NEW YORK (Legal Newsline) - The argument over $14 million in attorneys fees from a $100 million state settlement will be settled in a Mississippi court, and state Auditor Stacey Pickering thinks the decision may come quickly.

Second Circuit Court of Appeals Judge William Pauley decided Monday afternoon that even though the fees were earned in a federal bankruptcy case, the dispute that followed involves questions of Mississippi state law. His decision affirmed an earlier ruling by U.S. Bankruptcy Judge Arthur Gonzalez.

The State of Mississippi agreed to a $100 million settlement over back taxes allegedly owed by Worldcom in 2005 and was represented by admitted felons Joey Langston and Timothy Balducci, both of whom are awaiting sentencing after pleading guilty of attempting to bribe a judge.

"(T)he Bankruptcy Court decided that the State's pursuit of the fees paid to the Langston Law Firm was not a collateral attack of the Settlement Order implicating res judicata, estoppel or waiver, which was the Langston Law Firm's first claim," Pauley wrote.

"Because discretionary abstention was appropriate, any decision on the merits of the claim is left to the Mississippi state court."

Then-Auditor Phil Bryant filed suit against Langston's firm last year, arguing that the state Legislature needed to approve any usage of the settlement funds, including attorneys fees.

Pickering continued with the suit after Bryant became Lieutenant Governor. Langston argued that Bryant's reason for filing the suit in the middle of his campaign was political.

Pickering said on Tuesday he asked Hinds County Circuit Court Judge Winston Kidd to lift a stay on the state proceedings. His next step will be to file for summary judgment because he feels both sides have had enough discovery time.

"We've already been through three federal court hearings. Both sides have had ample opportunity for any discovery," Pickering said. "Both sides can present their arguments and the judge should be able to rule.

"I firmly expect Langston and his legal team to use any tactics they may have to delay the proceedings."

Pauley was the third federal judge to side with the Auditor's office. He heard arguments in September.

"While it is true that this dispute originates in the Debtors' bankruptcy proceeding and that it would not have arisen had the bankruptcy not occurred, appellant is incorrect that this action, by its nature, could only be brought in bankruptcy court," Pauley wrote.

"Rather, the parties could have brought this dispute, or any dispute relating to the payment of attorneys fees in a settlement agreement, in any court.

"Moreover, there is no evidence that the dispute, which concerns only whether the Langston Law Firm must turn over the payment it received from MCI to the State, will impact the administration of the estate."

Langston had argued that the federal bankruptcy court should not allow a state court to make a ruling that contradicts the federal settlement.

"The State's objection to the payment of legal fees to the Langston Law Firm, whether based on state law or anything else, was required, as a matter of federal law, to be raised in opposition to the 2005 Settlement Motion in the Bankruptcy Court," a reply brief filed Aug. 8 says.

"Our legal system should not tolerate a state (or anyone else) sitting on its rights, failing to object or appeal, allowing a settlement order to become final, and then some two years later instituting litigation to undo the payment allowed by the Bankruptcy Court by making an end run around the finality of the Bankruptcy Court Order in a home court under state law."

Langston faces a maximum prison sentence of five years after pleading guilty in January to a charge that he attempted to bribe Hinds County Circuit Judge Bobby Delaughter with consideration for a job as a federal judge.

The attempt, Langston says, happened when he represented disgraced plaintiffs attorney Richard "Dickie" Scruggs in a dispute over attorneys fees earned in asbestos settlements. Balducci also represented Scruggs in the case. DeLaughter eventually did not agree with a special master's recommendation that Scruggs pay his former partner $15 million and ruled Scruggs only owed $1.5 million.

Balducci pleaded guilty in September 2007 to a separate alleged judicial bribery scheme. Scruggs was in a dispute over more than $26 million in fees from Hurricane Katrina cases and was sentenced to five years in prison for admitting to attempting to bribe Lafayettte Circuit Judge Henry Lackey.

Langston, a heavy campaign contributor of Mississippi Attorney General Jim Hood's, was also given a state contract to pursue a case against pharmaceutical giant Eli Lilly but was fired after pleading guilty.

Pickering said the attorneys in the Worldcom case were paid about $2,000 per hour, based on the information he could gather. Pickering said Hood did not comply with a request for a complete listing of hours and work performed.

Hood refused to defend the Auditor's office in the dispute with Langston and Balducci. He also did not file state charges against them or Scruggs in their federal bribery scandals, leaving it to the state's district attorneys.

Taxpayers will get a break because of Pauley's ruling, Pickering said. Counsel in New York will no longer be needed, and another firm hired by Pickering will no longer need to travel to New York.

As of September, fees for those attorneys were approaching $200,000.

From Legal Newsline: Reach John O'Brien by e-mail at john@legalnewsline.com.