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Eleventh Circuit rejects HealthSouth settlement challenge

By Bernard Hibbitts (editor) and University of Pittsburgh School of Law students.

[JURIST] The US Court of Appeals for the Eleventh Circuit on Wednesday rejected challenges to a securities fraud class action suit brought by former HealthSouth CEO Richard Scrushy, affirming a $445 million settlement against the HealthSouth corporation. Scrushy, who did not settle, argued that the district court erred in allowing the bar order to negate his contractual rights as a corporate officer to be reimbursed by the corporation for a "good faith settlement." Additionally, Scrushy contended that the district court erroneously barred his contractual claim against the corporation for advancement of his defense costs incurred in the litigation. The Eleventh Circuit ruled that the bar order preclusion of Scrushy's contribution and indemnification claims is not inconsistent with the Private Securities Litigation and Reform Act, as he contended. For the legal fees, the court held that Scrushy's claim is not a truly independent claim that is per se inappropriate to bar, rejecting the argument that such contractual claims can not be precluded by bar orders. The court also rejected public policy arguments raised for both of the issues. In 2007, the US Securities and Exchange Commission settled its accounting fraud claims against Scrushy for $81 million. In 2005, Scrushy was acquitted of criminal charges of wire and mail fraud, money laundering, conspiracy, and violations of the Sarbanes-Oxley Act. In 2003, HealthSouth conceded that its prior financial statements had overstated its income and assets by a substantial amount. Several class action suits were subsequently filed by investors against the company and its officers for alleged violations of the Securities Act of 1933 and the Securities Exchange Act of 1934. The actions were consolidated and, in 2006, the $445 million settlement was reached. Last month, the Eleventh Circuit denied Scrushy's petition for an en banc rehearing of his conviction for unrelated federal bribery and corruption charges for paying campaign debts of former Alabama governor Don Siegelman in exchange for a seat on a state-operated review board that regulates Alabama hospitals.

Full post as published by JURIST - The Paper Chase on June 18, 2009 (boomark / email).