Scruggs updates, Part VI: Violating confidentiality orders?

August 25, 2008, 3:29 PM UTC
Fortune

[This is the last of a series. The introduction is here.]

Earlier this month State Farm made public e-mails recently obtained from the Scruggs Law Firm that appear to show that Scruggs knowingly sent court documents that were then under seal to reporters at ABC News, CBS News, Associated Press, and The New York Times. Here’s an example.

The documents include an “evidentiary disclosure” and the “first amended complaint” in the Rigsbys’ whistleblower suit, which was filed under seal in April 2006 and not made public until August 2007. (Whistleblower suits are typically filed under seal to allow the Justice Department an opportunity to pursue an investigation without tipping off the alleged wrongdoer to the fact that he is already under suspicion.)

Obviously, as a reporter I’m all in favor of sources leaking sealed documents to reporters, so I’m having trouble working up much outrage over this particular transgression.

On the other hand, it is obvious that the reporters in this case were faced with a dilemma and, in some cases, the public was misled as a result. Once the reporters saw the legal caption on the papers they should have realized that the Rigsbys were not wholly disinterested Good Samaritans, but also plaintiffs who had an enormous pecuniary stake – potentially tens of millions of dollars in whistleblower recoveries (see Part V of this series) — in interpreting State Farm’s conduct in the worst conceivable light. While the reporter would want to disclose that potential source of bias to the reader, the fact that the case was sealed made it impossible to do so. (It would get the source, Scruggs, in trouble.) So reporters faced a quandary: either don’t use the source at all, or use the source without revealing the huge potential bias.

If I’m being honest with myself, in that situation I can imagine myself possibly going ahead and using the source without revealing the potential bias if I was otherwise confident in the source and story. (Of course, it would ultimately be my editors’ call, not mine.) Still, there’s no denying that going forward with the incomplete story would not be fully fair to the reader or State Farm.

I suspect many would disagree with me. Let me know your opinions.

Most of the reporters who wrote about the Rigsbys did, at least, appropriately mention that the Rigsbys were then being paid salaries by the Scruggs Law Firm. But even these accounts recited the Rigsbys’ unverifiable claim that their Scruggs salaries were less than what they’d been making as claims adjusters. Whether that assertion was really true has been difficult to check because, at least as of their November 2007 depositions, each Rigsby sister testified that she still hadn’t yet filed her 2006 tax return yet (i.e., that she’d gotten an extension).

Though I’m getting off on a tangent now, I will also note that filing tax returns at this point may present difficulties for the sisters, as State Farm has pointed out in its papers. For more than a year – from September 2006 at least until Scruggs was indicted in November 2007 – Scruggs’ firm and the Scruggs Katrina Group had generously paid for all the Rigsbys legal fees in defending the lawsuit brought against them by their employer, E.A. Renfroe & Co., a sum totaling more than $1.4 million in the case of just one of the three law firms representing the Rigsbys during that period (Zuckerman Spaeder, which is now suing Scruggs for reimbursement). If these fees are considered a taxable benefit to the Rigsbys, then the sisters might face a ruinous tax bill, unless, of course, Scruggs or some other Deus Ex Machina of the plaintiffs bar comes to the rescue and pays their tax bill, too.