Summary: National law firm LeClairRyan is being sued by a former client for providing bad legal advice the caused the company to fail.
The co-founder and former CEO of Health Diagnostic Laboratory Inc. filed a malpractice lawsuit against Leclairryan. Tonya H. Mallory claims the law firm gave her company bad legal advice that caused the company to fail.
Mallory filed the lawsuit in the Richmond Circuit Court on Friday. She is seeking at least $150 million in damages from the national law firm for the blood-testing company’s failure. Her lawsuit focuses on “incorrect legal advice given to her by several LeClairRyan lawyers over a several year period of time from 2008 through 2013.”
Mallory co-founded HDL in 2008. The company started out as a small clinical laboratory that tested blood samples for early signs of diabetes and heart disease. When the company went through growth in its downtown Richmond location by hiring hundreds of employees and building a new office and lab, Mallory led the changes as the CEO. When the company found itself at the center of an investigation by the federal government, Mallory resigned. They were being investigated for paying fees to physicians in exchange for the blood samples.
The lawsuits states that the legal advice LeClairRyan gave her put her on the line for massive liabilities. The federal government’s case against Mallory is headed to trial in South Carolina, seeking damages from her. LeClairRyan responded, calling the lawsuit “nothing more than an attempt by Mallory to avoid taking responsibility for the actions that she took on her own at HDL. We are disappointed that she elected to proceed in this fashion, and we flatly reject any notion that our firm is responsible to Ms. Mallory for her decisions. We stand by the legal counsel that we gave to our client, and we have already resolved all matters relating to HDL with the bankruptcy trustee of HDL.”
LeClairRyan, with their largest office in Richmond, has a total of 27 offices and 320 attorneys. The law firm has worked with Mallory, HDL, and the other co-founder Dennis Ryan since the 2000s when the company was first being formed. The law firm also helped Mallory when HDL was first established and her former employer, Berkeley Heartlab out of California, was suing her to block HDL from collecting business from their customers.
Mallory stipulates in the lawsuit that LeClairRyan told HDL that they could pay “process and handling” fees legally to medical practices as a form of reimbursement for the cost of collecting patient blood samples for HDL to test. The payments led to multiple whistleblower complaints and a federal investigation into if HDL was violating anti-kickback laws by paying doctors to encourage them to get the blood samples.
Ultimately, HDL paid $47 million in a settlement with the government in 2015, although they did not admit any wrongdoing as part of the deal. HDL filed for Chapter 11 bankruptcy protection shortly after. The company, even though it had been one of the fastest growing in Richmond, laid off hundreds of employees and sold its assets.
In September 2016, LeClairRyan agreed to pay $20.375 million to settle HDL’s bankruptcy estate. Ryan and two other former executives settled in March 2017, agreeing to pay $28.8 million to HDL’s bankruptcy estate. Ryan, who had left LeClairRyan in 2012 to be HDL’s executive vice president, is paying $5 million of that total.
Mallory explains in her lawsuit that she now faces “multiple lawsuits seeking damages in excess of $1 billion.” The lawsuits include claims from the HDL bankruptcy estate and a federal lawsuit. She has since co-founded a new company, Creo Wellness LLC, and claims she lacks the financial resources to settle any claims against her.
The lawsuit states that LeClairRyan advised Mallory when HDL was founded and again in 2009 and 2012 that their reimbursement plan “met the requirements of the law” and did not violate anti-kickback laws. Specifically, Mallory states that on April 27, 2012, LeClairRyan provided a legal opinion to HDL that the payment practice was protected by the “safe harbor exceptions” of the anti-kickback statutes and False Claims Act. Apparently, one attorney at LeClairRyan expressed concerns over the payments legality but those concerns were never shared with HDL.
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To learn more about lawsuits against law firms, read these articles:
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- Class-Action Lawsuit Filed against Chicago Law Firm Over Security Weaknesses
- Two Colorado Law Firms Sued by Colorado Attorney General