Luckey v. Scruggs
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF MISSISSIPPI
ALWYN H. LUCKEY PLAINTIFF
VERSUS NUMBER 1:05CV00089-JAD
RICHARD F. SCRUGGS, ET AL DEFENDANT
JUNE 8, 2005
BEFORE: U.S. Magistrate Jerry A. Davis
TAKEN: June 6-1 7, 2005 LOCATION: Federal Building, Oxford, MS
HONORABLE CHARLIE MERKEL
HONORABLE CINDY MITCHELL
HONORABLE STEVE COX
HONORABLE WILL RAIFORD
REPRESENTING THE PLAINTIFF
HONORABLE JACK DUNBAR
HONORABLE JOEY LANGSTON
HONORABLE TIM BALDUCCI
HONORABLE CATHERINE HOWIE
REPRESENTING THE DEFENDANT
REPORTED BY: DEBORAH A. HARRIS, RMR, CRR, CSR Official Court Reporter
MR. MERKEL: Let's look at Exhibit 795.
BY MR. MERKEL:
Q Now, Mr. Scruggs, this is a memo to you from Allen Jones. Who's Allen Jones?
A Allen Jones worked for my law firm in a capacity similar to what Mr. DeLoach did for a while. He took care of various accounting matters and things like that.
Q Now, who's DMG, Mr. Scruggs?
A I think that stands for Developing Markets Group or something to that effect.
Q Who are they?
A I think -- I may be wrong, but I think it's Mr. Blake, but it could be Tom Anderson. I just don't know as I sit here now. Maybe you can show me something that will refresh my memory. It's one of the two of them, I think.
Q Let's look at it. It says (reading:)
::As we discussed earlier today, the new payment to DMG will be 468,450 each quarter, an increase of 218,450 per quarter. This is based on the increase in fees from the base of 1.57 to 2.95 billion or an 87 percent increase. I assume we will review and adjust the amounts in June of2001, when all of the awards hopefully are finally realized.
It then goes on to say what he's going to do. He says he's going to catch DMG up to the level that he should be and then he'll increase the amount each quarter starting in the third quarter by $218,450. Now, DMG, at least at that time your office thought was P.L. Blake, didn't it?
A I don't know. I said either P.L. Blake or Tom Anderson, who's provided --
Q Did you send checks to Mr. Blake care of DMG for a period of time?
A My guess is we sent them to DMG or P.L. Blake or Mr Anderson, whoever was the principal at DMG, would be my guess.
Q And tell us what P.L. Blake did for $468 thousand a quarter through the year 2023 and $10 million on the front end, $50 million more or less?
A This was --- this litigation from the beginning was quite unorthodox in terms of meeting fire with fire. The tobacco industry had all sorts of resources, particularly political resources, and as I explained yesterday, it was as much a political war as it was a legal war. P.L. Blake lived in Greenwood, and I think hunts with you on a regular basis.
Q No, sir, he doesn't. I never hunted with P.L. Blake in my life, Mr. Scruggs, but whatever.
A He told me you shared a hunting cabin with him somewhere up north.
Q He paid for a pheasant hunt at the same place I paid for a pheasant hunt. I had never met him before. But that's kind of neither here nor there.
A But P.L. Blake was a sort of a political operative in terms of being involved in state and national political affairs. One of these guys that's sort of always behind the scenes, but has his ear to the ground. He was our sort of response from 1994 on, maybe even late '93, when we first started thinking about this, to what the tobacco industry was doing. They had a network that was far more extensive than that, and we wanted to be alerted to political attacks before they actually hit us in the nose. For example, Governor Fordice filing suit to shut the whole litigation down in '95 or '96. Things like that. We needed to know things like that before they happened so we could head them off, and Blake had a network throughout the state and really throughout the nation that would sort of give us that heads-up information.
Q Well, let's talk about your relationship with P.L. Blake, Mr. Scruggs. You represented him in bankruptcy at one point, did you not, sir?
A I think in the early '80s, yes.
Q And you were still representing him in that, in fact, in the late '80s, were you not?
A As long as the bankruptcy case was alive. Sometimes they take years.
Q And P.L. Blake was also indicted and ultimately pled guilty to some type of a federal bank fraud type of situation in the early '90s?
A It seems to me that he pleaded guilty to some sort misdemeanor involving a bank, yes.
Q And as a result of that he was ordered by a federal district court in the Southern district to make restitution for some several million dollars to the FDIC or something of that sort?
A Perhaps. I don't recall what he was required to do. I'm sure he had something imposed on him if he pleaded to a misdemeanor.
Q And so he had a restitution amount over him and he had had -- he was in bankruptcy in the late '80s?
A Perhaps, at various times. I don't know the timing of it, but both of those events happened.
Q And, Mr. Scruggs, you began in 1994 to loan P.L. Blake monthly amounts of money that started out at $15 thousand a month and escalated to $25 thousand a month. Actually, I guess the first one is November the 20th, 1993. Is that right?
A Sounds right.
Q What was the purpose of those loans that you were making to him?
A The purpose of the loans was to do exactly what I just described.
Q What is that?
A To --
Q Were they payments -- were they salary or payments you were making or were they loans, Mr. Scruggs? Which were they?
A They were loans.
Q Why did you make loans to a man who was in bankruptcy and who was coming out from under a criminal situation with a large restitution amount hanging over his head?
A I assume he needed the the money to make restitution,
Q Did he did he give you any collateral?
A Other than his enormous network of political connections in the state and otherwise, no, he didn't have any -- he didn't give me any collateral for it, no, but he did sign a note every month.
Q Signed a note with 8 percent interest on it that you were going to charge him on those notes; correct?
A I think so. Whatever the prevailing rate at the time was.
Q And by the time the tobacco settled and he got those first of those million dollar -- four million dollar, five million-dollar amounts, he had run up a loan account with you of some 900 -- between $950 thousand and a million dollars, hadn't he?
A It could have been that much with interest, which was deducted from whatever he got paid. He paid it back that way.
Q Tell us, if you would, Mr. Scruggs, other than the generalities of how well connected P.L. Blake was and this, that, and the other, anything specific P.L. Blake did to get $10 million up front and a percentage of tobacco fees calculated at $468,450 per quarter.
A I talked to P.L. Blake on a fairly routine basis throughout the process of this litigation about what might be going on in the legislature, what Fordice might be up to through people that he knew. He obviously didn't readily disclose his methods and sources, as the term is now used, but he knew the key people in the various congressional offices in 1996 when political resolution of this started looking promising and it was very helpful providing the names of who these people were and backgrounds on them.
Q With all deference, I mean $50 million seems to be, to me, to be a sizable sum. Can you tell us anything P.L. Blake specifically did? Any piece of information or intelligence that he delivered that was -- couldn't have been found by reading the newspapers and listening to the TV?
A I think I just did. You don't find out who's who in Washington or who's -- who the behind the scenes movers and shakers at the state capital are by reading the newspaper. You know who the committee chairs are and people like that, but what's really going on back there inside baseball, I don't think you can find that out, and he kept us routinely informed.
Q Tell me some routine intelligence he gave you. Give me the name of a senator or something that was fixing to do so and so. Just something specific, Mr. Scruggs.
A Well, he had a relationship with Senator Biden.
Q Did he bring you some intelligence from Senator Biden? Maybe he knew him, but did he bring you anything that Mr. Biden told him that you couldn't have found out otherwise?
A Well, I didn't know Senator Biden at the time.
Q Okay. Did he tell you something?
A I know him pretty well now, but I didn't know him at the time.
Q Well, actually you paid Senator Biden's brother a bunch of money, too, at the same period of time, didn't you?
A No, I paid Mr. Biden's brother's -- I think he was affiliated with a lobbying firm and it wasn't an enormous amount of money. We hired a lot of lobbyists on the hill at that time period of time.
Q Don't you think his brother could have been giving you whatever intelligence about his brother's thoughts probably better than P.L. Blake could?
A That would seem reasonable, but P.L. Blake's involvement and the intelligence that he was providing us preceded that involvement with Jim Biden by a long long time.
Q What intelligence were you ever provided, Mr. Scruggs? Can you give us one concrete example of some intelligence that came from Mr. P.L. Blake for $50 million?
A I can give you examples, I didn't make any notes of this. I didn't sit down and write it down.
Q These aren't the kinds of things that people write down or write letters about?
A He was very tuned in to the effort to unseat Attorney General Moore in 1995.
Q That wasn't very private information, was it, Mr. Scruggs? I thought Fordice was all over the papers and TV and everything else hollering about that daily?
A Well, we knew about it from P.L. Blake long before he actually did anything.
Q Let me show you, Mr. Scruggs, Exhibit 240. This is, I believe, 13 newspaper clippings that P.L. Blake provided at the time of his deposition which is what he said he provided to you. Did you get those newspaper clippings from him?
A If he said so, I did, but he certainly gave us far more than just what was in the newspaper. Why would I, out of my pocket, pay him that sort of money?
Q That's what I'm trying to find out, because that's basically what he said he did in his deposition. You read his deposition, haven't you, sir?
Q Never have?
A No, I have not. Never ever.
A And I would understand why he would be reluctant to disclose his inside baseball political connections. I would understand that.
Q You think he would misrepresent things under oath, Mr. Scruggs? Is that what you're saying?
A I don't think he would.
Q Well, if he said he had never talked to any politician and he never talked to anybody at the tobacco industry and he simply listened and read newspapers over the state and gave you the information that's there, can you give us anything else he did concrete beyond that?
A I think I already have, I don't know how to answer that any better, sir.
THE COURT: This is another area we're not going to get agreement on.
BY MR. MERKEL:
Q I put 795 back up and direct your attention to the last line at the bottom to Mr. Jones, It says: I appreciate your getting me a copy of a handwritten agreement with Mr. Blake for the file when you get a chance.
Did you ever provide that handwritten agreement to Allen Jones?
A I don't recall whether I did or not.
Q We've never been provided it, is the reason I'm asking. Is there such an agreement, Mr. Scruggs, that apparently set out why you were going to calculate that exact amount up there based on the fees?
A If there is, I'm not aware of one. That doesn't mean there isn't one.
Q Let me show you another exhibit, Exhibit 787, September 29th, 2000. Again, to you from -- well, to the file with a carbon copy to you from Allen Jones, talks about DMG-Blake again. It says (reading:)
::The payments to Anderson Sears have segmented to the individual members as follows, with the responsibility for payment, in parentheses, DMG-Blake, base amount 250,000 per quarter as long as tobacco fees are collected from the industry, obligations of Ness-Motley, Scruggs Millette 60/40 split or 100,000 Ness and 100,000 Scruggs; 2000 has been paid added amount based on ratio of increase from Mississippi, Florida, Texas base to the total awards, calculation attached, and now added 218,450.
And at the top it he says in handwriting: Can I get a copy of the Blake agreement you mentioned for the file? Allen. Was there an agreement, Mr. Scruggs?
A I think it was more of a handshake agreement than anything else. I don't recall a written agreement with Mr. Blake.
Q Why did Mr, Jones think there was when he was writing all those letters?
A I told Mr. Jones that we had an understanding or agreement and perhaps he assumed that it was in writing. You'll have to ask him. He was brand new at that time and perhaps didn't quite understand how things had been working.
Q Seems he was making a fairly sophisticated complicated calculation based on all these tobacco fees to come up with Mr. Blake's 218,450 addition, Mr. Scruggs. How did he get the information to make that calculation?
A He got it based on what he says he got it on. It was an increase based on the Most Favored Nation clause to the fees that came in to all counsel, Ness-Motley, and the Scruggs firm and everybody else.
Q Did you have a written agreement with Mr. Blake to split the fees of the tobacco litigation, Mr. Scruggs?
A I don't think we did. I don't recall one.
Q Did you have a verbal one that you communicated to Mr. Jones enough to let him calculate that like he did?
A I told Mr. Jones at some point in time that Mr. Blake and I had an agreement as to how much he would be paid on a quarterly basis and when the fees were subsequently increased as a result of the Most Favored Nation clause, or for whatever reason, told Mr. Jones to increase it.
Q Are you aware that it's an ethical violation to split fees with a non-attorney?
A I didn't think that it was splitting fees, I think it was just paying Mr. Blake for the work he had done, which was quite considerable, most of which was coming out of my pocket.
Q When you calculated based on an increase in fees, that wasn't splitting fees?
A It didn't occur to me that it was, and I would take issue with that being unethical.
Q You do agree that the canons of ethics say it's improper for any attorney to share fees with another attorney other than is commensurate with their work?
A I'm generally familiar with Rule 1.5.
Q Yes, sir, that's the one,
A And Mr. Blake --
Q Is not an attorney?
A No, he did -- but that's not the question. You asked me about splitting fees with lawyers that don't do any work.
Q Yes, sir. That would be more like Mr. Nutt?
A It would be more like Mr. Luckey.
Q Did Mr. Nutt do 400 to $500 million worth of work on this case, Mr. Scruggs?
A Mr. Merkel, I guess we can argue again about it. We talked about it all afternoon yesterday about what Mr. Nutt did.