Baker & Hostetler, a prominent U.S. law firm, has been ordered to confront racketeering claims tied to its representation of a now-bankrupt client accused of orchestrating a massive insurance fraud. A federal judge in Houston has allowed part of the lawsuit against the firm to proceed, citing serious allegations of complicity.
The case centers on Alliance Health, a former client that allegedly ran a scheme involving inflated reimbursements for diabetes test strips, resulting in damages exceeding $100 million. According to court documents, the liquidation trustee for Alliance claims Baker Hostetler not only knew about the fraudulent operations but actively provided cover, enabling the misconduct to flourish.
While U.S. Bankruptcy Judge Marvin Isgur dismissed certain claims, such as fraud and malpractice, he found sufficient grounds to sustain the racketeering allegations. His ruling pointed to evidence suggesting the firm was far from a passive bystander, stating it “acquiesced to violations of the law” while continuing to benefit from lucrative legal fees.
Alliance Health filed for bankruptcy in 2017 following a federal raid on its Salt Lake City headquarters. The trustee’s lawsuit alleges that internal records reveal the firm was aware Alliance’s business model relied on billing fraud.
Baker Hostetler, which employs over 1,000 lawyers across the United States, has denied the allegations, arguing the claims were time-barred and asserting it could not be classified as a “person” under federal racketeering statutes. The court rejected these defenses, emphasizing the firm’s active involvement through its unnamed partner.
The litigation unfolds in the Southern District of Texas and could have significant implications for the accountability of legal advisors in cases of corporate misconduct.
