HunterHeart, BioReference Clash Over Details of 2013 Transaction

Chris Riedel, the often litigious laboratory entrepreneur, has taken on the lab that purchased a large part of his business interests in 2013, and that lab is fighting back. Although Riedel sold Hunter Laboratories to BioReference Laboratories 18 months ago, he retained control of HunterHeart, a former affiliate that focuses on cardiac testing. That lab has filed suit against BioReference, claiming that it breached its purchase contract of Hunter Laboratories and interfered with HunterHeart’s business. According to the suit which was filed in Santa Clara County (CA) Superior Court last August, BioReference had agreed to provide HunterHeart with testing services and reports for six months after the deal to buy Hunter Labs closed in early August 2013. BioReference also agreed to pay HunterHeart 40 percent of what it had collected. But HunterHeart claimed that BioReference failed to do so and withheld approximately $1.1 million in revenue. It also accused BioReference of holding back another $4 million it still owed as part of the original purchase. The suit also claimed that when testing was performed on behalf of HunterHeart, BioReference often omitted HunterHeart’s logo from the test results and sometimes withheld some test results from patients, damaging its reputation and business. The publicly-traded BioReference acquired Hunter Laboratories, in part, to expand its book of business on the West Coast and continue its rapid expansion. For its fourth fiscal quarter of 2014, BioReference reported net income of $18.3 million on revenue of $227.6 million. That compares to net income of $11.1 million on revenue of $192.2 million, for fiscal fourth quarter of 2013, increases of 52 percent and 18 percent, respectively. For fiscal 2014, net income was $46.8 million on revenue of $832.3 million. That compares to net income of $45.8 million on revenue of $715.4 million for fiscal 2013. The company has not mentioned the lawsuit in any of its filings with the Securities and Exchange Commission, suggesting it does not consider it to be a substantive issue. BioReference countersued HunterHeart in late October. It claimed that the company had failed to pay millions of dollars in back income and payroll taxes—including for all of the calendar years 2009 and 2010—and that the $4 million had been held in escrow in order to satisfy such debts. According to its countersuit, HunterHeart never used the money to make the payments, and except for some minimal payments, the tax obligations continue to be unpaid. The countersuit also claims that while HunterHeart had provided correspondence from the Internal Revenue Service that all its taxes were paid, it had still not filed a tax return for fiscal 2013, leaving other debts unsettled. The countersuit also claimed that Riedel breached a three-year non-compete clause by working with the Los Angeles-area West Pacific Medical Laboratory and attempting to induce some BioReference employees to work for West Pacific. It also claims that Riedel’s wife Marcia withdrew cash from HunterHeart accounts for her personal use in the two months prior to the deal closing. Before selling Hunter Laboratories, Riedel had been the proverbial thorn in the side of many larger competitors, not hesitating to sue them if he believed they colluded to deprive other labs of business. Quest Diagnostics paid $241 million in 2011 to settle a whistleblower suit Hunter Labs had filed against it in California, claiming it had overcharged that state’s Medicaid program. LabCorp settled a similar suit that same year for $49.5 million. Riedel continues to pursue similar claims against Quest in other states. A trial date for the HunterHeart lawsuit has not yet been scheduled. Takeaway: Although operating in a smaller venue, litigation continues to be very much part of Chris Riedel’s modus operandi.