Hi, wow, what a story! When you repotted, you should have skipped the moss - it holds water too long when wet (not exactly helpful to your rot situation), and when dry, can steal it from the tree. Coarse, peat-less loam plus some aquarium gravel for fast drainage is good, as would (have?) been a drench with some house plant fungicide (according to label directions). Not sure from your post what the present situation is, so if it's not too late, try again. You have to cut off all the black parts of the roots though (and foliage) to get anywhere.

Avocadoes have tap roots. They drop leaves if their roots are disturbed & they can develop fungal infections of the roots. They do not like wet feet. They are grown commercially on hillsides  they like cool nights & the hills promote fast drainage.
I doubt that the scale caused the root damage  possibly too much moisture, a fungus, or roots that had been unhappy for some time.
I have had several avocadoes with dropped leaves that I rescued. If they are used to soil, they seem to recover in soil rather than too much peat around the roots. I have tried both, & for me the soil only worked better. If it were me, I would give it a large deep pot, put it in the shade, & plant it at a greater depth. If you are pruning the roots to a bonsai technique, you might consider delaying it until the plant recovers.

I did all of the re potting last night. I shook the roots and rinsed them in water to get rid of all the black. Threw the pot and old soil away. Whats left are a few live roots. I sprinkled root tone, anti fungal, over the roots. I used Sphagnum moss around the roots cause of its anti fungal properties. Moss does hold alot of water, but the roots are so few I was thinking that for a tree this size to be supported by this root system needs to have alot of water; but your right, fast draining, take care of the fungus first, then let the plant grow.
I think what Im going to do today is pull the plant and mix about 40% turface into the soil I made. I think the current soil (the new batch I made last night) is very slow draining. Then Ill mix about 5-10% Sphagnum moss into the soil for its anti fungal properties. I think the tree is saveable, its leaves are drooping but not dropping, has about 20 full size leaves.
Does the root rot stay local or is this a systamatic infection of the whole plant. I was going to leave the leaves. I was using them as an indicator of the plants health.
Thanks for your inputs, as I though, you say fast draining soil and in the shade for a bit. Ill post on the final out come.
Thanks.
-Bill

Don't use sphagnum for its antifungal properties, (although I get the feeling you are talking about sphagnum peat which is actually mostly not sphagnum) there is a reason avacado trees do not grow in peat bogs. The roots are few, and in responce to that you need to make sure that the few roots you have are not lost to rot, it would be a good idea to defoliate the tree to about 1/10 or less of its leaves, because leaves use water and the tree hasn't got that much to spare, its better to have 10 leaves at 100% than 100 leaves at 10%

Here are some photos of the last repot.
Photos
I used about 35% turface, 40% organic soil, 10% sand, 10% Peat and 5% true sphangnum moss(shreaded ultra fine). I cleaning the roots with a soft brush, used copper fungicide, root tone and replanted. I watered the soil, it drained extreamly fast, 5-10 seconds to soak up 2 quarts of water. I did not fully watered it since none of the water came out of the bottom. Im going to leave it sit like that for about a week and see if the leaves do anything.
As for the leaves, brendan of bonsai, should I remove the small new leaves or the large old ones? My count before might have been a bit low, it might have 40 or so leaves if you count the new ones that are about quarter sized. Im guessing to remove about 50-75% of the leaves since the root system cant support them. Whats your thoughts.

Here is a link that might be useful: Avocodo

The fact that you put 2 quarts of water in without any coming out means that it is retaining lots of water rather than draining it. Personally I would remove the new ones, and the branch tips, to force any new top growth to bolster the tree, seeing as how Avacados often shoot straight up out of the ground and are spindley as can be.

Hi

Your tree looks leggy & your roots look really bad. The main root looks like it is missing. I encourage you to continue trying, but it would make me nervous if it were my only tree. Grafting is usually recommended for avocadoes  seed production will result in no/poor fruit. I start from seed all the time myself, however. I have thrown about 40 avocadoes away recently &/or used them as mulch away recently because I just have too many.

Avocadoes do need well drained soil, but can actually grow in clay. They are grown commercially in/near me & the local soil is clay. Sphagnum peat does work, but I would not try it at this point. When mine droop I lose all the leaves  if the tree recovers they will come back. To watch the trees progress watch the top tip of the tree. Sometimes it dies off, & leaves a shortened version of the tree.

The antifungal is a good idea. There are different causes of root rot. Here are some links to the UC Davis site that might be helpful.

http://www.ipm.ucdavis.edu/PMG/selectnewpest.avocado.html

Avocado Root Rot (one cause)

http://www.ipm.ucdavis.edu/PMG/r8100111.html

I have not tried to bonsai an avocado, but if I were to & could purchase a tree I would start with a dwarf.