Shareholder Lawsuit Debate Headed For State Legislatures

As the fierce battle over legislation to limit shareholder lawsuits comes to a conclusion here, the political brawl is spilling over from the halls of Congress to the states.

Next year, California voters are expected to face competing proposals on the issue. One measure, supported by a bipartisan coalition that includes high technology firms called Alliance to Revitalize California, would go further than the current litigation overhaul pending in Congress.

Another proposal, backed by trial lawyers and senior citizens, would try to repeal some provisions in the pending federal bill and preserve broader rights for any investor to sue in the event of corporate fraud.

To some, the California initiatives may be the beginning of a trend where some of the unresolved issues from the federal debate are slugged out at the state level.

“We are taking an initiative process in California because we’re so concerned with what’s happening at the federal level,” said Lois Wellington, president of the Congress of California Seniors. Her group has teamed with trial lawyers for an initiative proposal, which has yet to qualify for the November 1996 ballot.

Michael Johnson, executive director of the Alliance to Revitalize California, said the shareholder litigation measure is an attempt to prevent state courts from being flooded with securities class-action cases if a pending federal bill passes.

“If the federal effort is successful, California would become the mecca for these type of suits,” Johnson said Friday.

The consumer forces see the Alliance’s measure as pushing the most onerous and radical provisions that couldn’t even pass a strongly conservative GOP Congress, a provision to require losers in a class-action lawsuit to pay the winner’s attorney fees.