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Supreme Court Looks at a Class-Action “Hell-Hole”

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by Publius
Posted January 07, 2013, 9:00 AM

Roger Parloff writes in Fortune magazine:

On Monday, in the case known as Standard Fire Insurance v. Knowles, the U.S. Supreme Court will hear argument on what might, at first glance, look like a dry procedural question over whether certain interstate class-actions should be heard by state or federal courts.

But behind that technical question lurks a lurid, tragicomic, outlandish back story. That story concerns the goings-on inside the circuit court of Miller County, Ark., where a handful of local law firms have made almost $400 million in fees over the past seven years, all from class-action settlements that have been procured without a judge's ever having ruled that these cases are even worthy of class treatment, let alone meritorious.

Precisely how much cash the lawyers' clients -- the class members themselves -- have received from the lawyers' so amply-compensated efforts on their behalf is, on the other hand, a mystery to this day. Those numbers are regarded as "confidential" and "proprietary" by the plaintiffs attorneys, and have been found to be "irrelevant" by the Miller County court, which has repeatedly refused to order that information disclosed to defendants who have sought it.

Because this back story seems more newsworthy to me than the technical and, in my humble opinion, startlingly easy legal issue being argued today before the Court, I will tell this story chronologically, beginning near the beginning. But for those who just want to skip to the bottom line, here it is. (Spoiler alert!) Standard Fire and, by extension, countless insurers and corporate defendants nationwide, will win this case, possibly by a 9-0 vote.

In 2005, Congress enacted the Class Action Fairness Act (CAFA). It was bipartisan legislation -- Senators Barack Obama, Chuck Schumer, and Dianne Feinstein all supported it, for instance -- intended to end certain abusive practices in a handful of quirky state court jurisdictions that, in Congress's view, were extracting suspiciously exorbitant settlements from out-of-state defendant corporations. These state courts, though few in number, could work an unusual amount of mischief, Congress determined, because their lax procedural rules permitted local lawyers to recruit plaintiffs from all over the country to file their cases there. Dispassionate academics referred to such courts as "magnet jurisdictions," wry plaintiffs lawyers called them "magic counties," and irate tort reformers called them "judicial hellholes."

Two of the most famous magnet jurisdictions were, and are, Madison County, Illinois, and Miller County, Arkansas. Miller County, whose county seat is Texarkana, on the Texas-Arkansas border, has a mostly rural population of about 45,000.

CAFA gave defendants the right to "remove" any class action to federal court if there was some minimal degree of "diversity" -- i.e., if class members came from a different state from the one where at least one defendant was based -- and so long as the "amount in controversy" (the total at stake, adding up damages, penalties, and attorneys fees) totalled more than $5 million. Both of these conditions were nearly always met in the cases that pro-CAFA legislators were most troubled by.

During the final weeks before CAFA took effect on February 18, 2005, several Texas-, Arkansas-, and Oklahoma-based plaintiffs firms filed several mammoth, nationwide class actions in Miller County circuit court, thereby getting their noses in under the wire under the pre-CAFA rules. . . .

 

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