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Anatomy of a shakedown: Dickie Scruggs’ mighty fall
by Alan Lange
As featured in Profiles Mississippi
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For the better part of two decades, Mississippi’s judicial system lacked balance.. The system was like a slot machine for plaintiff’s lawyers where corporate defendants were thrown into the system and subjected to fundamental unfairness in jurisdictions where plaintiffs decidedly had the upper hand. Judges were propped up by political contributions from a select group of tort barons. Lawyers and their clients, seemingly regardless of the merits of their legal claims, got rich in the bargain. It was a self-sustaining system – widely bragged about by plaintiff lawyers and lamented by defense teams.

The mastermind of that system was Richard “Dickie” Scruggs. The now disgraced and jailed tort baron was a political force moving elected political pawns on the chessboard around like a Grand Master.

In November 2007, Scruggs along with his son, Zach, his lawyer Joey Langston, and attorneys Sidney Backstrom and Timothy Balducci and former State Auditor Steve Patterson were indicted for bribing a judge. All have now pleaded guilty to a scheme to offer cash for consideration for judicial rulings in what has become the largest political scandal in Mississippi since Operation Pretense in the 1980s. U.S. Attorney Jim Greenlee and his team at the FBI did a masterful job of pitting one defendant against the other to unravel the scheme and catch the conspirators on tape.

Almost one year later, Dickie Scruggs, Zach Scruggs and Sidney Backstrom are in federal prison after their guilty pleas. Patterson, Balducci and Langston all await sentencing for their guilty pleas and others implicated by them await yet another hammer to drop.

In an interesting twist, Langston has had his sentencing set for December 16 after what the US Attorney has described as “extraordinary cooperation” in which Langston furnished emails, financial records, and a whole array of descriptive details on his dealings with the cabal. Based on court documents, included in that cooperation is information on his involvement with former Hinds County DA Ed Peters in which Scruggs reportedly paid Peters a “reverse contingency fee” to influence Hinds County District Court Judge Bobby DeLaughter.

The truth is that this case is the culmination of decades of dirty, backwater politics coming home to roost. It all ties back to Mississippi’s landmark tobacco settlement where orchestrated and friendly political and judicial relationships helped strongarm an unpopular industry into a massive settlement which emboldened and fueled further antics by the same players.

There are some lesser known aspects to the story and how it all ties together that merit review and consideration.

To set the stage, here is a quote from Dickie Scruggs at a Prudential Securities conference in 2002, “. . . the judiciary is elected with verdict money. The trial lawyers have established relationships with the judges that are elected.” In these places, he added, “the cases are not won in the courtroom. They’re won on the back roads long before the case goes to trial.”

As we now know, Scruggs certainly practiced what he preached.

Scruggs is most widely known for reportedly taking home almost $800 million in the $250 billion landmark tobacco settlement. This was his reported take from Mississippi’s settlement alone. The political and PR strategies that he employed and the issues that arose in the wake of the tobacco settlement were virtually mirrored in the State Farm litigation. He was working his proven blueprint.

His greed and this post-Katrina debacle proved to be his downfall.

First, let’s look at the tobacco case.

Dickie Scruggs had made several million dollars prosecuting asbestos cases on the Mississippi Gulf Coast, just as others had done around the country. In the mid-1980’s, Scruggs’ longtime friend and political beneficiary Mike Moore was the Attorney General for the state of Mississippi. Moore’s longtime friend, attorney Mike Lewis of Clarksdale, comes up with the idea to sue the tobacco companies on behalf of the State to recoup the medical costs incurred by the state for caring for those with tobacco related illnesses. Moore contacts the now-well-funded, Pascagoula-based Scruggs about the litigation and the lawsuit begins.

There were really three parts to this plan. First, there was the lawsuit itself. Scruggs and his partners would take care of that part. Second, there was the threat of criminal liability against tobacco company executives. Mike Moore from the state combined with congressional hearings overseen by Henry Waxman (D-CA) lined up to attempt to get tobacco executives to perjure themselves or admit that they knew nicotine was addictive. Third was an all-out public relations war.

The PR war was critical to the plan. They needed a squealer . . . an “insider”. They found that in the form of a paralegal from a tobacco defense firm in Kentucky. Merrill Williams began stealing briefcases full of client-privileged documents from his law firm and giving them to Moore and Scruggs. To circumvent taint problems from the purloined documents, Scruggs then gave leaked those documents to the press and to Waxman to put them in the public domain and make them “discoverable” in court. This also gave Waxman the ammunition he needed to drive the hearings.

To make a long, complicated story short, Scruggs and Moore prevailed and forced the tobacco companies to settle. As a bonus, the tobacco companies agreed to pay $20 million per year for tobacco prevention. The Partnership for a Healthy Mississippi was born in Scruggs’ and Moore’s backyard in the Jackson County Courtroom of Judge William Myers. Myers was a large beneficiary of Scruggs’ campaign donations, and Scruggs reportedly pushed then-Governor Ronnie Musgrove to appoint Myers to a vacant Mississippi Supreme Court seat a few years later. The Partnership became a legislatively unallocated political slush fund run by Mike Moore for the last several years of his term and through his transition to private law practice.

One other thing was left in the tobacco settlement’s wake . . . unhappy lawyers. Though many Mississippi attorneys in Scruggs’ tobacco consortium became multi-millionaires, others in that consortium believed they were “shut out” and not paid fees that they were due. One of those, Alwyn Luckey, sued Scruggs in one of the most contentious lawsuits that those involved in the case report they had ever seen.

This case eventually landed in the courtroom of Judge Bobby DeLaughter and became central to the scheme that brought the downfall of Scrugss and his cohorts.

Fast forward to 2005. Hurricane Katrina devastates the Gulf Coast.

Within days, the Scruggs machine leaps into action. The blueprint for the tobacco settlement is put into action against the insurance industry – with State Farm, the largest insurer in the state directly in their sights. As with tobacco, it was believed if they could get one company to settle, then others would fall in line. State Farm, with the most claims had the most potential for errors.

Even before power was restored in the region, the first order of business was mustering the legal troops and gathering claims. The Scruggs Katrina group (SKG) is born featuring alumni from tobacco and asbestos litigation efforts. The deep pockets of Don Barrett, David Nutt and Dewitt Lovelace all signed on to fund the fight, and a young lawyer named Johnny Jones was brought in to do some of the legal heavy lifting. Mike Moore was associated in some of the litigation as “resolution counsel”, in which he reportedly serve as an intermediary on both the civil cases.

Attorney General Jim Hood, after admittedly routing a draft of his suit to a number of plaintiff attorneys and the SKG, sprang into action – filing a civil suit within days of the storm.

For further leverage, they needed a criminal threat. Jim Hood was all to happy to oblige and filed a state action against the primary target, State Farm. He also reportedly said that he was going to indict them all “from Ed Rust (CEO of State Farm) on down”. Third, the PR effort was born. Scruggs spent millions on advertising and focused a huge amount of his time building pressure and selling the message that State Farm was systematically denying otherwise valid claims.

Sticking with the blueprint, Scruggs needed another squealer. This time, he found two in the form of sisters Kerri and Cori Rigsby, who worked as adjusters for a State Farm claims adjuster contractor. The Rigsby sisters had illusions of “The Insider” grandeur and had a direct connection to Scruggs through their mother. The data theft this time went high-tech. According to deposition testimony, the Rigbys met with Scruggs, other various civil and AG lawyers as they used their electronic access to the claims database to download files from State Farm on claims. Particular attention was paid to getting all data from the clients that SKG had signed on and filing a Qui Tam lawsuit with the Rigsby sisters as self-proclaimed whistleblowers. In later related litigation, it was later discovered that Scruggs improperly leaked Qui Tam sealed documents to third parties including the AP, CBS and the New York Times in direct violation of federal rules.

Feeling his oats, Scruggs attempted to short circuit the lawsuit process and attempted to get then-State Insurance Commissioner George Dale to push for an insurance settlement fund that would be administered by Scruggs & Company. According to deposition testimony, Dale refused, and Scruggs decided it was for regime change at the Insurance Commissioner’s office. He personally funded a Democratic opponent to knock off Dale, Gary Anderson, with at least $250,000. Anderson was successful in knocking out the 30 year incumbent in the Democratic primary, but was unsuccessful in the general election.

Again, making a long story short, State Farm agreed to settle with SKG on claims. AG Hood agreed to halt his lawsuit against the company and SKG wound up with approximately $26 million in attorney’s fees.

However, all was not well in Scruggs-ville. Several time bombs were ticking and were about to go off.

Johnny Jones, one of the members of SKG became the “odd man out” of the SKG distributions of the $26 million and filed a lawsuit against Scruggs. Ironically, Jones had defended Scruggs when Luckey had sought his fair share from the tobacco settlement.

Unfortunately for Scruggs, that lawsuit fell into the hands of Judge Henry Lackey – the suit was filed in Lafayette County – not Hinds or Jackson County. Based on the bitterness of the Luckey lawsuit, Jones had to know he was in for a fight. As it turns out, one of Scruggs’ co-counsel, Timothy Balducci, was friends with Judge Lackey and made an advance to Judge Lackey to shade a ruling in Scruggs’ favor. Lackey, taken aback by the advance called the FBI. The FBI then wiretapped Judge Lackey and on subsequent communications, Balducci agreed to a $40,000 bribe.

Quickly, the net closed. Balducci was caught red-handed by the feds and immediately agreed to cooperate. Wired by the FBI, Balducci went to Scruggs’ downtown Oxford office to get team Scruggs’ on tape agreeing to reimburse him for the bribe. Balducci succeeded and the feds had their case.

Balducci and Patterson were also busy on the political side. At the point at which State Farm was ready to settle, there was still the issue of Jim Hood’s action against them. Ironically, Scruggs now needed that to “go away” to clear the way for the big payday.

According to Balducci’s testimony, he and Patterson scored a dinner with AG Jim Hood in which they requested that Hood stand down. And the cost of that dinner? It was $500,000 in fees that Scruggs paid Patterson Balducci to make that problem go away. Though Hood denied any influence from Patterson and Balducci, he did (just coincidentally, of course) stand down and the path was cleared for the State Farm settlement. In dropping the case he publicly stated that his seasoned investigators found no reason or evidence of criminal action.

Meanwhile, Scruggs was still fighting with Alwyn Luckey in the Hinds County case in Bobby DeLaughter’s courtroom. Joey Langston, ostensibly on behalf of Scruggs, approached and engaged former Hinds County DA Ed Peters about influencing DeLaughter to find in favor of Scruggs against Luckey. Reportedly, Peters was offered a “reverse contingency fee”, in which he would be paid a percentage of whatever he saved Scruggs. A special master had found that Luckey was shorted by Scruggs and deserved millions in unpaid fees. In what was termed by many legal observers as an about face, DeLaughter ignored the recommendations and attempted to appoint a new special master. Peters contacted the new special master, who immediately withdrew from the case based on the impropriety of that advance.

What happened next makes a Grisham novel seem tame. Scruggs’ office gets raided by the FBI, five attorneys get indicted and they begin to plea one by one.

One of the most interesting aspects to the multi-faceted legal battle was the fact that Scruggs, faced with damning evidence and certain conviction in his bribery case of Judge Lackey, decided not to cooperate with federal investigators. Scruggs’ attorney Joey Langston clearly implicated Scruggs in the unrelated investigation of influencing Judge Bobby DeLaughter, but Scruggs did not cooperate in matters related to the Judge Lackey bribery or the alleged Judge DeLaughter influence. Rather, he took a plea deal in the Lackey matter only and may well face additional charges down the road on other matters.

The other bizarre twist was that he took his plea deal before his son did. For those of us with children, this is simply unimaginable. Scruggs’ son Zach, represented in part by Mike Moore, was the last of the indicted to plead guilty, but he faced certain guilt in a trial that would have likely featured at least three other attorneys that had already pleaded guilty in the same conspiracy to testify against him.

The election of Barack Obama may have a lot of influence about the next steps in this case. It is likely that two new U.S. Attorneys will be appointed in Mississippi. Serious questions loom about whether or not they will finish the job that U.S. Attorney Jim Greenlee has started.

Regardless of what happens next, both Judge Lackey and US Attorney Jim Greenlee and his staff are to be lauded for discovering and standing up to one of the most systemic corruption scandals in Mississippi history.




Posted December 24, 2008 - 2:10 pm


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