Federal appeals court: Seattle biotech can pursue $23 million claim against former consultant

Judges: Seattle biotech can pursue $23M claim

SEATTLE — Seattle biotechnology firm Cell Therapeutics Inc. can pursue claims for nearly $23 million against a former consultant, a federal appeals court ruled Wednesday.

The ruling by a three-judge panel of the 9th U.S. Circuit Court of Appeals overturned the ruling of a judge in Seattle and created a new interpretation of law surrounding fraud cases brought on behalf of the government.

The case concerns Trisenox, a drug developed by Cell Therapeutics Inc. to treat a particularly virulent type of leukemia — and the first drug for which the company won Food and Drug Administration approval, in 2000. CTI claimed that on the advice of the consultant, formerly known as Documedics Acquisition Co. and now the Charlotte, N.C.-based Lash Group, it marketed the drug for uses beyond what the FDA had approved.

That resulted in doctors billing Medicare for unapproved uses of the drug. After a CTI whistleblower sued on behalf of the government under what’s called a “qui tam” lawsuit, the company agreed to settle the case for $10.5 million without admitting liability. Whistleblowers in successful qui tam cases are entitled to a portion of the money recovered by the government.

CTI, believing the mistake was not its fault, sued Lash Group, hoping to recover the $10.5 million plus $12.3 million in attorneys fees and damages, including loss of reputation.

Historically, courts have not allowed defendants in qui tam lawsuits to try to recoup their fines or settlements by suing others — the principle being that they should not be able to avoid paying for their sins.

But here, the 9th Circuit panel held in an opinion by Judge M. Margaret McKeown that CTI settled without admitting liability — so it’s far from clear it engaged in any wrongdoing. Therefore, the court said, it should be allowed to pursue its claims against Lash. The panel sent the case back to U.S. District Court in Seattle.

Because most qui tam lawsuits are settled, the ruling could have a wide effect.

“For the first time here, the 9th Circuit has now swept away the rationale for all of that law,” said Seattle attorney Daniel J. Dunne, who handled the case for CTI. “That’s a very important development. With hundreds of billions of dollars of stimulus money being sprinkled across the country, you can expect qui tam lawsuits to be a growth industry.”

Neither Lash Group nor a Philadelphia-based lawyer who represents the company immediately returned messages left after business hours Wednesday. It was not clear if the company planned to appeal.

CTI sold Trisenox to Frazer, Penn.-based Cephalon Inc. for $70 million in 2005. It remains on the market.