Louisiana Contract Whistle-Blower Faces Suit

BALTIMORE (CN) - A company embroiled in a Louisiana political-corruption scandal filed a federal lawsuit against a former staffer it says cost it a $200 million state contract.

The July 28 complaint is the latest curveball in the fallout from Louisiana's 2011 award of a Medicaid contract worth almost $200 million to Maryland-based Client Network Services Inc., or CNSI.

At the time that the Louisiana Department of Health and Hospital awarded CNSI the contract, that agency was headed by secretary Bruce Greenstein.

Louisiana terminated CNSI's contract in 2013 after it emerged that Secretary Greenstein used to work for CNSI.

Greenstein subsequently resigned from the Louisiana health department and was indicted last year on charges that he lied under oath about his role in CNSI's winning bid.

Noting that none of the nine counts against Greenstein "allege any criminal behavior on the part of CNSI," that Rockville, Md., company now wants punitive damages from the former senior vice president it says tortiously interfered with the contract.

CNSI's lawsuit claims that Stephen Smith testified to investigators using the moniker "John Kunego" because he was upset about a 20 percent pay cut he faced in Maarch 2011.

Faced with making $200,000 a year and answering to a different supervisor, Smith began colluding with CNSI's chief competitor, Molina Medicaid Solutions, to undermine the Louisiana contract.

CNSI says Smith was still working for it in December 2011 when he emailed a U.S. government employee looking into the Medicaid contract Louisiana had awarded CNSI.

In urging the government to vacate the contract, Smith "made a number of allegations that he knew were false, and expressly urged Branch to prevent Louisiana from contracting with CNSI," according to the complaint.

Among the claims Smith made were that CNSI could not obtain a performance bond for the contract, and that the company was financially strapped and could not obtain further credit from banks they had been working with.

Smith also allegedly told Branch that "that CNSI had received preferential treatment" from Greenstein.

When Smith later met with the investigator for the Louisiana Attorney General's Office in May 2012, Smith said CNSI was near insolvency and could not complete the contract, according to the complaint.

CNSI says it had already rolled out the first parts of the contract, including the Medicaid portal and provider-enrollment system, when Louisiana canceled the contract, based on "improper contacts between then DHH Secretary Greenstein and CNSI personnel which created an unfair advantage for CNSI and revision of the Solicitation for Proposal through Addendum No. 2 which created an unfair advantage for CNSI."

Molina eventually won the contract with Louisiana, which is valued at $42 million a year.

Accusing Smith of breach of contract, civil conspiracy and tortious interference with contractual relations, CNSI seeks $30 million in damages.

The company is represented by Henry Platt with Saul Ewing in Washington.

The lawsuit comes four months after a Baton Rouge judge refused to throw out former the perjury indictment against Greenstein.

That indictment alleges that CNSI had been considered ineligible to bid on the contract before Greenstein changed the rules to accommodate the bidding process.

Though CNSI's bid was the lowest of the four firms vying for the contract, the company added millions of dollars to its estimate for services once accepted, prosecutors say.

Greenstein is accused of lying to members of the Louisiana State Legislature during a June 2011 hearing regarding his influence in CNSI's successful contract bid.

Prosecutors say the former secretary lied again when he came before an East Baton Rouge Parish grand jury in 2014 during a testimony on events surrounding the questionable contract.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit