I
104TH CONGRESS
1ST SESSION
H. R. 10
To reform the Federal civil justice system; to reform product liability law.
IN THE HOUSE OF REPRESENTATIVES
JANUARY 4, 1995
Mr. HYDE, Mr. RAMSTAD, Mrs. CHENOWETH, and Mr. CONDIT (for them-
selves, Mr. ARMEY, Mr. ALLARD, Mr. BACHUS, Mr. BAKER of California,
Mr. BAKER of Louisiana, Mr. BALLENGER, Mr. BARTLETT of Maryland,
Mr. BARTON of Texas, Mr. BILIRAKIS, Mr. BLILEY, Mr. BLUTE, Mr.
BONO, Mr. BUNNING of Kentucky, Mr. BURR, Mr. BURTON of Indiana,
Mr. CALLAHAN, Mr. CALVERT, Mr. CAMP, Mr. CANADY, Mr.
CHRISTENSEN, Mr. CHRYSLER, Mr. CLINGER, Mr. COBURN, Mr.
COOLEY, Mr. COX, Mr. CRANE, Mrs. CUBIN, Mr. CUNNINGHAM, Mr.
DAVIS, Mr. DOOLITTLE, Mr. DORNAN, Ms. DUNN, Mr. EMERSON, Mr.
ENSIGN, Mr. EVERETT, Mr. EWING, Mr. FOLEY, Mr. FORBES, Mrs.
FOWLER, Mr. FOX, Mr. FRISA, Mr. GANSKE, Mr. GILCHREST, Mr. GIL-
MAN, Mr. GOODLATTE, Mr. GOODLING, Mr. GUNDERSON, Mr. HANCOCK,
Mr. HASTERT, Mr. HASTINGS of Washington, Mr. HAYWORTH, Mr.
HEINEMAN, 
Mr. 
HERGER, 
Mr. 
HILLEARY, 
Mr. 
HOBSON, 
Mr.
HOSTETTLER, Mr. HOUGHTON, Mr. INGLIS of South Carolina, Mrs.
JOHNSON of Connecticut, Mr. JONES, Mr. KIM, Mr. KNOLLENBERG, Mr.
LAHOOD, Mr. LARGENT, Mr. LATOURETTE, Mr. LEWIS of Kentucky, Mr.
LIGHTFOOT, Mr. LINDER, Mr. MCCOLLUM, Mr. MCHUGH, Mr.
MCINTOSH, Mr. MICA, Mr. MILLER of Florida, Ms. MOLLINARI, Mrs.
MYRICK, Mr. NUSSLE, Mr. PACKARD, Mr. PORTER, Mr. PORTMAN, Mr.
RADANOVICH, Mr. RIGGS, Mr. ROHRABACHER, Mr. ROTH, Mr. ROYCE,
Mr. SANFORD, Mr. SCHAEFER, Mr. SENSENBRENNER, Mr. SHADEGG,
Mr. SHAW, Mr. SHAYS of Connecticut, Mr. SMITH of Texas, Mr. SMITH
of New Jersey, Mr. SMITH of Michigan, Mr. SOLOMON, Mr. STEARNS,
Mr. STOCKMAN, Mr. STUMP, Mr. TALENT, Mr. TATE, Mr. TAYLOR of
North Carolina, Mr. TEJEDA, Mr. THORNBERRY, Mr. TIAHRT, Mr.
UPTON, Mrs. WALDHOLTZ, Mr. WAMP, Mr. WELDON of Florida, Mr.
ZIMMER, Mr. CRAPO, Mr. KOLBE, Mr. PAXON, Mr. YOUNG of Florida,
Mr. COMBEST, Mr. EHRLICH, and Mrs. MEYERS of Kansas) introduced
the following bill; which was referred as follows:
Title I, referred to the Committee on the Judiciary, and in addition to the
Committee on Rules, for a period to be subsequently determined by the
Speaker, in each case for consideration of such provisions as fall within
the jurisdiction of the committee concerned
Title II, referred to the Committee on Commerce, and in addition to the Com-
mittee on the Judiciary, for a period to be subsequently determined by
the Speaker, in each case for consideration of such provisions as fall with-
in the jurisdiction of the committee concerned
JANUARY 19, 1995
Additional sponsors: Mr. SCHIFF, Mr. MOORHEAD, Mr. CREMEANS, Mr. NOR-
WOOD, Mr. BONILLA, Mr. HUNTER, Mrs. VUCANOVICH, Mr. WALKER,
Ms. EDDIE BERNICE JOHNSON of Texas, Mrs. SEASTRAND, and Mr.
COLLINS of Georgia
FEBRUARY 10, 1995
Additional sponsors: Mr. LONGLEY, Mr. ROBERTS, Mr. POMBO, Mr. SALMON,
and Mr. GALLEGLY
A BILL
To reform the Federal civil justice system; to reform product
liability law.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Common Sense Legal
Reforms Act of 1995’’.
TITLE I—CIVIL JUSTICE
REFORM
SEC. 101. AWARD OF ATTORNEY’S FEE TO PREVAILING
PARTY IN FEDERAL CIVIL DIVERSITY LITIGA-
TION.
(a) AWARD OF ATTORNEY’S FEE.—Section 1332 of
title 28, United States Code, is amended by adding at the
end the following:
‘‘(e)(1) The district court that exercises jurisdiction
in a civil action commenced under this section shall award
to the party that prevails with respect to a claim in such
action an attorney’s fee determined in accordance with
paragraph (2).
‘‘(2) An attorney’s fee awarded under paragraph (1)
shall be a reasonable attorney’s fee attributable to such
claim, except that the fee awarded under such paragraph
may not exceed—
‘‘(A) 
the 
actual 
cost 
incurred 
by 
the
nonprevailing party for an attorney’s fee payable to
an attorney for services in connection with such
claim; or
‘‘(B) if no such cost was incurred by the
nonprevailing party due to a contingency fee agree-
ment, a reasonable cost that would have been in-
curred by the nonprevailing party for an attorney’s
noncontingent fee payable to an attorney for services
in connection with such claim.
‘‘(3) Notwithstanding paragraphs (1) and (2), the
court in its discretion may refuse to award, or may reduce
the amount awarded as, an attorney’s fee under paragraph
(1) to the extent that the court finds special circumstances
that make an award of an attorney’s fee determined in
accordance with such subparagraph unjust.’’.
SEC. 102. HONESTY IN EVIDENCE.
(a) OPINION TESTIMONY BY EXPERTS.—Rule 702 of
the Federal Rules of Evidence is amended—
(1) by inserting ‘‘(a) In general.’’ before
‘‘If’’, and
(2) by adding at the end the following:
‘‘(b) Adequate basis for opinion. Testimony in
the form of an opinion by a witness that is based on sci-
entific knowledge shall be inadmissible in evidence unless
the court determines that such opinion is—
‘‘(1) based on scientifically valid reasoning; and
‘‘(2) sufficiently reliable so that the probative
value of such evidence outweighs the dangers speci-
fied in rule 403.
‘‘(c) Disqualification. Testimony by a witness
who is qualified as described in subsection (a) is inadmis-
sible in evidence if such witness is entitled to receive any
compensation contingent on the legal disposition of any
claim with respect to which such testimony is offered.’’.
SEC. 103. PRODUCT LIABILITY REFORM.
(a) APPLICABILITY AND PREEMPTION.—This section
governs any product liability action brought in any State
or Federal Court against any manufacturer or seller of
a product on any theory for harm caused by the product.
This section supersedes State law only to the extent that
State law applies to an issue covered by this section. Any
issue that is not covered by this section shall be governed
by otherwise applicable State or Federal law.
(b) LIABILITY RULES APPLICABLE
TO PRODUCT
SELLERS.—
(1) GENERAL
RULE.—Except as provided in
paragraph 2, in a product liability action, a product
seller shall be liable to a claimant for harm only if
the claimant establishes that—
(A)(i) the product which allegedly caused
the harm complained of was sold by the product
seller,
(ii) the product seller failed to exercise rea-
sonable care with respect to the product, and
(iii) such failure to exercise reasonable care
was a proximate cause of the claimant’s harm,
(B)(i) the product seller made an express
warranty applicable to the product which alleg-
edly caused the harm complained of, independ-
ent of any express warranty made by the manu-
facturer as to the same product,
(ii) the product failed to conform to the
warranty, and
(iii) the failure of the product to conform
to the warranty caused the claimant’s harm, or
(C) the product seller engaged in inten-
tional wrongdoing as determined under applica-
ble State law and such intentional wrongdoing
was a proximate cause of the harm complained
of by the claimant.
For purposes of subparagraph (A)(ii), a product sell-
er shall not be considered to have failed to exercise
reasonable care with respect to a product based
upon an alleged failure to inspect a product where
there was no reasonable opportunity to inspect the
product in a manner which would, in the exercise of
reasonable care, have revealed the aspect of the
product which allegedly caused the claimant’s harm.
(2) SPECIAL RULE.—In a product liability ac-
tion, a product seller shall be liable for harm to the
claimant caused by such product as if the product
seller were the manufacturer of such product if—
(A) the manufacturer is not subject to
service of process under the laws of the State
in which the claimant brings the action, or
(B) the court determines that the claimant
would be unable to enforce a judgment against
the manufacturer.
(c) LIMITATIONS ON PUNITIVE DAMAGES.—
(1) GENERAL LIMITATION.—Punitive damages
may, to the extent permitted by applicable State law,
be awarded against a manufacturer or product seller
in a product liability action if the claimant estab-
lishes by clear and convincing evidence that the
harm suffered was the result of conduct manifesting
actual malice.
(2) LIMITATION ON AMOUNT.—The amount of
punitive damages that may be awarded for a claim
in any civil action subject to this section shall not
exceed 3 times the amount awarded to the claimant
for the economic injury on which such claim is
based, or $250,000, whichever is greater.
(d) SEVERAL LIABILITY FOR NONECONOMIC DAM-
AGES.—In any product liability action, the liability of each
manufacturer or seller of the product involved in such ac-
tion shall be several only and shall not be joint for non-
economic damages. Such manufacturer or seller shall be
liable only for the amount of noneconomic damages allo-
cated to such manufacturer or seller in direct proportion
to such manufacturer’s or such seller’s percentage of re-
sponsibility as determined by the trier of fact.
(e) DEFINITIONS.—For purposes of this section—
(1) the term ‘‘claimant’’ means any person who
brings a product liability action and any person on
whose behalf such an action is brought, including
such person’s decedent if such an action is brought
through or on behalf of an estate or such person’s
legal representative if it is brought through or on be-
half of a minor or incompetent,
(2) the term ‘‘malice’’ means conduct that is
either—
(A) specifically intended to cause serious
personal injury, or
(B) carried out with both a flagrant indif-
ference to the rights of the claimant and an
awareness that such conduct is likely to result
in serious personal injury,
(3) with respect to a product, the term ‘‘manu-
facturer’’ means—
(A) any person who is engaged in a busi-
ness to produce, create, make, or construct the
product and who designs or formulates the
product or has engaged another person to de-
sign or formulate the product,
(B) a product seller of the product who,
before placing the product in the stream of
commerce—
(i) designs or formulates or has en-
gaged another person to design or formu-
late an aspect of the product after the
product was initially made by another, and
(ii) produces, creates, makes, or con-
structs such aspect of the product, or
(C) any product seller not described in
subparagraph (B) which holds itself out as a
manufacturer to the user of the product,
(4) the term ‘‘product’’—
(A) means any object, substance, mixture,
or raw material in a gaseous, liquid, or solid
state—
(i) which is capable of delivery itself,
in a mixed or combined state, or as a com-
ponent part or ingredient,
(ii) which is produced for introduction
into trade or commerce,
(iii) which has intrinsic economic
value, and
(iv) which is intended for sale or lease
to persons for commercial or personal use,
and
(B) does not include—
(i) human tissue, human organs,
human blood, and human blood products,
or
(ii) electricity, water delivered by a
utility, natural gas, or steam,
(5) the term ‘‘product seller’’—
(A) means a person—
(i) who sells, distributes, leases, pre-
pares, blends, packages, or labels a product
or is otherwise involved in placing a prod-
uct in the stream of commerce, or
(ii) who installs, repairs, or maintains
the harm-causing aspect of a product, and
(B) does not include—
(i) a manufacturer,
(ii) a seller or lessor of real property,
(iii) a provider of professional services
in any case in which the sale or use of a
product is incidental to the transaction and
the essence of the transaction is the fur-
nishing of judgment, skill, or services,
(iv) any person who acts only in a fi-
nancial capacity with respect to the sale of
a product, or
(v) any person who leases a product
under a lease arrangement in which the se-
lection, possession, maintenance, and oper-
ation of the product are controlled by a
person other than the lessor,
(6) the term ‘punitive damages’ means damages
in addition to compensation for actual injury suf-
fered, for purposes of imposing punishment for con-
duct engaged in with malice and to deter similar fu-
ture conduct, but such term does not include com-
pensation for actual injury, and
(7) the term ‘‘State’’ means any State of the
United States, the District of Columbia, the Com-
monwealth of Puerto Rico, the Virgin Islands,
Guam, American Samoa, the Northern Mariana Is-
lands, the Trust Territory of the Pacific Islands, and
any other territory or possession of the United
States, or any political subdivision thereof.
SEC. 104. ATTORNEY ACCOUNTABILITY.
(a) TRUTH IN ATTORNEYS’ FEES.—It is the sense
of the Congress that each State should require, under pen-
alty of law, each attorney admitted to practice law in such
State to disclose in writing, to any client with whom such
attorney has entered into a contingency fee agreement—
(1) the actual services performed for such client
in connection with such agreement, and
(2) the precise number of hours actually ex-
pended by such attorney in the performance of such
services.
(b) AMENDMENT TO THE FEDERAL RULES OF CIVIL
PROCEDURE.—Rule 11(c) of the Federal Rules of Civil
Procedure (28 U.S.C. App.) is amended—
(1) in the matter preceding subdivision (1) by
striking ‘‘may’’ and inserting ‘‘shall’’;
(2) in the penultimate sentence of subdivision
(1)(A) by striking ‘‘may’’ and inserting ‘‘shall’’; and
(3) in subdivision (2)—
(A) by amending the first sentence to read
as follows: ‘‘A sanction imposed for a violation
of this rule shall be sufficient to deter repetition
of such conduct or comparable conduct by oth-
ers similarly situated, and to compensate the
parties that were injured by such conduct.’’;
and
(B) in the second sentence by striking ‘‘,
if imposed on motion and warranted for effec-
tive deterrence,’’.
SEC. 105. NOTICE REQUIRED BEFORE COMMENCEMENT OF
CIVIL ACTION.
Chapter 99 of title 28, United States Code is amend-
ed by adding at the end the following:
§ 1632. Notice required before commencement of civil
action
‘‘(a) DISMISSAL OF CIVIL ACTION.—Except as pro-
vided in subsection (c), the district court in which a civil
action is commenced shall dismiss such action with respect
to a defendant, without prejudice, if—
‘‘(1) not later than 60 days after such action is
commenced, the defendant files a motion to dismiss
such action on the basis that the plaintiff failed to
comply with the requirement specified in subsection
(b); and
‘‘(2) the plaintiff fails to establish that before
commencing such action the plaintiff complied with
such requirement.
‘‘(b) REQUIREMENT.—Not less than 30 days before
commencing a civil action in a district court of the United
States, the plaintiff shall transmit (by 1st class mail, post-
age prepaid, or contract for delivery by any company that
in its regular course of business physically delivers cor-
respondence as a commercial service to the public) to the
defendant (at an address reasonably calculated to provide
actual notice to such defendant) a written statement speci-
fying the particular claims alleged in such action and the
amount of damages claimed in such action.
‘‘(c) EXCEPTIONS.—Subsection (a) shall not apply
with respect to any civil action—
‘‘(1) to seize or forfeit assets subject to forfeit-
ure;
‘‘(2) commenced under title 11 of the United
States Code;
‘‘(3) commenced to establish a receivership or
conservatorship;
‘‘(4) based on the insolvency of the defendant,
or the need to liquidate assets of the defendant to
satisfy any requirement under Federal law;
‘‘(5) if assets that are subject to such action or
that would satisfy a judgment in such action are
likely to be removed, dissipated, or destroyed by the
defendant;
‘‘(6) if the defendant is likely to flee;
‘‘(7) if prior written notice of the filing of such
action is required by any other law;
‘‘(8) to enforce a civil investigative demand or
an administrative summons;
‘‘(9) if such action is—
‘‘(A) to foreclose a lien;
‘‘(B) to obtain a temporary restraining
order or preliminary injunction; or
‘‘(C) to prevent the fraudulent conveyance
of property; or
‘‘(10) if such action involves exigent cir-
cumstances that compel immediate resort to the
court.
‘‘(d) STATUTE OF LIMITATIONS.—
‘‘(1) SUSPENSION BEFORE COMMENCEMENT OF
ACTION.—If the statute of limitations applicable to
a claim would expire in the 30-day period beginning
on the date the plaintiff transmits the notice re-
quired by subsection (b), such statute shall be sus-
pended—
‘‘(A) during such 30-day period; or
‘‘(B) during the 90-day period beginning
on the date the plaintiff so transmits such no-
tice if, in such 30-day period, the parties to
such action so agree in writing.
‘‘(2) FILING CIVIL ACTION AFTER DISMIS-
SAL.—If—
‘‘(A) a civil action is timely commenced in
a district court with respect to a claim;
‘‘(B) such action is dismissed under sub-
section (a); and
‘‘(C) the statute of limitations applicable to
such claim expires before the expiration of the
60-day period beginning on the date such action
is dismissed;
then the plaintiff in such action may commence a
civil action based on such claim in such 60-day pe-
riod notwithstanding such statute.’’.
(b) CONFORMING AMENDMENT.—Chapter 99 of title
28, United States Code, is amended in the table of sec-
tions by adding at the end the following:
‘‘1632. Notice required before commencement of civil action.’’.
SEC. 106. HOUSE COMMITTEE REPORTS.
Clause 2(l) of rule XI of the Rules of the House of
Representatives is amended by adding at the end the fol-
lowing new subparagraph:
‘‘(8) Each report of a committee on each bill or joint
resolution of a public character reported by that commit-
tee shall include the following information regarding that
bill or joint resolution:
‘‘(A) Whether that bill or joint resolution pre-
empts the law of any State.
‘‘(B) The retroactive applicability, if any, of
that bill or joint resolution.
‘‘(C) Whether that bill or joint resolution cre-
ates any private cause of action and, if so, a descrip-
tion of that relief and the terms and conditions for
awarding attorneys fees, if any.
‘‘(D) The applicability, if any, of that bill or
joint resolution to the Federal Government or any of
its agencies or instrumentalities.’’.
SEC. 107. AMENDMENT TO RACKETEER INFLUENCED AND
CORRUPT ORGANIZATIONS ACT.
Section 1964(c) of title 18, United States Code, is
amended by inserting ‘‘, except that no person may bring
an action under this provision if the racketeering activity,
as defined in section 1961(1)(D), involves conduct action-
able as fraud in the purchase or sale of securities’’ before
the period.
SEC. 108. EFFECTIVE DATE; APPLICATION OF AMEND-
MENTS.
(a) EFFECTIVE DATE.—Except as provided in sub-
sections (b) and (c), this title and the amendments made
by this title shall take effect on the first day of the first
month beginning more than 180 days after the date of
the enactment of this Act.
(b) PRODUCT LIABILITY.—Section 103 shall apply
only with respect to claims arising after the effective date
of this title.
(c) APPLICATION OF AMENDMENTS.—
(1) The amendments made by sections 101 and
105 shall apply only with respect to civil actions
commenced after the effective date of this title.
(2) The amendments made by section 102 shall
apply only with respect to cases in which a trial has
commenced after the effective date of this title.
(3) The amendment made by section 106 shall
apply to bills and joint resolutions reported by any
committee at least 30 calendar days after the date
of enactment of this Act.
TITLE II—REFORM OF PRIVATE
SECURITIES LITIGATION
SEC. 201. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Securities Litigation Reform Act’’.
(b) TABLE OF CONTENTS.—The table of contents for
this Act is as follows:
Sec. 201. Short title; table of contents.
Sec. 202. Prevention of lawyer-driven litigation.
(a) Plaintiff steering committees to ensure client control of law-
suits.
(b) Full disclosure of proposed class action settlements.
Sec. 203. Prevention of abusive practices that foment litigation.
Sec. 204. Prevention of ‘‘fishing expedition’’ lawsuits.
Sec. 205. Establishment of ‘‘safe harbor’’ for predictive statements.
Sec. 206. Alternative dispute resolution procedure.
Sec. 207. Rule of construction.
Sec. 208. Effective date.
SEC. 202. PREVENTION OF LAWYER-DRIVEN LITIGATION.
(a) PLAINTIFF STEERING COMMITTEES TO ENSURE
CLIENT CONTROL
OF LAWSUITS.—The Securities Ex-
change Act of 1934 (15 U.S.C. 78a et seq.) is amended
by adding at the end the following new section:
‘‘SEC. 36. GUARDIAN AD LITEM AND CLASS ACTION STEER-
ING COMMITTEES.
‘‘(a) GUARDIAN AD LITEM.—Except as provided in
subsection (b), not later than 10 days after certifying a
plaintiff class in any private action brought under this
title, the court shall appoint a guardian ad litem for the
plaintiff class from a list or lists provided by the parties
or their counsel. The guardian ad litem shall direct counsel
for the class as set forth in this section and perform such
other functions as the court may specify. The court shall
apportion the reasonable fees and expenses of the guard-
ian ad litem among the parties. Court appointment of a
guardian ad litem shall not be subject to interlocutory re-
view.
‘‘(b) CLASS ACTION STEERING COMMITTEE.—Sub-
section (a) shall not apply if, not later than 10 days after
certifying a plaintiff class, on its own motion or on motion
of a member of the class, the court appoints a committee
of class members to direct counsel for the class (hereafter
in this section referred to as the ‘plaintiff steering commit-
tee’) and to perform such other functions as the court may
specify. Court appointment of a plaintiff steering commit-
tee shall not be subject to interlocutory review.
‘‘(c) MEMBERSHIP OF PLAINTIFF STEERING COM-
MITTEE.—
‘‘(1) QUALIFICATIONS.—
‘‘(A) NUMBER.—A plaintiff steering com-
mittee shall consist of not fewer than 5 class
members, willing to serve, who the court be-
lieves will fairly represent the class.
‘‘(B) OWNERSHIP
INTERESTS.—Members
of the plaintiff steering committee shall have
cumulatively held during the class period not
less than—
‘‘(i) the lesser of 5 percent of the se-
curities which are the subject matter of the
litigation or securities which are the sub-
ject matter of the litigation with a market
value of $10,000,000; or
‘‘(ii) such smaller percentage or dollar
amount as the court finds appropriate
under the circumstances.
‘‘(2) NAMED PLAINTIFFS.—Class members who
are named plaintiffs in the litigation may serve on
the plaintiff steering committee, but shall not com-
prise a majority of the committee.
‘‘(3) NONCOMPENSATION OF MEMBERS.—Mem-
bers of the plaintiff steering committee shall serve
without compensation, except that any member may
apply to the court for reimbursement of reasonable
out-of-pocket expenses from any common fund es-
tablished for the class.
‘‘(4) MEETINGS.—The plaintiff steering com-
mittee shall conduct its business at one or more pre-
viously scheduled meetings of the committee, of
which prior notice shall have been given and at
which a majority of its members are present in per-
son or by electronic communication. The plaintiff
steering committee shall decide all matters within its
authority by a majority vote of all members, except
that the committee may determine that decisions
other than to accept or reject a settlement offer or
to employ or dismiss counsel for the class may be
delegated to one or more members of the committee,
or may be voted upon by committee members seria-
tim, without a meeting.
‘‘(5) RIGHT OF NONMEMBERS TO BE HEARD.—
A class member who is not a member of the plaintiff
steering committee may appear and be heard by the
court on any issue in the action, to the same extent
as any other party.
‘‘(d) FUNCTIONS
OF GUARDIAN AD LITEM
AND
PLAINTIFF STEERING COMMITTEE.—
‘‘(1) DIRECT COUNSEL.—The authority of the
guardian ad litem or the plaintiff steering committee
to direct counsel for the class shall include all pow-
ers normally permitted to an attorney’s client in liti-
gation, including the authority to retain or dismiss
counsel and to reject offers of settlement, and the
preliminary authority to accept an offer of settle-
ment, subject to the restrictions specified in para-
graph (2). Dismissal of counsel other than for cause
shall not limit the ability of counsel to enforce any
contractual fee agreement or to apply to the court
for a fee award from any common fund established
for the class.
‘‘(2) SETTLEMENT OFFERS.—If a guardian ad
litem or a plaintiff steering committee gives prelimi-
nary approval to an offer of settlement, the guardian
ad litem or the plaintiff steering committee may seek
approval of the offer by a majority of class members
if the committee determines that the benefit of seek-
ing such approval outweighs the cost of soliciting the
approval of class members.
‘‘(e) IMMUNITY FROM CIVIL LIABILITY; REMOVAL.—
Any person serving as a guardian ad litem or as a member
of a plaintiff steering committee shall be immune from any
civil liability arising from such service. The court may re-
move a guardian ad litem or a member of a plaintiff steer-
ing committee for good cause shown.
‘‘(f) EFFECT ON OTHER LAW.—This section does not
affect any other provision of law concerning class actions
or the authority of the court to give final approval to any
offer of settlement.’’.
(b) FULL DISCLOSURE OF PROPOSED CLASS ACTION
SETTLEMENTS.—Section 21 of the Securities Exchange
Act of 1934 (15 U.S.C. 78u) is amended by adding at
the end the following new subsection:
‘‘(i) DISCLOSURE OF SETTLEMENT TERMS TO CLASS
MEMBERS.—In any private action under this title that is
certified as a class action pursuant to the Federal Rules
of Civil Procedure, a proposed settlement agreement that
is published or otherwise disseminated to the class shall
include the following statements:
‘‘(1) STATEMENT OF POTENTIAL OUTCOME OF
CASE.—
‘‘(A) AGREEMENT ON AMOUNT OF DAM-
AGES AND LIKELIHOOD OF PREVAILING.—If the
settling parties agree on the amount of dam-
ages per share that would be recoverable if the
plaintiff prevailed on each claim alleged under
this title and the likelihood that the plaintiff
would prevail—
‘‘(i) 
a 
statement 
concerning 
the
amount of such potential damages; and
‘‘(ii) a statement concerning the prob-
ability that the plaintiff would prevail on
the claims alleged under this title and a
brief explanation of the reasons for that
conclusion.
‘‘(B) DISAGREEMENT
ON
AMOUNT
OF
DAMAGES OR LIKELIHOOD OF PREVAILING.—If
the parties do not agree on the amount of dam-
ages per share that would be recoverable if the
plaintiff prevailed on each claim alleged under
this title or on the likelihood that the plaintiff
would prevail on those claims, or both, a state-
ment from each settling party concerning the
issue or issues on which the parties disagree.
‘‘(C) INADMISSIBILITY FOR CERTAIN PUR-
POSES.—Statements made in accordance with
subparagraphs (A) and (B) shall not be admis-
sible for purposes of any Federal or State judi-
cial or administrative proceeding.
‘‘(2) STATEMENT
OF
ATTORNEYS’ FEES
OR
COSTS SOUGHT.—If any of the settling parties or
their counsel intend to apply to the court for an
award of attorneys’ fees or costs from any fund es-
tablished as part of the settlement, a statement indi-
cating which parties or counsel intend to make such
an application, the amount of fees and costs that
will be sought (including the amount of such fees
and costs determined on a per-share basis, together
with the amount of the settlement proposed to be
distributed to the parties to suit, determined on a
per-share basis), and a brief explanation of the basis
for the application. Such information shall be clearly
summarized on the cover page of any notice to a
party of a proposed or final settlement.
‘‘(3) 
IDENTIFICATION
OF
LAWYERS’ 
REP-
RESENTATIVES.—The name and address of one or
more representatives of counsel for the plaintiff class
who will be reasonably available to answer written
questions from class members concerning any matter
contained in any notice of settlement published or
otherwise disseminated to class members.
‘‘(4) OTHER INFORMATION.—Such other infor-
mation as may be required by the court, or by any
guardian ad litem or plaintiff steering committee ap-
pointed by the court pursuant to this section.’’.
(c) PROHIBITION ON ATTORNEYS’ FEES PAID FROM
COMMISSION DISGORGEMENT FUNDS.—Section 21(d) of
the Securities Exchange Act of 1934 (15 U.S.C. 78u(d))
is amended by adding at the end the following new para-
graph:
‘‘(4) PROHIBITION ON ATTORNEYS’ FEES PAID
FROM COMMISSION DISGORGEMENT FUNDS.—Except
as otherwise ordered by the court, funds disgorged
as the result of an action brought by the Commis-
sion in Federal court, or of any Commission admin-
istrative action, shall not be distributed as payment
for attorneys’ fees or expenses incurred by private
parties seeking distribution of the disgorged funds.’’.
SEC. 203. PREVENTION OF ABUSIVE PRACTICES THAT FO-
MENT LITIGATION.
(a) ADDITIONAL PROVISIONS APPLICABLE TO CLASS
ACTIONS.—Section 21 of the Securities Exchange Act of
1934 (15 U.S.C. 78u) is further amended by adding at
the end the following new subsections:
‘‘(j) ELIMINATION OF BONUS PAYMENTS TO NAMED
PLAINTIFFS IN CLASS ACTIONS.—In any private action
under this title that is certified as a class action pursuant
to the Federal Rules of Civil Procedure, the portion of
any final judgment or of any settlement that is awarded
to class plaintiffs serving as the representative parties
shall be equal, on a per share basis, to the portion of the
final judgment or settlement awarded to all other members
of the class. Nothing in this subsection shall be construed
to limit the award to any representative parties of actual
expenses (including lost wages) relating to the representa-
tion of the class.
‘‘(k) REQUIREMENT THAT NAMED PLAINTIFF HAVE
MEANINGFUL INVESTMENT.—In any private action under
this title, in order for a plaintiff or plaintiffs to obtain
certification as representatives of a class of investors pur-
suant to the Federal Rules of Civil Procedure, the plaintiff
or plaintiffs must show that they owned, in the aggregate,
at the beginning of the time period in which violations of
this title are alleged to have occurred, not less than the
lesser of—
‘‘(1) 1 percent of the class of securities which
are the subject of the litigation; or
‘‘(2) $10,000 (in market value) of such securi-
ties.
‘‘(l) RESTRICTIONS
ON
PROFESSIONAL
PLAIN-
TIFFS.—A person may be a named plaintiff, or officer, di-
rector, fiduciary, or beneficiary of a named plaintiff, in
no more than 5 class actions filed during any 3-year
period.
‘‘(m) LOSER’S LIABILITY
FOR ATTORNEYS’ FEES
AND COSTS OF SUIT.—
‘‘(1) PAYMENT BY LOSING PARTY.—If the court
in any private action under this title enters a final
judgment against a party litigant on any basis other
than settlement, the court shall, upon motion by the
prevailing party, order the losing party to pay the
prevailing party reasonable attorneys’ fees and other
expenses incurred by the prevailing party.
‘‘(2) TIME FOR APPLICATION.—A party seeking
an award of fees and other expenses shall, within 30
days of a final, nonappealable judgment in the ac-
tion, submit to the court an application for fees and
other expenses.
‘‘(3) COURT
DISCRETION.—The court, in its
discretion, may reduce the amount to be awarded
pursuant to this section, or deny an award, to the
extent that the prevailing party during the course of
the proceedings engaged in conduct that unduly and
unreasonably protracted the final resolution of the
matter in controversy.
‘‘(n) PREVENTION OF ABUSIVE CONFLICTS OF IN-
TEREST.—In any private action under this title that is cer-
tified as a class action pursuant to the Federal Rules of
Civil Procedure, if a party is represented by an attorney
who directly owns or otherwise has a beneficial interest
in the securities that are the subject of the litigation, the
court shall make a determination of whether such interest
constitutes a conflict of interest sufficient to disqualify the
attorney from representing the party.
‘‘(o) ENCOURAGEMENT
OF FINALITY
IN SETTLE-
MENT DISCHARGES.—
‘‘(1) DISCHARGE.—A defendant who settles any
private action brought under this title at any time
before verdict or judgment shall be discharged from
all claims for contribution brought by other persons.
Upon entry of the settlement by the court, the court
shall enter a bar order constituting the final dis-
charge of all obligations to the plaintiff of the set-
tling defendant arising out of the action. The order
shall bar all future claims for contribution or indem-
nity arising out of the action—
‘‘(A) by nonsettling persons against the
settling defendant; and
‘‘(B) by the settling defendant against any
nonsettling defendants.
‘‘(2) REDUCTION.—If a person enters into a
settlement with the plaintiff prior to verdict or judg-
ment, the verdict or judgment shall be reduced by
the amount paid to the plaintiff by that person.
‘‘(p) CONTRIBUTION FROM NON-PARTIES IN INTER-
ESTS OF FAIRNESS.—
‘‘(1) RIGHT OF CONTRIBUTION.—A person who
becomes liable for damages in any private action
under this title may recover contribution from any
other person who, if joined in the original suit,
would have been liable for the same damages.
‘‘(2) STATUTE OF LIMITATIONS FOR CONTRIBU-
TION.—Once judgment has been entered in any pri-
vate action under this title determining liability, an
action for contribution must be brought not later
than 6 months after the entry of a final,
nonappealable judgment in the action.
‘‘(q) DEFENDANT’S RIGHT TO SPECIAL VERDICTS
ESTABLISHING SCIENTER.—In any private action under
this title in which the plaintiff may recover money dam-
ages, the court shall, when requested by a defendant, sub-
mit to the jury a written interrogatory on the issue of each
such defendant’s state of mind at the time the alleged vio-
lation occurred.’’.
(b) PROHIBITION OF REFERRAL FEES THAT FO-
MENT LITIGATION.—Section 15(c) of the Securities Ex-
change Act of 1934 (15 U.S.C. 78o(c)) is amended by add-
ing at the end the following new paragraph:
‘‘(7) RECEIPT OF REFERRAL FEES.—No broker
or dealer, or person associated with a broker or deal-
er, may solicit or accept remuneration for assisting
an attorney in obtaining the representation of any
customer in any private action under this title.’’.
SEC. 204. PREVENTION OF ‘‘FISHING EXPEDITION’’ LAW-
SUITS.
The Securities Exchange Act of 1934 (15 U.S.C. 78a
et seq.) is amended by inserting after section 10 the fol-
lowing new section:
‘‘SEC. 10A. REQUIREMENTS FOR SECURITIES FRAUD AC-
TIONS.
‘‘(a) SCIENTER.—In any action under section 10(b),
a defendant may be held liable for money damages only
on proof—
‘‘(1) that the defendant made an untrue state-
ment of a material fact, or omitted to state a mate-
rial fact necessary in order to make the statements
made, in light of the circumstances in which they
were made, not misleading; and
‘‘(2) that the defendant knew the statement
was misleading at the time it was made, or inten-
tionally omitted to state a fact knowing that such
omission would render misleading the statements
made at the time they were made.
‘‘(b) REQUIREMENT FOR EXPLICIT PLEADING AND
PROOF OF SCIENTER.—In any action under section 10(b)
in which it is alleged that the defendant—
‘‘(1) made an untrue statement of a material
fact; or
‘‘(2) omitted to state a material fact necessary
in order to make the statements made, in the light
of the circumstances in which they were made, not
misleading;
the complaint shall allege specific facts demonstrating the
state of mind of each defendant at the time the alleged
violation occurred. The complaint shall also specify each
statement or omission alleged to have been misleading,
and the reasons the statement or omission is misleading.
If an allegation regarding the statement or omission is
made on information and belief, the complaint shall set
forth with specificity all information on which that belief
is formed. Failure to comply fully with this requirement
shall result in dismissal of the complaint for failure to
state a cause of action.
‘‘(c) RELIANCE.—In any action arising under section
10(b) based upon a material misstatement or omission
concerning a security, the plaintiff must prove that he or
she had actual knowledge of and actually relied on such
statement in connection with the purchase or sale of a se-
curity and that the misstatement or omission proximately
caused (through both transaction causation and loss cau-
sation) any loss incurred by the plaintiff.
‘‘(d) LIMITS ON WINDFALL DAMAGES.—In any ac-
tion arising under section 10(b) based on a material
tainable by issuers prior to issuance of securities, by
which forward-looking statements concerning the fu-
ture economic performance of an issuer of securities
registered under section 12 of the Securities Ex-
change Act of 1934 will be deemed not to be in vio-
lation of section 10(b) of that Act; and
(2) procedures by which courts shall timely dis-
miss claims against such issuers of securities based
on such forward-looking statements if such state-
ments are in accordance with any criteria under
paragraph (1).
(b) COMMISSION CONSIDERATIONS.—In developing
rules in accordance with subsection (a), the Commission
shall also—
(1) prescribe appropriate limits to liability for
conscientiously prepared forward-looking statements
that do not fall within any regulatory safe harbor;
(2) set forth procedures for making a summary
determination of the applicability of any Commission
rule for forward-looking statements early in a judi-
cial proceeding to limit protracted litigation and ex-
pansive discovery;
(3) ensure that its rules incorporate and reflect
the scienter requirements applicable to actions under
section 10(b) of the Securities Exchange Act of
1934; and
(4) ensure that its rules provide clear guidance
to investors, issuers of securities, and the judiciary.
(c) SECURITIES ACT AMENDMENT.—The Securities
Exchange Act of 1934 (15 U.S.C. 78a et seq.), is amended
by adding at the end the following new section:
‘‘SEC. 38. APPLICATION OF SAFE HARBOR FOR FORWARD-
LOOKING STATEMENTS.
‘‘(a) IN GENERAL.—In any private action under this
title that alleges that a forward-looking statement con-
cerning the future economic performance of an issuer reg-
istered under section 12 was materially false or mislead-
ing, if a party making a motion in accordance with sub-
section (b) requests a stay of discovery concerning the
claims or defenses of that party, the court shall grant such
a stay until it has ruled on any such motion.
‘‘(b) SUMMARY JUDGMENT MOTIONS.—Subsection
(a) shall apply to any motion for summary judgment made
by a party asserting that the forward-looking statement
was within the coverage of any safe harbor rule which the
Commission may have adopted concerning such predictive
statements, if such motion is made not less than 60 days
after the commencement of discovery in the action.
‘‘(c) DILATORY CONDUCT; DUPLICATIVE DISCOV-
ERY.—Notwithstanding subsection (a) or (b), the time
permitted for discovery under subsection (b) may be ex-
tended, or a stay of the proceedings may be denied, if the
court finds that—
‘‘(1) the party making a motion described in
subsection (b) engaged in dilatory or obstructive
conduct in taking or opposing any discovery; or
‘‘(2) a stay of discovery pending a ruling on a
motion under subsection (b) would be substantially
unfair to such party or to other parties to the ac-
tion.’’.
SEC. 206. ALTERNATIVE DISPUTE RESOLUTION PROCE-
DURE.
The Securities Exchange Act of 1934 (15 U.S.C. 78a
et seq.) is amended by adding at the end the following
new section:
‘‘SEC. 39. ALTERNATIVE DISPUTE RESOLUTION PROCE-
DURE.
‘‘(a) IN GENERAL.—
‘‘(1) OFFER TO PROCEED.—Except as provided
in paragraph (2), in any private action arising under
this title, any party may, before the expiration of the
period permitted for answering the complaint, de-
liver to all other parties an offer to proceed pursuant
to any voluntary, nonbinding alternative dispute res-
olution procedure established or recognized under
the rules of the court in which the action is main-
tained.
‘‘(2) PLAINTIFF CLASS ACTIONS.—In any pri-
vate action under this title which is brought as a
plaintiff class action, an offer under paragraph (1)
shall be made not later than 30 days after a guard-
ian ad litem or plaintiff steering committee is ap-
pointed by the court in accordance with section 38.
‘‘(3) RESPONSE.—The recipient of an offer
under paragraph (1) or (2) shall file a written notice
of acceptance or rejection of the offer with the court
not later than 10 days after receipt of the offer. The
court may, upon motion by any party made prior to
the expiration of such period, extend the period for
not more than 90 additional days, during which time
discovery may be permitted by the court.
‘‘(4) SELECTION
OF
TYPE
OF
ALTERNATIVE
DISPUTE RESOLUTION.—For purposes of paragraphs
(1) and (2), if the rules of the court establish or rec-
ognize more than 1 type of alternative dispute reso-
lution, the parties may stipulate as to the type of al-
ternative dispute resolution to be applied. If the par-
ties are unable to so stipulate, the court shall issue
an order not later than 20 days after the date on
which the parties agree to the use of alternative dis-
pute resolution, specifying the type of alternative
dispute resolution to be applied.
‘‘(5) SANCTIONS FOR DILATORY OR OBSTRUC-
TIVE CONDUCT.—If the court finds that a party has
engaged in dilatory or obstructive conduct in taking
or opposing any discovery allowed during the re-
sponse period described in paragraph (3), the court
may—
‘‘(A) extend the period to permit further
discovery from that party for a suitable period;
and
‘‘(B) deny that party the opportunity to
conduct further discovery prior to the expiration
of the period.’’.
SEC. 207. RULE OF CONSTRUCTION.
Nothing in the amendments made by this Act shall
be deemed to create or ratify any implied private right
of action, or to prevent the Commission by rule from re-
stricting or otherwise regulating private actions under the
Securities Exchange Act of 1934.
SEC. 208. EFFECTIVE DATE.
This Act and the amendments made by this Act are
effective on the date of enactment of this Act and shall
apply to cases commenced after such date of enactment.
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