Jackson Free Press

Hinds County Circuit Court Judge Winston Kidd has lifted a motion to stay a politically tinged state lawsuit against disbarred attorneys Joey Langston and Timothy Balducci and the Langston Law Firm after U.S. District Court Judge William Pauley sent the case back to Hinds County. "I had issued a stay maybe a month ago to allow the federal court to decide the issue, and the federal court decided that it should be in state court. The parties agreed that the stay should be lifted. They have been lifted and the matter will now proceed forward," Kidd told the Jackson Free Press today, adding that he was not yet sure when the next hearing for motion of summary judgment would commence.

U.S. Southern District Court of New York Judge William Pauley sent the case back to Mississippi, ruling that "any decision on the merits of the claim is left to the Mississippi state court."

The state is suing the attorneys and the Langston Law Firm to return $14 million paid 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.

Attorney General Jim Hood successfully demanded WorldCom pay the Langston Law Firm separately, to the tune of $14 million for special assistant fees, after the company was unable to turn over to the state WorldCom property in Clinton. The company agreed to Hood's terms, with no outcry from state officials for more than a year.

The Mississippi Legislative Conservative Coalition, which seeks to limit the Democratic 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. Bryant released a November letter recommending that the state Legislature or the courts "clearly determine the status of all fees received by private attorneys retained" by Hood. Bryant, however, made no move or recommendation that the state reclaim the $14 million, and had even praised the benefit of the more than $100 million garnered through the settlement.

Bryant announced his candidacy for lieutenant governor in February 2006, and 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."

He also successfully demanded the Children's Justice Center—which would have provided sexually abused children access to medical facilities, forensic tests and prosecutors—disgorge its $4.2 million, completely killing the program.

The suit, now sitting in Hinds County, makes an entertaining read, and speaks to the creeping influence of politics in the state's big money cases. Hood and Langston, for example, had 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 the AG had been suing WorldCom against the apparent wishes of the State Tax Commission—which decided in 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." Stringer went so far as to suggest WorldCom's controversial royalty scheme, which had successfully dodged untold million of dollars in state taxes for years, "lacked economic substance, and should be treated as null and void," as if the transaction had never occurred.

The scheme 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 scheme worthy of quantum physics, the company fashioned 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 money transfers were treated by the state of Mississippi as a royalty, which were only taxable in the state if the money was actually earned in Mississippi. In the case of a WorldCom subsidiary in Massachusetts, for example, the money was earned by that subsidiary from the people of Massachusetts, not Mississippi.

Stringer later argued 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 an unbiased party. 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.

The Forbes article also notes huge donations from WorldCom to the GOP over the years. (Barbour served as chairman of the Republican National Committee in the 1990s.) The company also gave a $1 million donation to the "Trent Lott Leadership Institute" at Ole Miss. (Barbour served as chief fundraiser for the institute.) Additionally, Barbour was a member of the board of local telecommunications company SkyTel when it was swallowed by WorldCom 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 at a February 2005 meeting, where Stringer tried to usurp the suit, claiming that the commission was the attorneys' client, not the AG's office. The deputy AG's, they said, should report to the commission because the AG had no power to either tax or collect.

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

Stringer, according to case filings, warned that the commission could still kill the suit "by refusing to cooperate or by testifying unfavorably." Hood's attorneys admitted that they were "well aware" of the commission's protective stance on WorldCom, and would no longer report to Stringer unless Hood specifically directed them to.

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."

Republican Auditor Stacey Pickering, who took over after Bryant became lieutenant governor, is continuing the $14 million crusade, even though state 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 guidelines, the firm had earned $16.9 million based on the exorbitant WorldCom settlement, and had only agreed to $14 million at Hood's behest.

If the state yanks the contract, Hood warns that Langston is eligible to enforce the hard language of the AG's sliding scale and 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 the Legislature's problem.

"That's a decision the Legislature will have to work out," he told the Jackson Free Press several months ago. He has not returned calls this week for comment.