Title: Richard Scrushy v. Wade C. Tucker and the Wendell J. Cook, Sr., Testamentary Trust, John P. Cook, trustee, derivatively, for and on behalf of HealthSouth Corporation

State: alabama

Issuer: Alabama Supreme Court

Document:

Rel: 01/28/2011
Notice: This opinion is subject to formal revision before publication in the advance
sheets of Southern Reporter.  Readers are requested to notify the Reporter of Decisions,
Alabama Appellate Courts, 300 Dexter Avenue, Montgomery, Alabama 36104-3741 ((334)
229-0649), of any typographical or other errors, in order that corrections may be made
before the opinion is printed in Southern Reporter.
SUPREME COURT OF ALABAMA
 OCTOBER TERM, 2010-2011
_________________________
1081424
_________________________
Richard Scrushy
v.
Wade C. Tucker and the Wendell J. Cook, Sr., Testamentary
Trust, John P. Cook, trustee, derivatively, for and on
behalf of HealthSouth Corporation
Appeal from Jefferson Circuit Court
(CV-02-5212)
WOODALL, Justice.
In  this shareholder-derivative action, Richard Scrushy,
a former director and former chief executive officer ("CEO")
of 
HealthSouth 
Corporation 
("HealthSouth"), 
a 
Delaware
1081424
2
corporation, appeals from a judgment against him for
$2,876,103,000.  This action was commenced on August 28, 2002,
on behalf of nominal defendant HealthSouth by Wade C. Tucker,
a shareholder of HealthSouth since August 18, 1998.  We
affirm.
I. Facts and Procedural Background
Certain aspects of this case have already come before us
during this long and intricate litigation.  See Scrushy v.
Tucker, 955 So. 2d 988 (Ala. 2006) ("Scrushy," sometimes
referred to herein as "the bonus case"); and Ernst & Young,
LLP v. Tucker, 940 So. 2d 269 (Ala. 2006)("Tucker").  It was
the first of a number of derivative actions to be commenced by
various HealthSouth shareholders against Scrushy and other
former HealthSouth officials and related parties in various
forums including (1) the Jefferson Circuit Court, (2) the
United States District Court for the Northern District of
Alabama ("the Federal derivative actions"), and (3) the New
Castle Chancery Court in Delaware, Biondi v. Scrushy, 820 A.2d
1148 (Del. Ch. 2003), restyled and resolved, In re HealthSouth
Shareholders Litig., 845 A.2d 1096 (Del. Ch. 2003), aff'd, 847
1081424
3
A.2d 1121 (Del. 2004) (table) ("the Delaware derivative
actions").
The derivative actions appear to have been sparked by the
"'public scrutiny of HealthSouth's financial integrity,'"
which "'first became intense in the summer of 2002.'"  Tucker,
940 So. 2d at 273 (quoting Teachers' Retirement Sys. of
Louisiana v. Scrushy, Civ. A. 20529, March 2, 2004 (Del. Ch.
2004)(not published in A.2d)).
"'At that time, HealthSouth announced that a new
policy regarding reimbursement issued by the federal
Centers for Medicare and Medicaid Services (the "CMS
Policy") would have a large, detrimental effect on
the 
company's 
revenues. 
Put 
simply, 
many
stockholders 
... were deeply suspicious about
HealthSouth's announcement, given that the CMS
Policy had, according to them, been expected for
some time.  In particular, they suspected that
HealthSouth insiders -- many of whom had engaged in
large transactions involving sales of HealthSouth
stock earlier that year -- had concealed the effect
of the CMS Policy in order to keep HealthSouth's
stock price artificially high.'"
Id.  
In 
March 
2003, 
federal 
authorities 
learned 
that,
beginning at least as early as 1994, HealthSouth corporate
officers had engaged in a fraudulent accounting scheme of
"massive" proportion.  United States v. Martin, 455 F.3d 1227,
1081424
4
1230 (11th Cir. 2006).  The fraud involved a conspiracy by
HealthSouth officers
"to artificially inflate HealthSouth's reported
earnings and earnings per share, and to falsify
reports 
about 
HealthSouth's 
overall 
financial
condition. 
The 
HealthSouth officers made, and
directed accounting personnel to make, false and
fraudulent 
entries in HealthSouth's books and
records for the purpose of falsely reporting
HealthSouth's assets, revenues, and earnings per
share and in order to defraud investors, banks, and
lenders. As a result, HealthSouth's public financial
records 
overstated 
its 
financial 
position
cumulatively by billions of dollars from 1994 to
2002, and public investors purchased overvalued
shares of HealthSouth's stock, which plummeted ...
to $.11 per share when the massive fraud was
revealed."
Id.  Throughout the litigation of this case, the accounting
scheme has been referred to as "the fraud," which practice
will generally be followed throughout this opinion.  
Criminal charges were filed against various alleged
conspiratorial HealthSouth officers as early as April 2003 in
the United States District Court for the Northern District of
Alabama.  Eventually, at least 15 "'senior HealthSouth
executives ... [pleaded] 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
1081424
5
legally required to file during the years 1996 through 2002.'"
Scrushy, 955 So. 2d at 993 (quoting trial court's judgment).
Meanwhile, complaints in the pending derivative actions
were 
amended 
to 
assert 
claims 
reflecting 
the 
latest
revelations of fraud and mismanagement.  In that connection,
on August 8, 2003, Tucker filed a third amended complaint and
a fourth amended complaint, asserting claims alleging, among
other things, (1) improper "interested transactions," waste
and "misappropriation of corporate assets"; (2) unjust
enrichment; (3) breach of contract; (4) conspiracy; (5)
"intentional, reckless, and innocent misrepresentation and
suppression"; (6) breach of fiduciary duty of loyalty, related
to fraud, false accounting, and "insider trading"; and (7)
seeking to impose a constructive trust.
      The pertinent allegations of the complaint included the
following:
"36. Scrushy [and other defendants] ... 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
1081424
Claims similar to this "Buyback" claim were also asserted
1
in the first filed of the Delaware derivative actions. 
6
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.
"....
"77. On or about July 31, 2002, Scrushy, with
knowledge 
of 
material 
nonpublic 
information
regarding HealthSouth's financial condition and
prospects, sold back to HealthSouth 2,506,770 shares
of HealthSouth stock at a price of $10.06 per share,
or $25,218,106 (the 'Buyback').  The Buyback was
made at the direction of Scrushy, the Board of
Directors and its Compensation Committee ....
  
[1]
"....
"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
1081424
7
management, is based on HealthSouth's reported
financial results.  As those results are and were
false, Scrushy [and other defendants] in executive
management benefitted improperly and were unjustly
enriched to the extent they received incentive
compensation based on exaggerated revenues and
profits.
"....
"140. At the very least, Scrushy knew that
HealthSouth's 
financial 
health 
was 
materially
overstated in its financial statements and public
disclosures, 
whether 
because 
of 
material
overstatements of revenues, profits, and assets, or
because 
of 
past, 
present 
or 
future 
Medicare
reimbursement problems, or both.  Such material
misstatements or omissions caused HealthSouth stock
to be materially inflated at all times between 1999
and August 2002, and Scrushy knew it.
"141. [Scrushy sold] on May 14, 2002, ...
5,275,360 shares of HealthSouth stock on the open
market ... at the grossly inflated price of $14.05
per share.  Scrushy received $74,118,800 for his
shares.  On March 26, 2003, the first trading day
after public disclosure of the massive false
accounting, HealthSouth stock closed at $0.11 per
share.  This values the 5,275,360 shares Scrushy
sold at $580,289.60.
"142. 
Based 
on 
the 
applicable 
state 
law
doctrines of ... Brophy [v. Cities Service Co., 70
A.2d 5 (Del. Ch. 1949)], based on theories of breach
of fiduciary duty, constructive trust, and unjust
enrichment, Scrushy is liable to pay HealthSouth the
proceeds of these illicit insider trades ....
"....
"177. Payment of 
excessive 
salaries 
and 
benefits
amounts to waste of corporate assets."
1081424
8
For all the alleged wrongful conduct, the complaint
sought 
"money 
damages." 
 
Additionally, 
the 
complaint
specifically requested "[d]isgorgement of amounts received as
the result of breaches of fiduciary duty, waste of corporate
assets, 
conflicted 
and 
prohibited 
transactions,
misappropriation of corporate opportunities and assets, [and]
unjust enrichment," as well as "[d]isgorgement of all
compensation including but not limited to salary ... as the
result of the wrongful acts and breaches of fiduciary duty,
breaches of contract, and breaches of duty of good faith."
(Emphasis added.)  It also sought "all such other relief at
law and equity to which the corporation may be entitled."  
Additionally, the third amended complaint averred that no
pre-suit demand had been made "on the Board of Directors to
take action to press the claims asserted [there]in because
such a demand would have been futile."  Approximately 10 pages
of that complaint were devoted to an explication of the
assertions of the futility of such a demand.  
All HealthSouth derivative actions pending in the
Jefferson Circuit Court were consolidated with Tucker's case
no. CV-02-5212 or abated in its favor.  Coordination orders
1081424
9
were entered in the various derivative actions pending
elsewhere:
"'In orders entered [in case no. CV-02-5212], [in
the Federal derivative actions], and [in the
Delaware derivative actions], the following division
of labor was agreed upon by the then-existing
derivative plaintiffs: 1) the Federal Derivative
Actions would be stayed in favor of the Alabama
Derivative Actions and the Delaware Derivative
Actions; 
2) 
the 
plaintiffs 
in 
the 
Delaware
Derivative Actions would prosecute claims relating
to Scrushy's sale of HealthSouth stock back to the
company in summer 2000 (the so-called "Buyback") in
[the Chancery Court of Delaware]; and 3) the
remainder 
of 
the 
derivative 
claims 
would 
be
prosecuted ... in the Alabama Derivative Actions
under the aegis of the Tucker Complaint.  By [that]
time, the counsel in the Delaware Derivative Actions
were participating and conferring with counsel in
the Alabama Derivative Actions and developing joint
plans 
for 
prosecution 
of 
all 
the 
derivative
claims.'"
Tucker, 940 So. 2d at 275 (quoting Teachers' Retirement).
Subsequently, the "Buyback" claims were decided in the
plaintiffs' favor.  In re HealthSouth Shareholders Litig., 845
A.2d 1096 (Del. Ch. 2003), aff'd, 847 A.2d 1121 (Del. 2004)
(table).  
In case no. CV-02-5212, the first claim to be presented
for resolution was "Scrushy's alleged breach of duty in
accepting bonuses that HealthSouth was not legally obligated
to pay," Scrushy, 955 So. 2d at 998, because HealthSouth's
1081424
10
earnings, which had formed the bases for the bonuses, were
"inflated," along with Tucker's request for disgorgement of
those bonuses.  That issue initially arose on December 15,
2003, when Tucker moved for a partial summary judgment,
seeking a return of incentive bonuses HealthSouth had paid
Scrushy from 1996 through 2002.  On September 21, 2005,
Scrushy filed a cross-motion, seeking a partial summary
judgment "ordering that [he was] legally entitled to retain
all bonus compensation received by him from HealthSouth, with
the exception of annual bonuses received in 2001 and 2002, for
which genuine issues of fact remain[ed]."  In his brief in
support of that motion, Scrushy also challenged Tucker's
standing "to complain of alleged wrongdoing for the period
prior to his stock purchase [i.e., August 18, 1998]."
(Emphasis added.)  
On October 12, 2005, Tucker filed a document styled
"joinder of plaintiff" in which he joined the Wendell J. Cook,
Sr., Testamentary Trust, John P. Cook, trustee ("Cook"), as a
derivative plaintiff pursuant to Rule 20(a), Ala. R. Civ. P.
The document was verified by an affidavit stating that Cook
had owned shares of HealthSouth stock continuously since 1993.
1081424
"With regard to the bonuses paid to Scrushy in 1996, the
2
trial court held that because HealthSouth earned positive net
income in 1996 issues of material fact precluded a summary
judgment as to the 1996 bonuses."  Scrushy, 955 So. 2d at 994.
11
On January 3, 2006, the trial court denied Scrushy's
motion in its entirety, but it granted, in part, Tucker's
motion. With regard to the incentive bonuses paid to Scrushy
in 1997 through 2002, the court held that "HealthSouth [had]
incurred actual losses and no bonus pool existed out of which
the bonuses for [those] years could properly have been paid"
and, consequently, that "Scrushy [had been] unjustly enriched
by [those] payments."   The court ordered Scrushy to return
2
"$47,828,106, representing the bonuses paid for the years
1997-2002, plus prejudgment interest."  Scrushy, 955 So. 2d at
995.  In so doing, the trial court rejected Scrushy's
challenge to standing.  In that connection, it stated, in
part:
"Another shareholder, [Cook], which held its
HealthSouth shares continuously since 1993, joined
as plaintiff herein under [Ala. R. Civ. P.] Rule
20(a) on October 12, 2005, and adopted Tucker's
complaint in its entirety. No party objected. [Cook]
is represented by the identical legal team that
represents 
Tucker. 
For 
all 
purposes 
[Cook's]
shareholding relates back to the original Tucker
complaint. In re Maxxam, Inc./Federated Development,
698 
A.2d 
949 
(Del. 
Ch. 
1996) 
(holding 
new
shareholder plaintiff may be added even at a late
1081424
12
stage to cure shareholding defect of earlier
plaintiff) ...." 
The rest of the case proceeded to a trial without a jury,
the parties having stipulated that resolution of the case
turned on equitable claims to which the right to a trial by a
jury did not apply and that the remedies were, likewise,
equitable remedies.  Indeed, resolution of the case was
bolstered 
by 
a 
number 
of 
important 
stipulations. 
In
particular, the parties stipulated that "[b]etween 1996 and
March 18, 2003, certain executive, financial, and accounting
managers at HealthSouth engaged in a conspiracy and fraud to
overstate the financial health of HealthSouth in HealthSouth's
financial statements."  It was stipulated that "[t]he public
financial reports issued for HealthSouth after July 1, 1996,
and before March 18, 2003, were false and unreliable, and
materially overstated HealthSouth's net income and the net
assets on HealthSouth's balance sheet."  The parties further
stipulated that "the crucial issue in the case, overshadowing
all others, is whether or not Scrushy knew of the fraud or
intentionally 
disregarded 
his 
responsibilities 
to
HealthSouth." 
1081424
13
On June 18, 2009, the trial court entered a final
judgment "in favor of Derivative Plaintiffs, Wade C. Tucker
and the Wendell J. Cook, Sr., Testamentary Trust, John P.
Cook, Trustee, for and on behalf of HealthSouth Corporation,
and against Richard M. Scrushy," for $2,876,103,000.  In
connection with its findings of fact, the trial court stated
its "firm and confident conclusion that Scrushy knew of and
participated in the fraud from and after the summer of 1996"
but that, in any event, "Scrushy [had] clearly breached his
fiduciary duty of loyalty by consciously disregarding his
responsibilities to HealthSouth."  (Emphasis added.)  
For purposes of this appeal, three portions of the trial
court's award are particularly pertinent.  First, the court
found that Scrushy had breached three of his employment
contracts with HealthSouth, namely, (1) a 1986 employment
agreement, (2) a 1998 employment agreement, and (3) a 2002
employment agreement, "by engaging in massive fraud and by
consciously 
disregarding 
his 
responsibilities 
to 
HealthSouth."
The trial court held those three employment contracts to be
"rescinded on [that] ground," and it ordered the forfeiture of
$26,725,000, plus prejudgment interest, which represented all
1081424
14
compensation Scrushy had received for his services to
HealthSouth under those contracts.  Second, the court awarded
$147,450,000, plus prejudgment interest, which represented
"the total net profit Scrushy received from ... two stock
sales" Scrushy made on the basis of "inside information," in
violation of principles set forth in Brophy v. Cities Service
Co., 70 A.2d 5 (Del. Ch. 1949).  Third, the court awarded
$206,383,000, plus prejudgment interest, based on Scrushy's
participation in projects involving HealthSouth, namely, (1)
sale and lease-back transactions with First Cambridge, "a real
estate investment trust" started by "members of HealthSouth's
management team"; and (2) the uncompleted construction of a
facility known as the Digital Hospital, which was begun, but
soon abandoned, by HealthSouth.  The trial court certified its
judgment as final, pursuant to Rule 54(b), Ala. R. Civ. P. 
 Scrushy argues for reversal of that judgment on a number
of procedural and substantive grounds.  More specifically, he
says 
(1) 
that 
the 
trial 
court 
lacked 
subject-matter
jurisdiction ab initio; (2) that the derivative claims are
barred by the applicable statute of limitations and by the
doctrine of res judicata; (3) that the basis for the
1081424
15
forfeiture of  Scrushy's employment compensation was not
sufficiently pleaded; (4) that Brophy no longer provides a
valid basis for an  insider-trading claim; (5) that Cook was
not properly joined as a plaintiff in the action; (6) that
Scrushy's involvement in the First Cambridge and Digital
Hospital projects was shielded by the business-judgment rule;
and (7) that evidence regarding the damage sustained by
HealthSouth in the First Cambridge and Digital Hospital
projects was improperly admitted and considered.
II. Discussion
"'In Alabama, the law of the state of incorporation
governs the internal corporate relationship.'"  Ex parte
Bentley, [Ms. 1081083, May 21, 2010] ___ So. 3d ___, ___ (Ala.
2010) (quoting In re Chalk Line Mfg., Inc., Bankr. No. 93-
42773, Adv. No. 94-40003, July 26, 1994 (Bankr. N.D. Ala.
1994)(not published in Bankruptcy Reporter)).  This is known
as the "internal-affairs doctrine." Id.  "Under this doctrine,
courts look to a corporation's state of incorporation as the
source of substantive law governing claims regarding that
corporation's internal affairs."  In re Verisign, Inc.,
Derivative Litig., 531 F. Supp. 2d 1173, 1214 (N.D. Cal. 2007)
1081424
16
(emphasis added).  By contrast, "[a]s a general rule, the law
of the forum [state] governs procedural matters."  Chaplake
Holdings, Ltd. v. Chrysler Corp., 766 A.2d 1, 5 (Del. 2001)
(emphasis added).  However,   
"[t]he procedural law of a foreign state will ... be
applied 'when the law of a foreign state is applied
to substantive issues [and] the procedural law of
the foreign state is "so  inseparably interwoven
with substantive rights as to render a modification
of the foregoing rule necessary, lest a party be
thereby deprived of his legal rights."'"
Id. (quoting Monsanto Co. v. Aetna Cas. & Sur. Co., Civ. A.
88C-JA-118, April 15, 1994 (Del. Super. 1994)(not reported in
A.2d), quoting in turn Connell v. Delaware Aircraft Indus., 55
A.2d 637, 640 (Del. Super. 1947)(emphasis added)).
Matters are sometimes said to be procedural if they
"'concern methods of presenting to a court the operative facts
upon which legal relations depend'"; whereas substantive
matters are "'those which concern the legal effect of those
facts after they have been established.'"  Schoenvogel v.
Venator Group Retail, Inc., 895 So. 2d 225, 251 (Ala. 2004)
(quoting G. Stumberg, Principles of Conflict of Laws 133 (3d
ed. 1963)).  This case, therefore, requires the application of
1081424
17
Alabama law to matters of procedure and Delaware law to
matters of substance.
"Delaware maintains separate systems of courts in law and
equity."  Truck Components, Inc. v. Beatrice Co., 143 F.3d
1057, 1062 (7th Cir. 1998); see also Monsanto Co. v. Aetna
Cas. & Sur. Co., supra.  Moreover, unpublished opinions of
Delaware courts have precedential value.  See Wisdom Import
Sales Co. v. Labatt Brewing Co., 339 F.3d 101, 115 (2d Cir.
2003) (unpublished opinion of the Delaware Chancery Court
regarded as precedent); Reynolds v. Ellingsworth, 843 F.2d
712, 725 (3d Cir. 1988) (unpublished opinions of the Delaware
Supreme Court regarded as precedent).
A. Subject-Matter Jurisdiction
Procedurally, the complaint initiating this action was
filed by Tucker pursuant to Rule 23.1, Ala. R. Civ. P., which
provides: 
"In a derivative action brought by one or more
shareholders or members to enforce a right of a
corporation or of an unincorporated association, the
corporation or association having failed to enforce
a right which may properly be asserted by it, the
complaint shall be verified and shall allege that
the plaintiff was a shareholder or member at the
time of the transaction of which the plaintiff
complains 
or 
that 
the 
plaintiff's 
share 
or
membership thereafter devolved on the plaintiff by
1081424
18
operation of law.  The complaint shall also allege
with particularity the efforts, if any, made by the
plaintiff to obtain the action the plaintiff desires
from the directors or comparable authority and, if
necessary, from the shareholders or members, and the
reasons for the plaintiff's failure to obtain the
action or for not making the effort."
(Emphasis added.)
The relevant portion of Rule 23.1, Del. Ch. Ct.,
similarly provides:   
"In a derivative action brought by one or more
shareholders or members to enforce a right of a
corporation or of an unincorporated association, the
corporation or association having failed to enforce
a right which may properly be asserted by it, the
complaint shall allege that the plaintiff was a
shareholder or member at the time of the transaction
of which the plaintiff complains or that the
plaintiff's share or membership thereafter devolved
on the plaintiff by operation of law.  The complaint
shall also allege with particularity the efforts, if
any, made by the plaintiff to obtain the action the
plaintiff desires from the directors or comparable
authority and the reasons for the plaintiff's
failure to obtain the action or for not making the
effort."
(Emphasis added.)
These 
rules 
embody 
a 
Delaware 
"pre-suit 
demand
requirement," which is explained as follows:
"The decision whether to initiate or pursue a
lawsuit on behalf of the corporation is generally
within the power and responsibility of the board of
directors.  This follows from the 'cardinal precept
of the General Corporation Law of the State of
1081424
19
Delaware 
... 
that 
directors, 
rather 
than
shareholders, manage the business and affairs of the
corporation.' [Aronson v. Lewis, 473 A.2d 805, 811
(Del. 1984)]. Accordingly, in order to cause the
corporation to pursue litigation, a shareholder must
either (1) make a pre-suit demand by presenting the
allegations 
to 
the 
corporation's 
directors,
requesting that they bring suit, and showing that
they wrongfully refused to do so, or (2) plead facts
showing that demand upon the board would have been
futile.  Where, as here, [the] plaintiff [did] not
make a pre-suit demand on the board of directors,
the complaint must plead with particularity facts
showing that a demand on the board would have been
futile.  The purpose of the demand requirement is
not to insulate defendants from liability; rather,
the demand requirement and the strict requirements
of factual particularity under Rule 23.1 'exist[] to
preserve 
the 
primacy 
of 
board 
decisionmaking
regarding 
legal 
claims 
belonging 
to 
the
corporation.' [In re American Int'l Group, Inc.,
Consolidated Derivative Litig., 965 A.2d 763, 808
(Del. Ch. 2009)]."
In re Citigroup Inc. Shareholder Derivative Litig., 964 A.2d
106, 120 (Del. Ch. 2009) (emphasis added) (footnotes omitted).
Tucker made no pre-suit demand on HealthSouth's board of
directors.  Therefore, Scrushy moved to dismiss Tucker's
original complaint on the ground that it failed to allege with
the requisite particularity the reasons for Tucker's "failure
to make any demand on the board or any effort to obtain action
by the board." This motion was denied, and Tucker subsequently
filed amended complaints.  Although it is undisputed that the
1081424
20
third amended complaint is not infirm for failure to plead
demand excusal with the requisite specificity, Scrushy insists
that the third amended complaint is a nullity.  This is so,
because, he says, the alleged insufficiency of the original
complaint failed to evidence Tucker's standing under Delaware
law, and, under Alabama law, he contends, standing is
necessary at the commencement of the action to vest the trial
court with subject-matter jurisdiction.  According to Scrushy,
because the original complaint insufficiently pleaded demand
excusal, the trial court never acquired subject-matter
jurisdiction of this action and every order entered in this
case has been void ab initio.  
For these propositions, Scrushy cites Cadle Co. v.
Shabani, 4 So. 3d 460, 463 (Ala. 2008), in which this Court
said:
"'When a party without standing purports to commence
an action, the trial court acquires no subject-
matter jurisdiction.'  State v. Property at 2018
Rainbow Drive, 740 So. 2d 1025, 1028 (Ala. 1999).
The 
jurisdictional 
defect 
resulting 
from 
the
plaintiff's lack of standing cannot be cured by
amending the complaint to add a party having
standing."
To be sure, in Delaware, it is said that "[a] plaintiff's
standing to sue in a derivative suit, whether based on demand-
1081424
21
refused or demand-excused, must be determined on the basis of
the well-pleaded allegations of the complaint."  Scattered
Corp. v. Chicago Stock Exch., Inc., 701 A.2d 70, 77 (Del.
1997), overruled on other grounds, Brehm v. Eisner, 746 A.2d
244 (Del. 2000) (emphasis added).  Generally, where no pre-
suit demand has been made, an insufficiently pleaded
derivative complaint will be dismissed.  Zupnick v. Goizueta,
698 A.2d 384, 386 (Del. Ch. 1997).  Here, however, the
dispositive questions are (1) whether Delaware courts regard
a derivative plaintiff's failure to plead demand excusal with
the requisite specificity as a jurisdictional bar as Scrushy
invites this Court to do, and, if not, (2) whether the
Delaware approach is a matter of substance or must be applied
in any event, because it is "'"so inseparably interwoven with
substantive rights as to render a modification of the
[general] rule necessary, lest a party be thereby deprived of
his legal rights."'"  Chaplake Holdings, 766 A.2d at 5
(quoting Monsanto Co. (not reported in A.2d), quoting in turn
Connell, 55 A.2d at 640).
As to the first question, it is clear that Delaware
courts do not regard a derivative plaintiff's failure to plead
1081424
22
demand 
excusal 
with 
the 
requisite 
specificity 
as 
a
jurisdictional bar.  Cases can readily be found in which the
Delaware courts have recognized -- both implicitly and
explicitly -- the right of a derivative plaintiff to amend a
complaint to cure a deficiently pleaded demand-excusal
requirement.  In Kaufman v. Albin, 447 A.2d 761 (Del. Ch.
1982), for example, a shareholder of Philip A. Hunt Chemical
Corporation ("Hunt") commenced a derivative action against
certain officers of the corporation, alleging waste of
corporate assets.  Hunt moved to dismiss the complaint on the
ground that it failed to "specifically plead any reasons for
[the shareholder's] failure to make [a pre-suit] demand" on
Hunt's directors.  447 A.2d at 764-65.  The shareholder,
"while sharply disputing Hunt's allegation that the complaint
lack[ed] adequate specificity, ... offered to amend the
complaint in order to meet Hunt's arguments."  447 A.2d at
765.  Then Vice Chancellor Hartnett -- the future Justice
Hartnett -- denied Hunt's motion to dismiss, "conditioned upon
the plaintiff's amendment of the complaint in order to more
fully comply with Chancery Court Rule 23.1."  Kaufman, 447
A.2d at 765 (emphasis added).  Two years later, the
1081424
23
shareholder having amended his complaint to re-plead the issue
of demand excusal, the corporate defendants challenged the
amended complaint in a renewed motion to dismiss or, in the
alternative, for a summary judgment.  Kaufman v. Belmont, 479
A.2d 282, 284 (Del. Ch. 1984).  That time, after a meticulous
review of the allegations in the amended complaint, the vice
chancellor granted the motion to dismiss.  479 A.2d at 289.
In re Walt Disney Co. Derivative Litigation,  731 A.2d
342 (Del. Ch. 1998), rev'd in part, Brehm v. Eisner, 746 A.2d
244 (Del. 2000), was an action seeking to hold, among other
things, the directors of the corporation personally liable for
breach of fiduciary duty and waste of corporate assets.  The
original complaint was amended, and the chancery court
reviewed the first amended complaint in connection with the
defendants' motion to dismiss for failure to comply with Rule
23.1.  In re Walt Disney, 731 A.2d at 353.  That court
dismissed the action with prejudice, holding that the
shareholders' first amended complaint failed "to allege
particularized facts that excuse [a pre-suit] demand."  Id. at
364.  On appeal of that dismissal, the Delaware Supreme Court
reversed the judgment in part, holding that, as to the claims
1081424
24
of breach of fiduciary duty and waste of corporate assets, the
action 
should 
be 
dismissed 
without 
prejudice 
to 
the
shareholders' right to further amend their complaint in an
attempt to satisfy the substantive standards of Rule 23.1.
Brehm, 746 A.2d at 267. 
Subsequently, the shareholders amended their complaint.
On remand, however, the defendant directors moved to dismiss
the second amended complaint, arguing that it also failed to
plead sufficiently demand excusal.  That time, the chancellor
disagreed and denied the motion to dismiss on the ground that
the second amended complaint was "sufficiently plead[ed]."  In
re Walt Disney Co. Derivative Litig., 825 A.2d  275, 278 (Del.
Ch. 2003).  See also Needham v. Cruver,  Civ. A. 12428 &
12430, May 12, 1993 (Del. Ch. 1993)(not reported in A.2d) (In
response to a motion by directors/defendants to dismiss a
derivative complaint for insufficient averment of demand
excusal, the vice chancellor permitted the shareholder
plaintiff to amend his complaint, then reviewed the amended
complaint for the requisite particularity and held it to be
sufficient.).  It is clear from these and similar cases that
the focus of the demand-excusal analysis in Delaware is not on
1081424
25
the original complaint -- as would be necessary if, as Scrushy
argues, an insufficiently pleaded original complaint fails to
invoke the court's subject-matter jurisdiction -- but, rather,
on the complaint representing the shareholder's latest
expression of demand excusal.
As to the second question, it is, at least in some
instances, said that the question whether to accept an amended
complaint is a substantive one.  See Watwood v. Credit Bureau,
Inc., 70 A.2d 62, 64 (D.C. App. 1949) ("[I]n the procedural
confusion which attended the filing of the application for
leave to amend, or at any rate the withdrawal thereof, it
would seem that appellant lost, or is in danger of losing, a
valuable 
substantive 
right: 
the 
right 
to 
amend 
her
complaint."); see also Saint Paul Mercury Ins. Co. v. Circuit
Court of Craighead County, 348 Ark. 197, 204, 73 S.W.3d 584,
588 (2002) ("The right to amend a complaint in circumstances
such as we are dealing with is substantive, and not
procedural, and the right to recover under the statute is
dependent upon the complaining party bringing himself within
the terms of the statute, as construed by this court.").
1081424
26
In this connection, the "demand requirements of Court of
Chancery Rule 23.1 .... are [not] mere formalities of
litigation but strictures of substantive law."  Tandycrafts,
Inc. v. Initio Partners, 562 A.2d 1162, 1166 (Del. 1989)
(emphasis added).  They constitute "a rule of substantive
right designed to give a corporation the opportunity to
rectify an alleged wrong without litigation, and to control
any litigation which does arise."  Aronson v. Lewis, 473 A.2d
805, 809 (Del. 1984), overruled on other grounds, Brehm v.
Eisner, 746 A.2d 244 (Del. 2000). 
"[P]re-suit demand under Chancery Court Rule 23.1,
is an objective burden which must be met in order
for the shareholder to have capacity to sue on
behalf of the corporation.  The right to bring a
derivative action does not come into existence until
the plaintiff shareholder has made a demand on the
corporation to institute such an action or until the
shareholder has demonstrated that demand would be
futile."
Kaplan v. Peat, Marwick, Mitchell & Co., 540 A.2d 726, 730
(Del. 1988) (emphasis added).  
Thus, in the absence of a pre-suit demand on the board,
a complaint that pleads with particularity why demand should
be excused is the sine qua non of a shareholder's right to
proceed derivatively on behalf of the corporation.  Compliance
1081424
27
with the pleading requirement determines not only by whom a
derivative action may be brought, but whether it may be
brought at all.  Whether to allow an amendment under such
circumstances would seem to constitute a substantive question.
However, we need not decide definitively whether that is so,
because the right to amend is so inextricably intertwined with
the substantive right to proceed derivatively in Delaware as
to render it necessary to apply in this case the Delaware
rule, be it substantive or procedural.  We hold, therefore,
that Tucker's original complaint, notwithstanding its alleged
lack of specificity as to demand excusal, did not fail to
invoke the subject-matter jurisdiction of the trial court and
that Tucker's third amended complaint is not a nullity.
B. Defenses of Statute of Limitations and Res Judicata
Scrushy contends that all the claims against him are
barred by the three-year statute of limitations applicable in
Delaware to claims of fraud and breach of fiduciary duty  or,
in the alternative, by the doctrine of res judicata.
Regarding the statute-of-limitations defense, he insists that
various public documents released by HealthSouth from 1996 to
1998 should have afforded HealthSouth's shareholders notice of
1081424
28
certain transactions and conduct that form the basis of some
of the claims in this action.  Specifically, he states that
forms filed publicly with the Securities and Exchange
Commission disclosed "the compensation and bonuses paid to
Scrushy as well as loans made to [him] with an interest rate
less than prime rate."  Scrushy's brief, at 52.  Additionally,
he insists, the forms revealed the existence of an earlier
derivative action on behalf of HealthSouth -- commenced in
1998 -- alleging that certain officers and directors had
"misrepresented or failed to disclose certain material facts
concerning [HealthSouth's] business and financial condition."
Scrushy's brief, at 53.  According to Scrushy, this
information should have placed Tucker on notice of any fraud
and breach-of-fiduciary-duty claims he might have had no later
than November 16, 1998, thus barring such claims asserted on
August 28, 2002.
Scrushy alternatively insists that "Tucker's claims are
barred by the doctrine of res judicata in that his claims
and/or causes of action were brought, and some causes of
action[, i.e., the 'Buyback' claims,] were actually litigated
to a final judgment, in [In re HealthSouth Shareholders
1081424
29
Litig., 845 A.2d 1096 (Del. Ch. 2003), aff'd, 847 A.2d 1121
(Del. 2004) (table)]."  Scrushy's brief, at 59 (emphasis
added).
Tucker and Cook contend that consideration of both these
defenses is precluded by the doctrine of the law of the case.
That is so, because, they say, Scrushy failed to assert them
when this Court resolved the bonuses issue presented in
Tucker, supra, where, in affirming the partial summary
judgment against Scrushy for restitution of the amount paid to
him in bonuses, "[w]e conclude[d] that, under the law of
either Delaware or Alabama, Scrushy was unjustly enriched by
the payment of the bonuses, which were the result of the vast
accounting fraud perpetrated 
upon 
HealthSouth 
and 
its
shareholders."  955 So. 2d at 1012. Tucker and Cook contend
that both defenses should have been asserted in that first
appeal of this case.
According to Scrushy, the doctrine of the law of the case
"turns on whether the Court addressed the issue between the
parties" and does not apply because the defenses were not
asserted in the first appeal.  Reply brief, at 19-20.
Scrushy's understanding of the law-of-the-case doctrine is
1081424
30
inaccurate: it is not essential to the application of the
doctrine that the issue be asserted in the first appeal.  It
is enough that the issue should have been raised in the first
appeal.  "Under the law of the case doctrine, '[a] party
cannot on a second appeal relitigate issues which were
resolved by the Court in the first appeal or which would have
been resolved had they been properly presented in the first
appeal.'"  Kortum v. Johnson, 786 N.W.2d 702, 705 (N.D.
2010)(quoting State ex rel. North Dakota Dep't of Labor v.
Riemers, 779 N.W.2d 649 (N.D. 2010) (emphasis added)); see
also Judy v. Martin, 381 S.C. 455, 458, 674 S.E.2d 151, 153
(2009) ("Under the law-of-the-case doctrine, a party is
precluded from relitigating, after an appeal, matters that
were either not raised on appeal, but should have been, or
raised on appeal, but expressly rejected by the appellate
court.  C.J.S. Appeal & Error § 991 (2008)....").
 The doctrine is the same in Alabama.  "[I]n a second
appeal, ... a matter that had occurred before the first
appeal, but that was not raised in the first appeal, [is] the
law of the case."  Life Ins. Co. of Georgia v. Smith, 719 So.
2d 797, 801 (Ala. 1998) (summarizing the holding in Sellers v.
1081424
The law-of-the case doctrine is procedural.  Halliburton
3
Energy Servs., Inc. v. NL Indus., 553 F. Supp. 2d 733, 778
(S.D. Tex. 2008); State v. Kiles, 222 Ariz. 25, 36, 213 P.3d
174, 185 (2009).
Although the Court referred to the appellant's failure
4
to raise the issue as a "waiver," it is just as properly
referred to as a basis for the application of the law-of-the-
case doctrine.
31
Dickert, 194 Ala. 661, 69 So. 604 (1915)).   The doctrine in
3
this form was applied in Bankruptcy Authorities, Inc. v.
State, 620 So. 2d 626 (Ala. 1993), which was the second of two
appeals in that case.  There, this Court held that the failure
of the appellant to raise an issue in its first appeal
regarding the sufficiency of the evidence to support the
judgment precluded review of that issue in the second appeal.4
 
Procedurally, Scrushy had ample opportunity to assert
the statute of limitations and the doctrine of res judicata as
defenses to the partial summary judgment in the bonus case. 
The judgment in In re HealthSouth Shareholders Litigation, on
which Scrushy relies for his res judicata defense, was
affirmed by the Delaware Supreme Court on April 14, 2004.
Scrushy did not file his cross-motion for a partial summary
judgment in the bonus case until September 21, 2005, and the
partial summary judgment was entered on January 3, 2006.
1081424
32
Indeed, on May 27, 2004, Scrushy actually raised in the
trial court the statute-of-limitations defense in his motion
to dismiss the third and fourth amended complaints.  In
particular, he argued that "any claim for unjust enrichment or
innocent misrepresentation that seeks the return of [salary,
bonuses, options and incentive compensation] paid to Mr.
Scrushy more than two years prior to [August 28, 2002,] [was]
barred by [the statute of limitations]."  (Emphasis added.)
However, he did not raise that defense again until after this
Court had affirmed the partial summary judgment in the bonus
case.  Thus, because these defenses were not presented to this
Court in the bonus case, we will not consider them here. 
C. Compensation Forfeiture
Next, Scrushy challenges the basis on which the trial
court ordered him to repay $26,725,000 "in damages relating to
salaries and bonuses" that were "paid to [him] or on [his]
behalf," pursuant to his three employment contracts with
HealthSouth.  Specifically, he contends that the court's award
was based on the "equitable rescission" of his 1986, 1998, and
2002 employment contracts; that the amended complaint did not
plead equitable rescission; and that Tucker and Cook have no
1081424
33
"cause of action for equitable rescission."  Scrushy's brief,
at 85 (emphasis added).  In ordering the $26,725,000
repayment, the court stated, in pertinent part:
"Having been determined to be a knowing and
active participant in the fraud, and been found to
have breached his duty of loyalty to HealthSouth,
Scrushy has forfeited any rights under the three
employment contracts ... and Derivative Plaintiffs
are entitled to rescind said contracts.
"....
"Scrushy fraudulently induced HealthSouth to
enter into, or extend, or allow to be extended, any
employment or employment-related contract between
HealthSouth 
and 
Scrushy. 
Scrushy's 
employment
contracts 
are 
rescinded 
on 
this 
ground, 
and
Plaintiffs are entitled to recover on behalf of
HealthSouth all sums paid to Scrushy or on Scrushy's
behalf thereunder, all of which sums also constitute
damages for his breach of the duty of loyalty."
(Emphasis added.)
Significantly, in challenging the basis of this portion
of the judgment, Scrushy does not contest the sufficiency of
the evidence in support of the claim alleging breach of
fiduciary duty, which was a stated basis for the trial court's
order of repayment. He does not dispute that an injury
occurred, and he presents no issue as to the causation of
injury and damage.  Neither does he attempt to argue that
breach of fiduciary duty provides no basis under Delaware law
1081424
34
for the remedy effected here.  Indeed, he entirely omits any
reference to breach of fiduciary duty in his discussion of the
repayment.  Instead, he focuses exclusively on the remedy of
"equitable rescission."
More specifically, he says:
"'Equitable rescission ... which is otherwise known
as cancellation, is a form of remedy in which, in
addition to a judicial declaration that a contract
is invalid and a judicial award of money or property
to restore plaintiff to his original condition is
made, further equitable relief is required.  Thus,
the 
remedy 
of 
equitable 
rescission 
typically
requires that the court cause an instrument,
document, obligation or other matter affecting
plaintiff's rights and/or liabilities to be set
aside and annulled, thus restoring plaintiff to his
original 
position 
and reestablishing title or
recovering possession of property.'"
Scrushy's brief, at 86 (quoting E.I. Du Pont De Nemours & Co.
v. HEN Research, Inc., Ms. Civ. A. 10747, October 13, 1989
(Del. Ch. 1989)(not reported in A.2d) (emphasis omitted)).  
According to Scrushy, the third and fourth amended
complaints did not sufficiently plead the remedy of equitable
rescission, because, he insists, they do not specifically
mention equitable rescission or seek the cancellation or
annulment of any instrument. The gravamen of Scrushy's
argument is that the remedy of disgorgement derives solely
1081424
35
from equitable rescission.  However, it is evident that the
trial court "also" ordered the repayment as "damages for
[Scrushy's] breach of the duty of loyalty."  In that
connection, Tucker and Cook argue:
"The [judgment] hold[s] that Scrushy breached
his fiduciary duty of loyalty.  Under Delaware law,
once a breach of the duty of loyalty is found,
'significant discretion is given to the Court in
fashioning an appropriate remedy.'  Bomarko v.
International Telecharge, Inc., 794 A.2d 1161, 1184
(Del. Ch. 1999).  The Court's 'powers are complete
to fashion any form of equitable and monetary relief
as may be appropriate ...'  Weinberger v. UOP, Inc.,
457 A.2d 701, 714 (Del. 1983).  A finding of a
breach of the duty of loyalty 'permits broad,
discretionary, and equitable remedies.'  Gotham
Partners, 
[L.P.] v. Hallwood Realty Partners,
[L.P.], 817 A.2d 160, 175-76 (Del. 2002)."
Tucker and Cook's brief, at 67-68 (footnote omitted) (emphasis
added).  They contend, in other words, that forfeiture of
compensation in the sense of "damages for [Scrushy's] breach
of the duty of loyalty" was -- as an alternative to the ground
of equitable rescission on which Scrushy focuses -- a
sufficient basis for the trial court's judgment.
At the risk of stating the obvious, Delaware law is that,
in a variety of contexts and without regard to equitable
rescission, a "breach of ... fiduciary duty renders [the
wrongdoer] liable to disgorge any benefits emanating from, and
1081424
36
providing compensation for any damages attributable to, that
breach."  Thorpe v. CERBCO, Inc., 676 A.2d 436, 437 (Del.
1996).  See Triton Constr. Co. v. Eastern Shore Elec. Servs.,
Inc., Civ. A. 3290-VCP, May 18, 2009 (Del. Ch. 2009)(not
reported in A.2d) (employee who breached a fiduciary duty to
his 
employer 
by 
failing 
to 
inform 
it 
that 
he 
was
simultaneously working for a competing company was liable to
the employer to disgorge the compensation he received from the
competing company); Julian v. Eastern States Constr. Serv.,
Inc., Civ. A. 1892-VCP, July 8, 2008 (Del. Ch. 2008) (not
reported in A.2d) (corporate directors who breached their
duties of loyalty in voting themselves bonuses were required
to "disgorge [their] bonuses and return the amounts they
received with interest" to the corporation); Boyer v.
Wilmington Materials, Inc., 754 A.2d 881, 908 (Del. Ch. 1999)
("'acts of conscious wrongdoing and breaches of a fiduciary's
duty of loyalty will best be deterred by requiring the
wrongdoer to disgorge any profit made as a result of such
wrongful conduct'").  
Further, 
"numerous 
decisions 
hold 
that 
corporate
compensation is properly recoverable in a situation where the
1081424
37
disloyalty of the officer or director constitutes the
usurpation of a corporate opportunity."  Citron v. Merritt-
Chapman & Scott Corp., 409 A.2d 607, 611 (Del. Ch. 1977)
(emphasis added), aff'd, 407 A.2d 1040 (Del. 1979).  See also
Astra USA, Inc. v. Bildman, 455 Mass. 116, 128, 914 N.E.2d 36,
46 (2009) (applying New York law and holding that, under the
faithless-fiduciary doctrine, remedies of rescission and
"equitable 
forfeiture" 
are 
"duplicative" 
as 
to 
the
disgorgement of the fiduciary's salary and bonuses).
The complaint, as amended, contains counts alleging,
among other things, (1) fraud, (2) breach of fiduciary duty,
(3) insider trading, (4) waste of corporate assets, and (5)
usurpation of corporate opportunities.  Under its "prayer for
relief," the complaint expressly requested "[d]isgorgement of
all compensation including but not limited to salary, stock
options, benefits, bonuses, values of loans, and profits
received by [Scrushy] as the result of the wrongful acts."
(Emphasis added.)  Thus, the amended complaint contains
clearly pleaded allegations that at least arguably form
supportable grounds for compensation forfeiture, as expressly
1081424
38
referenced by the trial court in ordering the repayment of
compensation.
Rather than address the forfeiture in the context of any
of these grounds, Scrushy relies exclusively on his equitable-
rescission argument.  Under the following principles, he has
waived a challenge to this aspect of the judgment:
"In order to secure a reversal, 'the appellant
has an affirmative duty of showing error upon the
record.'  Tucker v. Nichols, 431 So. 2d 1263, 1264
(Ala. 1983).  It is a familiar principle of law:
 
"'When an appellant confronts an issue
below that the appellee contends warrants
a judgment in its favor and the trial
court's order does not specify a basis for
its ruling, the omission of any argument on
appeal as to that issue in the appellant's
principal brief constitutes a waiver with
respect to the issue.'
  
"Fogarty v. Southworth, 953 So. 2d 1225, 1232 (Ala.
2006) (footnote omitted) (emphasis added).  This
waiver, namely, the failure of the appellant to
discuss in the opening brief an issue on which the
trial court might have relied as a basis for its
judgment, results in an affirmance of that judgment.
Id.  That is so, because 'this court will not
presume such error on the part of the trial court.'
Roberson v. C.P. Allen Constr. Co., [Ms. 2080537,
May 7, 2010] ___ So. 3d ___, ___ (Ala. Civ. App.
2010) (emphasis added).  See also Young v. Southern
Life & Health Ins. Co., 495 So. 2d 601 (Ala. 1986).
If an appellant defaults on his or her duty to show
error by failing to argue in an opening brief an
unstated ground that was placed in issue below,
then, a fortiori, a challenge to the judgment is
1081424
39
waived where, as here, the trial court actually
states two grounds for its judgment, both grounds
are championed by the appellee, and the appellant
simply declines to mention one of the two grounds."
Soutullo v. Mobile County, [Ms. 1090041, September 17, 2010]
___ So. 3d ___, ___ (Ala. 2010). Because Scrushy has
pretermitted discussion of alternative grounds underpinning
the trial court's holding forfeiting his compensation, we
pretermit any further discussion of the equitable-rescission
ground and affirm this aspect of the judgment.
D. Insider Trading
Where the fiduciary duty allegedly breached involves
insider trading, Delaware provides a state-law cause of action
under the principles set forth in Brophy v. Cities Service
Co., 70 A.2d 5 (Del. Ch. 1949).  "[A] Brophy claim[] arises
where 
'1) 
the 
corporate 
fiduciary possessed material,
nonpublic company information; and 2) the corporate fiduciary
used that information improperly by making trades because [he
or] she was motivated, in whole or in part, by the substance
of that information.'"  In re American Int'l Group, Inc., 965
A.2d 763, 800 (Del. Ch. 2009) (quoting In re Oracle Corp., 867
A.2d 904, 934 (Del. Ch. 2004), aff'd, 872 A.2d 960 (Del. 2005)
(footnote omitted)).  "The purpose of a Brophy claim is to
1081424
40
remedy harm to the corporation. ... The Brophy claim thus
belongs to the corporation, although it can be asserted
derivatively by a stockholder."  Pfeiffer v. Toll, 989 A.2d
683, 699 (Del. Ch. 2010).
The trial court's award under Brophy was based on
stipulated facts evidencing two transactions (excluding the
Buyback) in which Scrushy sold a total of 9,275,360 shares of
HealthSouth stock for a profit of $147,450,000.  Having found
that the transactions were made "with guilty insider knowledge
of the Fraud that vastly overstated Net Income, cash, and
other assets," it ordered the disgorgement of that profit,
plus $126,321,000 in prejudgment interest. 
Scrushy does not challenge the sufficiency of the
evidence of those findings or the computation of the award. In
other words, Scrushy does not contend that the elements of a
Brophy claim were not satisfied.  Instead, he challenges the
continuing validity of Brophy.  More specifically, he contends
that liability under Brophy is either (1) duplicative of that
under the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b),
and Rule 10b-5, 17 C.F.R. § 240.10b-5, or (2) in conflict
with, and thereby preempted by, the federal statutory scheme.
1081424
The remedies supplied by federal law are not  co-
5
extensive with those under Brophy.  See Diamond v. Oreamuno,
24 N.Y.2d 494, 500-01, 248 N.E.2d 910, 913-14 (1969)
(discussing Brophy). 
41
Even if we were writing on a clean slate, we would be
reluctant to disturb Brophy -- a 61-year-old pillar of
Delaware securities law.  We need not belabor the issue,
however, because the same arguments have recently been
expressly rejected in Delaware.  In Pfeiffer, supra, Vice
Chancellor Laster rejected the arguments after a painstaking
historical analysis focusing on the relationship between the
common law underlying Brophy and its progeny, on the one hand,
and the federal scheme, on the other.  
The vice chancellor observed that "federal law does not
establish a 'comprehensive federal regime regulating insider
trading,'" but is, in fact, largely "a product of common law
adjudication built by interpreting Section 10(b) of the
Securities Exchange Act of 1934 (the 'Exchange Act') and Rule
10b-5, the principal regulation implementing Section 10(b)."
989 A.2d at 701 (footnotes omitted).   "Federal law does not
5
give rise to or establish the fiduciary duties of directors or
officers."  989 A.2d at 704.  Instead, a claim under federal
law "depends on the existence of a fiduciary relationship or
1081424
42
similar 
relationship 
of 
trust 
and 
confidence," 
which
relationships are "governed by state law."  Id.  Consequently,
he reasoned, "[i]f Delaware were to hold that the fiduciary
duties of directors and officers did not limit their insider
trading, the cornerstone of the federal system would be
removed."  Id. (emphasis added).
Similarly, in demonstrating that "the jurisdictional
provisions of the Exchange Act do not preempt state law
remedies," he stated: 
"Section 28(a) of the Exchange Act provides: '[T]he
rights and remedies provided by [the Exchange Act]
shall be in addition to any and all other rights and
remedies that may exist at law or in equity....'  15
U.S.C. § 78bb.  Section 28(a) establishes that 'the
express intention of Congress was that the federal
securities law would not dilute any remedies allowed
by 
the 
states, 
either 
in 
law 
or 
equity.'
Rossdeutscher v. Viacom, Inc., 768 A.2d 8, 17 (Del.
2001). The federal remedies available under the
Exchange Act were thus 'intended to coexist with
claims based on state law and not preempt them.'
Id.
"Since the original adoption of the Exchange
Act, Congress has twice addressed insider trading
without altering the current regime.  In 1984,
Congress 
increased 
the 
penalties 
for 
insider
trading.  Insider Trading Sanctions Act of 1984,
Pub. L. No. 98-376, 98 Stat. 1264 (codified at 15
U.S.C. § 78t).  In 1988, Congress increased the
penalties again. Insider Trading and Securities
Fraud Enforcement Act of 1988, Pub. L. No. 100-704,
102 Stat. 4677 (codified at 15 U.S.C. § 78u-1).
1081424
43
Congress also added § 20A to the Exchange Act,
creating an explicit private cause of action against
any person who violates insider trading rules that
can 
be 
brought 
by 
anyone 
who 
traded
contemporaneously with the violator.  Id. § 78t-1.
Neither statute sought to preempt or eliminate a
state law derivative remedy.
"In 
1995, 
Congress 
adopted 
the 
Private
Securities Litigation Reform Act of 1995 (the
'PSLRA'). Pub. L. No. 104-67, 109 Stat. 737
(codified at 15 U.S.C. § 78u-4).  In 1998, Congress
enacted the Securities Litigation Uniform Standards
Act of 1998 ('SLUSA').  Pub. L. No. 105-353, 112
Stat. 3227 (codified at 15 U.S.C. § 77z-1).  SLUSA
amended the Exchange Act to prevent plaintiffs from
avoiding the PSLRA by filing class actions in state
court and to require generally that all class
actions involving the purchase or sale of securities
traded on a national exchange be brought exclusively
in federal court under federal law.  SLUSA preserved
and did not preempt an 'exclusively derivative
action brought by one or more shareholders on behalf
of a corporation.'  15 U.S.C. § 78bb(f)(5)(c).
SLUSA also preserved and did not preempt state law
class actions based on the fiduciary duty of
disclosure 
owed 
by 
corporate 
directors 
to
stockholders.  15 U.S.C. § 78bb(f)(3)(A)."
Pfeiffer, 989 A.2d at 703.
The vice chancellor concluded, moreover, that "the
standards applied under Brophy do not conflict with the
federal securities laws."  989 A.2d at 707-08.  Causes of
action under both federal law and Brophy require "'proof that
the selling defendants acted with scienter.'"  989 A.2d at 708
(quoting Guttman v. Huang, 823 A.2d 492, 505 (Del. Ch. 2003)).
1081424
44
Indeed, he explained, "[t]he elements of a Brophy claim ...
'more or less track the key requirements to recover against an
insider under federal law.'" 989 A.2d at 708 (quoting In re
Oracle Corp., 867 A.2d 904, 934 (Del. Ch. 2004), aff'd, 872
A.2d 960 (Del. 2005)).
Scrushy does not attempt to refute the reasoning of
Pfeiffer.  His response is merely to denigrate that opinion on
the ground that it represents the "judgment of [a] trial
court."  Reply brief, at 31.  However, it bears repeating that
opinions of the Delaware Chancery Courts, unlike those of
trial courts of other states, are regarded as precedent.
Wisdom Import Sales Co. v. Labatt Brewing Co., 339 F.3d at
115. It must also be remembered that Brophy itself was a
chancery court opinion.  Yet Brophy has been a part of the
warp and woof of Delaware securities law for more than 60
years.  It has often been cited with approval by the Delaware
Supreme Court.  See Oberly v. Kirby, 592 A.2d 445, 463 (Del.
1991); Mills Acquisition Co. v. Macmillan, Inc., 559 A.2d
1261, 1283 (Del. 1989); Weinberger v. UOP, Inc., 457 A.2d 701,
711 (Del. 1983); Citron v. Merritt-Chapman & Scott Corp., 407
A.2d 1040, 1043 (Del.  1979); Singer v. Magnavox Co., 380 A.2d
1081424
Contrary to the suggestion of Scrushy, Brophy was not
6
within the purview of the Delaware Supreme Court in Malone v.
Brincat, 722 A.2d 5 (Del. 1998), which case, therefore, sheds
no light on this discussion. 
45
969, 977 (Del. 1977), overruled on other grounds, Weinberger
v. UOP, Inc., 457 A.2d 701, 711 (Del. 1983); and Adams v.
Jankouskas, 452 A.2d 148, 152 (Del. 1982).  It has also been
cited with approval by the United States Supreme Court.  See
Chiarella v. United States, 445 U.S. 222, 228 n.10 (1980).
The judgment in this case was cited with approval in
Pfeiffer, 989 A.2d at 700. In light of the thorough and
thoughtful discussion in Pfeiffer, and the absence of
persuasive counter authority,  we conclude that Brophy neither
6
is an anachronism nor is preempted by federal securities law.
We decline, therefore, Scrushy's invitation to hold that
Brophy is no longer good law.
E. Propriety of Cook's Joinder
Scrushy challenges Cook's joinder in the action on the
basis of the document filed on October 12, 2005, styled
"joinder of plaintiff."  More specifically, he contends:
"[B]ecause Tucker failed to name and join [Cook] in
his original complaint, he was required to either:
(1) file a motion to amend his complaint pursuant to
Rule 15[, Ala. R. Civ. P.], or (2) pursuant to Rule
21, [Ala. R. Civ. P.,] to file a motion to add
1081424
46
[Cook] as plaintiff and obtain an order granting the
addition. Tucker took neither action and, therefore,
[Cook] was not properly added as an additional
plaintiff 
in 
Tucker's 
derivative 
action. 
...
Consequently, the trial court erred in holding that
Tucker had the authority to bring and prosecute
claims against Scrushy for events that happened
before August 18, 1998.  Scrushy was prejudiced by
this error and the judgment of the trial court is
due to be reversed."
Scrushy's brief, at 83-84 (emphasis added).  
To be sure, Tucker did not "file a motion to add [Cook]
as plaintiff and obtain an order granting the addition."
However, in its January 3, 2006, order entering a partial
summary 
judgment, 
which 
ordered 
Scrushy 
to 
return
"$47,828,106, representing the bonuses paid for the years
1997-2002," the trial court stated: "Another shareholder,
[Cook], which held its HealthSouth shares continuously since
1993, joined as plaintiff herein under [Ala. R. Civ.P.] Rule
20(a) on October 12, 2005, and adopted Tucker's complaint in
its entirety." (Emphasis added.)  Thus, even before the appeal
of the bonus case, the trial court sanctioned the proffered
joinder and rejected Scrushy's challenge to Tucker's standing
"to complain of alleged wrongdoing for the period prior to his
stock purchase," i.e., prior to August 18, 1998.
It is well settled:
1081424
47
"Rule 21, Ala. R. Civ. P., provides, in
pertinent part, that '[p]arties may be dropped or
added by order of the court on motion of any party
or of its own initiative at any stage of the action
and on such terms as are just,' and this Court has
held 
that 
the 
trial 
court 
is 
given 
'broad
discretion' when determining whether to add or drop
a party.  Wood v. City of Huntsville, 384 So. 2d
1081, 1083 (Ala. 1980).  See also State Highway
Department v. Morgan, 584 So. 2d 499, 502 (Ala.
1991)."
Wiggins v. State Farm Fire & Cas. Co., 686 So. 2d 218, 220
(Ala. 1996).  Indeed, Scrushy concedes that "the trial court
could join [Cook] on its own motion," provided it had subject-
matter jurisdiction.  Reply brief, at 25.  Because that is
essentially what the trial court did in recognizing Cook's
presence as a plaintiff, and because we have already held in
Part II.A. of this opinion that the trial court had subject-
matter jurisdiction at all stages of this action, we find no
merit in Scrushy's challenge to Cook's joinder.
F. Business-Judgment Rule
Scrushy also contends that liability was imposed upon him
for certain transactions in violation of the "business-
judgment rule."  These transactions involved First Cambridge,
"a real estate investment trust," and the aborted construction
1081424
48
of the Digital Hospital.  Regarding First Cambridge, the trial
court stated:
"Tucker [and Cook] 
contend[] 
that 
Scrushy, 
while
HealthSouth's CEO, approved and appeared on both
sides of several transactions between HealthSouth,
on the one hand, and Scrushy or his family or trusts
on the other.  Plaintiffs contend that Scrushy
caused HealthSouth ... to divert assets to First
Cambridge, an entity in which Scrushy's daughter was
to receive an equity interest and an entity utilized
to perpetuate the Fraud ....
"....
"First Cambridge was a real estate investment
trust primarily started with HealthSouth's real
estate 
.... 
Scrushy 
dictated 
the 
ownership
percentages, but ... HealthSouth was not to receive
any ownership at all.  A real estate investment
trust called HCI entered into an agreement with
HealthSouth in December 2001 to purchase and lease
back 
land 
and 
improvements 
constituting 
13
HealthSouth facilities for a purchase price of $81.5
million, whereupon HCI assigned all rights and
duties 
to 
First 
Cambridge, 
which 
leased 
the
properties back to HealthSouth.  HealthSouth did not
receive full benefit of the purchase price for the
properties, as it guaranteed an $82.5 loan from UBS
[Securities, LLC ('UBS'),] to First Cambridge to
finance the sale; the loan was payable December 26,
2002.  In the ensuing year, HealthSouth paid First
Cambridge $9.5 million in lease payments.
"Scrushy took a 20% ownership position in First
Cambridge in his daughter's name.  Under Scrushy's
leadership as CEO, HealthSouth did not make public
disclosure of the loan guarantee until after
revelation of the Fraud; [former HealthSouth General
Counsel, William W. Horton,] testified that he now
1081424
49
regards the guarantee as having been material, which
it obviously was.
"The loan defaulted, and HealthSouth had to make
good on its guarantee on which Scrushy (or his
daughter) was not at risk.  In late 2002, it became
obvious that First Cambridge could not repay the
$82.5 million loan, leaving HealthSouth exposed on
the 
guarantee. 
 
HealthSouth 
arranged 
for 
an
extension in the loan due date of four business
days, so that it came due on January 2, 2003, and
paid UBS $1 million to grant that extension.  With
First Cambridge failing to meet its obligations, the
sale-leaseback transaction was unwound, with the
properties being re-conveyed to HealthSouth at an
additional loss of $8.8 million.
"The First Cambridge transactions were plainly
unfair to HealthSouth."
(Emphasis added; footnotes omitted.)  The trial court awarded
$15,500,000 in damages arising out of the First Cambridge
transaction, plus prejudgment interest. 
Regarding the Digital Hospital transaction, the trial
court found:
"In 2001, HealthSouth began construction of a
$400 million hospital facility on Highway 280, next
to the corporate headquarters, called the 'Digital
Hospital.'  HealthSouth paid $191 million in
construction and maintenance on the Digital Hospital
before construction ceased.  HealthSouth sold the
partially-built facility in 2008 for $1.5 million
plus a 40% contingency interest, on which it has not
received any payment.  This court credits [the
testimony of Jay Grinney, CEO of HealthSouth at the
time of trial,] that the project could not be
justified on any economic basis even if HealthSouth
1081424
50
had the cash to complete it.  Scrushy concedes that
the decision to build it made no sense for a company
that did not have the cash to complete it, that one
would have to be a 'complete bumbling idiot' to do
so.  As Scrushy knew that the cash was not there to
complete the project, he is liable for all of
HealthSouth's 
damages 
concerning 
the 
Digital
Hospital.
"....
"... Amounts spent on the Digital Hospital
facility were directly and proximately caused by the
Fraud."
(Footnotes omitted; emphasis added.)  The trial court awarded
$190,883,000 in damages arising out of the Digital Hospital
transaction, plus prejudgment interest.  These findings were
based on stipulated facts as well as on evidence presented ore
tenus.
"It is well established that '[w]hen a trial court hears
ore tenus testimony "its findings on disputed facts are
presumed correct and its judgment based on those findings will
not be reversed unless the judgment is palpably erroneous or
manifestly unjust."'"  Black Diamond Dev., Inc. v. Thompson,
979 So. 2d 47, 52 (Ala. 2007) (quoting New Props., L.L.C. v.
Stewart, 905 So. 2d 797, 799 (Ala. 2004), quoting in turn
Philpot v. State, 843 So. 2d 122, 125 (Ala. 2002)).  Scrushy
does not challenge the sufficiency of these findings.
1081424
51
Instead, he makes the conclusory statement that "he did not
violate his duty of loyalty or good faith" and, therefore,
that "the trial court erred by holding that Tucker [and Cook]
rebutted the business judgment rule and by awarding [them]
damages for interested transactions losses."  Scrushy's brief,
at 103 (emphasis added).
"The business judgment rule protects a board of
directors from being questioned or second-guessed on
conduct of corporate affairs.  In re PSE & G
S'holder Litig., 173 N.J. 258, 801 A.2d 295, 306
(2002).  The business judgment rule is a rebuttable
presumption that 'in making a business decision the
directors of a corporation acted on an informed
basis, in good faith and in the honest belief that
the action taken was in the best interests of the
company.'  Aronson v. Lewis, 473 A.2d 805, 811 (Del.
1984); In re PSE & G, 801 A.2d at 306.  The business
judgment rule is comprised of four elements: (1) a
business 
decision; 
(2) 
disinterestedness 
and
independence; (3) due care; and (4) good faith.
Roselink Investors, L.L.C. v. Shenkman, 386 F. Supp.
2d 209, 217-21 (S.D.N.Y. 2004) (applying Delaware
law).  The presumption of the business judgment rule
can be rebutted by demonstrating that one of these
elements is not present.  Id.; In re PSE & G, 801
A.2d at 306.  If a party successfully rebuts the
presumption, the burden of proof shifts to the
defendant to show the entire fairness of the
transaction.  In re PSE & G, 801 A.2d at 306-07;
Mills Acquisition Co. v. Macmillan, Inc., 559 A.2d
1261, 1280 (Del. 1989)."
1081424
"The Supreme Court of Delaware has described the
7
business-judgment 
rule 
as 
part-procedural 
and 
part-
substantive."  Davis v. Dorsey, 495 F. Supp. 2d 1162, 1176
(M.D. Ala. 2007) (citing Cede & Co. v. Technicolor, Inc., 634
A.2d 345, 360 (Del. 1993)).  "Substantively, the rule
prohibits courts from second-guessing the good-faith business
judgments of corporate management. ... Procedurally, the rule
creates a burden-shifting mechanism ...."  Id. 
52
ASARCO LLC v. Americas Mining Corp., 396 B.R. 278, 405 (S.D.
Tex. 2008) (applying Delaware law) (emphasis added).7
In this connection, the trial court made the following
unchallenged findings:
"Between July or August 1996 and his departure
from the Board in 2005, Scrushy breached his
fiduciary duty of loyalty to HealthSouth by knowing
of, failing to report, or participating in and
failing to report the Fraud. ... The breaches of
fiduciary duty arise out of each of the following:
his participation in the Fraud in the accounting
statements at HealthSouth, his conscious disregard
of his duties as CEO, his participation in the self-
dealing transactions that benefitted Scrushy to the
detriment of HealthSouth ...."
(Emphasis added.) 
Although "a failure to act in good faith is not conduct
that results, ipso facto, in the direct imposition of
fiduciary liability," Stone ex rel. AmSouth Bancorp. v.
Ritter, 911 A.2d 362, 369 (Del. 2006), it follows that a
judicial finding that a fiduciary has breached his duty of
loyalty in the manner set forth by the trial court in this
1081424
53
case suffices to show the absence of good faith.  Id. at 370
("Where directors fail to act in the face of a known duty to
act, thereby demonstrating a conscious disregard for their
responsibilities, they breach their duty of loyalty by failing
to discharge that fiduciary obligation in good faith."
(footnote omitted)).  "Under Delaware law, a fiduciary may not
choose to manage an entity in an illegal fashion, even if the
fiduciary believes that the illegal activity will result in
profits for the entity."  Metro Commc'n Corp., BVI v. Advanced
Mobilecomm Techs. Inc., 854 A.2d 121, 131 (Del. 2004).  Thus,
fraud may also form the basis of a breach-of-fiduciary claim.
Xu Hong Bin v. Heckmann Corp., Civ. A. 4637-CC, Oct. 26, 2009
(Del. Ch. 2009)(not reported in A.2d). 
Unchallenged findings made in this case demonstrate that
the elements of the business-judgment rule -- specifically,
but not exclusively, the element of good faith -- were not
satisfied.  According to the trial court, the transactions
involving First Cambridge and the Digital Hospital were linked
to, or tainted by, the fraud.  Contrary, therefore, to
Scrushy's position, the business-judgment rule does not apply
to these transactions.  Moreover, the trial court found that
the transactions were unfair to HealthSouth. For these
1081424
Scrushy does not challenge the manner in which the
8
damages were calculated.
54
reasons, Scrushy has not met his burden of showing that the
trial court erred in awarding damages arising out of the First
Cambridge and Digital Hospital transactions.
G. Admission of Evidence
Finally, Scrushy contends that "the trial court erred in
allowing Tucker [and Cook] to present evidence of damages
regarding First Cambridge and ... the Digital Hospital."
Scrushy's brief, at 99.   According to Scrushy, the awards
8
were erroneous, because, he says, the third and fourth amended
complaints did not mention First Cambridge or the Digital
Hospital. 
In response, Tucker and Cook rely on Ala. R. Civ. P.
15(b), which states, in pertinent part:  
"(b) Amendments to Conform to the Evidence.
When issues not raised by the pleadings are tried by
express or implied consent of the parties, they
shall be treated in all respects as if they had been
raised in the pleadings.  Such amendment of the
pleadings as may be necessary to cause them to
conform to the evidence and to raise these issues
may be made upon motion of any party at any time,
even after judgment; but failure so to amend does
not affect the result of the trial of these issues.
If evidence is objected to at the trial on the
ground that it is not within the issues made by the
pleadings, the court may allow the pleadings to be
1081424
55
amended and shall do so freely when the presentation
of the merits of the action will be subserved
thereby and the objecting party fails to satisfy the
court that the admission of such evidence would
prejudice the party in maintaining the party's
action or defense upon the merits."
They 
contend 
that 
"the 
[t]hird 
and 
[f]ourth 
amended
[c]omplaint[s] gave fair notice that [they] claim[ed] all
damages resulting from the [f]raud.  Both the First Cambridge
transaction and the expenditure on the Digital Hospital were
part of the fraud and represented damages from the [f]raud."
Tucker and Cook's brief, at 82.  Moreover, they argue, Scrushy
was apprised of these claimed items of damage by their filing
on April 3, 2009, a "Derivative Plaintiffs' Succinct Statement
of Claims," specifically referencing First Cambridge and the
Digital Hospital.  Scrushy did not move in limine to exclude
evidence of the transactions, nor did he object at trial when
documentary, as well as ore tenus, evidence was, in fact,
introduced.  
Tucker and Cook also correctly observe that much of the
evidence as to these transactions was included in the parties'
joint stipulations.  It was stipulated, for example, that the
"[t]otal net cash paid out as a result of the First Cambridge
transaction aggregates $15,500,000."  That was the precise
1081424
We note that the figure used in the trial court's order
9
was $191,000,000.
56
amount awarded by the trial court for that transaction.  In
other stipulations, the parties stated that "HealthSouth paid
$192,000,000 to partially build and maintain" the Digital
Hospital  and that it was sold in its uncompleted state for
9
$1,500,000.
Finally, Tucker and Cook point out that evidence of the
challenged transactions was presented at trial by both sides.
Indeed, both sides included remarks regarding First Cambridge
in their opening statements.  Later, on direct examination,
Scrushy's counsel questioned Scrushy regarding his interest in
First Cambridge and regarding the Digital Hospital.  For these
reasons, Tucker and Cook contend, matters regarding First
Cambridge and the Digital Hospital were tried by consent and
the pleadings are deemed to conform to the evidence.  We
agree.
"'Rule 15(b) is not permissive: it provides that issues
tried by express or implied consent shall be treated as if
raised in the pleadings.'"  Ammons v. Tesker Mfg. Corp., 853
So. 2d 210, 216 (Ala. 2002) (quoting Hawk v. Bavarian Motor
Works, 342 So. 2d 355, 358 (Ala. 1977) (emphasis added in
1081424
57
Ammons)).  See also Rule 54(c), Ala. R. Civ. P. ("[E]very
final judgment shall grant the relief to which the party in
whose favor it is rendered is entitled, even if the party has
not demanded such relief in the party's pleadings.").   
"It is well settled law in Alabama that implied consent
of the parties can be found when an opposing party fails to
object to the introduction of evidence raising the disputed
issue initially."  Hosea O. Weaver & Sons, Inc. v. Towner, 663
So. 2d 892, 896 (Ala. 1995). "If a party objects to the
introduction of evidence at the trial on the ground that it is
not within the issues framed by the pleadings, he must show
that he would be actually prejudiced in maintaining his action
or defense on the merits by the admission of the evidence."
Hawk, 342 So. 2d at 358 (emphasis added).  
"'[W]hether pleadings are deemed to be amended in order
to conform to the evidence presented is also a matter within
the discretion of the trial court,' and a decision in that
regard will not be disturbed on appeal absent an abuse of
discretion."  International Rehab. Assocs., Inc. v. Adams, 613
So. 2d 1207, 1214 (Ala. 1992) (quoting McCollum v. Reeves, 521
So. 2d 13, 16-17 (Ala. 1987)).  "Failure to so amend 'does not
affect the result of the trial of these issues.'  Therefore,
1081424
58
any such 'variance' cannot affect the result of this appeal."
Whitfield v. Burttram, 471 So. 2d 401, 405 (Ala. 1985)
(quoting Rule 15(b)).
Much of the evidence on which the trial court based its
award was entered by stipulation.  Other evidence relating to
First Cambridge and the Digital Hospital was presented at the
trial by Scrushy himself or without his objection.  In no
event did Scrushy ever argue that he "would be actually
prejudiced in maintaining his ... defense on the merits by the
admission of the evidence."  Hawk, 342 So. 2d at 358.
Consequently, Scrushy has not demonstrated that the trial
court exceeded its discretion in considering evidence relating
to First Cambridge or the Digital Hospital.
III. Conclusion
For the reasons discussed above, Scrushy has demonstrated
no error in any aspect of the trial court's judgment.  That
judgment is, therefore, affirmed.
AFFIRMED. 
Cobb, C.J., and Stuart, Bolin, Parker, and Shaw, JJ.,
concur.
Murdock, J., concurs in the result and concurs in the
rationale in part.
1081424
59
MURDOCK, Justice (concurring in the result and concurring in
the rationale in part).
I concur in the result in the main opinion and in the
analysis by which it reaches that result, with the exception
of the analysis in Parts II.B. and II.C., which I decline to
join.  As to Part II.C., see the discussion of Fogarty v.
Southworth, 953 So. 2d 1225 (Ala. 2006), in my special writing
and Justice See's special writing concurring specially in
Pavilion Development, L.L.C. v. JBJ Partnership, 979 So. 2d
24, 37, and 41 (Ala. 2007).