S 353 IS

To provide for class action reform, and for other purposes.

February 3, 1999

Mr. GRASSLEY (for himself, Mr. KOHL, and Mr. THURMOND) introduced the following bill; which was read twice and referred to the Committee on the Judiciary

To provide for class action reform, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Class Action Fairness Act of 1999'.

SEC. 2. NOTIFICATION REQUIREMENT OF CLASS ACTION CERTIFICATION OR SETTLEMENT.

(a) IN GENERAL- Part V of title 28, United States Code, is amended by inserting after chapter 113 the following new chapter:

`CHAPTER 114--CLASS ACTIONS

`Sec.

`1711. Definitions.

`1712. Application.

`1713. Notification of class action certifications and settlements.

`1714. Limitation on attorney's fees in class actions.

`Sec. 1711. Definitions

`In this chapter the term--

`(1) `class' means a group of persons that comprise parties to a civil action brought by 1 or more representative persons;

`(2) `class action' means a civil action filed pursuant to rule 23 of the Federal Rules of Civil Procedure or similar State rules of procedure authorizing an action to be brought by 1 or more representative persons on behalf of a class;

`(3) `class certification order' means an order issued by a court approving the treatment of a civil action as a class action;

`(4) `class member' means a person that falls within the definition of the class;

`(5) `class counsel' means the attorneys representing the class in a class action;

`(6) `plaintiff class action' means a class action in which class members are plaintiffs; and

`(7) `proposed settlement' means a settlement agreement between or among the parties in a class action that is subject to court approval before the settlement becomes binding on the parties.

`Sec. 1712. Application

`This chapter shall apply to--

`(1) all plaintiff class actions filed in Federal court; and

`(2) all plaintiff class actions filed in State court in which--

`(A) any class member resides outside the State in which the action is filed; and

`(B) the transaction or occurrence that gave rise to the class action occurred in more than 1 State.

`Sec. 1713. Notification of class action certifications and settlements

`(a) Not later than 10 days after a proposed settlement in a class action is filed in court, class counsel shall serve the State attorney general of each State in which a class member resides and the Attorney General of the United States as if such attorneys general and the Department of Justice were parties in the class action with--

`(1) a copy of the complaint and any materials filed with the complaint and any amended complaints (except such materials shall not be required to be served if such materials are made electronically available through the Internet and such service includes notice of how to electronically access such material);

`(2) notice of any scheduled judicial hearing in the class action;

`(3) any proposed or final notification to class members of--

`(A)(i) the members' rights to request exclusion from the class action; or

`(ii) if no right to request exclusion exists, a statement that no such right exists; and

`(B) a proposed settlement of a class action;

`(4) any proposed or final class action settlement;

`(5) any settlement or other agreement contemporaneously made between class counsel and counsel for the defendants;

`(6) any final judgment or notice of dismissal;

`(7)(A) if feasible the names of class members who reside in each State attorney general's respective State and the estimated proportionate claim of such members to the entire settlement; or

`(B) if the provision of information under subparagraph (A) is not feasible, a reasonable estimate of the number of class members residing in each attorney general's State and the estimated proportionate claim of such members to the entire settlement; and

`(8) any written judicial opinion relating to the materials described under paragraphs (3) through (6).

`(b) A hearing to consider final approval of a proposed settlement may not be held earlier than 120 days after the date on which the State attorneys general and the Attorney General of the United States are served notice under subsection (a).

`(c) Any court with jurisdiction over a plaintiff class action shall require that--

`(1) any written notice provided to the class through the mail or publication in printed media contain a short summary written in plain, easily understood language, describing--

`(A) the subject matter of the class action;

`(B) the legal consequences of being a member of the class action;

`(C) the ability of a class member to seek removal of the class action to Federal court if--

`(i) the action is filed in a State court; and

`(ii) Federal jurisdiction would apply to such action under section 1332(d);

`(D) if the notice is informing class members of a proposed settlement agreement--

`(i) the benefits that will accrue to the class due to the settlement;

`(ii) the rights that class members will lose or waive through the settlement;

`(iii) obligations that will be imposed on the defendants by the settlement;

`(iv) the dollar amount of any attorney's fee class counsel will be seeking, or if not possible, a good faith estimate of the dollar amount of any attorney's fee class counsel will be seeking; and

`(v) an explanation of how any attorney's fee will be calculated and funded; and

`(E) any other material matter; and

`(2) any notice provided through television or radio to inform the class members of the right of each member to be excluded from a class action or a proposed settlement, if such right exists, shall, in plain, easily understood language--

`(A) describe the persons who may potentially become class members in the class action; and

`(B) explain that the failure of a person falling within the definition of the class to exercise such person's right to be excluded from a class action will result in the person's inclusion in the class action.

`(d) Compliance with this section shall not provide immunity to any party from any legal action under Federal or State law, including actions for malpractice or fraud.

`(e)(1) A class member may refuse to comply with and may choose not to be bound by a settlement agreement or consent decree in a class action if the class member resides in a State where the State attorney general has not been provided notice and materials under subsection (a).

`(2) The rights created by this subsection shall apply only to class members or any person acting on a class member's behalf, and shall not be construed to limit any other rights affecting a class member's participation in the settlement.

`(f) Nothing in this section shall be construed to impose any obligations, duties, or responsibilities upon State attorneys general or the Attorney General of the United States.

`Sec. 1714. Limitation on attorney's fees in class actions

`(a) In any class action, the total attorney's fees and expenses awarded by the court to counsel for the plaintiff class may not exceed a reasonable percentage of the amount of--

`(1) any damages and prejudgment interest actually paid to the class;

`(2) any future financial benefits to the class based on the cessation of alleged improper conduct by the defendants; and

`(3) costs actually incurred by all defendants in complying with the terms of an injunctive order or settlement agreement.

`(b) Notwithstanding subsection (a), to the extent that the law permits, the court may award attorney's fees and expenses to counsel for the plaintiff class based on a reasonable lodestar calculation.'.

(b) TECHNICAL AND CONFORMING AMENDMENT- The table of chapters for part V of title 28, United States Code, is amended by inserting after the item relating to chapter 113 the following:

`114. Class Actions

--1711'.

SEC. 3. DIVERSITY JURISDICTION FOR CLASS ACTIONS.

Section 1332 of title 28, United States Code, is amended--

(1) by redesignating subsection (d) as subsection (e); and

(2) by inserting after subsection (c) the following:

`(d)(1) In this subsection, the terms `class', `class action', and `class certification order' have the meanings given such terms under section 1711.

`(2) The district courts shall have original jurisdiction of any civil action where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is a class action in which--

`(A) any member of a class of plaintiffs is a citizen of a State different from any defendant;

`(B) any member of a class of plaintiffs is a foreign state or a citizen or subject of a foreign state and any defendant is a citizen of a State; or

`(C) any member of a class of plaintiffs is a citizen of a State and any defendant is a foreign state or a citizen or subject of a foreign state.

`(3) The district court shall abstain from hearing a civil action described under paragraph (2) if--

`(A)(i) the substantial majority of the members of the proposed plaintiff class are citizens of a single State of which the primary defendants are also citizens; and

`(ii) the claims asserted will be governed primarily by the laws of that State; or

`(B) the primary defendants are States, State officials, or other governmental entities against whom the district court may be foreclosed from ordering relief.

`(4) In any class action, the claims of the individual members of any class shall be aggregated to determine whether the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs.

`(5) This subsection shall apply to any class action before or after the entry of a class certification order by the court.

`(6)(A) A district court shall dismiss, or, if after removal, strike the class allegations and remand, any civil action if--

`(i) the action is subject to the jurisdiction of the court solely under this subsection; and

`(ii) the court determines the action may not proceed as a class action based on a failure to satisfy the conditions of rule 23 of the Federal Rules of Civil Procedure.

`(B) Nothing in subparagraph (A) shall prohibit plaintiffs from filing an amended class action in Federal or State court.

`(C) Upon dismissal or remand, the period of limitations for any claim that was asserted in an action on behalf of any named or unnamed member of any proposed class shall be deemed tolled to the full extent provided under Federal law.

`(7) Paragraph (2) shall not apply to any class action, regardless of which forum any such action may be filed in, involving any claim relating to--

`(A) the internal affairs or governance of a corporation or other form of entity or business association arising under or by virtue of the statutory, common, or other laws of the State in which such corporation, entity, or business association is incorporated (in the case of a corporation) or organized (in the case of any other entity); or

`(B) the rights, duties (including fiduciary duties), and obligations relating to or created by or pursuant to any security (as defined under section 2(a)(1) of the Securities Act of 1933 or the rules and regulations adopted under such Act).'.

SEC. 4. REMOVAL OF CLASS ACTIONS TO FEDERAL COURT.

(a) IN GENERAL- Chapter 89 of title 28, United States Code, is amended by adding after section 1452 the following:

`Sec. 1453. Removal of class actions

`(a) In this section, the terms `class', `class action', and `class member' have the meanings given such terms under section 1711.

`(b) A class action may be removed to a district court of the United States in accordance with this chapter, except that such action may be removed--

`(1) by any defendant without the consent of all defendants; or

`(2) by any plaintiff class member who is not a named or representative class member without the consent of all members of such class.

`(c) This section shall apply to any class action before or after the entry of any order certifying a class.

`(d) The provisions of section 1446 relating to a defendant removing a case shall apply to a plaintiff removing a case under this section, except that in the application of subsection (b) of such section the requirement relating to the 30-day filing period shall be met if a plaintiff class member files notice of removal within 30 days after receipt by such class member, through service or otherwise, of the initial written notice of the class action.

`(e) This section shall not apply to any class action, regardless of which forum any such action may be filed in, involving any claim relating to--

`(1) the internal affairs or governance of a corporation or other form of entity or business association arising under or by virtue of the statutory, common, or other laws of the State in which such corporation, entity, or business association is incorporated (in the case of a corporation) or organized (in the case of any other entity); or

`(2) the rights, duties (including fiduciary duties), and obligations relating to or created by or pursuant to any security (as defined under section 2(a)(1) of the Securities Act of 1933 or the rules and regulations adopted under such Act).'.

(b) REMOVAL LIMITATION- Section 1446(b) of title 28, United States Code, is amended in the second sentence by inserting `(a)' after `section 1332'.

(c) TECHNICAL AND CONFORMING AMENDMENTS- The table of sections for chapter 89 of title 28, United States Code, is amended by adding after the item relating to section 1452 the following:

`1453. Removal of class actions.'.

SEC. 5. REPRESENTATIONS AND SANCTIONS UNDER RULE 11 OF THE FEDERAL RULES OF CIVIL PROCEDURE.

Rule 11(c) of the Federal Rules of Civil Procedure is amended--

(1) in the first sentence by striking `may, subject to the conditions stated below,' and inserting `shall';

(2) in paragraph (2) by striking the first and second sentences and inserting `A sanction imposed for violation of this rule may consist of reasonable attorneys' fees and other expenses incurred as a result of the violation, directives of a nonmonetary nature, or an order to pay penalty into court or to a party.'; and

(3) in paragraph (2)(A) by inserting before the period `, although such sanctions may be awarded against a party's attorneys'.

SEC. 6. EFFECTIVE DATE.

The amendments made by this Act shall apply to any civil action commenced on or after the date of enactment of this Act.

END