Who's Afraid Of Dickie Scruggs?

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.