Lecture by Footnote (Gwen Moritz Editor's Note)

Years ago, a young reporter overheard the pointed words I had for a corporate spokesman who lied to me one day only to tell the truth in a news release the next day. “I was starting to shake — and I wasn’t even the one you were yelling at,” he said when I hung up the phone.

I had the same feeling last week as I read U.S. District Judge P.K. Holmes’ opinion announcing that he will sanction 16 attorneys for their misconduct in a class-action case in his court. We won’t know until after a June 10 hearing what those sanctions will be, but just being sanctioned “will have an adverse effect on their careers,” Holmes acknowledged. The lawyers include John Goodson, University of Arkansas trustee and husband of state Supreme Court Justice Courtney Goodson, W.H. Taylor, Stephen Engstrom and Lyn Pruitt. (Click here for more about all the attorneys.)

Holmes spent eight weeks crafting the 32-page opinion and order after first dragging the 16 attorneys (and one more, whom he absolved of wrongdoing) into his courtroom to explain themselves. It was a report by our Senior Editor Mark Friedman that alerted Holmes to the settlement strategy that he has now officially concluded was improper and an abuse of his court.

In short, Holmes determined that both the plaintiffs’ attorneys and the defense attorneys dismissed the case against USAA insurance company from his court and immediately filed it in Polk County Circuit Court in order to avoid his scrutiny of a settlement that, in his words, “benefited everyone but the class members.”

This kind of “mid-litigation forum shopping” designed to “escape an adverse decision [or] seek a more favorable forum” has twice been specifically forbidden in the federal courts of the 8th U.S. Circuit (which includes Arkansas) — the second time in a case that involved several of the lawyers now awaiting sanctions.

None of the arguments that the lawyers made during the Feb. 18 hearing was in the least persuasive. Jointly agreeing to dismiss a case does not mean, Holmes informed them, that the judge can’t then review their behavior in the case. Nor, he said, does the fact that they were able to dismiss make it proper to do so.

Maybe it’s just my fertile imagination, but Holmes sounded exasperated when he rejected the argument that some boilerplate language in routine orders made the lawyers think he anticipated their strategy and approved of it.

“To the extent Respondents might be claiming that on the basis of these orders, they believed in good faith that the Court condoned their chosen means of evading federal review, the Court does not find such a claim to be credible,” he wrote.

Most dismissive of all was a four-line footnote in which he shot down the lawyers’ argument that they didn’t know they were doing anything wrong because they had done it before without getting in trouble: “That misconduct has gone unnoticed in the past does not excuse the instant misconduct. If anything, this argument bears on the degree of Respondents’ bad faith.”

The degree of bad faith involved, as these lawyers are painfully aware, is one of the factors Holmes will consider when he orders sanctions.

I haven’t read enough of his work to know if this is his typical style, but in this order Holmes seemed to use footnotes to deliver his most direct lectures. In one footnote, he said, “Defense counsel have the temerity to claim” that they assumed he knew that the case would be moved to state court for settlement.

Temerity is never a good thing to have.

Another footnote swatted away the attorneys’ supposed concerns about nonexistent (in this case) “professional objectors” by saying, “[I]t appears to the Court the Plaintiffs’ counsel was just as worried — and likely more worried — about actual, good-faith objections to their proposed settlement as they were about any speculative ‘professional’ objections.”

And there was reason to worry about good-faith objections. Holmes revealed — against the attorneys’ express wishes — that only a little more than 4 percent of the 15,000 insurance company customers who were notified that they might be owed money jumped through the hoops necessary to make a claim. Not coincidentally, USAA — having promptly paid the plaintiffs’ lawyers $1.85 million — got to keep any of the $3.4 million set aside for class members that wasn’t actually claimed.

In another footnote, Holmes said the reason the attorneys gave for wanting the settlement crafted that way — so that USAA would not attempt to pay customers who didn’t want the money — “is entirely incredible.” Ya think?

Holmes used a footnote to point out that the lawyers changed the number of USAA customer who might be part of the plaintiff class – fewer than 7,700 in some documents, more than 15,000 in others. He used a footnote to remind the plaintiffs’ attorneys that they actually claimed to be “proud” of a settlement that resulted in payments to fewer than 700 of their thousands of clients. The first of two suggestions that the settlement bore “at least some hallmarks of collusion” between the lawyers on both sides is also in a footnote. (To have the judge suggest collusion is never a good thing; to have him suggest it twice seems ominous to me.)

But my favorite footnote was the one in which Holmes pointed out that he had had to research the advantages of moving the case into state court on his own.

“In evaluating this issue, prior opposing briefs signed by some of the Respondents have proven helpful,” the judge wrote, and then gave a list of documents in which the very attorneys accused of exploiting the differences between state and federal courts had outlined those differences.

Hoisted, as Shakespeare would say, with their own petards.