Pete,
Maybe this tree will grow back from the roots...
Did you happen to get any pictures? I have one tree that has a similar "hollowed out dry" area just above he soil line on ones side (not all the way around). I think it also has it in one or two other places, too. However, it hasn't had scales, at least in the 2 years I've had it. Maybe there's something else going on besides scales.
Jim