Scruggs Vs. State Farm Battle Heating Up

If the U.S. Attorney's Office declines to prosecute, the judge said in his order he will "appoint another attorney to prosecute Scruggs' contempt."

At issue is the lawyer's handling of documents in a case involving two sisters–Corri Rigsby Moran and Kerri Rigsby–who worked in Mississippi for Renfroe after Hurricane Katrina doing adjusting work on State Farm claims.

The women, according to a memo and opinion accompanying Judge Acker's order, witnessed what they believed to be fraudulent practices by State Farm and began copying documents they thought were evidence of "egregious misconduct."

In addition to providing Mr. Scruggs and his firm with thousands of pages, they also provided State Farm documents to Mississippi Attorney General Jim Hood and the FBI, and later became consultants to the Scruggs Katrina Group, the memo states.

When Renfroe sued the sisters, the judge ordered them to return the documents, and their attorneys were ordered not to disclose any further material unless there was a request by law enforcement officials.

Mr. Scruggs testified at a hearing that Attorney General Hood read the injunction to mean Mr. Scruggs could send him the documents in question, which he did, rather than to lawyers for Renfroe–an interpretation the judge labeled "erroneous."

He wrote that Mr. Scruggs' disregard of the injunction was "brazen," and the lawyer had substituted his judgment for the courts, adding, "That spells 'defiance.'"

Mr. Hood, who dropped a grand jury investigation of State Farm Katrina claims-handling, is suing the company for failing to go forward with a proposed class-action settlement of certain Katrina claims.

According to Judge Acker's memo, when an assistant in Mr. Hood's office asked Mr. Scruggs to send over Rigsby documents to keep them out of State Farm's grasp, he delivered them, and when Cori Rigsby asked him to send the documents to Renfroe, he said, he no longer had possession of them.

Eventually, Renfroe received documents from Mr. Hood and Mr. Scruggs, after bringing an action in Judge Acker's court and seeking a civil contempt finding against the Rigsbys and Mr. Scruggs.

Meanwhile, State Farm launched a legal attack against Mr. Scruggs, asking a judge to toss the lawyer and his firm off a case for alleged ethical violations, including the use of "stolen" State Farm documents.

The motion to disqualify Mr. Scruggs, his Oxford, Miss., law firm and the Scruggs Katrina Group was filed in Mississippi three days after Judge Martin asked the U.S. attorney to prosecute Mr. Scruggs.

Mr. Scruggs said the insurer's filing in Mississippi's U.S. District Court, Southern District, "is a reaffirmation that State Farm is getting desperate."

State Farm filed its motion in a case brought by a Biloxi, Miss., couple–Thomas and Pamela McIntosh–who are disputing the insurer's engineering report concerning the amount of Hurricane Katrina damage to their home. Mr. Scruggs accused State Farm of filing the motion because the couple rejected a settlement offer.

According to the insurer, Kerry Rigsby worked on the McIntosh claim, and the Rigsby sisters "stole thousands of State Farm's confidential documents"–including an engineering report on the McIntosh case–and gave them to Mr. Scruggs.

Mr. Scruggs, "in turn, rewarded the sisters for their cooperation by paying them an annual salary of $150,000 each to serve as 'litigation consultants' for him and his associates at the Scruggs Katrina Group…"

Mr. Scruggs said the sisters were hired only after State Farm, through their "captive surrogate" Renfroe, fired them and they had been paid "more than that to cheat people on the Gulf Coast."

The State Farm filing says Mr. Scruggs violated Mississippi Rules of Professional Conduct by holding private ex parte meetings with the sisters when they were legally represented by State Farm while working for the firm.

According to the insurer's memorandum, Mr. Scruggs violated rules by using methods to obtain "stolen confidential documents" as evidence that violated the legal rights of a third party and State Farm.

The insurer also argued Mr. Scruggs is prevented from representing a party in a proceeding where he is likely to have to testify. In the McIntosh case, State Farm said he has knowledge of exculpatory facts that bear directly on that claim.

Mr. Scruggs said he began representing the sisters when they consulted him about the legality of the work they were doing.

"There is nothing unethical about what we did," he said, noting that the firm had cooperated with the government to verify attempts by the insurer to push losses onto the federal flood insurance program "and cheat homeowners."

State Farm said in its papers it did not make its move lightly, but deposition testimony, public statements and other evidence shows Mr. Scruggs committed "repeated ethical violations and traduced the Federal Rules," making State Farm's attorney "duty bound to bring these issues to the attention of the court."

In another related development, The Scruggs Katrina Group filed a federal lawsuit in Mississippi last week accusing State Farm, Renfroe and an engineering firm of a racketeering conspiracy it alleges had defrauded a group of coastal homeowners out of $3.97 million.

A State Farm representative, Fraser Engerman, said the new suit is "Scruggs using one of the oldest tricks in the books–if you're attacked, deflect. He said last summer, 'If you don't win it, you spin it.'"

Named as defendants in the Scruggs Katrina Group suit were: State Farm Mutual Automobile Insurance Company, State Farm Fire and Casualty Company, Forensic Analysis & Engineering Corp., Robert Kochan (the owner of Forensic), E.A. Renfroe & Company Inc., and Renfroe owners Gene and Jana Renfroe.

The suit, filed on behalf of more than 100 plaintiffs, seeks compensatory and punitive damages, treble damages for racketeering, and attorneys' fees.

It charges that the defendants engaged in breach of contract, conspiracy, mail fraud, wire fraud and obstruction of justice.

The racketeering conspiracy, the 101-page complaint charged, involved gaining entry to properties "allegedly to inspect hurricane losses" and obtaining scientifically dishonest inspection reports to attribute losses to policy exclusions for water damage.

It accused the defendants of altering reports with findings of compensable wind damage and conducting sham re-inspections to falsely obtain reports finding damage due to excluded water damage.

According to the complaint, the racketeering enterprise is "ongoing and functions as a continuing unit," adding that State Farm used the technique of "falsely contrived inspection reports" in Oklahoma in 1999, where the company employed Haag Engineering and Renfroe to "globally deny" hundreds of claims. The result there was a $13 million verdict against the insurer, according to the complaint.

The court papers also allege the defendants used contrived inspection reports in the course of settlement mediations conducted by the Mississippi Insurance Department.

Before mediation sessions were held, it was charged that State Farm attorneys gave their witnesses scripted dialogue "to demoralize policyholders and create the impression that no degree of forensic evidence would convince State Farm and/or Renfroe to pay the full value of their insured hurricane damages."