Several separate lawsuits filed by private parties and the United States Securities and Exchange Commission (“SEC”) claim that HealthSouth Corporation (“HealthSouth”) and others provided investors with false and misleading information that artificially inflated the value of HealthSouth securities, in violation of federal securities laws. Some of these lawsuits have been filed as class actions against HealthSouth and other individuals, asking for money damages on behalf of certain purchasers of HealthSouth securities.

The class action lawsuits were consolidated into two cases in the United States District Court for the Northern District of Alabama, Southern Division.  The name of the consolidated lawsuits are In re HealthSouth Stockholder Litigation, Master File No. CV-03-BE-1501-S and In re HealthSouth Bondholder Litigation, Master File No. CV-03-BE-1502-S.  These consolidated lawsuits are called the “class actions.”  

Another lawsuit against HealthSouth was filed in the same Court by the United States Securities and Exchange Commission (“SEC”).  The name of that lawsuit is Securities and Exchange Commission v HealthSouth Corporation and Richard M. Scrushy, Civil Action No. CV-03-J-0615-S (the “SEC case”). 

You can read additional information at the Case Documents link of this website.

HealthSouth negotiated two separate settlements in order to resolve these claims: one with the SEC (the “SEC Settlement”) and one with the Stockholder and Bondholder Classes (the “class actions settlement”). To settle the SEC claim, HealthSouth paid $100 million to be distributed among certain investors. In addition, to settle the class actions, HealthSouth negotiated a settlement which was valued at the time it was reached at approximately $445 million (in cash and securities). Due to subsequent fluctuations in HealthSouth’s stock price, the settlement’s value may increase or decrease by the time it is distributed. Under the terms of the settlement, HealthSouth paid $230 million in cash and will issue, after adjustment for HealthSouth’s one-for-five reverse stock split, 5,023,732 shares of HealthSouth common stock and 8,151,265 warrants.

The SEC Plan of Allocation was approved by the Court on April 23, 2007. Payments from the SEC Settlement fund are scheduled to be made in late fall of 2008, after SEC and Court approval of the distribution.

On January 11, 2007, the Court approved the class actions settlement. A class member who had objected to certain aspects of the class actions settlement has appealed the rejection of its objection. That appeal is scheduled for a Court hearing on December 11, 2008, and accordingly, the approval of the class actions settlement is not final. On February 11, 2008, the Court approved a proposed Plan of Allocation for distributing the class actions settlement funds and the proposal for award of attorneys’ fees. The same class member which had objected to the class actions settlement also objected to the Plan of Allocation, and has appealed the rejection of its objection. The two appeals have been combined for resolution; while the first appeal is fully briefed, the Court of Appeals has not yet set a briefing schedule for the second appeal. Should the Court of Appeals deny those two appeals and the approval of the class actions settlement and the Plan of Allocation become final, eligible investors who filed valid Claim Forms will receive a share of the settlement benefits according to the Plan of Allocation for the class actions.

Claim Forms were mailed on November 1, 2007. The postmark deadline for filing claims was February 28, 2008.

Francis E. McGovern is the Court-Appointed Distribution Fund Administrator. A court appointed third-party Claims Administrator, Rust Consulting, is processing claims, and will issue payments and other benefits.