KANSAS CITY, Mo. — The 8th Circuit Court of Appeals heard oral arguments last week to determine if a sanction will stand against attorney John Goodson of Texarkana and four other lawyers found to have engaged in “forum shopping” in an Arkansas class-action case.
The case involved an assumed class-action case against the USAA insurance company that had been on the docket of U.S. District Judge P.K. Holmes III for nearly a year and a half before attorneys for both the plaintiffs and defendants agreed to dismiss the case. The day after the dismissal, in June 2015, the case was refiled with a settlement agreement attached in Polk County Circuit Court, where it was easier to obtain a quick settlement.
Holmes concluded that the attorneys made the move to state court to avoid his review of the settlement, which he said he wouldn’t have approved. The settlement called for the plaintiffs’ attorneys to promptly — within 10 days of settling the case — receive $1.85 million, while $3.4 million was set aside for the class members. In the end, though, fewer than 5 percent of the victims filed a claim, and the unclaimed money was returned to the defendant, USAA.
In August, Holmes issued an order that reprimanded Goodson, who is the husband of an Arkansas Supreme Court justice, and four other attorneys who were found to have abused the court system for manipulating the case. A reprimand is considered a mild form of sanction.
Holmes found seven other plaintiffs’ attorneys involved in the class-action case and three defense attorneys had abused the court system, but their misconduct didn’t rise to the level of bad faith. They were not sanctioned but have joined in the appeal of Holmes’ order.
If Holmes’ order stands, it would set new rules for how putative class-action cases are handled.
In the 40-minute oral argument on Feb. 7, Gregory Joseph of Joseph Hage Aaronson LLC of New York represented most of the plaintiffs’ attorneys. He argued that what the attorneys did was proper under the federal rules and federal judges had not objected when a similar strategy was used in other, similar cases in federal court in Arkansas.
“This was the generally accepted view of the law,” Joseph said. “No one was evading federal review.”
Judge Duane Benton, a member of the three-judge panel who heard the case, noted that “this judge wasn’t told” about the purpose of the dismissal. Joseph said it wasn’t required because the case had not been certified as a class action at that point.
Judge Lavenski R. Smith also asked if keeping the case in Holmes’ court for 17 months was wasting the court’s time. Joseph said it wasn’t, because Holmes didn’t oversee many court proceedings as both sides attempted to reach a settlement.
Then Benton asked if Holmes had been “played” by the attorneys keeping the case in federal court, only to see it moved to state court to approve the settlement.
“My clients wanted to be in state court” from the beginning, Joseph said. The case against USAA was originally filed in state court but moved to federal court by the defendants, as is allowed under federal law.
Attorney Thomas Walsh of the law firm Bryan Cave LLP of St. Louis represented the three attorneys for USAA, including Lyn Pruitt of the Mitchell Williams law firm in Little Rock.
Judge Benton said it worried him that those attorneys who weren’t sanctioned were appealing, because it could create a “slippery slope” for attorneys to appeal scoldings from judges. “How do we draw the line on what you get to appeal?” he asked.
Walsh said his clients have national law practices, and “their reputation is at stake” if Holmes’ finding stands. The order has “real-world consequences,” Walsh said.
In an affidavit filed in June, defense attorney Stephen Goldman said Holmes’ initial finding in April that he would be sanctioned along with 15 other attorneys in the case “has caused me considerable personal and professional hardship.” Holmes ultimately reconsidered and punished only five attorneys.
Still, Goldman, a managing partner at Robinson Cole LLP of Hartford, Connecticut, said that the ruling has damaged his legal practice. “I know of at least one case in which neither I nor my firm was retained because of a concern about the publicity of the decision and the effect it might have on a judge whom I did not know.”
During the oral argument, Walsh told the panel that the defense attorneys were just doing what USAA wanted them to do — settle the case in state court, where it would more likely be approved quicker.
Judge Benton seemed to side with the defense in his questioning. “The plaintiffs’ lawyers are the ones that are messing with the class,” he said. “The defense lawyer doesn’t have a duty” to protect the putative class members.
Ted Frank, director of the Competitive Enterprise Institute’s Center for Class Action Fairness in Washington, whom the 8th Circuit appointed to defend Holmes’ order, said during the argument that the attorneys dismissed the case in federal court for an improper purpose, which was evading the court’s oversight of the proposed settlement.
Missing from the oral argument was any discussion of the terms of the settlement, which Holmes said he would not have approved because it “benefited everyone but the class members.”
Judge Benton asked “how do you even know there’s a class” at the time the case was dismissed. “That’s troubling to me.”
Frank said the attorneys knew there were class members at that time. But the attorneys didn’t mention that in their papers to dismiss the case.
Judge Bobby E. Shepherd said that he was concerned about how Holmes could find bad faith for dismissing the case when other judges had not. “Is there at least enough question of lack of certainty that counsel is protected in that situation?” he asked.
“Somebody had to be the first one to find this was improper,” Frank said. “And it was this judge. And these people were at the wrong place at the wrong time.”
Frank said that if the 8th Circuit finds that the sanctions are inappropriate, he still wants the judges to rule that forum-shopping to evade federal scrutiny of class actions is sanctionable in future cases.
In addition to Goodson, the reprimand applied to his law partner, Matt Keil; Jason Earnest Roselius, a partner of Mattingly & Roselius of Oklahoma City; R. Martin “Marty” Weber Jr., of counsel of Crowley Norman LLP of Houston; and Richard E. Norman, a partner of Crowley Norman.
Several of the attorneys were at the oral arguments last week, including Goodson.
Before the proceeding started, Joseph whispered to Goodson, “You’re going to be vindicated.”
A decision will come later.
