Colossus class action sent back to Ark. court

By Michelle Keahey, East Texas Bureau | Oct 4, 2012

TEXARKANA, Ark. (Legal Newsline) - A federal judge has sent a class action lawsuit against several insurance companies back to an Arkansas state court. 

TEXARKANA, Ark. (Legal Newsline) - A federal judge has sent a class action lawsuit against several insurance companies back to an Arkansas state court. 

In a class action lawsuit against insurance companies accused of conspiring to underpay bodily injury claims through the use of the software program called Colossus, U.S. District Judge Susan Hickey granted plaintiffs Eddie Basham and Freda McClendon's motion to remand the case back to Miller County Circuit Court on Sept. 6.

The case was filed on Dec. 7, 2011, in Miller County, and the defendants removed it to the Western District of Arkansas, Texarkana Division on Jan. 17. The defendants wanted the case out of the lower court because they have been repeatedly on the losing end of rulings, specifically the Circuit Court's decision to put off ruling on jurisdictional challenges until the class-certification stage of litigation.

"Plaintiffs, obtaining the benefit of these rulings, are happy to be in Miller County Circuit Court, and want to return there," Hickey wrote.

The defendants removed the case to federal court, arguing that the Class Action Fairness Act places it under federal jurisdiction based on the amount in controversy. According to CAFA, more than $5 million dollars must be in controversy if the case is to remain in federal court.

Basham and McClendon have promised and stipulated that they will not seek more than that amount. However, the defendants argue that the plaintiffs' stipulations are not valid and are not binding for several reasons.

In her order remanding the case back to Miller County, Hickey discussed four issues that the defendants found with the plaintiffs' stipulations: injunctive relief, distinction in the plaintiffs terms "seek" v. "accept", ad damnum v. a separate stipulation, and the issue of bad faith.

The insurance companies argued that the plaintiffs are seeking injunctive relief that falls outside their stipulation's coverage. Hickey disagreed and wrote that the plaintiffs adequately capped injunctive relief because they capped "whatever form of relief may be available."

The defendants further argue that although the Plaintiffs' promise not to "seek" a certain award, that does not prevent them from "accepting" a higher award. Hickey states that she is not persuaded by the distinction and she does not require "magic words" for an effective stipulation.

Continuing with their argument, the insurance companies state that the stipulation that is included within the complaint, rather than separate from the complaint, also causes a problem and makes the stipulations insufficiently reliable. Hickey found that the Plaintiffs' in-complaint stipulations were binding and that any efforts to by the plaintiffs to later seek higher damages would be prevented by the doctrine of judicial estoppel.

Finally, Hickey took up the defendants' arguments of the plaintiffs' motives.

"Defendants cite Plaintiffs' counsel's pattern of favorable state-court rulings and prodigious settlements as evidence that something underhanded is afoot," Hickey wrote.

However, Hickey wrote that speculation was not enough for a ruling of bad faith.

Just prior to this decision, the insurance companies filed a motion with Hickey stating that the U.S. Supreme Court granted certiorari in a case connecting Plaintiffs' remand arguments (Standard Fire Ins. Co. v. Knowles).

In that case, the Supreme Court will answer the question: if a plaintiff attempts to beat a defendant's right to removal under CAFA by filing with a class action complaint a stipulation that attempts to limit the damages for absent putative class members to less than the $5 million threshold for federal jurisdiction, and the defendant establishes that the action amount in controversy, without the stipulation, exceeds $5 million, is the stipulation binding on absent class members so as to destroy federal jurisdiction?

The insurance companies argued that the Supreme Court decision in Standard Fire would determine that outcome of Basham and McClendon's remand motion. Hickey stated that sitting on the Basham case for an indeterminate time awaiting a decision was unwarranted.

The Basham remand is currently on appeal.

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