Securities Litigation Alert: Eleventh Circuit Affirms Bar Order, in Connection with Partial Settlement of Class Action, Extinguishing Non-Settling Former CEO Defendant's Contractual Rights to Advancement of Defense Costs and Indemnification

The Eleventh Circuit, in In re HealthSouth Corp. Securities Litigation, recently affirmed the approval of a partial settlement of a securities class action, holding that the Private Securities Litigation Reform Act (the "PSLRA") did not preclude the entry of a bar order that extinguished non-settling defendant, HealthSouth’s former CEO and chairman, Richard Scrushy’s contractual right to advancement of legal fees, and indemnification rights, against settling co-defendant HealthSouth Corporation. Although the PSLRA requires the entry of mutual bar orders extinguishing contribution claims between settling and non-settling defendants, courts had not previously generally extended the PSLRA to bar contractual claims for indemnification and advancement of defense costs. The Court determined that such contractual claims could be properly barred by a partial settlement, except if the non-settling defendant actually prevailed at trial.