Christopher Dodd

Mr. DODD

Mr. DODD. Nevertheless, Mr. President, we also provided some protections for plaintiffs, a presumptive sanction for initiating illegal litigation. It is not triggered unless the complaint substantially violates rule 11. So we added that part to it. There are plaintiffs who violate rule 11. Only plaintiffs file complaints, obviously, and so plaintiffs get the benefit of this heightened rule 11 threshold. Plaintiffs face sanctions only if they committed, as I said, a substantial violation. So my point here again is that that was certainly our intent to begin with. Again, I have stated earlier, I do not like the idea--my colleagues may recall, and I see my friend from New Mexico is on the floor here--that initially you had proposals that would have said, ``Well, if you lose the case, you pay.'' That is the British rule. I stated on this floor that I would vehemently oppose this legislation if we had a ``loser pays'' provision. A person could have a good case and lose the case. I would vehemently oppose any legislation that would have such a chilling effect. A plaintiff who thinks they have a good case--who thinks they have been harmed and injured because of a defendant's actions--and loses the case, we should make that defendant pay the cost to the plaintiff. That is a very different situation from a violation of rule 11, where the action or the complaint is frivolous, or instances in which the plaintiff is out to harass defendants. In that case, frankly, I think the attorney should pay. I think that is the best weapon we have here to discourage these frivolous lawsuits. You had better think twice. If you are just going to file these things, make wild accusations not based on fact, and in some cases just designed to harass people, by God you ought to be asked to pay. And that is what people are angry about in this country because that is what has happened too often. Unfortunately, it is not usually the named defendants who pay. It is the people that insure--the insurance companies--the people who work in these places who end up paying. It usually is not the big guys at the top. It is other people who work in these facilities, people who invest in them, or others who end up paying the bill. When that happens, there ought to be a cost associated with it. Remember, it has to be a substantial violation in those particular matters. Mr. President, let me also make abundantly clear that in making this change, as I said earlier, we imposed a higher burden of proof in violation of the complaint by a requirement of substantial. The entire intent of the legislation is to deter frivolous litigation from the beginning. As I said a moment ago, why should there not be some significant sanction for initiating an action that violates the standards of the Federal Rules of Civil Procedure? Why have rule 11? Maybe we should have struck rule 11 entirely. If you are going to have rule 11 that says if you harass people or bring frivolous lawsuits, rule 11 has existed for decades. The problem is, it has only been a piece of paper. It has hardly ever been invoked at all. It has never been a threat to anybody. Maybe we should have gotten rid of it altogether. Maybe we should have done that to satisfy some people. If you are going to have it, make sure it means something. If you harass or bring a suit without any basis in fact, think twice about it. If there is no economic penalty to it, I do not know how to clean up the mess these frivolous suits have created. That is why it is included. Those are more protections, by the way. As I said earlier, we should not forget that the conference report also gives the judge in these cases broad discretion to waive the sanction against the violating party if the judge finds that the violation was de minimis or it would be an unjust burden for the violator to pay the sanctions. Some might argue that we should not have included that. But, nevertheless, it is in there to have the judge find it is an unjust burden. We are not going to ask you to pay. You have to violate rule 11. There has to be finding that you have violated this rule of bringing frivolous lawsuits--not that you lost or won the case, but that you violated rule 11. As I said, those are more protections for plaintiffs than currently exist in rule 11, which give no discretionary power to a judge to waive the sanctions when he or she finds a violation of rule 11. Under present law, if a judge found a violation of rule 11, then he or she has to impose the sanctions. We provide some protection here for these plaintiffs' attorneys if in fact the judge does find that they have violated--a substantial violation. Mr. President, I am sure there will be ample opportunity to debate some of these highly technical matters. I hope we would get to a vote on this. I do not enjoy belaboring this issue. We spent days on this bill. Let me say again that there are a number of my colleagues who fundamentally disagree with this bill. I respect that. I disagree with them, but I understand their objections. But I have to repeat: I do not understand having been through this process now. I was asked months ago--my colleagues ought to know this--to address some concerns that the administration had with the bill, particularly with safe harbor. There were a couple of other areas the administration had problems with--aiding and abetting and the statute of limitations. I offered the amendment on the statute of limitations to give a longer period of time. I lost that in committee, and I lost it here on the floor. In the aiding abetting provisions, we provided half a loaf here by allowing the SEC to deal with the class actions. We did not go as far as some would like, even I would like. But it was a major point of contention for the administration. In conversation after conversation after conversation, it was safe harbor--fix safe harbor, Senator. Get that safe harbor straightened out. I cannot tell you the hours spent on the safe harbor issue because I wanted the President to sign this bill. I kept on telling them that if we did fix safe harbor, I felt confident that the bill would be signed. We worked for days on this, and ended up with language that was supported by the Securities and Exchange Commission. It met their concerns. In fact, the President in his veto message applauded us for having done it. He supports the safe harbor provision. And then I find out after the conference report is voted on that all of a sudden there are a couple of issues--not issues that are not of concern to my colleagues on the floor who object to the bill. I understand that. But I must say to my colleagues, the issue of pleadings and rule 11 was never a major issue, not to the administration. I was never asked by the administration to address the pleadings or the rule 11 issue. The only thing I was asked to address was safe harbor, aiding, abetting, and the statute of limitations. And on those two, there was an appreciation that we had done the best we could. But you do not veto a bill for what is not in the legislation. I do not disagree that my colleagues here have difficulty with the pleadings in rule 11, but we are talking about a veto here today and the veto message. The veto message was on pleadings and rule 11 and some language in the statement of managers. That is a very small percentage of this bill. It is 11 words out of 11,800 words in this bill--11 words. After 4 years, 12 congressional hearings, 100 witnesses, 5,000 pages of testimony, we are down here about to lose that kind of an effort over 11 words. Mr. President, we did not write the Ten Commandants here. This is not etched in marble. I said this to my colleagues elsewhere. I have been mystified. Nobody would stand up with a bill and say that we have offered you the perfect piece of legislation. I cannot say that. I think we have done a good job here in both Chambers of the Congress, the House and the Senate, with Democrats and Republicans, and with 4 years of effort. We have put together a good bill, and in my view we have done it the way a bill ought to be adopted. Do we know it is perfect? No, we do not. If something comes up a year or two from now where there is a problem, you fix it. We have had this problem of frivolous law suits for years, and we are trying to fix it. We may lose the opportunity to do that because of some people's concerns about things that I think, frankly, should not be matters of concern, but if they turn out to be, we can correct them. But you do not squander the opportunity to change a situation so fundamentally awry it screams out for solution. Today, with great regret, with great regret, I urge my colleagues to override this veto and to adopt this legislation by that action, and let us get on with the business of other matters that are before this body. With that, Mr. President, I yield the floor. Mr. SARBANES addressed the Chair.

Mr. DODD. If my colleague will yield, I will not disagree on that, having said ``I do'' on occasion. Some of our colleagues have said ``I do'' on many occasions. But I appreciate the significance of what he is saying. I am merely trying to put it into balance.

Mr. DODD. If my colleague will yield, let me go back. I tried to do this earlier. The Specter amendment said he was codifying the guidance in the second circuit, and that is not the case. That is where the problem occurred here.

Mr. DODD. Far be it for the Senator from Connecticut to challenge the Senator's remembrances. I do not know if the Senator is erroneous or not in his remembrance. I do not know how many actual meetings occurred. There were a lot of conferences.

Mr. DODD. If my colleague will yield further----

Mr. DODD. The bill that is before us, except for a couple of provisions, some of which we would argue improve the bill, is virtually what the Senate adopted. This is not a bill that even remotely looks like the House-passed bill. In fact, it is the Senate-passed bill. I know my colleague from Maryland was opposed to even the Senate-passed bill. But in terms of from the administration's standpoint, again I point out that in June on the pleading standards and the statement of policy from the administration, they endorsed what came out of the Senate bill. And regarding the rule 11----

Mr. DODD. The only thing that was changed, the only thing that was changed was at the recommendation of the Judicial Conference, and it was regarding the words ``effectively allege" or ``state with particularity.'' Those words were recommended by the Judicial Conference.

Mr. DODD. If my colleague will yield further--I appreciate him yielding--you can make that case.

Mr. DODD. I understand that. But the suggestion that somehow the courts are going to disregard the guidance because it is no longer in the bill itself, it has not been codified, I think overstates the case, when you come down to vetoing this whole bill on that particular question. My point simply has been that I do not think the Specter amendment was--I think it was an effort to get recklessness in, which would have changed the standard from the second circuit. Nonetheless, putting that aside, the guidance is still going to be there. The guidance would still be there. And you do not veto the whole bill over the issue of guidance.

Mr. DODD. First of all, Mr. President, I say to my colleague, it was the guidance of the second circuit, No. 1. And by taking it out, the statement of managers is--again, one I have never heard. Maybe my colleague can cite examples where there is some confusion over what was intended there, but you do not veto a whole bill over the statement of managers.

Mr. DODD. As the saying goes, you make the perfect the enemy of the good. We are a body of 100 Members here. There is not the political will to do what the Senator from Maryland and I would like to do on aiding and abetting. But let us consider what happens if the President prevails today and the veto is sustained. What happens to the statute of limitations and aiding and abetting? Obviously the statute of limitation does not change. The Supreme Court has ruled on it, so there is no difference. It is not affected by this. But on aiding and abetting we have made a substantial gain in aiding and abetting by restoring to the Securities and Exchange Commission the right to bring class actions. Without this legislation you even lose that aiding and abetting. So I regret deeply we do not have aiding and abetting here. The majority of our colleagues have rejected that. But the suggestion that I ought to lose everything else I have achieved because I was not able to get a statute like the statute of limitations or aiding and abetting is not a reason to be against the bill. I hope we can convince a number of people in the next couple months, in a separate bill, to expand the aiding and abetting and the statute of limitations. But I cannot see why I should be opposed to the whole bill here, when on portion of liability, on safe harbor, on lead plaintiffs and on aiding and abetting, where we do get half a loaf at least, that the SEC wanted, and I am confident my colleague from Maryland wanted, and I wanted, that we would not have been able to get that without this piece of legislation. I thank my colleague for yielding. Mr. SARBANES addressed the Chair.

Mr. DODD. If my colleague would yield on that, as I said earlier, he may have missed my statement. He may want to bring up the statute of limitations issues as well. It is not in the bill. I offered the amendment on that particular instance to include the legislation, as my colleague well knows.

Mr. DODD. Mr. President, I say to my colleague from California that she is absolutely correct. This is exactly what the meaning of that safe harbor language is.

Mr. DODD. Mr. President, I further say to my colleague from California that is absolutely correct.

Mr. DODD. Mr. President, the Senator from California is correct as well on that.

Mr. DODD. That is correct, I say to my colleague.

Mr. DODD. Mr. President, I say to my colleague from California that is absolutely correct.

Mr. DODD. The Senator from California is correct.

Mr. DODD. That is correct.

Mr. DODD. Mr. President, I say to my colleague from California that is absolutely correct.

Mr. DODD. The Senator from California is correct, I would say, Mr. President, with that observation.

Mr. DODD. Mr. President, this is a moment of some unease, obviously, for this particular Senator from Connecticut to be in a disagreement with my President on this issue. But I am going to be urging my colleagues to override the President's veto. I do so because I believe this bill, passed previously in this body and adopted again in a conference report, is a good bill and one that deserves support. I appreciate the arguments raised by the President. I have had the privilege of discussing them with him and his staff over a number of months. And the President arrived at a different conclusion. I respect that. Much has been made of the fact that I have a second hat that I wear from time to time, that is called the general chairmanship of the Democratic Party. I am very proud of that hat. As I said at the outset when I accepted that position, there would be times, I suspected, where my President, the leader of my party, and I would disagree on issues. This happens to be one of those moments. I hope there are not many, but it is one of those moments. So I regret that. Nevertheless, I feel that this is an important bill, one that I have spent a great deal of time on going back to 1991, when my colleagues--principally Senator Domenici of New Mexico--and others, began to work on this legislation in this body, and through a process of numerous hearings and the like, we arrived at the point we are at today. I would like to take a few minutes, if I can, and discuss the matters of particular controversy at this moment and why I think that an override is appropriate. First of all, I point out to my colleagues--and I think I heard my colleague from New Mexico make this point when he was addressing the Chamber earlier this morning--this is truly a bipartisan bill, Mr. President. I realize that may not sound like much. It is certainly not a justification for supporting it. Unfortunately, there are fewer and fewer occasions when we have truly bipartisan bills like this. It is worthy of note because an awful lot of people on both sides of the aisle here have worked very hard to put this bill together. Is it a perfect bill? I suspect not. I have never seen one of those in my tenure here in Congress. Have we done everything exactly right? Probably not. Only time will tell where we have to make some corrections. But we have addressed some fundamental underlying problems that, by most people's comments, admittedly needed to be corrected. Those are the principal concerns. I am grateful, in fact, that the President in his veto statement acknowledges that. We are no longer debating safe harbor, which was a matter of great controversy, or proportionate liability. We are no longer debating an issue my colleague from North Carolina pointed out a few moments ago, the right of the most injured plaintiffs to have at least the opportunity--it does not require it--but at least the opportunity to be the lead plaintiffs in the case, to require that in settlements or in judicial conclusions that the plaintiffs have an opportunity to get the award, and that the attorneys will take a second seat to the plaintiffs when it comes to divvying up the money that may come to them as a result of settlements, or a judicial award. These are the principal matters in this piece of legislation. And the President, in his veto message, agrees with us on virtually all of them. In fact, in his comments--and I commend him for them--he has said this is a good bill. He has problems with two areas: pleadings and rule 11. I do not say they are unimportant, but certainly when you weigh them in the context of the overall bill, it amounts to just a handful of words--a fraction, if you will, of the overall achievement in the legislation. So the bipartisan nature of this legislation, I think, is very, very important, and shortly I will discuss the specific concerns that I have mentioned, the pleadings area and the rule 11 area. As I mentioned earlier, we have been debating this bill for going on more than 4 years now, into our third Congress on this legislation. Some 1,600 days have passed since the legislation was first introduced in 1991. There have been 12 public congressional hearings on this bill. That is an inordinately high number of congressional hearings on any single piece of legislation. Yet, that is how many have been held on this bill. We have had 95 witnesses appear before congressional committees, representing all the different points of view, on securities litigation reform. We have had more than 4,000 pages of testimony, been a part of the legislative history that has led us to this bill that is now before us under these procedural circumstances. There have been a half dozen staff and committee reports issued on the substance of the legislation, and, in fact, we have debated this piece of legislation for 7 full days over this past year here on the floor of the U.S. Senate. Given this lengthy history, it is particularly disappointing that a veto of the bill has occurred, based on the issues that, frankly, have never previously been the subject of most of the contention and most of the debate. In fact, the President has stated his support, as I said earlier, for many of the most discussed and central issues, like the safe harbor provisions, proportionate liability provisions, the new lead plaintiff provisions, prohibitions on professional plaintiffs, and the discretionary bonding provisions. None of those issues should be the topic of our discussion today because, candidly, the President said he agrees with these issues. What we are talking about are the issues he says he is in disagreement with. It is not an overstatement to say that his veto message indicates his support for about 95 percent of this legislation, and his veto is based on somewhere between 5 percent and 1 percent of the issues that are included in this bill. In fact, when you boil it down, Mr. President, we are having a fight over 11 words--11 words out of over 11,000 words in the bill itself. Eleven words are the subject of the veto. So the President vetoed this bill because of a relatively small percentage of the matters included in the legislation and apparently some wording in the statement of managers. It is somewhat rare that a veto would involve a statement of managers, but nonetheless, that was included in the veto message as well. So, Mr. President, I intend, obviously, no disrespect at all to the President, but this is the first veto I can recall where part of a veto message was based on a statement of managers. As we discuss the issues upon which the President vetoed the conference report, it is important to remember some of the official statements that the administration has previously made, some of which directly contradict the veto message itself. Let me begin with the pleading standards, if I may. Back in May of this year the Senate Banking Committee codified the essence of the pleading standards of the U.S. Second Circuit Court of Appeals. Then on June 23 of this year, S. 240, the bill before us moved to the floor. The administration, as administrations do, issued its statement of policy in which it praised the pleading standards ``as sensible and workable.'' That was the administration's statement of policy regarding the pleading standards in June of this year. The only difference between those pleading standards that were applauded in June and those endorsed by the administration, the ones before us today, are three words--the only difference between what was in the bill in June when the statement of policy came out and what is before you today are three words that have changed, and the words represent a technical change requested, by the way, by the Judicial Conference of the United States Federal Judiciary. These are not words we came up with. They were not words of the opponents or proponents, but they were altered at the recommendation of the Judicial Conference, in a letter from Judge Anthony Scirica to the committee staff when asked to give their comments on the pleading standards. I know it has been included in the Record, but I ask unanimous consent that the letter dated October 31, 1995, be printed in the Record.

Christopher Dodd

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