Legends of Mississippi tort crumble, one-by-one

Steve Korris Feb. 25, 2008, 8:25am


JACKSON, Miss. - No one in Mississippi knows for sure where all the tobacco money went, except perhaps former attorney general Mike Moore and his friend Dickie Scruggs. But people are perched on the edges of their seats to see who the money destroyed.

One by one, symbols of Southern success fall.

Former state auditor Steve Patterson pleaded guilty in a conspiracy Scruggs allegedly organized to bribe a judge at Lafayette County courthouse in Oxford.

Attorneys Joey Langston and Tim Balducci, who shared a $15 million fee as class counsel for Attorney General Jim Hood, pleaded guilty in the conspiracy too.

As Langston toppled he confessed that he helped Scruggs bribe a judge two years ago.

The judge Langston implicated, Bobby DeLaughter of Hinds County, ruled in favor of Scruggs to end a 12 year fight over fees between Scruggs and attorney Bob Wilson.

DeLaughter made up his mind in a hurry after Langston and Balducci appeared as counsel for Scruggs.

Langston also implicated former Hinds County district attorney Ed Peters in the bribe.

DeLaughter used to work for Peters, as assistant district attorney.

According to Langston, Peters told DeLaughter he might secure an appointment as a federal judge if he ruled in favor of Scruggs.

Langston confessed the bribery to U.S. prosecutor Tom Dawson prior to a Jan. 7 plea hearing before Chief District Judge Michael Mills in Oxford.

"Langston agreed to pay Peters $50,000 in cash," Dawson told Mills.

"The parties agreed that they would also divide any money over and above what Scruggs was willing to pay in the Wilson matter," he said.

Attorneys call that a reverse contingency fee.

Dawson said Patterson, Langston and Balducci shuttled from northern Mississippi to Jackson to see Peters, who relayed their ideas to DeLaughter.

He said DeLaughter e-mailed a draft of an order to Peters so Patterson, Langston and Balducci could read it before he entered it.

"Scruggs told Langston to let the judge know that if he ruled in his favor he would pass his name along for consideration regarding the federal judgeship," Dawson said.

He said Langston told Peters, who passed the information to DeLaughter.

"The government would further show that in fact DeLaughter's name was submitted for consideration for a federal judgeship and DeLaughter was so notified," he said.

DeLaughter never made it to the federal bench and he probably never will.

Dawson said that based on the reverse contingency, Peters received $950,000.

Chief Judge Mills said to Langston, "Did you do what he just stated?"

Langston said, "Yes, your honor."

Mills asked if he pleaded guilty or not guilty, and Langston said guilty.

Wilson's grim satisfaction

The multiplying scandal must provide grim satisfaction to Wilson, a pioneer in asbestos litigation who teamed with Scruggs in the 1980s and came to regret it.

Wilson filed the first asbestos suits on the Gulf Coast in 1978.

In 1984 Scruggs, a bankruptcy lawyer in the coastal town of Pascagoula, decided to represent workers at Ingalls Shipyard with claims of lung damage from asbestos.

He and Wilson signed an agreement to litigate asbestos claims together.

In a year they rounded up more clients than they could handle, so they added Alwyn Luckey to the team.

These three and other lawyers across America pounced on Johns Manville, the top asbestos manufacturer, and bankrupted it.

Bankruptcy did not stem the flow of claims, so a federal judge authorized creation of a trust to carry on the litigation.

In 1991, Scruggs proposed to sue Manville bankruptcy trustees as individuals.

Wilson tried to talk him out of it but he couldn't, so they decided to split up.

In 1992, they signed an agreement to divide future fees from pending cases.

Meanwhile, Scruggs had jumped into the next litigation craze.

He signed on as special assistant to attorney general Moore to press state claims against cigarette makers.

He obtained huge settlements from the cigarette makers, with huge fees.

Not a cent would pass through the state treasury, so no one would ever know who received how much.

Legends of Mississippi

Somehow the men who bankrupted asbestos companies and crafted heavy tobacco taxes turned into mythical heroes - especially Scruggs.

Alwyn Luckey, however, did not swallow the myth.

Luckey split away from Scruggs and sued Scruggs and Wilson, claiming they cheated him out of fees.

Wilson countersued, claiming Scruggs sent him 10 percent from settlements under the separation agreement when he should have sent 40 percent.

Scott Taylor, an attorney working for Scruggs, told Scruggs that as he interpreted the agreement, Scruggs didn't owe Wilson anything.

In fact, Taylor said, Wilson owed Scruggs.

Scruggs then stopped paying Wilson, though he escrowed certain sums.

Seven years into the suit, Wilson sought to amend his counterclaim and seek a share of the tobacco windfall.

He argued that fees Scruggs withheld from him supported tobacco litigation.

Circuit Judge Leland Hilburn denied the claim, ruling that any issue of tobacco fees was not properly before him.

Wilson bounced to Texarkana, Texas, and sued in federal court to recover tobacco fees.

Back in Jackson Hilburn declared that the issue was before him after all, and he denied Wilson's claim.

The tactic did not go over well in Texarkana, where U.S. District Judge David Folsom ruled that Scruggs wanted to have his cake and eat it.

Folsom declined jurisdiction, however, sending Wilson to federal court in Jackson.

U.S. District Judge Tom Lee of Jackson accepted jurisdiction, concurring in Folsom's assessment of Hilburn's "sudden about face."

In 2002, the Hinds County case rose to the Mississippi Supreme Court, where the Justices struggled for three years to sort it out.

They never did sort it out, for in 2005 the feuding lawyers dismissed all appeals.

They agreed that Luckey would switch his claim to federal court at Oxford.

Unsetting the trap

That summer, Hurricane Katrina demolished Scruggs's home.

He moved to Oxford and started the Scruggs Katrina Group, to represent storm victims in insurance disputes.

He recruited to the group John Jones of Jackson, one of his attorneys in the Wilson case.

By then Hilburn had retired and DeLaughter had taken Wilson's case.

Wilson's attorney, Vicki Slater, asked DeLaughter to invalidate the separation agreement, but DeLaughter declined.

Jack Dunbar, representing Scruggs at a hearing before special master Robert Sneed, said DeLaughter's decision wiped out all of Wilson's claims except breach of contract.

Slater protested, "Defendants in this case want to reframe the plaintiff's pleadings. We are a master of our own complaint."

Sneed stunned Scruggs by recommending that Wilson receive 40 percent of all settlements, including some where Wilson had pleaded for 10 percent.

Scruggs couldn't challenge the recommendation as a misinterpretation of the contract, for DeLaughter had declared it clear and unambiguous.

Only DeLaughter could pull Scruggs out of the trap.

Steve Funderburg, representing Scruggs as a member of Jones's firm, urged DeLaughter to reject Sneed's recommendation.

"Wilson is getting a better deal than he negotiated," he wrote in a brief on Jan. 19, 2006.

Langston's name appeared below Funderburg's signature.

Ten days later, Langston and Balducci entered appearances for Scruggs.

DeLaughter rejected Sneed's recommendation.

Wilson, aiming to establish Scruggs's net worth in order to seek punitive damages, estimated it at $205 million.

Scruggs's accountant estimated it at $72 million.

Wilson moved to compel production of tax returns.

DeLaughter denied the motion and sanctioned Wilson and Slater, ordering them to pay Scruggs's lawyers for the time they spent fighting the motion.

Scruggs moved to ban testimony and evidence about the tobacco case pending in federal court, claiming it would confuse jurors.

For Wilson, Charles Merkel answered that if DeLaughter granted the motion he might as well grant summary judgment for Scruggs.

DeLaughter granted the motion.

As trial started on Aug. 21, 2006, Scruggs offered Wilson almost $500,000.

Balducci handed DeLaughter a sealed envelope and said the figures in it would justify the payment.

DeLaughter adopted the contents of the envelope.

Balducci said, "There is no need for us to endure the further proceedings in this court."

He said Wilson could no longer ask for compensatory damages and thus could not claim punitive damages.

Merkel sputtered, "You can't take someone else's money, hold it for eleven years and two months and then when the matter is headed for the courthouse, trot in, pay the amount you have owed the entire period of time and say no harm, no foul."

Langston said Wilson violated the contract by suing Scruggs.

"We made payments each time we had an opportunity to become aware of what actually was due," he said.

At that point, Wilson couldn't win a nickel but Scruggs could try to persuade jurors that Wilson owed him.

DeLaughter told Merkel and Slater he could hold trial for "bragging rights."

The next day, Langston announced a settlement.

Scruggs would pay Wilson a confidential sum, Langston said, and Wilson would dismiss his state and federal claims.

'Forever tainted'

Seven months later Jones sued Scruggs and other Katrina Group lawyers in Lafayette County, claiming they cheated him out of Katrina fees.

Jones pledged to prove to Circuit Judge Henry Lackey that Scruggs followed a "modus operandi" of luring lawyers into cases and cheating them out of fees.

Scruggs moved to compel arbitration.

Lackey held a hearing on the motion in July and said, "This is a matter that needs to be resolved and resolved quickly."

His words carried double meaning, for he did not intend to rule on the motion.

He conducted the hearing only to hide his cooperation with Federal Bureau of Investigation agents probing a $40,000 payment he said he received.

In November, federal grand jurors indicted Scruggs, his son Zach Scruggs, Patterson, Balducci and lawyer Sidney Backstrom on bribery conspiracy charges.

The grand jury alleged that the group sought a favorable ruling from Lackey on the motion to compel arbitration.

Balducci promptly pleaded guilty.

FBI agents searched Langston's office in Boonville, and grand jurors indicted him.

Lackey and two other local judges recused themselves from the Jones suit, and the Supreme Court entrusted the case to Special Judge William Coleman.

Jones's lawyer, Grady Tollison, moved for sanctions and declared the case "forever tainted" by bribery.

Larry Moffett, representing all Katrina Group lawyers but Scruggs, moved to stay the proceedings and pleaded that his clients still represented hundreds of storm victims.

Tollison answered, "Hurricane Katrina litigation is in a state of uncertainty, with many issues on appeal, and tainted with the stench of corruption."

He wrote, "There is no certainty that any more attorney fees will be recovered by members of Scruggs Katrina Group."

Moffett opposed sanctions, pointing out that Lackey didn't grant the motion.

"Plaintiff has suffered no damages as a result of the alleged bribery," he wrote.

In an almost comical understatement Moffett added, "Defendants never benefited from any alleged attempted bribery."

For Jones, William Duke of Oxford responded that the charges in federal court "involve not mere ethical violations but in fact criminal conduct."

He wrote, "The entire legal system in Mississippi is in danger of being tarred with the same brush."

Scruggs Katrina Group accounted for $20.6 million in fees, he wrote, but the group received $26.5 million from State Farm Insurance alone.

The firm of Nutt and McAllister, a group member, signed up for 35 percent but received 31 percent, he added.

"Therefore, there is somewhere between $6 and $7 million in expenses or profits that remain unaccounted for," Duke wrote.

He cited precedents holding that bribery proves the weakness of a case.

At a Jan. 9 hearing, Tollison said Scruggs bribed Lackey not to grant a motion to compel but to grant a summary judgment motion.

Coleman asked if he alleged that they moved for summary judgment.

Tollison said, "They asked Judge Lackey to rule on a motion for summary judgment before it was filed."

He said, "We have reason to believe that money from all the defendants in the joint fund was used to pay the bribe or attempted bribe."

Coleman ruled Jan. 15 that he would normally compel arbitration, but he held the motion in abeyance pending a hearing on sanctions.

He set the hearing Feb. 26.

Tollison moved Feb. 8 for "appropriately severe sanctions," asking Coleman to strike all defense pleadings and enter default judgment.

"The evil in the instant case is not against plaintiff," Tollison wrote.

"It is an affront to the honor, dignity, effectiveness and trustworthiness that are absolutely necessary for the exercise of the court's power," he wrote.

Back at the courthouse in Jackson, FBI agents hauled away the Wilson files.

The public can read only the docket, along with electronic copies of the record that look like the first experiment in optical scanning at best, or Martian ciphers at worst.

The docket reveals a fascinating truth: DeLaughter never entered final judgment.

After 14 years in search of justice, Bob Wilson may get a fair hearing at last.

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