Pennsylvania settlement could affect Arkansas class action against Nationwide

Michelle Massey, East Texas Bureau Jan. 12, 2009, 4:16am

Judge Kirk Johnson

TEXARKANA, Ark. – A preliminary settlement of over $540 million pending in federal court in Pennsylvania could affect a similar case against Nationwide Insurance in an Arkansas circuit court.

The suit in Circuit Court of Miller County, Ark., was filed Sept 8, 2004, and alleges Nationwide committed civil conspiracy, unjust enrichment and fraud.

The insurance company is accused of not disclosing or paying policyholders for general contractors' overhead and profit when the repairs required the services of at least three trades.

Although the insurance companies paid previous damage claims, the plaintiffs argue they are entitled to the additional payment for the general contractors' costs.

The Pennsylvania litigation, similar in nature, was filed May 1, 2003, in the Eastern District as a statewide class action but did not initially include the wording regarding the services of at least three trades.

However, the plaintiffs' amended complaint did, and also allowed the defendants to remove the case to federal court. Shortly after the removal, the parties filed the preliminary settlement notice.

The proposed settlement of the case in the Eastern District of Pennsylvania will give 100 percent of the insurance benefits sought by eligible class members. Those class members will receive a cash payment representing 20 percent of his or her property damage claim.

According to the court documents, an estimated 700,000 people are eligible and total payments are estimated over $540 million. The named representative class members will receive a $5,000 cash incentive award and the proposed settlement will require the defendants to pay $9.5 million in attorney fees.

Miller County Circuit Court Judge Kirk Johnson believes the possible pending settlement could be a means for Nationwide to circumvent the Arkansas court's jurisdiction.

At a December hearing held over the Arkansas class action, the plaintiffs brought the pending settlement to the attention of the judge when they withdrew a previously filed motion to sever regarding Nationwide and Farm Bureau. They mentioned a belief that Nationwide was pursuing a settlement outside the Arkansas court's jurisdiction in the Pennsylvania case, Schaffroth v. Nationwide.

The plaintiffs argued that any attempted negotiations or settlement proceedings should be reported to the court per the instructions within the scheduling order.

In the scheduling order entered into the case on Jan. 7, 2005, Judge Johnson wrote, "This Court will not tolerate attempts to mislead the Court as to the status of similar litigation in this or other jurisdictions."

During the hearing Judge Johnson asked to be advised and kept current of settlement negotiations the defendants were in that could possibly undermine the ongoing Arkansas litigation.

Regarding the issue, Judge Johnson stated, "Well, I want to be advised if they are trying to run under the Court in other words by trying to go to a different location and enter into a nationwide class action settlement that will undermine this case and the jurisdiction. To me, if that is pretty clear that if they're doing that, they're in violation of this scheduling Order. And there's going to be some consequences if they have violated the terms and conditions of this Order or if they're trying to circumvent this Court's jurisdiction through ulterior means."

Judge Johnson continued, "I don't want to work on this case three years and then have some court in Pennsylvania who's had the case 60 days issue a nationwide class action-well you know."

Per the court's request, Nationwide attorneys filed a letter with the Judge's office declaring that "settlement negotiations with plaintiffs in Schaffroth are presently ongoing."

Quickly the plaintiffs responded to the letter, arguing that Nationwide was negotiating in the Pennsylvania case for over 16 months and their actions are for "the express purpose of undercutting this court's jurisdiction and attempting a shameless end-run around this litigation."

At the plaintiffs' request, the judge has ordered discovery of the Nationwide attorneys to determine possible violations of the court's scheduling order. Depositions were scheduled to start Wednesday, Jan. 7.

Prior to granting the plaintiffs' request to expedite the depositions, Judge Johnson also entered an order denying a reconsideration of a motion to recuse that focuses on five homeowner property damage claims that Judge Johnson filed during the relevant time for the Arkansas class action. The defendants believe that the personal knowledge the court obtained from these claims will cause him to lose impartiality.

Judge Johnson denied the motion stating that he believes he would not be a potential class member "because I don't recall having three or more tradesmen involved in the repair work." For two particular claims, the judge tells the attorney that the requests do not constitute claims as he only made inquiries regarding the damage to his home and other structures and did not receive compensation.

Further, Judge Johnson states Arkansas judges are routinely excluded from settlements in class action cases and that he does not hold any ill feelings about State Farm and will waive any rights he or his family might have as a class member.

The plaintiffs are represented by Matt Keil and John Goodson of the Texarkana law firm Keil and Goodson, Michael B. Angelovich, Cary Patterson, Brady Paddock, Christopher Johnson, and Anthony Bruster of the Texarkana law firm Nix, Patterson and Roach, L.L.P. Other class counsel includes Jason Roselius, Derrick Morton, and Chad Ihrig of the Oklahoma City law firm Nelson, Roselius, Terry, O'Hara, and Mortion.

Miller County, Ark., Chivers v State Farm ,Case No: 2004-294-3
Eastern District of Pennsylvania, Schaffroth v Nationwide, Case No: 08-5741

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