Scrushy v. Tucker, 1050564.

• Decision Date: 12 April 2006
• Docket Number: 1050564.
• Citation: 955 So.2d 988
• Parties: Richard M. SCRUSHY v. Wade TUCKER.
• Court: Alabama Supreme Court

955 So.2d 988

Richard M. SCRUSHY v. Wade TUCKER.

1050564.

Supreme Court of Alabama.

April 12, 2006.

Rehearing Directed to Opinion Issued April 12, 2006, Denied August 25, 2006.

Opinion on the Merits August 25, 2006.

Rehearing Directed to Opinion Issued August 25, 2006, Denied October 27, 2006.

C. Neal Pope of Pope, McGlamry, Kilpatrick, Morrison & Norwood, LLP, Columbus, Georgia; and David G. Russell and J. Marbury Rainer of Parker, Hudson, Rainer & Dobbs, LLP, Atlanta, Georgia, for appellant.

John W. Haley, Ralph D. Cook, and Bruce J. McKee of Hare, Wynn, Newell & Newton, Birmingham; John Q. Somerville of Galloway & Somerville, Birmingham; and Frank P. DiPrima, Convent Station, New Jersey, for appellee.

LYONS, Justice.

Richard M. Scrushy, the defendant in this case, appealed from a partial summary judgment entered in favor of the plaintiff, Wade Tucker. The trial court made the judgment final pursuant to Rule 54(b), Ala. R. Civ. P. As a preliminary matter, Scrushy filed in this Court an emergency motion to stay execution of the judgment against him. This Court ordered execution of the judgment stayed pending further orders of the Court and, in addition, ordered the parties to show cause whether the partial summary judgment is appropriate for certification as a final appealable order pursuant to Rule 54(b). An adverse determination of that issue would eliminate the basis for enforcement of the judgment. After considering the parties' responses to the Court's show-cause order, we conclude that the trial court's Rule 54(b) certification was appropriate, and, accordingly, we vacate the stay of the execution of the judgment and allow the appeal in this case to proceed. We further conclude that the emergency motion to stay execution of the judgment is due to be denied as premature.

I. Factual Background and Procedural History

Wade Tucker, a shareholder of HealthSouth Corporation, filed a shareholder's derivative lawsuit on behalf of HealthSouth against Scrushy, the former chief executive officer for HealthSouth, and numerous other defendants. This case is one of three civil actions filed as a result of alleged fraudulent accounting practices at HealthSouth. The other two civil cases are pending in the United States District Court for the Northern District of Alabama and in the Delaware Chancery Court. In addition, criminal charges were brought against Scrushy in the same federal court. All of the civil cases were stayed during the pendency of the criminal proceedings against Scrushy. After a lengthy trial, Scrushy was acquitted of the criminal charges against him.

Tucker's complaint alleges that Scrushy and others perpetrated an accounting fraud against HealthSouth, resulting in massive financial losses by HealthSouth and ultimately its shareholders. Tucker's complaint alleges claims of insider open-market trading, fraud, breach of fiduciary duty by corporate directors, professional negligence by auditors, aiding and abetting or civil conspiracy by an investment banking firm, and breach of contract. Tucker's complaint also alleges that Scrushy was unjustly enriched when he accepted bonuses as a result of overvalued financial statements that misstated HealthSouth's net income, which, Tucker alleges, was in violation of a contract between HealthSouth and Scrushy. As to the claim of unjust enrichment, Tucker's complaint alleges, in pertinent part, as follows:

"34. Beginning in or about January 1997, and continuing into March 2003, defendants Scrushy [and others] knowingly and willfully conspired and agreed with each other, to commit the wrongdoing alleged herein, specifically, to misrepresent and falsely inflate earnings and HealthSouth's true financial condition. Scrushy [and other defendants] engaged in this fraud, misrepresentation and manipulation of income and earnings of HealthSouth to enrich themselves by artificially inflating HealthSouth's publicly reported earnings and earnings per share an[d] by fraudulently enhancing its reported financial condition.

"35. Since 1999, Scrushy [and other defendants] overstated HealthSouth's earnings by at least $1.4 Billion. This massive overstatement occurred because Scrushy insisted that HealthSouth meet or exceed earnings expectations. When HealthSouth's earnings fell short of estimates, Scrushy directed HealthSouth's accounting personnel ... to `fix it' by artificially inflating the company's earnings to match Wall Street expectations.

"36. Scrushy [and other defendants] also created false journal entries to HealthSouth's income statement and balance sheet accounts....

"37. It was part of the wrongdoing and conspiracy that Scrushy [and other defendants] engaged in an unlawful scheme to inflate artificially HealthSouth's publicly reported earnings and earnings per share and to falsify reports of HealthSouth's financial condition so that they could reward themselves with bonuses, stock options, and other corporate perks. Scrushy personally benefitted from the scheme to artificially inflate earnings, having sold at least 7,782,130 shares of stock since 1999 at prices grossly inflated by the materially misstated financial statements. Scrushy [and other defendants] `earned' tens of millions of dollars in bonuses, stock options, and excessive salary and perks based on the inflated earnings.

"....

"118. During each year from 1992 through his departure in March 2003, Scrushy received tens of millions of dollars in compensation from HealthSouth, including, but not limited to, salary, stock options, benefits, bonuses, incentive compensation, and other income from the corporation in the form of loans, benefits, and/or the use of equipment and facilities of HealthSouth.

"119. The amounts paid by HealthSouth to Scrushy were grossly excessive, particularly when one considers the value of stock and dividends.

"120. What is more, incentive compensation to Scrushy [and other defendants] in executive management, is based on HealthSouth's reported financial results. As these results are and were false, Scrushy [and the others] ... benefitted improperly and were unjustly enriched to the extent they received incentive compensation based on exaggerated revenues and profits.

"....

"COUNT VII

"Unjust Enrichment

"188. Plaintiff realleges and incorporates by reference the allegations in the preceding paragraphs 1 through 187 as though fully set out herein.

"189. As a result of the transactions set out herein, all Individual Defendants [and other defendants] held money which, in equity and good conscience and under law, belongs to HealthSouth. Defendants have unjustly enriched themselves by breaches of the duty not to engage in self-dealing and interested transactions as pled herein. All such monies in the hands of defendants are due to be repaid to and for the benefit of HealthSouth.

"190. Wherefore, Plaintiff, for and on behalf of HealthSouth, seeks money damages from the Defendants ... in an amount to be determined by the trier of fact to compensate HealthSouth for its damage [], plus interest, attorneys' fees, costs, and all such other relief at law and equity to which the corporation may be entitled."

(Emphasis added.)

After Scrushy was acquitted of the criminal charges, Tucker moved for a partial summary judgment in this case, seeking only restitution from Scrushy of bonuses he received from 1996 to 2002. The trial court's judgment summarizes the criminal activities affecting HealthSouth for the years 1996-2002 as follows:

"HealthSouth, as a publicly traded company, is legally required to file accurate, audited and reliable financial information regarding its ongoing business operations. Some of this information is required to be filed on a quarterly basis and other information on an annual basis. Since March 2003 fifteen (15) senior HealthSouth executives have pled guilty to sundry and various criminal acts, including criminal fraud, specifically regarding the accuracy, reliability, falsification and fabrication of the financial information and documentation that HealthSouth was legally required to file during the years 1996 through 2002 inclusive. Included in the fifteen pleading executives are the five (5) chief financial officers who held that position at HealthSouth prior to March 18, 2003. As of this date, the fifteen pleading executives have been sentenced regarding their criminal activities and Defendant Scrushy's trial resulted in an acquittal. It is with this background that the instant matter comes before the Court."

Scrushy served as the Chief Executive Officer ("CEO") and as the Chairman of the Board of Directors of HealthSouth from 1984 until March 2003, except that he was not the CEO from August 27, 2002, to January 6, 2003. He was fired as HealthSouth's CEO on March 19, 2003, the day after the fraudulent activities were revealed, and he also resigned as Chairman of the Board of Directors. Scrushy signed the annual reports for HealthSouth on Forms 10K submitted to the Securities and Exchange Commission for the years 1996 through 2001, filed annual proxies on Forms 14A for the years 1996 through 2002, and ran for reelection as a director on these proxies. In each annual proxy on Form 14A from 1996 through 2002, HealthSouth disclosed the following criteria for the incentive bonuses it paid its executives:

"Incentive Compensation: In addition to base salary, the [Compensation] Committee recommends to the Board of Directors cash incentive compensation for HealthSouth's executives, based on each executive's success in meeting qualitative and quantitative performance goals on an annual basis. The total incentive bonus pool available for the company's executives and management personnel is capped at the lesser of (a) the amount by which the company's annual net income exceeds the budgeted annual net income established by the Board of Directors and (b) 10% of the company's annual net income. No bonuses are payable unless annual net income exceeds...