Class certification delayed in Colossus litigation

Michelle Massey, East Texas Bureau Oct. 9, 2007, 11:42am

Circuit Judge Kirk Johnson

TEXARKANA, Ark. -- In a recent hearing, Miller County Circuit Judge Kirk Johnson heard defendants' attorneys request for a hearing for ruling on issues in the Colossus software case.

The court set Nov. 20 to address pending motions. Judge Johnson asked the attorneys to prepare short statements on their motions and briefs. After the November hearing, an amended scheduling order will be entered.

Lead plaintiff's attorney John Goodson filed the original (non-certified) class action complaint in the Miller County Circuit Court on Feb. 7, 2005, against Computer Science Corporation's software Colossus, Insurance Services Office's software COA, and Claim IQ, Inc.'s software Injury IQ and those insurance companies who use the named software.

The complaint states that the insurance companies who use these "cost containment" software programs are systematically undervaluing bodily injury claim settlements. The software companies describe the program as a way to provide consistent estimates of bodily-injury claims through the data inputs of insurance adjusters. Using the data input, Colossus, COA and Injury IQ calculate a suggested value range for the claim settlement. Insurance adjusters state these calculations are only one of many factors an adjuster can use and do not replace the adjusters' education, training and experience.

The suit faults the defendants for civil conspiracy, breach of contract, unjust enrichment, fraudulent concealment, and the breach of the covenant of good faith and fair dealing. Seeking up to $75,000 per person, the plaintiffs are asking for a declaratory relief for defendants to cease the use of the software, an injunctive relief for defendants to "disgorge ill gotten profits realized from their undervaluation of claims," and "restitution from defendants in an amount equal to the amount that should have been paid."

Defendants Allstate and Encompass Insurance Company removed the litigation to federal court in April 2005, declaring that the federal court has diversity of citizenship jurisdiction or jurisdiction under the Class Action Fairness Act of 2005 (CAFA). Federal District Judge Harry F. Barnes denied the defendants' claims and remanded the putative class action back to Miller County Circuit Court in October 2005.

The defendants appealed the remand to the Eighth Circuit Court of Appeals but were denied. Defendants Computer Science Corporation and Claim IQ also appealed to federal court arguing similar jurisdictional issues under CAFA. In March 2006, Judge Barnes denied the petition, sending the litigation back to Judge Johnson's court.

With the unsuccessful attempts at moving the litigation to federal court, the delayed ruling on motions or on class certification prevents the defendants' ability to appeal their case to the Arkansas Supreme Court or the Arkansas Court of Appeals.

Until Judge Johnson decides to rule on something besides discovery, defendants are without the ability to appeal. Without a ruling, insurance companies can either mediate or continue in the ongoing discovery battle.

Discovery Battle

Although the various defendants are seeking rulings on numerous motions, including motions to dismiss and motions to sever, Judge Johnson has not ordered beyond the production of discovery. Because of the need of ruling on the issue of class certification, defendants have filed Requests for Finding of Fact and Conclusions of Law on Class Certification, but currently have not received a ruling on this issue.

Paraphrasing the Arkansas Rules of Civil Procedure Rule #2 on appealable matters, the law school at the University of Arkansas at Little Rock states that an appeal to the Arkansas Supreme Court may come after a final judgment or decree. An appeal may also come after an order that "has an aspect of finality, i.e., which resolves matters in such a way that the order effectively ends the case on the merits or concludes a party's rights."

Examples of orders that are not appealable include orders denying motions to dismiss, denial of summary judgment, or discovery related orders. Arkansas will allow the appeal of orders granting summary judgment, granting or denying a new trial, and orders that grant or deny class certification in class actions.

With the litigation in the Miller County Circuit Court for more than two years, defendants believe the force of judicial economy will prevent Judge Johnson from making a ruling. The lack of ruling is justified by an Arkansas law that states, "The court may not inquire into the merits at the certification stage."

The Arkansas Rules of Civil Procedure Rule #23 on class action states, "at an early practicable time after the commencement of an action brought as a class action, the court shall determine by order whether it is to be so maintained." The rules state "practicable means reasonably capable of being accomplished."

The Arkansas Rules of Civil Procedure allow for limited discovery and declare that it is a good reason for delaying the class certification decision.

Judge Johnson has allowed both parties to request significant amounts of information from each other. Recently, the plaintiffs have asked the defendants to produce all related bodily injury claim files from 1996. With the numerous defendants and bodily-injury claim files, the production would result in hundreds of thousands of files at a cost of production in the millions.

Defendants declare that production costs are high due to federal privacy regulations over insurance companies. With attorney oversight, insurance companies must redact nonpublic personal information.

The plaintiffs' class counsel include Oklahoma City attorneys, Reggie White, Jason Roselius, Simone Gosnell Fulmer, and Derrick Morton of the law firm of Whitten, Nelson, McGuire, Terry and Roselius, Durant, Oklahoma attorney Michael Burrage of the Burrage Law firm, and Texarkana attorney Michael Angelovich of the Nix, Patterson, and Roach law firm. The lead plaintiffs' attorneys are John Goodson and Matt Keil of the Texarkana law firm Keil and Goodson.

Case No.: CV-2005-0059-3.

See Michelle Massey's related story on parties that have reached settlements through mediation, "Discovery costs lead many Colossus defendants to settlements."

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