Class-Action Sanctions Against Lawyers Threaten Other Cases

The Western District of Arkansas Fort Smith Courthouse

When Chief U.S. District Judge P.K. Holmes III sanctions 16 attorneys in a controversial insurance class-action case next week, it could make life harder for the plaintiffs’ lawyers who have other cases pending in federal courts in Arkansas.

“The other judges with these lawyers’ pending cases will now be alert to the techniques of these lawyers,” attorney Robert Trammell of Little Rock said in an emailed statement to Arkansas Business last week. “They can expect more frequent objections to anything they do.”

Among those attorneys who will be sanctioned in Holmes’ Fort Smith courtroom on June 24 are class-action attorney John Goodson of Texarkana, his law partner, Matt Keil, and W.H. Taylor of the Fayetteville firm Taylor Law Partners. Goodson, Keil and other co-counsel have seven class-action insurance cases pending in federal court. Those cases were first filed in state courts in Arkansas, but the defendants moved to federal court between January 2014 and December 2015, as is allowed under the Class Action Fairness Act of 2005. Defendants in class-action cases typically want to be in federal court, where it’s more difficult for the case to be certified as a class action and settlements face more scrutiny from judges.

Goodson, who is married to Arkansas Supreme Court Justice Courtney Goodson, has used procedural maneuvers to move several class-action cases back to state court for settlement, with defendants agreeing in order to settle faster and cheaper in state courts.

Holmes, the chief federal judge for the Western District of Arkansas, found the practice to be an abuse of the judicial process. He has announced his plan to sanction 16 of the 17 attorneys on both sides of a case that he said was moved from his court to state court in order to effect a settlement that “benefited everyone but the class members.”

The specific sanctions Holmes is considering center on requiring the lawyers to disclose in future federal court cases that they have been sanctioned for abusing the system. Attorneys following the case said the sanctions mean that class-action attorneys won’t be able to use the negotiating tool of offering the defendants the option of going to state court for an easier settlement.

The sanctions will probably cause attorneys to think twice before settling in state court a class-action case that has been filed in federal court, said Georgene Vairo, a professor at Loyola Law School at Los Angeles and author of “The Complete CAFA: Analysis & Developments Under the Class Action Fairness Act of 2005.”

“With this opinion, it is likely to deter plaintiffs’ attorneys and defense attorneys from bailing out of federal court to state court to get a better result,” she said.

Attorney John R. Elrod of Conner & Winters LLP of Fayetteville, who is representing Goodson, Keil and other class-action attorneys in the case, didn’t return a call from Arkansas Business.

Both the plaintiffs and the defense attorneys in the case have maintained they did nothing wrong, but Holmes found that only one of 17 lawyers was not involved in the abuse.

The plaintiffs’ attorneys recently hired attorneys from the New York law firm Joseph Hage Aaronson LLC, which was named one of the top 100 trial lawyers in the U.S. in 2015 by Benchmark Litigation, which covers the litigation and disputes market in North America. The attorneys also hired attorney Russell Post of Houston, who is a “board-certified appellate specialist,” according to his website.

“The entry of appearance of pretty high-powered attorneys to fight this is because this is a precedent they won’t be able to stomach nationally,” said Paul Love of the Heritage Law Office PLLC of Searcy. Love was the Arkansas counsel for the nonprofit Competitive Enterprise Institute’s Center for Class Action Fairness in Washington.

“They’re coming in big guns because this is a big deal, and it’s not just limited to Fort Smith,” he said.

Love had filed a friend of the court brief in the sanctions case, but Holmes ruled that the proposed brief was neither solicited nor offered to the court in a reasonably timely manner.

Love said that federal judges in other districts might start looking more closely to see if class-action cases that have been dismissed from their courtrooms were then refiled in state court for settlement purposes. That’s what happened in the case of Mark and Katherine Adams v. United Services Automobile Association, but Holmes didn’t know it until he read a report on the class-action maneuver in Arkansas Business in December.

Neither Post nor the attorneys from Joseph Hage returned a call for comment.

Another consequence could be that judges in other pending cases might replace the class members’ attorneys with other attorneys, said Lester Brickman, a professor of law at the Cardozo School of Law in New York, where he is an expert in class actions and lawyer fees.

“This is certainly within the power of the presiding judge,” Brickman said. “And I think it’s at least plausible that, in some of these cases, the class counsel who filed the action will be unseated in favor of untainted lawyers.”

The sanctions could also hurt the plaintiffs’ attorneys when they ask that their cases be certified as class actions by a judge, said Ted Frank, director of the CEI’s Center for Class Action Fairness in Washington.

“The defendant will argue that these guys aren’t going to represent the class under federal rules adequately, and you should deny the certification,” he said. “It’s possible that the judge might agree with that, which would adversely affect their class-action practice.”

Judge Cites ‘Gamesmanship’

Holmes had questioned the attorneys for their handling of Adams v. USAA, which had been pending in his court for 17 months. The case was dismissed from Holmes’ court in June 2015 and refiled the next day in Polk County Circuit Court for settlement purposes.

In December, Polk County Circuit Court Judge Jerry Ryan, who didn’t ask a single question about the settlement agreement, awarded $1.85 million in fees and expenses to the plaintiffs’ attorneys. USAA agreed to set aside $3.4 million for the nearly 15,000 potential class members, but as of Feb. 20, fewer than 5 percent of the potential class members had submitted claims. Under the terms of the settlement, any money that wasn’t claimed by class members would be returned to USAA.

“The reality is that these kinds of highly questionable settlements take place with great frequency and are approved by judges,” said Brickman, the law professor.

Trammell, the Little Rock attorney, had objected to the settlement on behalf of some USAA members. He has appealed the case to the Arkansas Court of Appeals.

Holmes said in his filings that he wouldn’t have approved the settlement. Both the defense attorneys and the plaintiffs’ lawyers maintained that they didn’t do anything wrong in refilling the case in state court.

Attorney John Emerson of Houston, who has handled class-action cases in Arkansas but wasn’t involved in the USAA case, also said he thinks the attorneys acted properly in the handling of the case. “I know all of the lawyers,” he said. “They’re all excellent lawyers on both sides of the case.”

He said it was their prerogative to refile the case in Polk County. And the Polk County Circuit Court judge “would have the authority over the settlement,” he said. “So I don’t quite understand why there’s any sort of controversy about this.”

Judge Holmes saw it differently. In the order issued on April 14, Holmes concluded that the attorneys dismissed the case for the improper purpose of evading federal court review. He added that the arrangement benefited everyone but the class members.

“The gamesmanship is improper in any case,” Holmes wrote. “That it has become standard practice for some Respondents only further convinces the Court that this conduct is abuse of judicial process.”

Still, a number of questions remain as to what the impact of the sanctions will be, said Frank, of the Center for Class Action Fairness. “There’s a lot that’s uncharted here because most judges don’t scrutinize proceedings this closely,” he said. “And most judges don’t act to protect class members like this.”

Attorneys Who Will Be Sanctioned

The following plaintiffs’ attorneys will be sanctioned by Chief U.S. District Judge P.K. Holmes III on June 24:

• Kenneth “Casey” Castleberry of Batesville
• Stephen C. Engstrom of Little Rock
• John Goodson of Texarkana
• D. Matt Keil of Texarkana
• Matthew L. Mustokoff of Radnor, Pennsylvania
• Timothy J. Myers of Fayetteville
• Richard E. Norman of Houston
• William B. Putman of Fayetteville
• Jason Earnest Roselius of Oklahoma City
• W.H. Taylor of Fayetteville
• A.F. “Tom” Thompson III of Batesville
• Stevan Earl Vowell of Fayetteville
• R. Martin “Marty” Weber Jr. of Houston

The following defense attorneys will be sanctioned:

• Wystan Ackerman of Hartford, Connecticut
• Stephen Edward Goldman of Hartford, Connecticut
• Lyn P. Pruitt of Little Rock