Class Action Fairness Act of 2005
CLASS ACTION FAIRNESS ACT OF 2005 -- (House of Representatives - February 17, 2005)
Mr. SENSENBRENNER. Madam Speaker, I ask unanimous consent that all Members may have 5 legislative days within which to revise and extend their remarks and include extraneous material on S. 5.
The SPEAKER pro tempore. Is there objection to the request of the gentleman from Wisconsin?
There was no objection.
Mr. SENSENBRENNER. Madam Speaker, I yield myself such time as I may consume.
Madam Speaker, I rise in strong support of S. 5, the Class Action Fairness Act of 2005. Today marks the culmination of nearly a decade of legislative efforts to end systematic abuse of our Nation's class action system. We stand on the cusp of sending landmark legislation on civil-justice reform to the President that has been approved by increasing majorities each time it has been considered by the House in each of the last three Congresses and which passed the other body last week with an overwhelming majority of 72 votes.
Since these reforms were first proposed, the magnitude of the class action crisis, the need to address it has become more and more urgent. The crisis now threatens the integrity of our civil justice system and undermines the economic vitality upon which job creation depends.
A major element of the worsening crisis is the exponential increase in State class action cases in a handful of "magnet" or "magic" jurisdictions, many of which deal with national issues in classes. In the last 10 years, State court class actions filings nationwide have increased over 1,315 percent. The infamous handful of magnet courts known for certifying even the most speculative class action suits, the increase in filings now exceeds 5,000 percent. The only explanation for this phenomenon is aggressive forum shopping by trial lawyers to find courts and judges who will act as willing accomplices in a judicial power grab, hearing nationwide cases and setting policy for the entire country.
A second major feature of the present class action crisis is a system producing outrageous settlements that benefit only lawyers and trample the rights of class members. Class actions were originally created to efficiently address a large number of similar claims by people suffering small harms. Today they are too often used to efficiently transfer the large fees to a small number of trial lawyers, with little benefit to the plaintiffs.
The present rules encourage a race to any available State courthouse in the hopes of a rubber-stamped nationwide settlement that produces millions in attorney's fees for the winning plaintiff's attorney. The race to settle produces outcomes that favor expediency and profits for lawyers over justice and fairness for consumers. The losers in this race are the victims who often gain little or nothing through the settlement, yet are bound by it in perpetuity. And all Americans bear the cost of these settlements through increased prices for goods and services.
The bill before the House today offers commonsense procedural changes that will end the most serious abuses by allowing more interstate class actions to be heard in Federal courts while keeping truly local cases in State courts. Its core provisions are similar to those passed by this body in the last three Congresses. S. 5 also implements a consumer bill of rights that will keep class members from being used by the lawyers they never hired to engage in litigation they do not know about or to extort money they will never see.
Madam Speaker, when the House considered this important reform in the last Congress, I remarked that, "The class action judicial system has become a joke, and no one is laughing except the trial lawyers ..... all the way to the bank."
I imagine that laughter turned to nervous chuckles when S. 5 emerged unscathed from the gauntlet in the other body with 72 votes last week. Today, as the House prepares to pass this bill, I suspect you could hear a pin drop in the halls of infamous courthouses located in Madison County, Illinois and Jefferson County, Texas, where for so long the good times have rolled for forum-shopping plaintiffs' attorneys and the judges who enable them. And when this legislation is signed by the President one day soon, those same halls may echo with sobs and curses because this time justice and fairness and the American people will have the last laugh.
Madam Speaker, after years of toil, the moment has arrived. The opportunity to restore common sense, rationality, and dignity to our class action system is now before us, and the need for reform has never been more certain. I urge my colleagues to support the Class Action Fairness Act of 2005.
Madam Speaker, I reserve the balance of my time.
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Mr. SENSENBRENNER. Madam Speaker, first, I have a lengthy additional statement explaining how this bill is to work. We do not have the time in general debate for me to give this statement on the floor, so I will insert the statement relative to the intent of the managers of the bill in the RECORD at this point.
Madam Speaker, I would like to provide a brief summary of the provisions in Sections 4 and 5 of S. 5, the Class Action Fairness Act of 2005. Section 4 gives Federal courts jurisdiction over class action lawsuits in which the aggregate amount in controversy exceeds $5 million, and at least one plaintiff and one defendant are diverse. Overall, new section 1332(d) is intended to expand substantially Federal court jurisdiction over class actions. Its provisions should be read broadly, with a strong preference that interstate class actions should be heard in a Federal court if removed by any defendant. If a purported class action is removed under these jurisdictional provisions, the named plaintiff(s) should bear the burden of demonstrating that the removal was improper. And if a Federal court is uncertain about whether the $5 million threshold is satisfied, the court should err in favor of exercising jurisdiction over the case.
The Sponsors intend that in a case seeking injunctive relief, a matter be subject to Federal jurisdiction under this provision if the value of the matter in litigation exceeds $5 million either from the viewpoint of the plaintiff or the defendant, and regardless of the type of relief sought (e.g., damages, injunctive relief, or declaratory relief). Similarly, in assessing the jurisdictional amount in declaratory relief cases, the Federal court should include in its assessment the value of all relief and benefits that would logically flow from granting the declaratory relief sought by the claimants. For example, a declaration that a defendant's conduct is unlawful or fraudulent will carry certain consequences, such as the need to cease and desist from that conduct, that will often "cost" the defendant in excess of $5 million. In addition, the law is clear that, once a Federal court properly has jurisdiction over a case removed to Federal court, subsequent events cannot "oust" the Federal court of jurisdiction. While plaintiffs can seek to avoid Federal jurisdiction by defining a proposed class in particular ways, they lose that power once the case was properly removed.
New subsections 1332( d)(3) and (d)(4)(B) address the jurisdictional principles that will apply to class actions filed against a defendant in its home State, dividing such cases into three categories. First, for cases in which two-thirds or more of the members of the plaintiff class and the primary defendants are citizens of the State in which the suit was filed, subsection 1332(d)(4)(B) states that such cases will remain in State court. Second, cases in which more than two-thirds of the members of the plaintiff class or one or more of the primary defendants are not citizens of the forum State will be subject to Federal jurisdiction since such cases are predominantly interstate in nature. Finally, there is a middle category of class actions in which more than one-third but fewer than two-thirds of the members of the plaintiff class and the primary defendants are all citizens of the State in which the action was filed. In such cases, the numbers alone may not always confirm that the litigation is more fairly characterized as predominantly interstate in character. New subsection 1332(d)(3) therefore gives Federal courts discretion, in the "interests of justice," to decline to exercise jurisdiction over such cases based on the consideration of five factors.
First, the court should consider whether the claims asserted are of "significant national or interstate interest." Under this factor, if a case presents issues of national or interstate significance, that argues in favor of the matter being handled in Federal court. Second, the court should consider whether the claims asserted will be governed by laws other than those of the forum State. Under this factor, if the Federal court determines that multiple State laws will apply to aspects of the class action, that determination would favor having the matter heard in the Federal court system, which has a record of being more respectful of the laws of the various States in the class action context. The third factor is whether the class action has been pleaded in a manner that seeks to avoid Federal jurisdiction. The purpose of this inquiry is to determine whether the plaintiffs have proposed a "natural" class that encompasses all of the people and claims that one would expect to include in a class action, as opposed to proposing a class that appears to be gerrymandered solely to avoid Federal jurisdiction by leaving out certain potential class members or claims. If the Federal court concludes evasive pleading is involved, that factor would favor the exercise of Federal jurisdiction. The fourth factor considers whether there is a "distinct" nexus between: (a) The forum where the action was brought, and (b) the class members, the alleged harm, or the defendants. This factor is intended to take account of a major concern that led to this legislation-the filing of lawsuits in out-of-the-way "magnet" State courts that have no real relationship to the controversy at hand. Thus, for example, if the majority of proposed class members and the defendant reside in the county where the suit is brought, the court might find a distinct nexus exists.
The fifth factor asks whether the number of citizens of the forum State in the proposed plaintiff class(es) is substantially larger than the number of citizens from any other State, and the citizenship of the other members of the proposed class(es) is dispersed among a substantial number of States. If all of the class members who do not reside in the State where the action was filed are widely dispersed among many other States, that point would suggest that the interests of the forum State in litigating the controversy are preeminent. However, if a court finds that the citizenship of the other class members is not widely dispersed, the opposite balance would be indicated and a Federal forum would be favored. Finally, the sixth factor is whether one or more class actions asserting the same or similar claims on behalf of the same or other persons have been filed in the last three years. The purpose of this factor is efficiency and fairness: To determine whether a matter should be subject to Federal jurisdiction so that it can be coordinated with other overlapping or parallel class actions. If other class actions on the same subject have been (or are likely to be) filed elsewhere, the Sponsors intend that this consideration would strongly favor the exercise of Federal jurisdiction. It is the Sponsors' intention that this factor be interpreted liberally and that plaintiffs not be able to plead around it with creative legal theories. If a plaintiff brings a product liability suit alleging consumer fraud or unjust enrichment, and another suit was previously brought against some of the same defendants alleging negligence with regard to the same product, this factor would favor the exercise of Federal jurisdiction over the later-filed claim.
New subsection 1332(d)(4)(A) is the "Local Controversy Exception." This subsection prohibits Federal courts from exercising diversity jurisdiction over a class action under the foregoing provisions if the plaintiffs clearly demonstrate that each and every one of the following criteria are satisfied in the case at issue. First, more than two-thirds of class members are citizens of the forum State. Second, there is at least one in-State defendant from whom significant relief is sought by members of the class and whose conduct forms a significant basis of plaintiffs' claims. Third, the principal injuries resulting from the alleged conduct, or related conduct, of each
defendant were incurred in the State where the action was originally filed. And fourth, no other class action asserting the same or similar factual allegations against any of the defendants on behalf of the same or other persons has been filed during the preceding three years.
This provision is intended to respond to concerns that class actions with a truly local focus should not be moved to Federal court under this legislation because State courts have a strong interest in adjudicating such disputes. At the same time, this is a narrow exception that was carefully drafted to ensure that it does not become a jurisdictional loophole. Thus, in assessing whether each of these criteria is satisfied by a particular case, a Federal court should bear in mind that the purpose of each of these criteria is to identify a truly local controversy-a controversy that uniquely affects a particular locality to the exclusion of all others. For example, under the second criterion, there must be at least one real local defendant. By that, the Sponsors intend that the local defendant must be a primary focus of the plaintiffs' claims-not just a peripheral defendant. The local defendant must be a target from whom significant relief is sought by the class (as opposed to just a subset of the class membership), as well as being a defendant whose alleged conduct forms a significant basis for the claims asserted by the class. Similarly, the third criterion is that the principal injuries resulting from the actions of all the defendants must have occurred in the State where the suit was filed. By this criterion, the Sponsors mean that all or almost all of the damage caused by defendants' alleged conduct occurred in the State where the suit was brought. The purpose of this criterion is to ensure that this exception is used only where the impact of the misconduct alleged by the purported class is localized. For example, a class action in which local residents seek compensation for property damage resulting from a chemical leak at a manufacturing plant in that community would fit this criterion, provided that the property damage was limited to residents in the vicinity of the plant. However, if the defendants engaged in conduct that could be alleged to have injured consumers throughout the country or broadly throughout several States (such as an insurance or product case), the case would not qualify for this exception, even if it were brought only as a single-State class action.
The fourth and final criterion is that no other class action involving similar allegations has been filed against any of the defendants over the last three years on behalf of the same or other persons. Once again, the Sponsors wish to stress that the inquiry under this criterion should not be whether identical (or nearly identical) class actions have been filed. Rather, the inquiry is whether similar factual allegations have been made against the defendant in multiple class actions, regardless of whether the same causes of actions were asserted or whether the purported plaintiff classes were the same (or even overlapped in significant respects).
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New subsections 1332(d)(5)(A) and (B) specify that S. 5 does not extend Federal diversity jurisdiction to class actions in which (a) the primary defendants are States, State officials, or other governmental entities against whom the district court may be foreclosed from ordering relief, or (b) the number of members of all proposed plaintiff classes in the aggregate is fewer than 100 class members. The purpose of the "State action" cases provision is to prevent States, State officials, or other governmental entities from dodging legitimate claims by removing class actions to Federal court and then arguing that the Federal courts are constitutionally prohibited from granting the requested relief. However, Federal courts should proceed cautiously before declining Federal jurisdiction under the "State action" case exception, and do so only when it is clear that the primary defendants are indeed States, State officials, or other governmental entities
against whom the "court may be foreclosed from ordering relief." The Sponsors wish to stress that this provision should not become a subterfuge for avoiding Federal jurisdiction. In particular, plaintiffs should not be permitted to name State entities as defendants as a mechanism to avoid Federal jurisdiction over class actions that largely target non-governmental defendants. The Sponsors intend that "primary defendants" be interpreted to reach those defendants who are the real "targets" of the lawsuit-i.e., the defendants that would be expected to incur most of the loss if liability is found. It is the Sponsors' intention with regard to each of these exceptions that the party opposing Federal jurisdiction shall have the burden of demonstrating the applicability of an exemption.
The Sponsors understand that in assessing the various criteria established in all of these new jurisdictional provisions, a Federal court may have to engage in some fact-finding, not unlike what is necessitated by the existing jurisdictional statutes. The Sponsors further understand that in some instances, limited discovery may be necessary to make these determinations. However, the Sponsors caution that these jurisdictional determinations should be made largely on the basis of readily available information. Allowing substantial, burdensome discovery on jurisdictional issues would be contrary to the intent of these provisions to encourage the exercise of Federal jurisdiction over class actions.
Under new subsection 1332(d)(9), the Act excludes from its jurisdictional provisions class actions that solely involve claims that relate to matters of corporate governance arising out of State law. The purpose of this provision is to avoid disturbing in any way the Federal vs. State court jurisdictional lines already drawn in the securities litigation class action context by the enactment of the Securities Litigation Uniform Standards Act of 1998. The Sponsors intend that this exemption be narrowly construed. By corporate governance litigation, the Sponsors mean only litigation based solely on (a) State statutory law regulating the organization and governance of business enterprises such as corporations, partnerships, limited partnerships, limited liability companies, limited liability partnerships, and business trusts; (b) State common law regarding the duties owed between and among owners and managers of business enterprises; and (c) the rights arising out of the terms of the securities issued by business enterprises.
New subsection 1332(d)(11) expands Federal jurisdiction over mass actions-suits that are brought on behalf of numerous named plaintiffs who claim that their suits present common questions of law or fact that should be tried together even though they do not seek class certification status. Mass action cases function very much like class actions and are subject to many of the same abuses. Under subsection 1332(d)(11), any civil action in which 100 or more named parties seek to try their claims for monetary relief together will be treated as a class action for jurisdictional purposes. The Sponsors wish to stress that a complaint in which 100 or more plaintiffs are named fits the criteria of seeking to try their claims together, because there would be no other apparent reason to include all of those claimants in a single action unless the intent was to secure a joint trial of the claims asserted in the action. The Sponsors also wish to stress that this provision is intended to mean a situation in which it is proposed or ordered that claims be tried jointly in any respect-that is, if only certain issues are to be tried jointly and the case otherwise meets the criteria set forth in this provision, the matter will be subject to Federal jurisdiction. However, it also should be noted that a mass action would not be eligible for Federal jurisdiction under this provision if any of several criteria are satisfied by the action, including (1) when all the claims asserted in the action arise out of an event or occurrence in the State where, the suit is filed and the injuries were incurred in that State and contiguous States (e.g., a toxic spill case) and (2) when the claims are asserted on behalf of the general public (and not on behalf of individual claimants or members of a purported class) pursuant to a State statute specifically authorizing such an action.
The first exception would apply only to a truly local single event with no substantial interstate effects. The purpose of this exception is to allow cases involving environmental torts such as a chemical spill to remain in State court if both the event and the injuries were truly local, even though there are some out-of-State defendants. By contrast, this exception would not apply to a product liability or insurance case. The second exception also addresses a very narrow situation, specifically a law like the California Unfair Competition Law, which allows individuals to bring a suit on behalf of the general public.
Subsection 1332(d)(11)(B)(i) includes a statement indicating that jurisdiction exists only over those plaintiffs whose claims in a mass action satisfy the jurisdictional amount requirements under section 1332(a). It is the Sponsors' intent that although remands of individual claims not meeting the section 1332 jurisdictional amount requirement may take the action below the 100-plaintiff jurisdictional threshold or the $5 million jurisdictional amount requirement, those subsequent remands should not extinguish Federal diversity jurisdiction over the action as long as the mass action met the various jurisdictional requirements at the time of removal.
Under subsection 1332(d)(11)©, a mass action removed to a Federal court under this provision may not be transferred to another Federal court under the MDL statute (28 U.S.C. §1407) unless a majority of the plaintiffs request such a transfer. The Sponsors wish to make clear that this restriction on MDL transfers applies only to mass actions as defined in subsection 1332(d)(11); the legislation does not more broadly restrict the authority of the Judicial Panel on Multidistrict Litigation to transfer class actions removed to Federal court under this legislation. Under subsection 1332(d)(11)(D), the statute of limitations for any claims that are part of a mass action will be tolled while the mass action is pending in Federal court.
The removal provisions in Section 5 of the legislation are self-explanatory and attempt to put an end to the type of gaming engaged in by plaintiffs' lawyers to keep cases in State court. They should thus be interpreted with this intent in mind. In addition, new subsection 1453© provides that an order remanding a class action to State court is reviewable by appeal at the discretion of the reviewing court. The Sponsors note that the current prohibition on remand order review was added to section 1447 after the Federal diversity jurisdictional statutes and the related removal statutes had been subject to appellate review for many years and were the subject of considerable appellate level interpretive law. The Sponsors believe it is important to create a similar body of clear and consistent guidance for district courts that will be interpreting this legislation and would particularly encourage appellate courts to review cases that raise jurisdictional issues likely to arise in future cases.
Thank you, Madam Speaker, for allowing me to provide an explanation of these jurisdictional provisions.
Madam Speaker, for purposes of engaging in a colloquy with the two gentlemen from Virginia (Mr. Goodlatte) and (Mr. Boucher), I yield to the gentleman from Virginia (Mr. Goodlatte).
Mr. GOODLATTE. Madam Speaker, I thank the chairman very much for yielding.
Madam Speaker, the general principles behind S. 5 and many of the provisions in the legislation are similar to those in H.R. 1115, which the House passed in 2003, and S. 274, which was voted out of committee in the Senate in 2003 but did not ultimately pass.
To the extent these provisions are the same, the House Committee on the Judiciary's report on H.R. 1115 and the Senate Committee on the Judiciary's report on S. 274 reflect the intent and understanding of the committee and the sponsors as to the import of these provisions. However, there are several new provisions in S. 5 regarding Federal jurisdiction over class actions that were not included in prior versions of the legislation.
I would like to ask my colleague, the chairman of the Committee on the Judiciary, to provide an overview of the jurisdictional provisions in the legislation, and I would like to discuss the various exceptions included in the legislation and the intent of the sponsors with regard to these exceptions.
Mr. SENSENBRENNER. Madam Speaker, reclaiming my time, I appreciate the gentleman's question.
Section 4 of the bill gives Federal courts jurisdiction over class action lawsuits in which the matter in controversy exceeds the sum or value of $5 million, excluding interests and costs and at least one proposed class member and one defendant are citizens of different States or countries.
For purposes of the citizenship element of this analysis, S. 5 does not alter current law. Thus, a corporation will continue to be deemed a citizen of any State by which it has been incorporated and of the State where it has its principal place of business. However, the bill provides that for purposes of this new section, and section 1453 of title 28, an unincorporated association shall be deemed to be a citizen of the State where it has its principal place of business and the State under whose laws it organized. This provision is added to ensure that unincorporated associations receive the same treatment as corporations for purposes of diversity jurisdiction. New subsection 1332(d)(10) corrects this anomaly.
Mr. BOUCHER. Madam Speaker, will the gentleman yield?
Mr. SENSENBRENNER. I yield to the gentleman from Virginia.
Mr. BOUCHER. Madam Speaker, I thank the gentleman for yielding.
What about the amount-in-controversy component, the $5 million? Under current law, some Federal courts have determined the value for requests for injunctive relief by considering the value to each individual plaintiff. Since that value is usually less than $75,000, these courts have kept such cases in State court. This is sometimes known as the plaintiff's viewpoint, defendant's viewpoint problem. Would the Chairman explain how the bill resolves this challenge?
Mr. SENSENBRENNER. Madam Speaker, reclaiming my time, under new subsection 1332(d)(6), the claims of the individual class members in any class action shall be aggregated to determine whether the amount in controversy exceeds the sum or value of $5 million. The sponsors intend this subsection to be interpreted broadly, and if a purported class action is removed under this provision, the plaintiff shall bear the burden of demonstrating that the $5 million threshold is not satisfied. By the same token, if a Federal court is uncertain about whether a case puts $5 million or more in controversy, the court should favor exercising jurisdiction over the case.
This principle applies to class actions seeking injunctive relief as well. The sponsors intend that a matter be subject to Federal jurisdiction under this provision if the value of the matter in litigation exceeds the $5 million, either from the viewpoint of the plaintiff or the viewpoint of the defendant, regardless of the type of relief sought, such as damages, injunctive relief or declaratory relief.
The sponsors are aware that some courts, especially in the class action context, have declined to exercise Federal jurisdiction over cases on the grounds that the amount in controversy in those cases exceeded the jurisdictional threshold only when assessed from the viewpoint of the defendant.
For example, a class action seeking injunctive relief that would require a defendant to restructure its business in some fundamental way might cost a defendant well in excess of $75,000 under current law, but might have substantially less value to each plaintiff or even to the class of plaintiffs as a whole. Because S. 5 explicitly allows aggregation for the purposes of determining the amount of controversy in class actions, that concern is no longer relevant.
To the extent plaintiffs seek to avoid this rule by framing their cases as individual actions for injunctive relief, most Federal courts have properly held that in an individual case the cost of injunctive relief is viewed from the defendant's perspective. This legislation extends that principle to class actions as well.
The same approach would apply in a case involving declaratory relief. In determining how much money a declaratory relief case puts in controversy, the Federal court should include in its assessment the value of all relief and benefits that would logically flow from the granting of the declaratory relief sought by the plaintiffs.
For example, a declaration that a defendant's conduct is unlawful or fraudulent will carry certain consequences, such as the need to cease and desist from that conduct that will often cost the defendant in excess of $5 million; or a declaration that a standardized product sold throughout the Nation is defective might well put a case over the $5 million threshold, even if the class complaint did not affirmatively seek a determination that each class member was injured by the product.
The bottom line is that new section 1332(d) is intended to substantially expand Federal court jurisdiction over class actions, not to create loopholes. This provision should be read broadly, with a strong preference that interstate class actions should be heard in a Federal court if properly removed by a defendant.
Mr. GOODLATTE. Madam Speaker, will the gentleman yield?
Mr. SENSENBRENNER. I yield to the gentleman from Virginia.
Mr. GOODLATTE. Madam Speaker, I would also like to discuss the home State exception in the legislation.
New subsections 1332(d)(3) and (d)(4)(B) address the jurisdictional principles that will apply to class actions filed against the defendant in its home State, dividing such cases into three categories.
First, for cases in which two-thirds or more of the members of the plaintiff class and the primary defendants are citizens of the State in which the suit was filed, section 1332(d)(4)(B) states that Federal jurisdiction will not be extended by S. 5. Such cases will remain in State courts.
Second, cases in which more than two-thirds of the members of the plaintiff class are not citizens of the State in which the action was filed will be subject to Federal jurisdiction. Federal courts should be able to hear such lawsuits because they have a predominantly interstate component. They affect people in many jurisdictions, and the laws of many States will be at issue.
Finally, there is a middle category of class actions in which more than one-third, but fewer than two-thirds, of the members of the plaintiff class and the primary defendants are all citizens of the State in which the action was filed. In such cases, the numbers alone may not always confirm that the litigation is more fairly characterized as predominantly interstate in character. New subsection 1332(d)(3), therefore, gives Federal courts discretion in the interests of justice to decline to exercise jurisdiction over such cases based on the consideration of five factors.
Madam Speaker, I would ask the chairman to explain these factors.
Mr. SENSENBRENNER. Reclaiming my time, Madam Speaker, I am pleased to answer the gentleman.
The first factor is whether the claims asserted are of significant national or interstate interest. Under this factor, if a case presents issues of national or interstate significance that argues in favor of the matter being handled in Federal Court, for example, if a class action alleges a nationally distributed pharmaceutical product caused side effects, those cases presumably should be heard in Federal court because of the nationwide ramifications of the dispute and the potential interface with Federal drug laws.
Under this factor, the Federal court should inquire whether the case does present issues of national or interstate significance of this sort. If such issues are identified, that point favors the exercise of the Federal jurisdiction.
The second factor is whether the claims asserted will be governed by laws other than those of the forum State. The sponsors believe that one of the significant problems posed by multistate class actions in State court is the tendency of some State courts to be less than respectful of the laws of other jurisdictions, applying the law of one State to an entire nationwide controversy and thereby ignoring the distinct and varying State laws that should apply to various claims included in the class, depending upon where they arose.
Under this factor, if the Federal court determines that multiple State laws will apply to aspects of the class action, the determination would favor having the matter handled in the Federal court system, which has a record of being more respectful of the laws of various States in the class action controversy. Conversely, if the court concludes that the laws of the State to which the action was filed will apply to the entire controversy, that factor will favor keeping the case in State court.
The third factor is whether the class action has been pleaded in a manner that seeks to avoid Federal jurisdiction. The purpose of this inquiry is to determine whether the plaintiffs have proposed a natural class, a class that encompasses all the people and claims that one would expect to include in a class action, as opposed to proposing a class that appears to be gerrymandered solely to avoid Federal jurisdiction by leaving out certain potential class members or claims.
If the Federal court concludes that evasive pleading is involved, that factor would favor the exercise of Federal jurisdiction. On the other hand, if the class definition and claims appear to follow a natural pattern, that consideration would favor allowing the matter to be handled by a State court.
The fourth factor is whether there is a distinct nexus between, A, the forum where the action was brought, and, B, the class members, the alleged harm or the defendants. This factor is intended to take account of a major concern that led to this legislation, the filing of lawsuits in the out-of-the-way magnet State courts that have no real relationship to the controversy at hand.
Thus, if a majority of the proposed class action members and the defendants reside in the county where the suit is brought, the court might find a distinct nexus exists. The key to this factor is the notion of there being a distinct nexus. If the allegedly injured parties live in many other localities, the nexus is not distinct, and this factor would weigh heavily in favor of the exercise of Federal jurisdiction over the matter.
The fifth factor is whether the number of citizens in the forum State in the proposed plaintiff class is substantially larger than the number of citizens from any other State, and the citizens of the other members of the proposed class is dispersed among a substantial number of States.
This factor is intended to look at the geographic distribution of class members in an effort to determine the forum State's interest in handling the litigation. If all of the out-of-State class members are widely dispersed among many other States, that point would suggest that the interest of the forum State in litigating the controversy are preeminent.
The sponsors intend that such a conclusion would favor allowing the State court in which the action was originally filed to handle the litigation. However, if a court finds that the citizenship of the other class members is not widely dispersed, then a Federal forum would be more appropriate because several States other than the forum State would have a strong interest in the controversy.
The final factor is whether one or more class actions asserting the same or similar claims on behalf of the same or other persons have been filed in the last 3 years. The purpose of this factor is to determine whether a matter should be subject to Federal jurisdiction so that it can be coordinated with other overlapping or parallel class actions.
If the other class actions on the same subject have been or are likely to be filed elsewhere, the sponsors intend that this consideration would strongly favor the exercise of Federal jurisdiction. It is the sponsors' intention that this factor be broadly interpreted and that plaintiffs not be able to plead around it with creative legal theories.
If a plaintiff brings a product liability suit alleging consumer fraud or unjust enrichment, and another suit was previously brought against some of the same defendants alleging negligence with regard to the same product, this factor would favor the exercise of Federal jurisdiction over the later-filed claim.
Madam Speaker, I now yield to my colleague, the gentleman from Virginia (Mr. Boucher), to provide some examples that illustrate how these six factors would work in litigation.
Mr. BOUCHER. Madam Speaker, I thank the gentleman for yielding to me, and I will be pleased to provide two examples.
Suppose that a California State court class action were filed against a California pharmaceutical drug company on behalf of a proposed class of 60 percent California residents and 40 percent Nevada residents alleging harmful side effects attributed to a drug sold nationwide.
In such a case, it would make sense to leave the matter in Federal court. After all, the State laws that would apply in all of these cases would vary, depending on where the drug was prescribed and purchased. As a result, allowing a single Federal court to sort out such issues and handle the balance of the litigation would make sense both from added efficiency and a federalism standpoint.
Now, suppose, in a second example, a checking account fee disclosure class action were filed in a Nevada State court against a Nevada bank located in a border city, and the class consisted of 65 percent Nevada residents and 35 percent California residents who crossed the border in order to conduct transactions in the Nevada bank.
In this hypothetical, it might make sense to allow that matter to proceed in State court. It is likely that Nevada banking law would apply to all of these claims, even those of the California residents, since all of the transactions occurred in the State of Nevada. There is also less likelihood that multiple actions will be filed around the country on the same subject so as to give rise to a coordinating Federal multidistrict litigation proceeding.
Mr. GOODLATTE. Madam Speaker, if the chairman would continue to yield.
Mr. SENSENBRENNER. I yield to the other gentleman from Virginia (Mr. Goodlatte).
Mr. GOODLATTE. I thank the chairman for yielding to me. I think those examples really reflect the intent of the legislation.
Madam Speaker, the legislation also includes a local controversy exception which is intended to ensure that truly local class actions can remain in State court under the legislation. Under this provision, Federal courts are instructed not to exercise jurisdiction over cases that meet all of the following four criteria:
First, more than two-thirds of the class members must be the citizens of the State where the suit is brought; second, there must be at least one in-State defendant from whom significant relief is sought by members of the class and whose conduct forms a significant basis of plaintiffs' claims; third, the principal injuries resulting from the alleged conduct or related conduct of each defendant must have occurred in the State where the action was originally filed; and, fourth, no other class action has been filed during the preceding 3 years asserting the same or similar factual allegations against any of the defendants.
Madam Speaker, I would ask that the chairman elaborate on these criteria.
Mr. SENSENBRENNER. Madam Speaker, reclaiming my time, yes, this provision is intended to respond to concerns that class actions with a truly local focus should not be moved to Federal court under this legislation because State courts have a strong interest in adjudicating such disputes. At the same time, this is a narrow exception that was carefully drafted to ensure that it does not become a jurisdictional loophole. Thus, each of the criteria is intended to identify a truly local class action.
First, there must be a primarily local class. Secondly, there must be at least one real local defendant. And by that the drafters meant that the local defendant must be a primary focus of the plaintiffs' claims, not just a retailer or other peripheral defendant. The defendant must be a target from whom significant relief is sought by the class, as opposed to just a subset of the class membership, as well as being a defendant whose alleged conduct forms a significant basis for the claims asserted by the class.
For example, in a consumer fraud case, alleging that an insurance company incorporated and based in another State misrepresented its policies, the local agent of the company named as a defendant presumably would not fit this criteria. He or she probably would have had contact with only some of the purported class members and, thus, would not be a person from whom significant relief would be sought by the plaintiff class viewed as a whole. And, from a relief standpoint, the real demand of the full class in terms of seeking significant relief would be on the insurance company itself.
Third, the principal injuries resulting from the actions of all the defendants must have occurred in the State where the suit was filed. This criterion means that all or almost all of the damage caused by the defendants' conduct occurred in the State where the suit was brought. If defendants engaged in conduct that allegedly injured consumers throughout the country, the case would not qualify for the local controversy exception, even if it was only brought as a single State class action.
And, fourth, no other class action involving similar allegations has been filed against any of the defendants over the last 3 years. In other words, if we are talking about a situation that results in multiple class actions, those are not the types of cases that this exception is intended to address. I would like to stress that the inquiry under this criterion should not be whether identical or nearly identical class actions have been filed. Rather, the inquiry is whether similar factual allegations have been made against the defendant in multiple class actions, regardless of whether the same causes of action were asserted or whether the proposed plaintiff classes in the prior case was the same.
Madam Speaker, I yield to the gentleman from Virginia (Mr. Goodlatte).
Mr. GOODLATTE. I thank the chairman for yielding once again.
Madam Speaker, in this regard I think it is important to note that the exceptions in this legislation are just that, exceptions, and they should not be interpreted in ways that turn them into loopholes. For example, the legislation excludes actions against States. Obviously, this does not mean that plaintiffs can simply name a State in every consumer class action and stay out of Federal court. To the contrary, Federal courts should proceed cautiously before declining Federal jurisdiction under the subsection 1332(d)(5)(a) "state action" case exception, and do so only when it is clear that the primary defendants are indeed States, State officials, or other governmental entities against whom the court may be foreclosed from ordering relief.
The sponsors intend that primary defendants be intended to reach those defendants who are the real targets of the lawsuit, i.e. the defendants who would be expected to incur most of the loss if liability is found. Thus, the term "primary defendant" should include any person who has substantial exposure to significant portions of the proposed class in the action, particularly any defendant that is allegedly liable to the vast majority of the members of the proposed classes, as opposed to simply a few individual class members.
It is the sponsors' intention with regard to each of these exceptions that the party opposing Federal jurisdiction shall have the burden of demonstrating the applicability of an exemption. Thus, if a plaintiff seeks to have a class action remanded on the ground that the primary defendants and two-thirds or more of the class members are citizens of the home State, that plaintiff has the burden of demonstrating that these criteria are met.
Similarly, if a plaintiff seeks to have a purported class action remanded because a primary defendant is a State, that plaintiff should have the burden of demonstrating that the exception should apply.
Mr. BOUCHER. Madam Speaker, if the gentleman from Wisconsin will yield once again.
Mr. SENSENBRENNER. I yield to the gentleman from Virginia (Mr. Boucher).
Mr. BOUCHER. Madam Speaker, I thank the gentleman for yielding.
The principles that have just been enumerated apply to another provision that I would like to discuss, the mass action provision. Under this provision, defendants will be able to remove mass actions to Federal court under the same circumstances in which they will be able to remove class actions.
However, a Federal court would only exercise jurisdiction over these claims that meet the $75,000 minimum. In addition, a mass action cannot be removed to Federal court if it falls under one of the following four categories:
number one, if all of the claims arise out of an event or occurrence that happened in the State where the action was filed and that resulted in injuries only in that State or in contiguous States;
number two, if it is the defendants who seek to have the claims joined for trial;
number three, if the claims are asserted on behalf of the general public pursuant to a State statute authorizing such an action;
and, number four, if the claims have been consolidated or coordinated for pretrial purposes only.
I would appreciate the gentleman from Wisconsin clarifying how the $75,000 amount in controversy minimum would apply to assessing whether Federal jurisdiction exists over a mass action, and, most importantly, explaining the intent of the sponsors with regard to the first and third exceptions.
Mr. SENSENBRENNER. Mr. Speaker, reclaiming my time, I will be happy to explain.
The mass action provision was included in the bill because mass actions are really class actions in disguise. They involve an element of people who want their claims adjudicated together, and they often result in the same abuses as class actions. In fact, sometimes the abuses are even worse because the lawyers seek to join claims that have little to do with each other and confuse a jury into awarding millions of dollars to individuals who have suffered no real injury.
Here is how the mass action provision and the current amount-in-controversy provision would work in tandem:
suppose 200 people file a mass action in Mississippi against a New Jersey drug manufacturer and also name a local drug store. Three of them assert claims for a million dollars apiece, and the rest assert claims of $20,000.
The Federal Court would have jurisdiction over the mass action because there are more than 100 plaintiffs, there is minimal diversity, and the total amount of controversy exceeds $5 million, and a product liability case does not qualify for the local occurrence exception in the provision.
Then the question becomes, which claims would, in the mass action, the Federal judge keep in Federal Court, and which would be remanded? At this point the judge would have to look at each of the claims very carefully and determine whether or not they meet the $75,000 minimum.
In this regard, I would note that the plaintiffs often seek to minimize what they are seeking in the complaint so that they can stay in State court. For example, sometimes plaintiffs leave their claim for punitive damages off the original complaint to make it seem like their claims are smaller than they really are.
It is our expectation that a Federal judge would read a complaint very carefully and only remand claims that clearly do not meet the $75,000 threshold. If it is likely that a plaintiff is going to turn around in a month and add an additional claim for punitive damages, the Federal court should obviously assert jurisdiction over that individual's claims.
Finally, I would like to stress that this provision in no way is intended to abrogate 8 United States Code 3867 to narrow current jurisdictional rules. Thus, if a Federal court believed it to be appropriate, the court could apply supplemental jurisdiction in the mass action context as well.
With regard to the exceptions, it is our intent that they be interpreted strictly by a court so that they do not become loopholes for an important jurisdictional provision. Thus, the first exception would apply only in a situation where we are talking about a truly local single event with no substantial interstate effects.
The purpose of this exception is to allow cases involving environmental torts, such as a chemical spill, to remain in State court if both the event and the injuries were truly local, even though there are some out-of-state defendants.
By contrast, this exception would not apply to a product liability or insurance case. The sale of a product to different people does not qualify as an event, and the alleged injuries in such a case would be spread out over more than one State or contiguous States even if all of the plaintiffs in a particular case came from one single State.
The third exception addresses a very narrow situation, specifically a law like the California Unfair Competition Law, which allows individuals to bring a suit on behalf of the general public. Such a suit would not qualify as a mass action. However, the vast majority of cases brought under other States' consumer fraud laws which do not have a parallel provision could qualify as removable class actions.
I yield to the gentleman from Virginia.
Mr. GOODLATTE. I thank the gentleman for yielding.
Finally, Mr. Speaker, some critics have complained that the legislation removal provisions will result in delay. Can the gentleman explain why that is simply not the case?
Mr. SENSENBRENNER. Mr. Speaker, reclaiming my time, once again, critics of the legislation have it backwards. This legislation will streamline jurisdictional inquiries by putting an end to all of the gaming that takes place under the current system, and the so-called delay refers to procedural rules that already exist under the current system.
Under existing law, diversity of citizenship between the parties must exist, both at the time a complaint is filed and at the time a complaint is removed to Federal court. However, if the plaintiff files an amended complaint in State court that creates jurisdiction, or if subsequent events create jurisdiction, the defendant can then remove the case to Federal court.
Current law is also clear that once a complaint is properly removed to Federal court, the Federal court's jurisdiction cannot be ousted by later events. Thus, for example, changes in the amount of controversy after the complaint has been removed would not subject a lawsuit to be remanded to State court.
Mr. GOODLATTE. Mr. Speaker, I thank the gentleman for his leadership in moving this legislation forward and in working with the Senate to accomplish that as well.
I hope this colloquy will provide guidance on the very important jurisdictional provisions in S. 5 and the sponsor's intent.
Mr. SENSENBRENNER. Mr. Speaker, I reserve the balance of my time.
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Mr. SENSENBRENNER. Mr. Speaker, I always thought that Federal judges protected the rights of everybody.
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Mr. SENSENBRENNER. Mr. Speaker, I yield myself the balance of the time.
Mr. Speaker, notwithstanding what we have heard from opponents of this legislation, its passage would not extinguish the legal right of any injured party, whether it be a class action, a mass action, or an individual lawsuit from proceeding in a court of competent jurisdiction in the United States. What the bill does do is it puts some sense into the class action system so that the members of the plaintiff's class will be fairly and adequately compensated rather than seeing all of their gains go to attorneys and them just getting coupon settlements from the people who have allegedly done them wrong.
I was particularly perturbed listening to the gentleman from Massachusetts (Mr. Markey), who said that the kids who start smoking at 13 and 14 years old are going to be denied their day in court, and that the tobacco companies are going to end up cashing in on a big bonanza.
Well, I had my staff, while this was going on, look at what has happened to Altria, the parent company of Philip Morris. Since the other body passed this bill, Altria stock has gone down by at least $1.50, or 2 percent. And today, the Reuters story that came out less than an hour ago says that the Dow has been dragged down by Altria.
Now, if this was the bonanza to investors in Altria, the stock would not be going down. It is not. That is a fallacious argument. Reject the substitute and pass the bill.
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Mr. SENSENBRENNER. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, I rise in opposition to the Democratic substitute amendment and urge my colleagues to reject it. The new math behind the substitute amendment rests on the following arithmetic: if you add a number of amendments rejected by large bipartisan majorities in the other body last week and combine them with the amendment ideas overwhelmingly rejected on the House floor by a bipartisan vote last year, the sum will somehow equal a credible solution. Funny math.
Mr. Speaker, this formula simply does not add up. The American consumers and businesses will be left with change in their pockets if the amendment passes. The Democratic substitute is less than the sum of its parts and represents a quotient that renders Senate Bill 5's core reform elements meaningless.
The individual elements of this proposal deserve some comment and explanation. First, I note with some amusement that the substitute totally recycles the findings of S. 5. The pages of findings discuss abusive class action windfall settlements for trial attorneys, forum shopping, and the need for more of these large interstate class action cases to be in Federal court.
While the minority substitute reargues the compelling case for reform of the class action system, it is followed by text that will only perpetuate the crisis the findings identify. Their admitting you have a problem is the first step to recovery, and we appreciate that admission; but the minority sponsors clearly are not ready for step two.
One element of the substitute amendment is the State attorney general provision allowing any class action to be brought by or on behalf of the State attorney general to be in State court. This provision is unnecessary because when State attorneys general sue on behalf of their citizens, those actions are almost always "parens patriae" actions, and not class actions; and the former will be in no way affected by this bill.
Also, the provision could produce troubling associations between attorneys general and plaintiffs' lawyers. For these reasons, the Pryor amendment in the other body that this provision copies verbatim failed to garner even 40 votes on the Senate floor last week.
A second element of the substitute is the "choice of law" provision. This provision would not only eviscerate the bill, but also would overturn 70 years of established Supreme Court precedent and would export to Federal courts a primary expedient of class action abuse we seek to remedy: the reckless application by local courts of the law of one State to the entire Nation in large interstate cases.
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Mr. SENSENBRENNER. Mr. Speaker, I yield myself the balance of my time.
Mr. Speaker, the amendment in the nature of a substitute completely guts this bill. Every crippling amendment that was rejected either in this House or the other body in this Congress or the previous Congress is incorporated in this amendment. They do not have any new ideas over there. They just repackage and try to regurgitate the old ideas that have been found lacking.
The issue in this bill is very clear, and that is that we have to restore some sanity to the civil justice system by dealing with the abuses that a small group of lawyers have turned the class action system into.
When the framers of the Constitution wrote that inspired document, they gave Congress the power to regulate interstate Congress. What has happened as a result of the abuse of the class action system is that judges in small out-of-the-way counties, like Madison County, Illinois and Jefferson County, Texas end up being the ultimate arbiters of interstate commerce.
This bill puts some balance back into the system. The amendment perpetuates the existing system. Vote "no" on the amendments, vote "no" on the motion to recommit, and pass the bill.
Mr. Speaker, I yield back the balance of my time.
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