Judge Orders Scrushy to Repay HealthSouth

HealthSouth Corp.’s ousted chief executive, Richard Scrushy, must repay more than $47 million in bonuses he received while running the medical rehabilitation chain amid a huge fraud, despite being acquitted in the scheme, a judge ruled.

Combined with as much as $265 million in refunds the company is seeking from the federal government for taxes it paid on overstated income during the fraud, the court-ordered repayment could help shore up the finances of HealthSouth.

Scrushy plans to appeal.

“We believe the ruling is in error in that no state or federal court ... has ever made a finding on the basis cited in this case,” Scrushy’s attorney Kile Turner said in a statement.

HealthSouth spokesman Andy Brimmer declined to comment Wednesday.

The ruling by Jefferson County Circuit Judge Allwin E. Horn III came Tuesday in a shareholder lawsuit filed in 2002, when authorities were investigating allegations of insider trading by Scrushy, HealthSouth’s main founder.

Although Scrushy was never charged with insider trading, the investigation exposed fraud at the company.

Federal jurors acquitted Scrushy on all criminal charges last year, but Horn said the ousted chief executive still must repay the company $47.8 million in bonuses and interest he earned while running HealthSouth from 1997 to 2002.

Although the company reported profit during the period, Horn wrote, HealthSouth really lost money, making Scrushy and other executives ineligible for any bonuses.

Whether Scrushy knew of the fraud didn’t matter, the judge said.

“Scrushy was unjustly enriched by these payments to the detriment of HealthSouth and to allow Scrushy to retain the benefit of these payments would be unconscionable,” Horn ruled.

Horn said he wouldn’t make Scrushy repay $10.4 million in bonuses for 1996, because evidence showed that the company made money that year. Evidence in Scrushy’s federal trial indicated that the fraud began in mid-1996.

Scrushy sued HealthSouth last month seeking more than $70 million in compensation related to his firing in 2003, when the Securities and Exchange Commission filed suit against Scrushy and the company, revealing the fraud.

HealthSouth has filed a countersuit asking a judge to make Scrushy repay the company unspecified damages.

Scrushy is due to enter arbitration this month in a court-ordered attempt to settle the SEC suit. He has pleaded not guilty to criminal charges in a separate public bribery case in Montgomery.