Editor's Note: Alex Walterspiel and Melanie Waters have dropped their lawsuit against Dr. John Jain and Santa Monica Fertility, according to court papers filed March 20 in Los Angeles Superior Court.
"The case was settled on terms that were mutually agreeable," said Dean Masserman, one of the lawyers for the couple. "One of the terms was to dismiss the lawsuit."
Jain and Santa Monica Fertility have not responded to requests from ABC News for comment.
Alex Walterspiel and Melanie Waters, a married couple in their 30s, conceived their 3-year-old son through in vitro fertilization and hoped to get pregnant again with one of the remaining frozen embryos.
But when the California couple returned in 2011, they said, the clinic told them the fertilized embryos were gone.
Their fear is that the three remaining embryos were "most likely" implanted in another woman's womb, according to a lawsuit filed in the Superior Court of Los Angeles Aug. 17.
"They are torn apart by this," the couple's lawyer, Andrew Vorzimer, said. "It's the worst possible nightmare for parents on both sides."
Now, the couple is suing reproductive endocrinologist Dr. John Jain individually and as the president of Santa Monica Fertility, the clinic where the alleged mix-up occurred. They are seeking compensation to achieve another pregnancy and $500,000, plus punitive damages for professional negligence, breach of contract, emotional distress and fraud.
"Where the genetic parents are, we have no idea," Vorzimer, a reproduction lawyer, said. "Part of the litigation is to go back and try to trace where these embryos went. Ultimately, it may require every patient who has undergone an IVF cycle with John Jain to have genetic testing of the babies."
The lawsuit alleges that Jain failed to "take custody of, care for, and cryo-preserve" their embryos.
Jain told ABCNews.com that he would have to talk to his lawyers before making a public statement.
"It was a bit of a surprise for us and we are trying to figure out what's going on," Jain said. "It just came to our attention this morning. Things normally turn out that things are not what they appear to be."
Walterspiel and Waters say Jain took nine eggs from Waters' ovaries in late 2008, five of which were "fertilized and monitored by laboratory technicians for a period of four days in order for the cells to divide and the embryos to become blastocysts," which are embryos that have developed for five to six days after fertilization.
"Defendants promised that they would create embryos using sperm provided by plaintiff Waterspiel, and eggs retrieved from the ovaries of plaintiff Waters, transfer 1-2 fresh embryos into the uterus of plaintiff Walters once they had become blastocysts, and freeze the remaining blastocysts and embryos for the couple's future use," the lawsuit alleges.
The couple returned in 2011 to schedule another IVF procedure to get pregnant again with the three remaining embryos, according to the lawsuit.
"They were told by Dr. Jain that the embryos had been destroyed accidentally;- the straws that contained them broke at the bottom of the cryotank," Vorzimer said. "When they asked to see evidence of that, Dr. Jain changed his statement, and said he could not find the straws that contained the three embryos."