Fifth Circuit throws out settlement brokered by Dickie Scruggs

The Fifth U.S. Circuit Court of Appeal has thrown out a settlement brokered by disgraced attorney Richard “Dickie” Scruggs ordering the Republic of Venezuela to pay $70 million to Mississippi defense contractor Northrop Grumman Ship Systems Inc. over a ship retrofit job gone bad.

In its opinion last week, a three-judge panel from the New Orleans appeals court agreed with the Defense Ministry of Venezuela that Scruggs, who is now in federal prison for attempting to bribe a judge to get a favorable ruling on attorneys fees in an unrelated hurricane insurance case, did not have the authority to settle the case.

The Fifth Circuit sent the case back to a lower court in Mississippi to determine whether the case should be subject to arbitration in Caracas.

In 1997, Northrop Grumman, then known as Ingalls Shipbuilding Inc., was hired to overhaul and retrofit two Venezuelan Navy frigates at its Pascagoula shipyard. But as work was underway between 2000 and 2002, disputes arose about cost overruns and other issues, and Northrop filed a complaint in U.S. District Court in Mississippi claiming at least $200 million in damages from Venezuela’s failure to pay for extra work. Venezuela was found in default when representatives of the country failed to show up for legal proceedings.

Although the retrofit agreement said that any disputes would be subject to arbitration in Caracas, Northrop Grumman successfully argued that the provision should not be enforced because “the violently unstable political situation in Venezuela has rendered that country an unsuitable forum,” and the court ordered arbitration in Mexico City. Venezuela eventually appointed several attorneys to represent it, including Scruggs, who had become famous battling corporate America over tobacco and asbestos.