AGs say Ark. class action strategy benefitting only lawyers and class rep

WASHINGTON (Legal Newsline) - Eighteen state attorneys general are worried that plaintiffs attorneys are skirting the rules of the Class Action Fairness Act to curtail the rights of their states' citizens.

The group filed an amicus brief Monday with the U.S. Supreme Court in an Arkansas class action case in which plaintiffs lawyers and defense attorneys are fighting over jurisdiction. At issue is a provision in the CAFA that allows defendants to remove class actions to federal court when the amount in question exceeds $5 million.

The lawsuit says the company underpaid on claims made by customers with homeowner's insurance. The plaintiffs in Knowles v. Standard Fire Insurance have refused to ask for more than $5 million, but the defendant says any injunctive relief granted will be worth much more than that amount.

"The procedure appears to subvert the interest of absent class members to the interests of the class' lawyers," the Attorneys General brief says.

"It allows the class representative and counsel to shop for a pliant local judge to approve a class or settlement. The only logical explanation for the procedure is that counsel wish to avoid important reforms that have been incorporated into federal law, including the requirement that state officers be given an opportunity to challenge the fairness of any proposed settlement."

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.

Alabama Attorney General Luther Strange's office led the brief. Joining it were Republican AGs Tom Horne of Arizona, Greg Zoeller of Indiana, John Suthers of Colorado, Derek Schmidt of Kansas, Bill Schuette of Michigan, Pam Bondi of Florida, Jon Bruning of Nebraska, Sam Olens of Georgia, Wayne Stenehjem of North Dakota, Mark Shurtleff of Utah, Mike DeWine of Ohio, Rob McKenna of Washington, Scott Pruitt of Oklahoma, Marty Jackley of South Dakota and Greg Abbott of Texas.

Two Democrats also signed the brief. They are Connecticut's George Jepsen and West Virginia's Darrell McGraw.

The brief says the history of abuse and reform at the state level underscores the importance of meaningful checks on class representatives and class counsel.

"Class actions are vulnerable to abuse through devices that subordinate the interest of absent class members to the interests of class counsel and the named class representative," the brief says.

And localized abuses, it says, affect the residents of every state.

"This ($5 million) waiver purports to be binding regardless of whether it is fair to absent class members or whether it is fair to absent class members or whether they receive notice of the waiver," the AGs say.

"Although the class in this case is limited to Arkansas residents, if the stipulation procedure works here, it will work for nationwide classes as well. The certifications and settlements that this procedure effectuates will affect all states' residents, regardless of where the abuse itself takes place."

The AGs claim the stipulation:

-Undermines reforms at the federal and state level;

-Makes it harder for absent class members to protect themselves from an unfair settlement; and

-Makes it harder for state regulators to protect absent class members from unfair settlements.

The case is currently before Miller County Judge Kirk Johnson, who is mulling a motion to stay it while the U.S. Supreme Court decides the jurisdictional question.

From Legal Newsline: Reach John O'Brien at jobrienwv@gmail.com.