FORT SMITH — For about two hours Thursday, a federal judge asked the questions. And the lawyers — all 17 of them — were the ones pleading innocence.
Chief U.S. District Judge P.K. Holmes asked a series of questions about what the attorneys did, when they did it and what they knew in connection with dismissing a multimillion-dollar class action from his Western District courtroom in June.
Attorneys refiled the case almost immediately in state court in Polk County with a settlement agreement attached.
“We believe that everything that we have done — all the filings, all the negotiations, were permitted by the rules,” John Elrod, attorney for 12 plaintiff lawyers in the class-action case, told the court.
Elrod’s clients, like all the lawyers at the hearing, “work nationwide and deserve to carry their good reputations out of this courtroom,” he said.
Thursday’s hearing, ordered by Holmes in December, was for the lawyers to “show cause” why they should not be sanctioned for ethics violations under Rule 11 of the Federal Rules of Civil Procedure in the case Adams
v. United Services Automobile Association (2:14-CV-2013). Holmes also may rely on the court’s “inherent disciplinary authority.”
Holmes said he’ll take two to four weeks to decide whether to impose sanctions against the 17 plaintiff and defense lawyers, who include class-action specialists from Arkansas, Texas, Oklahoma and Pennsylvania.
One of the best known in Arkansas is John Goodson of Texarkana, who has won millions in class actions in his home court in Miller County and elsewhere. Goodson is a member of the University of Arkansas System board of trustees, a large donor to state and national political campaigns and married to Arkansas Supreme Court Justice Courtney Goodson, who is running for chief justice this year.
Sanctions could range from a continuing-education course to suspension from the practice of law, according to legal texts and experts.
Attorneys for the lawyers stressed Thursday that any ethical sanction, “no matter how slight,” could damage the attorneys’ careers.
“A lifetime of achievement is now in jeopardy,” defense lawyers’ attorney David Matthews of Rogers told the judge.
Holmes is questioning whether the lawyers for both sides moved the Adams case to Polk County Circuit Court for less stringent scrutiny of the settlement and attorneys’ fees.
That court-forum shopping could benefit the lawyers themselves at the expense of the class that was harmed, according to the judge’s showcause order.
Class actions involve a named plaintiff who sues to represent a group of people — the class — who were similarly harmed, usually by the actions of a large company. Because the unnamed class is not present in the courtroom, federal and state judges are responsible for overseeing the settlement with an eye to fairness for the class.
When the Adams settlement went before Polk County Circuit Judge Jerry Ryan, court records show that “in that hearing he didn’t ask one question about the settlement agreement,” Holmes said Thursday.
But plaintiffs’ lawyers read and talked through the settlement before Ryan, Matthews told the judge.
“It was pretty well explained,” Matthews said.
Ryan could not be reached immediately Thursday for comment.
The settlement approved in Polk County Circuit Court in December included an estimated $3.4 million for members of the plaintiff class and $1.85 million in attorneys’ fees and expenses for the plaintiffs’ lawyers, court records show.
Holmes earlier had approved a settlement in a similar case, authorizing about $332,000 in attorneys’ fees.
Holmes also was critical Thursday of certain provisions of the settlement, including that USAA members had to fill out a claims form to be reimbursed.
“How many claims have been filed?” Holmes asked.
Matthews said that information was confidential. Holmes decided to allow Matthews to submit it to the judge only, but may make the information part of the public record later.
Holmes also noted that the settlement provided that the plaintiffs lawyers’ fees be paid quickly, no matter what else happened in the case.
And Holmes took a head count of how many of the lawyers present were aware, before the USAA settlement, of an 8th U.S. Circuit Court of Appeals case in 2011, Thatcher
v. Hanover Ins. Group Inc.
The appeals court in that case was critical of a lower-court decision that allowed a class action to be dismissed to return to a more favorable state court forum, court records show.
About a half dozen of the lawyers at Thursday’s hearing were involved in that Thatcher case, their attorneys said.
Adams v. USAA focused on whether the insurer underpaid claims to policyholders by depreciating labor costs in actual cash value policies, court records show. It was one of at least 20 similar cases filed over the issue in state and federal courts by many of the same attorneys who represented plaintiffs in Adams.
Holmes is considering the sanctions under the federal civil code’s Rule 11, which states that every document a lawyer signs and files in court cannot be presented for “any improper purpose.”
Holmes reviewed a timeline of court filings Thursday: On June 16, 2015, attorneys for both sides signed a proposed settlement that said the Adams case was pending in Polk County Circuit Court, court records show. But the case actually was still before Holmes in federal court until the attorneys submitted a stipulation of dismissal on June 19 and the federal court clerk filed that dismissal on June 22.
Plaintiffs’ lawyers have said in statements that “counsel never sought to evade judicial review of their class action settlement.”
They pointed to a different benefit in settling in Arkansas’ state courts, “where objectors are required to comply with a more stringent procedure as part of the settlement.” That benefited the class by avoiding delays in payment of settlement sums, plaintiffs’ lawyers argued.
In a closing statement Thursday, Matthews told Holmes: “You feel you and the court were taken advantage of.”
Holmes countered that his show-cause order came out of “thought and consideration. This isn’t about me.”
Holmes’ Dec. 21 showcause order came a week after an Arkansas Business article on Dec. 14 reported that a Little Rock attorney, Robert Trammell, had challenged the settlement in the Adams case in Polk County. Holmes’ order cited the magazine article in a footnote.
Besides John Goodson, other Arkansas plaintiffs’ lawyers at Thursday’s hearing include Matt Keil, a Goodson partner; W.H. Taylor, Timothy Myers, Stevan Vowell and William Putman of Taylor Law Partners in Fayetteville; Stephen Engstrom of Little Rock; and Tom Thompson and Casey Castleberry of Murphy, Thompson, Arnold, Skinner & Castleberry in Batesville. The other plaintiffs’ attorneys are connected with law firms in Texas, Oklahoma and Pennsylvania.
Four more lawyers at Thursday’s hearing were defense attorneys for United Services Automobile Association and related companies, court records show. Lyn Pruitt of Little Rock’s Mitchell, Williams, Selig, Gates & Woodyard was the only Arkansas-based attorney in that group. The others are with a Connecticut law firm.
The lawyers could appeal any sanctions Holmes decrees to the 8th U.S. Circuit Court of Appeals in St. Louis.