Judge Rules Baker & Hostetler Must Face Key Racketeering Claims in Fraud Lawsuit
In a major development, U.S. Bankruptcy Judge Marvin Isgur in Houston ruled that Baker & Hostetler must confront civil racketeering claims tied to its former client, Alliance Health. On Wednesday, Judge Isgur rejected the Cleveland-founded law firm’s attempt to dismiss these claims, which accuse the firm of enabling Alliance’s alleged $100 million insurance fraud scheme.
Fraud Allegations Stem from Alliance’s Bankruptcy
Alliance Health, once a thriving company, filed for bankruptcy in 2017 after federal agents raided its Salt Lake City headquarters. The company’s liquidation trustee, Yvette Austin Smith, filed the lawsuit against Baker & Hostetler in 2022. According to the complaint, Alliance’s business depended heavily on an elaborate billing fraud scheme. This scheme reportedly involved the purchase of diabetes test strips, which Alliance resold to secure disproportionately high insurance reimbursements.
The trustee asserted that Baker & Hostetler not only knew about the fraudulent business model but also actively “provided cover” for the misconduct. Internal records, cited in court filings, allegedly reveal that the firm was well aware of the scheme’s illegality. Despite this, Baker & Hostetler continued to represent Alliance, benefiting from the substantial legal fees.
Key Claims Survive Dismissal Attempt
Judge Isgur allowed the racketeering claims to proceed while dismissing other allegations, including fraud and legal malpractice. Baker & Hostetler argued that the claims were time-barred and maintained that it could not qualify as a “person” under federal racketeering law. However, Judge Isgur disagreed. He ruled that the firm’s actions, particularly those of one unnamed partner, directly contributed to Alliance’s operations.
“The firm knowingly acquiesced to the violations of the law,” Judge Isgur wrote, emphasizing that Baker & Hostetler’s role went beyond mere representation. He also noted that the firm financially benefited from its continued involvement in Alliance’s activities.
Ongoing Legal Battle Intensifies
Baker & Hostetler, which employs over 1,000 lawyers nationwide, has denied all allegations and maintains its innocence. The firm had sought to dismiss the claims entirely, but the court’s ruling now forces it to defend against the accusations in a Texas bankruptcy court.
Neither Baker & Hostetler nor its attorneys at Vinson & Elkins have responded to requests for comment. Similarly, Yvette Austin Smith’s legal team has yet to issue a statement.
The case, Yvette Austin Smith v. Baker & Hostetler LLP, continues in the U.S. Bankruptcy Court for the Southern District of Texas under Case No. 22-03275. As the litigation unfolds, the legal community will closely watch how this high-stakes battle impacts the broader discussion around law firms’ accountability for their clients’ alleged misconduct.
