HR 1058 RFS
Sec. 1.
Short title; table of contents.
Sec. 2. Prevention of lawyer-driven litigation.
(a) Plaintiff steering committees to ensure client control of lawsuits.
‘‘Sec. 36. Class action steering committees.
‘‘(a) Class action steering committee.
‘‘(b) Membership of plaintiff steering committee.
‘‘(c) Functions of plaintiff steering committee.
‘‘(d) Immunity from civil liability; removal.
‘‘(e) Effect on other law.’’
(b) Prohibition on attorneys’ fees paid from Commission disgorgement
funds.
Sec. 3. Prevention of abusive practices that foment litigation.
(a) Additional provisions applicable to private actions.
‘‘Sec. 20B. Procedures applicable to private actions.
‘‘(a) Elimination of bonus payments to named plaintiffs in class
actions.
‘‘(b) Restrictions on professional plaintiffs.
‘‘(c) Awards of fees and expenses.
‘‘(d) Prevention of abusive conflicts of interest.
‘‘(e) Disclosure of settlement terms to class members.
‘‘(f) Encouragement of finality in settlement discharges.
‘‘(g) Contribution from non-parties in interests of fairness.
‘‘(h) Defendant’s right to written interrogatories establishing
scienter.’’
(b) Prohibition of referral fees that foment litigation.
Sec. 4. Prevention of ‘‘fishing expedition’’ lawsuits.
‘‘Sec. 10A. Requirements for securities fraud actions.
‘‘(a) Scienter.
‘‘(b) Requirement for explicit pleading of scienter.
‘‘(c) Dismissal for failure to meet pleading requirements; stay of
discovery; summary judgment.
‘‘(d) Reliance and causation.
‘‘(e) Allocation of liability.
‘‘(f) Damages.’’
Sec. 5. Establishment of ‘‘safe harbor’’ for predictive statements.
‘‘Sec. 37. Application of safe harbor for forward-looking statements.
‘‘(a) Safe harbor in general.
‘‘(b) Definition of forward-looking statement.
‘‘(c) No duty to make continuing projections.
‘‘(d) Automatic procedure for staying discovery; expedited proce-
dure for consideration of motion on applicability of safe
harbor.
‘‘(e) Regulatory authority.’’
Sec. 6. Amendment to Racketeer Influenced and Corrupt Organizations Act.
Sec. 7. Financial fraud detection and disclosure.
‘‘Sec. 13A. Fraud detection and disclosure.
‘‘(a) Audit requirements.
‘‘(b) Required response to audit discoveries.
‘‘(c) Auditor liability limitation.
‘‘(d) Civil penalties in cease-and-desist proceedings.
‘‘(e) Preservation of existing authority.
‘‘(f) Definitions.’’
Sec. 8. Rule of construction.
Sec. 9. Effective date.
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SEC. 2. 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. CLASS ACTION STEERING COMMITTEES.
‘‘(a) CLASS ACTION STEERING COMMITTEE.—In any
private action arising under this title seeking to recover
damages on behalf of a class, the court shall, at the earli-
est practicable time, appoint a committee of class members
to direct counsel for the class (hereafter in this section
referred to as the ‘plaintiff steering committee’) and to
perform such other functions as the court may specify.
Court appointment of a plaintiff steering committee shall
not be subject to interlocutory review.
‘‘(b) 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—
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‘‘(i) the lesser of 5 percent of the se-
curities which are the subject matter of the
litigation or $10,000,000 in market value
of the securities which are the subject mat-
ter of the litigation; or
‘‘(ii) such smaller percentage or dollar
amount as the court finds appropriate
under the circumstances.
‘‘(2) 
NAMED
PLAINTIFFS.—Class 
plaintiffs
serving as the representative parties in the litigation
may serve on the plaintiff steering committee, but
shall not comprise 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
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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 relating to the organization or ac-
tions of the plaintiff steering committee.
‘‘(c) FUNCTIONS OF PLAINTIFF STEERING COMMIT-
TEE.—The authority of the plaintiff steering committee
to direct counsel for the class shall include all powers nor-
mally permitted to an attorney’s client in litigation, includ-
ing the authority to retain or dismiss counsel and to reject
offers of settlement, and the authority to accept an offer
of settlement subject to final approval by the court. Dis-
missal 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.
‘‘(d) IMMUNITY FROM CIVIL LIABILITY; REMOVAL.—
Any person serving as a member of a plaintiff steering
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committee shall be immune from any civil liability for any
negligence in performing such service, but shall not be im-
mune from liability for intentional misconduct or from the
assessment of costs pursuant to section 20B(c). The court
may remove a member of a plaintiff steering committee
for good cause shown.
‘‘(e) 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) 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 re-
sult of an action brought by the Commission, or of any
Commission proceeding, shall not be distributed as pay-
ment for attorneys’ fees or expenses incurred by private
parties seeking distribution of the disgorged funds.’’.
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SEC. 3. PREVENTION OF ABUSIVE PRACTICES THAT FO-
MENT LITIGATION.
(a) ADDITIONAL PROVISIONS APPLICABLE TO PRI-
VATE ACTIONS.—The Securities Exchange Act of 1934 is
amended by inserting after section 20A (15 U.S.C. 78t–
1) the following new section:
‘‘PROCEDURES APPLICABLE TO PRIVATE ACTIONS
‘‘SEC. 20B. (a) ELIMINATION OF BONUS PAYMENTS
TO NAMED PLAINTIFFS IN CLASS ACTIONS.—In any pri-
vate action under this title that is certified as a class ac-
tion 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
representation of the class.
‘‘(b) RESTRICTIONS
ON
PROFESSIONAL
PLAIN-
TIFFS.—Except as the court may otherwise permit for
good cause, a person may be a named plaintiff, or an offi-
cer, director, or fiduciary of a named plaintiff, in no more
than 5 class actions filed during any 3-year period.
‘‘(c) AWARDS OF FEES AND EXPENSES.—
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‘‘(e) 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, any proposed or final settlement agree-
ment 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 per
share; and
‘‘(ii) a statement concerning the likeli-
hood that the plaintiff would prevail on the
claims alleged under this title and a brief
explanation of the reasons for that conclu-
sion.
‘‘(B) DISAGREEMENT
ON
AMOUNT
OF
DAMAGES OR LIKELIHOOD OF PREVAILING.—If
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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) concerning the
amount of damages and the likelihood of pre-
vailing shall not be admissible for purposes of
any Federal or State judicial action or adminis-
trative 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
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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 any proposed or final settlement agreement.
‘‘(3) 
IDENTIFICATION
OF
LAWYERS’ 
REP-
RESENTATIVES.—The name and address of one or
more representatives of counsel for the class who
will be reasonably available to answer written ques-
tions from class members concerning any matter
contained in any notice of settlement published or
otherwise disseminated to the class.
‘‘(4) OTHER INFORMATION.—Such other infor-
mation as may be required by the court, or by any
plaintiff steering committee appointed by the court
pursuant to section 36.
‘‘(f) ENCOURAGEMENT
OF FINALITY
IN SETTLE-
MENT DISCHARGES.—
‘‘(1) DISCHARGE.—A defendant who settles any
private action arising under this title at any time be-
fore verdict or judgment shall be discharged from all
claims for contribution brought by other persons
with respect to the matters that are the subject of
such action. Upon entry of the settlement by the
court, the court shall enter a bar order constituting
the final discharge of all obligations to the plaintiff
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of the settling defendant arising out of the action.
The order shall bar all future claims for contribution
arising out of the action—
‘‘(A) by any person against the settling de-
fendant; and
‘‘(B) by the settling defendant against any
person other than a person whose liability has
been extinguished by the settling defendant’s
settlement.
‘‘(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 greater of—
‘‘(A) an amount that corresponds to the
percentage of responsibility of that person; or
‘‘(B) the amount paid to the plaintiff by
that person.
‘‘(g) 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 (other than an action under section
9(e) or 18(a)) may recover contribution from any
other person who, if joined in the original suit,
would have been liable for the same damages.
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‘‘(2) STATUTE OF LIMITATIONS FOR CONTRIBU-
TION.—Once judgment has been entered in any such
private action 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.
‘‘(h) DEFENDANT’S RIGHT TO WRITTEN INTERROG-
ATORIES ESTABLISHING SCIENTER.—In any private ac-
tion under this title in which the plaintiff may recover
money damages, the court shall, when requested by a de-
fendant, submit to the jury a written interrogatory on the
issue of each such defendant’s state of mind at the time
the alleged violation 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:
‘‘(8) RECEIPT OF REFERRAL FEES.—No broker or
dealer, or person associated with a broker or dealer, may
solicit or accept remuneration for assisting an attorney in
obtaining the representation of any customer in any pri-
vate action under this title.’’.