It wasn't that long ago that a lawsuit titled, Richard M. Scrushy v. HealthSouth Corp., would have been as unthinkable as one titled, Thomas F. Frist Jr. v. HCA. But last week, the fallout from the alleged massive accounting fraud at HealthSouth continued as Scrushy filed a second lawsuit against the company he founded 19 years ago in Birmingham, Ala.
Last week, Scrushy accused HealthSouth and its board of directors of violating his rights as a director of the company in a lawsuit filed in chancery court in Delaware, where HealthSouth is incorporated. HealthSouth voided Scrushy's employment contract as chief executive officer and took away his title of chairman in March but acknowledged at the time that it could not remove him as a director. Last month, Scrushy sued the company in Delaware Superior Court to force HealthSouth to pay his legal bills relating to his former posts as chairman and CEO, according to the June 9 issue of Delaware Corporate Litigation Reporter.
Meanwhile, a lawyer for Scrushy wrote the House Energy and Commerce Committee last week with an offer-Scrushy will testify before the subcommittee investigating the alleged accounting fraud at HealthSouth provided the committee grants Scrushy "appropriate substantive and procedural safeguards," the letter said. These safeguards, news accounts said, include what is known as "use immunity," which would prohibit Scrushy's congressional testimony from being admitted as evidence against him at a criminal trial. Scrushy has not been criminally charged in connection with the alleged accounting fraud. The letter also said Scrushy would respond by June 25 to the committee's request for HealthSouth-related documents that the committee believes Scrushy may have removed from the company's headquarters. A spokesman for the committee rejected the offer, news reports said.
In the chancery suit filed last week, Scrushy accuses the company of illegally withholding company information-including financial and operating reports-that Scrushy is entitled to as a director, according to a news release from one of his lawyers. The suit also alleges that Scrushy was illegally excluded from the board's last meeting on April 4 because he was not given notice of the meeting, the release said.
In a second release, Scrushy's legal team said a trial was scheduled for Aug. 19 and 20 in the chancery court in Wilmington, Del.
"In light of the ongoing government investigation into Mr. Scrushy and the alleged (accounting) fraud at HealthSouth, it would be irresponsible for the board to have allowed Mr. Scrushy to participate in deliberations regarding matters in which he is potentially conflicted," HealthSouth spokesman Andy Brimmer said in a written statement.
Brimmer said Scrushy may be removed from the board of directors only by a shareholder vote, which would likely come at the company's yet-to-be-scheduled annual meeting. The annual meeting and the company's annual report to the Securities and Exchange Commission have been held up while HealthSouth's new auditor, PricewaterhouseCoopers, completes an intensive audit to learn the true state of the company's accounts, Brimmer said.
The SEC in March accused HealthSouth and Scrushy in a civil complaint of inflating profits by $1.4 billion since 1999. Subsequently, the SEC alleged that the profit inflation was as large as $2.5 billion since 1997. Eleven former HealthSouth executives, including all five of the company's chief financial officers, have agreed to plead guilty to criminal charges in the case. The SEC initially froze Scrushy's assets, but a judge in U.S. District Court in Birmingham overturned that move in April, saying the agency hadn't provided enough proof that it could make its case.