A federal judge has discovered collusion and dishonesty in a particular Arkansas insurance class action.
On April 14, U.S. District Judge P.K. Holmes published a 32-page statement that revealed that plaintiffs’ and defense lawyers in a class action colluded in ”mid-litigation forum shopping.”
“This mid-litigation forum shopping was objectively unreasonable,” wrote Judge Holmes.
Insurer United Services Automobile Association (USAA) brought a property insurance class action lawsuit to federal court in Fort Smith, Arkansas in January 2014. A year and two months later, lawyers from both sides informed presiding judge U.S. District Judge P.K. Holmes that a settlement had been reached, to which Judge Holmes entered a scheduling order in May 2015.
Before the preliminary hearing for approval of the settlement could be held, however, lawyers on both sides jointly dismissed the federal court action. The plaintiffs later re-filed the case in Polk County court, with a joint motion to certify the class and approve the class settlement both sides reached previously.
The opinion piece noted that the re-filing was seemingly on purpose, as “the standard of review for class action settlements is much less stringent in Arkansas state court than in federal court”—a fact USAA’s defense lawyers have previously pointed out in previous cases. By re-filing the case in state court, it also made it much more “difficult for class members to object to class action settlements in Arkansas state court.”
As it happens, USAA’s $3.4 million settlement received its final approval last December. The deal released potential claims by approximately 15,000 policyholders and granted plaintiffs’ counsel $1.85 million in fees and expenses. Only 651 policyholders have completed the requirements to receive their dues from USAA as of February. Whatever remains unclaimed of the $3.4 million after the claim period ends will return back to USAA.
Judge Holmes had suspected foul play last December, and had issued a show cause order demanding lawyers from both sides to explain why they dropped federal court in favor of state court. He came to the conclusion that the plaintiffs’ lawyers and the USAA wanted to avoid inquiry, especially if a dubious deal had been struck between both parties at the expense of class members.
In Judge Holmes’ 32-page piece, he wrote that the lawyers from both sides “filed a stipulation of dismissal in this case for the purposes of seeking a more favorable forum and escaping an adverse decision.” The piece noted that the lawyers violated Rule 11 of the Federal Rules of Civil Procedure and had abused the federal judicial process.
The judge issued a warning to those looking to misuse federal courts.
“Because the court can and will institute changes to the way it manages putative class actions, and because this order should make clear to the bar that invoking federal jurisdiction under CAFA does not allow federal jurisdiction to be treated as a bargaining chip, other attorneys in this district will also be unlikely to repeat this violation.”
