Behind DaVita $450 million false claims deal, a defense gone awry

May 5, 2015

The well-known libel and defamation lawyer Lin Wood left Bryan Cave four years ago because he wanted to represent two whistleblowers – a doctor and nurse – who claimed that the kidney dialysis company DaVita had rigged its drug delivery protocols to overcharge Medicare, Medicaid and other government health programs for unused medications. The False Claims Act whistleblowers had filed their case back in 2007 and already had lawyers, including Marlan Wilbanks of Wilbanks & Bridges. But in March 2011, the Justice Department made the decision not to intervene in the case, leaving the whistleblowers to litigate against DaVita without help from the government. Wood entered his appearance in July 2011.

“I was jumping off a cliff without a parachute,” Wood said in an interview Tuesday.

To say he landed safely would be a considerable understatement. On Monday, DaVita confirmed it will pay $450 million to settle the case. The settlement, according to Wood (and to Wilbanks in a comment to my Reuters colleague Jon Stempel), is the biggest-ever false claims recovery in a case in which the Justice Department did not intervene. Under the statute, the whistleblowers are entitled to between 25 and 30 percent of the recovery.

So how did a case that failed to entice the government turn into a half-billion-dollar bonanza? Neither Wood nor DaVita lawyer Benjamin Fox of Bondurant Mixson & Elmore would comment on why the case settled when it did. DaVita lead counsel Paul Murphy of King & Spalding didn’t return my call. But there’s not much mystery if you look at the public docket in the case: Wood, Wilbanks and their team persuaded the judge overseeing the case, U.S. District Judge Charles Pannell of Atlanta, that DaVita had orchestrated what Judge Pannell called “a disturbing pattern of alterations in witness testimony.”

At the time the case settled, the judge was contemplating a motion by the whistleblowers to lift attorney-client privilege under the crime-fraud exception. Even DaVita, in a post-hearing brief filed on March 31, conceded that “regrettable mistakes have been made in this case.”

Those mistakes began to emerge in November 2013, when Wood and the other whistleblower lawyers filed a motion for sanctions against DaVita. They claimed, among many other things, that the witness DaVita designated as its expert on a computerized dosage system gave false testimony at his deposition in October 2012 and only admitted his mistakes when plaintiffs’ lawyers confronted him with contradictions a year later. According to the sanctions motion, DaVita’s lawyers also improperly coached witnesses to change their deposition testimony about the dosage system. DaVita responded that its expert witness had corrected his testimony as soon as he realized his mistake, long before plaintiffs threatened sanctions. The company called the plaintiffs’ coaching and conspiracy theories “facially incredible and a complete fiction.”

Nevertheless, after discovery that Judge Pannell called “a series of protracted fights resulting in furious rounds of briefing, hearings, and accusations” and a three-day hearing before the judge in July 2014, Pannell concluded the evidence of forgetfulness and changed testimony from several witnesses was “highly suspect.” At best, he said, DaVita tacitly led the whistleblower lawyers astray by letting erroneous testimony from its computer expert stand for a year.

At worst, Pannell wrote, “the defendants purposely manipulated the evidence and witnesses to hide the truth from the (plaintiffs) and the court.” He ordered discovery to be reopened and instructed DaVita to pay plaintiffs’ lawyers their fees and costs for the sanctions litigation and the newly ordered discovery.

DaVita’s troubles still weren’t over, however. According to a November 2014 motion by the whistleblowers’ lawyers, a former DaVita clinical services specialist admitted in a post-sanctions deposition that she lied under oath at one of her previous depositions. She said she couldn’t say why without revealing privileged communications, which prompted plaintiffs’ lawyers to ask Judge Pannell to lift the privilege. “DaVita’s scheme of managing witnesses to provide false testimony,” they wrote, “will now collapse like a house of cards.”

The judge was sufficiently concerned to order an in camera review of communications between DaVita lawyers and three DaVita witnesses who changed their deposition testimony about the computer dosage system through errata filings or cited privilege in refusing to answer questions about it. He also held four days of hearings on the whistleblowers’ crime-fraud motion, including in camera testimony from those three witnesses and from two DaVita defense lawyers.

The hearings concluded in March. Most of the post-hearing briefs are under seal, but DaVita’s final response, filed on March 31, argued that the company should not be harshly penalized for mistaken but not bad-faith testimony. On the merits, the company said, the plaintiffs still couldn’t make their overbilling case.

“I can categorically deny there was any improper coaching of witnesses or misconduct of any nature,” said DaVita lawyer Fox, who testified at the crime-fraud hearing, in a phone call on Tuesday.

Two weeks after DaVita’s last filing on the plaintiffs’ crime-fraud motion, the two sides and the Justice Department (which must approve FCA settlements) informed Judge Pannell that they were finalizing a settlement agreement.

(Reporting by Alison Frankel)

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