Asahi Kasei Pharma Corporation (Asahi) is a Japanese corporation which develops and markets pharmaceutical products and medical devices. One of its products is Fasudil, a drug which Asahi sought to market in the United States (U.S.) for treatment of pulmonary arterial hypertension (PAH). In order to obtain regulatory approvals for Fasudil, and to develop and commercialize it in North America and Europe, Asahi entered into a licensing and development agreement (the License Agreement) with CoTherix, Inc. (CoTherix), a California-based biopharmaceutical company focused on developing and commercializing products for the treatment of cardiovascular disease. Appellant Actelion Ltd. is a Swiss pharmaceutical company that markets a PAH treatment drug, bosentan (under the trade name Tracleer), and holds the dominant share of the relevant market. Actelion Ltd., through a subsidiary, acquired all of the stock of CoTherix, and concurrently notified Asahi that CoTherix would discontinue development of Fasudil for "business and commercial reasons."
Asahi filed suit in the San Mateo County Superior Court against CoTherix, Actelion Ltd., Actelion Pharmaceuticals Ltd., Actelion Pharmaceuticals US, Inc., and Actelion U.S. Holding Company (collectively Actelion), as well as three Actelion executives.
Defendants contend, inter alia, that any actions taken to interfere with the License Agreement were privileged and not actionable, and that Asahi's
While many of the underlying facts were vigorously disputed at trial (and in the briefing on this appeal), we focus on the evidence and inferences supporting the judgment. (Lewis v. Fletcher Jones Motor Cars, Inc. (2012) 205 Cal.App.4th 436, 443 [140 Cal.Rptr.3d 206] [we imply "all necessary findings supported by substantial evidence" and "`construe any reasonable inference in the manner most favorable to the judgment, resolving all ambiguities to support an affirmance'"].)
Fasudil was originally formulated in 1984 for intravenous use in treatment of cerebral vasospasm after subarachnoid hemorrhage, a type of stroke, and received regulatory approval in Japan for this use in 1995. Asahi later secured approval in China. Fasudil is protected by a "composition of matter" patent covering the molecule until 2016, and by a formulation patent until 2019.
In 1997, new research showed Fasudil could inhibit a human body protein known as Rho-kinase, which contributes to constriction of smooth muscle in arterial blood vessels. Studies found inhibition of Rho-kinase could slow or even reverse cellular changes associated with certain diseases. One such disease is PAH, a chronic, progressive and often fatal disease that is characterized by severe constriction and obstruction of the pulmonary arteries. Studies indicated that Fasudil had the potential to promote healing of blood vessel lesions and limit the scarring associated with PAH.
Development of Fasudil for new medical uses was commercially attractive to Asahi if it could be done expeditiously. To recoup investment, a drug must be developed sufficiently early in its patent life to ensure an adequate period of market exclusivity after receipt of regulatory approval and before generic competition arrives.
Actelion Ltd. has, since December 2001, marketed Tracleer, an endothelin receptor antagonist and oral PAH drug that has been approved by the Food and Drug Administration (FDA) for use in the U.S.
At trial, Asahi presented evidence that Actelion acquired CoTherix specifically because it saw Fasudil as a significant threat to its market dominance with Tracleer and that Defendants used unlawful means to stop the development of Fasudil, thereby interfering with the License Agreement. Specifically, Asahi argued that Defendants used extortion and fraud to "painstakingly kill[]" Fasudil as a competitive product.
Shortly after the June 28, 2006 public announcement of the License Agreement, and at the behest of Martine and Jean-Paul, Actelion began to explore the option of acquiring CoTherix. About July 18, a director of business development for Actelion Pharmaceuticals Ltd., Carina Spaans, referenced CoTherix, Fasudil and another company in her notes, with the following comment: "Buying both companies will leave the market for Tracleer free for Actelion." Negotiation of an acquisition of CoTherix began
Beginning November 20, 2006, Asahi repeatedly sought assurances from CoTherix and Actelion that Fasudil development would continue after the proposed merger. These requests for assurances were forwarded to Simon and Jean-Paul. By November 23, Jean-Paul had decided, with input from Martine and Simon, that Actelion was not interested in pursuing development of Fasudil. Actelion drafted a letter to Asahi as early as October 31, stating it would not develop Fasudil, but decided not to send the letter as "part of a strategy." Instead, Actelion "decided to let any correspondence go through [CoTherix President] Don Santel — but to state that no decision has been made." Despite Actelion's knowledge that failure to provide assurances might constitute material breach of the License Agreement, no assurances were provided. In mid-December, Asahi requested a videoconference with Actelion. Although Simon was aware of the prior decision and believed the videoconference "may be a bit of a waste of time," he and Martine participated on December 20, and did not disclose that a decision had already been made. Instead, Simon told Asahi "it was a very productive meeting for Actelion to [help] make their decision to pursue [F]asudil after the completion of [the] merger.... Actelion does not have an intention to make any delay of [F]asudil development." On January 3, 2007, CoTherix, after conferring with Actelion, told Asahi: "[W]e continue to honor our agreement to move [F]asudil forward. Please note that I have no power to compel Actelion to provide you with the response you desire."
On January 4, 2007, Simon wrote to a colleague: "[P]lease follow up with Asahi later next week .... If things go according to plan we should have 90%+ of shares by Monday evening. [¶] Since we will issue a press release the next day, I think you should probably call [Asahi] to explain our position. Then follow up with the letter that you drafted. I double-checked with [Jean-Paul] today and he definitely agrees we should give Fasudil back to them. We should use the `portfolio priorities' reason .... If they get silly and want to discuss penalties, etc., we could discuss risk-benefit ratio and the need to discuss several issues with the FDA before proceeding!" The next day, Simon told Asahi: "If and when we can be more certain that the
Attempts to negotiate a termination agreement were unsuccessful. On March 6, 2007, Asahi notified CoTherix that, by failing to confirm and commit in writing 30 days prior to the change of control that Actelion would not interfere with CoTherix's obligations, it was in material breach of the License Agreement. Recognizing that Asahi was "resigned to the fact that it is probably all over for [Fasudil] ex-Japan," Simon suggested that Jean-Paul might need to communicate directly with Asahi's president.
Ultimately, on March 23, 2007, Jean-Paul wrote: "As you are aware, [b]usiness executives at Actelion (on behalf of CoTherix) and Asahi have discussed the termination conditions for the [License Agreement] several times over the last few months and we have reached a point of dispute regarding the payment for product supplies.... [¶] ... [¶] ... [W]e have serious concerns over the long-term safety (in particular renal safety) with chronic [Fasudil] dosing. Actelion feels that this risk/benefit ratio issue is sufficiently serious for us to consider the need to inactivate or even withdraw the U.S. IND[
On April 3, 2007, Asahi sent notice of the termination of the License Agreement. Jean-Paul later wrote to Asahi's president: "Since Asahi is now ready to receive the IND, Actelion personnel will be appointed, on behalf of CoTherix, to supervise the transfer .... We shall inform the FDA of our decision to stop development ... together with the reason for this decision.... [¶] ... [¶] Actelion is preparing an upcoming Press Release to disclose that [F]asudil will no longer form part of the Actelion pipeline and explain the rationale for our decision ...."
Thereafter, on April 18, 2007, Actelion filed a clinical study report with the FDA, for the phase I study of ER Fasudil. The report concluded: "[O]verall,
Asahi first initiated the ICC Arbitration proceeding, against CoTherix only, claiming breach of contract. Among other damages, Asahi claimed the value of development work CoTherix failed to perform through June 2009 and development-based milestone payments. On December 15, 2009, the arbitrators awarded Asahi over $91 million.
Asahi filed the instant litigation on November 19, 2008, naming CoTherix and the Actelion entities. The Individual Defendants were added by Doe amendments to a first amended complaint in June 2009. The operative third amended complaint was filed on October 23, 2009. The complaint set forth eight claims: intentional interference with contract (Claim 1); interference with prospective economic advantage (Claim 2); breach of a confidentiality agreement
Asahi moved for summary adjudication of several of the affirmative defenses asserted by Actelion. The trial court also granted Asahi's motion for summary adjudication of the "manager's privilege" asserted by Actelion and by the Individual Defendants. Additionally, the court granted Asahi's motion for summary adjudication of Actelion's claim of limitation of damage liability
Defendants moved to summarily adjudicate Claim 1. The motion was denied.
In January 2011, the matter proceeded to jury trial against the Defendants on Claim 1 (intentional interference with the License Agreement), Claim 2 (wrongful interference with Asahi's prospective economic advantage in the "continued development of Fasudil"), Claim 3 (breach of a confidentiality agreement between Actelion and CoTherix on a third party beneficiary theory), and Claim 8 (breach of confidence). On April 29, the jury returned a unanimous liability verdict against the Defendants, awarding $358.95 million for lost M&R (milestone & royalty) payments; $187.4 million for lost development costs; $450,000 for regulatory maintenance costs; and $75,000 for the cost of an investigator-sponsored study. The compensatory damage award on Claim 1 totaled $546,875,000. No damages were awarded on Claim 2, and only nominal damages were awarded on Claims 3 and 8. The jury also unanimously found the Defendants acted with "malice, oppression or fraud."
In the punitive damage phase of trial, the jury awarded damages against the Individual Defendants only: Jean-Paul, $19.9 million; Martine, $8.9 million; and Simon, $1.2 million. Judgment was entered on the verdicts on Claims 1, 3, and 8 on August 18, 2011.
The court granted Defendants' motion to offset the damages award by the amount Asahi recovered from CoTherix in the ICC Arbitration. The court reduced the $358.95 million in M&R damages by $1 million, and the $187.4
The court conditionally granted the Defendants' motions for new trial, limited to the issue of compensatory damages for Claim 1, on the basis that the damages were excessive because they included duplicative damages for both lost profits and development costs. The court alternatively denied the motions, conditioned on Asahi's acceptance of a remittitur of development cost damages on Claim 1 to the amount of $18.85 million (plus prejudgment interest). The court otherwise found the amount of damages awarded for lost M&R payments to be "proper, fair, reasonable, appropriate, and supported by the weight of the evidence." The court rejected the arguments based on alleged juror misconduct, striking juror declarations submitted by Defendants. In all other respects, the motions for new trial and judgment notwithstanding the verdict were denied, as was Asahi's motion for new trial.
Asahi accepted the remittitur. The court consequently entered an order denying the motion for new trial. The combined effect of the earlier ordered offset and the remittitur resulted in a reduction of the compensatory damages on Claim 1 to the amount of $377,325,000. An amended final judgment reflecting the reductions and inclusive of costs was entered on November 18, 2011.
Defendants filed timely notices of appeal on December 2, 2011. Asahi filed its notice of cross-appeal on December 12, 2011. Actelion contends that, as a matter of law, it cannot be liable for interference with the License Agreement; that the damages awarded are inherently uncertain and speculative; and that multiple evidentiary and instructional errors mandate a new trial. The Individual Defendants join in Actelion's argument that liability for interference with contract is precluded as a matter of law, and specifically argue it was precluded as to them. They also argue that the punitive damages awarded are excessive, and that there is insufficient evidence to support imposition of punitive damages in any event. Asahi, on cross-appeal, argues that the trial court erred in remitting damages and that it is entitled to a new punitive damage trial against Actelion.
Citing Applied Equipment, Actelion contends that it cannot be liable for tortious interference with the License Agreement because "[t]he tort duty not to interfere with [a] contract falls only on strangers — interlopers who have no legitimate interest in the scope or course of the contract's performance." (Applied Equipment, supra, 7 Cal.4th at p. 514.) Specifically, they argue: "As a matter of law, [the underlying policy of the tort of intentional interference with contract — preventing outsiders who have no legitimate social or economic interest in the contract from interfering with the expectations of contracting parties — ]precludes imposition of liability against Actelion for terminating development of [F]asudil, because that act took place after consummation of the [a]cquisition [of CoTherix], at which time Actelion was not a stranger to CoTheri[x]'s agreement with Asahi." The Individual Defendants join in this argument and maintain: "By the same token, the [I]ndividual [D]efendants — as high-level executives of Actelion — were not strangers to the [License] Agreement, but instead were responsible for determining how Actelion, standing in the shoes of CoTherix, would deal with that agreement."
Asahi counters that California law nevertheless recognizes that corporate owners, officers and directors may be liable for interfering with corporate contracts, and that claims of privilege or justification are defenses that must be pleaded and proved. And to prevail on such defenses, Defendants must show that they did not "use improper means." (See Woods v. Fox Broadcasting Sub., Inc. (2005) 129 Cal.App.4th 344, 351, fn. 7, 353, fn. 8 [28 Cal.Rptr.3d 463] (Woods).)
The jury was instructed on the elements of a cause of action for wrongful interference with contract. The court declined to give a special jury instruction, proposed by Actelion, that would have directed that the jury could not hold Actelion liable for inducing CoTherix to breach the License Agreement after the acquisition on January 9, 2007, because at that time Actelion had a direct interest in the contractual relationship between CoTherix and Asahi.
In refusing the proposed instruction, on Asahi's objection, the trial court explained: "That's what you're going to argue. You want to argue that they became an affiliate, therefore, they became a party to the contract. That's argument. And that's argument specific as to the facts. [¶] ... [¶] The issue of law that pertains is a party cannot be held liable for interfering with their own contract. That's the law and that is something that I would be receptive [to] that is a neutral presentation." Actelion's counsel responded: "[T]he only thing that I would ask to add to that is the law also says that a party cannot be liable for interference with its own contract or a contract of one of its affiliates." The court refused the request, stating: "[Y]ou have no case that says that."
Accordingly, the jury was instructed: "A person cannot be liable for interference with that person's own contract, if that person was a party to the contract at the time of the interference." And, the trial court instructed the jury on the justification defense: "In certain situations, a particular Defendant may be justified to interfere with or disrupt the contract between Asahi and CoTherix. In those situations, the law will not hold the particular Defendant liable for his/her/its actions even though Asahi suffered damages as a result of the particular Defendant's interference. [¶] It is not Asahi's obligation in this case to prove that the particular Defendant's conduct was unjustified. Instead, the particular Defendant has the burden of proving to you that his/her/its conduct was justified under the circumstances. [¶] ... [¶] ... [Y]ou must decide whether a particular Defendant's conduct was justified. If you find that a particular Defendant's conduct was justified, then you cannot find that the particular Defendant intentionally interfered with the [License Agreement]. [¶] In making this decision you must, as a general matter, balance the importance of the objective that the particular Defendant sought to achieve by
Thus, the jury was instructed that a defendant was not liable for intentional interference with contract if that defendant's conduct was justified, but that "[t]he affirmative defense of justification does not apply if the particular Defendant used unlawful means to interfere with the [License Agreement] .... `Unlawful means' includes intentional misrepresentation, concealment, and extortion."
We review Defendants' legal challenge to the jury instructions de novo. (California Correctional Peace Officers Assn. v. State of California (2010) 189 Cal.App.4th 849, 856 [117 Cal.Rptr.3d 109]; Cristler v. Express Messenger Systems, Inc. (2009) 171 Cal.App.4th 72, 82 [89 Cal.Rptr.3d 34] ["propriety of jury instructions is a question of law that we review de novo"]; Trujillo v. North County Transit Dist. (1998) 63 Cal.App.4th 280, 284 [73 Cal.Rptr.2d 596].)
Defendants do not contend that they were parties to the License Agreement after January 9, 2007. In fact, Actelion admitted in its trial court pleadings that "no contract exist[ed]" between it and Asahi and that Actelion "did not assume the contract between [Asahi] and CoTherix." Instead, Actelion contends that Applied Equipment should be read broadly so as to limit liability for intentional interference to complete "strangers" to the contract, not simply nonparties to the contract. Thus, it contends that the fact that there was never any contract between it and Asahi, and that it did not assume the contract between CoTherix and Asahi, is not determinative. It concedes that, after the acquisition, it was merely a parent who "directed its wholly-owned subsidiary [CoTherix] to stop performing a contract." However, it contends that the only remedy for such an act is breach of contract — a remedy which Asahi has been already afforded against CoTherix in the ICC Arbitration.
In Woods, supra, 129 Cal.App.4th 344, two employees of a joint venture (Fox Family) sued Fox Family's majority shareholder for interference with a stock option contract the employees had with Fox Family. The defendant demurred on the basis that it was not a stranger to the contract, in light of its
The Woods court also explained, in a footnote, that although the defendant was not immune, it could assert a privilege against liability for interference with contract. It explained: "The existence of that privilege depends on whether the defendant used improper means and acted to protect the best interests of his own company. [Citation.] It is a qualified privilege that turns on the defendant's state of mind, the circumstances of the case, and the defendant's immediate purpose when inducing a breach of contract. [Citation.]" (Woods, supra, 129 Cal.App.4th at p. 351, fn. 7.) However, because the privilege is a defense, it was not amenable to determination on demurrer. (Ibid.) The court summarized: "[S]ince long before Applied Equipment was decided, our courts have allowed contract interference claims to be stated against owners, officers, and directors of the company whose contract was the subject of the litigation. While those defendants may attempt to prove that their conduct was privileged or justified, that is a defense which must be pleaded and proved." (Woods, supra, 129 Cal.App.4th at p. 356.)
We agree with the Woods court that "[a] stranger," as used in Applied Equipment, means one who is not a party to the contract or an agent of a party to the contract. (Woods, supra, 129 Cal.App.4th at p. 353; accord, Mintz v. Blue Cross of California (2009) 172 Cal.App.4th 1594, 1604 [92 Cal.Rptr.3d 422] (Mintz) ["settled that `corporate agents and employees acting for and on behalf of a corporation cannot be held liable for inducing a breach of the corporation's contract'"].) Under Woods, Actelion, by virtue of its ownership interest, is not automatically immune from tortious interference with the License Agreement. (Woods, at pp. 353, 355.)
Mintz is distinguishable from this case in that the party charged with interference was specifically authorized to act as agent of a party to the contract. (Mintz, supra, 172 Cal.App.4th at p. 1603.) Defendants point to no evidence in the record establishing that Actelion was authorized to act as CoTherix's agent with respect to the License Agreement.
Nor are we persuaded by Defendants' reliance on Kasparian v. County of Los Angeles (1995) 38 Cal.App.4th 242 [45 Cal.Rptr.2d 90] (Kasparian). In that case, the plaintiff, a limited partner of a partnership, sued the general partnership, two of the individual partners, and a Los Angeles County supervisor for interfering in settlement negotiations in which the plaintiff hoped the general partnership would buy out his interest. The plaintiff obtained a judgment against the partnership and two individual partners for conspiracy to intentionally interfere with his prospective economic advantage. (Id. at pp. 248, 249, 251, 258.) The Kasparian court followed Applied Equipment and extended its holding to the tort of interference with prospective economic relations. The court concluded that the partnership could not be held liable, as a matter of law, for such a tort because "[i]t can only be asserted against a stranger to the relationship." (Kasparian, at p. 262, italics omitted; see id. at pp. 248, 266.) However, without any discussion, the court also included the individual partner defendants within that holding. (Id. at pp. 262, 266.) To the extent Kasparian implicitly holds that the owners of a business entity are automatically deemed to be exempt from interference
The Individual Defendants argue that, even if Actelion is liable for tortious interference with contract, the judgment against them must nonetheless be reversed. They contend: "[T]here is no dispute that the [I]ndividual [D]efendants at all times were acting within the scope of their employment for the benefit of their employer. They are not alleged to have engaged in any ultra vires conduct that interfered with Asahi's contract with CoTherix. Accordingly, regardless of whether the intentional-interference judgment against
These cases do not assist the Individual Defendants because Actelion admitted that "no contract exist[ed]" between it and Asahi and that Actelion "did not assume the contract between [Asahi] and CoTherix." The trial court properly granted Asahi's motion for summary adjudication, concluding that the manager's privilege did not apply to the Individual Defendants because none were managers of CoTherix or authorized to act on CoTherix's behalf, and none of the Actelion entities are parties to the License Agreement. The Individual Defendants assert that, in granting summary adjudication on the manager's privilege defense, the trial court focused on the wrong question. They contend that, pursuant to their broad reading of Applied Equipment, "for purposes of liability for Actelion's post-acquisition termination of CoTherix's development of [F]asudil, the question is whether the individual defendants were managers of Actelion, not whether they were managers of CoTherix." But, we have already rejected that broad reading of Applied Equipment. And, under the manager's privilege, a company's manager may not be liable to a third party for inducing his or her company to breach its contract with the third party. (Klein v. Oakland Raiders, Ltd. (1989) 211 Cal.App.3d 67, 80 [259 Cal.Rptr. 149].) The manager's privilege does not exempt a manager from liability when he or she tortiously interferes with a contract or relationship between third parties. (Ibid.)
B.-E.
The judgments are affirmed. Asahi shall recover its costs on appeal.
Jones, P. J., and Needham, J., concurred.