(A correction has been made to this story. See end for details.)
Little Rock attorney Robert Trammell is scheduled to appear in Polk County Circuit Court on Wednesday to challenge a class-action settlement that he said is unfair to class members and favors the law firms representing them: Keil & Goodson of Texarkana and Taylor Law Partners of Fayetteville.
The terms of the settlement call for the plaintiffs’ firms to receive up to $1.85 million in attorneys’ fees and expenses while the defendant, United Services Automobile Association, will have to set aside $3.4 million to pay potential claims, Trammell said in his Nov. 16 filing.
But the proposed settlement, he said, seems designed to make it difficult for USAA members to file claims — possibly because any money not paid to class members will go back to the insurance company.
Trammell appears to be the first attorney to object to a class-action settlement this year in cases involving the Keil & Goodson firm, which collected millions of dollars in attorneys’ fees in class-action suits until the U.S. Supreme Court stepped in in March 2013.
The high court voided a key element of Keil & Goodson’s strategy that involved trapping defendants in front of friendly and slow-moving elected judges in state courts, forcing huge settlements in cases whose legal merits were never considered. Keil & Goodson and two Texas firms it worked with, Nix Patterson & Roach and Crowley Norman LLP, extracted more than $420 million in attorneys’ fees from 23 settlements between 2005 and 2012, nearly all of them in Miller County.
Since the high court unanimously found the strategy to be illegal, Keil & Goodson and other class-action attorneys have taken a different approach to keeping their class-action settlements out of the hands of federal judges: strike a deal with the defendants to settle the case in state court, where judges may be less stringent in assuring that the victims are compensated as fairly as the attorneys.
(Also see: A Guide to Class-Action Strategies Used by Certain Arkansas Law Firms)
That’s what happened in the USAA case. The lawsuit, which never made it to the point of being certified as a class action by a judge, was dismissed from U.S. District Court in Fort Smith on June 22. The next day, a nearly identical complaint was filed in Polk County Circuit Court along with a stipulation of a class-action settlement.
Having a case filed in state court for the purposes of settlement is “a pretty standard way to try to rip off the class,” Ted Frank, the director of the Center for Class Action Fairness in Washington, told Arkansas Business, which asked him to review documents in the USAA case.
“I guess they were worried that … a judge in federal court would have given it scrutiny, and they wanted to get away from that. Because there’s no reason to refile it in state court unless they were trying to avoid federal review.”
Arkansas Business has found two other cases where the Keil & Goodson firm participated in settling class-action lawsuits this year and shared a total of $1.86 million in attorneys’ fees and expenses. Those cases had been in federal court but were refiled in state court for prompt settlement.
Neither Matt Keil nor John Goodson, a member of the University of Arkansas Board of Trustees and husband of Arkansas Supreme Court Justice Courtney Goodson, returned messages seeking interviews about the settlements.
W.H. Taylor of the Taylor firm also didn’t return messages seeking comment.
USAA’s attorney, Lyn Pruitt of Little Rock, referred calls to the insurance company.
USAA agreed to settle the case while admitting no wrongdoing because “class-action litigation is inherently unpredictable and can be extremely expensive and disruptive of USAA’s day-to-day operations,” USAA spokesman Roger Wildermuth said in a statement to Arkansas Business. “So sometimes it is better for USAA’s membership as a whole to settle class actions so we can remain focused on serving our members.”
Adams v. USAA
The events in the case pending in Polk County Circuit Court date back to April 2009, when a tornado damaged the Mena home of Mark and Katherine Adams.
The Adamses submitted a claim to USAA, and the USAA adjuster determined the covered loss for two structures totaled nearly $51,000. USAA, however, subtracted nearly $8,000 from the adjuster’s replacement cost estimate for depreciation.
Arkansas law allows an insurance company to depreciate physical assets, such as materials used to repair or replace the damaged property, when determining the actual cash value of a claim, according to the Adamses’ lawsuit.
“However, an insurer may not depreciate labor costs associated with such repair or replacement,” according to the lawsuit filed on Dec. 5, 2013, in Polk County Circuit Court by Keil & Goodson, five attorneys from Taylor’s firm, Jason Roselius of Oklahoma and Richard Norman of the Crowley Norman firm.
Mark and Katherine Adams, through the attorneys, accused USAA of breaching its duty to indemnify the couple by depreciating the labor costs associated with repairs to the properties.
The attorneys said they believe that “hundreds if not thousands” of Arkansas policyholders had been damaged by USAA’s actions and asked that the case be certified as a class action.
“Plaintiffs and their counsel will fairly and adequately protect the interests of the members of the Class,” the lawsuit said. “Plaintiffs have retained counsel who are competent and experienced in class action litigation, including insurance-related cases. Plaintiffs and their counsel will prosecute this action vigorously.”
Settlement Talks
Pruitt, USAA’s attorney, quickly moved the lawsuit to federal court.
That option was available under the Class Action Fairness Act of 2005, which allows a lawsuit involving a class of plaintiffs from multiple states to be moved out of a state court and into federal court by motion of the defendants. Similarly, the defendants can unilaterally move a class-action case into federal court if the plaintiffs claim damages, including attorneys’ fees, of more than $5 million.
In enacting CAFA, Congress intended to give class-action defendants relief from the kind of legal shenanigans that kept cases in friendly state courts.
The USAA case made it to U.S. District Court in Fort Smith in January 2014, the month after it was filed in circuit court. Not much happened until May 2014, when both sides asked to stay all proceedings, including discovery, while they attempted to settle the case. Chief U.S. District Judge P. K. Holmes III granted the motion.
In a status report filed in March 2015, attorneys for the plaintiffs and the defendants told Holmes that they “have made substantial progress toward resolving this action” but needed a little more time to iron out the details.
Holmes denied the request for another stay and ordered the case to move forward. In June, attorneys for the Adamses filed, with Pruitt’s agreement, a motion to dismiss the case, agreeing that each party would cover its own attorneys’ fees. The door was left open for the case to be refiled later.
Return to Mena
The day after the case was dismissed from federal court, it was refiled in Polk County Circuit Court — with the proposed settlement agreement attached.
An expert on class-action law speculated that both sides were concerned that their proposed settlement wouldn’t be approved in federal court.
“Because if they were confident that the federal judge would approve the settlement, why are they going to state 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.”
“There’s a greater likelihood that the state court judge will approve that settlement without upsetting the attorney-fee provision or the overall amount that the defendants are going to put in. … Otherwise, it makes no sense.”
In the refiled lawsuit, though, the only plaintiffs’ law firms listed were Keil & Goodson and three attorneys from the Taylor firm. Missing were the other plaintiffs’ attorneys who had been part of the federal case, such as Matthew Mustokoff of Kessler Topaz Meltzer & Check LLP of Radnor, Pennsylvania.
“My co-counsels are handling the settlement of the case in state court,” Mustokoff told Arkansas Business. “It’s really all the information I can give you.”
He also wouldn’t say if he would be paid any fees in the case.
“As a general policy, we don’t comment on ongoing litigation,” Mustokoff said.
Vairo said defendants may be willing to go along with class-action settlements because they receive “peace. You bind every single class member so there will be no more litigation on this.”
The proposed settlement received its preliminary approval by Polk County Circuit Judge Jerry Ryan on Aug. 26.
A final approval hearing in the action against USAA, which serves millions of military members and their families, was set for Dec. 16, and it seemed like the settlement was going to breeze through.
(Also see: Arkansas Supreme Court Ruling Unleashes Flurry of Lawsuits)
Objection
After receiving the USAA claim forms in the middle of October, Robert Trammell, the Little Rock attorney, filed an objection to the settlement on Nov. 16 on behalf of four veterans who are USAA policyholders.
Trammell said in the filing that the case seemed rushed and “does no more than move forward an award of attorney’s fees.” In addition, the settlement doesn’t require USAA to pay a fee for its alleged wrongdoing.
Worse still, class members would only get a portion of what was owed to them — if they bothered to fill out the claim form.
“The settlement document is imbedded with provisions that make participation a challenge, makes efficient participation impossible, and incurs hasty costs that would be predictably wasted if any person, or advocate, chose to come forward and seek to challenge the settlement,” Trammell wrote in his objection.
“It was futile from the beginning; the common thread upon the settlement notice being read by veterans who possess a common sense outlook backed by rigorous education, was: ‘How stupid do they think the veteran is.’”
In order to get a settlement, the class members would have to fill out a “lengthy” form and sign it under the penalty of perjury, even though USAA has the information on file and could simply send the class members checks, Trammell said.
Trammell said he wants to open the matter to discovery, including depositions, for transparency purposes and to determine if the class action is being done for the benefit of the members.
“A jury trial is requested,” he said.
Correction: Jerry Ryan is a Polk County Circuit judge. He was originally misidentified as a district judge.)
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