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'Gamesmanship' has both class action and corporate attorneys waiting on punishment

By W.J. Kennedy | May 17, 2016

LITTLE ROCK, Ark. (Legal Newsline) - A federal judge in Arkansas intends to sanction attorneys on both sides of a class action case who he says wasted his court’s time -- an unusual but emerging trend in the law, a University of Miami law professor says.

“It is more typical that one side is sanctioned, in part, because the sanction is often the result of the opposing side's motion for sanctions,” said Jan L. Jacobowitz, associate director of the school's Center for Ethics & Public Service and director of the Professional Responsibility & Ethics Program.

“However, it has become more common for judges to take control of cases, especially when there is a demonstrated lack of professionalism, and sanction both sides.”

P. K. Holmes, III, chief judge for the U.S. District Court of the Western District of Arkansas, has scheduled a hearing on June 10 after which, he wrote in an April 15 ruling, he will sanction 16 lawyers because of their actions in Mark and Katherine Adams v. United Services Automobile Association (USAA).

In the case, the Adamses accused USAA of excessive depreciation costs figured in insurance claims.

The plaintiffs attorneys initially said they believed 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.

The case remained in federal court for 17 months when, in June 2015, lawyers for the plaintiffs and USAA voluntarily dismissed it and filed the next day in Polk County Court.

With that transfer, the sides also submitted a settlement agreement. The deal was immediately approved by a state judge, though Holmes said it limited payments to claimants while securing attorneys fees of $1.8 million.

The lawyers, the judge wrote, misled the court and violated Rule 11 of the Federal Rules of Civil Procedure. He said he was assured the two sides were engaged in settlement talks while the case was in his court.

“Defense counsel removed this action to federal court and then took advantage of the more difficult certification and settlement process in this forum to negotiate a settlement designed to result in a lower payout to an overinclusive class in exchange for a high attorneys fee,” the judge’s April 15 opinion says.

“The result of defense counsel invoking federal jurisdiction and then all Respondents treating that jurisdiction as a bargaining chip during pending litigation is that the Court was not treated as a forum in which to resolve a dispute but as leverage in negotiations that benefited everyone but the class members.

“This gamesmanship is improper in any case.”

Holmes wrote that sanctions will range from reprimands to a requirement that they disclose the sanction in future federal class action lawsuits. The judge also wrote that he’s weighing whether to refer the matter to relevant bar associations for disciplinary investigations.

The Class Action Fairness Act of 2005 gives federal courts jurisdiction over certain class actions and directs courts to give greater scrutiny to class action settlements, especially those involving corporations.

An expert on the 2005 law, Georgene M. Vairo, a professor at Loyola Law School, in Los Angeles, said the judge’s authority to sanction the attorneys lies in a murky area of the law.

“Nothing in the law says that case has to be litigated in federal court,” Vairo said. “Rule 41 allows both parties to voluntarily dismiss a case. It could be gamesmanship and unseemly but not necessarily in violation of the rules.”

It’s unclear what effect, if any, the sanctions will have on the attorneys involved.

Jacobowitz said, “There is generally nothing positive about receiving a reprimand or other type of sanction as a lawyer's reputation is paramount; however, the extent to which a lawyer's practice is hurt is largely dependent upon his practice area and clientele.”

Vairo said that some national high-profile lawyers could encounter some problems, but not lower profile attorney in class action cases.

“So many of these cases are driven by attorneys and not the clients anyway,” she said.

The 16 facing sanctions are: D. Matt Keil, Jason Earnest Roselius, John C. Goodson, Richard E. Norman, Stevan Earl Vowell, Timothy J. Myers, W. H. Taylor, William B. Putman, A. F. “Tom” Thompson, III, Kenneth (Casey) Castleberry, Matthew L. Mustokoff, R. Martin Weber, Jr., Stephen C. Engstrom, Lyn Peeples Pruitt, Stephen Edward Goldman, and Wystan Michael Ackerman.

Goodson is known for a case that came before the U.S. Supreme Court in 2013. He had attempted to keep another case in state court by stipulating that the plaintiffs he represented wouldn’t seek more than $5 million in damages.

Under CAFA, defendants can transfer state court class actions to federal court if the amount in controversy exceeds $5 million.

The unanimous U.S. Supreme Court said that stipulation wasn’t good enough and that federal courts could compute potential damages on their own to determine the amount in controversy.

In the USAA case, a Little Rock attorney named Robert Trammell, representing four veterans, asked the court to dismiss the potential settlement.

He wrote, “Everything about this case has a sham aspect to it.” He says there's no way USAA ends up paying out the $3.4 million attorneys claim the settlement provides to class members.

Class attorneys say they achieved a favorable settlement for the class and that sanctions are not warranted.

“Counsel’s actions complied with the applicable rules of civil procedure, were supported by existing case law interpreting the parties’ right to choose their forum, were endorsed by and consistent with treatises discussing this issue, and were in accord with the express and implicit approval of other federal judges in (Arkansas federal courts),” they wrote.

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