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[Senate Report 106-420]
[From the U.S. Government Publishing Office]

                                                       Calendar No. 732
106th Congress                                                   Report
                                 SENATE
 2d Session                                                     106-420

======================================================================

 
                 THE CLASS ACTION FAIRNESS ACT OF 2000

                                _______
                                

  September 26 (legislative day, September 22), 2000.--Ordered to be 
                                printed

                                _______
                                

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

                              R E P O R T

                             together with

                     ADDITIONAL AND MINORITY VIEWS

                         [To accompany S. 353]

    The Committee on the Judiciary, to which was referred the 
bill (S. 353) a bill to provide for class action reform, and 
for other purposes, having considered the same, reports 
favorably thereon with an amendment in the nature of a 
substitute, and recommends that the bill, as amended, to pass.

                                CONTENTS

                                                                   Page
  I. Text of S. 353...................................................2
 II. Legislative history..............................................5
III. Votes of the Committee...........................................6
 IV. Purposes.........................................................8
  V. Background and need for legislation.............................10
 VI. How S. 353 works................................................23
VII. Section-by-section analysis and discussion of substitute amendme25
VIII.Critics' contentions and rebuttals..............................34

 IX. Cost estimate...................................................46
  X. Regulatory impact statement.....................................48
 XI. Additional views of Senator Kohl................................49
XII. Minority views of Senators Leahy, Kennedy, Biden, Feingold, and 
     Torricelli......................................................51
XIII.Changes in existing law.........................................61

                           I. Text of S. 353

    The amendment is as follows:
    Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Class Action Fairness Act of 2000''.

SEC. 2. NOTIFICATION REQUIREMENT OF CLASS ACTION CERTIFICATION OR 
                    SETTLEMENT.

  (a) In General.--Part V of title 28, United States Code, is amended 
by inserting after chapter 113 the following:

                      ``CHAPTER 114--CLASS ACTIONS

``Sec.
``1711. Definitions.
``1712. Application.
``1713. Notification of class action certifications and settlements.

``Sec. 1711. Definitions

  ``In this chapter the term--
          ``(1) `class' means a group of persons that comprise parties 
        to a civil action brought by 1 or more representative persons;
          ``(2) `class action' means a civil action filed pursuant to 
        rule 23 of the Federal Rules of Civil Procedure or similar 
        State statutes or rules of procedure authorizing an action to 
        be brought by 1 or more representative persons on behalf of a 
        class;
          ``(3) `class certification order' means an order issued by a 
        court approving the treatment of a civil action as a class 
        action;
          ``(4) `class member' means a person that falls within the 
        definition of the class;
          ``(5) `class counsel' means the attorneys representing the 
        class in a class action;
          ``(6) `plaintiff class action' means a class action in which 
        class members are plaintiffs; and
          ``(7) `proposed settlement' means a settlement agreement 
        regarding a class action that is subject to court approval and 
        would be binding on the class.

``Sec. 1712. Application

  ``This chapter shall apply to all plaintiff class actions filed in or 
removed to Federal court, except any such class action solely 
involving--
          ``(1) claims 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) claims that relate 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) claims that relate 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).

``Sec. 1713. Notification of class action certifications and 
                    settlements

  ``(a) Not later than 10 days after a proposed settlement in a class 
action is filed in court, class counsel shall serve the State attorney 
general of each State in which a class member resides and the Attorney 
General of the United States as if such attorneys general and the 
Department of Justice were parties in the class action with--
          ``(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 attorney general's respective State and the 
        estimated proportionate claim of such members to the entire 
        settlement; 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 attorney general's State and the 
        estimated proportionate claim of such members to the entire 
        settlement; and
          ``(8) any written judicial opinion relating to the materials 
        described under paragraphs (3) through (6).
  ``(b) A hearing to consider final approval of a proposed settlement 
may not be held earlier than 120 days after the date on which the State 
attorneys general and the Attorney General of the United States are 
served notice under subsection (a).
  ``(c) Any court with jurisdiction over a plaintiff class action shall 
require that--
          ``(1) any written notice provided to the class through the 
        mail or publication in printed media contain a short summary 
        written in plain, easily understood language, describing--
                  ``(A) the subject matter of the class action;
                  ``(B) the legal consequences of being a member of the 
                class action;
                  ``(C) 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
                  ``(D) any other material matter; and
          ``(2) any notice provided through television or radio to 
        inform the class members 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--
                  ``(A) describe the persons who may potentially become 
                class members in the class action; and
                  ``(B) explain that the failure of a person falling 
                within the definition of the class to exercise such 
                person's right to be excluded from a class action will 
                result in the person's inclusion in the class action.
  ``(d) Compliance with this section shall not provide immunity to any 
party from any legal action under Federal or State law, including 
actions for malpractice or fraud.
  ``(e)(1) 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 resides in a State where the State attorney 
general has not been provided notice and materials under subsection 
(a).
  ``(2) 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) Nothing in this section shall be construed to expand the 
authority of, or impose any obligations, duties, or responsibilities 
upon, State attorneys general or the Attorney General of the United 
States.''.
  (b) Technical and Conforming Amendment.--The table of chapters for 
part V of title 28, United States Code, is amended by inserting after 
the item relating to chapter 113 the following:

``114. Class Actions........................................... 1711''.

SEC. 3. DIVERSITY JURISDICTION FOR CLASS ACTIONS.

  Section 1332 of title 28, United States Code, is amended--
          (1) by redesignating subsection (d) as subsection (e); and
          (2) by inserting after subsection (c) the following:
  ``(d)(1) In this subsection, the terms `class', `class action', and 
`class certification order' have the meanings given such terms under 
section 1711.
  ``(2) The district courts shall have original jurisdiction of any 
civil action where the matter in controversy exceeds the sum or value 
of $2,000,000, 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) Paragraph (2) shall not apply to any civil action in which--
          ``(A)(i) the substantial majority of the members of the 
        proposed plaintiff class and the primary defendants are 
        citizens of the State in which the action was originally filed; 
        and
          ``(ii) the claims asserted therein will be governed primarily 
        by the laws 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.
  ``(4) In any class action, the claims of the individual members of 
any class shall be aggregated to determine whether the matter in 
controversy exceeds the sum or value of $2,000,000, exclusive of 
interest and costs.
  ``(5) This subsection shall apply to any class action before or after 
the entry of a class certification order by the court.
  ``(6)(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 conditions 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, but any such filed action may be removed 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 subsection 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 
limitation periods on all reasserted claims shall be deemed tolled for 
the period during which the dismissed class action was pending. The 
limitation periods on any claims that were asserted in a class action 
dismissed under this subsection that are subsequently asserted in an 
individual action shall be deemed tolled for the period during which 
the dismissed action was pending.
  ``(7) Paragraph (2) shall not apply to any class action solely 
involving a claim that relates to--
          ``(A) 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
          ``(B) 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).
  ``(8) 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.''.

SEC. 4. REMOVAL OF CLASS ACTIONS TO FEDERAL COURT.

  (a) In General.--Chapter 89 of title 28, United States Code, is 
amended by adding after section 1452 the following:

``Sec. 1453. Removal of class actions

  ``(a) In this section, the terms `class', `class action', and `class 
member' have the meanings given such terms under section 1711.
  ``(b) A class action may be removed to a district court of the United 
States in accordance with this chapter, without regard to whether any 
defendant is a citizen of the State in which the action is brought, 
except that such action may be removed--
          ``(1) by any defendant without the consent of all defendants; 
        or
          ``(2) by any plaintiff class member who is not a named or 
        representative class member without the consent of all members 
        of such class.
  ``(c) This section shall apply to any class action before or after 
the entry of any order certifying a class.
  ``(d) The provisions of 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) This section shall not apply to any class action solely 
involving--
          ``(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).''.
  (b) Removal Limitation.--Section 1446(b) of title 28, United States 
Code, is amended in the second sentence by inserting ``(a)'' after 
``section 1332''.
  (c) Technical and Conforming Amendments.--The table of sections for 
chapter 89 of title 28, United States Code, is amended by adding after 
the item relating to section 1452 the following:

``1453. Removal of class actions.''.

SEC. 5. REPORT ON CLASS ACTION SETTLEMENTS.

  (a) In General.--Not later than 12 months after the date of enactment 
of this Act, 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, 
shall prepare and transmit to the Committees on the Judiciary of the 
Senate and the House of Representatives a report on class action 
settlements.
  (b) Content.--The report under subsection (a) shall contain--
          (1) recommendations on the best practices that courts can use 
        to ensure that proposed class action settlements are fair to 
        the class members that the settlements are supposed to benefit;
          (2) recommendations on the best practices that courts can use 
        to ensure that--
                  (A) the fees and expenses awarded to counsel in 
                connection with a class action settlement appropriately 
                reflect the extent to which counsel succeeded in 
                obtaining full redress for the injuries alleged and the 
                time, expense, and risk that counsel devoted to the 
                litigation; and
                  (B) the class members on whose behalf the settlement 
                is proposed are the primary beneficiaries of the 
                settlement; and
          (3) the actions that the Judicial Conference of the United 
        States has taken and intends to take toward having the Federal 
        judiciary implement any or all of the recommendations contained 
        in the report.
  (c) Authority of Federal Courts.--Nothing in this section shall be 
construed to alter the authority of the Federal courts to supervise 
attorneys' fees.

SEC. 6. EFFECTIVE DATE.

  The amendments made by this Act shall apply to any civil action 
commenced on or after the date of enactment of this Act.

                        II. Legislative History

    The Senate began consideration of the Class Action Fairness 
Act in the 105th Congress. The Senate Judiciary Subcommittee on 
Administrative Oversight and the Courts held 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). Five Senators--Senators Spencer Abraham (R-MI), Paul 
Coverdell (R-GA), Phil Gramm (R-TX), Jesse Helms (R-NC), and 
Jeff Sessions (R-AL)--joined as cosponsors of the bill. 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 
amendment.

                      III. Votes of the Committee

    Pursuant to paragraph 7 of rule XXVI of the Standing Rules 
of the Senate, each Committee is to announce the results of 
rollcall votes taken in any meeting of the Committee on any 
measure or amendment. The Senate Judiciary Committee, with a 
quorum present, met on June 29, 2000, at 10 a.m. to mark up S. 
353. Six amendments were rejected by the Committee. The 
following rollcall votes occurred on S. 353:

A Leahy amendment to S. 353 to exclude tobacco-related class 
actions from the act was rejected 7 yeas to 10 nays.
        YEAS                          NAYS
Leahy                               Thurmond
Kennedy (Proxy)                     Grassley
Biden                               Specter (Proxy)
Feinstein (Proxy)                   Kyl
Feingold                            DeWine (Proxy)
Torricelli                          Aschroft (Proxy)
Schumer (Proxy)                     Abraham (Pass)
                                    Sessions
                                    Smith
                                    Kohl
                                    Hatch

A Torricelli amendment to S. 353 to exclude from the act class 
actions related to firearms injury was rejected 7 yeas to 10 
nays.
        YEAS                          NAYS
Leahy                               Thurmond
Kennedy (Proxy)                     Grassley
Biden                               Specter (Proxy)
Feinstein (Proxy)                   Kyl
Feingold                            DeWine (Proxy)
Torricelli                          Aschroft (Proxy)
Schumer (Proxy)                     Abraham (Pass)
                                    Sessions
                                    Smith
                                    Kohl
                                    Hatch

A Leahy amendment to S. 353 to exclude any class actions 
arising under a State environmental protection statute from the 
act was rejected 7 yeas to 10 nays.
        YEAS                          NAYS
Leahy                               Thurmond
Kennedy (Proxy)                     Grassley
Biden                               Specter (Proxy)
Feinstein (Proxy)                   Kyl
Feingold                            DeWine (Proxy)
Torricelli                          Aschroft (Proxy)
Schumer (Proxy)                     Abraham (Pass)
                                    Sessions
                                    Smith
                                    Kohl
                                    Hatch

A Feingold amendment to S. 353 to exclude from the act class 
actions arising solely under State consumer protection statutes 
was rejected 7 yeas to 10 nays.
        YEAS                          NAYS
Leahy                               Thurmond
Kennedy (Proxy)                     Grassley
Biden                               Specter (Proxy)
Feinstein (Proxy)                   Kyl
Feingold                            DeWine (Proxy)
Torricelli                          Aschroft (Proxy)
Schumer (Proxy)                     Abraham (Pass)
                                    Sessions
                                    Smith
                                    Kohl
                                    Hatch

A Feingold amendment to S. 353 to alter the bill so that in any 
class action brought in or removed to a Federal court under the 
jurisdictional provisions of the bill, if the Federal court 
determines that the case cannot proceed as a class action, the 
court must remand the case to a State court, was rejected 7 
yeas to 10 nays.
        YEAS                          NAYS
Leahy                               Thurmond
Kennedy (Proxy)                     Grassley
Biden                               Specter (Proxy)
Feinstein (Proxy)                   Kyl
Feingold                            DeWine (Proxy)
Torricelli                          Aschroft (Proxy)
Schumer (Proxy)                     Abraham (Pass)
                                    Sessions
                                    Smith
                                    Kohl
                                    Hatch

A Feinstein amendment to S. 353 to authorize 13 new judgeships 
for the southwestern border of the United States was rejected 7 
yeas to 10 nays.
        YEAS                          NAYS
Leahy                               Thurmond
Kennedy (Proxy)                     Grassley
Biden                               Specter (Proxy)
Feinstein (Proxy)                   Kyl
Feingold                            DeWine (Proxy)
Torricelli                          Aschroft (Proxy)
Schumer (Proxy)                     Abraham (Pass)
                                    Sessions
                                    Smith
                                    Kohl
                                    Hatch

Motion to report favorably S. 353. The motion was adopted 11 
yeas to 7 nays.
        YEAS                          NAYS
Thurmond                            Leahy
Grassley                            Kennedy (Proxy)
Specter (Proxy)                     Biden
Kyl                                 Feinstein (Proxy)
DeWine (Proxy)                      Feingold
Aschroft (Proxy)                    Torricelli
Abraham (Proxy)                     Schumer (Proxy)
Sessions                              
Smith                                 
Kohl                                  
Hatch                                 

                              IV. Purposes

    Our current class action system is plagued by numerous 
problems and abuses that are attributable largely to inadequate 
judicial supervision. Most of these problems and abuses are 
arising in State court class actions and threaten to undermine 
the rights of both plaintiffs and defendants. In too many 
cases, plaintiff class members do not know what their rights 
are, or what a class action settlement has accomplished. Judges 
too readily approve settlements that primarily benefit the 
class counsel, not the class members who they supposedly 
represent. Attorneys are awarded outrageous attorneys' fees, 
while class members receive little or nothing. Often, multiple 
class action cases purporting to assert the same claims on 
behalf of the same people proceed simultaneously in different 
State courts, causing judicial inefficiencies and promoting 
collusive activity between plaintiffs, attorneys, and 
defendants. Lawyers frequently ``game'' the procedural rules to 
keep class actions in State courts before judges carefully 
selected for their tendency to readily certify classes 
regardless of the procedural irregularities or their penchant 
for approving settlements without regard to class member 
interests. Increasingly, frivolous class action lawsuits are 
being filed with the intent of extorting large, unwarranted 
settlements from defendants. And many State courts freely issue 
rulings in class action cases that have nationwide impacts, 
even when those rulings overturn established State and even 
national laws and policies.
    The ``Class Action Fairness Act of 2000'' is a modest, 
balanced first step to address these and some of the other 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 Class Action Fairness Act has four key components:

    First, S. 353 implements additional and simplified notice 
requirements to better inform plaintiff class members of the 
specifics of proposed class action settlements and their rights 
with respect thereto. The act requires that notice to class 
members be in ``plain English'' and include details about 
attorneys' fees and settlement rights and obligations.
    Second, S. 353 provides an additional mechanism to 
safeguard plaintiff class members' rights by requiring that 
detailed notice of class action settlements be sent to the 
Attorney General of the United States and State attorneys 
general, so that they may voice concerns if they believe that 
the class action settlement is not in the best interest of 
their citizens. This provision enables an independent third 
party to help ensure that unfair class action settlements are 
not rubber-stamped by courts.
    Third, S. 353 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.
    Fourth, S. 353 corrects a flaw in the current diversity 
jurisdiction statute (28 U.S.C. 1332), which frequently 
prevents interstate class actions from being adjudicated in 
Federal courts. One of the primary historical reasons for 
diversity jurisdiction ``is the reassurance of fairness and 
competence that a federal court can supply to an out-of-state 
defendant facing suit in state court.''\1\ Because interstate 
class actions typically involve more people, more money, and 
more interstate commerce ramifications than any other type of 
lawsuit, the Committee firmly believes that such cases properly 
belong in Federal court. To that end, this bill (a) amends 
section 1332 to allow Federal courts to hear more interstate 
class actions on a diversity jurisdiction basis and (b) 
modifies the Federal removal statutes to ensure that qualifying 
interstate class actions initially brought in State courts may 
be heard by Federal courts if any of the real parties in 
interest (the unnamed class members or the defendants) so 
desire. Thus, S. 353 makes it harder for plaintiffs' counsel to 
``game the system'' by trying to defeat diversity jurisdiction, 
creates efficiencies in the judicial system by allowing 
overlapping and ``copycat'' cases to be consolidated in a 
single Federal court, and places the determination of more 
interstate class action lawsuits in the proper forum--the 
Federal courts.
---------------------------------------------------------------------------
    \1\ Davis v. Carl Cannon Chevrolet-Olds, Inc., 182 F.3d 792 (11th 
Cir. 1999).
---------------------------------------------------------------------------

                 V. Background and Need for Legislation

    As outlined in article III of the Constitution,\2\ 
diversity jurisdiction was established by the Framers to ensure 
fairness for defendants from one State who are sued in the 
local court of another State. Interstate class actions--which 
often involve millions of parties from numerous States--embody 
the precise scenario that diversity jurisdiction was designed 
to prevent--local prejudice by a court against out-of-State 
defendants. Yet, because of a technical glitch in the diversity 
jurisdiction statute (28 U.S.C. 1332), such cases are usually 
excluded from Federal court. (That glitch is understandable; 
class actions as we now know them did not exist when the 
statute's concept was crafted in the late 1700's.)
---------------------------------------------------------------------------
    \2\ In the words of article III, ``[t]he judicial power shall 
extend to * * * controversies in between citizens of different 
states.''
---------------------------------------------------------------------------
    This Committee believes that the current diversity and 
removal standards, as applied in interstate class actions, have 
facilitated a parade of abuses, and are thwarting the 
underlying purpose of the constitutional requirements of 
diversity jurisdiction.

                             class actions

    Although class actions have some roots in common law, the 
general concept was first codified in 1849, when several States 
adopted the field code.\3\ To successfully plead and prosecute 
class actions, the field code merely required that numerous 
parties demonstrate a common interest in law or fact.
---------------------------------------------------------------------------
    \3\ See Newburg on class actions, 3d Sec. Sec. 13-14 to 13-17 
(1997).
---------------------------------------------------------------------------
    Rule 23 of the Federal Rules of Civil Procedure, the rule 
governing Federal court class actions, was initially adopted in 
1938.\4\ However, the concept of class actions that are a 
familiar part of today's legal landscape did not arise until 
1966, when rule 23 was substantially amended to expand the 
availability of the device. Under the current law, 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.\5\ In 
addition, a proponent must show that the proposed class meets 
one of three additional requirements set forth in rule 23(b). 
For example, for a rule 23(b)(3) damages class actions to be 
certified, a proponent must show that ``the questions of law or 
fact common to the members of the class predominate over any 
questions affecting only individual members, and that a class 
action is superior to other available methods for the fair and 
efficient adjudication of the controversy.''
---------------------------------------------------------------------------
    \4\ For a fuller history of rule 23, see e.g., ``The Class Action 
Fairness Act of 1999: Hearings on S. 353 Before the Subcommittee on 
Administrative Oversight and the Courts of the Senate Committee of the 
Judiciary,'' 106th Cong. (1999) (statement of John P. Frank) 
(hereinafter ``Hearings on S. 353 '').
    \5\ Alternatively for a rule 23(b)(1) class, the proponent must 
show that the prosecution of separate actions by or against individual 
members of the class would create a risk of either (i) inconsistent or 
varying adjudication which would establish incompatible standards of 
conduct for the party opposing the class or (ii) adjudications which, 
as a practical matter, would be dispositive of the interests of the 
other members not parties to the adjudications or which would 
substantially impair or impede their ability to protect their ability 
to protect their interests. To obtain certification of a rule 23(b)(2) 
class, the proponent is required to show that the party opposing the 
class has acted or refused to act on grounds generally applicable to 
the class, thereby making appropriate final injunctive relief or 
corresponding declaratory relief with respect to the class as a whole.
---------------------------------------------------------------------------
    As originally envisioned, class action lawsuits were to be 
primarily a tool for civil rights litigants seeking injunctions 
in discrimination cases.\6\ John P. Frank, one of two surviving 
members of the 1966 Advisory Committee on Civil Rules that 
amended rule 23 to reflect its basic current form, testified 
that those who wrote the class action rule thought it would 
rarely, if ever, apply to products liability or mass tort 
cases.\7\ In the 1980's, however, some plaintiffs' lawyers 
successfully persuaded judges to expand class actions to the 
area of mass torts.\8\ These courts began to expand the types 
of claims they were willing to certify as class actions because 
they feared that the large number of individual mass tort cases 
could slow or stop the judicial system.\9\ Thus, class actions 
have evolved from their original primary purpose--to counter 
civil rights abuses--and have become a common tool for 
plaintiffs' attorneys bringing personal injury or product 
liability claims. Yet, while the landscape of class actions has 
changed dramatically, the procedural rules regarding which 
courts can hear class actions, and, consequently, which 
procedural law will apply to such cases have remained the same 
since 1966.
---------------------------------------------------------------------------
    \6\ See hearings on S. 353, statement of John P. Frank (``If there 
was a single, undoubted goal of the committee, the energizing force 
which motivated the whole rule, it was the firm determination to create 
a class action system which could deal with civil rights and, 
explicitly, segregation.'').
    \7\ Administrative Office of the U.S. Courts, ``Working Papers of 
the Advisory Committee on Civil Rules on Proposed Amendments to Civil 
Rule 23,'' (vol. 2) (``Advisory Committee Working Papers''), at 260 
(1997). The other surviving member--William T. Coleman, Jr.--has 
testified to a similar effect. Id. (vol. 3), Nov. 22, 1996, public 
hearing transcript at 204 (``I assure you that what the courts have 
done with respect to rule 23(b)(3) is far beyond what we * * * ever 
intended. To the extent that there's difficulty [with class actions, 
it] is not because of anything that was drafted in 1966, but [because] 
of how the rule has been handled since that time.'').
    \8\ See John C. Coffee, Jr., ``Class Wars: The Dilemma of the Mass 
Tort Class Action,'' 95 Colum. L. Rev. 1343, 1358 (1995).
    \9\ Id. at 1356-58, 1363-64.
---------------------------------------------------------------------------

                         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. Nonetheless, the 
Constitution specifically extends Federal jurisdiction to 
encompass one category of cases involving issues of State law: 
``diversity'' cases, or suits ``between Citizens of different 
States.'' \10\
---------------------------------------------------------------------------
    \10\ U.S. Const., art. III, sec. 2.
---------------------------------------------------------------------------
    According to the Framers, the primary purpose of diversity 
jurisdiction was to protect citizens in one State from the 
injustice that might result if they were forced to litigate in 
out-of-State courts.\11\ Quoting James Madison, Judge Henry 
Friendly explained that diversity jurisdiction is essential to 
a strong Union because it ``may happen that a strong prejudice 
may arise in some state against the citizens of others, who may 
have claims against them.'' \12\ Justice Frankfurter expressed 
a similar understanding of Madison's concerns: ``It was 
believed that, consciously or otherwise, the courts of a state 
may favor their own citizens. Bias against outsiders may become 
embedded in a judgment of the state court and yet not be 
sufficiently apparent to be made the basis of a federal 
claim.'' \13\
---------------------------------------------------------------------------
    \11\ See Pease v. Peck, 59 U.S. (18 How) 518, 520 (1856) (``The 
theory upon which jurisdiction is conferred on the court of the United 
States, in controversies between citizens of different States, has its 
foundation in the supposition that, possibly, the State tribunal might 
not be impartial between their own citizens and foreigners.''); see 
also Martin v. Hunter's Lessee, 14 U.S. (1 Wheat) 304, 347 (1816); Bank 
of the United States v. Deveaux, 9 U.S. (5 Cranch) 61, 87 (1809); 
Barrow S.S. Co. v. Kane, 170 U.S. 100 (1898) (``The object of the 
provisions of the constitution and statutes of the United States in 
conferring upon the circuit courts of the United States jurisdiction of 
controversies between citizens of different States of the Union * * * 
was to secure a tribunal presumed to be more impartial than a court of 
the state in which one litigant resides.''); ``The Federalist,'' No. 
80, at 537-38 (Alexander Hamilton) (Jacob E. Cooke, ed. 1961) (``In 
order to [ensure] the inviolable maintenance of that equality of 
privileges and immunities to which citizens of the union will be 
entitled, the national judiciary ought to preside in all cases in which 
one state or its citizens are opposed to another state or its citizens. 
To secure the full effect of so fundamental a provision against all 
evasion and subterfuge, it is necessary that its construction should be 
committed to that tribunal which, having no local attachments, will be 
likely to be impartial between the different states and their citizens, 
and which, owing its official existence to the union, will never be 
likely to feel any bias inauspicious to the principles on which it is 
founded.'').
    \12\ H.J. Friendly, ``The Historic Basis of Diversity 
Jurisdiction,'' 41 Harv. L. Rev. 483, 492-93 (1928).
    \13\ Burford v. Sun Oil Co., 319 U.S. 315, 316 (1943) (Frankfurter, 
J., dissenting).
---------------------------------------------------------------------------
    In addition to protecting individual litigants, diversity 
jurisdiction has two other important purposes. In his testimony 
to the Subcommittee on Administrative Oversight and the Courts, 
Prof. E. Donald Elliott of the Yale Law School expressed the 
view that diversity jurisdiction was designed not only to 
protect against actual discrimination, but also ``to shore up 
confidence in the judicial system by preventing even the 
appearance of discrimination in favor of local residents.'' 
\14\ In addition, several legal scholars have also noted that 
the Framers were concerned that State courts might discriminate 
against interstate businesses and commercial activities, and 
thus viewed diversity jurisdiction as a means of ensuring the 
protection of interstate commerce.\15\ Both of these concerns--
judicial integrity and interstate commerce--are strongly 
implicated by class actions.
---------------------------------------------------------------------------
    \14\ Hearings on S. 353, statement of E. Donald Elliott; see also, 
Adrienne J. Marsh, ``Diversity Jurisdiction: Scapegoat of Overcrowded 
Federal Courts,'' 48 Brooklyn L. Rev. 197, 201 (1989).
    \15\ See generally John P. Frank, ``Historical Bases of the Federal 
Judicial System,'' 13 Law & Contemp. Probs. 3, 22-28 (1948); H.J. 
Friendly, ``The Historic Basis of Diversity Jurisdiction,'' 41 Harv. L. 
Rev. 483 (1928).
---------------------------------------------------------------------------
    Over the years since the First Congress enacted provisions 
in the Judiciary Act if 1789 setting forth the parameters of 
Federal diversity jurisdiction, two statutory limitations on 
that jurisdiction have evolved. The first is the ``amount in 
controversy'' requirement (currently $75,000), which Congress 
enacted in order to ensure that diversity jurisdiction extends 
only to nontrivial State-law cases.\16\ The second is the 
``complete diversity'' requirement, a rule that Federal 
jurisdiction lies only when all plaintiffs are diverse from all 
defendants.\17\ It is important to recognize that these 
procedural limitations regarding interstate class actions were 
policy decisions, not constitutional ones. In fact, the Supreme 
Court has repeatedly acknowledged that the complete diversity 
and minimum amount-in-controversy requirements are political 
decisions not mandated by the Constitution.\18\ It is therefore 
the prerogative of Congress to modify these technical 
requirements as it deems appropriate.
---------------------------------------------------------------------------
    \16\ See 28 U.S.C. 1332(a).
    \17\ See Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 (1806).
    \18\ See, e.g., Newman-Greene, Inc. v. Alfonzo-Larrian, 490 U.S. 
826, 829 n.1 (1989) (noting that ``[t]he complete diversity requirement 
is based on the diversity statute, not Article III of the 
Constitution.''); Owen Equip. & Co. v. Kroger, 437 U.S. 365, 373 n. 13 
(1978) (to the same effect).
---------------------------------------------------------------------------

                                removal

    The concept of ``removing'' cases from State courts to 
Federal courts shares the premise as diversity jurisdiction--
the notion that an out-of-State defendant in a State court 
proceeding should have access to an even-handed Federal 
forum.\19\ 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 U.S. district court could exercise original 
jurisdiction over the claim, a defendant may remove the case to 
Federal court in order to protect itself from local prejudice.
---------------------------------------------------------------------------
    \19\ See David P. Currie, ``Federal Jurisdiction'' at 140 (3rd ed. 
1990).
---------------------------------------------------------------------------
    Section 1446(b) of title 28 outlines the procedure for 
removal. Under this provision, a defendant must file papers 
seeking removal to Federal court within 30 days after receiving 
a copy of the initial pleading (or service of summons if a 
pleading has been filed in court and is not required to be 
served on the defendant). If the original complaint was not 
removable, 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].'' \20\ Under current law, however, a case 
can only be removed on grounds of diversity jurisdiction within 
a year from commencement of the action.\21\
---------------------------------------------------------------------------
    \20\ 28 U.S.C. 1446(b).
    \21\ Id.
---------------------------------------------------------------------------

             how diversity and removal statutes are abused

    The current Federal diversity and removal rules have the 
unintended consequence of keeping most class actions out of 
Federal court. Moreover, these rules enable plaintiffs' lawyers 
who prefer to litigate in State courts to easily ``game the 
system'' in order to avoid removal to Federal court. This 
defeats the underlying purpose of diversity jurisdiction and 
generally recognized principles of federalism, which establish 
Federal courts as the major forum for adjudicating cases like 
class actions, which involve interstate commerce or otherwise 
have nationwide implications.\22\
---------------------------------------------------------------------------
    \22\ For an interesting discussion of this issue, see generally, 
Victor E. Schwartz, Mark A. Behrens & Leah Lorber, ``Federal Courts 
Should Decide Interstate Class Actions: A Call for Federal Class Action 
Diversity Jurisdiction Reform,'' 37 Harv. J. on Legis. 485, summer, 
2000.
---------------------------------------------------------------------------
    The first hurdle to Federal jurisdiction over class actions 
is created by 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.\23\ 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. Thus, it is no surprise that few interstate class 
actions meet the complete diversity requirement.
---------------------------------------------------------------------------
    \23\ See Snyder v. Harris, 394 U.S. 332 (1969).
---------------------------------------------------------------------------
    The second problem is created by the amount-in-controversy 
requirement. In interpreting 28 U.S.C. 1332(a), the Supreme 
Court has 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.\24\ That means Federal courts can only hear class 
actions in which each plaintiff claims damages in excess of 
$75,000. The Committee believes that requiring each plaintiff 
to reach the $75,000 threshold makes little sense in the class 
action context. Many plaintiffs' class action lawyers have 
misused this rule to keep their cases out of Federal court. 
They restrict the class claims that no class member may obtain 
more than $75,000, even though certain class members may be 
entitled to more and even though 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 of 
25 million people living in all 50 States and alleging claims 
against a manufacturer that are collectively worth $15 billion 
must usually be heard in State court (because each individual 
class member's claim is for less than $75,000). Put another 
way, under the current jurisdictional rules, Federal courts can 
assert diversity jurisdiction over a typical State law claim 
arising out of an auto accident between a driver from one State 
and a driver from another, or a typical trespass claim 
involving a trespasser from one State and a property owner from 
another, but they cannot assert jurisdiction over claims 
encompassing large-scale, interstate class actions involving 
thousands of plaintiffs from multiple States, defendants from 
many States, the laws of several States, and hundreds of 
millions of dollars--cases that have obvious and significant 
implications for the national economy.
---------------------------------------------------------------------------
    \24\ See Zahn v. International Paper Co., 414 U.S. 291 (1974).
---------------------------------------------------------------------------
    There is a growing chorus of authoritative sources 
declaring that something is badly amiss with the manner in 
which Federal diversity jurisdictional requirements are applied 
to class actions:

   The leading Federal civil procedure law treatise has 
        noted: ``The traditional principles [regarding Federal 
        diversity jurisdiction over class actions] have evolved 
        haphazardly and with little reasoning. They serve no 
        apparent purpose.'' \25\
---------------------------------------------------------------------------
    \25\ 14B Charles A. Wright, et al., ``Federal Practice and 
Procedure,'' Sec. 3704, at 127 (3d ed. 1998).
---------------------------------------------------------------------------
   Recently, 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 * * * \26\
---------------------------------------------------------------------------
    \26\ Davis v. Cannon Chevrolet-Olds, Inc., 182 F.3d 792, 797 (11th 
Cir. 1999).
---------------------------------------------------------------------------
   In that same case, Judge John Nangle, who chairs 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.'' \27\
---------------------------------------------------------------------------
    \27\ Id. at 798.
---------------------------------------------------------------------------
   In another case, Judge Anthony Scirica (Chair of the 
        Judicial Conference's Standing Committee on Rules and 
        Procedure) observed that although ``national 
        (interstate) class actions are the paradigm for federal 
        diversity jurisdiction because * * * they implicate 
        interstate commerce, foreclose discrimination by a 
        local state, and tend to guard against any bias against 
        interstate enterprises, * * * the current 
        jurisdictional statutes [put] such class actions * * * 
        beyond the reach of the federal courts.'' \28\

    \28\ In re ``Prudential Ins. Co. America Sales Practice Litig.,'' 
148 F.3d 283, 305 (3d Cir. 1998).
---------------------------------------------------------------------------
    The Committee notes that several witnesses at congressional 
hearings (including former Carter administration Attorney 
General Griffin Bell and Clinton administration Solicitor 
General Walter E. Dellinger) and other legal experts agree that 
if Congress were to enact the Federal diversity jurisdiction 
statute anew, it would undoubtedly 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.\29\ In other words, class 
actions arguably fit the historic rationale of diversity 
jurisdiction better than any other type of civil action.
---------------------------------------------------------------------------
    \29\ See generally, Senate hearings on S. 353; House hearings on 
H.R. 1875.
---------------------------------------------------------------------------

  explosion of class actions in state courts--a system ripe for abuse

    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. E. Donald Elliott pointed out in his testimony to the 
Subcommittee on Administrative Oversight and the Courts that 
the flood of class actions in our State courts is too well 
documented to warrant significant discussion, much less 
debate.\30\ According to recent studies, Federal class action 
filings over the past 10 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.\31\
---------------------------------------------------------------------------
    \30\ Hearings on S. 353, prepared statement of E. Donald Elliott.
    \31\ See ``Analysis: Class Action Litigation--A Federalist Society 
Survey,'' Class Action Watch at 5 (vol. 1, No. 1); Deborah R. Hensler, 
et al., ``Class Action Dilemmas: Pursuing Public Goals for Private 
Gains,'' 19 (Executive Summary 1999); 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).
---------------------------------------------------------------------------
    The reason for this dramatic increase in State court class 
actions cannot be found in class action rules--the rules 
governing the decision whether cases may proceed as class 
actions are basically the same in Federal and State courts. 
Forty States have adopted the basic Federal class action rule 
(rule 23), sometimes with minor revisions. Of the other States, 
some have rules that are more restrictive about the 
availability of class actions (e.g., Michigan, Nebraska), and 
others have rules that are guided by Federal court class action 
policy. (Two States do not have rules or statutes authorizing 
class actions.) In short, there are wide variations in Federal 
and State court class action policies.
    The Committee finds, however, that one reason for the 
dramatic explosion of class actions in State courts is that 
some State court judges are less careful than their Federal 
court counterparts about applying the procedural requirements 
that govern class actions. Many State court judges are lax 
about following the strict requirements of rule 23 (or the 
State's governing rule), which are intended to protect the due 
process rights of both unnamed class members and defendants. In 
contrast, Federal courts generally do scrutinize proposed 
settlements much more carefully and pay closer attention to the 
procedural requirements for certifying a matter for class 
treatment.\32\
---------------------------------------------------------------------------
    \32\ See hearings on S. 353, oral statement of Senator Charles E. 
Grassley.
---------------------------------------------------------------------------
    Another problem is that a large number of State courts lack 
the necessary resources to supervise proposed class settlements 
properly.\33\ 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.
---------------------------------------------------------------------------
    \33\ See hearings on S. 353, prepared statement of Stephen G. 
Morrison (``I think it is clear that the explosion of class action 
filings can only be attributed to the fact that certain members of the 
plaintiffs' bar have discovered that some of our state courts can be a 
fertile playing field for class litigation.'').
---------------------------------------------------------------------------
    The lack of a Federal forum for most interstate class 
actions and the inconsistent administration of class actions in 
State courts have led to several forms of abuse. The first such 
abuse involves settlements in which the attorneys receive 
excessive attorneys' fees with little or no recovery for the 
class members themselves.
    In the now infamous Bank of Boston class action 
settlement,\34\ for example, the Bank of Boston was accused of 
over-collecting escrow monies from homeowners and profiting 
from the interest. The settlement, approved by an Alabama State 
court judge, awarded up to $8.76 to individual class members 
while the class counsel got more than $8.5 million in fees. To 
make matters worse, the fees were simply debited directly from 
individual class members' escrow accounts leaving many of them 
worse off than they were before the suit. In testimony to the 
Subcommittee on Administrative Oversight and the Courts, Martha 
Preston recounted how she received $4 from the class 
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.'' \35\
---------------------------------------------------------------------------
    \34\ Kamilewicz v. Bank of Boston, 92 F.3d 507 (7th Cir. 1996).
    \35\ ``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) (statement of Martha Preston).
---------------------------------------------------------------------------
    There are numerous other and equally disturbing examples of 
State court class actions in which class members were short-
changed through coupon settlements. For example:

   In one case 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 case 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.\36\
---------------------------------------------------------------------------
    \36\ See Richard B. Schmitt, ``Leaky System: Suits Over Plastic 
Pipe Finally Bring Relief, Especially for Lawyers,'' Wall St. J., Nov. 
20, 1995, at A1.
---------------------------------------------------------------------------
   In another recent case, an Illinois court approved a 
        coupon settlement of a class action filed against 
        Southwestern Bell Mobile Systems, Inc., alleging that 
        the company failed to fully disclose the fact that it 
        rounded up customer calls to the next minute. Under the 
        State court settlement, the class members received $15 
        vouchers toward Cellular One products, while the 
        lawyers took home more than $1 million in fees.\37\
---------------------------------------------------------------------------
    \37\ See Michelle Singletary, ``Coupon Settlements Fall Short,'' 
Wash. Post, Sept. 12, 1999, at H01. For more examples of coupon 
settlements, see hearings on S. 353, prepared statement of Stephen G. 
Morrison.
---------------------------------------------------------------------------
   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.\38\
---------------------------------------------------------------------------
    \38\ See id.
---------------------------------------------------------------------------
   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. But 
        the court awarded the lawyers $675,000. And the lawyers 
        turned around and petitioned the court for an increase 
        to $1.9 million.
   Several attorneys brought a class action against a 
        golf equipment manufacturer when it ran out of the 
        gloves it was giving free for an advertised promotion 
        and substituted three golf balls. Under the class 
        settlement, the manufacturer sent class members three 
        more free golf balls. Meanwhile, the class 
        representative got $2,500, and the attorneys got 
        $100,000.\39\
---------------------------------------------------------------------------
    \39\ Jerry Heaster, ``Enough Already with the Lawsuits,'' Kansas 
City Star, July 10, 1999, at C1.
---------------------------------------------------------------------------
   In another case, class action plaintiffs alleged 
        that discount stores overstated the value of software 
        bundles that came with computers. In a class 
        settlement, consumers received coupons worth the lesser 
        of a 7 percent or $25 discounts off the future 
        purchases of products from defendants' stores. The 
        attorneys received $890,000 in fees.\40\
---------------------------------------------------------------------------
    \40\ Los Angeles Times, June 8, 1998, at D3.

    A second abuse that is common in State court class actions 
is the use of the class device as ``judicial blackmail.'' 
Because class actions are such a powerful tool, they can give a 
class attorney unbounded leverage. Such leverage can 
essentially force corporate defendants to pay ransom to class 
attorneys by settling--rather than litigating--frivolous 
lawsuits. This is a particularly alarming abuse because the 
class action device is intended to be a procedural tool and not 
a mechanism that affects the substantive outcome of a lawsuit. 
Nonetheless, State court judges often are inclined to certify 
cases for class action treatment not because they believe a 
class trial would be more efficient than an individual trial, 
but because they believe class certification will simply induce 
the defendant to settle the case without trial.\41\ 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.'' \42\ 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 5-percent chance of success.
---------------------------------------------------------------------------
    \41\ See E. Donald Elliott, ``Managerial Judging and the Evolution 
of Procedure,'' 53 U. Chi. L. Rev. 306, 323-24 (1986).
    \42\ In re Rohne-Poulenc Rorer Inc., 51 F.3d 1293, 1299 (7th Cir. 
1995).
---------------------------------------------------------------------------
    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. 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.\43\
---------------------------------------------------------------------------
    \43\ See ``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) (statement of John W. Martin).
---------------------------------------------------------------------------
    Other brow-raising examples of frivolous suits are common. 
One such case was brought against Ford Motor Co. in New York 
State court. The case involved an inadvertent mistake made by 
Ford--it had put a slightly overstated price on the window 
stickers on certain vehicles. As soon as Ford discovered the 
mistake, the company began sending letters to the affected 
customers apologizing for the error and enclosing checks that 
more than compensated them. Nonetheless, and fully knowing that 
this refund program was already well underway, a class action 
lawsuit charging that Ford had committed fraud was filed. Even 
worse, the court was asked to immediately 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.\44\
---------------------------------------------------------------------------
    \44\ See Faden-Bayes Corp. v. Ford Motor Co., index No. 97-601076 
(N.Y. Sup. Ct., County of New York) (filed Feb. 28, 1997).
---------------------------------------------------------------------------
    A third type of class action abuse occurs when State courts 
ignore the due process rights of out-of-State defendants by 
denying them the opportunity to contest the plaintiffs' claims 
against them. One witness who testified before the Subcommittee 
on Administrative Oversight and the Courts blamed this 
phenomenon on a ``laissez faire'' attitude of some State 
courts.\45\ The most egregious examples of this are the so-
called drive-by class certification cases, in which a class is 
certified before the defendant has a chance to respond to the 
complaint, or in some cases, has even received the complaint. 
In one lawsuit filed against an auto manufacturer in a 
Tennessee State court, for example, the complaint was filed on 
July 10, 1996. Plaintiffs filed several inches of documents 
with their complaint. Amazingly, by the time the court closed 
that same day, the judge had entered a 9-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.\46\ And upon checking, the defendant discovered that 
a group of record companies had the same experience with the 
same judge in an antitrust class action filed several days 
earlier.\47\ In Tennessee, this phenomenon is still occurring. 
Only a few weeks ago, a Tennessee State court certified a 
nationwide class before the defendants were even served (and 
obviously without benefit of any input from defendants).\48\ 
And in another case, a Kentucky State court ordered injunctive 
relief in favor of the class before the defendant was even 
notified of the lawsuit.\49\
---------------------------------------------------------------------------
    \45\ See hearings on S. 353, prepared statement of John H. Beisner.
    \46\ See hearings on S. 353, prepared statement of Stephan G. 
Morrison.
    \47\ Id.
    \48\ See Order of National Class Certification, Davison v. 
Bridgestone/Firestone, Inc., case No. 00C2298 (Eighth Cir. Ct., 20th 
Jud. Dist., Nashville, TN) (dated Aug. 18, 2000).
    \49\ See Order, Farkas v. Bridgestone/Firestone, Inc., case No. 00-
CI-5263 (Cir. Ct., Jefferson County, KY) (dated Aug. 18, 2000).
---------------------------------------------------------------------------
    A fourth type of class action abuse that is prevalent in 
State courts in some localities is the ``I never met a class 
action I didn't like'' approach to class certification.\50\ 
Some State courts that adopt this permissive attitude have even 
certified classes that Federal courts had already found 
uncertifiable. In one case, for example, a State court judge 
certified a nationwide class of persons who claimed that the 
house siding they had purchased was defective. Later, a Federal 
district court judge presented with the same case rejected any 
prospect of certifying a class in that manner, finding that 
affording class treatment in that case would clearly violate 
the due process rights of the defendants and the purported 
class members.\51\
---------------------------------------------------------------------------
    \50\ See hearings on S. 353, prepared statement of Stephen G. 
Morrison.
    \51\ Compare Naef v. Masonite Corp., No. CV-94-4033 (Cir. Court, 
Mobile County, AL), with In re Masonite Hardboard Siding Prods. Litig., 
170 F.R.D. 417, 424 (E.D. La. 1997).
---------------------------------------------------------------------------
    Yet another common abuse is the filing of ``copy cat'' 
class actions (i.e., duplicative class actions asserting 
similar claims on behalf of essentially the same people). 
Sometimes these duplicative actions are filed by lawyers who 
hope to wrest the potentially lucrative lead role away from the 
original lawyers. In other instances, the ``copy cat'' class 
actions are blatant forum shopping--the original class lawyers 
file similar class actions before different courts in an effort 
to find a receptive judge who will rapidly certify a class. 
When these similar, overlapping class actions are filed in 
State courts of different jurisdictions, there is no way to 
consolidate or coordinate the cases. The ``competing'' class 
actions must be litigated separately in an uncoordinated, 
redundant fashion because there is no State court mechanism for 
consolidating State court cases. The result is enormous waste--
multiple judges of different courts must spend considerable 
time adjudicating precisely the same claims asserted on behalf 
of precisely the same people.\52\ As a result, State courts and 
class counsel may ``compete'' to control the cases, often 
harming all the parties involved. In contrast, when overlapping 
cases are pending in different Federal courts, they can be 
consolidated under one single judge to promote judicial 
efficiency and ensure consistent treatment of the legal issues 
involved.
---------------------------------------------------------------------------
    \52\ For example, in the current controversy concerning Firestone 
tires, over 40 virtually identical class actions seeking to represent 
the same purported class members have been filed in courts all over the 
country. And in the recently publicized HMO cases, multiple overlapping 
class actions were filed against each of the major health insurance 
companies. No less than 17 class actions have been filed against 
Humana, most of which assert similar allegations and claims on behalf 
of similarly defined nationwide classes. In the Humana situation, the 
Federal cases were consolidated for pretrial proceedings before a 
single judge. See In re Humana Inc. Managed Care Litig., 2000 U.S. 
Dist. LEXIS 5099 (J.P.M.L. Apr. 13, 2000). There is no parallel 
methodology for consolidating State court class actions. Last year 
alone, over 11,000 cases were centralized for pretrial proceedings 
through the MDL process. See Administrative Office of the U.S. Courts, 
``Judicial Business of the United States Courts,'' 31 (2000) 
(``Judicial Business'').
---------------------------------------------------------------------------
    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 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 claim and will 
not be given individual attention for their grievances.\53\ A 
good example of this trend is a class action that was brought 
last year in an Illinois State court against the American 
Dental Association and several toothbrush manufacturers for 
failing to warn of the risk of a toothbrush-related injury 
known as ``toothbrush abrasion.'' The ``hard evidence'' in this 
suit, which was brought on behalf of 40 million people is a 
toothpaste commercial that claimed people brush their teeth too 
hard.\54\ Although there may well be a few people in this class 
who have actually suffered physical injury from toothbrushes, 
they are lumped in with millions of people who simply claim to 
be at such a risk. Clearly, those persons who have actual 
claims will get lost in the lawsuit, and the class action will 
proceed based on the biggest group--those who are ``at risk.'' 
As a result, if the lawyers reach a settlement, all class 
plaintiffs will receive the same award--most likely a coupon 
toward new toothbrushes--and any individuals who have actual 
claims will forfeit their ability to collect real damages for 
their injuries.
---------------------------------------------------------------------------
    \53\ See hearings on S. 353, prepared statement of John H. Beisner.
    \54\ See ``Not Too Abrasive, But Suit Causes Ache,'' The Chicago 
Tribune, Apr. 14, 1999, at Business 1.
---------------------------------------------------------------------------
    Class action abuse is also made worse 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.\55\ 
Clearly, a system that allows State court judges to dictate 
national policy from the local courthouse steps is contrary to 
the intent of the Framers when they crafted our system of 
federalism. In one recent 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.\56\ 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?
---------------------------------------------------------------------------
    \55\ See hearings on S. 353, prepared statement of John H. Beisner.
    \56\ See Smith v. General Motors Corp., et al., Civ. A. No. 97-39 
(Cir. Ct. Coosa County, AL).
---------------------------------------------------------------------------
    The most egregious of such cases are those in which one 
State court issues nationwide rulings that actually contradict 
the laws of other States. One case reported in the New York 
Times, for example, involved a longstanding State Farm practice 
(shared by other insurers) of using nonoriginal equipment 
manufacturer (OEM) parts to repair cars.\57\ The practice was 
fully disclosed to policyholders, and the majority of States 
expressly permit insurers to specify non-OEM parts. Indeed, two 
States, Hawaii and Massachusetts, actually require the 
specification of non-OEM parts. Nonetheless, plaintiffs brought 
suit in Illinois State court claiming that all non-OEM parts 
used by policyholders were inferior to OEM parts, and that 
State Farm had breached its contractual obligation to 
policyholders and committed fraud each time it specified such 
parts. Even though the plaintiffs eventually dropped their 
claim that all non-OEM parts were inferior, and conceded that 
this could only be determined on a part-by-part basis, the 
trial court still permitted the jury to reach a group judgment 
on the class action. The court was not even deterred by the 
fact that the plaintiffs in the class came from States 
throughout the Nation with widely varying laws regarding the 
use of non-OEM parts, including the two States, Hawaii and 
Massachusetts, that required the very practice condemned by 
plaintiffs.\58\
---------------------------------------------------------------------------
    \57\ ``Suit Against Auto Insurer Could Affect Nearly All Drivers,'' 
The New York Times, Sept. 27, 1998, at p. 29.
    \58\ See Snider v. State Farm Mutual Automobile Insurance Co., Cir. 
Ct. for Williamson City, IL, Docket No. 97-L-114 (1999).
---------------------------------------------------------------------------
    The State Farm case is not unique. This State court 
interference with the laws of other jurisdictions is becoming 
disturbingly common. For example:

   Not long ago, a State court in Minnesota recently 
        approved for class treatment a case involving millions 
        of plaintiffs from 44 States that will have the effect 
        of dictating the commercial codes of all those 
        States.\59\ The specific issue in the case is whether 
        individuals have a State law right to recover interest 
        on refundable deposits paid to secure an automobile 
        lease. In certifying a class in that case, the court 
        adopted an understanding of Minnesota's version of the 
        Uniform Commercial Code that was contrary to the 
        interpretation of every other State to have considered 
        the issue under their own versions of the UCC. And by 
        certifying the class, the court decided that its 
        unprecedented interpretation of the UCC would bind the 
        remaining 43 States that had yet to decide the question 
        (even though the ``Uniform Commercial Code is not 
        uniform'' and is interpreted differently in different 
        States.\60\ In essence, the action of the Minnesota 
        court will dictate the interpretation of 43 other 
        States' UCC provisions even though the other States 
        might well have reached a different conclusion in 
        applying their own State's laws.
---------------------------------------------------------------------------
    \59\ Rosen v. PRIMUS Automotive Fin. Servs., Inc., No. CT 98-2733 
(Minn. D. Ct., 4th Jud. Dist., May 4, 1999).
    \60\ Walsh v. Ford Motor Co., 807 F.2d 1000, 1016-17 (D.C. Cir. 
1986).
---------------------------------------------------------------------------
   A similar result occurred last year in a California 
        State court case addressing whether home loan borrowers 
        had been overcharged for collateral homeowners' 
        insurance by the defendant bank.\61\ In that case, the 
        State court decided to preside over a class action 
        involving a nationwide class of 25,000 borrowers in all 
        50 States, even though States have widely varying rules 
        regarding the provision of collateral homeowners' 
        insurance by banks. The effect of the California State 
        court decision is to overlook those differences and to 
        dictate that California's resolution of the issue will 
        be binding on all other States. Tellingly, the 
        California court relied on a prior California case 
        involving a nationwide class action, which stated that 
        ``California's more favorable laws may properly apply 
        to benefit nonresident plaintiffs when their home 
        states have no identifiable interest in denying such 
        persons full recovery.'' \62\ That sort of sentiment 
        flies in the face of basic principles of federalism by 
        embracing the view that other States should abide by 
        California law whenever a California court 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, has been 
        duly criticized by some congressional witnesses as 
        ``false federalism.'' \63\
---------------------------------------------------------------------------
    \61\ Washington Mutual Bank v. Superior Ct., 70 Cal. App. 4th 299 
(Cal. Ct. App. 1999).
    \62\ Id. at 302 (quoting Clothesrigger Inc. v. GTE Corp., 191 Cal. 
App. 3d 605, 616 (Cal. Ct. App. 1987)).
    \63\ See hearing of H.R. 1875 ``The Class Action Jurisdiction Act 
of 1999 Before the House Committee on the Judiciary,'' (1999) 
(statement of Hon. Walter E. Dellinger).

    Given the range and severity of class action abuse, it is 
not surprising that defendants find it necessary to remove 
actions against them to a Federal forum--a forum where the 
threat of prejudice is significantly lower. Under current law, 
however, plaintiffs' lawyers can easily manipulate their 
pleadings to ensure that their cases remain at the State level. 
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.\64\ 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.\65\
---------------------------------------------------------------------------
    \64\ See hearings on S. 353, prepared statement of Stephan G. 
Muhidon.
    \65\ Id.
---------------------------------------------------------------------------
    The Committee believes that the Federal courts are the 
appropriate forum to decide most class actions because these 
cases usually involve large amounts of money, and many 
plaintiffs, and have significant implications on interstate 
commerce and national policy. By enabling Federal courts to 
hear more class actions, this bill 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.

                          VI. How S. 353 Works

    S. 353 is a modest step toward addressing a number of the 
problems and abuses in the current class action system. First, 
S. 353 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. 
S. 353 also provides an additional mechanism to safeguard 
plaintiff class members' rights by requiring class counsel to 
provide State attorneys general and the U.S. Attorney General 
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. 353 relaxes 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 creates efficiencies in the judicial 
system by enabling overlapping and ``copycat'' cases to be 
consolidated in a single Federal court, rather than leaving 
them to proceed in numerous State courts as does the current 
system.
    Finally, S. 353 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.

                              notification

    S. 353 would amend the class action rules by requiring that 
class counsel serve the State attorneys general of every State 
in which any class member resides and the Attorney General of 
the United States 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 State attorneys general and the Attorney 
General of the United States 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 State attorney general's respective State and 
the proportionate claims of such members. The State attorneys 
general and the Attorney General of the United States would 
then have at least 120 days to review the proposed settlement 
before a court could hold a hearing on final settlement 
approval.
    A class member whose State attorney general did not receive 
notice could choose not to be bound by the settlement agreement 
or consent decree. Nonetheless, nothing in this section creates 
an affirmative duty for either the State attorneys general or 
the Attorney General of the United States to take any action in 
response to a class action settlement. Moreover, nothing in 
this section expands the current authority of the State 
attorneys general or the Attorney General of the United States.
    S. 353 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.
    Radio, television or Internet notice informing class 
members of their right to be excluded from a settlement must 
also 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.
    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 the myriad of abuses in class action litigation.

                   diversity jurisdiction and removal

    S. 353 would amend the diversity jurisdiction and removal 
statutes applicable to larger interstate class actions. S. 353 
would modify 28 U.S.C. 1332 to grant the Federal courts 
original jurisdiction to hear interstate class action cases 
where any member of the proposed class is a citizen of a 
different State from any defendant. Put another way, the bill 
changes the current ``complete diversity'' requirement created 
by courts for class actions to a ``minimal diversity'' rule for 
class actions.
    Nonetheless, this expanded Federal jurisdiction would not 
include three types of class actions that are truly local in 
nature: (1) cases in which a ``substantial majority'' of class 
members and defendants are citizens of the same State and the 
claims will be governed primarily by the laws of that State; 
(2) cases involving fewer than 100 class members; and (3) cases 
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. 353 also exempts from 
its reforms any securities class action cases covered by the 
Securities Litigation Reform Act and corporate governance 
cases.
    S. 353 would also create a separate amount-in-controversy 
requirement for diversity jurisdiction over class actions, by 
requiring that the claims of the individual class members be 
aggregated to determine whether the amount in controversy 
exceeds the sum or value of $2 million, exclusive of interest 
and costs.
    In addition, in order to enable more class actions to be 
removed to Federal court, S. 353 would create 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 1 year would be eliminated, 
although the requirement that removal occur within 30 days of 
notice of grounds for removal would be retained.
    S. 353 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 Federal Rule of Civil Procedure 23. 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.
    The act also addresses statute of limitation 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 run with regard to any individual actions 
later brought by members of the dismissed class, regardless of 
where the individual chooses to sue.

                       report on attorneys' fees

    S. 353 would direct the Judicial Conference, with the 
assistance of the Federal Judicial Center and Administrative 
Office of the U.S. 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.

VII. Section-by-Section Analysis and Discussion of Substitute Amendment

    Section 1--Section 1 sets forth the ``Class Action Fairness 
Act of 2000'' as the short title of the bill.
    Section 2--Section 2 sets forth the notification 
requirements of class action certifications and settlements. 
Section 2 of S. 353 creates new 28 U.S.C. 1713, which would 
combat abusive class action settlements by providing more 
dynamic protections for plaintiff class members. This is done 
in two important ways. First, new 28 U.S.C. 1713 would require 
that class counsel serve the State attorneys general of every 
State in which a class member resides and the Attorney General 
of the United States with notice of a proposed settlement. 
Second, it mandates that potential plaintiffs be made aware of 
their rights and obligations as class members in plain, easily 
understood language.
    Abusive class action settlements in which plaintiffs 
receive promotional coupons or other nominal damages while 
class counsel receive large fees are all too commonplace. The 
risk of such abusive practices is particularly pronounced in 
the class action context because these suits often involve 
numerous plaintiffs, each of whom has only a small financial 
stake in the litigation. As a result, few, if any, plaintiffs 
closely monitor the progress of the case or settlement 
negotiations, and these cases become ``clientless litigation,'' 
in which the plaintiff attorneys and the defendants have 
``powerful financial incentives'' to settle the ``litigation as 
early and as cheaply as possible, with the least publicity.'' 
\66\ 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.'' \67\
---------------------------------------------------------------------------
    \66\ Deborah Hensler, et al., ``Class Action Dilemmas, Pursuing 
Public Goals for Private Gain, Executive Summary,'' 10 (Executive 
Summary 1999).
    \67\ Id.
---------------------------------------------------------------------------
    S. 353 will address this problem by requiring Attorney 
General notification of proposed settlements and making it 
easier for class members to understand what is at stake in a 
class action.

                    a. attorney general notification

    New 28 U.S.C. 1713(a) requires class counsel to provide 
notice to the State attorneys general of every State in which 
any class member resides and the Attorney General of the United 
States. The provision is intended to combat the ``clientless 
litigation'' problem by adding a layer of independent oversight 
to prohibit inequitable settlements. Under section 1713(a), 
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. 1713(a)(1)-(8): a copy of the 
complaint; any scheduled judicial hearings; any final judgment 
or notice of settlement; any proposed or final dismissal; 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. 1713(a)(7)(A), 
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 State attorneys general and the Attorney General 
of the United States have received notice under 28 U.S.C. 
1713(a), they would then have at least 120 days to review the 
proposed settlement and decide whether to object in the 
interest of the plaintiff class. In addition, section 28 U.S.C. 
1713(e)(1) instructs that in cases where a particular State 
attorney general is not provided notice of the potential 
settlement, plaintiffs in that State can choose not be bound by 
that settlement. State attorneys general and the Attorney 
General of the United States are not required to take any 
affirmative action once they receive the proposed settlement 
according to new section 1713(f), nor does this section expand 
their current authority.
    The Committee believes that notifying the State attorneys 
general and the Attorney General of the United States 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.

                     b. plain language requirement

    The second protection against abusive settlements 
contemplated in new 28 U.S.C. 1713(c)(1)(A)-(B) mandates that 
each notice to the class explain in ``plain, easily understood 
language,'' the subject matter of the class action and the 
legal consequences of being a member of the class. If the 
notice concerns a proposed settlement, according to new 28 
U.S.C. 1713(c)(1)(C), then the notice must also explain in 
``plain easily understood language,'' 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.
    Compliance with the plain, easily understood language 
requirement and with the Attorney General notification 
requirement will not protect any party from a legal action 
under Federal or State law. This is made clear in new 28 U.S.C. 
1713(d).
    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 the Subcommittee hearing on S. 353, witnesses 
discussed the problem of conveying to the potential class 
member a clear understanding of the rights and obligations 
which 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.'' \68\
---------------------------------------------------------------------------
    \68\ See hearings on S. 353, prepared statement of Stephan G. 
Morrison, at 7.
---------------------------------------------------------------------------
    The Committee believes that a better informed plaintiff 
class will be better able to police the abuses rampant in 
current class action litigation. 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.
    Section 3--Section 3 amends 28 U.S.C. 1332 to redesignate 
current subsection 1332(d) as subsection (e) and create a new 
subsection 1332(d), which gives the Federal courts original 
jurisdiction over class action lawsuits in which the matter in 
controversy exceeds the sum or value of $2 million, exclusive 
of interest and costs, and either (a) any member of a class of 
plaintiffs is a citizen of a different State from any 
defendant; (b) any member of a class of plaintiffs is a foreign 
state or a citizen or subject of a foreign state and any 
defendant is a citizen of a state; or (c) any member of a class 
of plaintiffs is a citizen of a state and any defendant is a 
foreign state or a citizen or subject of a foreign state.
    Pursuant to new subsection 1332(d)(3), the Federal district 
courts are directed not to exercise diversity jurisdiction over 
class actions where (A) the substantial majority of the members 
of the proposed plaintiff class and the primary defendants are 
citizens of the State in which the action was originally filed 
and the claims asserted will be governed primarily by the law 
of that same State (``intrastate'' case); (B) the primary 
defendants are States, State officials, or other governmental 
entities against whom the district court may be foreclosed from 
ordering relief (``state action'' case); or (C) the number of 
members of all proposed plaintiff classes in the aggregate is 
fewer than 100 class members (``limited scope'' case).
    Pursuant to new subsection 1332(d)(4), 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 $2 million (exclusive of interest 
and costs). The Committee intends this subsection to be 
interpreted expansively. If a purported class action is 
removed, 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). If a 
Federal court is uncertain as to whether ``all matters in 
controversy'' in a purported class action ``do not in the 
aggregate exceed the sum or value of $2,000,000,'' the court 
should err in favor of exercising jurisdiction over the case.
    Overall, new section 1332(d) is intended to expand 
substantially Federal court jurisdiction over class actions. 
Its provisions should be read broadly, with a strong preference 
that interstate class actions should be heard in a Federal 
court if so desired by any purported class member or any 
defendant.
    Consistent with this overriding intent, the exemptions in 
new subsection 1332(d)(3) should be read narrowly. Under the 
provision of subsection 1332(d)(3)(A) governing ``intrastate'' 
class actions (i.e., class actions in which the ``substantial 
majority'' of plaintiff class members and the primary 
defendants are citizens of the State in which the action was 
originally filed and the claims asserted therein are governed 
by the same State), a purported class action should be deemed 
to fall outside Federal jurisdiction only if virtually all 
members of the proposed class are residents of a single State 
of which all ``primary defendants'' are also citizens and the 
claims are governed by that State's law. For example, a case in 
which a proposed class of 1,000 persons sues a North Carolina 
citizen corporation presumably would fit the ``intrastate'' 
case definition if 997 of those persons (more than 99 percent) 
were North Carolina citizens and the claims are governed by 
North Carolina law.
    In addition, for purposes of subsection 1332(d)(3)(A) 
``intrastate'' class actions, 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. For example, if a class action against a company also 
names as a defendant (in the interest of completeness) an 
executive of the defendant company, that executive normally 
should not be deemed a ``primary defendant'' because, in most 
instances, the executive would not be the real ``target'' of 
the purported class action; rather, his employer company would 
be the true target of the lawsuit.
    Moreover, no defendant should be considered a ``primary 
defendant'' for purposes of this analysis unless it is the 
subject of legitimate claims by all class members. For example, 
a dealer, agent or sales representative of a corporate 
defendant that has been named as a defendant should not be 
deemed a ``primary defendant'' unless that dealer, agent, or 
sales representative is alleged to have actually participated 
in the purported wrongdoing with respect to all class members 
(e.g., the defendant is alleged to have sold a purportedly 
defective product to all class members). 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.
    The other two exceptions should also be construed and 
applied narrowly. Thus, Federal courts should proceed 
cautiously before declining Federal jurisdiction under the 
subsection 1332(d)(3)(B) exception for ``state action,'' and 
only do so 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 
same guidance regarding the term ``primary defendants'' 
discussed above with regard to intrastate actions. Similarly, 
the subsection 1332(d)(3)(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 court should err in favor of exercising jurisdiction over the 
matter.
    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. For example, if a plaintiff seeks to have a 
purported class action remanded for lack of Federal diversity 
jurisdiction under subsection 1332(d)(3)(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 $2,000,000, exclusive 
of interest and costs'' or that ``the number of all proposed 
plaintiff classes in the aggregate is less than 100.''
    New subsection 1332(d)(5) 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. This allows Federal jurisdiction to apply 
when changes are made to the pleadings which bring the case 
within Federal court jurisdiction.
    New subsection 1332(d)(6) 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)(6)(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)(6)(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 noncertifiable 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)(6)(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)(7), 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. This 
exclusion recognizes the peculiar advantages of the State 
courts in the adjudication of corporate governance cases. These 
advantages include judicial expertise, a coherent body of well-
developed case law, the ability of State courts to resolve 
these disputes expeditiously, and the resulting predictability 
of corporate transactions.
    The Committee, however, intends for this exemption to be 
narrowly construed. By corporate governance litigation, the 
Committee means only litigation based solely on (a) State 
statutory law regulating the organization and governance of 
business enterprises such as corporations, partnerships, 
limited partnerships, limited liability companies, limited 
liability partnerships, and business trusts; (b) State common 
law regarding the duties owed between and among owners and 
managers of business enterprises; and (c) the rights arising 
out of the terms of the securities issued by business 
enterprises.
    This exemption would apply to a class action relating to a 
corporate governance claim filed in the court of any State. 
Consequently, it would apply to a corporate governance class 
action regardless of the forum in which it may be filed, and 
regardless of whether the law to be applied is that of the 
State in which the claim is filed.
    For purposes of this exemption, the phrase ``the internal 
affairs or governance of a corporation or other form of 
business enterprise'' is intended to refer to the internal 
affairs doctrine defined by the U.S. Supreme Court as ``matters 
peculiar to the relationships among or between the corporation 
and its current officers, directors and shareholders * * *.'' 
\69\ 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.
---------------------------------------------------------------------------
    \69\ Edgar v. Mite Corp., 457 U.S. 624, 645 (1982). See also Draper 
v. Paul N. Gardner Defined Plan Trust, 625 A.2d 859, 865-66 (Del. 
1993); McDermott 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 Corporation, 517 
N.Y.S.2d 490, 493 (App. Div. 1987).
---------------------------------------------------------------------------
    The subsection 1332(d)(7) 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)(7)(B) is for definitional 
purposes only. Since that law contains an already well-defined 
concept of a security, this provision simply imports the 
definition contained in the Securities Act.
    New subsection 1332(d)(8) 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.'' \70\ This rule ``has been 
frequently criticized because often * * * an unincorporated 
association is, as a practical matter, indistinguishable from a 
corporation in the same business.'' \71\ Some insurance 
companies, for example, are ``inter-insurance exchanges'' or 
``reciprocal insurance associations.'' They therefore, have 
been viewed by Federal courts as unincorporated associations 
for purposes of diversity jurisdiction purposes. Since such 
companies are nationwide companies, they are deemed to be 
citizens of any State in which they have insured customers.\72\ 
Consequently, these companies can never be completely or even 
minimally diverse in any case. It makes no sense to treat an 
unincorporated insurance company differently from, for example, 
an incorporated manufacturer for purposes of diversity 
jurisdiction. New subsection 1332(d)(8) corrects this anomaly.
---------------------------------------------------------------------------
    \70\ United Steelworkers of America v. Boulingy, Inc., 382 U.S. 145 
(1965).
    \71\ See, e.g., 3A J. Moore & J. Lucas, ``Moore's Federal 
Practice,'' pars. 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.'').
    \72\ See Tuck v. United Services Automobile Ass'n, 859 F.2d 842 
(10th Cir. 1988); Baer v. United Services Automobile Ass'n, 503 F.2d 
393 (2d Cir. 1974); Truck Insurance Exchange v. The Dow Chemical Co., 
331 F. Supp. 323 (W.D. Mo. 1971).
---------------------------------------------------------------------------
    Section 4--Section 4 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, 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. 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.\73\ 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.\74\
---------------------------------------------------------------------------
    \73\ See 28 U.S.C. 1441(a).
    \74\ See Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938).
---------------------------------------------------------------------------
    New subsection 1453(b) would permit removal by any 
plaintiff class member who is not a named or representative 
class member of the action for which removal is sought. 
Generally, removal of an action by the plaintiff is not 
permissible, under the theory that as the instigator of the 
lawsuit, the plaintiff had the choice of forum from the outset. 
When a class action is filed, however, only the named 
plaintiffs and their counsel have control over the choice of 
forum, whereas the vast majority of the real parties in 
interest--the unnamed class members on whose behalf the action 
is brought and the defendants--have no voice in that decision. 
By specifying that the provisions of section 1446(a) governing 
the removal of a case by a defendant shall apply equally to 
unnamed plaintiff class members, this provision gives unnamed 
plaintiff class members the same flexibility as defendants to 
choose the forum for a lawsuit.
    In addition, new subsection 1453(b) provides that removal 
may occur without the consent of any other party. This revision 
to the removal rules will combat collusion between a corporate 
defendant and a plaintiffs' attorney who may attempt to settle 
on the cheap in a State court at the expense of the plaintiff 
class members. Similarly, this will prevent a plaintiffs' 
attorney from recruiting a ``friendly'' defendant (a local 
retailer, for example) who could refuse to join a removal 
action and thereby thwart the legitimate efforts of the primary 
corporate defendant to seek removal.
    New subsection 1453(c) clarifies that the 1-year limit 
otherwise imposed on removal of suits filed pursuant to section 
1332 has no application to class actions. As such, the act 
permits a party to remove an action to Federal court more than 
1 year after commencement of a suit in State court. This change 
is intended to prevent plaintiffs' attorneys from 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 1-year limitation after which removal may not 
be sought under any condition. One year and 1 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 
nondiverse parties or increases the amount of damages being 
pled after the 1-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.
    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 13th day after dissemination of notice 
to the class (as directed by the court) is completed.
    In order to be consistent with the exceptions to Federal 
diversity jurisdiction granted under new section 1332(d), new 
subsection 1453(e) 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,\75\ it is the Committee's intent not to disturb 
the carefully crafted framework for litigating in this context. 
Thus, claims involving covered securities are excluded from the 
new section 1332(b) jurisdiction. The parameters of this 
subsection are intended to be conterminous with new subsection 
1332(d)(7).
---------------------------------------------------------------------------
    \75\ See Public Law 104-67, the ``Private Securities Litigation 
Reform Act of 1995,'' and Public Law 105-353, the ``Securities 
Litigation Uniform Standards Act of 1998.''
---------------------------------------------------------------------------
    Section 5--Section 5 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 U.S. 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. It is the Committee's intent 
that this report be an extension of the efforts that have 
already been undertaken by a subcommittee of the Advisory 
Committee on Civil Rules to examine possible amendments to rule 
23 of the Federal Rules of Civil Procedure, particularly 
amendments related to the review of proposed class action 
settlements.
    In addition, section 5 contains a provision stating that 
nothing in the act shall be construed to alter the authority of 
the Federal courts to supervise attorneys' fees. It is the 
Committee's intent not to disrupt the broad discretion judges 
have to approve or contest attorneys' fees based on fairness 
determinations, notwithstanding contractual arrangements 
between attorneys and their clients.

                VIII. Critics' Contentions and Rebuttals

    Critics' Contention No. 1: S. 353 would transfer nearly 
every class action from State to Federal court and would add to 
the increasingly burdensome workload of the Federal courts.
    Response: During Committee debate on S. 353, the most 
frequent concern we heard was that S. 353 would overload the 
Federal judiciary. This argument, however, ignores the fact 
that class actions burden our entire national judicial system, 
which includes both Federal courts and State courts, and not 
simply Federal 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.
    Many State courts have crowded, crushing dockets. In fact, 
the civil caseload in State courts has grown much more rapidly 
than the Federal court civil caseload. Civil filings in State 
trial courts of general jurisdiction have increased 28 percent 
since 1984, as compared to an increase of only 4 percent in the 
Federal courts.\76\ In most jurisdictions, each State court 
judge is assigned an average of 1,000 to 2,000 new cases each 
year.\77\ By contrast, each Federal court judge was assigned an 
average of fewer than 500 new cases last year.\78\ Newly 
released data indicate that there was actually a 3-percent 
decrease in the number of cases pending in our Federal district 
courts nationwide at the end of last year.\79\ Moreover, the 
number of diversity cases filed in Federal court continues to 
go down markedly. For example, during calendar year 1998, 
diversity filings fell 6 percent, and during calendar year 
1999, diversity filings fell another 4 percent.\80\ This 
reduction in new case filings occurs just as the vacancy rate 
among Federal district court judges (5.8 percent) has been at 
its lowest level since 1988.\81\
---------------------------------------------------------------------------
    \76\ See B. Ostrom, et al., ``Examining the Work of State Courts,'' 
at 15 (Court Statistics Project 1998).
    \77\ See id. at 12-13.
    \78\ See ``Judicial Business,'' at 23, 25. Indeed, the number is 
significantly below 500 cases when one takes account of the fact that 
besides the 646 authorized judgeships, 273 Federal district court 
judges who have taken ``senior status'' were active in handling cases 
last year. Id. at 42.
    \79\ See ``Judicial Business,'' at 20 (data as of Sept. 30, 1999).
    \80\ Id. at 26.
    \81\ For 1995-1999, the source is ``Judicial Business,'' at 42. For 
1991-1994, the source is Administrative Office of the U.S. Courts, 
``Judicial Business of the U.S. Courts,'' 24 (1994). For 1988-1990, the 
source is ``Annual Report of the Director of the Administrative Office 
of the U.S. Courts,'' 42 (1990).
---------------------------------------------------------------------------
    Class action filings in State courts have increased more 
than three times as fast as they have in Federal courts. 
According to recent studies, Federal class action filings over 
the past 10 years have increased by more than 300 percent, 
while class action filings in State courts have increased by 
more than 1,000 percent.\82\ As the number of class action 
lawsuits continues to grow, State courts do not have the 
resources, procedural mechanisms or expertise to handle them 
effectively. For example, State courts do not possess the 
numbers of staff (i.e., law clerks, magistrate judges and 
special masters) available to the Federal courts. Federal court 
judges are generally able to delegate some aspects of their 
class action cases (e.g., discovery issues) to magistrate 
judges or special masters who are not at the disposal of State 
court judges. 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.
---------------------------------------------------------------------------
    \82\ See Analysis: ``Class Action Litigation--A Federalist Society 
Survey,'' ``Class Action Watch,'' at 5 (vol. 1, No. 1); Deborah R. 
Hensler, et al., ``Class Action Dilemmas: Pursuing Public Goals for 
Private Gain,'' 19 (Executive Summary 1999).
---------------------------------------------------------------------------
    Federal courts are also authorized, through the 
multidistrict litigation process, to transfer and consolidate 
similar class actions in different district courts before a 
single judge.\83\ On the other hand, State courts are without 
such consolidation authority. The current system thus requires 
State court judges to waste precious energy and resources 
handling duplicative class actions brought on behalf of the 
same people on the same issues because State courts cannot 
consolidate cases across State lines. Moreover, allowing 
similar class actions to proceed simultaneously in different 
State courts also promotes abusive practices, collusive 
activities, and unfair settlements. The class action system 
will improve tremendously with the Federal administration of 
interstate class actions because of the Federal courts' ability 
to consolidate similar, overlapping cases. Clearly, it is far 
more efficient for one Federal judge handle a group of 
identical or parallel purported class actions, than for 
multiple judges to hear the same case in a multitude of 
different State courts. S. 353 will therefore save significant 
State and Federal judicial resources, expedite the resolution 
of these cases, reduce the ability of attorneys to play games 
with the system, and result in fairer results for litigants.
---------------------------------------------------------------------------
    \83\ U.S.C. 1407.
---------------------------------------------------------------------------
    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.
    These benefits aside, the critics' contention that S. 353 
would overload the Federal courts is also a gross exaggeration. 
S. 353 would simply allow removal of certain interstate class 
actions to Federal court--it would not require removal. Merely 
providing class action litigants with an option to have their 
case heard in Federal court is consistent with the 
constitutional mandate of diversity jurisdiction. Moreover, 
removal will not be an option in all class action cases. S. 353 
places several significant limitations on the kinds of class 
actions that can proceed in Federal court, e.g., the $2 million 
in aggregated claims jurisdictional threshold amount and the 
requirement that classes include at least 100 members. And if 
the State courts of a jurisdiction provide an even-handed forum 
for litigating class actions, defendants or unnamed plaintiffs 
presumably will not remove class actions to Federal court and 
will allow them to proceed in State court. Thus, there is no 
basis for arguing that S. 353 would prompt a tidal wave of 
class actions that would overwhelm our Federal courts.
    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 that the 21,915 cases to 
recover a few thousand dollars in student loan arrearages, the 
18,781 individual product liability actions (typically one-
person injury case), the 21,716 Federal personal injury cases 
(e.g., single person medical malpractice cases), or 23,821 
civil habeas corpus cases filed last year in Federal court.\84\ 
Indeed, it is noteworthy that there were eight times as many 
individual product liability cases filed in Federal court last 
year (18,781) as there were class actions (2,133).\85\ 
Ultimately, regardless of the impact on the Federal court 
caseload, large interstate class actions belong in Federal 
court.
---------------------------------------------------------------------------
    \84\ See ``Judicial Business,'' at 139-41.
    \85\ Id.
---------------------------------------------------------------------------
    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 recent 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.\86\
---------------------------------------------------------------------------
    \86\ See generally hearings on S. 353: ``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,'' (1999).
---------------------------------------------------------------------------
    Moreover, several studies also indicate that the class 
action abuse problem, particularly with respect to class 
settlements, is primarily a State court issue. For example, a 
detailed Federal Judicial Center study concluded that ``[i]n 
most [class actions handled by Federal courts subject to the 
study], net monetary distributions to the class exceeded 
attorneys' fees by substantial margins.'' \87\ In stark 
contrast, a recent 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.\88\ 
The ICJ/RAND study offered three compelling rationales for 
allowing more interstate class actions to be heard by Federal 
courts:
---------------------------------------------------------------------------
    \87\ Federal Judicial Center, ``Empirical Study of Class Actions in 
Four Federal District Courts,'' 68-69 (1996).
    \88\ Deborah R. Hensler, et al., ``Class Action Dilemmas: Pursuing 
Public Goals for Private Gain,'' 19 (Executive Summary 1999).
---------------------------------------------------------------------------
          (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.'' \89\
---------------------------------------------------------------------------
    \89\ Id. at 28.
---------------------------------------------------------------------------
    While some abuses do occur in Federal court, the extent to 
which they take place in no way even approaches the level of 
abuse evidencing itself in State court. Moreover, provisions in 
S. 353, such as those dealing with notification of State 
attorneys general and the ``plain English'' requirement will 
further 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. 353.
    Response: Opponents of S. 353 would prohibit Federal courts 
from exercising jurisdiction over those class actions brought 
against certain industries, including HMO's, 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.\90\ Class actions against unpopular corporate defendants 
such as the tobacco and firearms industry have successfully 
proceeded in Federal court, and have resulted in beneficial 
judgments and settlements for the plaintiff classes. In fact, 
it is reasonable to expect that class action cases before 
Federal courts sitting in diversity will have similar outcomes 
to those in State court since a Federal court would apply the 
same State substantive law as a State court considering the 
case.
---------------------------------------------------------------------------
    \90\ Indeed, there's 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 56 purported class actions on tobacco 
issues now pending, 25 are in Federal courts and 31 are in State 
courts. Moreover, there is no evidence that classes are more likely to 
be certified in State courts. Both Federal courts and State courts have 
certified tobacco-related class actions. So far, 24 courts have denied 
certification of tobacco classes--13 State courts and 11 Federal 
courts. The State court denials are: 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., 6790 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 
615 (1999). At least two Federal courts have certified tobacco-related 
classes: Iron Workers Local Union No. 17 Insurance Fund v. Philip 
Morris Inc., 182 F.R.D. 523 (N.D. Ohio 1998); Northwest Laborers-
Employers Health & Security Trust Fund v. Philip Morris Inc., 1997 U.S. 
Dist. LEXIS 21299 (W.D. Wash. Dec. 24, 1997). In addition, a U.S. 
magistrate judge recommended certification of a class in Oregon 
Laborers-Employers Health & Welfare Trust Fund v. Philip Morris, Inc., 
188 F.R.D. 365 (D. Or. 1998), but that recommendation was never acted 
upon by the district court judge. Three State courts (two in Florida 
and one in Louisiana) have certified tobacco-related classes: R.J. 
Reynolds Tobacco Co. v. Engle, 672 So.2d 39 (Fla. Ct. App. 1996) 
(affirming the trial court's certification of tobacco class); Broin v. 
Philip Morris Cos., 641 S.2d 808 (Fla. Ct. App. 1996) (ordering trial 
court to certify tobacco class); Scott v. American Tobacco Co., 725 
So.2d 10 (La. Ct. App. 1998) (affirming trial court certification of 
tobacco class). In short, the scorecard is basically even. Thus, there 
is no evidence that class members will be treated more fairly in State 
court.
    While critics have pointed to the two Florida tobacco class actions 
as evidence that State courts will somehow be tougher on the tobacco 
industry, there is no real support for this contention. In the first 
tobacco class action to reach conclusion after a class was certified 
and the matter was tried (Broin, a Florida State court case), the 
matter ultimately settled. But the class members received no money at 
all. Under the terms of the settlement, they obtained only a ``right to 
sue'' individually. Meanwhile, the class counsel were awarded $49 
million (on the basis of a medical research contribution made by 
defendants). Counsel for one of the class members who protested the 
settlement reportedly commented: ``Its mind-boggling that a court would 
permit this kind of settlement to go ahead. What is the class getting 
out of this? Nothing.'' ``The Legal Intelligencer,'' Sept. 22, 1999, at 
4. The second case, Engle v. T.J. Reynolds Tobacco Co., received a lot 
of publicity because the jury awarded a $145 billion verdict to the 
class of Florida smokers. However, none of the class members has 
received any of that money, and it will likely take years of appeals 
and individual trials before any checks are actually distributed to 
class members. Moreover, if the Florida verdict holds, the sheer size 
of the verdict likely means that no other plaintiff in the United 
States will be able to recover for similar allegations. Had the case 
been adjudicated in Federal court, it would be possible for a judge to 
coordinate recovery with any other cases brought by other plaintiffs.
    Moreover, there is no evidence that tobacco cases would be tried 
more quickly in State courts. It took 6 years to get the first tobacco 
class action to trial in State court; the second took more than 4 
years. Generally, the average time to trial in Federal court is 
shorter.
    Finally, it is clear that certain opponents of the bill are trying 
to single-out certain unpopular industries, such as the firearms 
industry, because they are unpopular. But that is exactly what the 
Framers of the Constitution were trying to avoid. They were trying to 
ensure a fair, even-handed Federal court forum for defendants that may 
otherwise be haled into a local court less concerned about protecting 
the rights of an out-of-State company.
---------------------------------------------------------------------------
    Critics' Contention No. 4: S. 353 would unfairly tilt the 
playing field by providing an advantage to defendant 
corporations at the expense of consumers.
    Response: This concern mischaracterizes the nature of the 
bill. S. 353 would simply allow Federal courts to handle more 
interstate class actions. It makes no changes in substantive 
law whatsoever. Critics of S. 353 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.\91\
---------------------------------------------------------------------------
    \91\ See, e.g., Pease v. Peck, 59 U.S. (18 How.) 518, 520 (1856).
---------------------------------------------------------------------------
    Article III of the Constitution ensures that there will be 
a fair, uniform, and efficient forum (a Federal court) for 
adjudicating interstate commercial disputes, so as to nurture 
interstate commerce. Some scholars have persuasively argued 
that of all the powers exercised under the Constitution, 
diversity jurisdiction has had the greatest influence in 
melding the United States into a single nation, by fostering 
interstate commerce, communication and the uninterrupted flow 
of capital for investment into various parts of the Union, and 
sustaining the public credit and the sanctity of private 
contracts.\92\
---------------------------------------------------------------------------
    \92\ See John J. Parker, ``The Federal Constitution and Recent 
Attacks Upon It,'' 18 A.B.A. J. 433, 437 (1932).
---------------------------------------------------------------------------
    S. 353 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 (that is, cases with large ``amounts in 
controversy'') and that have interstate implications (that is, 
cases involving citizens from multiple jurisdictions). These 
requirements were intended to ensure that diversity 
jurisdiction is preserved for those cases with significant 
interstate and economic impacts. Class actions would normally 
satisfy these requirements because they usually involve big 
dollar amounts and parties from multiple jurisdictions. Yet, 
because section 1332 was enacted prior to the existence of the 
modern-day class action, it does not take into account the 
unique circumstances presented by class actions. Consequently, 
section 1332, as presently drafted, tends to exclude the 
overwhelming majority of class actions from Federal courts, 
while inviting into Federal courts much smaller single-
plaintiff cases having few (if any) interstate ramifications. 
Such a result is inconsistent with the Federal judiciary's 
proper jurisdictional role. S. 353 would correct this technical 
problem and thereby promote the underlying goals of diversity 
jurisdiction.
    As former Clinton administration Acting Solicitor General 
Walter Dellinger testified before House Judiciary Committee 
hearings on the comparable jurisdictional provisions in H.R. 
1875, if Congress were to now rewrite 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.\93\ 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. 353 will simply fix the technical problem in 
section 1332 and judicial interpretation of the diversity 
requirements that keep most class actions in State court.
---------------------------------------------------------------------------
    \93\ See hearings on H.R. 1875, statement of Walter E. Dellinger.

    Critics' Contention No. 5: S. 353 will limit the capacity 
to use class actions as private attorneys general actions to 
---------------------------------------------------------------------------
deter corporate wrongdoing.

    Response: During the Committee debate, some members opposed 
S. 353 on the ground that it would limit the use of class 
actions as private attorney general actions--to deter to 
corporate wrongdoing. As one member stated, the purpose of a 
class action is to ``dissuade. It is the same reason that we 
have treble damages.'' \94\ In the view of that member, ``the 
most important function that class actions serve is to allow 
private attorneys general to step forward and hold corporations 
accountable for decisions that affect the public safety.'' \95\
---------------------------------------------------------------------------
    \94\ See transcript of markup, Senate Judiciary Committee on S. 
353, p. 19:2-17 (June 29, 2000) (statement of Joseph R. Biden, Jr., 
U.S. Senator).
    \95\ Id.

    The problem with this argument is that for all of the 
reasons discussed above, S. 353 will not limit the legitimate 
use of class actions at all. But more fundamentally, there is 
no historical basis for the assertion that class actions were 
---------------------------------------------------------------------------
intended to create this private attorney general device.

    Although a few courts have over the years referred to the 
deterrent effects of class actions, the promulgation history of 
the current rule 23 of the Federal Rules of Civil Procedure 
reflects no intent to create a private attorney general device. 
The two surviving members of the Advisory Committee on Civil 
Rules that developed the current version of the rule have both 
testified in recent years that rule 23 was not intended to 
serve that purpose. In testimony before the Advisory Committee 
on Civil Rules in 1996, the Honorable William T. Coleman, Jr., 
specifically denounced the proposition that ``a purpose of Rule 
23 is to hand a private attorney general's badge to any counsel 
who wants it.'' \96\ He also stated that:
---------------------------------------------------------------------------
    \96\ ``Advisory Committee Working Papers,'' (vol. 4), at 456.

          Back in 1966, that was not the intended purpose of 
        Rule 23(b)(3). If there is interest in deputizing all 
        attorneys everywhere to enforce our laws, that's a 
        matter that should be decided by Congress, not through 
        the class action provisions in the Federal Rules of 
        Civil Procedure. The courts' tolerance for this 
        vigilante-style use of class actions is a root cause of 
        the abuses that must be corrected.\97\
---------------------------------------------------------------------------
    \97\ Id.

    In congressional testimony several years ago, Mr. John P. 
Frank, the other surviving Committee member, sounded similar 
---------------------------------------------------------------------------
sentiments:

          What I wish to call to your attention is what I think 
        is a serious problem here: that the class action rule, 
        wholly without regard to its original purpose, has 
        become something of a device for social administration, 
        which should never have been the product of the rules 
        at all. These are matters which should be handled by 
        the Congress and by administrative agencies, and not 
        attempted efforts to govern various parts of the 
        economy by lawsuits which give more to the counsel * * 
        * that they do to those who should benefit from them.
          I particularly adopt the statement of the chair of 
        the [Advisory Committee on Civil Rules] at the present 
        time, Judge Paul Niemeyer * * * in which he says: ``I 
        believe that Rule 23 was never intended to be a rule to 
        enhance enforcement of substantive claims. Such 
        legitimization should, in my judgment, be effected by 
        Congress, and Congress might well conclude * * * that 
        it is too anarchical to authorize private attorneys to 
        self-appoint themselves as enforcers of law without 
        adequate accountability to the lawmakers or the 
        public.'' \98\
---------------------------------------------------------------------------
    \98\ ``Mass Torts and Class Action Lawsuits,'' Hearing before the 
Subcommittee on Courts and Intellectual Property of the House Committee 
on the Judiciary, 105th Cong., 2d sess. 20-21 (Mar. 5, 1998) (statement 
of John P. Frank, Esq.).

    Even if the critics were correct that deterrence was an 
intended purpose of class actions, that assertion is self-
defeating because, in the Committee's view, the concept of 
class actions serving a ``private attorney general'' or other 
enforcement purpose is illegal. If the intended purpose of rule 
23 was to empower private attorneys to act as ``attorneys 
general,'' the rule plainly bestows substantive rights not 
otherwise available under common or statutory law. Interpreted 
in this way, the rule runs afoul of the Rules Enabling Act,\99\ 
which forbids Federal courts from adopting ``rules of practice 
and procedure'' that may ``abridge, enlarge or modify any 
substantive right.'' To the extent that class actions are 
characterized as having a private attorney general purpose, 
there are strong arguments that rule 23 is simply null and 
void.\100\
---------------------------------------------------------------------------
    \99\ 28 U.S.C. 2072(b).
    \100\ The Federal courts have frequently rejected efforts to use 
the Federal Rules of Civil Procedure to expand substantive rights. See, 
e.g., In re Baldwin-United Corp., 770 F.2d 328, 335 (2d Cir. 1985) 
(rejecting arguments that Fed. R. Civ. P. 23 could be used as 
authorizing issuance of an injunction to protect class members); 
Synanon Church v. United States, 557 F. Supp. 1329, 1330 n.2 (D.D.C. 
1983) (rejecting argument that Fed. R. Civ., p. 57 creates right to 
jury trials in declaratory judgment actions). Cf. Douglas v. NCNB Nat'l 
Bank; 979 F.2d 1128, 1130 and n.2 (5th Cir. 1992) (declining to apply 
Fed. R. Civ., p. 13(a) where doing so would ``abridge as lender's 
substantive rights and enlarge the debtor's substantive rights''). 
Similar views have been expressed by State courts. See, e.g., 
Southwestern Refinery Co. v. Bernal, 2000 Tex. LEXIS 50, (Tex. May 11, 
2000) ([C]lass actions do not exist in some sort of alternative 
universe outside our normal jurisprudence. Our procedural rules provide 
otherwise: the form of an action under the rules must not ``enlarge or 
diminish any substantive rights or obligations of any parties to any 
civil action.'') (citing Tex. R. Civ., p. 815).
---------------------------------------------------------------------------
    Critics' Contention No. 6: S. 353 will result in delays for 
injured consumers.
    Response: As discussed above, 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. 353 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 (Public Law 106-37) expanded Federal 
jurisdiction over Y2K class actions in almost precisely the 
same manner as proposed in S. 353. Congress enacted that change 
without knowing its likely judicial workload impact. Likewise, 
the Securities Litigation Reform Act of 1998 (Public Law 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. 353 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. 353 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.\101\ 
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.
---------------------------------------------------------------------------
    \101\ See, e.g., Snider v. State Farm Mutual Automobile Insurance 
Co., Cir. Ct. for Williamson City., IL, Docket No. 97-L-114 (1999).
---------------------------------------------------------------------------
    It is far more appropriate for a Federal court to interpret 
the laws of various States (a task inherent in the 
constitutional concept of diversity jurisdiction), than for one 
State court to dictate to other States what their laws mean or, 
even worse, to impose its own State law on a nationwide case. 
Why should a State court judge elected by the several thousand 
residents of a small county in Alabama tell New York or 
California the meaning of their laws? Why should an Illinois 
State court judge interpret decisions by Virginia or Wisconsin 
courts? Why should a State court judge be able to overrule 
other State laws and policies? Why should State courts be 
setting national policy?
    S. 353 simply allows more class action cases filed in State 
court to be removed to Federal court. S. 353 does not change 
substantive law--it is, in effect, a procedural provision only. 
As such, class action decisions rendered in Federal court 
should be the same as if they were decided in State court--
under the Erie doctrine, Federal courts must apply State 
substantive law in diversity cases. Moreover, if Federal court 
judges are not familiar with State law on a particular issue, 
they have the authority to ask a State court to ``certify'' a 
question of law, e.g., to advise them how a State's laws should 
be applied in an uncharted situation. This procedure allows the 
Federal courts to apply State law appropriately and gives 
States the ability to manage their legal systems without 
becoming bound by other States' interpretations of their laws.
    In short, contrary to critics' contentions, the real harm 
to federalism is the status quo--leaving the bulk of class 
action cases in State court. Federal courts are the appropriate 
forum to decide interstate class actions involving large 
amounts of money, many plaintiffs and interstate commerce 
disputes, and these matters of interstate comity are more 
appropriately handled by Federal judges appointed by the 
President and confirmed by the Senate. S. 353 simply restores 
this proper balance by resolving an anomaly of diversity 
jurisdiction. True to the concept of federalism, S. 353 
appropriately leaves certain ``intrastate'' class actions in 
State court: cases involving small amounts in controversy; 
cases with a class of 100 plaintiffs or less; cases involving 
plaintiffs, defendants and governing law all from the same 
State; cases against States and State officials; and certain 
securities and corporate governance cases. As such, S. 353 
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. 353 could deny plaintiff 
class members any meaningful ability to recover damages for 
their injuries.
    Response: In arguing that S. 353 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, and that a Federal court 
cannot arrive at a just outcome. If the cases cited by S. 353'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 will never certify 
class actions because of their attention to rule 23 class 
action requirements is completely off-base. While opponents of 
the bill cite cases that allegedly achieved greater justice in 
State court than they would have received if they had been 
removed to Federal court, it is clear that this is pure 
speculation. In fact, Federal courts have certified hundreds of 
cases for class treatment in recent years, and the rules 
governing the decision of whether cases may proceed as class 
actions are basically the same in Federal and State courts. 
Further, under the Erie doctrine, Federal courts apply State 
substantive law in diversity cases. Consequently, a removed 
class action should have the same 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 have hailed the punitive 
damages verdict in the Engel 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 is upheld, citizens of 
other States may be denied any relief whatsoever on their 
claims against tobacco companies because the Florida residents 
(through their single State class action) will have taken all 
available money to pay their punitive damages claims. In short, 
Florida residents will be paid billions of dollars in excess of 
what they claim for their real personal injury damages, while 
residents of all other States will not even receive what they 
claim to be owed for the basic personal injuries that they 
allege. As one commentator noted recently:

          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.\102\

    \102\ Jonathan Turley, ``A Crisis of Faith: Tobacco and the 
Madisonian Democracy,'' 37 Harv. J. on Legis. 433, 475 (2000).

Of course, this situation would not arise if S. 353 were 
passed, since all qualifying interstate class actions on a 
particular subject could be removed to Federal court and 
consolidated before a single Federal court judge under the 
multidistrict litigation mechanism described previously. A 
judge in the multidistrict litigation system 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. A recent Institute for Civil Justice/RAND study 
confirmed this result, finding that class counsel in State 
court consumer class action settlements, typically walk off 
with more money than all of the class members combined.\103\ 
The ICJ/RAND study provides three compelling rationales for 
allowing more interstate class actions to be heard by Federal 
courts:
---------------------------------------------------------------------------
    \103\ ``Class Action Dilemmas,'' at 23.
---------------------------------------------------------------------------
          (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.'' \104\
---------------------------------------------------------------------------
    \104\ Id. at 28.
---------------------------------------------------------------------------
S. 353 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. 9: S. 353 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. 353'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. 353 in this manner would defeat a primary 
purpose of the bill--to allow the removal of more interstate 
class actions to Federal courts, where they are more 
appropriately heard. The revision suggested by critics would 
effectively write that change out of the statute. Under the 
proposed revision, if a Federal district court determines that 
a removed case should not be afforded class treatment, a State 
court (upon remand of the case) would be free to ``overrule'' 
the Federal court's ruling that class treatment would be 
inappropriate. Thus, in interstate class actions, State 
courts--not Federal courts--would become the final arbiters of 
what should proceed as a class action in our judicial system. 
This would essentially be a declaration that in interstate 
class actions, the Federal courts are inferior to State courts. 
This result runs counter to generally accepted concepts of 
federalism.
    Furthermore, altering S. 353 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. 
353 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 would have to turn around and 
mount the fight all over again in State court.
    Indeed, the proposed fix to the perceived ``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.'' Public Citizen went on to say that ``a 
plaintiffs' 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.'' In short, the proposed change 
would expressly bless activity that courts would--and should--
find sanctionable.
    Ultimately, concerns that a ``merry-go-round'' situation 
will arise because of the way S. 353 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.

                           IX. Cost Estimate

                                     U.S. Congress,
                               Congressional Budget Office,
                                   Washington, DC, August 11, 2000.
Hon. Orrin G. Hatch,
Chairman, Committee on the Judiciary,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 353, the Class 
Action Fairness Act of 2000.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Lanette J. 
Keith (for the federal costs) and Patrice Gordon (for the 
private-sector impact).
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

               congressional budget office--cost estimate

S. 353--Class Action Fairness Act of 2000

    CBO estimates that implementing S. 353 would cost the 
federal district courts about $5 million a year. The bill would 
not affect direct spending or receipts, so pay-as-you 
procedures would not apply. S. 353 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. 353 would impose a new private-sector 
mandate, but CBO estimates that the direct cost of the mandate 
would fall below the annual threshold established in UMRA ($109 
million in 2000, adjusted annually for inflation).
    S. 353 would expand the types of class-action lawsuits that 
would be heard initially in federal district courts. As a 
result, 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 highly 
uncertain, CBO expects that at least a few hundred additional 
cases would be heard in federal court each year. According to 
the Administrative Office of the United States Courts, class-
action lawsuits tried in federal court cost the government, on 
average, about $17,000. This estimate includes discretionary 
costs for salaries and benefits for clerks, rent, utilities, 
and associated overhead expenses, but excludes the costs of the 
salaries and benefits of judges. Thus, CBO estimates that 
implementing S. 353 would affect the courts' workload at a cost 
of about $5 million annually.
    S. 353 also would require the Judicial Conference of the 
United States, the Federal Judicial Center, and the 
Administrative Office of the United States Courts to study the 
impact of the bill on the workload of the federal court system 
and to report to the Congress no later than one year after the 
bill's enactment. CBO estimates that this provision would cost 
less than $500,000 over the 2001-2002 period, subject to the 
availability of appropriated funds.
    CBO also estimates that enacting this bill could increase 
the need for judges. Because the salaries and benefits of 
district court judges are considered mandatory, adding more 
judges would increase direct spending. But S. 353 would not--by 
itself--affect direct spending because separate legislation 
would be necessary to increase the number of judges. In any 
event, CBO expects that enacting the bill would not require any 
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. 353 would impose a new private-sector mandate on 
attorneys for the members of the plaintiff class in many class-
action suits filed in or ``removed'' to federal courts. The 
bill would require class counsels to make notifications and 
disclosures to the attorneys general of all states in which a 
class member resides (and, in certain circumstances, to the 
Attorney General of the United States) within 10 days after a 
proposed settlement is filed in court. The bill defines a 
proposed settlement as a settlement 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, class counsels would have to provide up 
to 51 copies of documents and materials related to information 
that they usually already possess about the case. Further, the 
provision may allow for the use of the Internet in making such 
disclosures. Thus, CBO estimates that the costs of complying 
with this mandate would fall well below the statutory threshold 
established in UMRA ($109 million in 2000, adjusted annually 
for inflation).
    On August 18, 1999, CBO transmitted a similar cost estimate 
for H.R. 1875, the Interstate Class Action Jurisdiction Act of 
1999, as ordered reported by the House Committee on the 
Judiciary on August 3, 1999. The bills are similar and the cost 
estimates are nearly identical.
    The CBO staff contacts for this estimate are Lanette J. 
Keith (for the federal costs), and Patrice Gordon (for the 
private-sector impact). This estimate was approved by Robert A. 
Sunshine, Assistant Director for Budget Analysis.

                     X. 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. 353 will not have significant 
regulatory impact.

                  XI. ADDITIONAL VIEWS OF SENATOR KOHL

    I write separately to emphasize both my support for this 
proposal and my awareness that it still could benefit from 
additional modifications.
    First, moving cases to Federal court is only one of a 
number of ways that S. 353 attempts to provide additional 
safeguards against serious class action abuses. The bill also 
mandates that class counsel provide State attorneys general and 
the Attorney General of the United States with notice of a 
class settlement. It further requires that class notice be 
provided in plain, easily understood language to ensure that 
plaintiffs understand their rights and responsibilities in a 
lawsuit.
    To be sure, this bill is not perfect, but it does try to 
address some very real problems and does so in a way that will 
correct real injustices. Second, while this measure was clearly 
improved from introduction to markup, it could still be more 
balanced. For example, the bill was modified twice to make it 
more difficult to move some class action cases to Federal 
court. These changes--increasing the minimal dollar amount 
necessary to reach Federal court from $75,000 to $2 million and 
mandating that the class must contain at least 100 class 
members--were a good faith effort to address the stated 
concerns by the opponents of this legislation that too many 
cases would be moved to Federal court. In my opinion, even 
stronger principle of limitation are needed to determine which 
cases should--and should not be--shifted to Federal court. 
Unfortunately, rather than accepting our efforts as an 
invitation to make more helpful changes to the bill, opponents 
decided instead to offer ``message'' amendments that were 
destined to fail. It is my hope that before this bill becomes 
law, its opponents will work with us to address their concerns 
and isolate the problem cases.
    Third, when this bill moves forward next Congress, we need 
to develop an approach to abusive ``coupon'' cases that is 
somewhere between our measure as introduced and as unilaterally 
modified by the full Committee. As introduced, the measure 
would have tied attorney's fees to the amount of actual 
recovery in the lawsuit. The motivation behind this provision 
was straightforward: cases where the attorneys receive several 
million dollars, yet the plaintiff class as a whole receives 
virtually worthless ``coupons'' to be used only in future 
purchases are a judicial outrage and need to be addressed.
    For example, in a case against Bell Atlantic Mobile for 
deceptive billing practices, the settlement agreement entitled 
the class members to $15 vouchers redeemable on future 
purchases while the attorneys would receive $1.25 million.\1\ 
In a case against General Electric Capital Auto Lease for lack 
of disclosure, the plaintiff attorneys settled the case for 
coupons good only on the purchase of a new car leased through 
GE Capital. Plaintiffs were again forced to patronize the party 
they had just sued if they hoped to realize any damages in 
their settled case.\2\
---------------------------------------------------------------------------
    \1\ ``In Class Actions, a Litany of Frustrations,'' Washington 
Post, Nov. 14, 1999, A20.
    \2\ ``Coupons Create Cash for Lawyers,'' Washington Post, Nov. 14, 
1999, A20.
---------------------------------------------------------------------------
    In the interests of moving the measure through the 
Committee expeditiously, however, we dropped this provision 
entirely and substituted a study of the issue in its place. I 
am hopeful that we can carefully craft a more fine-tuned 
provision in the original bill that could address abusive 
coupon case settlement without destroying the incentives for 
attorneys to represent classes on a contingency fee basis.
                                   Herb Kohl.

 XII. MINORITY VIEWS OF SENATORS LEAHY, KENNEDY, BIDEN, FEINGOLD, AND 
                               TORRICELLI

    We strongly oppose S. 353, the ``Class Action Fairness Act 
of 2000.'' Although the legislation is described by some of its 
proponents as a simple procedural fix, it represents a major 
rewrite of the class action rules that would bar most forms of 
State class actions. S. 353 is opposed by the Justice 
Department,1 both the State 2 and Federal 
3 judiciaries, as well as consumer and public 
interest groups.4
---------------------------------------------------------------------------
    \1\ See Letter from Robert Raben, Assistant Attorney General, U.S. 
Department of Justice, to Senator Leahy (June 9, 2000) [hereinafter DOJ 
views letter] stating that: ``In sum, S. 353 would not solve any of the 
alleged class action abuses that are found in both Federal and State 
courts or enhance the fairness of class action proceedings. Instead, S. 
353 would limit the availability of class actions as a viable remedy 
for those with bona fide claims who are unable to afford a suit of 
their own. It would infringe significantly on State courts' ability to 
offer redress and provide a convenient forum for their citizens. It 
would upset the careful balance of federalism by displacing State court 
litigation in class actions. It would expand the already overloaded 
Federal docket.''
    \2\ See Letter from David A. Brock, president, Conference of Chief 
Justices (July 19, 1999) [hereinafter Conference of Chief Justices 
letter]. The Conference of Chief Justices wrote to Congress that this 
legislation ``would unilaterally transfer jurisdiction of a significant 
category of cases from state to federal courts. So drastic a distortion 
and disruption of traditional notions of judicial federalism is not 
justified, absent clear evidence of the inability of the state judicial 
systems to process and decide class actions cases in a fair and 
impartial manner.'' The Conference on Chief Justices letter continued: 
``Our discussions on this issue within the Conference have failed to 
identify any systemic problems in state class action procedures. 
Rather, we have heard only anecdotes of isolated problems that are 
being addressed on an ongoing basis by state judicial and legislative 
bodies. We believe strongly that there is no rational basis for so 
drastic an invasion of state judicial prerogatives.''
    \3\ See Letters from Leonias Ralph Mecham, secretary, Judicial 
Conference of the United States (July 26, 1999, and Aug. 23, 1999) 
[hereinafter Judicial Conference letter] (stating that on July 23, 
1999, the Executive Committee of the Conference voted to express its 
opposition to the class action legislation).
    \4\ See Letters to Committee Members in opposition to S. 353 from 
American Cancer Society, American Heart Association, American Lung 
Association, American Medical Association, Asian-American Legal Defense 
Fund, Citizens for Corporate Accountability and Individual Rights, 
Clean Water Action, Coalition to Stop Gun Violence, Consumer Federation 
of America, Consumers Union, Disability Rights Education Fund, 
Earthjustice Legal Defense Fund, Friends of the Earth, Handgun Control, 
Inc., National Consumers League, National Council of La Raza, National 
Employment Lawyers Association, NOW Legal Defense Fund, Public Citizen, 
Save Lives, Not Tobacco Coalition, U.S. Public Interest Research Group, 
and Violence Policy Center.
---------------------------------------------------------------------------
    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. In doing so, it will make 
it more difficult to protect our citizens against violations of 
the 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 solely 
involve violations of State laws, such as State consumer 
protection laws.
    S. 353 provides for the removal of State class action 
claims to Federal court in cases involving violations of State 
law where any member of the plaintiff class is a citizen of a 
different state than any defendant.5 The only 
exceptions provided in S. 353 are that Federal courts are 
directed to abstain from hearing a class action where (1) a 
``substantial majority'' of the members of the proposed class 
are citizens of a single State of which the primary defendants 
are citizens and the claims asserted will be governed primarily 
by laws of that State (``an intrastate case''); (2) all matters 
in controversy do not exceed $2,000,000 or the membership of 
the proposed class is less than 100 (``a limited scope case''); 
or (3) the primary defendants are States, State officials, or 
other government entities against whom the district court may 
be foreclosed from ordering relief (``a state action 
case'').6 In the event the district court determines 
that the action subject to its jurisdiction does not satisfy 
the requirements of Federal Rule of Procedure 23, under the 
bill the court must dismiss the action,7 which has 
the effect of striking the class action claim.8
---------------------------------------------------------------------------
    \5\ S. 353, Sec. 3. Current law requires there to be complete 
diversity before a State law case is eligible for removal to Federal 
court, that is to say that all of the defendants must be citizens 
residing in different States than all of the defendants. See Stawbridge 
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.
    \6\ S. 353, Sec 3. The legislation also excludes securities-related 
and corporate governance class actions from coverage and makes of 
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 1-year deadline for filing removal actions) and tolling 
the statute of limitation periods for dismissed class actions.
    \7\ S. 353 Sec. 3.
    \8\ While the class action may be refiled again, any such refiled 
action may be remanded again if the district court has original 
jurisdiction.
---------------------------------------------------------------------------
    S. 353 will damage both the Federal and State courts. As a 
result of Congress' increasing propensity to federalize State 
crimes and the Senate's unwillingness to confirm judges, the 
Federal courts are already facing a dangerous workload crisis. 
By forcing resource intensive class actions into federal court, 
S. 353 will further aggravate these problems and cause victims 
to wait in line for years to obtain a trial. Alternatively, to 
the extent class actions are remanded to state court, the 
legislation effectively permits only case-by-case 
adjudications, potentially draining away precious State court 
resources.
    We also object to the fact that the bill is written in a 
one-sided manner favoring corporate defendants at the expense 
of harmed victims. As Senator Biden eloquently stated during 
Committee consideration of the bill, S. 353 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. ''9
---------------------------------------------------------------------------
    \9}\Written statement of Senator Biden, executive business meeting 
of the Committee, June 29, 2000.
---------------------------------------------------------------------------
    Indeed, the recent national tire recall was started, in 
part, from the disclosure of internal corporate documents on 
consumer complaints of tire defects and design errors that were 
discovered in litigation against Bridgestone/Firestone, Inc. 
Plaintiff attorneys turned this information over to the 
National Highway Traffic Safety Administration, triggering a 
NHTSA investigation. On August 9, 2000, Bridgestone/Firestone 
recalled 6.5 million tires after they were linked to 88 deaths, 
250 injuries and 1,400 crashes. And just this month, the NHTSA 
warned that another 1.4 million Firestone tires on the road may 
be defective. It is doubtful that the internal corporate 
consumer complaint information would have ever seen the light 
of day absent the civil justice discovery process.10
---------------------------------------------------------------------------
    \10\ See ``Anatomy Of A Recall,'' Time, Sept. 11, 2000. On Sept. 
20, 2000, the National Highway Traffic Safety Administration revised 
its estimates for accidents attributable to recalled Firestone tires to 
101 fatalities, 400 injuries and 2,226 consumer complaints.
---------------------------------------------------------------------------
    We would also note that before even considering S. 353, the 
Senate should insist on receiving objective and comprehensive 
data justifying such a dramatic intrusion into State court 
prerogatives, since nothing in the way of such information now 
exists. In short, we agree with the position of 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. ''11
---------------------------------------------------------------------------
    \11\ Letter from Representative Kip Holden, Louisiana House of 
Representatives, Chairman, National Conference of State Legislatures 
AFI Law and Justice Committee, dated June 21, 2000, to Senator Leahy.
---------------------------------------------------------------------------
    For these and the other reasons set forth herein, we 
strongly oppose S. 353.

         I. 353 will damage the federal and state court systems

A. Impact on Federal courts

    Expanding Federal class action jurisdiction to include most 
State class actions, as S. 353 does, will inevitably result in 
a significant increase in the Federal courts' workload. In its 
letter to the Judiciary Committee, the Judicial Conference 
warned that ``the 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. 
''12
---------------------------------------------------------------------------
    \12\ See Judicial Conference letter, supra note 3.
---------------------------------------------------------------------------
    The workload problem in the Federal courts is already at an 
acute stage. In 1999, there were 71 judicial vacancies, or over 
8 percent of the Federal judgeships. At year end, there were 
260,318 civil cases pending in Federal courts. On average, 
Federal district court judges had 377 civil filings backlogged 
on their dockets--a 7 percent jump since 1995.13 It 
is because of these workload problems that Chief Justice 
Rehnquist took the important step of criticizing Congress for 
taking actions which have exacerbated the federal judiciary's 
workload:

    \13\ See Admin. Office of the U.S. Courts, Annual Report of the 
Director of the Administrative Office of the U.S. Courts (1999).
---------------------------------------------------------------------------
         In my annual report for [1998], I criticized the 
        Senate for moving too slowly in the filling of 
        vacancies on the Federal bench. This criticism received 
        considerable public attention. I also criticized 
        Congress and the president for their propensity to 
        enact more and more legislation which brings more and 
        more cases into the Federal court system. This 
        criticism received virtually no public attention. And 
        yet the two are closely related: We need vacancies 
        filled to deal with the cases arising under existing 
        laws, but if Congress enacts, and the President signs, 
        new laws allowing more cases to be brought into the 
        Federal courts, just filling the vacancies will not be 
        enough. We will need additional judgeships.\14\
---------------------------------------------------------------------------
    \14\ Chief Justice William Rehnquist, An Address to the American 
Law Institute, ``Rehnquist: Is Federalism Dead?'' (May 11, 1998), in 
Legal Times (May 18, 1998). On May 27, 1999, Senator Leahy introduced 
S. 1145, the Federal Judgeship Act. It would create 69 new judgeships 
across the country to address the increased caseloads of the Federal 
judiciary. The bill is based on the recommendations of the Judicial 
Conference of the United States, the nonpartisan, policymaking arm of 
the judicial branch. The Committee has not acted on S. 1145.

    Judge Ralph K. Winter, Chief Justice of the second circuit, 
echoed these concerns when he complained, ``[t]he political 
branches have steadily increased our federal question 
jurisdiction, have maintained an unnecessarily broad definition 
of diversity jurisdiction, and have then denied us resources 
minimally proportionate to that jurisdiction * * * The result 
is that a court with proud traditions of craft in 
decisionmaking and currency in its docket is now in danger of 
losing both.'' \15\
---------------------------------------------------------------------------
    \15\ Annual report to the 2d Circuit Judicial Conference, presented 
June, 1998.
---------------------------------------------------------------------------
    During the markup on S. 353, several members of the 
Committee expressed their grave concerns about the impact of 
this legislation on an already overburdened Federal court 
system. Senator Feinstein, for instance, noted that from 1991-
1998, the average weighted caseload per district judge climbed 
25 percent.\16\ As Senator Feinstein noted, this workload 
increase will be amplified by federalizing State class actions, 
which consume five times as much judicial time as an average 
civil case,\17\ ultimately making the caseload unmanageable for 
the current Federal judiciary. Indeed, the five border courts 
of Southern California, Arizona, New Mexico, West Texas, and 
South Texas, which currently handle 26 percent of all Federal 
criminal filings in the United States, would be particularly 
hard hit by S. 353.\18\ Other Federal courts would be faced 
with similar workload problems under S. 353.
---------------------------------------------------------------------------
    \16\ Transcript of executive business meeting of the Committee, 
June 22, 2000, statement of Senator Feinstein at 22.
    \17\ Id at 23.
    \18\ At the June 29, 2000, executive business meeting of the 
Committee, Senator Feinstein offered an amendment to S. 353 that would 
provide 13 new judgeships for the Southwest border courts. Senators 
Leahy, Kennedy, Biden, Feinstein, Feingold, Torricelli, and Schumer 
voted for the amendment. All other members of the Committee voted 
against the amendment, with Senator Abraham passing.
---------------------------------------------------------------------------
    By federalizing State class actions, S. 353 runs precisely 
counter to Chief Justice Rehnquist's and Chief Judge Winters' 
admonition and risks severely aggravating the judicial workload 
crisis. Indeed, the Judicial Conference concluded that ``when 
the additional, burdensome litigation resulting from [this 
legislation] is added to the already overcrowded dockets of 
Federal courts across our country, substantial backlogs and 
attendant delays can be expected.'' \19\
---------------------------------------------------------------------------
    \19\ See Judicial Conference letter, supra note 3.
---------------------------------------------------------------------------

B. Impact on the State courts

    In addition to overwhelming the Federal courts with new 
time intensive class actions, the legislation will undermine 
State courts. This is because in cases where the Federal court 
chooses not to certify the State class action, S. 353 prohibits 
the States from using class actions to resolve the underlying 
State causes of action. It is important to recall the context 
in which this legislation arises--a class action has been filed 
in State court involving numerous State law claims, each of 
which if filed separately would not be subject to Federal 
jurisdiction (either because the parties are not considered to 
be diverse or the amount in controversy for each claim does not 
exceed $75,000). When these individual cases are returned to 
the State courts upon remand, thousands upon thousands of new 
cases may be unleashed on the State courts. It is because of 
concerns such as these that the Conference of Chief Justices 
has called S. 353 an ``unwarranted incursion on the principles 
of judicial federalism.'' \20\
---------------------------------------------------------------------------
    \20\ See Conference of Chief Justices letter, supra note 2.
---------------------------------------------------------------------------
    In addition to these potential workload problems, the 
legislation raises serious constitutional issues. S. 353 does 
not merely operate to preempt an area of State law, rather it 
unilaterally strips the State courts of their ability to use 
the class action procedural device to resolve State law 
disputes. As the Conference of Chief Justices Stated, the 
legislation in essence ``unilaterally transfer[s] jurisdiction 
of a significant category of cases from State to Federal 
courts'' and is a ``drastic'' distortion and disruption of 
traditional notions of judicial federalism.\21\
---------------------------------------------------------------------------
    \21\ See id.
---------------------------------------------------------------------------
    The courts have previously found that efforts by Congress 
to dictate such State court procedures implicate important 
tenth amendment federalism issues and should be avoided. For 
example, in Felder v. Casey \22\ 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 \23\ 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' '' \24\ 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.'' \25\
---------------------------------------------------------------------------
    \22\ 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).
    \23\ 520 U.S. 911 (1997) (holding that Idaho procedural rules 
concerning appealability of orders are not preempted by 42 U.S.C. 
1983).
    \24\ Id. at 919 (quoting Henry M. Hart, Jr., ``The Relations 
Between State and Federal Law,'' 54 Colum. L. Rev. 489, 508 (1954)).
    \25\ Id. at 922. See also Howlett v. Rose, 496 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'').
---------------------------------------------------------------------------
    The Supreme Court's most recent decisions further indicate 
that S. 353 is an unacceptable infringement upon State 
sovereignty. In United States v. Morrison,\26\ the court 
invalidated the Violence Against Women Act, claiming that 
Congress overstepped its specific constitutional power to 
regulate interstate commerce. Despite the existence of vast 
data showing the effects 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. 353, however, ignores the Court's 
admonitions and rejects the Federal system by hindering the 
States' ability to adjudicate class actions involving important 
and evolving questions of State law. S. 353 not only 
obliterates the distinction between national and local 
authority, it effectively annihilates local authority over 
State class actions.
---------------------------------------------------------------------------
    \26\ 120 S. Ct. 1740 (2000).
---------------------------------------------------------------------------
    Additionally, support for S. 353 is misplaced. Arguments 
that class-action reform is justified because State courts are 
``biased'' against out-of-State defendants in class action 
suits are vastly overstated.\27\ First, the Supreme Court has 
already made clear that 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,\28\ the Supreme Court held that in class action 
cases, State courts must assure that: (1) the defendant 
receives notice plus an opportunity to be heard and participate 
in the litigation; \29\ (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.\30\
---------------------------------------------------------------------------
    \27\ Of course the entire premise of the argument would need to be 
based on bias by the judges, since the juries would be derived from 
citizens of the State where the suit is brought, whether the case is 
considered in State or Federal court.
    \28\ 472 U.S. 797 (1985).
    \29\ See id at 812 (stating that the notice must be the ``best 
practicable, reasonably calculated, under all the circumstances, to 
apprize interested parties of the pendency of the action and afford 
them an opportunity to present their objections.'') (quoting Mullane v. 
Central Hanover Bank & Trust Co., 339 U.S. 306, 314-315 (1950)).
    \30\ See id. at 806-810. These findings were reiterated by the 
Supreme Court in 1995 in Matshusita Elec. Indust. Co. v. Epstein, 516 
U.S. 367 (1995) (holding that State class actions are entitled to full 
faith and credit so long as, inter alia: the settlement was fair, 
reasonable, and 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).
---------------------------------------------------------------------------
    Second, it is important to note that as fears of local 
court prejudice have subsided and concerns about diverting 
Federal courts from their core responsibilities increased, the 
policy trend in recent years has been toward limiting Federal 
diversity jurisdiction.\31\ For example, Congress enacted the 
Federal Courts Improvement Act of 1996,\32\ which increased the 
amount in controversy requirement needed to remove a diversity 
case to Federal court from $50,000 to $75,000. This statutory 
change was based on the Judicial Conference's determination 
that fear of local prejudice by State courts was no longer 
relevant \33\ and that it was important to keep the Federal 
judiciary's efforts focused on Federal issues.\34\
---------------------------------------------------------------------------
    \31\ 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. As Senator 
Biden stated during Committee consideration of S. 353: ``[W]hy have my 
Republican friends who are such States' righters all of a sudden 
decided that there is such an egregious practice going on in their own 
States that their State court judges aren't competent to handle these 
cases? I don't quite get it. You all think they are competent enough to 
determine whether someone will be fried. You all think they are 
competent enough to determine whether or not habeas corpus be extended 
so that they can make that judgment in the States. You are confident 
that they can do it on life-and-death matters, but you are not sure 
they can do it relating to matters that they have been dealing with for 
100 or 200 years. I think this is a solution looking for a problem.'' 
Transcript of executive business meeting of the Committee, June 29, 
2000, statement of Senator Biden at 17.
    \32\ 28 U.S.C. 1332(a) (West Supp. 1998).
    \33\ See The Judicial Conference of the United States, ``Long Range 
Plan for the Federal Courts,'' Recommendation 7 at 30 (1995).
    \34\ See id.
---------------------------------------------------------------------------

      ii. s. 353 will hurt consumers, victims and the environment

    There can be little doubt that S. 353 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 likely to be far more 
expensive for plaintiffs to litigate cases and where defendants 
could force plaintiffs to travel long distances to attend 
proceedings.
    It is also likely to be far more difficult and time 
consuming to certify a class action in Federal court. Fourteen 
States, representing nearly one-third of the Nation's 
population,\35\ have adopted different criteria for class 
action rules than rule 23 of the Federal Rules of Civil 
Procedure.\36\ In addition, with respect to those States which 
have enacted a counterpart to rule 23, the Federal courts are 
likely to represent a far more difficult forum for class 
certification to occur. This is because in recent years a 
series of adverse Federal precedent, such as Castano v. 
American Tobacco Co.,\37\ In re Rhone-Poulenc Rorer, Inc.,\38\ 
In re American Medical Systems, Inc.,\39\ Georgine v. Amchem 
Products, Inc.,\40\ Broussard v. Meineke Discount Mufflers,\41\ 
and Ortiz v. Fibreboard,\42\ have made it more difficult to 
establish the ``predominance requirement'' necessary to 
establish a class action under the Federal rules.
---------------------------------------------------------------------------
    \35\ Three States still use their common law rules, rather than 
statutes, to permit class actions (Mississippi, New Hampshire, and 
Virginia); four States use Field Code based rules based on the 
``community of interest'' test (California, Nebraska, South Carolina, 
and Wisconsin); and seven States use class action rules modeled on the 
original Federal rule 23 (1938) which creates a distinction among class 
members which depends on the substantive character of the right 
asserted (Alaska, Georgia, Louisiana, New Mexico, North Carolina, Rhode 
Island, and West Virginia). See 3 Herbert B. Newberg and Alba Conte, 
``Newberg on Class Actions,'' sec. 13.04 (3d ed.1992 and Supp. 1997).
    \36\ 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.
    \37\ 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).
    \38\ 51 F. 3d 1293 (7th Cir. 1995), cert denied, 116 S. Ct. 184 
(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).
    \39\ 75 F.3d 1069 (6th Cir. 1996) (decertifying a proposed 
plaintiff settlement class comprised of 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).
    \40\ 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 member's large amount at 
stake in the litigation).
    \41\ 155 F.3d 331 (4th Cir. Aug. 19, 1998) (rejecting class 
certification brought by Meineke franchisees alleging violations of 
franchise, tort, unfair trade and other laws).
    \42\ 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.
---------------------------------------------------------------------------
    S. 353 also poses unique risks and obstacles for plaintiffs 
that they do not face under current law. Under S. 353, if the 
district court determines that the action subject to its 
jurisdiction does not satisfy the requirements of Federal Rule 
of Civil Procedure 23, the court must dismiss the action. This 
has the effect of striking the class action claim and forcing 
all States to conform to Federal class actions standards. While 
the class action may be refiled again, any such refiled action 
may be removed again to Federal court. Therefore, even if a 
State court would subsequently certify the class, it could be 
removed again, creating a revolving door between Federal and 
State court--hardly a desirable result.
    Senator Feingold tried to address this merry-go-around 
problem with an amendment to S. 353 that would prevented 
``endless rounds of removals, dismissals, and remands.'' \43\ 
The Feingold amendment required that class actions removed to 
Federal court and unable to satisfy the rule 23 class 
certification requirements be remanded to State court. If the 
claims before the State court were substantially identical to 
the original action, the case could not be removed under the 
amendment. This amendment would have alleviate some of 
unacceptable delays S. 353 would create for class action 
litigation. Unfortunately, the majority voted down this 
amendment to improve the bill.\44\
---------------------------------------------------------------------------
    \43\ Transcript of Committee executive business meeting, June 29, 
2000, statement of Senator Feingold at 51.
    \44\ At the June 29, 2000, executive business meeting of the 
Committee, Senators Leahy, Kennedy, Biden, Feinstein, Feingold, 
Torricelli, and Schumer voted for the amendment. All other members 
voted in opposition, with Senator Abraham passing.
---------------------------------------------------------------------------
    Consumers will also be disadvantaged by the vague terms 
used in the legislation. The terms ``substantial majority'' of 
plaintiffs, ``primary defendants,'' and claims ``primarily'' 
governed by a State's laws \45\ are new and undefined phrases 
with no antecedent in the U.S. Code or the case law. It will 
take many years and conflicting decisions before these critical 
terms can begin to be sorted out. Moreover, S. 353 would force 
Federal courts to interpret State consumer protection laws in 
almost all class actions involving State statutes relating to 
consumer fraud, consumer loans, consumer credit sales, 
deceptive trade practices, unlawful trade practices, or unfair 
and deceptive practices.\46\
---------------------------------------------------------------------------
    \45\ S. 353, Sec. 2(b)(2).
    \46\ At the June 29, 2000 executive business meeting of the 
Committee, Senator Feingold offered an amendment to exclude from S. 353 
these types of cases arising under State consumer protection laws. 
Unfortunately, the majority defeated this amendment. Senators Leahy, 
Kennedy, Biden, Feinstein, Feingold, Torricelli, and Schumer voted for 
the amendment. All other members voted in opposition, with Senator 
Abraham passing.
---------------------------------------------------------------------------
    Because of the special legal protections in S. 353, the 
tobacco and firearms industries may be able to avoid 
accountability for their products. For example, the bill's 
minimal diversity provision--which pushes all State-based 
claims to Federal court where at least one plaintiff and one 
defendant are from different States--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. This removal is a 
great advantage to the tobacco industry, since Federal courts 
have been reluctant to certify classes of tobacco victims in 
class actions suits with emerging causes of action based on 
State tort law, which is traditionally developed by that 
State's court system.\47\ S. 353 stifles this development, yet 
offers plaintiffs no protection from a Federal court 
understandably wary of creating state law.\48\
---------------------------------------------------------------------------
    \47\ See letters in opposition to S. 353 from the American Lung 
Association and American Medical Association.
    \48\ At the June 29, 2000, executive business meeting of the 
Committee, Senator Leahy offered an amendment to S. 353 that would 
carve out class actions involving claims against the tobacco industry. 
Senators Leahy, Kennedy, Biden, Feinstein, Feingold, Torricelli, and 
Schumer voted for the amendment. All other members voted in opposition, 
with Senator Abraham passing.
---------------------------------------------------------------------------
    S. 353 will also hinder the consumer's ability to use class 
action litigation as a protective measure against the 
manufacturers of defective firearms. According to the Violence 
Policy Center and Handgun Control, Inc., class actions are the 
only method to force manufacturers of defective firearms to 
make guns safer because firearms are exempt from consumer 
safety laws.\49\ Senators Torricelli and Feinstein recognized 
this need for local governments and citizens to have access to 
class action litigation and offered an amendment to carve out 
firearms-related causes of action from the provisions of S. 
353. Unfortunately, the majority defeated this amendment.\50\ 
By removing State class actions to Federal court, S. 353 will 
delay and restrict the only avenue available for consumers to 
hold firearms manufacturers accountable for their products.
---------------------------------------------------------------------------
    \49\ Letter from the Violence Policy Center and Handgun Control, 
Inc. to Committee members.
    \50\ At the June 27, 2000 executive business meeting of the 
Committee, Senators Leahy, Kennedy, Biden, Feinstein, Feingold, 
Torricelli, and Schumer voted for the Torricelli-Feinstein amendment. 
All other members voted in opposition to the amendment, with Senator 
Abraham passing.
---------------------------------------------------------------------------
    Protection of the environment may also suffer as a result 
of S. 353. By removing many important environmental class 
actions from State to Federal court, S. 353 not only denies 
State courts the opportunity to interpret their own State's 
environmental protection laws, it hampers and deters plaintiffs 
from pursuing important environmental litigation. The well 
documented backlog in the Federal courts and the need for 
attorneys to engage in choice of law debates will significantly 
increase the time and cost of environmental litigation. 
Ultimately, environmental class actions may not get litigated 
and the incentive polluters have to keep our environment clean 
will be reduced.\51\
---------------------------------------------------------------------------
    \51\ At the June 29, 2000, executive business meeting of the 
Committee, Senator Leahy offered an amendment to S. 353 that would 
carve out claims arising under State environmental protection laws, 
including any claim under common law for injury to human health or the 
environment. Unfortunately, the majority defeated this amendment. 
Senators Leahy, Kennedy, Biden, Feinstein, Feingold, Torricelli, and 
Schumer voted for the amendment. All other members of the Committee 
voted against the amendment, with Senator Abraham passing.
---------------------------------------------------------------------------
    Under this bill, plaintiffs' attorneys may not be willing 
to take these high-risk, high-cost, and time-consuming cases, 
particularly when the judicial remedy sought is injunctive 
relief. This has the potential to leave our environment and the 
victims of reckless polluters unprotected by our civil justice 
system. This bill, intentionally or not, protects polluters and 
ignores the innocent victims of their negligence.\52\
---------------------------------------------------------------------------
    \52\ See letters in opposition to S. 353 from Friends of the Earth, 
Clean Water Action, Earthjustice Legal Defense Fund, and U.S. Public 
Interest Research Group.
---------------------------------------------------------------------------
    The net result is that under the legislation it will be far 
more difficult for consumers and other harmed individuals to 
obtain justice in class action cases at the state or federal 
level. The types of cases affected by this legislation range 
from consumer fraud and health and safety to environmental 
actions.

iii. s. 353 fails to address defendant and other abuses in class action 
                                 cases

    Rather than responding in an even-handed manner to the 
various concerns raised at the hearings by plaintiffs and 
defendants alike, S. 353 solely benefits defendants. S. 353 
does nothing to deal with the problem of poorly written class 
action notices which cannot be understood, and it does nothing 
to deal with collusive settlements which protect defendants 
from future liability and coupon settlements which provide no 
tangible benefits to plaintiffs. Unfortunately, S. 353 
completely ignores this problem, since changing the forum will 
not in any way improve the treatment of out-of-State or out-of-
district class members.
    Serious concerns have also been raised concerning abusive 
settlements. These include collusive settlements, in which the 
parties agree to a far broader settlement than was originally 
sought in order to insulate defendants from future liability, 
and coupon and other deficient settlements which provide little 
in the way of real relief to plaintiffs. For example, In re 
Prudential Insurance Company of America Sales Practice 
Litigation \53\ involved a class action in Federal court which 
as filed was based only on misrepresentations to customers 
regarding future premiums, but as settled, released defendants 
from all claims concerning abusive sales practices.\54\ These 
cases reflect specific problems with individual judges rather 
than systemic problems with the States' handling of class 
actions. Any serious effort to reform class actions should 
address these issues, whether they arise at the federal or 
state level.\55\
---------------------------------------------------------------------------
    \53\ 962 F. Supp. 450 (D. N.J. 1997) (class action based on 
misrepresentations to customers regarding future premiums for which 
settlement was approved releasing defendant from any abusive sales 
practice).
    \54\ See also Matsushita Elec. Indust. Co. v. Epstein, 516 U.S. 367 
(1995); Grimes v. Vitalink Communications Corp, 17 F.3d 1553, 1563-64 
(3d Cir.), cert denied, 115 S. Ct. 480 (1994) (holding that a State 
court has the power to allow parties to comprehensive class action 
settlement to release exclusive Federal securities claims). But see 
Nat'l Super Spuds v. New York Mercantile Exchange 660 F.2d 9, 17-18 (2d 
Cir. 1981) (rejecting potato futures class action settlement in which 
parties sought to release claims for which they were not authorized to 
represent class members).
    \55\ See 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).
---------------------------------------------------------------------------

                               conclusion

    S. 353 will remove class actions involving State law issues 
from State courts--the forum most convenient for victims of 
wrongdoing to litigate and most familiar with the substantive 
law involved--to the Federal courts--where the class is less 
likely to be certified and the case will take longer to 
resolve. This legislation would seriously undermine the 
delicate balance between our Federal and State courts. 
Therefore, we urge the rejection of S. 353.
                                   Patrick Leahy.
                                   Edward Kennedy.
                                   Joseph Biden, Jr.
                                   Russell Feingold.
                                   Robert Torricelli.

                     XIII. 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. 353, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matters is printed in italic, and existing law in which no 
change is proposed is shown in roman):

                          UNITED STATES CODE

           *       *       *       *       *       *       *

               TITLE 28--JUDICIARY AND JUDICIAL PROCEDURE

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

                     PART I--ORGANIZATION OF COURTS

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

                     PART IV--JURISDICTION AND VENUE

81. Supreme Court.................................................  1251
     * * * * * * *

                CHAPTER 85--DISTRICT COURTS; JURISDICTION

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

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

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

           *       *       *       *       *       *       *

    (c) For the purposes of this section and section 1441 of 
this title--
          (1) a corporation shall be deemed to be a citizen of 
        any State by which it has been incorporated and of the 
        State where it has its principal place of business, 
        except that in any direct action against the insurer of 
        a policy or contract of liability insurance, whether 
        incorporated or unincorporated, to which action the 
        insured is not joined as a party-defendant, such 
        insurer shall be deemed a citizen of the State of which 
        the insured is 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, the terms ``class'', ``class 
action'', and ``class certification order'' have the meanings 
given such terms under section 1711.
    (2) The district courts shall have original jurisdiction of 
any civil action where the matter in controversy exceeds the 
sum or value of $2,000,000, 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 to 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) Paragraph (2) shall not apply to any civil action in 
which--
          (A)(i) the substantial majority of the members of the 
        proposed plaintiff class and the primary defendants are 
        citizens of the State in which the action was 
        originally filed; and
          (ii) the claims asserted therein will be governed 
        primarily by the laws 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.
    (4) In any class action, the claims of the individual 
members of any class shall be aggregated to determine whether 
the matter in controversy exceeds the sum or value of 
$2,000,000, exclusive of interest and costs.
    (5) This subsection shall apply to any class action before 
or after the entry of a class certification order by the court.
    (6)(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 conditions 
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, but any such filed action may be 
removed 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 subsection 
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 subsection that are subsequently asserted in an individual 
action shall be deemed tolled for the period during which the 
dismissed action was pending.
    (7) Paragraph (2) shall not apply to any class action 
solely involving a claim that relates to--
          (A) 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
          (B) 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).
    (8) 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.
    [(d)] (e) The word ``States'', as used in this section, 
includes the Territories, the District of Columbia, and the 
Commonwealth of Puerto Rico.

           *       *       *       *       *       *       *

     CHAPTER 89--DISTRICT COURTS; REMOVAL OF CASES FROM STATE COURTS

Sec.
1441. Actions removable generally.
     * * * * * * *
1452. Removal of claims related to bankruptcy cases.
1453. Removal of class actions.
     * * * * * * *

Sec. 1446. Procedure for removal

    (a) A defendant * * *
    (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.

           *       *       *       *       *       *       *

Sec. 1452. Removal of claims related to bankruptcy cases

    (a) A party * * *
    (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 
remanding a claim or cause of action, or a decision to not 
remand, is not reviewable by appeal or otherwise by the court 
of appeals under section 158(d), 1291, or 1292 of this title or 
by the Supreme Court of the United States under section 1254 of 
this title.

Sec. 1453. Removal of class actions

    (a) In this section, the terms ``class'', ``class action'', 
and ``class member'' have the meanings given such terms under 
section 1711.
    (b) A class action may be removed to a district court of 
the United States in accordance with this chapter, without 
regard to whether any defendant is a citizen of the State in 
which the action is brought, except that such action may be 
removed--
          (1) by any defendant without the consent of all 
        defendants; or
          (2) by any plaintiff class member who is not a named 
        or representative class member without the consent of 
        all members of such class.
    (c) This section shall apply to any class action before or 
after the entry of any order certifying a class.
    (d) The provisions of 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) This section shall not apply to any class action solely 
involving--
          (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).

           *       *       *       *       *       *       *

                            PART V--PROCEDURE

Chapter                                                          Section
111. General Provisions...........................................  1651
113. Process......................................................  1691
1711lass Actions................................................

           *       *       *       *       *       *       *

                       CHAPTER 114--CLASS ACTIONS

Sec.
1711. Definitions.
1712. Application.
1713. Notification of class action certifications and settlements.

Sec. 1711. Definitions

    In this chapter the term--
          (1) ``class'' means a group of persons that comprise 
        parties to a civil action brought by 1 or more 
        representative persons;
          (2) ``class action'' means a civil action filed 
        pursuant to rule 23 of the Federal Rules of Civil 
        Procedure or similar State statutes or rules of 
        procedure authorizing an action to be brought by 1 or 
        more representative persons on behalf of a class;
          (3) ``class certification order'' means an order 
        issued by a court approving the treatment of a civil 
        action as a class action;
          (4) ``class member'' means a person that falls within 
        the definition of the class;
          (5) ``class counsel'' means the attorneys 
        representing the class in a class action;
          (6) ``plaintiff class action'' means a class action 
        in which class members are plaintiffs; and
          (7) ``proposed settlement'' means a settlement 
        agreement regarding a class action that is subject to 
        court approval and would be binding on the class.

Sec. 1712. Application

    This chapter shall apply to all plaintiff class actions 
filed in or removed to Federal court, except any such class 
action solely involving--
          (1) claims 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) claims that relate 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) claims that relate 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).

Sec. 1713. Notification of class action certifications and settlements

    (a) Not later than 10 days after a proposed settlement in a 
class action is filed in court, class counsel shall serve the 
State attorney general of each State in which a class member 
resides and the Attorney General of the United States as if 
such attorneys general and the Department of Justice were 
parties in the class action with--
          (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 attorney general's respective 
        State and the estimated proportionate claim of such 
        members to the entire settlement; 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 
        attorney general's State and the estimated 
        proportionate claim of such members to the entire 
        settlement; and
          (8) any written judicial opinion relating to the 
        materials described under paragraphs (3) through (6).
    (b) A hearing to consider final approval of a proposed 
settlement may not be held earlier than 120 days after the date 
on which the State attorneys general and the Attorney General 
of the United States are served notice under subsection (a).
    (c) Any court with jurisdiction over a plaintiff class 
action shall require that--
          (1) any written notice provided to the class through 
        the mail or publication in printed media contain a 
        short summary written in plain, easily understood 
        language, describing--
                  (A) the subject matter of the class action;
                  (B) the legal consequences of being a member 
                of the class action;
                  (C) 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
                  (D) any other material matter; and
          (2) any notice provided through television or radio 
        to inform the class members 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--
                  (A) describe the persons who may potentially 
                become class members in the class action; and
                  (B) explain that the failure of a person 
                falling within the definition of the class to 
                exercise such person's right to be excluded 
                from a class action will result in the person's 
                inclusion in the class action.
    (d) Compliance with this section shall not provide immunity 
to any party from any legal action under Federal or State law, 
including actions for malpractice or fraud.
    (e)(1) 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 resides in a State 
where the State attorney general has not been provided notice 
and materials under subsection (a).
    (2) 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) Nothing in this section shall be construed to expand 
the authority of, or impose any obligations, duties, or 
responsibilities upon, State attorneys general or the Attorney 
General of the United States.

           *       *       *       *       *       *       *

                                  
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