State Farm Files Motion to Disqualify Scruggs-less Katrina Litigation Group

756 words
19 December 2007
Best's Insurance News
English
Copyright 2007 (c) A.M. Best Company, Inc. All Rights Reserved.

GULFPORT, Miss. (BestWire) - In the aftermath of the indictment of Richard "Dickie" Scruggs, State Farm has found a second chance to file a request to remove the remaining attorneys of Scruggs’ former law group from a case accusing the company of defrauding policyholders.

Scruggs has been indicted on federal charges of criminal conspiracy, bribery and wire fraud for his alleged role in attempted to offer money to a Mississippi judge in return for a favorable judgment in case over the division of more than $26 million in attorneys fees brought by a former associate.

Since his indictment, Scruggs has withdrawn from the former Scruggs Katrina Group and the remaining members -- the Barrett Law Office, Nutt & McAlister and the Lovelace Law Firm -- have reorganized to form the Katrina Litigation Group.

In a Dec. 18 motion filed by State Farm, the company seeks to bar the remaining law firms from the case of Glenda Shows against State Farm Fire and Casualty Co. and Forensic Analysis & Engineering. The lawsuit was filed by the Scruggs Group on behalf of 20 policyholders and accuses State Farm of racketeering and fraud by allegedly doctoring engineering reports in its favor after Hurricane Katrina.

Just weeks before he was to be indicted along with his son and another attorney with the Scruggs Law Firm, the 5th U.S. Circuit Court of Appeals in New Orleans chose not to grant State Farm’s first request to remove Scruggs from a different case -– specifically filed by Thomas and Pamela McIntosh, according to court documents.

At that time, State Farm spokesman Phil Supple said the company was standing behind its allegations of misconduct and ethics violations against Scruggs and would "likely continue to bring these issues to court in future proceedings." The court's decision to keep Scruggs on the case was made more because of timing issues than of lack of merit in the company’s allegations against Scruggs, State Farm had said.

Again outlined in its latest motion to get rid of the remaining law firms, State Farm alleges the former Scruggs Katrina Group engaged in unethical practices, including unauthorized communication with Cori and Kerri Rigsby, sisters who worked for a company contracted by State Farm to adjust claims after the August 2005 hurricane. The sisters were paid $150,000 each by Scruggs, State Farm has said.

Additionally, State Farm said new evidence uncovered since its original filing of the disqualification motion revealed a third party, Brian Ford, was allegedly offered "vast sums of money to consult" for Scruggs, according to court documents. Ford, an employee of Forensic, identified in court papers as Scruggs' "rising star" witness, was the engineer who prepared the original report of damage to the McIntosh home (BestWire, Nov. 20, 2007).

Others named in the indictment include Scruggs' son, David Zachary "Zach" Scruggs, and Sidney A. Backstrom, an attorney with the Scruggs firm, as well as former state auditor Steven A. Patterson, who worked at the firm of Timothy Balducci. They face charges of conspiracy, defrauding the federal government and wire fraud.

All have pleaded not guilty except Balducci, who pleaded guilty to a count of conspiracy to commit bribery and is now working with authorities.

The indicted group have filed to delay the scheduled trial date in order to receive and inspect all preliminary evidence given to them from federal investigators during a pretrial phase known as discovery.

State Farm plans to depose Scruggs and his son Jan. 15. According to court documents, State Farm has about a dozen requests of Scruggs before the deposition, including what could be hundreds of documents between Scruggs and the Rigsbys, the Rigsbys' mother, Ford, Mississippi Attorney General Jim Hood, the FBI and print and television news journalists, among others.

Early this month Scruggs lost a motion to quash the noticed depositions, court records say.

Meanwhile a Florida judge was recently appointed to hear criminal contempt charges against Scruggs brought by a group of special prosecutors appointed by U.S. District Court Judge William Acker in Alabama. Sixteen district judges and magistrates in Alabama recused themselves from the case because of the judges' relationship with Acker.

State Farm and Casualty Co. and State Farm Mutual Automobile Insurance Co. have a pending lawsuit against Hood, alleging Hood violated a prior agreement to end an investigation into State Farm's handling of Katrina claims.

(By Chad Hemenway, associate editor, BestWeek: Chad.Hemenway@ambest.com)