Source: http://www.leagle.com/decision/In%20ALCO%2020110204006/SCRUSHY%20v.%20TUCKER
Timestamp: 2017-06-23 13:42:08
Document Index: 426505327

Matched Legal Cases: ['§ 78', '§ 78', '§ 78', '§ 20', '§ 78', '§ 78', '§ 77', '§ 78', '§ 78']

Citing Case 70 So.3d 289 (2011)
Wade C. TUCKER and the Wendell J. Cook, Sr., Testamentary Trust, John P. Cook, trustee, derivatively, for and on behalf of HealthSouth Corporation.
"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 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 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."
"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."
"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., 50 So.3d 471, 478 (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 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."
"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). 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)."
"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 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."
"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 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 1. Claims similar to this "Buyback" claim were also asserted in the first filed of the Delaware derivative actions.