[DOCID: f:publ002.109]
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CLASS ACTION FAIRNESS ACT OF 2005
[[Page 118 STAT. 4]]
Public Law 109-2
109th Congress
An Act
To amend the procedures that apply to consideration of interstate class
actions to assure fairer outcomes for class members and defendants, and
for other purposes. <>
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled, <>
SECTION 1. SHORT TITLE; REFERENCE; TABLE OF CONTENTS.
(a) <> Short Title.--This Act may be cited as
the ``Class Action Fairness Act of 2005''.
(b) Reference.--Whenever in this Act reference is made to an
amendment to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provision of title
28, United States Code.
(c) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; reference; table of contents.
Sec. 2. Findings and purposes.
Sec. 3. Consumer class action bill of rights and improved procedures
for interstate class actions.
Sec. 4. Federal district court jurisdiction for interstate class
actions.
Sec. 5. Removal of interstate class actions to Federal district court.
Sec. 6. Report on class action settlements.
Sec. 7. Enactment of Judicial Conference recommendations.
Sec. 8. Rulemaking authority of Supreme Court and Judicial Conference.
Sec. 9. Effective date.
SEC. 2. <> FINDINGS AND PURPOSES.
(a) Findings.--Congress finds the following:
(1) Class action lawsuits are an important and valuable part
of the legal system when they permit the fair and efficient
resolution of legitimate claims of numerous parties by allowing
the claims to be aggregated into a single action against a
defendant that has allegedly caused harm.
(2) Over the past decade, there have been abuses of the
class action device that have--
(A) harmed class members with legitimate claims and
defendants that have acted responsibly;
(B) adversely affected interstate commerce; and
(C) undermined public respect for our judicial
system.
(3) Class members often receive little or no benefit from
class actions, and are sometimes harmed, such as where--
(A) counsel are awarded large fees, while leaving
class members with coupons or other awards of little or
no value;
(B) unjustified awards are made to certain
plaintiffs at the expense of other class members; and
[[Page 118 STAT. 5]]
(C) confusing notices are published that prevent
class members from being able to fully understand and
effectively exercise their rights.
(4) Abuses in class actions undermine the national judicial
system, the free flow of interstate commerce, and the concept of
diversity jurisdiction as intended by the framers of the United
States Constitution, in that State and local courts are--
(A) keeping cases of national importance out of
Federal court;
(B) sometimes acting in ways that demonstrate bias
against out-of-State defendants; and
(C) making judgments that impose their view of the
law on other States and bind the rights of the residents
of those States.
(b) Purposes.--The purposes of this Act are to--
(1) assure fair and prompt recoveries for class members with
legitimate claims;
(2) restore the intent of the framers of the United States
Constitution by providing for Federal court consideration of
interstate cases of national importance under diversity
jurisdiction; and
(3) benefit society by encouraging innovation and lowering
consumer prices.
SEC. 3. CONSUMER CLASS ACTION BILL OF RIGHTS AND IMPROVED
PROCEDURES FOR INTERSTATE CLASS ACTIONS.
(a) In General.--Part V is amended by inserting after chapter 113
the following:
``CHAPTER 114--CLASS ACTIONS
``Sec.
``1711. Definitions.
``1712. Coupon settlements.
``1713. Protection against loss by class members.
``1714. Protection against discrimination based on geographic location.
``1715. Notifications to appropriate Federal and State officials.
``Sec. 1711. Definitions
``In this chapter:
``(1) Class.--The term `class' means all of the class
members in a class action.
``(2) Class action.--The term `class action' means any civil
action filed in a district court of the United States under rule
23 of the Federal Rules of Civil Procedure or any civil action
that is removed to a district court of the United States that
was originally filed under a State statute or rule of judicial
procedure authorizing an action to be brought by 1 or more
representatives as a class action.
``(3) Class counsel.--The term `class counsel' means the
persons who serve as the attorneys for the class members in a
proposed or certified class action.
``(4) Class members.--The term `class members' means the
persons (named or unnamed) who fall within the definition of the
proposed or certified class in a class action.
``(5) Plaintiff class action.--The term `plaintiff class
action' means a class action in which class members are
plaintiffs.
[[Page 118 STAT. 6]]
``(6) Proposed settlement.--The term `proposed settlement'
means an agreement regarding a class action that is subject to
court approval and that, if approved, would be binding on some
or all class members.
``Sec. 1712. Coupon settlements
``(a) Contingent Fees in Coupon Settlements.--If a proposed
settlement in a class action provides for a recovery of coupons to a
class member, the portion of any attorney's fee award to class counsel
that is attributable to the award of the coupons shall be based on the
value to class members of the coupons that are redeemed.
``(b) Other Attorney's Fee Awards in Coupon Settlements.--
``(1) In general.--If a proposed settlement in a class
action provides for a recovery of coupons to class members, and
a portion of the recovery of the coupons is not used to
determine the attorney's fee to be paid to class counsel, any
attorney's fee award shall be based upon the amount of time
class counsel reasonably expended working on the action.
``(2) Court approval.--Any attorney's fee under this
subsection shall be subject to approval by the court and shall
include an appropriate attorney's fee, if any, for obtaining
equitable relief, including an injunction, if applicable.
Nothing in this subsection shall be construed to prohibit
application of a lodestar with a multiplier method of
determining attorney's fees.
``(c) Attorney's Fee Awards Calculated on a Mixed Basis in Coupon
Settlements.--If a proposed settlement in a class action provides for an
award of coupons to class members and also provides for equitable
relief, including injunctive relief--
``(1) that portion of the attorney's fee to be paid to class
counsel that is based upon a portion of the recovery of the
coupons shall be calculated in accordance with subsection (a);
and
``(2) that portion of the attorney's fee to be paid to class
counsel that is not based upon a portion of the recovery of the
coupons shall be calculated in accordance with subsection (b).
``(d) Settlement Valuation Expertise.--In a class action involving
the awarding of coupons, the court may, in its discretion upon the
motion of a party, receive expert testimony from a witness qualified to
provide information on the actual value to the class members of the
coupons that are redeemed.
``(e) Judicial Scrutiny of Coupon Settlements.--In a proposed
settlement under which class members would be awarded coupons, the court
may approve the proposed settlement only after a hearing to determine
whether, and making a written finding that, the settlement is fair,
reasonable, and adequate for class members. The court, in its
discretion, may also require that a proposed settlement agreement
provide for the distribution of a portion of the value of unclaimed
coupons to 1 or more charitable or governmental organizations, as agreed
to by the parties. The distribution and redemption of any proceeds under
this subsection shall not be used to calculate attorneys' fees under
this section.
[[Page 118 STAT. 7]]
``Sec. 1713. Protection against loss by class members
``The court may approve a proposed settlement under which any class
member is obligated to pay sums to class counsel that would result in a
net loss to the class member only if the court makes a written finding
that nonmonetary benefits to the class member substantially outweigh the
monetary loss.
``Sec. 1714. Protection against discrimination based on geographic
location
``The court may not approve a proposed settlement that provides for
the payment of greater sums to some class members than to others solely
on the basis that the class members to whom the greater sums are to be
paid are located in closer geographic proximity to the court.
``Sec. 1715. Notifications to appropriate Federal and State officials
``(a) Definitions.--
``(1) Appropriate federal official.--In this section, the
term `appropriate Federal official' means--
``(A) the Attorney General of the United States; or
``(B) in any case in which the defendant is a
Federal depository institution, a State depository
institution, a depository institution holding company, a
foreign bank, or a nondepository institution subsidiary
of the foregoing (as such terms are defined in section 3
of the Federal Deposit Insurance Act (12 U.S.C. 1813)),
the person who has the primary Federal regulatory or
supervisory responsibility with respect to the
defendant, if some or all of the matters alleged in the
class action are subject to regulation or supervision by
that person.
``(2) Appropriate state official.--In this section, the term
`appropriate State official' means the person in the State who
has the primary regulatory or supervisory responsibility with
respect to the defendant, or who licenses or otherwise
authorizes the defendant to conduct business in the State, if
some or all of the matters alleged in the class action are
subject to regulation by that person. If there is no primary
regulator, supervisor, or licensing authority, or the matters
alleged in the class action are not subject to regulation or
supervision by that person, then the appropriate State official
shall be the State attorney general.
``(b) <> In General.--Not later than 10 days after
a proposed settlement of a class action is filed in court, each
defendant that is participating in the proposed settlement shall serve
upon the appropriate State official of each State in which a class
member resides and the appropriate Federal official, a notice of the
proposed settlement consisting of--
``(1) a copy of the complaint and any materials filed with
the complaint and any amended complaints (except such materials
shall not be required to be served if such materials are made
electronically available through the Internet and such service
includes notice of how to electronically access such material);
``(2) notice of any scheduled judicial hearing in the class
action;
[[Page 118 STAT. 8]]
``(3) any proposed or final notification to class members
of--
``(A)(i) the members' rights to request exclusion
from the class action; or
``(ii) if no right to request exclusion exists, a
statement that no such right exists; and
``(B) a proposed settlement of a class action;
``(4) any proposed or final class action settlement;
``(5) any settlement or other agreement contemporaneously
made between class counsel and counsel for the defendants;
``(6) any final judgment or notice of dismissal;
``(7)(A) if feasible, the names of class members who reside
in each State and the estimated proportionate share of the
claims of such members to the entire settlement to that State's
appropriate State official; or
``(B) if the provision of information under subparagraph (A)
is not feasible, a reasonable estimate of the number of class
members residing in each State and the estimated proportionate
share of the claims of such members to the entire settlement;
and
``(8) any written judicial opinion relating to the materials
described under subparagraphs (3) through (6).
``(c) Depository Institutions Notification.--
``(1) Federal and other depository institutions.--In any
case in which the defendant is a Federal depository institution,
a depository institution holding company, a foreign bank, or a
non-depository institution subsidiary of the foregoing, the
notice requirements of this section are satisfied by serving the
notice required under subsection (b) upon the person who has the
primary Federal regulatory or supervisory responsibility with
respect to the defendant, if some or all of the matters alleged
in the class action are subject to regulation or supervision by
that person.
``(2) State depository institutions.--In any case in which
the defendant is a State depository institution (as that term is
defined in section 3 of the Federal Deposit Insurance Act (12
U.S.C. 1813)), the notice requirements of this section are
satisfied by serving the notice required under subsection (b)
upon the State bank supervisor (as that term is defined in
section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813))
of the State in which the defendant is incorporated or
chartered, if some or all of the matters alleged in the class
action are subject to regulation or supervision by that person,
and upon the appropriate Federal official.
``(d) Final Approval.--An order giving final approval of a proposed
settlement may not be issued earlier than 90 days after the later of the
dates on which the appropriate Federal official and the appropriate
State official are served with the notice required under subsection (b).
``(e) Noncompliance if Notice Not Provided.--
``(1) In general.--A class member may refuse to comply with
and may choose not to be bound by a settlement agreement or
consent decree in a class action if the class member
demonstrates that the notice required under subsection (b) has
not been provided.
``(2) Limitation.--A class member may not refuse to comply
with or to be bound by a settlement agreement or consent
[[Page 118 STAT. 9]]
decree under paragraph (1) if the notice required under
subsection (b) was directed to the appropriate Federal official
and to either the State attorney general or the person that has
primary regulatory, supervisory, or licensing authority over the
defendant.
``(3) Application of rights.--The rights created by this
subsection shall apply only to class members or any person
acting on a class member's behalf, and shall not be construed to
limit any other rights affecting a class member's participation
in the settlement.
``(f) Rule of Construction.--Nothing in this section shall be
construed to expand the authority of, or impose any obligations, duties,
or responsibilities upon, Federal or State officials.''.
(b) Technical and Conforming Amendment.--The table of chapters for
part V is amended by inserting after the item relating to chapter 113
the following:
``114. Class Actions.............................................1711''.
SEC. 4. FEDERAL DISTRICT COURT JURISDICTION FOR INTERSTATE CLASS
ACTIONS.
(a) Application of Federal Diversity Jurisdiction.--Section 1332 is
amended--
(1) by redesignating subsection (d) as subsection (e); and
(2) by inserting after subsection (c) the following:
``(d)(1) In this subsection--
``(A) the term `class' means all of the class members in a
class action;
``(B) the term `class action' means any civil action filed
under rule 23 of the Federal Rules of Civil Procedure or similar
State statute or rule of judicial procedure authorizing an
action to be brought by 1 or more representative persons as a
class action;
``(C) the term `class certification order' means an order
issued by a court approving the treatment of some or all aspects
of a civil action as a class action; and
``(D) the term `class members' means the persons (named or
unnamed) who fall within the definition of the proposed or
certified class in a class action.
``(2) The district courts shall have original jurisdiction of any
civil action in which the matter in controversy exceeds the sum or value
of $5,000,000, exclusive of interest and costs, and is a class action in
which--
``(A) any member of a class of plaintiffs is a citizen of a
State different from any defendant;
``(B) any member of a class of plaintiffs is a foreign state
or a citizen or subject of a foreign state and any defendant is
a citizen of a State; or
``(C) any member of a class of plaintiffs is a citizen of a
State and any defendant is a foreign state or a citizen or
subject of a foreign state.
``(3) A district court may, in the interests of justice and looking
at the totality of the circumstances, decline to exercise jurisdiction
under paragraph (2) over a class action in which greater than one-third
but less than two-thirds of the members of all proposed plaintiff
classes in the aggregate and the primary defendants are citizens of the
State in which the action was originally filed based on consideration
of--
[[Page 118 STAT. 10]]
``(A) whether the claims asserted involve matters of
national or interstate interest;
``(B) whether the claims asserted will be governed by laws
of the State in which the action was originally filed or by the
laws of other States;
``(C) whether the class action has been pleaded in a manner
that seeks to avoid Federal jurisdiction;
``(D) whether the action was brought in a forum with a
distinct nexus with the class members, the alleged harm, or the
defendants;
``(E) whether the number of citizens of the State in which
the action was originally filed in all proposed plaintiff
classes in the aggregate is substantially larger than the number
of citizens from any other State, and the citizenship of the
other members of the proposed class is dispersed among a
substantial number of States; and
``(F) whether, during the 3-year period preceding the filing
of that class action, 1 or more other class actions asserting
the same or similar claims on behalf of the same or other
persons have been filed.
``(4) A district court shall decline to exercise jurisdiction under
paragraph (2)--
``(A)(i) over a class action in which--
``(I) greater than two-thirds of the members of all
proposed plaintiff classes in the aggregate are citizens
of the State in which the action was originally filed;
``(II) at least 1 defendant is a defendant--
``(aa) from whom significant relief is sought
by members of the plaintiff class;
``(bb) whose alleged conduct forms a
significant basis for the claims asserted by the
proposed plaintiff class; and
``(cc) who is a citizen of the State in which
the action was originally filed; and
``(III) principal injuries resulting from the
alleged conduct or any related conduct of each defendant
were incurred in the State in which the action was
originally filed; and
``(ii) during the 3-year period preceding the filing of that
class action, no other class action has been filed asserting the
same or similar factual allegations against any of the
defendants on behalf of the same or other persons; or
``(B) two-thirds or more of the members of all proposed
plaintiff classes in the aggregate, and the primary defendants,
are citizens of the State in which the action was originally
filed.
``(5) Paragraphs (2) through (4) shall not apply to any class action
in which--
``(A) the primary defendants are States, State officials, or
other governmental entities against whom the district court may
be foreclosed from ordering relief; or
``(B) the number of members of all proposed plaintiff
classes in the aggregate is less than 100.
``(6) In any class action, the claims of the individual class
members shall be aggregated to determine whether the matter in
controversy exceeds the sum or value of $5,000,000, exclusive of
interest and costs.
[[Page 118 STAT. 11]]
``(7) Citizenship of the members of the proposed plaintiff classes
shall be determined for purposes of paragraphs (2) through (6) as of the
date of filing of the complaint or amended complaint, or, if the case
stated by the initial pleading is not subject to Federal jurisdiction,
as of the date of service by plaintiffs of an amended pleading, motion,
or other paper, indicating the existence of Federal jurisdiction.
``(8) This subsection shall apply to any class action before or
after the entry of a class certification order by the court with respect
to that action.
``(9) Paragraph (2) shall not apply to any class action that solely
involves a claim--
``(A) concerning a covered security as defined under
16(f)(3) of the Securities Act of 1933 (15 U.S.C. 78p(f)(3)) and
section 28(f)(5)(E) of the Securities Exchange Act of 1934 (15
U.S.C. 78bb(f)(5)(E));
``(B) that relates to the internal affairs or governance of
a corporation or other form of business enterprise and that
arises under or by virtue of the laws of the State in which such
corporation or business enterprise is incorporated or organized;
or
``(C) that relates to the rights, duties (including
fiduciary duties), and obligations relating to or created by or
pursuant to any security (as defined under section 2(a)(1) of
the Securities Act of 1933 (15 U.S.C. 77b(a)(1)) and the
regulations issued thereunder).
``(10) For purposes of this subsection and section 1453, an
unincorporated association shall be deemed to be a citizen of the State
where it has its principal place of business and the State under whose
laws it is organized.
``(11)(A) For purposes of this subsection and section 1453, a mass
action shall be deemed to be a class action removable under paragraphs
(2) through (10) if it otherwise meets the provisions of those
paragraphs.
``(B)(i) As used in subparagraph (A), the term `mass action' means
any civil action (except a civil action within the scope of section
1711(2)) in which monetary relief claims of 100 or more persons are
proposed to be tried jointly on the ground that the plaintiffs' claims
involve common questions of law or fact, except that jurisdiction shall
exist only over those plaintiffs whose claims in a mass action satisfy
the jurisdictional amount requirements under subsection (a).
``(ii) As used in subparagraph (A), the term `mass action' shall not
include any civil action in which--
``(I) all of the claims in the action arise from an event or
occurrence in the State in which the action was filed, and that
allegedly resulted in injuries in that State or in States
contiguous to that State;
``(II) the claims are joined upon motion of a defendant;
``(III) all of the claims in the action are asserted on
behalf of the general public (and not on behalf of individual
claimants or members of a purported class) pursuant to a State
statute specifically authorizing such action; or
``(IV) the claims have been consolidated or coordinated
solely for pretrial proceedings.
``(C)(i) Any action(s) removed to Federal court pursuant to this
subsection shall not thereafter be transferred to any other court
[[Page 118 STAT. 12]]
pursuant to section 1407, or the rules promulgated thereunder, unless a
majority of the plaintiffs in the action request transfer pursuant to
section 1407.
``(ii) This subparagraph will not apply--
``(I) to cases certified pursuant to rule 23 of the Federal
Rules of Civil Procedure; or
``(II) if plaintiffs propose that the action proceed as a
class action pursuant to rule 23 of the Federal Rules of Civil
Procedure.
``(D) The limitations periods on any claims asserted in a mass
action that is removed to Federal court pursuant to this subsection
shall be deemed tolled during the period that the action is pending in
Federal court.''.
(b) Conforming Amendments.--
(1) Section 1335(a)(1) is amended by inserting ``subsection
(a) or (d) of'' before ``section 1332''.
(2) Section 1603(b)(3) is amended by striking ``(d)'' and
inserting ``(e)''.
SEC. 5. REMOVAL OF INTERSTATE CLASS ACTIONS TO FEDERAL DISTRICT
COURT.
(a) In General.--Chapter 89 is amended by adding after section 1452
the following:
``Sec. 1453. Removal of class actions
``(a) Definitions.--In this section, the terms `class', `class
action', `class certification order', and `class member' shall have the
meanings given such terms under section 1332(d)(1).
``(b) In General.--A class action may be removed to a district court
of the United States in accordance with section 1446 (except that the 1-
year limitation under section 1446(b) shall not apply), without regard
to whether any defendant is a citizen of the State in which the action
is brought, except that such action may be removed by any defendant
without the consent of all defendants.
``(c) Review of Remand Orders.--
``(1) <> In general.--Section 1447
shall apply to any removal of a case under this section, except
that notwithstanding section 1447(d), a court of appeals may
accept an appeal from an order of a district court granting or
denying a motion to remand a class action to the State court
from which it was removed if application is made to the court of
appeals not less than 7 days after entry of the order.
``(2) Time period for judgment.--If the court of appeals
accepts an appeal under paragraph (1), the court shall complete
all action on such appeal, including rendering judgment, not
later than 60 days after the date on which such appeal was
filed, unless an extension is granted under paragraph (3).
``(3) Extension of time period.--The court of appeals may
grant an extension of the 60-day period described in paragraph
(2) if--
``(A) all parties to the proceeding agree to such
extension, for any period of time; or
``(B) such extension is for good cause shown and in
the interests of justice, for a period not to exceed 10
days.
``(4) Denial of appeal.--If a final judgment on the appeal
under paragraph (1) is not issued before the end of the period
[[Page 118 STAT. 13]]
described in paragraph (2), including any extension under
paragraph (3), the appeal shall be denied.
``(d) Exception.--This section shall not apply to any class action
that solely involves--
``(1) a claim concerning a covered security as defined under
section 16(f)(3) of the Securities Act of 1933 (15 U.S.C.
78p(f)(3)) and section 28(f)(5)(E) of the Securities Exchange
Act of 1934 (15 U.S.C. 78bb(f)(5)(E));
``(2) a claim that relates to the internal affairs or
governance of a corporation or other form of business enterprise
and arises under or by virtue of the laws of the State in which
such corporation or business enterprise is incorporated or
organized; or
``(3) a claim that relates to the rights, duties (including
fiduciary duties), and obligations relating to or created by or
pursuant to any security (as defined under section 2(a)(1) of
the Securities Act of 1933 (15 U.S.C. 77b(a)(1)) and the
regulations issued thereunder).''.
(b) Technical and Conforming Amendments.--The table of sections for
chapter 89 is amended by adding after the item relating to section 1452
the following:
``1453. Removal of class actions.''.
SEC. 6. REPORT ON CLASS ACTION SETTLEMENTS.
(a) In General.--Not later than 12 months after the date of
enactment of this Act, the Judicial Conference of the United States,
with the assistance of the Director of the Federal Judicial Center and
the Director of the Administrative Office of the United States Courts,
shall prepare and transmit to the Committees on the Judiciary of the
Senate and the House of Representatives a report on class action
settlements.
(b) Content.--The report under subsection (a) shall contain--
(1) recommendations on the best practices that courts can
use to ensure that proposed class action settlements are fair to
the class members that the settlements are supposed to benefit;
(2) recommendations on the best practices that courts can
use to ensure that--
(A) the fees and expenses awarded to counsel in
connection with a class action settlement appropriately
reflect the extent to which counsel succeeded in
obtaining full redress for the injuries alleged and the
time, expense, and risk that counsel devoted to the
litigation; and
(B) the class members on whose behalf the settlement
is proposed are the primary beneficiaries of the
settlement; and
(3) the actions that the Judicial Conference of the United
States has taken and intends to take toward having the Federal
judiciary implement any or all of the recommendations contained
in the report.
(c) Authority of Federal Courts.--Nothing in this section shall be
construed to alter the authority of the Federal courts to supervise
attorneys' fees.
SEC. 7. <> ENACTMENT OF JUDICIAL CONFERENCE
RECOMMENDATIONS.
Notwithstanding any other provision of law, the amendments to rule
23 of the Federal Rules of Civil Procedure, which are
[[Page 118 STAT. 14]]
set forth in the order entered by the Supreme Court of the United States
on March 27, 2003, shall take effect on the date of enactment of this
Act or on December 1, 2003 (as specified in that order), whichever
occurs first.
SEC. 8. <> RULEMAKING AUTHORITY OF
SUPREME COURT AND JUDICIAL CONFERENCE.
Nothing in this Act shall restrict in any way the authority of the
Judicial Conference and the Supreme Court to propose and prescribe
general rules of practice and procedure under chapter 131 of title 28,
United States Code.
SEC. 9. <> EFFECTIVE DATE.
The amendments made by this Act shall apply to any civil action
commenced on or after the date of enactment of this Act.
Approved February 18, 2005.
LEGISLATIVE HISTORY--S. 5:
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CONGRESSIONAL RECORD, Vol. 151 (2005):
Feb. 7-10, considered and passed Senate.
Feb. 17, considered and passed House.
WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 41 (2005):
Feb. 18, Presidential remarks.
