Scruggs' actions cause disqualification of former business partners
GULFPORT, Miss. - A federal judge has disqualified the former business partners of famed trial lawyer and admitted judicial briber Richard "Dickie" Scruggs from hundreds of Hurricane Katrina lawsuits against insurance companies.
U.S. District Judge L.T. Senter made the ruling on Friday in response to motions by State Farm Insurance Cos. and E.A. Renfroe & Co., a claims-handling company that worked with State Farm after the 2005 storm.
Scruggs gave consulting jobs that carried $150,000 salaries to a pair of former Renfroe employees, Kerri Rigsby and Cori Rigsby Moran, the two sisters known for copying thousands of confidential documents and turning them over to Scruggs.
"I have determined that disqualification is required because Scruggs, acting in furtherance of the (Scruggs Katrina Group) joint venture, paid the Rigsby sisters a substantial sum of money (a consulting fee of $150,000 per year) despite Scruggs' knowledge that the Rigsby sisters were material witnesses in connection with many hurricane damage claims that were likely to become the subject of litigation," Senter wrote in his opinion.
"While Scruggs made the arrangements for these payments, the other members of the SKG joint venture knew or should have known that the payments were being made, and I am of the opinion that their failure to take timely and reasonable remedial steps or to object to this arrangement amounts to a ratification of Scruggs' actions."
Scruggs, his son and law partner Zach and Sidney Backstrom all admitted to roles in offering $50,000 to Lafayette County Circuit Court Judge Henry Lackey in a dispute over at least $26.5 million in attorneys fees earned in Katrina settlements. That dispute, brought by former SKG member John Jones, is being presided over by Judge William Coleman now.
Scruggs withdrew his Scruggs Law Firm from the SKG shortly after his November indictment. That left Nutt & McAlister of Ridgeland, Miss., Barrett Law Offices of Lexington, Miss., and Lovelace Law Firm of Destin, Fla. to represent more than 1,100 Mississippi families. They renamed themselves the "Katrina Litigation Group."
The lawsuits allege that the insurance companies misrepresented the amount of damage caused by water (covered by a federal program) and wind (covered by policies).
Kerri Rigsby testified that she only worked about five hours in a 20-day period in Nov. 2006.
"It is apparent to me, from my review of the deposition testimony of the Rigsby sisters, that there was no legitimate reason for these payments and that the 'consulting' work that ostensibly justified these payments was a sham," Senter wrote.
"Even if this were not the case, the performance of legitimate work that is closely related to a matter in litigation cannot justify an attorney's payment of a substantial sum of money to a non-expert material witness."
Renfroe attorney Joseph Walker had argued that Nutt & McAlister should be held accountable for Scruggs' actions because it handled the group's finances. Nutt & McAlister largely funded the group with the agreement it would receive 35 percent of the attorneys fees.
"Even though the payments to the Rigsby sisters originated with Scruggs, the other members of the joint venture were aware or should have been aware that the payments were being made and did nothing to prevent their continued payment," Senter wrote.
"In these circumstances, all of the other members of the original SKG are responsible for this breach of ethics."
Senter also ruled that the Rigsby sisters can not be used as witnesses in any action against State Farm or Renfroe, and any documents they provided can not be used as evidence unless it can be proven that they were obtained through "ordinary methods of discovery."
"State Farm has always been interested in resolving these claims and has willingly participated in mediation, legal settlement negotiations and the (Mississippi Insurance Department) claim re-evaluation program," State Farm spokesman Phil Supple said. "Judge Senter's ruling today changes nothing -- we are still willing to work with our customers to resolve our differences and move forward."
Bay St. Louis firm Hesse and Butterworth was also disqualified from handling Katrina claims. They joined the KLG in December.
Renfroe still has a lawsuit against the Rigsby sisters pending. U.S. District Judge C. Roger Vinson dismissed criminal contempt charges against Scruggs over the handling of the confidential documents.
Scruggs first made a name for himself in asbestos cases, representing shipyard workers. After that, his work led to the 1998 Tobacco Master Settlement Agreement, which has an estimated worth of $246 billion for the 52 participating territories and states. Attorneys earned $1.4 billion in the settlement.