Found it. It was posted in rec.music.folk on December 28, 1997 by the informative Abby Sale under his daily "Happy."

According to the post, the incident happened on December 28, 1895 and was reported in the St. Louis Globe-Democrat. Lee "Stag" Sheldon, a carriage-driver, shot William Lyons, dockhand, when Lyons snatched his hat after the two had been arguing politics. Look under Stag Lee on a Dejanews search and the whole article will come up.

BTW, there was some debate over this song on one of the folk music newsgroups when someone asked what was the first folk rock song. Considerable numbers held out for the R & B version of Stagger Lee, but House of the Rising Sun by the Animals seems to have won it. ( I go with Stagger Lee) It of course raised the argument about what was folk and what was rock.