105TH CONGRESS

2D SESSION S. 1260

AN ACT

To amend the Securities Act of 1933 and the Securities

Exchange Act of 1934 to limit the conduct of securities

class actions under State law, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Securities Litigation

5 Uniform Standards Act of 1998’’.
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1 SEC. 2. FINDINGS.

2 The Congress finds that—

3 (1) the Private Securities Litigation Reform

4 Act of 1995 sought to prevent abuses in private se5 curities fraud lawsuits;

6 (2) since enactment of that legislation, consid7 erable evidence has been presented to Congress that

8 a number of securities class action lawsuits have

9 shifted from Federal to State courts;

10 (3) this shift has prevented that Act from fully

11 achieving its objectives;

12 (4) State securities regulation is of continuing

13 importance, together with Federal regulation of se14 curities, to protect investors and promote strong fi15 nancial markets; and

16 (5) in order to prevent certain State private se17 curities class action lawsuits alleging fraud from

18 being used to frustrate the objectives of the Private

19 Securities Litigation Reform Act of 1995, it is ap20 propriate to enact national standards for securities

21 class action lawsuits involving nationally traded se22 curities, while preserving the appropriate enforce23 ment powers of State securities regulators and not

24 changing the current treatment of individual law25 suits.
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1 SEC. 3. LIMITATION ON REMEDIES.

2 (a) AMENDMENTS TO THE SECURITIES ACT OF

3 1933.—

4 (1) AMENDMENT.—Section 16 of the Securities

5 Act of 1933 (15 U.S.C. 77p) is amended to read as

6 follows:

7 ‘‘SEC. 16. ADDITIONAL REMEDIES; LIMITATION ON REM8 EDIES.

9 ‘‘(a) REMEDIES ADDITIONAL.—Except as provided in

10 subsection (b), the rights and remedies provided by this

11 title shall be in addition to any and all other rights and

12 remedies that may exist at law or in equity.

13 ‘‘(b) CLASS ACTION LIMITATIONS.—No class action

14 based upon the statutory or common law of any State or

15 subdivision thereof may be maintained in any State or

16 Federal court by any private party alleging—

17 ‘‘(1) an untrue statement or omission of a ma18 terial fact in connection with the purchase or sale of

19 a covered security; or

20 ‘‘(2) that the defendant used or employed any

21 manipulative or deceptive device or contrivance in

22 connection with the purchase or sale of a covered se23 curity.

24 ‘‘(c) REMOVAL OF CLASS ACTIONS.—Any class action

25 brought in any State court involving a covered security,

26 as set forth in subsection (b), shall be removable to the
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1 Federal district court for the district in which the action

2 is pending, and shall be subject to subsection (b).

3 ‘‘(d) PRESERVATION OF CERTAIN ACTIONS.—

4 ‘‘(1) IN GENERAL.—Notwithstanding subsection

5 (b), a class action described in paragraph (2) of this

6 subsection that is based upon the statutory or com7 mon law of the State in which the issuer is incor8 porated (in the case of a corporation) or organized

9 (in the case of any other entity) may be maintained

10 in a State or Federal court by a private party.

11 ‘‘(2) PERMISSIBLE ACTIONS.—A class action is

12 described in this paragraph if it involves—

13 ‘‘(A) the purchase or sale of securities by

14 the issuer or an affiliate of the issuer exclu15 sively from or to holders of equity securities of

16 the issuer; or

17 ‘‘(B) any recommendation, position, or

18 other communication with respect to the sale of

19 securities of the issuer that—

20 ‘‘(i) is made by or on behalf of the

21 issuer or an affiliate of the issuer to hold22 ers of equity securities of the issuer; and

23 ‘‘(ii) concerns decisions of those equity

24 holders with respect to voting their securi25 ties, acting in response to a tender or ex-
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1 change offer, or exercising dissenters’ or

2 appraisal rights.

3 ‘‘(e) PRESERVATION OF STATE JURISDICTION.—The

4 securities commission (or any agency or office performing

5 like functions) of any State shall retain jurisdiction under

6 the laws of such State to investigate and bring enforce7 ment actions.

8 ‘‘(f) STATE ACTIONS.—

9 ‘‘(1) IN GENERAL.—Notwithstanding any other

10 provision of this section, nothing in this section may

11 be construed to preclude a State or political subdivi12 sion thereof or a State pension plan from bringing

13 an action involving a covered security on its own be14 half, or as a member of a class comprised solely of

15 other States, political subdivisions, or State pension

16 plans similarly situated.

17 ‘‘(2) STATE PENSION PLAN DEFINED.—For

18 purposes of this paragraph, the term ‘State pension

19 plan’ means a pension plan established and main20 tained for its employees by the government of the

21 State or political subdivision thereof, or by any

22 agency or instrumentality thereof.

23 ‘‘(g) DEFINITIONS.—For purposes of this section the

24 following definitions shall apply:
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1 ‘‘(1) AFFILIATE OF THE ISSUER.—The term

2 ‘affiliate of the issuer’ means a person that directly

3 or indirectly, through 1 or more intermediaries, con4 trols or is controlled by or is under common control

5 with, the issuer.

6 ‘‘(2) CLASS ACTION.—

7 ‘‘(A) IN GENERAL.—The term ‘class ac8 tion’ means—

9 ‘‘(i) any single lawsuit (other than a

10 derivative action brought by 1 or more

11 shareholders on behalf of a corporation) in

12 which—

13 ‘‘(I) damages are sought on be14 half of more than 50 persons or pro15 spective class members, and questions

16 of law or fact common to those per17 sons or members of the prospective

18 class, without reference to issues of

19 individualized reliance on an alleged

20 misstatement or omission, predomi21 nate over any questions affecting only

22 individual persons or members; or

23 ‘‘(II) 1 or more named parties

24 seek to recover damages on a rep25 resentative basis on behalf of them-
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1 selves and other unnamed parties

2 similarly situated, and questions of

3 law or fact common to those persons

4 or members of the prospective class

5 predominate over any questions af6 fecting only individual persons or

7 members; or

8 ‘‘(ii) any group of lawsuits (other than

9 derivative suits brought by 1 or more

10 shareholders on behalf of a corporation)

11 filed in or pending in the same court and

12 involving common questions of law or fact,

13 in which—

14 ‘‘(I) damages are sought on be15 half of more than 50 persons; and

16 ‘‘(II) the lawsuits are joined, con17 solidated, or otherwise proceed as a

18 single action for any purpose.

19 ‘‘(B) COUNTING OF CERTAIN CLASS MEM20 BERS.—For purposes of this paragraph, a cor21 poration, investment company, pension plan,

22 partnership, or other entity, shall be treated as

23 1 person or prospective class member, but only

24 if the entity is not established for the purpose

25 of participating in the action.
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1 ‘‘(3) COVERED SECURITY.—The term ‘covered

2 security’ means a security that satisfies the stand3 ards for a covered security specified in paragraph

4 (1) or (2) of section 18(b) at the time during which

5 it is alleged that the misrepresentation, omission, or

6 manipulative or deceptive conduct occurred.’’.

7 (2) CONFORMING AMENDMENTS.—Section

8 22(a) of the Securities Act of 1933 (15 U.S.C.

9 77v(a)) is amended—

10 (A) by inserting ‘‘except as provided in

11 section 16 with respect to class actions,’’ after

12 ‘‘Territorial courts,’’; and

13 (B) by striking ‘‘No case’’ and inserting

14 ‘‘Except as provided in section 16(c), no case’’.

15 (b) AMENDMENTS TO THE SECURITIES EXCHANGE

16 ACT OF 1934.—Section 28 of the Securities Exchange Act

17 of 1934 (15 U.S.C. 78bb) is amended—

18 (1) in subsection (a), by striking ‘‘The rights

19 and remedies’’ and inserting ‘‘Except as provided in

20 subsection (f), the rights and remedies’’; and

21 (2) by adding at the end the following new sub22 section:

23 ‘‘(f) LIMITATIONS ON REMEDIES.—

24 ‘‘(1) CLASS ACTION LIMITATIONS.—No class ac25 tion based upon the statutory or common law of any
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1 State or subdivision thereof may be maintained in

2 any State or Federal court by any private party

3 alleging—

4 ‘‘(A) a misrepresentation or omission of a

5 material fact in connection with the purchase or

6 sale of a covered security; or

7 ‘‘(B) that the defendant used or employed

8 any manipulative or deceptive device or contriv9 ance in connection with the purchase or sale of

10 a covered security.

11 ‘‘(2) REMOVAL OF CLASS ACTIONS.—Any class

12 action brought in any State court involving a cov13 ered security, as set forth in paragraph (1), shall be

14 removable to the Federal district court for the dis15 trict in which the action is pending, and shall be

16 subject to paragraph (1).

17 ‘‘(3) PRESERVATION OF CERTAIN ACTIONS.—

18 ‘‘(A) IN GENERAL.—Notwithstanding para19 graph (1), a class action described in subpara20 graph (B) of this paragraph that is based upon

21 the statutory or common law of the State in

22 which the issuer is incorporated (in the case of

23 a corporation) or organized (in the case of any

24 other entity) may be maintained in a State or

25 Federal court by a private party.
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1 ‘‘(B) PERMISSIBLE ACTIONS.—A class ac2 tion is described in this subparagraph if it in3 volves—

4 ‘‘(i) the purchase or sale of securities

5 by the issuer or an affiliate of the issuer

6 exclusively from or to holders of equity se7 curities of the issuer; or

8 ‘‘(ii) any recommendation, position, or

9 other communication with respect to the

10 sale of securities of an issuer that—

11 ‘‘(I) is made by or on behalf of

12 the issuer or an affiliate of the issuer

13 to holders of equity securities of the

14 issuer; and

15 ‘‘(II) concerns decisions of such

16 equity holders with respect to voting

17 their securities, acting in response to

18 a tender or exchange offer, or exercis19 ing dissenters’ or appraisal rights.

20 ‘‘(4) PRESERVATION OF STATE JURISDIC21 TION.—The securities commission (or any agency or

22 office performing like functions) of any State shall

23 retain jurisdiction under the laws of such State to

24 investigate and bring enforcement actions.

25 ‘‘(5) STATE ACTIONS.—
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1 ‘‘(A) IN GENERAL.—Notwithstanding any

2 other provision of this subsection, nothing in

3 this subsection may be construed to preclude a

4 State or political subdivision thereof or a State

5 pension plan from bringing an action involving

6 a covered security on its own behalf, or as a

7 member of a class comprised solely of other

8 States, political subdivisions, or State pension

9 plans similarly situated.

10 ‘‘(B) STATE PENSION PLAN DEFINED.—

11 For purposes of this paragraph, the term ‘State

12 pension plan’ means a pension plan established

13 and maintained for its employees by the govern14 ment of a State or political subdivision thereof,

15 or by any agency or instrumentality thereof.

16 ‘‘(6) DEFINITIONS.—For purposes of this sub17 section the following definitions shall apply:

18 ‘‘(A) AFFILIATE OF THE ISSUER.—The

19 term ‘affiliate of the issuer’ means a person

20 that directly or indirectly, through 1 or more

21 intermediaries, controls or is controlled by or is

22 under common control with, the issuer.

23 ‘‘(B) CLASS ACTION.—The term ‘class ac24 tion’ means—
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1 ‘‘(i) any single lawsuit (other than a

2 derivative action brought by 1 or more

3 shareholders on behalf of a corporation) in

4 which—

5 ‘‘(I) damages are sought on be6 half of more than 50 persons or pro7 spective class members, and questions

8 of law or fact common to those per9 sons or members of the prospective

10 class, without reference to issues of

11 individualized reliance on an alleged

12 misstatement or omission, predomi13 nate over any questions affecting only

14 individual persons or members; or

15 ‘‘(II) 1 or more named parties

16 seek to recover damages on a rep17 resentative basis on behalf of them18 selves and other unnamed parties

19 similarly situated, and questions of

20 law or fact common to those persons

21 or members of the prospective class

22 predominate over any questions af23 fecting only individual persons or

24 members; or
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1 ‘‘(ii) any group of lawsuits (other than

2 derivative suits brought by 1 or more

3 shareholders on behalf of a corporation)

4 filed in or pending in the same court and

5 involving common questions of law or fact,

6 in which—

7 ‘‘(I) damages are sought on be8 half of more than 50 persons; and

9 ‘‘(II) the lawsuits are joined, con10 solidated, or otherwise proceed as a

11 single action for any purpose.

12 ‘‘(C) COUNTING OF CERTAIN CLASS MEM13 BERS.—For purposes of this paragraph, a cor14 poration, investment company, pension plan,

15 partnership, or other entity, shall be treated as

16 1 person or prospective class member, but only

17 if the entity is not established for the purpose

18 of participating in the action.

19 ‘‘(D) COVERED SECURITY.—The term ‘cov20 ered security’ means a security that satisfies

21 the standards for a covered security specified in

22 paragraph (1) or (2) of section 18(b) of the Se23 curities Act of 1933, at the time during which

24 it is alleged that the misrepresentation, omis-
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1 sion, or manipulative or deceptive conduct oc2 curred.’’.

3 SEC. 4. APPLICABILITY.

4 The amendments made by this Act shall not affect

5 or apply to any action commenced before and pending on

6 the date of enactment of this Act.

Passed the Senate May 13, 1998.

Attest:

Secretary.
105TH CONGRESS

2D SESSION S. 1260

AN ACT

To amend the Securities Act of 1933 and the Secufor other purposes. of securities class actions under State law, and rities Exchange Act of 1934 to limit the conduct