There is little doubt that serious problems exist with our current class action system. Over the past ten years, class action filings in state courts have exploded at rate much greater than in federal courts. According to recent studies, while federal class action filings over the past ten years have increased over 300%, class action filings in state courts have increased over 1,000%. [See Analysis: Class Action Litigation - A Federalist Society Survey, Class Action Watch at 5 (Vol. 1, No. 1); Deborah Hensler, et al., Preliminary Results of the RAND Study of Class Action Litigation 15 (May 15, 1997)]. And many state courts do not have the resources to deal with what are essentially interstate cases. Indeed, many state courts have crushing caseloads, and far less staffing than federal judges have, such as magistrate judges and law clerks, available to manage such cases. Civil filings in state trial courts of general jurisdiction have increased 28 percent since 1984, versus only a 4 percent increase in our federal courts. [B. Ostrom & Kauder, Examining the Works of State Courts, 1997, at 15 (Court Statistics Project 1998)]

Yet state courts continue to exercise jurisdiction over an overwhelming number of interstate class actions because of loopholes in the federal jurisdictional laws. Interstate class actions have remained in state court despite their interstate nature because it is easy to defeat the complete diversity requirement -- by adding non-diverse parties - and the $75,000 jurisdictional amount -- by aggregating individual claims, each of which is less than $75,000. Federal law requires each member of the class to claim amounts over the jurisdictional amount. Furthermore, trial attorneys have abused the state class action mechanism by settling class actions for exorbitant fees in exchange for coupons or other trivial benefits for class members. Let me give three examples of abuses of the class action mechanism.

+ In the now infamous Bank of Boston class action law settlement, the Bank of Boston was accused of over collecting escrow monies from homeowners and profiting from the interest. The settlement, approved by an Alabama judge, awarded up to $8.76 to individual class members while the class counsel got more than $8.5 million if fees, which were debited directly from individual class members' escrow accounts. Clearly, there was a conflict-of-interest between the class and their attorneys. [Kamilewicz v. Bank of Boston, 92 F.3d 507 (7th Cir. 1996).]

+ An Illinois court approved a coupon settlement of a class action filed against Southwestern Bell Mobile Systems, Inc. alleging that the company failed to fully disclose the fact that it rounds up to the minute the calls its customers make. The class received $15 vouchers for Cellular One products while the lawyers received over $1 million in fees. This is becoming all too familiar. The class obtains virtually nothing, while the trial lawyers get rich. [ See Michelle Singletary, Coupon Settlements Fall Short, Wash. Post, Sept. 12, 1999, at H01.]

+ A class action in an Illinois state court arose out of a longstanding State Farm practice (shared by other insurers) of using non-Original Equipment Manufacturer (OEM) parts to repair cars. The practice was fully disclosed to policyholders. The majority of states expressly permit insurers to specify non-OEM parts. Hawaii and Massachusetts, however, require the specification of non-OEM parts.

Plaintiffs claimed that all non-OEM parts used by policyholders were inferior to OEM parts, and that State Farm had breached its contractual obligation to policyholders and committed fraud whenever it specified such parts. When the case went to trial, plaintiffs dropped their claim that all non-OEM parts were inferior and conceded that there was a variance. Nevertheless, the trial court permitted the jury to make a group judgement on the class action. The plaintiffs in the class came from states throughout the nation, including Hawaii and Massachusetts, where the very practice that was condemned was required by law. [See Snider v. State Farm Mutual Automobile Insurance Co., Cir. Ct. for Williamson City., IL, Docket No. 97-L-114 (1999).]

This case is an example of back-wards or false federalism. Because the class action was in state court, in essence, the law of the home state were allowed to supercede the laws of other states.

Simply put, S. 353 would go along towards ending these abuses. The bill specifically would allow federal courts to adjudicate class actions where any member of the class of plaintiffs is from a different state than any defendant. This means in practice that many state class actions may be removed to federal court. Nonetheless, the bill does not extend federal jurisdiction to encompass intrastate class actions, where the claims are governed primarily by the laws of the state in which the case is filed and the majority of the plaintiffs and the primary defendants are citizens of that state. So there is no federalism issue. All the bill does is to protect constitutionally mandated diversity jurisdiction - "suits between Citizens of different States." [U.S. Constitution, a. III, sec, 2, cl.9.]

I should point out that S. 353 would not prohibit any class action from being filed. It is merely a process or procedural bill. It addresses where a particular type of class action should be adjudicated. The gist of the bill is that interstate class actions that involve plaintiffs and defendants from several states and that call for the interpretation and application of the laws of many different states, ought to be litigated in federal court because such cases often have significant national implications. Simply put, the bill amends the diversity requirement of 28 U.S.C. § 1332(a). Although not a constitutional requirement, this statute has been interpreted to require "complete" diversity, so that diversity is lacking whenever any single plaintiff is a citizen of the same state as any single defendant. [See Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 (1806).] The "complete" diversity requirement was adopted before the development of class action lawsuits. So there is today an urgent need for reform.

I am aware that some will say that federal courts have also had their share of class action abuses. But that number is very small. One reason is that because of the greater resources of the federal system, federal judges police class actions to a greater degree than state judges do.

Moreover, Federal Rule of Civil Procedure 23(a) requires as prerequisites to a class action that one or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable ("numerosity"), (2) there are questions of law or fact common to the class ("commonality"), (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class ("typicality"), and (4) the representative parties will fairly and adequately protect the interests of the class ("adequacy").

The Supreme Court in the Amchem case, 521 U.S. 591 (1997), took a very restrictive view of Federal Rule of Civil Procedure 23's class action requirements and rejected a proposed settlement before certification because it appeared that the requirements would have prevented certification. These requirements, when enforced by federal courts, will prevent many of the abuses of the class action mechanism.

Finally, I am also aware that there are those that say that the bill would "flood" federal courts. I have two responses. The first is that these cases belong in federal court. Let me emphasize again that they are primarily interstate cases which the Framers believed ought to be in federal court. That is why diversity is a constitutional requirement. Unfortunately, that requirement, as interpreted, is easy to skirt. The bill closes the diversity loop-hole created by ingenious lawyers.

Second, the Chairman's Mark, that I, as well as Senators Grassley and Kohl, intend to proffer, raises the jurisdictional amount for class actions in federal court from $75, 000 per individual party to $1 million aggregate. We also will ban class actions from federal court unless there are 100 class plaintiffs or more. In reviewing a similar House provision, the nonpartisan CBO concluded that this legislation would merely require $5 million annually to enact. The CBO also expects that this legislation would not require any significant increase in the number of federal judges, so that any potential increase in direct spending from subsequent legislation would probably be less than $500,000 a year.

This concern also ignores the fact that the number of diversity jurisdiction cases being filed in federal court is going down dramatically. During the 12-month period ending March 31, 1998, diversity jurisdiction case filings in federal district courts fell 6%. [C.J. Rehnquist, 1998 Year End Report on the Federal Judiciary]. And through the end of 1998, the decrease is even more dramatic. This concern also ignores the fact that since 1990, the number of federal district court judgeships that Congress has authorized to deal with the workload has increased 12.3% (to 646 judgeships) and that the number of senior judges with staff who are now assisting with the caseload is up 64% (now 276 judges) since 1985. [Compare 1990 AO Report at 42 with 1998 AO Report at 46.] All-in-all, I think that this concern of flooding the federal courts is overblown.

I think this is a good bill that helps resolve a serious problem. I hope my colleagues will vote it out of Committee.