Famed tort lawyer Richard F. “Dickie” Scruggs finally got some good news. Though special prosecutors in Birmingham, Ala., planned to appeal a federal judge’s February dismissal of their criminal contempt charge against Scruggs, they inadvertently let the deadline pass for doing so.

Last week a federal judge denied the special prosecutors’ request for a retroactive extension of time in which to file their appeal. U.S. District Judge Roger Vinson concluded that their slip-up did not constitute the sort of “excusable neglect” for which such allowances could be made.

Amid Scruggs’ many legal problems at the moment - including his federal guilty plea last month to conspiring to bribe one Mississippi state judge and his ongoing federal scrutiny in connection with similar accusations involving a second one - the criminal contempt charge has understandably taken a backseat in the public eye. Nevertheless, the episode that prompted the charge is of interest for the light it sheds both on Scruggs’ push-the-envelope approach to litigation and his snug relationship with Mississippi Attorney General Jim Hood. (For background, see my recent feature story about Scruggs’ assault on State Farm Insurance Company.)

The criminal contempt charge had arisen from Scruggs’ circumvention of a federal court order issued in December 2006 by U.S. District Judge William Acker, Jr., of Birmingham. In that case, a firm called E.A. Renfroe & Company, which contracts out claims adjusters to major insurance carriers, had sued two of its former employees, Cori and Kerri Rigsbys, who had become “insiders” working with Scruggs on his suits against insurers over their post-Hurricane Katrina claims-processing policies. In December 2006 Judge Acker ordered the Rigsbys to return thousands of pages of State Farm documents they had secretly copied. Rather than let the Rigsbys turn over those documents to Renfroe’s counsel, as Judge Acker had contemplated, Scruggs asked Attorney General Hood to have his office request the documents from Scruggs (even though Hood’s office already had a set). Hood’s office did so, and Scruggs then sent the documents there instead of to Renfroe’s lawyers, theorizing that doing so would then be allowed under a “law enforcement exception” contained in Judge Acker’s order.

Judge Acker disagreed with Scruggs’ interpretation of his order, and in June 2007 he recommended that criminal contempt charges be brought against him. Birmingham’s U.S. Attorney, Alice Martin, declined to prosecute, prompting Acker to appoint three private attorneys to act as special prosecutors: Charles E. Sharp, Jr., and Joel Williams, both of Birmingham’s Sadler Sullivan, and former federal prosecutor Michael Rasmussen. Those three filed a formal criminal contempt charge against Scruggs last August.

On February 29, however, Judge Vinson dismissed that charge, concluding that Judge Acker’s order - which was directed only to the Rigsbys and their “agents” and “attorneys” - did not reach Scruggs, because he had never formally entered an appearance on the Rigsbys’ behalf in the Renfroe case. (This was so, in Vinson’s view, even though Scruggs represented the Rigsbys in other cases, had hired their lawyers in the Renfroe case, and was paying those lawyers. Indeed, he had also pledged to indemnify the Rigsbys if they were ordered to pay any damages in the Renfroe case. Basically, he was the master puppeteer behind everything.)

As a fallback grounds for dismissal, Judge Vinson also found that, “while there is a cloud of impropriety surrounding what Scruggs did,” his conduct, nevertheless, did fit within the literal terms of Acker’s order.

The special prosecutors had planned to appeal both of Judge Vinson’s rulings, and originally thought that they had until yesterday, April 29, to do so. But their deadline actually ran out in late March. As he admitted in a motion filed April 15, special prosecutor Sharp had simply looked at the wrong provision of the Federal Rules of Appellate Procedure - the one for civil appeals, which affords the government 60 days, rather than the one for criminal appeals, which affords it just 30 days. He did not realize his mistake until it was too late.

In an interview, special prosecutor Michael V. Rasmussen - the only special prosecutor with experience as a federal prosecutor - notes that he had only worked as a trial prosecutor, that “the government seldom filed appeals, and it had an appellate section which usually handled that.” Special prosecutor Sharp did not immediately respond to a call or e-mail seeking comment.

Below are all the key documents. Read ‘em and weep.

Special Prosecutors Motion to Extend Time

Scruggs Opposition to Extension of Time

Judge Vinson Order Denying Extension of Time to Appeal

Last week I published a feature story online, “The Siege of State Farm,” attempting to encapsulate the extraordinary, multifaceted assault upon State Farm and the insurance industry that was mounted by plaintiffs lawyer Richard F. “Dickie” Scruggs in the wake of Hurricane Katrina. (The story will appear in the May 5 issue of Fortune, which is also the annual Fortune 500 edition.)

In the process of trimming that article to a length that non-Scruggsiana-fanatics might find digestible and that the magazine’s post-dotcom advertising budget could pay for, I omitted some important points. In this post I’ll mention a couple. (This post is for readers who have either already read that feature or have been following the saga closely.)

To begin with, my feature did not include reference to the then-latest breaking news, which was the April 4 order of U.S. District Judge L.T. Senter, Jr., disqualifying all of Scruggs’ former Scruggs Katrina Group (SKG) co-counsel from any continuing involvement in Mississippi policyholder litigation against State Farm; disqualifying Scruggs’ former State Farm “insiders” - claims adjusters Cori and Kerri Rigsby - from testifying in any of those cases (there are about 180 of them); and forbidding any law firm from introducing into evidence in those cases any document obtained by the Rigsby sisters by means of their insider status, rather than by means of ordinary discovery processes. (See WSJ law blog post.)

Judge Senter did so, he wrote, because he found that the SKG lawyers had been aware of and acquiesced in Scruggs’ decision to have SKG pay the Rigsbys $150,000-a-year salaries as “consultants,” notwithstanding their status as fact witnesses. As I mentioned in the feature, it’s illegal to pay fact witnesses for their testimony, though it’s okay to pay expert witnesses and consultants. Judge Senter concluded that the Rigsbys’ consultancy arrangement with Scruggs was a “sham.” (Scruggs’ law firm withdrew from SKG shortly after Scruggs’ indictment last November, prompting the group to change its name to Katrina Litigation Group, or KLG.)

Since then, the disqualification snowball has continued to roll, and it is likely to reach still more lawyers and cases in the coming days. Last Friday another federal judge in the Southern District of Mississippi disqualified the SKG/KLG lawyers in another case against State Farm, as reported by David Rossmiller here.

This week, a ruling is expected on State Farm’s motion to disqualify the SKG/KLG lawyers in a civil RICO case against State Farm that SKG filed last June, where U.S. District Judge William H. Barbour, Jr., also of the Southern District of Mississippi, is presiding. It’s hard to imagine an inconsistent outcome there. [UPDATE: Barbour, in fact, disqualified the SKG/KLG lawyers and the Rigsbys, in an order tracking Judge Senter's, on April 16.]

In addition, State Farm also moved last week to disqualify Scruggs’ co-counsel in the federal False Claims Act case (or whistleblower lawsuit) he had brought against the insurer on behalf of the Rigsbys alleging fraud on the National Flood Insurance Program. (See Rossmiller posts here and here.) The attorneys whose disqualification is being sought there (who were not SKG/KLG lawyers) include former U.S. Attorney for the Western District of Missouri Todd Graves and his firm, Graves Bartle & Marcus of Kansas City, Mo., and former Missouri Supreme Court Chief Justice Edward (Chip) Robertson, Jr. of Bartimus, Frickleton, Robertson & Gorny of Jefferson City, Mo.

In the whistleblower case, State Farm alleges that these law firms acquiesced or participated in the Rigsbys’ alleged violations of the Computer Fraud and Abuse Act, which forbids unauthorized intrusions into password-protected databases. In a deposition last November, Cori Rigsby acknowledged that, on at least one occasion in March or April of 2006, when she and Kerri were meeting with lawyers from Scruggs’ firm and these co-counsel firms in Scruggs’ trailer office in Pascagoula, Cori accessed the State Farm database using her State Farm laptop. “I’m not sure which documents he retrieved,” Cori said of Anthony DeWitt, an associate at Bartimus Frickleton, whom she said she was working with. “I let him in the computer and I can’t speak after that.”

Neither DeWitt nor BFRG partner Robertson returned messages I left for them April 9, nor did partner Graves of the GBM firm. In a court filing April 10, the two firms said they plan to “vigorously contest” State Farm’s disqualification motion, and asserted that it “is based upon the misguided premise that GBM and BFRG are vicariously responsible . . . for acts about which they had no or incomplete knowledge, and did not in any way direct.” (If they plan to contradict Cori’s testimony in any way, however, that, in itself, might put them in a conflict situation, requiring disqualification.)

Perhaps the most important new motion filed last week, however, was the counterclaim filed by State Farm seeking a damage award against the Rigsbys for alleged violations of the federal Computer Fraud and Abuse Act (and some Mississippi laws, too). If the Rigsbys have not yet been entirely forthcoming and candid about Scruggs’ involvement in some of their more controversial actions during the litigation - for instance, the so-called data dump of early June 2006, in which the Rigsbys downloaded some 6,000 pages of documents from State Farm’s database - the State Farm counterclaim puts added pressure on them to abandon any lingering loyalty to Scruggs in favor of saving their own skins by implicating him. The allure of doing so might also become more enticing to them if, after a successful disqualification motion, they find themselves represented by lawyers free of any past social or pecuniary ties to Scruggs.

That leads me to one last point about Scruggs-tainted lawyers. From a national perspective, the two most important Scruggs allies in this whole escapade are the ones who, prior to Scruggs’ indictment, were both being bruited about as possible candidates for Trent Lott’s former U.S. Senate seat, if not higher office still. One is Mississippi Attorney General Jim Hood, whose de facto alliance with Scruggs in the assault on State Farm has long been front-and-center, but the other is former Mississippi Attorney General Mike Moore, whose role has been lower key. Partly, this is because Moore has played his public-relations cards more deftly. He quietly withdrew from Scruggs’ campaign in January 2008, fairly soon after everything began hitting the fan.

Moore’s multifaceted role in the siege of State Farm is one of the most eye-popping, because it is impossible to say with certainty precisely who he was representing much of the time. He seems to have taken the view that what was good for Scruggs’ private clients was good for Mississippi, and he flitted from representing one to the other without giving the matter much thought. (Moore did not respond to repeated phone and e-mail messages seeking his cooperation on my feature story, so I am basing my understanding of his understanding of his role on this declaration he submitted in court in January 2008.)

At the end of 2006, when State Farm was simultaneously trying to negotiate resolutions of Hood’s civil case, Hood’s criminal inquiry, and a class-action being brought by the SKG lawyers, Moore served as a “facilitator” between all the parties on all three matters, he says in his declaration. Others present at these negotiations remember Moore describing himself at the time as “resolution counsel.” These terms make it sound like Moore was a neutral mediator of some sort. But that was not State Farm’s understanding. Its lawyers say they understood Moore to be Hood’s agent in the negotiations, not a neutral. Moore also acknowledges in his affidavit that he was, from time to time, offering Hood “advice and assistance” on his criminal inquiry of State Farm (although he didn’t actually sit in on any grand jury proceedings), which certainly helps explain why State Farm may not have seen him as neutral.

One way to find out who someone represents is to ask him how he’s getting paid. At a meeting in January 2007 deputy insurance commissioner David Lee Harrell did ask Moore that question, and Moore replied cryptically that he got “paid at the end of the day,” according to Harrell’s later deposition testimony.

In his January 2008 affidavit Moore neither confirmed nor denied having been asked that question or having given that answer. Instead, he offered this carefully worded, non-denial denial of Harrell’s testimony: “I have not received nor do I have any agreement to receive any compensation from any source as a result of my involvement as a facilitator.” Note that Moore does not say whether he had any expectation of receiving compensation.

In March 2007, the class-action settlement Moore facilitated fell apart. In June 2007 Moore entered an appearance as co-counsel for the plaintiffs in one of SKG’s key civil cases, McIntosh v. State Farm. Though Moore was never a formal member of the SKG joint venture, Cori Rigsby testified in November 2007 that she regarded Moore as a member of the SKG team. In his January 2008 affidavit - submitted after State Farm moved to disqualify Moore and the SKG/KLG lawyers in the McIntosh case - Moore wrote that because the McIntosh case involved “the most egregious conduct by State Farm, . . . I accepted the offer to be involved in the case and to have [sic] offered to do so on a pro bono basis.”

While indignantly denying any improprieties, Moore voluntarily moved to withdraw from McIntosh the same day he filed his declaration. Since his motion was granted, he successfully avoided the embarrassment of being included in Judge Senter’s April 4 disqualification order. Whether he successfully dodged political taint is another question.

It appears that the drain of paying for criminal defense attorneys is having an impact even on mega-plaintiffs lawyer Dickie Scruggs, whose share of fees from the late 1990s tobacco settlements is thought to have approached $1 billion.

Since September 2006, Scruggs had been paying all fees and expenses for two “whistleblowers” who had been sued by their employer due to actions they’d taken to assist Scruggs in his assault on the insurance industry over its post-Hurricane Katrina claims-handling practices. (Basically, they stuck their necks out for him, so he was covering their back-sides.)

But on Tuesday, one of the two law firms defending the whistleblowers - Cori and Kerri Rigsby - asked to withdraw, citing “the inability of the Rigsbys and others” to pay its fees going forward or to even “adequately satisfy existing fee and expense obligations.” The motion is here.

The withdrawing firm is Washington, D.C.’s Zuckerman Spaeder, and its team was led by William W. Taylor, III, who is also the lead criminal defense lawyer for indicted class-action firm Milberg Weiss (or, as of today, Milberg LLP, see here). I have a call into Mr. Taylor, but given today’s activity in the Milberg case - founding partner Mel Weiss’ expected guilty plea, see here - I suspect I may be low down on his call-back list. Scruggs’ counsel, John Keker, declined to comment on Zuckerman’s motion and what it might mean.

The Rigsby sisters’ employer, E.A. Renfroe & Co., sued them in September 2006 for allegedly violating their employment contracts by photocopying confidential documents belonging to State Farm (to whom Renfroe was supplying supplemental claims-adjusters) and giving them to Scruggs. In addition to paying the Rigsbys’ costs of defending the suit, Scruggs had also taken on at least an oral commitment to indemnify the sisters for any judgment they might ultimately incur, according to a statement filed by the Rigsbys’ lawyers last December. See here.

Scruggs pled guilty Friday to conspiring to bribe a Mississippi state judge in Oxford in 2007, but his legal problems are not over. Prosecutors in Oxford contend he was involved in attempting to bribe a different state judge in Jackson in 2006, and a different set of prosecutors in Birmingham, Ala., are pursuing him on a criminal contempt charge, arising from Scruggs’ alleged defiance of a December 2006 court order. (The contempt charge was dismissed on February 29, but the Alabama prosecutors are contemplating an appeal.)

Scruggs is also likely paying the criminal defense costs of his son and co-defendant, Zach Scruggs, who faces trial March 31, and currently has at least 7 lawyers at 4 firms representing him, according to electronic court records. One would also expect that Scruggs would be footing the bills for his law partner Sid Backstrom, who also pled guilty Friday.

According to the withdrawal motion, the Rigsbys will continue to be represented by Birmingham’s Battle Fleenor Green Winn & Clemmor, who were also previously paid by Scruggs.

The surprise guilty plea this morning of mega-tort lawyer Richard F. “Dickie” Scruggs leaves a huge unanswered question: will Scruggs cooperate?

The unusually short plea agreement says nothing one way or the other about cooperation. (Scruggs’ law partner Sid Backstrom also pled guilty today, and his specifies that he will cooperate. The Clarion-Ledger is reporting that Scruggs’ son, David Zachary Scruggs, will get deferred prosecution, though he’ll have to surrender his law license. [CORRECTION/UPDATE: The C-L did briefly report that, but it turned out to be inaccurate, and they quickly deleted it from their web site article. Evidently Zach Scruggs is heading for trial, as things stand.--RHP 3/18/08]

A great many people in Mississippi and national politics are undoubtedly waiting with bated breath to learn whether Scruggs plans to cooperate. A lawyer in the office of John Keker, Scruggs’ lead counsel, declined all comment.

Earlier this year, federal prosecutors in Los Angeles concluded a plea deal with class-action impresario Bill Lerach which did not require him to cooperate–a deal also negotiated by Keker–but such deals are rare.

In this morning’s plea, Scruggs admitted conspiring to pay a $40,000 to bribe to state circuit judge Henry Lackey of Oxford last year, who was presiding over a fee-dispute case filed against him by a law firm that had once been part of his Scruggs Katrina Group. That was a joint venture that brought cases for policyholders who suffered damage in Hurricane Katrina.

But Scruggs has not yet revealed what, if anything, he knows about another alleged attempt to corruptly influence a judge, which prosecutors contend occurred in early 2006. That incident involves a still sitting judge in Jackson, a former district attorney there, and, in a bit part, Scruggs’ brother-in-law Trent Lott, the former U.S. Senator. None of those individuals has been charged with wrongdoing and all have denied committing any.

But if Scruggs were to ever start talking, the area of greatest interest to any historian, certainly, would be the unexpurgated story of his most famous case–the assault upon the tobacco industry in the mid-90s. Scruggs’ multifaceted campaign in that case–including lawsuits, public relations campaigns, and political pressure– culminated in a series of settlements under which cigarette makers agreed to pay the states about $246 billion over 25 years, and to pay the plaintiffs attorneys more than $13 billion. Scruggs’s share of the fees reportedly came to more than $850 million.

On the other hand, even if Scruggs witnessed anything untoward in that campaign, and even if he were willing to tell prosecutors about it, prosecutors might be barred from pursuing it at this point by statutes of limitations.

Why would anyone think something untoward might have occurred? As a result of fee-dispute litigation relating to the tobacco case, it has come to light that Scruggs is still paying significant shares of his attorneys fees from that case to farmer and grain storage businessman P.L. Blake, whose role in the litigation remains unclear. (Under the tobacco settlement, attorneys fees are parcelled out over about a 25-year period, at a rate of between $500 million and $750 million a year.)

Scruggs and Blake testified in 2004 and 2005 that Blake provided oral political intelligence to Scruggs, though neither could recall concrete examples. From 1993 to 1998 Scruggs had paid Blake loans totalling about $785,000 in increments of $5,000 to $25,000 per month.

In the first year after the tobacco settlements were concluded, Scruggs paid Blake $10 million, out of which Blake paid back Scruggs’ earlier loans with interest. (Scruggs wired the $10 million to his friend Joey Langston, who then wired the money to Blake, though neither Scruggs, Langston, nor Blake could recall why they did it that way in their depositions).

Scruggs then started paying Blake $468,450 per quarter, at which rate the total paid out to Blake would eventually approximate $50 million. (Stories about the Blake payments have previously appeared in David Rossmiller’s Insurance Coverage Blog, the New York Times, and the Wall Street Journal.)

Correction: Earlier version had spelling error, caught by commenter Ed of Topeka, KS. Thanks, Ed.

Attorneys for famous plaintiffs lawyer Richard F. “Dickie” Scruggs filed a battery of motions yesterday which suggest that he plans to try to invoke a variety of “entrapment” defense — claiming, essentially, that the government unfairly lured him into commiting the crime — without openly admitting that that’s what he’s doing. If a defendant invokes the entrapment defense openly, he becomes subject to a number of special obligations and burdens that the Scruggs lawyers will want to avoid. I’ll explain exactly what I mean by that at the end of this post, after reviewing the substance of the motion.

In their papers, Scruggs and his two co-defendants - law partners Sidney A. Backstrom and David Zachary Scruggs (Scruggs’s son) - specifically ask a federal judge in Oxford, Mississippi to dismiss the indictment against them due to “outrageous government misconduct.” The motion alleges that government “agents,” including Lafayette County state judge Harold Lackey of Oxford (the alleged target of the bribery attempt outlined in the indictment), effectively manufactured the crime. It also claims that federal investigators misled federal judges in their wiretap applications by concealing evidence suggesting that Scruggs and his partners were not involved - at least at the early stages.

The motion is here. The crux of its argument is this. On March 28, 2007, Timothy Balducci, a lawyer who was working with Scruggs in defending a fee-dispute suit filed against Scruggs’s firm and four other law firms approached Judge Lackey in an “ex parte” meeting — i.e., a discussion about a case without opposing counsel being present. While such meetings might be considered unethical in themselves, they are not per se criminal. The motion says that Balducci was acting on his own, without Scruggs’s knowledge, and implies that such ex parte encounters, called “earwigging,” are common in northern Mississippi, even if frowned upon.

At the meeting Balducci told Judge Lackey, whom he knew well, that he’d consider it a “personal favor” if the judge would order certain inflammatory language removed (”stricken”) from the plaintiff’s complaint against the firms and then send the case to arbitration. Balducci also suggested that when Judge Lackey retired from the bench, he’d consider it an honor if Lackey would let him pay him to serve as an “of counsel” to Balducci’s newly formed firm, lending his name to the firm’s letterhead. The motion claims that Balducci meant for the two invitations — the “personal favor” and the offer of “of counsel” status at his firm — to be unrelated and independent of one another, though it is unclear how the Scruggs defendants would know what was in Balducci’s mind. (Balducci pled guilty to conspiring to bribe Judge Lackey in November is now a cooperating government witness against the Scruggs defendants.)

The motion then suggests that Lackey overreacted and misinterpreted what Balducci was saying — perhaps because he, Lackey, feared that he was the target of a sting operation — and that Lackey went to the FBI a few days later to report the approach. Thereafter Lackey began working for the government, wearing a wire, and aggressively attempting to build a criminal case against Scruggs, the motion says. (It alleges that Lackey repeatedly called Balducci, for instance, and dropped by unannounced at his office, while Balducci often did not even return the judge’s calls.)

For more than five months, the motion continues, the government still had nothing on the Scruggs defendants. Then on September 18, the motion argues, everything suddenly took a decisive turn toward the criminal — but only because of Judge Lackey and his government handlers.

Lackey called Balducci and told him, in “hushed, conspiratorial tones,” that he had something to say that might shock Balducci. He asked whether, if he helped Balducci and Scruggs, they would help him. Balducci evidently agreed, and three days later Lackey asked for $40,000 to take care of an unspecified problem. Balducci again agreed, but the motion maintains that in the subsequent taped and wiretapped conversations Balducci repeatedly asserted that this would be a matter just between him and the judge (i.e., not involving Scruggs at that stage).

“Here’s how it works,” Balducci told Lackey on September 27, for instance, when he delivered the first $20,000. “They’ll come a time where I’ll sit him down in private and I’ll tell him [Scruggs] that I solved a problem for him. . . . . I’ll just go to him and say that I cured a problem that you had and you need to recognize the problem that I have cured you had.”

Finally, on November 1, when Balducci made the final payment, FBI agents confronted him with the evidence against him, flipped him, and sent him back to the Scruggs law firm wearing a wire in an attempt to make a case against Scruggs. At that point, the motion’s narrative abruptly stops, offering no insights into what the Scruggs defense from that point forward would be, if not entrapment. The indictment, after all, goes on to allege that the Scruggs defendants agreed, at Lackey’s request, to make an additional $10,000 payment, and that Scruggs provided Balducci with phony invoices for jury consulting in an effort to cover-up what the, by then, $50,000 in bribes had really been.

So what the defense is alleging sounds an awful lot like entrapment, but it never uses that word. Here’s why, I think. If a defendant mounts a formal entrapment defense, he must prove that, first, the government induced him to commit the crime and, second, that he had no predisposition to committing it.

There are lots of difficulties that come with invoking that defense, but chief among them is that the defendant opens the door to the government’s trying to prove other “similar” bad acts, even though the defendant hasn’t been charged with them in the indictment. (These become relevant to proving the defendant’s “predisposition” to commiting the crime)

The government already gave notice on January 28 that it will, in fact, try to introduce evidence of at least one such “similar act.” Prosecutors want to show that Scruggs was involved in a conspiracy to improperly influence a Hinds County state court judge, Bobby DeLaughter of Jackson, in early 2006. On January 7, Scruggs’s longtime friend (and erstwhile defense co-counsel in the federal bribery indictment), Joey Langston, in fact pled guilty to conspiring to corruptly influence DeLaughter at Scruggs behest. (Judge DeLaughter himself has not been charged with any wrongdoing, and has strenuously maintained his innocence.)

Scruggs’ counsel are understandably determined to keep the DeLaughter incident out of evidence - indeed, another motion filed yesterday is devoted specifically to achieving that goal - but their chances of succeeding would be greatly reduced if they ever admitted that they were mounting an entrapment defense.

My subjective view, then, for what it’s worth, is that the defense lawyers do not realistically hope to win the motion to dismiss (an extreme longshot) but rather fully expect to have to proceed to trial. The short-term purpose of the motion is to counteract months of adverse publicity with a competing storyline: one that portrays the Scruggs defendants as victims, not perps. That way, if the case does go to trial, there will at least be two narratives out there percolating down into the potential jury pool, and not just the government’s.

Further, my guess is that the Scruggs defendants never will actually invoke an entrapment defense, but will, rather, tell this (possibly true) story of a heavyhanded government sting operation, implicitly inviting the jury to acquit even if a technical crime may have been committed. The ultimate goal, then, would be a form of jury nullification.

The motion to keep the DeLaughter incident out of evidence is here. (In other motions filed yesterday, the defendants also asked that the wiretap evidence be thrown out; that the defendants be tried separately from one another; and that, due to adverse publicity, the case be moved outside of Mississippi to either Texas or Louisiana. All of those motions, together with supporting documents, are available at David Rossmiller’s Insurance Coverage Blog, here, which has had the most comprehensive coverage of the Scruggs indictment.)

Yesterday morning, an extraordinary lawsuit — in which State Farm had gone to Mississippi federal court to enjoin a Mississippi state criminal investigation of the insurer — ended in an extraordinary way.

After Mississippi Attorney General Jim Hood endured three hours of tough questioning by a State Farm attorney (who said, when court adjourned at 5 p.m., that he still had another hour left to go), attorneys for both sides huddled for hours until they struck a settlement. It was finalized Wednesday morning, before Hood’s testimony was to resume.

Most details of the settlement were sealed, including the all-important question of whether Hood would be permitted to continue his criminal inquiry. It appears that Judge David C. Bramlette wrestled the agreement out of the parties after making an important, though not necessarily determinative, legal finding in State Farm’s favor. His order is available here.

Nevertheless, my very subjective reading of the spectacle (I’d gone down to the Natchez, Mississippi, federal court to watch the hearing) was that it had ended rather like that infamous Roberto Duran-Sugar Ray Leonard bout in which Duran failed to answer the eighth-round bell, mumbling, “No más, no más.”

The case, which State Farm brought last September, is an instance of one of the rarest species of lawsuit, and one of the most difficult to win: a suit by the target of a state criminal investigation asking a federal court to halt the inquiry in its tracks.

Generally, the law forbids federal courts from interfering in this situation, because the federal courts are supposed to assume that state courts will adequately protect the federal civil rights of the target.

There is a narrow exception to that rule, however, if the target can show that the state prosecution is being brought in “bad faith” or for purposes of “harassment” — an extremely difficult thing to prove. Nevertheless, under the unusual facts of this case, State Farm, in fact, won a temporary restraining order against Hood last September, which was still in effect as of Wednesday, and it is hard to believe that State Farm would have settled the case without keeping that ban in place.

State Farm’s statement on the outcome reads: “Judge Bramlette has ruled that our contract with the attorney general is valid, unambiguous and enforceable and we are very pleased with the outcome.”

Hood’s office, on the other hand, emailed this comment: “Thanks to Judge Bramlette, who has the patience [of] Job, this case has been dismissed. I am glad I had an opportunity to rebut the allegations against our office. The Office of Attorney General will continue to fight for the policy holders [of] Mississippi. As for the criminal investigation, as with any case, I cannot comment.”

In February 2006 Attorney General Hood commenced a criminal investigation into whether State Farm had engaged in fraudulent practices to avoid paying money it owed policyholders for wind damage sustained in Hurricane Katrina. (A thirty-foot storm surge had demolished many homes on the coast, leaving nothing but slabs of concrete; that made it hard to determine the degree to which the homes had suffered damage from hurricane-force winds, which was covered under homeowners policies, before they were washed away by the later storm surge, which was not.)

Hood had agreed to drop his criminal inquiry in a letter agreement dated January 23, 2007. On that same date State Farm agreed to settle a civil case Hood had brought against State Farm in state court; a federal private class action brought for 32,000 policyholders by a group of lawyers headed by Richard F. (”Dickie”) Scruggs; and 640 individual cases also brought by Scruggs’ group. The Scruggs attorneys stood to make $10-20 million in fees from the class action, and another $26 million from the 640 individual cases. Scruggs and other members of his group are major campaign contributors to attorney general Hood.

While the settlement of the 640 individual cases did become final, a federal judge refused to approve the class action deal as proposed. Then, before that judge’s qualms could be addressed, the Scruggs group lawyers withdrew from the deal, and the case was dismissed. There is evidence that the Scruggs group withdrew from the deal at least in part because they were infuriated that State Farm had failed to pressure a subcontractor into dropping its suit against two former employees who had, for many months, been secretly assisting both the Scruggs group and the Hood investigation by supplying them with internal, confidential State Farm documents — allegedly in violation of their employment agreements. Scruggs himself was the main party on the hook in the case against the whistleblowers, since he was paying their attorneys fees and had agreed to indemnify them for any judgment ultimately entered against them.

After the class action deal fell apart, State Farm says it nevertheless honored the deal’s substantive terms — reevaluating slab claims and offering to pay a minimum of 50% of the policyholders’ policy limits for structural damages — albeit in the more informal setting of mediations supervised by the Mississippi Department of Insurance. (The Scruggs group attorneys don’t make any money off these mediations.) The company claims to have already paid out more than $70 million to policyholders in those mediations in a process that is ongoing.

In August 2007 Hood served State Farm with a new criminal grand jury subpoena seeking documents nearly identical to those that had been sought during his earlier criminal inquiry, prompting State Farm to sue the following month in federal court in Jackson, Mississippi, to stop Hood from reopening the criminal inquiry. State Farm claimed that Hood was violating its January 2007 letter agreement and unethically colluding with the Scruggs group, using the criminal proceeding as a way to pressure State Farm into paying lucrative settlements that would benefit the Scruggs lawyers — Hood’s campaign contributors.

Hood responded that his January 2007 agreement had only been a “gentleman’s agreement”; that, in any case, State Farm had failed to honor its terms in that the deal had contemplated federal court supervision; and that the criminal inquiry was, in any event, not covered by the letter agreement because it was a new inquiry focusing no longer upon a fraud upon policyholders (withholding payments for wind damage) but fraud upon the National Flood Insurance Program (improperly deflecting State Farm’s wind damage liability to the federally-funded National Flood Insurance Program.)

Even before State Farm filed its suit on September 13, 2007, the plot had begun to thicken. On August 21, 2007, Scruggs was indicted in federal court in Birmingham for criminal contempt for failing to obey a court order in the case brought by State Farm’s subcontractor against his whistleblowers. Scruggs has pleaded not guilty. The order he is charged with defying had required him to return to the subcontractor documents that had been “purloined” by Scruggs’s whistleblowers; instead, Scruggs had turned the documents over to Hood’s office (even though Hood’s office already had a set).

In June 2007, Judge William Acker Jr. had recommended that criminal contempt charges be brought against Scruggs. He had found that the night after Acker issued his order, Scruggs had called Hood and had prompted him to have a subordinate email instructions to Scruggs to send the documents to him. He noted that he could not understand why Scruggs and Hood would have behaved as they had unless they had “teamed up to bully State Farm into civil and criminal settlements.”

Then in late November 2007, Scruggs and four associates were indicted by federal prosecutors in Oxford, Mississippi for allegedly trying to bribe a state judge to influence litigation stemming from an intra-Scruggs-group squabble over the $26 million in fees received from State Farm’s settlement of the 640 Katrina cases. Scruggs has pleaded not guilty to those charges, too.

At Wednesday’s hearing, attorney general Hood professed very vague memories of what, if anything, Scruggs had asked him to do in the days immediately following Judge Acker’s order, stating only that his understanding had been that there was a “law enforcement exception” to the order and referring all more specific inquiries to the line prosecutor handling the inquiry, Courtney Schloemer. He said he’d never seen the letter Schloemer emailed to Scruggs instructing him to send the documents to her, though he’d had “some communication” about it with her before she sent it.

Schloemer had been subpoenaed to testify at this week’s hearing, so had the proceeding not been settled, she presumably would have done so. It would have been a ticklish task. She either would have had to accept sole responsibility for aiding conduct that Judge Acker has said he considers contemptuous, or she would have had to testify that her boss played a more active role than he now recalls. (In his testimony Wednesday, Hood also maintained that he had still never read any of Judge Acker’s orders, including the one that had all but labeled Hood a co-conspirator in Scruggs’ alleged contempt.)

But the emotional high point of Wednesday’s hearing came when State Farm attorney James R. Robie posed a certain highly specific question to Hood, the very asking of which suggested that State Farm might have somehow gained access to sources who were once quite close to Scruggs.

An attorney’s questions do not constitute evidence. On the other hand, an attorney is not supposed to ask an inflammatory question without a good-faith basis. Accordingly, it was a bombshell when State Farm’s Robie began the following line of inquiry:

Q. Mr. Hood, before Scruggs settled with State Farm … the case with 640 plaintiffs, which generated a fee in excess of $20 million for Mr. Scruggs and his partners, did they dispatch Mr. [Timothy] Balducci and Mr. [Steven] Patterson to have dinner with you in a restaurant in Jackson to talk about that?” [Balducci and Patterson are associates of Scruggs who have each pleaded guilty to bribing a state court judge in connection with one of the two federal criminal cases that Scruggs now stands accused of.]

A. I don’t know.

Hood’s counsel, J. Lawson Hester, objected on relevance grounds, but Judge Bramlette overruled and allowed Robie to press further.

Q. I’m asking you whether or not Mr. Scruggs sent Mr. Balducci and Mr. Patterson to have dinner with you here at a restaurant in Jackson to talk about settlement of that case.

A. I don’t know what Mr. Scruggs did with Balducci and Patterson.

Q. Did you have dinner with Mr. Balducci or Mr. Patterson at Crechale’s restaurant where they discussed Scruggs’ desire to settle that case?

A. No, sir. I haven’t been to Crechale’s in a long time.

Q. You did not have dinner with them where they discussed –

A. When are you talking about? And you said “Crechale’s.” I haven’t been to Crechale’s so I know I didn’t have dinner with anybody at Crechale’s.

Q. My real question is: Did Mr. Patterson or Mr. Balducci have dinner with you and tell you that if you did not participate or assist Mr. Scruggs in settling that mass tort action which was going to generate a 20-million-dollar-plus fee, that he would fund an alternative candidate to run against you for attorney general?

A. If you’re asking me did somebody come to me and threaten me, the answer is no. Now, out of all candor in this, I don’t want to mislead you. I remember having dinner on one occasion with Mr. Balducci and Mr. Patterson, but that conversation was about they were leaving the firm that they were presently — that Mr. Balducci was presently with. They didn’t convey any threats to me about settling the case or anything like that. [Balducci left the firm of Joey Langston in about January 2007 to start his own firm, bringing nonlawyer Patterson, who had also worked with Langston, with him as a business associate. (Last month Langston pled guilty to participating in yet another bribery attempt, in 2006, allegedly intended to aid Scruggs in a different state-court fee-dispute litigation. Scruggs has denied involvement in any wrongdoing there, too.)]

Q. They never suggested that if you didn’t participate in dropping your criminal investigation that Dickie Scruggs would fund an alternate candidate and [former Mississippi attorney general] Mike Moore would support that?

A. No, sir. Absolutely not.

Well, Hood denied it, so that’s where things stand. But had the proceeding continued, we might have learned what Mr. Robie’s basis was for asking the question, and we might have heard some other interesting questions he thought he had a good-faith basis for asking.

Between the pending federal prosecutions of Scruggs and the multiple ongoing litigations between State Farm and the remnants of Scruggs’s group, now known as the Katrina Litigation Group, it seems likely that we will eventually be hearing more about the evidence that prompted Mr. Robie’s question.

Why would big-time plaintiffs lawyer Dickie Scruggs try to bribe a judge in a small-potatoes fee dispute? In an interview, the plaintiff in the case offered a conceivable answer to the most puzzling question posed by Scruggs’s federal bribery indictment — but he also posed some fresh riddles as well.

The plaintiff in the suit is John G. Jones, 52, or, more accurately, his law firm: Jones, Funderberg, Sessums, Peterson & Lee of Jackson, Mississippi. A career plaintiffs lawyer, Jones’s firm was formerly a member of the Scruggs Katrina Group (SKG), a consortium of five law firms suing insurers over their handling of Hurricane Katrina claims. Scruggs, 62, is one of the nation’s most prominent plaintiffs lawyers, having made a fortune in asbestos and tobacco litigation.

Jones suggests that Scruggs’s possible motive for the bribe — assuming, of course, that Scruggs in fact had any involvement in one — may have been to hide from public view a suit that threatened to expose the allegedly shabby way Scruggs treats his business associates. “It isn’t what Clarence Darrow would’ve done,” asserts Jones.

At the same time, even Jones says he was shocked when he learned of the indictment. “I just knew these guys.” he says. “I did not think they had it in ‘em. I’d have bet they’d never do anything like that.” (Only Scruggs and two lawyers in his office are accused of wrongdoing, and they’ve all pleaded not guilty. The lawyers at the other firms in the SKG group have not been charged with any wrongdoing.)

The indictment, available here, alleges that Scruggs paid $50,000 in an attempt to bribe Judge Henry Lackey, a state circuit judge in Lafayette (accent on the second syllable) County, who was presiding over a suit in which Jones claims that SKG was freezing his firm out of its fair share of a $26.5 million attorneys’ fee award.

Scruggs’s office had no comment on the criminal case, but a member of his legal defense team, attorney Joey Langston of Booneville, says that Scruggs “was never a party to paying a judge.” Scruggs’s lead counsel, John Keker of Keker & Van Nest, adds that the notion that Scruggs might have wanted to keep the case out of public view by putting it into arbitration is “absurd as a motive” for a bribe, since the case “was certainly going into arbitration” and that was “the only place it could possibly be.”

In the suit, Jones claims that three of the five firms in the consortium — Scruggs’s firm; the [Don] Barrett Law Office; and Nutt & McAlister (run by successful tobacco lawyer David Nutt) — planned to take more than 90 percent of the award, and had offered his firm a maximum of just 6 to 6.5 percent. The last member of the group was Dewitt “Sparky” Lovelace, a Destin, Florida, solo practitioner whom Jones describes as a college pal of Barrett’s.

The Nutt lawyers referred calls seeking comment on the fee dispute to Don Barrett, who has not yet returned a phone message left Monday at 3:30 pm. When he does, I’ll append his comments. Lovelace also did not return a call. Larry Moffett, the lead attorney defending the SKG group in Jones’s case, declined to comment on the fee dispute, and noted that he had “no knowledge of any of the illegal conduct alleged.”

In March 2007, Jones sued Scruggs and the other SKG partners. He specifically chose to bring the case in Oxford, where Scruggs lives and works, rather than in Jackson, where Jones does, in order to shame Scruggs, he says. (Oxford is about 160 miles north of Jackson.)

“I wanted a jury to hear it in Dickie’s backyard,” Jones says. “I wanted to ‘out’ this a little bit. I’d known he’d done this repeatedly to other lawyers, he and Barrett. They got them to do the work, but when the money came in, they’d just low-ball ‘em.”

The most puzzling question raised by Scruggs’s indictment, filed in federal court in Oxford on November 28, is why an attorney of Scruggs’s enormous success, stature and savvy — he has said that he recovered more than $840 million in fees from his role in orchestrating the $246 billion state tobacco settlements of 1997-98 — would risk it all with a small-scale bribe in what one chronicler of the situation has memorably described as a “cracker-ass fee dispute.”

Scruggs, who has pleaded not guilty to the charge, will have a simple answer to that conundrum: I wouldn’t, and I didn’t. (In today’s Wall Street Journal, see here, a close friend of Scruggs suggests that a young lawyer hoping to curry favor with Scruggs approached the judge without Scrugg’s knowledge.)

Accordingly, if prosecutors hope to persuade a jury that Scruggs did play a role in the bribe, they’ll have to take a stab at that difficult question: Why? Answering it will be all the more challenging given that the ruling Scruggs was allegedly purchasing from Judge Lackey was simply an order sending the case to binding arbitration. Such an order, in and of itself, wouldn’t even guarantee Scruggs any victory in the underlying dispute.

One possibility, of course, was that Scruggs was also planning to bribe the arbitrator, too. But that’s speculative, and certainly no one’s produced any evidence supporting such a theory.

But another possibility, suggested by Jones, is that sending the case to arbitration — which is ordinarily conducted confidentially rather than in a public courtroom — would have at least shielded the dispute from public view. In that sense, Scruggs might have seen arbitration as a victory in itself.

“Mr. Scruggs would’ve been, in his public persona, highly offended by those allegations” being aired in public, Jones says. “He has almost an obsession with image in the public.”

Here’s the timeline. Katrina hit the Gulf Coast in August 2005. The Scruggs Katrina Group (SKG) began forming that October. The joint venturers decided that the litigation would be financed by Nutt & McAlister, which advanced $1 million for the cause, and committed to putting up another million dollars per year for up to three more years, if needed.

If there were a recovery, attorneys would get their capital contributions and expenses back first, and then the Nutt firm would get 35 percent of the net, reflecting the extra risk it took in financing the venture.

But how the other four firms would divvy up the rest was not specified in SKG’s joint-venture agreement, drawn up in November 2005, other than that it would be in accordance with Mississippi ethics rules. (Those dictate that lots of factors, including risk, time, contributions to success and so on, all play a role).

Jones claims that someone had suggested getting more explicit about the split at the time the agreement was being drafted, but that Scruggs opposed doing so, and Jones was ultimately persuaded.

“Here I am, like Gomer Pyle,” says Jones, disgusted with himself in retrospect. “I said, Okay, let’s do it on trust and faith.”

Under Mississippi law, Jones says, if there’s nothing in writing on how to split the fees, the law presumes they’re to be split equally. Accordingly, he assumed that the starting point for negotiation would be that the Nutt firm would get 35 percent (as specified in the contract), and that everyone else would get an equal 16.25 percent share.

He knew there would be further adjustments from there, he continues, since the firms’ contributions were not equal.

“We had 1.5 lawyers on it full-time, a secretary and a paralegal,” he says, “while Scruggs had three lawyers and three or four paralegals; Nutt had 2 lawyers and untold paralegals,” and so on. He says his firm took the lead on all briefing, developing of legal theories, and deposing State Farm’s corporate and expert witnesses.

Then a big settlement with State Farm took shape in late 2006. The tentative agreement — announced in November, though not finalized till January — awarded about $89 million to 640 State Farm claimants, while calling for an attorneys fee award of $26.5 million.

When Scruggs called him on December 3, 2006, Jones recalls, he said that Jones’s firm would get $1 million, or less than 4 percent.

Jones rejected that, and over the ensuing weeks, the joint venturers upped their offer to 6.5 percent, Jones says.

Jones, on the other hand, was demanding neutral arbitration to allocate the shares, since that was the designated remedy for “any dispute” provided under a clause of the SKG agreement. Jones claims that he asked for arbitration 14 times in writing, and nine times orally, but was always refused. (Ironically, as we’ll see, after Jones filed suit against SKG, the parties’ attitudes toward arbitration do a 180; the SKG group then wants it, while Jones opposes it, prefering to stay in court at that point.)

But during negotiations, Jones’s joint venturers at SKG had some bargaining leverage. The SKG joint-venture agreement has a clause — the very first paragraph, in fact — which allows four partners to vote to expel the fifth partner at anytime.

“Four had the right to vote one person off the island for any reason,” admits Jones. In that event, the agreement says, the expelled law firm gets back its capital contributions, if any, but the provision doesn’t say anything about fees.

Another clause says that “agreement by 4 of the 5 venturers is required to distribute . . . fees.” (It’s unclear if this also means that four can forcibly apportion fees, too; Jones’s position is that it doesn’t. A copy of the SKG agreement is appended to Jones’s civil complaint, which is here.)

In late February 2007, Jones says, he threatened to go to federal judge L.T. Senter of Gulfport, Mississippi, who was presiding over the State Farm cases, and ask him to freeze the trust account holding the attorneys fees from the settlement.

The other joint venturers persuaded Jones to hold off and, instead, come to a meeting on March 2 at the Nutt firm’s offices in Ridgeland, a suburb north of Jackson.

“I’m mad at you, Johnnie,” Barrett told Jones, as Jones recalls it. “Nobody’s ever threatened to sue me before. I’m highly offended.” Barrett then demanded that Jones accept 6 percent then and there. If he refused, the other joint venturers would vote to give him just 3 percent and then expel him from the group.

Though Barrett initially demanded that Jones decide before leaving the room, according to Jones, he later relented and allowed Jones to go discuss the offer with his law firm partners.

But when Jones got back to his office in Jackson later that afternoon and “got on the e-mails,” he recalls, there were two waiting for him from the SKG group. One gave him less than a half-hour to get back to them with his final answer, and the next — written after expiration of the deadline — told him he’d been voted off the island.

In March, Jones filed suit, and the case was assigned to Judge Lackey. Jones, who has had several cases before Lackey in the past, describes the judge as “extremely liked and respected. If you lined them all up, he’s the last judge in Mississippi I would’ve picked to try to bribe,” he says. (An article in Sunday’s Biloxi SunHerald, available here, notes that Lackey was “a deacon at First Baptist Church and a member of a state commission charged with ensuring judicial integrity.”)

Lackey is a “dyed-in-the-wool Republican” with no ties to the Mississippi Trial Lawyers Association, according to Jones. Lackey was appointed in 1993 by Governor Kirk Fordice, the first Republican governor of Mississippi since Reconstruction and, as Jones puts it, “the most conservative man to ever walk the face of the earth.”

While approaching any judge — Democrat or Republican — is obviously plenty risky, Lackey seems like such a bad choice as to be almost incomprehensible for a man of Scruggs’s worldliness. The indictment names attorney Timothy Balducci, 40, of New Albany, as the attorney who allegedly approached Lackey. Balducci had been an associate at the law office of Scruggs’s longtime friend and attorney Langston until last year, when he set up his own practice in New Albany. Balducci did not return a call left at his office. It’s unclear if he has yet been arraigned and, if so, how he pleaded. There has been much speculation in the press, e.g., here, that he may be cooperating with the government in the prosecution.)

In April, Jones says, Lackey recused himself from hearing Jones’s case without explanation. But then in May, on his own motion, Lackey suddenly “unrecused” himself, Jones says — again without explanation. Jones now surmises that Lackey had, by May, brought the FBI into the picture, and was now prepared to wear a wire and help it prove the crime. (See here for a Wall Street Journal article interviewing Lackey about the role he played.)

When Jones sued, he was no longer simply suing for his share of the State Farm award; he was also seeking punitive damages for breach of fiduciary duty and other torts as well. Accordingly, he no longer sought arbitration. The SKG group, on the other hand, soon decided that it did prefer arbitration, and asked the judge to order it.

In July a hearing was held, but afterwards Judge Lackey told the parties that another matter had come up and he would have to take the case under advisement.

Jones then heard nothing for months. When his attorney told him last Tuesday that Scruggs’s offices had been searched, Jones was shocked, he says, but it still never crossed his mind that what was happening might have anything to do with his fee dispute.

The next day his attorney told him that Scruggs had been indicted for trying to bribe the judge in his case.

“You have to be kidding me,” Jones remembers thinking, since the allegation seemed so out of character.

At the same time, Jones says of his joint venturers, “When money was on the table, it was like Dr. Jeckyll and Mr. Hyde…. They morphed into people I’d never known.” (Again, no one in the Barrett, Nutt, or Lovelace firms has been charged with any wrongdoing, nor have their attorneys in the case.)