Barrett v. Jones, Funderburg, Sessums, LLC

• Decision Date: 12 November 2009
• Docket Number: No. 2008-IA-00788-SCT.,No. 2008-IA-00421-SCT.,2008-IA-00421-SCT.,2008-IA-00788-SCT.
• Citation: 27 So.3d 363
• Court: Mississippi Supreme Court
• Parties: Don BARRETT, Individually; Barrett Law Office, P.A. and Lovelace Law Firm, P.A. v. JONES, FUNDERBURG, SESSUMS, PETERSON & LEE, LLC. Don Barrett, Individually, Barrett Law Office, P.A., and Lovelace Law Firm, P.A. v. Jones, Funderburg, Sessums, Peterson & Lee, LLC Don Barrett, Individually, Barrett Law Office, P.A., and Lovelace Law Firm, P.A. v. Jones, Funderburg, Sessums, Peterson & Lee, LLC.

27 So.3d 363

Don BARRETT, Individually; Barrett Law Office, P.A. and Lovelace Law Firm, P.A. v. JONES, FUNDERBURG, SESSUMS, PETERSON & LEE, LLC.

Don Barrett, Individually, Barrett Law Office, P.A., and Lovelace Law Firm, P.A. v. Jones, Funderburg, Sessums, Peterson & Lee, LLC

Don Barrett, Individually, Barrett Law Office, P.A., and Lovelace Law Firm, P.A. v. Jones, Funderburg, Sessums, Peterson & Lee, LLC.

No. 2008-IA-00421-SCT.

No. 2008-IA-00788-SCT.

Supreme Court of Mississippi.

November 12, 2009.

Rehearing Denied January 28, 2010.

Larry D. Moffett, Wilton V. Byars, III, Shea Stewart Scott, Oxford, attorneys for appellants.

William K. Duke, Jr., Grady F. Tollison, Cameron Morgan Abel, Oxford, attorneys for appellee.

EN BANC.

CHANDLER, Justice, for the Court.

¶ 1. The Circuit Court of Lafayette County imposed sanctions against all members of the Scruggs Katrina Group (SKG), a joint venture, along with Don Barrett and Richard Scruggs individually, based upon the misconduct of Richard F. Scruggs, who pleaded guilty to conspiracy to bribe the trial judge in the underlying lawsuit over attorneys' fees. The SKG co-venturers, including the Scruggs Law Firm, P.A. (the Scruggs Firm); Nutt & McAllister, PLLC (the Nutt Firm); the Barrett Law Office, P.A. (the Barrett Firm); and the Lovelace Law Firm (the Lovelace Firm), along with Don Barrett and Richard Scruggs individually, were defendants in a fee-dispute lawsuit filed by a former co-venturer, the law firm of Jones, Funderburg, Sessums, Peterson & Lee, LLC (the Jones Firm). The trial court sanctioned the defendants by striking their answer, striking their motion to compel arbitration, entering a default against all defendants, and ordering the defendants to pay the plaintiffs' reasonable attorneys fees and costs incurred since July 17, 2007.

¶ 2. In these interlocutory appeals, the Barrett Law Office, P.A. (the Barrett Firm); Don Barrett, individually; and the Lovelace Law Firm (the Lovelace Firm) (hereinafter, collectively, "the appellants") argue that: (1) the imputation of Richard Scruggs's bad-faith misconduct to the appellants exceeded the circuit court's inherent power to sanction; (2) the court erred by sanctioning the appellants because Richard Scruggs had acted outside the ordinary course of business of the joint venture; (3) the court's failure to consider lesser sanctions was an abuse of discretion; (4) the sanctions violated the appellants' constitutional rights; (5) the court erred by denying arbitration as a sanction, because the court already had found that the case was subject to mandatory arbitration; (6) the Jones Firm's settlement with Richard Scruggs, the Scruggs Firm, and the Nutt Firm after the entry of the sanctions order also released the appellants as a matter of law.

¶ 3. We find that the trial court had the discretionary authority to impose sanctions against SKG based upon the acts of a single partner that occurred in the ordinary course of business of SKG. However, we conclude that the trial court erred by finding that Richard Scruggs's misconduct occurred in the ordinary course of SKG business. Therefore, we reverse the order of sanctions against the appellants. The trial court already has determined that, but for the sanctions, this case is subject to mandatory arbitration. Therefore, we remand this case for the entry of an order compelling arbitration.

FACTS AND PROCEDURAL HISTORY

A. Preliminary proceedings

¶ 4. On March 28, 2007, the Jones Firm filed an amended complaint, alleging that the parties had executed the SKG joint venture agreement in November 2005. The joint venture agreement provided that the Scruggs Firm's role was that of lead counsel, the Barrett Firm's role was that of witness development, the Nutt Firm's role was that of funding and client relations, the Jones Firm's role was that of briefing, and the Lovelace Firm's role was that of expert retention and adjuster retention. The agreement provided for the removal of a member of the joint venture by a supermajority vote, consisting of affirmative votes by four of the co-venturers. The Nutt Firm was to provide one million dollars per year in capital contributions, with any further necessary contributions to be paid pro rata by the other co-venturers. The proceeds of the joint venture were to be distributed in the order of capital contributions first, the firms' reasonable out-of-pocket expenses second, and attorneys' fees third. Also, the Nutt Firm was to receive thirty-five percent of the net fee. The distribution was to be made in the following order:

(1) Reimburse Nutt/McAlister for all expenses paid, (2) Refund all capital contributions, (3) Payment of 35% of net fee to Nutt/McAlister for financing the litigation and for their professional efforts, (4) the remaining 65% of the net fees will be divided among the remaining venturers taking into consideration all factors including Rule 1.5 of the Model Rules of Professional Conduct, and contribution to the success of the litigation.

The joint-venture agreement further provided that "any dispute arising under or relating to the terms of this agreement shall be resolved by mandatory binding arbitration, conducted in accordance with the guidelines of the American Arbitration Association. The site of the arbitration shall be Oxford, MS."

¶ 5. In the amended complaint, the Jones Firm alleged that SKG's settlement with State Farm Insurance Company had yielded $26,500,000 in attorneys' fees. The Jones Firm claimed that, despite its performance of the bulk of SKG's most difficult discovery and trial work, Richard Scruggs and Don Barrett had conspired to set the Jones Firm's fee allocation at one million dollars, an unacceptably low percentage. Further, the Jones Firm alleged, upon its refusal of the unfair fee allocation, the other four members of SKG voted to remove it from the joint venture and tendered a check for three percent of the net fees, which the Jones Firm refused. Based upon this conduct, the Jones Firm asserted claims against the co-venturers, and Richard Scruggs and Don Barrett individually, for breach of contract, tortious bad-faith breach of contract, breach of fiduciary duties, usurpation, conversion, intentional interference with prospective business advantage, fraud, constructive trust, conspiracy, and unconscionability. The Jones Firm requested a declaratory judgment that it is entitled to twenty percent of all past and future attorneys' fees collected by SKG. The Jones Firm also requested punitive damages, pre-judgment interest, post-judgment interest, costs, expenses, and reasonable attorneys' fees. The Jones Firm also claimed that the defendants had waived any right to arbitration by repeatedly refusing requests to arbitrate.

¶ 6. The defendants answered and filed a motion to stay the proceedings and compel arbitration. They asserted that all of the Jones Firm's claims arose under the joint-venture agreement, and thus were subject to the agreement's provision for mandatory binding arbitration of any disputes arising under or related to the agreement. After a series of filings concerning the arbitration issue, a hearing occurred before Judge Henry Lackey on July 17, 2007.

¶ 7. However, on November 29, 2007, Judge Lackey entered an order of recusal, and on December 5, 2007, this Court appointed Judge William F. Coleman to preside over the case. On December 7, 2007, the Jones Firm moved for sanctions against the defendants based upon the November 28, 2007, six-count federal indictment of Richard Scruggs and his law partners, David Zachary Scruggs (Zach Scruggs) and Sidney Backstrom, along with Timothy Balducci of the law firm Patterson and Balducci, PLLC, and Steven Patterson, a nonattorney member of Patterson and Balducci, PLLC.¹ The indictment charged Scruggs and the other named codefendants, inter alia, with a conspiracy to attempt to influence Judge Lackey to grant the motion to compel arbitration by offering to pay Judge Lackey $40,000 in exchange for a favorable order.

¶ 8. In summary, the indictment charged the following. Between March 15 and March 28, 2007, Richard Scruggs, Zach Scruggs, Balducci, and Patterson met at the offices of the Scruggs Firm to discuss how to influence the outcome of the case. On March 28, 2007, Balducci met with Judge Lackey and made an overture. However, Judge Lackey became a cooperating witness for the Federal Bureau of Investigation, and he began assisting their investigation in an undercover capacity. On May 4, 2004, Backstrom transmitted a proposed order to Balducci, who in turn transmitted it to Judge Lackey. On September 21, 2007, Balducci and Judge Lackey agreed that Balducci would pay Judge Lackey $40,000 in cash on behalf of Scruggs and the Scruggs Law Firm in exchange for a favorable order. On September 27, 2007, Balducci delivered $20,000 in cash to Judge Lackey. On October 18, 2007, Balducci delivered the order to Richard Scruggs and received from Richard Scruggs a $40,000 check and false documentation that cloaked the bribery reimbursement as fees for jury-selection work and preparation of jury instructions in another case. The same day, Balducci delivered $10,000 to Judge Lackey. On November 1, 2007, Balducci delivered another $10,000 to Judge Lackey. The same day, Balducci and Richard Scruggs discussed making a third $10,000 payment to Judge Lackey; on November 5, 2007, Balducci took hand delivery of the $10,000 check and associated false documentation.

¶ 9. In the motion for sanctions, the Jones Firm averred that "this entire cause of action and the proceedings that have flowed therefrom have been forever tainted infected by criminal allegations of corrupt acts of certain Defendants or their agents. . . ." The Jones Firm requested an evidentiary hearing, and if clear and convincing evidence of judicial bribery were presented, the Jones Firm requested that the court impose the following sanctions on all defendants: (1) strike the...