Contemptible Behavior Suing Insurers
U.S. District Court Judge William Acker recommended that the U.S. Attorney for the Northern District of Alabama prosecute Richard Scruggs, the high-profile trial lawyer who has become famous for suing insurers, and his law firm, Scruggs Law Firm, P.A. for contempt. Judge Acker concluded that Mr. Scruggs violated a court order about the handling of documents in a case relating to insurance claims that flowed from the destructive power of Hurricane Katrina.
The case involves Cori Rigsby Moran and Kerri Rigsby, sisters who were employees of E.A. Renfroe & Co., an insurance-services company hired by State Farm Insurance Co. to evaluate Hurricane Katrina claims. According to court documents the Rigsbys photocopied documents that they thought contained evidence of misconduct by State Farm in its dealings with its policyholders. The Injunction stated:
[D]efendants, Cori Rigsby Moran and Kerri Rigsby, and their agents, servants, employees, attorneys, and other persons in active concert or participation with them who receive actual notice of this order by personal service or otherwise (with the express exception of law enforcement officials) are hereby MANDATORILY ENJOINED to deliver forthwith to counsel for plaintiffs all documents, whether originals or copies, of each document and tangible thing, in any form or medium, that either of the defendants or anyone acting in conjunction with or at the request or instruction of either of them, downloaded, copied took or transferred from the premises, files, records or systems of Renfroe or of any of its clients, including, but not limited to State Farm Insurance Company and which refer or relate to any insurance claims involving damages caused or alleged to have been caused by Hurricane Katrina in the State of Mississippi. [full order at [http://online.wsj.com/public/resources/documents/scruggs1.pdf]]
In February 2006, the sisters retained Scruggs, a family acquaintance, to act as their lawyer and provided him with State Farm documents. At the time, Scruggs was pursuing litigation against State Farm and other insurers for denying Katrina claims. The sisters, Cori Rigsby Moran and Kerri Rigsby, are now "consultants" for the Scruggs Katrina Group, to the tune of $150,000 a year.
Renfroe sued the Rigsbys in September 2006, alleging they violated their employment agreements and stole trade secrets. In December 2006, Judge Acker issued an injunction ordering that all documents be returned to Renfroe’s counsel.
In his ruling June 15, 2007 Judge Acker said that Scruggs shared the State Farm documents with the Mississippi Attorney General in violation of the court’s order. "Scruggs is an experienced attorney and an officer of the court," Judge Acker wrote in a court order. "His brazen disregard of the court’s preliminary injunction is precisely the type of conduct that criminal contempt sanctions were designed to address."
In addition, Judge Acker stated: "Taking Scruggs’s word for it, he was arrogating to himself the right to substitute his judgment for the court’s judgment. That spells "defiance.""
Judge Acker, perhaps recognizing the political situation also said: "If the government declines this request," Judge Acker warned, "the court will appoint another attorney to prosecute the contempt."
It has been alleged that instead of complying with the court's order Mr. Scruggs shipped the documents to Mississippi Attorney General Jim Hood, who was pursuing a criminal probe of State Farm. The documents were intended to help Mr. Hood make the criminal case against State Farm and Mr. Hood in turn, it is alleged, worked to convince State Farm to settle with Mr. Scruggs. The Wall Street Journal described the situation as "a sort of tag-team mugging. State Farm eventually settled for more than $130 million, and only afterward were the documents returned."
Judge Acker noted that the essential elements of criminal contempt are that the court:
entered a lawful order of reasonable specificity, it was violated, and the violation was willful. Whether the order is reasonably specific is a question of fact and must be evaluated in the context in which it is entered and the audience to which it is addressed. In criminal contempt, willfulness means a deliberate or intended violation, as distinguished from an accidental, inadvertent, or negligent violation of an order. Each of these elements must be proven beyond a reasonable doubt in order to determine guilt and impose punishment. [In re McDonald, 819 F.2d 1020, 1023-24 (11th Cir. 1987)]
Judge Acker found that the injunction required Scruggs, as an attorney or agent of defendants, to deliver forthwith to Renfroe’s counsel "all documents . . . that either of the defendants . . . downloaded, copied took or transferred from the premises, files, records or systems of Renfroe or of any of its clients . . . which refer or relate to any insurance claims involving damages caused or alleged to have been caused by Hurricane Katrina in the State of Mississippi." Judge Acker also found that "It is undisputed that Scruggs had in his possession the exact documents that fell within the scope of the injunction and that were and are the whole subject of the controversy. Instead of complying, Scruggs promptly sent the documents to Hood for the calculated purpose of ensuring noncompliance with or avoidance of the injunction’s clear first paragraph. Scruggs’s motive seems clear from the undisputed facts."
Even after Hood "voluntarily" sent the documents to counsel for Renfroe at Scruggs’s request, Scruggs wrote to Hood requesting another copy of the same documents for himself and ostensibly for the Scruggs Katrina Group.described Mr. Scruggs' explanation that he was doing his duty to help a prosecutor as "such a strained construction and so contrary to the injunction's clear terms as to lack any credibility whatsoever." Judge Acker indicates that Mr. Scruggs and Mr. Hood teamed up to bully State Farm into civil and criminal settlements.
Mr. Scruggs sent the documents to Mr. Hood, Judge Acker writes, "for the calculated purpose of ensuring noncompliance with or avoidance of the injunction's clear first paragraph."
The court concluded its order:
In accordance with Rule 42(a), Fed. R. Crim. P., the court will formally request that an attorney for the government prosecute Scruggs’s contempt. If the government declines this request, the court will appoint another attorney to prosecute the contempt. Because in the context of criminal contempt proceedings the undersigned has acted as the functional equivalent of a grand jury for finding probable cause, he will have the criminal contempt proceedings against Scruggs reassigned to another judge.
Barry Zalma
http://www.zalma.com
