Adams et al v. United Services Automobile Association et al
ORDER, as set forth. In-Court Hearing set for 6/10/2016 at 10:00 AM in Fort Smith -- 3rd flr (Rm 310) before Honorable P. K. Holmes III. Signed by Honorable P. K. Holmes, III on April 14, 2016. (jas)
IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
FORT SMITH DIVISION
MARK I. and KATHERINE S. ADAMS,
individually and on behalf of all others
UNITED SERVICES AUTOMOBILE ASSOCIATION;
USAA CASUALTY INSURANCE COMPANY; and
USAA GENERAL INDEMNITY CO
OPINION AND ORDER
On December 21, 2015, the Court ordered (Doc. 37) all counsel of record
(“Respondents”)—D. Matt Keil, Jason Earnest Roselius, John C. Goodson, Richard E. Norman,
Stevan Earl Vowell, Timothy J. Myers, W. H. Taylor, William B. Putman, A. F. “Tom”
Thompson, III, Kenneth (Casey) Castleberry, Matthew L. Mustokoff, R. Martin Weber, Jr., and
Stephen C. Engstrom (collectively “Plaintiffs’ counsel”); and Lyn Peeples Pruitt, Stephen O.
Clancy, Stephen Edward Goldman, and Wystan Michael Ackerman (collectively “Defense
counsel”)—to show cause why sanctions should not issue under Rule 11 of the Federal Rules of
Civil Procedure. Respondents filed briefs (Docs. 42, 49) in response. On February 11, 2016, the
Court filed notice (Doc. 50) to Respondents that it was also considering imposing sanctions
under its inherent authority. Respondents filed supplemental responses. (Docs. 51, 52). On
February 18, 2016, the Court held a hearing on the issue of sanctions and took the matter under
advisement. At the hearing, Plaintiffs’ counsel were represented by John R. Elrod, with the
exception of Respondent Engstrom, who was represented by James M. Moody. Defense counsel
were represented by David R. Matthews. Having given this matter careful consideration, the
Court now issues this opinion and order.
This matter was filed as a putative class action in the Circuit Court of Polk County,
Arkansas, on December 5, 2013, and properly removed to this Court on January 15, 2014,
pursuant to the Class Action Fairness Act of 2005 (“CAFA”), 28 U.S.C. § 1332(d). An answer
was filed the same day, and was followed by a motion for partial judgment on the pleadings on
April 29, 2014. On May 5, 2014, the Court stayed the action for mediation on joint motion of
the parties. Because September 15, 2014, was the mediator’s earliest available date, the stay was
continued on August 11, 2014. At the September 2014 mediation, the possibility of dismissing
this action and refiling the case in Arkansas state court for the purpose of certifying and settling a
class action became a term in negotiations. (Doc. 55, p. 21:11-19). A second mediation was
scheduled for December 3, 2014, and the Court continued the stay pending that mediation.
Though a settlement ultimately was not reached at that mediation, the parties were confident
enough in their progress toward settlement to ask the Court to stay the matter an additional 90
days. (Doc. 42-3). The Court again continued the stay and advised the parties that further
extensions were unlikely to be granted.
On March 16, 2015, the parties notified the Court that they had reached agreement on
almost all material terms and moved for a one-month extension to resolve outstanding issues.
The Court denied the motion, lifted the stay, and directed the parties to file an updated Rule 26(f)
report. On March 31, 2015, the parties reached a settlement agreement in principle. (Doc. 55,
pp. 21:25–22:6). The terms of this settlement included dismissal of this action and refiling in
The following facts outline the events in this case and are intended to provide some
context. In imposing sanctions, the Court relied on the record as a whole and, as stated at the
hearing, takes judicial notice of the record in the Arkansas state court matter of Adams v. USAA,
57CV-15-105 (Polk County Circ. Ct.) and of the record in Adams v. Cameron Mut. Ins. Co., No.
2:12-CV-02173 (W.D. Ark.) (referred to in discussion as Adams I).
Polk County, Arkansas. On April 15, 2015, Defense counsel withdrew the motion for partial
judgment on the pleadings and the parties filed a joint Rule 26(f) report proposing several dates
for continued litigation of this action in this Court. On May 5, 2015, the Court entered a final
scheduling order on the basis of this Rule 26(f) report. On June 16, 2015, the parties executed a
settlement agreement identifying the reviewing court as the Circuit Court of Polk County. On
June 19, 2015, Respondents jointly dismissed this action by stipulation. The Clerk’s order of
dismissal was entered on June 22, 2015
On June 23, 2015, this action was refiled in the Circuit Court of Polk County along with a
joint motion to certify a class action and approve the stipulated class settlement that the parties
had negotiated and executed while appearing in this action. On August 26, 2015, the state court
certified a settlement class and preliminarily approved the settlement agreement.
representing in the settlement agreement that the class size likely topped out at 7,687 members
(Doc. 42-2, p. 111), Respondents sent 15,027 notices. (Doc. 60, p. 1 (noting that 14,988 notices
were initially mailed plus an additional 39 notices mailed at the request of potential class
As of February 20, 2016, only 651 claims were filed. 2
approximately 4% claims rate, when the settlement was given final approval Plaintiffs’ counsel
were simultaneously awarded $1,850,000 in fees and expenses, which was paid promptly due to
Respondents negotiating a quick-pay provision. (Doc. 42-3, p. 107). On December 14, 2015,
the Court first learned that this case had been refiled in Polk County and that final approval of
Though the Court can conceive of no set of circumstances in which the amount to be
recovered in these 651 claims will result in a payout anywhere near the estimated potential
settlement value of $3,445,598, and though Plaintiffs’ counsel knew that this was the claims rate
for the settlement they negotiated (Doc. 55, p. 47:3–8), at the hearing they represented through
their own counsel that they were “proud of the settlement that they achieved” (Id., p. 78:2),
believed that “[t]hey provided benefit to the class, extraordinary benefit” (Id., p. 78:4–5), and
believed three times over that “[t]here was no detriment to the class” (Id., p. 80:23–25).
the settlement was imminent. On December 16, 2015, the state court conducted a hearing for
final approval of the settlement, and on December 21, 2015, the state court entered its final order
approving settlement and awarding attorney’s fees. That same day the Court entered its showcause order.
Standard of Review
Federal Rule of Civil Procedure 11 forbids attorneys who present a pleading, written
motion, or other paper to the Court from making the submission for an improper purpose. Fed.
R. Civ. P. 11(b)(1). If Rule 11 is violated, the Court may impose sanctions. Fed. R. Civ. P.
11(c). Where, as here, the possibility of Rule 11 sanctions is raised sua sponte by the Court, “the
rule should be applied with ‘particular strictness.’” Clark v. United Parcel Serv., Inc., 460 F.3d
1004, 1010 (8th Cir. 2006) (quoting MHC Inv. Co. v. Racom Corp., 323 F.3d 620, 623 (8th Cir.
2003)). The first issue the Court must address in applying Rule 11 with particular strictness is
what standard it must apply to review potentially sanctionable conduct in a sua sponte inquiry.
Rule 11 requires that an attorney’s conduct be objectively reasonable under the
circumstances. Norsyn, Inc. v. Desai, 351 F.3d 825, 831 (8th Cir. 2003) (citing Black Hills Inst.
of Geological Research v. S. Dak. Sch. of Mines & Tech., 12 F.3d 737, 745 (8th Cir. 1993));
accord O’Connell v. Champion Int’l Corp., 812 F.2d 393, 395 (8th Cir. 1987) (explaining that
“[t]he issue is whether the person who signed the pleading conducted a reasonable inquiry into
the facts and law supporting the pleading.”). Because there is no safe harbor 3 in Rule 11 when
sanctions are raised by the Court, some circuits have required that sua sponte sanctions only
Rule 11(c)(2)’s safe harbor provision requires a party who wants to file a motion for
sanctions against a second party to serve the second party with the motion, and then to wait 21
days before filing the motion. If during that time the second party withdraws or corrects the
paper at issue, the first party may not file its motion for Rule 11 sanctions.
issue in the case of egregious misconduct akin to contempt. See Kaplan v. DaimlerChrysler,
A.G., 331 F.3d 1251, 1255–56 (11th Cir. 2003); In re Pennie & Edmonds LLP, 323 F.3d 86, 90–
93 (2d Cir. 2003); Hunter v. Earthgrains Co. Bakery, 281 F.3d 144, 151, 153 (4th Cir. 2002);
United Nat’l Ins. Co. v. R & D Latex Corp., 242 F.3d 1102, 1115–16, 1118 (9th Cir. 2001). The
Second Circuit Court of Appeals has gone so far as to require that attorneys must engage in bad
faith conduct before sua sponte Rule 11 sanctions may issue. In re Pennie & Edmonds LLP, 323
F.3d at 90–93. Conversely, the First Circuit Court of Appeals has explained that “[a] specific
purpose of the 1993 revision of Rule 11 was to reject such a bad faith requirement,” and that
because sua sponte sanctions are at any rate far less likely to arise over frivolous matters than
sanctions by motion, there is no need for a bad faith requirement or higher standard in sua sponte
sanctions determinations. Young v. City of Providence ex rel. Napolitano, 404 F.3d 33, 40 (1st
Cir. 2005); cf. Chambers v. NASCO, Inc., 501 U.S. 32, 47 n.11 (1991) (explaining that the 1983
amendments to Rule 11 removed any bad-faith requirement for imposing sanctions, and were
adopted because courts were reluctant to use the previous version of Rule 11 to impose
The Eighth Circuit Court of Appeals has thus far found it unnecessary to decide whether
a more stringent standard than “objectively reasonable under the circumstances” is required for
sua sponte sanctions. Clark, 460 F.3d at 1010. However, this circuit’s requirement that Rule 11
be applied with particular strictness is echoed by the First Circuit’s admonition that “judges must
be especially careful where they are both prosecutor and judge.” Young, 404 F.3d at 40. In the
Court’s view, the First Circuit has the better reasoning on what standard applies, and that
reasoning is consistent with Eighth Circuit precedent. As the Young opinion notes, Rule 11(c)
distinguishes between procedures that apply “depending on whether opposing counsel or the
court initiates the charge,” but “[n]othing in the language of Rule 11(c) says that, if the court
initiates the inquiry, something more than a Rule 11(b) breach of duty is required.” Young, 404
F.3d at 39; cf. Bus. Guides, Inc. v. Chromatic Commc’ns Enter., Inc., 498 U.S. 533, 540 (1991)
(“We give the Federal Rules of Civil Procedure their plain meaning.”) (quotation omitted).
If the Court finds Rule 11 has been violated, the Court may impose an appropriate
“[T]he primary purpose of Rule 11 sanctions is to deter attorney and litigant
misconduct.” Kirk Capital Corp. v. Bailey, 16 F.3d 1485, 1490 (8th Cir. 1994). If the Court
determines a Rule 11 sanction is necessary, then an appropriate sanction is one tailored “to deter
repetition of the conduct or comparable conduct by others similarly situated.” Fed. R. Civ. P.
In determining the appropriate Rule 11 sanction, the Court may consider “the
wrongdoer’s history, experience, and ability, the severity of the violation, the degree to which
malice or bad faith contributed to the violation, 4 and other factors.” Pope v. Fed. Express Corp.,
49 F.3d 1327, 1328 (8th Cir. 1995). The Court has broad discretion in determining the sanction,
and a sufficiently deterrent sanction is not necessarily the least severe sanction available. Id.
Inherent Authority (Abuse of Judicial Process)
In addition to its Rule 11 authority, the Court possesses an inherent authority to sanction
parties for abuse of the judicial process. Harlan v. Lewis, 982 F.2d 1255, 1259 (8th Cir. 1993).
This inherent sanctioning authority is not mutually exclusive with the Court’s Rule 11 authority.
Nick v. Morgan’s Foods, Inc., 270 F.3d 590, 594 n.2 (8th Cir. 2001); see also Chambers, 501
U.S. at 49 (“[T]he inherent power of a court can be invoked even if procedural rules exist which
Because the presence and degree of bad faith are considered after a violation has
already been found and while the Court is deciding what sanction to impose, if any, there is little
reason to add an additional, unwritten requirement to Rule 11 that bad faith must precede finding
a violation in the first place, even on a sua sponte analysis.
sanction the same conduct.”); 5 but cf. Chambers, 501 U.S. at 50 (stating that where bad faith
conduct can be adequately sanctioned under the Rules, “the court ordinarily should rely on the
Rules rather than the inherent power.”). The scope of the inherent authority extends beyond that
of Rule 11. Sanctions under Rule 11 may be imposed only for violations committed “[b]y
presenting to the court a pleading, written motion, or other paper.” Fed. R. Civ. P. 11(b). But
the inherent authority to sanction “reaches both conduct before the court and that beyond the
court’s confines.” Chambers, 501 U.S. at 44.
As with Rule 11, sanctions imposed under the inherent power should be “appropriate.”
Chambers, 501 U.S. at 44–45. However, Rule 11’s limitation that appropriate sanctions are
those sufficient to deter future misconduct does not control inherent authority sanctions. Rather,
the Court is “accorded considerable latitude in dealing with serious abuses of the judicial
process” and “must give thoughtful consideration to all the relevant factors presented in the
Just as with Rule 11, the Court’s inherent authority to sanction and discipline members
of its bar is not mutually exclusive with the disciplinary process set forth in the local rules.
Persons enrolled as attorneys in this Court or appearing pro hac vice are subject to the Federal
Rules of Disciplinary Enforcement. W.D. Ark. R. 83.5(e). Those Rules are found in the
appendix to the Court’s local rules and set out the process for disciplining admitted attorneys for
“misconduct.” Fed. R. Disciplinary Enforcement IV(A). “Misconduct” comprises “[a]cts or
omissions by an attorney admitted to practice before this Court . . . which violate the Code of
Professional Responsibility or Rules of Professional Conduct adopted by this Court.” Fed. R.
Disciplinary Enforcement IV(B). “The Code of Professional Responsibility or Rules of
Professional Conduct adopted by this Court is the Code of Professional Responsibility or the
Rules of Professional Conduct adopted by [the Supreme Court of Arkansas].” Id. The Court’s
order to show cause was not issued on the basis of suspected “misconduct” under the Rules of
Disciplinary Enforcement but because it appeared that Respondents violated Rule 11 and abused
the judicial process. The Federal Rules of Disciplinary Enforcement do not apply in this
proceeding because those Rules do not supplant the Court’s authority to impose sanctions on
other grounds than “misconduct.” Fed. R. Disciplinary Enforcement XIV; cf. In re Bird, 353
F.3d 636 (8th Cir. 2003) (reviewing suspension from practice imposed outside of the process set
forth in the Federal Rules of Disciplinary Enforcement after show-cause orders issued on the
basis of violations of those Rules). The Court is still considering whether Respondents engaged
in misconduct warranting referral for disciplinary investigation and enforcement under the Local
case.” Frumkin v. Mayo Clinic, 965 F.2d 620, 626–27 (8th Cir. 1992) (quotations omitted).
Ultimately, the Court should remain mindful that whereas the purpose of Rule 11 is to deter
future misconduct, the purpose of sanctions under the inherent authority is to vindicate judicial
authority. Chambers, 501 U.S. at 46, 53, 55, 57.
Turning now to the conduct that necessitated the Court’s show-cause order, the Court
must determine whether filings in this Court were made for an improper purpose, thus violating
Rule 11; and if so, whether and what sanctions might be appropriate, and for which attorneys.
The Court must also determine whether Respondents’ conduct was an abuse of judicial process,
and if so, whether and what sanctions might be appropriate under the Court’s inherent authority.
Rule 11 Analysis
In its December 21, 2015, show-cause order, the Court ordered counsel of record to
“show cause how their actions in making filings in this Court (to include the original removal,
requests for stay, and/or stipulation of dismissal, etc.) were not made for ‘any improper
purpose.’” (Doc. 37, p. 5). In particular, the Court identified the improper purposes of midlitigation forum shopping, wasting Government resources by using the Court’s jurisdiction as
leverage in settlement negotiations for a settlement that would be pursued before another court,
and procedural gamesmanship. Having considered the matter, the Court finds that Respondents
filed a stipulation of dismissal in this case for the purposes of seeking a more favorable forum
and escaping an adverse decision, and that this mid-litigation forum shopping was objectively
unreasonable under the circumstances. Respondents therefore violated Rule 11(b)(1) by filing
the stipulation of dismissal.
Mid-Litigation Forum Shopping is Improper
Refiling in a more favorable forum and avoiding an adverse decision are improper
purposes for dismissal. Respondents’ briefs (Doc. 42, pp. 18–20; Doc. 49, pp. 26–28) cite ample
authority for the proposition that shopping for the most favorable forum prior to filing suit or
when adding a claim can be proper. See, e.g., Predator Int’l v. Gamo Outdoor USA, Inc., 793
F.3d 1177, 1186, 1188 (10th Cir. 2015) (explaining that amending a complaint to add a new
nonfrivolous claim to an existing case is permissible forum shopping); McCuin v. Tex. Power &
Light Co., 714 F.2d 1255, 1261–62 (5th Cir. 1983) (explaining that forum shopping at the outset
of a lawsuit is permissible). However, though Defense counsel quotes Wolters Kluwer Financial
Services, Inc. v. Scivantage, 564 F.3d 110, 115 (2d Cir. 2009), for its statement that voluntary
dismissal under Rule 41 may be had “for any reason, and the fact that [it is filed] to flee the
jurisdiction or the judge does not make the filing sanctionable,” (Doc 49, p. 17), Respondents
cannot cite to Eighth Circuit authority for the proposition that their mid-litigation forum
shopping is proper. This is because there is contrary, clear, and binding authority in this circuit
that “a party is not permitted to dismiss merely to escape an adverse decision nor to seek a more
favorable forum.” Hamm v. Rhone-Poulenc Rorer Pharm., Inc., 187 F.3d 941, 950 (8th Cir.
1999). This holding was recently reiterated in Thatcher v. Hanover Insurance Group, Inc., 659
F.3d 1212 (8th Cir. 2011) and it remains good law. 6 See Wingo v. State Farm Fire and Cas. Co.,
Hamm addressed a voluntary dismissal of a putative class action while Thatcher
addressed an opposed motion to dismiss a putative class action. While Respondents attempt to
distinguish these cases by arguing that Hamm was issued prior to the 2003 amendments to Rule
23 (which removed the requirement that courts approve a precertification dismissal) and
Thatcher was an opposed motion to dismiss rather than a stipulation, the amendments to Rule 23
had no effect on the propriety of dismissing to seek a more favorable forum or avoid an adverse
decision, and using a different Rule 41 mechanism to dismiss with the agreement of an opposing
party does not change the propriety of the purpose for dismissing. Nor does agreeing to dismiss
for improper purposes make the dismissal proper—especially where, as here, the ultimate class
settlement bears at least some hallmarks of collusion that would require a reviewing federal court
to give the settlement close scrutiny.
No. 13-3097-CV, 2013 WL 4041477, *1 (W.D. Mo. Aug. 8, 2013) (discussing Thatcher and
ruling that dismissing with the intent to avoid federal court “is improper forum shopping under
Eighth Circuit precedent.”).
Respondents have admitted that seeking a more favorable forum and avoiding an adverse
decision were the purposes for which they filed a stipulation of dismissal in this putative class
action. Plaintiffs’ counsel explained that they dismissed in order to return to state court because
Arkansas makes it difficult for class members to object to a settlement. Specifically, Plaintiffs’
counsel argue that federal courts are ineffective at addressing objections that class members raise
to proposed class settlements, and that Arkansas courts have developed the means to prevent
objecting class members 7 from being heard by requiring successful intervention at the trial court
level and denying standing to appeal any settlement to class members who are unable to
successfully intervene. (Doc. 42, p. 13; Doc. 55, pp. 78:16–79:24). That is, Plaintiffs’ counsel
sought to escape an adverse decision regarding the settlement by preventing adverse positions
from being heard in the first place. Indeed, Plaintiffs’ counsel directly admit that they consider
the state court forum to be a more favorable forum than federal courts. (Doc. 42, p. 27 (“Counsel
believed [the Arkansas state court where Plaintiffs had originally filed their claims] was not only
a proper forum, but the best forum, for their claims.” (emphasis added))).
Though in a less direct manner, Defense counsel also admit that in stipulating to
Plaintiffs’ counsel raise the specter of “professional objectors” who have affected other
cases to make their argument. They do not, however, distinguish professional objectors from
class members who raise objections in good faith, and they notably have not articulated any
specific worry about the presence of professional objectors in this case, which involved a class
“comprised solely of Arkansas property-holders . . . assert[ing] claims for breach of Arkansas
law arising from Arkansas insurance policies.” (Doc. 42, p. 25). To that extent, it appears to the
Court that Plaintiffs’ counsel was just as worried—and likely more worried—about actual, goodfaith objections to their proposed settlement as they were about any speculative “professional”
dismissal they sought a more favorable forum and to avoid an adverse decision. In their brief
and at the hearing, Defense counsel describe the barriers to objection and appeal as a reason a
party might choose to seek class settlement in Arkansas state court. (Doc. 49, p. 20–21; Doc. 55,
pp. 11:21–12:7). And they explain that they sought a “claims made,” rather than a “claims paid,”
settlement, 8 and dismissing and refiling in state court was the only way to achieve settlement on
those terms. (Doc. 49, p. 14 (“If the parties had agreed to a settlement that required USAA to
attempt to make payments to settlement class members who did not submit claims, that would
have imposed an extraordinary undue administrative burden and expense on USAA, in order to
attempt to pay people who have no interest in claiming the payment.” 9); Doc. 55, pp.12:22–13:2,
20:12–21:14; 34:14–17). Defense counsel are of course correct that claims made settlements are
“consistently approved,” and because this Court is not sitting in review of the settlement,
whether or not Defense counsel give the true justification for negotiating for this type of
settlement does not affect whether their conduct was objectively reasonable, as in either case the
purposes of stipulating to dismissal and refiling in state court were to seek a more favorable
forum—one in which the class action could be settled through a burdensome claims made
A “claims made” settlement is one in which there is no fixed common fund for
settlement and the defendant only pays out on filed (and approved) claims. Newberg on Class
Actions § 13:7 (5th ed.). Though “claims paid” is not a term in wide use in court opinions on
class certification, and Respondents did not clarify exactly what they meant by this term, it likely
refers to direct payment common fund settlements where funds are distributed to class members
once the opt-out period ends and the settlement is approved. Cf. Doc. 42, p. 35 (contrasting this
claims made settlement from the direct payment settlement approved by the Court in Adams I).
This stated justification for seeking a claims made settlement is entirely incredible.
Defense counsel fail to explain why a class member would have no interest in claiming a
payment but would not then opt out of the settlement class. The more likely reason for desiring a
claims made settlement over a claims paid settlement, and even over a common fund settlement
with a claims requirement, is that a claims made settlement creates a barrier to payout, which
means in most cases not every class member will make a claim, and even legitimate claims can
sometimes be rejected as inadequate. Thus, a claims made settlement will result in a smaller
payout to class members than would be had in a claims paid settlement, and a smaller loss to a
defendant who retains the unclaimed funds throughout the entire process.
process—and to escape an adverse decision—one to which class members bound by the
settlement might be permitted to object or appeal, or which involved some actual review of the
It is likely that Respondents also considered Arkansas state court to be a more favorable
forum where they could escape an adverse decision because prior to certifying a class action,
Arkansas courts do not undertake a rigorous analysis of whether the class certification
requirements are met, and federal courts must do so. Compare, e.g., Simpson Hous. Sols., LLC v.
Hernandez, 347 S.W.3d 1, 17 (Ark. 2009) (“[T]he federal courts apply a rigorous-analysis test
for class actions, which this court has consistently rejected.”), with Wal-Mart Stores, Inc. v.
Dukes, 564 U.S. 338, 131 S.Ct. 2541, 2551 (2011) (“[C]ertification is proper only if the trial
court is satisfied, after a rigorous analysis, that the [class certification] prerequisites of Rule 23(a)
have been satisfied.” (quotation omitted)); see also The Money Place, LLC v. Barnes, 78 S.W.3d
730, 733–34 (Ark. 2002) (explaining that Arkansas class certification requirements do not
require the same rigorous analysis as federal class certification requirements). The more lenient
approach to certification in Arkansas state courts would allow Respondents to certify a large
class that would hopefully justify the size of the negotiated fees for Plaintiffs’ counsel and would
allow Defense counsel to eliminate a much greater amount of potential liability for their client.10
Because certification in this case was being sought for settlement purposes, Arkansas courts
would also be unable to use the tools at their disposal—decertification, subclassing, or
bifurcation—for correcting the certification order should later case developments reveal class
The Court again notes that the settlement agreement signed in this Court and approved
in state court represents that the maximum class size is 7,687 members (Doc. 42-2, p. 111), but
Respondents sent 15,027 notices (Doc. 60, p. 1) and told the state court at the final approval
hearing that the class size was “over 14,000 class members.” Hearing Transcript, Adams v.
USAA, 57CV-15-105 (Polk County Circ. Ct.) (Aug. 26, 2015 and Dec. 16, 2015), p. 52:20-22.
certification to have been improvidently granted. Indeed, in federal courts, because certifications
for settlement preclude later class modification, the rigorous class certification analysis
“demand[s] undiluted, even heightened, attention.” Amchem Prods., Inc. v. Windsor, 521 U.S.
591, 620 (1997). Arkansas state courts are not bound by any requirement of heightened scrutiny
in a certification-for-settlement case. See Ballard v. Martin, 79 S.W.3d 838, 849 (Ark. 2002)
(noting that other jurisdictions require heightened scrutiny when a class action is to be certified
for settlement, but not adopting any similar requirement for Arkansas). Respondents’ attempt to
escape the rigorous analysis with heightened attention that this Court would have been obligated
to apply to a motion for class certification and settlement further supports a finding that
Respondents stipulated to dismissal of this lawsuit for the purpose of seeking a more favorable
forum and avoiding any adverse decision. 11
It was objectively unreasonable in light of the circumstances for Respondents to dismiss
for the purpose of refiling in a more favorable forum or escaping an adverse decision when there
was clear and binding precedent that this purpose is improper. Therefore, filing the stipulation of
dismissal was a violation of Rule 11.
Respondents’ Arguments Against Finding Rule 11 Was Violated
In an attempt to dissuade the Court from finding a violation, Respondents argued: (1) that
because no class action had been certified under Rule 23 the Court’s approval was not required
Because the issue of sanctions was raised sua sponte, the Court did not have the benefit
of adversarial briefing on the issue of whether Arkansas is a more or less favorable forum for
class certification and settlement. In evaluating this issue, prior opposing briefs signed by some
of the Respondents have proven helpful. See Brief for Petitioner, Standard Fire Ins. Co. v.
Knowles, --U.S.--, 133 S.Ct. 1345 (2013) (No. 11-1450), 2012 WL 5246242; Brief for
Respondent, Id., 2012 WL 5982592; Reply Brief for Petitioner, Id., 2012 WL 6624223; see also
Brief for Defendants-Appellants, Thatcher v. Hanover Ins. Grp., Inc., 659 F.3d 1212 (8th Cir.
2011) (No. 11-1610), 2011 WL 1748691; Response Brief for Plaintiff-Appellee, Id., 2011 WL
2353837; Reply Brief for Defendants-Appellants, Id., 2011 WL 2529681.
prior to settlement, and because Rule 41 allows the parties to stipulate to dismissal without the
Court’s approval, the decision to dismiss from this Court is insulated from the Court’s review;
(2) that CAFA and the Rules allow dismissal from this Court and refiling at the state level for
certification of a settlement class; (3) that the Court entered orders contemplating a stipulation of
dismissal; and (4) that Respondents have done this before without drawing similar inquiry and
had no reason to suspect their conduct was improper. 12 The Court will address these arguments
Insulation from the Court’s review
Plaintiffs’ counsel clarified at the hearing that their argument is that Respondents’ actions
are insulated from the Court’s review. (Doc. 55, p. 38:10–21). It is true that no class action was
certified before this Court, and so Rule 23(e) did not apply to require the Court’s approval before
dismissal. It is also true that stipulations of dismissal under Rule 41 do not require Court
approval to become effective. However, it does not follow that this insulates the actions of
Respondents from the Court’s review. Although the parties stipulated to dismissal of this
lawsuit, the Court retains jurisdiction to enforce Rule 11 because any violation of the rule occurs
at the time of the submission. Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 394–95 (1990);
Bryant v. Brooklyn Barbecue Corp., 932 F.2d 697, 699 (8th Cir. 1991) (“We find the Supreme
Court’s decision in Cooter resolves this issue in favor of the court’s authority to award sanctions
even though the original complaint was dismissed . . . . The violation in this case occurred when
the original complaint was filed for an improper purpose and without the ‘reasonable inquiry’
required by Rule 11.”); cf. Chambers, 501 U.S. at 56 (“[E]ven under Rule 11, sanctions may be
This fourth argument has little or no bearing on whether Respondents’ conduct was
objectively reasonable under the circumstances and can be rejected at once. That misconduct has
gone unnoticed in the past does not excuse the instant misconduct. If anything, this argument
bears on the degree of Respondents’ bad faith.
imposed years after a judgment on the merits.”). Furthermore, in this Rule 11 review the Court’s
concern is not whether a procedural mechanism exists in the Rules that Respondents used to
dismiss their case, but whether the use of that procedural mechanism was for an improper
purpose. For example, the Rules describe a procedural mechanism with which a person can
initiate a lawsuit by filing a complaint in accordance with Rules 3 and 8, but Rule 11 may still
apply to allow sanctions against that person if the complaint filed is frivolous. See, e.g., Welk v.
GMAC Mortg., LLC, 720 F.3d 736, 738 (8th Cir. 2013) (affirming sanctions imposed for filing
of frivolous lawsuit). Just so, although Rules 41 and 23 allow dismissal of a putative class action
by stipulation, Rule 11 may still be violated if that stipulation of dismissal is done for an
improper purpose. In conducting a Rule 11 review, the Court is not imposing conditions on the
stipulation of dismissal, is not attempting to vacate the order of dismissal, and is not reviewing
the class settlement itself. Rather, the Court recognizes that the parties are able—as a procedural
rule—to stipulate to dismissal pursuant to Rule 41. In reviewing the stipulation under Rule 11,
which contains no exception for stipulations of dismissal, the Court is applying Eighth Circuit
precedent that prohibits mid-litigation forum shopping. Respondents’ conduct is not insulated
from review, and Rule 11 sanctions may be imposed to deter the filing of stipulations of
dismissal for an improper purpose.
CAFA and the Rules
Respondents argue that CAFA condones dismissal of a federal class action for the
purpose of refiling and settling in state court. This is similar to the argument addressed above,
although the conclusion is “because there is a procedural mechanism by which a thing can be
done, it is proper to do so” rather than “because there is a procedural mechanism by which a
thing can be done, the Court cannot review it.” That is, Respondents argue that because CAFA
does not expressly prohibit dismissal of a putative class action from federal court and refiling of
that same action in state court for certification and settlement, and neither do the Rules of Civil
Procedure, therefore Respondents’ actions in dismissing this case for the purpose of refiling in
state court for certification and settlement cannot be improper.
As with the argument that Respondents’ conduct is insulated from the Court’s review,
this argument is unavailing. Respondents attempt to support their position by citing secondary
sources authored by a law professor who identifies this “gap” in CAFA that does not expressly
forbid parties from dismissing and refiling in state court for certification and settlement.
Respondents ignore that professor’s recognition that this tactic subverts CAFA’s purpose. See
Robert Klonoff, Class Actions and Other Multi-Party Litigation in a Nutshell (4th ed. 2012) §
9.2(E), p. 305 (“Congress arguably did not anticipate such an easy route to circumvent
CAFA . . . .”); Robert H. Klonoff and Mark Herrmann, The Class Action Fairness Act: An IllConceived Approach to Class Settlements, 80 Tul. L. Rev. 1695, 1710 (2006) (explaining that
“this potential for settlement forum-shopping poses a serious concern.”). While Respondents
and Professor Klonoff identify this tactic as a thing that technically can achieve Respondents’
desired effect, it is only Respondents who go so far as to conclude that because CAFA does not
expressly prohibit the procedural mechanism of dismissing to refile, it cannot be improper for
them to use that mechanism.
Respondents fail to show that dismissal and refiling for
certification and settlement is affirmatively a proper purpose under CAFA, and they miss the
mark with this argument. That it is possible under the rules and laws to do a thing in a certain
way does not mean that one is always doing that thing for the proper purpose. This distinction is
the very reason Rule 11 exists. As above, in this Rule 11 review the Court’s concern is not
whether Respondents complied with the technical requirements of the procedural mechanism
they used to dismiss or whether the jurisdictional grant in this case expressly prohibits their
dismissal, but whether the use of that procedural mechanism was for an improper purpose.
The Court’s Orders on Stipulation of Dismissal
On May 5, August 11, October 10, and December 15 of 2014, the Court entered orders
directing the parties to file a status report or stipulation of dismissal by a certain date. This is
standard language the Court uses in civil matters where a case is stayed for settlement purposes.
Defense counsel disingenuously argue that their conduct was proper because these orders
“appeared to contemplate that a potential final resolution might involve a stipulation of dismissal
of the federal case, rather than a proposed class action settlement being submitted to this Court
for approval.” (Doc. 49, p. 7). First, final resolution by stipulation of dismissal would have been
quite appropriate had the Adamses settled their individual claims prior to certification and then
dismissed from this Court. Second, the stipulation of dismissal eventually entered was not a
final resolution of this case, but instead was a step taken to insulate this case from federal review
by refiling it in a state forum. The cited orders are too general for Respondents to truly have
believed that the Court contemplated the case might be dismissed by stipulation so that
Respondents could refile and move to certify and settle in Arkansas state court. To the extent
Respondents might be claiming that on the basis of these orders, they believed in good faith that
the Court condoned their chosen means of evading federal review, the Court does not find such a
claim to be credible.
Responsibility for the Violation
Rule 11 permits the Court to sanction “any attorney, law firm, or party that violated the
rule or is responsible for the violation.”
Fed. R. Civ. P. 11(c)(1).
No Respondent has
specifically set out for the Court how the decision to stipulate to dismissal and seek a more
favorable forum was made. However, affidavits submitted in response to the Court’s showcause order indicate that “[o]n March 31, 2015, the parties’ counsel exchanged emails
confirming that they had reached agreement in principle on the basic terms of a class action
settlement that included a stipulation of dismissal of the federal case and a re-filing in the Polk
County Circuit Court with a motion for preliminary approval of the settlement.” (Doc. 49-2, pp.
3–4, ¶ 16; Doc. 49-3, p. 4, ¶ 17) (emphasis added). Furthermore, refiling in state court was
discussed as a term in settlement negotiations as early as the first mediation in September of
2014. (Doc. 55, p. 21:11-19). Because the return to state court was a factor in the negotiations
for so long, because this settlement term was circulated in an email among Respondents, and
because all Respondents entered an appearance in this case, the clear implication is that all
Respondents were aware that a stipulation of dismissal would be filed for the purpose of refiling
and settling this case in state court.
When a lawyer enters an appearance and continues to represent a client and remains
silent in the face of objectively unreasonable conduct by co-counsel or opposing counsel, the
lawyer’s hands-off approach to representation does not render the lawyer’s silence objectively
reasonable. This is especially true in the class action context, where a lawyer’s appearance and
the weight of his or her reputation bears on a court’s determination of the adequacy of class
counsel and approval of a class settlement. Any Respondent who did not actively press the
dismissal tactic in settlement negotiations, or was not otherwise actively engaged in the
negotiations, is not thereby absolved of responsibility for the violation of Rule 11 (though such
limited participation might bear on the extent to which that Respondent’s conduct was
characterized by bad faith, and is an appropriate consideration for whether and what sanctions
should be imposed). The Court therefore finds that all Respondents are responsible for violating
Rule 11 by stipulating to dismissal for the improper purposes of seeking a more favorable forum
and avoiding an adverse decision. 13
Rule 11 Sanctions under Consideration
Having found that the stipulation of dismissal was filed for an improper purpose and
violates Rule 11(b)(1), and that Respondents are responsible for the violation, the Court must
now decide whom to sanction and what sanction to impose. Because the purpose of Rule 11 is to
deter misconduct, and inaction in the face of sanctionable misconduct that results in harm as
great as in this case would contravene this purpose, the Court finds that some sanction is
necessary for all violators and will not exercise its discretion under Rule 11(c)(1) to refrain from
sanctioning those who violated the Rule.
Because sanctioning Respondents will have an adverse effect on their careers, the Court
must give particularized notice of the sanctions under consideration. Sec. Nat’l Bank of Sioux
City, Iowa v. Day, 800 F.3d 936, 945 (8th Cir. 2015). After considering the history, experience,
and ability of Respondents, the severity of the violation, the degree to which malice or bad faith
contributed to the violation, and other factors, 14 the Court has broad discretion in determining the
sanction, and recognizes that a sufficiently deterrent sanction is not necessarily the least severe
sanction available. Pope, 49 F.3d at 1328.
As should be clear from its analysis thus far, the Court views this as a serious violation.
As a result of Respondents’ decision to stipulate to dismissal, properly-invoked federal
Respondent Clancy is specifically excepted, as the Court finds he is not responsible for
this violation. Respondent Clancy did no work on this case after May 21, 2014, (Doc. 49-4, p. 1,
¶ 4), which was well before settlement negotiations began and the improper purpose introduced.
The Court’s consideration of the relevant factors in this case has necessarily been
limited by Respondents universally arguing that their conduct is not sanctionable, and generally
declining to identify factors for the Court that might mitigate the extent of any sanctions imposed
should the Court find, as it does here, that a violation has occurred.
jurisdiction has been undermined in this case, the rigorous review this Court is obligated to give
to motions for class certification (especially in the settlement context) has been avoided in favor
of review by a court that was obligated to give a less rigorous review, and the rights of class
members to object and to appeal the settlement have been significantly curtailed through a
settlement that has at least some hallmarks of collusion.
The Court also finds that some degree of bad faith led to this Rule 11 violation. “Bad
faith” does not lend itself to a specific and narrow definition. Bad faith conduct is often
characterized by dishonesty of belief, purpose, or motive.
Dictionary (10th ed. 2014).
See Bad Faith, Black’s Law
It involves a subjective component of knowledge or reckless
disregard for whether one’s conduct is improper. See, e.g., United States v. Monson, 636 F.3d
435, 444 (8th Cir. 2011) (Riley, J., dissenting) (describing the meaning of “bad faith” conduct in
several contexts). Any bad faith on the part of any one Respondent may not be imputed to the
remaining Respondents. See Gregory P. Joseph, Sanctions: The federal law of litigation abuse, §
27(A)(3) (5th ed. 2013) (collecting cases holding that the bad faith of one attorney is not imputed
to others). Bad faith may, however, be inferred from the combination of the improper purpose
and a Respondent’s reckless indifference to the propriety of his or another’s conduct. Accord
Gomez v. Vernon, 255 F.3d 1118, 1134 (9th Cir. 2001) (“Although recklessness, of itself, does
not justify the imposition of sanctions, sanctions are available when recklessness is combined
with an additional factor such as frivolousness, harassment, or an improper purpose.”).
Here, Respondents Keil, Goodson, Roselius, Weber, Norman, Goldman, Ackerman, and
Pruitt knew of the holding in Thatcher, and therefore of the holding in Hamm. See Thatcher, 659
F.3d at 1212 (listing Respondents Goldman, Pruitt, Keil, Goodson, and Roselius as having
argued or briefed the case for the Eighth Circuit Court of Appeals); (Doc. 55, pp. 31:8–12, 32:6–
9 (answering that Respondents Goldman, Ackerman, and Pruitt were aware of Thatcher); (Doc.
59 (advising that Respondents Weber and Norman entered an appearance in Thatcher after it was
remanded)). That is, these Respondents knew from the time dismissal and return to state court
was first raised in the settlement negotiations in this case until the time that the stipulation of
dismissal was filed that dismissal for the purpose of seeking out a more favorable forum or
avoiding an adverse decision is improper. Knowing this, they chose to stipulate to dismissal
rather than move for certification and settlement in this Court, or at the very least make a joint
motion for dismissal that the Court would be required to analyze in light of Hamm and Thatcher.
Either they desired to conceal the purpose of their dismissal from the Court or they were
recklessly indifferent to whether that purpose was proper. The conduct of these Respondents, at
least, is characterized by some degree of bad faith which contributed to the violation. Though
the remaining Respondents deny knowledge of the holding in Thatcher, the convoluted means by
which settlement was achieved for a class without review of the Court in which the putative class
action was actually pending should at the very least have raised their suspicion that something
improper might be occurring. While their reckless indifference to whether their tactic was
improper might not rise to the level of bad faith, it contributed to the violation and requires at
least some minimal sanction.
There is also evidence that some Respondents in this action have engaged in misleading
conduct. This evidence undermines the credibility of Respondents when they claim that their
conduct has been taken in subjective good faith, and instead supports an inference that they were
acting with some degree of bad faith at the time they stipulated to dismissal of this action. For
example, in attempting to justify the amount of the fee awarded to Plaintiffs’ counsel, appearing
Respondents misrepresented this as a common fund case to the Arkansas state court. (Doc. 42-2,
p. 42 (describing the settlement as making available a common fund); Id., passim (justifying the
fee on the basis of precedent involving common fund settlements); Doc. 42-3, p. 42, ¶ 30
(affidavit of Matt Keil) (“Defendants have agreed to pay up to $1,850,000 for fees and expenses.
This total equals only 34.87% of the total common fund obtained by the efforts of Class Counsel
using the above calculations.” (emphasis added)); Doc. 49-5, p. 13, ¶ 30 (same)). Yet before this
Court it was acknowledged that this was not a common fund settlement. (Doc. 55, p. 23:11–15).
Furthermore, despite moving for approval of a settlement that required claiming class members
to make affirmations “under penalty of perjury,” (Doc. 42-2, p. 104, ¶ 61(b); Id. p. 156, ¶ 5), at
the December 16, 2015, hearing in Polk County Respondent Vowell denied that claims were
made under threat of criminal perjury, and Respondents Putman, Taylor, Keil, and Ackerman (all
present at that hearing) made no effort to correct the record. (Hearing Transcript, Adams v.
USAA, 57CV-15-105 (Polk County Circ. Ct.) (Aug. 26, 2015 and Dec. 16, 2015), p. 60:7-10
(“The next objection is is [sic] that the claims form threatens criminal perjury. You know, I’ve
read that form several times and I don’t know what they’re talking about.”)). Additionally,
Respondents Mustokoff and Ackerman signed a joint Rule 26(f) report (Doc. 31), filed April 15,
2015, representing to this Court that the litigation in this case was expected to run well into 2016.
In light of these various representations, the Court is unconvinced that all Respondents were
acting in subjective good faith when they stipulated to dismissal of this action.
Were these the only factors under consideration, the Court would impose a most severe
sanction on Respondents.
However, for those Respondents whose conduct appears to be
characterized by bad faith that led to the violation, 15 other factors mitigate against finding that
The conduct of Respondents Keil, Goodson, Roselius, Weber, Norman, Goldman,
Ackerman, and Pruitt (all who knew of Thatcher and Hamm and were at least recklessly
indifferent to the propriety of the dismissal); Respondents Vowell, Putman, Taylor, and again
their violation was characterized only by bad faith.
As attorneys, Respondents have an
obligation to zealously advocate for their clients. Often the means or ends of that advocacy can
be distasteful. Yet however distasteful Respondents’ conduct may have been, it is only the
violation of Rule 11—and the extent that that particular violation was characterized by bad
faith—that informs the Court’s Rule 11 sanctions analysis.
That Respondents were likely
motivated by something other than just malicious bad faith qualitatively lessens the degree of
bad faith characterizing their violation. It does not, however, absolve them of that bad faith, and
so something more than a minimal sanction is necessary for them. For the other Respondents
found responsible for the violation, while an “empty-head pure-heart” argument does not affect
whether the violation occurred, it may affect whether and to what extent a violator is sanctioned.
Furthermore, because the purpose of Rule 11 is to deter, and because the mere fact that
Respondents now know that their conduct in stipulating to dismissal for the purpose of seeking a
more favorable forum and avoiding an adverse decision is unequivocally improper, they are
unlikely to repeat this misconduct. 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—even those who remain unfamiliar with the holdings in
Hamm and Thatcher—will also be unlikely to repeat this violation.
For these reasons, the Court is considering imposing the following sanctions on
Respondents, and hereby gives them particularized notice:
(1) for each Respondent whose violation of Rule 11 was characterized by bad faith, in
Keil and Ackerman (whose misrepresentation and silence on the claim form perjury issue before
the state court implies some degree of bad faith in dismissing the action from this Court); and
Respondents Mustokoff and again Ackerman (who signed the April, 2015 Rule 26(f) report)
appears to be characterized at least in part by bad faith that led to the violation.
any class action in the federal courts of Arkansas in which the Respondent has
entered an appearance or is otherwise representing an involved party with respect to
the action, in which a motion for approval of a class settlement is filed, the
requirement that the Respondent file a notice along with the motion for settlement
that the Respondent has previously been sanctioned for improper conduct in
connection with a class action settlement agreement;
(2) for each Plaintiff’s counsel whose violation of Rule 11 was characterized by bad
faith, in any putative class action in the federal courts of Arkansas in which that
attorney files a motion to be appointed class counsel, or in any pending class action in
which that attorney has already been appointed class counsel, the requirement that
that Respondent file a notice that he has violated Rule 11 by dismissing a putative
class action for the improper purposes of seeking a more favorable forum or escaping
an adverse decision; and
(3) for any Respondent whose violation is not characterized by bad faith, an admonition,
reprimand, caution, censure, or similar sanction.
The Court will schedule a hearing for June 10, 2016, at which any Respondent may
appear and be heard. The hearing will not be conducted for the purpose of reconsidering this
order, but to allow each Respondent to individually address the factors relevant to the nature of
sanctions the Court intends to impose against him or her. A final order on sanctions will issue
following that hearing.
Inherent Authority Analysis
The Court reiterates that coextensive with the authority in Rule 11, the Court possesses
an inherent authority to sanction for abuse of the judicial process. Harlan, 982 F.2d at 1259. As
an initial matter in this analysis, to the extent it can be read to apply to inherent authority
sanctions, the Court again rejects Respondents’ argument that a stipulation of dismissal insulates
their conduct from review. It is widely accepted that “[w]hile the filing of a stipulation of
dismissal is effective automatically and does not require judicial approval, the court, exercising
its inherent powers, may look behind it to determine whether there is collusion or other improper
conduct giving rise to the dismissal.” United States v. Mercedes-Benz of N. Am., Inc., 547 F.
Supp. 399, 400 (N.D. Cal. 1982); see also Green v. Nevers, 111 F.3d 1295, 1300–01 (6th Cir.
1997) (quoting Mercedes-Benz for the principle that a court may decline to permit voluntary
dismissal “to avoid short-circuiting the judicial process, or to safeguard interests of persons
entitled to the court’s special protection”); Moeller v. Weber, Civ. No. 04-4200, 2012 WL
5289331, *1 (D. S. Dak. Oct. 23, 2012) (citing Mercedes-Benz for the principle that courts may
exercise inherent authority to determine whether improper conduct gave rise to a stipulation of
dismissal). In determining whether Respondents’ conduct was improper as an abuse of the
judicial process, the Court’s examination is not constrained by the limited Rule 11(b) analysis of
whether a party filed a “pleading, written motion, or other paper . . . for any improper purpose.”
Rather, it may reach conduct “beyond the court’s confines.” Chambers, 501 U.S. at 44.
Abuse of Judicial Process
At least as early as the September 2014 mediation, at which dismissal and return to state
court was a term in negotiations, Respondents treated the federal court system and its rules for
class actions as a bargaining chip. A return to Arkansas state court for settlement purposes
allowed Respondents to certify a settlement class in a court whose precedent prevented it from
rigorously analyzing whether the class should have been certified, and to insulate the class
settlement in that court both from reasonable objections by class members and from any
substantive appellate review. All Respondents are complicit in this conduct. Plaintiffs’ counsel
have embraced the practice of negotiating lucrative attorneys’ fees from various defendants using
the threat of class action as leverage, as evidenced by their willingness here to negotiate a
settlement that primarily benefits Plaintiffs’ counsel and USAA. Despite this Court not having
certified a class, and knowing they would not ask this Court for an appointment as class counsel,
while proceeding in this Court Plaintiffs’ counsel negotiated and signed a class settlement
agreement before stipulating to dismissal of this action. Plaintiffs’ counsel used the lesser
scrutiny of Arkansas state courts to entice defendants to stipulate to dismissal for refiling in a
forum where it is possible to certify a potentially overinclusive and indeterminate class and settle
on terms that will take less money from the defendants. Defense counsel removed this action to
federal court and then took advantage of the more difficult certification and settlement process in
this forum to negotiate a settlement designed to result in a lower payout to an overinclusive class
in exchange for a high attorney’s fee.
The result of Defense counsel invoking federal jurisdiction and then all Respondents
treating that jurisdiction as a bargaining chip during pending litigation is that the Court was not
treated as a forum in which to resolve a dispute but as leverage in negotiations that benefited
everyone but the class members. This gamesmanship is improper in any case. That it has
become standard practice for some Respondents only further convinces the Court that this
conduct is an abuse of the judicial process. This abuse may have begun during the pendency of
Thatcher. After the Eighth Circuit Court of Appeals reiterated that seeking a more favorable
forum and avoiding an adverse decision are improper purposes for dismissal, the case was
remanded and this Court 16 denied the motion to dismiss. Thatcher was ultimately dismissed by
Hon. Jimm Larry Hendren.
stipulation, and the Court is left to wonder whether that was the beginning of Respondents’
current class action settlement tactic.
Regardless of whether this pattern of abuse was born in Thatcher, Respondents have
acknowledged that some form of this tactic has been employed by Plaintiffs’ counsel in
numerous other cases to evade federal review. (Doc. 42, p. 36; Doc. 49, p. 21–22). In Pipes v.
Life Investors Insurance Co. of America, No. 1:07-CV-00035 (E.D. Ark.), the case was removed
from Jackson County, Arkansas, on April 30, 2008. The Plaintiffs moved to certify a class on
March 3, 2008. The case was then stayed pending a decision on whether the case (and others)
would proceed as multidistrict litigation. The panel denied multidistrict litigation certification in
August of 2008, and the federal court denied the motion to certify a class action in November of
Notably, the federal court found that the named plaintiffs were not adequate class
representatives (disqualifying one named plaintiff on the basis of that plaintiff’s conflict with the
proposed class). On March 13, 2009, a putative class action was filed in the state courts of
Arkansas, naming the Pipes plaintiffs among the putative class representatives. A class was
certified for settlement purposes in April of 2009, and the settlement preliminarily approved.
Final approval was given to the settlement on December 29, 2009, and notice of the judgment
was filed in federal court. Pipes was dismissed from federal court by stipulation on November 2,
2011. Respondent Castleberry entered an appearance in Pipes and signed the stipulation of
dismissal. Respondent Thompson also entered an appearance in that federal case.
In Runyan v. Transamerica Life Insurance Co., No. 6:08-CV-06034 (W.D. Ark.), the
case was removed from Hot Springs County, Arkansas, on March 28, 2008. The case was part
of the same multidistrict litigation decision as Pipes. When multidistrict litigation was denied,
the state action (which also included the Pipes plaintiffs) was filed between the parties in March
of 2009. Following the April 23, 2009, preliminary approval of class settlement in the state court
action, Runyan was stayed in May of 2009. After the final approval of the state court settlement
in December of 2009, the parties filed notice in federal court. They filed their stipulation of
dismissal on November 2, 2011. Respondent Castleberry entered an appearance in Runyan and
signed the stipulation of dismissal. Respondent Thompson also entered an appearance in the
In Vinson v. Metropolitan Property & Casualty Insurance Co., No. 4:14-CV-00029 (E.D.
Ark.), the case was removed from Independence County, Arkansas, on January 15, 2014. The
plaintiffs moved to certify a class on July 24, 2014. A joint motion to stay was filed on
December 1, 2014. A stipulation of dismissal was filed December 11, 2014. That same day, the
parties filed a new state court action, as well as a motion to certify and settle a class action.
Respondent Castleberry entered an appearance in Vinson and signed the stipulation of dismissal.
Respondents Roselius, Norman, Thompson, Mustokoff, Weber, and Engstrom also entered an
appearance in that federal case. 17
In Goodner v. Shelter Mutual Insurance Co., No. 4:14-CV-04013 (W.D. Ark.), the case
was removed from Miller County, Arkansas, on January 10, 2014. In February of 2014, the
parties jointly moved to stay the case for settlement purposes and the motion was granted. The
stay was lifted in May of 2014, following the failure of settlement negotiations. The case was
stayed again for settlement purposes in December of 2014. On August 12, 2015, final approval
was given to a related class action settlement between the parties in state court, 18 and the parties
filed a stipulation of dismissal in Goodner for some of the named plaintiffs—the Keeners—on
Respondents Vowell, Myers, Taylor, and Putman had entered their appearances in
Vinson, but withdrew (Doc. 19) roughly six months prior to the stipulation of dismissal.
Keener v. Shelter Mut. Ins. Co., No. 46CV-15-69-2 (Miller Cnty. Ark.).
that basis. A motion to stay was subsequently filed in Goodner in October, 2015, on the basis
that the remaining plaintiffs had a class action settlement on appeal to the Arkansas Supreme
Court that could resolve the federal case. The motion to stay was denied on January 21, 2016,
and Goodner remains pending. Respondent Weber entered an appearance in Goodner and
signed the stipulation of dismissal on behalf of the Keeners. Respondents Keil, Goodson,
Roselius, Vowell, Myers, Taylor, Putman, Thompson, Castleberry, Norman, and Engstrom also
entered an appearance in the federal case.
In Rafaelli v. Certain Underwriters at Lloyd’s London, No. 4:14-CV-04038 (W.D. Ark.),
the case was removed from Miller County, Arkansas, on March 4, 2014. Respondents Keil,
Roselius, Goodson, Norman, Putman, Weber, and Engstrom entered an appearance. In Simpson
v. Certain Underwriters at Lloyd’s, London, No. 4:14-CV-04042 (W.D. Ark.), the case was
removed from Miller County, Arkansas, on March 21, 2014.
Respondents Keil, Roselius,
Goodson, Putman, Myers, Taylor, Vowell, and Engstrom entered an appearance. A motion to
stay for mediation was filed in each case on April 11, 2014, and those motions were granted on
April 16 and 17. Respondent Keil signed a stipulation of dismissal in Simpson on August 8,
2014. A case was filed by the Rafaelli and Simpson plaintiffs in Miller County, Arkansas, on
September 9, 2014. 19 On September 10, the defendants filed an answer and the plaintiffs filed a
motion to preliminarily approve a stipulated class settlement. The motion was granted and a
class was certified and the settlement given preliminary approval on September 12, 2014. Final
approval of the settlement was granted on January 5, 2015. Respondent Keil signed a stipulation
of dismissal in the federal Rafaelli case on January 13, 2015.
Overall these cases reveal the extent to which the judicial process is being abused by
Simpson & Raffaelli v. Certain Underwriters at Lloyds’s London, 46CV-14-213
(Miller Cnty. Ark.).
dismissal tactics designed to insulate the settlement of class actions from federal review, and do
not support Respondents’ claim that their dismissal tactic has been approved by other courts.
The Court notes that Defense counsel did not appear in any of the above federal proceedings, but
reiterates that along with Respondents Keil, Goodson, Roselius, Weber, and Norman,
Respondents Goldman, Ackerman, and Pruitt knew of the Thatcher opinion, and their
noninvolvement in the above-cited actions does not reduce the extent of their bad faith in the
Respondents have jointly abused the federal court system through their conduct in this
case. That abuse was committed in a way designed to insulate Respondents’ actions from federal
judicial scrutiny. When the terms of the return to state court were decided, Defense counsel
withdrew the pending motion for partial judgment on the pleadings, perhaps concerned that the
pending motion would call the Court’s attention to the case, or might otherwise impede their
dismissal of the action, as occurred when the district court in Hamm converted a 12(b)(6) motion
to a motion for summary judgment. See Hamm, 187 F.3d at 949 (affirming district court’s
conversion of the motion); Id. at 950 (explaining that a converted 12(b)(6) motion precludes a
plaintiff’s unilateral voluntary dismissal). In their last status report and request for continuance
filed in this Court (Doc. 30, ¶ 1), the parties represented that they had “made substantial progress
toward resolving this action” (emphasis added), not some future action to be filed in state court.
After the agreement was reached to stipulate to dismissal and refile in Arkansas state court for
certification and settlement, Respondents also jointly submitted a Rule 26(f) report (Doc. 31) in
which they proposed several litigation deadlines to this Court, implying their intent to continue
to litigate in this forum. 20 This conduct—knowingly aimed at evading properly-invoked federal
Despite these actions, Defense counsel have the temerity to claim in their brief:
judicial scrutiny and gaming the system established by the Federal Rules of Civil Procedure to
dismiss for a purpose Respondents knew or should have known to be improper under those
Rules—reveals some degree of bad faith on the part of Respondents. An appropriate sanction is
necessary to vindicate judicial authority.
Inherent Authority Sanctions
Sanctions imposed under the Court’s inherent authority are within the Court’s discretion,
with the constraint that they must be “appropriate.” The Court recognizes that it should rely on
the Rule 11 sanctions if they are adequate. In the Court’s view, the proposed Rule 11 sanctions
are adequate. However, the sanctions proposed under Rule 11 are limited to what is sufficient to
deter future misconduct. To the extent that any of the contemplated Rule 11 sanctions is in
excess of what is sufficient to deter future misconduct, the Court finds that it is appropriate to
impose that sanction against each Respondent to vindicate judicial authority. Therefore, unless
the Court determines after the June 10, 2016, hearing that a proposed sanction should not be
imposed against any given Respondent, the Court will issue a final order imposing sanctions as
IT IS THEREFORE ORDERED that Respondents D. Matt Keil, Jason Earnest Roselius,
John C. Goodson, Richard E. Norman, Stevan Earl Vowell, Timothy J. Myers, W. H. Taylor,
William B. Putman, A. F. “Tom” Thompson, III, Kenneth (Casey) Castleberry, Matthew L.
Mustokoff, R. Martin Weber, Jr., Stephen C. Engstrom, Lyn Peeples Pruitt, Stephen Edward
Goldman, and Wystan Michael Ackerman may appear before this Court on June 10, 2016, to be
“Frankly, counsel for USAA assumed the Court would anticipate that a settlement would be filed
in state court given its knowledge that the parties had been involved in protracted settlement
negotiations.” (Doc. 49, p. 23).
heard regarding the nature of the sanctions the Court intends to impose. A final order will issue
following that hearing.
IT IS FURTHERMORE ORDERED that Respondent Stephen O. Clancy did not violate
Rule 11 or abuse the judicial process and has shown cause why sanctions should not be imposed
IT IS SO ORDERED this 14th day of April, 2016.
/s/P. K. Holmes, III
P.K. HOLMES, III
CHIEF U.S. DISTRICT JUDGE
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