TALKING POINTS ON CLASS ACTION

The following are talking points for meetings with members of Congress and staff regarding class action diversity/removal legislation: S. 353, The Class Action Fairness Act of 1999, and the soon to be introduced Hyde bill.

House and Senate Leadership have informed us that these bills are priorities for 1999 and we expect them to be considered early in 1999. Therefore, it is very important that you schedule meetings with the assigned members and staff as soon as possible.

If you have any questions, please do not hesitate to contact Bruce Andrews of Arnold & Porter at 942-5039, John Beisner of O'Melveny & Myers at 383-5370, Bob McConnell of Gibson, Dunn and Crutcher at 887-3579 or Brad Oelman at 703-525-4818.

If members or staff want additional information or a more detailed briefing, please contact Bruce Andrews to make arrangements.

• The Member's support and, if possible, co-sponsorship is critical.
• This is a very important issue for American businesses who are being held hostage by meritless, coercive class action suits in state courts.
• The legislation is only procedural and will not affect any plaintiff's substantive rights. It will only affect where a case will be heard, not whether it will be heard.
• The legislation recognizes that there are some interstate class action suits that should be heard in federal court.
• The legislation is an important step towards rationalizing the class action system and making it more efficient.
• This legislation addresses serious abuses in our legal system and serious problems that affect companies like yours.
• The legislation has bipartisan support: Senators Grassley and Kohl in the Senate, and Congressmen Hyde and Moran in the House.
• The legislation is pro-consumer because it ends abusive state court class actions where the rights of a nationwide class often are adjudicated for a pittance without even the knowledge much less consent of all the plaintiffs in the class and pro-business.

• A class action is a lawsuit brought by a named plaintiff or plaintiffs on behalf of a group of unnamed plaintiffs against a defendant or defendants.
• The plaintiff's lawyer represents both the named plaintiffs and all of the unnamed plaintiffs who comprise the class.
• Class actions usually involve a supposedly common claim or injury shared by all of the plaintiff class members. For example, a suit could be brought on behalf of all persons who bought an allegedly defective widget manufactured by Company X.
• A class may be as small as just 40-50 members or as large as a nationwide class with millions of members from all 50 states.
• For a case to proceed as a class action, it must be certified under the requirements of Rule 23 of the Federal Rules of Civil Procedure in federal court or the comparable rules in state court.
• The requirements of F.R.C.P. Rule 23 are intended to protect the due process rights of both plaintiff class members and defendants.
• The judgment, which is sometimes in the form of a settlement, is binding on all members of the class.

• Removal is a statutory device that allows a case filed in state court to be moved to federal court if the case is subject to federal jurisdiction.
• Removal is automatic once a defendant files for it as long as the jurisdictional requirements are met.
• Most common types of federal jurisdiction are federal question (the case implicates a federal law) and diversity.

• Diversity jurisdiction is a constitutional and statutory concept that allows federal courts to hear certain cases that are brought under state law because the parties are from different states.
• Diversity jurisdiction is intended to allow a out-of-state defendant to move a case to federal court to avoid the bias of a particular state court. This protects defendants from being "home-towned" by the courts of the plaintiff's home state.
• For diversity jurisdiction, federal law requires complete diversity (i.e. no named plaintiff and no defendant are citizens of the same state) and that the amount in controversy for every named plaintiff must be over $75,000.
• Plaintiff's lawyers frequently draft their complaints to avoid diversity jurisdiction and prevent removal to federal court by an out of state defendant. For example, a plaintiff may bring suit against an out-of-state insurance company in state court but include one in-state agent as part of the suit to avoid complete diversity.

• There are two significant problems with our class action system: First, federal jurisdictional statutes do not make sense in the context of class actions; and second, the number meritless class actions filed in state courts in recent years has exploded.

• The Constitution gives Congress the authority to proscribe the jurisdiction of federal courts including diversity jurisdiction for suits between parties from different states.
• The Congress has given federal courts jurisdiction in cases where each plaintiff's claim is worth more than $75,000 and there is complete diversity between the parties (i.e. no plaintiff and no defendant are from the same state).
• The diversity jurisdiction requirements make sense in the context of ordinary law suits, but do not make sense in the context of class actions, which by definition are large cases and are likely to have parties from mulitiple states.
• Moreover, the need to provide the protections of the federal courts is the greatest in a class action because plaintiff class members are included in the suit without their active participation, permission or even knowledge sometimes.
• Often class action suits are brought in a number of states simultaneously and no mechanism exists in state law to consolidate such competing and overlapping cases.
• When there are competing and overlapping cases the defendant can potentially seek the lowest bidder, that is, the plaintiff's attorney who is willing to provide the best deal to the defendant. This usually means the best payoff for the plaintiff's lawyer, and the smallest settlement for the class members.
• Interstate class actions (actions in which there is either a multistate plaintiff class or a defendant from a different state than the plaintiff or the other defendants) is the paradigm case for consideration by a federal court.

• There has been a significant explosion in class action litigation in state courts in recent years.
• This increase has not been due to an increase in corporate wrongdoing but instead due to the growing class action industry. Class actions are brought to force corporate defendants to settle the case regardless of the merits.
• There are many serious abuses of the class action device including frivolous claims, gaming of the system to keep cases in state courts, and collusive settlements.
• For example, plaintiff's lawyers will draw their complaint to avoid diversity jurisdiction by asking for damages less than $75,000 or adding an in-state defendant, such as a wholesaler or a retailer, who is not the target of the suit.
• Frequently the suits are an attempt to coerce settlements from corporate defendants. Prudent corporations are forced to settle even the most meritless suits because of the huge risk and potential liability involved.
• A number of states have been part of a "race to the bottom" in which certification standards have become more lax and judges have been willing approve any settlement presented to them. This hurts both plaintiffs and defendants.
• In many cases, classes are certified in state court that have no parallel foundation in federal law.
• Many of these suits are interstate in nature (either the defendant is from another state or the plaintiff class is from more than one state and the laws of more than one state are being applied) and more appropriately belong in federal court.
• Many interstate cases are heard by state court judges who are accountable only to a very small portion of the class members and defendants.
• The result is that the states with the most lax certification standards interpret and dictate the law of other states. One state court judge decides what the law is for all of the other state's whose citizens are class members and there is nothing that the non-forum state can do about it.
• In order to combat these abuses and permit removal of cases that appropriately belong federal court, Congress must pass legislation to amend the diversity and removal statutes.

• Senators Grassley and Kohl introduced S. 353, the Class Action Fairness Act of 1999 on February 3, 1999.
• The bill contains four main provisions: a class action diversity/removal provision; a requirement that class action settlements be in "plain english" and that attorneys-general receive notification; a limit on attorney's fees in class action suits; and a requirement that federal judges impose sanctions for violations of Rule 11 of the Federal Rules of Civil Procedure.
• Of greatest interest to the business community, the bill would amend the U.S. Code to allow plaintiffs or defendants to remove class action cases to federal court without requiring complete diversity of the parties and without requiring the $75,000 amount in controversy threshold be satisfied for each plaintiff individually.
• The bill is entirely procedural and specifically says that it does not change substantive state law. In short, the bill says where the case will be heard, not whether it will be heard. State claims will still be heard under state law.
• While cases of an interstate nature would be more easily removed to federal court, local and intrastate cases will remain in state court. The bill specifically states that federal courts would not be able to hear local class actions, small class actions and class actions against state governments or state officials.

• The bill rationalizes the class action system by moving interstate cases to federal court.
• The bill will increase judicial efficiency by taking advantage of the mechanisms that exist in the federal court system to consolidate overlapping, competing and similar cases.
• The bill will prevent many of the abuses that currently take place in state courts with regards to class actions.
• The bill preserves the rights of states to adjudicate local and intrastate disputes.
• The bill protects plaintiff's rights by remanding cases to state court if a class is not certified and by tolling the limitations periods on class members' claims so they my still pursue their claims individually.
• The bill is good for consumers because it protects the rights of unnamed class members in interstate class actions and gives them the ability to remove cases to federal court.
• The bill is good for defendants because it protects their due process rights and prevents gaming of the system to keep class actions out of federal court.
• The bill will provide protections against collusive settlements by removing the incentives for collusion and by allowing for scrutiny of more settlements by federal courts.
• Contrary to statements of the opponents, the bill does not benefit any specific industry such as tobacco companies or firearms manufacturers.

• Opponents of the bill claim that the bill provide special treatment and will benefit tobacco companies and firearms manufacturers.
• The bill equally applies to defendants regardless of their business or product, just as all other federal laws apply equally to all parties.
• Singling out any specific industry for lesser protection under the laws would be an unconstitutional bill of attainder.
• There is no evidence that tobacco companies or firearms manufacturers are treated better or worse in federal court as compared to state courts.
• Most major tobacco litigation would not be affected because most of the suits thus far have been states brought by state attorneys-general and would not be affected by this legislation.
• The record for tobacco class actions is mixed. Class actions have been certified in state and federal courts, and have been denied certification in state and federal courts.
• The evidence in litigation against gun manufacturers indicates that federal courts are just as favorable, if not more favorable, to plaintiffs.
• The most significant suit brought against gun manufacturers thus far, Hamilton v. Accu-Tek, was actually brought in federal court. It is absurd to argue that federal courts will not fairly or efficiently suits against gun manufacturers when the plaintiff's chose to litigate in federal court in the most significant suit thus far.

• Diversity/removal legislation is broadly supported by the business community.
• Distribute letters to Senator Lott and former Speaker-Elect Livingston.

• The Association of Trial Lawyers of America and Public Citizen oppose the bill because they believe that it will federalize too many class actions.
• This is not the case because the bill only allows for the removal of interstate class action suits.