Miller County Class-Action Strategy Struck Down by U.S. Supreme Court

by Gwen Moritz  on Tuesday, Mar. 19, 2013 9:39 am  

The U.S. Supreme Court, in a unanimous decision released Tuesday morning, has ruled in favor of an insurance company in a case brought in Miller County.

The decision throws a wrench into a business plan used with great success by the Texarkana law firm of Keil & Goodson. The firm and others have routinely managed to keep class-action cases in friendly — and slow moving — state court by stipulating from the get-go that the plaintiffs will not seek more than $5 million in costs and damages.

(More: Download a PDF of the full opinion.)

Keil & Goodson represented the plaintiff in the case that went to the Supreme Court, Knowles v. Standard Fire Insurance Co. The case turned on a question of coverage after hail damaged the Miller County home of Greg Knowles in 2010. Keil & Goodson, along with a Texas law firm, filed a lawsuit claiming that Standard Fire didn't pay enough of Knowles' claim to cover a general contractor's overhead and profit, which is 20 percent of an estimated job.

Knowles' lawsuit didn't say how much Standard Fire should have paid for his specific claim. But he and his attorneys stipulated that Knowles and the class of other Arkansas policyholders he sought to represent would not seek more than $5 million, even though those other plaintiffs had not yet been identified. That is the value threshold that Congress set in the Class Action Fairness Act of 2005; in cases valued above $5 million, the defendants can unilaterally move the case to federal court.

Standard Fire tried to move the case to federal court, but because of the $5 million stipulation, U.S. District Judge P.K. Holmes III of Fort Smith rejected the motion. The 8th Circuit Court of Appeals declined to hear an appeal of that decision, but Standard Fire got an audience with the U.S. Supreme Court in January and prevailed.

The case has never been certified as a class-action, a process that can take years in Miller County Circuit Court, encouraging defendants to settle out of court.

"Here, the precertification stipulation can tie Knowles’ hands because stipulations are binding on the party who makes them…," Justice Stephen Breyer wrote for the court. "However, the stipulation does not speak for those Knowles purports to represent, for a plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified."

Although CAFA was enacted in 2005 specifically to prevent abuses of class-action lawsuits, in the past seven years Keil & Goodson and the Texas firms of Nix Patterson & Roach and Crowley Norman received more than $420 million in attorneys' fees tied to out-of-court settlements — not jury verdicts — in 23 lawsuits, nearly all of them in Miller County.

The importance of the question to the Keil & Goodson business strategy was underscored when partner John Goodson's wife, Arkansas Supreme Court Justice Courtney Hudson Goodson, attended the oral argument in the Knowles case and afterward met briefly with Justice Antonin Scalia, who had been apprised of her husband's interest in the case.

Neither Goodson nor partner Matt Keil was available for comment on the ruling, the receptionist at their law office said.



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