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[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[H.R. 516 Introduced in House (IH)]

109th CONGRESS
  1st Session
                                H. R. 516

To amend the procedures that apply to consideration of interstate class 
actions to assure fairer outcomes for class members and defendants, to 
outlaw certain practices that provide inadequate settlements for class 
  members, to assure that attorneys do not receive a disproportionate 
amount of settlements at the expense of class members, to assure prompt 
 consideration of interstate class actions, to amend title 28, United 
  States Code, to allow the application of the principles of Federal 
   diversity jurisdiction to interstate class actions, and for other 
                               purposes.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                            February 2, 2005

 Mr. Goodlatte (for himself, Mr. Boucher, Mr. Sensenbrenner, Mr. Smith 
  of Texas, Mr. DeLay, Mr. Blunt, Mr. Cantor, Ms. Pryce of Ohio, Mr. 
Dreier, Mr. Manzullo, Mr. Kingston, Mr. Feeney, Mr. Coble, Mr. Chabot, 
     Mr. Forbes, Mr. Pence, Mr. Issa, Mr. Keller, Mr. Bachus, Mr. 
  Hostettler, Mr. Gallegly, Mr. Daniel E. Lungren of California, Mr. 
  Flake, Mr. Bradley of New Hampshire, Mr. Carter, Mr. Sessions, Mr. 
 Rogers of Michigan, Mr. Kuhl of New York, Ms. Hart, Mr. Norwood, Mr. 
  Pearce, Mr. Gilchrest, Mr. Chocola, Mr. Hensarling, Mr. Baker, Mrs. 
 Biggert, Mr. Kennedy of Minnesota, Mr. Burgess, Mr. Gingrey, Mr. Cox, 
    Mr. Dent, Mr. Wicker, Mr. Cannon, Mr. Cunningham, Mr. Miller of 
Florida, Mr. Fitzpatrick of Pennsylvania, Mr. McCrery, Mr. Stearns, Ms. 
Foxx, Mr. Conaway, Mr. Moran of Virginia, Mr. Matheson, Mr. Holden, Mr. 
  Boyd, Mr. Tanner, Mr. Cooper, Mr. Cramer, Mr. Scott of Georgia, Mr. 
   Davis of Tennessee, Mr. Moore of Kansas, Ms. Ginny Brown-Waite of 
   Florida, and Mr. Boren) introduced the following bill; which was 
               referred to the Committee on the Judiciary

_______________________________________________________________________

                                 A BILL

 
To amend the procedures that apply to consideration of interstate class 
actions to assure fairer outcomes for class members and defendants, to 
outlaw certain practices that provide inadequate settlements for class 
  members, to assure that attorneys do not receive a disproportionate 
amount of settlements at the expense of class members, to assure prompt 
 consideration of interstate class actions, to amend title 28, United 
  States Code, to allow the application of the principles of Federal 
   diversity jurisdiction to interstate class actions, and for other 
                               purposes.

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

SECTION 1. SHORT TITLE; REFERENCE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Class Action 
Fairness Act of 2005''.
    (b) Reference.--Whenever in this Act reference is made to an 
amendment to, or repeal of, a section or other provision, the reference 
shall be considered to be made to a section or other provision of title 
28, United States Code.
    (c) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; reference; table of contents.
Sec. 2. Findings and purposes.
Sec. 3. Consumer class action bill of rights and improved procedures 
                            for interstate class actions.
Sec. 4. Federal district court jurisdiction of interstate class 
                            actions.
Sec. 5. Removal of interstate class actions to Federal district court.
Sec. 6. Appeals of class action certification orders.
Sec. 7. Effective date.

SEC. 2. FINDINGS AND PURPOSES.

    (a) Findings.--The Congress finds as follows:
            (1) Class action lawsuits are an important and valuable 
        part of our legal system when they permit the fair and 
        efficient resolution of legitimate claims of numerous parties 
        by allowing the claims to be aggregated into a single action 
        against a defendant that has allegedly caused harm.
            (2) For many years there have been abuses of the class 
        action device that have--
                    (A) harmed class members with legitimate claims and 
                defendants that have acted responsibly;
                    (B) adversely affected interstate commerce; and
                    (C) undermined public respect for the judicial 
                system in the United States.
            (3) Class members have been harmed by a number of actions 
        taken by plaintiffs' lawyers, which provide little or no 
        benefit to class members as a whole, including--
                    (A) plaintiffs' lawyers receiving large fees, while 
                class members are left with coupons or other awards of 
                little or no value; and
                    (B) unjustified rewards being made to certain 
                plaintiffs at the expense of other class members.
            (4) Through the use of artful pleading, plaintiffs are able 
        to avoid litigating class actions in Federal court, forcing 
        businesses and other organizations to defend interstate class 
        action lawsuits in county and State courts where--
                    (A) the lawyers, rather than the claimants, are 
                likely to receive the maximum benefit;
                    (B) less scrutiny may be given to the merits of the 
                case; and
                    (C) defendants are effectively forced into 
                settlements, in order to avoid the possibility of huge 
                judgments that could destabilize their companies.
            (5) These abuses undermine the Federal judicial system, the 
        free flow of interstate commerce, and the intent of the framers 
        of the Constitution in creating diversity jurisdiction, in that 
        county and State courts are--
                    (A) handling interstate class actions that affect 
                parties from many States;
                    (B) sometimes acting in ways that demonstrate bias 
                against out-of-State defendants; and
                    (C) making judgments that impose their view of the 
                law on other States and bind the rights of the 
                residents of those States.
            (6) Abusive interstate class actions have harmed society as 
        a whole by forcing innocent parties to settle cases rather than 
        risk a huge judgment by a local jury, thereby costing consumers 
        billions of dollars in increased costs to pay for forced 
        settlements and excessive judgments.
    (b) Purposes.--The purposes of this Act are--
            (1) to assure fair and prompt recoveries for class members 
        with legitimate claims;
            (2) to protect responsible companies and other institutions 
        against interstate class actions in State courts;
            (3) to restore the intent of the framers of the 
        Constitution by providing for Federal court consideration of 
        interstate class actions; and
            (4) to benefit society by encouraging innovation and 
        lowering consumer prices.

SEC. 3. CONSUMER CLASS ACTION BILL OF RIGHTS AND IMPROVED PROCEDURES 
              FOR INTERSTATE CLASS ACTIONS.

    (a) In General.--Part V is amended by inserting after chapter 113 
the following:

                      ``CHAPTER 114--CLASS ACTIONS

``Sec.
``1711. Judicial scrutiny of coupon and other noncash settlements.
``1712. Protection against loss by class members.
``1713. Protection against discrimination based on geographic location.
``1714. Prohibition on the payment of bounties.
``1715. Definitions.
``Sec. 1711. Judicial scrutiny of coupon and other noncash settlements
    ``The court may approve a proposed settlement under which the class 
members would receive noncash benefits or would otherwise be required 
to expend funds in order to obtain part or all of the proposed benefits 
only after a hearing to determine whether, and making a written finding 
that, the settlement is fair, reasonable, and adequate for class 
members.
``Sec. 1712. Protection against loss by class members
    ``The court may approve a proposed settlement under which any class 
member is obligated to pay sums to class counsel that would result in a 
net loss to the class member only if the court makes a written finding 
that nonmonetary benefits to the class member outweigh the monetary 
loss.
``Sec. 1713. Protection against discrimination based on geographic 
              location
    ``The court may not approve a proposed settlement that provides for 
the payment of greater sums to some class members than to others solely 
on the basis that the class members to whom the greater sums are to be 
paid are located in closer geographic proximity to the court.
``Sec. 1714. Prohibition on the payment of bounties
    ``(a) In General.--The court may not approve a proposed settlement 
that provides for the payment of a greater share of the award to a 
class representative serving on behalf of a class, on the basis of the 
formula for distribution to all other class members, than that awarded 
to the other class members.
    ``(b) Rule of Construction.--The limitation in subsection (a) shall 
not be construed to prohibit any payment approved by the court for 
reasonable time or costs that a person was required to expend in 
fulfilling his or her obligations as a class representative.
``Sec. 1715. Definitions
    ``In this chapter:
            ``(1) Class action.--The term `class action' means--
                    ``(A) any civil action filed in a district court of 
                the United States pursuant to rule 23 of the Federal 
                Rules of Civil Procedure; or
                    ``(B) any civil action that is removed to a 
                district court of the United States and that was 
                originally filed pursuant to a State statute or rule of 
                judicial procedure authorizing an action to be brought 
                by one or more representatives on behalf of a class.
            ``(2) Class counsel.--The term `class counsel' means the 
        persons who serve as the attorneys for the class members in a 
        proposed or certified class action.
            ``(3) Class member.--The term `class member' means any of 
        the persons who fall within the definition of the proposed or 
        certified class in a class action.
            ``(4) Proposed settlement.--The term `proposed settlement' 
        means an agreement that resolves claims in a class action, that 
        is subject to court approval, and that, if approved, would be 
        binding on the class members.''.
    (b) Technical and Conforming Amendment.--The table of chapters for 
part V is amended by inserting after the item relating to chapter 113 
the following:

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

SEC. 4. FEDERAL DISTRICT COURT JURISDICTION OF INTERSTATE CLASS 
              ACTIONS.

    (a) Application of Federal Diversity Jurisdiction.--Section 1332 is 
amended--
            (1) by redesignating subsection (d) as subsection (e); and
            (2) by inserting after subsection (c) the following:
    ``(d)(1) In this subsection--
            ``(A) the term `class' means all of the class members in a 
        class action;
            ``(B) the term `class action' means any civil action filed 
        pursuant to rule 23 of the Federal Rules of Civil Procedure or 
        similar State statute or rule of judicial procedure authorizing 
        an action to be brought by one or more representative persons 
        on behalf of a class;
            ``(C) the term `class certification order' means an order 
        issued by a court approving the treatment of a civil action as 
        a class action; and
            ``(D) the term `class member' means any of the persons who 
        fall within the definition of the proposed or certified class 
        in a class action.
    ``(2) The district courts shall have original jurisdiction of any 
civil action in which the matter in controversy exceeds the sum or 
value of $5,000,000, exclusive of interest and costs, and is a class 
action in which--
            ``(A) any member of a class of plaintiffs is a citizen of a 
        State different from any defendant;
            ``(B) any member of a class of plaintiffs is a foreign 
        state or a citizen or subject of a foreign state and any 
        defendant is a citizen of a State; or
            ``(C) any member of a class of plaintiffs is a citizen of a 
        State and any defendant is a foreign state or a citizen or 
        subject of a foreign state.
    ``(3) A district court may, in the interests of justice, decline to 
exercise jurisdiction under paragraph (2) over a class action in which 
greater than one-third but less than two-thirds of the members of all 
proposed plaintiff classes in the aggregate and the primary defendants 
are citizens of the State in which the action was originally filed 
based on consideration of the following factors:
            ``(A) Whether the claims asserted involve matters of 
        national or interstate interest.
            ``(B) Whether the claims asserted will be governed by laws 
        other than those of the State in which the action was 
        originally filed.
            ``(C) In the case of a class action originally filed in a 
        State court, whether the class action has been pleaded in a 
        manner that seeks to avoid Federal jurisdiction.
            ``(D) Whether the number of citizens of the State in which 
        the action was originally filed in all proposed plaintiff 
        classes in the aggregate is substantially larger than the 
        number of citizens from any other State, and the citizenship of 
        the other members of the proposed class is dispersed among a 
        substantial number of States.
            ``(E) Whether 1 or more class actions asserting the same or 
        similar claims on behalf of the same or other persons have been 
        or may be filed.
    ``(4) Paragraph (2) shall not apply to any class action in which--
            ``(A) two-thirds or more of the members of all proposed 
        plaintiff classes in the aggregate and the primary defendants 
        are citizens of the State in which the action was originally 
        filed;
            ``(B) the primary defendants are States, State officials, 
        or other governmental entities against whom the district court 
        may be foreclosed from ordering relief; or
            ``(C) the number of members of all proposed plaintiff 
        classes in the aggregate is less than 100.
    ``(5) In any class action, the claims of the individual class 
members shall be aggregated to determine whether the matter in 
controversy exceeds the sum or value of $5,000,000, exclusive of 
interest and costs.
    ``(6) This subsection shall apply to any class action before or 
after the entry of a class certification order by the court with 
respect to that action.
    ``(7)(A) A district court shall dismiss any civil action that is 
subject to the jurisdiction of the court solely under this subsection 
if the court determines that the action may not proceed as a class 
action based on a failure to satisfy the requirements of rule 23 of the 
Federal Rules of Civil Procedure.
    ``(B) Nothing in subparagraph (A) shall prohibit plaintiffs from 
filing an amended class action in Federal court or filing an action in 
State court, except that any such action filed in State court may be 
removed to the appropriate district court if it is an action of which 
the district courts of the United States have original jurisdiction.
    ``(C) In any action that is dismissed under this paragraph and is 
filed by any of the original named plaintiffs therein in the same State 
court venue in which the dismissed action was originally filed, the 
limitations periods on all reasserted claims shall be deemed tolled for 
the period during which the dismissed class action was pending. The 
limitations periods on any claims that were asserted in a class action 
dismissed under this paragraph that are subsequently asserted in an 
individual action shall be deemed tolled for the period during which 
the dismissed action was pending.
    ``(8) Paragraph (2) shall not apply to any class action brought by 
shareholders that solely involves a claim that relates to--
            ``(A) 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;
            ``(B) 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
            ``(C) 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).
    ``(9) For purposes of this subsection and section 1453 of this 
title, an unincorporated association shall be deemed to be a citizen of 
the State where it has its principal place of business and the State 
under whose laws it is organized.
    ``(10) For purposes of this section and section 1453 of this title, 
a civil action that is not otherwise a class action as defined in 
paragraph (1)(B) of this subsection shall nevertheless be deemed a 
class action if--
            ``(A) the named plaintiff purports to act for the interests 
        of its members (who are not named parties to the action) or for 
        the interests of the general public, seeks a remedy of damages, 
        restitution, disgorgement, or any other form of monetary 
        relief, and is not a State attorney general; or
            ``(B) monetary relief claims in the action are proposed to 
        be tried jointly in any respect with the claims of 100 or more 
        other persons on the ground that the claims involve common 
        questions of law or fact.
In any such case, the persons who allegedly were injured shall be 
treated as members of a proposed plaintiff class and the monetary 
relief that is sought shall be treated as the claims of individual 
class members. The provisions of paragraph (7) of this subsection and 
subsections (b)(2) and (d) of section 1453 shall not apply to civil 
actions described under subparagraph (A). The provisions of paragraph 
(7) of this subsection, and subsections (b)(2) and (d) of section 1453 
shall not apply to civil actions described under subparagraph (B).''.
    (b) Conforming Amendments.--
            (1) Section 1335(a)(1) is amended by inserting ``(a) or 
        (d)'' after ``1332''.
            (2) Section 1603(b)(3) is amended by striking ``(d)'' and 
        inserting ``(e)''.

SEC. 5. REMOVAL OF INTERSTATE CLASS ACTIONS TO FEDERAL DISTRICT COURT.

    (a) In General.--Chapter 89 is amended by adding after section 1452 
the following:
``Sec. 1453. Removal of class actions
    ``(a) Definitions.--In this section, the terms `class', `class 
action', `class certification order', and `class member' have the 
meanings given these terms in section 1332(d)(1).
    ``(b) In General.--A class action may be removed to a district 
court of the United States in accordance with this chapter, without 
regard to whether any defendant is a citizen of the State in which the 
action is brought, except that such action may be removed--
            ``(1) by any defendant without the consent of all 
        defendants; or
            ``(2) by any plaintiff class member who is not a named or 
        representative class member without the consent of all members 
        of such class.
    ``(c) When Removable.--This section shall apply to any class action 
before or after the entry of a class certification order in the action, 
except that a plaintiff class member who is not a named or 
representative class member of the action may not seek removal of the 
action before an order certifying a class of which the plaintiff is a 
class member has been entered.
    ``(d) Procedure for Removal.--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) Review of Orders Remanding Class Actions to State Courts.--
The provisions of section 1447 shall apply to any removal of a case 
under this section, except that, notwithstanding the provisions of 
section 1447(d), an order remanding a class action to the State court 
from which it was removed shall be reviewable by appeal or otherwise.
    ``(f) Exception.--This section shall not apply to any class action 
brought by shareholders that solely involves--
            ``(1) a claim concerning a covered security as defined 
        under section 16(f)(3) of the Securities Act of 1933 and 
        section 28(f)(5)(E) of the Securities Exchange Act of 1934;
            ``(2) a claim that relates to the internal affairs or 
        governance of a corporation or other form of business 
        enterprise and arises under or by virtue of the laws of the 
        State in which such corporation or business enterprise is 
        incorporated or organized; or
            ``(3) a claim that relates to the rights, duties (including 
        fiduciary duties), and obligations relating to or created by or 
        pursuant to any security (as defined under section 2(a)(1) of 
        the Securities Act of 1933 and the regulations issued 
        thereunder).''.
    (b) Removal Limitation.--Section 1446(b) is amended in the second 
sentence by inserting ``(a)'' after ``section 1332''.
    (c) Technical and Conforming Amendments.--The table of sections for 
chapter 89 is amended by adding after the item relating to section 1452 
the following:

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

SEC. 6. APPEALS OF CLASS ACTION CERTIFICATION ORDERS.

    (a) In General.--Section 1292(a) is amended by inserting after 
paragraph (3) the following:
            ``(4) Orders of the district courts of the United States 
        granting or denying class certification under rule 23 of the 
        Federal Rules of Civil Procedure, if notice of appeal is filed 
        within 10 days after entry of the order.''.
    (b) Discovery Stay.--All discovery and other proceedings shall be 
stayed during the pendency of any appeal taken pursuant to the 
amendment made by subsection (a), unless the court finds upon the 
motion of any party that specific discovery is necessary to preserve 
evidence or to prevent undue prejudice to that party.

SEC. 7. EFFECTIVE DATE.

    (a) In General.--The amendments made by this Act shall apply to--
            (1) any civil action commenced on or after the date of the 
        enactment of this Act; and
            (2) any civil action commenced before such date of 
        enactment in which a class certification order (as defined in 
        section 1332(d)(1)(C) of title 28, United States Code, as 
        amended by section 4 of this Act) is entered on or after such 
        date of enactment.
    (b) Filing of Notice of Removal.--In the case of any civil action 
to which subsection (a)(2) applies, the requirement relating to the 30-
day period for the filing of a notice of removal under section 1446(b) 
and section 1453(d) of title 28, United States Code, shall be met if 
the notice of removal is filed within 30 days after the date on which 
the class certification order referred to in subsection (a)(2) is 
entered.
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