March 2024 Labs in Court

Decision Diagnostics CEO Pleads Guilty to COVID-19 Blood Test Securities Fraud

Case: A finger-prick blood test capable of accurately detecting COVID-19 in under a minute. One can only imagine how such a prospect would have excited Wall Street, especially in the early days of the pandemic. Unfortunately, the test kit and breakthrough technology underlying it were nothing more than false claims by a biotech company and its CEO designed to mislead investors. On December 8, the U.S. Department of Justice announced that Keith Berman, the CEO of California-based biotech Decision Diagnostics that made those claims, has pleaded guilty to charges of securities fraud, among others.¹ Berman also made false representations about the biotech’s efforts to obtain emergency use authorization (EUA) from the FDA for the test, according to the U.S. Securities Exchange Commission (SEC) complaint.²

Significance: Akin to the stock market version of the False Claims Act, Section 10(b) of the Securities Exchange Act of 1934 (codified in 15 U.S.C. § 78j) makes it illegal to “use or employ, in connection with the purchase or sale of any security” a “manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [SEC] may prescribe.”³ According to the SEC, Berman ran afoul of the provision and its implementing regulation, SEC Rule 10b-5, by touting the COVID-19 blood test’s capabilities in a deliberate attempt to drive a surge in Decision Diagnostics’ share prices. And the scheme worked. In reality, as the SEC claimed, the test “was a theoretical concept that had not yet materialized into a product” and Berman knew it couldn’t meet FDA EUA standards.²

Lack of Expert Testimony Dooms Medical Malpractice Claim Against Labcorp

Case: A patient took her 10-year-old daughter to a medical clinic seeking a doctor’s note requesting that the school allow her to use the bathroom more frequently. After detecting blood in a preliminary dipstick test performed on what the nurse practitioner (NP) believed was the girl’s urine specimen, she sent the specimen to Labcorp for further testing. Labcorp confirmed the preliminary results and did a second test on a new slide which determined that there was sperm in the sample. One additional confirmatory test later, Labcorp reported the results to the clinic who then called in the girl’s parents to discuss the findings. The parents asked the NP to perform the dipstick test on a new urine sample provided by the girl, which came back negative for blood without sending the second sample to Labcorp. The parents sued Labcorp for negligence. Labcorp said it had done nothing wrong and that it didn’t “mix up” the specimen it received from the clinic.⁴ The Louisiana federal court agreed and dismissed the case without a trial.

Significance: This case is a useful illustration of the dynamics that apply in litigation of professional negligence and medical malpractice claims against labs and other providers. To prove medical malpractice, the plaintiff (in this case, the parents) must show that the defendant violated the standard of care that a reasonably competent and skilled healthcare professional in the same field and medical community would have provided under the circumstances. To meet this burden, the parents needed a medical expert to testify that Labcorp had breached the duty of care required for clinical lab testing. Since the parents neither had nor planned to introduce such expert testimony at trial, the court concluded that they had no chance to prove Labcorp committed medical malpractice and thus didn’t deserve the opportunity to go to trial [Semien v. Lab’y Corp. of Am., 2024 U.S. Dist. LEXIS 4169, 2024 WL 86882].⁴

Hospital Fired Lab Director for Poor Performance, Not Disability

Case: Just six months into her employment, an Indiana hospital PRN medical technologist was promoted to the role of lab manager. But the new job proved stressful; as a result, the manager developed frequent migraines and struggled with anxiety, depression, and other mental ailments. After being diagnosed with post-traumatic stress disorder, the hospital referred the manager to its employee assistance program. Later, in spite of the manager’s struggles, the hospital promoted her to the position of director of laboratory services. However, when efforts to improve her lagging performance failed, the hospital terminated her. The director claimed she was terminated due to her sex and disabilities and sued for discrimination. The Indiana federal court ruled she didn’t have a valid claim and granted the hospital’s motion to toss the case without a trial.⁵

Significance: The evidence showed that the hospital had a legitimate, nondiscriminatory reason to terminate the director, namely, her failure to meet performance expectations. In addition to receiving a series of negative performance reviews, the director:

• had difficult relationships with subordinates who complained about her style of management and communication and threatened to resign,
• disobeyed hospital HR policies, including by letting her minor child enter the lab with her during her day off, and
• was under internal investigation for failing to properly validate new lab equipment.

By contrast, there was no evidence that the director’s sex or disabilities factored into the decision to fire her [Eastman v. Reid Hosp., 2023 U.S. Dist. LEXIS 226447, 2023 WL 8810190].⁵

Relator Can’t Bring a Qui Tam Lawsuit without an Attorney

Case: An individual without an attorney used a False Claims Act (FCA) form complaint to file a qui tam action against Northern Virginia nonprofit provider Inova Health Care for allegedly swindling him out of $500,000 and costing the federal government at least $100 million in unnecessary costs. Instead of describing what exactly Inova did wrong, the complaint listed “see additional pages,” referring to a series of eight attachments including the copy of an operating agreement and documents relating to a licensure complaint. But none of those attachments contained the required factual recitation of what the defendant did or didn’t do and how those acts or omissions ran afoul of the FCA. So, the Virginia federal court dismissed the claim. The “mere mention of a federal statute in a complaint” isn’t enough to give a federal court jurisdiction over the case, the court reasoned.⁶

Significance: Even if the complaint had stated a valid FCA claim, the court noted that it would have still tossed the case because the relator didn’t have an attorney. Explanation: While the FCA’s qui tam provisions allow individuals to bring cases on the government’s behalf, it doesn’t allow them to do so on a pro se basis where litigants represent themselves. The reason for this rule is that despite not participating, the government is the “real party in interest” in a qui tam action since it may be bound by the results of the litigation.⁷ Accordingly, relators who want to pursue qui tam claims can’t act as their own counsel and must have a qualified attorney handle the case [Mehan v. Inova Health Care Servs. Corp., 2023 U.S. Dist. LEXIS 218905, 2023 WL 8369585].⁶

References:

1. https://www.justice.gov/opa/pr/biotech-ceo-pleads-guilty-covid-19-securities-fraud-scheme
2. https://www.sec.gov/files/litigation/complaints/2020/comp-pr2020-327.pdf
3. https://www.law.cornell.edu/uscode/text/15/78j
4. https://casetext.com/case/semien-v-lab-corp-of-am
5. https://casetext.com/case/eastman-v-reid-hosp-health-care-servs-1
6. Mehan v. Inova Health Care Servs. Corp., 2023 U.S. Dist. LEXIS 218905, 2023 WL 8369585
7. https://www.law.cornell.edu/wex/false_claims_act