Opinion ID: 78393
Heading Depth: 1
Heading Rank: 8

Heading: Scrushy's public policy arguments

Text: Scrushy argues that public policy supports indemnification of corporate officers sued for actions taken within the scope of their employment. Scrushy points to the governing state law of Delaware which allows such broad indemnification. One purpose of the Delaware law is to encourage qualified individuals to serve as corporate officers and directors, by safeguarding them when they act in good faith on behalf of the corporation. Stifel Fin. Corp. v. Cochran, 809 A.2d 555, 561 (Del. 2002). To the extent that the public policy of Delaware supports indemnification agreements in general, that must be balanced against countervailing policies in favor of settlements and against indemnification in the securities litigation context. This Court has stated: Public policy strongly favors the pretrial settlement of class action lawsuits. U.S. Oil, 967 F.2d at 493. Class actions increasingly incorporate bar orders because they play a key role in facilitating settlements. Id. at 494. Defendants buy little peace through settlement unless they are assured that they will be protected against codefendants' efforts to shift their losses through cross-claims for indemnity, contribution, and other causes related to the underlying litigation. Id. Moreover, precedent indicates that indemnification of participants in the context of securities violations is inconsistent with the policies underlying the securities laws. See, e.g., Eichenholtz, 52 F.3d at 483; Baker, Watts & Co. v. Miles & Stockbridge, 876 F.2d 1101, 1105 (4th Cir.1989); Stowell v. Ted S. Finkel Inv. Servs., Inc., 641 F.2d 323, 325 (5th Cir. Unit B 1981); Globus, 418 F.2d at 1288; see also 17 C.F.R. § 229.512(h)(3) (stating that the SEC's position is that indemnification to officers and directors for liabilities arising under the Securities Act is against public policy and such indemnification is unenforceable, with the exception for expenses incurred in successful defense of any action). The cases have noted that such before-the-fact indemnification of participants would undermine a primary goal of securities legislation  i.e., to encourage diligence and discourage negligence in securities transactions. Thus, the Third Circuit in Eichenholtz noted that: Generally, federal courts disallow claims for indemnification because such claims run counter to the policies underlying the federal securities acts. 52 F.3d at 484. In sum, we conclude that the language in the Bar Order barring Scrushy's potential claim against HealthSouth for indemnification of any amounts he might pay in settlement of actual or threatened liability to the underlying plaintiffs is neither inconsistent with the mandatory contribution bar in the PSLRA, nor with public policy. We also reject Scrushy's argument that his claim is truly independent and that he received inadequate compensation. Accordingly, the district court did not err in rejecting Scrushy's challenge in this regard.