OrthoLogic Corp. v. Columbia/HCA Healthcare Corp.,

OrthoLogic Corp. v. Columbia/HCA Healthcare Corp.,
No. CIV 01-0006-PHX-SRB (D. Ariz. Jan. 7, 2002)

OrthoLogic Corporation brought several claims against HCA and Smith Laboratories
(the defendants) regarding a stock purchase agreement for Sutter Corporation.
OrthoLogic claimed that the stock purchase agreement contained material misrepresentations
and omissions regarding illegal practices that the defendants had knowledge
of since they were alleged in a qui tam action and identified in a 1993 audit.
The defendants argued that several of OrthoLogic’s claims must be dismissed
because they failed to meet the applicable heightened pleading requirements.
The complaint specifically referred to the 1993 audit which found that sales
representatives were responsible for substantial write-offs of amounts owed
for equipment because the sales representatives "did not want these amounts
collected from the patient because to do so would jeopardize the representative’s
relationship with the physicians."

The United States District Court for the District of Arizona found that the
complaint failed to state how the "inadequate system of internal controls
and systems" and the "substantial write-offs" show that Sutter
employees were providing illegal kickbacks to patients and physicians or which
legal requirements, if any, were violated by the conduct revealed in the 1993
audit. Accordingly, the court dismissed OrthoLogic’s fraud claims on the grounds
that they did not satisfy the heightened pleading requirements.