Copyright 1999 Federal Document Clearing House, Inc.
Federal Document Clearing House Congressional Testimony
July 21, 1999
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 4341 words
HEADLINE:
TESTIMONY July 21, 1999 ELEANOR D. ACHESON HOUSE JUDICIARY
CLASS ACTION IN FEDERAL COURT AND PENDING BILLS
BODY:
Eleanor D. Acheson Assistant Attorney General, United States Department of
Justice Interstate Class Action Jurisdiction Act of 1999 (H.R. 1875) Workplace
Goods Job Growth and Competitiveness Act of 1999 (H.R. 2005) House Judiciary
Committee July 21, 1999 10:00 am Good morning. I appreciate the opportunity to
appear before this Committee to express the Justice Department's views regarding
the proposed Interstate Class Action Jurisdiction Act of 1999 (H.R. 1875) and
the Workplace Goods Job Growth and Competitiveness Act of 1999 (H.R. 2005).
Interstate Class Action Jurisdiction Act of 1999 (H.R. 1875) The Interstate
Class Action Jurisdiction Act of 1999 (H.R. 1875) proposes to address perceived
problems in class actions filed in state court by moving nearly all state class
actions into federal court. In our view, however, the transplantation of these
actions to federal court is unlikely to curb problems in class action decisions
because these criticisms are not unique to state courts - federal courts have
been accused of many of the same problems in class actions. We believe the means
chosen in H.R. 1875 would not fix the problems with some class action decisions,
and instead H.R. 1875 would: Deny State residents access to their State courts;
Nullify States' policy choices about class action litigation, even though States
in our federal system should be free to determine procedures for their courts
that differ from federal procedures; Spur litigation over its constitutionality;
and Overwhelm the federal courts with time-consuming class action litigation
involving issues of state law. H.R. 1875 raises the same concerns as the Class
Action Jurisdiction Act of 1998 (H.R. 3789), which is substantively identical to
H.R. 1875. Last year, we submitted to Congress a Statement of Administration
Policy providing that the Administration strongly opposed H.R. 3789, and that if
it were presented to the President, the Attorney General would recommend that he
veto the bill. See Statement of Administrative Policy (issued Oct. 5, 1998). It
is important at the outset to note the role that class actions play in making
the courts available to all Americans. In some situations, a large number of
individuals are significantly harmed as a group but they have no realistic
avenue to obtain justice individually because their respective harms are too
small to make individual suits practical. In these cases, a class action in a
local forum is virtually the only way these individuals can seek redress through
the legal system. Just a few years ago, 500 individuals, most of whom were
Washington State residents, sued Foodmaker, a Delaware corporation, in state
court for negligence in serving undercooked hamburgers infected with the E. coli
bacteria and its "Jack in the Box" restaurants. They received a $14 million
settlement.(1) Similarly, some 750 people, most of whom were Colorado residents,
were able to bring a Colorado-based class action against a health care center
for maintaining unhygienic conditions that caused outbreaks of illness.(2) In
Pennsylvania, a class of largely Pennsylvanian car owners burned when their
airbags deployed were able to recover from Chrysler the cost of re-fitting their
cars with safer airbags.(3) Class actions are also a very efficient means of
resolving large numbers of claims that share common issues of fact and law,
particularly when state citizens can seek redress in their state courts for
violations of their rights under state law. Moreover, without fair access to
class action procedures, many individuals' claims could simply not go forward
and those that could, as individual suits, would require greater investments of
judicial time than class actions, which could delay -- and sometimes even deny
-- justice to those plaintiffs as well; class actions can keep the courtroom
doors open. Class actions can also reduce or eliminate inconsistent verdicts,
which benefits plaintiffs, defendants, and the entire system of justice. Because
of the importance of class actions, we should be cautious in curtailing access
to them. What H.R. 1875 Does H.R. 1875 would move nearly all class actions - no
matter where they are filed - into federal court. The federal district courts
currently have jurisdiction over class actions dealing with state law only when
all of the plaintiffs come from different states than all of the defendants.
Section 3 of H.R. 1875 would change that rule. Under H.R. 1875, Federal district
courts would have jurisdiction in such cases as long as any class member is from
a different state than any defendant and the action involves more than 100 class
members or $1 million (as nearly every class action does). Section 4 of H.R.
1875 would permit any defendant, without the concurrence of the other
defendants, and any unnamed class member, without the concurrence of the other
class members, to remove these state class actions to federal court. Once
removed to federal court, the case would be governed by the federal standards
for class actions. Any action unable to meet the federal certification standards
would be dismissed. Thus, the practical effect of the bill would be to override
state class action standards, eliminating all class actions that currently are
permitted under state law but are barred under federal law. H.R. 1875 has four
narrow exceptions. First, it does not permit removal of class actions concerning
covered securities. Second, it does not permit removal of class actions against
State government entities or officials against whom Federal courts may not be
able to order relief.(4) Third, H.R. 1875 does not create federal jurisdiction
over class actions in which the "primary defendants" and a "substantial
majority" of the members of the plaintiff class are from the same State and that
State's law governs the action. Like the others, this third exception is not
likely to produce a significant reduction in the number of State class actions
subject to removal. Because defendants in class actions are likely to be
corporate entities whose citizenship has no necessary relationship to where they
do business and thus where claims against them arise, the exception for cases in
which plaintiffs and defendants are predominately citizens of the same State is
likely to apply to few cases. Finally, and as alluded to above, H.R. 1875 would
not permit removal of class actions involving fewer than 100 class members or
less than $1 million. Because these four exceptions are likely to be
insignificant, the effect of H.R. 1875 would be to grant defendants the option
of proceeding in State or Federal court in almost all State class actions. H.R.
1875 is accordingly far broader than other legislation before this Congress. The
Multiparty, Multiforum Jurisdiction Act of 1999 (H.R. 967) would relax the
federal diversity requirements for a very narrow band of cases involving
airplane crashes and other single-event accidents involving more than 25
victims. Such cases have two distinctive features: the victim-plaintiffs are
often from different states and their lawsuits usually involve the same
liability and causation issues. These features make these types of actions
particularly well suited to resolution in the federal courts. The Y2K Act (H.R.
775) would create federal jurisdiction over Y2K class actions involving more
than 100 class members and more than $10 million. The issues underlying Y2K
actions are literally unprecedented, however, and have the potential to paralyze
the legal system. Unlike these other bills, H.R. 1875 does not invoke federal
jurisdiction to solve a specific and or, indeed, unique problem. Instead, it
bluntly confers federal jurisdiction over almost every class
action in the nation. This blunderbuss approach to civil
reform distinguishes H.R. 1875 from this other legislation and,
in our view, is an inappropriate approach to meaningful reform. H.R. 1875 Does
Not Accomplish Its Purported Goals The sponsors of H.R. 1875 claim that it is
necessary to move nearly all class actions to federal court because class
actions suffer from several problems in the state courts. The sponsors claim
that state courts: (1) approve class action settlements where the class members
receive token relief, such as discount coupons, while the class attorneys
receive millions of dollars in fees; (2) do not adequately protect the due
process rights of defendants in class actions; (3) too readily certify
nationwide class actions that pit the same classes of plaintiffs against one
another, resulting in the lower settlements for plaintiffs; (4) are ill-equipped
to handle the complexities of class actions; (5) do not adequately protect the
due process rights of out-of- state class members who sometimes receive little
or no notice of pending class actions; and (6) are too willing to certify
classes, even when the underlying action is frivolous. As we discuss below,
moving class actions into federal court would not solve these alleged problems.
Claim: Collusive Settlements. Advocates of federalizing class actions claim that
state court judges are not adequately evaluating the fairness of class action
settlements. For support, they point to several class actions where the
defendants and class attorneys negotiated settlements in which the defendants
were absolved of liability, the class attorneys received millions of dollars in
fees, and the class members received discount coupons or other virtually
worthless relief. We agree that this has been a problem in some class actions.
But assuming that this problem stems from inadequate scrutiny of settlements, it
is a problem that is not confined to state courts. In fact, most of the examples
cited by supporters of H.R. 1875 refer to cases that were litigated in federal
court.(5) Those anecdotes dealing with actions in state courts, moreover, seem
to reflect problems with individual judges or particular locales rather than
systemic problems in the states' handling of class actions. Moving class actions
to federal court will therefore do little, if anything, to guard against
collusive settlements. Claim: Insufficient Protection of Corporate Defendants.
Other proponents of federalization claim that state courts do not sufficiently
protect the constitutional rights of defendants in class actions.(6) In essence,
these critics believe that the state courts are incapable of safeguarding the
constitutional rights of litigants. This new-found lack of confidence in the
state courts is unwarranted and at odds with longstanding federal court practice
and recent Congressional enactments. For example, for over a century, the
federal courts have insisted that state courts be given the first opportunity to
rectify any constitutional violations raised by state convicts in federal habeas
petitions. Congress recently reaffirmed this principle by enacting the Prison
Litigation Reform Act and the Antiterrorism and Effective Death Penalty Act,
both of which funnel cases involving the most fundamental of individual
constitutional rights - liberty - through the state courts. There is no reason
to suspect that state courts would accord class action defendants any less
protection than criminal defendants. Indeed, the Supreme Court has "repeatedly
and emphatically rejected" the argument that the state courts are incompetent to
adjudicate federal constitutional claims.(7) Because state courts are obligated
to apply the Constitution to litigants in their courts, and in light of the
time-honored confidence in the ability of state courts to meet that obligation,
we do not think that moving class actions to federal courts will provide any
greater constitutional protection to corporate defendants in class actions.
Claim: State Courts Certify Nationwide Class Actions. Another complaint often
leveled at state courts is that they are more open to entertaining class actions
involving class members from numerous states - so-called "nationwide" class
actions. Critics assert that permitting litigation involving the same nationwide
class to proceed in parallel state court actions is duplicative and potentially
harmful to class members, who can be played against each other in a race to the
lowest settlement as each classes' attorneys vie to be the first ones to reach a
settlement with the defendants and be awarded fees. While we agree that this is
a problem in theory, state courts are aware of this problem and are already
working to avoid it - either by consolidating parallel actions into a single
action,(8) or by refusing to certify a nationwide class.(9) Thus, while moving
class actions to federal court might eliminate the theoretical possibility of a
"race to the bottom," we do not believe that the state courts are incapable of
guarding against this danger or that federalization of class actions - as
opposed to other, more modest proposals - is a rational way of addressing this
issue. Claim: Class Actions Are Too Complex for State Courts. Supporters of
federalization also contend that state courts are less competent than federal
courts at adjudicating class actions, particularly actions involving class
members from many states. They claim that state judges are unfamiliar with how
to interpret out-of-state law and safeguard the rights of out-of-state class
members. We think these concerns are groundless. There is no empirical support
for the first claim, which is rebutted by the fact that state courts routinely
interpret the law of other jurisdictions. When a litigant raises a claim relying
upon federal law or the law of another state, for example, the state court is
obligated to research, evaluate, and apply that foreign law. For the reasons
discussed elsewhere, there is also no reason to suspect that state courts are
incapable of safeguarding the liberty or property rights of litigants before
them. It is, in any event, wholly inappropriate for the federal government in
this context to pass judgment on the competency of the state judges and take
cases away from them on that basis. Claim: Inadequate Notice to Out-of-State
Class Members. Federalization advocates also claim that moving class actions to
federal courts is necessary to protect the interests of out-of- state class
members, who sometimes do not receive meaningful notice of their rights to opt
out of class action proceedings in other states and who therefore lose their
right to bring individual actions once the class action is resolved. This
criticism ignores that, in both state and federal class actions, both the class
plaintiffs and class defendants play a role in determining how notice is to
provided, and both can raise objections to the adequacy of notice. This
criticism also fails to recognize that federal district courts generally
guarantee no greater notice to out-of-district class members than state courts,
so changing the forum is not likely to improve the treatment accorded to class
members who live in a different state or a different federal district. Claim:
State Courts Certify Too Many Class Actions. The final complaint most often
leveled against class actions in state court is that state courts are too
willing to certify class actions, and that this willingness gives class
plaintiffs more power to extort settlements because class action defendants feel
more compelled to settle an action once a class is certified.(10) The only way
that it makes sense to solve this problem by moving class actions to federal
court is if federal courts are more reluctant to certify classes, since
otherwise, removal to federal court would not reduce the possibility of
"extorted" settlements. Thus, H.R. 1875 appears to be premised on the notion
that federal case law on class certification is preferable to the policies of
the states on this issue. As a factual matter, however, there is no proof that
state courts are, as a general rule, more flexible in certifying classes than
the federal courts. As a policy matter, while Congress is free to impose its
policy preferences on federal courts, we believe it inappropriate for Congress,
through the mechanism of federalization, to override the States' policy choices
regarding class action practices. We therefore think that moving class actions
to federal court would be an ineffective - and is surely an inappropriate -
means of stopping the certification of frivolous class actions. * * * As this
discussion illustrates, moving class actions from state to federal court is
unlikely to solve the problems that the proponents of federalization say need to
be corrected. We oppose H.R. 1875 on this ground alone. H.R. 1875 is more than
simply ineffective, however. It is affirmatively harmful to class action
plaintiffs, to the States, and to the federal courts. H.R. 1875 would deny state
residents access to their states' courts. H.R. 1875 would permit cases
concerning solely state law - cases most appropriately tried in state court - to
be removed to federal court. For example, a class action brought under state law
concerning injuries caused by a consumer product would be removable to federal
court solely because a primary defendant happened not to be a citizen of the
State, even if the defendant had substantial operations in the State or had
benefitted by doing business in the State. H.R. 1875 would therefore preclude
the state courts from addressing many state and local matters and would
effectively circumvent and render irrelevant a significant aspect of the state
court system. H.R. 1875 would deprive the State of the ability to provide a
remedy and convenient forum for its citizens and also would deny or, at a
minimum, burden meaningful access to the courts to those plaintiffs unable to
satisfy the requirements of federal case law, even if the State's policy would
have been to allow class certification and to provide relief to those
plaintiffs. H.R. 1875 would usurp state policy on class actions. Because H.R.
1875 would require dismissal of class actions that were removed to federal court
but do not satisfy federal certification standards, H.R. 1875 would make the
federal certification standard the only standard in the vast majority of class
actions in this country - either the federal standard is met or the action is
thrown out of court. This would effectively nullify the individual States'
policies on class action procedures. Such nullification is at odds with our
federal system of government. Within our system, it is well established that
States are free to set policies that differ from the federal government's,
especially with regard to the accessibility of their own state court system, as
long as those policies are consistent with the federal Constitution. If there
are concerns about the manner in which States are exercising their authority
within the sphere permitted under the Constitution, we believe that the
appropriate venue for these policy discussions is in the state courts and
legislatures - not before Congress. By imposing Congress's policy preferences on
the state courts, H.R. 1875 disrespects federalism. H.R. 1875 would spur
litigation over its constitutionality. H.R. 1875's displacement of State-law
class certification procedures could be subject to constitutional challenge on
federalism grounds. As a general matter, Congress has the power to prescribe the
manner in which Federal courts, in the exercise of their diversity jurisdiction,
handle issues such as class action certification, "which, though falling within
the uncertain area between substance and procedure, are rationally capable of
classification as either." Hanna v. Plumer, 380 U.S. 460, 472 (1965). However,
H.R. 1875 would expand the Federal courts' diversity jurisdiction in a highly
selective fashion. Putative class actions that failed to meet the federal
standard for class certification would be returned to state court in
disaggregated form for individualized adjudications. The resulting displacement
of States' decisions as to the proper role of class action procedures in the
adjudication of State-law claims could plausibly be attacked as an impermissible
form of federal interference in States' decisions as to how to structure the
operations of their own courts. Indeed, just this past Term, the Supreme Court
reaffirmed the sovereignty of the States and H.R. 1875 might be attacked as an
affront to that sovereignty.(11) H.R. 1875 threatens to overwhelm the federal
courts. We also are very concerned about how H.R. 1875 will impact the Federal
judiciary at a time when the Chief Justice of the United States has expressed
serious concern about the marked expansion of caseloads of Federal courts. See
Chief Justice Rehnquist, The 1998 Year-End Report on the Federal Judiciary at
(I). Preliminary data from RAND's ongoing study of class actions suggest that
more than half of such litigation is in State courts. Class actions are among
the most resource-intensive litigation before the judiciary. A study of class
actions in Federal court by the Federal Judicial Center showed that class
actions took two to three times the median time of a civil case from filing to
disposition and consumed almost five times more judicial time than other civil
cases. FJC, Empirical Study of Class Actions in Four District Courts at 7. By
expanding Federal court jurisdiction for class actions and permitting removal
from State courts, this bill would move most of this litigation into the Federal
judicial system, potentially requiring substantial new Federal resources.
Responsibility in this area should continue to be shared among both the Federal
and State judicial systems. Concluding Remarks on H.R. 1875 As discussed in this
testimony, H.R. 1875 is ill-suited to serve its sponsors' purposes - solving
problems with state court class action procedures. Instead, H.R. 1875's
federalization of class actions would deny state residents a state forum (and in
many cases any meaningful ability to seek recovery for their injuries), replace
the public policy of all 50 States about how to operate their courts with a
single federal policy, and overburden the federal judiciary with class actions
dealing solely with issues of state law. Because we disagree with a measure
having these effects, the Department of Justice strongly opposes H.R. 1875.
Workplace Goods Job Growth and Competitiveness Act of 1999 (H.R. 2005) The
Workplace Goods Job Growth and Competitiveness Act of 1999 (H.R. 2005) would
establish a statute of repose for "durable goods," which are defined in the bill
as certain products that are expected to last more than three years and that are
used in a trade or business, or by the government. This proposed national
statute of repose would extinguish valid lawsuits that would otherwise be
permitted to proceed under state law. This sort of intrusion into the
availability of state tort remedies is inappropriate absent compelling and
well-documented evidence that the defendants' need for civil immunity outweighs
the strong policy that individuals and businesses be able to seek relief for
their injuries. We do not think that H.R. 2005 passes this test. H.R. 2005 would
create an absolute bar on recovery for property damage involving a durable good
if the action is filed more than 18 years after the first purchase or lease of
the good. H.R. 2005 would also bar civil actions for death or personal injury
involving a durable good against a manufacturer or seller of a durable good
filed more than 18 years after the durable good was first bought or leased, if
the claimant is eligible for worker compensation and the injury does not involve
"toxic harm." H.R. 2005 provides exceptions to the 18-year bar for products used
primarily to transport passengers for hire, products covered by express
warranties as to the safety or life expectancy of a product for longer than 18
years, and products already covered by the statute of repose in the General
Aviation Revitalization Act of 1994. As noted above, H.R. 2005 would bar certain
property damage claims and, unlike personal injury in the workplace, there is no
alternative administrative relief for such claims by individuals or businesses.
It thus extinguishes state lawsuits in an irrational manner. For example, if a
machine component with a latent defect buckled after 20 years and caused the
machine to explode and injure three people, the people could sue for their
personal injuries as long as they were not eligible for workers compensation.
The machine owner, however, would be completely barred from recovering his
substantial property loss. Additionally, this proposed national statute of
repose would bar some State law claims in which an individual or company has
been seriously damaged by a product -- and even before some victims will be
injured by the defective good -- although the manufacturer was negligent or knew
the product was dangerous or defective. H.R. 2005 is flawed in other ways. It
usurps State policies on providing an avenue for redress for personal or
property damages to individuals or small businesses caused by durable goods. It
would preempt State law only when a State has made a policy choice to allow more
than 18 years for its statute of repose (but not less than 18 years) or in which
a State has chosen not to enact a statute of repose so that its citizens can
recover for injuries or losses caused by a dangerous or defective product
regardless of when the good was first used. It also does not provide for any
extension, in harmony with a State's statute of limitations, if the individual
or business suffers injury in the 18th year of use of the durable good, despite
the difficulty an injured party may have determining when the item was first
purchased or leased. In addition, the bill potentially raises due process and
federalism concerns which the Department is currently studying. For these
reasons, we oppose the enactment of H.R. 2005. Thank you for the opportunity to
submit the views of the Department of Justice on these pieces of legislation.
LOAD-DATE: July 26, 1999 
