Cell Therapeutics Inc. v. Lash Group Inc.
Filed November 18, 2009, amended January 6, 2010
Cite as 08-35619

Settlement Agreement does not Constitute Finding of Liability

Cell Therapeutics, Inc. (CTI) was a small and young biotechnology company which developed a cancer drug called Trisonex. Trisonex was approved for treatment of leukemia.

To handle its Medicare reimbursement, CTI engaged the services of Documedics Acquisition Co. Inc. (Documedics). Documedics also served as CTI’s reimbursement consultant.

Documedics mistakenly advised CTI that Trisonex could be prescribed for “off-label” uses to treat other cancers. In turn, off-label uses were reimbursed by Medicare.

Consequently, the government investigated CTI and Lash Group (Lash), Documedics’ successor in interest. Subsequently, a CTI employee filed a qui tam action against CTI and Lash.

The government intervened in the suit against CTI. It alleged that CTI knowingly and willfully promoted the sale and use of Trisonex for indications not approved by the FDA.

The government, CTI and the employee reached an agreement. However, the government filed a case against Lash. Lash filed a motion for judgment on pleadings alleging the dismissal of the qui tam action.

The trial court found that CTI’s claims against Lash were barred due to the settlement of the qui tam action.

On appeal, the United States Court of Appeals, Ninth Circuit ruled as follows:

• The district court erred in dismissing CTI’s claims without determining if such claims were dependent on Lash’s liability under the False Claims Act.
• The district court erred in holding that the settlement agreement between the government and the whistle-blower constituted a finding of liability under the Act.

Lash was not even a party to the settlement agreement and there was no final judgment on the merits. To conclude that the settlement agreement constituted a finding of liability would only chill the settlement process.