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Legal Commentary

: FORTUNE Legal Pad

Scruggs update, Part II: When Kerri met Dickie

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[This is part of a series. The introduction is here.]

The Rigsbys and Scruggs have always portrayed the Rigsbys? secret photocopying of confidential State Farm documents (in arguable violation of confidentiality clauses in their contracts) as having been self-initiated, rather than directed by Scruggs. While it would probably be illegal for Scruggs to have directed the Rigsbys to use their inside position to collect confidential State Farm documents, it may have been defensible for the Rigsbys to collect those documents on their own, as the high-minded acts of whistleblowers whose primary intent was to turn them over to law enforcement to stop a crime in progress.

While the Rigsbys and Scruggs have always maintained that they did not meet until February 2006, well after the Rigsbys started collecting documents, State Farm theorizes that Scruggs actually struck some sort of unholy alliance with them much earlier. The deal allegedly had much to do with the predicament of the Rigsbys’ mother, Pat Lobrano. Lobrano?s own home in Ocean Springs, Mississippi, had been severely damaged by Katrina-related flooding, which was going to be excluded from coverage under her State Farm homeowners policy and that was inadequately insured under federal flood policies. (In an interview, Lobrano says her insurance agent had incorrectly advised her that she had the maximum insurance available.)

Hardison and Lee describe Lobrano and her husband (the Rigsbys? stepfather) as being depressed and distraught immediately after the storm, but within a couple weeks the two underwent what Hardison and Lee describe as an abrupt change in mood. The Lobranos suddenly started hiring contractors to repair their home. (”You have to do that,” Lobrano says in an interview with me, or the house will deteriorate further and the policyholder will be responsible.) State Farm?s implication is that the turnaround may not merely have been a matter of mental resilience, but that some pecuniary assistance, or at least the prospect of it, had already arrived.

State Farm suggests that the Rigsbys, Lobrano, and Scruggs all pow-wowed much earlier than they have previously admitted. Mississippi?s deputy insurance commissioner has previously testified that at a meeting with Scruggs on December 15, 2005 ? long before the Rigsbys and Scruggs have admitted meeting each other — Scruggs was already boasting that he had two State Farm ?insiders? helping him and that he was going to ?work it? (i.e., his attack upon the insurance industry) the same way he and Mike Moore had handled their celebrated attack upon Big Tobacco. (Scruggs?s use of insiders in the tobacco litigation was later chronicled in the movie, “The Insider.”)

Around Christmas 2005 or New Years 2006, Hardison and Lee remember being in Cori?s den when the Rigsbys were watching a DVD of “The Insider” and speculating about which actors would play each of them when the movie of their own exploits came out. (?Kerri kept saying that Sandra Bullock was going to play her,? Hardison testified.)

?We are going to get a book deal,? they?d say, according to Lee. ?We?re going to make a movie. We?re going to be famous.?

Lobrano told the [Biloxi-Gulfport] Sun Herald, however, that she had recently verified with her video store that she checked out that movie for her girls on February 27, 2006, just after she has previously said that Scruggs came to see them for the first time. In an interview with Fortune, Lobrano adds that the meeting with him was “very secret,” and that there were “certainly no comments about Kerri being in a movie.” She says that she thinks the Sandra Bullock reference comes from someone’s blog comment shortly after the Rigsbys’ “20/20″ appearance.

Next, State Farm implies that Scruggs may have engineered the sudden sale of Kerri?s (undamaged) home under a contract signed in December or January, with the closing occurring in late February or March 1, 2006. Both Hardison and Lee testified that although Kerri?s house had not even been on the market, it was suddenly sold for about $600,000, which they say was about twice its purchase price.

The house was sold to a Robert H. Oswald, an eminent former judge in South Mississippi, and one of Scruggs’s co-counsel in Mississippi’s originalMedicaid-reimbursement suitagainst the tobacco companies in 1994. (According to his office, Oswald was unavailable for comment for two weeks, and unreachable by e-mail.)

But, again, there may be less here than meets the eye. In an interview, Lobrano says that the idea of selling the house originated with Kerri’s real estate broker, Jerry Rimes of Ellis Branch Realty, and Rimes, in an interview, backs up Lobrano’s story. Rimes says that after Katrina, many people whose homes had been wreckedin the storm (as Judge Oswald’s had been) were searching for undamaged homes, andit was not unusual for Rimes to make cold calls toformer clients to see if they’d be interested in selling. Rimes also says she’s “sure” the selling price was actually less than $500,000, contrary to Hardison and Lee’s testimony.(By coincidence the house is on the market again right now, and can be viewed here; the current asking price is $495,000.)

(For historical context, I should note that Scruggs is known to have, years ago, arranged the purchase of a home for one of the insiders then helping him with his tobacco campaign, Merrill Williams. Scruggs admitted the Merrill Williams purchase, as well as about $2 million in other payments to Williams, in a 2004 deposition. (See pages 240-241 of the first volume of that deposition and page 479 of the second volume.)

Finally, Lee and Hardison also claim in their depositions that the Rigsbys improperly tried to influence the State Farm adjuster handling their mother?s claim, but the adjuster disqualified himself and sent the claim to an adjuster who didn?t know the sisters. In earlier testimony, the Rigsbys have denied trying to improperly influence their mother?s claim in any way.

Full post as published by FORTUNE Legal Pad on August 25, 2008 (boomark / email).

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