In rul­ing, re­buke of lawyers an er­ror

Switch­ing courts OK, judge told

Northwest Arkansas Democrat-Gazette - - FRONT PAGE - LISA HAMMERSLY

A fed­eral judge in Fort Smith was wrong in de­cid­ing Univer­sity of Arkansas Trustee John Good­son and 14 other class-ac­tion plain­tiff and de­fense lawyers acted im­prop­erly when they re­moved a case from fed­eral court to set­tle it in state court on more fa­vor­able terms, an 8th Cir­cuit Court of Ap­peals panel ruled Tues­day.

The lawyers’ ac­tions are per­mit­ted un­der fed­eral court rules, ac­cord­ing to an opin­ion writ­ten by the cir­cuit’s Chief Judge Laven­ski Smith.

U.S. Dis­trict Judge P.K. Holmes III erred in de­cid­ing last year that the lawyers abused the ju­di­cial process and vi­o­lated fed­eral court rules re­gard­ing dis­missal of cases, the ap­peals panel said.

Holmes also was wrong to im­pose rep­ri­mands on five of the lawyers.

In re­vers­ing Holmes’ de­ci­sion, the St. Louis ap­peals court sent the case back to fed­eral court in Fort Smith for fur­ther pro­ceed­ings.

“The dis­trict court’s frus­tra­tion with what it per­ceived as an abuse of the fed­eral court sys­tem and lack of can­dor with the court is un­der­stand­able,” the opin­ion said. But the lawyers “did not vi­o­late”

court rules in re­mov­ing a class- ac­tion com­plaint against an in­sur­ance com­pany from Holmes’ fed­eral dis­trict court with­out his knowl­edge for set­tle­ment in state court.

The at­tor­neys also had a plau­si­ble le­gal ar­gu­ment that the dis­trict court’s ap­proval wasn’t re­quired, the opin­ion said.

At­tor­neys for the lawyers de­clined to com­ment or did not re­turn emails and calls Tues­day. Holmes’ of­fice doesn’t com­ment on his rul­ings.

The 8th Cir­cuit de­ci­sion should re­sult in lift­ing Holmes’ rep­ri­mands of Good­son and law part­ner Matt Keil of Texarkana, Ja­son Roselius of Oklahoma City, and Richard Nor­man and Martin We­ber Jr. of Hous­ton. They were among plain­tiffs’ lawyers in Adams v. United Ser­vices Au­to­mo­bile As­so­ci­a­tion (2:14-cv2013).

The ap­peals court de­ci­sion also jus­ti­fies the ac­tions of other lawyers in the Adams case whom Holmes crit­i­cized but didn’t rep­ri­mand. Those plain­tiffs’ at­tor­neys were Casey Castle­berry and Tom Thomp­son of Batesville; Ti­mothy My­ers, Wil­liam Put­nam, W.H. Tay­lor and Steven Vow­ell of Fayet­teville; and Matthew Mus­tokoff of Rad­nor, Pa.

All 12 have worked to­gether su­ing large com­pa­nies through class-ac­tion cases. Good­son is known in Arkansas for win­ning mil­lions in class-ac­tion set­tle­ments and as a large donor to po­lit­i­cal cam­paigns. He is mar­ried to Arkansas Supreme Court Jus­tice Court­ney Good­son.

The de­fense at­tor­neys vin­di­cated in the appeal are Lyn Pruitt of Lit­tle Rock and Wys­tan Ack­er­man and Stephen Gold­man of Hart­ford, Conn.

All of the lawyers worked on Adams v. USAA in Holmes’ court­room. The class ac­tion in­volved a group of claims hold­ers su­ing the in­sur­ance com­pany for un­der­pay­ment.

Lawyers on both sides agreed in June 2015, af­ter 17 months of lit­i­ga­tion, to move the class ac­tion from Holmes’ fed­eral court to Polk County Cir­cuit Court for set­tle­ment.

When Holmes learned of the switch through an ar­ti­cle in Arkansas Busi­ness news­pa­per, he or­dered the lawyers to show why they shouldn’t be sanc­tioned for im­proper con­duct.

The judge said he wouldn’t have ap­proved the state court set­tle­ment and that it ben­e­fited the lawyers and the in­sur­ance com­pany at the ex­pense of pol­i­cy­hold­ers who were harmed.

Plain­tiffs’ lawyers re­ceived $1.85 mil­lion in fees and ex­penses in the Adams case, court records show. Only 4 per­cent of el­i­gi­ble pol­i­cy­hold­ers filled out a lengthy form to claim part of the in­sur­ance com­pany’s es­ti­mated $3.44 mil­lion set­tle­ment pool.

Holmes’ rep­ri­mand of the five at­tor­neys in Au­gust said they acted in “bad faith,” or with pre­vi­ous knowl­edge that what they did was im­proper.

The other seven plain­tiffs’ lawyers took sim­i­lar ac­tions in the Adams case but didn’t ex­hibit bad faith, Holmes wrote. The judge didn’t rep­ri­mand or pun­ish them.

At­tor­neys for the plain­tiffs’ lawyers said in their appeal that Holmes was wrong on all counts.

In a 26-page opin­ion Tues­day, the three- judge panel agreed.

The ap­pel­late panel said Holmes cited prece­dents un­der one rule for dis­missal, 41(a)(2), which the judges said ap­plied to con­tested dis­missals.

But the panel ap­plied a dif­fer­ent rule, 41(a)(1), for dis­missals in which all par­ties agree. That rule re­quires “no ju­di­cial ap­proval or re­view as a pre­req­ui­site to dis­missal; in fact, the dis­missal is ef­fec­tive upon fil­ing, with no court ac­tion re­quired.”

“The rea­son for the dis­missal is ir­rel­e­vant,” the opin­ion con­tin­ued.

“The ap­peals court cor­rectly rec­og­nized the dis­trict court’s ‘un­der­stand­able frus­tra­tion’ with the tac­tics used here,” said an email from Ted Frank, a Wash­ing­ton lawyer known for crit­i­ciz­ing class-ac­tion set­tle­ments he claims are un­fair.

Frank filed a brief in the 8th Cir­cuit appeal in sup­port of Holmes’ rul­ings.

Af­ter Tues­day’s opin­ion, Frank wrote, “Dis­trict courts can and should avoid the prob­lem in the fu­ture by cre­at­ing a stand­ing or­der at the be­gin­ning of a case re­quir­ing court ap­proval for a dis­missal or com­pro­mise of an un­cer­ti­fied class ac­tion.”

The 8th Cir­cuit’s de­ci­sion say­ing the Fort Smith court “abused its dis­cre­tion” when it wrongly found the lawyers at fault “doesn’t mean the judge did any­thing im­proper or il­le­gal,” said Joshua Sil­ver­stein, a pro­fes­sor at the Wil­liam H. Bowen School of Law in Lit­tle Rock.

“It’s a tech­ni­cal le­gal term. It just means the judge got it dead wrong.”

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