A California appellate court affirmed a judgment holding a corporation and individual managers liable for tortious interference with the contract of a corporate subsidiary. Asahi Kasei Pharma Corp. v. Actelion Ltd., et al, No. A133927, slip op. (Cal. App. 1st Dist., Dec. 18, 2013). The case has at least two important effects on breach of contract lawsuits in California. First, the court held the defendant corporation liable for tortious interference, finding that it was a “stranger” to the contract under state law. Second, it rejected the individual defendants’ claim that the “manager’s privilege” barred liability, holding that they were not managers of the breaching company.
The plaintiff is a Japanese pharmaceutical company that produced and marketed Fasudil, a drug used to treat stroke patients. New research in the late 1990’s suggested that Fasudil could also help patients suffering from pulmonary arterial hypertension (PAH). The plaintiff entered into a license agreement with CoTherix, San Francisco-based pharmaceutical company, in June 2006. CoTherix was to develop Fasudil for PAH treatment and obtain regulatory approval for the drug in the U.S. and Europe. CoTherix developed a plan that envisioned approval of Fasudil for multiple treatments between 2009 and 2011.
The defendant, Actelion, produces Tracleer, which is also used to treat PAH. Actelion began investigating the acquisition of CoTherix soon after the announcement of the license agreement, allegedly for the express purpose of stopping the development of Fasudil. During the negotiation of the merger, a manager at Actelion reportedly recommended that the company return Fasudil to the plaintiff. The merger was completed in November 2006, and in April 2007, the plaintiff declared that CoTherix was in material breach of their agreement.
The plaintiff sued CoTherix, Actelion, and several individual managers in November 2008. The case went to trial in April 2011 on four causes of action, including intentional interference with a contract and interference with prospective economic advantage. The jury found that the defendants acted with “malice, oppression or fraud” and awarded the plaintiff almost $547 million in compensatory damages, plus $30 million in punitive damages against the individual managers.
State law provides that a person or company may only be held liable for tortious interference with a contract if they are a “stranger” to the contract. Applied Equipment Corp. v. Litton Saudi Arabia Ltd., 7 Cal.4th 503, 514 n. 5 (1994). Actelion argued on appeal that, as CoTherix’s parent company, it was not a “stranger.” The court rejected this argument and affirmed the compensatory damage verdict.
The individual defendants argued that the “manager’s privilege” barred personal liability, since they were acting within the scope of their employment for Actelion. The court also rejected this argument. It first noted that this privilege generally only protects managers from liability for their employer’s negligence, not tortious conduct. Second, it held that the manager’s privilege did not apply because the individual defendants were not managers of CoTherix, the breaching party. It acknowledged that awarding punitive damages against individual managers, but not the corporation, was unusual, but that it was not an inconceivable outcome since the jury could conclude that individual liability would “have a more immediate punitive and deterrent effect.”
If you or your business has a dispute over a contract or other business matter, a skilled business and commercial lawyer can advise you of your rights and protect your interests. James G. Schwartz has represented Bay Area businesses since 1976. Contact us today online or at (925) 463-1073 to schedule a free and confidential consultation to discuss your case.
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Photo credit: By Edgar181 (Own work) [Public domain], via Wikimedia Commons.