Wednesday, September 27, 2006

Seven Months of Scrivening

HealthSouth Corporation (OTC: HLSH) announced today that it had entered into definitive settlement agreements with the lead plaintiffs in the federal securities class action and the state and federal derivative actions.

The agreements memorialize the preliminary settlement previously announced by the company on February 23, 2006.

The federal securities litigation is pending before Judge Karon O. Bowdre in the United States District Court for the Northern District of Alabama. The federal derivative litigation is pending in the Northern District of Alabama while the state action is pending in the Jefferson County (Alabama) Circuit Court.

Oracle Partners, LP is the lead stockholder plaintiff and Lerach Coughlin Stoia Geller Rudman & Robbins LLP and Labaton Sucharow & Rudoff LLP are co-lead counsel for the stockholder class. Whatley Drake & Kallas LLC is liaison counsel for the stockholder plaintiffs.

The Retirement Systems of Alabama are the lead bondholder plaintiffs and Bernstein Litowitz Berger & Grossman LLP and Cunningham, Bounds, Crowder, Brown & Breedlove, LLC are co-lead counsel for the bondholders. Donaldson & Guin, L.L.C. is liaison counsel for the bondholder plaintiffs.

Bernstein Litowitz maintains a case page with copies of the amended complaints here.

Given that the bondholder plaintiffs filed a 274 page Joint Second Amended Consolidated Class Action Complaint (containing joint factual allegations for bond and stockholder claims) and a 145 page Consolidated Amended Class Action Complaint (containing legal theories and claims for the bondholder claims) together with twelve appendices, all of which was later supplemented by a 62 page Corrected Amendment to Joint Second Amended Consolidated Class Action Complaint, it isn't hard to imagine why it may have taken seven months to finalize the language of the settlement documents.

The settlements call for HealthSouth to issue $215 million in common stock and warrants and HealthSouth's insurance carriers to make a cash contribution of $230 million.

Additionally, the class in the federal securities litigation will receive 25% of any net recoveries from future judgments obtained by or on behalf of HealthSouth with respect to certain claims against Richard Scrushy, the company's former chief executive officer, Ernst & Young, LLP, the company's former auditors, and UBS, the company's former primary investment bank. Scrushy, Ernst and UBS remain defendants in the derivative and federal securities class actions.

Daily Trivia: Judge Bowdre served as a law clerk for J. Foy Guin, Jr. Judge Guin is now a Senior Judge on the United States District Court for the Northern District of Alabama and the father of David Guin, a name partner at Donaldson & Guin, liaison counsel for the bondholder plaintiffs in the HealthSouth litigation.

For a more personal view of Judge Guin, see this 80th birthday tribute put together by David's sister, Jan Smith.

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