[Senate Hearing 107-939] [From the U.S. Government Publishing Office] S. Hrg. 107-939 CLASS ACTION LITIGATION ======================================================================= HEARING before the COMMITTEE ON THE JUDICIARY UNITED STATES SENATE ONE HUNDRED SEVENTH CONGRESS SECOND SESSION __________ JULY 31, 2002 __________ Serial No. J-107-98 __________ Printed for the use of the Committee on the Judiciary U.S. GOVERNMENT PRINTING OFFICE WASHINGTON : 2003 87-640 PDF For Sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpr.gov Phone: toll free (866) 512-1800; (202) 512-1800 Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001 COMMITTEE ON THE JUDICIARY PATRICK J. LEAHY, Vermont, Chairman EDWARD M. KENNEDY, Massachusetts ORRIN G. HATCH, Utah JOSEPH R. BIDEN, Jr., Delaware STROM THURMOND, South Carolina HERBERT KOHL, Wisconsin CHARLES E. GRASSLEY, Iowa DIANNE FEINSTEIN, California ARLEN SPECTER, Pennsylvania RUSSELL D. FEINGOLD, Wisconsin JON KYL, Arizona CHARLES E. SCHUMER, New York MIKE DeWINE, Ohio RICHARD J. DURBIN, Illinois JEFF SESSIONS, Alabama MARIA CANTWELL, Washington SAM BROWNBACK, Kansas JOHN EDWARDS, North Carolina MITCH McCONNELL, Kentucky Bruce A. Cohen, Majority Chief Counsel and Staff Director Sharon Prost, Minority Chief Counsel Makan Delrahim, Minority Staff Director C O N T E N T S ---------- STATEMENTS OF COMMITTEE MEMBERS Feingold, Hon. Russell D., a U.S. Senator from the State of Wisconsin, prepared statement.................................. 106 Feinstein, Hon. Dianne, a U.S. Senator from the State of California..................................................... 19 Grassley, Hon. Charles E., a U.S. Senator from the State of Iowa, prepared statement............................................. 108 Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah...... 4 Kohl, Hon. Herbert, a U.S. Senator from the State of Wisconsin... 6 Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont. 1 Thurmond, Strom, a U.S. Senator from the State of South Carolina, prepared statement............................................. 151 WITNESSES Bankston, Hilda, Jefferson County, Mississippi................... 17 Bland, F. Paul, Jr., Staff Attorney, Trial Lawyers for Public Justice, Washington, D.C....................................... 7 Dellinger, Walter, O'Melveny and Myers, Washington, D.C.......... 10 Henderson, Thomas J., Chief Counsel, Lawyers, Committee for Civil Rights Under Law, Washington, D.C.............................. 12 Mirel, Lawrence H., Commissioner, District of Columbia, Department of Insurance and Securities Regulation, Washington, D.C............................................................ 13 Wahl, Shaneen, Port Charlotte, Florida........................... 15 QUESTIONS AND ANSWERS Responses of Walter Dellinger to questions submitted by Senator Hatch and Senator Grassley..................................... 26 Responses of Walter Dellinger to questions submitted by Senator Kohl........................................................... 36 Responses of Thomas J. Henderson to questions submitted by Senator Leahy and Senator Sessions............................. 41 SUBMISSIONS FOR THE RECORD AEGON USA, Inc., Patrick Baird, President and CEO, statement..... 52 American Council of Life Insurers, Philmore Anderson, Senior Vice President, Government Relations and Kimberly Olson Dorgan, Vice President Federal Relations, Washingont, D.C., statement....... 55 America's Community Bankers, Washington, D.C., statement......... 56 Bankston, Hilda, Jefferson County, Mississippi, statement........ 59 Bland, F. Paul, Jr., Staff Attorney, Trial Lawyers for Public Justice, Washington, D.C., statement........................... 63 Buffalo News, Protection for Plaintiffs, July 31, 2002, editorial 85 Dellinger, Walter, O'Melveny and Myers, Washington, D.C., prepared statement............................................. 86 Henderson, Thomas J., Chief Counsel, Lawyers Committee for Civil Rights Under Law, Washington, D.C., statement.................. 118 Interclaim Holdings, Ltd, Irving Cohen, Chief Operating Officer, statement...................................................... 128 Kovacs, Karen Ann, Holyoke, Massachusetts, statement and poem.... 131 Mirel, Lawrence H., Commissioner, District of Columbia, Department of Insurance and Securities Regulation, Washington, D.C., statement................................................ 134 Omaha World Herald, July 29, 2002, editorial..................... 143 Preston, Martha, Baraboo, Wisconsin, letter...................... 145 South Dakota Chamber of Commerce and Industry, David Owen, President, statement........................................... 147 Times Union, Albany, New York, Three Star Edition, dated July 28, 2002, editorial................................................ 149 U.S. Chamber of Commerce, and U.S. Chamber Institute for Legal Reform, statement.............................................. 155 Wahl, Shaneen, Port Charlotte, Florida........................... 162 CLASS ACTION LITIGATION ---------- WEDNESDAY, JULY 31, 2002 U.S. Senate, Committee on the Judiciary, Washington, D.C. The Committee met, Pursuant to notice, at 10:23 a.m., in room SD-226, Dirksen Senate Office Building, Hon. Patrick Leahy, Chairman of the Committee, presiding. Present: Senators Leahy, Kohl, Feinstein, Hatch, Sessions, and McConnell. OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM THE STATE OF VERMONT Chairman Leahy. If we might come to order. I see all of you here. I appreciate the fact that we had to move this time somewhat to accommodate the funeral, as you mentioned earlier, and I applaud Senator Kohl in requesting this hearing and Senator DeWine, of course, as ranking member. I hope this hearing will present a fair and balanced view of class action litigation in our State and Federal courts. It is my attention to undertake a deliberate and careful review of information from parties actually involved in class action litigation to provide a realistic picture of the benefits and problems with class action litigation. Unfortunately, I believe that some special interest groups have distorted the state of class action litigation by relying on a few anecdotes in their ends-oriented attempt to justify moving almost all class action cases involving state law into Federal court; in other words intending to really trample over any kinds of States' rights in these areas. I hope this hearing will focus fairly on the hard evidence and facts in most class action cases. We should remember that our State-based tort system remains one of the greatest and most powerful vehicles for justice anywhere in the world. One reason for that is the availability of class action litigation to let ordinary people band together to take on powerful corporations and, in some instances, even their own Government. I remember after the breakup of the Soviet Union a group of legal experts from now the new country of Russia came to visit with me and other Senators, and they said, ``We have to ask you a question. We understand that there are instances where people sue your Government, and the Government loses. Is that possible?'' I said, ``Yes, it happens quite often.'' They said, ``Well, do they not just then fire the judges or do it over again?'' I said, ``No, we have an open and clear form of litigation,'' and that was the most amazing thing to them, that an ordinary person could go in, bring suit against their Government, and if they had the law and the facts on their side, they won. We have defrauded investors--matters of some interest lately--deceived consumers, victims of defective products, asbestos survivors, smokers, and thousands of other ordinary people have all been able to rely on class action lawsuits under our State-based tort system to seek and receive justice. I am old enough to remember the civil rights battles of the 1950's and 1960's and the impact of class actions to vindicate basic rights through our courts. The landmark Supreme Court decision Brown v. Board of Education was a culmination of appeals from four class action cases; three from Federal court decisions in Kansas, South Carolina and Virginia, and one from a decision by the Supreme Court of Delaware. Only the Supreme Court of Delaware, the State court, unlike the Federal courts, only the State court got the case right by deciding for the African-American plaintiffs. The Supreme Court of Delaware, a State court, understood before any Federal court, that separate, but equal is inherently unequal. More recently, the tobacco class action litigation has contributed to fundamentally change the very dynamics of tobacco and public health. For the first time, that class action litigation uncovered and presented serious and credible evidence about the tobacco industry's 45-year campaign of deception about the dangers of cigarettes. As a result of class action settlements negotiated by the State attorneys general and the private bar, it brought about profound changes in the tobacco industry. The tobacco industry is now finally admitting on its Internet websites that smoking causes cancer and is addictive. Before the litigation, the executives of these same companies denied under oath, before Congress, that smoking was addictive. The suits made them change their mind. The very existence of the multi-state tobacco settlements is a credit to class action under our State-based civil justice system. In fact, without the use of class action, does anybody believe the tobacco companies would have ever come to a negotiating table? Without that, the States would not have settlement payments for the next 25 years. Thousands, if not millions, of lives will be saved because of future public health improvements made in the tobacco litigation. Another example of class action litigation serving the public interest is the Firestone Tire debacle. The national tire recall was started, in part, from the disclosure of internal corporate documents on consumer complaints of tire defects and design errors that were discovered in litigation against Bridgestone/Firestone, Inc. Plaintiffs' attorneys turned this information over to the National Highway Traffic Safety Administration, triggering an investigation. As a result, Bridgestone/Firestone recalled 6.5 million tires after they were linked to 101 fatalities, 400 injuries, 2,226 consumer complaints. Later, the NHTSA warned that another 1.4 million tires may be defective. As reported by TIME Magazine at the time, it is doubtful that the internal corporate consumer complaint information would ever have been seen except for the civil process. Plaintiffs' lawyers in this type of setting tend to work without pay. Defense lawyers, in this case corporation lawyers, are paid by the hour, and the corporations have an absolute right to have the best defense they can afford, and they do. The plaintiffs' lawyers tend to work without pay for the possibility of obtaining a portion of the proceeds if successful. In the class actions, if you think that, if you case-by- case, you may only have a small amount of it, and so people think you will not bring a case because you can just cheat each person a little, but if you cheat thousands of people just a little, it is still cheating. That is what happened in the tobacco cases--stockholders and small investors. I worry about restricting the legal rights of people and leaving them no way to bring about their claims. I am hesitant to restrict legal rights and remedies in an area of corporate irresponsibility and executive misconduct. I was down at the White House signing yesterday, the Sarbanes-Oxley Act, and I heard bipartisan demands for holding corporate wrongdoers accountable for their actions. I am not too eager to give them a new shield, especially when hardworking Americans are being left with over $7 trillion in stock market losses. Just a few months ago, a group of investors recovered millions in lost investments under State corporate fraud laws in a State class action case. In Baptist Foundation of Arizona v. Arthur Andersen, these are elderly investors. They banded together to successfully recoup $217 million from Arthur Andersen for questionable accounting practices surrounding an investment trust. This is just one example of how State-based class action litigation can hold corporate wrongdoers answerable. I look forward to hearing from our witnesses. I may have some disagreements with Senator Kohl about the solutions in this area, but I do that respectfully because he is one of the hardest-working members of this committee, and he a need his counterpart on the Republican side have approached these issues very judicially and very carefully and in a way that should be looked at by the rest of the Senate. That is why I accommodated him with this hearing. What I thought I would do now is turn to my friend, the ranking member of this committee. One thing I should note, Senator Hatch and others, I would hope that we can find some way--we have been working quietly with your staff, mine, and others--find a way to fairly compensate those suffering and developing afflictions from asbestos. These cases, nobody seems to know where they are going. The Supreme Court issued a challenge to help with asbestos litigation, and I am committed to work with Senators on both sides of the aisle to see if we can find a way out of this specific area of asbestos litigation with legislation and do it in such a way that it does not become a Christmas tree for everybody's pet theory from either the right to the left. Senator Hatch? STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM THE STATE OF UTAH Senator Hatch. Thank you, Mr. Chairman. I am happy to hear you say that because there are many people who are not suffering who are getting awards in the asbestos litigation, and there are going to be thousands, if not millions, of people who are suffering who might not get compensated, and we have got to solve that problem, and it all comes down to class action reform. I also share your high opinion of Senators Kohl and Sessions for the work that they are doing on this committee, and the hard work that they have put in. I would like to thank you and Senator Kohl for scheduling this hearing on this important topic of class action litigation, and I am also pleased that the chairman has agreed to hold a hearing in September on the problems with asbestos litigation. I am hopeful that we can work together on these issues. Over the past decade, it has become clear that abuses of the class action system have reached epidemic levels. In recent years, it has become equally clear that the ultimate victims of this epidemic are poorly represented class members and individual consumers throughout the Nation. The Class Action Fairness Act of 2002 represents a modest, measured effort to remedy the plague of abuses, inconsistencies and inefficiencies that infest our current system of class action litigation. Now it is essential that we address the abuses that are running rampant in our current class action litigation system. Frequently, plaintiff class members are not adequately informed of their rights or of the terms and practical implications of a proposed settlement. Too often judges approve settlements that primarily benefit the class counsel, rather than the class members. There are numerous examples of settlements where class members received little or nothing, while attorneys received millions of dollars in fees. Multiple class action suits asserting the same claims on behalf of the same plaintiffs are routinely found in different State courts causing judicial inefficiencies and encouraging collusive settlement behavior. State courts are more frequently certifying national classes leading to rulings that infringe upon or conflict with the established laws and policies of other States. Despite the mountains of evidence demonstrating the drastically increasing harms caused by class action abuses, I am sure that several here today and in the Senate will attempt to deny the existence of any problem at all. Others will try to confuse the issue with spurious claims that proposed reforms would somehow disadvantage victims with legitimate claims or further worsen class action abuses. Others may even contend that past legislative reforms have contributed to recent financial debacles and that the proposed reforms will encourage more. Such claims are nothing more than red herrings intended to divert today's debate from the real issue. Now, in this regard, let me emphasize a few points regarding S. 1712. First, this bill does not seek to eliminate State court class action litigation. Class action suits brought in State courts have proven, in many contexts, to be an effective and desirable tool for protecting civil and consumer rights. Nor do the reforms that we will discuss today in any way diminish the rights or practical abilities of victims to be heard or to band together to pursue their claims against large corporations. In fact, we have included several consumer protection provisions in our legislation that I feel strongly will substantially improve plaintiffs' chances of receiving a fair result in any settlement proposal. There are three key components to S. 1712. First, the bill implements consumer protections against abusive settlements by: One, requiring simplified notices that explain to class members the terms of proposed class action settlements and their rights with respect to the proposed settlement in ``plain English''; No. 2, enhancing judicial scrutiny of coupon settlements; three, providing a standard for judicial approval of settlements that would result in a net monetary loss to plaintiffs; four, prohibiting ``bounties'' to class representatives; and, five, prohibiting settlements that favor class members based upon geographic proximity to the courthouse. Second, the bill requires that notice of class action settlements be sent to appropriate State and Federal authorities to provide them with sufficient information to determine whether the settlement is in the best interests of the citizens they represent. Finally, the bill amends the diversity of citizenship jurisdiction statute to allow large class actions to be adjudicated in Federal court by granting jurisdiction in class actions where there is ``minimal diversity'' and the aggregate amount in controversy among all class members exceeds $2 million. Although some critics have argued that this amendment to diversity jurisdiction somehow violates the principles of federalism is inconsistent with the Constitution, I fully agree with Mr. Dellinger, our former Solicitor General, who will testify today that it is ``difficult to understand any objection to the goal of bringing to the Federal court cases of genuine national importance that fall clearly within the jurisdiction conferred on those courts by Article III of the Constitution.'' Last, I would like to express my appreciation to the many individuals who have shared with me the details of their experiences with class action litigation. In particular, I am grateful to those victims of various abuses of the current system who have come forward and told us their stories in the hope that something possible might come out of their terrible experiences. In particular, I would like to acknowledge Irene Taylor of Tyler, Texas, who is here today. Ms. Taylor was bilked out of approximately $20,000 in a telemarketing scam that defrauded senior citizens out of more than $200 million. In a class action brought in Madison County, Illinois, the attorneys purportedly representing Mrs. Taylor negotiated a proposed settlement which will exclude her from any recovery whatsoever. I would also like to recognize Martha Preston of Baraboo, Wisconsin. Ms. Preston cannot be here for health reasons, but has sent us a letter that I will submit for the record. Ms. Preston was involved in the famous Bank of Boston case brought in Alabama State courts, which involved the bank's failure to post interest to mortgage escrow accounts in a prompt manner. Although Ms. Preston did receive a settlement of about $4, approximately $95 was deducted from her account to help pay the class action's legal fees of $8.5 million. Notably, Ms. Preston testified before this committee 5 years ago, asking us to stop these abusive class action lawsuits, but it appears that, at least thus far, that her plea has not been heard. I would like to ask unanimous consent that written statements from Martha Preston, the Chamber of Commerce, America's Community Bankers, Irving Cohen, Patrick Baird and the American Council of Life Insurers be inserted in the record for today's hearing, Mr. Chairman. Chairman Leahy. Without objection. Senator Hatch. I look forward to hearing from the witnesses today. I am due on the floor right now. Hopefully, I can come back, but I am certainly going to be very interested in this hearing and what is said here today. Thank you, Mr. Chairman. Chairman Leahy. Thank you. As this hearing was at the request of Senator Kohl, I will hear from him, and then we will start with the witnesses, if that is all right. Senator Kohl? STATEMENT OF HON. HERBERT KOHL, A U.S. SENATOR FROM THE STATE OF WISCONSIN Senator Kohl. I thank you, Mr. Chairman, for calling today's hearing on class action abuse. We have a simple story to tell. Consumers are frequently getting the short end of the stick in class action cases, often recovering coupons or pocket change while their lawyers reap millions. Our remedies are simple and straightforward. First, class action notices should be written in plain English so consumers understand their rights and their responsibilities. Second, State attorneys general should be notified of proposed class action settlements in order to stop abusive cases if they want. Third, a class action consumer bill of rights will help limit unfair settlements. Finally, we would allow some class action lawsuits to be removed to Federal court. This is only common sense. These are national cases affecting consumers in 50 States. If the court rules were being drafted today, these are exactly the types of cases which we would want and expect to be tried in Federal court. Stories of nightmare class action settlements that affect consumers around the country are all too frequent. For example, the suit against Blockbuster Video yielded dollars off coupons for future video rentals for the plaintiffs, while their attorneys collected over $9 million. In California State court, a class of 40 million consumers received $13 in rebates on their next purchase of a computer or monitor; in other words, they had to purchase hundreds of dollars more of the defendants' product to redeem the coupons. In essence, the plaintiffs in this case received nothing, while their attorneys took almost $6 million in legal fees. We could list many, many more examples. I believe that no one can argue that the class action process is not in serious need of reform. We do not claim that this bill is perfect. We are happy to entertain other proposals in an effort to address a class action problem, but we do feel that we are on the right track. The consumer protections in our bill go a long way to stopping cases like the one involving Martha Preston of Baraboo, Wisconsin, who was a member of the Bank of Boston case. When her class action suit was over, Mrs. Preston had technically won the case, but ended up owing $75 to her lawyers and defending a lawsuit that her own lawyers filed against her in State court. Under our bill, that would never happen again. I thank you, Mr. Chairman. Chairman Leahy. Thank you. If the witnesses could join us up here, please. First, will be Mr. Paul Bland, who worked for this committee as chief nominations counsel just a few years ago. He is now a staff attorney for Trial Lawyers for Public Justice in Washington, and he was named San Francisco Trial Lawyer of the Year for his work in Ting v. AT&T. The Court, certifying the class action, declared AT&T's arbitration clause unconscionable and unenforceable for 7 million California residents because it limited consumer damages and banned class actions. He was also named Maryland Trial Lawyer of the Year, and he knows this place well, as does the next witness, Walter Dellinger, who served as Solicitor General for the 1996-1997 term of the Supreme Court. He is a partner with O'Melveny and Myers. He has argued nine cases before the Supreme Court, including physician- assisted suicide, Brady Act, Religious Freedom Restoration Act, line item veto. All of us know Professor Dellinger, and he has been extraordinarily helpful to this committee over the years. Thomas Henderson is of the Lawyers' Committee for Civil Rights Under Law. He has 20 years of experience at handling complex civil litigation, largely in the areas of class action, individual civil rights cases, school desegregation, employment discrimination and so forth. Lawrence Mirel is the Commissioner of the District of Columbia Department of Insurance and Securities Regulation, which has the responsibility of regulating securities brokers in the business of insurance in the District of Columbia. For the past 15 years, he has been in private practice dealing at length with insurance issues from taxation to health care, and we welcome you here. Mrs. Shaneen Wahl--and it is Wahl? Did I pronounce that correctly? Ms. Wahl. You did fine. Chairman Leahy. Thank you.--Port Charlotte, Florida. She is a class action plaintiff in litigation against an out-of-State insurance company that tripled her health insurance rates after she was diagnosed with breast cancer. Of course, Mrs. Hilda Bankston of Jefferson County, Mississippi. They own Bankston Drugstore, which has been named a defendant in lawsuits filed by individual plaintiffs against makers of Fen-Phen diet drug. We are glad to have you here, of course. So why do we not start, Mr. Bland, with you, please. STATEMENT OF F. PAUL BLAND, JR., STAFF ATTORNEY, TRIAL LAWYERS FOR PUBLIC JUSTICE, WASHINGTON, D.C. Mr. Bland. Thanks very much, Mr. Chairman, and thank you very much for giving me the opportunity to appear. In the dozen years since I left my employment with the committee and Senator Biden, I have been able to see class action litigation from two different sides. I have represented plaintiffs in a number of consumer and toxic tort class actions, and I have also represented objectors to more than a dozen phony class action settlements. I have had a chance to see both the best and the worst of class action practice, I think. When I have represented plaintiffs, I have been involved in cases where we have recovered millions of dollars, in some cases tens of millions of dollars, for people who were cheated by large companies, people who were seriously harmed, people who had their houses destroyed by pollution, people who lost their savings. To read the papers recently, you would think that Enron, and WorldCom, and some of the recent scandals have sort of invented or revealed a new problem not previously known in the country of corporate wrongdoing, but for people who have represented consumers on the front lines, and particularly low- income people, we were not surprised at all. I have seen some cases where large and powerful companies have really engaged in outrageous frauds, where they have simply targeted a group of people, and they particularly are likely to target low-income people for rip-offs, where they will hit everybody the same way, but the cases tend to involve so little money, that it would be impossible to challenge the cases on an individual basis, and also the frauds are usually set up in a way that it is not that easy to figure out. So the vast majority of consumers would never know what had happened. They would never be able to figure it out unless you had someone who was able to put in the time and the effort to do that. Now the reality is that in those cases class actions are often the only way that those people are going to recover anything, the only way that they are going to be protected. I just did a case where we had a trial, where one of the issues in the trial was actually whether class actions are needed in order to protect people's rights. AT&T, effective last August, adopted a new standard form contract that requires all AT&T customers with claims of a certain size to go to arbitration. Generally, arbitration clauses are legal and enforceable right now under the law. But under State law, if a clause is set up in such a way that the consumer cannot effectively vindicate their rights; in other words, if a contract is set up in such a way that consumers are never going to be able to go forward, then those contracts can be struck down as unconscionable. So AT&T's contract had all of these provisions. They said they limited the remedies you could get, they shortened the limitations periods below the consumer protection laws, they had a secrecy provision, they required the consumers to pay thousands of dollars to arbitrate significant claims, but they also banned class actions, and we argued that the ban on class actions was going to prevent people from effectively vindicating their rights. So we went forward, and we took discovery of class actions that had previously been brought against AT&T and other long- distance companies. There were a number of cases where consumers have recovered millions of dollars from the phone companies. In several of these cases, AT&T had actually paid out 100 cents on the dollar to give you a sign that these were meritorious cases, that these were not sham cases. AT&T basically stipulated that none of those cases could have been brought on an individual basis. Rather than have us bring in all of the lawyers in these cases and to establish this through testimony, they just walked away from that issue and just acknowledged none of these cases could have been brought on an individual basis. They would have been able to keep all of that money, and all of those people would have been ripped off successfully without those class actions. At the same time, I have seen some incredible abuses of the class action process. I have seen cases where 99 percent or more of the consumers would get nothing from the case. They would get no money at all. I have seen cases where the defendant would walk away from a fairly serious scam without paying out anything and that the company would walk away free and that the only people who would get money would be the lawyers on both sides, as the chairman points out. Our firm has broken up a number of these deals. We force parties to fix these deals. We have come into cases and slashed the attorneys' fees by more than 50 percent. We have come into some of these cases and gotten judges to completely rework them so that the coupons would be thrown out and instead there would be guaranteed sums of money given to the plaintiffs. But the key to beating these cases is the judges. The judges really have all of the power in this, and they have the tools to do this under existing law, but a lot of judges do not really take the effort to exercise that, and the biggest factor in this is how burdened the judges are and how much is going on. A quick case in point, is the case that we got involved in, in Chicago, where a Federal court had a coupon settlement before it. It was the case where the escrow for a bank had supposedly been set up unfairly in order to rip off the consumers and that the cases involved a very small amount of money, maybe $10 per person. So there was going to be a coupon that if you took out another loan with the bank, you would get a small reduction off your closing costs. The only way you would find out about the coupon was if you got the New York Times because that is where it was advertised. That is where the notice was for the vast majority of the plaintiffs, but the class of people was in Texas, was banking out of Texas. So to get anything from the settlement, you had to buy the New York Times , which is not that common for Texans, right? Then you had to find the settlement on Page C- 38. It is an eighth-of-a-page ad, little, tiny print. So you would have to be a really aggressive Texan to find this, and then you had to go out and take out a new loan for over $100,000 to get 100 bucks back. We objected to this settlement. It was approved by the Federal court in Chicago. It was approved by the Seventh Circuit Court of Appeals. The trial judge entered an order sealing the redemption rates to find out how many people ever use the coupons, and the main reason this happened was because the same Federal court had 50 identical class actions in front of it. If the court was going to decide these cases, it would have taken them forever. The court was overburdened, and it let it all go, and that is what is going to happen if these cases are pushed into Federal court in a lot of cases. [The prepared statement of Mr. Bland appears as a submission for the record.] Chairman Leahy. Thank you. I am going to have to ask the witnesses to try to stay close to their time because we are going to have a series of roll call votes, and we are going to have to do this in kind of a rolling way. We have also been joined by Senator Carper from Delaware. I appreciate him being here. Mr. Dellinger, please go ahead, sir. STATEMENT OF WALTER DELLINGER, O'MELVENY AND MYERS, WASHINGTON, D.C. Mr. Dellinger. Senator Leahy, it was over 20 years ago that I first testified before this committee, but this is the first time I have had the pleasure of doing so with you serving as chair. There is much that we agree about at this table this morning, Mr. Chairman, and with your statements. I think, having looked at the statements, there is widespread agreement that class actions are valuable. They are an indispensable tool for the administration of justice of allowing those with small claims to bring those claims together, and I do not think anyone disputes the value of class actions and the good that has been done by many class actions, nor I think is there disagreement, as Paul Bland noted, with the fact that there have been some very abusive situations. What is at issue here is really not whether class actions are a good or bad thing, but where a certain category of class actions ought to be tried and what kind of rights for plaintiffs in class actions ought to be protected by a bill of rights. This is the single most critical point. This bill will not eliminate a single class action that satisfies the standards for basic fairness that are set out already in the Federal rules governing class actions. What it will do is to ensure that all nationwide class actions satisfy those basic requirements. Now, if this committee were starting with a blank slate to decide what parts of the potential Article III jurisdiction ought to be actually conferred by statute on the Federal courts, cases covered by this class action bill would be among the very first to be included. Of course, you would start with giving Federal courts jurisdiction over the most important Federal laws, especially the civil rights laws where civil rights plaintiffs could be adversely affected by hostility by local prejudice, which is one of the reasons for having a system of lower courts. But after that, in the category that the Framers of the Constitution carefully created to have a Federal court system, where the citizens of different States were affected to avoid even the appearance of local prejudice, cases involving citizens of different States, you would choose to accord Federal court access to those multi-State class actions, the large amount in controversy, that have national economic implications and potentially affect every single State. The case for giving access to Federal Courts would be a compelling one even if there were no abuses of the kind that Senator Hatch mentioned, Senator Kohl, Mr. Bland, but that makes it critically important. It is not the case that State courts generally are a problem. It is not the case that State courts are incompetent or unfair or not to be entrusted because the problem can reside in a handful of State courts; indeed, in a handful of counties in State courts. There are 3,000 counties in the United States, and if only three of those counties are engaging in abusive practices, like one county where class action filings are up 1,850 percent over the past 3 years, what you have is a national bucket with three holes in it, and that is why it is a national problem, as it is adversely affecting the national economy. There is no federalism interest served in confining these important national class action to local courts. Under federalism, each State decides for itself. Under multi-State class actions confined to State court, with no access to the courts of the Nation, the courts of one county in one State can determine the rights of those in all of the other States. Let me be clear about this. The voters of California, and Vermont, and Alabama, and West Virginia, and Wisconsin, and Delaware had no voice whatsoever in choosing the State court judges in Madison County, Illinois, or Jefferson County, Mississippi, courts that are using national class actions to determine the rights and affect the rights of citizens in all of those States. As much as I respect my colleagues here, and Paul Bland and Tom Henderson who address the issues I address are outstanding lawyers, their argument will basically come down to a single word, ``burden''; that there is too great a burden on the Federal courts, and therefore the Federal courts will be more likely to approve abusive settlements or it will squeeze out civil rights cases. The Federal judges disagree. The two committees of the Federal judiciary who have addressed this problem have said quite clearly and emphatically, the Advisory Committee on Civil Rules, cases of nationwide scope could be brought into Federal court with unduly burdening the Federal courts or invading State control. Large nationwide and multi-State class actions, say the judges on the Advisory Committee, are the kind of national litigation consistent with the purposes of diversity and appropriate to the jurisdiction of the Federal Courts. Having courts available allows capital from the whole Nation to be invested anywhere in the Nation with the assurance that you will get a fair, neutral, national judge. Thank you. [The prepared statement of Mr. Dellinger appears as a submission for the record.] Chairman Leahy. Thank you very much, Mr. Dellinger. As always, we appreciate your testimony--I might say that not only the testimony you gave here, but as I said, many, many Senators on both sides of the aisle have had the opportunity to call you and ask you for your advice and opinion. Mr. Henderson, you are also no stranger to the proceedings here, and we appreciate you being here. Please go ahead, sir. STATEMENT OF THOMAS J. HENDERSON, CHIEF COUNSEL, LAWYERS' COMMITTEE FOR CIVIL RIGHTS UNDER LAW, WASHINGTON, D.C. Mr. Henderson. Thank you, Mr. Chairman. As indicated, I am chief counsel for the Lawyers' Committee for Civil Rights Under Law. The Lawyers' Committee is a nonpartisan, nonprofit civil rights legal organization formed at the request of President Kennedy to involve the private bar in providing legal services to address racial discrimination and its victims. I would like to thank the chairman and the members of the committee for holding these important hearings on class actions and for providing the opportunity for us to provide our analysis of this legislation on civil rights litigation and our clients across the country. The Lawyers' Committee also exclusively brings class actions in Federal court, seeking injunctive and monetary relief. Class actions are essential to the enforcement of the Nation's civil rights laws and are often the only means by which persons can prove and obtain relief for this systemic discrimination. The mission of the Lawyers' Committee does not involve State tort, contract or consumer law. We could simply have remained simply a bystander in what might appear to be another monumental dispute about tort reform, but this legislation is not about tort reform; rather, it concerns the role and availability of the courts and of class actions and of the access to justice for those who have no alternative but to rely on the courts for the protection of their rights and freedoms. It is our belief that the proposals referred to as the Class Action Fairness Act are unjustified and unjustifiable attempts by Congress to impose Federal judicial regulation on matters of law committed to the States under our Constitution. The legislation would result in wholesale removal of State law class actions from State courts to the Federal courts. This would represent an epic reallocation of judicial responsibility that will further impair the ability of Federal courts to carry out the essential functions they are to serve under the Constitution. The legislation will substantially expand the caseload of the Federal courts to include hundreds, if not thousands, of complex cases that do not involve questions of Federal law. The Federal court dockets are already significantly overburdened, and those courts are ill-equipped even to handle the volume of cases now on their dockets. Imposing substantial numbers of new cases on the modest numbers of Federal judges we have will clog their dockets, making it more difficult to have any and all cases decided. Moreover, this legislation would also increase the number of complex and therefore time-consuming cases that those courts must decide. Empirical studies have shown that class actions, on average, consume almost five times more of the judicial time that typical civil cases. Overburdened dockets will exacerbate pressure to improperly dispose of cases by dismissal, a problem that particularly affects civil rights cases and which the Supreme Court has consistently sought to correct. In many districts, it is already difficult for civil rights plaintiffs with meritorious cases to survive even pretrial motions and have the opportunity to go to trial. Compressing virtually all substantial class actions in the Federal court and imposing additional burdens on their prosecution would also increase pressure on courts to dispose of class actions by denying certification altogether. Although Congress determined that victims of discrimination have damage remedies available, that enforcement of the law required that victims have damage remedies available, some Courts of Appeals have interpreted class action rules to make certification rare, if not impossible, where these congressionally mandated remedies are sought. The legislation also creates additional problems, both the Senate and House bills would impose difficult and costly notice requirements to Federal and State officials that will further complicate and delay disposition of class actions without corresponding benefits. Further, the outright prohibition on settlements in which named plaintiffs receive amounts different from class members is not reasonable in all instances and prohibiting complete relief to named plaintiffs would deter people from playing that role and therefore defer class actions. The bill passed in the House would go even further and particularly target adversely civil rights cases, resulting in the dismissal of a number of those cases because they would be required to plead specific facts and yet be denied discovery of the opportunity to obtain those facts. Further, it would impose mandatory appeals of interlocutory class action certification decisions, and that makes no sense. There is now a provision for discretionary review of those orders. I thank you, Mr. Chairman. [The prepared statement of Mr. Henderson appears as a submission for the record.] Chairman Leahy. Thank you very much, Mr. Henderson. Mr. Mirel, thank you for being here. Is it Mirel or Mirel? Mr. Mirel. It is Mirel. Chairman Leahy. Mirel. Mr. Mirel. Thank you for asking. Chairman Leahy. I like to make sure I get them correct, and you do a great service in coming here to testify, and I appreciate you being here. Please go ahead. STATEMENT OF LAWRENCE H. MIREL, COMMISSIONER, DEPARTMENT OF INSURANCE AND SECURITIES REGULATION, DISTRICT OF COLUMBIA, WASHINGTON, D.C. Mr. Mirel. Thank you, Mr. Chairman and members of the committee. My name is Lawrence Mirel. I am commissioner of Insurance and Securities for the District of Columbia. As you know, the business of insurance is regulated primarily by the States. Although the District of Columbia is not a State, I have the authority of a State insurance commissioner, and I am a full and active member of the National Association of Insurance Commissioners, although I am speaking today on my own behalf and not on behalf of the NAIC. The laws that we enforce in our department are laws that were passed primarily by this Congress between 1900 and 1974 and by the Council of the District of Columbia, with the approval of the Congress, since 1974. I am concerned with the impact of class action lawsuits against insurance companies that limit and interfere with my ability, and the ability of my State insurance commissioner colleagues, to carry out our statutory duties. These duties include protecting the public and assuring that insurance is available to, and affordable by, consumers. As State insurance Commissioners, our primary function is to protect the public. I, and my colleagues, see ourselves as consumer advocates, and the laws we administer give us that responsibility and authority. Our expert staffs are knowledgeable about the stringent laws that govern the operations of insurance and about the complex financial rules that insurance companies must follow. We receive and act upon consumer complaints against insurance companies. We make sure that insurance contracts are fair, understandable, and in accordance with the law. We go after companies that do not treat their customers properly or that are engaged in fraud, and that we have substantial legal authority to do this. Large-scale nationwide litigation against major insurance companies frequently goes around or simply ignores the rule of State regulators. Class action lawsuits against insurers can, and often do, directly impact our statutory authority to regulate the business of insurance and to protect our constituents. Moreover, these suits, whether successful or not, can have a major effect on the cost, and even the availability, of good insurance products to the public. That is because they are frequently designed to produce a small, sometimes negligible benefit to a large class of policyholders, and incidently large legal fees to the lawyers who bring them, without regard to the impact on the insurance market as a whole and the cost to the insurance-buying public. Consider some of these examples. In Texas, two of the State's largest automobile insurance companies decided to settle a $100-million class action lawsuit brought against them over a longstanding, industrywide practice of rounding up to the nearest dollar for auto insurance premiums. Although the insurance premiums were calculated according to specific instructions from the Texas Department of Insurance, because of mounting legal expenses and negative publicity, the companies decided to settle for $36 million. The policyholders received funds of about $5 apiece, while the lawyers took home almost $11 million. More than 20 nationwide class action lawsuits are currently pending in one or two New Mexico trial courts, claiming that insurance companies are misleading policyholders by not disclosing the annual percentage rate, the APR, of the fees charged for processing installment payments and premiums. In the District of Columbia, and in most, if not all, States, companies are allowed to charge small processing fees for allowing customers to make these modal payments on their annual premiums, so long as these charges are disclosed and are reasonable. They are simply a convenience to consumers. There has never been a complaint about them in the District of Columbia or in any other jurisdiction so far as I know, but facing potential billions of dollars in liability costs, as well as the threat of massive costs of defending themselves, these insurance companies are under tremendous pressure to settle. One modal premium case against Primerica has already been settled, with $7.5 million paid to the plaintiffs' attorneys and nothing to class members at all. There are other examples which are mentioned in my testimony, but I do want to say that I am pleased that this committee is considering the issue and that it is considering this bill, which is a good start, in my view, toward dealing with some of these problems. The bill, in particular, I am pleased does provide notice to State regulators, such as myself, and that, I think, is important because we need to understand what is happening out there. Because when these lawsuits are won or when they are settled for large amounts of money, that money is paid by consumers. They are the ones who end up paying, that are engendered by insurance companies to pay the settlements or the judgments. There is no magic pot of money out there. It comes right from the pockets of the consumers who pay insurance premiums. So thank you for allowing me to testify today, and I appreciate the work that this committee is doing. [The prepared statement of Mr. Mirel appears as a submission for the record.] Chairman Leahy. I thank you very much for being here. Our next witness is Ms. Shaneen Wahl. If I might just note parenthetically, and as a personal thing, I commend you for your courage in battling both breast cancer and your health insurance company at the same time, and winning both of them. My wife and I were honorary chairs of the Race for the Cure this past weekend in Vermont, and it was very satisfactory to see so many old friends who have battled breast cancer and won. I just mention that for anybody that might be listening. Do the exams your doctors tell you to, and for the men in the audience, do not forget men can get breast cancer too. Ms. Wahl. That is true. Chairman Leahy. Go ahead, Ms. Wahl. STATEMENT OF SHANEEN WAHL, PORT CHARLOTTE, FLORIDA Ms. Wahl. Good morning, Mr. Chairman and members of this committee. I feel very special that you have invited me here to speak today. My name is Shaneen Wahl, and I am about to turn 53 years old, and soon thereafter I will achieve my sixth year as a breast cancer survivor. In the early 1990's, my husband's job as a VP of Sales and Marketing for a large home builder ended, and he was unable to find another acceptable job during the real estate crunch. Nobody wanted a guy in his mid-fifties. We had been faithfully saving for our retirement since we were married over 27 years ago. At that time, we examined our finances, and it appeared that we would really be able to retire early. We confirmed our determination with a financial planner. What, at first, had appeared to be a catastrophe turned out to be the beginning of our American dream. We knew that as a part of retiring, we would need health insurance, so we purchased a policy in 1993 from American Medical Security. We bought an RV and began traveling, and our dream had become a reality. The premium for our zero-deductible policy in 1993 was $194 per month. In September 1996, I was diagnosed as suffering from breast cancer. That was the beginning of our American nightmare. By the time of our 1998 renewal, the monthly premium had risen 300 percent to $588. Late in 1998, we received a letter from American Medical Security telling us that we would be canceled, but if we would reapply, we would be guaranteed a new policy. So we did that. At that next renewal, we received a notice that our monthly premium for our new policy, with a $500-each deductible, would be $1,180. Chairman Leahy. A month? Ms. Wahl. A month. Most people assume it is a year. I began making phone calls and writing letters. I could not believe what had just happened. I was told by Florida's Department of Insurance and other departments of insurance that they had no laws that would prohibit American Medical Security or, for that matter, many other health insurers, from charging such predatory premiums. American Medical Security had chosen to circumvent Florida State regulatory and Federal laws by using a loophole in the Florida insurance law to permit out-of-State group health insurance companies to exempt themselves from regulation. We bit the bullet and paid the $1,180 each month, since I could not go to another insurance company because of my breast cancer history. Then, in August of 2000, we received the next premium increase, $1,881 per month, and that is over $22,000 per year. I was livid. My husband and I drove to American Medical Security's home office in Green Bay, Wisconsin, to challenge the increase since there was no one in Government who could help me. I knew then that I could not just sit there and let this happen to me and to other families. I had to do something. I became my own advocate, and I began my effort to get the laws changed, and that same determination is what brings me here today. My hero, Florida's Commissioner of Insurance Tom Gallagher, has been working since 1993 to pass laws that would put a stop to the egregious tactics my insurance company is using. His hands have been tied due to the aggressive lobbying by health insurance companies and their deep pockets that allow them to hire the big-gun, high-priced corporate attorneys to fight any change to State laws. Tom Gallagher is a hero, but the Department of Insurance initially lost its regulatory action before an administrative law judge. Last week, Tom Gallagher did suspend American Medical Security's license to do business in the State of Florida for 1 year. That, however, has been reversed temporarily since the insurance company did go to court just a couple of days ago, and they are back in business. Commissioner Gallagher's action is a very positive move toward bringing insurers under the law. However, it really just amounts to a very, very large fine, and it does nothing to help the policyholders like me recover millions of dollars lost due to American Medical Security's outrageous conduct. My attorney, Jeff Liggio and his team won the Florida class action against American Medical Security, and they will recover the money we, and the other members of the class, lost as a result of the company's greed and misconduct. State class actions allow consumers to take on the big and powerful corporations. Class actions can, and do, accomplish what our statutorily and budgeted-limited public servants, even the great ones like Tom Gallagher, cannot. As it is, people who have been wronged by these insurance companies are morbidly fearful of coming forward to complain. They think that they will be further penalized in their premiums if they do. Some even fear bodily harm. They also think that they do not have the means by themselves to take on the big insurance companies and their high-priced corporate attorneys to fight for their rights and be reimbursed of what they have lost. If you take away the option of being able to use the vehicle of a State class action or make it so difficult that it will no longer be a viable process, the people who are victims of corporate wrongdoing will be powerless and hushed even further, and that is what these insurance companies want. They want the people they have wronged to just disappear. I thank you and would be happy to answer any questions. [The prepared statement of Ms. Wahl appears as a submission for the record.] Chairman Leahy. Thank you very much. What has happened, as you can hear by these bells, we have a roll call vote in, this bell indicates, approximately just a little over 5 minutes left in this roll call. That would give us time, first, to hear Ms. Bankston, who has been waiting here patiently, and so why do you not take your 5 minutes now, Ms. Bankston, and if the Senators have to go vote, feel free. I will hear that, and then we will recess while we vote until we come back. Go ahead. STATEMENT OF HILDA BANKSTON, JEFFERSON COUNTY, MISSISSIPPI Ms. Bankston. Thank you, Mr. Chairman and members of the committee. I am so pleased to be here today to have an opportunity to share with you what has been a personal nightmare for me since I faced my first class action lawsuit in Mississippi. While I have never been a plaintiff in any class action lawsuits that I know of, I do believe I have been a victim of the system since the first suit was filed against Bankston Drug Store in 1999. Let me explain. My husband and I lived the American dream until 3 years ago, when we were caught up in what has become an American legal nightmare. I was born in Guatemala and moved to the U.S. in 1958. I met my husband Mitch, a Navy seaman, while I was serving as a Marine at Camp Lejeune in North Carolina. We were married there in 1964. After we left the military, Mitch attended college and pharmacy school at Ole Miss while I worked as a seamstress. In 1971, we put down roots in Fayette, Mississippi, bought a local drugstore and fulfilled Mitch's lifelong dream. He worked hard and built a solid reputation as a caring, honest pharmacist. We raised two sons. Our life was good. Then, in 1999, we were named in the national class action lawsuit brought against the manufacture of Fen-Phen. Let me stop here to explain why we were brought into this suit. While I understand that class actions are not allowed under Mississippi State law, what is permitted is the consolidation of lawsuits. These consolidations involve Mississippi plaintiffs or defendants who are included in cases along with plaintiffs from across the country. We filled prescriptions of these FDA-approved drugs for patients in Jefferson County. We kept accurate records of prescriptions dispensed for 5 years, as required by law, providing the trial lawyers with a data base of potential clients. By naming us, the only drugstore in Jefferson County, the lawyers could keep the case in a place known for its lawsuit- friendly environment. I am not a lawyer, but that sure seems like a form of class action to me. It is my understanding that legislation before the Senate will cover Mississippi consolidations, like those I have been named in, as well as national class actions filed in other lawyer-friendly State courts. From the moment we learned that we had been named as a defendant in the Fen-Phen case, Mitch became extremely concerned about what our customers would think. In our small town, news travels fast and reputation is everything. Within 3 weeks, my husband, a 58-year-old in good health, died suddenly of a massive heart attack. In the midst of my grief, I was called to testify in the first Fen-Phen trial. Since then, Bankston Drugstore has been named as a defendant in hundreds of lawsuits brought by the individual plaintiffs against a variety of pharmaceutical manufacturers. Fen-Phen, Propulsid, Rezulin, Baycol. At times, the bookwork became so extensive that I lost track of the specific cases, and today, even though I no longer own the drugstore, I still get named as a defendant time and again. Jefferson is a poor county, and the attorneys handling these claims have aggressively marketed their actions, the same as winning the lottery. Some days I cannot open the newspaper without seeing ad after ad recruiting potential plaintiffs with a warning that ``time is of the essence'' if folks want the promise of big payouts. Nor are their efforts hurt by rumors that five plaintiffs in the first Fen-Phen case split $150 million. Plus it is well-known in the community that trial lawyers point to multi-million-dollar homes that are built by successful lead plaintiffs as an inducement for signing on. Sadly, the lawsuit frenzy has done more harm than good to our community. Businesses will not relocate to Jefferson County because of fear of litigation, and the county's lawsuit- friendly environment has driven liability insurance rates through the roof, giving small business owners all over Fayette additional headaches they do not need, an dour doctors are leaving the State en masse. No small business should have to endure the nightmares I have experienced. Class action attorneys have caused me to spend countless hours retrieving information for potential plaintiffs. I have searched record after record and made copy after copy for use against me. I have had to hire personnel to watch the store while I was dragged into court on numerous occasions to testify. I have endured the whispers and questions of my customers and neighbors wondering what we did to end up in court so often, and I have spent many sleepless nights wondering if my business would survive the tidal wave of lawsuits cresting over it. I am not a lawyer, but to me, something is wrong with our legal system when innocent bystanders are used by lawyers seeking to strike it rich in Jefferson County or anywhere else. In closing, I would like to ask you to think about the victims of lawsuit abuse. My husband Mitch and I are only two of thousands throughout this country. It is not just small business like ours, but it is also the plaintiffs who end up with nothing or consumers who pay more for products or for insurance. We are the ones who need your help. I urge you to pass legislation that reforms our legal system and prevents lawsuit abuses such as those that have plagued by business and my family for years. Thank you for your attention. I will be happy to answer any questions. [The prepared statement of Ms. Bankston appears as a submission for the record.] Chairman Leahy. Well, thank you, Ms. Bankston, for your testimony. Of course, everybody hearing it has to feel the same. We regret your loss of your husband. You are absolutely right. At that age, that is far too early and far too great a loss. I will put some statements of other Senators in the record, including Senator Feingold. [The prepared statement of Senator Feingold appears as a submission for the record.] Chairman Leahy. We will take a recess at this point so we can go vote and then come back. Senator Feinstein. Mr. Chairman, four votes. Chairman Leahy. We still have to go and vote, and then as soon as some can come back, we will just have to figure out how we do this. Thank you. We stand in recess. [Recess.] Chairman Leahy. In order, just so everybody will understand, we are having a fairly large series of votes, which sometimes happens the week before the recess. Senator Kohl is still back there. I am going to turn to Senator Feinstein, who has questions, and we have, as those of you who are used to voting here know, that we have also the ability to submit questions for the record, and we will keep the record open for a few days to do that, but as I also mentioned just now during the break how much I appreciate each of you coming here. Senator Feinstein and I were talking on the way over to the vote about how valuable everybody's testimony has been and how interesting it has been. Senator Feinstein? STATEMENT OF HON. DIANNE FEINSTEIN, A U.S. SENATOR FROM THE STATE OF CALIFORNIA Senator Feinstein. Thank you very much, Mr. Chairman. I echo your comments, but I must tell you I think the two women really had the long and the short of the argument, in very eloquent, crystallizing and dramatic terms. I think we saw clearly, through Mrs. Wahl's testimony, the clear need for class action. She could not have brought the case on her own. On the other hand, we saw the clear need for reform in your testimony, and just my profound sorrow over the loss of your husband. I really understand how the humiliation and the tragedy can enter into what happened, but there we saw Fen- Phen, a nationally distributed product, where the case is brought in a county that is notorious for forum shoppers, and it should not have been in that county. The Fen-Phen case, in my judgment, should have been in Federal court because it impacts everybody. It is interstate commerce. It goes all over the United States. The question that I have, and Mr. Dellinger, as you know, I am a fan of yours so I read your written remarks, and you mention on the last page of your written testimony the very point I am trying to make. I do not know whether the criteria in the Kohl-Grassley legislation are the right criteria. One person outside of the State in a case that is worth more than $2 million, I do not know whether that should be kind of the arbitrary decider of what goes into Federal court. Using the case over here with Fen-Phen, should it not be based really on the subject matter of the suit, the product involved, whether it is an interstate situation or whether it is not? Even that I can see is faulty, but the one-case standard, the one-petitioner standard, I do not know if it holds water. Could you comment on that? Mr. Dellinger. Yes, I will, Senator Feinstein. If I may, let me first agree with you that I thought that the testimony we heard this morning from Ms. Bankston and Ms. Wahl were both very, very compelling, and the remark you made to us that their testimony was what really focuses it on the two kinds of cases, so that I do think that is the proper focus, but I want to note that I think that this bill would have made a difference in one of those compelling stories and not necessarily in the other. We are all grateful that Ms. Wahl got justice achieved through her class action, but there is no reason that we know to believe that if someone had chosen to remove that to Federal court that Federal judges appointed by the Presidents and confirmed and reviewed by this committee, would not have also given her fairness in that case. On the other hand, we know that Ms. Bankston's story would have been alleviated by this bill because she would never have been joined as a defendant, except that it is now done to manipulate the cases to avoid Federal jurisdiction; for instance, you say a case like Fen-Phen. I think the question you raise is, if I understand your question, it is suppose that all of the plaintiffs are from one State and just one plaintiff is from another State, should that be enough. Senator Feinstein. Right. Mr. Dellinger. It actually is the case that--or the case in which, say, all of the plaintiffs were from California, and the defendant is an Illinois company or a North Carolina company. Senator Feinstein. Right. Mr. Dellinger. I think that really goes to the heart of the diversity jurisdiction to allow cases like that to be brought into Federal court. If there were two auto drivers, and one of them suffered $80,000 in injury, it could be brought in Federal court. Here, where you have national capital and businesses and jobs being expended throughout the entire Nation, a critical part of allowing America to be the world's greatest common market was the assurance that if you were an out-of-stater, you always had access to Federal court, to a neutral court, not a court of the plaintiff's home State. So, for a California business person that wants to invest in Mississippi or West Virginia or Illinois, they know that they will not have to be stuck in the local courts in those States if this bill passes and there is a class action. Even if all of the plaintiffs happen to be from that State, there is still the unfairness to the out-of-State defendant that it is the essential function of the diversity jurisdiction to avoid and to assure that you could expend your capital nationwide and not have to worry about unfair courts. So I think that is why the bill is structured to allow a situation where one of the defendants is an out-of-State defendant to allow those cases to be removed to Federal court. Senator Feinstein. Would you allow me, Mr. Chairman? Chairman Leahy. Of course. Take whatever time you need. Senator Feinstein. Section 4 of the bill also states that a class action case would remain in State court if, and I quote, ``the substantial majority of the members of the proposed plaintiff class and the primary defendants are citizens of the State in which the action was originally filed.'' What is the legal meaning then of substantial majority? Mr. Dellinger. I do not think it is a number. If you wanted me to hazard a guess, I would guess 60 percent sounds substantial to me. What it is meant to do is to say, look, if there are cases that meet the minimal diversity requirements of Article III, but really substantially most of the plaintiffs and the primary defendants are from the case, and State law is going to be applied, that ought to stay in State court. Senator Feinstein. Got it. Mr. Bland, do you believe that, for example, Ms. Bankston, that they should have been a defendant in a Fen-Phen suit? Mr. Bland. I do not know a lot about the Fen-Phen controversy. I certainly know that the manufacturer should have been defendants in those cases, and frequently the doctors and these diet clinics that were convincing, particularly women, to use these drugs that were approved for totally different purposes for diet---- Senator Feinstein. This is a pharmacy that dispenses an FDA-approved drug. Mr. Bland. Well, it is approved for one purpose, and they are being dispensed, combined, for a different purpose. It is quite possible that the pharmacy should not be there. One way of testing that would be it would be fairly easy for the defendants to remove the case to Federal court and say it is a fraudulent joinder. The Federal courts in Mississippi are certainly not considered particularly liberal or friendly courts for consumer plaintiffs, and the Fifth Circuit, the Court of Appeals for Mississippi, also does not have that reputation. If they were fraudulently joined, that would have been a good way of testing it. But my understanding is that virtually all of the Fen-Phen cases, after our first few cases about medical monitoring, were not class actions. I mean, the type of case that is class action is typically a small case. The Fen-Phen cases are particularly women who are have heart valves that failed, Senator, and the Fen-Phen cases are significant personal injury cases, usually brought on an individual basis. To the extent that the pharmacy was fraudulently joined and should not have been joined, it is being joined in a whole bunch of individual product liability cases, and I think you put your finger right on the key point when you said the jurisdiction should be based on the subject matter. These are products liability cases. Products liability historically in America has been a State law body of action. If the purpose of this bill is to take a whole bunch of individual product liability suits where a lot of people are harmed by the same product and move them all into Federal court, then the bill is not just about class actions, but it is now going to be about every product that harms a lot of people. So we could be talking about all of the cases involving Bridgestone tires are now going to be moved to Federal court, and all of the cases involving asbestos are now going to be in Federal court. I think the corporate defendants would like to have every single products liability case in Federal court because it takes forever to get them resolved, but if that is what the bill is doing, I think it is a real problem. Senator Feinstein. Let me ask you, as a hot-shot plaintiff attorney, how do you avoid forum shopping or do you think forum shopping is a good thing, particularly when somebody who at least on the appearance of what you said is just an innocent bystander so to speak? Mr. Bland. I agree that I think there is forum shopping on both sides, and I think, to some extent, some of the drive for this bill is forum shopping for people who feel they would be better in Federal court. I agree that it can be a real problem. If people were naming a pharmacy wrongly, there are a lot of big defendants in those cases with a lot of lawyers, too, who would rather have been in Federal court, they should have gone to Federal court and said it was a fraudulent joinder. The Federal courts in Mississippi have not been particularly friendly toward class actions or toward product liability suits in a lot of cases, and if they were fraudulently joined, they could have beaten it that way. The other thing is that you cannot apply State law in one State to claims involving people in other States. Under the Supreme Court's decision in Phillips Petroleum v. Shutts, the Supreme Court said that due process says that you cannot apply Mississippi law to the claims of people in California, unless there is a substantial nexus, a real close tie between the law of that State and the other State. So California lawyers could not say, hey, let us go to Mississippi because they are a bunch of rubes down there, and we will be able to use Mississippi law, you know---- Senator Feinstein. Or say that in any event. Mr. Bland [continuing]. And get away from people kind of thing, but that is sort of the premise that we are getting from the tort reform side I think you would have to say, is that people are going to the bad States kind of thing. Senator Feinstein. No, no, no. Mr. Bland. You could not apply Mississippi law. Senator Feinstein. That is not the issue. Mr. Bland. That is an argument some people are saying. Senator Feinstein. This is the issue where there is a sympathetic county jurist---- Mr. Bland. A jury pool. Senator Feinstein [continuing]. That is the issue, and jury pool. Mrs. Bankston, may I ask you this question? Ms. Bankston. Yes, ma'am? Senator Feinstein. This issue of separating you out, did you, and your husband, and your attorneys try to do that? And, if so, what happened? Ms. Bankston. I do not believe that we had an opportunity to go to Federal court. Senator Feinstein. No, but did they try to raise the issue that Mr. Bland just mentioned, that it is possible to separate you out as a kind of--what is the legal term, false---- Mr. Bland. You remove a case. The defendants, what they would have done is they would have said this case should not be in State court, we remove it to Federal court, and all they have to do is file a petition, and it automatically happens, you are in Federal court. And then if the plaintiffs think they should not be in Federal court, they have to fight to get back into State court. They have to make a motion asking the judge to remand them, and those frequently take years. Senator Feinstein. Was that done in your case? Ms. Bankston. No, ma'am. I believe that if my attorney would have had the opportunity, I am sure he would have done something like that because we tried every way possible to where I would not be included even on the first one. And then whenever hundreds and hundreds came in, well, since I am not an attorney, I am just at the mercy of my attorney which I trust very much, and he has been very good, but I do not think there was an opportunity to do it or he would have done it. Mr. Dellinger. Senator Feinstein, the problem is not---- Chairman Leahy. I would note we have got about 4 minutes left on this vote, and I want to get my questions asked. Mr. Dellinger. The problem is not fraudulently joined, but the present rules, the way diversity jurisdiction is now set up, a nonfraudulent joinder of someone like Ms. Bankston, under the law, will defeat the ability to remove this case to Federal court or keep it from being removed there where she would not-- nobody would be interested in having her as a party. The problem is the rules allow the joinder. It is not fraudulent. That is the very rule that we would effectively change by allowing Federal jurisdiction. There would be no reason to include her. It is true that she could have gotten out if it were shown to be fraudulent, but the problem is the nonfraudulent joinder, where you have just got some plausible claim to put in the pleadings about the drugstore. That is not a fraudulent joinder, and the case is stuck in State court, and that is why she is brought into it, just to do that, and the rules allow it. Senator Feinstein. Thank you. That is very helpful. Thanks, Mr. Chairman. Chairman Leahy. Thank you. Apparently, they made this a 10- minute vote. I will put a letter from the Conference of Chief Justices for State Courts wrote to Congress. They said that, among other things, that ``This legislation is so drastic a distortion and disruption of traditional notions of judicial federalism it is not justified. We have heard only anecdotes of isolated problems that are being addressed on an ongoing basis by State judicial and legislative bodies. We believe strongly that there is no rational basis for drastic an invasion of State judicial prerogatives.'' I realize there are those who disagree with them, and that is understandable. Professor Dellinger, would this legislation cover the consolidation of individual lawsuits in State courts, not just class action litigation? Sometimes in State court you might have two or three people suing, and they consolidate those. Would this allow that transfer? Mr. Dellinger. Only if it is more than 100, Senator Leahy, it is my understanding, if it is more than 100 and it meets the other requirements of the bill. Chairman Leahy. Who are you representing today? Mr. Dellinger. The Chamber of Commerce has asked me to appear. Thank you. Chairman Leahy. Mrs. Bankston, I know how difficult it can be to run a small business. My parents had a small printing business in Montpelier when I grew up. We lived in the front. The house was in the front, the business was in the back, and you walked through the kitchen door to get to the business, and I know how difficult even the paperwork can be. I am still not quite sure why you were not removed as a defendant in this case. I am going to ask the staff check that further because obviously the $150-million judgment they got against American Home Products, the maker of Fen-Phen, I do not think anybody expected to get that from you or your late husband, and I am just wondering why you were not separated out. But having said that, I know that we have reached the time. Senator Sessions will offer material, probably not the whole transcript, but a letter from Karen Kovacs. [The letter appears as a submissions for the record.] Chairman Leahy. We will have available the transcript of the Maddox v. Alltell Mobile Communications case. I would have to talk to Senator Sessions about the cost of reprinting that in the record, and I am getting a signal that we have got about 3 minutes left on this vote. So, with that, I would thank all of you for being here. Frankly, I agree with the Senator from California, and this is not in any way to detract from Mr. Bland, Mr. Dellinger and Mr. Henderson or from Mr. Mirel, your testimony is all very, very valuable, but Ms. Wahl and Ms. Bankston really had the polar ends of the issue we are facing, and I appreciate both of you being here, as I do you four. We will leave the record open for a week. We stand in recess. 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