Reuters covers CEI’s argument in Adams v. USAA Casualty.
Yes, you read the headline right. The 8th U.S. Circuit Court of Appeals ruled this week in Adams v. USAA Casualty that if plaintiffs and defendants stipulate to dismiss an ongoing case in federal court, then agree to settle parallel allegations refiled in state court, they’re not subject to Rule 11 sanctions. Federal judges may not like such gamesmanship, the 8th Circuit said, but the Federal Rules of Civil Procedure allow it.
The 8th Circuit panel – Judges Lavenski Smith, William Benton and Bobby Shepherd – ruled that U.S. District Judge P.K. Holmes of Fort Smith, Arkansas, abused his discretion when he found that both plaintiffs’ and defense lawyers in a class action alleging improper property insurance deductions had abused the judicial process. The lawyers, as I’ve previously reported, agreed to dismiss the case before Judge Holmes and instead settle the dispute in a newly-filed state-court class action.
One final point. The 8th Circuit also considered arguments by the Competitive Enterprise Institute that the stipulated dismissal was impermissible under the Class Action Fairness Act because CAFA is supposed to protect absent class members from abusive state court litigation that benefits plaintiffs’ lawyers at their expense. But according to the 8th Circuit, the class action procedural rules permit the dismissal of class actions without court approval, as long as classes haven’t yet been certified. Nothing in CAFA or the federal Rules of Civil Procedure, the opinion said, prevents federal-court class actions from being refiled and settled in state court.
“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 court concluded. “However, our precedent necessitates a holding that counsel did not violate” the rules.
Read the full article at Reuters.