A Katrina Case Leads To Criminal Charge Against Scruggs

Mississippi attorney Richard Scruggs, the foremost legal opponent of insurance companies over Hurricane Katrina claims, was hit with criminal contempt charges yesterday by special federal prosecutors in Alabama.

The contempt charges stem from Mr. Scruggs' alleged defiance of an injunction not to disclose purloined State Farm claims documents. They were originally ordered June 15 by U.S. District Court Judge William Acker Jr. in Birmingham, Ala.

In a highly unusual move, special prosecutors were appointed in the case by Judge Acker when the U.S. Attorney's Office in Birmingham declined his request to charge Mr. Scruggs.

Three private Birmingham attorneys serving as special counsel, Charles F. Sharp, Joel A. Williams and Michael V. Rasmussen, yesterday filed an allegation of contempt--the equivalent of criminal information or indictment--against both Mr. Scruggs and his Oxford, Miss. law firm.

The special prosecutors also filed a motion in U.S. District Court in Birmingham seeking the issuance of a summons against Mr. Scruggs and his firm and the scheduling an arraignment.

No date has currently been set.

Mr. Rasmussen said in the event of a trial conviction by a judge, the maximum penalty Mr. Scruggs would face is a six-month sentence.

In the event of a jury trial conviction, there is no set term, but the term must be reasonable and is subject to review by an appeals court.

In a preemptive move, Mr. Scruggs' criminal defense attorney, John Keker in San Francisco, filed a writ of mandamus on Aug. 6 with the 11th U.S. Circuit Court of Appeals in Atlanta, asking them to block any allegation of contempt.

The court has not ruled.

Judge Acker in his original order said Mr. Scruggs violated an injunction against disclosing and misappropriating State Farm documents secretly copied by two former adjusters for the Birmingham-based E.A. Renfroe & Company.

The company had employed 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 Judge Acker's memo and opinion, 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 State Attorney General Jim Hood and the FBI and later became consultants to the Scruggs Katrina Group, the memo stated.

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, who passed on the documents to Mississippi State Attorney General Jim Hood, testified at a hearing that he did so after Mr. Hood interpreted Judge Acker's injunction to mean Mr. Scruggs could send him the documents in question, which he did, rather than to lawyers for Renfro. The judge labeled that interpretation "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 currently suing the company for failing to go forward with a proposed class action settlement of certain policyholders' Katrina claims.

According to Judge Acker's memo, when an assistant in Mr. Hood's office asked Mr. Scruggs to send over the 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.

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

Mr. Keker in response to the charges against his client said through a spokesperson that the "allegations are completely unfounded and unfair."

Mr. Scruggs, his firm and the Scruggs Katrina Group of attorneys have brought hundreds of cases on behalf of coastal Mississippi homeowners with Hurricane Katrina damage claims, most of them against State Farm.

His current legal difficulties drew a happy reaction from an insurance trade group. "We're pleased to see that state and federal officials are making certain that the law applies equally to everyone. We hope that this action will help bring to a close the small minority of contested claims that resulted from Hurricane Katrina," said Joseph Annotti, Property Casualty Insurers Association of America (PCI), senior vice president for public affairs.

He said PCI hopes "that the news media will cover this development as extensively as they covered the reckless and unsupported allegations of insurer misconduct put forth by Mr. Scruggs and other trial attorneys and that efforts of insurers to rebuild homes, lives and businesses in the Gulf Coast through the prompt and fair settlement of claims garners the attention it deserves."