Shareholders Win $2.9 Billion Judgment Against HealthSouth's Richard Scrushy

From 1996 through 2002, HealthSouth Corporation's financial filings told a story that did not exist. Executives falsified roughly $2.6 billion in earnings reports to meet Wall Street analyst expectations, propping up the company's stock price while the underlying business bled losses. At the center of the scheme, shareholders alleged, was founder and CEO Richard Scrushy, who they said knew of and directed the fraud throughout its run.

When the scheme collapsed in 2003, HealthSouth shareholders brought a derivative action seeking to hold Scrushy personally liable for the damage he had inflicted on the company. The case landed in Jefferson County Circuit Court, where Birmingham attorneys John W. Haley, Bruce J. McKee, and Ralph D. Cook of Hare Wynn Newell and Newton represented the shareholder plaintiffs alongside co-counsel.

Scrushy had beaten related federal criminal charges in 2005, a high-profile acquittal that made the civil case more difficult. In the bench trial before Judge Allwin E. Horn, Scrushy testified that he was unaware of any fraudulent activity. The attorneys for shareholders pressed a different record: years of board decisions, bonus payments, and financial certifications bearing Scrushy's approval.

Judge Horn sided with the shareholders. In a June 2009 ruling, he found that Scrushy 'knew of and participated in' the fraudulent scheme and had 'consciously and willfully' violated his fiduciary duties to HealthSouth. The court entered a judgment of approximately $2.88 billion against Scrushy personally, described at the time as the largest civil judgment against an individual in U.S. history.

Scrushy appealed. On January 28, 2011, the Alabama Supreme Court upheld the $2.9 billion judgment in its entirety, confirming it stood. The case had begun years earlier with a separate Alabama Supreme Court ruling, also in favor of the shareholder plaintiffs represented by Haley, McKee, and Cook, requiring Scrushy to repay more than $47 million in bonuses he received during the fraud years.