H.R. 1689.  (Securities Litigation Uniform Standards Act).
AMENDMENT IN THE NATURE OF A SUBSTITUTE.
Offered by Rep. Oxley (R-OH).
Approved by the House Subcommittee on Finance, and reported to House Commerce Committee, 6/10/98.
Source: House Commerce Committee.  This document was created by scanning a fax copy, and converting it to HTML.  Double spacing, line numbering, pagination were lost in the conversion process.

AMENDMENT IN THE NATURE OF
A SUBSTITUTE TO H.R. 1689
OFFERED BY MR. OXLEY OF OHIO
(substitute)

Strike all after the enacting clause and insert the following:

SECTION 1. SHORT TITLE.

This Act may be cited as the "Securities Litigation Uniform Standards Act of 1998".

SEC. 2. LIMITATION ON REMEDIES.

(a) AMENDMENTS TO THE SECURITIES ACT OF

1933).---

(1) AMENDMENT.---Section 16 of the Securities Act of 1933 (15 U.S.C. 77p) is amended to read as

follows:

"SEC. 16. ADDITIONAL REMEDIES: LIMITATION ON REMEDIES.

"(a) REMEDIES ADDITIONAL.---Except as provided in subsection (b), the rights and remedies provided by this, 4 title shall be in addition to any and all other rights and 5 remedies that may exist at law or in equity.

"(b) CLASS ACTION LIMITATIONS.---No class action  based upon the statutory or common law of any State or [begin page 2] subdivision thereof may be maintained in any State or Federal court by any private party alleging---

"(1) -an untrue statement or omission of a material fact in connection with the purchase or sale of a covered security; or

"(2) that the defendant used or employed any manipulative or deceptive device or contrivance in connection with the purchase or sale of a covered security.

"(c) REMOVAL OF CLASS ACTIONS.---Any class action brought in any State court involving a covered security, as set forth in subsection (b), shall be removable to the Federal district court for the district in which the action is pending, and shall be subject to subsection (b).

"(d) PRESERVATION OF CERTAIN ACTIONS.---

"(1) ACTIONS UNDER STATE LAW OF STATE OF INCORPORATION.---

"(A) ACTIONS PRESERVED.---Notwithstanding subsection (b) or (c), a class action described in subparagraph (B) of this paragraph that is based upon the statutory or common law of the State in which the issuer is incorporated (in the case of a corporation) or organized (in the case of any other entity) may be maintained in a State or Federal court by a private party.

[begin page 3]

(B) PERMISSIBLE ACTIONS.---A class action is described in this subparagraph if it involves---

"(i) the purchase or sale of securities by the issuer or an affiliate of the issuer exclusively from or to holders of equity securities of the issuer; or

"(ii) any recommendation, position, or other communication with respect to the sale of securities of the issuer that---

"(I) is made by or on behalf of the issuer or an affiliate of the issuer to holders of equity securities of the issuer; and

"(II) concerns decisions of those equity holders with respect to voting their securities, acting in response to a tender or exchange offer, or exercising dissenters' or appraisal rights.

"(2) STATE ACTIONS.---

"(A) IN GENERAL.---Notwithstanding any other provision of this section, nothing in this section may be construed to preclude a State or political subdivision thereof or a State pension plan from bringing an action involving a covered [begin page 4] security on its own behalf, or as a member of a class comprised solely of other States, political subdivisions, or State pension plans that are named plaintiffs, and that have authorized participation, in such action.

"(B) STATE PENSION PLAN DEFINED.--- For purposes of this paragraph, the term 'State pension plan' means a pension plan established and maintained for its employees by the government of the State or political subdivision thereof, or by any agency or instrumentality thereof.

"(3) ACTIONS UNDER CONTRACTUAL AGREEMENTS BETWEEN ISSUERS AND INDENTURE TRUSTEES.---Notwithstanding subsection (b) or (c), a class action that is based on a contractual agreement between an issuer and an indenture trustee may be maintained in a State or Federal court by a private party.

"(4) REMAND OF REMOVED ACTIONS.---In an action that has been removed from a State court pursuant to subsection (c), if the Federal court determines that the action may be maintained in State court pursuant to this subsection, the Federal court shall remand such action to such State court.

[begin page 5]

"(e) PRESERVATION OF STATE JURISDICTION.---The securities commission (or any agency or office performing like functions) of any State shall retain Jurisdiction under the laws of such State to investigate and bring enforcement actions.

"(f) DEFINITIONS.---For purposes of this section the definitions shall apply:

"(1) AFFILIATE OF THE ISSUER.-The term 'affiliate of the issuer' means a person that directly or indirectly, through 1 or more intermediaries, controls or is controlled by or is under common control with, the issuer.

"(2) CLASS ACTION.---

"(A) IN GENERAL.---The term 'class action' means---

"(i) any single lawsuit in which---

"(I) damages are sought on behalf of more than 50 persons or prospective class members, and questions of law or fact common to those persons or members of the prospective class, without reference to issues of individualized reliance on an alleged misstatement or omission, predominate [begin page 6]   over any questions affecting only individual persons or members; or

"(II) 1 or more named parties seek to recover damages on a representative basis on behalf of themselves and other unnamed parties similarly situated, and questions of law or fact common to those persons or members of the prospective class predominate over any questions affecting only individual persons or members; or

"(ii) any group of lawsuits filed in or pending in the same court and involving common questions of law or fact, in which---

"(I) damages are sought on behalf of more than 50 persons; and

"(II) the lawsuits are joined, consolidated, or otherwise proceed as a single action for any purpose.

"(B) EXCEPTION FOR DERIVATIVE ACTIONS.---Notwithstanding subparagraph (A), the term 'class action' does not include an exclusively [begin page 7] derivative action brought by 1 or more shareholders on behalf of a corporation.

"(C) COUNTING OF CERTAIN CLASS MEMBERS.---For purposes of this paragraph, a corporation, investment company, pension plan, partnership, or other entity, shall be treated as 1 person or prospective class member, but only if the entity is not established for the purpose of participating in the action.

"(3) COVERED SECURITY.---The term 'covered security' means a security that satisfies the standards for a covered security specified in section 18(b)(1) at the time during which it is alleged that the misrepresentation, omission, or manipulative or deceptive conduct occurred, except that such term shall not include any debt security that is exempt from registration under this title pursuant to rules issued by the Commission under section 4(2) of this title.".

(2) CIRCUMVENTION OF STAY OF DISCOVERY.Section 27(b) of the Securities Act of 1933 (15 U.S.C. 77z-1(b)) is amended by inserting after paragraph (3) the following new paragraph:

"(4) CIRCUMVENTION OF STAY OF DISCOVERY.---Upon a proper showing, a court may stay discovery [begin page 8] proceedings in any private action in a State court as necessary in aid of its jurisdiction, or to protect or effectuate its judgments, in an action subject to a stay of discovery pursuant to this subsection.".

(3) CONFORMING AMENDMENTS.---Section 22(a) of the Securities Act of 1933 (15 U.S.C. 77v(a)) is amended---

(A) by inserting "except as provided in section 16 with respect to class actions," after "Territorial courts,"; and

(B) by striking "No case" and inserting "Except as provided in section 16(c), no case".

(b) AMENDMENTS TO THE SECURITIES EXCHANGE ACT of 1934.---

(1) AMENDMENT.---Section 28 of the Securities Exchange Act of 1934 (15 U.S.C. 78bb) is amended---

(A) in subsection (a), by striking "The rights and remedies" and inserting "Except as provided in subsection (f), the rights and remedies"; and

(B) by adding at the end the following new subsection:

"(f) LIMITATIONS ON REMEDIES.---

[begin page 9]

"(1) CLASS ACTION LIMITATIONS.---No class action based upon the statutory or common law of any State or subdivision thereof may be maintained in any State or Federal court by any private party alleging---

"(A) a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security; or

"(B) that the defendant used or employed any manipulative or deceptive device or contrivance in connection with the purchase or sale of a covered security.

"(2) REMOVAL OF CLASS ACTIONS.---Any class action brought in any State court involving a covered security, as set forth in paragraph (1), shall be removable to the Federal district court for the district in which the action is pending, and shall be subject to paragraph (1).

"(3) PRESERVATION OF CERTAIN ACTIONS.---

"(A) ACTIONS UNDER STATE LAW OF STATE OF INCORPORATION.

"(i) ACTIONS PRESERVED.---Notwithstanding paragraph (1) or (2), a, class action described in clause (ii) of this subparagraph that is based upon the statutory [begin page 10] or common law of the State in which the issuer is incorporated (in the case of a corporation) or organized (in the case of any other entity) may be maintained in a State or Federal court by a private party.

"(ii) PERMISSIBLE ACTIONS.---A class action is described in this clause if it involves---

"(I) the purchase or sale of securities by the issuer or an affiliate of the issuer exclusively from or to holders of equity securities of the issuer; or

"(II) any recommendation, position, or other communication with respect to the sale of securities of an issuer that---

"(aa) is made by or on behalf of the issuer or an affiliate of the issuer to holders of equity of the issuer; and

"(bb) concerns decisions of such equity holders with respect to voting their securities, acting in response to a tender or exchange [begin page 11] offer, or exercising dissenters' or appraisal rights.

"(B) STATE, ACTIONS.---

"(i) IN GENERAL.---Notwithstanding any other provision of this subsection, nothing in this subsection may be construed to preclude a State or political subdivision thereof or a State pension plan from bringing an action involving a, covered security on its own behalf, or as a member of a class comprised solely of other States, political subdivisions, or State pension plans that are named plaintiffs, and that have authorized participation, in such action.

"(ii) STATE PENSION PLAN DEFINED.---For purposes of this subparagraph, the term 'State pension plan' means a pension plan established and maintained for its employees by the government of a State or political subdivision thereof, or by any agency or instrumentality thereof.

"(C) ACTIONS UNDER CONTRACTUAL AGREEMENTS BETWEEN ISSUERS AND INDENTURE TRUSTEES.---Notwithstanding paragraph [begin page 12] (1) or (2), a class action that is based on a contractual agreement between an issuer and an indenture trustee may be maintained in a State or Federal court by a private party.

"(D) REMAND OF REMOVED ACTIONS.---In an action that has been removed from a State court pursuant to paragraph (2), if the Federal court determines that the action may be maintained in State court pursuant to this subsection, the Federal court shall remand such action to such State court.

"(4) PRESERVATION OF STATE JURISDICTION.---The securities commission (or any agency or office performing like functions) of any State shall retain jurisdiction under the laws of such State to investigate and bring enforcement actions.

"(5) DEFINITIONS.---For purposes of this subsection the following definitions shall apply:

"(A) AFFILIATE OF THE ISSUER.---The term 'affiliate of the issuer' means a person that directly or indirectly, through 1 or more intermediaries, controls or is controlled by or is under common control with, the issuer.

"(B) CLASS ACTION.---The term 'class action' means

[begin page 13]

"(i) any single lawsuit in which---

"(I) damages are sought on behalf of more than 50 persons or prospective class members, and questions of law or fact common to those persons or members of the prospective class, without reference to issues of individualized reliance on an alleged misstatement or omission, predominate over any questions affecting only individual persons or members; or

"(II) 1 or more named parties seek to recover damages on a representative basis on behalf of themselves and other unnamed parties similarly situated, and questions of law or fact common to those persons or members of the prospective class predominate over any questions affecting only individual persons or members; or

"(ii) any group of lawsuits filed in or pending in the same court and involving common questions of law or fact, in which---

[begin page 14]

"(I) damages are sought on behalf of more than 50 persons; and

"(II) the lawsuits are joined, consolidated, or otherwise proceed as a single action for any purpose.

"(C) EXCEPTION FOR DERIVATIVE ACTIONS.---Notwithstanding subparagraph (B), the term 'class action' does not include an exclusively derivative action brought by 1 or more shareholders on behalf of a corporation.

"(D) COUNTING OF CERTAIN CLASS MEMBERS.---For purposes of this paragraph, a corporation, investment company, pension plan, partnership, or other entity, shall be treated as 1 person or prospective class member, but only if the entity is not established for the purpose of participating in the action.

"(E) COVERED SECURITY.-The term 'covered security' means a security that satisfies the standards for a covered security specified in section 18(b)(1) of the Securities Act of 1933, at the time during which it is alleged that the misrepresentation, omission, or manipulative or deceptive conduct occurred, except that such term shall not include any debt security that is [begin page 15] exempt from registration under the Securities Act of 1933 pursuant to rules issued by the Commission under section 4(2) of such Act.".

(2) CIRCUMVENTION OF STAY OF DISCOVERY.---Section 21D(b)(3) of the Securities Exchange Act of 1934 (15 U.S.C. 78u-4(b)(2)) is amended by inserting after subparagraph (C) the following new subparagraph:

"(D) CIRCUMVENTION OF STAY OF DISCOVERY.---Upon a proper showing, a court may stay discovery proceedings in any private action in a State court as necessary in aid of its jurisdiction or to protect or effectuate its judgments, in an action subject to a stay of discovery pursuant to this paragraph.".

SEC. 3. APPLICABILITY.

The amendments made by this Act shall not affect or apply to any action commenced before and pending on the date of enactment of this Act.