Judge dismisses LeClairRyan malpractice suit

Published August 12, 2019 by Richard Foster

Updated Aug. 13

A Richmond Circuit Court judge has dismissed a $603 million malpractice lawsuit against embattled Richmond law firm LeClairRyan, which recently announced that it is going out of business.

On Thursday, Richmond Chief Circuit Court Judge Clarence Jenkins dismissed the 2017 lawsuit filed by former Health Diagnostic Laboratory (HDL) Inc. CEO Tonya Mallory, who had alleged that LeClairRyan provided poor legal advice that led to the bankruptcy and closure of her once-booming blood-testing business and an $111 million federal judgment against her and two other executives.

Mallory’s lawsuit alleged that LeClairRyan had “repeatedly advised” her that HDL’s practice of paying processing and handling fees to physicians who ordered its blood tests didn’t violate federal anti-kickbacks laws. LeClairRyan settled a similar malpractice complaint brought by HDL’s bankruptcy trustee for $20.3 million. Mallory herself paid a $10 million settlement to the liquidating trustee.

In his opinion, Jenkins wrote that a federal district court “has already determined that plaintiff [Mallory] knowingly engaged in the conduct complained of. Consequently, plaintiff is at least partially responsible for the injuries she sustained. Therefore, plaintiff’s claim for recovery is barred.”

In a statement issued to a legal trade magazine The American Lawyer, Lori Thompson, the firm’s general counsel, said the firm was “very pleased” with Jenkins’ decision and with the representation of its outside counsel, Richmond-based Christian & Barton LLP.

Mallory says she intends to appeal the decision, saying she believes the judge based his decision on an incorrect interpretation of a 2018 federal trial in South Carolina in which a jury found her and two other defendants liable for more than $111 million in damages and penalties under the federal False Claims Act for Medicare fraud.

“The judge has it wrong,” Mallory says firmly. She adds that the amount she was seeking from LeClairRyan had been adjusted to $150 million, not $603 million, as listed in the lawsuit's initial filing.

At its peak, HDL was bringing in $420 million in annual revenue and employed 750 people at its downtown Richmond headquarters. The company filed for bankruptcy in 2015 after paying a $47 million settlement to the federal government, which had alleged that she and HDL had conspired to violate federal law by using the reimbursement scheme to entice doctors to order expensive and medically unnecessary tests for federally insured Medicare and Tricare patients.

LeClairRyan still faces other lawsuits, however, including a pending gender discrimination lawsuit by a former employee who alleges the firm had a widespread practice of gender-based pay disparities.

According to The American Lawyer, the Richmond firm is also close to resolving a malpractice suit brought against it in Chicago federal court by RF Technologies, a manufacturer of fast-food industry components. RF Technologies alleges that LeClairRyan was negligent in the representation it provided the company in a patent infringement case.

LeClairRyan announced earlier this month that it was taking steps to dissolve its practice. Once the state’s fifth-largest law firm, it employed more than 350 attorneys in 21 offices nationwide at its height. During the last few years, the firm’s gross revenues have steadily declined, sinking from $163 million in 2015 to $122.5 million last year.