Opinion ID: 2489851
Heading Depth: 2
Heading Rank: 3

Heading: Compensation Forfeiture

Text: 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 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 Scrushy's employment contracts are rescinded on this ground, and Plaintiffs are entitled to recover on behalf of HealthSouth all sums paid to Scrushy or on Scrushy's behalf thereunder, all of which sums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 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. HEM 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 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 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 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 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., 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. Soutullo v. Mobile County, 58 So.3d 733, 738-39 (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.