Breaking News! Judge dismisses RICO suit against Dick Scruggs and SMBD

With pleasure I eat ↑ (some of) my my words about Judge Keith Starrett who followed the law despite the fact his resulting Order dismissed the RICO case against Dick Scruggs and SMBD; i.e., Young v Scruggs:

Defendant Richard F. Scruggs was a highly successful trial lawyer who gained international fame from settlements with large tobacco companies. The plaintiffs, who are both attorneys, worked for Scruggs, Millette, Bozeman and Dent, P.A, (“SMBD”) a law firm and predecessor to defendant SMBD. The plaintiffs assert that they dedicated a large part of their legal career to assisting the defendants in obtaining the tobacco settlements.

On July 1, 1999, the plaintiffs entered into written agreements with the defendants which provided for the plaintiffs’ services in the tobacco litigation. The plaintiffs were employees of and not shareholders in the firm. As part of their compensation for services rendered in certain tobacco litigation, SMBD agreed to pay each plaintiff five percent of the net attorney fees the firm received from the tobacco litigation. Their agreement calculated “net fees” after certain deductions from gross proceeds, including fees due to other associated attorneys and “any other obligations by [the] firm in connection with tobacco litigation other than obligations to firm shareholders.” SMBD paid the plaintiffs through regular quarterly payments.

During and after the tobacco litigation, the defendants were involved in attorney fee disputes with Alwyn Luckey and William Roberts Wilson, both of whom claimed damages from fees earned in earlier asbestos litigation through association with the defendants. Luckey and Wilson also both sought a portion of the defendants’ tobacco attorney fees under a constructive trust theory, i.e., they should recover a portion of the defendants’ tobacco attorney fees because (they claimed) Scruggs and SMBD used asbestos fees due them to finance the tobacco litigation…

This court has previously addressed a similar issue in a RICO claim brought by Wilson and Luckey against the defendants and others for recovery of asbestos and tobacco attorney fees. In that case, Wilson and Luckey alleged that defendant Scruggs had committed predicate acts in furtherance of a scheme to deprive them of attorney fees. Wilson v. Scruggs, No. 3:02cv25TSL, slip op. at 16 (S.D. Miss. Sept. 29, 2003). In granting the defendants’ motion to dismiss for failure to state a claim, Judge Lee found that the alleged predicate acts did not meet the “continuity” requirement because they were all alleged to be “pursuant to a single effort to effectuate a single wrong against no one other than” Wilson and Luckey...

The plaintiffs’ allegations of racketeering activity are composed of nearly identical claims, as they allege that the defendants withheld “funds to which Plaintiffs are entitled and pays those funds to Langston in order to facilitate the bribery of elected officials in order for Defendant Scruggs to obtain a favorable result in a lawsuit against him.”

Judge Starrett’s Order leaves no doubt that plaintiffs Young and Makhail tried to make a federal RICO case out of state court claims:

Further, even taking all of the plaintiffs’ alleged facts as true, as the court must, the defendants committed the predicate acts for which the plaintiffs seek recovery during the course of the Wilson litigation, an otherwise lawful transaction which is now concluded. The specific “withholdings” identified by the plaintiffs occurred over a relatively brief period of time and related to a discrete series of payments for legal services. The plaintiffs have alleged that the defendants participated in a scheme to deprive them of attorney fees to which they claim they were entitled pursuant to the terms of a single contract. Because the plaintiffs have failed to plead that the defendants were engaged in the type of “long-term criminal conduct” that RICO was intended to reach, they have not alleged, and could not allege, that the defendants’ actions posed a threat of continued criminal activity. The plaintiffs’ RICO claims thus fail for this reason.

RICO only provides a civil remedy for racketeering activity that is related to the conduct of the affairs of an “enterprise”…Even assuming that the plaintiffs’ Complaint sufficiently pleads a pattern of racketeering activity (which the court has found that it does not), such activity alone does not violate RICO…there must be a nexus between the alleged acts and the enterprise. For this nexus to exist, the alleged predicate acts must have been facilitated by the defendant’s position in the enterprise and the predicate acts must have had some effect on the enterprise…the plaintiffs concede that the “Scruggs Enterprise” existed only to the extent that alleged predicate acts were committed for Richard Scruggs to obtain a favorable result in a discrete, otherwise lawful transaction

This court’s original federal subject matter jurisdiction over this matter is founded upon the plaintiffs’ federal RICO claims…Jurisdiction over the rest of the plaintiffs’ claims is based solely upon supplemental jurisdiction under 28 U.S.C. § 1367…If the court dismisses the federal claims, it then may properly decline jurisdiction over the state law claims under Subsection (c) of § 1367.

The Fifth Circuit has recognized that, as courts of limited jurisdiction, federal courts are “often not as well equipped for determinations of state law as are state courts”…Because “the framers of the Constitution did not contemplate that a federal trial court could assume jurisdiction over exclusively state-law claims in the absence of diversity jurisdiction”, interests of federalism and comity weigh in favor of dismissal of the plaintiffs’ remaining claims.

This court concludes that it should decline jurisdiction over the plaintiffs’ remaining state law claims and dismiss them without prejudice to refiling in state court. That being said, the court finds it unnecessary to address the standing issues asserted regarding the alleged injuries to the plaintiffs or the statute of limitations issues as to Luckey claims.

Starrett’s Order says all that needs to be said – and this case in total needs to be put to bed.

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