Scrushy to File Appeal on Partial Judgment Order Related to HealthSouth Securities Litigation

BIRMINGHAM, Ala., Feb. 9, 2007 -- According to documents filed in federal court this week, former HealthSouth CEO Richard Scrushy has formally given notice that he will appeal Judge Karon Bowdre's Partial Final Judgment and Order of Dismissal entered Jan. 11, 2007 in the HealthSouth Corporation Securities Litigation.

The appeal was most likely a foregone conclusion after a January 5 hearing in the case.  The Notice of Appeal says the problem is the judgment "permanently enjoins Scrushy from asserting certain claims against HealthSouth."

Judge Bowdre denied a Scrushy Motion for Reconsideration of the Partial Final Judgment on Feb. 1, 2007.

Scrushy had argued in a Jan. 31, 2007 filing that a "manifest injustice...would result if he were forced to forfeit, without just compensation, his contractual right to receive advancement of defense fees and costs and reimbursement of settlement amounts from HealthSouth in this case.  His contractual right to such advancement and reimbursement is found in the 1994 Indemnity Agreement, and he timely objected to the taking of any of his rights to indemnification as part of the partial settlement in which he was not allowed to participate."

It is possible in the appeal to the 11th Circuit that attorneys will again reference  the Credit Suisse First Boston, LLC v. Intershop Communications AG, 407 F. Supp. 2d 541 (S.D.N.Y. 2006) having to do with whether or not the advancement of fees is contrary to public policy.

Also Scrushy attorneys have argued that "HealthSouth cannot find a single case that directly holds that a court may bar a non-settling defendant's contractual right to advancement of fees."

In her order, Judge Bowdre says defense attorneys have not shown there were "extraordinary circumstances" involving "manifest injustice," and also chides attorneys for raising a new theory of law in a Motion for Reconsideration.

Bowdre cites the Scrushy January 31 brief, "In that Reply, he raises for the first time an argument that a party who settles a securities law claim without admitting fault who actually demonstrates lack of fault should be allowed to seek indemnification.  The court will not consider another new theory raised at such a late date."  This is part of the Credit Suisse argument.

"At the final settlement hearing, Scrushy specifically objected to the Order for the first time in open court on the basis that it barred his claims for advancement of attorneys fees against HealthSouth.  After considering this objection, the court rejected it.  Therefore, the Motion for Reconsideration should be denied because Defendant Scrushy has not shown "extraordinary circumstances" involving "manifest injustice," says Judge Bowdre.

Bowdre says the bar order "does not extend to any other truly 'independent' contractual rights Mr. Scrushy may have with HealthSouth for reimbursement or advancement of defense fees and costs in other cases not part of this settlement agreement."

"...the settlement order expressly preserves to Mr. Scrushy the right to seek reimbursement from HealthSouth for defense fees and expenses if he prevails on his defenses."

"Mr. Scrushy's claims of depravation of constitutional rights likewise lack merit.  He had a full and fair opportunity to present his objections...the bar order is mutual and does include judgment offsets and credits, as well as other benefits to Mr. Scrushy in exchange for the loss of indemnification if his defense is unsuccessful."

Scrushy attorneys argue that, "Despite HealthSouth's arguments, the partial final judgment is not fair to Scrushy and does not adequately compensate him.  His right to reimbursement of fees after his successful, multi-year defense falls far short of providing just compensation.  Defending this case in the here and now, over the months and years to come, Scrushy will be forced to pay millions of dollars in attorney fees and expert witness fees.  the Court is well aware of the row upon row of competent counsel that Scrushy is up against.  Without question, extinguishing Scrushy's right to advancement of fees ties a hand behind his back."

The filing, rejected by Bowdre, says HealthSouth's reciprocity argument is "illusory because Scrushy is not contractually obligated to indemnify HealthSouth."

The parties involved in the HealthSouth Corporation Securities Litigation submitted a joint proposed scheduling order that among other things shows this case will drag out  well into 2008.  Plaintiffs see the case against the non-settling defendants to be ready for trial in June 2008.  The defendants only project as far as Summary Judgment Motions which they propose be due in December 2008.

Defendants include UBS, Ernst & Young, as well as Mr. Scrushy among others.

In an interesting note on depositions, the plaintiffs argue that depositions of "such parties and witnesses as Richard Scrushy, Bill Owens, Mike Martin, William McGahan, Ben Lorello, Marcus Neas, Richard Dandurand and others must exceed one 7-hour day to constitute a 'fair examination.'"  The plaintiffs argue that the defendants' request for "650 deposition hours per side - equivalent to 185 full-day depositions - is unprecedented and serves only to delay the ultimate resolution of this litigation."

The plaintiffs further argue 25 days of depositions is appropriate, which of course defendants call "demonstrably unrealistic and unfair in this complex, multiparty case."

The joint submission will apply not only to the federal litigation but also to related litigation pending before Judge Horn in state court.  "The parties have reached agreement on certain case management issues, but continue to disagree about several significant case management issues," says the filing.

One of the things agreed is that "No witness shall be required to sit for more than one deposition except upon consent of the parties and the witness or with leave of Court.  Each party deponent will complete and sign under penalty of perjury a background questionnaire to be developed and agreed to by the parties...the questionnaire will be attached to the deposition transcript as record testimony."  There will be no speaking objections allowed and "transcripts of depositions taken in either the Federal or State Litigation may be utilized in both the Federal and State Litigation."

Scrushy also faces a possible trial still this summer on charges brought against him by the Securities and Exchange Commission.

Reported by: Helen Hammons