New Bill Would Govern Class-Action Lawsuits
A bipartisan bill was introduced in the House that would establish uniform standards to govern class-action lawsuits. HR 1689, Securities Litigation Uniform Standards Act of 1997, would allow the removal of any state-level private class-action suit involving nationally traded securities to the federal district court for the district in which the action is pending.
According to the bills principal cosponsor, Congresswoman Anna G. Eshoo (D-Calif.), liability relief in the Private Securities Litigation Reform Act of 1995 was being compromised because a loophole in the law allowed investors to sue companies in state courts. "Our bill would close this loophole by returning these suits to the federal system, where a uniform standard would be used to judge whether the suits have any validity," said Eshoo.
The bill, sponsored by Congressman Rick White (R-Wash.), would amend the Securities Act of 1933 and the Securities Exchange Act of 1934. It would affect only lawsuits that traditionally have been filed in federal courtsthe bill expressly preserves the authority of state officials to police state securities markets.
California judge upholds 1995 act
In one of the first cases to interpret the 1995 litigation reform act, a federal judge dismissed a class-action lawsuit contending officials of Silicon Graphics, Inc., defrauded its investors. The act was intended to limit the number of frivolous lawsuits by, among other things, raising the pleading standards necessary to bring such cases to trial. Judge Fern Smith, of the Federal District Court of San Francisco, said that according to the new law plaintiffs must meet a higher standard of "a strong inference of knowing or intentional misconduct" to prove a defendant acted recklessly. The case decision is expected to be appealed.