Brief Fact Summary.
Asahi Kasei Pharma Corp (Plaintiff) signed a licensing agreement with CoTherix, Inc. to develop and bring to market a pharmaceutical. Plaintiff’s competitor, Actelion Ltd. (Defendant) then bought all of the stock in CoTherix, Inc. and notified Plaintiff that CoTherix would not be developing the drug. Plaintiff sued Defendant for tortious interference with the licensing agreement.
Synopsis of Rule of Law.
1) A corporate entity that purchases one of the parties to a contract is not automatically immune from liability when it interferes with the contractual relationship. 2) Individual corporate officers are not protected by the manager’s privilege when they are not corporate officers for one of the contracting parties. Â
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.View Full Point of Law
Plaintiff, a Japanese pharmaceutical company, developed a drug to treat pulmonary arterial hypertension called Fasudil. Plaintiff sought to market the drug in North America and Europe, so it entered into a licensing agreement with CoTherix, Inc. CoTherix was a U.S.-based biopharmaceutical company with a history of bringing similar drugs to market quickly. Plaintiff sought this agreement with CoTherix based on this history, in order to quickly bring Fasudil to market and capitalize on the period of market exclusivity before generic competitors became available. At the time, Plaintiff’s market competitor was Defendant, a Swiss company that held the prevailing share of the U.S. pulmonary arterial hypertension drug market. After the licensing agreement was signed, Defendant purchased all of CoTherix’s stock and notified Plaintiff that CoTherix would no longer work to develop Fasudil. Plaintiff sued Defendant as well as three of its executives for intentional interference with the licensing agreement. Plaintiff provided evidence that Defendant bought out CoTherix in order to keep Plaintiff from cutting into its share of the market. The case went to trial, where the jury was instructed that a person is not liable for interfering if the person was a party to the contract at the time of the interference. The jury was also instructed that a defense of justification existed when a defendant could show that its conduct was justified, but that the defense was unavailable if the defendant used unlawful means to interfere with the contract, such as intentional misrepresentation, concealment, or extortion. The jury found for Plaintiff, awarding $550 million in compensatory damages and $30 million in punitive damages. Defendant appealed, arguing that Defendant was not a stranger to the contract once it had purchased CoTherix. Plaintiff responded by arguing that defenses of privilege or justification are not available when defendants used improper means.
1) Is a corporate entity that purchases one of the parties to a contract automatically immune from liability for interfering with the performance of the contract? 2) Are the corporate officers protected by the manager’s privilege when they are not officers of one of the parties to the contract?
(Bruiniers, J.) 1) No. ) A corporate entity that purchases one of the parties to a contract is not automatically immune from liability when it interferes with the contractual relationship. The tort of intentional interference with the performance of a contract has 5 elements: 1) a valid contract exists between plaintiff and another party; 2) defendant knows of the contract; 3) defendant intentionally acts to induce a breach of the contract or a disruption in its performance; 4) the contract is breached or the performance disrupted; and 5) damages. Defendant claims that it cannot be liable for interference because it is not a stranger to the contract. Although Defendant was not a party to the licensing agreement at any point, it did have an interest in the matter by virtue of having purchased CoTherix, one of the parties to the licensing agreement. Defendant argues that liability for interference should be limited to complete strangers to the contract. However, the state’s courts have not recognized a corporate owner’s privilege to interfere with a contract entered into by a subsidiary entity. A â€œstrangerâ€ is one who is not a party to the contract or an agent of a party to the contract. Defendant is therefore not immune from liability because of its ownership of one of the contracting parties. Defendant was not authorized to act as CoTherix’s agent for purposes of the licensing agreement. The jury was properly instructed on the elements of the tort and was told to consider whether Defendant used unlawful means to interfere with the agreement. The verdicts are affirmed.
2) No. Individual corporate officers are not protected by the manager’s privilege when they are not corporate officers for one of the contracting parties. Defendant’s executives actively participated in Defendant’s tortious conduct so they can be held personally liable for that intentional conduct. The manager’s privilege only protects corporate officers when they induce a breach of their corporation’s contract. As found above, Defendant corporation was not a party to the licensing agreement and so the officers’ intentional tortious interference with the agreement does not fall under this privilege.
Plaintiff also pursued this matter against CoTherix as a contracts case and was awarded $91 million in arbitration for breach of contract. Corporations argue that this case opens companies that acquire subsidiaries up to unanticipated tort liability and punitive damages whenever an acquired subsidiary incurs contract liability. The decision rested entirely on the matter of absolute immunity, and not on the question of whether a parent company has a duty not to interfere with its subsidiary’s contracts. The California Supreme Court declined to review this decision.