Arkansas Business

When he finally got his chance in front of the U.S. Supreme Court on Jan. 7, Los Angeles attorney Theodore Boutrous Jr. wasted no time in complaining about the state of the court system in Miller County, Arkansas.

Boutrous was formally representing Standard Fire Insurance Co. But he spoke for dozens of other corporations that have complained that Miller County Circuit Court is a legal backwater where friendly elected judges help prolific local class-action attorneys exploit a loophole in federal law to force giant settlements in cases whose legal merits are never even considered.

Last week, the high court spoke about as strongly as it can: In a unanimous decision requiring fewer than 500 words, the justices gave Boutrous, Standard Fire and future class-action defendants a giant win.

Meanwhile, the decision crippled a legal strategy of minimizing the potential value of cases that had been remarkably successful for the Texarkana law firm of Keil & Goodson and two Texas firms, Nix Patterson & Roach and Crowley Norman.

In the seven years after Congress passed the Class Action Fairness Act of 2005 in an attempt to rein in class-action abuses, those three firms extracted 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. (How much money went to the class members, the individuals who were allegedly damaged, is less clear because the settlement agreements are often sealed.)

The Supreme Court’s decision “sends a pretty strong message that what the plaintiffs had been doing was not appropriate,” attorney Jeremy Rosen of Encino, Calif., told Arkansas Business last week. He had filed a brief in support of Standard Fire. “This should be enough to send a message to the courts that [the Class Action Fairness Act] means what it says and there are certain cases that Congress had deemed belong in federal court.”

Ironically, Knowles v. Standard Fire became the vehicle for clarifying the rules under CAFA even though it was never actually certified as a class-action case and only one plaintiff came forward.

“This case illuminates certain unappetizing, unfair aspects of the way trial lawyers have abused certain aspects of the class-action system,” attorney Dan Greenberg of Little Rock, former senior counsel of the Center for Class Action Fairness LLC of Washington, D.C., told Arkansas Business before the ruling last week.

Greenberg correctly predicted the Supreme Court’s decision, which he said would “rein in some of the trial lawyers’ worst excesses.”

(For descriptions of such alleged excesses, click here.)

The $5 Million Question

The case dates to March 2010, when hail damaged the Miller County home of Greg Knowles. Knowles — represented by Keil & Goodson of Texarkana, Ark., and Nix Patterson & Roach, which has an office in Texarkana, Texas — filed a lawsuit claiming that Standard Fire didn’t pay enough of his claim to cover a general contractor’s overhead and profit, which is 20 percent of an estimated job. Knowles said his Standard Fire agent never told him he was entitled to receive the money for the contractor.