California Court of Appeals, Third District, Sacramento
DALE M. WALLIS, Plaintiff and Appellant,
PHL ASSOCIATES, INC. et al., Defendants and Appellants
CERTIFIED FOR PARTIAL PUBLICATION[*]
APPEAL from a judgment of the Superior Court of Sacramento County, Super. Ct. No. CV06072352David De Alba, Judge.
Murphy, Campbell, Guthrie & Alliston, Murphy, Campbell, Alliston & Quinn, George E. Murphy, Suzanne M. Nicholson, J. Douglas Durham; Law Office of Joel. C. Baiocchi and Joel Christopher Baiocchi for Plaintiff and Appellant.
Downey Brand, Tory E. Griffin; and Klaus J. Kolb for Defendants and Appellants.
NICHOLSON, Acting P. J.
Plaintiff Dale M. Wallis invented an antigen for a bovine mastitis vaccine as part of her duties as an employee of defendant PHL Associates, Inc. (PHL), more than 20 years ago. The vaccine was eventually sold to Upjohn, and this protracted litigation has featured the contest between Wallis and PHL over the benefits related to that sale. A jury concluded that PHL and Wallis agreed that Wallis would own the antigen, but the jury also concluded that PHL committed no fraud relating to the antigen. Instead, the jury concluded PHL committed fraud relating to Wallis’s money -- $20, 000 she paid to PHL and its shareholders (also defendants) to buy stock in PHL. Based on this conclusion, the jury awarded Wallis a total of more than $2 million dollars in compensatory damages and $500, 000 in punitive damages. Finding unjust enrichment, the trial court awarded Wallis a constructive trust against PHL of more than $1 million. Both sides appeal.
We conclude that (1) the jury’s verdict that PHL (and the individual defendant shareholders) committed fraud related to Wallis’s money does not support the damages award of more than $2 million; (2) given the required reduction of the fraud damages, the punitive damages award against PHL must also be reduced; (3) the trial court’s equitable award must be reversed and remanded for a new trial because the court improperly denied PHL’s request for a statement of decision; (4) the trial court erred by offsetting the award of damages to Wallis before computing prejudgment interest; and (5) we need not resolve several additional issues raised by the parties because of how we resolve the issues already mentioned.
We therefore modify the judgment as to the jury verdict and remand for recalculation of prejudgment interest, and we reverse and remand the judgment as to the equitable relief.
Defendant PHL develops, produces, and markets animal biologics (commercial biotechnology products). Individual defendants Jeffrey Wichmann, Mary Holmes, and Thomas Hanzo were shareholders and directors of PHL. Before 1989, Holmes held 20 percent of the stock, and Wichmann and Hanzo each held 40 percent.
PHL hired plaintiff Wallis in October 1988. Wallis served as PHL’s director of laboratories.
In the fall of 1988, Wallis developed the J-5 TC antigen (referred to hereafter as the antigen) for a vaccine for bovine mastitis. In a vaccine, the antigen is the active ingredient that invokes the immune response. It was disputed at trial whether Wallis developed the antigen on her own time or within the scope of her PHL employment. As we discuss later, the jury concluded that she developed the antigen within the scope of her PHL employment.
In May 1989, Wallis and PHL negotiated terms of a long-term employment contract, including a term that any inventions or products she developed would remain her own. However, the agreement was never finalized.
In June 1989, Wallis met with the PHL board of directors to discuss the production of a vaccine using the antigen. The board expressed a desire to do so, but Wallis felt the board was reneging on its promise to make her a shareholder. She told PHL’s attorney, Thomas Strohl, that she was considering taking the antigen to another company.
PHL gave Wallis a raise and the opportunity to purchase 20 shares of PHL stock for $1, 000 per share. Purchase of the shares would entitle Wallis to a position on the board of directors. Wallis paid $15, 000 to PHL for 15 shares in July 1989 and paid the individual defendants a total of $5, 000 for five shares in December 1989 ($1, 000 to Holmes and $2, 000 each to Wichmann and Hanzo). After she paid for the PHL shares, she was given a vote in board meetings.
PHL began using the antigen to manufacture vaccine for the market. Wallis received shareholder bonuses through 1990 and part of 1991.
In 1991, PHL negotiated with Upjohn to sell the vaccine. During the negotiations with Upjohn, PHL fired Wallis. She refused an offer from Wichmann and Holmes to buy back her shares because she believed she was entitled to one-sixth of the Upjohn deal. Wichmann, Hanzo, and Holmes voted to remove Wallis from the board of directors.
In January 1992, PHL finalized the sale of the vaccine to Upjohn for $2.5 million. PHL agreed not to compete with Upjohn for 10 years, and Upjohn agreed that PHL would be the exclusive producer and supplier of the antigen in the United States.
In March 1992, PHL attorney Vigfus Asmundson sent Wallis a letter notifying her that she was not a shareholder because she had purchased only an option to become a shareholder after five years of employment. Strohl enclosed checks to refund the purchase price of the shares plus interest. Wallis rejected the characterization of the transaction and refused to cash the checks.
Meanwhile, Wallis’s husband at the time, James Wallis, started an animal biologics company, Hygieia Biological Laboratories (Hygieia), in February 1991. After Wallis left PHL, she became an unpaid consultant for Hygieia. In 1993, she was put on the Hygieia payroll. Hygieia developed and marketed its own J-5 antigen, and Wallis contacted Upjohn trying to get Upjohn to purchase the vaccine from Hygieia.
In 1993, Upjohn sued Wallis and Hygieia in federal court, alleging that they were infringing on the vaccine Upjohn had purchased from PHL. Wallis and Hygieia filed a counterclaim. The court granted summary judgment to Upjohn on the counterclaim, and the parties settled Upjohn’s claim with Wallis agreeing that Upjohn owned the rights to the vaccine.
Wallis filed a complaint against PHL, Wichmann, Hanzo, and Holmes on June 22, 1994. The complaint alleged causes of action for unjust enrichment, fraud, conspiracy, constructive fraud, constructive trust, and conversion. Wallis alleged but later dismissed a spoliation of evidence cause of action. Wallis did not allege a breach of contract cause of action. The complaint also named attorney Strohl as a defendant, but he is not a party to this appeal.
PHL filed a cross-complaint against Wallis, James Wallis, and Hygieia on February 11, 1999. The cross-complaint alleged causes of action for declaratory relief, rescission, intentional interference with contractual advantage, fraud, misappropriation of trade secrets, conversion, breach of fiduciary duty, unfair competition, and conspiracy.
Wallis moved to bifurcate trial on the complaint and cross-complaint and to stay discovery on the cross-complaint until after trial on the complaint. The trial court granted the motion, and trial on the complaint began with Judge Stephen L. Mock presiding.
After Wallis’s case-in-chief, the trial court granted motions for nonsuit on the constructive fraud cause of action as to all defendants and the conversion cause of action as to the individual defendants.
The jury returned special verdicts on June 13, 2000, as follows:
• General Allegations
• Wallis invented the J-5 TC antigen.
• She developed the antigen as part of her duties as an employee of PHL.
• Wallis and PHL agreed that she would own the antigen.
Fraud Relating to the Antigen
• Neither PHL nor any of the individual defendants made a false promise or false representation to Wallis related to the antigen.
Fraud Relating to Wallis’s Money
•PHL did not make a false promise to Wallis related to her money.
• The individual defendants made a false promise to Wallis related to her money and did not intend to perform on the promise.
•PHL and the individual defendants knowingly made a false representation to Wallis related to her money for the purpose of inducing Wallis to justifiably rely on it, which she did, unaware that the representation was false and that PHL and the individual defendants did not intend to perform on it.
•Wallis’s fraud cause of action was not barred by unclean hands.
•Wallis did not fail to mitigate her damages caused by fraud.
•Wallis’s damages for fraud were $1, 944, 997 against PHL, $259, 330 against Wichmann, $259, 330 against Hanzo, and $129, 665 against Holmes
Conversion of the Antigen
•PHL did not deliberately interfere with the antigen.
Conversion of Wallis’s Money
•PHL deliberately and unjustifiably interfered with Wallis’s $15, 000, but did not interfere with Wallis’s $5, 000.
•PHL did not make a good faith offer to return $20, 000 to Wallis.
•Wallis’s conversion claim against PHL was barred by neither the statute of limitations nor unclean hands.
•Wallis’s total damages suffered as a result of PHL’s conversion of her money was $1, 944, 997.
•The individual defendants deliberately and unjustifiably interfered with Wallis’s $5, 000 but did not interfere with Wallis’s $15, 000.
•The individual defendants did not make a good faith offer to return $5, 000 to Wallis.
•Wallis’s conversion claim against the individual defendants was barred by neither the statute of ...