UPDATE: Ark. judge says class action ruling could take 'a little while'

By Michelle Keahey | Oct 4, 2012


TEXARKANA, Ark. (Legal Newsline) - At a hearing held Thursday in Miller County, Ark., Circuit Court, Judge Kirk Johnson stated it could take him "a little while" to form his opinion on the defendant's motion to stay a class action pending before his Court.

The motion to stay asks Johnson to temporarily halt ongoing case proceedings, for six to nine months, until the U.S. Supreme Court issues an opinion in the case on a jurisdictional question related to the Class Action Fairness Act.

The lawsuit began in April 2011 when Arkansas resident Greg Knowles filed a putative class action against Standard Fire Insurance Company in Judge Johnson's Miller County Circuit Court. The lawsuit claims breach of contract due to Standard Fire's alleged underpayment of claims for loss or damage to property made under a homeowner's insurance policy.

Knowles requested payment for damage to his home caused by hail on March 10, 2010, and claims that Standard Fire did not pay for charges associated with retaining the services of a general contractor to repair or replace his damaged property, charges known as general contractors' overhead and profit, that are an extra 20 percent fee routinely assessed by contractors when repairing damaged property. In the lawsuit, Standard Fire is accused of fraudulently concealing its obligation to pay the GCOP on homeowners' insurance contracts throughout the state of Arkansas.

Arguing that the amount in controversy exceeds $5 million and that the Plaintiff fraudulently defined the class in an effort to avoid federal jurisdiction, Standard Fire removed the case to federal court in May 2011. In response to Standard Fire's efforts, the plaintiff argued that its original complaint included a stipulation which limits the recovery to under $75,000 and limits unnamed class members' recovery to under $5 million, which would keep them in the Miller County Circuit Court.

Federal Judge P. K. Holmes III agreed with the Plaintiff that the stipulation did legally bind the Plaintiff to an amount that places them in the lower state court. However, Holmes also opined that Standard Fire met the initial burden of proof and showed that the actual amount in controversy reaches, if not exceeds, the federal court's minimum threshold for jurisdiction pursuant to CAFA. Holmes remanded the case back to Miller County.

The defendant appealed the decision to the U.S. Court of Appeals for the Eighth Circuit, which was denied without explanation. Then, Standard Fire petitioned the U.S. Supreme Court for Writ of Certiorari, which was granted in August.

The Supreme Court is scheduled to hear oral arguments on whether a plaintiff can limit absent class members recovery so as to destroy federal jurisdiction and keep the case in a "friendly" state court.

While the legal question is currently waiting oral arguments before the U.S. Supreme Court, the state court heard arguments from the parties on whether to continue the case or stay the case until the Supreme Court has made its decision.

At Thursday's hearing, Little Rock attorney Lyn Pruitt, on behalf of defendant Standard Fire Insurance, argued that a motion to stay the case should be granted "out of respect to our highest Court."

Further, she argued that allowing the case to continue will cause her client irreparable harm in the form of millions of dollars spent in discovery costs.

She pointed out that the plaintiff has made hundreds of discovery requests which aren't allowed at the federal level. Although Standard Fire has produced an estimated 2,100 claim files, Pruitt is expecting a "flurry of additional discovery" from the plaintiff if the case is allowed to continue.

She told Johnson that there is no harm to the plaintiff by waiting, but there are significant costs associated with proceeding with a case that he may not have jurisdiction over.

On behalf of the plaintiff, attorney Martin Weber stated that they had an obligation to "try and move the case along" and that bringing the case to a halt would not serve the public interest of the citizens of Arkansas. Weber countered the defendant's statements by claiming that the costs associated with discovery are considered a mere litigation expense and do not constitute irreparable injury.

After Johnson asked for clarification on standards, both attorneys explained that there was not clear guidance in Arkansas for a case in this situation.

At the end of arguments, Johnson told the parties that he has a capital murder case which will take precedence over any ruling in the class action. However, Johnson said "off the cuff" that there will be no rulings on any dispositive motions and that the parties cannot have a class certification hearing with the case pending before the Supreme Court.

The Supreme Court is expected to hold oral arguments in December or January with an opinion due by the end of term in June.

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