Federal appeals court throws out Scruggs deal

JACKSON, Miss. - A federal appeals court has thrown out a $70 million settlement brokered by convicted former lawyer Richard "Dickie" Scruggs.

The settlement involved a dispute between the Republic of Venezuela and Northrop Grumman Ship Systems.

Scruggs, a chief architect of the multibillion-dollar tobacco settlements of the 1990s, is serving a seven-year prison sentence for conspiracy in one bribery case and mail fraud in another.

In a July 9 ruling, a three-member panel of the 5th U.S. Circuit Court of Appeals in New Orleans ruled that a district court in Mississippi erred when it declined Venezuela's appeal of the settlement Scruggs agreed to in 2005.

Scruggs was the attorney for Venezuela in litigation filed by Northrop Grumman over disputes of cost overruns and other issues in the overhaul and retrofit of ships for the foreign nation. Venezuelan officials said Scruggs was given no authority to agree to the settlement.

The dispute began in October 2002 when Northrop Grumman filed suit against the foreign nation in federal court in Mississippi, claiming Venezuela failed to pay at least $200 million for extra work. In 2005, both parties agreed to mediation before a judge.

"On September 10, 2005, Scruggs telephoned Northrop Grumman's representatives and stated that the Republic was willing to pay $70 million to settle all monetary claims," according to court documents. "Northrop accepted Scruggs' offer on September 12 ... However, there is no indication that any Venezuelan official was informed of the settlement."

Five days later, the attorney general of Venezuela sent a letter to protest the deal and the nation filed a motion to vacate the settlement. That motion was delayed through much of 2006 as Scruggs moved to withdraw as counsel for Venezuela and sought attorney fees.

Venezuelan officials later used their country's statutes to show its laws require an attorney to have written authority prior to settling a dispute, but Northrop Grumman argued that the Republic's challenge using the foreign laws was "untimely."

The district court in Mississippi agreed with Northrop Grumman concluding the shipbuilder wasn't given proper notice about the foreign law. It applied Mississippi law and determined that Scruggs possessed authority to bind Venezuela to the settlement.

In Mississippi, settlements can be entered into without written authority.

"The extended delay in this case is partly explained by the withdrawal of Scruggs as the Republic's counsel over the course of 2006," the federal appeals court wrote. "Accordingly, the district court abused its discretion by relying solely on the length of delay."

The 5th Circuit panel also said the district court "clearly erred in determining that Scruggs had actual authority to bind the Republic to the settlement."

"Even if this court were to accept Scruggs' uncorroborated testimony that he received oral authorization over the phone from his fellow co-counsel, such authorization would be contrary ... to government settlements under Venezuelan law."

The three-judge panel was made up of circuit judges, Thomas Morrow Reavley, Rhesa H. Barksdale, and Emilio M. Garza.

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