142 cosponsors
TABLE OF CONTENTS:
Title I: Civil Justice Reform
Title II: Reform of Private Securities Litigation
Common Sense Legal Reforms Act of 1995 - Title I: Civil Justice Reform - Amends the Federal judicial code to provide for the award of attorney's fees to the prevailing party in Federal civil diversity litigation. Grants the district court discretion to reduce the amount of such award under special circumstances.
(Sec. 102) Amends Rule 702 of the Federal Rules of Evidence to make inadmissible: (l) testimony by a witness in the form of an opinion that is based on scientific knowledge unless the court determines that such opinion is based on scientifically valid reasoning and is sufficiently reliable so that its probative value outweighs specified dangers; and (2) testimony by a witness who is qualified if such witness is entitled to receive any compensation contingent on the legal disposition of any claim with respect to which such testimony is offered.
(Sec. 103) Sets forth rules governing any product liability action brought in State or Federal court against a manufacturer or seller of a product on any theory for harm caused by the product which shall supersede State law only to the extent that State law applies to an issue covered by this section. Specifies that any issue not covered by this section shall be governed by otherwise applicable State or Federal law.
Makes a product seller liable to a claimant for harm only if the claimant establishes that: (1) the product which allegedly caused the harm complained of was sold by the product seller, the product seller failed to exercise reasonable care with respect to the product, and such failure to exercise reasonable care was a proximate cause of the claimant's harm; (2) the seller made an express warranty applicable to the product which allegedly caused such harm, independent of any express warranty made by the manufacturer as to the same product, the product failed to conform to the warranty, and the failure of the product to conform caused the claimant's harm; or (3) the seller engaged in intentional wrongdoing as determined under applicable State law and such intentional wrongdoing was a proximate cause of the harm.
Makes an exception where: (1) the manufacturer is not subject to service of process under the laws of the State in which the claimant brings the action; or (2) the court determines that the claimant would be unable to enforce a judgment against the manufacturer.
Permits the award of punitive damages against a manufacturer or product seller, to the extent permitted by applicable State law, if the claimant establishes by clear and convincing evidence that the harm suffered was the result of conduct manifesting actual malice. Limits the amount of such damages to three times the amount awarded to the claimant for the economic injury on which such claim is based or $250,000, whichever is greater.
Specifies that the liability of each manufacturer or seller of the product involved in the action shall be several only and not joint for non-economic damages. Makes the manufacturer or seller liable only for the amount of non-economic damages allocated in direct proportion to such manufacturer's or seller's percentage of responsibility as determined by the trier of fact.
(Sec. 104) Expresses the sense of the Congress that each State should require each attorney admitted to practice law in such State to disclose in writing to any client with whom such attorney has entered into a contingency fee agreement: (1) the actual services performed for such client in connection with such agreement; and (2) the precise number of hours actually expended by such attorney in the performance of such services.
Amends Rule 11(c) of the Federal Rules of Civil Procedure to require (currently, allow) the court to impose an appropriate sanction upon an attorney, law firm, or party that has made specified representations to the court (e.g., a representation intended to harass, cause unnecessary delay, increase the cost of litigation, or present frivolous arguments) to compensate the parties injured by the conduct.
(Sec. 105) Amends the Federal judicial code to require a district court to dismiss a civil action, without prejudice, if: (1) not later than 60 days after such action is commenced, the defendant files a motion to dismiss on the basis that the plaintiff failed to transmit a written statement specifying the particular claims alleged and the amount of damages claimed to the defendant at least 30 days before commencing such action; and (2) the plaintiff fails to establish that before commencing such action the plaintiff complied with such requirement.
Sets forth provisions regarding: (1) exceptions (e.g., any civil action to seize or forfeit assets subject to forfeiture and actions where the defendant is likely to flee); and (2) the statute of limitations.
(Sec. 106) Revises rule XI of the Rules of the House of Representatives to require each committee report on a bill or joint resolution (bill) of a public character to include: (1) whether that bill preempts the law of any State; (2) the retroactive applicability, if any, of that bill; (3) whether that bill creates a private cause of action and, if so, a description of the relief and the terms and conditions for awarding any attorney fees; and (4) the applicability, if any, of that bill to the Federal Government or any of its agencies or instrumentalities.
(Sec. 107) Amends the Racketeer Influenced and Corrupt Organizations Act to prohibit any person from bringing an action under such Act for damages based on injury to that person's business or property if the racketeering activity involves conduct actionable as fraud in the purchase or sale of securities.
Title II: Reform of Private Securities Litigation - Securities Litigation Reform Act - Amends the Securities Exchange Act of 1934, with respect to class actions, to require a court-appointed class action steering committee, composed of class members, to direct counsel for the plaintiff class (plaintiff steering committee).
(Sec. 202) Prohibits the use of disgorgement funds resulting from actions brought by the Securities Exchange Commission (the Commission) to pay legal expenses incurred by private parties seeking distribution of such funds.
(Sec. 203) Declares that the portion of any final judgment or settlement awarded to class plaintiffs serving as the representative parties shall be equal (on a per share basis) to the portion of the final judgment awarded to all other members of the class.
Revises the guidelines for private class action suits to: (1) restrict to five the number of class actions filed by a named plaintiff during any three-year period; (2) subject a losing party litigant, if certain conditions apply, to liability for the prevailing party's legal fees; and (3) require the court to make a conflict of interest determination with respect to a plaintiff's counsel who directly owns or has a beneficial interest in the securities that are the subject of the litigation.
Requires a court to require just and equitable security for the payment of awardable fees and expenses from the attorney for the plaintiff class, the plaintiff class, or both.
Sets forth disclosure guidelines for any proposed settlement agreement that is disseminated to the plaintiff class, including: (1) a statement about agreement or disagreement on the amount of recoverable damages per share and the likelihood of the plaintiff's prevailing; (2) the amount of legal costs and fees sought as part of the settlement; and (3) the identification of lawyers' representatives who will be available to answer questions from class members.
Revises the guidelines for private class action suits to: (1) mandate discharge of a defendant who settles before verdict or judgment from all claims for contribution by nonsettling persons; (2) provide for recovery of contribution by a person who becomes liable for damages from certain non-parties who would have been liable for the same damages, if joined in the original suit; and (3) grant defendants the right to submit to the jury written interrogatories on the issue of each defendant's state of mind (scienter) at the time the alleged violation occurred.
Prohibits brokers or dealers from soliciting or accepting referral fees for assisting an attorney in obtaining the representation of a customer in any private action.
(Sec. 204) Delineates the requirements for securities fraud actions, including: (1) explicit pleading and proof of scienter; (2) plaintiff's reliance on a material misstatement or omission that proximately caused the plaintiff's loss; and (3) limitations on damages.
(Sec. 205) Defines the circumstances ("safe harbor") in which a person shall not be held liable for the publication of predictive statements in any action based on a fraudulent statement under this Act. Permits the defendant in such action to move for an automatic protective order to restrict all discovery to the specific issue of the applicability of the "safe harbor."
Directs the Commission to adopt a regulatory framework to implement the "safe harbor" requirements of this Act with respect to predictive statements concerning the future economic performance of an issuer of securities.
[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 10 Introduced in House (IH)]
1st Session
H. R. 10
To reform the Federal civil justice system; to reform product liability
law.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
January 4, 1995
Mr. Hyde, Mr. Ramstad, Mrs. Chenoweth, and Mr. Condit (for themselves,
Mr. Armey, Mr. Allard, Mr. Bachus, Mr. Baker of California, Mr. Baker
of Louisiana, Mr. Ballenger, Mr. Bartlett of Maryland, Mr. Barton of
Texas, Mr. Bilirakis, Mr. Bliley, Mr. Blute, Mr. Bono, Mr. Bunning of
Kentucky, Mr. Burr, Mr. Burton of Indiana, Mr. Callahan, Mr. Calvert,
Mr. Camp, Mr. Canady, Mr. Christensen, Mr. Chrysler, Mr. Clinger, Mr.
Coburn, Mr. Cooley, Mr. Cox, Mr. Crane, Mrs. Cubin, Mr. Cunningham, Mr.
Davis, Mr. Doolittle, Mr. Dornan, Ms. Dunn, Mr. Emerson, Mr. Ensign,
Mr. Everett, Mr. Ewing, Mr. Foley, Mr. Forbes, Mrs. Fowler, Mr. Fox,
Mr. Frisa, Mr. Ganske, Mr. Gilchrest, Mr. Gilman, Mr. Goodlatte, Mr.
Goodling, Mr. Gunderson, Mr. Hancock, Mr. Hastert, Mr. Hastings of
Washington, Mr. Hayworth, Mr. Heineman, Mr. Herger, Mr. Hilleary, Mr.
Hobson, Mr. Hostettler, Mr. Houghton, Mr. Inglis of South Carolina,
Mrs. Johnson of Connecticut, Mr. Jones, Mr. Kim, Mr. Knollenberg, Mr.
LaHood, Mr. Largent, Mr. LaTourette, Mr. Lewis of Kentucky, Mr.
Lightfoot, Mr. Linder, Mr. McCollum, Mr. McHugh, Mr. McIntosh, Mr.
Mica, Mr. Miller of Florida, Ms. Mollinari, Mrs. Myrick, Mr. Nussle,
Mr. Packard, Mr. Porter, Mr. Portman, Mr. Radanovich, Mr. Riggs, Mr.
Rohrabacher, Mr. Roth, Mr. Royce, Mr. Sanford, Mr. Schaefer, Mr.
Sensenbrenner, Mr. Shadegg, Mr. Shaw, Mr. Shays of Connecticut, Mr.
Smith of Texas, Mr. Smith of New Jersey, Mr. Smith of Michigan, Mr.
Solomon, Mr. Stearns, Mr. Stockman, Mr. Stump, Mr. Talent, Mr. Tate,
Mr. Taylor of North Carolina, Mr. Tejeda, Mr. Thornberry, Mr. Tiahrt,
Mr. Upton, Mrs. Waldholtz, Mr. Wamp, Mr. Weldon of Florida, Mr. Zimmer,
Mr. Crapo, Mr. Kolbe, Mr. Paxon, Mr. Young of Florida, Mr. Combest, Mr.
Ehrlich, and Mrs. Meyers of Kansas) introduced the following bill;
which was referred as follows:
Title I, referred to the Committee on the Judiciary, and in addition to
the Committee on Rules, for a period to be subsequently determined by
the Speaker, in each case for consideration of such provisions as fall
within the jurisdiction of the committee concerned
Title II, referred to the Committee on Commerce, and in addition to the
Committee on the Judiciary, for a period to be subsequently determined
by the Speaker, in each case for consideration of such provisions as
fall within the jurisdiction of the committee concerned
January 19, 1995
Additional sponsors: Mr. Schiff, Mr. Moorhead, Mr. Cremeans, Mr.
Norwood, Mr. Bonilla, Mr. Hunter, Mrs. Vucanovich, Mr. Walker, Ms.
Eddie Bernice Johnson of Texas, Mrs. Seastrand, and Mr. Collins of
Georgia
February 10, 1995
Additional sponsors: Mr. Longley, Mr. Roberts, Mr. Pombo, Mr. Salmon,
and Mr. Gallegly
_______________________________________________________________________
A BILL
To reform the Federal civil justice system; to reform product liability
law.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Common Sense Legal Reforms Act of
1995''.
TITLE I--CIVIL JUSTICE REFORM
SEC. 101. AWARD OF ATTORNEY'S FEE TO PREVAILING PARTY IN FEDERAL CIVIL
DIVERSITY LITIGATION.
(a) Award of Attorney's Fee.--Section 1332 of title 28, United
States Code, is amended by adding at the end the following:
``(e)(1) The district court that exercises jurisdiction in a civil
action commenced under this section shall award to the party that
prevails with respect to a claim in such action an attorney's fee
determined in accordance with paragraph (2).
``(2) An attorney's fee awarded under paragraph (1) shall be a
reasonable attorney's fee attributable to such claim, except that the
fee awarded under such paragraph may not exceed--
``(A) the actual cost incurred by the nonprevailing party
for an attorney's fee payable to an attorney for services in
connection with such claim; or
``(B) if no such cost was incurred by the nonprevailing
party due to a contingency fee agreement, a reasonable cost
that would have been incurred by the nonprevailing party for an
attorney's noncontingent fee payable to an attorney for
services in connection with such claim.
``(3) Notwithstanding paragraphs (1) and (2), the court in its
discretion may refuse to award, or may reduce the amount awarded as, an
attorney's fee under paragraph (1) to the extent that the court finds
special circumstances that make an award of an attorney's fee
determined in accordance with such subparagraph unjust.''.
SEC. 102. HONESTY IN EVIDENCE.
(a) Opinion Testimony by Experts.--Rule 702 of the Federal Rules of
Evidence is amended--
(1) by inserting ``(a) In general.'' before ``If'', and
(2) by adding at the end the following:
``(b) Adequate basis for opinion. Testimony in the form of an
opinion by a witness that is based on scientific knowledge shall be
inadmissible in evidence unless the court determines that such opinion
is--
``(1) based on scientifically valid reasoning; and
``(2) sufficiently reliable so that the probative value of
such evidence outweighs the dangers specified in rule 403.
``(c) Disqualification. Testimony by a witness who is qualified as
described in subsection (a) is inadmissible in evidence if such witness
is entitled to receive any compensation contingent on the legal
disposition of any claim with respect to which such testimony is
offered.''.
SEC. 103. PRODUCT LIABILITY REFORM.
(a) Applicability and Preemption.--This section governs any product
liability action brought in any State or Federal Court against any
manufacturer or seller of a product on any theory for harm caused by
the product. This section supersedes State law only to the extent that
State law applies to an issue covered by this section. Any issue that
is not covered by this section shall be governed by otherwise
applicable State or Federal law.
(b) Liability Rules Applicable to Product Sellers.--
(1) General rule.--Except as provided in paragraph 2, in a
product liability action, a product seller shall be liable to a
claimant for harm only if the claimant establishes that--
(A)(i) the product which allegedly caused the harm
complained of was sold by the product seller,
(ii) the product seller failed to exercise
reasonable care with respect to the product, and
(iii) such failure to exercise reasonable care was
a proximate cause of the claimant's harm,
(B)(i) the product seller made an express warranty
applicable to the product which allegedly caused the
harm complained of, independent of any express warranty
made by the manufacturer as to the same product,
(ii) the product failed to conform to the warranty,
and
(iii) the failure of the product to conform to the
warranty caused the claimant's harm, or
(C) the product seller engaged in intentional
wrongdoing as determined under applicable State law and
such intentional wrongdoing was a proximate cause of
the harm complained of by the claimant.
For purposes of subparagraph (A)(ii), a product seller shall
not be considered to have failed to exercise reasonable care
with respect to a product based upon an alleged failure to
inspect a product where there was no reasonable opportunity to
inspect the product in a manner which would, in the exercise of
reasonable care, have revealed the aspect of the product which
allegedly caused the claimant's harm.
(2) Special rule.--In a product liability action, a product
seller shall be liable for harm to the claimant caused by such
product as if the product seller were the manufacturer of such
product if--
(A) the manufacturer is not subject to service of
process under the laws of the State in which the
claimant brings the action, or
(B) the court determines that the claimant would be
unable to enforce a judgment against the manufacturer.
(c) Limitations on Punitive Damages.--
(1) General limitation.--Punitive damages may, to the
extent permitted by applicable State law, be awarded against a
manufacturer or product seller in a product liability action if
the claimant establishes by clear and convincing evidence that
the harm suffered was the result of conduct manifesting actual
malice.
(2) Limitation on amount.--The amount of punitive damages
that may be awarded for a claim in any civil action subject to
this section shall not exceed 3 times the amount awarded to the
claimant for the economic injury on which such claim is based,
or $250,000, whichever is greater.
(d) Several Liability for Noneconomic Damages.--In any product
liability action, the liability of each manufacturer or seller of the
product involved in such action shall be several only and shall not be
joint for noneconomic damages. Such manufacturer or seller shall be
liable only for the amount of noneconomic damages allocated to such
manufacturer or seller in direct proportion to such manufacturer's or
such seller's percentage of responsibility as determined by the trier
of fact.
(e) Definitions.--For purposes of this section--
(1) the term ``claimant'' means any person who brings a
product liability action and any person on whose behalf such an
action is brought, including such person's decedent if such an
action is brought through or on behalf of an estate or such
person's legal representative if it is brought through or on
behalf of a minor or incompetent,
(2) the term ``malice'' means conduct that is either--
(A) specifically intended to cause serious personal
injury, or
(B) carried out with both a flagrant indifference
to the rights of the claimant and an awareness that
such conduct is likely to result in serious personal
injury,
(3) with respect to a product, the term ``manufacturer''
means--
(A) any person who is engaged in a business to
produce, create, make, or construct the product and who
designs or formulates the product or has engaged
another person to design or formulate the product,
(B) a product seller of the product who, before
placing the product in the stream of commerce--
(i) designs or formulates or has engaged
another person to design or formulate an aspect
of the product after the product was initially
made by another, and
(ii) produces, creates, makes, or
constructs such aspect of the product, or
(C) any product seller not described in
subparagraph (B) which holds itself out as a
manufacturer to the user of the product,
(4) the term ``product''--
(A) means any object, substance, mixture, or raw
material in a gaseous, liquid, or solid state--
(i) which is capable of delivery itself, in
a mixed or combined state, or as a component
part or ingredient,
(ii) which is produced for introduction
into trade or commerce,
(iii) which has intrinsic economic value,
and
(iv) which is intended for sale or lease to
persons for commercial or personal use, and
(B) does not include--
(i) human tissue, human organs, human
blood, and human blood products, or
(ii) electricity, water delivered by a
utility, natural gas, or steam,
(5) the term ``product seller''--
(A) means a person--
(i) who sells, distributes, leases,
prepares, blends, packages, or labels a product
or is otherwise involved in placing a product
in the stream of commerce, or
(ii) who installs, repairs, or maintains
the harm-causing aspect of a product, and
(B) does not include--
(i) a manufacturer,
(ii) a seller or lessor of real property,
(iii) a provider of professional services
in any case in which the sale or use of a
product is incidental to the transaction and
the essence of the transaction is the
furnishing of judgment, skill, or services,
(iv) any person who acts only in a
financial capacity with respect to the sale of
a product, or
(v) any person who leases a product under a
lease arrangement in which the selection,
possession, maintenance, and operation of the
product are controlled by a person other than
the lessor,
(6) the term `punitive damages' means damages in addition
to compensation for actual injury suffered, for purposes of
imposing punishment for conduct engaged in with malice and to
deter similar future conduct, but such term does not include
compensation for actual injury, and
(7) the term ``State'' means any State of the United
States, the District of Columbia, the Commonwealth of Puerto
Rico, the Virgin Islands, Guam, American Samoa, the Northern
Mariana Islands, the Trust Territory of the Pacific Islands,
and any other territory or possession of the United States, or
any political subdivision thereof.
SEC. 104. ATTORNEY ACCOUNTABILITY.
(a) Truth in Attorneys' Fees.--It is the sense of the Congress that
each State should require, under penalty of law, each attorney admitted
to practice law in such State to disclose in writing, to any client
with whom such attorney has entered into a contingency fee agreement--
(1) the actual services performed for such client in
connection with such agreement, and
(2) the precise number of hours actually expended by such
attorney in the performance of such services.
(b) Amendment to the Federal Rules of Civil Procedure.--Rule 11(c)
of the Federal Rules of Civil Procedure (28 U.S.C. App.) is amended--
(1) in the matter preceding subdivision (1) by striking
``may'' and inserting ``shall'';
(2) in the penultimate sentence of subdivision (1)(A) by
striking ``may'' and inserting ``shall''; and
(3) in subdivision (2)--
(A) by amending the first sentence to read as
follows: ``A sanction imposed for a violation of this
rule shall be sufficient to deter repetition of such
conduct or comparable conduct by others similarly
situated, and to compensate the parties that were
injured by such conduct.''; and
(B) in the second sentence by striking ``, if
imposed on motion and warranted for effective
deterrence,''.
SEC. 105. NOTICE REQUIRED BEFORE COMMENCEMENT OF CIVIL ACTION.
Chapter 99 of title 28, United States Code is amended by adding at
the end the following:
Sec. 1632. Notice required before commencement of civil action
``(a) Dismissal of Civil Action.--Except as provided in subsection
(c), the district court in which a civil action is commenced shall
dismiss such action with respect to a defendant, without prejudice,
if--
``(1) not later than 60 days after such action is
commenced, the defendant files a motion to dismiss such action
on the basis that the plaintiff failed to comply with the
requirement specified in subsection (b); and
``(2) the plaintiff fails to establish that before
commencing such action the plaintiff complied with such
requirement.
``(b) Requirement.--Not less than 30 days before commencing a civil
action in a district court of the United States, the plaintiff shall
transmit (by 1st class mail, postage prepaid, or contract for delivery
by any company that in its regular course of business physically
delivers correspondence as a commercial service to the public) to the
defendant (at an address reasonably calculated to provide actual notice
to such defendant) a written statement specifying the particular claims
alleged in such action and the amount of damages claimed in such
action.
``(c) Exceptions.--Subsection (a) shall not apply with respect to
any civil action--
``(1) to seize or forfeit assets subject to forfeiture;
``(2) commenced under title 11 of the United States Code;
``(3) commenced to establish a receivership or
conservatorship;
``(4) based on the insolvency of the defendant, or the need
to liquidate assets of the defendant to satisfy any requirement
under Federal law;
``(5) if assets that are subject to such action or that
would satisfy a judgment in such action are likely to be
removed, dissipated, or destroyed by the defendant;
``(6) if the defendant is likely to flee;
``(7) if prior written notice of the filing of such action
is required by any other law;
``(8) to enforce a civil investigative demand or an
administrative summons;
``(9) if such action is--
``(A) to foreclose a lien;
``(B) to obtain a temporary restraining order or
preliminary injunction; or
``(C) to prevent the fraudulent conveyance of
property; or
``(10) if such action involves exigent circumstances that
compel immediate resort to the court.
``(d) Statute of Limitations.--
``(1) Suspension Before Commencement of Action.--If the
statute of limitations applicable to a claim would expire in
the 30-day period beginning on the date the plaintiff transmits
the notice required by subsection (b), such statute shall be
suspended--
``(A) during such 30-day period; or
``(B) during the 90-day period beginning on the
date the plaintiff so transmits such notice if, in such
30-day period, the parties to such action so agree in
writing.
``(2) Filing Civil Action After Dismissal.--If--
``(A) a civil action is timely commenced in a
district court with respect to a claim;
``(B) such action is dismissed under subsection
(a); and
``(C) the statute of limitations applicable to such
claim expires before the expiration of the 60-day
period beginning on the date such action is dismissed;
then the plaintiff in such action may commence a civil action
based on such claim in such 60-day period notwithstanding such
statute.''.
(b) Conforming Amendment.--Chapter 99 of title 28, United States
Code, is amended in the table of sections by adding at the end the
following:
``1632. Notice required before commencement of civil action.''.
SEC. 106. HOUSE COMMITTEE REPORTS.
Clause 2(l) of rule XI of the Rules of the House of Representatives
is amended by adding at the end the following new subparagraph:
``(8) Each report of a committee on each bill or joint resolution
of a public character reported by that committee shall include the
following information regarding that bill or joint resolution:
``(A) Whether that bill or joint resolution preempts the
law of any State.
``(B) The retroactive applicability, if any, of that bill
or joint resolution.
``(C) Whether that bill or joint resolution creates any
private cause of action and, if so, a description of that
relief and the terms and conditions for awarding attorneys
fees, if any.
``(D) The applicability, if any, of that bill or joint
resolution to the Federal Government or any of its agencies or
instrumentalities.''.
SEC. 107. AMENDMENT TO RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS
ACT.
Section 1964(c) of title 18, United States Code, is amended by
inserting ``, except that no person may bring an action under this
provision if the racketeering activity, as defined in section
1961(1)(D), involves conduct actionable as fraud in the purchase or
sale of securities'' before the period.
SEC. 108. EFFECTIVE DATE; APPLICATION OF AMENDMENTS.
(a) Effective Date.--Except as provided in subsections (b) and (c),
this title and the amendments made by this title shall take effect on
the first day of the first month beginning more than 180 days after the
date of the enactment of this Act.
(b) Product Liability.--Section 103 shall apply only with respect
to claims arising after the effective date of this title.
(c) Application of Amendments.--
(1) The amendments made by sections 101 and 105 shall apply
only with respect to civil actions commenced after the
effective date of this title.
(2) The amendments made by section 102 shall apply only
with respect to cases in which a trial has commenced after the
effective date of this title.
(3) The amendment made by section 106 shall apply to bills
and joint resolutions reported by any committee at least 30
calendar days after the date of enactment of this Act.
TITLE II--REFORM OF PRIVATE SECURITIES LITIGATION
SEC. 201. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Securities
Litigation Reform Act''.
(b) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 201. Short title; table of contents.
Sec. 202. Prevention of lawyer-driven litigation.
(a) Plaintiff steering committees to
ensure client control of
lawsuits.
(b) Full disclosure of proposed class
action settlements.
Sec. 203. Prevention of abusive practices that foment litigation.
Sec. 204. Prevention of ``fishing expedition'' lawsuits.
Sec. 205. Establishment of ``safe harbor'' for predictive statements.
Sec. 206. Alternative dispute resolution procedure.
Sec. 207. Rule of construction.
Sec. 208. Effective date.
SEC. 202. PREVENTION OF LAWYER-DRIVEN LITIGATION.
(a) Plaintiff Steering Committees To Ensure Client Control of
Lawsuits.--The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.)
is amended by adding at the end the following new section:
``SEC. 36. GUARDIAN AD LITEM AND CLASS ACTION STEERING COMMITTEES.
``(a) Guardian Ad Litem.--Except as provided in subsection (b), not
later than 10 days after certifying a plaintiff class in any private
action brought under this title, the court shall appoint a guardian ad
litem for the plaintiff class from a list or lists provided by the
parties or their counsel. The guardian ad litem shall direct counsel
for the class as set forth in this section and perform such other
functions as the court may specify. The court shall apportion the
reasonable fees and expenses of the guardian ad litem among the
parties. Court appointment of a guardian ad litem shall not be subject
to interlocutory review.
``(b) Class Action Steering Committee.--Subsection (a) shall not
apply if, not later than 10 days after certifying a plaintiff class, on
its own motion or on motion of a member of the class, the court
appoints a committee of class members to direct counsel for the class
(hereafter in this section referred to as the `plaintiff steering
committee') and to perform such other functions as the court may
specify. Court appointment of a plaintiff steering committee shall not
be subject to interlocutory review.
``(c) Membership of Plaintiff Steering Committee.--
``(1) Qualifications.--
``(A) Number.--A plaintiff steering committee shall
consist of not fewer than 5 class members, willing to
serve, who the court believes will fairly represent the
class.
``(B) Ownership interests.--Members of the
plaintiff steering committee shall have cumulatively
held during the class period not less than--
``(i) the lesser of 5 percent of the
securities which are the subject matter of the
litigation or securities which are the subject
matter of the litigation with a market value of
$10,000,000; or
``(ii) such smaller percentage or dollar
amount as the court finds appropriate under the
circumstances.
``(2) Named plaintiffs.--Class members who are named
plaintiffs in the litigation may serve on the plaintiff
steering committee, but shall not comprise a majority of the
committee.
``(3) Noncompensation of members.--Members of the plaintiff
steering committee shall serve without compensation, except
that any member may apply to the court for reimbursement of
reasonable out-of-pocket expenses from any common fund
established for the class.
``(4) Meetings.--The plaintiff steering committee shall
conduct its business at one or more previously scheduled
meetings of the committee, of which prior notice shall have
been given and at which a majority of its members are present
in person or by electronic communication. The plaintiff
steering committee shall decide all matters within its
authority by a majority vote of all members, except that the
committee may determine that decisions other than to accept or
reject a settlement offer or to employ or dismiss counsel for
the class may be delegated to one or more members of the
committee, or may be voted upon by committee members seriatim,
without a meeting.
``(5) Right of nonmembers to be heard.--A class member who
is not a member of the plaintiff steering committee may appear
and be heard by the court on any issue in the action, to the
same extent as any other party.
``(d) Functions of Guardian Ad Litem and Plaintiff Steering
Committee.--
``(1) Direct counsel.--The authority of the guardian ad
litem or the plaintiff steering committee to direct counsel for
the class shall include all powers normally permitted to an
attorney's client in litigation, including the authority to
retain or dismiss counsel and to reject offers of settlement,
and the preliminary authority to accept an offer of settlement,
subject to the restrictions specified in paragraph (2).
Dismissal of counsel other than for cause shall not limit the
ability of counsel to enforce any contractual fee agreement or
to apply to the court for a fee award from any common fund
established for the class.
``(2) Settlement offers.--If a guardian ad litem or a
plaintiff steering committee gives preliminary approval to an
offer of settlement, the guardian ad litem or the plaintiff
steering committee may seek approval of the offer by a majority
of class members if the committee determines that the benefit
of seeking such approval outweighs the cost of soliciting the
approval of class members.
``(e) Immunity From Civil Liability; Removal.--Any person serving
as a guardian ad litem or as a member of a plaintiff steering committee
shall be immune from any civil liability arising from such service. The
court may remove a guardian ad litem or a member of a plaintiff
steering committee for good cause shown.
``(f) Effect on Other Law.--This section does not affect any other
provision of law concerning class actions or the authority of the court
to give final approval to any offer of settlement.''.
(b) Full Disclosure of Proposed Class Action Settlements.--Section
21 of the Securities Exchange Act of 1934 (15 U.S.C. 78u) is amended by
adding at the end the following new subsection:
``(i) Disclosure of Settlement Terms to Class Members.--In any
private action under this title that is certified as a class action
pursuant to the Federal Rules of Civil Procedure, a proposed settlement
agreement that is published or otherwise disseminated to the class
shall include the following statements:
``(1) Statement of potential outcome of case.--
``(A) Agreement on amount of damages and likelihood
of prevailing.--If the settling parties agree on the
amount of damages per share that would be recoverable
if the plaintiff prevailed on each claim alleged under
this title and the likelihood that the plaintiff would
prevail--
``(i) a statement concerning the amount of
such potential damages; and
``(ii) a statement concerning the
probability that the plaintiff would prevail on
the claims alleged under this title and a brief
explanation of the reasons for that conclusion.
``(B) Disagreement on amount of damages or
likelihood of prevailing.--If the parties do not agree
on the amount of damages per share that would be
recoverable if the plaintiff prevailed on each claim
alleged under this title or on the likelihood that the
plaintiff would prevail on those claims, or both, a
statement from each settling party concerning the issue
or issues on which the parties disagree.
``(C) Inadmissibility for certain purposes.--
Statements made in accordance with subparagraphs (A)
and (B) shall not be admissible for purposes of any
Federal or State judicial or administrative proceeding.
``(2) Statement of attorneys' fees or costs sought.--If any
of the settling parties or their counsel intend to apply to the
court for an award of attorneys' fees or costs from any fund
established as part of the settlement, a statement indicating
which parties or counsel intend to make such an application,
the amount of fees and costs that will be sought (including the
amount of such fees and costs determined on a per-share basis,
together with the amount of the settlement proposed to be
distributed to the parties to suit, determined on a per-share
basis), and a brief explanation of the basis for the
application. Such information shall be clearly summarized on
the cover page of any notice to a party of a proposed or final
settlement.
``(3) Identification of lawyers' representatives.--The name
and address of one or more representatives of counsel for the
plaintiff class who will be reasonably available to answer
written questions from class members concerning any matter
contained in any notice of settlement published or otherwise
disseminated to class members.
``(4) Other information.--Such other information as may be
required by the court, or by any guardian ad litem or plaintiff
steering committee appointed by the court pursuant to this
section.''.
(c) Prohibition on Attorneys' Fees Paid From Commission
Disgorgement Funds.--Section 21(d) of the Securities Exchange Act of
1934 (15 U.S.C. 78u(d)) is amended by adding at the end the following
new paragraph:
``(4) Prohibition on attorneys' fees paid from commission
disgorgement funds.--Except as otherwise ordered by the court,
funds disgorged as the result of an action brought by the
Commission in Federal court, or of any Commission
administrative action, shall not be distributed as payment for
attorneys' fees or expenses incurred by private parties seeking
distribution of the disgorged funds.''.
SEC. 203. PREVENTION OF ABUSIVE PRACTICES THAT FOMENT LITIGATION.
(a) Additional Provisions Applicable to Class Actions.--Section 21
of the Securities Exchange Act of 1934 (15 U.S.C. 78u) is further
amended by adding at the end the following new subsections:
``(j) Elimination of Bonus Payments to Named Plaintiffs in Class
Actions.--In any private action under this title that is certified as a
class action pursuant to the Federal Rules of Civil Procedure, the
portion of any final judgment or of any settlement that is awarded to
class plaintiffs serving as the representative parties shall be equal,
on a per share basis, to the portion of the final judgment or
settlement awarded to all other members of the class. Nothing in this
subsection shall be construed to limit the award to any representative
parties of actual expenses (including lost wages) relating to the
representation of the class.
``(k) Requirement That Named Plaintiff Have Meaningful
Investment.--In any private action under this title, in order for a
plaintiff or plaintiffs to obtain certification as representatives of a
class of investors pursuant to the Federal Rules of Civil Procedure,
the plaintiff or plaintiffs must show that they owned, in the
aggregate, at the beginning of the time period in which violations of
this title are alleged to have occurred, not less than the lesser of--
``(1) 1 percent of the class of securities which are the
subject of the litigation; or
``(2) $10,000 (in market value) of such securities.
``(l) Restrictions on Professional Plaintiffs.--A person may be a
named plaintiff, or officer, director, fiduciary, or beneficiary of a
named plaintiff, in no more than 5 class actions filed during any 3-
year period.
``(m) Loser's Liability for Attorneys' Fees and Costs of Suit.--
``(1) Payment by losing party.--If the court in any private
action under this title enters a final judgment against a party
litigant on any basis other than settlement, the court shall,
upon motion by the prevailing party, order the losing party to
pay the prevailing party reasonable attorneys' fees and other
expenses incurred by the prevailing party.
``(2) Time for application.--A party seeking an award of
fees and other expenses shall, within 30 days of a final,
nonappealable judgment in the action, submit to the court an
application for fees and other expenses.
``(3) Court discretion.--The court, in its discretion, may
reduce the amount to be awarded pursuant to this section, or
deny an award, to the extent that the prevailing party during
the course of the proceedings engaged in conduct that unduly
and unreasonably protracted the final resolution of the matter
in controversy.
``(n) Prevention of Abusive Conflicts of Interest.--In any private
action under this title that is certified as a class action pursuant to
the Federal Rules of Civil Procedure, if a party is represented by an
attorney who directly owns or otherwise has a beneficial interest in
the securities that are the subject of the litigation, the court shall
make a determination of whether such interest constitutes a conflict of
interest sufficient to disqualify the attorney from representing the
party.
``(o) Encouragement of Finality in Settlement Discharges.--
``(1) Discharge.--A defendant who settles any private
action brought under this title at any time before verdict or
judgment shall be discharged from all claims for contribution
brought by other persons. Upon entry of the settlement by the
court, the court shall enter a bar order constituting the final
discharge of all obligations to the plaintiff of the settling
defendant arising out of the action. The order shall bar all
future claims for contribution or indemnity arising out of the
action--
``(A) by nonsettling persons against the settling
defendant; and
``(B) by the settling defendant against any
nonsettling defendants.
``(2) Reduction.--If a person enters into a settlement with
the plaintiff prior to verdict or judgment, the verdict or
judgment shall be reduced by the amount paid to the plaintiff
by that person.
``(p) Contribution From Non-Parties in Interests of Fairness.--
``(1) Right of contribution.--A person who becomes liable
for damages in any private action under this title may recover
contribution from any other person who, if joined in the
original suit, would have been liable for the same damages.
``(2) Statute of limitations for contribution.--Once
judgment has been entered in any private action under this
title determining liability, an action for contribution must be
brought not later than 6 months after the entry of a final,
nonappealable judgment in the action.
``(q) Defendant's Right to Special Verdicts Establishing
Scienter.--In any private action under this title in which the
plaintiff may recover money damages, the court shall, when requested by
a defendant, submit to the jury a written interrogatory on the issue of
each such defendant's state of mind at the time the alleged violation
occurred.''.
(b) Prohibition of Referral Fees That Foment Litigation.--Section
15(c) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(c)) is
amended by adding at the end the following new paragraph:
``(7) Receipt of referral fees.--No broker or dealer, or
person associated with a broker or dealer, may solicit or
accept remuneration for assisting an attorney in obtaining the
representation of any customer in any private action under this
title.''.
SEC. 204. PREVENTION OF ``FISHING EXPEDITION'' LAWSUITS.
The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is
amended by inserting after section 10 the following new section:
``SEC. 10A. REQUIREMENTS FOR SECURITIES FRAUD ACTIONS.
``(a) Scienter.--In any action under section 10(b), a defendant may
be held liable for money damages only on proof--
``(1) that the defendant made an untrue statement of a
material fact, or omitted to state a material fact necessary in
order to make the statements made, in light of the
circumstances in which they were made, not misleading; and
``(2) that the defendant knew the statement was misleading
at the time it was made, or intentionally omitted to state a
fact knowing that such omission would render misleading the
statements made at the time they were made.
``(b) Requirement for Explicit Pleading and Proof of Scienter.--In
any action under section 10(b) in which it is alleged that the
defendant--
``(1) made an untrue statement of a material fact; or
``(2) omitted to state a material fact necessary in order
to make the statements made, in the light of the circumstances
in which they were made, not misleading;
the complaint shall allege specific facts demonstrating the state of
mind of each defendant at the time the alleged violation occurred. The
complaint shall also specify each statement or omission alleged to have
been misleading, and the reasons the statement or omission is
misleading. If an allegation regarding the statement or omission is
made on information and belief, the complaint shall set forth with
specificity all information on which that belief is formed. Failure to
comply fully with this requirement shall result in dismissal of the
complaint for failure to state a cause of action.
``(c) Reliance.--In any action arising under section 10(b) based
upon a material misstatement or omission concerning a security, the
plaintiff must prove that he or she had actual knowledge of and
actually relied on such statement in connection with the purchase or
sale of a security and that the misstatement or omission proximately
caused (through both transaction causation and loss causation) any loss
incurred by the plaintiff.
``(d) Limits on Windfall Damages.--In any action arising under
section 10(b) based on a material misstatement or omission concerning a
security, an award of damages that exceeds the price paid for a
security purchased in reliance upon a material misstatement or omission
shall not exceed the lesser of--
``(1) the difference between the price paid for the
security which was purchased in reliance upon a material
misstatement or omission, and the market value of the security
immediately after dissemination to the market of information
which corrects the misstatement or omission; and
``(2) the difference between the price paid for the
security which was purchased in reliance upon a material
misstatement or omission, and the price at which the relying
party sold the security after dissemination of information
correcting the misstatement or omission.''.
SEC. 205. ESTABLISHMENT OF ``SAFE HARBOR'' FOR PREDICTIVE STATEMENTS.
(a) Consideration of Regulatory or Legislative Changes.--In
consultation with investors and issuers of securities, the Securities
and Exchange Commission shall adopt or amend its rules and regulations
to create--
(1) clear and objective criteria that the Commission finds
sufficient for the protection of investors, compliance with
which shall be readily ascertainable by issuers prior to
issuance of securities, by which forward-looking statements
concerning the future economic performance of an issuer of
securities registered under section 12 of the Securities
Exchange Act of 1934 will be deemed not to be in violation of
section 10(b) of that Act; and
(2) procedures by which courts shall timely dismiss claims
against such issuers of securities based on such forward-
looking statements if such statements are in accordance with
any criteria under paragraph (1).
(b) Commission Considerations.--In developing rules in accordance
with subsection (a), the Commission shall also--
(1) prescribe appropriate limits to liability for
conscientiously prepared forward-looking statements that do not
fall within any regulatory safe harbor;
(2) set forth procedures for making a summary determination
of the applicability of any Commission rule for forward-looking
statements early in a judicial proceeding to limit protracted
litigation and expansive discovery;
(3) ensure that its rules incorporate and reflect the
scienter requirements applicable to actions under section 10(b)
of the Securities Exchange Act of 1934; and
(4) ensure that its rules provide clear guidance to
investors, issuers of securities, and the judiciary.
(c) Securities Act Amendment.--The Securities Exchange Act of 1934
(15 U.S.C. 78a et seq.), is amended by adding at the end the following
new section:
``SEC. 38. APPLICATION OF SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.
``(a) In General.--In any private action under this title that
alleges that a forward-looking statement concerning the future economic
performance of an issuer registered under section 12 was materially
false or misleading, if a party making a motion in accordance with
subsection (b) requests a stay of discovery concerning the claims or
defenses of that party, the court shall grant such a stay until it has
ruled on any such motion.
``(b) Summary Judgment Motions.--Subsection (a) shall apply to any
motion for summary judgment made by a party asserting that the forward-
looking statement was within the coverage of any safe harbor rule which
the Commission may have adopted concerning such predictive statements,
if such motion is made not less than 60 days after the commencement of
discovery in the action.
``(c) Dilatory Conduct; Duplicative Discovery.--Notwithstanding
subsection (a) or (b), the time permitted for discovery under
subsection (b) may be extended, or a stay of the proceedings may be
denied, if the court finds that--
``(1) the party making a motion described in subsection (b)
engaged in dilatory or obstructive conduct in taking or
opposing any discovery; or
``(2) a stay of discovery pending a ruling on a motion
under subsection (b) would be substantially unfair to such
party or to other parties to the action.''.
SEC. 206. ALTERNATIVE DISPUTE RESOLUTION PROCEDURE.
The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is
amended by adding at the end the following new section:
``SEC. 39. ALTERNATIVE DISPUTE RESOLUTION PROCEDURE.
``(a) In General.--
``(1) Offer to proceed.--Except as provided in paragraph
(2), in any private action arising under this title, any party
may, before the expiration of the period permitted for
answering the complaint, deliver to all other parties an offer
to proceed pursuant to any voluntary, nonbinding alternative
dispute resolution procedure established or recognized under
the rules of the court in which the action is maintained.
``(2) Plaintiff class actions.--In any private action under
this title which is brought as a plaintiff class action, an
offer under paragraph (1) shall be made not later than 30 days
after a guardian ad litem or plaintiff steering committee is
appointed by the court in accordance with section 38.
``(3) Response.--The recipient of an offer under paragraph
(1) or (2) shall file a written notice of acceptance or
rejection of the offer with the court not later than 10 days
after receipt of the offer. The court may, upon motion by any
party made prior to the expiration of such period, extend the
period for not more than 90 additional days, during which time
discovery may be permitted by the court.
``(4) Selection of type of alternative dispute
resolution.--For purposes of paragraphs (1) and (2), if the
rules of the court establish or recognize more than 1 type of
alternative dispute resolution, the parties may stipulate as to
the type of alternative dispute resolution to be applied. If
the parties are unable to so stipulate, the court shall issue
an order not later than 20 days after the date on which the
parties agree to the use of alternative dispute resolution,
specifying the type of alternative dispute resolution to be
applied.
``(5) Sanctions for dilatory or obstructive conduct.--If
the court finds that a party has engaged in dilatory or
obstructive conduct in taking or opposing any discovery allowed
during the response period described in paragraph (3), the
court may--
``(A) extend the period to permit further discovery
from that party for a suitable period; and
``(B) deny that party the opportunity to conduct
further discovery prior to the expiration of the
period.''.
SEC. 207. RULE OF CONSTRUCTION.
Nothing in the amendments made by this Act shall be deemed to
create or ratify any implied private right of action, or to prevent the
Commission by rule from restricting or otherwise regulating private
actions under the Securities Exchange Act of 1934.
SEC. 208. EFFECTIVE DATE.
This Act and the amendments made by this Act are effective on the
date of enactment of this Act and shall apply to cases commenced after
such date of enactment.
<all>
HR 10 SC----2
HR 10 SC----3
HR 10 SC----4
Introduced in House
Introduced in House
Title I, referred to the Committee on the Judiciary, and in addition to the Committee on Rules, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned; Title II, referred to the Committee on Commerce, and in addition to the Committee on the Judiciary, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
Title I, referred to the Committee on the Judiciary, and in addition to the Committee on Rules, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned; Title II, referred to the Committee on Commerce, and in addition to the Committee on the Judiciary, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
Title I, referred to the Committee on the Judiciary, and in addition to the Committee on Rules, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned; Title II, referred to the Committee on Commerce, and in addition to the Committee on the Judiciary, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
Title I, referred to the Committee on the Judiciary, and in addition to the Committee on Rules, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned; Title II, referred to the Committee on Commerce, and in addition to the Committee on the Judiciary, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
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Referred for a period ending not later than February 15, 1995, (or for a later time if the Chairman so designates) to the Subcommittee on Telecommunications and Finance.
Subcommittee Hearings Held.
Subcommittee Hearings Held.
Committee Hearings Held.
Subcommittee Consideration and Mark-up Session Held.
Forwarded by Subcommittee to Full Committee (Amended) by Voice Vote.
Mr. Bliley asked unanimous consent that Title 1, Section 103 of the bill be referred to the Committee on Commerce as an additional committee of jurisdiction. Agreed to without objection.
Mr. Armey asked unanimous consent that the previous referral of the bill to the Committee on Commerce, for consideration of Title 1, Section 103, be recinded. Agreed to without objection.
Committee Consideration and Mark-up Session Held.
Ordered to be Reported (Amended) by the Yeas and Nays: 32 - 10.
Reported (Amended) by the Committee on Commerce. H. Rept. 104-50, Part I.
Reported (Amended) by the Committee on Commerce. H. Rept. 104-50, Part I.