Copyright 1999 Federal Document Clearing House, Inc.
Federal Document Clearing House Congressional Testimony
July 21, 1999
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 7023 words
HEADLINE:
TESTIMONY July 21, 1999 JOHN H. BEISNER, ESQ., HOUSE JUDICIARY
CLASS ACTION IN FEDERAL COURT AND PENDING BILLS
BODY:
SUMMARY OF WRITTEN STATEMENT OF JOHN H. BEISNER, ESQ., O'MELVENY & MYERS
LLP, WASHINGTON, D.C., BEFORE THE COMMITTEE ON THE JUDICIARY, U.S. HOUSE OF
REPRESENTATIVES HEARING ON H.R. 1875: "THE INTERSTATE CLASS ACTION JURISDICTION
ACT OF 1999" (JULY 21, 1999) In hearings over the past eighteen months, the
members of this Committee and its Senate counterpart have heard considerable
evidence of a severe state court class action crisis. The record reflects an
explosion in the number of such cases being filed, prompted largely by a lax
attitude toward class actions among some state courts. Some state courts operate
without basic class certification standards and in disregard of fundamental due
process requirements, resulting in injury to both unnamed class members as well
as to corporate defendants. Another problem is that certain state courts are
"federalizing" such litigation. By their laxity, they have become magnets for a
disproportionate share of interstate class actions and are thus dictating
national class action policy. Further, in litigating multistate class actions,
those state courts are also frequently dictating the substantive laws of other
jurisdictions. Considerable waste and inconsistent judicial rulings are
occurring because there is no mechanism for coordinating overlapping,
"competing" class actions (i.e., cases in which the same claims are asserted on
behalf of basically the same classes) pending simultaneously in state courts
around the country. Witnesses at a March 5, 1998 hearing before this Committee's
Subcommittee on Courts and Intellectual Property (representing widely varied
interests) expressed broad agreement that the wisest, least disruptive solution
would be the expansion of diversity jurisdiction over
interstate class actions, allowing more such cases to be heard in federal
courts. As one witness noted, "you have heard today from professors, from
plaintiff's lawyers, from defense lawyers, from consumer representatives, from
business people, from a whole range. And it is striking . . . that . . . you've
heard from everyone . . . that . . . increasing the ambit of . . .
diversity jurisdiction . . . to encompass more class actions is
a good idea." H.R. 1875's jurisdictional/removal provisions would be a
significant step toward resolving the state court class action crisis. They
would fix a technical flaw in our current diversity
jurisdiction statutes (enacted before the modern day class action) that
bars federal courts from hearing most interstate class actions - the judicial
system's largest lawsuits, often involving millions of dollars disputed among
thousands of parties residing in multiple jurisdictions. This change would also
make more broadly available the statutory mechanisms by which federal courts
(but not state courts) may coordinate overlapping, competing class actions.
Those provisions would allow both plaintiffs and defendants greater access to
our federal courts without undesirable side effects. The bill would not alter
any party's substantive legal rights. The bill would leave purely local disputes
to the exclusive purview of state courts. And the bill would still allow state
courts to hear class actions when parties prefer that forum. PREPARED STATEMENT
OF JOHN H. BEISNER, ESQ., O'MELVENY & MYERS LLP, WASHINGTON, D.C., BEFORE
THE COMMITTEE ON THE JUDICIARY, U.S. HOUSE OF REPRESENTATIVES HEARING ON H.R.
1875 "THE INTERSTATE CLASS ACTION JURISDICTION ACT OF 1999" JULY 21, 1999 Thank
you for the opportunity to participate in today's discussion of H.R. 1875, the
"Interstate Class Action Jurisdiction Act of 1999." Let me begin by disclosing
the sources of my perspectives and inherent prejudices on this subject.
Basically, I am an "in-the- trenches" class action litigator. Over the past 19
years, I have been involved in defending over 250 class action lawsuits on a
wide variety of subjects before the federal and state courts of 28 states at
both the trial court and appellate level. On the basis of that experience, I
wish to share a few thoughts about the problems that exist in the class action
arena and about the respects in which I believe that H.R. 1875 would be a
positive, effective response to those problems. I. THERE IS A CONTINUING STATE
COURT CLASS ACTION CRISIS. Ironically, although class actions are probably one
of the most complex procedural devices in our legal system, the general public
has an acute awareness of what they are. From the citizen perspective, class
actions are not always pretty. Jury researchers - the people who survey
potential jurors in anticipation of trials - will tell you that in many locales,
the public tends to view class actions as a blight on our legal system. Citizens
correctly perceive that not all class actions are bad. But if you ask for a
definition of a class action in those jury research settings (as I have on
occasion), you will probably get an answer like: "Class actions are lawsuits in
which the lawyers get all of the money and the people don't get anything." And
you will also be told that class actions are usually lawyer-manufactured. The
public senses that these lawsuits do not get started like a normal lawsuit does
- a person walking into the lawyer's office seeking redress for an injury.
Instead, the public perceives that class actions are initiated when a lawyer
gets an idea about filing a lawsuit (e.g., by reading a newspaper article) and
then goes off to find somebody to front the lawsuit (i.e., the named plaintiff
or class representative). I do not mean to suggest that Congress should
legislate in this highly technical legal arena based on such perceptions. But
the reality is that these perceptions are disturbingly accurate. And those
perceptions of class actions are adversely skewing the public view of our legal
system as a whole. Because of their size and scope, class actions receive
disproportionate amounts of press attention. But even more significantly, class
actions regularly touch more citizens than virtually any other aspect of our
legal system. Indeed, given the proliferation of class actions in recent years,
each of us sitting in this room - whether we know it or not - is a class member
in numerous pending class actions. If you have ever bought a product or used a
service, there are multiple class actions on file in which somebody is
supposedly trying to vindicate your rights in some way. And because of the
notice rules, citizens get a lot of mail about these cases - the only mail that
most people ever get from a court. Most of the legalese that they see in those
notices, they do not fully comprehend. But what they do understand is that their
rights are often being manipulated to benefit other interests. To understand the
class action abuse problem, one need only consider for a moment the general
concept that we are discussing. If I told you that the Senate had just passed a
new bill that would allow lawyers to bring lawsuits without first obtaining
permission from the parties on whose behalf the lawsuit supposedly was being
brought, you presumably would be shocked. How could the Senate possibly conclude
that we should allow lawyers to bring lawsuits not authorized by the claimants?
Rightly or wrongly, that's exactly what class actions are. They are a giant
anachronism. In the midst of a legal system in which individual rights are
paramount - a system in which a lawyer normally cannot do much of anything
without the informed consent of his or her client - we have this device through
which a lawyer can walk into a court and say: "I am bringing claims on behalf of
millions of people, even though I don't know exactly who or where they are and
even though I have not obtained their permission to bring this lawsuit on their
behalf." Clearly, such a device invites abuse. It authorizes lawsuits in which
the claimants play little or no role; lawsuits in which the lawyers call all of
the shots without really even hearing the views and desires of their clients.
Further, it allows attorneys to bring lawsuits where the real parties in
interest have manifested no interest in suing. Plainly, such lawsuits present
great risk that the lawyers who bring them will substitute their interests for
those whose claims are at issue. In short, class actions are a powerful,
abuse-inviting device that must be carefully policed by the courts to avoid
legal catastrophe. Unfortunately, at least in many of our state courts, that
careful supervision is not occurring. A. Congress Has Already Amassed An Ample
Record Of Class Action Abuse. This hearing is not the first occasion on which
Congress has received indications of state court class action abuse. Over the
past eighteen months, Congress has been bombarded with warnings that something
is badly amiss with class actions. Alarm bells are ringing. Almost daily, there
are press reports about class actions being used to deny (not protect) due
process rights -- instances in which the legitimate interests of both class
members and defendants are being ignored or injured. Last year, the Subcommittee
on Courts and Intellectual Property of this Committee held two such hearings
(one in March and another in June). And in October 1997 and again in early May
of this year, the Subcommittee on Administrative Oversight and the Courts of the
Senate Committee on the Judiciary held hearings on that subject. The record that
emerged from those four sessions indicates that the alarm bells are ringing for
good cause: state court class action abuse is rampant. Those hearings amply
documented several serious problems: Some courts (particularly state courts) are
not properly supervising proposed class settlements. The result is that class
counsel become the primary beneficiaries; the class members (the persons on
whose behalf the actions were brought) get little or nothing - or worse. For
example, at all three hearings last year, there was discussion of the now
infamous Bank of Boston class action settlement. At the Senate Subcommittee's
October 1997 hearing, both Senator Herb Kohl (D. - Wis.) and his constituent,
Martha Preston, a member of the class, described the settlement as a "bad
joke."(1) At the March 1998 House hearing, Ralph G. Wellington, a Philadelphia
attorney, elaborated, noting that the state court in that case approved a class
settlement under which m ost of the 700,000 class members received minimal
direct economic benefit; some received no direct benefit at all. Indeed, most
had their mortgage escrow accounts . . . deducted in order to pay several
million dollars to the class counsel who had been approved to protect their
interests. In short, having been included in a lawsuit they never envisioned,
they had their own money from their own escrow accounts taken to pay class
counsel for what many believe to have been a very dubious benefit.(2) At the
Senate Subcommittee's May 4 hearing on class actions, Sen. Kohl added a
postscript to this amazing story. He noted that Ms. Preston "and other class
members sued the class lawyers." But that suit was "turned away on a
technicality . . ., even though Judge Easterbrook and other federal judges
blamed the class lawyers for pulling the wool over the state judge's eyes.'" But
that's not all. Sen. Kohl reported that " a dding insult to injury, the class
lawyers then turned around and sued Ms. Preston in Alabama - a state she had
never visited - and demanded an unbelievable $25 million." "So not only did Ms.
Preston lose $75, she was forced to defend herself from a $25 million lawsuit. .
. . I n the words of Woody Allen, this is a travesty of a mockery of a sham of
justice.'"(3) According to several sources, there has been an explosion in the
number of state court class actions in recent years. Witnesses tied this
phenomenon to the tendency of certain state courts to have an "anything goes"
attitude toward class actions. At the March 1998 House hearing, Rep. James Moran
(D. -Va.) observed that " o pportunistic lawyers have identified those states
and particular judges where the class action device can be exploited." And
offering specific examples, he decried the fact that "legitimate business
enterprises . . . are being severely harmed by existing class action practice"
and that " i n other cases, where businesses may be legitimately at fault,
injured consumers receive little, while the plaintiffs attorneys are enriched."
Similarly, John W. Martin, Jr., then the Vice President-General Counsel of Ford
Motor Company, observed that " t he real purpose of the vast majority of class
action lawsuits is to make money -- not for consumers, but for the lawyers
bringing the suit." Noting specific state court examples, he urged that " a s a
result, consumers are exploited and rarely receive substantial awards, while
class action counsel frequently walk away with millions." The lax attitude
toward class actions manifested by some state courts has constitutional (due
process) ramifications. For example, Mr. Martin cited cases in which state
courts had engaged in "drive-by class certification s " - situations in which
judges "grant plaintiffs' motion to certify his claims for class treatment
before the defendant even has a chance to respond to the motion (or, indeed, has
even been served with the complaint)." He also expressed concern about the " I
never met a class action I didn't like' phenomenon" -- state courts that "employ
standards that are so lax that virtually every class certification motion is
granted, even where it is obvious that the case cannot, consistent with basic
due process principles, be tried to a jury as a class action." He cited examples
of cases in which state courts had certified classes that federal courts had
found uncertifiable. In some of those cases, the federal court cited due process
or other constitutional reasons for finding class certification inappropriate;
yet, the state courts charged ahead. Because the class action device is such a
powerful tool, it can give an attorney unbounded leverage. John L. McGoldrick,
Senior Vice President and General Counsel of Bristol-Myers Squibb Company,
observed at the March 1998 House hearing that where class actions are not
properly controlled by the courts handling them, there can be "the perverse
result that companies that have committed no wrong find it necessary to pay
ransom to plaintiffs' lawyers because the risk of attempting to vindicate their
rights through trial simply cannot be justified to their shareholders. Too
frequently, corporate decisionmakers are confronted with the implacable
arithmetic of the class action: even a meritless case with only a 5% chance of
success at trial must be settled if the complaint claims hundreds of millions of
dollars in damages." The fundamental problem is the failure of some state courts
to manage class actions so as to avoid the considerable potential for abuse.
Rep. Moran testified that " m any state courts lack the complex litigation
training, experience and resources necessary to deal with interstate class
actions " and that "state court judges, who are elected in most states, are more
prone to bias when the defendant is a large, out of state corporation." As Mr.
McGoldrick put it, " i n some places, state court judges do not appreciate the
raw power of the class action device and the need to circumscribe its usage. As
a result, the rights of both defendants and the class members on whose behalf
the actions were brought get ignored." This situation has encouraged the all too
frequent filing of frivolous class actions in state courts. For example, Mr.
Martin offered specific examples illustrating that due to the erosion of state
court class action standards, "class actions that are being filed assert claims
that are utterly without merit (or marginal at best)." And he noted that in
interviews conducted for a study on class actions by the RAND Corporation's
Institute for Civil Justice, "many attorneys (including some plaintiffs'
counsel) observed that too many non-meritorious class action lawsuits are being
filed and certified' for class treatment." The current situation in which class
action litigation is being focusing in state courts is resulting in enormous
waste, inconsistent results, and the risk of harm to class members' interests.
More specifically, both Mr. McGoldrick and Mr. Martin noted the problems created
whenever overlapping or "copycat" class actions are filed, a frequent
occurrence. When such "copycat" cases are pending in different federal courts,
they may be consolidated before a single judge through the Judicial Panel on
Multidistrict Litigation, thereby ensuring uniform management of the litigation
and consistent treatment of all legal issues. But when duplicative class actions
are filed in two or more state courts in different jurisdictions, the
"competing" class actions must be litigated separately in an uncoordinated,
redundant fashion because there is no mechanism for consolidation of state court
cases. As a result, state courts may "compete" to control the cases, often
resulting in harm to all parties involved. Counsel also "forum shop," going from
court to court trying to obtain a different result on class certification or
other issues. And class counsel in the various cases may compete with each other
to achieve a settlement, a phenomenon that can work to the disadvantage of the
class members. Mr. Martin observed that " t he anything goes' mentality in state
courts has led to a sad reality: as a practical matter, the most important
question determining the outcome of a class action lawsuit has now become, not
the merits of the claims or the propriety of class treatment, but whether the
case can successfully be removed to federal court." He then offered numerous
examples of ways in which lawyers who file class action lawsuits manipulate
their pleadings to keep their purported class actions out of federal court:
Counsel sometimes file complaints that, when read fairly, give rise to a claim
under a federal statute, thereby qualifying the case for federal question
jurisdiction. To disguise that fact, the complaint will omit any explicit
reference to the federal claim or will expressly disclaim any intent to pursue
an available federal claim. In potential diversity jurisdiction
cases, lawyers who want to keep a class action out of federal court often
manipulate the parties in an attempt to destroy complete diversity. Under
traditional principles of diversity jurisdiction as applied to
class actions, the requisite "complete diversity" exists only if the state of
citizenship of all named plaintiffs is completely different than the state of
citizenship of all named defendants. To destroy "complete diversity," lawyers
whose primary target is an out-of-state deep-pocket corporation sometimes name a
token defendant (e.g., an employee or dealer of the corporate defendant), who
resides in the same state as one or more of the named plaintiffs. The inherently
fraudulent nature of this tactic is obvious: although all putative class members
may conceivably have a claim against the defendant corporation, few (if any) of
the putative class members have had any dealings with the token in-state
defendants, meaning that there is no basis for a classwide judgment against
those defendants. The corporation is the only real defendant; the others are
there simply to prevent removal of the action to federal court. In an
alternative strategy for defeating "complete diversity," lawyers bringing a
nationwide or multi-state class action sometimes go out of their way to include
a named plaintiff who is a citizen of the same state as the defendant. For
example, in filing their Texas court lawsuit against a New York corporation,
counsel may toss in a New York named plaintiff. Again, the intent to manipulate
is clear. Why would a New York resident with a grievance against a New York
corporation go all the way to Texas to file his/her lawsuit? The
"amount-in-controversy" prong of the federal diversity
jurisdiction requirement is also the subject of frequent games. The
U.S. Supreme Court's ruling in the Zahn case has been interpreted as holding
that in a purported class action, the "jurisdictional amount" requirement (now
$75,000) is met only if each and every putative class member's individual claim
is worth that amount.(4) Exploiting this general rule, class action complaints
often declare over and over again that all putative class members seek less than
the jurisdictional amount (sometimes $74,999) or waive any right to enhanced
damages (e.g., punitive damages). (These kinds of "claims-shaving" tactics raise
disturbing issues of adequacy-of-representation and due process. While a single
plaintiff suing in his own name may limit his claims in order to stay in state
court, counsel seeking to represent a class have a fiduciary obligation to the
absentee member of the class, making it improper to unilaterally "waive" claims
with no authorization from the claimants.)(5) B. The State Court Class Action
Crisis Has Not Abated. Little has changed since last year's class action-related
House hearings, except that we now have more data confirming that the state
court class action crisis is for real. Most notably, a new publication - Class
Action Watch - printed earlier this year the results of a survey of major
company experiences with class actions.(6) In particular, the survey found that
the number of class actions pending against the responding companies had
increased dramatically over the ten-year period 1998-1998. As indicated by other
data collection efforts, that growth was most pronounced among state court class
actions. Over the ten-year period, the number of state court class actions
pending against the respondents rose by 1,042% -- a greater than ten times
increase.(7) In contrast, the growth of pending federal cases was substantially
less - only around 338%.(8) The survey also provided strong support for the
contention that if state courts in a particular locale begin manifesting an
"laissez-faire" attitude toward class actions, they will become a magnet for
such matters. For example, the survey noted that for years, the level of class
action activity in Texas was relatively low. But of late, some Texas
intermediate appellate courts have issued class certification-related decisions
suggesting that Texas courts have a lower threshold for class certification than
do our federal courts (even though Texas has adopted the federal class action
rule and supposedly follows federal class action precedents). The effects of
these decisions are not surprising. While the surveyed companies had experienced
a 110% growth in the number of pending Texas state court class actions in the
five- year period 1988-1993, that growth recently has accelerated
dramatically.(9) In the more recent five-year period (1993-1998), those
companies reported a 338% increase in the number of class actions pending
against them in Texas state courts.(10) The survey also indicated that as the
Texas courts seemingly became less rigorous about class actions, they were more
frequently being called upon to hear class actions involving non- Texas
residents. For example, the survey noted that both in 1988 and 1993, certified
classes were almost always confined to Texas residents.(11) By 1998, however,
nationwide class actions were relatively common in Texas state courts.(12) B.
Other Problems With State Court Class Actions Are Emerging. Over the past year,
several other problems attributable to state court class actions have become
increasingly apparent. I would like to focus on just two: 1. Overly Broad
Classes Put Class Member Rights At Risk. For the obvious financial reasons,
counsel try to make their classes as all encompassing as possible. In short, why
sue for a class of 1,000 people when you can sue for a class of 20 million
people? The larger class provides much more leverage against the defendant. And
it creates the potential for a much larger pot of attorneys' fees (with no
significantly larger investment). The problem with this approach is that it
causes the entire lawsuit to proceed on a lowest common denominator basis. The
"average" claim becomes the claim by which the entire action is judged; class
members with larger, more serious claims are simply lumped into the group and
not given individual attention. Further, to make the litigation work as a class
action, class counsel begin "shaving" (i.e., waiving) the more complicated
claims that may preclude trying the matter on a class basis. For example,
certain legal theories requiring individual proof (e.g., fraud claims requiring
individual demonstrations of reliance) may be thrown overboard. Likewise, claims
for certain types of injuries (e.g., personal injury, property damage) may be
excluded from the scope of the action. These "shortcuts" can be devastating for
certain class members. For example, I note a class action lawsuit filed several
months ago that has garnered considerable attention - the infamous "toothbrush"
class action. According to a press release, this lawsuit, which is pending in
state court in Chicago, assails the American Dental Association and several
toothbrush manufacturers for failing to warn of the risk of a toothbrush-related
injury known as "toothbrush abrasion"(13) According to a press report, the "hard
evidence" that backs this lawsuit is, in significant part, a toothpaste
commercial that claimed that 36 million people brushed their teeth too hard.(14)
I suspect that a lot of people have reacted to this lawsuit in the manner of one
letter to the editor: I wonder if one can sue this attorney and his client for
being abrasive and irritating. Any attorneys out there want to take up the
challenge? We could make it a class-action suit against all ridiculous lawsuits
such as this.(15) Admittedly, I know little about this lawsuit. But if it is
like most actions of this general type, the proposed class includes (a) a few
people who actually claim to have suffered physical injury and (b) millions of
people who simply claim to be at risk of injury. This paradigm poses two major
problems. The people who claim actual injury are going to get lost in the
lawsuit. If the matter actually gets adjudicated or settled on a class basis,
the focus will be on the biggest group - the people who supposedly are just "at
risk." If the case is tried, the jury likely would find for the defendants under
this apparently bizarre theory. Or if the case is adjudicated in plaintiffs'
favor or is settled, the remedy will focus on the "at risk" group (e.g.,
something like warnings and/or new toothbrushes). But what happens if somebody
out there actually sustained physical injury? What if there actually are a few
people who rightfully should have been warned by a dentist that they have a very
rare dental situation requiring an unusual dental hygiene regimen? Unless those
persons are properly notified of what is going on in the lawsuit and closely
follow the content of the notices (assuming that is possible), they will be out
in the cold. If the case is tried and the class loses, their rights to pursue
their claims for actual injury likely will be extinguished. Or even if
plaintiffs win or obtain a settlement, the relief probably will not address
their actual injury at all. And they will not be able to obtain individualized
relief because the class victory or the settlement will preclude them from
seeking more. In some cases, class counsel seek to avoid these potential results
by excluding people who actually have sustained personal injury, limiting the
purported class to people who are merely at risk. But that approach creates
another similar problem. If the case proceeds on a class basis and the class
loses, all of the class members probably will be precluded from pursing claims
if in fact they do experience actual injury in the future, in which case they
may have a more compelling individual case to present to a jury. (For example,
in the toothbrush case, if a jury found the warnings defendants provided to be
adequate, each class member presumably would be precluded from arguing to the
contrary in a future personal injury.) Likewise, if the case is resolved (by
settlement or trial) on the basis of minimal relief, each class member likely
would be precluded from later asserting claims against the defendants if the
risk came to fruition - if they discover later that they have actually
experienced dental injury of some sort. Federal courts have become sensitive to
this problem and increasingly have refused to proceed with class actions that
put class members' rights at risk in this manner.(16) In contrast, state courts
generally have been oblivious to this problem. Indeed, I am not aware of any
state court that has even attempted to address this issue. 2. State Courts Are
"Federalizing" Substantive and Procedural Law. I have heard criticisms that H.R.
1875 would "federalize" all class actions. That criticism overlooks a perversity
of the current class action landscape -- class actions have already been
federalized by the state courts. When I say "federalized," I do not mean that
the federal government has come in and told states what they are supposed to do.
What I am talking about is "false federalism" - the current situation in which
one state court goes around telling the other 49 state courts what their laws
should be. When state courts preside over class actions involving claims of
residents of more than one state (especially nationwide class actions) as they
are increasingly inclined to do, they end up dictating the substantive laws of
other states, sometimes over the protests of officials in those other
jurisdictions. An example of this phenomenon is a class action now pending in
the state court for Coosa County, Alabama.(17) That suit was brought on behalf
of the over 20 million people who have certain types of airbags in their motor
vehicles. The lawyers therein are asking that the court order that the design of
those federally- mandated airbags be declared faulty. That court may be the
ablest and the most conscientious in our judicial system. But from a federalism
policy standpoint, this situation defies logic. Why should an Alabama state
court tell 20 million people in all 50 states what kind of airbag that they may
have in their cars? Why should that county court be telling 50 other states what
their laws are on the myriad issues that are presented by this lawsuit? What
business does an Alabama state court have in presiding over this purportedly
nationwide action when fewer than 2% of the claimants are Alabama residents and
none of the out-of-state defendants even do business in the court's district?
That Alabama court is accountable only to the 11,000 residents of the county
that elects the court. Nevertheless, if counsel in that case have their way,
that court will be dictating national airbag policy. Under the current
situation, procedural class action law has also been federalized to a large
extent - in the same perverse way. Even though only a minority of state courts
are routinely failing to exercise sound judicial judgment on class action
issues, those courts have become magnets for a wildly disproportionate share of
the interstate class actions that are being filed. In short, attorneys file
their class actions in the minority of courts that are most likely to have a
"laissez-faire" attitude toward the class device. That distinct minority of
state courts are essentially setting the national norm; they are effectively
dictating national class action policy. The new Class Action Watch testimony
(discussed previously) tends to confirm this observation. But anyone doubting
that this phenomenon is occurring need look no further than the testimony of Dr.
John B. Hendricks at the March 1998 House hearing. He offered a docket study of
state court class actions in one jurisdiction showing (a) that class actions had
become disproportionately large elements of the dockets of some county courts,
(b) that many of the class actions were against major out- of-state corporations
lacking any connection with the forum county, and (c) that the proposed classes
in those cases typically were not limited to in-state residents and often
encompassed residents of all 50 states. Dr. Hendricks identified one state court
judge who had granted class certification in 35 cases over the preceding two
years. As Dr. Hendricks stated, " t hat's a huge number of cases when one
considers that during 1997, all 900 federal district court judges in the United
States combined certified a total of only 38 cases for class treatment." The
study failed to uncover any instance in which that judge had ever denied class
certification. Clearly, that court alone was playing a radically
disproportionate role in setting national class action policy. (18) II. H.R.
1875 IS A MODEST, WELL-REASONED ANSWER TO THE STATE COURT CLASS ACTION CRISIS
From the record now before Congress, one could develop strong support for far
reaching (some would say "radical") responses to the state court class action
crisis. For example, Congress could enact federal legislation simply prohibiting
state courts from using the class action device at all. Or Congress could
perform major surgery on the class device itself (e.g., change procedural rules
to allow class actions to be used only to pursue injunctive relief (not monetary
damages) and thereby eliminate the economic incentives that encourage abuse of
the device). Instead, H.R. 1875 charts a minimalist course, proposing very
modest changes. Nevertheless, its approach should be effective in addressing
many of the most serious class action problems that have been identified. At the
March 1998 House hearing, the witnesses were asked their views about a
suggestion that the state court class action crisis could be quelled by
expanding federal diversity jurisdiction to accommodate more
class actions with interstate implications: Prof. Susan Koniak, a member of the
faculty at the Boston University Law School who described herself as being from
the "plaintiffs' bar," responded that expanding federal jurisdiction over class
actions would be a good idea. There's the polybutylene pipe case, which is one
of the biggest class actions, was in Union City, Tennessee, in the state court,
where no one could get there, you couldn't fly in to object. And that's common.
Often these state courts are picked, and they are in the middle of nowhere. You
can't have access to the documents and I don't think it's a full answer, but I
think it should be done.(19) Former U.S. Attorney General Dick Thornburgh
concurred, noting that m ost of the complaints that arise out of alleged
inequitable treatment in these suits in state courts are in states where the
judges are elected, and must . . . depend on contributions which come from
potential party litigants. He stated that an expansion of federal jurisdiction
over class actions is warranted because "federal courts have shown a much
greater propensity to bring some sensible adjudication to the creation of
classes and the progress of class cases." (20) In her prepared oral remarks,
Elizabeth Cabraser, a leading plaintiffs' class action attorney, opined that
much of the confusion and lack of consistency that is currently troubling
practitioners and judges and the public in the class action area could be
addressed through the exploration, the very thoughtful exploration, of
legislation that would increase federal diversity jurisdiction,
so that more class action litigation could be brought in the federal court. Not
because the federal courts necessarily have superior judges, but because the
federal courts have nationwide reach; they have the statutory mechanisms that
they need to manage this litigation, so litigation can be transferred and
coordinated in a single forum.(21) Both Mr. Martin and Mr. John Frank indicated
their support for expanding federal diversity jurisdiction over
purported class actions. And Mr. McGoldrick concluded the inquiry by telling the
Subcommittee: Y ou have heard today from professors, from plaintiff's lawyers,
from defense lawyers, from consumer representatives, from business people, from
a whole range. And it is striking to me that those of us who frequently disagree
-- my friend Ms. Cabraser and I frequently disagree -- but you've heard from
everyone the notion that diversity jurisdiction, increasing the
ambit of it to permit class actions, is a good idea. And it seems to me that
that's something this committee should weigh heavily in its deliberations.(22)
H.R. 1875 embraces the simple, elegant response to the state court class action
crisis embraced by this diverse group of witnesses -- a correction of the fact
that federal courts lack jurisdiction to adjudicate interstate class actions,
lawsuits that typically involve millions of dollars in dispute among thousands
of parties residing in multiple jurisdictions. That change would aid resolution
of the current state court class action crisis by eliminating restrictions that
have forced both unnamed class members and defendants to have their claims heard
before some tribunals that are ill-equipped to handle complex litigation and
otherwise less vigilant about due process rights. Further, as Ms. Cabraser noted
at the March 1998 House hearing, the change would make available in most class
actions the "statutory mechanisms" that federal courts (but not state courts)
may wield "to manage class litigation," so that overlapping, competing class
actions "can be transferred and coordinated in a single forum."(23) And most
importantly, the change would contribute to greater uniformity in the standards
for deciding whether a controversy may be afforded class treatment. As drafted
in H.R. 1875, this solution would be implemented without undesirable
side-effects. The bill would not alter any party's substantive legal rights. The
bill would not permit removal of truly local disputes; such matters would remain
within the exclusive purview of the relevant state courts. And the bill would
not preempt state courts' authority to hear class actions of any sort; if the
parties prefer to litigate a particular interstate class action before an
appropriate state court, they may do so. The jurisdictional changes envisioned
in H.R. 1875 are entirely consistent with the current concept of federal
diversity jurisdiction. At present, the statutory "gatekeeper"
for federal diversity jurisdiction -- 28 U.S.C. 1332 --
essentially allows invocation of diversity jurisdiction in
cases that are large (in terms of the "amount in controversy") and that have
interstate implications (in terms of involving citizens from multiple
jurisdictions). By nature, class actions typically fulfill these requirements.
Because they normally involve so many people and so many claims, class actions
invariably put huge sums into dispute and implicate parties from multiple
jurisdictions. Yet, because section 1332 was originally enacted before the rise
of the modern day class action, it did not take account of the unique
circumstances presented by class actions. As a result, that section, as a
technical matter, tends to exclude class actions from federal courts.(24) That
omission would be corrected by H.R. 1875. H.R. 1875 would make this correction
by amending 28 U.S.C. 1332 (the diversity jurisdiction statute)
to extend federal diversity jurisdiction to cover any class
action (with an aggregate amount in controversy in exceeding $75,000) in which
there exists "partial diversity" between plaintiffs (including all unnamed
members of any plaintiff class) and defendants, an approach wholly consistent
with Article III of the Constitution. (25) This expanded jurisdiction, however,
would not encompass disputes that are not interstate in nature -- cases in which
a class of citizens of one state sue one or more defendants that are citizens of
that same state would remain subject to the exclusive jurisdiction of state
courts. Further, federal courts would be required to abstain from hearing
certain local cases and state action cases. Thus, contrary to what has been
argued by some critics, the bill would not move all class actions into federal
court. Consistent with existing diversity jurisdiction
precepts, it would preserve exclusively to state court jurisdiction what are
primarily local controversies. The amendments also would facilitate the removal
to federal court of any purported class action that falls within the additional
grant of federal diversity jurisdiction over class actions
described above. The bill would not change the existing diversity
jurisdiction removal procedures applicable to purported class actions,
save for three exceptions intended to correct some of the tactics used by
counsel to avoid federal jurisdiction over interstate class actions.(26) In
addition, the bill would authorize unnamed class members (not just defendants)
to remove cases. This even-handed change would allow class members to move cases
to federal court (within a reasonable time after notice is given) if they are
concerned that the state court has not or will not adequately protect the absent
class members' interests. To avoid leaving before federal courts controversies
not warranting the attention of the federal judiciary, the legislation would
require a federal court to dismiss any case (that is in federal court solely due
to the expanded diversity jurisdiction provisions) that it has
determined may not be afforded class treatment. However, the bill specifies that
an amended action may be refiled in state court. Further, the bill also protects
the interests of the unnamed class members by specifying that federal tolling
law will apply to the limitations periods on the claims asserted in the failed
class action. III. CONCLUSION. Thank you again for the opportunity to comment on
H.R. 1875. I respectfully urge the Subcommittee to recommend the bill favorably
to the full Judiciary Committee.
LOAD-DATE: July 26,
1999 
