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Nexsen Pruet sued over lost whistleblower suit

Tuomey Healthcare System Lawsuit

In October 2015, the Department of Justice (“DOJ”) resolved a $237 million judgment against Tuomey Healthcare System, following a 2013 jury verdict that found Tuomey had illegally billed Medicare for services referred by physicians Tuomey had an improper financial relationship with.  The Fourth Circuit Court of Appeals affirmed the judgment in July 2015.  However, now, several Tuomey board members have sued Nexsen Pruet, the law firm that represented Tuomey in the lawsuit.

Jury Finds Tuomey Violated the Stark Law and the False Claims Act

In May 2013, a jury found that Tuomey had violated the Stark Law and the False Claims Act (“FCA”) by submitting approximately $39 million in false claims to Medicare and compensating physicians for their referrals.  Ultimately a $237 million judgment was entered against Tuomey, which was comprised of damages ($117.9 million) and civil penalties ($119.5 million).  Following an unsuccessful appeal, Tuomey agreed to settle with the federal government. Under the terms of the agreement, Tuomey paid $72.4 million to settle the case and folded into Columbia, South Carolina based Palmetto Health.

Nexsen Pruet’s Alleged Malpractice Cost Tuomey Everything

According to Cynthia Reese, chairwoman of the Tuomey Healthcare System board, “Before this all started, we had more than $100 million in the bank,” but that has all evaporated through litigation, the multi-million dollar settlement with the federal government, fights with bond holders, staving off bankruptcy, and transferring Tuomey’s remaining assets to Palmetto Health.

Michael Drakeford’s Qui Tam Suit

The whistleblower suit itself arose in 2005 when a local Sumter, South Carolina doctor, Michael Drakeford refused to sign one of the Nexus Pruet drafted contracts with Tuomey.  Drakeford, through a nationally recognized expert on hospital law, advised Tuomey that the contract they wanted him to sign violated federal law on hospital-physician contracts.  However, the lawsuit against Nexsen Pruet says that Tuomey was not accurately informed of the expert’s opinions, and any attempts by the Tuomey board to learn more about the expert’s opinions were blocked by Nexsen Pruet.

Frustrated by Nexsen Pruet’s conduct, Drakeford filed a whistleblower suit against Tuomey.  After investigating Tuomey and Nexsen Pruet, the federal government sided with Drakeford, telling Tuomey to unwind the contracts.  However, Tuomey, acting on the advice of Nexsen Pruet, refused to unroll the contracts.  The government responded by suing, demanding Tuomey repay $52.7 million plus interest.  Following the lawsuit, Drakeford was paid more than $15 million as a reward for notifying the government of Tuomey’s wrongdoing.

Tuomey Alleges Reliance on Nexsen Pruet Cause Hospital to Lose 2013 Whistleblower Suit

The complaint filed by Tuomey alleges the hospital’s reliance on Nexsen Pruet, one of South Carolina’s largest law firms, caused the hospital to lose the 2013 federal whistleblower lawsuit against it.  Specifically, the complaint alleges that Tuomey hired Nexsen Pruet to help “address problems Tuomey was experiencing with recruiting and retaining qualified surgeons in Sumter and to ensure that there would be surgical specialists to provide patient care in Tuomey’s newly constructed OSC.”  Tuomey alleges that it paid Nexsen Pruet more than $250,000 for legal services.

Tuomey Says Nexsen Pruet Offered Bad Advice on Physician’s Contracts

Tuomey further alleges that, in connection with the legal services rendered by Nexsen Pruet, the law firm “fail[ed] to render independent, competent, and ethical legal professional services,” regarding “part-time employment contracts” that compensated physicians on a sliding scale basis “based upon the number of out-patient surgical procedures performed at the OSC.”  Nexsen Pruet allegedly failed to tell Tuomey that the contracts at issue “had never before been tested and that based upon the amount of compensation and structure of the compensation arrangements there was a very high risk that if challenged the Contracts would be found to violate Stark and the AKS.”  Tuomey says Nexsen Pruet told them that the worst that could happen if the contracts were challenged would be that the contracts would have to be dismantled or unwound.  However, even when challenged, Nexsen Pruet never advised Tuomey to dismantle of unwind the contracts.

The complaint also alleges that Nexsen Pruet failed to fully inform the hospital that a third-part had a negative view of the contracts at issue, and that Nexsen Pruet failed to withdraw as Tuomey’s legal counsel when “the United States initiated its investigation of both Tuomey and Nexsen Pruet.”  As a result of its failures, Tuomey says Nexsen Pruet violated its duties under Rules 1.4 and 1.7, which deal with communications during the client-lawyer relationship and conflicts of interest, respectively.

Tuomey Seeks Millions in Damages, Costs of Defense, and Other Related Costs

Tuomey requests $72,406,860 in damages, which Tuomey says represents “a compromise of Tuomey’s refund liability to the Medicare Program of $52,766,519 plus interest since 2005.”  Tuomey also seeks $15 million for defense costs, as well as $5 million for “[r]eorganization and transactional costs relating to the sale of assets to Palmetto” and $25 million for “[l]oss of value to business good will of the hospital.”

Nexsen Pruet and Tuomey Offer Widely Different Accounts of Their Relationship

In response to the lawsuit, Nexsen Pruet board chairman Leighton Lord has said:

We have not yet seen the lawsuit filed today, but Nexsen Pruet is proud to have represented Tuomey for more than 20 years. Like other supporters of the hospital, we were very disappointed with results of the almost decade-long dispute with the federal government. We stood by Tuomey through that dispute and we are disappointed in, and disagree with, the recently filed lawsuit. Since that suit is pending, this is all we are able to say at this time.

Conversely, Tuomey has said:

Nexsen Pruet’s legal advice was not only wrong, but statements by Nexsen Pruet attorneys during the course of their representation of Tuomey were misleading and reckless. Many of Nexsen Pruet’s reckless representations were successfully used against Tuomey by the federal government in a lawsuit alleging that the contracts were illegal. Nexsen Pruet’s advice to continue with the contracts was tainted by Nexsen Pruet’s self-interest, because Nexsen Pruet was also under investigation for its role in creating the contracts.

The Importance of Communicating With Your client

The lawsuit filed against Nexsen Pruet underscores the importance of communicating with your clients regarding their case.  Rule 1.4, Model Rules of Professional Conduct, requires that:

(a) A lawyer shall:

(1) promptly inform the client of any decision or circumstance with respect to which the client’s informed consent, as defined in Rule 1.0(e), is required by these Rules;

(2) reasonably consult with the client about the means by which the client’s objectives are to be accomplished;

(3) keep the client reasonably informed about the status of the matter;

(4) promptly comply with reasonable requests for information; and

(5) consult with the client about any relevant limitation on the lawyer’s conduct when the lawyer knows that the client expects assistance not permitted by the Rules of Professional Conduct or other law.

(b) A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.

In the case of Tuomey, Tuomey alleged that Nexsen Pruet failed to “explain matters to the extent reasonably necessary to permit the client to make informed decisions.”

Lessons Learned from Nexsen Pruet

While it remains to be seen what will come of Tuomey’s complaint, this case does make clear that, if a law firm fails to properly communicate and/or explain matters to allow a client to make an informed decision, then the law firm may face a civil suit based upon those failures.  Accordingly, it is important that attorneys inform their clients about the status of their case, as well as explain to their clients that a proposed course of action has been challenged and what that might mean.  Nexsen Pruet may have been able to avoid the troubles with Tuomey if it had just informed Tuomey of the potential illegality of the contracts, and/or advised Tuomey to unwind the contracts after they were challenged by Drakeford and subsequently the federal government.