Praxsyn Corp (PXYN)

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Another case won by Praxsyn


Tuesday, November 15, 2016
Court Nixes Mesa Pharmacy Settlement in Case Alleging Sale of Bunk Receivables
By Greg Jones State: CaliforniaTopic: Top - 847 views - Average time spent on item: 17 minutes- Popular with: Legal - 6 shares
A federal judge refused to force Southern California compounder Mesa Pharmacy to pay a $175,000 settlement to a financing company that accused it of selling uncollectable receivables because the company never actually tried to collect on the bills.

Mesa Pharmacy, headquartered in Irvine, in May agreed to pay MedCapGroup $25,000 within 10 days of execution of the settlement agreement, followed by five monthly payments of $30,000. In exchange, the factoring company headquartered in the Las Vegas suburb of Henderson, Nevada, agreed to drop its complaint accusing Mesa of selling it more than a half million dollars of worthless receivables.

Mesa never issued any settlement payments, and MedCapGroup in July asked the U.S. District Court for Nevada to intervene and enforce the settlement. But the court on Nov. 4 said there is no settlement agreement for it to enforce.

U.S. District Judge George Foley Jr. said in his decision the settlement was contingent upon MedCapGroup providing Mesa with proof that it attempted to collect on the receivables. Specifically, Mesa wanted evidence that MedCapGroup filed liens with California’s Workers’ Compensation Appeals Board, as the invoices were for compound drugs prescribed to injured workers in California.

MedCapGroup at one point during settlement talks agreed to offer evidence that it filed liens, Foley said. Although the settlement itself does not mention any such agreement, Foley said he believes Mesa relied on MedCapGroup’s assurances that the liens were filed when it agreed to settle the claims.

“Based on the foregoing, the court finds that the filing of liens on the accounts receivable was material to the parties' agreement that the court cannot enforce the memorandum of settlement agreement based on Mesa’s subsequent discovery that the liens were not filed,” Foley said.

The judge said his opinion was shaped in part by his own recollection of the May settlement conference during which there was a discussion about whether liens were ever filed.

“As Mesa argues, and as the undersigned remembers, these discussions and MedCap’s representations that liens had been filed, played an integral role in Mesa’s decisions to agree to a settlement amount,” Foley said.

MedCapGroup in a November 2014 complaint accused Mesa of selling it worthless paper. The factoring company said it paid $205,418 in 2012 to purchase invoices with a face value of $586,910. But when it tried to collect, it learned that only Mesa and other parties actually had the right to negotiate payment with carriers on those bills.

The complaint said Mesa sold receivables based on date of service rather than by patient. But if the same service provider rendered treatment to the same injured worker on multiple dates, California work comp carriers will negotiate with one collection company for all dates of service, MedCapGroup said.

“As a result, when Mesa sells multiple dates of service receivables to multiple collection companies for a single patient account, when the first collection company contacts the patient’s insurance carrier, that collection company controls all the payment and settlement with the insurance company, and none of the other collection companies are able to collect on the amounts owed to them,” it said in the complaint.

The company accused Mesa of intentionally selling receivables by date of service “so it could sell essentially worthless accounts to plaintiffs and still retain the right to negotiate settlements for each patient’s account.” It said carriers contested and refused to pay on “virtually every receivable” it purchased from Mesa.

But Mesa says it learned in June, one month after agreeing to a settlement, that MedCapGroup never filed liens for receivables it purchased.

The company says this was important for two reasons. First, the final settlement amount was based on a belief that MedCapGroup was unable to collect on liens it filed because Mesa already had the authority to negotiate with carriers on those claims. Second, the settlement required MedCap to return the allegedly uncollectable liens to Mesa so it could try to collect from insurers on those accounts.

According to court filings, Tina Locklear, an attorney for Mesa, told attorneys for MedCapGroup that the $175,000 settlement amount was contingent on the company having tried to collect on the invoices.

“Did your clients timely file the liens on all the AR that is being negotiated here or not? I have learned that my client believes you have not,” Locklear wrote. “If that is correct, your/your client’s representations to my clients and the judge during settlement agreements about the viability of the AR was misrepresented as your client appears to have negligently handled the lien notices, thus making them uncollectable.”

In response, Ryan West, an attorney for MedCapGroup, said “my clients have timely filed the liens.”

The next day, Locklear said the liens were not filed and “were thus lost.”

Locklear in court filings doesn’t elaborate on the mechanism by which the invoices were rendered uncollectable. She didn’t return phone calls from WorkCompCentral on Monday.

It’s possible that Mesa is now time-barred from filing liens on the bills because of the statute of limitations in Senate Bill 863. The 2012 reform bill made two changes to the deadline to file liens depending on the date of service.

Liens must be filed within three years for dates of service before July 1, 2013. And they must be filed within 18 months for dates of service on or after July 1, 2013.

MedCapGroup purchased the receivables in 2012, so it would have had to file liens on those claims before the end of 2015.

After learning that MedCapGroup never filed any liens, Mesa in July asked to reduce the settlement amount to $51,000.

West said in an email to Locklear that his clients rejected the offer, adding, “I guess we’ll see what Judge Foley decides on the motion to enforce.”

West did not return calls from WorkCompCentral on Monday.

WorkCompCentral could not find any record of liens filed by MedCapGroup in the Division of Workers’ Compensation’s Electronic Adjudication Management System.

On the other hand, there are more than 22,000 liens filed on behalf of Mesa Pharmacy with a total claimed value of more than $175 million.

Mesa’s parent company Praxsyn Corp. told investors earlier this year that it planned to expand its focus beyond workers’ compensation to also include personal injury cases. The company reported difficulties collecting on liens filed against workers’ compensation claims.

Praxsyn said in the unsigned April letter to investors that it generated a “substantial” capital deficit in 2015. To prevent a repeat of the 2015 financial difficulties, “we will no longer process workers’ compensation-related prescriptions unless our costs are fully funded prior to the date of service,” the company said.

Praxsyn has yet to file with the U.S. Securities and Exchange Commission its annual report for 2015 or statements for the first, second and third quarters of 2016.

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