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From Securities Regulation Daily, March 10, 2017
Three litigation reform bills have passed the U.S. House of Representatives, largely along party lines. The proposed legislation would amend Title 28 of the U.S. Code to put in place new procedural restrictions on class actions and multidistrict litigation, and amend the Federal Rules of Civil Procedure (FRCP) to toughen Rule 11 sanctions.
H.R. 985: Fairness in Class Action Litigation Act of 2017. Sponsored by Rep. Bob Goodlatte (R-Va), H.R. 985 would make a number of procedural changes relating to Federal court class actions and multidistrict litigation proceedings.
Focusing particularly on a provision requiring class action injuries to be of the same type and scope, the Council of Institutional Investors cautioned in a letter to House leaders that this would unreasonably preclude many meritorious securities class actions, harming long-term investors and the U.S. capital markets. According to CII, the provision is unnecessary because the rigorous pleading standards of the Private Securities Litigation Reform Act of 1995 already curtail meritless lawsuits.
Other provisions include:
The measure passed the House by a vote of 220-201. It was designated a Key Vote by the U.S. Chamber of Commerce, who said it would require the disclosure of secret hedge fund investments in class actions, among other provisions.
H.R. 725: Innocent Party Protection Act. In civil actions removed to federal court solely on the basis of diversity jurisdiction, the court would be required to dismiss claims against any defendants fraudulently joined in the action and deny remand. "Fraudulent" is defined as one of four alternative grounds, including a lack of good faith intention to prosecute the action against a defendant.
H.R. 720: Lawsuit Abuse Reduction Act. The proposed legislation would require courts to impose sanctions under Rule 11 if the court determines the rule was violated. Currently, courts may impose sanctions for various Rule 11 violations including misrepresentations to the court, but are not required to.
The measure would also remove a current provision prohibiting a motion for sanctions if the challenged item is corrected within 21 days after service. In addition, the court would be required to order the sanctioned party or parties to pay reasonable expenses incurred as a direct result of the violation, including reasonable attorneys’ fees and costs.
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