The legal battle between a downtown law firm and the former head of collapsed local blood-testing company Health Diagnostic Laboratory looks to be headed to federal court.
LeClairRyan last week filed its response to the legal malpractice case levied against it eight months ago by HDL co-founder Tonya Mallory.
The former CEO is seeking damages of at least $600 million for what she alleges was “incorrect legal advice” LeClairRyan gave her related to the lab company’s practice of paying fees to doctors who were using its tests – a practice that the government eventually labeled as kickbacks.
The law firm’s Aug. 16 response calls for the case to be tossed out and to be transferred from Richmond Circuit Court – where Mallory originally filed it in December 2017 – to Richmond federal court, where HDL’s years-long bankruptcy liquidation is still playing out.
Mallory’s case claims her reliance on LeClairRyan’s advice that the payments were aboveboard “led to catastrophic results …” including for HDL and for Mallory personally.
The payments, which the company dubbed “processing and handling fees,” eventually became the target of a federal government investigation and lawsuit, which led to HDL’s collapse into bankruptcy in summer 2015 and numerous lawsuits filed against Mallory and others.
Mallory was sued by the HDL bankruptcy trustee, as well as the federal government. She recently agreed to settle the trustee’s suit by paying $10 million, an amount that would include any proceeds she might win if she’s victorious in the suit against LeClairRyan.
Also, Mallory still is disputing a jury verdict in South Carolina federal court that ordered her to pay $111 million in damages to the federal government for violating the False Claims Act and defrauding government health care programs. She recently filed an appeal in that matter.
The relationship between LeClairRyan and Mallory dates to 2008, when she was planning the launch of HDL. The law firm then represented the company during its fast climb to more than 700 employees, with LeClairRyan namesake Dennis Ryan leaving the firm near HDL’s peak in 2012 to go work for the lab in-house.
LeClairRyan argues that the lawsuit with Mallory should be moved to federal bankruptcy court because of its ties to HDL’s liquidation proceedings.
In calling for dismissal of the case, LeClairRyan argues that Mallory “fails to state a claim upon which relief may be granted,” in part because the verdict in the South Carolina case found Mallory personally liable for defrauding Medicare and Tricare.
During that case, LeClairRyan argues, the court, due to lack of evidence, “struck Mallory’s defense that she relied in good faith on legal advice from LeClairRyan as she orchestrated HDL’s practice of paying P&H fees.”
LeClairRyan’s in-house counsel Lori Thompson said the firm has no comment beyond what’s stated in its latest filings.
Mallory’s attorney, Robert Hall of Hall & Sethl in Reston, Virginia, also did not return a message.