Legal News

Scrushy, Back in Court, Rails Against Huge HealthSouth Settlement

By Ashby Jones

Former HealthSouth CEO Richard Scrushy is still fighting for justice, even as he sits in a federal prison. His latest battle: raising a ruckus over a securities-fraud settlement involving HealthSouth that was approved by an Alabama federal judge back in 2007.

The Fulton County Daily-Report has a nice story today on the situation. Scrushy took his beef to the 11th Circuit yesterday, where he argued that the $445 million settlement impermissibly cuts off contractual obligations HealthSouth owes him—the company’s duties to advance Scrushy his legal defense fees and reimburse him for settlement funds when he has acted in good faith—even though he’s not a party to the settlement.

Lawyers for the company have acknowledged that between 1996 and 2002, HealthSouth overstated its corporate revenues by $2.7 billion. Several directors and officers of the company pleaded guilty to criminal charges, while Scrushy was acquitted in a trial. Scrushy later was convicted along with former Alabama Gov. Don Siegelman in an unrelated federal bribery case; another 11th Circuit panel heard their criminal appeals last month.

Scrushy’s lawyer, David G. Russell of Atlanta’s Parker, Hudson, Rainer & Dobbs, emphasized that the valuable rights of a non-settling defendant cannot be taken away without just compensation. He said Scrushy was left having to defend the plaintiffs’ claims against him out of his own pocket.

Judge R. Lanier Anderson told Russell he understood that the benefits Scrushy was getting as a result of HealthSouth’s settlement with the plaintiffs weren’t exactly the same kind as the contractual benefits he was losing. But the judge suggested Scrushy still was getting a substantial compensation.

No case law supports denying defense fees in a case like this, argued Russell.

True, Anderson responded. “But,” said the judge, “it seems to me that it is very reasonable to do.”

Scott B. Smith of Bradley Arant Boult Cummings’ Huntsville, Ala., office represented HealthSouth.

Full post as published by Law Blog - WSJ.com on January 30, 2009 (boomark / email).