-by-part basis, the
trial court still permitted the jury to reach a group judgment
on the class action. The court was not even deterred by the
fact that the plaintiffs in the class came from States
throughout the Nation with widely varying laws regarding the
use of non-OEM parts, including the two States, Hawaii and
Massachusetts, that required the very practice condemned by
plaintiffs.\58\
---------------------------------------------------------------------------
\57\ ``Suit Against Auto Insurer Could Affect Nearly All Drivers,''
The New York Times, Sept. 27, 1998, at p. 29.
\58\ See Snider v. State Farm Mutual Automobile Insurance Co., Cir.
Ct. for Williamson City, IL, Docket No. 97-L-114 (1999).
---------------------------------------------------------------------------
The State Farm case is not unique. This State court
interference with the laws of other jurisdictions is becoming
disturbingly common. For example:
Not long ago, a State court in Minnesota recently
approved for class treatment a case involving millions
of plaintiffs from 44 States that will have the effect
of dictating the commercial codes of all those
States.\59\ The specific issue in the case is whether
individuals have a State law right to recover interest
on refundable deposits paid to secure an automobile
lease. In certifying a class in that case, the court
adopted an understanding of Minnesota's version of the
Uniform Commercial Code that was contrary to the
interpretation of every other State to have considered
the issue under their own versions of the UCC. And by
certifying the class, the court decided that its
unprecedented interpretation of the UCC would bind the
remaining 43 States that had yet to decide the question
(even though the ``Uniform Commercial Code is not
uniform'' and is interpreted differently in different
States.\60\ In essence, the action of the Minnesota
court will dictate the interpretation of 43 other
States' UCC provisions even though the other States
might well have reached a different conclusion in
applying their own State's laws.
---------------------------------------------------------------------------
\59\ Rosen v. PRIMUS Automotive Fin. Servs., Inc., No. CT 98-2733
(Minn. D. Ct., 4th Jud. Dist., May 4, 1999).
\60\ Walsh v. Ford Motor Co., 807 F.2d 1000, 1016-17 (D.C. Cir.
1986).
---------------------------------------------------------------------------
A similar result occurred last year in a California
State court case addressing whether home loan borrowers
had been overcharged for collateral homeowners'
insurance by the defendant bank.\61\ In that case, the
State court decided to preside over a class action
involving a nationwide class of 25,000 borrowers in all
50 States, even though States have widely varying rules
regarding the provision of collateral homeowners'
insurance by banks. The effect of the California State
court decision is to overlook those differences and to
dictate that California's resolution of the issue will
be binding on all other States. Tellingly, the
California court relied on a prior California case
involving a nationwide class action, which stated that
``California's more favorable laws may properly apply
to benefit nonresident plaintiffs when their home
states have no identifiable interest in denying such
persons full recovery.'' \62\ That sort of sentiment
flies in the face of basic principles of federalism by
embracing the view that other States should abide by
California law whenever a California court determines
that its own laws are preferable to other States'
contrary policy choices. Indeed, such examples of
judicial usurpation, in which one State's courts try to
dictate its laws to 49 other jurisdictions, has been
duly criticized by some congressional witnesses as
``false federalism.'' \63\
---------------------------------------------------------------------------
\61\ Washington Mutual Bank v. Superior Ct., 70 Cal. App. 4th 299
(Cal. Ct. App. 1999).
\62\ Id. at 302 (quoting Clothesrigger Inc. v. GTE Corp., 191 Cal.
App. 3d 605, 616 (Cal. Ct. App. 1987)).
\63\ See hearing of H.R. 1875 ``The Class Action Jurisdiction Act
of 1999 Before the House Committee on the Judiciary,'' (1999)
(statement of Hon. Walter E. Dellinger).
Given the range and severity of class action abuse, it is
not surprising that defendants find it necessary to remove
actions against them to a Federal forum--a forum where the
threat of prejudice is significantly lower. Under current law,
however, plaintiffs' lawyers can easily manipulate their
pleadings to ensure that their cases remain at the State level.
The two most common tactics employed by plaintiffs' attorneys
in order to guarantee a State court tribunal are: adding
parties to destroy diversity and shaving off parties with
claims for more than $75,000. It is not rare to see complaints
in which plaintiffs sue several major corporations and then add
one local supplier or dealer as a defendant merely to defeat
diversity.\64\ Other complaints seek $74,999 in damages on
behalf of each plaintiff or explicitly exclude from the
proposed class anybody who has suffered $75,000 or more in
damages.\65\
---------------------------------------------------------------------------
\64\ See hearings on S. 353, prepared statement of Stephan G.
Muhidon.
\65\ Id.
---------------------------------------------------------------------------
The Committee believes that the Federal courts are the
appropriate forum to decide most class actions because these
cases usually involve large amounts of money, and many
plaintiffs, and have significant implications on interstate
commerce and national policy. By enabling Federal courts to
hear more class actions, this bill will help to minimize the
class action abuses taking place in State courts and to ensure
that these cases can be litigated in a proper forum.
VI. How S. 353 Works
S. 353 is a modest step toward addressing a number of the
problems and abuses in the current class action system. First,
S. 353 implements additional notice requirements to better
inform plaintiff class members about: (a) the terms of a class
action settlement, (b) the rights they will forfeit as members
of the class, (c) the obligations the settlement agreement
places on the defendants, and (d) the amount of attorneys' fees
that will be awarded to counsel representing their interests.
S. 353 also provides an additional mechanism to safeguard
plaintiff class members' rights by requiring class counsel to
provide State attorneys general and the U.S. Attorney General
with notice of class action settlements, so that the State and
Federal Governments have the opportunity to intervene in a case
if they feel that a class action settlement is not in the best
interests of their citizens.
Second, S. 353 relaxes diversity jurisdiction and removal
rules so that larger interstate class actions can be heard in
Federal court. In doing so, the act also makes it harder for
plaintiffs' counsel to ``game the system'' by inappropriately
keeping class actions in State courts where certain judges are
quick to certify a class regardless of due process concerns or
to approve a settlement regardless of the fairness to class
members. Moreover, the act creates efficiencies in the judicial
system by enabling overlapping and ``copycat'' cases to be
consolidated in a single Federal court, rather than leaving
them to proceed in numerous State courts as does the current
system.
Finally, S. 353 addresses the problem of unfair settlements
and excessive attorneys' fees by directing the Judicial
Conference of the United States to conduct a review of class
action settlements and attorneys' fees and to present Congress
with recommendations to improve the system.
notification
S. 353 would amend the class action rules by requiring that
class counsel serve the State attorneys general of every State
in which any class member resides and the Attorney General of
the United States with notice of a proposed settlement. This
notice must occur no later than 10 days after the proposed
settlement is filed in Federal court.
The notice to the State attorneys general and the Attorney
General of the United States would include: (1) a copy of the
complaint and amended complaints, unless those materials are
available through the Internet and the notice includes
directions on how to access the materials on-line; (2) notice
of any scheduled judicial hearing in the class action; (3)
proposed or final notification to class members of their right
to be excluded from the class; (4) any proposed or final class
action settlement; (5) any settlement made between class
counsel and defendants' counsel; (6) any final judgment or
notice of dismissal; and (7) the names of the class members who
reside in each State attorney general's respective State and
the proportionate claims of such members. The State attorneys
general and the Attorney General of the United States would
then have at least 120 days to review the proposed settlement
before a court could hold a hearing on final settlement
approval.
A class member whose State attorney general did not receive
notice could choose not to be bound by the settlement agreement
or consent decree. Nonetheless, nothing in this section creates
an affirmative duty for either the State attorneys general or
the Attorney General of the United States to take any action in
response to a class action settlement. Moreover, nothing in
this section expands the current authority of the State
attorneys general or the Attorney General of the United States.
S. 353 also aims to help class members better understand
their rights in a class action, by requiring that any notice
provided to class members explain in plain, easily understood
language: (1) the subject matter of the class action; and (2)
the legal consequences of being a member of the class action.
In addition, if the notice involves a proposed settlement, it
must explain, also in plain, easily understood language: (1)
the benefits a settlement will offer the class; (2) the rights
a plaintiff would waive through settlement; (3) the obligations
a defendant would incur in the proposed settlement; and (4) the
amount of the attorneys' fees or a good-faith estimate of the
fees being sought, and an explanation of how the fees will be
calculated.
Radio, television or Internet notice informing class
members of their right to be excluded from a settlement must
also explain in plain, easily understood language who may be a
member of the class and that class members will be subject to
the class action or settlement unless they take steps to
exclude themselves.
The Committee believes that improved notice requirements
will create a better informed plaintiff class. Not only will
plaintiffs be able to more effectively monitor their own case,
but the notice provisions will provide an effective deterrent
against the myriad of abuses in class action litigation.
diversity jurisdiction and removal
S. 353 would amend the diversity jurisdiction and removal
statutes applicable to larger interstate class actions. S. 353
would modify 28 U.S.C. 1332 to grant the Federal courts
original jurisdiction to hear interstate class action cases
where any member of the proposed class is a citizen of a
different State from any defendant. Put another way, the bill
changes the current ``complete diversity'' requirement created
by courts for class actions to a ``minimal diversity'' rule for
class actions.
Nonetheless, this expanded Federal jurisdiction would not
include three types of class actions that are truly local in
nature: (1) cases in which a ``substantial majority'' of class
members and defendants are citizens of the same State and the
claims will be governed primarily by the laws of that State;
(2) cases involving fewer than 100 class members; and (3) cases
in which the primary defendants are States, State officials or
other governmental entities against whom the district court may
be foreclosed from ordering relief. S. 353 also exempts from
its reforms any securities class action cases covered by the
Securities Litigation Reform Act and corporate governance
cases.
S. 353 would also create a separate amount-in-controversy
requirement for diversity jurisdiction over class actions, by
requiring that the claims of the individual class members be
aggregated to determine whether the amount in controversy
exceeds the sum or value of $2 million, exclusive of interest
and costs.
In addition, in order to enable more class actions to be
removed to Federal court, S. 353 would create four new rules
regarding the removal of class actions filed in State court.
First, unnamed plaintiff class members would be able to remove
class actions to Federal court. Second, parties would be able
to remove a class action to Federal court without the consent
of any other party. Third, any plaintiff or defendant would be
able to remove a class action to Federal court, regardless of
whether that party is a citizen of the State in which the
action was brought. And fourth, the current ban on removal of a
class action to Federal court after 1 year would be eliminated,
although the requirement that removal occur within 30 days of
notice of grounds for removal would be retained.
S. 353 provides that a Federal court must dismiss a class
action without prejudice if it finds that the removed class
action does not meet the requirements for proceeding on a class
basis under Federal Rule of Civil Procedure 23. Plaintiffs
could then amend and refile their complaint in State court;
however, the refiled case would once again be eligible for
removal if original Federal jurisdiction exists.
The act also addresses statute of limitation issues in two
ways. First, if plaintiffs file a class action in State court
and the case is then removed to a Federal court, which
dismisses it for failure to meet the requirements of rule 23,
the statute of limitations would not run for the period that
the dismissed class action was pending in either court,
provided the case is refiled in the same State court by at
least one of the original named plaintiffs. Second, if a
removed class action is dismissed by a Federal court for
failure to meet the requirements of rule 23, the statute of
limitations will not run with regard to any individual actions
later brought by members of the dismissed class, regardless of
where the individual chooses to sue.
report on attorneys' fees
S. 353 would direct the Judicial Conference, with the
assistance of the Federal Judicial Center and Administrative
Office of the U.S. Courts, to prepare a report on class action
settlements to be transmitted to the House and Senate Judiciary
Committees. The report will include recommendations on best
practices to ensure the fairness of proposed class action
settlements for class members, recommendations on best
practices to ensure the appropriateness of attorneys' fees and
expenses, and a discussion of any actions taken or planned by
the Judicial Conference to implement the recommendations in the
report.
VII. Section-by-Section Analysis and Discussion of Substitute Amendment
Section 1--Section 1 sets forth the ``Class Action Fairness
Act of 2000'' as the short title of the bill.
Section 2--Section 2 sets forth the notification
requirements of class action certifications and settlements.
Section 2 of S. 353 creates new 28 U.S.C. 1713, which would
combat abusive class action settlements by providing more
dynamic protections for plaintiff class members. This is done
in two important ways. First, new 28 U.S.C. 1713 would require
that class counsel serve the State attorneys general of every
State in which a class member resides and the Attorney General
of the United States with notice of a proposed settlement.
Second, it mandates that potential plaintiffs be made aware of
their rights and obligations as class members in plain, easily
understood language.
Abusive class action settlements in which plaintiffs
receive promotional coupons or other nominal damages while
class counsel receive large fees are all too commonplace. The
risk of such abusive practices is particularly pronounced in
the class action context because these suits often involve
numerous plaintiffs, each of whom has only a small financial
stake in the litigation. As a result, few, if any, plaintiffs
closely monitor the progress of the case or settlement
negotiations, and these cases become ``clientless litigation,''
in which the plaintiff attorneys and the defendants have
``powerful financial incentives'' to settle the ``litigation as
early and as cheaply as possible, with the least publicity.''
\66\ These financial incentives create inequitable outcomes.
``For class counsel, the rewards are fees disproportionate to
the effort they actually invested in the case. * * * For
society, however, there are substantial costs: lost
opportunities for deterrence (if class counsel settled too
quickly and too cheaply), wasted resources (if defendants
settled simply to get rid of the lawsuit at an attractive
price, rather than because the case was meritorious), and--over
the long run--increasing amounts of frivolous litigation as the
attraction of such lawsuits becomes apparent to an ever-
increasing number of plaintiff lawyers.'' \67\
---------------------------------------------------------------------------
\66\ Deborah Hensler, et al., ``Class Action Dilemmas, Pursuing
Public Goals for Private Gain, Executive Summary,'' 10 (Executive
Summary 1999).
\67\ Id.
---------------------------------------------------------------------------
S. 353 will address this problem by requiring Attorney
General notification of proposed settlements and making it
easier for class members to understand what is at stake in a
class action.
a. attorney general notification
New 28 U.S.C. 1713(a) requires class counsel to provide
notice to the State attorneys general of every State in which
any class member resides and the Attorney General of the United
States. The provision is intended to combat the ``clientless
litigation'' problem by adding a layer of independent oversight
to prohibit inequitable settlements. Under section 1713(a),
class counsel must provide the notice within 10 days after the
proposed settlement is filed in court. Such notice must
include, according to 28 U.S.C. 1713(a)(1)-(8): a copy of the
complaint; any scheduled judicial hearings; any final judgment
or notice of settlement; any proposed or final dismissal; and
the names of class members who reside in each State, if
feasible. The notice would also include any written judicial
decision related to settlement, a final judgment or notice of
dismissal. If disagreement arises over the feasibility of
providing the names of class members and their proportional
share of the proposed settlement under 28 U.S.C. 1713(a)(7)(A),
it is the intent of the Committee that class counsel bear the
burden of proving that it is not feasible to provide any of
this required information.
Once the State attorneys general and the Attorney General
of the United States have received notice under 28 U.S.C.
1713(a), they would then have at least 120 days to review the
proposed settlement and decide whether to object in the
interest of the plaintiff class. In addition, section 28 U.S.C.
1713(e)(1) instructs that in cases where a particular State
attorney general is not provided notice of the potential
settlement, plaintiffs in that State can choose not be bound by
that settlement. State attorneys general and the Attorney
General of the United States are not required to take any
affirmative action once they receive the proposed settlement
according to new section 1713(f), nor does this section expand
their current authority.
The Committee believes that notifying the State attorneys
general and the Attorney General of the United States of
proposed class action settlements will provide a check against
inequitable settlements in these cases. Notice will also deter
collusion between class counsel and defendants to craft
settlements that do not benefit the injured parties.
b. plain language requirement
The second protection against abusive settlements
contemplated in new 28 U.S.C. 1713(c)(1)(A)-(B) mandates that
each notice to the class explain in ``plain, easily understood
language,'' the subject matter of the class action and the
legal consequences of being a member of the class. If the
notice concerns a proposed settlement, according to new 28
U.S.C. 1713(c)(1)(C), then the notice must also explain in
``plain easily understood language,'' the benefits of
settlement to the class, the rights that class members will
lose through the settlement, the obligations of defendants
under the proposed settlement, the dollar amount class counsel
are seeking in attorneys' fees (or, if not possible, a good-
faith estimate of the fees that class counsel will request),
and an explanation of how attorneys' fees will be calculated.
The notice must also include any other material information
regarding the class action. Such ``material matter'' would
include any other information a reasonable person would want to
know before deciding whether to participate in a class action
or proposed settlement.
Compliance with the plain, easily understood language
requirement and with the Attorney General notification
requirement will not protect any party from a legal action
under Federal or State law. This is made clear in new 28 U.S.C.
1713(d).
The proper test for determining if class notice is written
in ``plain, easily understood language'' is reasonableness--
i.e., whether a reasonable person would find the language in
the notice to be ``plain, easily understood language.'' The
Committee intends that class counsel bear the burden of proving
that a reasonable person would find that the notice includes
all of the requirements listed in this section in ``plain,
easily understood language.''
During the Subcommittee hearing on S. 353, witnesses
discussed the problem of conveying to the potential class
member a clear understanding of the rights and obligations
which accompany membership in the class. As one witness
testified: ``The class notices that class members receive
frequently are written in small print and legalese. Since those
notices typically are telling class members that they are about
to give up important legal rights (unless they take appropriate
action), it is imperative that they understand what they are
doing and the ramifications of their actions.'' \68\
---------------------------------------------------------------------------
\68\ See hearings on S. 353, prepared statement of Stephan G.
Morrison, at 7.
---------------------------------------------------------------------------
The Committee believes that a better informed plaintiff
class will be better able to police the abuses rampant in
current class action litigation. Thus, much like the Attorney
General notification provision, the plain language requirement
should create another layer of protection against inequitable
class settlements and the ``clientless litigation'' problem.
Section 3--Section 3 amends 28 U.S.C. 1332 to redesignate
current subsection 1332(d) as subsection (e) and create a new
subsection 1332(d), which gives the Federal courts original
jurisdiction over class action lawsuits in which the matter in
controversy exceeds the sum or value of $2 million, exclusive
of interest and costs, and either (a) any member of a class of
plaintiffs is a citizen of a different State from any
defendant; (b) any member of a class of plaintiffs is a foreign
state or a citizen or subject of a foreign state and any
defendant is a citizen of a state; or (c) any member of a class
of plaintiffs is a citizen of a state and any defendant is a
foreign state or a citizen or subject of a foreign state.
Pursuant to new subsection 1332(d)(3), the Federal district
courts are directed not to exercise diversity jurisdiction over
class actions where (A) the substantial majority of the members
of the proposed plaintiff class and the primary defendants are
citizens of the State in which the action was originally filed
and the claims asserted will be governed primarily by the law
of that same State (``intrastate'' case); (B) the primary
defendants are States, State officials, or other governmental
entities against whom the district court may be foreclosed from
ordering relief (``state action'' case); or (C) the number of
members of all proposed plaintiff classes in the aggregate is
fewer than 100 class members (``limited scope'' case).
Pursuant to new subsection 1332(d)(4), the claims of the
individual class members in any class action shall be
aggregated to determine whether the amount in controversy
exceeds the sum or value of $2 million (exclusive of interest
and costs). The Committee intends this subsection to be
interpreted expansively. If a purported class action is
removed, the named plaintiff(s) should bear the burden of
demonstrating that the removal was improvident (i.e., that the
applicable jurisdictional requirements are not satisfied). If a
Federal 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 $2,000,000,'' the court
should err in favor of exercising jurisdiction over the case.
Overall, new section 1332(d) is intended to expand
substantially Federal court jurisdiction over class actions.
Its provisions should be read broadly, with a strong preference
that interstate class actions should be heard in a Federal
court if so desired by any purported class member or any
defendant.
Consistent with this overriding intent, the exemptions in
new subsection 1332(d)(3) should be read narrowly. Under the
provision of subsection 1332(d)(3)(A) governing ``intrastate''
class actions (i.e., class actions in which the ``substantial
majority'' of plaintiff class members and the primary
defendants are citizens of the State in which the action was
originally filed and the claims asserted therein are governed
by the same State), a purported class action should be deemed
to fall outside Federal jurisdiction only if virtually all
members of the proposed class are residents of a single State
of which all ``primary defendants'' are also citizens and the
claims are governed by that State's law. For example, a case in
which a proposed class of 1,000 persons sues a North Carolina
citizen corporation presumably would fit the ``intrastate''
case definition if 997 of those persons (more than 99 percent)
were North Carolina citizens and the claims are governed by
North Carolina law.
In addition, for purposes of subsection 1332(d)(3)(A)
``intrastate'' class actions, the only parties that should be
considered ``primary defendants'' are those defendants who are
the real ``targets'' of the lawsuit--i.e., the defendants that
would be expected to incur most of the loss if liability is
found. For example, if a class action against a company also
names as a defendant (in the interest of completeness) an
executive of the defendant company, that executive normally
should not be deemed a ``primary defendant'' because, in most
instances, the executive would not be the real ``target'' of
the purported class action; rather, his employer company would
be the true target of the lawsuit.
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. For example,
a dealer, agent or sales representative of a corporate
defendant that has been named as a 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). 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'' under this subsection.
The other two exceptions should also be construed and
applied narrowly. Thus, Federal courts should proceed
cautiously before declining Federal jurisdiction under the
subsection 1332(d)(3)(B) exception for ``state action,'' and
only do so when it is clear that the primary defendants are
indeed States, State officials, or other governmental entities
against whom the ``court may be foreclosed from ordering
relief.'' In making such a finding, courts should apply the
same guidance regarding the term ``primary defendants''
discussed above with regard to intrastate actions. Similarly,
the subsection 1332(d)(3)(C) exception for ``limited scope''
cases (actions in which there are fewer than 100 class members)
should also be interpreted narrowly. For example, in cases in
which it is unclear whether ``the number of members of all
proposed plaintiff classes in the aggregate is less than 100,''
a court should err in favor of exercising jurisdiction over the
matter.
It is the Committee's intention with regard to each of
these exceptions that the party opposing Federal jurisdiction
shall have the burden of demonstrating the applicability of an
exemption. For example, if a plaintiff seeks to have a
purported class action remanded for lack of Federal diversity
jurisdiction under subsection 1332(d)(3)(C) (``limited scope''
class actions), that plaintiff should have the burden of
demonstrating that ``all matters in controversy'' do not ``in
the aggregate exceed the sum or value of $2,000,000, exclusive
of interest and costs'' or that ``the number of all proposed
plaintiff classes in the aggregate is less than 100.''
New subsection 1332(d)(5) clarifies that the diversity
jurisdiction provisions of this section shall apply to any
class action before or after the entry of a class certification
order by the court. This allows Federal jurisdiction to apply
when changes are made to the pleadings which bring the case
within Federal court jurisdiction.
New subsection 1332(d)(6) details the procedures governing
cases removed to Federal court on the sole basis of new section
1332(d) jurisdiction. Pursuant to new subsection 1332(d)(6)(A),
the district courts are directed to dismiss any civil action
subject to Federal jurisdiction if it is determined that the
civil action may not proceed as a class action because it fails
to satisfy the conditions of rule 23 of the Federal Rules of
Civil Procedure. Notwithstanding this subsection, new
subsection 1332(d)(6)(B) clarifies that the action may be
amended and refiled in Federal or State court; however, if such
an action is refiled in State court, it may be removed if it is
an action over which the district courts of the United States
have original jurisdiction. 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, since Federal and State court class
certification standards typically do not differ radically.
Allowing a State court to certify a case that a Federal court
has already found noncertifiable would set a troubling (if not
constitutionally suspect) precedent under which State courts
would serve as points of appellate review of Federal court
decisions. Moreover, 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 of the
parties' due process rights, there should be no room
constitutionally for a State court to reach a different result
on class certification issues.
In addition, new subsection 1332(d)(6)(C) provides that, if
a dismissed case is refiled by any of the original 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 a class action is dismissed under this section
and an individual action is later filed asserting the same
claims, the statute of limitations will be deemed tolled during
the pendency of the dismissed class action, regardless of where
the subsequent individual case is filed.
Pursuant to new subsection 1332(d)(7), the act excepts from
new subsection 1332(d)(2)'s grant of original jurisdiction
those class actions that solely involve 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. These
advantages include 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.
The Committee, however, intends for this exemption to be
narrowly construed. By corporate governance litigation, the
Committee means only 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 regarding 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.
Consequently, it would 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 exemption, 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 defined by the U.S. Supreme Court as ``matters
peculiar to the relationships among or between the corporation
and its current officers, directors and shareholders * * *.''
\69\ The phrase ``other form of business enterprise'' is
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.
---------------------------------------------------------------------------
\69\ Edgar v. Mite Corp., 457 U.S. 624, 645 (1982). See also Draper
v. Paul N. Gardner Defined Plan Trust, 625 A.2d 859, 865-66 (Del.
1993); McDermott v. Lewis, 531 A.2d 206, 214-15 (Del. 1987); Ellis v.
Mutual Life Ins. Co., 187 So. 434 (Ala. 1939); Amberjack, Ltd., Inc. v.
Thompson, 1997 WL 613676 (Tenn. App. 1997); 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).
---------------------------------------------------------------------------
The subsection 1332(d)(7) exemption to new section 1332(d)
jurisdiction 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 subsection 1332(d)(7)(B) is for definitional
purposes only. Since that law contains an already well-defined
concept of a security, this provision simply imports the
definition contained in the Securities Act.
New subsection 1332(d)(8) provides that for purposes of
this new section and section 1453 of title 28, an
unincorporated association shall be deemed to be a citizen of a
State where it has its principal place of business and the
State under whose laws it is organized. This provision is added
to ensure that unincorporated associations receive the same
treatment as corporations for purposes of diversity
jurisdiction. The U.S. Supreme Court has held that ``[f]or
purposes of diversity jurisdiction, the citizenship of an
unincorporated association is the citizenship of the individual
members of the association.'' \70\ This rule ``has been
frequently criticized because often * * * an unincorporated
association is, as a practical matter, indistinguishable from a
corporation in the same business.'' \71\ Some insurance
companies, for example, are ``inter-insurance exchanges'' or
``reciprocal insurance associations.'' They therefore, have
been viewed by Federal courts as unincorporated associations
for purposes of diversity jurisdiction purposes. Since such
companies are nationwide companies, they are deemed to be
citizens of any State in which they have insured customers.\72\
Consequently, these companies can never be completely or even
minimally diverse in any case. It makes no sense to treat an
unincorporated insurance company differently from, for example,
an incorporated manufacturer for purposes of diversity
jurisdiction. New subsection 1332(d)(8) corrects this anomaly.
---------------------------------------------------------------------------
\70\ United Steelworkers of America v. Boulingy, Inc., 382 U.S. 145
(1965).
\71\ See, e.g., 3A J. Moore & J. Lucas, ``Moore's Federal
Practice,'' pars. 17.25, 17-209 (1987 rev.) (``Congress should remove
the one remaining anomaly and provide that where unincorporated
associations have entity status under state law, they should be treated
as analogous to corporations for purposes of diversity
jurisdiction.'').
\72\ See Tuck v. United Services Automobile Ass'n, 859 F.2d 842
(10th Cir. 1988); Baer v. United Services Automobile Ass'n, 503 F.2d
393 (2d Cir. 1974); Truck Insurance Exchange v. The Dow Chemical Co.,
331 F. Supp. 323 (W.D. Mo. 1971).
---------------------------------------------------------------------------
Section 4--Section 4 establishes the procedures for removal
of interstate class actions over which the Federal court is
granted original jurisdiction in new section 1332(d). The
general removal provisions currently contained in chapter 89 of
title 28 would continue to apply to such class actions, except
where they are 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 of class actions would subvert the
intent of the act because it would essentially allow a
plaintiff to defeat removal jurisdiction by suing both in-State
and out-of-State defendants. Such a restriction on removal of
class actions would perpetuate the current ``complete
diversity'' rule for class actions that new section 1332(d)
rejects. The act does not, however, disturb the general rule
that a case can only be removed to the district court of the
United States for the district and division embracing the place
where the action is pending.\73\ In addition, the act does not
change the application of the Erie doctrine, which requires
Federal courts to apply the substantive law dictated by
applicable choice-of-law principles in actions arising under
diversity jurisdiction.\74\
---------------------------------------------------------------------------
\73\ See 28 U.S.C. 1441(a).
\74\ See Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938).
---------------------------------------------------------------------------
New subsection 1453(b) 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 of an action by the plaintiff is not
permissible, under the theory that as the instigator of the
lawsuit, 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, whereas 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.
By specifying that the provisions of section 1446(a) governing
the removal of a case by a defendant shall apply equally to
unnamed plaintiff class members, this provision gives unnamed
plaintiff class members the same flexibility as defendants to
choose the forum for a lawsuit.
In addition, new subsection 1453(b) provides that removal
may occur without the consent of any other party. This revision
to the removal rules will combat collusion 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, this will prevent a plaintiffs'
attorney from recruiting a ``friendly'' defendant (a local
retailer, for example) who could refuse to join a removal
action and thereby thwart the legitimate efforts of the primary
corporate defendant to seek removal.
New subsection 1453(c) clarifies that the 1-year limit
otherwise imposed on removal of suits filed pursuant to section
1332 has no application to class actions. As such, the act
permits a party to remove an action to Federal court more than
1 year after commencement of a suit in State court. This change
is intended to prevent plaintiffs' attorneys from the type of
gaming that occurs under the current class action system. In
the most extreme example, a plaintiffs' attorney could file
suit under current law against a friendly defendant, triggering
the start of the 1-year limitation after which removal may not
be sought under any condition. One year and 1 day after filing
suit, the plaintiff's attorney could then serve an amended
complaint on an additional defendant, at which time it would be
too late for that new defendant to remove the case to Federal
court--regardless of whether diversity jurisdiction exists and
irrespective of the practical merits of the case. The same
unfair result would also occur if plaintiffs' counsel dismisses
nondiverse parties or increases the amount of damages being
pled after the 1-year deadline. By allowing class actions to be
removed at any time when changes are made to the pleadings that
bring the case within section 1332(d)'s requirements for
Federal jurisdiction, this provision will ensure that such
fraudulent pleading practices can no longer be used to thwart
Federal jurisdiction.
New subsection 1453(d) states that the requirements of
section 1446, setting forth a 30-day filing period for removal
notices by defendants, shall apply to plaintiffs who seek to
remove a class action under section 1453. In addition,
subsection 1453(d) 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 defendant may remove an
action 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 1453(d)
extends this provision to class members seeking removal, by
allowing them to file removal papers up to 30 days after
receiving initial written notice of the class action. The
Committee intends that the term ``initial written notice''
refer to the initial notice of the class action that is
disseminated at the direction of the State court before which
the action is pending. The Committee further intends that the
30-day period referenced by this section be deemed to run as to
each class member on the 13th day after dissemination of notice
to the class (as directed by the court) is completed.
In order to be consistent with the exceptions to Federal
diversity jurisdiction granted under new section 1332(d), new
subsection 1453(e) provides that the class action removal
provisions shall not apply to claims involving covered
securities or corporate governance litigation. In addition,
claims concerning a covered security, as 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, are excepted from the
class action removal rule as well. These are essentially claims
against the officers of a corporation for a precipitous drop in
the value of its stock, based on fraud. Because Congress has
previously enacted legislation governing the adjudication of
these claims,\75\ it is the Committee's intent not to disturb
the carefully crafted framework for litigating in this context.
Thus, claims involving covered securities are excluded from the
new section 1332(b) jurisdiction. The parameters of this
subsection are intended to be conterminous with new subsection
1332(d)(7).
---------------------------------------------------------------------------
\75\ See Public Law 104-67, the ``Private Securities Litigation
Reform Act of 1995,'' and Public Law 105-353, the ``Securities
Litigation Uniform Standards Act of 1998.''
---------------------------------------------------------------------------
Section 5--Section 5 directs the Judicial Conference of the
United States, with the assistance of the Director of the
Federal Judicial Center and the Director of the Administrative
Office of the U.S. Courts, to prepare and transmit to the
Committees on the Judiciary of the Senate and House of
Representatives a report on class action settlements. The
report shall contain recommendations on the best practices that
courts can use to ensure that proposed class action settlements
are fair to the class members that these settlements are
supposed to benefit. In addition, the report shall contain
recommendations on the best practices that courts can use to
ensure that fees and expenses awarded to attorneys in
connection with a class action settlement appropriately reflect
the extent to which counsel obtained full redress for the
injuries alleged in the complaint, and the time, expense and
risk devoted to the litigation. Finally, the report shall
identify the actions that the Judicial Conference has taken and
intends to take toward having the Federal judiciary implement
the recommendations in the report. It is the Committee's intent
that this report be an extension of the efforts that have
already been undertaken by a subcommittee of the Advisory
Committee on Civil Rules to examine possible amendments to rule
23 of the Federal Rules of Civil Procedure, particularly
amendments related to the review of proposed class action
settlements.
In addition, section 5 contains a provision stating that
nothing in the act shall be construed to alter the authority of
the Federal courts to supervise attorneys' fees. It is the
Committee's intent not to disrupt the broad discretion judges
have to approve or contest attorneys' fees based on fairness
determinations, notwithstanding contractual arrangements
between attorneys and their clients.
VIII. Critics' Contentions and Rebuttals
Critics' Contention No. 1: S. 353 would transfer nearly
every class action from State to Federal court and would add to
the increasingly burdensome workload of the Federal courts.
Response: During Committee debate on S. 353, the most
frequent concern we heard was that S. 353 would overload the
Federal judiciary. This argument, however, ignores the fact
that class actions burden our entire national judicial system,
which includes both Federal courts and State courts, and not
simply Federal courts. In fact, many State courts, where the
critics apparently would like to confine all interstate class
actions, are just as burdened--if not more so--than the Federal
courts, and are less equipped to deal with complex cases like
class actions.
Many State courts have crowded, crushing dockets. In fact,
the civil caseload in State courts has grown much more rapidly
than the Federal court civil caseload. Civil filings in State
trial courts of general jurisdiction have increased 28 percent
since 1984, as compared to an increase of only 4 percent in the
Federal courts.\76\ In most jurisdictions, each State court
judge is assigned an average of 1,000 to 2,000 new cases each
year.\77\ By contrast, each Federal court judge was assigned an
average of fewer than 500 new cases last year.\78\ Newly
released data indicate that there was actually a 3-percent
decrease in the number of cases pending in our Federal district
courts nationwide at the end of last year.\79\ Moreover, the
number of diversity cases filed in Federal court continues to
go down markedly. For example, during calendar year 1998,
diversity filings fell 6 percent, and during calendar year
1999, diversity filings fell another 4 percent.\80\ This
reduction in new case filings occurs just as the vacancy rate
among Federal district court judges (5.8 percent) has been at
its lowest level since 1988.\81\
---------------------------------------------------------------------------
\76\ See B. Ostrom, et al., ``Examining the Work of State Courts,''
at 15 (Court Statistics Project 1998).
\77\ See id. at 12-13.
\78\ See ``Judicial Business,'' at 23, 25. Indeed, the number is
significantly below 500 cases when one takes account of the fact that
besides the 646 authorized judgeships, 273 Federal district court
judges who have taken ``senior status'' were active in handling cases
last year. Id. at 42.
\79\ See ``Judicial Business,'' at 20 (data as of Sept. 30, 1999).
\80\ Id. at 26.
\81\ For 1995-1999, the source is ``Judicial Business,'' at 42. For
1991-1994, the source is Administrative Office of the U.S. Courts,
``Judicial Business of the U.S. Courts,'' 24 (1994). For 1988-1990, the
source is ``Annual Report of the Director of the Administrative Office
of the U.S. Courts,'' 42 (1990).
---------------------------------------------------------------------------
Class action filings in State courts have increased more
than three times as fast as they have in Federal courts.
According to recent studies, Federal class action filings over
the past 10 years have increased by more than 300 percent,
while class action filings in State courts have increased by
more than 1,000 percent.\82\ As the number of class action
lawsuits continues to grow, State courts do not have the
resources, procedural mechanisms or expertise to handle them
effectively. For example, State courts do not possess the
numbers of staff (i.e., law clerks, magistrate judges and
special masters) available to the Federal courts. Federal court
judges are generally able to delegate some aspects of their
class action cases (e.g., discovery issues) to magistrate
judges or special masters who are not at the disposal of State
court judges. Because the Federal judiciary has more personnel
and other resources, it is more likely that class actions will
be resolved more quickly in Federal court than in State court.
---------------------------------------------------------------------------
\82\ See Analysis: ``Class Action Litigation--A Federalist Society
Survey,'' ``Class Action Watch,'' at 5 (vol. 1, No. 1); Deborah R.
Hensler, et al., ``Class Action Dilemmas: Pursuing Public Goals for
Private Gain,'' 19 (Executive Summary 1999).
---------------------------------------------------------------------------
Federal courts are also authorized, through the
multidistrict litigation process, to transfer and consolidate
similar class actions in different district courts before a
single judge.\83\ On the other hand, State courts are without
such consolidation authority. The current system thus requires
State court judges to waste precious energy and resources
handling duplicative class actions brought on behalf of the
same people on the same issues because State courts cannot
consolidate cases across State lines. Moreover, allowing
similar class actions to proceed simultaneously in different
State courts also promotes abusive practices, collusive
activities, and unfair settlements. The class action system
will improve tremendously with the Federal administration of
interstate class actions because of the Federal courts' ability
to consolidate similar, overlapping cases. Clearly, it is far
more efficient for one Federal judge handle a group of
identical or parallel purported class actions, than for
multiple judges to hear the same case in a multitude of
different State courts. S. 353 will therefore save significant
State and Federal judicial resources, expedite the resolution
of these cases, reduce the ability of attorneys to play games
with the system, and result in fairer results for litigants.
---------------------------------------------------------------------------
\83\ U.S.C. 1407.
---------------------------------------------------------------------------
Further, Federal courts regularly decide cases involving
difficult conflict of law questions, and are frequently
required to apply different States' laws in complex cases--not
just class actions. Indeed, it is fair to say that this is
``standard fare'' for the Federal courts. On the other hand,
State courts are not as familiar with these kinds of issues and
have been known to avoid applying different State laws by
simply--and improperly--imposing their own State law on a
nationwide case. Removal of more class actions to the Federal
courts can only benefit the appropriate handling of these
cases, as well as improve the fairness of class action
decisions to both plaintiffs and defendants.
These benefits aside, the critics' contention that S. 353
would overload the Federal courts is also a gross exaggeration.
S. 353 would simply allow removal of certain interstate class
actions to Federal court--it would not require removal. Merely
providing class action litigants with an option to have their
case heard in Federal court is consistent with the
constitutional mandate of diversity jurisdiction. Moreover,
removal will not be an option in all class action cases. S. 353
places several significant limitations on the kinds of class
actions that can proceed in Federal court, e.g., the $2 million
in aggregated claims jurisdictional threshold amount and the
requirement that classes include at least 100 members. And if
the State courts of a jurisdiction provide an even-handed forum
for litigating class actions, defendants or unnamed plaintiffs
presumably will not remove class actions to Federal court and
will allow them to proceed in State court. Thus, there is no
basis for arguing that S. 353 would prompt a tidal wave of
class actions that would overwhelm our Federal courts.
Critics who focus on the Federal courts' workload are
missing the point--class actions are precisely the kind of
cases that should be heard in Federal court. Class actions
usually involve the most people, most money, and most
interstate commerce issues. They also usually involve issues of
nationwide implications. Interstate class actions are certainly
no less deserving of a Federal forum that the 21,915 cases to
recover a few thousand dollars in student loan arrearages, the
18,781 individual product liability actions (typically one-
person injury case), the 21,716 Federal personal injury cases
(e.g., single person medical malpractice cases), or 23,821
civil habeas corpus cases filed last year in Federal court.\84\
Indeed, it is noteworthy that there were eight times as many
individual product liability cases filed in Federal court last
year (18,781) as there were class actions (2,133).\85\
Ultimately, regardless of the impact on the Federal court
caseload, large interstate class actions belong in Federal
court.
---------------------------------------------------------------------------
\84\ See ``Judicial Business,'' at 139-41.
\85\ Id.
---------------------------------------------------------------------------
Critics' Contention No. 2: Abuses of class actions exist in
both Federal and State courts, and therefore, allowing more
interstate class actions to be heard in Federal court will not
solve any problems.
Response: At recent congressional hearings on the subject
of class actions, witness after witness provided compelling
evidence that serious abuses of the class device are primarily
occurring in State courts.\86\
---------------------------------------------------------------------------
\86\ See generally hearings on S. 353: ``Class Action Lawsuits:
Examining Victim Compensation and Attorneys' Fees: Hearings Before the
Subcommittee on Administrative Oversight and the Courts of the Senate
Committee on the Judiciary,'' 105th Cong. (1997). ``Hearings on Mass
Torts and Class Actions Before the Subcommittee on Courts and
Intellectual Property of the House Committee on the Judiciary,'' 105th
Cong. (1998): Hearing on H.R. 1875, ``The Class Action Jurisdiction Act
of 1999 Before the House Committee on the Judiciary,'' (1999).
---------------------------------------------------------------------------
Moreover, several studies also indicate that the class
action abuse problem, particularly with respect to class
settlements, is primarily a State court issue. For example, a
detailed Federal Judicial Center study concluded that ``[i]n
most [class actions handled by Federal courts subject to the
study], net monetary distributions to the class exceeded
attorneys' fees by substantial margins.'' \87\ In stark
contrast, a recent Institute for Civil Justice/RAND study
indicated that in State court consumer class action settlements
not involving personal injuries, class counsel typically walk
off with more money than all of the class members combined.\88\
The ICJ/RAND study offered three compelling rationales for
allowing more interstate class actions to be heard by Federal
courts:
---------------------------------------------------------------------------
\87\ Federal Judicial Center, ``Empirical Study of Class Actions in
Four Federal District Courts,'' 68-69 (1996).
\88\ Deborah R. Hensler, et al., ``Class Action Dilemmas: Pursuing
Public Goals for Private Gain,'' 19 (Executive Summary 1999).
---------------------------------------------------------------------------
(1) ``Federal judges scrutinize class action
allegations more strictly than state judges, and deny
certification in situations where a state judge might
grant it improperly;''
(2) ``state judges may not have adequate resources to
oversee and manage class actions with a national
scope;'' and
(3) ``if a single judge is to be charged with
deciding what law will apply in a multistate class
action, it is more appropriate that this take place in
federal court than in a state court.'' \89\
---------------------------------------------------------------------------
\89\ Id. at 28.
---------------------------------------------------------------------------
While some abuses do occur in Federal court, the extent to
which they take place in no way even approaches the level of
abuse evidencing itself in State court. Moreover, provisions in
S. 353, such as those dealing with notification of State
attorneys general and the ``plain English'' requirement will
further bolster Federal court safeguards in the proper handling
of class action cases.
Critics' Contention No. 3: To date, the only mechanism that
has been successful in imposing liability on some industries,
such as the tobacco or firearms industries, has been class
action lawsuits. Allowing removal of State class actions to
Federal court will destroy the impact that class actions are
having on these socially irresponsible businesses. Therefore,
we should exempt certain industries from the diversity and
removal provisions of S. 353.
Response: Opponents of S. 353 would prohibit Federal courts
from exercising jurisdiction over those class actions brought
against certain industries, including HMO's, tobacco companies,
nursing homes, and firearms manufacturers. In addition,
opponents have suggested that claims arising from State
consumer protection statutes or State environmental protection
laws should be exempt from the bill as well.
However, industry-specific exemptions from Federal
jurisdiction make no sense. Like bills of attainder, such
exemptions irrationally single out a specific industry and slam
the Federal courthouse door in its face. The proposal to carve
out certain legitimate, yet presently unpopular, industries
contradicts the constitutional purposes of Federal diversity
jurisdiction--to allow interstate businesses to have claims
against them heard in Federal court under diversity so as to
avoid local biases and to promote and enhance, rather than
hamper, interstate commerce. The notion that certain industries
are less entitled to Federal court protection is utterly
inconsistent with the purpose and goals of diversity
jurisdiction. Simply put, there should not be one set of rules
for one category of defendants and another for another group of
defendants.
Moreover, there is no evidence that plaintiffs will be less
successful in litigating their class action claims in Federal
court.\90\ Class actions against unpopular corporate defendants
such as the tobacco and firearms industry have successfully
proceeded in Federal court, and have resulted in beneficial
judgments and settlements for the plaintiff classes. In fact,
it is reasonable to expect that class action cases before
Federal courts sitting in diversity will have similar outcomes
to those in State court since a Federal court would apply the
same State substantive law as a State court considering the
case.
---------------------------------------------------------------------------
\90\ Indeed, there's no evidence that plaintiffs' counsel believe
that they must file in State court in order to succeed. Tobacco class
actions prove this point. Of the 56 purported class actions on tobacco
issues now pending, 25 are in Federal courts and 31 are in State
courts. Moreover, there is no evidence that classes are more likely to
be certified in State courts. Both Federal courts and State courts have
certified tobacco-related class actions. So far, 24 courts have denied
certification of tobacco classes--13 State courts and 11 Federal
courts. The State court denials are: In re Tobacco Cases II, No. JCCP-
4042, slip op. (Md. Ct. App. May 16, 2000); Reed v. Philip Morris,
Inc., No. 96-5070, slip op. (D.C. Super. Ct. July 23, 1999); Philip
Morris, Inc. v. Angeletti, No. 961450501 CE212596, slip op. (Md. Ct.
App. May 16, 2000); Taylor v. American Tobacco Co., No. 97715975, slip
op. (Mich. Cir. Ct. Jan. 20, 2000); Constentino v. Philip Morris, Inc.,
No. MID-L-5135-97, slip op. (N.J. Super. Ct. Oct. 26, 1998); Small v.
Lorilard Tobacco Co., 6790 N.Y.S.2d 593 (App. Div. 1998), aff'd, 698
N.Y.S.2d 615 (1999); and Geiger v. American Tobacco Co., 696 N.Y.S.2d
615 (1999). At least two Federal courts have certified tobacco-related
classes: Iron Workers Local Union No. 17 Insurance Fund v. Philip
Morris Inc., 182 F.R.D. 523 (N.D. Ohio 1998); Northwest Laborers-
Employers Health & Security Trust Fund v. Philip Morris Inc., 1997 U.S.
Dist. LEXIS 21299 (W.D. Wash. Dec. 24, 1997). In addition, a U.S.
magistrate judge recommended certification of a class in Oregon
Laborers-Employers Health & Welfare Trust Fund v. Philip Morris, Inc.,
188 F.R.D. 365 (D. Or. 1998), but that recommendation was never acted
upon by the district court judge. Three State courts (two in Florida
and one in Louisiana) have certified tobacco-related classes: R.J.
Reynolds Tobacco Co. v. Engle, 672 So.2d 39 (Fla. Ct. App. 1996)
(affirming the trial court's certification of tobacco class); Broin v.
Philip Morris Cos., 641 S.2d 808 (Fla. Ct. App. 1996) (ordering trial
court to certify tobacco class); Scott v. American Tobacco Co., 725
So.2d 10 (La. Ct. App. 1998) (affirming trial court certification of
tobacco class). In short, the scorecard is basically even. Thus, there
is no evidence that class members will be treated more fairly in State
court.
While critics have pointed to the two Florida tobacco class actions
as evidence that State courts will somehow be tougher on the tobacco
industry, there is no real support for this contention. In the first
tobacco class action to reach conclusion after a class was certified
and the matter was tried (Broin, a Florida State court case), the
matter ultimately settled. But the class members received no money at
all. Under the terms of the settlement, they obtained only a ``right to
sue'' individually. Meanwhile, the class counsel were awarded $49
million (on the basis of a medical research contribution made by
defendants). Counsel for one of the class members who protested the
settlement reportedly commented: ``Its mind-boggling that a court would
permit this kind of settlement to go ahead. What is the class getting
out of this? Nothing.'' ``The Legal Intelligencer,'' Sept. 22, 1999, at
4. The second case, Engle v. T.J. Reynolds Tobacco Co., received a lot
of publicity because the jury awarded a $145 billion verdict to the
class of Florida smokers. However, none of the class members has
received any of that money, and it will likely take years of appeals
and individual trials before any checks are actually distributed to
class members. Moreover, if the Florida verdict holds, the sheer size
of the verdict likely means that no other plaintiff in the United
States will be able to recover for similar allegations. Had the case
been adjudicated in Federal court, it would be possible for a judge to
coordinate recovery with any other cases brought by other plaintiffs.
Moreover, there is no evidence that tobacco cases would be tried
more quickly in State courts. It took 6 years to get the first tobacco
class action to trial in State court; the second took more than 4
years. Generally, the average time to trial in Federal court is
shorter.
Finally, it is clear that certain opponents of the bill are trying
to single-out certain unpopular industries, such as the firearms
industry, because they are unpopular. But that is exactly what the
Framers of the Constitution were trying to avoid. They were trying to
ensure a fair, even-handed Federal court forum for defendants that may
otherwise be haled into a local court less concerned about protecting
the rights of an out-of-State company.
---------------------------------------------------------------------------
Critics' Contention No. 4: S. 353 would unfairly tilt the
playing field by providing an advantage to defendant
corporations at the expense of consumers.
Response: This concern mischaracterizes the nature of the
bill. S. 353 would simply allow Federal courts to handle more
interstate class actions. It makes no changes in substantive
law whatsoever. Critics of S. 353 erroneously argue that the
bill would reverse the ordinary presumption that a plaintiff
chooses his or her own court. Yet, in this context, there is no
such presumption. In fact, the whole purpose of diversity
jurisdiction is to preclude any such presumption by allowing
State-law based claims to be removed from local courts to
Federal courts, so as to ensure that all parties can litigate
on a level playing field and thereby protect interstate
commerce interests.\91\
---------------------------------------------------------------------------
\91\ See, e.g., Pease v. Peck, 59 U.S. (18 How.) 518, 520 (1856).
---------------------------------------------------------------------------
Article III of the Constitution ensures that there will be
a fair, uniform, and efficient forum (a Federal court) for
adjudicating interstate commercial disputes, so as to nurture
interstate commerce. Some scholars have persuasively argued
that of all the powers exercised under the Constitution,
diversity jurisdiction has had the greatest influence in
melding the United States into a single nation, by fostering
interstate commerce, communication and the uninterrupted flow
of capital for investment into various parts of the Union, and
sustaining the public credit and the sanctity of private
contracts.\92\
---------------------------------------------------------------------------
\92\ See John J. Parker, ``The Federal Constitution and Recent
Attacks Upon It,'' 18 A.B.A. J. 433, 437 (1932).
---------------------------------------------------------------------------
S. 353 promotes these important constitutional norms. The
statutory ``gatekeeper'' for Federal diversity jurisdiction--28
U.S.C. 1332--generally allows Federal courts to hear cases that
are large (that is, cases with large ``amounts in
controversy'') and that have interstate implications (that is,
cases involving citizens from multiple jurisdictions). These
requirements were intended to ensure that diversity
jurisdiction is preserved for those cases with significant
interstate and economic impacts. Class actions would normally
satisfy these requirements because they usually involve big
dollar amounts and parties from multiple jurisdictions. Yet,
because section 1332 was enacted prior to the existence of the
modern-day class action, it does not take into account the
unique circumstances presented by class actions. Consequently,
section 1332, as presently drafted, tends to exclude the
overwhelming majority of class actions from Federal courts,
while inviting into Federal courts much smaller single-
plaintiff cases having few (if any) interstate ramifications.
Such a result is inconsistent with the Federal judiciary's
proper jurisdictional role. S. 353 would correct this technical
problem and thereby promote the underlying goals of diversity
jurisdiction.
As former Clinton administration Acting Solicitor General
Walter Dellinger testified before House Judiciary Committee
hearings on the comparable jurisdictional provisions in H.R.
1875, if Congress were to now rewrite the Federal diversity
jurisdiction statute, interstate class actions undoubtedly
would be one of the first categories of cases to be included
within the scope of the statute.\93\ This makes plain sense
insofar as class action lawsuits typically involve more people,
more money, and more interstate commerce issues than any other
type of case. S. 353 will simply fix the technical problem in
section 1332 and judicial interpretation of the diversity
requirements that keep most class actions in State court.
---------------------------------------------------------------------------
\93\ See hearings on H.R. 1875, statement of Walter E. Dellinger.
Critics' Contention No. 5: S. 353 will limit the capacity
to use class actions as private attorneys general actions to
---------------------------------------------------------------------------
deter corporate wrongdoing.
Response: During the Committee debate, some members opposed
S. 353 on the ground that it would limit the use of class
actions as private attorney general actions--to deter to
corporate wrongdoing. As one member stated, the purpose of a
class action is to ``dissuade. It is the same reason that we
have treble damages.'' \94\ In the view of that member, ``the
most important function that class actions serve is to allow
private attorneys general to step forward and hold corporations
accountable for decisions that affect the public safety.'' \95\
---------------------------------------------------------------------------
\94\ See transcript of markup, Senate Judiciary Committee on S.
353, p. 19:2-17 (June 29, 2000) (statement of Joseph R. Biden, Jr.,
U.S. Senator).
\95\ Id.
The problem with this argument is that for all of the
reasons discussed above, S. 353 will not limit the legitimate
use of class actions at all. But more fundamentally, there is
no historical basis for the assertion that class actions were
---------------------------------------------------------------------------
intended to create this private attorney general device.
Although a few courts have over the years referred to the
deterrent effects of class actions, the promulgation history of
the current rule 23 of the Federal Rules of Civil Procedure
reflects no intent to create a private attorney general device.
The two surviving members of the Advisory Committee on Civil
Rules that developed the current version of the rule have both
testified in recent years that rule 23 was not intended to
serve that purpose. In testimony before the Advisory Committee
on Civil Rules in 1996, the Honorable William T. Coleman, Jr.,
specifically denounced the proposition that ``a purpose of Rule
23 is to hand a private attorney general's badge to any counsel
who wants it.'' \96\ He also stated that:
---------------------------------------------------------------------------
\96\ ``Advisory Committee Working Papers,'' (vol. 4), at 456.
Back in 1966, that was not the intended purpose of
Rule 23(b)(3). If there is interest in deputizing all
attorneys everywhere to enforce our laws, that's a
matter that should be decided by Congress, not through
the class action provisions in the Federal Rules of
Civil Procedure. The courts' tolerance for this
vigilante-style use of class actions is a root cause of
the abuses that must be corrected.\97\
---------------------------------------------------------------------------
\97\ Id.
In congressional testimony several years ago, Mr. John P.
Frank, the other surviving Committee member, sounded similar
---------------------------------------------------------------------------
sentiments:
What I wish to call to your attention is what I think
is a serious problem here: that the class action rule,
wholly without regard to its original purpose, has
become something of a device for social administration,
which should never have been the product of the rules
at all. These are matters which should be handled by
the Congress and by administrative agencies, and not
attempted efforts to govern various parts of the
economy by lawsuits which give more to the counsel * *
* that they do to those who should benefit from them.
I particularly adopt the statement of the chair of
the [Advisory Committee on Civil Rules] at the present
time, Judge Paul Niemeyer * * * in which he says: ``I
believe that Rule 23 was never intended to be a rule to
enhance enforcement of substantive claims. Such
legitimization should, in my judgment, be effected by
Congress, and Congress might well conclude * * * that
it is too anarchical to authorize private attorneys to
self-appoint themselves as enforcers of law without
adequate accountability to the lawmakers or the
public.'' \98\
---------------------------------------------------------------------------
\98\ ``Mass Torts and Class Action Lawsuits,'' Hearing before the
Subcommittee on Courts and Intellectual Property of the House Committee
on the Judiciary, 105th Cong., 2d sess. 20-21 (Mar. 5, 1998) (statement
of John P. Frank, Esq.).
Even if the critics were correct that deterrence was an
intended purpose of class actions, that assertion is self-
defeating because, in the Committee's view, the concept of
class actions serving a ``private attorney general'' or other
enforcement purpose is illegal. If the intended purpose of rule
23 was to empower private attorneys to act as ``attorneys
general,'' the rule plainly bestows substantive rights not
otherwise available under common or statutory law. Interpreted
in this way, the rule runs afoul of the Rules Enabling Act,\99\
which forbids Federal courts from adopting ``rules of practice
and procedure'' that may ``abridge, enlarge or modify any
substantive right.'' To the extent that class actions are
characterized as having a private attorney general purpose,
there are strong arguments that rule 23 is simply null and
void.\100\
---------------------------------------------------------------------------
\99\ 28 U.S.C. 2072(b).
\100\ The Federal courts have frequently rejected efforts to use
the Federal Rules of Civil Procedure to expand substantive rights. See,
e.g., In re Baldwin-United Corp., 770 F.2d 328, 335 (2d Cir. 1985)
(rejecting arguments that Fed. R. Civ. P. 23 could be used as
authorizing issuance of an injunction to protect class members);
Synanon Church v. United States, 557 F. Supp. 1329, 1330 n.2 (D.D.C.
1983) (rejecting argument that Fed. R. Civ., p. 57 creates right to
jury trials in declaratory judgment actions). Cf. Douglas v. NCNB Nat'l
Bank; 979 F.2d 1128, 1130 and n.2 (5th Cir. 1992) (declining to apply
Fed. R. Civ., p. 13(a) where doing so would ``abridge as lender's
substantive rights and enlarge the debtor's substantive rights'').
Similar views have been expressed by State courts. See, e.g.,
Southwestern Refinery Co. v. Bernal, 2000 Tex. LEXIS 50, (Tex. May 11,
2000) ([C]lass actions do not exist in some sort of alternative
universe outside our normal jurisprudence. Our procedural rules provide
otherwise: the form of an action under the rules must not ``enlarge or
diminish any substantive rights or obligations of any parties to any
civil action.'') (citing Tex. R. Civ., p. 815).
---------------------------------------------------------------------------
Critics' Contention No. 6: S. 353 will result in delays for
injured consumers.
Response: As discussed above, this criticism stems from
baseless concerns about the Federal courts' caseload and the
possible impact of this legislation on the ability of the
Federal courts to resolve these cases in a timely manner. For
all of the reasons set forth previously, there is no basis for
arguing that S. 353 would overwhelm the Federal courts with
class action cases and thereby adversely affect the ability of
consumers to find timely redress for their injuries in Federal
court.
Opponents of the bill have presented no data whatsoever
that judicial overload would occur. When Congress has expanded
Federal court jurisdiction in other respects, it normally has
not (at least in recent years) had the benefit of any hard data
indicating the likely impact on Federal court workload. For
example, the Y2K Act (Public Law 106-37) expanded Federal
jurisdiction over Y2K class actions in almost precisely the
same manner as proposed in S. 353. Congress enacted that change
without knowing its likely judicial workload impact. Likewise,
the Securities Litigation Reform Act of 1998 (Public Law 105-
353) contained provisions moving virtually all securities class
actions from State courts into the Federal courts. Once again,
Congress enacted that expansion of Federal jurisdiction without
knowing the precise effects on Federal court workload. In the
past, when the case has been made that Federal court
jurisdiction should be expanded, Congress has simply enacted
the expansion with the understanding that any resulting
judicial workload problems could be addressed later.
In sum, there simply is no basis to the claims that
consumers will be worse off in Federal court, or that the
resolution of class actions will be delayed because of the
Federal judiciary's workload.
Critics' Contention No. 7: S. 353 will trample on the
rights of States to manage their legal systems, thus
undermining the principles of federalism that our system of
government is built upon.
Response: While some critics have alleged that this bill
will somehow undermine federalism principles, exactly the
opposite is true. S. 353 has been carefully crafted to correct
a problem in the current system that does not promote
traditional concepts of federalism. In fact, it is the current
system and the wave of State court class actions that has
trampled on the rights of States to manage their legal systems
by allowing State court judges to interpret and apply the laws
of multiple jurisdictions. When State courts preside over class
actions involving claims of residents of more than one State,
they frequently dictate the substantive laws of other States,
sometimes over the protests of those other jurisdictions.\101\
When that happens, there is little those other jurisdictions
can do, since the judgment of a court in one State is not
reviewable by the State court of another jurisdiction.
---------------------------------------------------------------------------
\101\ See, e.g., Snider v. State Farm Mutual Automobile Insurance
Co., Cir. Ct. for Williamson City., IL, Docket No. 97-L-114 (1999).
---------------------------------------------------------------------------
It is far more appropriate for a Federal court to interpret
the laws of various States (a task inherent in the
constitutional concept of diversity jurisdiction), than for one
State court to dictate to other States what their laws mean or,
even worse, to impose its own State law on a nationwide case.
Why should a State court judge elected by the several thousand
residents of a small county in Alabama tell New York or
California the meaning of their laws? Why should an Illinois
State court judge interpret decisions by Virginia or Wisconsin
courts? Why should a State court judge be able to overrule
other State laws and policies? Why should State courts be
setting national policy?
S. 353 simply allows more class action cases filed in State
court to be removed to Federal court. S. 353 does not change
substantive law--it is, in effect, a procedural provision only.
As such, class action decisions rendered in Federal court
should be the same as if they were decided in State court--
under the Erie doctrine, Federal courts must apply State
substantive law in diversity cases. Moreover, if Federal court
judges are not familiar with State law on a particular issue,
they have the authority to ask a State court to ``certify'' a
question of law, e.g., to advise them how a State's laws should
be applied in an uncharted situation. This procedure allows the
Federal courts to apply State law appropriately and gives
States the ability to manage their legal systems without
becoming bound by other States' interpretations of their laws.
In short, contrary to critics' contentions, the real harm
to federalism is the status quo--leaving the bulk of class
action cases in State court. Federal courts are the appropriate
forum to decide interstate class actions involving large
amounts of money, many plaintiffs and interstate commerce
disputes, and these matters of interstate comity are more
appropriately handled by Federal judges appointed by the
President and confirmed by the Senate. S. 353 simply restores
this proper balance by resolving an anomaly of diversity
jurisdiction. True to the concept of federalism, S. 353
appropriately leaves certain ``intrastate'' class actions in
State court: cases involving small amounts in controversy;
cases with a class of 100 plaintiffs or less; cases involving
plaintiffs, defendants and governing law all from the same
State; cases against States and State officials; and certain
securities and corporate governance cases. As such, S. 353
promotes the concept of federalism and protects the ability of
States to determine their own laws and policies for their
citizens.
Critics' Contention No. 8: S. 353 could deny plaintiff
class members any meaningful ability to recover damages for
their injuries.
Response: In arguing that S. 353 would hurt consumers, some
opponents have gone so far as to list several State court class
actions which supposedly have served consumers well, inferring
that removal of such cases to Federal court is tantamount to a
denial of justice. This argument assumes that the Federal
courts are inferior to State courts, and that a Federal court
cannot arrive at a just outcome. If the cases cited by S. 353's
opponents would not have had the same outcome in Federal court
as they did in State court, it is because the Federal courts
may have been more careful to avoid the abuses of the system
that occur in State courts. The only thing that would be denied
when an interstate class action is removed to Federal court is
the plaintiffs' lawyers' ability to strike it rich on class
actions that should not be certified by any court because they
do not meet the requirements of a proper class.
Moreover, the claim that Federal courts will never certify
class actions because of their attention to rule 23 class
action requirements is completely off-base. While opponents of
the bill cite cases that allegedly achieved greater justice in
State court than they would have received if they had been
removed to Federal court, it is clear that this is pure
speculation. In fact, Federal courts have certified hundreds of
cases for class treatment in recent years, and the rules
governing the decision of whether cases may proceed as class
actions are basically the same in Federal and State courts.
Further, under the Erie doctrine, Federal courts apply State
substantive law in diversity cases. Consequently, a removed
class action should have the same law applied to it, regardless
of whether it is in Federal or State court.
Additionally, strict analysis by courts in deciding whether
a group of plaintiffs can proceed on a class basis should be
encouraged, rather than discouraged. The purpose of the current
requirements in rule 23 and similar State court class action
rules is to protect the due process rights of both plaintiffs
and defendants. When judges indiscriminately certify class
actions, unnamed plaintiffs lose important legal rights and can
be denied appropriate awards for their injuries, and defendants
become more vulnerable to frivolous and unjustifiably magnified
class actions.
Allowing individual States to certify classes for their own
citizens on particular issues could result in a denial of
relief for the citizens of other States, particularly given the
limited resources available to some defendants to satisfy all
pending claims. For example, some have hailed the punitive
damages verdict in the Engel tobacco class action that
continues to proceed in Florida State court. There, a Florida
jury awarded $135 billion in punitive damages to a class of
Florida residents. But if that verdict is upheld, citizens of
other States may be denied any relief whatsoever on their
claims against tobacco companies because the Florida residents
(through their single State class action) will have taken all
available money to pay their punitive damages claims. In short,
Florida residents will be paid billions of dollars in excess of
what they claim for their real personal injury damages, while
residents of all other States will not even receive what they
claim to be owed for the basic personal injuries that they
allege. As one commentator noted recently:
This is what fuels the [State court class action]
litigation lottery. If you are the first in line to
demand punitive damages, you may receive awards in the
billions. Injured parties in later [class actions] are
likely to receive less * * *. They may receive nothing
if the first award killed the company or the industry.
None of this makes much sense. There is no reason why
one group of litigants should, solely on the basis of
residency in a particular State, receive the lion's
share of damages to the deprivation of hundreds of
thousands of other injured parties. Moreover, there is
no reason why one state should be able to impose this
result on other states when a problem and its victims
are shared by the nation as a whole.\102\
\102\ Jonathan Turley, ``A Crisis of Faith: Tobacco and the
Madisonian Democracy,'' 37 Harv. J. on Legis. 433, 475 (2000).
Of course, this situation would not arise if S. 353 were
passed, since all qualifying interstate class actions on a
particular subject could be removed to Federal court and
consolidated before a single Federal court judge under the
multidistrict litigation mechanism described previously. A
judge in the multidistrict litigation system would be able to
manage the proceeding to ensure that no group of litigants
gained advantage over the others by virtue of their residency
(or any other irrelevant factor).
Finally, a large quantity of class actions in State court,
like the Broin tobacco case in Florida, results in millions of
dollars for plaintiffs' counsel but nothing of any value for
plaintiffs. A recent Institute for Civil Justice/RAND study
confirmed this result, finding that class counsel in State
court consumer class action settlements, typically walk off
with more money than all of the class members combined.\103\
The ICJ/RAND study provides three compelling rationales for
allowing more interstate class actions to be heard by Federal
courts:
---------------------------------------------------------------------------
\103\ ``Class Action Dilemmas,'' at 23.
---------------------------------------------------------------------------
(1) ``Federal judges scrutinize class action
allegations more strictly than state judges, and deny
certification in situations where a state judge might
grant it improperly;''
(2) ``state judges may not have adequate resources to
oversee and manage class actions with a national
scope;'' and
(3) ``if a single judge is to be charged with
deciding what law will apply in a multistate class
action, it is more appropriate that this take place in
Federal court than in a state court.'' \104\
---------------------------------------------------------------------------
\104\ Id. at 28.
---------------------------------------------------------------------------
S. 353 would help assure fairer settlements by allowing the
Federal courts to review more class action lawsuits, as well as
by providing notice to State attorneys general so they can
better protect their citizens against unfair settlement
agreements.
Critics' Contention No. 9: S. 353 provides that if a
Federal district court determines that a class action lawsuit
removed to that court does not satisfy applicable prerequisites
for certifying a class action, the court shall dismiss the
case. The case may be altered and refiled in State court, but
if that amended case still meets Federal jurisdictional
prerequisites, it may be removed again to Federal court. This
results in a ``merry-go-round,'' whereby defendants can
endlessly remove the class action to Federal court.
Response: Critics of S. 353's remand provisions would alter
the bill so that any time a case brought in or removed to a
Federal court is dismissed for failing to meet the requirements
of rule 23, a State court could then certify the case and allow
it to proceed as a class action under the State's class action
law. In short, these critics would guarantee that even though a
Federal court has determined that a case cannot be certified as
a class action, a State court could essentially consider all
class issues anew.
Altering S. 353 in this manner would defeat a primary
purpose of the bill--to allow the removal of more interstate
class actions to Federal courts, where they are more
appropriately heard. The revision suggested by critics would
effectively write that change out of the statute. Under the
proposed revision, if a Federal district court determines that
a removed case should not be afforded class treatment, a State
court (upon remand of the case) would be free to ``overrule''
the Federal court's ruling that class treatment would be
inappropriate. Thus, in interstate class actions, State
courts--not Federal courts--would become the final arbiters of
what should proceed as a class action in our judicial system.
This would essentially be a declaration that in interstate
class actions, the Federal courts are inferior to State courts.
This result runs counter to generally accepted concepts of
federalism.
Furthermore, altering S. 353 in this manner would only
aggravate the class action abuse already occurring in State
courts. When a Federal district court denies class
certification in a case, it is typically because litigating the
case on a class basis would likely result in a denial of the
purported class members' or the defendants' due process rights
or run counter to basic fairness principles. This revision to
the bill would invite State courts to overrule such Federal
court determinations and, instead, advance class actions which
have already been determined to deny due process rights or to
be unfair to unnamed class members and/or defendants.
In short, this proposed change to the bill would cause S.
353 to preserve the status quo instead of improving it. In
fact, the revision would create even more inefficiencies; even
if a defendant were to defeat class certification and win in
Federal court, the defendant would have to turn around and
mount the fight all over again in State court.
Indeed, the proposed fix to the perceived ``merry-go-
round'' problem would specifically authorize an activity that
even Public Citizen (which has expressed opposition to the
bill) believes to be unethical. In correspondence with the
House Judiciary Committee discussing an amendment to the
parallel House class action bill, Public Citizen stated that
``if a federal judge were to deny class certification in a case
that had been properly removed to federal court, it is clear
that the same class allegations could not be reasserted in
state court.'' Public Citizen went on to say that ``a
plaintiffs' lawyer who attempted that type of circumvention of
the federal court certification process would likely be subject
to significant sanctions, which would include payment of
defendants' attorneys' fees.'' In short, the proposed change
would expressly bless activity that courts would--and should--
find sanctionable.
Ultimately, concerns that a ``merry-go-round'' situation
will arise because of the way S. 353 is drafted are simply an
exaggeration. The Committee strongly believes that no judge--
Federal or State--would allow such a situation to take place,
and that a court would stop such bad-faith tactics. If this
were to actually occur, it is more conceivable that a court
would dismiss the complaint with prejudice and sanction the
offending attorney.
IX. Cost Estimate
U.S. Congress,
Congressional Budget Office,
Washington, DC, August 11, 2000.
Hon. Orrin G. Hatch,
Chairman, Committee on the Judiciary,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 353, the Class
Action Fairness Act of 2000.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Lanette J.
Keith (for the federal costs) and Patrice Gordon (for the
private-sector impact).
Sincerely,
Barry B. Anderson
(For Dan L. Crippen, Director).
Enclosure.
congressional budget office--cost estimate
S. 353--Class Action Fairness Act of 2000
CBO estimates that implementing S. 353 would cost the
federal district courts about $5 million a year. The bill would
not affect direct spending or receipts, so pay-as-you
procedures would not apply. S. 353 contains no
intergovernmental mandates as defined in the Unfunded Mandates
Reform Act (UMRA) and would impose no costs on state, local, or
tribal governments. S. 353 would impose a new private-sector
mandate, but CBO estimates that the direct cost of the mandate
would fall below the annual threshold established in UMRA ($109
million in 2000, adjusted annually for inflation).
S. 353 would expand the types of class-action lawsuits that
would be heard initially in federal district courts. As a
result, most class-action lawsuits would be heard in a federal
district court rather than a state court. Therefore, CBO
estimates that the bill would impose additional costs on the
federal district 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 the government, on
average, about $17,000. This estimate includes discretionary
costs for salaries and benefits for clerks, rent, utilities,
and associated overhead expenses, but excludes the costs of the
salaries and benefits of judges. Thus, CBO estimates that
implementing S. 353 would affect the courts' workload at a cost
of about $5 million annually.
S. 353 also would require the Judicial Conference of the
United States, the Federal Judicial Center, and the
Administrative Office of the United States Courts 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 2001-2002 period, subject to the
availability of appropriated funds.
CBO also estimates that enacting this bill could increase
the need for judges. Because the salaries and benefits of
district court judges are considered mandatory, adding more
judges would increase direct spending. But S. 353 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.
S. 353 would impose a new private-sector mandate on
attorneys for the members of the plaintiff class in many class-
action suits filed in or ``removed'' to federal courts. The
bill would require class counsels to make notifications and
disclosures to the attorneys general of all states in which a
class member resides (and, in certain circumstances, to the
Attorney General of the United States) within 10 days after a
proposed settlement is filed in court. The bill defines a
proposed settlement as a settlement agreement regarding a class
action that is subject to court approval and would be binding
on the class. The required notices and disclosures would
include a copy of the suit, a copy of the proposed settlement,
a statement of class-members' rights, and certain other
materials. In effect, class counsels would have to provide up
to 51 copies of documents and materials related to information
that they usually already possess about the case. Further, the
provision may allow for the use of the Internet in making such
disclosures. Thus, CBO estimates that the costs of complying
with this mandate would fall well below the statutory threshold
established in UMRA ($109 million in 2000, adjusted annually
for inflation).
On August 18, 1999, CBO transmitted a similar cost estimate
for H.R. 1875, the Interstate Class Action Jurisdiction Act of
1999, as ordered reported by the House Committee on the
Judiciary on August 3, 1999. The bills are similar and the cost
estimates are nearly identical.
The CBO staff contacts for this estimate are Lanette J.
Keith (for the federal costs), and Patrice Gordon (for the
private-sector impact). This estimate was approved by Robert A.
Sunshine, Assistant Director for Budget Analysis.
X. Regulatory Impact Statement
In compliance with paragraph 11(b)(1), rule XXVI of the
Standing Rules of the Senate, the Committee, after due
consideration, concludes that S. 353 will not have significant
regulatory impact.
XI. ADDITIONAL VIEWS OF SENATOR KOHL
I write separately to emphasize both my support for this
proposal and my awareness that it still could benefit from
additional modifications.
First, moving cases to Federal court is only one of a
number of ways that S. 353 attempts to provide additional
safeguards against serious class action abuses. The bill also
mandates that class counsel provide State attorneys general and
the Attorney General of the United States with notice of a
class settlement. It further requires that class notice be
provided in plain, easily understood language to ensure that
plaintiffs understand their rights and responsibilities in a
lawsuit.
To be sure, this bill is not perfect, but it does try to
address some very real problems and does so in a way that will
correct real injustices. Second, while this measure was clearly
improved from introduction to markup, it could still be more
balanced. For example, the bill was modified twice to make it
more difficult to move some class action cases to Federal
court. These changes--increasing the minimal dollar amount
necessary to reach Federal court from $75,000 to $2 million and
mandating that the class must contain at least 100 class
members--were a good faith effort to address the stated
concerns by the opponents of this legislation that too many
cases would be moved to Federal court. In my opinion, even
stronger principle of limitation are needed to determine which
cases should--and should not be--shifted to Federal court.
Unfortunately, rather than accepting our efforts as an
invitation to make more helpful changes to the bill, opponents
decided instead to offer ``message'' amendments that were
destined to fail. It is my hope that before this bill becomes
law, its opponents will work with us to address their concerns
and isolate the problem cases.
Third, when this bill moves forward next Congress, we need
to develop an approach to abusive ``coupon'' cases that is
somewhere between our measure as introduced and as unilaterally
modified by the full Committee. As introduced, the measure
would have tied attorney's fees to the amount of actual
recovery in the lawsuit. The motivation behind this provision
was straightforward: cases where the attorneys receive several
million dollars, yet the plaintiff class as a whole receives
virtually worthless ``coupons'' to be used only in future
purchases are a judicial outrage and need to be addressed.
For example, in a case against Bell Atlantic Mobile for
deceptive billing practices, the settlement agreement entitled
the class members to $15 vouchers redeemable on future
purchases while the attorneys would receive $1.25 million.\1\
In a case against General Electric Capital Auto Lease for lack
of disclosure, the plaintiff attorneys settled the case for
coupons good only on the purchase of a new car leased through
GE Capital. Plaintiffs were again forced to patronize the party
they had just sued if they hoped to realize any damages in
their settled case.\2\
---------------------------------------------------------------------------
\1\ ``In Class Actions, a Litany of Frustrations,'' Washington
Post, Nov. 14, 1999, A20.
\2\ ``Coupons Create Cash for Lawyers,'' Washington Post, Nov. 14,
1999, A20.
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In the interests of moving the measure through the
Committee expeditiously, however, we dropped this provision
entirely and substituted a study of the issue in its place. I
am hopeful that we can carefully craft a more fine-tuned
provision in the original bill that could address abusive
coupon case settlement without destroying the incentives for
attorneys to represent classes on a contingency fee basis.
Herb Kohl.
XII. MINORITY VIEWS OF SENATORS LEAHY, KENNEDY, BIDEN, FEINGOLD, AND
TORRICELLI
We strongly oppose S. 353, the ``Class Action Fairness Act
of 2000.'' Although the legislation is described by some of its
proponents as a simple procedural fix, it represents a major
rewrite of the class action rules that would bar most forms of
State class actions. S. 353 is opposed by the Justice
Department,1 both the State 2 and Federal
3 judiciaries, as well as consumer and public
interest groups.4
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\1\ See Letter from Robert Raben, Assistant Attorney General, U.S.
Department of Justice, to Senator Leahy (June 9, 2000) [hereinafter DOJ
views letter] stating that: ``In sum, S. 353 would not solve any of the
alleged class action abuses that are found in both Federal and State
courts or enhance the fairness of class action proceedings. Instead, S.
353 would limit the availability of class actions as a viable remedy
for those with bona fide claims who are unable to afford a suit of
their own. It would infringe significantly on State courts' ability to
offer redress and provide a convenient forum for their citizens. It
would upset the careful balance of federalism by displacing State court
litigation in class actions. It would expand the already overloaded
Federal docket.''
\2\ See Letter from David A. Brock, president, Conference of Chief
Justices (July 19, 1999) [hereinafter Conference of Chief Justices
letter]. The Conference of Chief Justices wrote to Congress that this
legislation ``would unilaterally transfer jurisdiction of a significant
category of cases from state to federal courts. So drastic a distortion
and disruption of traditional notions of judicial federalism is not
justified, absent clear evidence of the inability of the state judicial
systems to process and decide class actions cases in a fair and
impartial manner.'' The Conference on Chief Justices letter continued:
``Our discussions on this issue within the Conference have failed to
identify any systemic problems in state class action procedures.
Rather, we have heard only anecdotes of isolated problems that are
being addressed on an ongoing basis by state judicial and legislative
bodies. We believe strongly that there is no rational basis for so
drastic an invasion of state judicial prerogatives.''
\3\ See Letters from Leonias Ralph Mecham, secretary, Judicial
Conference of the United States (July 26, 1999, and Aug. 23, 1999)
[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 legislation).
\4\ See Letters to Committee Members in opposition to S. 353 from
American Cancer Society, American Heart Association, American Lung
Association, American Medical Association, Asian-American Legal Defense
Fund, Citizens for Corporate Accountability and Individual Rights,
Clean Water Action, Coalition to Stop Gun Violence, Consumer Federation
of America, Consumers Union, Disability Rights Education Fund,
Earthjustice Legal Defense Fund, Friends of the Earth, Handgun Control,
Inc., National Consumers League, National Council of La Raza, National
Employment Lawyers Association, NOW Legal Defense Fund, Public Citizen,
Save Lives, Not Tobacco Coalition, U.S. Public Interest Research Group,
and Violence Policy Center.
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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 solely
involve violations of State laws, such as State consumer
protection laws.
S. 353 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 S. 353 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 $2,000,000 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\ S. 353, Sec. 3. 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\ S. 353, Sec 3. The legislation also excludes securities-related
and corporate governance class actions from coverage and makes of
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 1-year deadline for filing removal actions) and tolling
the statute of limitation periods for dismissed class actions.
\7\ S. 353 Sec. 3.
\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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S. 353 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,
S. 353 will further aggravate these problems and cause victims
to wait in line for years to obtain a trial. Alternatively, to
the extent class actions are remanded to state court, the
legislation effectively permits only 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. As Senator Biden eloquently stated during
Committee consideration of the bill, S. 353 will make it ``far
less likely that class actions will be brought, far less likely
that corporations will be deterred from taking action contrary
to the public interest, and far less likely that businesses
will redress injuries their products have inflicted. Consumers
will suffer the consequences. ''9
---------------------------------------------------------------------------
\9}\Written statement of Senator Biden, executive business meeting
of the Committee, June 29, 2000.
---------------------------------------------------------------------------
Indeed, the recent national tire recall was started, in
part, from the disclosure of internal corporate documents on
consumer complaints of tire defects and design errors that were
discovered in litigation against Bridgestone/Firestone, Inc.
Plaintiff attorneys turned this information over to the
National Highway Traffic Safety Administration, triggering a
NHTSA investigation. On August 9, 2000, Bridgestone/Firestone
recalled 6.5 million tires after they were linked to 88 deaths,
250 injuries and 1,400 crashes. And just this month, the NHTSA
warned that another 1.4 million Firestone tires on the road may
be defective. It is doubtful that the internal corporate
consumer complaint information would have ever seen the light
of day absent the civil justice discovery process.10
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\10\ See ``Anatomy Of A Recall,'' Time, Sept. 11, 2000. On Sept.
20, 2000, the National Highway Traffic Safety Administration revised
its estimates for accidents attributable to recalled Firestone tires to
101 fatalities, 400 injuries and 2,226 consumer complaints.
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We would also note that before even considering S. 353, the
Senate 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. In short, we agree with the position of National
Conference of State Legislatures: ``Anecdotal evidence of abuse
might highlight a need for reform in a particular jurisdiction,
reform that can and has been addressed outside the nation's
capitol. Such anecdotes, however, are grossly insufficient
reasons for a wholesale federal takeover of class action
litigation. Lawsuits based on questions of State law should be
decided in State courts by the judges who are best qualified to
interpret and apply the laws of that State. ''11
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\11\ Letter from Representative Kip Holden, Louisiana House of
Representatives, Chairman, National Conference of State Legislatures
AFI Law and Justice Committee, dated June 21, 2000, to Senator Leahy.
---------------------------------------------------------------------------
For these and the other reasons set forth herein, we
strongly oppose S. 353.
I. 353 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 S. 353 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 [S.
353] 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.
''12
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\12\ See Judicial Conference letter, supra note 3.
---------------------------------------------------------------------------
The workload problem in the Federal courts is already at an
acute stage. In 1999, there were 71 judicial vacancies, or over
8 percent of the Federal judgeships. At year end, there were
260,318 civil cases pending in Federal courts. On average,
Federal district court judges had 377 civil filings backlogged
on their dockets--a 7 percent jump since 1995.13 It
is because of these workload problems that Chief Justice
Rehnquist took the important step of criticizing Congress for
taking actions which have exacerbated the federal judiciary's
workload:
\13\ See Admin. Office of the U.S. Courts, Annual Report of the
Director of the Administrative Office of the U.S. Courts (1999).
---------------------------------------------------------------------------
In my annual report for [1998], 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.\14\
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\14\ Chief Justice William Rehnquist, An Address to the American
Law Institute, ``Rehnquist: Is Federalism Dead?'' (May 11, 1998), in
Legal Times (May 18, 1998). On May 27, 1999, Senator Leahy introduced
S. 1145, the Federal Judgeship Act. It would create 69 new judgeships
across the country to address the increased caseloads of the Federal
judiciary. The bill is based on the recommendations of the Judicial
Conference of the United States, the nonpartisan, policymaking arm of
the judicial branch. The Committee has not acted on S. 1145.
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
decisionmaking and currency in its docket is now in danger of
losing both.'' \15\
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\15\ Annual report to the 2d Circuit Judicial Conference, presented
June, 1998.
---------------------------------------------------------------------------
During the markup on S. 353, several members of the
Committee expressed their grave concerns about the impact of
this legislation on an already overburdened Federal court
system. Senator Feinstein, for instance, noted that from 1991-
1998, the average weighted caseload per district judge climbed
25 percent.\16\ As Senator Feinstein noted, this workload
increase will be amplified by federalizing State class actions,
which consume five times as much judicial time as an average
civil case,\17\ ultimately making the caseload unmanageable for
the current Federal judiciary. Indeed, the five border courts
of Southern California, Arizona, New Mexico, West Texas, and
South Texas, which currently handle 26 percent of all Federal
criminal filings in the United States, would be particularly
hard hit by S. 353.\18\ Other Federal courts would be faced
with similar workload problems under S. 353.
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\16\ Transcript of executive business meeting of the Committee,
June 22, 2000, statement of Senator Feinstein at 22.
\17\ Id at 23.
\18\ At the June 29, 2000, executive business meeting of the
Committee, Senator Feinstein offered an amendment to S. 353 that would
provide 13 new judgeships for the Southwest border courts. Senators
Leahy, Kennedy, Biden, Feinstein, Feingold, Torricelli, and Schumer
voted for the amendment. All other members of the Committee voted
against the amendment, with Senator Abraham passing.
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By federalizing State class actions, S. 353 runs precisely
counter to Chief Justice Rehnquist's and Chief Judge Winters'
admonition and risks severely aggravating the judicial workload
crisis. Indeed, the Judicial Conference concluded that ``when
the additional, burdensome litigation resulting from [this
legislation] is added to the already overcrowded dockets of
Federal courts across our country, substantial backlogs and
attendant delays can be expected.'' \19\
---------------------------------------------------------------------------
\19\ See Judicial Conference letter, supra note 3.
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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, S. 353 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 S. 353 an ``unwarranted incursion on the principles
of judicial federalism.'' \20\
---------------------------------------------------------------------------
\20\ See Conference of Chief Justices letter, supra note 2.
---------------------------------------------------------------------------
In addition to these potential workload problems, the
legislation raises serious constitutional issues. S. 353 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.\21\
---------------------------------------------------------------------------
\21\ See id.
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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 \22\ 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 \23\ 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' '' \24\ 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.'' \25\
---------------------------------------------------------------------------
\22\ 487 U.S. 131, 138 (1988) (finding Wisconsin notice-of-claim
statute to be preempted by 42 U.S.C. 1983, which holds anyone acting
under color of law liable for violating constitutional rights of
others).
\23\ 520 U.S. 911 (1997) (holding that Idaho procedural rules
concerning appealability of orders are not preempted by 42 U.S.C.
1983).
\24\ Id. at 919 (quoting Henry M. Hart, Jr., ``The Relations
Between State and Federal Law,'' 54 Colum. L. Rev. 489, 508 (1954)).
\25\ 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'').
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The Supreme Court's most recent decisions further indicate
that S. 353 is an unacceptable infringement upon State
sovereignty. In United States v. Morrison,\26\ the court
invalidated the Violence Against Women Act, claiming that
Congress overstepped its specific constitutional power to
regulate interstate commerce. Despite the existence of vast
data showing the effects violence against women has on
interState commerce, the Court essentially warned Congress not
to extend its constitutional authority to ``completely
obliterate the Constitution's distinction between national and
local authority.'' S. 353, however, ignores the Court's
admonitions and rejects the Federal system by hindering the
States' ability to adjudicate class actions involving important
and evolving questions of State law. S. 353 not only
obliterates the distinction between national and local
authority, it effectively annihilates local authority over
State class actions.
---------------------------------------------------------------------------
\26\ 120 S. Ct. 1740 (2000).
---------------------------------------------------------------------------
Additionally, support for S. 353 is misplaced. Arguments
that class-action reform is justified because State courts are
``biased'' against out-of-State defendants in class action
suits are vastly overstated.\27\ 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,\28\ 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; \29\ (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.\30\
---------------------------------------------------------------------------
\27\ 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.
\28\ 472 U.S. 797 (1985).
\29\ 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)).
\30\ 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).
---------------------------------------------------------------------------
Second, 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 toward limiting Federal
diversity jurisdiction.\31\ For example, Congress enacted the
Federal Courts Improvement Act of 1996,\32\ 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 \33\ and that it was important to keep the Federal
judiciary's efforts focused on Federal issues.\34\
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\31\ 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. As Senator
Biden stated during Committee consideration of S. 353: ``[W]hy have my
Republican friends who are such States' righters all of a sudden
decided that there is such an egregious practice going on in their own
States that their State court judges aren't competent to handle these
cases? I don't quite get it. You all think they are competent enough to
determine whether someone will be fried. You all think they are
competent enough to determine whether or not habeas corpus be extended
so that they can make that judgment in the States. You are confident
that they can do it on life-and-death matters, but you are not sure
they can do it relating to matters that they have been dealing with for
100 or 200 years. I think this is a solution looking for a problem.''
Transcript of executive business meeting of the Committee, June 29,
2000, statement of Senator Biden at 17.
\32\ 28 U.S.C. 1332(a) (West Supp. 1998).
\33\ See The Judicial Conference of the United States, ``Long Range
Plan for the Federal Courts,'' Recommendation 7 at 30 (1995).
\34\ See id.
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ii. s. 353 will hurt consumers, victims and the environment
There can be little doubt that S. 353 will have a serious
adverse impact on the ability of consumers and victims to
obtain compensation in cases involving widespread harm. At a
minimum, the legislation will force most State class action
claims into Federal courts where it is likely to be far more
expensive for plaintiffs to litigate cases and where defendants
could force plaintiffs to travel long distances to attend
proceedings.
It is also likely to be far more difficult and time
consuming to certify a class action in Federal court. Fourteen
States, representing 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\ Broussard v. Meineke Discount Mufflers,\41\
and Ortiz v. Fibreboard,\42\ have made it more difficult to
establish the ``predominance requirement'' necessary to
establish a class action under the Federal rules.
---------------------------------------------------------------------------
\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 and 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.
\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 member's 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). 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.
---------------------------------------------------------------------------
S. 353 also poses unique risks and obstacles for plaintiffs
that they do not face under current law. Under S. 353, 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. 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.
Senator Feingold tried to address this merry-go-around
problem with an amendment to S. 353 that would prevented
``endless rounds of removals, dismissals, and remands.'' \43\
The Feingold amendment required that class actions removed to
Federal court and unable to satisfy the rule 23 class
certification requirements be remanded to State court. If the
claims before the State court were substantially identical to
the original action, the case could not be removed under the
amendment. This amendment would have alleviate some of
unacceptable delays S. 353 would create for class action
litigation. Unfortunately, the majority voted down this
amendment to improve the bill.\44\
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\43\ Transcript of Committee executive business meeting, June 29,
2000, statement of Senator Feingold at 51.
\44\ At the June 29, 2000, executive business meeting of the
Committee, Senators Leahy, Kennedy, Biden, Feinstein, Feingold,
Torricelli, and Schumer voted for the amendment. All other members
voted in opposition, with Senator Abraham passing.
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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 \45\ are new and undefined phrases
with no antecedent in the U.S. Code or the case law. It will
take many years and conflicting decisions before these critical
terms can begin to be sorted out. Moreover, S. 353 would force
Federal courts to interpret State consumer protection laws in
almost all class actions involving State statutes relating to
consumer fraud, consumer loans, consumer credit sales,
deceptive trade practices, unlawful trade practices, or unfair
and deceptive practices.\46\
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\45\ S. 353, Sec. 2(b)(2).
\46\ At the June 29, 2000 executive business meeting of the
Committee, Senator Feingold offered an amendment to exclude from S. 353
these types of cases arising under State consumer protection laws.
Unfortunately, the majority defeated this amendment. Senators Leahy,
Kennedy, Biden, Feinstein, Feingold, Torricelli, and Schumer voted for
the amendment. All other members voted in opposition, with Senator
Abraham passing.
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Because of the special legal protections in S. 353, the
tobacco and firearms industries may be able to avoid
accountability for their products. For example, the bill's
minimal diversity provision--which pushes all State-based
claims to Federal court where at least one plaintiff and one
defendant are from different States--guarantees that tobacco-
related cases will end up in Federal court since the major
tobacco companies are all headquartered in only one or two
States while tobacco victims are nationwide. This removal is a
great advantage to the tobacco industry, since Federal courts
have been reluctant to certify classes of tobacco victims in
class actions suits with emerging causes of action based on
State tort law, which is traditionally developed by that
State's court system.\47\ S. 353 stifles this development, yet
offers plaintiffs no protection from a Federal court
understandably wary of creating state law.\48\
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\47\ See letters in opposition to S. 353 from the American Lung
Association and American Medical Association.
\48\ At the June 29, 2000, executive business meeting of the
Committee, Senator Leahy offered an amendment to S. 353 that would
carve out class actions involving claims against the tobacco industry.
Senators Leahy, Kennedy, Biden, Feinstein, Feingold, Torricelli, and
Schumer voted for the amendment. All other members voted in opposition,
with Senator Abraham passing.
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S. 353 will also hinder the consumer's ability to use class
action litigation as a protective measure against the
manufacturers of defective firearms. According to the Violence
Policy Center and Handgun Control, Inc., class actions are the
only method to force manufacturers of defective firearms to
make guns safer because firearms are exempt from consumer
safety laws.\49\ Senators Torricelli and Feinstein recognized
this need for local governments and citizens to have access to
class action litigation and offered an amendment to carve out
firearms-related causes of action from the provisions of S.
353. Unfortunately, the majority defeated this amendment.\50\
By removing State class actions to Federal court, S. 353 will
delay and restrict the only avenue available for consumers to
hold firearms manufacturers accountable for their products.
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\49\ Letter from the Violence Policy Center and Handgun Control,
Inc. to Committee members.
\50\ At the June 27, 2000 executive business meeting of the
Committee, Senators Leahy, Kennedy, Biden, Feinstein, Feingold,
Torricelli, and Schumer voted for the Torricelli-Feinstein amendment.
All other members voted in opposition to the amendment, with Senator
Abraham passing.
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Protection of the environment may also suffer as a result
of S. 353. By removing many important environmental class
actions from State to Federal court, S. 353 not only denies
State courts the opportunity to interpret their own State's
environmental protection laws, it hampers and deters plaintiffs
from pursuing important environmental litigation. The well
documented backlog in the Federal courts and the need for
attorneys to engage in choice of law debates will significantly
increase the time and cost of environmental litigation.
Ultimately, environmental class actions may not get litigated
and the incentive polluters have to keep our environment clean
will be reduced.\51\
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\51\ At the June 29, 2000, executive business meeting of the
Committee, Senator Leahy offered an amendment to S. 353 that would
carve out claims arising under State environmental protection laws,
including any claim under common law for injury to human health or the
environment. Unfortunately, the majority defeated this amendment.
Senators Leahy, Kennedy, Biden, Feinstein, Feingold, Torricelli, and
Schumer voted for the amendment. All other members of the Committee
voted against the amendment, with Senator Abraham passing.
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Under this bill, plaintiffs' attorneys may not be willing
to take these high-risk, high-cost, and time-consuming cases,
particularly when the judicial remedy sought is injunctive
relief. This has the potential to leave our environment and the
victims of reckless polluters unprotected by our civil justice
system. This bill, intentionally or not, protects polluters and
ignores the innocent victims of their negligence.\52\
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\52\ See letters in opposition to S. 353 from Friends of the Earth,
Clean Water Action, Earthjustice Legal Defense Fund, and U.S. Public
Interest Research Group.
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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
actions.
iii. s. 353 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, S. 353 solely benefits defendants. S. 353
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. Unfortunately, S. 353
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.
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 \53\ involved a class action in Federal court 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.\54\ These
cases reflect specific problems with individual judges rather
than systemic problems with the States' handling of class
actions. Any serious effort to reform class actions should
address these issues, whether they arise at the federal or
state level.\55\
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\53\ 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).
\54\ 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).
\55\ 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).
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conclusion
S. 353 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. This legislation would seriously undermine the
delicate balance between our Federal and State courts.
Therefore, we urge the rejection of S. 353.
Patrick Leahy.
Edward Kennedy.
Joseph Biden, Jr.
Russell Feingold.
Robert Torricelli.
XIII. Changes in Existing Law
In compliance with paragraph 12 of rule XXVI of the
Standing Rules of the Senate, changes in existing law made by
S. 353, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matters is printed in italic, and existing law in which no
change is proposed is shown in roman):
UNITED STATES CODE
* * * * * * *
TITLE 28--JUDICIARY AND JUDICIAL PROCEDURE
Part Section
ORGANIZATION OF COURTS...........................................1
* * * * * * *
PARTICULAR PROCEEDINGS........................................2201
PART I--ORGANIZATION OF COURTS
Chapter Section
1. Supreme Court.................................................. 1
* * * * * * *
PART IV--JURISDICTION AND VENUE
81. Supreme Court................................................. 1251
* * * * * * *
CHAPTER 85--DISTRICT COURTS; JURISDICTION
Sec.
1330. Actions against foreign states.
1331. Federal question.
1332. Diversity of citizenship; amount in controversy; costs.
Sec. 1332. Diversity of citizenship; amount in controversy; costs
(a) The district courts shall have original jurisdiction of
all civil actions where the matter in controversy exceeds the
sum or value of $75,000, exclusive of interest and costs, and
is between--
* * * * * * *
(c) 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)(1) In this subsection, the terms ``class'', ``class
action'', and ``class certification order'' have the meanings
given such terms under section 1711.
(2) The district courts shall have original jurisdiction of
any civil action where the matter in controversy exceeds the
sum or value of $2,000,000, exclusive of interest and costs,
and is a class action in which--
(A) any member of a class of plaintiffs is a citizen
of a State different from any defendant;
(B) any member of a class of plaintiffs is a foreign
state or a citizen or subject to a foreign state and
any defendant is a citizen of a State; or
(C) any member of a class of plaintiffs is a citizen
of a State and any defendant is a foreign state or a
citizen or subject of a foreign state.
(3) Paragraph (2) shall not apply to any civil action in
which--
(A)(i) the substantial majority of the members of the
proposed plaintiff class and the primary defendants are
citizens of the State in which the action was
originally filed; and
(ii) the claims asserted therein will be governed
primarily by the laws of the State in which the action
was originally filed;
(B) the primary defendants are States, State
officials, or other governmental entities against whom
the district court may be foreclosed from ordering
relief; or
(C) the number of members of all proposed plaintiff
classes in the aggregate is less than 100.
(4) In any class action, the claims of the individual
members of any class shall be aggregated to determine whether
the matter in controversy exceeds the sum or value of
$2,000,000, exclusive of interest and costs.
(5) This subsection shall apply to any class action before
or after the entry of a class certification order by the court.
(6)(A) A district court shall dismiss any civil action that
is subject to the jurisdiction of the court solely under this
subsection if the court determines the action may not proceed
as a class action based on a failure to satisfy the conditions
of rule 23 of the Federal Rules of Civil Procedure.
(B) Nothing in subparagraph (A) shall prohibit plaintiffs
from filing an amended class action in Federal court or filing
an action in State court, but any such filed action may be
removed if it is an action of which the district courts of the
United States have original jurisdiction.
(C) In any action that is dismissed under this subsection
and is filed by any of the original 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 under
this subsection that are subsequently asserted in an individual
action shall be deemed tolled for the period during which the
dismissed action was pending.
(7) Paragraph (2) 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
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).
(8) For purposes of this subsection and section 1453 of
this title, an unincorporated association shall be deemed to be
a citizen of the State where it has its principal place of
business and the State under whose laws it is organized.
[(d)] (e) The word ``States'', as used in this section,
includes the Territories, the District of Columbia, and the
Commonwealth of Puerto Rico.
* * * * * * *
CHAPTER 89--DISTRICT COURTS; REMOVAL OF CASES FROM STATE COURTS
Sec.
1441. Actions removable generally.
* * * * * * *
1452. Removal of claims related to bankruptcy cases.
1453. Removal of class actions.
* * * * * * *
Sec. 1446. Procedure for removal
(a) A defendant * * *
(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 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. 1452. Removal of claims related to bankruptcy cases
(a) A party * * *
(b) The court to which such claim or cause of action is
removed may remand such claim or cause of action on any
equitable ground. An order entered under this subsection
remanding a claim or cause of action, or a decision to not
remand, is not reviewable by appeal or otherwise by the court
of appeals under section 158(d), 1291, or 1292 of this title or
by the Supreme Court of the United States under section 1254 of
this title.
Sec. 1453. Removal of class actions
(a) In this section, the terms ``class'', ``class action'',
and ``class member'' have the meanings given such terms under
section 1711.
(b) A class action may be removed to a district court of
the United States in accordance with this chapter, 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 without the consent of
all members of such class.
(c) This section shall apply to any class action before or
after the entry of any order certifying a class.
(d) The provisions of section 1446 relating to a defendant
removing a case shall apply to a plaintiff removing a case
under this section, except that in 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
files notice of removal within 30 days after receipt by such
class member, through service or otherwise, of the initial
written notice of the class action.
(e) This section shall not apply to any class action solely
involving--
(1) a claim concerning a covered security as defined
under section 16(f)(3) of the Securities Act of 1933
and section 28(f)(5)(E) of the Securities Exchange Act
of 1934;
(2) a claim that relates to the internal affairs or
governance of a corporation or other form of business
enterprise and arises under or by virtue of the laws of
the State in which such corporation or business
enterprise is incorporated or organized; or
(3) a claim that relates to 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).
* * * * * * *
PART V--PROCEDURE
Chapter Section
111. General Provisions........................................... 1651
113. Process...................................................... 1691
1711lass Actions................................................
* * * * * * *
CHAPTER 114--CLASS ACTIONS
Sec.
1711. Definitions.
1712. Application.
1713. Notification of class action certifications and settlements.
Sec. 1711. Definitions
In this chapter the term--
(1) ``class'' means a group of persons that comprise
parties to a civil action brought by 1 or more
representative persons;
(2) ``class action'' means a civil action filed
pursuant to rule 23 of the Federal Rules of Civil
Procedure or similar State statutes or rules of
procedure authorizing an action to be brought by 1 or
more representative persons on behalf of a class;
(3) ``class certification order'' means an order
issued by a court approving the treatment of a civil
action as a class action;
(4) ``class member'' means a person that falls within
the definition of the class;
(5) ``class counsel'' means the attorneys
representing the class in a class action;
(6) ``plaintiff class action'' means a class action
in which class members are plaintiffs; and
(7) ``proposed settlement'' means a settlement
agreement regarding a class action that is subject to
court approval and would be binding on the class.
Sec. 1712. Application
This chapter shall apply to all plaintiff class actions
filed in or removed to Federal court, except any such class
action solely involving--
(1) claims concerning a covered security as defined
under section 16(f)(3) of the Securities Act of 1933
and section 28(f)(5)(E) of the Securities Exchange Act
of 1934;
(2) claims that relate to the internal affairs or
governance of a corporation or other form of business
enterprise and arises under or by virtue of the laws of
the State in which such corporation or business
enterprise is incorporated or organized; or
(3) claims that relate to 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).
Sec. 1713. Notification of class action certifications and settlements
(a) Not later than 10 days after a proposed settlement in a
class action is filed in court, class counsel shall serve the
State attorney general of each State in which a class member
resides and the Attorney General of the United States as if
such attorneys general and the Department of Justice were
parties in the class action with--
(1) a copy of the complaint and any materials filed
with the complaint and any amended complaints (except
such materials shall not be required to be served if
such materials are made electronically available
through the Internet and such service includes notice
of how to electronically access such material);
(2) notice of any scheduled judicial hearing in the
class action;
(3) any proposed or final notification to class
members of--
(A)(i) the members' rights to request
exclusion from the class action; or
(ii) if no right to request exclusion exists,
a statement that no such right exists; and
(B) a proposed settlement of a class action;
(4) any proposed or final class action settlement;
(5) any settlement or other agreement
contemporaneously made between class counsel and
counsel for the defendants;
(6) any final judgment or notice of dismissal;
(7)(A) if feasible the names of class members who
reside in each State attorney general's respective
State and the estimated proportionate claim of such
members to the entire settlement; or
(B) if the provision of information under
subparagraph (A) is not feasible, a reasonable estimate
of the number of class members residing in each
attorney general's State and the estimated
proportionate claim of such members to the entire
settlement; and
(8) any written judicial opinion relating to the
materials described under paragraphs (3) through (6).
(b) A hearing to consider final approval of a proposed
settlement may not be held earlier than 120 days after the date
on which the State attorneys general and the Attorney General
of the United States are served notice under subsection (a).
(c) Any court with jurisdiction over a plaintiff class
action shall require that--
(1) any written notice provided to the class through
the mail or publication in printed media contain a
short summary written in plain, easily understood
language, describing--
(A) the subject matter of the class action;
(B) the legal consequences of being a member
of the class action;
(C) if the notice is informing class members
of a proposed settlement agreement--
(i) the benefits that will accrue to
the class due to the settlement;
(ii) the rights that class members
will lose or waive through the
settlement;
(iii) obligations that will be
imposed on the defendants by the
settlement;
(iv) the dollar amount of any
attorney's fee class counsel will be
seeking, or if not possible, a good
faith estimate of the dollar amount of
any attorney's fee class counsel will
be seeking; and
(v) an explanation of how any
attorney's fee will be calculated and
funded; and
(D) any other material matter; and
(2) any notice provided through television or radio
to inform the class members of the right of each member
to be excluded from a class action or a proposed
settlement, if such right exists, shall, in plain,
easily understood language--
(A) describe the persons who may potentially
become class members in the class action; and
(B) explain that the failure of a person
falling within the definition of the class to
exercise such person's right to be excluded
from a class action will result in the person's
inclusion in the class action.
(d) Compliance with this section shall not provide immunity
to any party from any legal action under Federal or State law,
including actions for malpractice or fraud.
(e)(1) A class member may refuse to comply with and may
choose not to be bound by a settlement agreement or consent
decree in a class action if the class member resides in a State
where the State attorney general has not been provided notice
and materials under subsection (a).
(2) The rights created by this subsection shall apply only
to class members or any person acting on a class member's
behalf, and shall not be construed to limit any other rights
affecting a class member's participation in the settlement.
(f) Nothing in this section shall be construed to expand
the authority of, or impose any obligations, duties, or
responsibilities upon, State attorneys general or the Attorney
General of the United States.
* * * * * * *