Adams v. USAA Cas. Ins. Co.

863 F.3d 1069

Mark I. ADAMS; Katherine S. Adams, Plaintiffs

v.USAA CASUALTY INSURANCE COMPANY, doing business as USAA; USAA General Indemnity Co., doing business as USAA; United Services Automobile Association, doing business as USAA, Defendants

v.Wystan Michael Ackerman, Respondent

Kenneth (Casey) Castleberry, Appellant

Stephen O. Clancy; Stephen C. Engstrom; Stephen Edward Goldman, Respondents

John C. Goodson; D. Matt Keil; Matthew L. Mustokoff; Timothy J. Myers ; Richard E. Norman, Appellants

Lyn Peeples Pruitt, Respondent

William B. Putman; Jason Earnest Roselius; W. H. Taylor ; A. F. (Tom) Thompson, III; Stevan Earl Vowell; R. Martin Weber, Jr., Appellants

Competitive Enterprise Institute Center for Class Action Fairness, Amicus Curiae-Appellee

Mark I. Adams; Katherine S. Adams, Plaintiffs

v.USAA Casualty Insurance Company, doing business as USAA; USAA General Indemnity Co., doing business as USAA; United Services Automobile Association, doing business as USAA, Defendants

v.Wystan Michael Ackerman, Appellant

Kenneth (Casey) Castleberry; Stephen O. Clancy; Stephen C. Engstrom, Respondents

Stephen Edward Goldman, Appellant

John C. Goodson; D. Matt Keil; Matthew L. Mustokoff; Timothy J. Myers ; Richard E. Norman, Respondents

Lyn Peeples Pruitt, Appellant

William B. Putman; Jason Earnest Roselius; W. H. Taylor ; A. F. (Tom) Thompson, III; Stevan Earl Vowell; R. Martin Weber, Jr., Respondents

Competitive Enterprise Institute Center for Class Action Fairness, Amicus Curiae-Appellee

No. 16-3382

No. 16-3482

United States Court of Appeals, Eighth Circuit.

Submitted: February 7, 2017

Filed: July 25, 2017

Counsel who presented argument on behalf of the appellants, Kenneth (Casey) Castleberry, John C. Goodson, D. Matt Keil, Matthew L. Mustokoff, Timothy J. Myers, Richard E. Norman, William B. Putman, Jason Earnest Roselius, W. H. Taylor, A. F. (Tom) Thompson, III, Stevan Earl Vowell and R. Martin Weber, Jr., was Gregory P.N. Joseph, of New York, NY. The following attorneys also appeared on the brief; Mara Leventhal, of New York, NY., Courtney Solomon, of New York, NY.

Counsel who presented argument on behalf of the appellants, Wystan Michael Ackerman, Stephen Edward Goldman and Lyn Peeples Pruitt, was Thomas C. Walsh, of St. Louis, MO. The following attorney also appeared on the brief; Brian C. Walsh, of St. Louis, MO.

Counsel who presented argument on behalf of the amicus curiae-appellee, Competitive Enterprise Institute Center for Class Action Fairness, and appeared on the brief was Theodore, H. Frank, of Washington, DC.

Before SMITH,¹ BENTON, and SHEPHERD, Circuit Judges.

SMITH, Circuit Judge.

In this consolidated appeal, the appellants, attorneys for plaintiffs² and defendants³ in a putative class action, appeal from the district court's orders (1) finding that the appellants violated Federal Rule of Civil Procedure 11 and abused the judicial process when they stipulated to the dismissal of the federal action, and (2) reprimanding some of the plaintiffs' attorneys as a sanction for the violation. Specifically, the district court found that the appellants violated Rule 11 when they stipulated to the dismissal of the federal action for the allegedly improper purpose of seeking a more favorable forum and avoiding an adverse decision. Finding no violation of Rule 11 or abuse of the judicial process, we reverse the district court's orders and remand for further proceedings consistent with this opinion.

I. Background

The plaintiffs filed this case as a putative class action in the Circuit Court of Polk County, Arkansas, on December 5, 2013. On January 15, 2014, the defendants removed the matter to the federal district court pursuant to the Class Action Fairness Act of 2005 (CAFA), 28 U.S.C. § 1332(d). The defendants answered the complaint the same day. On April 29, 2014, the defendants moved for partial judgment on the pleadings. On May 5, 2014, the district court stayed the action for mediation on the parties' joint motion. At the mediation, the parties discussed the possibility of dismissing this action and refiling the case in Arkansas state court to certify and settle a class action. The parties scheduled a second mediation for December 3, 2014, and the district court continued the stay pending that mediation. At the second mediation, the parties did not settle; however, the parties progressed sufficiently toward settlement to ask the district court to stay the matter an additional 90 days. The court again continued the stay but advised the parties that further extensions would be unlikely.

On March 16, 2015, the parties notified the district court that they had reached an agreement on most material terms. They moved for a one-month extension to resolve the remaining issues. The court denied the motion, lifted the stay, and ordered the parties to submit an updated Rule 26(f) report.⁴ The parties reached a settlement agreement in principle on March 31, 2015. The settlement's terms included dismissal of this action and refiling in Polk County, Arkansas. On April 15, 2015, the defendants withdrew their motion for partial judgment on the pleadings, and the parties jointly filed a Rule 26(f) report setting forth several dates for continued litigation of this action in the district court. On May 5, 2015, the district court entered a final scheduling order based on the Rule 26(f) report.

On May 13, 2015, the district court held a hearing in a separate case also brought by Mark and Kathy Adams (the same plaintiffs in this matter) on preliminary approval of a class-action settlement of claims almost identical to those raised in the instant matter and brought by many of the same plaintiffs' counsel. Adams v. Cameron Mut. Ins. Co. (Adams I) , No. 2:12-CV-02173 (W.D. Ark.). At that hearing and in a subsequent written order, the district court informed the parties of certain concerns that it had with the proposed settlement. The court directed the parties to revise the settlement to obtain preliminary court approval. On June 5, 2015, the parties in Adams I submitted their amended stipulation of settlement for approval.

On June 16, 2015, the parties in the present case executed a settlement agreement identifying the Circuit Court of Polk County as the reviewing court. On June 19, 2015, the parties in the present case jointly dismissed this action by stipulation. The Clerk's order of dismissal was entered on June 22, 2015.

On June 23, 2015, the parties refiled the action in the Circuit Court of Polk County. The parties also filed a joint motion to certify a class action and to approve the stipulated class settlement that the parties had negotiated and executed while appearing in the federal action. The next day, the district court approved the Adams I amended stipulation.

On August 26, 2015, the state court certified a settlement class, and it also preliminarily approved the settlement agreement. On December 14, 2015, the district court first learned that the parties had refiled the action in the Circuit Court of Polk County and that the state court's final approval of the settlement was imminent. Two days later, the state court held a final-approval hearing for the settlement. On December 21, 2015, the state court entered its final order approving settlement, and it awarded attorney's fees. On that same day, the district court entered its show-cause order, directing

[a]ll counsel of record ... to SHOW CAUSE as to why a non-monetary sanction should not be imposed for violations of Federal Rule of Civil Procedure 11(b)(1). In particular, counsel will be expected to show how their actions in making filings in this Court (to include the original removal, requests for stay, and/or stipulation of dismissal, etc.) were not made "for any improper purpose," including: (1) forum-shopping to seek a forum that counsel believed would best suit their own interests at any given time (to the detriment of class members); (2) wasting Government resources expended in adjudicating and monitoring this matter over 17 months only so counsel could gain leverage in settlement negotiations while ultimately evading federal review of the negotiated settlement; and/or (3) generally inappropriate procedural gamesmanship with no intent to actually litigate claims in good faith before this Court. Making filings in this Court, and invoking this Court's jurisdiction, for the purposes set out above would, viewed subjectively, have been done in bad faith and, viewed objectively, have "manifest[ed] either intentional or reckless disregard of the attorney[s'] duties to the court." Clark v. United Parcel Service, Inc ., 460 F.3d 1004, 1009 (8th Cir. 2006) (quotation omitted) (setting out the traditional standard for imposing Rule 11 sanctions and declining to consider whether the 1993 amendments to Rule 11 required a higher standard of subjective bad faith when sanctions are imposed sua sponte by the Court).

(Alterations in original.) (Footnotes omitted.)

On February 11, 2016, the district court notified all counsel of record that, in addition to the Rule 11 sanctions, it was also considering imposing sanctions under its inherent authority. On February 18, 2016, the district court held a hearing on the issues and took the matters under advisement.

On April 14, 2016, the district court issued an order finding that the plaintiffs' counsel and the defendants' counsel violated Rule 11 when they "stipulated to dismissal of th[e] [federal] action for the improper purpose of seeking a more favorable forum and avoiding an adverse decision." "[T]his mid-litigation forum shopping," the court concluded, "was objectively unreasonable under the circumstances." According to the court, counsel lacked any authority to support "their mid-litigation forum shopping" because, in fact, "binding authority in this circuit" provides that "a party is not permitted to dismiss merely to escape an adverse decision nor to seek a more favorable forum." (Quoting Hamm v. Rhone–Poulenc Rorer Pharm., Inc ., 187 F.3d 941, 950 (8th...