Reconciling the McIntosh Settlement: A Possible Explanation

Nowdy and I, with the help of an unlikely commenter and the offline perspective of others may have an explanation that reconciles the settlement offer made by State Farm as reported by Duesouth to the amount State Farm publicly disclosed.

The first tip was the 404 error I got when proofing Nowdy’s first post on the settlement yesterday.  Nowdy is a stickler for accurately naming her linked court docs but out of habit she named it an “order for dismissal” originally when it was actually a “Judgment of Dismissal”. What we initially thought was strange wording of the document made more sense when Rule 68 of Federal Civil Procedure was mentioned today. We sent out the email plea for background information and received this reply:

I wonder if there was a FRCP, Rule 68 “offer of judgment” in McIntosh…. It means if the plaintiff does not recover more than the offer of judgment, the plaintiff has to pay all costs incurred by the defendant after plaintiff refuses the offer. These costs could be significant in a case like McIntosh.

That started to tie things together and the mystery leverage State Farm had on the McIntoshes becomes more clear. Nowdy, the consummate researcher found an article out of Massachusetts that expanded on the concept:

Offers of Judgment pursuant to Mass. R. Civ. P. Rule 68 are often used in civil cases in an attempt by the defendant/insurer to gain leverage in settlement negotiations against a plaintiff by imposing the potential for an award of costs against the plaintiff. In theory, a Rule 68 Offer of Judgment should have the effect of forcing an otherwise unrealistic plaintiff to consider the consequences of rejecting a good faith offer by a defendant/insurer by imposing a sanction on the plaintiff in the event that he/she ultimately does not obtain a more favorable judgment than the settlement offered by the insurer.  (emphasis added)

The rules vary from state to state – Mississippi’s are here – and contain some pitfalls for the defendant as the piece points out; but, what we saw in McIntosh with the Judgment of Dismissal was the end result of a Rule 68 Offer of Judgment, no doubt. It certainly explains State Farm’s disclosure of the amount.

The offer is phrased as an offer to “allow judgment to be entered” on the specified terms; hence the offer of judgment moniker. Although settlement is here often used as shorthand for offer of judgment, it is important to recognize that the two are not identical.(emphasis added)

Settlements often include provisions that prohibit the parties from revealing the settlement terms to others. An offer of judgment, on the other hand, is an offer to allow entry of judgment on the record of the case, which would ordinarily be a public record.

The impact of not having the Rigsby sisters and their testimony certainly greatly impacted the odds Merlin could meet or exceed the $1.4MM hurdle cited by Duesouth. Given the costs of the legal firepower State Farm had on its team it would be easy to whittle anything less than $1.4MM to nothing which would explain the “mystery” leverage State Farm used to get the McIntosh family to their bidding.

sop

Explain it in part – and this explains even more: Merlin said a motion the McIntoshes filed last week asking a federal judge to dismiss their claim for punitive damages was part of the settlement agreement. Judge Senter has encouraged settlement but an order of Judgment isn’t a settlement – and three years after Katrina and two after the case was filed, it could easily be perceived as a threat.

nowdy

We worked separately and then combined our effort to create the post.  This background information on Rule 68 didn’t go with the flow; so, it’s added below for those who might want to know more.

We’ve heard a lot from State Farm about Scruggs use of every trick in the book; however, there’s one trick available only to defendants – Rule 68, Federal Rules of Civil Procedure, better known as An Offer of Judgment.

Rule 68, the offer of judgment rule, has been described as among the most enigmatic of the Federal Rules of Civil Procedure. This Rule allows a defendant to serve an offer of judgment on the plaintiff and makes the plaintiff who rejects the offer liable for post-offer costs if she fails to improve on the offer at trial. It is universally accepted today that Rule 68 was adopted to encourage settlements, but the Rule’s text makes it an extremely poor settlement device. The Rule operates only one-way (in favor of defendants); the penalty is too small to be meaningful; the requirement of a judgment (rather than just a settlement) discourages its use, and the Rule’s timing requirements are puzzling.

Rule 68 seems to be at the top of a lot of lists of Rules to change- and for good reason.

Contrary to the conventional view, the 1938 drafters did not intend Rule 68 to encourage settlement in the way we understand that today. They adopted the offer of judgment rule that existed in state practice, the primary purpose of which was litigation fairness not settlement promotion. The state rules aimed to prevent plaintiffs from imposing costs unfairly when the defendant offered everything the plaintiff was entitled to receive from trial.

The text of Rule 68 makes much more sense when it is viewed in fairness terms. The prevailing settlement promotion view became entrenched in the 1970s and 1980s, when concerns about litigation cost, case backlog, and litigation delay grew acute and interest in settling cases intensified.

Because the settlement promotion view has caused problems for interpretation of the Rule and for efforts to revise it, clarifying the history of Rule 68 is important. Moreover, empirical work on Rule 68 is nearing completion and the Advisory Committee is considering another look at the Rule, so the time is ripe for a clearer understanding. With the FRCP about to celebrate their seventieth anniversary, the history of Rule 68 also sheds light on two of the most important changes in federal civil procedure over the past seventy years: the rise of settlement and the politicization of the rulemaking process.

Rule 68 may make more sense to legal scholars when it is viewed in fairness terms; but, its fairness to plaintiff’s and their attorneys is subject to debate.

Rule 68 is an offer-of-judgment provision that seeks to encourage settlement and to avoid unneeded trials. It permits a defendant to make a settlement offer that raises the stakes for the plaintiff who would continue the litigation: If the offer is not accepted within ten days and the ultimate judgment is not greater than the offer, the plaintiff must pay the statutory costs2 incurred by the defendant after the offer is made.

Critics of Rule 68 claim it is ineffective for two reasons. First, attorneys’ fees, which account for the bulk of litigation expenses, are not usually included in statutory costs. Statutory costs are usually far lower than the amount at stake in the case; thus the incentives for defendants to make offers of judgment and for plaintiffs to accept them are weak. Second, Rule 68 is available only to defendants—it is a one-way rule.

31 thoughts on “Reconciling the McIntosh Settlement: A Possible Explanation”

  1. The question that I haven’t seen answered is the $250,000 an offer of judgement, or a settlement? There is a world of difference between the two. Offer of judgement does nothing but put into the record the amount for future reference. If the case settled for $250,000, I would think there may be something in the record by now referencing that.

  2. That was the hangup with us Beau but Senter’s wording of his order clearly suggests Rule 68. We’ll keep on this until we get all the answers..

    KU $1.4MM is alot of money that would have put out my fire if I were in the shoes of the McIntosh family. Merlin inherited the situation and though he has been subject to criticism here for the manner of his settlement, you’d be hard pressed to find either me or Nowdy hitting him. LIke Beau says he is a very well thought of lawyer but even the good ones end up on the short end occasionally.

    You’re right however about money talking and even the $250K SF paid was an awful lot to pay a couple whose suit was the by product of Dickie Scruggs fertile imagination right? Like I said the bullshit walks and there may be one other person besides David Rossmiller and you who actually believes that. I think everyone else understands just how badly the McIntosh family was raped.

    Stick with us, there is lots more litigation with State Farm still to come.

    sop

  3. I read the judgement that is linked on Rossmiller’s blog, and it is a final dismissal with prejudice of the entire case, not an offer of judgement being entered into the record. Only difference between that and a normal dismissal is the wording of the title and the fact the copy that is linked is not signed, but appears he used electronic signature. Nothing up on the Southern District website yet, but I would almost guarantee it will get posted once the signature is on it.

  4. I didn’t realize you hadn’t read it here (#11 post on the list). I checked the Southern District website, too, Beau. Senter has dismissed everything else with an Order but this is clearly a Judgment. The language is generally the same as most of the orders but not exactly. How often to you think the Court deals with an Order of Judgment? What other reason would there be for changing the title?

    Merlin didn’t make his excellent reputation settling for 25% of coverage and making the concessions he did in the dismissal of extra-contractual. Can’t add one and one and get two, yet; so we’re still digging.

  5. Maybe Merlin didn’t have the goods.

    Sometimes lawyers file complaints with all sorts of juicy, inflammatory allegations in them, and then discover that those allegations aren’t facts, and that they simply can’t make the case fly. (Mass tort lawyers like Scruggs are particularly good at filing complaints that read like Grisham novels, only to later discover that they really don’t have anything. Happens all the time.)

    Allegations are cheap and easy. Facts are difficult. If Merlin had facts, he would be beating the drum very hard. He isn’t. He folded. Either he is a good lawyer and did it for a good reason, or he is a poor lawyer, or he is on the take. I find the latter two choices unlikely. I think he didn’t have the goods.

  6. Well, while you’re being sweet today, how about going over to Merlin’s blog (left sidebar) and reading the September entries to date. I’m interested in if/how the information influences your opinion.

    Also in what impact you think his inability to call Rigsby sisters as witnesses or have their evidence admitted had on the outcome of the case.

  7. Haven’t looked at Merlin’s blog and may tonight if I find time here.

    One comment I’d make on your last paragraph Nowdy is that I would guess it may be a huge impact, but one would have to weigh just what they could testify and how credible it would be, and those two issues are anyone’s guess. If the sisters and their two friends who got deposed had equal testimony and credibility, it could be a draw, if unequal it could lean heavily one way or the other.

    One other thing about the sisters not being able to testify could come back to haunt Scruggs. I think most people looking at the whole picture will believe that because of his dealings with the sisters, they were disqualified. Their disqualification probably in the long run hurt the McIntoshe’s case. Maybe Merlin settled out with SF to finalize the underlying case and will go after Dickie for legal malpractice as an argument could be made that his handling of the case on a global basis hurt his client and ended up costing them money (as some may say, the difference between $1.4 million and $250,000). As i said before, Merlin is a smart man and things like this may be up his sleeve. Just food for thought.

  8. You’re not the first to suggest someone will go after Scruggs for malpractice; but, I hope no one does and since I’m working on a post that addresses that issue and others, I’ll leave it at that – other than to say I’ll be interested in your thoughts about the post.

    afterthought here, but when you read the depositions of the two women identified as “friends” and compare their transcripts to others, do you notice any difference other than content?

  9. i have to agree with CG about the Scruggs issue. If Scruggs did something negligent/stupid that compromised a clients settlement ability on a case, he should be held accountable. Whether what he did would be considered negligence is another matter, and not as clear cut as say missing a deadline to designate experts and not being able to use your experts. Zero difference in SF doing something negligent/stupid in the handling of the claim. Both are under a contractural obligation to the McIntoshes for certain performance and failure to live up to that performance is negligence per se and actionable.

  10. Bribing witnesses is not negligence: it is worse than negligence. As a violation of the standard of care required of a practicing attorney it is a lead pipe cinch. The liability phase of the case would be the easiest in recorded history.

    Where it would get interesting would be the proximate cause and damages phase. Would Scruggs’ malpractice carrier try to say that his failures lead to no economic loss to the McIntosh’s, because they eventually got what the case is worth? In other words, would Scruggs try to crap on the McIntosh’s case in order to save his own economic skin, or would he do the responsible thing and own up to the damage he caused?

    Obviously, I don’t know the answer to that question, but I don’t think anyone has gone wrong yet by assuming that Scruggs would take the low road whenever possible.

  11. It pains me to say that I agree with much of claimsguy’s post. I think the one place he has seriously erred is when he ponders what Scruggs’ malpractice carrier would say. The malpractice carrier would first say something along these lines: “Mr. Scruggs, we are denying you coverage and a defense in this matter because the act of bribery requires intent, and our policy does not cover intentional acts.”

  12. The damage evaluation on a legal mal case like that wouild be difficult, but if I were the McIntoshes/Merlin I would start with showing that there was a $1.4 mil offer by SF like either Nowdy or Duesouth mentioned in one of the threads. That would have been in writing somewhere, and that would be some strong evidence that the value was in that range before Scruggs and Co imploded bringing the sisters down with him and compromising this particular case.

    Richard, I think a good plaintiff attorney could get around the intentional acts part of any defense claim. The bribery of the judge as an intentional act, no, but i think CG was refering to him “bribing” the sisters and Ford.

    This is a situation that if the carrier did deny a defense or defended under a ROR, it is pretty much a moot point for the plaintiff as Scruggs’s pockets are plenty deep enough to take care of any defense and value of any damages that may come about.

    There is another situation that could come into play that could create a huge liability against Scruggs and others that I have never seen addressed anywhere and I’m a little surprised. It could make any damage aspect from what we have mentioned seem small, and could go against Scruggs and all the people involved in the SKG. It could easily qualify as a class action I would think.

  13. Beau:

    No matter how good the plaintiff’s attorney, there is no such thing as “negligent” bribery; the act itself requires intent. And as you picked up, I made the point tongue in cheek because this is the rare circumstance in which coverage would be irrelevant to the plaintiff.

  14. Been away, but back today…this is somethin’ I gotta say: Dickie needs suin!

    How many of your cases there did he tarnish and how many of your neighbor’s claims got put through the ringer because of the apparent sham he tried to work? I’ll go so far as saying his partner in crime Jim Hood should swing from a gallows as well!

    IF – Dickie did what is beginning to be more and more apparent and USE the McIntosh claim and the Rigsby sisters, and Jim Hood to put a legal nuckle to the head of State Farm and the other companies thus MAKING THEM take the hard ass approach they did, then A LOT of what you all went through was a direct result of the Tort King pushing the industry into handling claims in a way they werent originally going to handle them. WHAT IF? If Mr. Magical Jurisdictions had not tried to trade on your ills how would things have turned out? You will never know since he stuck his greedy hands into the honey pouch. Insurance companies get the shaft all the time after catastrophes, nothing new there, but when Dick and Co. used the LAW ENFORCEMENT ARM OF AN ENTIRE STATE to do Public Relations BLACKMAIL, he crossed the line and caused the you know what storm your state is still apparently facing. Insurance companies get sued, that’s part of the business and part of what they collect premiums for. BUT, when an entire campaign is raised that goes all the way to congress to basically castrate an industry, you cant really, honestly say you dont know why the insurers would rather leave than fight. If it is such a money grab, they would be fighting to stay in instead of looking for ways out. Attorneys have their profession, insurance companies have theirs. That is the AMERICAN BUSINESS MODEL. This isnt CUBA, Russia, or France…thank God.

  15. Proximo:

    America it is. And like Don King says, “Only in America” could the government lend a huge, almost bankrupt, insurance company 85 billion while the citizens of Metropolitan New Orleans cannot get the 3-4 billion it would cost for Cat 5 levee protection. And while the government is at it, let’s appoint the former CEO of the company that shat on those same people the worst (you know who, and it’s not the Farm) as the new man in charge of the company whose arse we just saved.

    When can we get over the Scruggs thing (some people are absolutely obsessed with him, whether they hate him or love him, he ruled their very existence)? State Farm has done the same stuff in LA, and there is no Scruggs boogey-man for State Farm to lay the blame on. I have litigated cases against State Farm for 15 years and never have I seen them operate like this relative to both claims and litigation.

    One thing you are right about, Scruggs did tarnish some cases. But can’t we just move on? MOVE ON COUNSEL!

  16. I think, FWIW, the judges didn’t decide to throw out the sisters and SKG based on facts but did on innuendo. The fact that the sisters were paid was known long before the indictment. It was only after the indictment that the courts took issue with Scruggs’ actions and those actions per se were not litigated AFAIK. The judges just ruled and kicked ’em all out. That was the bust. But that doesn’t mean per se that Scruggs and CO. did anything unethical or worth suing over. I just don’t think those facts have been tried. In fact, when they were tried the first time, it was okay, remember? And I don’t think you can sue judges.

  17. Richard,

    What I was trying to say above, but not very clearly was what he did with the judge was intentional, yes. What he did as far as paying the sisters was intentional, but would that be construed as a “bribe” like CG says? I can’t really say that it would be, and if it can be shown that it was just stupidity on his part, he didn’t know that it would bar them, etc from the cases, it may not be an intenional act and could still be negligence. It was his dealings with the sisters that got them booted, not the stuff with the judge/$.

  18. Beau:

    The moment I heard Scruggs had paid fact witnesses, in any capacity, I winced in pain. But, I also think the Rigsby sisters are a great example of why people do not want to be whistleblowers. Anyone reading this should consider how your life would stand up to the scrutiny and spin of a multi-billion dollar machine that is out to destroy your case by destroying your reputation. I don’t know the Rigsby sisters, so I cannot say. But for many years, they were honest and “clean” enough to handle the Farm’s claims.

    Twice that I know of, my law office has been under video surveillance by invesigators working for insurance copanies. It’s a real creepy feeling.

    Watch the political commercials. If you have enough money, you can make people believe just about anything, if you repeat it enough. And if you connect the word “good” to your company (hands, neighbor) and you pound it into people’s heads enough times for decades, it becomes a reflex response to some people when the company’s name is mentioned. Then think about all of the bowl game sponsorships and other places you are forced to look at these companies’ logos.

    It’s a hell of a thing to confront, even when the “good” company is wrong.

  19. Cori and Kerri Rigsby know all about that video surveillance Rick, I’m told when Chip Merlin’s client Mr Beckham confronted State Farm on the alterations to Mr Monie’s engineering report they called his neighbors trying to dig dirt on the man. Of course Lecky King labeled another engineer “a moron” when she got a report she didn’t like.

    sop

  20. Sop:

    The “neighborhood canvas” is an old one. How hard do you think it is to find a Gladys Kravitz when you’re trying to smear someone? One day I’l tell you about a great neighbor-interview backfire. I’ve got some great surveillance stories too.

    But it really is creepy when someone is watching and you don’t know they are.

  21. There is an actual term for what they did to Mr Beckham, I’m not surprised. I look forward to hearing the stories over Vodka Martinis.

    I long ago considered these tactics a likely consequence of moderating slabbed. Don’t think it’s happened but I am aware it easily could.

    sop

  22. What a great conversation and checking the clock against time of last comment I’ve missed out – not exactly fair since I sit at this computer so long every day that I’m expecting it to hatch!
    I have checked the blog, just saw all the comments, noted Proximo was back, saw the rest of you and came here first.

    Gave me an outside looking in perspective and my immediate reaction is that SF has sold you guys Scruggs the myth vs Scruggs the man without context. IOW you are giving Scruggs too much credit and IMO promoting that was part of the plan.

    One example – borrowing from Sop’s and Rick’s last comments – is the “insider-airport” story where Scruggs reportedly paid someone to meet him with envelope. All sorts of allegations have been made about the event – but one I have heard much discussion about – although it seems obvious and would have implications elsewhere is that Scruggs was under surveillance and knew it.

    I wouldn’t be surprised to learn their were layers of survielance – people watching Scruggs, people watching people watching Scruggs, other people watching the people watching people watching Scruggs ad infinitum.

    I’ve been amazed to see what people were willing to accept about Scruggs without examining various options. I’ll take Belle’s point one step further and say that not only have all the facts not been tried, there are more we don’t know than those we do. But if you frame an issue a certain way and load it with triggers that you know will send thinking in one direction and avoid triggers that would send it in another, you do need facts because you can “make your own” with skillfully worded allegations.

    I need to read a little more before I finish a couple of posts I’m working on – and I’ve got to read this thread again and probably print it so I can really focus on the various points and be certain I understand before saying more.

    I’m sure it goes for all of us and slabbed readers, but I would be remiss in not saying thank you for the time it took to think about and write these comments.

  23. You are so right, Nowdy! I, too, need “to read this thread again and print it out so I can focus on the various points,” but I think you definitely catch my drift.

  24. I’ve read all of your thought provoking comments several times now. Am pressed for time until later today so I’m going to paint with a broad brush.

    Proximo – there are other ways to look at what you see as public relations blackmail and campaign all the way to Congress to castrate industry.

    The “magical jurisdictions” is part of what I call Scruggs the myth – I see most often see the quote attributed as a remark he made in a conference presentation. It’s importation to note, he very accurately described the how electing judges fosters the creation of magical jurisdictions for their supporters – and it was a very appropriate comment in the context of the presentation and distinctly different from claiming you are the lone magician.

    It’s easy to buy into the myth is you don’t have some context and haven’t lived where there are magic jurisdictions.

    If someone buys into that myth, however, they’re set up to buy more of the same such as a the pr blackmail and industry castration campaign. I’m guess that the people who buy that most readily are corporate – legal, executives and such. There’s nothing “wrong” about that in the sense that it’s a perspective consistent with the way that culture looks at more than just this situation.

    I just don’t believe it is accurate. Scruggs was not a part of that culture. IMO, the culture that shaped his perspective on insurance was social justice law and not corporate law.

    The logical extension of that is what is called a public engagement campaign in that culture – different from a corporate pr campaign.

    The product of public engagement campaigns is change – not corporate goodwill or what is offered for sale.

    What you see as castration of the industry could just as easily be the application of the external pressure needed for any system to make real and sustainable change – in the insurance industry that can’t happen without the involvement of congress.

    A good many folks believe Scruggs was greedy and they support that believe by pointing to the tobacco settlement and comments of Scruggs and others suggesting insurance was a comparable effort but totally ignoring the public benefit was greater many times over than the incredible wealth he acquired. Some claim there was a similar public benefit in his plan.

    That’s overly simple and not intended to address related claims like his “greed” or imply that his conduct didn’t push the edges or anything thing but what it says about different cultures and different perspectives.

    A relatedexample and needed lighter note comes by way of my sister who saw or heard about a reporter from the northeast interviewing a resident of the 9th ward shortly after Katrina. The reporter asked how many churches had been lost and the woman looked at her, thought a minute and told the reporter she just didn’t know, that she liked popeye’s chicken better!

  25. Nowdoucit:

    Are you still unclear on the whole “bribed witnesses” thing? It seems like everyone else on this board understands what I am talking about.

    I understand that you might mistakenly disagree with my charactierization of that transaction, but you DO know what I am talking about, don’t you?

  26. I could make it easy on myself and say I was just playing with you but the truth is that I wasn’t certain what (who) you were talking about. Once I understood, I disagreed but I wasn’t mistaken.

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