Reply Brief — Ballard v. Martin

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

PETITIONER’S REPLY BRIEF

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

TABLE OF CONTENTS

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| STATEMENT CB THE CAGE .cccncciessetersnorrestroreerie 1

. REASONS FOR GRANTING THE PETITION. .ssssssscsssenen 1

: I. The Arkansas Supreme Court's Decision Results in a

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TABLE OF AUTHORITIES

Federal Cases

City of Detroit v. Grinnell Corp., 356 F.Supp. 1380

(S.D.N.Y.. FFE) ..ssciseiss<0saressmrscvenassiiosilieanaiinniaintinmehabaainiaesatiiss 4

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

(BY Caz. 197D) «..<.:csnseieremrncevicnmsitjsanieannaamatmaemianns 2, 4,5

Hansberry v. Lee, 311 U.S. 32, 42, 61 S.Ct. 115,

118, 85 L.Ed. 22, 132 ALR. FER EPG sissevcncissasenieseceveesnncess 2

In re Milken and Associates Securities Litigation,

150 F.R.D. 46 G.D.AY,, FORE ncccinosineibnenindatoictarinsansanannnntes 4

Petrovic v. Amoco, 200 F.3d 1140 (8th Cir. 1999)... eeeseseeeees I

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STATEMENT OF THE CASE

Respondents Sheila Martin, et al. deny the factual

allegations made by the Petitioners with respect to the

financial condition of Respondent Westark and_ its

transactions with the class, not on the basis that the

allegations are untrue, but because they “are not supported

by the Arkansas Supreme Court's opinion or by any

document contained in the Appendix.” The fact is that

neither Ms. Martin or Westark offered any such evidence in

their roles as proponents of the class action settlement

agreement nor did they offer any evidence to refute that

elicited by the Petitioners. In other words, the facts set forth

by the Petitioners were uncontroverted and Petitioners stand

by their Statement of Facts.

Moreover, Respondent Martin states she presented “the

testimony of Chris Lawson, a partner at the law firm of

Friday, Eldredge & Clark” in support of the settlement. The

record is clear, however, that Mr. Lawson specifically stated

that his testimony was limited only to the fact that he was

recommending that his handful of class-member clients

accept the proposed settlement and that he was not

testifying to the fairness of the settlement itself.

Westark did not present the testimony of Mr. Forsey as

alleged by Respondent Martin, as Westark offered no

evidence whatsoever in support of the settlement agreement,

but was compelled to testify by the Petitioners by subpoena.

Westark did elicit some evidence from Mr. Forsey on cross-

examination.

REASONS FOR GRANTING THE PETITION

I. The Arkansas Supreme Court's Decision Results in a

Denial of Due Process.

The issue raised by the Petitioners is not one of mere

semantics, i.e., whether this is a question of law or a question

of fact. Even Respondent Martin flip-flops in her statement

of the question. Compare, “Petitioners ... argue that the

Arkansas Supreme Court misapplied the applicable rule of

law to the facts of this case.” (Opp. Brf., p. i.) with “The

Petitioners do not assert that the Grunin v. Int'l House of

Pancakes, 513 F.2d 114 (8% Cir. 1975) standards fail to provide

due process protections, but simply argue that the Arkansas

Supreme Court misapplied the facts of this case to an

otherwise properly stated rule of law” (Opp. Brf., p. 4)

(emphasis added).

Indeed, the distinction has great significance on the

development of class action due process in the State of

Arkansas wherein the exercise of discretion by its trial courts

is concerned. The whole purpose of the sought-after

standards is to make sure that the trial court protects the

rights of absent class members. Hansberry v. Lee, 311 U.S. 32,

42, 61 S.Ct. 115, 118, 85 L.Ed. 22, 132 A.L.R. 741 (1940). It is

not enough for the Respondents to say that due process was

satisfied because the Arkansas Supreme Court said so. That

merely begs the question of this Court’s oversight and role

as final protector of rights under the U. S. Constitution.

Standards that exist in word, but not in deed, are no

standards at all. The mere fact that the Petitioners prevailed

below in having the Arkansas Supreme Court adopt - for the

first time - objective standards against which the exercise of

discretion of trial court in approving class action settlement

could be judged is an empty victory if those standards are

not going to be followed. If no objective standards apply,

then there is nothing to tell us when discretion has been

abused.

Respondent Martin asserts that the Petitioners misstate

and misconstrue the Arkansas Supreme Court’s ruling

below as to the first standard: Comparison of the amount

offered in settlement to the potential recovery. Almost every

district and appellate court that has construed these

standards has stated it to be the most important. Martin

says the Arkansas Supreme Court's statement was that

“Petitioners’ [sic] had a bona fide argument that

Respondents, Martin et al., had a strong argument on the

merits of their case against Westark.” (Opp. Brf., p. 5.)

(Emphasis added.) With respect, Respondent Martin is

simply wrong. What the Court said was “Being mindful of

this court’s strong jurisprudence against usury as well as

Article 19, section 13 of the Arkansas Constitution, we

conclude that Ballard and Cain have a bona fide argument on

the merits.” (App. A at 10a.) In other words, when the

Petitioners argued to the trial court that the potential

recovery was in the millions of dollars because of Arkansas’

constitutional usury prohibition, their argument was bona

fide.

Moreover, even if Martin's interpretation were correct, it

still supports Petitioners’ argument that the potential

recovery in the case was far, far larger than the amount

offered - especially with the settlement agreement, in effect,

permitted Westark to collect the settlement fund from the

class members themselves, released its shareholders and

sureties without any consideration, and permitted Westark

to continue an obviously illegal activity.

That Westark would raise defenses of release and

arbitration to class certification were of no moment since the

Arkansas Supreme Court had consistently held every payday

lender arbitration agreement unenforceable and had held

that individual defenses cannot be raised to contest the

procedural step of class certification. Further, Westark’s

reliance on Petrovic v. Amoco, 200 F.3d 1140 (8th Cir. 1999)

(once a trial court has determined that a settlement is fair

and adequate, the fact that a defendant could have paid

more is not a legitimate reason to reject the settlement) is

unavailing for it presumes an adequacy of comparison

between the amount offered in settlement and the potential

recovery. In other words, if a settlement offer is otherwise

adequate, the fact that a defendant could pay more does not

make it inadequate.

By the same token, the Arkansas Supreme Court's

attempt to justify its departure from the first Grunin

standard by relying on In re Milken and Associates Securities

Litigation, 150 F.R.D. 46 (S.D.N.Y. 1993) and City of Detroit v.

Grinnell Corp., 356 F.Supp. 1380 (S.D.N.Y. 1972) is

inappropriate. Milken involved settlement of a securities suit

where proof of damages was problematic and subject to

wildly diverse determinations. In the instant case, the

calculation of damages would have been a simple,

mechanical exercise of multiplying the usurious fees

collected times “2”. Grinnell involved a case where the

objectors stated that the settlement should be somewhere

between 3 - 7 % of total billings, not the potential damages,

and the district court held that a settlement of 3.2 - 3.7 % of

billings was “within the ball park.” Grinnell did not stand

for the proposition that a settlement offer of 3.2 - 3.7 % of

potential judgment was adequate. With respect, the court's

focus should have been on evaluating the proponents’

almost total lack of evidence with regard to their burden of

proof and the trial court’s lack of factual findings, not on

justifying a $ 605,000.00 settlement versus potential damages

of $ 27 million.

It is also not fatal to Petitioners’ cause that the trial and

appellate courts not assume that all damages alleged would

be collected. That issue merely goes to the subsidiary

standard of examining the defendant's ability to pay.

However, in the instant case parties who had substantial

potential liability, who had not been sued and were

contributing nothing to the settlement, were simply ignored!

This is not a mere failure to determine facts to the

Petitioners’ liking... This is a fundamental, procedural

failure to protect the rights of absent class members. That is,

the class representative was obliged to obtain and fair and

reasonable settlement of claims and the trial court was

obliged to ensure that process was met once the former

adversaries presented it with a proposed settlement.

If millions of dollars were illegally taken from the class

members by Westark (the remedy for which is liability for

double the amount collected), the profits from which were

distributed to its shareholders as dividends, bonuses or

otherwise, and Westark’s sureties bound themselves to

indemnify the class members for any and all violations of

Arkansas law (presumably including its usury laws), due

process would require that those potential sources of

recovery for the class at least be considered. However, these

) issues were simply ignored by the trial court and the

Arkansas Supreme Court: This is not a dispute by the

Petitioners with how certain facts were decided... These

facts were not appropriately addressed at all.

Further, to say that the Petitioners could simply opt out

if they didn’t like the settlement does not address the

fundamental problem that the process used determined the

rights of absent class members without adequate and

appropriate inquiry by the judiciary. This process is meant

to provide a meaningful proxy for those who are absent in

order that justice may effectively determine their rights. But

if their claims are small - as they were here - they have no

means to deal for themselves outside of the class context.

The Petitioners have been faulted for not simply opting out,

but it must be remembered that they were proceeding for

the benefit of the class and were pursuing Westark, its

shareholders, and sureties before this settlement raised its

head. They now speak not only for themselves, but also for

the thousands whose rights were determined with only a

few days’ notice! and where the proponents of the

settlement agreement put on essentially no evidence

addressing the Grunin standards. Many more flaws with the

settlement were raised below, but the Petitioners are here

seeking a ruling from this Court as to what standards should

apply in such a situation and how they should be construed.

1 With respect to the brevity of notice to class members, Grunin’s facts

are distinguishable in that the appellants had been actively involved in

negotiations leading up to the settlement proposal, where here they were

not. The citation to Armstrong v. Board of School Directors, 616 F.2d 305 (7

Cir. 1980) is inapposite since the notice was apparently never challenged

on appeal.

ere eel

CONCLUSION

Respondent Martin alleges that the decision of the

Arkansas Supreme Court below is unique to its facts and

will not affect anyone beyond its immediate litigants. To the

contrary, at bottom every case is unique to its facts. The

consideration, it is submitted, is one of degree: If proper

procedures are followed to protect the weak and absent as

their rights are affected and some facts are determined

adversely along the way, that is one thing. But where the

settlement’s proponents wholly abdicate their responsibility

to make a record satisfying their burden of proving the

settlement is fair, reasonable and just to the absent class

members and where uncontroverted evidence is introduced

in opposition to that premise; where the trial court does not

apply objective standards in the first instance by which to

gauge the settlement; and where the appellate court does

not enforce those standards based on the uncontroverted

facts before it, those standards arguably don’t exist at all.

6

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Respectfully Submitted:

aay’ are

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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, reply

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