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The People Ex Rel. Michael Strathmann v. Acacia Research Corporation et al

October 24, 2012

THE PEOPLE EX REL. MICHAEL STRATHMANN, PLAINTIFF AND APPELLANT,
v.
ACACIA RESEARCH CORPORATION ET AL., DEFENDANTS AND RESPONDENTS.



Appeals from orders and a judgment of the Superior Court of Orange County, William M. Monroe, Judge. (Consol. with G045913 & G046017) (Super. Ct. No. 30-2010-00426554)

The opinion of the court was delivered by: Fybel, J.

CERTIFIED FOR PUBLICATION

OPINION

Reversed and remanded. Motion for judicial notice. Denied.

INTRODUCTION

The anti-SLAPP statute,*fn1 Code of Civil Procedure section 425.16 (section 425.16), authorizes a special motion to strike "[a] cause of action against a person arising from any act of that person in furtherance of the person's right of petition or free speech under the United States Constitution or the California Constitution in connection with a public issue." (§ 425.16, subd. (b)(1).) Code of Civil Procedure section 425.17, subdivision (b) (section 425.17(b)) creates an exception to the anti-SLAPP statute for any action "brought solely in the public interest or on behalf of the general public" if three conditions set forth in the statute are met. Such a public interest lawsuit is not subject to a special motion to strike under section 425.16.

A qui tam action*fn2 is one brought under a statute that allows a private person to sue as a private attorney general to recover damages or penalties, all or part of which will be paid to the government. (People ex rel. Allstate Ins. Co. v. Weitzman (2003) 107 Cal.App.4th 534, 538 (Weitzman).) Under California law, a qui tam action is brought on behalf of the People of the State of California, and the People are "'[t]he real party in interest.'" (Ibid.; see also U.S. ex rel. Killingsworth v. Northrop Corp. (9th Cir. 1994) 25 F.3d 715, 720.)

In this case, we conclude the qui tam action brought by Michael Strathmann as relator "on behalf of the general public" under Insurance Code section 1871.7 falls within the public interest exception of section 425.17(b). The trial court erred by finding otherwise and should have denied the special motion to strike brought by defendants Acacia Research Corporation (Acacia), CombiMatrix Corporation (CombiMatrix), and Amit Kumar (collectively, Defendants). We therefore reverse the order granting Defendants' special motion to strike, reverse the order and judgment awarding Defendants attorney fees and costs, and remand.

ALLEGATIONS OF THE COMPLAINT

Strathmann's qui tam complaint against Acacia, CombiMatrix, and Kumar alleged the following facts.

I. Theft of Technology Developed at Nanogen, Inc.

Acacia, a publicly owned Delaware corporation, formed CombiMatrix in 1995 as a subsidiary. In 2007, CombiMatrix separated from Acacia and became a publicly traded company. Kumar joined Acacia as a vice-president in 2000 and the next year became the chief executive officer of CombiMatrix, a position he held until the end of June 2010.

In 1994, Dr. Donald Montgomery went to work for Nanogen, Inc. (Nanogen), a biotechnology company in San Diego. Montgomery signed an agreement with Nanogen, which provided that any invention conceived by Montgomery while at Nanogen belonged to it. While employed by Nanogen, Montgomery invented a unique biotechnology process by which chemical compounds were made on an array of electrodes. Montgomery disclosed his new invention to Brooke Anderson, one of Acacia's founders, and conspired with Acacia to start a biotechnology company based upon the new invention. Acacia made at least one payment to Montgomery while he was employed by Nanogen.

Montgomery resigned from Nanogen in August 1995. In October 1995, he and Acacia founded a new company, CombiMatrix, to commercially exploit this "stolen technology." Montgomery continued to receive additional payments from Acacia through Anderson.

In November 1995, Montgomery sued Nanogen over rights to the technology he developed at Nanogen. In February 1996, Nanogen and Montgomery settled the lawsuit.

In April 1996, Montgomery became a director of CombiMatrix and received shares of its stock. In July 1996, he filed a provisional patent application covering CombiMatrix's core technology. This patent application was based upon the invention that Montgomery had conceived while at Nanogen.

II. Nanogen's Lawsuit Against CombiMatrix and Montgomery

In November 2000, Nanogen filed a lawsuit alleging CombiMatrix and Montgomery had stolen technology owned by Nanogen. In December 2000, Acacia and CombiMatrix notified National Union Fire Insurance Company of Pittsburgh, Pa. (National Union) of the Nanogen lawsuit, and made a claim under Acacia's directors, officers and corporate liability policy (the Policy) issued by National Union. The Policy required National Union to reimburse certain defense costs over a self-insured retention. National Union acknowledged receipt of the claim and sent a letter to CombiMatrix, addressing policy issues and requesting more information.

When Nanogen filed its lawsuit, CombiMatrix was in the early stages of negotiating a transaction to customize and license its technology to Roche Applied Science (Roche). Roche was concerned about the Nanogen lawsuit and throughout 2001 expressed concern whether CombiMatrix had clear title to the technology.

In April and September 2001, CombiMatrix requested that National Union reimburse legal expenses incurred in the Nanogen lawsuit. National Union did not respond in writing to either request.

Several weeks into the litigation, CombiMatrix began to look for ways to settle with Nanogen. CombiMatrix wanted to settle the lawsuit because Montgomery had stolen the technology from Nanogen, its lawsuit was an impediment to CombiMatrix going public, and Roche wanted CombiMatrix to secure clear title to the technology before providing it with additional funding. CombiMatrix's efforts to settle the Nanogen lawsuit was not related to any alleged failure of National Union to reimburse legal expenses, and CombiMatrix's March 2002 revised financial forecast made no mention of any cash shortage caused by that lawsuit.

Roche required the effective date of its agreement with CombiMatrix be the date that CombiMatrix settled the Nanogen litigation. A draft partnership document required that CombiMatrix obtain a settlement with Nanogen, by which Nanogen would confirm CombiMatrix's sole ownership of some disputed patents.

In July 2002, while preparing for production of documents to Nanogen, CombiMatrix's attorneys discovered the check written by Acacia to Montgomery while he was employed by Nanogen. Kumar later described this check as a "smoking gun."

III. Settlement of the Nanogen Lawsuit

On August 8, 2002, CombiMatrix reached agreement in principle to settle with Nanogen. As of that date, CombiMatrix had not communicated with National Union for over a year. A new claims representative at National Union sent a letter to CombiMatrix, asking ...


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