FORT SMITH -- As many as 17 lawyers -- plus their lawyers -- are scheduled to gather in a federal courtroom Thursday for an unusual hearing involving legal ethics, court-forum shopping and multimillion-dollar class-action lawsuits.
To be determined: how deep a legal mess the lawyers find themselves in. And what U.S. Chief District Judge P.K. Holmes III of Fort Smith will do about it.
Holmes issued a Dec. 21 order criticizing the conduct of plaintiffs' and defense attorneys in dismissing and refiling a class-action case, Adams v. United Services Automobile Association (2:14-CV-2013).
Both sides agreed to dismiss the case from Holmes' court. The lawsuit was refiled a day later in Polk County with a settlement agreement attached.
Thursday's 10 a.m. hearing in U.S. District Court in Fort Smith will give the attorneys a chance to "show cause" why Holmes shouldn't sanction them under Rule 11 of the Federal Rules of Civil Procedure.
A Rule 11 violation is "definitely a very serious thing to be accused of," said Amanda Hurst, a visiting assistant professor at the University of Arkansas School of Law in Fayetteville. "It questions your professionalism. It gets to your ethical reputation, which to a lawyer is invaluable."
The hearing also is unusual because a judge initiated it, said Robert Steinbuch, a professor at the William H. Bowen School of Law at the University of Arkansas at Little Rock. When Rule 11 complaints happen, they tend to come from the plaintiff or defense sides. For a judge to originate it is rare, he said.
Many of the lawyers expected at Thursday's hearing specialize in representing plaintiffs in class actions. The lawsuits seek to encompass a larger group of people known as a "class" against a company that may have harmed them.
One of the best-known attorneys is John Goodson of Keil & Goodson in Texarkana, one of the state's most successful class-action lawyers and a member of the University of Arkansas System board of trustees.
Goodson and several Adams co-counsels are among the largest donors to political campaigns for the Arkansas Supreme Court and other state races. And Goodson is married to Arkansas Supreme Court Justice Courtney Goodson, who is running for chief justice this year.
In their responses to Holmes' order, John Goodson and other plaintiffs' and defense lawyers say they acted ethically at all times in the Adams case and that sanctions aren't warranted.
The practice of dismissing a class action in federal court and settling in state court "had been approved by other federal judges" in unrelated cases, according to a response filed by plaintiffs' attorneys.
The attorneys also list at least six other similar cases that were dismissed in federal court and settled in state court.
Attorneys for Goodson and the other lawyers in the Adams case, including James Elrod, Vicki Bronson, retired federal Judge James Moody Sr. and David Matthews, declined to talk about the pending case or couldn't be reached for comment.
Holmes did not respond to calls and emails for comment.
Holmes' show-cause order came a week after an Arkansas Business article on Dec. 14 reported that a Little Rock attorney, Robert Trammell, had challenged a $5 million-plus settlement in the Adams case in Polk County Circuit Court in Mena. Holmes' order cited the magazine article in a footnote.
Adams v. USAA centered on whether the insurer illegally depreciated the cost of labor in claims for a certain type of property insurance known as "actual cash value," according to federal court records.
Plaintiffs' lawyers originally filed the class action in Polk County Circuit Court. Defense attorneys removed it to federal court. Lawyers dismissed the case last June 22 in Holmes' court, then filed settlement documents in the same case the next day in Polk County, court records show.
The settlement actually was dated June 16, Holmes noted in his show-cause order. It defined "Court" as "the Circuit Court of Polk County, Arkansas." But the case was still pending in federal court on that date.
The lawyers' apparent aim in moving the case to state court, Holmes' order continued, was "evading this court's review of their negotiated settlement" in favor of a state court venue "that the counsel believed would best suit their own interests" to the detriment of class members.
The settlement approved in Polk Circuit Court included $3.4 million for class members 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 far less in attorneys' fees, about $332,000.
In their response to Holmes' order, plaintiffs' lawyers said "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 benefit "was in the best interest of the class, to avoid unwarranted delays in payment of settlement funds," according to the plaintiffs' response.
Holmes will decide whether to impose sanctions. If he does so, he will hold a second hearing to allow attorneys to respond, according to court records.
Lawyers could appeal any decision to the 8th U.S. Circuit Court of Appeals in St. Louis, legal experts say.
Holmes isn't allowed to levy fines in this case, according to his order. But he can look at "non-monetary sanctions."
Those could range widely, according to legal articles.
Reprimands, orders to undergo continuing education, referrals to disciplinary authorities, warnings and suspension from the practice of law are all possible, according to "Federal Practice and Procedure, Wright & Miller," a legal reference.
Any sanction, according to Rule 11, is "limited to what is sufficient to deter repetition of such conduct or comparable conduct by others similarly situated."
Another possibility, said Hurst, is that the lawyers "could just have to show up and be dressed down for what the court views as inappropriate behavior."
Among the 17 lawyers named in the show-cause hearing records are 13 plaintiffs' lawyers from firms inside and outside Arkansas who often work together filing class actions, court records show.
Besides John Goodson, other Arkansas plaintiffs' lawyers 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 scheduled to appear at Thursday's hearing are defense attorneys for United Services Automobile Association and related companies, court records show. Based in Arkansas is Lyn Pruitt of Little Rock's Mitchell, Williams, Selig, Gates & Woodyard. The others are with a Connecticut law firm.
Metro on 02/15/2016