He urged that the increase in class action filings "is largely attributable to state courts that manifest a laissez-faire attitude about class actions," ignoring both basic class certification rules and due process requirements.

Offering specific examples, Mr. Martin noted that due to the erosion of state court class action standards, "class actions that are being filed assert claims that are utterly without merit (or marginal at best)." And he noted that in interviews conducted for a study on class actions by the highly regarded RAND Corporation, "many attorneys (including some plaintiffs' counsel) observed that `too many non-meritorious [class action lawsuits] are [being] filed and certified' for class treatment."

Mr. Martin asserted that "[t]he real purpose of the vast majority of class action lawsuits is to make money -- not for consumers, but for the lawyers bringing the suit." Noting specific examples from state court cases, he charged that "[a]s a result, consumers are exploited and rarely receive substantial awards, while class action counsel frequently walk away with millions."

Mr. Martin provided evidence that defendants in state court class actions "are being denied fundamental due process rights." For example, he noted that some state courts engage in "drive-by class certification[s]" in which "a state court judge grants plaintiffs' motion to certify his claims for class treatment before the defendant even has a chance to respond to the motion (or, indeed, has even been served with the complaint)." He also expressed concern about the "`I never met a class action I didn't like' phenomenon" -- state courts that "employ standards that are so lax that virtually every class certification motion is granted, even where it is obvious that the case cannot, consistent with basic due process principles, be tried to a jury as a class action." He cited examples of cases in which state courts had certified classes that federal courts had found uncertifiable.

Mr. Martin discussed respects in which state courts are unable to serve as effective arbiters of interstate class actions. In particular, he noted that when overlapping or "copycat" class actions are filed in different federal courts, they may be consolidated through the Judicial Panel on Multidistrict Litigation. But when duplicative class actions are filed in two or more state courts, the "competing" class actions must be litigated separately in an uncoordinated, redundant fashion because there is no mechanism for achieving consolidation of state court class actions and avoiding inconsistent results. He also criticized multi-state class actions in which one state court is required to interpret the laws of many other states and resolve the claims of out-of-state citizens. As he put it, "[w]hat business does a California court have dictating to New Jersey what its laws mean and how the claims of its citizens should be resolved?"

Mr. Martin observed that "[t]he `anything goes' mentality in state courts has led to a sad reality: as a practical matter, the most important question determining the outcome of a class action lawsuit has now become, not the merits of the claims or the propriety of class treatment, but whether the case can successfully be removed to federal court." He then offered numerous examples of ways in which lawyers who file class action lawsuits manipulate their pleadings to keep their purported class actions out of federal court (e.g., by naming defendants who defeat diversity but who have no real role in the litigation, by waiving class claims that might give rise to federal jurisdiction, by changing claims after the one-year removal deadline has passed).

In a similar vein, Dr. John B. Hendricks, a businessman, offered a docket study of state court class actions in one jurisdiction showing (a) that state court class actions are increasing in number, (b) that such cases have become disproportionately large components elements of the dockets of some county courts, (c) that many of the cases being filed are against major, out-of-state corporations, and (d) that the proposed classes in these cases typically are not limited to in-state residents and often encompass residents of all 50 states. Confirming Mr. Martin's observation that there are state courts that have never encountered a class action they would not certify, the study presented by Dr. Hendricks identified one state court judge who had granted class certification in 35 cases over the past two years. As Dr. Hendricks stated, "[t]hat's a huge number of cases when one considers that during 1997, all 900 federal district court judges in the United States combined certified a total of only 38 cases for class treatment." The study failed to uncover any instance in which that judge had ever denied class certification.⁽²⁾

John L. McGoldrick, Senior Vice President and General Counsel of Bristol-Myers Squibb Company, joined the chorus urging that "class action abuses are most pervasive in state courts." In his prepared statement Mr. McGoldrick made several key points:

"Especially in recent years, the class action device has experienced serious abuse, often with the perverse result that companies that have committed no wrong find it necessary to pay ransom to plaintiffs' lawyers because the risk of attempting to vindicate their rights through trial simply cannot be justified to their shareholders. Too frequently, corporate decisionmakers are confronted with the implacable arithmetic of the class action: even a meritless case with only a 5% chance of success at trial must be settled if the complaint claims hundreds of millions of dollars in damages."

"In some places, state court judges do not appreciate the raw power of the class action device and the need to circumscribe its usage. As a result, the rights of both defendants and the class members on whose behalf the actions were brought get ignored."

"This situation is ironic because the history of the U.S. Constitution makes clear that interstate class actions are the paradigm for the kind of dispute that should be subject to federal diversity jurisdiction. Yet, although federal courts presently are empowered to hear what are basically small, local disputes, statutory restrictions on federal diversity jurisdiction prevent federal courts from adjudicating most class actions."

"The frustrations created by these restrictions [on federal diversity jurisdiction] are exacerbated by the fact that there is presently confusion among our federal courts about which purported class actions are subject to federal diversity jurisdiction."

Mr. McGoldrick therefore urged Congress to "consider legislation that would generally permit federal courts to hear class actions with interstate commerce implications." He noted that such a step "would strongly promote the three goals the framers of the Constitution sought to achieve in establishing diversity jurisdiction in the first place: (a) to foreclose locality discrimination; (b) to prevent bias against interstate commercial enterprises; and (c) to enhance public confidence in the judicial system."⁽³⁾

The Identification Of A Solution

The witnesses at the March 5 hearing were asked their views about Mr. Moran's opening suggestion that the state court class action crisis could be quelled by expanding federal diversity jurisdiction to accommodate purported class actions with interstate implications:⁽⁴⁾

In response, Judge Anthony Scirica, who sits on the U.S. Court of Appeals for the Third Circuit and is a member of the Judicial Conference's Advisory Committee on Civil Rules, noted that in a similar vein, the

Judicial Conference has supported, in principle, the creation of federal jurisdiction that would rely on minimal diversity jurisdiction to consolidate multiple litigation, in state and federal courts, in cases involving personal injury, and property damage arising out of a single event.⁽⁵⁾

Prof. Susan Koniak, a member of the faculty at the Boston University Law School who described herself as being from the "plaintiffs' bar," responded that expanding federal jurisdiction over class actions would be

a good idea. There's the polybutylene pipe case, which is one of the biggest class actions, was in Union City, Tennessee, in the state court, where no one could get there, you couldn't fly in to object. And that's common. Often these [state] courts are picked, and they are in the middle of nowhere. You can't have access to the documents and I don't think it's a full answer, but I think it should be done.

Former U.S. Attorney General Dick Thornburgh concurred, noting that

[m]ost of the complaints that arise out of alleged inequitable treatment in these suits in state courts are in states where the judges are elected, and must . . . depend on contributions which come from potential party litigants. And I think the record is replete that those abuses really give rise to a skewing of the purpose of litigation . . . .

Mr. Thornburgh added that an expansion of federal jurisdiction over class actions is warranted because "federal courts have shown a much greater propensity to bring some sensible adjudication to the creation of classes and the progress of class cases . . . ."

In her prepared oral remarks, Elizabeth Cabraser, a leading plaintiffs' class action attorney, opined that

much of the confusion and lack of consistency that is currently troubling practitioners and judges and the public in the class action area could be addressed through the exploration, the very thoughtful exploration, of legislation that would increase federal diversity jurisdiction, so that more class action litigation could be brought in the federal court. Not because the federal courts necessarily have superior judges, but because the federal courts have nationwide reach; they have the statutory mechanisms that they need to manage this litigation, so litigation can be transferred and coordinated in a single forum.

Both Mr. Martin and Mr. John Frank indicated their support for expanding federal diversity jurisdiction over purported class actions. And Mr. McGoldrick concluded the inquiry by telling the Subcommittee:

[Y]ou have heard [today] from professors, from plaintiff's lawyers, from defense lawyers, from consumer representatives, from business people, from a whole range. And it is striking to me that those of us who frequently disagree -- my friend Ms. Cabraser and I frequently disagree -- but you've heard from everyone the notion that diversity jurisdiction, increasing the ambit of it to permit class actions, is a good idea. And it seems to me that that's something this committee should weigh heavily in its deliberations.

In sum, this Subcommittee's March 5 hearing not only documented the severe abuses of the class device that are occurring in state courts, but it also put the spotlight on a simple, elegant solution: expand federal court jurisdiction to embrace a larger array of purported class actions.

Implementation Of The State Court Class Action Crisis Solution: H.R. 3789

From the record developed at this Subcommittee's March 5 hearing, one could develop strong support for far reaching (some would say "radical") responses to the state court class action crisis. Congress could enact federal legislation simply prohibiting state courts from using the class action device at all (essentially what is being proposed in the securities litigation context in S. 1260, the Securities Litigation Uniform Standards Act of 1998, already passed by the Senate). Congress could severely restrict the availability of class action attorneys' fees, which are arguably the driving force behind the state court class action crisis. Or Congress could perform major surgery on the class device itself (e.g., change procedural rules to allow class actions to be used only to pursue injunctive relief (not monetary damages) and thereby eliminate the economic incentives that encourage abuse of the device).

H.R. 3789, however, embraces what is by far the most modest approach suggested at the March 5 hearing -- simply correcting the fact that federal courts lack jurisdiction to adjudicate interstate class actions, lawsuits that typically involve millions of dollars in dispute among thousands of parties residing in multiple jurisdictions.

This change would aid resolution of the current state court class action crisis by eliminating restrictions that have forced both unnamed class members and defendants to have their claims heard before some tribunals that are ill-equipped to handle complex litigation and otherwise less vigilant about due process rights. Further, as Ms. Cabraser noted at the March 5 hearing, the change would make available in most class actions the "statutory mechanisms" that federal courts (but not state courts) may wield "to manage [class] litigation," so that overlapping, competing class actions "can be transferred and coordinated in a single forum."⁽⁶⁾ And most importantly, the change would contribute to greater uniformity in the standards for deciding whether a controversy may be afforded class treatment, with those standards being set and applied by our unitary federal judicial system (as opposed to the diverse state court judicial systems of 51 different jurisdictions). The bill reflects a simple, narrow remedy for a growing major problem.

H.R. 3789 would achieve its solution without undesirable side-effects. The bill would not alter any party's substantive legal rights. The bill would not permit removal of truly local disputes; such matters would remain within the exclusive purview of the relevant state courts. And the bill would not require federal court adjudication of any class action; parties could litigate an interstate class action in state court if all sides so agreed.

Moreover, the changes envisioned in H.R. 3789 are entirely consistent with the current concept of federal diversity jurisdiction. The current statutory "gatekeeper" for federal diversity jurisdiction -- 28 U.S.C. § 1332 -- essentially allows invocation of diversity jurisdiction in cases that are large (in terms of the "amount in controversy") and that have interstate implications (in terms of involving citizens from multiple jurisdictions). By nature, class actions typically fulfill these requirements. Because they normally involve so many people and so many claims, class actions invariably present huge amounts in controversy and implicate parties from multiple jurisdictions.⁽⁷⁾

H.R. 3789: How It Works

Functionally, H.R. 3789 would achieve its purpose by amending 28 U.S.C. § 1332 (the diversity jurisdiction statute) to extend federal diversity jurisdiction over interstate class actions. That amendment would grant federal court jurisdiction over any class action (regardless of the amounts in controversy) in which there exists "partial diversity" between plaintiffs (including all unnamed members of any plaintiff class) and defendants. However, as noted above, this expanded jurisdiction would not encompass disputes that are not interstate in nature -- cases in which a class of citizens of one state sue one or more defendants that are citizens of that same state would remain subject to the exclusive jurisdiction of state courts.

The amendments also would facilitate the removal to federal court of any purported class action that falls within the additional grant of federal diversity jurisdiction over class actions described above. The bill would not change the existing diversity jurisdiction removal procedures applicable to purported class actions, save for two exceptions:

First, the legislation would amend 28 U.S.C. § 1441(b) to confirm defendants' ability to remove all purported class actions qualifying for federal jurisdiction under the revised section 1332 (as discussed above) regardless of the state in which the action was originally brought.

Second, 28 U.S.C. § 1446(b) would be amended to provide that a defendant could remove a putative class action at any time (even at a date more than one year after commencement of the action), so long as the action is removed within 30 days after the date on which the defendants may first ascertain (through a pleading, amended pleading, motion order or other paper) that the action satisfies the jurisdictional requirements for class actions (as set forth in the proposed section 1332(b)). This provision is intended to prevent parties from filing cases as individual actions and then recasting them as purported class actions (or as broader class actions) after the one-year deadline for removal has passed.

Third, H.R. 3789 would amend 28 U.S.C. § 1446(a) to allow any class action defendant to remove an action. At present, an action typically may be removed only if all defendants concur. This provision is intended to address situations in which local defendants with little at risk or defendants "friendly" to the named plaintiffs may preclude other defendants with substantial exposure from gaining access to federal court.

To avoid leaving before federal courts controversies not warranting the attention of the federal judiciary, the legislation (in the proposed new section 1639 of title 28) would require a federal court to dismiss for want of federal jurisdiction any case which it has determined may not be afforded class treatment in any respect.

H.R. 3789: Comments On Specific Issues

Although the notion of expanding federal diversity jurisdiction was broadly endorsed at this Subcommittee's March 5 hearing, it is my understanding that a few thought-provoking questions and concerns have been raised about H.R. 3789. Interestingly, those concerns have not involved frontal challenges to the core concept of the bill -- the idea of opening federal courthouse doors more broadly to class actions. Instead, the inquiries have focused largely on drafting and other technical issues that should not deter Congress from enacting the bill.

I am pleased to have this opportunity to comment on certain aspects of the bill and on some of the questions that have been raised:

Constitutionality Of "Minimal Diversity"

Some persons with whom I have spoken have expressed the assumption that the "complete diversity" prerequisite for federal diversity jurisdiction derives from the Constitution. In reality, that prerequisite is purely statutory. See Strawbridge v. Curtis, 3 Cranch 267 (1806) (noting that the complete diversity requirement derives from "[t]he words of the act of congress," not the Constitution itself). H.R. 3789 would change this statutory "complete diversity" rule for class actions and would allow the exercise of federal diversity jurisdiction over putative class actions where only "partial diversity" exists.

Such a provision would be wholly consistent with Article III of the U.S. Constitution. The U.S. Supreme Court has observed that "in a variety of contexts, [federal courts] have concluded that Article III poses no obstacle to the legislative extension of federal jurisdiction, founded on diversity, so long as any two adverse parties are not co-citizens." State Farm Fire & Cas. Co. v. Tashire, 386 U.S. 523, 530-31 (1967) (citing American Fire & Cas. Co. v. Finn, 341 U.S. 6, 10 n.3 (1951); Wichita R.R. & Light Co. v. Public Util. Commn., 260 U.S. 48 (1922); Barney v. Latham, 103 U.S. 205, 213 (1881)).⁽⁸⁾

Limitations On State Court Class Actions

Some persons have asked whether H.R. 3789 would end most (and potentially all) state court involvement in consumer class actions, because even intra-state consumer class actions would contain putative class members from out of state and thus warrant federal jurisdiction under H.R. 3789. This question misapprehends how class actions work.

Under H.R. 3789, a class consisting of citizens of one state may sue one or more defendants who are also citizens of that state in state court under state laws, and such a class action could not be removed to federal court. For example, if certain citizens of Tennessee bring a state law-based class action against a Tennessee bank and they wish to have their claims heard in a Tennessee state court, they may propose a class limited to Tennessee citizens. The key is that the parties bringing the lawsuit control the issue -- if they want to have a fundamentally local dispute heard in state court, they may do so simply by limiting the class they wish to represent to citizens of the same state as the defendant.

Counsel bringing class action lawsuits engage in this sort of limiting activity every day. Counsel frequently limit their proposed classes to the citizens of a single state and specifically exclude citizens of other jurisdictions (even though such persons may have purportedly similar claims), They employ that tactic to improve their chances of obtaining class certification -- that is, to avoid arguments that class certification should be denied because of the involvement of varying state laws of multiple jurisdictions. See, e.g., In re American Medical Sys., Inc., 75 F.3d 1069, 1085 (6th Cir. 1996) (noting the difficulty of certifying a matter for class treatment where varying state laws would apply).

Mid-Litigation Removals

At a June 4 Subcommittee discussion of H.R. 3789, some Members suggested that if a class action is brought in state court and is limited to citizens of one state suing defendants who are citizens of that same state (so as to preclude removal), the defendant would be able to remove the case if at a later point in the litigation, some of the class members moved to a different state. There is no basis for such a concern.

It is black letter law that "whether federal diversity jurisdiction exists is determined by examining the citizenship of the parties at the time the action is commenced." 13B C. Wright & A. Miller, Federal Practice and Procedure § 3608, at 448-49 (1998). Thus, if a person who was a member of the class at the outset changes citizenship, that development should not affect the question whether federal jurisdiction exists.

To confirm that this principle would apply to H.R. 3789, the legislative history might include language noting that consistent with current law, changes in the citizenship of members of the class originally described in the complaint would not permit removal. However, the legislative history should also make clear that if the class proponents change the class definition to add to the class persons who would bring the case within federal jurisdiction (e.g., by changing the matter from a single-state action against an in-state defendant to a nationwide class), removal would be permitted. In short, the legislative history should stress that if the class proponents structure the class action to fall outside federal jurisdiction, that structure will be honored unless changed.

Even without this legislative history, class proponents wishing to avoid the theoretical "moving class member" problem could simply define their class to include only persons who are citizens of the state at both the time of commencement of the action and at the time of judgment. Under such a definition, if someone moved out of state during the pendency of the action, they would simply exit the purported class. This sort of "flexible" class definition is commonly used in current practice. For example, in product liability class actions in which the plaintiffs seek a repair or replacement of an allegedly defective product, the class is often defined in terms of persons who are "current owners" of the product. If a persons sells his/her product to somebody else while the action is pending, he/she leaves the class because they no longer have a claim. In other cases, class definitions exclude persons who, during the pendency of any action, may conclude to pursue their claims on an individual basis. Under such definitions, a person deciding to pursue claims on his/her own would simply leave the purported class.

Jurisdictional Amount

The bill's federal jurisdictional provisions do not include a "jurisdictional amount" requirement. Such an "amount in dispute" threshold for invoking federal diversity jurisdiction is unnecessary in class actions. By definition, the dollar amounts at issue in class actions are large, typically dwarfing what is at stake in non-class actions that are subject to federal diversity jurisdiction. Thus, as discussed previously, class actions satisfy the general principle reflected in the current 28 U.S.C. § 1332 that only relatively large controversies (measured in terms of the amount in controversy) should be allowed into federal court under a diversity jurisdiction theory.

A significant "amount in controversy" threshold -- $1 million for all claims of all purported class members in the aggregate -- theoretically could be added to H.R. 3789 as a prerequisite for invoking federal diversity jurisdiction over class actions. But it is difficult to imagine a purported class action that would not meet this threshold. Such a provision thus would serve only to spawn unnecessary disputes over whether a case actually meets the "amount" threshold and would cause parties and courts to waste time adjudicating the obvious.

"Comparable Representative Action"

The proposed amendment to 28 U.S.C. § 1332 would grant federal jurisdiction over certain lawsuits "which are brought as a class action or comparable representative action." Under this language, class actions that state courts might now or in the future choose to call something other than "class actions" would still be within the scope of section 1332. To avoid any confusion, the word "representative" might be dropped so that the statute would speak of "class actions or comparable actions." Alternatively, the word "equivalent" might be substituted for "comparable," so that the statute would refer to "class actions or equivalent actions."

"Other Person"

The proposed amendment to 28 U.S.C. § 1332 states that the question whether the diversity requirement was satisfied would be determined by looking to the citizenship of "any member of a proposed plaintiff class or other person on whose behalf the action is brought." This language tracks the "other representative action" phrase discussed above, taking account of the possibility that some state courts may at some point call their "class actions" something else. Deletion of the phrase would not change the bill's substance, and this point might better be addressed in legislative history language.

"Any Defendant" Removal

The bill would permit any defendant to remove a class action to federal court (as opposed to requiring that all defendants concur in removal). This is an important facet of H.R. 3789 because in class actions, there is a risk that defendants will be named who are not "real" defendants and whose sole function is to refuse to concur in removal of a case so as to prevent the other defendants from obtaining access to federal court. These "quasi-defendants" may have very little exposure relative to the other defendants in the case or may be persons who plaintiffs plan to drop from the case before trial. Such defendants should not be allowed to preclude other defendants with substantial exposure from removing the case.

Rule 23 Treatment

The bill provides that "[a]ny class action removed to federal court shall be deemed as brought under Rule 23 . . . and treated as such." As I read it, this sentence merely provides that a state court class action complaint that may not be pleaded in accordance with federal court class action practices would, after removal, still be treated as a proposed class action by the federal court. This is another point that might be better addressed in the legislative history, and dropping this language would not effect a significant change in the bill.

Elimination Of One-Year Restriction

The bill's elimination of the one-year deadline for removing class actions to federal court is another important feature of H.R. 3789.

At present, there are two deadlines for removing purported class actions to federal court. First, under 28 U.S.C. § 1446(b), a defendant must remove a case within thirty days after receiving the complaint if the complaint reveals the existence of federal jurisdiction over the matter. After that thirty-day period has expired, a defendant may remove a case only if the plaintiffs present "an amended pleading, motion, order, or other paper from which it may first be ascertained that the case is one which is or has become removable." In other words, after those first thirty days, a class action cannot be removed unless the lawsuit is altered (e.g., by plaintiffs adding claims, by plaintiffs redefining the parties or the class) or plaintiffs reveal matters denoting the existence of federal jurisdiction that were not included in the original complaint. In short, after the initial thirty-day period, the removability of a case is generally controlled by the actions of the plaintiffs or their counsel.

The second removal deadline in 28 U.S.C. § 1446(b) states that no matter what plaintiffs do after their action has been pending for one year, it may not be removed on the ground that there is federal diversity jurisdiction over the lawsuit. In class actions, this second deadline has resulted in considerable abuse of process. As was demonstrated in testimony at the March 5 hearing, counsel frequently plead around federal jurisdiction when they first file their class actions. Then, after the one-year removal period passes, counsel delete these restrictions, and the real lawsuit reveals itself.

Even if H.R. 3789 were enacted in all other respects, there would remain a major risk of subterfuge. A party could plead a non-removable class action (e.g., an action on behalf of a purported class of Tennessee residents against a Tennessee corporation). Then, at the stroke of midnight a year after the complaint was filed, counsel could turn his/her lawsuit into a nationwide class action that should be subject to federal jurisdiction under H.R. 3789's provisions but that cannot be removed because of the one-year removal bar.

"In Any Respect"

The proposed section 1369 in H.R. 3789 states that "[i]f a district court determines that any action subject to its jurisdiction solely under the provisions of section 1332(b) may not proceed in any respect as a class action . . ., the court shall dismiss the action for lack of subject matter jurisdiction." As I read this language, if a court determines that there is no respect in which a removed case may proceed as a class action, the case shall be dismissed. On the other hand, if the court determines that there is some respect in which class treatment is appropriate (e.g., a limited class), the case may remain in federal court. The idea is to ensure that if a court decides to afford class treatment to any aspect of a case, it will remain subject to federal jurisdiction.

Dismissal

In looking at the proposed section 1369 in the bill, some have questioned whether dismissal is the appropriate remedy when a judge determines that an action cannot proceed as a class action.

This provision would ensure that cases in which the named plaintiffs' claims -- standing alone -- do not satisfy federal jurisdictional requirements would not remain in federal court. Typically, class certification is one of the first items a court will address in a purported class action. If a federal court essentially decides to dismiss the class claims (which is usually the whole reason for filing such an action in the first place), it makes good sense to dismiss the action, since the lawsuit's core purpose has been eliminated.

Named plaintiffs in failed class actions often have little interest in pursuing their claims individually and often discontinue litigating. If they do wish to continue litigating, however, they may simply refile their case in state court. There are legions of cases (including the U.S. Supreme Court's rulings in the American Pipe and Crown Cork cases) holding that the claims of such parties would not be deemed time-barred if they refile their claims. The legislative history might reflect that H.R. 3789 is not intended to alter those existing tolling precedents.

Class Member Removal

A few persons have suggested that unnamed class members and/or persons who intervene as plaintiffs in class actions should be given the same right to remove that would be afforded to defendants under H.R. 3789. Although I am doubtful that a plaintiff removal provision would be used very frequently, it is conceivable that there would be circumstances in which allowing unnamed class members or plaintiff-intervenors to remove would be consistent with the purposes of the class action device.

Effects On State Laws

A very positive attribute of H.R. 3789 is that is does not change substantive law in any respect. It addresses a serious problem with present class action problems by simply changing judicial forums, not substantive law. It may be advisable to affirm this point in the legislative history.

Applicability

As drafted, H.R. 3789 would apply to already pending cases and would permit their removal to federal court. Some have asked whether the bill's applicability should be limited to cases filed after a certain date.

At the March 5 hearing on mass torts and class actions, the Subcommittee heard overwhelming evidence that serious state court class action abuses are occurring in currently pending cases. In some cases, both class members and defendants are having their due process rights denied at this time. If H.R. 3789 is not made applicable to such cases, Congress will be turning a blind eye to the injustices presently occurring in those matters.

It should be stressed, however, that the core purpose of H.R. 3789 is to deal with an ongoing problem with rampant state court class action abuses. Thus, even if the bill were limited to cases filed after a date certain, it still would be a very positive step toward cleaning up those abuses.

Eleventh Amendment Issues

I understand that some persons may have expressed concern that H.R. 3789 may pose a constitutional problem by allowing State governments that are class action defendants to remove their cases to federal court and then claim that the federal court is constitutionally unable to order the State to provide relief under Eleventh Amendment immunity principles. This concern is unwarranted.

"[A] state is not a `citizen' of any state, and when a state is a real party in interest, [a] case cannot be removed on the basis of diversity [jurisdiction]." C. Wright & A. Miller, Federal Practice and Procedure § 3723, at 324-25 (1998) (citing Stone v. South Carolina, 117 U.S. 430, 433 (1886); Postal Tel. Cable Co. v. Alabama, 155 U.S. 482, 487 (1894); Minnesota v. Northern Secs. Co., 194 U.S. 48, 63 (1904); Brown v. Francis, 75 F.3d 860, 865 (3d Cir. 1996) ("`The rule that a state is not a "citizen" for diversity [jurisdiction] purposes is a long-standing one; it enjoys a history of acceptance, which remains undiluted by the passage of time.'") (citation omitted).) In other words, because a State itself can never be a citizen of any State, no "member of a proposed class" could ever be a "citizen of a State different from" a State government defendant. Thus, H.R. 3789's proposed changes to 28 U.S.C. § 1332 would not provide a defendant State government with a basis for removing a plaintiff class action brought against it.

Indeed, to remove a case on the basis of the proposed changes to section 1332, the State would have to argue that it is not a "real party in interest" to the litigation, an argument that would destroy any Eleventh Amendment immunity that the State may wish to assert. See, e.g., Ramada Inns, Inc. v. Rosemount Memorial Park Ass'n, 598 F.2d 1303, 1308-09 (3d Cir. 1979) (Seitz, J., concurring) (noting that Supreme Court precedent required "that the real party in interest inquiry . . . be applied to both the eleventh amendment and diversity [jurisdiction] issues"); PYCA Indus., Inc. v. Harrison County Waste Water Mgmt. Dist., 81 F.3d 1412, 1416 (5th Cir. 1996); University of Rhode Island v. A.W. Chesterton Co., 2 F.3d 1200, 1203 (1st Cir. 1993); Northeast Fed. Credit Union v. Neves, 837 F.2d 531, 534 (1st Cir. 1988); Ronwin v. Shapiro, 657 F.2d 1071, 1073 (9th Cir. 1981). It would be pointless for a state to remove a case in order to assert Eleventh Amendment immunity because in removing the case, it would be admitting that such immunity could not properly be invoked in that case.

It may be advisable to confirm this understanding of the effect of H.R. 3789 in its legislative history.

Conformity With 1998 Securities Bill

The Securities Litigation Uniform Standards Act of 1998, S. 1260, which has been passed by the Senate and is now before the House, addresses the fact that securities class action lawsuits have shifted from federal to state courts in a manner that has prevented the Private Securities Litigation Reform Act of 1995 from fully achieving its objectives. In part, that legislation deals with federal court vs. state court jurisdiction over certain types of class actions.

S. 1260 and H.R. 3789 both address serious abuses of the class action device that are occurring in state courts. S. 1260 differs, however, in that it concerns only one type of state court class action -- those involving securities-related claims. And unlike H.R. 3789, S. 1260 would alter substantive law -- it would flatly prohibit certain kinds of state law-based securities class actions. Nevertheless, the bills contain some provisions on federal jurisdiction and removal issues that theoretically could pose a risk of conflicts, depending on the final form of both bills.

To avoid any such conflicts, a provision could be added to H.R. 3789 to exclude from its federal diversity jurisdiction expansion those class actions concerning "covered securities" (as defined in S. 1260), allowing S. 1269 to govern exclusively any jurisdictional determinations over such matters.

Conclusion

For all of the foregoing reasons, I respectfully submit that the case for expanding federal jurisdiction over putative class actions is overwhelming. H.R. 3789 should be enacted.

Judiciary Homepage

PREPARED STATEMENT OF JOHN H. BEISNER,

O'MELVENY & MYERS LLP, WASHINGTON, D.C.,

BEFORE THE SUBCOMMITTEE ON COURTS AND

INTELLECTUAL PROPERTY

OF THE COMMITTEE ON THE JUDICIARY,

U.S. HOUSE OF REPRESENTATIVES

HEARING ON H.R. 3789

"THE CLASS ACTION JURISDICTION ACT OF 1998"

JUNE 18, 1998