Hare Wynn's John Haley Quoted in Wall Street Journal

CTGWSJ Health Edition English
Copyright 2010
Dow Jones & Company, Inc.
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Richard Scrushy is seeking early release from prison, but a huge civil judgment could keep the former high-flying HealthSouth Corp. chairman in the poorhouse.

Lawyers for Mr. Scrushy filed a motion for release Wednesday with the 11th U.S. Circuit Court of Appeals, asking that he be freed while his 2006 bribery conviction is being reviewed. The U.S. Supreme Court ordered the Atlanta court to revisit the conviction last month after it curbed an “honest services” law used to prosecute executives.

“He’s served sufficient time to reduce any risk of flight, and we’re hopeful now’s the time he should be released,” said Art Leach, an attorney for Mr. Scrushy, after filing the motion.

While a ruling on the conviction may take several months, the decision about whether Mr. Scrushy will stay behind bars in the interim could be handed down sooner. The 57-year-old former chief executive has served roughly half his 82-month sentence at a minimum-security jail in Texas after contributing $500,000 to a campaign for a state lottery favored by former Alabama Gov. Don Siegelman, allegedly in exchange for a seat on a state regulatory panel.

The one-time symbol of the megarich CEO faces one other legal hurdle: a $2.88 billion civil judgment on behalf of HealthSouth shareholders after an Alabama judge ruled last year that Mr. Scrushy falsely inflated the rehabilitation chain’s earnings in an accounting scam unearthed in 2003.

Mr. Scrushy, whose worth was estimated to be as high as $300 million prior to his legal woes, is also appealing the civil judgment. Alabama’s highest court is weighing the appeal, but oral arguments have yet to begin and those familiar with that case don’t expect a swift ruling.

In the meantime, civil plaintiffs have seized Mr. Scrushy’s roughly 17,000-square-foot mansion in Birmingham, Ala., and they are offering it to prospective buyers for $4.7 million. A similarly sized retreat on Alabama’s Lake Martin, featuring 10 bedrooms, nine bathrooms and a fireplace big enough to walk through, has a $5 million sale price after being seized from Mr. Scrushy.

Mr. Scrushy also used to own a flashy stable of cars, including a Rolls- Royce, Lamborghini and several Porsches and BMWs. Nineteen of the cars, including a 1929 Cadillac, were auctioned last autumn, netting about $850,000 for plaintiffs.

Leslie Scrushy, Mr. Scrushy’s wife, moved into a smaller house in a Houston suburb last year along with four children. But plaintiffs are targeting that home, too. Ms. Scrushy drives a Toyota Sienna, and the children attend public school.

“I buy a whole lot more at Walmart and Target than before,” Ms. Scrushy, 41, said in a telephone interview, adding that she recently started a new job to secure health insurance.

Lawyers for plaintiffs in the civil case estimate that Mr. Scrushy’s remaining assets most likely total tens of millions of dollars, not hundreds of millions of dollars, let alone $2.88 billion. Still, they hope to have an easier time tracking down the assets if he leaves prison early.

“It might be a little bit more expensive for him to live” outside of jail, said John Haley, an attorney for the civil plaintiffs. “Maybe he’ll start moving some money, and we can find out where it is.”

A Birmingham judge ruled that Mr. Scrushy was in contempt of court last year for failing to provide information about his assets. Mr. Scrushy’s attorneys say their client’s ability to cooperate while he is in the Beaumont, Texas, prison is severely limited because he has limited contact with the outside world, including limits on his phone calls.

Mr. Scrushy’s attorneys also deny that their client is hiding a fortune following his earlier payment of about $70 million in civil claims. They say Mr. Scrushy has spent tens of millions of dollars in lawyer fees, among other expenses, and suffered investment losses over the last several years.

Since last year’s civil judgment, plaintiffs have gained control of hundreds of acres of farmland in Alabama and a vacation home on the Gulf of Mexico that together are valued at a few million dollars. They’re also seeking title to “Chez Soirée,” a 92-foot yacht used by Mr. Scrushy to host big parties. The boat is in dry dock in Florida and is believed to have a value of less than $2 million.

Lawyers for shareholders are also trying to trace $6.5 million that they claim was fraudulently funneled to third parties from Mr. Scrushy’s charitable foundation. A lawyer for one of the recipients, James Scott Moore, said about $1 million was used to build a church in Alabama that recently went into foreclosure.

Another point of contention is roughly $18 million in tax refunds paid to Mr. Scrushy after a court ordered him to surrender $50 million in HealthSouth bonuses. Lawyers for the Scrushy family say that all but about $2 million of that refund has already been spent.

Litigants are also seeking to claim the Houston-area house where Ms. Scrushy lives, alleging it was bought with Mr. Scrushy’s money. The five-bedroom, 3,800-square-foot home, which was bought with cash and is registered under Ms. Scrushy’s name, has an appraised value of $423,540. Lawyers for Ms.. Scrushy say the house was paid for with her money.

Among other assets caught in the tug of war between plaintiffs and the Scrushy family: dozens of pieces of jewelry and artwork-including etchings by Chagall and Renoir-whose value could total a few million dollars, and hundreds of thousands of dollars that Mr. Scrushy placed in trusts for his children.

Ms. Scrushy said she visits her husband in jail most weekends and that he has stayed busy teaching courses, including one on business, to inmates. He also plays guitar in a rock ‘n’ roll band, writes songs and leads prayer sessions in the prison chapel.

She said the couple hasn’t discussed what they would do if Mr. Scrushy is released early other than live together in the Houston house, take their kids to school and attend church. “He doesn’t even have a driver’s license right now,” Ms. Scrushy said.

India Davis, the real-estate agent handling the sale of the waterfront Lake Martin estate, said that more than 300 people showed up for a recent open house but that she doesn’t have a contract in hand.

“We’re in an economy where a lot of people don’t want to spend $5 million,” Ms. Davis said.

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