Lawyers accused of forum shopping for settlement approval win reversal of federal sanctions
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A federal appeals court has ruled class action lawyers did not abuse the judicial process when they dropped a federal lawsuit and refiled it in Arkansas state court with a proposed settlement.
The St. Louis-based 8th U.S. Circuit Court of Appeals reversed a sanction imposed on the lawyers by an Arkansas federal judge, who had said the lawyers dropped the would-be class action in federal court to find a more favorable forum to approve the settlement. Arkansas Online covered Tuesday’s appeals court decision (PDF).
The case against USAA insurance company had alleged it underpaid homeowners’ insurance claims.
U.S. District Judge P.K. Holmes III had said the lawyers used the federal courts “as a mid-litigation bargaining chip.” The 8th Circuit said the judge’s frustration was understandable, but the lawyers did not violate the federal court rule covering case dismissals when all parties stipulate to the dismissal.
In such cases, the reason for dismissal is irrelevant and judicial approval is not needed under the rule, the 8th Circuit said in an opinion by Chief Judge Lavenski Smith. There is also a colorable argument that judicial approval was not needed under the federal rule governing class actions for cases that have not yet been certified, the appeals court said.
Holmes had sanctioned five lawyers, including attorney John Goodson, who is married to Arkansas Supreme Court Justice Courtney Goodson.
Hat tip to Law360.
