[Senate Report 108-123]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 117
108th Congress                                                   Report
 1st Session                  SENATE                            108-123
======================================================================
 
                 THE CLASS ACTION FAIRNESS ACT OF 2003

                                _______
                                

    July 31 (legislative day, July 21), 2003.--Ordered to be printed

                                _______
                                

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

                              R E P O R T

                             together with

                             MINORITY VIEWS

                         [To accompany S. 274]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to which was referred the 
bill (S. 274) to amend title 28, United States Code, to allow 
the application of the principles of federal diversity 
jurisdiction to interstate class actions, having considered the 
same, reports favorably thereon with amendments and recommends 
that the bill, as amended, do pass.

                                CONTENTS

                                                                   Page
  I. Legislative history..............................................2
 II. Votes of the Committee...........................................2
III. Purposes.........................................................5
 IV. Background and need for legislation..............................7
  V. How S. 274 works................................................28
 VI. Section-by-section analysis.....................................32
VII. Critics' contentions and rebuttals..............................51
VIII.Congressional Budget Office cost estimate.......................71

 IX. Regulatory impact statement.....................................72
  X. Minority views of Senators Leahy, Kennedy, Biden, Feingold, 
     Schumer, Durbin and Edwards.....................................73
 XI. Changes in existing law.........................................90

                         I. Legislative History

    The Senate began consideration of the Class Action Fairness 
Act in the 105th Congress when the Senate Judiciary 
Subcommittee on Administrative Oversight and the Courts 
convened a hearing on October 30, 1997. John H. Church, Jr., 
John C. Coffee, Jr., Lewis H. Goldfarb, Paul V. Niemeyer, 
Martha Preston, and Brian Wolfman testified at the hearing on 
issues such as unfair class settlements, attorneys' fees, and 
State court abuses. On September 28, 1998, the Subcommittee on 
Administrative Oversight and the Courts approved S. 2083, the 
``Class Action Fairness Act of 1997,'' introduced by Senators 
Charles Grassley (R-IA) and Herb Kohl (D-WI), with an amendment 
in the nature of a substitute. No further action was taken on 
S. 2083 in the 105th Congress.
    On February 3, 1999, S. 353, ``The Class Action Fairness 
Act of 1999,'' was introduced in the 106th Congress by Senators 
Charles Grassley (R-IA), Herb Kohl (D-WI), and Strom Thurmond 
(R-SC). S. 353 was referred to the Senate Committee on the 
Judiciary. On May 4, 1999, the Judiciary Subcommittee on 
Administrative Oversight and the Courts held a legislative 
hearing (S. Hrg. 106-465) on the bill, and received testimony 
from Eleanor D. Acheson, John H. Beisner, Richard A. Daynard, 
E. Donald Elliot, John P. Frank, and Stephan G. Morrison.
    On June 29, 2000, the Judiciary Committee approved S. 353 
with an amendment in the nature of a substitute, offered by 
Chairman Orrin G. Hatch (R-UT), Senators Charles Grassley and 
Herb Kohl, by a rollcall vote of 11 yeas and 7 nays. S. 353 was 
then ordered favorably reported by the Committee without 
additional amendment.
    The Senate continued consideration of the Class Action 
Fairness Act in the 107th Congress when Senator Charles 
Grassley (R-IA), on November 15, 2001, introduced S. 1712 along 
with Senators Kohl, (D-WI), Hatch (R-UT), Carper (D-DE), 
Thurmond (R-SC), Chafee (R-RI), and Specter (R-PA). While S. 
1712 contained similar provisions from its predecessor bills, 
S. 1712 included some new provisions. On July 30, 2002, the 
Senate Judiciary Committee, which was then chaired by Senator 
Leahy (D-VT), held a hearing to discuss class actions 
generally, during which S. 1712 was discussed at length by 
Committee Members. The committee received testimony from Paul 
Bland, Thomas Henderson, former Solicitor General Walter E. 
Dellinger III, (Insurance) Commissioner Laurence Mirel, Shaneen 
Wahl and Hilda Bankston. No further action was taken on S. 1712 
during the 107th Congress.
    On February 4, 2003, Senator Charles Grassley (R-IA) 
introduced S. 274, the ``Class Action Fairness Act of 2003.'' 
Senators Herb Kohl (D-WI), Orrin Hatch (R-UT), Thomas Carper 
(D-DE), Arlen Specter (R-PA), Lincoln Chafee (R-RI), and Zell 
Miller (D-GA) joined the bill as original cosponsors. On April 
11, 2003, the Judiciary Committee reported S. 274 favorably, 
with amendments, after two days of mark-up.

                       II. Votes of the Committee

    Pursuant to paragraph 7 of rule XXVI of the Standing Rules 
of the Senate, each Committee is to announce the results of 
rollcall votes taken in any meeting of the Committee on any 
measure or amendment. The Senate Judiciary Committee, with a 
quorum present, met on April 10 and 11, 2003 to mark up S. 274. 
The Committee rejected six amendments and accepted two 
amendments, one of which was accepted conditionally by 
unanimous consent.\1\ The following rollcall votes occurred on 
S. 274.
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    \1\ The Committee approved by unanimous consent a Specter/Feinstein 
amendment to strike 1332(d)(9)(i) and 1332(d)(i)(ii) from the bill on 
condition that the Committee would develop compromise language as a 
substitute before floor consideration of S. 274. The Chairman proposed 
this solution because the Specter/Feinstein amendment was not 
circulated in advance of the mark-up, thus giving the Committee little 
time to consider alternative language. Following the mark-up session, 
discussions between Judiciary Committee staff for Senators Hatch, 
Grassley and Specter were held to address Senator Specter's concerns 
and legislative language was agreed upon, to be included in a manager's 
amendment on the Senate floor.
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    A Feinstein/Hatch/Kohl/Grassley amendment to modify the 
jurisdictional structure governing whether a class action will 
be considered in Federal or state court was accepted 11 yeas to 
8 nays.
        YEAS                          NAYS
Grassley                            DeWine
Specter                             Leahy (Proxy)
Kyl                                 Kennedy
Sessions                            Biden (Proxy)
Graham                              Feingold
Craig (Proxy)                       Schumer (Proxy)
Chambliss (Proxy)                   Durbin
Cornyn                              Edwards (Proxy)
Kohl
Feinstein
Hatch

    A Durbin amendment to exclude from the Act class action 
claims relating to tobacco products was rejected 8 yeas to 11 
nays.
        YEAS                          NAYS
DeWine                              Grassley
Leahy (Proxy)                       Specter (Proxy)
Kennedy                             Kyl
Biden (Proxy)                       Sessions
Feingold                            Graham
Schumer (Proxy)                     Craig (Proxy)
Durbin                              Chambliss (Proxy)
Edwards (Proxy)                     Cornyn
                                    Kohl (Proxy)
                                    Feinstein (Proxy)
                                    Hatch
    A Kennedy amendment to exclude from the Act class action 
claims relating to civil rights violations was rejected 7 yeas 
to 11 nays.
        YEAS                          NAYS
Leahy (Proxy)                       Grassley
Kennedy                             Kyl
Biden (Proxy)                       DeWine
Feingold                            Sessions
Schumer (Proxy)                     Graham
Durbin (Proxy)                      Craig
Edwards (Proxy)                     Chambliss (Proxy)
                                    Cornyn
                                    Kohl (Proxy)
                                    Feinstein (Proxy)
                                    Hatch

    A Kennedy amendment to exclude from the Act class action 
claims relating to firearms injury was rejected 7 yeas to 11 
nays.
        YEAS                          NAYS
Leahy (Proxy)                       Grassley
Kennedy                             Kyl
Biden (Proxy)                       DeWine
Feingold                            Sessions
Schumer (Proxy)                     Graham
Durbin (Proxy)                      Craig
Edwards (Proxy)                     Chambliss (Proxy)
                                    Cornyn
                                    Kohl (Proxy)
                                    Feinstein (Proxy)
                                    Hatch

    A Feingold amendment to permit cases that fail to meet 
federal class action certification requirements to proceed in 
state court if state certification can be met was rejected 7 
yeas to 11 nays.
        YEAS                          NAYS
Leahy (Proxy)                       Grassley
Kennedy (Proxy)                     Kyl
Biden (Proxy)                       DeWine
Feingold                            Sessions
Schumer (Proxy)                     Graham
Durbin                              Craig
Edwards (Proxy)                     Chambliss (Proxy)
                                    Cornyn
                                    Kohl (Proxy)
                                    Feinstein (Proxy)
                                    Hatch
    A Feingold amendment to exclude from the Act class action 
claims arising from State consumer protection laws was rejected 
7 yeas to 11 nays.
        YEAS                          NAYS
Leahy (Proxy)                       Grassley
Kennedy (Proxy)                     Kyl
Biden (Proxy)                       DeWine
Feingold                            Sessions
Schumer (Proxy)                     Graham
Durbin                              Craig
Edwards (Proxy)                     Chambliss (Proxy)
                                    Cornyn
                                    Kohl (Proxy)
                                    Feinstein (Proxy)
                                    Hatch

    A Leahy amendment to exclude from the Act class action 
claims arising from state environmental protection statutes was 
rejected 7 yeas to 11 nays.
        YEAS                          NAYS
Leahy (Proxy)                       Grassley
Kennedy                             Kyl
Biden (Proxy)                       DeWine
Feingold                            Sessions
Schumer (Proxy)                     Graham
Durbin (Proxy)                      Craig
Edwards (Proxy)                     Chambliss (Proxy)
                                    Cornyn
                                    Kohl (Proxy)
                                    Feinstein (Proxy)
                                    Hatch

    Motion to report favorably S. 274. The motion was approved 
12 yeas to 7 nays.
        YEAS                          NAYS
Grassley                            Leahy (Proxy)
Specter                             Kennedy (Proxy)
Kyl                                 Biden (Proxy)
DeWine                              Feingold
Sessions                            Schumer (Proxy)
Graham                              Durbin
Craig                               Edwards (Proxy)
Chambliss
Cornyn
Kohl
Feinstein
Hatch

                             III. Purposes

    Our current class action system is plagued by numerous 
problems and abuses that threaten to undermine the rights of 
both plaintiffs and defendants. One key reason for these 
problems is that most class actions regardless of their 
nationwide scope are currently adjudicated in state courts, 
where the governing rules are applied inconsistently 
(frequently in a manner that contravenes basic fairness and due 
process considerations) and where there is often inadequate 
supervision over litigation procedures and proposed 
settlements. Moreover, current law enables lawyers to ``game'' 
the procedural rules to trap nationwide or multi-state class 
actions in certain state courts whose judges have reputations 
for readily certifying classes and approving settlements 
without regard to class member interests. In this environment, 
consumers are the big losers: in too many cases, judges are 
readily approving class action settlements that offer little--
if any--meaningful recovery to the class members, and simply 
enrich class counsel. Often, the settlement notice in such 
cases is so confusing that the plaintiff class members do not 
understand what--if anything--the settlement offers, or how 
they can opt out of it. To make matters worse, multiple class 
action cases purporting to assert the same claims on behalf of 
the same people often proceed simultaneously in several 
different state courts, causing judicial inefficiencies and 
promoting collusive activity between plaintiffs' attorneys and 
defendants. Indeed, many state courts freely issue rulings in 
class action cases that have nationwide ramifications, thus 
overturning well-established laws and policies of other 
jurisdictions.
    The Class Action Fairness Act of 2003 is a modest, balanced 
bill to address some of the most egregious problems in class 
action practice. The Committee emphasizes, however, that the 
Act is not intended to be a ``panacea'' that will correct all 
class action abuses. The Act has three key components:
    First, S. 274 includes a consumer class action bill of 
rights, with multiple components. One element prohibits federal 
courts from approving coupon or ``net loss'' settlements 
without making written findings that such settlements benefit 
the class members. The bill's notice provisions require that 
notices be in plain English and easily understandable. These 
provisions complement recently promulgated rules under the 
Rules Enabling Act that also seek to improve notices in class 
actions. Another element requires special scrutiny of 
settlements in which the named plaintiffs (i.e., the persons 
who are supposed to be negotiating on behalf of the class) 
receive special compensation beyond that being given to the 
other class members. Yet another element of the consumer bill 
of rights provides an additional mechanism to safeguard 
plaintiff class members' rights by requiring that notice of 
class action settlements be sent to appropriate state and 
federal officials, so that they may voice concerns if they 
believe that the class action settlement is not in the best 
interest of their citizens.
    Second, S. 274 corrects a flaw in the current diversity 
jurisdiction statute (28 U.S.C. Sec. 1332) that prevents most 
interstate class actions from being adjudicated in federal 
courts. One of the primary historical reasons for diversity 
jurisdiction ``is the reassurance of fairness and competence 
that a federal court can supply to an out-of-state defendant 
facing suit in state court.'' \2\ Because interstate class 
actions typically involve more people, more money, and more 
interstate commerce ramifications than any other type of 
lawsuit, the Committee firmly believes that such cases properly 
belong in federal court. To that end, this bill (a) amends 
section 1332 to allow federal courts to hear more interstate 
class actions on a diversity jurisdiction basis, and (b) 
modifies the federal removal statutes to ensure that qualifying 
interstate class actions initially brought in state courts may 
be heard by federal courts if any of the real parties in 
interest (including the unnamed class members or the 
defendants) so desire. Thus, S. 274 makes it harder for 
plaintiffs' counsel to ``game the system'' by trying to defeat 
diversity jurisdiction, increases efficiency of the judicial 
system by allowing overlapping and ``copycat'' cases to be 
consolidated in a single federal court, and places the 
determination of more interstate class action lawsuits in the 
proper forum--the federal courts.
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    \2\ Davis v. Carl Cannon Chevrolet-Olds, Inc., 182 F.3d 792, 797 
(11th Cir. 1999).
---------------------------------------------------------------------------
    Third, S. 274 directs the Judicial Conference of the United 
States to conduct a review of class action settlements and 
attorneys' fees and to present Congress with recommendations 
for ensuring that attorneys' fees are determined in a fair and 
reasonable way. This provision will help address the problem of 
excessive attorneys' fees and will provide legislative 
oversight of the Judicial Conference's efforts in this area.

                IV. Background and Need for Legislation

    As set forth in Article III of the Constitution,\3\ the 
Framers established diversity jurisdiction to ensure fairness 
for all parties in litigation involving persons from multiple 
jurisdictions, particularly cases in which defendants from one 
state are sued in the local courts of another state. Interstate 
class actions--which often involve millions of parties from 
numerous states--present the precise concerns that diversity 
jurisdiction was designed to prevent: the potential for local 
prejudice by the court against out-of-state defendants or a 
judicial failure to recognize the interests of other states in 
the litigation. Yet, because of a technical glitch in the 
diversity jurisdiction statute (28 U.S.C. Sec. 1332), such 
cases are usually excluded from federal court. The glitch is 
not surprising given that class actions as we now know them did 
not exist when the statute's concept was crafted in the late 
1700s.
---------------------------------------------------------------------------
    \3\ In the words of Article III, ``[t]he judicial power shall 
extend * * * to Controversies * * * between citizens of different 
States.''
---------------------------------------------------------------------------
    This Committee believes that the current diversity and 
removal standards as applied in interstate class actions have 
facilitated a parade of abuses, and are thwarting the 
underlying purpose of the constitutional requirement of 
diversity jurisdiction. S. 274 addresses these concerns by 
establishing ``balanced diversity''--a rule allowing a larger 
number of class actions into federal courts, while continuing 
to preserve primary state court jurisdiction over others.

A. A Brief History of Class Actions

    Although class actions have some roots in common law, the 
general concept was first codified in 1849.\4\ Early class 
actions merely required that numerous parties demonstrate a 
common interest in law or fact.
---------------------------------------------------------------------------
    \4\ See Newberg on Class Actions 3d Sec. Sec. 13-14 to 13-17 
(1997).
---------------------------------------------------------------------------
    Rule 23 of the Federal Rules of Civil Procedure, the rule 
governing federal court class actions, was initially adopted in 
1938.\5\ However, the concept of class actions that are a 
familiar part of today's legal landscape did not arise until 
1966, when Rule 23 was substantially amended to expand the 
availability of the device. Under Rule 23, a class action can 
be brought in federal court if (1) the class is so numerous 
that joinder of all members is impracticable; (2) there are 
questions of law or fact common to the class; (3) the claims or 
defenses of the representative parties are typical of those of 
the class; and (4) the representative parties will fairly and 
adequately protect the interests of the class. In addition, a 
proponent must show that the proposed class meets one of three 
additional requirements set forth in Rule 23(b). For example, 
for a Rule 23(b)(3) damages class action to be certified, a 
proponent must show that ``the questions of law or fact common 
to the members of the class predominate over any questions 
affecting only individual members, and that a class action is 
superior to other available methods for the fair and efficient 
adjudication of the controversy.'' \6\
---------------------------------------------------------------------------
    \5\ For a more comprehensive history of Rule 23, 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 Senate Comm. 
on the Judiciary, 106th Cong. (1999) (hereinafter ``Hearings on S. 
353''), Prepared Statement of John P. Frank.
    \6\ Fed.R.Civ.P. 23(b)(3). Alternatively for a Rule 23(b)(1) class, 
the class proponent must show that the prosecution of separate actions 
by or against individual members of the class would create a risk of 
either (i) inconsistent or varying adjudication which would establish 
incompatible standards of conduct for the party opposing the class or 
(ii) adjudications which, as a practical matter, would be dispositive 
of the interests of the other members not parties to the adjudications 
or which would substantially impair or impede their ability to protect 
their ability to protect their interests. Id. at 23(b)(1). To obtain 
certification of a Rule 23(b)(2) class, the proponent is required to 
show that ``the party opposing the class has acted or refused to act on 
grounds generally applicable to the class, thereby making appropriate 
final injunctive relief or corresponding declaratory relief with 
respect to the class as a whole.'' Id. at 23(b)(2).
---------------------------------------------------------------------------
    As originally envisioned, class action lawsuits were to be 
primarily a tool for civil rights litigants seeking injunctions 
in discrimination cases.\7\ Prof. John P. Frank, a member of 
the 1966 Advisory Committee on Civil Rules that proposed 
amending Rule 23 to its current form, testified that those who 
wrote the new class action rule thought it would rarely (if 
ever) apply to product liability or mass torts cases.\8\ In the 
1980s, however, some plaintiffs' lawyers successfully persuaded 
judges to expand class actions to the area of mass torts.\9\ 
These courts began to expand the types of claims they were 
willing to certify as class actions because they feared that 
the large number of individual mass tort cases could slow or 
stop the judicial system.\10\ Thus, class actions have evolved 
from their original primary purpose--to counter civil rights 
abuses--and have become a common tool for plaintiffs' attorneys 
bringing personal injury or product liability claims. While the 
landscape of class actions has changed dramatically, the 
procedural rules regarding which courts can hear class actions, 
and consequently, which procedural law will apply to such 
cases, generally have remained the same since 1966.
---------------------------------------------------------------------------
    \7\ See Hearings on S. 353, Prepared Statement of John P. Frank 
(``If there was a single, undoubted goal of the committee, the 
energizing force which motivated the whole rule, it was the firm 
determination to create a class action system which could deal with 
civil rights and, explicitly, segregation.'').
    \8\ Administrative Office of the U.S. Courts, Working Papers of the 
Advisory Committee on Civil Rules on Proposed Amendments to Civil Rule 
23 (Vol. 2) (``Advisory Committee Working Papers''), at 260 (1997). 
Another member of the 1966 Advisory Committee--Hon. William T. Coleman, 
Jr.--has testified to a similar effect. Id. (Vol. 3), 11/22/96 Public 
Hearing Tr. at 204 (``I assure you that what the courts have done with 
respect to Rule 23(b)(3) is far beyond what we * * * ever intended. To 
the extent that there's difficulty [with class actions, it] is not 
because of anything that was drafted in 1966, but [because] of how the 
rule has been handled since that time.'').
    \9\ See John C. Coffee, Jr., Class Wars: The Dilemma of the Mass 
Tort Class Action, 95 Colum. L. Rev. 1343, 1358 (1995).
    \10\ Id. at 1356-58, 1363-64.
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B. Federal Diversity Jurisdiction and Removal Provisions

            1. The basics of diversity jurisdiction
    The Constitution extends federal court jurisdiction to 
cases of a distinctly federal character--for instance, cases 
raising issues under the Constitution or federal statutes, or 
cases involving the federal government as a party--and 
generally leaves to state courts the adjudication of local 
questions arising under state law. However, the Constitution 
specifically extends federal jurisdiction to encompass one 
category of cases involving issues of state law: ``diversity'' 
cases, or suits ``between citizens of different States.'' \11\
---------------------------------------------------------------------------
    \11\ U.S. Const. art. III, sec. 2.
---------------------------------------------------------------------------
    According to the Framers, the primary purpose of diversity 
jurisdiction was to protect citizens in one state from the 
injustice that might result if they were forced to litigate in 
out-of-state courts.\12\ Quoting James Madison, Judge Henry 
Friendly explained that diversity jurisdiction is essential to 
a strong union because it ``may happen that a strong prejudice 
may arise in some state against the citizens of others, who may 
have claims against them.'' \13\ Justice Frankfurter expressed 
a similar understanding of Madison's concerns: ``It was 
believed that, consciously or otherwise, the courts of a state 
may favor their own citizens. Bias against outsiders may become 
embedded in a judgment of a state court and yet not be 
sufficiently apparent to be made the basis of a federal 
claim.'' \14\
---------------------------------------------------------------------------
    \12\ See Pease v. Peck, 59 U.S. (18 How) 595, 599 (1856) (``The 
theory upon which jurisdiction is conferred on the court of the United 
States, in controversies between citizens of different States, has its 
foundation in the supposition that, possibly the state tribunal might 
not be impartial between their own citizens and foreigners.''); see 
also Martin v. Hunter's Lessee, 14 U.S. (1 Wheat) 304, 347 (1816); Bank 
of the United States v. Deveaux, 9 U.S. (5 Cranch) 61, 87 (1809); 
Barrow S.S. Co. v. Kane, 170 U.S. 100 (1898) (``The object of the 
provisions of the Constitution and statutes of the United States in 
conferring upon the Circuit Courts of the United States jurisdiction of 
controversies between citizens of different States of the Union * * * 
was to secure a tribunal presumed to be more impartial than a court of 
the State in which one of the litigant resides.''); The Federalist No. 
80, at 537-38 (Alexander Hamilton) (Jacob E. Cooke, ed. 1961) (``In 
order to [ensure] the inviolable maintenance of that equality of 
privileges and immunities to which citizens of the union will be 
entitled, the national judiciary ought to preside in all cases in which 
one state or its citizens are opposed to another state or its citizens. 
To secure the full effect of so fundamental a provision against all 
evasion and subterfuge, it is necessary that its construction should be 
committed to that tribunal which, having no local attachments, will be 
likely to be impartial between the different states and their citizens, 
and which, owing its official existence to the union, will never be 
likely to feel any bias inauspicious to the principles on which it is 
founded.'').
    \13\ H. J. Friendly, The Historic Basis of Diversity Jurisdiction, 
41 Harv. L. Rev. 483, 492-93 (1928).
    \14\ Burford v. Sun Oil Co., 319 U.S. 315, 336 (1943) (Frankfurter, 
J., dissenting).
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    In addition to protecting individual litigants, diversity 
jurisdiction has two other important purposes. In testimony 
several years ago before the Subcommittee on Administrative 
Oversight and the Courts, Prof. E. Donald Elliott of the Yale 
Law School expressed the view that diversity jurisdiction was 
designed not only to protect against actual discrimination, but 
also ``to shore up confidence in the judicial system by 
preventing even the appearance of discrimination in favor of 
local residents.'' \15\ In addition, several legal scholars 
have noted that the Framers were concerned that state courts 
might discriminate against interstate businesses and commercial 
activities, and thus viewed diversity jurisdiction as a means 
of ensuring the protection of interstate commerce.\16\ As 
former Acting Solicitor General Walter Dellinger testified last 
year before the Committee, ``diversity jurisdiction has served 
to guarantee that parties of different state citizenship have a 
means of resolving their legal differences on a level playing 
field in a manner that nurtures interstate commerce.'' \17\ 
Both of these concerns--judicial integrity and interstate 
commerce--are strongly implicated by class actions.
---------------------------------------------------------------------------
    \15\ Hearings on S. 353, Prepared Statement of E. Donald Elliott, 
May 4, 1999; see also, Adrienne J. Marsh, Diversity Jurisdiction: 
Scapegoat of Overcrowded Federal Courts, 48 Brooklyn L. Rev. 197, 201 
(1989).
    \16\ See generally John P. Frank, Historical Bases of the Federal 
Judicial System, 13 Law & Contemp. Probs. 3, 22-28 (1948); H. J. 
Friendly, The Historic Basis of Diversity Jurisdiction, 41 Harv. L. 
Rev. 483 (1928).
    \17\ See Class Action Litigation: Hearing on Class Actions Before 
the Senate Comm. on the Judiciary, 107th Cong. (2002) (hereinafter 
``Hearing on Class Actions''), Prepared Statement of Walter E. 
Dellinger, III.
---------------------------------------------------------------------------
    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 (currently $75,000), 
which Congress enacted in order to ensure that diversity 
jurisdiction extends only to non-trivial state-law cases.\18\ 
The second is the ``complete diversity'' requirement, a rule 
that federal jurisdiction lies only when all plaintiffs are 
diverse as to all defendants.\19\ It is important to recognize 
that these procedural limitations regarding interstate class 
actions were 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.\20\ Indeed, as Professor Dellinger noted in his 
testimony before this Committee last year, class action 
legislation expanding federal jurisdiction over class actions 
``would fulfill the intentions of the Framers because the 
rationales that underlie the diversity jurisdiction concept 
apply with equal--if not greater--force to interstate class 
actions.'' \21\ It is therefore the prerogative of Congress to 
modify these technical requirements as it deems appropriate.
---------------------------------------------------------------------------
    \18\ See 28 U.S.C. Sec. 1332(a).
    \19\ See Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 (1806).
    \20\ See, e.g., Newman-Greene, Inc. v. Alfonzo-Larrian, 490 U.S. 
826, 829 n.1 (1989) (noting that ``[the] complete diversity requirement 
is based on the diversity statute, not Article III of the 
Constitution.''); Owen Equip. & Co. v. Kroger, 437 U.S. 365, 373 n. 13 
(1978) (to the same effect).
    \21\ See Hearing on Class Actions, Prepared Statement of Walter E. 
Dellinger, III.
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            2. How diversity cases arrive in federal court
    A diversity case can be taken to federal court in two ways: 
(1) by the plaintiffs' initial decision to file the case in 
federal court, or (2) by the defendants' decision to remove the 
case to federal court. The concept of ``removing'' cases from 
state courts to federal courts is based largely on the same 
core premise as diversity jurisdiction--i.e., that an out-of-
state defendant in a state court proceeding should have access 
to an even-handed federal forum.\22\ The general removal 
statute, 28 U.S.C. Sec. 1441(a), provides that any civil action 
brought in a state court may be removed by the defendant(s) to 
federal court if the claim could have originally been brought 
in federal court. In other words, so long as a federal district 
court could exercise original jurisdiction over a claim, a 
defendant may remove the case to federal court.
---------------------------------------------------------------------------
    \22\ See David P. Currie, Federal Jurisdiction 115-116 (4th ed. 
1999).
---------------------------------------------------------------------------
    Section 1446(b) of Title 28 outlines the procedure for 
removal. Under this provision, a defendant must file papers 
seeking removal to federal court within 30 days after receiving 
a copy of the initial pleading (or service of summons if a 
pleading has been filed in court and is not required to be 
served on the defendant). If the original complaint was not 
removable, but the plaintiff subsequently amends the pleadings 
in such a way that removal becomes proper, then the notice of 
removal must be filed within 30 days of receipt by the 
defendant of ``a copy of an amended pleading, motion, order, or 
other paper from which it may first be ascertained that the 
case [is removable].'' \23\ Under current law, however, a case 
can only be removed on diversity jurisdiction grounds within a 
year from commencement of the action.\24\
---------------------------------------------------------------------------
    \23\ 28 U.S.C. Sec. 1446(b).
    \24\ Id.
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C. How Diversity Jurisdiction and Removal Statutes are Abused

    The current rules governing federal jurisdiction have the 
unintended consequence of keeping most class actions out of 
federal court, even though most class actions are precisely the 
type of case for which diversity jurisdiction was created 
because of their interstate character.\25\ In addition, current 
law enables plaintiffs' lawyers who prefer to litigate in state 
courts to easily ``game the system'' and avoid removal of large 
interstate class actions to federal court.
---------------------------------------------------------------------------
    \25\ See generally, Victor E. Schwartz, Mark A. Behrens & Leah 
Lorber, Federal Courts Should Decide Interstate Class Actions: A Call 
for Federal Class Action Diversity Jurisdiction Reform, 37 Harv. J. 
Legis. 483 (Summer 2000).
---------------------------------------------------------------------------
    This gaming problem exists for two reasons. The first 
reason is the ``complete diversity'' requirement. Although the 
Supreme Court has held that only the named plaintiffs' 
citizenship should be considered for purposes of determining if 
the parties to a class action are diverse, the ``complete'' 
diversity rule still mandates that all named plaintiffs must be 
citizens of different states from all the defendants.\26\ 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. For example, it is quite common in insurance cases 
for plaintiffs to name a few local insurance agents in a 
nationwide class action against an out-of-state insurance 
company, even though the vast majority of proposed class 
members had no dealings with these agents.\27\ Similarly, in 
product liability cases against automobile manufacturers, 
plaintiffs often name a local dealer even though only a few 
class members purchased their cars from that dealer.\28\ One 
witness at last year's hearing on class actions testified that 
her drug store was named as a defendant in ``hundreds of 
lawsuits'' so that ``the lawyers could keep the case in a place 
known for its lawsuit-friendly environment.'' \29\ If all it 
takes to keep a class action in state court is to name one 
local retailer, it is no surprise that few interstate class 
actions meet the complete diversity requirement.
---------------------------------------------------------------------------
    \26\ See Snyder v. Harris, 394 U.S. 332 (1969).
    \27\ See, e.g., Blanke v. Lincoln National Corp., 1997 U.S. Dist. 
LEXIS 20384 (E.D. La. Dec. 18, 1997).
    \28\ See, e.g., Triggs v. John Crump Toyota, 154 F.3d 1284 (11th 
Cir. 1998).
    \29\ See Hearing on Class Actions, Prepared Statement of Hilda 
Bankston.
---------------------------------------------------------------------------
    The second reason that lawyers are able to game the system 
is the amount-in-controversy requirement. In interpreting 28 
U.S.C. Sec. 1332(a), some federal courts of appeals, relying on 
a 1974 Supreme Court decision,\30\ 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.\31\ That means federal courts 
can only hear class actions in which each plaintiff claims 
damages in excess of $75,000.\32\ 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 amount. 
Moreover, class action lawyers sometimes 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 the class action seeks millions of dollars 
in the aggregate.
---------------------------------------------------------------------------
    \30\ See Zahn v. International Paper Co., 414 U.S. 291 (1974).
    \31\ See Trimble v. Asarco, Inc., 232 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).
    \32\ 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); 
Allapattah Servs. v. Exxon Corp., 2003 U.S. App. LEXIS 11628 (June 11, 
2003). 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.
---------------------------------------------------------------------------
    This leads to the nonsensical result under which a citizen 
can bring a ``federal case'' by claiming $75,001 in damages for 
a simple slip-and-fall case against a party from another state, 
while a class action involving 25 million people living in all 
fifty states and alleging claims against a manufacturer that 
are collectively worth $15 billion currently must usually be 
heard in state court. In other words, 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, but cannot assert jurisdiction over claims covering 
large-scale, interstate class actions involving thousands of 
plaintiffs from multiple states, defendants from many states, 
the laws of several states, and hundreds of millions of 
dollars.
    There is a growing chorus of authoritative sources 
declaring that something is badly amiss with the manner in 
which federal diversity jurisdictional requirements are applied 
to class actions:
     The leading federal civil procedure law treatise 
has noted: ``The traditional principles [regarding federal 
diversity jurisdiction over class actions] have evolved 
haphazardly and with little reasoning. They serve no apparent 
policy and their application to a certain degree turns on a 
mystifying conceptual test.'' \33\
---------------------------------------------------------------------------
    \33\ 14B Charles A. Wright, et al., Federal Practice and Procedure 
Sec. 3704, at 127 (3d ed. 1998).
---------------------------------------------------------------------------
     In a recent Minnesota state appellate court 
decision upholding a grant of class certification, a concurring 
judge noted that the nationwide class action before the court 
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. And, 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.'' \34\
---------------------------------------------------------------------------
    \34\ Peterson v. BASF Corp., 657 N.W. 2d 853 (Minn. App. Ct. 2003).
---------------------------------------------------------------------------
     The U.S. Court of Appeals for the Eleventh Circuit 
apologized for sending an interstate class action back to state 
court, noting that ``an important historical justification for 
diversity jurisdiction is the reassurance of fairness and 
competence that a federal court can supply to an out-of-state 
defendant facing suit in state court.'' Observing that the out-
of-state defendant in that case was confronting ``a state court 
system [prone to] produce[] gigantic awards against out-of-
state corporate defendants,'' the court stated that ``[o]ne 
would think that this case is exactly whatthose who espouse the 
historical justification for [diversity jurisdiction] would have in 
mind * * *.'' \35\
---------------------------------------------------------------------------
    \35\ Davis v. Cannon Chevrolet-Olds, Inc., 182 F.3d 792, 797 (11th 
Cir. 1999).
---------------------------------------------------------------------------
      In 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.'' \36\
---------------------------------------------------------------------------
    \36\ Id. at 798.
---------------------------------------------------------------------------
      In another case, Judge Anthony Scirica (chair of 
the Judicial Conference's Standing Committee on Rules and 
Procedure) observed that although ``national (interstate) class 
actions are the paradigm for federal diversity jurisdiction 
because * * * they implicate interstate commerce, foreclose 
discrimination by a local state, and tend to guard against any 
bias against interstate enterprises, * * * the current 
jurisdictional statutes [put] such class actions * * * beyond 
the reach of the federal courts.'' \37\
---------------------------------------------------------------------------
    \37\ In re Prudential Ins. Co. America Sales Practice Litig., 148 
F.3d 283, 305 (3d Cir. 1998).
---------------------------------------------------------------------------
      In a March 26, 2002 letter to the Committee, the 
Judicial Conference of the United States 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.'' \38\
---------------------------------------------------------------------------
    \38\ Letter from the Judicial Conference of the United States to 
Senator Orrin G. Hatch, (R-UT), Chairman of the Senate Committee on the 
Judiciary. March 26, 2003.
---------------------------------------------------------------------------
    The Committee notes that a number of congressional hearing 
witnesses (including former Carter Administration Attorney 
General Griffin Bell and Clinton Administration Solicitor 
General Walter E. Dellinger) and other legal experts agree that 
if Congress were to draft an entirely new federal diversity 
jurisdiction statute and start over in deciding which cases 
should be subject to federal diversity jurisdiction, Congress 
likely would conclude that interstate class actions are among 
the cases that most warrant access to the federal courts 
because they involve the most people, put the most money in 
controversy, and have the greatest implications for interstate 
commerce.\39\ As Prof. Dellinger noted in his testimony last 
year before this Committee, ``the rationales that underlie the 
diversity jurisdiction concept apply with equal--if not 
greater--force to interstate class actions.'' \40\
---------------------------------------------------------------------------
    \39\ See generally Hearing on Class Actions; Hearings on S. 353; 
Hearing on H.R. 1875.
    \40\ See Hearing on Class Actions, Prepared Statement of Walter E. 
Dellinger III.
---------------------------------------------------------------------------

D. Other Abuses With the Class Action Rules

    The ability of plaintiffs' lawyers to evade federal 
diversity jurisdiction has helped spur a dramatic increase in 
the number of class actions litigated in state courts--an 
increase that is stretching the resources of the state court 
systems. In his testimony to the Subcommittee on Administrative 
Oversight and the Courts several years ago, Prof. E. Donald 
Elliott pointed out that the flood of class actions in our 
state courts is too well documented to warrant significant 
discussion, much less debate.\41\ According to recent studies, 
federal class action filings over the past ten years have 
increased by more than 300 percent. At the same time, class 
action filings in state courts have grown more than three times 
faster--by more than 1,000 percent.\42\
---------------------------------------------------------------------------
    \41\ Hearings on S. 353, Prepared Statement of E. Donald Elliott.
    \42\ 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).
---------------------------------------------------------------------------
    Notably, many of these cases are being filed in improbable 
jurisdictions. A recent study conducted in three venues with 
reputations as hotbeds for class action activity found 
exponential increases in the numbers of class actions filed in 
recent years. For example, in the Circuit Court of Madison 
County, Illinois, a mostly rural county that covers 725 square 
miles and is home to less than one percent of the U.S. 
population, the number of class actions filed annually grew 
from 2 in 1998 to 39 in 2000--an increase of 3,650 percent.\43\ 
And a follow-up study found that the number of class actions 
filed in the county continued to grow dramatically in 2001 and 
2002.\44\
---------------------------------------------------------------------------
    \43\ 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 1 (Fall 2001).
    \44\ 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).
---------------------------------------------------------------------------
    The reason for this dramatic increase in state court class 
actions cannot be found in variations in class action rules; 
after all, the rules governing the decision whether cases may 
proceed as class actions are basically the same in federal and 
state courts. In fact, thirty-six states have adopted the basic 
federal class action rule (Rule 23), sometimes 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 do not have rules or statutes 
authorizing class actions. Thus, there are no wide variations 
between federal and state court class action policies.
    The Committee finds, however, that one reason for the 
dramatic explosion of class actions in state courts is that 
some state court judges are less careful than their federal 
court counterparts when applying the procedural requirements 
that govern class actions. In particular, many state court 
judges are lax about following the strict requirements of Rule 
23 or the state'sparallel governing rule, which are intended to 
protect the due process rights of both unnamed class members and 
defendants. Alternatively, in a limited few jurisdictions where class 
action procedures do not exist--and even in some states where they do 
exist--some judges have nevertheless espoused a willingness to allow 
curious mass consolidations or mass joinders that are not capable of 
rigorous class certification rule scrutiny. In contrast, federal courts 
generally scrutinize proposed settlements more carefully and pay closer 
attention to the procedural requirements for certifying a matter for 
class treatment.\45\
---------------------------------------------------------------------------
    \45\ See Hearings on S. 353, Oral Statement of Senator Charles E. 
Grassley.
---------------------------------------------------------------------------
    Another problem is that a large number of state courts lack 
the necessary resources to supervise proposed class settlements 
properly.\46\ Many state judges do not have law clerks, and the 
explosion of state court class actions has simply overwhelmed 
their dockets. Not surprisingly, abuses are much more likely to 
occur when state court judges are unable to give class action 
cases and settlements the attention they need.
---------------------------------------------------------------------------
    \46\ See Hearings on S. 353, Prepared Statement of Stephen G. 
Morrison (``I think it is clear that the explosion of class action 
filings can only be attributed to the fact that certain members of the 
plaintiffs' bar have discovered that some of our state courts can be a 
fertile playing field for class litigation.'').
---------------------------------------------------------------------------
    The lack of a federal forum for most interstate class 
actions and the inconsistent administration of class actions in 
state courts have led to several forms of abuse. The Committee, 
in drafting this bill, has focused upon six major types of 
abuses that result in unfair treatment of litigants and 
consumers. First, lawyers, not plaintiffs, may benefit most 
from settlements. Second, corporate defendants are forced to 
settle frivolous claims to avoid expensive litigation, thus 
driving up consumer prices. Third, constitutional due process 
rights are often ignored in class actions. Fourth, expensive 
and predatory copy-cat cases force defendants to litigate the 
same case in multiple jurisdictions, driving up consumer costs. 
Fifth, class members frequently are unable to understand their 
rights when reading class action notice documents, and there is 
a need to provide them with additional protections from 
unfairly reached settlements. Sixth, lawyers sometimes 
structure settlements so that some plaintiff class members 
unfairly receive additional geography or bounty payments, to 
the detriment of all other class members.
            1. Lawyers receive disproportionate shares of settlements
    The first abuse involves settlements in which the attorneys 
receive excessive attorneys' fees with little or no recovery 
for the class members themselves. In the now infamous Bank of 
Boston class action settlement,\47\ for example, the defendant 
bank was accused of over-collecting escrow monies from 
homeowners and profiting from the interest. The settlement, 
approved by an Alabama state court, awarded up to $8.76 each to 
individual class members, while the class counsel got more than 
$8.5 million in fees. To make matters worse, the fees were 
simply debited directly from individual class members' escrow 
accounts, leaving many of them worse off than they were before 
the suit. In testimony before the Subcommittee on 
Administrative Oversight and the Courts, class member Martha 
Preston recounted how she received $4 from the settlement, but 
was charged a mysterious $80 ``miscellaneous deduction,'' which 
she later learned was an expense used to pay the class lawyers' 
$8.5 million settlement fee. Ms. Preston expressed her 
disbelief over how ``people who were supposed to be my lawyers, 
representing my interests, took my money and got away with 
it.'' \48\
---------------------------------------------------------------------------
    \47\ Kamilewicz v. Bank of Boston, 92 F.3d 506 (7th Cir. 1996).
    \48\ See Class Action Lawsuits: Examining Victim Compensation and 
Attorneys' Fees: Hearing before the Subcomm. on Administrative 
Oversight and the Courts of the Senate Comm. on the Judiciary, Serial 
No. J-105-62 (S. Hrg. 105-504), 105th Cong., 1st Sess. (Oct. 30, 1997), 
Prepared Statement of Martha Preston.
---------------------------------------------------------------------------
    Through several hearings over the past several years, the 
Committee has become aware of numerous class action settlements 
approved by state courts in which most--if not all--of the 
monetary benefits went to the class counsel, rather than to the 
class members those attorneys were supposed to be representing. 
These settlements include many so-called ``coupon settlements'' 
in which class members receive nothing more than promotional 
coupons to purchase more products from the defendants. The 
record before the Committee is replete with examples, but the 
common theme is the same: the lawyers get cash, while the 
plaintiffs get coupons or less. For example:
     In a 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. However, 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 a Texas state court, only the lawyers 
received cash.
---------------------------------------------------------------------------
    \49\ Scott v. Blockbuster Inc. (No. D162-535, Jefferson County, 
Texas, 2001); Judge OKs Blockbuster Plan On Fees, Associated Press, 
Jan. 11, 2002.
---------------------------------------------------------------------------
     Under a settlement in a class action against 
American Airlines filed in state court, which resulted from 
allegations regarding changes in 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 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.'' \50\
---------------------------------------------------------------------------
    \50\ American Airlines Settles Lawsuits Over Frequent Flier 
Program, Fort Worth Star-Telegram, June 22, 2000.
---------------------------------------------------------------------------
     A 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 attorneyswho 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.
---------------------------------------------------------------------------
     A class action alleged that certain ``zip drives'' 
supposedly contained a defect that sometimes caused the failure 
of the drives or the zip disks. The plaintiffs' attorneys 
received $4.7 million in fees, while the estimated 28 million 
purchasers of an Iomega Zip drive between 1995 and March 19, 
2001 received coupons for a rebate of between $5 and $40 on 
future purchases of Iomega products. In addition, the 
settlement called for the defendant to donate $1 million of its 
products to schools.\52\
---------------------------------------------------------------------------
     \52\ Rinaldi v. Iomega Corp. (No. 98C-09-064-RRC, Delaware); Utah-
Based Tech Company Settles Lawsuit With Rebate Offer, Standard-
Examiner, Apr. 14, 2001.
---------------------------------------------------------------------------
     In a suit involving port charges, a sea cruise 
line agreed to give vouchers 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 or 20 percent of face 
value.\53\ In this state court class action settlement, only 
the lawyers received cash payments.
---------------------------------------------------------------------------
     \53\ Carnival Cruise Settles Lawsuit, Florida Today, Mar. 16, 
2001.
---------------------------------------------------------------------------
     In 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. Thus, those plaintiffs with actual injuries were 
required to split awards with those without any injury 
whatsoever. The lawyers reportedly received $22 million in fees 
and costs.\54\
---------------------------------------------------------------------------
     \54\ Thomson Antes Up $100 Million Settlement, Indianapolis 
Business Journal, Mar. 12, 2001.
---------------------------------------------------------------------------
     In 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 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.\55\
---------------------------------------------------------------------------
     \55\ See Richard B. Schmitt, Leaky System: Suits Over Plastic Pipe 
Finally Bring Relief, Especially for Lawyers, Wall St. J., Nov. 20, 
1995, at A1.
---------------------------------------------------------------------------
     In March 1995, a computer manufacturer settled 
multiple state court class actions alleging a chip flaw that 
would arise only once in 27,000 years for the average 
spreadsheet user. It essentially agreed to do what it was 
already doing: offer free replacements, maintain service 
centers, operate toll-free phone numbers, and provide 
diagnostic computer programs. Meanwhile, class counsel received 
$4.27 million in fees.\56\
---------------------------------------------------------------------------
     \56\ See The (San Francisco) Recorder, Jan. 4, 1996.
---------------------------------------------------------------------------
     In 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 class lawyers took home more 
than $1 million in fees.\57\
---------------------------------------------------------------------------
     \57\ See Michelle Singletary, Coupon Settlements Fall Short, Wash. 
Post, Sept. 12, 1999, at H01.
---------------------------------------------------------------------------
     In a state court class action alleging that Coca-
Cola improperly added sweeteners to apple juice, the defendant 
agreed to distribute 50-cent coupons toward the purchase of 
apple juice. Meanwhile, class counsel received $1.5 
million.\58\
---------------------------------------------------------------------------
     \58\ Lawyers Get $1.5 Million, Clients Get 50 Cents Off, Fulton 
County Daily Report, Nov. 21, 1997.
---------------------------------------------------------------------------
     A California state court approved a settlement 
under which class members, who had alleged that manufacturers 
misrepresented the size of computer monitor screens, received a 
$13 rebate if they purchased new monitors. The class attorneys, 
however, received approximately $6 million in fees.\59\
---------------------------------------------------------------------------
     \59\ Coupon Settlements Fall Short, Washington Post, Sept. 12, 
1999.
---------------------------------------------------------------------------
     The Chicago Tribune reported that in a state court 
class action against a record company to recover the prices 
paid for albums by the group Milli Vanilli (that contained the 
voices of other performers), class members were given a 
settlement of $1 to $3 each. The Illinois state court awarded 
the lawyers $675,000, but the lawyers turned around and 
petitioned the court for an increase to $1.9 million.\60\
---------------------------------------------------------------------------
     \60\ See $675,000 Approved for Lawyers In Milli Vanilli Lip-Sync 
Lawsuit, Chicago Tribune, July 24, 1992.
---------------------------------------------------------------------------
     In 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, National Law Journal, May 22, 1995.
---------------------------------------------------------------------------
     In a settlement of a state court antitrust class 
action involving cellular service, coupons and small service 
credits were offered. But counsel obtained agreement to be paid 
up to $9.5 million.\62\ Virtually all the cash paid in the 
settlement went to lawyers.
---------------------------------------------------------------------------
     \62\ Judge OK's Plan For Class Members, The Recorder, Feb. 24, 
1998.
---------------------------------------------------------------------------
     In another case, class action plaintiffs alleged 
that discount stores overstated the value of software bundles 
that came with computers. In a class settlement approved by a 
state court, consumers received coupons worth the lesser of a 7 
percent or $25 discount off future purchases of products from 
the defendants' stores. The attorneys received $890,000 in 
fees.\63\
---------------------------------------------------------------------------
     \63\ Los Angeles Times, June 8, 1998, at D3. For more examples of 
coupon settlements, See Hearings on S. 353, Prepared Testimony of 
Stephan G. Morrison.
---------------------------------------------------------------------------
    Examples of abusive settlements in which attorneys receive 
fees that are disproportionate to any client benefits can be 
found in both state and federal court; however, such abuses 
tend to occur predominantly in state court. Too often, the 
current system results in settlements where only lawyers are 
rewarded, and plaintiffs are left unprotected.
            2. Judicial blackmail forces settlement of frivolous cases
    The current system also permits the use of the class device 
as ``judicial blackmail'' in cases that are clearly frivolous. 
Such a result drives up prices for all consumers, because 
corporate defendants are forced to settle these frivolous 
cases.
    Because class actions are such a powerful tool, they can 
give a class attorney unbounded leverage, particularly in 
jurisdictions that are considered plaintiff-friendly. The 
reason for this unbounded leverage in such jurisdictions is 
because, as a general rule, the question of whether a class is 
properly certified can only be appealed following a costly, and 
risky, trial. Thus, the Hobson's choice is to either settle a 
frivolous suit, or invest in expensive litigation. 
Consequently, such leverage can essentially force corporate 
defendants to pay ransom to class attorneys by settling--rather 
than litigating--frivolous lawsuits. This is a particularly 
alarming abuse because the class action device is intended to 
be a procedural tool rather than a mechanism that affects the 
substantive outcome of a lawsuit. Nonetheless, state court 
judges often are inclined to certify cases for class action 
treatment, not because they believe a class trial would be more 
efficient than an individual trial, but because they believe 
class certification will simply induce the defendant to settle 
the case without trial.\64\ As Judge Richard Posner of the U.S. 
Court of Appeals for the Seventh Circuit has explained, 
``certification of a class action, even one lacking merit, 
forces defendants to stake their companies on the outcome of a 
single jury trial, or be forced by fear of the risk of 
bankruptcy to settle even if they have no legal liability. * * 
* [Defendants] may not wish to roll these dice. That is putting 
it mildly. They will be under intense pressure to settle.'' 
\65\ Hence, when plaintiffs seek hundreds of millions of 
dollars in damages, basic economics can force a corporation to 
settle the suit, even if it is meritless and has only a five 
percent chance of success.
---------------------------------------------------------------------------
    \64\ See E. Donald Elliott, Managerial Judging and the Evolution of 
Procedure, 53 U. Chi. L. Rev. 306, 323-24 (1986).
    \65\ In re Rhone-Poulenc Rorer Inc., 51 F.3d 1293, 1298, 1299 (7th 
Cir. 1995). See also Blair v. Equifax Check Svcs., Inc., 181 F.3d 832, 
834 (7th Cir. 1999) (``a grant of class status can put considerable 
pressure on the defendant to settle, even when the plaintiff's 
probability of success on the merits is slight.'').
---------------------------------------------------------------------------
    Not surprisingly, the ability to exercise unbounded 
leverage over defendant corporations and the lure of huge 
attorneys' fees have led to the filing of many frivolous class 
actions. The Committee has learned of several shocking examples 
of frivolous cases:
     As District of Columbia Insurance Commissioner 
Lawrence Mirel testified before the Committee last year, 
insurance companies are often forced to settle lawsuits even 
though the challenged actions were fully in accordance with 
state law--or encouraged by state policies.\66\ For example, 
two automobile insurance companies, worried about mounting 
legal expenses and negative publicity, settled a lawsuit for 
nearly $36 million over a long-standing industry-wide practice 
of rounding insurance premiums up to the nearest dollar, even 
though the premiums were calculated according to specific 
instructions from the Texas Department of Insurance.\67\
---------------------------------------------------------------------------
    \66\ See Hearings on Class Actions, Statement of Lawrence Mirel.
    \67\ Id.
---------------------------------------------------------------------------
     Within days after the fight in which Mike Tyson 
bit Evander Holyfield's ear, for example, lawsuits were filed. 
These were not actions by Holyfield, the only person who really 
got hurt--they were class actions filed on behalf of pay-per-
view cable television subscribers alleging that they did not 
get their money's worth because the fight was cut short.\68\
---------------------------------------------------------------------------
    \68\ Although plaintiffs succeeded in certifying their class in a 
lower court, the class action was rejected by an appellate court. See 
Castillo et al. v. Tyson; No. 3133 (NY Sup. Ct., App. Div., Jan. 20, 
2000). See also NY Court Rejects Claim That Boxer's Bite Was A Rip-off, 
Entertainment Litigation Reporter, February 29, 2000.
---------------------------------------------------------------------------
     A suit was brought against Ford Motor Company in 
New York state court by the Milberg Weiss firm, one of the 
better known plaintiffs' class action firms in the country, 
that involved an inadvertent mistake made by Ford--it had put a 
slightly overstated price on the window stickers on certain 
vehicles. As soon as Ford discovered the mistake, the company 
began sending letters to the affected customers apologizing for 
the error and enclosing checks that more than compensated them. 
Nonetheless, fully knowing that this refund program was already 
well underway, the Milberg Weiss law firm filed a class action 
lawsuit charging that Ford had committed fraud. Even worse, it 
asked the court immediately to enjoin Ford from continuing its 
refund efforts--presumably so that the lawyers could get a cut 
of the refund money. In this case, the court properly dismissed 
the action; nonetheless, Ford was required to waste time and 
corporate resources on a lawsuit that clearly served no 
legitimate purpose.\69\
---------------------------------------------------------------------------
    \69\ See Faden-Bayes Corp. v. Ford Motor Co., Index No. 97-601076 
(N.Y. Sup. Ct. County of New York) (filed Feb. 28, 1997).
---------------------------------------------------------------------------
            3. Current class action rules can ignore due process rights
    A third type of class action abuse occurs when state courts 
ignore the due process rights of out-of-state defendants by 
denying them the opportunity to contest the plaintiffs' claims 
against them. One expert witness who testified before the 
Subcommittee on Administrative Oversight and the Courts blamed 
this phenomenon on a ``laissez faire'' attitude of some state 
courts.\70\ The most egregious examples of this are the so 
called ``drive-by class certification'' cases, in which a class 
is certified before the defendant has a chance to respond to 
the complaint, or in some cases, has even received the 
complaint. The Committee learned of several examples of due 
process violations, a few of which are listed below.
---------------------------------------------------------------------------
    \70\ See Hearings on S. 353, Prepared Statement of John H. Beisner.
---------------------------------------------------------------------------
     In one lawsuit filed against an auto manufacturer 
in a Tennessee state court, 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 anine-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.\71\ The defendant later discovered that a group of record 
companies had the same experience with the same judge in an antitrust 
class action filed several days earlier.\72\
---------------------------------------------------------------------------
    \71\ Hearings on S. 353, Prepared Statement of Stephen G. Morrison.
    \72\ Id.
---------------------------------------------------------------------------
     In another case, a Kentucky state court ordered 
injunctive relief in favor of the class before the defendant 
was even notified of the lawsuit.\73\
---------------------------------------------------------------------------
    \73\ See Order, Farkas v. Bridgestone/Firestone, Inc., Case No. 00-
CI-5263 (Cir. Ct., Jefferson County, KY) (dated Aug. 18, 2000).
---------------------------------------------------------------------------
     It is not uncommon for state courts to certify 
classes in cases where federal courts find that the claims are 
uncertifiable. In one case, for example, a state court judge 
certified a nationwide class of persons who claimed that the 
house siding they had purchased was defective. Later, a federal 
district court judge presented with the same case rejected any 
prospect of certifying a class in that manner, finding that 
affording class treatment in that case would clearly violate 
the due process rights of the defendants and the purported 
class members.\74\
---------------------------------------------------------------------------
    \74\ Compare Naef v. Masonite Corp., No. CV-94-4033 (Cir. Court, 
Mobile County, Alabama), with In re Masonite Hardboard Siding Prods. 
Litig., 170 F.R.D. 417, 424 (E.D. La. 1997).
---------------------------------------------------------------------------
    Thus, the current system allows the due process rights of 
defendants to be ignored, with little or no recourse. Such an 
abuse harms those defendants, consumers, and ultimately a 
public that relies upon firmly-held constitutional due process 
rights for an orderly administration of justice by the courts.
            4. Copycat class actions clog the courts and permit forum 
                    shopping
    Yet another common abuse is the filing of ``copy cat'' 
class actions (i.e., duplicative class actions asserting 
similar claims on behalf of essentially the same people). 
Sometimes these duplicative actions are filed by lawyers who 
hope to wrest the potentially lucrative lead role away from the 
original lawyers. In other instances, the ``copy cat'' class 
actions result from blatant forum shopping--the original class 
lawyers file similar class actions before different courts in 
an effort to find a receptive judge who will rapidly certify a 
class. When these similar, overlapping class actions are filed 
in state courts of different jurisdictions, there is no way to 
consolidate or coordinate the cases. The ``competing'' class 
actions must be litigated separately in an uncoordinated, 
redundant fashion because there is no mechanism for 
consolidating state court cases.
    The result is enormous waste--multiple judges of different 
courts must spend considerable time adjudicating the same 
claims asserted on behalf of the same people.\75\ As a result, 
state courts and class counsel may ``compete'' to control the 
cases, often harming all the parties involved. Class counsel 
may offer a defendant a ``sweetheart deal'' in an effort to 
draw that defendant into a binding settlement so that the 
counsel can obtain their share of the award. The deal, however, 
may well be the worst result for plaintiffs. The opposite can 
also occur, whereby a defendant might seek to entice class 
counsel with a sham deal that favors the lawyers in order to 
buy a binding settlement. This ``race to the bottom'' that 
copycat cases presents is harmful to class members.
---------------------------------------------------------------------------
    \75\ For example, in the ongoing litigation concerning Firestone 
tires, approximately 100 virtually identical class actions seeking to 
represent the same purported class members were filed in courts all 
over the country. In the recently publicized HMO cases, multiple 
overlapping class actions were filed against each of the major health 
insurance companies. No less than 17 class actions have been filed 
against Humana, most of which assert similar allegations and claims on 
behalf of similarly defined nationwide classes. In the Humana example, 
the federal cases were consolidated for pretrial proceedings before a 
single judge. See In re Humana Inc. Managed Care Litig., 2000 U.S. 
Dist. LEXIS 5099 (J.P.M.L. Apr. 13, 2000). In the 12 months ending 
September 30, 2002, over 7,000 federal cases were centralized for 
pretrial proceedings through the MDL process. There is no parallel 
methodology for consolidating state court class actions. See http://
www.uscourts.gov/judbus2002/tables/s19sep02.pdf.
---------------------------------------------------------------------------
    Copycat cases also clog the court system. They involve 
multiple courts, judicial personnel, and even juries, 
administering and adjudicating essentially the same claims 
between the same parties. Such an inefficient result--
especially where the likely outcome for the majority of the 
cases will be dismissal in favor of a single case that 
settles--takes valuable judicial resources away from other 
claims working their way through the state court systems.
    By contrast to the state courts, when overlapping cases are 
pending in different federal courts, they can be consolidated 
under one single judge to promote judicial efficiency and 
ensure consistent treatment of the legal issues involved. 
Consequently, the copycat problem does not exist in the federal 
system.
            5. Inadequate notice and representation harm unnamed class 
                    members
    Another problem with current class action procedures is the 
lack of emphasis placed upon protecting unnamed class members 
through proper notice procedures. Without proper notice or 
other protections, consumers can unwittingly be bound by 
settlements approved in a court thousands of miles away. Too 
often, consumers find themselves without redress after their 
legal rights are signed away in a class action settlement 
without their knowledge.\76\
---------------------------------------------------------------------------
    \76\ State of Vermont v. Homeside Lending, Inc., and BankBoston 
Corporation, 2003 VT 17 (Feb. 21, 2003).
---------------------------------------------------------------------------
    For example, in one case filed in Chicago but involving 
mostly Texas class members, notice of a proposed settlement 
that would have the effect of waiving future rights was 
published in the New York Times.\77\ The notion that these 
Texas plaintiffs could possibly be adequately notified by a New 
York Times ad is absurd. Notice must be adequate to inform 
unnamed class members of the rights they are waiving.
---------------------------------------------------------------------------
    \77\ Hearing before the Committee on the Judiciary, July 31, 2002, 
page 9.
---------------------------------------------------------------------------
    The lack of adequate notice has serious results. In one 
case in Connecticut, a woman was barred from bringing suit for 
defective roofing materials because she had been part of a 
class action in Alabama.\78\ Recently, the Vermont Supreme 
Court held that the Bank of Boston settlement was invalid as to 
Vermont residents because of inadequate notice.\79\
---------------------------------------------------------------------------
    \78\ Rigat v. GAF Materials Corp., 2002 Conn. Super LEXIS 272 (Jan. 
25, 2002).
    \79\ State of Vermont v. Homeside Lending, Inc., and BankBoston 
Corporation, 2003 VT 17 (Feb. 21, 2003).
---------------------------------------------------------------------------
    S. 274 addresses this concern not only by improving notice 
but by introducing state officials into cases to protect 
unnamed class members. As one witness noted, ``[t]he addition 
of the state attorneys general is a splendid idea; it brings 
into the proceedings a true representative of the public, 
someone who is not simply trying to make money out of the 
situation.'' \80\ Examples of the need for state officials to 
be involved in such proceedings are commonplace. For example, 
unrepresented plaintiffs in the State Farm case, discussed 
throughout this report, would have greatly benefited from the 
involvement of the various state insurance commissioners who 
could have advised the court of their states' particular 
insurance laws dealing with less expensive aftermarket parts. 
Likewise, Vermont citizens in the Bank of Boston matter would 
have benefited from the Vermont Attorney General's involvement 
in the Alabama case. The Vermont State Supreme Court 
subsequently found that case to be a violation of its citizens' 
due process rights.\81\ The Constitution's Full Faith and 
Credit clause requires states to honor the decisions of other 
states' courts. For this reason, the Vermont Supreme Court was 
forced to attempt to unravel a settlement after it had been 
finalized, and was required to identify constitutional grounds 
in order to do so. Thus, adequate notice and other protections 
prior to finalizing a settlement for unnamed class members are 
critical.
---------------------------------------------------------------------------
    \80\ Hearing before the Subcommittee on Administrative Oversight 
and the Courts, May 4, 1999, page 169.
    \81\ Homeside Lending, 2003 VT 17.
---------------------------------------------------------------------------
            6. Bounties and geographic discrimination harm unnamed 
                    class members
    Bounty payments for class members--the practice of paying 
class representatives just for agreeing to be named in the 
suit--present a serious conflicts-of-interest problem because 
the representatives, who are supposed to guard the interests of 
all class members, may be self-interested at the prospect of a 
big payday. These payments ``raise[], at the very least, the 
specter of apparent collusion, as well as grave conflicts of 
interest between the named plaintiffs and class members.'' \82\ 
Thus, at best, ``the class representative `has been reduced to 
little more than an admission ticket to the courthouse and one 
anecdotal example of the class claim.' '' \83\ At worst, the 
class representative is at odds with other class members over 
the course of the litigation. Indeed, as one court noted, ``[a] 
class representative is a fiduciary to the class. If class 
representatives expect routinely to receive special awards * * 
* they may be tempted to accept suboptimal settlements at the 
expense of the class. * * *'' \84\
---------------------------------------------------------------------------
    \82\ J. Benedict and M. Seidel, Special Compensation to Named 
Plaintiffs in Securities Class Actions, 24 Review of Securities & 
Commodities Regulation 195, 200 (Nov. 13, 1991).
    \83\ Hearing before the Subcommittee on Administrative Oversight 
and the Courts, May 4, 1999, page 78. J. Burns, Decorative Figureheads: 
Eliminating Class Representatives in Class Actions, 42 Hastings L.J. 
165, 166 (1990).
    \84\ Weseley v. Spear Leeds & Kellogg, 711 F. Supp. 713, 720 
(E.D.N.Y. 1989).
---------------------------------------------------------------------------
    The results of this conflict can been seen in cases where 
unnamed members get little benefit from a settlement, but named 
class members get big bonuses. For example, in a recent case 
involving potential computer defects, a settlement resulted in 
coupons for all class members except the two named plaintiffs 
who received $25,000 each. It is no surprise that these 
representatives agreed to this settlement regardless of how it 
affected other class members.\85\ Similarly, in a settlement 
where most class members received just three golf balls, the 
class representatives were awarded $2,500 each.\86\ That's a 
pretty good payday for these ``victims'' whose sole injury 
missing out on the free golf gloves in a promotion undertaken 
by the defendant.
---------------------------------------------------------------------------
    \85\ See Shaw v. Toshiba America Information Systems, Inc., No. 
1:99CV1020 (E.D. Tex.).
    \86\ See Heaster, Enough Already with the Lawsuits, Kansas City 
Star, July 10, 1999 at C1.
---------------------------------------------------------------------------
    Another inequity that could result from the current system 
is geographic discrimination--where local plaintiffs are 
awarded a bigger chunk of settlement proceeds merely by virtue 
of their proximity to the courthouse. The problem exists 
because locally elected judges may be willing to direct a 
greater share of awards to their voting constituents. Such a 
result is clearly improper, and is unfair to other injured 
class members. As one witness described this favorable 
treatment of local plaintiffs, it is ``the worst sort of `home 
cooking' that is fostered by the existing system.'' \87\ This 
is yet another inequity under the current system that needs to 
be eliminated.
---------------------------------------------------------------------------
    \87\ Testimony of Lawrence H. Mirel, Hearing before the Committee 
on the Judiciary, July 31, 2002.
---------------------------------------------------------------------------

E. National Class Actions Belong in Federal Court Under Traditional 
        Notions of Federalism

    Many of the abuses taking place in state courts are 
magnified by the growing trend among plaintiffs' attorneys to 
bring huge class actions on behalf of hundreds of thousands or 
even millions of consumers. These cases, which generally 
involve overly broad claims, put any class members with real 
injuries at risk. The incentive for class lawyers to gather the 
largest class possible is clear: why sue on behalf of just 
1,000 people when you can sue for 1 million claimants and 
increase your intake? The problem with such broad claims, 
however, is that the entire lawsuit proceeds on a lowest common 
denominator basis. As a result, persons with legitimate 
injuries will be lumped in with the ``average,'' often 
meritless claims and will not be given individual attention for 
their grievances.\88\ Conversely, when only a few of the 
plaintiffs have legitimate claims, but nevertheless a class 
action is certified, the defendant is frequently denied a fair 
trial because a jury is likely to improperly attribute the 
injuries of the few to the many.
---------------------------------------------------------------------------
    \88\ See Hearings on S. 353, Prepared Statement of John H. Beisner.
---------------------------------------------------------------------------
    The effect of class action abuses in state courts is being 
exacerbated by the trend toward ``nationwide'' class actions, 
which invite one state court to dictate to 49 others what their 
laws should be on a particular issue, thereby undermining basic 
federalism principles.\89\ A recent study found that 77 percent 
of class actions brought in 2001 in a rural Illinois county 
known for its heavy class action docket sought to certify 
nationwide classes.\90\ These cases challenged matters as 
diverse as MTBE in wells, telephone billing practices, chicken 
processing procedures, and insurance reimbursement policies. 
Clearly, a system that allows state court judges to dictate 
national policy on these and other issues from the local 
courthouse steps is contrary to the intent of the Framers when 
they crafted our system of federalism. In one case, for 
example, plaintiffs filed suit in an Alabama county court on 
behalf of more than 20 million people alleging that the design 
of federally mandated airbags is faulty.\91\ From the 
standpoint of federalism, this suit defies logic. Why should an 
Alabama state court tell 20 million people in all 50 states 
what kind of airbags they can have in their cars?
---------------------------------------------------------------------------
    \89\ See Hearings on S. 353, Prepared Statement of John H. Beisner.
    \90\ 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).
    \91\ See Smith v. General Motors Corp., et al., Civ. A. No. 97-39 
(Cir. Ct. Coosa County, AL).
---------------------------------------------------------------------------
    The most egregious of such cases are those in which one 
state court issues nationwide rulings that actually contradict 
the laws of other states. This problem is particularly 
prevalent in insurance cases, which are being filed in 
increasingly greater numbers. As District of Columbia Insurance 
Commissioner Lawrence Mirel testified before this Committee 
last year, class actions ``frequently go[] around or simply 
ignore[] the role of state regulators.'' \92\
---------------------------------------------------------------------------
    \92\ See Hearing on Class Actions, Prepared Statement of Lawrence 
Mirel.
---------------------------------------------------------------------------
    One case reported in the New York Times, for example, 
involved a longstanding practice of the State Farm Insurance 
Companies (shared by other insurers) of using non-original 
equipment manufacturer (OEM) parts to repair cars.\93\ The 
practice was fully disclosed to policyholders, and the majority 
of states expressly permit insurers to specify non-OEM parts. 
Indeed, two states, Hawaii and Massachusetts, actually require 
the specification of non-OEM parts. Nonetheless, plaintiffs 
brought suit in Illinois state court claiming that all non-OEM 
parts used by policyholders were inferior to OEM parts, and 
that State Farm had breached its contractual obligation to 
policyholders and committed fraud each time it specified such 
parts. Even though the plaintiffs eventually dropped their 
claim that all non-OEM parts were inferior, and conceded that 
this could only be determined on a part-by-part basis, the 
trial court still permitted the jury to reach a group judgment 
on the class action. The court was not even deterred by the 
fact that the plaintiffs in the class came from states 
throughout the nation with widely varying laws regarding the 
use of non-OEM parts, including the two states--Hawaii and 
Massachusetts--that strongly embraced the very practice 
condemned by plaintiffs.\94\ Indeed, in affirming a $1.3 
billion verdict against State Farm in this case, an Illinois 
state appellate court acknowledged that it had disregarded 
``state insurance commissioners [w]ho testified that the laws 
of many of our sister states permit and in some cases * * * 
[even] encourage'' usage of non-OEM parts.\95\
---------------------------------------------------------------------------
    \93\ Suit Against Auto Insurer Could Affect Nearly All Drivers, 
N.Y. Times, Sept. 27, 1998, at 29.
    \94\ See Snider v. State Farm Mutual Automobile Insurance Co., Cir. 
Ct. for Williamson City., IL, Docket No. 97-L-114 (1999).
    \95\ Avery v. State Farm Auto. Ins. Cos., 746 N.E.2d 1242, 1254 
(Ill. Ct. App. 2001).
---------------------------------------------------------------------------
    The State Farm case is not unique. This state court 
interference with the laws of other jurisdictions is becoming 
disturbingly common. For example:
     Just recently an Ohio court determined that it was 
appropriate to apply Ohio's laws to a laundry list of claims 
asserted against a plumbing company by a nationwide class of 
plaintiffs, holding that all fifty states essentially have the 
same laws with regard to fraud and unjust enrichment cases.\96\
---------------------------------------------------------------------------
    \96\ See Opinion and Order Granting Class Certification, Linn v. 
Roto-Rooter, Inc., No. CV-467403 (Court of Common Please, Ohio, 
February 23, 2003).
---------------------------------------------------------------------------
     The Supreme Court of Oklahoma recently affirmed 
the certification of a nationwide product liability class 
action, applying the laws of a single state to transactions 
that occurred in all 50 states.\97\ 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.
---------------------------------------------------------------------------
    \97\ Ysbrand v. DaimlerChrysler Corp., 2003 Okla. LEXIS 17 (Okla. 
2003).
---------------------------------------------------------------------------
     The Minnesota Court of Appeals recently affirmed a 
nationwide class action where the plaintiffs alleged fraud in 
the marketing of an herbicide, in which the court applied 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).\98\ 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.\99\
---------------------------------------------------------------------------
    \98\ Peterson v. BASF Corp., 657 N.W.2d 853 (Minn. App. Ct. 2003).
    \99\ Id. at 875.
---------------------------------------------------------------------------
     A few years ago, a state trial court in Minnesota 
approved for class treatment a case involving millions of 
claimants from 44 states that would have had the effect of 
dictating the commercial codes of all those states.\100\ The 
specific issue in the case was whether individuals have a state 
law right to recover interest on refundable deposits paid to 
secure an automobile lease. In certifying a class in that case, 
the court adopted an understanding of Minnesota's version of 
the Uniform Commercial Code that was contrary to the 
interpretation of every other state to have considered the 
issue under their own versions of the UCC. By certifying the 
class, the court decided that its unprecedented interpretation 
of the UCC would bind the remaining 43 states that had yet to 
decide the question (even though the ``Uniform Commercial Code 
is not uniform'' and is interpreted differently in different 
states \101\). In essence, the action of the Minnesota court 
proposed to dictate the interpretation of 43 other states' UCC 
provisions even though the other states might well have reached 
a different conclusion in applying their own state's laws.
---------------------------------------------------------------------------
    \100\ Rosen v. PRIMUS Automotive Fin. Servs., Inc., No. CT 98-2733 
(Minn. D. Ct., 4th Jud. Dist., May 4, 1999).
    \101\ Walsh v. Ford Motor Co., 807 F.2d 1000, 1016-17 (D.C. Cir. 
1986).
---------------------------------------------------------------------------
    The sentiment reflected in these cases flies in the face of 
basic federalism principles by embracing the view that other 
states should abide by the deciding court's law whenever it 
determines that its own laws are preferable to other states' 
contrary policy choices. Indeed, such examples of judicial 
usurpation, in which one state's courts try to dictate its laws 
to 49 other jurisdictions, have been duly criticized by some 
congressional witnesses, including former Clinton Solicitor 
General Walter Dellinger, as ``false federalism.'' \102\ When 
this occurs, is poses serous problems for the courts of other 
states. For example, as noted earlier, the Vermont Supreme 
Court recently nullified an Alabama court's approval of the 
Bank of Boston case as it applied to Vermonters because it 
violated due process.\103\
---------------------------------------------------------------------------
    \102\ See Interstate Class Action Jurisdiction Act of 1999: Hearing 
on H.R. 1875 Before the House Comm. on the Judiciary, 106th Cong. 
(1999) (hereinafter ``Hearing on H.R. 1875), Prepared Statement of 
Walter E. Dellinger III.
    \103\ See State of Vermont v. Homeside Lending, Inc. and 
BankBostonCorporation, 2003 VT 17 (Vt. 2003).
---------------------------------------------------------------------------
    Given the range and severity of class action abuse, it is 
not surprising that defendants frequently find it necessary to 
remove class actions against them to a federal forum--a forum 
where the threat of prejudice is significantly lower. Under 
current law, however, plaintiffs' lawyers can easily manipulate 
their pleadings to ensure that their cases remain at the state 
level. As noted above, the two most common tactics employed by 
plaintiffs' attorneys in order to guarantee a state court 
tribunal are: adding parties to destroy diversity and shaving 
off parties with claims for more than $75,000. It is not rare 
to see complaints in which plaintiffs sue several major 
corporations and then add one local supplier or dealer as a 
defendant merely to defeat diversity.\104\ Other complaints 
seek $74,999 in damages on behalf of each plaintiff or 
explicitly exclude from the proposed class anybody who has 
suffered $75,000 or more in damages.\105\
---------------------------------------------------------------------------
    \104\ See Hearings on S. 353, Prepared Statement of Stephen G. 
Morrison.
    \105\ Id.
---------------------------------------------------------------------------
    The Committee believes 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. By enabling federal 
courts to hear more class actions, S. 274 will help to minimize 
the class action abuses taking place in state courts and to 
ensure that these cases can be litigated in a proper forum.

F. The Support for This Bill Is Unprecedented

    The class action abuse problem has hit critical mass. Like 
never before, the public, the media, and experts agree that the 
nation's class action system is seriously broken, and that 
current practices are far from what the Framers envisioned. A 
recent study commissioned by the United States Chamber of 
Commerce found unprecedented support for class action reform. 
Major media outlets have editorialized in favor of reform and, 
in many instances, in favor of this very legislation. Further, 
despite the contrary claims of the increasingly dwindling ranks 
of critics, the Judicial Conference of the United States has 
recently embraced the notion of expanded federal jurisdiction 
for class actions. Likewise, the American Bar Association now 
recognizes that federal jurisdiction for selected class actions 
is the right fix for the growing problem of abuses. Below is a 
sampling of the public and expert support this reform effort 
enjoys.
     An overwhelming number of Americans have been 
personally affected by class action lawsuits, and the majority 
were disappointed by the results. 50 percent have received a 
notice in the mail that they may be a party to a class action 
lawsuit. Of these, 30 percent have taken the steps necessary to 
participate in the lawsuit. Of those who took the steps, 53 
percent report that they didn't receive anything of meaningful 
value.\106\
---------------------------------------------------------------------------
    \106\ Penn, Schoen & Berland Associates 2003 Chamber of Commerce 
poll.
---------------------------------------------------------------------------
     Americans believe that their legal system is in 
need of reform. 44 percent think it is in need of major reform; 
45 percent think it needs minor reform; while only 7 percent 
think it needs no reform at all.\107\
---------------------------------------------------------------------------
    \107\ Id.
---------------------------------------------------------------------------
     According to a USA Today poll, 67 percent of those 
polled believe that class actions most benefit the lawyers, and 
only 9 percent believe that the plaintiffs benefit most.
     Numerous newspapers have expressed support for 
legal reform of the abusive class action system, including: The 
Washington Post, The Wall Street Journal, the Chicago 
Tribune,Financial Times, USA Today, The Christian Science Monitor, the 
Akron (Ohio) Beacon Journal, the Albany (New York) Times-Journal, The 
Buffalo (New York) News, The Des Moines Register, The Jacksonville 
(Florida) Times-Union, The Cedar Rapids (Iowa) Gazette, The Everett 
(Washington) Herald, The Indianapolis Star, King County (Washington) 
Journal, The Las Vegas Journal-Review, The Lincoln (Neb.) Journal-Star, 
The Santa Fe New Mexican, The St. Louis Post-Dispatch, Newsday (Long 
Island, New York), Northwest Arkansas Business Journal, The Odessa 
(Texas) American, The Omaha World-Herald, The Orlando Sentinel, The 
(Portland) Oregonian, The Providence (Rhode Island) Journal, and The 
Tyler (Texas) Morning Telegraph.
     The Judicial Conference of the United States, in a 
March 26, 2003 letter to the Committee, ``recognize[d] that the 
use of minimal diversity of citizenship may be appropriate to 
the maintenance of significant multi-state class action 
litigation in federal courts.'' The Conference encourages 
Congress to include limitations such as a heightened 
jurisdictional threshold, a role for the states for in-state 
class actions, and like limitations. This bill reflects those 
considerations in its discretionary remand section.
     In February of 2003, the House of Delegates of the 
American Bar Association adopted a resolution acknowledging 
problems with the class action system and supporting expanded 
federal jurisdiction to fix abuses with the system.
     The Department of Justice has expressed support 
for the House class action bill (H.R. 1115).
     Clinton Administration Solicitor General Walter 
Dellinger has testified before the Congress in support of 
expanded federal jurisdiction to curb class action abuses, and, 
in particular, to restore the Framers' intention that federal 
courts have jurisdiction over large inter-state cases.

                          V. How S. 274 Works

    S. 274 is a modest step toward addressing a number of the 
problems and abuses in the current class action system. First, 
S. 274 implements a consumer bill of rights that requires 
greater scrutiny of coupon and net loss settlements, and 
regulates ``bounty'' payments to class representatives and 
class members who are geographically located near the court. S. 
274 also implements additional notice requirements to better 
inform plaintiff class members about: (a) the terms of a class 
action settlement, (b) the rights they will forfeit as members 
of the class, (c) the obligations the settlement agreement 
places on the defendants, and (d) the amount of attorneys' fees 
that will be awarded to counsel representing their interests. 
Furthermore, S. 274 provides an additional mechanism to 
safeguard plaintiff class members' rights by requiring class 
counsel to provide appropriate state and federal officials with 
notice of class action settlements, so that the state and 
federal governments have the opportunity to intervene in a case 
if they feel that a class action settlement is not in the best 
interests of their citizens.
    Second, S. 274 modifies diversity jurisdiction and removal 
rules so that larger interstate class actions can be heard in 
federal court. In doing so, the Act also makes it harder for 
plaintiffs' counsel to ``game the system'' by inappropriately 
keeping class actions in state courts where certain judges are 
quick to certify a class regardless of due process concerns or 
to approve a settlement regardless of the fairness to class 
members. Moreover, the Act improves the efficiency of the 
judicial system by enabling overlapping and ``copycat'' cases 
to be consolidated in a single federal court, rather than 
allowing them to proceed in numerous state courts as does the 
current system. However, the bill ensures that matters 
principally involving single state issues and parties will 
continue to proceed in that state's courts.
    Finally, S. 274 addresses the problem of unfair settlements 
and excessive attorneys' fees by directing the Judicial 
Conference of the United States to conduct a review of class 
action settlements and attorneys' fees and to present Congress 
with recommendations to improve the system.

A. Consumer Bill of Rights

    S. 274 contains a number of provisions to protect class 
members from unfair settlements and to better inform them of 
their rights in class action cases. For example, S. 274 
requires greater scrutiny of coupon and other noncash 
settlements; such settlements are prohibited absent written 
findings by the court that they benefit the class members. This 
provision will protect consumers against the abusive practices 
that allow lawyers to enrich themselves while ignoring 
meaningful relief for the parties who were actually injured.
    S. 274 also requires careful oversight of the payment of 
``bounties'' to class representatives and of extra compensation 
to members of a class who live closer to the court. This 
provision will protect unnamed class members from having to 
unnecessarily share their awards, and will end the practice of 
unscrupulous lawyers finding a perceived wrong, then shopping 
for a client. The Committee heard testimony about a consortium 
of class action lawyers that would meet to strategize and 
search for cases to bring long before they had an actual 
plaintiff on whose behalf to sue.\108\ In order to better 
protect class members, S. 274 amends the class action rules by 
requiring that class counsel serve appropriate state and 
federal officials with notice of a proposed settlement. This 
notice must occur no later than 10 days after the proposed 
settlement is filed in federal court.
---------------------------------------------------------------------------
    \108\ See Class Action Lawsuits--Examining Victim Compensation and 
Attorney's Fees: Hearing before the Subcomm. on Administrative 
Oversight and the Courts, Senate Comm. on the Judiciary, Serial No. J-
105-62 (S. Hrg. 105-504), 105th Cong., 1st Sess. (Oct. 30, 1997), 
Prepared Statement of Lewis Goldfarb; 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), Prepared Statement of Dick Thornburgh.
---------------------------------------------------------------------------
    The notice to the appropriate officials would include: (1) 
a copy of the complaint and amended complaints, unless those 
materials are available through the Internet and the notice 
includes directions on how to access the materials on-line; (2) 
notice of any scheduled judicial hearing in the class action; 
(3) proposed or final notification to class members of their 
right to be excluded from the class; (4) any proposed or final 
class action settlement; (5) any settlement made between class 
counsel and defendants' counsel; (6) any final judgment or 
notice of dismissal; and (7) the names of the class members who 
reside in each respective state and the proportionate claims of 
such members. The designated officials would then have at least 
90 days to review the proposed settlement before a court gives 
a settlement final approval.
    Nothing in this section creates an affirmative duty for 
either the state or federal officials to take any action in 
response to a class action settlement. Moreover, nothing in 
this section expands the current authority of the state or 
federal officials. The purpose of this notice provision is to 
protect citizens of one state from unfair rulings by another 
state, such as the Alabama settlement in the Bank of Boston 
case that the Vermont Supreme Court held violated due process. 
Generally, under the Constitution's full faith and credit 
clause, one state court is bound by another court's decisions. 
Thus, absent a finding like the one made by the Vermont Supreme 
Court, consumers are bound by settlements reached before other 
state courts. S. 274 would help protect consumers from being 
bound by unfair out-of-state settlements by enabling state 
officials to inject themselves into federal class actions to 
protect their citizens, prior to a judgment being rendered, 
rather than having multiple states try to undo an unfair 
settlement after the fact.
    S. 274 also aims to help class members better understand 
their rights in a class action, by requiring that any notice 
provided to class members explain in plain, easily understood 
language: (1) the subject matter of the class action; and (2) 
the legal consequences of being a member of the class action. 
In addition, if the notice involves a proposed settlement, it 
must explain, also in plain, easily understood language: (1) 
the benefits a settlement will offer the class; (2) the rights 
a plaintiff would waive through settlement; (3) the obligations 
a defendant would incur in the proposed settlement; and (4) the 
amount of the attorneys' fees or a good faith estimate of the 
fees being sought, and an explanation of how the fees will be 
calculated.
    The Committee believes that improved notice requirements 
will create a better informed plaintiff class. Not only will 
plaintiffs be able to more effectively monitor their own case, 
but the notice provisions will provide an effective deterrent 
against many of the types of abuse taking place in class action 
litigation.
    The Committee is aware that pursuant to the Rules Enabling 
Act, the U.S. Supreme Court recently transmitted to Congress 
several amendments to Rule 23 of the Federal Rules of Civil 
Procedure.\109\ Several of those amendments reflect very 
thoughtful efforts by the Judicial Conference of the United 
States, the Standing Committee on Rules and Procedure, and the 
Advisory Committee on Civil Rules to address this same issue of 
clarity of notices to class members. In reviewing those 
amendments carefully, the Committee believes that the notice-
related provisions of S. 274 and the proposed amendments to 
Rule 23 are complementary.
---------------------------------------------------------------------------
    \109\ See Amendments to Federal Procedure Rules, 71 U.S.L.W. 4253, 
4254-55 (U.S. Apr. 1, 2003) (Supreme Court order amending rules 
pursuant to Rules Enabling Act).
---------------------------------------------------------------------------
    S. 274 also requires that radio, television or Internet 
notice informing class members of their right to be excluded 
from a settlement must explain in plain, easily understood 
language who may be a member of the class and that class 
members will be subject to the class action or settlement 
unless they take steps to exclude themselves.

B. Diversity Jurisdiction and Removal

    S. 274 amends the diversity jurisdiction and removal 
statutes applicable to larger interstate class actions. S. 274 
modifies 28 U.S.C. Sec. 1332 to incorporate the concept of 
balanced diversity. The bill grants the federal courts original 
jurisdiction to hear interstate class action cases where (a) 
any member of the proposed class is a citizen of a different 
state from any defendant and (b) the $5 million jurisdictional 
amount requirement (taking account of all claims of all 
purported class members in the aggregate, exclusive of interest 
and costs) is satisfied, and (c) the case involves a class of 
100 or more members.
    Under current law, the threshold dollar amount for bringing 
a federal class action varies. In some jurisdictions, so long 
as one class member suffered over $75,000 in damages, federal 
jurisdiction is satisfied if diversity is otherwise 
satisfied.\110\ In other jurisdictions, all class members must 
satisfy the $75,000 jurisdictional threshold.\111\ Thus, a 
curious disparity results: in some jurisdictions, if the named 
class member suffered $75,001 in damages, and no other class 
member suffered financial injury, the case could go to federal 
court. Yet in other jurisdictions, if a number of class members 
suffer millions in damages, yet a few do not satisfy the 
$75,000 threshold, the case cannot go to federal court. S. 274 
draws a reasonable line, avoiding arbitrary and rigid 
requirements for individual class members, while focusing on 
the total amount in controversy in an effort to target large, 
national cases.
---------------------------------------------------------------------------
    \110\ See Rosmer v. Pfizer, Inc., 263 F.3d 110 (4th Cir. 2001).
    \111\ See Trimble v. Asarco, Inc., 232 F.3d 946 (8th Cir. 2000).
---------------------------------------------------------------------------
    The bill, however, includes several provisions intended to 
ensure that state courts can adjudicate class actions that are 
truly local in nature, by restricting the right to remove some 
class actions brought in a defendant's home state. Under these 
provisions, class actions filed in the home state of the 
primary defendants would automatically be subject to federal 
jurisdiction if less than one-third of the class members were 
citizens of that state. Conversely, if two-thirds or more of 
the class members are from the defendant's home state, the case 
would not be subject to federal jurisdiction. For cases brought 
in a defendant's home state in which between one-third and two-
thirds of the class members were citizens of that state, 
federal jurisdiction would also exist; however, a federal judge 
could decline to exercise that jurisdiction based on 
consideration of five factors designed to help assess whether 
the claims at issue are indeed local in nature.
    S. 274 also excludes from its federal jurisdiction grant: 
(1) class actions involving fewer than 100 plaintiff class 
members and (2) class actions in which the primary defendants 
are states, state officials, or other governmental entities 
against whom the district court may be foreclosed from ordering 
relief. S. 274 also exempts from its diversity jurisdiction and 
removal reforms any securities class action cases covered by 
the Securities Litigation Reform Act and corporate governance 
cases.
    In order to better protect the rights of all class members 
and parties, S. 274 creates four new rules regarding the 
removal of class actions filed in state court. First, unnamed 
plaintiff class members would be able to remove class actions 
to federal court. Second, parties would be able to remove a 
class action to federal court without the consent of any other 
party. Third, any plaintiff or defendant would be able to 
remove a class action to federal court, regardless of whether 
that party is a citizen of the state in which the action was 
brought. And fourth, the current ban on removal of a class 
action to federal court after one year would be eliminated, 
although the requirement that removal occur within 30 days of 
notice of grounds for removal would be modified and retained. 
This last provision protects against the abusive practice of 
manipulating, and then amending, pleadings to aid plaintiffs' 
counsel in forum shopping.
    In addition, S. 274 provides that a federal court must 
dismiss a class action without prejudice if it finds that the 
removed class action does not meet the requirements for 
proceeding on a class basis under Rule 23 of the Federal Rules 
of Civil Procedure. Plaintiffs could then amend and refile 
their complaint in state court; however, the refiled case would 
once again be eligible for removal if original federal 
jurisdiction exists.
    S. 274 also addresses statutes of limitations issues in two 
ways. First, if plaintiffs file a class action in state court 
and the case is then removed to a federal court, which 
dismisses it for failure to meet the requirements of Rule 23, 
the statute of limitations would not run for the period that 
the dismissed class action was pending in either court, 
provided the case is refiled in the same state court by at 
least one of the original named plaintiffs. Second, if a 
removed class action is dismissed by a federal court for 
failure to meet the requirements of Rule 23, the statute of 
limitations will not have been tolled with regard to any 
individual actions later brought by members of the dismissed 
class, regardless of where such individuals choose to sue.

C. Report on Class Action Settlements

    In order to assist Congress in its oversight of class 
action settlements, S. 274 directs the Judicial Conference of 
the United States, with the assistance of the Federal Judicial 
Center and Administrative Office of the United States Courts, 
to prepare a report on class action settlements to be 
transmitted to the House and Senate Judiciary Committees. The 
report will include recommendations on best practices to ensure 
the fairness of proposed class action settlements for class 
members, recommendations on best practices to ensure the 
appropriateness of attorneys' fees and expenses, and a 
discussion of any actions taken or planned by the Judicial 
Conference to implement the recommendations in the report.

                    VI. Section-by-Section Analysis

    Section 1.--Section 1 establishes the ``Class Action 
Fairness Act of 2003'' as the short title of the bill.
    Section 2.--Section 2 sets forth findings and purposes. The 
Committee is concerned that there have been abuses of the class 
action device over the last decade that have hurt consumers, 
adversely affected interstate commerce, and undermined public 
respect for our judicial system. In particular, the Committee 
is concerned about class actions that do little to benefit--and 
sometimes actually harm--the class members who are supposed to 
be the beneficiaries of such cases, while enriching their 
lawyers. The Committee is also concerned that this problem is 
exacerbated by confusing notices that make it difficult for 
class members to understand and effectively exercise their 
rights. Taken together, the Committee believes that such abuses 
hurt consumers by resulting in higher prices and less 
innovation, and that they undermine the principles of diversity 
jurisdiction, which were established by the Framers to promote 
interstate commerce.
    The purposes of the Act are therefore to assure fair and 
prompt recoveries for class members with legitimate claims; to 
restore the intent of the Framers by expanding federal 
jurisdiction over interstate class actions; and to benefit 
society by encouraging innovation and lowering consumer prices.
    Section 3.--Section 3 sets forth a ``Consumer Class Action 
Bill of Rights'' to help ensure that class actions do not hurt 
their intended beneficiaries. This section is intended to 
address a number of common abuses that were discussed by 
witnesses at class action hearings and have been reported on in 
the press--and to encourage greater judicial scrutiny of 
proposed class action settlements.
    Abusive class action settlements in which plaintiffs 
receive promotional coupons or other nominal damages while 
class counsel receive large fees are all too commonplace. The 
risk of such abusive practices is particularly pronounced in 
the class action context because these suits often involve 
numerous plaintiffs, each of whom has only a small financial 
stake in the litigation. As a result, few (if any) plaintiffs 
closely monitor the progress of the case or settlement 
negotiations, and these cases become ``clientless litigation,'' 
in which the plaintiff attorneys and the defendants have 
``powerful financial incentives'' to settle the ``litigation as 
early and as cheaply as possible, with the least publicity.'' 
\112\ These financial incentives create inequitable outcomes. 
``For class counsel, the rewards are fees disproportionate to 
the effort they actually invested in the case * * * For 
society, however, there are substantial costs: lost 
opportunities for deterrence (if class counsel settled too 
quickly and too cheaply), wasted resources (if defendants 
settled simply to get rid of the lawsuit at an attractive 
price, rather than because the case was meritorious), and--over 
the long run--increasing amounts of frivolous litigation as the 
attraction of such lawsuits becomes apparent to an ever-
increasing number of plaintiff lawyers.'' \113\
---------------------------------------------------------------------------
    \112\ Deborah Hensler, et al., Class Action Dilemmas, Pursuing 
Public Goals for Private Gain 10 (1999) (executive summary).
    \113\ Id.
---------------------------------------------------------------------------
    New section 28 U.S.C. Sec. 1712 requires federal courts, 
before approving a proposed settlement that involves non-cash 
benefits or that would require class members to expend money in 
order to obtain benefits, to hold a hearing and make written 
findings that the settlement is fair, reasonable and adequate 
for class members. The purpose of this provision is to ensure 
that non-cash settlements provide real benefits to class 
members, consistent with the strength and validity of the 
claims that are proposed for settlement. This provision is 
intended to apply, for example, to cases in which the 
settlement provides coupons, requiring consumers to buy a 
product from the offending company at a nominally reduced 
price. This section is intended to address the rapidly 
increasing volume of class settlements in which consumers 
receive little or no benefit and attorneys are awarded 
substantial compensation. The Committee wishes to make clear 
that it does not intend 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 seriously questioned by 
the reviewing court where the attorneys' fees demand is 
disproportionate to the level of tangible, non-speculative 
benefit to the class members. 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 wholly or partially rejected because the compensation 
proposed to be paid to the class counsel was disproportionate 
to the real benefits to be provided to class members.\114\
---------------------------------------------------------------------------
    \114\ 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. 2ds 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).
---------------------------------------------------------------------------
    New section 28 U.S.C. Sec. 1713 prohibits federal courts 
from approving a proposed settlement under which class members 
would be required to pay class counsel a sum of money that 
results in a net loss (as occurred in the Bank of Boston case, 
discussed above), unless the court makes a written finding that 
nonmonetary benefits to the class members substantially 
outweigh the monetary loss.
    New section 28 U.S.C. Sec. 1714 prohibits federal courts 
from approving proposed settlements that provide for payment of 
greater sums to certain class members based on where they 
reside. 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.
    New section 28 U.S.C. Sec. 1715(a) prohibits the payment of 
``bounties'' to class representatives. In a class action, a 
class representative has the responsibility of making decisions 
on behalf of the putative class regarding the litigation. In 
making such decisions, the class representative has a fiduciary 
duty to represent the interests of all class members and to 
avoid self-dealing in any respect. The Committee is concerned 
that in negotiating settlements on behalf of the class, the 
capacity of class representatives to negotiate separate deals 
for themselves may be inconsistent with that fiduciary 
obligation. Where class representatives are awarded relief in 
excess of what is provided to other class members in a 
settlement, there is an appearance that the fiduciary duty has 
been breached--that the class representative may have been less 
than zealous in representing the class interests in order to 
secure personal compensation for himself or herself from the 
defendant. This provision is intended to ensure that no 
breaches of this fiduciary duty occur and that there be no 
appearance of such breaches. 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 1715(b) therefore makes clear that 
section 1715(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, so long 
as the court approves such payments.
    The Committee wishes to stress that this provision is not 
intended to address injunctive relief; the section applies only 
to monetary relief--to the ``payment of a greater share of [an] 
award.'' Thus, for example, if under the terms of a employment-
related class action, a class representative is among those 
class members entitled to be reinstated to their former 
positions, section 1714 should not come into play (even though 
some other class members might not be reinstated under the 
terms of the settlement). Similarly, the Committee wishes to 
emphasize that section 1714 restricts only those payments that 
exceed a class representative's entitlement under ``the formula 
for distribution to other class members.'' Thus, if a class 
representative was employed by a company longer than other 
members of the purported class, he/she might be entitled to 
greater benefits under the terms of an employment-related class 
action. Section 1714 should not preclude or otherwise affect 
those payments. Section 1714 is intended to regulate only those 
payments that are made to class representatives solely because 
they have that role; it is not intended to restrict payments to 
class representatives that are based on the value of their 
individual claims as determined for settlement purposed on a 
class-wide basis.
    New section 28 U.S.C. Sec. 1716 mandates that plaintiffs be 
made aware of their rights and obligations under proposed class 
settlements in a manner calculated to be readily comprehended 
by consumer class members. Thus, settlement notices must 
explain in ``plain, easily understood language'' the subject 
matter of the case, the members of the class, the consequences 
of being a member, the benefits of settlement to the class, the 
rights that class members will lose through the settlement, the 
obligations of defendants under the proposed settlement, the 
dollar amount class counsel are seeking in attorneys' fees (or, 
if not possible, a good faith estimate of the fees thatclass 
counsel will request), and an explanation of how attorneys' fees will 
be calculated. The notice must also include any other material 
information regarding the class action. Such ``material matter'' would 
include any other information a reasonable person would want to know 
before deciding whether to participate in a class action or proposed 
settlement.
    The proper test for determining if class notice is written 
in ``plain, easily understood language'' is reasonableness--
i.e., whether a reasonable person would find the language in 
the notice to be ``plain, easily understood language.'' The 
Committee intends that class counsel bear the burden of proving 
that a reasonable person would find that the notice includes 
all of the requirements listed in this section in ``plain, 
easily understood language.''
    During hearings on class action reform, witnesses discussed 
the problem of conveying to the potential class member a clear 
understanding of the rights and obligations that accompany 
membership in the class. As one witness testified: ``The class 
notices that class members receive frequently are written in 
small print and legalese. Since those notices typically are 
telling class members that they are about to give up important 
legal rights (unless they take appropriate action), it is 
imperative that they understand what they are doing and the 
ramifications of their actions.'' \115\
---------------------------------------------------------------------------
    \115\ See Hearings on S.353, Prepared Statement of Stephan G. 
Morrison.
---------------------------------------------------------------------------
    The Committee believes that a better-informed plaintiff 
class will be better able to police the abuses rampant in 
current class action litigation and will be better able to 
exercise their rights. Thus, much like the attorney general 
notification provision, the plain language requirement should 
create another layer of protection against inequitable class 
settlements and the ``clientless litigation'' problem.
    The Committee is aware that pursuant to the Rules Enabling 
Act, the U.S. Supreme Court recently transmitted to Congress 
several amendments to Rule 23 of the Federal Rules of Civil 
Procedure. Several of those amendments reflect very thoughtful 
efforts by the Judicial Conference of the United States, the 
Standing Committee on Rules and Procedure, and the Advisory 
Committee on Civil Rules to address this same issue--clarity of 
notices to class members. In reviewing those amendments 
carefully, the Committee believes that the notice-related 
provisions of S. 274 and the proposed amendments to Rule 23 are 
complementary.
    New section 1717 sets forth requirements for notification 
to appropriate federal and state officials of proposed class 
action settlements.
    New section 28 U.S.C. Sec. 1717 requires defendants to 
provide notice of proposed settlements to the appropriate 
federal official and to the appropriate state official of each 
state in which a class member resides. Under new section 
1717(a), the appropriate federal official is the Attorney 
General of the United States, or in the case of depository 
institutions and other banks, the person who has primary 
federal regulatory supervisory responsibility over the 
defendant if some or all of the matters at issue in the 
litigation are subject to regulation or supervision by that 
person. Thus, for example, if a national bank were sued over 
its lending practices, notice would have to be provided to the 
Comptroller of the Currency. If it were sued in a nationwide 
lawsuit regarding the food in its cafeterias, notice would be 
provided to the Attorney General.
    Under new section 28 U.S.C. Sec. 1717(a), the appropriate 
state official is defined as the person in the state who has 
primary regulatory or supervisory responsibility with respect 
to the defendant or licenses the defendant, if some or all of 
the matters alleged in the class action are subject to 
regulation by that person. If no such state regulatory or 
licensing authority exists, or the matters are not subject to 
regulation by that person, then notice should be given to the 
state attorney general. Thus, for example, in a case against an 
insurance company involving insurance practices, such as how 
premiums are calculated, notice would be required to be given 
to the state insurance commissioner in each state where the 
company is licensed and where class members reside. If some 
class members reside in states where the company does not do 
business and therefore is not subject to regulation, then 
notice would be given to those states' attorneys general. 
Similarly, if the company at issue were a toy manufacturer, 
which is not licensed by a particular regulatory body, then 
notice would have to be given to the state attorney general of 
each state where plaintiffs reside.
    New section 28 U.S.C. Sec. 1717(c) clarifies that in the 
case of federal depository institutions and other non-state 
depository institutions, the notice requirements are satisfied 
by notifying the person who has primary Federal regulatory or 
supervisory responsibility with respect to the defendant, if 
some or all of the matters alleged in the class action are 
subject to regulation or supervision by that person. No notice 
is required to state officials in these circumstances. Thus, 
for example, if a national bank were sued over its depository 
or lending practices, notice would have to be given to the 
Comptroller of the Currency, who has regulatory authority over 
the institution. However, no notice would be required to state 
officials.
    With regard to state depository institutions, the notice 
requirements are satisfied by notifying the state banking 
supervisor in the state where the defendant is incorporated, if 
some or all of the matters alleged in the class action are 
subject to regulation or supervision by that person, and upon 
the appropriate federal official. Thus, no notice is required 
to state officials in other states even if some class members 
reside in those states.
    This provision is intended to combat the ``clientless 
litigation'' problem by adding a layer of independent oversight 
to prohibit inequitable settlements. Under section 28 U.S.C. 
Sec. 1717(b), class counsel must provide the notice within 10 
days after the proposed settlement is filed in court. Such 
notice must include, according to 28 U.S.C. Sec. 1717(b) (1)-
(8): a copy of the complaint; any scheduled judicial hearings; 
any final judgment or notice of settlement; any proposed or 
final notice to the class; and the names of class members who 
reside in each state, if feasible. The notice would also 
include any written judicial decision related to settlement, a 
final judgment, or notice of dismissal. If disagreement arises 
over the feasibility of providing the names of class members 
and their proportional share of the proposed settlement under 
28 U.S.C. 1717(b), it is the intent of the Committee that class 
counsel bear the burden of proving that it is not feasible to 
provide any of this required information.
    Once the appropriate state and federal officials have 
received notice under 28 U.S.C. Sec. 1717(b), they would then 
have at least 90 days to review the proposed settlement and 
decide whether to object in the interest of the plaintiff 
class. The state and federal officials are not required to take 
any affirmative action once they receive the proposed 
settlement according to new section 28 U.S.C. Sec. 1717(f), nor 
does this section expand their current authority in any 
respect.
    New section 28 U.S.C. Sec. 1717(e)(1) instructs that in 
cases where the appropriate state and federal officials are not 
provided notice of the potential settlement, plaintiffs can 
choose not be bound by that settlement. The Committee wishes to 
make clear that this provision is intended to address 
situations in which defendants have simply defaulted on their 
notification obligations under this provision; it is not 
intended to allow settlement class members to walk away from an 
approved settlement based on a technical noncompliance (e.g., 
notification of the wrong person or failure of the official to 
receive notice that was sent), particularly where good faith 
efforts to comply occurred. In particular, the Committee wishes 
to note that where the appropriate officials received 
notification of a proposed settlement from at least one 
defendant, section 1717(e) should not be operative. New 
subsection 1717(e)(2) specifically states that a class member 
may not refuse to comply with a settlement if the notice was 
directed to the appropriate federal official and to the state 
attorney general or the primary licensing authority. This 
provision reflects the overall intent of section 1717 that a 
settlement should not be undermined because of a defendant's 
innocent error about which federal or state official should 
have received the required notice in a particular case.
    The Committee believes that notifying appropriate state and 
federal officials of proposed class action settlements will 
provide a check against inequitable settlements in these cases. 
Notice will also deter collusion between class counsel and 
defendants to craft settlements that do not benefit the injured 
parties.
    Section 4.--Section 4 amends 28 U.S.C. Sec. 1332 to 
redesignate current subsection 1332(d) as subsection (e) and 
create a new subsection 1332(d).
    The new subsection 1332(d)(2) gives the federal courts 
original jurisdiction over class action lawsuits in which the 
matter in controversy exceeds the sum or value of $5,000,000, 
exclusive of interest and costs, includes 100 or more members 
of the class, and either (a) any member of a class of 
plaintiffs is a citizen of a different state from any 
defendant; (b) any member of a class of plaintiffs is a foreign 
state or a citizen or subject of a foreign state and any 
defendant is a citizen of a state; or (c) any member of a class 
of plaintiffs is a citizen of a state and any defendant is a 
foreign state or a citizen or subject of a foreign state.
    The Committee notes that for purposes of the citizenship 
element of this analysis, S. 274 does not alter current law 
regarding how the citizenship of a person is determined, 
including the provisions of 28 U.S.C. Sec. 1332(c) specifying 
that ``a corporation shall be deemed to be a citizen of any 
State by which it has been incorporated and of the State where 
it has its principal place of business.'' The bill also does 
not alter the current law regarding when citizenship is 
determined for diversity purposes: the time a pleading is filed 
with the court. However, for removal purposes, citizenship may 
be reevaluated upon certification of the class.
    While the core concept of the bill is that class actions 
filed against defendants outside their home state are subject 
to federal jurisdiction if citizens from different states are 
on opposing sides and more than $5 million is at issue, new 
subsections 1332(d)(3) and (d)(4)(A) address the jurisdictional 
principles that will apply to class actions filed against a 
defendant in its home state, dividing such cases into three 
categories. These rules are designed to direct appropriate 
national cases to federal court, and appropriate local cases to 
state court.
    First, for cases in which two-thirds or more of the members 
of the plaintiff class and the primary defendants are citizens 
of the state in which the suit was filed, new subsection 
1332(d)(4)(A) states that federal jurisdiction will not be 
extended by S. 274. Such cases will remain in state courts 
under the terms of S. 274, since virtually all of the parties 
in such cases (both plaintiffs and defendants) would be local, 
and local interests therefore presumably would predominate.
    Second, cases in which more than two-thirds of the members 
of the plaintiff class and one or more of the primary 
defendants are not citizens of the state in which the action 
was filed will be subject to federal jurisdiction, pursuant to 
the provisions of new subsection 1332(d)(2). Federal courts 
should be able to hear such lawsuits because they have a 
predominantly interstate component--they affect people in many 
jurisdictions, and the laws of many states may be at issue.
    Finally, there is a middle category of class actions in 
which more than one-third but fewer than two-thirds of the 
members of the plaintiff class and the primary defendants are 
citizens of the state in which the action was filed. In such 
cases, the numbers alone may not always confirm that the 
litigation is more fairly characterized as predominantly 
interstate in character. New subsection 1332(d)(3) therefore 
gives federal courts the discretion, in the ``interests of 
justice,'' to decline to exercise jurisdiction over such cases 
based on the consideration of five factors:
     Whether the claims asserted are of ``national or 
interstate interest''.--If a case presents issues of national 
or interstate significance, that argues in favor of the matter 
being handled in federal court. For example, if a nationally 
distributed pharmaceutical product is alleged to have caused 
injurious side-effects and class actions on the subject are 
filed, those cases presumably should be heard in federal court 
because of the nationwide ramifications of the dispute and the 
probable interface with federal drug laws (even if claims are 
not directly filed under such laws). Under this factor, the 
court would inquire as to whether the case presents issues of 
national or interstate significance of this sort. If such 
issues are identified, that point favors the exercise of 
federal jurisdiction. If such issues are not identified and the 
matter appears to be more of a local (or intrastate) 
controversy, that point would tip in favor of allowing a state 
court to handle the matter.
     Whether the claims asserted will be governed by 
laws other than those of the forum state.--As noted previously, 
the Committee believes that one of the significantproblems 
posed by multi-state state court class actions is the tendency of some 
state courts to be less than respectful of the laws of other 
jurisdictions, applying the law of one state to an entire nationwide 
controversy and thereby ignoring the distinct, varying state laws that 
should apply to various claims included in the class depending on where 
they arose. Under this factor, if the federal court determines that 
multiple state laws will apply to aspects of the class action, that 
determination would favor having the matter heard in the federal court 
system, which has a record of being more respectful of the laws of the 
various states in the class action context. Conversely, if the court 
concludes that the laws of the state in which the action was filed will 
apply to the entire controversy, that factor will favor allowing the 
state court to handle the matter.
     Whether the class action has been pleaded in a 
manner that seeks to avoid federal jurisdiction.--The purpose 
of this inquiry is to determine whether the plaintiffs have 
proposed a ``natural'' class--a class that encompasses all of 
the people and claims that one would expect to include in a 
class action--as opposed to proposing a class that appears to 
be gerrymandered solely to avoid federal jurisdiction by 
leaving out certain potential class members or claims. If the 
federal court concludes evasive pleading is involved, that 
factor would favor the exercise of federal jurisdiction. On the 
other hand, if the class definition and claims appear to follow 
a ``natural'' pattern, that consideration would favor allowing 
the matter to be handled by a state court.
     Whether the number of citizens of the forum state 
in the proposed plaintiff class(es) is substantially larger 
than the number of citizens from any other state, and the 
citizenship of the other members of the proposed class(es) is 
dispersed among a substantial number of states.--This factor is 
intended to look at the geographic distribution of class 
members in an effort to gauge the forum state's interest in 
handling the litigation. To be subject to this inquiry, between 
one-third and two-thirds of the class members are citizens of 
the state in which the class action was filed and the primary 
defendants are also citizens of that state. If all of the other 
class members (that is, the class members who do not reside in 
the state where the action was filed) are widely dispersed 
among many other states (e.g., no other state accounted for 
more than five percent of the class members), that point would 
suggest that the interests of the forum state in litigating the 
controversy are preeminent (versus the interests of any other 
state). The Committee intends that such a conclusion would 
favor allowing the state court in which the action was 
originally filed to handle the litigation. However, if a court 
finds that the citizenship of the other class members is not 
widely dispersed, the opposite balance would be indicated. A 
federal forum would be favored in such a case because several 
states other than the forum state would have a strong interest 
in the controversy.
     Whether one or more class actions asserting the 
same or similar claims on behalf of the same or other persons 
have been or may be filed.--The purpose of this factor is 
efficiency and fairness: to determine whether a matter should 
be subject to federal jurisdiction so that it can be 
coordinated with other overlapping or parallel class actions. 
If other class actions on the same subject are likely to be 
filed elsewhere that will remain in federal court, the 
Committee intends that this consideration would favor placing 
all of the matters in federal court so that all claims of all 
proposed classes could be handled efficiently on a coordinated 
basis pursuant to the federal courts' multi-district litigation 
process as established by 28 U.S.C. Sec. 1407. Under that 
process, it is likely that all class actions filed on an issue 
will be handled by a single tribunal that will, in any event, 
be facing the challenge of interpreting the varying state laws 
and assessing how they should be applied to the purported class 
claims. Allowing a case to remain in federal court so that it 
may become part of that coordinated multidistrict litigation 
proceeding makes good sense. On the other hand, if other courts 
are unlikely to have to undertake the burden of handling the 
class claims and the state court appears positioned to handle 
the case in a manner that is respectful of state law 
variations, that consideration would favor remand of the matter 
to state court.
    For example, if a Virginia state court class action were 
filed against a Virginia pharmaceutical drug company on behalf 
of a proposed class of 60% Virginia residents and 40% Maryland 
residents alleging harmful side effects attributable to a drug 
sold nationwide, it would make sense to leave the matter in 
federal court. There would be a substantial possibility that 
other class actions would be filed elsewhere, possibly 
including nationwide or other multi-state class actions that 
might sweep in all or most Virginia and Maryland residents in 
the Virginia state court action. The state laws that would 
apply in all of these cases would vary depending on where the 
drug was prescribed and purchased, such that allowing a single 
court to sort out such issues and handle the balance of the 
litigation would make sense both from an efficiency and 
federalism standpoint. On the other hand, if a checking account 
fee disclosure class action were filed in a Maryland state 
court against a Maryland bank located in a border city and the 
class consisted of 65% Maryland residents and 35% Virginia 
residents (who crossed the border to conduct transactions in 
the Maryland bank), it might make sense to allow that matter to 
proceed in state court. There is less likelihood that multiple 
actions will be filed around the country on the same subject, 
so as to give rise to a coordinating federal multidistrict 
litigation proceeding. And it is likely that Maryland banking 
law would apply to all claims (even those of the Virginia 
residents), since all of the transactions occurred in Maryland. 
Thus, the federalism concerns would be substantially 
diminished.
    In sum, the Committee intends that these factors would 
permit a federal court, in its discretion, to allow a class 
action asserting primarily local claims under local law for 
what is primarily a local group of claimants to proceed in 
state court, particularly where the action has not been pleaded 
manipulatively to avoid federal jurisdiction and the case is 
not likely to become an ``orphan'' that cannot be coordinated 
with similar class actions that are or, in the future, may be 
pending in federal court.
    New subsection 1332(d)(4) (B) and (C) specify, 
respectively, that S. 274 does not extend federal diversity 
jurisdiction to class actions in which (a) the primary 
defendants are states, state officials, or other governmental 
entities against whom the district court may be foreclosed from 
ordering relief (``state action'' cases) or (b) the number of 
members of all proposed plaintiff classes in the aggregate is 
fewer than 100 class members (``limited scope'' cases). 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.\116\
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    \116\ 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) (certifying 
class with 27 class members).
---------------------------------------------------------------------------
    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.
    As S. 274 was originally drafted, the jurisdictional 
provisions in the bill would have applied not only to class 
actions but also to two types of actions that are highly 
similar to class actions: (1) cases in which the named 
plaintiff (who is not a state attorney general) seeks monetary 
relief on behalf of its members (who are not parties to the 
action) or for the interests of the general public; and (2) 
cases in which 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. The former definition was 
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. The latter definition referred to 
``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 
simultaneously 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. Thus, the bill's 
original drafters were concerned that 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.\117\
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    \117\ The due process-threatening abuses that often arise in such 
cases are detailed in Beisner, Miller, and Shors, One Small Step for a 
County Court . . . One Giant Calamity for the National Legal System, 
Civil Justice Report (Center for Legal Policy, March 2003).
---------------------------------------------------------------------------
    During the Committee mark-up, Senators Specter and 
Feinstein introduced an amendment to strike from the bill these 
provisions, which would have been codified as section 
1332(d)(9). That amendment was accepted by Chairman Hatch, with 
the understanding that there would be discussions about 
reformulating the provision. However, the amendment included a 
drafting error because it struck Section 1332(d)(9)(A) but 
failed to strike 1332(d)(9)(B). (Because of another amendment 
in the bill, Section 1332(d)(9)(B) has now been redesignated as 
1332(d)(10)(B).) Thus, as reported from Committee, the bill 
currently includes language at Section 1332(d)(10)(B) that 
erroneously refers to the stricken language and is thus 
surplusage in the reported version of S. 274.
    The Committee notes that although not reflected in the bill 
as reported by the Committee, ensuing conferences have produced 
a modified provision regarding ``mass actions'' that Senator 
Specter and the bill's other sponsors reportedly agree should 
be added to S. 274. That modified provision tracks the original 
bill, authorizing removal to federal court of major ``mass 
actions'' that otherwise meet the jurisdictional requirements 
for class actions established by the bill. However, there are 
four changes:
    First, the revised provision expressly does not permit 
removal of a ``mass action'' in which all claims arise from a 
single sudden accident (e.g., a building fire, a chemical plant 
explosion) that occurred in the state in which the action was 
filed and that allegedly resulted in injuries in that state or 
in states contiguous thereto. The rationale of this change is 
that in the event of a major sudden accident, many individual 
lawsuits are likely to be filed in local state courts and 
collected before a single court. In that narrow circumstance, 
moving a mass action to federal court might lessen (not 
increase) efficiencies, inasmuch as both federal and state 
courts might simultaneously be hearing what are essentially the 
same cases. Thus, it might be preferable to allow all such 
cases to proceed on a coordinated basis in state court. 
Further, single event accident cases do not create the risk of 
abuses posed by most mass actions--the potential that counsel 
are attempting to aggregate in a single lawsuit claims that 
arose in widely dispersed locations under widely varying 
factual circumstances and have little or no relationship to the 
forum.
    Second, the revised mass actions provision would prevent 
removal to federal court in cases in which the defendant (not 
the plaintiff) seeks to join the monetary damages claims of 
more than 100 persons for a single trial. This provision will 
prevent defendants from moving to federal courts claims that do 
not otherwise qualify for federal jurisdiction--something the 
original S. 274 mass actions provision was never intended to 
do.
    Third, the revised mass actions provision limits the 
authority of the Judicial Panel on Multidistrict Litigation to 
transfer into MDL proceedings ``mass actions'' removed under 
this provision. Under the revised provision, such transfers 
would be permitted only if transfer were requested by a 
majority of the plaintiffs in the action, if plaintiffs asked 
that the matter be turned into a class action, or if the court 
turns the matter into a class action (by affording the matter 
class status). This change recognizes the fact that a mass 
action of this sort will itself be a major piece of litigation 
(perhaps larger than any parallel MDL action), such that the 
matter should be left in the forum in which it was originally 
filed (unless attempts are made to turn the matter into a class 
action that should be subject to the bill's removal and 
jurisdictional provision to ensure coordination with other 
parallel class actions).
    Finally, the revised mass action provision confirms that 
the applicable statutes of limitations on mass action claims 
removed to federal court under this section shall be tolled 
while those claims are pending in federal court.
    Pursuant to new subsection 1332(d)(5), the claims of the 
individual class members in any class action shall be 
aggregated to determine whether the amount in controversy 
exceeds the sum or value of $5,000,000 (exclusive of interest 
and costs). The Committee intends this subsection to be 
interpreted expansively. If a purported class action is removed 
pursuant to these jurisdictional provisions, the named 
plaintiff(s) should bear the burden of demonstrating that the 
removal was improvident (i.e., that the applicable 
jurisdictional requirements are not satisfied). And if a 
federal court is uncertain about whether ``all matters in 
controversy'' in a purported class action ``do not in the 
aggregate exceed the sum or value of $5,000,000,'' 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 $5,000,000 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 S. 274 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, which will often ``cost'' 
the defendant in excess of $5,000,000. As another example, a 
declaration that a standardized product sold throughout the 
nation is ``defective'' might well put a case over the 
$5,000,000 threshold, even if the class complaint did not 
affirmatively seek a determination that each class member was 
injured by the product.
    Overall, new section 1332(d) is intended to expand 
substantially federal court jurisdiction over class actions. 
Its provisions should be read broadly, with a strong preference 
that interstate class actions be heard in a federal court if 
properly removed by any purported class member or any 
defendant.
    As noted above, it is the intent of the Committee that the 
named plaintiff(s) should bear the burden of demonstrating that 
a case should be remanded to state court (e.g., the burden of 
demonstrating that more than two-thirds of the proposed class 
members are citizens of the forum state). Allocating the burden 
in this manner is important to ensure that the named plaintiffs 
will not be able to evade federal jurisdiction with vague class 
definitions or other efforts to obscure the citizenship of 
class members. The law is clear that, once a federal court 
properly has jurisdiction over a case removed to federal court, 
subsequent events generally cannot ``oust'' the federal court 
of jurisdiction.\118\ While plaintiffs undoubtedly possess some 
power to seek to avoid federal jurisdiction by defining a 
proposed class in particular ways, they lose that power once a 
defendant has properly removed a class action to federal court.
---------------------------------------------------------------------------
    \118\ See, e.g., St. Paul Mercury Indem. Co. v. Red Cab Co., 303 
U.S. 283, 293 (1938).
---------------------------------------------------------------------------
    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% of the ladders at issue and a 
defendant manufacturer that built 20% 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.
    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. Thus, if a plaintiff seeks to have a class action 
remanded under section 1332(d)(4)(A) on the ground that the 
primary defendants and two-thirds or more of the class members 
are citizens of the home state, that plaintiff shall have the 
burden of demonstrating that these criteria are met by the 
lawsuit. Similarly, if a plaintiff seeks to have a purported 
class action remanded for lack of federal diversity 
jurisdiction under subsection 1332(d)(4)(C) (``limited scope'' 
class actions), that plaintiff should have the burden of 
demonstrating that ``all matters in controversy'' do not ``in 
the aggregate exceed the sum or value of $5,000,000, exclusive 
of interest and costs'' or that ``the number of all proposed 
plaintiff classes in the aggregate is less than 100.''
    The Committee understands that in assessing the various 
criteria established in all of these new jurisdictional 
provisions, a federal court may have to engage in some fact-
finding, not unlike that which is necessitated by the existing 
jurisdictional statutes. The Committee further understands that 
in some instances, limited discovery may be necessary to make 
these determinations. However, the Committee cautions that 
these jurisdictional determinations should be made largely on 
the basis of readily available information. Allowing 
substantial, burdensome discovery on jurisdictional issues 
would be contrary to the intent of these provisions to 
encourage the exercise of federal jurisdiction over class 
actions. For example, in assessing the citizenship of the 
various members of a proposed class, it would in most cases be 
improper for the named plaintiffs to request that the defendant 
produce a list of all class members (or detailed information 
that would allow the construction of such a list), in many 
instances a massive, burdensome undertaking that will not be 
necessary unless a proposed class is certified. Less burdensome 
means (e.g., factual stipulations) should be used in creating a 
record upon which the jurisdictional determinations can be 
made.
    New subsection 1332(d)(6) 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. The purpose of this provision is to confirm 
that both pre- and post-certification class actions shall be 
subject to the jurisdictional and removal provisions of S. 274. 
This provision is not intended to alter the deadlines for 
removal under the Judicial Code or as established by this 
legislation. Instead, it is intended to indicate that the 
certification status of a class action should not affect its 
removability.
    New subsection 1332(d)(7) details the procedures governing 
cases removed to federal court on the sole basis of new section 
1332(d) jurisdiction. Pursuant to new subsection 1332(d)(7)(A), 
the district courts are directed to dismiss any civil action 
subject to federal jurisdiction if it is determined that the 
civil action may not proceed as a class action because it fails 
to satisfy the conditions of Rule 23 of the Federal Rules of 
Civil Procedure. Notwithstanding this subsection, new 
subsection 1332(d)(7)(B) clarifies that the action may be 
amended and refiled in federal or state court; however, if such 
an action is refiled in state court, it may be removed if it is 
an action over which the district courts of the United States 
have original jurisdiction. The Committee has concluded that 
the alternative--forbidding re-removal--would be bad policy. 
That approach would allow counsel effectively to ask a state 
court to review and overrule the class certification decision 
of a federal court, since federal and state court class 
certification standards typically do not differ radically. 
Allowing a state court to certify a case that a federal court 
has already found non-certifiable would set a troubling (if not 
constitutionally suspect) precedent under which state courts 
would serve as points of appellate review of federal court 
decisions. Moreover, since federal court denials of class 
certification typically involve explicit or implied 
determinations that allowing a case to be litigated on a class 
basis would likely result in the denial of some or all of the 
parties' due process rights, there should be no room 
constitutionally for a state court to reach a different result 
on class certification issues.
    In addition, new subsection 1332(d)(7)(C) provides that, if 
a dismissed case is refiled by any of the original named 
plaintiffs in the same state court venue in which it was 
originally filed, the statute of limitations on the claims 
therein will be deemed tolled during the pendency of the 
dismissed case. A new class action filed either in a different 
venue or by different named plaintiffs would not enjoy the 
benefits of this provision.
    However, if a class action is dismissed under this section 
and an individual action is later filed asserting the same 
claims, the statute of limitations will be deemed tolled during 
the pendency of the dismissed class action, regardless of where 
the subsequent individual case is filed.
    Pursuant to new subsection 1332(d)(8), the Act excepts from 
new subsection 1332(d)(2)'s grant of original jurisdiction 
those class actions that solely involve claims that relate to 
matters of corporate governance arising out of state law. The 
purpose of this provision is to avoid disturbing in any way the 
federal versus state court jurisdictional lines already drawn 
in the securities litigation class action context by the 
enactment of the Securities Litigation Uniform Standards Act of 
1998 (P.L. 105-353).
    The Committee intends that this exemption be narrowly 
construed. By corporate governance litigation, the Committee 
means only litigation based solely on (a) state statutory law 
regulating the organization and governance of business 
enterprises such as corporations, partnerships, limited 
partnerships, limited liability companies, limited liability 
partnerships, and business trusts; (b) state common law 
regarding the duties owed between and among owners and managers 
of business enterprises; and (c) the rights arising out of the 
terms of the securities issued by business enterprises.
    This exemption would apply to a class action relating to a 
corporate governance claim filed in the court of any state. 
Consequently, it would apply to a corporate governance class 
action regardless of the forum in which it may be filed, and 
regardless of whether the law to be applied is that of the 
State in which the claim is filed.
    For purposes of this exemption, the phrase ``the internal 
affairs or governance of a corporation or other form of 
business enterprise'' is intended to refer to the internal 
affairs doctrine defined by the U.S. Supreme Court as ``matters 
peculiar to the relationships among or between thecorporation 
and its current officers, directors and shareholders * * *.'' \119\ The 
phrase ``other form of business enterprise'' is intended to include 
forms of business entities other than corporations, including, but not 
limited to, limited liability companies, limited liability 
partnerships, business trusts, partnerships and limited partnerships.
---------------------------------------------------------------------------
    \119\ Edgar v. Mite Corp., 457 U.S. 624, 645 (1982). See also 
Draper v. Paul N. Gardner Defined Plan Trust, 623 A.2d 859, 865-66 
(Del. 1993); McDermott v. Lewis, 531 A.2d 206, 214-15 (Del. 1987); 
Ellis v. Mutual Life Ins. Co., 187 So. 434 (Ala. 1939); Amberjack, 
Ltd., Inc. v. Thompson, 1997 WL 613676 (Tenn. App. 1997); NAACP v. 
Golding, 679 A.2d 554, 559 (Ct. App. Md. 1996); Hart v. General Motors 
Corp., 517 N.Y.S.2d 490, 493 (App. Div. 1987).
---------------------------------------------------------------------------
    The subsection 1332(d)(8) exemption to new section 1332(d) 
jurisdiction is also intended to cover disputes over the 
meaning of the terms of a security, which is generally spelled 
out in some formative document of the business enterprise, such 
as a certificate of incorporation or a certificate of 
designations. The reference to the Securities Act of 1933 
contained in new subsection 1332(d)(8)(A) is for definitional 
purposes only. Since that law contains an already well-defined 
concept of a ``security,'' this provision simply imports the 
definition contained in the Securities Act.
    New subsection 1332(d)(9) 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.'' \120\ This rule ``has been 
frequently criticized because often * * * an unincorporated 
association is, as a practical matter, indistinguishable from a 
corporation in the same business.'' \121\ Some insurance 
companies, for example, are ``inter-insurance exchanges'' or 
``reciprocal insurance associations.'' For that reason, federal 
courts have treated them as unincorporated associations for 
diversity jurisdiction purposes. Since such companies are 
nationwide companies, they are deemed to be citizens of any 
state in which they have insured customers.\122\ 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 an 
incorporated manufacturer for purposes of diversity 
jurisdiction. New subsection 1332(d)(9) corrects this anomaly.
---------------------------------------------------------------------------
    \120\ United Steelworkers of America v. Boulingy, Inc., 382 U.S. 
145 (1965).
    \121\ See, e.g., 3A 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.'').
    \122\ See Tuck v. United Services Automobile Ass'n, 859 F.2d 842 
(10th Cir. 1988); Baer v. United Services Automobile Ass'n, 503 F.2d 
393 (2d Cir. 1974); Truck Insurance Exchange v. The Dow Chemical Co., 
331 F. Supp. 323 (W.D. Mo. 1971).
---------------------------------------------------------------------------
    The definitional provisions of Section 4--as reflected in 
the new section 1332(d)(1)--are self-explanatory. However, the 
Committee notes that as with the other elements of section 
1332(d), the overall intent of these provisions is to favor the 
exercise of federal diversity jurisdiction over class actions. 
In that regard, the Committee further notes that the definition 
of ``class action'' is to be interpreted liberally. Its 
application should not be confined solely to lawsuits that are 
labeled ``class actions'' by the named plaintiff or the state 
rulemaking authority. Generally speaking, lawsuits that 
resemble a purported class action should be considered class 
actions for the purpose of applying these provisions.
    Section 5.--Section 5 establishes the procedures for 
removal of interstate class actions over which the federal 
court is granted original jurisdiction in new section 1332(d). 
The general removal provisions currently contained in Chapter 
89 of Title 28 would continue to apply to such class actions, 
except where they are inconsistent with the provisions of the 
Act. For example, like other removed actions, matters removable 
under this bill may be removed only ``to the district court of 
the United States for the district and division embracing the 
place where such action is pending.'' \123\ However, 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 under the jurisdictional provisions of 
section 1332(d). Imposing such a restriction on removal of 
class actions would subvert the intent of the Act because it 
would essentially allow a plaintiff to defeat removal 
jurisdiction by suing both in-state and out-of-state 
defendants. Such a restriction on removal of class actions 
would perpetuate the current ``complete diversity'' rule for 
class actions that new section 1332(d) rejects. The Act does 
not, however, disturb the general rule that a case can only be 
removed to the district court of the United States for the 
district and division embracing the place where the action is 
pending.\124\ 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.\125\
---------------------------------------------------------------------------
    \123\ See 28 U.S.C. Sec. 1441(a).
    \124\ Id.
    \125\ See Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938).
---------------------------------------------------------------------------
    New subsection 1453(b) would permit removal by any 
plaintiff class member who is not a named or representative 
class member of the action for which removal is sought. 
Generally, removal of an action by the plaintiff is not 
permissible, under the theory that as the instigator of the 
lawsuit, the plaintiff had the choice of forum from the outset. 
When a class action is filed, however, only the named 
plaintiffs and their counsel have control over the choice of 
forum, whereas the vast majority of the real parties in 
interest--the unnamed class members on whose behalf the action 
is brought and the defendants--have no voice in that decision. 
By specifying that the provisions of section 1446(a) governing 
the removal of a case by a defendant shall apply equally to 
unnamed plaintiff class members, this provision gives unnamed 
plaintiff class members the same flexibility as defendants to 
choose the forum for a lawsuit.
    In addition, new subsection 1453(b) provides that removal 
may occur without the consent of any other party. This revision 
to the removal rules will combat collusion between a corporate 
defendant and a plaintiffs' attorney who may attempt to settle 
on the cheap in a state court at theexpense of the plaintiff 
class members. Similarly, this will prevent a plaintiffs' attorney from 
recruiting a ``friendly'' defendant (e.g., a local retailer) who could 
refuse to join in a removal to federal court and thereby thwart the 
legitimate efforts of the primary corporate defendant to seek a federal 
forum in which to litigate the pending claims. By this provision, it is 
the Committee's intent to overrule caselaw developed by the federal 
courts requiring the consent of all parties,\126\ to the extent that 
such precedents might be applied to class actions subject to the 
expanded jurisdictional and removal provisions of S. 274.
---------------------------------------------------------------------------
    \126\ See, e.g., Hewitt v. City of Stanton, 798 F.2d 1230 (9th Cir. 
1986); Mitchell v. Kentucky-American Water Co., 178 F.R.D. 140, 142 
(E.D. Ky. 1997).
---------------------------------------------------------------------------
    New subsection 1453(c) is intended to confirm that the 
removal revisions are applicable to both pre- and post-
certification class actions.
    New subsection 1453(d) states that the requirements of 
section 1446, setting forth a 30-day filing period for removal 
notices by defendants, shall apply to plaintiffs who seek to 
remove a class action under Section 1453. In addition, 
subsection 1453(d) makes an additional change to section 
1446(b), which requires that removal occur within 30 days of 
receipt of ``paper'' (e.g., a pleading, motion, order, or other 
paper source) from which it may be ascertained that the case is 
removable. Under the current statute, a defendant may remove an 
action beyond the 30-day limit if it can prove that prior to 
that time it had not received paper from which it could be 
ascertained that the case was removable. Section 1453(d) 
extends this provision to class members seeking removal, by 
allowing them to file removal papers up to 30 days after 
receiving initial written notice of the class action. The 
Committee intends that the term ``initial written notice'' 
refer to the initial notice of the class action that is 
disseminated at the direction of the state court before which 
the action is pending. The Committee further intends that the 
30-day period referenced by this section be deemed to run as to 
each class member on the thirtieth day after dissemination of 
notice to the class, as directed by the court, is completed.
    New subsection 1453(e) provides that an order remanding a 
class action to state court is reviewable by appeal or 
otherwise. As a general matter, appellate review of orders 
remanding cases to state court is not permitted, as specified 
by 28 U.S.C. Sec. 1447(d). That 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 is concerned that if this prohibition on appellate 
review is applied to remand orders issued under S. 274, the new 
laws will never become the subject of appellate decisions that 
would assist in guiding the district courts in interpreting 
this new law. Thus, for that reason and in light of the high 
stakes posed by class actions for both plaintiffs and 
defendants, section 1453(e) is intended to leave no doubt that 
orders remanding cases removed to federal court under the new 
jurisdictional and removal provisions of S. 274 should be 
subject to immediate, non-discretionary appellate review. 
Normally the review of such jurisdictional provisions is de 
novo, meaning that the lower court ruling is given no 
deference.\127\ It is the Committee's intent that this standard 
of review be applied in this setting, particularly in reviewing 
any factual assessments underlying the district court's 
jurisdictional determination.
---------------------------------------------------------------------------
    \127\ See, e.g., Jerome-Duncan, Inc. v. Auto-By-Tel, L.L.C., 176 
F.3d 904 (6th Cir. 1999); Gould v. Mutual Life Ins. Co. of New York, 
790 F.2d 769 (9th Cir. 1986).
---------------------------------------------------------------------------
    In order to be consistent with the exceptions to federal 
diversity jurisdiction granted under new section 1332(d), new 
subsection 1453(f) provides that the class action removal 
provisions shall not apply to claims involving covered 
securities or corporate governance litigation. In addition, 
claims concerning a covered security, as defined in section 
16(f)(3) of the Securities Act of 1933 or section 28(f)(5)(E) 
of the Securities Exchange Act of 1934, are excepted from the 
class action removal rule as well. These are essentially claims 
against the officers of a corporation for a precipitous drop in 
the value of its stock, based on fraud. Because Congress has 
previously enacted legislation governing the adjudication of 
these claims,\128\ it is the Committee's intent not to disturb 
the carefully crafted framework for litigating in this context. 
Thus, claims involving covered securities are excluded from the 
new section 1332(b) jurisdiction. The parameters of this 
subsection are intended to be coterminous with new subsection 
1332(d)(7).
---------------------------------------------------------------------------
    \128\ See Public Law 104-67, the ``Private Securities Litigation 
Reform Act of 1995,'' and Public Law 105-353, the ``Securities 
Litigation Uniform Standards Act of 1998.''
---------------------------------------------------------------------------
    Section 5 also amends Section 1446(b) to clarify that the 
provisions in that section prohibiting the removal of cases 
more than one year after their commencement do not apply to 
class actions. Thus, removals taken under these revised 
provisions for class actions may be taken more than one year 
after an action's commencement. This change is intended to 
prevent plaintiffs' attorneys from engaging in 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 one-year limitation after which removal may 
not be sought under any condition. One year and one 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 one-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 thirty days of being served with 
the initial pleading or thirty 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.--Section 6 directs the Judicial Conference of 
the United States, with the assistance of the Director of the 
Federal Judicial Center and the Director of the Administrative 
Office of the United States Courts, to prepare and transmit to 
the Committees on the Judiciary of the Senate and House of 
Representatives a report on class action settlements. The 
report shall contain recommendations on the best practices that 
courts can use to ensure that proposed classaction settlements 
are fair to the class members that these settlements are supposed to 
benefit. In addition, the report shall contain recommendations on the 
best practices that courts can use to ensure that fees and expenses 
awarded to attorneys in connection with a class action settlement 
appropriately reflect the extent to which counsel obtained full redress 
for the injuries alleged in the complaint, and the time, expense and 
risk devoted to the litigation. Finally, the report shall identify the 
actions that the Judicial Conference has taken and intends to take 
toward having the federal judiciary implement the recommendations in 
the report.
    Section 6 contains a provision stating that nothing in the 
Act shall be construed to alter the authority of the federal 
courts to supervise the award of attorneys' fees. It is the 
Committee's intent not to disrupt the federal courts' broad 
discretion to approve attorneys' fees based on fairness 
determinations, notwithstanding contractual arrangements 
between attorneys and their clients.
    Section 7.--Section 7 provides that the amendments made by 
the Act shall apply to any civil action commenced on or after 
the date of enactment.

                 VII. Critics Contentions and Rebuttals

    Critics' Contention No. 1: S. 274 would transfer nearly 
every class action from state to federal court and would add to 
the overwhelming workload faced by our federal courts.

Response

    During Committee debate on this and 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 fact that class actions 
burden 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.
    Civil filings in state trial courts of general jurisdiction 
have been increasing rapidly, up 21 percent since 1984, 
compared to only a four percent increase in the federal 
courts.\129\ Most tellingly, in most jurisdictions, each state 
court judge is assigned (on average) over 1,500 new cases each 
year.\130\ The jurisdictions with these high case assignment 
levels include California (average of 1,545 cases assigned to 
each judge annually), District of Columbia (2,318 cases), 
Florida (2,054 cases), Indiana (2,079 cases), New Jersey (2,653 
cases), North Carolina (2,823 cases), South Carolina (3,833 
cases), South Dakota (2,641 cases), Utah (3,124 cases), and 
Vermont (2,081 cases). By contrast, each federal court judge 
was assigned an average of 518 new cases during the twelve-
month period ending September 30, 2002.\131\
---------------------------------------------------------------------------
    \129\ B. Ostrom, et al., Examining the Work of State Courts 12 
(Court Statistics Project 2001).
    \130\ Id. at 12-13
    \131\ See Administrative Office of the U.S. Courts, 2002 Federal 
Court Management Statistics 167 (2003).
---------------------------------------------------------------------------
    The median time for final disposition of a civil claim 
filed in federal court is 8.7 months, and the median time to 
trial in a civil matter in federal court is 21.8 months.\132\ 
The record reflects no hard evidence that on average, state 
courts proceed more quickly.
---------------------------------------------------------------------------
    \132\ See Administrative Office of the U.S. Courts, Judicial 
Business of the United States Courts 2002, at 159, 172 (2003).
---------------------------------------------------------------------------
    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 the court's ability to provide a broad array of very 
basic legal services for the local community. The judges 
presiding over those state courts often 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 often have none. And 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.
    Critics also overlook the fact that even if both court 
systems were similarly burdened, federal courts could still 
deal with class actions more efficiently for two reasons. 
First, federal courts can coordinate ``copy cat'' or 
overlapping class actions. The record before the Committee 
indicates that it is not uncommon to see twenty, thirty, or 
even 100 class actions filed on the same subject matter. 
Sometimes, competing lawyers file these cases; other times, 
they are filed by the same lawyers who are simply forum-
shopping for the most receptive judge. When these similar, 
overlapping class actions are filed in state courts of 
different jurisdictions, there is no way to consolidate or 
coordinate the cases. The result is enormous waste, to say 
nothing of the unfairness to both defendants and plaintiffs. 
Defendants are forced to defend the same case in many different 
courts. Class members are harmed because the various different 
class counsel compete with each other to achieve the best 
settlement for the lawyers. By contrast, if overlapping or 
similar class actions are filed against the same defendant in 
two or more different federal courts, the multidistrict 
litigation process (established by 28 U.S.C. Sec. 1407) permits 
the transfer to and consolidation of those cases with a single 
judge. The federal court multidistrict litigation system 
regularly consolidates multiple overlapping class actions in 
this manner, preventing the waste that occurs in state courts.
    Second, federal judges generally have greater resources for 
dealing with huge, complex cases, like class actions. As stated 
previously, federal court judges usually have two or three law 
clerks, while state court judges often have none. Federal court 
judges usually can delegate certain aspects of their cases to 
magistrate judges or special masters, while state court judges 
often lack such resources.
    Finally, those expressing workload concerns also ignore the 
fact that S. 274 does not require that interstate class actions 
be heard in federal courts. It simply provides the option for 
either side to litigate in federal court if appropriate and it 
so desires. Just as defendants choose to leave many cases in 
state court that would be subject to proper removal, there is 
no reason to believe that all class actions will be moved to 
federal court. By the same token, under S. 274, plaintiffs' 
counsel would no longer have an incentive to file large numbers 
of class actions in a small number of ``magnet'' courts. Thus, 
any burden posed by class actions would be more evenly 
distributed among the different federal and state courts.
    Class action filings in state courts have increased far 
more rapidly than they have in federal courts. According to 
recent studies, federal class action filings over the past ten 
years have increased by more than 300%, while class action 
filings in state courts have increased by more than 
1,000%.\133\ As the number of class action lawsuits continues 
to grow, state courts typically do not have the resources, 
procedural mechanisms or expertise to handle them effectively. 
Because the federal judiciary has more personnel and other 
resources, it is more likely that class actions will be 
resolved more quickly in federal court than in state court.
---------------------------------------------------------------------------
    \133\ See Class Action Litigation--A Survey, Class Action Watch, at 
5 (Vol. 1, No. 1 1998); Deborah Hensler, et al., Class Action Dilemmas: 
Pursuing Public Goals for Private Gain 19 (1999) (executive summary).
---------------------------------------------------------------------------
    Further, federal courts regularly decide cases involving 
difficult conflict of law questions, and are frequently 
required to apply different states' laws in complex cases--not 
just class actions. Indeed, it is fair to say that this is 
``standard fare'' for the federal courts. On the other hand, 
state courts are not as familiar with these kinds of issues and 
have been known to avoid applying different state laws by 
simply--and improperly--imposing their own state law on a 
nationwide case. Removal of more class actions to the federal 
courts can only benefit the appropriate handling of these 
cases, as well as improve the fairness of class action 
decisions to both plaintiffs and defendants.
    Critics who focus on the federal courts' workload are 
missing the point--class actions are precisely the kind of 
cases that should be heard in federal court. Class actions 
usually involve the most people, most money, and most 
interstate commerce issues. They also usually involve issues of 
nationwide implications. Interstate class actions are certainly 
no less deserving of a federal forum than the 5,212 cases to 
recover a few thousand dollars in defaulted student loans, the 
41,135 product liability actions (typically one-person injury 
case), the 17,862 federal personal injury cases (e.g., single 
person medical malpractice cases), or 23,863 civil habeas 
corpus cases filed last year in federal court.\134\ Indeed, it 
is noteworthy that there were almost twenty times as many 
product liability and federal personal injury cases (normally 
one-person claims) filed in federal court last year (58,997) as 
there were class actions (2,916).\135\ Ultimately, regardless 
of the impact on the federal court caseload, large interstate 
class actions belong in federal court.
---------------------------------------------------------------------------
    \134\ See Judicial Business, at 130-31.
    \135\ Id. at 394.

    Critics' Contention No. 2: Abuses of class actions exist in 
both federal and state courts, and therefore, allowing more 
interstate class actions to be heard in federal court will not 
solve any problems.

Response

    At congressional hearings on the subject of class actions, 
witness after witness provided compelling evidence that serious 
abuses of the class device are primarily occurring in state 
courts.\136\
---------------------------------------------------------------------------
    \136\ See generally Class Action Lawsuits: Examining Victim 
Compensation and Attorneys' Fees, Hearings Before the Subcommittee on 
Administrative Oversight and the Courts of the Senate Committee on the 
Judiciary, 105th Cong. (1997); Hearings on Mass Torts and Class Actions 
Before the Subcommittee on Courts and Intellectual Property of the 
House Committee on the Judiciary, 105th Cong. (1998); Hearing on H.R. 
1875, The Class Action Jurisdiction Act of 1999 Before the House 
Committee on the Judiciary, 106th Cong. (1999).
---------------------------------------------------------------------------
    Moreover, several studies also indicate that the class 
action abuse problem, particularly with respect to class 
settlements, is primarily a state court issue. For example, a 
detailed Federal Judicial Center study concluded that ``[i]n 
most [class actions handled by federal courts subject to the 
study], net monetary distributions to the class exceeded 
attorneys' fees by substantial margins.'' \137\ In stark 
contrast, an Institute for Civil Justice/RAND study indicated 
that in state court consumer class action settlements not 
involving personal injuries, class counsel typically walk off 
with more money than all of the class members combined.\138\ 
The ICJ/RAND study offered three compelling rationales for 
allowing more interstate class actions to be heard by federal 
courts:
---------------------------------------------------------------------------
    \137\ Federal Judicial Center, Empirical Study of Class Actions in 
Four Federal District Courts 68-69 (1996).
    \138\ Deborah R. Hensler, et al., Class Action Dilemmas: Pursuing 
Public Goals for Private Gain 19 (1999) (executive summary).
---------------------------------------------------------------------------
          (1) ``federal judges scrutinize class action 
        allegations more strictly than state judges, and deny 
        certification in situations where a state judge might 
        grant it improperly;''
          (2) ``state judges may not have adequate resources to 
        oversee and manage class actions with a national 
        scope;'' and
          (3) ``if a single judge is to be charged with 
        deciding what law will apply in a multistate class 
        action, it is more appropriate that this take place in 
        federal court than in a state court.'' \139\
---------------------------------------------------------------------------
    \139\ Id. at 28.
---------------------------------------------------------------------------
    While some abuses do occur in federal court, the extent to 
which they take place in no way even approaches the level of 
abuse evidencing itself in state court. Indeed, it is 
interesting that while few state court systems have attempted 
to address class action abuses, the federal court system, which 
has far less of a problem in the first place, has invested 
considerable effort in developing new rules reflecting best 
practices that courts should follow in handling 
classlitigation, particularly in the settlement context. Those 
revisions to Rule 23 have been approved by the U.S. Supreme Court and 
forwarded to Congress for consideration pursuant to the Rules Enabling 
Act.\140\ Those rule changes will dovetail with the ``consumer bill of 
rights'' provisions in S. 274 to bolster federal court safeguards in 
the proper handling of class action cases.
---------------------------------------------------------------------------
    \140\ See Amendments to Federal Procedural Rules, 71 U.S.L.W. 4253, 
4254-55 (U.S. Apr. 1, 2003) (Supreme Court order amending rules 
pursuant to Rules Enabling Act).

    Critics' Contention No. 3: To date, the only mechanism that 
has been successful in imposing liability on some industries, 
such as the tobacco or firearms industries, has been class 
action lawsuits. Allowing removal of state class actions to 
federal court will destroy the impact that class actions are 
having on these socially irresponsible businesses. Therefore, 
we should exempt certain industries from the diversity and 
removal provisions of S. 274.

Response

    Opponents of S. 274 seek to prohibit federal courts from 
exercising jurisdiction over those class actions brought 
against certain industries, including HMOs, tobacco companies, 
nursing homes, and firearms manufacturers. In addition, 
opponents have suggested that claims arising from state 
consumer protection statutes or state environmental protection 
laws should be exempt from the bill as well.
    However, industry-specific exemptions from federal 
jurisdiction make no sense. Like bills of attainder, such 
exemptions irrationally single out a specific industry and slam 
the federal courthouse door in its face. The proposal to carve 
out certain legitimate, yet presently unpopular, industries 
contradicts the constitutional purposes of federal diversity 
jurisdiction--to allow interstate businesses to have claims 
against them heard in federal court under diversity so as to 
avoid local biases and to promote and enhance, rather than 
hamper, interstate commerce. The notion that certain industries 
are less entitled to federal court protection is utterly 
inconsistent with the purpose and goals of diversity 
jurisdiction. Simply put, there should not be one set of rules 
for one category of defendants and another for another group of 
defendants.
    Moreover, there is no evidence that plaintiffs will be less 
successful in litigating their class action claims in federal 
court.\141\ Class actions against unpopular corporate 
defendants, such as the firearms and tobacco industry have 
successfully proceeded in Federal court, and have resulted in 
beneficial judgments and settlements for the plaintiff classes. 
For example, the class action that is touted as the only real 
success the class counsel have had against the firearms 
industry \142\ turns out to be a federal court class 
action.\143\ Assuming that a case is a meritorious class action 
asserting meritorious claims, there is no reason to believe 
such a case heard by a federal court would have an outcome 
different from a state court case, particularly given that the 
federal court normally would apply the same state substantive 
law as a state court considering the same case.

    \141\ Indeed, there is no evidence that plaintiffs' counsel believe 
that they must file in state court in order to succeed. Tobacco class 
actions prove this point. Of the purported class actions on tobacco 
issue, many were originally filed in federal courts. Moreover, there is 
no evidence that classes are more likely to be certified in state 
courts. The reality is that the vast majority of courts--both federal 
and state courts--that have considered the issue have denied 
certification of proposed tobacco classes. The state court 
certification denials include: In re Tobacco Cases II, No. JCCP-4042, 
slip op. (Md. Ct. App. May 16, 2000); Reed v. Philip Morris, Inc., No. 
96-5070, slip op. (D.C. Super. Ct. July 23, 1999); Philip Morris, Inc. 
v. Angeletti, No. 961450501 CE212596, slip op. (Md. Ct. App. May 16, 
2000); Taylor v. American Tobacco Co., No. 97715975, slip op. (Mich. 
Cir. Ct. Jan. 20, 2000); Constentino v. Philip Morris, Inc., No. MID-L-
5135-97, slip op. (N.J. Super. Ct. Oct. 26, 1998); Small v. Lorilard 
Tobacco Co., 679 N.Y.S.2d 593 (App. Div. 1998), aff'd, 698 N.Y.S.2d 615 
(1999); and Geiger v. American Tobacco Co., 696 N.Y.S.2d 345 (1999). At 
least three federal courts have certified tobacco-related classes: In 
re Simon II Litig., 211 F.R.D. 86 (E.D.N.Y. 2002) (certifying 
nationwide punitive damages class of smokers' claims against tobacco 
companies); Iron Workers Local Union No. 17 Insurance Fund v. Philip 
Morris, Inc., 182 F.R.D. 523 (N.D. Ohio 1998); Northwest Laborers-
Employers Health & Security Trust Fund v. Philip Morris, Inc., 1997 
U.S. Dist. LEXIS 21299 (W.D. Wash. Dec. 24, 1997). In addition, a U.S. 
Magistrate Judge recommended certification of a class in Oregon 
Laborers-Employers Health & Welfare Trust Fund v. Philip Morris, Inc., 
188 F.R.D. 365 (D. Or. 1998), but that recommendation was never acted 
upon by the district court judge. Three state courts (two in Florida 
and one in Louisiana) have certified tobacco-related classes: R.J. 
Reynolds Tobacco Co. v. Engle, 672 So.2d 39 (Fla. Ct. App. 1996) 
(affirming the trial court's certification of tobacco class); Broin v. 
Philip Morris Cos., 641 So.2d 888 (Fla. Ct. App. 1994) (ordering trial 
court to certify tobacco class); Scott v. American Tobacco Co., 725 
So.2d 10 (La. Ct. App. 1998) (affirming trial court certification of 
tobacco class). However, a Florida appeals court recently decertified 
the Engle class. See Liggett Group, Inc. v. Engle, 28 Fla. L. Weekly 
D1219 (Fla. Ct. App. May 21, 2003). Thus, the scorecard is basically 
even; there is no evidence that class members will be treated 
differently in state court.
    While critics have pointed to the two Florida tobacco class actions 
as evidence that state courts will somehow be tougher on the tobacco 
industry, there is no real support for this contention. In the first 
tobacco class action to reach conclusion after a class was certified 
and the matter was tried (Broin, a Florida state court case), the 
matter ultimately settled. But the class members received no money at 
all. Under the terms of the settlement, they obtained only a ``right to 
sue'' individually. Meanwhile, the class counsel were awarded $49 
million (on the basis of a medical research contribution made by 
defendants). Counsel for one of the class members who protested the 
settlement reportedly commented: ``Its mind-boggling that a court would 
permit this kind of settlement to go ahead. What is the class getting 
out of this? Nothing.'' The Legal Intelligencer, Sept. 22, 1999, at 4. 
The second case, Engle v. T.J. Reynolds Tobacco Co., received a lot of 
publicity because the jury awarded a $145 billion verdict to the class 
of Florida smokers. However, the verdict was recently vacated, after an 
appeals court found that trying the plaintiffs' claims on a classwide 
basis was improper. Engle, 28 Fla. L. Weekly D1219 (Fla. Ct. App. May 
21, 2003).
    Moreover, there is no evidence that tobacco cases would be tried 
more quickly in state courts. It took six years to get the first 
tobacco class action to trial in state court; the second took more than 
four years. The average time to trial in federal court civil cases is 
shorter.
    Finally, it is clear that certain opponents of the bill are trying 
to single-out certain unpopular industries, such as the firearms 
industry, because they are unpopular. But that is exactly what the 
Framers of the Constitution were trying to avoid. They were trying to 
ensure a fair, even-handed federal court forum for defendants that may 
otherwise be haled into a local court less concerned about protecting 
the rights of an out-of-state company.
    \142\ 145 Cong. Rec. H8577 (Sept. 23, 1999) (floor debate on H.R. 
1789) (Rep. Nadler asserting that a ``1995 class action against 
Remington Arms * * * settled for $31.5 million * * * [and] led to the 
implementation of greater safety protections for owners of shotguns'').
    \143\ See Garza v. Sporting Goods Properties, Inc., 1996 U.S. Dist. 
LEXIS 2009 (W.D. Tex. Feb. 6, 1996) (approving class settlement).

    Critics' Contention No. 4: S. 274 should exclude civil 
rights cases, in order to ensure that civil rights plaintiffs 
have maximum access to our courts.

Response

    First, critics who would exclude civil rights cases from 
the scope of S. 274 have it backwards. An amendment that would 
affirmatively exclude civil rights cases from federal 
jurisdiction would be contrary to a long tradition of 
encouraging the availability of our federal courts to address 
civil rights claims. Indeed, Congress has already enacted 
several statutes that are intended to ensure that civil rights 
cases can be heard in federal courts. For example, one statute 
permits removal to federal court of a broad range of civil 
rights actions.\144\ More importantly, one general jurisdiction 
statute--28 U.S.C. Sec. 1343--provides broad federal 
jurisdiction over a whole host of civil rights claims (e.g., 
any action ``for injury to person or property or because of the 
deprivation of any right or privilege of a citizen of the 
United States,'' any action ``to recover damages or to secure 
equitable or other relief under any Act of Congress providing 
for the protection of civil rights''). Indeed, that section 
provides original federal jurisdiction over any action ``to 
redress the deprivation, under color of any State law, statute, 
ordinance, regulation, custom or usage, of any right, 
privilege, or immunity secured by the Constitution of the 
United States or by any Act of Congress providing for equal 
rights of citizens.''
---------------------------------------------------------------------------
    \144\ 28 U.S.C. Sec. 1443.
---------------------------------------------------------------------------
    Second, the assumption of the amendment that federal courts 
are clogged and unable to handle civil rights cases has no 
basis. Indeed, the federal court workload issue is overblown, 
and ignores the burdens that class actions place on ill-
equipped state courts. Several of our federal judicial 
districts may need additional resources. Wherever that need has 
been confirmed, additional resources have been provided (as 
they were in 1999 and again last year, when new permanent and 
temporary federal district court judgeships were added). But 
those spot shortages are no excuse for continuing to deny both 
consumers and corporations their due process rights by keeping 
interstate class actions a state court monopoly.
    Finally, contrary to the position of the amendment's 
proponents, the bill will not impose new, burdensome and 
unnecessary requirements on civil rights litigants and the 
federal courts. A major complaint about class actions is that 
the unnamed class members--the persons on whose behalf the 
actions are brought--are not adequately informed about how 
their rights are being affected by the class litigation. The 
notice provisions in the bill are simply an effort to make sure 
that the claimants are provided communications in ``plain 
English.'' Moreover, providing notice to state attorneys 
general and other regulatory bodies only increases protections 
for class plaintiffs. The bill does not require that additional 
or more expensive communications be provided beyond what is 
already mandated by existing law.

    Critics' Contention No. 5: S. 274 would unfairly tilt the 
playing field by providing an advantage to defendant 
corporations at the expense of consumers.

Response

    This concern mischaracterizes the content and intent of the 
bill. S. 274 would simply allow federal courts to handle more 
interstate class actions. It makes no changes in substantive 
law whatsoever. Critics of S. 274 erroneously argue that the 
bill would reverse the ordinary presumption that a plaintiff 
chooses his or her own court. Yet, in this context, there is no 
such presumption. In fact, the whole purpose of diversity 
jurisdiction is to preclude any such presumption by allowing 
state-law based claims to be removed from local courts to 
federal courts, so as to ensure that all parties can litigate 
on a level playing field and thereby protect interstate 
commerce interests.\145\
---------------------------------------------------------------------------
    \145\ See, e.g., Pease v. Peck, 59 U.S. (18 How.) 595, 599 (1856).
---------------------------------------------------------------------------
    Article III of the Constitution ensures that there will be 
a fair, uniform, and efficient forum--a federal court--for 
adjudicating interstate commercial disputes, so as to nurture 
interstate commerce. Some scholars have persuasively argued 
that diversity jurisdiction, of all the powers exercised under 
the Constitution, has had the greatest influence in melding the 
United States into a single nation, by fostering interstate 
commerce, communication and the uninterrupted flow of capital 
for investment into various parts of the Union, and sustaining 
the public credit and the sanctity of private contracts.\146\
---------------------------------------------------------------------------
    \146\ See John J. Parker, The Federal Constitution and Recent 
Attacks Upon It, 18 A.B.A. J. 433, 437 (1932).
---------------------------------------------------------------------------
    S. 274 promotes these important constitutional norms. The 
statutory ``gatekeeper'' for federal diversity jurisdiction--28 
U.S.C. Sec. 1332--generally allows federal courts to hear cases 
that are large (cases with large ``amounts in controversy'') 
and that have interstate implications (cases involving citizens 
from multiple jurisdictions). These requirements were intended 
to ensure that diversity jurisdiction is preserved for those 
cases with significant interstate and economic impacts. Class 
actions would normally satisfy these requirements because they 
usually involve big dollar amounts and parties from multiple 
jurisdictions. Yet, because section 1332 was enacted prior to 
the existence of the modern-day class action, it does not take 
into account the unique circumstances presented by class 
actions. Consequently, section 1332, in current law, tends to 
exclude the overwhelming majority of class actions from federal 
courts, while inviting into federal courts much smaller single-
plaintiff cases having few (if any) interstate ramifications. 
Such a result is inconsistent with the federal judiciary's 
proper jurisdictional role. S. 274 would correct this technical 
problem and thereby promote the underlying goals of diversity 
jurisdiction.
    As former Clinton Administration Acting Solicitor General 
Walter Dellinger has testified in congressional hearings, if 
Congress were to now re-write the federal diversity 
jurisdiction statute, interstate class actions undoubtedly 
would be one of the first categories of cases to be included 
within the scope of the statute.\147\ This makes plain sense 
insofar as class action lawsuits typically involve more people, 
more money, and more interstate commerce issues than any other 
type of case. S. 274 will simply fix the technical problem in 
section 1332 and judicial interpretation of the diversity 
requirements that keep most class actions in state court.
---------------------------------------------------------------------------
    \147\ See Hearings on H.R. 1875, statement of Walter E. Dellinger.

    Critics' Contention No. 6: S. 274 will result in delays for 
injured consumers.

Response

    This criticism stems from baseless concerns about the 
federal courts' caseload and the possible impact of this 
legislation on the ability of the federal courts to resolve 
these cases in a timely manner. For all of the reasons set 
forth previously, there is no basis for arguing that S. 274 
would overwhelm the federal courts with class action cases and 
thereby adversely affect the ability of consumers to find 
timely redress for their injuries in federal court.
    Opponents of the bill have presented no data whatsoever 
that judicial overload would occur. When Congress has expanded 
federal court jurisdiction in other respects, it normally has 
not (at least in recent years) had the benefit of any hard data 
indicating the likely impact on federal court workload. For 
example, the Y2K Act (P.L. 106-37) expanded federal 
jurisdiction over Y2K class actions in almost precisely the 
same manner as proposed in S. 274. Congress enacted that change 
without knowing its likely judicial workload impact. Likewise, 
the Securities Litigation Reform Act of 1998 (P.L. 105-353) 
contained provisions moving virtually all securities class 
actions from state courts into the federal courts. Once again, 
Congress enacted that expansion of federal jurisdiction without 
knowing the precise effects on federal court workload. In the 
past, when the case has been made that federal court 
jurisdiction should be expanded, Congress has simply enacted 
the expansion with the understanding that any resulting 
judicial workload problems could be addressed later.
    In sum, there simply is no basis to the claims that 
consumers will be worse off in federal court, or that the 
resolution of class actions will be delayed because of the 
federal judiciary's workload.

    Critics' Contention No. 7: S. 274 will trample on the 
rights of states to manage their legal systems, thus 
undermining the principles of federalism that our system of 
government is built upon.

Response

    While some critics have alleged that this bill will somehow 
undermine federalism principles, exactly the opposite is true. 
S. 274 has been carefully crafted to correct a problem in the 
current system that does not promote traditional concepts of 
federalism. In fact, it is the current system and the wave of 
state court class actions that has trampled on the rights of 
states to manage their legal systems by allowing state court 
judges to interpret and apply the laws of multiple 
jurisdictions. When state courts preside over class actions 
involving claims of residents of more than one state, they 
frequently dictate the substantive laws of other states, 
sometimes over the protests of those other jurisdictions (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 the several thousand 
residents of a small county in Alabama tell New York or 
California the meaning of their laws? Why should an Illinois 
state court judge interpret decisions by Virginia or Wisconsin 
courts? Why should a state court judge be able to overrule 
other state laws and policies? Why should state courts be 
setting national policy?
    In short, contrary to critics' contentions, the real harm 
to federalism is the status quo--leaving the bulk of class 
action cases in state court. Federal courts are the appropriate 
forum to decide interstate class actions involving large 
amounts of money, many plaintiffs and interstate commerce 
disputes, and these matters of interstate comity are more 
appropriately handled by federal judges appointed by the 
President and confirmed by the Senate. S. 274 simply restores 
this proper balance by resolving an anomaly of diversity 
jurisdiction. True to the concept of federalism, S. 274 
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. S. 274 also 
incorporates the concept of balanced diversity, leaving in 
state court cases in which more than \2/3\ of the plaintiffs 
and the primary defendants are residents of the forum state, as 
well as certain cases in which between \1/3\ and \2/3\ of the 
plaintiffs are residents of the forum state as are the primary 
defendants, subject to a set of factors to be applied by the 
court. As such, S. 274 promotes the concept of federalism and 
protects the ability of states to determine their own laws and 
policies for their citizens.

    Critics' Contention No. 8: S. 274 assumes that federal 
courts will not engage in the same ``false federalism'' that 
state courts are accused of fostering. There really is no 
evidence that in the class action context, federal courts will 
intrude less on the states' rights to interpret their own laws 
than have state courts.

Response

    A principal purpose of the Class Action Fairness Act is to 
correct what former Acting Solicitor General Walter Dellinger 
has labeled a wave of ``false federalism.'' As he testified 
before the Senate Judiciary Committee last July, the problem is 
that ``many state courts faced with interstate class actions 
have undertaken to dictate the substantive laws of other states 
by applying their own laws to * * * other states, resulting in 
a breach of federalism principles * * *.''
    As discussed previously, a prime example of this situation 
is the Avery case,\148\ in which defendant State Farm allegedly 
breached auto insurance policies nationwide by requiring the 
use of less expensive non-original equipment manufacturer parts 
(``non-OEM parts'') in repairing accident-damaged vehicles. The 
Illinois state court certified a nationwide class, and at 
trial, a jury rendered a $1.3 billion verdict against State 
Farm.
---------------------------------------------------------------------------
    \148\ Avery v. State Farm Auto Insurance Cos., 746 N.E.2d 1242, 
1254 (Ill. Ct. App. 2001).
---------------------------------------------------------------------------
    The case is noteworthy on the ``false federalism'' issue 
because the court applied Illinois consumer protection law to 
all class claims in the case. It did so even though Illinois 
law on this subject contravened the laws and policies of other 
states in which some class members lived--laws and policies 
encouraging (or even requiring) insurers to use less expensive, 
non-OEM parts in making accident repairs as a means of 
containing auto insurance costs. In affirming the verdict, an 
Illinois state appellate court acknowledged that it had 
disregarded ``state insurance commissioners [who] testified 
that the laws in many of our sister states permit and in some 
cases * * * [even] encourage'' usage of non-OEM parts. \149\ 
The New York Times reported that the decision effectively 
``overturn[ed] insurance regulations * * * in New York, 
Massachusetts, and Hawaii, among other places'' establishing 
``what amounts to a national rule on insurance.'' \150\ As 
discussed previously, Avery is not an isolated occurrence. 
Numerous state courts have trampled on these federalism 
principles, all in an effort to certify classes that should not 
be certified. \151\
---------------------------------------------------------------------------
    \149\ Id. at 1254.
    \150\ See Matthew J. Wald, Suit Against Auto Insurer Could Affect 
Nearly All Drivers, N.Y. Times, Sept. 27, 1998, Sec. 1, at 29.
    \151\ See, e.g., Ysbrand v. DaimlerChrysler Corp., 2003 Okla. LEXIS 
17 (Okla. 2003) (affirming certification of nationwide product 
liability class, applying the law of one state to all claims); Peterson 
v. BASF Corp., 2003 Minn. App. LEXIS 275 (Minn. Ct. App. March 11, 
2003) (affirming nationwide consumer protection act case, applying the 
law of one state to all claims).
---------------------------------------------------------------------------
    A premise of the Class Action Fairness Act is that this 
problem can be corrected by expanding federal jurisdiction over 
interstate class actions, the theory being that federal courts 
will not engage in ``false federalism'' games. But what proof 
is there that the federal courts will not similarly botch these 
critical choice-of-law issues?
    In reality, there is ample evidence that the federal courts 
will not engage in the ``false federalism'' that is so rampant 
in state court class actions. To start, it should be noted that 
the lead federal court--the U.S. Supreme Court--has repeatedly 
warned that courts should not attempt to apply the laws of one 
state to behaviors that occurred in other jurisdictions:
     ``Laws have no force of themselves beyond the 
jurisdiction of the State which enacts them, and can have 
extra-territorial effect only by the comity of the other 
States.'' Huntington v. Attrill, 146 U.S. 657, 669 (1892).
     ``[I]t would be impossible to permit the statutes 
of [one State] to operate beyond the jurisdiction of that State 
* * * without throwing down the constitutional barriers by 
which all the States are restricted within the orbits of their 
lawful authority and upon the preservation of which the 
Government under the Constitution depends.'' New York Life Ins. 
Co. v. Head, 234 U.S. 149, 161 (1914).
     ``A state does not acquire power or supervision 
over the internal affairs of another State merely because the 
welfare and health of its own citizens may be affected when 
they travel to that state.'' Bigelow v. Virginia, 421 U.S. 809, 
824 (1975).
     States should not apply their own laws to matters 
with which they have no significant contact. Philips Petroleum 
Co. v. Shutts, 472 U.S. 797, 821-22 (1985).
    Most recently, on April 7, 2003, the U.S. Supreme Court 
again warned state courts on this issue, striking down one 
state's effort to apply its laws to conduct that occurred 
elsewhere: ``A basic principle of federalism is that each State 
may make its own reasoned judgment about what conduct is 
permitted or proscribed within its borders, and each State 
alone can determine what measure of punishment, if any, to 
impose on a defendant who acts within its jurisdiction.'' \152\
---------------------------------------------------------------------------
    \152\ State Farm Mut. Auto. Ins. Co. v. Campbell, 2003 WL 1791206 
(U.S. Apr. 7, 2003).
---------------------------------------------------------------------------
    Unlike many state courts, federal courts have consistently 
heeded the Supreme Court's admonitions. The record shows that 
in the class action context, federal courts have been extremely 
respectful of the interests of each state in having its laws 
applied (as appropriate) to its own residents, particularly in 
recognizing the substantial variations of those laws in the 
class action context.
    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. \153\ Further, 
they have consistently concluded that those choice-of-law rules 
must be applied to ``each plaintiff's claims.'' \154\ 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. \155\ 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. \156\
---------------------------------------------------------------------------
    \153\ See, e.g., In re Bridgestone/Firestone, Inc. Prods. Liab. 
Litig., 288 F.3d 1012 (7th Cir. 2002).
    \154\ 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).
    \155\ 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).
    \156\ 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 1293, 1302 (7th Cir. 1995); 
Walsh v. Ford Motor Co., 807 F.2d 1000, 1017-19 (D.C. Cir. 1990).
---------------------------------------------------------------------------
    The bottom line is that over the past ten years, the 
federal court system has not produced any final decisions 
applying the law of a single state to all claims in a 
nationwide or multi-state class action. And there are hundreds 
of federal court decisions (examples of which are set forth 
above) which flatly reject arguments using such a ``false 
federalism'' choice-of-law approach and applying the laws of a 
single state to all claims in a multi-state case. That is the 
record that confirms that the passage of the Class Action 
Fairness Act will end the ``false federalism'' game that is 
occurring in the state court class action arena.

    Critics' Contention No. 9: S. 274 could deny plaintiff 
class members any meaningful ability to recover damages for 
their injuries.

Response

    In arguing that this bill would hurt consumers, some 
opponents have gone so far as to list several state court class 
actions which supposedly have served consumers well, inferring 
that removal of such cases to federal court is tantamount to a 
denial of justice. This argument assumes that the federal 
courts are inferior to state courts--that a federal court 
cannot arrive at a just outcome. If the cases cited by S. 274's 
opponents would not have had the same outcome in federal court 
as they did in state court, it is because the federal courts 
may have been more careful to avoid the abuses of the system 
that occur in state courts. The only thing that would be denied 
when an interstate class action is removed to federal court is 
the plaintiffs' lawyers' ability to strike it rich on class 
actions that should not be certified by any court because they 
do not meet the requirements of a proper class.
    Moreover, the claim that federal courts never certify class 
actions is unfounded. While opponents of the bill cite cases 
that allegedly achieved greater justice in state court than 
they would have received if they had been removed to federal 
court, it is clear that this is pure speculation. In fact, 
federal courts have certified hundreds of cases for class 
treatment in recent years,\157\ and the rules governing the 
decision of whether cases may proceed as class actions are 
basically the same in federal and state courts. Further, under 
the Erie doctrine, federal courts apply state substantive law 
in diversity cases. Consequently, a removed class action should 
have the same substantive law applied to it, regardless of 
whether it is in federal or state court.
---------------------------------------------------------------------------
    \157\ See Responses To Written Questions From Senators Orrin G. 
Hatch and Charles E. Grassley to Walter Dellinger, Attachment A (list 
of exemplar cases in which federal courts have certified classes since 
2001).
---------------------------------------------------------------------------
    Additionally, strict analysis by courts in deciding whether 
a group of plaintiffs can proceed on a class basis should be 
encouraged, rather than discouraged. The purpose of the current 
requirements in Rule 23 and similar state court class action 
rules is to protect the due process rights of both plaintiffs 
and defendants. When judges indiscriminately certify class 
actions, unnamed plaintiffs lose important legal rights and can 
be denied appropriate awards for their injuries, and defendants 
become more vulnerable to frivolous and unjustifiably magnified 
class actions.
    Allowing individual states to certify classes for their own 
citizens on particular issues could result in a denial of 
relief for the citizens of other states, particularly given the 
limited resources available to some defendants to satisfy all 
pending claims. For example, some hailed the now reversed 
punitive damages verdict in the Engle tobacco class action that 
continues to proceed in Florida state court. There, a Florida 
jury awarded $135 billion in punitive damages to a class of 
Florida residents. But if that verdict had been upheld, 
citizens of other states might have been denied any relief 
whatsoever on their claims against tobacco companies because 
the Florida residents (through their single state class action) 
would have taken all available money to pay their punitive 
damages claims. In short, Florida residents would have received 
billions of dollars in excess of what they claim for their real 
personal injury damages, while residents of all other states 
would not have even received what they claim to be owed for the 
basic personal injuries that they allege. As one commentator 
has noted,

          This is what fuels the [state court class action] 
        litigation lottery. If you are the first in line to 
        demand punitive damages, you may receive awards in the 
        billions. Injured parties in later [class actions] are 
        likely to receive less. * * * They may receive nothing 
        if the first award killed the company or the industry. 
        None of this makes much sense. There is no reason why 
        one group of litigants should, solely on the basis of 
        residency in a particular state, receive the lion's 
        share of damages to the deprivation of hundreds of 
        thousands of other injured parties. Moreover, there is 
        no reason why one state should be able to impose this 
        result on other states when a problem and its victims 
        are shared by the nation as a whole. \158\
---------------------------------------------------------------------------
    \158\ Jonathan Turley, A Crisis of Faith: Tobacco and the 
Madisonian Democracy, 37 Harv. J. on Legis. 433, 475 (2000).

Of course, this situation would not arise if S. 274 were 
passed, since all qualifying interstate class actions on a 
particular subject could be removed to federal court and 
consolidated before a single federal court judge under the 
multidistrict litigation mechanism described previously. That 
judge would be able to manage the proceeding to ensure that no 
group of litigants gained advantage over the others by virtue 
of their residency (or any other irrelevant factor).
    Finally, a large quantity of class actions in state court, 
like the Broin tobacco case in Florida, results in millions of 
dollars for plaintiffs' counsel but nothing of any value for 
plaintiffs. An Institute for Civil Justice/RAND study has 
confirmed this pattern, finding that class counsel in state 
court consumer class action settlements typically walk off with 
more money than all of theclass members combined.\159\ The ICJ/
RAND study provides three compelling rationales for allowing more 
interstate class actions to be heard by federal courts: (1) ``federal 
judges scrutinize class action allegations more strictly than state 
judges, and deny certification in situations where a state judge might 
grant it improperly;'' (2) ``state judges may not have adequate 
resources to oversee and manage class actions with a national scope;'' 
and (3) ``if a single judge is to be charged with deciding what law 
will apply in a multistate class action, it is more appropriate that 
this take place in federal court than in a state court.'' \160\ S. 274 
would help assure fairer settlements by allowing the federal courts to 
review more class action lawsuits, as well as by providing notice to 
state Attorneys General so they can better protect their citizens 
against unfair settlement agreements.
---------------------------------------------------------------------------
    \159\ See Class Action Dilemmas, at 23.
    \160\ Id. at 28.

    Critics' Contention No. 10: S. 274 provides that if a 
federal district court determines that a class action lawsuit 
removed to that court does not satisfy applicable prerequisites 
for certifying a class action, the court shall dismiss the 
case. The case may be altered and refiled in state court, but 
if that amended case still meets federal jurisdictional 
prerequisites, it may be removed again to federal court. This 
results in a ``merry-go-round,'' whereby defendants can 
endlessly remove the class action to federal court.

Response

    Critics of S. 274's remand provisions would alter the bill 
so that any time a case brought in or removed to a federal 
court is dismissed for failing to meet the requirements of Rule 
23, a state court could then certify the case and allow it to 
proceed as a class action under the state's class action law. 
In short, these critics would guarantee that even though a 
federal court has determined that a case cannot be certified as 
a class action, a state court could essentially consider all 
class issues anew.
    Altering S. 274 in this manner would defeat a primary 
purpose of the bill--to allow the removal of more interstate 
class actions to federal courts, where they are more 
appropriately heard. The revision suggested by critics would 
effectively write that change out of the statute. Under the 
proposed revision, if a federal district court determines that 
a removed case should not be afforded class treatment, a state 
court (upon remand of the case) would be free to ``overrule'' 
the federal court's ruling that class treatment would be 
inappropriate. Thus, in interstate class actions, state 
courts--not federal courts--would become the final arbiters of 
what should proceed as a class action in our judicial system. 
This would essentially be a declaration that in interstate 
class actions, the federal courts are inferior to state courts. 
This result runs counter to generally accepted concepts of 
federalism.
    Furthermore, altering S. 274 in this manner would only 
aggravate the class action abuse already occurring in state 
courts. When a federal district court denies class 
certification in a case, it is typically because litigating the 
case on a class basis would likely result in a denial of the 
purported class members' or the defendants' due process rights 
or run counter to basic fairness principles. This revision to 
the bill would invite state courts to overrule such federal 
court determinations and, instead, advance class actions which 
have already been determined to deny due process rights or to 
be unfair to unnamed class members and/or defendants.
    In short, this proposed change to the bill would cause S. 
274 to preserve the status quo instead of improving it. In 
fact, the revision would create even more inefficiencies; even 
if a defendant were to defeat class certification and win in 
federal court, the defendant could turn around and mount the 
fight all over again in state court.
    Indeed, the proposed fix to the so-called ``merry-go-
round'' problem would specifically authorize an activity that 
even Public Citizen (which has expressed opposition to the 
bill) believes to be unethical. In correspondence with the 
House Judiciary Committee discussing an amendment to the 
parallel House class action bill, Public Citizen stated that 
``if a federal judge were to deny class certification in a case 
that had been properly removed to federal court, it is clear 
that the same class allegations could not be reasserted in 
state court.'' \161\ Public Citizen went on to say that ``a 
plaintiff's lawyer who attempted that type of circumvention of 
the federal court certification process would likely be subject 
to significant sanctions, which would include payment of 
defendants' attorneys' fees.'' \162\ In short, the proposed 
change would expressly bless activity that a court would--and 
should--find sanctionable.
---------------------------------------------------------------------------
    \161\ Letter to House Judiciary Committee Members from Messrs. 
Clemente and Vladeck of Public Citizen Litigation Group (dated Aug. 3, 
1998), at 1.
    \162\ Id.
---------------------------------------------------------------------------
    Ultimately, concerns that a ``merry-go-round'' situation 
will arise because of the way S. 274 is drafted are simply an 
exaggeration. The Committee strongly believes that no judge--
federal or state--would allow such a situation to take place, 
and that a court would stop such bad faith tactics. If this 
were to actually occur, it is more conceivable that a court 
would dismiss the complaint with prejudice and sanction the 
offending attorney.

    Critics' Contention No. 11: S. 274 will cause delay and 
mass confusion because of (a) the difficulty of assessing 
compliance with jurisdictional requirements at the outset and 
(b) the potential that class membership and definitions will 
change over time.

Response

    The contention that S. 274 (particularly its differing 
treatment of categories of cases when a suit is filed in the 
defendant's home state) would complicate and delay the final 
resolution of jurisdictional inquiries is absolutely 
groundless. In reality, the jurisdictional standards in S. 274 
will simplify--not complicate--a court's jurisdictional 
inquiries. Under the current standards, many (and possibly 
most) newly-filed state court class actions are removed to 
federal court to test whether the class counsel's efforts to 
evade federal jurisdiction have been successful (even 
thoughthose removal attempts normally fail and the cases are remanded 
to state court). Those inquiries are often quite complicated and can 
create significant delays.
    For example, as noted previously, counsel often include in 
their complaint extraneous parties in order to prevent the 
complaint from complying with the current ``complete 
diversity'' requirement. The federal courts have ruled that 
those arguably extraneous parties can be ignored in the 
jurisdictional analysis if their claims are meritless,\163\ and 
quite frequently, the claims of those parties are challenged in 
class actions as part of the jurisdictional analysis, requiring 
the court to take time to engage in the complicated process of 
assessing the merits of their claims. Under current law, this 
time-consuming ``fraudulent joinder'' issue arises in many 
purported class actions that are removed to federal court.\164\
---------------------------------------------------------------------------
    \163\ See, e.g., Whitaker v. American Telecasting, Inc., 261 F.3d 
196, 207 (2d Cir. 2001) (`` `In order to show that naming a non-diverse 
defendant is a `fraudulent joinder' effected to defeat diversity 
[jurisdiction], the defendant must demonstrate, by clear and convincing 
evidence, either that there has been outright fraud committed in the 
plaintiff's pleadings, or that there is no possibility, based on the 
pleadings, that the plaintiff can state a cause of action against the 
non-diverse defendant in state court.' '') (citations omitted); Morris 
v. Princess Cruises, Inc., 236 F.3d 1061, 1067 (9th Cir. 2001) 
(``Joinder of a non-diverse defendant is deemed fraudulent, and the 
defendant's presence in the lawsuit is ignored for purposes of 
determining diversity, `[i]f the plaintiff fails to state a cause of 
action against a resident defendant, and the failure is obvious 
according to the settled rules of the state.' '') (citations omitted); 
Tillman v. R.J. Reynolds Tobacco, 253 F.3d 1302, 1305 (11th Cir. 2001) 
(``it is appropriate for a federal court to dismiss * * * a [non-
diverse] defendant and retain diversity jurisdiction if the complaint 
shows that there is no possibility that the plaintiff can establish any 
cause of action against [the] defendant''); Heritage Bank v. Redcom 
Laboratories, Inc., 250 F.3d 319 (5th Cir. 2001) (to similar effect).
    \164\ In just the past year, many federal courts have been required 
to address fraudulent joinder issues in the context of class actions 
removed to federal court. See, e.g., Jamison v. The Purdue Pharma Co., 
2003 U.S. Dist. LEXIS 4439 (S.D. Miss. Feb. 5, 2003) (mass action 
matter); Hardy v. Ducote, 2003 U.S. Dist. LEXIS 2940 (E.D. La. Jan. 20, 
2003); Burns v. Friedli, 241 F. Supp. 2d 519 (D. Md. 2003); Moore v. 
Wyeth-Ayerst Labs., 236 F. Supp. 2d 509 (D. Md. 2002); Shields v. 
Bridgestone/Firestone, Inc., 232 F. Supp. 2d 715 (E.D. Tex. 2002); 
Little v. Purdue Pharma, L.P., 227 F. Supp. 2d 838 (S.D. Ohio 2002); In 
re: Diet Drugs Prods. Liab. Litig., 220 F. Supp. 2d 414 (E.D. Pa. 
2002); Doherty v. Aventis Pasteur, Inc., 2002 U.S. Dist. LEXIS 9596 
(N.D. Cal. May 15, 2002); Garcia v. Aventis Pasteur, Inc., 2002 U.S. 
Dist. LEXIS 15122 (W.D. Wash. Apr. 22, 2002); Ohler v. Purdue Pharma, 
L.P., 2002 U.S. Dist. LEXIS 2368 (E.D. La. Jan. 22, 2002); Mead v. 
Aventis Pasteur, Inc., 2002 U.S. Dist. LEXIS 25645 (D. Ore. Jan. 7, 
2002).
---------------------------------------------------------------------------
    Similarly, the process of assessing whether a class action 
complies with the current jurisdictional amount requirement is 
also often ``an expensive and time consuming process,'' \165\ 
requiring discovery on the nature and value of the named 
plaintiffs' claims. As noted previously, in some federal 
Circuits, the jurisdictional amount requirement in a class 
action is satisfied by showing that any member of the proposed 
class is asserting damages in excess of $75,000, and in other 
Circuits, the question is whether each and every member of the 
putative class has individually an amount in controversy 
exceeding $75,000.\166\ Again, this time-consuming issue, often 
requiring significant amounts of record review and fact-
finding, is litigated very frequently in the many class actions 
that are removed to federal court under current law.\167\
---------------------------------------------------------------------------
    \165\ See C.A. Wright, A.R. Miller, et al., Federal Practice and 
Procedure Sec. 3707, at 225 (1998).
    \166\ Id. Sec. 3705, at 65 (2003 Supp.).
    \167\ In the past year alone, many federal courts have had to 
resolve jurisdictional amount issues in resolving motions to remand 
class actions. See, e.g., In re Bridgestone/Firestone, Inc. Tires 
Prods. Liab. Litig., 2003 U.S. Dist. LEXIS 6225 (S.D. Ind. Apr. 11, 
2003); Adams v. Nationwide Mutual Ins. Co., 2003 U.S. Dist. LEXIS 4973 
(N.D. Tex. Mar. 31, 2003); Carrick v. Sears, Roebuck and Co., 2003 U.S. 
Dist. LEXIS 4167 (M.D. Pa. Mar. 17, 2003); Dash v. Firstplus Home Loan 
Trust, 2003 U.S. Dist. LEXIS 3706 (M.D.N.C. Mar. 6, 2003); Harris v. 
Physicians Mut. Ins. Co., 240 F. Supp. 3d 715 (N.D. Ohio 2003); Radlo 
v. Rhone-Poulenc, S.A., 241 F. Supp. 2d 61 (D. Mass. 2002); Mentzel v. 
Comcast Cable Communications, 222 F. Supp. 2d 923 (E.D. Mich. 2002); 
Tremblay v. Philip Morris, Inc., 231 F. Supp. 2d 411 (D.N.H. 2002).
---------------------------------------------------------------------------
    In sum, S. 274 will make the resolution of class action 
jurisdictional issues easier--not harder. The need to deal with 
the bona fides of counsel's efforts to use dubious parties to 
avoid diversity will evaporate. In short, it will be much 
easier to figure out whether any class member is diverse as to 
any defendant (the ``minimal diversity'' inquiry established by 
S. 274) than resolving the fraudulent joinder issues regularly 
presented under the current rule (``complete diversity''). 
Likewise, it will be much easier to determine whether the 
amount in controversy presented by a purported class as a whole 
(that is, in the aggregate) exceeds $5 million than it is to 
assess the value of the claim presented by each and every 
individual class member, as is required by the current 
diversity jurisdictional statute.
    The critics' concerns that events might occur after a 
complaint is filed or removed that would either create federal 
jurisdiction in a way never intended or would remove federal 
jurisdiction in an arbitrary manner are similarly unfounded. 
While questions regarding events occurring after a complaint is 
filed or removed to federal court will, of course, arise under 
S. 274, those same (or, at least, very similar) questions arise 
in current practice on jurisdictional issues. Well-established 
law exists to resolve these questions, and S. 274 does not 
change--or even complicate--the answers to these questions. In 
short, the ``rules of the road'' on such issues are already 
established, and S. 274 does not change them.
    Under existing law (which S. 274 would not change), 
``diversity'' of citizenship between the parties must exist 
both at the time a complaint is filed and at the time a 
complaint is removed to federal court.\168\ For this reason, 
the federal court would generally only need to measure the 
diversity of the parties at the outset of the litigation. For 
example, in a case filed on behalf of a class of California 
citizens against a California company, there would be no 
minimal diversity when the case was filed--and thus the case 
could not be removed simply because one named plaintiff or 
class member later moved to Nevada. Similarly, if a class 
action against a California company were filed in California 
and more than 66% of the class members were California citizens 
at the time the case was filed, changes in those class members' 
residences would not alter the jurisdictional analysis. In 
other words, no court would be required to engage in a 
residency play-by-play after the time the complaint was filed.
---------------------------------------------------------------------------
    \168\ Coury v. Prot, 85 F.3d 244, 249 (5th Cir. 1996); Kanzelberger 
v. Kanzelberger, 782 F.2d 774, 776 (7th Cir. 1986).
---------------------------------------------------------------------------
    If, however, the plaintiff in the above example of his or 
her own volition filed an amended complaint in state court that 
added Nevada plaintiffs (or that brought the percentage of 
Nevada plaintiffs above 33% in a suit in the defendant's home 
state), jurisdiction would exist at the time that complaint was 
filed. Accordingly, as dictated by current law, the defendant 
could remove the case to federal court.\169\
---------------------------------------------------------------------------
    \169\ See Caterpillar, Inc. v. Lewis, 519 U.S. 61, 69 (1996) (``In 
a case not originally removable, a defendant who receives a pleading or 
other paper indicating the postcommencement satisfaction of federal 
jurisdictional requirements--for example, by reason of the dismissal of 
a nondiverse party--may remove the case from federal court within 30 
days of receiving such information'').
---------------------------------------------------------------------------
    Current law (that S. 274 does not alter) is also clear 
that, once a complaint is properly removed to federal court, 
the federal court's jurisdiction cannot be ``ousted'' by later 
events. Thus, for example, changes in the amount in controversy 
after the complaint has been removed would not subject a 
lawsuit to be remanded to state court. The Supreme Court 
established this principle in St. Paul Mercury Indem. Co. v. 
Red Cab Co.,\170\ stating that ``events occurring subsequent to 
removal which reduce the amount recoverable, whether beyond the 
plaintiff's control or the result of his volition, do not oust 
the district court's jurisdiction once it has attached.'' The 
same would be true if a case was removed to federal court 
because minimal diversity existed at the time and, because of a 
later event, minimal diversity was eliminated. This would occur 
if, for example, the federal court dismissed the claims of out-
of-state plaintiffs, leaving only the claims of in-state 
plaintiffs against an in-state defendant intact. ``It uniformly 
has been held that in a suit properly begun in federal court 
the change of citizenship does not oust the jurisdiction. The 
same rule governs a suit brought in a state court and removed 
to federal court.'' \171\
---------------------------------------------------------------------------
    \170\ 303 U.S. 283, 293 (1938).
    \171\ Id.at 294-95.
---------------------------------------------------------------------------
    Sound policy reasons support this rule. If a federal 
court's jurisdiction could be ousted by events occurring after 
a case was removed, plaintiffs who believed the tide was 
turning against them could simply always amend their complaint 
months (or even years) into the litigation to require remand to 
state court. ``If the plaintiff could, no matter how bona fide 
his original claim in the state court, reduce the amount of his 
demand to defeat federal jurisdiction the defendant's supposed 
statutory right of removal would be subject to the plaintiff's 
caprice. The claim, whether well or ill founded in fact, fixes 
the right of the defendant to remove, and the plaintiff ought 
not to be able to defeat that right and bring the cause back to 
the state court at his election.'' \172\ Similarly, a defendant 
prevailing on the merits always shows that the amount in 
controversy, at the end of the day, is zero. Thus, if 
subsequent events could unravel a federal court's jurisdiction, 
a defendant could prevail on the merits, only to have the 
federal court conclude that it lacks jurisdiction to enter a 
judgment.\173\
---------------------------------------------------------------------------
    \172\ Id. at 294.
    \173\ Herremans v. Carrera Designs, Inc., 157 F.3d 1118, 1121 (7th 
Cir. 1998) (holding that the jurisdictional test is ``not whether the 
plaintiff is actually entitled'' to $75,000, ``[o]therwise every 
diversity case that a plaintiff lost on the merits would be dismissed 
for lack of federal jurisdiction'').
---------------------------------------------------------------------------
    It is also clear under existing law that even if a case is 
not originally removable, it can become removable because of 
subsequent events (other than changes in the citizenship of the 
original parties, which, as noted above, do not effect 
jurisdiction). Thus, as applied under S. 274, if a plaintiff, 
through amendment or otherwise, increased the amount in 
controversy, created minimal diversity, or changed the class 
definition in a case filed in the defendant's home state to 
include more than 33% of out-of-state plaintiffs, a complaint 
filed in state court--and previously not subject to federal 
jurisdiction--could properly be removed.\174\ Otherwise, the 
plaintiff could simply file a complaint not subject to removal 
and then later amend it, thereby circumventing federal 
jurisdiction. Similarly, if a plaintiff defines a class so as 
to allow diverse parties to become members of a class as the 
case proceeds, removal may be appropriate if diverse parties 
actually enter the class. For example, if a class action is 
filed in state court against an Indiana company on behalf of 
all persons affected by a chemical spill and it is initially 
thought that all class members are Indiana citizens, the case 
may become removable later in the litigation if it emerges that 
citizens of other states fall within the class definition or 
have become members of the class as the effects of the chemical 
spill spread. If this were not the rule, major interstate 
controversies could evade federal jurisdiction because counsel 
filed a class action before the parameters of the controversy 
were fully developed. Any alternative rule would allow class 
counsel to urge rejection of federal jurisdiction on the 
grounds that only non-diverse Indiana citizens were in the 
class and then turn around months later and purport to 
represent thousands of persons residing outside of Indiana. It 
should be noted that class counsel can limit the potential for 
removal as the case proceeds by defining the class to encompass 
only parties that were injured as of the date on which the 
action was filed or only parties who are citizens of a certain 
state.
---------------------------------------------------------------------------
    \174\ See Caterpillar, Inc., 519 U.S. at 69.

    Critics' Contention No. 12: S. 274's provisions expanding 
federal jurisdiction over class actions are invalid because 
they exceed the jurisdictional authorization of Article III of 
the Constitution.

Response

    This concern lacks merit. As viewed by many Circuits, a 
federal court may exercise diversity jurisdiction over a 
purported class action only if none of the plaintiffs named in 
the complaint share state citizenship with any defendant. In 
other words, no named plaintiff may be a citizen of the same 
state as any defendant. This so-called ``complete diversity'' 
prerequisite for federal jurisdiction is wholly a policy 
creation of Congress, establishing a scope of federal diversity 
jurisdiction narrower than what is authorized by Article 
III.\175\ Broader definitions of diversity jurisdiction would 
be wholly consistent with Article III. ``[I]n a variety of 
contexts, [federal courts] have concluded that Article III 
poses no obstacle to the legislative extension of federal 
[diversity] jurisdiction * * * so long as any two adverse 
parties are not co-citizens.'' \176\
---------------------------------------------------------------------------
    \175\ See Strawbridge v. Curtis, 3 Cranch 267 (1806) (complete 
diversity requirement derives from ``[t]he words of the act of 
Congress,'' not the Constitution).
    \176\ State Farm Fire & Cas. Co. v. Tashire, 386 U.S. 523, 530-31 
(1967) (citing Am. Fire & Cas. Ca. v. Finn, 341 U.S. 6, 10 n.3 (1951); 
Wichita R.R. & Light Co. v. Pub. Util. Comm'n, 260 U.S. 48 (1922); 
Barney v. Latham, 103 U.S. 205, 213 (1881)).
---------------------------------------------------------------------------
    Critics suggest that S. 274 is constitutionally suspect 
because it would authorize federal jurisdiction over purported 
class actions in which there is ``minimal (but not complete) 
diversity''--that is, cases in which any member of the 
purported class (whether or not explicitly named in the caption 
of the complaint) has state citizenship that differs from any 
defendant (using the definitions already in 28 U.S.C. 
Sec. 1332). Citing no precedents whatsoever, the critics allege 
that there is an absolute bar on considering unnamed class 
members to be ``parties'' to a purported class action. They 
contend that those unnamed persons must be ignored completely 
in determining whether the two sides meet the applicable 
diversity requirement.
    But the premise of this challenge--that unnamed class 
members cannot be deemed parties to an action--is flatly 
inconsistent with the fact that in a variety of contexts over 
the years, federal courts have treated unnamed class members as 
parties to class actions. For example:
     In Zahn v. International Paper Co,\177\ the U.S. 
Supreme Court considered whether federal diversity jurisdiction 
existed over a purported Rule 23(b)(3) class that had not been 
certified. The district court declined to exercise federal 
jurisdiction (or to allow the matter to proceed as a class 
action) because even though ``[t]he claim of each of the named 
plaintiffs was found to satisfy the * * * jurisdictional 
amount,'' ``not every individual owner in the class has 
suffered * * * damages in excess of'' the amount-in-controversy 
threshold.\178\ The Supreme Court concurred, holding that in 
determining whether the amount-in-controversy prerequisite for 
diversity jurisdiction is satisfied, a trial court is obliged 
to look at whether each purported claimant, even if unnamed, 
meets the $75,000 jurisdictional amount requirement.\179\ Thus, 
in this respect, the federal courts have for many years treated 
unnamed class members as ``parties.''
---------------------------------------------------------------------------
    \177\ 414 U.S. 291 (1973),
    \178\ Zahn v. International Paper Co., 53 F.R.D. 430 (D. Vt. 1971).
    \179\ Zahn v. International Paper Co., 414 U.S. at 301 (``Each 
plaintiff in a Rule 23(b)(3) class action must satisfy the 
jurisdictional amount, and any plaintiff who does not must be dismissed 
from the case--`one plaintiff may not ride in on another's coattails.' 
'').
---------------------------------------------------------------------------
     Similarly, in Devlin v. Scardelletti,\180\ the 
Supreme Court recently held that unnamed class members are 
considered ``parties'' for purposes of mounting an appeal. 
Thus, Devlin rejects the contention that unnamed class members 
cannot be considered ``parties'' to the litigation.
---------------------------------------------------------------------------
    \180\ 536 U.S. 1 (2002).
---------------------------------------------------------------------------
     Earlier, the Supreme Court ruled that normally, 
the filing of a class action immediately tolls the statute of 
limitations as to all unnamed class members.\181\ In short, all 
unnamed class members are treated as parties--treated as if 
they had filed the litigation themselves. Significantly, the 
American Pipe Court declared that ``the claimed members of the 
class stood as parties to the suit until and unless they 
received notice thereof and chose not to continue.'') \182\
---------------------------------------------------------------------------
    \181\ See, e.g., American Pipe & Construction Co. v. Utah, 414 U.S. 
538 (1974).
    \182\ Id. at 550 (emphasis added).
---------------------------------------------------------------------------
     Along these same lines, many courts have held that 
under Fed. R. Civ. P. 23(e), a court must ensure that unnamed 
class members' interests are protected if class claims are 
dismissed.\183\ In other words, the court is obliged (at least 
at some level) to treat the unnamed class members as parties to 
the litigation.
---------------------------------------------------------------------------
    \183\ See Diaz v. Trust Territory of the Pacific Islands, 876 F.2d 
1401, 1408 (9th Cir. 1989); Glidden v. Chromalloy American Corp., 808 
F.2d 621, 626-28 (7th Cir. 1986).
---------------------------------------------------------------------------
    S. 274 proposes that Congress declare unnamed class members 
to be ``parties'' to the litigation for purposes of the 
``minimal diversity'' jurisdictional requirement. As evidenced 
by the foregoing examples, such a congressional determination 
about who is a class action ``party'' would be wholly 
consistent with long-standing practice. For years, Congress and 
the courts have made practical determinations about how various 
categories of parties should be treated in assessing compliance 
with diversity jurisdiction prerequisites and specifically 
about the circumstances in which unnamed class members should 
be treated as parties to a lawsuit. The enactment of the 
``minimal diversity'' provisions of S. 274 would be merely 
another such practical determination--a determination that for 
purposes of the ``minimal diversity'' jurisdictional inquiry 
established by the legislation, unnamed class members (as well 
as any named class members) shall be considered ``parties.'' 
Congress is certainly empowered to establish such a definition 
in this instance.
    The Committee also notes that the exercise of this expanded 
jurisdiction can be grounded on a Commerce Clause rationale as 
well. In that regard, the Committee notes that the legislation 
contains findings that the state court class action abuses 
identified in the record before the Committee are having a 
serious adverse effect on interstate commerce and that the 
legislation (particularly its jurisdictional provisions) is 
intended to ameliorate those adverse effects.

            VIII. Congressional Budget Office Cost Estimate


S. 274--Class Action Fairness Act of 2003

    S. 274 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. S. 274 contains no 
intergovernmental mandates as defined in the Unfunded Mandates 
Reform Act (UMRA) and would impose no costs on state, local, or 
tribal governments. S. 274 would impose private-sector 
mandates, as defined in UMRA, but CBO estimates that the direct 
cost of the mandates would fall below the annual threshold 
established by UMRA ($117 million in 2003, adjusted annually 
for inflation).
    Under S. 274, 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 Court, 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 S. 274 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, S. 
274 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.
    S. 274 would require the Judicial Conference of the United 
States to transmit a report on class action settlements to the 
Congress no later than one year after the bill's enactment. CBO 
estimates that this provision would cost less than $500,000 in 
2004.
    S. 274 would impose a private-sector mandate by requiring 
any notice concerning a proposed settlement of a class action 
provided to the class members through the mail or in printed 
media contain specific information in plain, easily understood 
language and in a specific format. The bill also would require 
any notice to inform class members of their right to be 
excluded from a class action or from a proposed settlement 
provided through television or radio contain information in 
plain, easily understood language. According to the Association 
of Trial Lawyers of America, such notices are currently 
provided, but are not always in plain English language and 
tabular format as required by the bill. Therefore, CBO 
estimates that the direct cost, if any, to comply with those 
mandates would be minimal.
    In addition, S. 274 would impose a private-sector mandate 
on defendants participating in a proposed class action 
settlement. The bill would require defendants to make certain 
notifications and disclosures to the appropriate state official 
of each state in which a classmember resides and the 
appropriate federal official within 10 days after a proposed 
settlement is filed in court. The bill defines a proposed 
settlement as an agreement regarding a class action that is 
subject to court approval and would be binding on the class. 
The required notices and disclosures would include a copy of 
the suit, a copy of the proposed settlement, a statement of 
class-members' rights, and certain other materials. In effect, 
the defendants would have to provide copies of documents and 
materials related to information that they usually already 
possess about the case. Further, the provision would allow for 
the use of the Internet in making such disclosures. Thus, CBO 
estimates that the costs of complying with this mandate would 
be small.
    The CBO staff contacts for this estimate are Lanette J. 
Walker (for federal costs) and Paige Piper/Bach (for the 
private-sector impact). This estimate was approved by Peter H. 
Fontaine, Deputy Assistant Director for Budget Analysis.

                    IX. Regulatory Impact Statement

    In compliance with paragraph 11(b)(1), rule XXVI of the 
Standing Rules of the Senate, the Committee, after due 
consideration, concludes that S. 274 will not have a 
significant regulatory impact.

X. MINORITY VIEWS OF SENATORS LEAHY, KENNEDY, BIDEN, FEINGOLD, SCHUMER, 
                          DURBIN, AND EDWARDS

                            I. INTRODUCTION

    We strongly oppose S. 274, the ``Class Action Fairness Act 
of 2003.'' Although the legislation is described by some of its 
proponents as a simple procedural fix, it represents a radical 
revision of the class action rules and diversity jurisdiction 
requirements. In fact, we believe it would bar most state class 
actions from being heard in state courts. S. 274 is opposed by 
the Federal \1\ and state \2\ judiciaries, and by a multitude 
of civil justice, consumer, environmental and public interest 
advocates.\3\
---------------------------------------------------------------------------
    \1\ See Letter from Leonias Ralph Mecham, Secretary, Judicial 
Conference of the United States (March 26, 2003) [hereinafter Judicial 
Conference letter] (stating that on March 18, 2003, the Conference 
voted to express its opposition to the jurisdictional provisions in S. 
274, as it had in the earlier version of this legislation, because the 
provisions ``would add substantially to the work of the Federal courts 
and are inconsistent with principles of Federalism''); Letter from 
Anthony J. Scirica, Committee on Rules of Practice and Procedure of the 
Judicial Conference of the United States (May 12, 2003) [hereinafter 
Scirica letter] (requesting that the Judiciary Committee withdraw the 
notice provisions of the bill because they conflict with Rule 23 of the 
Federal Rules of Civil Procedures and are inconsistent with the Rules 
Enabling Act ).
    \2\ See Letter from Annice M. Wagner, President, Conference of 
Chief Justices (March 28, 2002). The Conference of Chief Justices wrote 
to Congress regarding an earlier version of this legislation: ``Absent 
hard evidence of the inability of the state judicial systems to hear 
and decide fairly class actions brought in state courts, we do not 
believe that such a procedure is warranted.''
    \3\ See Letters to Committee Members in opposition to S. 274 from 
the AARP, Alliance for Justice, Alliance for Retired Americans, 
American Association of People with Disabilities, American Cancer 
Society, American Heart Association, American Lung Association, 
Campaign For Tobacco-Free Kids, Center for Disability and Health, Clean 
Water Action, Coalition to Stop Gun Violence, Consumer Federation of 
America, Consumers for Auto Reliability and Safety, Consumers Union, 
Disability Rights Education Fund, Earthjustice, Environmental Working 
Group, Families USA, Friends of the Earth, Gray Panthers, Greenpeace, 
Homeowners Against Deficient Dwellings, Lawyers Committee For Civil 
Rights Under Law, Leadership Conference on Civil Rights, Mexican 
American Legal Defense and Educational Fund, Mineral Policy Center, 
National Asian Pacific Legal Consortium, National Consumers League, 
National Council of La Raza, National Employment Lawyers Association, 
National Partnership for Women and Families, National Resources Defense 
Council, National Workrights Institute, National Women's Health 
Network, National Women's Law Center, NOW Legal Defense Fund, People 
for the American Way, Public Citizen, Service Employees Union 
International, Sierra Club, Tobacco Control Resource Center, Tobacco 
Products Liability Project, United Policyholders, U.S. Action, U.S. 
Public Interest Research Group, Women Employed, and Violence Policy 
Center.
---------------------------------------------------------------------------
    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 for citizens to seek redress for violations of civil 
rights, employment discrimination, and consumer health, safety 
and environmental laws, to name but a few important laws. The 
legislation goes so far as to prevent state courts from 
considering class action cases which involve solely violations 
of state laws, such as state consumer protection laws.
    ``The Class Action Fairness Act of 2003'' will force most 
state class action cases into Federal courts. It will provide 
automatically for both original jurisdiction and the removal of 
state class action claims to Federal court at the request of 
either party in cases involving violations of state law if any 
member of the plaintiff class and at least one primary 
defendant are citizens of different states.\4\
---------------------------------------------------------------------------
    \4\ S. 274, Sec. Sec. 4-5. Current law requires complete diversity 
before a state law case is eligible for removal to Federal court, 
meaning all of the defendants must be citizens residing in different 
states than the plaintiffs. See Strawbridge 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.
---------------------------------------------------------------------------
    As part of the expanded diversity jurisdiction, the bill 
also provides for the removal of state class actions to Federal 
court at the request of either party if fewer than one-third of 
the plaintiff class members are citizens of a different state 
than any primary defendant, even if the primary defendant 
conducts substantial business in that state.\5\ The legislation 
would allow removal of a class action to Federal court in cases 
where between one-third and two-thirds of the plaintiffs are 
citizens of the same state as the primary defendants.\6\
---------------------------------------------------------------------------
    \5\ S. 274, Sec. Sec. 4-5.
    \6\ S. 274, Sec. 4. The bill is silent as to when the percentage of 
the class members is to be measured during the litigation for removal 
purposes. Typically, the membership of a class will change during 
different stages of the litigation depending on the discovery and 
settlement process. As a result, parties in a given class action might 
spend years litigating the proper venue for the case rather than 
arguing the merits of their case if S. 274 becomes law.
---------------------------------------------------------------------------
    Under the legislation, Federal courts are directed to 
abstain from hearing a class action only where (1) more than 
two-thirds of the plaintiffs are citizens of the same state as 
the primary defendant; (2) the matters in controversy are less 
than $5,000,000 or the membership of the proposed class is less 
than 100; or (3) the primary defendants are states, state 
officials, or other government entities against whom the 
district court may be foreclosed from ordering relief.\7\
---------------------------------------------------------------------------
    \7\ S. 274, Sec. 4. The legislation also excludes securities-
related and corporate governance class actions from coverage and makes 
a number of other procedural changes, such as easing the procedural 
requirements for removing a class action to Federal court (i.e., 
permitting removal to be sought by any plaintiff or defendant and 
eliminating the one-year deadline for filing removal actions) and 
tolling the statute of limitation periods for dismissed class actions.
---------------------------------------------------------------------------
    This bill also contains a ``Consumer Class Action Bill of 
Rights.'' This ``bill of rights'' includes some safeguards that 
we agree will improve class action litigation for all parties, 
such as protection against a proposed settlement that would 
result in a net loss to a class member and protection against 
discrimination based on geographic location. But this ``bill of 
rights'' also fails to address the greatest consumer abuses in 
class action cases such as worthless coupon settlements \8\ and 
``sweetheart'' deals which pay off one class in order to 
eradicate future claims which had not even been before the 
court.\9\
---------------------------------------------------------------------------
    \8\ Indeed, S. 274 merely requires the judge to scrutinize coupon 
settlements as ``fair, reasonable and adequate''--an action that the 
judge is already obligated to do under existing law. See Part III of 
these views for more details about coupon settlements.
    \9\ These include collusive settlements, in which the parties agree 
to a far broader settlement than was originally sought in order to 
insulate defendants from other liability. See Part III of these views 
for more details about collusive settlements.
---------------------------------------------------------------------------
    Furthermore, in the event that a district court determines 
that the action subject to its jurisdiction does not satisfy 
the requirements of Federal Rule of Procedure 23, under S. 274, 
the court must dismiss the action.\10\ This would have the 
effect of ending the class action claim. And while the action 
may be refiled in state court, it will likely be removed again 
to the Federal court, and dismissed again, resulting in a 
fruitless ``merry-go-round'' effect.\11\
---------------------------------------------------------------------------
    \10\ S. 274, Sec. 4. Under current law, the case would be remanded 
to state court, not dismissed.
    \11\ While the class action may be refiled again, any such refiled 
action may also be removed again if the district court has jurisdiction 
under S. 274.
---------------------------------------------------------------------------
    We object to the fact that the bill is written in a one-
sided manner favoring defendants at the expense of harmed 
victims. As Senator Biden eloquently stated during Committee 
consideration of the bill, S. 274 will make it ``far less 
likely that class actions will be brought, far less likely that 
corporations will be deterred from taking action contrary to 
the public interest, and far less likely that businesses will 
redress injuries their products have inflicted. Consumers will 
suffer the consequences.'' \12\
---------------------------------------------------------------------------
    \12\ Written statement of Senator Biden, executive business meeting 
of the Committee, April 3, 2003.
---------------------------------------------------------------------------
    Before even considering S. 274, the Committee and the full 
Senate should insist on receiving objective and comprehensive 
data justifying such a dramatic intrusion into state court 
prerogatives. Nothing in the way of such information now 
exists. Before the Committee considered this bill, six Members 
of the Committee wrote to Chairman Hatch, respectfully 
requesting a hearing on class action litigation to help the 
Committee develop consensus reforms to better serve both 
defendants and plaintiffs before the Committee proceeded to a 
markup on S. 274.\13\ Unfortunately, that request was ignored 
and the letter went unanswered.
---------------------------------------------------------------------------
    \13\ See March 25, 2003 letter from Senators Leahy, Kennedy, Biden, 
Feingold, Durbin, and Edwards to Chairman Hatch.
---------------------------------------------------------------------------
    We had hoped that the Committee would undertake a 
deliberate and careful review of information from parties 
actually involved in class action litigation to provide a 
realistic picture of the benefits and problems with class 
actions. But, instead, the Committee has proceeded with one-
sided legislation that has repeatedly failed to pass the Senate 
in recent years.
    We recognize that class action litigation has genuine 
problems that should be addressed by Federal legislation for 
the benefit of both defendants and plaintiffs. This 
legislation, however, is heavily biased in favor of defendants. 
Rather than address the system's real failings, S. 274 will 
make it more difficult for the vast majority of legitimate, 
well-intentioned class actions to move forward, by placing 
cumbersome restrictions on citizens' rights to seek redress for 
their injuries.
    In short, we agree with the position of the National 
Conference of State Legislatures: ``Anecdotal evidence of abuse 
might highlight a need for reform in a particular jurisdiction, 
reform that can and has been addressed outside the nation's 
capitol. Such anecdotes, however, are grossly insufficient 
reasons for a wholesale Federal takeover of class action 
litigation. Lawsuits based on questions of state law should be 
decided in state courts by the judges who are best qualified to 
interpret and apply the laws of that state.'' \14\
---------------------------------------------------------------------------
    \14\ Letter from Representative Kip Holden, Louisiana House of 
Representatives, Chair, National Conference of State Legislatures, AFI 
Law and Justice Committee, dated June 21, 2000, to Senator Leahy.
---------------------------------------------------------------------------
    For these and other reasons set forth herein, we strongly 
oppose S. 274.

       II. S. 274 WILL DAMAGE THE FEDERAL AND STATE COURT SYSTEMS

    By expanding Federal class action jurisdiction to include 
most state class actions, S. 274 will inevitably result in a 
significant increase in the Federal courts' workload. In its 
letter to the Judiciary Committee concerning a prior version of 
this bill, the Judicial Conference warned that:

          [T]he effect of the class action provisions of [S. 
        353] would be to move virtually all class action 
        litigation into the Federal courts, thereby offending 
        well-established principles of Federalism [and] * * * 
        hold[ing] the potential for increasing significantly 
        the number of [class action] cases currently being 
        litigated in the Federal system.\15\
---------------------------------------------------------------------------
    \15\ See Judicial Conference letters of July 26, 1999 and August 
23, 1999.

    The Judicial Conference reaffirmed its opposition to this 
effect of S. 274 in its recent letter, stating that the 
Conference's position on S. 274 ``makes clear that such 
opposition continues to apply to similar jurisdictional 
provisions.'' \16\
---------------------------------------------------------------------------
    \16\ See Judicial Conference Letter, supra note 1.
---------------------------------------------------------------------------
    In addition to overwhelming the Federal courts with new 
time-intensive class actions, S. 274 will undermine state 
courts' independent authority. Recently, several state 
Attorneys General wrote to Senate leaders objecting to this 
``federalizing'' of most class actionsunder this legislation:

          The fundamental flaw in S. 274 is that all class 
        actions brought against a defendant who is not a 
        ``citizen'' of the state will be removed to federal 
        court, no matter how substantial a presence the 
        defendant has in the state or how much harm the 
        defendant has caused in the state. Most class actions 
        will be transferred to federal court, even where the 
        majority of class members are from a single state.\17\
---------------------------------------------------------------------------
    \17\ June 11, 2003, letter from Eliot Spitzer, Attorney General of 
the State of New York, and W.A. Drew Edmondson, Attorney General of the 
State of Oklahoma, on behalf of the Attorneys General of the States of 
Ilinois, Maryland, Minnesota, Missouri, Montana, New Mexico, New York, 
Oklahoma, and West Virginia to Majority Leader Frist and Minority 
Leader Daschle.

    In cases that are removed to the Federal courts but not 
certified, S. 274 will prevent the state courts from hearing 
cases as class actions, even though the claims are based in 
state law. It is important to recall the context in which this 
legislation arises--a class action has been filed in state 
court involving state law claims, which if filed by individuals 
would not be subject to Federal jurisdiction (either because 
the parties do not meet the current Federal diversity 
requirements or the amount in controversy for each claim does 
not exceed $75,000). When these class actions are dismissed by 
the Federal courts, thousands of individual actions may be 
unleashed on the state courts.\18\
---------------------------------------------------------------------------
    \18\ To counter this problem, Senator Feingold offered an amendment 
at the Judiciary Committee markup of S. 274 which provided that 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, the court shall remand the action to the state court 
without prejudice. This amendment would respond to the most serious 
complaint leveled by class action defendants by allowing the Federal 
court the first opportunity to certify the class action but it would 
not deny the state court jurisdiction over the class action if it did 
not meet the Federal requirements. The amendment was defeated by a vote 
of 7-11.
---------------------------------------------------------------------------
    Even more troublesome than these potential workload 
problems, S. 274 raises serious constitutional issues by 
challenging the vision of our founders and the intent of the 
Constitution. This legislation undermines James Madison's 
vision of a Federal government ``limited to certain enumerated 
objects, which concern all the members of the republic.'' \19\
---------------------------------------------------------------------------
    \19\ Federalist No. 14.
---------------------------------------------------------------------------
    This bill does not merely operate to preempt state laws; 
rather, it unilaterally strips the state courts of their 
ability to use the class action procedural device to resolve 
state law disputes. As the Lawyers' Committee for Civil Rights 
Under Law observes, citing Bank of the United States v. 
Deveaux:

          For over 200 years, Federal diversity jurisdiction 
        has been exercised with care and hesitation, 
        demonstrating that Congress believed, with few 
        exceptions ``tribunals of the state * * * administer 
        justice as impartially as those of the nation, to 
        parties of every description.'' \20\
---------------------------------------------------------------------------
    \20\ See April 9, 2003, letter from Lawyers' Committee for Civil 
Rights Under Law, quoting Bank of the United States v. Deveaux, 5 
Cranch 61, 87 (U.S. 1809); see also City of Indianapolis v. Chase Nat'l 
Bank, 314 U.S. 63, 76 (1941).

    The courts have previously found that efforts by Congress 
to dictate such state court procedures implicate important 
Tenth Amendment Federalism concerns and should be avoided. For 
example, in Fielder v. Casey \21\ 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 \22\ 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' '' \23\ 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.'' \24\
---------------------------------------------------------------------------
    \21\ 487 U.S. 131, 138 (1988) (finding Wisconsin notice-of-claim 
statute to be preempted by 42 U.S.C. Sec. 1983, which holds anyone 
acting under color of law liable for violating constitutional rights of 
others).
    \22\ 520 U.S. 911 (1997) (holding that Idaho procedural rules 
concerning appealability of orders are not preempted by 42 U.S.C. 
Sec. 1983).
    \23\ Id. at 919 (quoting Henry M. Hart, Jr., The Relations Between 
State and Federal Law, 54 Colum. L. Rev. 489, 508 (1954).
    \24\ Id. at 922. See also Howlett v. Rose, 296 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'').
---------------------------------------------------------------------------
    These same constitutional concerns were highlighted by 
Professor Laurence Tribe in his testimony regarding the 
constitutionality of a proposed Federal class action rule 
applicable to state courts included in tobacco legislation 
proposed during the 105th Congress. Professor Tribe 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.'' \25\
---------------------------------------------------------------------------
    \25\ 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). Indeed, Chairman 
Hatch recently praised Professor Tribe at the Committee's June 4, 2003, 
hearing on asbestos litigation as ``known here and throughout the 
country as one of the most respected constitutional scholars and 
practitioners.''
---------------------------------------------------------------------------
    The Supreme Court's most recent decisions further indicate 
that S. 274 is an unacceptableinfringement upon state 
sovereignty. In United States v. Morrison,\26\ 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.'' S. 274, introduced without a hearing 
and without any convincing data, ignores the Court's admonitions and 
subverts the Federal system by hindering the states' ability to 
adjudicate class actions involving important and evolving questions of 
state law. S. 274 not only obliterates the distinction between national 
and local authority, it effectively annihilates local authority over 
state class actions.
---------------------------------------------------------------------------
    \26\ 120 S. Ct. 1740 (2000).
---------------------------------------------------------------------------
    Responding to these significant constitutional concerns, 
proponents of this legislation argue that state courts will not 
give fair hearings to out-of-state defendants, but support for 
their assertion is bereft of evidence. First, the Supreme Court 
has already made clear that the 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,\27\ the Supreme Court held 
that in class action cases, state courts must ensure that: (1) 
the defendant receives notice plus an opportunity to be heard 
and participate in the litigation; \28\ (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.\29\
---------------------------------------------------------------------------
    \27\ 472 U.S. 797 (1985).
    \28\ See id at 812 (stating that the notice must be the ``best 
practicable, reasonably calculated, under all the circumstances, to 
apprize interested parties of the pendency of the action and afford 
them an opportunity to present their objections.'') (quoting Mullane v. 
Central Hanover Bank & Trust Co., 339 U.S. 306, 314-315 (1950)).
    \29\ See id. at 806-810. These findings were reiterated by the 
Supreme Court in 1995 in Matshusita Elec. Indust. Co. v. Epstein, 516 
U.S. 367 (1995) (holding that state class actions are entitled to full 
faith and credit so long as, inter alia: the settlement was fair, 
reasonable, adequate and in the best interests of the settlement class; 
notice to the class was in full compliance with due process; and the 
class representatives fairly and adequately represented class 
interests).
---------------------------------------------------------------------------
    Secondly, 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.\30\ For example, Congress enacted the Federal 
Courts Improvement Act of 1996,\31\ 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 \32\ 
and that it was important to keep the Federal judiciary's 
efforts focused on Federal issues.\33\
---------------------------------------------------------------------------
    \30\ Ironically, during the 104th Congress, the Republican Party 
was extolling the virtues of state courts in the context of their 
efforts to limit habeas corpus rights, which permit individuals to 
challenge unconstitutional state law convictions in Federal court.
    \31\ 28 U.S.C Sec. 1332(a) (West Supp. 1998).
    \32\ See Judicial Conference of the United States, Long Range Plan 
for the Federal Courts, Recommendation 7 at 30 (1995).
    \33\ See id.
---------------------------------------------------------------------------
    One encouraging note was struck in the mark-up of S. 274, 
when Senators Feinstein and Specter joined together to craft an 
amendment to strike the provisions in S. 274 which treated 
suits by private attorneys general, and mass tort suits, as if 
they were class actions. As introduced, S. 274 would have 
created Federal jurisdiction not only for true class actions, 
but also for private attorney general actions brought by any 
organization or citizen, as well as for groups of cases in 
which 100 or more individuals seeking monetary relief seek to 
try any common legal or factual issue together (i.e., ``mass 
torts'').\34\ As Senator Feinstein explained, that provision 
was ``a direct strike against State law in a way that puts a 
whole category of actions that are not now class actions into 
the class action arena.'' \35\ Senator Specter echoed that 
understanding, pointing out that, ``This is a class action bill 
* * * but these provisions do not relate to class actions.'' 
\36\ As Chairman Hatch conceded, ``these are representative 
actions that are a little different from class actions,'' \37\ 
and the Committee accepted the Specter-Feinstein amendment 
without objection.
---------------------------------------------------------------------------
    \34\ Transcript of executive business meeting of the Senate 
Judiciary Committee, April 11, 2003, p. 24-31.
    \35\ Statement of Senator Feinstein, executive business meeting of 
the Senate Judiciary Committee, April 11, 2003, p. 26.
    \36\ Statement of Senator Specter, executive business meeting of 
the Senate Judiciary Committee, April 11, 2003, p. 28.
    \37\ Statement of Senator Hatch, executive business meeting of the 
Senate Judiciary Committee, April 11, 2003, p. 26.
---------------------------------------------------------------------------

     III. S. 274 WILL HURT CONSUMERS, VICTIMS, AND THE ENVIRONMENT

    Proponents of this legislation claim that S. 274 will 
protect consumers while remedying the worst abuses of the class 
action system, yet consumer advocates overwhelmingly oppose 
these alleged ``reforms.'' \38\ There can be little doubt that 
S. 274 will have a serious adverse impact on the ability of 
consumers and victims to obtain compensation in cases involving 
widespread harm. At a minimum, the legislation will force most 
state class action claims into Federal courts where it is 
generally more expensive for plaintiffs to litigate cases and 
where defendants could force plaintiffs to travel long 
distances to attend proceedings.
---------------------------------------------------------------------------
    \38\ See Letter in Opposition to S. 274, February 5, 2003, from the 
Consumer Federation of America, Consumers Union, and U.S. Public 
Interest Research Group.
---------------------------------------------------------------------------
    It is also typically more difficult and time consuming to 
certify a class action in Federal court. Fourteen states, 
representing nearly one-third of the nation's population,\39\ 
have adopted different criteria for class action rules than 
Rule 23 of the Federal Rules of Civil Procedure.\40\ In 
addition, with respect to those states which have enacted an 
analog to Rule 23, the Federal courts are likely to represent a 
more difficult forum for class certification to occur. This 
ratcheting up of the standard is the result of a series of 
adverse Federal precedents, such as Castano v. American Tobacco 
Co.,\41\ In re Rhone-Poulenc Rorer, Inc.,\42\ In re American 
Medical Systems, Inc.,\43\ Georgine v. Amchem Products, 
Inc.,\44\ Broussard v. Meineke Discount Mufflers,\45\ and Ortiz 
v. Fibreboard,\46\ which have made it more difficult to 
establish the ``predominance requirement'' necessary to 
establish a class action under the Federal rules.
---------------------------------------------------------------------------
    \39\ Three states still use their common law rules, rather than 
statutes, to permit class actions (Mississippi, New Hampshire, and 
Virginia); four states use Field Code-based rules based on the 
``community of interest'' test (California, Nebraska, South Carolina, 
and Wisconsin); and seven states use class action rules modeled on the 
original Federal Rule 23 (1938) which creates a distinction among class 
members which depends on the substantive character of the right 
asserted (Alaska, Georgia, Louisiana, New Mexico, North Carolina, Rhode 
Island, and West Virginia). See 3 Herbert B. Newberg and Alba Conte, 
Newberg on Class Actions Sec. 13.04 (3d ed.1992 & Supp. 1997).
    \40\ Rule 23(a) states four factual prerequisites that must be met 
before a court will certify the lawsuit as a class action: (1) size--
the class must be so large that joinder of all of its members is not 
feasible; (2) common questions--there must be questions of law or fact 
common to the class; (3) typical claims--the claims or defenses of the 
representatives must be ``typical'' of those of the class; and (4) 
representation--the representatives must fairly and adequately 
represent the interests of the class.
    \41\ 84 F.3d 734 (5th Cir. 1996) (preventing the certification of a 
nationwide class action brought by cigarette smokers and their families 
for nicotine addiction where there was found to be too wide a disparity 
between the various state tort and fraud laws for the class action 
vehicle to be superior to individual case adjudication).
    \42\ 51 F. 3d 1293 (7th Cir. 1995) (decertifying, under the Erie 
doctrine, a nationwide negligence class action brought on behalf of 
hemophiliacs infected with the AIDS virus through use of defendants' 
blood clotting products because of diversity of state laws).
    \43\ 75 F.3d 1069 (6th Cir. 1996) (decertifying a proposed 
plaintiff settlement class comprising all U.S. residents implanted with 
defective or malfunctioning inflatable penile prostheses that were 
manufactured, developed, or sold by defendant company because common 
questions of law or fact did not predominate the action to such an 
extent that warranted class certification).
    \44\ 521 U.S. 591 (1997) (overturning consensual settlement between 
a class of workers injured by asbestos and a coalition of former 
asbestos manufacturers because of disparate levels of the class 
members' knowledge of their injuries and class members' large amount at 
stake in the litigation).
    \45\ 155 F.3d 331 (4th Cir. 1998) (rejecting class certification 
brought by Meineke franchisees alleging violations of franchise, tort, 
unfair trade, and other laws).
    \46\ 119 S.Ct. 2295 (1999). The Court found that mandatory limited 
fund class treatment under Rule 23(b)(1)(B) is not appropriate unless 
the maximum funds available are clearly inadequate to pay all claims.
---------------------------------------------------------------------------

A. Removal abuses and the effects of the judicial ``merry-go-round''

    ``The Class Action Fairness Act of 2003'' also creates 
unique risks and obstacles to plaintiffs not present in the 
current system. A particularly troubling aspect of S. 274 is 
that it allows removal of a case at any time. The possibilities 
for abusing this provision are obvious, and worth noting. As 
more than a hundred law professors noted in a letter to 
Senators Frist and Daschle:

          This would give a defendant the power to yank a case 
        away from a state-court judge who has properly issued 
        pretrial rulings the defendant does not like, and would 
        encourage a level of forum-shopping never before seen 
        in this country. Moreover, this provision would allow 
        an unscrupulous defendant, anxious to put off the day 
        of judgment so that more assets can be hidden, to 
        remove a case on the eve of a state-court trial, 
        resulting in an automatic delay of months or even years 
        before the case can be tried in Federal courts.\47\
---------------------------------------------------------------------------
    \47\ Letter from 106 professors of constitutional law and civil 
procedure to Senators Frist and Daschle, June 3, 2003, p. 2.

    Equally worrisome is the fact that, under S. 274, if the 
Federal district court determines that an action does not 
satisfy the requirements of Federal Rule of Civil Procedure 23, 
the court must dismiss the action. This has the effect of 
striking the class action claim, and may have the long term 
result of federalizing all state class action standards. While 
the class action may be refiled in state court, any such 
refiled action may be removed again to Federal court. 
Therefore, even if a state court subsequently certifies the 
class, it could be removed again and again, creating a 
revolving door between Federal and state court--hardly a just 
outcome for all parties.
    Added to the ``merry-go-round'' provision of the 
legislation are the hurdles established by Senator Feinstein's 
amendment to S. 274. While undoubtedly well-intentioned, the 
amendment sets up cumbersome requirements for determining 
whether an action will be heard in state or Federal court.\48\ 
The result is a bill that will cause unnecessary and expensive 
litigation that favors corporate defendants at the expense of 
harmed victims. As Senator Feingold stated during the April 10, 
2003, mark-up of this legislation:
---------------------------------------------------------------------------
    \48\ The Feinstein amendment provides that a Federal judge may use 
five factors in deciding jurisdiction of a class action where between 
one-third and two-thirds of the plaintiffs are from the same state as 
the primary defendants: (1) whether the claims involve matters of 
national or interstate interest; (2) whether the claims will be 
governed by laws other than those of the forum state; (3) whether the 
case has been pleaded in a manner that seeks to avoid Federal 
jurisdiction; (4) whether the number of citizens from the forum state 
is substantially larger than the number of citizens from any other 
state and the citizenship of the members is dispersed among a 
substantial number of states; and (5) whether one or more class actions 
asserting the same or similar claims on behalf of the same or other 
person have been or may be filed. These five factors are not defined in 
S. 274.

          The two-thirds requirement is a hard and fast rule 
        that will allow defendants to argue the case should be 
        removed as long as the class composition doesn't exceed 
        the magic 66.67 percent * * * The [resultant] 
        procedural hurdles in [this legislation] make it more 
        difficult for plaintiffsto proceed in either state or 
Federal court due to the legal maneuvering over which forum is 
appropriate * * * Justice delayed is justice denied.\49\
---------------------------------------------------------------------------
    \49\ Statement of Senator Russell Feingold in opposition to Senator 
Feinstein's amendment to S. 274, executive business meeting of the 
Senate Judiciary Committee, April 11, 2003.

    Moreover, given that membership in class actions frequently 
change, the two-thirds requirement, and the ``middle-third'' 
provision (subject to judicial discretion) would open up the 
process to legal gamesmanship. Considering the vast resources 
of defendants in many class actions, as compared to the 
plaintiffs, this will only make it more difficult for class 
members to ever have a final ruling on the merits of their 
case.
    Attempting to address this misgiving constructively, 
Senator Feingold introduced a modest amendment to S. 274 that 
would have prevented ``endless rounds of removals, dismissals, 
and remands.'' \50\ The Feingold amendment would have required 
that class actions that were removed to Federal court and 
unable to satisfy the Rule 23 class certification requirements 
be remanded to state court, as is the case under current law. 
If the claims before the state court were substantially 
identical to the original action, the case could not be removed 
again under the amendment. This amendment would have alleviated 
some of the unacceptable delays S. 274 would create for class 
action litigation. Unfortunately, the majority voted down this 
amendment to improve the bill.\51\
---------------------------------------------------------------------------
    \50\ See Transcript of April 11, 2003, Executive Business Meeting 
at 52-53.
    \51\ At the April 11, 2003, executive business meeting of the 
Committee, Senators Leahy, Kennedy, Biden, Feingold, Schumer, Durbin, 
and Edwards voted for the amendment. All other members voted in 
oppossiton, with Senator Specter passing.
---------------------------------------------------------------------------

B. Barriers to justice for consumers

    This legislation will also severely limit the ability of 
consumers to pursue class actions in state court, even when 
state consumer protection laws are implicated. Consumers pay 
the price when Federal courts dismiss a case rather than 
remanding the suit to state court where a state might certify 
the action. When this occurs, consumers are left with two 
equally unattractive options: ``A consumer could bring the 
claim in state court as an individual action. However, 
individual cases would be impractical to litigate, would not 
have the same deterrent effect, and would have the potential to 
overwhelm state courts. In the alternative, consumers could re-
file an amended class certification in state court. This re-
filing again opens the door created by S. 274 for the defendant 
to remove the case to Federal court.'' \52\
---------------------------------------------------------------------------
    \52\ See Letter from the Consumer Federation of America, Consumers 
Union, and U.S. PIRG, February 5, 2003.
---------------------------------------------------------------------------
    Even if consumers get their day in Federal court under this 
legislation, consumer advocates argue that just outcomes are 
unlikely. Federal court decisions will likely be narrowly 
tailored, without establishing legal precedent for future state 
court cases of the particular law in question. Because of this, 
S. 274 ``will slow--and in some cases thwart--the continual 
interpretation of state law.'' \53\
---------------------------------------------------------------------------
    \53\ Ibid.
---------------------------------------------------------------------------
    Once again, S. 274 raises serious concerns about 
Federalism. Senator Feingold, in introducing an amendment that 
would keep consumer protection class actions in state courts, 
made the point: ``* * * Federal courts interpret State law on a 
regular basis, but I do not believe that we should be setting 
up a system where the State courts will virtually never 
interpret and apply their own laws to significant cases of 
first impression * * * That just seems to be a result as far 
removed from any reasonable interpretation of our Federal 
system as I can imagine.'' \54\ And Senator Feingold is not 
alone in criticism of S. 274 in this regard. Indeed, the 
American Bar Association Task Force on Class Action 
Legislation's recent report noted that ``any expansion [of 
Federal court jurisdiction] should preserve a balance between 
legitimate state-court interests and Federal-court 
jurisdictional benefits.'' \55\ The current legislation clearly 
fails this test.
---------------------------------------------------------------------------
    \54\ April 11, 2003, executive business meeting, at 61.
    \55\ See April 2, 2003 letter in opposition to S. 274, ``Opposition 
to S. 274, `The Class Action Fairness Act of 2003,' '' from the 
Consumers Union.
---------------------------------------------------------------------------
    Senator Feingold's amendment would have ensured that state 
consumer protection cases are kept where they belong--in state 
courts. If his amendment had been approved, citizens would have 
been able to seek remedies in their own states in cases 
relating to ``consumer fraud, consumer loans, consumer credit 
sales, deceptive trade practices, unlawful trade practices, or 
unfair and deceptive practices.'' The only exception to this 
would be in class actions where there is a complete diversity 
among the parties (the current standard).\56\ The Committee 
failed to approve this important amendment by a vote of 7 yeas 
to 11 nays.\57\
---------------------------------------------------------------------------
    \56\ See Feingold Amendment to S. 274, April 11, 2003, executive 
business meeting, at 63-64.
    \57\ April 11, 2003 executive business meeting at 75. The amendment 
was defeated by 7 yeas to 11 nays. Senators Leahy, Kennedy, Biden, 
Feingold, Schumer, Durbin, and Edwards voted in favor of the amendment. 
All of the other Committee members voted against, with Senator Specter 
passing.
---------------------------------------------------------------------------
    Nor does S. 274's provision for ``notice requirements'' to 
class members improve current law. In fact, S. 274 contains a 
long, detailed notice provision that would actually confuse 
consumers--not help them. According to the Judicial Conference 
Rules Committee, these 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.'' \58\ Indeed, members of the House 
Judiciary Committee, when considering similar legislation, 
unanimously accepted an amendment conforming the notice 
requirements to the Federal Rules of Civil Procedure.
---------------------------------------------------------------------------
    \58\ Scirica letter, p. 3.
---------------------------------------------------------------------------
    This legislation as originally introduced went so far as to 
federalize nearly all consumer protection actions, regardless 
of whether or not they involve large classes of nationwide 
plaintiffs, or even a class of plaintiffs at all. For instance, 
some states have laws that protect consumers by prohibiting 
deceptive business practices.\59\ These laws may be enforced by 
the State Attorney General or, if the State Attorney General 
does not act, the state citizens may act as private attorneys 
general. This legislation, as introduced, would have forced 
these cases into Federal court because these private citizens 
also represent the interests of the ``general public,'' which 
the bill explicitly grouped with class actions. Fortunately, 
Senator Specter and Senator Feinstein offered an amendment to 
strike this subsection of S. 274, which was accepted by a voice 
vote.
---------------------------------------------------------------------------
    \59\ Michigan and California are two states that allow ``private 
attorney general'' suits.
---------------------------------------------------------------------------
    The net result of these various changes is that under the 
proposed legislation, it will be far more difficult for 
consumers and other injured individuals to obtain justice in 
class action cases at the state or Federal level.

C. Special protections for the tobacco and gun industries

    ``The Class Action Fairness Act of 2003'' will have the 
effect of giving special protections to two industries 
undeserving of special treatment--the tobacco industry and the 
gun industry. Because of the special legal protections in S. 
274, the tobacco and firearms industries may be able to avoid 
accountability for their products. For example, the reported 
bill's ``\1/3\-\1/3\-\1/3\'' requirement virtually guarantees 
that tobacco-related cases will end up in Federal court since 
the major tobacco companies are all headquartered in only one 
or two states while tobacco victims are nationwide. In effect, 
cigarette makers will be able to ``forum shop'' to the Federal 
courts where they prefer to litigate, since the rules for 
certifying class actions are often stricter.\60\
---------------------------------------------------------------------------
    \60\ See Letter in Opposition to S. 274, March 10, 2003, from 
Campaign for Tobacco Free Kids, the American Heart Association, and the 
American Lung Association.
---------------------------------------------------------------------------
    Such special protection is particularly inappropriate for 
an industry that has ``lied to Congress and the American 
people'' for decades.\61\ Citing a recent class action victory 
in the state of Illinois, Senator Durbin notes that ``if the 
class action fairness law were law today, this case would not 
have come to trial in Illinois courts and most likely would not 
have come to trial at all. This bill could insulate Philip 
Morris and other tobacco companies from class action suits 
which are finally bringing to the public eye the deception 
which they have practiced on America for over half a century.'' 
\62\
---------------------------------------------------------------------------
    \61\ Statement of Senator Durbin, April 11, 2003, Executive 
Business Meeting at 19.
    \62\ Ibid. at 22.
---------------------------------------------------------------------------
    Proposing an amendment to S. 274, Senator Durbin sought to 
ensure that companies like Philip Morris cannot violate the 
rights of citizens as guaranteed by their states, and then 
choose Federal court as a friendlier venue merely because they 
are not incorporated in the state where they committed their 
misdeeds. The amendment would have carved out tobacco suits as 
inappropriate for class action reform legislation, but this 
amendment failed a Committee vote.\63\
---------------------------------------------------------------------------
    \63\ At the April 11, 2003, Executive Business Meeting, the 
amendment failed by a vote of 8-11, with Senators Leahy, Kennedy, 
Biden, Feingold, Schumer, Durbin, Edwards and DeWine in Favor of the 
amendment, and Senator Specter passing.
---------------------------------------------------------------------------
    Similarly, Senator Kennedy sought an amendment that would 
exempt from S. 274 lawsuits dealing with firearms. As Senator 
Kennedy said:

          [It] is wrong to oppose needed gun safety legislation 
        such as the closing of the gun show loophole. It is 
        wrong to have fought to keep guns exempt from Federal 
        safety regulation, and it is wrong to have failed to 
        use technology to make guns safer * * * it would be 
        wrong for Congress to impose yet another obstacle in 
        [the way of Americans]. S. 274 should not apply to gun 
        lawsuits.\64\
---------------------------------------------------------------------------
    \64\ Transcript of April 11, 2003 executive business meeting of the 
Senate Judiciary Committee at 46.

    Class actions are often the only method to force 
manufacturers of defective firearms to make guns safer because 
firearms are exempt from consumer safety laws. For example, in 
the 1990s, firearms consumers filed a class action lawsuit in 
Texas against Remington Arms. Facing allegations that their gun 
barrels were prone to explode, Remington settled the dispute 
for $31 million and agreed to upgrade the steel used in 
shotguns.\65\ Unfortunately, Senator Kennedy's amendment was 
defeated by the majority as well.\66\
---------------------------------------------------------------------------
    \65\ ``Remington Settles Class-Action Suit over Shotgun Barrels,'' 
The Austin American-Statesman, October 1, 1995, page B7.
    \66\ At the April 11, 2003, executive business meeting of the 
Committee, the amendment failed by a vote of 7-11, with Senators Leahy, 
Kennedy, Biden, Feingold, Schumer, Durbin, and Edwards in favor of the 
amendment, and Senator Specter passing.
---------------------------------------------------------------------------

D. Special punishment for the environment and civil rights

    While this legislation offers special protections to gun 
manufacturers and cigarette makers, S. 274 offers no such 
beneficial provisions to protect the environment and Americans' 
civil rights. By removing many important environmental class 
actions from state to Federal court, S. 274 not only denies to 
state courts the opportunity to interpret their own state's 
environmental protection laws, it hampers and deters plaintiffs 
from pursuing important environmental litigation. The well-
documented backlog in the Federal courts and the need for 
attorneys to engage in choice of law debates will significantly 
increase the time and cost of environmental litigation. 
Ultimately, environmental class actions may not get litigated 
and the incentive polluters have to keep our environment clean 
will be reduced.
    At the April 11, 2003, executive business meeting of the 
Committee, Senator Leahy offered an amendment to S. 274 that 
would carve out claims arising under state environmental 
protection laws, given the evolving nature of State law and the 
importanceof maintaining efficient litigation to protect our 
environment. Unfortunately, the majority defeated this amendment.\67\
---------------------------------------------------------------------------
    \67\ At the April 11, 2003, executive business meeting of the 
Committee, Senators Leahy, Kennedy, Biden, Feingold, Schumer, Durbin, 
and Edwards voted for the amendment. All other members of the Committee 
voted against the amendment, with Senator Specter passing.
---------------------------------------------------------------------------
    Moreover, by failing to carve out an exception in S. 274 to 
protect the environment, the majority ignores the advice of the 
Judicial Conference of the United States, chaired by Chief 
Justice Rehnquist. In its March 26, 2003, letter, the Judicial 
Conference noted that even if the Congress adopts class action 
removal legislation, there should be certain exceptions such as 
``a class action in which plaintiff class members suffered 
personal injury or physical property damage within the state, 
as in the case of a serious environmental disaster.'' \68\
---------------------------------------------------------------------------
    \68\ See Judicial Conference Letter, supra note 1.
---------------------------------------------------------------------------
    Just as S. 274 turns a blind eye toward the environment and 
a cold shoulder to the advice of Chief Justice Rehnquist, the 
proposed legislation will make it much more difficult to use 
class actions as a means of protecting civil rights. Several 
civil rights organizations have argued that S. 274 and its 
``additional, substantial and costly noticing requirements and 
built-in delays are not a matter of due process, but are overly 
burdensome and improperly assume that Federal and state 
officials have proper interest in, and a capacity to respond 
to, each and every class action.'' \69\
---------------------------------------------------------------------------
    \69\ See Letter in Opposition to S. 274, March 20, 2003, from the 
Leadership Conference on Civil Rights, Alliance for Justice, Lawyers' 
Committee for Civil Rights Under Law, Mexican American Legal Defense 
and Educational Fund, National Asian Pacific Legal Consortium, National 
Partnership for Women and Families, National Workrights Institute, 
National Women's Law Center, People for the American Way, and Women 
Employed.
---------------------------------------------------------------------------
    Indeed, class action litigation has been essential to 
vindicating basic civil rights through our courts. For example, 
the landmark Supreme Court decision in Brown v. Board of 
Education was the culmination of appeals from four class action 
cases, three from Federal court decisions in Kansas, South 
Carolina and Virginia and one from a decision by the Supreme 
Court of Delaware. Only the Supreme Court of Delaware, the 
state court, got the case right by deciding for the African-
American plaintiffs. The state court justices understood that 
they were constrained by the existing Supreme Court law, but 
nonetheless held that the segregated schools of Delaware 
violated the Fourteenth Amendment. Before any Federal court did 
so, a state court rejected separate and unequal schools.
    S. 274 sets up several new hurdles for plaintiffs who file 
class actions. These requirements would be especially 
burdensome on many civil rights claimants.
    The bill's requirement to provide ``notice'' to state 
officials, such as a state attorney general, would certainly 
lead to delays in the proceedings. As a result, some of the 
critical evidence of malice or discriminatory intent required 
to prevail in civil rights and discrimination cases could be 
lost while this additional step is taken. In addition, this 
added hurdle will likely be redundant because many of these 
plaintiffs will have already gone through an administrative 
proceeding before being allowed to file a discrimination claim 
in Federal court.
    Moreover, the requirement prohibiting named plaintiffs from 
receiving additional benefits--even when they were often the 
ones who already lost their jobs or homes due to discriminatory 
practices--is patently unfair. These lead plaintiffs deserve 
the ``additional benefits'' of being reinstated in their jobs 
or homes if they prevail at trial. Clearly, the defendants are 
seeking to deter plaintiffs from taking the lead in class 
actions by denying them any additional remedies.
    A particularly worrisome provision of S. 274 prohibits 
``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. A 
plaintiff filing an individual action may obtain an order 
placing him or her in the job denied and receives back pay. 
Such a remedy would, of course, be appropriate under current 
law for a named plaintiff in a class action. However, S. 274 
would bar such a remedy for named plaintiffs unless each and 
every other class member also receives the same. This may well 
be impossibility and will certainly act as a deterrent to civil 
rights class actions in general, and becoming a class 
representative in particular.
    Thomas Henderson, Chief Counsel of the Lawyers Committee 
for Civil Rights, testified before the House of Representatives 
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.\70\
---------------------------------------------------------------------------
    \70\ Class Action Fairness Act of 2003: Hearings on H.R. 1115 
before the House Comm. on the Judiciary, 108th Cong. (2003) (written 
testimony of Thomas Henderson, Chief Counsel, Lawyers' Committee for 
Civil Rights Under Law).

    As a result of the assault that S. 274 would launch on the 
defense of civil liberties, manycivil rights advocates--
including the Lawyers' Committee for Civil Rights Under Law, the 
Leadership Conference on Civil Rights, the Mexican American Legal 
Defense and Education Fund, and the National Asian Pacific Legal 
Consortium--have concluded that this legislation ``would discourage 
civil rights class actions, impose substantial barriers to settling 
class actions and render Federal courts unable to provide swift and 
effective administration of justice.'' \71\
---------------------------------------------------------------------------
    \71\ See Letter in Opposition to S. 274, March 20, 2003, from the 
Leadership Conference on Civil Rights, Alliance for Justice, Lawyers' 
Committee for Civil Rights Under Law, Mexican American Legal Defense 
and Educational Fund, National Asian Pacific Legal Consortium, National 
Partnership for Women and Families, National Workrights Institute, 
National Women's Law People for the American Way, and Women Employed.
---------------------------------------------------------------------------
    For these reasons, Senator Kennedy introduced an amendment 
that would create a carve-out in S. 274 relating to civil 
rights class actions. Senator Kennedy emphasized that such a 
provision is particularly important for the many ``good actor'' 
states, such as Wisconsin, North Carolina, California, and 
Massachusetts, which have civil rights laws that provide 
protections and remedies distinct from the Federal laws. The 
majority, however, voted against this amendment.\72\
---------------------------------------------------------------------------
    \72\ At the April 11, 2003, executive business meeting this 
amendment failed by a vote of 7-11. Senators Leahy, Kennedy, Biden, 
Feingold, Schumer, Durbin, and Edwards voted in favor of the amendment. 
All the other members of the Committee voted against, with Senator 
Specter passing.
---------------------------------------------------------------------------

             III. S. 274 FAILS TO ACHIEVE MEANINGFUL REFORM

    Not only does the legislation limit the rights of Americans 
to pursue class action litigation in their own states, ``The 
Class Action Fairness Act of 2003'' fails to provide meaningful 
reform. The minority recommend several steps for those 
lawmakers who earnestly desire real change for the better.
    First and foremost, we believe the Committee should have 
held a hearing on this important legislation. Given the scope 
of the proposed changes and the impact that they will have on 
our state and Federal courts, we believe that at least one fair 
and balanced hearing would have been essential for the 
Committee to develop consensus reforms to better serve 
defendants and plaintiffs.
    Similarly, the Committee should have taken the opportunity 
to consider other approaches to the problems of class action 
litigation, most particularly and obviously the suggestions 
outlined by the Judicial Conference in its March 26, 2003, 
letter. The Judicial Conference offered a coherent and sensible 
distinction between ``significant multi-state class action 
litigation'' and those suits that properly belong in state 
courts. Highlighting the need to respect the basic principles 
of Federalism that assign different responsibilities to the 
state and Federal courts, the Judicial Conference recommended 
reserving Federal court jurisdiction for only those cases that 
truly implicate regional or national interests--cases in which 
a single state might well not be the appropriate venue for 
decision. The Judicial Conference is also uniquely well-
situated to address the concerns that will arise from 
overburdening the already busy Federal judiciary, and the 
Committee failed to heed those cautions as well. It is most 
unfortunate that in the rush to legislate, the Committee has 
failed not only to consider seriously the alternative proposal 
to class action litigation reform presented by the Judicial 
Conference, but even to take advantage of the experience of the 
members of the Conference to comment upon and improve S. 274.
    Second, S. 274 does nothing to deal with the problems of 
collusive settlements which protect defendants from future 
liability. Serious concerns have been raised about these 
abusive settlements where counsels for both parties agree to a 
far broader settlement than was originally sought in order to 
insulate defendants from future liability.\73\ This practice is 
far too common in class action cases, but S. 274 completely 
ignores this class action abuse.
---------------------------------------------------------------------------
    \73\ See Nat'l Super Spuds v. New York Mercantile Exchange, 660 
F.2d 9, 17-18 (2d Cir. 1981) (rejecting potato futures class action 
settlement in which parties sought to release claims for which they 
were not authorized to represent class members).
---------------------------------------------------------------------------
    Third, S. 274 fails to adequately address the class action 
practice of worthless coupon settlements, which provide little 
or no tangible benefits to plaintiffs. Typically, these 
collusive settlements involve an agreement by plaintiffs' and 
defendants' counsel that fully pay for the attorney fees and 
expenses of the plaintiffs' counsel while class members are 
left holding coupons to buy the defendants' products. For 
example, in a Federal class action case alleging a price-fixing 
conspiracy between major airlines, class members were awarded 
$400 million in flight coupons. However, the coupons were 
restricted to certain dates and small increments of travel 
making them virtually unusable to consumers.\74\
---------------------------------------------------------------------------
    \74\ See In re Domestic Air Transportation Antitrust Litigation, 
137 F.R.D. 677 (N.D. Ga. 1991).
---------------------------------------------------------------------------
    In another Federal class action, distributors of Amway 
products sought relief after being taken for thousands of 
dollars by the company. It was alleged that Amway had 
``misrepresented the nature and characteristics of Amway 
distributorships and of motivational materials or training 
materials they published, produced, distributed or sold.'' A 
Federal district court judge approved a settlement where Amway 
agreed to coupons for class members for exactly the same 
products that they had allegedly misrepresented in the first 
place.\75\
---------------------------------------------------------------------------
    \75\ See Hanrahan v. Britt, 174 F.R.D. 356 (E.D. Pa. 1997).
---------------------------------------------------------------------------
    But S. 274 merely requires the judge to make a finding that 
these coupon settlements as ``fair, reasonable and adequate''--
an action that the judge is already obligated to do under 
existing law. Instead, reforms with real teeth are needed to 
end worthless coupon settlements in class action cases.\76\
---------------------------------------------------------------------------
    \76\ See also In re General Motors Corporation Pick-up Truck Fuel 
Tank Products Liability Litigation, 55 F. 3d 768 (3d Cir. 1995) 
(overturning a lower Federal court's approval of a settlement awarding 
class members a $1,000 coupon toward future purchases of the 
defendant's cars); In re Ford Motor Co. Bronco II Products Liability 
Litigation, 1995 U.S. Dist. Lexis 3507 (E.D. La. 1995) (awarding 
plaintiffs only a package of videos, stickers, and flashlights); and 
Hanlon v. Chrysler Corp., 1998 WL 296890 (9th Cir. June 9, 1998) 
(awarding plaintiffs no monetary compensation and essentially no more 
than Chrysler's promise to conform with its obligation to the Federal 
regulators).
---------------------------------------------------------------------------

                             IV. CONCLUSION

    Contrary to the supporters' assertions, S. 274's provisions 
are much broader than merely prohibiting nationwide class 
actions from being pursued in state court. In fact, this bill 
seeks to override the current state laws governing class 
actions in the fifty states. And, in practice, it would bar 
many, if not most, state class actions filed solely on behalf 
of residents of a single state, solely involving matters of 
that state's law from being heard in that state court, so long 
as one plaintiff or one defendant is a citizen of a different 
state. This is clearly an extreme and distorted change to the 
diversity standards and would not apply in any other legal 
proceeding.
    As a result, these drastic changes to longstanding Federal 
procedural rules would make it harder for citizens to protect 
themselves against violations of state civil rights, consumer, 
health, and environmental protection laws by forcing these 
class action cases out of convenient state courts into Federal 
courts, with significant new barriers and burdens on 
plaintiffs.
    In conclusion, we agree with Senator Kennedy's comments at 
the Committee markup of this legislation:

          The bill before us reflects a one-sided approach of a 
        difficult problem, and ignores the pleas of the 
        Judicial Conference * * * If we could genuinely work 
        together, we could probably reach a consensus; make 
        needed improvements in class action cases * * * in a 
        matter of days.\77\
---------------------------------------------------------------------------
    \77\ Transcript of executive business meeting, April 10, 2003, at 
77-78.

    Until we reach consensus on improvements to class action 
litigation for the benefit of defendants and plaintiffs, we 
remain strongly opposed to S. 274.
                                   Patrick J. Leahy.
                                   Edward Kennedy.
                                   Joe Biden.
                                   Russ Feingold.
                                   Charles E. Schumer.
                                   Dick Durbin.
                                   John Edwards.

                      XI. Changes in Existing Law

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, changes in existing law made by 
S. 274, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, and existing law in which no 
change is proposed is shown in roman):

UNITED STATES CODE

           *       *       *       *       *       *       *


               TITLE 28--JUDICIARY AND JUDICIAL PROCEDURE

Part                                                             Section
      ORGANIZATION OF COURT............................................1
     * * * * * * *
      PARTICULAR PROCEEDINGS........................................2201

                     Part I--Organization of Courts

Chapter                                                          Section
1. Supreme Court..................................................     1
     * * * * * * *

                     Part IV--Jurisdiction and Venue

81. Supreme Court.................................................  1251
     * * * * * * *
85. District Courts; Jurisdiction.................................  1331
     * * * * * * *

                CHAPTER 85--DISTRICT COURTS; JURISDICTION

Sec.
1330. Actions against foreign states.
1331. Federal question.
1332. Diversity of citizenship; amount in controversy; costs.
     * * * * * * *

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

    (a) The district courts shall have original jurisdiction of 
all civil actions where the matter in controversy exceeds the 
sum or value of $75,000, exclusive of interest and costs, and 
is between--

           *       *       *       *       *       *       *

    (c) For the purposes of this section and section 1441 of 
this title--
          (1) a corporation shall be deemed to be a citizen of 
        any State by which it has been incorporated and of the 
        State where it has its principal place of business, 
        except that in any direct action against the insurer of 
        a policy or contract of liability insurance, whether 
        incorporated or unincorporated, to which action the 
        insured is not joined as a party-defendant, such 
        insurer shall be deemed a citizen of the State of which 
        the insured in a citizen, as well as of any State by 
        which the insurer has been incorporated and of the 
        State where it has its principal place of business; and
          (2) the legal representative of the estate of a 
        decedent shall be deemed to be a citizen only of the 
        same State as the decedent, and the legal 
        representative of an infant or incompetent shall be 
        deemed to be a citizen only of the same State as the 
        infant or incompetent.
    (d)(1) In this subsection--
          (A) the term ``class'' means all of the class members 
        in a class action;
          (B) the term ``class action'' means any civil action 
        filed under rule 23 of the Federal Rules of Civil 
        Procedure or similar State statute or rule of 
judicialprocedure authorizing an action to be brought by 1 or more 
representative persons as a class action;
          (C) the term ``class certification order'' means an 
        order issued by a court approving the treatment of some 
        or all aspects of a civil action as a class action; and
          (D) the term ``class members'' means the persons 
        (named or unnamed) 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 $5,000,000, 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) A district court may, in the interests of justice, 
decline to exercise jurisdiction under paragraph (2) over a 
class action in which greater than one-third but less than two-
thirds of the members of all proposed plaintiff classes in the 
aggregate and the primary defendants are citizens of the State 
in which the action was originally filed based on consideration 
of the following factors:
          (A) Whether the claims asserted involve matters of 
        national or interstate interest.
          (B) Whether the claims asserted will be governed by 
        laws other than those of the State in which the action 
        was originally filed.
          (C) In the case of a class action originally filed in 
        a State court, whether the class action has been 
        pleaded in a manner that seeks to avoid Federal 
        jurisdiction.
          (D) Whether the number of citizens of the State in 
        which the action was originally filed in all proposed 
        plaintiff classes in the aggregate is substantially 
        larger than the number of citizens from any other 
        State, and the citizenship of the other members of the 
        proposed class is dispersed among a substantial number 
        of States.
          (E) Whether 1 or more class actions asserting the 
        same or similar claims on behalf of the same or other 
        persons have been or may be filed.
    (4) Paragraph (2) shall not apply to any class action in 
which--
          (A) two-thirds or more of the members of all proposed 
        plaintiff classes in the aggregate and the primary 
        defendants are citizens of the State in which the 
        action was originally filed;
          (B) the primary defendants are States, State 
        officials, or other governmental entities against whom 
        the district court may be foreclosed from ordering 
        relief; or
          (C) the number of members of all proposed plaintiff 
        classes in the aggregate is less than 100.
    (5) 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 $5,000,000, exclusive 
of interest and costs.
    (6) 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.
    (7)(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 
prerequisites 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.
    (8) Paragraph (2) shall not apply to any class action that 
solely involves a claim--
          (A) concerning a covered security as defined under 
        16(f)(3) of the Securities Act of 1933 and section 
        28(f)(4)(E) of the Securities Exchange Act of 1934;
          (B) that relates to the internal affairs or 
        governance of a corporation or other form of business 
        enterprise and that arises under or virtue of the laws 
        of the State in which such corporation or business 
        enterprise is incorporated or organized; or
          (C) 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).
    (9) 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)(10)(A) For purposes of this action and section 1453 of 
this title, a civil action that is not otherwise a class action 
as defined in paragraph (1)(B) shall nevertheless be deemed a 
class action if--
          ``(i) 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
          ``(ii) 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.
    (B)(i) In any civil action described under paragraph 
(A)(i), 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.
    (ii) Paragraph (7) of this subsection and subsections 
(b)(2) and (d) of section 1453 shall not apply to any civil 
action described under subparagraph (A)(i).
    (ii) Paragraph (7) of this subsection, and subsections 
(b)(2) and (d) of section 1453 shall not apply to any civil 
action described under subparagraph (A)(ii).
    [(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 * * *
          (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.
      * * * * *
1452. Removal of claims related to bankruptcy cases.
1453. Removal of class actions.
      * * * * * * *

Sec. 1446. Procedure for removal

    (a) A defendant or defendants * * *
    (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.

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Sec. 1452. Removal of claims related to bankruptcy cases

    (a) A party may remove any claim or cause of action in a 
civil action other than a proceeding before the United States 
Tax Court or a civil action by a governmental unit to enforce 
such governmental unit's police or regulatory power, to the 
district court for the district where such civil action is 
pending, if such district court has jurisdiction of such claim 
or cause of action under section 1334 of this title.
    (b) The court to which such claim or cause of action is 
removed may remand such claim or cause of action on any 
equitable ground. An order entered under this subsection 
remaining a claim or cause of action, or a decision to not 
remand, is not reviewable by appeal or otherwise by the court 
of appeals under section 158(d), 1291, or 1292 of this title or 
by the Supreme Court of the United States under section 1254 of 
this title.

Sec. 1453. Removal of class actions

    (a) Definitions.--In this section, the terms ``class'', 
``class action,'' ``class certification order'', and ``class 
member'' shall have the meanings given such terms under 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.
    (d) Procedure for Removal.--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.--Section 1447 shall apply to any removal of a case 
under this section, except that notwithstanding 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 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).

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         CHAPTER 97--JURISDICTIONAL IMMUNITIES OF FOREIGN STATES

Sec.
1602. Findings and declaration of purpose.
1603. Definitions.
     * * * * * * *

Sec. 1603. Definitions

    For purposes of this chapter--(a) A ``foreign state'', 
except as used in section 1608 of this title, includes a 
political subdivision of a foreign state or an agency or 
instrumentality of a foreign state as defined in subsection 
(b).
    (b) An ``agency or instrumentality of a foreign state'' 
means any entity--
          (1) which is a separate legal person, corporate or 
        otherwise, and

           *       *       *       *       *       *       *

          (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.

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                            Part V--Procedure

Chapter                                                          Section
111. General Provisions...........................................  1651
113. Process......................................................  1691
114. Class Actions................................................  1711
     * * * * * * *

                       CHAPTER 114--CLASS ACTIONS

Sec.
1711. Definitions.
1712. Judicial scrutiny of coupon and other noncash settlements.
1713. Protection against loss by class members.
1714. Protection against discrimination based on geographic location.
1715. Prohibition on the payment of bounties.
1716. Clearer and simpler settlement information.
1717. Notifications to appropriate Federal and State officials.

Sec. 1711. Definitions

    In this chapter:
          (1) Class.--The term ``class'' means all of the class 
        members in a class action.
          (2) Class action.--The term ``class action'' means 
        any civil action filed in a district court of the 
        United States under 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 under a State statute or rule of 
        judicial procedure authorizing an action to be brought 
        by 1 or more representatives as a class action.
          (3) 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.
          (4) Class members.--The term ``class members'' means 
        the persons (named or unnamed) who fall within the 
        definition the definition of the proposed or certified 
        class in a class action.
          (5) Plaintiff class action.--The term ``plaintiff 
        class action'' means a class action in which class 
        members are plaintiffs.
          (6) Proposed settlement.--The term ``proposed 
        settlement'' means an agreement regarding a class 
        action that is subject to court approval and that, if 
        approved, would be binding on some or all class 
        members.

Sec. 1712. 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. 1713. 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 substantially outweigh the monetary loss.

Sec. 1714. Protection against discrimination based on geographic 
                    location

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

Sec. 1715. 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 a payment approved by the 
court for reasonable time or costs that a person was required 
to expend in fulfilling the obligations of that person as a 
class representative.

Sec. 1716. Clearer and simpler settlement information

    (a) Plain English Requirements.--Any court with 
jurisdiction over a plaintiff class action shall require that 
any written notice concerning a proposed settlement of the 
class action provided to the class through the mail or 
publication in printed media contain--
          (1) at the beginning of such notice, a statement in 
        18-point or greater bold type, stating ``LEGAL NOTICE: 
        YOU ARE A PLAINTIFF IN A CLASS ACTION LAWSUIT AND YOUR 
        LEGAL RIGHTS ARE AFFECTED BY THE SETTLEMENT DESCRIBED 
        IN THIS NOTICE.''; AND
          (2) a short summary written in plain, easily 
        understood language, describing--
                  (A) the subject matter of the class action;
                  (B) the members of the class;
                  (C) the legal consequences of being a member 
                of the class action;
                  (D) if the notice is informing class members 
                of a proposed settlement agreement--
                          (i) the benefits that will accrue to 
                        the class due to the settlement;
                          (ii) the rights that class members 
                        will lose or waive through the 
                        settlement;
                          (iii) obligations that will be 
                        imposed on the defendants by the 
                        settlement;
                          (iv) the dollar amount of any 
                        attorney's fee class counsel will be 
                        seeking, or if not possible, a good 
                        faith estimate of the dollar amount of 
                        any attorney's fee class counsel will 
                        be seeking; and
                          (v) an explanation of how any 
                        attorney's fee will be calculated and 
                        funded; and
                  (E) any other material matter.
    (b) Tabular Format.--Any court with jurisdiction over a 
plaintiff class action shall require that the information 
described in subsection (a)--
          (1) be placed in a conspicuous and prominent location 
        on the notice;
          (2) contain clear and concise headings for each item 
        of information; and
          (3) provide a clear and concise form for stating each 
        item of information required to be disclosed under each 
        heading.
    (c) Television or Radio Notice.--Any notice provided 
through television or radio (including transmissions by cable 
or satellite) to inform the class members in a class action of 
the right of each member to be excluded from a class action or 
a proposed settlement, if such right exists shall in plain 
easily understood language--
          (1) describe the persons who may potentially become 
        class members in the class action; and
          (2) explain that the failure of a class member to 
        exercise his or her right to be excluded from a class 
        action will result in the person's inclusion in the 
        class action.

Sec. 1717. Notifications to appropriate Federal and State officials

    (a) Definitions.--
          (1) Appropriate federal official.--In this section, 
        the term ``appropriate Federal official'' means--
                  (A) the Attorney General of the United 
                States; or
                  (B) in any case in which the defendant is a 
                Federal depository institution, a State 
                depository institution, a depository 
                institution holding company, a foreign bank, or 
                a nondepository institution subsidiary of the 
                foregoing (as such terms are defined in section 
                3 of the Federal Deposit Insurance Act (12 
                U.S.C. 1813)), the person who has the primary 
                Federal regulatory or supervisory 
                responsibility with respect to the defendant, 
                if some or all of the matters alleged in the 
                class action are subject to regulation or 
                supervision by that person.
          (2) Appropriate state official.--In this section, the 
        term ``appropriate State official'' means the person in 
        the State who has the primary regulatory or supervisory 
        responsibility with respect to the defendant, or who 
        licenses or otherwise authorizes the defendant to 
        conduct business in the State, if some or all of the 
        matters alleged in the class action are subject to 
        regulation by that person. If there is no primary 
        regulator, supervisor, or licensing authority, or the 
        matters alleged in the class action are not subject to 
        regulation or supervision by that person, then the 
        appropriate State official shall be the State attorney 
        general.
    (b) In General.--No later than 10 days after a proposed 
settlement of a class action is filed in court, each defendant 
that is participating in the proposed settlement shall serve 
upon the appropriate State official of each State in which a 
class member resides and the appropriate Federal official, a 
notice of the proposed settlement consisting of--
          (1) a copy of the complaint and any materials filed 
        with the complaint and any amended complaints (except 
        such materials shall not be required to be served if 
        such materials are made electronically available 
        through the Internet and such service includes notice 
        of how to electronically access such material);
          (2) notice of any scheduled judicial hearing in the 
        class action;
          (3) any proposed or final notification to class 
        members of--
                  (A)(i) the members' rights to request 
                exclusion from the class action; or
                  (ii) if no right to request exclusion exists, 
                a statement that no such right exists; and
                  (B) a proposed settlement of a class action;
          (4) any proposed or final class action settlement;
          (5) any settlement or other agreement 
        contemporaneously made between class counsel and 
        counsel for the defendants;
          (6) any final judgment or notice of dismissal;
          (7)(A) if feasible, the names of class members who 
        reside in each State and the estimated proportionate 
        share of the claims of such members to the entire 
        settlement to that State's appropriate State official; 
        or
          (B) if the provision of information under 
        subparagraph (A) is not feasible, a reasonable estimate 
        of the number of class members residing in each State 
        and the estimated proportionate share of the claims of 
        such members to the entire settlement; and
          (8) any written judicial opinion relating to the 
        materials described under subparagraphs (3) through 
        (6).
    (c) Depository Institutions Notification.--
          (1) Federal and other depository institutions.--In 
        any case in which the defendant is a Federal depository 
        institution, a depository institution holding company, 
        a foreign bank, or a non-depository institution 
        subsidiary of the foregoing, the notice requirements of 
        this section are satisfied by serving the notice 
        required under subsection (b) upon the person who has 
        the primary Federal regulatory or supervisory 
        responsibility with respect to the defendant, if some 
        or all of the matters alleged in the class action are 
        subject to regulation or supervision by that person.
          (2) State depository institutions.--In any case in 
        which the defendant is a State depository institution 
        (as that term is defined in section 3 of the Federal 
        Deposit Insurance Act (12 U.S.C. 1813)), the notice 
        requirements of this section 3 of the Federal Deposit 
        Insurance Act (12 U.S.C. 1813)), the notice 
        requirements of this section are satisfied by serving 
        the notice required under subsection (b) upon the State 
        bank supervisor (as that term is defined in section 3 
        of the Federal Deposit Insurance Act (12 U.S.C. 1813)) 
        of the State in which the defendant is incorporated or 
        chartered, if some or all of the matters alleged in the 
        class action are subject to regulation or supervision 
        by that person, and upon the appropriate Federal 
        official.
    (d) Final Approval.--An order giving final approval of a 
proposed settlement may not be issued earlier than 90 days 
after the later of the dates on which the appropriate Federal 
official and the appropriate State official are served with the 
notice required under subsection (b).
    (e) Noncompliance if Notice Not Provided.--
          (1) In general.--A class member may refuse to comply 
        with and may choose not to be bound by a settlement 
        agreement or consent decree in a class action if the 
        class member demonstrates that the notice required 
        under subsection (b) has not been provided.
          (2) Limitation.--A class member may not refuse to 
        comply with or to be bound by a settlement agreement or 
        consent decree under paragraph (1) if the notice 
        required under subsection (b) was directed to the 
        appropriate Federal official and to either the State 
        attorney general or the person that has primary 
        regulatory, supervisory, or licensing authority over 
        the defendant.
          (3) Application of rights.--The rights created by 
        this subsection shall apply only to class members or 
        any person acting on a class member's behalf, and shall 
        not be construed to limit any other rights affecting a 
        class member's participation in the settlement.
    (f) Rule of Construction.--Nothing in this section shall be 
construed to expand the authority of, or impose any 
obligations, duties, or responsibilities upon, Federal or State 
officials.

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