Going to Arkansas state courts to settle class-action cases and avoid federal review has generated a total of $8.34 million in attorneys’ fees and expenses in five cases.
U.S. District Judge P.K. Holmes III referenced the five cases in his April 14 order in which he announced his intent to sanction 16 attorneys involved in the case of Mark and Katherine Adams v. United Services Automobile Association. That class-action case had been pending in Holmes’ court for 17 months before it was dismissed from federal court in June 2015 and refiled the next day in Polk County Circuit Court for settlement purposes.
While the attorneys maintained they didn’t do anything wrong, Holmes concluded that they dismissed the case for the improper purpose of evading federal court review.
Holmes also concluded that the same strategy was used in other class actions by attorneys who represented the plaintiffs in the Adams’ case. Those cases were first filed in state court and then moved to federal court by the defendants, which is properly allowed by federal law.
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. (USAA’s defense attorneys weren’t involved in the other cases that Holmes cited.)
In each of the cases, a settlement was reached while the case was still pending in federal court. And in each example, the attorneys dismissed the case and refiled in state court, where a proposed settlement soon followed.
The case of Adams v. USAA is typical. The fees paid to the plaintiffs’ attorneys totaled $1.85 million. And while USAA set aside $3.4 million for the class members, the insurer only would have to pay the customers who actually made claims — and Holmes revealed that fewer than 5 percent of the roughly 15,000 class members bothered to fill out the paperwork.
Holmes said 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 an abuse of judicial process.”
Holmes intends to sanction the attorneys only for their behavior in the Adams case, but he said in his order that the repeated use of the strategy ‘bears on the degree of [attorneys’] bad faith.”
Two of the cases he cited started in Miller County Circuit Court and were transferred to federal court by the defendants. Those cases ultimately returned to Miller County Circuit Court for settlement purposes.
On Jan. 5, 2015, Miller County Circuit Judge Brent Haltom approved a settlement against Lloyd’s of London underwriters. Some of the attorneys in that case were involved in the Adams’ case: Matt Keil and John Goodson, both of Texarkana, William Putman of Fayetteville, Richard Norman and R. Martin Weber Jr., both of Houston, and Jason Roselius of Oklahoma City. They split $800,000, while the amount available to pay the class members was $1.1 million. How many class members filed the claim forms necessary to receive their share of the settlement is not known. As in the USAA case, the insurance company got to keep any money that was not claimed.
Judge Haltom also approved another class-action settlement on Aug. 12 against Shelter Mutual Insurance Co. and awarded the class counsel a total of $1.06 million in attorneys’ fees and costs. The class counsel included the four firms in the Lloyd’s case plus four additional firms. In the Shelter case, $2.65 million was set aside for the class members.
Holmes identified other cases that followed a similar tack in Jackson, Hot Spring and Independence counties. The ones that started in Jackson and Hot Spring counties eventually were merged into one and the attorneys’ fees totaled $3.5 million. The Independence County case was worth $1.13 million to plaintiffs’ attorneys.
“Overall these cases reveal the extent to which the judicial process is being abused by the dismissal tactics designed to insulate the settlement of class action from federal review,” Holmes wrote.
He also said that the conduct in the Adams’ case of knowingly evading properly invoked federal judicial scrutiny and gaming the system for a purpose that the attorneys knew or should have known was improper under the rules “reveals some degree of bad faith on the part of Respondents. An appropriate sanction is necessary to vindicate judicial authority.”
Holmes said he intends to issue the sanctions after the June 24 hearing. The sanctions he is considering center on requiring the attorneys to include a disclosure in future federal court cases that they have been sanctioned for abusing the system, a punishment that has a more adverse effect on an attorney’s career than non-attorneys may appreciate.
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