104th CONGRESS
1st Session
 H. R. XX
IN THE HOUSE OF REPRESENTATIVES
Mr. Ramstad introduced the following bill; which was referred to the
Committee on XXXXXXXXXXXXXXX
A BILL
To reform the Federal civil justice system; to reform product liability
law; and to amend the Securities Exchange Act of 1934 to promote equity
in private securities litigation.
  Be it enacted by the Senate and House of Representatives of the United
States of America in Congress assembled,
SECTION 1. SHORT TITLE.
  This Act may be cited as the ``Common Sense Legal Reforms Act  of
1995''.
TITLE I--CIVIL JUSTICE REFORM
SEC. 101. AWARD OF ATTORNEY'S FEE TO PREVAILING PARTY IN FEDERAL CIVIL
DIVERSITY LITIGATION.
  (a) Award of Attorney's Fee.--Section 1332 of title 28, United States
Code, is amended by adding at the end the following:
  ``(e)(1) The district court that exercises jurisdiction in a civil
action commenced under this section shall award to the party that
prevails with respect to a claim in such action an attorney's fee
determined in accordance with paragraph (2).
  ``(2) An attorney's fee awarded under paragraph (1) shall be a
reasonable attorney's fee attributable to such claim, except that the
fee awarded under such paragraph may not exceed--
  ``(A) the actual cost incurred by the nonprevailing party for an
attorney's fee payable to an attorney for services in connection with
such claim; or
  ``(B) if no such cost was incurred by the nonprevailing party due to a
contingency fee agreement, a reasonable cost that would have been
incurred by the nonprevailing party for an attorney's noncontingent fee
payable to an attorney for services in connection with such claim.
  ``(3) Notwithstanding paragraphs (1) and (2), the court in its
discretion may refuse to award, or may reduce the amount awarded as, an
attorney's fee under paragraph (1) to the extent that the court finds
special circumstances that make an award of an attorney's fee determined
in accordance with such subparagraph unjust.''.
SEC. 102. HONESTY IN EVIDENCE.
  (a) Opinion Testimony by Experts.--Rule 702 of the Federal Rules of
Evidence is amended--
  (1) by inserting ``(a) In general.''  before ``If'', and
  (2) by adding at the end the following:
  ``(b) Adequate basis for opinion.  Testimony in the form of an opinion
by a witness that is based on scientific knowledge shall be inadmissible
in evidence unless the court determines that such opinion is--
  ``(1) based on scientifically valid reasoning; and
  ``(2) sufficiently reliable so that the probative value of such
evidence outweighs the dangers specified in rule 403.
  ``(c) Disqualification. Testimony by a witness who is qualified as
described in subsection (a) is inadmissible in evidence if such witness
is entitled to receive any compensation contingent on the legal
disposition of any claim with respect to which such testimony is
offered.''.
SEC. 103. PRODUCT LIABILITY REFORM.
  (a) Applicability and Preemption.--This section governs any product
liability action brought in any State or Federal Court against any
manufacturer or seller of a product on any theory for harm caused by the
product. This section supersedes State law only to the extent that State
law applies to an issue covered by this section. Any issue that is not
covered by this section shall be governed by otherwise applicable State
or Federal law.
  (b) Liability Rules Applicable to Product Sellers.--
  (1) General rule.--Except as provided in paragraph 2, in a product
liability action, a product seller shall be liable to a claimant for
harm only if the claimant establishes that--
  (A)(i) the product which allegedly caused the harm complained of was
sold by the product seller,
  (ii) the product seller failed to exercise reasonable care with
respect to the product, and
  (iii) such failure to exercise reasonable care was a proximate cause
of the claimant's harm,
  (B)(i) the product seller made an express warranty applicable to the
product which allegedly caused the harm complained of, independent of
any express warranty made by the manufacturer as to the same product,
  (ii) the product failed to conform to the warranty, and
  (iii) the failure of the product to conform to the warranty caused the
claimant's harm, or
  (C) the product seller engaged in intentional wrongdoing as determined
under applicable State law and such intentional wrongdoing was a
proximate cause of the harm complained of by the claimant.
For purposes of subparagraph (A)(ii), a product seller shall not be
considered to have failed to exercise reasonable care with respect to a
product based upon an alleged failure to inspect a product where there
was no reasonable opportunity to inspect the product in a manner which
would, in the exercise of reasonable care, have revealed the aspect of
the product which allegedly caused the claimant's harm.
  (2) Special rule.--In a product liability action, a product seller
shall be liable for harm to the claimant caused by such product as if
the product seller were the manufacturer of such product if--
  (A) the manufacturer is not subject to service of process under the
laws of the State in which the claimant brings the action, or
  (B) the court determines that the claimant would be unable to enforce
a judgment against the manufacturer.
  (c) Limitations on Punitive Damages.--
  (1) General limitation.--Punitive damages may to the extent permitted
by applicable State law, be awarded against a manufacturer or product
seller in a product liability action if the claimant establishes by
clear and convincing evidence that the harm suffered was the result of
conduct manifesting actual malice.
  (2) Limitation on amount.--The amount of punitive damages that may be
awarded for a claim in any civil action subject to this section shall
not exceed 3 times the amount awarded to the claimant for the economic
injury on which such claim is based, or $250,000, whichever is greater.
  (d) Several Liability for Noneconomic Damages.--In any product
liability action, the liability of each manufacturer or seller of the
product involved in such action shall be several only and shall not be
joint for noneconomic damages. Such manufacturer or seller shall be
liable only for the amount of noneconomic damages allocated to such
manufacturer or seller in direct proportion to such manufacturer's or
such seller's percentage of responsibility as determined by the trier of
fact.
  (e) Definitions.--For purposes of this section--
  (1) the term ``claimant'' means any person who brings a product
liability action and any person on whose behalf such an action is
brought, including such person's decedent if such an action is brought
through or on behalf of an estate or such person's legal representative
if it is brought through or on behalf of a minor or incompetent,
  (2) the term `malice' means conduct that is either--
  (A) specifically intended to cause serious personal injury, or
  (B) carried out with both a flagrant indifference to the rights of the
claimant and an awareness that such conduct is likely to result in
serious personal injury,
  (3) with respect to a product, the term ``manufacturer'' means--
  (A) any person who is engaged in a business to produce, create, make,
or construct the product and who designs or formulates the product or
has engaged another person to design or formulate the product,
  (B) a product seller of the product who, before placing the product in
the stream of commerce--
  (i) designs or formulates or has engaged another person to design or
formulate an aspect of the product after the product was initially made
by another, and
  (ii) produces, creates, makes, or constructs such aspect of the
product, or
  (C) any product seller not described in subparagraph (B) which holds
itself out as a manufacturer to the user of the product,
  (4) the term ``product''--
  (A) means any object, substance, mixture, or raw material in a
gaseous, liquid, or solid state--
  (i) which is capable of delivery itself, in a mixed or combined state,
or as a component part or ingredient,
  (ii) which is produced for introduction into trade or commerce,
  (iii) which has intrinsic economic value, and
  (iv) which is intended for sale or lease to persons for commercial or
personal use, and
  (B) does not include--
  (i) human tissue, human organs, human blood, and human blood products,
or
  (ii) electricity, water delivered by a utility, natural gas, or steam,
  (5) the term ``product seller''--
  (A) means a person--
  (i) who sells, distributes, leases, prepares, blends, packages, or
labels a product or is otherwise involved in placing a product in the
stream of commerce, or
  (ii) who installs, repairs, or maintains the harm-causing aspect of a
product, and
  (B) does not include--
  (i) a manufacturer,
  (ii) a seller or lessor of real property,
  (iii) a provider of professional services in any case in which the
sale or use of a product is incidental to the transaction and the
essence of the transaction is the furnishing of judgment, skill, or
services,
  (iv) any person who acts only in a financial capacity with respect to
the sale of a product, or
  (v) any person who leases a product under a lease arrangement in which
the selection, possession, maintenance, and operation of the product are
controlled by a person other than the lessor,
  (6) the term `punitive damages' means damages in addition to
compensation for actual injury suffered, for purposes of imposing
punishment for conduct engaged in with malice and to deter similar
future conduct, but such term does not include compensation for actual
injury, and
  (7) the term ``State'' means any State of the United States, the
District of Columbia, the Commonwealth of Puerto Rico, the Virgin
Islands, Guam, American Samoa, the Northern Mariana Islands, the Trust
Territory of the Pacific Islands, and any other territory or possession
of the United States, or any political subdivision thereof.
SEC. 104.  ATTORNEY ACCOUNTABILITY.
  (a) Truth in Attorneys' Fees.--It is the sense of the Congress that
each State should require, under penalty of law, each attorney admitted
to practice law in such State to disclose in writing, to any client with
whom such attorney has entered into a contingency fee agreement--
  (1) the actual services performed for such client in connection with
such agreement, and
  (2) the precise number of hours actually expended by such attorney in
the performance of such services.
  (b) Amendment to the Federal Rules of Civil Procedure.--Rule 11(c) of
the Federal Rules of Civil Procedure (28 U.S.C. App.) is amended--
  (1) in the matter preceding subdivision (1) by striking ``may'' and
inserting ``shall'';
  (2) in the penultimate sentence of subdivision (1)(A) by striking
``may'' and inserting ``shall''; and
  (3) in subdivision (2)--
  (A) by amending the first sentence to read as follows: ``A sanction
imposed for a violation of this rule shall be sufficient to deter
repetition of such conduct or comparable conduct by others similarly
situated, and to compensate the parties that were injured by such
conduct.''; and
  (B) in the second sentence by striking ``, if imposed on motion and
warranted for effective deterrence,''.
SEC. 105. NOTICE REQUIRED BEFORE COMMENCEMENT OF CIVIL ACTION.
  Chapter 99 of title 28, United States Code is amended by adding at the
end the following:
1A1632. Notice required before commencement of civil action
  ``(a) Dismissal of Civil Action.--Except as provided in subsection
(c), the district court in which a civil action is commenced shall
dismiss such action with respect to a defendant, without prejudice, if--
  ``(1) not later than 60 days after such action is commenced, the
defendant files a motion to dismiss such action on the basis that the
plaintiff failed to comply with the requirement specified in subsection
(b); and
  ``(2) the plaintiff fails to establish that before  commencing such
action the plaintiff complied with such requirement.
  ``(b) Requirement.--Not less than 30 days before commencing a civil
action in a district court of the United States, the plaintiff shall
transmit (by 1st class mail, postage prepaid, or contract for delivery
by any company that in its regular course of business physically
delivers correspondence as a commercial service to the public) to the
defendant (at an address reasonably calculated to provide actual notice
to such defendant) a written statement specifying the particular claims
alleged in such action and the amount of damages claimed in such action.
  ``(c) Exceptions.--Subsection (a) shall not apply with respect to any
civil action--
  ``(1) to seize or forfeit assets subject to forfeiture;
  ``(2) commenced under title 11 of the United States Code;
  ``(3) commenced to establish a receivership or conservatorship;
  ``(4) based on the insolvency of the defendant, or the need to
liquidate assets of the defendant to satisfy any requirement under
Federal law;
  ``(5) if assets that are subject to such action or that would satisfy
a judgment in such action are likely to be removed, dissipated, or
destroyed by the defendant;
  ``(6) if the defendant is likely to  flee;
  ``(7) if prior written notice of the filing of such action is required
by any other law:
  ``(8) to enforce a civil investigative demand or an administrative
summons;
  ``(9) if such action is--
  ``(A) to foreclose a lien;
  ``(B) to obtain a temporary restraining order or preliminary
injunction; or
  ``(C) to prevent the fraudulent conveyance of property; or
  ``(10) if such action involves exigent circumstances that compel
immediate resort to the court.
  ``(d) Statute of Limitations.--
  ``(1) Suspension Before Commencement of Action.--If the statute of
limitations applicable to a claim would expire in the 30-day period
beginning on the date the plaintiff transmits the notice required by
subsection (b), such statute shall be suspended--
  ``(A) during such 30-day period; or
  ``(B) during the 90-day period beginning on the date the plaintiff so
transmits such notice if, in such 30-day period, the parties to such
action so agree in writing.
  ``(2) Filing Civil Action After Dismissal.--If--
  ``(A) a civil action is timely commenced in a district court with
respect to a claim;
  ``(B) such action is dismissed under subsection (a); and
  ``(C) the statute of limitations applicable to such claim expires
before the expiration of the 60-day period beginning on the date such
action is dismissed;
then the plaintiff in such action may commence a civil action based on
such claim in such 60-day period notwithstanding such statute.''.
  (b) Conforming Amendment.--Chapter 99 of title 28, United States Code,
is amended in the table of sections by adding at the end the following:
``1632. Notice required before commencement of civil action.''.
SEC. 106. HOUSE COMMITTEE REPORTS.
  Clause 2(l) of rule XI of the Rules of the House of Representatives is
amended by adding at the end the following new subparagraph:
  ``(8) Each report of a committee on each bill or joint resolution of a
public character reported by that committee shall include the following
information regarding that bill or joint resolution:
  ``(A) Whether that bill or joint resolution preempts the law of any
State.
  ``(B) The retroactive applicability, if any, of that bill or joint
resolution.
  ``(C) Whether that bill or joint resolution creates any private cause
of action and, if so, a description of that relief and the terms and
conditions for awarding attorneys fees, if any.
  ``(D) The applicability, if any, of that bill or joint resolution to
the Federal Government or any of its agencies or instrumentalities.''.
SEC. 107. EFFECTIVE DATE; APPLICATION OF AMENDMENTS.
  (a) Effective Date.--Except as provided in subsection (b), this title
and the amendments made by this title shall take effect on the first day
of the first month beginning more than 180 days after the date of the
enactment of this Act.
  (b) Application of Amendments.--(1) The amendments made by sections
101 and 105 shall apply only with respect to civil actions commenced
after the effective date of this title.
  (2) The amendments made by section 102 shall apply only with respect
to cases in which a trial has commenced after the effective date of this
title.
  (3) The amendments made by section 103 shall apply only with respect
to claims arising after the effective date of this title.
  (4) The amendment made by section 106 shall apply to bills and joint
resolutions reported by any committee at least 30 calendar days after
the date of enactment of this Act.
TITLE II--REFORM OF PRIVATE SECURITIES LITIGATION
SEC.201.  SHORT TITLE; TABLE OF CONTENTS.
  (a) Short Title.--This title may be cited as the ``Private Securities
Litigation Reform Act of 1995''.
  (b) Table of Contents.--The table of contents for this title is as
follows:
Sec. 201. Short title; table of contents.
Sec. 202. Prevention of lawyer-driven litigation.
Sec. 203. Prevention of abusive practices that foment litigation.
Sec. 204. Prevention of ``fishing expedition'' lawsuits.
Sec. 205. Establishment of ``safe harbor'' for predictive statements.
Sec. 206. Alternative dispute resolution procedure.
Sec. 207. Amendment to Racketeer Influenced and Corrupt Organizations
Act.
SEC. 202. PREVENTION OF LAWYER-DRIVEN LITIGATION.
  (a) Plaintiff Steering Committees.--The Securities Exchange Act of
1934 (15 U.S.C. 78a et seq.) is amended by adding at the end the
following new section:
``SEC. 36. GUARDIAN AD LITEM AND CLASS ACTION STEERING COMMITTEES.
  ``(a) Guardian Ad Litem.--Except as provided in subsection (b), not
later than 10 days after certifying a plaintiff class in any private
action brought under this title, the court shall appoint a guardian ad
litem for the plaintiff class from a list or lists provided by the
parties or their counsel. The guardian ad litem shall direct counsel for
the class as set forth in this section and perform such other functions
as the court may specify. The court shall apportion the reasonable fees
and expenses of the guardian ad litem among the parties. Court
appointment of a guardian ad litem shall not be subject to interlocutory
review.
  ``(b) Class Action Steering Committee.--Subsection (a) shall not apply
if, not later than 10 days after certifying a plaintiff class, on its
own motion or on motion of a member of the class, the court appoints a
committee of class members to direct counsel for the class (hereafter in
this section referred to as the `plaintiff steering committee') and to
perform such other functions as the court may specify. Court appointment
of a plaintiff steering committee shall not be subject to interlocutory
review.
  ``(c) Membership of Plaintiff Steering Committee.--
  ``(1) Qualifications.--
  ``(A) Number.--A plaintiff steering committee shall consist of not
fewer than 5 class members, willing to serve, who the court believes
will fairly represent the class.
  ``(B) Ownership interests.--Members of the plaintiff steering
committee shall have cumulatively held during the class period not less
than--
  ``(i) the lesser of 5 percent of the securities which are the subject
matter of the litigation or securities which are the subject matter of
the litigation with a market value of $10,000,000; or
  ``(ii) such smaller percentage or dollar amount as the court finds
appropriate under the circumstances.
  ``(2) Named plaintiffs.--Class members who are named plaintiffs in the
litigation may serve on the plaintiff steering committee, but shall not
comprise a majority of the committee.
  ``(3) Noncompensation of members.--Members of the plaintiff steering
committee shall serve without compensation, except that any member may
apply to the court for reimbursement of reasonable out-of-pocket
expenses from any common fund established for the class.
  ``(4) Meetings.--The plaintiff steering committee shall conduct its
business at one or more previously scheduled meetings of the committee
at which a majority of its members are present in person or by
electronic communication. The plaintiff steering committee shall decide
all matters within its authority by a majority vote of all members,
except that the committee may determine that decisions other than to
accept or reject a settlement offer or to employ or dismiss counsel for
the class may be delegated to one or more members of the committee, or
may be voted upon by committee members seriatim, without a meeting.
  ``(5) Right of nonmembers to be heard.--A class member who is not a
member of the plaintiff steering committee may appear and be heard by
the court on any issue in the action, to the same extent as any other
party.
  ``(d) Functions of Guardian Ad Litem and Plaintiff Steering
Committee.--
  ``(1) Direct counsel.--The authority of the guardian ad litem or the
plaintiff steering committee to direct counsel for the class shall
include all powers normally permitted to an attorney's client in
litigation, including the authority to retain or dismiss counsel and to
reject offers of settlement, and the preliminary authority to accept an
offer of settlement, subject to the restrictions specified in paragraph
(2). Dismissal of counsel other than for cause shall not limit the
ability of counsel to enforce any contractual fee agreement or to apply
to the court for a fee award from any common fund established for the
class.
  ``(2) Settlement offers.--If a guardian ad litem or a plaintiff
steering committee gives preliminary approval to an offer of settlement,
the guardian ad litem or the plaintiff steering committee may seek
approval of the offer by a majority of class members if the committee
determines that the benefit of seeking such approval outweighs the cost
of soliciting the approval of class members.
  ``(e) Immunity From Liability; Removal.--Any person serving as a
guardian ad litem or as a member of a plaintiff steering committee shall
be immune from any liability arising from such service. The court may
remove a guardian ad litem or a member of a plaintiff steering committee
for good cause shown.
  ``(f) Effect on Other Law.--This section does not affect any other
provision of law concerning class actions or the authority of the court
to give final approval to any offer of settlement.''.
  (b) Additional Provisions Applicable to Class Actions.--Section 21 of
the Securities Exchange Act of 1934 (15 U.S.C. 78u) is amended by adding
at the end the following new subsection:
  ``(i) Disclosure of Settlement Terms to Class Members.--In any private
action under this title that is certified as a class action pursuant to
the Federal Rules of Civil Procedure, a proposed settlement agreement
that is published or otherwise disseminated to the class shall include
the following statements:
  ``(1) Statement of potential outcome of case.--
  ``(A) Agreement on amount of damages and likelihood of prevailing.--If
the settling parties agree on the amount of damages per share that would
be recoverable if the plaintiff prevailed on each claim alleged under
this title and the likelihood that the plaintiff would prevail--
  ``(i) a statement concerning the amount of such potential damages; and
  ``(ii) a statement concerning the probability that the plaintiff would
prevail on the claims alleged under this title and a brief explanation
of the reasons for that conclusion.
  ``(B) Disagreement on amount of damages or likelihood of prevailing.--
If the parties do not agree on the amount of damages per share that
would be recoverable if the plaintiff prevailed on each claim alleged
under this title or on the likelihood that the plaintiff would prevail
on those claims, or both, a statement from each settling party
concerning the issue or issues on which the parties disagree.
  ``(C) Inadmissibility for certain purposes.--Statements made in
accordance with subparagraphs (A) and (B) shall not be admissible for
purposes of any Federal or State judicial or administrative proceeding.
  ``(2) Statement of attorneys' fees or costs sought.--If any of the
settling parties or their counsel intend to apply to the court for an
award of attorneys' fees or costs from any fund established as part of
the settlement, a statement indicating which parties or counsel intend
to make such an application, the amount of fees and costs that will be
sought (including the amount of such fees and costs determined on a per-
share basis, together with the amount of the settlement proposed to be
distributed to the parties to suit, determined on a per-share basis),
and a brief explanation of the basis for the application. Such
information shall be clearly summarized on the cover page of any notice
to a party of a proposed or final settlement.
  ``(3) Identification of representatives.--The name and address of one
or more representatives of counsel for the plaintiff class who will be
reasonably available to answer written questions from class members
concerning any matter contained in any notice of settlement published or
otherwise disseminated to class members.
  ``(4) Other information.--Such other information as may be required by
the court, or by any guardian ad litem or plaintiff steering committee
appointed by the court pursuant to this section.''.
  (c) Prohibition on Attorneys' Fees Paid From Commission Disgorgement
Funds.--Section 21(d) of the Securities Exchange Act of 1934 (15 U.S.C.
78u(d)) is amended by adding at the end the following new paragraph:
  ``(4) Prohibition on attorneys' fees paid from commission disgorgement
funds.--Except as otherwise ordered by the court, funds disgorged as the
result of an action brought by the Commission in Federal court, or of
any Commission administrative action, shall not be distributed as
payment for attorneys' fees or expenses incurred by private parties
seeking distribution of the disgorged funds.''.
SEC. 203. PREVENTION OF ABUSIVE PRACTICES THAT FOMENT LITIGATION.
  (a) Additional Provisions Applicable to Class Actions.--Section 21 of
the Securities Exchange Act of 1934 (15 U.S.C. 78u) is further amended
by adding at the end the following new subsections:
  ``(j) Recovery by Named Plaintiffs in Class Actions.--In any private
action under this title that is certified as a class action pursuant to
the Federal Rules of Civil Procedure, the share of any final judgment or
of any settlement that is awarded to class plaintiffs serving as the
representative parties shall be calculated in the same manner as the
shares of the final judgment or settlement awarded to all other members
of the class. Nothing in this subsection shall be construed to limit the
award to any representative parties of actual expenses (including lost
wages) relating to the representation of the class.
  ``(k) Named Plaintiff Threshold.--In any private action under this
title, in order for a plaintiff or plaintiffs to obtain certification as
representatives of a class of investors pursuant to the Federal Rules of
Civil Procedure, the plaintiff or plaintiffs must show that they owned,
in the aggregate, during the time period in which violations of this
title are alleged to have occurred, not less than the lesser of--
  ``(1) 1 percent of the securities which are the subject of the
litigation; or
  ``(2) $10,000 (in market value) of such securities.
A person may be a named plaintiff in no more than 5 class actions filed
during any 3-year period.
  ``(l) Awards of Attorneys' Fees.--
  ``(1) Payment by losing party.--If the court in any private action
under this title enters a final judgment against a party litigant on the
basis of a motion to dismiss, motion for summary judgment, or a trial on
the merits, the court shall, upon motion by the prevailing party, order
the losing party to pay the prevailing party reasonable attorneys' fees
and other expenses incurred by the prevailing party.
  ``(2) Time for application.--A party seeking an award of fees and
other expenses shall, within 30 days of a final, nonappealable judgment
in the action, submit to the court an application for fees and other
expenses.
  ``(3) Court discretion.--The court, in its discretion, may reduce the
amount to be awarded pursuant to this section, or deny an award, to the
extent that the prevailing party during the course of the proceedings
engaged in conduct that unduly and unreasonably protracted the final
resolution of the matter in controversy.
  ``(m) Conflicts of Interest.--In any private action under this title
that is certified as a class action pursuant to the Federal Rules of
Civil Procedure, if a party is represented by an attorney who directly
owns or otherwise has a beneficial interest in the securities that are
the subject of the litigation, the court shall make a determination of
whether such interest constitutes a conflict of interest sufficient to
disqualify the attorney from representing the party.
  ``(n) Settlement Discharge.--
  ``(1) In general.--A defendant who settles any private action brought
under this title at any time before verdict or judgment shall be
discharged from all claims for contribution brought by other persons.
Upon entry of the settlement by the court, the court shall enter a bar
order constituting the final discharge of all obligations to the
plaintiff of the settling defendant arising out of the action. The order
shall bar all future claims for contribution or indemnity arising out of
the action--
  ``(A) by nonsettling persons against the settling defendant; and
  ``(B) by the settling defendant against any nonsettling defendants.
  ``(2) Reduction.--If a person enters into a settlement with the
plaintiff prior to verdict or judgment, the verdict or judgment shall be
reduced by the amount paid to the plaintiff by that person.
  ``(o) Contribution.--A person who becomes liable for damages in any
private action under this title may recover contribution from any other
person who, if joined in the original suit, would have been liable for
the same damages.
  ``(p) Statute of Limitations for Contribution.--Once judgment has been
entered in any private action under this title determining liability, an
action for contribution must be brought not later than 6 months after
the entry of a final, nonappealable judgment in the action.
  ``(q) Special Verdicts.--In any private action under this title in
which the plaintiff may recover money damages, the court shall, when
requested by a defendant, submit to the jury a written interrogatory on
the issue of each such defendant's state of mind at the time the alleged
violation occurred.''.
  (b) Receipt for Referral Fees.--Section 15(c) of the Securities
Exchange Act of 1934 (15 U.S.C. 78o(c)) is amended by adding at the end
the following new paragraph:
  ``(7) Receipt of referral fees.--No broker or dealer, or person
associated with a broker or dealer, may solicit or accept remuneration
for assisting an attorney in obtaining the representation of any
customer in any private action under this title.''.
SEC. 204. PREVENTION OF ``FISHING EXPEDITION'' LAWSUITS.
  The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended
by inserting after section 10 the following new section:
``SEC. 10A. REQUIREMENTS FOR SECURITIES FRAUD ACTIONS.
  ``(a) Intent.--In any private action under section 10(b)--
  ``(1) the plaintiff may recover money damages from a defendant only on
proof that the defendant made a material misstatement or omission
concerning a security;
  ``(2) the plaintiff must prove that the defendant had actual knowledge
that the statement was false at the time it was made or knowingly and
intentionally omitted to state a fact with actual knowledge that such
statement would at the time it was made be rendered false by such
omission and with the purpose of rendering the statement false; and
  ``(3) the plaintiff's complaint shall allege specific facts
demonstrating the state of mind of each defendant at the time the
alleged violation occurred.
  ``(b) Misleading Statements and Omissions.--In any private action
under section 10(b) in which the plaintiff alleges that the defendant--
  ``(1) made an untrue statement of a material fact; or
  ``(2) omitted to state a material fact necessary in order to make the
statements made, in the light of the circumstances in which they were
made, not misleading;
the plaintiff shall specify each statement alleged to have been
misleading, the reason or reasons why the statement is misleading, and,
if an allegation regarding the statement or omission is made on
information and belief, the plaintiff shall set forth all information on
which that belief is formed.
  ``(c) Burden of Proof.--In any private action arising under section
10(b) based upon a material misstatement or omission concerning a
security, the plaintiff must prove that he or she had actual knowledge
of and actually relied on such statement in connection with the purchase
or sale of a security and that the misstatement or omission proximately
caused (through both transaction causation and loss causation) any loss
incurred by the plaintiff.
  ``(d) Damages.--In any private action arising under section 10(b)
based on a material misstatement or omission concerning a security, the
plaintiff's damages shall not exceed the lesser of--
  ``(1) the difference between the price paid by the plaintiff for the
security and the market value of the security immediately after
dissemination to the market of information which corrects the
misstatement or omission; and
  ``(2) the difference between the price paid by the plaintiff for the
security and the price at which the plaintiff sold the security after
dissemination of information correcting the misstatement or omission.''.
SEC. 205. ESTABLISHMENT OF ``SAFE HARBOR'' FOR PREDICTIVE STATEMENTS.
  (a) Consideration of Regulatory or Legislative Changes.--In
consultation with investors and issuers of securities, the Securities
and Exchange Commission shall adopt or amend its rules and regulations
to create--
  (1) clear and objective criteria that the Commission finds sufficient
for the protection of investors, compliance with which shall be readily
ascertainable by issuers prior to issuance of securities, by which
forward-looking statements concerning the future economic performance of
an issuer of securities registered under section 12 of the Securities
Exchange Act of 1934  will be deemed not to be in violation of section
10(b) of that Act; and
  (2) procedures by which courts shall timely dismiss claims against
such issuers of securities based on such forward-looking statements if
such statements are in accordance with any criteria under paragraph (1).
  (b) Commission Considerations.--In developing rules in accordance with
subsection (a), the Commission shall adopt--
  (1) appropriate limits to liability for forward-looking statements;
  (2) procedures for making a summary determination of the applicability
of any Commission rule for forward-looking statements early in a
judicial proceeding to limit protracted litigation and expansive
discovery;
  (3) rules incorporating and reflecting the scienter requirements
applicable to any private actions under section 10(b) of the Securities
Exchange Act of 1934; and
  (4) rules providing clear guidance to issuers of securities and the
judiciary.
  (c) Securities Act Amendment.--The Securities and Exchange Act of 1934
(15 U.S.C. 78a et seq.), is amended by adding at the end the following
new section:
``SEC. 38. APPLICATION OF SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.
  ``(a) In General.--In any private action under this title that alleges
that a forward-looking statement concerning the future economic
performance of an issuer registered under section 12 was materially
false or misleading, if a party making a motion in accordance with
subsection (b) requests a stay of discovery concerning the claims or
defenses of that party, the court shall grant such a stay until it has
ruled on any such motion.
  ``(b) Summary Judgment Motions.--Subsection (a) shall apply to any
motion for summary judgment made by a defendant asserting that the
forward-looking statement was within the coverage of any rule which the
Commission may have adopted concerning such predictive statements, if
such motion is made not less than 60 days after the plaintiff commences
discovery in the action.
  ``(c) Dilatory Conduct; Duplicative Discovery.--Notwithstanding
subsection (a) or (b), the time permitted for a plaintiff to conduct
discovery under subsection (b) may be extended, or a stay of the
proceedings may be denied, if the court finds that--
  ``(1) the defendant making a motion described in subsection (b)
engaged in dilatory or obstructive conduct in taking or opposing any
discovery; or
  ``(2) a stay of discovery pending a ruling on a motion under
subsection (b) would be substantially unfair to the plaintiff or other
parties to the action.''.
SEC. 206. ALTERNATIVE DISPUTE RESOLUTION PROCEDURE.
  The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended
by adding at the end the following new section:
``SEC. 39. ALTERNATIVE DISPUTE RESOLUTION PROCEDURE.
  ``(a) In General.--
  ``(1) Offer to proceed.--Except as provided in paragraph (2), in any
private action arising under this title, any party may, before the
expiration of the period permitted for answering the complaint, deliver
to all other parties an offer to proceed pursuant to any voluntary,
nonbinding alternative dispute resolution procedure established or
recognized under the rules of the court in which the action is
maintained.
  ``(2) Plaintiff class actions.--In any private action under this title
which is brought as a plaintiff class action, an offer under paragraph
(1) shall be made not later than 30 days after a guardian ad litem or
plaintiff steering committee is appointed by the court in accordance
with section 38.
  ``(3) Response.--The recipient of an offer under paragraph (1) or (2)
shall file a written notice of acceptance or rejection of the offer with
the court not later than 10 days after receipt of the offer. The court
may, upon motion by any party made prior to the expiration of such
period, extend the period for not more than 90 additional days, during
which time discovery may be permitted by the court.
  ``(4) Selection of type of alternative dispute resolution.--For
purposes of paragraphs (1) and (2), if the rules of the court establish
or recognize more than 1 type of alternative dispute resolution, the
parties may stipulate as to the type of alternative dispute resolution
to be applied.  If the parties are unable to so stipulate, the court
shall issue an order not later than 20 days after the date on which the
parties agree to the use of alternative dispute resolution, specifying
the type of alternative dispute resolution to be applied.
  ``(5) Sanctions for dilatory or obstructive conduct.--If the court
finds that a party has engaged in dilatory or obstructive conduct in
taking or opposing any discovery allowed during the response period
described in paragraph (3), the court may--
  ``(A) extend the period to permit further discovery from that party
for a suitable period; and
  ``(B) deny that party the opportunity to conduct further discovery
prior to the expiration of the period.''.
SEC. 207. AMENDMENT TO RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS
ACT.
  Section 1964(c) of title 18, United States Code, is amended by
inserting ``, except that no person may bring an action under this
provision if the racketeering activity, as defined in section
1961(1)(D), involves conduct actionable as fraud in the sale of
securities'' before the period.
SEC. 208. RULE OF CONSTRUCTION.
  Nothing in this title or in the amendments made by this title shall be
deemed to create or ratify any implied right of action, or to prevent
the Commission from restricting or otherwise regulating private actions
brought under the Securities Exchange Act of 1934.
SEC. 209. EFFECTIVE DATE.
  This title and the amendments made by this title are effective on the
date of enactment of this Act and shall apply to cases pending on or
commenced after such date of enactment.
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