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[Senate Report 109-14]
[From the U.S. Government Publishing Office]

                                                         Calendar No. 1
109th Congress                                                   Report
                                 SENATE
 1st Session                                                     109-14
======================================================================

 
                 THE CLASS ACTION FAIRNESS ACT OF 2005

                                _______
                                

               February 28, 2005.--Ordered to be printed

                                _______
                                

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

                              R E P O R T

                             together with

                     ADDITIONAL AND MINORITY VIEWS

                          [To accompany S. 5]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to whom was referred the 
bill (S. 5) 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, without amendments, do pass.

                                CONTENTS

                                                                   Page
  I. Legislative History..............................................1
 II. Votes of the Committee...........................................3
III. Purposes.........................................................4
 IV. Background and Need for the Legislation..........................6
  V. How It Works: S. 5 and Changes in Existing Law..................27
 VI. Section-by-Section Analysis.....................................29
VII. Critics Contentions and Rebuttals...............................51
VIII.Congressional Budget Office Cost Estimate.......................76

 IX. Regulatory Impact Statement.....................................78
  X. Additional Views................................................79
 XI. Minority Views..................................................82
XII. Changes in Existing Law.........................................96

                         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 (R-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 years and 7 nays. S. 353 
was then ordered favorably 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), introduced S. 1712 on November 15, 2001 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. On October 17, 
2003, Senator Grassley introduced S. 1751, the ``Class Action 
Fairness Act of 2003,'' a compromise version of the bill, with 
Senators Alexander (R-TN), Allen (R-VA), Carper (D-DE), Chafee 
(R-RI), Cornyn (R-TX), Hagel (R-NE), Hatch (R-UT), Kohl (D-WI), 
Lugar (R-ID), Miller (D-GA), Specter (R-PA), Sununu (R-NH) and 
Voinovich (R-OH). Pursuant to Rule XXIV of the Standing Rules 
of the Senate, a Motion to Proceed to consideration of S. 1751 
was filed. On October 23, 2003, the Senate failed to invoke 
cloture by a vote of 59-39. Senators Grassley, Kohl, Hatch and 
Carper then negotiated key provisions of the bill with Senators 
Landrieu (D-LA), Schumer (D-NY), and Dodd (D-CT). The 
compromise bill, S. 2062, the ``Class Action Fairness Act of 
2004,'' was introduced on February 10, 2004 by Senators 
Grassley, the original sponsor, and Senators Kohl (D-WI), Hatch 
(R-UT), Carper (D-DE), Chafee (R-RI), Collins (R-ME), Dodd (R-
CT), Hagel (R-NE), Landrieu (D-LA), Lugar (R-ID), Miller (D-
GA), Schumer (D-NY) Specter (R-PA) and Voinovich (R-OH) as 
cosponsors. Pursuant to Rule XXIV of the Standing Rules of the 
Senate, a Motion to Proceed to consideration of S. 2062 was 
filed on July 7,2004. Senator Frist (R-TN) promptly filled the 
amendment tree and filed a cloture motion. On July 8, 2004, the 
Senate failed to invoke cloture by a vote of 44-43.
    On January 25, 2005, Senators Charles Grassley (R-IA), Herb 
Kohl (D-WI), and Orrin Hatch (R-UT) introduced S. 5, the 
``Class Action Fairness Act of 2005.'' Senators Alexander (R-
TN), Carper (D-DE), Chaffee (R-RI), Collins (R-ME), DeMint (R-
SC), DeWine (R-OH), Dodd (D-CT), Ensign (R-NV), Feinstein (D-
CA), Frist (R-TN), Hagel (R-NE), Kyl (R-AZ), Landrieu (D-LA), 
Lieberman (D-CT), Lincoln (D-AR), Lott (R-MS), Lugar (R-IN), 
Martinez (R-FL), McConnell (R-KY), Santorum (R-PA), Schumer (D-
NY), Sessions (R-PA), Snowe (R-ME), Sununu (R-NH), Thune (R-
SD), Vitter (R-LA), and Voinovich (R-OH) joined as cosponsors 
to the bill. On February 3, 2005, the Senate Judiciary 
Committee reported S. 5 favorably, without amendments.

                       II. Vote on the Committee

    Pursuant to paragraph 7 of rule XXVI of the Standing Rules 
of the Senate, each Committee is to announce the result of 
rollcall votes taken in any meeting of the Committee on any 
measure of amendment. The Senate Judiciary Committee, with a 
quorum present, met on February 3, 2005 to mark up S. 5. The 
Committee rejected one amendment. The following rollcall votes 
occurred on S. 5.
    A Leahy amendment that would provide for an increase of 
federal judges' salaries in the amount of 16.5% of their 
current salaries (rounded to the nearest $100).
        YEAS                          NAYS
Leahy                               Hatch
Kennedy (Proxy)                     Grassley
Biden                               Kyl
Feingold                            DeWine
Durbin                              Sessions
                                    Graham
                                    Cornyn
                                    Brownback
                                    Coburn
                                    Kohl
                                    Feinstein
                                    Schumer
                                    Specter

    Motion to report favorably S. 5. The motion was approved by 
13 yays to 5 nays.
        YEAS                          NAYS
Hatch                               Leahy
Grassley                            Kennedy (Proxy)
Kyl                                 Biden
DeWine                              Feingold
Sessions
Graham
Cornyn
Brownback
Coburn
Kohl
Feinstein
Schumer
Specter                             Durbin

                             III. Purposes

    By now, there should be little debate about the numerous 
problems with our current class action system. A mounting stack 
of evidence reviewed by the Committee demonstrates that abuses 
are undermining the rights of both plaintiffs and defendants. 
One key reason for these problems is that most class actions 
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. The problem of 
inconsistent and inadequate judicial involvement is exacerbated 
in class actions because the lawyers who bring the lawsuits 
effectively control the litigation; their clients--the injured 
class members--typically are not consulted about what they wish 
to achieve in the litigation and how they wish it to proceed. 
In short, the clients are marginally relevant at best. This 
stands in stark contrast to the designed purpose of class 
actions. Class actions were designed to provide a mechanism by 
which persons, whose injuries are not large enough to make 
pursuing their individual claims in the court system cost 
efficient, are able to bind together with persons suffering the 
same harm and seek redress for their injuries. As such, class 
actions are a valuable tool in our jurisprudential system. 
However, they are only beneficial when the class members are 
kept a priority throughout the process.
    To make matters worse, current law enables lawyers to 
``game'' the procedural rules and keep nationwide or multi-
state class actions in 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, 
state court judges are readily approving class action 
settlements that offer little--if any--meaningful recovery to 
the class members and simply transfer money from corporations 
to class counsel. Often, the settlement notices in such cases 
are so confusing that the plaintiff class members do not 
understand what--if anything--the settlement offers or how they 
can opt out of it. Multiple class action cases purporting to 
assert the same claims on behalf of the same people often 
proceed simultaneously in different state courts, causing 
judicial inefficiencies and promoting collusive activity. 
Finally, many state courts freely issue rulings in class action 
cases that have nationwide ramifications, sometimes overturning 
well-established laws and policies of other jurisdictions.
    The Class Action Fairness Act of 2005 is a modest, balanced 
step that would 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. 5 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. Another element specifies the methods for 
calculating attorneys' fees in class settlements in which 
coupons constitute all or part of the relief afforded to 
claimants to ensure that such fee awards are consistent with 
the benefits afforded class members or the amount of real work 
that the class counsel have performed in connection with the 
litigation. Yet another element of the 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. 5 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.'' \1\ Because interstate class 
actions typically involve more people, more money, and more 
interstate commerce ramifications than any other type of 
lawsuit, the Committee firmly believes that such cases properly 
belong in federal court. To that end, this bill (a) amends 
section 1332 to allow federal courts to hear more interstate 
class actions on a diversity jurisdiction basis, and (b) 
modifies the federal removal statutes to ensure that qualifying 
interstate class actions initially brought in state courts may 
be heard by federal courts if any of the defendants so desire. 
Thus, S. 5 makes it harder for plaintiffs' counsel to ``game 
the system'' by trying to defeat diversity jurisdiction, 
creates efficiencies in the judicial system by allowing 
overlapping and ``copycat'' cases to be consolidated in a 
single federal court, places the determination of more 
interstate class action lawsuits in the proper forum--the 
federal courts.
---------------------------------------------------------------------------
    \1\ Davis v. Carl Cannon Chevrolet-Olds, Inc. 182. F.3d 792, 797 
(11th Cir. 1999).
---------------------------------------------------------------------------
    Third, S. 5 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 facilitate 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,\2\ 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: frequently in such cases, 
there appears to be state court provincialism 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. This 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.
---------------------------------------------------------------------------
    \2\ In the words of Article III, ``[t]he judicial power shall 
extend to * * * controversies in 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 ofthe constitutional requirement of 
diversity jurisdiction. S. 5 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 primarily 
local matters.

A. A Brief History of Class Actions

    Although class actions have some roots in common law, the 
general concept was first codified in 1849, when several states 
adopted the Field Code.\3\ To successfully plead and prosecute 
class actions, the Field Code merely required that numerous 
parties demonstrate a common interest in law or fact.
---------------------------------------------------------------------------
    \3\ See 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.\4\ However, the concept of class actions that are a 
familiar part of today's legal landscape did not arise until 
1966, when Rule 23 was substantially amended to expand the 
availability of the device. Under 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 actions to be certified, a 
proponent must show that ``the questions of law or fact common 
to the members of the class predominate over any questions 
affecting only individual members, and that a class action is 
superior to other available methods for the fair and efficient 
adjudication of the controversy.'' \5\
---------------------------------------------------------------------------
    \4\ 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. of the 
Judiciary, 106th Cong. (1999) (hereinafter ``Hearings on S. 353''), 
Prepared Statement of John P. Frank.
    \5\ 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. 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.
---------------------------------------------------------------------------
    As originally envisioned, class action lawsuits were to be 
primarily a tool for civil rights litigants seeking injunctions 
in discrimination cases.\6\ 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.\7\ In the 
1980s, however, some plaintiffs' lawyers successfully persuaded 
judges to expand class actions to the area of mass torts.\8\ 
These courts began to expand the types of claims they were 
willing to certify as class actions because they feared that 
the large number of individual mass tort cases could slow or 
stop the judicial system.\9\ Thus, class actions have evolved 
from their original primary purpose--to counter civil rights 
abuses--and have become a common tool for plaintiffs' attorneys 
bringing personal injury or product liability claims. Yet, 
while the landscape of class actions has changed dramatically, 
the procedural rules regarding which courts can hear class 
actions, and, consequently, which procedural law will apply to 
such cases, generally have remained the same since 1966.
---------------------------------------------------------------------------
    \6\ 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.'').
    \7\ Administrative Office of the U.S. Courts, Working Papers of the 
Advisory Committee on Civil Rules on Proposed Amendments to Civil Rule 
23 (Vol. 2) (``Advisory Committee Working Papers''), at 260 (1997). 
Prof. Frank passed away late in 2002. The only surviving 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.'').
    \8\ See John C. Coffee, Jr., Class Wars: The Dilemma of the Mass 
Tort Class Action, 95 Colum. L. Rev. 1343, 1358 (1995).
    \9\ Id. at 1356-58, 1363-64.
---------------------------------------------------------------------------

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.'' \10\
---------------------------------------------------------------------------
    \10\ U.S. Const. art. III, sec. 2.
---------------------------------------------------------------------------
    According to the Framers, the primary purpose of diversity 
jurisdiction was to protect citizens in one state from the 
injustice that might result if they were forced to litigate in 
out-of-state courts.\11\ Quoting James Madison, Judge Henry 
Friendly explained that diversity jurisdiction is essential to 
a strong union because it ``may happen that a strong prejudice 
may arise in some state against the citizens of others, who may 
have claims against them.'' \12\ Justice Frankfurter expressed 
a similar understanding of Madison's concerns: ``It was 
believed that, consciously or otherwise, the courts of a state 
may favor their own citizens. Bias against outsiders may become 
embedded in a judgment of the state court and yet not be 
sufficiently apparent to be made the basis of a federal 
claim.'' \13\
---------------------------------------------------------------------------
    \11\ See Pease v. Peck, 59 U.S. (18 How) 518, 520 (1856) (``The 
theory upon which jurisdiction is conferred on the court of the United 
States, in controversies between citizens of different States, has its 
foundation in the supposition that, possibly, the State tribunal might 
not be impartial between their own citizens and foreigners.''); see 
also Martin v. Hunter's Lessee, 14 U.S. (1 Wheat) 304, 347 (1816); Bank 
of the United States v. Deveaux, 9 U.S. (5 Cranch) 61, 87 (1809); 
Barrow S.S. Co. v. Kane, 170 U.S. 100, 111 (1898) (``The object of the 
provisions of the constitution and statutes of the United States in 
conferring upon the circuit courts of the United States jurisdiction of 
controversies between citizens of different States of the Union * * * 
was to secure a tribunal presumed to be more impartial than a court of 
the state in which one litigant resides.''); The Federalist No. 80, at 
537-38 (Alexander Hamilton) (Jacob E. Cooke, ed. 1961) (``In order to 
[ensure] the inviolable maintenance of that equality of privileges and 
immunities to which citizens of the union will be entitled, the 
national judiciary ought to preside in all cases in which one state or 
its citizens are opposed to another state or its citizens. To secure 
the full effect of so fundamental a provision against all evasion and 
subterfuge, it is necessary that its construction should be committed 
to that tribunal which, having no local attachments, will be likely to 
be impartial between the different states and their citizens, and 
which, owing its official existence to the union, will never be likely 
to feel any bias inauspicious to the principles on which it is 
founded.'')
    \12\ H. J. Friendly, The Historic Basis of Diversity Jurisdiction, 
41 Harv. L. Rev. 483, 492-93 (1928).
    \13\ Burford v. Sun Oil Co., 319 U.S. 315, 326 (1943) (Frankfurter, 
J., dissenting).
---------------------------------------------------------------------------
    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.'' \14\ 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.\15\ As 
former Acting Solicitor General Walter Dellinger testified 
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.'' \16\ 
Both of these concerns--judicial integrity and interstate 
commerce--are strongly implicated by class actions.
---------------------------------------------------------------------------
    \14\ Hearings on S. 353, Prepared Statement of E. Donald Elliott; 
see also, Adrienne J. Marsh, Diversity Jurisdiction: Scapegoat of 
Overcrowded Federal Courts, 48 Brooklyn L. Rev. 197, 201 (1989).
    \15\ See generally John P. Frank, Historical Bases of the Federal 
Judicial System, 13 Law & Contemp. Probs. 3, 22-28 (1948); Friendly, 
supra n. 12.
    \16\ 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 federal 
diversity jurisdiction extends only to non-trivial state-law 
cases.\17\ The second is the ``complete diversity'' 
requirement, a rule that federal jurisdiction lies only when 
all plaintiffs are diverse as to all defendants.\18\ 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.\19\ Indeed, as Prof. Dellinger 
noted in testimony before this Committee, 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.'' \20\ It is therefore the prerogative of Congress to 
modify these technical requirements as it deems appropriate.
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    \17\ See 28 U.S.C. Sec. 1332(a).
    \18\ See Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 (1806).
    \19\ See, e.g., Newman-Green Inc. v. Alfonzo-Larrain, 490 U.S. 826, 
829 n.1 (1989) (noting that ``[t]he complete diversity requirement is 
based on the diversity statute, not Article III of the 
Constitution.''); Owen Equip. & Co. v. Kroger, 437 U.S. 365, 373 n. 13 
(1978) (to the same effect).
    \20\ See Hearing on Class Actions, Prepared Statement of Walter E. 
Dellinger, III.
---------------------------------------------------------------------------
            2. Removal: How Diversity Cases Arrive in Federal Court
    The concept of ``removing'' cases from state courts to 
federal courts is based largely on the same core premise as 
diversity jursidiction--i.e., that an out-of-state defendant in 
a state court proceeding should have access to an even-handed 
federal forum.\21\ 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.
---------------------------------------------------------------------------
    \21\ See David P. Currie, Federal Jurisdiction 140 (3d ed. 1990).
---------------------------------------------------------------------------
    Section 1446(b) of Title 28 outlines the procedure for 
removal. Under this provision, a defendant must file papers 
seeking removal to federal court within 30 days after receiving 
a copy of the initial pleading (or service of summons if a 
pleading has been filed in court and is not required to be 
served on the defendant). If the original complaint was not 
removable (or if it could not be determined from the face of 
the complaint that it was 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].'' \22\ The 
Committee notes that the purpose of this provision is to 
prevent plaintiffs from evading federal jurisdiction by hiding 
the true nature of their case. Thus, the Committee favors the 
broad interpretation of ``other paper'' adopted by some courts 
to include deposition transcripts, discovery responses, 
settlement offers and other documents or occurrences that 
reveal the removability of a case.\23\
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    \22\ 28 U.S.C. Sec. 1446(b).
    \23\ A broad interpretation of ``other paper'' is ``consistent with 
the purpose of the removal statute to encourage prompt resort to 
federal court when a defendant first learns that the plaintiff is 
alleging a federal claim * * * [and] discourages disingenuous pleading 
by plaintiffs in state court to avoid removal.'' Addo v. Globe Life & 
Accident Ins. Co., 230 F.3d 759, 762 (5th Cir. 2000) (holding a post-
complaint settlement letter qualifies as ``other paper'' under 28 
U.S.C. 1446(b)). See also S.W.S. Erectors v. Infax, Inc., 72 F.3d 489, 
494 (5th Cir. 1996) (holding that deposition testimony qualifies as 
``other paper'' under 28 U.S.C. 1446(b)).
---------------------------------------------------------------------------

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.\24\ 
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.
---------------------------------------------------------------------------
    \24\ 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. 485 (Summer 2000).
---------------------------------------------------------------------------
    This gaming problem exists for two reasons. The first 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.\25\ In interstate 
class actions, plaintiffs' counsel frequently and purposely 
evade federal jurisdiction by adding named plaintiffs or 
defendants simply based on their state of citizenship in order 
to defeat complete diversity. One witness at the Committee's 
2002 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.'' \26\ 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.
---------------------------------------------------------------------------
    \25\ See Snyder v. Harris, 394 U.S. 332 (1969).
    \26\ See Hearing on Class Actions, Prepared Statement of Hilda 
Bankston.
---------------------------------------------------------------------------
    The second problem is created by 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,\27\ have held that the amount-in-controversy 
requirement is normally met in class actions only if each of 
the proposed class members individually seeks damages in excess 
of the statutory minimum.\28\ That means federal courts can 
often only hear class actions in which each potential class 
member claims damages in excess of $75,000.\29\ The Committee 
believes that requiring each plaintiff to reach the $75,000 
mark makes little sense in the class action context. After all, 
class actions frequently involve tens of millions of dollars 
even though each individual plaintiff's claims are far less 
than that. Moreover, class action lawyers typically misuse the 
jurisdictional threshold to keep their cases out of federal 
court. For example, class action complaints often include a 
provision stating that no class member will seek more than 
$75,000 in relief, even though they can simply amend their 
complaints after the removal to seek more relief and even 
though the class action seeks millions of dollars in the 
aggregate. Under current law, that is frequently enough to keep 
a major class action in state court.
---------------------------------------------------------------------------
    \27\ See Zahn v. International Paper Co., 414 U.S. 291 (1973).
    \28\ 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).
    \29\ 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., 333 F.3d 1248 (11th Cir. 2003), cert. 
granted, 125 S. Ct. 317 (2004). 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 must usually be heard in 
state court (because each individual class member's claim is 
for less than $75,000). Put another way, under the current 
jurisdictional rules, federal courts can assert diversity 
jurisdiction over a typical state law claim arising out of an 
auto accident between a driver from one state and a driver from 
another, or a typical trespass claim involving a trespasser 
from one state and a property owner from another, but they 
cannot assert jurisdiction over claims encompassing large-
scale, interstate class actions involving thousands of 
plaintiffs from multiple states, defendants from many states, 
the laws of several states, and hundreds of millions of 
dollars--cases that have obvious and significant implications 
for the national economy.
    There is a growing chorus of authoritative sources 
declaring that something is badly amiss with the manner in 
which federal diversity jurisdictional requirements are applied 
to class actions:
     The leading federal civil procedure law treatise 
has noted: ``The traditional principles [regarding federal 
diversity jurisdiction over class actions] have evolved 
haphazardly and with little reasoning. They serve no apparent 
purpose.'' \30\
---------------------------------------------------------------------------
    \30\ 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 it was a 
``poster child for national class action reform. We have here a 
Minnesota [state] district court, applying a New Jersey 
consumer fraud statute to a nationwide class of plaintiffs, 
with few of those plaintiffs residing in New Jersey. 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.\31\
---------------------------------------------------------------------------
    \31\ Peterson v. BASF Corp., 657 N.W.2d 853, 875 (Minn. Ct. App. 
2003), aff'd, 675 N.W. 2d 57 (Minn. 2004).
---------------------------------------------------------------------------
     The U.S. Court of Appeals for the Eleventh Circuit 
apologized for sending an interstate class action back to state 
court, noting that ``an important historical justification for 
diversity jurisdiction is the reassurance of fairness and 
competence that a federal court can supply to an out-of-state 
defendant facing suit in state court.'' Observing that the out-
of-state defendant in that case was confronting ``a state court 
system [prone to] produce[] gigantic awards against out-of-
state corporate defendants,'' the court stated that ``[o]ne 
would think that this case is exactly what those who espouse 
the historical justification for [diversity jurisdiction] would 
have in mind * * *'' \32\
---------------------------------------------------------------------------
     \32\ 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.'' \33\
---------------------------------------------------------------------------
    \33\ Id. at 798.
---------------------------------------------------------------------------
    In another case, Judge Anthony Scirica (formerly the chair 
of the Judicial Conference's Standing Committee on Rules and 
Procedure and now the Chief Judge of the U.S. Court of Appeals 
for the Third Circuit) observed that although ``national 
(interstate) class actions are the paradigm for federal 
diversity jurisdiction because * * * 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.'' \34\
---------------------------------------------------------------------------
    \34\ In re Prudential Ins. Co. America Sales Practice Litig., 148 
F.3d 283, 305 (3d Cir. 1998).
---------------------------------------------------------------------------
     And even though the Judicial Conference of the 
United States has historically opposed any expansion of federal 
jurisdiction over class actions, the Conference has more 
recently signaled a significant shift in position. In a March 
26, 2003 letter to the Committee,\35\ the Conference 
acknowledged ``current problems with class action litigation.'' 
\36\ Further, in that letter, the Conference for the first time 
``recognize[d] that the use of [expanded] diversity 
jurisdiction may be appropriate to the maintenance of 
significant multi-state class action litigation in the federal 
courts.'' \37\
---------------------------------------------------------------------------
    \35\ Letter to then Chairman Orrin G. Hatch, Comm. on the 
Judiciary, U.S. Senate, from Leonidas Ralph Mecham, Secretary, Judicial 
Conference of the United States (dated March 26, 2003).
    \36\ Id. at 2.
    \37\ Id.
---------------------------------------------------------------------------
    The Committee notes that several 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.\38\ As Prof. Dellinger noted in his testimony before 
this Committee, ``the rationales that underlie the diversity 
jurisdiction concept apply with equal--if not greater--force to 
interstate class actions.'' \39\
---------------------------------------------------------------------------
    \38\ See generally Hearing on Class Actions; Hearings on S. 353; 
Hearing on H.R. 1875.
    \39\ See Hearing on Class Actions, Prepared Statement of Walter E. 
Dellinger III.
---------------------------------------------------------------------------

D. Other Abuses of 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 testimony to the Subcommittee on Administrative 
Oversight and the Courts, 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.\40\ According to 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.\41\
---------------------------------------------------------------------------
    \40\ Hearings on S. 353, Prepared Statement of E. Donald Elliott.
    \41\ 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 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.\42\ 
A follow-up study found that the number of class actions filed 
in the county continued to grow dramatically in 2001 and 
2002.\43\ And in 2003, class action filings there catapulted to 
106, up more than 5,000 percent since 1998.\44\ According to 
the president of the Illinois Trial Lawyers Association (an 
association representing plaintiffs' lawyers), the reason for 
the 2003 jump in filings was an effort to beat this 
legislation; plaintiffs' lawyers were ``playing it safe'' and 
rushing to get suits filed in case the legislation was enacted 
in 2004.\45\ The same studies also found that most of the class 
actions brought in Madison County and other magnet courts had 
little--if anything--to do with the venues where they were 
brought.\46\
---------------------------------------------------------------------------
    \42\ 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 (2001) (``Federal Case'').
    \43\ 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).
    \44\ Trisha L. Howard, Class Actions Set Record Last Year In 
Madison County/ Possible Change In Law Prompted Rush In Filing, St. 
Louis Post Dispatch, Jan. 11, 2004.
    \45\ Id.
    \46\ See generally Federal Case.
---------------------------------------------------------------------------
    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--and of course, they are the same within states, 
i.e., the same in ``magnet'' jurisdictions such as Madison 
County and St. Clair County, Illinois, as they are in more 
easily accessible jurisdictions such as Cook County, Illinois. 
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, Mississippi and West Virginia, 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 about 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's parallel governing rule), which are intended 
to protect the due process rights of both unnamed class members 
and defendants. In contrast, federal courts generally 
scrutinize proposed settlements much more carefully and pay 
closer attention to the procedural requirements for certifying 
a matter for class treatment.\47\
---------------------------------------------------------------------------
    \47\ 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.\48\ 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. Federal judges, 
in contrast, have access to magistrates and can appoint special 
masters when they are faced with complex litigation like class 
actions. Moreover, the average state court judge is assigned 
1,568 new cases each year, compared to federal judges, who are 
assigned, on average, fewer than 500.\49\
---------------------------------------------------------------------------
    \48\ 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.'').
    \49\ Compare B. Ostrom, et al., Examining the Work of State Courts 
12 (Court Statistics Project 2003) (``Examining the Work of State 
Courts''), with Administrative Office of U.S. Courts, 2003 Federal 
Court Management Statistics (2004) (``Federal Court Management'').
---------------------------------------------------------------------------
    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. 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.
            1. Lawyers receive disproportionate shares of settlements
    The first such abuse involves settlements in which the 
attorneys receive excessive attorneys' fees with little or no 
recovery for the class members themselves. In the now infamous 
Bank of Boston class action settlement,\50\ or 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.'' \51\
---------------------------------------------------------------------------
    \50\ Kamilewicz v. Bank of Boston, 92 F.3d 506 (7th Cir. 1996).
    \51\ Class Action Lawsuits: Examining Victim Compensation and 
Attorneys' Fees: Hearings Before the Subcomm. on Administrative 
Oversight and the Courts of the Senate Comm. of the Judiciary, 105th 
Cong. (1997), Prepared Statement of Martha Preston.
---------------------------------------------------------------------------
    A few years ago, the National Law Journal reported on 
another similarly troubling state court case:

          When 75-year-old Olga Heaven received some legal 
        papers in the mail a few weeks ago, she asked her 
        daughter, a lawyer, to look them over. A good thing, 
        too. If Ms. Heaven had misunderstood the notice or 
        simply thrown it away, her daughter says, she might 
        have been required to sell her house and property as 
        part of a recent class action settlement. * * * Ms. 
        Heaven [was] one of 60 class action plantiff 
        homeowners--many of them unwitting parties to the 
        litigation--who received a notice that a property 
        damage suit against a local oil refinery had settled. * 
        * * The unusual deal requires settling plaintiffs to 
        sell their homes to [the defendant refinery owner] for 
        two times their tax-assessed value. In addition, the 
        plaintiffs are required to withdraw from the lawsuit * 
        * * and release any property damage or personal injury 
        claims against [the defendant], which was accused of 
        polluting the area. The settlement was set up [as] a 
        so-called opt-out class, meaning that homeowners would 
        be included in the deal [and required to sell their 
        homes] unless they sent in responses to the notice 
        within 30 days. * * * The total payout by [the 
        defendant] could be as much as $1.1 million. 
        Plaintiffs' lawyers could earn as much as $200,000, 
        depending on how many plaintiffs participate in the 
        deal.\52\
---------------------------------------------------------------------------
    \52\ Kansas Case In Class By Itself, National Law Journal, Mar. 15, 
1999. This settlement ultimately did not proceed, but only because the 
attorney daughter of one of the settlement class members happened to 
read her mother's mail, as noted in the article.
---------------------------------------------------------------------------
    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 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. For 
example:
     A recent lawsuit involved customers who had 
Firestone tires that were among those that the National Highway 
Traffic Safety Administration investigated or recalled, but who 
did not suffer any personal injury or property damage. After a 
federal appeals court rejected class certification, plaintiffs' 
counsel and Firestone negotiated a settlement, which has now 
been approved by a Texas state court. Under the settlement, the 
company has agreed to redesign certain tires (a move already 
underway irrespective of the suit) and to develop a three-year 
consumer education and awareness camp, but the members of the 
class received nothing. The lawyers will receive $19 
million.\53\
---------------------------------------------------------------------------
    \53\ Shields et al. v. Bridgestone/Firestone Inc. et al. (No. E-
0167637, Jefferson County, Texas, 2003); Miles Moor, BFS Settles 
Nationwide Class Action Suit; Tire Maker to Modify Certain Models, 
Launch Education Program, Rubber & Plastics News, August 4, 2003.
---------------------------------------------------------------------------
     In another state court class action settlement, in 
which a cruise line was accused of collecting ``port charges'' 
that exceeded the amount actually paid by the defendant. Under 
the terms of the settlement, the class members received $30 to 
$40 discounts from another cruise line on its two- and three-
night cruises out of Port Canaveral, Florida because Premier 
was no longer in business.\54\ In other words, a company that 
had not even been sued and had absolutely no risk of liability 
agreed to offer coupons--no doubt because they recognize that 
such coupons are a promotional opportunity and not a penalty. 
Attorney for the plaintiffs received $887,000 in fees, costs, 
and expenses.\55\
---------------------------------------------------------------------------
    \54\ Premier Cruise Lines, (No. 96-06932 CA-FN, Fla. Cir. Ct., 
Brevard County, Florida, 2003); The Law Offices of Douglas Bowdoin, for 
Plaintiffs, and Todd Pittenger of Lowndes, Drosdick, Doster, Kantor & 
Reed, P.A., for Defendant, Announce a Proposed Class Action Settlement, 
Business Wire, Inc., July 2, 2003.
    \55\ Premier Cruise Line Reaches Settlement, Mealey's Litigation 
Report: Class Actions, July 17, 2003.
---------------------------------------------------------------------------
     Microsoft has settled antitrust class actions in 
ten states in which plaintiffs alleged that Microsoft used its 
monopoly to gouge consumers. Based on the terms of the 
settlement, consumers who bought Microsoft software will 
receive a $5 to $10 voucher good for future purchases of 
particular computer hardware or software products. To receive 
the voucher, consumers must download a form from 
www.microsoftproductsettlement.com/kansas and then mail it in. 
To redeem the voucher, consumers must mail in the voucher, a 
photocopy of an original receipt, and an original UPC code. 
Half of the unclaimed settlement money will be used to donate 
Microsoft products to schools. A federal judge rejected a 
similar settlement in part on the ground that the school 
donations were intended to inflict further injury on Apple. 
Attorneys in these cases have sought hundreds of millions of 
dollars in fees.\56\
---------------------------------------------------------------------------
    \56\ In Re Microsoft Litigation Settlement (No. 99 CV 17089, 
Johnson County, Kansas, 2003); Dan Voorhis, Here's How to Claim Your 
Share of Microsoft Settlement, The Wichita Eagle, December 28, 2003.
---------------------------------------------------------------------------
     Consumers in a state court class action alleged 
that the beer goblets served at a Chicago restaurant chain were 
misrepresented to be 12 ounces, when they held only 10.6 
ounces. In settlement, the company will give away 50,000 
coupons for $1 off every subsequent $5 purchase at its 22 
Chicago-area restaurants.\57\ All cash from the settlement goes 
to the lawyers.
---------------------------------------------------------------------------
    \57\ Ross and Lambert v. Portillo's Restaurant Group, Inc. (00 Ch 
13612, Circuit Court of Cook County, Illinois, Chancery Division, 
2003); Judge Approves Portillo's Class Action Settlement Over 
Mislabeled Beer, PR Newswire, Nov. 26, 2003.
---------------------------------------------------------------------------
     To settle a state court class action alleging 
deceptive pricing practices on certain products, KB Toys agreed 
to hold a sale.\58\ Under the settlement agreement, the toy 
retailer offered a 30 percent discount on selected products 
between October 8 and October 14, 2003. According to an 
independent analyst, ``KB Toys will benefit from the 
settlement,'' because ``they're driving traffic.'' \59\ The 
attorneys benefited too: they received all the cash--fees and 
costs of $1 million.\60\
---------------------------------------------------------------------------
    \58\ DeGradi v. KB Holdings, Inc. (No. 02 CH 15838, Circuit Court 
of Cook County, Illinois, Chancery Division, 2003).
    \59\ Betty Lin-Fisher, Shoppers Win In Suit; Customers Get a Jump 
on Holidays, Akron Beacon Journal, Oct. 14, 2003.
    \60\ Stephanie Zimmerman, KB Toys Settles Lawsuit Over ``Low'' 
Prices By Offering Discount, Chicago Sun-Times, Oct. 11,2003.
---------------------------------------------------------------------------
     In a recent class action where consumers alleged 
that a company was selling cribs that were unsafe for use by 
infants, the class members received either a crib repair kit or 
a coupon for $55 which could be used toward the future purchase 
of a Dorel Juvenile Group Product.\61\ Of course, the coupon is 
only valuable for consumers who plan to have another baby and 
still trust the company.
---------------------------------------------------------------------------
    \61\ Dorel Juvenile Group, Inc. (2003); Dorel Juvenile Group 
Settles Class Action Lawsuit, PR Newswire, Oct. 6, 2003.
---------------------------------------------------------------------------
     Another recent suit involved allegations that 
Poland Spring water does not really come from a spring deep in 
the woods of Maine. The settlement calls for discounts or free 
water to Poland Spring customers over five years and 
contributions of $2.75 million to charities. In addition, the 
named plaintiff will receive $12,000. Plaintiffs' lawyers 
received $1.35 million.\62\
---------------------------------------------------------------------------
    \62\ Ramsey v. Nestle Waters North America, Inc. d/b/a Poland 
Spring Water Co. (No. 03 CHK 817, Kane County, Illinois, 2003); Edward 
D. Murphy, et al., Conflict and Change; Maine's Employment and Price 
Levels Remained Stable Last Year, but its Economy Experienced Plenty of 
Turmoil, Portland Press Herald, January 4, 2004; see also 
www.noticeclass.com/springwatersettlement/LongFormNoticev2.pdf
---------------------------------------------------------------------------
     Plaintiffs alleged that GameStop Corp. 
misrepresented some of the video games it was selling as new, 
when they had actually been previously purchased and 
returned.\63\ Under the settlement, GameStop agreed to post 
notices in stores stating: ``All software for video game 
consoles may have been used and returned in accordance with 
(the store's) return policy.'' Further, anyone who bought a 
game from particular stores on specified dates, and can produce 
their receipt, will receive a coupon for 5 percent off the 
price of any one game. In other words, customers would receive 
$1.25 off a $25 dollar game--as long as they kept receipts. The 
coupon can be redeemed at retail locations, but not on the 
defendant's website.\64\ Lawyers for the plaintiffs were paid 
$125,000 in fees and costs.\65\
---------------------------------------------------------------------------
    \63\ Chavez v. GameStop Corp. (No. CGC-02-406658, San Francisco 
Superior Court, California, 2003).
    \64\ Big Class Action: Settlements and Verdicts: Consumer Goods, 
available at http://www.bigclassaction.com/settlements/consumer.html.
    \65\ http://www.gamestop.com/gs/help/classaction.asp.
---------------------------------------------------------------------------
     Plaintiffs alleged that Register.com delayed in 
switching purchased domains over to their customers and 
continued to display the company's ``Coming Soon'' page which 
promotes the company and its advertisers. Under the settlement, 
class members receive coupons to use with Register.com 
(assuming they ever plan to register one of the company's 
domains again). The lawyers for the class get $642,500.\66\
---------------------------------------------------------------------------
    \66\ Zurakov v. Register.com. Inc. (No. 2301, N.Y. Sup. Ct., App. 
Div., 2003); Tom Perrotta Panel Revives Case Over Domain Name Registry, 
Internet Newsletter, May 14, 2003.
---------------------------------------------------------------------------
     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. The settlement allows 
Blockbuster to continue its practice of charging customers for 
a new rental period when they return a tape late.\67\ In this 
settlement approved by a Texas state court, only the lawyers 
got cash.
---------------------------------------------------------------------------
    \67\ Scott v. Blockbuster Inc. (No. DI62-535, Jefferson County, 
Texas, 2001); Judge OKs Blockbuster Plan On Fees, Associated Press, 
Jan. 11, 2002.
---------------------------------------------------------------------------
     To settle an Illinois state court class action in 
which it was accused of improperly including asbestos in its 
crayons, a manufacturer agreed to issue class members 75-cent 
coupons toward the purchase of new crayons. The attorneys got 
$600,000 in fees.
     In another recent case, Food Lion settled a state 
court class action filed by a consumer group by offering 28-
cent coupons to customers who held an MVP discount card between 
1995 and 1998. The plaintiff class alleged that Food Lion 
charged too much sales tax on discounted products purchased 
with the discount card.\68\ Only the lawyers got money.
---------------------------------------------------------------------------
    \68\ Attention Shoppers: Food Lion Rebate Due, Greensboro News & 
Record, Feb. 25, 2002.
---------------------------------------------------------------------------
     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 attorneys who brought the lawsuit received 
$100,000 in fees and the persons who served as class 
representatives each received $2,500.\69\
---------------------------------------------------------------------------
    \69\ Enough Already With the Lawsuits, Kansas City Star, July 10, 
1999.
---------------------------------------------------------------------------
     Under the settlement in this state court case, 
which resulted from allegations regarding changes in the 
American Airlines frequent flyer program, members of the 
program received vouchers good for $25 to $75 off the price of 
future travel, or a similarly valued reduction in the number of 
miles required for an award. American also agreed to pay the 
lawyers up to $25 million in fees. One news article about the 
settlement quoted travel experts saying that ``the practical 
value of those discounts will be modest,'' and ``American could 
end up generating enough extra revenue to more than offset the 
cost of the offer.'' \70\
---------------------------------------------------------------------------
    \70\ American Airlines Settles Lawsuits Over Frequent Flier 
Program, Fort Worth Star-Telegram, June 22, 2000.
---------------------------------------------------------------------------
     A class action alleged that certain ``zip drives'' 
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 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.\71\ 
Virtually all of the cash paid in this state court-approved 
settlement went to lawyers.
---------------------------------------------------------------------------
    \71\ 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 for a future cruise worth $25 to 
$55 off a future cruise to 4.5 million people who sailed on its 
cruises between April 19, 1992 and June 4, 1997. The vouchers 
can be used for a future cruise or redeemed for cash at 15 
percent or 20 percent of face value.\72\ In this state court 
class action settlement, only the lawyers received cash 
payments.
---------------------------------------------------------------------------
    \72\ 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. Under the terms of the settlement approved by an 
Illinois state court, the lawyers reportedly received $22 
million in fees and costs.\73\ According to news reports, more 
than 2,640 people opted out of the settlement; some said they 
opted out because the form was complicated and others said they 
opted out because the attorneys' fees were so high.\74\
---------------------------------------------------------------------------
    \73\ Thomson Antes Up $100 Million Settlement, Mar. 12, 2001.
    \74\ Baird v. Thomson Consumer Electronics, Inc. (No. 00-L-00761, 
Madison County, Illinois); 2,640 Television Owners Tune Out Class 
Action Suit, Belleville (Ill.) News-Democrat, Aug. 19, 2001.
---------------------------------------------------------------------------
     In the settlement of a state court class action 
involving allegations of overly aggressive fees and rates by a 
Minnesota credit card company, class members received discount 
coupons with a retail value of $19.95, an $8 dollar donation in 
their name to the Boys and Girls Clubs of America and the right 
to apply for a 9.9 percent interest credit card and to join a 
promotional travel discount club. They also had the potential 
to receive between $10 and $70 in cash. The company agreed to 
change its practices, and the lawyers received $5.6 million in 
fees.\75\
---------------------------------------------------------------------------
    \75\ Fischl v. Direct Merchants Credit Card Bank, N.A. (CT 00-
007129, Hennepin County, Minnesota); Soft Firm: Too Often, The SF Law 
Firm Of Lieff, Cabraser, Heimann & Bernstein Strikes Settlements That 
Give The Firm Millions Of Dollars In Legal Fees--And Its Class Action 
Clients Too Little, SF Weekly, May 29, 2002.
---------------------------------------------------------------------------
     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.\76\ The money in the 
settlement flowed primarily to class counsel.
---------------------------------------------------------------------------
    \76\ 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, counsel received $4.27 
million in fees.\77\
---------------------------------------------------------------------------
    \77\ See The (San Francisco) Recorder, Jan. 4, 1996.
---------------------------------------------------------------------------
     In a group of state court class actions settled in 
2002, class members alleging that they were not fully advised 
of ``energy surcharges'' applied when they checked into hotels 
during California's electricity crisis were given $10 
coupons.\78\ Only the lawyers are receiving cash.
---------------------------------------------------------------------------
    \78\ Hotel Chains Settle Class-Action Suit Over Energy Surcharges, 
San Diego Union-Tribune, July 4, 2002.
---------------------------------------------------------------------------
     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 lawyers took home more than $1 
million in fees.\79\
---------------------------------------------------------------------------
    \79\ See Michelle Singletary, Coupon Settlements Fall Short, Wash. 
Post, Sept. 12, 1999, at H01. For more examples of coupon settlements, 
see Hearings on S. 353, Prepared Testimony of Stephan G. Morrison.
---------------------------------------------------------------------------
     In a state court class action alleging that Coca-
Cola improperly added sweeteners to apple juice, defendant 
agreed to distribute 50-cent coupons toward the purchase of 
apple juice. Meanwhile, class counsel received $1.5 
million.\80\
---------------------------------------------------------------------------
    \80\ Lawyers Get $1.5 Million, Clients Get 50 Cents Off, Fulton 
County Daily Report, Nov. 21, 1997.
---------------------------------------------------------------------------
     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.
     In a state court action alleging that General 
Mills treated oats with a nonapproved-pesticide, class members 
were offered coupons; the attorneys received $1.75 million.\81\
---------------------------------------------------------------------------
    \81\ Cereal Plan Called Soggy, National Law Journal, May 22, 1995.
---------------------------------------------------------------------------
     In a settlement of a state court class action 
against Packard Bell alleging a product defect, class members 
were offered a six-month extended service contract for which 
they were each required to pay $25. Only the lawyers got cash.
     To settle a state court class action alleging 
collusion to fix cellular phone prices, wireless phone service 
providers agreed to provide coupons and discounts to customers 
in several California counties.\82\ The lawyers, however, 
received cash.
---------------------------------------------------------------------------
    \82\ Cellular Carriers Settle Price-Fixing Allegations, Seattle 
Times, July 26, 1997.
---------------------------------------------------------------------------
     In a settlement of a similar state court antitrust 
class action involving cellular service in a different area, 
coupons and small service credits were offered. But counsel 
obtained agreement to be paid up to $9.5 million.\83\ Virtually 
all the cash paid in the settlement went to lawyers.
---------------------------------------------------------------------------
    \83\ 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% or $25 discount off the future purchases of products from 
defendants' stores. The attorneys received $890,000 in 
fees.\84\
---------------------------------------------------------------------------
    \84\ Los Angeles Times, June 8, 1998, at D3.
---------------------------------------------------------------------------
            2. Judicial blackmail forces settlement of frivolous cases
     A second common abuse in state court class actions 
is the use of the class device as ``judicial blackmail'' in 
cases that border on frivolous. Because class actions are such 
a powerful tool, they can give a class attorney unbounded 
leverage, particularly in jurisdictions that are considered 
plaintiff-friendly. Such leverage can essentially force 
corporate defendants to pay ransom to class attorneys by 
settling--rather than litigating--frivolous lawsuits. This is a 
particularly alarming abuse because the class action device is 
intended to be a procedural tool and not a mechanism that 
affects the substantive outcome of a lawsuit. Nonetheless, 
state court judges often are inclined to certify cases for 
class action treatment not because they believe a class trial 
would be more efficient than an individual trial, but because 
they believe class certification will simply induce the 
defendant to settle the case without trial.\85\ 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.'' \86\ 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.
---------------------------------------------------------------------------
    \85\ See E. Donald Elliott Managerial Judging and the Evolution of 
Procedure, 53 U. Chi. I. Rev. 306, 323-24 (1986).
    \86\ In re Rhone-Poulenc Rorer Inc., 51 F.3d 1293,1299 (7th Cir. 
1995). See also Blair v. Equifax Check Servs. 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 plaintiffs 
probability of success on the merits is slight'').
---------------------------------------------------------------------------
    Not surprisingly, the ability to exercise unbounded 
leverage over a defendant corporation and the lure of huge 
attorneys' fees have led to the filing of many frivolous class 
actions.
    As District of Columbia Insurance Commissioner Lawrence 
Mirel has testified before the Committee, 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.\87\ For example, two automobile insurance 
companies, worried about mounting legal expenses and negative 
publicity, settled a lawsuit over a long-standing industry-wide 
practice of rounding insurance premiums up to the nearest 
dollar for nearly $36 million, even though the premiums were 
calculated according to specific instructions from the Texas 
Department of Insurance.\88\
---------------------------------------------------------------------------
    \87\ See Hearing on Class Actions, Statement of Lawrence Mirel.
    \88\ Id.
---------------------------------------------------------------------------
    Other brow-raising examples of frivolous suits are common. 
One such case 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. The case 
involved an inadvertent mistake made by Ford--it had put a 
slightly overstated price on the window stickers on certain 
vehicles. As soon as Ford discovered the mistake, the company 
began sending letters to the affected customers apologizing for 
the error and enclosing checks that more than compensated them. 
Nonetheless, 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.\89\
---------------------------------------------------------------------------
    \89\ 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 witness who testified before the Subcommittee 
on Administrative Oversight and the Courts blamed this 
phenomenon on a ``laissez faire'' attitude of some state 
courts.\90\ The most egregious examples of this are the so-
called ``drive-by class certification'' cases, in which a class 
is certified before the defendant has a chance to respond to 
the complaint, or in some cases, has even received the 
complaint. In one lawsuit filed against an auto manufacturer in 
a Tennessee state court, for example, the complaint was filed 
on July 10, 1996. Plaintiffs filed several inches of documents 
with their complaint. Amazingly, by the time the court closed 
that same day, the judge had entered a nine-page order granting 
certification of a nationwide class of 23 million members. The 
defendant was not even notified about the lawsuit before the 
certification and thus had no opportunity to tell its side of 
the story.\91\ And upon checking, the defendant discovered that 
a group of record companies had the same experience with the 
same judge in an antitrust class action filed several days 
earlier.\92\ Similar1y, in one of the cases to develop out of 
the Firestone tire controversy, a Tennessee state court 
certified a nationwide class just four days after the 
defendants were served with the complaint (and obviously 
without benefit of any input from defendants).\93\ And in 
another case, a Kentucky state court ordered injunctive relief 
in favor of the class before the defendant was even notified of 
the lawsuit.\94\
---------------------------------------------------------------------------
    \90\ See Hearings on S. 353, Prepared Statement of John H. Beisner.
    \91\ Hearings on S. 353, Prepared Statement of Stephen G. Morrison.
    \92\ Id.
    \93\ See Order of National Class Certification, Davison v. 
Bridgestone/Firestone, Inc., Case No. 00C2298 (Eighth Cir. Ct., 20th 
Jud. Dist., Nashville, Tenn.) (dated Aug. 18, 2000).
    \94\ See Order, Farkas v. Bridgestone/Firestone, Inc., Case No. 00-
CI-5263 (Cir. Ct., Jefferson County, KY) (dated Aug. 18, 2000).
---------------------------------------------------------------------------
            4. Some magnet state courts easily certify national class 
                    actions
    A fourth type of class action abuse that is prevalent in 
state courts in some localities is the ``I never met a class 
action I didn't like'' approach to class certification.\95\ 
Some state courts with this permissive attitude have even 
certified classes that federal courts had already found 
uncertifiable. In one case, for example, a state court judge 
certified a nationwide class of persons who claimed that the 
house siding they had purchased was defective. Later, a federal 
district court judge presented with the same case rejected any 
prospect of certifying a class in that manner, finding that 
affording class treatment in that case would clearly violate 
the due process rights of the defendants and the purported 
class members.\96\
---------------------------------------------------------------------------
    \95\ See Hearings on S. 353, Prepared Statement of Stephen 
Morrison.
    \96\ 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).
---------------------------------------------------------------------------
    Another example of this phenomenon is a spate of class 
actions against automobile manufacturers alleging that the 
paint on 20-year-old vehicles was discoloring or peeling. 
Federal and state courts across the country, including the 
Texas Supreme Court, have consistently rejected attempts to 
certify classes in these cases, recognizing that each 
claimant's facts vary such that a jury would have to consider 
separately the claims of each of the thousands of class 
members.\97\ Most recently, on August 14, 2003, the Texas Court 
of Appeals rejected a proposed class, finding that a class 
trial would give a jury ``the unmanageable task of separately 
examining numerous paint systems, assessing their different 
failure rates and making separate determinations about which 
combination of processes, if any, is defective.'' \98\ 
Astoundingly, just one month after the most recent Texas court 
ruling, a Madison County, Illinois judge certified an even 
broader, more complex nationwide class asserting identical 
paint claims against Ford regarding vehicles in service for 
almost 25 years.\99\
---------------------------------------------------------------------------
    \97\ See, e.g., In re Ford Motor Co. Vehicle Paint Litig., 182 
F.R.D. 214 (E.D. La. 1998); Sanneman v. Chrysler Corp, 191 F.R.D. 441 
(E.D. Pa. 2000); Ford Motor Co. v. Sheldon, 22 S.W. 3d 444 (Tex. 2000); 
Schurk v. DaimlerChrysler Corp., No. 97-2-04113-9 (Wash. Sup. Ct., Feb. 
24, 2000).
    \98\ See Ford Motor Co. v. Sheldon, 113 S.W. 3d 839 (Tex. App. 
2003).
    \99\ Phillips v. Ford Motor Co., No. 99-L-1041 (Cir. Ct., Madison 
County, Illinois Sept. 15, 2003).
---------------------------------------------------------------------------
            5. Copy cat 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 are blatant forum shopping--the original class lawyers 
file similar class actions before different courts in an effort 
to find a receptive judge who will rapidly certify a class. 
When these similar, overlapping class actions are filed in 
State courts of different jurisdictions, there is no way to 
consolidate or coordinate the cases. The ``competing'' class 
actions must be litigated separately in an uncoordinated, 
redundant fashion because there is no state court mechanism for 
consolidating state court cases. The result is enormous waste--
multiple judges of different courts must spend considerable 
time adjudicating precisely the same claims asserted on behalf 
of precisely the same people.\100\ As a result, state courts 
and class counsel may ``compete'' to control the cases, often 
harming all the parties involved. In contrast, when overlapping 
cases are pending in different federal courts, they can be 
consolidated under one single judge to promote judicial 
efficiency and ensure consistent treatment of the legal issues 
involved.
---------------------------------------------------------------------------
    \100\ For example, in the 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. And in the recently publicized HMO cases, multiple 
overlapping class actions were filed against each of the major health 
insurance companies. No less than 17 class actions have been filed 
against Humana, most of which assert similar allegations and claims on 
behalf of similarly defined nationwide classes. In the Humana 
situation, the federal cases were consolidated for pretrial proceedings 
before a single judge. See In re Humana Inc. Managed Care Litig., 2000 
U.S. Dist. LEXIS 5099 (J.P.M.L. Apr. 13, 2000). There is no parallel 
methodology for consolidating state court class actions. In the 12 
months ending September 30, 2002, over 7,000 cases were centralized for 
pretrial proceedings through the MDL process. See http://
www.uscourts.gov/judbus2002/tables/s19sep02.pdf.
---------------------------------------------------------------------------

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.\101\
---------------------------------------------------------------------------
    \101\ 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.\102\ 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.\103\ 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 numerous 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.\104\ 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?
---------------------------------------------------------------------------
    \102\ See Hearings on S. 353, Prepared Statement of John H. 
Beisner.
    \103\ 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).
    \104\ 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 number. As District of Columbia Insurance 
Commissioner Lawrence Mirel has testified before this 
Committee, class actions ``frequently go[] around or simply 
ignore[] the role of state regulators.'' \105\
---------------------------------------------------------------------------
    \105\ 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.\106\ 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.\107\ 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.\108\
---------------------------------------------------------------------------
    \106\ Suit Against Auto Insurer Could Affect Nearly All Drivers, 
N.Y. Times, Sept. 27, 1998, at 29.
    \107\ See Snider v. State Farm Mutual Automobile Insurance Co., 
Cir. Ct. for Williamson City, IL, Docket No. 97-L-114 (1999).
    \108\ Avery v. State Farm Mut. Auto. Ins. Co., 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:
     An appellate court in Illinois recently affirmed 
the certification of a class consisting of Illinois residents 
and residents of 16 other states. The plaintiffs alleged the 
defendant telecommunications company had collected, on behalf 
of municipalities, taxes from customers located in 
unincorporated areas in violation of the Illinois consumer 
protection law. The court noted that because ``50-state class 
actions are not uncommon in Illinois'' it was not problematic 
that ``the laws of 17 states are potentially implicated here.'' 
\109\ Similarly, a year earlier another Illinois appellate 
court affirmed the certification of a nationwide class of 
consumers alleging violations of the same Illinois law with no 
regard for the laws of the other states involved.\110\
---------------------------------------------------------------------------
    \109\ PJ's Concrete Pumping Serv. v. Nextel W. Corp., 803 N.E.2d 
1020, 1030 (Ill. Ct. App. 2004), appeal denied, 813 NE.2d 223 (Ill. 
2004), cert. denied, 125 S. Ct. 410 (2004).
    \110\ Clark v. TAP Pharm. Prods., Inc., 798 N.E.2d 123 (Ill. Ct. 
App. 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.\111\ 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.
---------------------------------------------------------------------------
    \111\ Ysbrand v. DaimlerChrysler Corp., 81 P.3d 618 (Okla. 2003).
---------------------------------------------------------------------------
     Another recent class action filed in Oklahoma 
involved allegations that the defendants failed to account for 
slop oil in monthly accountings rendered to certain oil 
producers. The lawsuit sounded in tort and contract, involved 
``millions of dollars,'' and transactions that occurred in 
``more than twenty states.'' \112\ The Supreme Court of 
Oklahoma affirmed the certification of a nationwide class, 
ignoring the fact that the case would require resolution of the 
laws of twenty states.
---------------------------------------------------------------------------
    \112\ Black Hawk Oil Co. v. Exxon Corp., 1998 Okla. LEXIS 82 (Okla. 
1998).
---------------------------------------------------------------------------
    The Minnesota Court of Appeals and the Minnesota Supreme 
Court recently affirmed a nationwide class action, applying the 
laws of a single state to transactions that occurred in many 
different jurisdictions (and virtually none of which occurred 
in the state whose laws were applied) \113\ 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.\114\
---------------------------------------------------------------------------
    \113\ Peterson v. BASF Corp., 657 N.W. 2d 853 (Minn. Ct. App. 
2003), affd., 675 N.W. 2d 57 (Minn. 2004).
    \114\ 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.\115\ 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. And by certifying the class, the court 
decided that its unprecedented interpretation of the UCC would 
bind the remaining 43 states that had yet to decide the 
question (even though the ``Uniform Commercial Code is not 
uniform'' and is interpreted differently in different states 
\116\). 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.
---------------------------------------------------------------------------
    \115\ Rosen v. PRIMUS Automotive Fin. Servs., Inc., No. CT 98-2733 
(Minn. D. Ct., 4th Jud. Dist., May 4, 1999).
    \116\ 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 a deciding court's law whenever it 
decides 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 as ``false federalism.'' \117\ 
Moreover, they have posed serious problems for the courts of 
other states. For example, the Vermont Supreme Court recently 
nullified the settlement in the Bank of Boston case, holding 
that the Alabama court that approved the settlement failed to 
provide due process to the Vermont class members in that case, 
who ended up paying $30,000 in attorneys' fees.\118\ In 
contrast, a Connecticut court recently found that a woman who 
had been part of an Alabama class action settlement on roofing 
shingles could not have her day in court because she was bound 
by the settlement she knew nothing about.\119\
---------------------------------------------------------------------------
    \117\ 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.
    \118\ See State of Vermont v. Homeside Lending, Inc. and Bank 
Boston Corporation, 826 A.2d 997 (Vt. 2003).
    \119\ Rigat v. GAF Materials Corp., 2002 Conn. Super. LEXIS 272 
(Conn. Super. Jan 25, 2002).
---------------------------------------------------------------------------
    Given the range and severity of class action abuse, it is 
not surprising that defendants find it necessary to remove 
actions against them to a federal forum--a forum where the 
threat of prejudice is significantly lower. Under current law, 
however, plaintiffs' lawyers can easily manipulate their 
pleadings to ensure that their cases remain at the state level. 
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.\120\ 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.\121\
---------------------------------------------------------------------------
    \120\ See Hearings on S. 353, Prepared Statement of Stephen G. 
Morrison.
    \121\ 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, this bill will help minimize 
the class action abuses taking place in state courts and ensure 
that these cases can be litigated in a proper forum.

                           V. How S. 5 Works

    S. 5 is a modest attempt to address a number of the 
problems and abuses in the current class action system. First, 
S. 5 implements a consumer bill of rights that requires greater 
scrutiny of both coupon and net loss settlements, regulates 
attorneys' fee awards in coupon settlements, prohibits extra 
compensation to class members who are geographically located 
near the court, and requires notice of proposed class 
settlements to appropriate state and federal officials.
    Second, S. 5 includes a narrowly-tailored expansion of 
federal diversity jurisdiction to ensure that class actions 
that are truly interstate in character can be heard in federal 
court. S. 5 also includes modest amendments to current removal 
provisions that will make it harder for counsel to ``game the 
system'' and keep class actions in state court by naming local 
defendants who are not real parties to the controversy or by 
amending their pleadings after the deadline for removal. These 
provisions will create efficiencies in the judicial system by 
enabling overlapping and ``copycat'' cases to be consolidated 
in a single federal court, rather than proceeding 
simultaneously in numerous state courts under the current 
system.
    At the same time, however, S. 5 leaves in state court: (1) 
class actions in which all the plaintiffs and defendants are 
residents of the same state; (2) class actions with fewer than 
100 plaintiffs; (3) class actions involving less than $5 
million; (4) class actions in which a state government entity 
is the primary defendant; (5) class actions brought against a 
company in its home state, in which 
2/3 or more of the class members are also residents; and (6) 
class actions involving certain local controversies.
    Finally, S. 5 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.

                        CONSUMER BILL OF RIGHTS

    S. 5 requires greater scrutiny of coupon settlements; such 
settlements are prohibited absent written findings by the court 
that they benefit the class members. In addition, S. 5 
regulates attorneys' fees in class settlements in which coupons 
constitute all or part of the remedy provided to class members. 
S. 5 also prohibits extra compensation to members of a class 
simply because they live closer to the court. These provisions 
are intended to prevent some of the more abusive class action 
settlement practices that came to the Committee's attention 
during hearings on class action abuses.
    S. 5 would also amend 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.
    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 the 
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 the court 
gives final settlement 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.

                   DIVERSITY JURISDICTION AND REMOVAL

    S. 5 would amend the diversity jurisdiction and removal 
statutes applicable to larger interstate class actions by 
modifying 28 U.S.C. 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 amount in controversy 
exceeds $5 million (aggregating claims of all purported class 
members, exclusive of interest and costs).
    The bill, however, includes several provisions ensuring 
that where appropriate, state courts can adjudicate certain 
class actions that have a truly local focus. The first is the 
``Home State'' exception. Under this provision, 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. 
Conversely, class actions filed in the home state of the 
primary defendant would automatically be subject to federal 
jurisdiction (assuming the other prerequisites are met) if less 
than one-third of the proposed class members are citizens of 
that state. 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 would have the discretion, in 
the interests of justice, to decline to exercise that 
jurisdiction based on consideration of six factors designed to 
help assess whether the claims at issue are indeed local in 
nature.
    In addition, S. 5 contains a ``Local Controversy 
Exception'' intended to ensure that state courts can continue 
to adjudicate truly local controversies in which some of the 
defendants are out-of-state corporations. In order to fall 
within the Local Controversy Exception, a class action must 
meet the following four criteria: (1) The class must be 
primarily local, meaning that more than two-thirds of class 
members must be residents of the state in which the action was 
filed; (2) at least one real defendant (whose alleged conduct 
is central to the class's claims and from whom the class seeks 
significant relief) must also be local; (3) the ``principal 
injuries'' caused by the defendants'' conduct must have 
occurred in the state where the suit was brought; and (4) no 
other similar class actions have been filed against any of the 
defendants (by the same or other proposed classes) in the 
preceding three years. If all of these four criteria are 
satisfied, the case will not be subject to federal jurisdiction 
under the bill.
    S. 5 also excludes from its federal jurisdiction grant: (1) 
Class actions involving fewer than 100 plaintiff class members; 
(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; (3) 
any securities class actions covered by the Securities 
Litigation Reform Act; and (4) corporate governance cases.
    In order to enable more class actions to be removed to 
federal court, S. 5 would also create three new rules regarding 
the removal of class actions filed in state court. First, any 
defendant would be able to remove a class action to federal 
court without the consent of any other defendant. Second, any 
defendant would be able to remove a class action to federal 
court, even if that defendant is a citizen of the state in 
which the action was brought. And third, the current ban on 
removal of a class action to federal court after one year would 
be eliminated, although the current requirement that removal 
occur within 30 days of notice of grounds for removal would be 
retained.

                   REPORT ON CLASS ACTION SETTLEMENTS

    S. 5 would direct 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 
(1) recommendations on best practices to ensure the fairness of 
settlements for class members and to ensure the appropriateness 
of attorneys' fees and expenses, and (2) a discussion of any 
actions taken or planned by the Judicial Conference to 
implement the report recommendations.

                    VI. Section-by-Section Analysis

    Section 1.--Section 1 establishes the ``Class Action 
Fairness Act of 2005'' 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.
    New section 28 U.S.C. 1711 defines the term ``class 
action'' to include representative actions filed in federal 
district court under Rule 23 of the Federal Rules of Civil 
Procedure, as well as actions filed under similar rules in 
state courts that have been removed to federal court. It also 
defines the following terms: class counsel, class members, 
plaintiff class action and proposed settlement.
    New section 28 U.S.C. 1712 is aimed at situations in which 
plaintiffs' lawyers negotiate settlements under which class 
members receive nothing but essentially valueless coupons, 
while the class counsel receive substantial attorneys' fees. 
For example, in a recent settlement of a class action against a 
video rental chain, customers received coupons toward video 
rentals and purchases, while the plaintiffs' class counsel were 
paid $9.25 million in fees and expenses. One commentator 
observed that ``the real winners in the settlement are the 
lawyers who sued the company,'' who will be paid ``in cash, not 
coupons.'' \122\
---------------------------------------------------------------------------
    \122\ Scott v. Blockbuster Inc., (No, DI62-535, Jefferson County, 
Texas, 2001); Judge OKs Blockbuster Plan On Fees, Associated Press, 
Jan. 11, 2002.
---------------------------------------------------------------------------
    In order to address such inequities, Section 1712(a) states 
that in class action settlements in which it is proposed that 
an attorney fee award be based solely on the purported value of 
the coupons awarded to class members, the fee award should be 
based on the demonstrated value of coupons actually redeemed by 
the class members. Thus, if a settlement agreement promises the 
issuance of $5 million in coupons to the putative class 
members, but only 
1/5 of potential class members actually redeem the coupons at 
issue, then the lawyer's contingency fee should be based on a 
recovery of $1 million--not a recovery of $5 million.
    In some cases, the proponents of a class settlement 
involving coupons may decline to propose that attorney's fees 
be based on the value of the coupon-based relief provided by 
the settlement. Instead, the settlement proponents may propose 
that counsel fees be based upon the amount of time class 
counsel reasonably expended working on the action. Section 
1712(b) confirms the appropriateness of determining attorneys' 
fees on this basis in connection with a settlement based in 
part on coupon relief. As is stated on its face, nothing in 
this section should be construed to prohibit using the 
``lodestar with multiplier'' method of calculating attorney's 
fees. By the same token, nothing in this section expands the 
authorization for the use of a multiplier; a multiplier may be 
used only to the extent authorized by existing law.
    In some class action settlements, the terms may be a 
combination of coupon relief, plus some form of equitable 
relief, including an injunction. In such circumstances, the 
settlement may also include fees for obtaining the equitable 
relief. Thus, if a proposed settlement provides for both 
coupons and equitable relief, then the portion of the award 
that is a contingent fee based on the value of the coupons must 
be calculated based on the value of redeemed coupons, and the 
portion not based on the value of the coupons should be based 
on the time spent by class counsel on the case.
    The Committee wishes to make clear that nothing in Section 
1712 is intended to change current law regarding the 
circumstances under which an award of attorneys' fees is 
appropriate. In particular, the Committee stresses that this 
section is not intended to change in any respect current law 
governing the circumstances under which fee shifting is 
permitted in cases that are resolved through full litigation 
(that is, cases that are not settled). Moreover, the Committee 
wishes to make clear that it does not intend to change current 
law in any respect regarding the circumstances under which the 
parties may justifiably agree to fee awards in connection with 
settlements. Section 1712 is intended solely to regulate the 
manner in which fees otherwise authorized by existing law 
should be calculated.
    Section 1712( d) allows a court to hear expert testimony 
from a witness on the actual value of redeemed coupons to 
assist the court in determining the proper contingent fee. This 
provision addresses the situation where the actual value of the 
coupons differs from their face value. For example, a coupon 
for $250 off a vehicle purchase may not really be worth $250.
    Section 1712(e) provides that a federal judge may not 
approve a coupon settlement without first conducting a hearing 
and determining that the settlement terms are fair, reasonable, 
and adequate for class members. In making that determination, 
the judge should consider, among other things, the real 
monetary value and likely utilization rate of the coupons 
provided by the settlement. The section further provides that a 
federal court may, in its discretion, require that a proposed 
settlement provide for the distribution of a portion of the 
value of unclaimed coupons to a charitable organization or 
governmental entity; however, any such distribution shall not 
be used as the basis for the award of any attorneys' fees. So, 
for example, if a proposed settlement provided for the 
distribution of one million $1 coupons, but only 250,000 were 
claimed and used, the federal court supervising the settlement 
could require that 500,000 of the unclaimed coupons be made 
available to the U.S. Army for distribution to enlisted 
personnel serving in the military. However, in determining an 
appropriate fee award for class counsel, counsel would be able 
to rely only on the value of the 250,000 coupons actually 
redeemed by class members. The fee award could not be based on 
the value of the 250,000 unused coupons or the 500,000 coupons 
that might be used by military personnel.
    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.\123\
---------------------------------------------------------------------------
    \123\ See, e.g., Cope v. Duggins, 2001 WL 333102 (E.D. La. 2001) 
(rejecting proposed class settlement because attorneys' fees were 
disproportionate to class benefits); Schwartz v. Dallas Cowboys 
Football Club, Ltd., 157 F. Supp. 2d 561 (E.D. Pa. 2001) (same); 
Sheppard v. Consolidated Edison Co., 2000 WL 33313540 (E.D.N.Y. 2000) 
(same); Polar Int'l Brokerage Corp. v. Reeve, 187 F.R.D. 108 (S.D.N.Y. 
1999) (same).
---------------------------------------------------------------------------
    New section 28 U.S.C. 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. 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 may be 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, if it appears that those persons in closer proximity 
have suffered greater injury. 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. 1715 sets forth requirements for 
notification to appropriate federal and state officials of 
proposed class action settlements. New section 1715 is designed 
to ensure that a responsible state and/or federal official 
receives information about proposed class action settlements 
and is in a position to react if the settlement appears unfair 
to some or all class members or inconsistent with applicable 
regulatory policies. Section 1715 requires each defendant, 
within 10 days after a proposed class action settlement is 
filed in federal court, to provide notice of the proposed 
settlement to: (1) the U.S. Attorney General (or for banks and 
thrifts, the entity with primary regulatory or supervisory 
responsibility over the defendant); and (2) the state official 
that has primary regulatory or supervisory responsibility over 
the defendant or who licenses or otherwise authorizes the 
defendant to conduct business in the state (or for state 
depository institutions, the state bank supervisor in the state 
in which the defendant is incorporated or chartered). If there 
is no state official that meets the requirements set forth in 
the Act, notice must be provided to the state attorney general. 
The notice must include: (1) a copy of the complaint and 
attached materials; (2) the date and time of any scheduled 
judicial hearing; (3) proposed or final notification to the 
class members; (4) the proposed settlement; (5) any other 
agreement between class counsel and the defendant; (6) any 
final judgment or notice of dismissal; (7) the names of class 
members who reside in each state and their proportional share 
of the settlement, or if that is not feasible, a reasonable 
estimate of the number of class members in the state and their 
share of the settlement; and (8) any written judicial opinion 
related to the proposed settlement. A federal court cannot 
issue a final order approving a settlement until 90 days after 
the appropriate federal and state officials are served. If the 
defendants do not comply with this provision, a class member 
can refuse to comply with--or be bound by--the settlement 
agreement.
    The Act also clarifies that it should not be construed to 
impose any obligations, duties or responsibilities on the 
federal and state officials who receive notice of a class 
action settlement pursuant to this provision. Thus, federal and 
state officials will be notified about proposed settlements and 
have an opportunity to get involved if they think it is 
appropriate but will not be required to do so.
    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.'' 
\124\ 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.'' \125\
---------------------------------------------------------------------------
    \124\ Deborah Hensler, et al., Class Action Dilemmas, Pursuing 
Public Goals for Private Gain (``Class Action Dilemmas''), at 10 (1999) 
(executive summary).
    \125\ Id.
---------------------------------------------------------------------------
    New 28 U.S.C. 1715 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 1715(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. 1715(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 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 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 1715(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 1715(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. 1715(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. 1715(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. 1715(b), they would then have 
at least 90 days to review the proposed settlement and decide 
what (if any) action to take to protect the interests 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. 1715(f); 
nor does this section expand their current authority in any 
respect.
    Section 28 U.S.C. 1715(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, 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 1715(e) should not be operative. New 
subsection 1715(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 1715 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 re-
designate current subsection 1332(d) as subsection (e) and 
create a new subsection 1332(d).
    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 strongly 
favor the exercise of federal diversity jurisdiction over class 
actions with interstate ramifications. 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.
    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, 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. 5 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.''
    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)(B) address the jurisdictional 
principles that will apply to class actions filed against a 
defendant in its home state, dividing such cases into three 
categories.
    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, subsection 
1332(d)(4)(B) states that federal jurisdiction will not be 
extended by S. 5. Such cases will remain in state courts under 
the terms of S. 5, 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 or 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 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 
all 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 discretion, in the ``interests of 
justice,'' to decline to exercise jurisdiction over such cases 
based on the consideration of six factors:
     Whether the claims asserted are of ``significant 
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 federal court should inquire whether the case does 
present 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 significant problems 
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 there is a ``distinct'' nexus between: (a) 
the forum where the action was brought, and (b) the class 
members, the alleged harm, or the defendants.--This factor is 
intended to take account of a major concern that led to this 
legislation--the filing of lawsuits in out-of-the-way 
``magnet'' state courts that have no real relationship to the 
controversy at hand. Thus, for example, if the majority of 
proposed class members and the defendant reside in the county 
where the suit is brought, the court might find distinct nexus 
exists. The key to this factor is the notion of there being a 
distinct nexus. If the selected forum's nexus to the 
controversy is shared by many other forums (e.g., some 
allegedly injured parties live in the locality, just as 
allegedly injured parties live in many other localities), the 
nexus is not distinct, and this factor would in that 
circumstance weigh heavily in favor of the exercise of federal 
jurisdiction over the matter.
     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 all of 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 filed in the last three years.--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 have been 
(or are likely to be) filed elsewhere, the Committee intends 
that this consideration would strongly favor the exercise of 
federal jurisdiction so that the claims of all proposed classes 
could be handled efficiently on a coordinated basis pursuant to 
the federal courts' multidistrict 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. Thus, 
allowing a case to remain in federal court so that it may 
become part of that coordinated multi district 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.
    It is the Committee's intention that this factor be 
interpreted liberally and that plaintiffs not be able to plead 
around it with creative legal theories. If a plaintiff brings a 
product liability suit alleging consumer fraud or unjust 
enrichment, and another suit was previously brought against 
some of the same defendants alleging negligence with regard to 
the same product, this factor would favor the exercise of 
federal jurisdiction over the later-filed claim.
    The following examples are intended to be illustrative of 
how these factors would work.
     If a California state court class action were 
filed against a California pharmaceutical drug company on 
behalf of a proposed class of 60% California residents and 40% 
Nevada residents alleging harmful side effects attributable to 
a drug sold nationwide, it would make sense to leave the matter 
in federal court. 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. These concerns would be even greater and the 
arguments for asserting jurisdiction stronger if another class 
action alleging similar side-effects has been filed in the last 
three years.
     On the other hand, if a checking account fee 
disclosure class action were filed in a Nevada state court 
against a Nevada bank located in a border city and the class 
consisted of 65% Nevada residents and 35% California residents 
(who crossed the border to conduct transactions in the Nevada 
bank), it might make sense to allow that matter to proceed in 
state court. It is likely that Nevada banking law would apply 
to all claims (even those of the California residents), since 
all of the transactions occurred in Nevada. And 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. 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)(A) is the ``Local Controversy 
Exception'' to the foregoing provisions that otherwise expand 
federal diversity jurisdiction over class actions. This 
subsection requires that federal diversity jurisdiction over a 
class action under the foregoing provisions be declined if the 
proponents of that view clearly demonstrate that each and every 
of the following criteria are satisfied in the case at issue: 
(1) more than \2/3\ of class members are citizens of forum 
state; (2) there is at least one in-state defendant from whom 
significant relief is sought by members of the class and whose 
conduct forms a significant basis of plaintiffs' claims; (3) 
the principal injuries resulting from the alleged conduct, or 
related conduct, of each defendant were incurred in the state 
where the action was originally filed; and (4) no other class 
action asserting the same or similar factual allegations 
against any of the defendants on behalf of the same or other 
persons has been filed during the preceding three years.
    This provision is intended to respond to concerns that 
class actions with a truly local focus should not be moved to 
federal court under this legislation because state courts have 
a strong interest in adjudicating such disputes. At the same 
time, this is a narrow exception that was carefully drafted to 
ensure that it does not become a jurisdictional loophole. Thus, 
the Committee wishes to stress that in assessing whether each 
of these criteria is satisfied by a particular case, a federal 
court should bear in mind that the purpose of each of these 
criteria is to identify a truly local controversy--a 
controversy that uniquely affects a particular locality to the 
exclusion of all others.
     The first criterion--that greater than two-thirds 
of all class members in the aggregate are citizens of the State 
in which the action was originally filed--is a critical inquiry 
for determining whether the matter is a local controversy. The 
proponents of applying the exception thus must demonstrate that 
a supermajority of the class members are local in the sense 
that they all reside in the forum state.
     Under the second criterion, there must be at least 
one real local defendant. By that, the Committee intends that 
the local defendant must be a primary focus of the plaintiffs' 
claims--not just a peripheral defendant. The defendant must be 
a target from whom significant relief is sought by the class 
(as opposed to just a subset of the class membership), as well 
as being a defendant whose alleged conduct forms a significant 
basis for the claims asserted by the class. For example, in a 
consumer fraud case alleging that an insurance company 
incorporated and based in another state misrepresented its 
policies, a local agent of the company named as a defendant 
presumably would not fit this criteria. He or she probably 
would have had contact with only some of the purported class 
members and thus would not be a person from whom significant 
relief would be sought by the plaintiff class viewed as a 
whole. Obviously, from a relief standpoint, the real demand of 
the full class in terms of seeking significant relief would be 
on the insurance company itself. Similarly, the agent 
presumably would not be a person whose alleged conduct forms a 
significant basis for the claims asserted. At most, that agent 
would have been an isolated role player in the alleged scheme 
implemented by the insurance company.\126\ In this instance, 
the real target in this action (both in terms of relief and 
alleged conduct) is the insurance company, and if that company 
is not local, this criterion would not be met.
---------------------------------------------------------------------------
    \126\ The Committee wishes to stress that the presence of 
conspiracy allegations should not alter this inquiry. For example, if 
in the hypothetical discussed here, the class alleges that the agent 
conspired with the insurance company with respect to the alleged 
scheme, it theoretically would expose the agent to potential liability 
to the entire class. But that would not change the relatively minor 
role that the agent played in the overall misconduct that is alleged 
and would not change the fact that the agent is not the real target of 
the litigation, which is the inquiry contemplated by this criterion.
---------------------------------------------------------------------------
     The third criterion is that the principal injuries 
resulting from the actions of all the defendants must have 
occurred in the state where the suit was filed. By this 
criterion, the Committee means that all or almost all of the 
damage caused by defendants' alleged conduct occurred in the 
state where the suit was brought. The purpose of this criterion 
is to ensure that this exception is used only where the impact 
of the misconduct alleged by the purported class is localized. 
For example, a class action in which local residents seek 
compensation for property damage resulting from a chemical leak 
at a manufacturing plant in that community would fit this 
criterion, provided that the property damage was limited to 
residents in the vicinity of the plant. However, if the 
defendants engaged in conduct that could be alleged to have 
injured consumers throughout the country or broadly throughout 
several states, the case would not qualify for this exception, 
even if it were brought only as a single-state class action.
     The fourth and final criterion is that no other 
class action involving similar allegations has been filed 
against any of the defendants over the last three years on 
behalf of the same or other persons. In other words, if a 
controversy results in the filing of multiple class actions, it 
is a strong signal that those cases may not be of the variety 
that this exception is intended to address. As such, it is a 
test for assessing whether a controversy is localized. The 
Committee wishes to stress that another purpose of this 
criterion is to ensure that overlapping or competing class 
actions or class actions making similar factual allegations 
against the same defendant that would benefit from coordination 
are not excluded from federal court by the Local Controversy 
Exception and thus placed beyond the coordinating authority of 
the Judicial Panel on Multidistrict Litigation. The Committee 
also wishes to stress that the inquiry under this criterion 
should not be whether identical (or nearly identical) class 
actions have been filed. The inquiry is whether similar factual 
allegations have been made against the defendant in multiple 
class actions, regardless of whether the same causes of actions 
were asserted or whether the purported plaintiff classes were 
the same (or even overlapped in significant respects).
    The following two examples are intended to illustrate how 
the Committee intends this provision to work:
     A class action is brought in Florida state court 
against a Florida funeral home regarding alleged wrongdoing in 
burial practices. Nearly all the plaintiffs live in Florida 
(about 90 percent). The suit is brought against the cemetery, a 
Florida corporation, and an out-of-state parent company that 
was involved in supervising the cemetery. No other class action 
suits have been filed against the cemetery. This is precisely 
the type of case for which the Local Controversy Exception was 
developed. Although there is one out-of-state defendant (the 
parent company), the controversy is at its core a local one, 
and the Florida state court where it was brought has a strong 
interest in resolving the dispute. Thus, this case would remain 
in state court.
     A class action is brought in Florida against an 
out-of-state automobile manufacturer and a few in-state 
dealers, alleging that a certain vehicle model is unsafe 
because of an allegedly defective transmission. The vehicle 
model was sold in all fifty states but the class action is only 
brought on behalf of Floridians. This case would not fall 
within the Local Controversy Exception for two reasons. First, 
the automobile dealers are not defendants whose alleged conduct 
forms a significant basis of the claims or from whom 
significant relief is sought by the class. Even if the 
plaintiffs are truly seeking relief from the dealers, that 
relief is just small change compared to what they are seeking 
from the manufacturer. Moreover, the main allegation is that 
the vehicles were defective. In product liability cases, the 
conduct of a retailer such as an automobile dealer does not 
form a significant basis for the claims of the class members. 
Second, the case falls outside the Local Controversy Exception 
because the ``principal injuries resulting from the alleged 
conduct,''--i.e., selling a vehicle with a defective 
transmission--were incurred in all fifty states. The fact that 
the suit was brought as a single-state class action does not 
mean that the principal injuries were local. In other words, 
this provision looks at where the principal injuries were 
suffered by everyone who was affected by the alleged conduct--
not just where the proposed class members were injured. Thus, 
any defendant could remove this case to federal court.
    New subsection 1332(d)(5)(A) and (B) specify, respectively, 
that S. 5 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.\127\
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    \127\ 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 (l1th 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)(5)(A) ``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)(5)(B) exception for ``limited scope'' cases (actions in 
which there are fewer than 100 class members) should also be 
interpreted narrowly. For example, in cases in which it is 
unclear whether ``the number of members of all proposed 
plaintiff classes in the aggregate is less than 100,'' a 
federal court should err in favor of exercising jurisdiction 
over the matter.
    Pursuant to new subsection 1332(d)(6), 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. 5 explicitly allows aggregation for purposes of 
determining the amount in controversy in class actions, that 
concern is no longer relevant.
    The Committee also notes that in assessing the 
jurisdictional amount in declaratory relief cases, the federal 
court should include in its assessment the value of all relief 
and benefits that would logically flow from the granting of the 
declaratory relief sought by the claimants. For example, a 
declaration that a defendant's conduct is unlawful or 
fraudulent will carry certain consequences, such as the need to 
cease and desist from that conduct, that will often ``cost'' 
the defendant in excess of $5,000,000. Or 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 should be heard in a federal 
court if properly removed by 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.\128\ 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.
---------------------------------------------------------------------------
    \128\ 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)(5)(A), the Committee intends 
that ``primary defendents'' be interpreted to reach 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 term ``primary defendants'' 
should 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).
    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)(5)(B) (``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 these new jurisdictional 
provisions, a federal court may have to engage in some fact-
finding, not unlike what 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)(7) clarifies that the citizenship of 
members of proposed classes would be determined as of the date 
the action was filed. Thus, questions about whether two-thirds 
of the members of a proposed class were citizens of a 
particular state would be determined as of that date. The only 
exception is where the original complaint does not indicate the 
existence of federal jurisdiction and plaintiffs later serve 
paper (particularly an amended complaint) that creates such 
citizenship or makes it evident. Then, consistent with the 
approach in existing section 1446(b), the ``snapshot'' of class 
membership citizenship is taken as of the date on which that 
new paper is served.
    New subsection 1332(d)(8) 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. 5. 
The Committee wishes to make clear that this provision is not 
intended to alter the deadlines for removal in the current 
Judicial Code or as are established by this legislation. This 
section is merely intended to indicate that the status of a 
class action (certified or uncertified) should not affect the 
removability of a case as otherwise permitted by the applicable 
removal statutes.
    Pursuant to new subsection 1332(d)(9), 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 vs. 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 the corporation 
and its current officers, directors and shareholders. * * *'' 
\129\ 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.
---------------------------------------------------------------------------
    \129\ Edgar v. MITE Corp., 457 U.S. 624, 645 (1982). See also 
Draper v. Paul N. Gardner Defined Plan Trust, 625 A.2d 859, 865-66 
(Del. 1993); McDermott, Inc. 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)(9) 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)(10) 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.'' \130\ This rule ``has been 
frequently criticized because often * * * an unincorporated 
association is, as a practical matter, indistinguishable from a 
corporation in the same business.'' \131\ 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.\132\ 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, say, an 
incorporated manufacturer for purposes of diversity 
jurisdiction. New subsection 1332(d)(10) corrects this anomaly.
---------------------------------------------------------------------------
    \130\ United Steelworkers of America v. R.H. Bouligny, Inc., 382 
U.S. 145 (1965).
    \131\ See, e.g., 14 A.L.R. Fed. 849 (2004) (noting dissatisfaction 
with the prevailing rule and citing one leading authority that 
commented that ``many unincorporated associations bear functional 
resemblances to corporations * * * [and] the diversity citizenship 
status of such associations [i]s `anomalous' in view of the fictional 
citizenship accorded to corporations and in view of the fact that many 
states treat these associations as juridical entities, and has 
emphatically called upon Congress to provide that where unincorporated 
associations have entity status under state law, they should be treated 
analogously to corporations for purposes of diversity jurisdiction'').
    \132\ 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).
---------------------------------------------------------------------------
    New subsection 1332(d)(11) expands federal jurisdiction 
over mass actions--suits that are brought on behalf of numerous 
named plaintiffs who claim that their suits present common 
questions of law or fact that should be tried together even 
though they do not seek class certification status. Mass action 
cases function very much like class actions and are subject to 
many of the same abuses.
    Under subsection 1332(d)(11), any civil action in which 100 
or more named parties seek to try their claims for monetary 
relief together will be treated as a class action for 
jurisdictional purposes. Thus, if such a civil action met the 
other diversity jurisdictional prerequisites set forth for 
class actions in this legislation, that civil action would be 
subject to federal jurisdiction, subject to several exceptions. 
A mass action meeting the other applicable federal diversity 
jurisdiction criteria would not be eligible for federal 
jurisdiction if any of the following criteria are satisfied by 
the action:
     All the claims asserted in the action arise out of 
an event or occurrence in the state where the suit is filed and 
the injuries were incurred in that state and contiguous states 
(e.g., a toxic spill case);
     The defendants (not the plaintiffs) sought to join 
the claims;
     The claims are asserted on behalf of the general 
public (and not on behalf of individual claimants or members of 
a purported class) pursuant to a state statute specifically 
authorizing such an action; or
     The claims have been consolidated or coordinated 
solely for pretrial purposes.
    Subsection 1332(d)(11)(B)(i) includes a statement 
indicating that jurisdiction exists only over those plaintiffs 
whose claims in a mass action satisfy the jurisdictional amount 
requirements under section 1332(a). The Committee notes that 
the intent of this proviso is as follows. If a mass action 
satisfies the criteria set forth in the section (that is, it 
involves the monetary relief claims of 100 or more persons that 
are proposed to be tried jointly on the ground that the claims 
involve common questions of law or fact and it meets the tests 
for federal diversity jurisdiction otherwise established by the 
legislation), it may be removed to a federal court, which is 
authorized to exercise jurisdiction over the action. Under the 
proviso, however, it is the Committee's intent that any claims 
that are included in the mass action that standing alone do not 
satisfy the jurisdictional amount requirements of Section 
1332(a) (currently $75,000), would be remanded to state court. 
Subsequent remands of individual claims not meeting the section 
1332 jurisdictional amount requirement may take the action 
below the 100-plaintiff jurisdictional threshold or the $5 
million aggregated jurisdictional amount requirement. However, 
so long as the mass action met the various jurisdictional 
requirements at the time of removal, it is the Committee's view 
that those subsequent remands should not extinguish federal 
diversity jurisdictional over the action.
    Under subsections 1332(d)(11)(C) and (D), respectively, a 
mass action removed to a federal court under this provision may 
not be transferred to another federal court under the MDL 
statute (28 U.S.C. Sec. 1407) unless a majority of the 
plaintiffs request such a transfer, and the statute of 
limitations for any claims that are part of a mass action will 
be tolled while the mass action is pending in federal court.
    The Committee find that mass actions are simply class 
actions in disguise. They involve a lot of people who want 
their claims adjudicated together and they often result in the 
same abuses as class actions. In fact, sometimes the abuses are 
even worse because the lawyers seek to join claims that have 
little to do with each other and confuse a jury into awarding 
millions of dollars to individuals who have suffered no real 
injury.
    For these reasons, it is the Committee's intent that the 
exceptions to this provision be interpreted strictly by federal 
courts. The first exception would apply only to a truly local 
single event with no substantial interstate effects. The 
purpose of this exception was to allow cases involving 
environmental torts such as a chemical spill to remain in state 
court if both the event and the injuries were truly local, even 
though there are some out-of-state defendants. By contrast, 
this exception would not apply to a product liability or 
insurance case. The sale of a product to different people does 
not qualify as an event. And the alleged injuries in such a 
case would be spread out over more than one state (or 
contiguous states)--even if all the plaintiffs in the 
particular case come from one state.
    The third exception addresses a very narrow situation, 
specifically a law like the California Unfair Competition Law, 
which allows individuals to bring a suit on behalf of the 
general public. Such a suit would not qualify as a mass action. 
However, the vast majority of cases brought under other states' 
consumer fraud laws, which do not have a parallel provision, 
could qualify as removable mass actions.
    The final exception would apply to claims that are 
consolidated or coordinated solely for pretrial proceedings. If 
a number of individually filed cases are consolidated solely 
for pretrial proceedings--and not for trial--those cases have 
not truly been merged in a way that makes them mass actions 
warranting removal to federal court. On the other hand, if 
those same cases are consolidated exclusively for trial, or for 
pretrial and trial purposes, and the result is that 100 or more 
persons' claims will be tried jointly, those cases have been 
sufficiently merged to warrant removal of such a mass action to 
federal court.
    In addition, this provision is in no way intended to 
abrogate 28 U.S.C. 1367 or to narrow current jurisdictional 
rules in any way. Thus, if a federal court believed it to be 
appropriate, the court could apply supplemental jurisdiction in 
the mass action context as well.
    The following example is intended to illustrate how this 
provision would work.
     Two hundred people jointly file a mass action in 
West Virginia against a Pennsylvania drug manufacturer and also 
name a local drugstore. Three of them assert claims for $1 
million each, and the rest assert claims of $20,000. The 
federal court would have jurisdiction over the mass action 
because there are more than 100 plaintiffs, there is minimal 
diversity, the total amount in controversy exceeds $5 million 
and a product liability case does not qualify for the ``local'' 
occurrence exception in the provision. The Committee then 
intends for the judge to consider closely which claims meet the 
$75,000 minimum, noting that plaintiffs often seek to minimize 
what they are seeking in a complaint so they can stay in state 
court. For example, sometimes plaintiffs leave their claim for 
punitive damages off the original complaint to make it seem 
like their claims are smaller than they really are. It is the 
Committee's expectation that a federal judge would read a 
complaint very carefully, and only remand claims that clearly 
do not meet the amount-in-controversy threshold. If it is 
likely that a plaintiff is going to turn around in a month and 
add a claim for punitive damages, the federal court should 
obviously assert jurisdiction over that individual's claims.
    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 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.'' \133\ 
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.\134\ 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.\135\
---------------------------------------------------------------------------
    \133\ See 28 U.S.C. Sec. 1441(a).
    \134\ Id.
    \135\ See Erie Railroad Co. v. Thompkins, 304 U.S. 64 (1938).
---------------------------------------------------------------------------
    New subsection 1453(b) provides that removal may occur 
without the consent of any other defendant. This revision to 
the removal rules 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,\136\ to the extent that such 
precedents might be applied to class actions subject to the 
expanded jurisdictional and removal provisions of S. 5.
---------------------------------------------------------------------------
    \136\ 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) provides that an order remanding a 
class action to state court is reviewable by appeal at the 
discretion of the reviewing court. The purpose of this 
provision is to develop a body of appellate law interpreting 
the legislation without unduly delaying the litigation of class 
actions. As a general matter, appellate review of orders 
remanding cases to state court is not permitted, as specified 
by 28 U.S.C. 1447(d). New subsection 1453(c) provides 
discretionary appellate review of remand orders under this 
legislation but also imposes time limits. Specifically, parties 
must file a notice of appeal within seven days after entry of a 
remand order. In addition, the appeals court must issue a final 
decision on appeal within 60 days. However, the parties may 
agree to give the court more time, and the court may, on its 
own, avail itself of one ten-day extension.
    The Committee notes that the current 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 believes it is important to 
create a similar body of clear and consistent guidance for 
district courts that will be interpreting this legislation and 
would particularly encourage appellate courts to review cases 
that raise jurisdictional issues likely to arise in future 
cases.
    In order to be consistent with the exceptions to federal 
diversity jurisdiction granted under new section 1332(d), new 
subsection 1453(d) 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,\137\ it is the Committee's intent not to disturb 
the carefully crafted framework for litigating in this context. 
Thus, claims involving covered securities are excluded from the 
new section 1332(b) jurisdiction. The parameters of this 
subsection are intended to be conterminous with new subsection 
1332(d)(9).
---------------------------------------------------------------------------
    \137\ 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 commencement of the action at issue. This change is 
intended to prevent 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 class action settlements 
are fair to the class members that these settlements are 
supposed to benefit. In addition, the report shall contain 
recommendations on the best practices that courts can use to 
ensure that fees and expenses awarded to attorneys in 
connection with a class action settlement appropriately reflect 
the extent to which counsel obtained full redress for the 
injuries alleged in the complaint, and the time, expense and 
risk devoted to the litigation. Finally, the report shall 
identify the actions that the Judicial Conference has taken and 
intends to take toward having the federal judiciary implement 
the recommendations in the report.
    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 enactments of the 
Judicial Conference recommendations shall take effect on the 
date of enactment of this Act or on December 1, 2003 (as 
specified in that order), whichever occurs first. This 
provision is a relic from an earlier version of this 
legislation and is of no effect since the recommendations have 
already been enacted.
    Section 8.--Section 8 clarifies that nothing in the bill 
restricts the authority of the Judicial Conference and Supreme 
Court to implement new rules relating to class actions. Section 
8 is intended to ensure that the bill not be interpreted as 
restricting in any way the ongoing efforts of the federal 
Judicial Conference's Advisory Committee on Civil Rules and 
Standing Committee on Rules and Procedure to promulgate 
improved rules governing class actions.
    Section 9.--Section 9 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. 5 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 previous versions of this bill, 
the most frequently expressed concern was that its 
jurisdictional provisions would overload the federal judiciary. 
That argument, however, ignores three key facts. First, the 
bill will not move most class actions to federal court. Second, 
many state courts, where the critics apparently would like to 
confine all interstate class actions, are more burdened than 
the federal courts, and are less equipped to deal with complex 
cases like class actions. Indeed, many state courts have 
comparatively crushing caseloads. Third, federal courts can 
handle duplicative class actions more efficiently through 
multidistrict litigation proceedings.
    First, a recent study debunked the myth promoted by some of 
the bill's critics that S. 5 will move nearly all class actions 
to federal court.\138\ The study looked at the only six states 
that had data readily available on on-line databases and found 
that more than 50 percent of the class actions for which there 
were rulings during a five-year period would not be removable 
to federal court under the Class Action Fairness Act.\139\ By 
contrast, the study found that in Madison County, Illinois, 
more than 85 percent of the cases would be removable to federal 
court under the bill.\140\ Put simply, the study found that The 
Class Action Fairness Act is a narrowly tailored bill that will 
not overwhelm the federal judiciary. Rather, the bill leaves 
most legitimately local disputes in state court, while ensuring 
that large, interstate class actions like those typically 
brought in Madison and St. Clair counties and other magnet 
courts can be heard in federal court.
---------------------------------------------------------------------------
    \138\ John H. Beisner & Jessica Davidson Miller, There will be no 
Exodus: An Empirical Study of S. 2062's Effects on Class Actions, 
Mealey's Tort Reform Update (April 2004).
    \139\ Id. at 16.
    \140\ Id. at 20.
---------------------------------------------------------------------------
    Second, contrary to critics' contentions, the average state 
court judge is assigned three times as many cases as his or her 
federal counterparts. State court judges are assigned (on 
average) 1,568 new cases each year.\141\ For example, in 
California, the average judge was assigned 1,546 cases in 2003. 
In Florida, the average was 2,206. In New Jersey, the average 
was 2,810 cases. And in Texas, it was 1,701 cases. In contrast, 
each federal court judge was assigned an average of just 483 
new cases during the twelve-month period ending September 30, 
2003.\142\
---------------------------------------------------------------------------
    \141\ Examining the Work of State Courts at 12.
    \142\ See Federal Court Management.
---------------------------------------------------------------------------
    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 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.
    Third, 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. Defendants are forced to defend the 
same case in many different courts. And class members are 
harmed because the various class counsel compete with each 
other to achieve the best settlement for the lawyers. In 
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 and consolidation of 
those cases to 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.
    Finally, 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 2,525 cases heard 
in federal court each year to recover a few thousand dollars in 
defaulted student loans, or the 17,952 federal personal injury 
cases (e.g., single person medical malpractice cases).\143\ 
Ultimately, regardless of the impact on the federal court 
caseload, large interstate class actions belong in federal 
court.
---------------------------------------------------------------------------
    \143\ See Administrative office of the U.S. Courts, Judicial 
Business of the United States Courts 2003 (2004) (``Judicial 
Business''), at 129-31.
---------------------------------------------------------------------------

Critics' Contention No. 2: Abuses of class actions exist in both 
        federal and state courts, and allowing more interstate class 
        actions to be heard in federal court thus 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 occurring primarily in state 
courts.\144\
---------------------------------------------------------------------------
    \144\ 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.'' \145\ 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.\146\ 
The ICJ/RAND study offered three compelling rationales for 
allowing more interstate class actions to be heard by federal 
courts:
---------------------------------------------------------------------------
    \145\ Federal Judicial Center, Empirical Study of Class Actions in 
Four Federal District Courts 68-69 (1996).
    \146\ Class Action Dilemmas, at 19.
---------------------------------------------------------------------------
    (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 multi state class action, it is more 
appropriate that this take place in federal court than in a 
state court.'' \147\
---------------------------------------------------------------------------
    \147\ 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 class 
litigation, particularly in the settlement context. Those 
revisions, enacted last year,\148\ will dovetail with the 
``consumer bill of rights'' provisions in S. 5 to bolster 
federal court safeguards in the proper handling of class action 
cases.
---------------------------------------------------------------------------
    \148\ 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. 5.

            Response:
    Opponents of S. 5 would 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.\149\ 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 \150\ turns out to be a federal court class 
action.\151\ 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.
---------------------------------------------------------------------------
    \149\ 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 
issues initiated in recent years, 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., 6791 N.Y.S.2d 593 (App. Div. 1998), aff'd, 698 N.Y.S.2d 
615 (1999); and Geizer 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., 212 F. Supp. 2d 57 (E.D.N.Y. 2002) 
(certifying nationwide punitive damages class of smokers' claims 
against tobacco companies) (appeal pending); 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. 1996) (ordering trial court to certify tobacco class); Scott v. 
American Tobacco Co., 725 So. 2d 10 (La. Ct. App. 1998) (affirming 
trial court certification of tobacco class). However, a Florida appeals 
court has decertified the Engle classe see Liggett Group, Inc. v. 
Engle, 853 So. 2d 434 (Fla. Ct. App. 2003), and the matter is under 
review by the Florida Supreme Court, see 873 So. 2d 1222 (Fla. 2004). 
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 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: ``It's 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. R.J. Reynolds Tobacco Co., 
received a lot of publicity because the jury awarded a $145 billion 
verdict to the class of Florida smokers. However, as noted above, the 
verdict was vacated after an appeals court found that trying the 
plaintiffs' claims on a classwide basis was improper. Engle, 853 So. 2d 
434 (Fla. Ct. App. 2003), review granted, 873 So. 2d 1222 (Fla 2004).
    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.
    \150\ 145 Congo 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 or owners of shotguns'').
    \151\ 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. 5 should exclude civil rights cases, in 
        order to ensure that civil rights plaintiffs have maximum 
        access to our courts.

            Response:
    Critics who would exclude civil rights cases from the scope 
of S. 5 have it backwards.
    First, 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.\152\ And 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.''
---------------------------------------------------------------------------
    \152\ 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, as discussed above, the federal court workload 
issue is overblown, ignoring 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 should be 
provided (as they were in 1999 and again in 2002, 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.
    Third, federal courts have a long record of certifying 
discrimination class actions and approving hefty settlements in 
such cases. The most generous racial discrimination class 
action settlements in recent years--like the Home Depot gender 
discrimination case settlement (which paid class members about 
$65 million) and the $192 million Coca-Cola race discrimination 
settlement (in which each class member was guaranteed a 
recovery of at least $38,000)--were achieved in and approved by 
federal courts. These cases stand in stark contrast to the 
typical state court class action, in which consumers are lucky 
if they get a $5 coupon.
    Finally, civil rights litigants have nothing to fear from 
federal judges. Federal judges, under Article III of the 
Constitution, are appointed for life. One reason the Framers 
designed the federal judiciary that way was to protect federal 
judges from political pressure and ensure that they would 
provide equal treatment to minority groups with less political 
power. It is thus no accident that federal courts have issued 
decisions like Brown v. Board of Education that, although 
unpopular at the time, paved the way for future civil rights 
laws like Title VII and Section 1983.

Critics' Contention No. 5: S. 5 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. 5 is court reform--not tort reform. It would simply 
allow federal courts to handle more interstate class actions. 
It makes no changes in substantive law whatsoever. Critics of 
S. 5 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.\153\
---------------------------------------------------------------------------
    \153\ See, e.g., Peaset v. Peck, 59 U.S. (18 How.) 518, 520 (1856).
---------------------------------------------------------------------------
    Article III of the Constitution ensures that there will be 
a fair, uniform, and efficient forum (a federal court) for 
adjudicating interstate commercial disputes, so as to nurture 
interstate commerce. Some scholars have persuasively argued 
that 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.\154\
---------------------------------------------------------------------------
    \154\ See John J. Parker, The Federal Constitution and Recent 
Attacks Upon It, 18 A.B.A. J. 433, 437 (1932).
---------------------------------------------------------------------------
    S. 5 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 (that is, cases with large ``amounts in 
controversy'') and that have interstate implications (that is, 
cases involving citizens from multiple jurisdictions). These 
requirements were intended to ensure that diversity 
jurisdiction is preserved for those cases with significant 
interstate and economic impacts. Class actions would normally 
satisfy these requirements because they usually involve big 
dollar amounts and parties from multiple jurisdictions. Yet, 
because section 1332 was enacted prior to the existence of the 
modern-day class action, it does not take into account the 
unique circumstances presented by class actions. Consequently, 
section 1332, as presently drafted, tends to exclude the 
overwhelming majority of class actions from federal courts, 
while inviting into federal courts much smaller single-
plaintiff cases having few (if any) interstate ramifications. 
Such a result is inconsistent with the federal judiciary's 
proper jurisdictional role. S. 5 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.\155\ 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. 5 will simply fix the technical problem in 
section 1332 and judicial interpretation of the diversity 
requirements that keep most class actions in state court.
---------------------------------------------------------------------------
    \155\ See Hearings on H.R. 1875, statement of Walter E. Dellinger.
---------------------------------------------------------------------------

Critics' Contention No. 6: S. 5 will limit the capacity to use class 
        actions as private attorneys general actions to deter corporate 
        wrongdoing.

            Response:
    During past Committee debates, some members have opposed 
expanding federal jurisdiction over class actions on the ground 
that doing so would limit the use of class actions as private 
attorney general actions--as a deterrent to corporate 
wrongdoing. As one member stated, the purpose of a class action 
is to ``dissuade. It is the same reason that we have treble 
damages.'' \156\ In the view of that member, ``the most 
important function that class actions serve is to allow private 
attorneys general to step forward and hold corporations 
accountable for decisions that affect the public safety.'' 
\157\
---------------------------------------------------------------------------
    \156\ See transcript of markup, Senate Judiciary Committee on S. 
353, p. 19:2-17 (June 29, 2000) (statement of Joseph R. Biden, Jr., 
U.S. Senate).
    \157\ Id.
---------------------------------------------------------------------------
    The problem with this argument is that for all of the 
reasons discussed above, S. 5 will not limit the legitimate use 
of class actions at all. But more fundamentally, there is no 
historical basis for the assertion that class actions were 
intended to create this private attorney general device.
    Although a few courts have over the years referred to the 
deterrent effects of class actions, the promulgation history of 
the current Rule 23 of the Federal Rules of Civil Procedure 
reflects no intent to create a private attorney general device. 
In recent years, members of the Advisory Committee on Civil 
Rules that developed the current version of the rule have 
testified that Rule 23 was not intended to serve that purpose. 
In testimony before the Advisory Committee on Civil Rules in 
1996, the Hon. William T. Coleman, Jr., specifically denounced 
the proposition that ``a purpose of Rule 23 is to hand a 
private attorney general's badge to any counsel who wants it.'' 
\158\ He also stated that
---------------------------------------------------------------------------
    \158\ Advisory Committee Working Papers (vol. 4), at 456.

        back in 1966, that was not the intended purpose of Rule 
        23(b)(3). If there is interest in deputizing all 
        attorneys everywhere to enforce our laws, that's a 
        matter that should be decided by Congress, not through 
        the class action provisions in the Federal Rules of 
        Civil Procedure. The courts' tolerance for this 
        vigilante-style use of class actions is a root cause of 
        the abuses that must be correct.\159\
---------------------------------------------------------------------------
    \159\ Id.

    In congressional testimony several years ago, Prof. John P. 
Frank, another 1966 Advisory Committee member, sounded similar 
---------------------------------------------------------------------------
sentiments:

        What I wish to call to your attention is what I think 
        is a serious problem here: that the class action rule, 
        wholly without regard to its original purpose, has 
        become something of a device for social administration, 
        which should never have been the product of the rules 
        at all. These are matters which should be handled by 
        the Congress and by administrative agencies, and not 
        attempted efforts to govern various parts of the 
        economy by lawsuits which give more to the counsel * * 
        * that they do to those who should benefit from them.
          I particularly adopt the statement of the chair of 
        the [Advisory Committee on Civil Rules] at the present 
        time, Judge Paul Niemeyer * * * in which he says: ``I 
        believe that Rule 23 was never intended to be a rule to 
        enhance enforcement of substantive claims. Such 
        legitimization should, in my judgment, be effected by 
        Congress, and congress might well conclude * * * that 
        it is too anarchical to authorize private attorneys to 
        self-appoint themselves as enforcers of law without 
        adequate accountability to the lawmakers or the 
        public.'' \160\
---------------------------------------------------------------------------
    \160\ Mass Torts and Class Action Lawsuits: Hearing before the 
Subcom. On Courts and Intellectual Property of the House Committee on 
the Judiciary, 105th Cong., 2d Sess. 20-21 (March 5, 1998) (statement 
of John P. Frank, Esq.).

    Even if the critics were correct that deterrence was an 
intended purpose of class actions, that assertion is self-
defeating because, in the Committee's view, the concept of 
class actions serving a ``private attorney general'' or other 
enforcement purpose is illegal. If the intended purpose of Rule 
23 was to empower private attorneys to act as ``attorneys 
general,'' the rule plainly bestows substantive rights not 
otherwise available under common or statutory law. Interpreted 
in this way, the rule runs afoul of the Rules Enabling Act, 
\161\ which forbids federal courts from adopting ``rules of 
practice and procedure'' that may ``abridge, enlarge or modify 
any substantive right.'' To the extent that class actions are 
characterized as having a private attorney general purpose, 
there are strong arguments that Rule 23 is simply null and 
void.\162\
---------------------------------------------------------------------------
    \161\ 28 U.S.C. Sec. 2072(b).
    \162\ The federal courts have frequently rejected efforts to use 
the Federal Rules of Civil Procedure to expand substantive rights. See 
e.g., In re Baldwin-United Corp. 770 F.2d 328, 335 (2d Cir. 1985) 
(rejecting arguments that Fed. R. Civ. P. 23 could be used as 
authorizing issuance of an injunction to protect class members); 
Synanon Church v. United States, 557 F. Supp. 1329, 1330 n.2 (D.D.C. 
1983) (rejecting argument that Fed. R. Civ. P. 57 creates right to jury 
trials in declaratory judgment actions). Cf. Douglas v. NCNB Nat'l 
Bank, 979 F.2d 1128, 1130 & n.2 (5th Cir. 1992) (declining to apply 
Fed. R. Civ. P. 13(a) where doing so would ``abridge as lender's 
substantive rights and enlarge the debtor's substantive rights''). 
Similar views have been expressed by state courts. See, e.g., 
Southwestern Refinery Co. v. Bernal, 22 S.W. 3d 425, 432 (Tex. 2000) 
(``[C]lass actions do not exist in some sort of alternative universe 
outside our normal jurisprudence. Our procedural rules provide 
otherwise: the form of an action under the rules must not `enlarge or 
diminish any substantive rights or obligations of any parties to any 
civil action.' '') (quoting Tex. R. Civ. P. 815).
---------------------------------------------------------------------------

Critics' Contention No.7: S. 5 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. However, as noted above, the 
average state court judge is assigned three times as many cases 
as his or her federal counterparts. Thus, to the extent that 
caseloads affect how quickly cases are resolved, the problems 
are much worse in state court than in federal court. For all of 
the reasons set forth previously, there is no basis for arguing 
that S. 5 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.
    Notably, the evidence available shows that federal courts 
move more quickly than state courts. A study conducted last 
year by the Federal Judicial Center found that state courts are 
far more likely than federal courts to let class actions linger 
without ruling on class certification.\163\ (The study also 
found that federal courts certify classes at approximately the 
same rate as state courts.) Moreover, the median time for final 
disposition of a civil claim filed in federal court is just 9.3 
months, and the median time to trial in a civil matter in 
federal court is 22.5 months.\164\ There is no evidence that on 
average, state courts proceed more quickly, even though most 
state court cases are less complicated than federal court 
cases.
---------------------------------------------------------------------------
    \163\ Federal Judicial Center, The Impact of Amchem and Ortiz on 
Choice of a Federal or State Forum in Class Action Litigation: A Report 
to the Advisory Committee on Civil Rules Regarding a Case-Based Survey 
of Attorneys (April 2004) (2004 Federal Judicial Center Study).
    \164\ See Judicial Business.
---------------------------------------------------------------------------
    In addition, there is no basis for the claim that the 
bill's appeal provision would slow down litigation. To the 
contrary, the bill includes strict time limits to ensure that 
appeals of remand orders will not meaningfully delay litigation 
of class actions.
    Finally, as noted above, federal courts can also resolve 
duplicative class actions more efficiently by consolidating 
them. Plaintiffs' lawyers frequently file copycat class actions 
in various state courts around the country, clogging judges' 
dockets and forcing judges to duplicate each other's work. 
Unlike state courts, federal courts can take advantage of 
multi-district consolidation procedures that enable one judge 
to consolidate dozens of class actions and resolve them far 
more efficiently. This is yet another way in which The Class 
Action Fairness Act will speed up justice--not slow it down.
    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. 8: S. 5 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. 5 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?
    S. 5 simply allows more class action cases filed in state 
court to be removed to federal court. S. 5 does not change 
substantive law--it is, in effect, a procedural provision only. 
As such, class action decisions rendered in federal court 
should be the same as if they were decided in state court--
under the Erie doctrine, federal courts must apply state 
substantive law in diversity cases. Moreover, if federal court 
judges are not familiar with state law on a particular issue, 
they have the authority to ask a state court to ``certify'' a 
question of law e.g., to advise them how a state's laws should 
be applied in an uncharted situation. This procedure allows the 
federal courts to apply state law appropriately and gives 
states the ability to manage their legal systems without 
becoming bound by other states' interpretations of their laws.
    In short, contrary to critics' contentions, the real harm 
to federalism is the status quo--leaving the bulk of class 
action cases in state court. Federal courts are the appropriate 
forum to decide interstate class actions involving large 
amounts of money, many plaintiffs and interstate commerce 
disputes, and these matters of interstate comity are more 
appropriately handled by federal judges appointed by the 
President and confirmed by the Senate. S. 5 simply restores 
this proper balance by resolving an anomaly of diversity 
jurisdiction. True to the concept of federalism, S. 5 
appropriately leaves certain ``intrastate'' class actions in 
state court: cases involving small amounts in controversy; 
cases with a class of 100 plaintiffs or less; cases involving 
plaintiffs, defendants and governing law all from the same 
state; cases against states and state officials; and certain 
securities and corporate governance cases. As such, S. 5 
promotes the concept of federalism and protects the ability of 
states to determine their own laws and policies for their 
citizens.

Critics' Contention No. 9: S. 5 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,\165\ 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.
---------------------------------------------------------------------------
    \165\ Avery v. State Farm Mut. Auto Insurance Co., 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.\166\ 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.'' \167\ 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.\168\
---------------------------------------------------------------------------
    \166\ Id. at 1254.
    \167\ See Matthew J. Wald, Suit Against Auto Insurer Could Affect 
Nearly All Drivers, N.Y. Times, Sept. 27, 1998, Sec. 1, at 29.
    \168\ See, e.g., Ysbrand v. DaimlerChrysler Corp., 81 P. 3d 618 
(Okla. 2003) (affirming certification of nationwide product liability 
class, applying the law of one state to all claims); Peterson v. BASF 
Corp., 657 N.W.2d 853 (Minn. Ct. App. 2003), aff'd, 675 N.W.2d 57 
(Minn. 2004) (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. Phillips Petroleum 
Co. v. Shutts, 472 U.S. 797, 821-22 (1985).
And 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.'' 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.\169\ Further, they 
have consistently concluded that those choice-of-law rules must 
be applied to ``each plaintiffs claims.'' \170\ 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.\171\ 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.\172\
---------------------------------------------------------------------------
    \169\ See, e.g., In re Bridgestone/Firestone, Inc. Prods. Liab. 
Litig., 288 F.3d 1012 (7th Cir. 2002), cert. denied sub nom. Gustafton 
v. Bridgestone/Firestone, Inc., 537 U.S. 1105 (2003).
    \170\ 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).
    \171\ 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. Firestone 
Tire & Rubber Co., 535 F.Supp. 595, 608 (S.D.N.Y 1982).
    \172\ 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); Spenc 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, 739-50 (5th Cir. 1995);  
In re Rhome-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--not 
even one--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) flatly rejecting arguments to use such a ``false 
federalism'' choice-of-law approach--applying the laws of a 
single state to all claims in a multi-state case. That's 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. 10: S. 5 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. 
5'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. A study last year by the Federal Judicial 
Center found that federal courts certify classes at 
approximately the same rate as state courts. According to the 
study, class actions were ``almost equally likely to be 
certified'' in the two systems: federal courts certified 
classes 22 percent of the time, while state courts certified 
classes 20 percent of the time.\173\ The study also found that 
consumers fare better in federal court class actions. According 
to the report, the average recovery per class member was higher 
in federal court: $517 vs. $350.\174\
---------------------------------------------------------------------------
    \173\ See 2004 Federal Judicial Center Study.
    \174\ Id.
---------------------------------------------------------------------------
    In fact, federal courts invented class actions and have led 
the way in using the device to redress grievances, particularly 
in the civil rights and consumer protection context. Federal 
courts certify numerous class actions for a broad range of 
claims including securities fraud, antitrust violations, and 
discrimination every year.\175\ In addition, many of the cases 
in which federal courts certify classes involve state law 
claims (even though relatively few state law-based class 
actions can make it into federal court under current 
jurisdictional law.\176\ For example:
---------------------------------------------------------------------------
    \175\ 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).
    \176\ Under current law, a purely state law-based class action 
normally can be heard in federal court only if each and every class 
members demands at least $75,000 in damages and none of the named 
plaintiffs have the same state citizenship of any of the named 
defendants. Since at least some class members in nearly all class 
actions seek less than $75,000 per class member or sue at least one 
non-diverse defendant, there are currently very few class action cases 
in federal court that involve exclusively state law claims.
---------------------------------------------------------------------------
     Recently a federal court in New York certified a 
class of New York residents and a nationwide class of 
plaintiffs who alleged that they were overcharged when they 
used their credit cards abroad.\177\ Plaintiffs' claims were 
based on violations of New York law and common law fraud.
---------------------------------------------------------------------------
    \177\ In re Currency Conversion Fee Antitrust Littg., 2004 U.S. 
Dist. LEXIS 24134 (S.D.N.Y. Dec. 2, 2004).
---------------------------------------------------------------------------
     A federal district court in Massachusetts 
certified a class consisting of Massachusetts plaintiffs who 
were employed as auto damage appraisers.\178\ The plaintiffs 
alleged that they were not properly paid for overtime and 
sought recovery under Massachusetts law.
---------------------------------------------------------------------------
    \178\ McLaughlin v. Liberty Mut. Ins. Co., 224 F.R.D. 304 (D. Mass. 
2004).
---------------------------------------------------------------------------
     A federal district court in Texas certified a 
product liability class of plaintiffs whose infants had been 
administered the drug E-Ferol and alleged that they should have 
been warned of the risk of death associated with the drug.\179\ 
Plaintiffs also alleged that the testing and approval process 
for the drug was flawed.
---------------------------------------------------------------------------
    \179\ Klein v. O'Neal, Inc. 222 F.R.D. 564 (N.D. Tex. 2004).
---------------------------------------------------------------------------
     A federal district court in New York recently 
certified a statewide class of plaintiffs alleging violations 
of New York's consumer protection law in a case involving 
diamond pricing.\180\
---------------------------------------------------------------------------
    \180\ Leider v. Ralfe, 2004 U.S. Dist. LEXIS 15345 (S.D.N.Y. 2004).
---------------------------------------------------------------------------
     A federal court certified a class of Tennessee 
residents who claimed defendants had violated various state 
consumer protection laws by failing to properly disclose the 
requirements for obtaining benefits under a long-term care 
insurance policy.\181\
---------------------------------------------------------------------------
    \181\ Bradbery v. John Hancock Mutual Life Insurance Co., 217 
F.R.D. 408 (W.D. Tenn. 2003).
---------------------------------------------------------------------------
     The federal court in this case certified a class 
of commercial lobstermen from New York and Connecticut who 
brought claims under various state laws, alleging that the use 
of certain insecticides by defendants caused massive lobster 
die-off.\182\
---------------------------------------------------------------------------
    \182\ Fox v. Cheminova, Inc., 213 F.R.D. 113 (E.D.N.Y. 2003).
---------------------------------------------------------------------------
     A federal court recently certified a class of 
parking lot customers in Washington state who asserted claims 
against a collection agency under federal and state law.\183\
---------------------------------------------------------------------------
    \183\ Hansen v. Ticket Track, Inc., 213 F.R.D. 412 (W.D. Wash. 
2003).
---------------------------------------------------------------------------
     A federal court in Florida certified a class of 
consumers who entered into sales contracts with a funeral home. 
The class members alleged claims under federal and state 
law.\184\
---------------------------------------------------------------------------
    \184\ Brown v. Funeral Services of Florida, Inc., 212 F.R.D. 602 
(S.D. Fla. 2003).
---------------------------------------------------------------------------
     A federal court in Minnesota certified a 
nationwide class of plaintiffs who sought medical monitoring 
under various state laws for their allegedly defective heart 
valves.\185\
---------------------------------------------------------------------------
    \185\ In Re St. Jude Medical Inc. Silzone Heart Valves Products 
Liability Litigation, 2003 U.S. Dist. LEXIS 5188 (D. Minn. March 27, 
2003).
---------------------------------------------------------------------------
     A federal court certified a class of Montanans who 
alleged that their automobile insurer acted in bad faith.\186\
---------------------------------------------------------------------------
    \186\ Burton v. Mountain West Farm Bureau Mutual Insurance Co., 
2003 WL 1740461 (D. Mont. March 31, 2003).
---------------------------------------------------------------------------
     In Massachusetts, a federal court certified a six-
state class action on behalf of homeowners who alleged their 
heating systems were defective.\187\
---------------------------------------------------------------------------
    \187\ Payne v. Goodyear Tire & Rubber Co., 216 F.R.D. 21 (D. Mass. 
2003).
---------------------------------------------------------------------------
     The federal district court for Rhode Island 
certified a nationwide class action brought on behalf of credit 
cardholders alleging that Fleet Bank violated federal and state 
laws in the manner in which it set payment due dates and posted 
payments to credit cards.\188\
---------------------------------------------------------------------------
    \188\ Bond v. Fleet Bank (RI) N.A., 2002 U.S. Dist. LEXIS 22324 
(D.R.I. October 10, 2002).
---------------------------------------------------------------------------
     In Michigan, a federal court certified a 
nationwide class of consumer borrowers alleging that Central 
Clearing's ``payday loan'' transactions violated federal and 
state laws.\189\
---------------------------------------------------------------------------
    \189\ Gilkey v. Central Clearing, 202 F.R.D. 515 (E.D. Mich. 2001).
---------------------------------------------------------------------------
     A federal district court certified a class of 
automobile insurance policy holders in the District of Columbia 
alleging violations of federal and state law.\190\
---------------------------------------------------------------------------
    \190\ Wells v. Allstate Insurance Company, 210 F.R.D. 1 (D.D.C. 
2002).
---------------------------------------------------------------------------
     A federal court certified a class of 
Pennsylvanians in a case brought on behalf of consumer debt 
holders alleging that the defendant sent out false and 
deceptive debt collection letters. The complaint alleged 
violations of federal and state laws.\191\
---------------------------------------------------------------------------
    \191\ Oslan v. Collection Bureau of Hudson Valley, 206 F.R.D. 109 
(E.D. Pa. 2002).
---------------------------------------------------------------------------
     A federal court certified a class action brought 
on behalf of former employees at a Pennsylvania plant, alleging 
that Tyson Foods failed to fully pay its employees. The 
complaint alleged violations of federal and state laws.\192\
---------------------------------------------------------------------------
    \192\ DeAsencio v. Tyson Foods, 2002 U.S. Dist. LEXIS 13038 (E.D. 
Pa. July 17, 2002).
---------------------------------------------------------------------------
    While opponents of the bill cite cases that allegedly 
achieved greater justice in state court than they would have 
received if they had been removed to federal court, it is clear 
that this is pure speculation. In fact, federal courts have 
certified hundreds of cases for class treatment in recent 
years, and the rules governing the decision of whether cases 
may proceed as class actions are basically the same in federal 
and state courts. Further, under the Erie doctrine, federal 
courts apply state substantive law in diversity cases. 
Consequently, a removed class action should have the same 
substantive law applied to it, regardless of whether it is in 
federal or state court.
    Additionally, strict analysis by courts in deciding whether 
a group of plaintiffs can proceed on a class basis should be 
encouraged, rather than discouraged. The purpose of the current 
requirements in Rule 23 and similar state court class action 
rules is to protect the due process rights of both plaintiffs 
and defendants. When judges indiscriminately certify class 
actions, unnamed plaintiffs lose important legal rights and can 
be denied appropriate awards for their injuries, and defendants 
become more vulnerable to frivolous and unjustifiably magnified 
class actions.
    Allowing individual states to certify classes for their own 
citizens on particular issues could result in a denial of 
relief for the citizens of other states, particularly given the 
limited resources available to some defendants to satisfy all 
pending claims. For example. some hailed the now reversed 
punitive damages verdict in the Engle tobacco class action that 
continues to proceed in Florida Supreme Court. There, a Florida 
jury awarded $135 billion in punitive damages to a class of 
Florida residents. But if that verdict were upheld, citizens of 
other states might be 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 been paid 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.\193\
---------------------------------------------------------------------------
    \193\ 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. 5 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).
    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 the class members combined.\194\ 
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.'' \195\ S. 5 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.
---------------------------------------------------------------------------
    \194\ See Class Action Dilemmas, at 23.
    \195\ Id. at 28.
---------------------------------------------------------------------------
    Moreover, in contrast to many state courts, which have 
demonstrated a willingness to approve class action settlements 
where the bulk (if not all) of the benefits go to the lawyers, 
federal courts have certified numerous settlement classes in 
cases that involved alleged violations of state law. These 
cases typically result in real relief for the class members. 
Following are a few examples:
     A federal district court in Texas certified a 
nationwide settlement class alleging violations of federal 
lending law and state consumer protection law.\196\ The court 
approved a class settlement in which the defendants agreed to 
forgive $52 million in debt incurred by class members and 
establish a settlement fund totaling $11 million for monetary 
payments to plaintiffs who had repaid their loans. In addition, 
the defendants agreed to substantial restrictions on future 
lending activities.
---------------------------------------------------------------------------
    \196\ Purdie v. Ace Cash Express, Inc., 2003 U.S. Dist. LEXIS 22547 
(N.D. Tex. 2003).
---------------------------------------------------------------------------
     A federal district court in Ohio approved a 
nationwide settlement class in a products liability suit 
involving allegedly defective orthopedic implants.\197\ The 
settlement fund, which provided for medical monitoring and 
research, totaled more than $1 billion.
---------------------------------------------------------------------------
    \197\ In Re: Sulzer Hip Prosthesis and Knee Prosthesis Liability 
Litigation, 2002 U.S. Dist. LEXIS 21693 (N.D. Ohio 2002).
---------------------------------------------------------------------------
     In another case, a federal district court in 
Pennsylvania certified a nationwide settlement class of 
plaintiffs alleging consumer fraud and personal injuries 
related to two prescription diet drugs, fenfluramine and 
dexfenfluramine.\198\ The settlement provided $3.75 billion for 
personal injury claims, medical monitoring and research. The 
class counsel agreed to limit their fees to about 9 percent of 
that.
---------------------------------------------------------------------------
    \198\ In re Diet Drugs (Fen-Phen), 2000 U.S. Dist. LEXIS 12275 
(E.D. Pa. 2000).
---------------------------------------------------------------------------

Critics' Contention No. 11: S. 5 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. 5 (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. 5 
will simplify--not complicate--a court's jurisdictional 
inquiries. The critics forget that 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 though those 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. Our federal courts have ruled that 
those arguably extraneous parties can be ignored in the 
jurisdictional analysis if their claims are meritless,\199\ 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.\200\
---------------------------------------------------------------------------
    \199\ 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 * * * [nondiverse] 
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).
    \200\ In recent years, 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. Purdue Pharma CO., 251 
F. Supp. 1315 (S.D. Miss. 2003) (mass action matter); Hardy v. Ducote, 
246 F. Supp. 2d 509 (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. Or. 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,'' \201\ 
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.'' \202\ 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.\203\
---------------------------------------------------------------------------
    \201\ See C.A. Wright, A.R. Miller et aI., Federal Practice and 
Procedure Sec. 3707, at 225 (1998).
    \202\ Id. Sec. 3705, at 65 (2003 Supp.).
    \203\ In recent years, many feral courts have had to resolve 
jurisdictional amount issues in resolving motions to remand class 
actions. See, e.g., In re Bridgestone/Firestone lnc Tires Prods. Liab. 
Litig., 256 F. Supp. 2d 884 (S.D. Ind. 2003); Adans v. Nationwide 
Mutual Ins. Co., 2003 U.S. Dist. LEXIS 4973 (N.D. Tex. Mar. 31, 2003); 
Kary v. Exxon/Mobil Corp., 2003 U.S. Dist. LEXIS 4599 (D.N.D. Mar. 19, 
2003); Faircloth v. National Home Loan Corp., 313 F. Supp. 2d 544 
(M.D.N.C. 2003), aff'd, 2004 US. App. LEXIS 1039 (4th Cir. 2004) Carric 
v. Sears, Roebuck and Co., 252 F. Supp. 2d 116 (M.D. Pa. 2003); Dash v. 
FirstPlus Home Loan Trust, 248 F. Supp. 2d 489(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); Shields v. Bridgestone/Fireston, Inc., 232 F. Supp. 2d 715 (E.D. 
Tex. 2002); Tremblay v. Philip Morris, Inc., 231 F. Supp. 2d 411 
(D.N.H. 2002); Mentzel v. Comcast Cable Communications, 222 F. Supp. 2d 
923 (E.D. Mich. 2002); Trapazzo v. Prudential Property & Casualty Ins. 
Co., 220 F. Supp. 2d 628 (E.D. Tex. 2002); Perotti v. Black & Decker, 
Inc., 205 F. Supp. 2d 813 (N.D. Ohio 2002); Perry v. Hartford Ins. Co. 
of the Midwest, 198 F. Supp. 2d 836 (E.D. Tex. 2002); City of 
University City, Missouri v. AT&T Wireless Services, Inc., 229 F. Supp. 
2d 927 (E.D. Mo. 2002); Mehlenbacher v. Akzo Nobel Salt, Inc., 207 F. 
Supp. 2d 71 (W.D.N.Y. 2002); Perry v. Hartford Ins. Co. of the Midwest, 
198 F. Supp. 2d 836 (E.D. Tex. 2002); Gavriles v. Verizon Wireless, 194 
F. Supp. 2d 674 (E.D. Mich. 2002); Bethea v. St. Paul Guardian Ins. 
Co., 2002 U.S. Dist. LEXIS 15780 (E.D. La. Aug. 21, 2002); Nabal v. 
BJ's Wholesale Club, Inc., 2002 U.S. Dist. LEXIS 15106 (E.D. Pa. Aug. 
1, 2002); Pope v. Independent Order of Foresters, 2002 U.S. Dist. LEXIS 
13550 (W.D. Ky. July 23, 2002); Post v. General Motors Corp., 2002 U.S. 
Dist. LEXIS 9968 (S.D.N.Y. May 31, 2002); Sylvester v. Daimler Chrysler 
Corp., 2002 U.S. Dist. LEXIS 17989 (N.D. Ohio May 30, 2002); Green v. 
Party City Corp., 2002 U.S. Dlst. LEXIS 7750 (C.D. Cal. Apr. 9, 2002); 
Cigna Healthcare of St Louis Inc., v. Kaiser, 181 F. Supp. 2d 914 (N.D. 
Ill. 2002) aff'd and modified in part, 294 F.3d 849 (7th Cir. 2002).
---------------------------------------------------------------------------
    In sum, S. 5 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. 5) 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. 5, 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. 5 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. 5 does not change them.
    Under existing law (which S. 5 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.\204\ 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.
---------------------------------------------------------------------------
    \204\ 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 her 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.\205\
---------------------------------------------------------------------------
    \205\ See Caterpillar, Inc. v. Lewis, 519 U.S. 61 69 (1996) (``In a 
case not originally removable, a defendant who received 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 to federal court within 30 days 
of receiving such information.'').
---------------------------------------------------------------------------
    Current law (that S. 5 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.,\206\ 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.'' \207\
---------------------------------------------------------------------------
    \206\ 303 U.S. 283, 293 (1938).
    \207\ 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.\208\ 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.\209\
---------------------------------------------------------------------------
    \208\ Id. at 294.
    \209\ 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. 5, 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.\210\ 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.
---------------------------------------------------------------------------
    \210\ See Caterpillar, Inc., 519 U.S. at 69.
---------------------------------------------------------------------------

Critics' Contention No. 12.: S. 5'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 is groundless. 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.\211\ 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.'' \212\
---------------------------------------------------------------------------
    \211\ See Strawbridge v. Curtiss, 3 Cranch 267 (1806) (complete 
diversity requirement derives from ``[t]he words of the act of 
Congress,'' not the Constitution).
    \212\ State Farm Fire & Cas. Co. v. Tashire, 386 U.S. 523, 530-31 
(1967) (citing Am. Fire & Cas. Co. v. Finn, 341 U.S. 6, 10 n.3 (1951); 
Wichita 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. 5 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 court have treated unnamed class members as 
parties to class actions. For example:
     In Zahn v. International Paper Co.,\213\ 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.\214\ 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.\215\ Thus, 
in this respect, the federal courts have for many years treated 
unnamed class members as ``parties.''
---------------------------------------------------------------------------
    \213\ 414 U.S. 291 (1973).
    \214\ Zahn v. International Paper Co., 53 F.R.D. 430 (D. Vt. 1971).
    \215\ 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,\216\ 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.
---------------------------------------------------------------------------
    \216\ 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.\217\ 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.'') \218\
---------------------------------------------------------------------------
    \217\ See, e.g., American Pipe & Construction Co. v. Utah, 414 U.S. 
538 (1974).
    \218\ 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.\219\ In other words, the court is obliged (at least 
at some level) to treat the unnamed class members as parties to 
the litigation.
---------------------------------------------------------------------------
    \219\ See Diaz v. Trust Territory of 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. 5 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. 5 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 critics are also wrong to suggest that The Class Action 
Fairness Act ``dictate[s] * * * state court [rules of civil] 
procedure'' and thus impinges upon the sovereignty of the 
state.\220\ Critics quote Prof. Larry Tribe as saying that 
``for Congress directly, regulate the procedures used by state 
courts in adjudicating state-law tort claims * * * would raise 
serious questions under the Tenth Amendment and principles of 
Federalism.'' \221\ Of course, when Professor Tribe made that 
statement, he was not referring to The Class Action Fairness 
Act. That is because The Class Action Fairness Act does not 
regulate the procedures ``used by state courts'' at all. 
Rather, it simply changes the federal jurisdiction statute to 
expand the diversity jurisdiction of federal courts to 
encompass more class action.
---------------------------------------------------------------------------
    \220\ S. Rep. 108-123, at 77-78 (2002) (Minority views).
    \221\ S. Rep. 108-123, at 77-78 (2003) (Minority views).
---------------------------------------------------------------------------
    If cases subject to that broader jurisdictional grant are 
removed to federal court (or brought there in the first place), 
it is of course permissible for Congress to regulate the 
procedures by federal courts to resolve such cases. Indeed, if 
Congress cannot specify laws and procedures to be used by 
federal courts, then all of the federal rules of civil 
procedure (which are transmitted to Congress for final 
approval) would be unconstitutional.
    The critics' contention that The Class Action Fairness Act 
``overstep[s] [Congress's] specific constitutional power to 
regulate interstate commerce'' \222\ is equally baseless. This 
final ``serious'' constitutional argument is another red 
herring. In the first place, it is difficult to imagine why The 
Class Action Fairness Act--which by its text regulates only 
very large interstate class actions involving at least two (and 
sometimes up to 50) states--could be unconstitutional when 
there is no debate that a $75,001 slip and fall case involving 
citizens of only two states can appropriately be heard by a 
federal court.
---------------------------------------------------------------------------
    \222\ Id.
---------------------------------------------------------------------------
    Thus, the critics would have to concede that their view of 
the Commerce Clause abolishes all diversity jurisdiction, in 
direct contravention of Article III, Supreme Court precedent, 
and Congressional authority exercised literally since the year 
of our nation's founding.
    Even if the critics' attack on the Commerce Clause were not 
so obviously misguided given the separate authority Congress 
has to regulate federal courts, The Class Action Fairness Act 
targets activity with substantial effects on interstate 
commerce. It targets only those lawsuits involving parties from 
different states, is limited to very large lawsuits involving 
at least $5 million, and regulates economic activity (the 
transfer of resources through litigation) that collectively has 
substantial effects on interstate commerce. As the legislative 
history makes abundantly clear, abusive state court class 
action practices exact a staggering toll on interstate 
commerce. The Class Action Fairness Act is thus not only 
constitutional, it is necessary as a matter of public policy.
    In sum, the Committee 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.

Critics' Contention No. 13: S. 5 will make it harder for consumers to 
        bring class action lawsuits against pharmaceutical 
        manufacturers and should be amended to exclude drug cases.

    S. 5 poses no barrier for consumers seeking to bring suits 
against pharmaceutical manufacturers. All the bill does is move 
certain class actions to federal court. Moreover, an industry-
specific exemption from federal jurisdiction, such as the 
carve-out proposed by this critique, makes no sense, since it 
irrationally slams the federal courthouse door on one 
industry--the very kind of treatment that the Framers sought to 
avoid by creating diversity jurisdiction. Such an approach is 
ill-advised for several reasons.
    First, such an amendment would unfairly single out the 
pharmaceutical industry and deny defendants a fair, even-handed 
federal court forum. Moreover, this contention is inconsistent 
with what the Framers had in mind in establishing diversity 
jurisdiction in Article III of the Constitution. They wanted to 
allow interstate businesses to have claims against them heard 
in federal court so as to avoid local biases. Nowhere in this 
concept is the idea that certain industries should be exempted 
from this right--i.e., that certain kinds of businesses are 
less entitled to federal court protection. In short, such an 
exclusion would fly in the face of the Constitution, as well as 
the basic purpose of the bill.
    Second, the flood of litigation surrounding recent drug 
withdrawals demonstrates the need for class action reform. 
Under the current system, plaintiffs' lawyers frequently file 
hundreds of overlapping class action lawsuits in various state 
court jurisdictions around the country. And since we have 50 
different state court systems, these cases cannot be 
coordinated or consolidated before one judge. As a result, both 
sides have to engage in duplicative discovery, the judges end 
up duplicating each others' work, and different courts often 
reach different decisions on the same pretrial issues. To make 
matters worse, the current system encourages plaintiffs' 
lawyers to compete against each other--vying to achieve the 
first nationwide settlement that will eviscerate the remaining 
class actions involving similar claims.
    In contrast, when numerous duplicative class actions are 
brought in federal court, the federal multi district litigation 
(MDL) mechanism allows all the cases to be coordinated for 
pretrial proceedings in one federal court. That means all the 
parties in all the cases typically set up one document 
depository, the court issues consistent rulings on discovery 
issues and summary judgment motions, and the court can preside 
over settlement negotiations that address the concerns of all 
the plaintiffs in all the cases--rather than just strike a deal 
with one group of plaintiffs' lawyers. Put simply, MDL 
proceedings are fairer, more efficient, and less expensive.
    Third, federal courts have demonstrated their effectiveness 
in handling nationwide class actions against pharmaceutical 
companies. Federal court proceedings have resulted in numerous 
pro-consumer settlements in pharmaceutical cases. For example, 
the settlement in In re Diet Drugs (Fen-Phen) provided $3.75 
billion for personal injury claims, medical monitoring and 
research.\223\ Similarly, in In re: Copley Pharmaceutical Inc., 
Albuterol Products Liability Litigation, an MDL court approved 
a $150 million settlement for consumers.\224\ And in Bowling v. 
Pfizer,, the federal court approved a settlement providing 
approximately $200 million in medical monitoring for plaintiffs 
who had received allegedly defective heart valves.\225\
---------------------------------------------------------------------------
    \223\ In re Diet Drugs (Fen-Phen), 2000 U.S. Dist. LEXIS 12275 
(E.D. Pa. 2000).
    \224\ In re: Copley Pharmaceutical Inc., Albuterol Products 
Liability Litigation, 1 F. Supp. 2d 1407 (D. Wyo. 1998).
    \225\ Bowling v. Pfizer Inc., 922 F. Supp. 1261 (S.D. Ohio 1996).
---------------------------------------------------------------------------
    Fourth, regulatory decisions regarding which pharmaceutical 
drugs are available to the American public should not be 
shifted away from the Food and Drug Administration into the 
hands of plaintiffs' lawyers, judges and juries. Many class 
actions against pharmaceutical manufacturers are filed in spite 
of the fact that the FDA has investigated an alleged problem 
and concluded that the drug should remain on the market. Class 
action lawyers borrow from the factual work undertaken by the 
agency and use the class action vehicle as a way to relitigate 
the agency's decisions. The authority to decide whether 
consumers should have access to pharmaceuticals should remain 
with the FDA. And if there are problems with FDA, the solution 
is to fix the agency--not to transfer its power to self-
interested class action lawyers.
    Finally, the claims of some critics that it is more 
difficult to have a class certified in federal court than in 
state court have been disproved. As noted previously, a study 
by the Federal Judicial Center found that class actions were 
``almost equally likely to be certified'' in the two systems: 
federal courts certified classes 22 percent of the time, while 
state courts certified classes 20 percent of the time.\226\ The 
study also debunked another myth often repeated by opponents of 
The Class Action Fairness Act--that state courts move more 
quickly than federal courts. According to the study, federal 
courts are much more speedy in resolving class action issues: 
state courts, in contrast, are more likely to let class actions 
linger without ruling on class certification. Finally, to the 
extent that caseloads affect how quickly cases are resolved, 
the problems are much worse in state court than in federal 
court. State court judges are assigned (on average) 1,568 new 
cases each year.\227\ In contrast, each federal court judge was 
assigned an average of just 483 new cases during the twelve-
month period ending September 30, 2003.\228\
---------------------------------------------------------------------------
    \226\ See 2004 Federal Judicial Center Study.
    \227\ Examining the Work of State Courts at 12-13.
    \228\ See Federal Court Management.
---------------------------------------------------------------------------

                        VIII. CBO Cost Estimate

    S. 5 would expand the types of class-action lawsuits that 
would be initially heard in federal district courts and would 
provide guidelines for the award of attorney's fees in certain 
types of settlements. CBO estimates that implementing the bill 
would cost the federal district courts about $7 million a year, 
subject to appropriation of the necessary funds. Enacting the 
bill would not affect direct spending or revenues. S. 5 
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. 5 would impose 
private-sector mandates, as defined in UMRA, but CBO estimates 
that the direct cost of those mandates would fall below the 
annual threshold established by UMRA ($123 million in 2005, 
adjusted annually for inflation).
    Under S. 5, most class-action lawsuits would be heard in a 
federal district court rather than a state court. Therefore, 
CBO estimates that the bill would impose additional costs on 
the federal district court system. While the number of cases 
that would be filed in federal court under this bill is 
uncertain, CBO expects that a few hundred additional cases 
would be heard in federal court each year. According to the 
Administrative Office of the United States Courts, class-action 
lawsuits tried in federal court cost the government, on 
average, about $23,000. 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. 5 would cost about 
$7 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. 
5 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. 5 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 
2005.
    S. 5 would impose a private-sector mandate by possibly 
limiting the size of awards that attorneys could receive in 
certain class-action settlements. If a proposed class-action 
settlement provides coupons to a class member, the bill would 
require the attorneys' fees to be based on the value of the 
coupons that are redeemed or on the amount of time reasonably 
expended working on the case by class counsel. In current 
practice, the attorney's fee is sometimes based on the total 
value of the settlement. According to information from industry 
representatives and academic studies, settlements with coupons 
account only for about 10 percent of all class-action 
settlements. Moreover, according to those sources, attorneys' 
fees correlate very closely with the amount of time spent on 
such cases by class counsel. Therefore, because attorneys' fees 
would still be negotiated as part of any settlement, CBO 
estimates that the direct cost of the mandate, as measured by 
loss of income for attorneys in class-action settlements, would 
be small, if any.
    In addition, S. 5 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 class member 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 Gregory Waring 
(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. 5 will not have a significant 
regulatory impact.

              X. ADDITIONAL VIEWS OF SENATOR PATRICK LEAHY

    The circulation and filing of this report occurred after 
passage of the legislation for Senate consideration of the 
underlying bill. Indeed, it was filed after the House of 
Representatives passed this legislation and on the same day 
that the President signed the measure into law. Committee 
reports, like Committee consideration of measures, are intended 
to assist the Senate in its consideration of the matter. 
Committees tend to have Members with expertise and experience 
that help shape legislation for Senate consideration. In this 
case, that did not occur. Instead, at the insistence of the 
Republican leadership, this bill was rushed through the 
Judiciary Committee and then forced through the Senate without 
amendment.
    The Republican leadership's timetable was so short that 
there was no opportunity to prepare a Committee report before 
final passage. There was no time for Senators to review a cost 
estimate from the Congressional Budget Office. There was no 
evaluation of the regulatory impact of the bill. That this 
report is being filed after Senate consideration means that it 
did not serve the principal purpose for which Committee reports 
are intended.
    Several days ago, the Senate had pending before it for a 
few days the so-called ``Class Action Fairness Act.'' In 
lockstep mode, bill supporters rejected every effort to clarify 
or improve the bill. During the few days it was pending, a few 
modest amendments were offered to clarify some ambiguous 
provisions and to respond to serious concerns raised by the 
National Conference of State Legislatures, the National 
Association of State Attorneys General, prominent legal 
scholars, consumer and environmental groups and civil rights 
organizations. All these efforts were rejected. Anyone who 
watched the Senate on C-SPAN or reviews the Congressional 
Record will see ample evidence that the ``fix was in''. Thus, 
despite legitimate concerns acknowledged by some of this 
legislation's sponsors and supporters, the bill was not 
improved in any regard on its short journey through the Senate.
    I am disappointed that the Senate has been reduced to 
taking its marching orders on major legislation from corporate 
special interests and the White House. The Senate could have 
made limited but important improvements to the bill but, 
instead, the majority of Senators refused to even consider 
minor improvements let alone the major flaws in this 
legislation.
    This legislation will make it harder for American citizens 
to protect themselves against violations of state civil rights, 
consumer, health, and environmental protection laws by forcing 
these cases out of local state courts. Aside from being 
convenient, state courts have experience with the legal and 
factual issues involved in these important cases. This bill 
will sweep these cases into federal courts and, thereby, erect 
new barriers to lawsuits and place new burdens on plaintiffs.
    The biggest concern raised by legal scholars and agreed to 
by several Senate sponsors of the bill would have addressed the 
recent trend in the federal courts not to certify class actions 
if multi-state laws are involved. Given this development, what 
this bill may result in doing is removing class actions to 
federal court where they will likely be dismissed for involving 
multiple state laws and where they will not be considered on 
the merits because the federal court will choose not to 
consider a case involving the laws of the states. Cynics might 
even speculate that is what the business groups behind this 
purported ``procedural'' change are really seeking, the 
dismissal of meritorious cases on procedural grounds by the 
federal courts.
    Many Senators understand that this bill could deny justice 
to consumers and others in class actions who band together to 
seek relief in state court. Senator Feinstein and Senator 
Bingaman worked together on an amendment to alleviate this 
legal Catch-22. It is unfortunate that the wisdom of their 
common-sense solution was rejected.
    Anyone who reads this bill will notice that despite its 
title, it affects more than just class actions. Individual 
actions, consolidated by state courts for efficiency purposes, 
are not class actions. Despite the fact that a similar 
provision was unanimously struck from the bill during the last 
Congress, mass actions reappeared in this bill this Congress. 
Federalizing these individual cases will no doubt delay, and 
possibly deny, justice for victims suffering real injuries. 
Senator Durbin's amendment would have clarified the bill's 
effect on these cases but it was not adopted.
    Prominent civil rights organizations and labor advocates 
requested that the bill be modified to acknowledge the fact 
that many of our states have their own protective civil rights 
and employment laws. Senator Kennedy's amendment to exempt 
civil rights and wage and hour cases from this bill was a 
sensible solution. I was proud to cosponsor it and regret that 
this amendment was also rejected.
    This class action legislation has also been criticized by 
nearly all of the state Attorneys General in this country. They 
expressed a specific concern that S. 5 could limit their 
official powers to investigate and bring actions in their state 
courts against defendants who have caused harm to their 
citizens because in certain instances they file suit as the 
class representative for the consumers of their state. Not even 
this minor clarification, requested by nearly every state's 
highest law enforcement officer, was acceptable to the bill's 
supporters as they to adopt Senator Pryor's amendment.
    It is disappointing to me that the Senate has refused to 
listen to the wise counsel of our state legislatures, our state 
law enforcement officers, our state judges and even the views 
expressed by our federal judiciary. They serve in the 
institutions that we are affecting by enacting this 
legislation.
    This bill contains language to reduce the delay parties can 
experience when a case is removed to federal court by setting a 
time limit for appeals of remand orders. However, no measure is 
included in the bill that would set a timeline for the district 
court to rule on the actual remand motion. This means that 
plaintiffs' claims may be removed from state court, just to 
languish on the federal docket for years, without any recourse. 
Senator Feingold offered a modest amendment to set a reasonable 
time limit for the district court to rule on remand orders. 
This solution received praise from one of the sponsors of the 
legislation, yet the amendment was rejected.
    I predict this legislation will be manipulated by well-paid 
corporate defense lawyers to create complex, expensive and 
lengthy litigation over the criteria and factors in the bill 
and whether they apply to a particular case. Unfortunately, one 
of the great boons--or more properly boondoggles--of this 
legislation, to the extent it does not simply deter meritorious 
class actions that would otherwise have been brought by 
consumers, is that it will make them more costly, burdensome 
and complicated.
    The so-called Class Action Fairness Act falls short of the 
expectation set by its title. It will leave many injured 
parties who have valid claims with no avenue for relief, and 
that is anything but fair to the ordinary Americans who look to 
us to represent them in the United States Senate.

                                                     Patrick Leahy.

  XI. MINORITY VIEWS OF SENATORS LEAHY, KENNEDY, BIDEN, FEINGOLD, AND 
                                 DURBIN

                            I. Introduction

    We strongly oppose S. 5, the ``Class Action Fairness Act of 
2005.'' Although the legislation is described by some of its 
proponents as a ``modest bill'' not effecting ``a substantive 
change in the law'', in reality it will cause a radical 
revision of the class action rules and diversity jurisdiction 
requirements. We believe it would bar most state class actions 
from being heard in state courts and prevent many nationwide 
class actions from being heard in either state or federal 
court.
    This legislation and previous versions have been opposed by 
the federal \1\ and state \2\ judiciaries, as well as, state 
legislatures.\3\ S. 5 is also opposed by dozens of civil 
rights, consumer, environmental and public interest advocates 
\4\ and several state Attorneys General.\5\
---------------------------------------------------------------------------
    \1\ See Letter from Ralph Mecham, Secretary, Judicial Conference of 
the United States (Mar. 26, 2003) (in 2003, the Conference voted to 
oppose the jurisdictional provisions that remain in S. 5 because the 
provisions ``would add substantially to the work of the Federal courts 
and are inconsistent with principles of Federalism'').
    \2\ See Letter from Annice M. Wagner, President, Conference of 
Chief Justices (Mar. 28, 2002) (``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 Letter from Sen. Michael Balboni, Chair, National 
Conference of State Legislatures (Feb. 2, 2005) (``The effect of S.5 on 
state legislatures is that state laws in the areas of consumer 
protection and antitrust which were passed to protect citizens of a 
particular state against fraudulent or illegal activities will almost 
never be heard in state courts.'').
    \4\ See Letters to Committee Members in opposition to similar class 
action measures from the AARP, ADA Watch/National Coalition for 
Disability Rights, AFL-CIO, Alliance for Healthy Homes, Alliance for 
Justice, Alliance for Retired Americans, American Association of People 
with Disabilities, American Association of University Women, American 
Cancer Society, American Heart Association, American Federation of 
Government Employees, American Federation of State, County and 
Municipal Employees, American Lung Association, American-Arab Anti-
Discrimination Committee, Americans for Democratic Action, Bazelon 
Center for Mental Health Law, Brady Campaign to Prevent Gun Violence, 
United with the Million Mom March, Campaign For Tobacco-Free Kids, 
Center for Disability and Health, Center for Justice and Democracy, 
Center for Responsible Lending, Center for Women Policy Studies, Civil 
Justice, Inc., Clean Water Action, Coalition to Stop Gun Violence, 
Commission on Social Action of Reform Judaism, Communication Workers of 
America, Consumer Federation of America, Consumers for Auto Reliability 
and Safety, Consumers Union, Disability Rights Education Fund, 
Earthjustice, Education Law Center, Environmental Working Group, 
Epilepsy Foundation, Families USA, Federally Employed Women, Friends of 
the Earth, Gray Panthers, Greenpeace, Homeowners Against Deficient 
Dwellings, Jewish Labor Committee, Lawyers' Committee For Civil Rights 
Under Law, Leadership Conference on Civil Rights, Mexican American 
Legal Defense and Educational Fund, Mineral Policy Center, NAACP Legal 
Defense and Education Fund, National Alliance of Postal and Federal 
Employees, National Asian Pacific American Legal Consortium, National 
Association for the Advancement of Colored People, National Association 
for Equal Opportunity in Higher Education, National Association of 
Consumer Advocates, National Association of Consumer Agency 
Administrators, National Association of the Deaf, National Association 
of Protection and Advocacy Systems, National Bar Association, National 
Campaign for Hearing Health, National Center on Poverty Law, National 
Coalition on Black Civic Participation, National Committee on Pay 
Equity, National Consumer Law Center, National Consumers Coalition, 
National Consumers League, National Council of La Raza, National 
Employment Lawyers Association, National Fair Housing Alliance, 
National Gay and Lesbian Task Force, National Law Center on Homeless & 
Poverty, National Legal Aid and Defender Association, National 
Organization for Women, National Partnership for Women and Families, 
National Resources Defense Council, National Workrights Institute, 
National Women's Health Network, National Women's Law Center, North 
Carolina Justice Center, NOW Legal Defense Fund, People for the 
American Way, Pride at Work, Project Equality, Public Citizen, 
Religious Coalition for Reproductive Choice, Sargent Shriver National 
Center of Poverty Law, Service Employees International Union, Sierra 
Club, Tobacco Control Resource Center, Tobacco Products Liability 
Project, UNITE!, United Food and Commercial Workers International 
Union, United Policyholders, United Steelworkers of America, USAction, 
U.S. Public Interest Research Group, Violence Policy Center, and Women 
Employed (May 21, 2004).
    \5\ See Letter from Eliot Spitzer, Attorney General New York and 
W.A. Drew Edmondson, Attorney General of Oklahoma, on behalf of the 
Attorneys General of the States of California, Illinois, Iowa, 
Kentucky, Maine, Maryland, Massachusetts, Minnesota, New Mexico, New 
York, Oklahoma, Vermont and West Virginia (Feb. 7, 2005).
---------------------------------------------------------------------------
    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 will 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 2005'' 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.\6\
---------------------------------------------------------------------------
    \6\ See The Class Action Fairness Act of 2005, S. 5, 109th Cong. 
Sec. 4(a)(2) (2005) (adding 28 U.S.C. Sec. 1332(d)(2)). 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.\7\ 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.\8\
---------------------------------------------------------------------------
    \7\ Senate Bill 5 Sec. 4(a)(2) (adding 28 U.S.C. Sec. 1332(d)(3)).
    \8\ Id.
---------------------------------------------------------------------------
    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 
at least one of the primary defendants; (2) the principal 
injuries occurred in that state; (3) the matters in controversy 
are less than $5,000,000 or the membership of the proposed 
class is less than 100; or (4) the primary defendants are 
states, state officials, or other government entities against 
whom the district court may be foreclosed from ordering 
relief.\9\
---------------------------------------------------------------------------
    \9\ Senate Bill 5 Sec. 4(a)(2) (adding 28 U.S.C. Sec. 1332(d)(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. See Senate Bill 5 
Sec. 4(a)(2) (adding 28 U.S.C. Sec. 1332(d)(9)).
---------------------------------------------------------------------------
    In the context of the ``Local Controversy Exception'', the 
Committee Report erroneously conflates the concepts of 
citizenship and residence.\10\ Contrary to the Committee 
report, the legislation provides that the touchstone for this 
exception is citizenship not residence. This more narrow 
exception will no doubt result in many more class actions being 
removed to federal court.
---------------------------------------------------------------------------
    \10\ See Committee Report at p. 44.

    This bill contains a ``Consumer Class Action Bill of 
Rights.'' This section 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.\11\ We also 
recognize that improvements were made to the bill in the last 
Congress such as: restricting use of coupon settlements; 
allowing civil rights and consumer plaintiffs to be compensated 
for the particular hardships they endure as a result of 
initiating and pursuing litigation as named plaintiffs; 
eliminating the notification burden; prohibiting retroactivity 
and providing for greater judicial discretion.\12\
---------------------------------------------------------------------------
    \11\ Senate Bill 5 Sec. 3.
    \12\ Id.
---------------------------------------------------------------------------
    We object to the fact that S. 5 is written to favor 
corporate defendants at the expense of victims. Before even 
considering S. 5, the Committee and the full Senate should have 
insisted 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, a hearing on 
class action litigation would have helped the Committee develop 
consensus reforms to better serve both defendants and 
plaintiffs before the Committee proceeded to a markup on S. 5.
    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 simply decided that 
the time is now for federalizing nearly all class actions where 
most of plaintiffs' claims will take longer and be more 
expensive.
    We recognize that there are some genuine problems with some 
class action litigation 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. 
5 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 when they urged us ``to 
remember that state policy choices should not be overridden 
without a showing of compelling national need. We should await 
evidence demonstrating that states have broadly overreached or 
are unable to address the problems themselves. There must be 
evidence of harm to interests of national scope that require a 
federal response, and even with such evidence, federal 
preemption should be limited to remedying specific problems 
with tailored solutions, something that S. 5 does not do.'' 
\13\
---------------------------------------------------------------------------
    \13\ National Conference of State Legislatures Letter, supra note 
3.
---------------------------------------------------------------------------
    For these and other reasons set forth herein, we strongly 
oppose S. 5.

       II. S. 5 Will Hurt Consumers, Victims, and the Environment

    Proponents of this legislation claim that S. 5 will protect 
consumers while remedying the worst abuses of the class action 
system, yet consumer advocates overwhelmingly oppose these 
alleged ``reforms.'' \14\
---------------------------------------------------------------------------
    \14\ See Letter in Opposition to S. 274 from the Consumer 
Federation of America, Consumers Union, and U.S. Public Interest 
Research Group (Feb. 5, 2003).
---------------------------------------------------------------------------

A. Federal courts' refusal to certify class actions will leave victims 
        in limbo

    There can be little doubt that S. 5 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. It is also typically more difficult and time 
consuming to certify a class action in federal court. By 
pushing cases from state to federal court, S. 5 creates more 
problems than it solves.
    Fourteen states, representing nearly one-third of the 
nation's population,\15\ have adopted different criteria for 
class action rules than Rule 23 of the Federal Rules of Civil 
Procedure.\16\ 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 several federal cases, such as 
Castano v. American Tobacco Co.\17\, In re Rhone-Poulenc Rorer, 
Inc.,\18\ In re American Medical Systems, Inc.,\19\ Georgine v. 
Amchem Products, Inc.,\20\ Broussard v. Meineke Discount 
Mufflers,\21\ and Ortiz v. Fibreboard,\22\ which have made it 
more difficult to establish the `predominance requirement' 
necessary to establish a class action under the federal rules.
---------------------------------------------------------------------------
    \15\ 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 & Alba Conte, 
Newberg on Class Actions Sec. 13.04 (3d ed. 1992 & Supp. 1997).
    \16\ Fed. R. Civ. P. 23(a) (stating 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).
    \17\ 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).
    \18\ 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).
    \19\ 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).
    \20\ 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).
    \21\ 155 F.3d 331 (4th Cir. 1998) (rejecting class certification 
brought by Meineke franchisees alleging violations of franchise, tort, 
unfair trade, and other laws).
    \22\ 527 U.S. 815 (1999) (finding 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).
---------------------------------------------------------------------------
    Plaintiffs removed to Federal courts are subject to the 
Federal Rules of Civil Procedure. In accordance with Rule 
23(b)(3), their cases will not be certified by the Federal 
court if they cannot show that a common question of law 
predominates. As this rule has been interpreted by many Circuit 
\23\ and District Courts,\24\ Federal courts are not certifying 
class actions involving the laws of multiple states. In fact, 
six Circuit Courts and 26 District Courts have consistently 
denied certification of multi-state consumer cases. Only one 
court has granted certification of these cases and even that 
case, from the Third Circuit, has been distinguished on its 
facts. [add footnote: See In re School Asbestos Litig., 789 
F.2d 996, 1011 (3d Cir. 1986)]
---------------------------------------------------------------------------
    \23\ See, e.g., Georgine v. Amchem Products, Inc., 83 F.3d 610 (3d 
Cir. 1996) (refusing to certify a nationwide asbestos suit because the 
laws of multiple states would have to be applied), Spence v. Glock, 
Ges.m.b.H., 227 F.3d 308 (5th Cir. 2000) (reversing the district 
court's certification because ``it erred in its choice of law 
analysis''), In re American Medical Systems, Inc., 75 F.3d 1069 (6th 
Cir. 1996) (denying class certification due to variances in state 
laws), In re Bridgestone/Firestone, Inc., 288 F.3d 1012 (7th Cir. 2002) 
(refusing certification because the district court would have to apply 
the laws of several states according to Indiana's choice of law rules), 
and Zinser v. Accufix Research Inst., 253 F.3d 1180 (9th Cir. 2001) 
(holding the plaintiffs with pacemakers made of lead had not 
demonstrated which state's laws apply under California choice of law 
rules).
    \24\ See, e.g., Chin v. Chrysler Corp., 182 F.R.D. 448 (D.N.J. 
1998), In re Masonite Corp. Hardboard Siding Prods. Liab. Litig., 170 
F.R.D. 417 (E.D. La. 1997), Lyon v. Caterpillar, Inc., 194 F.R.D. 206 
(E.D. Pa. 2000).
---------------------------------------------------------------------------
    Not only are the courts concerned with the federalism 
implications of such action, but recognize that by doing so, 
cases become simply unmanageable as courts try to apply the 
laws of each plaintiff's state to the plaintiff. Scholars who 
track multi-state class action suits have found that if a case 
involves too many state laws, then Federal court judges can and 
do dismiss the case.\25\ In fact, the U.S. Chamber of Commerce 
has recognized this stating, ``federal courts have consistently 
refused to certify nationwide class actions in product defect 
cases because the need to apply the laws of many different 
states would make such a sprawling class action unmanageable.'' 
\26\
---------------------------------------------------------------------------
    \25\ Letter from Arthur R. Miller, Bruce Bromley Professor of Law, 
Harvard Law School (Jun. 17, 2004).
    \26\ Id. (quoting Brief of the Chamber of Commerce of the United 
States as Amicus Curiae in Support of Appellants, In re Simon II 
Litigation, No. 03-7141 (2nd Cir. June 3, 2003).
---------------------------------------------------------------------------
    Federalizing class action cases creates an incentive for 
violators to break the laws of multiple states, as any 
collective action to hold them accountable will likely be 
dismissed. And, consumers, workers and victims will be 
prevented from having many important multi-state class actions 
heard in either the state or Federal courts. As a result, we 
will likely begin to see fewer dangerous and ineffective 
products and devices removed from the marketplace.
    Consumers pay the price when Federal courts dismiss a case. 
When this occurs, ``[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.'' \27\
---------------------------------------------------------------------------
    \27\ See Letter from the Consumer Federation of America, Consumers 
Union, and U.S. PIRG (Feb. 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 brought under the particular law in question. 
Because of this, the class action legislation ``will slow--and 
in some cases thwart--the continual interpretation of state 
law.'' \28\
---------------------------------------------------------------------------
    \28\ Id.
---------------------------------------------------------------------------
    To solve this significant problem, S. 5 should be amended 
to ensure that cases which are removed from state courts are at 
least not immediately dismissed by the Federal judge on choice 
of law grounds. One solution to this loophole in the 
legislation is the subject of Senator Bingaman's amendment. 
Quite simply, a Federal judge presented with a case that 
involves a choice of law issue should be able to apply the 
state law that has a sufficient connection to the case. In this 
way, not only are citizens' rights and access to the courts 
preserved, but the Federalism concerns that the removal creates 
are undercut because state laws are being enforced.\29\ This 
sensible solution to a glaring deficiency in the bill also had 
the support of Chairman Specter, as he noted during the 
Committee's markup.
---------------------------------------------------------------------------
    \29\ See id.
---------------------------------------------------------------------------

B. One-sided delays of justice must be avoided

    Last Congress, Senators Dodd, Schumer and Landrieu were 
able to improve the legislation by adding a provision to the 
class action bill to require that any appeal of a motion to 
remand be ruled on by the court of appeals within 60 days. 
However, before a motion to remand can be appealed it first 
needs to be ruled on by the lower district court. S. 5 
overlooks this step and creates another loophole which 
defendants can exploit to delay trials. The bill contains no 
deadline on how long district courts can take to rule on a 
motion to remand. By simply removing all class actions to 
Federal court, defendants can exploit this lack of a statutory 
deadline; and therefore benefit from the delay, which 
inevitably increases the costs of trials and leaves the 
plaintiffs in limbo.
    Since the bill already addressed the need for speedy 
resolution of remand appeals, it should similarly require 
speedy resolution for motions to remand at the district court 
level. Senator Feingold proposed an amendment that would have 
simply required district courts to work within the same 
timeframe as the appeals courts. Under his proposal, any motion 
for remand to a state court would need to be decided by a 
district court within 60 days, which tracks the 60 days 
timeframe afforded to the appeals court. Sen. Feingold's 
amendment, which he withdrew at the request of Chairman 
Specter, also provided an automatic additional 10 days for 
review of the remand motion, and the ability to seek more time 
for review, if necessary.

C. Barriers to justice for consumers and victims of mass torts

    This legislation will also severely limit the ability of 
consumers to pursue class action in state court, even when 
state consumer protection laws are implicated. Consumers pay 
the price when Federal courts dismiss a case. When this occurs, 
``[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.'' \30\
---------------------------------------------------------------------------
    \30\ See Letter from the Consumer Federation of America, Consumers 
Union, and U.S. PIRG (Feb. 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 brought under the particular law in question. 
Because of this, the class action legislation ``will slow--and 
in some cases thwart--the continual interpretation of state 
law.'' \31\
---------------------------------------------------------------------------
    \31\ Id.
---------------------------------------------------------------------------
    As the American Bar Association Task Force on Class Action 
Legislation's recent report noted, ``any expansion [of Federal 
court jurisdiction] should preserve a balance between 
legitimate state-court interests and Federal-court 
jurisdictional benefits.'' \32\ The current legislation clearly 
fails this test.
---------------------------------------------------------------------------
    \32\ ABA Task Force on Class Action Legislation, Report of the ABA 
Task Force on Class Action Legislation at 3 (Feb. 2003). See also 
Letter in Opposition to S. 274, The Class Action Fairness Act of 2003, 
from the Consumers Union (Apr. 2, 2003).
---------------------------------------------------------------------------
    Proponents of S. 5 argue that while many class actions will 
be removed to federal courts, plaintiffs can still bring their 
individualized claims in state courts. This is not an adequate 
solution because state judges often consolidate cases to ease 
their dockets. This procedure allows cases with similar 
questions of law and fact to be consolidated for all or part of 
the proceedings. Consolidation does not make the case a class 
action. However, S. 5 reaches not only class actions, but these 
consolidated cases as well, through a new term of art called 
``mass actions.'' \33\ For example, the plaintiffs who have 
brought individual claims against Merck for injuries sustained 
by Vioxx have had their actions consolidated in the courts. 
Federalizing these cases would seriously delay not only the 
victims' compensation but would also prevent victims from 
holding the drug companies accountable. S. 5 places state court 
judges in a considerable Catch-22: either do not consolidate 
the cases and be overloaded with work, or consolidate and cede 
control of an issue relating to their state laws to the federal 
courts.
---------------------------------------------------------------------------
    \33\ Senate Bill 5 Sec. 4(a)(2) (adding 28 U.S.C. 
Sec. 1332(d)(11)).
---------------------------------------------------------------------------
    Senator Durbin proposed an amendment to rectify this Catch-
22 by narrowing the scope of mass tort cases that would be 
affected by S. 5. Despite the fact that a similar provision was 
unanimously struck from the bill during the mark-up of class 
actions legislation in the Judiciary Committee in the last 
Congress, mass torts are again included in S. 5.
    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.

D. Special punishment for the environment and civil rights

    By removing many important environmental class actions from 
state to federal court, S. 5 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.
    Moreover, by failing to carve out an exception in S. 5 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.'' \34\
---------------------------------------------------------------------------
    \34\ See Judicial Conference Letter, supra note 1.
---------------------------------------------------------------------------
    Just as S. 5 turns a blind eye toward the environment and 
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.\35\ Class 
actions are the most effective means to change a policy of 
discrimination and to bring claims for small amounts of 
individual wage loss. State laws offer more extensive 
protections for low wage workers and for many members of 
minority groups, as well as for the disabled. Several civil 
rights organizations have argued that S. 5 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.'' \36\
---------------------------------------------------------------------------
    \35\ See Letter in Opposition to S. 5 from the Leadership 
Conference on Civil Rights, AFL-CIO, Alliance for Justice, Lawyers' 
Committee for Civil Rights Under Law, Mexican American Legal Defense 
and Educational Fund, National Asian Pacific American Legal Consortium, 
National Partnership for Women and Families, National Workers Rights 
Institute, National Women's Law Center, People for the American Way, 
Women Employed and others (Feb. 2, 2005).
    \36\ See Letter in Opposition to S. 274 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 Workers Rights Institute, 
National Women's Law Center, People for the American Way, and Women 
Employed (Mar. 20, 2003).
---------------------------------------------------------------------------
    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. 5 sets up several new hurdles for plaintiffs who file 
class actions. These requirements will be especially burdensome 
for many civil rights claimants.
    The bill's requirement to provide ``notice'' to state 
officials, such as a state attorney general, will 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.
    As a consequence of the assault that S. 5 would launch on 
the defense of civil liberties, many civil 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.'' \37\
---------------------------------------------------------------------------
    \37\ Id.
---------------------------------------------------------------------------
    This legislation would have been greatly improved if 
amended by a carve-out proposed by Senator Kennedy for civil 
rights and employment law cases. The bill indiscriminately 
applies to all multi-state class action suits, without pausing 
to consider the implications on important civil rights abuse 
challenges. States have strengthened their civil rights laws 
after years of federal encouragement to do so, but now S. 5 
will take away the states' means of enforcing those laws. If 
violators are allowed to side-step these protections by 
removing cases to the federal courts, those efforts will have 
been for naught.
    Even if Federal courts take up the claims, state judicial 
interpretations of civil rights laws will be full of holes due 
to a lack of state-level adjudication of issues. The bill's 
additional notice requirement will not only lead to significant 
delays affecting plaintiffs' ability to gain critical evidence 
of malice or discriminatory intent, but also would likely be 
redundant as most plaintiffs already have gone through an 
administrative proceeding. Taken together, these barriers will 
certainly result in worthy claimants being discouraged from 
filing class action suits and civil rights violators going 
unpunished.
    We all agree that some reform is needed to improve the 
efficiency and fairness of our nation's class action 
procedures. At the same time, many state legislatures have 
worked hard to develop a system of laws that defend and protect 
all citizens' civil rights so it is unfortunate that this bill 
seeks to gut those efforts through a clumsy reform effort. 
Senator Kennedy proposed a refined approach that would have 
enabled victims of civil rights violations to have their day in 
court. This amendment would have exempted civil rights, as well 
as wage and hour state law cases, from S. 5 and therefore 
maintain the status quo for these claims.

E. Improvements made on coupon settlements

    This class action bill makes an improvement on the use of 
worthless coupon settlements, which provide little or no 
tangible benefits to class action plaintiffs. Typically, these 
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.\38\
---------------------------------------------------------------------------
    \38\ See In re Domestic Air Transportation Antitrust Litigation, 
137 F.R.D. 677 (N.D. Ga. 1991).
---------------------------------------------------------------------------
    This version of the class action bill creates incentives 
for class members' attorneys to seek a remedy for their clients 
by tying the attorneys' compensation to the value of coupons 
which are actually redeemed.\39\ To help the court make a 
determination of this value, the judge may hear from expert 
witnesses.\40\ If the coupons are not used to determine 
counsel's compensation, then the award fee must at least be 
``based upon the amount of time class counsel reasonably 
expended working on the action,'' subject to approval by the 
court.\41\ If the plaintiffs' attorneys secure a mixed award, 
i.e. coupons and an injunction, then part of their fee will be 
based on the coupons redeemed and part will be based on the 
reasonable expenditure of time.\42\ Any settlement based on 
coupons will be subject to a hearing before the judge who will 
determine if the proposed settlement if ``fair, reasonable and 
adequate.'' \43\
---------------------------------------------------------------------------
    \39\ Senate Bill 5 Sec. 3 (adding 28 U.S.C. 1712 (a)).
    \40\ Id. (adding 28 U.S.C. 1712 (d)).
    \41\ Id. (adding 28 U.S.C. 1712 (b) (1-2)).
    \42\ Id. (adding 28 U.S.C. 1712 (c)).
    \43\ Id. (adding 28 U.S.C. 1712 (e)).
---------------------------------------------------------------------------

       III. S. 5 Will Damage the Federal and State Court Systems

    By expanding federal class action jurisdiction to include 
almost all state class actions, S. 5 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.\44\

    \44\ See Letters from Judicial Conference (Jul. 26, 1999 and Aug. 
23, 1999).
---------------------------------------------------------------------------
    In addition to overwhelming the federal courts with new 
time-intensive class actions, S. 5 will undermine state courts' 
independent authority. State Attorneys General recently wrote 
to Senate leaders objecting to this ``federalizing'' of most 
class actions under this legislation:

          S. 5 would vastly expand federal diversity 
        jurisdiction, and thereby would result in most class 
        actions being filed in or removed to federal court. 
        This transfer of jurisdiction in cases raising 
        questions of state law will inappropriately usurp the 
        primary role of state courts in developing their own 
        state tort and contract laws, and will impair their 
        ability to establish consistent interpretations of 
        those laws.\45\
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    \45\ Letter from Eliot Spitzer, Attorney General New York and W.A. 
Drew Edmondson, Attorney General of Oklahoma, on behalf of the 
Attorneys General of the States of California, Illinois, Iowa, 
Kentucky, Maine, Maryland, Massachusetts, Minnesota, New Mexico, New 
York, Oklahoma, Vermont and West Virginia (Feb. 7, 2005).

    Even more troublesome than these potential workload 
problems, S. 5 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.'' \46\
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    \46\ The Federalist No. 14 (James Madison).
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    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.'' \47\
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    \47\ See Letter from Lawyers' Committee for Civil Rights Under Law 
(Apr. 9, 2003) (quoting Bank of the United States v. Deveaux, 9 U.S. (5 
Cranch) 61, 87 (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 the Supreme Court observed that it 
is an ``unassailable proposition * * * that States may 
establish the rules of procedure governing litigation in their 
own courts.'' \48\
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    \48\ 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).
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    Similarly, in Johnson v. Fankell, 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'' \49\ 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.'' \50\
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    \49\ 520 U.S. 911, 919 (1997) (holding that Idaho procedural rules 
concerning appealability of orders are not preempted by 42 U.S.C. Sec. 
1983) (quoting Henry M. Hart, Jr., The Relations Between State and 
Federal Law, 54 Colum. L. Rev. 489, 508 (1954)).
    \50\ 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'').
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    These same constitutional concerns were highlighted by 
Professor Laurence Tribe in his testimony regarding the 
constitutionality of a proposed federal class action rule 
applicable to state courts included in tobacco legislation 
proposed during the 105th Congress. 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.'' \51\
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    \51\ 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, Former-
Chairman Hatch 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.''
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    The Supreme Court's most recent decisions further indicate 
that S. 5 is an unacceptable infringement upon state 
sovereignty. In United States v. Morrison,\52\ the Court 
invalidated parts of the Violence Against Women Act, claiming 
that Congress overstepped its specific constitutional power to 
regulate interstate commerce. Despite vast quantities of data 
illustrating the effects that violence against women has on 
interstate commerce, the Court essentially warned Congress not 
to extend its constitutional authority to ``completely 
obliterate the Constitution's distinction between national and 
local authority.'' S. 5, introduced and considered in Committee 
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. 5 
not only obliterates the distinction between national and local 
authority, it effectively annihilates local authority over 
state class actions.
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    \52\ 529 U.S. 598 (2000).
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    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,\53\ 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; \54\ (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.\55\
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    \53\ 472 U.S. 797 (1985).
    \54\ 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)).
    \55\ Id. at 806-810. These findings were reiterated by the Supreme 
Court in 1995 in Matsushita 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).
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    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.\56\ For example, Congress enacted the Federal 
Courts Improvement Act of 1996,\57\ 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 \58\ 
and that it was important to keep the federal judiciary's 
efforts focused on federal issues.\59\
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    \56\ 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.
    \57\ 28 U.S.C 1332(a) (West Supp. 1998).
    \58\ See Judicial Conference of the United States, Long Range Plan 
for the Federal Courts, Recommendation 7 at 30 (1995).
    \59\ See id.
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                             IV. Conclusion

    Contrary to its supporters' assertions, S. 5's provisions 
are much broader than merely prohibiting nationwide class 
actions from being pursued in state court. In fact, this bill 
will override the current state laws governing class actions in 
the fifty states. And, in practice, it will 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 primary defendant is a citizen of a different state. 
This is clearly an extreme and distorted change to the 
diversity jurisdiction standards in our court system.
    As a result, these drastic changes to longstanding federal 
procedural rules will 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.
    For these reasons, and until we reach consensus on 
improvements to class action litigation for the benefit of 
defendants and plaintiffs, we remain strongly opposed to S. 5.

                                   Patrick J. Leahy.
                                   Edward M. Kennedy.
                                   Joseph R. Biden.
                                   Russell D. Feingold.
                                   Richard J. Durbin.

                      XII. Changes in Existing Law

    The Committee has determined that it is necessary, in order 
to expedite the business of the Senate, to dispense with the 
requirements of rule XXVI, paragraph 12, of the Standing Rules 
of the Senate, with respect to comparing the proposed changes 
and existing provisions of the United States Code.

                                  
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