During the past seven years, Greenberg Traurig has spent tens of millions of dollars to settle actual and threatened litigation from a group of American Indian tribes that were bilked in the Jack Abramoff lobbying scandal.

Now, the firm wants one of the main participants in the criminal scheme to pay up.

Lawyers for Greenberg, represented by Williams & Connolly, are demanding that Abramoff business partner Michael Scanlon make restitution to the firm to cover its losses. In sentencing Scanlon on Feb. 11 to 20 months in prison for his role in a lucrative kickback scheme, Judge Ellen Segal Huvelle of Washington’s federal trial court ordered Scanlon to pay nearly $17.7 million to Greenberg and $2.5 million to two Indian tribes that identified uncompensated claims.

But Scanlon’s lawyers have objected to reimbursing Greenberg, saying the firm is not a direct victim and that it had contemporaneous knowledge of millions of dollars in fees that Scanlon was paying to Abramoff, a former Greenberg lobbyist in Washington.

Scanlon’s refusal to reimburse Green­berg sets up a potential evidentiary hearing in the coming weeks in Washington that would turn, in part, on whether the firm knew of the referral fees Scanlon was paying to Abramoff.

U.S. Department of Justice lawyers handling the Scanlon prosecution said it’s unclear whether Scanlon is allowed under federal law to pursue that claim and prove Greenberg’s liability. DOJ prosecutors declined to take a position on Greenberg’s culpability because the firm was not criminally charged or designated as an unindicted co-conspirator.

A lawyer for Scanlon, Ropes & Gray white-collar criminal defense partner Stephen Braga, said it’s an open question whether a “potentially responsible party” such as Greenberg is owed reimbursement or whether victim compensation is reserved for “uninvolved and innocent third parties” such as insurance companies. “It’s a novel but analytically sound objection, and I look forward to seeing how it’s received by the court,” Braga said.

In court papers filed this month, Braga compares Greenberg to Abramoff himself. No judge, Braga said, would allow Abramoff to seek compensation from Scanlon to recoup money paid to victims of the conspiracy.

‘EXTRAORDINARY’ HEARING

Huvelle set a deadline of March 13 by which Scanlon’s lawyers must initiate a formal challenge of Greenberg’s demand for compensation. Huvelle, a former Williams & Connolly partner, said in court this month she will recuse herself from any restitution proceeding.

Greenberg’s lawyers at Williams & Connolly, including complex civil and criminal litigation partner Kevin Downey, said such a hearing would be “extraordinary.”

In court papers filed on Feb. 9 in support of Greenberg’s restitution claim, Downey and Williams & Connolly associate Carl Metz called Scanlon “perhaps one of the nation’s largest modern day swindlers” of Indian tribes. (Downey declined an interview request.)

“Any suggestion that Greenberg condoned or supported any part of Mr. Scanlon’s reprehensible misconduct — conduct that even to this day Mr. Scanlon seeks to spin and minimize with euphemisms like ‘referral fee’ when he means kickbacks from the proceeds of his fraud — is fanciful,” attorneys for Greenberg said.

Scanlon began working with Abramoff and his crew of lobbyists in 2000. Abramoff recommended that his clients in the casino industry hire Scanlon’s public relations firm Capital Campaign Strategies LLC for grassroots services. Scanlon grossly inflated fees, according to prosecutors, kicking back to Abramoff tens of millions of dollars in referral fees.

Scanlon, 40, was the first target of the investigation to cooperate with the government. He pleaded guilty in the U.S. District Court for the District of Columbia in 2005 to participating in a conspiracy to commit bribery, mail and wire fraud . Prosecutors lauded Scanlon’s substantial assistance, saying he is largely responsible for helping build a series of successful corruption cases against lobbyists and public officials.

Scanlon’s objection to paying Green­berg so much as a dime doesn’t mark the first time a person or group has implicated the firm.

Beginning in 2004, Greenberg received litigation demand letters from several Indian tribes that hired Scanlon or his company. The letters sought to hold Greenberg liable under theories that included negligent supervision. The firm negotiated confidential settlements on six tribes’ claims between 2004 and 2008, according to court records.

The Coushatta Tribe of Louisiana’s suit against Abramoff, Scanlon and Greenberg in 2007 in Louisiana state court settled for a confidential amount, said Charles Elliott of Faircloth, Vilar & Elliott in Alexandria, La., who represented the tribe.

The suit claimed that Scanlon conducted business on behalf of Greenberg and that the firm “cloaked Scanlon with apparent authority.” According to the complaint, Greenberg paid Scanlon a salary, included him in confidential legal matters and allowed him to put his name on the firm’s business cards.

Greenberg has fully compensated the Coushatta tribe, whose loss was identified at $10.9 million. The tribe wants Scanlon directly to reimburse Greenberg, according to Greenberg’s lawyers. Elliott, the tribe’s lawyer, declined to comment on the restitution dispute.

PICKING UP THE TAB

An employer that pays to settle actual or threatened litigation arising from conduct of an employee or its employee’s co-conspirator is not disqualified from reimbursement, Greenberg’s attorneys said in court papers filed in the criminal case against Scanlon. There is no federal law that “supports an outcome under which Mr. Scanlon would be allowed to keep the proceeds of his crime, while allowing others to pick up the tab to compensate his victims,” the firm’s lawyers said.

“Greenberg seeks no sympathy for the difficulties that have resulted from employing Mr. Abramoff as a lobbyist,” Downey said in court papers. “What is relevant for the present purposes is that Greenberg promptly took steps to address the consequences of that conduct with the direct victims of the fraudulent scheme.”

Greenberg is tied up in arbitration against its insurers over whether the firm’s insurance covers damages stemming from Abramoff’s misconduct, court records show. Braga said in court this month he is arranging for Scanlon’s deposition in the arbitration.

Huvelle on Feb. 11 ordered Scanlon to pay a total of $2.5 million to two tribes, the Mississippi Band of Choctaw Indians and the Pueblo of Sandia. The Pueblo’s lawyer, Randolph Moss, co-chairman of Wilmer Cutler Pickering Hale and Dorr’s government and regulatory litigation practice group, declined to comment.

Scanlon can use assets to pay for “reasonable” living expenses and attorney fees, according to court documents. He cannot transfer assets without court permission.

Scanlon has been making arrangements with a real estate broker, investors and potential buyers for property in Washington and Delaware in anticipation of making restitution.

The restitution dispute is only one legal issue that remains as Scanlon prepares to begin his 20-month federal prison sentence. Greenberg’s lawyers want federal prosecutors to examine whether Scanlon fraudulently transferred millions of dollars in assets into his wife’s name in the years before he was charged and pleaded guilty.

Braga said the implication of wrongdoing is meritless.

“Any suggestion of suspicions about Mr. Scanlon’s assets is just a diversionary tactic,” he said. “The sole focus of this objection would be on Greenberg’s state of knowledge about the referral fees paid by Mr. Scanlon to Mr. Abramoff.”

In court this month, Scanlon apologized to Huvelle and said he is in a “dark place” right now in his life. “I am so very sorry and so very remorseful,” Scanlon said. He added, “It’s been a very long journey.”

Mike Scarcella can be contacted at mscarcella@alm.com.