Contractor takes up $200M suit against HDL

Health Diagnostic Laboratory, headquartered on North 5th Street, is facing a lawsuit from an insurance provider. Photos by Burl Rolett.

Health Diagnostic Laboratory, headquartered on North 5th Street, is facing a new lawsuit from its former sales contractor. Photos by Burl Rolett.

The bickering between a local laboratory company and its former sales contractor has found its way back to the courthouse.

Alabama-based BlueWave Healthcare Consultants last week sued Richmond’s Health Diagnostic Laboratory, claiming it is owed upwards of $200 million. The latest suit, filed May 28 in Richmond federal court, is nearly identical to a case BlueWave voluntarily withdrew about two months ago.

The dispute centers on HDL’s decision in January to terminate its 10-year sales contract with BlueWave five years early. BlueWave claims it is owed $204 million, a sum that includes money for services it says it already completed but HDL never paid, as well as $180 million that BlueWave claims it would have received over the life of the contract.

This lawsuit is the latest development illustrating the tempestuous relationship between the companies. HDL’s shunning of BlueWave in early January came as both were named in federal whistleblower lawsuits over potential violations of kickback laws. The federal investigation that resulted from the cases focused on fees HDL paid to doctors for using its lab test services, which were peddled by BlueWave.

HDL recently reached a $47 million settlement with the federal government to resolve the matter on its end. But BlueWave’s founders and HDL’s former CEO Tonya Mallory were also named as defendants in the whistleblower case, and the Department of Justice has said it expects to pursue further charges against them.

In a prepared statement yesterday, HDL said the lawsuit BlueWave filed against it last week “is tangible evidence of (BlueWave’s) desperation” over the ongoing government scrutiny.

“BlueWave is in denial as to the federal government challenges it faces, and continues to flail about aimlessly,” HDL’s statement reads. “This is a nuisance lawsuit, pure and simple, and HDL will vigorously defend itself against all claims.”

Read the lawsuit (PDF)

Read the lawsuit (PDF)

The severing of the sales agreement in January resulted in two consecutive lawsuits at the time, the first with BlueWave suing HDL and the second when HDL sued BlueWave’s founders, Robert Bradford Johnson and Floyd Calhoun Dent.

In its January suit, HDL claimed that it sought to renegotiate the terms of the sales agreement in December “to ensure compliance with the law, and to promote compliance with applicable laws by its sales force,” but neither Johnson nor Dent agreed to renegotiate, the suit stated.

BlueWave argued in last week’s filing that HDL never attempted to renegotiate the contract after giving notice that parts of the sales agreement may violate federal or state laws. And BlueWave claims that the notice “acknowledged that both sides were to continue to perform their obligations under the contract.”

Both of the lawsuits filed in January were put to rest in early April. BlueWave voluntarily withdrew its original complaint, and two days later, HDL’s suit ended with a consent judgment that involved Dent and Johnson agreeing not to compete with HDL while they own shares in the company; both own stock in HDL.

In filing its new case, BlueWave alleges the same seven counts against HDL as it did in the original, including breach of contract and unjust enrichment. And it demands HDL show how much revenue it collected from sales in BlueWave’s territory during the term of their agreement.

It also claims that, even though the companies were told part of the sales agreement may have violated state or federal law, they should have continued operating under the contract where legally possible instead of terminating it.

In addition to claims that HDL made no attempt to renegotiate the contract, BlueWave’s suit also argues that HDL “further informed BlueWave that part of the reluctance in paying BlueWave is because Johnson and Dent were making more money than Joe McConnell, the President (and CEO) of HDL.”

And drawing on the consent judgment, which found that their shareholders agreement is valid, the suit adds that Dent and Johnson deserve damages relating to that contract, though it does not specify amounts.

BlueWave is represented in the new case by the law firm Galese & Ingram. Attorney John Galese said the shareholder agreement and sales agreement should be considered one contract. Because a federal court found one part to be valid, he said, the entire contract should be considered so, as well.

“They’re considered one contract, and you can’t enforce it and not pay the money that was earned by these different subcontractors that sold the purchase under the same contract,” Galese said. “It seems to me that if they took the opportunity to profit by the services my client’s company provided, they should have paid for them.”

The renewal of BlueWave’s complaint against HDL brings the downtown-based company’s total number of active lawsuits to three. Insurance giants Aetna and Cigna are also suing HDL, and the Richmond firm recently fired back at Cigna with a $66 million countersuit.

HDL recently sold its ownership stake in Innovative Diagnostic Laboratory to Ontario-based GeneNews and Cobalt Healthcare Consultants, a separate company controlled by Dent and Johnson.

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