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<img class="alignright wp-image-2447 size-medium" src="https://classactionlawsuitdefense.bakerhostetlerblogs.com/wp-content/uploads/sites/9/2015/11/Supreme-Court-iStock_000008258486_Large_bw.jpg" alt="" width="300" height="222" />Five Arkansas attorneys have been formally reprimanded by a federal judge in the Western District of Arkansas after stipulating to dismissal “for the purposes of seeking a more favorable forum and avoiding an adverse decision” in connection with the approval of a class settlement. The court had initially considered harsher injunctive sanctions, including requiring the attorneys to provide notice to any federal Arkansas court in which they submitted a class settlement for approval that they “had previously been sanctioned for improper conduct in connection with a class action settlement agreement.” The court’s decision serves as a warning to class action attorneys as they engage in settlement discussions.

In Adams et al. v. United Services Automobile Ass’n et al., W.D. Ark. No. 2:14-cv-02013, the plaintiffs originally filed their putative class action in Polk County, Arkansas. The case was removed to the Western District of Arkansas and assigned to Chief District Judge P.K. Holmes III. After lengthy settlement negotiations, the parties stipulated to voluntary dismissal of the case in federal court. The next day, the plaintiffs refiled the action in Polk County, along with a motion for class certification and for approval of the class settlement.

The settlement, which resulted in a 4 percent claims rate against an estimated settlement value of $3.5 million, included a quick-pay provision allowing class counsel to collect fees of $1.85 million without having to first address objectors or wait for class members to obtain relief. The settlement was approved by the state court, which, according to Judge Holmes, was unsurprising because “Arkansas courts have a lenient approach to class certification and require no heightened attention when a class is certified for settlement purposes.”

As we noted in an <a href="http://www.classactionlawsuitdefense.com/2016/01/27/arkansas-federal-court-to-consider-sanctioning-attorneys-for-using-federal-jurisdiction-as-bargaining-chip-in-negotiating-state-court-class-settlement/">earlier post</a>, when Judge Holmes learned of the state court settlement, his suspicions were aroused. Judge Holmes had recently approved the settlement of a similar class action with the same named plaintiffs against a different insurer, Adams v. Cameron Mut. Ins. Co., W.D. Ark. No. 2:12-cv-02173, but only after requiring the parties to make several revisions to their proposed settlement to address concerns about the claims-made structure and attorney’s fees. In light of the concessions the parties were ordered to make in the Cameron settlement, Judge Holmes was concerned that the USAA settlement’s move to state court was an attempt to circumvent similar requirements prior to settlement approval.

Judge Holmes initially put 17 of the involved attorneys, on both sides of the case, on notice of potential sanctions. After considering briefing and evidence presented at a show cause hearing in February, Judge Holmes concluded that 15 of those attorneys had violated Rule 11 “when Respondents stipulated to dismissal of this action for the improper purpose of seeking a more favorable forum and avoiding an adverse decision” and had abused the judicial process through “use of properly-attached federal jurisdiction as a mid-litigation bargaining chip.”

However, only five of the attorneys, all counsel for plaintiffs, were found to have violated Rule 11 and abused the judicial process in bad faith. This finding was largely based on these attorneys’ actual knowledge of Eighth Circuit precedent clearly stating that “a party is not permitted to dismiss merely to escape an adverse decision nor to seek a more favorable forum.” Thatcher v. Hanover Insurance Group, Inc., 659 F.3d 1212, (8th Cir. 2011); Hamm v. Rhone-Poulenc Rorer Pharm., Inc., 187 F.3d 941, 950 (8th Cir. 1999). These five attorneys were formally reprimanded. Judge Holmes determined this was an appropriate sanction and deterrent, as any misconduct on the attorneys’ records will induce courts in future cases to inquire as to the cause and circumstances of the reprimand.

As for the remaining 10 attorneys, Judge Holmes concluded that their lack of bad faith and the publicity the case had already received meant that these attorneys would be sufficiently deterred from similar conduct in the future. He therefore declined to impose any sanctions.

Although he did not impose the more serious sanctions initially proposed by the court, Judge Holmes has nevertheless issued a clear directive to all class action attorneys that Arkansas federal courts will be on the lookout for signs of forum shopping in connection with class settlements and that such conduct will not be tolerated.

Sanctions Imposed on Five Attorneys for Class Settlement Forum Shopping