Deposition testimony: Scruggs wanted George Dale to help with plan to force State Farm to pay $500 million for Scruggs to administer Katrina claims

First things first.  The Associated Press reports that a federal magistrate extended an injunction yesterday that has barred Mississippi Attorney General Jim Hood from continuing his criminal investigation of the insurer.  Here’s the story by Holbrook Mohr.  Wednesday’s expected hearing on the injunction, at which Hood was supposed to testify, did not happen, however.  Instead the lawyers for the parties met behind closed doors, and Hood emerged with this cryptic comment, the story says:

State Farm is "trying to find out about the grand jury proceedings and we just reached the status quo," Hood said after the hearing. He would not explain the comment.

(I think Hood was referring to the fact the judge continued the injunction, or kept the situation as it was, but that’s just a guess).

Before going on, let’s pause a moment to consider the significance of what is happening here.  State Farm has sought and obtained an injunction by a federal magistrate judge that prohibits a state official from continuing a criminal investigation.  As you may or may not know, the standard for granting an injunction is that there is a likelihood of success on the merits — because an injunction is a restraint directly on a person’s freedom of action, they are not granted lightly, particularly in a circumstance such as this. So State Farm obviously, in the opinion of the judge, has a good case against Hood.    

Now on to what I really want to talk about, the stuff that was filed in State Farm’s lawsuit against Hood leading up to the scheduled hearing.  One of the documents was a deposition, and when I read this deposition, I almost dropped my red Yellowstone mug of decaf with the white moose silhouette, what I was reading was that startling.

Remember, State Farm is alleging in its lawsuit that Hood conspired with Dickie Scruggs to use his "insiders," the so-called whistleblower Rigsby sisters, to steal State Farm documents from their employer, E.A. Renfroe & Co., a contractor that assists the insurer in adjusting claims.  This action by a state official, State Farm says, is an illegal search and seizure under the Fourth Amendment.  The deposition I am talking about is of David Lee Harrell, Deputy Insurance Commissioner of Mississippi, the deposition was taken on Halloween, you can click here to read it for yourself, and here’s what it says.

In December 2005, Scruggs called a meeting of Mississippi Insurance Commissioner George Dale, Harrell and himself.  Scruggs said he had "insiders" at State Farm, according to Harrell. 

"He was making a presentation to Mr. Dale and myself regarding why we should make State Farm put up $500 million for him to administer to pay claims.

"He said he was going to do it the same way he did in the tobacco case, that he had a couple insiders, high-ranking State Farm representatives working for him as insiders, and he was going to work it the same way he and [former Mississippi AG] Mike Moore worked the tobacco case.

"He told Mr. Dale that, George, a lot of people on the coast are calling you the Commissioner for Insurance.  He talked about how he had always liked Mr. Dale, and had always been there, trying to help Mr. Dale, but if we didn’t work with him on this, he was not going to be able to support Mr. Dale in the future, politically.

"My understanding of the discussion, or my perception of it, was that if Commissioner Dale didn’t go along with trying to make State Farm put up $500 million, that Mr. Scruggs was going to attempt to get Mr. Dale beat."

[A question was asked, "Did the department insist that State Farm put up the $500 million for Mr. Scruggs to administer"?]

"No, sir.  Mr. Dale advised Mr. Scruggs that he didn’t think that was legal to do that and, Dickie, you are just going to have to do what you have to do."

In response to the question, "But there’s no question in your mind that on December 15th, during — 2005, during this discussion, Mr. Scruggs specifically used the term ‘insider’ "?, Harrell testified as follows:

 "That and the term ‘whistle blower’. . . . To the best of my recollection, he had a couple of high-ranking State Farm representatives working for him as insiders." 

And in one of the most remarkable passages I have read in anything having to do with these Katrina cases, Harrell also testified to meetings in early 2007 with Moore and Hood, where Moore said he was assisting Hood with his criminal grand jury investigations at the same time Moore  was working with the Scruggs Katrina Group in pursuing civil claims against insurers, and that Hood said this about the civil litigation:

"If they [State Farm] don’t settle with us, I’m going to indict them all, from Ed Rust [State Farm’s CEO] down."

So, do you see what Harrell’s testimony says? That Hood worked with Scruggs and the Rigsby sisters to take documents from State Farm, without a warrant, for use in a criminal investigation and to assist Scruggs in his civil lawsuits, and then he not only worked on criminal investigations with a man who was also working for the Scruggs Katrina Group, he used the threat of criminal indictments that would culminate from this process as a means of coercing settlements in the civil cases he had help create. I think I did well to hang on to the red Yellowstone mug. I encourage you to read this deposition, it is quite short. 

Now, there are a couple of other things that are of high interest that I want you to see.  One of them is the transcript of a November 1 hearing before Judge David Bramlette and Magistrate Judge Michael Parker about extending the State Farm injunction.  Hood didn’t come, because he said he was busy and would send someone else who could answer all questions. If you read the transcript, you’ll see the person he sent lacked knowledge in many areas, such as what kind of dealings Hood had with the Rigsby sisters, or even that he had been offered as a witness in place of Hood.  Nor did he know that Scruggs had been acting as a "confidential informant" to Hood, as Hood claimed in a letter to U.S. Attorney Alice Martin earlier this year, when Hood wrote asking her to decline to prosecute Scruggs for criminal contempt. (She did, but federal Judge William Acker appointed special prosecutors who are pursuing the charge against Scruggs and his law firm).

On November 2, Judge Parker ordered that Hood should testify at the November 7 hearing. 

On November 5, Hood filed this motion to clarify,  asking to be excused from the scheduled November 7 hearing because of the duties of his office. State Farm then filed this response brief, which, by the standards of a legal brief, is hilarious in its explicitness about how little Hood’s substitute witness knew and how Hood allegedly was trying to dodge testifying.  I think my favorite part of this excellently written piece of work is the following:

It is no coincidence that the very same day that the Fourth Grand Jury Subpoena was served on State Farm, State Farm’s counsel received a letter from another Scruggs Katrina Group attorney using the threat of criminal indictment in an attempt to coerce settlement out of State Farm and explicitly stating "[a]ll this happened because State Farm could not or would not call off its Renfroe dogs." 

Renfroe dogs? Recall that Renfroe sued the Rigsby sisters for allegedly breaching their confidentiality agreements in taking the claims file documents, and that Scruggs wanted it dismissed, but State Farm refused to pressure Renfroe to do so.  This is the lawsuit out of which Scruggs’ criminal contempt charge arose, so it turned out the dogs had quite a bite.

Finally, here is a copy of Judge Parker’s order that Hood show up after all on November 7.  Fascinating stuff.  I’ll continue to follow it and keep you informed.


Filed under Industry Developments

5 Responses to Deposition testimony: Scruggs wanted George Dale to help with plan to force State Farm to pay $500 million for Scruggs to administer Katrina claims

  1. doug

    I can only hope that this might send a message to all politicians. I also hope that this results in Hood being removed from office and both Hood and Scruggs are ultimately disbarred.

  2. KimD

    David, in your personal opinion, what do you think the chances are that Sen. Lott gets implicated in any of this?

  3. Depending on your definition of implicated, he is. I’ve seen deposition exhibits that show notes and so forth involving Lott in conversations about the Rigsby sisters, how he’d forego money to get State Farm, etc. I’ll see if I can dig one up and post it tomorrow.

  4. Katrina litigation is still hot

    Katrina-related legal developments are happening fast and furious. A sampling: a federal magistrate extended State Farm’s injunction against Mississippi AG Jim Hood’s criminal investigation of the insurer, while State Farm has filed court documents wit…

  5. seetherealdeal

    I hope that everyone out there, David, remembers that any investigations by the AG or the Feds involve individuals, not just State Farm. We all know they can indict a business or an individual, but what are the ramifications for a business vs. an individual criminally? When talking about the forest, don’t forget about the trees. The lives of people are being overturned because of this political sickness.