Former Blood Lab CEO Found Liable in Federal Fraud Case

Health Diagnostic Laboratory (HDL) was once the fastest growing medical company in Richmond, Virginia thanks to alleged kickbacks paid to doctors who used the company as their blood lab provider.

In 2011, four whistleblowers came forward to expose the kickbacks: Dr. Michael Mayes, represented by the law firm of Phillips & Cohen; Scarlett Lutz and Kayla Webster, represented by the law firm ofPietragallo Gordon Alfano Bosick and Raspanti, and; Chris Riedel, represented by the law firm ofCotchett, Pitre & McCarthy.

In 2015, Health Diagnostic Laboratory agreed to pay $47 million to the federal government to settle the whistleblower-initiated False Claims Act cases, but the company declared bankruptcy leaving the settlement uncollected.

With judgements and claims mounting against HDL, and over $123 million in cash siphoned out of the company and paid to HDL shareholder defendants between April 2011 and May 2015, court-appointed bankruptcy trustees went after the LeClairRyan law firm which had advised HDL on setting up the company, and which had given the laboratory a legal opinion that said the company’s payment practices would fall under the safe harbor exemptions of the anti-kickback statutes.

Adding complexity to that legal opinion is the fact that Dennis Ryan, a founding partner of the law firm, left LeClairRyan in 2012 to take a job as HDL’s executive vice president.

In September of 2016, and without admitting any liability, the LeClairRyan law firm agreed to pay $20.375 million to the bankruptcy estate of HDL, with another $28.8 million to be paid personally by former law firm partner Dennis Ryan and two former executives of HDL, Joseph McConnell and Satyanarian Rangarajan.

Now, after a two-week trial in South Carolina, a jury has found Tonya Mallory, co-founder and former CEO of Health Diagnostic Laboratory, and her business partners, Floyd Calhoun Dent III and Robert Bradford Johnson, liable for $17 million in single damages.

Under the False Claims Act, single damages are trebled, and mandatory statutory penalties, ranging from $10,957 to $21,916 per claim, are levied. Trebling of the jury verdict will result in a $51.2 million verdict, with additional penalties of $41.7 million to $85.5 million to be added.

Despite personal earnings of over $25 million as CEO of Health Diagnostics Laboratory, Ms. Mallory says she does not have the money to pay the judgement, and she is now suing the LeClairRyan law firm, which once advised her, for $150 million.

Meanwhile bankruptcy trustees are going after $600 million from over 100 former HDL insiders. And what about the judgement in the South Carolina False Claims Act case? Judge Richard Mark Gergel has ordered defendants Mallory, Dent, and Johnson into post-trial mediation with the whistleblowers and their lawyers to see if a posttrial settlement can be worked out.

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