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Tonya Mallory, the former CEO of Health Diagnostic Laboratory, sued LeClairRyan. In the lawsuit, Mallory alleges that LeClairRyan committed malpractice by giving her bad legal advice that she believes ultimately caused the demise of her company, Health Diagnostic Laboratory.

Plaintiff Alleges: 5+ Years of Bad Legal Advice

The lawsuit, filed in Richmond Circuit Court, alleges that Mallory received five years of bad legal advice that left her facing serious liabilities when her company failed. Mallory alleges in her lawsuit that co-founder of LeClairRyan, Dennis Ryan, helped her establish Health Diagnostic Laboratory as a company and that he later acted as her defense attorney when her previous employer, Berkeley Heartlab, sued her because she allegedly tried to take away some of Berkeley’s customers. Ryan left LeClairRyan in 2012 and became Health Diagnostic Laboratory’s executive vice president.

Tonya Mallory further alleges in her lawsuit that LeClairRyan advised her that her company could pay money in the form of “process and handling fees” to medical offices to reimburse their costs of collecting blood samples and sending them to Health Diagnostic Laboratory for testing.

However, doing so caused Health Diagnostic Laboratory to be the center of a federal anti-kickback investigation since the company paid doctors money to have them send blood samples for testing. Health Diagnostic Laboratory settled with the federal government and paid $47 million without admitting wrongdoing.

Health Diagnostic Laboratory Filed Chapter 11 Bankruptcy

Although Health Diagnostic Laboratory was considered one of the fastest growing companies in Richmond, Virginia, the company filed for Chapter 11 bankruptcy after the $47 million settlement with the federal government. They laid off hundreds of employees and sold most of its assets.

LeClairRyan paid a $20.375 million settlement to the bankruptcy estate in September 2016. Yet, in March 2017, Dennis Ryan and two former executives of Health Diagnostic Laboratory, agreed to another $28.8 million settlement into the bankruptcy estate and did not have to admit to any wrongdoing.

Mallory Alleges Ryan Said the Payments Would Fall Under “Safe Harbor” Exemptions

According to Mallory, Ryan’s legal opinion related to the payments to the doctors that ended up violating federal law and being designated as kickbacks was the payments would fall under safe harbor exemptions. It’s interesting to note that while the company paid the federal government $47 million, the total paid by LeClairRyan, Dennis Ryan, and other executives total more than $48 million.