The U.S. Supreme Court appeared poised Monday to continue reining in class actions, as it heard arguments in a case that originated in one the Arkansas “judicial hellholes” spotlighted by pro-business tort reform groups in recent years.
But justices appeared more divided than some court-watchers had expected, with several justices—liberal and conservative—asking skeptical questions of both sides in the case of Standard Fire Insurance v. Knowles.
Gibson, Dunn & Crutcher partner Theodore Boutrous Jr. hammered away at lawsuit “abuses” and tactics used by class action lawyers to keep their cases out of federal court and in plaintiff-friendly state courts, such as the court in Miller County, Arkansas, involved in the case before the court.
But David Frederick of Kellogg, Huber, Hansen, Todd, Evans & Figel, representing class action plaintiffs, seemed to gain some traction with a vigorous defense of state court jurisdiction over insurance matters and the right of plaintiffs to make “good faith” strategic decisions in litigation in their role as “master of the complaint.”
The class action before the court was brought by Greg Knowles, who claimed that his Standard Fire homeowner’s insurance policy improperly undercompensated him for contractors hired to repair hailstorm damage to his house. The suit was filed on his behalf and for hundreds or thousands of other policy holders in Arkansas. The lawsuit stipulated that the classwide recovery would not exceed $5 million–just below the threshold amount that would have bounced the case into federal court under the Class Action Fairness Act. That law was passed in 2005 in part to expand federal jurisdiction over class actions and to reduce “forum-shopping” and other tactics used by plaintiffs to litigate in sympathetic state courts.
Standard Fire sought to remove the case to federal court, but was thwarted by the U.S. Court of Appeals for the Eighth Circuit. The company’s appeal to the Supreme Court is framed in terms of the impact of the “under $5 million” stipulation on absent class members, in light of last year’s high court decision in Smith v. Bayer. That ruling, in the view of Standard Fire’s lawyers, means that a stipulation cannot bind future class members before the class is certified.
But Standard Fire and numerous defense-side amicus briefs also placed the case in the context of alleged abuses by pro-plaintiff state courts, and efforts to evade the CAFA regime.
One brief on behalf of 21st Century Casualty Co. and other insurers asserts that the due process rights of out-of-state insurers are often violated in Miller County, “where they are routinely subjected to endless delays and unconscionably burdensome and expensive discovery, without a meaningful judicial remedy.” Thomas Rogers of Jackson Walker in Austin, Texas, authored the brief.
“The defendants can never get a class certification hearing in Miller County,” Boutrous told the justices on behalf of Standard Fire. “They could never get a ruling on the merits.”
Justice Elena Kagan was the most skeptical of Boutrous’ argument, repeatedly asserting that he was asking for remedies beyond what the Congress intended to give defendants in the Class Action Fairness Act. When Boutrous said plaintiffs in Miller County are often allowed to force extensive and costly discovery costs on defendants, Kagan said, “CAFA did a lot of things,” but “it did not address this problem you have with discovery. . . .I can give you, you know, 10 different proposals that would enable you to bypass extensive discovery, but CAFA didn’t do any of them.” Boutrous strongly disagreed.
Later, when Boutrous suggested that Supreme Court precedent undercuts the argument that plaintiffs are entitled to define their claims as they see fit, Kagan said, “Okay, then you really are asking us to blow up the entire world.”
Conservative justices seemed more sympathetic to Boutrous, though at one point Chief Justice John Roberts Jr. seemed dubious when he pointed out the “perverse results” of Boutrous’ argument–namely that it was in Standard Fire’s interests to state that it would be liable for more than $5 million, not less, if the class action proceeded. “It’s an unusual position to be in, your honor,” Boutrous conceded, though he added that “uncontradicted evidence” showed that “on their best day,” plaintiffs in the Knowles case could recover more than $5 million, making their case eligible for removal to federal court.
Briefs supporting Knowles asserted that a plaintiff is entitled to craft the complaint so as to keep it in state courts. Arkansas Attorney General Dustin McDaniel filed a brief defending the state’s handling of class actions and called the defense-side attack as “deeply insulting.”
“We want the ability to make legal judgments and strategies to reside in the person who’s bringing the complaint,” Frederick said. Frederick argued that Congress did not intend to cut state courts out of class actions entirely, and in fact rejected a proposal to lower the threshold in the law to $2 million for fear of bringing too many class actions into federal courts.
“Counsel, you realize, of course, you are on pretty thin ice,” Roberts said to Frederick. “You are talking about a Senate report, and now you are talking about proposals that were not enacted,” rather than the actual words of the statute.
Later, Roberts also made it clear that he had read the briefs targeting Miller County as a venue that enabled plaintiffs to evade the reforms contained in CAFA.
Frederick told the court “there are very good reasons” why a lawyer would want a case like his to remain in state courts “wholly apart from the ad hominem attacks that they make about Miller County.”
Roberts interjected, “Why did you decide to file in Miller County?” Without missing a beat, Frederick replied, “Because these are Texarkana lawyers who filed on behalf of all Arkansas residents.” Texarkana is the county seat of Miller County.