Asahi Kasei Pharma Corp. v. Actelion Ltd.

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.

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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 Agre

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