Bob Graham

Mr. GRAHAM

Mr. GRAHAM. Mr. President, today I join my colleague Senator Chafee in support of the Historic Homeownership Assistance Act, which he introduced yesterday. This will would spur growth and preservation of historic neighborhoods across the country by providing a limited tax credit for qualified rehabilitation expenditures to historic homes. An understanding of the history of the United States serves as one of the cornerstones supporting this great Nation. We find American history reflected not only in books, films, and stories, but also in physical structures, including schools, churches, county courthouses, mills, factories, and personal residences. The bill that Senators Chafee, Simon, Pryor, Johnston, and I are cosponsoring focuses on the preservation of historic residences. The bill will assist Americans who want to safeguard, maintain, and reside in these living museums. The Historic Homeownership Assistance Act will stimulate rehabilitation of historic homes. The Federal tax credit provided in the legislation is modelled after the existing Federal commercial historic rehabilitation tax credit. Since 1981, this commercial tax credit has facilitated the preservation of many historic structures across this great land. For example in the last two decades, in my home State of Florida, $238 million in private capital was invested in over 325 historic rehabilitation projects. These investments helped preserve Ybor City in Tampa and the Springfield historic district in Jacksonville. The tax credit, however, has never applied to personal residences. It is time to provide an incentive to individuals to restore and preserve homes in America's historic communities. The Historic Homeownership Assistance Act targets Americans of all economic incomes. The bill provides lower income Americans with the option to elect a Mortgage Credit Certificate in lieu of the tax credit. This certificate allows Americans who cannot take advantage of the tax credit to reduce the interest rate on their mortgage that secures the purchase and rehabilitation of a historic home. For example, if a lower-income family were to purchase a $35,000 home which included $25,000 worth of qualified rehabilitation expenditures, it would be entitled to a $5,000 Historic Rehabilitation Mortgage Credit Certificate which could be used to reduce interest payments on the mortgage. This provision would enable families to obtain a home and preserve historic neighborhoods when they would be unable to do so otherwise. This bill will vest power to those best suited to preserve historic housing: the states. Realizing that the States can best administer laws affecting unique communities, the Act gives power to the Secretary of the Interior to enter into agreements with states to implement a number of the provisions. The Historic Homeownership Assistance Act does not, however, reflect an untried proposal. In addition to the existing commercial historic rehabilitation credit, the proposed bill incorporates features from several State tax incentives for the preservation of historic homes. Colorado, Maryland, New Mexico, Rhode Island, Wisconsin, and Utah have pioneered their own successful versions of a historic preservation tax incentive for homeownership. At the Federal level, this legislation would promote historic home preservation nationwide, allowing future generations of Americans to visit and reside in homes that tell the unique history of our communities. The Historic Homeownership Assistance Act will offer enormous potential for saving historic homes and bringing entire neighborhoods back to life. I urge my colleagues to support this bill for the preservation of history.

Mr. GRAHAM

Mr. GRAHAM. Mr. President, I, too, wish to join those who have complimented our colleague, Senator Domenici, and also the ranking member, Senator Exon, for their outstanding work on behalf of the U.S. Senate and our goal of bringing the U.S. Federal budget into balance. They have taken on a very difficult, challenging task. They have performed their task with great skill. I want to say that I stand shoulder to shoulder with others in this Chamber who are committed to the goal of balancing the Federal budget and doing so as rapidly and surely as possible. I am proud to wear the label of being a deficit hawk. I have supported the constitutional amendment to require us to balance the budget. I hope when that amendment returns, we will have the votes to carry it one step further and that is to be prepared to balance the Federal budget without relying on the Social Security surplus as a means of doing so. By adding that additional component, that is denying ourselves the luxury of balancing by using the expanding Social Security surplus, we will have, in fact, achieved our goal of a sustained, permanent balancing of the U.S. Federal budget and a cessation of the constant increases to the national debt. I also support the line-item veto as a necessary discipline of the executive in the process of national fiscal affairs. I supported the 1993 economic plan of President Clinton which I think history will demonstrate is one of the most important actions that this Congress has taken, in terms of moving beyond rhetoric to actually making the difficult political decisions to balance the Federal budget. I cosponsored, during the debate on this budget resolution, the Fair Share plan, which went beyond this budget in terms of what it would have done toward balancing the Federal budget by the year 2002 and beyond. While I admire and appreciate the effort that has gone into the budget plan which is before us this afternoon, I do not believe even its most ardent advocates would attempt to say that it is Biblical; that is, that this is the only way, this is the divinely disclosed manner that is necessary in order to achieve the objective of a balanced budget. Balancing the budget is both a matter of commitment and then a matter of values, of priorities, of choices. This plan represents values, priorities and choices. Frankly, they are not my values, priorities, or choices, because I believe this is not a plan which meets the ultimate test of being fair to all the American people. When one of our colleagues has the courage to stand up on the floor and describe himself as being one of the most advantaged Americans, and then to say he is embarrassed about the fact that he is being asked to vote for a budget plan that will substantially reduce his taxes while denying services to many other Americans who are substantially less well off--I think that is indicative of the fundamental unfairness which is a fundamental flaw of this budget plan. I think there are three other flaws in this plan. First, the plan ignores, in too many critical areas, the consequences on real Americans, on real people. If I could use as an example a meeting that I participated in yesterday with the presidents of four, predominantly African-American, colleges and universities in my State. One of those Presidents was Dr. Oswald Bronson who is the president of Bethune- Cookman College in Daytona Beach. Bethune-Cookman College has, as its first name, the name of a great American, Mary McLeod Bethune, whose statue graces Lincoln Park, just a few blocks from where we are this afternoon. Those presidents told me that if the cuts in student financial aid which are contemplated as a result of this budget plan become reality, it is not a matter of a few students being economically pressed in terms of continuing their education. It is not a matter of a sustainable dropoff in admissions to their institutions. It is a matter of survival of their institutions. So many of their students are dependent upon programs like the Pell grants, that if we make the kinds of cuts that we are contemplating, we place those institutions in jeopardy. That is the impact on real people that this plan will inflict. Second, I think this plan is flawed in that it is top down. Big numbers were arrived at without any apparent attempt to determine what those big numbers would mean to the programs that were affected and the people who depended upon those programs. I want to particularly talk about that flaw as it relates to the two big Federal health care programs: Medicare, health care for the elderly; and Medicaid, health care for the poor. Third, I think this plan is unsustainable. We may get some degree of glow of accomplishment, should this plan pass today--and I assume it will. But I predict with a high degree of confidence that when the Members of this body and our colleagues in the House begin to look at the actual consequences of this budget, particularly in areas such as education and health care, that we will see them to be what I think they clearly are, and that is inappropriate, adverse to the interests of average Americans, and therefore unsustainable. There are some who would suggest, in this health care debate, that we have just opened the scene to an absolutely new stage; that we never saw any of the issues in health care until we came to this budget resolution. The fact is, we have known about the status of American health care for a long [[Page S 9378]] time. It has been a status which has been declining in some very important indicators. It has been declining in terms of the number of persons covered by effective financing for their health care costs. It has been declining in terms of some important indicators of the health of our people, such as the immunization of our youngest children. And it has been declining in terms of its economic status. It was no secret that the Medicare program has been in financial distress. That was why the President, in his 1993 plan, made what I think was a courageous proposal, to provide a substantial amount of additional funds for Medicare, which has allowed its impending bankruptcy to be deferred for some considerable period of time. We need, now, to have a reform of our health care plans which is reasonable, which is in the context of comprehensive health care reform, and which will be sustainable. One of the major debates of 1994 was whether health care could be reformed program by program or whether these programs are so interrelated that it had to be done on a comprehensive basis. Those who argued for the former position won the day; that we did not have to have comprehensive health care reform, that we could do it a different path. It is now going to be their challenge to figure out if that in fact is true. I personally do not believe it is true. I believe we are going to find that there will be substantial cost shifting as a result of these draconian cuts in Medicare and Medicaid. We will find private insurance rates going up. We will find the cost to local governments increasing. Circumstances such as just occurred in the largest public hospital in Los Angeles--the Los Angeles County Hospital now is on the verge of closure because, in large part, of the impact Federal Government health care policies that have been narrowly focused on that one hospital and have caused or contributed substantially to its collapse. We also are seeing declining coverage. One of the things that is occurring is that the percentage of Americans covered by private health insurance is declining. The estimate is that by early in the 21st century less than half of working Americans and their dependents will have coverage at the point of their employment. And the result of that is that the rolls of Medicaid, the safety net for many of those people who have lost their coverage in the private sector, has been growing almost in direct proportion. We are going to continue to see that. Yet, with these cuts, $181 billion below what health care economists both in the previous Republican administration and the current Democratic administration had considered as necessary to maintain the same level of coverage and quality, we are going to have $181 billion of cuts below those levels. Mr. President, while I admire the fact that we are now moving toward the goal of a balanced budget, there has to be a different way to achieve that goal. So I must vote no on this plan with full expectation that before this year is over I will have the opportunity to vote yes for a plan which is fair, which is sustainable and in the interest of all Americans. Thank you, Mr. President.

Mr. GRAHAM

Mr. GRAHAM. Mr. President, I was in Haiti on Saturday and Sunday of this weekend, and I would like to share with my colleagues some of my observations. I intend to submit a more formal statement later, but for this afternoon, I would like to talk about some of the things that I saw. Frankly, to my good friend from Arizona, who was represented in Haiti, he and the IRI, by another good friend, Congressman Porter Goss of my State of Florida, I was concerned about my first experience in Haiti this weekend. I got off the plane Saturday morning at approximately 11 o'clock, and at the foot of the plane were several U.S. reporters, including a representative of one of the major networks. The first question that was asked was what did we think about the report that had been issued a few hours earlier on Saturday morning--this is the day before the election--by the IRI criticizing the election that had not yet taken place? Obviously, we were in no position to comment on a report that we had not [[Page S 9147]] seen about an election that had not yet taken place.

Mr. GRAHAM. I am not distorting the record. They were commenting and made a conclusionary statement as to what they thought the status of the election was 24 hours before the election took place.

Mr. GRAHAM. That is not a charge. It is a factual statement.

Mr. GRAHAM. I would like to complete my comments and then yield.

Mr. GRAHAM

Mr. GRAHAM. Madam President, unless there is someone else who would like to speak on this amendment, I am prepared to make a short concluding statement and then if the opponents are prepared to yield back their time, I would be so prepared and we could proceed. Madam President, we have before us consensus on one issue, and that is that there is a problem relative to frivolous lawsuits in the securities area. The quandary is how to eradicate or mitigate that problem without doing excessive damage to other rights of investors, without eliminating what has been one of the principal deterrents to fraudulent behavior within our free enterprise system, what has been one of the foundations of public confidence that they could invest in our capitalistic system and be treated fairly. I believe this amendment goes directly at the problem that we have identified. It states that early on, after a case has been filed, there will be an independent evaluation by a judicially selected mediator as to whether this is a frivolous, meritorious, or other action. The case would then be in the hands of the litigants as to whether, in the face of that determination, they wish to proceed. But if they proceeded with a frivolous case, and if they lost that frivolous case, then they would be subject to very serious sanctions of having to pay not only their bills, but also the attorney fees and costs of their opponent. I think that would be a significant factor in terms of deterring the prosecution of frivolous suits. Frivolous defenses are sanctioned in exactly the same manner. So if a case is determined to be clearly meritorious, and yet the defendant proceeds and loses, that defendant will be subject to these sanctions. Madam President, I believe that comes as close to solving the problem we have identified and does so in a way that does not have unintended, adverse consequences on other aspects of investors' rights. So I urge those who are proponents of S. 240 to see this as a supportive, friendly, positive contribution to achieve their objective. And I hope that they and my other colleagues will support this amendment, which I believe moves toward achieving the very purpose that led to the introduction of this legislation in the first instance. Thank you, Madam President. I yield the floor, and I am prepared to yield back the balance of my time.

Mr. GRAHAM. It seems to me, Madam President, that this amendment is exactly consistent with what proponents of this legislation say the evil is that we are attempting to correct, and it would avoid the necessity of having to overreach in terms of a remedy to apply an excessive amount of medication of severely restricting access to courts by people with legitimate claims, which I fear this legislation will do. And even if a legitimate claim matures into a judgment, to then protect those persons against whom the judgment might be rendered by things like the aiders and abettors provision and the joint and several liability, particularly as it relates to small investors, et cetera. All of those types of things would be less necessary if we went straight at the problem cited, the frivolous lawsuit, and tried to eliminate as many of those lawsuits by effective sanctions as I believe this will be at the initial stages.

Mr. GRAHAM. That is correct.

Mr. GRAHAM. The expectation would be that this would be at the discretion of the parties or of the judge that this would be the first action initiated after the litigation has been filed.

Mr. GRAHAM. Yes, Madam President, there could be a frivolous defense as well as there can be a frivolous plaintiff's filing. And this amendment would provide balance. Exactly the same sanctions would be applied under the 1934 Securities Act to a frivolous action as would be applied to a clearly meritorious action. That is, if you are the defendant, and the evaluation is this is a clearly meritorious case, but you persist, litigate, and you lose, then you are subject to the sanction of having to pay the plaintiff's attorneys fees and court costs. So this is an attempt to create some strong economic incentives for people to settle and for people not to file a frivolous action, nor to persist in frivolous defenses. [[Page S 9155]]

Mr. GRAHAM. The early evaluation would make a determination that the case was either clearly frivolous, clearly meritorious, or neither. And if you fell into that third category, then that ought to be the kind of open, civil due process that we associate with the American judicial system.

Mr. GRAHAM. The purpose, I say to the Senator, is the difference between using a laser beam to precisely remove a tumor as opposed to amputation to remove the entire limb. I fear that what we have done in this legislation, Madam President, is to amputate the ability of most investors to bring a serious case of securities fraud. Whether it is frivolous, competitive, or highly meritorious, we have eliminated for many individuals the ability to have access to court, to have their claims adjudicated in all types of cases. The purpose of this amendment was to be that laser that would identify those cases which in fact are, to use the amendment's term, clearly frivolous actions, and to provide some very stiff sanctions against persons who are found to have filed a clearly frivolous action but persist. If they lose that clearly frivolous action, which assumedly they are likely to do, then they face the prospect of paying not only their attorneys and their costs; they have to pay the defendant's attorneys and costs. Conversely, if a clearly meritorious action is filed and the defendant persists in litigation to defend against that clearly meritorious action and the defendant loses, then the defendant is placed in the position of being subject to the sanction of having to pay not only his own costs but also the costs of the plaintiff. This is not an attempt to apply a broadly based English standard of loser pays. This is an attempt to achieve the very purpose of this legislation, which is to discourage frivolous lawsuits by making the economic consequences of filing a frivolous lawsuit so onerous. I thank my colleague for having asked that clarifying question.

Mr. GRAHAM. I ask unanimous consent that the quorum call time be taken equally off both sides.

Mr. GRAHAM. Madam President, I ask unanimous consent that the order for the quorum call be rescinded.

Mr. GRAHAM. Madam President, I suggest the absence of a quorum.

Mr. GRAHAM. Madam President, the time I just used should be counted against the time which I was afforded to debate this matter. Madam President, the amendment that I send to the desk I do not purport to be original. It is in fact a version of what appeared in S. 240 as it was originally filed. It also draws heavily on language that was contained in the Bryan-Shelby bill, S. 667. What it attempts to do is to provide an early evaluation procedure for litigation filed either under the 1933 Securities Act, or the 1934 Securities Act. It would provide that on the motion of the parties, or by the motion of the court before whom the case has been filed, that there can be an independent mediator designated. That mediator would have the responsibility of reviewing all of the facts of the litigation. After that review, the mediator would submit a report. That report would contain a finding that the litigation was either one of three categories. It was either a clearly frivolous action; second, a clearly meritorious action; or, third, was neither. If the parties in the face of that determination proceed with litigation, at the conclusion of the litigation, that report is submitted to the judge. And in the case under the 1934 act, for instance, where the report has found that this was a clearly frivolous action, and if the final judgment is entered against the plaintiff-- that is, the plaintiff proceeded forward to full litigation in spite of the fact that there had been an early evaluation that this was a clearly frivolous action, and the plaintiff had in fact had the final judgment entered against the plaintiff--then the plaintiff or the plaintiff's counsel shall be liable to defendant for sanctions as awarded by the court, which may include an order to pay reasonable attorney's fees and other expenses, if the court agrees based on the entire record that the action was clearly frivolous when filed and was maintained in bad faith. Madam President, if, on the other hand, this report of the early evaluation found that this was a clearly meritorious action, and the defendant carried it through to final judgment, and final judgment was entered against the defendant, then the defendant, or the defendant's counsel, shall be liable to the plaintiff for the sanctions awarded by the court which may include reasonable attorney's fees and other expenses; if the court agrees based on the entire record that the action was clearly meritorious and was defended in bad faith. Madam President, that is what we are trying to do here. We are trying to create some effective sanctions against people bringing frivolous lawsuits. We are attempting to set up a procedure that will facilitate the delineation and early determination of the frivolous from the nonfrivolous and meritorious cases. It is hoped with that early determination the parties against whom this report is entered will not pursue it further, or, in the case of the defendant, that they will settle the case without the necessity of prolonged and expensive litigation. Is not that what we are here for? We have identified the problem as being frivolous lawsuits. Why do we not solve the problem of frivolous lawsuits and not allow that problem to become a Trojan horse into which we load a lot of other issues, of shortening statute of limitations, creating conflicts of interest by designating only the most affluent investor as the lead plaintiff, giving really quite unwarranted protection to persons who make projections about the future with knowledge that those projections are false, giving increased sanction and protection to aiders and abettors who have acted in a reckless manner that has resulted in investors of being defrauded? None of those things are relevant to the issue of frivolous lawsuits. So, Madam President, I urge my colleagues to seriously consider this amendment which is submitted in an attempt to refocus our remedies on what has been general agreement to be the problem, which is frivolous lawsuits that do not advance the cause of justice that have the economic adverse effects that are recited by the proponents of S. 240. So, Madam President, I will reserve the remainder of my time. But I urge a [[Page S 9153]] favorable consideration of this amendment by my colleagues. Thank you. Exhibit 1 Who Profits? ``A Coterie of Lawyers''--Rocky Mountain News. Specialized securities lawyers win big bucks by filing meritless lawsuits against many of America's most promising companies. The securities lawyers profit handsomely, but Americans with money in stocks, pensions and mutual funds are the losers in the deal. This is what editorial writers across the nation are saying about securities lawsuit abuse: ``The situation now is that all investors are paying the costs of settling lawsuits that should never have been filed. . . . [T]he time has come to pull the legal leeches off the backs of corporations that have done no wrong.''--Tampa Tribune, June 25, 1995. ``. . . the nogoodniks suffer at the same rate as the straight-shooters. Meanwhile, who profits? A coterie of lawyers with stock charts and fill-in-the blanks fraud complaints.''--Rocky Mountain News, January 18, 1995. ``. . . groundless lawsuits by shareholders alleging fraud . . . are often merely a way of extorting settlements from corporations whose stock prices have dropped.''--Chicago Tribune, March 29, 1995. ``Enactment of either [the House or Senate] bill would remove a serious blot on the legal system, which is supposed to settle real disputes, not provide a protection racket for a few lawyers.''--Boston Sunday Herald, June 18, 1995. ``These frivolous lawsuits discredit the legal profession, distract companies from their main tasks, discourage or retard the development of new, cutting edge businesses and ultimately harm the interests of shareholders.''--The Hartford Courant, April 11, 1994. ``The contemporary class action has created a class of entrepreneurial lawyers. The first beagle to the court house with a tame plaintiff in tow often gets to represent the class, and collect a 33%-50% fee. . . Then the members of the class receive small compensation . . .''--Barron's, June 5, 1995. ``The chief target of the reform legislation is a small group of lawyers who have made a venal industry of filing groundless securities-fraud lawsuits. . . ``. . . the securities bill [S. 240] would go a long way toward curbing egregious abuse of the legal system. Such abuse is in effect a hidden tax that costs American jobs and discourages the entrepreneurial risk-taking that stimulates economic growth.''--The News Tribune (Tacoma, Washington), June 10, 1995. Legislation introduced in the Senate (S. 240) by Republican Pete Domenici and Democrat Chris Dodd will give control back to shareholders and really protect investors.

Mr. GRAHAM. Madam President, I ask unanimous consent that reading of the amendment be dispensed with.

Mr. GRAHAM. What I think has happened, Madam President, is we had a goal to eliminate frivolous lawsuits which could have been hit easily with a .22 rifle. We have now used a howitzer, which has cratered in a large area of the legitimate rights of American investors when they are subjected to abusive and to fraudulent activities. We have created a situation in which it is going to be much more difficult to maintain any kind of suit, serious or frivolous, where fraud is alleged. We have shortened the statute of limitations. We have provided protection for those who assisted in the fraudulent behavior of the principals. We have created a circumstance of a conflict of interest by designating the largest investor in the company as the principal plaintiff in these types of cases. These are just some of the things that have happened, all under the pretext that we are going to be dealing with frivolous lawsuits. I suggest that there are serious consequences of this type of legislation, and what it is likely to lead to for the American free enterprise system. It was only 100 years ago that we had a very predatory form of free enterprise in the United States. We had large companies using their power in an abusive way to squelch small competitors, to gain monopolistic economic control. We had extreme swings in our business cycle, in large part attributed to that predatory behavior. We had the growth of populism and other forms of political dissent, as farmers and workers felt as if they were being the targets of this predatory behavior. The free enterprise system in America was in a very precarious condition. Free enterprise has flourished in America when people felt that the rules of free enterprise were fair and that everyone was going to be treated equally, that people could invest in firms--not without risk; that is the nature of the marketplace. But at least they were going to be treated with some discretion and some level of an equal playing field. I am afraid that legislation such as S. 240--which is going to be seen as, and I believe will in fact result in, a tilting of the economic playing field toward those who would be inclined to wish to abuse it and to use it for their own fraudulent purposes--will undermine that essential confidence of the American people in their economic institutions. So, with that, Madam President, I have an amendment that I would like to propose. It is an amendment which I will send to the desk which actually goes directly at the issue of frivolous lawsuits. Madam President, I send the amendment to the desk and ask for its immediate consideration.

Mr. GRAHAM. Madam President, that is the stated problem: Frivolous, meritless lawsuits. But what do we have? Is that the prescription that has come out in S. 240? Is it legislation which is targeted at eradicating the tumor of meritless lawsuits? Unfortunately not. If I may quote from another newspaper, the Miami Herald of yesterday, which stated, under the headline, ``License to steal'': Practically everyone in Washington, to some degree or other, has blamed ``frivolous or abusive lawsuits'' for sapping America's economic vigor. And judging from anecdotes, the complaint has some merit. But more often than not, the proposed cures turn out to be far more debilitating than the disease. A perfect illustration is a bill moving through Congress that supposedly protects the securities industry from ``frivolous'' suits by investors. The bill may come to a Senate vote today. It would bar, among many other things, charges of fraud against those who make false projections of a company's likely performance. By granting ``safe harbor'' to all statements of a ``forward- looking'' nature, it essentially tells companies and brokers: Go ahead, lie about the future. As long as you're not misrepresenting the past, you can fleece investors in any way that your imagination allows. Madam President, I ask unanimous consent the editorial from the June 26, [[Page S 9151]] 1995, Miami Herald also be printed in the Record immediately after my remarks.

Mr. GRAHAM. I am sorry. From earlier comments, I understood it was suggested otherwise.

Mr. GRAHAM. Could I ask the Senator from New York a question? Your unanimous consent--are you going to provide some time in the morning prior to the vote for a brief statement for those who may not be able-- --

Mr. GRAHAM. Mr. President, at the appropriate time, and if that appropriate time is now, I would like to ask for the yeas and nays on my amendment.

Mr. GRAHAM. The Senator from Florida yields such time as the Senator from Maryland would choose to use.

Mr. GRAHAM

Mr. GRAHAM. Mr. President, it had been my intention at this point to offer an amendment, but I ask unanimous consent for time as in morning business.