Nichols v. Healthsouth Corp.
Decision Date | 23 March 2018 |
Docket Number | 1151071 |
Citation | 281 So.3d 350 |
Parties | Steven R. NICHOLS et al. v. HEALTHSOUTH CORPORATION |
Court | Alabama Supreme Court |
Steven R. Nichols, Deborah Deavours, Terry Akers, Thomas Dryden, and Gary Evans appeal from the Jefferson Circuit Court's dismissal of their action against HealthSouth Corporation ("HealthSouth"). We reverse and remand.
I. Facts
Nichols, Deavours, Akers, Dryden, and Evans (hereinafter referred to collectively as "the employee shareholders") at one time were all HealthSouth employees and holders of HealthSouth stock. On March 28, 2003, the employee shareholders sued HealthSouth, Richard Scrushy, Weston Smith, William Owens, and the accounting firm Ernst & Young,1 alleging fraud and negligence. The action was delayed for 11 years for a variety of reasons, including a stay imposed until related criminal prosecutions were completed and a stay imposed pending the resolution of federal and state class actions.
When the employee shareholders filed their action, this Court's precedent held (1) that "[n]either Rule 23.1[, Ala. R. Civ. P.,] nor any other provision of Alabama law requires that stockholders' causes of action that involve the conduct of officers, directors, agents, and employees be brought only in a derivative action," and (2) that claims by shareholders against a corporation alleging "fraud, intentional misrepresentations and omissions of material facts, suppression, conspiracy to defraud, and breach of fiduciary duty" "do not seek compensation for injury to the [corporation] as a result of negligence or mismanagement," and therefore "are not derivative in nature." Boykin v. Arthur Andersen & Co., 639 So.2d 504, 508 (Ala. 1994) (emphasis omitted).
This Court overruled Boykin, however, in Altrust Financial Services, Inc. v. Adams, 76 So.3d 228 (Ala. 2011). The plaintiffs in Altrust brought securities-fraud claims against Altrust, Peoples Bank of Alabama, and related defendants. Discussing Boykin, the Court noted:
"[T]he main opinion in Boykin failed to discuss how the damage suffered by the plaintiffs as the result of the alleged fraud by officers, directors, and accountants differed from the damage suffered by other shareholders and whether the plaintiffs suffered an injury unique to them."
76 So.3d at 245. This Court further explained:
76 So.3d at 246 (emphasis added).2
In the present case, in an effort to ensure that the claims they were asserting were direct claims against HealthSouth, the employee shareholders filed their eighth amended complaint on November 25, 2014, and recast their factual allegations of fraud in a way they believed satisfied the law as declared in Altrust. Specifically, they alleged:
In short, the employee shareholders alleged that "ultimately their decisions to buy and hold HealthSouth stock were made in reliance upon the personal reassurances of Richard Scrushy himself" and that this constituted a direct fraud upon them that did not affect other HealthSouth stockholders.
On December 10, 2016, HealthSouth filed a Rule 12(b)(6), Ala. R. Civ. P., motion to dismiss the employee shareholders' eighth amended complaint on the ground that—under both Alabama and Delaware law3 —the claims asserted in that complaint were derivative in nature rather than direct and were therefore due to be dismissed because the employee shareholders had "failed to comply with the demand-pleading requirements of Alabama Rule of Civil Procedure 23.1 [, Ala. R. Civ. P.]." In the alternative, HealthSouth argued that regardless of whether the claims asserted in the eighth amended complaint were derivative or direct, the claims were barred by Alabama's 2–year statute of limitations for fraud claims because they presented new allegations based on actions that occurred between 1997 and 2002—over 12 years before the filing of the eighth amended complaint.
On April 8, 2016, the employee shareholders filed their response to HealthSouth's motion to dismiss the eighth amended complaint. The employee shareholders conceded that, if their claims were derivative in nature, the claims were due to be dismissed. They contended, however, that under either Alabama or Delaware law their claims were direct because, they argued, the wrongs alleged were unique to these particular plaintiffs and were not injuries to the corporation or to shareholders of the corporation as a whole. The employee shareholders also contended that their claims were not barred by the two-year statute of limitations because, they said, the claims "arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading," and therefore, under Rule 15(c)(2), Ala. R. Civ. P., the claims related back to the date of the original complaint.
On May 26, 2016, the trial court entered an order dismissing the employee shareholders' complaint. The trial court reasoned:
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