San Antonio Express-News (Sunday)
Deal that supplied masks to state agency unravels
As the coronavirus pandemic spread this year, Joseph Lassen presented fellow San Antonio attorney Enrique Serna with a business opportunity.
Lassen, who specializes in family law but also serves as vice president and general counsel of a logistics company based in Tampa, Fla., offered Serna a cut of the profits if he could help find a supplier of protective face masks in Mexico.
Lassen said he and some associates had received a purchase order for masks fromthe Texas Department of Emergency Management, Serna says in a court filing thismonth.
Serna had served as a lawyer for twomenwhomhe knewwere affiliated with Monterrey-based medical supplier Happy Healthcare S.A. de C.V.
Happy Healthcare, in a series of five transactions, ultimately soldmillions ofmasks to the Texas Department of Emergency Management, or TDEM.
The business arrangement, though, has unraveled, with Happy Healthcare claiming in a federal lawsuit it was stiffed on more than $3million worth of masks and double-crossed by the parties it was doing business with. TDEM is not a party to the dispute.
Happy Healthcare has sued Lassen, the logistics company he represents — Tampa-based Online Transport International — and Serna and his law firm for fraud, conspiracy and other claims.
Lassen and Online Transport have disputed the allegations, saying they “deny participating in a conspiracy to keep millions of dollars of sale proceeds from TDEM that rightfully belonged to” Happy Healthcare.
Lassen and Online Transport accuse Serna and his law firm of misleading and deceptive behavior, which included not disclosing a “side deal” to split profits with Happy Healthcare.
Serna alleges his law firm was defrauded right along with Happy Healthcare. His firm has filed claims similar to Happy Healthcare’s against Lassen and Online Transport. Serna’s firm also has sued Austin Taylor, a San Antonio businessman who serves as an official of Online Transport, and affiliate Taylor Bio Armor LLC.
The lawyer says he received a $1 million loan that he construed as “hushmoney” to not tell Happy Healthcare about a $2.9 million payment TDEM allegedly made to Online Transport.
Serna later called Happy Healthcare and “came clean” about the loan and his “tacit agreement” not to say anything about the alleged $2.9million payment, according to a court filing this month.
In a twist in the burgeoning drama, Happy Healthcare and Serna — who’s being sued by the company — have formed an alliance to seek a preliminary injunction against Online Transport, Lassen and Taylor.
Happy Healthcare and Serna say Online Transport and its officials want U.S. District Judge Xavier Rodriguez to issue an injunction freezing the funds in dispute. In the alternative, Happy Healthcare and Serna want a “constructive trust” established to preserve themoney. A hearing on the motion is set for Tuesday.
Mask middlemen
The litigation offers no information on the type of protective face masks TDEM purchased or what it did with them.
TDEM spokesman Seth Christensen would not answer questions about the mask purchases, saying the information is disclosed in purchase orders it would provide the San Antonio Express-News as part of a pending open records request. The request was made more than two months ago.
The legal spat sheds light on themurky world of mask middlemen. The pandemic has spawned a “chaotic market” of brokers claiming “to have access to tens or even hundreds of millions of masks — generally outside the normal supply channels at prices much higher than the former retail price of about $1 each,” Reuters reported in March.
Even with low-percentage commissions, high-volume transactions can bring big paydays for middlemen. But the frenzy has “broken down standard quality controls,” leading to an an influx of masks of “uncertain origin and effectiveness,” medical suppliers and health care industry officials told the news outlet.
In the action filed by the Serna law firm, Serna said he spoke with Happy Healthcare about providing 2.5 millionmasks as part of a third shipment arranged for TDEM. But the company could only locate 1 millionmasks. at the time.
Those masks, however, were rejected by TDEM because their boxes “made it appear that the masks had come from China,” the complaint adds.
The masks were repacked into new boxes and provided to TDEM, which accepted 965,000 masks.
Short supply
Personal protective equipment, such asmasks, gowns and gloves, were in short supply in the early throes of the pandemic.
TDEM, the Texas Department of State Health Services and Gov. Greg Abbott’s Strike Force to Open Texas, a group of business leaders advising the governor on the response to the pandemic, all worked to acquire PPE through requests to the federal government and third parties, according to a posting on SHS’s website from earlier this year.
Health care providers and facilities that exhausted options to obtain PPE could submit requests to the state for supplies.
According to the Serna law firm’s court filing, Lassen in late March said he and his associates had received a purchase order for masks fromTDEM.
Serna recruited Happy Healthcare to supply the masks. The company shipped almost 10million masks spread over five shipments.
But Lassen, Taylor and Online Transport “lied about the prices that Texas agreed to pay for the masks” and about when payments were made by the state, both Happy Healthcare and Serna allege.
For the first two shipments, totaling about 2.6million masks, Lassen and Taylor told Serna that TDEM agreed to pay 98 cents for each mask, Happy Healthcare and Serna allege.
TDEM, though, had actually agreed to pay $1.25 per mask, according to Happy Healthcare and Serna. Lassen, Taylor and
Online Transport “pocketed the difference” and hid their windfall.
The difference of 27 cents per mask amounts to about $715,000 on the sale of 2.6million masks.
TDEM agreed to pay $1.25 for each mask, the defendants say in their response to Happy Healthcare’s lawsuit. They deny concealing anything.
In a document opposing the preliminary injunction Tuesday, the Online Transport defendants say Serna’s law firm admitted to misrepresenting to Happy Healthcare the price paid by TDEM. The firm also misrepresented to the defendants the amount Happy Healthcare was spending to acquire the masks and the existence of a profit-sharing agreement with Happy Healthcare, the defendants add.
The Online Transport defendants say Serna’s law firm has “unclean hands,” which “applies against a litigant whose own conduct … has been unconscientious, unjust, marked by a want of good faith, or violates the principles of equity and righteous dealing.”
On those first two shipments, Happy Healthcare obtained the masks froman unnamed supplier for about 33 cents each. The Online Transports defendants say they were told the masks cost 55 cents to acquire.
Fifth shipment
The fifth shipment to TDEM ended with the parties in dispute.
Happy Healthcare acquired from a supplier 5million masks for $2.1million, or 42 cents each, and shipped them to a TDEM warehouse in San Antonio. The agency was expected to pay $6.25 million, or $1.25 for eachmask, Happy Healthcare and Serna say in their joint filing.
Happy Healthcare expected $3 million in return within 30 days of the transaction, completed in early June.
The Online Transport defendants counter that Happy Healthcare has presented no evidence that the two sides ever had a contract for the fifth shipment. It was Serna who arranged the shipment with Happy Healthcare, and agreed that his firm and Online Transport would split profits from the sale, the defendants say.
Serna says in his lawsuit that TDEM had not paid Online Transport for the shipment. He adds, though, that he later learned from an Online Transport consultant who previously worked for TDEM that the agency had paid $2.9 million to Online Transport.
When Serna confronted Lassen and Taylor, he says, he was offered $1million as an “advance” on the payment expected from TDEM.
“Suspecting that they had already received payment, Serna wanted to get asmuchmoney as possible and believed that this payment constituted some form of ‘hushmoney’ to encourage Serna not to disclose (to Happy Healthcare) TDEM’s payment,” Serna says in his action.
In their response, Lassen, Taylor and Online Transport say TDEMmade a $2.9 million payment following the fifth shipment, “but there are disputed issues of facts” regarding the amounts owed by TDEM for all five orders. ‘Hushmoney’
On Aug. 19, Happy Healthcare threatened to sue if it was not paid, Serna says. He called the company later that day.
“Serna told Happy Healthcare that he (Serna) needed to ‘come clean,’ ” the lawyer says in his action. “Serna admitted that (his law firm) had been a member of several of the U.S. entities that had purchased masks from Happy Healthcare, that TDEM had been paying $1.25 permask in each transaction, and that TDEM had already paid (Online Transport) approximately $3,000,000 for the fifth shipment.”
Serna told Happy Heathcare about the $1 million he received, which he “characterized as some form of ‘hush money’ payment from Online Transport.”
That same day, Serna says, he removed $1million in the form of two cashier’s checks fromhis law firm’s accounts and placed them in a safety deposit box. After Happy Healthcare filed its lawsuit Sept. 2, Serna says, he turned over $1million to a Happy Healthcare lawyer.
Happy Healthcare officials and Serna, in urging for a preliminary injunction, worry that the money Online Transport received from TDEM “may already be longgone,” likely to Lassen, Taylor and other insiders.
“The preliminary injunction sought by (Happy Healthcare and Serna) would help ensure accountability for a state contractor — the (Online Transport ) Defendants — by freezing the funds obtained from the State and hidden from(Happy Healthcare and Serna) through fraud,” they say.
L assen, Online Transport and Taylor Bio Armor oppose the preliminary injunction, noting that Happy Healthcare already received $1 million fromthe $2.9 million payment.
Edward Snyder, a lawyer for Serna, declined to comment. Efforts to reach attorneys for Happy Healthcare and Online Transport, Lassen and Taylor Bio Armor were unsuccessful.