Who's Afraid of Dickie Scruggs?  
( Newsweek )
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Who's Afraid of Dickie Scruggs?: Answer: corporate America. With powerful
friends and a novel legal strategy, this smooth Southern litigator helped bring
Big Tobacco to its knees. Now he's going after HMOs. Critics say he's abusing
the system to get rich. But Scruggs says he's simply doing well by doing good.
By Adam Bryant
Edition: U.S. Edition
Section: Business

The paparazzi start shooting as Al Pacino, dressed entirely in black, ambles
down the red carpet into Manhattan's Ziegfeld Theater for the gala premiere of
"The Insider.'' But in the theater lobby, it' s a less familiar face that is
attracting a crowd. Lawyer Richard Scruggs is under the bright lights of
television cameras, and reporters want to know about his role in the events
that inspired the gripping movie about a whistle-blower in the tobacco
industry. "How close is the movie to what really happened, Mr. Scruggs?" they
ask. Inside the theater, before the lights dim, Scruggs continues to work the
crowd, chatting up actor Christopher Plummer and director Michael Mann. He jams
up the aisle as Jeffrey Wigand, the real-life character at the heart of the
story, stops by to catch up. After the movie, as people file out, someone gives
Scruggs an attaboy. He flashes an aw-shucks smile: "I'm just an ambulance
chaser from Mississippi."

Don't believe him for a second. After suing asbestos makers in the '80s,
Scruggs turned on Big Tobacco in the '90s, ultimately helping wring a $240
billion settlement out of the industry. Now he's leading a coalition of lawyers
who have targeted another industry consumers love to hate: health insurers. On
Oct. 7, Scruggs filed suit against Aetna, the nation's largest HMO, claiming it
had engaged in a "nationwide fraudulent scheme" to enroll members by promising
quality health care and then denying needed services--all in the name of
corporate profits. Scruggs filed similar suits last week against Cigna,
Foundation Health, Humana and Pacificare.

Richard Furlow Scruggs, "Dickie" to his friends, may be the most influential
man in America that you've never heard of. The 53-year- old former Navy fighter
pilot is a master at marshaling the forces of fellow attorneys against
industries that he believes betray the public's trust. Using a web of
high-powered political connections and a keen sense for what plays on Wall
Street, Scruggs embodies the class-action lawsuit gone thermonuclear, a new
weapon hovering over corporate America.

What Congress couldn't or wouldn't do to Big Tobacco through legislation,
lawyers did through the courts. Other class-action suits are piling up against
the gun industry,

lead-paint makers and, most recently, Microsoft, after the Justice Department's
recent antitrust action against the company. Scruggs is not involved in those
suits. For him to take on a case, he declares, the issue has to offend "my
fundamental sense of fairness."

Critics say there also has to be a fair amount of cash at stake before his
conscience kicks in. Scruggs has become a lightning rod in the highly charged
debate over the role of trial lawyers and the fat fees many of them have
earned. In the tobacco case, lawyers are expected to rake in a stunning $12
billion in fees. The take for Scruggs's firm alone? Close to $900 million, with
about one third of that going to Scruggs personally.

For his efforts, Scruggs is attracting some powerful enemies, particularly in
the health-insurance industry, which is now squirming uncomfortably in the
lawyer's cross hairs. The suits have spooked investors, putting pressure on
industry stocks, some of which fell almost 20 percent when news of the suits
first surfaced. One of his most outspoken critics, Richard L. Huber, chief
executive of Aetna, has referred publicly to Scruggs as "Slugs," and recently
said, "What he does for personal enrichment is to make vital services and goods
more expensive.'' The insurance industry, which has vowed to fight the lawsuits
vigorously, has also sponsored a TV spot showing sharks in a feeding frenzy,
warning that "America's richest trial lawyers are circling, and your health
plan is the bait."

Aetna has called Scruggs's accusations "outrageous," and promised to defend
itself aggressively. It claims the suit represents an attack on managed care,
which it says has "reduced the rise of medical costs, increased preventive care
and made quality health care affordable to more people."

One of Scruggs's favorite sayings--he uses it when something's got him all
charged up--is, "My hair's on fire.'' His hair is aflame these days over the
financial incentives he says health insurers give doctors to undertreat
patients. "It's like paying a lawyer more if he loses for his client,'' he
says. The lawsuits are just a starting point, Scruggs says, part of an
ambitious plan to restructure the way health care is delivered in this country.
He's using them to get the attention of big institutional investors. Scruggs
wants them to pressure the industry to work with Congress, which is now
considering new patients' rights legislation. Any overarching solution, he
adds, should include a capped industry fund to pay out damages arising from
lawsuits. By capping the annual damages, he says, one or two ruinous judgments
won't bankrupt the industry (and leave companies unable to settle with trial
lawyers).

The legal playbook that Scruggs is deploying against managed care is one he
refined during his long battles against the asbestos and tobacco industries.
Raise the stakes so high that neither side can afford to lose, because that's
when compromises are made. Take your message directly to Wall Street. Prepare
the ground in Washington for a legislative resolution. (Sen. Trent Lott and
Scruggs are brothers- in-law, and they affectionately call each other "my
no-good, scum- sucking brother-in-law.'') Scruggs didn't invent these
approaches, and class actions have been around for decades. Silicone breast
implants, the Dalkon shield, Agent Orange, plane crashes and even civil-rights
violations have been the subjects of these kinds of joint lawsuits, which bring
together the power and resources of many individual plaintiffs. But Scruggs has
broadened their scope by drawing in other lawyers, Washington policymakers and
investors. "We understand how to play this game now in ways that haven't been
played before," he says. It' s part big business, part "cause-lawyering,'' a
combination that legal experts say is unusual. "Here we have a new animal,''
says Deborah Hensler, a Stanford University law professor.

Scruggs is a familiar enough animal around the sleepy Gulf Coast town of
Pascagoula, Miss., where he has lived most of his life. Scruggs' s stately
Colonial along "The Beach,'' a two-mile-long row of gracious homes by the
water, is now recognizable to many as the setting for a number of scenes in
"The Insider.'' Scruggs himself never made it into the movie, though it wasn't
for lack of trying. He spent an hour reading lines in Washington with Mann and
Pacino. They then went to dinner, and after Scruggs picked up the check, Mann
told him he was going to hire a professional actor for the part.

Scruggs didn't always travel in such tony company and was a bit wild as a boy.
Once, to get back at some kids who were picking on him, he and a friend decided
to burn down their cardboard playhouse. There was just one problem. The
playhouse was inside a garage and the building itself nearly burned to the
ground. Scruggs's mother eventually sent him off to a military academy to
finish high school. He then attended the University of Mississippi--Ole
Miss--where he made connections that would pay off again and again. After
working for some large law firms in Jackson, Miss., he moved his family back to
Pascagoula in 1980 to hang out his own shingle, and settled into a prosperous
but unremarkable career handling a variety of cases. That changed one evening
in early 1984, when he received a call at home from a shipyard worker who had
been having breathing problems. He wondered if Scruggs would take his case.
Scruggs paid to get him tested by a pulmonologist, and the tests suggested the
culprit was asbestos. When word spread that Scruggs was willing to front the
money for medical evaluations, he soon had hundreds of clients. By taking
advantage of a recent change in the law, Scruggs maneuvered his cases from
federal court to state court, and was suddenly first in line to deal with the
asbestos industry. Scruggs ultimately settled cases on behalf of 4,200 direct
clients (and was co-counsel for an additional 6,000), winning about $300
million for them and about $25 million for himself.

It was an Ole Miss connection that drew Scruggs into the historic plan to take
on Big Tobacco. In 1993, Michael Moore, the telegenic state attorney general in
Mississippi (he plays himself in "The Insider' '), was mulling over a strategy
for going after tobacco companies. He called Scruggs, a classmate in law
school. Scruggs quickly warmed to a new legal tactic: suing tobacco companies
on behalf of states seeking reimbursement of Medicaid costs from treating
smoking-related illnesses, rather than suing on behalf of the individuals. The
case was more than a long shot, though. The tobacco industry was spending
hundreds of millions of dollars a year to defend itself in court. Scruggs
reached out to lawyers he knew from his days of suing asbestos companies. Many
passed, not liking the odds, though Scruggs did win some recruits. He emerged
as the chief executive of the case, assigning lawyers to handle research, write
briefs or prepare arguments. Scruggs and Moore--"Scro'' and "Mo,'' as they call
each other--flew around the country on Scruggs's jet, persuading other states
to file tobacco suits.

The Mississippi case gained momentum when it attracted a crucial
whistle-blower, Jeffrey Wigand, the former research director at the Brown &
Williamson tobacco company. "The Insider" details Wigand's troubles with his
former employer once he tried to publicize industry secrets. Scruggs was at the
center of the storm, even acting as Wigand' s personal attorney. He says the
movie accurately depicts a key moment at Scruggs's house when Wigand was
deciding whether to agree to be deposed and risk getting thrown in jail. "This
is a lot to ask of you," Scruggs recalls telling him. "You don't have to do
this thing, and nobody is going to think less of you if you don't.'' Wigand
agreed to go forward. Wigand says that whenever a crisis hit, Scruggs was the
first person he called. "Dickie was definitely like a brother, '' he says.

The tobacco industry's unified front started to crack in 1996, and with the
Mississippi case moving to trial, the industry, after months of negotiations,
decided to settle. On June 20, 1997, a triumphant Scruggs and Moore announced
the landmark settlement. The tobacco companies had agreed to sharply limit
their marketing and pay a staggering $368.5 billion over 25 years (the tail
number on Scruggs's jet is 368). Scruggs was ecstatic. "We wanted to do
something that we could forever be proud of," he said that day. "It's a ticket
to heaven."

The settlement, however, immediately came under attack in Congress from
politicians and public-health advocates who said it didn't go far enough. The
tobacco agreement ultimately collapsed, and the industry turned to settling
with the states. The industry's bill would reach $240 billion.

Scruggs had bet just about everything he had on the tobacco litigation. But the
immense fees Scruggs and others earned from the tobacco settlement left many
people sputtering with incredulity, and proposals marched through Congress to
cap the fees at a fraction of what they actually earned. Some judges declared
the payments would lower respect for the profession. Scruggs's motivations were
called into question. If the suit was about public health and not money, many
people asked, why not give more of it to the states or voluntarily cap his fees
at a more modest amount? Scruggs recognizes the public-relations problems the
money has caused. "It's hard to say I didn't do it for the money when I made a
lot of money,'' he says.

But Scruggs maintains financial incentives are necessary for other lawyers to
take on tough cases. Then why not reduce his own fees? "Then we wouldn't have
anything for the next round,'' he says. "The war chest that resulted from
asbestos litigation enabled us to successfully pursue tobacco litigation."
Still, he clearly enjoys his winnings. Besides his private jet, he owns a
120-foot yacht, a 40-foot sailboat and two vacation homes. He has also pledged
$30 million to charities and endowments. Scruggs says the current litigation is
also a way to give something back. "If our case against HMOs was just about
greed, I'd be on my boat in the South Pacific now,'' he says. "Lawyers who have
made these sorts of fees have an obligation to invest them and create a
resource for fighting against other wrongs in future litigation.' '

But critics say Scruggs is grossly overstepping his role as a trial lawyer by
suing a company as a means to changing the way health care is delivered. "It's
an abusive process to sue a company for one purpose when your real purpose is
to get them to agree to some kind of political agenda,'' said James Wootton,
president of the U.S. Chamber Institute for Legal Reform. "This is not a
legitimate end of litigation.''

Scruggs dismisses such charges, preferring to focus on the next procedural
chess moves in the legal war with the HMOs. The first step is to get the
aggrieved patients certified as a class, which Scruggs expects will occur
sometime after January. A trial is not expected for at least a year.

Sitting in his family room in Pascagoula on a recent Sunday afternoon, Scruggs
appears confident that he will prevail in this latest litigation. In fact, in
an expansive moment, he takes to mulling over future targets. After seeing what
Wal-Mart has done to once thriving downtowns, Scruggs is toying with the idea
of going after the giant retailer on antitrust grounds. "They've damaged the
fabric of American life," he says. " It offends me." For the moment, Wal-Mart
refuses to comment. But Scruggs' s short-list isn't one any business wants to
find itself on.

ILLUSTRATIONS/PHOTOS: THOSE CRAZY IN-LAWS: Contacts like Senator Lott have
helped make Scruggs a powerful player A FREQUENT FLIER ON `AIR SCRUGGS':
Scruggs logs a lot of miles on his private jet. Left to right: At the Jefferson
Military College in 1954; aboard the Franklin D. Roosevelt aircraft carrier in
1972; with his wife, Diane, near their vacation home in Key West, Fla.
LEVELING THE PLAYING FIELD AGAINST CORPORATE AMERICA: Scruggs and Charlene
Bosarge, his assistant, sit amid documents used to battle Big Tobacco. James
Wootton (below), of the U.S. Chamber Institute for Legal Reform, say Scruggs is
abusing the courts to pursue his agenda.

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