Billy Tauzin

Mr. TAUZIN

Mr. TAUZIN. I thank my friend for yielding. I will be brief. I do ask him to yield just to say a word thanks, a word of thanks not only to the chairman, who has been extraordinarily cooperative, the gentleman from California [Mr. Cox], and others who have worked with us to moderate this bill, but also, more importantly, to Members of this body who are original cosponsors of this effort 4 years ago and have remained faithful to this effort to bring this bill to a conclusion. Members like Mr. Parker, like Mr. Hall, Mr. Montgomery, Mr. Shaw, Mr. Moran, Members like Mr. Rush, Mr. Towns, and Mr. Brown, who have helped bring us to this point. I think we are about to pass a good bill. Defeat this motion to recommit, and we can pass this very historic bill. I want to again thank all of those who persevered for 4 years to bring us to this point.

Mr. TAUZIN. I think a more important statistic, if the gentleman wants to argue statistics, is that the regime of law that they are defending they do not want to change today, according to that Vincent O'Brien-Richard Hodges study, found that investors received an average of 6 cents on the dollar in this legal dispute system under 10(b)5. The only people making money are the attorneys. The investors get 6 cents on the dollar and that is the system being defended down here, the system people do not want to change. I suggest that is the most important statistic that has ever been quoted on the floor in this debate.

Mr. TAUZIN. Mr. Chairman, will the gentleman yield on that point?

Mr. TAUZIN. The answer is that plaintiff has brought the lawsuit and has incurred those costs upon the defendant in a case where the judge has found the lawsuit never should have been brought. That is what fee shifting is all about. If the plaintiff wins the case, the judge has the capacity to award the plaintiff such damages as the plaintiff incurred, and in many cases that includes much of his expenses. It is only in the case where the judge says you never should have brought this case and it would not be unjust for you to have to pay the fees of a person you made hire an attorney and go through all this mess for nothing that we require the bond.

Mr. TAUZIN. Mr. Chairman, will the gentleman yield?

Mr. TAUZIN. If the gentleman would further yield to me so I can respond, this legislation does say now that we are providing a method by which the judge can impose fees upon the losing party if in fact the suit never should have been brought if it would not be unjust to do so and if it would not be undburdensome for the winning defendant to carry those fees. He has got to find all three things. It does allow the judge to do that. Therefore, the requirement is that a bond be established, the lawyer can put up the bond if he has got an indigent plaintiff or the client can put up a bond, the judge determines how much of a bond, and the bond satisfies the requirements if it is ordered.

Mr. TAUZIN. If the gentleman from Texas will yield, the judge may impose the requirement of a bond under the bill. He may impose the bond at $1, $1,000, whatever he thinks----

Mr. TAUZIN. I thank my friend for yielding. He stated very well the case against this amendment. If the case against this amendment were ever made perhaps even more eloquently than my friend from Texas, it would have been the judge in the 1989 decision entitled Necklin versus Weatherly Securities, Inc. In that case the judge held, and I quote, plaintiffs have not alleged a single fact which supports an inference of fraud. He dismissed the case. But he declined to impose sanctions. The bottom line is that even in a case where the judge found that there was not even an allegation of an inference of fraud, he declined to impose sanctions under rule 11. I know the gentleman makes it mandatory under his amendment. The problem is that rule 11 has been terribly ineffective and even codifying it is not going to work. The provisions we have adopted out of the Committee on Commerce in this bill are much stronger and at the same time they give the judge great discretion to do what justice requires. If someone brings a lawsuit and they should not have brought it, not even substantially justified, but it would still be unjust for the judge to impose costs on them, when he dismisses the suit, he can do so. But the gentleman knows as we have discussed this thing even further, there is even one greater reason to oppose the gentleman from New York's amendment, and, that is, if you want to avoid the deterrent sanction of this bill, under the gentleman from New York's amendment, all you have to do is hurriedly dismiss your suit right before the judge imposes the sanctions, because his amendment lets you do that. Under our amendment, you cannot get away with that.

Mr. TAUZIN. Mr. Chairman, will the gentleman yield?

Mr. TAUZIN. The answer is it could, because under rule XI the fees can be imposed on the attorney. However, my problem with it is bigger than that. The problems are the following: First, rule XI does not allow sanctions in discovery proceedings. In fact, you cannot have sanctions where discovery proceedings have been conducted without justifiable cause. Rule XI, for example, permits the withdrawal of your suit or voluntary dismissal of your suit in order to avoid fee shifting. Let's say you brought a suit against me you never should have brought. You have made me hire attorneys, you have kept my company in all kinds of legal trouble for a year or 2 years. Then it becomes clear that you should not have brought suit in the first place. The judge is about to impose sanctions on you, so you immediately withdraw the case. Under that scenario, under the Manton amendment, the judge could not impose sanctions, could not shift fees over to the party who should not have brought this suit. In short, while it is an improvement over the existing law, and I must commend my friend for doing a good job in offering a solution that is better than existing law, the provisions of our bill are much better, much better, and this amendment should be defeated.

Mr. TAUZIN. The answer is that the judge has discretion to fix that undertaking. He can fix it at $1, $1,000, $2,000 $10,000 whatever it requires to guarantee that in effect the losing party is going to be able to respond to his order to shift the fees if it should occur and the judge still maintains a great deal of discretion.

Mr. TAUZIN. Mr. Chairman, I rise in opposition to the amendment. Mr. Chairman, let me first commend my friend, the gentleman from New York [Mr. Manton] for his attempt to, in effect, rewrite rule XI of the Rules of Federal Procedure in a way that is much better than rule XI, and to suggest that it be part of this act. If this were the only chance we had to improve upon the condition of allocating the cost in a lawsuit, it would certainly be better than the existing law. His amendment is better than rule XI in two major respects, because it does make imposition of the fees mandatory and it does cover four clauses, not just the one clause covered under the current rule XI. However, there is a better provision in the bill today than rule XI, and even this improved version of rule XI. The provision in the bill that is before us literally says that fees are going to be shifted in one of these cases only, and only under the following conditions: First, that the position of the losing party was never substantially justified; that is to say, not only did he lose the case, not only did he dismiss the case, not only did he perhaps lose it on a motion for summary judgment, but that he never should have brought it in the first place. There was no substantial justification for bringing that case; Second, that imposing the fees on the party who brought the suit with no substantial justification would not create an injustice, so the court has to make that substantial, substantive judgment; And, last, that the cost of the fees on the prevailing party, the party who was sued unjustly, that the cost of those fees on that prevailing party indeed would be substantially burdensome and unjust, so the court has to make three findings. Now, the Committee on Commerce did one additional thing in our effort to reach out to broaden support for the bill, and to make it clear that the court should use this fee-shifting arrangement only when these three things are proven. We put the burden of proof on all three of the things on the prevailing party. In other words, if I bring a suit under this 10(b)(5) section of the law, I sue you and your company, and I lose that suit, and I lose it either on a judgment or a motion to dismiss, or I voluntarily dismiss it at some point, under our bill it would be your burden of proof to prove that I did not have a substantial, justifiable reason to bring that case. You have to prove the negative. Second, you have to prove that it would not be unjust to make me pay your expenses in defending a suit I should not have brought. Third, you have to prove that it would not be too much of a burden on me to pay my own expenses in defending that lawsuit. What I am saying is, Mr. Chairman, that when we shifted the burden of proof to the prevailing party, we made it extremely difficult, I think, for the fee shift ever to occur. Let me tell the Members two other reasons why the Manton amendment needs to be defeated.

Mr. TAUZIN. I would just point out the language in the bill is much improved over the language last year that the gentleman from Texas [Mr. Bryant] and I offered. If the language we had in the bill was so good last year, I want to know why we did not get a markup on the bill. This language is much better, much more specific. It is the kind of language that would prevent fishing expeditions. We ought to reject this amendment and pass this good bill.

Mr. TAUZIN. Mr. Chairman, will the gentleman yield?

Mr. TAUZIN. Mr. Chairman, I, too, want to say not only a good word in favor of this amendment but in favor of its author. The gentleman from Oregon [Mr. Wyden] has been a stalwart advocate for the proposition that when accountants do detect fraud that they make it known; they have a public responsibility, even though they are working for a private firm. His efforts in the last Congress to pass this amendment as a bill and move it into the Senate are well known by his colleagues on the Committee on Commerce, and I just want to make sure that the American public also is aware of his tremendous efforts to do that. His efforts, combined with this bill, I think, will produce a combination that says when the public gets information it is going to be good information. When accountants detect fraud, it is going to get reported. We will have a better system that leads to fewer lawsuits and much more accurate information and hopefully many less of the problems that have engendered the debate we have had today. The gentleman has been an extraordinary advocate of this proposition. I have been pleased to join with him in the past in favor of this bill. I am pleased to say to the accountants' association, who have worked with him and I on this bill, and in deep support of it, and are anxious to see it become law, they, too, have recognized their public responsibility in this area as the gentleman has pointed it out so many times in the past. I think we have come to closure on this issue. We begin to build a much better system with fewer lawsuits, hopefully fewer problems for investors, fewer problems for all of us who do not want to see problems settled in court, information, and I again want to congratulate the gentleman and thank my friend from Texas for yielding.

Mr. TAUZIN. The gentlewoman is correct.

Mr. TAUZIN. Mr. Chairman, I thank the gentlewoman for yielding. I want to congratulate her on her statement. It is exactly correct. The adoption of this amendment not only furthers the cause of this legislation, which is to encourage good disclosure, but certainly to make it clear that forward-looking statements, particularly when they are carefully framed the way this amendment requires them to be so that investors are warned in advance that these projections may not be realized, is the way in which to protect against both these kinds of lawsuits, and at the same time encourage information to come forward above the table, not under the table. I congratulate the gentlewoman on her statement.

Mr. TAUZIN. I thank the gentleman for yielding. I asked him to yield for only one purpose and that is indeed to congratulate the gentleman from California for the excellent amendment. This amendment has the unique advantage of being supported by both the high-technology community, which is the subject of many of these lawsuits, and by many investor groups. For example, CALPERS, the California public employees investment group, is in support of this approach. The executive director of the Council of Institutional Investors, a group of large corporate and labor union pension funds, has endorsed this approach. It is the right approach, it brings us closer to the bill the gentleman from California [Mr. Minetta] himself has cosponsored and filed in this session and in former sessions of the Congress. I want to congratulate him again for this fine work and urge adoption of the amendment.

Mr. TAUZIN. Mr. Chairman, will the gentleman yield?

Mr. TAUZIN. Mr. Chairman, I yield to the gentleman from California [Mr. Mineta]. (Mr. MINETA asked and was given permission to revise and extend his remarks.)

Mr. TAUZIN. Mr. Chairman, I offer an amendment, the Mineta-Tauzin amendment.

Mr. TAUZIN. If the gentleman will yield further, I would say to my friend from California [Mr. Miller] that we just had that debate. We agreed not to exempt derivative lawsuits from this bill. That is another debate. But my point is this amendment covers more than investments in derivatives, does it not?

Mr. TAUZIN. Mr. Chairman, I thank the gentleman for yielding. I asked him to yield to make this point. Any municipality or pension fund that thinks they have been defrauded under any kind of investment, be it a derivative or something else, has that right to file that suit today. These lawsuits are cranked out normally up to 2 hours after the stock prices fall. If somebody has a case on that list that we were shown this morning, they can bring that suit today under the old law. They can bring it next week under the old law. Until this law goes into effect, they can file this suite.

Mr. TAUZIN. Mr. Chairman, will the gentleman yield?

Mr. TAUZIN. Mr. Chairman, will the gentleman yield?