Cullen D. Speckhart (VSB No. 79096)

Jennifer T. Langley ( VSB No. 81454)

WOLCOTT RIVERS GATES 

919 E. Main Street, Ste. 1040

Richmond, Virginia 23219 

200 Bendix Road, Ste. 300 

Virginia Beach, Virginia 23452 

Telephone: (757) 687-3644

Email: hdl@wolriv.com

Counsel to Plaintiff Richard Arrowsmith,

Liquidating Trustee of the HDL Liquidating Trust

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

Richmond Division

In re: Chapter 11

HEALTH DIAGNOSTIC LABORATORY, 

INC., et al.,

Case No.: 15-32919-KRH

Debtors.1 Jointly Administered

RICHARD ARROWSMITH AS 

LIQUIDATING TRUSTEE OF THE HDL 

LIQUIDATING TRUST,

Plaintiff,

v.

Adversary Proceeding No. 17-_____

UCSL LLC D/B/A DOWNTOWN URGENT 

CARE,

SONNY S. SAGGAR,

Defendants.

COMPLAINT TO AVOID AND RECOVER AVOIDABLE 

TRANSFERS AND FOR RELATED RELIEF

Plaintiff Richard Arrowsmith, in his capacity as Liquidating Trustee (“Liquidating 

Trustee”) of the HDL Liquidating Trust (the “Trust”), appointed pursuant to the confirmed 

 

1 The debtors in these cases, along with the last four digits of each debtor’s federal tax identification number, are: 

Health Diagnostic Laboratory, Inc. (0119), Central Medical Laboratory, LLC (2728), and Integrated Health Leaders, 

LLC (2434) (the “Debtors”).

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Modified Second Amended Plan of Liquidation (the “Plan”) in these jointly administered 

bankruptcy cases (the “Chapter 11 Cases” or the “Cases”), by his undersigned counsel, files his 

Complaint to Avoid and Recover Avoidable Transfers and for Related Relief (the “Complaint”) 

against UCSL LLC d/b/a Downtown Urgent Care (“UCSL”) and Sonny S. Saggar (“Saggar”) 

(collectively, the “Defendants”) in the above-captioned adversary proceeding (the “Adversary 

Proceeding”) and respectfully states and alleges as follows:

JURISDICTION AND VENUE

1. On June 7, 2015 (the “Petition Date”), each of the Debtors filed with the United 

States Bankruptcy Court for the Eastern District of Virginia, Richmond Division (the 

“Bankruptcy Court”), its respective voluntary petition for relief under Chapter 11 of Title 11 of 

the United States Code (the “Bankruptcy Code”), commencing the above-captioned Cases. On 

June 9, 2015, the Bankruptcy Court entered an order authorizing the joint administration of these 

Chapter 11 Cases [Docket No. 42]. On June 16, 2015, the United States Trustee for the Eastern 

District of Virginia appointed the statutory committee of unsecured creditors (the “Creditors’ 

Committee”).

2. On May 12, 2016, this Court entered an order confirming the Plan [Docket No. 

1095] (the “Confirmation Order”). Pursuant to the Plan and 11 U.S.C. § 1123, the Liquidating 

Trustee is the successor, for all purposes, of the Debtors and the Creditors’ Committee, and is 

thereby vested with standing to bring this action as a representative of the HDL Liquidating Trust. 

3. The Bankruptcy Court has subject matter jurisdiction over this Adversary 

Proceeding pursuant to 28 U.S.C. §§ 157 and 1334(b).

4. The Adversary Proceeding constitutes a core proceeding by virtue of 28 U.S.C. 

§ 157(b)(2)(A), (E), and (O).

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5. The predicates for the relief requested herein are sections 105(a), 502, 542, 544,

548, and 550 of the Bankruptcy Code; Rule 7001 of the Federal Rules of Bankruptcy Procedure 

(the “Bankruptcy Rules”); applicable state law and, as applicable, 28 U.S.C. § 3304.

6. The Liquidating Trustee consents to entry of final orders and judgment by the 

Bankruptcy Court in this Adversary Proceeding.

7. Venue is proper in this Bankruptcy Court under 28 U.S.C. §§ 1408 and 1409. 

8. Venue is proper in this Bankruptcy Court as to the Defendants because a substantial 

part of the events or omissions giving rise to the claims asserted herein against the Defendants

occurred in this judicial district.

PARTIES

9. The Plaintiff is the Liquidating Trustee. 

10. Upon information and belief, UCSL is a Missouri limited liability company.

11. Upon information and belief, Saggar is a resident of Missouri, who owns and/or 

controls, or at the time of the alleged events, owned and/or controlled UCSL.

NATURE OF THE ACTION

12. This Adversary Proceeding is to recover the transfers, losses and other damages 

caused to the Debtors and their creditors, including those creditors which assigned to the 

Liquidating Trustee and the Trust their Creditor Causes of Action as defined in Section 1.33 of the 

Plan (“Assigning Creditors”). A list of Assigning Creditors, as of the date of the filing of this 

Complaint, is attached hereto as Exhibit 1. 

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FACTUAL BACKGROUND

13. Health Diagnostic Laboratory, Inc. (“HDL”) was formed as a start-up laboratory in 

Richmond, Virginia, offering a panel of blood tests for early detection of cardiovascular disease, 

diabetes, and related illnesses.

14. From the outset, HDL’s insiders relied on illegal business practices that 

incentivized health care providers (“HCPs”), including the Defendants, to use HDL. 

15. One such practice was the payment of illegal “processing and handling” (“P&H”) 

fees to HCPs, whereby HDL paid HCPs large P&H fees (the “P&H Program”) to induce HCPs 

to order HDL’s tests instead of those offered by other laboratories. 

16. The P&H Program was a scheme that violated the federal Anti-Kickback Statute, 

42 U.S.C. § 1320(a)-7(b)(a)(A), the federal False Claims Act, 31 U.S.C. § 3729 et seq., and similar 

state anti-kickback laws that prohibit HDL from offering or paying, and HCPs from soliciting or 

accepting, such illegal payments. 

17. By participating in the P&H Program, the Defendants knowingly assisted HDL’s 

insiders in perpetuating their illegal scheme. The Defendants willfully accepted monetary 

inducement to order more extensive blood testing than was medically necessary. In exchange for 

ordering unnecessary tests, the Defendants accepted illegal transfers of money (each transfer, an 

“Avoidable Transfer,” and, collectively, the “Avoidable Transfers”) under the P&H Program. 

The Avoidable Transfers are set forth on Exhibit 2, which is attached hereto and incorporated by 

reference herein, and reflects the amounts of and dates on which the Avoidable Transfers were 

made.

18. The P&H Program resulted in compensation to the HCPs, including the 

Defendants, that exceeded the value of the HCPs’ uncompensated services for drawing blood 

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samples, or for sending the specimens to HDL for testing. Acting in their own financial selfinterest, the Defendants exploited the P&H Program to obtain payment via the Avoidable Transfers 

that was far in excess of what the Defendants should reasonably have been paid for services 

provided. The Defendants’ illegal acts in this regard caused damage to HDL and legitimate 

creditors of HDL, including the Assigning Creditors. 

19. The P&H Program induced the HCPs, including the Defendants, to order 

unnecessary tests and to utilize HDL instead of less costly in-network diagnostic laboratories. Such 

practice perpetuated the submission of fraudulent and inflated claims to certain creditors, including 

the U.S. Government and Assigning Creditors, for reimbursement.

20. Throughout the years, the improper and illegal practices worked as intended, and 

HDL appeared to be enormously successful. However, despite this illusion and outward 

appearances, HDL was never actually solvent or profitable. 

21. HDL’s financial statements failed to reflect its actual liabilities, which, due to the 

improper business tactics, were hundreds of millions or even billions of dollars more than the 

liabilities it actually reported. HDL and its insiders wrongly reported revenues HDL should never 

have collected because they were obtained fraudulently, through false pretenses, or through 

improper business tactics. 

22. HDL faced catastrophic liabilities to the U.S. Government from the illegal and 

fraudulent conduct as described herein. These liabilities were immediate and soared into the 

billions of dollars. They resulted not only from the P&H Program, but from other illegal practices, 

such as the commission scheme conducted under HDL’s marketing contract (the “BlueWave 

Agreement”) and the practice of collecting certain monies from patients (the “Patient 

Responsibility Collection Practice”).

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23. As the U.S. Government determined in its investigation of HDL, every single claim 

HDL submitted for payment by TRICARE or Medicare outside of Virginia was a false claim under 

the False Claims Act (“FCA”). Moreover, the Patient Responsibility Collection Practice created 

further liability to both the U.S. Government and private insurance companies each and every time 

it was used.

24. Each false claim submitted for payment by TRICARE or Medicare, as well as each 

penalty of trebled damages associated with such false claims, immediately created a debt to the 

U.S. Government under the FCA and an attendant liability for HDL. From the very first false claim 

submitted to the U.S. Government, HDL’s actual liabilities increased day after day. HDL’s

liabilities, therefore, always exceeded its revenues and assets.

25. On January 27, 2014, the U.S. Government filed a lawsuit against HDL’s former 

CEO LaTonya Mallory (“Mallory”) and others. This lawsuit is currently pending in the U.S. 

District Court for the District of South Carolina (Case No. 14-cv-00230-RMG) (the “FCA 

Action”). In the FCA Action, the U.S. Government’s damages expert filed a report detailing more 

than $160 million in direct damages sustained by the U.S. Government due to false TRICARE and 

Medicare claims submitted by HDL through its insiders. The misconduct described herein created 

enormous liabilities not only in the form of direct damages sustained by the U.S. Government, but 

also to private insurers, such as certain of the Assigning Creditors, which liabilities exceed another 

$160 million. 

26. These extensive false claims immediately exposed HDL to catastrophic penalties 

and fines. For false claims resulting from the P&H Program, HDL’s exposure exceeded $3 billion. 

For false claims generated by the illegal commission scheme under the BlueWave Agreement, 

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HDL’s exposure exceeded $3 billion. HDL also faced civil monetary penalties of over $400 

million for false claims stemming from the Patient Responsibility Collection Practice.

27. Actual liabilities faced by HDL for the illegal and fraudulent practices as described 

herein were measured not in the tens of millions, but in the billions of dollars. Accordingly, HDL 

was catastrophically insolvent throughout its history and at the time the Avoidable Transfers were 

made. 

28. Once HDL stopped the improper practices as described herein, HDL experienced 

predictable and precipitous financial collapse. As evidenced by, among other things: (i) the 

Debtors’ bankruptcy petitions (publicly filed with the Bankruptcy Court); (ii) the proofs of claim 

that have been filed against the Debtors’ estates; and (iii) the Debtors’ publicly-filed schedules, 

the Debtors’ liabilities exceeded the value of the Debtors’ assets well before the Petition Date. 

29. In or around 2012, Defendants’ participation in the P&H Program and the Patient 

Responsibility Collection Practice violated applicable federal and state law, and caused damage to 

HDL and its creditors as set forth herein. 

COUNT I

Avoidance of Fraudulent Transfers Pursuant to 11 U.S.C. § 548(a)(1)(A)

30. The Liquidating Trustee repeats and re-alleges each and every allegation contained 

in the preceding paragraphs as if fully set forth herein.

31. The Avoidable Transfers were transfers of interest in the Debtors’ property.

32. The Avoidable Transfers were made with actual intent of the Debtors and HDL 

insiders to hinder, delay, or defraud the Debtors’ existing and/or subsequent creditors, including 

without limitation the Assigning Creditors.

33. The primary purpose of the Avoidable Transfers was to perpetuate the illegal 

scheme of inducing test referrals to HDL. 

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34. Some of the factors evidencing actual intent of the Debtors and HDL insiders are 

(i) the continuation of P&H payments to various HCPs, including the Defendants, despite 

knowledge of the illegality of the P&H Program; (ii) payments of the Avoidable Transfers at the 

same time substantial new liabilities and debts were incurred through continuation of other illegal 

practices and/or schemes of the Debtors; (iii) insolvency of the Debtors at the time of the Avoidable 

Transfers or as a result thereof; and (iv) the lack of value or consideration in exchange for the 

Avoidable Transfers to the Debtors.

35. The Avoidable Transfers were made within two (2) years prior to the Petition Date.

36. As a result of the Avoidable Transfers, creditors of the Debtors, including the 

Assigning Creditors, sustained significant damages.

37. The Avoidable Transfers are avoidable transfers pursuant to 11 U.S.C. 

§ 548(a)(1)(A). 

38. The Avoidable Transfers are recoverable from UCSL as the initial transferee of 

each of the Avoidable Transfers, or as the entity for the benefit of which the Avoidable Transfers 

were made, and from Saggar as the immediate or mediate transferee of the initial transferee 

receiving the Avoidable Transfers.

COUNT II

Avoidance of Fraudulent Transfers Pursuant to 11 U.S.C. §§ 544(b) and 550, 

Va. Code § 55-80 or Other Applicable State Fraudulent Conveyance or Fraudulent 

Transfer Law, and, as Applicable, 28 U.S.C. § 3304

39. The Liquidating Trustee repeats and re-alleges each and every allegation contained 

in the preceding paragraphs as if fully set forth herein.

40. The Avoidable Transfers were transfers of interest in the Debtors’ property.

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41. The Avoidable Transfers were made with actual intent of the Debtors and HDL 

insiders to hinder, delay, or defraud creditors of the Debtors, including without limitation the 

Assigning Creditors.

42. The primary purpose of the Avoidable Transfers was to perpetuate the illegal 

scheme of inducing test referrals to HDL. 

43. Some of the factors evidencing actual intent of the Debtors and HDL insiders are 

(i) the continuation of P&H payments to various HCPs, including the Defendants, despite 

knowledge of the illegality of the P&H Program; (ii) payments of the Avoidable Transfers at the 

same time substantial new liabilities and debts were incurred through continuation of other illegal 

practices and/or schemes of the Debtors; (iii) insolvency of the Debtors at the time of the Avoidable 

Transfers or as a result thereof; and (iv) the lack of value or consideration in exchange for the 

Avoidable Transfers to the Debtors.

44. The Department of Justice (“DOJ”) filed Proof of Claim No. 1335 in the Cases, in 

the amount of $94,144,852.52, plus interest, based on HDL’s conduct dating back to November 

2008.

45. The Defendants knew or should have known of the Debtors’ actual intent, as the 

circumstances surrounding the Avoidable Transfers should have put the Defendants on inquiry as 

to the bona fides of these transactions. 

46. As a result of the Avoidable Transfers, creditors of the Debtors, including the 

Assigning Creditors, sustained significant damages.

47. The Avoidable Transfers are avoidable transfers pursuant to Virginia Code § 55-80

or other applicable state fraudulent conveyance or fraudulent transfer law and Bankruptcy Code § 

544(b). 

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48. The Avoidable Transfers were made within five (5) years prior to the Petition 

Date.

49. Any Avoidable Transfers made within six (6) years before the Petition Date should 

be avoided pursuant to applicable provisions of the Federal Debt Collection Procedures Act, 28 

U.S.C. § 3301, et. seq., and Bankruptcy Code §§ 544(b) and 550. 

50. Pursuant to 11 U.S.C. § 550, the Liquidating Trustee may recover the Avoidable 

Transfers from UCSL as the initial transferee of each of the Avoidable Transfers, or as the entity 

for the benefit of which the Avoidable Transfers were made, and from Saggar as the immediate or 

mediate transferee of the initial transferee receiving the Avoidable Transfers. 

COUNT III

Avoidance of Fraudulent Transfers Pursuant to Section 548(a)(1)(B) of the Bankruptcy 

Code

51. The Liquidating Trustee repeats and re-alleges each and every allegation contained 

in the preceding paragraphs as if fully set forth herein.

52. The Avoidable Transfers were transfers of interest in the Debtors’ property.

53. The Debtors did not receive reasonably equivalent value in exchange for the 

Avoidable Transfers. 

54. The Avoidable Transfers were made within two (2) years prior to the Petition 

Date.

55. The Avoidable Transfers were made while the Debtors were insolvent, or became 

insolvent as a result of the Avoidable Transfers. 

56. At the time of the Avoidable Transfers, the Debtors intended to incur, or believed 

that they would incur, debts beyond the Debtors’ ability to pay as such debts matured.

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57. At the time of, or as a result of, the Avoidable Transfers, the Debtors were engaged 

in business or a transaction for which any property remaining with such Debtors was unreasonably 

small in relation to its business.

58. At all relevant times, the Debtors had actual creditors holding unsecured claims 

allowable within the meaning of 11 U.S.C. § 502, including vendors, landlords, suppliers, and 

other creditors. 

59. As a result of the Avoidable Transfers, creditors of the Debtors, including the 

Assigning Creditors, sustained significant damages.

60. The Avoidable Transfers are avoidable transfers pursuant to 11 U.S.C. 

§ 548(a)(1)(B). 

61. The Avoidable Transfers are recoverable from UCSL as the initial transferee of 

each of the Avoidable Transfers, or as the entity for the benefit of which the Avoidable Transfers 

were made, and from Saggar as the immediate or mediate transferee of the initial transferee 

receiving the Avoidable Transfers. 

COUNT IV

Avoidance of Fraudulent Transfers Pursuant to 11 U.S.C. §§ 544(b) and 550, 

Va. Code § 55-81 or Other Applicable State Fraudulent Conveyance or Fraudulent 

Transfer Law, and, as Applicable, 28 U.S.C. § 3304

62. The Liquidating Trustee repeats and re-alleges each and every allegation contained 

in the preceding paragraphs as if fully set forth herein.

63. The Avoidable Transfers were transfers of interest in the Debtors’ property.

64. The Debtors did not receive consideration deemed valuable in law or reasonably 

equivalent value in exchange for the Avoidable Transfers. The Avoidable Transfers were improper 

and illegal, and as a consequence of such transfers, the Debtors became burdened with enormous 

liabilities, including the liability to the U.S. Government. 

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65. The DOJ filed Proof of Claim No. 1335 in the Cases, in the amount of 

$94,144,852.52, plus interest, based on HDL’s conduct dating back to November 2008.

66. The Avoidable Transfers were made at the time when the Debtors were insolvent, 

or became insolvent as a result of the Avoidable Transfers. 

67. At the time of the Avoidable Transfers, the Debtors intended to incur, or believed 

that they would incur, debts beyond the Debtors’ ability to pay as such debts matured.

68. At the time of, or as a result of, the Avoidable Transfers, the Debtors were engaged 

in business or a transaction for which any property remaining with such Debtors was unreasonably 

small in relation to their business.

69. As a result of the Avoidable Transfers, creditors of the Debtors, including the 

Assigning Creditors, were harmed. 

70. The Avoidable Transfers were made within five (5) years prior to the Petition Date.

71. The Avoidable Transfers are avoidable transfers pursuant to Virginia Code § 55-81 

or other applicable state fraudulent conveyance or fraudulent transfer law and Bankruptcy Code § 

544(b). 

72. Any Avoidable Transfers made within six (6) years before the Petition Date should 

be avoided pursuant to applicable provisions of the Federal Debt Collection Procedures Act, 28 

U.S.C. § 3301, et. seq., and Bankruptcy Code §§ 544(b) and 550. 

73. Pursuant to 11 U.S.C. § 550, the Liquidating Trustee may recover the Avoidable 

Transfers from UCSL as the initial transferee of each of the Avoidable Transfers, or as the entity 

for the benefit of which the Avoidable Transfers were made, and from Saggar as the immediate or 

mediate transferee of the initial transferee receiving the Avoidable Transfers. 

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COUNT V

Disallowance of Claims Pursuant to Section 502(d) of the Bankruptcy Code

74. The Liquidating Trustee repeats and re-alleges each and every allegation contained 

in the preceding paragraphs as if fully set forth herein.

75. Property is recoverable from the Defendants under Section 550 of the Bankruptcy 

Code.

76. UCSL was the initial transferee of each of the Avoidable Transfers, or an entity for 

the benefit of which the Avoidable Transfers were made, and Saggar is the immediate or mediate 

transferee of such initial transferee.

77. The Defendants have not paid to the Liquidating Trustee the amount of the 

Avoidable Transfers, or turned over such property to the Liquidating Trustee, for which the 

Defendants are liable under Section 550 of the Bankruptcy Code.

78. Pursuant to Section 502(d) of the Bankruptcy Code, any and all claims of the 

Defendants must be disallowed until such time as the Defendants pay to the Liquidating Trustee 

all amounts sought herein.

COUNT VI

Aiding and Abetting Breach of Fiduciary Duty

79. The Liquidating Trustee repeats and re-alleges each and every allegation contained 

in the preceding paragraphs as if fully set forth herein.

80. In or around 2012, the Defendants aided and abetted the breaches of fiduciary duty 

of due care and loyalty by one or more of the directors and officers of the Debtors, including 

Mallory, who owed such fiduciary duty to the Debtors and/or their creditors, including the 

Assigning Creditors, at all relevant times. 

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81. The Defendants did so knowingly, or having reason to know the nature of the injury 

to the Debtors and Debtors’ creditors, including the Assigning Creditors, brought about by such 

assistance.

82. The Defendants directly benefited from aiding and abetting such breaches of 

fiduciary duty and self-dealing by reaping financial rewards to which they were not entitled.

83. As a direct and proximate result of aiding and abetting breaches of fiduciary duty 

and self-dealing, the Debtors and their creditors, including the Assigning Creditors, sustained 

significant damages, including but not limited to hundreds of millions of dollars of unpaid 

obligations.

84. The Defendants’ participation in the P&H Program and the Patient Responsibility 

Collection Practice violated applicable state and federal law and supported and otherwise aided 

and abetted the breaches of fiduciary duty committed by one or more of the directors and officers 

of the Debtors. 

85. As a result of the Defendants’ aiding and abetting of the aforementioned breaches 

by one or more of the directors and officers of the Debtors, including Mallory, the Liquidating 

Trustee is entitled to recover the damages suffered by the Debtors and the Assigning Creditors 

from the Defendants in an amount to be proved at trial. 

COUNT VII

Common Law Conspiracy

86. The Liquidating Trustee repeats and re-alleges each and every allegation contained 

in the preceding paragraphs as if fully set forth herein.

87. In or around 2012, the Defendants and one or more of the Debtors’ directors and 

officers, including Mallory, acted in concert, agreed, associated, mutually undertook, or combined 

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to accomplish, by concerted action, unlawful, illegal, and oppressive acts that caused catastrophic 

injury and damage to the Debtors and creditors of the Debtors, including the Assigning Creditors.

88. The unlawful acts include, but are not limited to, establishing, making and 

accepting payments pursuant to the P&H Program and engaging in improper testing.

89. The Defendants and one or more of the Debtors’ directors and officers, including 

Mallory, intentionally combined to accomplish these unlawful purposes, or even if determined to 

be lawful purposes, accomplish them through illegal and unlawful means.

90. As a direct and proximate result of the conspiracy and agreement among the 

Defendants and one or more of the Debtors’ directors and officers, including Mallory, the Debtors 

and their creditors, including the Assigning Creditors, sustained significant damages, including 

but not limited to hundreds of millions of dollars of unpaid obligations.

91. The Defendants’ participation in the P&H Program and the Patient Responsibility 

Collection Practice violated applicable state and federal law and supported the conspiracy and 

otherwise illegal acts committed by one or more of the directors and officers of the Debtors, 

causing damage to the Debtors’ estates and their creditors. 

92. As a result of the conspiracy, the Liquidating Trustee is entitled to recover from the 

Defendants the damages suffered by the Debtors and their creditors, including the Assigning 

Creditors, in an amount to be proved at trial.

COUNT VIII

Statutory Conspiracy Pursuant to Va. Code §§ 18.2-499 et seq. 

93. The Liquidating Trustee repeats and re-alleges each and every allegation contained 

in the preceding paragraphs as if fully set forth herein.

94. In or around 2012, the Defendants and one or more of the Debtors’ directors and 

officers, including Mallory, acted in concert, agreed, associated, mutually undertook, or combined 

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to accomplish, by concerted action, unlawful, illegal, and oppressive acts that caused catastrophic 

injury and damage to the Debtors and creditors of the Debtors, including the Assigning Creditors.

95. The unlawful acts include, but are not limited to, establishing, making and 

accepting payments pursuant to the P&H Program and engaging in improper testing.

96. The Defendants’ unlawful acts, undertaken willfully, intentionally, purposefully 

and without lawful justification, have injured the Debtors and their creditors, including the 

Assigning Creditors.

97. The Defendants’ wrongful conduct was aimed directly at damaging the Debtors and 

their creditors, including the Assigning Creditors.

98. The Defendants’ wrongful conduct constitutes a violation of the Virginia Business 

Conspiracy Act (“VBCA”). 

99. As a direct and proximate result of the conspiracy and agreement among the 

Defendants and one or more of the Debtors’ officers and directors, including Mallory, the Debtors 

and their creditors, including Assigning Creditors, sustained significant damages, including but 

not limited to hundreds of millions of dollars of unpaid obligations.

100. The Debtors and the Assigning Creditors, acting through the Liquidating Trustee, 

are entitled to recover three times the damages they sustained as a result of the conspiracy, in 

addition to reasonable attorneys’ fees and expenses, pursuant to the VBCA.

101. The Defendants’ participation in the P&H Program and the Patient Responsibility 

Collection Practice violated applicable state and federal law and supported the conspiracy and 

otherwise illegal acts committed by one or more of the directors and officers of the Debtors, 

causing damage to the Debtors’ estates and their creditors. 

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102. As a result of the conspiracy, the Liquidating Trustee is entitled to recover from the 

Defendants the damages suffered by the Debtors and their creditors, including the Assigning

Creditors, in an amount to be proved at trial.

COUNT IX

Common Law Fraud

103. The Liquidating Trustee repeats and re-alleges each and every allegation contained 

in the preceding paragraphs as if fully set forth herein.

104. In or around 2012, the Defendants and one or more of the Debtors’ directors and 

officers, including Mallory, made false representations of material fact, including without 

limitation, on the claims presented to the Assigning Creditors such as Aetna and Cigna, which 

purported to be for medically necessary tests.

105. The Defendants and one or more of the Debtors’ directors and officers, including 

Mallory, made such representations intentionally and knowingly with the intent to mislead and 

induce the Assigning Creditors such as Aetna and Cigna into making payments for the unnecessary 

tests. 

106. In justifiable reliance on the misrepresentations by the Defendants and one or more 

of the Debtors’ directors and officers, including Mallory, the Assigning Creditors, such as Aetna 

and Cigna, made payments for the unnecessary tests.

107. As a direct and proximate result of the foregoing misrepresentations, the Debtors 

and Assigning Creditors, such as Aetna and Cigna, sustained significant damages. 

108. The Defendants’ participation in the P&H Program and the Patient Responsibility 

Collection Practice violated applicable state and federal law and supported the fraudulent and 

otherwise illegal acts committed by one or more of the directors and officers of the Debtors, 

causing damage to the Debtors’ estates and their creditors. 

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109. As a result of the justifiable reliance by the Assigning Creditors, such as Aetna and 

Cigna, on these misrepresentations by the Defendants and one or more of the Debtors’ directors 

and officers, including Mallory, the Liquidating Trustee is entitled to recover the damages suffered 

by the Assigning Creditors and the Debtors in an amount to be proved at trial. 

COUNT X

Constructive Fraud

110. The Liquidating Trustee repeats and re-alleges each and every allegation contained 

in the preceding paragraphs as if fully set forth herein.

111. In or around 2012, the Defendants and one or more of the Debtors’ directors and 

officers, including Mallory, made false representations of material fact, including without 

limitation, on the claims presented to the Assigning Creditors such as Aetna and Cigna, which 

purported to be for medically necessary tests.

112. Pleading in the alternative, the Defendants and one or more of the Debtors’ 

directors and officers, including Mallory, negligently made such representations to the Assigning 

Creditors, inducing them to make payments for the unnecessary tests.

113. In justifiable reliance on the misrepresentations by the Defendants and one or more 

of the Debtors’ directors and officers, including Mallory, the Assigning Creditors made such 

payments.

114. As a direct and proximate result of the foregoing misrepresentations, the Assigning 

Creditors and the Debtors sustained significant damages. 

115. As a result of the justifiable reliance by Assigning Creditors, such as Aetna and 

Cigna, on these misrepresentations by the Defendants and one or more of the Debtors’ directors 

and officers, including Mallory, the Liquidating Trustee is entitled to recover the damages suffered 

by such Assigning Creditors and the Debtors in an amount to be proved at trial. 

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COUNT XI

Unjust Enrichment

116. The Liquidating Trustee repeats and re-alleges each and every allegation contained 

in the preceding paragraphs as if fully set forth herein.

117. In or around 2012, the Debtors and/or the Assigning Creditors conferred a benefit 

on the Defendants through, as applicable, the Avoidable Transfers and payments for claims the 

Defendants and one or more of the Debtors’ directors and officers, including Mallory, caused to 

be presented to the Assigning Creditors.

118. The Defendants knew they received a benefit and should have reasonably expected 

to repay the Debtors and/or Assigning Creditors.

119. The Defendants accepted and retained the benefits without paying for their value.

120. Allowing the Defendants to retain the benefits they received would be unjust and 

result in unjust enrichment.

121. The Debtors and Assigning Creditors have no adequate remedy at law.

122. As a direct and proximate result of the foregoing wrongful acts, the Debtors and 

the Assigning Creditors sustained significant damages, including but not limited to the amount of 

the Avoidable Transfers.

123. As a result of the Defendants’ unjust enrichment, the Liquidating Trustee is entitled 

to recover the damages suffered by the Debtors and Assigning Creditors in an amount to be proved 

at trial. 

COUNT XII

Turnover of Property of the Estate Pursuant to § 542(a) of the Bankruptcy Code

124. The Liquidating Trustee repeats and re-alleges each and every allegation 

contained in the preceding paragraphs as if fully set forth herein.

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125. Section 542(a) of the Bankruptcy Code provides in pertinent part “an entity, other 

than a custodian, in possession, custody, or control, during the case, of property that the trustee 

may use, sell, or lease under 363 of this title, or that the debtor may exempt under 522 of this 

title, shall deliver to the trustee, and account for, such property or the value of such 

property . . . .” 11 U.S.C. § 542(a).

126. The Defendants are in possession of funds received from the Debtors and/or the 

Assigning Creditors, which do not belong to the Defendants, and which are property of the 

Debtors’ bankruptcy estates pursuant to section 541 of the Bankruptcy Code.

127. Accordingly, pursuant to section 542 of the Bankruptcy Code, the Defendants

should not retain such funds and should turn them over to the Liquidating Trustee and/or the 

Debtors’ bankruptcy estates in an amount to be proved at trial.

COUNT XIII

Conversion

128. The Liquidating Trustee repeats and re-alleges each and every allegation contained 

in the preceding paragraphs as if fully set forth herein.

129. The Debtors and/or Assigning Creditors had a right to possession of the monies 

transferred to the Defendants via the Avoidable Transfers and/or the payments for the unnecessary 

tests. 

130. The Defendants intentionally and substantially interfered with the monies of the 

Debtors and/or Assigning Creditors by wrongfully exercising dominion and control over the 

Avoidable Transfers and/or the payments for the unnecessary tests.

131. As a direct and proximate result of the foregoing wrongful acts, the Debtors and 

Assigning Creditors sustained significant damages, including but not limited to the amount of the 

Avoidable Transfers and overpayments made for unnecessary tests by Assigning Creditors.

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132. Accordingly, the Liquidating Trustee is entitled to recover the damages suffered by 

the Debtors and Assigning Creditors in an amount to be proved at trial. 

133. The Liquidating Trustee hereby reserves his right to supplement and/or amend this 

Complaint to include additional facts, theories, and/or transfers as such may be discovered during 

the course of this Adversary Proceeding and preserve all other claims and defenses relating to the 

Defendants. 

WHEREFORE, the Liquidating Trustee respectfully requests that the Bankruptcy Court 

enter an Order and Judgment as follows: 

(a) On Counts I and III, awarding judgment to the Liquidating Trustee, pursuant to Sections 

548 and 550 of the Bankruptcy Code, in an amount of the Avoidable Transfers, and 

directing the Defendants to pay to the Liquidating Trustee an amount that is not less than 

the full amount of the Avoidable Transfers, pursuant to Section 550(a) of the Bankruptcy 

Code;

(b) On Counts II and IV, awarding judgment to the Liquidating Trustee, pursuant to Sections

544(b) and 550 of the Bankruptcy Code, Va. Code Sections 55-80 and 55-81, or pursuant 

to other applicable state fraudulent conveyance or fraudulent transfer law, and as 

applicable, 28 U.S.C. § 3304, in an amount to be proved at trial, and directing the 

Defendants to pay to the Liquidating Trustee an amount that is not less than the full amount 

of the Avoidable Transfers, pursuant to Section 550(a) of the Bankruptcy Code;

(c) On Count V, disallowing any claim of the Defendants pursuant to section 502(d) of the 

Bankruptcy Code;

(d) On Count VI, awarding judgment to the Liquidating Trustee for damages caused to the 

Debtors and their creditors, including the Assigning Creditors, as a result of the 

Defendants’ aiding and abetting breaches of fiduciary duties and self-dealing in an amount 

to be proved at trial;

(e) On Count VII, awarding judgment to the Liquidating Trustee for damages caused to the 

Debtors and Assigning Creditors as a result of the conspiracy in an amount to be proved at 

trial;

(f) On Count VIII, awarding judgment to the Liquidating Trustee, pursuant to the VBCA, for 

three times the damages caused to the Debtors and Assigning Creditors as a result of the 

conspiracy, in addition to reasonable attorneys’ fees and expenses, in an amount to be 

proved at trial;

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(g) On Counts IX and X, awarding judgment to the Liquidating Trustee for damages caused to 

the Debtors and their creditors, including Assigning Creditors, as a result of their fraud and 

constructive fraud in an amount to be proved at trial; 

(h) On Counts XI and XII, awarding judgment to the Liquidating Trustee for turnover of 

money or the value thereof, which does not belong to the Defendants, in an amount to be 

proved at trial;

(i) On Count XIII, awarding judgment to the Liquidating Trustee for damages caused to the 

Debtors and their creditors, including Assigning Creditors, as a result of the Defendants’ 

acts of conversion in an amount to be proved at trial; 

(j) awarding pre-judgment interest at the maximum legal rate running from the date of the 

Debtors’ and/or the Liquidating Trustee’s first demand to return all Avoidable Transfers to 

the date of judgment with respect to this Complaint herein;

(k) awarding the Liquidating Trustee his costs and expenses incurred in connection with this 

Adversary Proceeding, including reasonable attorneys’ fees; 

(l) entering judgment in favor of the Liquidating Trustee and against the Defendants in an 

amount not less than $7,415.00, with interest accruing from the date of this Complaint at 

the judgment rate of interest (the “Judgment”); 

(m) awarding post-judgment interest at the maximum legal rate running from the date of the 

Judgment until the date the Judgment is paid in full, plus costs;

(n) directing the Defendants to pay forthwith all amounts awarded; and

(o) granting the Liquidating Trustee such other and further relief as the Bankruptcy Court 

deems just and proper.

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Dated: June 1, 2017 Respectfully submitted,

/s/ Jennifer T. Langley________

Cullen D. Speckhart (VSB No. 79096)

Jennifer T. Langley (VSB No. 81454)

WOLCOTT RIVERS GATES 

919 E. Main Street, Ste. 1040

Richmond, Virginia 23219 

200 Bendix Road, Ste. 300 

Virginia Beach, Virginia 23452 

Telephone: (757) 687-3644

Email: hdl@wolriv.com

Counsel to Plaintiff Richard Arrowsmith,

Liquidating Trustee of the HDL Liquidating Trust

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