Petition for Writ of Certiorari — Ballard v. Martin

Supreme

1) FILED C

O2 542 0CT -3 2002

OFFICE OF THE CLERK

IN THE

Supreme Court of the Gnited States

TERESA BALLARD, ET AL.,

Petitioners,

Vv.

SHEILA MARTIN AND WESTARK FINANCIAL CONSULTANTS OF

JONESBORO, INC., ET AL.

Respondents.

ON PETITION FOR WRIT OF CERTIORARI

TO THE SUPREME COURT OF THE

STATE OF ARKANSAS

PETITION FOR WRIT OF CERTIORARI

RICHARD A. FISHER DAVID G. NIXON

Counsel of Record

THE FISHER LAW FIRM THE NIXON LAW FIRM

1510 STUART ROAD 2340 GREEN ACRES RD.

SUITE 210 SUITE 12

CLEVELAND, TN 37364 FAYETTEVILLE, AR 72703

TEL: (423) 479-7009 TEL: (479) 582-0020

Counsel for Petitioners

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QUESTIONS PRESENTED

Does due process require the adoption and use of

objective standards to gauge whether a trial court abused its

discretion in approving a proposed class action settlement

agreement?

cashes

PARTIES TO THE PROCEEDING

Petitioners

Petitioners are Teresa Ballard, Kenisha Bryant, Richard

Lynn and Cheryl King, individual citizens of the United

States. Ms. Ballard and Ms. King reside in the State of

Arkansas and Ms. Bryant resided there at the time this

litigation commenced. The Petitioners have no corporate

affiliations. The Petitioners were objecting class members in

the Circuit Court of Craighead County, Arkansas and the

Appellants before the Arkansas Supreme Court.

Respondents

Sheila Martin and Jimmie Lou Spencer are individual

citizens of the United States, residing in the State of

Arkansas. Ms. Martin and Ms. Spencer were the designated

class representatives in the Circuit Court of Craighead

County, Arkansas and Appellees before the Arkansas

Supreme Court.

Westark Financial Consultants of Jonesboro, Inc.,

Westark Financial Consultants of Little Rock, Inc., Westark

Financial Consultants of North Little Rock, Inc.; Westark

Financial Consultants of Jacksonville, Inc.; Westark Financial

Consultants of Pine Bluff, Inc.; Westark Financial

Consultants of Rogers, Inc.; Westark Financial Consultants

of Springdale, Inc.; Westark Financial Consultants of

Russellville, Inc.; Westark Financial Consultants of

Fayetteville, Inc.; Westark Financial Consultants, Inc.; Cash

Advance of Benton, Inc.; Cash Advance of North Little Rock,

Inc.; Cash Advance of Little Rock, Inc.; Executive Cash

Advance of Little Rock, Inc.; C & B Enterprises, Inc., H&S

Enterprises of Rogers, Inc.; H&S Enterprises of Fayetteville,

Inc.; H&S Enterprises of Springdale, Inc.; and Payday

Advance of Fort Smith, Inc. (collectively, “Westark”) are all

Arkansas corporations. Westark was the defendant in the

Circuit Court of Craighead County, Arkansas and an

appellee before the Arkansas Supreme Court.

ill

TABLE OF CONTENTS

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STATEMENT OF JURESDIC TION .....s.c-cccsscvosescrcsssessensovsneenesensees 1

CONSTITUTIONAL AND STATUTORY PROVISIONS

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PEF CECE GA BPREG ct MD cecinintacterninsisitiinancsasarctenmnsevivnninien’ 6

REASONS FOR GRANTING THE PETITION... eee 9 |

I. The Question Presented is Important. ...........:ceeeeee 9

A. The Arkansas Supreme Court's Decision Results in |

0 ERIE OE COR RII crricsssittcncnncinnseresgnnsaniccestionennnse 9

1. Due Process Requires the Use of Objective

3 Standards Against Which to Measure and Limit a

CRIES I ci vnhecrertincwuiencciinnivinjesorateinartcnnsioinctes 9

2. The Arkansas Supreme Court Improperly Shifted

the Burden of Proof to Objecting Class Members. .16

RE i Re assthieivninrcstrcthadieesitesateenseebtnscseuighacatnness 18

Oe A TG sstiseteceatistiicinttirncanrcinocegienniustcicnneniticinn 19

II. This Court Has Never Spoken on this Issue and

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FFE EN BF icdiciecisnictcinehncsnngiasaianeeiintesanieiditiotainadbineabaniatetn 34a

TABLE OF AUTHORITIES

Federal Cases

Amchem Products, Inc. v. Windsor, 521 U.S. 591,

REF ee AE CUP OTD ciniissinn: hcipcicinasialanciliaieiicinnoeda wine 1, 22

Brinkerhoff-Faris Trust & Savings Co. v. Hill, 281

U.S. 673, 50 S.Ct. 451 (Mem), 74 L.Ed. 1107

SI ner. naisesshaneseomesinieldesinitaidanbiaeasainde bliss cumaiceia tina daccas 13

-Chicago, B. & Q.R. Co. v. City of Chicago, 166 U.S.

226, 17 S.Ct. 581, 41 L.Ed. 979 (1897) ........cscssccsssessessssessesees 13

Eisen v. Carlisle and Jacquelin, 417 U.S. 156, 94

S.Ct. 2140, 40 L.Ed.2d 732 (1974).....ccsssssssssssssssssssssesscsecssee 20

Gideon v. Wainwright, 372 U.S. 335, 83 S. Ct. 792,

9 L.Ed.2d 799, 93 A.LR.2D 733 (1963).......s.ssssssscssessssessesees 13

Girsh v. Jepson, 521 F.2d 153 (3rd Cir. 1975)......cccscscsesseeeees 18, 21

Grunin v. Int'l House of Pancakes, 513 F.2d 114

GO te: BO censeiessactinnbaeoitalsimenictisenianedbammnancoue: 9,10, 14, 15

In re General Motors Corp. Pick-Up Truck Fuel

Tank Products Liability Litigation, 55 F.3d 768

GS BPM vivisvecinicerincicen nian ssaniictinsilbinedeacansinaiiaisae 8, 13

In re Milken & Assoc. Securities Litigation, 150

FAP. Gb GAIL, Bo aap vsvnssctitteeniaieiistnbitinesssustaaniaanbvshesonedisa 15

Lassiter v. Department of Social Services of Durham

County, 452 U.S. 18, 101 S.Ct. 2153, 68 L.Ed.2d

| | RNa RE RET EMRE SSN hele DRT AEE 14

Mullane v. Central Hanover Bank & Trust Co., 339

U.S. 306, 70 S.Ct. 652, 94 L.Ed. 865 RITE conti omadesbiaet: 20

Orr v. Orr, 440 U.S. 268, 99 S.Ct. 1102, 59

Se GP EEO uitisinientiiesiginseuaseaieinds maleic ae: 13

Ortiz v. Fibreboard Corp., 527 U.S. 815, 119 S.Ct.

2299, 144 L.Ed 2d 715 (1999) ......c.cececesvonesesesesssessesvcesesoece 16, 18

Vv

Protective Committee For Independent Stockholders

of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S.

SAG BS Aes SARE Ce rieicerrtinvinnsisnnsiniminnniteinala

Richardson v. Ramirez, 418 U.S. 24, 94 S.Ct. 2655,

Fe i Ee IO vikninininiceieeiinaniiosuiinnahlibeasinitpinaiiieinnliaes 13

Smith v. Swormstedt, 57 U.S. 288, 16 How. 288,

Se ps Fe OED einasenrininneeseatsinieennitaiinenanipaiemiinilil 11

Supreme Tribe of Ben Hur v. Cauble, 255 U.S. 356,

Go ey Gere Pe LEE Bercapvishtniisnnncebapeatniiersnnniaiasaneaninnanth 11

Twigg v. Sears, Roebuck & Co., 153 F.3d 1222

CUE els, PIE iicnstiabreseeneuianianvennneieudannminanaimmaasba 22

State Cases

‘Ballard v. Martin, 349 Ark. 564, 79 S.W.3d 838

(2002)....sosveresvscssvssvansessennssssvonvseonvesseonessreosnones Racaneetohines 15, 19, 21

Ford Motor Credit Co. v. Rogers, 285 Ark. 64, 685

CAFU Ae BRD CIGD nnncrvecnnisisenercovitninnestanttieiniabesnselbieticatiannivniaeda 8

Fraley v. Williams Ford Tractor and Equipment

Company, 339 Ark. 322, 5 S.W.3d 423 (1999) ......cscseeseeseseees 9

Kemp-Bradford VFW Post 4764 v. Wood, 262 Ark.

BR Soe ROU SOO CET P escersesismnnuneinonionieiermeniiaeenianiinlion 8

Federal Statutes

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Fi CE, FIG. Y sencvcinnnensnrsieesessintorseinnsnianianetiblinionammiagiann 1

Cs Bi CUE, PARIOINE FEY sesesinscesevinninesnioesnesveninaninintiastagenneniie 2, 13

State Statutes .

Fe Ri AANE, Bs Oe Et cctv incttnriccitcticianeelnaieaebaiiialiadeeeiniana 2

State Rules

PTB. Fe 4M. F, Tdeonsvinnvcensnieeipvameansaiiieceehacapiaaiiilanaaigiliaadaan 3

vi

Petitioners respectfully petition for a Writ of Certiorari to

review the judgment of the Arkansas Supreme Court in this

case.

OPINIONS BELOW

The original opinion of the Arkansas Supreme Court

(App. A at 1a) is reported at 349 Ark. 564, 79 S.W.3d 838

(2002). The opinion of the Circuit Court of Craighead

County, Arkansas approving the proposed Settlement

Agreement over the objection of the Petitioners (App. B at

23a) is not reported.

STATEMENT OF JURISDICTION

The judgment of the Arkansas Supreme Court was

entered July 5, 2002.

The jurisdiction of this court is invoked pursuant to 28

U.S.C. § 1257(a).

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

This case involves the following statutory provisions:

1. U.S. Const., Amend. V.

No person shall be held to answer for a capital, or

otherwise infamous crime, unless on a presentment

or indictment of a Grand Jury, except in cases arising -

in the land or naval forces, or in the Militia, when in

actual service in time of War or public danger; nor

shall any person be subject for the same offence to be

twice put in jeopardy of life or limb; nor shall be

compelled in any criminal case to be a witness

against himself, nor be deprived of life, liberty, or

property, without due process of law; nor shall

private property be taken for public use, without just

compensation.

U.S. Const., Amend. XIV, Section 1.

All persons born or naturalized in the United

States, and subject to the jurisdiction thereof, are

citizens of the United States and of the State wherein

they reside. No State shall make or enforce any law

which shall abridge the privileges or immunities of

citizens of the United States; nor shall any State

deprive any person of life, liberty, or property,

without due process of law; nor deny to any person

within its jurisdiction the equal protection of the

laws.

Ark. Const., Art. 19, § 13.

§ 13 Maximum lawful rates of interest.

(a) General Loans:

(i) The maximum lawful rate of interest on any

contract entered into after the effective date hereof

shall not exceed five percent (5%) per annum above

the Federal Reserve Discount Rate at the time of the

contract.

(ii) All such contracts having a rate of interest in

excess of the maximum lawful rate shall be void as to

the unpaid interest. A person who has paid interest

in excess of the maximum lawful rate may recover,

within the time provided by law, twice the amount of

interest paid. It is unlawful for any person to

knowingly charge a rate of interest in excess of the

maximum lawful rate in effect at the time of the

contract, and any person who does so shall be subject

. to such punishment as may be provided by law.

(b) Consumer Loans and Credit Sales: All contracts for

consumer loans and credit sales having a greater rate of

interest than seventeen percent (17%) per annum shall be

void as to principal and interest and the General

Assembly shall prohibit the same by law.

(c) Definitions: As used herein, the term:

(i) "Consumer Loans and Credit Sales" means

credit extended to a natural person in which the

money, property, or service which is the subject of

the transaction is primarily for personal, family or

household purposes.

(ii) "Federal Reserve Discount Rate" means the

Federal Reserve Discount Rate on ninety-day

commercial paper in effect in the Federal Reserve

Bank in the Federal Reserve District in which

Arkansas is located.

(d) Miscellaneous:

(i) The rate of interest for contracts in which no

rate of interest is agreed upon shall be six percent

(6%) per annum.

(ii) The provisions hereof are not intended and

shall not be deemed to supersede or otherwise

invalidate ary provisions of federal law applicable to

loans or interest rates including loans secured by

residential real property.

(iii) The provisions hereof revoke all provisions of

State law which establish the maximum rate of

interest chargeable in the State or which are

otherwise inconsistent herewith.

4. Ark. R. Civ. P. 23.

RULE 23. CLASS ACTIONS

(a) Prerequisites to Class Action. One or more members

of a class may sue or be sued as representative parties on

behalf of all only if (1) the class is so numerous that

joinder of all members is impracticable, (2) there are

questions of law or fact common to the class, (3) the

claims or defenses of the representative parties are

typical of the claims or defenses of the class, and (4) the

representative parties will fairly and adequately protect

: the interests of the class.

(b) Class Actions Maintainable. An action may be

maintained as a class action if the prerequisites of

subdivision (a) are satisfied, and the court finds that the |

questions of law or fact common to the members of the |

class predorninate over any questions affecting only

individual members, and that a class action is superior to |

other available methods for the fair and efficient

adjudication of the controversy. As soon as practicable

after the commencement of an action brought as a class

action, the court shall determine by order whether it is to

be so maintained. An order under this~section may be

conditional and it may be altered or amended before the

decision on the merits.

(c) Notice. In any class action in which monetary relief is

sought, including actions for damages and restitution,

the court shall direct to the members of the class the best

notice practicable under the circumstances, including

individual notice to all members who can be identified

through reasonable effort. The notice shall: (1) describe |

the action and the members' rights in it; (2) advise each t

member that the court will exclude the member from the

class if the rnember so requests by a specified date; (3)

advise each member that the judgment, whether

favorable or not, will include all members who do not

request exclusion; and (4) state that any member who

LOSE Se aa ee

does not request exclusion may, if the member desires,

participate in the litigation, either in person or through

counsel. The cost of such notice shall be borne by the

representative parties; provided, however, that the court

may shift all or part of such cost to the opposing party or

parties if the case is settled or the class representative

substantially prevails on the merits.

(d) Orders in Conduct of Actions. In the conduct of

actions to which this rule applies, the court may make

appropriate orders: (1) determining the course of

proceedings or prescribing measures to prevent undue

repetition or complication in the presentation of

evidence or argument; (2) requiring, for the protection of

the members of the class or otherwise for the fair

conduct of the action, that notice be given in such

manner as the court may direct to some or all of the

members of any step in the action, or of the proposed

extent of the judgment, or of the opportunity of the

members to signify whether they consider the

representation fair and adequate, to intervene and

present claims or defenses, or otherwise come into the

action; (3) imposing conditions on the representative

parties or on intervenors; (4) requiring that the pleadings

be amended to eliminate therefrom allegations as to

representation of absent persons, and that the action

proceed accordingly; and (5) dealing with similar

procedural raatters. The orders may be combined with

an order under Rule 16 and may be altered or amended

from time to time as may be desirable.

(e) Dismissa] or Compromise. A class action shall not be

dismissed or compromised without the approval of the

court. In cases where the court has entered an order that

an action shall be maintained as a class action, notice of

such proposed dismissal or compromise shall be given to

all members of the class in such manner as the court

directs.

STATEMENT OF THE CASE

This appeal arises from an order of the Circuit Court for

Craighead County, Arkansas, the Hon. David N. Laser,

approving, over Petitioners’ objection, a proposed class

action Settlement Agreement. (App. B at 23a.)

The case began on December 8, 2000 as a suit by

Ms. Martin and Ms. Spencer (collectively, the “Plaintiffs”)

against Westark Financial Consultants of Jonesboro, Inc. for

usury in the practice of payday lending. On April 26, 2001,

all of the other corporate defendants were added as

defendants (collectively referred to herein as “Westark”).

On April 27, 2001, the Plaintiffs and Westark submitted their

“Joint Motion to Certify Class, Approve Settlement of Class

Action, Direct Notice of Pendency and Settlement, and Set

Date for Hearing on Final Approval of Settlement of Class

Action.” (App. D at 34a.) Attached to the Joint Motion as

Exhibits were the Settlement Agreement (App. D at 39a), the

Notice to class members of certification and settlement (App.

D at 45a), and the Claim Form to be used by class members

(App. D at 55a). The proposed Settlement Agreement settled

all claims that were brought or could have been brought

against Westark, its owners and sureties in exchange for a

payment of $170.000.00 in class counsel fees and $435,000.00

used to purchase “Series E” U. S. Savings Bonds. Westark

would continue in business for 90 days after approval of the

settlement and would continue to collect on checks

thereafter if a payment plan was in effect as to that check.

On April 30, 2001, the trial court certified the case as a

class action, and ordered that simultaneous notice of

certification and settlement be given by U. S. Standard Mail

on or before May 14, 2001. The Petitioners timely objected to

the proposed Settlement Agreement as being inadequate,

unreasonable, and unjust. An evidentiary hearing was held

in the trial court on June 1, 2001. At that hearing, Ms. Martin

testified in support of the fairness of the Settlement

Agreement and the Plaintiffs rested. Westark offered no

evidence in support of the Settlement Agreement.

ee

Petitioners called Westark’s chief financial officer as a

witness pursuant to a subpoena and elicited evidence

regarding the financial condition of Westark, _ its

shareholders and sureties. That evidence showed that:

Westark’s only substantial activity was payday lending; that

Westark had a combined net worth of approximately $ 2.7

million; that Westark would collect approximately $ 1.4

million: during the 90-day post-approval period; that

Westark’s shareholders had taken some $ 3-5 million in

profits out of the corporations during their existence; and

that Westark had surety bonds totaling $ 1.95 million to

cover, inter alia, violations of “any other applicable laws of

the State [sic] Arkansas.”

Petitioners argued that the amount offered to the class

was inadequate and unfair and that the owners and sureties

should not be reieased from potential liability without some

contribution on their part to the settlement fund. In

addition, Petitioners objected to the Notice’s less-than-two-

week timing and its content.

On August 7, 2001, the trial court approved the

Settlement Agreement. On August 28, 2001, the Petitioners

timely appealed-that order. On July 5, 2002, the Arkansas

Supreme Court upheld the decision of the trial court. The

Arkansas Supreme Court was asked to adopt - for the first

time - standards by which to judge proposed class action

settlements. Petitioners allege the Arkansas Supreme Court

nominally adopted such standards, but has substantively

ignored them, resulting in a denial of due process in this

particular case and the promise of continued denials of due

process in the procedural vacuum inherent in its decision.

The Petitioners raised the federal question of due

regarding the standards applicable to review of proposed

class action settlement agreements and Notices as indicated

below:

When determining whether a proposed settlement

agreement should be approved, the burden is on the

proponents of the agreement to show that it is fair,

reasonable, and adequate. In re General Motors Corp.

Pick-Up Truck Fuel Tank Products Liability Litigation, 55

F.3d 768 (3rd Cir. 1995). The burden is not on the

objectors to prove it is unacceptable. This makes

sense since it is the proponents who allegedly possess

all of the facts underlying the negotiations and who

stand to benefit from the agreement. Moreover, since

the proposed settlement is intended to have res

judicata effect as to the absent class members and

class counsel bears a duty toward the class, it is only

right that class counsel be called upon to demonstrate

that the proposed settlement was the subject of

vigorous and independent negotiation on behalf of

the class. Due process requires nothing less. This

Court has previously held that due _ process

considerations are relevant in the class action context.

See, e.g., Kemp-Bradford VFW Post 4764 v. Wood, 262

Ark. 168, 554 S.W.2d 344 (1977) (“We do not believe

the rights of the members of any class, whether

alcoholic beverages are involved or not, should ever

be determined without reasonable notice or without

evidence that parties are adequately representative of

the class.”); Ford Motor Credit Co. v. Rogers, 285 Ark.

64, 685 S.W.2d 145 (1985).”

-.2 <>

Ballard Appellants’ Opening Brief. See Ballard, et al., v. Martin,

et al., SC 01-1185 (Ark.). (Emphasis added.)

4. That the Official Notice from the Court and the

Notice and Summary from the parties contain no

reference whatsoever that: (1) a class member may

object at all; (2) “the manner by which a notice of

objection should be prepared, filed and delivered;” or )

(3) the manner and time at which objections to the

proposed Settlement Agreement shall be heard.

5. That Kenisha Bryant, Cheryl King, Richard Lynn

and Crystal Luebbers object to approval of the

proposed Settlement Agreement on the grounds,

inter alia, it is woefully inadequate, unfair and unjust

to the class members.”

Objection of Proposed Intervenors, Teresa Ballard, et al., to

Proposed Settlement Agreement, CIV 2000-669(L) (Craighead

Co., Ark.).

REASONS FOR GRANTING THE PETITION

I. The Question Presented is Important.

A. The Arkansas Supreme Court’s Decision Results in

a Denial of Due Process.

Prior to this decision by the Arkansas Supreme Court,

there were no enunciated opinions in Arkansas to guide

litigants and trial courts in evaluating proposed class action

settlement agreements. In line with its stated policy to

follow federal law in the area of class action practice (Fraley

v. Williams Ford Tractor and Equipment Company, 339 Ark. 322,

336, 5 S.W.3d 423, 432 (1999)), the court was asked to adopt

Grunin v. Int’l House of Pancakes, 513 F.2d 114 (8% Cir. 1975)

as the law of Arkansas in this area.

The Arkansas Supreme Court, in a published opinion,

did nominally adopt Grunin, id. as controlling, but

proceeded to misinterpret and misapply it, resulting in a

denial of due process. The future “ripple effect” of this error

will deny other objecting class members due process if it is

not corrected at the outset.

1. Due Process Requires the Use of Objective

Standards Against Which to Measure and Limit

a Court’s Discretion.

Petitioners believe the review standards set forth in

Grunin and other similar cases from other federal circuits

have as their base the due process clause of the Fifth

Amendment. At the core of this consideration is the due

process concern that judicial proceedings to which one is not

a party are not generally binding on that person, unless the

named party adequately represents the interests of that

absent person. This general rule and the exception for

representative actions have deep roots in our system of

justice.

With a proper regard for divergent local

institutions and interests, cf. Jackson County v. United ;

States, 308 U.S. 343, 351, 60 S.Ct. 285, 288, 84 L.Ed. |

313, this Court is justified in saying that there has

been a failure of due process only in those cases

where it cannot be said that the procedure adopted,

fairly insures the protection of the interests of absent

parties who are to be bound by it. Chicago, B. & Q.R.

Co. v. Chicago, 166 U.S. 226, 235, 17 S.Ct. 581, 584, 41

L.Ed. 979

Hansberry v. Lee, 311 U.S. 32, 42, 61 S.Ct. 115, 118, 85 L.Ed. 22,

132 A.L.R. 741 (1940).

In all cases where exceptions to the general rule

are allowed, and a few are permitted to sue and

defend on behalf of the many, by representation, care

must be taken that persons are brought on the record

fairly representing the interest or right involved, so

that it may be fully and honestly tried.

Smith v. Swormstedt, 57 U.S. 288, 303, 16 How. 288, 14 L.Ed.

942 (1853). See also Supreme Tribe of Ben Hur v. Cauble, 255

U.S. 356, 41 S.Ct. 338, 341 (1921). —

Due process, therefore, requires adequate representation 4

of the absent class members’ interests. When the nominal

parties agree to settle, the court by necessity becomes the

representative of the absent parties in its fiduciary role on

their behalf.

10

aaa

The inquiry appropriate under Rule 23(e), on the

other hand, protects unnamed class members "from

unjust or unfair settlements affecting their rights

when the representatives become fainthearted before

the action is adjudicated or are able to secure

satisfaction of their individual claims by a

compromise." See 7B Wright, Miller, & Kane § 1797,

at 340-341.

Amchem Products, Inc. v. Windsor, 521 U.S. 591, 623, 117 SAX.

2231, 2249 (1997). This statement merely begs the question

of whether objective standards - or any standards at all - are

required under the due process clause. Petitioners submit

objective standards are needed in order to assure adequacy

of representation by the Court, as fiduciary, when the class

representative is advocating settlement. The absence of

objective standards makes exercise of that fiduciary duty

inherently arbitrary, which results in a denial of due process

to the absent class members.

This expanded role of the court in class actions

(relative to conventional bipolar litigation) continues

even after certification. While the parties in a normal

suit do not ordinarily require a judge's approval to

settle the action, class action parties do. Rule 23(e)

provides: "A class action shall not be dismissed or

compromised without the approval of the court, and

notice of the proposed dismissal or compromise shall

be given to all members of the class in such manner

_ as the court directs." Fed.R.Civ.P. 23(e). Courts and

commentators have interpreted this rule to require

courts to "independently and objectively analyze the

evidence and circumstances before it in order to

determine whether the settlement is in the best

interest of those whose claims will be extinguished."

2 Newberg & Conte § 11.41, at 11-88 to 11-89. "Under

Rule 23(e) the district court acts as a fiduciary who

must serve as a guardian of the rights of absent class

11

members.... [T]he court cannot accept a settlement

that the proponents have not shown to be fair,

reasonable and adequate." Grunin v. International

House of Pancakes, 513 F.2d 114, 123 (8th Cir.), cert.

denied, 423 U.S. 864, 96 S.Ct. 124, 46 L.Ed.2d 93 (1975);

Malchman v. Davis, 706 F.2d 426, 433 (2d Cir.1983);

Sala v. National RR Passenger Corp., 721 F.Supp. 80

(E.D.Pa.1989); see also Piambino v. Bailey, 610 F.2d

1306 (5th Cir.), cert. denied, 449 U.S. 1011, 101 S.Ct.

568, 66 L.Ed.2d 469 (1980).

In re General Motors Corporation Pick-Up Truck Fuel Tank

Products Liability Litigation, 55 F.3d 768, 785 (3rd Cir. 1995).

These principles apply to state court proceedings

through the Fourteenth Amendment. Brinkerhoff-Faris Trust

& Savings Co. v. Hill, 281 U.S. 673, 680, 50 S.Ct. 451, 454

(Mem), 74 L.Ed. 1107 (1930), Richardson v. Ramirez, 418 US.

24, 39-40, 94 S.Ct. 2655, 2664, 41 L.Ed.2d 551 (1974);

Hansberry v. Lee, supra, Gideon v. Wainwright, 372 U.S. 335, 83

S. Ct. 792, 9 L.Ed.2d 799, 93 A.LR.2D 733 (1963). The federal

constitutional issues of due process were timely raised by

the Petitioners and were ruled upon by the Arkansas

Supreme Court, thereby allowing this Court to exercise

jurisdiction in this matter. Orr v. Orr, 440 U.S. 268, 99 S.Ct.

1102, 59 L.Ed.2d 306 (1979).

In determining what is due process of law, regard must

be had to substance, not to form. Chicago, B. & Q.R. Co. v.

City of Chicago, 166 U.S. 226, 17 S.Ct. 581, 41 L.Ed. 979 (1897).

For all its consequence, "due process" has never

been, and perhaps can never be, precisely defined.

"[U]nlike some legal rules," this Court has said, due

process "is not a technical conception with a fixed

content unrelated to time, place and circumstances."

Cafeteria Workers v. McElroy, 367 U.S. 886, 895, 81 S.Ct.

1743, 1748, 6 L.Ed.2d 1230. Rather, the phrase |

expresses the requirement of "fundamental fairness," |

12

iii

a requirement whose meaning can be as opaque as its

importance is lofty. Applying the Due Process Clause

is therefore an uncertain enterprise which must

discover what "fundamental fairness" consists of in a

particular situation by first considering any relevant

precedents and then by assessing the several interests

that are at stake.

Lassiter v. Department of Social Services of Durham-County, 452

U.S. 18, 101 S.Ct. 2153, 68 L.Ed.2d 640 (1981).

With these rules in mind, how do the proceedings in

Arkansas square with them? First, the Arkansas Supreme

Court explicitly stated it was adopting the reasoning of

Grunin v. Int’l House of Pancakes, 513 F.2d 114 (8th Cir. 1975).

The evidence presented by the Petitioners showed that the

total potential judgment on usury claims alone could have

been as high as $ 27 million. The Arkansas Supreme Court

recognized Petitioners had made a “bona fide” argument

that the $605,000.00 offered in settlement was not

comparable to the potential recovery, but then stated “...we

are not deciding the merits of the usury question in their

favor ... [nJor can we proceed in our analysis with any

assumption that the class will prevail and collect all

damages claimed.” (Emphasis added.) Ballard v. Martin, 349

Ark. 564, 578, 79 S.W.3d 838, 846-47 (2002). In essence, the

Arkansas Supreme Court abdicated its reviewing role, by

doing so, discarded this first and most important element of

analysis. Some assumptions regarding the likelihood of the

class prevailing on their admittedly “bona fide” claims was

necessary in order to place a value on those claims for

purposes of comparison to the settlement offer.

The Arkansas Supreme Court then turned to the second,

subsidiary Grunin factor - the defendant's ability to pay.’

Here, the court improperly balanced the evidence elicited by

1 The Arkansas Supreme Court discussed this issue in the context of the

first factor, as well, but that discussion will be addressed by Petitioners

exclusively under the second ability-to-pay factor.

13

Petitioners in the record against Westark’s disputed claims

in its pleadings. Petitioners introduced evidence that

Westark’s ability to pay greatly exceeded the $ 605,000.00

offered while Westark introduced no evidence whatsoever that

its ability to pay was impaired. In fact, the evidence showed

that during the 90-day post-approval operations period,

Westark could expect to collect some $ 1.4 million from the |

class members. The court looked to In re Milken & Assoc.

Securities Litigation, 150 F.R.D. 46 (S.D.N.Y. 1993) for

justification that a settlement that is much smaller than the

amount sought in the complaint may be fair and reasonable |

and then said “a settlement which embraces Series EE Bonds

totaling $870,000 and forgiveness of debt after ninety days

has considerable value.” Ballard, supra at 349 Ark. at 580, 79

S.W.3d at 848. Of course, Milken and its kind deal with cases

where analysis of the first factor show that the value of the

class’s claims are worth much less than the amount sought

and confirm that the ability-to-pay factor is subsidiary to the

first factor (value of the claims versus amount offered). |

Here, the court uses the value of the savings bonds sixteen |

years hence to improperly justify the supremacy of the second

factor over the first.

Moreover, the Arkansas Supreme Court completely

- ignored any analysis of the value of other claims that were

not brought, but that were being released, as well as the

value of claims that could have been brought against

Westark’s owners and sureties _(who were also being

released without consideration) and their ability to pay.

Oe eee ees on

If the Respondents seek to justify the Settlement

Agreement on the basis that there is a limited fund, then this

Court's opinion in Ortiz v. Fibreboard Corp., 527 U.S. 815, 119

S.Ct. 2295, 144 L.Ed.2d 715 (1999) is instructive. Ortiz makes

it clear that strict proof that the fund is limited - otherwise

than by the settlement agreement itself - is required. Id. at

838-42. Failure to meet that burden of proof demonstrates

an abserice of adequate representation and requires rejection

of the proceedings below.

14

Te eye ee aE |

The defect of certification going to the most

characteristic feature of a limited fund action was the

uncritical adoption by both the District Court and the

Court of Appeals of figures [FN omitted] agreed

upon by the parties in defining the limits of the fund

and demonstrating its inadequacy. [FN omitted]

When a district court, as here, certifies for class action

settlement only, the moment of certification requires

"heightene[d] attention," Amchem, 521 U.S., at 620, 117

S.Ct. 2231, to the justifications for binding the class

members. This is so because certification of a

mandatory settlement class, however provisional

technically, effectively concludes the proceeding save

for the final fairness hearing. And, as we held in

Amchem, a fairness hearing under Rule 23(e) is no

substitute for rigorous adherence to those provisions

of the Rule "designed to protect absentees," ibid.,

among them subdivision (b)(1)(B). [FN omitted]

Thus, in an action such as this the settling parties

must present not only their agreement, but evidence

on which the district court may ascertain the limit

and the insufficiency of the fund, with support in

findings of fact following a proceeding in which the

evidence is subject to challenge, see In re Bendectin

Products Liability Litigation, 749 F.2d 300, 306 (C.A.6

1984) ("[T]he district court, as a matter of law, must

have a fact-finding inquiry on this question and

allow the opponents of class certification to present

evidence that a limited fund does not exist"); see also

In re Temple, 851 F.2d 1269, 1272 (C.A.11 1988)

("Without a finding as to the net worth of the

defendant, it is difficult to see how the fact of a

limited fund could have been established given that

all of [the defendant's] assets are potentially available

to suitors"); I re Dennis Greenman Securities Litigation,

829 F.2d 1539, 1546 (C.A.11 1987) (discussing factual

findings necessary for certification of a limited fund

class action).

15

Ortiz v. Fibreboard Corp., 527 U.S. 815, 848-50, 119 S.Ct. 2295,

2316, 144 L.Ed.2d 715 (1999).

In short, when the Arkansas Supreme Court uncritically

adopted the trial court’s assessment that Westark had only a

limited fund with which to pay claims, without evaluating at

all the ability of its owners or sureties to pay and the value of

released, but unbrought, claims against them, the process

was fundamentally flawed. It was the substance of the

proceeding, not the nominal adoption of objective standards,

that resulted in a denial of due process. Dismissal of non-

parties for clairas not brought and for no independent

consideration deserves a deeper examination and specific

findings. Girsh v. Jepson, 521 F.2d 153, 159 (3rd Cir. 1975).

2. The Arkansas Supreme Court Improperly

Shifted the Burden of Proof to Objecting Class

Members.

The Arkansas Supreme Court opinion effectively shifted

burden of proof from the Plaintiffs and Westark to the

Petitioners. The record was clear that they had utterly failed

to meet their burden with admissible proof. They provided

no evidence whatsoever of: (1) the value of the usury claim by

introducing the amount of fees collected from class members

during the class period or the number of class members;

(2) their ability to pay; (3) the value of other claims being

released that could have been, but were not, brought; (4) the

value of claims being released as to Westark’s owners and

sureties that could have been, but were not, brought; or

(5) the ability of Westark’s owners and sureties to pay.

The court excuses this lack of proof by Respondents by

balancing the evidence against Westark’s claims in its

pleadings:

Following the filing of the complaint, Martin

commenced discovery. Through one set of

interrogatories and requests for production

16

eet A meena anseeD

a

propounded by Martin, information about the

arbitration provisions in the customer contracts was

elicited. Martin did request limited information

relating to Westark's financial condition. However, it

is unclear from the record whether Martin ever

received this information.

Ballard, supra at 349 Ark. at 572, 79 S.W.3d at 842.

(Emphasis added.)

The Westark appellees dispute these figures.

They also claim that they have little cash on hand and

that operating overhead reduces the amount

available for the settlement fund. We do not consider

the disputed claim that the Westark appellees could

have paid more than $605,000 to be a persuasive

reason for overturning the settlement.

Ballard, supra at 349 Ark. at 582, 79 S.W.3d at 848-

49. (Emphasis added.)

This shifting of the burden of proof to the Petitioners

effectively changes the inquiry from one where the

proponents of the Settlement Agreement are required to

positively prove the its adequacy to one where the objecting

class members are required to prove it inadequate. This shift

denies them due process in that it puts them at odds with the

reviewing court. In other words, the objecting class

members are charged with the burden of persuading the

very fiduciary - the court - who is supposed to be looking

out for their interests and incorrectly requires them to

overcome an faulty presumption that the proposed

settlement is fair. It should be the Plaintiffs and Westark, in

this case, who carry that burden because the Plaintiffs have

arguably abandoned their adversarial posture with Westark

and no longer adequately represent the class’ interests.

17

3. The Time Period for Notice was Too Brief to

Afford Class Members Due Process.

The Respondents were ordered by the trial court to mail

notice to class members on or before May 14, 2001. Notice

was actually mailed on May 16, 2001 using U. S. Standard

Mail. The deadline for a class member to object to the

proposed Settlement Agreement was May 29, 2001. The

fairness hearing was set for June 1, 2001.

Notice to class members must be reasonably calculated

to apprise them of their rights. Eisen v. Carlisle and Jacquelin,

417 US. 156, 173, 94 S.Ct. 2140, 2150, 40 L.Ed.2d 732 (1974).

See also Mullane v. Central Hanover Bank & Trust Co., 339 U.S.

306, 70 S.Ct. 652, 94 L.Ed. 865 (1950).

While notice in this case was mailed to class members, it

was mailed using U. S. Standard Mail. That method of

mailing excludes forwarding by the Postal Service and

means that, if the class member has changed address, the

class member will not receive the Notice even if she has left

forwarding instructions with the Postal Service. Moreover,

given the brief window of time between later mailing of the

notices on May 16 and the fairness hearing on June 1, 2001,

those notices that required forwarding likely would not have

arrived until just before the time to object to the proposed

settlement expired, or even later. As to those class members,

therefore, they had either no notice whatsoever of the

proceedings or an inadequate opportunity to object and

present evidence.

The Arkansas Supreme Court recognized those problems

and dismissed them as inconsequential. The court said:

Martin, in her mailing to class members, claims

that she requested return service for undeliverable

notices at an additional cost. This was for the purpose

of forwarding the notice to transient class members,

according to Martin. Ballard and Cain reply that

nothing regarding remailing returned notices to new

18

ener eee ee en

addresses is in the record. But what the record does

support is that forwarding addresses were requested

by Martin at an added cost which presupposes this

was for the purpose of remailing. Though, a

forwarded notice may have been too late for the

June 1 fairness hearing, it certainly was timely notice

of the right to opt out of the class.

Ballard, supra at 349 Ark. at 587-88, 79 S.W.3d at

852-53. (Emphasis added.)

The court apparently considered the presence of an opt-

out provision and timely notice of that option alone to be a

cure-all for any flaws existing in the notice and settlement

agreement approval process. This is wrong. The class must

have a reasonable opportunity to develop a record and

oppose the proposed settlement and a lack of the best

practicable notice to them of that right is a denial of their

fundamental right. Girsh v. Jepson, 521 F.2d 153 (3rd Cir.

1975). If the settlement is inadequate, and their individual

claims are small, what good is an opt-out to a class member?

Furthermore, the Notice is fundamentally flawed

because it did not disclose that a class member could object

or how or when he could do so. Additionally, the Notice did

not disclose that Westark’s owners and sureties - who were

not defendants -were being released. See, e.g., Twigg v.

Sears, Roebuck & Co., 153 F.3d 1222 (11th Cir. 1998).

B. The Impact of this Decision on Future Class Action

Cases in Arkansas is Potentially Enormous.

This published opinion will affect all future class actions

in Arkansas for which settlement is sought. Given the

prospective impact of the published opinion from the

Arkansas Supreme Court if this deficiency goes uncorrected,

future ad hoc denials of due process are assured.

19

Arbitrary standards amount to no standards at all.

Discretion becomes unfettered and leaves parties and courts

‘with nothing to guide them. The due process concerns

evident in the instant case will be magnified through time

unless this Court exercises corrective action now.

II. This Court Has Never Spoken on this Issue and

Guidance is Needed.

As near as can be determined, this Court has never

explicitly stated that due process requires adherence to

certain objective standards in the exercise of a trial court's

discretion in approving a proposed class action settlement.

Nor has this Court enumerated what those standards should

be. This Court’s opinion in Amchem Products, Inc. v. Windsor,

521 U.S. 591, 117 S.Ct. 2231 (1997) comes close in discussing

23(e), but does not categorically state that due process is at

stake or that objective standards are there to gauge and limit

the discretion of the trial court.

There is some precedent for the role of a trial court in

representative actions to construe the standards for approval

of settlement agreement as requirements for effective

protection of absent claimants. Protective Committee For

Independent Stockholders of TMT Trailer Ferry, Inc. v. Anderson,

390 US. 414, 434-41, 88 S.Ct. 1157, 1168-73 (1968) involved

appellate review of settlement agreement reached in a

bankruptcy proceeding and discussed at length the

appropriate standards required by the reviewing court and

the justification for those standards. While not a “class

action” per se, bankruptcy proceedings are equitable in

nature and deal with a representative action that disposes of

the rights of absent parties.

If it please the Court, this fundamental and important

issue is important enough to warrant clarification.

20

Rha tite ttt sc ASAD So

ssid coh

CONCLUSION

For all of the above reasons, the Petitioners request this

Court to grant Certiorari and to reverse and remand the

decision of the Arkansas Supreme Court with instructions or

guidance as to how to proceed.

David G. Nixon

THE NIXON LAW FIRM

2340 Green Acres Road, Ste 12

Fayetteville, AR 72703

Tel: 479-582-0020

Fax: 479-582-0030

Counsel of Record

Richard A. Fisher, Esq. —

THE FISHER LAW FIRM

1510 Stuart Road, Ste 210

Cleveland, TN 37364-0191

Tel: 423-479-7009

Attorneys for Petitioners

s:\check cashing cases\ state actions\ martin v. westark (appeal)\certiorari,

petition2.doc

21

APPENDIX

The Appendix is in a separate volume submitted herewith.