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MAY 4, 1999, TUESDAY

SECTION: IN THE NEWS

LENGTH: 3788 words

HEADLINE: PREPARED STATEMENT OF
ELEANOR ACHESON
ASSISTANT ATTORNEY GENERAL
UNITED STATES DEPARTMENT OF JUSTICE
BEFORE THE SENATE JUDICIARY COMMITTEE
SUBCOMMITTEE ON ADMINISTRATIVE OVERSIGHT AND THE COURTS
SUBJECT - CLASS ACTION FAIRNESS ACT OF 1999 (S. 353)

BODY:

Good afternoon. I appreciate the opportunity to appear before this Subcommittee on Administrative Oversight and the Courts to express the Justice Department's views regarding the proposed Class Action Fairness Act of 1999 (S. 353).
Introduction
The Class Action Fairness Act of 1999 (S. 353) proposes to deal with perceived abuses in state class actions by effectively federalizing class actions. Sections 3 and 4 of S. 353 are substantively identical to H.R. 3789, a bill considered by the House in the last Congress. Last October, the Administration issued a Statement of Administration Policy that stated that the Attorney General would recommend that the President veto H.R. 3789 if it were presented to him. See Statement of Administrative Policy (issued Oct. 5, 1998). S. 353 raises the same concerns as H.R. 3789. Moreover, it includes a number of additional provisions that raise additional concerns on policy and its constitutional grounds. Accordingly, the Department strongly opposes S. 353.
Before addressing the specific provisions of S. 353, I would like to review the importance of class action procedures and the significance of the provisions of S. 353 that would federalize most class actions. When there are large numbers of individuals, each of whom has been significantly harmed, but the potential recovery is insufficient to support an individual lawsuit, a class action is virtually the only way these individuals can seek redress through the legal system. Even when the harm to some or all of the individual victims might justify individual lawsuits, class actions are by far the most efficient means of resolving large numbers of claims that have common questions of fact and law. Indeed, court systems can be overwhelmed by large numbers of similar claims, delaying and even denying justice to plaintiffs. Class actions provide efficiency benefits to defendants as well, permitting resolution of multiple claims in one proceeding. Plaintiffs, defendants, and the system of justice all also benefit from the reduction in or elimination of inconsistent verdicts. Because the class action mechanism is so important, we should be cautious in curtailing access to it, do so only on indications of clear and undisputed failures or abuse, and make sure that any limitations or changes to this procedure are closely tailored to the specific problems identified.
S. 353 would address perceived abuses in class actions by federalizing them - providing federal jurisdiction and removal authority for almost all non-securities class actions. We do not believe that the case has been made that there are abuses intrinsic to state court class actions that justify the wholesale removal of these cases from state courts. There have been cases raising concerns from state courts, but also from federal courts, and the anecdotes about state cases seem to reflect problems with individual judges or particular locales rather than systemic problems in states' handling of class actions. Unless the claimed abuses of class actions are peculiarly a state court or state law problem, federalization would not address the problems.
A related, and, we believe, crucial aspect of our consideration of S. 353 is that we live in a federal system. States should be able to create the remedies in their courts that the states conclude best serve the interests of their citizens. S. 353 would federalize class actions involving only state law claims - claims based on federal law already can be brought in federal court under federal question jurisdiction. We should await evidence of clear necessity before the federal government interferes with the authority of states to set their own law and procedures in their courts, and that evidence should demonstrate that the states have broadly overreached or are unable to address the problems themselves.
Finally, we are all aware that federal class actions standards have been narrowed considerably by court interpretation in the past decade or so. There is much debate over whether this is a good or bad thing, but the very existence of the debate makes clear that there are public policy choices to be made. There is nothing sacrosanct about federal choices. When assertions are made that states certify class actions that should not be certified, or approve settlements that should not be apwe need to be sure that such statements are not simply expressions of policy differences. In a system of federalism, state public policy choices should not be overridden without a showing of compelling nation need. There must be evidence of harm to interests of national scope that require a federal response, and even with such evidence, federal preemption should be limited to remedying specific problems with tailored solutions, something that S. 353 does not do.
There are certainly examples of class actions in which settlements appear to provide benefits primarily to lawyers and defendants rather than to the injured plaintiffs. There are class actions in which the purported nationwide reach of a state court seems problematic. Perhaps there are particular classes of cases - the Judicial Conference has been considering whether mass torts are such a class - that appropriately should be tried in federal court even absent the traditional grounds for federal jurisdiction. We would be pleased to work with the Members of this subcommittee and with the Congress to determine whether there are specific systemic problems with class actions that warrant a federal response and to attempt to craft such a response.
I would now like to turn to the specific provisions of S. 353.
Section 2 - Notification Requirements
Section 2 of the bill requires notification of the Attorney General and State attorneys general of proposed settlements in class actions, requires that hearings on proposed settlements be delayed for 120 days after notification, imposes plain language requirements on class notices, and limits attorneys' fees in class actions. We have the following concerns about the provisions in this section.
1. Notification of the Attorney General
Requiring notice to the Attorney General of all class certifications and settlements is unnecessary and burdensome, both to the litigants and the Attorney General. Under this provision, the Department is likely to be inundated with notices in cases in which the Federal government has no interest. We note that the statute does not indicate what the Attorney General is supposed to do with the notices or the information contained in them. In addition, despite the provision in the bill that these notice requirements impose no legal obligations on the Attorney General, the Attorney General's silence in response to notices may in some cases be interpreted as acquiescence, if not approval.
2. Instructing State-court judges as to the timing of hearings on proposed class action settlements
Section 2's requirements concerning notice of proposed settlements in state court class actions and hearings on those proposals implicate constitutional principles of federalism.

Section 2 would require, for example, that judges in State as well as Federal courts to wait at least 120 days after service of settlement documents on State and Federal attorneys general before convening any hearing to evaluate the fairness of a proposed class-action settlement. Such procedural directions to State judges, although constitutional in our view, could be subject to significant constitutional challenge as an impermissible infringement on the States' sovereign authority to determine the manner in which State courts adjudicate State law claims. 1
3. Notice and Attorneys Fees Provisions
The notification provisions of section 2 would create a number of difficulties in class actions. First, it is often difficult to determine the current residence of all members of a plaintiff class. This would necessitate providing notice to the attorneys general of all fifty States in order to ensure that agreements are enforceable against class members who generally could not otherwise opt out. The 120-day advance notice requirement follows general practice in most cases, but would not permit an expedited settlement even if the court and parties agreed in a particular case that it was necessary.
Finally, the proposed limitation on attorneys' fees could create a number of problems. It is not clear why class actions brought under particular substantive rules of law should have different attorneys' fees rules than other cases involving the same rules of law. For example, it is not clear why Title VII class actions involving classes of current and former federal employees, which the Department defends on behalf of the United States, should have different attorneys' fees rules than all other Title VII cases. Title VII, like other employment discrimination statutes, has its own fees provision and there is a well-established body of law concerning what is and is not permitted. One of the principles established by that body of law is rejection of the kind of proportionality set forth in proposed section 1714(a). Courts recognize that civil rights cases often concern equitable rather than monetary relief, and that attorneys may be unwilling to pursue these cases (or Title VII cases subject to caps on recovery) if they will not be paid for their efforts. Proposed subsection 1714(b), which permits courts to base attorneys' fees on a reasonable lodestar calculation, provides some, but not enough, correction. A reasonable lodestar is often the beginning rather than the end of fee calculations in Title VII cases. Multipliers are available for particularly complicated cases or for experienced plaintiffs' counsel. The interests of both plaintiffs, the courts, and even defendants are best served by not discouraging experienced and knowledgeable counsel from taking on these cases.
Sections 3 and 4 - Class Action Jurisdiction and Removal from State to Federal Court
Under current law, Federal district courts have jurisdiction in diversity cases only when all plaintiffs are diverse from all defendants. That is, no plaintiff can be a citizen of any State of which any defendant is a citizen. Section 3 of S. 353 would change that rule for class actions alleging State law claims. Under S. 353, Federal district courts would have jurisdiction in such cases as long as any class member was a citizen of a State different from any defendant. Section 4 of S. 353 would permit any defendant (without the concurrence of the other defendants) to remove such a case from State to Federal court. Once removed to Federal court, the case would be governed by Federal law concerning class actions. In the event that the Federal district court did not certify the proposed class, S. 353 provides that the case would be remanded to State court stripped of its class allegations.
S. 353 provides exceptions for corporate governance and securities class litigation. The legislation also permits Federal courts to abstain from hearing class actions against State government entities or officials against whom Federal courts may not be able to order relief.2 S. 353 also permits Federal courts to abstain from hearing 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. This exception is not likely to produce a significant reduction in the number of State class actions subject to removal. Defendants in class actions are likely to be corporate entities whose citizenship has no necessary relationship to where claims against them arise, so the exception for cases in which plaintiffs and defendants are predominately citizens of the same State is likely to apply to few cases.
Because the exceptions in S. 353 are likely to be insignificant, the effect of this statute would be to grant defendants the option of State or Federal court in almost all State class actions. In addition, since cases not certified in Federal court would be remanded to State court stripped of their class allegations, the bill would effectively federalize class action standards. This latter result would not be affected by the provision in the legislation that permits plaintiffs to file amended class actions upon remand, since S. 353 appears to permit defendants to remove the amended action to Federal court once again.
The bill apparently is intended to address a perception that State courts are too ready to certify class actions. Of course, State courts are as subject to the requirements of due process as Federal courts.3 If there are class action procedures in State courts that protect the due process rights of the parties but are objectionable on policy grounds, these policy issues should be addressed in the State courts and legislatures. We do not believe that a mere difference between Federal and State class certification standards justifies Federal action. We live in a federal system and the States should be free to provide the remedies they consider appropriate in their courts. To the extent that S. 353 is directed at concerns about ex parte class certifications in certain states, state legislatures and courts are the appropriate bodies to address these concerns.4
S. 353 also apparently is intended to address concerns that certification of nationwide class actions by State courts permits individual States to impose their own law on the nation as a whole and leads to extorted settlements and other abuses by class action attorneys. If this indeed is an endemic problem, legislation addressing State certification of nationwide classes may be in order, but S. 353 does not take this approach. Instead of focusing on what the appropriate limits on state authority to bind out-of-state plaintiffs ought to be, S. 353 simply would permit removal to Federal court of nearly all State law class actions that otherwise would be heard in State court. Implicit in this provision is the belief that class certification is more difficult to obtain in Federal court, since otherwise, removal to Federal court would not reduce the possibility of extorted settlements. Again, we do not believe that Federal policy concerning class actions is sacrosanct and that the States, within the constraints of due process, should be precluded from establishing their own policies. Moreover, the instances generally cited as evidence of abusive or collusive class action settlements have occurred in federal as well as state courts. If the Congress believes that courts are approving unjustifiable class action settlements, Congress certainly has the authority to address the issue in federal class actions and provide models for states to follow if appropriate. Finally, a recent study by the Federal Judicial Center found that there were not objective indications that settlement was coerced by class certification. See Thomas E. Willging, et al., Empirical Study of Class Actions in Four Federal District Courts: Final Report to the Advisory Committee on Civil Rules (Federal Judicial Center 1996), at 60, 90 (1996).
We note that S. 353 would permit the removal to Federal court of cases concerned solely with State law that are most appropriately tried in State court. For example, a class action brought under State law concerning a corporation's operations within the State 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. This bill would undermine the efforts of State courts to address State and local matters by allowing litigants to circumvent and render irrelevant the State court system. In our view, this provides further demonstration of why federalization of class actions is not an appropriate remedy for perceived class action abuse.
We also are concerned about the potential impact of this legislation on 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 1997 Year-End Report on the Federal Judiciary at (I)(A). 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 could 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.

In addition to these policy concerns, we believe that the bill'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, sections 3 and 4 of S. 353 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 be attacked as an impermissible form of federal interference in States' decisions as to how to structure the operations of the their own courts. Although we believe that these provisions are constitutional and that such a challenge should not succeed under current doctrine, there is a strong likelihood of constitutional litigation on this point.
Section 5 - Rule 11
Section 5 of S. 353 would amend Rule 11 of the Federal Rules of Civil Procedure to require judges to impose sanctions upon finding a violation of Rule 11, instead of leaving the issue to the judge's discretion as is the case now. This provision would apply to all civil litigation, not simply class actions. We strongly oppose this provision for a number of reasons.
First, we believe that, barring an emergency requiring prompt legislation, amendment of the rules of procedure should proceed through the processes of the Rules Enabling Act, 28 U.S.C. '' 2071, et seq. That act was created by Congress for the precise purpose of affording fair and thorough consideration, with an opportunity for comment by the public at large, to proposals for rules amendments. The Department strongly supports the Rules Enabling Act process. To the extent that any amendment to Rule 11 is necessary, it would be appropriate for the Advisory Committee on Civil Rules to make a proposal to the Judicial Conference Standing Committee on Rules of Practice and Procedure for consideration. Accordingly, we urge that the change proposed in S. 353 be submitted to the Judicial Conference or an appropriate committee of the Conference for review in the first instance, rather than being pursued directly through legislation.
Our second reason for objecting to the proposed modification of Rule 11 is that the modification is not directed at the problem S. 353 is intended to address. The modification appears intended to deter frivolous class actions, but Rule 11 applies to civil litigation generally. The impact on class actions of the proposed change is likely to be minuscule compared to its impact on other aspects of civil litigation. While we do not necessarily agree that class actions are a greater source of frivolous lawsuits than other kinds of civil actions, if any measures are to be taken to deter frivolous class action claims, the measures should be directed specifically at that issue.
We also object to the proposed modification of Rule 11 on substantive grounds. In 1983, sanctions under Rule 11 were made mandatory, as S. 353 would make them again. In 1993, sanctions once again were made discretionary in response to the increased disruption caused by the mandatory sanctions provision enacted in 1983. See Proposed Amendments to the Federal Rules of Civil Procedure: Hearing Before the Subcomm. On Courts and Admin. Practice of the Senate Comm. on the Judiciary, 103d Cong. 9-10 (1993) (statement of Sam C. Pointer, Jr., Chief District Judge for the Northern District of Alabama and Chairman, Advisory Committee on Civil Rules). Judge Pointer observed that the empirical studies of the Federal Judicial Center amply support (the Advisory Committee's) conclusion that there has been an excessive and unproductive amount of Rule 11 activity under the 1983 version of the rule. Judge Pointer further noted that the Judicial Conference accepted the view that explicit discretion to decline imposition of sanctions is needed in order to deal with the problem of Rule 11 motions that raise technical, insignificant violations. Judge Pointer also recognized the concerns of the civil rights bar that the 1983 version of Rule 11 had been used by defense counsel and some courts to 'chill' the development of potentially meritorious, yet untested and novel, claims. Thus, ample deliberation and research supported the change from mandatory to discretionary sanctions in 1993. No such research demonstrates the need for the revision to Rule 11. S. 353 would accomplish, particularly outside of the Rules Enabling Act process. For these reasons, the proposed revision to Rule 11 is unwarranted.
Conclusion
As discussed in my testimony, there may be discrete problems with class actions that need to be addressed. We would be happy to work with Members of this subcommittee and with the Congress to address any such problems. Nevertheless, we do not believe that federalization of class actions and imposition by the federal government of numerous requirements in state court class actions litigation is appropriate for the reasons we have set forth, and accordingly the Department of Justice strongly opposes enactment of S. 353.
END

LOAD-DATE: May 6, 1999

Document 18 of 29.


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