In this edition of Litigation Roundup, the U.S. Court of Appeals for the Fifth Circuit sides 2-1 with a group of small refineries challenging an EPA decision to deny their requested exemptions from certain obligations under the Clean Air Act, the founder of SAExploration reaches a settlement with the SEC in a $100 million fraud case and private equity firm Welsh, Carson, Anderson & Stowe XI moves to toss an FTC monopoly suit lodged against it.
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Harrison County District Court
Pfizer, Tris Accused of Defrauding Texas Taxpayers
In a lawsuit recently unsealed by Harrison County District Judge Brad Morin, drug maker Tris Pharma, its CEO Ketan Mehta and Pfizer Inc. are accused of making false statements to Texas Medicaid regarding the performance of a medication used to treat children for attention-deficit and hyperactivity disorder in violation of the Texas Health Care Program Fraud Prevention Act.
The lawsuit is being brought by New Jersey resident Tarik Ahmed on behalf of the state of Texas. Ahmed served as the head of technology for Tris from 2013 until June 2017.
The lawsuit alleges that Pfizer and Tris knew the drug Quillivant XR repeatedly failed quality control tests but that Tris altered testing methods between 2012 and 2018 in violation of the law so it would pass regulatory hurdles, continue to be prescribed to children and net the companies Medicaid reimbursements. Many parents reported the drug did not work, according to the lawsuit.
“At no point did defendants warn Texas Medicaid providers or decision-makers that Quillivant had known manufacturing issues affecting its efficacy, thereby depriving the Medicaid program of the crucial information it relies on,” the suit alleges. “As a result, thousands of Texas children received an adulterated Schedule II Controlled Dangerous Substance.”
Ahmed is represented by Jason T. Brown of Jersey City, New Jersey, Michael E. Jones and E. Glenn Thames Jr. of Potter Minton and Jonathan D. Bonilla, Jessica L. Weltge and Jordan Underhill of the attorney general’s office.
Counsel information for the defendants was not available Monday.
The case number is 23-1031.
Southern District of Texas
PE Firm Welsh, U.S. Anesthesia Partners Want FTC’s Monopoly Suit Tossed
Welsh, Carson, Anderson & Stowe XI and U.S. Anesthesia Partners have each filed a motion to dismiss a lawsuit filed by the Federal Trade Commission in September accusing the duo of collaborating in a yearslong effort to consolidate anesthesiology practices in Texas to drive up costs and profits.
U.S. Anesthesia Partners described the FTC’s suit as a “misguided litigation effort [that] reflects an ever-expanding sense of its own authority.” And Welsh Carson said the action is an “unprecedented attempt by the Federal Trade Commission to challenge and unravel long-ago investments in a healthcare company that provides vital services in this state.”
Both defendants filed motions to dismiss with U.S. District Judge Kenneth M. Hoyt on Nov. 20.
The government alleges the scheme had three parts: purchase most of the large anesthesia practices in Texas to create one dominant provider that could charge higher prices; implement price-setting agreements with independent practices to further drive up costs; and ink a deal with a competitor to keep it out of the Texas market.
Welsh Carson told the court that a decade ago it financed a group of doctors to launch U.S. Anesthesia Partners and that the company has grown over the years and expanded access to “quality anesthesia services” across Texas and elsewhere.
“Part of USAP’s approach was to attract and combine with other quality practices — a strategy used by countless other companies in many other industries,” Welsh Carson argued, noting that the prices USAP charges have “basically stayed flat since inception.”
“None of this seems to matter to the FTC,” the private equity firm argued. “This lawsuit focuses on supposed harm to the healthcare insurance industry, dominated by four insurers: Aetna, United, Cigna, and Blue Cross. Nothing in the complaint alleges that USAP’s success has harmed patient care, much less that Welsh Carson investments have done so.”
And USAP argued in its motion that the FTC’s suit failed to allege that it had monopoly power that would allow it to charge a supracompetitive price.
“The complaint never alleges that USAP raised rates above the competitive level in any alleged market; indeed, the FTC takes no steps to analyze competitive market pricing at all,” USAP argues. “Instead, the FTC’s own allegations prove that USAP cannot charge rates higher than those set by competitive market negotiation before USAP even entered the market.”
FTC Chair Lina M. Khan issued a statement when the lawsuit was filed pointing to Welsh Carson as the entity that “spearheaded” the strategy.
“Along with a set of unlawful agreements to set prices and allocate markets, these tactics enabled USAP and Welsh Carson to raise prices for anesthesia services — raking in tens of millions of extra dollars for these executives at the expense of Texas patients and businesses,” Khan said. “The FTC will continue to scrutinize and challenge serial acquisitions, roll-ups, and other stealth consolidation schemes that unlawfully undermine fair competition and harm the American public.”
The FTC is represented by Kara Monahan and Bradley S. Albert, who are both deputy assistant directors of the Federal Trade Commission.
U.S. Anesthesia Partners is represented by Mark C. Hansen, Catherine Redlingshafer, David L. Schwarz, Dennis Howe, Derek Reinbold, Geoffrey Klineberg, Kenneth Fetterman, Kevin B. Huff and Kevin Miller of Kellogg, Hansen, Todd, Figel & Frederick.
Welsh, Carson, Anderson & Stowe XI is represented by Paul Yetter of Yetter Coleman, Kenneth Field of Hogan Lovells, Perry A. Lange of Wilmer Cutler Pickering Hale and Door and David B. Hennes, Jane E. Willis, C. Thomas Brown, Douglas Hallward-Driemeier and Kathryn Caldwell of Ropes & Gray.
The case number is 4:23-cv-03560.
Western District of Texas
Judge Won’t End Sex Trafficking Suit Against Trammell Crow Jr., Others
U.S. District Judge Fred Biery on Nov. 20 denied a motion to dismiss a lawsuit brought by two women who allege they were forced to become sex slaves that names more than 100 defendants as responsible parties, including billionaire philanthropist Trammell Crow Jr.
Other high-profile defendants in the lawsuit that was filed in November 2022 by Julia Hubbard and Kayla Goedinghaus include psychologist Benjamin Todd Eller and Cody Mitchell, a sergeant with the Texas Rangers. Hubbard and Goedinghaus are the former wife and fiancée, respectively, of another defendant in the case, Rick Hubbard.
The women accuse Rick Hubbard of masterminding the sex trafficking ring and allege Eller would prescribe them prescription medication — Xanax, Oxycodone, Lorazepam, Ambien and more — to keep them “heavily medicated and active in the Venture,” which is what the women call the sex trafficking ring that was allegedly financed by Crow.
Eller, a resident of California, moved to dismiss the claims against him on jurisdictional grounds. Judge Biery wrote the plaintiffs have alleged that Eller had numerous phone conversations with Rick Hubbard and themselves while they were in Texas and that he was paid for his role in the trafficking ring in Texas.
“Defendant Eller allegedly made it possible for an excessive amount of addictive drugs to be directly prescribed to plaintiffs in Texas and the alleged trafficking and organized crime violations took place in whole in Texas,” the judge wrote. “Even if defendant Eller’s declaration were permissible for consideration, nothing contradicts Plaintiffs’ allegations that defendant Eller had numerous phone discussions with defendant Hubbard — which plaintiffs overheard on defendant Hubbard’s end — in which defendants Eller and Hubbard discussed the details of the venture.”
Crow, who has denied the allegations against him, moved to toss the lawsuit on different grounds, arguing the complaint failed to put him on notice regarding what alleged conduct supports a cause of action against him.
“Here, the amended complaint provides fair notice of the nature of the claims and grounds on which the claims rest, and is not so unclear that it warrants dismissal,” Judge Biery wrote in allowing the lawsuit to proceed.
Hubbard is represented by Matthew W. Schmidt and John G. Balestriere of Balestriere Fariello and Anastasia Mazzella of Kabateck.
Crow is represented by Gerald E. Hawxhurst, Kyle Foltyn-Smith and Patrick Nichols of Hawxhurst Harris and Kenneth Stone and London England of Gray Reed & McGraw.
The case number is 5:23-cv-00580.
Eastern District of Virginia
Total Wine Taps Gibson Dunn for Defense in FTC Case
Total Wine has hired a group of Gibson, Dunn & Crutcher attorneys out of Washington, D.C., to defend it in a lawsuit brought by the Federal Trade Commission last month accusing it of refusing to comply with a subpoena in an antitrust investigation.
After four months of failed attempts at cooperation, in October the FTC filed a petition asking a federal judge in Virginia to force Total Wine to comply with its antitrust investigation into distributor Southern Glazer’s Wine & Spirits.
The government is investigating whether Southern Glazer’s has engaged in discriminatory practices, like offering preferential prices, in sales to retailers like Total Wine and alleges Total Wine has refused to search its files for documents responsive to the subpoena.
“Total Wine has not asserted any colorable legal ground for its noncompliance,” the government alleges. “Its refusal to fulfill its obligations under the CID has burdened and delayed the Commission’s investigation into possible discriminatory conduct in the wine and spirits industry and is contrary to the public interest.”
Katherine Davis, Michael Dziuban and Stephen Weissman have been retained by the company.
U.S. District Judge Anthony J. Trenga has scheduled a hearing for Dec. 11 where Total Wine will have to convince the judge why he should not grant the government’s request and order it comply with the civil investigative demand.
The FTC is represented by its own Christina Brown and Patricia McDermott.
The case number is 1:23-mc-00028.
Southern District of New York
SEC, Founder of SAExploration Reach Settlement in $100M Fraud Case
The founder and former chief operating officer of SAExploration Holdings has reached a settlement with the U.S. Securities and Exchange Commission that will bring an end to claims that he aided a $100 million accounting fraud operation.
U.S. District Judge Paul G. Gardephe signed the final judgment Nov. 15 for Brian Beatty, who will be required to pay back almost $442,000 in disgorgement under the deal.
The SEC had charged Beatty and three other executives of the seismic data company with facilitating the fraud in October 2020. The government alleged Beatty, former CEO and chairman Jeffrey Hastings, former CFO and general counsel Brent Whiteley and former VP of operations Michael Scott of misappropriating millions from SAE in order to make it appear that an Alaska-based company had paid SAE about $140 million for seismic data. That company was in actuality controlled by Hastings and Whiteley and was not capable of paying $140 million, the government alleged.
As part of the deal, Beatty did not admit to or deny the allegations against him.
SAE separately filed a malpractice lawsuit in Harris County district court in January against its former accounting firm, Pannell Kerr Forster of Texas. The firm has denied wrongdoing. That case has been assigned to Judge Rabeea Collier and is tentatively set for trial in March.
The SEC is represented by its own S. Yael Berger, Dean Conway and Peter Lallas.
Beatty is represented by John Kinchen of Smyser Kaplan and Veselka.
In the Harris County suit, SAExploration is represented by F. Andino Reynal and Joseph Magliolo of The Reynal Law Firm, and Pannell Kerr Forster is represented by Steven M. Augustine, Zandra E. Foley and Daniel L. O’Neil of Thompson, Coe, Cousins & Irons.
The federal case number is 1:20-cv-8423. The Harris County case number is 2023-02871.
U.S. Court of Appeals for the Fifth Circuit
Split Panel Sides with Small Refineries in EPA Exemption Fight
A group of six small refineries were handed a victory Nov. 22 when a split panel of judges sided with the businesses 2-1, holding the U.S. Environmental Protection Agency wrongly denied their requested exemptions from certain obligations under the Clean Air Act’s Renewable Fuel Standard program.
Judges Jerry E. Smith and Jennifer Walker Elrod, in siding with the refineries — Calumet Shreveport Refining, Placid Refining Company, Ergon Refining, Ergon-West Virginia, Wynnewood Refining Company and San Antonio Refinery — held that the EPA’s denial was “impermissibly retroactive,” “contrary to law” and “counter to the record evidence.”
Judge Patrick E. Higginbotham wrote in his dissent that he would have found the only proper venue for this dispute is the D.C. Circuit, and he called out the majority for impermissibly interfering with congressional mandates with its ruling in favor of the refineries.
Judge Higginbotham wrote that under the CAA the court must first decide if the challenged agency action is “nationally applicable” or “locally or regionally applicable.” If nationally applicable, the case belongs in the D.C. Circuit, and if locally or regionally applicable, the case still belongs in the D.C. Circuit if it’s both “based on a determination of nationwide scope or effect” and if the agency “finds and publishes that such action is based on such a determination.”
“The majority opinion errs at both steps of the venue analysis, inappropriately finding that venue is proper in this Circuit,” he wrote.
“By the majority’s reading of § 7607(b)(1), if the EPA denied the petitions of small refineries located in every single U.S. state and territory in one single agency action, this denial action would still not be ‘nationally applicable’ because it does not have any binding ‘legal effect’ on future hardship petitions,” Judge Higginbotham wrote. “That result simply defies common sense.”
The Third, Seventh and Tenth Circuits in cases bringing the same challenge, Judge Higginbotham wrote, have all transferred the disputes to the D.C. Circuit, and the Ninth Circuit dismissed the petitions.
“No Circuit has kept the case for itself — until today,” he wrote.
“Congress designed § 7607(b)(1) to ‘prioritize efficiency,’ and with the majority’s decision today, this Court has impermissibly interfered with Congress’s stated preference for ‘centralized review of national issues’ over ‘piecemeal review . . . in the regional circuits.’ To these eyes, its decision looks away from ‘general congressional direction in an attempt to do justice,’ an unfortunate overreach this day by my colleagues,” he wrote.
The EPA is represented by its own Bryan Harrison.
Wynnewood is represented by Samuel P. Hershey of White & Case.
Calumet, Placid, Ergon and San Antonio are represented by Jonathan Hardin and Michael R. Huston of Perkins Coie.
The case number is 22-60266.