Del. judge reaffirms judgment against Scrushy

HealthSouth to still collect millions from former CEO

July 13, 2005|By BLOOMBERG NEWS

WILMINGTON, Del. - A Delaware judge told HealthSouth Corp. investors yesterday that the company will collect on a judgment he entered against founder Richard M. Scrushy, who was acquitted of fraud charges last month but still owes his former firm an estimated $17 million.

Chancery Court Judge Leo E. Strine Jr. ordered Scrushy, the company's former chief executive, in November 2003 to reimburse HealthSouth for a $25.2 million loan he repaid in company shares that later dropped in value. Scrushy agreed to pay what he still owes and secure it with 3.27 million shares of company stock, according to Ronald A. Brown Jr., a lawyer for investors.

Those shares were transferred to U.S. District Judge Karon O. Bowdre, who oversaw the trial in Birmingham, Ala., where Scrushy was acquitted June 28.

Brown sought a temporary restraining order blocking Scrushy from selling the shares if Bowdre released them. Strine denied that bid, saying Bowdre said she "has no intention of releasing the shares to Mr. Scrushy."

"A final judgment is a final judgment, and it needs to be satisfied," Strine told lawyers yesterday in a court hearing.

Brown had complained in a letter to the court Monday that Scrushy is "actively attempting" to "avoid paying the judgment and to take back the security he pledged." Before the hearing, he estimated the balance at $17.1 million, including interest.

Brown represents investors who filed a so-called derivative suit on behalf of HealthSouth. His motion was filed under seal. Any money recovered on the judgment will go back to HealthSouth, the largest U.S. provider of rehabilitation medicine services.

William Johnston, a lawyer representing Scrushy at the hearing, said attorneys still must calculate the interest and legal fees outstanding on the judgment.

Strine asked another Scrushy lawyer, Arthur Leach, if his client would forgo selling the shares. Leach, attending by a telephone hookup, said he would speak to Scrushy later.

In a letter Monday, Johnston said that Scrushy "will not be seeking the release of the stock to him at this time." Rather, he said, Scrushy will ask Bowdre on Friday to hold the stock until she decides whether he can seek payment from a HealthSouth insurance policy that covers directors and officers.

At the hearing, Strine said he hopes that "by this time next week, this will all be wrapped up."

The Delaware Supreme Court has upheld Strine's original judgment. In denying the restraining order, Strine said, "We don't need to spend our time on something that's already been litigated."

Bowdre released many of Scrushy's assets after his acquittal. She froze the assets, which include mansions, boats, cars, cash and stock, after Scrushy's indictment on accounting fraud charges in November 2003. Jurors acquitted him after a five-month trial.

Bowdre also has sealed dozens of court filings relating to Scrushy's assets.

Scrushy, who was fired in March 2003 as chief executive but remains a director, wants to return as CEO of the company he built into the largest U.S. provider of rehabilitation medicine services.

HealthSouth's board and new management opposes his return. He faces dozens of fraud lawsuits from investors and a civil fraud suit by the Securities and Exchange Commission.

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