Human Capital & Careers

Scrushy Ordered to Repay Bonuses

A shareholder lawsuit had alleged that because HealthSouth did not, in fact, meet its annual targets from 1997 to 2002, the former CEO had unjustly...
Stephen TaubJanuary 4, 2006

Former HealthSouth Corp. chief executive officer Richard Scrushy has been ordered by a judge to repay his former company more than $47.8 million in bonuses, according to published reports.

According to The New York Times, a shareholder lawsuit had alleged that because HealthSouth did not, in fact, meet its annual targets from 1997 to 2002, the former CEO had unjustly received the bonuses. Indeed, HealthSouth inflated its earnings by more than $2.7 billion in an accounting scandal that led to guilty pleas for five former chief financial officers.

Scrushy was acquitted of criminal charges last June.

Judge Allwin E. Horn III of Jefferson County Circuit Court in Birmingham, who made the ruling as part of a summary judgment in a shareholder lawsuit, determined that Scrushy is not entitled to the payments — whether or not he participated in the fraud or knew about the scheme.

“Knowledge is immaterial under the law of unjust enrichment,” the judge reportedly wrote. “Scrushy was unjustly enriched by these payments to the detriment of HealthSouth. And to allow Scrushy to retain the benefit of these payments would be unconscionable.”

Scrushy lawyer Kile Turner told the Times that he would appeal. “We believe the ruling is in error in that no state or federal court in the United States has ever made a finding on the basis cited in this case,” Turner reportedly said. “We will appeal the entire matter to the Alabama Supreme Court, and we are confident that it will be reversed.”

Meanwhile, the Birmingham News reported that the Securities and Exchange Commission has refiled civil fraud charges against Scrushy. U.S. District Judge Inge Johnson had dismissed the original charges in November as too vague.

“While Scrushy was responsible for the overall management and control of HealthSouth, the company falsely claimed more than $4 billion of shareholder net worth that never existed,” the new lawsuit reportedly charges.

The refiled suit lists two fraud claims and four other fraud-related charges, according to the Times, and also alleges internal-control failures.