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IRS, Former Employees Oppose Liberty Medical Bankruptcy Plan

On June 10, the Internal Revenue Service (IRS) alleged that the proposed Chapter 11 liquidation plan of Liberty Medical Supply Inc. restricts the federal agency’s rights to recover funds it is owed. Former employees of Liberty Medical, a provider of supplies for diabetics, have also criticized the plan, which they claim would allow the company to get away with allegations made in a previous whistleblower lawsuit.

According to the IRS, Liberty Medical’s plan should not permit the company to be absolved of debts owed to the agency, and should not provide an extended period to determine tax responsibilities, as both provisions would allegedly limit the agency’s rights.

Two former Liberty Medical employees are also opposing the plan, claiming that it contains third-party releases, which will relieve Medco Health Solutions Inc., the owner of Liberty Medical, from allegations filed in their previous whistleblower lawsuit. The pair filed a $69 million False Claims Act lawsuit alleging that Liberty Medical earned millions in revenue from Medicare and Medicaid overpayments that should have been returned to the U.S, government. A Florida court dismissed the case for not having sufficient evidence.

The whistleblowers appealed their case in the Eleventh Circuit. When Liberty Medical filed for bankruptcy in February 2013, the employees’ appeal was stayed. Liberty Medical sold its business for $68.5 million in November 2014, and in May 2015, its Chapter 11 disclosure statement was approved.

The company’s plan creates a liquidating trust to assist with remaining financial distributions following the sale of the company. The plan also requests $12 million in tax refunds for 2013.

If you are thinking about reporting unlawful activity and would like guidance on your rights as a whistleblower, speak with Steve Kardell at Whistleblower Law for Managers right away. 

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