Corporate & Securities Law

By Jim Hamilton

Settlement Bar Order Proper Under PSLRA

The 11th Circuit rejected challenges to a bar order in the HealthSouth fraud litigation by former HealthSouth CEO Richard Scrushy. Mr. Scrushy, a non-settling defendant, objected to the portions of the bar order that extinguished his contractual claims against HealthSouth for indemnification of settlement payments to the underlying plaintiffs and for advancement of legal defense costs.

With regard to the indemnification question, the court rejected Mr. Scrushy's assertion that the mandatory contribution bar set forth in the Private Securities Litigation Reform Act was exclusive and prohibited the district court from barring claims other than contribution claims. Initially, the court noted that there is no provision in the statute expressly limiting or prohibiting a bar of indemnity claims, and concluded that there is no language in the statute suggesting that the contribution bar is exclusive. "The statute merely mandates a contribution bar, but is silent with respect to barring similar indemnification claims," stated the court. Finally, the court found that such a reading of the act would be improper because "the PSLRA was enacted against a background of established case law which had approved bar orders precluding such indemnification claims."

The 11th Circuit panel also rejected the former CEO's assertion that his contractual claim against HealthSouth for advancement of his attorney fees was a truly independent claim. Despite the fact that his injury was not measured by any liability to the underlying plaintiffs, and resulted from his payments to his attorneys, the court held that "the attorneys' fees are nonetheless paid on account of liability to the underlying plaintiffs or the risk thereof."

In re HealthSouth Corp. Securities Litigation

Full post as published by Jim Hamilton's World of Securities Regulation on June 23, 2009 (boomark / email).