BIRMINGHAM, Ala. (AFX) - Fired HealthSouth Corp. CEO Richard Scrushy must repay $47.8 million in bonuses he wrongly received during a massive financial fraud at the rehabilitation and medical services chain, the Alabama Supreme Court ruled Friday.
The court unanimously upheld a lower court order that sided with a shareholder who sued Scrushy claiming the HealthSouth chief received the bonuses improperly as the scandal secretly engulfed the company for seven years beginning in 1996.
Ruling for the first time on the legal claims in the case, the justices rejected Scrushy's arguments that he was due to keep the money even though HealthSouth lost millions during the period when it was reporting profit.
The court previously ruled against Scrushy on a procedural point in the case.
Scrushy was acquitted of all charges in the $2.7 billion fraud at HealthSouth, but he faces a possible federal prison sentence after being convicted in a separate state bribery scheme involving his tenure at HealthSouth.
'This is a victory for the shareholders of HealthSouth,' said John Somerville, an attorney for stockholder Wade Tucker, who filed the suit in Birmingham. 'It provides a sense of justice, and the money will go back to HealthSouth.'
An attorney for Scrushy did not immediately return telephone messages seeking comment Friday, but the former executive could ask for a rehearing in state court or appeal the decision to the U.S. Supreme Court.
A HealthSouth spokesman declined immediate comment.
Tucker, of Birmingham, sued Scrushy and others in 2002 amid allegations Scrushy was improperly enriching himself and his family from his position with HealthSouth. The earnings fraud was revealed in 2003, when the government sued HealthSouth, Scrushy and other executives alleging a huge swindle.
Scrushy received $46.8 million in bonuses from 1996 through 2002 even though the company lost as much as $466 million annually during the period, according to the court's decision.
Scrushy claimed his employment contract mandated the payments, but the court said he wasn't due anything since the company, which he founded, wasn't making money.
'Without annual net income, Scrushy could not have had the opportunity to earn the target bonuses,' said the decision by Justice Champ Lyons Jr.
While the court said Scrushy must repay the bonuses, remaining claims raised in Tucker's lawsuit can now move forward in state court. Somervile said the lawsuit was amended to include claims about the HealthSouth fraud once it was uncovered.
Fifteen former HealthSouth executives pleaded guilty in the fraud, and a 16th was convicted by jurors.
HealthSouth is reorganizing under new management. The company plans to focus more on inpatient acute care and get rid of its outpatient rehabilitation clinics, surgery centers and diagnostic division.
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