Tomorrow is the hearing in Natchez in State Farm v. Hood (Anyone who hears anything PLEASE write us at the addresses on the right! For that matter, any reports on the Scruggs deposition would be appreciated, even as minimal as “how long was it?”). The first thing you need to know is that Jim Hood is required to attend to testify, and that Kerri Rigsby (by Hood) and assistant attorney general Courtney Schloemer (by State Farm) have both been subpoenaed to testify, and that State Farm has Scruggs on video and will probably attempt to play him taking the Fifth Amendment. Those are the drama part.
What about the legal arguments? State Farm describes its claim as that Jim Hood “Is pursuing the current criminal investigation in bad faith for the purpose of coercing State Farm to forgo its First Amendment right of access to the courts by settling Hurrican Katrina cases brought by major contributors to Attorney General Hoods Campaigns.” That’s in the State Farm brief in opposition at page 2. There’s also an allegation that Hood used “the threat of criminal investigation and prosecution to compel State Farm to coerce E.A. Renfroe & Company …to dismiss its suit against… the Rigsby Sisters…” (on page 5)
State Farm does set and spring the trap I mentioned previously on this blog: SF has an agreement with Hood to drop the criminal prosecution, and at the same time arrived at what SF is calling “a separate agreement” under which State Farm was to re-evaluate claims, establish an orderly fair and prompt method of reevalutating the claims, and to pay no less than 50% of the claims and a minimum of fifty million dollars. It is this “separate agreement” that was the class action settlement that blew up last Spring. SF is arguing that Hood is violating SF’s constitutional rights by linking the settlement of civil claims to the threat of criminal prosecution. (on page 20). SF notes that in state court, Hood is seeking to enforce the settlement agreement, and that his office has kept the $5 million SF paid as a part of the settlement. SF takes the position that the agreement not to prosecute can’t legally be linked to the (failed) settlement deal.
There is support in that brief for the argument that SF is trying to create the biggest stink possible. Although I’ve heard no suggestion from anyone that Langston, Patterson, and Balducci were in any way involved in the Katrina cases, the SF brief states that Hood is avoiding testimony “when three of the people (including Dickie Scruggs) with who he is alleged to have conspired in this case are under federal indictment [Zach and Dickie Scruggs, Backstrom] and three othr of his affiliates [Langston, Patterson, Balducci] … have pleaded guilty to charges…” (on page 2-3).
One report I’d like back from Natchez tomorrow is whether any credible evidence emerges that links those three to the Katrina cases. Lawyer’s hand-waiving doesn’t count.
The Hood brief in support makes several arguments: 1) That “bad faith” as an exception to Younger abstention requires showing that the prosecution is not motivated from crime fighting but rather from something else– a hostility to the defendant, for instance, and that actions were taken that were not about crime fighting but about something else. The brief doesn’t come right out and say “bad faith requires lack of probable cause” although it sort of dances around that point. The way LeBlanc (from Keker’s firm) made this argument at the hearing on Scruggs’s deposition was much more forceful, although it is not clear to me the argument is supported by the cases. 2) That the investigation is a different one from the one Hood agreed to drop or (put slightly differently) Hood only agreed to drop that particular investigation at that time. This has some support in the language of Hood’s letter agreement quoted below. 3) That there is a linkage between the settlement deal that collapsed and the agreement to drop the prosecution, and when the settlement collapsed, the agreement to drop the prosecution was gone. Here I guess the question is whether it’s legal for Hood to make this linkage. SF says NO!
Hood may be arguing this is a different investigation because he is investigating wind/flood adjusting fraud relating to payments by the national flood insurance program. If so, that’s a reach– defrauding the federal government is not his bailiwick. He should stick to better arguments.
The most important document is obviously Jim Hood’s letter to drop prosecutions. It begins “Pursuant to the settlement of this case,” which certainly implies to me that the (failed) civil settlement is linked. So SF and Hood have before them a legal argument about whether this linkage is illegal. The letter goes on:
In light of the cooperation by State Farm… in the criminal investigation being conducted by the Mississippi Attorney General’s Office into State Farm’s handling of Hurricane Katrina claims (hereinafter “investigation”), and based on the facts developed and State Farm’s willingness to enter into a settlement agreement requiring them to pay a substantial penalty to the victims…
The linkage is pretty clear. This last language supports Hood’s argument that, because SF has not paid “a substantial penalty to the victims” (the settlement being off) the deal is off.
…the Mississippi Attorney General and the State of Mississippi (a) will conclude the investigation as to State Farm… and (b) will not bring criminal charges against State Farm … in connection with the investigation.
SF is acting as if Hood is outrageously reaching to say that this language doesn’t stop a future investigation but only the current one. This doesn’t seem to me such an outrageous reach.
So what do I think? I think that it wouldn’t surprise me at all for a court to hold that the linkage between civil settlement and criminal prosecution is improper (someone explain to me again how our bad check law works?), but that’s probably a close call in this instance. SF certainly has a good argument that “forcing a civil settlement is not the legitimate purpose of a criminal prosecution and is therefore bad faith.” That’s their best shot. I think the agreement doesn’t by its language stop all investigations ever, or even all investigations about Katrina, so that argument is Hood’s best shot. And I’m not willing to predict who wins, except that it’s very hard to win a federal court action to enjoin a state prosecution.
State Farm = Houston Patton
They demanded that the criminal investigation be dropped as a condition of a civil settlement, but now pretend that they were coerced.
Sheila Birnbaum and State Farm were in control of the whole deal. All you have to do is go back and read any Anita Lee article from January 2007 to see State Farm and Scruggs publicly pressuring Hood to accept their agreement.
This article was two weeks before Hood agreed to the deal:
State Farm close to tentative agreement to settle more than 600 Katrina lawsuits
By ANITA LEE
8 January 2007
The Sun Herald (Biloxi, MS)
State Farm Fire & Casualty Co. has tentatively agreed to reopen thousands of Hurricane Katrina homeowner claims in the three Coast counties and to settle lawsuits more than 600 policyholders have filed against the company through the Scruggs Katrina Group, according to a source familiar with the negotiations.
Terms reached by the Scruggs clients are undisclosed. The second part of the agreement is a class-action process for other Coast policyholders who want to settle their claims without going to trial. State Farm has set aside a minimum of $50 million to resolve these policyholder claims, with no maximum set.
Attorney General Jim Hood must sign onto the agreement before it is finalized. Hood is suing State Farm and other major insurers in state court over their refusal to cover Hurricane Katrina claims involving wind and water damage.
Hood’s office also has an ongoing criminal investigation into State Farm’s handling of Katrina claims.
The source said State Farm would expect the civil and criminal matters to be dismissed before agreeing to any settlement.
Does this sound like Hood was coercing State Farm?
Don Barrett, a Scruggs Katrina Group attorney, wrote a letter to State Farm lawyer Sheila Birnbaum mentioning the settlement on Jan. 18 – nearly a week before Hood announced the deal on Jan. 23, according to a letter entered into the court record.
“Dear Sheila, This is for your eyes only. Your proposal to Hood is fair, and your letter is great,” the letter says. “I think he will take the deal. However, if Hood lacks the wisdom to go through with this deal, it would be in State Farm’s best interest to proceed just with us, and we offer to do that.”
Hood said Barrett, as a member of the Scruggs Katrina Group, would have known that State Farm “refused” to finalize a class-action agreement unless the company could reach a settlement with the Mississippi attorney general’s office.
Scruggs said the Scruggs Katrina Group knew about the negotiations only because they were mentioned in conversations with State Farm attorneys, adding that Barrett “took it upon himself to write it.”
“It emphasizes the fact that we were trying to get Hood to make a resolution” that was beneficial to those struggling to recover from Katrina, Scruggs said.
http://tinyurl.com/2nptfl
non-lawyer me thinks Hood has a straight shot because he only agreed to settle on the “facts as developed” – and would only need “facts to develop ” into other crimes, related or unrelated to the settlement.
Researcher, did you find the link I posted a week or so ago to the NYT article also showing State Farm linked the criminal and civil?
Nowdoucit, the recital “facts as developed” doesn’t logically carry the weight you place on it. Read the phrase in the letter: “and based on the facts developed and State Farm’s willingness to enter into a settlement agreement requiring them to pay a substantial penalty to the victim the Mississippi Attorney General and the State of Mississippi (a) will conclude the investigation as to State Farm " and (b) will not bring criminal charges against State Farm " in connection with the investigation.”
In this quote, the phrase “facts as developed” relates to the reason Hood made the deal, and doesn’t modify or limit the “investigation” part. In other words, he’s not saying he’s dropping the “investigation based on the facts that developed,” leaving open new facts to develop, he’s saying that, based on the deal SF made and the facts he has, he’s dropping the investigation.
On the other hand, what Hood IS going to be able to argue, strongly, is that the letter only agrees to drop THE INVESTIGATION ONGOING NOW– I really think Hood can say: This says we’re dropping this one, now, and has no deal not to prosecute ever. Look at what it says (close paraphrase): “We are dropping this investigation and will not bring criminal charges in connection with this investigation.” That does not say to me that Hood will never open a new investigation, or that the new investigation cannot lead to criminal charges. If I’m right in how I read this language, Hood wins UNLESS State Farm can make their argument that linking the criminal case to the settlement can fly.
Researcher, I read you loud and clear. Those facts will come in tomorrow, I’ll bet. OTOH, I think that State Farm will put on some facts of people leaning on State Farm with “settle or else” threats. The question is whether those witnesses are to be believed. And one problem Hood has is that we are in a climate where folks are very prone to believe that the former leader of Scruggs Katrina Group could act heavy handedly. So I think that one could go either way.
Nowducit,
I did see that NYT link. I went back to the Anita Lee article because it was clear that SKG and State Farm were feeding her stories that they hoped would get Coast residents to contact Hood.
Wasn’t it George Dale who put the pressure on State Farm to “settle or else…” and then put the pressure on Hood?
I’ll find it and put it back up shortly, researcher.
Here you go, researcher, I had a little trouble with tiny url and it opens on page two but it’s all there.
"In the settlement talks, which began last fall, State Farm insisted that the Mississippi attorney general, Jim Hood, drop a criminal investigation of the company’s handling of storm damage claims. It also demanded that he abandon a civil suit against it and other insurers. "
Full story reported in the NYT http://tinyurl.com/2shkjt
The way for State Farm to end the criminal investigation was a simple one. To not deny anyone’s claims based on forged or fraudulent documents, or fraudulent statements. They could have easily taken the fire out of Hood by just settling the cases they knew they had done something criminal in.
And, to those who say that State Farm didn’t do anything criminal- well then, why was it so darned important to the get the criminal investigattion quashed? So important that they risked the entire settlement over getting it quashed.
The only rational and logical conclusion is that they did commit crimes, they knew it, and they were worried about the investigation. Nothing else makes sense.
And, then, they out maneuvered poor Hood, getting his biggest campaign contributor to lobby him to agree to it. And, it’s been downhill for the victims ever since.
I tend to agree that State Farm will lean on “settle or else” threats. In reading Michael Orey’s book “Assuming the Risk,” that was the mode of operation Scruggs and Moore used in the tobacco settlements. In those settlements, according to Mike Moore quoted in the book, the tobacco industry desired the settlement in the tobacco class action suit to pay a one huge sum of money in return for not having to face future litigation. Moore Scruggs were happy with the settlement until they realized that tobacco was still suing MooreScruggs’ whistleblower, Merrell Williams, for illegally removing documents from their company.
MooreScruggs then refused to drop their class action suit against the tobacco industry and agree to the settlement by threatening that they(MooreScruggs) would not go forward with the settlement unless tobacco dropped their case against their whistleblower—Merrell Williams.
It’s the threat that sounds so familiar here—that “or else.”
They probably learned that habit/phrase/tactic while whining as children “pick me to play ‘or else’… I’ll take my ball and go home,” or “give me your milk money ‘or else’ I’m telling the teacher what you did.”
Didn’t they have to get criminal dropped to prevent the civil settlement from inviting the RICO?
Jane, the tobacco industry actually did bring forth that theory, that those who smoke save the government money because they die early. From page 345 of Orey’s “Assuming the Risk”:
“[The defendants] referred to it variously as ‘medical expense savings due to smoking’ and ‘lifetime medical costs of a smoker’ versus a nonsmoker. What they meant was that smokers died earlier than nonsmokers.”
However, the Mississippi Medicaid case was kept in Jackson County Chancery Court where Judge Myers made rulings that mostly favored the plaintiffs (MooreScruggs)
From page 347 of Orey’s book:
“By keeping the Medicaid suit in chancery court, Judge Myers appeared to have denied the cigarette makers the right to present standard tort defenses, such as assumption of risk. Now the economic-balance defense was out of bounds too. The defendants [tobacco] were headed to trial with both hands tied behind their back.”
Seems to me that SF had a pretty big “or else” itself. Drop the criminal investigation “or else” we’re going to stop writing insurance in MS (and convince our other antitrust-exempt industry players to do the same). They played that card very publicly when Hood started his investigation, which George Dale picked up as part of his effort to prevent anyone from pushing the insurers to pay bigger settlements.
There were two MooreScruggs tobacco settlement cases: the national case and the Mississippi Medicaid case.
In the national settlement, other states joined with Mississippi. From page 353 of Orey’s “Assuming the Risk”:
“As negotiators prepared to announce the terms of their historic accord on the afternoon of June 20, a last-minute hitch developed. Brown & Williamson refused to drop its lawsuit against Jeffrey Wigand, and when Mike Moore and his fellow attorneys heard that, they threatened to walk away from the whole aggreement.”
Then re the Mississippi settlement, from page 357 of “Assuming the Risk.”
“In a replay of what had happened in the national discussions, a final agreement on the Mississippi deal hit a snag when Brown & Williamson refused to drop its lawsuits against Scruggs and Merrell Williams, saying it would do so only when a national agreement was final. Once again, Moore threatend to walk out….”
It’s almost as if State Farm read the book and said to Hood, “We won’t agree to the settlement until you drop the criminal investigation against us.” They were using the same tactic in this insurance settlement that MooreScruggs used in the tobacco settlements.
This might be amusing if it weren’t for the Katrina victims who are getting the short end of the stick.
somslawyer, you are so right.
General George Patton speaking about his defeat of Rommel in the deserts of Africa and of reading Rommels’ book, Infantry Attacks simply stated, “Rommel, you magnificent bastard. I read your book.”
SF simply took their tactics and applied them.
“Know thine enemy” The Art of War, Sun Tzu
Even though it’s self-serving, Mike Moore’s response to the motion to disqualify in the McIntosh v. State Farm case is a good narrative of what State Farm was doing. They signed a settlement agreement with the SKG in November, 2006, but refused to pay any money until Hood stopped pressing them on the criminal side. That was in late-January, 2007. So if you think about it, it wasn’t really Hood “extorting” State Farm, it was State Farm holding for two (more) months money that was rightfully due to the policyholder.
And the commenter is right that if State Farm didn’t know they had criminal liability, there would have been no real pressure on them. Historically, State Farm absolutely refused to settle mass tort litigation, but they were terrified of the criminal investigation after Katrina.
They made some serious mistakes in dictating the results of engineering reports. Anyone who hasn’t read it should read the complaint in Shows v. State Farm, the civil RICO case. And look at the exhibits. The exhibits show that engineering reports were systematically altered in State Farm’s favor. That’s criminal.
State Farm has smart lawyers and PR people. They saw the tide turning on Scruggs and came up with the line the Jim Hood and Scruggs were “extorting” them. It’s really a laughable position.
You bet they have smart PR people – the dropped a million plus to promote drop-out prevention in the State – couple of 1000 kids missing a day of school and bused in for decoration. Meanwhile, take note of the additional appropriation needed for Coast schools – enrollment way off in Biloxi duh families don’t have a place to live!
A lot of the impetus to settle came from the way Judges Senter and Walker chose to manage the docket. They didn’t allow rule 20 joinder even though these cases all arose from the same event and all plaintiffs suffered similar damages (generally). Rather, it was mandated that all plaintiffs must pursue their cases individually. With that situation, it’s no exaggeration to say that it will take more than five years to clear the docket.
Re the proposed class, Senter rejected it too quickly. In many Rule 23 situations, the judge will certify a class preliminarily, then press the sides to improve the terms before the settlement is finally approved. By refusing the class completely before before any proof was put on, Senter really blew up a decent chance for global resolution.
Silas, I think Senter was right to reject the settlement. The only thing it assured the plaintiffs was what their lawyers would be paid. It did not set up a concrete resolution of their claims in any amount.
Senter was focused on making sure the settlement was real and assured payments to class members. It didn’t. I’m not sure where Hood was. Scruggs wanted to manage a $500,000,000 settlement fund.
In the State Farm settlement, Hood and Scruggs got rolled (except for that att’ys fees thing). There are serious thinkers that think this is a parodic replay of the tobacco settlements. Think about it a moment.
The correct thing to have done, in my opinion, would have been to keep the class settlement process going and press the sides to make the terms more favorable. I think you are mixing preliminary approval and final approval. Sender was never asked to finally approve the settlement. If he had agreed to a preliminary approval, there would have been several hearings and a lot of opportunity to improve things. For instance, part of Senter’s order denying preliminary approval said that numerosity of the class had not been proven. Well, it hadn’t been proven because there was no process by which any proof could be offered since the whole thing was rejected shortly after being proposed.
As to the fees, your comment sounds more like rhetoric than a serious objection. The proposed settlement had an amount that SF was required to pay to policyholders. I have forgotten the number, but it was north of 60 million I think. It was very likely they would have paid substantially more to policyholders. And of course they could have opted out. And the class members would have been restricted to people who had not filed suit. So it wasn’t a horrible proposal. It needed work, but it should not have been dismissed in a way that guaranteed the result we now have…no resolution in sight for policyholders.
I forgot to address the point about Scruggs wanting to administer the $500,000,000.00 fund from State Farm. The reason I think Lee Harrell is putting his own somewhat inaccurate spin on that is that no mass tort lawyers want to have anything to do with “administering” any settlement. Mass tort lawyers like Scruggs generally hire other companies to deal with the details of administering settlement relief. Also, how exactly would that have worked in the real world? Was Scruggs proposing that State Farm simply put that amount of money in the bank after George Dale told them to, and then let Scruggs decide how it was paid? None of that rings true to me. From the context of that time, what most likely happened was that Scruggs was asking Dale for support in the litigation and told Dale it could involve a class that would be paid possibly $500,000,000.00. Then Lee Harrell had a good chance to torpedo Scruggs in that Halloween deposition, and did.
Silas, you may know more about the $500,000,000 fund than I do. However, I’ve read Senter’s opinion and the pleadings at and around the time the settlement blew up, because of an interest in what happened. I think Senter’s problem with the settlement were reasonable and real.
It may have been a preliminary stage– and there is a way it all spun out of control after Senter stated his problems with it. A lot of outside forces (the fact that the settlement did not resolve the Renfroe suit problem for one) were creating pressures that made that settlement implode.
So State Farm wants to say Hood was coercing them? What do they call it when someone offers money to a state official (this case to his major benefactor who turns around and gives it to him in the form of contributions) in order to persuade him not to do his job? They were bribing Hood! plain and simple! I find it incredible that they would go to court and make this argument! They are indicting themselves!!
BTW, the lawyer who represented State Farm in front of Senter on the Class Action settlment request formerly represented Scruggs himself! Bill Reed of Baker Donelson represented Scruggs in the past in suits against Scruggs by a former partner and possibly on issues with regard to tobacco payments and setting up the corporation that bought the tobacco receivables from Scruggs and his partners and got them paid millions. Who are the principles of that corporation? Scruggs and the other tobacco lawyers.
I was at the hearing on the proposed class. Yes, Scruggs wanted to administer the class, be paid millions in attorney fees and decide what, if anything, other lawyers for non-Scruggs policyholders would be paid. Mike Moore made a passionate argument in that hearing on behalf of Scruggs. This was, perhaps, the beginning of the end and many lawyers on the coast thought Dick was trying to dive bomb any cases anyone else had. Already most other settlments reached by other lawyers for policyholders with Allstate, State Farm etc., are on much better terms for the clients than the Scruggs settlements.
Full of Questions, do you understand that in class action cases, including the one at issue, people can fill out a piece of paper and opt out of the class and pursue their own case, with their own lawyer, and the lawyer gets paid whatever fee he or she can earn? There is not even a possibility of dive bombing anybody. That is a fundamental part of a class action, and was part of the one proposed.
We’re talking past each other on the “administer the class” issue. Yes, lawyers want to be paid millions in fees, but they don’t want to have to earn the money by the misery of actually administering any settlement relief. That’s why I say Lee Harrell’s testimony, or at least his wording, is off kilter.
This is my last comment on this bc it’s boring and academic because the class never happened, but I will say this: no matter what NMC and Full of Questions and others say, I believe they are missing the significance of even having State Farm at the table discussing a global resolution, and Judge Senter missed the significance of it, too. It will never, ever in anybody’s wildest dreams happen again, and while they were at the table, measures should have been taken to make the deal work (if I could bold that statement and write two lines under it, I would.) What should not have happened is exactly what happened…out-of-hand rejection without trying to improve it and make the thing work, then having a final approval of the settlement. A judge can act as a sculptor with class settlements and mold the two sides to get things right. I say this without trying to be argumentative, but for anyone who understands Rule 23 and the class mechanism (muddled and abused and screwed up as it may be) reading Judge Senter’s ruling rejecting that class out of hand was reading the ruling of a very smart judge who has not ever dealt much with class actions.
And now I truly will stop talking about this, because it’s an issue without any real meat on the bones. I simply think Senter missed an opportunity to take a settlement that was not good enough and make it good enough with the bully pulpit he holds. For instance, he could have cut the lawyer’s fees in half (or down to a third of that proposed), made State Farm guarantee more money to the class, and made the opt-out provision more clear to unrepresented policyholders. If Senter had not rejected the class about a week after it was proposed, all of that could have happened, and would undoubtedly have been good for a lot of policyholders.
State Farm v Hood is based in large part on David Lee Harrell’s November depo. Harrell was first deposed in McIntosh back in June when he was represented by the attorneys who were being paid by State Farm. At that time he did not mention anything about the conspiracy or coercion, even though the alledged acts had occured long before the depo.
Suddenly in November, his lawyers (this time led by Skip Jernigan who also has represented insurance companies), calls another Harrell depo where all this comes out. Read the full depo, including Zack Scruggs cross and Harrell’s story seems to fall apart. Harrell is smooth as silk in his answers to Skip’s questions, but seems to lose his memory when questioned by Scruggs.
In both depos, Harrell hid behind the Market Conduct study of State Farm as a reason to not answer questions. I’ve asked this before, but does anyone know what happened to this study? As a non-lawyer, I think this at least could have some major PR impact on this issue.
It seems SF is putting on the full court (no pun intended) press to divert attention from their bad faith tactics of delay, deceit and denial.
Expat, you’re right on regarding the Harrell deposition.
Some facts about the Harrell deposition: According to the docket the McIntosh case, it happened twice, once in July and once at the end of October. It’s the last one that SF is using heavily. State Farm “recalled” the deposition, and Zach Scruggs objected that they’d already had a chance to ask their questions on round 1.
In cross-examining Zach makes it seem that Harrell is operating off a vaguely recalled conversation and creates a strong implication that there is something really wrong with the timing of when Harrell remembers it. It becomes clear that something came out in conversations between SF’s lawyer Tucker of Butler Snow and Harrell over the “Market Performance Study” that made SF want to do the deposition.
But the dep SF is using occurred after they’d sued Hood, so they didn’t exactly base the suit on the deposition.
Do we Mississippian’s believe SF has done what is being alledged..HELL YES..They are an insurance company..It’s what they do…Having the same policy with Allstate for 30 years and then needing them , We went around the world ..but had George Dale and Jim Hood been beyond reproach we would not be here today. It appeared to me Harrell was telling what happened..and we know this is what Scruggs does, Dale was just not a Judge.