Asahi Kasei Pharma Corp. v. Actelion Ltd. , 169 Cal. Rptr. 3d 689 ( 2013 )

Filed 12/18/13
CERTIFIED FOR PARTIAL PUBLICATION*
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION FIVE
ASAHI KASEI PHARMA
CORPORATION,
Plaintiff and Appellant, A133927
v. (San Mateo County
ACTELION LTD., et al., Super. Ct. No. CIV478533)
Defendants and Appellants.
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.”
*
Pursuant to California Rules of Court, rules 8.1105(b) and 8.1110, this opinion is
certified for publication with the exception of parts II.B., II.C., II.D., and II.E.
1
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.1 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.2 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
1
These executives are Jean-Paul Clozel (cofounder and chief executive officer),
Martine Clozel (cofounder and chief scientific officer), and Simon Buckingham
(worldwide director of corporate and business development). For clarity and consistency
with their briefing on appeal, these parties are referenced by first name or collectively as
the Individual Defendants.
2
In Asahi Kasei Pharma Corp. v. CoTherix, Inc. (2012) 204 Cal.App.4th 1(Asahi I), we affirmed the trial court’s grant of summary adjudication of Asahi’s claims
under the Cartwright Act, the California antitrust statute (Bus. & Prof. Code, § 16700
et seq.).
2
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’ ”].)3
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
3
Defendants do not directly argue that the jury’s determination of tortious
interference is unsupported by substantial evidence. We would in any event agree with
Asahi that such an argument would be forfeited due to Actelion’s failure to present a full
and fair summary of the evidence supporting the judgment. (Schmidlin v. City of Palo
Alto (2007) 157 Cal.App.4th 728, 739.)
3
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.4 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.)
4
Martine discovered bosentan (Tracleer) in 1990, while employed by the
pharmaceutical company Hoffman-LaRoche.
4
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.”
5
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
6
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. IND5 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
5
An IND is an “Investigational New Drug Application” submitted to the FDA to
obtain approval for human clinical testing. (21 C.F.R. § 312.1 et seq. (2013).) An IND
for Fasudil had been approved by the FDA.
7
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.6
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 agreement7 (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 confidence8 (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
6
CoTherix paid the award in full shortly thereafter.
7
In connection with the acquisition of CoTherix, Actelion and CoTherix entered
into an agreement to keep confidential the proprietary information of Cotherix and of any
third party who provided the information to CoTherix under a confidentiality agreement.
8
Asahi alleged that Defendants obtained confidential/proprietary information
about Fasudil during their CoTherix due diligence, and misused this information by
disparaging Fasudil and extorting Asahi.
8
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.9
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,
2011.10
9
The trial court granted summary adjudication as to Claim 2, limiting its scope to
exclude any claims for prospective economic relationships with third parties. Claims 5
and 7 were disposed of by summary adjudication, and Claim 6 was voluntarily dismissed.
Claim 4, pled in the alternative to Claims 1 and 2, apparently was not pursued at trial. No
claims against CoTherix remained by the time the case went to trial.
10
The court did not enter judgment on the claims on which no damages were
awarded—Claim 2 and the punitive damage claim against Actelion. (See Costerisan v.
9
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.
Melendy (1967) 255 Cal.App.2d 57, 59–61 [in action for damages where jury is properly
instructed on nominal damages, liability judgment will not be entered where jury
awarded no damages].)
10
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
11
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
12
its affiliates.” The court refused the request, stating: “[Y]ou have no case that says
that.”11
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
11
After the verdict, Defendants continued to insist, by motion for judgment
notwithstanding the verdict, that they were not liable as a matter of law for any
interference occurring after the acquisition. During argument on the motions, Actelion’s
trial counsel acknowledged: “I’m not saying we have a case in California that’s directly
on point. What I’m saying is that the totality of [the case law] create[s] a premise, if you
will, that this kind of liability can’t exist. . . . Applied Equipment cautions against
expanding this tort too much.” The trial court denied the motion for judgment
notwithstanding the verdict.
13
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.”12 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
12
The jury was also instructed on intentional misrepresentation, concealment, and
extortion.
14
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
15
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.13
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
13
Defendants also rely on this court’s opinion in Asahi I, supra,
204 Cal.App.4th 1. They contend: “Asahi I establishes that after Actelion acquired
CoTherix it was not a stranger to the License Agreement with Asahi, but instead shared
‘an inherent unity of economic interest and purpose’ with CoTherix . . . . Asahi I further
establishes that Actelion could not be liable for interfering with the License Agreement in
the weeks preceding the Acquisition, because it was the termination of the development
of [F]asudil after the Acquisition that gave rise to the damages that Asahi was awarded
and ‘Asahi fails to suggest how it could have successfully enjoined the merger.’ ” In
Asahi I, this court held that, when a company lawfully acquires a competitor, the
activities of the two companies in anticipation of the merger cannot constitute a
conspiracy in restraint of trade under California’s antitrust statutes. (Id. at pp. 3–4.) This
holding is not relevant to the claims raised on the current appeal. Opinions are not
authority for propositions not considered. (People v. Avila (2006) 38 Cal.4th 491, 566.)
And, contrary to Actelion’s suggestion, Asahi I is certainly not law of the case as to
whether Actelion can be liable for tortious interference with contract. (Moore v. Trott
(1912) 162 Cal. 268, 273 [doctrine of law of the case does not embrace “points of law not
presented and determined”]; Yu v. Signet Bank/Virginia (2002) 103 Cal.App.4th 298, 309
[doctrine of law of the case “does not apply to points of law that might have been
determined, but were not decided in the prior appeal”].)
16
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
17
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
18
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
19
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’s absence of analysis limits the persuasiveness of its holding. (Woods, supra,
129 Cal.App.4th at p. 354.)14
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.15
14
The Individual Defendants point us to PM Group, Inc. v. Stewart (2007)
154 Cal.App.4th 55 (PM Group). In PM Group, Division Three of the Second District
held that certain noncontracting parties were not strangers to the contract when their
performance was necessary to the plaintiffs’ prospective economic relationship. A
plaintiff concert promoter (Pollack) had attempted to contract with Rod Stewart for a
concert tour. Pollack also entered into subcontracts with third party subpromoters. But,
Stewart never signed a final contract with Pollack. Pollack then sued Stewart and
Stewart’s manager, lawyer, and agent for tortious interference with the subcontracts. (Id.
at pp. 57–61.) Because the subcontracts provided for Rod Stewart’s concert
performance, the court concluded: “as a matter of law, Stewart and his agents could not
have interfered with the performance of these subcontracts. The tort of intentional
interference with contractual relations is committed only by ‘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.) Consequently, a contracting party is
incapable of interfering with the performance of his or her own contract and cannot be
held liable in tort for conspiracy to interfere with his or her own contract. [Citations.]
Because the subcontracts at issue here provided for Stewart’s performance, neither
Stewart nor his agents can be liable for the tort of interfering with the subcontracts.” (PM
Group, at p. 65.) PM Group does not assist either Actelion or the Individual Defendants.
Unlike in PM Group, Defendants’ performance was neither contemplated nor necessary
to the License Agreement.
15
Given our resolution of Actelion’s postacquisition argument, we need not
consider Actelion’s additional argument that, as a matter of law, it cannot be liable for
interfering with the License Agreement before the acquisition closed. Actelion argues:
“Asahi does not explain how Actelion’s alleged pre-[a]cquisition decision could amount
20
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 vires conduct 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
to intentional interference with the [License] Agreement but for Actelion’s actual post-
[a]cquisition termination of CoTherix’s development of [F]asudil, which, as just shown,
cannot support liability. . . . [S]uch a decision could not cause any harm unless and until
it was carried out.” (Boldface & italics omitted.)
21
personally liable for intentional torts when they knew or had reason to know about but
failed to put a stop to tortious conduct.” (Id. at pp. 1387–1388.) Here, the Individual
Defendants do not dispute their status as “officers” or “directors” of Actelion, and
substantial evidence was presented that each actively participated in the tortious conduct.
The Individual Defendants also appear to rely on the following statement from
Self-Insurers’ Security Fund v. ESIS, Inc. (1988) 204 Cal.App.3d 1148, 1162: “[T]wo
traditional limits on a corporate officer’s personal liability for negligence . . . namely,
(1) ‘the oft-stated disinclination to hold an agent personally liable for economic losses
when, in the ordinary course of his duties to his own corporation, the agent incidentally
harms the pecuniary interests of a third party’ [citation]; and (2) ‘the traditional rule that
directors are not personally liable to third persons for negligence amounting merely to a
breach of duty the officer owes to the corporation alone.’ [Citation.]” (Italics added,
quoting Frances T., supra, 42 Cal.3d at p. 505.) But as made clear by the Frances T.
court, such a rule regarding economic losses relates only to a “corporate officer’s or
director’s personal liability for negligence.” (Frances T., at p. 505, italics added.) The
Individual Defendants entirely fail to explain what these negligence principles have to do
with their liability for an intentional tort.
Additionally, the Individual Defendants rely on cases involving the so-called
manager’s privilege. “[The manager’s] privilege has been described by one court this
way: ‘The privilege to induce an otherwise apparently tortious breach of contract is
extended by law to further certain social interests deemed of sufficient importance to
merit protection from liability. Thus, a manager or agent may, with impersonal or
disinterested motive, properly endeavor to protect the interests of his principal by
counseling the breach of a contract with a third party which he reasonably believes to be
harmful to his employer’s best interests.’ [Citations.]” (Aalgaard v. Merchants Nat.
Bank, Inc. (1990) 224 Cal.App.3d 674, 684.) It is also “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.’ [Citation.]” (Mintz, supra, 172 Cal.App.4th at
p. 1604.) The Individual Defendants contend: “In refusing to recognize that the
22
manager’s privilege applied to the [I]ndividual [D]efendants after Actelion acquired
CoTherix, the superior court committed an error of law.”
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.) 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. Instructional and Evidentiary Issues
Actelion contends that a new trial is warranted because the trial court “all but
guaranteed that the jury would return a massive verdict against [it]” by virtue of the trial
court’s “one-sided evidentiary rulings and a breathtakingly prejudicial jury instruction.”
Specifically, Actelion complains that the trial court made several errors: (1) instructing
the jury on discovery misconduct committed by Actelion Pharmaceuticals US, Inc. and
Actelion Pharmaceuticals Ltd.; (2) excluding evidence regarding Asahi’s ongoing
Phase IIa study of Fasudil in Japan; (3) admitting testimony from Asahi expert witness
Zhi-Cheng Jing, M.D., regarding a Fasudil study in China; (4) excluding evidence of
reasons other companies declined to license Fasudil; (5) limiting cross-examination of
23
Asahi’s expert witness on damages, Gordon Rausser, Ph.D.; and (6) excluding a
2007 email authored by an Asahi licensing manager.
To prevail on these arguments, Actelion must carry a heavy burden. “A trial
court’s exercise of discretion in admitting or excluding evidence is reviewable for abuse
[citation] and will not be disturbed except on a showing the trial court exercised its
discretion in an arbitrary, capricious, or patently absurd manner that resulted in a
manifest miscarriage of justice [citation].” (People v. Rodriguez (1999) 20 Cal.4th 1, 9–
10.) Furthermore, “[t]he trial court’s error in excluding evidence is grounds for reversing
a judgment only if the party appealing demonstrates a ‘miscarriage of justice’—that is,
that a different result would have been probable if the error had not occurred.
[Citations.]” (Zhou v. Unisource Worldwide (2007) 157 Cal.App.4th 1471, 1480; accord,
Cal. Const., art. VI, § 13.)
1. Jury Instruction on Discovery Misconduct
First, Actelion argues that the trial court abused its discretion in giving jury
instruction No. 14 as a discovery sanction. “Discovery sanctions must be tailored in
order to remedy the offending party’s discovery abuse, should not give the aggrieved
party more than what it is entitled to, and should not be used to punish the offending
party. [Appellate courts] review the trial court’s order under the deferential abuse of
discretion standard. [Citation.]” (Karlsson v. Ford Motor Co. (2006) 140 Cal.App.4th
1202, 1217, fn. omitted.) “ ‘The power to impose discovery sanctions is a broad
discretion subject to reversal only for arbitrary, capricious, or whimsical action.
[Citation.]’ ” (Do It Urself Moving & Storage, Inc. v. Brown, Leifer, Slatkin & Berns
(1992) 7 Cal.App.4th 27, 36, superseded by statute on another ground, as stated in
Brantley v. Pisaro (1996) 42 Cal.App.4th 1591, 1595.)
a. Background
In October 2010, Asahi learned that the FDA had posted a warning letter on its
Web site concerning Actelion Pharmaceuticals US, Inc.’s and Actelion Pharmaceuticals
Ltd.’s reporting of the deaths of more than 3,400 Tracleer patients. The warning letter,
dated September 14, 2010, provides: “The [FDA] inspected Actelion Pharmaceutical’s
24
. . . facility located [in South San Francisco] from June 24 through July 20, 2009. . . .
[The] FDA’s inspection found that your firm failed to comply with the postmarketing
reporting requirements imposed under 21 U.S.C. § 355(k) . . . and its corresponding
regulations . . . . [¶] . . . [¶] In prelude to our discussion of these deviations, we
acknowledge that Tracleer® and Ventavis® are indicated for the treatment of a serious
condition that often results in patient death. In issuing this letter we are not concluding or
implying that the patient deaths that were not properly reported to FDA in connection
with these drugs would ultimately be determined to have been caused by their use, or that
further information might not have provided an adequate basis under the regulations for
not reporting them. . . . [¶] . . . Actelion’s written procedures . . . do not require the
reporting of deaths to FDA within 15 calendar days of Actelion’s receipt of information
about their occurrence when there is a reasonable possibility that the drug caused the
death. Specifically, when Actelion has no information at all about the relationship
between a death and its drug product, Actelion presumes that there is no relationship
between the two and does not report the death to the FDA on an expedited basis.” (Fn.
omitted.) Because the warning letter was sent after the close of discovery, there was no
dispute about its production during discovery. However, the posting of the warning letter
highlighted for Asahi (and the trial court) that Actelion Pharmaceuticals US, Inc. and
Actelion Pharmaceuticals Ltd. had failed to produce at least some previously-requested
documents.
Asahi moved for sanctions, pursuant to Code of Civil Procedure section 2023.030,
including, but not limited to, the following: (1) striking defendants’ safety defenses;
(2) precluding Actelion’s use of any document produced after the discovery cutoff;
(3) instructing the jury on Actelion’s discovery conduct; (4) preventing defendants from
relying on certain evidence; and (5) monetary sanctions. In its amended motion, Asahi
argued: “Asahi has been denied the opportunity to conduct pretrial discovery with these
documents, authenticate them, ask witnesses about them, use them with Asahi’s (and
Defendants’) experts, or even have a meaningful opportunity to review them. . . .
[¶] Postponing the trial is not a viable option—that is precisely what Defendants have
25
been seeking since this case was initiated, and they should not receive the ultimate
reward for their willful discovery failures. Instead, given that the Actelion Defendants
have robbed Asahi of the opportunity to make complete, meaningful comparisons
between the Actelion Defendants’ safety allegations about [F]asudil and the safety of
other drugs developed and in development by the Actelion Defendants . . . the only fair
thing would be to preclude the Actelion Defendants from pursuing their fabricated,
blame-the-victim strategy of impugning [F]asudil’s safety at trial altogether.”
Actelion opposed the sanctions motion on the grounds that it had produced, in
July 2010, two electronic files which repeated verbatim the FDA’s investigational
findings. Actelion explained the delayed production of the remaining responsive
documents by stating that Actelion Pharmaceuticals US, Inc. and Actelion
Pharmaceuticals Ltd. originally searched only product-specific documents, which are
maintained in a central regulatory file in New Jersey, whereas the FDA inspection related
to nonproduct-specific reporting procedures and such documents are maintained in the
South San Francisco office. Actelion also argued that any prejudice could be cured by a
continuance of the trial date and reopening of discovery. According to Actelion, more
serious sanctions would improperly place Asahi in a better position at trial than if there
had been no discovery violation.
The trial court ruled: “The Court finds that there was a willful suppression of
evidence by Defendants Actelion Pharmaceuticals US, Inc. and Actelion Pharmaceuticals
Ltd. (not the other two Actelion entities), specifically regarding the 2009 FDA inspection
and investigation regarding the reporting of deaths of patients while taking
[T]racleer/bosentan, and the related subsequent communications with the FDA—which
ultimately culminated in the public Warning Letter issued by the FDA dated September
14, 2010, which brought this failure to produce evidence to light to [Asahi] and the Court.
. . . [¶] . . . [¶] . . . Defendants Actelion Pharmaceuticals US, Inc. and Actelion
Pharmaceuticals Ltd. had in their possession—and have subsequently produced after this
Court’s hearing on November 10, 2010—a multitude of communications to and from the
FDA regarding Tracleer and the postmarketing reporting of deaths, as well as a multitude
26
of emails and other internal communications in this regard. Many of these are dated
2009. [¶] . . . These documents are within the scope of [Asahi’s] requests for production
of documents propounded to the Actelion entity Defendants during 2009. . . . Defendants
objected to these requests, and a motion to compel was filed. Documents responsive to
these particular requests for production were ordered produced by the Actelion
Defendants to Plaintiff by this Court’s Order on Plaintiff’s Motion to Compel Further
Responses to Requests for Production of Documents and Further Answers to Special
Interrogatories, filed June 8, 2010. Those documents were required, by that Order, to be
produced no later than 30 days from service of the Order. This [did] not occur. [¶] . . .
[¶] . . . Defense counsel asserts that the Defendants searched the ‘central repositories
where safety and regulatory information are kept,’ which is a building in New Jersey, in
response to this Court’s June 8th Order. But Defendants themselves knew better. (There
is no indication of any improper conduct of Defendants’ counsel.) [¶] . . . The Declaration
of . . . Duffy-Warren, filed November 5, 2010, . . . tells what was done to search. She
states that she is the ‘primary point of contact between the FDA’s drug review division
and Actelion.’ She states the variety [of] FDA applications and reports collected,
including communications with the FDA. She states that these documents about the FDA
investigation during 2009 were not located in New Jersey, but rather were located at the
office in South San Francisco. ‘It did not occur to’ Duffy-Warren to look there. [¶] . . .
Yet, the internal documents now produced in November 2010—one year after originally
requested, and almost six months after ordered to be produced—reflect that Dr. Duffy-
Warren (a PhD) was personally aware of the FDA investigation and the internal
discussions about response to the FDA’s concerns occurring during 2009. . . . Further, the
FDA inspection and investigation, of which she knew, was regarding the U.S.
headquarters in South San Francisco and there was every reason to look for the
documents there—or realize that the documents were not disclosed as part of the New
Jersey search.” (Boldface & italics omitted.) The court granted Asahi’s request for a
jury instruction and otherwise denied the request for sanctions.
27
Consistent with the trial court’s order, the jury received the following instruction
at the close of evidence: “Documents were requested by [Asahi] during pretrial
discovery, which requests would have included any documents regarding an FDA
inspection and investigation occurring during 2009, and internal documents of Actelion
Pharmaceuticals, Ltd. and Actelion Pharmaceuticals US, Inc. regarding those FDA
communications, which communications did specifically pertain to reporting of deaths of
patients while taking Tracleer/bosentan, and ultimately resulting in the issuance of a
Warning Letter by the FDA dated September 14, 2010 . . . . Defendants Actelion
Pharmaceuticals, Ltd. and Actelion Pharmaceuticals US, Inc. were ordered by the Court
to produce the documents responsive to Asahi’s document requests, but these documents
were not timely produced by Defendants Actelion Pharmaceuticals, Ltd. and Actelion
Pharmaceuticals US, Inc. until after the deadline for discovery and months after the
Court’s Order requiring production, at a time shortly before trial. The withholding of
these documents by Actelion Pharmaceuticals Ltd. and Actelion Pharmaceuticals US,
Inc. until after the discovery cut-off prevented Asahi from taking depositions regarding
these documents and from certain other pretrial discovery that Asahi would have
otherwise conducted in preparation for trial.”
In their closing argument, Asahi argued: “The FDA warning letter . . . this was
put in at the end of our case. Remember, we had to bring it in. It was wrapped up in a
bow from the FDA. And Dr. Jim White explained to you the importance of that FDA
warning letter, that Actelion Pharmaceuticals U.S. had been improperly reporting the
deaths of over 3500 patients on Tracleer to the FDA. And did you hear a word, did you
hear a peep about why that happened from the defendants? And the reason this is
important is because remember the defendants’ defense. They say we are a safety-
conscious company. We are a company that cares about patients and that’s why we
couldn’t develop [F]asudil. [¶] Is this a safety-conscious company? And have they ever
explained that to you? They haven’t.” 16
16
Defendants did not object to Asahi’s argument.
28
b. Analysis
“Misuse of the discovery process may result in the imposition of a variety of
sanctions. These include payment of costs, sanctions barring the introduction of certain
evidence, sanctions deeming that certain issues are determined against the offending
party, and sanctions terminating an action in favor of the aggrieved party. (Code Civ.
Proc., §§ 2023.020, 2023.030.) Misuse of the discovery process includes failing to
respond or submit to authorized discovery, providing evasive discovery responses,
disobeying a court order to provide discovery, unsuccessfully making or opposing
discovery motions without substantial justification, and failing to meet and confer in
good faith to resolve a discovery dispute when required by statute to do so. (Code Civ.
Proc., § 2023.010, subds. (d)–(i).) The court may impose sanctions ‘[t]o the extent
authorized by the chapter governing any particular discovery method or any other
provision of this title . . . .’ (Code Civ. Proc., § 2023.030.)” (Karlsson v. Ford Motor
Co., supra, 140 Cal.App.4th at p. 1214.)
Actelion challenges the trial court’s finding that “there was a willful suppression
of evidence.” It contends that conclusion is “flatly wrong” because Actelion
Pharmaceuticals US, Inc. and Actelion Pharmaceuticals Ltd. did produce two documents
referencing the FDA inspection before the close of discovery. The trial court, however,
did not find that Actelion Pharmaceuticals US, Inc. and Actelion Pharmaceuticals Ltd.
had willfully suppressed all evidence of the FDA investigation. Rather, the court found
that by delaying production of some, if not most, of the documents regarding the FDA
investigation until discovery had closed (especially internal communications regarding
the investigation) Actelion Pharmaceuticals US, Inc. and Actelion Pharmaceuticals Ltd.
suppressed evidence Asahi was entitled to receive. As a result, Asahi was effectively
foreclosed from obtaining deposition testimony from the Actelion employees who
authored the 2009 communications that were not produced until the fall of 2010. It is this
evidence that was suppressed. A party’s cooperation in producing some requested
discovery materials does not excuse its failure to produce other items specifically
29
requested and required by a court order. (Sauer v. Superior Court (1987) 195 Cal.App.3d
213, 229.) The suppression finding is supported by the record.
The trial court’s finding that the suppression was willful is also supported by the
record. “Lack of diligence may be deemed willful in the sense that the party understood
his obligation, had the ability to comply, and failed to comply. [Citation.] A willful
failure does not necessarily include a wrongful intention to disobey discovery rules. A
conscious or intentional failure to act, as distinguished from accidental or involuntary
noncompliance, is sufficient to invoke a penalty. [Citation]” (Deyo v. Kilbourne (1978)
84 Cal.App.3d 771, 787–788.) The trial court clearly did not accept Duffy-Warren’s
suggestion that Actelion Pharmaceuticals US, Inc. inadvertently failed to search its
headquarters in South San Francisco, where the FDA inspection took place. This is
supported by evidence of Duffy-Warren’s own involvement with the FDA investigation,
which she knew to be occurring in South San Francisco.
Actelion contends that the only proper remedy for the late production of
documents was to continue trial and reopen discovery at Actelion’s expense.17 Actelion
contends that the instruction gave Asahi an undue advantage by “creat[ing] the severely
prejudicial misimpression that . . . patient deaths were caused by Tracleer . . . and that the
jury therefore should not believe Actelion’s defense that it is ‘a company that cares about
patients, and that’s why [it] couldn’t develop [F]asudil.’ ” It relies on “[t]he rule that a
sanction order cannot go further than is necessary to accomplish the purpose of discovery
. . . . [Citation.]” (Newland v. Superior Court (1995) 40 Cal.App.4th 608, 613
[terminating sanction; defendant’s answer was stricken].) It is true that “[t]he penalty
should be appropriate to the dereliction, and should not exceed that which is required to
protect the interests of the party entitled to but denied discovery. . . . [T]he sanction
17
Actelion also asserts that Asahi did not need additional discovery because Asahi
did not introduce the belatedly produced documents at trial. But, this is precisely why
Asahi needed the instruction—because Asahi was prevented, by virtue of the late
production, from conducting further discovery in advance of trial. We agree with the trial
court that Asahi had no obligation “to wing it at trial.”
30
should not operate in such a fashion as to put the prevailing party in a better position than
he would have had if he had obtained the discovery sought and it had been completely
favorable to his cause. [Citations.]” (Deyo v. Kilbourne, supra, 84 Cal.App.3d at p. 793,
italics added [defendant’s answer stricken].)
We disagree with the premise of Actelion’s argument. The instruction did nothing
more than inform the jury of Actelion Pharmaceuticals US, Inc.’s and Actelion
Pharmaceuticals Ltd.’s discovery conduct and the adverse impact this had on Asahi. It
did not preclude Actelion from presenting its safety defense or invite the jury to draw any
inferences regarding the cause of the Tracleer patient deaths. The redacted version of the
warning letter that was received in evidence at trial and was specifically referenced in the
instruction, made clear that the FDA was “not concluding or implying that the patient
deaths that were not properly reported . . . would ultimately be determined to have been
caused by [Tracleer] use.”
The trial court considered a continuance of trial and reopening of discovery as an
alternative to the sanctions that could be imposed under Code of Civil Procedure
section 2033.030. “ ‘[T]he question before this court is not whether the trial court should
have imposed a lesser sanction; rather, the question is whether the trial court abused its
discretion by imposing the sanction it chose. [Citation.]’ ” (Collisson & Kaplan v.
Hartunian (1994) 21 Cal.App.4th 1611, 1620.) Continuing trial appears to have been
what Actelion sought, and thus doing so would have been no sanction at all—especially
in light of what the court found to be Actelion Pharmaceuticals US, Inc.’s and Actelion
Pharmaceuticals Ltd.’s clear violation of a court order.
Jury instruction No. 14, which appears to be a hybrid between an issue sanction
and an adverse inference instruction based on Evidence Code section 413 and CACI
No. 204,18 was ordered as a lesser sanction to the sanctions originally sought by Asahi
18
All further section references are to the Evidence Code unless otherwise
indicated. Section 413 provides: “In determining what inferences to draw from the
evidence or facts in the case against a party, the trier of fact may consider, among other
things, the party’s failure to explain or to deny by his testimony such evidence or facts in
31
under Code of Civil Procedure section 2023.030. (See New Albertsons, Inc. v. Superior
Court (2008) 168 Cal.App.4th 1403, 1416, 1427 [jury instruction that defendant
destroyed evidence after receiving notice to preserve is an issue sanction establishing
those purported facts as true].) In Karlsson v. Ford Motor Co., supra, 140 Cal.App.4th
1202, the Second District Court of Appeal upheld the use of a similar special instruction
after a discovery referee found that the defendant acted willfully in attempting to conceal
evidence. (Id. at pp. 1224–1225.) Jury instruction No. 14 did not preclude Actelion from
presenting its safety defense or invite the jury to draw any inferences regarding the cause
of the Tracleer patient deaths. The trial court did not abuse its discretion. Likewise,
contrary to Actelion’s assertion on appeal, Asahi’s argument to the jury was not
inflammatory, nor did it suggest that Tracleer or Ventavis had caused the patient deaths.19
Finally, Actelion contends that the trial court abused its discretion in admitting
evidence of the 2009 FDA investigation because it was irrelevant or unduly prejudicial.
“ ‘Relevant evidence’ means evidence, including evidence relevant to the credibility of a
witness or hearsay declarant, having any tendency in reason to prove or disprove any
disputed fact that is of consequence to the determination of the action.” (§ 210.)
Section 352 provides: “The court in its discretion may exclude evidence if its probative
value is substantially outweighed by the probability that its admission will (a) necessitate
undue consumption of time or (b) create substantial danger of undue prejudice, of
confusing the issues, or of misleading the jury.” (Italics added.) “ ‘[A]n appellate court
applies the abuse of discretion standard of review to any ruling by a trial court on the
the case against him, or his willful suppression of evidence relating thereto, if such be the
case.” CACI No. 204 provides: “You may consider whether one party intentionally
concealed or destroyed evidence. If you decide that a party did so, you may decide that
the evidence would have been unfavorable to that party.” “Trial courts, of course, are not
bound by the suggested language of the standard . . . instruction[s] and are free to adapt
[them] to fit the circumstances of the case, including the egregiousness of the spoliation
and the strength and nature of the inference arising from the spoliation.” (Cedars-Sinai
Medical Center v. Superior Court (1998) 18 Cal.4th 1, 12.)
19
Moreover, Defendants’ failure to object to Asahi’s argument forfeited any error.
(Karlsson v. Ford Motor Co., supra, 140 Cal.App.4th at pp. 1227, 1229.)
32
admissibility of evidence, including one that turns on the relative probativeness and
prejudice of the evidence in question [citations]. Evidence is substantially more
prejudicial than probative [citation] if, broadly stated, it poses an intolerable “risk to the
fairness of the proceedings or the reliability of the outcome” [Citation.]’ [Citation.]”
(People v. Jablonski (2006) 37 Cal.4th 774, 805.)
“The prejudice which exclusion of evidence under . . . section 352 is designed to
avoid is not the prejudice or damage to a defense that naturally flows from relevant,
highly probative evidence. ‘[A]ll evidence which tends to prove guilt is prejudicial or
damaging to the defendant’s case. The stronger the evidence, the more it is “prejudicial.”
The “prejudice” referred to in . . . section 352 applies to evidence which uniquely tends to
evoke an emotional bias against the defendant as an individual and which has very little
effect on the issues. . . .’ [Citation.]” (People v. Karis (1988) 46 Cal.3d 612, 638.) “In
other words, evidence should be excluded as unduly prejudicial when it is of such nature
as to inflame the emotions of the jury, motivating them to use the information, not to
logically evaluate the point upon which it is relevant, but to reward or punish one side
because of the jurors’ emotional reaction. In such a circumstance, the evidence is unduly
prejudicial because of the substantial likelihood the jury will use it for an illegitimate
purpose.” (Vorse v. Sarasy (1997) 53 Cal.App.4th 998, 1009.)
On relevance and prejudice, Actelion cites various authorities suggesting that the
warning letter does not constitute a final agency action. It also points out that it is
undisputed that Actelion reported every one of the deaths at issue; the issue raised by the
FDA was the timing and format of reports. Like the trial court, we fail to see how the
warning letter’s status as final or nonfinal agency action has any effect on its
admissibility. The evidence was relevant because it tended to discredit Actelion’s claim
that it was committed to patient safety and for that reason alone decided not to further
develop Fasudil. Although the inference may have been stronger if Actelion
Pharmaceuticals US, Inc. and Actelion Pharmaceuticals Ltd. had failed altogether to
report the deaths of patients taking Tracleer, the fact that such reports were delayed, and
made in regular quarterly reports, rather than on an expedited (15-day) basis, does not
33
make the evidence completely irrelevant. As one treating physician testified, “[the
warning letter] makes me much more nervous about prescribing Tracleer because I
believe that I don’t have all the information that . . . I need to know . . . about the safety
profile of this drug.” The trial court did not abuse its discretion in determining the
evidence was relevant and its probative value outweighed its potential for prejudice.
(§ 352.)
2. Exclusion of Evidence Regarding Japanese Study
Actelion also challenges the trial court’s ruling on Asahi’s motion in limine to
exclude evidence related to the design and interim results of Asahi’s ongoing Phase IIa
study of ER Fasudil for PAH, in Japan. In granting the motion, the trial court explained:
“Given that this ‘double blind’ study has not been unblinded, any results are speculative,
more prejudicial than probative, would lead to confusion, and would be an undue
consumption of time.”20 Based on our review of sealed documents in the record, we
conclude the trial court’s ruling was not an abuse of discretion.
3. Evidence of Chinese Study
In a similar vein, Actelion contends that the trial court abused its discretion in
admitting the testimony of Zhi-Cheng Jing, M.D., regarding the results of a 2009–2010
study, conducted in China, on intravenous Fasudil. The appellate courts review a trial
court’s ruling on a motion to exclude an expert’s opinion for abuse of discretion. But,
“ ‘[d]iscretion is always delimited by the statutes governing the particular issue.’
[Citation.]” (Boston v. Penny Lane Centers, Inc. (2009) 170 Cal.App.4th 936, 950.)
Jing testified, as an expert on the use of intravenous Fasudil for PAH patients, that
intravenous Fasudil proved more effective than inhaled Ventavis during the Chinese
study. Jing also opined that intravenous Fasudil is safe for treating PAH patients. The
trial court overruled Actelion’s objections to Jing’s opinions on the ground that they were
irrelevant or unduly confusing under section 352, being based on a single-dose,
20
In a double-blind study, neither the patients nor the investigators know who
receives the drug or the placebo.
34
nonplacebo-controlled study of intravenous Fasudil, rather than inhaled Fasudil or
ER Fasudil.
Actelion continues to urge on appeal that “Jing’s opinions on the purported
efficacy of intravenous [F]asudil were unfounded and irrelevant, and it was an abuse of
discretion to admit them into evidence, because those opinions were based on
undocumented human experiments in China, not the double-blinded, placebo-controlled
studies that the FDA and [European Medicines Agency (EMEA)] undisputedly require as
a prerequisite to approval. . . . Jing’s opinions about intravenous [F]asudil therefore could
not assist the jury in determining whether the oral ER and inhaled formulations of
[F]asudil at issue in this case would have satisfied the criteria for regulatory approval as
PAH therapies in North America and Europe—the markets at issue here.”
The trial court did not abuse its discretion in concluding that Jing’s results had
sufficient probative value. It is undisputed that the intravenous, oral, and inhaled
formulations share the same active ingredient. Actelion itself repeatedly suggested to the
jury that other evidence relating to intravenous Fasudil showed ER or inhaled Fasudil
was unsafe and would not have been approved by the FDA as a PAH therapy. The
dissimilarities between the Chinese study and the FDA’s requirements for drug
approval—double-blinded and placebo-controlled studies—go to the evidence’s weight
not its admissibility.21
Actelion also argues that Jing’s expert testimony should have been excluded by
the trial court because he did not produce all of the documentation supporting his
opinions. Prior to trial, Defendants had filed a motion in limine that sought to exclude
Jing’s expert testimony on the grounds that Jing did not produce the data he relied on in
formulating his opinion. In denying that motion, the court explained: “Defendants argue
that Jing’s testimony should be excluded because he reviewed and relied upon patient
records that he cannot copy and turn over to the counsel for either side. Defendants first
21
We are unpersuaded by Actelion’s attempt, in its reply brief, to suggest that
evidence regarding the safety of intravenous Fasudil is relevant but evidence regarding
the efficacy of intravenous Fasudil is not.
35
cite . . . Section 721[22] which sets the parameters of cross-examination of expert
witnesses. From this, Defendants attempt to extrapolate a requirement that an expert be
excluded if there is a lack of production of some documents upon which the opinion is
based. Defendants present no case law making such a holding, and the Court is unaware
of any such appellate decision. . . . [¶] Second, Defendants cite to case law holding that
expert opinion evidence may be excluded if based upon privileged information. Yet a
review of the cases reflects that its purpose is to preserve the public policy upholding the
statutory privilege itself. Fox v. Kramer (2000) 22 Cal.4th 531, 539 . . . . The situation
presented here is not that the material which is the basis for the expert’s opinion is not
discoverable because it is privileged, but rather it is not discoverable because it is located
in China, which does not allow the documents to leave the country. There is no showing
that the materials are privileged under California law. Thus the materials are impossible
to be presented by the expert witness because of governmental requirements beyond his
control. Further, the information pertains to patient studies conducted or overseen by the
expert witness, and thus is also in the nature of a percipient witness (which does not
require disclosure prior to testifying). This witness provided a draft of his study report,
with tables and information, as well as certain data spreadsheets, but not the underlying
individualized patient ‘case report forms’ data.” (Italics omitted.)
22
Section 721 provides: “(a) Subject to subdivision (b), a witness testifying as an
expert may be cross-examined to the same extent as any other witness and, in addition,
may be fully cross-examined as to (1) his or her qualifications, (2) the subject to which
his or her expert testimony relates, and (3) the matter upon which his or her opinion is
based and the reasons for his or her opinion. [¶] (b) If a witness testifying as an expert
testifies in the form of an opinion, he or she may not be cross-examined in regard to the
content or tenor of any scientific, technical, or professional text, treatise, journal, or
similar publication unless any of the following occurs: [¶] (1) The witness referred to,
considered, or relied upon such publication in arriving at or forming his or her opinion.
[¶] (2) The publication has been admitted in evidence. [¶] (3) The publication has been
established as a reliable authority by the testimony or admission of the witness or by
other expert testimony or by judicial notice. [¶] If admitted, relevant portions of the
publication may be read into evidence but may not be received as exhibits.”
36
Code of Civil Procedure section 2034.270 provides: “If a demand for an exchange
of information concerning expert trial witnesses includes a demand for production of
reports and writings as described in subdivision (c) of Section 2034.210, all parties shall
produce and exchange, at the place and on the date specified in the demand, all
discoverable reports and writings, if any, made by any designated expert described in
subdivision (b) of Section 2034.210.” Furthermore, the trial court had specifically
ordered: “Not less than two business days prior to the commencement of an expert
deposition, the attorneys who have retained that expert shall cause to be delivered to the
examining attorney’s office, the documents relied upon by that expert in forming his or
her opinions . . . , unless the parties agree otherwise.” In noticing Jing’s deposition,
Defendants requested production of, among other things, “[a]ll material which the
deponent considered or reviewed . . . in formulating the opinions to which the deponent
will testify” and “[a]ny and all documents upon which the deponent relies in forming his
or her opinions.” Here, Jing produced only an abstract report of his study and an outline
of his opinions. He did not produce any of the underlying case report forms, the protocol
for the study, or the underlying data from his study.
Code of Civil Procedure section 2034.300 provides: “Except as provided in
Section 2034.310 and in Articles 4 (commencing with Section 2034.610) and 5
(commencing with Section 2034.710), on objection of any party who has made a
complete and timely compliance with Section 2034.260, the trial court shall exclude from
evidence the expert opinion of any witness that is offered by any party who has
unreasonably failed to do any of the following: [¶] (a) List that witness as an expert under
Section 2034.260. [¶] (b) Submit an expert witness declaration. [¶] (c) Produce reports
and writings of expert witnesses under Section 2034.270. [¶] (d) Make that expert
available for a deposition under Article 3 (commencing with Section 2034.410).” (Italics
added.) A party’s failure to comply with the expert discovery rules is “unreasonable”
when the conduct appears to be gamesmanship. (Boston v. Penny Lane Centers, Inc.,
supra, 170 Cal.App.4th at p. 952; Stanchfield v. Hamer Toyota, Inc. (1995)
37 Cal.App.4th 1495, 1504; Zellerino v. Brown (1991) 235 Cal.App.3d 1097, 1117.)
37
Jing’s failure to produce all supporting material appears to have been reasonable
because it was outside of his, Asahi’s, or Asahi counsel’s control. Asahi concedes that
Jing did not produce all of the data or documents underlying his experiments but explains
that this was because he was precluded by Chinese law from doing so. Asahi included
Jing in its list of disclosed expert witnesses. And, Jing produced a draft of his study
report, as well as an outline of his opinions, including a description of the basis therefore.
Actelion had ample opportunity to further explore the basis of Jing’s opinions at his
deposition and was not “denied . . . a fair opportunity to defend against Asahi’s claims.”
The trial court did not abuse its discretion in declining to exclude Jing’s testimony.
Actelion misplaces its reliance on Fox v. Kramer, supra, 22 Cal.4th 531. In that
malpractice case, the California Supreme Court upheld a trial court’s exclusion of expert
testimony when the investigator relied on privileged hospital peer review committee
records in forming his opinions. (Id. at p. 534.) But Fox v. Kramer did not involve Code
of Civil Procedure section 2034.300. Rather, the court construed section 1157,
subdivision (a) of the Evidence Code, which provides that records of peer review
committee investigations are immune from discovery. (Fox v. Kramer, at pp. 538, 540.)
The court observed: “When . . . an expert has relied on privileged material to formulate
an opinion, the court may exclude his testimony or report as necessary to enforce the
privilege. [Citations.]” (Id. at p. 541.) Actelion has not demonstrated the application of
any similar privilege here.
4. Exclusion of Evidence of Declined Licenses
Actelion next complains that the trial court erroneously excluded evidence of the
reasons that other pharmaceutical companies declined to license Fasudil.
Actelion sets out the evidence the trial court permitted Asahi to admit in support of
its theory that Actelion’s alleged interference and disparagement caused potential
licensees to reject Fasudil. Actelion then notes that, during Actelion’s cross-examination
of Kazuka Yokota, a manager in Asahi’s licensing and business development group, the
following colloquy occurred:
38
“Q. Let’s talk about efforts to license [F]asudil in the [U.S.] and Europe. [¶] How
many different companies have you talked to or had discussions with about
licensing [F]asudil?
“[ASAHI’S TRIAL COUNSEL]: Objection. It’s still vague as to time.
“THE COURT: It is. Are you asking for the past 25 years?
“[ACTELION’S TRIAL COUNSEL]: I’ll limit it since 2001.
“[ASAHI’S TRIAL COUNSEL]: Objection, Your Honor. Relevance.
“THE COURT: Sustained.
“Q. . . . Have you talked to companies in an effort to license this drug . . . ?
“A. Yes.
“Q. How many of those companies raised renal toxicity as an issue in deciding
not to license it?
“[ASAHI’S TRIAL COUNSEL]: Objection. Hearsay. Undesignated opinion.
“THE COURT: Sustained.
“Q. . . . Did any companies advise you about their concerns of renal toxicity other
than Actelion?
“[ASAHI’S TRIAL COUNSEL]: Objection. Hearsay. Undesignated opinion.
“THE COURT: Sustained.
“[ACTELION’S TRIAL COUNSEL]: It’s being offered not for the truth, Your
Honor, but to show that they were aware that other—
“[ASAHI’S TRIAL COUNSEL]: Your Honor, may we approach for this
discussion?
“THE COURT: The objection is sustained.”
Yokota was also asked about licensing efforts after CoTherix’s breach of the
License Agreement:
“Q. . . . After Schering returned the drug, did you engage in activities to try to find
other companies to license the compound?
“A. Yes.
39
“Q. How many different companies did you talk to in efforts to license it after
Schering returned it?
“A. After I had—well, at least one company.
“Q. Okay. Did Schering try to license or sublicense the product out after it
decided not to continue development?
“[ASAHI’S TRIAL COUNSEL]: Objection. Relevance.
“THE COURT: Yes. Sustained.
“Q. . . . Ms. Yokota, you testified here that the decision by Actelion, or
CoTherix[,] I should say, not to move forward with development caused you, what
you believed to be, some harm; is that correct?
“A. Yes.
“Q. In your 20 years’ experience in working in licensing, do you find that
companies are looking for drugs that they think they can make money off of?
“A. Yes.
“Q. And has any company—after the drug was returned by CoTherix, has any
company agreed to license this compound?
“A. No.
“Q. And has any company with whom you’ve talked communicated to you that
they—
“[ASAHI’S TRIAL COUNSEL]: Objection, Your Honor. Hearsay before it’s
revealed.
“THE COURT: Sustained.
“[ACTELION’S TRIAL COUNSEL]: What company has told you—
“[ASAHI’S TRIAL COUNSEL]: Objection, Your Honor. Same objection,
hearsay.
“THE COURT: It clearly seeks to elicit a statement of a third party and the
hearsay objection is sustained.
“[ACTELION’S TRIAL COUNSEL]: Your Honor, it’s being offered to show
notice of—they’ve asserted that—
40
“THE COURT: After the termination, it would be irrelevant. The objection is
sustained.
“[ACTELION’S TRIAL COUNSEL]: To their disparagement claim, Your
Honor?
“THE COURT: That’s not how you phrased it, sir.
“[ACTELION’S TRIAL COUNSEL]: Well, let me try one more time.
“THE COURT: They haven’t laid any foundation for you then to be responding to
on the disparagement. So it’s still hearsay at this time.”
Similar hearsay objections were sustained during further cross-examination of
Yokota and during the cross-examination of the president of Asahi, Toshio Asano, Ph.D.
And Actelion made an offer of proof that highlighted several exhibits containing
statements made by third-party companies regarding the reasons they declined to license
Fasudil.
During a discussion of the issue outside the presence of the jury, the court
explained its rulings: “If a third-party company, who is not a party to this case, who was
never deposed as part of this case, who was never designated as an expert, lay or
otherwise, to give expert opinion about whether or not [F]asudil is toxic, that’s an
undisclosed expert opinion and hearsay. That’s what it is. That’s the problem. I’m not
having a problem on relevancy. I’m having a problem on hearsay and undisclosed expert
witness opinion. That’s the hurdle that I’m grappling with. [¶] . . . [¶] [I]f some third
party, who was not designated as an expert in this case, who was never deposed, what—
and you want to present their hearsay statement that they’re not licensing it, or they’re
handing it back because [F]asudil is toxic, I don’t see how that is relevant except for the
truth of the matter; and, therefore, then we get to the truth of the matter, which is that it’s
hearsay and it’s undisclosed expert opinion. Otherwise, it seems to have no relevance.”
Actelion contends the out-of-court statements were nonhearsay. “ ‘Hearsay
evidence’ is evidence of a statement that was made other than by a witness while
testifying at the hearing and that is offered to prove the truth of the matter stated. [¶] . . .
Except as provided by law, hearsay evidence is inadmissible.” (§ 1200, subds. (a), (b).)
41
Evidence of a declarant’s statement is not hearsay if it “ ‘is offered to prove that the
statement imparted certain information to the hearer and that the hearer, believing such
information to be true, acted in conformity with that belief. The statement is not hearsay,
since it is the hearer’s reaction to the statement that is the relevant fact sought to be
proved, not the truth of the matter asserted in the statement.’ [Citation.]” (People v.
Scalzi (1981) 126 Cal.App.3d 901, 907.) But, “[a] hearsay objection to an out-of-court
statement may not be overruled simply by identifying a nonhearsay purpose for admitting
the statement. The trial court must also find that the nonhearsay purpose is relevant to an
issue in dispute. [Citations.]” (People v. Armendariz (1984) 37 Cal.3d 573, 585,
superseded by statute on other grounds as stated in People v. Cottle (2006) 39 Cal.4th
246, 255.) The excluded evidence was hearsay. The only way the excluded evidence
would rebut Asahi’s theories is if the out-of-court statements were admitted for their
truth—that the other companies’ reasons for not licensing Fasudil were truthful
statements about the drug. Whether Asahi was on notice of those reasons was irrelevant
to the case.23
Nor must the judgment be reversed because the evidence may have been
admissible under the state of mind exception to the hearsay rule, as Actelion contends.
Section 1250, subdivision (a), provides: “Subject to Section 1252, evidence of a
statement of the declarant’s then existing state of mind, emotion, or physical sensation
(including a statement of intent, plan, motive, design, mental feeling, pain, or bodily
health) is not made inadmissible by the hearsay rule when: [¶] (1) The evidence is offered
to prove the declarant’s state of mind, emotion, or physical sensation at that time or at
any other time when it is itself an issue in the action; or [¶] (2) The evidence is offered to
prove or explain acts or conduct of the declarant.” (Italics added.) With respect to the
23
Actelion also contends that “the superior court’s rulings allowed Asahi to paint a
completely distorted picture of reality” and that the excluded evidence “would have
directly rebutted” Asahi’s contentions that Fasudil was safe and that it was “Actelion’s
allegedly tortious acts [that] caused Asahi’s re-licensing difficulties.” But Defendants
were allowed to show that other pharmaceutical companies declined to license Fasudil.
42
post-2007 potential licensees, the licensees’ hearsay statements of their states of mind
may have been relevant to show why they declined to license Fasudil. However,
Actelion forfeited this argument by waiting to raise this basis for admission in its motion
for new trial. “An appellate court may not reverse a judgment because of the erroneous
exclusion of evidence unless ‘[t]he substance, purpose, and relevance of the excluded
evidence was made known to the [trial] court by the questions asked, an offer of proof, or
by any other means.’ (. . . § 354, subd. (a).)” (Fox v. Kramer, supra, 22 Cal.4th at
p. 543.) With respect to the pre-2007 potential licensees, Actelion makes no attempt to
explain how the conduct or state of mind was relevant. As the trial court observed: “In
terms of pretext, it depends on what [Actelion] knew. And if [Actelion] didn’t know this
and didn’t rely upon it and didn’t read it, then that didn’t go into the mix of what it is that
[Actelion] thought. The issue is the pretext of [Actelion’s] thought process and
information, not what somebody else thought or did.”
Finally, the evidence was not admissible under the adoptive admission exception
to the hearsay rule, as Actelion contends. Section 1221 provides: “Evidence of a
statement offered against a party is not made inadmissible by the hearsay rule if the
statement is one of which the party, with knowledge of the content thereof, has by words
or other conduct manifested his adoption or his belief in its truth.” (Italics added.)
Actelion has not established that Asahi did, in fact, manifest its belief in the truth of the
statements of its potential licensees. The trial court did not abuse its discretion in
sustaining Asahi’s hearsay objections.
5. Limited Cross-Examination of Rausser, Asahi’s Damages Expert
Next, Actelion points out that CoTherix’s senior vice-president of corporate
development, Benson Fong, described in his deposition certain parts of the October 2006
projections for possible sales of Fasudil as “crude estimates” that were “very unreliable”
because they were “so far off in the future.” Actelion then maintains that the trial court
erred in foreclosing it from cross-examining Rausser regarding Fong’s statements.
43
During cross-examination by Actelion’s trial counsel, Rausser testified that he had
read Fong’s deposition testimony. Thereafter, the following colloquy occurred on the
record:
“Q. Well, when you read [Fong’s] deposition and relied upon it, . . . do you
recall that he specifically said that [CoTherix’s revenue projections for Fasudil]
were crude estimates. Remember the word, crude estimates?
“[ASAHI’S TRIAL COUNSEL]: Objection, assumes facts not in evidence.
“THE COURT: Sustained.
“[ACTELION’S TRIAL COUNSEL]: . . . You relied upon [Fong’s]
deposition, did you not?
“A. I reviewed a number of depositions. That does not mean I rely on
them. If I don’t find them credible, I don’t rely on them.
“Q. I understand that. You read it?
“A. Yes.
“Q. My question to you is, sir, [Fong] in his deposition that you read,
referred to [CoTherix’s revenue projections for Fasudil] as crude estimates. Do
you recall that?
“[ASAHI’S TRIAL COUNSEL]: Objection, mischaracterizes the evidence
and assumes facts.
“[ACTELION’S TRIAL COUNSEL]: Found at page 225.
“THE COURT: Sustained on assuming facts.
“[ACTELION’S TRIAL COUNSEL]: . . . Sir, do you recall if [Fong] said,
I don’t know how likely they are, when you read the deposition?
“[ASAHI’S TRIAL COUNSEL]: Objection. That also calls for hearsay,
your honor.
“[ACTELION’S TRIAL COUNSEL]: Can’t be hearsay, he relied upon it.
“[THE COURT]: I did not hear that he relied upon it. If you want to lay
that foundation.
“[ACTELION’S TRIAL COUNSEL]: . . . You read that, did you not?
44
“A. Yes.
“Q. And you told us at your deposition that you read it and relied upon it,
did you not?
“A. May I explain?
“Q. No. My question is yes, or no.
“A. No, I did not rely on it because I did not find it credible without seeing
other testimony from other officials at CoTherix. . . . I included all the materials
that were reviewed. The material that was reviewed is not necessarily material
that you accept the logic and arguments in that material, that’s an assessment that
has to be made. [¶] So I draw a separation between reviewing it, which I certainly
did with regard to [Fong’s] deposition, but when you say relied upon, that implies
to me that I have accepted it, and I don’t accept what deposition testimony is
without seeing corroborating evidence.
[¶] . . . [¶]
“Q. When you read the deposition of [Fong], he said that the projections
are very unreliable, because the revenue is so far off in the future. [¶] Did you read
that and did you discount that?
“[ASAHI’S TRIAL COUNSEL]: Objection, mischaracterizes the
evidence. Also calls for hearsay.
“THE COURT: Sustained on hearsay.
“[ACTELION’S TRIAL COUNSEL]: . . . Did you have an understanding,
in reading [Fong’s] deposition, that he said, quote—
“[ASAHI’S TRIAL COUNSEL]: Objection, calls for hearsay.
“[ACTELION’S TRIAL COUNSEL]: They are very unreliable, because
the revenue is so far off in the future. Did you gain understanding of that?
“THE COURT: Sustained on hearsay.
“[ACTELION’S TRIAL COUNSEL]: . . . When you read his deposition,
you took it into consideration, did you not, in forming your opinions to the jury
here this morning?
45
“A. Certainly. And Doctor Pennington and Mr. Santel as well, yes.
“Q. And when [Fong] said they were crude estimates, did that enter into
your formulation of an opinion to the jury here this morning?
“[ASAHI’S TRIAL COUNSEL]: Objection, calls for hearsay. Discloses
hearsay.
“THE COURT: Sustained.”
Actelion contends that the trial court abused its discretion in sustaining the hearsay
objections. Specifically, it asserts: “Rausser’s testimony on these points would have
served the non-hearsay purpose of showing whether Rausser factored Fong’s
characterization of the projections into his lost-profits calculations and, if so, to what
extent. Fong’s statement was ‘not hearsay, since it is the hearer’s reaction to the
statement that [was] the relevant fact sought to be proved, not the truth of the matter
asserted in the statement.’ People v. Scalzi[, supra,] 126 Cal.App.3d [at p.] 907 . . .
[¶] . . . And [Actelion] was entitled to show the jury that Rausser, while relying on the
CoTherix projections for his calculations, ignored Fong’s characterization of those
estimates as ‘crude’ and ‘very unreliable.’ ”
Actelion’s reliance on People v. Scalzi, supra, 126 Cal.App.3d 901, is misplaced.
The court in that case described “ ‘one important category of nonhearsay evidence—
evidence of a declarant’s statement that is offered to prove that the statement imparted
certain information to the hearer and that the hearer, believing such information to be
true, acted in conformity with that belief. The statement is not hearsay, since it is the
hearer’s reaction to the statement that is the relevant fact sought to be proved, not the
truth of the matter asserted in the statement.’ [Citation.]” (Id. at p. 907, italics added.)
Here, the record excerpted above makes clear that Rausser did not rely on Fong’s
statements or believe them to be true. Actelion was not merely seeking to show “whether
Rausser factored Fong’s characterization of the projections into his lost-profit
calculations.” It is quite clear that Actelion actually sought to bring Fong’s out of court
statements before the jury for the truth of the matter asserted in those statements.
46
Hope v. Arrowhead & Puritas Waters, Inc. (1959) 174 Cal.App.2d 222, is no more
availing. In that case, an expert witness (Dr. Jacobus) was asked, on cross-examination,
whether he had received and considered the report of another doctor (Dr. Jones) in
formulating his opinion. On appeal, the plaintiff argued that the trial court erroneously
overruled his hearsay objection to questions quoting Dr. Jones’s report. (Id. at pp. 229–
230.) In rejecting that argument, the court explained: “It is proper to draw from an
expert testimony showing whether he has relied on or considered any authority in
formulating his opinion and, if he has done so, to confront him with it if it contradicts
him [citation]; and to cross-examine him on any books he may have used in forming it
[citations]. Having expressed an opinion concerning his diagnosis and evaluation of
plaintiff’s condition and having taken, among other things, Dr. Jones’ report into
consideration, Dr. Jacobus was without doubt properly subject to cross-examination
concerning it. [¶] Of interest in this connection is the fact that Dr. Jones was subsequently
called by the court to appear as a witness ‘because some mention was made of his report’;
and he did so, sponsored by defendant. Plaintiff cross-examined him and had ample
opportunity to fully question him concerning his report. He did not do so. This appears
to render ineffective the ‘hearsay’ argument . . . .” (Id. at pp. 230–231, italics added.)
Asahi’s hearsay objection here, in contrast to Hope v. Arrowhead & Puritas Waters, Inc.,
cannot be so easily dismissed as Fong was never called as a witness. The trial court did
not abuse its discretion in sustaining Asahi’s hearsay objections.
6. Excluded Asahi Email
Finally, Actelion contends that the trial court erroneously excluded an email, dated
January 12, 2007, from Mark Smith, an Asahi licensing manager, to Yokota regarding the
License Agreement. When Actelion sought to admit the email at trial, Asahi objected.
The trial court sustained the objection, explaining: “It is [a party admission.] And it’s a
lay opinion of interpretation of the contract, which is not admissible evidence.” Actelion
argues that the trial court abused its discretion in sustaining the objection because
“[s]ection 800 provides that a non-expert may offer ‘such an opinion as is permitted by
law,’ ” and was not inadmissible hearsay.
47
Legal opinion evidence from a lay witness is inadmissible. (Pond v. Insurance
Co. of North America (1984) 151 Cal.App.3d 280, 289.) Section 800 provides: “If a
witness is not testifying as an expert, his testimony in the form of an opinion is limited to
such an opinion as is permitted by law, including but not limited to an opinion that is:
[¶] (a) Rationally based on the perception of the witness; and [¶] (b) Helpful to a clear
understanding of his testimony.” (Italics added.) Actelion suggests that the italicized
language somehow allows a lay witness to testify regarding his legal opinions if his
testimony would otherwise qualify for admission under one of the exceptions to the
hearsay rule. However, sections 1220, 1222, 1230, and 1250, which Actelion cites,
provide only that certain evidence “is not made inadmissible by the hearsay rule.” The
hearsay rule is not implicated here. Actelion, therefore, has not shown that the email was
admissible under section 800.
Next, Actelion insists that “the contemporaneous understanding of a person
responsible for implementing the contract is admissible to show what the contract
means.” Actelion relies on DVD Copy Control Assn. v. Kaleidescape, Inc. (2009)
176 Cal.App.4th 697, 712–713 (DVD Copy Control Assn.).
In DVD Copy Control Assn., supra, 176 Cal.App.4th 697, Kaleidescape licensed
content scramble system technology (CSS) from the DVD Copy Control Association,
Inc. (DVDCCA) in order to develop a home entertainment system for viewing DVD’s.
(Id. at p. 701.) A dispute arose when the DVDCCA demanded that Kaleidescape cease
sales of its system. DVDCCA sued Kaleidescape for breach of contract a year later. The
fundamental dispute at trial was whether the license agreement incorporated the CSS
general specifications requiring the presence of a physical DVD for playback. (Id. at
pp. 704–705.) DVDCCA introduced a memo prepared by Kaleidescape’s chief
technology officer, Stephen Watson, after Kaleidescape had received the package of
specifications but before any dispute arose. The memo revealed Watson’s understanding
that the CSS general specifications was one of the previously undisclosed sets of
specifications to which the license agreement referred. (Id. at pp. 707, 709.) The
reviewing court observed: “The court may also look to the acts of the parties that show
48
what they believed the contract to mean. [Citation.] That is, ‘the construction given [a
contract] by the acts and conduct of the parties with knowledge of its terms, and before
any controversy has arisen as to its meaning, is admissible on the issue of the parties’
intent.’ [Citation.]” (Id. at p. 712.) Ultimately, the court concluded the Watson memo
was admissible to show Kaleidescape’s practical interpretation of the agreement before
the dispute arose. (Id. at p. 718.) DVD Copy Control Assn. is not on point. Here, unlike
the Watson memo, the Smith email was sent months after the License Agreement was
negotiated and signed—at a time when a dispute over the meaning of the agreement had
already arisen. The trial court did not abuse its discretion in excluding the email.24
C. Compensatory Damages
The jury was instructed that to recover for lost M&R payments which Asahi
claimed it would have received under the License Agreement (lost profits), “Asahi must
prove it is reasonably certain it would have earned lost [M&R payments] but for the
conduct of [Defendants].” The jury awarded Asahi $358.95 million in lost M&R
payments. The jury also awarded Asahi $187.4 million in development costs that
CoTherix would have undertaken for Asahi’s benefit to bring Fasudil to market if it had
continued to perform under the contract. Asahi accepted the trial court’s remittitur that
reduced the development costs award to $18.85 million.25
Actelion insists that damages are uncertain and speculative, and that the evidence
does not support any damage award. Asahi challenges the remittitur on its cross-appeal.
We find that the record supports both the jury’s verdicts and the trial court’s order, and
we affirm the compensatory damages awards in their entirety.
24
Actelion forfeited any argument with respect to Yokota’s and Asano’s testimony
regarding their understandings of the License Agreement by failing to object to such
testimony. (§ 353, subd. (a).)
25
The jury awards of $450,000 in IND/Regulatory maintenance costs and $75,000
for lost investigator-sponsored study costs are not separately challenged here.
49
1. Legal Standards
“ ‘[D]amages for the loss of prospective profits are recoverable where the
evidence makes reasonably certain their occurrence and extent.’ (Grupe v. Glick (1945)
26 Cal.2d 680, 693.) . . . [¶] Regarding lost business profits, the cases have generally
distinguished between established and unestablished businesses. ‘[W]here the operation
of an established business is prevented or interrupted, as by a . . . breach of contract . . . ,
damages for the loss of prospective profits that otherwise might have been made from its
operation are generally recoverable for the reason that their occurrence and extent may be
ascertained with reasonable certainty from the past volume of business and other
provable data relevant to the probable future sales.’ ([Id.] at p. 692.) ‘. . . In some
instances, lost profits may be recovered where plaintiff introduces evidence of the profits
lost by similar businesses operating under similar conditions. [Citations.]’ (Berge v.
International Harvester Co. (1983) 142 Cal.App.3d 152, 161–162.) [¶] ‘On the other
hand, where the operation of an unestablished business is prevented or interrupted,
damages for prospective profits that might otherwise have been made from its operation
are not recoverable for the reason that their occurrence is uncertain, contingent and
speculative. [Citations.] . . . But . . . anticipated profits dependent upon future events are
allowed where their nature and occurrence can be shown by evidence of reasonable
reliability.’ (Grupe v. Glick, supra, 26 Cal.2d at pp. 692–693.)” (Sargon Enterprises,
Inc. v. University of Southern California (2012) 55 Cal.4th 747, 773–774, parallel
citations omitted (Sargon).)
In Sargon, the Supreme Court added a “cautionary note. The lost profit inquiry is
always speculative to some degree. Inevitably, there will always be an element of
uncertainty. Courts must not be too quick to exclude expert evidence as speculative
merely because the expert cannot say with absolute certainty what the profits would have
been. Courts must not eviscerate the possibility of recovering lost profits by too broadly
defining what is too speculative. A reasonable certainty only is required, not absolute
certainty.” (Sargon, supra, 55 Cal.4th at p. 775.)
50
We review a lost profits award for substantial evidence. (Greenwich S.F., LLC v.
Wong (2010) 190 Cal.App.4th 739, 759–760.) “ ‘While lost profits can be established
with the aid of expert testimony, economic and financial data, market surveys and
analysis, business records of similar enterprises and the like, the underlying requirement
for each is “ ‘a substantial similarity between the facts forming the basis of the profit
projections and the business opportunity that was destroyed.’ ” ’ [Citation.]” (Sargon,
supra, 55 Cal.4th at p. 776.)
2. Evidence of Lost Profits
Actelion launches two principal lines of attack on the lost profits award: first, it
was speculative to assume that oral Fasudil ever would have obtained FDA and EMEA
approval, much less on the timeline projected by CoTherix; and second, it argues it was
speculative to determine the price and market share Fasudil would have commanded had
it obtained regulatory approval and the timeline on which it would have achieved those
results. We address these arguments in turn.
a. FDA and EMEA Approval
As a preliminary note, we observe that the trial evidence on whether oral Fasudil
would have obtained FDA and EMEA approval was relevant to two distinct issues at
trial. The first was whether it was commercially reasonable for CoTherix or Actelion to
discontinue development of Fasudil in January 2007. The second was whether Asahi
could establish lost profits with reasonable certainty. As to the first issue, the only
relevant evidence was facts known to Actelion as of January 2007, when it decided to
discontinue development of Fasudil; as to the second, the relevant evidence includes all
facts known at the time of trial that might prove lost profits damages with reasonable
certainty to the jury. We consider here the broader scope of relevant evidence that would
support a verdict.
By the time of trial, several reports of scientific studies were available to the jury.
These reports included a substantial amount of preclinical data (basic science and animal
studies) on three formulations of Fasudil (intravenous Fasudil, ER Fasudil, & immediate
release oral Fasudil or IR Fasudil); a clinical study of intravenous Fasudil in Japan;
51
Phase I, Phase IIa, Phase IIb and long-term open-label clinical (human) studies of IR
Fasudil; Phase I clinical studies of ER Fasudil; and data on two patient populations who
had used intravenous Fasudil (15 years of use in Japan to treat subarachnoid hemorrhage
patients; approximately one year of off-label use in China to treat 200 PAH patients).
Asahi presented the testimony of several experts who testified that data from the
aforementioned studies established to a reasonable certainty that ER Fasudil would have
been effective in treating both SA and PAH, would have had an acceptable safety profile,
and consequently would have been approved by the FDA and EMEA on CoTherix’s
projected timeline.26 The witnesses included experts on SA (Robert Weiss, M.D.) PAH
(Jing & R. James White, M.D.), Rho-kinase (James K. Liao, M.D.), nephrotoxicity
(Stuart Linas, M.D.), drug toxicity (Laura Plunkett, Ph.D.), and the FDA and EMEA
approval processes (Jing, White, Plunkett, & Michael Tansey, M.D.).
The medical experts testified that Fasudil had been shown to have physical effects
that were known to correlate with increased exercise time, an “endpoint” required by the
FDA before the drug could be approved to treat SA or PAH. Scientific studies of the
effects of Fasudil on lung circulation were positive, and treating physicians and leading
physicians in the treatment of PAH had expressed enthusiasm about the drug’s potential
for cardiovascular treatment. The toxicity shown in certain preclinical studies were not a
concern because those studies were designed to identify toxicity at high doses. Increases
in creatinine levels shown in the IR Fasudil studies were not clinically significant, were
reversible, and could be avoided with an extended release formulation. Indeed,
CoTherix’s Phase I study of ER Fasudil showed that therapeutically effective doses of
26
Defendants moved in limine to exclude all opinion that Fasudil would achieve
necessary regulatory approvals. The trial court considered and denied the motions except
as to Rausser.
Actelion argues Asahi’s experts were not qualified to testify regarding regulatory
approval by the EMEA. Asahi’s counsel, however, specifically elicited testimony by
these experts regarding the bases for their opinions on EMEA approval, and Actelion
raised no objection. The argument is forfeited. (See Ward v. Taggart (1959) 51 Cal.2d
736, 742.)
52
Fasudil were well tolerated in healthy volunteers, the China experience showed
intravenous Fasudil could successfully treat PAH with no undue side effects, and the long
experience of short-term intravenous Fasudil use (up to two weeks) by subarachnoid
hemorrhage patients in Japan provided a robust safety record. Particularly because of the
severe effects of SA and PAH and the limited efficacy of the SA and PAH drugs that had
been approved, the safety concerns were not a likely obstacle to FDA approval and there
were no other regulatory “show-stoppers.” Other SA and PAH drugs on the market had
adverse safety profiles. Moreover, CoTherix’s projected timeline for regulatory approval
was reasonable because there were no significant obstacles to proceeding to a Phase III
study, CoTherix had a track record in obtaining FDA approval for Ventavis in record
time, and the timeline had been developed by two experienced pharmaceutical companies
(CoTherix and Asahi).
On the question of regulatory approval, Actelion does not cite contrary testimony
by independent experts, but rather relies on the acknowledgement by Asahi’s witnesses
that FDA approval is unpredictable until a Phase III study is done, and the negative
opinions by Actelion personnel. It argues that CoTherix had nothing more than a “hope”
of regulatory approval. Actelion emphasizes that no Phase III trial of ER Fasudil to treat
SA or PAH had ever been conducted. It draws attention to numerous statements by
CoTherix personnel or Asahi experts that a Phase III study is necessary to prove efficacy
and safety and there is no guarantee of FDA approval absent such a study. However, the
standard of proof for lost profit damages is reasonable certainty, not absolute certainty.
(Sargon, supra, 55 Cal.4th at p. 775.) Actelion notes that only a small percentage of
drugs that enter development are ever approved by the FDA, but it ignores Asahi experts’
testimony that the probability of approval increases as development proceeds through the
Phase I, II and III clinical trial process and that oral Fasudil was well along in that
process. Donald Santel (former chief exectutive officer of CoTherix) confirmed that the
probability of approval “depends on the stage of development that one is in. It becomes
more probable as time goes on.” Moreover, there was substantial evidence presented to
the jury that Actelion acquired CoTherix, and paid a market premium to do so, precisely
53
because Actelion believed that Fasudil would be approved and would become a
competitive threat to its existing product, Tracleer.
There is no rule prohibiting recovery of lost profits damages simply because
regulatory approval is a prerequisite to selling a product. (SCEcorp v. Superior Court
(1992) 3 Cal.App.4th 673, 678–679; see Mammoth Lakes Land Acquisition, LLC v. Town
of Mammoth Lakes (2010) 191 Cal.App.4th 435, 448–457 [lost profits recoverable on
hotel/condominium project never built after town, which was party to development
agreement, withdrew support despite fact that regulatory approvals were conditions
precedent to completion of project].)27
Actelion argues that Asahi’s inability to find a successor licensee for Fasudil
demonstrates substantial uncertainty about the medical or commercial viability of the
drug. Asahi experts, however, provided credible alternative explanations for that
outcome: Actelion’s abandonment of the drug had a chilling effect on competitors
because it implied that Actelion had undisclosed knowledge of flaws in the drug, and
time lost in obtaining a new licensee reduced the value of the drug, which depended on
commercial exploitation during the life of the underlying patents and a unique window of
opportunity in 2006–2007.
27
At least one federal trial court, applying California law, has found lost profits
were recoverable in a pharmaceutical case despite the noncertainty of FDA approval.
(Onyx Pharmaceuticals, Inc. v. Bayer Corporation (N.D.Cal., May 10, 2011, No. C09-
2145 MHP) 2011 WL 7905185 [under California law, factfinder could find profits
reasonably certain based on expert evidence there was an 80% chance of approval to treat
at least one condition].) Pharmaceutical cases in which courts have held to the contrary
are distinguishable on their facts. (AlphaMed Pharmaceuticals v. Arriva
Pharmaceuticals, Inc. (S.D.Fla. 2006) 432 F.Supp.2d 1319, 1339–1340, 1346–1352
[applying reasonable certainty standard and listing multiple assumptions underlying lost
profits claim that were either proved false by trial evidence or were unsupported by
evidence]; Microbix Biosystems, Inc. v. Biowhittaker, Inc. (D.Md. 2000) 172 F.Supp.2d
680, 698–699 [applying reasonable certainty standard and reversing award where new
business would have had to achieve several new milestones before intervening events
prevented business’s success].)
54
It is for the jury to determine the probabilities as to whether damages are
reasonably certain to occur in any particular case. (Garcia v. Duro Dyne Corp. (2007)
156 Cal.App.4th 92, 97.) Substantial evidence, including competent expert testimony,
supported the jury’s finding that, if CoTherix had continued developing Fasudil, there
was a reasonable certainty ER Fasudil would have obtained FDA and EMEA approval to
treat SA and PAH on the timeline projected by CoTherix.
b. Price, Market Share, and the CoTherix Timeline
Having determined there was sufficient evidence of the fact of lost profit damages,
we turn to the reliability of Asahi’s evidence regarding the projected price and market
share of Fasudil, which set the amount of damages. “ ‘Where the fact of damages is
certain, the amount of damages need not be calculated with absolute certainty.
[Citations.] The law requires only that some reasonable basis of computation of damages
be used, and the damages may be computed even if the result reached is an
approximation. [Citation.] This is especially true where . . . it is the wrongful acts of the
defendant that have created the difficulty in proving the amount of loss of profits
[citation] or where it is the wrongful acts of the defendant that have caused the other
party to not realize a profit to which that party is entitled.’ [Citation.])’ ” (Sargon, supra,
55 Cal.4th at pp. 774–775; Kids’ Universe v. In2Labs (2002) 95 Cal.App.4th 870, 883–
884; AlphaMed Pharmaceuticals v. Arriva Pharmaceuticals, Inc., supra, 432 F.Supp.2d
at p. 1342 [discussing Story Parchment Co. v. Paterson Parchment Paper Co. (1931)
282 U.S. 555, 563].) “If lost profits can be estimated with reasonable certainty, a court
may not deny recovery merely because one cannot determine precisely what they would
have been.” (Sargon, supra, 55 Cal.4th at p. 779.)
In September 2006, CoTherix prepared revenue projections for Fasudil through
2019 for the purpose of negotiating its sale price with Actelion. Actelion dismisses these
projections as “guesswork” without foundation and contends that Rausser’s lost profits
calculations are “fatally defective because Rausser essentially adopted rosy projections
prepared by CoTherix employees who were not proven to be qualified to create reliable
forecasts.” But the evidence presented showed that the projections were based in part on
55
CoTherix’s findings during its internal due diligence process, which included
consultation with experts, before it signed the License Agreement with Asahi, and on
market surveys that were conducted before Actelion expressed interest in buying
CoTherix.28 The September 2006 projections estimated product launch dates (which
were consistent with the projected regulatory approval timeline), an initial price for
ER Fasudil, annual price increases, numbers of patients in target populations for both
conditions with annual increases, initial market penetration into those populations with
annual increases, and resulting net revenues.29 On at least one measure (size of the
targeted SA population), the projections were more conservative than CoTherix’s
commercial assessment of Fasudil before it entered into the License Agreement. Rausser
testified that he reviewed academic literature on market dynamics, industry data on drug
sales, and the discovery record of the instant action, and confirmed that each element of
the CoTherix projections was reasonable if not too conservative. Asahi’s medical experts
also generally corroborated the market penetration and price projections.
28
We do not agree with Asahi’s argument on appeal, or the testimony of Asahi’s
economic expert Rausser at trial, that substantial evidence shows Actelion adopted or
relied on CoTherix’s September 2006 projections while negotiating its acquisition of the
company. Although Actelion sent the CoTherix projections to its advisers, Lehman
Brothers, and reviewed them at its board meeting on the proposed acquisition, Lehman
Brothers disclaimed any independent verification of the figures and the board
presentation itself demonstrates that, in contrast to CoTherix’s projections, Actelion
projected zero revenue from Fasudil as a result of the acquisition. However, there was
testimony that the 70 percent premium Actelion paid for CoTherix could be explained by
the value of keeping Fasudil off the market, particularly in light of negative information
about Ventavis that was disclosed during Actelion’s due diligence process.
29
CoTherix projected a price of $5,000 per patient per year for both SA and PAH
in 2006 with 5 percent annual price increases; a targeted SA population (refractory
SA patients) of 929,000 in 2011, rising to 986,000 in 2017; market penetration in this
SA population of 2 percent in 2011, rising fairly steadily to 8 percent in 2015 and holding
at 8 percent through 2017; a PAH population of 24,000 patients in 2011, rising to 32,000
in 2017; PAH market penetration of 4 percent in 2012, rising to 30 percent in 2017.
These projections, which were the middle case of three projected scenarios, resulted in
net revenue in the SA market of $86 million in 2011, rising to $695 million by 2017, and
net revenue in the PAH market of $5 million in 2012 that rises to $78 million by 2017.
56
Actelion seeks to compare the CoTherix projections to those found to be too
speculative in Parlour Enterprises, Inc. v. Kirin Group, Inc. (2007) 152 Cal.App.4th 281(Parlour). We are not persuaded. The Parlour projections were prepared to attract
investment for a new business, they included broad disclaimers, and the witness who
presented the projections at trial did not know who prepared the projections or what
methodology they had used. (Id. at pp. 289–290.) Here, although the CoTherix
projections were prepared during negotiations for sale of the company, CoTherix had
already demonstrated its genuine belief in the commercial potential of the product by
entering into the License Agreement and making a substantial commitment of its own
resources (approximately $187.4 million) to develop and market the drug. CoTherix’s
former chief executive officer, Santel, testified that the projections were prepared based
on the best efforts of his experienced staff and represented the company’s best opinion
(the middle of three cases) of future revenue. Moreover, Rausser testified that he
independently verified the market assumptions underlying the projections and Asahi
medical expert testimony supported the market share projections at least in part.
Actelion argues the “range” of lost profit estimates provided by Rausser itself
indicates that the estimates were unreasonably speculative. However, Rausser provided
two distinct estimates rather than a range and he specified the different assumptions on
which they were based, described the facts he relied on to make the different
assumptions, and explained precisely how the two figures were calculated. In these
circumstances, the mere spread of the two numbers does not render his opinion
speculative.
Actelion contends that Rausser’s projected price for Fasudil of $5,000 per patient
per year is “utterly fanciful.” Actelion contends the price projection was unrealistic
because Rausser conceded that Fasudil would sell for the same price in the SA and PAH
markets and that competing SA drugs sell for as little as pennies a day. However, the
specific SA population targeted by CoTherix consisted of patients who had not responded
to existing therapies or had other complications, so the price of other SA drugs would
necessarily keep Fasudil out of this particular niche of the SA market. Actelion does not
57
contest the evidence that competing PAH drugs were selling for far more than $5,000 per
patient per year, which supports the view that CoTherix could command such a price in
the PAH market, where the penetration level was projected to be about quadruple that of
the targeted SA market. Actelion also ignores the fact that its own PAH product,
Tracleer, commanded a price almost seven times as high as the projected price of Fasudil
(approximately $34,000/year in 2006 and over $43,000 in 2008).
Actelion characterizes this case as a “new business” case and argues there is
insufficient evidence of prior performance by CoTherix selling Fasudil or by similar
businesses selling a similar product to support the lost profit damages. But this case does
not fit neatly into the established business/new business paradigm. Unlike the company
at issue in Sargon, CoTherix had a track record of obtaining FDA approval for and
marketing a PAH drug (Ventavis) and had a sales and marketing team already in place.
(Cf. Sargon, supra, 55 Cal.4th at pp. 778–780.) Rausser verified the CoTherix
projections by reviewing the pharmaceutical market specifically for SA and PAH drugs.
Actelion’s suggestion that the only adequate comparison would be to a company already
selling Fasudil is an overreach: the case law requires reasonable certainty, not absolute
certainty, and once the occurrence of lost profits is established a plaintiff has greater
leeway in establishing the extent of lost profits, particularly if the defendant was shown
to have prevented the relevant data from being collected through its wrongful behavior.
(See Sargon, supra, 55 Cal.4th at p. 775.)
Actelion also attacks the reliability of Rausser’s expert opinion generally,
including reference to instances in which a federal trial court has found his testimony
flawed or unpersuasive.30 Our concern, however, is with the testimony given by Rausser
in this case. Actelion does not challenge Rausser’s extensive qualifications as expert in
economics. As in Sargon, the trial court “presided over a lengthy evidentiary hearing and
provided a detailed ruling.” (Sargon, supra, 55 Cal.4th at p. 776.) The court heard
30
Asahi responds with citation to federal trial court cases reaching contrary
conclusions.
58
testimony from Rausser in an section 402 hearing over two days, on January 13 and 19,
2011, in response to an Actelion motion in limine. The trial court issued a detailed order
granting the motion in part, and set the parameters of the testimony Rausser would be
permitted to give. Rausser testified within those parameters. Unlike Sargon, this is not a
situation in which the trial court’s gatekeeper role required exclusion of speculative
expert testimony. We have reviewed Rausser’s testimony and find nothing that would
have required the trial court, or the jury, to reject his conclusions, or that would require us
to do so. In sum, we conclude the lost profits award is supported by substantial evidence.
3. Development Costs
In addition to estimating Asahi’s lost M&R payments, Rausser opined that Asahi
lost the value of the development efforts CoTherix committed to fund and perform under
the contract, a total of $187.4 million in 2009 dollars. The jury awarded Asahi this full
amount in addition to its award of lost profits. Neither the lost profits award nor the
development costs award was segregated by the jury as to the two types of Fasudil (oral
& inhaled) that would have been developed or marketed absent Actelion’s interference.31
Posttrial, the court granted Actelion’s motion to offset the development costs
award by $69.35 million, in light of the ICC Arbitration award. Actelion moved for a
new trial on the ground, inter alia, that that the award of both lost M&R payments and
development costs was duplicative because Asahi had presented them as alternative
measures of damages, and because California law required them to be alternative
measures of damages. The court agreed that any award of development costs would be
duplicative as to oral Fasudil, but not as to inhaled Fasudil. The court had excluded
evidence of lost profits for inhaled Fasudil because Rausser had testified at the
section 402 hearing that his lost profit calculations on inhaled Fasudil were not based
upon any projections calculated by CoTherix or Asahi or internally prelitigation by
Asahi, or anyone else in the pharmaceutical industry. Therefore the jury could not have
31
CoTherix was obligated to develop inhaled Fasudil. CoTherix began
development and inhaled Fasudil studies were approved, but placed “on hold” in
November 2006, and never completed because of the Actelion acquisition of CoTherix.
59
awarded any lost profits damages for interference with the development of inhaled
Fasudil, so any development costs awarded for inhaled Fasudil would not be duplicative.
Rausser identified total development cost damages for inhaled Fasudil of
$67.27 million. The court offset $48.42 million of these costs based on the ICC
Arbitration award, and conditionally granted a remittitur to $18.85 million, the difference
between these figures. Asahi challenges the reduction of the award and Actelion
challenges the court’s allowance of the reduced award. We affirm the modified award of
$18.85 million.
a. Trial Court’s Reduction of the Development Costs Award
In its cross-appeal, Asahi argues the trial court erred by reducing the award of
development costs to exclude costs for development of oral Fasduil. Asahi argues the
court erred in (1) impliedly ruling that Asahi was estopped from claiming both lost M&R
payments and development costs as damages because it had represented throughout trial
that they were alternative measures of damages, and (2) ruling that an award of both
forms of damages would result in a double recovery for Asahi. We affirm the court’s
estoppel ruling and thus need not address the second issue.
“ ‘Judicial estoppel prevents a party from asserting a position in a legal proceeding
that is contrary to a position previously taken in the same or some earlier proceeding.
The doctrine serves a clear purpose: to protect the integrity of the judicial process.’
[Citation.]” (Jackson v. County of Los Angeles (1997) 60 Cal.App.4th 171, 181.)
Judicial estoppel is an equitable doctrine and its application is discretionary. (Jogani v.
Jogani (2006) 141 Cal.App.4th 158, 170.) We find no abuse of discretion in the trial
court’s ruling.
The trial court wrote, “[T]hroughout the trial, and explicitly as part of the expert
witness trial testimony of Plaintiff’s damages expert Gordon Rausser, the Development
Costs compensatory damages were presented as ‘alternative damages’ to the Lost [M&R]
Payment compensatory damages. Plaintiff’s damages theory of the case, as presented at
the trial, and as supported by the expert witness evidence, was that Development Costs
should be awarded as compensatory damages if the jury did not award Lost Profits as
60
compensatory damages.” Contrary to Asahi’s representations on appeal, this description
is supported by the record.32
Asahi argues the trial court “rejected [Actelion’s] argument that Asahi was
estopped . . . from obtaining development cost damages for inhaled Fasudil,” but fails to
clarify how limited this ruling was. The trial court wrote, “Plaintiff could seek, and the
jury could award, alternative damages calculations as to different products and
indications.” (Italics deleted & added.) Indeed, the court noted that Asahi had taken
precisely this view during arguments over the verdict form. Asahi’s counsel told the
court that both M&R payments and development costs should be on the verdict form
because the jury “could give lost [M&R] payments [for oral Fasudil], but because there
are no lost royalties for inhaled, . . . [give] the development costs related to inhaled.” The
court adopted this approach when it ruled on the new trial motion: it allowed an award of
development costs for inhaled Fasudil on the assumption that the jury’s award of lost
M&R payments (which was less than Asahi’s request) covered only payments for oral
Fasudil. On that basis, Asahi cannot collect development costs for oral Fasudil in
addition to the lost M&R payments it has already been awarded.
32
In its opening statement, Asahi repeatedly told the jury Asahi’s benefit under the
License Agreement would have been more than $600 million, which matches Rausser’s
“base case” estimate of lost [M&R] payments alone. Just after making this point, Asahi’s
counsel told the jury, “[T]here’s an alternate damage number that could be used . . . . The
minimum damages. . . . [¶] . . . [S]etting aside any profits that Asahi ever would have
been entitled to, this is the work that CoTherix had obligated itself to do to complete the
development of [F]asudil,” which amounted to $187.4 million in damages. Rausser
similarly told the jury that his development cost estimate was “an alternative damage
measure” that “goes to what commitment did CoTherix make to Asahi in their licensing
agreement, with respect to developing” Fasudil. In closing argument, Asahi told the jury,
“We have [$]187.4 million for the uncompleted development work. Then, in the
alternative, would be lost royalties and milestones. Let me make clear, this should not be
added together. It would be one or the other.” Asahi’s attempts to explain away these
statements are unconvincing.
61
b. Trial Court’s Allowance of Development Costs for Inhaled Fasudil
For its part, Actelion argues the trial court erred in allowing the award of
$18.85 million in development costs for inhaled Fasudil to stand. We disagree.
First, Actelion argues that “this measure of damages—the cost to CoTherix of
performing, rather than the value of the performance to Asahi (i.e., its alleged lost
profits)—‘violates fundamental precepts of contract damages.’ Fisher v. Hampton
(1975) 44 Cal.App.3d 741, 752 . . . .” In Fisher v. Hampton, two limited partners sued
their general partner for failing to drill an oil well as required by their partnership
agreement. (Id. at pp. 743–744, 746.) The court held that the plaintiffs, who had not
proven lost profits with reasonable certainty (id. at pp. 747–748), could not collect the
cost of drilling the well as an alternative measure of damages (id. at pp. 750–752).
“Awarding damages based on the ‘cost of performance’ . . . instead of on the basis of the
loss or injury actually sustained by the promisee . . . violates fundamental precepts of
contract damages.” (Id. at p. 752.) Here, in contrast, there was evidence that developing
Fasudil (i.e., conducting trials and pursuing FDA and EMEA approval) had value to
Asahi independent of whether the drug was ever approved and sold in the U.S. and
European markets. Asahi witness Yokota testified that the License Agreement was part
of a “bridging strategy” that allowed Asahi to take advantage of the large U.S. population
to conduct trials on the drug (the Japanese PAH population was too small) and obtain
FDA approval, which could then be used to gain approval of the drug in other countries.
Further, the record on lost profits that we reviewed ante amply demonstrates that trials
and approvals of one formulation of the drug can help prove the efficacy and safety of
another formulation of the drug, and trials and approvals of the drug to treat one
condition can help prove the efficacy and safety of the drug to treat another. Thus,
Actelion has not demonstrated that the cost to CoTherix of developing the drugs as
required by the License Agreement was unrelated to the losses Asahi experienced as a
result of termination of that agreement.33
33
This analysis also applies to the award of investigator-sponsored study costs.
62
Actelion also argues that the award was not supported by substantial evidence as
to the amount of the damages.34 The trial court disagreed, holding that Rausser’s expert
opinion on the amount of the inhaled Fasudil development costs itself was sufficient
evidence of those costs, even if the evidence underlying that opinion was never admitted
in evidence. This ruling was correct. (See § 801, subd. (b) [expert opinion may be based
on inadmissible evidence].) The court further noted that evidence supporting Rausser’s
opinion on this issue was presented to the court during hearings outside the presence of
the jury and most of that evidence was eventually admitted in evidence before the jury.
Thus, it ruled, there was an adequate foundation supporting the admission of the expert
testimony on the amount of the development costs. The court noted that, during cross-
examination, Actelion chose to “focus[] upon attacking the discount rate used, and the
reliability or unreliability of CoTherix projection spreadsheets,” and made “no
substantive attack or discussion during cross-examination upon the calculations
themselves (other than discount rate).” Thus, although Actelion had an opportunity to
challenge the foundation for Rausser’s opinion, it failed to do so. On this trial record, the
court ruled, the jury reasonably found that the amount of the development costs had been
proved at trial, and the court expressly concurred in that finding. We agree that the award
of development cost damages is supported by substantial evidence.
4. CoTherix’s Unilateral Termination Right as a Limitation on Damages
As to both the lost M&R payments award and the development costs award,
Actelion argues Asahi was not entitled to any damages after June 23, 2009, because
CoTherix could have unilaterally terminated the License Agreement without cause as of
that date. Most of the damages that were awarded accrued after that date: the
34
Actelion further argues that the award was not supported by substantial evidence
of proximate causation. This argument is forfeited because Actelion did not raise it
below. (Ward v. Taggart, supra, 51 Cal.2d at p. 742.) In any event, 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.
63
development costs award that represented work on inhaled Fasudil that would have
occurred after June 23, 2009, and sales of Fasudil were not projected to start until 2011,
so all M&R payments also would only have been recognized after June 23, 2009.
On the evidence presented at trial, the jury reasonably could have found that
CoTherix would not have exercised its termination right in 2009, or any time before
2019, and therefore found that damages were not too speculative. CoTherix’s former
chief executive officer, Santel, testified that CoTherix had no intention of terminating the
contract as of January 2007, on the eve of the merger with Actelion. Moreover, trial
evidence demonstrated that the prospects for FDA and EMEA approval and sales of ER
Fasudil were good, supporting an inference that CoTherix would not have terminated the
License Agreement in June 2009.
Actelion cites cases holding as a matter of law that plaintiffs cannot collect
damages after the date a breaching party has the right to unilaterally terminate the
contract. (See, e.g., Martin v. U-Haul Co. of Fresno (1988) 204 Cal.App.3d 396, 409.)
These cases, however, involve contract damages, which are limited to those foreseeable
by the parties at the time of contracting. (Ibid.) Here, the issue is tort damages that are
not so limited. (See Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d
1118, 1128 [“[d]espite the express termination clause, plaintiff was protected against
unjustified interference by third parties”].)
D. Punitive Damages
As noted ante, the jury awarded punitive damages against the Individual
Defendants only: $19.9 million against Jean-Paul; $8.9 million against Martine; and
$1.2 million against Simon. The Individual Defendants argue that it is unprecedented for
a jury to impose punitive damages on corporate officers and not on the corporation itself,
although they do not provide either factual or legal support for their protests. The
Individual Defendants further argue there was insufficient evidence of malice, oppression
or fraud to support the punitive damages awards against them. We disagree.
64
1. Evidence of Malice, Oppression or Fraud
“In an action for the breach of an obligation not arising from contract, where it is
proven by clear and convincing evidence that the defendant has been guilty of
oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover
damages for the sake of example and by way of punishing the defendant.” (Civ. Code,
§ 3294, subd. (a).) Malice is “conduct which is intended by the defendant to cause injury
to the plaintiff or despicable conduct which is carried on by the defendant with a willful
and conscious disregard of the rights or safety of others.” (Civ. Code, § 3294,
subd. (c)(1).) Oppression is “despicable conduct that subjects a person to cruel and
unjust hardship in conscious disregard of that person’s rights.” (Civ. Code, § 3294,
subd. (c)(2).) Fraud is “an intentional misrepresentation, deceit, or concealment of a
material fact known to the defendant with the intention on the part of the defendant of
thereby depriving a person of property or legal rights or otherwise causing injury.” (Civ.
Code, § 3294, subd. (c)(3).)
We review the jury’s findings of malice, oppression or fraud for substantial
evidence. “But since the jury’s findings were subject to a heightened burden of proof, we
must review the record in support of these findings in light of that burden. In other
words, we must inquire whether the record contains ‘substantial evidence to support a
determination by clear and convincing evidence . . . .’ (Tomaselli v. Transamerica Ins.
Co.[ (1994)] 25 Cal.App.4th [1269,] 1287 [(Tomaselli)].)” (Shade Foods, Inc. v.
Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847, 891 (Shade).)
“As in other cases involving the issue of substantial evidence, we are bound to ‘consider
the evidence in the light most favorable to the prevailing party, giving him the benefit of
every reasonable inference, and resolving conflicts in support of the judgment.’
[Citation.]” (Ibid.)
We reject Asahi’s suggestion that the evidence establishing Defendants’ liability
for the intentional interference torts itself was necessarily sufficient to support the
punitive damages award. Asahi cites Tomaselli’s statement that, “Civil Code
section 3294, subdivision (c)(1) provides that ‘conduct which is intended by the
65
defendant to cause injury to the plaintiff’ constitutes malice, and malice is a basis for an
award of punitive damages. In the ordinary ex delicto action, therefore, involving
intentionally wrongful conduct, the evidence sufficient to establish the tort is usually
sufficient to support punitive damages.” (Tomaselli, supra, 25 Cal.App.4th at p. 1286.)
However, Tomaselli also states that, in contrast, evidence of a “simple breach of contract,
no matter how willful and hence tortious [(e.g., bad faith breach of an insurance
contract)], is not a ground for punitive damages. Such damages are accessible only upon
a showing that the defendant ‘act[ed] with the intent to vex, injure, or annoy.’
[Citation.]” (Ibid., italics added.) Here, the jury found the Individual Defendants liable
for intentional interference with contract. While requiring evidence of intent or
willfulness, this tort does not require evidence of an intent to injure the plaintiff.
(Applied Equipment, supra, 7 Cal.4th at p. 514, fn. 5.) Therefore, proof that the
Defendants wrongfully interfered with the License Agreement did not in itself establish
the necessary prerequisites for an award of punitive damages.
We nevertheless find sufficient evidence in the record to support the jury’s finding
by clear and convincing evidence that the Individual Defendants acted with malice or
fraud. First, the jury could reasonably find that the Individual Defendants formulated and
orchestrated Actelion’s tactics in eliminating Fasudil as a competitive threat to Tracleer
given their high-level positions within Actelion, personal involvement in the CoTherix
acquisition, and their communications with Asahi about the potential for future
development of Fasudil after the acquisition.35 Although some of the most inflammatory
35
The Individual Defendants suggest that the only conduct relevant to the punitive
damages award is conduct up to and including Actelion’s January 2007 notice to Asahi
that it would not pursue development of Fasudil. They cite case law holding that “such
‘malice’ [or fraud or oppression] as will support an exemplary damage award must
directly attend the subject of the cause of action upon which the claim for such damages
is based.” (Henderson v. Security Nat. Bank (1977) 72 Cal.App.3d 764, 773.) Because
no judgment was entered on the intentional interference with prospective economic
advantage claim, the Individual Defendants argue the only relevant conduct was that
giving rise to liability for intentional interference with contract, which they claim “took
place no later than the date on which Actelion notified Asahi that CoTherix would stop
66
comments in the record—director of business development Carina Spaan’s comment that
purchasing CoTherix would “leave the market for Tracleer free for Actelion”; head of
business development Michael Gaitonde’s recommendation “to rubbish the value of
Fasudil as much as possible”; and director of business development Luca Bolliger’s
comment that “we [at Actelion] painstakingly killed” Fasudil—came from other Actelion
employees, the jury could reasonably infer from the Individual Defendants’ controlling
positions in the company and their direct and active involvement in the company’s
dealings with CoTherix and Asahi that these comments are candid characterizations of
the course of conduct the Individual Defendants themselves endorsed or set in motion.
Indeed, several comments attributed to the Individual Defendants themselves are
consistent with the comments that Actelion attempts to set apart: Simon wrote notes
suggesting that the company should “mudsling . . . Fasudil[’s] great promise,” and wrote
on the eve of the acquisition that if Asahi balks 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 that Asahi viewed as threatening; and Martine
personally wrote a due diligence report on Fasudil that concluded—contrary to the weight
developing [F]asudil.” (The Individual Defendants similarly argue that, although the jury
was instructed to make malice, oppression or fraud findings with respect to both
intentional interference claims (“interfere[nce] with the [License Agreement] or Asahi’s
prospective economic relationship with CoTherix”), “the jury found only that the various
defendants had acted with malice, fraud or oppression in ‘interfering with the [License
Agreement].’ ” This is incorrect: the jury made malice, fraud or oppression findings
with respect to both torts.)
Contrary to the Individual Defendants’ implication, the tort claims were not
premised on conduct or harm allocated to different periods of time (e.g., a theory that the
contract tort applied to the pre-acquisition period and the prospective economic
advantage tort applied to the post-acquisition period). Rather, they were alternative
theories of liability for the Defendants’ entire course of conduct. No distinction was
drawn in Asahi’s presentation, in the jury instructions or on the verdict form between the
categories of damages that were allegedly caused by the Defendants’ intentional
interference with contract and those that were allegedly caused by Defendants’
intentional interference with prospective economic advantage.
67
of expert testimony at trial—that Fasudil should not be pursued because of its “lack of
intrinsic potency,” its “significant safety concerns,” the “very primitive stage of
development of this oral form of [F]asudil,” and “the IP situation,” all of which she
identified as “significant weaknesses.”
Second, the jury could have found by clear and convincing evidence that the
Individual Defendants used fraud to commit the tort. Asahi was not required to plead a
cause of action for fraud before the jury could find “fraud” for the purpose of determining
liability for punitive damages. (See Pistorius v. Prudential Insurance Co. (1981)
123 Cal.App.3d 541, 556.) Here the evidence would support a conclusion that each
Individual Defendant participated in (1) a pre-acquisition scheme to mislead Asahi about
their intent to discontinue development of Fasudil after acquisition; or (2) a post-
acquisition scheme to conceal the true reasons for discontinuing development of Fasudil
(to prevent competition with Tracleer) and misrepresented those reasons (claiming safety
concerns) in an attempt to both hide their wrongdoing and coerce Asahi into dropping
demands against Actelion.
Finally, the jury could have found by clear and convincing evidence that the
Individual Defendants’ conduct was despicable or showed willful and conscious
disregard for others (i.e., malice). By impeding the development of Fasudil, Actelion not
only sabotaged a competitive and forseeably profitable commercial venture, but
prevented a drug with the potential for alleviating the suffering of patients with life-
threatening and debilitating diseases from reaching the market.
The Individual Defendants argue that their conduct was comparable to the conduct
of defendants in cases where punitive damages were found unwarranted. (Tomaselli,
supra, 25 Cal.App.4th at p. 1288 [insurer liable for bad faith handling of insurance claim,
but evidence showed only negligence and slipshod investigation and no course of conduct
harming the general public]; Shade, supra, 78 Cal.App.4th at p. 892 [insurer liable for
bad faith handling of claim but coverage issues were extremely complex and losses were
purely economic]; American Airlines, Inc. v. Sheppard, Mullin, Richter & Hampton
(2002) 96 Cal.App.4th 1017, 1051–1052 [attorney found liable for breach of fiduciary
68
duty for accepting employment by another party in a case over client’s objections
nevertheless did not reveal any of client’s confidential information].) In our view, their
conduct was comparable to conduct found sufficient to support a punitive damages
award. (See, e.g., Hughes v. Blue Cross of Northern California (1989) 215 Cal.App.3d
832, 847 [insurer’s established company practice resulted in denial of coverage to
severely mentally ill insured]; Ball v. Posey (1986) 176 Cal.App.3d 1209, 1212–1213,
1216 [attorney exercised undue influence over elderly, frail client in order to convert her
assets to his own use].)36 An “award of punitive damages finds a justification where it
serves to deter socially unacceptable corporate policies.” (Hughes, at p. 847.)
2. Amount of Punitive Damages Awards
The Individual Defendants argue the punitive damages awards against them were
excessive under both constitutional and state law standards. We find no error.
a. Constitutional Standards
“[T]he United States Supreme Court has determined that the due process clause of
the Fourteenth Amendment to the United States Constitution places limits on state courts’
awards of punitive damages, limits appellate courts are required to enforce in their review
of jury awards. [Citations.] The imposition of ‘grossly excessive or arbitrary’ awards is
constitutionally prohibited, for due process entitles a tortfeasor to ‘ “fair notice not only
of the conduct that will subject him to punishment, but also of the severity of the penalty
that a State may impose.” ’ [Citations.] [¶] Eschewing both rigid numerical limits and a
subjective inquiry into the jury’s motives, the high court eventually expounded . . . a
three-factor weighing analysis looking to the nature and effects of the defendant’s
tortious conduct and the state’s treatment of comparable conduct in other contexts. As
articulated in State Farm [Mut. Automobile Ins. Co. v. Campbell (2003) 538 U.S. 408(State Farm)], the constitutional ‘guideposts’ for reviewing courts are: ‘(1) the degree of
36
Although these cases were decided before 1987 amendments to Civil Code
section 3294 raising the standards for imposing punitive damages (see Mock v. Michigan
Millers Mutual Ins. Co. (1992) 4 Cal.App.4th 306, 331), we conclude the punitive
damages award here is supported under the current standards, as explained ante.
69
reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or
potential harm suffered by the plaintiff and the punitive damages award; and (3) the
difference between the punitive damages awarded by the jury and the civil penalties
authorized or imposed in comparable cases.’ [Citations.]” (Simon v. San Paolo U.S.
Holding Co., Inc. (2005) 35 Cal.4th 1159, 1171–1172.) The court may also consider the
defendant’s financial condition, which is relevant to fixing an amount of punitive
damages sufficient to deter and punish misconduct, a California public policy goal that is
constitutionally permissible under the due process clause. (Id. at pp. 1184–1185.)
Appellate courts “are to review the award de novo, making an independent
assessment of the reprehensibility of the defendant’s conduct, the relationship between
the award and the harm done to the plaintiff, and the relationship between the award and
civil penalties authorized for comparable conduct. [Citations.] This ‘[e]xacting appellate
review’ is intended to ensure punitive damages are the product of the ‘ “ ‘application of
law, rather than a decisionmaker’s caprice.’ ” ’ [Citation.] [¶] . . . [F]indings of historical
fact made in the trial court are still entitled to the ordinary measure of appellate
deference. [Citations.]” (Simon v. San Paolo U.S. Holding Co., Inc., supra, 35 Cal.4th at
p. 1172.) However, findings cannot be inferred simply from the size of the punitive
damages award; such an approach “would be inconsistent with de novo review, for the
award’s size would thereby indirectly justify itself.” (Id. at p. 1173.)
The Individual Defendants focus their argument on the reprehensibility factor,
which is “ ‘the most important indicium of the reasonableness of a punitive damages
award.’ ” (Simon v. San Paolo U.S. Holding Co., Inc., supra, 35 Cal.4th at p. 1180.) We
“ ‘determine the reprehensibility of a defendant by considering whether: [(1)] the harm
caused was physical as opposed to economic; [(2)] the tortious conduct evinced an
indifference to or a reckless disregard of the health or safety of others; [(3)] the target of
the conduct had financial vulnerability; [(4)] the conduct involved repeated actions or
70
was an isolated incident; and [(5)] the harm was the result of intentional malice, trickery,
or deceit, or mere accident.’ [Citation.]” (Ibid.)37
On factor 2, the jury could reasonably have found that the Individual Defendants’
tortious conduct “evinced an indifference to or a reckless disregard of the health or safety
of others.” The Individual Defendants’ success in keeping Fasudil from reaching the
market deprived certain SA and PAH patients of a drug likely to be effective in treating
their debilitating disease, and in the case of PAH patients, at a much reduced cost. The
Individual Defendants correctly note that the jury made no such express finding, and we
agree that the finding cannot be inferred solely from the size of the punitive damages
award (see Simon v. San Paolo U.S. Holding Co., Inc., supra, 35 Cal.4th at p. 1173), but
the finding is nevertheless implicit in the jury’s compensatory damages award. The jury
could award lost profits damages only if it found to a reasonable certainty that Fasudil
would have been found effective and safe to treat SA and PAH patients and thus would
have gained regulatory approval and reached the marketplace. In contrast to Simon v.
San Paolo U.S. Holding Co., Inc., the jury here implicitly made the finding because it
awarded lost profits damages, which concluded the implicit findings are supported by
substantial evidence in the record. (Ibid.)
The Individual Defendants argue that harm to nonplaintiff patients is irrelevant to
the reprehensibility analysis.38 The Supreme Court has held to the contrary: “Evidence
of actual harm to nonparties can help to show that the conduct that harmed the plaintiff
37
We agree with the Individual Defendants that the compensatory damages
awarded by the jury represented economic rather than physical injury (factor 1), and
Asahi does not contend it was a financially vulnerable plaintiff (factor 3).
38
The Individual Defendants also argue that “the California Supreme Court has
recognized . . . that [factor 2] is definitionally inapplicable in cases involving purely
economic torts.” However, they misconstrue their cited case, Simon v. San Paolo U.S.
Holding Co., Inc., supra, 35 Cal.4th 1159. Reviewing the five reprehensibility factors,
the court began by stating, “Here, defendant’s tortious acts caused only economic harm
and did not show disregard of others’ health or safety. The first two subfactors are
clearly inapplicable.” (Id. at p. 1180.) In no way did the court suggest that factor 2 is
never applicable when a defendant’s misconduct caused only economic harm.
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also posed a substantial risk of harm to the general public, and so was particularly
reprehensible . . . [However], a jury may not go further than this and use a punitive
damages verdict to punish a defendant directly on account of harms it is alleged to have
visited on nonparties.” (Philip Morris USA v. Williams (2007) 549 U.S. 346, 355 (Philip
Morris).) The Individual Defendants cite Textron Financial Corp. v. National Union
Fire Ins. Co. for the principle that “ ‘[D]ue process does not permit courts, in the
calculation of punitive damages, to adjudicate the merits of other parties’ hypothetical
claims against the defendant under the guise of reprehensibility analysis . . . . [Citation.]’
(State Farm, supra, 538 U.S. at p. 423.)” (Textron Financial Corp. v. National Union
Fire Ins. Co. (2004) 118 Cal.App.4th 1061, 1083 (Textron), disapproved on other
grounds by Zhang v. Superior Court (2013) 57 Cal.4th 364, 382.) However, Textron
directly relied upon the Supreme Court’s quoted statement in State Farm and was
decided before the Supreme Court’s later clarification of State Farm in Philip Morris.39
39
In State Farm, the jury heard evidence of the defendant insurance company’s
business practices in several states over a period of 20 years, and the plaintiffs framed the
case as an opportunity to rebuke the company for its nationwide activities even if those
activities were lawful in the states where they occurred. (State Farm, 538 U.S. at
pp. 415, 420–421.) The Supreme Court held a state could not punish conduct that might
have been lawful where it occurred, generally did not have a legitimate concern in
punishing conduct that occurred outside its jurisdiction, and could not premise punitive
damages on “dissimilar acts, independent from the acts upon which liability was
premised.” (Id. at p. 422; see id. at pp. 421–423.) Here, in contrast, the harm to SA and
PAH patients resulted from the very conduct on which liability was based. Even if
limited to California patients, the harm supported a reprehensibility finding.
In Philip Morris, the jury found the defendant tobacco company guilty of deceit in
falsely leading the plaintiff, who died from heavy cigarette use, to believe that it was safe
to smoke cigarettes. (Philip Morris, supra, 549 U.S. at pp. 349–350.) During the
punitive damages phase of the trial, plaintiff’s counsel urged the jury to consider how
many other cigarette smokers in Oregon were going to die from smoking due to the same
type of deceit by Philip Morris. (Id. at p. 350.) The Supreme Court held that the jury
could consider the harm to other smokers in determining reprehensibility, but could not
punish the defendant for that harm, impliedly by basing the award on a quantification of
that harm. (Id. at pp. 355–356.) Here, the trial court instructed the jury, consistent with
Philip Morris, that “[w]hether the particular defendant disregarded the health or safety of
others” was relevant to the reprehensibility of the Defendant’s conduct, but that
72
As to factor 5, the jury expressly found that the Individual Defendants committed
intentional misconduct, and as explained ante much of the trial evidence demonstrated
they used deceit and fraudulent concealment in doing so.
A finding of significant reprehensibility is also supported to at least some degree
by factor 4, repeated actions. Although Asahi did not prove the Individual Defendants
committed similar misconduct on other occasions against Asahi or other companies (cf.
Simon v. San Paolo U.S. Holding Co., Inc., supra, 35 Cal.4th at p. 1180 [no evidence
defendant acted similarly toward other buyers]), it did prove that they carried out their
plan in a variety of ways over a period of several months (see Textron, supra, 118
Cal.App.4th at p. 1082 [factor applies because insurer persisted in its denial of coverage
and defense for several months]).
In sum three of the reprehensibility factors tend to support the jury’s punitive
damages award.
The Individual Defendants understandably do not argue that the ratio of
compensatory and punitive damages awarded by the jury was excessive: the
compensatory damages as awarded by the jury were approximately $550 million and as
reduced by the court were about $377 million; the total punitive damages awarded were
$30 million. Nor do they contest the evidence and implied findings about their wealth or
net worth. Because it can be inferred that their conduct was motivated by a desire to
maintain the income or dividends they personally received as a result of Tracleer sales,
the jury could reasonably conclude that the punitive damages award would have its
intended deterrent and punitive effect only if it equaled at least 10 percent of their net
worth.
Because there are grounds for finding significant reprehensibility in the Individual
Defendants’ conduct, because the ratio of punitive to compensatory damages is low, and
because the deterrent and punitive effect of the award was achievable only if the award
“[p]unitive damages may not be used to punish a particular Defendant for the impact of
his, her or its alleged misconduct on persons other than Asahi.”
73
was significant with respect to the Individual Defendants’ net worth, we conclude the
punitive damages awards were well within constitutional standards.
b. State Law Standards
Defendants argue that “California law generally recognizes that 10% of net worth
represents the outermost limit of punitive damages for even the most vile, loathsome,
despicable conduct. [Citations.] [¶] Here, the jury punished each individual defendant
10% of that person’s net worth. Yet under no rational sense of proportionality could it be
said that the conduct of these individuals ranks them among the worst of all offenders.
. . . Hence, the punitive damages . . . are excessive as a matter of law . . . .” We disagree.
First, another division of this court recently reviewed several cases that
purportedly support this argument and concluded that “none of the cited cases actually
held that punitive damages exceeding 10 percent of the defendant’s net worth are per se
impermissible.” (Bankhead v. ArvinMeritor, Inc. (2012) 205 Cal.App.4th 68, 82
(Bankhead).) Nor did those cases hold that the percentage of net worth awarded should
match the degree of reprehensibility of the defendant’s conduct. On the contrary, both
reprehensibility and wealth are relevant to the size of the award: “Under California law,
‘[w]ealth is an important consideration in determining the excessiveness of a punitive
damage award. Because the purposes of punitive damages is to punish the wrongdoer
and to make an example of him, the wealthier the wrongdoer, the larger the award of
punitive damages. [Citation.]’ [Citations.] ‘[O]bviously, the function of deterrence . . .
will not be served if the wealth of the defendant allows him to absorb the award with
little or no discomfort. [Citations.]’ [Citation.] . . . [¶] . . . Calculation of punitive
damages ‘involves . . . “a fluid process of adding or subtracting depending on the nature
of the acts and the effect on the parties and the worth of the defendants.” ’ [Citation.]”
(Id. at pp. 77–78.)
Second, we must give deference to the trial court’s factual determination that the
punitive damages awards were not excessive as the result of passion or prejudice.
“ ‘ “The trial court is in a far better position than an appellate court to determine whether
a damage award was influenced by ‘passion or prejudice.’ [Citation.]” ’ ” (Bankhead,
74
supra, 205 Cal.App.4th at pp. 76–77.) “ ‘An appellate court will not reverse the jury’s
determination unless the award as a matter of law is excessive or appears so grossly
disproportionate to the relevant factors that it raises a presumption it was the result of
passion or prejudice. [Citations.]’ [Citation.]” (Id. at p. 77.) Those factors are “the
nature of the defendant’s wrongdoing; the actual harm to the plaintiff; and the
defendant’s wealth. [Citations.]” (Ibid., fn. omitted.) Because we have already
determined under de novo review that the punitive damages award was proper under
these and similar factors, we necessarily reach the same conclusion under applicable state
law.
E. Asahi Cross-Appeal: Punitive Damages Claim Against Actelion
Asahi argues the trial court erred in denying its motion for a new trial on its
punitive damages against Actelion. It contends that it is entitled to a new punitive
damages trial due to intentional misconduct by defense counsel during closing argument.
We disagree.
During closing argument in the punitive damages phase of the trial, defense
counsel told the jury its liability verdict sent “a huge message to everybody[.] [Y]our
message was so loud that . . . [$]800 million has been lost in capital assets from
Actelion,” a figure that was based on a drop in the company’s stock price after the
liability verdict was announced. Counsel added, “That isn’t Actelion who lost the
[$]800 million. That’s pension funds. That’s invest—” Asahi interposed an objection:
“There’s no evidence of this.” The court overruled the objection and said, “It will be up
to the jury . . . what there is and is not evidence of.” Defense counsel continued: “As a
matter of fact, it’s not only pension funds that are invested in Actelion, it’s these people
sitting right over here,” indicating Actelion employees. “[L]et’s talk about the four
entities that lost $800 million in just two days and let’s talk about who that is. . . . That’s
employees, that’s police and firemen pension funds. That’s teachers’ pension funds.
These are all funds that invested that got wiped out of $800 million.” “[W]e all know
about pension funds. That money doesn’t grow on trees. It comes from somebody[,] . . .
comes from employers . . . .” On rebuttal, Asahi did not argue that defense counsel’s
75
comments about the financial impact of the jury’s liability verdict on pension funds and
employee stock options were unsupported by the evidence. After the jury returned its
punitive damages verdict, Asahi moved for a new trial on the ground that defense counsel
committed misconduct in arguing, without evidentiary support, that employees and
pensions funds lost money as a result of the jury’s liability award and would lose more
money if the jury awarded punitive damages. The court denied Asahi’s motion without
explanation.
Although attorneys have wide latitude in making arguments to a jury, an attorney
“ ‘may not assume facts not in evidence or invite the jury to speculate as to unsupported
inferences,’ ” (Cassim v. Allstate Ins. Co. (2004) 33 Cal.4th 780, 796), and may not
deliberately attempt to “appeal to social or economic prejudices of the jury” (Hoffman v.
Brandt (1966) 65 Cal.2d 549, 552–553). “Usually, we defer to the ruling of a trial court
on a new trial motion. [Citation.] ‘ “A trial judge is in a better position than an appellate
court to determine whether a verdict resulted wholly, or in part, from the asserted
misconduct of counsel and [the trial court’s] conclusion in the matter will not be
disturbed unless, under all the circumstances, it is plainly wrong.” ’ (Sabella v. Southern
Pac. Co.[ (1969)] 70 Cal.2d [311,] 318, fn. 5 . . . .)” (Du Jardin v. City of Oxnard (1995)
38 Cal.App.4th 174, 180–181.)
We first note that the defense argument complained of was at least partially
supported by evidence in the record. An Actelion representative testified during the
punitive damages phase of the trial that the company offered its employees stock option
plans, and an Actelion annual report received in evidence during the liability phase of the
trial stated that more than 40 percent of Actelion’s investors were institutional
shareholders. To the extent the argument was not supported by the trial evidence or
reasonable inferences therefrom (i.e., the claim that Actelion’s institutional shareholders
were public employee pension funds), the court admonished the jury to determine for
itself whether facts asserted in Actelion’s argument were, or were not, in evidence,
mitigating any prejudice. Asahi further had the opportunity in rebuttal argument to
challenge the defense statements, but instead chose to focus on other topics, a choice that
76
suggests that Asahi did not view Actelion’s argument as highly prejudicial at the time it
was made.
In contending that the argument was improper, Asahi relies primarily on
inapposite cases holding that references in argument to the wealth or poverty of a party is
an improper appeal to the jury’s sympathies and constitutes misconduct. (Hoffman v.
Brandt, supra, 65 Cal.2d at pp. 551–553 & fn. 1 [argument that judgment against elderly
defendant would send him to a nursing home for the poor]; Du Jardin v. City of Oxnard,
supra, 38 Cal.App.4th at pp. 177–178 [argument that judgment against city would result
in cost to taxpayers and loss of public services].) Such arguments are improper in trial of
liability and compensatory damages because they are irrelevant to the issues before the
court. (Hoffman v. Brandt, at pp. 552–553; Du Jardin v. City of Oxnard, at p. 179; see
also Love v. Wolf (1964) 226 Cal.App.2d 378, 387–389 [wealth of defendant
pharmaceutical company not relevant to liability or compensatory damages].) Trials of
punitive damages are different. (Love v. Wolf, at p. 388.) In such trials, the wealth of the
defendant is relevant because “[p]unitive damages are to be assessed in an amount which,
depending on the defendant’s financial worth and other factors, will deter [the defendant]
and others from committing similar misdeeds.” (College Hospital Inc. v. Superior Court
(1994) 8 Cal.4th 704, 712, italics added.) Indeed, a plaintiff’s failure to establish the
financial condition of the defendant is a ground for reversal of a punitive damages award
as a matter of public policy. (Tomaselli, supra, 25 Cal.App.4th at pp. 1282–1284.)
We do not view the defense argument as improper in context. The jury was
properly instructed that in determining an amount of punitive damages, it should consider
what amount would be sufficient to punish the defendant for its conduct and deter similar
conduct in the future. “There is no fixed formula for determining the amount of punitive
damages and you are not required to award any punitive damages.”
Like Actelion, Asahi also argues, without supporting citation, that it is
unprecedented for a jury to impose punitive damages on corporate officers and not on the
corporation itself. Even if it is anomalous, we do not find the outcome here to be
irreconcilable or inconsistent with the policies underlying award of punitive damage
77
awards. The jury reasonably could have determined that imposition of substantial
punitive damages on the three senior Actelion executives who had personally directed
Actelion’s malicious or fraudulent activities would deter Actelion from committing
similar misconduct in the future. Moreover, the jury could reasonably have found that
imposing the financial penalty on the individuals personally would have a more
immediate punitive and deterrent effect than imposition of penalties upon the corporation,
impacting all stakeholders in the corporation, culpable or not.
III. DISPOSITION
The judgments are affirmed. Asahi shall recover its costs on appeal.
_________________________
Bruiniers, J.
We concur:
_________________________
Jones, P. J.
_________________________
Needham, J.
78
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.
79