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Taxpayers or lawyers? Hood must choose sides in $14 million settlement

By Steve Korris | Apr 3, 2008


NEW YORK CITY - U.S. Bankruptcy Judge Arthur Gonzalez chased criminal lawyers Joey Langston and Tim Balducci of Mississippi out of his court April 2, telling them they must return home to battle taxpayers over $14 million in class action proceeds.

"The issue of whether those monies are ultimately required to be turned over to the State is not an issue over which the Court has jurisdiction," Gonzalez wrote.

"The appropriate allocation of such funds pursuant to state law concerns only the State and the Langston Firm," he wrote.

Gonzalez abstained from an adversary proceeding that Langston's law firm tried to launch in the bankruptcy of MCI WorldCom.

"The issues raised in the adversary proceeding are remote from and not related to the bankruptcy case," he wrote.

The decision pleased Mississippi State Auditor Stacey Pickering, who can now pursue a claim that predecessor Phil Bryant filed against Langston in Hinds County court.

"It's a great opportunity," said spokeswoman Lisa Shoemaker. "We are really excited."

Pickering would direct the $14 million to the general fund for legislative appropriation.

Pickering had kept calm about the dispute after taking office in January, despite the potential for grandstanding.

After all, a politician couldn't pick better punching bags than Langston and Balducci. They have confessed that they conspired to bribe judges.

Mississippi Attorney General Jim Hood can't punch too hard, however, for he hired them, approved the fee and refused to help Bryant recover it.

As long as the dispute rested in New York, Hood kept as quiet as Pickering.

Now Hood must decide whether to stand with Pickering and taxpayers or with Langston and Balducci, unless he can wiggle out a third way.

Langston and Balducci settled the state's claims against MCI in 2005.

The settlement allocated $14 million to Langston's firm as special assistant attorneys general for the state.

When Bryant sued, Langston removed the suit to federal court and froze it by filing an adversary proceeding in Gonzalez's court.

Langston accused Bryant of carrying out a collateral attack on the MCI settlement.

"The Court disagrees," Gonzalez wrote.

"The Auditor's dispute over whether the former Attorney General exceeded his authority in designating and allocating the settlement proceed payments made on behalf of the State is not an attack on the settlement order," he wrote.

He would never have had jurisdiction over the dispute, he wrote, and if Bryant had tried to challenge the settlement he would have lacked standing.

"The issues raised in the adversary proceeding are based upon state law claims," he wrote.

"The claims exist independently of the bankruptcy case and are based on state law," he wrote.

"Finally," he wrote, "the state court action has been commenced and there is no reason to believe it will not be timely adjudicated."

He didn't mean finally, for he opened a second front.

"Even if mandatory abstention were not warranted," he wrote, "factors supporting permissive abstention weigh in favor of that relief here."

Abstention won't affect administration of the estate, he wrote, because administration is nearly complete.

Mississippi law applied, he wrote, and while it might not be complex it would be best considered by a Mississippi state court.

"No claim is raised against the debtors or implicates property of the estate," he wrote.

"Resolution of the dispute does not require an interpretation of the settlement agreement or the settlement order and will not impact, in any way, the debtors or the bankruptcy case," he wrote.

The suit will return to federal court in Jackson, but U.S. District Judge Henry Wingate has already declared that he would remand it to state court.

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