The co-founder and former CEO of defunct Richmond blood testing firm Health Diagnostic Laboratory has agreed to pay an eight-figure sum into the company’s bankruptcy estate, nearly three years to the day after it fell into Chapter 11.
Tonya Mallory, along with her husband Scott, will pay $10 million to settle their role in a lawsuit filed against them in September 2016 by the company’s bankruptcy trustee, according to an agreement approved last month.
The suit sought a total of $600 million in damages from more than 100 defendants, including the company’s co-founders, directors and shareholders, arguing they were to blame for its downfall.
Many of the other defendants have settled out of that case, most notably Tonya Mallory’s co-founders Joseph McConnell and Satyanarain Rangarajan, and Dennis Ryan, a former HDL executive vice president and co-founder and namesake of law firm LeClairRyan.
McConnell, Rangarajan and Ryan agreed to pay $15 million, $8.8 million and $5 million, respectively. Those totals include some money out of their individual pockets and some from insurance coverage that was in place when they worked at HDL.
LeClairRyan, which represented HDL from its infancy, previously agreed to pay $20 million to the estate to settle malpractice claims that the trustee sought.
Mallory’s settlement agreement calls for the $10 million to come from a variety of sources, court records show.
She’ll pay $100,000 in cash in payments of at least $5,000 per month for 20 months. She must also turn over to the estate $353,000 worth of promissory notes payable to her by CREO Wellness – a newer healthcare tech company she started post-HDL in 2015 with former Bon Secours executive Peter Bernard.
Another provision calls for a $500,000 note secured by and payable by ITS Manufacturing – a company started in Crewe, Va. by Mallory’s brother – to be assigned to the bankruptcy estate. ITS agreed to secure the note with its own assets, and the deal includes the provision that ITS will be free and clear if it pays $250,000 to the estate within three years.
Mallory also agreed to turn over to the trustee any potential proceeds from the $150 million malpractice lawsuit she filed this year against LeClairRyan, a case that is still pending in Richmond Circuit Court.
And Mallory, with the help of the trustee, will continue her fight against two insurance companies that have not paid out on D&O policies held in her name during her time at HDL.
The settlement agreement states that the trustee will pay for Mallory’s legal expenses in pursuit of potentially millions of dollars from National Union Fire Insurance Co. and Federal Insurance Co. Mallory agrees to turn over the first $7 million in potential insurance payouts to the estate, and the next $100,000 going back to her.
Those provisions were reached after rounds of private and court-ordered mediation, court records state.
Messages left last week for Mallory’s attorney were not returned by press time.
While the settlement will help get the HDL trustee off her back, it does not relinquish Mallory from having to potentially pay her share of $111 million in damages to the federal government.
Those penalties were assessed against Mallory, Brad Johnson and Cal Dent, the heads of HDL’s former third-party sales contractor BlueWave Healthcare Consultants, after a jury trial in federal court in South Carolina.
The suit centered on whether Mallory, Dent and Johnson knowingly caused the blood-testing company to pay doctors to induce them to use its tests, whether those payments amounted to kickbacks that violated the federal False Claims Act, and whether they knew it was fraudulent.
The jury found the three defendants liable for defrauding Medicare and Tricare. The $111 million includes damages plus civil penalties.
The jury verdict is likely to be appealed.
HDL fell into bankruptcy in June 2015, after the DOJ claimed the company was paying kickbacks to doctors. The once fast-rising downtown company couldn’t survive the aftermath and filed Chapter 11, sold off the bulk of its assets to a Texas competitor and left lawyers to go after the rest for creditors.
Meanwhile, in Alabama, Johnson last month filed personal bankruptcy to buy some time as he looks to appeal the South Carolina verdict. He lists the $111 million owed to the government as his largest liability.
A call to Johnson’s bankruptcy attorney was not returned.