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Asahi Kasei Pharma Corporation v. Actelion Ltd.

California Court of Appeals, First District, Fifth Division

December 18, 2013

3ASAHI KASEI PHARMA CORPORATION, Plaintiff and Appellant,
v.
ACTELION LTD., et al., Defendants and Appellants.

CERTIFIED FOR PARTIAL PUBLICATION[*]

Order Filed Date: 1/16/14

Superior Court of San Mateo County, No. CIV478533, Marie S. Weiner, Judge.

Morgan, Lewis & Bockius, Thomas M Peterson, Rollin B. Chippey II, Benjamin P. Smith, Christopher J. Banks and Tera M. Heintz for Plaintiff and Appellant,

Mayer Brown, Evan M. Tager, Craig W. Canetti, Lee N. Abrams, Donald M. Falk; Cotchett, Pitre & McCarthy, Joseph W. Cotchett and Nancy L. Fineman for Defendants and Appellants Actelion Ltd., Actelion Pharmaceuticals Ltd., Actelion Pharmaceuticals US, Inc. and Actelion U.S. Holding Company.

Ropers, Majeski, Kohn & Bentley and Susan H. Handelman for Defendants and Appellants Jean-Paul Clozel, Martine Clozel and Simon Buckingham.

ORDER MODIFYING PARTIALLY PUBLISHED OPINION

BY THE COURT:[1]

The opinion in the above-entitled matter filed on December 18, 2013, was certified for publication with the exception of parts II.B., II.C., II.D., and II.E. On January 7, 2014, a nonparty request for full publication was filed pursuant to California Rules of Court, rule 8.1120(a). Pursuant to California Rules of Court, rules 8.1105(b)(2), (b)(4), (c), and 8.1110, and for good cause appearing, this court grants that request in part and orders the opinion certified for publication with the exception of parts II.B., II.C.3., II.C.4., II.D., and II.E.

IT IS FURTHER ORDERED that the opinion filed on December 18, 2013, is modified as follows and the petitions for rehearing are DENIED:

1. On page 5, in part I, the first sentence and first clause of the second sentence of the second full paragraph are amended to read:

Actelion had been following Ventavis since 2002 and had considered acquiring CoTherix to get rights to the drug, but as late as May 29, 2006, considered the company a second-rate opportunity because of Ventavis’s shortcomings. Shortly after the June 28, 2006 public announcement of the License Agreement, Martine noted Fasudil’s promise and the company began to explore the option of acquiring CoTherix. In July 2006,

2. On page 14, the entire paragraph in part II.A.2. is amended to read:

We independently review Defendants’ legal challenge to the scope of potential liability for the tort of intentional interference with contract. (Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 800.)

3. On page 49, in the first paragraph of part II.C., the third sentence is amended to read:

The jury also awarded Asahi $187.4 million in development costs and $75, 000 in investigator-sponsored study costs that CoTherix would have incurred for Asahi’s benefit to bring Fasudil to market if it had continued to perform under the contract.

4. On page 49, in part II.C., footnote no. 25 is amended to read:

25 The jury award of $450, 000 in IND/Regulatory maintenance costs is not separately challenged here.

5. On page 52, in part II.C.2.a., the fourth sentence of the second full paragraph is amended to read:

Increases in creatinine levels shown in the IR Fasudil studies were not clinically significant except at high doses. Increases in creatinine levels in ER Fasudil studies were not clinically significant and were reversible.

6. On page 62, in part II.C.3.b., footnote no. 33 is amended to read:

33 This analysis also applies to the award of investigator-sponsored study costs insofar as studies of inhaled Fasudil is concerned. Because Actelion does not attempt to segregate the amount of such costs that were attributable to inhaled Fasudil versus other formulations of Fasudil, it has forfeited any argument that a portion of the award of these costs should have been included in the remittitur. (Guthrey v. State of California (1998) 63 Cal.App.4th 1108, 1115–1116 [appellate court may deny claim on appeal that is unsupported by argument or citations to the record].)

7. On page 63, in part II.C.3.b., footnote no. 34 is deleted (with all following footnotes renumbered accordingly).

8. On page 63, a new final paragraph of part II.C.3.b. is added to read:

Actelion further argues that the award was not supported by substantial evidence of proximate causation. However, CoTherix was obligated to pursue development of inhaled Fasudil as long as the License Agreement remained in effect, and the evidence that oral Fasudil was likely to be approved and sold as anticipated supports the inference that, absent interference by the Defendants, the License Agreement would have remained in effect through 2019.

9. On page 64, in part II.C.4., the first sentence of the first full paragraph is amended to read:

On the evidence presented at trial, the jury reasonably could have found that—absent Actelion’s tortious interference—CoTherix would not have exercised its termination right in 2009 or any time before 2019.

10. On page 67, in part II.D.1., lines 10 through 16 of the first partial paragraph are amended to read:

Indeed, several comments attributed to the Individual Defendants themselves are consistent with the comments that Actelion attempts to set apart: Simon’s notes of an August 28, 2006 telephone conference could be construed to suggest that Actelion should “mudsling... Fasudil[’s] great promise, ” and Simon wrote on the eve of the acquisition that if Asahi balked at the contract termination, “we could discuss risk-benefit ratio and the need to discuss several issues with the FDA before proceeding! I think [we] will be able to deal with them effectively!” Jean Paul personally wrote the March 23, 2007 letter indicating that Actelion might make adverse statements about Fasudil’s safety to the FDA and the public if it was unable to resolve its dispute with Asahi and the jury reasonably could have found that this letter was a wrongful threat. And Martine

The modification effects no change in the judgment.

Bruiniers, J.

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 tradename 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., Actelion U.S. Holding Company (collectively Actelion), as well as three Actelion executives.[2] The case went to trial on four of Asahi’s claims: intentional interference with the License Agreement; interference with Asahi’s prospective economic advantage; breach of a confidentiality agreement between Actelion and CoTherix (on a third-party beneficiary theory); and breach of confidence.[3] The jury returned a unanimous liability verdict against Actelion and the Individual Defendants (collectively Defendants), awarding nearly $546.9 million in compensatory damages, and finding that all Defendants acted with malice, oppression or fraud. The jury awarded punitive damages against the Individual Defendants. Posttrial, the court offset the verdicts for the amounts previously awarded to Asahi in an International Chamber of Commerce arbitration proceeding (ICC Arbitration) against CoTherix. Defendants’ motions for judgment notwithstanding the verdict were denied. The trial court denied a motion for new trial on damages, conditioned on Asahi’s acceptance of a remittitur of certain damage categories.

Defendants contend, inter alia, that any actions taken to interfere with the License Agreement were privileged and not actionable, and that Asahi’s damage claims are speculative and unsupported. The Individual Defendants further challenge the award of punitive damages. Asahi cross-appeals from the conditional new trial order. In the published portion of this opinion we address the scope of liability for tortious interference with a contract by a nonparty to the contract, and we affirm the judgment in favor of Asahi. In the nonpublished portion of our decision we reject the challenges of Actelion and the Individual Defendants to the trial court’s evidentiary rulings and to the damage awards, and we deny Asahi’s cross-appeal.

I. Background and Procedural History

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 [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’ ”].)[4]

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.

In order to gain regulatory approvals necessary for new medical uses of Fasudil, Asahi entered into the License Agreement with CoTherix on June 23, 2006. CoTherix had previously obtained regulatory approval for its own inhaled PAH treatment drug, Ventavis. Under the terms of the License Agreement, CoTherix agreed to obtain U.S. and European regulatory approvals for Fasudil to treat certain diseases, and to develop and commercialize it in those markets. CoTherix was to develop oral and inhaled formulations of Fasudil for treatment of PAH, and an oral formulation of Fasudil for treatment of stable angina (SA). It was required to use commercially reasonable efforts to develop Fasudil, and to obtain U.S. regulatory approvals for Fasudil as soon as reasonably practicable. (Asahi I, supra, 204 Cal.App.4th at p. 4.) Pursuant to the License Agreement, CoTherix prepared a development plan projecting that it would complete development and file for regulatory approval of extended release oral Fasudil (ER Fasudil) for treatment of SA in 2009, ER Fasudil for treatment of PAH in 2010, and inhaled Fasudil for treatment of PAH in 2011. Asahi considered CoTherix’s ability to move quickly in clinical development of Fasudil to be particularly important to preservation of Fasudil’s market exclusivity before facing generic competition.

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.[5] Tracleer is what is known in the pharmaceutical industry as a “blockbuster” drug, generating over $1 billion in revenue annually, and Actelion has held the dominant share of the relevant market. In 2006, 98 percent of Actelion’s U.S. revenues were dependent upon Tracleer sales. (Asahi I, supra, 204 Cal.App.4th at p. 5.)

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 in August. Martine personally conducted due diligence on Fasudil in early October. Ultimately, Martine recommended returning Fasudil to Asahi, after noting “potential pricing issues if [F]asudil was also working in PAH.” “[F]rom the beginning, Martine was of the opinion that [Actelion] would not go ahead with Fasudil.” Martine’s conclusions were shared with Jean-Paul. Meanwhile, in late October, the results of CoTherix’s Phase I study were promising. The plan was to move ahead with the Phase II clinical study in early 2007. CoTherix had ordered supplies of ER Fasudil for Phase II clinical use. On November 19, 2006, Actelion U.S. Holding Company and CoTherix signed an agreement and plan of merger, which was publicly announced the following day.

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 proposed transaction will close, we will contact you again regarding Fasudil. We expect that we will know more next week. Until then, CoTherix has assured us that the Fasudil programme is proceeding as planned.” On January 9, Actelion acquired all of the stock of CoTherix and concurrently notified Asahi that it was discontinuing development of Fasudil for “business and commercial reasons.”

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[6] and inform the Japanese authorities. [¶] In addition, for public disclosure reasons, since the amount you have requested is very high, in case we would really pay it, we would be obliged to announce this payment and the reasons why we decided to discontinue the development of [F]asudil.” Asahi viewed these as threats. An Actelion witness testified that these were tactics discussed and “employed in the hopes that it would speed up negotiations.”

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, [F]asudil ER was well tolerated, the changes in the clinical safety assessments were not clinically significant, and all subjects completed the study.” On April 19, 2007, Actelion issued a press release stating only: “After careful review, Actelion has decided not to pursue further development with [F]asudil. Accordingly, the related agreement with [Asahi] had been terminated.”

The Litigation Below

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.[7]

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[8] (Claim 3); in the alternative to Claims 1 and 2, breach of the License Agreement (Claim 4); conspiracy in restraint of trade pursuant to the Cartwright Act (Claim 5); false advertising pursuant to Business and Professions Code section 17500 et seq. (Claim 6); unfair competition pursuant to Business and Professions Code section 17200 et seq. (Claim 7); and breach of confidence[9] (Claim 8).

Pretrial Motions

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 under terms of the License Agreement precluding “special, exemplary, consequential or punitive damages, ” finding those terms unenforceable under either Japanese or California law with respect to intentional or grossly negligent conduct.

Defendants moved to summarily adjudicate Claim 1. The motion was denied.[10]

The Trial

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, 950, 000 for lost M&R payments; $187, 400, 000 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.[11]

Posttrial Motions

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, 950, 000 in milestone and royalty (M&R) damages by $1 million, and the $187, 400, 000 damage verdict for development costs by $69, 350, 000. Actelion then filed a motion for new trial and/or remittitur and a motion for judgment notwithstanding the verdict. The Individual Defendants filed separate new trial and judgment notwithstanding the verdict motions that joined in the Actelion motions and also challenged the awards of punitive damages. Asahi moved for a new trial on punitive damages as to the Actelion entities.

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, 850, 000 (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 Ashai’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.

The Appeals

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.

II. Discussion

A. Tortious Interference with the License Agreement

“To recover in tort for intentional interference with the performance of a contract, a plaintiff must prove: (1) a valid contract between plaintiff and another party; (2) defendant’s knowledge of the contract; (3) defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage. [Citation.] In this way, the ‘expectation that the parties will honor the terms of the contract is protected against officious intermeddlers.’ [Citation.]” (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 514, fn. 5 (Applied Equipment).)

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.” (Woods v. Fox Broadcasting Sub., Inc. (2005) 129 Cal.App.4th 344, 351, fn. 7, & 353, fn. 8 (Woods).)

1. Jury Instructions on Wrongful Interference with the License Agreement

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.”[12]

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 the interference against the importance of Asahi’s interest with which the particular Defendant interfered. You must keep in mind both the nature of the particular Defendant’s conduct and the relationship of all the parties involved. [¶] The 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. [¶]... [¶] In evaluating whether a particular Defendant’s interference was justified, you should consider all of the circumstances, including but not limited to the following factors: [¶] 1. The nature of the particular Defendant’s conduct; [¶] 2. The particular Defendant’s motive; [¶] 3. The interests of Asahi with which the particular Defendant’s conduct interfered; [¶] 4. The interests sought to be advanced by the particular Defendant; [¶] 5. The social interests in protecting the freedom of action of the particular Defendant and the contractual interests of Asahi; [¶] 6. The proximity or remoteness of the particular Defendant’s conduct to the interference; and [¶] 7. The relations among Asahi, CoTherix, and the particular Defendant.” (Italics added.)

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.”[13] Having been so instructed, the jury nonetheless found that all Defendants intentionally interfered with the License Agreement.

2. Standard of Review

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; Cristler v. Express Messenger Systems, Inc. (2009) 171 Cal.App.4th 72, 82 [“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.)

3. Analysis

Defendants contend that, after January 9, 2007, they could not be liable for interfering with the License Agreement because “Actelion had a ‘legitimate... economic interest in the contractual relationship.’ ” Similar language is found in Applied Equipment, supra, 7 Cal.4th 503, in which the California Supreme Court held that a contracting party cannot be held liable in tort for conspiracy to interfere with its own contract. (Id. at pp. 507–508.) The court noted that a line of authority from the Court of Appeal had held that “one contracting party, by use of a conspiracy theory, could impose liability on another for the tort of interference with contract.” (Id. at p. 510.) However, the Supreme Court rejected this authority “because: (1) it illogically expands the doctrine of civil conspiracy by imposing tort liability for an alleged wrong—interference with a contract—that the purported tortfeasor is legally incapable of committing; and (2) it obliterates vital and established distinctions between contract and tort theories of liability by effectively allowing the recovery of tort damages for an ordinary breach of contract.... [¶]... [¶] By its nature, tort liability arising from conspiracy presupposes that the coconspirator is legally capable of committing the tort, i.e., that he or she owes a duty to plaintiff recognized by law and is potentially subject to liability for breach of that duty.” (Id. at pp. 510–511.) The Applied Equipment court pointed out that “Applied’s conspiracy theory is fundamentally irreconcilable with the law of conspiracy and the tort of interference with contract” because “the tort cause of action for interference with contract does not lie against a party to the contract.” (Id. at p. 514.) It further stated: “California recognizes a cause of action against noncontracting parties who interfere with the performance of a contract. ‘It has long been held that a stranger to a contract may be liable in tort for intentionally interfering with the performance of the contract.’ [Citation.] [¶]... [¶]... The tort duty not to interfere with the contract falls only on strangers—interlopers who have no legitimate interest in the scope or course of the contract’s performance.” (Id. at pp. 513–514, final italics added & fn. omitted.)

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.[14]

Defendants urge this court to take the Applied Equipment court’s language regarding “outsiders who have no legitimate social or economic interest in the contractual relationship” out of context and read it to mean a noncontracting party who also has no interest in the contract. But the California courts have not recognized a corporate owner’s absolute privilege to interfere with its subsidiary’s contract. (Woods, supra, 129 Cal.App.4th at pp. 353, 355; Collins v. Vickter Manor, Inc. (1957) 47 Cal.2d 875, 883 [whether corporation owners are “privileged to cause the corporation to discontinue its relations with plaintiffs, in the belief that such a course of action was in the best interests of the corporation, is a matter of defense, to be decided by a resolution of the factual issues presumptively involved”]; Sade Shoe Co. v. Oschin & Snyder (1984) 162 Cal.App.3d 1174, 1181 [an actor with “ ‘a financial interest in the business of another is privileged purposely to cause him not to enter into or continue a relation with a third person in that business if the actor [¶] (a) does not employ improper means, and [¶] (b) acts to protect his interest from being prejudiced by the relation’ ”]; Culcal Stylco, Inc. v. Vornado, Inc. (1972) 26 Cal.App.3d 879, 882–883 [being a parent corporation of a subsidiary business does not “without more, ” make “intentional interference with a contract of the business privileged as a matter of law—that is, privileged ‘under all conceivable circumstances’ ”]; Kozlowsky v. Westminster Nat. Bank (1970) 6 Cal.App.3d 593, 600 [court could not “say, as a matter of law, that, by virtue of Caspers’ position as majority stockholder and director, his interference with the business relationships of the Bank would be, under all conceivable circumstances, privileged”].)

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 majority stake. The trial court agreed, but Division Eight of the Second District Court of Appeal reversed. (Id. at pp. 347–349.)

The Woods court noted that Applied Equipment involved a party to the contract and “the court’s analysis never considered the immunity of someone who was not a party to the contract.” (Woods, supra, 129 Cal.App.4th at p. 352.) Thus, it rejected the notion that Applied Equipment stood for the proposition that “an ownership interest in a business entity’s contract confers immunity from tort liability for interfering with the entity’s contracts” and that Applied Equipment “can be stretched so far that it now protects a defendant who has no more than an economic interest or connection to the plaintiff’s contract with some other entity.” (Id. at p. 355.) The court concluded that the Applied Equipment definition of “stranger” was “dicta at best.” (Id. at p. 352.) It further concluded: “[W]e find it highly unlikely that Applied Equipment intended to hold, or should be construed as holding, that persons or entities with an ownership interest in a corporation are automatically immune from liability for interfering with their corporation’s contractual obligations. [Citations.]” (Id. at p. 353.)

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 (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.)

Defendants misplace their reliance on Mintz, supra, 172 Cal.App.4th 1594. In Mintz, CALPERS contracted to provide health insurance to Mintz. Blue Cross contracted with CALPERS to serve as the claims administrator for the plan. Mintz sued Blue Cross for tortious interference with the contract between himself and CALPERS. The trial court sustained Blue Cross’s demurrer, and Division Eight of the Second District Court of Appeal affirmed. (Id. at pp. 1598–1603.) The court found that Blue Cross was “an agent for CALPERS in administering the contract of insurance.” (Id. at p. 1603.) It also concluded that a “representative of a contracting party may not be held liable for the tort of interfering with its principal’s contract....” (Id. at p. 1607.) The Mintz court distinguished Woods by saying: “Woods pointed out that in Applied Equipment and all the decisions it cited, ‘it was clear that the defendant was either a contracting party or its agent who could not be liable for interference’ rather than ‘noncontracting parties who had some general economic interest or other stake in the contract. [Citation.] In short, Woods merely concludes that a shareholder is not automatically immune from liability for interfering with the contractual obligations for which it holds shares [citation]; Woods does not stand for the proposition that the agent of a contracting party may be liable for interference with its principal’s contract.” (Id. at p. 1604, fn. 3.)

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 (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; 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 liability because their economic interest means they are not “strangers, ” we disagree. Instead, we agree with the Woods court that the Kasparian court’sabsence of analysis limits the persuasiveness of its holding. (Woods, supra, 129 Cal.App.4th at p. 354.)[15]

We hold that the jury was properly instructed on the elements of wrongful interference with contract and properly charged with considering whether Defendants “used unlawful means to interfere with the [License Agreement].” So instructed, the jury found that each of the Defendants intentionally interfered with the License Agreement. The trial court did not err in refusing Defendants’ proposed special jury instruction or in denying Defendants’ motion for judgment notwithstanding the verdict.[16]

4. Liability of the Individual Defendants

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 viresconduct that interfered with Asahi’s contract with CoTherix. Accordingly, regardless of whether the intentional-interference judgment against Actelion is sustainable, the three [I]ndividual [D]efendants cannot be personally liable... for an economic tort.” (Italics omitted.)

It is true that “corporate directors cannot be held vicariously liable for the corporation’s torts in which they do not participate.... ‘[A]n officer or director will not be liable for torts in which he does not personally participate, of which he has no knowledge, or to which he has not consented.... While the corporation itself may be liable for such acts, the individual officer or director will be immune unless he authorizes, directs, or in some meaningful sense actively participates in the wrongful conduct.’ [Citation.]” (Frances T. v. Village Green Owners Assn. (1986) 42 Cal.3d 490, 503–504, italics omitted & added (Frances T.).) But “[c]orporate director or officer status [does not] immunize[] a person from personal liability for tortious conduct.... [¶]... [¶] A corporate director or officer’s participation in tortious conduct may be shown not solely by direct action but also by knowing consent to or approval of unlawful acts.... [¶] The legal fiction of the corporation as an independent entity was never intended to insulate officers and directors from liability for their own tortious conduct.... All persons who are shown to have participated in an intentional tort are liable for the full amount of the damages suffered. [Citations.]” (PMC, Inc. v. Kadisha (2000) 78 Cal.App.4th 1368, 1379–1381.) “Shareholders, officers, and directors of corporations have [also] been held personally ...


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