[House Report 108-144]
[From the U.S. Government Publishing Office]



108th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    108-144

======================================================================

 
                   CLASS ACTION FAIRNESS ACT OF 2003

                                _______
                                

  June 9, 2003.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

 Mr. Sensenbrenner, from the Committee on the Judiciary, submitted the 
                               following

                              R E P O R T

                             together with

                    ADDITIONAL AND DISSENTING VIEWS

                        [To accompany H.R. 1115]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to whom was referred the 
bill (H.R. 1115) to amend the procedures that apply to 
consideration of interstate class actions to assure fairer 
outcomes for class members and defendants, to outlaw certain 
practices that provide inadequate settlements for class 
members, to assure that attorneys do not receive a 
disproportionate amount of settlements at the expense of class 
members, to provide for clearer and simpler information in 
class action settlement notices, to assure prompt consideration 
of interstate class actions, to amend title 28, United States 
Code, to allow the application of the principles of Federal 
diversity jurisdiction to interstate class actions, and for 
other purposes, having considered the same, reports favorably 
thereon with an amendment and recommends that the bill as 
amended do pass.

                                CONTENTS

                                                                   Page
The Amendment....................................................     2
Purpose and Summary..............................................     6
Background and Need for the Legislation..........................     7
Hearings.........................................................    27
Committee Consideration..........................................    27
Vote of the Committee............................................    27
Committee Oversight Findings.....................................    31
New Budget Authority and Tax Expenditures........................    31
Congressional Budget Office Cost Estimate........................    31
Performance Goals and Objectives.................................    32
Constitutional Authority Statement...............................    32
Section-by-Section Analysis and Discussion.......................    32
Changes in Existing Law Made by the Bill, as Reported............    47
Markup Transcript................................................    54
Additional Views.................................................   155
Dissenting Views.................................................   157

    The amendment is as follows:
    Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE; REFERENCE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Class Action 
Fairness Act of 2003''.
    (b) Reference.--Whenever in this Act reference is made to an 
amendment to, or repeal of, a section or other provision, the reference 
shall be considered to be made to a section or other provision of title 
28, United States Code.
    (c) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; reference; table of contents.
Sec. 2. Findings and purposes.
Sec. 3. Consumer class action bill of rights and improved procedures 
for interstate class actions.
Sec. 4. Federal district court jurisdiction of interstate class 
actions.
Sec. 5. Removal of interstate class actions to Federal district court.
Sec. 6. Appeals of class action certification orders.
Sec. 7. Enactment of Judicial Conference recommendations.
Sec. 8. Effective date.

SEC. 2. FINDINGS AND PURPOSES.

    (a) Findings.--The Congress finds as follows:
            (1) Class action lawsuits are an important and valuable 
        part of our legal system when they permit the fair and 
        efficient resolution of legitimate claims of numerous parties 
        by allowing the claims to be aggregated into a single action 
        against a defendant that has allegedly caused harm.
            (2) Over the past decade, there have been abuses of the 
        class action device that have--
                    (A) harmed class members with legitimate claims and 
                defendants that have acted responsibly;
                    (B) adversely affected interstate commerce; and
                    (C) undermined public respect for the judicial 
                system in the United States.
            (3) Class members have been harmed by a number of actions 
        taken by plaintiffs' lawyers, which provide little or no 
        benefit to class members as a whole, including--
                    (A) plaintiffs' lawyers receiving large fees, while 
                class members are left with coupons or other awards of 
                little or no value;
                    (B) unjustified rewards being made to certain 
                plaintiffs at the expense of other class members; and
                    (C) the publication of confusing notices that 
                prevent class members from being able to fully 
                understand and effectively exercise their rights.
            (4) Through the use of artful pleading, plaintiffs are able 
        to avoid litigating class actions in Federal court, forcing 
        businesses and other organizations to defend interstate class 
        action lawsuits in county and State courts where--
                    (A) the lawyers, rather than the claimants, are 
                likely to receive the maximum benefit;
                    (B) less scrutiny may be given to the merits of the 
                case; and
                    (C) defendants are effectively forced into 
                settlements, in order to avoid the possibility of huge 
                judgments that could destabilize their companies.
            (5) These abuses undermine the Federal judicial system, the 
        free flow of interstate commerce, and the intent of the framers 
        of the Constitution in creating diversity jurisdiction, in that 
        county and State courts are--
                    (A) handling interstate class actions that affect 
                parties from many States;
                    (B) sometimes acting in ways that demonstrate bias 
                against out-of-State defendants; and
                    (C) making judgments that impose their view of the 
                law on other States and bind the rights of the 
                residents of those States.
            (6) Abusive interstate class actions have harmed society as 
        a whole by forcing innocent parties to settle cases rather than 
        risk a huge judgment by a local jury, thereby costing consumers 
        billions of dollars in increased costs to pay for forced 
        settlements and excessive judgments.
    (b) Purposes.--The purposes of this Act are--
            (1) to assure fair and prompt recoveries for class members 
        with legitimate claims;
            (2) to protect responsible companies and other institutions 
        against interstate class actions in State courts;
            (3) to restore the intent of the framers of the 
        Constitution by providing for Federal court consideration of 
        interstate class actions; and
            (4) to benefit society by encouraging innovation and 
        lowering consumer prices.

SEC. 3. CONSUMER CLASS ACTION BILL OF RIGHTS AND IMPROVED PROCEDURES 
                    FOR INTERSTATE CLASS ACTIONS.

    (a) In General.--Part V is amended by inserting after chapter 113 
the following:

                      ``CHAPTER 114--CLASS ACTIONS

``Sec.
``1711. Judicial scrutiny of coupon and other noncash settlements.
``1712. Protection against loss by class members.
``1713. Protection against discrimination based on geographic location.
``1714. Prohibition on the payment of bounties.
``1715. Definitions.

``Sec. 1711. Judicial scrutiny of coupon and other noncash settlements

    ``The court may approve a proposed settlement under which the class 
members would receive noncash benefits or would otherwise be required 
to expend funds in order to obtain part or all of the proposed benefits 
only after a hearing to determine whether, and making a written finding 
that, the settlement is fair, reasonable, and adequate for class 
members.

``Sec. 1712. Protection against loss by class members

    ``The court may approve a proposed settlement under which any class 
member is obligated to pay sums to class counsel that would result in a 
net loss to the class member only if the court makes a written finding 
that nonmonetary benefits to the class member outweigh the monetary 
loss.

``Sec. 1713. Protection against discrimination based on geographic 
                    location

    ``The court may not approve a proposed settlement that provides for 
the payment of greater sums to some class members than to others solely 
on the basis that the class members to whom the greater sums are to be 
paid are located in closer geographic proximity to the court.

``Sec. 1714. Prohibition on the payment of bounties

    ``(a) In General.--The court may not approve a proposed settlement 
that provides for the payment of a greater share of the award to a 
class representative serving on behalf of a class, on the basis of the 
formula for distribution to all other class members, than that awarded 
to the other class members.
    ``(b) Rule of Construction.--The limitation in subsection (a) shall 
not be construed to prohibit any payment approved by the court for 
reasonable time or costs that a person was required to expend in 
fulfilling his or her obligations as a class representative.

``Sec. 1715. Definitions

    ``In this chapter--
            ``(1) Class action.--The term `class action' means any 
        civil action filed in a district court of the United States 
        pursuant to rule 23 of the Federal Rules of Civil Procedure or 
        any civil action that is removed to a district court of the 
        United States that was originally filed pursuant to a State 
        statute or rule of judicial procedure authorizing an action to 
        be brought by one or more representatives on behalf of a class.
            ``(2) Class counsel.--The term `class counsel' means the 
        persons who serve as the attorneys for the class members in a 
        proposed or certified class action.
            ``(3) Class members.--The term `class members' means the 
        persons who fall within the definition of the proposed or 
        certified class in a class action.
            ``(4) Plaintiff class action.--The term `plaintiff class 
        action' means a class action in which class members are 
        plaintiffs.
            ``(5) Proposed settlement.--The term `proposed settlement' 
        means an agreement that resolves claims in a class action, that 
        is subject to court approval, and that, if approved, would be 
        binding on the class members.''.
    (b) Technical and Conforming Amendment.--The table of chapters for 
part V is amended by inserting after the item relating to chapter 113 
the following:

``114. Class Actions........................................    1711''.

SEC. 4. FEDERAL DISTRICT COURT JURISDICTION OF INTERSTATE CLASS 
                    ACTIONS.

    (a) Application of Federal Diversity Jurisdiction.--Section 1332 is 
amended--
            (1) by redesignating subsection (d) as subsection (e); and
            (2) by inserting after subsection (c) the following:
    ``(d)(1) In this subsection--
            ``(A) the term `class' means all of the class members in a 
        class action;
            ``(B) the term `class action' means any civil action filed 
        pursuant to rule 23 of the Federal Rules of Civil Procedure or 
        similar State statute or rule of judicial procedure authorizing 
        an action to be brought by one or more representative persons 
        on behalf of a class;
            ``(C) the term `class certification order' means an order 
        issued by a court approving the treatment of a civil action as 
        a class action; and
            ``(D) the term `class members' means the persons who fall 
        within the definition of the proposed or certified class in a 
        class action.
    ``(2) The district courts shall have original jurisdiction of any 
civil action in which 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 proposed plaintiff class members is 
        less than 100.
    ``(4) In any class action, the claims of the individual class 
members 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 with 
respect to that action.
    ``(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 requirements 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, except that any such action filed in State court may be 
removed to the appropriate district court 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 paragraph 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 paragraph 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 brought by 
shareholders that solely involves a claim that relates to--
            ``(A) 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;
            ``(B) 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
            ``(C) 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.
    ``(9) For purposes of this section and section 1453 of this title, 
a civil action that is not otherwise a class action as defined in 
paragraph (1)(B) of this subsection shall nevertheless be deemed a 
class action if--
            ``(A) the named plaintiff purports to act for the interests 
        of its members (who are not named parties to the action) or for 
        the interests of the general public, seeks a remedy of damages, 
        restitution, disgorgement, or any other form of monetary 
        relief, and is not a State attorney general; or
            ``(B) monetary relief claims in the action are proposed to 
        be tried jointly in any respect with the claims of 100 or more 
        other persons on the ground that the claims involve common 
        questions of law or fact.
In any such case, the persons who allegedly were injured shall be 
treated as members of a proposed plaintiff class and the monetary 
relief that is sought shall be treated as the claims of individual 
class members. The provisions of paragraphs (3) and (6) of this 
subsection and subsections (b)(2) and (d) of section 1453 shall not 
apply to civil actions described under subparagraph (A). The provisions 
of paragraph (6) of this subsection, and subsections (b)(2) and (d) of 
section 1453 shall not apply to civil actions described under 
subparagraph (B).''.
    (b) Conforming Amendments.--
            (1) Section 1335(a)(1) is amended by inserting ``(a) or 
        (d)'' after ``1332''.
            (2) Section 1603(b)(3) is amended by striking ``(d)'' and 
        inserting ``(e)''.

SEC. 5. REMOVAL OF INTERSTATE CLASS ACTIONS TO FEDERAL DISTRICT COURT.

    (a) In General.--Chapter 89 is amended by adding after section 1452 
the following:

``Sec. 1453. Removal of class actions

    ``(a) Definitions.--In this section, the terms `class', `class 
action', `class certification order', and `class member' have the 
meanings given these terms in section 1332(d)(1).
    ``(b) In General.--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) When Removable.--This section shall apply to any class action 
before or after the entry of a class certification order in the action, 
except that a plaintiff class member who is not a named or 
representative class member of the action may not seek removal of the 
action before an order certifying a class of which the plaintiff is a 
class member has been entered.
    ``(d) Procedure for Removal.--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) Review of Orders Remanding Class Actions to State Courts.--
The provisions of section 1447 shall apply to any removal of a case 
under this section, except that, notwithstanding the provisions of 
section 1447(d), an order remanding a class action to the State court 
from which it was removed shall be reviewable by appeal or otherwise.
    ``(f) Exception.--This section shall not apply to any class action 
brought by shareholders that solely involves--
            ``(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) is amended in the second 
sentence by inserting ``(a)'' after ``section 1332''.
    (c) Technical and Conforming Amendments.--The table of sections for 
chapter 89 is amended by adding after the item relating to section 1452 
the following:

``1453. Removal of class actions.''.

SEC. 6. APPEALS OF CLASS ACTION CERTIFICATION ORDERS.

    (a) In General.--Section 1292(a) is amended by inserting after 
paragraph (3) the following:
            ``(4) Orders of the district courts of the United States 
        granting or denying class certification under rule 23 of the 
        Federal Rules of Civil Procedure, if notice of appeal is filed 
        within 10 days after entry of the order.''.
    (b) Discovery Stay.--All discovery and other proceedings shall be 
stayed during the pendency of any appeal taken pursuant to the 
amendment made by subsection (a), unless the court finds upon the 
motion of any party that specific discovery is necessary to preserve 
evidence or to prevent undue prejudice to that party.

SEC. 7. ENACTMENT OF JUDICIAL CONFERENCE RECOMMENDATIONS.

    Notwithstanding any other provision of law, the amendments to Rule 
23 of the Federal Rules of Civil Procedure which are embraced by the 
order entered by the Supreme Court of the United States on March 27, 
2003, shall take effect on the date of the enactment of this Act or on 
December 1, 2003 (as specified in that order), whichever occurs first.

SEC. 8. EFFECTIVE DATE.

    (a) In General.--The amendments made by this Act shall apply to--
            (1) any civil action commenced on or after the date of the 
        enactment of this Act; and
            (2) any civil action commenced before such date of 
        enactment in which a class certification order (as defined in 
        section 1332(d)(1)(C) of title 28, United States Code, as 
        amended by section 4 of this Act) is entered on or after such 
        date of enactment.
    (b) Filing of Notice of Removal.--In the case of any civil action 
to which subsection (a)(2) applies, the requirement relating to the 30-
day period for the filing of a notice of removal under section 1446(b) 
and section 1453(d) of title 28, United States Code, shall be met if 
the notice of removal is filed within 30 days after the date on which 
the class certification order referred to in subsection (a)(2) is 
entered.

                          Purpose and Summary

    H.R. 1115 will provide meaningful improvements in 
litigation management and diminish abuse of the class action 
device in two ways: (1) by allowing Federal courts to hear 
large interstate class actions; and (2) by establishing new 
protections for consumers against abusive class action 
settlements.
    H.R. 1115 has three core components. First, it amends the 
current Federal diversity-of-citizenship jurisdiction statute 
(28 U.S.C. Sec. 1332) to allow large interstate class actions 
to be adjudicated in Federal courts. Currently, Federal courts 
have jurisdiction over: (a) cases dealing with a Federal 
question; and (b) cases meeting current diversity jurisdiction 
requirements (i.e., matters in which all plaintiffs are 
citizens of jurisdictions different from all defendants, and 
each claimant has an amount in controversy in excess of 
$75,000). H.R. 1115 would change the diversity jurisdiction 
requirement for class actions, generally permitting access to 
Federal courts in class actions where there is ``minimal 
diversity'' (that is, any member of the proposed class is a 
citizen of a State different from any defendant), and the 
aggregate amount in controversy among all class members exceeds 
$2 million. In that way, H.R. 1115 recognizes that large 
interstate class actions deserve Federal court access because 
they typically affect more citizens, involve more money, and 
implicate more interstate commerce issues than any other type 
of lawsuit.
    Second, H.R. 1115 implements long-needed protections for 
consumers against abusive settlements. These protections are 
established in the ``Consumer Class Action Bill of Rights'' 
(``Bill of Rights''). The Bill of Rights would: (1) enhance 
judicial scrutiny of coupon settlements; (2) provide judicial 
scrutiny over settlements that would result in a net monetary 
loss to plaintiffs; (3) prohibit unjustified payments, also 
known as bounties, to class representatives; and (4) protect 
out-of-State class members against settlements that favor class 
members based upon geographic proximity to the courthouse.
    Third, H.R. 1115, as amended, puts into effect immediately 
several critical amendments to Rule 23 of the Federal Rules of 
Civil Procedure proposed by the Supreme Court that are intended 
to ensure the clarity of class notice and prevent abuse of the 
class action device.

                Background and Need for the Legislation

    The class action device is one of the most important 
procedural mechanisms within our civil justice system. It can 
promote efficiency by allowing plaintiffs with similar claims 
to adjudicate their cases in one proceeding. The device also 
enables the adjudication of claims when a large number of 
people suffer small harms, claims that might otherwise go 
unredressed because the expense of individual litigation would 
far exceed any possible benefit. In recent years, however, 
class actions have been used with increasing frequency and in 
ways that do not promote the interests they were intended to 
serve.\1\
---------------------------------------------------------------------------
    \1\ See generally Deborah Hensler, et. al. (Institute for Civil 
Justice), Class Action Dilemmas: Pursuing Public Goals for Private 
Gain, RAND (2000).
---------------------------------------------------------------------------
    Because class actions empower lawyers to represent the 
interests of thousands (and sometimes millions) of people 
without their permission or supervision, there is substantial 
risk of serious abuse. Unfortunately, that abuse has become 
pervasive in certain county courts. Even more unfortunately, 
because interstate class actions often have nationwide 
ramifications, those abuses are affecting persons (both class 
members and defendants) who have little or no relationship to 
the jurisdictions in which these abuses are occurring. In 
short, even though these abuses are occurring primarily in our 
State court system, the impact is national in scope.
    As the Washington Post noted last year, in urging Congress 
to pass class action reform legislation:

        When working properly, class actions are an important 
        component of America's legal system--one that allows 
        efficient court consideration of numerous identical 
        claims against the same defendant. In practice, no 
        component of the legal system is more prone to abuse. 
        For unlike normal lawyers, who are retained by people 
        who actually feel wronged, class counsel--having 
        alleged a product deficiency that caused some small 
        monetary damage to some discernible group of people--
        largely appoint themselves. The ``clients'' may not 
        even be dissatisfied with the goods or services they 
        bought, but unless they opt out of a class of whose 
        existence they may be unaware, they become plaintiffs 
        anyway. Class actions permit almost infinite venue 
        shopping; national class actions can be filed just 
        about anywhere and are disproportionately brought in a 
        handful of state courts whose judges get elected with 
        lawyers' money. These judges effectively become 
        regulators of products and services produced elsewhere 
        and sold nationally. And when the cases are settled, 
        the ``clients'' get token payments, while the lawyers 
        get enormous fees.\2\
---------------------------------------------------------------------------
    \2\ Editorial, Making Justice Work, Wash. Post, November 25, 2002, 
at A14.

    Over the last 6 years, this Committee has held five 
hearings and amassed considerable evidence regarding increasing 
problems with State court class actions.\3\ The resulting 
record shows that plaintiffs' lawyers are filing 
disproportionate numbers of class actions in a small number of 
``magnet'' State courts that have demonstrated a lax attitude 
toward class certification standards, a disregard for 
fundamental due process requirements, and a willingness to 
``rubber-stamp'' class action settlements that offer little if 
anything to the class members while enriching their lawyers. In 
addition, certain State courts are ``federalizing'' such 
litigation; that is, they are issuing orders in nationwide 
class actions that essentially dictate the substantive laws of 
other States, often disregarding the policy choices made by the 
duly-elected authorities in those jurisdictions. The problem is 
exacerbated by the growing trend among plaintiffs' counsel of 
filing overlapping or ``competing'' class actions in various 
State courts around the country (i.e., cases in which the same 
claims are asserted on behalf of the same class of persons), 
resulting in considerable waste and inconsistent judicial 
rulings.
---------------------------------------------------------------------------
    \3\ See Mass Torts and Class Action Lawsuits: Hearing Before the 
Subcomm. on Courts and Intellectual Property of the House Comm. on the 
Judiciary, Serial No. 141, 105th Cong., 2d Sess. (Mar. 5, 1998); Class 
Action Jurisdiction Act of 1998: Hearing Before the Subcomm. on Courts 
and Intellectual Property of the House Comm. on the Judiciary, Serial 
No. 121, 105th Cong., 2d Sess. (June 18, 1998); Interstate Class Action 
Jurisdiction Act of 1999: Hearing before the House Comm. on the 
Judiciary, 106th Cong, 1st Sess. (July 21, 1999); The Class Action 
Reform Act of 2001: Hearing Before the House Comm. on the Judiciary, 
Serial No. 59, 107th Cong., 2d Sess. (Feb. 6, 2002); The Class Action 
Reform Act of 2003: Hearing Before the House Comm. on the Judiciary, 
108th Cong., (July 15, 2003).
---------------------------------------------------------------------------

                     RULES GOVERNING CLASS ACTIONS

    ``Class actions'' have some roots in common law, but they 
first appeared in State courts of law and equity. The general 
concept was first codified in 1849 when several States adopted 
the Field Code.\4\ Rule 23 of the Federal Rules of Civil 
Procedure, the rule governing Federal court class actions, was 
first adopted in 1938 and provided for a limited range of class 
actions.\5\ However, the modern concept of class actions that 
are a familiar part of today's legal landscape did not arise 
until Rule 23 was substantially amended in 1966, expanding the 
availability of the device and providing courts more 
flexibility in certifying class actions.
---------------------------------------------------------------------------
    \4\ The Field Code merely required numerous parties and a common 
interest in law or fact. It reads, in part: ``[W]hen the question is 
one of a common or general interest of many persons, or when the 
parties are very numerous and it may be impracticable to bring them all 
before the court, one or more may sue or defend for the benefit of the 
whole.'' See Herbert B. Newberg & Alba Conte, Newberg on Class Actions 
Chap. 13 (3d ed. 1997).
    \5\ For a fuller explanation of the original Rule 23 and its 
history, see, e.g., The Class Action Fairness Act of 1999: Hearings on 
S. 353. Before the Subcomm. on Administrative Oversight and the Courts 
of the Sen. Comm. on the Judiciary, 106th Cong., (May 4th 1999) 
(hereinafter ``Hearings on S. 353 ''), (prepared statement of John P. 
Frank).
---------------------------------------------------------------------------
    The Field Code, the original Federal Rule 23, and amended 
Federal Rule 23 remain the three models for present-day state 
class action rules. Thirty-six States have adopted the basic 
Federal class action rule (amended Federal Rule 23), some with 
minor revisions. Of the remaining States, most have rules that 
are guided by Federal court class action policy and contain 
similar requirements. Two States (Virginia and Mississippi) 
permit class actions at common law, but have no formal class 
rules. Thus, in principle, State and Federal class action 
policies ought not to vary so greatly. But application of these 
similar rules by State courts has created widely divergent 
standards for class actions and opened the door for abuse.

                   RULE 23 CLASS ACTION REQUIREMENTS 
                   (FEDERAL RULES OF CIVIL PROCEDURE)

    As amended in 1966, Rule 23 of the Federal Rules of Civil 
Procedure prescribes the conditions under which class action 
suits may be brought in the Federal courts. Rule 23(a) outlines 
the prerequisites for a class action. They are: (1) the class 
is so numerous that joinder of all members is impracticable; 
(2) there are questions of law or fact common to the class; (3) 
the claims or defenses of the representative parties are 
typical of the claims or defenses of the class; and (4) the 
representative parties will fairly and adequately protect the 
interests of the class.
    In addition to meeting these prerequisites, an action may 
only be maintained as a class action if one of the following 
three conditions outlined in Rule 23(b) are met: (1) the 
prosecution of separate actions by or against individual 
members of the class would create a risk of either inconsistent 
or varying adjudications with respect to individual members of 
the class which would establish incompatible standards of 
conduct for the party opposing the class, or adjudications with 
respect to individual members of the class which would, as a 
practical matter, be dispositive of the interests of the other 
members not parties to the adjudications or substantially 
impair or impede their ability to protect their interests; (2) 
the party opposing the class has acted or refused to act on 
grounds generally applicable to the class, thereby making 
appropriate final injunctive or corresponding declaratory 
relief with respect to the class as a whole; or (3) the court 
finds 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. The matters pertinent to the findings 
include: (a) the interest of members of the class in 
individually controlling the prosecution or defense of separate 
actions; (b) the extent and nature of any litigation concerning 
the controversy already commenced by or against members of the 
class; (c) the desirability or undesirability of concentrating 
the litigation of the claims in the particular forum; and (d) 
the difficulties likely to be encountered in the management of 
a class action.
    Rule 23(c) outlines the notice requirement for actions 
brought under Rule 23(b)(3). Under Rule 23(c)(2), members of 
any class must be provided with the ``best notice [of the 
action] practicable under the circumstances, including 
individual notice to all members who can be identified through 
reasonable effort.'' After notice has been given, class members 
are automatically included in the action unless they 
affirmatively opt out of the class. Information on how to opt 
out is also supposed to be clearly communicated by this notice.

                     FEDERAL DIVERSITY JURISDICTION

    The Constitution extends Federal court jurisdiction to 
cases arising under Federal law--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. However, the Constitution also 
specifically empowers Congress to establish Federal 
jurisdiction over one category of cases involving issues of 
State law: ``diversity'' cases, or suits ``between citizens of 
different States.'' \6\
---------------------------------------------------------------------------
    \6\ U.S. Const. art. III, Sec. 2.
---------------------------------------------------------------------------
    Diversity jurisdiction is premised on concerns that State 
courts might discriminate against out-of-State defendants. As 
Assistant Attorney General Viet Dinh testified before the 
Committee at a hearing on May 15, 2003, the ``Founders created 
diversity jurisdiction to provide a Federal forum preventing 
bias against out-of-State defendants and out-of-State 
plaintiffs.'' \7\
---------------------------------------------------------------------------
    \7\ Hearing on H.R. 1115 Before the House Comm. on the Judiciary, 
108th Cong., (May 15, 2003) (prepared statement of Assistant Attorney 
General Viet Dinh).
---------------------------------------------------------------------------
    Over the years since the First Congress enacted provisions 
in the Judiciary Act of 1789 setting forth the parameters of 
Federal diversity jurisdiction, two statutory limitations on 
that jurisdiction have been constants. The first is the 
``amount in controversy'' requirement--now a $75,000 monetary 
threshold--to ensure that Federal diversity jurisdiction 
extends only to non-trivial State law cases.\8\ However, the 
amount in controversy requirement is satisfied in a class 
action only if all of the class members are seeking damages in 
excess of the statutory minimum.\9\
---------------------------------------------------------------------------
    \8\ See 28 U.S.C. Sec. 1332(a).
    \9\ See Zahn v. International Paper Co., 414 U.S. 291 (1973).
---------------------------------------------------------------------------
    The second is the ``complete diversity'' requirement. Since 
1806, with some exceptions, the Federal courts have followed 
the rule of Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 
(1806), which states that Federal jurisdiction lies only where 
all plaintiffs are citizens of States different than all 
defendants. In a class action, only the citizenship of the 
named plaintiffs is considered for determining diversity, which 
means that Federal diversity jurisdiction will not exist if the 
named plaintiff is a citizen of the same State as the 
defendant, regardless of the citizenship of the rest of the 
class.\10\
---------------------------------------------------------------------------
    \10\ See Snyder v. Harris, 394 U.S. 332 (1969).
---------------------------------------------------------------------------
    These procedural limitations regarding interstate class 
actions are policy decisions, not constitutional ones. In fact, 
the U.S. Supreme Court has repeatedly acknowledged that the 
complete diversity and minimum amount-in-controversy 
requirements are political decisions not mandated by the 
Constitution.\11\ It is therefore the prerogative of Congress 
to modify these technical requirements as it deems appropriate.
---------------------------------------------------------------------------
    \11\ See, e.g., Newman-Green, 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.''); See also, State Farm Fire & Cas. Co. v. Tashire, 386 
U.S. 523, 530-31 (1967).
---------------------------------------------------------------------------

 STANDARDS FOR REMOVAL OF INTERSTATE CLASS ACTIONS TO FEDERAL DISTRICT 
                                 COURT

    The general removal statute provides, inter alia, that any 
civil action brought in a State court of which U.S. district 
courts have original jurisdiction, may be removed by the 
defendant(s) to the appropriate Federal court.\12\ Removal is 
based on the same general assumption as is diversity 
jurisdiction that an out-of-State defendant may become a victim 
of local prejudice in State court.\13\
---------------------------------------------------------------------------
    \12\ See 28 U.S.C. Sec. 1441(a).
    \13\ See David P. Currie, Federal Jurisdiction in a Nutshell 140 
(West Pub. Co.) 3d. Ed. 1990).
---------------------------------------------------------------------------
    A defendant must file for removal to Federal court within 
30 days after receipt of a copy of the initial pleading (or 
service of summons if a pleading has been filed in court and is 
not required to be served on the defendant).\14\ An exception 
exists beyond the 30-day deadline when the case stated by the 
initial pleading is not removable. In such a case, if the 
circumstances change, a notice of removal must be filed within 
30 days of receipt by the defendant of ``a copy of an amended 
pleading, motion, order, or other paper from which it may first 
be ascertained that the case [is removable].'' \15\
---------------------------------------------------------------------------
    \14\ See 28 U.S.C. Sec. 1446(b).
    \15\ Id.
---------------------------------------------------------------------------
    Under current law, a case cannot be removed on the basis of 
Federal diversity jurisdiction more than 1 year after the case 
was filed, even if plaintiffs make substantial changes to their 
pleadings at that point.\16\
---------------------------------------------------------------------------
    \16\ Id.
---------------------------------------------------------------------------

                STUDIES HAVE DOCUMENTED AN EXPLOSION OF 
                     CLASS ACTIONS IN STATE COURTS

    The number of class actions filed in State courts has been 
mushrooming in recent years, particularly in a small number of 
courts that have developed reputations for being friendly to 
class actions. Although data is difficult to gather, several 
studies provide a clear picture of the growing problem 
concentrated in certain State courts. For example:

         LA major empirical research project by RAND's 
        Institute for Civil Justice (``ICJ'') observed that 
        over a several year period, there was a ``doubling or 
        tripling of the number of putative class actions'' that 
        was ``concentrated in the state courts.'' \17\
---------------------------------------------------------------------------
    \17\ Class Action Fairness Act of 2001: Hearings on H.R. 2341 
Before the House Comm. on the Judiciary, 107th Cong., 2d Sess. (Feb. 6, 
2002) (prepared statement of John Beisner).

         LAccording to recent studies, Federal court 
        class action filings have increased by 340 percent over 
        the past decade. But State court class action filings 
        have increased more than three times faster--by 1,315 
        percent. Typically, the new State court filings were on 
        behalf of proposed nationwide or multi-state 
        classes.\18\
---------------------------------------------------------------------------
    \18\ See Analysis: Class Action Litigation--A Federalist Society 
Survey, Class Action Watch at 5 (Vol. 1, No. 1 1998); Deborah Hensler, 
et al., Preliminary Results of the RAND Study of Class Action 
Litigation 15 (May 15, 1997); 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).

         LA study submitted to the Committee in 1998 
        indicated that the local courts of six small Alabama 
        counties were experiencing a tidal wave of class action 
        filings, many seeking relief on behalf of purported 
        nation-wide classes of national significance.\19\
---------------------------------------------------------------------------
    \19\ Hearings on ``Mass Torts and Class Action Lawsuits'' Before 
the House Comm. on the Judiciary Subcomm. on Courts and Intellectual 
Property, 105th Cong., 2d Sess. (March 5, 1998) (prepared statement of 
John W. Martin, Jr.).

         LThe final report on the RAND/ICJ study on 
        class actions concluded that class actions ``were more 
        prevalent'' in certain States ``than one would expect 
        on the basis of population.'' \20\
---------------------------------------------------------------------------
    \20\ Deborah R. Hensler, et al., Class Action Dilemmas: Pursuing 
Public Goals for Private Gain 19 (1999) (executive summary).

         LA study by the Manhattan Institute examined 
        data from the dockets of three State courts widely 
        viewed as class action magnets--Madison County, 
        Illinois; Jefferson County, Texas; and Palm Beach 
        County, Florida--and confirmed that the filing of State 
        court class actions is increasing rapidly in numbers 
        wildly disproportionate to their populations.\21\ The 
        most dramatic increase occurred in Madison County, a 
        southwest Illinois county with a population of 250,000, 
        where the number of class actions increased by 1,850 
        percent between 1998 and 2000.\22\ The majority of 
        class actions in all three counties were brought on 
        behalf of nationwide classes. In Madison County, for 
        example, 81 percent of the cases filed during the 
        survey period sought to certify nationwide classes of 
        plaintiffs.\23\ In Jefferson County, the number was 57 
        percent.\24\ A follow-up study found that the number of 
        nationwide class actions filed in Madison County 
        continued to grow dramatically in 2001 and 2002.\25\ 
        And within the past 2 weeks, there have been media 
        reports that the Madison County courts are on track to 
        set a new record for class action filings this 
        year.\26\
---------------------------------------------------------------------------
    \21\ See John H. Beisner and Jessica Davidson Miller, They're 
Making A Federal Case Out Of It . . . In State Court, 25 Harv. J. L. & 
Pub. Pol'y 143 (Fall 2001).
    \22\ Id. at 170.
    \23\ Id. at 169.
    \24\ Id. at 186.
    \25\ See John H. Beisner and Jessica Davidson Miller, Class Action 
Magnet Courts: The Allure Intensifies, 4 BNA Class Action Litig. R. 58 
(Jan. 24, 2003).
    \26\ Number of Lawsuits is 39 and Counting, Belleville (Ill.) News-
Democrat, May 26, 2003, at 1.
---------------------------------------------------------------------------

                ABUSE OF THE CLASS CERTIFICATION DEVICE 
                      IN INTERSTATE CLASS ACTIONS

    The Committee believes that the main reason for the 
explosion in State court class action filings is a growing 
recognition among plaintiffs' lawyers that certain State courts 
are particularly friendly to class actions and will readily 
certify classes or approve settlements with little--if any--
regard for class certification standards or the interests of 
class members. In particular, the Committee is concerned about 
four types of abuses that have become commonplace in certain 
State courts.
    The first type of abuse is the willingness of certain State 
court judges to ignore the procedural requirements that govern 
class actions. For example, some State courts employ very lax 
class certification criteria, rendering virtually any 
controversy subject to class action treatment, regardless of 
whether the plaintiffs actually present sufficiently common 
claims. A small number of State courts go so far as to 
routinely certify classes before the defendant is even served 
with a complaint and given a chance to defend itself.\27\ 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 nine-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.\28\ 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.\29\ Similarly, in one of the cases to develop out of 
the Firestone tire controversy, a Tennessee State court 
certified a nationwide class just 4 days after the defendants 
were served with the complaint (and obviously without benefit 
of any input from defendants).\30\ In another case, a Kentucky 
State court ordered injunctive relief in favor of the class 
before the defendant was even notified of the lawsuit.\31\
---------------------------------------------------------------------------
    \27\ Mass Torts and Class Action Lawsuits: Hearing Before the 
Subcomm. on Courts and Intellectual Property of the House Comm. on the 
Judiciary, 105th Cong., 2d Sess. (March 5, 1998) (prepared statement of 
John W. Martin, Jr.).
    \28\ Hearings on S. 353, (prepared statement of Stephen G. 
Morrison).
    \29\ Id.
    \30\ See Order of National Class Certification, Davison v. 
Bridgestone/Firestone, Inc., Case No. 00C2298 (Eighth Cir. Ct., 20th 
Jud. Dist., Nashville, Tenn.) (dated Aug. 18, 2000).
    \31\ See Order, Farkas v. Bridgestone/Firestone, Inc., Case No. 00-
CI-5263 (Cir. Ct., Jefferson County, KY) (dated Aug. 18, 2000).
---------------------------------------------------------------------------
    The second type of abuse is the willingness of certain 
State courts to certify nationwide class actions in which they 
apply their States' laws to all class members' claims, 
including those of class members who live in other 
jurisdictions. This practice is an affront to federalism, 
because it results in one State court judge effectively making 
the law of that State applicable nationwide. Perhaps the best-
known example of this phenomenon is Avery v. State Farm Mut. 
Auto Ins. Cos., a case involving allegations that an automobile 
insurance company breached its policyholder contracts 
nationwide by requiring the use of less expensive non-original 
equipment manufacturer parts in making accident repairs, a 
standard industry practice.\32\ In that case, an Illinois 
county court certified a nationwide class, and at trial, a jury 
awarded a verdict of $1.18 billion against defendant State 
Farm. The Avery case received broad media attention because the 
judge granted class certification and allowed the jury verdict 
to stand, even though several insurance commissioners testified 
that a ruling in favor of the nationwide proposed class by an 
Illinois court would actually contravene the laws and policies 
of other States. Some of those States have enacted laws 
encouraging (or even requiring) insurers to use less expensive, 
non-OEM parts in making covered accident repairs to motor 
vehicles as a means of containing the cost of auto insurance 
coverage. In upholding the Avery jury's award last year, an 
Illinois court of appeals discounted testimony from ``[f]ormer 
and current representatives of State insurance commissioners 
[who] testified that the laws in many of our sister States 
permit and in some cases . . . [even] encourage competitive 
price control.'' \33\ According to the appellate court, this 
testimony was irrelevant because of the trial court's finding 
that the parts were inferior.\34\ The New York Times observed 
that the import of the Illinois decision was to ``overturn 
insurance regulations or State laws in New York, Massachusetts, 
and Hawaii, among other places'' and ``to make what amounts to 
a national rule on insurance.'' \35\
---------------------------------------------------------------------------
    \32\ Avery v. State Farm Mut. Auto Ins. Cos., 746 N.E.2d 1242 (Ill. 
Ct. App. 2001).
    \33\ Id. at 1254.
    \34\ Id.
    \35\ Matthew L. Wald, Suit Against Auto Insurer Could Affect Nearly 
All Drivers, N. Y. Times, Sep. 27, 1998.
---------------------------------------------------------------------------
    While it may be the best-known example, Avery is not an 
isolated occurrence. As Lawrence Mirel, the Commissioner of the 
District of Columbia Department of Insurance and Securities 
Regulation testified before the Committee on May 15, 2003, 
class action abuse is wreaking ``havoc'' on insurance 
regulation, as State court judges second-guess the policy 
decisions of other States' insurance regulators.\36\ Of course 
insurance regulation is not the only area where this abuse is 
occurring. State courts have trampled on federalism principles 
in a number of other areas as well, all in an effort to certify 
classes that should not be certified. Among the examples are:
---------------------------------------------------------------------------
    \36\ Hearing on H.R. 1115 Before the House Comm. on the Judiciary, 
108th Cong., (May 15, 2003) (prepared statement of Lawrence H. Mirel).

         LEarlier this year, the Supreme Court of 
        Oklahoma affirmed the certification of a nationwide 
        product liability class action brought against a car 
        manufacturer, applying the laws of a single State to 
        transactions that occurred in all 50 States.\37\ Thus, 
        in this case, a State court has decided effectively to 
        override whatever policy determinations another State's 
        legislature or courts may have made on warranty or 
        product liability policy to protect their own 
        residents.
---------------------------------------------------------------------------
    \37\ Ysbrand v. DaimlerChrysler Corp., 2003 Okla. LEXIS 17 (Okla. 
2003).

         LThe Minnesota Court of Appeals recently 
        affirmed a nationwide class action, applying the laws 
        of a single State to transactions that occurred in many 
        different jurisdictions (and virtually none of which 
        occurred in the State whose laws were applied).\38\ One 
        judge who decided the case openly acknowledged that the 
        court was engaging in the ``false federalism'' that has 
        become part of the State court class action game.
---------------------------------------------------------------------------
    \38\ Peterson v. BASF Corp., 2002 Minn. App. LEXIS 275 (Minn. Ct. 
App. March 11, 2003).

    The sentiment reflected in these cases flies in the face of 
basic Federalism principles by embracing the view that one 
State court can trump the contrary policy choices made by other 
States. Indeed, such examples of judicial usurpation, in which 
one State's courts try to dictate its laws to 49 other 
jurisdictions, have also been duly criticized by some 
congressional witnesses as ``false federalism.'' \39\
---------------------------------------------------------------------------
    \39\ See Interstate Class Action Jurisdiction Act of 1999: Hearing 
on H.R. 1875 Before the House Comm. on the Judiciary, 106th Cong., 1st 
Sess. (July 21, 1999) (prepared statement of Walter Dellinger, former 
acting-Solicitor General).
---------------------------------------------------------------------------
    In contrast, in recent years, numerous Federal courts 
(applying the choice-of-law doctrines of various jurisdictions) 
have considered which laws should apply in proposed nationwide 
class actions asserting State law-based claims. Those courts 
have consistently concluded that in a nationwide or multi-State 
class action, the choice-of-law rules of the State in which the 
action was originally filed must be applied.\40\ Further, they 
have consistently concluded that those choice-of-law rules must 
be applied to ``each plaintiff's claims.'' \41\ Based on those 
principles, Federal courts have consistently concluded that the 
laws of all States where purported class members were 
defrauded, injured, or purchased the challenged product or 
service must come into play.\42\ Of course, this careful 
application of different states' substantive laws by Federal 
courts in national class action cases often undermines a key 
rationale for treating it as a class action in the first place, 
i.e., that the class members share common issues of law. And in 
those very few instances in which a Federal district court has 
toyed with the idea of engaging in ``false federalism'' (i.e., 
applying a single State's law to all asserted claims), that 
notion has been reversed on appeal almost immediately.\43\
---------------------------------------------------------------------------
    \40\ See, e.g., In re Bridgestone/Firestone, Inc. Prods. Liab. 
Litig., 288 F.3d 1012 (7th Cir. 2002).
    \41\ See, e.g., Georgine v. Amchem Prods., 83 F.3d 610, 627 (3d 
Cir. 1996); aff'd sub nom. Amchem Prods. v. Windsor, 521 U.S. 591 
(1997).
    \42\ See, e.g., Georgine, 83 F.3d at 627; Zinser v. Accufix 
Research Inst., Inc., 253 F.3d 1180, 1187-90 (9th Cir. 2001); Zapka v. 
Coca-Cola Co., No. 99 CV 8238, 2000 U.S. Dist. LEXIS 16552, at *11-13 
(N.D. Ill. Oct. 26, 2000); Fisher v. Bristol-Myers Squibb Co., 181 
F.R.D. 365, 369 (N.D. Ill. 1998); Dhamer v. Bristol-Myers Squibb Co., 
183 F.R.D. 520, 532-34 (N.D. Ill. 1998); Jones v. Allercare, Inc., 203 
F.R.D. 290, 307 (N.D. Ohio 2001); In re Ford Motor Co. Ignition Switch 
Prods. Liab. Litig., 174 F.R.D. 332, 346-54 (D.N.J. 1997); Marascalco 
v. Int'l Computerized Orthokeratology Soc'y, Inc., 181 F.R.D. 331, 338-
39 (N.D. Miss. 1998); In re Ford Motor Co. Bronco II Prods. Liab. 
Litig., 177 F.R.D. 360, 369-71 (E.D. La. 1997); In re Stucco Litig., 
175 F.R.D. 210, 214, 215-217 (E.D.N.C. 1997); Ilhardt v. A.O. Smith 
Corp., 168 F.R.D. 613, 619-20 (S.D. Ohio 1996); Harding v. Tambrands 
Inc., 165 F.R.D. 623, 629-30, 631-32 (D. Kan. 1996); Walsh v. Ford 
Motor Co., 130 F.R.D. 260, 271-75 (D.D.C. 1990); Feinstein v. The 
Firestone Tire & Rubber Co., 535 F. Supp. 595, 608 (S.D.N.Y. 1982).
    \43\ See, e.g., In re Bridgestone/Firestone, Inc., 288 F.3d at 
1024; Szabo v. Bridgeport Machines, Inc., 249 F.3d 672, 674-75 (7th 
Cir. 2001); Spence v. Glock, GES.m.b.H, 227 F.3d 308, 313-15 (5th Cir. 
2000); In re Am. Med. Sys., 75 F.3d 1069, 1085 (6th Cir. 1996); Castano 
v. American Tobacco Co., 84 F.3d 734, 741-43, 749-50 (5th Cir. 1995); 
In re Rhone-Poulenc Rorer, Inc., 51 F.3d 1239, 1302 (7th Cir. 1995); 
Walsh v. Ford Motor Co., 807 F.2d 1000, 1017-19 (D.C. Cir. 1990).
---------------------------------------------------------------------------
    The third type of abuse that is becoming far too prevalent 
in State court class action practice is the ``copy-cat'' class 
action phenomenon, under which competing groups of plaintiffs' 
lawyers (or sometimes the same lawyers) file numerous nearly 
identical class actions in State courts around the country. In 
the aftermath of the Ford/Firestone recall, for example, nearly 
100 substantially identical class actions were filed in various 
State courts throughout the country. Sometimes these class 
actions are brought by attorneys vying to wrest the potentially 
lucrative lead role away from the lawyers who filed the 
original class actions. In other instances, the ``copy cat'' 
class actions are an exercise in forum-shopping by the same 
lawyers, who file duplicative actions before multiple courts in 
an effort to find a receptive judge who will rapidly certify a 
class.
    When such ``copycat'' cases are filed in various Federal 
courts, they may be consolidated before a single Federal judge 
through the multidistrict litigation provisions of 28 U.S.C. 
Sec. 1407, thereby assuring consistent treatment of legal 
issues and uniform management of the cases and reducing 
duplication. Unlike the Federal court system, however, State 
courts do not have a mechanism whereby they can cogently 
consolidate or adjudicate numerous competing suits filed in 
different States. Instead, a settlement or judgment in any of 
the cases makes the other class actions moot. This creates an 
incentive for each class counsel to obtain a quick settlement 
of the case, and an opportunity for the defendant to play the 
various class counsel against each other and drive the 
settlement value down. Again, the loser is the putative class 
member whose claim is extinguished by the settlement, at the 
expense of counsel seeking recovery of fees. Unless copy-cat 
cases are removed to Federal court, they are litigated 
separately in each State court, resulting in judicial waste, 
abuse, and disparate outcomes.
    The fourth and most widely recognized form of abuse is the 
approval of class settlements that provide no real relief for 
class members--and only benefit their lawyers. Once again, this 
problem is far more prevalent in State courts than in Federal 
courts. In a study jointly funded by the plaintiffs' and 
defense bars, the Institute for Civil Justice/RAND examined 
where the money goes in class settlements. That study indicates 
that in State court consumer class action settlements (i.e., 
non-personal injury monetary relief cases), the class counsel 
frequently walk away with more money than all class members 
combined.\44\ Another in-depth study found that this ``lawyer 
takes all'' phenomenon was not occurring in Federal courts--
`[i]n most [class actions handled by Federal courts], net 
monetary distributions to the class exceeded attorneys' fees by 
substantial margins.'' \45\
---------------------------------------------------------------------------
    \44\ Deborah R. Hensler et al., Class Action Dilemmas: Pursuing 
Public Goals for Private Gain 15 (1999).
    \45\ Federal Judicial Center, Empirical Study of Class Actions in 
Four Federal District Courts, 68-69 (1996).
---------------------------------------------------------------------------
    Examples of abusive State court settlements abound. In the 
now infamous Bank of Boston settlement, an Alabama State court 
judge approved a settlement that awarded no more than $8.16 to 
individual class members, while the class counsel received more 
than $8.5 million in fees.\46\ One class member testified 
before the Senate Subcommittee on Administrative Oversight and 
the Courts that she was charged a mysterious $80 miscellaneous 
deduction that she later learned was an expense used to pay the 
class lawyers' fee.\47\ In her testimony, that witness 
expressed disbelief at the notion that ``people who were 
supposed to be my lawyers, representing my interests, took my 
money and got away with it.'' \48\
---------------------------------------------------------------------------
    \46\ Class Action Lawsuits: Examining Victim Compensation and 
Attorney's fees: Hearing Before the Subcomm on Administrative Oversight 
and the Courts of the Sen. Comm. on the Judiciary, 105th Cong., 2d 
Sess., Hr'g. 105-504 (Oct. 30, 1997).
    \47\ Id.
    \48\ Id.
---------------------------------------------------------------------------
    While the Bank of Boston settlement is the best-known (and 
perhaps the most egregious) example, witnesses who appeared 
before the Committee have noted an abundance of other 
settlements that provided millions of dollars to the lawyers--
but only pennies to the class members:

         LIn a recent case involving customers who 
        alleged that they were charged excessive late fees by 
        Blockbuster, the class members received $1 off coupons 
        for rentals--at the same time, their attorneys divided 
        up a $9.25 million fee award. Experts have predicted 
        that at most, only 20 percent of the class members will 
        redeem the coupons. The settlement allows Blockbuster 
        to continue its practice of charging customers for a 
        new rental period when they return a tape late.\49\ In 
        this settlement approved by the Texas State court, only 
        the lawyers got cash.
---------------------------------------------------------------------------
    \49\ Scott v. Blockbuster Inc. (No. D162-535, Jefferson County, 
Texas, 2001); Judge OKs Blockbuster Plan On Fees, Associated Press, 
Jan. 11, 2002.

         LIn another recent case, Food Lion settled a 
        State court class action filed by a consumer group by 
        offering 28-cent coupons to customers who held an MVP 
        discount card between 1995 and 1998. The plaintiff 
        class alleged that Food Lion charged too much sales tax 
        on discounted products purchased with the discount 
        card.\50\ Only the lawyers got money.
---------------------------------------------------------------------------
    \50\ Attention Shoppers: Food Lion Rebate Due, Greensboro News & 
Record, Feb. 25, 2002.

         LA manufacturer offered consumers who bought a 
        dozen Pinnacle golf balls free golf gloves. When the 
        manufacturer ran out of the golf gloves and substituted 
        a set of three free golf balls, it was hit with a class 
        action. The settlement provided that the manufacturer 
        would send each class member three more free golf 
        balls. Meanwhile, by order of a State court, the 
        attorneys who brought the lawsuit received $100,000 in 
        fees and the persons who served as class 
        representatives each received $2,500.\51\
---------------------------------------------------------------------------
    \51\ Enough Already With the Lawsuits, Kansas City Star, July 10, 
1999.

         LUnder the settlement in a State court case, 
        which resulted from allegations regarding changes in 
        the American Airlines frequent flyer program, members 
        of the program received vouchers good for $25 to $75 
        off the price of future travel, or a similarly valued 
        reduction in the number of miles required for an award. 
        American also agreed to pay the lawyers up to $25 
        million in fees. One news article about the settlement 
        quoted travel experts saying that ``the practical value 
        of those discounts will be modest,'' and ``American 
        could end up generating enough extra revenue to more 
        than offset the cost of the offer.'' \52\
---------------------------------------------------------------------------
    \52\ American Airlines Settles Lawsuits Over Frequent Flier 
Program, Forth Worth Star-Telegram, June 22, 2000.

         LPublishers of the Beardstown Ladies 
        investment advice books agreed to a settlement 
        providing plaintiff class members with coupons worth 
        $15-$25. Plaintiffs alleged that defendants included 
        false and misleading statements in marketing materials 
        regarding the success rates of investment strategies 
        espoused in the books. The coupons allowed claimants to 
        purchase books from a pre-approved list, which the 
        publishers retained control over.\53\ All of the cash 
        paid in this State court-approved settlement went to 
        lawyers.
---------------------------------------------------------------------------
    \53\ See Keimer v. Buena Vista Books: Settlement available at 
http://www.beardstownladiessettlement.com.

         LIn a suit involving port charges, a sea 
        cruise line agreed to give vouchers for a future cruise 
        worth $25 to $55 off a future cruise to 4.5 million 
        people who sailed on its cruises between April 19, 1992 
        and June 4, 1997. The vouchers can be used for a future 
        cruise or redeemed for cash at 15 percent or 20 percent 
        of face value.\54\ In this State court class action 
        settlement, only the lawyers received cash payments.
---------------------------------------------------------------------------
    \54\ Carnival Cruise Settles Lawsuit, Florida Today, Mar. 16, 2001.

         LIn a case alleging flawed television sets, 
        Thomson Consumer Electronics agreed to reimburse 
        customers who had receipts documenting repairs, to 
        provide $50 rebates on the purchase of future products 
        for consumers who did not repair their problems or did 
        not have receipts, and to provide $25 rebates on future 
        products to consumers who did not experience a problem. 
        Under the terms of the settlement approved by an 
        Illinois State court, the lawyers reportedly received 
        $22 million in fees and costs. According to news 
        reports, more than 2,640 people opted out of the 
        settlement; some said they opted out because the form 
        was complicated and others said they opted out because 
        the attorneys' fees were so high.\55\
---------------------------------------------------------------------------
    \55\ Baird v. Thomson Consumer Electronics, Inc. (No. 00-L-00761, 
Madison County, Illinois); 2,640 Television Owners Tune Out Class 
Action Suit, Belleville (Ill.) News-Democrat, Aug. 19, 2001.

         LIn the settlement of a State court class 
        action involving allegations of overly aggressive fees 
        and rates by a Minnesota credit card company, class 
        members received discount coupons with a retail value 
        of $19.95, an $8 dollar donation in their name to the 
        Boys and Girls Clubs of America, the right to apply for 
        a 9.9 percent interest credit card and to join a 
        promotional travel discount club. They also had the 
        potential to receive between $10 and $70 in cash. The 
        company agreed to change its practices, and the lawyers 
        received $5.6 million in fees.\56\
---------------------------------------------------------------------------
    \56\ Fischl v. Direct Merchants Credit Card Bank, N.A. (CT 00-
007129, Hennepin County, Minnesota); Soft Firm: Too Often, The SF Law 
Firm Of Lieff, Cabraser, Heimann & Bernstein Strikes Settlements That 
Give The Firm Millions Of Dollars In Legal Fees--And Its Class Action 
Clients Too Little, S.F. Weekly, May 29, 2002.

         LIn one State court class action 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.\57\ The money in 
        the settlement flowed primarily to class counsel.
---------------------------------------------------------------------------
    \57\ See Richard B. Schmitt, Leaky System: Suits Over Plastic Pipe 
Finally Bring Relief, Especially for Lawyers, Wall St. J., Nov. 20, 
1995, at A1.

         LIn a group of State court class actions 
        settled last year, class members alleging that they 
        were not fully advised of ``energy surcharges'' applied 
        when they checked into hotels during California's 
        electricity crisis were given $10 coupons.\58\ Only the 
        lawyers are receiving cash.
---------------------------------------------------------------------------
    \58\ Hotel Chains Settle Class-Action Suit Over Energy Surcharges, 
San Diego Union-Tribune, July 4, 2002.

         LIn another case, an Illinois State 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.\59\
---------------------------------------------------------------------------
    \59\ 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 Testimony of Stephan G. Morrison.

         LIn a State court class action alleging that 
        Coca-Cola improperly added sweeteners to apple juice, 
        defendant agreed to distribute 50-cent coupons toward 
        the purchase of apple juice. Meanwhile, class counsel 
        received $1.5 million.\60\
---------------------------------------------------------------------------
    \60\ Lawyers Get $1.5 Million, Clients Get 50 Cents Off, Fulton 
County Daily Report, Nov. 21, 1997.

         LIn a State court action alleging that General 
        Mills treated oats with a non-approved pesticide, class 
        members were offered coupons; the attorneys received 
        $1.75 million.\61\
---------------------------------------------------------------------------
    \61\ Cereal Plan Called Soggy, Nat'l Law Journal, May 22, 1995.

    As the Washington Post put it last year in an editorial 
condemning settlements like those listed above: ``This is not 
justice. It is an extortion racket that only Congress can 
fix.''\62\
---------------------------------------------------------------------------
    \62\ Editorial, Making Justice Work, Wash. Post, November 25, 2002, 
at A14.
---------------------------------------------------------------------------

   CURRENT JURISDICTIONAL RULES ARE FOSTERING CLASS ACTION ABUSES BY 
              KEEPING CLASS ACTIONS OUT OF FEDERAL COURTS

    The current jurisdictional statutes were originally enacted 
years ago, well before the modern class action arose. 
Unfortunately, the way they were drafted results in the 
exclusion of most interstate class actions from Federal court. 
Moreover, the current jurisdictional rules enable plaintiffs' 
counsel to evade Federal jurisdiction through manipulative 
pleading techniques for two reasons.
    First, 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.\63\ 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. During a February 6, 2002, 
hearing, the Committee received detailed testimony about how 
attorneys often name irrelevant parties to class actions filed 
in State court in an effort to ``destroy diversity'' and keep 
the case from qualifying for Federal diversity jurisdiction. 
One witness, Hilda Bankston, testified regarding her 
experiences of owning a small drugstore in Jefferson County 
Mississippi, which was repeatedly dragged into lawsuits against 
pharmaceutical manufacturers.\64\ According to Mrs. Bankston, 
her drugstore was a target because it filled FDA-approved 
prescriptions, was located in Jefferson County, Mississippi, 
and kept accurate records.\65\ If all it takes to keep a class 
action in State court is to name one local retailer that keeps 
good records, it is no surprise that few interstate class 
actions meet the complete diversity requirement.
---------------------------------------------------------------------------
    \63\ See Snyder v. Harris, 394 U.S. 332 (1969).
    \64\ Class Action Fairness Act of 2001: Hearings on HR. 2341 Before 
the House Comm. on the Judiciary, 107th Cong., 2nd Sess. (Feb. 6, 2002) 
(prepared statement of Hilda Bankston).
    \65\ Id.
---------------------------------------------------------------------------
    Second, in interpreting 28 U.S.C. Sec. 1332(a), some 
Federal courts of appeals, relying on a 1974 Supreme Court 
decision,\66\ have 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.\67\ That means Federal courts can only hear 
class actions in which each plaintiff claims damages in excess 
of $75,000.\68\ The Committee believes that requiring each 
plaintiff to reach the $75,000 mark makes little sense in the 
class action context. After all, class actions frequently 
involve tens of millions of dollars even though each individual 
plaintiff's claims are far less than that. Moreover, class 
action lawyers typically misuse the jurisdictional threshold to 
keep their cases out of Federal court. For example, class 
action complaints often include a provision stating that no 
class member will seek more than $75,000 in relief, even though 
certain class members may be entitled to more and even though 
the class action seeks millions of dollars in the aggregate. 
Under current law, that is frequently enough to keep a major 
class action in State court.
---------------------------------------------------------------------------
    \66\ See Zahn v. International Paper Co., 414 U.S. 291 (1974).
    \67\ See Trimble v. Asarco, Inc., 263 F.3d 946 (8th Cir. 2000); 
Meritcare, Inc. v. St. Paul Mercury Ins. Co., 166 F.3d 214 (3d Cir. 
1999); Leonhardt v. Western Sugar Co., 160 F.3d 631 (10th Cir. 1998).
    \68\ Other Federal courts of appeals have held that for a class 
action to be heard in Federal court only one or more named plaintiffs 
must have claims exceeding $75,000. See, e.g., Rosmer v. Pfizer, Inc., 
263 F.3d 110 (4th Cir. 2001); Gibson v. Chrysler Corp., 261 F.3d 927 
(9th Cir. 2001); Stromberg Metal Works. Inc. v. Press Mechanical, Inc., 
77 F.3d 928 (7th Cir. 2000); In re Abbott Labs., Inc., 51 F.3d 524 (5th 
Cir. 1995), aff'd by an equally divided Court, 529 U.S. 333 (2000). In 
the view of these courts, the value of the claims of the other class 
members is irrelevant--they are deemed to be part of the class as a 
matter of supplemental jurisdiction. The Committee stresses, however, 
that even in those Circuits following this rule, relatively few class 
actions find their way into Federal court because plaintiffs offer 
named plaintiffs who do not have $75,000 claims or name a non-diverse 
plaintiff or defendant in order to prevent removal of the case to 
Federal court.
---------------------------------------------------------------------------
    The current anomaly in jurisdictional law has created a 
system 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 action 
involving 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 many 
States, defendants from many States, the laws of many States, 
and hundreds of millions of dollars--cases that have 
significant implications for the national economy.
    Not surprisingly, a growing chorus of authoritative sources 
are bringing attention to this anomaly and calling for 
legislation to correct it.

         LThe 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.''\69\
---------------------------------------------------------------------------
    \69\ Charles A. Wrght, et. al., Federal Practice and Procedure 
Sec. 3704, at 127 (3 ed. 1998).

         LFormer Acting Solicitor General Walter 
        Dellinger testified in 1999 before the Committee on the 
        Judiciary that if Congress were to enact an entirely 
        new Federal diversity jurisdiction statute and consider 
        anew which kinds of cases most warrant access to 
        Federal courts, there would be little legitimate debate 
        that interstate class actions would be at or near the 
        top of the list,\70\ since they typically have the most 
        money in controversy, involve the most people, and have 
        the most interstate commerce ramifications.
---------------------------------------------------------------------------
    \70\ Interstate Class Action Jurisdiction Act of 1999 and Workplace 
Goods Job Growth and Competitiveness Act of 1999: Hearings on H.R. 1875 
and H.R. 2005 Before the House Comm. on the Judiciary, 106th Cong., 1st 
Sess. 57 (July 21, 1999) (prepared statement of Walter Dellinger).

         LIn a recent Minnesota State appellate court 
        decision upholding a grant of class certification, a 
        concurring judge noted that the nationwide class action 
        before it was a ``poster child for national class 
        action reform. We have here a Minnesota [state] 
        district court, applying a New Jersey consumer fraud 
        statute to a nationwide class of plaintiffs, with few 
        of those plaintiffs residing in New Jersey. It is 
        probably a fair assumption that the legislative authors 
        of the New Jersey consumer protection scheme did not 
        have in mind midwestern farmers purchasing agricultural 
        chemicals as the protected class . . . This is not a 
        recipe for uniformity or consistency, it is fair 
        neither to claimants nor defendants and it is long past 
        time for national policy makers to address class action 
        procedures.''\71\
---------------------------------------------------------------------------
    \71\ Peterson v. BASF Corp., 2003 Minn. App. LEXIS 275, at *47-48 
(Minn. Ct. App. Mar. 11, 2003).

         LThe 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. . . .''\72\
---------------------------------------------------------------------------
    \72\ Davis v. Cannon Chevrolet-Olds, Inc., 182 F.3d 792, 797 (11th 
Cir. 1999).

         LIn that same case, Judge John Nangle, the 
        former chairman of 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.''\73\
---------------------------------------------------------------------------
    \73\ Id. at 798.

         LIn 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.''\74\
---------------------------------------------------------------------------
    \74\ In re Prudential Ins. Co. America Sales Practice Litig., 148 
F.3d 283, 305 (3d Cir. 1998).

         LAlthough the Judicial Conference of the 
        United States has at least twice formally opposed any 
        expansion of Federal jurisdiction over class actions, 
        the Judicial Conference signaled a significant shift in 
        a March 26, 2002 letter to Congress.\75\ The letter 
        acknowledges ``current problems with class action 
        litigation.'' Further, in that letter, the Conference 
        for the first time ``recognizes that the use of 
        [expanded] diversity jurisdiction may be appropriate to 
        the maintenance of significant multi-state class action 
        litigation in the Federal courts.''\76\
---------------------------------------------------------------------------
    \75\ Letter from Leonidas Ralph Mecham, Secretary, Judicial 
Conference of the United States to Chairman Orrin G. Hatch, Sen. Comm. 
on the Judiciary, (Mar. 26, 2003).
    \76\ Id.

         LEven attorneys and scholars associated with 
        the plaintiffs' bar have acknowledged a need to expand 
        Federal court jurisdiction over class actions. For 
        example, at the March 1998 House hearing, Prof. Susan 
        Koniak of the Boston University School of Law stated 
        that such a move would be ``a good idea . . . Often 
        these [state] courts are picked, and they are in the 
        middle of nowhere. You can't have access to the 
        documents, and I don't think it's a full answer, but I 
        think it should be done.''\77\ Similarly, Elizabeth 
        Cabraser, one of the foremost members of the 
        plaintiffs' class action bar, testified that ``much of 
        the confusion and lack of consistency that is currently 
        troubling practitioners and judges and the public in 
        the class action area could be addressed through the 
        exploration, the very thoughtful exploration, of 
        legislation that would increase Federal diversity 
        jurisdiction, so that more class action litigation 
        could be brought in the Federal court.''\78\
---------------------------------------------------------------------------
    \77\ Fed. News Serv. Tr., Mass Torts and Class Actions: Hearing 
Before the Subcomm. on Intellectual Property and the Courts of the 
House Comm. on the Judiciary (March 9, 1998), 105th at 19 (``FNS 
Transcript'').
    \78\ Id.

         LIncreasingly, the media has joined the chorus 
        as well. For example, the Washington Post has 
        editorialized that ``the existence of . . . `magnet' 
        courts and troubling settlements, which undermine 
        public confidence in our judicial system, would be 
        greatly reduced if Federal courts had jurisdiction over 
        interstate class actions.''\79\ The Washington Post has 
        endorsed the legislative effort behind H.R. 1115, 
        noting last year: ``The House passed a bill in the 
        107th Congress, which then stalled in the Senate, that 
        would make it easier for defendants to move class 
        actions from State to Federal courts and subject them 
        to more reasonable Federal rules. Passing this bill 
        would be an important beginning.''\80\
---------------------------------------------------------------------------
    \79\ Editorial, Fixing Class Actions, Wash. Post, Mar. 21, 2002, at 
A34.
    \80\ Editorial, Making Justice Work, Wash. Post, Nov. 25, 2002, at 
A14.

    The Committee agrees with these and many others who 
recognize that the Federal courts are the appropriate forum to 
decide most interstate class actions because these cases 
usually involve large amounts of money and many plaintiffs, and 
have significant implications for interstate commerce and 
national policy.

                  EFFECT OF H.R. 1115 ON EXISTING LAW

    H.R. 1115 would amend the diversity jurisdiction and 
removal statutes applicable to class actions where there is a 
substantial risk of discrimination against out-of-State 
defendants. It amends 28 U.S.C. Sec. 1332 to grant original 
jurisdiction in the Federal courts to hear interstate class 
actions where any member of the proposed class is a citizen of 
a State different from any defendant--a change from ``complete 
diversity'' to ``minimal diversity.'' However, to ensure that 
cases that are truly local in nature are not swept into the 
Federal courts, the bill would exempt from its reach: (1) cases 
in which a ``substantial majority'' of the class members and 
the ``primary defendants'' are citizens of the same State and 
the claims will be governed primarily by that State's law; (2) 
cases involving fewer than 100 class members or where the 
aggregate amount in controversy is less than $2 million; and 
(3) cases where the primary defendants are States or State 
officials, or other governmental entities against whom the 
district court may be foreclosed from ordering relief.
    H.R. 1115 would also establish new rules governing the 
removal of class actions filed in State court. Existing removal 
procedures would apply with four new features. First, named 
plaintiffs would be permitted to remove class actions to 
Federal court and unnamed plaintiffs would be permitted to 
remove certified class actions, in which their claims are being 
asserted, to Federal court. Under current rules, only 
defendants are allowed to remove. Second, parties could remove 
without the consent of any other party. Current removal rules 
require the consent of all defendants. Third, removal to 
Federal court would be available to any defendant, regardless 
of whether any defendant is a citizen of the State in which the 
action was brought. Fourth, the current bar to removal of class 
actions after 1 year would be eliminated, although the 
requirement that removal occur within 30 days of notice of 
grounds for removal would be retained.
    Under H.R. 1115, if a removed class action is found not to 
meet the requirements for proceeding on a class basis, the 
Federal court would dismiss the action without prejudice. 
Plaintiffs would then be permitted to refile their claims in 
State court, presumably in a form amended either to fall within 
one of the types of class actions over which the district court 
is not to exercise jurisdiction, one which could be maintained 
as a class action under Federal Rule 23, or as an individual 
action. The refiled case would once again be eligible for 
removal if original Federal jurisdiction exists. The statute of 
limitations on individual class members' claims in such a 
dismissed class action would not run during the period the 
action was pending in Federal court, nor would that of claims 
in new class actions filed by the same named plaintiffs in the 
same State venue.
Response to Criticisms of H.R. 1115
    Opponents of H.R. 1115 have criticized the bill on several 
grounds, arguing that the legislation would: overload the 
Federal courts; delay the resolution of class actions; and make 
it difficult for injured citizens to obtain justice. None of 
these contentions are true.
            H.R. 1115 would not overload the Federal courts.
    During Committee debate on previous versions of this bill, 
the most frequently expressed concern was that its 
jurisdictional provisions would overload the Federal judiciary. 
That argument, however, ignores the burden of class actions on 
our entire national judicial system, which includes both 
Federal courts and State 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. Indeed, many State courts 
have comparatively crushing caseloads.
    Current data indicate that there has been a 7.2 percent 
decrease in the number of civil cases pending in our Federal 
district courts nationwide since 1997.\81\ The number of new 
diversity jurisdiction cases filed in Federal courts has 
decreased by more than 11 percent since 1997.\82\ In contrast, 
civil filings in State trial courts of general jurisdiction 
have increased 30 percent since 1984 (compared to a 4 percent 
increase in the Federal courts).\83\ Perhaps most tellingly, in 
most jurisdictions, each State court judge is assigned (on 
average) over 1,500 new cases each year,\84\ while each Federal 
court judge was assigned an average of 454 new cases during 
2001.\85\
---------------------------------------------------------------------------
    \81\ See Administrative Office of the U.S. Courts, Judicial 
Business of the United States Courts 16 (2002) (``Judicial Business'').
    \82\ Id. at 24.
    \83\ B. Ostrom, et al., Examining the Work of State Courts 10 
(Court Statistics Project 2001).
    \84\ Id. at 12-13.
    \85\ See Administrative Office of the U.S. Courts, 2001 Federal 
Court Management Statistics 167 (2002).
---------------------------------------------------------------------------
    Critics of the bill also ignore the fact that many State 
courts are tribunals of general jurisdiction--they hear all 
sorts of cases, including divorce matters, custody disputes, 
name change petitions, traffic violations, small claims 
contract disputes, minor misdemeanors, and major felonies. 
Thus, when a class action is filed before those courts, it 
diminishes their ability to provide a broad array of basic 
legal services for the local community. The judges presiding 
over those State courts have far fewer resources for dealing 
with huge, complex cases, like class actions. Federal court 
judges usually have two or three law clerks; State court judges 
typically have none. Federal court judges usually can delegate 
aspects of their cases (e.g., discovery issues) to magistrate 
judges or special masters; State court judges typically lack 
such resources.
    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 lead to more appropriate handling of these 
cases, as well as improve the fairness of class action 
decisions to both plaintiffs and defendants.
    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, the most money, and the most 
interstate commerce issues. They also usually involve issues 
with nationwide implications. Interstate class actions are 
certainly no less deserving of a Federal forum than the 24,404 
cases to recover a few thousand dollars in student loan 
arrearages, the 12,307 individual product liability actions 
(typically one-person injury case), the 17,482 Federal personal 
injury cases (e.g., single person medical malpractice cases), 
or 24,684 civil habeas corpus cases filed in Federal court 
during 2001.\86\ Indeed it is noteworthy that there were almost 
ten times as many product liability and Federal personal injury 
cases (normally one-person claims) filed in Federal court 
during 2001 (29,789) as there were class actions (3,092).\87\ 
Ultimately, regardless of the impact on the Federal court 
caseload, large interstate class actions belong in Federal 
court.
---------------------------------------------------------------------------
    \86\ See Judicial Business, at 130-31.
    \87\ See Administrative Office of the U.S. Courts, Federal Judicial 
Caseload Statistics 56 (2002).
---------------------------------------------------------------------------
            H.R. 1115 will not result in delays for injured consumers
    For all of the reasons set forth previously, H.R. 1115 
would not overwhelm the Federal courts with class action cases 
and thereby delay consumers' redress for their injuries in 
Federal court.
    Opponents of the bill have presented no data whatsoever 
that judicial overload would occur. Although some critics have 
asserted that it takes at least 5 years to get a class action 
to trial in Federal court, far longer than in State court, in 
reality, the median time for final disposition of a civil claim 
filed in Federal court is 8.1 months, and the median time to 
get to trial in a civil matter in Federal court is 20.4 
months.\88\ The record reflects no hard evidence that on 
average, State courts proceed more quickly.
---------------------------------------------------------------------------
    \88\ Judicial Business at 157.
---------------------------------------------------------------------------
    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 (Pub. L. 
No. 106-37) expanded Federal jurisdiction over Y2K class 
actions in almost precisely the same manner as proposed in H.R. 
1115. Congress enacted that change without knowing its likely 
judicial workload impact. Likewise, the Securities Litigation 
Reform Act of 1998 (Pub. L. No. 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 for 
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.
            H.R. 1115 does not undermine federalism principles
    While some critics have alleged that this bill will somehow 
undermine federalism principles, exactly the opposite is true. 
H.R. 1115 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 nationwide 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 (as 
discussed previously). 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.
    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 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?
    H.R. 1115 simply allows more class action cases filed in 
State court to be removed to Federal court. H.R. 1115 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 ``certify'' a question of law 
to a State court, e.g., to advise the Federal court 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. These matters of interstate comity are more 
appropriately handled by Federal judges appointed by the 
President and confirmed by the Senate. H.R. 1115 simply 
restores this proper balance by resolving an anomaly of 
diversity jurisdiction. True to the concept of federalism, H.R. 
1115 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, H.R. 1115 
promotes the concept of federalism and protects the ability of 
States to determine their own laws and policies for their 
citizens.

                                Hearings

    The full Committee held a hearing on H.R. 1115 on May 15, 
2003. Testimony was received from four witnesses: Hon. Viet 
Dinh, Assistant Attorney General, U.S. Department of Justice; 
John Beisner, Esq., Attorney, O'Melveny & Myers LLP; Lawrence 
H. Mirel, Commissioner, District of Columbia Department of 
Insurance and Securities Regulation; and Brian Wolfman, Esq., 
Attorney, Public Citizen Litigation Group.

                        Committee Consideration

    On May 21, 2003, the Committee met in open session and 
ordered favorably reported the bill H.R. 1115, as amended, by a 
vote of 20 ayes to 14 nays, a quorum being present.

                         Vote of the Committee

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the Committee notes that the 
following rollcall votes occurred during the committee's 
consideration of H.R. 1115:
    1. An amendment offered by Mr. Nadler to prohibit the court 
from sealing class action records relevant to public health or 
safety. DEFEATED: rollcall vote of 7 ayes and 20 nays.

                                                   ROLLCALL NO. 1
----------------------------------------------------------------------------------------------------------------
                                                                       Ayes            Nays           Present
----------------------------------------------------------------------------------------------------------------
Mr. Hyde........................................................
Mr. Coble.......................................................                              X
Mr. Smith.......................................................                              X
Mr. Gallegly....................................................
Mr. Goodlatte...................................................                              X
Mr. Chabot......................................................                              X
Mr. Jenkins.....................................................                              X
Mr. Cannon......................................................                              X
Mr. Bachus......................................................                              X
Mr. Hostettler..................................................                              X
Mr. Green.......................................................                              X
Mr. Keller......................................................                              X
Ms. Hart........................................................                              X
Mr. Flake.......................................................                              X
Mr. Pence.......................................................                              X
Mr. Forbes......................................................                              X
Mr. King........................................................                              X
Mr. Carter......................................................                              X
Mr. Feeney......................................................                              X
Mrs. Blackburn..................................................                              X
Mr. Conyers.....................................................
Mr. Berman......................................................              X
Mr. Boucher.....................................................
Mr. Nadler......................................................              X
Mr. Scott.......................................................              X
Mr. Watt........................................................                              X
Ms. Lofgren.....................................................
Ms. Jackson Lee.................................................
Ms. Waters......................................................
Mr. Meehan......................................................
Mr. Delahunt....................................................              X
Mr. Wexler......................................................
Ms. Baldwin.....................................................              X
Mr. Weiner......................................................
Mr. Schiff......................................................              X
Ms. Sanchez.....................................................              X
Mr. Sensenbrenner, Chairman.....................................                              X
                                                                 -----------------------------------------------
    Total.......................................................              7              20
----------------------------------------------------------------------------------------------------------------

    2. An amendment offered by Mr. Smith and Mr. Boucher to 
apply the provisions of the bill to cases that have been filed 
but not certified as a class upon date of enactment. ADOPTED: 
rollcall vote of 21 ayes and 9 nays.

                                                   ROLLCALL NO. 2
----------------------------------------------------------------------------------------------------------------
                                                                       Ayes            Nays           Present
----------------------------------------------------------------------------------------------------------------
Mr. Hyde........................................................
Mr. Coble.......................................................              X
Mr. Smith.......................................................              X
Mr. Gallegly....................................................              X
Mr. Goodlatte...................................................              X
Mr. Chabot......................................................              X
Mr. Jenkins.....................................................              X
Mr. Cannon......................................................              X
Mr. Bachus......................................................              X
Mr. Hostettler..................................................              X
Mr. Green.......................................................              X
Mr. Keller......................................................              X
Ms. Hart........................................................              X
Mr. Flake.......................................................              X
Mr. Pence.......................................................              X
Mr. Forbes......................................................              X
Mr. King........................................................              X
Mr. Carter......................................................              X
Mr. Feeney......................................................              X
Mrs. Blackburn..................................................              X
Mr. Conyers.....................................................
Mr. Berman......................................................                              X
Mr. Boucher.....................................................              X
Mr. Nadler......................................................
Mr. Scott.......................................................                              X
Mr. Watt........................................................                              X
Ms. Lofgren.....................................................
Ms. Jackson Lee.................................................
Ms. Waters......................................................
Mr. Meehan......................................................                              X
Mr. Delahunt....................................................                              X
Mr. Wexler......................................................
Ms. Baldwin.....................................................                              X
Mr. Weiner......................................................                              X
Mr. Schiff......................................................                              X
Ms. Sanchez.....................................................                              X
Mr. Sensenbrenner, Chairman.....................................              X
                                                                 -----------------------------------------------
    Total.......................................................             21               9
----------------------------------------------------------------------------------------------------------------

    3. An amendment offered by Mr. Scott to strike the bill's 
prohibition on bounties which disproportionately reward certain 
class members. DEFEATED: rollcall vote of 12 ayes and 20 nays.

                                                   ROLLCALL NO. 3
----------------------------------------------------------------------------------------------------------------
                                                                       Ayes            Nays           Present
----------------------------------------------------------------------------------------------------------------
Mr. Hyde........................................................
Mr. Coble.......................................................                              X
Mr. Smith.......................................................                              X
Mr. Gallegly....................................................
Mr. Goodlatte...................................................                              X
Mr. Chabot......................................................                              X
Mr. Jenkins.....................................................                              X
Mr. Cannon......................................................                              X
Mr. Bachus......................................................                              X
Mr. Hostettler..................................................                              X
Mr. Green.......................................................                              X
Mr. Keller......................................................                              X
Ms. Hart........................................................                              X
Mr. Flake.......................................................                              X
Mr. Pence.......................................................                              X
Mr. Forbes......................................................                              X
Mr. King........................................................                              X
Mr. Carter......................................................                              X
Mr. Feeney......................................................                              X
Mrs. Blackburn..................................................                              X
Mr. Conyers.....................................................              X
Mr. Berman......................................................              X
Mr. Boucher.....................................................                              X
Mr. Nadler......................................................              X
Mr. Scott.......................................................              X
Mr. Watt........................................................              X
Ms. Lofgren.....................................................
Ms. Jackson Lee.................................................
Ms. Waters......................................................
Mr. Meehan......................................................              X
Mr. Delahunt....................................................              X
Mr. Wexler......................................................              X
Ms. Baldwin.....................................................              X
Mr. Weiner......................................................              X
Mr. Schiff......................................................              X
Ms. Sanchez.....................................................              X
Mr. Sensenbrenner, Chairman.....................................                              X
                                                                 -----------------------------------------------
    Total.......................................................             12              20
----------------------------------------------------------------------------------------------------------------

    4. An amendment offered by Ms. Jackson Lee and Mr. Conyers 
to make foreign corporations citizens of the States where a 
domestic corporation acquired by said foreign corporation (via 
a corporate repatriation transaction) is incorporated for 
purposes of Federal diversity jurisdiction. DEFEATED: rollcall 
vote 13 ayes to 20 nays.

                                                   ROLLCALL NO. 4
----------------------------------------------------------------------------------------------------------------
                                                                       Ayes            Nays           Present
----------------------------------------------------------------------------------------------------------------
Mr. Hyde........................................................
Mr. Coble.......................................................                              X
Mr. Smith.......................................................                              X
Mr. Gallegly....................................................
Mr. Goodlatte...................................................                              X
Mr. Chabot......................................................                              X
Mr. Jenkins.....................................................                              X
Mr. Cannon......................................................                              X
Mr. Bachus......................................................                              X
Mr. Hostettler..................................................                              X
Mr. Green.......................................................                              X
Mr. Keller......................................................                              X
Ms. Hart........................................................                              X
Mr. Flake.......................................................                              X
Mr. Pence.......................................................                              X
Mr. Forbes......................................................                              X
Mr. King........................................................                              X
Mr. Carter......................................................                              X
Mr. Feeney......................................................                              X
Mrs. Blackburn..................................................                              X
Mr. Conyers.....................................................              X
Mr. Berman......................................................
Mr. Boucher.....................................................                              X
Mr. Nadler......................................................              X
Mr. Scott.......................................................              X
Mr. Watt........................................................              X
Ms. Lofgren.....................................................
Ms. Jackson Lee.................................................              X
Ms. Waters......................................................              X
Mr. Meehan......................................................              X
Mr. Delahunt....................................................              X
Mr. Wexler......................................................              X
Ms. Baldwin.....................................................              X
Mr. Weiner......................................................              X
Mr. Schiff......................................................              X
Ms. Sanchez.....................................................              X
Mr. Sensenbrenner, Chairman.....................................                              X
                                                                 -----------------------------------------------
    Total.......................................................             13              20
----------------------------------------------------------------------------------------------------------------

    5. A motion by Chairman Sensenbrenner to favorably report 
H.R. 1115 as amended. ADOPTED: rollcall vote 20 ayes to 14 
nays.

                                                   ROLLCALL NO. 5
----------------------------------------------------------------------------------------------------------------
                                                                       Ayes            Nays           Present
----------------------------------------------------------------------------------------------------------------
Mr. Hyde........................................................
Mr. Coble.......................................................              X
Mr. Smith.......................................................              X
Mr. Gallegly....................................................
Mr. Goodlatte...................................................              X
Mr. Chabot......................................................              X
Mr. Jenkins.....................................................              X
Mr. Cannon......................................................              X
Mr. Bachus......................................................              X
Mr. Hostettler..................................................              X
Mr. Green.......................................................              X
Mr. Keller......................................................              X
Ms. Hart........................................................              X
Mr. Flake.......................................................              X
Mr. Pence.......................................................              X
Mr. Forbes......................................................              X
Mr. King........................................................              X
Mr. Carter......................................................              X
Mr. Feeney......................................................              X
Mrs. Blackburn..................................................              X
Mr. Conyers.....................................................                              X
Mr. Berman......................................................                              X
Mr. Boucher.....................................................              X
Mr. Nadler......................................................                              X
Mr. Scott.......................................................                              X
Mr. Watt........................................................                              X
Ms. Lofgren.....................................................
Ms. Jackson Lee.................................................                              X
Ms. Waters......................................................                              X
Mr. Meehan......................................................                              X
Mr. Delahunt....................................................                              X
Mr. Wexler......................................................                              X
Ms. Baldwin.....................................................                              X
Mr. Weiner......................................................                              X
Mr. Schiff......................................................                              X
Ms. Sanchez.....................................................                              X
Mr. Sensenbrenner, Chairman.....................................              X
                                                                 -----------------------------------------------
    Total.......................................................             20              14
----------------------------------------------------------------------------------------------------------------

                      Committee Oversight Findings

    In compliance with clause 3(c)(1) of rule XIII of the Rules 
of the House of Representatives, the Committee reports that the 
findings and recommendations of the Committee, based on 
oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

               New Budget Authority and Tax Expenditures

    Clause 3(c)(2) of rule XIII of the Rules of the House of 
Representatives is inapplicable because this legislation does 
not provide new budgetary authority or increased tax 
expenditures.

               Congressional Budget Office Cost Estimate

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, the Committee sets forth, with 
respect to the bill, H.R. 1115, the following estimate and 
comparison prepared by the Director of the Congressional Budget 
Office under section 402 of the Congressional Budget Act of 
1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, June 2, 2003.
Hon. F. James Sensenbrenner, Jr., Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1115, the Class 
Action Fairness Act of 2003.
    If you wish further details on this estimate, we will be 
pleased to provide them.
    The CBO staff contact is Lanette J. Walker (for Federal 
costs), who can be reached at 226-2860, and Paige Piper/Bach 
(for the private-sector impact), who can be reached at 226-
2940.
            Sincerely,
                                       Douglas Holtz-Eakin.

Enclosure

cc:
        Honorable John Conyers, Jr.
        Ranking Member
H.R. 1115--Class Action Fairness Act of 2003.
    H.R. 1115 would expand the types of class-action lawsuits 
that would be initially heard in Federal district courts. CBO 
estimates that implementing the bill would cost the Federal 
district courts about $6 million a year, subject to 
appropriation of the necessary funds. The bill would not affect 
direct spending or revenues. H.R. 1115 contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act (UMRA) and would impose no costs 
on State, local, or tribal governments.
    Under H.R. 1115, 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 
uncertain, CBO expects that 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 $21,000. That figure includes salaries and 
benefits for clerks, rent, utilities, and associated overhead 
expenses, but excludes the costs of the salaries and benefits 
of judges. CBO estimates that implementing H.R. 1115 would cost 
about $6 million annually.
    CBO also estimates that enacting this bill could increase 
the need for additional district judges. Because the salaries 
and benefits of district court judges are considered mandatory, 
adding more judges would increase direct spending. However, 
H.R. 1115 would not--by itself--affect direct spending because 
separate legislation would be necessary to authorize an 
increase in the number of district judges. In any event, CBO 
expects that enacting the bill would not require a 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.
    On May 1, 2003, CBO transmitted a cost estimate for S. 274, 
the Class Action Fairness Act, as ordered reported by Senate 
Committee on the Judiciary on April 11, 2003. Our estimate of 
the Federal costs of implementing S. 274 or H.R. 1115 are the 
same. Unlike H.R. 1115, the Senate Judiciary bill contains 
private-sector mandates. That bill would impose a mandate on 
defendants participating in a proposed class action settlement 
by requiring them to notify the appropriate State and Federal 
officials within 10 days after a proposed settlement is filed 
in court. In addition, by requiring that certain notifications 
of class members follow a certain format and use easily 
understood language, S. 274 would impose a private-sector 
mandate on attorneys. CBO found that the total direct costs of 
those mandates would fall well below the annual threshold for 
private-sector mandates established by UMRA ($117 million in 
2003, adjusted annually for inflation).
    The CBO staff contacts for this estimate are Lanette J. 
Walker (for Federal costs), who can be reached at 226-2860, and 
Paige Piper/Bach (for the private-sector impact), who can be 
reached at 226-2940. This estimate was approved by Peter H. 
Fontaine, Deputy Assistant Director for Budget Analysis.

                    Performance Goals and Objectives

    H.R. 1115 does not authorize funding. Therefore, clause 
3(c)(4) of rule XIII of the Rules of the House of 
Representatives is inapplicable.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds the authority for 
this legislation in article I, section 8 and article III, 
section 1 of the Constitution.

               Section-by-Section Analysis and Discussion

    Section 1--Short Title; Reference; Table of Contents. 
Section 1 sets forth the bill's title--the ``Class Action 
Fairness Act of 2003''--and states that the bill amends title 
28 of the U.S. Code and provides a table of contents.
    Section 2--Findings and Purposes. Section 2 sets forth 
Congress's findings and purposes. As explained in Section 2, 
class actions are an important and valuable part of our legal 
system. However, over the last decade, class actions have been 
subject to a number of abuses that injure both consumer 
plaintiffs and defendants, adversely affect interstate 
commerce, and undermine public respect for our judicial system. 
Such abuses are occurring primarily in State and local courts 
in cases that, consistent with fundamental principles of 
diversity jurisdiction, should be heard in Federal courts. The 
purposes of this Act are to assure fair and prompt recoveries 
for class members with legitimate claims by prohibiting unfair 
settlements; to restore the intent of the Framers with regard 
to diversity jurisdiction by creating Federal jurisdiction for 
interstate class actions; to diminish the adverse impacts of 
class actions on interstate commerce; and to encourage 
innovation and lower consumer prices by diminishing incentives 
for attorneys to file frivolous suits.
    Section 3--Consumer Class Action Bill of Rights and 
Improved Procedures for Interstate Class Actions. Section 3 
sets forth a ``Consumer Class Action Bill of Rights'' to 
address a number of common class action abuses that have come 
to the Committee's attention. In particular, Section 3 would 
add the following provisions to 28 U.S.C.:
    Section 1711: Judicial scrutiny of coupon and other non-
cash settlements. This provision is aimed at situations in 
which plaintiffs' lawyers negotiate settlements under which 
class members receive coupons or other non-cash relief of 
dubious monetary value, while their lawyers receive enormous 
attorneys' fees.
    To address this problem, the provision states that a 
Federal judge may not approve a coupon or other similar noncash 
settlement without first conducting a hearing and determining 
that the settlement terms are fair, reasonable, and adequate 
for class members. In making that determination, the judge 
should consider, among other things, the real monetary value 
and likely utilization rate of the coupons provided by the 
settlement. In adopting this provision, it is the intent of the 
Committee to incorporate that line of recent Federal court 
precedents in which proposed settlements have been rejected (in 
whole or in part) because the proposed compensation to the 
class counsel was disproportionate to the real benefits to be 
delivered to class members through the proposed settlement.\89\
---------------------------------------------------------------------------
    \89\ See, e.g., Cope v. Duggins, 2001 WL 333102 (E.D. La. 2001) 
(rejecting proposed class settlement because attorneys' fees were 
disproportionate to class benefits); Schwartz v. Dallas Cowboys 
Football Club, Ltd., 157 F. Supp. 2d 561 (E.D. Pa. 2001) (same); 
Sheppard v. Consolidated Edison Co., 2000 WL 33313540 (E.D.N.Y. 2000) 
(same); Polar Int'l Brokerage Corp. v. Reeve, 187 F.R.D. 108 (S.D.N.Y. 
1999) (same).
---------------------------------------------------------------------------
    The Committee does not intend, by this provision, to forbid 
all non-cash settlements. Such settlements may be appropriate 
where they provide real benefits to consumer class members 
(e.g., where coupons entitle class members to receive something 
of actual value free of charge) or where the claims being 
resolved appear to be of marginal merit. However, where such 
settlements are used, the fairness of the settlement should be 
viewed skeptically by the reviewing court where the attorneys' 
fees demand is disproportionate to the level of tangible, non-
speculative benefit to the class members.
    Section 1712: Protection against loss by class members. 
This provision states that a Federal judge may not approve a 
class action settlement in which a class member will be 
required to pay attorneys' fees that would result in a net loss 
to the class member unless the judge makes a written finding 
that the benefits to the class members ``substantially 
outweigh'' the monetary loss.
    Section 1713: Protection against discrimination based on 
geographic location. This provision states that a Federal court 
settlement may not award some class members a larger recovery 
than others simply because the favored members of the class 
live closer to the courthouse in which the settlement is filed 
than do the disfavored class members. The provision, which 
responds to cases in which settlements have discriminated on 
the basis of geography, provides assurance that out-of-State 
class members are not disadvantaged by the parochialism of 
local judges.
    The Committee wishes to emphasize that this provision is 
intended solely to prohibit circumstances in which the 
preferential payments have no legitimate legal basis. For 
example, it is perfectly appropriate for a settlement of an 
environmental class action to differentiate settlement payment 
amounts based on a claimant's proximity to an alleged chemical 
spill. This provision is not intended to affect such a 
determination. But where putative class members' claims are 
legally and factually indistinguishable, it is inappropriate to 
give one class member extra settlement benefits merely because 
he or she resides in (or closer to) the county where the court 
sits.
    Section 1714: Prohibition on the payment of bounties. Under 
this provision, a Federal court class action may not be settled 
on terms that award special and disproportionate bounties to 
the named class representatives. Class representatives will, 
however, be able to be compensated for reasonable time and 
expenses required to fulfill class-related responsibilities. 
Unfortunately, it is not uncommon in class settlements for the 
class representatives to receive a share of the damages award 
that is disproportionately larger than that provided to absent 
class members.
    This kind of settlement leads to a divergence between the 
interests of the class representatives on the one hand, and 
those of all other members of the class on the other. As a 
general matter, class actions are deemed to be fair because the 
class representatives are identically situated to the absent 
class members and therefore can be counted on to protect the 
absent class members' interests. But if the plaintiffs' lawyers 
and the defendant may arrange for the payment of special 
bounties to the class representatives, those representatives 
may approve settlements that are not in the best interests of 
most class members.
    Nevertheless, the Committee is aware that because of the 
burdens involved in being a class representative, there is a 
risk that legitimate claims may not be brought because of the 
unwillingness of any class member to undertake that role. 
Section 1714(b) therefore makes it clear that section 1714(a) 
is not intended to preclude payments to class representatives 
for the reasonable time and costs that they have invested in 
serving as the class representative (particularly in providing 
deposition testimony or responding to discovery requests), so 
long as the court approves such payments.
    Section 1715: Definitions. This provision defines various 
terms used in this section, including the term ``class 
action,'' which is defined to include representative actions 
filed in Federal district court under Rule 23 of the Federal 
Rules of Civil Procedure, as well as actions filed under 
similar rules in State court that have been removed to Federal 
court.
    Section 4--Federal District Court Jurisdiction For 
Interstate Class Actions. Article III of the Constitution 
protects out-of-State litigants against the prejudice of local 
courts by allowing for Federal diversity jurisdiction when the 
plaintiffs and defendants are citizens of different States. 
Under prevailing law, however, Federal diversity jurisdiction 
over a class action does not exist unless every plaintiff is a 
citizen of a different State from every defendant, and 
(depending on the judicial circuit) at least one named 
plaintiff and every individual member of the purported class 
seeks damages in excess of $75,000 as well. This section would 
clarify the law--and provide additional protection for out-of-
State litigants--by creating a minimal diversity rule for class 
actions and by determining satisfaction of the amount-in-
controversy requirement by looking at the total amount of 
damages at stake:
    Section 4 amends 28 U.S.C. Sec. 1332 to redesignate section 
1332(d) as section 1332(e). The bill creates a new subsection 
(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 the plaintiff class is 
a citizen of a State different from any defendant; (b) any 
member of the plaintiff class is a foreign state or a citizen 
or subject of a foreign state, and any defendant is a citizen 
of a State; or (c) any member of the plaintiff class is a 
citizen of a State and any defendant is a foreign state or a 
citizen or subject of a foreign state. For purposes of this new 
section, the term ``foreign state'' is defined as in 28 U.S.C. 
Sec. 1603(a).
    This provision uses a different class action definition 
from Section 3 of the bill, specifying that for purposes of the 
jurisdictional provisions, a civil action will be deemed to be 
a class action if: (1) the named plaintiff seeks monetary 
relief on behalf of persons who are not parties to the action 
(unless the named plaintiff is the State attorney general); or 
(2) the claims at issue seek monetary relief on behalf of 100 
or more persons, on the ground that the claims involve common 
questions of law or fact and should therefore be jointly tried 
in any respect. This definition is intended to encompass so-
called ``private attorney general'' suits such as those in 
which an individual seeks to recover on behalf of the general 
public. It also includes ``mass actions''--suits that are 
brought on behalf of hundreds or thousands of named plaintiffs 
who claim that their suits present common questions of law or 
fact that should be resolved in a single proceeding in which 
large groups of claims are tried together, in whole or in part. 
Although private attorney general suits and mass action cases 
do not proceed under Rule 23 because they do not involve class 
representatives suing on behalf of unnamed persons, they 
function very much like class actions. The Committee wishes to 
note that if removed to Federal court under these provisions, 
these actions would not be required to meet the requirements of 
Rule 23 in order to proceed, unless styled as class actions. 
Nevertheless, the Federal court would be expected to ensure 
that the case proceed in a manner that would protect all 
parties' due process rights and fairness considerations. In 
short, the use of these devices should not be allowed to permit 
an end-run around the due process and fairness considerations 
inherent in the Federal class certification requirements.
    Pursuant to section 1332(d)(3), the Federal district courts 
are directed not to exercise diversity jurisdiction over class 
actions in which: (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 (``limited scope'' case). The purpose of the 
``state action'' cases provision is to prevent States, State 
officials, or other governmental entities from dodging 
legitimate claims by removing class actions to Federal court 
and then arguing that the Federal courts are constitutionally 
prohibited from granting the requested relief. This provision 
will ensure that cases in which such entities are the primary 
targets will be heard in State courts that do not face the same 
constitutional impediments to granting relief. The ``limited 
scope'' cases provision is intended to allow class actions with 
relatively few claimants to remain in State courts.\90\
---------------------------------------------------------------------------
    \90\ Under Federal law, a purported class action may involve as few 
as 21 class members. See, e.g., Cox v. American Cast Iron Pipe Co., 784 
F.2d 1546, 1553 (11th Cir. 1986) (noting that classes encompassing 
fewer than 21 persons normally are not subject to class certification); 
Tietz v. Bowen, 695 F. Supp. 441, 445 (C.D. Cal. 1987).
---------------------------------------------------------------------------
    Federal courts should proceed cautiously before declining 
Federal jurisdiction under the subsection 1332(d)(4)(B) ``state 
action'' case exception, and do so only 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 guidance regarding the term ``primary 
defendants'' discussed below. The Committee wishes to stress 
that this provision should not become a subterfuge for avoiding 
Federal jurisdiction. In particular, plaintiffs should not be 
permitted to name State entities as defendants as a mechanism 
to avoid Federal jurisdiction over class actions that largely 
target non-governmental defendants. Similarly, the subsection 
1332(d)(4)(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 
Federal court should err in favor of exercising jurisdiction 
over the matter.
    Pursuant to new section 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 of value of $2 million (exclusive of interest 
and costs). The Committee intends this section to be 
interpreted expansively. If a purported class action is 
removed, the named plaintiffs 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 the matter in 
controversy in a purported class action exceeds the sum or 
value of $2 million, the court should err in favor of 
exercising jurisdiction over the case.
    By the same token, the Committee intends that a matter be 
subject to Federal jurisdiction under this provision if the 
value of the matter in litigation exceeds $2 million, either 
from the viewpoint of the plaintiff or the viewpoint of the 
defendant, and regardless of the type of relief sought (e.g., 
damages, injunctive relief, or declaratory relief). The 
Committee is aware that some courts, especially in the class 
action context, have declined to exercise Federal jurisdiction 
over cases on the ground that the amount in controversy in 
those cases exceeded the jurisdictional threshold only when 
assessed from the viewpoint of the defendant. For example, a 
class action seeking an injunction that would require a 
defendant to restructure its business in some fundamental way 
might ``cost'' a defendant well in excess of $75,000 under 
current law, but might have substantially less ``value'' to a 
class of plaintiffs. Some courts have held that jurisdiction 
does not exist in this scenario under present law, because they 
have reasoned that assessing the amount in controversy from the 
defendant's perspective was tantamount to aggregating damages. 
Because H.R. 1115 explicitly allows aggregation for purposes of 
determining the amount in controversy in class actions, that 
concern is no longer relevant.
    The Committee also notes that in assessing the 
jurisdictional amount in declaratory relief cases, the Federal 
court should include in its assessment the value of all relief 
and benefits that would logically flow from the granting of the 
declaratory relief sought by the claimants. For example, a 
declaration that a defendant's conduct is unlawful or 
fraudulent will carry certain consequences, such as the need to 
cease and desist from that conduct, that will often ``cost'' 
the defendant in excess of $2 million. Or a declaration that a 
standardized product sold throughout the nation is 
``defective'' might well put a case over the $2 million 
threshold, even if the class complaint did not affirmatively 
seek a determination that each class member was injured by the 
product.
    Overall, the new section 1332(d) is intended to expand 
substantially Federal court jurisdiction over class actions. 
For that reason, its provisions should be read expansively; 
they should be read as stating a strong preference that 
interstate class actions be heard in a Federal court if so 
desired by any purported class member or any defendant.
    Consistent with this overriding intent, the provisions of 
the new section 1332(d)(3)(A) should be read narrowly. A 
purported class action should be deemed a case that falls 
outside Federal jurisdiction only if virtually all members of 
all proposed classes are residents of a single State of which 
all ``primary defendants'' are also citizens. For example, a 
case in which a proposed class of 1000 persons sues a North 
Carolina citizen corporation presumably would fit this 
exception if 997 of those persons were North Carolina citizens. 
Further, Federal courts should be cautious to decline Federal 
jurisdiction under section 1332(d)(3)(B) only where it is 
relatively clear that States, State officials, or other 
governmental entities are primary defendants against whom the 
court may be foreclosed from ordering relief.
    For purposes of class actions that are subject to 
subsections 1332(d)(3) and (d)(4)(A), the Committee intends 
that 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. Thus, the 
Committee intends for the term ``primary defendants'' to 
include any person who has substantial exposure to significant 
portions of the proposed class in the action, particularly any 
defendant that is allegedly liable to the vast majority of the 
members of the proposed classes (as opposed to simply a few 
individual class members). For example, in a class action 
alleging that a drug was defective, the defendant manufacturer 
of the drug would be a primary defendant, since it is a major 
target of the allegations of the full class. However, if 
several physicians who had each prescribed the drug to a 
handful of class members were also named as defendants, they 
would not be primary defendants. Similarly, in a class action 
alleging that a type of ladder was defective, both a defendant 
manufacturer that made 60 percent of the ladders at issue and a 
defendant manufacturer that made 20 percent of the ladders at 
issue would be primary defendants, since both are major targets 
of the allegations and have substantial exposure to significant 
percentages of the class in the case. However, if two local 
hardware stores that each sold a few of the ladders were named 
as defendants, they would not be deemed ``primary defendants.'' 
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.
    For the purposes of the section 1132(d)(3)(A) carve-out, 
the only parties that should be considered ``primary 
defendants'' are those who are the real ``targets'' of the 
suit; that is, the parties that would be expected to incur most 
of the loss if liability is found. For example, an executive of 
a corporate defendant who, in the interest of completeness, is 
named as a co-defendant in a class action against his employer 
normally should not be deemed a ``primary defendant.'' In most 
instances, the executive would not be the real ``target'' of 
the purported class action; his employer company would be. 
Moreover, no defendant should be considered a ``primary 
defendant'' for purposes of this analysis unless it is the 
subject of legitimate claims by all class members. To 
illustrate, if named as a defendant, a dealer, agent, or sales 
representative of a corporate defendant should not be deemed a 
``primary defendant'' unless that dealer, agent, or sales 
representative is alleged to have actually participated in the 
purported wrongdoing with respect to all class members (e.g., 
the defendant is alleged to have sold a purportedly defective 
product to all class members). Merely alleging that a defendant 
conspired with other class members to commit wrongdoing will 
not be sufficient to cause a person to be a ``primary 
defendant.''
    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 section 1332(d)(3)(C), that plaintiff should 
have the burden of demonstrating that ``the number of proposed 
class members is less than 100.''
    New section 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 pleading that bring the case 
within Federal court jurisdiction.
    New section 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 section 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 condition of rule 23 of the Federal Rules of 
Civil Procedure. Notwithstanding this subsection, new section 
1332(d)(6)(B) clarifies that the action may be amended and 
refiled in State court, and it may be removed if it is an 
action over which the district courts of the United have 
original jurisdiction. The Committee has concluded that the 
alternative--forbidding re-removal--would be bad policy. That 
approach would allow lawyers 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 non-
certifiable would set a troubling (if not constitutionally 
suspect) precedent under which State decisions 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 section 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. This applies to both Federal and State statutes 
of limitations. 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.
    In the new section 1332(d)(7), the act provides two 
exceptions to the grant of original jurisdiction over cases 
described in new section 1332(d)(2). The first excepts from its 
reach any claims concerning a covered security as that term is 
defined in section 16(f)(3) of the Securities Act of 1933 or 
section 28(f)(5)(E) of the Securities Exchange Act of 1934. 
These claims are essentially claims against the officers of a 
corporation for a precipitous drop in the value of its stock, 
based on fraud. The Committee recognizes that Congress has 
previously enacted legislation governing the adjudication of 
these claims.\91\ So as not to disturb the existing legal 
framework for litigating in this context, claims involving 
covered securities are not included in the new section 
1332(d)(2) jurisdiction.
---------------------------------------------------------------------------
    \91\ See Private Securities Litigation Reform Act of 1995, Pub. L. 
No. 1104-67, 109 Stat. 737, and Securities Litigation Uniform Standards 
Act of 1998, Pub. L. No. 105-353, 112 Stat. 3227.
---------------------------------------------------------------------------
    The second exception to the new section 1332(d)(2) 
jurisdiction is for class actions solely involving claims that 
relate to matters of corporate governance arising out of State 
law. This exclusion recognizes that class actions regarding 
business governance issues are more of an internal business 
nature and do not present the same sorts of risks of abuse as 
do other forms of class actions.
    However, the Committee intends that this exception be 
narrowly construed. By corporate governance litigation, the 
Committee means litigation based solely on: (a) State statutory 
law regulating the organization and governance of business 
enterprises such as corporations, partnerships, limited 
partnerships, limited liability companies, limited liability 
partnerships, and business trusts; (b) State common law of the 
duties owed between and among owners and managers of business 
enterprises; and (c) the rights arising out of the terms of the 
securities issued by business enterprises.
    This exemption would apply to a class action relating to a 
corporate governance claim filed in the court of any State. 
That is, it will apply to a corporate governance class action 
regardless of the forum in which it may be filed, and 
regardless of whether the law to be applied is that of the 
State in which the claim is filed. So, what constitutes ``the 
internal affairs or governance of a corporation or other form 
of business enterprise'' applies to all forms of business 
enterprises. For example, a proxy fight would be a matter of 
corporate governance for any business, whether it is organized 
as corporation (stock, mutual, or other form), a partnership or 
any other form of business and would fall within the internal 
affairs exception. On the other hand, whether the terms of a 
contract constitute an unfair trade practice is not a matter 
dealing with internal corporate governance and would be covered 
under paragraph (2), regardless of whether the business was 
organized as a corporation (either stock, mutual, or other 
form), a partnership of any other form of business.
    For purposes of this exception, the phrase ``the internal 
affairs or governance of a corporation or other form of 
business enterprise'' is intended to refer to the internal 
affairs doctrine which the United States Supreme Court has 
defined as ``matters peculiar to the relationships among or 
between the corporation and its current officers, directors and 
shareholders . . .'' \92\ The phrase ``other form of business 
enterprise'' in intended to include forms of business entities 
other than corporations, including, but not limited to, limited 
liability companies, limited liability partnerships, business 
trusts, partnerships and limited partnerships.
---------------------------------------------------------------------------
    \92\ Edgar v. Mite Corp., 457 U.S. 624, 645 (1982). See also Ellis 
v. Mutual Life Ins. Co., 187 So. 434 (Ala. 1939); McDermott v. Lewis, 
531 A.2d 206, 214-15 (Del. 1987); Draper v. Paul N. Gardner Defined 
Plan Trust, 625 A.2d 859, 865-66 (Del. 1993); NAACP v. Golding, 679 
A.2d 554, 559 (Ct. App. Md. 1996); Hart v. General Motors Corporation, 
517 N.Y.S.2d 490, 493 (App. Div. 1987); Amberjack, Ltd., Inc. v. 
Thompson, 1997 WL 613676 (Tenn. App. 1997).
---------------------------------------------------------------------------
    The exception to section 1332(d)(2) jurisdiction created by 
the Act is also intended to cover disputes over the meaning of 
the terms of a security, which is generally spelled out in some 
formative document of the business enterprise, such as a 
certificate of incorporation or a certificate of designations. 
The reference to the Securities Act of 1933 contained in new 
section 1332(d)(7)(A) is for definitional purposes only. Since 
the law contains an already well-defined concept of a security, 
this provision simply imports the definition contained in the 
Securities Act.
    New section 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.'' \93\ This rule ``has been frequently criticized 
because often * * * an unincorporated association is, as a 
practical matter, indistinguishable from a corporation in the 
same business.'' \94\ Some insurance companies, for example, 
are ``inter-insurance exchanges'' or ``reciprocal insurance 
association.'' They, therefore, have been viewed by Federal 
courts as unincorporated associations for purposes of diversity 
jurisdiction. Since such companies are nationwide companies, 
they are deemed to be citizens of any State in which they have 
insured customers.\95\ 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 section 1332(d)(8) 
corrects this anomaly.
---------------------------------------------------------------------------
    \93\ United Steelworkers of America v. Boulingy, Inc., 382 U.S. 145 
(1965).
    \94\ See. e.g., J. Moore & J. Lucas, Moore's Federal Practice 
para.para.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.'').
    \95\ Tuck v. United Services Automobile Assn., 859 F.2d 842 (10th 
Cir. 1988).
---------------------------------------------------------------------------
    Section 5--Removal of Interstate Class Actions to Federal 
District Court. Section 5 of the Act governs the procedures for 
removal from State court of interstate class actions over which 
the Federal court is granted original jurisdiction in the 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 inconsistent with the 
provisions of the act. For example, under new section 1453(b), 
the general requirement contained in section 1441(b) that an 
action be removable only if none of the defendants is a citizen 
of the State in which the action is brought would not apply to 
the removal of class actions. Imposing such a restriction on 
removal jurisdiction would subvert the intent of the Act by 
allowing a plaintiff to defeat removal jurisdiction by suing 
both in-State and out-of-State defendants. This would 
essentially perpetuate the current ``complete diversity'' rule 
in class actions that the new section 1332(b) rejects. The Act 
does not, however, disturb the general rule that a case may 
only be removed to the district court of the United States for 
the district and division embracing the place where the action 
is pending.\96\ 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
---------------------------------------------------------------------------
    \96\ See 28 U.S.C. Sec. 1441(a).
---------------------------------------------------------------------------
    New section 1453(b) also would permit removal by any 
plaintiff class member who is not a named or representative 
class member of the action for which removal is sought. 
Generally, removal by the plaintiff is not permissible, under 
the theory that as the instigator of the suit the plaintiff had 
the choice of forum from the outset. When a class action is 
filed, however, only the named plaintiffs and their counsel 
have control over the choice of forum; the vast majority of the 
real parties in interest--the unnamed class members on whose 
behalf the action is brought and the defendants have no voice 
in that decision. This provision thus extends to those unnamed 
class members of class action that have been certified the same 
flexibility to choose the forum as offered to the defendant. 
Also, by operation of new section 1453(b), removal may occur 
without the consent of any other party. This revision will 
combat collusiveness between a corporate defendant and a 
plaintiffs' attorney who may attempt to settle on the cheap in 
a State court at the expense of the plaintiff class members. 
Similarly, it will prevent a plaintiffs' attorney from 
recruiting a ``friendly'' defendant (a local retailer, for 
example) who has no interest in joining a removal action and 
may therefore thwart the legitimate efforts of the primary 
corporate defendant in seeking removal.
    New section 1453(c) is intended to confirm that the 
provisions of section 1453 are to apply to any class action 
regardless of whether an order certifying classes or denying 
certification of classes has been entered. However, a plaintiff 
who is not a representative class member can only seek removal 
after the class has been certified. Named plaintiffs and 
defendants can remove at any time.
    New section 1453(d) provides that a plaintiff class member 
who wishes to remove a purported class action to Federal court 
must do so within 30 days after receiving the initial written 
notice of the class action. The provision also indicates that a 
class member who is not a named plaintiff in a class action may 
not remove the case until the State court has certified a class 
in the action. 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 thirtieth day 
after dissemination of notice to the class (as directed by the 
court) is completed.
    New section 1453(e) confirms that 28 U.S.C. Sec. 1447 
generally applies to the removal of a purported class action. 
However, the provisions of section 1447(d) shall not apply. 
That section states that ``an order remanding a case to the 
State court from which it was removed is not reviewable on 
appeal or otherwise. . . .'' The prohibition on remand order 
review was added to section 1447 after the Federal diversity 
jurisdictional statutes and the related removal statutes had 
been subject to appellate review for many years and were the 
subject of considerable appellate level interpretive law. The 
Committee wishes to ensure that the appellate courts have an 
opportunity to supervise the expansion of Federal jurisdiction 
over class action established by this legislation through de 
novo review of remand orders and to contribute to the 
precedents interpreting the provisions of this act. Therefore, 
the non-reviewability provisions of section 1447(d) will not 
apply in the event of a removal of a class action to Federal 
court.
    In order to be consistent with the exceptions to Federal 
diversity jurisdiction granted under new section 1332(b), 
section 1453(f) provides that the new removal provisions shall 
not apply to claims involving covered securities, or corporate 
governance litigation. The parameters of this section and that 
of section 1332(b)(3) and (4) are intended to be coterminous.
    Section 5(b) amends current section 1446(b) to clarify that 
the 1-year limit otherwise imposed on removal of suits filed 
pursuant to section 1332 has no application to class actions; 
that is, the bill permits a defendant to remove to Federal 
court more than 1 year after commencement of a suit in State 
court. This change to present law 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 
non-diverse 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. It is not the intention of the Committee 
to change section 1446(b)'s requirements that an action must be 
removed within 30 days of being served with the initial 
pleading or 30 days after receipt of an amended pleading, 
motion, order, or other paper from which it may be ascertained 
that the case is one which is or has become removable.
    Section 6--Appeal of Class Certification Orders. Several 
years ago, Federal Rule 23 was amended to add a provision, 
section (f) which authorized for the first time discretionary 
review of orders granting or denying class certification. In 
the Committee's view, that change has been very successful, 
allowing appellate courts to be a full participant in the 
development of the governing principles of class certification. 
The Committee is concerned, however, that the various Federal 
Circuit Courts of Appeal have been inconsistent in the extent 
to which they have exercised their discretion to review class 
certification orders. The Committee believes that both fairness 
to the parties and the need to develop stronger, clearer class 
certification precedents strongly favors the more frequent 
appellate review of class certification rulings. Section 6 of 
the bill therefore establishes that the parties to a class 
action may take an immediate appeal as of right from any 
district court ruling granting or denying a motion for class 
certification. While the matter is pending on appeal, the 
presumption shall be that other activity in the litigation 
shall be stayed. However, upon a finding that specific 
discovery must be taken to preserve evidence or to prevent 
undue prejudice to a party, the district court may order that 
such discovery may proceed.
    Section 7--Effective Date. Section 7, as reported, provides 
that the provisions in H.R. 1115 apply to: (1) any civil action 
commenced on or after the date of enactment of this 
legislation; and (2) any civil action commenced before the date 
of enactment in which a class certification order is entered on 
or after the date of enactment. This section further specifies 
that with regard to cases commenced before the date of 
enactment, the 30-day removal period would begin on the date on 
which the class certification order is entered by a State 
court.
    The Committee is concerned that the pendency of this 
legislation may cause a race to the State courthouse as counsel 
seek to file class actions before the new jurisdictional and 
removal provisions become effective. In order to ensure that 
this legislation does not have the unintended effect of 
increasing class action abuse, section 7 provides for removal 
of previously filed class actions that are certified after the 
date of enactment.
    The Committee believes that there is no logical reason why 
these cases should not be covered--the new rules should apply 
to all cases certified as class action cases after the date of 
enactment, so that plaintiffs and defendants newly swept into a 
class action by later certifications are not discriminated 
against solely because the filing date occurred before the date 
of enactment of the bill. In short, all parties to a case 
certified as a class action after the date of enactment of the 
bill should receive the benefits of the bill's protections 
against abuse. Further, the Committee believes that this 
provision will help ensure that the purpose of the legislation 
is not undermined by continued abusive State court activity. 
Upon the removal of such a case to Federal court in which a 
class has already been certified by the State court, it is the 
Committee's intent that the Federal court promptly review the 
appropriateness of the State court's class certification order, 
essentially conducting a de novo review of the State court's 
order affording that order no deference. If the State court 
order certifying a class is not disturbed by the Federal court, 
that conclusion should be subject to immediate appellate review 
under section 6 or any other applicable statute or rule 
providing for such review. However, an order reversing a State 
court class certification order should be subject to review 
only if the Federal district court determines that the 
certification of a class in the matter would be inappropriate 
(as opposed to reversing the order on the grounds that the 
plaintiff had failed to comply with one or more requirements 
and should be allowed an opportunity to demonstrate 
compliance).
    Section 8--Adopting Rule 23 Changes. Section 8, as 
reported, is intended to put into effect immediately several 
critical amendments to Rule 23 of the Federal Rules of Civil 
Procedure that pertain to the manner in which Federal courts 
handle class actions, particularly proposed class settlements.
    A core premise of this legislation is that our Federal 
courts have amassed an admirable record in working to minimize 
abuses of the class action device. A key part of that record 
has been the efforts of the Federal courts' rulemaking 
apparatus to develop amendments to the Federal class action 
rules that would memorialize ``best practices'' developed by 
our Federal courts to ensure that the class action device 
serves the purposes for which it is intended.
    Last year, several proposed amendments to Rule 23 were 
approved by the Advisory Committee on Civil Rules (which 
initially drafted the proposed changes), the Standing Committee 
on Rules of Practice and Procedure, and the Judicial Conference 
of the United States. Then, on April 1, 2003, the Supreme Court 
of the United States entered an order adopting those changes in 
the form recommended by the Judicial Conference, subject to the 
opportunity for congressional review established by 28 U.S.C. 
Sec. 2074 (the Rules Enabling Act).
    As provided by that section, those changes to Rule 23 will 
become effective on December 1, 2003 in the form approved by 
the Supreme Court, unless Congress acts to reject or modify 
them. Under Section 2074, however, Congress may accelerate the 
effective date of an amendment to the Federal Rules of Civil 
Procedure promulgated by the Court. See 28 U.S.C. Sec. 2074(a) 
(noting that a proposed amendment ``shall take effect no 
earlier than December 1 of the year in which such rule is so 
transmitted unless otherwise provided by law'') (emphasis 
added).\97\ Section 8 is intended to be an exercise of that 
prerogative, so as to put into effect the pending Rule 23 
amendments simultaneously with the enactment of this 
legislation.
---------------------------------------------------------------------------
    \97\ On other occasions, Congress has acted to adjust the effective 
date of proposed rules, setting effective dates other than what is 
provided in the Rules Enabling Act. See, e.g., Pub. L. No. 97-227, 96 
Stat. 246 (1982) (adjusting effective date of civil rules amendments 
proposed April 28, 1982); Pub. L. No. 96-42, 93 Stat. 326 (1979), 
(adjusting effective date of criminal and evidence rules proposed April 
30, 1979); Pub. L. No. 93-595, Sec. 3, 88 Stat. 1949 (1975), (adjusting 
effective date of proposed civil and criminal procedure rules).
---------------------------------------------------------------------------
    The Rule 23 amendments are wholly consistent with the 
spirit and purpose of H.R. 1115, particularly given their core 
purposes of seeking to minimize abuses of the class action 
device and attempting to improve communications with class 
members about the litigation being conducted on their behalf. 
In their key respects, the amendments would:

         LClarify the appropriate timing for 
        determining whether an action may proceed as a class 
        action (Rule 23(c)(1)(A)).

         LRequire that an order certifying a class 
        define the class and class claims, issues, or defenses 
        and appoint class counsel (Rule 23(c)(1)(B)).

         LModify the current rules concerning the 
        content and form of the notice provided to class 
        members concerning the certification of a proposed 
        classes, including a requirement that the notice must 
        state ``in plain, easily understood language'' (Rule 
        23(c)(2)(A), (B)):

             Lthe nature of the action;

             Lthe definition of the class certified;

             Lthe class claims, issues, and defenses;

             Lthat a class member may enter an 
        appearance through counsel if the member so desires;

             Lthat the court will exclude from the 
        class any member who requests exclusion, stating when 
        and how members may elect to be excluded; and

             Lthe binding effect of a class judgment on 
        class members under Rule 23(c)(3).

         LRequire that any judgment entered in a matter 
        that has been litigated on a class basis include and 
        describe the class members (Rule 23(c)(3)).

         LAllow an action to be brought or maintained 
        as a class with respect to particular issues, or allow 
        a class to be divided into subclasses and each subclass 
        to be treated as a class (Rule 23(c)(4)).

         LSpecify more detailed procedures for 
        reviewing and approving a proposed class settlement, 
        including (Rule 23(e)):

             La specific requirement that notice must 
        be directed ``in a reasonable manner'' to all class 
        members who would be bound;

             Lan explicit direction that a settlement 
        may be approved only ``after a hearing and on finding 
        that the settlement . . . is fair, reasonable, and 
        adequate;''

             La mandate that all agreements (including 
        any side agreements) related to the settlement must be 
        filed with the court;

             Lan authorization that courts may permit 
        class members an opportunity to opt out of a proposed 
        settlement, even though they may have previously 
        declined to opt out of the class action; and

             La specific authorization for class 
        members to object to proposed settlements and a 
        prohibition on withdrawing such objections without 
        court approval.

         LRequire that upon certifying a class, a court 
        shall appoint class counsel, taking account of 
        specified criteria, including (Rule 23(g)(1)):

             Lcounsel's work on the matter;

             Lcounsel's experience;

             Lcounsel's knowledge of applicable law;

             Lthe resources counsel will commit to 
        representing the class;

             Lcounsel's proposed attorneys' fees terms; 
        and

             Lany other matter pertinent to counsel's 
        ability to fairly and adequately represent the 
        interests of the class.

         LEstablish a procedure for appointing class 
        counsel (Rule 23(g)(2)).

         LEstablish a procedure for making attorneys' 
        fee and cost awards in class actions, including a 
        requirement that any claim for fees or costs be made by 
        motion, that the claim be subject to objections, that 
        the motion may be subject to a hearing, and that the 
        motion must be resolved on the basis of formal factual 
        findings and conclusions of law, in accordance with 
        Rule 52(a) (Rule 23(h).

    Because a core purpose of this legislation is to permit 
more class actions to be subject to the more deliberate 
management of such matters typically found in our Federal court 
system, the Committee believes that these important 
improvements to the Federal court rules governing class action 
procedures should become effective simultaneously with H.R. 
1115's expansion of Federal diversity jurisdiction over such 
cases. In short, the Committee applauds the efforts of the 
Federal courts and their rulemaking committees to make these 
improvements and believes that they should become effective 
without further delay, particularly in light of the changes in 
class action jurisdictional rules contained in this 
legislation.
    The Committee notes that as originally introduced, H.R. 
1115 contained a provision concerning the content of notices to 
class members. To avoid confusion, those provisions have been 
removed from the legislation in favor of the class notice 
provisions reflected in the proposed amendment of Fed. R. Civ. 
P. 23(c)(2)(A), (B). However, the Committee wishes to stress 
that it is deferring to the rule promulgated by the Federal 
judiciary with the understanding that improvements are being 
made to the form and content of class notices issued by our 
Federal courts so as to achieve notifications that are stated 
``concisely and clearly'' in ``plain, easily understood 
language,'' an objective stated in both the original H.R. 1115 
language and the Rule 23 amendments.
    The Committee notes that this provision is not intended to 
alter the Supreme Court's determination that the amendments to 
Rule 23 ``shall govern in all proceedings in civil cases . . . 
commenced [after the effective date] and, insofar as just and 
practicable, all proceedings then pending.''
    The Committee stresses that Section 8 is intended to 
express approval of only the Rule 23 amendments contained in 
the April 1, 2003 order of the Supreme Court of the United 
States and to accelerate the effective date only for those Rule 
23 amendments. The other amendments to the Federal Rules of 
Civil Procedure and the amendments to the Federal Rules of 
Evidence and the Federal Rules of Bankruptcy Procedure 
reflected in that Order shall remain subject to the process 
contemplated by 28 U.S.C. Sec. 2074 (as to the civil procedure 
and evidence rules) and 28 U.S.C. Sec. 2075 (as to the 
bankruptcy procedure rules), including their respective 
provisions regarding effective dates.
    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 for class counsel to 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.''

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, existing law in which no change 
is proposed is shown in roman):

TITLE 28, UNITED STATES CODE

           *       *       *       *       *       *       *


PART IV--JURISDICTION AND VENUE

           *       *       *       *       *       *       *


CHAPTER 83--COURTS OF APPEALS

           *       *       *       *       *       *       *


Sec. 1292. Interlocutory decisions

    (a) Except as provided in subsections (c) and (d) of this 
section, the courts of appeals shall have jurisdiction of 
appeals from:
            (1)  * * *

           *       *       *       *       *       *       *

            (4) Orders of the district courts of the United 
        States granting or denying class certification under 
        rule 23 of the Federal Rules of Civil Procedure, if 
        notice of appeal is filed within 10 days after entry of 
        the order.

           *       *       *       *       *       *       *


CHAPTER 85--DISTRICT COURTS; JURISDICTION

           *       *       *       *       *       *       *


Sec. 1332. Diversity of citizenship; amount in controversy; costs

    (a)  * * *

           *       *       *       *       *       *       *

    (d)(1) In this subsection--
            (A) the term ``class'' means all of the class 
        members in a class action;
            (B) the term ``class action'' means any civil 
        action filed pursuant to rule 23 of the Federal Rules 
        of Civil Procedure or similar State statute or rule of 
        judicial procedure authorizing an action to be brought 
        by one or more representative persons on behalf of a 
        class;
            (C) the term ``class certification order'' means an 
        order issued by a court approving the treatment of a 
        civil action as a class action; and
            (D) the term ``class members'' means the persons 
        who fall within the definition of the proposed or 
        certified class in a class action.
    (2) The district courts shall have original jurisdiction of 
any civil action in which 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 proposed plaintiff class members 
        is less than 100.
    (4) In any class action, the claims of the individual class 
members 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 
with respect to that action.
    (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 
requirements 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, except that any such action filed in 
State court may be removed to the appropriate district court 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 paragraph 
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 paragraph 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 
brought by shareholders that solely involves a claim that 
relates to--
            (A) 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;
            (B) 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
            (C) 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.
    (9) For purposes of this section and section 1453 of this 
title, a civil action that is not otherwise a class action as 
defined in paragraph (1)(B) of this subsection shall 
nevertheless be deemed a class action if--
            (A) the named plaintiff purports to act for the 
        interests of its members (who are not named parties to 
        the action) or for the interests of the general public, 
        seeks a remedy of damages, restitution, disgorgement, 
        or any other form of monetary relief, and is not a 
        State attorney general; or
            (B) monetary relief claims in the action are 
        proposed to be tried jointly in any respect with the 
        claims of 100 or more other persons on the ground that 
        the claims involve common questions of law or fact.
In any such case, the persons who allegedly were injured shall 
be treated as members of a proposed plaintiff class and the 
monetary relief that is sought shall be treated as the claims 
of individual class members. The provisions of paragraphs (3) 
and (6) of this subsection and subsections (b)(2) and (d) of 
section 1453 shall not apply to civil actions described under 
subparagraph (A). The provisions of paragraph (6) of this 
subsection, and subsections (b)(2) and (d) of section 1453 
shall not apply to civil actions described under subparagraph 
(B).
    [(d)] (e) The word ``States'', as used in this section, 
includes the Territories, the District of Columbia, and the 
Commonwealth of Puerto Rico.

           *       *       *       *       *       *       *


Sec. 1335. Interpleader

    (a) The district courts shall have original jurisdiction of 
any civil action of interpleader or in the nature of 
interpleader filed by any person, firm, or corporation, 
association, or society having in his or its custody or 
possession money or property of the value of $500 or more, or 
having issued a note, bond, certificate, policy of insurance, 
or other instrument of value or amount of $500 or more, or 
providing for the delivery or payment or the loan of money or 
property of such amount or value, or being under any obligation 
written or unwritten to the amount of $500 or more, if
    (1) Two or more adverse claimants, of diverse citizenship 
as defined in section 1332(a) or (d) of this title, are 
claiming or may claim to be entitled to such money or property, 
or to any one or more of the benefits arising by virtue of any 
note, bond, certificate, policy or other instrument, or arising 
by virtue of any such obligation; and if (2) the plaintiff has 
deposited such money or property or has paid the amount of or 
the loan or other value of such instrument or the amount due 
under such obligation into the registry of the court, there to 
abide the judgment of the court, or has given bond payable to 
the clerk of the court in such amount and with such surety as 
the court or judge may deem proper, conditioned upon the 
compliance by the plaintiff with the future order or judgment 
of the court with respect to the subject matter of the 
controversy.

           *       *       *       *       *       *       *


    CHAPTER 89--DISTRICT COURTS; REMOVAL OF CASES FROM STATE COURTS

Sec.
1441.    Actions removable generally
     * * * * * * *
1453.    Removal of class actions.
     * * * * * * *

Sec. 1446. Procedure for removal

    (a)  * * *
    (b) The notice of removal of a civil action or proceeding 
shall be filed within thirty days after the receipt by the 
defendant, through service or otherwise, of a copy of the 
initial pleading setting forth the claim for relief upon which 
such action or proceeding is based, or within thirty days after 
the service of summons upon the defendant if such initial 
pleading has then been filed in court and is not required to be 
served on the defendant, whichever period is shorter.
    If the case stated by the initial pleading is not 
removable, a notice of removal may be filed within thirty days 
after receipt by the defendant, through service or otherwise, 
of a copy of an amended pleading, motion, order or other paper 
from which it may first be ascertained 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. 1453. Removal of class actions

    (a) Definitions.--In this section, the terms ``class'', 
``class action'', ``class certification order'', and ``class 
member'' have the meanings given these terms in section 
1332(d)(1).
    (b) In General.--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) When Removable.--This section shall apply to any class 
action before or after the entry of a class certification order 
in the action, except that a plaintiff class member who is not 
a named or representative class member of the action may not 
seek removal of the action before an order certifying a class 
of which the plaintiff is a class member has been entered.
    (d) Procedure for Removal.--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) Review of Orders Remanding Class Actions to State 
Courts.--The provisions of section 1447 shall apply to any 
removal of a case under this section, except that, 
notwithstanding the provisions of section 1447(d), an order 
remanding a class action to the State court from which it was 
removed shall be reviewable by appeal or otherwise.
    (f) Exception.--This section shall not apply to any class 
action brought by shareholders that solely involves--
            (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).

           *       *       *       *       *       *       *


CHAPTER 97--JURISDICTIONAL IMMUNITIES OF FOREIGN STATES

           *       *       *       *       *       *       *


Sec. 1603. Definitions

    For purposes of this chapter--
            (a)  * * *
            (b) An ``agency or instrumentality of a foreign 
        state'' means any entity--
                    (1)  * * *

           *       *       *       *       *       *       *

                    (3) which is neither a citizen of a State 
                of the United States as defined in section 
                1332(c) and [(d)] (e) of this title, nor 
                created under the laws of any third country.

           *       *       *       *       *       *       *


                           PART V--PROCEDURE

Chapter                                                          Section
111. General Provisions...........................................  1651
     * * * * * * *
114. Class Actions................................................  1711
     * * * * * * *

                       CHAPTER 114--CLASS ACTIONS

Sec.
1711. Judicial scrutiny of coupon and other noncash settlements.
1712. Protection against loss by class members.
1713. Protection against discrimination based on geographic location.
1714. Prohibition on the payment of bounties.
1715. Definitions.

Sec. 1711. Judicial scrutiny of coupon and other noncash settlements

    The court may approve a proposed settlement under which the 
class members would receive noncash benefits or would otherwise 
be required to expend funds in order to obtain part or all of 
the proposed benefits only after a hearing to determine 
whether, and making a written finding that, the settlement is 
fair, reasonable, and adequate for class members.

Sec. 1712. Protection against loss by class members

    The court may approve a proposed settlement under which any 
class member is obligated to pay sums to class counsel that 
would result in a net loss to the class member only if the 
court makes a written finding that nonmonetary benefits to the 
class member outweigh the monetary loss.

Sec. 1713. Protection against discrimination based on geographic 
                    location

    The court may not approve a proposed settlement that 
provides for the payment of greater sums to some class members 
than to others solely on the basis that the class members to 
whom the greater sums are to be paid are located in closer 
geographic proximity to the court.

Sec. 1714. Prohibition on the payment of bounties

    (a) In General.--The court may not approve a proposed 
settlement that provides for the payment of a greater share of 
the award to a class representative serving on behalf of a 
class, on the basis of the formula for distribution to all 
other class members, than that awarded to the other class 
members.
    (b) Rule of Construction.--The limitation in subsection (a) 
shall not be construed to prohibit any payment approved by the 
court for reasonable time or costs that a person was required 
to expend in fulfilling his or her obligations as a class 
representative.

Sec. 1715. Definitions

    In this chapter--
            (1) Class action.--The term ``class action'' means 
        any civil action filed in a district court of the 
        United States pursuant to rule 23 of the Federal Rules 
        of Civil Procedure or any civil action that is removed 
        to a district court of the United States that was 
        originally filed pursuant to a State statute or rule of 
        judicial procedure authorizing an action to be brought 
        by one or more representatives on behalf of a class.
            (2) Class counsel.--The term ``class counsel'' 
        means the persons who serve as the attorneys for the 
        class members in a proposed or certified class action.
            (3) Class members.--The term ``class members'' 
        means the persons who fall within the definition of the 
        proposed or certified class in a class action.
            (4) Plaintiff class action.--The term ``plaintiff 
        class action'' means a class action in which class 
        members are plaintiffs.
            (5) Proposed settlement.--The term ``proposed 
        settlement'' means an agreement that resolves claims in 
        a class action, that is subject to court approval, and 
        that, if approved, would be binding on the class 
        members.

           *       *       *       *       *       *       *


                           Markup Transcript


                            BUSINESS MEETING

                        WEDNESDAY, MAY 21, 2003

                  House of Representatives,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:01 a.m., in 
Room 2141, Rayburn House Office Building, Hon. F. James 
Sensenbrenner, Jr. (Chairman of the Committee) presiding.
    [Intervening business.]
    Chairman Sensenbrenner. The Committee will be in order. A 
working quorum is present.
    The next item on the agenda, pursuant to notice, I call up 
the bill H.R. 1115, the ``Class Action Fairness Act of 2003,'' 
for purposes of markup and move its favorable recommendation to 
the full House. Without objection, the bill will be considered 
as read and open for amendment at any point.
    [The bill, H.R. 1115, follows:]
      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


    Chairman Sensenbrenner. The Chair recognizes himself for 5 
minutes for purposes of an opening statement.
    The legislation expands Federal diversity jurisdiction over 
interstate class actions and in a manner consistent with the 
constitutional intent that the Federal court should provide--
preside over controversies between citizens of different 
States. The problem of abuse of State class action suits is now 
systemic. It is a threat to the integrity of our civil justice 
system and a drain on the national economy. Since this 
Committee last reported class action reform legislation in the 
107th Congress, the problem has only gotten worse and not 
better.
    In the last 10 years, State court class actions filing 
nationwide have risen over 1,000 percent. In certain magnet 
courts known for certifying even the most speculative class 
action suits, the increase in filing over the last 5 years is 
now approaching 4,000 percent.
    The present rules encourage a race to any available State 
courthouse in hopes of a rubber-stamp, nationwide settlement 
that produces millions in attorneys' fees for the winners of 
that race. But as the Department of Justice testified at our 
last hearing, the losers in this race are the victims who often 
gain little or nothing through the settlement and yet are bound 
by it in perpetuity.
    As the Washington Post editorial board observed last 
November, ``This is not justice. It is an extortion racket only 
Congress can fix.''
    This Committee has held hearings over the last 2 years on 
class action legislation, and we have received valued input 
from many perspectives about the present abuse of the current 
system. We have heard testimony from a small business owner 
repeatedly brought into class action style lawsuits simply 
because her drug store filled prescriptions, kept accurate 
records, and had the misfortune of being located in a county 
court jurisdiction notorious for certifying speculative 
nationwide class action claims.
    We've heard testimony from a high-tech company subject to 
defective product class action suits in State courts throughout 
the country for alleged injuries that are either trivial, 
highly speculative, or totally non-existent.
    We have heard testimony from a State insurance commissioner 
who testified that class action verdicts and settlements 
imposed by county courts in other States are undermining his 
regulatory ability to make insurance available and affordable 
to citizens of his jurisdiction.
    All of these witnesses and others who testified before the 
Committee agreed with the pressing need for this legislation. 
Even witnesses who testified against the bill admitted that the 
present system has serious flaws and requires congressional 
action and an expanded role for the Federal courts to fix it.
    H.R. 1115 would address many of these problems with the 
present system by applying a new Federal diversity jurisdiction 
standard to class action cases. The bill provides for Federal 
jurisdiction over class actions where any plaintiff and any 
defendant reside in different States and where the aggregate of 
all plaintiffs' claims is at least $2 million. These modest 
changes will keep large actions of a national character in 
Federal court where they belong.
    H.R. 1115 also addresses another major area in need of 
reform: the incentives for settlements in class action cases 
and scrutiny of those settlements. Under current rules, the 
first case settled wins. Those left out must either find a way 
to join the settlement or forego their claim. This leads to bad 
settlements favoring lawyers over consumers in jurisdictions 
noted for lax class action requirements.
    In the last year, more such one-sided settlements 
benefiting only lawyers have occurred, such as: a settlement 
with Blockbuster over late fees produced $9.2 million in 
lawyers' fees and nothing but dollar coupons for the consumers 
represented, only 20 percent of which are likely to be 
redeemed; a settlement with Crayola over asbestos included in 
crayons produced $600,000 in attorneys' fees and a 75-cent 
discount on more crayons.
    In order to help prevent abuses like these, the bill aims 
to protect plaintiffs by prohibiting the payment of bounties to 
class representatives, barring approval of net loss 
settlements, requiring better notice to class members about 
their rights, and requiring greater scrutiny of coupon 
settlements or settlements affecting out-of-State class 
members.
    The need to restore some common sense and certainty to our 
class action system is clear, and the time to act is now. And I 
urge the Members to favorably report this bill.
    Who wishes to give the minority statement? The gentleman 
from Virginia, Mr. Boucher, whom I hope is more persuasive than 
others with people seated to my left. [Laughter.]
    Mr. Boucher. I'm not sure about that, Mr. Chairman.
    Thank you very much for recognizing me and for scheduling 
the markup on this legislation today. During the course of the 
last Congress, class action reform legislation, which I was 
pleased to co-author with my Virginia colleague Congressman 
Goodlatte, was reported from this Committee and approved with a 
broad bipartisan majority on the floor of the House. 
Unfortunately, during the course of the last Congress, the 
Senate did not act on class action reform.
    In the intervening 2 years, the problems that we're seeking 
to address with this measure have grown worse and more voices 
have now been raised in support of our modest remedy. Cases 
that are truly national in scope are being filed as State class 
actions before certain favored judges, who almost--who always 
employ a broad approach to class certification. And that broad 
approach renders virtually any controversy subject to 
certification as a class action.
    In such an environment, defendants and plaintiff class 
members are routinely denied their range of normal rights, as 
there is a rush to certify classes and then a rush to settle 
the cases. Plaintiffs suffer a range of harms. In order to 
prevent removal of a case to Federal court, the amount sued for 
is sometimes kept artificially below the $75,000 Federal 
jurisdictional amount, even though a claim and a higher amount 
would be justified. Individual plaintiffs are, therefore, 
denied their opportunity to recover the full range of damages 
to which they might be entitled.
    In another effort to avoid removal to Federal court, the 
class action complaint sometimes will not assert Federal causes 
of action that legitimately could be raised, denying the 
plaintiffs an opportunity to have that portion of their claim 
heard. Sometimes in the settlement of the cases, the plaintiffs 
get mere coupons while their lawyers receive millions in 
attorneys' fees. And in at least one case, the plaintiff class 
members at the end of the settlement had a deficit of $91 
posted to their mortgage escrow accounts while their lawyers 
received more than $8 million in attorneys' fees for their 
services. The plaintiffs had a net loss because of this class 
action suit having been filed and settled. They were literally 
worse off than if the class action case had not been filed to 
begin with.
    Our bill addresses these problems by permitting cases that 
are truly national in scope to be removed to the Federal court 
even if the diversity of citizenship requirements of current 
law are not strictly met. Instead, we look to the center of 
gravity of the case. The target of these cases is typically a 
large out-of-State corporation. The plaintiffs are usually 
consumers who reside in many States. These cases are national 
in character, and our bill would permit their removal to 
Federal court even if a local defendant has been sued for the 
purpose of destroying complete diversity.
    In one noted example, also referred to by the Chairman in 
his opening statement, there is a drug store owner in the State 
of Mississippi who has been sued hundreds of times, not because 
anyone expects to recover anything from her, but because her 
mere presence in the case as a party defendant destroys 
complete diversity of citizenship and prevents the removal of 
the case from the Mississippi State court into a Federal court.
    The reform that we're putting forward is truly modest. I've 
served in the House now for more than 20 years and have seen a 
lot of litigation reform measures be considered in this 
Committee, and of that broad range of measures--most of which, 
by the way, I have not supported--I can truly say that this is 
the most modest and it strikes at a problem that is egregious, 
that is notorious, and that cries out for this modest remedy.
    I'm pleased to be co-authoring this measure with my 
colleague Mr. Goodlatte, and, Mr. Chairman, I urge the Members 
of this Committee to give their approval. Thank you. I yield 
back.
    Chairman Sensenbrenner. Without objection, all Members' 
opening statements will be included in the record at this 
point.
    [The prepared statement of Ms. Jackson Lee follows:]
       Prepared Statement of the Honorable Sheila Jackson Lee, a 
           Representative in Congress From the State of Texas
    Thank you Chairman Sensenbrenner and Ranking Member Conyers for 
convening this hearing today. We are considering H.R. 1115, the Class 
Action Fairness Act of 2003. I oppose H.R. 1115 for several policy 
reasons including severe infringement on the discretion of the 
judiciary. I remain steadfast in my belief that this legislation is yet 
another example of the legislature interfering in the affairs of the 
judiciary.
    The Members of this committee on the other side of the aisle have 
always espoused the wisdom of allowing state courts and legislatures to 
decide for their own citizens what is best for them. They have 
professed that, as much as possible, the Federal government should not 
interfere in state business. But H.R. 1115 does exactly that by 
broadening Federal jurisdiction over state class action lawsuits.
    H.R. 1115 makes severe changes to diversity jurisdiction 
requirements. The bill also makes substantial revisions to the rules 
governing aggregation of claims. Both of these changes would result in 
significantly more state court actions being removed to federal courts 
thereby overburdening the federal caseload.
    H.R. 1115 also provides a party to a class action lawsuit with the 
right to an interlocutory appeal of the court's class certification 
decision provided an appeal notice is filed within 10 days. The appeal 
would stay discovery and other proceedings during the pendency of the 
appeal. This is a substantial change to Rule 23(f) which presently 
provides the court with discretion to allow an appeal of the class 
certification order without staying other proceedings. The automatic 
stay under H.R.1115 provides defendants with another delaying tactic 
and another tool to increase the expense for plaintiffs.
    These delay tactics and other provisions give a decisive advantage 
to well-financed corporate defendants. I am deeply concerned that if we 
pass H.R. 1115 we would eliminate the means by which innocent victims 
of corporate giants can find justice. First, I believe that before we 
consider this legislation, Congress should insist on receiving 
objective and comprehensive data justifying such a dramatic intrusion 
into state court prerogatives. This legislation has the potential to 
damage federal and state court systems. H.R. 1115 will expand federal 
class action jurisdiction to include most state class actions. H.R. 
1115 will dramatically increase the number of cases in the already 
overburdened federal courts.
    For example, as of February 2, 2002, there were 68 federal judicial 
vacancies. Judicial vacancies mean other courts must assume the 
workload. Assuming this additional burden contributes to federal 
district court judges having a backlogged docket with an average of 416 
pending civil cases. These workload problems caused Supreme Court Chief 
Justice Rehnquist to criticize Congress for taking actions that have 
exacerbated the courts' workload problem.
    H.R. 1115 also raises serious constitutional issues because it 
strips state courts of the discretion to decide when to utilize the 
class action format. In those cases where a federal court chooses not 
to certify the state class action, the bill prohibits the states from 
using class actions to resolve the underlying state causes of action. 
Federal courts have indicated in numerous decisions that efforts by 
Congress to dictate such state court procedures implicate important 
Tenth Amendment federalism issues and should be avoided. 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
    H.R. 1115 also adversely impacts the ability of consumers and other 
victims to receive compensation in cases concerning extensive damages. 
The bill has the potential to force state class actions into federal 
courts which may result in increase litigation expenses. Corporate 
defendants may attempt to force less-financed plaintiffs to travel 
great distances to participate in court proceedings. There are also 
added pleading costs for plaintiffs. For example, under the bill, 
individuals are required to plead with particularity the nature of the 
injuries suffered by class members in their initial complaints. The 
plaintiff must even prove the defendant's ``state of mind,'' such as 
fraud or deception, to be included in the initial complaint. This is a 
very high standard to impose on plaintiffs who may not yet have had the 
benefit of formal discovery. If the pleading requirements are not met, 
the judge is required to dismiss the plaintiff's complaint.
    Additionally, plaintiffs under H.R. 1115 will face a far more 
arduous task of certifying their class actions in the federal court 
system. Fourteen states, representing some 29% of the nation's 
population, have adopted different criteria for class action rules than 
Rule 23 of the federal rules of civil procedure. Plaintiffs may also be 
disadvantaged by the vague terms used in the legislation, such as 
``substantial majority'' of plaintiffs, ``primary defendants,'' and 
claims ``primarily'' governed by a state's laws, as they are entirely 
new and undefined phrases with no precedent in the United States Code 
or the case law.
    Mr. Chairman, H.R. 1115 is riddled with provisions that are 
burdensome to potential plaintiffs and that potentially infringe on the 
discretion of state courts. I urge all of my colleagues to reject H.R. 
1115 as it is presently written. I commend my colleagues for proposing 
numerous amendments to this bill and I hope that these amendments will 
address the gross inequities in this legislation.

    Chairman Sensenbrenner. Are there amendments?
    Mr. Watt. Mr. Chairman?
    Chairman Sensenbrenner. Does the gentleman from North 
Carolina have an amendment?
    Mr. Watt. No, I don't have an amendment. I----
    Chairman Sensenbrenner. Are there amendments?
    Mr. Goodlatte. Mr. Chairman?
    Mr. Watt. I want to strike the last word.
    Chairman Sensenbrenner. The gentleman from Virginia, Mr. 
Goodlatte.
    Mr. Goodlatte. Mr. Chairman, I have an amendment at the 
desk.
    Chairman Sensenbrenner. The clerk will report the 
amendment.
    Mr. Watt. Mr. Chairman?
    Chairman Sensenbrenner. The clerk will report the 
amendment.
    The Clerk. Amendment to H.R. 1115, offered by Mr. 
Goodlatte. In section 3 of the bill, (1) strike section 1715--
--
    Mr. Goodlatte. Mr. Chairman, I ask unanimous consent that 
the amendment be considered as read.
    Chairman Sensenbrenner. Without objection. Without 
objection, so ordered.
    [Mr. Goodlatte's amendment follows:]
    
    
    Chairman Sensenbrenner. The gentleman is recognized for 5 
minutes.
    Mr. Goodlatte. Thank you, Mr. Chairman.
    Mr. Chairman, this is an amendment to the legislation that 
I have offered following communications from the Judicial 
Conference and a recommendation that they have that the 
provisions in the bill dealing with plain English--in other 
words, requiring that some of the notifications that are sent 
to parties in the suit be written in plain English--be made 
consistent with the new provisions of rule 23, which the U.S. 
Judicial Conference has recommended, and, in fact, this would 
incorporate those recommendations which they have adopted as a 
Conference into the law and substitute that for the section 
1715 that is in my bill. I think this is appropriate and 
necessary to maintain consistency, and I would urge my 
colleagues to accept this amendment.
    Chairman Sensenbrenner. The question is on the Goodlatte--
--
    Mr. Watt. Mr. Chairman?
    Chairman Sensenbrenner. The gentleman from North Carolina.
    Mr. Watt. I move to strike the last word.
    Chairman Sensenbrenner. The gentleman is recognized for 5 
minutes.
    Mr. Watt. I'm just trying to make sure I understand what 
we're doing here. This has not been the subject of any hearings 
before the Committee or Subcommittee, I take it. Is that right, 
Mr. Goodlatte?
    Mr. Goodlatte. If the gentleman would yield?
    Mr. Watt. Yes.
    Mr. Goodlatte. That is not correct. A hearing was held on 
this issue last week, and a number of hearings have been held 
on the previous----
    Mr. Watt. No. I mean this particular amendment.
    Mr. Goodlatte. Oh, this particular amendment? No, it's 
not----
    Mr. Watt. I'm aware of the----
    Mr. Goodlatte.--usual that we have hearings held on 
individual amendments.
    Mr. Watt. Okay. But this is a broad-brushed amendment to 
rule 23, or is it some technical amendment to rule 23?
    Mr. Goodlatte. It conforms the bill to new changes to rule 
23 made by the United States Judicial Conference.
    Mr. Watt. Okay.
    Mr. Goodlatte. With relation to the plain English language. 
We didn't want to have two different plain English 
requirements, one that they'd adopted for other rule 23 
proceedings and this for class actions. It made more sense to 
us to accept their provisions and substitute them into our 
bill.
    Mr. Watt. Okay. I appreciate it. I----
    Mr. Scott. Would the gentleman yield?
    Mr. Watt. I'll yield to Mr. Scott.
    Mr. Scott. Will the gentleman yield and respond? Could he 
briefly tell us what differences there are between rule 23 and 
what's in the bill? Or is it essentially the same with just 
slightly different language?
    Mr. Goodlatte. Let me read to you the changes. They modify 
the current rules concerning the content and form of the notice 
provided to class members concerning the certification of a 
proposed class--of proposed classes, including a requirement 
that the notice must state in plain, easily understood language 
the nature of the action, the definition of the class 
certified, the class claims, issues, and defenses, that a class 
member may enter an appearance through counsel if he or she so 
desires, that the court will exclude from the class any member 
who requests exclusion, stating when and how members may elect 
to be excluded, and the binding effect of a class judgment on 
class members under rule 23(c)(3).
    It specifies more detailed procedures for reviewing and 
approving a proposed class settlement including a specific 
requirement that notice must be directed in a reasonable manner 
to all class members who would be bound; an explicit direction 
that a settlement may be approved only after a hearing and on 
finding that the settlement is fair, reasonable, and adequate; 
a mandate that all agreements, including any side agreements 
related to the settlement, must be filed with the court; an 
authorization that the courts may permit class members an 
opportunity to opt out of a proposed settlement even though 
they may have previously declined to opt out of the class 
action; and a specific authorization for class members to 
object to proposed settlements; and a prohibition on 
withdrawing such objections without court approval. That's rule 
23(e). And also rule--the first part of that was rule 23(c)(3), 
and that second part is rule 23(e).
    Mr. Watt. Mr. Chairman, I yield back.
    Chairman Sensenbrenner. The question is on the Goodlatte 
amendment. Those in favor will say aye. Opposed, no.
    The ayes appear to have it. The ayes have it; the amendment 
is agreed to.
    Are there further amendments? The gentleman from New York.
    Mr. Nadler. Thank you, Mr. Chairman. I have an amendment at 
the desk.
    Chairman Sensenbrenner. The clerk will report the 
amendment.
    The Clerk. Amendment to H.R. 1115, offered by Mr. Nadler. 
Page 9, insert the following after line 23 and----
    Mr. Nadler. Mr. Chairman?
    The Clerk.--redesignate----
    Chairman Sensenbrenner. Without objection, the amendment is 
considered as read.
    [Mr. Nadler's amendment follows:]
    
    
    Chairman Sensenbrenner. The gentleman is recognized for 5 
minutes.
    Mr. Nadler. Thank you, Mr. Chairman.
    This amendment is designed to prevent the sealing of 
information in class action lawsuits that could be used to 
protect the health and safety of others. I have been concerned 
for a number of years about records from lawsuits that affect 
public health and safety being sealed by court order. There is 
little justification for this practice. More often than not, 
the reason a class action lawsuit is filed is because a number 
of people have been harmed by the actions of the negligence or 
the alleged actions of a large corporation. These people come 
together to recover damages by proving that a company behaved 
in a way that is harmful to their health and safety.
    So what then happens very often, the company settles the 
lawsuit, pays the people it harms, and then tells them to be 
quiet, as a condition of the settlement enters a non-disclosure 
order. But the companies never change their dangerous 
practices. They simply regard the lawsuits as the cost of doing 
business and ignore the underlying problem.
    Since the companies force the plaintiffs to avoid 
discussing the problem with anyone else, more people end up 
getting injured. This is reprehensible. If people knew about 
the settlement, if people knew about the practice or the 
injuries, then the companies might be forced to change their 
practices or people would not buy the products of the 
companies.
    The Firestone tire situation is a case in point. One of the 
main reasons there was not timely public disclosure of the 
dangers of Firestone tires is because Firestone insisted on a 
series of gag orders when settling a whole series of product 
liability lawsuits. And let me read from an article in the 
September 25, 2000, edition of the Legal Times article on the 
Firestone case. It says, ``One of the principal roadblocks to 
timely public disclosure of the danger of Firestone tires has 
been a series of gag orders the company insisted on as a 
condition of settling product liability lawsuits in the early 
1990's. Simply put, Firestone made a calculated determination 
that they would compensate victims so long as the plaintiffs 
agreed not to share their stories with other victims or with 
the public. Congress was given the opportunity to address this 
very problem in 1995 when an amendment was offered that would 
prevent such gag orders if the public safety need outweighed 
the privacy interests of the litigants. Unfortunately, the 
amendment was defeated, with opponents arguing that the 
information was proprietary information that does not belong in 
the public domain.''
    The reality is that the release of such information in the 
Firestone case 7 or 8 years could have saved human lives. We 
cannot blame the people who settled their cases for recovering 
damages and agreeing to the gag orders as a condition of 
getting the money. But as a result, the public was kept in the 
dark, and many more people who could have avoided it were 
injured. This should not happen again.
    It's important for the people to be aware of the health and 
safety hazards that may exist so that other people can make 
informed choices and, I might add, so that public agencies 
perhaps can crack down on such dangers. Too often, critical 
information is sealed from the public and other people are 
harmed as a result.
    Now, Mr. Chairman, this amendment is reasonably drafted. 
The amendment is designed to say that the judge must make a 
finding of fact in any case in which a gag order is requested. 
If the judge finds that the privacy interests of any of the 
litigants is broader than the public interest, the judge must 
issue the gag order. If the judge finds that the public 
interest and health and safety outweighs the privacy interest 
asserted, the judge may not issue the gag order.
    The judge also has to draft the gag order as tightly as 
possible to prevent the unnecessary disclosure of confidential 
information. So this will prevent the unnecessary disclosure of 
confidential information but will not allow the sealing of 
information that may harm the public.
    When it comes to health and safety, public access to class 
action lawsuit materials is absolutely essential, and I want to 
remind the Chairman--and I want to extend my appreciation to 
the Chairman--that in consideration of this bill or a similar 
bill last year, the Chairman said, and I quote, ``This is a 
very constructive amendment, and we are pleased to support 
it.'' And I hope that his reaction today will be similar.
    So I thank the Chairman and I yield back.
    Chairman Sensenbrenner. The gentleman from Virginia?
    Mr. Goodlatte. Mr. Chairman, I move to strike the last 
word.
    Chairman Sensenbrenner. The gentleman is recognized for 5 
minutes.
    Mr. Goodlatte. Mr. Chairman, I speak in opposition to this 
amendment, in fact, strong opposition. The gentleman from New 
York is correct that it was accepted on the floor. It was, 
however, defeated in this Committee by a 16-9 vote, and for 
good reason. The Committee had it right in the first place. 
Although the amendment which would prohibit the court from 
sealing class action court records relevant to public health 
and safety may seem innocuous enough at first blush, it's both 
unnecessary and harmful. The amendment is unnecessary because, 
except in very rare circumstances really not relevant here, 
court orders and opinions normally are issued publicly and are 
readily available to the media.
    Now, we just passed an amendment that made the provisions 
regarding plain English in class action lawsuits compatible 
with rule 23 as it applies to various types of legal 
proceedings. This amendment would have the opposite effect. It 
would make the protective order provisions of these class 
actions inconsistent with other legal proceedings, and it is 
far more common in individual lawsuits to find these protective 
orders than it is in class actions.
    There are a number of reasons why this would have adverse 
consequences. First, it would cause invasions of privacy. It 
could result in the massive relief of--release of private 
information, personal medical records, information about 
alcohol or substance abuse treatment, and this information 
might be released about non-parties to the litigation, pure, 
innocent bystanders.
    Second, it could discourage innovation. What innovation is 
there--what incentive is there for a company to develop a new 
drug or a life-saving chemical process if an enterprising 
plaintiff's lawyer can walk in and demand that such information 
be made public through this proposed amendment?
    Third, it could cause unfair competition. Competitors could 
simply file lawsuits in an attempt to gain access to critical 
trade secret information, then release that information to the 
public in an effort to show that it is no longer secret and 
thus can no longer be legally protected.
    And, finally, the provision will discourage the settlement 
of lawsuits. As noted previously, class action settlements are 
never subject to protective order because of the public 
approval process. They can't be. But in some class actions, 
plaintiffs' counsel seek to obtain through discovery 
information about individual claims settlements. If that 
information is routinely made public, negotiators in individual 
claims cases will know the results of all other similar 
negotiations. As a result, there will be nothing to negotiate 
in those individual cases. One would simply demand more than 
the last person got. As a result, fewer cases will settle and 
more cases will be tried. The result will be an increasingly 
onerous burden on our judicial system, parties going to trial 
in cases that could be and should be settled.
    A well-known civil procedures specialist, Harvard Law 
School Professor Arthur Miller, has written an article urging 
that so-called reform of protective order rules, such as those 
proposed here, would wreak havoc on our litigation process. I 
would urge my colleagues to oppose the amendment and leave the 
discretion to the judge as it exists now.
    Mr. Scott. Mr. Chairman?
    Chairman Sensenbrenner. The gentleman from Virginia, Mr. 
Scott?
    Mr. Scott. Mr. Chairman, I yield to gentleman from New 
York.
    Mr. Nadler. I thank the gentleman.
    Mr. Chairman, most of the arguments that were just made 
against this amendment are, frankly, facetious and don't 
address the wording of the amendment. The amendment doesn't 
open up everything and prohibit every sealed order. It says 
that no order, opinion, or record of the court in adjudication 
of a class action may be sealed or subjected to a protective 
order unless the court makes a finding of fact (1) that the 
sealing or protective order is narrowly tailored, consistent 
with the protection of public health and safety, and is in the 
public interest; and (2) if the action by the court would 
prevent the disclosure of information, disclosing the 
information is clearly outweighed by a specific and substantial 
interest in maintaining the confidentiality of such 
information.
    All this amendment really does is say that you have to show 
a good reason for keeping it secret and that the--and that it 
has to be narrowly tailored to protect that interest.
    Now, everything that Mr. Goodlatte said about revealing 
information about individuals and private information is all 
nonsense because it wouldn't be revealed. There would be no 
reason for a court to reveal any of that. What is necessary to 
reveal is that a judgment or a settlement was entered by 
Firestone or whoever because of unsafe tires in that Model A-1-
2 was unsafe, so people could avoid buying A-1-2 or could ask 
that A-1-2 have proper safety provisions put into them. And 
that people are entitled to know.
    And lives--I mean, frankly, such protective orders are 
not--I mean, the gentleman said they're rare, and then he said 
that havoc would be wrought by putting this kind of protection 
in. They're not rare and havoc would not be wrought because the 
judge in his discretion--the judge in his discretion could 
still say there's a good public--there's a good public policy 
reason to keep it secret, or there is no good public policy to 
keep it secret but there are reasons to keep part of it secret, 
to protect private information, to protect proprietary 
information. But the fact of the settlement, the fact of what 
the basic safety defect or whatever was, if there is, in fact, 
the basic safety defect, all this really says is if there's a 
public need to know of something that impinges upon the public 
health or safety, you can't seal it unless you can convince the 
judge that there's a good reason to do so.
    Let there be some judicial discretion here. That's what we 
decided. That's what the Chairman agreed to on the House floor, 
and I think that's the better judgment. And I think the 
gentleman for yielding to me.
    I yield back.
    Chairman Sensenbrenner. Does the gentleman from Virginia 
yield back?
    Mr. Scott. I yield back.
    Chairman Sensenbrenner. The question is on the Nadler 
amendment. Those in favor will say aye. Opposed, no.
    The noes appear to have it----
    Mr. Nadler. Mr. Chairman, I ask for a rollcall vote.
    Chairman Sensenbrenner. A rollcall is ordered. The question 
is on agreeing to the amendment offered by the gentleman from 
New York, Mr. Nadler. Those in favor will as your names are 
called answer aye, those opposed, no, and the clerk will call 
the roll.
    The Clerk. Mr. Hyde?
    [No response.]
    The Clerk. Mr. Coble?
    [No response.]
    The Clerk. Mr. Smith?
    Mr. Smith. No.
    The Clerk. Mr. Smith, no. Mr. Gallegly?
    [No response.]
    The Clerk. Mr. Goodlatte?
    Mr. Goodlatte. No.
    The Clerk. Mr. Goodlatte, no. Mr. Chabot?
    Mr. Chabot. No.
    The Clerk. Mr. Chabot, no. Mr. Jenkins?
    Mr. Jenkins. No.
    The Clerk. Mr. Jenkins, no. Mr. Cannon?
    Mr. Cannon. No.
    The Clerk. Mr. Cannon, no. Mr. Bachus?
    Mr. Bachus. No.
    The Clerk. Mr. Bachus, no. Mr. Hostettler?
    Mr. Hostettler. No.
    The Clerk. Mr. Hostettler, no. Mr. Green?
    Mr. Green. No.
    The Clerk. Mr. Green, no. Mr. Keller?
    Mr. Keller. No.
    The Clerk. Mr. Keller, no. Ms. Hart?
    Ms. Hart. No.
    The Clerk. Ms. Hart, no. Mr. Flake?
    Mr. Flake. No.
    The Clerk. Mr. Flake, no. Mr. Pence?
    Mr. Pence. No.
    The Clerk. Mr. Pence, no. Mr. Forbes?
    Mr. Forbes. No.
    The Clerk. Mr. Forbes, no. Mr. King?
    Mr. King. No.
    The Clerk. Mr. King, no. Mr. Carter?
    Mr. Carter. No.
    The Clerk. Mr. Carter, no. Mr. Feeney?
    Mr. Feeney. No.
    The Clerk. Mr. Feeney, no. Mrs. Blackburn?
    Mrs. Blackburn. No.
    The Clerk. Mrs. Blackburn, no. Mr. Conyers?
    [No response.]
    The Clerk. Mr. Berman?
    [No response.]
    The Clerk. Mr. Boucher?
    [No response.]
    The Clerk. Mr. Nadler?
    Mr. Nadler. Aye.
    The Clerk. Mr. Nadler, aye. Mr. Scott?
    Mr. Scott. Aye.
    The Clerk. Mr. Scott, aye. Mr. Watt?
    Mr. Watt. Pass.
    The Clerk. Mr. Watt, pass. Ms. Lofgren?
    [No response.]
    The Clerk. Ms. Jackson Lee?
    [No response.]
    The Clerk. Ms. Waters?
    [No response.]
    The Clerk. Mr. Meehan?
    [No response.]
    The Clerk. Mr. Delahunt?
    Mr. Delahunt. Aye.
    The Clerk. Mr. Delahunt, aye. Mr. Wexler?
    [No response.]
    The Clerk. Ms. Baldwin?
    Ms. Baldwin. Aye.
    The Clerk. Ms. Baldwin, aye. Mr. Weiner?
    [No response.]
    The Clerk. Mr. Schiff?
    [No response.]
    The Clerk. Ms. Sanchez?
    Ms. Sanchez. Aye.
    The Clerk. Ms. Sanchez, aye. Mr. Chairman?
    Chairman Sensenbrenner. No.
    The Clerk. Mr. Chairman, no.
    Chairman Sensenbrenner. Members in the chamber who wish to 
cast or change their vote? The gentleman from California, Mr. 
Berman?
    Mr. Berman. Aye.
    The Clerk. Mr. Berman, aye.
    Chairman Sensenbrenner. The gentleman from North Carolina, 
Mr. Coble?
    Mr. Coble. No.
    The Clerk. Mr. Coble, no.
    Chairman Sensenbrenner. Further Members who wish to cast or 
change their vote? The gentleman from North Carolina, Mr. Watt?
    Mr. Watt. I vote no.
    The Clerk. Mr. Watt, no.
    Chairman Sensenbrenner. Further Members who wish to cast or 
change their vote? If not, the clerk will report. The gentleman 
from California, Mr. Schiff?
    Mr. Schiff. Aye.
    The Clerk. Mr. Schiff, aye.
    Chairman Sensenbrenner. Further Members who wish to cast or 
change their vote? If not, the clerk will report.
    The Clerk. Mr. Chairman, there are 7 ayes and 20 noes.
    Chairman Sensenbrenner. And the amendment is not agreed to.
    Are there further amendments? The gentleman from Virginia, 
Mr. Scott.
    Mr. Scott. I have an amendment at the desk.
    Chairman Sensenbrenner. The clerk will report the 
amendment.
    Mr. Scott. Scott 1, AM5.
    The Clerk. Amendment to H.R. 1115, offered by Mr. Scott.
    Chairman Sensenbrenner. Without objection, the amendment is 
considered as read and the gentleman----
    Mr. Scott. Mr. Chairman, could she read--make sure we've 
got the right one. I have several.
    The Clerk. Page 15, lines 14 and 15.
    Mr. Scott. Thank you. I would withdraw my reservation.
    Chairman Sensenbrenner. Without objection, the amendment is 
considered as read.
    [Mr. Scott's amendment follows:]
    
    
    Chairman Sensenbrenner. The gentleman from Virginia is 
recognized for 5 minutes.
    Mr. Scott. Thank you, Mr. Chairman.
    Mr. Chairman, this amendment simply strikes mass torts from 
the scope of the bill. The proponents of the class action 
reform say they're only interested in changing the rules of 
diversity to create additional Federal jurisdiction over class 
action suits, but the scope of the bill as written is far 
broader than traditional class actions. My amendment would 
simply strike what are called ``mass torts'' from being 
considered a class action.
    Mr. Chairman, my home State of Virginia doesn't even have 
class actions, but it does have a process of consolidation for 
court management purposes; that is, if you have--you could have 
in some cases 150 plaintiffs with the same issue, the court can 
consolidate those cases for the purpose of management, but 
that's not really a class action.
    Under the provisions of the bill, if you've got more than 
100 plaintiffs, you are a class action. And just because you've 
got 150 plaintiffs in the same case doesn't convert a State 
action into a Federal action. I would hope that we would, 
therefore, remove the mass torts from the provisions of the 
bill.
    I yield back.
    Chairman Sensenbrenner. The gentleman from Virginia, Mr. 
Goodlatte?
    Mr. Goodlatte. Mr. Chairman, I move to strike the last 
word.
    Chairman Sensenbrenner. The gentleman is recognized for 5 
minutes.
    Mr. Goodlatte. Thank you, Mr. Chairman.
    Mr. Chairman, I speak in opposition to this amendment. The 
legislation provides for--that for purposes of Federal 
diversity jurisdiction and removal action, certain civil 
actions shall be deemed to be class actions even though they 
may not be so labeled on the court dockets, the principle 
being: If it walks like a duck, if it quacks like a duck, it is 
a duck. And, therefore, it should be included in the same 
coverage that class actions are covered.
    This provision is critical to ensuring that plaintiffs' 
lawyers cannot avoid the logical reach of H.R. 1115 by 
relabeling cases that are effectively class actions as ``mass 
actions'' to keep those cases in State court. Mass actions are 
effectively class actions because in such matters attorneys 
seek to adjudicate substantial numbers of claims simultaneously 
in a single trial. They are opt-in class actions in the sense 
that they include only those claimants who have affirmatively 
consented to the inclusion of their claims in the action.
    As empirical evidence now shows, mass actions are an end 
run around class action rules because counsel seek to try the 
claims in a single trial, that is, on a class basis, even 
though the actions do not satisfy the basic fairness, due 
process prerequisites for litigating a matter as a class 
action.
    Mr. Chairman, I would urge my colleagues to oppose this 
amendment.
    Mr. Scott. Would the gentleman yield?
    Mr. Goodlatte. I'd be happy to yield.
    Mr. Scott. Thank you. In a class action, one of the 
problems that apparently the bill is getting at is that people 
don't know the rights being litigated and have nothing to do 
with it. In a mass tort in a consolidated trial, everybody has 
their own lawyer. Some may be represented by the same lawyers, 
but, I mean, everybody is controlling their own destiny. They 
don't have to be in the case if they don't want to be. So you 
don't have the problem in a consolidated case that you do in 
the same--in the class actions.
    Mr. Goodlatte. Reclaiming my time, you're correct that you 
don't have that particular problem, but there are many other 
problems that are abused in class action that are addressed in 
this matter that would also be abused in that matter, the 
principal one being the issue of whether or not attorneys use 
the State courts and the limitations in the Federal rules today 
on diversity jurisdiction to restrict cases to Federal court 
that could--to State court that could and should be removed to 
Federal court because of the nature of the action. And you 
shouldn't be able to disguise the case as a mass action when it 
has the same effect in that regard as a class action.
    Mr. Scott. In this case, however, with the mass 
consolidation, each and every one of those cases, if 
adjudicated separately, would be, in fact, in State court.
    Mr. Goodlatte. That's correct. Just as in a class action 
lawsuit, if you brought each and every individual plaintiff 
into State court, that case would be heard in State court and 
wouldn't be removed to Federal court because it wouldn't meet 
the jurisdiction requirements of an individual case or of the 
$2 million requirements in this legislation.
    Mr. Scott. Well, if you'll yield another time, there may be 
some in the case that would not be--might live in another 
State. In this case, each and every case has to satisfy--in a 
consolidated case has to satisfy its individualized 
jurisdiction in State court.
    Mr. Goodlatte. Right, and the gentleman should note that in 
this legislation, there are restrictions on bringing actions--
removing actions to Federal court who don't meet the criteria 
of that diversity. And, secondly, the Federal court judge has 
the discretion to bounce the case back to State court if he 
thinks it's more appropriate to be heard there. So, again, I 
don't think the gentleman's amendment is necessary for the 
protection of the ability to handle mass actions in State 
courts under appropriate circumstances, but we have to prevent 
the abuse of their using this as a manner of getting around the 
provisions of the bill with regard to class action. So I would 
object to the gentleman's amendment.
    Mr. Delahunt. Mr. Chairman?
    Chairman Sensenbrenner. Who seeks recognition? The 
gentleman from Massachusetts.
    Mr. Delahunt. You know, this has to be the most egregious 
affront to federalism that I have observed since my service on 
this particular Committee. Not only does it do it a disservice 
to the Federal system, because I can just imagine if these 
cases--I can just imagine a Federal district court judge 
sitting on these cases, garden variety tort cases, if you will, 
and it's a perfect explanation of why the Judicial Conference 
is opposed to this bill as well as their State counterpart, the 
Conference of State Supreme Court Justices. To vest in a 
Federal district court the authority to deem these cases as a 
class action is simply outrageous.
    You know, these individual State cases also, unlike the 
bill's treatment of genuine class action cases, are not 
dismissed without prejudice, so they could be refiled if the 
rule 23--in State court if the rule 23 requirements are not 
met. Rather, they remain in this limbo.
    And as I said, it goes directly against the purpose of what 
I understood the proponents to be looking for, which is 
efficiency and judicial economy, because in the end it would 
require the Federal court to adjudicate these cases on an 
individual basis if they fail a certification under rule 23, 
and at values at far less than the $75,000 jurisdictional 
amount set by Congress for Federal diversity requirements.
    I would think that this particular provision should receive 
careful consideration by both sides. It's far overreaching and 
is an incredible transformation of power to the Federal courts, 
a power--authority, by the way, they do not welcome, they're 
not looking for. They've been very clear about that. They do 
not want it. And the States do not want to cede it.
    With that, I yield back.
    Chairman Sensenbrenner. The question is on the amendment 
offered----
    Mr. Chabot. Mr. Chairman? Mr. Chairman?
    Chairman Sensenbrenner. The gentleman from Ohio----
    Mr. Chabot. Move to strike the last word.
    Chairman Sensenbrenner. The gentleman is recognized for 5 
minutes.
    Mr. Chabot. I yield to the gentleman from Virginia.
    Mr. Goodlatte. I thank the gentleman. I'll be very brief. 
But I do need to respond to this States rights argument raised 
by the gentleman from Massachusetts, because I very strongly 
disagree with him.
    If there's a $75,000 slip and fall between a Massachusetts 
plaintiff and a Connecticut defendant, that can be brought in 
the United States District Court for the Eastern District of 
Massachusetts without any problem. On the other hand, if there 
is a claim for damages of $50,000 to each of a million 
plaintiffs, or a $50 billion lawsuit, involving parties of all 
50 States, that matter cannot be brought into Federal court 
because of the fact that when our Founding Fathers wrote our 
Constitution and wrote the provisions for our Federal courts, 
they didn't know anything about class action lawsuits. They are 
a much more recent development.
    Now, there have been abuses--there have been abuses in the 
State courts many times where one State court judge in one 
jurisdiction has effectively rewritten the law in the other 49 
States. That is where States rights come into play here. We are 
protecting the rights of the States where the action is not 
brought and the plaintiffs in those States and the defendants 
in those States to have these cases heard in diversity 
jurisdiction.
    Finally----
    Mr. Delahunt. Will my friend yield?
    Mr. Goodlatte. I will in just a second. But finally--and 
it's up to the gentleman from Ohio. But, finally, there have 
been abuses of mass actions, which is the point of the 
gentleman's amendment. And a new study shows that it's used 
heavily in a number of States: Mississippi, West Virginia--
they've been used in West Virginia, for example, to consolidate 
for trial the claims of as many as 8,000 plaintiffs from over 
35 States against over 250 defendants, all without having to 
meet the requirements of the class action rules. So you have to 
include a protection against that kind of abuse in the 
legislation. And if the gentleman from Ohio wishes to yield, 
I'd be happy to.
    Mr. Chabot. Reclaiming my time, I'll yield to the gentleman 
from Massachusetts.
    Mr. Delahunt. Well, I'm glad that the gentleman referred me 
to a particular study, because up until this particular moment, 
I have never heard of any data whatsoever indicating that this 
was a problem. But I still go back to the principle. What we're 
doing here is eroding the traditional role of the State court 
systems. This is absolutely a derogation of the role of the 
State--of the States. And I'd remind my friend, you're right, 
the Founders didn't have any idea of a class action suit. But 
the concept of a class action suit evolved from our common law 
and from equity that found its genesis in State decisions. In 
State decisions.
    And I yield back.
    Mr. Chabot. Reclaiming my time, I yield back the time.
    Chairman Sensenbrenner. The question is on----
    Mr. Watt. Mr. Chairman?
    Chairman Sensenbrenner.--the Scott amendment----
    Mr. Watt. Mr. Chairman?
    Chairman Sensenbrenner. The gentleman from North Carolina, 
Mr. Watt.
    Mr. Watt. Move to strike the last word.
    Chairman Sensenbrenner. The gentleman is recognized for 5 
minutes.
    Mr. Watt. Thank you, Mr. Chairman.
    I first of all want to associate myself with the remarks of 
Mr. Delahunt on the States abuse of federalism points that he 
has made. I want to associate myself with Mr. Goodlatte in 
acknowledging that there have been abuses of the class action 
system in the States. But he should also be aware that there 
have been substantial abuses of class actions in the Federal 
courts, and it takes a very arrogant perspective to believe 
that somehow the Federal courts have some lock on the ability 
to do things right. It is that that is absolutely inconsistent 
with the federalist principles that were in our Founding 
Fathers' minds. In fact, they reserved to the States everything 
that was not specifically given to the Federal Government for 
that reason.
    So just because there have been abuses doesn't justify what 
you're doing, and I think it is very arrogant to assume that 
there are not going to be, have not been abuses in the Federal 
system. And it's arrogant to----
    Mr. Goodlatte. Would the gentleman yield?
    Mr. Watt.--believe that we somehow have a lock on a better 
way. And it is also arrogant to believe that you are going to 
get a different result in Federal court than you got in State 
court, which is really the underlying basis of this 
legislation.
    My experience in 22 years of practicing law was that I got 
some good results in Federal court and some good results in 
State court. I got some bad results in Federal court; I got 
some bad results in State court. And it is just absolutely 
arrogant, in my opinion, to think that we somehow can just take 
over anything we want to take over because you've identified 
some abuse at the State level.
    I'll yield to the gentleman.
    Mr. Goodlatte. Would the gentleman yield? First of all, I 
take it the gentleman is not referring to me personally when he 
says it is arrogant to take this position. Is that correct?
    Mr. Watt. No, I'm not referring to you. I'm saying----
    Mr. Goodlatte. I thank the gentleman for that reassurance.
    Now, let me, if the gentleman would yield further, I agree 
with the gentleman's point. We're not trying to guarantee an 
outcome in Federal court or State court. All we're saying is 
that in the typical action, the plaintiff's attorney can choose 
from several different jurisdictions and bring it one of maybe 
four, five, six different jurisdictions, and the defendant can 
often----
    Mr. Watt. With all respect, let me just reclaim my time. 
Yes, the plaintiffs can do that, and right now if there is a 
basis for removing something to Federal court, the defendants 
can remove it to Federal court.
    Mr. Goodlatte. But they can't under these cases.
    Mr. Watt. And so I just--I disagree. I'll yield to Mr. 
Scott.
    Mr. Scott. Thank you. And I thank the gentleman for 
yielding because I just want to piece together all the stuff on 
page 12, which starts off saying ``any civil action,'' so it's 
not just mass torts. If you have a situation where the same 
defendant has ripped off 150 named people who are suing him for 
the same thing, and the damages amount to an aggregate $2 
million or more, and one of them happens to be out of State, 
according to this you can get removed. At 13, if the number is 
more than 100, the defendant can remove everything to Federal 
court and subject you to all the delaying tactics that's in 
there. Is that right on a civil case on just contracts where 
you've ripped--150 people have been ripped off by the same 
person, suing the same way, the case gets consolidated, that is 
subject to removal to Federal court? It seems to me it is under 
the language under 12 and 13 with the ``or'' on line 4 on page 
13. And that's why this should not happen and they ought to be 
able to remain in State court. And if nobody wants to answer.
    Mr. Goodlatte. I'll yield back.
    Chairman Sensenbrenner. The gentleman's time has expired. 
The question is on the amendment offered by the gentleman from 
Virginia, Mr. Scott. Those in favor will say aye? Opposed, no?
    The noes appear to have it. The noes have it. The amendment 
is not agreed to.
    For what purpose does the gentleman from Texas, Mr. Smith, 
seek recognition?
    Mr. Smith. Mr. Chairman, I have an amendment at the desk.
    Chairman Sensenbrenner. The clerk will report the 
amendment.
    The Clerk. Amendment to H.R. 1115, offered by Mr. Smith of 
Texas and Mr. Boucher. Page 20, strike lines 2----
    Mr. Smith. I reserve a point of order.
    Chairman Sensenbrenner. Point of order is reserved. Without 
objection, the amendment is considered as read.
    [Mr. Smith's amendment follows:]
    
    
    Chairman Sensenbrenner. And the gentleman from Virginia 
will be recognized for 5 minutes. Texas, I'm sorry.
    Mr. Smith. Thank you, Mr. Chairman. This amendment, though, 
is offered on behalf of the gentleman from Virginia and me, and 
I strongly support this legislation, but I do believe it can be 
improved. And that's because there is a loophole in the bill.
    As currently drafted, the bill would apply only to cases 
filed and certified on or after the date of enactment. This 
excludes cases that have already been filed but are waiting for 
certification. This does not further the goals of class action 
reform.
    If this bill is enacted but pending cases that have not 
been certified for class treatment are excluded, it would 
discriminate against those who may be joined to a class in a 
pending case after the date of enactment. This would deprive 
them of the protections of the new rules.
    Also, unless the loophole is closed, this bill provides 
lawyers with an incentive to file frivolous cases in 
anticipation of the enactment of the proposed legislation. 
These frivolous cases would not be covered by the proposed 
legislation and the abuses of the class action system would 
continue.
    The goal of this bill is to ensure that legitimate 
plaintiffs receive fair and prompt recoveries. To ensure this, 
the bill also should apply to those cases that are pending but 
not yet certified for class action treatment.
    This amendment simply closes the loophole that exists in 
the underlying bill. It does so by applying the law to cases 
that have been filed but where a class certification order is 
entered after the date of enactment. This will eliminate any 
incentive to rush to the courthouse to avoid the reforms in the 
underlying legislation. It will prevent individuals from being 
made part of a frivolous suit that is filed in anticipation of 
the new laws.
    Mr. Chairman, this amendment does not cause the bill to be 
applied retroactively. The cases covered by the amendment 
already have been filed, with the classes only awaiting 
certification. The amendment means that cases that gain class 
certification after the date of enactment have the new rules 
applied to them.
    Mr. Chairman, this amendment has received strong support 
from those in the business community, particularly among the 
high-tech industry, and I have letters which I'd like to be 
made a part of the record from AEA and TechNet.
    Chairman Sensenbrenner. Without objection.
    [The letters follow:]
    
    
    Mr. Smith. I'd also like to say that a Member of this 
Committee, the gentlewoman from California, Ms. Lofgren, is at 
another Committee hearing down the hall, and although she is 
not a fan of the underlying bill, she does support this 
amendment.
    And, with that, Mr. Chairman, I urge my colleagues to 
support this amendment and yield back the balance of my time.
    Chairman Sensenbrenner. The gentleman from California is--
--
    Mr. Watt. I'll withdraw my point of order.
    Chairman Sensenbrenner. Okay.
    Mr. Boucher. Mr. Chairman?
    Chairman Sensenbrenner. The gentleman from Virginia, Mr. 
Boucher, for what reason do you see recognition?
    Mr. Boucher. Thank you, Mr. Chairman. I rise in support of 
the amendment.
    Chairman Sensenbrenner. The gentleman is recognized for 5 
minutes.
    Mr. Boucher. I'm pleased to join with our colleague from 
Texas, Mr. Smith, in offering this amendment. The basic purpose 
of our proposal is to prevent a rush to the courthouse to file 
often frivolous class action suits as this bill nears passage 
in order to get the suit filed before the new rules take 
effect. The amendment achieves this goal by applying the new 
rules to all suits in which class certification has not 
occurred as of the effective date of the new law.
    I also find appealing the fact that under this amendment 
the numerous new protections for the plaintiff class members 
that are contained in the underlying bill will be extended to 
the class members in all suits that receive certification of 
the class after the effective date of the law.
    For both of these reasons, I'm pleased to join with Mr. 
Smith----
    Mr. Goodlatte. Would the gentleman yield?
    Mr. Boucher.--in offering the amendment, and I urge its 
adoption.
    Mr. Goodlatte. Would the gentleman yield?
    Mr. Boucher. And I'd be pleased to yield to the gentleman 
from Virginia.
    Mr. Goodlatte. I think the gentleman for yielding.
    Mr. Chairman, this is a fine amendment, and I would 
encourage my colleagues to accept it. It would prevent an 
abuse.
    Mr. Boucher. Thank you. Mr. Chairman, I yield back.
    Chairman Sensenbrenner. The gentleman from North Carolina, 
Mr. Watt.
    Mr. Watt. I move to strike the last word.
    Chairman Sensenbrenner. The gentleman is recognized for 5 
minutes.
    Mr. Watt. Mr. Chairman, it won't take me that long to say 
that this just makes a terrible bill worse, and I yield back 
the balance of my time.
    Chairman Sensenbrenner. The question is on the amendment--
--
    Mr. Delahunt. Mr. Chairman? Mr. Chairman?
    Chairman Sensenbrenner. The gentleman from Massachusetts, 
Mr. Delahunt.
    Mr. Delahunt. I thank the Chair. It's my understand that 
the classes, for example, that have not been certified--and we 
should be very clear about what we're doing here--include 
Enron, Adelphia, WorldCom, and Tyco. That's just simply to name 
a few. And what--and I'm looking for information. But what we 
will be doing here is taking from--or potentially doing is 
taking from State courts, where judges have been presiding over 
these cases for a considerable period of time, have dealt with 
these issues, and removing them to the Federal court, 
sacrificing a year, 2, 3 years, where those that have been 
aggrieved by those entities will be further delayed in having 
their grievances addressed.
    Now, I could be wrong. I see people----
    Mr. Berman. Would the gentleman yield?
    Mr. Delahunt. I'll yield to Mr. Berman.
    Mr. Berman. Wouldn't, one, the civil action commenced on or 
after the--the amendments made by this act shall apply to any 
civil action commenced on or after the date of enactment of 
this act? Number one. Two is certification. One--in other 
words, a pending civil--oh, ``and.'' In other words, it has to 
be both.
    Mr. Delahunt. Right. I just want to--reclaiming my time----
    Mr. Berman. This will affect both the civil action filed 
after the effect of the act and ones filed before which--for 
which there is no class certification on.
    Mr. Delahunt. Exactly. I just think--it's clear this 
amendment will pass, but I just think we have to be very clear. 
And, again, I don't want to represent that I'm sure about my 
facts. But I want everyone, when they cast their vote, to think 
carefully about the implications because, clearly, it could 
result in consequences that we are not aware of, and I would 
dare say that this amendment ought not to pass until we have an 
opportunity for clarification.
    Mr. Scott. Mr. Chairman?
    Mr. Delahunt. I yield to the gentleman from Virginia, Mr. 
Scott.
    Mr. Scott. Thank you. Thank you.
    Mr. Chairman, changing the process of the law after a case 
has been filed is inherently wrong and unfair. I'm reminded 
that when the gentleman, my colleague from Virginia, and I 
served in the General Assembly, we would frequently ensure that 
legislation that we passed did not affect pending litigation. 
And I'm sure that my friend from Virginia campaigned, as I did, 
we would bring Virginia values to Washington. So I'm 
disappointed that he would support such an amendment, and I 
would hope the amendment would be defeated.
    Mr. Boucher. Would the gentleman yield? I can't resist a 
comment. Oh, I'm sorry, would the gentleman from Massachusetts 
yield? Very briefly, as I said to my friend from Virginia in 
our side discussion, I frequently differed with that policy. 
[Laughter.]
    Mr. Boucher. And on occasion it was very clear that 
legislation should pass that would have some tangential effect 
on pending litigation where it was necessary to address a 
larger public policy concern. That is precisely the matter 
here, and I'm pleased to support this amendment.
    I thank the gentleman----
    Mr. Watt. Would the gentleman yield?
    Mr. Delahunt. I'll continue to yield to Mr. Watt.
    Mr. Watt. I appreciate the gentleman yielding. I just want 
to express my hope that, whatever's in the water in other parts 
of Virginia, Mr. Goodlatte and Mr. Boucher's part don't flow 
down to the eastern part of the State. [Laughter.]
    Chairman Sensenbrenner. Well, the Chair will stipulate that 
all three gentlemen from Virginia on this Committee are men of 
values.
    Mr. Delahunt. Just as a final observation, clearly, in 
those cases which I enumerated, if my information is correct, 
we will be incentivizing those firms to delay certification. 
Let's be very clear what we're doing, and I just respectfully 
suggest that to my colleagues.
    And I'll yield back the----
    Chairman Sensenbrenner. The question is on the amendment 
offered by the gentleman from Texas, Mr. Smith. Those in favor 
will say aye. Opposed, no.
    The noes appear to have it----
    Mr. Smith. Mr. Chairman, I call for a rollcall vote, 
please.
    Chairman Sensenbrenner. A recorded vote is ordered. Those 
in favor of the Smith amendment will as your names are called 
answer aye, those opposed, no, and the clerk will call the 
roll.
    The Clerk. Mr. Hyde?
    [No response.]
    The Clerk. Mr. Coble?
    [No response.]
    The Clerk. Mr. Smith?
    Mr. Smith. Aye.
    The Clerk. Mr. Smith, aye. Mr. Gallegly?
    Mr. Gallegly. Aye.
    The Clerk. Mr. Gallegly, aye. Mr. Goodlatte?
    Mr. Goodlatte. Aye.
    The Clerk. Mr. Goodlatte, aye. Mr. Chabot?
    Mr. Chabot. Aye.
    The Clerk. Mr. Chabot, aye. Mr. Jenkins?
    Mr. Jenkins. Aye.
    The Clerk. Mr. Jenkins, aye. Mr. Cannon?
    [No response.]
    The Clerk. Mr. Bachus?
    Mr. Bachus. Aye.
    The Clerk. Mr. Bachus, aye. Mr. Hostettler?
    [No response.]
    The Clerk. Mr. Green?
    [No response.]
    The Clerk. Mr. Keller?
    [No response.]
    The Clerk. Ms. Hart?
    Ms. Hart. Aye.
    The Clerk. Ms. Hart, aye. Mr. Flake?
    Mr. Flake. Aye.
    The Clerk. Mr. Flake, aye. Mr. Pence?
    Mr. Pence. Aye.
    The Clerk. Mr. Pence, aye. Mr. Forbes?
    Mr. Forbes. Aye.
    The Clerk. Mr. Forbes, aye. Mr. King?
    Mr. King. Aye.
    The Clerk. Mr. King, aye. Mr. Carter?
    Mr. Carter. Aye.
    The Clerk. Mr. Carter, aye. Mr. Feeney?
    Mr. Feeney. Aye.
    The Clerk. Mr. Feeney, aye. Mrs. Blackburn?
    Mrs. Blackburn. Aye.
    The Clerk. Mrs. Blackburn, aye. Mr. Conyers?
    [No response.]
    The Clerk. Mr. Berman?
    Mr. Berman. No.
    The Clerk. Mr. Berman, no. Mr. Boucher?
    Mr. Boucher. Aye.
    The Clerk. Mr. Boucher, aye. Mr. Nadler?
    [No response.]
    The Clerk. Mr. Scott?
    Mr. Scott. No.
    The Clerk. Mr. Scott, no. Mr. Watt?
    Mr. Watt. No.
    The Clerk. Mr. Watt, no. Ms. Lofgren?
    [No response.]
    The Clerk. Ms. Jackson Lee?
    [No response.]
    The Clerk. Ms. Waters?
    [No response.]
    The Clerk. Mr. Meehan?
    Mr. Meehan. No.
    The Clerk. Mr. Meehan, no. Mr. Delahunt?
    Mr. Delahunt. No.
    The Clerk. Mr. Delahunt, no. Mr. Wexler?
    [No response.]
    The Clerk. Ms. Baldwin?
    Ms. Baldwin. No.
    The Clerk. Ms. Baldwin, no. Mr. Weiner?
    Mr. Weiner. No.
    The Clerk. Mr. Weiner, no. Mr. Schiff?
    Mr. Schiff. No.
    The Clerk. Mr. Schiff, no. Ms. Sanchez?
    Ms. Sanchez. No.
    The Clerk. Ms. Sanchez, no. Mr. Chairman?
    Chairman Sensenbrenner. Aye.
    The Clerk. Mr. Chairman, aye.
    Chairman Sensenbrenner. Are there Members in the chamber 
who wish to cast or change their vote? The gentleman from North 
Carolina, Mr. Coble?
    Mr. Coble. Aye.
    The Clerk. Mr. Coble, aye.
    Chairman Sensenbrenner. The gentleman from Utah, Mr. 
Cannon?
    Mr. Cannon. Aye.
    The Clerk. Mr. Cannon, aye.
    Chairman Sensenbrenner. The gentleman from Wisconsin, Mr. 
Green?
    Mr. Green. Aye.
    The Clerk. Mr. Green, aye.
    Chairman Sensenbrenner. The gentleman from Indiana, Mr. 
Hostettler?
    Mr. Hostettler. Aye.
    The Clerk. Mr. Hostettler, aye.
    Chairman Sensenbrenner. Are there further Members--the 
gentleman from Florida, Mr. Keller?
    Mr. Keller. Aye.
    The Clerk. Mr. Keller, aye.
    Chairman Sensenbrenner. Are there further Members in the 
chamber who wish to cast or change their votes? If not, the 
clerk will report.
    The Clerk. Mr. Chairman, there are 21 ayes and 9 noes.
    Chairman Sensenbrenner. And the amendment is agreed to.
    Are there further amendments? The gentleman from Virginia, 
Mr. Scott?
    Mr. Scott. I have an amendment at the desk, number 2.
    Chairman Sensenbrenner. The clerk will report the 
amendment.
    The Clerk. Amendment to H.R. 1115, offered by Mr. Scott. 
Page 18, line 25, strike the quotation marks and second period. 
Page 18----
    Mr. Scott. Mr. Chairman, I ask unanimous consent that it be 
considered as read.
    Chairman Sensenbrenner. All right. Without objection, the 
amendment is considered as read.
    [Mr. Scott's amendment follows:]
    
    
    Chairman Sensenbrenner. The gentleman is recognized for 5 
minutes.
    Mr. Scott. Mr. Chairman, this has--this amendment has to do 
with what happens if the Federal court decides that the claim 
is, in fact, not a class action. The H.R. 1115 instructs the 
Federal judge to dismiss the entire case. This amendment would 
have him, instead of dismissing the case, sending it back to 
State court so that they could proceed with the litigation. The 
fact that he has to dismiss the case means that the plaintiffs, 
who had a case at one time, don't have a case at all. The 
statute of limitations is tolled while it's pending in Federal 
court, but they have to file all over again in State court.
    You have a yo-yo effect because once it's filed, any 
plaintiff can--or defendant can remove it again, and you're 
right back--if the Federal court decides it's not a class 
action, gets to dismiss it again. So you have a yo-yo. You can 
never have your case heard.
    If he remands it, you still have the live case. That case 
has already been--you've already tried to remove it, didn't do 
it, so I guess you've got res judicata there. You can proceed 
with the litigation.
    At some point in this process, Mr. Chairman, you ought to 
be able to proceed with the litigation and try the case. This 
will allow at least some progress made. If you've gone to 
Federal court and can't try it there, at least you can try it 
back in State court.
    I would hope that we would adopt the amendment.
    Chairman Sensenbrenner. Does the gentleman yield back?
    Mr. Scott. I yield back. I'm sorry.
    Mr. Goodlatte. Mr. Chairman?
    Chairman Sensenbrenner. The gentleman from Virginia, Mr. 
Goodlatte?
    Mr. Goodlatte. Mr. Chairman, I wish to speak in opposition 
to the amendment.
    Chairman Sensenbrenner. The gentleman is recognized for 5 
minutes.
    Mr. Goodlatte. I thank the Chairman.
    Mr. Chairman, I strongly oppose this amendment. The 
gentleman uses the yo-yo language. We call this the merry-go-
round amendment because this has the effect of defeating the 
whole purpose of H.R. 1115. If you can't achieve a review in a 
court of competent jurisdiction, the Federal court, and have 
finality to the decision like you can in any other kind of case 
because the case can be bounced back to State court, there's no 
meaning to the whole effort we're undertaking. The amendment 
would constitute a full endorsement, not a correction, of the 
rampant class action abuse that's occurring in the State 
courts. It's based on the myth that most States have class 
action rules radically different from the Federal class action 
rule, and that if a Federal judge says that a case may not 
proceed as a class action under the Federal rule, counsel 
should be able to take their case back to State court and try 
their luck under the State rule.
    That is, quite frankly, not the case. Federal rules are 
similar. What we're trying to cure with this legislation is 
abuse of forum shopping where in these nationwide class action 
suits, the plaintiffs' attorneys have the opportunity to choose 
from 4,000 jurisdictions, and the defense or plaintiffs who 
weren't involved in bringing the case but have been made a part 
of the case cannot even have the opportunity to have the case 
moved to Federal court like they can so many other diversity 
cases and then have finality of judgment in the case.
    As we've noted, if the Federal court judge feels it's more 
appropriate to have the case heard in State court, the judge 
can remand it to State court. But a judge is going to apply 
fair rules in Federal court. There's never been an argument 
made that the Federal rules for class actions are going to 
unfairly treat people. It simply ends the abuse of forum 
shopping on a massive scale where plaintiffs' attorneys know 
the few dozen jurisdictions in the country--and we're talking 
about county courts and various places--where there is a great 
sympathy for certifying class actions. We don't know what 
Federal court it's going to be removed to. Presumably, there 
will be different treatment in different places. But at least 
they'll have the opportunity to choose an alternative 
jurisdiction like they can in lesser cases. And I would 
encourage my colleagues to oppose this amendment for the 
reasons cited.
    Mr. Scott. Would the gentleman yield?
    Mr. Goodlatte. Be happy to.
    Mr. Scott. If you have 150 plaintiffs in a case in State 
Court, and the Federal Court decides that it is not a class 
action, when could you ever start the litigation? Where? Where 
could they try their case? If the Federal Court decides it is 
not a class action, then there are alternatives to bring 
individual suits in the State Court or in whatever court they 
choose to, but the Federal Court, just as they would in a 
$75,000 slip and fall, render a decision which would not 
entitle you to go back to the State Courts to bring the action 
again, which is what your amendment allows.
    Mr. Berman. Would the gentleman yield?
    Mr. Goodlatte. I would be happy to yield.
    Mr. Berman. You talked about the Federal judge having the 
choice between dismissal and remand. Let us assume it is the 
case where 95 percent of the plaintiffs are in the State in 
which the action is originally brought, the chief defendant is. 
It is about an incident that occurred in that State. The 
Federal judge says let us not dismiss this case. Let us remand 
it back to that court. Can a defendant then remove it again 
under this bill?
    Mr. Goodlatte. No. No. Courts remand cases to other courts 
all the time. It doesn't mean that the party can say, well, I 
don't like the remand, I'm bringing it back up to the other 
court again.
    Mr. Berman. What in this bill prohibits another removal 
petition from being filed by one of the defendants?
    Mr. Goodlatte. The mere rules of procedure that when a 
judge remands a case, it stays remanded. You can't force the 
case upon the judge.
    Mr. Berman. And if that is not the case, is the gentleman 
prepared to change his bill?
    Mr. Goodlatte. We would certainly work with the gentleman 
if there is a need to make that point clear.
    Chairman Sensenbrenner. The question is on----
    Mr. Delahunt. I move to strike the last word.
    Chairman Sensenbrenner. The gentleman from Massachusetts is 
recognized for 5 minutes.
    Mr. Delahunt. I just would follow up by saying, in the 
hypothetical that was put forth by Mr. Scott, your response was 
that the option then was to proceed through individual--I'm 
directing this to Mr. Goodlatte--would be to proceed with 
individual causes of action, and yet, under a provision within 
this particular, within the underlying bill is that I presume 
that the defendant could then move within the Federal Court to 
have those, if there was in excess of 100 individual cases, 
deemed to be a class action; am I correct?
    Mr. Goodlatte. No, the gentleman is not correct. You still 
have to meet the other diversity requirements of the law. So if 
it goes back, if the individual plaintiffs meet the 
requirements of the law, they could bring their case in Federal 
Court, and more likely they'll bring their case in State Court 
if they can't meet those diversity requirements. But if they 
can, yes, they can bring an action individually in Federal 
Court. That's no different than any class action consideration 
on any different type of issue.
    One of the issues before the court is are these claims in 
common in such a way as to merit being certified as a class? 
They'll apply the rules just like they always have. We don't 
change those.
    Mr. Delahunt. If the gentleman is incorrect in his 
understanding, would he be willing to consider a change?
    Mr. Goodlatte. We will certainly work with anybody to----
    Mr. Delahunt. Thank you. I yield back.
    Chairman Sensenbrenner. The question is on the Scott 
amendment.
    Those in favor will say aye.
    Opposed, no.
    The noes appear to have it, the noes have it, the amendment 
is not agreed to.
    Are there further amendments?
    The gentlewoman from California, Ms. Sanchez?
    Ms. Sanchez. Thank you, Mr. Chairman. I have an amendment 
at the desk, the Lofgren-Sanchez amendment.
    Chairman Sensenbrenner. The clerk will report the 
amendment.
    The Clerk. Amendment to H.R. 1115 offered by Ms. Sanchez 
and Ms. Lofgren, Page 15, line 14----
    Ms. Sanchez. Mr. Chairman----
    Chairman Sensenbrenner. Without objection, the amendment is 
considered as read.
    [Ms. Sanchez's amendment follows:]
    
    
    Chairman Sensenbrenner. The gentlewoman from California is 
recognized for 5 minutes.
    Ms. Sanchez. Thank you, Mr. Chairman.
    There is no doubt that there are a series of abuses of the 
class action system in this country. Most of them involve these 
coupon settlements, where lawyers collect big fees, and victims 
get nothing but a discount on a future purchase.
    But instead of targeting the abuses, this bill follows a 
scored-earth approach that targets every class action, 
including those brought to include the environment, senior 
citizens and minorities. The bill greatly increases the Federal 
Court's workload. It makes class actions more expensive and 
time-consuming for plaintiffs. It steps on State's rights and 
negatively impacts the ability of consumers to engage in class 
action lawsuits against major industries.
    In addition to all of these reasons that apply nationwide, 
H.R. 1115 also intrudes on a very specific State issue. 
California, like many other States, has enacted strong consumer 
protection and anti-trust laws that prohibit unfair 
combinations and unlawful restraints on trade. In addition to 
permitting enforcement of laws by the State attorney general, 
Californians have chosen to allow their district and city 
attorneys, as well as private attorneys general, to enforce 
these laws in State Courts.
    The private attorney general provision in California's 
business and professions code allows private parties to combat 
corporate fraud and other crimes. This is critical to protect 
consumers, since there are more violations than the California 
Attorney General's Office has the capacity to respond to.
    It allows my State to protect consumers more broadly than 
would otherwise be possible. Yet, this bill seeks to take that 
option away. H.R. 1115 negates California's choice under the 
guide of class action reform. It does so by defining private 
attorney general actions as class actions and removing them to 
Federal Court. It takes them out of the jurisdiction of the 
State where the harm has generally occurred.
    It's appalling to see yet another example of Congress 
intruding on State's rights. Members of this Committee often 
talk about the importance of letting States decide what is best 
for them, but in the end that seems to matter only when it's 
convenient for their purposes. Federalism becomes much less 
critical when certain issues are on the table.
    Here, we have a State that has spoken quite loudly on the 
subject, and instead of listening, some Members of Congress are 
producing a bill that would run roughshod right over that 
State's views. This federalism-when-convenient agenda is not 
the way to make policy.
    I've also heard proponents of this bill say that if it 
quacks like a duck, it must be a duck. Well, these California 
cases are not ducks. In one case, the San Francisco District 
Attorney's Office successfully settled a major consumer 
protection action against Providian Financial Corporation that 
netted Californians $300 million. Under this bill, that case 
would have been forced into the Federal Court, where the D.A. 
would have had to either figure out some way to comply with 
rule 23 or lose the case.
    That's preposterous. A district attorney bringing a case 
under State law, on behalf of the residents of his or her 
county against a corporation that does significant business in 
the county, should not be forced into Federal Court. The 
ability to bring these suits is a powerful tool for local 
district attorneys, many of whom have set up consumer 
protection units devoted to them.
    This bill will undoubtedly have a chilling effect on State 
and local consumer protection actions, as well as anti-trust 
law enforcement. That is why this very same provision was 
opposed last year by the California District Attorney's 
Association. This argument or, pardon me, this amendment would 
remedy that serious defect in the bill, and I urge my 
colleagues to support it, and want to just mention that 
Congresswoman Lofgren, unfortunately, cannot be here on markup, 
but she strongly supports this amendment as well.
    I yield back the balance of my time.
    Chairman Sensenbrenner. The gentleman from Virginia, Mr. 
Goodlatte.
    Mr. Goodlatte. I move to speak in opposition of the 
amendment.
    Chairman Sensenbrenner. The gentleman is recognized for 5 
minutes.
    Mr. Goodlatte. I thank you, Mr. Chairman.
    I oppose this amendment for the same reasons that we 
opposed the previous amendment regarding mass actions. This is 
simply another way around the ability of diverse parties to 
have their day in Federal Court. California is presently the 
only State with a statute, commonly known as section 17200, 
that permits private citizens to bring actions seeking recovery 
on behalf of persons who allegedly have been injured, even 
though the private citizen bringing the action has himself 
suffered no injury at all. The statute permits such actions be 
brought concerning any commercial activity that is ``unfair.''
    One of the reasons why our Founding Fathers created 
diversity jurisdiction in our courts is so that if you have an 
issue involving local folks who see all kinds of great benefits 
to be derived from bringing an action against individuals in 
another State that they could have the opportunity to remove 
those matters to Federal Court. That's exactly what this 
allows.
    If all of the parties in the case that the gentlewoman 
described or residents of the State of California, they cannot 
be removed, the case cannot be removed under this law. But if 
it meets the diversity requirements of the law, then they 
should have their opportunity to have their day in Federal 
Court, just like anybody else would, and for that reason, I 
strongly oppose this amendment.
    Mr. Berman. Will the gentleman yield?
    Mr. Goodlatte. I'd be happy to yield.
    Mr. Berman. Would the gentleman feel differently if he knew 
that a Member of this Committee was the author of that State 
law in California?
    Mr. Goodlatte. No. [Laughter.]
    Chairman Sensenbrenner. Would the gentleman yield back?
    Mr. Goodlatte. I yield back.
    Chairman Sensenbrenner. The question is on the Sanchez 
amendment.
    Those in favor will say aye.
    Opposed, no.
    The noes appear to have it, the noes have it, and the 
amendment is not agreed to.
    Are there further amendments?
    The gentleman from Virginia, Mr. Scott?
    Mr. Scott. No. 3.
    Chairman Sensenbrenner. The clerk will report Scott No. 3.
    The Clerk. Amendment to H.R. No. 1115 offered by Mr. Scott. 
Page 7, strike line 3 through 14 and redesignate the succeeding 
sections accordingly.
    Mr. Scott. Mr. Chairman, I can ask that the amendment be 
considered as read.
    Chairman Sensenbrenner. Without objection, the amendment is 
considered as read, and the gentleman from Virginia is 
recognized for 5 minutes.
    [Mr. Scott's amendment No. 3 follows:]
    
    
    Mr. Scott. Thank you, Mr. Chairman.
    Mr. Chairman, this amendment would strike the prohibition 
on so-called bounties in the underlying bill. The current 
language in the bill says that a court may not approve a 
proposed settlement if a class representative receives a 
greater share of the settlement award than other class members. 
The only exception is payment for reasonable time or expenses 
of the class representative expended in fulfilling his or her 
obligations.
    This provision ignores the way that many civil rights 
actions actually work. In a civil rights case, there may be a 
large number of individuals who were harmed by a pattern of 
discriminatory denial of jobs. In most cases, because there are 
obviously a limited number of jobs, not all of the class 
members can be given the same denied job opportunity, plus full 
back pay as compensation.
    If the prohibition on bounties is not struck from the bill, 
victims of discrimination will be discouraged from bringing 
their claims as class actions if they hope for a job as part of 
their compensation. The relief awarded must be equalized among 
the class. The class representative will not be able to get 
that relief personally in the process of affording everybody a 
remedy.
    The very purpose of civil rights class actions is to help 
others who have experienced similar discriminatory treatment. 
That purpose will be undermined unless we amend the bill, and 
the very effect of this provision in the underlying bill will 
be to greatly expand the number of individual cases, since 
there is no incentive to resolve the issue once and for all by 
way of a class action.
    This will be bad for businesses because they not only have 
an efficient method of resolving similar discriminatory claims 
filed against them, but they'll also be required to spend money 
to defend each and every case that will be particularly 
egregious because, under these cases, they'll have to pay the 
civil rights, in civil rights cases, they'll have to pay 
attorneys' fees for each and every one they defend. That would 
be bad for business, bad for individuals, bad for everybody, so 
I hope that this amendment will be adopted, and I yield back 
the balance of my time.
    Chairman Sensenbrenner. The gentleman from Virginia, Mr. 
Goodlatte.
    Mr. Goodlatte. I move to speak in opposition of the 
amendment.
    Chairman Sensenbrenner. The gentleman is recognized for 5 
minutes.
    Mr. Goodlatte. Thank you, Mr. Chairman.
    Mr. Chairman, I am opposed to this amendment. This is an 
area that has been rife for abuse. In many instances, the 
bounty provision of the Class Action Fairness Act provides that 
when a class action is settled, the terms may not provide a 
greater share of the award or class representative on the basis 
of the formula for distribution to all other class members than 
that awarded to the other class members.
    The gentleman correctly notes that if the named plaintiff 
or other plaintiffs contribute to the action and incur expenses 
or compensation for reasonable time expended, that can be done, 
but not simply a bounty, a reward, for being the person to put 
their name up.
    And I've seen a number of abuses of this. In the State of 
Mississippi, there have been class actions where Mississippi 
residents were given greater awards than the residents of the 
other States whose claims were identical to those in 
Mississippi and were all being heard in Mississippi court.
    I, myself, was made part of a class action lawsuit against 
Massachusetts Mutual Life Insurance Company for not telling 
their customers, their insured that if they paid their premiums 
on a monthly basis or quarterly basis, they'd pay a small 
amount more than they pay on an annual basis. The settlement 
that was proposed in the court, and thankfully rejected, but 
the settlement proposed gave the named plaintiffs $100,000 and 
gave the rest of us notice and promise that they would not do 
that in the future.
    Mr. Delahunt. Would the gentleman yield?
    Mr. Goodlatte. I'd be happy to yield.
    Mr. Delahunt. Well, I'm glad that--I presume that you were 
one of the intervening objectors that set aside that 
settlement, but it clearly demonstrates that there are 
mechanisms to deal with the issue of abuse that exist under 
current law.
    Mr. Goodlatte. I would just point out to the gentleman that 
bounties are very common in these cases. They are very commonly 
granted, and in the, I don't believe that case has yet been 
settled, but in the new proposal, there is also a bounty, a 
premium paid to the named plaintiffs in the case. So that goes 
on. I can give you other----
    Mr. Delahunt. Well, I----
    Mr. Goodlatte. It's my time. In a just-settled action 
against a film processor, most class members received a roll of 
film or a dollar off future processing charges, while the six 
named plaintiffs received $2,500.
    In one nationwide class action initiated in Beaumont, 
Texas, complaining of an entirely theoretical defect in the 
floppy disk controllers of Toshiba laptops, even though the 
asserted defect had never resulted in injury to any user of the 
defendant's product, but facing potential liability of some $10 
billion, Toshiba settled the case by giving most class members 
small cash payments and coupons worth no more than a few 
hundred dollars, while paying the two named plaintiffs $25,000 
each.
    Incidently, the lawyers received $147.5 million in fees. In 
a class action against gulf equipment manufacturers, the 
unnamed class members got three new golf balls, while the class 
representative got $2,500, and his attorneys got $100,000. If 
they do something that positively contributes to advancing the 
case, that takes some of their time or reimbursement for 
expenses, that should be allowed, but a pure bounty should not 
be allowed, and I urge my colleagues to reject it.
    Mr. Delahunt. Would the gentleman yield for just a moment?
    Mr. Goodlatte. I would continue to yield, yes.
    Mr. Delahunt. I wonder would the gentleman, because he 
makes a point that has some legitimacy in terms of bounties, I 
don't disagree with the gentleman, but I do think that a 
suggestion that was put forward by one of the witnesses that 
testified before this Committee regarding the use of coupons, 
where fees were based upon actual redemption, the value of 
actual redemption, would this be a concept that the gentleman 
would entertain as this bill moves from this Committee to the 
floor?
    Mr. Goodlatte. As long as all of the parties are treated 
fairly, I don't think the issue needs to be addressed further, 
but I've promised to talk to the gentleman about a whole host 
of things, so I don't see a reason why I wouldn't continue to 
discuss this matter with him as well.
    Mr. Watt. Mr. Chairman?
    Chairman Sensenbrenner. Without objection, the agenda of 
the two gentlemen's discussions is expanded by one. The time of 
the gentleman has expired. The gentleman from North Carolina, 
Mr. Watt?
    Mr. Watt. I move to strike the last word.
    Chairman Sensenbrenner. The gentleman is recognized for 5 
minutes.
    Mr. Watt. Mr. Chairman, I actually don't like bounties 
either, and if this provision were limited to bounties, I 
probably would be on the side of Mr. Goodlatte. The problem is 
that the provision is so accessibly, broadly drawn that it's 
going to cover things that go well beyond bounties, and while 
Mr. Goodlatte was having a good time while Mr. Scott was 
describing the problem that he's trying to address, he still 
has not addressed that problem.
    If you've got a civil rights case, an employment 
discrimination case, and there are monetary damages awarded, 
it's one thing to say that the monetary damages or award can't 
be disproportionate to the named plaintiff, but if it's about 
getting a job, that's part of the award in the case, also, and 
you can't take a job and divide it between a thousand employees 
equally. I mean, what are they going to do, show up and work 
one one-thousandths of the job on a weekly basis? That's part 
of the award in the case.
    And the way this is drawn at this point, it is just 
absolutely too broad because it says that the class 
representative can't get a greater share of the award. It's not 
limited to monetary awards, it's not, I mean, it's just--so if 
there is an attempt to address the bounty issue that is really 
a fair attempt to address it, I think I would probably be the 
first to try to conspire with the gentleman from Virginia to 
try to address that, but this provision is too broad.
    Mr. Goodlatte. Would the gentleman yield?
    Mr. Watt. Yes, I'm happy to yield.
    Mr. Goodlatte. I would be happy to include the gentleman 
and the gentleman from Virginia in the discussions that are to 
be scheduled----
    Mr. Watt. Well, discussions are not going to solve this 
problem. You all got a bill here that you have said, you know, 
is supposed to be a fair thing. You put a title on this section 
calling it a bounty, and you act like we're not operating in 
the real world here. This is the real world that we are 
supposed to be impacting here that you say this bill is 
designed to address. There are people on the Committee who 
would like to address the abuses. We are here at the full 
Committee, and I guarantee you won't hear another word from you 
all about this issue until 2 years from now when this is in 
effect.
    So the provision is too broad, and you need to correct it. 
And you know it's too broad.
    Mr. Goodlatte. Will the gentleman yield?
    Mr. Watt. Yes.
    Mr. Goodlatte. I will again renew my offer, as this 
legislation goes to floor, to work with the gentleman----
    Mr. Watt. Well, the predicate for that is you acknowledge 
that this----
    Mr. Goodlatte. If the gentleman doesn't want to participate 
in the discussions, he doesn't have to, but if he would like 
to, he will. I oppose the amendment.
    Mr. Watt. Reclaiming my time.
    Chairman Sensenbrenner. The time belongs to the gentleman 
from North Carolina.
    Mr. Watt. Reclaiming my time.
    I would just ask, as a predicate for any discussions we're 
going to have, does the gentleman acknowledge that this 
language is too broad and would do harm to the plaintiffs in 
the cases that Mr. Scott talked about?
    Mr. Goodlatte. At this point in time, I do not agree to 
that. I will have to look at the issues raised by Mr. Scott, 
but I am in good faith offering to do that.
    Mr. Watt. Are you reading the language, Mr. Goodlatte, on 
Page 7 of the bill that says, ``The court may not approve a 
proposed settlement that provides for the payment of a greater 
share of the award to a class representative''?
    Mr. Goodlatte. Yes, I'll stand by that language at this 
point, but I'm also willing to discuss this in further detail 
to see if clarification can be made that satisfies the 
gentleman. If that doesn't satisfy the gentleman, then vote for 
the amendment. I'm voting against it.
    Mr. Watt. All right. Well, that's fine. Just yet another 
case where this is just a bad piece of legislation, and 
arrogance about the whole purpose that----
    Chairman Sensenbrenner. The gentleman's time----
    Mr. Watt.--disregards what's going on in the real world.
    Chairman Sensenbrenner. The gentleman's time has expired.
    The question is on the Scott amendment. Those in favor will 
say aye.
    Opposed, no.
    The noes appear to have it. The noes----
    Mr. Watt. I ask for a recorded vote.
    Chairman Sensenbrenner. A recorded vote is ordered. Those 
in favor of the amendment offered by the gentleman from 
Virginia, Mr. Scott, labeled Scott No. 3, will, as your names 
are called, answer aye; those opposed, no, and the clerk will 
call the roll.
    The Clerk. Mr. Hyde?
    [No response.]
    The Clerk. Mr. Coble?
    Mr. Coble. No.
    The Clerk. Mr. Coble, no. Mr. Smith?
    Mr. Smith. No.
    The Clerk. Mr. Smith, no. Mr. Gallegly?
    [No response.]
    The Clerk. Mr. Goodlatte?
    Mr. Goodlatte. No.
    The Clerk. Mr. Goodlatte, no. Mr. Chabot?
    Mr. Chabot. No.
    The Clerk. Mr. Chabot, no. Mr. Jenkins?
    Mr. Jenkins. No.
    The Clerk. Mr. Jenkins, no. Mr. Cannon?
    [No response.]
    The Clerk. Mr. Bachus?
    Mr. Bachus. No.
    The Clerk. Mr. Bachus, no. Mr. Hostettler?
    [No response.]
    The Clerk. Mr. Green?
    [No response.]
    The Clerk. Mr. Keller?
    Mr. Keller. No.
    The Clerk. Mr. Keller, no. Ms. Hart?
    Ms. Hart. No.
    The Clerk. Ms. Hart, no. Mr. Flake?
    Mr. Flake. No.
    The Clerk. Mr. Flake, no. Mr. Pence?
    [No response.]
    The Clerk. Mr. Forbes?
    Mr. Forbes. No.
    The Clerk. Mr. Forbes, no. Mr. King?
    Mr. King. No.
    The Clerk. Mr. King, no. Mr. Carter?
    Mr. Carter. No.
    The Clerk. Mr. Carter, no. Mr. Feeney?
    Mr. Feeney. No.
    The Clerk. Mr. Feeney, no. Mrs. Blackburn?
    Mrs. Blackburn. No.
    The Clerk. Mrs. Blackburn, no. Mr. Conyers?
    Mr. Conyers. Aye.
    The Clerk. Mr. Conyers, aye. Mr. Berman?
    Mr. Berman. Aye.
    The Clerk. Mr. Berman, aye. Mr. Boucher?
    Mr. Boucher. No.
    The Clerk. Mr. Boucher, no. Mr. Nadler?
    [No response.]
    The Clerk. Mr. Scott?
    Mr. Scott. Aye.
    The Clerk. Mr. Scott, aye. Mr. Watt?
    Mr. Watt. Aye.
    The Clerk. Mr. Watt, aye. Ms. Lofgren?
    [No response.]
    The Clerk. Ms. Jackson Lee?
    [No response.]
    The Clerk. Ms. Waters?
    [No response.]
    The Clerk. Mr. Meehan?
    Mr. Meehan. Aye.
    The Clerk. Mr. Meehan, aye. Mr. Delahunt?
    Mr. Delahunt. Aye.
    The Clerk. Mr. Delahunt, aye. Mr. Wexler?
    Mr. Wexler. Aye.
    The Clerk. Mr. Wexler, aye. Ms. Baldwin?
    Ms. Baldwin. Aye.
    The Clerk. Ms. Baldwin, aye. Mr. Weiner?
    Mr. Weiner. Aye.
    The Clerk. Mr. Weiner, aye. Mr. Schiff?
    [No response.]
    The Clerk. Ms. Sanchez?
    Ms. Sanchez. Aye.
    The Clerk. Ms. Sanchez, aye. Mr. Chairman?
    Chairman Sensenbrenner. No.
    The Clerk. Mr. Chairman, no.
    Chairman Sensenbrenner. Further Members in the chamber wish 
to cast or change their vote?
    The gentleman from Indiana, Mr. Pence?
    Mr. Pence. No.
    The Clerk. Mr. Pence, no.
    Chairman Sensenbrenner. The gentleman from Indiana, Mr. 
Hostettler?
    Mr. Hostettler. No.
    The Clerk. Mr. Hostettler, no.
    Chairman Sensenbrenner. The gentleman from Utah, Mr. 
Cannon?
    Mr. Cannon. No.
    The Clerk. Mr. Cannon, no.
    Chairman Sensenbrenner. The gentleman from Wisconsin, Mr. 
Green?
    Mr. Green. No.
    The Clerk. Mr. Green, no.
    Chairman Sensenbrenner. The gentleman from California, Mr. 
Schiff?
    Mr. Schiff. Aye.
    The Clerk. Mr. Schiff, aye.
    Chairman Sensenbrenner. Further Members who wish to cast or 
change their vote?
    [No response.]
    Chairman Sensenbrenner. If not, the clerk will report.
    The gentleman from New York, Mr. Nadler?
    Mr. Nadler. Aye.
    The Clerk. Mr. Nadler, aye.
    Chairman Sensenbrenner. The clerk will report, again.
    The Clerk. Mr. Chairman, there are 12 ayes and 20 noes.
    Chairman Sensenbrenner. And the amendment is not agreed to. 
Are there further amendments?
    [No response.]
    Chairman Sensenbrenner. The gentleman from Virginia, Mr. 
Scott?
    Mr. Scott. Mr. Chairman, I have one more amendment.
    Chairman Sensenbrenner. The clerk will report one more 
amendment.
    Mr. Scott. No. 4.
    The Clerk. Amendment to H.R. 1115, offered by Mr. Scott of 
Virginia. Page 19----
    Chairman Sensenbrenner. Without objection, the amendment is 
read, and the gentleman from Virginia is recognized for 5 
minutes.
    [Mr. Scott's amendment No. 4 follows:]

    
    
    Mr. Scott. Thank you, Mr. Chairman. This is on Page 19, 
line 9. The amendment removes the provision requiring a stay 
for discovery pending removal. Since the intent of the bill 
apparently is to determine where the case will be tried, and 
not if it can be tried, there is no need to delay discovery 
pending that determination. Discovery often aids in settlement 
of claims. From discovery information, plaintiffs or defendants 
may determine that there may be weaknesses in their evidence 
and choose to settle the case or even drop it rather than risk 
trial.
    Staying discovery unnecessary delays the collection and 
assessment of relevant evidence and can only impede the search 
for justice. I would particularly note, Mr. Chairman, that even 
if the plaintiff wants to proceed in Federal Court or doesn't 
care where the case is tried or how the case is tried, any 
party can appeal that case to the Federal Circuit Court, 
whatever the decision is one way or the other. Anybody can 
appeal. And while that's pending, after that decision comes 
down, they can appeal it up to the Supreme Court.
    And during all of those appeals, you can't even do 
discovery. At least while all that's going on, you can proceed 
with discovery so when you finally figure out where the case is 
going to be tried, you'll be ready for trial. I would hope, Mr. 
Chairman, we wouldn't give a perverse incentive to people, one, 
to remove and, two, to appeal so that the case can be delayed a 
minimum, under this bill, a minimum of 2 years, where you can't 
even start discovery.
    I would hope that this provision is adopted. I yield back.
    Mr. Goodlatte. Mr. Chairman?
    Mr. Smith. [Presiding] The gentleman from Virginia.
    Mr. Goodlatte. Mr. Chairman, I oppose this amendment and 
move to strike the last word.
    Mr. Smith. I thank the Chairman.
    Mr. Chairman, the provision cited by the gentleman from 
Virginia provides that if the court feels there is a need to do 
so, the court can order that the discovery continue. It says, 
``Unless the court finds upon the motion of any party that 
specific discovery is necessary to preserve evidence or to 
prevent undue prejudice to that party, you shouldn't allow a 
class whose certification is in question to continue to put 
forth discovery requests to defend it.''
    Also, under the current bill, the court does not have to 
stay discovery, and it seems to me that the abuse is more 
likely on the other side. It becomes essentially a fishing 
expedition. You don't even have at this point certification 
that you have a class action, and yet you're going to have the 
discovery proceed as though there were a case when there, in 
fact, may or may not be a case, and the court should, in proper 
order, determine whether there is an appropriate action be 
brought in that court as a class and then do the discovery and 
not the other way around. It's going to waste a lot of 
resources of the parties involved, and I urge my colleagues to 
oppose the amendment.
    Mr. Scott. Will the gentleman yield?
    Mr. Goodlatte. I would be happy to yield.
    Mr. Scott. The gentleman says, talks about the discretion 
of the court. My reading of Page 19, line 16, is that 
everything shall be stayed unless the court finds that specific 
discovery is necessary to preserve evidence or to prevent undue 
prejudice.
    There may not be any preservation of evidence issue or 
undue prejudice. You're just trying to get people on the 
record. And if you can't----
    Mr. Goodlatte. Reclaiming my time. I would just say to the 
gentleman that if there is no case, there shouldn't be a 
record. The first step that you've got to take is to establish 
that there is indeed a cause of action that can be brought in 
that court, and therefore the discovery should not proceed 
until such time as you determine that there is an action.
    If, on the other hand, the court believes that during an 
interlocutory appeal or some other time where there may be a 
delay there should be some real harm to the plaintiffs, then 
the court can order that the discovery continue, but you 
shouldn't require parties to go to the great expense of 
participating in discovery when you don't even have an action.
    Mr. Scott. Does the gentleman yield?
    Mr. Goodlatte. I would be happy to yield.
    Mr. Scott. Is a 2-year delay undue prejudice?
    Mr. Goodlatte. It would be up to the court to determine 
what constitutes that type of a prejudicial circumstance.
    Mr. Smith. Do you yield back?
    Mr. Goodlatte. I yield back.
    Mr. Smith. Are there any others who wish to be heard on 
this amendment?
    Mr. Watt. Mr. Chairman?
    Mr. Smith. The gentleman from North Carolina, Mr. Watt, is 
recognized.
    Mr. Watt. I move to strike the last word.
    Mr. Scott. The gentleman is recognized for 5 minutes.
    Mr. Watt. This is yet another instance in which the parties 
are doing exactly what they say they don't intend to do--
delaying the lawsuit, delaying the discovery, making it 
impossible for justice to be done in the courts so that 5 years 
from now they'll be back saying that the whole system is 
flawed, and we need to do something even more dramatic.
    This--it is just so unfair that it's even hard to even talk 
about, and the way this thing is structured, it is just an 
invitation to delay. And what I think the proponents of this 
bill fail to understand is that delay is costly and 
disadvantageous not only to plaintiffs, but it's costly and 
disadvantageous in most cases to defendants too.
    And you're setting up a system here that really is just, if 
you think the processing of these cases now proceeds at a 
snail's pace, just wait.
    First of all, you're heaping all of this stuff onto the 
Federal Courts, where there is not the manpower or womanpower 
to absorb it. You're putting all of these procedural delays 
into the process that just invite litigants to delay the 
process. You're putting all of these appeals processes in, 
which means that it will take at least a year to get anything 
even heard by the appeals court, and then you've got the nerve 
to say that you're trying to deliver expeditious justice in the 
courts.
    There is something wrong with this picture, and I yield 
back.
    Mr. Delahunt. Mr. Chairman?
    Chairman Sensenbrenner. [Presiding] Who seeks recognition?
    The gentleman from Massachusetts?
    Mr. Delahunt. Yes, I just want to associate myself with the 
remarks of Mr. Watt. I mean, I think we've got to be candid 
with ourselves. This is simply an effort to do everything 
possible to delay justice on behalf of corporate America. It 
truly is. I mean, there is a permissive appeals provision now. 
This is a mandatory interloc--an automatic interlocutory 
appeal. The average time from filing of an appeal to when it is 
finally concluded is a year, but that's the average case. 
That's the average case.
    Class action suits tend to be significantly more complex. 
It's clear that it will take longer. In a large corporation, 
undoubtedly, in most cases, would, despite the fact that it is 
remotely awarded, would seek certioari in front of the United 
States Supreme Court, putting an additional year or two on.
    I mean, the reality is, you know, justice--justice delayed 
is justice denied. You know, we know what the end result is 
going to be, but this again is an example of overreaching. This 
is not about efficiency, this is not about justice. It can only 
be providing corporate America opportunities not to settle and 
not to meet their responsibilities.
    I yield to Mr. Scott.
    Mr. Scott. Under this amendment, as you suggested, if you 
have what is, in fact, a class action and don't care where--you 
file it in State Court--don't care where it is, they remove it 
to Federal Court, and you're ready to go. They appeal to the 
circuit court. You finally get a ruling that, yes, you can try 
it in Federal Court. They appeal that to the Supreme Court, and 
we wait for certioari. That's denied, and you finally--how much 
time can be wasted waiting to start the discovery process by 
the invitation to appeal to the circuit court and the Supreme 
Court?
    Mr. Delahunt. In my opinion, if the gentleman is posing the 
question to me, we're talking years. Clearly, at that point in 
time, documents are lost, witness's memories become more vague. 
It, clearly, as I said, goes to a bottom line where the delay 
of justice is justice denied. The kind of cases that were 
referred to earlier by the gentleman from New York, Mr. Nadler, 
in the case of the Firestone. This is what will be the end 
result. These things will not happen.
    And irresponsible corporate behavior will never be 
revealed.
    Mr. Scott. Thank you.
    Mr. Carter. Mr. Chairman?
    Chairman Sensenbrenner. The gentleman's time has expired.
    The gentleman from Texas, Mr. Carter.
    Mr. Carter. Mr. Chairman, I move to strike the last word.
    Chairman Sensenbrenner. The gentleman is recognized for 5 
minutes.
    Mr. Carter. Mr. Chairman, this provision that is presently 
in this law is a provision that exists in the law of every 
State in this union, and the Federal Courts across the board. 
It gives the judge the option to make a common-sense judgment 
based upon the facts of the case as they stand. There's nothing 
that limits this motion from being filed at various stages 
during this appeal to make the request that as the time passes, 
these things are becoming prejudicial to one or the other party 
in this case.
    As it is stated in this bill presently, it is a good 
statement of how discovery is done as a practical matter in 
every court in this country, and I think it's a good law.
    Mr. Watt. Will the gentleman yield?
    Mr. Carter. Yes, sir, I'll yield to you.
    Mr. Watt. I appreciate the gentleman yielding. If that is, 
in fact, the case, why do we need this provision which imposes 
an additional evidentiary problem, as opposed to letting the 
judges make the discretion based on the available standards 
that are there.
    Mr. Carter. Would the gentleman yield back?
    Mr. Watt. Yes.
    Mr. Carter. Recovering my time. That's exactly what this 
says. This gives the judge the option from day one, and 
continuing throughout the appeal process, upon any motion 
raised by either party that raises the prejudice against his 
case.
    You're not taking into effect the fact that, as far as I'm 
concerned, most trial judges have pretty decent common sense, 
and they have good ability to look at a case to figure out 
where it is and what's needed. And I don't think any judge that 
is out there is going to try to prejudice somebody's case on 
appeal. If it's necessary to maintain their case, the judge is 
going to go and let the motion. It may be for individual 
discovery to be done, it may be for mass discovery to be done 
at the judge's discretion.
    Judicial discretion is a great part of what makes our 
courts work, and I fully support this.
    Mr. Watt. Will the gentleman yield?
    Mr. Carter. Yes, sir.
    Mr. Watt. Two responses. Number one, this takes away the 
common-sense discretion the judges have because it sets up 
standards that are much, much higher than common-sense 
standards.
    Number two, I think the gentleman has forgotten that this 
whole exercise is in response to what the proponents of this 
bill perceive as being uncommon sense that judges are 
exercising. If judges were exercising common sense, maybe this 
bill, at least the proponents of this bill, don't think they're 
exercising common sense. So I agree with the gentleman. I mean, 
most of the judges I know are exercising common sense, which 
makes the whole underlying reason for this bill problematic to 
me, but you need to be giving that speech to the proponents of 
this bill.
    Mr. Carter. Retaking my time. I consider this good 
language, and I support it.
    Chairman Sensenbrenner. Will the gentleman yield back?
    Mr. Carter. I yield back my time.
    Chairman Sensenbrenner. The chair recognizes the gentleman 
from Michigan for a unanimous consent request.
    Mr. Conyers. I thank you, Mr. Chairman.
    I merely wanted to put in, maybe after this debate is over, 
an amendment that I will not proceed with that strikes the 
whole automatic interlocutory appeal from this provision. I 
have a brilliantly crafted statement, and the amendment itself, 
plus letters from the Judicial Conference and the Committee on 
Rules of Practice and Procedure from the Judicial Conference.
    [The material referred to follows:]
Prepared Statement of the Honorable John Conyers, Jr., a Representative 
                 in Congress From the State of Michigan
                   amendment on interlocutory appeals
    One of the worst provisions in H.R. 1115 is the one that provides a 
party the right, in every single case, to an interlocutory appeal of a 
court's decision granting or denying class action certification. The 
provision also stays discovery and other proceedings in every single 
case while the appeal is pending.
    The amendment I'm offering strikes that provision in its entirety. 
This amendment is consistent with the position taken by the U.S. 
Judicial Conference, which has unequivocally stated that the provision 
directly conflicts with Rule 23(f) of the Federal Rules of Civil 
Procedure and should be struck from the bill.
    The current rule 23(f) provides courts of appeals with discretion 
to permit an appeal from an order granting or denying class 
certification, as well as discretion to say discovery while the appeal 
is pending.
    This rule was not enacted in a vacuum. The Advisory Committee on 
Civil rules conducted an exhaustive study of class actions, taking into 
account the views of distinguished state and federal Judges who handle 
complex litigation, the defense bar, the plaintiff's bar, corporate 
counsel, consumer and civil rights groups, and the nation's leading 
academics. The Advisory Committee held days of public hearings on the 
topic. Once the Advisory Committee was done with the Rule, it was 
reviewed by the Judicial Conference, the U.S. Supreme Court, and 
Congress.
    There is absolutely no evidence that the current rule has not been 
working. In fact, according to the Judicial Conference, the rule works 
very well. Under the current rule, appeals have been accepted in 
approximately 80% of cases in which they're requested. Since the rule's 
inception, a circuit court has never reversed a district court's 
decision to deny class certification. There has been no showing that 
the federal courts of appeals have not granted review in enough cases, 
or that this rule has been unfairly applied to defendants. The Judicial 
Conference has stated that its rules committees know of no person, 
judge or practitioner, who has expressed dissatisfaction with the 
current rule.
    My question then is, why change a rule that has proven to work? Why 
change a rule that the Judicial Conference itself approves?
    Unfortunately, the answer has nothing to do with good policy, 
efficient resolution of claims, or the desire to fix bad class action 
lawsuits and settlements. Rather, it's a provision written exclusively 
for corporate defendants. It will benefit the likes of Ken Lay, Jeff 
Skilling, and the investment bankers who allegedly helped them at the 
expense of defrauded investors. If this provision had been law when the 
Enron shareholder lawsuit was filed, the innocent victims in the case 
would have to wait another year or more to get their money back. Enron 
shareholders have already endured a discovery delay of approximately 1 
+ years because of special rules that apply to securities lawsuits. In 
fact, it was during this delay that the accounting firm Arthur Andersen 
was caught destroying documents.
    Interlocutory appeals are generally disfavored. They are reserved 
for cases in which an erroneous decision threatens to impose serious 
harm on a litigant. If this provision remains in the bill, however, the 
result will be unwarranted, expensive and wasteful interruptions of 
class action lawsuits while proving no benefits to parties with 
legitimate class certification issues.
    I urge my colleagues to vote yes on this amendment and strike this 
harmful and nonsensical provision of the bill.


    Chairman Sensenbrenner. Without objection, this material 
will appear in the Committee record immediately after the 
disposition of the current amendment.
    Mr. Conyers. Thank you.
    Chairman Sensenbrenner. The question is on Scott Amendment 
No. 4.
    Those in favor will say aye.
    Opposed, no.
    The noes appear to have it. The noes have it, and the 
amendment is not agreed to.
    Are there further amendments?
    The gentleman from North Carolina, Mr. Watt?
    Mr. Watt. I have an amendment at the desk.
    The Clerk. The clerk will report the amendment.
    Mr. Watt. It's AM 9.
    The Clerk. Amendment to H.R. 1115 offered by Mr. Watt. Page 
17, strike lines 8 through 11.
    Mr. Watt. I ask unanimous consent----
    Chairman Sensenbrenner. Without objection, so ordered, and 
the gentleman is recognized for 5 minutes.
    [Mr. Watt's amendment No. AM9 follows:]
    
    
    Mr. Watt. Thank you, Mr. Chairman.
    I have honestly tried to assess this bill in light of my 
own experiences and have tried to vote for or against 
amendments based on those experiences, and I'm offering this 
amendment based on an experience, based on my belief that it is 
just patently unfair to allow none named plaintiffs to come in 
and hijack a case after the case is way down the line.
    If a class member can remove a case, an unnamed class 
member gives the opportunity to defend us, to collude with the 
class member and basically control the case. Removing a case 
from State to Federal Court is a huge procedural step. A class 
member should not be allowed to take this step and then 
basically relinquish all responsibility for the case.
    Theoretically, the person who filed, the named plaintiffs, 
have some real interest in the case. Sometimes, quite often, 
individual unnamed plaintiffs are just along for the ride, 
which creates some problems, but that's the way the system is 
set up.
    If a class member chooses to take the responsibility of 
removing a case to the Federal Court, that person should be 
required to make a showing that he or she is adequate to 
represent the class and will live up to the fiduciary 
obligations to that class that are implicit in bringing a class 
action.
    The person should be required to explain to the court why 
he or she has come forward and what his or her interests in the 
case is. I think it is unfair to allow some person who wanders 
into the process late in the process to take over a case, and 
so this amendment would basically allow the case to be removed, 
it would allow defendants to continue to remove it. It would 
allow named plaintiffs to move it, but I think it is basically 
unfair to allow an unnamed plaintiff to take that kind of 
control over the case.
    I will just read, in conclusion, Mr. Chairman, what I said 
about this the last time we talked about it. Maybe that'll keep 
me from having to think a lot about this, and I'll just tell 
you what I said before when I was thinking.
    It says, ``I practiced law for a number of years before I 
ever got to Congress, and I raised this basic fairness 
argument. If the plaintiff is injured, it goes and hires a 
lawyer. That lawyer cultivates, researches, puts together the 
case, decides where the appropriate place to litigate that case 
is, spends months and months preparing for the case, and then 2 
days before he's getting ready to go and start the real 
processing of the case, somebody from outside a member of the 
class comes and hijacks that case, it seems to me that there is 
something basically unfair about that, and that's what this 
bill allows currently as it's drawn.''
    ``This amendment would improve it, not enough for me to 
support the bill, but at least it would make this provision 
better, and I ask my colleagues to support the amendment.''
    Chairman Sensenbrenner. Do you yield back?
    Mr. Watt. I yield back, yes.
    Chairman Sensenbrenner. The gentleman from Virginia, Mr. 
Goodlatte?
    Mr. Goodlatte. I move to speak in opposition of the 
amendment.
    Chairman Sensenbrenner. The gentleman is recognized for 5 
minutes.
    Mr. Goodlatte. Thank you, Mr. Chairman. I am opposed to 
this amendment, and the principle behind this bill is that one 
plaintiff is treated the same way as other plaintiffs in the 
action.
    If you're an attorney, and you go out and recruit a 
particular plaintiff in the case, it could be the secretary in 
your law firm, and then the case can't be removed by any of the 
other hundreds of thousands of plaintiffs in the case because 
you've rigged it that way, that's wrong.
    Any plaintiff who wants to remove the case to Federal Court 
should be able to do that if they meet all of the other 
requirements of the law and establish the necessary diversity 
to do so, and this would be a very bad precedent to limit that 
opportunity.
    The other plaintiff may have a whole host of different 
reasons for wanting to do so, and it's unlikely somebody is 
going to do it unless they have a reason to do that. But, 
nonetheless, the principle should stand that if you don't want 
that other party in the case because you think they might have 
a difference of opinion with you about how the proceedings of 
the case should be conducted, don't make them a party to the 
case. That's the cure here--not to say that some plaintiffs 
have different rights than other plaintiffs, and I strongly 
oppose this amendment.
    Mr. Scott. Mr. Chairman?
    Chairman Sensenbrenner. Does the gentleman yield back?
    Mr. Goodlatte. I yield back.
    Chairman Sensenbrenner. The gentleman from Virginia, Mr. 
Scott?
    Mr. Scott. Mr. Chairman, I'd like to ask the gentleman from 
North Carolina if one of these unnamed, out of the blue 
plaintiffs comes in, is there any requirement that that 
plaintiff, if it is removed, provide an attorney if the Federal 
Court is not convenient to the attorneys that are leading the 
case?
    Mr. Watt. Nothing in this bill does that.
    Mr. Scott. If it is removed, is there any requirement that 
this person provide any representation, representational 
leadership in the case?
    Mr. Watt. Nothing in this bill does that.
    Mr. Scott. If the plaintiff does not like being in the case 
in State Court, is there anything that prevents him from 
withdrawing from the class?
    Mr. Watt. There's plenty of law that says you can opt out 
of class action any time you want to, and virtually every 
notice I've ever seen in a class action case gives class 
members that option.
    Mr. Scott. Thank you, Mr. Chairman. I yield back.
    Chairman Sensenbrenner. The question is on the Watt 
amendment.
    Those in favor will say aye.
    Opposed, no.
    The noes appear to have it. The noes have it. The amendment 
is not agreed to.
    Are there further amendments?
    The gentleman from North Carolina, Mr. Watt?
    Mr. Watt. I have an amendment at the desk.
    Chairman Sensenbrenner. The clerk will report the 
amendment.
    Mr. Watt. It's Number----
    The Clerk. Amendment to H.R. 1115 offered by Mr. Watt. 
Strike Section 5 and----
    Chairman Sensenbrenner. Without objection, the amendment is 
considered as read, and the gentleman from North Carolina will 
be recognized for 5 minutes.
    [Mr. Watt's amendment No. AM8 follows:]
    
    
    Mr. Watt. Thank you, Mr. Chairman.
    Although proponents of H.R. 1115 say that they are only 
interested in changing the rules of diversity to create Federal 
jurisdiction over a majority of State class actions, the bill 
also changes the rules of removal of these cases. There is no 
jurisdiction for having different removal procedures for class 
actions than for other cases. In fact, a lack of uniform 
removal procedures would impose additional burdens on the 
already overworked Federal judiciary. So this basically strikes 
the section that does that.
    The Federal Removal Statute provides that notice of removal 
must be filed within 30 days after defendant is served with a 
copy of the complaint. Essentially, the jurisdictional issue of 
which court is an appropriate forum is always resolved prior to 
discovery.
    1115 allows removal to take place before or after 
certification of a class. Allowing removal after certification 
simply allows the defendant to learn the plaintiff's case 
during discovery and then remove the case right before the 
settlement to stall the proceedings or forum shop.
    The Federal Removal Statute provides defendants with the 
ability to remove to Federal Court; 1115 actually allows any 
member of the plaintiff class, as well as defendants, to remove 
to Federal Court. That's unprecedented in diversity cases. By 
allowing any class member, not just the named class member, to 
remove the bill allows defendants to manipulate defendant's 
friendly class member to do their dirty work and stall out the 
State Court proceedings.
    The Federal Removal Statute prohibits appellate review of a 
Federal District Court order remanding a removed case back to 
the State Court from which it was removed. H.R. 1115, in direct 
contrast, creates mandatory appellate review, thereby creating 
a new appellate right for class action cases which could result 
in a flood of class action cases to the Federal appellate 
courts. This appellate right is in addition to the right to 
appeal class certification orders also created by H.R. 1115. 
This amendment would basically correct those issues, and I ask 
my colleagues to support the amendment.
    Chairman Sensenbrenner. Do you yield back?
    Mr. Watt. I yield back.
    Mr. Goodlatte. Mr. Chairman?
    Chairman Sensenbrenner. The gentleman from Virginia, Mr. 
Goodlatte.
    Mr. Goodlatte. I move to strike the last word.
    Chairman Sensenbrenner. The gentleman is recognized for 5 
minutes.
    Mr. Goodlatte. Thank you, Mr. Chairman.
    Mr. Chairman, I speak in opposition of this amendment. This 
would have the effect of gutting the bill. It's been offered in 
this Committee in the 105th Congress, 106th Congress, 107th 
Congress, and the proponents of the amendment have offered 
nothing new to the Committee today. This would eliminate the 
ability of the party defendant to remove the case to Federal 
Court in these diversity actions.
    If this amendment is adopted, H.R. 1115 would still expand 
Federal Court jurisdiction over an interstate class action, but 
the amendment would provide that this expanded jurisdiction be 
available only to the plaintiffs. That is wrong.
    It is the intent that all parties that have traditionally 
enjoyed the opportunity to have diversity jurisdiction under 
other procedures, the usual $75,000-amount in controversy, 
either party can remove the case to Federal Court. That should 
apply here. We have a much larger amount that you have to 
allege, $2 million, in order to remove it, but it allows 
complex cases, involving plaintiffs and defendants, in a 
multitude of different jurisdictions, to bring those actions 
into Federal Court.
    If you limit that to the plaintiffs and only the defendants 
can do so, you're going to have the effect of very much 
eliminating the fairness and the value of the legislation. I 
would urge my colleagues to oppose the amendment.
    Chairman Sensenbrenner. Does the gentleman yield back?
    Mr. Goodlatte. And I yield back.
    Chairman Sensenbrenner. The question is on the Watt 
amendment.
    Those in favor will say aye.
    Opposed, no.
    The noes appear to have it. The noes have it. The amendment 
is not agreed to.
    Are there further amendments?
    Ms. Jackson Lee. I have an amendment at the desk that was 
originally called Mr. Conyers and Ms. Jackson Lee's.
    Chairman Sensenbrenner. The clerk will report the 
amendment.
    Ms. Jackson Lee. AM1.
    The Clerk. Amendment to H.R. 1115 offered by Ms. Jackson 
Lee and Mr. Conyers.
    Mr. Goodlatte. Mr. Chairman, I reserve a point of order.
    Chairman Sensenbrenner. The point of order is reserved.
    Without objection, the amendment is considered as read, and 
the gentlewoman is recognized for 5 minutes.
    [Ms. Jackson Lee's amendment AM1 follows:]
    
    
    Ms. Jackson Lee. I thank you very much, Mr. Chairman.
    We have been using the word abscond over the last couple of 
weeks probably incorrectly as it relates to the 55 Texas 
legislators. This amendment is to avoid the absconding of 
corporations away from a legitimate case. The amendment simply 
states that if a U.S. corporation is acquired by a foreign 
corporation, the former U.S. corporation is from the State for 
purposes of Federal Court jurisdiction. This prevents U.S. 
corporations from dodging class action jurisdiction by going 
abroad.
    A hypothetical would have been if the neighbor that I 
represented, Enron, would have been acquired by a foreign 
corporation and thousands of employees would have been voided 
in their opportunity for a class action on any matter.
    This is an equalizing amendment. This is a fair amendment. 
This is an amendment that seeks to avoid the closing of the 
door of the courthouse, and certainly I think that we can be 
sympathetic in light of the fact that we have many more 
opportunities for corporations with more resources to remove 
their corporate bylaws and/or be bought by a foreign 
corporation.
    And my point is that they can do it voluntarily or they can 
seek or they can be bought or they can seek to be bought to 
avoid a massive class action, legitimate class action lawsuits.
    And I would ask my colleagues to support this amendment, 
and I believe that this would add a sense of fairness to this 
legislation.
    [The prepared statement of Ms. Jackson Lee follows:]
       Prepared Statement of the Honorable Sheila Jackson Lee, a 
           Representative in Congress From the State of Texas
    Mr. Chairman, I propose this amendment to H.R. 1115, to prevent 
domestic corporations from escaping liability from class action 
lawsuits by incorporating abroad.
    Under this amendment, ``a foreign corporation which acquires a 
domestic corporation in a corporate repatriation transaction shall be 
treated as being incorporated in the State under whose laws the 
acquired domestic corporation was organized.''
    Simply put, if an American corporation is guilty of corporate 
crimes or malfeasance, and thereafter that American corporation is 
acquired by a foreign corporation, then the domestic corporation shall 
be deemed incorporated in the State where it was incorporated prior to 
the acquisition.
    To see the benefit of this amendment one need only consider the 
hypothetical impact on Enron employees without this amendment. In the 
Enron collapse corporate executives criminally failed to disclosure of 
corporate decision-making in pension plans, and in other financial 
decisions. In the Enron case, executives and senior management staff 
were fraudulently encouraging employees to by company stock. At the 
same time, those same executives and senior managers were cashing out 
millions of dollars shortly before the company declared bankruptcy in 
December of 2001. As a result of the corporate executives crimes, 4,500 
Enron employees lost their jobs in my home district alone.
    Without my amendment, it would be possible for the bankrupt Enron 
corporation to agree to be acquired by a foreign company, relinquish 
their status as a company incorporated in the United States, avoid the 
jurisdiction of federal courts, and avoid liability for their corporate 
crimes.
    A result this egregious would be a slap in the face to the 4,500 
Enron employees who lost their jobs because of corporate wrongdoing and 
are undoubtedly entitled to damages. It would also be a slap in the 
face to the victims of tobacco companies, negligent automobile 
manufacturers, asbestos litigation clients, and any number of other 
class action plaintiffs who are opposed by well-financed, business and 
legal savvy defendants. This amendment would insure that potential 
corporate defendants are unable avoid liability.
    Mr. Speaker, I urge the committee to accept my amendment to protect 
plaintiffs from evasive defendants.

    [Ms. Jackson Lee's amendment follows:]
    
    
    Mr. Conyers. Would the gentlelady yield?
    Ms. Jackson Lee. I would be happy to yield to the 
distinguished gentleman.
    Mr. Conyers. This is an important and usual amendment that 
we try to bring to this legislative proposal, and I'm glad that 
you did it this time. I've got a statement that complements 
what you've said, and I ask unanimous consent that we can 
insert it in the record.
    [The prepared statement of Mr. Conyers follows:]
Prepared Statement of the Honorable John Conyers, Jr., a Representative 
                 in Congress From the State of Michigan
               Amendment on Corporate Financial Traitors
    This amendment is designed to help address the problem of domestic 
corporations reincorporating abroad to avoid U.S. taxes and legal 
liability. As we fight terrorism at home and abroad, the last thing we 
should be doing is passing legislation that helps these corporate tax 
traitors.
    With increasing frequency, companies are setting up shell companies 
in places like Bermuda. The company continues to be owned by U.S. 
shareholders and continues to do business in the exact same U.S. 
locations. The only difference is that the new foreign company (1) 
escapes substantial tax liability and (2) under the bill could more 
easily avoid legal liability in state class action cases.
    The actions of these companies are a slap in the face of every 
citizen who works hard and pays taxes in this country. This amendment 
responds to this egregious behavior by treating the former U.S. company 
as a domestic corporation for class action purposes.
    Apologists for these financial traitors may attempt to argue that 
this amendment is unnecessary because the bill only deals with national 
class actions. Nothing could be further from the truth.
    Under this bill, actions involving state consumer protection laws 
brought by residents who all reside in one state could be removable to 
federal court simply because a financial traitor has tried to abscond 
from the state. That is not a national class action, that is a state 
class action that belongs in state court. The fact that a financial 
traitor engaged in a sham transaction should be irrelevant as far as 
legal liability in these cases is concerned.
    The bottom line is simple--as presently written, the bill give a 
liability windfall to these foreign tax traitors. Today we have a 
chance to send a message that its wrong to pretend you're a U.S. 
corporation when you're incorporated in Bermuda. Its wrong to seek the 
benefits of corporate citizenship without the responsibility. Its wrong 
to engage in sham off shore transactions that leave hard working U.S. 
citizens hanging out to dry.

    Ms. Jackson Lee. I thank the distinguished gentleman. I 
thank you for the work that you've done on this issue. And I 
would think in light of all of what we faced in the last 2 
years on corporate responsibility and the issues dealing with 
some of the major companies like Enron and WorldCom, we know 
that there is no action that is beneath some corporate entities 
taking, and certainly one of them is to seek a foreign buyer to 
avoid possible massive litigation.
    I believe, if we're going to be fair with class action 
legislation, we should make sure that they retain the former 
State of which they were incorporated.
    With that, I yield back.
    Chairman Sensenbrenner. Does the gentleman from Virginia 
insist upon his point of order?
    Mr. Goodlatte. No, Mr. Chairman, I do not. I seek 
recognition in opposition.
    Chairman Sensenbrenner. The gentleman is recognized for 5 
minutes.
    Mr. Goodlatte. Thank you, Mr. Chairman.
    Mr. Chairman, this amendment isn't just wrong; I don't 
think it makes any sense at all in the context of this 
legislation. Apparently, this purpose is to discourage 
companies from moving their parent entities off-shore to turn 
to them into foreign corporations in order to achieve tax 
advantages.
    Thus, although this amendment doesn't seek to derail the 
enactment of the core provisions of the bill, it would preclude 
companies owned by foreign or off-shore companies from using 
that change. This effort to establish tax policy through 
procedural and jurisdictional rules applicable to civil 
litigation is truly out of place. I think it is very much a non 
sequitur.
    It appears that the purpose of the amendment is to punish 
companies with off-shore owners by forcing them to litigate 
class actions brought against them in State Court, while 
companies that have U.S. parents may remove their cases to 
Federal Court under the expanded Federal jurisdiction provision 
of the bill.
    Obviously, making this sort of distinction among companies 
based on foreign ownership is constitutionally suspect policy, 
but equally important is the fundamental premise of the 
amendment that forcing parties to litigate interstate class 
actions in State Courts constitutes a sort of punishment.
    Although this amendment should be defeated, it does suggest 
agreement on the key predicate to H.R. 1115. State Courts are 
not an ideal place for parties to litigate class actions. This 
amendment should be defeated, but this amendment should be 
remembered as confirming the key reasons why the overall bill, 
the fundamental provisions of H.R. 1115 should be enacted.
    I would also point out that there are good public policy 
reasons not to impose these kind of decisions because we have 
far greater concern with what legislatures in other countries 
do in establishing onerous provisions that they would apply to 
foreign corporations, particularly U.S. corporations operating 
in their countries, and this would set a very, very bad 
precedent in terms of how we write our Federal Rules of Civil 
Procedure, and I would urge my colleagues to oppose the 
amendment.
    Chairman Sensenbrenner. The question----
    Mr. Watt. Mr. Chairman?
    Chairman Sensenbrenner. The question is on the Jackson 
Lee----
    Mr. Watt. Mr. Chairman?
    Chairman Sensenbrenner. The gentleman from North Carolina, 
Mr. Watt.
    Mr. Watt. I move to strike the last word.
    Chairman Sensenbrenner. The gentleman is recognized for 5 
minutes.
    Mr. Watt. I yield to the gentlelady from Texas.
    Ms. Jackson Lee. I thank the distinguished gentleman from 
North Carolina.
    My good friend from Virginia is absolutely wrong.
    First of all, there was no mention of tax policies in my 
presentation of this particular amendment.
    Secondarily, it is what it is, and the point of it is that 
if a corporation attempts to abscond by either being bought by 
a foreign corporation previously being incorporated in a State 
in the United States and litigation ensues, then that 
corporation will be assumed to have had the incorporation of 
the prior State for basis of Federal Court jurisdiction.
    It is only fair that if in a matter of weeks or months this 
corporation, because of its resources, has the ability to 
reincorporate in an off-shore and/or foreign country to be able 
to avoid Federal Court jurisdiction. But what I might say to my 
patriots who are here with me in this room, to avoid American 
court jurisdiction, to avoid the opportunity for Americans to 
redress their grievances, for whatever it might be, then I 
think it would be shame on us to not provide a provision that 
simply allows them to enter into the Federal Court with the 
previous State's jurisdiction.
    It is simple. It is straight up. It has nothing to do with 
tax policies. It is written to this class action legislation, 
and I think that on its face it is fair, and I'd ask my 
colleagues to support it.
    Mr. Watt. I yield back my time.
    Chairman Sensenbrenner. The question is on the Jackson Lee 
amendment.
    Those in favor will say aye.
    Opposed, no.
    Ms. Jackson Lee. I'd like a record vote.
    Chairman Sensenbrenner. The noes appear to have it.
    A record vote will be ordered.
    Those in favor of the amendment offered by the gentlewoman 
from Texas, Ms. Jackson Lee, will, as your names are called, 
answer aye, those opposed, no, and the clerk will call the 
roll.
    The Clerk. Mr. Hyde?
    [No response.]
    The Clerk. Mr. Coble?
    [No response.]
    The Clerk. Mr. Smith?
    Mr. Smith. No.
    The Clerk. Mr. Smith, no. Mr. Gallegly?
    [No response.]
    The Clerk. Mr. Goodlatte?
    Mr. Goodlatte. No.
    The Clerk. Mr. Goodlatte, no. Mr. Chabot?
    Mr. Chabot. No.
    The Clerk. Mr. Chabot, no. Mr. Jenkins?
    [No response.]
    The Clerk. Mr. Cannon?
    Mr. Cannon. No.
    The Clerk. Mr. Cannon, no. Mr. Bachus?
    Mr. Bachus. No.
    The Clerk. Mr. Bachus, no. Mr. Hostettler?
    Mr. Hostettler. No.
    The Clerk. Mr. Hostettler, no. Mr. Green?
    [No response.]
    The Clerk. Mr. Keller?
    [No response.]
    The Clerk. Ms. Hart?
    [No response.]
    The Clerk. Mr. Flake?
    [No response.]
    The Clerk. Mr. Pence?
    [No response.]
    The Clerk. Mr. Forbes?
    Mr. Forbes. No.
    The Clerk. Mr. Forbes, no. Mr. King?
    Mr. King. No.
    The Clerk. Mr. King, no. Mr. Carter?
    Mr. Carter. No.
    The Clerk. Mr. Carter, no. Mr. Feeney?
    Mr. Feeney. No.
    The Clerk. Mr. Feeney, no. Mrs. Blackburn?
    Mrs. Blackburn. No.
    The Clerk. Mrs. Blackburn, no. Mr. Conyers?
    Mr. Conyers. Aye.
    The Clerk. Mr. Conyers, aye. Mr. Berman?
    [No response.]
    The Clerk. Mr. Boucher?
    Mr. Boucher. No.
    The Clerk. Mr. Boucher, no. Mr. Nadler?
    Mr. Nadler. Aye.
    The Clerk. Mr. Nadler, aye. Mr. Scott?
    Mr. Scott. Aye.
    The Clerk. Mr. Scott, aye. Mr. Watt?
    Mr. Watt. Aye.
    The Clerk. Mr. Watt, aye. Ms. Lofgren?
    [No response.]
    The Clerk. Ms. Jackson Lee?
    Ms. Jackson Lee. Aye.
    The Clerk. Ms. Jackson Lee, aye. Ms. Waters?
    Ms. Waters. Aye.
    The Clerk. Ms. Waters, aye. Mr. Meehan?
    [No response.]
    The Clerk. Mr. Delahunt?
    Mr. Delahunt. Aye.
    The Clerk. Mr. Delahunt, aye. Mr. Wexler?
    Mr. Wexler. Aye.
    The Clerk. Mr. Wexler, aye. Ms. Baldwin?
    Ms. Baldwin. Aye.
    The Clerk. Ms. Baldwin, aye. Mr. Weiner?
    Mr. Weiner. Aye.
    The Clerk. Mr. Weiner, aye. Mr. Schiff?
    Mr. Schiff. Aye.
    The Clerk. Mr. Schiff, aye. Ms. Sanchez?
    Ms. Sanchez. Aye.
    The Clerk. Ms. Sanchez, aye. Mr. Chairman?
    Chairman Sensenbrenner. No.
    The Clerk. Mr. Chairman, no.
    Chairman Sensenbrenner. Are there Members in the chamber 
who wish to cast or change their vote?
    The gentleman from North Carolina, Mr. Coble?
    Mr. Coble. No.
    The Clerk. Mr. Coble, no.
    Chairman Sensenbrenner. The gentleman from Wisconsin, Mr. 
Green?
    Mr. Green. No.
    The Clerk. Mr. Green, no.
    Chairman Sensenbrenner. The gentleman from Arizona, Mr. 
Flake?
    Mr. Flake. No.
    The Clerk. Mr. Flake, no.
    Chairman Sensenbrenner. The gentleman from Florida, Mr. 
Keller?
    Mr. Keller. No.
    The Clerk. Mr. Keller, no.
    Chairman Sensenbrenner. The gentleman from Tennessee, Mr. 
Jenkins?
    Mr. Jenkins. No.
    The Clerk. Mr. Jenkins, no.
    Chairman Sensenbrenner. The gentlewoman from Pennsylvania, 
Ms. Hart?
    Ms. Hart. No.
    The Clerk. Ms. Hart, no.
    Chairman Sensenbrenner. The gentleman from Indiana, Mr. 
Pence?
    Mr. Pence. No.
    The Clerk. Mr. Pence, no.
    Chairman Sensenbrenner. The gentleman from Massachusetts, 
Mr. Meehan?
    Mr. Meehan. Aye.
    The Clerk. Mr. Meehan, aye.
    Chairman Sensenbrenner. Further Members who wish to cast or 
change their votes?
    [No response.]
    Chairman Sensenbrenner. If not, the clerk will report.
    The Clerk. Mr. Chairman, there are 13 ayes and 20 noes.
    Chairman Sensenbrenner. And the amendment is not agreed to.
    Are there further amendments?
    [No response.]
    Chairman Sensenbrenner. If not, a reporting quorum is 
present. The question occurs on the motion to report the bill 
H.R. 1115 favorably, as amended.
    All of those in favor will say aye.
    Opposed, no.
    The ayes appear to have it.
    Mr. Goodlatte. Mr. Chairman, I request a recorded vote.
    Chairman Sensenbrenner. A recorded vote is demanded.
    Those in favor of reporting H.R. 1115 favorably will, as 
your names are called, answer aye; those opposed, no, and the 
clerk will call the roll.
    The Clerk. Mr. Hyde?
    [No response.]
    The Clerk. Mr. Coble?
    Mr. Coble. Aye.
    The Clerk. Mr. Coble, aye. Mr. Smith?
    [No response.]
    The Clerk. Mr. Gallegly?
    [No response.]
    The Clerk. Mr. Goodlatte?
    Mr. Goodlatte. Aye.
    The Clerk. Mr. Goodlatte, aye. Mr. Chabot?
    Mr. Chabot. Aye.
    The Clerk. Mr. Chabot, aye. Mr. Jenkins?
    Mr. Jenkins. Aye.
    The Clerk. Mr. Jenkins, aye. Mr. Cannon?
    Mr. Cannon. Aye.
    The Clerk. Mr. Cannon, aye. Mr. Bachus?
    Mr. Bachus. Aye.
    The Clerk. Mr. Bachus, aye. Mr. Hostettler?
    Mr. Hostettler. Aye.
    The Clerk. Mr. Hostettler, aye. Mr. Green?
    Mr. Green. Aye.
    The Clerk. Mr. Green, aye. Mr. Keller?
    Mr. Keller. Aye.
    The Clerk. Mr. Keller, aye. Ms. Hart?
    Ms. Hart. Aye.
    The Clerk. Ms. Hart, aye. Mr. Flake?
    [No response.]
    The Clerk. Mr. Pence?
    Mr. Pence. Aye.
    The Clerk. Mr. Pence, aye. Mr. Forbes?
    Mr. Forbes. Aye.
    The Clerk. Mr. Forbes, aye. Mr. King?
    Mr. King. Aye.
    The Clerk. Mr. King, aye. Mr. Carter?
    Mr. Carter. Aye.
    The Clerk. Mr. Carter, aye. Mr. Feeney?
    Mr. Feeney. Mr. Feeney, aye. Mrs. Blackburn?
    Mrs. Blackburn. Aye.
    The Clerk. Mrs. Blackburn, aye. Mr. Conyers?
    Mr. Conyers. No.
    The Clerk. Mr. Conyers, no. Mr. Berman?
    Mr. Berman. No.
    The Clerk. Mr. Berman, no. Mr. Boucher?
    Mr. Boucher. Aye.
    The Clerk. Mr. Boucher, aye. Mr. Nadler?
    Mr. Nadler. No.
    The Clerk. Mr. Nadler, no. Mr. Scott?
    Mr. Scott. No.
    The Clerk. Mr. Scott, no. Mr. Watt?
    Mr. Watt. No.
    The Clerk. Mr. Watt, no. Ms. Lofgren?
    [No response.]
    The Clerk. Ms. Jackson Lee?
    Ms. Jackson Lee. No.
    The Clerk. Ms. Jackson Lee, no. Ms. Waters?
    Ms. Waters. No.
    The Clerk. Ms. Waters, no. Mr. Meehan?
    Mr. Meehan. No.
    The Clerk. Mr. Meehan, no. Mr. Delahunt?
    Mr. Delahunt. No.
    The Clerk. Mr. Delahunt, no. Mr. Wexler?
    Mr. Wexler. No.
    The Clerk. Mr. Wexler, no. Ms. Baldwin?
    Ms. Baldwin. No.
    The Clerk. Ms. Baldwin, no. Mr. Weiner?
    Mr. Weiner. No.
    The Clerk. Mr. Weiner, no. Mr. Schiff?
    Mr. Schiff. No.
    The Clerk. Mr. Schiff, no. Ms. Sanchez?
    Ms. Sanchez. No.
    The Clerk. Ms. Sanchez, no. Mr. Chairman?
    Chairman Sensenbrenner. Aye.
    The Clerk. Mr. Chairman, aye.
    Chairman Sensenbrenner. Further Members in the chamber wish 
to cast or change their vote?
    The gentleman from Texas, Mr. Smith.
    Mr. Smith. I vote aye.
    The Clerk. Mr. Smith aye.
    Chairman Sensenbrenner. The gentleman from Arizona, Mr. 
Flake.
    Mr. Flake. Aye.
    The Clerk. Mr. Flake, aye.
    Chairman Sensenbrenner. Further Members who wish to cast or 
change their vote?
    [No response.]
    Chairman Sensenbrenner. If none, the clerk will report.
    The Clerk. Mr. Chairman, there are 20 ayes and 14 noes.
    Chairman Sensenbrenner. And the motion to report the bill 
favorably, as amended, is agreed to. Without objection, the 
bill will be reported favorably to the House in the form of a 
single amendment in the nature of a substituting, incorporating 
the amendments adopted here today.
    Without objection, the Chairman is authorized to move to go 
to conference pursuant to House rules. Without objection, the 
staff is directed to make any technical and conforming changes, 
and all Members will be given 2 days, as provided by the House 
rules, in which to submit additional, dissenting, supplemental, 
or minority views.
    The Committee has accomplished a lot today. The chair 
appreciates the perseverance of the Members of the Committee, 
and thanks them, and the Committee stands adjourned.
    [Whereupon, at 4:22 p.m., the Committee was adjourned.]
                            Additional Views

    I believe there are serious abuses of the consumer class 
action system in this country. Too often, abusive coupon 
settlements net lawyers large fees while victims are left with 
little more than discounts on future purchases. That is why I 
would support common-sense reforms if they were targeted at the 
abuses.
    However, H.R. 1115 follows a scorched earth approach that 
targets every class action, including those brought to protect 
the environment, senior citizens and minorities. To understand 
the breadth of this so-called ``reform,'' one must look no 
further than the groups lined up in opposition. They include 
Greenpeace, the Natural Resources Defense Council, the American 
Cancer Society, the Brady Campaign to Prevent Gun Violence, the 
Campaign for Tobacco Free Kids, the Lawyer's Committee for 
Civil Rights Under Law, the Leadership Conference on Civil 
Rights, the Alliance for Retired Americans, and the Violence 
Policy Center, among others. The Judicial Conference and the 
State Chief Justices also oppose this bill because of the havoc 
it plays on state and Federal courts.
    But what is particularly offensive to my home State of 
California is that the scorched earth approach does not even 
stop at class actions. California, like many other States, has 
enacted strong consumer protection laws. See California 
Business and Professions Code section 17200, et seq. California 
has chosen to allow its District Attorneys, along with the 
California Attorney General, to enforce these laws in State 
courts. This bill usurps California's choice by forcing local 
prosecutors to bring state consumer protection actions in 
Federal courts.
    Local prosecutors are not abusing the class action system. 
In one case, the San Francisco District Attorney's office 
successfully settled a major consumer protection action against 
Providian Financial Corporation that netted Californians $300 
million. Under this bill, that case would have been forced into 
Federal court, where the District Attorney would have to comply 
with Federal Rule of Civil Procedure 23 or lose the case.
    That is preposterous. The Federal Government should not be 
forcing local prosecutors to try state antitrust and consumer 
protection actions in Federal court. Nor should the Federal 
Government force local prosecutors to comply with Federal class 
certification requirements.
    Put simply, H.R. 1115 is an overreaching attempt to chill 
State and local enforcement of consumer protection laws. That 
effort is contrary to long-standing legal doctrines of our 
nation. It will also adversely impact competition and business 
development in the high tech sector, which is vital to this 
nation's future. Unfortunately, the sponsors of this 
legislation again rejected an attempt to remove this language. 
Accordingly, I must oppose H.R. 1115.

                                   Zoe Lofgren.
                            Dissenting Views

    We strongly oppose H.R. 1115, the so-called ``Class Action 
Fairness Act of 2003.'' Although the legislation is described 
by its proponents as a simple procedural fix, in actuality it 
represents a major rewrite of the class action rules that would 
bar most forms of State class actions and massively tilt the 
playing field in favor of corporate defendants in both class 
action and non-class action cases. H.R. 1115 \1\ is opposed by 
both the State \2\ and federal \3\ judiciaries; consumer and 
public interest groups, including Public Citizen,\4\ Consumers 
Union,\5\ the Consumer Federation of America and U.S. PIRG; \6\ 
a coalition of the most well known environmental advocates; \7\ 
health advocates, including the American Heart Association, 
Campaign for Tobacco Free Kids, and the American Lung 
Association; \8\ and civil rights groups, such as the 
Leadership Conference on Civil Rights \9\ and the Lawyers' 
Committee for Civil Rights.\10\ It is also opposed by some of 
the nation's most prestigious editorial boards.\11\
---------------------------------------------------------------------------
    \1\ H.R. 1115 is the fourth time class action legislation has been 
offered in Congress. However, as discussed later, it is the most far 
reaching of any class action bill ever considered by the House, because 
it would apply to pending cases. During the 105th Congress, the Full 
Committee marked-up and reported out on a party line vote the ``Class 
Action Jurisdiction Act of 1998,'' which was also similar in most other 
respects to H.R. 1115. The bill, however, was never considered by the 
Full House during the 105th Congress. In 1999, after a hearing and 
mark-up, the House Committee on the Judiciary reported out, by a 15-12 
vote, the ``Interstate Class Action Jurisdiction Act of 1999,'' which 
was similar in most other respects to H.R. 1115 under consideration 
today. On September 23, 1999 the House passed the legislation 222-207. 
It was never voted on in the Senate. During the 106th Congress, the 
House passed H.R. 2341, the ``Class Action Fairness Act of 2001,'' 
(identical in most other respects to this bill) by a vote of 233 to 
190. While the Senate Judiciary Committee held a hearing on the bill, 
it did not take any further action.
    \2\ See Letter from Annice M. Wagner, President, Conference of 
Chief Justices (March 28, 2002) [hereinafter Conference of Chief 
Justices letter] (calling the bill ``an unwarranted incursion on the 
principles of judicial federalism'') (on file with the minority staff 
of the House Judiciary Committee).
    \3\ See Letter from Leonias Ralph Mecham, Secretary, Judicial 
Conference of the United States (March 26, 2003) [hereinafter ``Mecham 
letter''] (stating the conference's continued opposition to this 
legislation); Letter from Anthony J. Scirica, Committee on Rules of 
Practice and Procedure of the Judicial Conference of the United States 
[hereinafter Scirica letter] (requesting that the Judiciary Committee 
withdraw provisions of the bill because they conflict with current 
rules of practice and procedure) (both on file with the minority staff 
of the House Judiciary Committee).
    \4\ See Testimony of Brian Wolfman, Staff Attorney, Public Citizen 
Litigation Group, before the House Judiciary Committee (May 15, 2003) 
[hereinafter ``Wolfman''].
    \5\ See Letter from Sally J. Greenberg, Senior Product Safety 
Counsel, Consumers Union (May 14, 2003) [hereinafter Consumers Union 
Letter] (on file with the minority staff of the House Judiciary 
Committee).
    \6\ Letter from Rachel Weintraub, Assistant General Counsel, 
Consumer Federation of America, and Edward Mierzwinski, Consumer 
Program Director, U.S. Public Interest Research Group (May 14, 2003) 
[hereinafter CFA/PIRG letter] (on file with the minority staff of the 
House Judiciary Committee).
    \7\ Letter from Joan Mulhern, Senior Legislative Counsel, 
Earthjustice Legal Defense Fund; Richard Wiles, Senior Vice President, 
Environmental Working Group; Debbie Sease, Legislative Director, Sierra 
Club; Eric Olson, Senior Attorney, National Resources Defense Council; 
Lexi Schultz, Legislative Director, Mineral Policy Center; Anna 
Aurillo, Legislative Director, U.S. Public Interest Research Group; 
Sara Zdeb, Legislative Director, Friends of the Earth; Rick Hind, 
Legislative Director, Greenpeace; Paul Schwartz, National Campaigns 
Director, Clean Water Action (April 2, 2003).
    \8\ Letter from M. Cass Wheeler, CEO, American Heart Association; 
John L. Kirkwood, President and CEO, American Lung Association; and 
Matthew L. Myers, President Campaign for Tobacco-Free Kids (March 10, 
2003).
    \9\ Letter from Leadership Conference on Civil Rights, Lawyers 
Committee for Civil Rights under Law, et al. (May 14, 2003) (on file 
with the minority staff of the House Judiciary Committee).
    \10\ Id.
    \11\ See e.g., ``The Class Action Unfairness Act,'' Editorial, New 
York Times, April 25, 2003; ``Unfair Federal Fairness Act,'' Editorial, 
Milwaukee Journal Sentinel, April 10, 2003; ``Threat to Class 
Actions,'' Editorial, Los Angeles Times, April 9, 2003; ``Courts and 
torts: Citizens' rights suffer if Congress sends all class-action suits 
to Federal court,'' Editorial, Philadelphia Inquirer, May 16, 2003; 
``Dubious Class Actions,'' Editorial, Salt Lake Tribune, May 12, 2003; 
`` `Fairness' to Whom? Congress Intrudes on State Prerogatives in 
Class-action bill,'' Editorial, Columbus Dispatch, May 8, 2003; 
``DECLASSE: Nominal Conservatives Assault Onmce Cherished Federalism,'' 
Editorial, Houston Chronicle, April 29, 2003; and ``Class Action 
Unfairness,'' Editorial, Palm Beach Post, May 15, 2003.
---------------------------------------------------------------------------
    By providing plaintiffs access to the courts in cases where 
a defendant may have caused small injuries to a large number of 
persons, class action procedures have traditionally offered a 
valuable mechanism for aggregating small claims that otherwise 
might not warrant individual litigation. This legislation will 
undercut that important principle by making it far more 
burdensome, expensive, and time-consuming for groups of injured 
persons to obtain access to justice. Thus, it would be more 
difficult to protect our citizens against violations of fraud, 
consumer health and safety, civil rights and environmental 
laws. The legislation goes so far as to prevent State courts 
from considering class action cases that involve solely 
violations of State laws, such as State consumer protection 
laws.
    In a marked affront to federalism, H.R. 1115 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.\12\ Any plaintiff or defendant could petition a 
State court to remove the class action to Federal court as a 
matter of right.\13\ The only exceptions provided in H.R. 1115, 
directing Federal courts to abstain from hearing a class 
action, are: (1) when 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) when 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) when 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'').\14\ 
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,\15\ effectively striking the class action 
claim.\16\
---------------------------------------------------------------------------
    \12\ H.R. 1115, Sec. 4(a). Current law requires there to be 
complete diversity (all of the plaintiffs must be citizens residing in 
different States than all of the defendants) before a State law case is 
eligible for removal to Federal court. 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.
    \13\ At markup, Mr. Watt offered an amendment, defeated by voice 
vote, that would have limited this right to a representative class 
member. This would have avoided the perverse result where a plaintiff, 
not at all involved in the day-to-day workings of the action, could 
derail an entire case by having it removed to Federal court.
    \14\ H.R. 1115, Sec. 4(a). 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.
    \15\ H.R. 1115, Sec. 4(a).
    \16\ While the class action may be refiled again, any such refiled 
action may be removed, thereby resulting in a ``merry-go-round'' in 
which class members revolve between State and Federal court on 
procedural grounds while never reaching a decision on the merits of 
their claim.
---------------------------------------------------------------------------
    In an amazing act of Congressional arrogance, the 
legislation--unlike predecessor versions of the bill and unlike 
legislation pending in the Senate \17\--would apply to pending 
cases. As such, it would work to the benefit of corporate 
criminals and scam artists, like Enron, Adelphia and Tyco--by 
throwing pending lawsuits brought by defrauded investors out of 
State court, and by subjecting even pending Federal and State 
class actions to the new provisions encouraging delay by 
defendants (described below).
---------------------------------------------------------------------------
    \17\ Introduced on February 4, 2003, S. 274 was marked up and 
reported out on June 2, 2003. Two amendments were adopted by the 
Senate: Sen. Feinstein's amendment, which modifies that jurisdictional 
section of the bill to bring more certainty to the process, and to keep 
more cases in State courts if they belong there while still attempting 
to solve the forum shopping and other issues addressed by the 
underlying bill; and Senator Spector's amendment, which strikes the 
language in the bill that would strip courts of jurisdiction over 
private attorney general actions brought by citizens or organizations 
and over mass tort cases.
---------------------------------------------------------------------------
  In addition, the House version has other provisions that are not 
included in the Senate legislation. First, H.R. 1115 provides for an 
automatic right to appeal orders granting or denying class 
certification and States that during the appeal process, all discovery 
will be stayed. This is a drastic expansion of Rule 23(f) and could 
result in wasteful interruptions in the judicial process. Second, the 
House legislation requires that mass torts be removed to Federal court, 
perhaps many miles from where the plaintiffs live. In addition, because 
mass torts that are not certified are not dismissed, these matter 
remain in limbo in the Federal court system.
  Finally, a Boucher/Smith amendment was added during the House 
Judiciary markup that broadens the application of the legislation to 
both civil cases commenced on or after the enactment date and to civil 
actions commenced before the enactment date but certified on or after 
the enactment date.
    In addition, the bill goes far beyond class action 
jurisdiction issues and includes numerous additional provisions 
that favor corporate defendants over harmed consumers. Among 
other things, the bill gives class action defendants in all 
cases--Federal and State--new mechanisms to delay and frustrate 
justice for victims by allowing a defendant or a class member, 
as a matter of right, an appeal of any lower court decision to 
certify a class action.\18\ While this appeal is pending, a 
victim cannot conduct discovery or otherwise move a case 
forward. This will result in unwarranted, expensive and 
wasteful interruptions of meritorious cases. The legislation 
also includes provisions that would preempt private attorney 
general actions and mass tort cases by treating them as class 
action claims which are funneled into Federal court.
---------------------------------------------------------------------------
    \18\ H.R. 1115, Sec. 6.
---------------------------------------------------------------------------
    Proponents of H.R. 1115 have attempted to deflect 
criticisms of the bill by incorporating a so-called ``Consumer 
Class Action Bill of Rights,'' \19\ which, upon closer 
inspection, contains provisions that either do not improve 
current law or work to the detriment of consumers. These 
provisions would supposedly improve the law for consumers with 
respect to coupon settlements and settlement notices, but, in 
fact, simply codify a Rule of Civil Procedure already scheduled 
to be implemented; and prohibit certain awards to named 
plaintiffs, which would actually create a massive disincentive 
for civil rights class actions.
---------------------------------------------------------------------------
    \19\ H.R. 1115, Sec. 3.
---------------------------------------------------------------------------
    H.R. 1115 will damage both the Federal and State courts. As 
a result of Congress' increasing propensity to federalize State 
crimes, the Federal courts are already facing a dangerous 
workload crisis. By forcing resource intensive class actions 
into Federal court, H.R. 1115 will further aggravate these 
problems and cause victims to wait in line for as much as 3 
years or more 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. In 
many instances, individual actions will not be economically 
feasible and hurt victims will be left with no remedy at all.
    In our view, it is time for more corporate responsibility, 
not less. This bill gives corporate defendants--including 
defendants in corporate fraud and civil rights cases--a huge 
leg up in class action cases. If we have learned any lessons 
from the Enron, Firestone, Dalkon Shield and other product 
liability and financial debacles it is that our citizens need 
more legal protections against such wrongdoers, not less. Yet 
this bill takes us in precisely the opposite direction. For 
these and the other reasons set forth herein, we dissent from 
H.R. 1115.

  I. H.R. 1115 WOULD PREJUDICE PENDING CASES, INCLUDING CASES AGAINST 
                     NOTORIOUS CORPORATE CRIMINALS

    This bill is the most extreme and far reaching class action 
reform bill ever considered by the House Judiciary Committee. 
Unlike predecessor versions of this bill, this legislation 
would apply to pending cases \20\--and thereby work to the 
benefit of corporate criminals and scam artists, like Enron, 
Worldcom, Adelphia and Tyco--by throwing pending lawsuits 
brought by defrauded investors out of State court. H.R. 1115 
would disrupt these cases and add years of additional 
litigation. This means these defrauded victims will have to 
wait much longer to get their money back, while the corporate 
wrongdoers continue to enjoy the fruits of their ill-gotten 
gains.
---------------------------------------------------------------------------
    \20\ See supra note 17.
---------------------------------------------------------------------------
    This is a terrible precedent that will unfairly 
disadvantage plaintiffs in current class action lawsuits. It is 
especially troubling that the Committee took this course 
without first analyzing what and how many pending cases would 
be affected. It is quite possible that the retroactivity of 
this bill will cause tens of thousands of pending State cases 
to be moved to Federal court all at once, creating a totally 
unworkable and unmanageable litigation crisis. Indeed, the bill 
would cause a needless waste of resources, as State judges--who 
may have overseen a case for years--would have the case yanked 
from their docket and instead placed before a Federal judge, 
who would have to spend substantial time and resources 
acquainting himself or herself with the case.
    Examples of pending cases impacted by this bill include the 
following:

         LTRG Marketing sold fraudulent health 
        insurance policies to more than 5,000 Floridians who 
        were left with several million dollars in unpaid 
        medical bills. According to the lawsuit, TRG was a 
        scheme where premiums from new subscribers were used to 
        pay the medical expenses of earlier subscribers. When 
        enough subscriber dollars had been collected, the 
        claims payments stopped and TRG took the money and ran. 
        For Judy Harris, a named plaintiff, TRG abruptly 
        stopped paying on claims for her cancer treatment in 
        November 2001, leaving her family with $10,000 in 
        unpaid medical bills. By using the class action system, 
        the victims of TRG are banding together to hold TRG 
        accountable for their fraud.\21\
---------------------------------------------------------------------------
    \21\ Lavovere, et al. v. TRG, CA02-14542A1 (Fla.)

         LIn April 2002, the bereaved families of 
        victims of improper cremations filed a class action 
        lawsuit to protect the interests of families similarly 
        affected. For years, Tri-State Crematory (based in 
        Georgia) had foregone cremations and instead, passed 
        off wood chips, powdered cement and other substances as 
        ashes to the grieving relatives. As of March 2003, 
        there are at least 334 improperly handled bodies from 
        the property. By preserving the interests of all of the 
        families, the lawsuit gives families time to grieve and 
        to decide what they want to do.\22\
---------------------------------------------------------------------------
    \22\ Oden, et al. v. Taylor Funeral Home, No. 02C-414 (Walker 
County, Ga)

         LBarnett v. Wal-Mart Stores, Inc. is a pending 
        lawsuit in King County Superior Court in Washington. It 
        was filed in September 2001, on behalf of 40,000 
        present and former hourly employees at Wal-Mart stores 
        in the State of Washington. Many make only $7.00 to 
        $10.00 an hour. The lawsuit alleges and challenges Wal-
        Mart practices that have the effect of forcing 
        employees to work without pay, or to work overtime at 
        only their regular rates of pay, or to work through 
        part or all of their rest and meal breaks, in violation 
        of Washington statutory and contract law. Some claims 
        go back to September 1998, and others go back to 
        September 1995. The parties have taken the depositions 
        of more than a hundred witnesses, and a great deal of 
        other discovery has taken place. Plaintiffs have moved 
        for class certification, the defendant has responded, 
        and plaintiffs' reply is being held in abeyance while 
        Wal-Mart produces computer files that will have to be 
        analyzed. Almost all of the work to date has focused on 
        meeting the standards for class certification under 
        Washington law, and the parties are operating under 
        scheduling orders issued by the Washington court.

II. FEDERALIZING CLASS ACTIONS WILL HARM CONSUMERS AND DAMAGE THE COURT 
                                SYSTEMS

A. H.R. 1115 Will Weaken Enforcement of Laws Concerning Consumer Health 
        and Safety, the Environment and Civil Rights
    H.R. 1115 will have a serious adverse impact on the ability 
of consumers and other harmed individuals to obtain 
compensation in cases involving widespread harm. At a minimum, 
the legislation will force most State class action claims into 
Federal courts where there will be far more victims to litigate 
cases and where defendants could force plaintiffs to travel 
long distances to attend proceedings.
    It also will be far more difficult and time consuming to 
certify a class action in Federal court. In 1999, fourteen 
States, representing approximately 29% of the nation's 
population, adopted different criteria for class action rules 
than Rule 23 of the Federal Rules of Civil Procedure.\23\ In 
addition, with respect to those States that 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 has made it more difficult to establish the 
predominance requirement of Rule 23(b)(3) to establish a class 
action under the Federal rules.\24\ The defense bar has as much 
as admitted this. To quote from a recent article written by two 
corporate class action attorneys: ``As a general rule, 
defendants are better off in Federal court . . . there is 
generally a greater body of Federal precedent favorable to 
defendants.'' \25\
---------------------------------------------------------------------------
    \23\ See Conference of Chief Justices letter, supra note 2.
    \24\ Federal courts have been narrowly construing Rule 23, thereby 
limiting the parties' ability to bring and certify class actions in 
Federal courts. For example, in Castano v. American Tobacco Co., 84 
F.3d 734 (5th Cir. 1996), the Fifth Circuit prevented the certification 
of a nationwide class action brought by cigarette smokers and their 
families for nicotine addiction because it found there 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. 
Similarly, in In re Rhone-Poulenc Rorer, Inc., 51 F.3d 1293 (7th Cir. 
1995), cert denied, 516 U.S. 867 (1995), the Seventh Circuit held that 
where claims were immature, it is preferable that they be individually 
adjudicated. Also, in Georgine v. Amchem Products, Inc., 521 U.S. 591 
(1997), the Supreme Court overturned a consensual settlement between a 
class of workers injured by asbestos and a coalition of former asbestos 
manufacturers because uncommon issues, particularly the disparate 
levels of the class members' knowledge of their injuries, as well as 
each class member's relatively large amount at stake in the litigation, 
meant that class treatment was not superior to individual treatment of 
the plaintiffs' claims. Additionally, on June 23, 1999, in Ortiz v. 
Fibreboard, 527 U.S. 815 (1999), the Supreme Court again invalidated an 
asbestos settlement agreement on the grounds 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.
    \25\ Reid and Coutroulis, ``Checkmate in Class Actions: Defensive 
Strategy in the Initial Moves,'' Litigation (Winter 2002).
---------------------------------------------------------------------------
    Further, the legislation will inevitably result in 
substantial delay before civil class action claimants are able 
to obtain a trial date in Federal court. Given the backlog in 
the Federal courts and the fact that the Federal courts are 
obligated to resolve criminal matters on an expedited basis 
before civil matters,\26\ even when plaintiffs are able to 
successfully certify a class action in Federal court, it will 
take longer to obtain a trial on the merits than it would in 
State court.
---------------------------------------------------------------------------
    \26\ Speedy Trial Act of 1974, 18 U.S.C. Sec. Sec. 3161-3174 
(1994).
---------------------------------------------------------------------------
    The legislation also creates unique risks and obstacles for 
plaintiffs that they do not face under current law. Because the 
Federal courts are required to dismiss cases they choose not to 
certify, plaintiffs will be foreclosed from forming a 
reconstituted class in State court that would conform to the 
legislation's requirements.\27\ 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.\28\
---------------------------------------------------------------------------
    \27\ For example, if certification had been denied by the Federal 
court because a particular conflict among the class members made it 
impossible to meet the ``adequate representation'' requirement of 
Federal Rule of Civil Procedure 23(a)(4), the plaintiffs would likely 
be prohibited from narrowing the class in an effort to resolve that 
conflict.
    \28\ In this regard, it is unfortunate the Majority rejected an 
amendment offered by Representative Scott that largely would have 
eliminated the federalism problem. Mr. Scott's amendment would have 
allowed the Federal courts the first opportunity to certify a class 
action, but if the Federal court determined that the action did not 
meet Federal requirements, the State court from which it was removed 
would not have been denied jurisdiction over the class action. This 
would have responded to the most serious complaint leveled by corporate 
defendants--that class actions encourage a race to the court house--by 
permitting the Federal courts to use their powers to consolidate class 
actions into a single forum in the appropriate circumstances.
---------------------------------------------------------------------------
    As Consumers Union has stated about this feature of the 
bill, ``This legal `ping-pong' could well deprive consumers of 
access to their own State courts, and ultimately deny them 
their day in court through the class action process-in many 
cases their only effective remedy.'' \29\ Moreover, even if the 
Federal court certifies the class, plaintiffs still face 
further delays because of the mandatory interlocutory appeal 
provision.\30\
---------------------------------------------------------------------------
    \29\ See Letter from Sally J. Greenberg, Senior Product Safety 
Counsel, Consumers Union (March 5, 2002) (on file with the minority 
staff of the House Judiciary Committee).
    \30\ See supra note 18.
---------------------------------------------------------------------------
    The harm to civil rights cases, which are heavily reliant 
on class actions for access to justice, would be particularly 
problematic. As the Lawyers Committee for Civil Rights under 
the Law observed, ``[t]he consequences of the [legislation] for 
class action practice in the Federal courts would be astounding 
and, in our view, disastrous. Redirecting State law class 
actions to the Federal courts will choke Federal court dockets 
and delay or foreclose the timely and effective determination 
of Federal cases already properly before the Federal courts, in 
addition to the newly directed cases.'' \31\
---------------------------------------------------------------------------
    \31\ Class Action Fairness Act of 2003: Hearings on H.R. 1115 
before the House Comm. on the Judiciary, 108th Cong.(2003) [hereinafter 
``Henderson Testimony''] (written testimony of Thomas Henderson, Chief 
Counsel, Lawyers' Committee for Civil Rights Under Law).
---------------------------------------------------------------------------
    Moreover, as the Lawyers Committee noted, the principal 
motivation by the American Tort Reform Association in 
advocating this legislation would appear to be to remove the 
cases from jury pools that are composed largely of minorities 
and those with low incomes. Their report entitled ``Bringing 
Justice to Judicial Hellholes 2002'' identifies thirteen 
counties/jurisdictions that it describes as ``hellholes,'' 
where it claims the rules are not applied fairly to defendants. 
Although no criteria is put forth to distinguish which 
jurisdictions may meet the ``hellhole'' threshold, almost all 
of the jurisdictions have populations in which people of color 
constitute majorities or near-majorities, and others have 
populations with disproportionately low incomes.\32\
---------------------------------------------------------------------------
    \32\ Lawyers' Committee for Civil Rights Under Law, The Impact of 
the ``Class Action Fairness Act'' on Civil Rights Cases (2003).
---------------------------------------------------------------------------
    In addition, the legislation includes provisions that allow 
any plaintiff in a class action case to seek to remove to 
Federal court, and that extend the time period for removal 
beyond that currently permitted. This means that any single 
party out of tens of thousands--conceivably even an employee of 
a defendant--could unilaterally seek to remove a case, throwing 
out thousands of hours or more of work that may have been spent 
pursuing a State claim. This again has the effect of making 
most efforts to obtain justice in State court simply too risky 
to pursue.
    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 \33\ are new and undefined phrases 
with no precedent in the United States Code or the case law. It 
will take many years and conflicting decisions before these 
critical terms are sorted out. The vagueness problems will be 
particularly acute for plaintiffs--if they guess incorrectly 
regarding the meaning of a particular phrase, their class 
action could be permanently preempted and barred. However, if 
defendants guess wrong and jurisdiction does not lie in the 
Federal courts, the defendants will be no worse off than they 
are under present law, but rather will have benefitted from the 
additional time delays caused by the failed removal motion.
---------------------------------------------------------------------------
    \33\ H.R. 1115, Sec. 4.
---------------------------------------------------------------------------
    The net result of these various changes 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. This means, as noted 
above, it will be far more difficult for consumers to bring 
class actions in State court involving violations of fraud, 
health and safety, and environmental laws.
    The following are examples of important class actions 
previously brought at the State level, but which could be 
forced into Federal court under H.R. 1115, where the actions 
would be delayed or rejected:

         LIn the Baptist Foundation of Arizona case, a 
        mirror image of the Enron scandal, the Foundation 
        issued worthless notes and sold them in many Arizona 
        communities. Approximately 1,300 investors lost 
        millions of dollars in this scheme in ``off the books'' 
        transactions with sham companies that were controlled 
        by the Foundation and corporate insiders. The victims 
        were able to bring a successful State class action suit 
        against Arthur Anderson, which resulted in a $217 
        million settlement. If H.R. 1115 was law, this case 
        would have been forced into Federal court because the 
        legislation provides no exemption for State securities 
        claims.\34\
---------------------------------------------------------------------------
    \34\ Craig Harris, Andersen settles Baptist Suit, azcentral.com 
(March 2, 2002), http://www.arizonarepublic.com; Settlement Sum Revives 
Hope for Baptist Investors: Andersen to pay $217 million (March 3, 
2002), http://www.arizonarepublic.com.

         LThe proposed legislation would also make it 
        far more difficult to maintain class action cases such 
        as the Firestone/Ford Explorer tire liability case. A 
        lawsuit was brought in South Carolina State court 
        against Firestone and Ford charging that the two 
        companies were ``negligent and careless'' in producing 
        and distributing tires that went on Ford vehicles. On 
        December 28, 2001, the Circuit Court in Greenville, 
        South Carolina certified the lawsuit as a class action, 
        allowing South Carolina residents to join the lawsuit 
        against Firestone and Ford. If the proposed legislation 
        was enacted, this case could have automatically been 
        removed from State court to Federal court at the 
        election of the defendant and would make it difficult 
---------------------------------------------------------------------------
        to keep the lawsuit as a class action.

         LFoodmaker Inc., a Delaware corporation and 
        the parent company of Jack-in-the-Box restaurants, 
        agreed to pay $14 million in a State class action 
        settlement involving a violation of Washington's 
        negligence law. The class included 500 people, mostly 
        children and Washington residents, who became sick in 
        early 1993 after eating undercooked hamburgers tainted 
        with E. coli 0157:H7 bacteria. The victims suffered 
        from a wide range of illnesses, from more benign 
        sicknesses to those that required kidney dialysis. 
        Three children died.\35\
---------------------------------------------------------------------------
    \35\ The settlement was approved on 25 September 1996 in King 
County, Washington Superior Court. ``Last Jack in the Box Suit 
Settled,'' Seattle Times, October 30, 1997 at B3.

         LEquitable Life Assurance Company, an Iowa 
        corporation, agreed to a $20 million settlement of two 
        class-action lawsuits involving 130,000 people filed in 
        Pennsylvania and Arizona State courts. The class action 
        alleged that Equitable misled consumers, in violation 
        of State insurance fraud law, when trying to sell 
        ``vanishing premium'' life insurance policies in the 
        1980's. Equitable sold the policies when interest rates 
        were high, informing potential customers that after a 
        few years, once the interest generated by their 
        premiums was sufficiently high, their premium 
        obligations would be terminated. However, when interest 
        rates dropped, customers were still required to pay the 
        premium in full.\36\
---------------------------------------------------------------------------
    \36\ See David Elbert, ``Lawsuits to Cost Equitable $20 Mill,'' Des 
Moines Register, July 19, 1997 at 12; ``Cost of Settling Lawsuits Pulls 
Equitable Earnings Down,'' Des Moines Register, August 6, 1997 at 10.

         LOn July 26, 1993, a California plant operated 
        by General Chemical, a Delaware corporation with 
        offices in New Jersey, erupted, leading to a hazardous 
        pollution cloud when a valve malfunctioned during the 
        unloading of a railroad tank car filled with Oleum, a 
        sulfuric acid compound. The cloud settled directly over 
        North Richmond, California, a heavily-populated 
        community, resulting in over 24,000 residents needing 
        medical attention. General Chemical entered into a 
        settlement for violation of California negligence law 
        with 60,000 North Richmond residents who were injured 
        or sought treatment for the effects of the cloud, or 
        were forced to evacuate their homes. Individual 
        plaintiffs received up to $3,500 in compensation.\37\
---------------------------------------------------------------------------
    \37\ See Mealey's Litigation Reports: Toxic Torts, $180 Million 
Settlement of Toxic Cloud Claims Wins Judges O.K., November 17, 1995 at 
8.

         LOn April 21, 1999, Nationwide entered into a 
        State class action settlement concerning a redlining 
        discrimination claim with the Toledo, Ohio Fair Housing 
        Center. The lawsuit had been brought in Ohio state 
        court by residents living in Toledo's predominately 
        black neighborhoods, and charged that Nationwide 
        redlined African-American neighborhoods by discouraging 
        homeowners in minority neighborhoods from buying 
        insurance and by denying coverage to houses under a 
        certain value or a certain age. As a result of the 
        settlement, Nationwide agreed to modify its 
        underwriting criteria, increase its agency presence, 
        and step up its marketing in Toledo's black 
        neighborhoods. Nationwide also agreed to place up to $2 
        million in an interest-bearing account to provide 
        compensation to qualified class members, and agreed to 
        deposit $500,000 with a bank willing to offer low-
        interest loans to residents buying homes in Toledo's 
        black neighborhoods.\38\
---------------------------------------------------------------------------
    \38\ See Toledo Fair Hous. Ctr. v. Nationwide Mut. Ins. Co., No 
CI93-1685, Ohio Comm. Pls, Lucas County; see also ``Nationwide and Ohio 
Fairhousing Announce Attempt to Settle Class Action,'' Mealey's 
Insurance Law Weekly, April 27, 1998 at 3.

         LUnder current law, class action claims 
        against managed care must often distinguish between 
        ERISA and non-ERISA patients. Non-ERISA patients have a 
        full range of remedies available to them under State 
        law. However, ERISA patients have a very limited set of 
        remedies--the cost of the benefit denied, which in most 
        cases is woefully inadequate. The managed care reform 
        debate in Congress includes the elimination of the 
        ERISA preemption, which would allow patients who 
        receive their health care from their employer to hold 
        their HMO accountable if it denies care. However, 
        legislation such as H.R. 1115 moves in the opposite 
        direction by denying more patients access to justice in 
        State court.\39\
---------------------------------------------------------------------------
    \39\ One example is Kaitlin v. Tremoglie, et al., No. 002703 (Pa. 
Comm. Pls., Philadelphia Co. 1997). On June 23, 1997, Harold Kaitlin 
filed a class action in Pennsylvania State court against his 
psychiatrist, David Tremoglie, and Keystone Health Plan East Inc., his 
HMO, alleging that the psychiatrist had treated hundreds of patients 
without a medical license. The case was filed on behalf of himself and 
all other patients treated by Tremoglie at the Bustleton Guidance 
Center. The suit alleges that the class was treated by an unlicenced 
and fraudulent psychiatrist who unlawfully prescribed powerful 
medications not suitable for their illness and that the HMO failed to 
verify that Tremoglie was a licensed psychiatrist, failed to supervise 
him, and referred patients to him.

         LThe regulation of funeral homes, cemeteries 
        and crematoria should remain an issue best handled by 
        State courts. However, federalizing such class actions 
        under this bill likely would force harmed families to 
        travel untold miles from their homes--in some cases 
        into entirely different States--just to exercise their 
        legal rights. For example, the largest operator of 
        funeral homes in the United States is the defendant in 
        a State class action in West Palm Beach, Florida. The 
        action accuses Services Corporation International, a 
        Texas Corporation and owner of Menorah Gardens, of 
        breaking open burial vaults and dumping the remains in 
        a wooded area, crushing vaults to make room for others, 
        mixing body parts from different individuals, and 
        digging up and reburying remains in locations other 
        than the plots purchased.\40\ As noted above, the Tri-
        State Crematory failed to cremate bodies and return 
        remains to loved ones. Although the issues raised in 
        these class actions are clearly State issues, they 
        would be removable to Federal court under H.R. 1115.
---------------------------------------------------------------------------
    \40\ Joel Engelhardt, State Seeks Control of Menorah Gardens, The 
Palm Beach Post, March 2, 2002 at 1A.
---------------------------------------------------------------------------
B. H.R. 1115 Will Damage the Federal and State Court Systems
            Impact on Federal Courts
    Expanding Federal class action jurisdiction to include most 
State class actions, as H.R. 1115 does, will inevitably result 
in a significant increase in the Federal courts' workload. As 
the Judicial Conference has recently noted: ``the provisions 
would add substantially to the workload of the Federal courts 
and are inconsistent with federalism.'' \41\ Similarly, in 
previous Congresses, the Judicial Conference stated that they 
see no ``hard evidence of the inability of State judicial 
systems to hear and decide fairly class actions brought in 
State courts.'' \42\
---------------------------------------------------------------------------
    \41\ Mecham letter, p.2.
    \42\ Conference of Chief Justices letter, supra note 2.
---------------------------------------------------------------------------
    The workload problem in the Federal courts continues to be 
severely problematic. For example, in 2003, the situation of 
the Federal courts was as follows:

         LAs of May 28, 2003, 45 judicial vacancies 
        existed, or over 5% of the Federal judicial 
        positions.\43\
---------------------------------------------------------------------------
    \43\ See generally Judicial Nominations, Department of Justice, 
Office of Legal Policy, available at http://www.usdoj.gov/olp/
judicialnominations.htm (last viewed May 28, 2003).

         LOn average, Federal district court judges had 
        494 civil filings pending last year.\44\
---------------------------------------------------------------------------
    \44\ See Admin. Office of the U.S. Courts, Judicial Caseload 
Indicators, available at http://www.uscourts.gov/caseload2002/front/
mar02txt.pdf (2002).

    Because of these and other workload problems, Chief Justice 
Rehnquist took the important step of criticizing Congress for 
taking actions that have exacerbated the courts' workload 
---------------------------------------------------------------------------
problem:

        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. . . . [I]f 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.\45\
---------------------------------------------------------------------------
    \45\ Chief Justice William Rehnquist, An Address to the American 
Law Institute, Rehnquist: Is Federalism Dead? (May 11, 1998), in Legal 
Times (May 18, 1998). Rehnquist recently reiterated those concerns. 
2002 Year End Report on the Federal Judiciary, available at http://
www.supremecourtus.gov/publicinfo/year-end/2002year-endreport.html 
(2003).

    H.R. 1115 would result in the removal of most State court 
class actions into Federal court. The Federal courts have fewer 
than 1,500 judges compared to more than 30,000 judges currently 
serving on State courts. The number of Federal civil cases 
pending for 3 years or more has doubled since 1999 to more than 
34,000. While nobody knows the precise number, there are 
thousands of class action lawsuits pending in State courts 
around the country that would be added, even if temporarily, to 
the Federal docket under H.R. 1115.
    Class actions are among the most complex and time-consuming 
cases that courts must decide. In fact, studies have shown that 
class actions on average consume almost five times more 
judicial time than the typical civil case. Adding thousands of 
resource-intensive State cases to the Federal courts would 
place additional stresses and demands on an already 
overburdened system. Compounding the federalism problem, these 
new Federal cases will involve issues of primarily State law, 
with which State court judges are familiar and Federal judges 
are not.
    This would result in Federal judges having less time to 
devote to the additional class actions, as well as to their 
existing caseloads. Class action lawsuits and settlements would 
receive even less careful judicial supervision than they 
receive today, potentially leading to court approval of even 
more collusive settlements, not fewer. In addition, growing 
caseloads will delay justice in class actions as well as in 
other Federal court cases. Finally, overburdened judges may be 
more likely to dismiss class action claims in order to clear 
their dockets, even in meritorious cases.
            Impact on State Courts
    In addition to its impact on the Federal courts, the 
legislation will also undermine State courts. This is because 
in cases where the Federal court chooses not to certify the 
State class action, the bill 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 $2,000,000). When 
these individual cases are returned to the State courts upon 
remand, hundreds if not thousands of potential new cases may be 
unleashed.\46\
---------------------------------------------------------------------------
    \46\ To counter this problem, Congressman Scott offered an 
amendment at the Judiciary Committee markup that provided for remand of 
the action to State court without prejudice if, after removal, the 
Federal court determines that no aspect of an action that is subject to 
its jurisdiction may be maintained as a Federal class action. By 
allowing the Federal court the first opportunity to certify the class 
action but not denying the State court jurisdiction over the action 
once the Federal court determines that the action does not meet Federal 
requirements, this amendment addresses a serious complaint leveled by 
class action defendants. The amendment was defeated by a voice vote.
---------------------------------------------------------------------------
    In addition to these workload problems, the legislation 
raises constitutional issues. H.R. 1115 does not merely operate 
to preempt an area of State law, it also 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.\47\
---------------------------------------------------------------------------
    \47\ See supra note 2.
---------------------------------------------------------------------------
    In this regard, the courts have previously found that 
efforts by Congress to dictate State court procedures implicate 
important Tenth Amendment federalism issues and should be 
avoided. For example, in Fielder v. Casey \48\ 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 \49\ 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' '' \50\ 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.'' \51\
---------------------------------------------------------------------------
    \48\ 487 U.S. 131, 138 (1988).
    \49\ 520 U.S. 911 (1997).
    \50\ Id. at 919 (quoting Henry M. Hart, Jr., The Relations Between 
State and Federal Law, 54 Colum. L. Rev. 489, 508 (1954)).
    \51\ Id. at 922. See also Howlett v. Rose, 496 U.S. 356, 372 (1990) 
(quoting Henry M. Hart, Jr., The Relations Between State and Federal 
Law, 54 Colum. L. Rev. 489, 508 (1954) (for the proposition that 
Federal law should not alter the operation of the State courts); New 
York v. United States, 505 U.S. 144, 161 (1992) (stating that a law may 
be struck down on federalism grounds if it ``commandeer[s] the 
legislative processes of the States by directly compelling them to 
enact and enforce a Federal regulatory program''); Printz v. United 
States, 117 S.Ct. 2365 (1997) (invalidating portions of the Brady 
Handgun Violence Protection Act requiring local law enforcement 
officials to conduct background checks on prospective gun purchasers).
---------------------------------------------------------------------------
    The Supreme Court's most recent decisions further indicate 
that H.R. 1115 is an unacceptable infringement upon State 
sovereignty. In United States v. Morrison \52\, the court 
invalidated parts of the Violence Against Women Act, claiming 
that Congress overstepped its specific constitutional power to 
regulate interstate commerce. Despite vast quantities of data 
illustrating the effects that 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.'' \53\ H.R. 1115 ignores the Court's 
admonition and subverts the Federal system by hindering the 
States' ability to adjudicate class actions involving important 
and evolving questions of State law.
---------------------------------------------------------------------------
    \52\ 529 U.S. 598 (2000).
    \53\ Id.
---------------------------------------------------------------------------
    These same constitutional concerns were highlighted by 
Professor Laurence Tribe in his testimony during the 105th 
Congress regarding the constitutionality of certain aspects of 
tobacco legislation, including a proposed Federal class action 
rule applicable to State courts. He observed, ``[f]or Congress 
directly to regulate the procedures used by State courts in 
adjudicating State-law tort claims--to forbid them, for 
example, from applying their generally applicable class action 
procedures in cases involving tobacco suits--would raise 
serious questions under the Tenth Amendment and principles of 
federalism.'' \54\
---------------------------------------------------------------------------
    \54\ The Global Tobacco Settlement: Hearings Before the Senate 
Comm. on the Judiciary, 105th Cong., (1997) (statement of Laurence H. 
Tribe, Tyler Professor of Law, Harvard Law School).
---------------------------------------------------------------------------
    Arguments that the bill is nonetheless justified because 
State courts are ``biased'' against out-of-State defendants in 
class action suits also lack foundation.\55\ 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,\56\ 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; \57\ (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.\58\
---------------------------------------------------------------------------
    \55\ 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.
    \56\ 472 U.S. 797 (1985).
    \57\ The notice must be the ``best practicable, reasonably 
calculated, under all the circumstances, to appraise interested parties 
of the pendency of the action and afford them an opportunity to present 
their objections.'' Id. at 812 (quoting Mullane v. Central Hanover Bank 
& Trust Co., 339 U.S. 306, 314-15 (1950)).
    \58\ See id. at 806-10. These findings were reiterated by the 
Supreme Court in 1995 in Matshusita Elec. Indust. Co. v. Epstein, 516 
U.S. 367 (1995) (State class actions entitled to full faith and credit 
so long as, inter alia, the settlement was fair, reasonable, and 
adequate and in the best interests of the settlement class; notice to 
the class was in full compliance with due process; and the class 
representatives fairly and adequately represented class interests).
---------------------------------------------------------------------------
    Second, as fears of local court prejudice have subsided and 
concerns about diverting Federal courts from their core 
responsibilities have increased, the policy trend in recent 
years has been towards limiting Federal diversity 
jurisdiction.\59\ For example, several years ago Congress 
enacted the Federal Courts Improvement Act of 1996,\60\ 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\61\ and that it was 
important to keep the Federal judiciary's efforts focused on 
Federal issues.\62\ In this same regard, the American Law 
Institute has found ``there is no longer the kind of prejudice 
against citizens of other States that motivated the creation of 
diversity jurisdiction.'' \63\ And finally, the most recent 
Federal Courts Study Committee report on the subject concluded 
that local bias ``is no longer a major threat to litigation 
fairness'' particularly when compared to other types of 
prejudice that litigants may face, such as on account of 
religion, race or economic status.\64\ Indeed, in 1978, the 
House twice passed legislation that would have abolished 
general diversity jurisdiction.\65\
---------------------------------------------------------------------------
    \59\ Ironically, during the 105th Congress, the Republican Party 
was extolling the virtues of State courts in the context of their 
efforts to limit habeas corpus rights, which permit individuals to 
challenge unconstitutional State law convictions in Federal court. At 
that time Chairman Hyde stated:

      I simply say the State judge went to the same law school, 
      studied the same law and passed the same bar exam that the 
      Federal judge did. The only difference is the Federal judge 
      was better politically connected and became a Federal 
      judge. But I would suggest . . . when the judge raises his 
      hand, State court or Federal court, they swear to defend 
      the U.S. Constitution, and it is wrong, it is unfair to 
      assume, ipso facto, that a State judge is going to be less 
      sensitive to the law, less scholarly in his or her decision 
---------------------------------------------------------------------------
      than a Federal judge.

142 Cong. Rec. H3604. (daily ed. April 18, 1996).
---------------------------------------------------------------------------
    \60\ 28 U.S.C. Sec. 1332(a) (West Supp. 1998).
    \61\ The Judicial Conference of the United States, Long Range Plan 
for the Federal Courts, Recommendation 7 at 30 (1995).
    \62\ Id.
    \63\ American Law Institute, Study of the Division of Jurisdiction 
Between State and Federal Courts 101, 106 (1996).
    \64\ Federal Courts Study Committee, Report of the Federal Courts 
Study Committee 40 (April 2, 1990). See also, Ball, Revision of Federal 
Diversity Jurisdiction, 28 Ill. L. Rev. 356 (1988); Bork, Dealing with 
the Overload in Article III Courts, 1976, 70 F.R.D. 231, 236-237 
(1976); Butler & Eure, Diversity in the Court System: Let's Abolish It, 
11 Va.B.J. 4, (1995); Coffin, Judicial Gridlock: The Case for 
Abolishing Diversity Jurisdiction, 10 Brookings Rev. 34 (1992); Currie, 
The Federal Courts and the American Law Institute, 36 U. Chi. L. Rev. 
1, 1-49 (1968); Feinberg, Is Diversity Jurisdiction An Idea Whose Time 
Has Passed?, N. Y. St. B. J. 14 (1989); Frankfurter, Distribution of 
Judicial Power Between United States and State Courts, 13 Corn. L. Q. 
499 (1928); Frankfurter, A Note on Diversity Jurisdiction--In Reply to 
Professor Yntema, 79 U. Pa. L. Rev. 1097 (1931); Haynsworth, Book 
Review, 87 Harv. L. Rev. 1082, 1089-1091 (1974); Hunter, Federal 
Diversity Jurisdiction: The Unnecessary Precaution, 46 UMKC L. Rev. 347 
(1978); Jackson, The Supreme Court in the American System of 
Government, 38 (1955); Sheran & Isaacman, State Cases Belong In State 
Courts, 12 Creighton L. Rev. 1 (1978).
    \65\ See 124 Cong. Rec. 5008 (1978); 124 Cong. Rec. 33, 546 (1978). 
The legislation was not considered in the Senate.
---------------------------------------------------------------------------
    Third, as the legislation is currently written, it assumes 
a defendant will be automatically subject to prejudice in any 
State where the corporation is not formally incorporated 
(typically Delaware) or maintains its principal place of 
business. In so doing, the bill ignores the fact that many 
large businesses have a substantial commercial presence in more 
than one State, through factories, business facilities or 
employees. For example, if General Motors or Ford were to be 
sued by a class of plaintiffs in Ohio, where they have numerous 
factories and tens of thousands of employees, it does not seem 
reasonable to expect the defendants to face any great risk of 
bias.\66\ Similarly, if the Disney Corporation, one of 
Florida's largest employers, were to face a class action in a 
Florida court, it would make little sense to involve the 
Federal courts out of concern for local prejudice.\67\ Yet 
under H.R. 1115, both of these hypothetical cases would be 
subject to removal to Federal court.\68\
---------------------------------------------------------------------------
    \66\ General Motors and Ford both have their principal place of 
business in Michigan and are incorporated in Delaware.
    \67\ Disney's corporate headquarters are located in Burbank, 
California, and it is incorporated in Delaware.
    \68\ With increasing frequency, companies are setting up paper 
companies in places like Bermuda for a nominal fee. The company 
continues to be owned by the U.S. shareholder and continues to do 
business in the exact same U.S. locations. This allows the company to 
escape substantial tax liability and possibly avoid legal liability. To 
stop this abuse, Representatives Conyers and Jackson Lee offered an 
amendment at the Judiciary Committee markup which would allow former 
U.S. companies to be treated as domestic corporations for class action 
purposes. This amendment was defeated by a vote of 20-13.
---------------------------------------------------------------------------

 III. THE LEGISLATION INCLUDES NUMEROUS PRO-DEFENDANT PROVISIONS THAT 
           HAVE NOTHING TO DO WITH CLASS ACTION JURISDICTION

    In addition to federalizing State class actions on a 
retroactive basis, the legislation also includes a series of 
unrelated ``give aways'' that will harm injured victims and 
have nothing to do with the bill's purported subject matter--
class action jurisdiction.
A. Interlocutory Appeals
    Section 6 of H.R. 1115 provides defendants with a 
significant mechanism to delay and frustrate an injured 
plaintiff's pursuit of justice. The section provides a party 
the right, in every case, to an interlocutory appeal of a 
court's decision granting or denying class certification, if an 
appeal notice is filed within 10 days, and stays discovery 
while such an appeal is pending.
    This is a marked departure from Federal Rule of Civil 
Procedure 23(f), adopted in 1998, which provides courts of 
appeals discretion to grant an interlocutory appeal of a class 
action certification and discretion to stay discovery. In 
describing the rationale for adopting a discretionary standard 
as opposed to granting such an appeal as a matter of right, 
Circuit Court Judge Anthony J. Scirica, Chairman of the 
Committee on Rules and Practice of the Judicial Conference has 
noted the following:

        [Rule 23(f)] addressed concerns expressed by many 
        judges and lawyers that interlocutory appeals are often 
        unnecessary and would be abused as a procedural tactic 
        to delay proceedings and unfairly increase litigation 
        expense in many class actions. . . . Interlocutory 
        appeals in general have been traditionally disfavored 
        because they can cause unwarranted, expensive and 
        wasteful interruptions . . . Providing an appeal as of 
        right [as H.R. 1115 does] might tempt a party to file 
        an interlocutory appeal solely for tactical 
        reasons.\69\
---------------------------------------------------------------------------
    \69\ Scirica letter, p.2.

    Section 6 is completely unnecessary because courts already 
possess the power to review significant or controversial class 
certification decisions and to stay lower court proceedings. 
The courts' discretion is important because many class 
certification decisions are clear and non-controversial. As the 
Supreme Court noted in Amchem Products Inc. et. al. v. Windsor 
et. al., some key aspects of class certification are ``readily 
met in certain cases alleging consumer or securities fraud or 
violations of the antitrust laws.'' An interlocutory appeal of 
class certification decisions in those cases would only add 
unnecessary delay and cost to already complex lawsuits.\70\
---------------------------------------------------------------------------
    \70\ 521 U.S. 591 (1997)
---------------------------------------------------------------------------
    In fact, Courts of Appeals accept Rule 23(f) appeals 
frequently. Since its inception, Rule 23(f) appeals have been 
accepted about 80 percent of the time they are requested. In 
that time, a circuit court has never reversed a district 
court's decision to deny class certification. There has been no 
showing that the Federal appeals courts have not granted review 
in enough cases, or that this rule has been unfairly applied to 
defendants.
    If H.R. 1115 is enacted, it will retroactively affect 
pending cases that have not reached class certification and the 
innocent victims will have to wait at least another year to get 
their money back. And, if the defendants lose on appeal, they 
can seek certiorari to the Supreme Court, which rarely 
succeeds, but would tack an additional six to 9 months on the 
delay for the harmed victims. Enron shareholders have already 
endured a discovery delay of approximately 1\1/2\ years because 
of special rules that apply to securities lawsuits. In fact, it 
was during this delay that the accounting firm Arthur Andersen 
was caught destroying documents. H.R. 1115 would permit 
corporate wrongdoers like those in Enron, Worldcom, Tyco, 
Adelphia, etc. to delay justice for their victims even further.
B. Private Attorney General and Mass Tort Cases
    H.R. 1115 federalizes more than class actions: Under 
proposed 28 U.S.C. Sec. 1332(d)(9), this bill would also create 
Federal jurisdiction for two additional categories of cases: 
(1) private attorney general actions brought by any 
organization or citizen; and (2) groups of cases in which 100 
or more individuals seeking monetary relief seek to try any 
common legal or factual issue together.
    Section 4(a)'s proposed new section 1332(d)(9)(A) would 
define private attorney general actions as class actions and 
allow them to be removed to Federal court if filed in State 
court. The provision is obviously aimed at actions under 
section 17200 of the California Business and Professions Code, 
which has proved an important tool for victims of unfair and 
deceptive business practices. In section 17200, the California 
Legislature has decided to provide legal standing for 
organizations and individuals to act as private attorneys 
general; broader than the standing generally allowed in the 
Federal courts.
    The California Legislature has decided to allow private 
parties to combat corporate fraud and other malfeasance on the 
theory that the California Attorney General simply does not 
have the resources to do it all. That policy choice, in our 
system of federalism, should be California's prerogative. H.R. 
1115 would override that State policy choice and transfer 
California private attorney general actions to Federal court, 
where they would be automatically deemed class actions and be 
subjected to Federal Rule 23 certification criteria and Federal 
standing requirements. This is why the California League for 
Environmental Enforcement Now is so strongly opposed to the 
private attorney general provision, writing, ``the Act targets 
the ability of local residents to bring environmental, public 
health, civil rights, and consumer actions on behalf of the 
public in State court. We are calling on you to defeat this 
legislation that threatens the ability of citizens to protect 
State environmental, civil rights, and consumer protection 
laws.'' \71\
---------------------------------------------------------------------------
    \71\ Letter from Michael Schmitz, Executive Director of California 
League for Environmental Enforcement Now (CLEEN) (April 24, 2003) (on 
file with the minority staff of the House Judiciary Committee).
---------------------------------------------------------------------------
  California is not the only State that would be affected by this 
provision. In Michigan, for instance, the Michigan Consumer Protection 
Act (MCPA) gives private citizens the right to seek damages for certain 
false, misleading, and deceptive business practices as a ``private 
attorney general.'' Mich. Comp. Laws Sec. 445.911 (1976).
    To make matters worse, H.R. 1115's minor exclusions for 
Federal jurisdiction--for instance, where the aggregate value 
of the claims is $2 million or less, or where the number of 
affected people is fewer than 100--do not apply to its private 
attorney general action provision. In a State as large and 
transient as California, any private attorney general action 
seeking compensation for all victims of a corporation's instate 
misconduct will involve some significant number of out-of-State 
victims, virtually all 17200 actions seeking monetary relief 
will be removable to Federal court.\72\
---------------------------------------------------------------------------
    \72\ See proposed 28 U.S.C. Sec. 1332(d)(9) (last sentence).
---------------------------------------------------------------------------
    H.R. 1115's federalization of individual joinder actions 
(e.g. mass tort cases) is equally problematic. Section 4(a)'s 
proposed new U.S.C. Sec. 1332(d)(9)(B) would define damages 
suits filed in State court by individual plaintiffs as class 
actions if, at any time, 100 or more plaintiffs sought to try 
any common legal or factual issue.
    Under current law dating back to the creation of the 
Federal courts, these individual actions could only be tried in 
State court. But under H.R. 1115, some of these cases could be 
deemed ``individual joinder actions'' and could be removed to 
Federal court, away from the trial and appellate courts with 
expertise in applicable State law, perhaps many miles from the 
town in which the injuries arose, and, if an appeal were ever 
filed, to a Federal court of appeals.
    Moreover, once the case is in Federal court, the plaintiffs 
must meet the certification requirements of Federal Rule of 
Civil Procedure 23. However, unlike the bill's treatment of 
genuine class actions, these individual State law cases are not 
dismissed without prejudice to re-filing in State court if Rule 
23's requirements are not met; rather, they remain in limbo in 
Federal court. This would require the Federal court to 
adjudicate dozens or even hundreds of garden-variety State tort 
claims on an individual basis--claims valued at far less than 
the $75,000 jurisdictional amount set by Congress for Federal 
court diversity cases under 28 U.S.C. Sec. 1332(a).

IV. THE SO-CALLED ``CONSUMER BILL OF RIGHTS'' IS LARGELY MEANINGLESS OR 
                           COUNTERPRODUCTIVE

    Finally, we would note that the much touted ``Consumer Bill 
of Rights'' includes precious few provisions that will actually 
benefit injured consumers. Instead, most of these provisions 
are either redundant of current law and practice, or will 
actually make it more difficult for victims to obtain justice.
    The most highly touted portion of H.R. 1115 is Section 
1711, which purports to address inequities in coupon 
settlements.\73\ Proponents of the bill assert that there is 
widespread misuse of these settlements, allowing plaintiff's 
attorneys to recoup large fees while class members are left 
with nothing more than a coupon for the defendant's product. It 
should be noted at the outset that coupon settlements are 
traditionally favored by defendants.\74\ More importantly, 
section 1711 does nothing to address the problem. Under the 
legislation, a coupon settlement may be approved only after a 
court finds that the settlement is ``fair, reasonable, and 
adequate'' for class members.\75\ This is identical to the 
universal settlement approval standard applicable to all cases, 
which requires a court to issue a written finding that a 
settlement is ``fair, adequate, and reasonable.'' \76\ Thus, in 
the area of coupon settlements--the area most cited by 
proponents to justify this legislation--the bill does nothing 
to alter or improve current law.
---------------------------------------------------------------------------
    \73\ H.R. 1115, Sec. 3, proposed 28 U.S.C Sec. 1711.
    \74\ Wolfman, pps. 18-19 (``[D]efendants love coupon settlements in 
which the coupon will have little or no value. The settlement provides 
a modest marketing gimmick for the defendants' products, while ridding 
the defendants of potentially troublesome litigation for little more 
than the cost of attorneys fees.'').
    \75\ H.R. 1115, Sec. 3, proposed 28 U.S.C Sec. 1711.
    \76\ Wolfman p. 19.
---------------------------------------------------------------------------
    Nor does H.R. 1115's provision for ``notice requirements'' 
to class members improve current law. In fact, H.R. 1115 
originally contained a long, detailed notice provision that 
would actually confuse consumers--not help them. According to 
the Judicial Conference Rules Committee, H.R. 1115's notice 
requirements would have ``undermine[d] the bill's stated 
objectives by requiring notices so elaborate that most class 
members [would] not even attempt to read them.'' \77\ 
Fortunately, the Committee accepted an amendment conforming the 
notice requirements to the Federal Rules of Civil Procedure, 
neutralizing yet another harmful provision of the bill. But 
again, the final net result is to simply codify current 
practice.
---------------------------------------------------------------------------
    \77\ Scirica letter, p. 3.
---------------------------------------------------------------------------
    Section 1714 also contains a provision prohibiting ``the 
payment of bounties,'' which is harmful to civil rights cases. 
In an employment discrimination case, there may be fewer 
employment slots denied than there are qualified 
applicants.\78\ A plaintiff filing an individual action may 
obtain an order placing him or her in the job denied and 
receive back pay.\79\ Such a remedy would, of course, be 
appropriate under current law for a named plaintiff in a class 
action. However, H.R. 1115 would bar such a remedy for named 
plaintiffs unless each and every other class member also 
receives the same. This may well be an impossibility and will 
certainly act as a deterrent to civil rights class actions in 
general, and becoming a class representative in particular.
---------------------------------------------------------------------------
    \78\ Henderson Testimony.
    \79\ Id.
---------------------------------------------------------------------------
    Thomas Henderson, Chief Counsel of the Lawyers Committee 
for Civil Rights, has testified as to the damage this bounty 
provision would do to civil rights cases:

        The prohibition on approving settlements that involve 
        named plaintiffs receiving amounts different from other 
        members of the class is not a reasonable or practical 
        limitation in all instances. In many employment 
        discrimination cases there are fewer employment 
        opportunities denied because of discrimination than 
        there are qualified potential claimants. In those 
        situations, a person who sues as an individual can 
        receive a full award of back pay and in a proper case 
        can obtain an order placing him or her in the job 
        denied because of discrimination. A class member in 
        such a situation must share in the total back pay 
        award, and has only an opportunity to be one of the 
        persons selected for hire or promotion because not all 
        can be selected. If the price of trying to protect 
        others is that he or she must also lose the full 
        measure of individual relief and take only the same 
        percentage share as those who never took any action to 
        challenge the employer, individuals would be deterred 
        from becoming a class representative. Thus, rather than 
        a reform, this provision would hinder civil rights 
        class actions.\80\
---------------------------------------------------------------------------
    \80\ Id.
---------------------------------------------------------------------------

                               CONCLUSION

    H.R. 1115 will remove class actions involving State law 
issues from State courts--the forum most convenient for victims 
of wrongdoing and with judges most familiar with the 
substantive law involved--to the Federal courts, where the 
class is less likely to be certified and the case will take 
longer to resolve. In our view, this incursion into State court 
prerogatives is no less dangerous to the public than many of 
the radical forms of ``tort reform'' and ``court stripping'' 
legislation previously rejected by the Congress.
    Contrary to supporters' assertions, H.R. 1115 will not 
prevent State courts from unfairly certifying class actions 
without granting defendants an opportunity to respond. This is 
already barred by the Constitution, and the few State trial 
court decisions to the contrary have been overturned.\81\ H.R. 
1115 also cannot be seen as merely prohibiting nationwide class 
actions filed in State court. The legislation goes much further 
and bars State class actions filed solely on behalf of 
residents of a single State and that solely involve matters of 
that State's law, so long as one plaintiff resides in a 
different State than one defendant--an extreme and distorted 
definition of diversity that does not apply in any other legal 
proceeding.
---------------------------------------------------------------------------
    \81\ See Ex Parte State Mut. Ins. Co., 715 So.2d 207 (Ala. 1997); 
Ex Parte Am. Bankers Life Assurance Co. of Florida, 715 So.2d 207 (Ala. 
1997) (holding that classes may not be certified without notice and a 
full opportunity for defendants to respond and that the class 
certification criteria must be rigorously applied).
---------------------------------------------------------------------------
    In addition, we are deeply troubled by provisions in the 
legislation that would apply the new rules to cases that have 
already been filed, and to provisions that will give corporate 
wrongdoers massive new abilities to delay meritorious class 
actions from proceeding. Also, we object to provisions in the 
bill that treat non-class action cases as class actions and 
subject them to these harsh, anti-victim rules, and to 
provisions in the so-called ``Consumer Bill of Rights'' that 
would limit the ability of civil rights victims to take the 
lead in seeking relief.
    This legislation would seriously undermine the delicate 
balance between our Federal and State courts. It would threaten 
to overwhelm Federal courts by causing the removal of resource 
intensive State class action cases to Federal district courts 
while also increasing the burdens on State courts as class 
actions rejected by Federal courts metamorphasize into numerous 
additional individual State actions. It is one-sided and 
includes numerous provisions that have little if anything to do 
with the problem of class action jurisdictional lines. We 
therefore strongly oppose H.R. 1115.

                                   John Conyers, Jr.
                                   Howard L. Berman.
                                   Jerrold Nadler.
                                   Robert C. Scott.
                                   Melvin L. Watt.
                                   Sheila Jackson Lee.
                                   Maxine Waters.
                                   Martin T. Meehan.
                                   William D. Delahunt.
                                   Robert Wexler.
                                   Tammy Baldwin.
                                   Anthony D. Weiner.
                                   Linda T. Sanchez.

                                
