BP BHEAD INT S [atlas:bill]

AN ACT Relating to securities class actions; and adding new sections to chapter 21.20 RCW.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. The provisions of sections 2 through 14 of this act shall apply to each private action arising under this chapter that is brought as a plaintiff class action pursuant to the Washington civil rules.

NEW SECTION. Sec. 2. (1) A plaintiff seeking to serve as a representative party on behalf of a class in an action arising under this chapter shall provide a sworn certification, personally signed by the plaintiff and filed with the complaint, that:

(a) States that the plaintiff has reviewed the complaint and authorized its filing;

(b) States that the plaintiff did not purchase the security that is the subject of the complaint at the direction of plaintiff's counsel or in order to participate in any private action under this chapter;

(c) States that the plaintiff is willing to serve as a representative party on behalf of a class, including providing testimony at deposition and trial, if necessary;

(d) Sets forth all of the transactions of the plaintiff in the security that is the subject of the complaint during the class period specified in the complaint;

(e) Identifies any other action under this chapter, filed during the three-year period preceding the date on which the certification is signed by the plaintiff, in which the plaintiff has sought to serve, or served, as a representative party on behalf of a class; and

(f) States that the plaintiff will not accept any payment for serving as a representative party on behalf of a class beyond the plaintiff's pro rata share of any recovery, except as ordered or approved by the court in accordance with section 4 of this act.

(2) The certification filed pursuant to this section shall not be construed to be a waiver of the attorney-client privilege.

NEW SECTION. Sec. 3. (1)(a) Not later than twenty days after the date on which the complaint is filed, the plaintiff or plaintiffs shall cause to be published in a widely circulated state business-oriented publication or wire service and in a widely circulated national business-oriented publication or wire service, a notice advising members of the purported class:

(i) Of the pendency of the action, the claims asserted in the action, and the purported class period; and

(ii) That, not later than sixty days after the date on which the notice is published, any member of the purported class may move the court to serve as lead plaintiff of the purported class.

(b) If more than one action on behalf of a class asserting substantially the same claim or claims arising under this chapter is filed, only the plaintiff or plaintiffs in the first filed action are required to cause notice to be published in accordance with (a) of this subsection.

(c) The notice required under (a) of this subsection is in addition to any notice required under the Washington civil rules.

(2)(a) Not later than ninety days after the date on which a notice is published under subsection (1) of this section, the court shall consider a motion made by a purported class member in response to the notice, including a motion by a class member who is not individually named as a plaintiff in the complaint or complaints, and shall appoint as lead plaintiff the member or members of the purported class that the court determines to be the most adequate plaintiff. The most adequate plaintiff is the member or members of the purported class most capable of adequately representing the interests of class members.

(b) If more than one action on behalf of a class asserting substantially the same claim or claims arising under this chapter has been filed, and a party has sought to consolidate those actions for pretrial purposes or for trial, the court shall not make the determination of the most adequate plaintiff until after the decision on the motion to consolidate is rendered.

(c) Subject to (d) of this subsection, there is a presumption that the most adequate plaintiff in a private class action arising under this chapter is the person or group of persons that:

(i) Has either filed the complaint or made a motion in response to a notice under subsection (1)(a) of this section;

(ii) In the determination of the court has the largest financial interest in the relief sought by the class; and

(iii) Otherwise satisfies the requirements of rule 23 of the Washington civil rules.

(d) The presumption established in (c) of this subsection may be rebutted only upon proof by a member of the purported plaintiff class that the presumptively most adequate plaintiff will not fairly and adequately protect the interests of the class or is subject to unique defenses that render the plaintiff incapable of adequately representing the class.

(e) Discovery relating to whether a member or members of the purported plaintiff class is the most adequate plaintiff may be conducted by a plaintiff only if the plaintiff first demonstrates a reasonable basis for a finding that the presumptively most adequate plaintiff is incapable of adequately representing the class.

(f) The most adequate plaintiff shall select and retain counsel to represent the class, subject to the approval of the court.

(g) Except as the court may otherwise permit, a person may be a lead plaintiff, or an officer, director, or fiduciary of a lead plaintiff, in no more than five securities class actions brought as plaintiff class actions pursuant to the Washington civil rules during any three-year period.

NEW SECTION. Sec. 4. The share of any final judgment or of any settlement that is awarded to a representative party serving on behalf of a class in an action arising under this chapter shall be equal, on a per share basis, to the portion of the final judgment or settlement awarded to all other members of the class. This section shall not be construed to limit the award of reasonable costs and expenses, including lost wages, directly relating to the representation of the class to any representative party serving on behalf of the class.

NEW SECTION. Sec. 5. The terms and provisions of a settlement agreement of a class action shall not be filed under seal, except that on motion of a party to the settlement, the court may order filing under seal for those portions of a settlement agreement for which good cause is shown for filing under seal. Good cause exists only if publication of a term or provision of a settlement agreement would cause direct and substantial harm to a party.

NEW SECTION. Sec. 6. Total attorneys' fees and expenses awarded by the court to counsel for the plaintiff class shall not exceed a reasonable percentage of the amount of damages and prejudgment interest actually paid to the class.

NEW SECTION. Sec. 7. A proposed or final settlement agreement that is published or otherwise disseminated to the class shall include each of the following statements, along with a cover page summarizing the information contained in the statements:

(1) The amount of the settlement proposed to be distributed to the parties to the action, determined in the aggregate and on an average per share basis;

(2)(a) If the settling parties agree on the average amount of damages per share that would be recoverable if the plaintiff prevailed on each claim alleged, a statement concerning the average amount of the potential damages per share;

(b) If the parties do not agree on the average amount of damages per share that would be recoverable if the plaintiff prevailed on each claim alleged, a statement from each settling party concerning the issue or issues on which the parties disagree;

A statement made under this subsection concerning the amount of damages shall not be admissible in any federal or state judicial action or administrative proceeding, other than an action or proceeding arising out of such statement.

(3) If any of the settling parties or their counsel intend to apply to the court for an award of attorneys' fees or costs from any fund established as part of the settlement, a statement indicating which parties or counsel intend to make an application, the amount of fees and costs that will be sought, including the amount of the fees and costs determined on an average per share basis, and a brief explanation supporting the fees and costs sought;

(4) The name, telephone number, and address of one or more representatives of counsel for the plaintiff class who will be reasonably available to answer questions from class members concerning any matter contained in a notice of settlement published or otherwise disseminated to the class;

(5) A brief statement explaining the reasons why the parties are proposing the settlement; and

(6) Other information that the court may require.

NEW SECTION. Sec. 8. In any private action arising under this chapter that is certified as a class action pursuant to the Washington civil rules, the court may require an undertaking from the attorneys for the plaintiff class, the plaintiff class, or both, or from the attorneys for the defendant, the defendant, or both, in such proportions and at such times as the court determines are just and equitable, for the payment of fees and expenses that may be awarded.

NEW SECTION. Sec. 9. If a plaintiff class is represented by an attorney who directly owns or otherwise has a beneficial interest in the securities that are the subject of the litigation, the court shall make a determination of whether the ownership or other interest constitutes a conflict of interest sufficient to disqualify the attorney from representing the plaintiff class.

NEW SECTION. Sec. 10. (1) In a private class action arising under this chapter in which the plaintiff alleges that the defendant made an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements made not misleading in the light of the circumstances in which they were made, the complaint shall:

(a) Specify each statement alleged to have been misleading;

(b) State the reason or reasons why the statement is misleading; and

(c) If an allegation regarding the statement or omission is made on information and belief, state with particularity all facts on which that belief is formed.

(2) If the cause of action is one in which the plaintiff may only recover money damages on proof that the defendant acted with a particular state of mind, the complaint shall, with respect to each act or omission alleged to violate this chapter, state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.

(3) The court shall, on the motion of any defendant, dismiss the complaint if the requirements of subsections (1) and (2) of this section are not met.

(4) All discovery and other proceedings shall be stayed during the pendency of a motion to dismiss, unless the court finds upon the motion of a party that particularized discovery is necessary to preserve evidence or to prevent undue prejudice to the party.

(5)(a) During the pendency of a stay of discovery under subsection (4) of this section, unless otherwise ordered by the court, a party to the action with actual notice of the allegations contained in the complaint shall treat all documents, data compilations including electronically recorded or stored data, and tangible objects that are in the custody or control of the person and that are relevant to the allegations, as if they were the subject of a continuing request for production of documents from an opposing party under the Washington civil rules.

(b) A party aggrieved by the willful failure of an opposing party to comply with (a) of this subsection may apply to the court for an order awarding appropriate sanctions.

(6) The plaintiff shall have the burden of proving that the act or omission of the defendant alleged to violate this chapter caused the loss for which the plaintiff seeks to recover damages.

NEW SECTION. Sec. 11. (1) In a private class action arising under this chapter, upon final adjudication of the action, the court shall include in the record specific findings regarding compliance by each party and each attorney representing any party with each requirement of rule 11 of the Washington civil rules as to any complaint, responsive pleading, or dispositive motion.

(2) If the court makes a finding under subsection (1) of this section that a party or attorney violated any requirement of rule 11 of the Washington civil rules as to any complaint, responsive pleading, or dispositive motion, the court shall impose sanctions on the party or attorney in accordance with rule 11 of the Washington civil rules. Prior to making a finding that any party or attorney has violated rule 11 of the Washington civil rules, the court shall give the party or attorney notice and an opportunity to respond.

(3)(a) Subject to (b) and (c) of this subsection, there is a presumption that the appropriate sanction: (i) For failure of any responsive pleading or dispositive motion to comply with any requirement of rule 11 of the Washington civil rules is an award to the opposing party of the reasonable attorneys' fees and other expenses incurred as a direct result of the violation; and (ii) for substantial failure of a complaint to comply with any requirement of rule 11 of the Washington civil rules is an award to the opposing party of the reasonable attorneys' fees and other expenses incurred in the action.

(b) The presumption established in (a) of this subsection may be rebutted upon proof by the party or attorney against whom sanctions are to be imposed that: (i) The award of attorneys' fees and other expenses will impose an unreasonable burden on that party or attorney and would be unjust, and the failure to make such an award would not impose a greater burden on the party in whose favor sanctions are to be imposed; or (ii) the violation of rule 11 of the Washington civil rules was de minimis.

(c) If the party or attorney against whom sanctions are to be imposed meets the burden under (b) of this subsection, the court shall award the sanctions that the court deems appropriate pursuant to rule 11 of the Washington civil rules.

NEW SECTION. Sec. 12. In any private class action arising under this chapter in which the plaintiff may recover money damages, the court shall, when requested by a defendant, submit to the jury a written interrogatory on the issue of each defendant's state of mind at the time the alleged violation occurred.

NEW SECTION. Sec. 13. (1) In any private class action arising under this chapter in which the plaintiff seeks to establish damages by reference to the market price of a security, the award of damages to the plaintiff shall not exceed the difference between the purchase or sale price paid or received, as appropriate, by the plaintiff for the subject security and the mean trading price of the security during the ninety-day period beginning on the date on which the information correcting the misstatement or omission that is the basis for the action is disseminated to the market.

(2) In any private action arising under this chapter in which the plaintiff seeks to establish damages by reference to the market price of a security, if the plaintiff sells or repurchases the subject security prior to the expiration of the ninety-day period established in subsection (1) of this section, the plaintiff's damages shall not exceed the difference between the purchase or sale price paid or received, as appropriate, by the plaintiff for the security and the mean trading price of the security during the period beginning immediately after dissemination of information correcting the misstatement or omission and ending on the date on which the plaintiff sells or repurchases the security.

(3) As used in this section, "mean trading price" of a security is the average of the daily trading prices of the security, determined as of the close of the market each day during the ninety-day period set forth in subsection (1) of this section.

NEW SECTION. Sec. 14. (1) Nothing in this section may be construed to create, affect, or in any manner modify the standard for liability associated with an action arising under this chapter.

(2)(a) A defendant against whom a final judgment is entered in a private class action arising under this chapter is liable for damages jointly and severally only if the trier of fact specifically determines that the defendant knowingly committed a violation of this chapter.

(b) Except as provided in (a) of this subsection, a defendant against whom a final judgment is entered in a private class action is liable solely for the portion of the judgment that corresponds to the percentage of responsibility of that defendant, as determined under subsection (3) of this section.

(3)(a) The court shall instruct the jury to answer special interrogatories, or if there is no jury, shall make findings with respect to each defendant and each of the other persons claimed by any of the parties to have caused or contributed to the loss incurred by the plaintiff, including persons who have entered into settlements with the plaintiff or plaintiffs, concerning: Whether the person violated the securities laws; the percentage of responsibility of the person, measured as a percentage of the total fault of all persons who caused or contributed to the loss incurred by the plaintiff; and whether the person knowingly committed a violation of the securities laws.

(b) The responses to interrogatories or findings under (a) of this subsection shall specify the total amount of damages that the plaintiff is entitled to recover and the percentage of responsibility of each defendant found to have caused or contributed to the loss incurred by the plaintiff or plaintiffs.

(c) In determining the percentage of responsibility under this subsection, the trier of fact shall consider: The nature of the conduct of each defendant found to have caused or contributed to the loss incurred by the plaintiff or plaintiffs; and the nature and extent of the causal relationship between the conduct of each person and the damages incurred by the plaintiff or plaintiffs.

(4)(a) Notwithstanding subsection (2)(b) of this section, upon motion made not later than six months after a final judgment is entered in any private class action, the court determines that all or part of the share of the judgment of the defendant is not collectible against the defendant, and is also not collectible against a defendant described in subsection (2)(a) of this section, each defendant described in subsection (2)(b) of this section is liable for the uncollectible share of the damages as follows:

(i) Each defendant is jointly and severally liable for the uncollectible share if the plaintiff establishes that: (A) The plaintiff is an individual whose recoverable damages under the final judgment are equal to more than ten percent of the net worth of the plaintiff; and (B) the net worth of the plaintiff is equal to less than two hundred thousand dollars.

(ii) For a plaintiff not described by (a)(i) of this subsection, each defendant is liable for the uncollectible share in proportion to the percentage of responsibility of that defendant, except that the total liability of a defendant under this subsection (4)(a)(ii) may not exceed fifty percent of the proportionate share of that defendant, as determined under subsection (3)(b) of this section.

(iii) Net worth for the purposes of this subsection (4) is determined as of the date immediately preceding the date of the purchase or sale by the plaintiff of the security that is the subject of the action, and shall be equal to the fair market value of assets, minus liabilities, including the net value of the investments of the plaintiff in real and personal property.

(b) In no case may the total payments required pursuant to (a) of this subsection exceed the amount of the uncollectible share.

(c) A defendant against whom judgment is not collectible is subject to contribution and to continuing liability to the plaintiff on the judgment.

(5) To the extent that a defendant is required to make an additional payment pursuant to subsection (4) of this section, the defendant may recover contribution from: (a) The defendant originally liable to make the payment; (b) any defendant liable jointly and severally under subsection (2)(a) of this section; (c) any defendant held proportionately liable pursuant to this section who is liable to make the same payment and has paid less than his or her proportionate share of that payment; or (d) any other person responsible for the conduct giving rise to the payment that would have been liable to make the same payment.

(6) The standard for allocation of damages under subsections (2) and (3) of this section and the procedure for reallocation of uncollectible shares under subsection (4) of this section shall not be disclosed to members of the jury.

(7)(a) A defendant who settles any private action at any time before final verdict or judgment shall be discharged from all claims for contribution brought by other persons. Upon entry of the settlement by the court, the court shall enter a bar order constituting the final discharge of all obligations to the plaintiff of the settling defendant arising out of the action. The order shall bar all future claims for contribution arising out of the action by any person against the settling defendant and by the settling defendant against any person, other than a person whose liability has been extinguished by the settlement of the settling defendant.

(b) If a defendant enters into a settlement with the plaintiff prior to final verdict or judgment, the verdict or judgment shall be reduced by the greater of: (i) An amount that corresponds to the percentage of responsibility of that defendant; or (ii) the amount paid to the plaintiff by that defendant.

(8) A defendant who becomes jointly and severally liable for damages in any private class action may recover contribution from any other person who, if joined in the original action, would have been liable for the same damages. A claim for contribution shall be determined based on the percentage of responsibility of the claimant and of each person against whom a claim for contribution is made.

(9) In any private class action determining liability, an action for contribution shall be brought not later than six months after the entry of a final, nonappealable judgment in the action, except that an action for contribution brought by a defendant who was required to make an additional payment pursuant to subsection (4) of this section may be brought not later than six months after the date on which the payment was made.

(10) For the purposes of this section, a defendant "knowingly commits a violation of this chapter":

(a) With respect to an action that is based on an untrue statement of material fact or omission of a material fact necessary to make the statement not misleading, if: (i) The defendant makes an untrue statement of a material fact, with actual knowledge that the representation is false, or omits to state a fact necessary in order to make the statement made not misleading, with actual knowledge that, as a result of the omission, one of the material representations of the defendant is false; and (ii) persons are likely to reasonably rely on that misrepresentation or omission; and

(b) With respect to an action that is based on any conduct that is not described in (a) of this subsection, if the defendant engages in that conduct with actual knowledge of the facts and circumstances that make the conduct of that defendant a violation of this chapter.

Reckless conduct by a defendant shall not be construed to constitute a knowing commission of a violation of this chapter.

NEW SECTION. Sec. 15. Sections 1 through 14 of this act are each added to chapter 21.20 RCW and codified with the subchapter heading of "class action suits."