NMissCommentor

To get a better understanding of the context of DeLoach’s letter to Lee Young about the witholding of damages and costs from the asbestos fee cases from Young’s tobacco fees (an exhibit here), I re-read Magistrate Davis’s opinion for the first time in a while.

I want to explain a little of the context of what had gone on in these cases.  Dickie Scruggs and Roberts Wilson formed a joint venture to handle asbestos cases; Scruggs had been primarily doing bankruptcy work and wanted in the new and growing asbestos plaintiffs work, in which Wilson was an early player.  In 1985, Scruggs hired Luckey, who was assigned to processing claims, settlements, and medicals.  In the early 1990s, Wilson had moved his practice to Jackson (and he and Scruggs were not getting along), and so Wilson and Scruggs agreed to a “pay out” of Wilson’s share of fees as the fees came in, and Scruggs agreed with Luckey (who was already a partner in the enterprise) to increase Luckey’s share.  In 1994, Scruggs confronted Luckey about altered medical records and fired him, taking the position he could just cancel Luckey’s ownership.

Luckey sued Scruggs and Wilson in Hinds County Circuit.  Wilson crossclaimed against Scruggs over the payments to him.  Meanwhile, Scruggs had embarked upon the tobacco litigation.  When the deals started to be cut and it became clear this was going to be a bonanza, Wilson and Luckey both asserted claims that Scruggs had at least in part used fees owed to them to finance the tobacco litigation; effectively, they were arguing that this use of their money was an involuntary investment that should give them a part of the tobacco fees.   But the circuit court refused to allow Wilson and Luckey to assert these claims, and so they brought them in federal court (first, in Texas, which sent it to federal court in Mississippi).  The federal court (Judge Lee) rejected efforts by Scruggs to have these claims sent back to Hinds circuit, because of the refusal of that circuit court to hear the claims in the first place.  Judge Lee decided that the claims would await the state court’s decision about whether there were any asbestos fees owed in the first place; from there, he would decide whether those fees were misused in a way that supported a claim to the tobacco fees.

At some point, Scruggs and Luckey agreed to send Scruggs’s case for arbitration before Magistrate Judge Davis (the story of why Scruggs wanted to be before Davis is itself an interesting story for another time).  Wilson’s case stayed in Hinds County Circuit.  While Scruggs sought to have the trial before Davis done in private and the record sealed, Judge Davis refused, insisting that the case be tried in open court like any federal court proceeding.

Judge Davis’s opinion (which is an exhibit to the complaint, among the exhibits linked above) is pretty clear about what happened.  Judge Davis granted a directed verdict on Luckeys’ claim to the tobacco fees.  He ruled that firing Luckey for cause did not eliminate his equity claim in the company holding the asbestos fees.  He then found that the fee calculation by Luckey’s expert was more accurate, and awarded asbestos fees of over $13M, plus prejudgment interest, and (because of Scruggs’s vexatious litigation conduct) attorneys fees.

DeLoach’s letter was written in November of 2005; Judge Davis’s decision was in July of 2005. Here’s what DeLoach’s letter on behalf of Scruggs says about all this:  “The federal judiciary accepted and retained the case because of the tobacco fee award,  and I believe, as does Dick, with ill intent.” The letter goes on:

Merkel’s argument and Davis’s decision causes this to appear to be repaying Luckey for asbestos fees. This is not the case. Luckey was owed at most $200,000, ignoring his malfeasance. … The award was not asbestos fees. Instead it was a thinly disguised award of tobacco fees.

(emphasis original) Here I would not blame Lee Young, on reading this paragraph and comparing it to Judge Davis’s opinion, would think they were being told “Are you going to believe me or your lying eyes?” The letter goes on:

The decision to arbitrate, in hind sight a grevous error, was to lessent the chance of a runaway constructive trust award and to mitigate legal defense fees which were averaging $200,000 per month ($300 in 2005). While the $19 million award was obscene and sickening, you both benefited by bringing this litigation to a close.

The language here– that the federal judiciary retained the case “with ill intent,” that Davis’s decision (no matter what it actually says) “was a thinly disguised award of tobacco fees,” that the award “was obscene and sickening,” almost implies an evil federal court conspiracy against Scruggs.

Finally, it’s interesting to place the letter in the time-line.  It was written in November, 2005.  And what happened next?  In December of 2005 or January of 2006, Scruggs made the decision to hire Langston in the Wilson  case.  I’ve never believed the version of the story that Scruggs’s experience in the Luckey case made him decide to turn outlaw in Wilson.  But, on the other hand, I’d find it easy to believe that, having failed to get what he wished from Judge Davis, he decided to up the ante further as Wilson headed toward trial.  And it’s interesting to read the cynicism– and unreality– reflected in his view of the federal courts.  It’s an interesting bit of projection in the assumption that the federal judiciary only operated out of some sort of corruption.  What did he and DeLoach think the motive was?