MAY 15, 2003

THANK YOU, MR. CHAIRMAN, FOR HOLDING THIS IMPORTANT HEARING ON THE CLASS ACTION FAIRNESS ACT OF 2003. I INTRODUCED THIS LEGISLATION, ALONG WITH CHAIRMAN SENSENBRENNER, AND MY FELLOW JUDICIARY COMMITTEE MEMBERS MR. BOUCHER, MR. HYDE, AND MR. SMITH.

THIS MUCH-NEEDED BIPARTISAN LEGISLATION CORRECTS A SERIOUS FLAW IN OUR FEDERAL JURISDICTION STATUTES. AT PRESENT, THOSE STATUTES FORBID OUR FEDERAL COURTS FROM HEARING MOST INTERSTATE CLASS ACTIONS - THE LAWSUITS THAT INVOLVE MORE MONEY AND TOUCH MORE AMERICANS THAN VIRTUALLY ANY OTHER TYPE OF LITIGATION IN OUR LEGAL SYSTEM.

THE CLASS ACTION DEVICE IS A NECESSARY AND IMPORTANT PART OF OUR LEGAL SYSTEM. IT PROMOTES EFFICIENCY BY ALLOWING PLAINTIFFS WITH SIMILAR CLAIMS TO ADJUDICATE THEIR CASES IN ONE PROCEEDING. IT ALSO ALLOWS CLAIMS TO BE HEARD IN CASES WHERE THERE ARE SMALL HARMS TO A LARGE NUMBER OF PEOPLE, WHICH WOULD OTHERWISE GO UNADDRESSED BECAUSE THE COST TO THE INDIVIDUALS SUING COULD FAR EXCEED THE BENEFIT TO THE INDIVIDUAL. HOWEVER, CLASS ACTIONS ARE INCREASINGLY BEING USED IN WAYS THAT DO NOT PROMOTE THE INTERESTS THEY WERE INTENDED TO SERVE.

N RECENT YEARS, STATE COURTS HAVE BEEN FLOODED WITH CLASS ACTIONS. AS A RESULT OF THE ADOPTION OF DIFFERENT CLASS ACTION CERTIFICATION STANDARDS IN THE VARIOUS STATES, THE SAME CLASS MIGHT BE CERTIFIABLE IN ONE STATE AND NOT ANOTHER, OR CERTIFIABLE IN STATE COURT BUT NOT IN FEDERAL COURT. THIS CREATES THE POTENTIAL FOR ABUSE OF THE CLASS ACTION DEVICE, PARTICULARLY WHEN THE CASE INVOLVES PARTIES FROM MULTIPLE STATES OR REQUIRES THE APPLICATION OF THE LAWS OF MANY STATES.

FOR EXAMPLE, SOME STATE COURTS ROUTINELY CERTIFY CLASSES BEFORE THE DEFENDANT IS EVEN SERVED WITH A COMPLAINT AND GIVEN A CHANCE TO DEFEND ITSELF. OTHER STATE COURTS EMPLOY VERY LAX CLASS CERTIFICATION CRITERIA, RENDERING VIRTUALLY ANY CONTROVERSY SUBJECT TO CLASS ACTION TREATMENT. THERE ARE INSTANCES WHERE A STATE COURT, IN ORDER TO CERTIFY A CLASS, HAS DETERMINED THAT THE LAW OF THAT STATE APPLIES TO ALL CLAIMS, INCLUDING THOSE OF PURPORTED CLASS MEMBERS WHO LIVE IN OTHER JURISDICTIONS. THIS HAS THE EFFECT OF MAKING THE LAW OF THAT STATE APPLICABLE NATIONWIDE.

THE EXISTENCE OF STATE COURTS THAT LOOSELY APPLY CLASS CERTIFICATION RULES ENCOURAGES PLAINTIFFS TO FORUM SHOP FOR THE COURT THAT IS MOST LIKELY TO CERTIFY A PURPORTED CLASS. IN ADDITION TO FORUM SHOPPING, PARTIES FREQUENTLY EXPLOIT MAJOR LOOPHOLES IN FEDERAL JURISDICTION STATUTES TO BLOCK THE REMOVAL OF CLASS ACTIONS THAT BELONG IN FEDERAL COURT. FOR EXAMPLE, PLAINTIFFS COUNSEL MAY NAME PARTIES THAT ARE NOT REALLY RELEVANT TO THE CLASS CLAIMS IN AN EFFORT TO DESTROY DIVERSITY. IN OTHER CASES, COUNSEL MAY WAIVE FEDERAL LAW CLAIMS OR SHAVE THE AMOUNT OF DAMAGES CLAIMED TO ENSURE THAT THE ACTION WILL REMAIN IN STATE COURT.

ANOTHER PROBLEM CREATED BY THE ABILITY OF STATE COURTS TO CERTIFY CLASS ACTIONS WHICH ADJUDICATE THE RIGHTS OF CITIZENS OF MANY STATES IS THAT OFTEN TIMES MORE THAN ONE CASE INVOLVING THE SAME CLASS IS CERTIFIED AT THE SAME TIME. IN THE FEDERAL COURT SYSTEM, THOSE CASES INVOLVING COMMON QUESTIONS OF FACT MAY BE TRANSFERRED TO ONE DISTRICT FOR COORDINATED OR CONSOLIDATED PRETRIAL PROCEEDINGS.

WHEN THESE CLASS ACTIONS ARE PENDING IN STATE COURTS, HOWEVER, THERE IS NO CORRESPONDING MECHANISM FOR CONSOLIDATING THE COMPETING SUITS. INSTEAD, A SETTLEMENT OR JUDGMENT IN ANY OF THE CASES MAKES THE OTHER CLASS ACTIONS MOOT. THIS CREATES AN INCENTIVE FOR EACH CLASS COUNSEL TO OBTAIN A QUICK SETTLEMENT OF THE CASE, AND AN OPPORTUNITY FOR THE DEFENDANT TO PLAY THE VARIOUS CLASS COUNSELS AGAINST EACH OTHER AND DRIVE THE SETTLEMENT VALUE DOWN. THE LOSER IN THIS SYSTEM IS THE CLASS MEMBER WHOSE CLAIM IS EXTINGUISHED BY THE SETTLEMENT, AT THE EXPENSE OF COUNSEL SEEKING TO BE THE ONE ENTITLED TO RECOVERY OF FEES.

OUR BILL IS DESIGNED TO PREVENT THESE ABUSES BY ALLOWING LARGE INTERSTATE CLASS ACTION CASES TO BE HEARD IN FEDERAL COURT. IT WOULD EXPAND THE STATUTORY DIVERSITY JURISDICTION OF THE FEDERAL COURTS TO ALLOW CLASS ACTION CASES INVOLVING MINIMAL DIVERSITY - THAT IS, WHEN ANY PLAINTIFF AND ANY DEFENDANT ARE CITIZENS OF DIFFERENT STATES - TO BE BROUGHT IN OR REMOVED TO FEDERAL COURT.

ARTICLE III OF THE CONSTITUTION EMPOWERS CONGRESS TO ESTABLISH FEDERAL JURISDICTION OVER DIVERSITY CASES - CASES BETWEEN CITIZENS OF DIFFERENT STATES. THE GRANT OF FEDERAL DIVERSITY JURISDICTION WAS PREMISED ON CONCERNS THAT STATE COURTS MIGHT DISCRIMINATE AGAINST OUT OF STATE DEFENDANTS. IN A CLASS ACTION, ONLY THE CITIZENSHIP OF THE NAMED PLAINTIFFS IS CONSIDERED FOR DETERMINING DIVERSITY, WHICH MEANS THAT FEDERAL DIVERSITY JURISDICTION WILL NOT EXIST IF THE NAMED PLAINTIFF IS A CITIZEN OF THE SAME STATE AS THE DEFENDANT, REGARDLESS OF THE CITIZENSHIP OF THE REST OF THE CLASS. CONGRESS ALSO IMPOSES A MONETARY THRESHOLD - NOW $75,000 - FOR FEDERAL DIVERSITY CLAIMS. HOWEVER, THE AMOUNT IN CONTROVERSY REQUIREMENT IS SATISFIED IN A CLASS ACTION ONLY IF ALL OF THE CLASS MEMBERS ARE SEEKING DAMAGES IN EXCESS OF THE STATUTORY MINIMUM.

THESE JURISDICTIONAL STATUTES WERE ORIGINALLY ENACTED YEARS AGO, WELL BEFORE THE MODERN CLASS ACTION AROSE, AND THEY NOW LEAD TO PERVERSE RESULTS. FOR EXAMPLE, UNDER CURRENT LAW, A CITIZEN OF ONE STATE MAY BRING IN FEDERAL COURT A SIMPLE $75,001 SLIP-AND-FALL CLAIM AGAINST A PARTY FROM ANOTHER STATE. BUT IF A CLASS OF 25 MILLION PRODUCT OWNERS LIVING IN ALL 50 STATES BRINGS CLAIMS COLLECTIVELY WORTH $15 BILLION AGAINST THE MANUFACTURER, THE LAWSUIT USUALLY MUST BE HEARD IN STATE COURT.

THIS RESULT IS CERTAINLY NOT WHAT THE FRAMERS HAD IN MIND WHEN THEY ESTABLISHED FEDERAL DIVERSITY JURISDICTION. OUR BILL OFFERS A SOLUTION BY MAKING IT EASIER FOR PLAINTIFF CLASS MEMBERS AND DEFENDANTS TO REMOVE CLASS ACTIONS TO FEDERAL COURT, WHERE CASES INVOLVING MULTIPLE STATE LAWS ARE MORE APPROPRIATELY HEARD. UNDER OUR BILL, IF A REMOVED CLASS ACTION IS FOUND NOT TO MEET THE REQUIREMENTS FOR PROCEEDING ON A CLASS BASIS, THE FEDERAL COURT WOULD DISMISS THE ACTION WITHOUT PREJUDICE AND THE ACTION COULD BE RE-FILED IN STATE COURT.

IN ADDITION, THE BILL PROVIDES A NUMBER OF NEW PROTECTIONS FOR PLAINTIFF CLASS MEMBERS INCLUDING A REQUIREMENT THAT NOTICES SENT TO CLASS MEMBERS BE WRITTEN IN PLAIN ENGLISH AND PROVIDE ESSENTIAL INFORMATION THAT IS EASILY UNDERSTOOD. FURTHERMORE, THE BILL PROVIDES JUDICIAL SCRUTINY FOR SETTLEMENTS THAT PROVIDE CLASS MEMBERS ONLY COUPONS AS RELIEF FOR THEIR INJURIES, AND BARS APPROVAL OF SETTLEMENTS IN WHICH CLASS MEMBERS SUFFER A NET LOSS. THE BILL ALSO INCLUDES PROVISIONS THAT PROTECT CONSUMERS FROM BEING DISADVANTAGED BY LIVING FAR AWAY FROM THE COURTHOUSE. THESE ADDITIONAL CONSUMER PROTECTIONS WILL ENSURE THAT CLASS ACTION LAWSUITS BENEFIT THE CONSUMERS THEY ARE INTENDED TO COMPENSATE.

THIS LEGISLATION DOES NOT LIMIT THE ABILITY OF ANYONE TO FILE A CLASS ACTION LAWSUIT. IT DOES NOT CHANGE ANYONE’S RIGHT TO RECOVERY. OUR BILL SPECIFICALLY PROVIDES THAT IT WILL NOT ALTER THE SUBSTANTIVE LAW GOVERNING ANY CLAIMS AS TO WHICH JURISDICTION IS CONFERRED. OUR LEGISLATION MERELY CLOSES THE LOOPHOLE, ALLOWING FEDERAL COURTS TO HEAR BIG LAWSUITS INVOLVING TRULY INTERSTATE ISSUES, WHILE ENSURING THAT PURELY LOCAL CONTROVERSIES REMAIN IN STATE COURTS. THIS IS EXACTLY WHAT THE FRAMERS OF THE CONSTITUTION HAD IN MIND WHEN THEY ESTABLISHED FEDERAL DIVERSITY JURISDICTION.

I URGE EACH OF MY COLLEAGUES TO SUPPORT THIS VERY IMPORTANT BIPARTISAN LEGISLATION.