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HDL's liquidating trustee settles with three former executives for $28.8M

March 2017

via Richmond Times-Dispatch

Joseph McConnell, co-founder and former chief medical officer — and briefly chief executive officer; Satyanarain Rangarajan, co-founder and former chief operating officer; and Dennis Ryan, former executive vice president and co-founder of the law firm LeClairRyan, agreed to pay a total of $28.8 million to HDL’s bankruptcy estate, while not admitting any wrongdoing.

The terms of the three settlements dictate that the individuals will cooperate with HDL’s liquidating trustee, Richard Arrowsmith, as he continues to pursue litigation against the remaining defendants, of which there are more than 100.

Once one of Richmond’s fastest-growing companies, HDL filed for bankruptcy in June 2015 following a federal investigation into its practice of selling alleged kickbacks to physicians for using its blood-testing services.

HDL sold its business and most of its assets to Texas-based True Health Diagnostics in September 2015, and Arrowsmith has since been dismantling the estate and returning money to creditors. His lawsuit, filed in September, is part of that effort.

McConnell’s settlement totals $15 million, Rangarajan’s $8.8 million and Ryan’s $5 million.

In his suit, Arrowsmith alleges that dozens of defendants — which include other co-founders such as Tonya Mallory, former chief executive officer, and Russell Warnick, former chief scientific officer — were part of or helped develop a massive scheme that allowed them to pocket a great deal of HDL’s profits, “leaving creditors holding the bag.”

Judge Kevin Huennekens approved McConnell’s, Rangarajan’s and Ryan’s settlements after a hearing Thursday that took longer than six hours, in which legal counsel for numerous defendants argued against the settlements. The objections focused less on the substance of the three settlements and rather on the ways that Arrowsmith and his attorneys agreed that McConnell, Rangarajan and Ryan will pay the settlement amount.

While each is required to pay some amount from their personal funds, the bulk of their settlements will be paid through insurance polices taken out before HDL’s bankruptcy. Many defendants expressed concerns that, following the settlement payout, insurance policy money would not be available to them.

Huennekens dismissed those concerns, pointing out that each of the defendants was allocated a certain amount through the insurance policies and they can litigate the issue should they require or think they are entitled to more.

Rangarajan’s settlement was filed March 8, while McConnell’s and Ryan’s were filed March 16. Their approval was heard on an expedited basis — despite objections from some, including Warnick — because the three parties are “eager to move on with their lives,” said Cullen Speckhart, an attorney with Wolcott Rivers Gates representing Arrowsmith.

“There is no reason to keep them in this litigation,” she told Huennekens, adding later that the bankruptcy estate would benefit from “gaining their cooperation.”

In each of their settlements, McConnell, Rangarajan and Ryan agreed to “in good faith cooperate with the liquidating trustee to support the prosecution” of Arrowsmith’s claims in the ongoing $600 million lawsuit, such as through giving deposition and trial testimony, the motions to approve the settlements state.

Huennekens noted that the settlements add both “economic and non-economic benefits” to the estate.

Rangarajan and Ryan left HDL in October 2012, while McConnell left around the time the company was sold to True Health. He has since launched a new venture out of western Henrico County, Salveo Diagnostics, a lab company focused on gut health.