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The House in Committee of the Whole House on the State of the Union had under consideration the bill (H.R. 1875) to amend title 28, United States Code, to allow the application of the principles of Federal diversity jurisdiction to interstate class actions:

• Mr. CASTLE. Mr. Chairman, I rise today in strong support of H.R. 1875, the ``Interstate Class Action Jurisdiction Act of 1999'' because it contains provisions essential to preserving the reliable body of state case law that guides the governance of internal corporate affairs, most of which is developed by specialized courts in my state of Delaware. The depth and quality of this case law gives boards of directors for corporations all over the country the necessary guidance and predictability to move forward with multi-million dollar transactions according to their business judgment without the threat of courts overturning these transactions.

• On July 22, 1998, the House passed H.R. 1689, the ``Securities Litigation Uniform Standards Act'' by a vote of 340 to 83. That bill contained a non-controversial carve out, constructed with technical assistance from the Securities Exchange Commission (SEC), for state class actions involving the purchase or sale of securities. Congress and the SEC recognized that the states had a well-developed body of law on the fiduciary duty of directors to disclose information to shareholders in connection with votes and investment actions, such as proxy solicitations, mergers, restructures, exchanges and tender offers. Therefore, there was no need to remove class actions concerning these transactions from state courts to federal courts.

• As originally drafted, the Class Action Jurisdiction Act failed to provide for this same protection of state expertise. In fact, it would have undone the widely accepted Securities Litigation Uniform Standards Act's carve out. Furthermore, because the Class Action Jurisdiction Act federalizes a broader range of class actions, adding the Securities Litigation Uniform Standards Act carve out would not have been sufficient. Therefore, in cooperation with expert corporate law attorneys from both the plaintiff and defense bars, legal scholars, and Congressman GOODLATTE, I drafted an amendment to carve out class actions involving securities and internal corporate governance matters. The amendment was included in the manager's amendment when the bill was marked up in the Judiciary Committee.

• Some of my colleagues have raised concerns that state corporate law issues should not be the only ones exempted from ``federalization'' under the Class Action Jurisdiction Act. I look forward to the debate on whether other class actions should be exempted. However, it is important to note that what makes corporate law issues unique is that there is no federal corporate law. State incorporation laws act like enabling statutes. That is, there is no law unless case law develops it. Traditionally, this law has been developed at the state level. Delaware, New York, and California particularly have large bodies of well-developed state corporate law. Given the structure of the federal court system with twelve circuit courts of appeal and the limited ability of the Supreme Court to adjudicate conflicts among the circuits, the removal of state courts from the adjudicatory process for class actions involving corporate law issues could add significant uncertainty to the resolution of issues arising under state corporate laws.

• The SEC recognized this problem in its testimony concerning the Securities Litigation Uniform Standards Act. It stated:

  Preemption of state duty of disclosure claims raises significant federalism concerns. Many state courts, particularly those in Delaware, have developed expertise and a coherent body of case law which provides guidance to companies and lends predictability to corporate transactions. In addition, the Delaware courts, in particular, are known for their ability to resolve such disputes expeditiously--in days or weeks, rather than months or years. Delay in resolving a dispute over a merger or acquisition could jeopardize completion of a multi-billion-dollar transaction. Broad preemption would diminish the value of this body of precedent and these specialized courts as a means of resolving corporate disputes.

• Furthermore, a trend has begun to emulate Delaware by creating courts with jurisdiction designed to provide a forum for the resolution of disputes involving business entities with expertise and efficiency. New York and Pennsylvania have created such courts. This reflects a judgment that the coherent articulation and development of state law governing business entities is a goal to be pursued, and one best addressed by the creation of a forum with subject matter expertise in the area. Federalizing class actions involving state corporate law would only serve to fracture the development of the law, rather than leaving it in the hands of a small number of highly specialized and expert jurists, conversant with the history and current trends in the development of the law.

• Mass tort product liability law is not a highly specialized area of the law requiring adjudication by judges specially trained in the subject matter. The issue of whether or not we federalize mass tort product liability suits does not jeopardize the completion of multi-billion-dollar transactions that can determine if U.S. companies will continue to compete in the global marketplace.

• Mr. Chairman, I am extremely proud of the corporate law legal expertise that has developed in Delaware. It is just one of many features that makes Delaware a ``Small Wonder.'' Members may have divided opinions on the merits of the overall legislation, but just as there was no controversy over the state corporate law carve out when the House passed the Securities Litigation Uniform Standards Act, there should be no controversy over the need for the corporate law carve out in this bill.

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