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[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 10 Introduced in House (IH)]

  1st Session
                                 H. R. 10

To reform the Federal civil justice system; to reform product liability 
                                  law.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                            January 4, 1995

Mr. Hyde, Mr. Ramstad, Mrs. Chenoweth, and Mr. Condit (for themselves, 
 Mr. Armey, Mr. Allard, Mr. Bachus, Mr. Baker of California, Mr. Baker 
 of Louisiana, Mr. Ballenger, Mr. Bartlett of Maryland, Mr. Barton of 
 Texas, Mr. Bilirakis, Mr. Bliley, Mr. Blute, Mr. Bono, Mr. Bunning of 
 Kentucky, Mr. Burr, Mr. Burton of Indiana, Mr. Callahan, Mr. Calvert, 
 Mr. Camp, Mr. Canady, Mr. Christensen, Mr. Chrysler, Mr. Clinger, Mr. 
Coburn, Mr. Cooley, Mr. Cox, Mr. Crane, Mrs. Cubin, Mr. Cunningham, Mr. 
 Davis, Mr. Doolittle, Mr. Dornan, Ms. Dunn, Mr. Emerson, Mr. Ensign, 
 Mr. Everett, Mr. Ewing, Mr. Foley, Mr. Forbes, Mrs. Fowler, Mr. Fox, 
 Mr. Frisa, Mr. Ganske, Mr. Gilchrest, Mr. Gilman, Mr. Goodlatte, Mr. 
  Goodling, Mr. Gunderson, Mr. Hancock, Mr. Hastert, Mr. Hastings of 
 Washington, Mr. Hayworth, Mr. Heineman, Mr. Herger, Mr. Hilleary, Mr. 
  Hobson, Mr. Hostettler, Mr. Houghton, Mr. Inglis of South Carolina, 
 Mrs. Johnson of Connecticut, Mr. Jones, Mr. Kim, Mr. Knollenberg, Mr. 
    LaHood, Mr. Largent, Mr. LaTourette, Mr. Lewis of Kentucky, Mr. 
  Lightfoot, Mr. Linder, Mr. McCollum, Mr. McHugh, Mr. McIntosh, Mr. 
 Mica, Mr. Miller of Florida, Ms. Mollinari, Mrs. Myrick, Mr. Nussle, 
 Mr. Packard, Mr. Porter, Mr. Portman, Mr. Radanovich, Mr. Riggs, Mr. 
   Rohrabacher, Mr. Roth, Mr. Royce, Mr. Sanford, Mr. Schaefer, Mr. 
  Sensenbrenner, Mr. Shadegg, Mr. Shaw, Mr. Shays of Connecticut, Mr. 
  Smith of Texas, Mr. Smith of New Jersey, Mr. Smith of Michigan, Mr. 
 Solomon, Mr. Stearns, Mr. Stockman, Mr. Stump, Mr. Talent, Mr. Tate, 
 Mr. Taylor of North Carolina, Mr. Tejeda, Mr. Thornberry, Mr. Tiahrt, 
Mr. Upton, Mrs. Waldholtz, Mr. Wamp, Mr. Weldon of Florida, Mr. Zimmer, 
Mr. Crapo, Mr. Kolbe, Mr. Paxon, Mr. Young of Florida, Mr. Combest, Mr. 
  Ehrlich, and Mrs. Meyers of Kansas) introduced the following bill; 
                     which was referred as follows:
Title I, referred to the Committee on the Judiciary, and in addition to 
 the Committee on Rules, for a period to be subsequently determined by 
the Speaker, in each case for consideration of such provisions as fall 
           within the jurisdiction of the committee concerned
Title II, referred to the Committee on Commerce, and in addition to the 
Committee on the Judiciary, for a period to be subsequently determined 
 by the Speaker, in each case for consideration of such provisions as 
        fall within the jurisdiction of the committee concerned

                            January 19, 1995

   Additional sponsors: Mr. Schiff, Mr. Moorhead, Mr. Cremeans, Mr. 
  Norwood, Mr. Bonilla, Mr. Hunter, Mrs. Vucanovich, Mr. Walker, Ms. 
  Eddie Bernice Johnson of Texas, Mrs. Seastrand, and Mr. Collins of 
                                Georgia

                           February 10, 1995

 Additional sponsors: Mr. Longley, Mr. Roberts, Mr. Pombo, Mr. Salmon, 
                            and Mr. Gallegly

_______________________________________________________________________

                                 A BILL

 
To reform the Federal civil justice system; to reform product liability 
                                  law.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Common Sense Legal Reforms Act of 
1995''.

                     TITLE I--CIVIL JUSTICE REFORM

SEC. 101. AWARD OF ATTORNEY'S FEE TO PREVAILING PARTY IN FEDERAL CIVIL 
              DIVERSITY LITIGATION.

    (a) Award of Attorney's Fee.--Section 1332 of title 28, United 
States Code, is amended by adding at the end the following:
    ``(e)(1) The district court that exercises jurisdiction in a civil 
action commenced under this section shall award to the party that 
prevails with respect to a claim in such action an attorney's fee 
determined in accordance with paragraph (2).
    ``(2) An attorney's fee awarded under paragraph (1) shall be a 
reasonable attorney's fee attributable to such claim, except that the 
fee awarded under such paragraph may not exceed--
            ``(A) the actual cost incurred by the nonprevailing party 
        for an attorney's fee payable to an attorney for services in 
        connection with such claim; or
            ``(B) if no such cost was incurred by the nonprevailing 
        party due to a contingency fee agreement, a reasonable cost 
        that would have been incurred by the nonprevailing party for an 
        attorney's noncontingent fee payable to an attorney for 
        services in connection with such claim.
    ``(3) Notwithstanding paragraphs (1) and (2), the court in its 
discretion may refuse to award, or may reduce the amount awarded as, an 
attorney's fee under paragraph (1) to the extent that the court finds 
special circumstances that make an award of an attorney's fee 
determined in accordance with such subparagraph unjust.''.

SEC. 102. HONESTY IN EVIDENCE.

    (a) Opinion Testimony by Experts.--Rule 702 of the Federal Rules of 
Evidence is amended--
            (1) by inserting ``(a) In general.'' before ``If'', and
            (2) by adding at the end the following:
    ``(b) Adequate basis for opinion. Testimony in the form of an 
opinion by a witness that is based on scientific knowledge shall be 
inadmissible in evidence unless the court determines that such opinion 
is--
            ``(1) based on scientifically valid reasoning; and
            ``(2) sufficiently reliable so that the probative value of 
        such evidence outweighs the dangers specified in rule 403.
    ``(c) Disqualification. Testimony by a witness who is qualified as 
described in subsection (a) is inadmissible in evidence if such witness 
is entitled to receive any compensation contingent on the legal 
disposition of any claim with respect to which such testimony is 
offered.''.

SEC. 103. PRODUCT LIABILITY REFORM.

    (a) Applicability and Preemption.--This section governs any product 
liability action brought in any State or Federal Court against any 
manufacturer or seller of a product on any theory for harm caused by 
the product. This section supersedes State law only to the extent that 
State law applies to an issue covered by this section. Any issue that 
is not covered by this section shall be governed by otherwise 
applicable State or Federal law.
    (b) Liability Rules Applicable to Product Sellers.--
            (1) General rule.--Except as provided in paragraph 2, in a 
        product liability action, a product seller shall be liable to a 
        claimant for harm only if the claimant establishes that--
                    (A)(i) the product which allegedly caused the harm 
                complained of was sold by the product seller,
                    (ii) the product seller failed to exercise 
                reasonable care with respect to the product, and
                    (iii) such failure to exercise reasonable care was 
                a proximate cause of the claimant's harm,
                    (B)(i) the product seller made an express warranty 
                applicable to the product which allegedly caused the 
                harm complained of, independent of any express warranty 
                made by the manufacturer as to the same product,
                    (ii) the product failed to conform to the warranty, 
                and
                    (iii) the failure of the product to conform to the 
                warranty caused the claimant's harm, or
                    (C) the product seller engaged in intentional 
                wrongdoing as determined under applicable State law and 
                such intentional wrongdoing was a proximate cause of 
                the harm complained of by the claimant.
        For purposes of subparagraph (A)(ii), a product seller shall 
        not be considered to have failed to exercise reasonable care 
        with respect to a product based upon an alleged failure to 
        inspect a product where there was no reasonable opportunity to 
        inspect the product in a manner which would, in the exercise of 
        reasonable care, have revealed the aspect of the product which 
        allegedly caused the claimant's harm.
            (2) Special rule.--In a product liability action, a product 
        seller shall be liable for harm to the claimant caused by such 
        product as if the product seller were the manufacturer of such 
        product if--
                    (A) the manufacturer is not subject to service of 
                process under the laws of the State in which the 
                claimant brings the action, or
                    (B) the court determines that the claimant would be 
                unable to enforce a judgment against the manufacturer.
    (c) Limitations on Punitive Damages.--
            (1) General limitation.--Punitive damages may, to the 
        extent permitted by applicable State law, be awarded against a 
        manufacturer or product seller in a product liability action if 
        the claimant establishes by clear and convincing evidence that 
        the harm suffered was the result of conduct manifesting actual 
        malice.
            (2) Limitation on amount.--The amount of punitive damages 
        that may be awarded for a claim in any civil action subject to 
        this section shall not exceed 3 times the amount awarded to the 
        claimant for the economic injury on which such claim is based, 
        or $250,000, whichever is greater.
    (d) Several Liability for Noneconomic Damages.--In any product 
liability action, the liability of each manufacturer or seller of the 
product involved in such action shall be several only and shall not be 
joint for noneconomic damages. Such manufacturer or seller shall be 
liable only for the amount of noneconomic damages allocated to such 
manufacturer or seller in direct proportion to such manufacturer's or 
such seller's percentage of responsibility as determined by the trier 
of fact.
    (e) Definitions.--For purposes of this section--
            (1) the term ``claimant'' means any person who brings a 
        product liability action and any person on whose behalf such an 
        action is brought, including such person's decedent if such an 
        action is brought through or on behalf of an estate or such 
        person's legal representative if it is brought through or on 
        behalf of a minor or incompetent,
            (2) the term ``malice'' means conduct that is either--
                    (A) specifically intended to cause serious personal 
                injury, or
                    (B) carried out with both a flagrant indifference 
                to the rights of the claimant and an awareness that 
                such conduct is likely to result in serious personal 
                injury,
            (3) with respect to a product, the term ``manufacturer'' 
        means--
                    (A) any person who is engaged in a business to 
                produce, create, make, or construct the product and who 
                designs or formulates the product or has engaged 
                another person to design or formulate the product,
                    (B) a product seller of the product who, before 
                placing the product in the stream of commerce--
                            (i) designs or formulates or has engaged 
                        another person to design or formulate an aspect 
                        of the product after the product was initially 
                        made by another, and
                            (ii) produces, creates, makes, or 
                        constructs such aspect of the product, or
                    (C) any product seller not described in 
                subparagraph (B) which holds itself out as a 
                manufacturer to the user of the product,
            (4) the term ``product''--
                    (A) means any object, substance, mixture, or raw 
                material in a gaseous, liquid, or solid state--
                            (i) which is capable of delivery itself, in 
                        a mixed or combined state, or as a component 
                        part or ingredient,
                            (ii) which is produced for introduction 
                        into trade or commerce,
                            (iii) which has intrinsic economic value, 
                        and
                            (iv) which is intended for sale or lease to 
                        persons for commercial or personal use, and
                    (B) does not include--
                            (i) human tissue, human organs, human 
                        blood, and human blood products, or
                            (ii) electricity, water delivered by a 
                        utility, natural gas, or steam,
            (5) the term ``product seller''--
                    (A) means a person--
                            (i) who sells, distributes, leases, 
                        prepares, blends, packages, or labels a product 
                        or is otherwise involved in placing a product 
                        in the stream of commerce, or
                            (ii) who installs, repairs, or maintains 
                        the harm-causing aspect of a product, and
                    (B) does not include--
                            (i) a manufacturer,
                            (ii) a seller or lessor of real property,
                            (iii) a provider of professional services 
                        in any case in which the sale or use of a 
                        product is incidental to the transaction and 
                        the essence of the transaction is the 
                        furnishing of judgment, skill, or services,
                            (iv) any person who acts only in a 
                        financial capacity with respect to the sale of 
                        a product, or
                            (v) any person who leases a product under a 
                        lease arrangement in which the selection, 
                        possession, maintenance, and operation of the 
                        product are controlled by a person other than 
                        the lessor,
            (6) the term `punitive damages' means damages in addition 
        to compensation for actual injury suffered, for purposes of 
        imposing punishment for conduct engaged in with malice and to 
        deter similar future conduct, but such term does not include 
        compensation for actual injury, and
            (7) the term ``State'' means any State of the United 
        States, the District of Columbia, the Commonwealth of Puerto 
        Rico, the Virgin Islands, Guam, American Samoa, the Northern 
        Mariana Islands, the Trust Territory of the Pacific Islands, 
        and any other territory or possession of the United States, or 
        any political subdivision thereof.

SEC. 104. ATTORNEY ACCOUNTABILITY.

    (a) Truth in Attorneys' Fees.--It is the sense of the Congress that 
each State should require, under penalty of law, each attorney admitted 
to practice law in such State to disclose in writing, to any client 
with whom such attorney has entered into a contingency fee agreement--
            (1) the actual services performed for such client in 
        connection with such agreement, and
            (2) the precise number of hours actually expended by such 
        attorney in the performance of such services.
    (b) Amendment to the Federal Rules of Civil Procedure.--Rule 11(c) 
of the Federal Rules of Civil Procedure (28 U.S.C. App.) is amended--
            (1) in the matter preceding subdivision (1) by striking 
        ``may'' and inserting ``shall'';
            (2) in the penultimate sentence of subdivision (1)(A) by 
        striking ``may'' and inserting ``shall''; and
            (3) in subdivision (2)--
                    (A) by amending the first sentence to read as 
                follows: ``A sanction imposed for a violation of this 
                rule shall be sufficient to deter repetition of such 
                conduct or comparable conduct by others similarly 
                situated, and to compensate the parties that were 
                injured by such conduct.''; and
                    (B) in the second sentence by striking ``, if 
                imposed on motion and warranted for effective 
                deterrence,''.

SEC. 105. NOTICE REQUIRED BEFORE COMMENCEMENT OF CIVIL ACTION.

    Chapter 99 of title 28, United States Code is amended by adding at 
the end the following:
Sec. 1632. Notice required before commencement of civil action
    ``(a) Dismissal of Civil Action.--Except as provided in subsection 
(c), the district court in which a civil action is commenced shall 
dismiss such action with respect to a defendant, without prejudice, 
if--
            ``(1) not later than 60 days after such action is 
        commenced, the defendant files a motion to dismiss such action 
        on the basis that the plaintiff failed to comply with the 
        requirement specified in subsection (b); and
            ``(2) the plaintiff fails to establish that before 
        commencing such action the plaintiff complied with such 
        requirement.
    ``(b) Requirement.--Not less than 30 days before commencing a civil 
action in a district court of the United States, the plaintiff shall 
transmit (by 1st class mail, postage prepaid, or contract for delivery 
by any company that in its regular course of business physically 
delivers correspondence as a commercial service to the public) to the 
defendant (at an address reasonably calculated to provide actual notice 
to such defendant) a written statement specifying the particular claims 
alleged in such action and the amount of damages claimed in such 
action.
    ``(c) Exceptions.--Subsection (a) shall not apply with respect to 
any civil action--
            ``(1) to seize or forfeit assets subject to forfeiture;
            ``(2) commenced under title 11 of the United States Code;
            ``(3) commenced to establish a receivership or 
        conservatorship;
            ``(4) based on the insolvency of the defendant, or the need 
        to liquidate assets of the defendant to satisfy any requirement 
        under Federal law;
            ``(5) if assets that are subject to such action or that 
        would satisfy a judgment in such action are likely to be 
        removed, dissipated, or destroyed by the defendant;
            ``(6) if the defendant is likely to flee;
            ``(7) if prior written notice of the filing of such action 
        is required by any other law;
            ``(8) to enforce a civil investigative demand or an 
        administrative summons;
            ``(9) if such action is--
                    ``(A) to foreclose a lien;
                    ``(B) to obtain a temporary restraining order or 
                preliminary injunction; or
                    ``(C) to prevent the fraudulent conveyance of 
                property; or
            ``(10) if such action involves exigent circumstances that 
        compel immediate resort to the court.
    ``(d) Statute of Limitations.--
            ``(1) Suspension Before Commencement of Action.--If the 
        statute of limitations applicable to a claim would expire in 
        the 30-day period beginning on the date the plaintiff transmits 
        the notice required by subsection (b), such statute shall be 
        suspended--
                    ``(A) during such 30-day period; or
                    ``(B) during the 90-day period beginning on the 
                date the plaintiff so transmits such notice if, in such 
                30-day period, the parties to such action so agree in 
                writing.
            ``(2) Filing Civil Action After Dismissal.--If--
                    ``(A) a civil action is timely commenced in a 
                district court with respect to a claim;
                    ``(B) such action is dismissed under subsection 
                (a); and
                    ``(C) the statute of limitations applicable to such 
                claim expires before the expiration of the 60-day 
                period beginning on the date such action is dismissed;
        then the plaintiff in such action may commence a civil action 
        based on such claim in such 60-day period notwithstanding such 
        statute.''.
    (b) Conforming Amendment.--Chapter 99 of title 28, United States 
Code, is amended in the table of sections by adding at the end the 
following:

``1632. Notice required before commencement of civil action.''.

SEC. 106. HOUSE COMMITTEE REPORTS.

    Clause 2(l) of rule XI of the Rules of the House of Representatives 
is amended by adding at the end the following new subparagraph:
    ``(8) Each report of a committee on each bill or joint resolution 
of a public character reported by that committee shall include the 
following information regarding that bill or joint resolution:
            ``(A) Whether that bill or joint resolution preempts the 
        law of any State.
            ``(B) The retroactive applicability, if any, of that bill 
        or joint resolution.
            ``(C) Whether that bill or joint resolution creates any 
        private cause of action and, if so, a description of that 
        relief and the terms and conditions for awarding attorneys 
        fees, if any.
            ``(D) The applicability, if any, of that bill or joint 
        resolution to the Federal Government or any of its agencies or 
        instrumentalities.''.

SEC. 107. AMENDMENT TO RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS 
              ACT.

    Section 1964(c) of title 18, United States Code, is amended by 
inserting ``, except that no person may bring an action under this 
provision if the racketeering activity, as defined in section 
1961(1)(D), involves conduct actionable as fraud in the purchase or 
sale of securities'' before the period.

SEC. 108. EFFECTIVE DATE; APPLICATION OF AMENDMENTS.

    (a) Effective Date.--Except as provided in subsections (b) and (c), 
this title and the amendments made by this title shall take effect on 
the first day of the first month beginning more than 180 days after the 
date of the enactment of this Act.
    (b) Product Liability.--Section 103 shall apply only with respect 
to claims arising after the effective date of this title.
    (c) Application of Amendments.--
            (1) The amendments made by sections 101 and 105 shall apply 
        only with respect to civil actions commenced after the 
        effective date of this title.
            (2) The amendments made by section 102 shall apply only 
        with respect to cases in which a trial has commenced after the 
        effective date of this title.
            (3) The amendment made by section 106 shall apply to bills 
        and joint resolutions reported by any committee at least 30 
        calendar days after the date of enactment of this Act.

           TITLE II--REFORM OF PRIVATE SECURITIES LITIGATION

SEC. 201. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Securities 
Litigation Reform Act''.
    (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 201. Short title; table of contents.
Sec. 202. Prevention of lawyer-driven litigation.
                              (a) Plaintiff steering committees to 
                                        ensure client control of 
                                        lawsuits.
                              (b) Full disclosure of proposed class 
                                        action settlements.
Sec. 203. Prevention of abusive practices that foment litigation.
Sec. 204. Prevention of ``fishing expedition'' lawsuits.
Sec. 205. Establishment of ``safe harbor'' for predictive statements.
Sec. 206. Alternative dispute resolution procedure.
Sec. 207. Rule of construction.
Sec. 208. Effective date.

SEC. 202. PREVENTION OF LAWYER-DRIVEN LITIGATION.

    (a) Plaintiff Steering Committees To Ensure Client Control of 
Lawsuits.--The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) 
is amended by adding at the end the following new section:

``SEC. 36. GUARDIAN AD LITEM AND CLASS ACTION STEERING COMMITTEES.

    ``(a) Guardian Ad Litem.--Except as provided in subsection (b), not 
later than 10 days after certifying a plaintiff class in any private 
action brought under this title, the court shall appoint a guardian ad 
litem for the plaintiff class from a list or lists provided by the 
parties or their counsel. The guardian ad litem shall direct counsel 
for the class as set forth in this section and perform such other 
functions as the court may specify. The court shall apportion the 
reasonable fees and expenses of the guardian ad litem among the 
parties. Court appointment of a guardian ad litem shall not be subject 
to interlocutory review.
    ``(b) Class Action Steering Committee.--Subsection (a) shall not 
apply if, not later than 10 days after certifying a plaintiff class, on 
its own motion or on motion of a member of the class, the court 
appoints a committee of class members to direct counsel for the class 
(hereafter in this section referred to as the `plaintiff steering 
committee') and to perform such other functions as the court may 
specify. Court appointment of a plaintiff steering committee shall not 
be subject to interlocutory review.
    ``(c) Membership of Plaintiff Steering Committee.--
            ``(1) Qualifications.--
                    ``(A) Number.--A plaintiff steering committee shall 
                consist of not fewer than 5 class members, willing to 
                serve, who the court believes will fairly represent the 
                class.
                    ``(B) Ownership interests.--Members of the 
                plaintiff steering committee shall have cumulatively 
                held during the class period not less than--
                            ``(i) the lesser of 5 percent of the 
                        securities which are the subject matter of the 
                        litigation or securities which are the subject 
                        matter of the litigation with a market value of 
                        $10,000,000; or
                            ``(ii) such smaller percentage or dollar 
                        amount as the court finds appropriate under the 
                        circumstances.
            ``(2) Named plaintiffs.--Class members who are named 
        plaintiffs in the litigation may serve on the plaintiff 
        steering committee, but shall not comprise a majority of the 
        committee.
            ``(3) Noncompensation of members.--Members of the plaintiff 
        steering committee shall serve without compensation, except 
        that any member may apply to the court for reimbursement of 
        reasonable out-of-pocket expenses from any common fund 
        established for the class.
            ``(4) Meetings.--The plaintiff steering committee shall 
        conduct its business at one or more previously scheduled 
        meetings of the committee, of which prior notice shall have 
        been given and at which a majority of its members are present 
        in person or by electronic communication. The plaintiff 
        steering committee shall decide all matters within its 
        authority by a majority vote of all members, except that the 
        committee may determine that decisions other than to accept or 
        reject a settlement offer or to employ or dismiss counsel for 
        the class may be delegated to one or more members of the 
        committee, or may be voted upon by committee members seriatim, 
        without a meeting.
            ``(5) Right of nonmembers to be heard.--A class member who 
        is not a member of the plaintiff steering committee may appear 
        and be heard by the court on any issue in the action, to the 
        same extent as any other party.
    ``(d) Functions of Guardian Ad Litem and Plaintiff Steering 
Committee.--
            ``(1) Direct counsel.--The authority of the guardian ad 
        litem or the plaintiff steering committee to direct counsel for 
        the class shall include all powers normally permitted to an 
        attorney's client in litigation, including the authority to 
        retain or dismiss counsel and to reject offers of settlement, 
        and the preliminary authority to accept an offer of settlement, 
        subject to the restrictions specified in paragraph (2). 
        Dismissal of counsel other than for cause shall not limit the 
        ability of counsel to enforce any contractual fee agreement or 
        to apply to the court for a fee award from any common fund 
        established for the class.
            ``(2) Settlement offers.--If a guardian ad litem or a 
        plaintiff steering committee gives preliminary approval to an 
        offer of settlement, the guardian ad litem or the plaintiff 
        steering committee may seek approval of the offer by a majority 
        of class members if the committee determines that the benefit 
        of seeking such approval outweighs the cost of soliciting the 
        approval of class members.
    ``(e) Immunity From Civil Liability; Removal.--Any person serving 
as a guardian ad litem or as a member of a plaintiff steering committee 
shall be immune from any civil liability arising from such service. The 
court may remove a guardian ad litem or a member of a plaintiff 
steering committee for good cause shown.
    ``(f) Effect on Other Law.--This section does not affect any other 
provision of law concerning class actions or the authority of the court 
to give final approval to any offer of settlement.''.
    (b) Full Disclosure of Proposed Class Action Settlements.--Section 
21 of the Securities Exchange Act of 1934 (15 U.S.C. 78u) is amended by 
adding at the end the following new subsection:
    ``(i) Disclosure of Settlement Terms to Class Members.--In any 
private action under this title that is certified as a class action 
pursuant to the Federal Rules of Civil Procedure, a proposed settlement 
agreement that is published or otherwise disseminated to the class 
shall include the following statements:
            ``(1) Statement of potential outcome of case.--
                    ``(A) Agreement on amount of damages and likelihood 
                of prevailing.--If the settling parties agree on the 
                amount of damages per share that would be recoverable 
                if the plaintiff prevailed on each claim alleged under 
                this title and the likelihood that the plaintiff would 
                prevail--
                            ``(i) a statement concerning the amount of 
                        such potential damages; and
                            ``(ii) a statement concerning the 
                        probability that the plaintiff would prevail on 
                        the claims alleged under this title and a brief 
                        explanation of the reasons for that conclusion.
                    ``(B) Disagreement on amount of damages or 
                likelihood of prevailing.--If the parties do not agree 
                on the amount of damages per share that would be 
                recoverable if the plaintiff prevailed on each claim 
                alleged under this title or on the likelihood that the 
                plaintiff would prevail on those claims, or both, a 
                statement from each settling party concerning the issue 
                or issues on which the parties disagree.
                    ``(C) Inadmissibility for certain purposes.--
                Statements made in accordance with subparagraphs (A) 
                and (B) shall not be admissible for purposes of any 
                Federal or State judicial or administrative proceeding.
            ``(2) Statement of attorneys' fees or costs sought.--If any 
        of the settling parties or their counsel intend to apply to the 
        court for an award of attorneys' fees or costs from any fund 
        established as part of the settlement, a statement indicating 
        which parties or counsel intend to make such an application, 
        the amount of fees and costs that will be sought (including the 
        amount of such fees and costs determined on a per-share basis, 
        together with the amount of the settlement proposed to be 
        distributed to the parties to suit, determined on a per-share 
        basis), and a brief explanation of the basis for the 
        application. Such information shall be clearly summarized on 
        the cover page of any notice to a party of a proposed or final 
        settlement.
            ``(3) Identification of lawyers' representatives.--The name 
        and address of one or more representatives of counsel for the 
        plaintiff class who will be reasonably available to answer 
        written questions from class members concerning any matter 
        contained in any notice of settlement published or otherwise 
        disseminated to class members.
            ``(4) Other information.--Such other information as may be 
        required by the court, or by any guardian ad litem or plaintiff 
        steering committee appointed by the court pursuant to this 
        section.''.
    (c) Prohibition on Attorneys' Fees Paid From Commission 
Disgorgement Funds.--Section 21(d) of the Securities Exchange Act of 
1934 (15 U.S.C. 78u(d)) is amended by adding at the end the following 
new paragraph:
            ``(4) Prohibition on attorneys' fees paid from commission 
        disgorgement funds.--Except as otherwise ordered by the court, 
        funds disgorged as the result of an action brought by the 
        Commission in Federal court, or of any Commission 
        administrative action, shall not be distributed as payment for 
        attorneys' fees or expenses incurred by private parties seeking 
        distribution of the disgorged funds.''.

SEC. 203. PREVENTION OF ABUSIVE PRACTICES THAT FOMENT LITIGATION.

    (a) Additional Provisions Applicable to Class Actions.--Section 21 
of the Securities Exchange Act of 1934 (15 U.S.C. 78u) is further 
amended by adding at the end the following new subsections:
    ``(j) Elimination of Bonus Payments to Named Plaintiffs in Class 
Actions.--In any private action under this title that is certified as a 
class action pursuant to the Federal Rules of Civil Procedure, the 
portion of any final judgment or of any settlement that is awarded to 
class plaintiffs serving as the representative parties shall be equal, 
on a per share basis, to the portion of the final judgment or 
settlement awarded to all other members of the class. Nothing in this 
subsection shall be construed to limit the award to any representative 
parties of actual expenses (including lost wages) relating to the 
representation of the class.
    ``(k) Requirement That Named Plaintiff Have Meaningful 
Investment.--In any private action under this title, in order for a 
plaintiff or plaintiffs to obtain certification as representatives of a 
class of investors pursuant to the Federal Rules of Civil Procedure, 
the plaintiff or plaintiffs must show that they owned, in the 
aggregate, at the beginning of the time period in which violations of 
this title are alleged to have occurred, not less than the lesser of--
            ``(1) 1 percent of the class of securities which are the 
        subject of the litigation; or
            ``(2) $10,000 (in market value) of such securities.
    ``(l) Restrictions on Professional Plaintiffs.--A person may be a 
named plaintiff, or officer, director, fiduciary, or beneficiary of a 
named plaintiff, in no more than 5 class actions filed during any 3-
year period.
    ``(m) Loser's Liability for Attorneys' Fees and Costs of Suit.--
            ``(1) Payment by losing party.--If the court in any private 
        action under this title enters a final judgment against a party 
        litigant on any basis other than settlement, the court shall, 
        upon motion by the prevailing party, order the losing party to 
        pay the prevailing party reasonable attorneys' fees and other 
        expenses incurred by the prevailing party.
            ``(2) Time for application.--A party seeking an award of 
        fees and other expenses shall, within 30 days of a final, 
        nonappealable judgment in the action, submit to the court an 
        application for fees and other expenses.
            ``(3) Court discretion.--The court, in its discretion, may 
        reduce the amount to be awarded pursuant to this section, or 
        deny an award, to the extent that the prevailing party during 
        the course of the proceedings engaged in conduct that unduly 
        and unreasonably protracted the final resolution of the matter 
        in controversy.
    ``(n) Prevention of Abusive Conflicts of Interest.--In any private 
action under this title that is certified as a class action pursuant to 
the Federal Rules of Civil Procedure, if a party is represented by an 
attorney who directly owns or otherwise has a beneficial interest in 
the securities that are the subject of the litigation, the court shall 
make a determination of whether such interest constitutes a conflict of 
interest sufficient to disqualify the attorney from representing the 
party.
    ``(o) Encouragement of Finality in Settlement Discharges.--
            ``(1) Discharge.--A defendant who settles any private 
        action brought under this title at any time before verdict or 
        judgment shall be discharged from all claims for contribution 
        brought by other persons. Upon entry of the settlement by the 
        court, the court shall enter a bar order constituting the final 
        discharge of all obligations to the plaintiff of the settling 
        defendant arising out of the action. The order shall bar all 
        future claims for contribution or indemnity arising out of the 
        action--
                    ``(A) by nonsettling persons against the settling 
                defendant; and
                    ``(B) by the settling defendant against any 
                nonsettling defendants.
            ``(2) Reduction.--If a person enters into a settlement with 
        the plaintiff prior to verdict or judgment, the verdict or 
        judgment shall be reduced by the amount paid to the plaintiff 
        by that person.
    ``(p) Contribution From Non-Parties in Interests of Fairness.--
            ``(1) Right of contribution.--A person who becomes liable 
        for damages in any private action under this title may recover 
        contribution from any other person who, if joined in the 
        original suit, would have been liable for the same damages.
            ``(2) Statute of limitations for contribution.--Once 
        judgment has been entered in any private action under this 
        title determining liability, an action for contribution must be 
        brought not later than 6 months after the entry of a final, 
        nonappealable judgment in the action.
    ``(q) Defendant's Right to Special Verdicts Establishing 
Scienter.--In any private action under this title in which the 
plaintiff may recover money damages, the court shall, when requested by 
a defendant, submit to the jury a written interrogatory on the issue of 
each such defendant's state of mind at the time the alleged violation 
occurred.''.
    (b) Prohibition of Referral Fees That Foment Litigation.--Section 
15(c) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(c)) is 
amended by adding at the end the following new paragraph:
            ``(7) Receipt of referral fees.--No broker or dealer, or 
        person associated with a broker or dealer, may solicit or 
        accept remuneration for assisting an attorney in obtaining the 
        representation of any customer in any private action under this 
        title.''.

SEC. 204. PREVENTION OF ``FISHING EXPEDITION'' LAWSUITS.

    The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is 
amended by inserting after section 10 the following new section:

``SEC. 10A. REQUIREMENTS FOR SECURITIES FRAUD ACTIONS.

    ``(a) Scienter.--In any action under section 10(b), a defendant may 
be held liable for money damages only on proof--
            ``(1) that the defendant made an untrue statement of a 
        material fact, or omitted to state a material fact necessary in 
        order to make the statements made, in light of the 
        circumstances in which they were made, not misleading; and
            ``(2) that the defendant knew the statement was misleading 
        at the time it was made, or intentionally omitted to state a 
        fact knowing that such omission would render misleading the 
        statements made at the time they were made.
    ``(b) Requirement for Explicit Pleading and Proof of Scienter.--In 
any action under section 10(b) in which it is alleged that the 
defendant--
            ``(1) made an untrue statement of a material fact; or
            ``(2) omitted to state a material fact necessary in order 
        to make the statements made, in the light of the circumstances 
        in which they were made, not misleading;
the complaint shall allege specific facts demonstrating the state of 
mind of each defendant at the time the alleged violation occurred. The 
complaint shall also specify each statement or omission alleged to have 
been misleading, and the reasons the statement or omission is 
misleading. If an allegation regarding the statement or omission is 
made on information and belief, the complaint shall set forth with 
specificity all information on which that belief is formed. Failure to 
comply fully with this requirement shall result in dismissal of the 
complaint for failure to state a cause of action.
    ``(c) Reliance.--In any action arising under section 10(b) based 
upon a material misstatement or omission concerning a security, the 
plaintiff must prove that he or she had actual knowledge of and 
actually relied on such statement in connection with the purchase or 
sale of a security and that the misstatement or omission proximately 
caused (through both transaction causation and loss causation) any loss 
incurred by the plaintiff.
    ``(d) Limits on Windfall Damages.--In any action arising under 
section 10(b) based on a material misstatement or omission concerning a 
security, an award of damages that exceeds the price paid for a 
security purchased in reliance upon a material misstatement or omission 
shall not exceed the lesser of--
            ``(1) the difference between the price paid for the 
        security which was purchased in reliance upon a material 
        misstatement or omission, and the market value of the security 
        immediately after dissemination to the market of information 
        which corrects the misstatement or omission; and
            ``(2) the difference between the price paid for the 
        security which was purchased in reliance upon a material 
        misstatement or omission, and the price at which the relying 
        party sold the security after dissemination of information 
        correcting the misstatement or omission.''.

SEC. 205. ESTABLISHMENT OF ``SAFE HARBOR'' FOR PREDICTIVE STATEMENTS.

    (a) Consideration of Regulatory or Legislative Changes.--In 
consultation with investors and issuers of securities, the Securities 
and Exchange Commission shall adopt or amend its rules and regulations 
to create--
            (1) clear and objective criteria that the Commission finds 
        sufficient for the protection of investors, compliance with 
        which shall be readily ascertainable by issuers prior to 
        issuance of securities, by which forward-looking statements 
        concerning the future economic performance of an issuer of 
        securities registered under section 12 of the Securities 
        Exchange Act of 1934 will be deemed not to be in violation of 
        section 10(b) of that Act; and
            (2) procedures by which courts shall timely dismiss claims 
        against such issuers of securities based on such forward-
        looking statements if such statements are in accordance with 
        any criteria under paragraph (1).
    (b) Commission Considerations.--In developing rules in accordance 
with subsection (a), the Commission shall also--
            (1) prescribe appropriate limits to liability for 
        conscientiously prepared forward-looking statements that do not 
        fall within any regulatory safe harbor;
            (2) set forth procedures for making a summary determination 
        of the applicability of any Commission rule for forward-looking 
        statements early in a judicial proceeding to limit protracted 
        litigation and expansive discovery;
            (3) ensure that its rules incorporate and reflect the 
        scienter requirements applicable to actions under section 10(b) 
        of the Securities Exchange Act of 1934; and
            (4) ensure that its rules provide clear guidance to 
        investors, issuers of securities, and the judiciary.
    (c) Securities Act Amendment.--The Securities Exchange Act of 1934 
(15 U.S.C. 78a et seq.), is amended by adding at the end the following 
new section:

``SEC. 38. APPLICATION OF SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.

    ``(a) In General.--In any private action under this title that 
alleges that a forward-looking statement concerning the future economic 
performance of an issuer registered under section 12 was materially 
false or misleading, if a party making a motion in accordance with 
subsection (b) requests a stay of discovery concerning the claims or 
defenses of that party, the court shall grant such a stay until it has 
ruled on any such motion.
    ``(b) Summary Judgment Motions.--Subsection (a) shall apply to any 
motion for summary judgment made by a party asserting that the forward-
looking statement was within the coverage of any safe harbor rule which 
the Commission may have adopted concerning such predictive statements, 
if such motion is made not less than 60 days after the commencement of 
discovery in the action.
    ``(c) Dilatory Conduct; Duplicative Discovery.--Notwithstanding 
subsection (a) or (b), the time permitted for discovery under 
subsection (b) may be extended, or a stay of the proceedings may be 
denied, if the court finds that--
            ``(1) the party making a motion described in subsection (b) 
        engaged in dilatory or obstructive conduct in taking or 
        opposing any discovery; or
            ``(2) a stay of discovery pending a ruling on a motion 
        under subsection (b) would be substantially unfair to such 
        party or to other parties to the action.''.

SEC. 206. ALTERNATIVE DISPUTE RESOLUTION PROCEDURE.

    The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is 
amended by adding at the end the following new section:

``SEC. 39. ALTERNATIVE DISPUTE RESOLUTION PROCEDURE.

    ``(a) In General.--
            ``(1) Offer to proceed.--Except as provided in paragraph 
        (2), in any private action arising under this title, any party 
        may, before the expiration of the period permitted for 
        answering the complaint, deliver to all other parties an offer 
        to proceed pursuant to any voluntary, nonbinding alternative 
        dispute resolution procedure established or recognized under 
        the rules of the court in which the action is maintained.
            ``(2) Plaintiff class actions.--In any private action under 
        this title which is brought as a plaintiff class action, an 
        offer under paragraph (1) shall be made not later than 30 days 
        after a guardian ad litem or plaintiff steering committee is 
        appointed by the court in accordance with section 38.
            ``(3) Response.--The recipient of an offer under paragraph 
        (1) or (2) shall file a written notice of acceptance or 
        rejection of the offer with the court not later than 10 days 
        after receipt of the offer. The court may, upon motion by any 
        party made prior to the expiration of such period, extend the 
        period for not more than 90 additional days, during which time 
        discovery may be permitted by the court.
            ``(4) Selection of type of alternative dispute 
        resolution.--For purposes of paragraphs (1) and (2), if the 
        rules of the court establish or recognize more than 1 type of 
        alternative dispute resolution, the parties may stipulate as to 
        the type of alternative dispute resolution to be applied. If 
        the parties are unable to so stipulate, the court shall issue 
        an order not later than 20 days after the date on which the 
        parties agree to the use of alternative dispute resolution, 
        specifying the type of alternative dispute resolution to be 
        applied.
            ``(5) Sanctions for dilatory or obstructive conduct.--If 
        the court finds that a party has engaged in dilatory or 
        obstructive conduct in taking or opposing any discovery allowed 
        during the response period described in paragraph (3), the 
        court may--
                    ``(A) extend the period to permit further discovery 
                from that party for a suitable period; and
                    ``(B) deny that party the opportunity to conduct 
                further discovery prior to the expiration of the 
                period.''.

SEC. 207. RULE OF CONSTRUCTION.

    Nothing in the amendments made by this Act shall be deemed to 
create or ratify any implied private right of action, or to prevent the 
Commission by rule from restricting or otherwise regulating private 
actions under the Securities Exchange Act of 1934.

SEC. 208. EFFECTIVE DATE.

    This Act and the amendments made by this Act are effective on the 
date of enactment of this Act and shall apply to cases commenced after 
such date of enactment.
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