Copyright 1999 Federal Document Clearing House, Inc.
Federal Document Clearing House Congressional Testimony
July 21, 1999
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 3847 words
HEADLINE:
TESTIMONY July 21, 1999 BRIAN WOLFMAN HOUSE JUDICIARY CLASS
ACTION IN FEDERAL COURT AND PENDING BILLS
BODY:
TESTIMONY OF BRIAN WOLFMAN STAFF ATTORNEY, PUBLIC CITIZEN LITIGATION GROUP
BEFORE THE HOUSE COMMITTEE ON THE JUDICIARY REGARDING H.R. 1875, THE INTERSTATE
CLASS ACTION JURISDICTION ACT OF 1999 July 21, 1999 Chairman Hyde and members of
the Committee: Thank you for the opportunity to appear today in opposition to
H.R. 1875, the Interstate Class Action Jurisdiction Act of 1999. Although Public
Citizen supports the use of class actions and actively works to improve the
class action process, this bill would do nothing to further that goal. To the
contrary, H.R. 1875 is an unwise and ill-considered incursion by the federal
government on the jurisdiction of the state courts. It works a radical
transformation of judicial authority between the state and federal judiciaries
that is not justified by any alleged "crisis" in state-court class action
litigation. Before explaining the basis for my conclusion that H.R. 1875 should
not be enacted, I want to describe my experience in class action litigation. I
am a staff attorney with Public Citizen Litigation Group, a non-profit, national
public interest law firm founded in 1972, as the litigating arm of Public
Citizen, a consumer advocacy organization with approximately 150,000 members.
Like other lawyers who represent consumers, we use class actions in situations
where litigation of individual claims would be economically impossible. Because
we value class actions as an important tool for justice, we have, for a number
of years, combatted abuses in the class action system. We have increasingly
devoted resources to opposing what we believe are inappropriate or collusive
class action settlements, and have become the nationwide leader in fighting
class action abuse. Among the more than 30 nationwide class actions settlements
on which we have worked, we have served as lead or co-counsel for objectors in
many of the most important cases, including Bowling v. Pfizer (Bjork-Shiley
heart valve); Amchem v. Windsor (settlement of future asbestos personal-injury
cases, also known as Georgine); Wish v. Interneuron Pharmaceutical (Redux diet
drug); Hanlon v. Chrysler Corp. (Chrysler mini-vans); In re Telectronics Pacing
Systems, Inc. (pacemaker leads); Duhaime v. John Hancock Mut. Life Ins. Co.
(life insurance sales practices); In re General Motors Corp. Pickup Truck Fuel
Tank Prod. Liab. Litig. (GM C/K Pickup Trucks); and In re Ford Motor Co. Bronco
II Prod. Liab. Litig. (Ford Broncos). In these cases, we have objected to
settlements that we thought grossly undervalued the plaintiffs' claims and/or we
have opposed what we believed were the inflated fees of the plaintiffs'
attorneys. In addition, we have written articles on the problems we have
encountered in class action settlements for law reviews and the popular press.
See Brian Wolfman & Alan Morrison, Representing the Unrepresented in Class
Actions Seeking Monetary Relief, 71 N.Y.U. L. Rev. 439 (1996); Brian Wolfman,
Forward: The National Association of Consumer Advocates' Standards and
Guidelines for Litigating and Settling Class Actions, 176 F.R.D. 370 (1998);
David C. Vladeck, Trust the Judicial System to Do Its Job, The Los Angeles
Times, p. M5 (Apr. 30, 1995); Brian Wolfman, Class actions for the injured
classes, The San Diego Union Leader, p. B- 11 (Nov. 14, 1997). The point of
these introductory comments is that Public Citizen takes a back seat to no one
in fighting improper class actions, to assure that injured consumers will be
justly compensated, that class action attorneys' fees are sufficient (but not
excessive), and the class action tool is not weakened. In our judgment, H.R.
1875 will not aid injured consumers or combat collusion, but it will work a
massive shift of power and cases to our overburdened federal courts at the
expense of the state courts, the traditional forum for hearing disputes
involving state law. I. The Enormous Expansion of Federal Jurisdiction. Section
3 of H.R. 1875 allows proposed class actions to be filed in federal court if
"any member of a proposed plaintiff class is a citizen of a State different from
any defendant...." Building on the language in section 3, section 4 of the bill
permits removal from state court to federal court of any class action meeting
these expanded criteria for filing class actions in federal court. Thus, as a
practical matter, section 3, when combined with section 4's removal provision,
would end most state- court involvement in consumer class actions. Although the
bill provides that the federal court may not entertain class actions denominated
as "intrastate," this exception applies only where a "substantial majority" of
the proposed class and all of the primary defendants are citizens of a single
state, and the claims asserted will be governed primarily by the laws of that
state.(1) As explained below, the bill would effectively eliminate state- court
jurisdiction over class actions involving only in-state plaintiffs and only that
state's law, simply because any primary defendant's principal place of business
or state of incorporation is out of state, even where that defendant does
substantial in- state business. As a result, the bill shifts an enormous amount
of power from state to federal courts at a time when the federal courts are
already overwhelmed. Two hypothetical cases illustrate our point. Assume that
over the past two years a regional life insurance company, with headquarters in
Georgia and incorporated in Delaware, and with a sales force of agents employed
by the company's Florida affiliate, fleeced 100,000 of its Florida customers, by
charging premiums higher than those promised and not paying certain benefits. On
average, each customer lost about $1,000. The company, the Florida affiliate,
and the sales agents particularly targeted senior citizens. The customers file a
class action against the company, the Florida affiliate, and the key agents who
helped perpetrate the scheme in Florida state court alleging solely violations
of Florida law. Under H.R. 1875, any of the defendants would have the option of
removing this class action to federal court. There is no federal interest in
resolving such a dispute because it does not involve federal law; more
important, the Florida courts have a strong interest in resolving the case, to
assure that Florida law is properly enforced. That interest is usurped by H.R.
1875. Indeed, this example makes clear that H.R. 1875 is little more than a
"Corporate Defendant Choice of Forum Act," since it allows the corporate
defendants -- not the plaintiffs -- to select the court system it prefers.(2)
Similarly, a class of Oklahoma landowners allege that they have been unlawfully
deprived of oil and gas royalties by an Oklahoma- based utility company (through
its Oklahoma-based sales force), and by the Oklahoma firm's parent company, a
Texas-based energy conglomerate, incorporated in Delaware. The landowners file
suit in state court under a Oklahoma consumer protection statute and Oklahoma
common-law. There is no reason why a state court should not handle this class
action. Surely, most Oklahoma trial courts, and the Oklahoma appellate courts on
review, will be more familiar with the state-law issues than a federal court
sitting in Kansas or the relevant federal appeals court headquartered in Denver.
And yet H.R. 1875 virtually assures that, regardless of the plaintiffs' wishes,
this one-state controversy, involving only state law, will end up in federal
court. But the cases need not be hypothetical. In Hidi v. State and County
Mutual Fire Ins. Co., a class of insureds alleged that they were improperly
charged a deductible. The class maintained that third parties -- people who
caused accidents involving their cars -- were responsible for the deductibles
and that Texas law required the insurance companies to sue those third parties
to recover the class members' deductibles. Although most if not all of the class
members are Texans, because two of the defendants are out-of-state corporations,
under H.R. 1875, the defendants would have the right to force this intra-state
controversy into federal court. In Morgan, Sword v. Bell Atlantic, the class is
composed of West Virginians who paid for inside wire maintenance sold by Bell
Atlantic-West Virginia, Inc, a West Virginia corporation, and its parent, Bell
Atlantic. The class alleges that the defendants illegally "bundled" inside
wiring maintenance service with their regular phone service and charged their
customers a monthly service charge. Although all (or virtually all) of the class
members are West Virginians, and the defendants have an established presence in
West Virginia, under H.R. 1875, any defendant could remove the case to federal
court, because Bell Atlantic is headquartered and incorporated out of state.
There is simply no reason why the state court should be divested of its
traditional role of hearing this kind of purely intra-state dispute involving
only state law.(3) As these examples show, H.R. 1875 dishonors the proper
spheres of the states and the federal government in our federal system. The bill
is a resounding vote of "no confidence" in our state courts. It is premised on a
deep -- and misplaced -- distrust in state courts' ability to uphold the law.
Our Constitution properly assumes that the states are fully capable of
interpreting their own laws and handing out justice impartially. Although this
radical revision of the allocation of authority between the state and federal
courts is enough in itself to warrant the defeat of H.R. 1875, it is the
inefficiencies created by the bill that will pose the largest roadblock to
justice for ordinary citizens. By channeling most state-law based class actions
to the federal courts, H.R. 1875 will further weaken the ability of litigants to
obtain justice in our federal courts. As Chief Justice William H. Rehnquist has
repeatedly explained in his annual report on the judiciary, the federal courts
are already overburdened with cases that traditionally are dealt with in state
courts, and the federal courts cannot bear any additional burden. See, e.g.,
William H. Rehnquist, The 1998 Year- End Report of the Federal Judiciary 5-7
(Jan. 1, 1999). And the Chief Justice has particularly asked Congress to
consider reducing, not expanding, federal diversity
jurisdiction. Id. at 7. Moreover, not only would H.R. 1875 increase the
caseload of the federal courts, but it would do so with cases that are extremely
complex and time consuming. Making matters even worse, these new federal cases
involve solely issues of state law, with which state-court judges are intimately
familiar, but federal judges generally are not. The caseload burden imposed by
H.R. 1875 would be reason enough to reject this legislation at any time, but the
problem is particularly acute now, because there are a large number of federal
judicial vacancies and the civil docket in some districts is severely
backlogged. In short, H.R. 1875 promises that injured consumers will be put on
"hold" in the overburdened federal courts, without any opportunity to litigate
their cases in state courts where they properly belong. The proponents of H.R.
1875 try to justify the bill on the ground that there is a class action "crisis"
peculiar to the state courts. In general, the class action tool is a tremendous
benefit to Americans. It is an important and powerful component of our civil
justice system that can compensate ordinary citizens who, acting individually,
would not have the means to challenge corporate and governmental wrongdoers. As
noted at the outset of this testimony, Public Citizen recognizes that class
action abuse threatens to sour the public and harm the very people that the
class action tool is supposed to help. But it is wrong to think that abuse is
limited to state courts. Last year, a federal appeals court approved the
Chrysler minivan settlement -- where the settlement provided little more than
Chrysler's prior promise to a federal regulator to fix the class members'
defective door latches, with Chrysler agreeing to pay the lawyers five million
dollars in fees! Both the federal and state courts must be vigilant and prevent
such abuses and progress is being made in that regard. The state courts can play
a role in preventing abuse. For example, many of the anecdotes used by the
proponents of H.R. 1875 are based on class actions in Alabama where, the
argument goes, the state courts there have been certifying cases without
following the proper procedures. Responding to due process and forum-shopping
concerns from corporate defendants, however, the Alabama Supreme Court has
abolished the practice of certifying class actions before the defendant has an
opportunity to answer the suit. See, e.g., Ex Parte State Mutual Ins. Co., 715
So.2d 207 (Ala. 1997); Ex Parte American Bankers Life Assur. Co. of Fla., 715
So.2d 186 (Ala. 1997). The Alabama court made clear that classes may not be
certified without notice and a full opportunity for defendants to respond and
that the class certification criteria must be rigorously applied. Meanwhile,
state-court class actions continue to provide significant relief to consumers
who would otherwise have gone without compensation. For instance, state-court
class actions involving polybutylene pipe illustrate the importance of consumers
banding together to fight corporate irresponsibility. Shell, Dupont, and other
corporate giants sold leaky plastic pipes, which caused severe damage to the
homes of tens of thousands of unsuspecting consumers. This state-court
litigation resulted in hundreds of millions of dollars in recoveries and
replacement of the faulty piping, which would never have occurred if the
homeowners were required to face off against the companies on their own. Another
example is Naef v. Masonite -- concerning claims of defects in hardwood siding
on homes and commercial property -- commenced in 1994 in Mobile County, Alabama.
The defendant removed the case to federal court, but the case was later remanded
because of a lack of federal jurisdiction. A state-court jury found for the
plaintiffs on the question of whether the product was defective, and the matter
then settled for hundreds of millions of dollars shortly before trial on
liability and damages. Under H.R. 1875, this case could have been removed to
federal court, although it appears that the matter was pursued vigorously in the
state court and brought very considerable benefit to injured class members. In
another Alabama case -- Coleman v. GAF Building Materials Corporation -- a
settlement was stuck that would provide thousands of injured plaintiffs with a
replacement or repair of their allegedly defective roof shingles. As originally
proposed, the settlement contained serious problems, including inadequate notice
of the remedy. But objectors appeared, and the court allowed them to intervene
to present their objections. The settlement was modified to remedy the
settlement's serious flaws. The case was based on state law, and there is
nothing to suggest that a federal, rather than state, forum was essential.(4) As
evidence of the state-court class action "crisis," the supporters of H.R. 1875
rely on a few anecdotes of settlements in which the class members were cheated
at the expense of their lawyers. As noted, abuses do occur in state and federal
court, and that abuse must be fought in the courts. But the anecdotes are just
that -- anecdotes -- and much more evidence showing a systematic pattern of
abuse in the state (as opposed to federal) courts must be required before
Congress should consider enacting anything approaching the radical
transformation in our state- federal balance contemplated by H.R. 1875. In sum,
H.R. 1875 should be rejected as unwise and unnecessary. It is an unwarranted
attack on the integrity of the state courts and their ability to provide justice
to its citizens, and it comes at a time when the federal courts are unable to
handle the enormous increase in caseload that H.R. 1875 would entail. II.
Constitutional Concerns. H.R. 1875 should not be enacted for the policy
considerations given above. The Committee should be aware, as well, that H.R.
1875 may also be constitutionally flawed. As this Committee is aware, our
federal courts are courts of limited jurisdiction. Section 3 of the bill would
stretch the limits, perhaps beyond the breaking point. The bill would overrule
Strawbridge v. Curtiss, 3 Cranch 267 (1806), where the Supreme Court interpreted
the diversity statute to require "complete diversity" between all named
plaintiffs and defendants. Strawbridge is not a constitutional case and the
Supreme Court has held that only "minimal" diversity (i.e., diversity between
one plaintiff and one defendant) is required by the constitution. See State Farm
Fire & Cas. Co. v. Tashire, 386 U.S. 523, 530-31 (1967). However, in our
judgment, the Supreme Court's endorsement of minimal diversity does not ensure
the constitutionality of sections 3 and 4 of H.R. 1875, at least not in all of
their applications. The relevant constitutional provision, Article III, section
2, provides that " t he judicial Power shall extend to ...
Controversies...between citizens of different States . " Assume a situation in
which the named plaintiff and all the named defendants are citizens of state
"X." 50% of the proposed class members are also citizens of state "X," but 50%
of the proposed class members are citizens of states "Y" or "Z." When a proposed
class action is filed, the class does not yet exist and a constitutional
"controversy" exists only between the named plaintiffs and the defendant. Thus,
in the hypothetical, prior to class certification, all of the parties are from
the same state - - X. Put another way, there is no controversy between the
absent class members -- on whom jurisdiction under H.R. 1875 hinges -- and the
defendant, and thus it is difficult to imagine how diversity
jurisdiction can be constitutionally maintained in this circumstance
prior to certification of the class and some reasonable assurance that there is,
in fact, diversity. See Sosna v. Iowa, 419 U.S. 393, 399 (1975). III. Other
Problems With Sections 3 and 4 of H.R. 1875. Although we believe that H.R. 1875
should be defeated, it should surely not be enacted in its current form. The
following amendments would improve the bill. The rationale of diversity
jurisdiction when it was first enacted at the end of the 18th century
was to avoid prejudice against out- of-state defendants. As the Chief Justice
pointed out in his 1998 annual report, that rationale is not nearly so powerful
in today's society. See, e.g., William H. Rehnquist, The 1998 Year- End Report
of the Federal Judiciary 7 (Jan. 1, 1999) (noting that in 1789, when the
Judiciary Act was enacted, "there was reason to fear that out-of-state litigants
might suffer prejudice at the hands of local state-court judges and juries, and
there was legitimate concern about the quality of state courts. Conditions have
changed drastically in two centuries."). Under H.R. 1875, an in-state class of
plaintiffs suing under their own state law can keep a state-law class action in
state court only if the primary defendants are citizens of that state. (A
corporation's citizenship is generally defined to include both the state in
which it has its principal place of business and its state of incorporation). To
be blunt, that makes little sense in a society in which large corporations have
a significant business presence in many states. Surely, Disney should be suable
in state court in Florida, as well as in California, where it has its
headquarters. Ford Motor Company should be suable in state court in Kentucky,
where it has a substantial manufacturing plant, as well as in Michigan (where it
has its headquarters). Proctor & Gamble should be suable in state court in
Georgia and Missouri, where it has substantial business operations, not just in
Ohio (where it has its headquarters and is incorporated). Thus, at the very
least, the portion of proposed 28 U.S.C. 1332(b)(2)(A) -- defining the kinds of
"intrastate" class actions over which a federal court may not exercise
jurisdiction -- should be amended. Under the amendment, the federal court would
not have jurisdiction in class actions in which a substantial majority of the
class members are citizens of a single state of which the primary defendants are
also citizens "or in which the primary defendants have a substantial business
presence," and the claims asserted will be governed primarily by the laws of
that state. Section 4(e) of H.R. 1875 (proposed 28 U.S.C. 1447(f)) provides that
the statute of limitations for any claim that was asserted on behalf of a class
member in an action dismissed or remanded to state court for failure to meet
Rule 23's class certification criteria "shall be deemed tolled to the full
extent provided under Federal law." This provision is unfair for two reasons.
First, under American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974),
tolling would apply in any future individual action in federal court. As a
practical matter, this means that the statute of limitations for the claims of
individual class members is tolled between the filing of the federal class
action and the denial of class certification. However, it is not certain that
all the state courts -- where many subsequent individual actions would have to
be filed -- will adopt the American Pipe rule. Second, American Pipe arguably
does not apply to the issue of whether the limitations period for a subsequent
class action (as opposed to an individual action) would be tolled during the
pendency of the original federal class action. Some federal circuit courts have
held that American Pipe does not apply in that circumstance. See, e.g., Korwek
v. Hunt, 827 F.2d 874, 879 (2d Cir. 1987). The solution to both problems is the
same. Rather than referring to "Federal law," the bill should simply provide
that the claims of the class members are tolled during the pendency of any
action in which jurisdiction is based on proposed section 1332(b). In closing, I
want to reiterate our opposition to this legislation. Since the founding of the
Republic and the first Judiciary Act, it has been our shared national
understanding that, generally speaking, litigation of state law questions would
be the province of state courts. The enormous aggregation of power in federal
court proposed by this legislation is unwise because it tears a large hole in
the fabric of federal-state relations and because it adds a considerable burden
on our already overworked federal court system. If there are genuine problems
with state-court class actions, Congress should work hand-in-hand with state
courts and legislatures to resolve them, mindful of the vital state interests
that are implicated when Congress proposes curtailing state-court jurisdiction.
But under no circumstances should Congress adopt the heavy-handed approach
embodied in H.R. 1875.
LOAD-DATE: July 26, 1999
