Lawyers Avoid Federal Sanctions in Forum Shopping Case

By William Vogeler, Esq. on August 03, 2017 | Last updated on March 21, 2019

Usually, judges like to see cases settled.

But Judge P.K. Holmes was not one of those judges in Adams v. USAA Casualty Insurance Company. He found out that the parties in one of his former cases had settled in another court, and he wanted to know why he shouldn't sanction the lawyers for forum shopping.

One sanctions order and an appeal later, the U.S. Eighth Circuit Court of Appeals gave the lawyers a reprieve because the federal rules allowed it.

No Action Required

The plaintiffs in the proposed class action had alleged improper property insurance deductions, but dismissed as they neared settlement in 2015. The judge suspected they dismissed because he had been tough about a settlement in another case with the same lawyers.

In his order to show cause, the judge suggested they were forum shopping, wasting judicial resources and engaging in "generally inappropriate procedural gamesmanship." Holmes sanctioned the plaintiffs' attorneys, but not defense counsel because their clients had pushed for it.

"The district court's frustration with what it perceived as an abuse of the federal
court system and lack of candor with the court is understandable," the appeals panel said on review.

However, the appellate court said Federal Rule 11 sanctions were not warranted because both parties agreed to dismiss and then refile in state court. Writing for the court, Judge Lavenski Smith said the parties' reasons for tossing the case were "irrelevant" because "the dismissal is effective upon filing, with no court action required."

Attorney's Fees

The appellate decision did not reveal terms of the settlement agreement, but the plaintiffs' attorneys reportedly received $1.85 million in the state-court settlement.

If the class had been certified, the results might have been different. The Competitive Enterprise Institute, as amicus, argued the Class Action Fairness Act protects absent class members from litigation tactics that benefits lawyers at the class members' expense.

But the Eighth Circuit said nothing in the CAFA or the federal rules prohibited the parties from agreeing to dismiss and re-file in state court.

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