Court Opinion

ID: 3065235
Source: CourtListenerOpinion
Date Created: 2015-10-14 22:30:03.210877+00
Date Added: 2024-06-11T11:49:44.137904
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

CELL THERAPEUTICS INC.,                
                Plaintiff-Appellant,          No. 08-35619
                v.
                                               D.C. No.
                                           2:07-cv-00310-JLR
LASH GROUP INC.; DOCUMEDICS
ACQUISITION CO., INC.,                         OPINION
             Defendants-Appellees.
                                       
        Appeal from the United States District Court
           for the Western District of Washington
         James L. Robart, District Judge, Presiding

                  Argued and Submitted
           August 31, 2009—Seattle, Washington

                 Filed November 18, 2009

Before: Michael Daly Hawkins, M. Margaret McKeown and
              Jay S. Bybee, Circuit Judges.

                Opinion by Judge McKeown

                            15303
15306          CELL THERAPEUTICS v. LASH GROUP

                         COUNSEL

Daniel J. Dunne and Paul F. Rugani, Orrick, Herrington &
Sutcliffe LLP, Seattle, Washington, for the appellant.

Raymond A. Cardozo, Reed Smith LLP, San Francisco, Cali-
fornia, and Laurie M. Thornton, Corr Cronin Michelson
Baumgardner & Preece LLP, Seattle, Washington, for the
appellee.

                         OPINION

McKEOWN, Circuit Judge:

   The False Claims Act (“FCA”) was designed to encourage
reporting of false or fraudulent claims that are submitted to
the federal government for approval or payment. Typically a
relator—a whistle-blowing employee, a business partner or
competitor—brings suit “for the benefit of the United States.”
Mortgages, Inc. v. U.S. Dist. Ct., 934 F.2d 209, 210 (9th Cir.
1991) (per curiam). The government has discretion to inter-
vene in the suit as a plaintiff. But what happens when a target
                  CELL THERAPEUTICS v. LASH GROUP                   15307
defendant settles with the government and the relator and then
seeks recovery against a third party for contractual indemnity
and independent claims? We have not previously had occa-
sion to address this question. We conclude that the FCA does
not preclude such claims.

                          I.   BACKGROUND

  A.    THE FALSE CLAIMS ACT

   A brief review of the Act’s structure is useful in putting the
third party claim issue in context. The purpose of the FCA is
“to discourage fraud against the government.” Robertson v.
Bell Helicopter Textron, Inc., 32 F.3d 948, 951 (5th Cir.
1994). The FCA imposes civil liability on any person who
knowingly uses a “false record or statement to get a false or
fraudulent claim paid or approved by the Government,” 31
U.S.C. § 3729(a)(2) (1984), and any person who “conspires to
defraud the Government by getting a false or fraudulent claim
allowed or paid.” Id. § 3729(a)(3).1 To encourage the disclo-
sure of potential fraud, under the qui tam provisions of the
FCA, relators may “bring a civil action for a violation of [§ ]
3729 for the person and for the United States Government.”
Id. § 3730(b)(1); United States ex rel. Hall v. Teledyne Wah
Chang Albany, 104 F.3d 230, 233 (9th Cir. 1997). If the gov-
ernment does not intervene in the suit, the relator may pro-
ceed with the FCA litigation. 31 U.S.C. § 3730(c)(3). If the
government elects to intervene, the relator remains part of the
suit as a qui tam plaintiff, id. § 3730(b)(2), but the govern-
  1
    The statute was recently amended and now holds liable “any person
who knowingly presents, or causes to be presented, a false or fraudulent
claim for payment or approval; knowingly makes, uses, or causes to be
made or used, a false record or statement material to a false or fraudulent
claim; [or] conspires to commit a violation of” these subparagraphs. 31
U.S.C. § 3729(a)(1)(A)-(C) (effective May 20, 2009). CTI was charged
under the prior language, but the differences are not material to our deci-
sion.
15308          CELL THERAPEUTICS v. LASH GROUP
ment may dismiss or settle the action over the relator’s objec-
tion. Id. § 3730(c)(2)(A)-(B).

   The FCA provides two important incentives for relators: a
significant bounty and whistle-blower protection. A relator is
entitled to 15-25% of the proceeds of the action or settlement
of a claim in which the government intervenes, id.
§ 3730(d)(1), and as much as 25-30% if the government does
not intervene. Id. § 3730(d)(2).

  In crafting whistle-blower protections, Congress aimed “to
make employees feel more secure in reporting fraud to the
United States.” Neal v. Honeywell Inc., 33 F.3d 860, 863 (7th
Cir. 1994), abrogated on other grounds by Graham County
Soil & Water Conservation Dist. v. United States ex rel. Wil-
son, 545 U.S. 409, 416-17 (2005). Employees who investigate
and supply information concerning the fraudulent practices of
an employer are protected from retaliation, whether the
employee or the government brings suit against the employer.
31 U.S.C. § 3730(h); Neal, 33 F.3d at 863-65.

   Nothing in the text or the legislative history of the FCA
addresses the potential preclusive effect of a settlement
among the government, a relator, and a qui tam defendant vis-
a-vis a subsequent claim by the qui tam defendant against a
third party. As one treatise notes, “[t]he legislative history of
the 1986 amendments [to the False Claims Act] does not dis-
cuss the availability of indemnity or contribution, but does
emphasize the strong public policy of encouraging whistle-
blowers to come forward.” 1 John T. Boese, Civil False
Claims and Qui Tam Actions § 4.10[B] at 4-258.1 (3d ed.
2006). Congress did contemplate, however, that disputes
would be resolved through settlement. See, e.g., 31 U.S.C.
§ 3730(d)(1), (3) (specifying the proportion of the proceeds of
an “action or settlement” a relator is entitled to receive). Con-
gress also specifically contemplated the potential preclusive
effects those final judgments rendered in other proceedings
                  CELL THERAPEUTICS v. LASH GROUP                    15309
would have on qui tam actions. Section 3731(e) of the current
version of the Act provides that

      a final judgment rendered in favor of the United
      States in any criminal proceeding charging fraud or
      false statements, whether upon a verdict after trial or
      upon a plea of guilty or nolo contendere, shall estop
      the defendant from denying the essential elements of
      the offense in any action which involves the same
      transaction as in the criminal proceeding and which
      is brought under subsection (a) or (b) of section 3730
      [of the FCA].

31 U.S.C. § 3731(e).

  B.    FACTUAL BACKGROUND2

   Cell Therapeutics, Inc. (“CTI”) developed a cancer drug
called Trisonex, which the Food and Drug Administration
(“FDA”) approved in September 2000 for the treatment of a
particularly virulent form of leukemia. This was the first time
CTI, a small and relatively young biotechnology company,
had received FDA approval, so it turned to Documedics
Acquisition Co., Inc. (“Documedics”) to handle Medicare
reimbursement and serve as a reimbursement consultant.

   Documedics billed itself as an expert in reimbursement pro-
tocol for oncology drugs, but made a serious error in advising
CTI. In addition to the approved use for Trisonex, oncologists
prescribed several “off-label” uses to treat other cancers—
uses for which the FDA had not approved the drug—and
Documedics mistakenly advised CTI, and in turn Medicare
carriers and medical providers, that the off-label uses were
  2
    In reviewing the district court’s grant of judgment on the pleadings, we
accept as true all allegations in CTI’s complaint and treat as false those
allegations in the answer that contradict CTI’s allegations. MacDonald v.
Grace Church Seattle, 457 F.3d 1079, 1081 (9th Cir. 2006).
15310          CELL THERAPEUTICS v. LASH GROUP
reimbursable by Medicare. Because of these assurances, the
carriers and providers submitted reimbursement claims to
Medicare. Once CTI understood that Trisonex was already
eligible for reimbursement for these off-label uses, CTI
stopped pursuing further research and publications that would
have supported Medicare reimbursement. CTI also alleges
that it elected not to divest Trisonex and made other business
decisions based on Documedics’ ill-informed advice, which
resulted in losses for CTI.

  The government began investigating CTI and the Lash
Group (“Lash”), Documedics’ successor in interest, in the fall
of 2004. Two years later, in 2006, James Marchese, a CTI
employee, filed a qui tam action against CTI and Lash.

   In 2007, the government intervened in the suit as to CTI but
not as to Lash. Specifically, the government alleged CTI
“knowingly and willfully promoted the sale and use of Tri-
sonex . . . for such indications [as] had not been approved as
safe and effective by the FDA” and “made false and mislead-
ing statements to treating doctors . . . causing them to present
false or fraudulent claims to Medicare.” In addition to the
FCA claims, the government alleged common law fraud, neg-
ligent misrepresentation and unjust enrichment.

   CTI immediately settled with Marchese and the govern-
ment for $10.6 million, and the government and Marchese
stipulated to dismissal of their claims with prejudice. One day
later, the district court dismissed the claims without making
a finding of liability. Lash settled with Marchese for an undis-
closed amount in 2008.

   While the qui tam suit was pending, CTI sued Lash in state
court for: (1) declaratory relief that Lash was contractually
obligated to indemnify CTI for damages related to the govern-
ment’s investigation and any resulting judgment or settlement,
(2) breach of the service agreement, (3) breach of a contrac-
tual indemnification clause, (4) breach of the implied war-
              CELL THERAPEUTICS v. LASH GROUP           15311
ranty of good faith and fair dealing, and (5) negligence /
breach of the duty of care in providing professional services.
The action was removed to federal court and is the basis of
the claims now on appeal.

   The district court granted Lash’s motion for judgment on
the pleadings on the ground that CTI’s claims are barred by
our holding in Mortgages, in which we directed dismissal of
a qui tam defendant’s counterclaims for indemnification
against the relator. 934 F.2d at 210.

   The district court concluded that qui tam defendants may
not seek indemnification or contribution from co-participants
in a scheme to defraud the government, and as a result found
that CTI’s claims against Lash were barred because its dam-
ages were pleaded as “incidental to and dependent upon its
payments . . . to settle the FCA claims in the underlying qui
tam action.”

                       II.   ANALYSIS

  A.   CLAIMS BY QUI TAM DEFENDANTS IN THE NINTH
       CIRCUIT

   The bounty and whistle-blower provisions of the FCA work
together to not only encourage relators to come forward but
also to protect them when they do. Our case law has also fash-
ioned a remedy designed to protect qui tam relators from
retaliation by defendants.

  We first addressed counterclaims by qui tam defendants in
Mortgages. Mortgages, Inc., a mortgage lending company,
accepted allegedly fraudulent loan applications filled out by
defendants who applied for low-income loans, transferred the
property secured with the loans to co-defendants, and then
defaulted on the loans. The Department of Housing and Urban
Development lost millions of dollars, and Mortgages ulti-
15312          CELL THERAPEUTICS v. LASH GROUP
mately settled with the government for nearly half a million
dollars. 934 F.2d at 210.

   Mortgages later brought a qui tam suit against the defen-
dants, offering the government information it acquired about
the defendants’ false loan applications. The defendants, alleg-
ing that Mortgages defrauded and misled them as to the nature
of the investment scheme, brought counterclaims for breach
of the covenant of good faith and fair dealing, breach of fidu-
ciary duty, fraud, negligence, negligent misrepresentation, and
conspiracy. Id. at 210-11.

   Mortgages moved to dismiss the counterclaims, taking the
position that qui tam defendants could not file counterclaims
against qui tam plaintiffs. Mortgages referenced a Senate
Report stating that a qui tam relator “is afforded protection
from retaliation for his actions.” S. Rep. No. 99-345, at 13
(1986), as reprinted in 1986 U.S.C.C.A.N. 5266, 5278 (here-
inafter Senate Report). The district court denied Mortgages’
motion to dismiss the counterclaims, finding the Senate
Report more likely referred to the whistle-blower protection
codified at 31 U.S.C. § 3730(h) that same year.

   Upon considering a writ of mandamus filed by Mortgages,
we instructed the district court to vacate its order that Mort-
gages respond to the counterclaims. Mortgages, 934 F.2d at
212, 214. Reasoning that “[t]he FCA is in no way intended to
ameliorate the liability of wrongdoers by providing defen-
dants with a remedy against a qui tam plaintiff with ‘unclean
hands,’ ” id. at 213, we concluded that there was “no right of
indemnity or contribution among participants in a scheme to
defraud the government in violation of the FCA.” Id. at 212.
In the same vein, we also concluded that there can be no right
to assert state law counterclaims that would, in effect, provide
contribution. Id. at 214.

   [1] Three years later, we reconsidered the question of
claims against a relator, holding that a qui tam defendant may
               CELL THERAPEUTICS v. LASH GROUP             15313
bring independent claims against a relator. United States ex
rel. Madden v. Gen. Dynamics Corp., 4 F.3d 827, 831 (9th
Cir. 1993). In Madden, former and current employees of Gen-
eral Dynamics brought a qui tam action claiming the company
defrauded the Navy. The government chose not to intervene,
and General Dynamics brought multiple state law counter-
claims, ranging from breach of the duty of loyalty and viola-
tions of the California Labor Code to misappropriation of
trade secrets. Id. at 829.

   The district court dismissed General Dynamics’ counter-
claims for damages on the ground that the practical effect of
those claims was to provide a defendant the opportunity to
offset its liability by recovering from qui tam plaintiffs.
Although these claims were “substantively similar to those
raised in Mortgages,” we reversed the district court and held
that rather than seeking indemnification and/or contribution,
General Dynamics sought “independent damages.” Id. at 830.
Claims for independent damages are distinguishable from
claims for indemnification or contribution, which, by defini-
tion, “only have the effect of offsetting liability.” Id. at 831.

   In Madden, we further resolved that even dependent coun-
terclaims should not be foreclosed until the qui tam defen-
dant’s liability is established, reasoning that denying a qui tam
defendant recourse to damages offends procedural due pro-
cess. Id. at 831. To avoid a potential conflict with Mortgages,
we suggested adopting a two-stage resolution process for
resolving liability in FCA actions before adjudicating a coun-
terclaim:

    If a qui tam defendant is found liable, the counter-
    claims can then be dismissed on the ground that they
    will have the effect of providing for indemnification
    or contribution. On the other hand, if a qui tam
    defendant is found not liable, the counterclaims can
    be addressed on the merits.
15314             CELL THERAPEUTICS v. LASH GROUP
Id. (citing Burch ex rel. United States v. Piqua Eng’g, Inc.,
145 F.R.D. 452, 457-58 (S.D. Ohio 1992)).3

   Both Mortgages and Madden figured prominently in the
district court’s dismissal of CTI’s claims against Lash. The
district court concluded that Madden is inapposite and that
CTI should not be allow to “wriggle out of Mortgages and
into Madden.” We think that it is not Mortgages that limits
Madden, but Madden that circumscribes Mortgages.

   [2] Madden directly addresses two key questions that
underlie our analysis in this case: First, are any of CTI’s
claims appropriately considered “independent claims”? Sec-
ond, has there been a finding of liability that would preclude
dependent claims that might in effect give CTI an indemnity?
That the qui tam claims here were resolved by settlement
rather than a finding of liability adds a wrinkle not considered
in Madden. We examine these issues in light of Mortgages
and Madden and conclude the district court’s grant of Lash’s
motion for judgment on the pleadings, which we review de
novo,4 must be reversed.

  B.    INDEPENDENT CLAIMS

   [3] Under Madden, CTI may advance independent claims
without regard to an eventual finding of liability under the
FCA. 4 F.3d at 831. It is incumbent on the district court to
separate those claims for damages which “only have the effect
of offsetting liability” from those that are not dependent on a
qui tam defendant’s liability under the FCA. Id.

   [4] CTI alleges that Lash’s bad advice resulted in $12.3
  3
    The district court in Burch bifurcated the qui tam plaintiffs’ FCA liti-
gation from the defendant’s independent employment-related claims.
Burch, 145 F.R.D. at 458.
  4
    Madden, 4 F.3d at 830 (“[W]hether a qui tam defendant can bring
counterclaims [is a] question of law which we review de novo.”).
               CELL THERAPEUTICS v. LASH GROUP             15315
million in damages in addition to the $10.5 million CTI paid
to settle the government’s claims. The district court parsed
CTI’s complaint as articulating claims related only to the set-
tlement of the qui tam action, instead of dependent and inde-
pendent claims.

  In its second cause of action for breach of contract, its
fourth cause of action for breach of the implied warranty of
good faith and fair dealing, and its fifth cause of action for
negligence / breach of duty of care, CTI alleged that

    LASH GROUPS’s breach was a direct and proxi-
    mate cause of damage to CTI in the form of investi-
    gation, litigation and settlement expenses, including
    attorneys’ fees and costs, in an amount to be proven
    at trial, lost opportunities to pursue other means of
    reimbursement, damage to reputation, and increased
    cost of capital.

In dissecting this claim, the district court found that the word
“including” modified not only “attorneys’ fees and costs, in
an amount to be proven at trial,” but also the remainder of the
paragraph. As a result, the district court concluded that the
claim for $12.3 million in damages caused by Lash’s unlawful
actions and erroneous advice, which lead CTI to miss oppor-
tunities to alter its sales and marketing plans, seek FDA
approval for Trisonex, or divest itself of Trisonex, was not an
independent claim, but “rode on the back of the claims for
FCA indemnification barred by Mortgages.”

   While CTI likely could have mitigated this erroneous con-
struction through the judicious use of semi-colons or separate
sentences, a failure to include the grammatical fix is not suffi-
cient to transform an independent claim into a claim that
“only [has] the effect of offsetting liability.” The district
court’s construction is peculiar. Taken in light of the facts
alleged in CTI’s complaint, CTI has alleged four types of
damage, “in the form of”: (1) “investigation, litigation and
15316          CELL THERAPEUTICS v. LASH GROUP
settlement expenses, including attorneys’ fees and costs, in an
amount to be proven at trial”; (2) “lost opportunities to pursue
other means of reimbursement”; (3) “damage to reputation”;
and (4) “increased cost of capital.” Although these claims
may follow from the alleged bad advice, only the first is argu-
ably a claim for indemnification for the costs incurred in set-
tling the qui tam action.

   The district court also mistakenly inverted the Madden
standard, treating the Marchese Settlement Agreement as if it
depended entirely on the question of fraud liability under the
FCA because one of the government’s claims was for fraud
under the FCA. Instead, Madden defines claims that amount
to indemnification or contribution as claims that “only have
the effect of offsetting liability” in the qui tam action. Id. The
government’s claims against CTI included claims that were
not, and indeed could not have been, brought as part of the
original qui tam action. 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 mis-
representation claims do not. See 31 U.S.C. § 3729(a)(1)(A).

   [5] The restrictions in Mortgages do not extend to damages
for claims other than those for fraud under the FCA. The lia-
bility for which the Mortgages court barred indemnification
was solely for fraud or conspiracy to commit fraud under the
FCA. Here, had a jury reached a finding of liability for CTI
as to unjust enrichment and negligent misrepresentation but
not fraud, nothing in Mortgages would bar CTI’s claims for
indemnification against Lash. The facts articulated in CTI’s
complaint are sufficient to state a claim for damages indepen-
dent of the question of CTI’s liability under the FCA.
               CELL THERAPEUTICS v. LASH GROUP             15317
  C.   THE EFFECT OF SETTLEMENT ON QUI TAM LIABILITY

   [6] In contrast to claims for independent damages, claims
that merely indemnify CTI for its FCA liability or seek contri-
bution for the same must be dismissed if CTI is liable under
the FCA. Madden, 4 F.3d at 831. Two reasons lead us to con-
clude that the district court erred in characterizing the settle-
ment as effectively establishing FCA liability and thus barring
the claims against Lash. First, settlements generally do not bar
claims against non-parties or have issue-preclusive effect
(sometimes referred to as “collateral estoppel”) on the subse-
quent litigation of issues not expressly resolved in the settle-
ment. That principle is particularly true in this case, where the
government signed on to a settlement that specifically dis-
claimed CTI’s liability and Lash was not even a party to the
settlement. Second, the district court’s presumption that a set-
tlement with the government is equivalent to a finding of lia-
bility would chill the settlement process, signaling to future
qui tam defendants that the only way to preserve potentially
legitimate claims would be to secure a litigated judgment in
court.

   The district court treated CTI’s settlement with the govern-
ment as having preclusive effect on the question of CTI’s lia-
bility under the FCA. Sidestepping the express disclaimer of
liability in the Settlement Agreement, the district court relied
instead on the fact that the Agreement did not include a “find-
ing that CTI was not legally liable,” and concluded that “the
certainties [regarding CTI’s liability] outweigh the uncertain-
ties.” The district court’s reasoning inverts the traditional
treatment of settlement agreements.

  The Settlement Agreement included the following language
regarding liability:

    This Agreement is neither intended by the parties to
    be, nor should be, interpreted as an admission of lia-
    bility by CTI. In addition, the parties agree that no
15318          CELL THERAPEUTICS v. LASH GROUP
    representation, term or condition of this Settlement
    Agreement or any draft thereof shall be admissible
    as an admission of, or evidence of, any fault or omis-
    sion of CTI in any proceeding in any court or before
    any administrative body.

Regarding potential claims against non-parties, the Settlement
Agreement specifies that it

    is intended to be for the benefit of the Parties only.
    The Parties do not release any claims against any
    other person or entity, except . . . for billings covered
    by this Agreement from any health care beneficiaries
    or their parents, sponsors, legally responsible indi-
    viduals, or third party payors based upon the claims
    defined as Covered Conduct.

   The Settlement Agreement also affirmatively precludes any
attempt by CTI to avoid its obligations through bankruptcy
proceedings, or to use the agreement to bar an administrative
remedy or criminal prosecution under the Double Jeopardy or
Excessive Fines Clauses.

   Thus, the government obtained several concessions from
CTI regarding particular preclusive effects of the Settlement
Agreement, but no concessions regarding CTI’s liability for
fraud. To the contrary, the Settlement Agreement specifically
disclaims its potential preclusive effect regarding issues of lia-
bility and fault under the FCA.

   [7] Lash was a party to the qui tam litigation before the
government’s decision to intervene as to CTI, and Lash later
settled with Marchese for an undisclosed amount. The Settle-
ment Agreement, however, releases only healthcare beneficia-
ries and parties connected with them from third-party claims.
No other parties are released. By its terms, the Settlement
Agreement should not be construed as a final judgment on
CTI’s FCA liability.
                 CELL THERAPEUTICS v. LASH GROUP                   15319
    [8] The structure of the Settlement Agreement comports
with the longstanding principle that settlement agreements
generally preclude further litigation on the claims by and
against parties to the initial settlement, but issue preclusion
generally does not attach to a settlement agreement. Echoing
this principle, in Arizona v. California, 530 U.S. 392 (2000),
the Supreme Court held that settlements “ordinarily occasion
no issue preclusion . . . unless it is clear . . . that the parties
intend their agreement to have such an effect.” Id. at 414.5 “In
most circumstances, it is recognized that consent agreements
ordinarily are intended to preclude any further litigation on
the claim presented but are not intended to preclude further
litigation on any of the issues presented.” 18A Charles Allen
Wright et al., Federal Practice and Procedure, § 4443 at 265
(2d. ed. 2002). Thus, issue preclusion does not settle CTI’s
liability.

   [9] The final question is whether claim preclusion supports
the district court’s finding of liability. Claim preclusion, often
referred to as res judicata, bars any subsequent suit on claims
that were raised or could have been raised in a prior action.
Claim preclusion “applies when there is (1) an identity of
claims; (2) a final judgment on the merits; and (3) identity or
privity between the parties.” Stewart v. U.S. Bancorp, 297
F.3d 953, 956 (9th Cir. 2002).

   [10] The Settlement Agreement would properly preclude
further litigation between CTI and the government, or
between CTI and Marchese, regarding the qui tam action and
the government’s additional claims. Claim preclusion does
not attach to CTI’s claims against Lash, however. Lash was
not a party to the Settlement Agreement, and none of CTI’s
  5
    The Supreme Court further noted that a settlement and consent judg-
ment, which specified that where the “final judgment is based on a com-
promise and settlement [it should] not be construed as an admission by
either party for the purposes of precedent or argument in any other case,”
did not preclude certain subsequent claims. Id. at 405.
15320             CELL THERAPEUTICS v. LASH GROUP
claims against Lash were raised in the qui tam litigation, nor
were they included in the settlement. Just as significantly,
there has been no final judgment on the merits.

   Not only did the parties to the qui tam suit not foreclose
claims vis-a-vis Lash, but giving the consent judgment the
imprimatur of a liability finding would upend the settlement
process. In effect, the district court read between the lines to
conclude that the certainties about CTI’s liability “out-
weigh[ed] the uncertainties.” This invasion into the settlement
milieu is unprecedented.

   [11] In resolving disputes under the FCA, we have recog-
nized “the general policy in favor of encouraging parties to
settle disputes.” Hall, 104 F.3d at 233. Treating a qui tam set-
tlement as a de facto finding of liability would inevitably chill
the settlement spirit. While it is particularly difficult to ascer-
tain what percentage of qui tam actions are settled because
many settlements are not reported, commentators agree that
the majority of qui tam actions are resolved through settlement.6
Expanding the effect of a settlement to bar independent
claims against third parties or claims for indemnification or
contribution apart from FCA liability would inevitably tip the
equation toward trial rather than settlement, even where set-
tlement would ordinarily be in the best interest of the parties.
The bottom line is that a settlement agreement under the FCA
should not, absent specific and clearly identified intent to the
contrary, be viewed as an admission of liability that precludes
non-FCA claims against third parties.
  6
   See, e.g., Kaz Kikkawa, Note, Medicare Fraud and Abuse and Qui
Tam: The Dynamic Duo or the Odd Couple?, 8 Health Matrix 83, 122
(1998) (“[N]egative publicity, the large potential penalties involved, and
availability of reimbursement of attorneys fees all encourage the settle-
ment of claims. Few cases are litigated to completion, thus creating little
judicial precedent.”); Joseph P. Tomain, False Claims Act Litigation:
Whistleblower Qui Tam Suits Against Contractors Who Cheat the Govern-
ment, 47 Admin. L. Rev. 299, 301 (1995) (observing that “there often is
pressure for the government to settle with the contractors to the relator’s
detriment”).
               CELL THERAPEUTICS v. LASH GROUP             15321
                          CONCLUSION

   [12] Our examination of the structure of the FCA, the hold-
ings in Mortgages and Madden, the settlement agreement in
Marchese, and the nature of CTI’s claims against Lash leads
us to conclude that CTI’s claims should not have been dis-
missed at the pleading stage. The district court should recon-
sider whether the claims are independent and, for third party
claims that are not independent, should assess how to proceed
in light of our holding that the Settlement Agreement does not
constitute a finding of liability under the FCA.

   The reasons for restricting the ability of a qui tam defen-
dant to seek recovery against a relator are not in play here. In
Mortgages, the qui tam defendants’ counterclaims for indem-
nification ran afoul of the FCA’s “comprehensive procedures
for enforcement, including a provision to limit the reward of
a qui tam plaintiff if the court determines that party is also a
wrongdoer.” 934 F.2d at 213 (citing 31 U.S.C. § 3730(d)(3)).
The need we identified in Madden to ensure that relators do
not engage in wrongful conduct is no more acute than the
need to ensure that third parties do not avoid liability for their
wrongful conduct, even if the party wronged is a qui tam
defendant. See 4 F.3d at 831. Unlike the FCA provisions that
restrict or prevent entirely the ability of a relator with unclean
hands to collect a qui tam bounty, 31 U.S.C. § 3730(d), or
allow a prevailing defendant to recover reasonable attorneys’
fees if the qui tam action was brought in bad faith, id.
§ 3730(d)(4), there are no counterpart or comprehensive pro-
cedures in the FCA to address the wrongdoing of a non-
relator third party. That gap is not surprising under the FCA
structure. Here, Lash is not a relator nor did it bring qui tam
claims against CTI.

   In addition, unlike Mortgages, this case does not present
the threat of chilling future suits by qui tam relators, who may
collect their bounties regardless of whether the qui tam defen-
dant seeks relief from a third party. To the extent that some
15322             CELL THERAPEUTICS v. LASH GROUP
courts have interpreted Mortgages to foreclose qui tam defen-
dants from bringing claims against third parties, we respect-
fully disagree with that gloss on the case.7 Mortgages did not
address that issue. We do so here, however, and hold that qui
tam defendants may bring third party claims under the cir-
cumstances outlined in this opinion.

   REVERSED and REMANDED for proceedings consis-
tent with this opinion.

  7
    See, e.g., United States v. Dynamics Research Corp., 441 F. Supp. 2d
259, 264 (D. Mass. 2006) (applying Mortgages to non-relators on the
ground that “nothing in the Ninth Circuit’s federal common law analysis
[in Mortgages] suggests that the court would have arrived at a different
conclusion if the potential indemnitee had been a third party . . . instead
of a qui tam plaintiff”). Cf. Israel Disc. Bank Ltd. v. Entin, 951 F.2d 311,
315 n.9 (11th Cir. 1992) (citing Mortgages in dicta and assuming without
deciding that an action by a qui tam defendant against a third party could
have been dismissed because “there is no right to indemnity or contribu-
tion under the FCA”).