Over the summer, the justices of the U.S. Supreme Court made one
of the most improbable grants of certiorari you will ever see.
The timing alone was unusual. The court granted cert in
Standard Fire Insurance v. Knowles on Aug. 31, almost a month
before the first conference of the new term on Sept. 24. But
that's just the beginning of this case's oddities. There's no
split among the federal circuits on the issue presented in
Standard Fire: whether a class action plaintiff can defeat
removal to federal court under the Class Action Fairness Act by
stipulating on behalf of the entire class to seek less than $5
million, the statutory cut-off for a state-court class action.
In fact, there couldn't possibly be a circuit split on that
question because only one appellate court, the 8th Circuit Court
of Appeals, has addressed it. And though Standard Fire comes out
of 8th Circuit turf in Arkansas, it is not even the case in
which the 8th Circuit opined on these class action damages
stipulations, which have become an oft-used tactic of
plaintiffs' lawyers who want to keep their cases in state court.
Indeed, as name plaintiff Greg Knowles argued in his brief opposing cert, there is no appellate opinion at all in the
Standard Fire case. After a federal court in Arkansas remanded
Knowles's class action to state court in Miller County, where it
was filed, the 8th Circuit twice declined to review the district
court's remand opinion. Yet the Supreme Court nevertheless
agreed to take the case. Standard Fire's merits brief is due
later this month, and oral arguments will take place later in
That's quite an extraordinary procedural history for a
Supreme Court case, and Standard Fire's new appellate counsel at
Gibson, Dunn & Crutcher regard the high court's eagerness to
hear the case as a sign that the justices take very seriously
Standard Fire's allegations that the plaintiffs' lawyers are
using improper tactics to keep their case in the friendly
confines of Miller County state court. So Standard was taken
aback last month when class action lawyers at Keil & Goodson;
Nix, Patterson & Roach; and Crowley Norman refused the insurer's
informal request to stay the litigation until the Supreme Court
has decided whether the case belongs in state or federal court.
Without an informal deal to defer to the high court, Standard's
class action defense lawyers at Mitchell, Williams, Selig, Gates
& Woodward formally moved to stay the state court case in
The class action lawyers promptly opposed the motion. Even
if the Supreme Court decided that the damages stipulation
improperly bound absent class members under the court's ruling
last year in Smith v. Bayer -- which class counsel emphatically
believe it does not -- the plaintiffs' lawyers argued that their
damages in the statewide class action would still be under $5
million, even without the stipulation. Whichever way the Supreme
Court rules, they said, the case is staying in state court.
On Thursday, Miller County judge Kirk Johnson will hear
arguments on the stay motion. Standard counsel Theodore Boutrous
of Gibson Dunn told me Wednesday that the plaintiffs' insistence
on continuing to litigate while the case is before the Supreme
Court reflects a lack of respect for the justices and for the
jurisdiction of the highest federal court in the land. "It's
somewhat emblematic," Boutrous said.
Standard has more motive here than merely showing its regard
for the wisdom of the Supreme Court; the insurer claims that if
Johnson doesn't stay the class action against it, which involves
allegations that it refused to pay policyholders' contractors'
fees, Standard will have to spend upwards of $2 million to
comply with the discovery demands the class has already served.
But that's the modus operandi of the plaintiffs' lawyers in the
case, according to Standard. By the insurer's telling, in its
petition for certiorari and the 8th Circuit brief that's
attached to the petition, the plaintiffs' lawyers in this case
are running what amounts to a class action factory in Miller
County. Beginning about a decade ago, lawyers began filing
national and statewide cases against insurers and other large
defendants in Johnson's court, where they were permitted to
engage in extensive discovery before the defendants filed
motions to dismiss or motions opposing class certification.
As a result -- at least according to Standard, other
defendants and the U.S. Chamber of Commerce, which supported
Standard's cert petition -- defendants were forced to settle to
avoid discovery costs and the uncertainty of trial before
plaintiffs-friendly jurors. In an 8th Circuit brief filed last
March in another Miller County insurance class action, the
insurance company Travelers included a chart outlining the
recoveries of the small fraternity of class counsel filing these
Arkansas state-court cases: Plaintiffs reached more than $1
billion in settlements in about 26 cases, for which they
received $175 million in fees.
You can regard that as a tribute to the skill of class
counsel -- or you can say it's exactly why Congress passed the
Class Action Fairness Act, removing class actions worth more
than $5 million to federal court. All of the Arkansas
settlements cited in the Travelers brief were in cases filed
before CAFA took effect in 2007. Since then, according to Gibson
Dunn, the plaintiffs' lawyer group has filed at least 20 more
class actions in state court in Arkansas. And in all of them,
the name plaintiffs have included stipulations that they do not
intend to seek damages of more than $5 million. That's careful
language; as both Travelers and Standard have pointed out, the
stipulations don't say the class won't accept more than $5
million if it's offered in a settlement. In fact, according to
the Travelers brief, the plaintiffs suggested a settlement of
$21 million to one group of insurers they sued in a post-CAFA
class action, despite the name plaintiffs' $5 million
So far, defense claims that the stipulations are a sham to
keep cases out of federal court have gone nowhere, at least in
the 8th Circuit. The appeals court turned down appeals by
Travelers and Standard, and when it finally took a case earlier
this year, handed down a five-page ruling okaying stipulations
in a case called Rolwing v. Nestle, rejecting arguments that
absent class members cannot be bound by name plaintiffs'
promises not to seek more than $5 million.
That's the due process question now before the Supreme
Court. Thursday's hearing will determine whether Standard can
sit back and wait for an answer or continue to dump dollars into
a purportedly $5 million case.
Plaintiffs' lawyers Michael Angelovich and Brad Seidel
didn't respond to a request for comment.
(Reporting by Alison Frankel)
(This blog post has been corrected. An earlier version
incorrectly spelled "Rolwing" as "Rowling").
Follow us on Twitter @AlisonFrankel, @ReutersLegal | Like us on Facebook