The Technology Network, a bipartisan high-technology lobbying group launched earlier this month, today said it won the support of President Clinton in drafting legislation to curb shareholder lawsuits brought under inconsistent state court standards.
The group cited a letter from Clinton to Sen. Christopher Dodd (D-Connecticut), stating: "The possibility of changes in one or more states' securities laws, similar to those proposed in California's Proposition 211, suggests that there may be a need to reconsider the appropriate balance of federal and state roles in securities law."
High-tech leaders say that trial lawyers are now filing securities class-action lawsuits in state courts to avoid more stringent federal rules dictated by the Private Securities Litigation Reform Act of 1995. Such suits, they add, are usually settled out of court--even if they lack merit--because companies find it more economical to reach quick agreement with lawyers than go through drawn-out court proceedings.
"I believe that my administration will be able to formulate an appropriate response to issues raised about the effectiveness of the [1995] Reform Act and the role of federal securities law in a national market system," Clinton wrote in the letter.
Studies support proponents' claims that the number of stockholder class-action suits filed in state courts has increased since the 1995 securities law made it more difficult for plaintiffs to file in federal court.
A recent Stanford Law study shows that about 26 percent of litigation has moved from federal to state court. Michael Perino, who coauthored the study, said in an earlier interview that this shift is likely the result of a "substitution effect" where plaintiffs file in state court when the underlying facts don't satisfy federal pleading requirements.
Last year, the Technology Network worked to defeat Proposition 211 in California. It also is seeking to win congressional approval of a House bill called the Securities Litigation Clarification Act that would require that any class-action suits involving nationally traded securities be filed in federal courts, where the tougher rules apply.
The group's goal is to foster stronger relationships between government and the historically independent high-tech industry.
"President Clinton today sent a strong signal that he intends to work with key members of Congress and the technology community to solve the problem of state securities litigation," said John Doerr, co-chair of the Technology Network and partner in the venture capital firm of Kleiner Perkins Caufield & Byers. "It puts the president clearly on the side of the technology companies that are creating the new economy."