Scruggs Pleads Guilty; Plus a Profile of the ‘King of Torts’
Posted Mar 14, 2008 11:06 AM CDT
By Debra Cassens Weiss
Updated: Richard Scruggs, the well-known plaintiffs lawyer who made a name for himself pursuing asbestos and tobacco cases, has ended his career with a guilty plea this morning in a Mississippi courtroom.
Scruggs and co-defendant Sidney Backstrom pleaded guilty to conspiring to bribe a judge in a dispute over attorney fees, the Associated Press reports. The trial had been scheduled to begin March 31.
Prosecutors will recommend a sentence of five years in prison for Scruggs and a sentence of two-and-a-half years in prison for Backstrom, the AP story says. The Northeast Mississippi Journal says they also face a maximum fine of $250,000.
Scruggs' son, Zach, is the only defendant remaining in the case who has not pleaded guilty.
Scruggs' wife and Backstrom both fought tears during the hearing. Scruggs contained his emotions, although he looked pale and thin, according to the Northeast Mississippi Journal report. Scruggs and Backstrom admitted they conspired to bribe a judge, the allegations in the first count in the indictment. The government will seek dismissal of the remaining counts.
The investigation began at the instigation of Judge Henry Lackey, who told authorities a lawyer representing Scruggs had offered him a $40,000 bribe for a favorable ruling in a fee dispute for Hurricane Katrina work. The lawyer who approached Lackey, Timothy Balducci, eventually cooperated in the investigation and pleaded guilty in December.
The indictment had contended that Balducci delivered the money to the judge while Scruggs’ firm created false documents showing the lawyer would receive money for jury consulting work. The Wall Street Journal (sub. req.) reported today that authorities arrested Balducci after he delivered the final payment to the judge. Balducci later went to Scruggs’ home, and following a script suggested by investigators, he told Scruggs that Lackey wanted another $10,000.
The Wall Street Journal says the conversation unfolded this way:
Balducci: "Do you want me to cover that or not?"
Scruggs: "I'll take care of it." He then told Balducci that he should bill him for legal drafting, money that prosecutors say was intended to cover the bribe.
Below is an early look at an ABA Journal article featuring Scruggs. The article went to press before Scruggs pleaded guilty.
Long Live the King of Torts?
Tort lawyers don’t come any more successful than Mississippi’s Dickie Scruggs. Now that he’s been accused of bribery, there are questions about how he achieved so much.
By Terry Carter
Back in 1998, Mississippi trial lawyer Dickie Scruggs spoke of “home cookin’ ” when describing his role in forcing four tobacco giants into a record $246 billion settlement with 46 states. It certainly left him eating high on the hog, earning nearly $1 billion in fees.
The case made him one of America’s richest lawyers, with a cash flow many Wall Street firms would envy. Every three months since the late 1990s, Scruggs’ firm has received more than $10 million from the tobacco litigation payout. The case will fatten his bottom line by $42 million every 12 months for 23 years.
He filed his first tobacco case in his hometown of Pascagoula. Traction gained in that friendly venue helped topple Big Tobacco state by state, like a long line of cigarette packs stacked as dominoes.
“We knew it would be a public relations war and a political war every bit as much as a legal fight,” Scruggs told a reporter a decade ago, explaining the “insular advantage” of bringing tobacco companies to answer in Mississippi.
Fast-forward to late February, when Scruggs sat mute in a federal courtroom up in Oxford—in the dock on federal charges of bribing a state judge last year. If convicted, he faces up to 75 years in prison.
His lawyer was arguing for a change of venue, trying to move the trial out of the state that has been so good to Scruggs.
John Keker’s argument was the mirrored opposite of Scruggs’ tobacco strategy: That Scruggs is fighting for his freedom at an insular disadvantage, in a legal fight that is every bit as much a public relations and political war. U.S. v. Scruggs, No. 3:07CR192 (N.D. Miss.).
Scruggs, now 61, has for years been a white knight in the eyes of many, especially in Mississippi. As a plaintiffs lawyer, he almost always went after unpopular defendants: makers of asbestos, insurance companies, drug manufacturers and the like. And Scruggs has continued to do so, even though the tobacco payout assured that he would never have to work another day in his life.
A year after the massive tobacco settlement, he bankrolled a series of class actions concerning use of the drug Ritalin as treatment for hyperactive children—though he missed the mark on that crusade, with the cases being quickly dismissed.
He went after HMOs, but that effort resulted in settlements of a mere $250,000. He took on the welding industry for harm caused to welders by fumes, and he worked for free to challenge alleged hospital overbilling of the uninsured. And after Hurricane Katrina in 2005, he declared war on insurance companies that had refused claims from Mississippians whose homes and businesses had been damaged or destroyed.
“He’s made a lot of money, but by and large he’s made it working on behalf of people egregiously wronged by companies or industries engaged in massive wrongdoing,” says friend Matt Myers, president of the Washington, D.C.-based Campaign for Tobacco-Free Kids.
Author John Grisham, a former Mississippi lawyer and longtime friend of Scruggs’, is said to have loosely based his novel The King of Torts on Scruggs.
Grisham, like a number of Scruggs’ friends and associates, declined comment for this story. But shortly after Scruggs’ indictment in December—before the government’s case became well-documented—he told the Wall Street Journal’s Law Blog that he was viewing the federal criminal charges with skepticism.
“When you know Dickie and how successful he has been, you could not believe he would be involved in such a boneheaded bribery scam that is not in the least bit sophisticated. I don’t believe it,” Grisham said.
As this article went to press in mid- March, the bribery trial was scheduled to begin on March 31. Key associates have pleaded guilty or turned witness against him, and long-festering feuds over the massive fees Scruggs earned have fueled new questions about the very manner in which he built his career.
As one would expect with a powerful lawyer with powerful friends, his troubles have registered tremors deep in Mississippi legal circles, touching judges, lawyers and politicians who’ve dealt with him over the years, including the state’s attorney general, Jim Hood, and Scruggs’ own brother-in-law, Trent Lott, the former Senate majority leader.
So complete has been this reversal of fortune that Keker found himself arguing in that Oxford courtroom that Mississippians were piling on Dickie Scruggs. “The notion being, at last he’s getting his comeuppance,” Keker said.
Richard F. Scruggs was born in Brookhaven, Miss., and reared in Pascagoula. He joined the Navy to become a fighter pilot in 1969, shortly after he graduated from the University of Mississippi.
When he left the Navy in 1974, he returned to Ole Miss for his law degree. By the time he graduated from law school, he was 30 years old.
Despite his reputation as the “King of Torts”—an appellation originally bestowed on the late Melvin Belli—Scruggs doesn’t have a track record as a courtroom litigator. In one of the growing number of lawsuits against him, Scruggs has testified that he remembers trying only one tort case to verdict as lead counsel—a case involving a worker injured by a jerry-rigged power saw. Scruggs lost.
But in recruiting clients, Scruggs has proved a genius. Before making a fortune in tobacco, Scruggs made his professional reputation—as well as his first massive paycheck—in asbestos litigation, mainly for workers in Pascagoula’s shipyards. In the early 1980s, while others were taking only those clients who had exhibited symptoms, Scruggs was the first lawyer to pay for X-rays and asbestosis screenings for potential clients.
It paid off big for Scruggs and his partners, to the tune of $50 million. And Scruggs decided to use that money to seed a series of highly speculative cases against the tobacco giants. But it was how he used that money that laid the foundation for some of the accusations he now faces.
In 1989, Merrell Williams was a $9-an-hour paralegal for a Kentucky law firm representing a tobacco company. He left the firm and became a whistle-blower, turning over to Scruggs a crucial set of internal tobacco company documents showing that cigarette makers had known the addictive properties of nicotine—something they had long denied.
The tobacco companies were outraged. They sued Williams, claiming that the paralegal had stolen the documents and sold them to Scruggs—a charge Scruggs denies.
But Williams certainly profited from the move. In a deposition in the case, unsealed in 1996, Williams testified that Scruggs and his partners had co-signed loans for his two cars, purchased a $109,000 home for him in Pascagoula, and paid him a salary of $3,000 per month.
The Katrina-related cases—tailor-made to cast Scruggs as a home-state hero—have also led indirectly to the bribery allegations against him.
Scruggs’ own home in Pascagoula had been destroyed in the hurricane, occasioning his relocation upstate to Oxford. He bankrolled lawsuits against companies like insurance giant State Farm, which had argued that damage from water pushed landward by winds was not flood-related, and thus not insured.
But as the litigation proceeded, two familiar complaints against Scruggs emerged with a vengeance: one involving tactics, the other fees.
In a tactical reprise of the tobacco litigation, two whistle-blowers came forward. Two sisters, who had worked as adjusters for a firm hired by State Farm, came to Scruggs with documents related to 15,000 unpaid State Farm claims. And as in the tobacco litigation, Scruggs hired the insiders bearing documents—each receiving $150,000 as consultants to Scruggs, according to court files.
As the State Farm case proceeded, the sisters were sued by their former employer. In December 2006, U.S. District Judge William Acker of the Northern District of Alabama ordered Scruggs and everyone else in possession of the Katrina documents to turn them over to the employer’s lawyers. Instead, Scruggs gave his copies to Mississippi Attorney General Hood, who by then had already received the documents from Scruggs for a potential investigation by the state.
Judge Acker was furious—not only at Scruggs, but at Attorney General Hood. “The court does not see why it was worth it to Scruggs to risk contempt,” the judge wrote, “unless ... Scruggs and Hood had teamed up to bully State Farm into civil and criminal settlements.”
When Acker asked U.S. Attorney Alice H. Martin to file criminal contempt charges against Scruggs, Hood wrote to tell her that Scruggs had given him the documents to protect the state’s investigation into State Farm, and that he should be regarded as a “confidential informant.” Martin declined to prosecute.
Unsatisfied, Acker appointed two special prosecutors to pursue the case against Scruggs; they filed a criminal contempt charge last August. On Feb. 29, a visiting judge dismissed the criminal contempt charge against Scruggs because he had surrendered the documents to Hood, who—as a law enforcement official—was specifically exempted by Acker’s order.
U.S. District Judge Roger Vinson seemed to be holding his nose as he did so. “I agree that there is a cloud of suspicion surrounding the agreement between Scruggs and Hood,” he wrote. Likewise suspicious, he noted, was Hood’s unusual letter to Martin. “However, the fact remains that Scruggs did not violate the clear and express terms of the injunction.”
But according to court documents filed just days before Vinson’s ruling, one of Scruggs’ close associates, Timothy Balducci, had already told the FBI that Scruggs paid his firm $500,000 to get Hood to back off the State Farm cases.
In January 2007, State Farm had agreed to a global settlement of Scruggs’ Katrina-related cases that would provide initial fees of $26.5 million, plus as much as $20 million more in another group of cases. State Farm balked at the settlement, however, when Hood threatened to indict the insurance giant for fraud.
Balducci, a New Albany lawyer who had represented Scruggs and worked with him on various cases, said Scruggs was concerned that the state investigation—one that Scruggs had originally sought—would ruin the deal.
“State Farm was not going to settle the civil cases with the Scruggs Law Firm if the company was going to be indicted by the attorney general’s office,” Balducci is quoted in an FBI debriefing held Nov. 12, 2007.
Balducci said he and his nonlawyer partner, Steven A. Patterson—once Mississippi’s state auditor and a longtime friend of Hood’s—met with the attorney general. Hood, shortly thereafter, agreed not to indict State Farm. Hood has acknowledged meeting with Balducci and Patterson, but he’s denied that they discussed the State Farm litigation. But on Jan. 23, 2007, State Farm—with Hood’s written agreement not to prosecute—proceeded to settle Scruggs’ claims.
But Scruggs’ problems regarding the Katrina settlement were not over.
Jackson attorney John Griffin Jones had worked on the litigation with Scruggs. His firm was a member of Scruggs’ Katrina Group. And when State Farm settled, Jones’ firm had expected to get 20 percent of any fees collected, potentially $5-$10 million. It didn’t.
Jones had worked with and for Scruggs before, even representing him in a fee dispute that grew out of the days of Scruggs’ asbestos litigation. Soon after, Scruggs brought Jones into the Katrina litigation—only to oust him, Jones alleges, after shorting Jones on his promised piece of the fees.
“He gets a star chamber together with two or three guys in a group of five [plaintiffs counsel], and he’ll pick off the other two, saying, ‘We need to split 90 percent of this money among ourselves,’ ” Jones says. “That’s what he did to me.”
In March 2007, jones sued in Scruggs’ new hometown of Oxford. He says he wanted to embarrass Scruggs in his own neighborhood because of what Jones insists is a long but quiet history of reneging on shared fees.
After Jones’ fee suit was filed, according to the bribery indictment, Scruggs and several associates held a series of meetings at the Scruggs Law Firm in Oxford to discuss how they might be able to manage Jones’ suit. Balducci was at those meetings, and—eager to replace Jones’ firm in other Katrina-related cases—agreed to meet with the judge.
Early on March 28, 2007, Balducci called state Circuit Judge Henry L. Lackey, who had been assigned the Jones case, and asked to see him. During their meeting later that day, according to the indictment, Balducci asked the judge to help resolve the fee case in Scruggs’ favor. Judge Lackey promised to consider the offer, but instead he contacted the FBI.
In May, according to the indictment, Balducci called the judge with specific instructions. Scruggs and his firm had “changed their strategy” and, instead of an order for summary judgment, asked for a motion to compel arbitration, the indictment maintains. The next day he faxed a proposed order to Judge Lackey but did not ask that it be signed, prosecutors claim.
In September, after a summer of exploratory conversations, many of them apparently taped, Balducci agreed to pay the judge $40,000 to sign the order, prosecutors claim. Six days later, Balducci delivered $20,000 in cash to Judge Lackey in his chambers. The order remained unsigned.
In mid-October, Balducci delivered another $10,000 to Lackey, prosecutors contend. On Nov. 1, Balducci delivered a final payment of $10,000 more. The payment directly followed a conversation between Balducci; Scruggs’ 34-year-old son, Zachary; and another of Scruggs’ partners—apparently on tape—in which they discussed changes to the proposed order. According to the indictment, Balducci told them, “We paid for this ruling; let’s be sure it says what we want it to say.” Judge Lackey signed the order.
Though Scruggs had no direct contact with Judge Lackey, the indictment alleges that Scruggs prepared a $40,000 check to Balducci to cover the cash payments he had been making to the judge. After those payments, Scruggs personally agreed to pay another $10,000 to Balducci—for writing “jury instructions”—to cover an extra payment for the judge, prosecutors contend.
On Nov. 28, Scruggs and his son were indicted on bribery charges, along with Balducci, Patterson and Scruggs Law Firm partner Sidney A. Backstrom. In December, Balducci pleaded guilty and agreed to cooperate with the investigation. In January, Patterson did the same.
Scruggs’ attorney, Keker of San Francisco’s 65-attorney Keker & Van Nest, handles both business litigation and white-collar defense work. While with the Iran/Contra Independent Counsel’s Office, he was chief prosecutor in 1989’s United States v. Oliver North. Baseball slugger Barry Bonds balked at Keker’s $900-per-hour rate when seeking a lawyer to handle his perjury charges last year. In early February, Keker client William Lerach, the securities class-action lawyer formerly with Milberg Weiss, received a relatively light two-year prison sentence for fraud, though it includes a $7.8 million forfeiture.
As to the Scruggs bribery case, Keker is adamant that it was Judge Lackey who had pushed for the bribe from lawyers who were working for Scruggs. All were acting unbeknownst to Scruggs, Keker says. “It ain’t your typical sting,” he says, adding that the others had their own “financial incentives.” Scruggs has not been taking calls from news reporters.
Keker will have to counter the testimony of a series of witnesses who have done business with Scruggs over the years. In addition to evidence directly related to the bribery charges, prosecutors are planning to introduce evidence from a 1994 fee dispute case to try to prove a pattern of behavior by Scruggs and his colleagues.
In that case, Oxford attorney Charles Merkel sued Scruggs on behalf of attorney William R. Wilson Jr. of Flowood, who complained that Scruggs had cheated him out of asbestos litigation fees. Merkel says Hinds County Circuit Judge Bobby DeLaughter, who presided over the case, all but ignored a special master’s recommendation for a $15 million settlement, forcing the case to go to trial. By the time a jury was about to be picked, Judge DeLaughter had whittled their possible recovery down to $1.5 million, and the case settled without a trial.
According to exhibits filed by prosecutors in the bribery case, nationally known trial lawyer Joey Langston of Booneville paid $900,000 to former Hinds County District Attorney Ed Peters—a close friend of DeLaughter’s and the judge’s former boss—for his help getting favorable rulings in the case for Scruggs. The exhibits include a May 2006 e-mail from Zachary Scruggs to one of the firm’s other lawyers, crowing that they “could file briefs on a napkin right now and get it granted” by DeLaughter.
That wasn’t the only attempt by Scruggs to influence the outcome of the case, according to prosecutors. He also involved Lott—the former U.S. Senate majority leader and Scruggs’ brother-in-law—prosecutors contend.
Testifying as part of his plea agreement, Balducci claimed during pretrial hearings in the federal bribery case that last year Lott, at Scruggs’ urging, called DeLaughter and dangled the possibility of a federal judgeship in front of him as part of the effort to get favorable rulings for Scruggs.
Langston pleaded guilty in January for his conduct in connection with the fee dispute case. As of early March, neither Peters nor Judge DeLaughter had been charged with anything. The judge has said he is “assisting” the investigation. Lott has said he is not a target of any investigation, but is a potential witness in the bribery case.
As Scruggs battles for his reputation, many in the Mississippi Bar are left looking over their shoulders, wondering where the prosecution’s investigation into one of the state’s most prominent lawyers will lead.
“We hope the actions of two or three or five lawyers won’t be a reflection on nearly 6,800 active lawyers here,” says Robert Bailess, president of the Mississippi Bar. “So many folks have tried to say it is, when in fact we don’t know how far it’s going.”
Perhaps quite a ways, says Merkel, who litigated and won $17.5 million in yet another lawyer’s fee dispute with Scruggs in 2005.
Merkel says he has been following the Scruggs bribery case very closely and, because of the various allegations about DeLaughter, he now plans to try to reopen Wilson’s fee dispute case.
The FBI recently seized the entire Wilson file from DeLaughter’s courthouse for investigation and has been in touch with Merkel. Like many other Mississippians, he thinks the federal investigation, before long, is going to branch well into Mississippi law and politics.
Says Merkel, “I would think investigators are looking at a number of cases that might open other doors.”
Updated at 11:30 a.m. to add background and information from a Wall Street Journal story and to include a preview of the ABA Journal's April story about Scruggs.