Judge: Will rethink finding in ethics case

Lawyer Gregory Joseph of New York walks out of the federal building in Fort Smith after a hearing Friday in front of U.S. Chief District Judge P.K. Holmes III.
Lawyer Gregory Joseph of New York walks out of the federal building in Fort Smith after a hearing Friday in front of U.S. Chief District Judge P.K. Holmes III.

FORT SMITH -- A federal court judge who decided in April to penalize 16 lawyers from Arkansas and other states for ethics violations heard another round of arguments Friday and promised to rethink an earlier order in the case.

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NWA Democrat-Gazette

Attorneys W.H. Taylor (left) and John Elrod walk out of the Judge Isaac C. Parker Federal Building Friday after a hearing in front of U.S. Chief District Judge P.K. Holmes in Fort Smith. More than a dozen high-profile lawyers were given a chance to convince Holmes that they should not be sanctioned for ethics violations after moving a class-action settlement from federal court to state court.

"I've read your brief," U.S. Chief District Judge P.K. Holmes III told New York lawyer Gregory Joseph, who spoke on behalf of the accused attorneys. "The brief is very good."

Later, Holmes said recent filings "call into question the court's finding of 'bad faith,'" which is a significant issue under federal court rules in deciding how, or whether, to punish lawyers for ethics violations.

"If there are any errors in the original order" issued April 14, the judge said Friday, "I will correct them in any final order."

Holmes made no final decision on sanctions Friday.

Joseph is one of at least four new attorneys who joined the lawyers' team after Holmes' order in April vowed penalties.

Joseph, a partner with Joseph Hage Aaronson law firm, was rated in 2015 as one of the "35 best litigators in the U.S. by Legal Media Group," according to his law firm's website. Previously, he has been voted among the "10 best lawyers in New York City" and one of the "top 30 litigators in the world," according to the website. In 2012, World Finance magazine of London named him "Best Lawyer -- USA."

Joseph declined to be interviewed after Friday morning's court hearing, as did the lawyers facing ethics penalties and their other attorneys.

W.H. Taylor of Fayetteville, one of the lawyers facing sanctions, was asked if his side made progress with arguments Friday.

"I don't know," Taylor said.

The best-known of the Arkansas lawyers facing ethics penalties is class-action plaintiffs' attorney John Goodson of Texarkana, a University of Arkansas System trustee and the husband of Arkansas Supreme Court Justice Courtney Goodson.

Goodson was among a handful of the accused lawyers who didn't attend Friday's hearing. Holmes didn't require the lawyers' attendance.

Goodson and his firm have settled dozens of class-action cases over the past 20 years in Arkansas and other states, earning tens of millions in attorneys' fees. He is a major donor to national and state political races.

Goodson and lawyers who work with him also are among the biggest single group of campaign contributors to the current elected members of the Arkansas Supreme Court. Goodson-connected cases have fared well before the state's highest court. His clients have won at least eight cases since 2008, an Arkansas Democrat-Gazette review reported in January. Arkansas CourtConnect, the state's online court case system, didn't reveal any cases Goodson clients lost in that time.

Goodson, Taylor and the other attorneys facing sanctions before Holmes were involved in Adams v. United Services Automobile Association. A class of policyholders sued USAA, saying they were shortchanged by the insurer's method of calculating their property damage claims.

The case originated in Polk County Circuit Court in late 2013. USAA defense attorneys moved it to Holmes' federal court in Fort Smith in January 2014, where it played out for about 17 months.

In June 2015, the plaintiffs' and defendant's attorneys dismissed the case from federal court and moved it back to the Circuit Court for settlement.

Among the settlement's terms: Plaintiffs' lawyers would be paid $1.85 million in legal fees and the insurance company would pay only policyholders who filled out a lengthy claim form.

USAA policyholders protested the settlement late last year, represented by Little Rock lawyer Robert Trammell. They said the agreement financially rewarded plaintiffs' lawyers and the insurance company, with little benefit to policyholders who were damaged. Some of those policyholders filed a class action in Saline County Circuit Court last week, Wartick v. USAA, against 15 of the lawyers and the insurance company.

In his April 14 ruling, Holmes said he would penalize the lawyers for forum shopping, or removing the settlement from federal court, where Holmes said it would be rigorously reviewed for fairness, to a more lenient state court.

The judge cited the plaintiffs' and the defendant's lawyers for "misleading conduct" that was "unequivocally improper" and, in some cases, exhibited "bad faith." He ruled the lawyers had "jointly abused the federal court system through their conduct in this case."

Holmes said he was considering requiring attorneys who exhibited "bad faith," or prior knowledge their actions were improper, to file notice in federal class-action cases in Arkansas saying they had been sanctioned for ethics violations under federal Rule 11.

In one briefing, defense lawyers referred to the notice as a "Scarlet Letter" that would damage their careers for the rest of their lives.

Joseph argued Friday that the purpose of ethics sanctions against attorneys under Rule 11 "is deterrence." He pointed to Holmes' April ruling that said the lawyers "now know that their conduct ... is unequivocally improper," so they are "unlikely to repeat this misconduct." Once the goal of deterrence is achieved, sanctions are unnecessary, Joseph said.

He also argued that:

• The lawyers have been punished already due to the filing of Holmes' opinion and dozens of articles about it in national and state publications.

• The lawyers had engaged in similar class-action case maneuvers in federal court in Arkansas and had never been questioned or disciplined by a federal judge in those cases.

• Decisions in other federal cases suggest that to avoid penalty, the accused lawyers' interpretation of the law need only be "plausible" -- not necessarily "correct."

Holmes said Friday that he would "go back and read and digest" the latest arguments.

Besides Goodson and Taylor, class-action plaintiffs' lawyers facing ethics violation penalties are Kenneth "Casey" Castleberry and Tom Thompson of Batesville; Goodson partner Matt Keil of Texarkana; Timothy Myers, William Putman and Stevan Vowell of Fayetteville; Stephen Engstrom of Little Rock; Matthew Mustokoff of Radnor, Penn.; Richard Norman and Robert Martin Weber Jr. of Houston, Tex.; and Jason Roselius of Oklahoma City.

Defense lawyers are Lyn Pruitt of Little Rock; Stephen Edward Goldman and Wystan Michael Ackerman of Hartford, Conn.

NW News on 06/25/2016

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