Complaint - The US Government vs. Jim Marchese Whistle-Blower Case

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28 The settlement agreement was submitted to the Court on April 17, 2007, as Exhibit 1 to the Stipulation of1

Dismissal. Relator was a signatory to the settlement agreement, which expressly reserved the, “issue of thepercentage, if any, that Relator should receive of any proceeds of the settlement of his claim(s)....” Id. at ¶ 6.

United States’ Position Statementon the Relator’s Share Issue – 1(CV-06-0168-MJP)

UNITED STATES ATTORNEY700 STEWART STREET, SUITE 5220

SEATTLE, WASHINGTON 98101-1271(206) 553-7970

Judge Pechman

UNITED STATES DISTRICT COURTWESTERN DISTRICT OF WASHINGTON

AT SEATTLE

UNITED STATES OF AMERICAex rel. JAMES MARCHESE,

Plaintiff, v.

CELL THERAPEUTICS, INC.,MEDCOMM SOLUTIONS,ENVISION PHARMA, INC., andAMERISOURCEBERGEN CORP.,

Defendants.

No. CV-06-0168-MJP

UNITED STATES’ POSITION STATEMENT ON THE RELATOR’S SHARE ISSUE

INTRODUCTION

On September 5, 2007, this Court ordered the parties to submit position statements in

advance of an evidentiary hearing on the question of relator James Marchese’s entitlement to a

share of the proceeds of the settlement agreement dated April 16, 2007, between the United

States, defendant Cell Therapeutics, Inc. (“CTI”) and Marchese. In compliance with that order,1

the United States requests and hereby moves that this Court exercise its discretion under Section

3730(d)(3) of the False Claims Act to deny Marchese any relator’s share in this case because

Marchese personally planned and initiated the fraudulent scheme at the core of this case. See

31 U.S.C. § 3730(d)(3) (granting court discretion to reduce relator’s share by such amount as the

court deems appropriate if the relator “planned and initiated” the violation on which the action

was brought).

Case 2:06-cv-00168-MJP Document 75 Filed 10/01/2007 Page 1 of 20

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Marchese’s actions – for which he has never shown remorse or accepted responsibility –

caused physicians to unwittingly treat thousands of gravely ill patients with a medicine which

had no demonstrated therapeutic value for their diseases and also directly led to the United States

suffering millions of dollars in damages for which it has not been and probably never will be

made whole. Under these extraordinary circumstances, giving Marchese a share of the

settlement proceeds would merely serve to reward Marchese’s egregious wrongdoing by

enriching him at the further expense of the United States and more particularly the Medicare

program which will receive the balance of the settlement proceeds.

Facts

The scheme revealed by this case was to drive up purchases of CTI’s anti-cancer drug,

Trisenox, by fooling physicians into writing prescriptions for Trisenox for purposes that were

not medically accepted and tricking Medicare into reimbursing those “off-label” prescriptions so

that the prescription cycle would continue. A detailed explanation of the scheme is set forth in

the United States Complaint in Intervention, filed April 17, 2007, (“U.S. Complaint”), which the

United States hereby incorporates by reference.

As described in greater detail in the U.S. Complaint, CTI paid a total of $30,000 to the

Association of Community Cancer Centers (“ACCC”) in order to get the ACCC to publish

Trisenox’s off-label uses in the ACCC’s Compendia Based Bulletin (“Bulletin”) in such a way

as to make it appear that those off-label uses were FDA-approved, medically accepted uses. See

U.S. Complaint at ¶¶ 31-38. CTI’s sales force then distributed copies of the Bulletin to

physicians. Id. at ¶¶ 39-58. Based on the false information in the Bulletin, physicians wrote

thousands of off-label Trisenox prescriptions and submitted those prescriptions to Medicare for

reimbursement in the mistaken belief that Trisenox’s off-label uses were medically accepted and

thus eligible for Medicare reimbursement. Id. at ¶59. To ensure physicians would continue

prescribing Trisenox off-label, CTI needed to convince Medicare to reimburse those off-label

prescriptions. Accordingly, CTI drafted a letter that was sent to the medical directors of the

various Medicare Carriers notifying them that Trisenox’s off-label uses were now listed in the

Bulletin and hence were eligible for Medicare reimbursement. Id. at ¶¶60-61. The Medicare


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Carriers accepted these false representations and began routinely reimbursing off-label

prescriptions of Trisenox which were not in fact entitled to Medicare reimbursement because

Trisenox was not a medically accepted treatment for any of the off-label uses for which it was

being prescribed. Id. at ¶¶62-65.

The following additional facts are relevant to the relator’s share dispute:

1. Marchese, who has worked in pharmaceutical sales since 1991, received a Masters

degree from Columbia University in Public Administration (Health Care Public Policy and Law)

and received a Juris Doctor from Seton Hall University in 2001. While still in law school,

Marchese submitted a term paper discussing the FDA’s authority to regulate drug

manufacturers’ off-label marketing activities and concluded that “a manufacturer can acquiesce

to [FDA’s regulation of off-label marketing], or roll the dice and disseminate ‘off-label’ non-

compliant data and run the risk of incurring catastrophic legal costs or penalties.” See Ex. 1 at

01099 (emphasis added).

2. CTI hired Marchese as an Oncology Account Manager in 2000. In the Fall of 2001,

Marchese arranged to meet with the ACCC’s Don Jeweler. Jeweler’s September 20, 2001, letter

to Marchese memorialized an agreement by which the ACCC would list Trisenox’s off-label

orphan drug designations in its Bulletin in exchange for a $10,000 per year “grant.” See Ex. 2.

3. On October 15, 2001, Marchese wrote a memorandum to CTI’s accounting department

requesting payment of the first $10,000 installment to the ACCC, bluntly stating that, “the

ACCC is being offered this support in return for 3,000 copies of the Compendia Bulletin listing

Trisenox’s approval for MM, MDS and CML and an [sic] banner advertisement on their web

page.” See Ex. 3 (emphasis added). Ultimately, CTI paid the ACCC $30,000 for both the

listing and for several thousand of copies of the Bulletin.

4. On October 16, 2001, James Bianco, CTI’s CEO, wrote the following email to

Marchese:

Jim [Marchese]

I heard from Mark and Peter that you may have worked your magic again with a potentialway to get us listed for our orphan designation in the Compendia well ahead of the end of2002 target through the more traditional route. If this proves effective this would be amajor accomplishment for your team.


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Nice work – I’ll keep my fingers crossed.

Jim [Bianco]

See Ex. 4.

5. By October 21, 2001 Marchese wrote a formal “Compendia Action Plan,” the last point

of which stated, “[d]etermine affects [sic] of Orphan Drug Designation listing vs Data

submission acceptance if reimbursement becomes an issue.” See Ex. 5 (emphasis added).

Marchese assigned this task to himself. Id.

6. Shortly after CTI paid the ACCC the first $10,000 “grant,” the ACCC published the

November 2001 issue of the Bulletin, which falsely and misleadingly indicated that certain off-

label uses for Trisenox were medically accepted and FDA-approved. See Ex. 6.

7. Upon receipt of the first batch of copies of the false and misleading Bulletin, Marchese

sent an email on November 26, 2001, to his immediate supervisor at CTI, Peter Sportelli, which

read:

Peter,

How pretty are those Compendia bulletins!!! By the way - in case you did not notice, Iworked another little loop whole [sic]. I figured what the Hell!!! If you notice the ACCChas us listed for EVERY form of Leukemia not just AML, CML and APL. * * * There is aton of stuff in there I have never even heard of. If a state checks, we will only get ourOrphan Drug and USP stuff, but my guess is that about 30-40% of the states will not check. Hey it can’t hurt and man do I like working the system. I figure if 1 state doesn’t check its[sic] a bonus!!

I got a kick out [of] this, I thought you might too. I figured if I told everyone inside theywould raise our goal, so I kept it quiet until it came through. Plus I figured it was a goodreminder that while I might not call you everyday that doesn’t mean I am not cooking upways to make us VERY, VERY rich!!! I also think coming out with stuff like this keepsyou guessing, hell I can’t let you think you have all my tricks down. I have a couple more Iam working on so stay tuned.

Jim [Marchese]

See Ex. 7.

8. In anticipation of distributing the copies of the misleading Bulletin to physicians,

Marchese composed an email for CTI’s sales force about how best to use the Bulletin to

encourage physicians to write off-label prescriptions. See Ex. 8. Marchese also personally

distributed copies of the Bulletin to physicians he called upon in his capacity as an Oncology

Account Manager.


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9. Marchese knew that physicians would only write off-label prescriptions for Trisenox if

they believed Trisenox was medically accepted for those uses and if Medicare approved the

reimbursement of those off-label prescriptions. Thus, in November 2001 Marchese drafted the

first of two letters to the medical directors of the various Medicare Carriers. The final letter,

dated November 19, 2001, was sent under the signature of CTI’s contractor (Documedics) to

make it appear as if it had been written by an independent third party consultant. The letter

provided:

As a consultant to cancer practices, I would like to take this opportunity to notify you of anupdate within the Compendia-Based Drug Bulletin for November 2001, Fall Update Vol.10 No. 3 published by the ACCC. It details the diseases and therapies listed in therecognized Compendia (USP DI). I would like to bring your attention to the fact thatTRISENOX™ (arsenic trioxide) is newly listed in the Compendia for the followingdiseases: multiple myeloma, myelodysplastic syndrome, chronic myeloid leukemia, inaddition to the approved indication of acute myelocytic leukemia -M3.

Trisenox (arsenic trioxide) has been granted orphan-drug designation in each of thesediseases, denoted by *** within Compendia-Based Drug Bulletin. ... HCFA and the FDAare collaborating to ensure that patients treated by orphan designated drugs will be affordedcoverage.......

As per the Medicare Cancer Coverage Act of 1994, a drug listed in one of thecompendia should be a covered Medicare item. Therefore, we are requesting aformulary listing in your state/states.

See Ex. 9. Thus Marchese attempted to use the false and misleading Bulletin to convince

Medicare Carriers that they should in fact reimburse Trisenox when physicians prescribed it off-

label.

10. In direct response to receipt of the false letter Marchese drafted which referred to the

false Bulletin Marchese had arranged to get published, Medicare Carriers began to routinely

approve claims for Trisenox when prescribed off-label for MM, MDS and CML. Empire

Medicare Services (the Medicare Carrier for New Jersey and the county of Nassau in New York

State) specifically acknowledged taking the step of approving payment for off-label Trisenox

prescriptions as a result of receiving the November 19, 2001, letter. See Ex. 10. Moreover,

shortly after receipt of the November 2001 letter, Nationwide Insurance (the Medicare Carrier

for Ohio and West Virginia), and Noridian (the Medicare Carrier for Alaska, Arizona, Colorado,


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With respect to the remaining Medicare Carriers who had not yet begun reimbursing Trisenox for off-label2

prescriptions, Marchese wrote a second letter in February 2002, nearly identical to the November 2001 letter,which had the effect of convincing Highmark Medicare Services, Inc. (the Medicare carrier for Pennsylvania), toroutinely approve claims for Trisenox when prescribed off-label for MM, MDS and CML.




Hawaii, Iowa, Nevada, North Dakota, Oregon, South Dakota, Washington and Wyoming) both

began routinely approving payment for off-label Trisenox prescriptions. 2

11. In a 2002 memorandum to his superiors complaining about his failure to receive a

promotion, Marchese wrote the following entry concerning his role in the company’s compendia

strategy:

Created and implemented a 100% successful compendia submission for MDS, MM, AML,CML. ... NOTE: To date the company still fails to meet ANY of the criteria set forth incompendia acceptance [sic] for all of the aforementioned disease states. Without myability to troubleshoot and find a [sic] alternate route we would not have compendiain any off-label disease for a minimum of 1-3 additional year[s]!!!

See Ex. 11 (bold and underlining in original).

12. CTI fired Marchese on September 27, 2002, for causing the company to write checks

that Marchese had misrepresented as being for educational programming but which CTI

determined were illegal discounts to purchasers of its pharmaceuticals, i.e. illegal kickbacks.

Shortly thereafter, Marchese hired an attorney who threatened to file suit for wrongful

termination on the purported grounds that Marchese had been fired for expressing concerns over,

“potential health risks from C.T.I.’s aggressive promotion of its drug Trisenox for indications

that are not approved by the F.D.A.” See Ex. 12.

13. On December 13, 2002, Marchese’s attorney made a telephone call to a fraud

“hotline” maintained by the Department of Health and Human Services Office of Inspector

General (“HHS-OIG”). Marchese’s attorney suggested that Trisenox had adverse side effects

when prescribed off-label and also disclosed in general terms that CTI had engaged in off-label

marketing of Trisenox and that CTI had paid illegal kickbacks to physicians. See Ex. 13. But

Marchese’s attorney did not mention anything about the ACCC, the Bulletin, or the letter which

Marchese had drafted for the Medicare Carriers. Id. Also, neither Marchese nor his attorneys

contacted the United States Attorney’s Office or other components of the Department of Justice

at this time.


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14. On May 20, 2003, Marchese’s attorney wrote to CTI threatening inter alia to file suit

under the False Claims Act and inviting CTI to discuss the matter. See Ex. 14.

15. On December 31, 2003, CTI filed an action in this Court against Marchese and

Sportelli. See Cell Therapeutics, Inc. v Peter Sportelli and James L. Marchese, C03-03987-MJP

(W.D. Washington). Also on December 31, 2003, apparently in response to the filing of the

complaint against Marchese, Marchese’s attorney drafted a letter to Dr. Joseph Grillo, a

Regulatory Review Officer at the FDA’s Division of Drug Marketing, Advertising and

Communications. This letter repeated the substance of the HHS-OIG “hotline” call which

Marchese’s attorney had made on December 13, 2002, but again failed to mention the ACCC,

the Bulletin, or the letter Marchese had drafted for the Medicare Carriers. See Ex. 15.

16. At or about the time CTI filed its suit against Marchese and Sportelli, CTI also

referred the embezzlement allegations against Sportelli to the Seattle Field Office of the FBI,

which opened an investigation. The FBI interviewed Marchese in connection with the

embezzlement allegations against Sportelli on January 27, 2004. During his interview, Marchese

repeated the substance of the allegations which were described in the “hotline” complaint of

December 13, 2002, and the letter to Dr. Grillo of December 31, 2003, again failing to mention

the ACCC, the Bulletin or the letter he had drafted for the Medicare Carriers.

17. By Spring 2004, Marchese’s interview with the FBI had been made available to both

the civil and criminal Health Care Fraud coordinators at the United States Attorney’s Office for

the Western District of Washington. Marchese was voluntarily interviewed by the United States

Attorney’s Office on June 14, 2004. Marchese repeated the allegations previously made to the

HHS-OIG “hotline” and in the letter to Dr. Grillo but again failed to mention the ACCC, the

Bulletin or the letter he drafted the Medicare Carriers. Critically, Marchese failed to explain that

Trisenox was not in reality eligible for off-label reimbursement by Medicare and omitted his

central role in convincing Medicare Carriers that they should reimburse Trisenox’s off-label

uses.

18. Because Marchese had not explained his role in getting the Bulletin published or in

convincing Medicare to reimburse Trisenox off-label, the United States Attorney’s Office was


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hindered in its attempts to fully investigate the scheme. Ultimately, the United States Attorney’s

Office contacted a physician at one of the Medicare Carriers who first identified the fact that

Trisenox was not a medically accepted treatment for any of the off-label indications and

therefore was not reimbursable by Medicare. As a result of the United States Attorney’s

Office’s continuing investigation, Marchese was informed in the Fall of 2005 that he was a

possible subject of a criminal investigation. At this time, Marchese ceased cooperating with the

United States Attorney’s Office. In the Winter of 2006, the Criminal Division of the United

States Attorney’s Office declined to prosecute Marchese and CTI, permitting the Civil Division

to pursue the case against CTI as a civil fraud case.

19. Only after he was informed by the United States Attorneys’ Office in the Winter of

2006 that he would not be criminally prosecuted, and that the United States Attorneys’ Office

would pursue the case as a civil matter, did Marchese, on February 1, 2006, file his qui tam

complaint. Marchese asserted that he had recommended the off-label campaign to his superiors

for the following reasons:

Relator learned that Trisenox was listed in Volume III of the USPDI [sic] based onTrisenox’s orphan drug status for certain diseases, including MM and MDS. Relatorbelieved that Trisenox’s listing Volume III of the USPDI [sic] qualified it for Medicarereimbursement under 42 U.S.C. § 1395x(t)(2)(B)(ii)I). It does not. Listing in Volume IIIof the USPDI [sic] is not equivalent to listing in Volume I of the USPDI [sic], and drugs orusages listed only in Volume III are not reimbursed by Medicare. * * * Relator, aninexperienced sales representative who had not been employed at CTI for even one year,suggested (albeit mistakenly) to senior management at CTI that because Trisenox was listedin Volume III of the USPDI, Medicare may reimburse for Trisenox’s off-label use to treat,inter alia, MM and MDS.

See Relator’s Qui Tam Complaint, ¶¶132-135 (emphasis in original).

20. There is no mention in the qui tam complaint of the ACCC, the Bulletin, the payment

Marchese arranged to make to the ACCC in exchange for Trisenox’s off-label listings in the

Bulletin, or the letters Marchese authored and which were sent to the medical directors of the

Medicare Carriers in an effort to convince them to reimburse off-label Trisenox prescriptions.

21. The United States filed its Complaint in Intervention on April 17, 2007, and

simultaneously dismissed its action against CTI pursuant to a settlement agreement between the

United States, CTI and Marchese which resolved False Claims Act allegations against CTI

arising from this scheme. The settlement agreement does not resolve the relator’s share, if any.


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22. The United States learned through an interview of Marchese’s former girlfriend that

Marchese had engaged in the spoliation of evidence. According to the former girlfriend,

Marchese took the former girlfriend to a warehouse in New Jersey in April 2004 where he

retrieved three boxes of documents in her presence. Marchese told her that the documents

related to the period of his employment at CTI. Marchese also told her that he was planning on

filing a qui tam lawsuit against CTI but before he could provide the documents to his attorney to

prepare a complaint, he needed to cull out the documents that implicated Marchese. According

to the witness, Marchese carefully went through the three boxes of documents in her presence,

segregating out enough documents to fill up one of the three original boxes. Marchese told the

witness he was giving the two boxes to his attorney and that he was going to destroy the third

box of inculpatory documents.

23. Marchese’s former girlfriend also disclosed to the United States that Marchese wrote

two manuscripts concerning his work in the pharmaceutical industry. The first, called the “End

of the Innocents,” documents Marchese’s work in the pharmaceutical industry prior to working

for CTI. The second manuscript, however, entitled, “The Heart of the Matter,” dealt directly

with Marchese’s work at CTI and reportedly provides details on Marchese’s successful efforts to

illegally market Trisenox for off-label uses. Marchese has told the former girlfriend, who has

read and helped edit the manuscript, that the manuscript is a true account of his activities;

however, to date Marchese has not produced a copy of that book to the United States

notwithstanding his obligations under 31 U.S.C. § 3730(b)(2), which requires a relator to serve

the United States with “all the material evidence and information the person possesses” at the

time the relator files a qui tam complaint.

Argument

Because the United States elected to intervene in this matter, Section 3730(d)(1) of the

False Claims Act ordinarily would dictate that Marchese be awarded between 15% and 25% of

the settlement amount, “depending on the extent to which the person substantially contributed to

the prosecution of the action.” See 31 U.S.C. § 3731(d)(1). However, in instances where the


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There were multiple claims in the Barajas case each of which gave rise to separate damages. The Barajas3

court analyzed each claim separately and awarded the relator a different share of the settlement proceeds as toeach claim. While this approach is appropriate in many instances, the United States does not take that approachhere. While the U.S. Complaint asserts that CTI engaged in what are arguably three distinct schemes – (1) theoff-label marketing scheme, (2) the payment of illegal kickbacks to doctors, and (3) illegally charging forTrisenox used in clinical studies and then encouraging doctors to seek reimbursement – the settlement agreementbetween the U.S., CTI and Marchese does not break down the damages from each scheme separately. This isbecause the $10.5 million settlement in this case, which was driven by CTI’s financial condition and the U.S.’sestimate of CTI’s ability to pay a settlement, was less than the government’s estimate of the single damages fromthe off-label marketing scheme alone. Since the off-label marketing scheme damages exceeded both the U.S.’sestimate of CTI’s ability to pay and the settlement figure based thereon, there was no reason to calculate damagesseparately for the other two schemes (which would have overlapped to some extent in any event) or to break outdamages for those schemes separately in the settlement agreement. Marchese agreed that the settlementagreement was fair, adequate and reasonable. Ex. 1 at ¶6.




relator “planned and initiated” the conduct that violated the False Claims Act, the court may

reduce the relator’s share:

Whether or not the Government proceeds with the action, if the court finds that the actionwas brought by a person who planned and initiated the violation of section 3729 uponwhich the action was brought, then the court may, to the extent the court considersappropriate, reduce the share of the proceeds of the action which the person wouldotherwise receive under paragraph (1) . . . of this subsection, taking into account the role ofthat person in advancing the case to litigation and any relevant circumstances pertaining tothe violation.

31 U.S.C. § 3730(d)(3). The court has broad discretion in determining the appropriate reduction

and may reduce a planner and initiator’s share to zero. United States ex rel. Barajas v. Northrop

Corp., CV 8707288 KN at 27 (C.D. Cal. 1992) appeal on other grounds, 547 F.3d 407 (9 Cir.th

1993) (copy attached as Ex. 16).

In applying these provisions, the Court should follow a three step process. First, the Court

should determine the share between 15% and 25% to which Marchese would otherwise be

entitled if he were not a planner and initiator. Second, the Court should then determine whether

Marchese was a planner and initiator within the meaning of 31 U.S.C. § 3730(d)(3). Third, if

the Court determines Marchese was a planner and initiator, the Court should determine the

degree to which his relator share should be reduced. United States ex rel. Barajas v. Northrop

Corp., supra at 22.3


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Although non-exhaustive and non-binding, the Relator’s Share Guidelines, “touch many of the factors that4

common sense and experience commend in assessing a relator’s contribution,” United States ex rel. Alderson v.Quorum Health Group. Inc., 171 F.Supp.2d 1323, 1333 (M.D. Fla. 2001), and the courts have, to varying degrees,deemed the Relator’s Share Guideline relevant to determining a relator’s share under 31 U.S.C. § 3730(d)(1). Id.. See also United States ex rel. Nudelman v. International Rehabilitation Associates, Inc., No. 00-CV-1837 (E.D.Pa. May 23, 2007); United States ex rel. Pochardt v. Rapid City Regional Hospital, 252 F.Supp.2d 892, 899(D.S.D. 2003); United States ex rel. Fox v. Northwest Nephrology Associates, P.S., 87 F.Supp.2d 1103, 112(E.D. Wash. 2000); United States ex rel. Schauble v. Sharp Healthcare Foundation, No. 97CV1462 H (S.D. Cal.Jan. 21 2000).




Step One: Determining Marchese’s Share if he were not a Planner & Initiator

In 1996, the Department of Justice issued a set of “Relator’s Share Guidelines” (copy

attached as Ex. 17). The purpose of these guidelines is to help assess a relator’s contributions to4

the litigation in order to determine where within the possible 15%-25% range a relator should

fall. Under the Relator Share Guidelines, a presumption exists that a relator is entitled to 15%

of the proceeds absent any other factors. This number may be adjusted upwards (within the

15%-25% range) based on a set of 14 “plus” factors. If any upward adjustment is warranted, the

Relator’s Share Guidelines permit a downward adjustment (within 15%-25% range) based on

another set of 11 “minus” factors. No adjustment below 15% is permissible unless it is based on

a statutory reduction such as Section 3730(d)(3).

An analysis of the Relator’s Share Guidelines shows that Marchese’s award should be set at

no more than 15% even before the Court considers whether he was a planner and initiator.

Beginning with the “plus” factors, Marchese fails to get credit for reporting the fraud early

(“plus” guideline no. 1) or for attempting to stop the fraud (“plus” guideline no. 2) or for causing

the offender to halt the fraudulent practice (“plus” guideline no. 3). Marchese waited until after

his employment was terminated before causing his attorney to report any fraud to the HHS OIG

“hotline” in December 2002 by which time the fraud had been in effect for over a year. Even

then Marchese did not disclose the fraud involving the ACCC, the Bulletin and the letters to the

Medicare Carriers, all of which Marchese had instigated. Marchese then waited another three

years before filing his qui tam complaint in February 2006 but still failed to explain his role in

instigating the fraud or how it had been accomplished. Throughout that period CTI’s fraud went

unabated until, for reasons unrelated to the as yet unfiled qui tam, CTI sold Trisenox in 2005 to

another company.


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Similarly, Marchese did not warn the government of a significant safety issue (“plus”

guideline no. 4). While his qui tam complaint does raise questions about the safety of Trisenox

and of CTI’s supposed failure to disclose its side-effects, see qui tam complaint at pp. 27-31, the

government did not consider these issues to be meritorious and did not intervene on them.

Marchese likewise did not expose a nationwide practice (“plus” guideline no. 5) because

Marchese’s allegations related to a single drug being marketed by a single company and did not

expose a widespread industry practice that was nationwide in scope.

While it was clearly within his ability to do so, Marchese also failed to provide extensive,

first-hand details of the fraud to the government (“plus” guideline no.6), Marchese did not make

reference to the ACCC, the Bulletin or the letters he drafted to the Medicare Carriers in his qui

tam complaint. Rather, the United States pieced the fraud together on its own as the result of its

own pain-staking investigation and did so before Marchese filed his qui tam complaint.

Accordingly, Marchese did not provide substantial assistance during the investigation and/or

pretrial phases of the case ( “plus” guideline no. 8).

The case never went to trial (“plus” guideline no. 12) and because Marchese was never

deposed, Marchese can not claim credit for being an excellent witness (“plus” guideline no 9).

In fact his denials of culpability in the qui tam complaint which the government has never found

credible, discussed infra, would have prevented the government from calling him as a witness in

any event. Because there never was any active litigation, it cannot be said that relator’s counsel

provided substantial assistance to the government (“plus” guideline no. 10) and in view of

relator’s failure to meet with the government during the period that he was concerned that he

might be indicted, it also cannot be said that the relator and his counsel supported and

cooperated with the government during the entire proceeding ( “plus” guideline no. 11). The

$10.5 million dollar settlement is not small (“plus” guideline no. 13). Moreover, Marchese’s life

was not substantially adversely impacted by the case (“plus” guideline no. 14) since he was

already an ex-employee when he made his initial HHS-OIG “hotline” complaint.

In fact, the only “plus” guideline Marchese qualifies for is alerting the government to a

fraud that the government did not know about (“plus” guideline no. 7). While this is certainly an


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Since one can participate in the fraud without planning and initiating it, this “minus” factor is distinct from5

the intent of Congress to more greatly penalize those who, as planners and initiators, go beyond merelyparticipating in a scheme.

The remaining “minus” factors do not apply to this case. It cannot be said that Marchese had little knowledge6

of the fraud (“minus” guideline no. 4) or that his knowledge was based primarily on public information (“minus”guideline no. 5) or that he learned of the fraud in the course of government employment (“minus” guideline no.6) or that the government knew of the fraud (“minus” guideline no. 7) or that the FCA recovery was particularlylarge (“minus” factor no. 11).




important consideration, the fact that it is the only positive guideline applicable to Marchese

suggests that Marchese’s contributions place him close to the bottom of the 15%-25% relator

share range, even before considering the “minus” factors, let alone his conduct as a planner and

initiator.

Turning to the “minus” guidelines, Marchese plainly participated in the frauds (“minus”

guideline no. 1) and, as discussed above, also substantially delayed in reporting any fraud or5

filing his qui tam complaint (“minus” guideline no. 2). In addition, by destroying or failing to

turn over to the government at least some of the evidence that he had a statutory duty to provide

the government when he filed his complaint, see 31 U.S.C. § 3730(b)(2), it appears that

Marchese violated both the spirit and letter of False Claims Act procedures (“minus” guideline

no. 3). By failing to fully and forthrightly explain the fraud, moreover, Marchese hampered the

government's efforts to develop the case (“minus” guideline no. 8). This led to the government

having to make a substantial independent effort to develop the facts necessary to win, or in this

case settle, the lawsuit (“minus” guideline no. 9). Lastly, the case was settled immediately after

the government’s complaint was filed and without the need for discovery (“minus” guideline no.

10).6

In sum, Marchese has one “plus” factor to his credit against which there are five “minus”

factors against him. On balance, therefore, Marchese’ overall contributions to the advancement

of the litigation were de minimus. Accordingly, and only if the Court concludes that he is not a

planner and initiator under 31 U.S.C. § 3730(d)(3), Marchese’s relator’s share should be set at

15% – the very bottom of the 15%-25% range.

Step Two: Determining Whether Marchese Was Planner & Initiator


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Marchese was not merely a planner and initiator for purposes of 31 U.S.C. § 3730(d)(3); he

was the planner and initiator of the scheme to deceive physicians into believing Trisenox was a

medically accepted drug for its off-label uses and to deceive Medicare into reimbursing those

off-label prescriptions as a way to continue fueling the off-label prescription scheme he had

started. Before filing the qui tam complaint, Marchese proudly wrote that he personally

“[c]reated and implemented a 100% successful compendia submission for MDS, MM, AML,

CML.” Ex. 11.

Even in his qui tam complaint, Marchese admits that he suggested to senior management

the idea of marketing Trisenox off-label. In an obvious attempt to avoid being tagged with the

planner and initiator label, however, Marchese claims he did not know any better because he was

an “inexperienced sales representative,” qui tam complaint at ¶ 135, who honestly believed

“albeit mistakenly,” id., that Trisenox could be reimbursed off-label because its orphan drug

designations appeared in one of the compendia. But Marchese was not the hapless entry level

employee he portrays himself as being in his complaint. Marchese had a Masters in Public

Administration from Columbia University, concentrating in public policy and health care, and a

juris doctor from Seton Hall in health care law. In law school Marchese had closely followed

the leading off-label marketing cases and written a term paper stating that drug companies could

pursue off-label marketing as long as they were willing to risk the unlikely event of an

enforcement action.

Even ignoring Marchese’s expertise in off-label marketing law, Marchese’s assertion in his

qui tam complaint that he honestly but mistakenly believed that Trisenox was eligible for off-

label reimbursement is at odds with the memorandum he wrote to his superiors. What made his

“compendia strategy” such a remarkable achievement, according to Marchese, was that he was

able to get Trisenox’s off-label indications published in the compendia notwithstanding the fact

that, “to date the company still fails to meet ANY of the criteria set forth in compendia

acceptance [sic] for all of the aforementioned disease states.” Ex. 11 (emphasis in original).

In other words, Marchese knew Trisenox should not have been listed in the Bulletin for its off-


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While the evidence overwhelmingly shows that Marchese had actual knowledge that he was perpetrating a7

scheme that would result in the submission and payment of thousands of false claims, no such actual knowledgeis required to make Marchese a planner and initiator. Rather, under the False Claims Act, a party acts withrequisite intent to violate the act if the party, “(1) has actual knowledge of the information; (2) acts in deliberateignorance of the truth or falsity of the information; or (3) acts in reckless disregard of the truth or falsity of theinformation, and no specific intent to defraud is required.” See 31 U.S.C. § 3729(b). Thus it is significant that inhis “Compendia Action Plan,” Marchese recognized there was a risk that the claims would not be reimbursed byMedicare and assigned to himself the responsibility for understanding the, “affects [sic] of Orphan DrugDesignation listing vs. Data submission acceptance if reimbursement becomes an issue.” See Ex. 5. Of course,reimbursement never became an issue because the Medicare carriers began paying for Trisenox’s off-labelprescriptions almost immediately. Regardless, by failing to determine the legality of a reimbursement plan whichhe recognized had risks, Marchese acted with intent to violate the FCA and become a planner and initiator.




label uses but pursued the Bulletin listing strategy anyway and also pursued the strategy of

convincing Medicare to reimburse those off-label uses.

Marchese’s claim that he simply made a good-faith mistake is also patently inconsistent

with Marchese’s email to Peter Sportelli extolling the newly-arrived Bulletins. In a tone that can

be described as exultant, Marchese takes credit for getting Trisenox into the compendia not only

for its off-label orphan drug designations (which he knew did not meet the criteria for

compendia acceptance) but also for a whole slew of other cancers – many of which Marchese

says he has never even heard of before. Marchese, obviously delighted with himself, claims this

is simply “another little loop whole [sic]” that will soon result in them both getting, “VERY,

VERY rich!!!” These are not the sentiments of a man making an honest mistake. 7

Step Three: Determining the Reduction to the Relator’s Share.

Given Marchese’s status as a planner and initiator, the Court has the discretion to, “the

extent the court considers appropriate, reduce the share of the proceeds of the action which the

person would otherwise receive ... taking into account the role of that person in advancing the

case to litigation and any relevant circumstances pertaining to the violation.” 31 U.S.C.

§ 3730(d)(3). As previously noted, the share which Marchese “would otherwise receive” in this

case is this minimum relator’s share of 15%. With respect to Marchese’s “role in advancing the

case to litigation,” it should by now be clear that Marchese never fully explained the scheme he

had hatched either to the United States Attorneys’ Office during the investigatory phase or in the

qui tam he ultimately filed. To the contrary, in an effort to deflect responsibility, Marchese

omitted critical facts such as his solicitation of the ACCC, its subsequent publication of the


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28 In an effort to end the harm caused by Marchese, the United States: (1) got the company which purchased8

Trisenox from CTI to agree to stop marketing Trisenox for its off-label orphan drug designations and to notifyphysicians that had prescribed Trisenox that it was not medically accepted for such uses; (2) caused the ACCC to




Bulletin and the letters he wrote to the Medicare Carriers to deceive them into reimbursing

Trisenox. Marchese waited to file his qui tam complaint until after the United States had figured

out his scheme and even then he did not lay the scheme entirely bare – choosing instead to

manufacture a patently false explanation for why he recommended pursing the compendia

strategy and what that strategy was. On more than one occasion, defendants pointed out that if

Marchese, the architect of the plan, denied knowing of its inherent illegality, there was no way

for his superiors at CTI to know that the plan was illegal. Thus, Marchese rendered himself

useless to the United States as a potential witness and hindered the United States’ ability to

pursue the case against CTI – factors which the United States weighed in reaching its settlement.

It also now appears that Marchese engaged in the deliberate spoliation of evidence that was

inculpatory to him and which he had a duty to preserve – conduct that violated Marchese’s

duties under Section 3730(b)(2) of the False Claims Act and which also warrants the outright

dismissal of his claim for a relator’s share. See Mauricio Leon v. IDX Systems Corporation,

No. C03-1158P (W.D. Wash. Sept. 30, 2004) (Pechman, J.) (exercising court’s inherent

authority to dismiss plaintiff’s claims as a sanction for the intentional spoliation of evidence)

(copy attached as Ex. 18). Marchese thus did not play a significant role in advancing the case

but, to the contrary, hindered it to a significant degree.

In reducing the relator share, the Court may also consider, “any relevant circumstances

pertaining to the violation.” 31 U.S.C. § 3730(d)(3). Accordingly, the United States requests

that in reducing Marchese’s share the Court consider the fact Marchese’s scheme resulted in

physicians unwittingly writing thousands of worthless Trisenox prescriptions for seriously ill

patients because physicians reading the Bulletin were under the mistaken impression that

Trisenox was a medically accepted treatment for those illnesses. While it is bad enough that

these patients were given the false hope that they were being treated with a medicine that had

been proven effective in treating their illnesses, what is even worse is that the patients and their

physicians were diverted from prescribing other medications that may have been effective. 8


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28cease publishing Trisenox’s off-label orphan drug designations in the Bulletin; and (3) personally contacted manyphysicians who had prescribed Trisenox off-label and informed them that the drug was not medically acceptedfor those uses.




Undoubtably Marchese must have understood this when he saw Trisenox being listed in the

Bulletin for cancers that he admits he had never even heard of; but Marchese, who “got a kick

out [of] this,” see Ex. 6, has never accepted any responsibility for this misconduct nor shown the

slightest remorse.

Lastly, the financial consequences of Marchese’s misconduct are a relevant consideration

here. Due to CTI’s financial condition, the United States was forced to settle with CTI for a

figure which was significantly below the government’s single damages estimate of $15.8 million

for just the off-label portion of this case. There has been no multiple damages recovery in this

case, as is permitted under the False Claims Act, and thus there is no fund from which the United

States can pay a relator’s share unless it deducts it from the amount that otherwise would be

remitted from the settlement proceeds to the Medicare Trust Fund. Indeed, because the

settlement with CTI does not compensate the Medicare Trust Fund for all the damages

Marchese’s scheme inflicted upon it, awarding Marchese a share of the settlement proceeds will

only serve to reward Marchese for his own misconduct at the further expense of the Medicare

program which stands to receive the balance of any settlement proceeds. Under these


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circumstance, the United States recommends that Marchese’s relator share be reduced to the

maximum extent possible, i.e. to zero percent.

Conclusion

WHEREFORE the United States respectfully requests this Court enter an Order

establishing that the relator, James Marchese, is entitled to zero percent of the proceeds of the

settlement agreement between the United States, CTI and Marchese.

DATED this 1st day of October, 2007.

Respectfully submitted,

PETER D. KEISLERAssistant Attorney General

JEFFREY C. SULLIVANUnited States Attorney

s/ Peter Winn PETER A. WINNAssistant United States Attorney

JOYCE R. BRANDADANIEL R. ANDERSONALAN S. GALEAttorneys, Civil DivisionUnited States Department of JusticeP.O. Box 261Ben Franklin StationWashington, DC 20044Tel: (202) 307-6296Fax: (202) 616-3085


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CERTIFICATE OF SERVICE

I HEREBY CERTIFY that on this date I electronically filed the foregoing United States’

Position Statement on the Relator’s Share Issue with the Clerk of the Court using the CM/ECF

system, which will send notification of such filing to the following CM/ECF participants:

Kirk E. Chapman Thomas Matthew BrennanMilberg Weiss LLP (NY) McKay ChadwellOne Pennsylvania Plaza 600 University Street, Suite 1601New York, NY 10119-0165 Seattle, WA 98101212-594-5300 206-233-2800Fax: 1-212-868-1229 Email: [email protected]: [email protected]

Nicholas J. Leonardis C. Seth WilkinsonStathis & Leonardis LLC Yarmuth Wilsdon Calfo32 South Main Street 925 Fourth Avenue, Suite 2500Edison, NY 08837 Seattle, WA 98104732-494-0600 206-516-3800Email: [email protected] Email: [email protected]

Robert G. Chadwell Daniel J. Dunne, Jr.McKay Chadwell Heller Ehrman LLP (WA)600 University Street, Suite 1601 701 5th Avenue, Suite 6100Seattle, WA 98101 Seattle, WA 98104-7098206-233-2800 206-447-0900Fax: 206-233-2809 Fax: 206-447-0375Email: [email protected] Email: [email protected]

Ross B. Brooks Harold MalkinMilberg Weiss LLP (NY) Yarmuth Wilsdon CalfoOne Pennsylvania Plaza 925 Fourth Avenue, Suite 2500New York, NY 10119-0165 Seattle, WA 98104212-594-5300 206-516-3800Email: [email protected] Fax: 206-516-3888

Email: [email protected] L. HarringtonHeller Ehrman LLP (WA) Laurie Mae Thornton701 5th Avenue, Suite 6100 Corr Cronin MichelsonSeattle, WA 98104-7098 Baumgardner & Preece206-447-0900 1001 4th Avenue, Suite 3900Email: [email protected] Seattle, WA 98154-1051

206-274-8666Email: [email protected]

continued...


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mailto:[email protected]






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Michael F. McCabeReed Smith LLP (SF-CA)Two Embarcadero Center, Suite 2000San Francisco, CA 94111415-543-8700Email: [email protected]

Rosalie Euna KimReed Smith LLP (SF-CA)Two Embarcadero Center, Suite 2000San Francisco, CA 94111415-543-8700Email: [email protected]

Paul R. RaskinCorr Cronin MichelsonBaumgardner & Preece1001 4th Avenue, Suite 3900Seattle, WA 98154-1051206-625-8600Email: [email protected]

DATED October 1, 2007.

s/ Peter Winn PETER A. WINNAssistant United States Attorney


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Documents

Complaint - The US Government vs. Jim Marchese Whistle-Blower Case