Nov. 15 (Bloomberg) -- Richard Scruggs, the Mississippi trial lawyer who obtained an $80 million insurance settlement for Hurricane Katrina victims, won the disqualification of federal judges in northern Alabama from presiding over his contempt case.

Scruggs was criminally charged by a federal judge in Birmingham who said the lawyer violated a court order to return records pertinent to State Farm Automobile Insurance Co.

U.S. District Judge Scott Coogler in Birmingham said yesterday in a court order that it was reasonable to question the fairness of judges in the northern district, one of three federal jurisdictions in Alabama, given that the charges were lodged by a judge there, U.S. District Judge William Acker.

``While the court is of the firm opinion that it could fairly and impartially preside over this case and decide the issues therein, it is acknowledged that the impartiality of judges of this court might be reasonably questioned by an objective observer given the totality of the circumstances,'' Coogler wrote.

The judge said he conferred with other judges in the district and then decided to send the case to the U.S. Court of Appeals in Atlanta for reassignment. Scruggs was scheduled to be arraigned in Birmingham Nov. 20.

Scruggs' attorney John Keker in San Francisco couldn't be immediately reached for comment.

National Prominence

Scruggs earned national prominence by helping negotiate a $206 billion settlement from the tobacco industry in 1998. The current prosecution stems from lawsuits against Bloomington, Illinois-based State Farm in which policyholders accused the insurer of illegally denying them payment for Katrina losses.

Former contract insurance adjusters who worked for State Farm began working as consultants for Scruggs as he mounted a legal assault on insurers following the hurricane. The adjusters brought with them documents which their employer, E.A. Renfroe, sued to get back. Acker said the files should be returned to Renfroe's lawyers.

Scruggs said he gave them to Mississippi Attorney General Jim Hood instead, believing he was in compliance with the court order, which made some exemption for law enforcement. Scruggs has at least 200 Katrina suits still pending in Mississippi federal court and won an $80 million settlement for another 640 cases.

Another federal judge ordered Hood to halt his criminal probe of State Farm's handling of Hurricane Katrina claims. U.S. District Judge David Bramlette issued an order suspending the investigation at the request of the insurer, which filed a breach of contract case in September against Hood.

The order was made public yesterday. The suit claims Hood is violating a January non-prosecution agreement and is misusing his office to help force civil settlements of Katrina cases.

The case is U.S. v. Scruggs, 07cr0325, U.S. District Court, Northern District of Alabama (Birmingham).

To contact the reporter on this story: Laurence Viele Davidson in Atlanta at lviele@bloomberg.net.

Last Updated: November 15, 2007 16:47 EST