Langston Suit Fraught with Politics

Courtesy Wayne Edwards

Former attorney Joey Langston is still battling a lawsuit against the state of Mississippi for $14 million in legal fees stemming from the 2005 WorldCom settlement.

by Adam Lynch
December 17, 2008

A state lawsuit against the law firm of disbarred attorneys Joey Langston and Timothy Balducci is uncovering a curious mixture of politics and money, and not all of it surrounds Langston.

Langston and Balducci both pled guilty to corruption earlier this year, but prior to the FBI investigation that led to their guilty pleas (and Langston’s subsequent 36-month incarceration), both proved effective at suing telecommunications giant WorldCom for tax fraud against the state of Mississippi.

The state is currently suing the attorneys and the Langston Law Firm to return $14 million paid to them by MCI/WorldCom in a $126.2 million tax-fraud settlement with the state in 2005. WorldCom agreed to give the state $100 million in cash and ownership of WorldCom’s downtown property, and it directly gave $4.2 million to the Children’s Justice Center. State Auditor Stacey Pickering said attorneys acting on the attorney general’s behalf can only receive money from the state, however, not a third party, and is demanding the firm repay the attorney fees after winning the $126.2 million haul for the state.

The suit, now sitting in Hinds County Circuit Court, makes an entertaining read, and speaks to the creeping influence of politics in the state’s big-money cases. Mississippi Attorney General Jim Hood and Langston, for example, fought an uphill battle to settle with WorldCom, a hill made steeper by the company’s friends in high places, according to case filings.

Court documents reveal Hood had been suing WorldCom against the apparent wishes of the State Tax Commission—which decided early on, in 2004, that the company did not owe any taxes to the state.

According to court filings, Tax Commission General Counsel Gary Stringer even accused Hood’s office and his contracted attorneys of “pursuing a frivolous claim and threatened that no one at the Tax Commission would support the claim.”


The WorldCom Web
The scheme defrauding the state of Mississippi involved WorldCom’s out-of-state subsidiaries paying the parent company huge amounts of money for the use of the brain power of WorldCom’s top management, CEO Bernie Ebbers, CFO Scott Sullivan and other higher-ups. In a plot with more twists than the Mississippi River, the company packaged WorldCom leaders’ brainpower—called “management foresightԗas a tangible item that could be bought and sold, similar to the selling of a theory or patent.

WorldCom sold “management foresight” to their subsidiaries all over the country, while the subsidiaries paid back an amount of money to WorldCom’s Mississippi corporate office almost equal to its net profits.

Management foresight had the added benefit of being untaxable, because the state of Mississippi treated the money transfers as a royalty, which were only taxable in the state if the money was actually earned in Mississippi.

When presented with the details, Stringer shocked the attorneys by arguing that WorldCom would have simply used another elaborate manner to transfer money in the absence of the royalty program, and that the state should, therefore, not tax WorldCom.

Frustrated, Hood’s people eventually went over Stringer’s head and tried to convince Tax Commission Chairman Joseph Blount to offer the commission’s support. Blount told Hood’s people that he “needed to check with (his) boss, Governor (Haley Barbour).”

Barbour, however, was not unbiased. Forbes Magazine writer Neil Weinberg wrote of Barbour’s ties to WorldCom in a 2002 article covering a 2001 WorldCom shareholder lawsuit against WorldCom management in U.S. District Court in Jackson. The Forbes article noted shareholders’ complaints of WorldCom book-cooking and suggested a bias on the part of Judge William H. Barbour, Haley Barbour’s first cousin, who dismissed the lawsuit with prejudice and opined that the shareholders had fabricated the accusations.

Salon.com writer Joe Conason referred to the Weinberg article, but also noted huge donations from WorldCom to the GOP during the years Barbour spent as the chairman of the Republican National Committee.

WorldCom gave a $1 million donation to the University of Mississippi’s Trent Lott Leadership Institute, an entity served by Barbour as chief fundraiser for the institute, according to Conason. Additionally, Barbour was a member of the board at SkyTel when WorldCom swallowed it in 1999. Barbour voted for the merger, and could have received considerable WorldCom shares as part of the deal.

Barbour did not return calls to the Jackson Free Press on the matter, and has not revealed if he received any WorldCom shares.

Hood’s contracted attorneys never heard back from Blount. They later met with Stringer and Commission Tax Auditor Ellis Jones in 2005, where Stringer took a more aggressive stance and tried to usurp the suit, claiming that the commission was the attorneys’ client, not the attorney general’s office.

Hood’s attorneys essentially told Stringer to go jump in a lake, that the attorney general had a constitutional responsibility to collect WorldCom’s unpaid taxes and that if the commission “refused to live up to its own duty,” the attorney general’s authority would allow Hood to move forward with or without the commission’s blessing.

Langston’s law firm asserts that if the commission’s failure to discover, prosecute and support the state’s income tax claim against WorldCom was unintentional, it was either negligent or grossly negligent in its duties. Langston argues that if the commission’s indifference was intentional, it was “in deliberate disregard of the state’s financial interest, and in violation of its fiduciary responsibility of loyalty to the state.”


The War on Lawyers
WorldCom initially fought the lawsuit, filing a March 2005 objection to the state claims. Its stance quickly changed, however, when its debts to the state proved a possible complication for a potential buyout by telecommunications companies Quest and Verizon.

WorldCom’s reorganizers, faced with a bankrupt, broken organization, had no taste for drawn-out litigation and were eager to move about the business of recycling what was left of WorldCom’s assets. They were in a rush to settle with the state, so when Hood demanded WorldCom personally pay the Langston Law Firm $14 million for special assistant fees, the company went for it. The litigants came to an agreement with little whining, not even from state officials, at least not for more than a year.

Pro-corporate politicians, on the other hand, saw the WorldCom settlement as a disaster for business interests and looming proof of the Mississippi attorney general’s growing power to topple giant donors. The settlement also made clear to the pro-business lobby how exponentially formidable the attorney general’s office could be when it hired outside attorneys to fight a battle full-time, instead of delegating leviathan projects to already overburdened staff.

The Mississippi Legislative Conservative Coalition, which seeks to limit the attorney general’s power to hire outside counsel, sent a June 28, 2005, letter to then-state Auditor Phil Bryant to investigate Langston’s fees. The Republican auditor then released a November letter recommending that the Legislature or the courts “clearly determine the status of all fees received by private attorneys retained” by Hood.

Bryant, however, could not deny the cosmic pile of cash Hood won for the state and made no move or recommendation that the state reclaim the $14 million.

Bryant became a different kind of animal after he announced his candidacy for lieutenant governor in February 2006, however. The Republican immediately engaged in a red-meat campaign of alienating and opposing “trial lawyers,” a popular move among Republicans running for statewide office since the state first enacted tort reform in 2001. Seven months later (and more than a year after the settlement was complete), Bryant revisited the WorldCom arrangement, releasing a Sept. 18 report claiming “the attorney general did not have the authority to enter into such an agreement, because he may only pay private attorneys out of contingency funds in his budget or from other funds … appropriated by the Legislature.”

Bryant also successfully demanded the Children’s Justice Center disgorge its $4.2 million, completely killing the program.

Court documents reveal Bryant’s investigation even sabotaged the attorney general’s ongoing settlement with KPMG LLP, WorldCom’s accounting company and a contributor to the company’s tax evasion scheme in Mississippi. KPMG had already tendered a $20 million settlement offer with Hood. The attorney general’s lawyers frantically asked Bryant to delay the release of his new report, warning that the information in it could jeopardize the settlement. Bryant ignored the attorneys.

Auditor Stacey Pickering, who won the office after Bryant became lieutenant governor, is continuing the $14 million crusade, even though law suggests the state could actually lose almost $3 million if Pickering successfully dissolves the contract between WorldCom and Langston’s firm. According to the attorney general’s contract, the firm had earned $16.9 million based on the exorbitant WorldCom settlement, and had only agreed to $14 million at Hood’s behest.


The High Cost of War, on Lawyers
If the state nullifies the contract, Hood warns that Langston is eligible to enforce the hard language of the attorney general’s sliding scale and could demand the full $16.9 million, costing the state $2.9 million in addition to the Langston firm’s allotted $14 million.

Pickering, for his part, says the extra $2.9 million is something the state Legislature is going to have to contend with.

“No one is arguing about the compensation that Langston was willing to receive or the fact that he was deserving of the compensation,” Pickering said. “It simply asks to the legal process, and my position is that this is no different than any other compliance issue in the state of Mississippi: that any public funds have to be appropriated by the Legislature.”

The Legislature has moved one step closer to having to deal with it. Last week, Hinds County Circuit Court Judge Winston Kidd lifted a motion to stay the auditor’s politically tinged lawsuit against Langston, Balducci and the Langston Law Firm after U.S. District Court Judge William Pauley sent the case back to Hinds County.