19–010

Calendar No. 117

108TH CONGRESS REPORT " SENATE ! 1st Session 108–123

THE CLASS ACTION FAIRNESS ACT OF 2003

JULY 31 (legislative day, JULY 21), 2003.—Ordered to be printed 

Mr. HATCH, from the Committee on the Judiciary, 

submitted the following 

R E P O R T 

together with 

MINORITY VIEWS 

[To accompany S. 274] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on the Judiciary, to which was referred the bill 

(S. 274) to amend title 28, United States Code, to allow the application of the principles of federal diversity jurisdiction to interstate 

class actions, having considered the same, reports favorably thereon with amendments and recommends that the bill, as amended, 

do pass.

CONTENTS 

Page 

I. Legislative history ......................................................................................... 2

II. Votes of the Committee ................................................................................. 2

III. Purposes ......................................................................................................... 5

IV. Background and need for legislation ............................................................ 7

V. How S. 274 works .......................................................................................... 28

VI. Section-by-section analysis ............................................................................ 32

VII. Critics’ contentions and rebuttals ................................................................. 51

VIII. Congressional Budget Office cost estimate .................................................. 71

IX. Regulatory impact statement ........................................................................ 72

X. Minority views of Senators Leahy, Kennedy, Biden, Feingold, Schumer, 

Durbin and Edwards .................................................................................. 73

XI. Changes in existing law ................................................................................ 90

2

I. LEGISLATIVE HISTORY

The Senate began consideration of the Class Action Fairness Act 

in the 105th Congress when the Senate Judiciary Subcommittee on 

Administrative Oversight and the Courts convened a hearing on 

October 30, 1997. John H. Church, Jr., John C. Coffee, Jr., Lewis 

H. Goldfarb, Paul V. Niemeyer, Martha Preston, and Brian 

Wolfman testified at the hearing on issues such as unfair class settlements, attorneys’ fees, and State court abuses. On September 28, 

1998, the Subcommittee on Administrative Oversight and the 

Courts approved S. 2083, the ‘‘Class Action Fairness Act of 1997,’’ 

introduced by Senators Charles Grassley (R–IA) and Herb Kohl (D–

WI), with an amendment in the nature of a substitute. No further 

action was taken on S. 2083 in the 105th Congress. 

On February 3, 1999, S. 353, ‘‘The Class Action Fairness Act of 

1999,’’ was introduced in the 106th Congress by Senators Charles 

Grassley (R–IA), Herb Kohl (D–WI), and Strom Thurmond (R–SC). 

S. 353 was referred to the Senate Committee on the Judiciary. On 

May 4, 1999, the Judiciary Subcommittee on Administrative Oversight and the Courts held a legislative hearing (S. Hrg. 106–465) 

on the bill, and received testimony from Eleanor D. Acheson, John 

H. Beisner, Richard A. Daynard, E. Donald Elliot, John P. Frank, 

and Stephan G. Morrison. 

On June 29, 2000, the Judiciary Committee approved S. 353 with 

an amendment in the nature of a substitute, offered by Chairman 

Orrin G. Hatch (R–UT), Senators Charles Grassley and Herb Kohl, 

by a rollcall vote of 11 yeas and 7 nays. S. 353 was then ordered 

favorably reported by the Committee without additional amendment. 

The Senate continued consideration of the Class Action Fairness 

Act in the 107th Congress when Senator Charles Grassley (R–IA), 

on November 15, 2001, introduced S. 1712 along with Senators 

Kohl, (D–WI), Hatch (R–UT), Carper (D–DE), Thurmond (R–SC), 

Chafee (R–RI), and Specter (R–PA). While S. 1712 contained similar provisions from its predecessor bills, S. 1712 included some new 

provisions. On July 30, 2002, the Senate Judiciary Committee, 

which was then chaired by Senator Leahy (D–VT), held a hearing 

to discuss class actions generally, during which S. 1712 was discussed at length by Committee Members. The committee received 

testimony from Paul Bland, Thomas Henderson, former Solicitor 

General Walter E. Dellinger III, (Insurance) Commissioner Laurence Mirel, Shaneen Wahl and Hilda Bankston. No further action 

was taken on S. 1712 during the 107th Congress. 

On February 4, 2003, Senator Charles Grassley (R–IA) introduced S. 274, the ‘‘Class Action Fairness Act of 2003.’’ Senators 

Herb Kohl (D–WI), Orrin Hatch (R–UT), Thomas Carper (D–DE), 

Arlen Specter (R–PA), Lincoln Chafee (R–RI), and Zell Miller (D–

GA) joined the bill as original cosponsors. On April 11, 2003, the 

Judiciary Committee reported S. 274 favorably, with amendments, 

after two days of mark-up. 

II. VOTES OF THE COMMITTEE

Pursuant to paragraph 7 of rule XXVI of the Standing Rules of 

the Senate, each Committee is to announce the results of rollcall 

votes taken in any meeting of the Committee on any measure or 

3

1The Committee approved by unanimous consent a Specter/Feinstein amendment to strike 

1332(d)(9)(i) and 1332(d)(i)(ii) from the bill on condition that the Committee would develop compromise language as a substitute before floor consideration of S. 274. The Chairman proposed 

this solution because the Specter/Feinstein amendment was not circulated in advance of the 

mark-up, thus giving the Committee little time to consider alternative language. Following the 

mark-up session, discussions between Judiciary Committee staff for Senators Hatch, Grassley 

and Specter were held to address Senator Specter’s concerns and legislative language was 

agreed upon, to be included in a manager’s amendment on the Senate floor.

amendment. The Senate Judiciary Committee, with a quorum 

present, met on April 10 and 11, 2003 to mark up S. 274. The Committee rejected six amendments and accepted two amendments, 

one of which was accepted conditionally by unanimous consent.1

The following rollcall votes occurred on S. 274. 

A Feinstein/Hatch/Kohl/Grassley amendment to modify the jurisdictional structure governing whether a class action will be considered in Federal or state court was accepted 11 yeas to 8 nays. 

YEAS NAYS 

Grassley DeWine 

Specter Leahy (Proxy) 

Kyl Kennedy 

Sessions Biden (Proxy) 

Graham Feingold 

Craig (Proxy) Schumer (Proxy) 

Chambliss (Proxy) Durbin 

Cornyn Edwards (Proxy)

Kohl 

Feinstein 

Hatch 

A Durbin amendment to exclude from the Act class action claims 

relating to tobacco products was rejected 8 yeas to 11 nays. 

YEAS NAYS 

DeWine Grassley 

Leahy (Proxy) Specter (Proxy) 

Kennedy Kyl 

Biden (Proxy) Sessions 

Feingold Graham 

Schumer (Proxy) Craig (Proxy) 

Durbin Chambliss (Proxy) 

Edwards (Proxy) Cornyn 

Kohl (Proxy) 

Feinstein (Proxy) 

Hatch

4

A Kennedy amendment to exclude from the Act class action 

claims relating to civil rights violations was rejected 7 yeas to 11 

nays. 

YEAS NAYS 

Leahy (Proxy) Grassley 

Kennedy Kyl 

Biden (Proxy) DeWine 

Feingold Sessions 

Schumer (Proxy) Graham 

Durbin (Proxy) Craig 

Edwards (Proxy) Chambliss (Proxy) 

Cornyn 

Kohl (Proxy) 

Feinstein (Proxy) 

Hatch

A Kennedy amendment to exclude from the Act class action 

claims relating to firearms injury was rejected 7 yeas to 11 nays. 

YEAS NAYS 

Leahy (Proxy) Grassley 

Kennedy Kyl 

Biden (Proxy) DeWine 

Feingold Sessions 

Schumer (Proxy) Graham 

Durbin (Proxy) Craig 

Edwards (Proxy) Chambliss (Proxy) 

Cornyn 

Kohl (Proxy) 

Feinstein (Proxy) 

Hatch

A Feingold amendment to permit cases that fail to meet federal 

class action certification requirements to proceed in state court if 

state certification can be met was rejected 7 yeas to 11 nays. 

YEAS NAYS 

Leahy (Proxy) Grassley 

Kennedy (Proxy) Kyl 

Biden (Proxy) DeWine 

Feingold Sessions 

Schumer (Proxy) Graham 

Durbin Craig 

Edwards (Proxy) Chambliss (Proxy) 

Cornyn 

Kohl (Proxy) 

Feinstein (Proxy) 

Hatch

5

A Feingold amendment to exclude from the Act class action 

claims arising from State consumer protection laws was rejected 7 

yeas to 11 nays. 

YEAS NAYS 

Leahy (Proxy) Grassley 

Kennedy (Proxy) Kyl 

Biden (Proxy) DeWine 

Feingold Sessions 

Schumer (Proxy) Graham 

Durbin Craig 

Edwards (Proxy) Chambliss (Proxy) 

Cornyn 

Kohl (Proxy) 

Feinstein (Proxy) 

Hatch

A Leahy amendment to exclude from the Act class action claims 

arising from state environmental protection statutes was rejected 

7 yeas to 11 nays. 

YEAS NAYS 

Leahy (Proxy) Grassley 

Kennedy Kyl 

Biden (Proxy) DeWine 

Feingold Sessions 

Schumer (Proxy) Graham 

Durbin (Proxy) Craig 

Edwards (Proxy) Chambliss (Proxy) 

Cornyn 

Kohl (Proxy) 

Feinstein (Proxy) 

Hatch

Motion to report favorably S. 274. The motion was approved 12 

yeas to 7 nays. 

YEAS NAYS 

Grassley Leahy (Proxy) 

Specter Kennedy (Proxy) 

Kyl Biden (Proxy) 

DeWine Feingold 

Sessions Schumer (Proxy) 

Graham Durbin 

Craig Edwards (Proxy) 

Chambliss 

Cornyn 

Kohl 

Feinstein 

Hatch

III. PURPOSES

Our current class action system is plagued by numerous problems and abuses that threaten to undermine the rights of both 

plaintiffs and defendants. One key reason for these problems is 

that most class actions regardless of their nationwide scope are 

currently adjudicated in state courts, where the governing rules are 

6

2Davis v. Carl Cannon Chevrolet-Olds, Inc., 182 F.3d 792, 797 (11th Cir. 1999). 

applied inconsistently (frequently in a manner that contravenes 

basic fairness and due process considerations) and where there is 

often inadequate supervision over litigation procedures and proposed settlements. Moreover, current law enables lawyers to 

‘‘game’’ the procedural rules to trap nationwide or multi-state class 

actions in certain state courts whose judges have reputations for 

readily certifying classes and approving settlements without regard 

to class member interests. In this environment, consumers are the 

big losers: in too many cases, judges are readily approving class action settlements that offer little—if any—meaningful recovery to 

the class members, and simply enrich class counsel. Often, the settlement notice in such cases is so confusing that the plaintiff class 

members do not understand what—if anything—the settlement offers, or how they can opt out of it. To make matters worse, multiple 

class action cases purporting to assert the same claims on behalf 

of the same people often proceed simultaneously in several different state courts, causing judicial inefficiencies and promoting 

collusive activity between plaintiffs’ attorneys and defendants. Indeed, many state courts freely issue rulings in class action cases 

that have nationwide ramifications, thus overturning well-established laws and policies of other jurisdictions. 

The Class Action Fairness Act of 2003 is a modest, balanced bill 

to address some of the most egregious problems in class action 

practice. The Committee emphasizes, however, that the Act is not 

intended to be a ‘‘panacea’’ that will correct all class action abuses. 

The Act has three key components: 

First, S. 274 includes a consumer class action bill of rights, with 

multiple components. One element prohibits federal courts from approving coupon or ‘‘net loss’’ settlements without making written 

findings that such settlements benefit the class members. The bill’s 

notice provisions require that notices be in plain English and easily 

understandable. These provisions complement recently promulgated rules under the Rules Enabling Act that also seek to improve 

notices in class actions. Another element requires special scrutiny 

of settlements in which the named plaintiffs (i.e., the persons who 

are supposed to be negotiating on behalf of the class) receive special compensation beyond that being given to the other class members. Yet another element of the consumer bill of rights provides 

an additional mechanism to safeguard plaintiff class members’ 

rights by requiring that notice of class action settlements be sent 

to appropriate state and federal officials, so that they may voice 

concerns if they believe that the class action settlement is not in 

the best interest of their citizens. 

Second, S. 274 corrects a flaw in the current diversity jurisdiction 

statute (28 U.S.C. § 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 outof-state defendant facing suit in state court.’’ 2 Because interstate 

class actions typically involve more people, more money, and more 

interstate commerce ramifications than any other type of lawsuit, 

the Committee firmly believes that such cases properly belong in 

federal court. To that end, this bill (a) amends section 1332 to 

7

3 In the words of Article III, ‘‘[t]he judicial power shall extend * * * to Controversies * * * 

between citizens of different States.’’ 4See Newberg on Class Actions 3d §§ 13–14 to 13–17 (1997). 

5For 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 

Continued

allow federal courts to hear more interstate class actions on a diversity jurisdiction basis, and (b) modifies the federal removal statutes to ensure that qualifying interstate class actions initially 

brought in state courts may be heard by federal courts if any of the 

real parties in interest (including the unnamed class members or 

the defendants) so desire. Thus, S. 274 makes it harder for plaintiffs’ counsel to ‘‘game the system’’ by trying to defeat diversity jurisdiction, increases efficiency of the judicial system by allowing 

overlapping and ‘‘copycat’’ cases to be consolidated in a single federal court, and places the determination of more interstate class action lawsuits in the proper forum—the federal courts. 

Third, S. 274 directs the Judicial Conference of the United States 

to conduct a review of class action settlements and attorneys’ fees 

and to present Congress with recommendations for ensuring that 

attorneys’ fees are determined in a fair and reasonable way. This 

provision will help address the problem of excessive attorneys’ fees 

and will provide legislative oversight of the Judicial Conference’s 

efforts in this area. 

IV. BACKGROUND AND NEED FOR LEGISLATION

As set forth in Article III of the Constitution,3 the Framers established diversity jurisdiction to ensure fairness for all parties in 

litigation involving persons from multiple jurisdictions, particularly 

cases in which defendants from one state are sued in the local 

courts of another state. Interstate class actions—which often involve millions of parties from numerous states—present the precise 

concerns that diversity jurisdiction was designed to prevent: the potential for local prejudice by the court against out-of-state defendants or a judicial failure to recognize the interests of other states 

in the litigation. Yet, because of a technical glitch in the diversity 

jurisdiction statute (28 U.S.C. § 1332), such cases are usually excluded from federal court. The glitch is not surprising given that 

class actions as we now know them did not exist when the statute’s 

concept was crafted in the late 1700s. 

This Committee believes that the current diversity and removal 

standards as applied in interstate class actions have facilitated a 

parade of abuses, and are thwarting the underlying purpose of the 

constitutional requirement of diversity jurisdiction. S. 274 addresses these concerns by establishing ‘‘balanced diversity’’—a rule allowing a larger number of class actions into federal courts, while 

continuing to preserve primary state court jurisdiction over others.

A. A Brief History of Class Actions 

Although class actions have some roots in common law, the general concept was first codified in 1849.4 Early class actions merely 

required that numerous parties demonstrate a common interest in 

law or fact. 

Rule 23 of the Federal Rules of Civil Procedure, the rule governing federal court class actions, was initially adopted in 1938.5

8

Senate Comm. on the Judiciary, 106th Cong. (1999) (hereinafter ‘‘Hearings on S. 353’’), Prepared 

Statement of John P. Frank. 6Fed.R.Civ.P. 23(b)(3). Alternatively for a Rule 23(b)(1) class, the class proponent must show 

that the prosecution of separate actions by or against individual members of the class would 

create a risk of either (i) inconsistent or varying adjudication which would establish incompatible standards of conduct for the party opposing the class or (ii) adjudications which, as a practical matter, would be dispositive of the interests of the other members not parties to the adjudications or which would substantially impair or impede their ability to protect their ability to 

protect their interests. Id. at 23(b)(1). To obtain certification of a Rule 23(b)(2) class, the proponent is required to show that ‘‘the party opposing the class has acted or refused to act on 

grounds generally applicable to the class, thereby making appropriate final injunctive relief or 

corresponding declaratory relief with respect to the class as a whole.’’ Id. at 23(b)(2). 7See Hearings on S. 353, Prepared Statement of John P. Frank (‘‘If there was a single, undoubted goal of the committee, the energizing force which motivated the whole rule, it was the 

firm determination to create a class action system which could deal with civil rights and, explicitly, segregation.’’). 8 Administrative Office of the U.S. Courts, Working Papers of the Advisory Committee on Civil 

Rules on Proposed Amendments to Civil Rule 23 (Vol. 2) (‘‘Advisory Committee Working Papers’’), at 260 (1997). Another member of the 1966 Advisory Committee—Hon. William T. Coleman, Jr.—has testified to a similar effect. Id. (Vol. 3), 11/22/96 Public Hearing Tr. at 204 (‘‘I 

assure you that what the courts have done with respect to Rule 23(b)(3) is far beyond what we 

* * * ever intended. To the extent that there’s difficulty [with class actions, it] is not because 

of anything that was drafted in 1966, but [because] of how the rule has been handled since that 

time.’’). 9See John C. Coffee, Jr., Class Wars: The Dilemma of the Mass Tort Class Action, 95 Colum. 

L. Rev. 1343, 1358 (1995). 10 Id. at 1356–58, 1363–64. 

However, the concept of class actions that are a familiar part of today’s legal landscape did not arise until 1966, when Rule 23 was 

substantially amended to expand the availability of the device. 

Under Rule 23, a class action can be brought in federal court if (1) 

the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; 

(3) the claims or defenses of the representative parties are typical 

of those of the class; and (4) the representative parties will fairly 

and adequately protect the interests of the class. In addition, a proponent must show that the proposed class meets one of three additional requirements set forth in Rule 23(b). For example, for a Rule 

23(b)(3) damages class action to be certified, a proponent must 

show that ‘‘the questions of law or fact common to the members of 

the class predominate over any questions affecting only individual 

members, and that a class action is superior to other available 

methods for the fair and efficient adjudication of the controversy.’’ 6

As originally envisioned, class action lawsuits were to be primarily a tool for civil rights litigants seeking injunctions in discrimination cases.7 Prof. John P. Frank, a member of the 1966 Advisory Committee on Civil Rules that proposed amending Rule 23 

to its current form, testified that those who wrote the new class action rule thought it would rarely (if ever) apply to product liability 

or mass torts cases.8 In the 1980s, however, some plaintiffs’ lawyers successfully persuaded judges to expand class actions to the 

area of mass torts.9 These courts began to expand the types of 

claims they were willing to certify as class actions because they 

feared that the large number of individual mass tort cases could 

slow or stop the judicial system.10 Thus, class actions have evolved 

from their original primary purpose—to counter civil rights 

abuses—and have become a common tool for plaintiffs’ attorneys 

bringing personal injury or product liability claims. While the landscape of class actions has changed dramatically, the procedural 

rules regarding which courts can hear class actions, and conVerDate jul 14 2003 06:18 Aug 07, 2003 Jkt 019010 PO 00000 Frm 00008 Fmt 6659 Sfmt 6602 E:\HR\OC\SR123.XXX SR123
9

11 U.S. Const. art. III, sec. 2. 12See Pease v. Peck, 59 U.S. (18 How) 595, 599 (1856) (‘‘The theory upon which jurisdiction 

is conferred on the court of the United States, in controversies between citizens of different 

States, has its foundation in the supposition that, possibly the state tribunal might not be impartial between their own citizens and foreigners.’’); see also Martin v. Hunter’s Lessee, 14 U.S. 

(1 Wheat) 304, 347 (1816); Bank of the United States v. Deveaux, 9 U.S. (5 Cranch) 61, 87 

(1809); Barrow S.S. Co. v. Kane, 170 U.S. 100 (1898) (‘‘The object of the provisions of the Constitution and statutes of the United States in conferring upon the Circuit Courts of the United 

States jurisdiction of controversies between citizens of different States of the Union * * * was 

to secure a tribunal presumed to be more impartial than a court of the State in which one of 

the litigant resides.’’); The Federalist No. 80, at 537–38 (Alexander Hamilton) (Jacob E. Cooke, 

ed. 1961) (‘‘In order to [ensure] the inviolable maintenance of that equality of privileges and immunities to which citizens of the union will be entitled, the national judiciary ought to preside 

in all cases in which one state or its citizens are opposed to another state or its citizens. To 

secure the full effect of so fundamental a provision against all evasion and subterfuge, it is necessary that its construction should be committed to that tribunal which, having no local attachments, will be likely to be impartial between the different states and their citizens, and which, 

owing its official existence to the union, will never be likely to feel any bias inauspicious to the 

principles on which it is founded.’’). 13 H. J. Friendly, The Historic Basis of Diversity Jurisdiction, 41 Harv. L. Rev. 483, 492–93 

(1928). 14 Burford v. Sun Oil Co., 319 U.S. 315, 336 (1943) (Frankfurter, J., dissenting). 15 Hearings on S. 353, Prepared Statement of E. Donald Elliott, May 4, 1999; see also, Adrienne J. Marsh, Diversity Jurisdiction: Scapegoat of Overcrowded Federal Courts, 48 Brooklyn 

L. Rev. 197, 201 (1989). 

sequently, which procedural law will apply to such cases, generally 

have remained the same since 1966. 

B. Federal Diversity Jurisdiction and Removal Provisions 

1. The basics of diversity jurisdiction 

The Constitution extends federal court jurisdiction to cases of a 

distinctly federal character—for instance, cases raising issues 

under the Constitution or federal statutes, or cases involving the 

federal government as a party—and generally leaves to state courts 

the adjudication of local questions arising under state law. However, the Constitution specifically extends federal jurisdiction to encompass one category of cases involving issues of state law: ‘‘diversity’’ cases, or suits ‘‘between citizens of different States.’’ 11

According to the Framers, the primary purpose of diversity jurisdiction was to protect citizens in one state from the injustice that 

might result if they were forced to litigate in out-of-state courts.12

Quoting James Madison, Judge Henry Friendly explained that diversity jurisdiction is essential to a strong union because it ‘‘may 

happen that a strong prejudice may arise in some state against the 

citizens of others, who may have claims against them.’’ 13 Justice 

Frankfurter expressed a similar understanding of Madison’s concerns: ‘‘It was believed that, consciously or otherwise, the courts of 

a state may favor their own citizens. Bias against outsiders may 

become embedded in a judgment of a state court and yet not be sufficiently apparent to be made the basis of a federal claim.’’ 14

In addition to protecting individual litigants, diversity jurisdiction has two other important purposes. In testimony several years 

ago before the Subcommittee on Administrative Oversight and the 

Courts, Prof. E. Donald Elliott of the Yale Law School expressed 

the view that diversity jurisdiction was designed not only to protect 

against actual discrimination, but also ‘‘to shore up confidence in 

the judicial system by preventing even the appearance of discrimination in favor of local residents.’’ 15 In addition, several legal 

scholars have noted that the Framers were concerned that state 

courts might discriminate against interstate businesses and commercial activities, and thus viewed diversity jurisdiction as a 

10

16See generally John P. Frank, Historical Bases of the Federal Judicial System, 13 Law & 

Contemp. Probs. 3, 22–28 (1948); H. J. Friendly, The Historic Basis of Diversity Jurisdiction, 

41 Harv. L. Rev. 483 (1928). 17See 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. 18See 28 U.S.C. § 1332(a). 19See Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 (1806). 20See, e.g., Newman-Greene, Inc. v. Alfonzo-Larrian, 490 U.S. 826, 829 n.1 (1989) (noting that 

‘‘[the] complete diversity requirement is based on the diversity statute, not Article III of the 

Constitution.’’); Owen Equip. & Co. v. Kroger, 437 U.S. 365, 373 n. 13 (1978) (to the same effect). 21See Hearing on Class Actions, Prepared Statement of Walter E. Dellinger, III. 22See David P. Currie, Federal Jurisdiction 115–116 (4th ed. 1999). 

means of ensuring the protection of interstate commerce.16 As 

former Acting Solicitor General Walter Dellinger testified last year 

before the Committee, ‘‘diversity jurisdiction has served to guarantee that parties of different state citizenship have a means of resolving their legal differences on a level playing field in a manner 

that nurtures interstate commerce.’’ 17 Both of these concerns—judicial integrity and interstate commerce—are strongly implicated 

by class actions. 

Over the years since the First Congress enacted provisions in the 

Judiciary Act of 1789 setting forth the parameters of federal diversity jurisdiction, two statutory limitations on that jurisdiction have 

been constants. The first is the ‘‘amount in controversy’’ requirement (currently $75,000), which Congress enacted in order to ensure that diversity jurisdiction extends only to non-trivial state-law 

cases.18 The second is the ‘‘complete diversity’’ requirement, a rule 

that federal jurisdiction lies only when all plaintiffs are diverse as 

to all defendants.19 It is important to recognize that these procedural limitations regarding interstate class actions were policy decisions, not constitutional ones. In fact, the U.S. Supreme Court 

has repeatedly acknowledged that the complete diversity and minimum amount-in-controversy requirements are political decisions 

not mandated by the Constitution.20 Indeed, as Professor Dellinger 

noted in his testimony before this Committee last year, class action 

legislation expanding federal jurisdiction over class actions ‘‘would 

fulfill the intentions of the Framers because the rationales that underlie the diversity jurisdiction concept apply with equal—if not 

greater—force to interstate class actions.’’ 21 It is therefore the prerogative of Congress to modify these technical requirements as it 

deems appropriate. 

2. How diversity cases arrive in federal court 

A diversity case can be taken to federal court in two ways: (1) 

by the plaintiffs’ initial decision to file the case in federal court, or 

(2) by the defendants’ decision to remove the case to federal court. 

The concept of ‘‘removing’’ cases from state courts to federal courts 

is based largely on the same core premise as diversity jurisdiction—i.e., that an out-of-state defendant in a state court proceeding 

should have access to an even-handed federal forum.22 The general 

removal statute, 28 U.S.C. § 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. 

11

23 28 U.S.C. § 1446(b). 24 Id. 25See generally, Victor E. Schwartz, Mark A. Behrens & Leah Lorber, Federal Courts Should 

Decide Interstate Class Actions: A Call for Federal Class Action Diversity Jurisdiction Reform, 

37 Harv. J. Legis. 483 (Summer 2000). 26See Snyder v. Harris, 394 U.S. 332 (1969). 27See, e.g., Blanke v. Lincoln National Corp., 1997 U.S. Dist. LEXIS 20384 (E.D. La. Dec. 18, 

1997). 28See, e.g., Triggs v. John Crump Toyota, 154 F.3d 1284 (11th Cir. 1998). 29See Hearing on Class Actions, Prepared Statement of Hilda Bankston. 

Section 1446(b) of Title 28 outlines the procedure for removal. 

Under this provision, a defendant must file papers seeking removal 

to federal court within 30 days after receiving a copy of the initial 

pleading (or service of summons if a pleading has been filed in 

court and is not required to be served on the defendant). If the 

original complaint was not removable, but the plaintiff subsequently amends the pleadings in such a way that removal becomes 

proper, then the notice of removal must be filed within 30 days of 

receipt by the defendant of ‘‘a copy of an amended pleading, motion, order, or other paper from which it may first be ascertained 

that the case [is removable].’’ 23 Under current law, however, a case 

can only be removed on diversity jurisdiction grounds within a year 

from commencement of the action.24

C. How Diversity Jurisdiction and Removal Statutes are Abused 

The current rules governing federal jurisdiction have the unintended consequence of keeping most class actions out of federal 

court, even though most class actions are precisely the type of case 

for which diversity jurisdiction was created because of their interstate character.25 In addition, current law enables plaintiffs’ lawyers who prefer to litigate in state courts to easily ‘‘game the system’’ and avoid removal of large interstate class actions to federal 

court. 

This gaming problem exists for two reasons. The first reason is 

the ‘‘complete diversity’’ requirement. Although the Supreme Court 

has held that only the named plaintiffs’ citizenship should be considered for purposes of determining if the parties to a class action 

are diverse, the ‘‘complete’’ diversity rule still mandates that all 

named plaintiffs must be citizens of different states from all the defendants.26 In interstate class actions, plaintiffs’ counsel frequently 

and purposely evade federal jurisdiction in multi-state class actions 

by adding named plaintiffs or defendants simply based on their 

state of citizenship in order to defeat complete diversity. For example, it is quite common in insurance cases for plaintiffs to name a 

few local insurance agents in a nationwide class action against an 

out-of-state insurance company, even though the vast majority of 

proposed class members had no dealings with these agents.27 Similarly, in product liability cases against automobile manufacturers, 

plaintiffs often name a local dealer even though only a few class 

members purchased their cars from that dealer.28 One witness at 

last year’s hearing on class actions testified that her drug store was 

named as a defendant in ‘‘hundreds of lawsuits’’ so that ‘‘the lawyers could keep the case in a place known for its lawsuit-friendly 

environment.’’ 29 If all it takes to keep a class action in state court 

is to name one local retailer, it is no surprise that few interstate 

class actions meet the complete diversity requirement. 

12

30See Zahn v. International Paper Co., 414 U.S. 291 (1974). 31See 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). 32Other federal courts of appeals have held that for a class action to be heard in federal court only one or more named plaintiffs must have claims exceeding $75,000. See, e.g., Rosmer v. Pfizer, Inc., 263 F.3d 110 (4th Cir. 2001); Gibson v. Chrysler Corp., 261 F.3d 927 (9th Cir. 2001); 

Stromberg Metal Works. Inc. v. Press Mechanical, Inc., 77 F.3d 928 (7th Cir. 2000); In re Abbott 

Labs., Inc., 51 F.3d 524 (5th Cir. 1995), aff’d by an equally divided Court, 529 U.S. 333 (2000); 

Allapattah Servs. v. Exxon Corp., 2003 U.S. App. LEXIS 11628 (June 11, 2003). In the view of 

these courts, the value of the claims of the other class members is irrelevant—they are deemed 

to be part of the class as a matter of supplemental jurisdiction. The Committee stresses, however, that even in those Circuits following this rule, relatively few class actions find their way 

into federal court because plaintiffs offer named plaintiffs who do not have $75,000 claims or 

name a non-diverse plaintiff or defendant in order to prevent removal of the case to federal 

court. 33 14B Charles A. Wright, et al., Federal Practice and Procedure § 3704, at 127 (3d ed. 1998). 

The second reason that lawyers are able to game the system is 

the amount-in-controversy requirement. In interpreting 28 U.S.C. 

§ 1332(a), some federal courts of appeals, relying on a 1974 Supreme Court decision,30 have held that the amount-in-controversy 

requirement is normally met in class actions only if each of the 

class members individually seeks damages in excess of the statutory minimum.31 That means federal courts can only hear class ac- tions in which each plaintiff claims damages in excess of $75,000.32

The Committee believes that requiring each plaintiff to reach the 

$75,000 mark makes little sense in the class action context. After 

all, class actions frequently involve tens of millions of dollars even 

though each individual plaintiff’s claims are far less than that 

amount. Moreover, class action lawyers sometimes misuse the jurisdictional threshold to keep their cases out of federal court. For 

example, class action complaints often include a provision stating 

that no class member will seek more than $75,000 in relief, even 

though certain class members may be entitled to more and the 

class action seeks millions of dollars in the aggregate. 

This leads to the nonsensical result under which a citizen can 

bring a ‘‘federal case’’ by claiming $75,001 in damages for a simple 

slip-and-fall case against a party from another state, while a class 

action involving 25 million people living in all fifty states and alleging claims against a manufacturer that are collectively worth $15 

billion currently must usually be heard in state court. In other 

words, under the current jurisdictional rules, federal courts can assert diversity jurisdiction over a typical state law claim arising out 

of an auto accident between a driver from one state and a driver 

from another, but cannot assert jurisdiction over claims covering 

large-scale, interstate class actions involving thousands of plaintiffs 

from multiple states, defendants from many states, the laws of several states, and hundreds of millions of dollars. 

There is a growing chorus of authoritative sources declaring that 

something is badly amiss with the manner in which federal diversity jurisdictional requirements are applied to class actions: • The leading federal civil procedure law treatise has noted: ‘‘The 

traditional principles [regarding federal diversity jurisdiction over 

class actions] have evolved haphazardly and with little reasoning. 

They serve no apparent policy and their application to a certain degree turns on a mystifying conceptual test.’’ 33

• In a recent Minnesota state appellate court decision upholding 

a grant of class certification, a concurring judge noted that the nationwide class action before the court was a ‘‘poster child for naVerDate jul 14 2003 06:18 Aug 07, 2003 Jkt 019010 PO 00000 Frm 00012 Fmt 6659 Sfmt 6602 E:\HR\OC\SR123.XXX SR123
13

34Peterson v. BASF Corp., 657 N.W. 2d 853 (Minn. App. Ct. 2003). 35Davis v. Cannon Chevrolet-Olds, Inc., 182 F.3d 792, 797 (11th Cir. 1999). 36 Id. at 798. 37 In re Prudential Ins. Co. America Sales Practice Litig., 148 F.3d 283, 305 (3d Cir. 1998). 38Letter from the Judicial Conference of the United States to Senator Orrin G. Hatch, (R–

UT), Chairman of the Senate Committee on the Judiciary. March 26, 2003. 

tional class action reform. We have here a Minnesota [state] district court, applying a New Jersey consumer fraud statute to a nationwide class of plaintiffs, with few of those plaintiffs residing in 

New Jersey. And, it is probably a fair assumption that the legislative authors of the New Jersey consumer protection scheme did not 

have in mind midwestern farmers purchasing agricultural chemicals as the protected class. * * * This is not a recipe for uniformity 

or consistency, it is fair neither to claimants nor defendants and it 

is long past time for national policy makers to address class action 

procedures.’’ 34

• 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 * * *’’. 35

• In that same case, Judge John Nangle, the former chairman 

of the Judicial Panel for Multidistrict Litigation, concurred: ‘‘Plaintiffs’ attorneys are increasingly filing nationwide class actions in 

various state courts, carefully crafting language * * * to avoid 

* * * the federal courts. Existing federal precedent * * * [permits] 

this practice * * *, although most of these cases * * * will be disposed of through ‘coupon’ or ‘paper’ settlements * * * virtually always accompanied by munificent grants of or requests for attorneys’ fees for class counsel * * *. [T]his judge is of the opinion that 

the present [jurisdictional rules] do[] not accommodate the reality 

of modern class litigation and settlements.’’ 36

• In another case, Judge Anthony Scirica (chair of the Judicial 

Conference’s Standing Committee on Rules and Procedure) observed that although ‘‘national (interstate) class actions are the 

paradigm for federal diversity jurisdiction because * * * they implicate interstate commerce, foreclose discrimination by a local 

state, and tend to guard against any bias against interstate enterprises, * * * the current jurisdictional statutes [put] such class actions * * * beyond the reach of the federal courts.’’ 37

• In a March 26, 2002 letter to the Committee, the Judicial 

Conference of the United States acknowledges ‘‘current problems 

with class action litigation.’’ Further, in that letter, the Conference 

for the first time ‘‘recognizes that the use of [expanded] diversity 

jurisdiction may be appropriate to the maintenance of significant 

multi-state class action litigation in the federal courts.’’ 38

The Committee notes that a number of congressional hearing 

witnesses (including former Carter Administration Attorney General Griffin Bell and Clinton Administration Solicitor General Walter E. Dellinger) and other legal experts agree that if Congress 

14

39See generally Hearing on Class Actions; Hearings on S. 353; Hearing on H.R. 1875. 40See Hearing on Class Actions, Prepared Statement of Walter E. Dellinger III. 41 Hearings on S. 353, Prepared Statement of E. Donald Elliott. 42See 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). 43See John H. Beisner and Jessica Davidson Miller, They’re Making A Federal Case Out Of 

It * * * In State Court, 25 Harv. J. L. & Pub. Pol’y 1 (Fall 2001). 44See John H. Beisner and Jessica Davidson Miller, Class Action Magnet Courts: The Allure 

Intensifies, 4 BNA Class Action Litig. R. 58 (Jan. 24, 2003). 

were to draft an entirely new federal diversity jurisdiction statute 

and start over in deciding which cases should be subject to federal 

diversity jurisdiction, Congress likely would conclude that interstate class actions are among the cases that most warrant access 

to the federal courts because they involve the most people, put the 

most money in controversy, and have the greatest implications for 

interstate commerce.39 As Prof. Dellinger noted in his testimony 

last year before this Committee, ‘‘the rationales that underlie the 

diversity jurisdiction concept apply with equal—if not greater—

force to interstate class actions.’’ 40

D. Other Abuses With the Class Action Rules 

The ability of plaintiffs’ lawyers to evade federal diversity jurisdiction has helped spur a dramatic increase in the number of class 

actions litigated in state courts—an increase that is stretching the 

resources of the state court systems. In his testimony to the Subcommittee on Administrative Oversight and the Courts several 

years ago, Prof. E. Donald Elliott pointed out that the flood of class 

actions in our state courts is too well documented to warrant significant discussion, much less debate.41 According to recent studies, 

federal class action filings over the past ten years have increased 

by more than 300 percent. At the same time, class action filings in 

state courts have grown more than three times faster—by more 

than 1,000 percent.42

Notably, many of these cases are being filed in improbable jurisdictions. A recent study conducted in three venues with reputations 

as hotbeds for class action activity found exponential increases in 

the numbers of class actions filed in recent years. For example, in 

the Circuit Court of Madison County, Illinois, a mostly rural county 

that covers 725 square miles and is home to less than one percent 

of the U.S. population, the number of class actions filed annually 

grew from 2 in 1998 to 39 in 2000—an increase of 3,650 percent.43

And a follow-up study found that the number of class actions filed 

in the county continued to grow dramatically in 2001 and 2002.44

The reason for this dramatic increase in state court class actions 

cannot be found in variations in class action rules; after all, the 

rules governing the decision whether cases may proceed as class 

actions are basically the same in federal and state courts. In fact, 

thirty-six states have adopted the basic federal class action rule 

(Rule 23), sometimes with minor revisions. Of the remaining states, 

most have rules that are guided by federal court class action policy 

and contain similar requirements. Two states do not have rules or 

statutes authorizing class actions. Thus, there are no wide variations between federal and state court class action policies. 

The Committee finds, however, that one reason for the dramatic 

explosion of class actions in state courts is that some state court 

15

45See Hearings on S. 353, Oral Statement of Senator Charles E. Grassley. 46See 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.’’). 47Kamilewicz v. Bank of Boston, 92 F.3d 506 (7th Cir. 1996). 

judges are less careful than their federal court counterparts when 

applying the procedural requirements that govern class actions. In 

particular, many state court judges are lax about following the 

strict requirements of Rule 23 or the state’s parallel governing rule, 

which are intended to protect the due process rights of both 

unnamed class members and defendants. Alternatively, in a limited 

few jurisdictions where class action procedures do not exist—and 

even in some states where they do exist—some judges have nevertheless espoused a willingness to allow curious mass consolidations 

or mass joinders that are not capable of rigorous class certification 

rule scrutiny. In contrast, federal courts generally scrutinize proposed settlements more carefully and pay closer attention to the 

procedural requirements for certifying a matter for class treatment.45

Another problem is that a large number of state courts lack the 

necessary resources to supervise proposed class settlements properly.46 Many state judges do not have law clerks, and the explosion 

of state court class actions has simply overwhelmed their dockets. 

Not surprisingly, abuses are much more likely to occur when state 

court judges are unable to give class action cases and settlements 

the attention they need. 

The lack of a federal forum for most interstate class actions and 

the inconsistent administration of class actions in state courts have 

led to several forms of abuse. The Committee, in drafting this bill, 

has focused upon six major types of abuses that result in unfair 

treatment of litigants and consumers. First, lawyers, not plaintiffs, 

may benefit most from settlements. Second, corporate defendants 

are forced to settle frivolous claims to avoid expensive litigation, 

thus driving up consumer prices. Third, constitutional due process 

rights are often ignored in class actions. Fourth, expensive and 

predatory copy-cat cases force defendants to litigate the same case 

in multiple jurisdictions, driving up consumer costs. Fifth, class 

members frequently are unable to understand their rights when 

reading class action notice documents, and there is a need to provide them with additional protections from unfairly reached settlements. Sixth, lawyers sometimes structure settlements so that 

some plaintiff class members unfairly receive additional geography 

or bounty payments, to the detriment of all other class members. 

1. Lawyers receive disproportionate shares of settlements 

The first abuse involves settlements in which the attorneys receive excessive attorneys’ fees with little or no recovery for the 

class members themselves. In the now infamous Bank of Boston

class action settlement,47 for example, the defendant bank was accused of over-collecting escrow monies from homeowners and profiting from the interest. The settlement, approved by an Alabama 

state court, awarded up to $8.76 each to individual class members, 

while the class counsel got more than $8.5 million in fees. To make 

matters worse, the fees were simply debited directly from individual class members’ escrow accounts, leaving many of them 

16

48See Class Action Lawsuits: Examining Victim Compensation and Attorneys’ Fees: Hearing 

before the Subcomm. on Administrative Oversight and the Courts of the Senate Comm. on the 

Judiciary, Serial No. J–105–62 (S. Hrg. 105–504), 105th Cong., 1st Sess. (Oct. 30, 1997), Prepared Statement of Martha Preston. 49Scott v. Blockbuster Inc. (No. D162–535, Jefferson County, Texas, 2001); Judge OKs Blockbuster Plan On Fees, Associated Press, Jan. 11, 2002. 50 American Airlines Settles Lawsuits Over Frequent Flier Program, Fort Worth Star-Telegram, June 22, 2000. 51 Enough Already With the Lawsuits, Kansas City Star, July 10, 1999. 

worse off than they were before the suit. In testimony before the 

Subcommittee on Administrative Oversight and the Courts, class 

member Martha Preston recounted how she received $4 from the 

settlement, but was charged a mysterious $80 ‘‘miscellaneous deduction,’’ which she later learned was an expense used to pay the 

class lawyers’ $8.5 million settlement fee. Ms. Preston expressed 

her disbelief over how ‘‘people who were supposed to be my lawyers, representing my interests, took my money and got away with 

it.’’ 48

Through several hearings over the past several years, the Committee has become aware of numerous class action settlements approved by state courts in which most—if not all—of the monetary 

benefits went to the class counsel, rather than to the class members those attorneys were supposed to be representing. These settlements include many so-called ‘‘coupon settlements’’ in which 

class members receive nothing more than promotional coupons to 

purchase more products from the defendants. The record before the 

Committee is replete with examples, but the common theme is the 

same: the lawyers get cash, while the plaintiffs get coupons or less. 

For example: 

• In a case involving customers who alleged that they were 

charged excessive late fees by Blockbuster, the class members received $1 off coupons for rentals—at the same time, their attorneys 

divided up a $9.25 million fee award. Experts have predicted that 

at most, only 20 percent of the class members will redeem the coupons. However, the settlement allows Blockbuster to continue its 

practice of charging customers for a new rental period when they 

return a tape late.49 In this settlement approved by a Texas state 

court, only the lawyers received cash. 

• Under a settlement in a class action against American Airlines 

filed in state court, which resulted from allegations regarding 

changes in American Airlines’ frequent flyer program, members of 

the program received vouchers good for $25 to $75 off the price of 

future travel, or a similarly valued reduction in the number of 

miles required for an award. American agreed to pay the lawyers 

up to $25 million in fees. One news article about the settlement 

quoted travel experts saying that ‘‘the practical value of those discounts will be modest,’’ and ‘‘American could end up generating 

enough extra revenue to more than offset the cost of the offer.’’ 50

• 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 $2,500.51

17

52Rinaldi v. Iomega Corp. (No. 98C–09–064–RRC, Delaware); Utah-Based Tech Company Settles Lawsuit With Rebate Offer, Standard-Examiner, Apr. 14, 2001. 53 Carnival Cruise Settles Lawsuit, Florida Today, Mar. 16, 2001. 54Thomson Antes Up $100 Million Settlement, Indianapolis Business Journal, Mar. 12, 2001. 55See Richard B. Schmitt, Leaky System: Suits Over Plastic Pipe Finally Bring Relief, Especially for Lawyers, Wall St. J., Nov. 20, 1995, at A1. 56See The (San Francisco) Recorder, Jan. 4, 1996. 57See Michelle Singletary, Coupon Settlements Fall Short, Wash. Post, Sept. 12, 1999, at 

H01. 

• A class action alleged that certain ‘‘zip drives’’ supposedly contained a defect that sometimes caused the failure of the drives or 

the zip disks. The plaintiffs’ attorneys received $4.7 million in fees, 

while the estimated 28 million purchasers of an Iomega Zip drive 

between 1995 and March 19, 2001 received coupons for a rebate of 

between $5 and $40 on future purchases of Iomega products. In addition, the settlement called for the defendant to donate $1 million 

of its products to schools.52

• In a suit involving port charges, a sea cruise line agreed to 

give vouchers worth $25 to $55 off a future cruise to 4.5 million 

people who sailed on its cruises between April 19, 1992 and June 

4, 1997. The vouchers can be used for a future cruise or redeemed 

for cash at 15 or 20 percent of face value.53 In this state court class 

action settlement, only the lawyers received cash payments. 

• In a case alleging flawed television sets, Thomson Consumer 

Electronics agreed to reimburse customers who had receipts documenting repairs, to provide $50 rebates on the purchase of future 

products for consumers who did not repair their problems or did 

not have receipts, and to provide $25 rebates on future products to 

consumers who did not experience a problem. Thus, those plaintiffs 

with actual injuries were required to split awards with those without any injury whatsoever. The lawyers reportedly received $22 

million in fees and costs.54

• In one state court class action involving faulty pipes, lawyers 

for a group of Alabama plaintiffs received more than $38.4 million 

in fees, and lawyers for a class of Tennessee plaintiffs received $45 

million, or the equivalent of about $2,000 an hour. In contrast, the 

homeowners only received 8 percent rebates toward new plumbing—and to get those rebates, they had to first prove that they had 

suffered leaks and then go out and buy a new system.55

• In March 1995, a computer manufacturer settled multiple 

state court class actions alleging a chip flaw that would arise only 

once in 27,000 years for the average spreadsheet user. It essentially agreed to do what it was already doing: offer free replacements, maintain service centers, operate toll-free phone numbers, 

and provide diagnostic computer programs. Meanwhile, class counsel received $4.27 million in fees.56

• In another case, an Illinois state court approved a coupon settlement of a class action filed against Southwestern Bell Mobile 

Systems, Inc., alleging that the company failed to fully disclose the 

fact that it rounded up customer calls to the next minute. Under 

the state court settlement, the class members received $15 vouchers toward Cellular One products, while the class lawyers took 

home more than $1 million in fees.57

• In a state court class action alleging that Coca-Cola improperly 

added sweeteners to apple juice, the defendant agreed to distribute 

18

58Lawyers Get $1.5 Million, Clients Get 50 Cents Off, Fulton County Daily Report, Nov. 21, 

1997. 59 Coupon Settlements Fall Short, Washington Post, Sept. 12, 1999. 60See $675,000 Approved for Lawyers In Milli Vanilli Lip-Sync Lawsuit, Chicago Tribune, 

July 24, 1992. 61 Cereal Plan Called Soggy, National Law Journal, May 22, 1995. 62 Judge OK’s Plan For Class Members, The Recorder, Feb. 24, 1998. 63Los Angeles Times, June 8, 1998, at D3. For more examples of coupon settlements, See

Hearings on S. 353, Prepared Testimony of Stephan G. Morrison.

50-cent coupons toward the purchase of apple juice. Meanwhile, 

class counsel received $1.5 million.58

• A California state court approved a settlement under which 

class members, who had alleged that manufacturers misrepresented the size of computer monitor screens, received a $13 rebate 

if they purchased new monitors. The class attorneys, however, received approximately $6 million in fees.59

• The Chicago Tribune reported that in a state court class action 

against a record company to recover the prices paid for albums by 

the group Milli Vanilli (that contained the voices of other performers), class members were given a settlement of $1 to $3 each. 

The Illinois state court awarded the lawyers $675,000, but the lawyers turned around and petitioned the court for an increase to $1.9 

million.60

• In a state court action alleging that General Mills treated oats 

with a non-approved pesticide, class members were offered coupons; the attorneys received $1.75 million.61

• In a settlement of a state court antitrust class action involving 

cellular service, coupons and small service credits were offered. But 

counsel obtained agreement to be paid up to $9.5 million.62 Virtually all the cash paid in the settlement went to lawyers. • In another case, class action plaintiffs alleged that discount 

stores overstated the value of software bundles that came with 

computers. In a class settlement approved by a state court, consumers received coupons worth the lesser of a 7 percent or $25 discount off future purchases of products from the defendants’ stores. 

The attorneys received $890,000 in fees.63

Examples of abusive settlements in which attorneys receive fees 

that are disproportionate to any client benefits can be found in 

both state and federal court; however, such abuses tend to occur 

predominantly in state court. Too often, the current system results 

in settlements where only lawyers are rewarded, and plaintiffs are 

left unprotected. 

2. Judicial blackmail forces settlement of frivolous cases 

The current system also permits the use of the class device as 

‘‘judicial blackmail’’ in cases that are clearly frivolous. Such a result drives up prices for all consumers, because corporate defendants are forced to settle these frivolous cases. 

Because class actions are such a powerful tool, they can give a 

class attorney unbounded leverage, particularly in jurisdictions 

that are considered plaintiff-friendly. The reason for this 

unbounded leverage in such jurisdictions is because, as a general 

rule, the question of whether a class is properly certified can only 

be appealed following a costly, and risky, trial. Thus, the Hobson’s 

choice is to either settle a frivolous suit, or invest in expensive litigation. Consequently, such leverage can essentially force corporate 

defendants to pay ransom to class attorneys by settling—rather 

19

64See E. Donald Elliott, Managerial Judging and the Evolution of Procedure, 53 U. Chi. L. 

Rev. 306, 323–24 (1986). 65 In re Rhone-Poulenc Rorer Inc., 51 F.3d 1293, 1298, 1299 (7th Cir. 1995). See also Blair v. Equifax Check Svcs., Inc., 181 F.3d 832, 834 (7th Cir. 1999) (‘‘a grant of class status can put 

considerable pressure on the defendant to settle, even when the plaintiff’s probability of success 

on the merits is slight.’’). 66See Hearings on Class Actions, Statement of Lawrence Mirel. 67 Id. 68 Although plaintiffs succeeded in certifying their class in a lower court, the class action was 

rejected by an appellate court. See Castillo et al. v. Tyson; No. 3133 (NY Sup. Ct., App. Div., 

Jan. 20, 2000). See also NY Court Rejects Claim That Boxer’s Bite Was A Rip-off, Entertainment Litigation Reporter, February 29, 2000. 

than litigating—frivolous lawsuits. This is a particularly alarming 

abuse because the class action device is intended to be a procedural 

tool rather than a mechanism that affects the substantive outcome 

of a lawsuit. Nonetheless, state court judges often are inclined to 

certify cases for class action treatment, not because they believe a 

class trial would be more efficient than an individual trial, but because they believe class certification will simply induce the defendant to settle the case without trial.64 As Judge Richard Posner of 

the U.S. Court of Appeals for the Seventh Circuit has explained, 

‘‘certification of a class action, even one lacking merit, forces defendants to stake their companies on the outcome of a single jury 

trial, or be forced by fear of the risk of bankruptcy to settle even 

if they have no legal liability. * * * [Defendants] may not wish to 

roll these dice. That is putting it mildly. They will be under intense 

pressure to settle.’’ 65 Hence, when plaintiffs seek hundreds of millions of dollars in damages, basic economics can force a corporation 

to settle the suit, even if it is meritless and has only a five percent 

chance of success. 

Not surprisingly, the ability to exercise unbounded leverage over 

defendant corporations and the lure of huge attorneys’ fees have 

led to the filing of many frivolous class actions. The Committee has 

learned of several shocking examples of frivolous cases: • As District of Columbia Insurance Commissioner Lawrence 

Mirel testified before the Committee last year, insurance companies are often forced to settle lawsuits even though the challenged 

actions were fully in accordance with state law—or encouraged by 

state policies.66 For example, two automobile insurance companies, 

worried about mounting legal expenses and negative publicity, settled a lawsuit for nearly $36 million over a long-standing industrywide practice of rounding insurance premiums up to the nearest 

dollar, even though the premiums were calculated according to specific instructions from the Texas Department of Insurance.67

• Within days after the fight in which Mike Tyson bit Evander 

Holyfield’s ear, for example, lawsuits were filed. These were not actions by Holyfield, the only person who really got hurt—they were 

class actions filed on behalf of pay-per-view cable television subscribers alleging that they did not get their money’s worth because 

the fight was cut short.68

• A suit was brought against Ford Motor Company in New York 

state court by the Milberg Weiss firm, one of the better known 

plaintiffs’ class action firms in the country, that involved an inadvertent mistake made by Ford—it had put a slightly overstated 

price on the window stickers on certain vehicles. As soon as Ford 

discovered the mistake, the company began sending letters to the 

affected customers apologizing for the error and enclosing checks 

that more than compensated them. Nonetheless, fully knowing that 

20

69See Faden-Bayes Corp. v. Ford Motor Co., Index No. 97–601076 (N.Y. Sup. Ct. County of 

New York) (filed Feb. 28, 1997). 70See Hearings on S. 353, Prepared Statement of John H. Beisner. 71 Hearings on S. 353, Prepared Statement of Stephen G. Morrison. 72 Id. 73See Order, Farkas v. Bridgestone/Firestone, Inc., Case No. 00–CI–5263 (Cir. Ct., Jefferson 

County, KY) (dated Aug. 18, 2000). 74 Compare Naef v. Masonite Corp., No. CV–94–4033 (Cir. Court, Mobile County, Alabama), 

with In re Masonite Hardboard Siding Prods. Litig., 170 F.R.D. 417, 424 (E.D. La. 1997). 

this refund program was already well underway, the Milberg Weiss 

law firm filed a class action lawsuit charging that Ford had committed fraud. Even worse, it asked the court immediately to enjoin 

Ford from continuing its refund efforts—presumably so that the 

lawyers could get a cut of the refund money. In this case, the court 

properly dismissed the action; nonetheless, Ford was required to 

waste time and corporate resources on a lawsuit that clearly served 

no legitimate purpose.69

3. Current class action rules can ignore due process rights 

A third type of class action abuse occurs when state courts ignore 

the due process rights of out-of-state defendants by denying them 

the opportunity to contest the plaintiffs’ claims against them. One 

expert witness who testified before the Subcommittee on Administrative Oversight and the Courts blamed this phenomenon on a 

‘‘laissez faire’’ attitude of some state courts.70 The most egregious 

examples of this are the so called ‘‘drive-by class certification’’ 

cases, in which a class is certified before the defendant has a 

chance to respond to the complaint, or in some cases, has even received the complaint. The Committee learned of several examples 

of due process violations, a few of which are listed below. • In one lawsuit filed against an auto manufacturer in a Tennessee state court, the complaint was filed on July 10, 1996. Plaintiffs filed several inches of documents with their complaint. Amazingly, by the time the court closed that same day, the judge had 

entered 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.71 The defendant later discovered 

that a group of record companies had the same experience with the 

same judge in an antitrust class action filed several days earlier.72

• In another case, a Kentucky state court ordered injunctive relief in favor of the class before the defendant was even notified of 

the lawsuit.73

• It is not uncommon for state courts to certify classes in cases 

where federal courts find that the claims are uncertifiable. In one 

case, for example, a state court judge certified a nationwide class 

of persons who claimed that the house siding they had purchased 

was defective. Later, a federal district court judge presented with 

the same case rejected any prospect of certifying a class in that 

manner, finding that affording class treatment in that case would 

clearly violate the due process rights of the defendants and the 

purported class members.74

Thus, the current system allows the due process rights of defendants to be ignored, with little or no recourse. Such an abuse harms 

those defendants, consumers, and ultimately a public that relies 

upon firmly-held constitutional due process rights for an orderly 

administration of justice by the courts. 

21

75For example, in the ongoing litigation concerning Firestone tires, approximately 100 virtually identical class actions seeking to represent the same purported class members were filed 

in courts all over the country. In the recently publicized HMO cases, multiple overlapping class 

actions were filed against each of the major health insurance companies. No less than 17 class 

actions have been filed against Humana, most of which assert similar allegations and claims 

on behalf of similarly defined nationwide classes. In the Humana example, the federal cases 

were consolidated for pretrial proceedings before a single judge. See In re Humana Inc. Managed 

Care Litig., 2000 U.S. Dist. LEXIS 5099 (J.P.M.L. Apr. 13, 2000). In the 12 months ending September 30, 2002, over 7,000 federal cases were centralized for pretrial proceedings through the 

MDL process. There is no parallel methodology for consolidating state court class actions. See 

http://www.uscourts.gov/judbus2002/tables/s19sep02.pdf.

4. Copycat class actions clog the courts and permit forum 

shopping 

Yet another common abuse is the filing of ‘‘copy cat’’ class actions 

(i.e., duplicative class actions asserting similar claims on behalf of 

essentially the same people). Sometimes these duplicative actions 

are filed by lawyers who hope to wrest the potentially lucrative 

lead role away from the original lawyers. In other instances, the 

‘‘copy cat’’ class actions result from blatant forum shopping—the 

original class lawyers file similar class actions before different 

courts in an effort to find a receptive judge who will rapidly certify 

a class. When these similar, overlapping class actions are filed in 

state courts of different jurisdictions, there is no way to consolidate 

or coordinate the cases. The ‘‘competing’’ class actions must be litigated separately in an uncoordinated, redundant fashion because 

there is no mechanism for consolidating state court cases. 

The result is enormous waste—multiple judges of different courts 

must spend considerable time adjudicating the same claims asserted on behalf of the same people.75 As a result, state courts and 

class counsel may ‘‘compete’’ to control the cases, often harming all 

the parties involved. Class counsel may offer a defendant a ‘‘sweetheart deal’’ in an effort to draw that defendant into a binding settlement so that the counsel can obtain their share of the award. 

The deal, however, may well be the worst result for plaintiffs. The 

opposite can also occur, whereby a defendant might seek to entice 

class counsel with a sham deal that favors the lawyers in order to 

buy a binding settlement. This ‘‘race to the bottom’’ that copycat 

cases presents is harmful to class members. 

Copycat cases also clog the court system. They involve multiple 

courts, judicial personnel, and even juries, administering and adjudicating essentially the same claims between the same parties. 

Such an inefficient result—especially where the likely outcome for 

the majority of the cases will be dismissal in favor of a single case 

that settles—takes valuable judicial resources away from other 

claims working their way through the state court systems. 

By contrast to the state courts, when overlapping cases are pending in different federal courts, they can be consolidated under one 

single judge to promote judicial efficiency and ensure consistent 

treatment of the legal issues involved. Consequently, the copycat 

problem does not exist in the federal system. 

5. Inadequate notice and representation harm unnamed class 

members 

Another problem with current class action procedures is the lack 

of emphasis placed upon protecting unnamed class members 

through proper notice procedures. Without proper notice or other 

protections, consumers can unwittingly be bound by settlements 

22

76State of Vermont v. Homeside Lending, Inc., and BankBoston Corporation, 2003 VT 17 (Feb. 

21, 2003). 77 Hearing before the Committee on the Judiciary, July 31, 2002, page 9. 78Rigat v. GAF Materials Corp., 2002 Conn. Super LEXIS 272 (Jan. 25, 2002). 79State of Vermont v. Homeside Lending, Inc., and BankBoston Corporation, 2003 VT 17 (Feb. 

21, 2003). 80 Hearing before the Subcommittee on Administrative Oversight and the Courts, May 4, 1999, 

page 169. 81 Homeside Lending, 2003 VT 17. 

approved in a court thousands of miles away. Too often, consumers 

find themselves without redress after their legal rights are signed 

away in a class action settlement without their knowledge.76

For example, in one case filed in Chicago but involving mostly 

Texas class members, notice of a proposed settlement that would 

have the effect of waiving future rights was published in the New 

York Times.77 The notion that these Texas plaintiffs could possibly 

be adequately notified by a New York Times ad is absurd. Notice 

must be adequate to inform unnamed class members of the rights 

they are waiving. 

The lack of adequate notice has serious results. In one case in 

Connecticut, a woman was barred from bringing suit for defective 

roofing materials because she had been part of a class action in 

Alabama.78 Recently, the Vermont Supreme Court held that the 

Bank of Boston settlement was invalid as to Vermont residents because of inadequate notice.79

S. 274 addresses this concern not only by improving notice but 

by introducing state officials into cases to protect unnamed class 

members. As one witness noted, ‘‘[t]he addition of the state attorneys general is a splendid idea; it brings into the proceedings a 

true representative of the public, someone who is not simply trying 

to make money out of the situation.’’ 80 Examples of the need for 

state officials to be involved in such proceedings are commonplace. 

For example, unrepresented plaintiffs in the State Farm case, discussed throughout this report, would have greatly benefited from 

the involvement of the various state insurance commissioners who 

could have advised the court of their states’ particular insurance 

laws dealing with less expensive aftermarket parts. Likewise, 

Vermont citizens in the Bank of Boston matter would have benefited from the Vermont Attorney General’s involvement in the Alabama case. The Vermont State Supreme Court subsequently found 

that case to be a violation of its citizens’ due process rights.81 The 

Constitution’s Full Faith and Credit clause requires states to honor 

the decisions of other states’ courts. For this reason, the Vermont 

Supreme Court was forced to attempt to unravel a settlement after 

it had been finalized, and was required to identify constitutional 

grounds in order to do so. Thus, adequate notice and other protections prior to finalizing a settlement for unnamed class members 

are critical. 

6. Bounties and geographic discrimination harm unnamed 

class members 

Bounty payments for class members—the practice of paying class 

representatives just for agreeing to be named in the suit—present 

a serious conflicts-of-interest problem because the representatives, 

who are supposed to guard the interests of all class members, may 

be self-interested at the prospect of a big payday. These payments 

‘‘raise[], at the very least, the specter of apparent collusion, as well 

23

82 J. Benedict and M. Seidel, Special Compensation to Named Plaintiffs in Securities Class Actions, 24 Review of Securities & Commodities Regulation 195, 200 (Nov. 13, 1991). 83 Hearing before the Subcommittee on Administrative Oversight and the Courts, May 4, 1999, 

page 78. J. Burns, Decorative Figureheads: Eliminating Class Representatives in Class Actions,

42 Hastings L.J. 165, 166 (1990). 84Weseley v. Spear Leeds & Kellogg, 711 F. Supp. 713, 720 (E.D.N.Y. 1989). 85See Shaw v. Toshiba America Information Systems, Inc., No. 1:99CV1020 (E.D. Tex.). 86See Heaster, Enough Already with the Lawsuits, Kansas City Star, July 10, 1999 at C1. 87Testimony of Lawrence H. Mirel, Hearing before the Committee on the Judiciary, July 31, 

2002. 

as grave conflicts of interest between the named plaintiffs and class 

members.’’ 82 Thus, at best, ‘‘the class representative ‘has been reduced to little more than an admission ticket to the courthouse and 

one anecdotal example of the class claim.’ ’’ 83 At worst, the class 

representative is at odds with other class members over the course 

of the litigation. Indeed, as one court noted, ‘‘[a] class representative is a fiduciary to the class. If class representatives expect routinely to receive special awards * * * they may be tempted to accept suboptimal settlements at the expense of the class. * * *’’ 84

The results of this conflict can been seen in cases where 

unnamed members get little benefit from a settlement, but named 

class members get big bonuses. For example, in a recent case involving potential computer defects, a settlement resulted in coupons for all class members except the two named plaintiffs who received $25,000 each. It is no surprise that these representatives 

agreed to this settlement regardless of how it affected other class 

members.85 Similarly, in a settlement where most class members 

received just three golf balls, the class representatives were awarded $2,500 each.86 That’s a pretty good payday for these ‘‘victims’’ 

whose sole injury missing out on the free golf gloves in a promotion 

undertaken by the defendant. 

Another inequity that could result from the current system is geographic discrimination—where local plaintiffs are awarded a bigger chunk of settlement proceeds merely by virtue of their proximity to the courthouse. The problem exists because locally elected 

judges may be willing to direct a greater share of awards to their 

voting constituents. Such a result is clearly improper, and is unfair 

to other injured class members. As one witness described this favorable treatment of local plaintiffs, it is ‘‘the worst sort of ‘home 

cooking’ that is fostered by the existing system.’’ 87 This is yet another inequity under the current system that needs to be eliminated. 

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 

24

88See Hearings on S. 353, Prepared Statement of John H. Beisner. 89See Hearings on S. 353, Prepared Statement of John H. Beisner. 90See John H. Beisner and Jessica Davidson Miller, Class Action Magnet Courts: The Allure 

Intensifies, 4 BNA Class Action Litig. R. 58 (Jan. 24, 2003). 91See Smith v. General Motors Corp., et al., Civ. A. No. 97–39 (Cir. Ct. Coosa County, AL). 92See Hearing on Class Actions, Prepared Statement of Lawrence Mirel. 93Suit Against Auto Insurer Could Affect Nearly All Drivers, N.Y. Times, Sept. 27, 1998, at 

29. 

and will not be given individual attention for their grievances.88

Conversely, when only a few of the plaintiffs have legitimate 

claims, but nevertheless a class action is certified, the defendant is 

frequently denied a fair trial because a jury is likely to improperly 

attribute the injuries of the few to the many. 

The effect of class action abuses in state courts is being exacerbated by the trend toward ‘‘nationwide’’ class actions, which invite 

one state court to dictate to 49 others what their laws should be 

on a particular issue, thereby undermining basic federalism principles.89 A recent study found that 77 percent of class actions 

brought in 2001 in a rural Illinois county known for its heavy class 

action docket sought to certify nationwide classes.90 These cases 

challenged matters as diverse as MTBE in wells, telephone billing 

practices, chicken processing procedures, and insurance reimbursement policies. Clearly, a system that allows state court judges to 

dictate national policy on these and other issues from the local 

courthouse steps is contrary to the intent of the Framers when 

they crafted our system of federalism. In one case, for example, 

plaintiffs filed suit in an Alabama county court on behalf of more 

than 20 million people alleging that the design of federally mandated airbags is faulty.91 From the standpoint of federalism, this 

suit defies logic. Why should an Alabama state court tell 20 million 

people in all 50 states what kind of airbags they can have in their 

cars? 

The most egregious of such cases are those in which one state 

court issues nationwide rulings that actually contradict the laws of 

other states. This problem is particularly prevalent in insurance 

cases, which are being filed in increasingly greater numbers. As 

District of Columbia Insurance Commissioner Lawrence Mirel testified before this Committee last year, class actions ‘‘frequently go[] 

around or simply ignore[] the role of state regulators.’’ 92

One case reported in the New York Times, for example, involved 

a longstanding practice of the State Farm Insurance Companies 

(shared by other insurers) of using non-original equipment manufacturer (OEM) parts to repair cars.93 The practice was fully disclosed to policyholders, and the majority of states expressly permit 

insurers to specify non-OEM parts. Indeed, two states, Hawaii and 

Massachusetts, actually require the specification of non-OEM 

parts. Nonetheless, plaintiffs brought suit in Illinois state court 

claiming that all non-OEM parts used by policyholders were inferior to OEM parts, and that State Farm had breached its contractual obligation to policyholders and committed fraud each time it 

specified such parts. Even though the plaintiffs eventually dropped 

their claim that all non-OEM parts were inferior, and conceded 

that this could only be determined on a part-by-part basis, the trial 

court still permitted the jury to reach a group judgment on the 

class action. The court was not even deterred by the fact that the 

plaintiffs in the class came from states throughout the nation with 

25

94See Snider v. State Farm Mutual Automobile Insurance Co., Cir. Ct. for Williamson City., 

IL, Docket No. 97–L–114 (1999). 95 Avery v. State Farm Auto. Ins. Cos., 746 N.E.2d 1242, 1254 (Ill. Ct. App. 2001). 96See Opinion and Order Granting Class Certification, Linn v. Roto-Rooter, Inc., No. CV–

467403 (Court of Common Please, Ohio, February 23, 2003). 97Ysbrand v. DaimlerChrysler Corp., 2003 Okla. LEXIS 17 (Okla. 2003). 98Peterson v. BASF Corp., 657 N.W.2d 853 (Minn. App. Ct. 2003). 99 Id. at 875. 100Rosen v. PRIMUS Automotive Fin. Servs., Inc., No. CT 98–2733 (Minn. D. Ct., 4th Jud. 

Dist., May 4, 1999). 101Walsh v. Ford Motor Co., 807 F.2d 1000, 1016–17 (D.C. Cir. 1986). 

widely varying laws regarding the use of non-OEM parts, including 

the two states—Hawaii and Massachusetts—that strongly embraced the very practice condemned by plaintiffs.94 Indeed, in affirming a $1.3 billion verdict against State Farm in this case, an 

Illinois state appellate court acknowledged that it had disregarded 

‘‘state insurance commissioners [w]ho testified that the laws of 

many of our sister states permit and in some cases * * * [even] encourage’’ usage of non-OEM parts.95

The State Farm case is not unique. This state court interference 

with the laws of other jurisdictions is becoming disturbingly common. For example: • Just recently an Ohio court determined that it was appropriate 

to apply Ohio’s laws to a laundry list of claims asserted against a 

plumbing company by a nationwide class of plaintiffs, holding that 

all fifty states essentially have the same laws with regard to fraud 

and unjust enrichment cases.96

• The Supreme Court of Oklahoma recently affirmed the certification of a nationwide product liability class action, applying the 

laws of a single state to transactions that occurred in all 50 

states.97 Thus, in this case, a state court has decided effectively to 

override whatever policy determinations another state’s legislature 

or courts may have made on warranty or product liability policy to 

protect their own residents. • The Minnesota Court of Appeals recently affirmed a nationwide class action where the plaintiffs alleged fraud in the marketing of an herbicide, in which the court applied the laws of a single state to transactions that occurred in many different jurisdictions (and virtually none of which occurred in the state whose laws 

were applied).98 One judge who decided the case openly acknowledged that the court was engaging in the ‘‘false federalism’’ that 

has become part of the state court class action game.99

• A few years ago, a state trial court in Minnesota approved for 

class treatment a case involving millions of claimants from 44 

states that would have had the effect of dictating the commercial 

codes of all those states.100 The specific issue in the case was 

whether individuals have a state law right to recover interest on 

refundable deposits paid to secure an automobile lease. In certifying a class in that case, the court adopted an understanding of 

Minnesota’s version of the Uniform Commercial Code that was contrary to the interpretation of every other state to have considered 

the issue under their own versions of the UCC. By certifying the 

class, the court decided that its unprecedented interpretation of the 

UCC would bind the remaining 43 states that had yet to decide the 

question (even though the ‘‘Uniform Commercial Code is not uniform’’ and is interpreted differently in different states 101). In essence, the action of the Minnesota court proposed to dictate the inVerDate jul 14 2003 06:18 Aug 07, 2003 Jkt 019010 PO 00000 Frm 00025 Fmt 6659 Sfmt 6602 E:\HR\OC\SR123.XXX SR123
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102See 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. 103See State of Vermont v. Homeside Lending, Inc. and BankBostonCorporation, 2003 VT 17 

(Vt. 2003). 104See Hearings on S. 353, Prepared Statement of Stephen G. Morrison. 105 Id. 

terpretation 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. 

The sentiment reflected in these cases flies in the face of basic 

federalism principles by embracing the view that other states 

should abide by the deciding court’s law whenever it determines 

that its own laws are preferable to other states’ contrary policy 

choices. Indeed, such examples of judicial usurpation, in which one 

state’s courts try to dictate its laws to 49 other jurisdictions, have 

been duly criticized by some congressional witnesses, including 

former Clinton Solicitor General Walter Dellinger, as ‘‘false federalism.’’ 102 When this occurs, is poses serous problems for the 

courts of other states. For example, as noted earlier, the Vermont 

Supreme Court recently nullified an Alabama court’s approval of 

the Bank of Boston case as it applied to Vermonters because it violated due process.103

Given the range and severity of class action abuse, it is not surprising that defendants frequently find it necessary to remove class 

actions against them to a federal forum—a forum where the threat 

of prejudice is significantly lower. Under current law, however, 

plaintiffs’ lawyers can easily manipulate their pleadings to ensure 

that their cases remain at the state level. As noted above, the two 

most common tactics employed by plaintiffs’ attorneys in order to 

guarantee a state court tribunal are: adding parties to destroy diversity and shaving off parties with claims for more than $75,000. 

It is not rare to see complaints in which plaintiffs sue several 

major corporations and then add one local supplier or dealer as a 

defendant merely to defeat diversity.104 Other complaints seek 

$74,999 in damages on behalf of each plaintiff or explicitly exclude 

from the proposed class anybody who has suffered $75,000 or more 

in damages.105

The Committee believes that the federal courts are the appropriate forum to decide most interstate class actions because these 

cases usually involve large amounts of money and many plaintiffs, 

and have significant implications for interstate commerce and national policy. By enabling federal courts to hear more class actions, 

S. 274 will help to minimize the class action abuses taking place 

in state courts and to ensure that these cases can be litigated in 

a proper forum. 

F. The Support for This Bill Is Unprecedented 

The class action abuse problem has hit critical mass. Like never 

before, the public, the media, and experts agree that the nation’s 

class action system is seriously broken, and that current practices 

are far from what the Framers envisioned. A recent study commissioned by the United States Chamber of Commerce found unprecedented support for class action reform. Major media outlets have 

editorialized in favor of reform and, in many instances, in favor of 

this very legislation. Further, despite the contrary claims of the inVerDate jul 14 2003 06:18 Aug 07, 2003 Jkt 019010 PO 00000 Frm 00026 Fmt 6659 Sfmt 6602 E:\HR\OC\SR123.XXX SR123
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106Penn, Schoen & Berland Associates 2003 Chamber of Commerce poll. 107 Id. 

creasingly dwindling ranks of critics, the Judicial Conference of the 

United States has recently embraced the notion of expanded federal jurisdiction for class actions. Likewise, the American Bar Association now recognizes that federal jurisdiction for selected class actions is the right fix for the growing problem of abuses. Below is 

a sampling of the public and expert support this reform effort enjoys. 

• An overwhelming number of Americans have been personally 

affected by class action lawsuits, and the majority were disappointed by the results. 50 percent have received a notice in the 

mail that they may be a party to a class action lawsuit. Of these, 

30 percent have taken the steps necessary to participate in the 

lawsuit. Of those who took the steps, 53 percent report that they 

didn’t receive anything of meaningful value.106

• Americans believe that their legal system is in need of reform. 

44 percent think it is in need of major reform; 45 percent think it 

needs minor reform; while only 7 percent think it needs no reform 

at all.107

• According to a USA Today poll, 67 percent of those polled believe that class actions most benefit the lawyers, and only 9 percent 

believe that the plaintiffs benefit most. 

• Numerous newspapers have expressed support for legal reform 

of the abusive class action system, including: The Washington Post, 

The Wall Street Journal, the Chicago Tribune, Financial Times, 

USA Today, The Christian Science Monitor, the Akron (Ohio) Beacon Journal, the Albany (New York) Times-Journal, The Buffalo 

(New York) News, The Des Moines Register, The Jacksonville 

(Florida) Times-Union, The Cedar Rapids (Iowa) Gazette, The 

Everett (Washington) Herald, The Indianapolis Star, King County 

(Washington) Journal, The Las Vegas Journal-Review, The Lincoln 

(Neb.) Journal-Star, The Santa Fe New Mexican, The St. Louis 

Post-Dispatch, Newsday (Long Island, New York), Northwest Arkansas Business Journal, The Odessa (Texas) American, The 

Omaha World-Herald, The Orlando Sentinel, The (Portland) Oregonian, The Providence (Rhode Island) Journal, and The Tyler 

(Texas) Morning Telegraph. 

• The Judicial Conference of the United States, in a March 26, 

2003 letter to the Committee, ‘‘recognize[d] that the use of minimal 

diversity of citizenship may be appropriate to the maintenance of 

significant multi-state class action litigation in federal courts.’’ The 

Conference encourages Congress to include limitations such as a 

heightened jurisdictional threshold, a role for the states for in-state 

class actions, and like limitations. This bill reflects those considerations in its discretionary remand section. 

• In February of 2003, the House of Delegates of the American 

Bar Association adopted a resolution acknowledging problems with 

the class action system and supporting expanded federal jurisdiction to fix abuses with the system. 

• The Department of Justice has expressed support for the 

House class action bill (H.R. 1115). 

• Clinton Administration Solicitor General Walter Dellinger has 

testified before the Congress in support of expanded federal jurisVerDate jul 14 2003 06:18 Aug 07, 2003 Jkt 019010 PO 00000 Frm 00027 Fmt 6659 Sfmt 6602 E:\HR\OC\SR123.XXX SR123
28

diction to curb class action abuses, and, in particular, to restore the 

Framers’ intention that federal courts have jurisdiction over large 

inter-state cases. 

V. HOW S. 274 WORKS

S. 274 is a modest step toward addressing a number of the problems and abuses in the current class action system. First, S. 274 

implements a consumer bill of rights that requires greater scrutiny 

of coupon and net loss settlements, and regulates ‘‘bounty’’ payments to class representatives and class members who are geographically located near the court. S. 274 also implements additional notice requirements to better inform plaintiff class members 

about: (a) the terms of a class action settlement, (b) the rights they 

will forfeit as members of the class, (c) the obligations the settlement agreement places on the defendants, and (d) the amount of 

attorneys’ fees that will be awarded to counsel representing their 

interests. Furthermore, S. 274 provides an additional mechanism to 

safeguard plaintiff class members’ rights by requiring class counsel 

to provide appropriate state and federal officials with notice of 

class action settlements, so that the state and federal governments 

have the opportunity to intervene in a case if they feel that a class 

action settlement is not in the best interests of their citizens. 

Second, S. 274 modifies diversity jurisdiction and removal rules 

so that larger interstate class actions can be heard in federal court. 

In doing so, the Act also makes it harder for plaintiffs’ counsel to 

‘‘game the system’’ by inappropriately keeping class actions in state 

courts where certain judges are quick to certify a class regardless 

of due process concerns or to approve a settlement regardless of the 

fairness to class members. Moreover, the Act improves the efficiency of the judicial system by enabling overlapping and ‘‘copycat’’ 

cases to be consolidated in a single federal court, rather than allowing them to proceed in numerous state courts as does the current 

system. However, the bill ensures that matters principally involving single state issues and parties will continue to proceed in that 

state’s courts. 

Finally, S. 274 addresses the problem of unfair settlements and 

excessive attorneys’ fees by directing the Judicial Conference of the 

United States to conduct a review of class action settlements and 

attorneys’ fees and to present Congress with recommendations to 

improve the system. 

A. Consumer Bill of Rights 

S. 274 contains a number of provisions to protect class members 

from unfair settlements and to better inform them of their rights 

in class action cases. For example, S. 274 requires greater scrutiny 

of coupon and other noncash settlements; such settlements are prohibited absent written findings by the court that they benefit the 

class members. This provision will protect consumers against the 

abusive practices that allow lawyers to enrich themselves while ignoring meaningful relief for the parties who were actually injured. 

S. 274 also requires careful oversight of the payment of ‘‘bounties’’ to class representatives and of extra compensation to members of a class who live closer to the court. This provision will protect unnamed class members from having to unnecessarily share 

their awards, and will end the practice of unscrupulous lawyers 

29

108See Class Action Lawsuits—Examining Victim Compensation and Attorney’s Fees: Hearing 

before the Subcomm. on Administrative Oversight and the Courts, Senate Comm. on the Judiciary, Serial No. J–105–62 (S. Hrg. 105–504), 105th Cong., 1st Sess. (Oct. 30, 1997), Prepared 

Statement of Lewis Goldfarb; Mass Torts and Class Action Lawsuits: Hearing before the 

Subcomm. on Courts and Intellectual Property of the House Comm. on the Judiciary, Serial No. 

141, 105th Cong., 2d Sess. (Mar. 5, 1998), Prepared Statement of Dick Thornburgh.

finding a perceived wrong, then shopping for a client. The Committee heard testimony about a consortium of class action lawyers 

that would meet to strategize and search for cases to bring long before they had an actual plaintiff on whose behalf to sue.108 In order 

to better protect class members, S. 274 amends the class action 

rules by requiring that class counsel serve appropriate state and 

federal officials with notice of a proposed settlement. This notice 

must occur no later than 10 days after the proposed settlement is 

filed in federal court. 

The notice to the appropriate officials would include: (1) a copy 

of the complaint and amended complaints, unless those materials 

are available through the Internet and the notice includes directions on how to access the materials on-line; (2) notice of any 

scheduled judicial hearing in the class action; (3) proposed or final 

notification to class members of their right to be excluded from the 

class; (4) any proposed or final class action settlement; (5) any settlement made between class counsel and defendants’ counsel; (6) 

any final judgment or notice of dismissal; and (7) the names of the 

class members who reside in each respective state and the proportionate claims of such members. The designated officials would 

then have at least 90 days to review the proposed settlement before 

a court gives a settlement final approval. 

Nothing in this section creates an affirmative duty for either the 

state or federal officials to take any action in response to a class 

action settlement. Moreover, nothing in this section expands the 

current authority of the state or federal officials. The purpose of 

this notice provision is to protect citizens of one state from unfair 

rulings by another state, such as the Alabama settlement in the 

Bank of Boston case that the Vermont Supreme Court held violated 

due process. Generally, under the Constitution’s full faith and credit clause, one state court is bound by another court’s decisions. 

Thus, absent a finding like the one made by the Vermont Supreme 

Court, consumers are bound by settlements reached before other 

state courts. S. 274 would help protect consumers from being bound 

by unfair out-of-state settlements by enabling state officials to inject themselves into federal class actions to protect their citizens, 

prior to a judgment being rendered, rather than having multiple 

states try to undo an unfair settlement after the fact. 

S. 274 also aims to help class members better understand their 

rights in a class action, by requiring that any notice provided to 

class members explain in plain, easily understood language: (1) the 

subject matter of the class action; and (2) the legal consequences 

of being a member of the class action. In addition, if the notice involves a proposed settlement, it must explain, also in plain, easily 

understood language: (1) the benefits a settlement will offer the 

class; (2) the rights a plaintiff would waive through settlement; (3) 

the obligations a defendant would incur in the proposed settlement; 

and (4) the amount of the attorneys’ fees or a good faith estimate 

of the fees being sought, and an explanation of how the fees will 

be calculated. 

30

109See Amendments to Federal Procedure Rules, 71 U.S.L.W. 4253, 4254–55 (U.S. Apr. 1, 

2003) (Supreme Court order amending rules pursuant to Rules Enabling Act). 110See Rosmer v. Pfizer, Inc., 263 F.3d 110 (4th Cir. 2001). 111See Trimble v. Asarco, Inc., 232 F.3d 946 (8th Cir. 2000). 

The Committee believes that improved notice requirements will 

create a better informed plaintiff class. Not only will plaintiffs be 

able to more effectively monitor their own case, but the notice provisions will provide an effective deterrent against many of the 

types of abuse taking place in class action litigation. 

The Committee is aware that pursuant to the Rules Enabling 

Act, the U.S. Supreme Court recently transmitted to Congress several amendments to Rule 23 of the Federal Rules of Civil Procedure.109 Several of those amendments reflect very thoughtful efforts by the Judicial Conference of the United States, the Standing 

Committee on Rules and Procedure, and the Advisory Committee 

on Civil Rules to address this same issue of clarity of notices to 

class members. In reviewing those amendments carefully, the Committee believes that the notice-related provisions of S. 274 and the 

proposed amendments to Rule 23 are complementary. 

S. 274 also requires that radio, television or Internet notice informing class members of their right to be excluded from a settlement must explain in plain, easily understood language who may 

be a member of the class and that class members will be subject 

to the class action or settlement unless they take steps to exclude 

themselves. 

B. Diversity Jurisdiction and Removal 

S. 274 amends the diversity jurisdiction and removal statutes applicable to larger interstate class actions. S. 274 modifies 28 U.S.C. 

§ 1332 to incorporate the concept of balanced diversity. The bill 

grants the federal courts original jurisdiction to hear interstate 

class action cases where (a) any member of the proposed class is 

a citizen of a different state from any defendant and (b) the $5 million jurisdictional amount requirement (taking account of all claims 

of all purported class members in the aggregate, exclusive of interest and costs) is satisfied, and (c) the case involves a class of 100 

or more members. 

Under current law, the threshold dollar amount for bringing a 

federal class action varies. In some jurisdictions, so long as one 

class member suffered over $75,000 in damages, federal jurisdiction 

is satisfied if diversity is otherwise satisfied.110 In other jurisdic- tions, all class members must satisfy the $75,000 jurisdictional 

threshold.111 Thus, a curious disparity results: in some jurisdic- tions, if the named class member suffered $75,001 in damages, and 

no other class member suffered financial injury, the case could go 

to federal court. Yet in other jurisdictions, if a number of class 

members suffer millions in damages, yet a few do not satisfy the 

$75,000 threshold, the case cannot go to federal court. S. 274 draws 

a reasonable line, avoiding arbitrary and rigid requirements for individual class members, while focusing on the total amount in controversy in an effort to target large, national cases. 

The bill, however, includes several provisions intended to ensure 

that state courts can adjudicate class actions that are truly local 

in nature, by restricting the right to remove some class actions 

brought in a defendant’s home state. Under these provisions, class 

31

actions filed in the home state of the primary defendants would 

automatically be subject to federal jurisdiction if less than onethird of the class members were citizens of that state. Conversely, 

if two-thirds or more of the class members are from the defendant’s 

home state, the case would not be subject to federal jurisdiction. 

For cases brought in a defendant’s home state in which between 

one-third and two-thirds of the class members were citizens of that 

state, federal jurisdiction would also exist; however, a federal judge 

could decline to exercise that jurisdiction based on consideration of 

five factors designed to help assess whether the claims at issue are 

indeed local in nature.

S. 274 also excludes from its federal jurisdiction grant: (1) class 

actions involving fewer than 100 plaintiff class members and (2) 

class actions in which the primary defendants are states, state officials, or other governmental entities against whom the district 

court may be foreclosed from ordering relief. S. 274 also exempts 

from its diversity jurisdiction and removal reforms any securities 

class action cases covered by the Securities Litigation Reform Act 

and corporate governance cases. 

In order to better protect the rights of all class members and parties, S. 274 creates four new rules regarding the removal of class 

actions filed in state court. First, unnamed plaintiff class members 

would be able to remove class actions to federal court. Second, parties would be able to remove a class action to federal court without 

the consent of any other party. Third, any plaintiff or defendant 

would be able to remove a class action to federal court, regardless 

of whether that party is a citizen of the state in which the action 

was brought. And fourth, the current ban on removal of a class action to federal court after one year would be eliminated, although 

the requirement that removal occur within 30 days of notice of 

grounds for removal would be modified and retained. This last provision protects against the abusive practice of manipulating, and 

then amending, pleadings to aid plaintiffs’ counsel in forum shopping. 

In addition, S. 274 provides that a federal court must dismiss a 

class action without prejudice if it finds that the removed class action does not meet the requirements for proceeding on a class basis 

under Rule 23 of the Federal Rules of Civil Procedure. Plaintiffs 

could then amend and refile their complaint in state court; however, the refiled case would once again be eligible for removal if 

original federal jurisdiction exists. 

S. 274 also addresses statutes of limitations issues in two ways. 

First, if plaintiffs file a class action in state court and the case is 

then removed to a federal court, which dismisses it for failure to 

meet the requirements of Rule 23, the statute of limitations would 

not run for the period that the dismissed class action was pending 

in either court, provided the case is refiled in the same state court 

by at least one of the original named plaintiffs. Second, if a removed class action is dismissed by a federal court for failure to 

meet the requirements of Rule 23, the statute of limitations will 

not have been tolled with regard to any individual actions later 

brought by members of the dismissed class, regardless of where 

such individuals choose to sue. 

32

C. Report on Class Action Settlements 

In order to assist Congress in its oversight of class action settlements, S. 274 directs the Judicial Conference of the United States, 

with the assistance of the Federal Judicial Center and Administrative Office of the United States Courts, to prepare a report on class 

action settlements to be transmitted to the House and Senate Judiciary Committees. The report will include recommendations on best 

practices to ensure the fairness of proposed class action settlements 

for class members, recommendations on best practices to ensure 

the appropriateness of attorneys’ fees and expenses, and a discussion of any actions taken or planned by the Judicial Conference to 

implement the recommendations in the report. 

VI. SECTION-BY-SECTION ANALYSIS

Section 1.—Section 1 establishes the ‘‘Class Action Fairness Act 

of 2003’’ as the short title of the bill. 

Section 2.—Section 2 sets forth findings and purposes. The Committee is concerned that there have been abuses of the class action 

device over the last decade that have hurt consumers, adversely affected interstate commerce, and undermined public respect for our 

judicial system. In particular, the Committee is concerned about 

class actions that do little to benefit—and sometimes actually 

harm—the class members who are supposed to be the beneficiaries 

of such cases, while enriching their lawyers. The Committee is also 

concerned that this problem is exacerbated by confusing notices 

that make it difficult for class members to understand and effectively exercise their rights. Taken together, the Committee believes 

that such abuses hurt consumers by resulting in higher prices and 

less innovation, and that they undermine the principles of diversity 

jurisdiction, which were established by the Framers to promote 

interstate commerce. 

The purposes of the Act are therefore to assure fair and prompt 

recoveries for class members with legitimate claims; to restore the 

intent of the Framers by expanding federal jurisdiction over interstate class actions; and to benefit society by encouraging innovation 

and lowering consumer prices. 

Section 3.—Section 3 sets forth a ‘‘Consumer Class Action Bill of 

Rights’’ to help ensure that class actions do not hurt their intended 

beneficiaries. This section is intended to address a number of common abuses that were discussed by witnesses at class action hearings and have been reported on in the press—and to encourage 

greater judicial scrutiny of proposed class action settlements. 

Abusive class action settlements in which plaintiffs receive promotional coupons or other nominal damages while class counsel receive large fees are all too commonplace. The risk of such abusive 

practices is particularly pronounced in the class action context because these suits often involve numerous plaintiffs, each of whom 

has only a small financial stake in the litigation. As a result, few 

(if any) plaintiffs closely monitor the progress of the case or settlement negotiations, and these cases become ‘‘clientless litigation,’’ in 

which the plaintiff attorneys and the defendants have ‘‘powerful financial incentives’’ to settle the ‘‘litigation as early and as cheaply 

33

112Deborah Hensler, et al., Class Action Dilemmas, Pursuing Public Goals for Private Gain 

10 (1999) (executive summary). 113 Id. 114See, e.g., Cope v. Duggins, 2001 WL 333102 (E.D. La. 2001) (rejecting proposed class settlement because attorneys’ fees were disproportionate to class benefits); Schwartz v. Dallas Cowboys Football Club, Ltd., 157 F. Supp. 2ds 561 (E.D. Pa. 2001) (same); Sheppard v. Consolidated 

Edison Co., 2000 WL 33313540 (E.D.N.Y. 2000) (same); Polar Int’l Brokerage Corp. v. Reeve, 187 

F.R.D. 108 (S.D.N.Y. 1999) (same). 

as possible, with the least publicity.’’ 112 These financial incentives 

create inequitable outcomes. ‘‘For class counsel, the rewards are 

fees disproportionate to the effort they actually invested in the case 

* * * For society, however, there are substantial costs: lost opportunities for deterrence (if class counsel settled too quickly and too 

cheaply), wasted resources (if defendants settled simply to get rid 

of the lawsuit at an attractive price, rather than because the case 

was meritorious), and—over the long run—increasing amounts of 

frivolous litigation as the attraction of such lawsuits becomes apparent to an ever-increasing number of plaintiff lawyers.’’ 113

New section 28 U.S.C. § 1712 requires federal courts, before approving a proposed settlement that involves non-cash benefits or 

that would require class members to expend money in order to obtain benefits, to hold a hearing and make written findings that the 

settlement is fair, reasonable and adequate for class members. The 

purpose of this provision is to ensure that non-cash settlements 

provide real benefits to class members, consistent with the strength 

and validity of the claims that are proposed for settlement. This 

provision is intended to apply, for example, to cases in which the 

settlement provides coupons, requiring consumers to buy a product 

from the offending company at a nominally reduced price. This section is intended to address the rapidly increasing volume of class 

settlements in which consumers receive little or no benefit and attorneys are awarded substantial compensation. The Committee 

wishes to make clear that it does not intend to forbid all non-cash 

settlements. Such settlements may be appropriate where they provide real benefits to consumer class members (e.g., where coupons 

entitle class members to receive something of actual value free of 

charge) or where the claims being resolved appear to be of marginal merit. However, where such settlements are used, the fairness of the settlement should be seriously questioned by the reviewing court where the attorneys’ fees demand is disproportionate 

to the level of tangible, non-speculative benefit to the class members. In adopting this provision, it is the intent of the Committee 

to incorporate that line of recent federal court precedents in which 

proposed settlements have been wholly or partially rejected because the compensation proposed to be paid to the class counsel 

was disproportionate to the real benefits to be provided to class 

members.114

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 

34

Committee wishes to emphasize that this provision is intended 

solely to prohibit circumstances in which the preferential payments 

have no legitimate legal basis. For example, it is perfectly appropriate for a settlement of an environmental class action to differentiate settlement payment amounts based on a claimant’s proximity 

to an alleged chemical spill. This provision is not intended to affect 

such a determination. But where putative class members’ claims 

are legally and factually indistinguishable, it is inappropriate to 

give one class member extra settlement benefits merely because he 

or she resides in (or closer to) the county where the court sits. 

New section 28 U.S.C. § 1715(a) prohibits the payment of ‘‘bounties’’ to class representatives. In a class action, a class representative has the responsibility of making decisions on behalf of the putative class regarding the litigation. In making such decisions, the 

class representative has a fiduciary duty to represent the interests 

of all class members and to avoid self-dealing in any respect. The 

Committee is concerned that in negotiating settlements on behalf 

of the class, the capacity of class representatives to negotiate separate deals for themselves may be inconsistent with that fiduciary 

obligation. Where class representatives are awarded relief in excess 

of what is provided to other class members in a settlement, there 

is an appearance that the fiduciary duty has been breached—that 

the class representative may have been less than zealous in representing the class interests in order to secure personal compensation for himself or herself from the defendant. This provision is intended to ensure that no breaches of this fiduciary duty occur and 

that there be no appearance of such breaches. Nevertheless, the 

Committee is aware that because of the burdens involved in being 

a class representative, there is a risk that legitimate claims may 

not be brought because of the unwillingness of any class member 

to undertake that role. Section 1715(b) therefore makes clear that 

section 1715(a) is not intended to preclude payments to class representatives for the reasonable time and costs that they have invested in serving as the class representative, so long as the court 

approves such payments. 

The Committee wishes to stress that this provision is not intended to address injunctive relief; the section applies only to monetary relief—to the ‘‘payment of a greater share of [an] award.’’ 

Thus, for example, if under the terms of a employment-related 

class action, a class representative is among those class members 

entitled to be reinstated to their former positions, section 1714 

should not come into play (even though some other class members 

might not be reinstated under the terms of the settlement). Similarly, the Committee wishes to emphasize that section 1714 restricts only those payments that exceed a class representative’s entitlement under ‘‘the formula for distribution to other class members.’’ Thus, if a class representative was employed by a company 

longer than other members of the purported class, he/she might be 

entitled to greater benefits under the terms of an employment-related class action. Section 1714 should not preclude or otherwise affect those payments. Section 1714 is intended to regulate only 

those payments that are made to class representatives solely because they have that role; it is not intended to restrict payments 

to class representatives that are based on the value of their indiVerDate jul 14 2003 06:18 Aug 07, 2003 Jkt 019010 PO 00000 Frm 00034 Fmt 6659 Sfmt 6602 E:\HR\OC\SR123.XXX SR123
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115See Hearings on S.353, Prepared Statement of Stephan G. Morrison. 

vidual claims as determined for settlement purposed on a classwide basis. 

New section 28 U.S.C. § 1716 mandates that plaintiffs be made 

aware of their rights and obligations under proposed class settlements in a manner calculated to be readily comprehended by consumer class members. Thus, settlement notices must explain in 

‘‘plain, easily understood language’’ the subject matter of the case, 

the members of the class, the consequences of being a member, the 

benefits of settlement to the class, the rights that class members 

will lose through the settlement, the obligations of defendants 

under the proposed settlement, the dollar amount class counsel are 

seeking in attorneys’ fees (or, if not possible, a good faith estimate 

of the fees that class counsel will request), and an explanation of 

how attorneys’ fees will be calculated. The notice must also include 

any other material information regarding the class action. Such 

‘‘material matter’’ would include any other information a reasonable person would want to know before deciding whether to participate in a class action or proposed settlement. 

The proper test for determining if class notice is written in 

‘‘plain, easily understood language’’ is reasonableness—i.e., whether 

a reasonable person would find the language in the notice to be 

‘‘plain, easily understood language.’’ The Committee intends that 

class counsel bear the burden of proving that a reasonable person 

would find that the notice includes all of the requirements listed 

in this section in ‘‘plain, easily understood language.’’ 

During hearings on class action reform, witnesses discussed the 

problem of conveying to the potential class member a clear understanding of the rights and obligations that accompany membership 

in the class. As one witness testified: ‘‘The class notices that class 

members receive frequently are written in small print and legalese. 

Since those notices typically are telling class members that they 

are about to give up important legal rights (unless they take appropriate action), it is imperative that they understand what they are 

doing and the ramifications of their actions.’’ 115

The Committee believes that a better-informed plaintiff class will 

be better able to police the abuses rampant in current class action 

litigation and will be better able to exercise their rights. Thus, 

much like the attorney general notification provision, the plain language requirement should create another layer of protection 

against inequitable class settlements and the ‘‘clientless litigation’’ 

problem. 

The Committee is aware that pursuant to the Rules Enabling 

Act, the U.S. Supreme Court recently transmitted to Congress several amendments to Rule 23 of the Federal Rules of Civil Procedure. Several of those amendments reflect very thoughtful efforts 

by the Judicial Conference of the United States, the Standing Committee on Rules and Procedure, and the Advisory Committee on 

Civil Rules to address this same issue—clarity of notices to class 

members. In reviewing those amendments carefully, the Committee 

believes that the notice-related provisions of S. 274 and the proposed amendments to Rule 23 are complementary. 

36

New section 1717 sets forth requirements for notification to appropriate federal and state officials of proposed class action settlements. 

New section 28 U.S.C. § 1717 requires defendants to provide notice of proposed settlements to the appropriate federal official and 

to the appropriate state official of each state in which a class member resides. Under new section 1717(a), the appropriate federal official is the Attorney General of the United States, or in the case of 

depository institutions and other banks, the person who has primary federal regulatory supervisory responsibility over the defendant if some or all of the matters at issue in the litigation are subject to regulation or supervision by that person. Thus, for example, 

if a national bank were sued over its lending practices, notice 

would have to be provided to the Comptroller of the Currency. If 

it were sued in a nationwide lawsuit regarding the food in its cafeterias, notice would be provided to the Attorney General. 

Under new section 28 U.S.C. § 1717(a), the appropriate state official is defined as the person in the state who has primary regulatory or supervisory responsibility with respect to the defendant or 

licenses the defendant, if some or all of the matters alleged in the 

class action are subject to regulation by that person. If no such 

state regulatory or licensing authority exists, or the matters are 

not subject to regulation by that person, then notice should be 

given to the state attorney general. Thus, for example, in a case 

against an insurance company involving insurance practices, such 

as how premiums are calculated, notice would be required to be 

given to the state insurance commissioner in each state where the 

company is licensed and where class members reside. If some class 

members reside in states where the company does not do business 

and therefore is not subject to regulation, then notice would be 

given to those states’ attorneys general. Similarly, if the company 

at issue were a toy manufacturer, which is not licensed by a particular regulatory body, then notice would have to be given to the 

state attorney general of each state where plaintiffs reside. 

New section 28 U.S.C. § 1717(c) clarifies that in the case of federal depository institutions and other non-state depository institutions, the notice requirements are satisfied by notifying the person 

who has primary Federal regulatory or supervisory responsibility 

with respect to the defendant, if some or all of the matters alleged 

in the class action are subject to regulation or supervision by that 

person. No notice is required to state officials in these circumstances. Thus, for example, if a national bank were sued over 

its depository or lending practices, notice would have to be given 

to the Comptroller of the Currency, who has regulatory authority 

over the institution. However, no notice would be required to state 

officials. 

With regard to state depository institutions, the notice requirements are satisfied by notifying the state banking supervisor in the 

state where the defendant is incorporated, if some or all of the matters alleged in the class action are subject to regulation or supervision by that person, and upon the appropriate federal official. 

Thus, no notice is required to state officials in other states even if 

some class members reside in those states. 

This provision is intended to combat the ‘‘clientless litigation’’ 

problem by adding a layer of independent oversight to prohibit inVerDate jul 14 2003 06:18 Aug 07, 2003 Jkt 019010 PO 00000 Frm 00036 Fmt 6659 Sfmt 6602 E:\HR\OC\SR123.XXX SR123
37

equitable settlements. Under section 28 U.S.C. § 1717(b), class 

counsel must provide the notice within 10 days after the proposed 

settlement is filed in court. Such notice must include, according to 

28 U.S.C. § 1717(b) (1)–(8): a copy of the complaint; any scheduled 

judicial hearings; any final judgment or notice of settlement; any 

proposed or final notice to the class; and the names of class members who reside in each state, if feasible. The notice would also include any written judicial decision related to settlement, a final 

judgment, or notice of dismissal. If disagreement arises over the 

feasibility of providing the names of class members and their proportional share of the proposed settlement under 28 U.S.C. 1717(b), 

it is the intent of the Committee that class counsel bear the burden 

of proving that it is not feasible to provide any of this required information.

Once the appropriate state and federal officials have received notice under 28 U.S.C. § 1717(b), they would then have at least 90 

days to review the proposed settlement and decide whether to object in the interest of the plaintiff class. The state and federal officials are not required to take any affirmative action once they receive the proposed settlement according to new section 28 U.S.C. 

§ 1717(f), nor does this section expand their current authority in 

any respect. 

New section 28 U.S.C. § 1717(e)(1) instructs that in cases where 

the appropriate state and federal officials are not provided notice 

of the potential settlement, plaintiffs can choose not be bound by 

that settlement. The Committee wishes to make clear that this provision is intended to address situations in which defendants have 

simply defaulted on their notification obligations under this provision; it is not intended to allow settlement class members to walk 

away from an approved settlement based on a technical noncompliance (e.g., notification of the wrong person or failure of the official 

to receive notice that was sent), particularly where good faith efforts to comply occurred. In particular, the Committee wishes to 

note that where the appropriate officials received notification of a 

proposed settlement from at least one defendant, section 1717(e) 

should not be operative. New subsection 1717(e)(2) specifically 

states that a class member may not refuse to comply with a settlement if the notice was directed to the appropriate federal official 

and to the state attorney general or the primary licensing authority. This provision reflects the overall intent of section 1717 that 

a settlement should not be undermined because of a defendant’s innocent error about which federal or state official should have received the required notice in a particular case. 

The Committee believes that notifying appropriate state and federal officials of proposed class action settlements will provide a 

check against inequitable settlements in these cases. Notice will 

also deter collusion between class counsel and defendants to craft 

settlements that do not benefit the injured parties. 

Section 4.—Section 4 amends 28 U.S.C. § 1332 to redesignate current subsection 1332(d) as subsection (e) and create a new subsection 1332(d). 

The new subsection 1332(d)(2) gives the federal courts original 

jurisdiction over class action lawsuits in which the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs, includes 100 or more members of the class, and eiVerDate jul 14 2003 06:18 Aug 07, 2003 Jkt 019010 PO 00000 Frm 00037 Fmt 6659 Sfmt 6602 E:\HR\OC\SR123.XXX SR123
38

ther (a) any member of a class of plaintiffs is a citizen of a different 

state from any defendant; (b) any member of a class of plaintiffs 

is a foreign state or a citizen or subject of a foreign state and any 

defendant is a citizen of a state; or (c) any member of a class of 

plaintiffs is a citizen of a state and any defendant is a foreign state 

or a citizen or subject of a foreign state. 

The Committee notes that for purposes of the citizenship element 

of this analysis, S. 274 does not alter current law regarding how 

the citizenship of a person is determined, including the provisions 

of 28 U.S.C. § 1332(c) specifying that ‘‘a corporation shall be 

deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business.’’ The bill also does not alter the current law regarding when 

citizenship is determined for diversity purposes: the time a pleading is filed with the court. However, for removal purposes, citizenship may be reevaluated upon certification of the class. 

While the core concept of the bill is that class actions filed 

against defendants outside their home state are subject to federal 

jurisdiction if citizens from different states are on opposing sides 

and more than $5 million is at issue, new subsections 1332(d)(3) 

and (d)(4)(A) address the jurisdictional principles that will apply to 

class actions filed against a defendant in its home state, dividing 

such cases into three categories. These rules are designed to direct 

appropriate national cases to federal court, and appropriate local 

cases to state court. 

First, for cases in which two-thirds or more of the members of 

the plaintiff class and the primary defendants are citizens of the 

state in which the suit was filed, new subsection 1332(d)(4)(A) 

states that federal jurisdiction will not be extended by S. 274. Such 

cases will remain in state courts under the terms of S. 274, since 

virtually all of the parties in such cases (both plaintiffs and defendants) would be local, and local interests therefore presumably 

would predominate. 

Second, cases in which more than two-thirds of the members of 

the plaintiff class and one or more of the primary defendants are 

not citizens of the state in which the action was filed will be subject to federal jurisdiction, pursuant to the provisions of new subsection 1332(d)(2). Federal courts should be able to hear such lawsuits because they have a predominantly interstate component—

they affect people in many jurisdictions, and the laws of many 

states may be at issue. 

Finally, there is a middle category of class actions in which more 

than one-third but fewer than two-thirds of the members of the 

plaintiff class and the primary defendants are citizens of the state 

in which the action was filed. In such cases, the numbers alone 

may not always confirm that the litigation is more fairly characterized as predominantly interstate in character. New subsection 

1332(d)(3) therefore gives federal courts the discretion, in the ‘‘interests of justice,’’ to decline to exercise jurisdiction over such cases 

based on the consideration of five factors: 

• Whether the claims asserted are of ‘‘national or interstate interest’’.—If a case presents issues of national or interstate significance, that argues in favor of the matter being handled in federal 

court. For example, if a nationally distributed pharmaceutical product is alleged to have caused injurious side-effects and class actions 

39

on the subject are filed, those cases presumably should be heard in 

federal court because of the nationwide ramifications of the dispute 

and the probable interface with federal drug laws (even if claims 

are not directly filed under such laws). Under this factor, the court 

would inquire as to whether the case presents issues of national or 

interstate significance of this sort. If such issues are identified, 

that point favors the exercise of federal jurisdiction. If such issues 

are not identified and the matter appears to be more of a local (or 

intrastate) controversy, that point would tip in favor of allowing a 

state court to handle the matter. • Whether the claims asserted will be governed by laws other 

than those of the forum state.—As noted previously, the Committee 

believes that one of the 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 the number of citizens of the forum state in the proposed plaintiff class(es) is substantially larger than the number of 

citizens from any other state, and the citizenship of the other members of the proposed class(es) is dispersed among a substantial 

number of states.—This factor is intended to look at the geographic 

distribution of class members in an effort to gauge the forum 

state’s interest in handling the litigation. To be subject to this inquiry, between one-third and two-thirds of the class members are 

citizens of the state in which the class action was filed and the primary defendants are also citizens of that state. If all of the other 

class members (that is, the class members who do not reside in the 

state where the action was filed) are widely dispersed among many 

other states (e.g., no other state accounted for more than five percent of the class members), that point would suggest that the interests of the forum state in litigating the controversy are preeminent 

(versus the interests of any other state). The Committee intends 

that such a conclusion would favor allowing the state court in 

40

which the action was originally filed to handle the litigation. However, if a court finds that the citizenship of the other class members is not widely dispersed, the opposite balance would be indicated. A federal forum would be favored in such a case because several states other than the forum state would have a strong interest 

in the controversy. 

• Whether one or more class actions asserting the same or similar claims on behalf of the same or other persons have been or may 

be filed.—The purpose of this factor is efficiency and fairness: to 

determine whether a matter should be subject to federal jurisdiction so that it can be coordinated with other overlapping or parallel 

class actions. If other class actions on the same subject are likely 

to be filed elsewhere that will remain in federal court, the Committee intends that this consideration would favor placing all of the 

matters in federal court so that all claims of all proposed classes 

could be handled efficiently on a coordinated basis pursuant to the 

federal courts’ multi-district litigation process as established by 28 

U.S.C. § 1407. Under that process, it is likely that all class actions 

filed on an issue will be handled by a single tribunal that will, in 

any event, be facing the challenge of interpreting the varying state 

laws and assessing how they should be applied to the purported 

class claims. Allowing a case to remain in federal court so that it 

may become part of that coordinated multidistrict litigation proceeding makes good sense. On the other hand, if other courts are 

unlikely to have to undertake the burden of handling the class 

claims and the state court appears positioned to handle the case in 

a manner that is respectful of state law variations, that consideration would favor remand of the matter to state court. 

For example, if a Virginia state court class action were filed 

against a Virginia pharmaceutical drug company on behalf of a proposed class of 60% Virginia residents and 40% Maryland residents 

alleging harmful side effects attributable to a drug sold nationwide, 

it would make sense to leave the matter in federal court. There 

would be a substantial possibility that other class actions would be 

filed elsewhere, possibly including nationwide or other multi-state 

class actions that might sweep in all or most Virginia and Maryland residents in the Virginia state court action. The state laws 

that would apply in all of these cases would vary depending on 

where the drug was prescribed and purchased, such that allowing 

a single court to sort out such issues and handle the balance of the 

litigation would make sense both from an efficiency and federalism 

standpoint. On the other hand, if a checking account fee disclosure 

class action were filed in a Maryland state court against a Maryland bank located in a border city and the class consisted of 65% 

Maryland residents and 35% Virginia residents (who crossed the 

border to conduct transactions in the Maryland bank), it might 

make sense to allow that matter to proceed in state court. There 

is less likelihood that multiple actions will be filed around the 

country on the same subject, so as to give rise to a coordinating 

federal multidistrict litigation proceeding. And it is likely that 

Maryland banking law would apply to all claims (even those of the 

Virginia residents), since all of the transactions occurred in Maryland. Thus, the federalism concerns would be substantially diminished. 

41

116 Under federal law, a purported class action may involve as few as 21 class members. See, 

e.g., Cox v. American Cast Iron Pipe Co., 784 F.2d 1546, 1553 (11th Cir. 1986) (noting that classes encompassing fewer than 21 persons normally are not subject to class certification); Tietz v. 

Bowen, 695 F. Supp. 441, 445 (C.D. Cal. 1987) (certifying class with 27 class members). 

In sum, the Committee intends that these factors would permit 

a federal court, in its discretion, to allow a class action asserting 

primarily local claims under local law for what is primarily a local 

group of claimants to proceed in state court, particularly where the 

action has not been pleaded manipulatively to avoid federal jurisdiction and the case is not likely to become an ‘‘orphan’’ that cannot 

be coordinated with similar class actions that are or, in the future, 

may be pending in federal court.

New subsection 1332(d)(4) (B) and (C) specify, respectively, that 

S. 274 does not extend federal diversity jurisdiction to class actions 

in which (a) the primary defendants are states, state officials, or 

other governmental entities against whom the district court may be 

foreclosed from ordering relief (‘‘state action’’ cases) or (b) the number of members of all proposed plaintiff classes in the aggregate is 

fewer than 100 class members (‘‘limited scope’’ cases). The purpose 

of the ‘‘state action’’ cases provision is to prevent states, state officials, or other governmental entities from dodging legitimate claims 

by removing class actions to federal court and then arguing that 

the federal courts are constitutionally prohibited from granting the 

requested relief. This provision will ensure that cases in which 

such entities are the primary targets will be heard in state courts 

that do not face the same constitutional impediments to granting 

relief. The ‘‘limited scope’’ cases provision is intended to allow class 

actions with relatively few claimants to remain in state courts.116

Federal courts should proceed cautiously before declining federal 

jurisdiction under the subsection 1332(d)(4)(B) ‘‘state action’’ case 

exception, and do so only when it is clear that the primary defendants are indeed states, state officials, or other governmental entities against whom the ‘‘court may be foreclosed from ordering relief.’’ In making such a finding, courts should apply the guidance 

regarding the term ‘‘primary defendants’’ discussed below. The 

Committee wishes to stress that this provision should not become 

a subterfuge for avoiding federal jurisdiction. In particular, plaintiffs should not be permitted to name state entities as defendants 

as a mechanism to avoid federal jurisdiction over class actions that 

largely target non-governmental defendants. Similarly, the subsection 1332(d)(4)(C) exception for ‘‘limited scope’’ cases (actions in 

which there are fewer than 100 class members) should also be interpreted narrowly. For example, in cases in which it is unclear 

whether ‘‘the number of members of all proposed plaintiff classes 

in the aggregate is less than 100,’’ a federal court should err in 

favor of exercising jurisdiction over the matter. 

As S. 274 was originally drafted, the jurisdictional provisions in 

the bill would have applied not only to class actions but also to two 

types of actions that are highly similar to class actions: (1) cases 

in which the named plaintiff (who is not a state attorney general) 

seeks monetary relief on behalf of its members (who are not parties 

to the action) or for the interests of the general public; and (2) 

cases in which the claims at issue seek monetary relief on behalf 

of 100 or more persons, on the ground that the claims involve common questions of law or fact and should therefore be jointly tried 

42

117The due process-threatening abuses that often arise in such cases are detailed in Beisner, 

Miller, and Shors, One Small Step for a County Court . . . One Giant Calamity for the National 

Legal System, Civil Justice Report (Center for Legal Policy, March 2003). 

in any respect. The former definition was intended to encompass 

so-called ‘‘private attorney general’’ suits such as those in which an 

individual seeks to recover on behalf of the general public. The latter definition referred to ‘‘mass actions’’—suits that are brought on 

behalf of hundreds or thousands of named plaintiffs who claim that 

their suits present common questions of law or fact that should be 

resolved simultaneously in a single proceeding in which large 

groups of claims are tried together, in whole or in part. Although 

private attorney general suits and mass action cases do not proceed 

under Rule 23 because they do not involve class representatives 

suing on behalf of unnamed persons, they function very much like 

class actions. Thus, the bill’s original drafters were concerned that 

the use of these devices should not be allowed to permit an endrun around the due process and fairness considerations inherent in 

the federal class certification requirements.117

During the Committee mark-up, Senators Specter and Feinstein 

introduced an amendment to strike from the bill these provisions, 

which would have been codified as section 1332(d)(9). That amendment was accepted by Chairman Hatch, with the understanding 

that there would be discussions about reformulating the provision. 

However, the amendment included a drafting error because it 

struck Section 1332(d)(9)(A) but failed to strike 1332(d)(9)(B). (Because of another amendment in the bill, Section 1332(d)(9)(B) has 

now been redesignated as 1332(d)(10)(B).) Thus, as reported from 

Committee, the bill currently includes language at Section 

1332(d)(10)(B) that erroneously refers to the stricken language and 

is thus surplusage in the reported version of S. 274. 

The Committee notes that although not reflected in the bill as reported by the Committee, ensuing conferences have produced a 

modified provision regarding ‘‘mass actions’’ that Senator Specter 

and the bill’s other sponsors reportedly agree should be added to 

S. 274. That modified provision tracks the original bill, authorizing 

removal to federal court of major ‘‘mass actions’’ that otherwise 

meet the jurisdictional requirements for class actions established 

by the bill. However, there are four changes: 

First, the revised provision expressly does not permit removal of 

a ‘‘mass action’’ in which all claims arise from a single sudden accident (e.g., a building fire, a chemical plant explosion) that occurred 

in the state in which the action was filed and that allegedly resulted in injuries in that state or in states contiguous thereto. The 

rationale of this change is that in the event of a major sudden accident, many individual lawsuits are likely to be filed in local state 

courts and collected before a single court. In that narrow circumstance, moving a mass action to federal court might lessen (not 

increase) efficiencies, inasmuch as both federal and state courts 

might simultaneously be hearing what are essentially the same 

cases. Thus, it might be preferable to allow all such cases to proceed on a coordinated basis in state court. Further, single event accident cases do not create the risk of abuses posed by most mass 

actions—the potential that counsel are attempting to aggregate in 

a single lawsuit claims that arose in widely dispersed locations 

43

under widely varying factual circumstances and have little or no 

relationship to the forum. 

Second, the revised mass actions provision would prevent removal to federal court in cases in which the defendant (not the 

plaintiff) seeks to join the monetary damages claims of more than 

100 persons for a single trial. This provision will prevent defendants from moving to federal courts claims that do not otherwise 

qualify for federal jurisdiction—something the original S. 274 mass 

actions provision was never intended to do.

Third, the revised mass actions provision limits the authority of 

the Judicial Panel on Multidistrict Litigation to transfer into MDL 

proceedings ‘‘mass actions’’ removed under this provision. Under 

the revised provision, such transfers would be permitted only if 

transfer were requested by a majority of the plaintiffs in the action, 

if plaintiffs asked that the matter be turned into a class action, or 

if the court turns the matter into a class action (by affording the 

matter class status). This change recognizes the fact that a mass 

action of this sort will itself be a major piece of litigation (perhaps 

larger than any parallel MDL action), such that the matter should 

be left in the forum in which it was originally filed (unless attempts are made to turn the matter into a class action that should 

be subject to the bill’s removal and jurisdictional provision to ensure coordination with other parallel class actions). 

Finally, the revised mass action provision confirms that the applicable statutes of limitations on mass action claims removed to 

federal court under this section shall be tolled while those claims 

are pending in federal court. 

Pursuant to new subsection 1332(d)(5), the claims of the individual class members in any class action shall be aggregated to determine whether the amount in controversy exceeds the sum or 

value of $5,000,000 (exclusive of interest and costs). The Committee 

intends this subsection to be interpreted expansively. If a purported class action is removed pursuant to these jurisdictional provisions, the named plaintiff(s) should bear the burden of demonstrating that the removal was improvident (i.e., that the applicable jurisdictional requirements are not satisfied). And if a federal 

court is uncertain about whether ‘‘all matters in controversy’’ in a 

purported class action ‘‘do not in the aggregate exceed the sum or 

value of $5,000,000,’’ the court should err in favor of exercising jurisdiction over the case. 

By the same token, the Committee intends that a matter be subject to federal jurisdiction under this provision if the value of the 

matter in litigation exceeds $5,000,000 either from the viewpoint of 

the plaintiff or the viewpoint of the defendant, and regardless of 

the type of relief sought (e.g., damages, injunctive relief, or declaratory relief). The Committee is aware that some courts, especially in 

the class action context, have declined to exercise federal jurisdiction over cases on the ground that the amount in controversy in 

those cases exceeded the jurisdictional threshold only when assessed from the viewpoint of the defendant. For example, a class 

action seeking an injunction that would require a defendant to restructure its business in some fundamental way might ‘‘cost’’ a defendant well in excess of $75,000 under current law, but might 

have substantially less ‘‘value’’ to a class of plaintiffs. Some courts 

have held that jurisdiction does not exist in this scenario under 

44

118See, e.g., St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 293 (1938). 

present law, because they have reasoned that assessing the amount 

in controversy from the defendant’s perspective was tantamount to 

aggregating damages. Because S. 274 explicitly allows aggregation 

for purposes of determining the amount in controversy in class actions, that concern is no longer relevant. 

The Committee also notes that in assessing the jurisdictional 

amount in declaratory relief cases, the federal court should include 

in its assessment the value of all relief and benefits that would 

logically flow from the granting of the declaratory relief sought by 

the claimants. For example, a declaration that a defendant’s conduct is unlawful or fraudulent will carry certain consequences, such 

as the need to cease and desist from that conduct, which will often 

‘‘cost’’ the defendant in excess of $5,000,000. As another example, 

a declaration that a standardized product sold throughout the nation is ‘‘defective’’ might well put a case over the $5,000,000 threshold, even if the class complaint did not affirmatively seek a determination that each class member was injured by the product. 

Overall, new section 1332(d) is intended to expand substantially 

federal court jurisdiction over class actions. Its provisions should be 

read broadly, with a strong preference that interstate class actions 

be heard in a federal court if properly removed by any purported 

class member or any defendant. 

As noted above, it is the intent of the Committee that the named 

plaintiff(s) should bear the burden of demonstrating that a case 

should be remanded to state court (e.g., the burden of demonstrating that more than two-thirds of the proposed class members are citizens of the forum state). Allocating the burden in this 

manner is important to ensure that the named plaintiffs will not 

be able to evade federal jurisdiction with vague class definitions or 

other efforts to obscure the citizenship of class members. The law 

is clear that, once a federal court properly has jurisdiction over a 

case removed to federal court, subsequent events generally cannot 

‘‘oust’’ the federal court of jurisdiction.118 While plaintiffs undoubtedly possess some power to seek to avoid federal jurisdiction by defining a proposed class in particular ways, they lose that power 

once a defendant has properly removed a class action to federal 

court. 

For purposes of class actions that are subject to subsections 1332 

(d)(3) and (d)(4)(A), the Committee intends that the only parties 

that should be considered ‘‘primary defendants’’ are those defendants who are the real ‘‘targets’’ of the lawsuit—i.e., the defendants 

that would be expected to incur most of the loss if liability is found. 

Thus, the Committee intends for the term ‘‘primary defendants’’ to 

include any person who has substantial exposure to significant portions of the proposed class in the action, particularly any defendant 

that is allegedly liable to the vast majority of the members of the 

proposed classes (as opposed to simply a few individual class members). For example, in a class action alleging that a drug was defective, the defendant manufacturer of the drug would be a primary 

defendant, since it is a major target of the allegations of the full 

class. However, if several physicians who had each prescribed the 

drug to a handful of class members were also named as defendants, 

they would not be primary defendants. Similarly, in a class action 

45

alleging that a type of ladder was defective, both a defendant manufacturer that made 60% of the ladders at issue and a defendant 

manufacturer that built 20% of the ladders at issue would be primary defendants, since both are major targets of the allegations 

and have substantial exposure to significant percentages of the 

class in the case. However, if two local hardware stores that each 

sold a few of the ladders were named as defendants, they would 

not be deemed ‘‘primary defendants.’’ Merely alleging that a defendant conspired with other class members to commit wrongdoing 

will not, without more, be sufficient to cause a person to be a ‘‘primary defendant’’ under this subsection.

It is the Committee’s intention with regard to each of these exceptions that the party opposing federal jurisdiction shall have the 

burden of demonstrating the applicability of an exemption. Thus, 

if a plaintiff seeks to have a class action remanded under section 

1332(d)(4)(A) on the ground that the primary defendants and twothirds or more of the class members are citizens of the home state, 

that plaintiff shall have the burden of demonstrating that these criteria are met by the lawsuit. Similarly, if a plaintiff seeks to have 

a purported class action remanded for lack of federal diversity jurisdiction under subsection 1332(d)(4)(C) (‘‘limited scope’’ class actions), that plaintiff should have the burden of demonstrating that 

‘‘all matters in controversy’’ do not ‘‘in the aggregate exceed the 

sum or value of $5,000,000, exclusive of interest and costs’’ or that 

‘‘the number of all proposed plaintiff classes in the aggregate is less 

than 100.’’ 

The Committee understands that in assessing the various criteria established in all of these new jurisdictional provisions, a federal court may have to engage in some fact-finding, not unlike that 

which is necessitated by the existing jurisdictional statutes. The 

Committee further understands that in some instances, limited discovery may be necessary to make these determinations. However, 

the Committee cautions that these jurisdictional determinations 

should be made largely on the basis of readily available information. Allowing substantial, burdensome discovery on jurisdictional 

issues would be contrary to the intent of these provisions to encourage the exercise of federal jurisdiction over class actions. For example, in assessing the citizenship of the various members of a proposed class, it would in most cases be improper for the named 

plaintiffs to request that the defendant produce a list of all class 

members (or detailed information that would allow the construction 

of such a list), in many instances a massive, burdensome undertaking that will not be necessary unless a proposed class is certified. Less burdensome means (e.g., factual stipulations) should be 

used in creating a record upon which the jurisdictional determinations can be made. 

New subsection 1332(d)(6) clarifies that the diversity jurisdiction 

provisions of this section shall apply to any class action before or 

after the entry of a class certification order by the court. The purpose of this provision is to confirm that both pre- and post-certification class actions shall be subject to the jurisdictional and removal provisions of S. 274. This provision is not intended to alter 

the deadlines for removal under the Judicial Code or as established 

by this legislation. Instead, it is intended to indicate that the certification status of a class action should not affect its removability. 

46

New subsection 1332(d)(7) details the procedures governing cases 

removed to federal court on the sole basis of new section 1332(d) 

jurisdiction. Pursuant to new subsection 1332(d)(7)(A), the district 

courts are directed to dismiss any civil action subject to federal jurisdiction if it is determined that the civil action may not proceed 

as a class action because it fails to satisfy the conditions of Rule 

23 of the Federal Rules of Civil Procedure. Notwithstanding this 

subsection, new subsection 1332(d)(7)(B) clarifies that the action 

may be amended and refiled in federal or state court; however, if 

such an action is refiled in state court, it may be removed if it is 

an action over which the district courts of the United States have 

original jurisdiction. The Committee has concluded that the alternative—forbidding re-removal—would be bad policy. That approach 

would allow counsel effectively to ask a state court to review and 

overrule the class certification decision of a federal court, since federal and state court class certification standards typically do not 

differ radically. Allowing a state court to certify a case that a federal court has already found non-certifiable would set a troubling 

(if not constitutionally suspect) precedent under which state courts 

would serve as points of appellate review of federal court decisions. 

Moreover, since federal court denials of class certification typically 

involve explicit or implied determinations that allowing a case to 

be litigated on a class basis would likely result in the denial of 

some or all of the parties’ due process rights, there should be no 

room constitutionally for a state court to reach a different result on 

class certification issues. 

In addition, new subsection 1332(d)(7)(C) provides that, if a dismissed case is refiled by any of the original named plaintiffs in the 

same state court venue in which it was originally filed, the statute 

of limitations on the claims therein will be deemed tolled during 

the pendency of the dismissed case. A new class action filed either 

in a different venue or by different named plaintiffs would not 

enjoy the benefits of this provision. 

However, if a class action is dismissed under this section and an 

individual action is later filed asserting the same claims, the statute of limitations will be deemed tolled during the pendency of the 

dismissed class action, regardless of where the subsequent individual case is filed. 

Pursuant to new subsection 1332(d)(8), the Act excepts from new 

subsection 1332(d)(2)’s grant of original jurisdiction those class actions that solely involve claims that relate to matters of corporate 

governance arising out of state law. The purpose of this provision 

is to avoid disturbing in any way the federal versus state court jurisdictional lines already drawn in the securities litigation class action context by the enactment of the Securities Litigation Uniform 

Standards Act of 1998 (P.L. 105–353). 

The Committee intends that this exemption be narrowly construed. By corporate governance litigation, the Committee means 

only litigation based solely on (a) state statutory law regulating the 

organization and governance of business enterprises such as corporations, partnerships, limited partnerships, limited liability companies, limited liability partnerships, and business trusts; (b) state 

common law regarding the duties owed between and among owners 

and managers of business enterprises; and (c) the rights arising out 

of the terms of the securities issued by business enterprises. 

47

119 Edgar v. Mite Corp., 457 U.S. 624, 645 (1982). See also Draper v. Paul N. Gardner Defined 

Plan Trust, 623 A.2d 859, 865–66 (Del. 1993); McDermott v. Lewis, 531 A.2d 206, 214–15 (Del. 

1987); Ellis v. Mutual Life Ins. Co., 187 So. 434 (Ala. 1939); Amberjack, Ltd., Inc. v. Thompson,

1997 WL 613676 (Tenn. App. 1997); NAACP v. Golding, 679 A.2d 554, 559 (Ct. App. Md. 1996); 

Hart v. General Motors Corp., 517 N.Y.S.2d 490, 493 (App. Div. 1987). 120 United Steelworkers of America v. Boulingy, Inc., 382 U.S. 145 (1965). 121See, e.g., 3A J. Moore & J. Lucas, Moore’s Federal Practice, ¶¶ 17.25, 17–209 (1987 rev.) 

(‘‘Congress should remove the one remaining anomaly and provide that where unincorporated 

associations have entity status under state law, they should be treated as analogous to corporations for purposes of diversity jurisdiction.’’). 122See 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). 

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 * * *.’’ 119 The phrase ‘‘other form of business enterprise’’ is intended to include forms of business entities other 

than corporations, including, but not limited to, limited liability 

companies, limited liability partnerships, business trusts, partnerships and limited partnerships. 

The subsection 1332(d)(8) exemption to new section 1332(d) jurisdiction is also intended to cover disputes over the meaning of the 

terms of a security, which is generally spelled out in some formative document of the business enterprise, such as a certificate of incorporation or a certificate of designations. The reference to the Securities Act of 1933 contained in new subsection 1332(d)(8)(A) is for 

definitional purposes only. Since that law contains an already welldefined concept of a ‘‘security,’’ this provision simply imports the 

definition contained in the Securities Act. 

New subsection 1332(d)(9) provides that for purposes of this new 

section and section 1453 of title 28, an unincorporated association 

shall be deemed to be a citizen of a state where it has its principal 

place of business and the state under whose laws it is organized. 

This provision is added to ensure that unincorporated associations 

receive the same treatment as corporations for purposes of diversity jurisdiction. The U.S. Supreme Court has held that ‘‘[f]or purposes of diversity jurisdiction, the citizenship of an unincorporated 

association is the citizenship of the individual members of the association.’’ 120 This rule ‘‘has been frequently criticized because often 

* * * an unincorporated association is, as a practical matter, indistinguishable from a corporation in the same business.’’ 121 Some insurance companies, for example, are ‘‘inter-insurance exchanges’’ or 

‘‘reciprocal insurance associations.’’ For that reason, federal courts 

have treated them as unincorporated associations for diversity jurisdiction purposes. Since such companies are nationwide companies, they are deemed to be citizens of any state in which they have 

insured customers.122 Consequently, these companies can never be 

completely or even minimally diverse in any case. It makes no 

sense to treat an unincorporated insurance company differently 

48

123See 28 U.S.C. §1441(a). 124 Id. 125See Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938). 

from an incorporated manufacturer for purposes of diversity jurisdiction. New subsection 1332(d)(9) corrects this anomaly. 

The definitional provisions of Section 4—as reflected in the new 

section 1332(d)(1)—are self-explanatory. However, the Committee 

notes that as with the other elements of section 1332(d), the overall 

intent of these provisions is to favor the exercise of federal diversity jurisdiction over class actions. In that regard, the Committee 

further notes that the definition of ‘‘class action’’ is to be interpreted liberally. Its application should not be confined solely to 

lawsuits that are labeled ‘‘class actions’’ by the named plaintiff or 

the state rulemaking authority. Generally speaking, lawsuits that 

resemble a purported class action should be considered class actions for the purpose of applying these provisions. 

Section 5.—Section 5 establishes the procedures for removal of 

interstate class actions over which the federal court is granted 

original jurisdiction in new section 1332(d). The general removal 

provisions currently contained in Chapter 89 of Title 28 would continue to apply to such class actions, except where they are inconsistent with the provisions of the Act. For example, like other removed actions, matters removable under this bill may be removed 

only ‘‘to the district court of the United States for the district and 

division embracing the place where such action is pending.’’ 123

However, the general requirement contained in section 1441(b) that 

an action be removable only if none of the defendants is a citizen 

of the state in which the action is brought would not apply to the 

removal of class actions under the jurisdictional provisions of section 1332(d). Imposing such a restriction on removal of class actions would subvert the intent of the Act because it would essentially allow a plaintiff to defeat removal jurisdiction by suing both 

in-state and out-of-state defendants. Such a restriction on removal 

of class actions would perpetuate the current ‘‘complete diversity’’ 

rule for class actions that new section 1332(d) rejects. The Act does 

not, however, disturb the general rule that a case can only be removed to the district court of the United States for the district and 

division embracing the place where the action is pending.124 In addition, the Act does not change the application of the Erie Doctrine, 

which requires federal courts to apply the substantive law dictated 

by applicable choice-of-law principles in actions arising under diversity jurisdiction.125

New subsection 1453(b) would permit removal by any plaintiff 

class member who is not a named or representative class member 

of the action for which removal is sought. Generally, removal of an 

action by the plaintiff is not permissible, under the theory that as 

the instigator of the lawsuit, the plaintiff had the choice of forum 

from the outset. When a class action is filed, however, only the 

named plaintiffs and their counsel have control over the choice of 

forum, whereas the vast majority of the real parties in interest—

the unnamed class members on whose behalf the action is brought 

and the defendants—have no voice in that decision. By specifying 

that the provisions of section 1446(a) governing the removal of a 

case by a defendant shall apply equally to unnamed plaintiff class 

49

126See, e.g., Hewitt v. City of Stanton, 798 F.2d 1230 (9th Cir. 1986); Mitchell v. KentuckyAmerican Water Co., 178 F.R.D. 140, 142 (E.D. Ky. 1997). 

members, this provision gives unnamed plaintiff class members the 

same flexibility as defendants to choose the forum for a lawsuit. 

In addition, new subsection 1453(b) provides that removal may 

occur without the consent of any other party. This revision to the 

removal rules will combat collusion between a corporate defendant 

and a plaintiffs’ attorney who may attempt to settle on the cheap 

in a state court at the expense of the plaintiff class members. Similarly, this will prevent a plaintiffs’ attorney from recruiting a 

‘‘friendly’’ defendant (e.g., a local retailer) who could refuse to join 

in a removal to federal court and thereby thwart the legitimate efforts of the primary corporate defendant to seek a federal forum in 

which to litigate the pending claims. By this provision, it is the 

Committee’s intent to overrule caselaw developed by the federal 

courts requiring the consent of all parties,126 to the extent that 

such precedents might be applied to class actions subject to the expanded jurisdictional and removal provisions of S. 274. 

New subsection 1453(c) is intended to confirm that the removal 

revisions are applicable to both pre- and post-certification class actions. 

New subsection 1453(d) states that the requirements of section 

1446, setting forth a 30-day filing period for removal notices by defendants, shall apply to plaintiffs who seek to remove a class action 

under Section 1453. In addition, subsection 1453(d) makes an additional change to section 1446(b), which requires that removal occur 

within 30 days of receipt of ‘‘paper’’ (e.g., a pleading, motion, order, 

or other paper source) from which it may be ascertained that the 

case is removable. Under the current statute, a defendant may remove an action beyond the 30-day limit if it can prove that prior 

to that time it had not received paper from which it could be 

ascertained that the case was removable. Section 1453(d) extends 

this provision to class members seeking removal, by allowing them 

to file removal papers up to 30 days after receiving initial written 

notice of the class action. The Committee intends that the term 

‘‘initial written notice’’ refer to the initial notice of the class action 

that is disseminated at the direction of the state court before which 

the action is pending. The Committee further intends that the 30-

day period referenced by this section be deemed to run as to each 

class member on the thirtieth day after dissemination of notice to 

the class, as directed by the court, is completed. 

New subsection 1453(e) provides that an order remanding a class 

action to state court is reviewable by appeal or otherwise. As a general matter, appellate review of orders remanding cases to state 

court is not permitted, as specified by 28 U.S.C. §1447(d). That prohibition on remand order review was added to section 1447 after 

the federal diversity jurisdictional statutes and the related removal 

statutes had been subject to appellate review for many years and 

were the subject of considerable appellate level interpretive law. 

The Committee is concerned that if this prohibition on appellate review is applied to remand orders issued under S. 274, the new laws 

will never become the subject of appellate decisions that would assist in guiding the district courts in interpreting this new law. 

Thus, for that reason and in light of the high stakes posed by class 

50

127See, e.g., Jerome-Duncan, Inc. v. Auto-By-Tel, L.L.C., 176 F.3d 904 (6th Cir. 1999); Gould

v. Mutual Life Ins. Co. of New York, 790 F.2d 769 (9th Cir. 1986). 128See 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.’’ 

actions for both plaintiffs and defendants, section 1453(e) is intended to leave no doubt that orders remanding cases removed to 

federal court under the new jurisdictional and removal provisions 

of S. 274 should be subject to immediate, non-discretionary appellate review. Normally the review of such jurisdictional provisions 

is de novo, meaning that the lower court ruling is given no deference.127 It is the Committee’s intent that this standard of review 

be applied in this setting, particularly in reviewing any factual assessments underlying the district court’s jurisdictional determination. 

In order to be consistent with the exceptions to federal diversity 

jurisdiction granted under new section 1332(d), new subsection 

1453(f) provides that the class action removal provisions shall not 

apply to claims involving covered securities or corporate governance litigation. In addition, claims concerning a covered security, as 

defined in section 16(f)(3) of the Securities Act of 1933 or section 

28(f)(5)(E) of the Securities Exchange Act of 1934, are excepted 

from the class action removal rule as well. These are essentially 

claims against the officers of a corporation for a precipitous drop 

in the value of its stock, based on fraud. Because Congress has previously enacted legislation governing the adjudication of these 

claims,128 it is the Committee’s intent not to disturb the carefully 

crafted framework for litigating in this context. Thus, claims involving covered securities are excluded from the new section 

1332(b) jurisdiction. The parameters of this subsection are intended 

to be coterminous with new subsection 1332(d)(7). 

Section 5 also amends Section 1446(b) to clarify that the provisions in that section prohibiting the removal of cases more than 

one year after their commencement do not apply to class actions. 

Thus, removals taken under these revised provisions for class actions may be taken more than one year after an action’s commencement. This change is intended to prevent plaintiffs’ attorneys from 

engaging in the type of gaming that occurs under the current class 

action system. In the most extreme example, a plaintiffs’ attorney 

could file suit under current law against a friendly defendant, triggering the start of the one-year limitation after which removal may 

not be sought under any condition. One year and one day after filing suit, the plaintiff’s attorney could then serve an amended complaint on an additional defendant, at which time it would be too 

late for that new defendant to remove the case to federal court—

regardless of whether diversity jurisdiction exists and irrespective 

of the practical merits of the case. The same unfair result would 

also occur if plaintiffs’ counsel dismisses non-diverse parties or increases the amount of damages being pled after the one-year deadline. By allowing class actions to be removed at any time when 

changes are made to the pleadings that bring the case within section 1332(d)’s requirements for federal jurisdiction, this provision 

will ensure that such fraudulent pleading practices can no longer 

be used to thwart federal jurisdiction. It is not the intention of the 

Committee to change section 1446(b)’s requirements that an action 

must be removed within thirty days of being served with the initial 

51

129 B. Ostrom, et al., Examining the Work of State Courts 12 (Court Statistics Project 2001). 

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 amendments made by the 

Act shall apply to any civil action commenced on or after the date 

of enactment. 

VII. CRITICS CONTENTIONS AND REBUTTALS

Critics’ Contention No. 1: S. 274 would transfer nearly every 

class action from state to federal court and would add to the overwhelming workload faced by our federal courts. 

Response 

During Committee debate on this and previous versions of this 

bill, the most frequently expressed concern was that its jurisdictional provisions would overload the federal judiciary. That argument, however, ignores the fact that class actions burden our entire 

national judicial system, which includes both federal courts and 

state courts. In fact, many state courts, where the critics apparently would like to confine all interstate class actions, are just as 

burdened—if not more so—than the federal courts, and are less 

equipped to deal with complex cases like class actions. Indeed, 

many state courts have comparatively crushing caseloads. 

Civil filings in state trial courts of general jurisdiction have been 

increasing rapidly, up 21 percent since 1984, compared to only a 

four percent increase in the federal courts.129 Most tellingly, in 

most jurisdictions, each state court judge is assigned (on average) 

52

130 Id. at 12–13 131See Administrative Office of the U.S. Courts, 2002 Federal Court Management Statistics 

167 (2003). 132See Administrative Office of the U.S. Courts, Judicial Business of the United States Courts 

2002, at 159, 172 (2003). 

over 1,500 new cases each year.130 The jurisdictions with these 

high case assignment levels include California (average of 1,545 

cases assigned to each judge annually), District of Columbia (2,318 

cases), Florida (2,054 cases), Indiana (2,079 cases), New Jersey 

(2,653 cases), North Carolina (2,823 cases), South Carolina (3,833 

cases), South Dakota (2,641 cases), Utah (3,124 cases), and 

Vermont (2,081 cases). By contrast, each federal court judge was 

assigned an average of 518 new cases during the twelve-month period ending September 30, 2002.131

The median time for final disposition of a civil claim filed in federal court is 8.7 months, and the median time to trial in a civil 

matter in federal court is 21.8 months.132 The record reflects no 

hard evidence that on average, state courts proceed more quickly. 

Critics of the bill also ignore the fact that many state courts are 

tribunals of general jurisdiction—they hear all sorts of cases, including divorce matters, custody disputes, name change petitions, 

traffic violations, small claims contract disputes, minor misdemeanors, and major felonies. Thus, when a class action is filed 

before those courts, it diminishes the court’s ability to provide a 

broad array of very basic legal services for the local community. 

The judges presiding over those state courts often have far fewer 

resources for dealing with huge, complex cases, like class actions. 

Federal court judges usually have two or three law clerks; state 

court judges often have none. And federal court judges usually can 

delegate aspects of their cases (e.g., discovery issues) to magistrate 

judges or special masters; state court judges typically lack such resources. 

Critics also overlook the fact that even if both court systems were 

similarly burdened, federal courts could still deal with class actions 

more efficiently for two reasons. First, federal courts can coordinate 

‘‘copy cat’’ or overlapping class actions. The record before the Committee indicates that it is not uncommon to see twenty, thirty, or 

even 100 class actions filed on the same subject matter. Sometimes, 

competing lawyers file these cases; other times, they are filed by 

the same lawyers who are simply forum-shopping for the most receptive judge. When these similar, overlapping class actions are 

filed in state courts of different jurisdictions, there is no way to 

consolidate or coordinate the cases. The result is enormous waste, 

to say nothing of the unfairness to both defendants and plaintiffs. 

Defendants are forced to defend the same case in many different 

courts. Class members are harmed because the various different 

class counsel compete with each other to achieve the best settlement for the lawyers. By contrast, if overlapping or similar class 

actions are filed against the same defendant in two or more different federal courts, the multidistrict litigation process (established by 28 U.S.C. § 1407) permits the transfer to and consolidation of those cases with a single judge. The federal court multidistrict litigation system regularly consolidates multiple overlapping 

class actions in this manner, preventing the waste that occurs in 

state courts. 

53

133See Class Action Litigation—A Survey, Class Action Watch, at 5 (Vol. 1, No. 1 1998); Deborah Hensler, et al., Class Action Dilemmas: Pursuing Public Goals for Private Gain 19 (1999) 

(executive summary). 134See Judicial Business, at 130–31. 

Second, federal judges generally have greater resources for dealing with huge, complex cases, like class actions. As stated previously, federal court judges usually have two or three law clerks, 

while state court judges often have none. Federal court judges usually can delegate certain aspects of their cases to magistrate judges 

or special masters, while state court judges often lack such resources.

Finally, those expressing workload concerns also ignore the fact 

that S. 274 does not require that interstate class actions be heard 

in federal courts. It simply provides the option for either side to 

litigate in federal court if appropriate and it so desires. Just as defendants choose to leave many cases in state court that would be 

subject to proper removal, there is no reason to believe that all 

class actions will be moved to federal court. By the same token, 

under S. 274, plaintiffs’ counsel would no longer have an incentive 

to file large numbers of class actions in a small number of ‘‘magnet’’ courts. Thus, any burden posed by class actions would be more 

evenly distributed among the different federal and state courts. 

Class action filings in state courts have increased far more rapidly than they have in federal courts. According to recent studies, 

federal class action filings over the past ten years have increased 

by more than 300%, while class action filings in state courts have 

increased by more than 1,000%.133 As the number of class action 

lawsuits continues to grow, state courts typically do not have the 

resources, procedural mechanisms or expertise to handle them effectively. Because the federal judiciary has more personnel and 

other resources, it is more likely that class actions will be resolved 

more quickly in federal court than in state court. 

Further, federal courts regularly decide cases involving difficult 

conflict of law questions, and are frequently required to apply different states’ laws in complex cases—not just class actions. Indeed, 

it is fair to say that this is ‘‘standard fare’’ for the federal courts. 

On the other hand, state courts are not as familiar with these 

kinds of issues and have been known to avoid applying different 

state laws by simply—and improperly—imposing their own state 

law on a nationwide case. Removal of more class actions to the federal courts can only benefit the appropriate handling of these cases, 

as well as improve the fairness of class action decisions to both 

plaintiffs and defendants. 

Critics who focus on the federal courts’ workload are missing the 

point—class actions are precisely the kind of cases that should be 

heard in federal court. Class actions usually involve the most people, most money, and most interstate commerce issues. They also 

usually involve issues of nationwide implications. Interstate class 

actions are certainly no less deserving of a federal forum than the 

5,212 cases to recover a few thousand dollars in defaulted student 

loans, the 41,135 product liability actions (typically one-person injury case), the 17,862 federal personal injury cases (e.g., single person medical malpractice cases), or 23,863 civil habeas corpus cases 

filed last year in federal court.134 Indeed, it is noteworthy that 

there were almost twenty times as many product liability and fedVerDate jul 14 2003 06:18 Aug 07, 2003 Jkt 019010 PO 00000 Frm 00053 Fmt 6659 Sfmt 6602 E:\HR\OC\SR123.XXX SR123
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135 Id. at 394. 136See 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). 137Federal Judicial Center, Empirical Study of Class Actions in Four Federal District Courts 

68–69 (1996). 138Deborah R. Hensler, et al., Class Action Dilemmas: Pursuing Public Goals for Private Gain 

19 (1999) (executive summary). 139 Id. at 28. 140See 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).

eral personal injury cases (normally one-person claims) filed in federal court last year (58,997) as there were class actions (2,916).135

Ultimately, regardless of the impact on the federal court caseload, 

large interstate class actions belong in federal court. 

Critics’ Contention No. 2: Abuses of class actions exist in both 

federal and state courts, and therefore, allowing more interstate 

class actions to be heard in federal court will not solve any problems. 

Response 

At congressional hearings on the subject of class actions, witness 

after witness provided compelling evidence that serious abuses of 

the class device are primarily occurring in state courts.136

Moreover, several studies also indicate that the class action 

abuse problem, particularly with respect to class settlements, is 

primarily a state court issue. For example, a detailed Federal Judicial Center study concluded that ‘‘[i]n most [class actions handled 

by federal courts subject to the study], net monetary distributions 

to the class exceeded attorneys’ fees by substantial margins.’’ 137 In 

stark contrast, an Institute for Civil Justice/RAND study indicated 

that in state court consumer class action settlements not involving 

personal injuries, class counsel typically walk off with more money 

than all of the class members combined.138 The ICJ/RAND study 

offered three compelling rationales for allowing more interstate 

class actions to be heard by federal courts: 

(1) ‘‘federal judges scrutinize class action allegations more 

strictly than state judges, and deny certification in situations 

where a state judge might grant it improperly;’’ 

(2) ‘‘state judges may not have adequate resources to oversee 

and manage class actions with a national scope;’’ and 

(3) ‘‘if a single judge is to be charged with deciding what law 

will apply in a multistate class action, it is more appropriate 

that this take place in federal court than in a state court.’’ 139

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 to 

Rule 23 have been approved by the U.S. Supreme Court and forwarded to Congress for consideration pursuant to the Rules Enabling Act.140 Those rule changes will dovetail with the ‘‘consumer 

55

141 Indeed, there is no evidence that plaintiffs’ counsel believe that they must file in state 

court in order to succeed. Tobacco class actions prove this point. Of the purported class actions 

on tobacco issue, many were originally filed in federal courts. Moreover, there is no evidence 

that classes are more likely to be certified in state courts. The reality is that the vast majority 

of courts—both federal and state courts—that have considered the issue have denied certification of proposed tobacco classes. The state court certification denials include: In re Tobacco 

Cases II, No. JCCP–4042, slip op. (Md. Ct. App. May 16, 2000); Reed v. Philip Morris, Inc., No. 

96–5070, slip op. (D.C. Super. Ct. July 23, 1999); Philip Morris, Inc. v. Angeletti, No. 961450501 

CE212596, slip op. (Md. Ct. App. May 16, 2000); Taylor v. American Tobacco Co., No. 97715975, 

slip op. (Mich. Cir. Ct. Jan. 20, 2000); Constentino v. Philip Morris, Inc., No. MID-L–5135–97, 

slip op. (N.J. Super. Ct. Oct. 26, 1998); Small v. Lorilard Tobacco Co., 679 N.Y.S.2d 593 (App. 

Div. 1998), aff’d, 698 N.Y.S.2d 615 (1999); and Geiger v. American Tobacco Co., 696 N.Y.S.2d 

345 (1999). At least three federal courts have certified tobacco-related classes: In re Simon II 

Litig., 211 F.R.D. 86 (E.D.N.Y. 2002) (certifying nationwide punitive damages class of smokers’ 

claims against tobacco companies); Iron Workers Local Union No. 17 Insurance Fund v. Philip 

Morris, Inc., 182 F.R.D. 523 (N.D. Ohio 1998); Northwest Laborers-Employers Health & Security 

Trust Fund v. Philip Morris, Inc., 1997 U.S. Dist. LEXIS 21299 (W.D. Wash. Dec. 24, 1997). 

In addition, a U.S. Magistrate Judge recommended certification of a class in Oregon LaborersEmployers Health & Welfare Trust Fund v. Philip Morris, Inc., 188 F.R.D. 365 (D. Or. 1998), 

but that recommendation was never acted upon by the district court judge. Three state courts 

(two in Florida and one in Louisiana) have certified tobacco-related classes: R.J. Reynolds Tobacco Co. v. Engle, 672 So.2d 39 (Fla. Ct. App. 1996) (affirming the trial court’s certification 

of tobacco class); Broin v. Philip Morris Cos., 641 So.2d 888 (Fla. Ct. App. 1994) (ordering trial 

court to certify tobacco class); Scott v. American Tobacco Co., 725 So.2d 10 (La. Ct. App. 1998) 

(affirming trial court certification of tobacco class). However, a Florida appeals court recently 

decertified the Engle class. See Liggett Group, Inc. v. Engle, 28 Fla. L. Weekly D1219 (Fla. Ct. 

App. May 21, 2003). Thus, the scorecard is basically even; there is no evidence that class members will be treated differently in state court. 

Continued

bill of rights’’ provisions in S. 274 to bolster federal court safeguards in the proper handling of class action cases. 

Critics’ Contention No. 3: To date, the only mechanism that has 

been successful in imposing liability on some industries, such as 

the tobacco or firearms industries, has been class action lawsuits. 

Allowing removal of state class actions to federal court will destroy 

the impact that class actions are having on these socially irresponsible businesses. Therefore, we should exempt certain industries 

from the diversity and removal provisions of S. 274. 

Response 

Opponents of S. 274 seek to prohibit federal courts from exercising jurisdiction over those class actions brought against certain 

industries, including HMOs, tobacco companies, nursing homes, 

and firearms manufacturers. In addition, opponents have suggested 

that claims arising from state consumer protection statutes or state 

environmental protection laws should be exempt from the bill as 

well. 

However, industry-specific exemptions from federal jurisdiction 

make no sense. Like bills of attainder, such exemptions irrationally 

single out a specific industry and slam the federal courthouse door 

in its face. The proposal to carve out certain legitimate, yet presently unpopular, industries contradicts the constitutional purposes 

of federal diversity jurisdiction—to allow interstate businesses to 

have claims against them heard in federal court under diversity so 

as to avoid local biases and to promote and enhance, rather than 

hamper, interstate commerce. The notion that certain industries 

are less entitled to federal court protection is utterly inconsistent 

with the purpose and goals of diversity jurisdiction. Simply put, 

there should not be one set of rules for one category of defendants 

and another for another group of defendants. 

Moreover, there is no evidence that plaintiffs will be less successful in litigating their class action claims in federal court.141 Class 

56

While critics have pointed to the two Florida tobacco class actions as evidence that state 

courts will somehow be tougher on the tobacco industry, there is no real support for this contention. In the first tobacco class action to reach conclusion after a class was certified and the matter was tried (Broin, a Florida state court case), the matter ultimately settled. But the class 

members received no money at all. Under the terms of the settlement, they obtained only a 

‘‘right to sue’’ individually. Meanwhile, the class counsel were awarded $49 million (on the basis 

of a medical research contribution made by defendants). Counsel for one of the class members 

who protested the settlement reportedly commented: ‘‘Its mind-boggling that a court would permit this kind of settlement to go ahead. What is the class getting out of this? Nothing.’’ The 

Legal Intelligencer, Sept. 22, 1999, at 4. The second case, Engle v. T.J. Reynolds Tobacco Co.,

received a lot of publicity because the jury awarded a $145 billion verdict to the class of Florida 

smokers. However, the verdict was recently vacated, after an appeals court found that trying 

the plaintiffs’ claims on a classwide basis was improper. Engle, 28 Fla. L. Weekly D1219 (Fla. 

Ct. App. May 21, 2003). 

Moreover, there is no evidence that tobacco cases would be tried more quickly in state courts. 

It took six years to get the first tobacco class action to trial in state court; the second took more 

than four years. The average time to trial in federal court civil cases is shorter. 

Finally, it is clear that certain opponents of the bill are trying to single-out certain unpopular 

industries, such as the firearms industry, because they are unpopular. But that is exactly what 

the Framers of the Constitution were trying to avoid. They were trying to ensure a fair, evenhanded federal court forum for defendants that may otherwise be haled into a local court less 

concerned about protecting the rights of an out-of-state company. 142 145 Cong. Rec. H8577 (Sept. 23, 1999) (floor debate on H.R. 1789) (Rep. Nadler asserting that a ‘‘1995 class action against Remington Arms * * * settled for $31.5 million * * * [and] 

led to the implementation of greater safety protections for owners of shotguns’’). 143See Garza v. Sporting Goods Properties, Inc., 1996 U.S. Dist. LEXIS 2009 (W.D. Tex. Feb. 

6, 1996) (approving class settlement). 144 28 U.S.C. §1443. 

actions against unpopular corporate defendants, such as the firearms and tobacco industry have successfully proceeded in Federal 

court, and have resulted in beneficial judgments and settlements 

for the plaintiff classes. For example, the class action that is touted 

as the only real success the class counsel have had against the firearms industry 142 turns out to be a federal court class action.143 Assuming that a case is a meritorious class action asserting meritorious claims, there is no reason to believe such a case heard by 

a federal court would have an outcome different from a state court 

case, particularly given that the federal court normally would apply 

the same state substantive law as a state court considering the 

same case.

Critics’ Contention No. 4: S. 274 should exclude civil rights cases, 

in order to ensure that civil rights plaintiffs have maximum access 

to our courts. 

Response

First, critics who would exclude civil rights cases from the scope 

of S. 274 have it backwards. An amendment that would affirmatively exclude civil rights cases from federal jurisdiction would be 

contrary to a long tradition of encouraging the availability of our 

federal courts to address civil rights claims. Indeed, Congress has 

already enacted several statutes that are intended to ensure that 

civil rights cases can be heard in federal courts. For example, one 

statute permits removal to federal court of a broad range of civil 

rights actions.144 More importantly, one general jurisdiction statute—28 U.S.C. §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, ordiVerDate jul 14 2003 06:18 Aug 07, 2003 Jkt 019010 PO 00000 Frm 00056 Fmt 6659 Sfmt 6602 E:\HR\OC\SR123.XXX SR123
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145See, e.g., Pease v. Peck, 59 U.S. (18 How.) 595, 599 (1856). 

nance, 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.’’ 

Second, the assumption of the amendment that federal courts are 

clogged and unable to handle civil rights cases has no basis. Indeed, the federal court workload issue is overblown, and ignores 

the burdens that class actions place on ill-equipped state courts. 

Several of our federal judicial districts may need additional resources. Wherever that need has been confirmed, additional resources have been provided (as they were in 1999 and again last 

year, when new permanent and temporary federal district court 

judgeships were added). But those spot shortages are no excuse for 

continuing to deny both consumers and corporations their due process rights by keeping interstate class actions a state court monopoly. 

Finally, contrary to the position of the amendment’s proponents, 

the bill will not impose new, burdensome and unnecessary requirements on civil rights litigants and the federal courts. A major complaint about class actions is that the unnamed class members—the 

persons on whose behalf the actions are brought—are not adequately informed about how their rights are being affected by the 

class litigation. The notice provisions in the bill are simply an effort to make sure that the claimants are provided communications 

in ‘‘plain English.’’ Moreover, providing notice to state attorneys 

general and other regulatory bodies only increases protections for 

class plaintiffs. The bill does not require that additional or more 

expensive communications be provided beyond what is already 

mandated by existing law.

Critics’ Contention No. 5: S. 274 would unfairly tilt the playing 

field by providing an advantage to defendant corporations at the 

expense of consumers. 

Response 

This concern mischaracterizes the content and intent of the bill. 

S. 274 would simply allow federal courts to handle more interstate 

class actions. It makes no changes in substantive law whatsoever. 

Critics of S. 274 erroneously argue that the bill would reverse the 

ordinary presumption that a plaintiff chooses his or her own court. 

Yet, in this context, there is no such presumption. In fact, the 

whole purpose of diversity jurisdiction is to preclude any such presumption by allowing state-law based claims to be removed from 

local courts to federal courts, so as to ensure that all parties can 

litigate on a level playing field and thereby protect interstate commerce interests.145

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 

58

146See John J. Parker, The Federal Constitution and Recent Attacks Upon It, 18 A.B.A. J. 

433, 437 (1932). 147See Hearings on H.R. 1875, statement of Walter E. Dellinger.

the Union, and sustaining the public credit and the sanctity of private contracts.146

S. 274 promotes these important constitutional norms. The statutory ‘‘gatekeeper’’ for federal diversity jurisdiction—28 U.S.C. 

§1332—generally allows federal courts to hear cases that are large 

(cases with large ‘‘amounts in controversy’’) and that have interstate implications (cases involving citizens from multiple jurisdictions). These requirements were intended to ensure that diversity 

jurisdiction is preserved for those cases with significant interstate 

and economic impacts. Class actions would normally satisfy these 

requirements because they usually involve big dollar amounts and 

parties from multiple jurisdictions. Yet, because section 1332 was 

enacted prior to the existence of the modern-day class action, it 

does not take into account the unique circumstances presented by 

class actions. Consequently, section 1332, in current law, tends to 

exclude the overwhelming majority of class actions from federal 

courts, while inviting into federal courts much smaller single-plaintiff cases having few (if any) interstate ramifications. Such a result 

is inconsistent with the federal judiciary’s proper jurisdictional 

role. S. 274 would correct this technical problem and thereby promote the underlying goals of diversity jurisdiction. 

As former Clinton Administration Acting Solicitor General Walter Dellinger has testified in congressional hearings, if Congress 

were to now re-write the federal diversity jurisdiction statute, 

interstate class actions undoubtedly would be one of the first categories of cases to be included within the scope of the statute.147

This makes plain sense insofar as class action lawsuits typically involve more people, more money, and more interstate commerce 

issues than any other type of case. S. 274 will simply fix the technical problem in section 1332 and judicial interpretation of the diversity requirements that keep most class actions in state court. 

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

consumers. 

Response 

This criticism stems from baseless concerns about the federal 

courts’ caseload and the possible impact of this legislation on the 

ability of the federal courts to resolve these cases in a timely manner. For all of the reasons set forth previously, there is no basis 

for arguing that S. 274 would overwhelm the federal courts with 

class action cases and thereby adversely affect the ability of consumers to find timely redress for their injuries in federal court. 

Opponents of the bill have presented no data whatsoever that judicial overload would occur. When Congress has expanded federal 

court jurisdiction in other respects, it normally has not (at least in 

recent years) had the benefit of any hard data indicating the likely 

impact on federal court workload. For example, the Y2K Act (P.L. 

106–37) expanded federal jurisdiction over Y2K class actions in almost precisely the same manner as proposed in S. 274. Congress 

enacted that change without knowing its likely judicial workload 

impact. Likewise, the Securities Litigation Reform Act of 1998 (P.L. 

59

105–353) contained provisions moving virtually all securities class 

actions from state courts into the federal courts. Once again, Congress enacted that expansion of federal jurisdiction without knowing the precise effects on federal court workload. In the past, when 

the case has been made that federal court jurisdiction should be expanded, Congress has simply enacted the expansion with the understanding that any resulting judicial workload problems could be 

addressed later. 

In sum, there simply is no basis to the claims that consumers 

will be worse off in federal court, or that the resolution of class actions will be delayed because of the federal judiciary’s workload.

Critics’ Contention No. 7: S. 274 will trample on the rights of 

states to manage their legal systems, thus undermining the principles of federalism that our system of government is built upon. 

Response 

While some critics have alleged that this bill will somehow undermine federalism principles, exactly the opposite is true. S. 274 

has been carefully crafted to correct a problem in the current system that does not promote traditional concepts of federalism. In 

fact, it is the current system and the wave of state court class actions that has trampled on the rights of states to manage their 

legal systems by allowing state court judges to interpret and apply 

the laws of multiple jurisdictions. When state courts preside over 

class actions involving claims of residents of more than one state, 

they frequently dictate the substantive laws of other states, sometimes over the protests of those other jurisdictions (as discussed 

previously). When that happens, there is little those other jurisdictions can do, since the judgment of a court in one state is not reviewable by the state court of another jurisdiction. 

It is far more appropriate for a federal court to interpret the laws 

of various states (a task inherent in the constitutional concept of 

diversity jurisdiction), than for one state court to dictate to other 

states what their laws mean or, even worse, to impose its own state 

law on a nationwide case. Why should a state court judge elected 

by the several thousand residents of a small county in Alabama tell 

New York or California the meaning of their laws? Why should an 

Illinois state court judge interpret decisions by Virginia or Wisconsin courts? Why should a state court judge be able to overrule 

other state laws and policies? Why should state courts be setting 

national policy? 

In short, contrary to critics’ contentions, the real harm to federalism is the status quo—leaving the bulk of class action cases in 

state court. Federal courts are the appropriate forum to decide 

interstate class actions involving large amounts of money, many 

plaintiffs and interstate commerce disputes, and these matters of 

interstate comity are more appropriately handled by federal judges 

appointed by the President and confirmed by the Senate. S. 274 

simply restores this proper balance by resolving an anomaly of diversity jurisdiction. True to the concept of federalism, S. 274 appropriately leaves certain ‘‘intrastate’’ class actions in state court: 

cases involving small amounts in controversy; cases with a class of 

100 plaintiffs or less; cases involving plaintiffs, defendants and governing law all from the same state; cases against states and state 

officials; and certain securities and corporate governance cases. S. 

60

148 Avery v. State Farm Auto Insurance Cos., 746 N.E.2d 1242, 1254 (Ill. Ct. App. 2001). 149 Id. at 1254. 150See Matthew J. Wald, Suit Against Auto Insurer Could Affect Nearly All Drivers, N.Y. 

Times, Sept. 27, 1998, § 1, at 29. 151See, e.g., Ysbrand v. DaimlerChrysler Corp., 2003 Okla. LEXIS 17 (Okla. 2003) (affirming 

certification of nationwide product liability class, applying the law of one state to all claims); 

Peterson v. BASF Corp., 2003 Minn. App. LEXIS 275 (Minn. Ct. App. March 11, 2003) (affirming 

nationwide consumer protection act case, applying the law of one state to all claims). 

274 also incorporates the concept of balanced diversity, leaving in 

state court cases in which more than 2⁄3 of the plaintiffs and the 

primary defendants are residents of the forum state, as well as certain cases in which between 1⁄3 and 2⁄3 of the plaintiffs are residents of the forum state as are the primary defendants, subject to 

a set of factors to be applied by the court. As such, S. 274 promotes 

the concept of federalism and protects the ability of states to determine their own laws and policies for their citizens.

Critics’ Contention No. 8: S. 274 assumes that federal courts will 

not engage in the same ‘‘false federalism’’ that state courts are accused of fostering. There really is no evidence that in the class action context, federal courts will intrude less on the states’ rights to 

interpret their own laws than have state courts. 

Response 

A principal purpose of the Class Action Fairness Act is to correct 

what former Acting Solicitor General Walter Dellinger has labeled 

a wave of ‘‘false federalism.’’ As he testified before the Senate Judiciary Committee last July, the problem is that ‘‘many state courts 

faced with interstate class actions have undertaken to dictate the 

substantive laws of other states by applying their own laws to 

* * * other states, resulting in a breach of federalism principles 

* * *.’’ 

As discussed previously, a prime example of this situation is the 

Avery case,148 in which defendant State Farm allegedly breached 

auto insurance policies nationwide by requiring the use of less expensive non-original equipment manufacturer parts (‘‘non-OEM 

parts’’) in repairing accident-damaged vehicles. The Illinois state 

court certified a nationwide class, and at trial, a jury rendered a 

$1.3 billion verdict against State Farm. 

The case is noteworthy on the ‘‘false federalism’’ issue because 

the court applied Illinois consumer protection law to all class 

claims in the case. It did so even though Illinois law on this subject 

contravened the laws and policies of other states in which some 

class members lived—laws and policies encouraging (or even requiring) insurers to use less expensive, non-OEM parts in making 

accident repairs as a means of containing auto insurance costs. In 

affirming the verdict, an Illinois state appellate court acknowledged that it had disregarded ‘‘state insurance commissioners [who] 

testified that the laws in many of our sister states permit and in 

some cases * * * [even] encourage’’ usage of non-OEM parts. 149

The New York Times reported that the decision effectively 

‘‘overturn[ed] insurance regulations * * * in New York, Massachusetts, and Hawaii, among other places’’ establishing ‘‘what amounts 

to a national rule on insurance.’’ 150 As discussed previously, Avery

is not an isolated occurrence. Numerous state courts have trampled 

on these federalism principles, all in an effort to certify classes that 

should not be certified. 151

61

152State Farm Mut. Auto. Ins. Co. v. Campbell, 2003 WL 1791206 (U.S. Apr. 7, 2003). 153See, e.g., In re Bridgestone/Firestone, Inc. Prods. Liab. Litig., 288 F.3d 1012 (7th Cir. 

2002). 

A premise of the Class Action Fairness Act is that this problem 

can be corrected by expanding federal jurisdiction over interstate 

class actions, the theory being that federal courts will not engage 

in ‘‘false federalism’’ games. But what proof is there that the federal courts will not similarly botch these critical choice-of-law 

issues? 

In reality, there is ample evidence that the federal courts will not 

engage in the ‘‘false federalism’’ that is so rampant in state court 

class actions. To start, it should be noted that the lead federal 

court—the U.S. Supreme Court—has repeatedly warned that courts 

should not attempt to apply the laws of one state to behaviors that 

occurred in other jurisdictions: 

• ‘‘Laws have no force of themselves beyond the jurisdiction of 

the State which enacts them, and can have extra-territorial effect 

only by the comity of the other States.’’ Huntington v. Attrill, 146 

U.S. 657, 669 (1892). 

• ‘‘[I]t would be impossible to permit the statutes of [one State] 

to operate beyond the jurisdiction of that State * * * without 

throwing down the constitutional barriers by which all the States 

are restricted within the orbits of their lawful authority and upon 

the preservation of which the Government under the Constitution 

depends.’’ New York Life Ins. Co. v. Head, 234 U.S. 149, 161 (1914). 

• ‘‘A state does not acquire power or supervision over the internal affairs of another State merely because the welfare and health 

of its own citizens may be affected when they travel to that state.’’ 

Bigelow v. Virginia, 421 U.S. 809, 824 (1975). 

• States should not apply their own laws to matters with which 

they have no significant contact. Philips Petroleum Co. v. Shutts,

472 U.S. 797, 821–22 (1985). 

Most recently, on April 7, 2003, the U.S. Supreme Court again 

warned state courts on this issue, striking down one state’s effort 

to apply its laws to conduct that occurred elsewhere: ‘‘A basic principle of federalism is that each State may make its own reasoned 

judgment about what conduct is permitted or proscribed within its 

borders, and each State alone can determine what measure of punishment, if any, to impose on a defendant who acts within its jurisdiction.’’ 152

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-oflaw doctrines of various jurisdictions) have considered which laws 

should apply in proposed nationwide class actions asserting state 

law-based claims. Those courts have consistently concluded that in 

a nationwide or multi-state class action, the choice-of-law rules of 

the state in which the action was originally filed must be applied. 153 Further, they have consistently concluded that those 

62

154See, 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). 155See, e.g., Georgine, 83 F.3d at 627; Zinser v. Accufix Research Inst., Inc., 253 F.3d 1180, 

1187–90 (9th Cir. 2001); Zapka v. Coca-Cola Co., No. 99 CV 8238, 2000 U.S. Dist. LEXIS 16552, 

at *11–13 (N.D. Ill. Oct. 26, 2000); Fisher v. Bristol-Myers Squibb Co., 181 F.R.D. 365, 369 (N.D. 

Ill. 1998); Dhamer v. Bristol-Myers Squibb Co., 183 F.R.D. 520, 532–34 (N.D. Ill. 1998); Jones v. Allercare, Inc., 203 F.R.D. 290, 307 (N.D. Ohio 2001); In re Ford Motor Co. Ignition Switch 

Prods. Liab. Litig., 174 F.R.D. 332, 346–54 (D.N.J. 1997); Marascalco v. Int’l Computerized 

Orthokeratology Soc’y, Inc., 181 F.R.D. 331, 338–39 (N.D. Miss. 1998); In re Ford Motor Co. 

Bronco II Prods. Liab. Litig., 177 F.R.D. 360, 369–71 (E.D. La. 1997); In re Stucco Litig., 175 

F.R.D. 210, 214, 215–217 (E.D.N.C. 1997); Ilhardt v. A.O. Smith Corp., 168 F.R.D. 613, 619–

20 (S.D. Ohio 1996); Harding v. Tambrands Inc., 165 F.R.D. 623, 629–30, 631–32 (D. Kan. 

1996); Walsh v. Ford Motor Co., 130 F.R.D. 260, 271–75 (D.D.C. 1990); Feinstein v. The Firestone Tire & Rubber Co., 535 F. Supp. 595, 608 (S.D.N.Y. 1982). 156See, e.g., In re Bridgestone/Firestone, Inc., 288 F.3d at 1024; Szabo v. Bridgeport Machines, 

Inc., 249 F.3d 672, 674–75 (7th Cir. 2001); Spence v. Glock, GES.m.b.H, 227 F.3d 308, 313–15 

(5th Cir. 2000); In re Am. Med. Sys., 75 F.3d 1069, 1085 (6th Cir. 1996); Castano v. American 

Tobacco Co., 84 F.3d 734, 741–43, 749–50 (5th Cir. 1995); In re Rhone-Poulenc Rorer, Inc., 51 

F.3d 1293, 1302 (7th Cir. 1995); Walsh v. Ford Motor Co., 807 F.2d 1000, 1017–19 (D.C. Cir. 

1990).

choice-of-law rules must be applied to ‘‘each plaintiff’s claims.’’ 154

Based on those principles, federal courts have consistently concluded that the laws of all states where purported class members 

were defrauded, injured, or purchased the challenged product or 

service must come into play. 155 And in those very few instances in 

which a federal district court has toyed with the idea of engaging 

in ‘‘false federalism’’ (i.e., applying a single state’s law to all asserted claims), that notion has been reversed on appeal almost immediately. 156

The bottom line is that over the past ten years, the federal court 

system has not produced any final decisions applying the law of a 

single state to all claims in a nationwide or multi-state class action. 

And there are hundreds of federal court decisions (examples of 

which are set forth above) which flatly reject arguments using such 

a ‘‘false federalism’’ choice-of-law approach and applying the laws 

of a single state to all claims in a multi-state case. That is the 

record that confirms that the passage of the Class Action Fairness 

Act will end the ‘‘false federalism’’ game that is occurring in the 

state court class action arena. 

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

Response 

In arguing that this bill would hurt consumers, some opponents 

have gone so far as to list several state court class actions which 

supposedly have served consumers well, inferring that removal of 

such cases to federal court is tantamount to a denial of justice. This 

argument assumes that the federal courts are inferior to state 

courts—that a federal court cannot arrive at a just outcome. If the 

cases cited by S. 274’s opponents would not have had the same outcome in federal court as they did in state court, it is because the 

federal courts may have been more careful to avoid the abuses of 

the system that occur in state courts. The only thing that would 

be denied when an interstate class action is removed to federal 

court is the plaintiffs’ lawyers’ ability to strike it rich on class actions that should not be certified by any court because they do not 

meet the requirements of a proper class. 

Moreover, the claim that federal courts never certify class actions 

is unfounded. While opponents of the bill cite cases that allegedly 

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157See 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). 158 Jonathan Turley, A Crisis of Faith: Tobacco and the Madisonian Democracy, 37 Harv. J. 

on Legis. 433, 475 (2000).

ceived if they had been removed to federal court, it is clear that 

this is pure speculation. In fact, federal courts have certified hundreds of cases for class treatment in recent years,157 and the rules 

governing the decision of whether cases may proceed as class actions are basically the same in federal and state courts. Further, 

under the Erie doctrine, federal courts apply state substantive law 

in diversity cases. Consequently, a removed class action should 

have the same substantive law applied to it, regardless of whether 

it is in federal or state court. 

Additionally, strict analysis by courts in deciding whether a 

group of plaintiffs can proceed on a class basis should be encouraged, rather than discouraged. The purpose of the current requirements in Rule 23 and similar state court class action rules is to 

protect the due process rights of both plaintiffs and defendants. 

When judges indiscriminately certify class actions, unnamed plaintiffs lose important legal rights and can be denied appropriate 

awards for their injuries, and defendants become more vulnerable 

to frivolous and unjustifiably magnified class actions. 

Allowing individual states to certify classes for their own citizens 

on particular issues could result in a denial of relief for the citizens 

of other states, particularly given the limited resources available to 

some defendants to satisfy all pending claims. For example, some 

hailed the now reversed punitive damages verdict in the Engle tobacco class action that continues to proceed in Florida state court. 

There, a Florida jury awarded $135 billion in punitive damages to 

a class of Florida residents. But if that verdict had been upheld, 

citizens of other states might have been denied any relief whatsoever on their claims against tobacco companies because the Florida 

residents (through their single state class action) would have taken 

all available money to pay their punitive damages claims. In short, 

Florida residents would have received billions of dollars in excess 

of what they claim for their real personal injury damages, while 

residents of all other states would not have even received what 

they claim to be owed for the basic personal injuries that they allege. As one commentator has noted, 

This is what fuels the [state court class action] litigation 

lottery. If you are the first in line to demand punitive damages, you may receive awards in the billions. Injured parties in later [class actions] are likely to receive less. * * * 

They may receive nothing if the first award killed the company or the industry. None of this makes much sense. 

There is no reason why one group of litigants should, solely on the basis of residency in a particular state, receive 

the lion’s share of damages to the deprivation of hundreds 

of thousands of other injured parties. Moreover, there is no 

reason why one state should be able to impose this result 

on other states when a problem and its victims are shared 

by the nation as a whole. 158

Of course, this situation would not arise if S. 274 were passed, 

since all qualifying interstate class actions on a particular subject 

64

159See Class Action Dilemmas, at 23. 160 Id. at 28.

could be removed to federal court and consolidated before a single 

federal court judge under the multidistrict litigation mechanism described previously. That judge would be able to manage the proceeding to ensure that no group of litigants gained advantage over 

the others by virtue of their residency (or any other irrelevant factor). 

Finally, a large quantity of class actions in state court, like the 

Broin tobacco case in Florida, results in millions of dollars for 

plaintiffs’ counsel but nothing of any value for plaintiffs. An Institute for Civil Justice/RAND study has confirmed this pattern, finding that class counsel in state court consumer class action settlements typically walk off with more money than all of the class 

members combined.159 The ICJ/RAND study provides three compelling rationales for allowing more interstate class actions to be 

heard by federal courts: (1) ‘‘federal judges scrutinize class action 

allegations more strictly than state judges, and deny certification 

in situations where a state judge might grant it improperly;’’ (2) 

‘‘state judges may not have adequate resources to oversee and manage class actions with a national scope;’’ and (3) ‘‘if a single judge 

is to be charged with deciding what law will apply in a multistate 

class action, it is more appropriate that this take place in federal 

court than in a state court.’’ 160 S. 274 would help assure fairer settlements by allowing the federal courts to review more class action 

lawsuits, as well as by providing notice to state Attorneys General 

so they can better protect their citizens against unfair settlement 

agreements. 

Critics’ Contention No. 10: S. 274 provides that if a federal district court determines that a class action lawsuit removed to that 

court does not satisfy applicable prerequisites for certifying a class 

action, the court shall dismiss the case. The case may be altered 

and refiled in state court, but if that amended case still meets federal jurisdictional prerequisites, it may be removed again to federal 

court. This results in a ‘‘merry-go-round,’’ whereby defendants can 

endlessly remove the class action to federal court. 

Response 

Critics of S. 274’s remand provisions would alter the bill so that 

any time a case brought in or removed to a federal court is dismissed for failing to meet the requirements of Rule 23, a state 

court could then certify the case and allow it to proceed as a class 

action under the state’s class action law. In short, these critics 

would guarantee that even though a federal court has determined 

that a case cannot be certified as a class action, a state court could 

essentially consider all class issues anew. 

Altering S. 274 in this manner would defeat a primary purpose 

of the bill—to allow the removal of more interstate class actions to 

federal courts, where they are more appropriately heard. The revision suggested by critics would effectively write that change out of 

the statute. Under the proposed revision, if a federal district court 

determines that a removed case should not be afforded class treatment, a state court (upon remand of the case) would be free to 

‘‘overrule’’ the federal court’s ruling that class treatment would be 

65

161Letter to House Judiciary Committee Members from Messrs. Clemente and Vladeck of Public Citizen Litigation Group (dated Aug. 3, 1998), at 1. 162 Id. 

inappropriate. Thus, in interstate class actions, state courts—not 

federal courts—would become the final arbiters of what should proceed as a class action in our judicial system. This would essentially 

be a declaration that in interstate class actions, the federal courts 

are inferior to state courts. This result runs counter to generally 

accepted concepts of federalism. 

Furthermore, altering S. 274 in this manner would only aggravate the class action abuse already occurring in state courts. When 

a federal district court denies class certification in a case, it is typically because litigating the case on a class basis would likely result 

in a denial of the purported class members’ or the defendants’ due 

process rights or run counter to basic fairness principles. This revision to the bill would invite state courts to overrule such federal 

court determinations and, instead, advance class actions which 

have already been determined to deny due process rights or to be 

unfair to unnamed class members and/or defendants. 

In short, this proposed change to the bill would cause S. 274 to 

preserve the status quo instead of improving it. In fact, the revision 

would create even more inefficiencies; even if a defendant were to 

defeat class certification and win in federal court, the defendant 

could turn around and mount the fight all over again in state 

court. 

Indeed, the proposed fix to the so-called ‘‘merry-go-round’’ problem would specifically authorize an activity that even Public Citizen (which has expressed opposition to the bill) believes to be unethical. In correspondence with the House Judiciary Committee discussing an amendment to the parallel House class action bill, Public Citizen stated that ‘‘if a federal judge were to deny class certification in a case that had been properly removed to federal court, 

it is clear that the same class allegations could not be reasserted 

in state court.’’ 161 Public Citizen went on to say that ‘‘a plaintiff’s 

lawyer who attempted that type of circumvention of the federal 

court certification process would likely be subject to significant 

sanctions, which would include payment of defendants’ attorneys’ 

fees.’’ 162 In short, the proposed change would expressly bless activity that a court would—and should—find sanctionable. 

Ultimately, concerns that a ‘‘merry-go-round’’ situation will arise 

because of the way S. 274 is drafted are simply an exaggeration. 

The Committee strongly believes that no judge—federal or state—

would allow such a situation to take place, and that a court would 

stop such bad faith tactics. If this were to actually occur, it is more 

conceivable that a court would dismiss the complaint with prejudice and sanction the offending attorney.

Critics’ Contention No. 11: S. 274 will cause delay and mass confusion because of (a) the difficulty of assessing compliance with jurisdictional requirements at the outset and (b) the potential that 

class membership and definitions will change over time. 

Response 

The contention that S. 274 (particularly its differing treatment of 

categories of cases when a suit is filed in the defendant’s home 

66

163See, e.g., Whitaker v. American Telecasting, Inc., 261 F.3d 196, 207 (2d Cir. 2001) (‘‘ ‘In 

order to show that naming a non-diverse defendant is a ‘fraudulent joinder’ effected to defeat 

diversity [jurisdiction], the defendant must demonstrate, by clear and convincing evidence, either that there has been outright fraud committed in the plaintiff’s pleadings, or that there is 

no possibility, based on the pleadings, that the plaintiff can state a cause of action against the 

non-diverse defendant in state court.’ ’’) (citations omitted); Morris v. Princess Cruises, Inc., 236 

F.3d 1061, 1067 (9th Cir. 2001) (‘‘Joinder of a non-diverse defendant is deemed fraudulent, and 

the defendant’s presence in the lawsuit is ignored for purposes of determining diversity, ‘[i]f the 

plaintiff fails to state a cause of action against a resident defendant, and the failure is obvious 

according to the settled rules of the state.’ ’’) (citations omitted); Tillman v. R.J. Reynolds Tobacco, 253 F.3d 1302, 1305 (11th Cir. 2001) (‘‘it is appropriate for a federal court to dismiss 

* * * a [non-diverse] defendant and retain diversity jurisdiction if the complaint shows that 

there is no possibility that the plaintiff can establish any cause of action against [the] defendant’’); Heritage Bank v. Redcom Laboratories, Inc., 250 F.3d 319 (5th Cir. 2001) (to similar effect). 164 In just the past year, many federal courts have been required to address fraudulent joinder 

issues in the context of class actions removed to federal court. See, e.g., Jamison v. The Purdue 

Pharma Co., 2003 U.S. Dist. LEXIS 4439 (S.D. Miss. Feb. 5, 2003) (mass action matter); Hardy

v. Ducote, 2003 U.S. Dist. LEXIS 2940 (E.D. La. Jan. 20, 2003); Burns v. Friedli, 241 F. Supp. 

2d 519 (D. Md. 2003); Moore v. Wyeth-Ayerst Labs., 236 F. Supp. 2d 509 (D. Md. 2002); Shields

v. Bridgestone/Firestone, Inc., 232 F. Supp. 2d 715 (E.D. Tex. 2002); Little v. Purdue Pharma, 

L.P., 227 F. Supp. 2d 838 (S.D. Ohio 2002); In re: Diet Drugs Prods. Liab. Litig., 220 F. Supp. 

2d 414 (E.D. Pa. 2002); Doherty v. Aventis Pasteur, Inc., 2002 U.S. Dist. LEXIS 9596 (N.D. Cal. 

May 15, 2002); Garcia v. Aventis Pasteur, Inc., 2002 U.S. Dist. LEXIS 15122 (W.D. Wash. Apr. 

22, 2002); Ohler v. Purdue Pharma, L.P., 2002 U.S. Dist. LEXIS 2368 (E.D. La. Jan. 22, 2002); 

Mead v. Aventis Pasteur, Inc., 2002 U.S. Dist. LEXIS 25645 (D. Ore. Jan. 7, 2002). 165See C.A. Wright, A.R. Miller, et al., Federal Practice and Procedure § 3707, at 225 (1998). 166 Id. § 3705, at 65 (2003 Supp.). 

state) would complicate and delay the final resolution of jurisdictional inquiries is absolutely groundless. In reality, the jurisdictional standards in S. 274 will simplify—not complicate—a court’s 

jurisdictional inquiries. Under the current standards, many (and 

possibly most) newly-filed state court class actions are removed to 

federal court to test whether the class counsel’s efforts to evade 

federal jurisdiction have been successful (even 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. 

The federal courts have ruled that those arguably extraneous parties can be ignored in the jurisdictional analysis if their claims are 

meritless,163 and quite frequently, the claims of those parties are 

challenged in class actions as part of the jurisdictional analysis, requiring the court to take time to engage in the complicated process 

of assessing the merits of their claims. Under current law, this 

time-consuming ‘‘fraudulent joinder’’ issue arises in many purported class actions that are removed to federal court.164

Similarly, the process of assessing whether a class action complies with the current jurisdictional amount requirement is also 

often ‘‘an expensive and time consuming process,’’ 165 requiring discovery on the nature and value of the named plaintiffs’ claims. As 

noted previously, in some federal Circuits, the jurisdictional 

amount requirement in a class action is satisfied by showing that 

any member of the proposed class is asserting damages in excess 

of $75,000, and in other Circuits, the question is whether each and 

every member of the putative class has individually an amount in 

controversy exceeding $75,000.166 Again, this time-consuming 

issue, often requiring significant amounts of record review and factVerDate jul 14 2003 06:18 Aug 07, 2003 Jkt 019010 PO 00000 Frm 00066 Fmt 6659 Sfmt 6602 E:\HR\OC\SR123.XXX SR123
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167 In the past year alone, many federal courts have had to resolve jurisdictional amount 

issues in resolving motions to remand class actions. See, e.g., In re Bridgestone/Firestone, Inc. 

Tires Prods. Liab. Litig., 2003 U.S. Dist. LEXIS 6225 (S.D. Ind. Apr. 11, 2003); Adams v. Nationwide Mutual Ins. Co., 2003 U.S. Dist. LEXIS 4973 (N.D. Tex. Mar. 31, 2003); Carrick v. Sears, Roebuck and Co., 2003 U.S. Dist. LEXIS 4167 (M.D. Pa. Mar. 17, 2003); Dash v. Firstplus 

Home Loan Trust, 2003 U.S. Dist. LEXIS 3706 (M.D.N.C. Mar. 6, 2003); Harris v. Physicians 

Mut. Ins. Co., 240 F. Supp. 3d 715 (N.D. Ohio 2003); Radlo v. Rhone-Poulenc, S.A., 241 F. Supp. 

2d 61 (D. Mass. 2002); Mentzel v. Comcast Cable Communications, 222 F. Supp. 2d 923 (E.D. 

Mich. 2002); Tremblay v. Philip Morris, Inc., 231 F. Supp. 2d 411 (D.N.H. 2002). 168 Coury v. Prot, 85 F.3d 244, 249 (5th Cir. 1996); Kanzelberger v. Kanzelberger, 782 F.2d 774, 

776 (7th Cir. 1986).

finding, is litigated very frequently in the many class actions that 

are removed to federal court under current law.167

In sum, S. 274 will make the resolution of class action jurisdictional issues easier—not harder. The need to deal with the bona 

fides of counsel’s efforts to use dubious parties to avoid diversity 

will evaporate. In short, it will be much easier to figure out whether any class member is diverse as to any defendant (the ‘‘minimal 

diversity’’ inquiry established by S. 274) than resolving the fraudulent joinder issues regularly presented under the current rule 

(‘‘complete diversity’’). Likewise, it will be much easier to determine 

whether the amount in controversy presented by a purported class 

as a whole (that is, in the aggregate) exceeds $5 million than it is 

to assess the value of the claim presented by each and every individual class member, as is required by the current diversity jurisdictional statute. 

The critics’ concerns that events might occur after a complaint is 

filed or removed that would either create federal jurisdiction in a 

way never intended or would remove federal jurisdiction in an arbitrary manner are similarly unfounded. While questions regarding 

events occurring after a complaint is filed or removed to federal 

court will, of course, arise under S. 274, those same (or, at least, 

very similar) questions arise in current practice on jurisdictional 

issues. Well-established law exists to resolve these questions, and 

S. 274 does not change—or even complicate—the answers to these 

questions. In short, the ‘‘rules of the road’’ on such issues are already established, and S. 274 does not change them. 

Under existing law (which S. 274 would not change), ‘‘diversity’’ 

of citizenship between the parties must exist both at the time a 

complaint is filed and at the time a complaint is removed to federal 

court.168 For this reason, the federal court would generally only 

need to measure the diversity of the parties at the outset of the litigation. For example, in a case filed on behalf of a class of California citizens against a California company, there would be no 

minimal diversity when the case was filed—and thus the case could 

not be removed simply because one named plaintiff or class member later moved to Nevada. Similarly, if a class action against a 

California company were filed in California and more than 66% of 

the class members were California citizens at the time the case 

was filed, changes in those class members’ residences would not 

alter the jurisdictional analysis. In other words, no court would be 

required to engage in a residency play-by-play after the time the 

complaint was filed. 

If, however, the plaintiff in the above example of his or her own 

volition filed an amended complaint in state court that added Nevada plaintiffs (or that brought the percentage of Nevada plaintiffs 

above 33% in a suit in the defendant’s home state), jurisdiction 

68

169See Caterpillar, Inc. v. Lewis, 519 U.S. 61, 69 (1996) (‘‘In a case not originally removable, 

a defendant who receives a pleading or other paper indicating the postcommencement satisfaction of federal jurisdictional requirements—for example, by reason of the dismissal of a nondiverse party—may remove the case from federal court within 30 days of receiving such information’’). 170 303 U.S. 283, 293 (1938). 171 Id.at 294–95. 172 Id. at 294. 173 Herremans v. Carrera Designs, Inc., 157 F.3d 1118, 1121 (7th Cir. 1998) (holding that the jurisdictional test is ‘‘not whether the plaintiff is actually entitled’’ to $75,000, ‘‘[o]therwise every 

diversity case that a plaintiff lost on the merits would be dismissed for lack of federal jurisdiction’’). 

would exist at the time that complaint was filed. Accordingly, as 

dictated by current law, the defendant could remove the case to 

federal court.169

Current law (that S. 274 does not alter) is also clear that, once 

a complaint is properly removed to federal court, the federal court’s 

jurisdiction cannot be ‘‘ousted’’ by later events. Thus, for example, 

changes in the amount in controversy after the complaint has been 

removed would not subject a lawsuit to be remanded to state court. 

The Supreme Court established this principle in St. Paul Mercury 

Indem. Co. v. Red Cab Co.,170 stating that ‘‘events occurring subsequent to removal which reduce the amount recoverable, whether 

beyond the plaintiff’s control or the result of his volition, do not 

oust the district court’s jurisdiction once it has attached.’’ The same 

would be true if a case was removed to federal court because minimal diversity existed at the time and, because of a later event, 

minimal diversity was eliminated. This would occur if, for example, 

the federal court dismissed the claims of out-of-state plaintiffs, 

leaving only the claims of in-state plaintiffs against an in-state defendant intact. ‘‘It uniformly has been held that in a suit properly 

begun in federal court the change of citizenship does not oust the 

jurisdiction. The same rule governs a suit brought in a state court 

and removed to federal court.’’ 171

Sound policy reasons support this rule. If a federal court’s jurisdiction could be ousted by events occurring after a case was removed, plaintiffs who believed the tide was turning against them 

could simply always amend their complaint months (or even years) 

into the litigation to require remand to state court. ‘‘If the plaintiff 

could, no matter how bona fide his original claim in the state court, 

reduce the amount of his demand to defeat federal jurisdiction the 

defendant’s supposed statutory right of removal would be subject to 

the plaintiff’s caprice. The claim, whether well or ill founded in 

fact, fixes the right of the defendant to remove, and the plaintiff 

ought not to be able to defeat that right and bring the cause back 

to the state court at his election.’’ 172 Similarly, a defendant prevailing on the merits always shows that the amount in controversy, 

at the end of the day, is zero. Thus, if subsequent events could unravel a federal court’s jurisdiction, a defendant could prevail on the 

merits, only to have the federal court conclude that it lacks jurisdiction to enter a judgment.173

It is also clear under existing law that even if a case is not originally removable, it can become removable because of subsequent 

events (other than changes in the citizenship of the original parties, which, as noted above, do not effect jurisdiction). Thus, as applied under S. 274, if a plaintiff, through amendment or otherwise, 

increased the amount in controversy, created minimal diversity, or 

changed the class definition in a case filed in the defendant’s home 

69

174See Caterpillar, Inc., 519 U.S. at 69. 175See Strawbridge v. Curtis, 3 Cranch 267 (1806) (complete diversity requirement derives 

from ‘‘[t]he words of the act of Congress,’’ not the Constitution). 176State Farm Fire & Cas. Co. v. Tashire, 386 U.S. 523, 530–31 (1967) (citing Am. Fire & 

Cas. Ca. v. Finn, 341 U.S. 6, 10 n.3 (1951); Wichita R.R. & Light Co. v. Pub. Util. Comm’n,

260 U.S. 48 (1922); Barney v. Latham, 103 U.S. 205, 213 (1881)).

state to include more than 33% of out-of-state plaintiffs, a complaint filed in state court—and previously not subject to federal jurisdiction—could properly be removed.174 Otherwise, the plaintiff 

could simply file a complaint not subject to removal and then later 

amend it, thereby circumventing federal jurisdiction. Similarly, if a 

plaintiff defines a class so as to allow diverse parties to become 

members of a class as the case proceeds, removal may be appropriate if diverse parties actually enter the class. For example, if a 

class action is filed in state court against an Indiana company on 

behalf of all persons affected by a chemical spill and it is initially 

thought that all class members are Indiana citizens, the case may 

become removable later in the litigation if it emerges that citizens 

of other states fall within the class definition or have become members of the class as the effects of the chemical spill spread. If this 

were not the rule, major interstate controversies could evade federal jurisdiction because counsel filed a class action before the parameters of the controversy were fully developed. Any alternative 

rule would allow class counsel to urge rejection of federal jurisdiction on the grounds that only non-diverse Indiana citizens were in 

the class and then turn around months later and purport to represent thousands of persons residing outside of Indiana. It should 

be noted that class counsel can limit the potential for removal as 

the case proceeds by defining the class to encompass only parties 

that were injured as of the date on which the action was filed or 

only parties who are citizens of a certain state. 

Critics’ Contention No. 12: S. 274’s provisions expanding federal 

jurisdiction over class actions are invalid because they exceed the 

jurisdictional authorization of Article III of the Constitution. 

Response 

This concern lacks merit. As viewed by many Circuits, a federal 

court may exercise diversity jurisdiction over a purported class action only if none of the plaintiffs named in the complaint share 

state citizenship with any defendant. In other words, no named 

plaintiff may be a citizen of the same state as any defendant. This 

so-called ‘‘complete diversity’’ prerequisite for federal jurisdiction is 

wholly a policy creation of Congress, establishing a scope of federal 

diversity jurisdiction narrower than what is authorized by Article 

III.175 Broader definitions of diversity jurisdiction would be wholly 

consistent with Article III. ‘‘[I]n a variety of contexts, [federal 

courts] have concluded that Article III poses no obstacle to the legislative extension of federal [diversity] jurisdiction * * * so long as 

any two adverse parties are not co-citizens.’’ 176

Critics suggest that S. 274 is constitutionally suspect because it 

would authorize federal jurisdiction over purported class actions in 

which there is ‘‘minimal (but not complete) diversity’’—that is, 

cases in which any member of the purported class (whether or not 

explicitly named in the caption of the complaint) has state citizenship that differs from any defendant (using the definitions already 

70

177 414 U.S. 291 (1973), 178Zahn v. International Paper Co., 53 F.R.D. 430 (D. Vt. 1971). 179Zahn 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.’ ’’). 180 536 U.S. 1 (2002). 181See, e.g., American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974). 182 Id. at 550 (emphasis added). 183See Diaz v. Trust Territory of the Pacific Islands, 876 F.2d 1401, 1408 (9th Cir. 1989); 

Glidden v. Chromalloy American Corp., 808 F.2d 621, 626–28 (7th Cir. 1986). 

in 28 U.S.C. § 1332). Citing no precedents whatsoever, the critics 

allege that there is an absolute bar on considering unnamed class 

members to be ‘‘parties’’ to a purported class action. They contend 

that those unnamed persons must be ignored completely in determining whether the two sides meet the applicable diversity requirement. 

But the premise of this challenge—that unnamed class members 

cannot be deemed parties to an action—is flatly inconsistent with 

the fact that in a variety of contexts over the years, federal courts 

have treated unnamed class members as parties to class actions. 

For example: • In Zahn v. International Paper Co,177 the U.S. Supreme Court 

considered whether federal diversity jurisdiction existed over a purported Rule 23(b)(3) class that had not been certified. The district 

court declined to exercise federal jurisdiction (or to allow the matter to proceed as a class action) because even though ‘‘[t]he claim 

of each of the named plaintiffs was found to satisfy the * * * jurisdictional amount,’’ ‘‘not every individual owner in the class has suffered * * * damages in excess of’’ the amount-in-controversy 

threshold.178 The Supreme Court concurred, holding that in determining whether the amount-in-controversy prerequisite for diversity jurisdiction is satisfied, a trial court is obliged to look at 

whether each purported claimant, even if unnamed, meets the 

$75,000 jurisdictional amount requirement.179 Thus, in this respect, the federal courts have for many years treated unnamed 

class members as ‘‘parties.’’ • Similarly, in Devlin v. Scardelletti,180 the Supreme Court recently held that unnamed class members are considered ‘‘parties’’ 

for purposes of mounting an appeal. Thus, Devlin rejects the contention that unnamed class members cannot be considered ‘‘parties’’ to the litigation. • Earlier, the Supreme Court ruled that normally, the filing of 

a class action immediately tolls the statute of limitations as to all 

unnamed class members.181 In short, all unnamed class members 

are treated as parties—treated as if they had filed the litigation 

themselves. Significantly, the American Pipe Court declared that 

‘‘the claimed members of the class stood as parties to the suit until 

and unless they received notice thereof and chose not to continue.’’) 182

• Along these same lines, many courts have held that under Fed. 

R. Civ. P. 23(e), a court must ensure that unnamed class members’ 

interests are protected if class claims are dismissed.183 In other 

words, the court is obliged (at least at some level) to treat the 

unnamed class members as parties to the litigation. 

S. 274 proposes that Congress declare unnamed class members 

to be ‘‘parties’’ to the litigation for purposes of the ‘‘minimal diversity’’ jurisdictional requirement. As evidenced by the foregoing exVerDate jul 14 2003 06:18 Aug 07, 2003 Jkt 019010 PO 00000 Frm 00070 Fmt 6659 Sfmt 6602 E:\HR\OC\SR123.XXX SR123
71

amples, such a congressional determination about who is a class 

action ‘‘party’’ would be wholly consistent with long-standing practice. For years, Congress and the courts have made practical determinations about how various categories of parties should be treated 

in assessing compliance with diversity jurisdiction prerequisites 

and specifically about the circumstances in which unnamed class 

members should be treated as parties to a lawsuit. The enactment 

of the ‘‘minimal diversity’’ provisions of S. 274 would be merely another such practical determination—a determination that for purposes of the ‘‘minimal diversity’’ jurisdictional inquiry established 

by the legislation, unnamed class members (as well as any named 

class members) shall be considered ‘‘parties.’’ Congress is certainly 

empowered to establish such a definition in this instance. 

The Committee also notes that the exercise of this expanded jurisdiction can be grounded on a Commerce Clause rationale as well. 

In that regard, the Committee notes that the legislation contains 

findings that the state court class action abuses identified in the 

record before the Committee are having a serious adverse effect on 

interstate commerce and that the legislation (particularly its jurisdictional provisions) is intended to ameliorate those adverse effects.

VIII. CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

S. 274—Class Action Fairness Act of 2003

S. 274 would expand the types of class-action lawsuits that would 

be initially heard in federal district courts. CBO estimates that implementing the bill would cost the federal district courts about $6 

million a year, subject to appropriation of the necessary funds. The 

bill would not affect direct spending or revenues. S. 274 contains 

no intergovernmental mandates as defined in the Unfunded Mandates Reform Act (UMRA) and would impose no costs on state, 

local, or tribal governments. S. 274 would impose private-sector 

mandates, as defined in UMRA, but CBO estimates that the direct 

cost of the mandates would fall below the annual threshold established by UMRA ($117 million in 2003, adjusted annually for inflation). 

Under S. 274, most class-action lawsuits would be heard in a federal district court rather than a state court. Therefore, CBO estimates that the bill would impose additional costs on the federal 

district court system. While the number of cases that would be filed 

in federal court under this bill is uncertain, CBO expects that a few 

hundred additional cases would be heard in federal court each 

year. According to the Administrative Office of the United States 

Court, class-action lawsuits tried in federal court cost the government, on average, about $21,000. That figure includes salaries and 

benefits for clerks, rent, utilities, and associated overhead expenses, but excludes the costs of the salaries and benefits of judges. 

CBO estimates that implementing S. 274 would cost about $6 million annually. 

CBO also estimates that enacting this bill could increase the 

need for additional district judges. Because the salaries and benefits of district court judges are considered mandatory, adding more 

judges would increase direct spending. However, S. 274 would 

not—by itself—affect direct spending because separate legislation 

would be necessary to authorize an increase in the number of disVerDate jul 14 2003 06:18 Aug 07, 2003 Jkt 019010 PO 00000 Frm 00071 Fmt 6659 Sfmt 6602 E:\HR\OC\SR123.XXX SR123
72

trict judges. In any event, CBO expects that enacting the bill would 

not require a significant increase in the number of federal judges, 

so that any potential increase in direct spending from subsequent 

legislation would probably be less than $500,000 a year. 

S. 274 would require the Judicial Conference of the United 

States to transmit a report on class action settlements to the Congress no later than one year after the bill’s enactment. CBO estimates that this provision would cost less than $500,000 in 2004. 

S. 274 would impose a private-sector mandate by requiring any 

notice concerning a proposed settlement of a class action provided 

to the class members through the mail or in printed media contain 

specific information in plain, easily understood language and in a 

specific format. The bill also would require any notice to inform 

class members of their right to be excluded from a class action or 

from a proposed settlement provided through television or radio 

contain information in plain, easily understood language. According 

to the Association of Trial Lawyers of America, such notices are 

currently provided, but are not always in plain English language 

and tabular format as required by the bill. Therefore, CBO estimates that the direct cost, if any, to comply with those mandates 

would be minimal. 

In addition, S. 274 would impose a private-sector mandate on defendants participating in a proposed class action settlement. The 

bill would require defendants to make certain notifications and disclosures to the appropriate state official of each state in which a 

classmember resides and the appropriate federal official within 10 

days after a proposed settlement is filed in court. The bill defines 

a proposed settlement as an agreement regarding a class action 

that is subject to court approval and would be binding on the class. 

The required notices and disclosures would include a copy of the 

suit, a copy of the proposed settlement, a statement of class-members’ rights, and certain other materials. In effect, the defendants 

would have to provide copies of documents and materials related 

to information that they usually already possess about the case. 

Further, the provision would allow for the use of the Internet in 

making such disclosures. Thus, CBO estimates that the costs of 

complying with this mandate would be small. 

The CBO staff contacts for this estimate are Lanette J. Walker 

(for federal costs) and Paige Piper/Bach (for the private-sector impact). This estimate was approved by Peter H. Fontaine, Deputy 

Assistant Director for Budget Analysis. 

IX. REGULATORY IMPACT STATEMENT

In compliance with paragraph 11(b)(1), rule XXVI of the Standing Rules of the Senate, the Committee, after due consideration, 

concludes that S. 274 will not have a significant regulatory impact.

(73)

1See Letter from Leonias Ralph Mecham, Secretary, Judicial Conference of the United States 

(March 26, 2003) [hereinafter Judicial Conference letter] (stating that on March 18, 2003, the 

Conference voted to express its opposition to the jurisdictional provisions in S. 274, as it had 

in the earlier version of this legislation, because the provisions ‘‘would add substantially to the 

work of the Federal courts and are inconsistent with principles of Federalism’’); Letter from Anthony J. Scirica, Committee on Rules of Practice and Procedure of the Judicial Conference of 

the United States (May 12, 2003) [hereinafter Scirica letter] (requesting that the Judiciary Committee withdraw the notice provisions of the bill because they conflict with Rule 23 of the Federal Rules of Civil Procedures and are inconsistent with the Rules Enabling Act ). 2See Letter from Annice M. Wagner, President, Conference of Chief Justices (March 28, 2002). 

The Conference of Chief Justices wrote to Congress regarding an earlier version of this legislation: ‘‘Absent hard evidence of the inability of the state judicial systems to hear and decide fairly 

class actions brought in state courts, we do not believe that such a procedure is warranted.’’ 3See Letters to Committee Members in opposition to S. 274 from the AARP, Alliance for Justice, Alliance for Retired Americans, American Association of People with Disabilities, American 

Cancer Society, American Heart Association, American Lung Association, Campaign For Tobacco-Free Kids, Center for Disability and Health, Clean Water Action, Coalition to Stop Gun 

Violence, Consumer Federation of America, Consumers for Auto Reliability and Safety, Consumers Union, Disability Rights Education Fund, Earthjustice, Environmental Working Group, 

Families USA, Friends of the Earth, Gray Panthers, Greenpeace, Homeowners Against Deficient 

Dwellings, Lawyers Committee For Civil Rights Under Law, Leadership Conference on Civil 

Rights, Mexican American Legal Defense and Educational Fund, Mineral Policy Center, National Asian Pacific Legal Consortium, National Consumers League, National Council of La 

Raza, National Employment Lawyers Association, National Partnership for Women and Families, National Resources Defense Council, National Workrights Institute, National Women’s 

Health Network, National Women’s Law Center, NOW Legal Defense Fund, People for the 

American Way, Public Citizen, Service Employees Union International, Sierra Club, Tobacco 

Control Resource Center, Tobacco Products Liability Project, United Policyholders, U.S. Action, 

U.S. Public Interest Research Group, Women Employed, and Violence Policy Center. 

X. MINORITY VIEWS OF SENATORS LEAHY, KENNEDY, 

BIDEN, FEINGOLD, SCHUMER, DURBIN, AND EDWARDS 

I. INTRODUCTION

We strongly oppose S. 274, the ‘‘Class Action Fairness Act of 

2003.’’ Although the legislation is described by some of its proponents as a simple procedural fix, it represents a radical revision 

of the class action rules and diversity jurisdiction requirements. In 

fact, we believe it would bar most state class actions from being 

heard in state courts. S. 274 is opposed by the Federal 1 and state 2

judiciaries, and by a multitude of civil justice, consumer, environmental and public interest advocates.3

By providing plaintiffs access to the courts in cases where a defendant may have caused small injuries to a large number of persons, class action procedures have traditionally offered a valuable 

mechanism for aggregating small claims that otherwise might not 

warrant individual litigation. This legislation will undercut that 

important principle by making it far more burdensome, expensive, 

and time-consuming for groups of injured persons to obtain access 

to justice. Thus, it would be more difficult for citizens to seek redress for violations of civil rights, employment discrimination, and 

consumer health, safety and environmental laws, to name but a 

few important laws. The legislation goes so far as to prevent state 

courts from considering class action cases which involve solely violations of state laws, such as state consumer protection laws. 

74

4S. 274, §§ 4–5. Current law requires complete diversity before a state law case is eligible for 

removal to Federal court, meaning all of the defendants must be citizens residing in different 

states than the plaintiffs. See Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 (1806). In Snyder

v. Harris, 394 U.S. 332 (1969), the Supreme Court held that the court should only consider the 

citizenship of named plaintiffs for diversity purposes, and not the citizenship of absent class 

members. 5S. 274, §§ 4–5. 

6S. 274, § 4. The bill is silent as to when the percentage of the class members is to be measured during the litigation for removal purposes. Typically, the membership of a class will change 

during different stages of the litigation depending on the discovery and settlement process. As 

a result, parties in a given class action might spend years litigating the proper venue for the 

case rather than arguing the merits of their case if S. 274 becomes law. 7S. 274, § 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. 8 Indeed, S. 274 merely requires the judge to scrutinize coupon settlements as ‘‘fair, reasonable 

and adequate’’—an action that the judge is already obligated to do under existing law. See Part 

III of these views for more details about coupon settlements. 9These include collusive settlements, in which the parties agree to a far broader settlement 

than was originally sought in order to insulate defendants from other liability. See Part III of 

these views for more details about collusive settlements.

‘‘The Class Action Fairness Act of 2003’’ will force most state 

class action cases into Federal courts. It will provide automatically 

for both original jurisdiction and the removal of state class action 

claims to Federal court at the request of either party in cases involving violations of state law if any member of the plaintiff class 

and at least one primary defendant are citizens of different states.4

As part of the expanded diversity jurisdiction, the bill also provides for the removal of state class actions to Federal court at the 

request of either party if fewer than one-third of the plaintiff class 

members are citizens of a different state than any primary defendant, even if the primary defendant conducts substantial business in 

that state.5 The legislation would allow removal of a class action 

to Federal court in cases where between one-third and two-thirds 

of the plaintiffs are citizens of the same state as the primary defendants.6

Under the legislation, Federal courts are directed to abstain from 

hearing a class action only where (1) more than two-thirds of the 

plaintiffs are citizens of the same state as the primary defendant; 

(2) the matters in controversy are less than $5,000,000 or the membership of the proposed class is less than 100; or (3) the primary 

defendants are states, state officials, or other government entities 

against whom the district court may be foreclosed from ordering relief.7

This bill also contains a ‘‘Consumer Class Action Bill of Rights.’’ 

This ‘‘bill of rights’’ includes some safeguards that we agree will 

improve class action litigation for all parties, such as protection 

against a proposed settlement that would result in a net loss to a 

class member and protection against discrimination based on geographic location. But this ‘‘bill of rights’’ also fails to address the 

greatest consumer abuses in class action cases such as worthless 

coupon settlements 8 and ‘‘sweetheart’’ deals which pay off one class 

in order to eradicate future claims which had not even been before 

the court.9

Furthermore, in the event that a district court determines that 

the action subject to its jurisdiction does not satisfy the requirements of Federal Rule of Procedure 23, under S. 274, the court 

75

10S. 274, § 4. Under current law, the case would be remanded to state court, not dismissed. 11While the class action may be refiled again, any such refiled action may also be removed 

again if the district court has jurisdiction under S. 274. 12Written statement of Senator Biden, executive business meeting of the Committee, April 3, 

2003. 13See March 25, 2003 letter from Senators Leahy, Kennedy, Biden, Feingold, Durbin, and Edwards to Chairman Hatch. 14Letter from Representative Kip Holden, Louisiana House of Representatives, Chair, National Conference of State Legislatures, AFI Law and Justice Committee, dated June 21, 2000, 

to Senator Leahy. 

must dismiss the action.10 This would have the effect of ending the 

class action claim. And while the action may be refiled in state 

court, it will likely be removed again to the Federal court, and dismissed again, resulting in a fruitless ‘‘merry-go-round’’ effect.11

We object to the fact that the bill is written in a one-sided manner favoring defendants at the expense of harmed victims. As Senator Biden eloquently stated during Committee consideration of the 

bill, S. 274 will make it ‘‘far less likely that class actions will be 

brought, far less likely that corporations will be deterred from taking action contrary to the public interest, and far less likely that 

businesses will redress injuries their products have inflicted. Consumers will suffer the consequences.’’ 12

Before even considering S. 274, the Committee and the full Senate should insist on receiving objective and comprehensive data justifying such a dramatic intrusion into state court prerogatives. 

Nothing in the way of such information now exists. Before the 

Committee considered this bill, six Members of the Committee 

wrote to Chairman Hatch, respectfully requesting a hearing on 

class action litigation to help the Committee develop consensus reforms to better serve both defendants and plaintiffs before the 

Committee proceeded to a markup on S. 274.13 Unfortunately, that 

request was ignored and the letter went unanswered. 

We had hoped that the Committee would undertake a deliberate 

and careful review of information from parties actually involved in 

class action litigation to provide a realistic picture of the benefits 

and problems with class actions. But, instead, the Committee has 

proceeded with one-sided legislation that has repeatedly failed to 

pass the Senate in recent years. 

We recognize that class action litigation has genuine problems 

that should be addressed by Federal legislation for the benefit of 

both defendants and plaintiffs. This legislation, however, is heavily 

biased in favor of defendants. Rather than address the system’s 

real failings, S. 274 will make it more difficult for the vast majority 

of legitimate, well-intentioned class actions to move forward, by 

placing cumbersome restrictions on citizens’ rights to seek redress 

for their injuries. 

In short, we agree with the position of the National Conference 

of State Legislatures: ‘‘Anecdotal evidence of abuse might highlight 

a need for reform in a particular jurisdiction, reform that can and 

has been addressed outside the nation’s capitol. Such anecdotes, 

however, are grossly insufficient reasons for a wholesale Federal 

takeover of class action litigation. Lawsuits based on questions of 

state law should be decided in state courts by the judges who are 

best qualified to interpret and apply the laws of that state.’’ 14

For these and other reasons set forth herein, we strongly oppose 

S. 274. 

76

15See Judicial Conference letters of July 26, 1999 and August 23, 1999. 16See Judicial Conference Letter, supra note 1. 17 June 11, 2003, letter from Eliot Spitzer, Attorney General of the State of New York, and 

W.A. Drew Edmondson, Attorney General of the State of Oklahoma, on behalf of the Attorneys 

General of the States of Ilinois, Maryland, Minnesota, Missouri, Montana, New Mexico, New 

York, Oklahoma, and West Virginia to Majority Leader Frist and Minority Leader Daschle. 18To counter this problem, Senator Feingold offered an amendment at the Judiciary Committee markup of S. 274 which provided that if after removal, the Federal court determines that 

no aspect of an action that is subject to its jurisdiction may be maintained as a Federal class 

action, the court shall remand the action to the state court without prejudice. This amendment 

would respond to the most serious complaint leveled by class action defendants by allowing the 

Federal court the first opportunity to certify the class action but it would not deny the state 

court jurisdiction over the class action if it did not meet the Federal requirements. The amendment was defeated by a vote of 7–11. 

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

By expanding Federal class action jurisdiction to include most 

state class actions, S. 274 will inevitably result in a significant increase in the Federal courts’ workload. In its letter to the Judiciary 

Committee concerning a prior version of this bill, the Judicial Conference warned that: 

[T]he effect of the class action provisions of [S. 353] 

would be to move virtually all class action litigation into 

the Federal courts, thereby offending well-established principles of Federalism [and] * * * hold[ing] the potential for 

increasing significantly the number of [class action] cases 

currently being litigated in the Federal system.15

The Judicial Conference reaffirmed its opposition to this effect of 

S. 274 in its recent letter, stating that the Conference’s position on 

S. 274 ‘‘makes clear that such opposition continues to apply to similar jurisdictional provisions.’’ 16

In addition to overwhelming the Federal courts with new timeintensive class actions, S. 274 will undermine state courts’ independent authority. Recently, several state Attorneys General wrote 

to Senate leaders objecting to this ‘‘federalizing’’ of most class actions under this legislation:

The fundamental flaw in S. 274 is that all class actions 

brought against a defendant who is not a ‘‘citizen’’ of the 

state will be removed to federal court, no matter how substantial a presence the defendant has in the state or how 

much harm the defendant has caused in the state. Most 

class actions will be transferred to federal court, even 

where the majority of class members are from a single 

state.17

In cases that are removed to the Federal courts but not certified, 

S. 274 will prevent the state courts from hearing cases as class actions, even though the claims are based in state law. It is important to recall the context in which this legislation arises—a class 

action has been filed in state court involving state law claims, 

which if filed by individuals would not be subject to Federal jurisdiction (either because the parties do not meet the current Federal 

diversity requirements or the amount in controversy for each claim 

does not exceed $75,000). When these class actions are dismissed 

by the Federal courts, thousands of individual actions may be unleashed on the state courts.18

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19Federalist No. 14. 20See April 9, 2003, letter from Lawyers’ Committee for Civil Rights Under Law, quoting 

Bank of the United States v. Deveaux, 5 Cranch 61, 87 (U.S. 1809); see also City of Indianapolis v. Chase Nat’l Bank, 314 U.S. 63, 76 (1941). 21 487 U.S. 131, 138 (1988) (finding Wisconsin notice-of-claim statute to be preempted by 42 

U.S.C. § 1983, which holds anyone acting under color of law liable for violating constitutional 

rights of others). 22 520 U.S. 911 (1997) (holding that Idaho procedural rules concerning appealability of orders 

are not preempted by 42 U.S.C. § 1983). 23 Id. at 919 (quoting Henry M. Hart, Jr., The Relations Between State and Federal Law, 54 

Colum. L. Rev. 489, 508 (1954). 24 Id. at 922. See also Howlett v. Rose, 296 U.S. 356, 372 (1990) (quoting Henry M. Hart, Jr., 

The Relations Between State and Federal Law, 54 Colum. L. Rev 489, 508 (1954) for the proposition that Federal law should not alter the operation of the state courts); New York v. United 

States, 505 U.S. 144, 161 (1992) (stating that a law may be struck down on Federalism grounds 

if it ‘‘commandeer[s] the legislative processes of the States by directly compelling them to enact 

and enforce a Federal regulatory program’’). 

Even more troublesome than these potential workload problems, 

S. 274 raises serious constitutional issues by challenging the vision 

of our founders and the intent of the Constitution. This legislation 

undermines James Madison’s vision of a Federal government ‘‘limited to certain enumerated objects, which concern all the members 

of the republic.’’ 19

This bill does not merely operate to preempt state laws; rather, 

it unilaterally strips the state courts of their ability to use the class 

action procedural device to resolve state law disputes. As the Lawyers’ Committee for Civil Rights Under Law observes, citing Bank 

of the United States v. Deveaux:

For over 200 years, Federal diversity jurisdiction has 

been exercised with care and hesitation, demonstrating 

that Congress believed, with few exceptions ‘‘tribunals of 

the state * * * administer justice as impartially as those 

of the nation, to parties of every description.’’ 20

The courts have previously found that efforts by Congress to dictate such state court procedures implicate important Tenth Amendment Federalism concerns and should be avoided. For example, in 

Fielder v. Casey 21 the Supreme Court observed that it is an ‘‘unassailable proposition * * * that States may establish the rules of 

procedure governing litigation in their own courts.’’ Similarly, in 

Johnson v. Fankell 22 the Court reiterated what it termed ‘‘the general rule ‘bottomed deeply in belief in the importance of State control of State judicial procedure * * * that Federal law takes State 

courts as it finds them’ ’’ 23 and observed that judicial respect for 

the principal of Federalism ‘‘is at its apex when we confront a 

claim that Federal law requires a State to undertake something as 

fundamental as restructuring the operation of its courts’’ and ‘‘it is 

a matter for each State to decide how to structure its judicial system.’’ 24

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 

78

25The Global Tobacco Settlement: Hearings Before the Senate Comm. on the Judiciary, 105th 

Cong., (1997) (statement of Laurence H. Tribe, Tyler Professor of Law, Harvard Law School). 

Indeed, Chairman Hatch recently praised Professor Tribe at the Committee’s June 4, 2003, 

hearing on asbestos litigation as ‘‘known here and throughout the country as one of the most 

respected constitutional scholars and practitioners.’’ 26 120 S. Ct. 1740 (2000). 27 472 U.S. 797 (1985). 28See 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)). 29See id. at 806–810. These findings were reiterated by the Supreme Court in 1995 in 

Matshusita Elec. Indust. Co. v. Epstein, 516 U.S. 367 (1995) (holding that state class actions 

are entitled to full faith and credit so long as, inter alia: the settlement was fair, reasonable, 

adequate and in the best interests of the settlement class; notice to the class was in full compliance with due process; and the class representatives fairly and adequately represented class interests). 30 Ironically, during the 104th Congress, the Republican Party was extolling the virtues of 

state courts in the context of their efforts to limit habeas corpus rights, which permit individuals 

to challenge unconstitutional state law convictions in Federal court. 31 28 U.S.C §1332(a) (West Supp. 1998). 

suits—would raise serious questions under the Tenth Amendment 

and principles of Federalism.’’ 25

The Supreme Court’s most recent decisions further indicate that 

S. 274 is an unacceptable infringement upon state sovereignty. In 

United States v. Morrison,26 the Court invalidated parts of the Violence Against Women Act, claiming that Congress overstepped its 

specific constitutional power to regulate interstate commerce. Despite vast quantities of data illustrating the effects that violence 

against women has on interstate commerce, the Court essentially 

warned Congress not to extend its constitutional authority to ‘‘completely obliterate the Constitution’s distinction between national 

and local authority.’’ S. 274, introduced without a hearing and 

without any convincing data, ignores the Court’s admonitions and 

subverts the Federal system by hindering the states’ ability to adjudicate class actions involving important and evolving questions of 

state law. S. 274 not only obliterates the distinction between national and local authority, it effectively annihilates local authority 

over state class actions. 

Responding to these significant constitutional concerns, proponents of this legislation argue that state courts will not give fair 

hearings to out-of-state defendants, but support for their assertion 

is bereft of evidence. First, the Supreme Court has already made 

clear that the state courts are constitutionally required to provide 

due process and other fairness protections to the parties in class 

action cases. In Phillips Petroleum Co. v. Shutts,27 the Supreme 

Court held that in class action cases, state courts must ensure that: 

(1) the defendant receives notice plus an opportunity to be heard 

and participate in the litigation; 28 (2) an absent plaintiff must be 

provided with an opportunity to remove himself or herself from the 

class; (3) the named plaintiff must at all times adequately represent the interests of the absent class members; and (4) the forum 

state must have a significant relationship to the claims asserted by 

each member of the plaintiff class.29

Secondly, as fears of local court prejudice have subsided and concerns about diverting Federal courts from their core responsibilities 

have increased, the policy trend in recent years has been towards 

limiting Federal diversity jurisdiction.30 For example, Congress enacted the Federal Courts Improvement Act of 1996,31 which inVerDate jul 14 2003 06:18 Aug 07, 2003 Jkt 019010 PO 00000 Frm 00078 Fmt 6604 Sfmt 6602 E:\HR\OC\SR123.XXX SR123
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32See Judicial Conference of the United States, Long Range Plan for the Federal Courts, Recommendation 7 at 30 (1995). 33See id. 34Transcript of executive business meeting of the Senate Judiciary Committee, April 11, 2003, 

p. 24–31. 35Statement of Senator Feinstein, executive business meeting of the Senate Judiciary Committee, April 11, 2003, p. 26. 36Statement of Senator Specter, executive business meeting of the Senate Judiciary Committee, April 11, 2003, p. 28. 37Statement of Senator Hatch, executive business meeting of the Senate Judiciary Committee, 

April 11, 2003, p. 26. 38See Letter in Opposition to S. 274, February 5, 2003, from the Consumer Federation of 

America, Consumers Union, and U.S. Public Interest Research Group. 39Three 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 VirContinued

creased the amount in controversy requirement needed to remove 

a diversity case to Federal court from $50,000 to $75,000. This statutory change was based on the Judicial Conference’s determination 

that fear of local prejudice by state courts was no longer relevant 32

and that it was important to keep the Federal judiciary’s efforts focused on Federal issues.33

One encouraging note was struck in the mark-up of S. 274, when 

Senators Feinstein and Specter joined together to craft an amendment to strike the provisions in S. 274 which treated suits by private attorneys general, and mass tort suits, as if they were class 

actions. As introduced, S. 274 would have created Federal jurisdiction not only for true class actions, but also for private attorney 

general actions brought by any organization or citizen, as well as 

for groups of cases in which 100 or more individuals seeking monetary relief seek to try any common legal or factual issue together 

(i.e., ‘‘mass torts’’).34 As Senator Feinstein explained, that provision 

was ‘‘a direct strike against State law in a way that puts a whole 

category of actions that are not now class actions into the class action arena.’’ 35 Senator Specter echoed that understanding, pointing 

out that, ‘‘This is a class action bill * * * but these provisions do 

not relate to class actions.’’ 36 As Chairman Hatch conceded, ‘‘these 

are representative actions that are a little different from class actions,’’ 37 and the Committee accepted the Specter-Feinstein amendment without objection. 

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

Proponents of this legislation claim that S. 274 will protect consumers while remedying the worst abuses of the class action system, yet consumer advocates overwhelmingly oppose these alleged 

‘‘reforms.’’ 38 There can be little doubt that S. 274 will have a serious adverse impact on the ability of consumers and victims to obtain compensation in cases involving widespread harm. At a minimum, the legislation will force most state class action claims into 

Federal courts where it is generally more expensive for plaintiffs 

to litigate cases and where defendants could force plaintiffs to travel long distances to attend proceedings. 

It is also typically more difficult and time consuming to certify 

a class action in Federal court. Fourteen states, representing nearly one-third of the nation’s population,39 have adopted different criVerDate jul 14 2003 06:18 Aug 07, 2003 Jkt 019010 PO 00000 Frm 00079 Fmt 6604 Sfmt 6602 E:\HR\OC\SR123.XXX SR123
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ginia). See 3 Herbert B. Newberg and Alba Conte, Newberg on Class Actions § 13.04 (3d ed.1992 

& Supp. 1997). 40 Rule 23(a) states four factual prerequisites that must be met before a court will certify the 

lawsuit as a class action: (1) size—the class must be so large that joinder of all of its members 

is not feasible; (2) common questions—there must be questions of law or fact common to the 

class; (3) typical claims—the claims or defenses of the representatives must be ‘‘typical’’ of those 

of the class; and (4) representation—the representatives must fairly and adequately represent 

the interests of the class. 41 84 F.3d 734 (5th Cir. 1996) (preventing the certification of a nationwide class action brought 

by cigarette smokers and their families for nicotine addiction where there was found to be too 

wide a disparity between the various state tort and fraud laws for the class action vehicle to 

be superior to individual case adjudication). 42 51 F. 3d 1293 (7th Cir. 1995) (decertifying, under the Erie doctrine, a nationwide negligence 

class action brought on behalf of hemophiliacs infected with the AIDS virus through use of defendants’ blood clotting products because of diversity of state laws). 43 75 F.3d 1069 (6th Cir. 1996) (decertifying a proposed plaintiff settlement class comprising 

all U.S. residents implanted with defective or malfunctioning inflatable penile prostheses that 

were manufactured, developed, or sold by defendant company because common questions of law 

or fact did not predominate the action to such an extent that warranted class certification). 44 521 U.S. 591 (1997) (overturning consensual settlement between a class of workers injured 

by asbestos and a coalition of former asbestos manufacturers because of disparate levels of the 

class members’ knowledge of their injuries and class members’ large amount at stake in the litigation). 45 155 F.3d 331 (4th Cir. 1998) (rejecting class certification brought by Meineke franchisees 

alleging violations of franchise, tort, unfair trade, and other laws). 46 119 S.Ct. 2295 (1999). The Court found that mandatory limited fund class treatment under 

Rule 23(b)(1)(B) is not appropriate unless the maximum funds available are clearly inadequate 

to pay all claims. 47Letter from 106 professors of constitutional law and civil procedure to Senators Frist and 

Daschle, June 3, 2003, p. 2.

teria for class action rules than Rule 23 of the Federal Rules of 

Civil Procedure.40 In addition, with respect to those states which 

have enacted an analog to Rule 23, the Federal courts are likely 

to represent a more difficult forum for class certification to occur. 

This ratcheting up of the standard is the result of a series of adverse Federal precedents, such as Castano v. American Tobacco 

Co.,41 In re Rhone-Poulenc Rorer, Inc.,42 In re American Medical 

Systems, Inc.,43 Georgine v. Amchem Products, Inc.,44 Broussard v. 

Meineke Discount Mufflers,45 and Ortiz v. Fibreboard,46 which have 

made it more difficult to establish the ‘‘predominance requirement’’ 

necessary to establish a class action under the Federal rules. 

A. Removal abuses and the effects of the judicial ‘‘merry-go-round’’ 

‘‘The Class Action Fairness Act of 2003’’ also creates unique risks 

and obstacles to plaintiffs not present in the current system. A particularly troubling aspect of S. 274 is that it allows removal of a 

case at any time. The possibilities for abusing this provision are obvious, and worth noting. As more than a hundred law professors 

noted in a letter to Senators Frist and Daschle:

This would give a defendant the power to yank a case 

away from a state-court judge who has properly issued 

pretrial rulings the defendant does not like, and would encourage a level of forum-shopping never before seen in this 

country. Moreover, this provision would allow an unscrupulous defendant, anxious to put off the day of judgment 

so that more assets can be hidden, to remove a case on the 

eve of a state-court trial, resulting in an automatic delay 

of months or even years before the case can be tried in 

Federal courts.47

Equally worrisome is the fact that, under S. 274, if the Federal 

district court determines that an action does not satisfy the reVerDate jul 14 2003 06:18 Aug 07, 2003 Jkt 019010 PO 00000 Frm 00080 Fmt 6604 Sfmt 6602 E:\HR\OC\SR123.XXX SR123
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48The Feinstein amendment provides that a Federal judge may use five factors in deciding 

jurisdiction of a class action where between one-third and two-thirds of the plaintiffs are from 

the same state as the primary defendants: (1) whether the claims involve matters of national 

or interstate interest; (2) whether the claims will be governed by laws other than those of the 

forum state; (3) whether the case has been pleaded in a manner that seeks to avoid Federal 

jurisdiction; (4) whether the number of citizens from the forum state is substantially larger than 

the number of citizens from any other state and the citizenship of the members is dispersed 

among a substantial number of states; and (5) whether one or more class actions asserting the 

same or similar claims on behalf of the same or other person have been or may be filed. These 

five factors are not defined in S. 274. 49Statement of Senator Russell Feingold in opposition to Senator Feinstein’s amendment to 

S. 274, executive business meeting of the Senate Judiciary Committee, April 11, 2003. 50See Transcript of April 11, 2003, Executive Business Meeting at 52–53. 

quirements of Federal Rule of Civil Procedure 23, the court must 

dismiss the action. This has the effect of striking the class action 

claim, and may have the long term result of federalizing all state 

class action standards. While the class action may be refiled in 

state court, any such refiled action may be removed again to Federal court. Therefore, even if a state court subsequently certifies 

the class, it could be removed again and again, creating a revolving 

door between Federal and state court—hardly a just outcome for all 

parties. 

Added to the ‘‘merry-go-round’’ provision of the legislation are the 

hurdles established by Senator Feinstein’s amendment to S. 274. 

While undoubtedly well-intentioned, the amendment sets up cumbersome requirements for determining whether an action will be 

heard in state or Federal court.48 The result is a bill that will cause 

unnecessary and expensive litigation that favors corporate defendants at the expense of harmed victims. As Senator Feingold stated 

during the April 10, 2003, mark-up of this legislation: 

The two-thirds requirement is a hard and fast rule that 

will allow defendants to argue the case should be removed 

as long as the class composition doesn’t exceed the magic 

66.67 percent * * * The [resultant] procedural hurdles in 

[this legislation] make it more difficult for plaintiffs to proceed in either state or Federal court due to the legal maneuvering over which forum is appropriate * * * Justice 

delayed is justice denied.49

Moreover, given that membership in class actions frequently 

change, the two-thirds requirement, and the ‘‘middle-third’’ provision (subject to judicial discretion) would open up the process to 

legal gamesmanship. Considering the vast resources of defendants 

in many class actions, as compared to the plaintiffs, this will only 

make it more difficult for class members to ever have a final ruling 

on the merits of their case. 

Attempting to address this misgiving constructively, Senator 

Feingold introduced a modest amendment to S. 274 that would 

have prevented ‘‘endless rounds of removals, dismissals, and remands.’’ 50 The Feingold amendment would have required that 

class actions that were removed to Federal court and unable to satisfy the Rule 23 class certification requirements be remanded to 

state court, as is the case under current law. If the claims before 

the state court were substantially identical to the original action, 

the case could not be removed again under the amendment. This 

amendment would have alleviated some of the unacceptable delays 

82

51 At the April 11, 2003, executive business meeting of the Committee, Senators Leahy, Kennedy, Biden, Feingold, Schumer, Durbin, and Edwards voted for the amendment. All other members voted in oppossiton, with Senator Specter passing. 52See Letter from the Consumer Federation of America, Consumers Union, and U.S. PIRG, 

February 5, 2003. 53 Ibid. 54 April 11, 2003, executive business meeting, at 61. 55See April 2, 2003 letter in opposition to S. 274, ‘‘Opposition to S. 274, ‘The Class Action 

Fairness Act of 2003,’ ’’ from the Consumers Union. 

S. 274 would create for class action litigation. Unfortunately, the 

majority voted down this amendment to improve the bill.51

B. Barriers to justice for consumers 

This legislation will also severely limit the ability of consumers 

to pursue class actions in state court, even when state consumer 

protection laws are implicated. Consumers pay the price when Federal courts dismiss a case rather than remanding the suit to state 

court where a state might certify the action. When this occurs, consumers are left with two equally unattractive options: ‘‘A consumer 

could bring the claim in state court as an individual action. However, individual cases would be impractical to litigate, would not 

have the same deterrent effect, and would have the potential to 

overwhelm state courts. In the alternative, consumers could re-file 

an amended class certification in state court. This re-filing again 

opens the door created by S. 274 for the defendant to remove the 

case to Federal court.’’ 52

Even if consumers get their day in Federal court under this legislation, consumer advocates argue that just outcomes are unlikely. 

Federal court decisions will likely be narrowly tailored, without establishing legal precedent for future state court cases of the particular law in question. Because of this, S. 274 ‘‘will slow—and in 

some cases thwart—the continual interpretation of state law.’’ 53

Once again, S. 274 raises serious concerns about Federalism. 

Senator Feingold, in introducing an amendment that would keep 

consumer protection class actions in state courts, made the point: 

‘‘* * * Federal courts interpret State law on a regular basis, but 

I do not believe that we should be setting up a system where the 

State courts will virtually never interpret and apply their own laws 

to significant cases of first impression * * * That just seems to be 

a result as far removed from any reasonable interpretation of our 

Federal system as I can imagine.’’ 54 And Senator Feingold is not 

alone in criticism of S. 274 in this regard. Indeed, the American 

Bar Association Task Force on Class Action Legislation’s recent report noted that ‘‘any expansion [of Federal court jurisdiction] 

should preserve a balance between legitimate state-court interests 

and Federal-court jurisdictional benefits.’’ 55 The current legislation 

clearly fails this test. 

Senator Feingold’s amendment would have ensured that state 

consumer protection cases are kept where they belong—in state 

courts. If his amendment had been approved, citizens would have 

been able to seek remedies in their own states in cases relating to 

‘‘consumer fraud, consumer loans, consumer credit sales, deceptive 

trade practices, unlawful trade practices, or unfair and deceptive 

practices.’’ The only exception to this would be in class actions 

where there is a complete diversity among the parties (the current 

83

56See Feingold Amendment to S. 274, April 11, 2003, executive business meeting, at 63–64. 57 April 11, 2003 executive business meeting at 75. The amendment was defeated by 7 yeas 

to 11 nays. Senators Leahy, Kennedy, Biden, Feingold, Schumer, Durbin, and Edwards voted 

in favor of the amendment. All of the other Committee members voted against, with Senator 

Specter passing. 58Scirica letter, p. 3. 59Michigan and California are two states that allow ‘‘private attorney general’’ suits. 60See Letter in Opposition to S. 274, March 10, 2003, from Campaign for Tobacco Free Kids, 

the American Heart Association, and the American Lung Association. 

standard).56 The Committee failed to approve this important 

amendment by a vote of 7 yeas to 11 nays.57

Nor does S. 274’s provision for ‘‘notice requirements’’ to class 

members improve current law. In fact, S. 274 contains a long, detailed notice provision that would actually confuse consumers—not 

help them. According to the Judicial Conference Rules Committee, 

these notice requirements would have ‘‘undermine[d] the bill’s stated objectives by requiring notices so elaborate that most class 

members [would] not even attempt to read them.’’ 58 Indeed, members of the House Judiciary Committee, when considering similar 

legislation, unanimously accepted an amendment conforming the 

notice requirements to the Federal Rules of Civil Procedure. 

This legislation as originally introduced went so far as to federalize nearly all consumer protection actions, regardless of whether or not they involve large classes of nationwide plaintiffs, or even 

a class of plaintiffs at all. For instance, some states have laws that 

protect consumers by prohibiting deceptive business practices.59

These laws may be enforced by the State Attorney General or, if 

the State Attorney General does not act, the state citizens may act 

as private attorneys general. This legislation, as introduced, would 

have forced these cases into Federal court because these private 

citizens also represent the interests of the ‘‘general public,’’ which 

the bill explicitly grouped with class actions. Fortunately, Senator 

Specter and Senator Feinstein offered an amendment to strike this 

subsection of S. 274, which was accepted by a voice vote. 

The net result of these various changes is that under the proposed legislation, it will be far more difficult for consumers and 

other injured individuals to obtain justice in class action cases at 

the state or Federal level. 

C. Special protections for the tobacco and gun industries 

‘‘The Class Action Fairness Act of 2003’’ will have the effect of 

giving special protections to two industries undeserving of special 

treatment—the tobacco industry and the gun industry. Because of 

the special legal protections in S. 274, the tobacco and firearms industries may be able to avoid accountability for their products. For 

example, the reported bill’s ‘‘1⁄3–1⁄3–1⁄3’’ requirement virtually guarantees that tobacco-related cases will end up in Federal court since 

the major tobacco companies are all headquartered in only one or 

two states while tobacco victims are nationwide. In effect, cigarette 

makers will be able to ‘‘forum shop’’ to the Federal courts where 

they prefer to litigate, since the rules for certifying class actions 

are often stricter.60

Such special protection is particularly inappropriate for an industry that has ‘‘lied to Congress and the American people’’ for decVerDate jul 14 2003 06:18 Aug 07, 2003 Jkt 019010 PO 00000 Frm 00083 Fmt 6604 Sfmt 6602 E:\HR\OC\SR123.XXX SR123
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61Statement of Senator Durbin, April 11, 2003, Executive Business Meeting at 19. 62 Ibid. at 22. 63 At the April 11, 2003, Executive Business Meeting, the amendment failed by a vote of 8–

11, with Senators Leahy, Kennedy, Biden, Feingold, Schumer, Durbin, Edwards and DeWine in 

Favor of the amendment, and Senator Specter passing. 64Transcript of April 11, 2003 executive business meeting of the Senate Judiciary Committee 

at 46. 65 ‘‘Remington Settles Class-Action Suit over Shotgun Barrels,’’ The Austin American-Statesman, October 1, 1995, page B7. 66 At the April 11, 2003, executive business meeting of the Committee, the amendment failed 

by a vote of 7–11, with Senators Leahy, Kennedy, Biden, Feingold, Schumer, Durbin, and Edwards in favor of the amendment, and Senator Specter passing. 

ades.61 Citing a recent class action victory in the state of Illinois, 

Senator Durbin notes that ‘‘if the class action fairness law were law 

today, this case would not have come to trial in Illinois courts and 

most likely would not have come to trial at all. This bill could insulate Philip Morris and other tobacco companies from class action 

suits which are finally bringing to the public eye the deception 

which they have practiced on America for over half a century.’’ 62

Proposing an amendment to S. 274, Senator Durbin sought to ensure that companies like Philip Morris cannot violate the rights of 

citizens as guaranteed by their states, and then choose Federal 

court as a friendlier venue merely because they are not incorporated in the state where they committed their misdeeds. The 

amendment would have carved out tobacco suits as inappropriate 

for class action reform legislation, but this amendment failed a 

Committee vote.63

Similarly, Senator Kennedy sought an amendment that would 

exempt from S. 274 lawsuits dealing with firearms. As Senator 

Kennedy said:

[It] is wrong to oppose needed gun safety legislation 

such as the closing of the gun show loophole. It is wrong 

to have fought to keep guns exempt from Federal safety 

regulation, and it is wrong to have failed to use technology 

to make guns safer * * * it would be wrong for Congress 

to impose yet another obstacle in [the way of Americans]. 

S. 274 should not apply to gun lawsuits.64

Class actions are often the only method to force manufacturers 

of defective firearms to make guns safer because firearms are exempt from consumer safety laws. For example, in the 1990s, firearms consumers filed a class action lawsuit in Texas against Remington Arms. Facing allegations that their gun barrels were prone 

to explode, Remington settled the dispute for $31 million and 

agreed to upgrade the steel used in shotguns.65 Unfortunately, Senator Kennedy’s amendment was defeated by the majority as well.66

D. Special punishment for the environment and civil rights 

While this legislation offers special protections to gun manufacturers and cigarette makers, S. 274 offers no such beneficial provisions to protect the environment and Americans’ civil rights. By removing many important environmental class actions from state to 

Federal court, S. 274 not only denies to state courts the opportunity to interpret their own state’s environmental protection laws, 

it hampers and deters plaintiffs from pursuing important environmental litigation. The well-documented backlog in the Federal 

courts and the need for attorneys to engage in choice of law debates 

85

67 At the April 11, 2003, executive business meeting of the Committee, Senators Leahy, Kennedy, Biden, Feingold, Schumer, Durbin, and Edwards voted for the amendment. All other members of the Committee voted against the amendment, with Senator Specter passing. 68See Judicial Conference Letter, supra note 1. 69See Letter in Opposition to S. 274, March 20, 2003, from the Leadership Conference on Civil 

Rights, Alliance for Justice, Lawyers’ Committee for Civil Rights Under Law, Mexican American 

Legal Defense and Educational Fund, National Asian Pacific Legal Consortium, National Partnership for Women and Families, National Workrights Institute, National Women’s Law Center, 

People for the American Way, and Women Employed. 

will significantly increase the time and cost of environmental litigation. Ultimately, environmental class actions may not get litigated 

and the incentive polluters have to keep our environment clean will 

be reduced. 

At the April 11, 2003, executive business meeting of the Committee, Senator Leahy offered an amendment to S. 274 that would 

carve out claims arising under state environmental protection laws, 

given the evolving nature of State law and the importance of maintaining efficient litigation to protect our environment. Unfortunately, the majority defeated this amendment.67

Moreover, by failing to carve out an exception in S. 274 to protect 

the environment, the majority ignores the advice of the Judicial 

Conference of the United States, chaired by Chief Justice 

Rehnquist. In its March 26, 2003, letter, the Judicial Conference 

noted that even if the Congress adopts class action removal legislation, there should be certain exceptions such as ‘‘a class action in 

which plaintiff class members suffered personal injury or physical 

property damage within the state, as in the case of a serious environmental disaster.’’ 68

Just as S. 274 turns a blind eye toward the environment and a 

cold shoulder to the advice of Chief Justice Rehnquist, the proposed 

legislation will make it much more difficult to use class actions as 

a means of protecting civil rights. Several civil rights organizations 

have argued that S. 274 and its ‘‘additional, substantial and costly 

noticing requirements and built-in delays are not a matter of due 

process, but are overly burdensome and improperly assume that 

Federal and state officials have proper interest in, and a capacity 

to respond to, each and every class action.’’ 69

Indeed, class action litigation has been essential to vindicating 

basic civil rights through our courts. For example, the landmark 

Supreme Court decision in Brown v. Board of Education was the 

culmination of appeals from four class action cases, three from Federal court decisions in Kansas, South Carolina and Virginia and 

one from a decision by the Supreme Court of Delaware. Only the 

Supreme Court of Delaware, the state court, got the case right by 

deciding for the African-American plaintiffs. The state court justices understood that they were constrained by the existing Supreme Court law, but nonetheless held that the segregated schools 

of Delaware violated the Fourteenth Amendment. Before any Federal court did so, a state court rejected separate and unequal 

schools. 

S. 274 sets up several new hurdles for plaintiffs who file class actions. These requirements would be especially burdensome on 

many civil rights claimants. 

The bill’s requirement to provide ‘‘notice’’ to state officials, such 

as a state attorney general, would certainly lead to delays in the 

proceedings. As a result, some of the critical evidence of malice or 

86

70 Class Action Fairness Act of 2003: Hearings on H.R. 1115 before the House Comm. on the 

Judiciary, 108th Cong. (2003) (written testimony of Thomas Henderson, Chief Counsel, Lawyers’ 

Committee for Civil Rights Under Law).

discriminatory intent required to prevail in civil rights and discrimination cases could be lost while this additional step is taken. 

In addition, this added hurdle will likely be redundant because 

many of these plaintiffs will have already gone through an administrative proceeding before being allowed to file a discrimination 

claim in Federal court. 

Moreover, the requirement prohibiting named plaintiffs from receiving additional benefits—even when they were often the ones 

who already lost their jobs or homes due to discriminatory practices—is patently unfair. These lead plaintiffs deserve the ‘‘additional benefits’’ of being reinstated in their jobs or homes if they 

prevail at trial. Clearly, the defendants are seeking to deter plaintiffs from taking the lead in class actions by denying them any additional remedies. 

A particularly worrisome provision of S. 274 prohibits ‘‘the payment of bounties,’’ which is harmful to civil rights cases. In an employment discrimination case, there may be fewer employment 

slots denied than there are qualified applicants. A plaintiff filing 

an individual action may obtain an order placing him or her in the 

job denied and receives back pay. Such a remedy would, of course, 

be appropriate under current law for a named plaintiff in a class 

action. However, S. 274 would bar such a remedy for named plaintiffs unless each and every other class member also receives the 

same. This may well be impossibility and will certainly act as a deterrent to civil rights class actions in general, and becoming a class 

representative in particular. 

Thomas Henderson, Chief Counsel of the Lawyers Committee for 

Civil Rights, testified before the House of Representatives as to the 

damage this bounty provision would do to civil rights cases:

The prohibition on approving settlements that involve 

named plaintiffs receiving amounts different from other 

members of the class is not a reasonable or practical limitation in all instances. In many employment discrimination cases there are fewer employment opportunities denied because of discrimination than there are qualified potential claimants. In those situations, a person who sues 

as an individual can receive a full award of back pay and 

in a proper case can obtain an order placing him or her in 

the job denied because of discrimination. A class member 

in such a situation must share in the total back pay 

award, and has only an opportunity to be one of the persons selected for hire or promotion because not all can be 

selected. If the price of trying to protect others is that he 

or she must also lose the full measure of individual relief 

and take only the same percentage share as those who 

never took any action to challenge the employer, individuals would be deterred from becoming a class representative. Thus, rather than a reform, this provision would 

hinder civil rights class actions.70

87

71See Letter in Opposition to S. 274, March 20, 2003, from the Leadership Conference on Civil 

Rights, Alliance for Justice, Lawyers’ Committee for Civil Rights Under Law, Mexican American 

Legal Defense and Educational Fund, National Asian Pacific Legal Consortium, National Partnership for Women and Families, National Workrights Institute, National Women’s Law People 

for the American Way, and Women Employed. 72 At the April 11, 2003, executive business meeting this amendment failed by a vote of 7–

11. Senators Leahy, Kennedy, Biden, Feingold, Schumer, Durbin, and Edwards voted in favor 

of the amendment. All the other members of the Committee voted against, with Senator Specter 

passing. 

As a result of the assault that S. 274 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.’’ 71

For these reasons, Senator Kennedy introduced an amendment 

that would create a carve-out in S. 274 relating to civil rights class 

actions. Senator Kennedy emphasized that such a provision is particularly important for the many ‘‘good actor’’ states, such as Wisconsin, North Carolina, California, and Massachusetts, which have 

civil rights laws that provide protections and remedies distinct 

from the Federal laws. The majority, however, voted against this 

amendment.72

III. S. 274 FAILS TO ACHIEVE MEANINGFUL REFORM

Not only does the legislation limit the rights of Americans to pursue class action litigation in their own states, ‘‘The Class Action 

Fairness Act of 2003’’ fails to provide meaningful reform. The minority recommend several steps for those lawmakers who earnestly 

desire real change for the better. 

First and foremost, we believe the Committee should have held 

a hearing on this important legislation. Given the scope of the proposed changes and the impact that they will have on our state and 

Federal courts, we believe that at least one fair and balanced hearing would have been essential for the Committee to develop consensus reforms to better serve defendants and plaintiffs. 

Similarly, the Committee should have taken the opportunity to 

consider other approaches to the problems of class action litigation, 

most particularly and obviously the suggestions outlined by the Judicial Conference in its March 26, 2003, letter. The Judicial Conference offered a coherent and sensible distinction between ‘‘significant multi-state class action litigation’’ and those suits that properly belong in state courts. Highlighting the need to respect the 

basic principles of Federalism that assign different responsibilities 

to the state and Federal courts, the Judicial Conference recommended reserving Federal court jurisdiction for only those cases 

that truly implicate regional or national interests—cases in which 

a single state might well not be the appropriate venue for decision. 

The Judicial Conference is also uniquely well-situated to address 

the concerns that will arise from overburdening the already busy 

Federal judiciary, and the Committee failed to heed those cautions 

as well. It is most unfortunate that in the rush to legislate, the 

88

73See Nat’l Super Spuds v. New York Mercantile Exchange, 660 F.2d 9, 17–18 (2d Cir. 1981) 

(rejecting potato futures class action settlement in which parties sought to release claims for 

which they were not authorized to represent class members). 74See In re Domestic Air Transportation Antitrust Litigation, 137 F.R.D. 677 (N.D. Ga. 1991). 75See Hanrahan v. Britt, 174 F.R.D. 356 (E.D. Pa. 1997). 76See also In re General Motors Corporation Pick-up Truck Fuel Tank Products Liability Litigation, 55 F. 3d 768 (3d Cir. 1995) (overturning a lower Federal court’s approval of a settlement 

awarding class members a $1,000 coupon toward future purchases of the defendant’s cars); In 

re Ford Motor Co. Bronco II Products Liability Litigation, 1995 U.S. Dist. Lexis 3507 (E.D. La. 

1995) (awarding plaintiffs only a package of videos, stickers, and flashlights); and Hanlon v. Chrysler Corp., 1998 WL 296890 (9th Cir. June 9, 1998) (awarding plaintiffs no monetary compensation and essentially no more than Chrysler’s promise to conform with its obligation to the 

Federal regulators). 

Committee has failed not only to consider seriously the alternative 

proposal to class action litigation reform presented by the Judicial 

Conference, but even to take advantage of the experience of the 

members of the Conference to comment upon and improve S. 274. 

Second, S. 274 does nothing to deal with the problems of collusive settlements which protect defendants from future liability. Serious concerns have been raised about these abusive settlements 

where counsels for both parties agree to a far broader settlement 

than was originally sought in order to insulate defendants from future liability.73 This practice is far too common in class action 

cases, but S. 274 completely ignores this class action abuse. 

Third, S. 274 fails to adequately address the class action practice 

of worthless coupon settlements, which provide little or no tangible 

benefits to plaintiffs. Typically, these collusive settlements involve 

an agreement by plaintiffs’ and defendants’ counsel that fully pay 

for the attorney fees and expenses of the plaintiffs’ counsel while 

class members are left holding coupons to buy the defendants’ 

products. For example, in a Federal class action case alleging a 

price-fixing conspiracy between major airlines, class members were 

awarded $400 million in flight coupons. However, the coupons were 

restricted to certain dates and small increments of travel making 

them virtually unusable to consumers.74

In another Federal class action, distributors of Amway products 

sought relief after being taken for thousands of dollars by the company. It was alleged that Amway had ‘‘misrepresented the nature 

and characteristics of Amway distributorships and of motivational 

materials or training materials they published, produced, distributed or sold.’’ A Federal district court judge approved a settlement 

where Amway agreed to coupons for class members for exactly the 

same products that they had allegedly misrepresented in the first 

place.75

But S. 274 merely requires the judge to make a finding that 

these coupon settlements as ‘‘fair, reasonable and adequate’’—an 

action that the judge is already obligated to do under existing law. 

Instead, reforms with real teeth are needed to end worthless coupon settlements in class action cases.76

IV. CONCLUSION

Contrary to the supporters’ assertions, S. 274’s provisions are 

much broader than merely prohibiting nationwide class actions 

from being pursued in state court. In fact, this bill seeks to override the current state laws governing class actions in the fifty 

states. And, in practice, it would bar many, if not most, state class 

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77Transcript of executive business meeting, April 10, 2003, at 77–78.

volving matters of that state’s law from being heard in that state 

court, so long as one plaintiff or one defendant is a citizen of a different state. This is clearly an extreme and distorted change to the 

diversity standards and would not apply in any other legal proceeding. 

As a result, these drastic changes to longstanding Federal procedural rules would make it harder for citizens to protect themselves 

against violations of state civil rights, consumer, health, and environmental protection laws by forcing these class action cases out of 

convenient state courts into Federal courts, with significant new 

barriers and burdens on plaintiffs. 

In conclusion, we agree with Senator Kennedy’s comments at the 

Committee markup of this legislation:

The bill before us reflects a one-sided approach of a difficult problem, and ignores the pleas of the Judicial Conference * * * If we could genuinely work together, we 

could probably reach a consensus; make needed improvements in class action cases * * * in a matter of days.77

Until we reach consensus on improvements to class action litigation for the benefit of defendants and plaintiffs, we remain strongly 

opposed to S. 274. 

PATRICK J. LEAHY. 

EDWARD KENNEDY. 

JOE BIDEN. 

RUSS FEINGOLD. 

CHARLES E. SCHUMER. 

DICK DURBIN. 

JOHN EDWARDS.

(90)

XI. CHANGES IN EXISTING LAW

In compliance with paragraph 12 of rule XXVI of the Standing 

Rules of the Senate, changes in existing law made by S. 274, as reported, are shown as follows (existing law proposed to be omitted 

is enclosed in black brackets, new matter is printed in italic, and 

existing law in which no change is proposed is shown in roman): 

UNITED STATES CODE 

* * * * * * *

TITLE 28—JUDICIARY AND JUDICIAL 

PROCEDURE

Part Section 

I. ORGANIZATION OF COURT ................................................................... 1

* * * * * * *

VI. PARTICULAR PROCEEDINGS ............................................................... 2201

PART I—ORGANIZATION OF COURTS

Chapter Section 

1. Supreme Court ................................................................................................... 1

* * * * * * *

PART IV—JURISDICTION AND VENUE

81. Supreme Court ................................................................................................. 1251

* * * * * * *

85. District Courts; Jurisdiction ........................................................................... 1331

* * * * * * *

CHAPTER 85—DISTRICT COURTS; JURISDICTION 

Sec. 

1330. Actions against foreign states. 

1331. Federal question. 

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

* * * * * * *

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

(a) The district courts shall have original jurisdiction of all civil 

actions where the matter in controversy exceeds the sum or value 

of $75,000, exclusive of interest and costs, and is between—

* * * * * * *

(c) For the purposes of this section and section 1441 of this 

title—

(1) a corporation shall be deemed to be a citizen of any State 

by which it has been incorporated and of the State where it 

has its principal place of business, except that in any direct acVerDate jul 14 2003 06:18 Aug 07, 2003 Jkt 019010 PO 00000 Frm 00090 Fmt 6604 Sfmt 6602 E:\HR\OC\SR123.XXX SR123
91

tion against the insurer of a policy or contract of liability insurance, whether incorporated or unincorporated, to which action 

the insured is not joined as a party-defendant, such insurer 

shall be deemed a citizen of the State of which the insured in 

a citizen, as well as of any State by which the insurer has been 

incorporated and of the State where it has its principal place 

of business; and 

(2) the legal representative of the estate of a decedent shall 

be deemed to be a citizen only of the same State as the decedent, and the legal representative of an infant or incompetent 

shall be deemed to be a citizen only of the same State as the 

infant or incompetent.

(d)(1) In this subsection—

(A) the term ‘‘class’’ means all of the class members in a class 

action; 

(B) the term ‘‘class action’’ means any civil action filed under 

rule 23 of the Federal Rules of Civil Procedure or similar State 

statute or rule of judicial procedure authorizing an action to be 

brought by 1 or more representative persons as a class action; 

(C) the term ‘‘class certification order’’ means an order issued 

by a court approving the treatment of some or all aspects of a 

civil action as a class action; and 

(D) the term ‘‘class members’’ means the persons (named or 

unnamed) who fall within the definition of the proposed or certified class in a class action. 

(2) The district courts shall have original jurisdiction of any civil 

action in which the matter in controversy exceeds the sum or value 

of $5,000,000, exclusive of interest and costs, and is a class action 

in which—

(A) any member of a class of plaintiffs is a citizen of a State 

different from any defendant; 

(B) any member of a class of plaintiffs is a foreign state or 

a citizen or subject of a foreign state and any defendant is a citizen of a State; or 

(C) any member of a class of plaintiffs is a citizen of a State 

and any defendant is a foreign state or a citizen or subject of 

a foreign state. 

(3) A district court may, in the interests of justice, decline to exercise jurisdiction under paragraph (2) over a class action in which 

greater than one-third but less than two-thirds of the members of 

all proposed plaintiff classes in the aggregate and the primary defendants are citizens of the State in which the action was originally 

filed based on consideration of the following factors: 

(A) Whether the claims asserted involve matters of national 

or interstate interest.

(B) Whether the claims asserted will be governed by laws 

other than those of the State in which the action was originally 

filed. 

(C) In the case of a class action originally filed in a State 

court, whether the class action has been pleaded in a manner 

that seeks to avoid Federal jurisdiction. 

(D) Whether the number of citizens of the State in which the 

action was originally filed in all proposed plaintiff classes in 

the aggregate is substantially larger than the number of citizens 

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from any other State, and the citizenship of the other members 

of the proposed class is dispersed among a substantial number 

of States. 

(E) Whether 1 or more class actions asserting the same or 

similar claims on behalf of the same or other persons have been 

or may be filed. 

(4) Paragraph (2) shall not apply to any class action in which—

(A) two-thirds or more of the members of all proposed plaintiff classes in the aggregate and the primary defendants are 

citizens of the State in which the action was originally filed; 

(B) the primary defendants are States, State officials, or other 

governmental entities against whom the district court may be 

foreclosed from ordering relief; or 

(C) the number of members of all proposed plaintiff classes 

in the aggregate is less than 100. 

(5) In any class action, the claims of the individual class members 

shall be aggregated to determine whether the matter in controversy 

exceeds the sum or value of $5,000,000, exclusive of interest and 

costs. 

(6) This subsection shall apply to any class action before or after 

the entry of a class certification order by the court with respect to 

that action. 

(7)(A) A district court shall dismiss any civil action that is subject 

to the jurisdiction of the court solely under this subsection if the 

court determines the action may not proceed as a class action based 

on a failure to satisfy the prerequisites of rule 23 of the Federal 

Rules of Civil Procedure. 

(B) Nothing in subparagraph (A) shall prohibit plaintiffs from filing an amended class action in Federal court or filing an action in 

State court, except that any such action filed in State court may be 

removed to the appropriate district court if it is an action of which 

the district courts of the United States have original jurisdiction.

(C) In any action that is dismissed under this paragraph and is 

filed by any of the original named plaintiffs therein in the same 

State court venue in which the dismissed action was originally 

filed, the limitations periods on all reasserted claims shall be 

deemed tolled for the period during which the dismissed class action was pending. The limitations periods on any claims that were 

asserted in a class action dismissed under this paragraph that are 

subsequently asserted in an individual action shall be deemed 

tolled for the period during which the dismissed action was pending. 

(8) Paragraph (2) shall not apply to any class action that solely 

involves a claim—

(A) concerning a covered security as defined under 16(f)(3) of 

the Securities Act of 1933 and section 28(f)(4)(E) of the Securities Exchange Act of 1934; 

(B) that relates to the internal affairs or governance of a corporation or other form of business enterprise and that arises 

under or virtue of the laws of the State in which such corporation or business enterprise is incorporated or organized; or 

(C) that relates to the rights, duties (including fiduciary duties), and obligations relating to or created by or pursuant to 

93

any security (as defined under section 2(a)(1) of the Securities 

Act of 1933 and the regulations issued thereunder). 

(9) For purposes of this subsection and section 1453 of this title, 

an unincorporated association shall be deemed to be a citizen of the 

State where it has its principal place of business and the State 

under whose laws it is organized.

(9)(10)(A) For purposes of this action and section 1453 of this title, a 

civil action that is not otherwise a class action as defined in paragraph 

(1)(B) shall nevertheless be deemed a class action if—

‘‘(i) the named plaintiff purports to act for the interests of its members (who are not named parties to the action) or for the interests of 

the general public, seeks a remedy of damages, restitution, 

disgorgement, or any other form of monetary relief. and is not a State 

attorney general; or 

‘‘(ii) monetary relief claims in the action are proposed to be tried 

jointly in any respect with the claims of 100 or more other persons on 

the ground that the claims involve common questions of law or fact.

(B)(i) In any civil action described under paragraph (A)(i), the 

persons who allegedly were injured shall be treated as members of 

a proposed plaintiff class and the monetary relief that is sought 

shall be treated as the claims of individual class members. 

(ii) Paragraph (7) of this subsection and subsections (b)(2) and (d) 

of section 1453 shall not apply to any civil action described under 

subparagraph (A)(i). 

(ii) Paragraph (7) of this subsection, and subsections (b)(2) and 

(d) of section 1453 shall not apply to any civil action described 

under subparagraph (A)(ii).

ø(d)¿ (e) The word ‘‘States’’, as used in this section, includes the 

Territories, the District of Columbia, and the Commonwealth of 

Puerto Rico. 

* * * * * * *

§ 1335. Interpleader 

(a) The district courts shall * * *

(1) Two or more adverse claimants, of diverse citizenship as 

defined in section 1332(a) or (d) of this title, are claiming or 

may claim to be entitled to such money or property, or to any 

one or more of the benefits arising by virtue of any note, bond, 

certificate, policy or other instrument, or arising by virtue of 

any such obligation; and if (2) the plaintiff has deposited such 

money or property or has paid the amount of or the loan or 

other value of such instrument or the amount due under such 

obligation into the registry of the court, there to abide the 

judgment of the court, or has given bond payable to the clerk 

of the court in such amount and with such surety as the court 

or judge may deem proper, conditioned upon the compliance by 

the plaintiff with the future order or judgment of the court 

with respect to the subject matter of the controversy. 

* * * * * * *

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CHAPTER 89—DISTRICT COURTS: REMOVAL OF CASES FROM STATE 

COURTS 

Sec. 

1441. Actions removable generally. 

* * * * *

1452. Removal of claims related to bankruptcy cases. 

1453. Removal of class actions. 

* * * * * * *

§ 1446. Procedure for removal 

(a) A defendant or defendants * * *

(b) The notice of removal of a civil action or proceeding shall be 

filed within thirty days after the receipt by the defendant, through 

service or otherwise, of a copy of the initial pleading setting forth 

the claim for relief upon which such action or proceeding is based, 

or within thirty days after the service of summons upon the defendant if such initial pleading has then been filed in court and is 

not required to be served on the defendant, whichever period is 

shorter. 

If the case stated by the initial pleading is not removable, a notice of removal may be filed within thirty days after receipt by the 

defendant, through service or otherwise, of a copy of an amended 

pleading, motion, order or other paper from which it may first be 

ascertained that the case is one which is or has become removable, 

except that a case may not be removed on the basis of jurisdiction 

conferred by section 1332(a) of this title more than 1 year after 

commencement of the action. 

* * * * * * *

§ 1452. Removal of claims related to bankruptcy cases 

(a) A party may remove any claim or cause of action in a civil 

action other than a proceeding before the United States Tax Court 

or a civil action by a governmental unit to enforce such governmental unit’s police or regulatory power, to the district court for 

the district where such civil action is pending, if such district court 

has jurisdiction of such claim or cause of action under section 1334 

of this title. 

(b) The court to which such claim or cause of action is removed 

may remand such claim or cause of action on any equitable ground. 

An order entered under this subsection remaining a claim or cause 

of action, or a decision to not remand, is not reviewable by appeal 

or otherwise by the court of appeals under section 158(d), 1291, or 

1292 of this title or by the Supreme Court of the United States 

under section 1254 of this title.

§ 1453. Removal of class actions 

(a) DEFINITIONS.—In this section, the terms ‘‘class’’, ‘‘class action,’’ 

‘‘class certification order’’, and ‘‘class member’’ shall have the meanings given such terms under section 1332(d)(1). 

(b) IN GENERAL.—A class action may be removed to a district 

court of the United States in accordance with this chapter, without 

regard to whether any defendant is a citizen of the State in which 

the action is brought, except that such action may be removed—

(1) by any defendant without the consent of all defendants; or 

95

(2) by any plaintiff class member who is not a named or representative class member without the consent of all members of 

such class. 

(c) WHEN REMOVABLE.—This section shall apply to any class action before or after the entry of a class certification order in the action. 

(d) PROCEDURE FOR REMOVAL.—Section 1446 relating to a defendant removing a case shall apply to a plaintiff removing a case under 

this section, except that in the application of subsection (b) of such 

section the requirement relating to the 30-day filing period shall be 

met if a plaintiff class member files notice of removal within 30 

days after receipt by such class member, through service or otherwise, of the initial written notice of the class action. 

(e) REVIEW OF ORDERS REMANDING CLASS ACTIONS TO STATE

COURTS.—Section 1447 shall apply to any removal of a case under 

this section, except that notwithstanding section 1447(d), an order 

remanding a class action to the State court from which it was removed shall be reviewable by appeal or otherwise. 

(f) EXCEPTION.—This section shall not apply to any class action 

that solely involves—

(1) a claim concerning a covered security as defined under 

section 16(f)(3) of the Securities Act of 1933 and section 

28(f)(5)(E) of the Securities Exchange Act of 1934; 

(2) a claim that relates to the internal affairs or governance 

of a corporation or other form of business enterprise and arises 

under or by virtue of the laws of the State in which such corporation or business enterprise is incorporated or organized; or 

(3) a claim that relates to the rights, duties (including fiduciary duties), and obligations relating to or created by or pursuant to any security (as defined under section 2(a)(1) of the Securities Act of 1933 and the regulations issued thereunder). 

* * * * * * *

CHAPTER 97—JURISDICTIONAL IMMUNITIES OF FOREIGN STATES 

Sec. 

1602. Findings and declaration of purpose. 

1603. Definitions. 

* * * * * * *

§ 1603. Definitions 

For purposes of this chapter—(a) A ‘‘foreign state’’, except as 

used in section 1608 of this title, includes a political subdivision of 

a foreign state or an agency or instrumentality of a foreign state 

as defined in subsection (b). 

(b) An ‘‘agency or instrumentality of a foreign state’’ means any 

entity—

(1) which is a separate legal person, corporate or otherwise, 

and 

* * * * * * *

(3) which is neither a citizen of a State of the United States 

as defined in section 1332(c) and ø(d)¿ (e) of this title, nor created under the laws of any third country. 

* * * * * * *

96

PART V—PROCEDURE

Chapter Section 

111. General Provisions ........................................................................................ 1651

113. Process ............................................................................................................ 1691

114. Class Actions ................................................................................................. 1711

* * * * * * *

CHAPTER 114—CLASS ACTIONS 

Sec. 

1711. Definitions. 

1712. Judicial scrutiny of coupon and other noncash settlements. 

1713. Protection against loss by class members. 

1714. Protection against discrimination based on geographic location. 

1715. Prohibition on the payment of bounties. 

1716. Clearer and simpler settlement information. 

1717. Notifications to appropriate Federal and State officials.

§ 1711. Definitions 

In this chapter: 

(1) CLASS.—The term ‘‘class’’ means all of the class members 

in a class action. 

(2) CLASS ACTION.—The term ‘‘class action’’ means any civil 

action filed in a district court of the United States under rule 

23 of the Federal Rules of Civil Procedure or any civil action 

that is removed to a district court of the United States that was 

originally filed under a State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representatives as a class action. 

(3) CLASS COUNSEL.—The term ‘‘class counsel’’ means the persons who serve as the attorneys for the class members in a proposed or certified class action. 

(4) CLASS MEMBERS.—The term ‘‘class members’’ means the 

persons (named or unnamed) who fall within the definition the 

definition of the proposed or certified class in a class action. 

(5) PLAINTIFF CLASS ACTION.—The term ‘‘plaintiff class action’’ means a class action in which class members are plaintiffs. 

(6) PROPOSED SETTLEMENT.—The term ‘‘proposed settlement’’ 

means an agreement regarding a class action that is subject to 

court approval and that, if approved, would be binding on some 

or all class members. 

§ 1712. Judicial scrutiny of coupon and other noncash settlements 

The court may approve a proposed settlement under which the 

class members would receive noncash benefits or would otherwise be 

required to expend funds in order to obtain part or all of the proposed benefits only after a hearing to determine whether, and making a written finding that, the settlement is fair, reasonable, and 

adequate for class members. 

§ 1713. Protection against loss by class members 

The court may approve a proposed settlement under which any 

class member is obligated to pay sums to class counsel that would 

result in a net loss to the class member only if the court makes a 

97

written finding that nonmonetary benefits to the class member substantially outweigh the monetary loss. 

§ 1714. Protection against discrimination based on geographic location 

The court may not approve a proposed settlement that provides 

for the payment of greater sums to some class members than to others solely on the basis that the class members to whom the greater 

sums are to paid are located in closer geographic proximity to the 

court. 

§ 1715. Prohibition on the payment of bounties 

(a) IN GENERAL.—The court may not approve a proposed settlement that provides for the payment of a greater share of the award 

to a class representative serving on behalf of a class, on the basis 

of the formula for distribution to all other class members, than that 

awarded to the other class members. 

(b) RULE OF CONSTRUCTION.—The limitation in subsection (a) 

shall not be construed to prohibit a payment approved by the court 

for reasonable time or costs that a person was required to expend 

in fulfilling the obligations of that person as a class representative. 

§ 1716. Clearer and simpler settlement information 

(a) PLAIN ENGLISH REQUIREMENTS.—Any court with jurisdiction 

over a plaintiff class action shall require that any written notice 

concerning a proposed settlement of the class action provided to the 

class through the mail or publication in printed media contain—

(1) at the beginning of such notice, a statement in 18-point or 

greater bold type, stating ‘‘LEGAL NOTICE: YOU ARE A 

PLAINTIFF IN A CLASS ACTION LAWSUIT AND YOUR 

LEGAL RIGHTS ARE AFFECTED BY THE SETTLEMENT 

DESCRIBED IN THIS NOTICE.’’; AND 

(2) a short summary written in plain, easily understood language, describing—

(A) the subject matter of the class action; 

(B) the members of the class; 

(C) the legal consequences of being a member of the class 

action; 

(D) if the notice is informing class members of a proposed 

settlement agreement—

(i) the benefits that will accrue to the class due to the 

settlement; 

(ii) the rights that class members will lose or waive 

through the settlement; 

(iii) obligations that will be imposed on the defendants by the settlement; 

(iv) the dollar amount of any attorney’s fee class 

counsel will be seeking, or if not possible, a good faith 

estimate of the dollar amount of any attorney’s fee class 

counsel will be seeking; and 

(v) an explanation of how any attorney’s fee will be 

calculated and funded; and

(E) any other material matter. 

98

(b) TABULAR FORMAT.—Any court with jurisdiction over a plaintiff class action shall require that the information described in subsection (a)—

(1) be placed in a conspicuous and prominent location on the 

notice; 

(2) contain clear and concise headings for each item of information; and 

(3) provide a clear and concise form for stating each item of 

information required to be disclosed under each heading. 

(c) TELEVISION OR RADIO NOTICE.—Any notice provided through 

television or radio (including transmissions by cable or satellite) to 

inform the class members in a class action of the right of each member to be excluded from a class action or a proposed settlement, if 

such right exists shall in plain easily understood language—

(1) describe the persons who may potentially become class 

members in the class action; and 

(2) explain that the failure of a class member to exercise his 

or her right to be excluded from a class action will result in the 

person’s inclusion in the class action. 

§ 1717. Notifications to appropriate Federal and State officials 

(a) DEFINITIONS.—

(1) APPROPRIATE FEDERAL OFFICIAL.—In this section, the term 

‘‘appropriate Federal official’’ means—

(A) the Attorney General of the United States; or 

(B) in any case in which the defendant is a Federal depository institution, a State depository institution, a depository institution holding company, a foreign bank, or a nondepository institution subsidiary of the foregoing (as such 

terms are defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813)), the person who has the primary 

Federal regulatory or supervisory responsibility with respect to the defendant, if some or all of the matters alleged 

in the class action are subject to regulation or supervision 

by that person. 

(2) APPROPRIATE STATE OFFICIAL.—In this section, the term 

‘‘appropriate State official’’ means the person in the State who 

has the primary regulatory or supervisory responsibility with 

respect to the defendant, or who licenses or otherwise authorizes 

the defendant to conduct business in the State, if some or all 

of the matters alleged in the class action are subject to regulation by that person. If there is no primary regulator, supervisor, 

or licensing authority, or the matters alleged in the class action 

are not subject to regulation or supervision by that person, then 

the appropriate State official shall be the State attorney general. 

(b) IN GENERAL.—No later than 10 days after a proposed settlement of a class action is filed in court, each defendant that is participating in the proposed settlement shall serve upon the appropriate State official of each State in which a class member resides 

and the appropriate Federal official, a notice of the proposed settlement consisting of—

99

(1) a copy of the complaint and any materials filed with the 

complaint and any amended complaints (except such materials 

shall not be required to be served if such materials are made 

electronically available through the Internet and such service 

includes notice of how to electronically access such material); 

(2) notice of any scheduled judicial hearing in the class action; 

(3) any proposed or final notification to class members of—

(A)(i) the members’ rights to request exclusion from the 

class action; or 

(ii) if no right to request exclusion exists, a statement that 

no such right exists; and 

(B) a proposed settlement of a class action; 

(4) any proposed or final class action settlement; 

(5) any settlement or other agreement contemporaneously 

made between class counsel and counsel for the defendants; 

(6) any final judgment or notice of dismissal; 

(7)(A) if feasible, the names of class members who reside in 

each State and the estimated proportionate share of the claims 

of such members to the entire settlement to that State’s appropriate State official; or 

(B) if the provision of information under subparagraph (A) is 

not feasible, a reasonable estimate of the number of class members residing in each State and the estimated proportionate 

share of the claims of such members to the entire settlement; 

and 

(8) any written judicial opinion relating to the materials described under subparagraphs (3) through (6). 

(c) DEPOSITORY INSTITUTIONS NOTIFICATION.— (1) FEDERAL AND OTHER DEPOSITORY INSTITUTIONS.—In any 

case in which the defendant is a Federal depository institution, 

a depository institution holding company, a foreign bank, or a 

non-depository institution subsidiary of the foregoing, the notice 

requirements of this section are satisfied by serving the notice 

required under subsection (b) upon the person who has the primary Federal regulatory or supervisory responsibility with respect to the defendant, if some or all of the matters alleged in 

the class action are subject to regulation or supervision by that 

person. 

(2) STATE DEPOSITORY INSTITUTIONS.—In any case in which 

the defendant is a State depository institution (as that term is 

defined in section 3 of the Federal Deposit Insurance Act (12 

U.S.C. 1813)), the notice requirements of this section 3 of the 

Federal Deposit Insurance Act (12 U.S.C. 1813)), the notice requirements of this section are satisfied by serving the notice required under subsection (b) upon the State bank supervisor (as 

that term is defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813)) of the State in which the defendant 

is incorporated or chartered, if some or all of the matters alleged in the class action are subject to regulation or supervision 

by that person, and upon the appropriate Federal official. 

(d) FINAL APPROVAL.—An order giving final approval of a proposed settlement may not be issued earlier than 90 days after the 

later of the dates on which the appropriate Federal official and the 

100

appropriate State official are served with the notice required under 

subsection (b). 

(e) NONCOMPLIANCE IF NOTICE NOT PROVIDED.— (1) IN GENERAL.—A class member may refuse to comply with 

and may choose not to be bound by a settlement agreement or 

consent decree in a class action if the class member demonstrates that the notice required under subsection (b) has not 

been provided. 

(2) LIMITATION.—A class member may not refuse to comply 

with or to be bound by a settlement agreement or consent decree 

under paragraph (1) if the notice required under subsection (b) 

was directed to the appropriate Federal official and to either 

the State attorney general or the person that has primary regulatory, supervisory, or licensing authority over the defendant. 

(3) APPLICATION OF RIGHTS.—The rights created by this subsection shall apply only to class members or any person acting 

on a class member’s behalf, and shall not be construed to limit 

any other rights affecting a class member’s participation in the 

settlement. 

(f) RULE OF CONSTRUCTION.—Nothing in this section shall be construed to expand the authority of, or impose any obligations, duties, 

or responsibilities upon, Federal or State officials. 

* * * * * * *

Æ