I
104TH CONGRESS
1ST SESSION
H. R. 681
To amend the Securities Exchange Act of 1934 in order to reform private
enforcement of the Federal securities laws, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
JANUARY 25, 1995
Mr. TAUZIN (for himself, Mr. HALL of Texas, Mr. TOWNS, Mr. RUSH, and
Mr. BROWN of Ohio) introduced the following bill; which was referred to
the Committee on Commerce and, in addition, to the Committee on the
Judiciary, for a period to be subsequently determined by the Speaker, in
each case for consideration of such provisions as fall within the jurisdic-
tion of the committee concerned
A BILL
To amend the Securities Exchange Act of 1934 in order
to reform private enforcement of the Federal securities
laws, and for other purposes.
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 ‘‘Securities Private En-
forcement Reform Act’’.
SEC. 2. FINDINGS.
The Congress finds that—
(1) excessive securities litigation is a serious
burden on the national economy, diverting limited
capital resources to less productive areas;
(2) meritless lawsuits filed under Federal secu-
rities laws are making it harder for American com-
panies to raise capital and attract experienced mem-
bers to serve on their boards;
(3) in the securities fraud area, the civil justice
system is being transformed into a nonmerit-based,
unjust system, in which professional plaintiffs ex-
tract settlements from entrepreneurs, regardless of
the merits of the cases filed;
(4) such securities lawsuits impose additional
costs on publicly traded companies, often force them
into bankruptcy, and create job losses within the
economy;
(5) such securities fraud lawsuits stifle the de-
velopment of future products by compelling invest-
ment bankers and accounting firms, whose assist-
ance is essential for accessing capital markets, to re-
sist working with new venture firms because of the
higher risk of litigation associated with them; and
(6) reform in the securities fraud laws are need-
ed to ensure that the courts can properly hear and
adjudicate securities fraud cases.
SEC. 3. PRIVATE CIVIL ACTION PROCEDURES.
The Securities Exchange Act of 1934 is amended by
inserting after section 20A (15 U.S.C. 78u–1) the follow-
ing new section:
‘‘PRIVATE CIVIL ACTION PROCEDURES
‘‘SEC. 20B. (a) REQUIREMENT OF PROPORTIONATE
LIABILITY.—
‘‘(1) LIMITATION ON JOINT AND SEVERAL LI-
ABILITY.—A defendant who is found liable for dam-
ages in an implied private action arising under a
provision of this Act may be liable jointly and sever-
ally only if the trier of fact specifically determines
that the defendant engaged in knowing securities
fraud, as defined in paragraph (3).
‘‘(2) DETERMINATION
OF
LIABILITY.—If the
trier of fact does not find, pursuant to paragraph
(1), that the defendant engaged in knowing securi-
ties fraud, the defendant’s liability shall be deter-
mined as follows:
‘‘(A) The trier of fact shall determine the
percentage of responsibility of the plaintiff, of
each of the defendants and of each of the other
persons or entities alleged by the parties to
have caused or contributed to the harm alleged
by the plaintiff. In determining the percentages
of responsibility, the trier of fact shall consider
both the nature of the conduct of each person
and the nature and extent of the causal rela-
tionship between that conduct and the damage
claimed by the plaintiff.
‘‘(B) For each defendant, the trier of fact
shall then multiply the defendant’s percentage
of responsibility by the total amount of damage
suffered by the plaintiff that was caused in
whole or in part by that defendant and shall
enter a verdict or judgment against the defend-
ant in that amount. No defendant whose liabil-
ity is determined under this subsection shall be
jointly liable on any judgment entered against
any other party to the action.
‘‘(C) Except where contractual relationship
permits, no defendant whose liability is deter-
mined under this subsection shall have a right
to recover from another defendant any portion
of the judgment entered against him.
‘‘(3) DEFINITION.—A defendant engages in
‘knowing securities fraud’ only if he (A) makes a
material representation with actual knowledge that
the representation is false or omits to make a state-
ment with actual knowledge that, as a result of the
omission, one of his material representations is false;
and (B) knows that other persons are likely to rely
on that misrepresentation or omission. Reckless con-
duct by the defendant shall not constitute ‘knowing
securities fraud’. The liability in damages, in any, of
a defendant who acts in a reckless manner shall be
determined in accordance with paragraph (3).
‘‘(4) COVERAGE
OF
PROVISION.—This sub-
section relates only to the allocation of damages
among defendants. Nothing herein shall affect the
standards for liability under any implied private ac-
tion arising under a provision of this Act.
‘‘(b) AWARDS OF ATTORNEY FEES.—
‘‘(1) AUTHORITY
TO
AWARD
FEES.—If the
court in any implied private action arising under this
Act enters a final judgment against a party litigant
on the basis of a motion to dismiss, motion for sum-
mary judgment, or a trial on the merits, the court
shall, upon motion by the prevailing party, award
the prevailing party reasonable fees and other ex-
penses incurred by that party unless the court deter-
mines that the position of the losing party was sub-
stantially justified. If the court determines that the
position of the losing party was substantially justi-
fied, it shall not award fees and other expenses to
the prevailing party. The determination whether the
position of the losing party was substantially justi-
fied shall be made on the basis of the record which
is made in the civil action for which fees and other
expenses are sought.
‘‘(2) APPLICATION FOR FEES.—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 that verifies that the party is entitled
to such an award under paragraph (1) and the
amount sought, including an itemized statement
from any attorney or expert witness representing or
appearing on behalf of the party stating the actual
time expended and the rate at which fees and other
expenses are computed.
‘‘(3) ALLOCATION AND SIZE OF AWARD.—The
court, in its discretion, may—
‘‘(A) determine whether the amount to be
awarded pursuant to this section shall be
awarded against the unsuccessful party, its at-
torney, or both; and
‘‘(B) 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