The Scotsman understands MSPs now regard the row over cash for Ms Dugdale’s court battle with an independence blogger as a “test of leadership” for Mr Leonard.
The stance comes as Ms Dugdale questioned how anyone could trust Labour after the party decided to stop funding her defence of a defamation claim brought by Stuart Campbell. Labour sources have expressed frustration with Mr Leonard’s handling of the issue, claiming he had allowed himself to be overruled when he asked Labour’s London headquarters to reverse its decision to cease funding Ms Dugdale’s case.
Dissatisfaction among MSPs mounted as divisions grew within the party over Ms Dugdale’s legal battle with Mr Campbell, the independence activist who runs the Wings over Scotland website.
MSPs have expressed their support of Ms Dugdale. Yesterday key Labour activist Clare Lally-Steel, who once served in the shadow cabinet as carers’ champion, announced on Twitter she would be leaving the party in protest at Ms Dugdale’s treatment.
But the left-wing organisation Campaign for Socialism released a statement backing the UK party’s decision to stop funding the case.
Ms Dugdale has suggested the decision was down to Jenny Formby, a close colleague of Jeremy Corbyn, who recently succeeded Iain McNicol as UK general secretary.
The former Scottish Labour leader has claimed Mr McNicol promised the funds to fight the case. She has also accused Jeremy Corbyn of ignoring her appeals for the decision to be reversed.
UK Labour has said it has already spent £94,000 on the case and has an obligation to spend members’ fees responsibly.
The Scotsman has learned Mr Leonard approached Ms Formby in an attempt to get her to reverse her decision to pull the plug on the cash, but was knocked back.
A Labour MSP said: “The problem Richard has is that he has asked Jenny Formby previously not do this [to remove the funding] and she said ‘no’.
“So there’s an issue for him about his leadership and his credibility. You’ve got to remember she is a paid member of staff and he is an elected leader in Scotland. That must count for something, surely.
“This should be about solidarity rather than hanging someone out to dry. The group [of MSPs] is quite angry. It is horrible ... absolutely horrible.
“Someone described it as a test of Richard’s leadership. This sends the signal to anybody who wants to pursue a defamation case or whatever that the Labour party will not stand behind its people.”
Scottish Labour declined to comment on behalf of Mr Leonard yesterday.
In a BBC interview, Ms Dugdale claimed Labour had “failed to keep its promise” to pay her legal costs.
She said: “First and foremost, the Labour Party made a promise and it’s not a good look for any political party to fail to keep its promise.
“This is what it’s doing to one of its own, so how can people trust that party in any other aspect of life if this is what’s happening? I think there is a real presentational problem for the party in that regard.
“Also, this is a party that is fundamentally about fairness, equality and justice and they put me in the most horrendous position.
“I really hope that they change their minds.”
Ms Dugdale added: “I genuinely think that this is a political decision. People don’t like the truth I’m speaking about Brexit and the damage that it’s going to do to Scotland and the UK economy.”
She dismissed speculation she might quit Labour over the row, insisting she was “Labour through and through”.
Yesterday it emerged the Daily Record had “reinstated” legal support to Ms Dugdale, having offered it when the case was first raised against her. The case arose from a column that Ms Dugdale wrote for the tabloid newspaper.
The Campaign for Socialism statement said it supported UK Labour’s decision and that a “minority” in the party were using it to “destabilise” Mr Leonard.
The group said a statement by MSPs that was released earlier this week and was supportive of Ms Dugdale “harkened back to a past in which Labour was seen as a club for the few”.