disciplinary action by federal Judge P.K. Holmes
in Fort Smith over their settlement of a class action lawsuit
against the USAA insurance company
have a new legal headache.
A lawsuit has been filed against the lawyers in the case in Saline Circuit Cour
t alleging that a secretly reached settlement damaged members of the class owed money by the insurance company. The plaintiffs' lawyers include Robert Trammell
of Little Rock, who's already on record
as critical of the deal.
Judge Holmes will have a hearing Friday to decide punishment for 16 lawyers — 13 for the plaintiffs and three defending the insurance company — whom he's already held shouldn't have acted as they did in transferring a long-running class action case out of his court to a state court in Polk County where it was speedily settled, with $1.8 million in plaintiff attorney fees and a $3.4 million pool for those damaged.
Trammell has said the agreement was a bad deal for plaintiffs, who were penalized by the insurance company's policy of depreciating labor in determining actual cash value of damaged property. The record tends to bear him out. At the close of the claim period, his lawsuit notes, only 651 of more than 15,000 potential claimants had filed for damages. He estimates that leaves some $3 million unclaimed.
The lawsuit names three USAA insurance companies,
12 plaintiff lawyers (he excludes one Little Rock lawyer, Stephen Engstrom), including high profile politico and UA Trustee John Goodson,
and three lawyers for the insurance company. His plaintiffs —-Kenneth Wartick of Benton, Thomas Meadows of Mountain Home and Paul Siedsma of Bentonville — are all Naval Academy graduates, who represent the class of damaged customers "to see if the defendants, and particularly USAA, whose marketing is directed to the military, can be compelled to do the honorable thing by the military veterans of the class herein."
The lawsuit says the opposing lawyers colluded in bad faith to cause dismissal of the federal lawsuit Jne 19, 2015. It says the lawyers failed to tell the federal court of a settlement document "consummated in secret" June 16. They didn't ask federal approval because this "would have revealed the unseemly but true purpose of their dismissal, which was to go shopping mid-litigation for another judge." They did this knowing the purposes of the secret deal — "especially the onerous notice to class members, the amount of the attorney's fees and the cumbersome, annoying claims process in order to be paid anything by USAA. The defendants likewise knew the settlement techniques and provisions would not be met with approval by the federal court." The motive was to "minimize any money defendant USA would have to pay to is insured Arkansas homeowners...."
The article details the complex claims process, including a 76-pace, single-spaced stipulation of settlement delivered during the Thanksgiving-Christmas holiday season. Claims had to be filed by Feb. 1 and notarized and submitted, somewhat unusually, "under penalty of perjury." Other materials had to be provided in many cases. "These are all burdens on the busy head of household, the elderly veteran and disabled," the lawsuit said.
The settlement said in bold print that USAA had not done anything wrong. But the lawsuit notes that USAA's depreciation of labor had been held by the Arkansas Supreme Court to be contrary to public policy. This fact wasn't noted to either the federal or state court judge.
The lawsuit notes that the plaintiffs' lawyers $1.85 million in fees was more than 12 times the damages paid to class members.
"The secret settlement made while in federal court provided that the class lawyers would get their money in 10 days, no questions asked, and regardless of the amount of money that USAA ultimately paid to the USAA insured class membership." This and an agreement not to contest the fee are "red flags for collusion," the suit argued.
The settlement followed 17 months in federal court and with a trial date near.
The lawsuit contrasted this outcome with another class action against against another insurance company in the same court, relying again on the question of depreciating labor costs. They may not be depreciated in determining actual cash value of a loss, the Arkansas Supreme Court ruled. A settlement in that other case, also before Holmes, produced attorney fees of one-third of the actual financial benefit to the class. The terms were submitted for approval by the court June 4, 2015. The suit observed:
With an obvious sense of urgency and an apparent loss of objective and professional restraint, the defendants were suddenly confronted with a) a July trial date looming, b) the first of two decisions of the highest court in Arkansas unfavorable to USAA, and c) the federal judge's decision at least suggesting what attorneys fees (relative to the total benefit to the class) would be deemed 'reaonable.' The defendants promptly went to work to strike a deal that included relocating to another court, shopping around for an easier approval of their settlement agreement. ..."
Judge Holmes, said the suit, "never saw it coming."
The lawsuit seeks to be a class action. It alleges: 1) abuse of process in a scheme to dismiss the federal action and refile it "pre-packaged" in state court; 2) violation of fiduciary duty to the class of policy holders damaged by the claims process; 3) civil conspiracy in acquiring an exorbitant attorney fee; 4) acting in concert, and 5) deceit. Itseeks a jury trial.
In asking Judge Holmes not to impose punishment, attorneys have said, among others, that their action was similar to deals approved for others and that the punishment would be harmful to them professionally.
Here's the full lawsuit.
The lawyers facing