A federal judge has ruled that Baker & Hostetler, one of the largest U.S. law firms, must face part of a civil racketeering lawsuit over its alleged role in facilitating an insurance fraud scheme orchestrated by its former client, Alliance Health. The decision, issued by U.S. Bankruptcy Judge Marvin Isgur in Houston on Wednesday, rejected the firm’s attempt to have the case dismissed.
The lawsuit, filed by the liquidation trustee for Alliance Health, accuses Baker & Hostetler of knowingly helping the now-bankrupt company carry out a sophisticated insurance fraud operation that caused over $100 million in damages. The trustee claims that the firm’s actions allowed Alliance to operate a scheme involving the purchase of diabetes test strips and illegal reimbursement claims.
In 2022, the trustee for Alliance Health, which filed for bankruptcy protection in 2017 following a federal raid on its Salt Lake City headquarters, filed suit against Baker & Hostetler. The lawsuit asserts that the Cleveland-based law firm not only knew about the fraudulent practices but actively assisted in covering them up. The fraud centered around Alliance’s submission of inflated claims for diabetes test strips, leading to oversized reimbursements from insurers.
Judge Isgur’s ruling allows the lawsuit to proceed with claims of racketeering against the firm, although he dismissed other allegations, including fraud and legal malpractice. The ruling marks a significant step forward in the ongoing legal battle, as the trustee seeks to hold the law firm accountable for its alleged role in facilitating illegal activity.
Baker & Hostetler, which employs over 1,000 attorneys nationwide, has vigorously denied the allegations. The firm argued that the claims were time-barred and contended that it could not be held liable under federal racketeering laws. The firm also claimed that it should not be considered a “person” under racketeering statutes.
However, Judge Isgur disagreed with these defenses, stating that Baker & Hostetler was not simply a “passive instrument” in its client’s actions. The judge noted that the firm continued to represent Alliance, benefiting from legal fees while allegedly turning a blind eye to the company’s illegal conduct. He further emphasized that the actions of an unnamed partner at the firm could be attributed to the firm itself.
The case, Yvette Austin Smith v. Baker & Hostetler LLP, filed in the U.S. Bankruptcy Court for the Southern District of Texas, is a critical moment in a broader legal landscape where corporate responsibility and accountability are under intense scrutiny. Alliance Health, which was raided by federal agents in 2017, has been at the center of a series of legal actions stemming from its business practices.
The lawsuit against Baker & Hostetler adds another layer of complexity to the case, as the liquidating trustee seeks to recover damages on behalf of creditors and victims of the alleged fraud.
Neither Baker & Hostetler nor the attorneys representing the firm, Vinson & Elkins, have provided a comment in response to the ruling. Similarly, the trustee’s legal team has yet to comment publicly.
As the case moves forward, attention will remain focused on the role that large law firms play in facilitating corporate misconduct and whether they should be held liable under civil racketeering laws. This case could have broader implications for law firms and their involvement in complex fraud schemes.
The next steps in this case will be closely monitored, as it may set new precedents for how law firms are held accountable for their clients’ illegal activities.
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