The Fall of the House of Zeus

by Curtis Wilkie

  That might have been the end of the investigation. Just as Balducci had pulled back from his approach to the judge, Lackey wanted to wash his hands of the unseemly business. He even concocted a reason for pulling out of the case. He told Balducci that he had attended a reception and unwittingly had a conversation with an attorney from Grady Tollison’s office, the firm that represented Johnny Jones. It was a lie, but the judge rationalized that Balducci had been lying, too.

  Neither side in the Jones case expressed concern over Lackey’s decision. Balducci appeared to have been relieved. When the judge told him that he had recused himself, Balducci repeated that he had never wanted to do anything to jeopardize his relationship with his older friend. “I don’t want anything in the world to harm you,” he said. “It would break my heart if I thought I had put you in a bad position.”

  Though no one else had been perturbed by Lackey’s recusal, federal authorities were upset and determined to keep him actively involved. He was their key asset in the case. The FBI and the U.S. prosecutors felt they had a high-profile personality, Dick Scruggs, on the hook in an egregious attempt to bribe a judge, and they required Lackey’s services.

  The day after Lackey decided to recuse himself, he tried to call his friend John Hailman, but learned that the prosecutor was out of town. So he called Delaney to tell him the news. The following day the FBI agent was waiting in the judge’s office when Lackey returned from lunch.

  Delaney appealed to the judge to reconsider. The government had made a major investment in the case, he said, and would be prepared to follow through. But the government needed Lackey’s commitment, too, to bring down the plot to pervert justice.

  Lackey was not sure about continuing his role as undercover government agent.

  When Hailman returned to Oxford in late May, he stopped by Dawson’s office and found his colleague and Delaney slumped in their chairs, distressed that Lackey was no longer cooperating. Hailman said he would see what he could do. He called Lackey at his home that night, but the judge was sleeping and had told his wife not to wake him. The following day, Hailman talked with Lackey, who sounded confused. The judge repeated his bogus story about a tainted conversation with someone from Tollison’s firm, but he told Hailman he felt he had made a mistake in recusing himself.

  Hailman reinforced Lackey’s will, rekindling his outrage over what he believed was Scruggs’s attempt to subvert the Jones case. The judge was encouraged to renew his conversations with Balducci, to mention Scruggs’s name, to lay down enough bait to trap the King of Torts. Before they finished their talk, Lackey agreed to maintain his role in the investigation. A few days later, he made a trip to New Albany to see Balducci.

  Their friendship seemed secure. Over lunch at a café at the local livestock auction barn, Judge Lackey listened as Balducci and Steve Patterson and two others connected with their firm talked of the strides they were making. Afterward, Balducci drove Lackey to see their office. The younger lawyer was enthusiastic about his venture and the possibility that he could recruit older men to act “of counsel.”

  Balducci had no way of knowing it, but the judge was wearing an FBI body wire. Lackey recorded two hours of conversation with their target, but he picked up nothing incriminating. Balducci never mentioned the Jones case.

  Murphy’s Law still appeared to be at work.

  The prosecutors urged Judge Lackey to persevere. On June 1, he met again with Hailman and Dawson. Afterward, Lackey made an entry in the journal they had asked him to keep:

  We finally decided that I should send the attorneys in the case a fax transmission telling them that after I had reconsidered the matter I had decided to get back in the case and let a little time expire to see if Tim would contact me again. I agreed to do that though I doubt he will because I just get the feeling that he realizes he crossed the line. I am sending the attorneys a fax this morning and time will tell if they are still interested in trying to influence me.

  On June 4, he sent a formal two-paragraph message to the lawyers in the Jones case. “Gentlemen,” he began. “After having time to review some of the cases dealing with recusal and giving consideration to my reason for giving you the previous notice of recusal I have determined that I am obligated to hear the matter … I apologize for any inconvenience my actions may have caused either of you.”

  CHAPTER 14

  While Judge Lackey wrestled with indecision over the case, the man who would turn out to be his prey, Dick Scruggs, was dealing with a number of other issues as the summer of 2007 approached, and Johnny Jones’s lawsuit did not hold a high priority in Scruggs’s mind.

  The tone for the period was set when a federal jury in Jackson convicted Scruggs’s friend Paul Minor and two state judges of charges that Minor had won favorable rulings in exchange for loans and lines of credit. Scruggs had been a reluctant witness in the case, and the decision marked the end of a protracted effort by the federal government. Earlier trials ended in hung juries, and one of the original defendants, state supreme court justice Oliver Diaz, was acquitted outright despite repeated attempts by the prosecutors to convict him of various charges.

  Minor was sentenced to eleven years in prison. Scruggs was troubled by the harsh sentence, but by this time much of his attention focused on other legal, personal, and political pursuits. In retrospect, some of his adventures bore omens as heavy as Minor’s conviction.

  Even vacations turned perilous. In the company of friends, Dick and Diane had flown commercially because their vacation destination—the Maldives, an island nation off the coast of India—lay beyond the range of Scruggs’s Gulfstream. The group planned a diving expedition in seas famous for exotic marine life and underwater majesty. Though Scruggs was drawn to water, his idea of a good time did not involve leisurely hours on the beach. He and Diane had taken up the sport in the years since their income enabled them to use their own boats to sail to favorable destinations. Though Diane qualified as a diver before Dick, he became an aggressive diver who plunged to daring depths, exposing himself to snags and sharks and other dangers. To him, it was far more exciting than mere swimming.

  En route, Scruggs scheduled a stop in Southern California to deliver a commencement address at the invitation of Parham Williams, the dean of Chapman University’s law school. When Scruggs was a young law student, Williams had been dean at Ole Miss and a progressive force on campus as the school struggled to free itself from the interference by segregationist politicians that nearly cost accreditation during the civil rights era.

  Attracting the famed Scruggs was considered a coup for Chapman’s law school, in only its tenth year, and more than two thousand guests attended. They heard a message about legal courage and commitment. The school posted one quote from Scruggs as “words of wisdom” on its website: “A lawyer’s most precious asset is integrity. You must guard it carefully throughout your career. For it is like a match; once struck, it can never be relit.”

  Continuing west, the Scruggs party encountered near-disaster in the waters of the Indian Ocean. Jeff Fox, one of Scruggs’s friends and an expert diver who had shared many excursions with him, suffered bends and lay near death for nearly two days in a decompression chamber miraculously located on a remote island within reach of their boat. Fox recovered, but Scruggs returned to the United States, sobered and somewhat shaken from the experience, to resume negotiations with insurance companies over Katrina claims.

  On the last day of May, Scruggs flew from Oxford to Pascagoula to attend the funeral of Mike Moore’s father. While there, the grieving Moore took him aside for a brotherly lecture concerning Dick’s growing dependency on drugs. Scruggs’s close friends had begun to recognize the problem.

  There was also a political diversion on the trip. Scruggs landed in Jackson to meet briefly at the airport’s private flight facility with Senator John McCain, his ally from the tobacco wars. Scruggs delivered thousands of dollars of contributions, including $16,000 from members of his family, for McCain’s campaign
for the Republican presidential nomination. In addition, Scruggs bundled contributions from other grateful lawyers who had profited from the tobacco initiative.

  Though he felt a loyalty to McCain, Scruggs also planned to provide support to at least two Democratic candidates, Hillary Clinton and Joe Biden.

  While federal investigators were secretly bearing down on him, these few weeks epitomized life in Scruggs’s fast lane: transoceanic flights, a major speaking engagement, a brush with death, legal wrangles, and politics at the highest level.

  Ever present in the background was the malevolent buzz from Katrina. Scruggs’s relentless stalking of the insurance companies brought him into conflict with two statewide elected officials he once supported: Insurance Commissioner George Dale and Attorney General Jim Hood. Both men were running for reelection in 2007, and each felt his political career had been threatened by Scruggs.

  The trouble with Dale was predictable. The commissioner had long been considered too cozy with the industry he oversaw. In the previous decade, he had been indicted for making favorable rulings for a health insurer to reward political contributors. At the time, Scruggs gave $5,000 to Dale’s defense fund, and later the prosecutor dismissed the indictment. But Scruggs’s view soured dramatically when it appeared Dale was siding with insurers in the dispute over Katrina claims.

  A hundred days after Katrina struck, Scruggs had a contentious meeting with the insurance commissioner and his deputy, Lee Harrell. He told Dale that Gulf Coast people were now calling him “the commissioner for insurance rather than the commissioner of insurance.” He pressed Dale to intervene on behalf of the Katrina victims.

  “I want you to champion the cause,” Scruggs told him.

  “Dickie, I’m not going to do that,” Dale responded, saying that some of the claims were not valid.

  Scruggs became incensed after Dale called the post-Katrina imbroglio “a six-county problem” that would force insurance rates to go up in the state’s other seventy-six counties. Dale and Harrell later insisted that Scruggs was angered because the commissioner refused to allow him to administer a $500 million settlement program to be established with State Farm money.

  Whatever his reason, Scruggs left the meeting annoyed. A year later, his irritation boiled over. He felt that Dale took a laissez-faire approach toward the insurance industry, and Scruggs wanted an activist in the office. So he decided to try to drive Dale from the post he had held for eight terms. Before the 2007 campaign was finished, Scruggs committed hundreds of thousands of dollars to the effort. He retained a public relations firm to conduct an all-out assault on Dale that reached its peak in the full-page newspaper advertisement titled “Lipstick on a Pig.” In a cartoon, George Dale’s bespectacled face, painted with pink lipstick and given porcine ears, appeared on a pig’s body with cloven feet. The beast, labeled “Georgie Dale,” lounged in a tub, pampered by attendants at a “State Farm Beauty Salon.”

  Scruggs approved of the “Lipstick on a Pig” idea and paid for the ad, but did not see it before it ran. He thought the pig would symbolize State Farm and didn’t realize that Dale’s likeness would be used in the caricature. But he laughed anyway when he saw the finished product in the Sunday morning newspaper.

  Diane Scruggs was not so amused. She thought the ad in poor taste, and she wondered about her husband’s decision to underwrite the anti-Dale campaign. She felt Dick had been unduly impressed by his PR team from Washington. He had bragged of their talents. Some of his advisors were sophisticated practitioners of “black ops,” he said, with experience overseas, working on contract for the U.S. government to destroy the credibility of foreign opponents. One of Scruggs’s contacts appealed to him precisely because of the whispers about his agency’s operations. The head of the group, John Rendon, had been profiled in Rolling Stone in 2005 as “The Man Who Sold the War” on Iraq. The article described Rendon as “a secretive and mysterious creature of the Washington establishment” who was “in charge of marketing” the war for the CIA and the Pentagon. Scruggs was intrigued by such credentials.

  Dale was already under siege by the state Democratic Party for his endorsement of President George W. Bush in 2004. The Republican governor, Haley Barbour, guaranteed Dale that he would have no primary opposition if he chose to run for reelection as a Republican. But Dale felt confident. Once, he had been reelected despite an indictment, and he had always seemed to win handily. So he told Barbour he preferred to run as a Democrat, failing to reckon with Democratic Party officials who had struck his name from their primary ballot on the grounds of disloyalty. Dale sued to regain a place on the ballot, and a conservative state supreme court justice assigned his challenge to a judge expected to be sympathetic, Henry Lackey. But by the time the case was heard, Dale realized he would lose in the primary and asked permission to run as an independent. Judge Lackey approved Dale’s original request and restored his name to the Democratic ballot but said he lacked the authority to give the commissioner independent status.

  In August 2007, Dale was dumped, after thirty-two years in office, by Democratic voters. The victor in the primary, an African American candidate named Gary Anderson, benefited from big majorities in predominantly black counties. But Dale blamed his defeat on Scruggs and his “childish” and “hurtful” advertisement. He said he was also victimized by “push polls” underwritten by Scruggs that asked prospective voters such questions as: “Did you know that George Dale has been indicted for bribery? Did you know that George Dale has been in the pockets of the big insurance companies because all the money he takes is from the insurance industry?”

  Scruggs’s contretemps with Jim Hood seemed more surprising because the first-term attorney general was seen as the lineal descendant of Mike Moore and a beneficiary of Scruggs’s generous support in the last election. Despite these connections. Hood was an independent character with a streak of stubbornness.

  Before winning office in 2003 to replace Moore, Hood had been the prosecuting attorney in the same North Mississippi district where Judge Lackey held court. He was a bit rough-hewn. With his backswept pompadour, Hood resembled a country singer, and his twang matched that image. But as a Democratic candidate, he won strong backing from the same wealthy constituency of trial lawyers that, with a few exceptions, had favored Moore for many years. Scruggs could count on access to Hood’s office to pitch his case, but he could not always rely on Hood’s agreement.

  In the first weeks after Katrina effectively destroyed every dwelling that hugged the Mississippi shoreline between Pass Christian and Pascagoula, Scruggs and Hood took compatible courses. Outraged over the failure of insurance companies to settle claims of Gulf Coast residents satisfactorily, both Scruggs and Moore urged the new attorney general to take action. Hood shared their indignation over the insurers’ position that the storm destruction had been primarily caused by a surge of water, which was not covered, instead of wind damage, which was included in the insurance contracts.

  Hood convened a meeting in his office with Scruggs, Moore, and three other Democrats who had worked closely with the attorney general’s office in the past: Danny Cupit, Crymes Pittman, and Bill Liston.

  Scruggs came armed with a draft of a complaint he urged Hood to file. Hood asked Cupit to rework Scruggs’s language, which resulted in a sweeping civil suit brought by the Mississippi attorney general against the insurance industry and the ambiguities regarding wind and water damage in insurance contracts.

  As they left the attorney general’s office, Cupit was startled by Hood’s admonition that the five lawyers’ work on the case should be pro bono—performed without pay for the public good. A few days later, he saw Scruggs, in a television interview, declare that he intended to bring action against State Farm on his own. Cupit wryly concluded that Hood wanted to volunteer Cupit’s services pro bono while letting Scruggs collect fees. In fact, Hood was not entirely sure of Scruggs’s motives, and he asked Cupit to help him monitor the developing struggle with the insurance companies.<
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  At the same time, Hood had taken evidence given to him by Scruggs, the documents obtained by the Rigsby sisters while working as State Farm claims adjusters, and initiated a criminal investigation of the company. Grand juries were convened in two Mississippi counties, posing the threat of indictments against State Farm officials.

  In a twist, the criminal proceedings became an obstacle to a multi-million-dollar settlement the Scruggs Katrina Group had been negotiating. State Farm was ready to settle 640 claims for $89 million, with another $26.5 million going to the lawyers’ group. (The $26.5 million would become the source of contention with Johnny Jones.) But the company was unwilling to sign off on the agreement as long as the criminal case remained outstanding.

  When Hood refused to drop his investigation. Scruggs grew apoplectic. In a move later characterized by his friends as an “afternoon decision” driven by a large dose of his painkilling medication, Scruggs offered to pay $500,000 to Steve Patterson and Tim Balducci to get the attorney general on board.

  Scruggs figured the pair would have difficulty influencing the obstinate attorney general. Sure enough, Patterson and Balducci were able to arrange one inconsequential dinner, which Hood grudgingly agreed to attend, at a Jackson restaurant. They got nowhere with him. But Scruggs had actually hired the pair because he believed Patterson could use his friendship with Danny Cupit, Hood’s advisor, to persuade Hood to drop the criminal investigation.

  Scruggs and Cupit should have been natural allies. They were progressive Democrats, successful trial lawyers, the same age. Yet a profound level of distrust existed between the two men. Cupit considered Scruggs devious and quick to stray from a common cause in order to operate on his own. On the other hand, Scruggs thought Cupit part of a capital city cabal that disliked him. Because of his family ties to their political archenemy, Trent Lott, Scruggs felt Cupit’s crowd had never fully accepted him as a real Democrat. The clique included the other advisors to the attorney general: Liston, the lawyer who had drawn up charges against Scruggs in 1992, and Pittman, a member of Scruggs’s team in the tobacco litigation. Scruggs also knew Cupit was close to Grady Tollison, the Oxford litigator who was becoming one of Scruggs’s fiercest antagonists.