In this edition of Litigation Roundup, individuals accused of bilking the government out of millions via Covid-19 testing and dental scams are sentenced to prison, Austin-based CrowdStrike gears up to fight litigation related to a global software outage and the Fifth Circuit seeks the Texas Supreme Court’s input in a lawsuit brought by a former Southern Methodist University law professor who was denied tenure.
The Litigation Roundup is a weekly feature highlighting the work Texas lawyers are doing inside and outside the state. Have a development we should include in next week? Please let us know at tlblitigation@texaslawbook.net.
Southern District of Texas
Dentist Gets 10 Years, Owes $5M for Healthcare Fraud
A Houston dentist who formerly operated Floss Family Dental Care in Houston and who employed his son in a Medicaid fraud scheme has been sentenced to 10 years in prison and ordered to pay $4.9 million in restitution.
Chief U.S. District Judge Randy Crane sentenced Rene Fernandez Gaviola, 68, to prison in late June and noted during the sentencing hearing that Gaviola had brought his son into the “crooked” fraud scheme and had failed to make any attempt to pay restitution despite having $2 million in assets in the Philippines.
Gaviola, who entered a guilty plea in January, was indicted in August 2022 on more than a dozen charges, including healthcare fraud and conspiracy to commit healthcare fraud, money laundering and conspiring to pay and receive kickbacks.
Prosecutors allege he operated the scheme out of a dentist’s office in Houston from 2018 through April 2021, submitting false claims for cavity fillings that were either never performed or were performed by unlicensed individuals. There was also a component of the fraud that involved paying kickbacks to marketers and caregivers of pediatric patients who were on Medicaid, the government alleged.
In total, Gaviola billed the government for $6.9 million in claims, and about $4.9 million was paid out.
Gaviola is represented by Josh Norrell of Weatherford, Texas.
The case was prosecuted by Kathryn Olson and Lauren Valenti of the U.S. Attorney’s Office in Houston.
The case number is 4:22-cr-00402.
Western District of Texas
CrowdStrike Draws Class Action Lawsuit Over Software Outage
The Plymouth County Retirement Association has filed a putative class action lawsuit against Austin-based cybersecurity software company CrowdStrike Holdings after an update pushed by the company caused outages for millions of users worldwide.
A search of federal court records in PACER Monday showed the Plymouth County Retirement Association is the only entity to have filed suit against CrowdStrike since the July 19 global outage that impacted several major airlines, financial institutions and government entities such as 911 hotlines.
Plymouth, which holds CrowdStrike stock, filed suit July 30. The case has been assigned to U.S. District Judge Robert Pitman. The group is seeking damages related to the drop in CrowdStrike stock prices after the outage affected about 8.5 million Microsoft Windows users.
Shares fell 11 percent the day of the outage, fell another 13.5 percent when it was reported Congress is seeking testimony from company leaders about the outage, and fell another 10 percent on July 30 after it news broke that Delta Air Lines had retained a prominent attorney to pursue claims against the company.
The New York Times has reported that Delta has retained David Boies of Boies Schiller Flexner to pursue claims against CrowdStrike and that the law firm of Quinn Emanuel Urquhart & Sullivan has been hired by CrowdStrike.
The plaintiffs are represented by Eric J. Belfi, Francis P. McConville and Guillaume Buell of Labaton Keller Sucharow in New York.
Counsel for CrowdStrike had not filed an appearance in the putative class action lawsuit as of Monday.
The case number is 1:24-cv-00857.
Northern District of Texas
Final Defendant Sentenced in $7M Covid Testing Fraud
The fourth of four people who pleaded guilty in Dallas to conning insurance companies out of more than $7 million by submitting claims for Covid-19 tests that were never performed was sentenced Wednesday to 30 months in federal prison.
According to court documents, Don Hogg and his co-conspirators accessed patient information, including names, dates of birth and insurance identification numbers, through various clinics, then used the patient data to submit phony Covid test claims to insurers, including Blue Cross Blue Shield, Cigna, United Healthcare, Aetna, Humana and Molina Health Care.
Three “labs” where the testing supposedly took place, the defendants acknowledged, were shell entities that never actually operated as labs.
Before he was sentenced by U.S. District Judge Brantley Starr, Hogg apologized to his family, including his 2-year-old son, to the court and the community. “Not a day goes by when I don’t want to be a better person,” he told Judge Starr.
His lawyer, Jeffrey T. Hall of Dallas, said, “Don is a good guy who did bad things. … It was wrong. It was foolish. He knows it was wrong.”
Earlier, Terrance Barnard was sentenced to seven years in prison, Connie Jo Clampitt to five years and William Paul Gray to 54 months for their roles in the fraud.
The chief prosecutors in the case were Assistant U.S. Attorneys Renee M. Hunter and Dimitri Rocha.
Barnard was represented by, among others, Paul Taliaferro Lund of Burleson, Pate & Gibson of Dallas. Gray was represented by Nick Oberheiden of Dallas and Lynette S. Byrd of Houston, and Clampitt was represented by Lukas Garcia of Chris Lewis & Associates of Dallas.
The case number is 3:22-cr-00469.
U.S. Court of Appeals for the Fifth Circuit
SMU Law Prof’s Tenure Lawsuit Prompts Certified Question to SCOTX
A Fifth Circuit panel has asked the Texas Supreme Court to decide whether the Texas Commission on Human Rights Act preempts an employee’s common-law defamation or fraud claims against another employee when the basis of that claim mirrors claims being asserted against the employer.
On Aug. 2, Judges Leslie H. Southwick, Kurt D. Engelhardt and Cory T. Wilson sent that certified question to the Texas Supreme Court, in a case where former Southern Methodist University law professor Cheryl Butler has sued the university and several former colleagues whom she alleges played a role in her being denied tenure in 2016.
Butler, who is suing for defamation, fraud and conspiracy to defame had filed notice of appeal in January 2023, the same month U.S. District Judge Ada Brown dismissed the case with prejudice.
Judge Brown tossed the case after agreeing that the claims were preempted by the TCHRA.
“Although the district court’s assessment of the TCHRA’s preemptive reach may ultimately prove correct, we are more circumspect,” the Fifth Circuit panel wrote in a 13-page opinion seeking guidance from the Texas Supreme Court. “Notably, in both cases in which the Supreme Court of Texas addressed the TCHRA’s preemption of common-law tort claims, the only claims at issue were asserted against the plaintiff-employee’s employer, not the plaintiff’s supervisor, manager, or other coworker.”
Butler is represented by Ezra Young of Ithaca, New York.
SMU is represented by Kirsten Castañeda of Alexander Dubose & Jefferson and Kim Askew of DLA Piper.
The case number is 23-10072.
DC Transco’s $20.7M Payout on Hold
A final judgment awarding DC Transco $20.7 million in damages in a dispute with Rainbow Energy Marketing has been put in limbo after the Fifth Circuit recently determined diversity jurisdiction hadn’t been conclusively established in the case.
U.S. District Judge Robert Pitman had entered final judgment in DCT’s favor in September 2023, finding it was entitled to millions in damages from Rainbow in a breach of contract dispute stemming from derivative financial transactions made in February 2021, “shortly before the freezing temperatures of Winter Storm Uri reached Texas.”
Those disputed transactions cost DCT more than $20 million in losses. Judge Pitman determined Rainbow was liable for the breach on summary judgment and held a bench trial to determine the amount of damages owed.
“Both Rainbow and DCT made allegations that DCT is completely diverse from Rainbow — before now, DCT’s citizenship was ‘never materially at issue,’” which weighs in favor of remand,” the panel wrote in its Aug. 2 opinion. “This reason suffices to show that, although jurisdiction on this record is unclear, there is reason to believe it exists.”
The parties had been scheduled to give oral arguments before the court today.
Judges Edith Brown Clement, James E. Graves Jr. and Irma Carrillo Ramirez sat on the panel.
Rainbow is represented by Creighton Magid of Dorsey & Whitney, Laura E. De Santos of Gordon Rees Scully Mansukhani and Bruce A. Featherstone of Featherstone DeSisto.
DC Transco is represented by James E. Zucker and Jason R. LaFond of Yetter Coleman.
The case number is 23-50720.
Panel Stays DOT’s Airline Fee Disclosure Rules
A rule promulgated by the Department of Transportation that required airlines disclose certain fees to customers during the booking process has been stayed by a Fifth Circuit panel that found the DOT likely exceeded its authority when it implemented the rule airlines argue will irreparably harm them.
“As petitioners correctly put it, ‘[t]he rule doesn’t just prohibit — it prescribes.’ And it does so outside the adjudicatory process set out by § 41712(a),” the panel wrote in an 8-page opinion issued June 29. “That is, the Secretary does not purport to ‘find,’ following ‘notice and … a hearing,’ that a carrier’s online sale ‘practice’ is ‘unfair or deceptive’ and then order a carrier to ‘stop’ it. Rather, the rule essentially enacts a code of online disclosure practices. That is not authorized by the statute.”
The final rule, issued in April, requires the disclosure of service fees associated with baggage and flight changes and is intended to reduce “surprise charges,” according to court documents. DOT estimated the new rule would save consumers about $543 million annually.
Airlines for America, Alaska Airlines, American Airlines, Delta Air Lines, Hawaiian Airlines, JetBlue Airways, United Airlines, National Air Carrier Association and the International Air Transport Association lodged an action with the Department of Transportation and the National Transportation Safety Board had asked the federal government to stay the rule while it sought review on May 31.
DOT declined and the airlines appealed to the Fifth Circuit. The airlines now have until Sept. 9 to file a brief with the Fifth Circuit.
“Petitioners have shown they are likely to suffer significant and irreparable harm from the rule,” the Fifth Circuit wrote. “That rule likely goes well beyond the authority Congress has given DOT, and ‘there is generally no public interest in the perpetuation of unlawful agency action.’”
Judges Stuart Kyle Duncan, Don R. Willett and Catharina Haynes sat on the panel.
The airlines are represented by Shay Dvoretzky, Kyser Blakely, Alisha Q. Nanda, Parker Rider-Longmaid and Nicole Welindt of Skadden, Arps, Meagher & Flom and Paul Hughes III and Andrew Lyons-Berg of McDermott Will & Emery.
The government is represented by Nicholas S. Crown and Martin Totaro of the Department of Justice and Paul Feier of the Department of Transportation.
The case number is 24-60231
Pipeline and Hazardous Materials Safety Administration Ruling Struck Down
A panel of judges recently determined that a rule promulgated by the federal government barring MCR Oil Tools from transporting its best-selling product is “the product of illogic,” “arbitrary and capricious thrice over” and “implausible” and vacated that action.
Arlington-based MCR, which makes tools used to cut pipe in the oil and gas industry, was challenging a determination from the Pipeline and Hazardous Materials Safety Administration that prohibited the company from transporting or offering for transport its top product: the radial cutting torch that accounts for 75 percent of sales.
According to the opinion, the radial cutting torch is used to remove “stuck pipes” in downhole conditions and is an improvement on legacy “detonation-based tools, which rupture stuck pipes with explosive charges.”
“The tool functions by converting B15 mix — a proprietary thermite mixture — into highly energetic and focused plasma,” the opinion explains. “Pipe-recovery operators channel that stream of plasma, much like a laser, to slice through below-grade pipe cleanly.”
This dispute began after the PHMSA told MCR in February 2022 that its B15 mix had been deemed an “explosive,” which kicked off about a year of correspondence over the issue. In May 2024, the agency determined the cutting torch is an “unapproved explosive that ‘shall not be offered for transportation or transported.’”
The Fifth Circuit wrote that the government had “failed to provide a reasoned basis” for the conclusion that placing the B15 mix in a disassembled radial cutting torch “increases its reactivity in a fire.”
“Thus, PHMSA’s finding — that putting B15 mix into disassembled RCT components increases the mix’s reactivity in a fire — ‘is so implausible that it could not be ascribed to a difference in view or the product of agency expertise,’” the panel wrote. “As a ‘clear error of judgment,’ and as the product of illogic, the RCT action is arbitrary and capricious.”
Judges Jerry E. Smith, Kurt D. Engelhardt and Irma Carrillo Ramirez sat on the panel that issued the July 30 ruling.
MCR is represented by James Tysse, Susan H. Lent, Margaret Rusconi and Caroline Wolverton of Akin Gump Strauss Hauer & Feld.
DOT is represented by Casen Ross, Melissa Patterson and Abby Wright of the Department of Justice and Howard McMillan of the DOT. Bruce Tomaso contributed to this report.