Biotech Can Sue Consultant Over Whistleblower Loss
24 CommentsBy Ed Silverman // November 19th, 2009 // 7:55 am
This may add a whole new wrinkle to whistleblower lawsuits. A federal appeals court ruled that Cell Therapeutics can pursue a claim for nearly $23 million against a former consultant, the Associated Press reports. And the 9th U.S. Circuit Court of Appeals ruling creates a new interpretation of law surrounding fraud cases brought on behalf of the government (the ruling).
The case concerns Trisenox, a leukemia drug developed by Cell Therapeutics, which claims it marketed the med off-label on the advice of a consultant, formerly known as Documedics Acquisition and now called Lash Group, the AP writes. As a result, docs billed Medicare for unapproved uses. After a former employee filed a whistleblower lawsuit, Cell Therapeutics agreed to settle $10.5 million without admitting liability.
Cell Therapeutics believes the mistake was not its fault and sued Lash Group, hoping to recover the $10.5 million plus $12.3 million in attorneys fees and damages, including loss of reputation, the AP continues. There’s the twist. As the AP notes, historically, courts have not allowed defendants in whistleblower suits to try to recover fines or settlements by suing others.
But the appeals court noted the biotech never admitted liability. So was wrongdoing committed? The court sent the case back to US District Court in Seattle. “For the first time here, the 9th Circuit has now swept away the rationale for all of that law,” Dan Dunne, who represented the biotech, tells the AP. “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.”
It’s not clear if Lash Group will appeal, the AP writes, adding that Cell Therapeutics sold Trisenox to Cephalon in 2005.
harpy
Could this really stand? If I told someone else to break the law, and they did it, would I be responsible?
Salmon
I would think that it’s conspiracy. They had an agreement with the advisor. The advisor helps them plot on how to break the law. They pay the advisor for his help in the plotting.
Presto! It’s conspiracy to defraud the government as well as conspiracy to commit health care fraud. In the US you don’t need to even know something is against the law to be charged with a crime.
They basically made a no contest settlement to get out of the criminal charges against them. Now they’re suing the co-conspirator. Consequently they will now profit by getting the money from the co-conspirator.
I should think that you shouldn’t profit from a crime no matter what. In addition everybody knows that you can’t promote off-label legally so to blame it on the co-conspirator by saying, but Johnny told me to do it, really doesn’t wash in my mind.
Salmon
Christopher
Perhaps one of our lawyers or accountants can comment but I wonder if a) the consultant’s contract had a reps and warrants section, and b) what legal connection f any exists between Documedics Acquisition (the firm that apparently advised) and Lash Group which it is now named. If the two are separate legal entities can Lash be sued for what Documedics advised? And if Documedics no longer exists how can it be sued? Presumably it was a business, not an individual that contracted with Cell Therapeutics.
Jaynesday
Salmon, you say - “It’s conspiracy to defraud the government as well as conspiracy to commit health care fraud.”
However pharmaceutical companies defraud the government (FDA) and are immune from prosecution through medical device preemption so are we talking about a double standard here?
patrons99
Generally speaking, isn’t about time that the U.S. Department of Justice used the “ultimate sanction” with pharma. See David Evans article in Bloomberg of November 9, 2009, where it states, “One reason drug companies keep breaking the law may be because prosecutors and judges have been unwilling to use the ultimate sanction–a felony conviction that would render a company’s drugs ineligible for reimbursement by state health programs and federal Medicare.” http://www.bloomberg.com/apps/news?pid=20670001&sid=a4yV1nYxCGoA
I’m not an attorney, but perhaps DOJ might make use of the False Claims Act Correction Act of 2009, the Frand Enforcement and Recovery Act of 2009, the federal Fraud and Abuse Statute, and the federal RICO act? Is not a conspiracy to violate the substantive RICO Act a substantive RICO violation under 18 USC § 1962(d)?
patrons99
Sorry about the typos and long-windedness of my last post. Let me just restate it more succinctly:
Isn’t it about time that the U.S. Department of Justice used the “ultimate sanction” with pharma?
Salmon
Patrons99
I agree with you.
Jaynesday,
I believe you are correct that companies are immune from prosecution when they defraud the FDA with respect to devices. However I believe that it’s official FDA policy to withdraw marketing approval.
See http://www.fda.gov/ICECI/EnforcementActions/ApplicationIntegrityPolicy/ucm134741.htm
Salmon
Batman
Withdrawing marketing approval is one thing or how about shortening their patent life on their next two drugs to market by 3 yrs. That would hurt also. That might be a nice compromise.
Jaynesday
Whatever method is used, ultimately it will make the job of those charged with monitoring and control of pharmaceutical companies much easier if they let it be known that they are serious about protecting the safety of American consumers. The best protection comes from within not from outside the industry.
As long as the prevailing opinion is that our guardians are not serious, the pharmaceutical industry setting will continue to stink to high heaven.
Good night industry! Day after day we see story after story after story about fraud, lies, deceit, criminal and near criminal activity. By my count in November alone Pharmalot had 77 stories about the nefarious activities of the pharmaceutical industry. At this rate there are almost 1000 articles published per year exposing the negative aspects of the largest and most important industry in America.
The only thing that I can conclude is that their decadence has worn us down. We’ve come to the point that the unthinkable is normal; the unacceptable is business as usual.
It is unfortunate that we have given up expecting anything better. Not only us but apparently those who are paid to protect us.
Christopher
Can we please get back to the point of the original post? Of course, if the tendency of the majority is to bring everything back to a slam on the industry then every topic is fair game for some form of tirade. It seems we are there again.
Salmon
By my count in November alone Pharmalot had 77 stories about the nefarious activities of the pharmaceutical industry.
Gee, and we’re not even 2/3’s through the month.
By the way we don’t need to wait on shortening patent life or marketing exclusivity that would take years to get approved, whereas pulling the approval is the sanction that is currently required.
Condor
Several thoughts, as an attorney practicing in this area:
(1) The opinion only means that CTI should get a chance to bring its case before a jury, it does not mean CTI would win that case.
(2) If the very same advice had come from a lawyer (rather than a pharma business consultant), certainly the lawyer’s malpractice insurer would be required to pay for damages arising from such egregiously poor advice. That is why malpractice insurance is so expensive.
(3) While “ignorance of the law” is generally no excuse, in this case, the False Claims Act specifically requires intent to defraud (i.e., a knowing violation).
As the court here held:
“. . . .In addition to its fraud claims, the
government alleged that CTI was unjustly enriched by the Medicare payments, and that it negligently misrepresented Trisonex’s status through its agents who “professed to have
special knowledge regarding Medicare reimbursement.” The FCA requires knowledge that the claims for payment were fraudulent, whereas the unjust enrichment and negligent misrepresentation claims do not. . . .”
(4) So, if we focus on the actual facts of this case, it is not so surprising at all.
As Salmon points out (much earlier in the thread, above) — albeit under a different set of facts than are presented by this case — all the “co-conspirators” could (and should!) be jointly and severally liable.
Hope this clears things up just a little.
Namaste
Condor
Sorry — one last thought:
(5) Strictly as found by the courts in this case, there could be no “conspiracy“, as there was no proof that CTI knew what it was doing was unlawful. In fact, it got advice to the contrary.
We may quibble about whether CTI acted reasonably — in relying on the advice of non-lawyers for such a critical interpretation, and in such a complex area of the law — but I do not think we may fairly “make the leap” that CTI knew what it was doing was fraudulent.
The court’s opinion is thus limited to the-above facts. In that sense, it is not at all surprising.
Namaste
harpy
Thanks, Condor. Still seems silly to me, but I understand a little better.
attorneys
The thought finally led to a Dominant Suite judgment triad life ago on eminent demesne that endorsed the city, where Pfizer created its R&D riyadh. Deed to that spot, yet, involved numerous lawsuits and uprooting numerous lives
————–
Sean Cruz
Condor
“Sean Cruz” = legal services solicitation spammer.
Spam: It happens.
Oh well — Namaste
Justice in Michigan
This comment to Salmon’s further up the thread.
The policy as conveyed by Kessler in this 1991 document was in response to the generic drugs scandal, primarily involving bribery.
As I read the document, there is no automatic withdrawal of approval for marketing a product (drug or device) if fraud or bribery has occurred.
Rather, the FDA seems is reserving a range of options, including withdrawal.
As we’ve seen from a range of cases, actual withdrawal of permission to market appears to be very rare. Instead, we have the usual CIAs, warnings, etc..
So, in sum, I believe Jaynesday is correct that even the most heinous fraud does not necessarily compromise marketing a drug or device–which, indeed, almost never happens.
Justice in Michigan
p.s. Here is the operative sentence, which is the last in the policy statement:
“An applicant also may be requested under existing regulatory procedures to recall products affected by the wrongful acts, or otherwise lacking adequate assurance of safety, effectiveness, or quality.”
So that is the “nuclear option” which, as above, almost never happens.
Salmon
You’re correct about the policy however the FD&CA sec. 505(e)(5) states:
“The Secretary shall, after due notice and opportunity for hearing to the applicant, withdraw approval of an application with respect to any drug under this section if the Secretary finds that the application contains any untrue statement of a material fact”
http://www.fda.gov/RegulatoryInformation/Legislation/FederalFoodDrugandCosmeticActFDCAct/FDCActChapterVDrugsandDevices/ucm108125.htm
Sorry about getting the refs wrong.
Justice in Michigan
Thanks, Salmon. I assume the “Secretary” in this case is the HHS Secretary.
Given the phrasing re: “due notice” and “opportunity for hearing,” it sounds to me that there remains a good deal of wriggle room, at least in actual practice.
Indeed, we know that in the case of drugs like Rezulin, Baycol, fen-phen, and others, all sorts of misrepresentations were made to FDA–acts of commission and omission. Eventually these drugs were, indeed, withdrawn. But not until a process that dragged on for years, and often through events that were instigated by forces outside FDA or by mavericks acting within the agency in concert with outside forces.
Salmon
These drugs were not removed due to fraud but rather because they were unsafe. I should point out that the act continues:
“Provided, That if the Secretary (or in his absence the officer acting as Secretary) finds that there is an imminent hazard to the public health, he may suspend the approval of such application immediately, and give the applicant prompt notice of his action and afford the applicant the opportunity for an expedited hearing under this subsection”
This is the crux. I can understand why these particular drugs might not be considered imminent dangers.
It’s become worse since then. Now the burden is so high for removing a drug for safety that we probably couldn’t withdraw Vioxx now.
Salmon
Jaynesday
For what it’s worth, and sorry Christopher, this continues to be off the original article subject.
Contained in THIS SORT are all of the Pharmalot articles that contain the words “FDA” and “Fraud” within the same article. There are 64 articles dating back to February 2007.
I haven’t drawn any conclusions, this is just raw information.
Justice in Michigan
Thanks, Salmon. You are right that the critical language is “if the Secretary…finds there is an imminent hazard to public health.”
That language leaves a universe of interpretation. I wonder if 60s thalidomide or MER-29, which definitively entailed fraud on FDA but were also not removed for that reason, would be barred from marketing under existing regulations.
Salmon
Thalidomide was definitely barred from being approved. Under the principle that it’s unsafe due to off-label use. That was in the 1961 Kefauver Harris Amendment to the The Food Drug and Cosmetics Act and it’s still there. The orginal intent has since been dismissed by the FDA. You can find numerous statements by Bob Temple and others including in Journals that it doesn’t mean what the records from back in 1961 says it means. Thus it could be approved (illegally in my opinion) now.
I think that you could argue that Thalidomide is an imminent hazard as it was used for morning sickness and the rates of deformity was 50%. In addition even a single tablet taken during a specific time frame caused the birth defects. Thus unlike Vioxx and some other drugs the toxicity was with acute use and had a very high risk of occurring and was not primarily with chronic use.
Also birth defects in babies gets a lot more attention than old people dying.
I am unfamiliar with Mer-29.