Late Miss. Gov. Fordice could have predicted Scruggs' trouble

Steve Korris Dec. 6, 2007, 1:49pm




OXFORD, Miss. - Ten years after the Supreme Court of Mississippi turned the Attorney General's office into a mint cranking out easy money for lucky lawyers, the luckiest one of all is dragging down the whole state.

Dickie Scruggs of Oxford arranged a $40,000 bribe for Lafayette County Circuit Court Judge Henry Lackey, according to an indictment from a federal grand jury.

Lackey reported the bribe to authorities and cooperated in an eight-month investigation.

Scruggs apparently panicked when a lawyer who had defended him in a lawsuit sued him and set out to prove that he routinely cheated lawyers who worked with him.

Scruggs has represented Mississippi citizens as special assistant to Attorney General Jim Hood and former Attorney General Mike Moore, in civil suits against big businesses. That includes the Tobacco Master Settlement Agreement of the 1990s, which landed $1.4 billion in attorneys fees for Scruggs' firm.

The scandal stunned the state but it would not have surprised the late Kirk Fordice, former governor of Mississippi.

Fordice tried to keep Moore from hiring private lawyers to sue private companies, but in 1997 the Supreme Court ruled in Moore's favor.

The Court held that the Attorney General could seek to recover Medicaid funds from cigarette makers and other defendants, even if the governor had not asked him to do so.

Andy Taggart of Jackson, Miss., Fordice's chief of staff from 1992 to 1994, said Fordice felt that state agencies should initiate litigation.

"His belief was that as chief executive of the state he was the representative of the state as client and the Attorney General was the lawyer for the client," Taggart said.

"He believed that it was inappropriate for the Attorney General to seek to set policy by litigation," he said.

Fordice and Moore strongly disagreed about putting the strength of the people behind privately run civil litigation, he said.

"The wheels that were set in motion by this state-driven private litigation can result in all manner of mischief even when people's motives are good," Taggart said.

"It can result in worse than mischief if people's motives are bad."

The Litigators

The suit that drove Scruggs to desperation dealt with Hurricane Katrina, a fairly recent event, but it threatened to dig deep into his past.

The plaintiff, attorney John Jones of Jackson, accused Scruggs of cheating him and alleged that, "This has occurred on many repeated occasions with various lawyers and law firms throughout the state of Mississippi and on information and belief elsewhere."

For years, Jones defended Scruggs against claims that former partners William Roberts Wilson Jr. and Alwyn Luckey brought against him.

Scruggs hired Luckey in the 1980s. At the time Scruggs practiced as an asbestos attorney in Pascagoula, representing workers from Ingalls Shipyard.

Scruggs then teamed with Wilson to form "The Asbestos Group."

Luckey worked for the group, meaning he worked for both Scruggs and Wilson.

Someone had registered "Asbestos Group" as a trademark, so they dropped the name.

Scruggs fired Luckey in 1993, triggering a cycle of suits that continues to this day.

Luckey sued Scruggs in Hinds County circuit court, claiming Scruggs owed him fees. Wilson intervened as a second plaintiff, claiming Scruggs owed him too.

When Moore appointed Scruggs as a special assistant to lead lawsuits against cigarette makers, Luckey and Wilson sought to amend their complaint.

They claimed Scruggs spent fees from asbestos suits on the tobacco cases. They argued that as a result, he would owe them a portion of any fees from the tobacco litigation.

The court in Hinds County refused to allow the amendment, so Luckey and Wilson sued for tobacco proceeds in federal court at Texarkana, Texas.

The Texas court transferred the case to U.S. District Judge Tom Lee, in Mississippi. He ruled that he would not bring it to trial until the Hinds County trial had ended.

In March 2005, Luckey and Scruggs settled claims in state and federal courts.

That summer, Hurricane Katrina struck the Gulf Coast.

Katrina gold rush

After the hurricane Scruggs started rounding up a team of lawyers to sue insurers that did not handle damage claims to the satisfaction of policyholders.

Jones had defended Scruggs so well against Luckey and Wilson that Scruggs invited him to join the team.

On Nov. 8, 2005, lawyers from five firms signed an agreement to "bring a number of lawsuits on behalf of individuals and businesses who were wrongfully denied insurance coverage for property damage arising out of Hurricane Katrina."

The Scruggs Law Firm would act as lead counsel.

Don Barrett, of Barrett Law Office in Lexington, Miss. would develop witnesses and acquire videos and photos of the storm.

Jones and his firm would write briefs.

Dewitt "Sparky" Lovelace of Destin, Fla., would hire experts.

The firm of Nutt and McAllister, in Ridgeland, Miss. would cover the cost of litigation up to $1 million a year. In return the firm would receive 35 percent of the proceeds.

The agreement did not specify the division of the other 65 percent.

It provided that any four members could remove a fifth member.

It stated that any dispute would be resolved through mandatory binding arbitration.

Jones would later claim that for the next four months he spent 95 percent of his time on Katrina and his associates, Steve Funderburg and Stewart Lee, spent half their time on it.

Stolen documents from State Farm

At some point Scruggs received 15,000 pages of State Farm documents from sisters Cori Rigsby Moran and Keri Rigsby, claims adjusters who worked for E.A. Renfroe Company of Birmingham, Ala.

Renfroe had sent adjusters to the Gulf Coast to handle State Farm claims.

Scruggs filed a false claim suit for the Rigsbys against State Farm.

Attorney General Hood started a criminal investigation of State Farm.

Meanwhile, Jones shifted his focus from Katrina to the old Wilson case, which came to trial in August 2006.

Before it went to the jury, Wilson and Scruggs settled state and federal claims.

During the trial, the Scruggs Katrina Group struck a publicity bonanza. ABC-TV's "20/20" featured the Rigsbys and their accusations against State Farm.

E.A. Renfroe Company sued the Rigsbys in federal court at Birmingham a week later, alleging breach of contract.

At a meeting of the Katrina Group in October, according to Jones, Scruggs advocated paying the Rigsbys their $150,000 salaries from funds of the group, for consulting services.

Jones claims he objected and Scruggs offered to obtain an ethics opinion. Jones claims Scruggs did not tell the group he represented the Rigsbys in a lawsuit.

Jones claims he later discovered that in October the group paid Scruggs more than $120,000, to reimburse him for payments he made to the Rigsbys.

In December 2006, U.S. District Judge William Acker of Birmingham referred Scruggs for possible prosecution over his possession of confidential State Farm documents.

Acker ordered Scruggs to send the documents to Renfroe but Scruggs sent them to Hood, who sent them to Renfroe.

State Farm, facing prosecution from Hood, began negotiating a settlement of 640 Katrina suits.

Jones claims Scruggs told him that when State Farm settled, the group would allocate $1 million to his firm. Jones claims he protested and asked for arbitration.

In February, State Farm settled and agreed to pay the lawyers $26.5 million.

As part of the settlement, Hood called off his criminal investigation, though State Farm has sued Hood because, they say, he continues to threaten it with the reopening of the criminal investigation to force a civil settlement on the failed Woullard class.

Jones claims that on March 2, at a meeting of the Scruggs Katrina Group, Barrett offered him six percent, about $1.5 million.

Jones claims he turned it down and asked again for arbitration.

His associate, Steve Funderburg, vented in a March 4 e-mail to Scruggs.

'Greedy, backstabber'

Funderburg's email to Scruggs:

"I have looked in the mirror all weekend and tried to figure out how I could be so stupid," he wrote. "John and I DEFENDED you in fee dispute litigation for God's sake.

"We DEFENDED you when people said you were greedy, or were a back stabber, or a liar, or anything else.

"You have developed a good routine. It worked. But go to your grave knowing that you have shaken my belief in everything I hold dear.

"I did not believe that people like you really existed. I am ashamed and will always be ashamed of having defended you and protected you."

Scruggs wrote back, "I respect and am grateful for the devoted efforts you and Johnny made in your representation of me and those in privity in the Wilson/Luckey matters."

Scruggs added that the group had become leery of working with them because they might seize upon a pretext to sue.

He wrote that in the best interests of all, the group would move on without them.

Jones sues

Jones filed suit March 15 against the other firms in the group and against Scruggs and Barrett as individuals. Grady Tollison of Oxford signed the complaint.

Tollison asked for 20 percent of past and future Katrina fees.

"The defendants entered into a plan that has been used before by Scruggs and Barrett to conspire and wrongfully and illegally deprive the plaintiffs of property," Tollison wrote.

"A scheming cabal should not be allowed to succeed."

According to the grand jury, Scruggs immediately conferred with his son Zach Scruggs, Scruggs firm member Sidney Backstrom, former State Auditor Steven Patterson, and Booneville lawyer Tim Balducci about influencing the outcome of the suit.

Scruggs retained Oxford attorney Larry Moffett, who moved to stay the proceedings and compel arbitration.

Moffett demanded arbitration in a March 19 letter to the American Arbitration Association in Dallas.

On March 28, according to the grand jury, Balducci called Judge Lackey and arranged a meeting later that day in Calhoun County.

After the meeting, Lackey told authorities Balducci intended to bribe him.

That same day, Tollison amended the complaint.

"Scruggs has engaged in this same type of conduct on repeated occasions, that is, engage people to do work within a joint venture and then, when funds are collected, to attempt to rearrange the distribution of funds," Tollison wrote.

He wrote that Barrett had engaged in the same type of conduct.

Moffett sent another letter to the arbitration association April 10, claiming Jones should repay his $1.2 million fee for defending Scruggs against Luckey and Wilson.

Moffett wrote that the Jones firm threatened to disclose confidential information for its own ill gotten gain.

Tollison warned in a June 27 brief that, "It is the intention of Plaintiff to expose and forever stop this modus operandi of the individual defendants."

Back in Birmingham, Judge Acker signed an order Aug. 13 to clarify that he did not exonerate the Rigsbys from criminal contempt. He wrote, "The question remains open."

Tollison associate Cameron Abel quoted this in an Aug. 15 brief and expressed concern that Scruggs used joint venture funds to defend himself in Alabama.

On Sept. 21, according to the grand jury, Balducci told Lackey he would pay $40,000 for a favorable order.

Balducci delivered $20,000 on Sept. 27, $10,000 on Oct. 18, and $10,000 on Nov. 1, according to the grand jury.

The grand jury found that Lackey prepared a favorable order Nov. 1, but it must have been a decoy. The file in the Jones case contains no such order.

Though the grand jury deliberated in secret, someone apparently decided that circuit court judges needed to know an indictment was coming.

On Nov. 19, Circuit Court Judge Robert Elliott signed an order of recusal for himself, Lackey and Judge Andrew Howorth.

The order called on the Supreme Court of Mississippi to appoint a special judge.

The grand jury returned its indictment Nov. 28.

Balducci, who like Scruggs has acted as special assistant to Attorney General Hood, pleaded guilty Dec. 4.

While Scruggs faces criminal prosecution, he must continue defending himself in the Jones lawsuit.

The Supreme Court appointed retired judge William Coleman to hear the Jones case.

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