Scruggs v. Wyatt

• Decision Date: 31 March 2011
• Docket Number: No. 2010–CA–00122–SCT.,2010–CA–00122–SCT.
• Parties: Richard F. SCRUGGS and SLF, Inc.v.Derek A. WYATT.
• Court: Mississippi Supreme Court

60 So.3d 758

Richard F. SCRUGGS and SLF, Inc.

v.Derek A. WYATT.

No. 2010–CA–00122–SCT.

Supreme Court of Mississippi.

March 31, 2011.

J. Cal Mayo, Jr., Paul Bowie Watkins, Jr., Pope Shannon Mallette, Oxford, attorneys for appellants.Michael D. Simmons, Donna Marie Meehan, Jackson, attorneys for appellee.EN BANC.RANDOLPH, Justice, for the Court:

¶ 1. In December 2006, Derek A. Wyatt entered into an unwritten employment agreement with Nutt & McAlister, PLLC. Nutt & McAlister was a member of the Katrina Joint Venture (which also included the Scruggs Law Firm, PA ¹), a joint venture governed by the “In Re: Katrina Joint Venture Agreement” (“Katrina JVA”) and created to bring lawsuits on behalf of those “denied insurance coverage for property damage arising out of Hurricane Katrina.” The Katrina JVA included an arbitration provision, which stated that “[a]ny dispute arising under or relating to the terms of this agreement shall be resolved by mandatory binding arbitration ....” (Emphasis in original.)

¶ 2. In April 2008, all Katrina Joint Venture attorneys and associates were disqualified from Mississippi federal court cases against State Farm Insurance Company in which they were involved, based upon payments to material witnesses in hurricane-damage claims which were likely to become the subject of litigation. Following that disqualification, Nutt & McAlister, despite Wyatt's protest, withdrew from the Katrina Joint Venture and relinquished its interest in all cases related thereto. Concurrently, Wyatt was engaged in a fee dispute with Nutt & McAlister regarding his claim to a ten-percent interest in Nutt & McAlister's share of Katrina Joint Venture fees.²

¶ 3. Wyatt's First Amended Complaint (“Complaint”) was filed in the Circuit Court of Lafayette County, Mississippi, in June 2009, against Scruggs and SLF, Inc. (“Scruggs Defendants”), et al.³ In the Complaint, Wyatt asserted that he is a “fee sharing participant” and a “fee sharing attorney” in the Katrina Joint Venture; that he has a “fee-sharing interest in the Katrina Joint Venture”; and that the defendants have a “fee sharing relationship” with him. Wyatt further maintained that his employment with Nutt & McAlister was within the scope of the Katrina Joint Venture's business such that, as co-venturers, the Scruggs Defendants were “jointly and severally liable with Nutt & McAlister for its breach of fiduciary duty and breach of its fee-sharing agreement with Wyatt.”

¶ 4. In response, the Scruggs Defendants filed a “Motion to Compel Arbitration and To Stay Pending Completion of Arbitration,” asserting that all of Wyatt's claims against them related to “his alleged entitlement to fees collected in the course of the [Katrina Joint] [V]enture.” As such, the Scruggs Defendants maintained that such claims were within the “broad” scope of the Katrina JVA's “mandatory binding arbitration” provision. Following hearing, the circuit court found the arbitration provision “broad enough in scope to cover the instant controversy,” yet overruled the Scruggs Defendants' “Motion to Compel Arbitration and To Stay Pending Completion of Arbitration.” The circuit court reasoned that “there is no agreement between [Wyatt] and the [Scruggs Defendants] to arbitrate since [Wyatt] did not sign the [Katrina JVA] nor was his particular involvement foreseeable as a [third-]party beneficiary.” From that ruling, the Scruggs Defendants timely filed their “Notice of Appeal.”

FACTS

¶ 5. On November 8, 2005, the Scruggs Law Firm; Barrett Law Office, PA; Nutt & McAlister; John G. Jones of Jones, Funderburg, Sessums & Peterson, PLLC (“Jones Firm”); and Dewitt “Sparky” Lovelace of the Lovelace Law Firm, PA, entered into the Katrina JVA. The Katrina JVA provided that “[t]his agreement constitutes the sole and only agreement of the members hereto and supersedes any prior understandings, written or oral agreements between the members of this venture.” (Emphasis added.) The Katrina JVA stated that the role of the Scruggs Law Firm was as “[l]ead counsel,” while the role of Nutt & McAlister was “[f]unding;[ ⁴] client relations.” As to the “Division of Attorneys' Fees,” the Katrina JVA provided that “[a]ll fees or compensation received by any joint venturer and anyone associated by them shall be timely paid in full without reduction to the joint venture and divided as provided in this agreement.” Notably, the Katrina JVA also included an arbitration provision, which stated that “ [a]ny dispute arising under or relating to the terms of this agreement shall be resolved by mandatory binding arbitration ....” (Emphasis added.)

¶ 6. According to Wyatt's Complaint, when the Katrina JVA was signed, he was “employed as a salaried associate at the Barrett Law Office....” Wyatt claimed that “[b]y mid–2006,” he was advised by “Barrett's senior partner ... to ... devote the majority if not all of his time to the Katrina [Joint] Venture,” and that in the fall of 2006, Nutt & McAlister requested that he come to work for their firm. Before beginning that employment on December 15, 2006, Wyatt allegedly entered into an unwritten employment agreement with Nutt & McAlister. According to the Complaint, Wyatt was hired for a “nominal salary of $100,000,” ⁵ along with “a fee sharing agreement that allocated to [him] a 10% fee sharing interest in Nutt & McAlister's [Katrina Joint] Venture fees....” Conversely, Nutt & McAlister claimed that Wyatt was an “at-will employee” who “was paid an annual salary of $100,000, later increased to $150,000, and a bonus calculated on the basis of 10% of the net fees that [Nutt & McAlister] received from cases on which Wyatt provided substantial services to firm clients.” (Emphasis added.)

¶ 7. On January 23, 2007, the Katrina Joint Venture publicly announced a $106.8 million settlement with State Farm, although Wyatt had been instructed to “stand down” from taking depositions in that litigation as early as January 5, 2007, three weeks after his employment began. Wyatt's Complaint provided that the Katrina Joint Venture's attorneys fees from that settlement “were $26.7 million.” According to Wyatt, he was entitled to an estimated $823,770.12 share of that settlement, which was not paid by Nutt & McAlister. Instead, he was given only a $100,000 bonus for his three weeks of service. By contrast, Nutt & McAlister maintained that Wyatt “was clearly and unequivocally informed ... that he would not receive a bonus in connection with the State Farm ... settlement[,]” but nonetheless Wyatt was “gratuitously paid” the $100,000 bonus. Wyatt further averred that “additional settlements were [subsequently] made, distributing $75.4 million in policy benefits to homeowners who had retained the [Katrina Joint] Venture[,]” of which he alleged that he was not paid his claimed share. Ultimately, Wyatt maintained that Nutt & McAlister had failed to pay “his 10% share of its Katrina [Joint Venture] fees[,]” in “breach of [his] promised fee share....” ⁶

¶ 8. In March 2007, the Jones Firm filed an amended complaint “assert [ing] claims against the co-venturers, and [Scruggs] and Don Barrett individually....” Barrett v. Jones, Funderburg, Sessums, Peterson & Lee, LLC, 27 So.3d 363, 365–66 (Miss.2009). The defendants in that action filed a motion to stay the proceedings and compel arbitration pursuant to the Katrina JVA. See id. at 366. Thereafter, Scruggs was federally indicted for his involvement in “a conspiracy to attempt to influence [Circuit Court Judge Henry L. Lackey] to grant the motion to compel arbitration by offering to pay Judge Lackey $40,000 in exchange for a favorable order.” ⁷ Id. at 366. On March 14, 2008, Scruggs “pleaded guilty to conspiracy to commit bribery of an elected state official....” Id. at 367–68.

¶ 9. Subsequently, all Katrina Joint Venture attorneys and associates who had worked on any of the Katrina Joint Venture's Mississippi federal court cases against State Farm were disqualified therefrom.⁸ According to Wyatt's Complaint:

[w]ithin days of the disqualification, [David H.] Nutt announced on behalf of Nutt & McAlister that the firm was withdrawing from the Katrina [Joint] Venture, and relinquishing all interest in the [Katrina Joint] Venture's remaining Katrina cases.... [O]ver [Wyatt's] voiced objection, Nutt instructed his private counsel to transfer 685 remaining Katrina cases plus $629,682.00 in cash and annuities to two former [Katrina Joint] Venture partners, for no monetary consideration.

¶ 10. On June 18, 2009, Wyatt filed the Complaint at issue, naming the Scruggs Defendants; David H. Nutt, Mary Krichbaum McAlister, Nutt & McAlister, David Nutt, P.A., David Nutt & Associates, PC (collectively, “Nutt Defendants”); and John/Jane Does 1–25 as defendants. The “Introduction” to the Complaint began by stating that “[f]rom 2006–2008, [Wyatt] was employed as an attorney in a litigation joint venture[ ⁹] formed by five law firms to file suit for Coastal homeowners against insurance companies refusing to pay Hurricane Katrina claims....” Wyatt's “Claims for Relief” ¹⁰ included the following:

(1) Pattern and Practice Fraud (Fee–Stripping)

—Defendants used fee-stripping techniques “to defraud Wyatt” of the fees to which he was entitled, “amounting to pattern and practice fraud.”

(2) Negligent and Malicious Breach of Fiduciary Duty

—“[B]y virtue of his employment as a litigation attorney in the [Katrina Joint] Venture, at all relevant times, Wyatt was a fee sharing participant in the Katrina Joint Venture.”

—“[T]he legal relationship between Wyatt, Scruggs, Nutt, McAlister, the Scruggs Law Firm and Nutt & McAlister ... was governed by a fiduciary duty of absolute honesty, loyalty, full disclosure and the covenant of good faith and fair dealing.”

(4) Negligent and Intentional Misrepresentation

—“Defendants had a non-delegable fiduciary duty to [Wyatt], which included ... the duty to refrain from negligently or intentionally misrepresenting material facts to [...