Copyright 1999 Federal Document Clearing House, Inc.
Federal Document Clearing House Congressional Testimony
July 21, 1999
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 3724 words
HEADLINE:
TESTIMONY July 21, 1999 GUY MILLER STRUVE HOUSE JUDICIARY CLASS
ACTION IN FEDERAL COURT AND PENDING BILLS
BODY:
Summary of Statement of Guy Miller Struve Chair of the Committee on Federal
Courts of The Association of the Bar of the City of New York on the Interstate
Class Action Jurisdiction Act of 1999 (H.R. 1875) Before the House of
Representatives Committee on the Judiciary July 21, 1999, 10:00 A.M. The
Association of the Bar of the City of New York opposes the enactment of H.R.
1875, the Interstate Class Action Jurisdiction Act of 1999. H.R. 1875 would work
a very significant change in the federal- state balance in the handling of class
actions. The Association of the Bar of the City of New York opposes the proposed
legislation because (1) the need for such a radical change in the existing
federal-state balance of jurisdiction has not been demonstrated, and (2) the
proposed legislation will not achieve the goals it attempts to achieve. Section
2(1) of H.R. 1875 quotes the Third Circuit as stating that interstate class
actions "implicate interstate commerce, invite discrimination by a local state,
and tend to attract bias against business enterprises." To the extent that this
quotation is meant to suggest that the federalization of interstate class
actions is necessary because state courts have generally handled such class
actions in a manner that has discriminated against out- of-state litigants, our
experience does not support any such generalization. It has been argued that
federalization of class actions is necessary because state courts have been
abusive in their handling of class actions. Again, our experience does not
support such a generalization. H.R. 1875 lists three categories of cases where
the federal courts must refrain from exercising jurisdiction over class actions.
These categories are defined in qualitative terms which would generate endless
satellite litigation. Moreover, these categories do not exhaust the categories
of cases in which state courts should be permitted to exercise jurisdiction over
class actions. Guy Miller Struve Chair Committee on Federal Courts The
Association of the Bar of the City of New York 450 Lexington Avenue Room 3030
New York, New York 10017 (212) 450-4192 Statement of Guy Miller Struve Chair of
the Committee on Federal Courts of The Association of the Bar of the City of New
York on the Interstate Class Action Jurisdiction Act of 1999 (H.R. 1875) Before
the House of Representatives Committee on the Judiciary July 21, 1999, 10:00
A.M. Good morning. Thank you for inviting me to express the views of The
Association of the Bar of the City of New York on H.R. 1875, the Interstate
Class Action Jurisdiction Act of 1999. A. About the Association The Association
of the Bar of the City of New York was organized in 1870 "for the purposes of
cultivating the science of jurisprudence, promoting reforms in the law,
facilitating and improving the administration of justice, elevating the standard
of integrity, honor and courtesy in the legal profession, and cherishing the
spirit of collegiality among the members thereof." Ass'n of the Bar of the City
of N.Y. Const. art. II. 1995 marked the 125th anniversary of the Association.
The same professional and ethical traditions of civic duty shape the
Association's goals today. The Association continues to work at legal reforms
and their social and political ramifications and at maintaining the highest
possible ethical standards for the legal profession. The Association is not
currently, and has not been in the current or the preceding two fiscal years,
the recipient of any federal grant, contract, or subcontract. The Association's
501(c)(3) affiliate, the Association of the Bar of the City of New York Fund,
Inc., received $20,585.42 during the 1996-1997 fiscal year from the State
Justice Institute to reimburse costs of an interactive video installation in the
New York County Supreme Court. The Association's Federal Courts Committee is
directed "to observe the practical working of all federal courts and . . . to
make such reports or recommendations as the Committee may deem advisable for the
purpose of improving the administration of justice in such courts." The
membership of the Committee includes a wide range of lawyers engaged in private
practice, as well as lawyers in various agencies of government and two Federal
Magistrate Judges. Of the Committee members who are in private practice, many
represent defendants more often than plaintiffs, and some represent plaintiffs
more often than defendants. B. The Proposed Legislation Legislation expanding
federal court jurisdiction over class actions was introduced in both houses of
the United States Congress in the last Session of Congress, and H.R. 3789 was
reported out of the House Judiciary Committee on August 5, 1998. Similar
legislation has been introduced in this Session as H.R. 1875 and S. 353. This
testimony is addressed to H.R. 1875, the Interstate Class Action Jurisdiction
Act of 1999. H.R. 1875 would extend United States district courts' original
jurisdiction under 28 U.S.C. 1332 to include any class action where any named or
putative plaintiff class member and any defendant are citizens of different
states. The Act eliminates any amount in controversy requirement for any class
action that meets this minimal diversity requirement. To ensure the
federalization of these class actions, the Act also permits any plaintiff class
member or any defendant, without any co-party's consent, to remove to federal
court any putative class action that is filed in state court and that meets the
minimal diversity requirement. The Association of the Bar of the City of New
York opposes this proposed legislation because (1) the need for such a radical
change in the existing federal-state balance of jurisdiction has not been
demonstrated, and (2) the proposed legislation will not achieve the goals it
attempts to achieve. C. The Burden to Establish a Need for the Legislation Has
Not Been Met Precluding states from hearing a substantial proportion of class
actions, the Act would work a very significant shift in the federal-state
balance. Before Congress undertakes such a radical reordering of the boundaries
of federal and state responsibility, the proponents of the takeover must show a
compelling need to disturb the current balance. The proponents of the proposed
legislation have not met and cannot meet their burden to show a need -- much
less a compelling need -- to disturb the balance between federal and state court
jurisdiction over class actions. 1. Preventing Discrimination Against Interstate
Enterprises Section 2(1) of H.R. 1875 quotes the Third Circuit as stating that
interstate class actions "implicate interstate commerce, invite discrimination
by a local state, and tend to attract bias against business enterprises." To the
extent that this quotation is meant to suggest that the federalization of
interstate class actions is necessary because state courts have generally
handled such class actions in a manner that has discriminated against out-
of-state litigants, our experience does not support any such generalization. Nor
are we aware of any evidence supporting the proposition that state courts have
shown a systematic bias against out-of-state litigants in handling class
actions. Section 2(3) of H.R. 1875 characterizes the exclusion of most class
actions from diversity jurisdiction as an "unintended
technicality." But the requirement of complete instead of minimal diversity for
federal jurisdiction is not an unintended technicality. It dates back to the
opinion of Chief Justice John Marshall in Strawbridge v. Curtiss, 7 U.S. (3
Cranch) 267 (1806), and has been preserved (with the exception of the federal
interpleader statute) in every subsequent enactment. See generally, e.g.,
Charles Alan Wright, Law of Federal Courts 24, at 156-58 (5th ed. 1994). We
submit that no case has been made for the wholesale abrogation of this rule in
class actions. 2. Applying Rigorous Standards to Avoid Abuses Proponents of the
Act assert that state courts are not rigorous in applying proper class action
standards in adjudicating class actions and have created an "explosion" of
unwarranted, frivolous class actions that lead to abusive settlements. H.R. Rep.
No. 702, 105th Cong., 2d Sess. 6 (1998). No empirical evidence has been offered
to support these assertions. At the hearings on H.R. 3789, only two studies
concerning the growth in class actions were cited. These studies focussed only
on an increase in the filings of class actions, not on their propriety or merit.
The Congressional Budget Office, admittedly on "highly uncertain" bases,
estimated that H.R. 3789 would lead to "at least a few hundred additional cases"
in the federal courts. H.R. Rep. No. 702 at 11. Based on class action
practitioners' experiences, the Committee believes more than a few hundred cases
may fall within the legislation's scope. Yet such estimates do raise a
significant question as to any claimed "explosion." Id. at 6. On the other hand,
if the proposal would siphon onto the federal courts' calendars the claimed
"explosion" of complex cases each year, such an impact bodes ill for the federal
courts' caseload. Second, no empirical or other substantiation, aside from
anecdotes, has been offered supporting the proposition that state courts are
more lenient than their federal counterparts in adjudicating class actions. Even
if this proposition were true, it would be a classic problem that principles of
federalism would dictate is for the states to address. If states are not curbing
abusive litigation, of any form, in their courts, the states, as a practical as
well as a constitutional matter, are in the best position to effect the proper
control and necessary improvements. In any event, other than anecdotal
testimony, the sole support before Congress for the claim of leniency was a
study analyzing Alabama state courts' "conditional" class certifications. The
Alabama Supreme Court, however, sounded what has been termed the "death knell"
of conditional certifications in Alabama, issuing a series of writs of mandamus
in December 1997 to vacate conditional class certifications. Both Ex Parte State
Mutual Ins. Co., 715 So. 2d 207 (Ala. 1997), and Ex Parte American Bankers Life
Assur. Co., 715 So. 2d 186 (Ala. 1997), for example, required notice and a full
opportunity to be heard before class certification and strictly applied the same
certification criteria as in Federal Rule of Civil Procedure 23. If anything,
these examples illustrate how state courts can and do deal with any perceived
abuses. The study presented to Congress on the problem addressed by the Alabama
Supreme Court also must be viewed with skepticism. A Committee member was
involved in one of the cases cited. Lewis v. Exxon Corp., No. 96-140 (Sumter
Co.). The study, by Dr. John Hendricks, presents this case as involving a class
certification that did not give the defendant a full opportunity to be heard.
Although the court did grant provisional certification before the record was
complete, the court granted final certification only after a fuller evidentiary
record had been developed, including discovery, expert testimony, and complete
briefing and argument. The defendant had a full opportunity to oppose the
certification. In fact, the Alabama Supreme Court decertified this action,
holding that Alabama courts may not certify multistate deceptive practice suits
because Alabama's deceptive practices statute does not permit class
certification. Ex Parte Exxon Corp., 725 So. 2d 930 (Ala. 1998). Beyond the
Alabama examples, the experience of class action practitioners, including
Committee members representing both plaintiffs and defendants, shows that any
greater leniency toward class certifications in the state courts in the past has
subsided. Various decisions, both federal and state, have tightened class action
criteria significantly. Castano v. American Tobacco Co., 84 F.3d 734 (5th Cir.
1996); Small v. Lorillard Tobacco Co., 252 A.D.2d 1, leave to appeal granted,
252 A.D.2d 18-19 (1st Dep't 1998); Carroll v. Cellco Partnership, 313 N.J.
Super. 488 (App. Div. 1998). In fact the Act's proponents have not demonstrated
that abusive class settlements are a function of state rather than federal court
supervision. Recent settlement agreements cited to exemplify asserted abuse were
reached in federal, not state, courts. Hanlon v. Chrysler Corp., 150 F.3d 1011
(9th Cir. 1998); In re General Motors Corp. Pick-Up Truck Fuel Tank Products
Liability Litig., 55 F.3d 768 (3d Cir. 1995); In re Ford Motor Co. Bronco II
Products Liability Litig., 1995 U.S. Dist. Lexis 3507 (E.D. La. 1995). 3.
Ability to Address Laws and Claimants from Other States Other claims by the
legislation's proponents are equally questionable. They have contended that
state courts are "ill equipped" to address laws and claimants from outside their
states. H.R. Rep. No. 702 at 1. Again, no support has been provided for this
contention. State courts routinely must and do deal with issues raised by
multistate parties and the applicability of other states' laws. Nor has any
showing been made that federal courts are better able than state courts to apply
the laws of states outside the court's jurisdiction. Had such a problem in the
state courts been shown, the problem would not be limited to class actions, but
would involve any number of cases with multistate claimants and laws. To urge
that in any of these situations the federal courts should take over is to set a
troubling precedent for federal takeover of any problem in the state courts or
at least any problem with any multistate dimensions. 4. Ability to Address
Overlapping or Competing Actions in Other States Similarly, the Act's proponents
have contended that state courts are powerless to consolidate overlapping or
"competing" class actions in different jurisdictions. While state courts cannot
consolidate actions in different jurisdictions, state courts are not powerless
to deal with overlapping or competing actions outside their jurisdictions. State
courts may and do stay actions before them pending a determination in another
jurisdiction, just as federal courts do. Again, no evidence has demonstrated
that this approach has proved insufficient. 5. Summary In short, the proponents
of disturbing the boundaries of federal and state courts' jurisdiction bear the
burden of showing a compelling need for the proposed change. The proponents of
the proposed changes in class action jurisdiction have not met this burden. They
have failed to establish the necessity for the legislation, much less a
sufficient necessity to overcome the presumption in favor of maintaining the
current federal-state balance. D. The Legislation Poses Federalism Concerns In
both design and effect, the Act's reallocation to the federal courts of
adjudicatory authority over inherently state disputes compromises the basic
principles underlying our federal system of dual sovereignty, in which two
governmental structures operate substantially uninhibited by each other. E.g.,
Printz v. United States, 521 U.S. 898, 934 (1997). Class actions, in particular,
often raise novel legal issues requiring the application of state law to new
situations. To the extent that class actions are a forum where state law is
developed, the Act displaces state courts from their traditional and pivotal
role as the primary expositors of state law. Federal courts, respecting our
system of dual sovereignty, are less likely to construe, extend, or expand state
law in any new way, finding it the domain of state courts to decide issues of
first impression under state law. For this reason, and due to a concentration on
federal issues, federal courts may not have occasion to acquire the same
competence and effectiveness as state courts in developing areas of state law.
The federalization of class actions envisioned by the Act thus may frustrate the
development of state law. Second, the Act impedes states' ability to devise and
offer their citizens an important mechanism for vindicating their rights under
state laws. While states would retain the authority to create rights under state
laws, they would lose an important means for enforcing those rights and
implementing those laws through the courts. Emblematic of this problem are the
Act's provisions governing cases in which the federal court denies class
certification. The Act provides that any such case may be refiled in the state
court, following which it can again be removed to the federal court, which will
presumably dismiss all class claims on the basis of its prior decision. The net
effect would be that cases in which class certification has been denied by the
federal court could not be maintained as class actions in the state courts. This
direct regulation of procedural rules by which state courts adjudicate disputes
raises basic federalism concerns in light of "the importance of state control of
state judicial procedure." Howlett v. Rose, 496 U.S. 356, 372 (1990) (quoting
Henry M. Hart, Jr., The Relations Between State and Federal Law, 54 Colum. L.
Rev. 489, 508 (1954)). See also Johnson v. Fankell, 520 U.S. 911, 916 (1997).
Under the Act, a federal statute would regulate state judicial procedures by
dictating requirements for state-based class actions. It would effectively
forbid states from applying their class action procedures and substitute federal
procedural rules for state rules. These fundamental federalism concerns raised
by the Act's radical reordering of federal-state adjudicatory authority militate
strongly against the legislation's enactment. E. The Legislation Will Not
Achieve the Goals It Seeks to Achieve and Will, Instead, Effect an Unwarranted
Deprivation of States' Ability to Adjudicate State-Based Disputes. Even the
proponents of upsetting the federal-state balance recognize that federalism, at
minimum, requires retention of state court jurisdiction over state-based class
actions. As is readily apparent, however, application of the minimum diversity
principle in the class action context creates federal jurisdiction of limitless
bounds. For example, if even one of thousands of plaintiff class members should
move to another state, even if that class member resided in the state where the
claim arose when it arose, the action qualifies for federal jurisdiction. Thus
the proposal's central premise of minimal diversity insulates no class action,
however uniquely suited to state court adjudication, from federal jurisdiction.
The attempts to carve out escape hatches from federal jurisdiction for
state-based class actions fail to produce effective categorizations of
state-based actions. H.R. 1875 lists three categories of cases where the federal
court must refrain from exercising jurisdiction: (1) an "intrastate case," where
the claims are governed "primarily" by the laws of the forum state and the
"substantial majority" of the members of the plaintiff class and the "primary"
defendants are citizens of that state; (2) a "limited scope case," where the
matters in controversy do not exceed $1 million; and (3) a "State action case,"
where "the primary defendants are States, State officials, or other governmental
entities against whom the district court may be foreclosed from ordering
relief." These provisions are not self-applying. Their parameters, including
especially the terms set forth in quotation marks above, are highly qualitative
in nature and invite endless satellite litigation concerning these terms'
interpretation and application, all before ever reaching the merits. Moreover,
these provisions do not encompass all of the cases where state jurisdiction over
class actions is most appropriate. For example, a class action involving claims
of more than $1 million, brought under the laws of the forum state against forum
state defendants, but in which the class of allegedly injured persons was
located in many states, would not come within any of the exclusions listed in
H.R. 1875. Since none of the exclusions would apply, the federal court would be
compelled to retain jurisdiction over the action, despite the absence of any
plausible basis for claiming systematic discrimination against the forum state
defendants. The Act's flawed attempts to define state-based class actions reveal
that it is impossible to draw a clean line around those types of actions.
Because minimal diversity is the driving principle, nothing prevents the
relocation of one class member (or one defendant seeking to defeat state court
jurisdiction, for that matter) from making a class action a candidate for
federal jurisdiction. In failing to define a comprehensive carve-out of cases
that should be permitted to proceed as class actions in state courts, the
proposals in turn fail to define effectively those class actions the proponents
want specifically to target for federal jurisdiction. Hence the legislation
fails to achieve its stated objectives. Other features of the proposed
legislation illustrate the disruptions it would inflict on both the state and
the federal courts. The Act allows any defendant in an action, or any member of
the plaintiff class who has not been named as a class representative, within a
specific time after receiving notice of the action, to remove to federal court
any action that could have been brought there originally. In a class action, a
class member may not receive notice until the eve of settlement. Under the Act,
at the eleventh hour, after a state court has nursed a class action all the way
to disposition, a party still may suddenly divert the action to federal court.
The unilateral ability of any class member to redirect the litigation also
undermines the overarching concept in class actions, that the class
representatives represent the class and determine (subject to the control of the
court) how the action is to proceed. In sum, the proposed legislation does not
and cannot accurately distinguish between intrastate and interstate class
actions. The impractical effects on both the federal and the state judiciaries,
in addition to the implications for the deeply rooted balance between them, are
evident. F. Conclusion For the reasons discussed above, Congress should not
enact the proposed Interstate Class Action Jurisdiction Act.
LOAD-DATE: July 26, 1999 
