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Give Me One Good Reason (Gwen Moritz Editor’s Note)

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(A correction has been made to this column. See end for details.)

Our holiday production schedule — the one that brought subscribers the invaluable Book of Lists and the special Executive Q&A issue — means the astonishing reaction to our Dec. 14 story about a new legal strategy for class-action cases appeared only on ArkansasBusiness.com, not in print.

Even though that reaction involves a chief federal judge threatening sanctions against the lawyer husband of an ambitious Arkansas Supreme Court justice — the kind of thing that I consider news — it still hasn’t been reported by the Arkansas Democrat-Gazette. (Update: The Democrat-Gazette published a report on Jan. 12, the day after this column appeared in print.) So I’ve decided to use this space to review what’s happened.

Last month, Senior Editor Mark Friedman reported that John Goodson, the Texarkana lawyer who is married to state Supreme Court Justice Courtney Goodson, and other lawyers that he frequently teams up with had started using a new strategy for settling class-action cases in friendly — or at least less stringent — local circuit courts. (Goodson’s old strategy that earned hundreds of millions of dollars in attorneys’ fees on class actions of undetermined legal merit had been slapped down in a unanimous ruling by the U.S. Supreme Court in 2013.)

On the Monday before Christmas, a week after Friedman’s story appeared, U.S. District Judge P.K. Holmes III, the chief federal judge for the Western District of Arkansas, issued what’s called a “show cause” order. Essentially, he ordered every attorney involved in the case that was central to that story — Goodson, W.H. Taylor of Fayetteville, Lyn Pruitt and Steve Engstrom of Little Rock and others on both sides of the case — to give him one good reason not to sanction them all for abusing the federal court system.

It seems Judge Holmes read the story in Arkansas Business — he even cited it in a footnote — and wasn’t happy. It seems he hadn’t known that the parties in a class action filed against the USAA insurance company had him babysit the case for 17 months, only to dismiss it from his court and refile it the next day, with a settlement agreement attached, in Polk County Circuit Court.

“The clear inference … is that counsel wished to evade the federally-mandated review of the class and the proposed settlement by this Court in particular,” Holmes wrote.

Holmes had been the judge in an almost identical case — same named plaintiffs represented by most of the same attorneys making the same complaint about how damages were calculated by a different insurance company — and he had not rubberstamped the settlement both sides wanted. Instead, he required a settlement that was more favorable to the actual plaintiffs who had been harmed and less generous to plaintiffs’ lawyers.

“Counsel in this [second] case would have been aware, therefore, of the kind of terms the Court would consider fair, reasonable, and adequate in regard to the claims asserted in this matter,” Holmes wrote. Moving the case to state court to promptly settle on terms that they knew he wouldn’t approve appeared to be blatant “forum shopping,” which Holmes said “is inimical to our system of justice.”

In this case, the forum shopping worked. Despite objections from a handful of the veterans who bought insurance from USAA to the onerous claim procedure required by the settlement just to get back a portion of what USAA should have paid on their claims, Polk County Circuit Judge Jerry Ryan approved the settlement that Holmes would have rejected.

So Goodson, whose wife is now running for chief justice of the state Supreme Court, and his fellow plaintiffs’ attorneys get to split $1.85 million in fees and expenses while some 15,000 USAA customers can apply for a piece of $3.4 million. And if they don’t jump through all the hoops and all the money isn’t claimed, USAA gets to keep what’s left.

The lawyers still have to answer to Holmes, who is giving them a chance to persuade him that they weren’t engaging in “generally inappropriate procedural gamesmanship” in disregard of their “duties to the court.” In this particular case, those sanctions can’t be monetary. But they could include being disbarred, suspended from practice in the Western District, reprimand or other disciplinary actions. (A federal judge in Iowa sanctioned a lawyer by requiring his firm to produce a video on proper behavior in depositions.)

I predict Pruitt and USAA’s other lawyers will argue that they got a better deal for their client and that they owed no duty to the plaintiffs. Whether that will satisfy their duty to the court is a different question.

Goodson, Taylor, Engstrom and the other plaintiffs’ attorneys are in a whole other predicament. They left the court where they knew the judge would insist on a better deal for their clients for a court where they got a better deal for themselves. That one is going to be hard to justify, but it will be interesting to listen to them try.

The show-cause hearing has been set for Feb. 19 at the federal courthouse in Fort Smith.

(Correction, Jan. 12, 2016: Steve Engtrom of Little Rock was an attorney for the plaintiffs in the Adamses’ class-action case against USAA. He was originally identified as a defense attorney.)


Gwen Moritz is editor of Arkansas Business. Email her at GMoritz@ABPG.com.
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