Asahi Kasei Pharma Co. v. Actelion Ltd.
Filed 12/18/13 (2013)
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Rule of Law:
A non-contracting party with an economic interest in a contract, such as a parent corporation, may be held liable for intentionally interfering with that contract if it employs unlawful means. This economic interest does not create absolute immunity but rather a qualified privilege that is overcome by proof of wrongful conduct like fraud, concealment, or extortion.
Facts:
- On June 23, 2006, Asahi Kasei Pharma Corporation (Asahi) entered into a License Agreement with CoTherix, Inc. to develop and commercialize Asahi's drug, Fasudil.
- The agreement required CoTherix to use 'commercially reasonable efforts' to bring Fasudil to market for treating pulmonary arterial hypertension (PAH), a market where a competing drug from Actelion Ltd., Tracleer, was dominant.
- Actelion viewed Fasudil as a significant competitive threat and began negotiations to acquire CoTherix shortly after the License Agreement was announced.
- During the acquisition process, Actelion executives secretly decided to terminate Fasudil's development but concealed this decision from Asahi.
- Between November 2006 and January 2007, Actelion executives repeatedly made misrepresentations to Asahi, assuring them that no decision on Fasudil had been made and that development was proceeding as planned.
- On January 9, 2007, immediately upon completing its acquisition of CoTherix, Actelion formally notified Asahi that it was discontinuing the development of Fasudil.
- Following the termination, Actelion executives threatened to report fabricated safety concerns about Fasudil to regulatory authorities and make negative public disclosures in order to pressure Asahi during termination negotiations.
Procedural Posture:
- Asahi first initiated an International Chamber of Commerce (ICC) arbitration against CoTherix for breach of contract, resulting in an award of over $91 million to Asahi.
- Asahi then filed suit in San Mateo County Superior Court (trial court) against Actelion Ltd., its subsidiaries, and three of its executives (the Individual Defendants) for torts including intentional interference with contract.
- The trial court granted Asahi's motion for summary adjudication, ruling that the 'manager's privilege' did not apply to the Individual Defendants.
- The case proceeded to a jury trial, where the jury returned a unanimous verdict against Actelion and the Individual Defendants for intentional interference, awarding nearly $547 million in compensatory damages and finding malice, oppression, or fraud.
- In a separate phase, the jury awarded punitive damages against the Individual Defendants.
- The trial court denied the defendants' motions for judgment notwithstanding the verdict but granted a new trial on damages conditioned on Asahi's acceptance of a remittitur, which Asahi accepted.
- Actelion and the Individual Defendants, as appellants, appealed the amended final judgment to the California Court of Appeal.
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Issue:
Is a non-contracting parent corporation, which acquires a subsidiary and directs it to breach a contract, liable for intentional interference with that contract if it uses unlawful means to do so, despite its economic interest in the subsidiary's business?
Opinions:
Majority - Bruiniers, J.
Yes, a non-contracting parent corporation is liable for intentional interference with its subsidiary's contract if it uses unlawful means to induce the breach. The court rejected Actelion's argument that its status as CoTherix's parent company made it a party with a 'legitimate economic interest' and therefore immune from liability under the 'stranger to the contract' doctrine from Applied Equipment Corp. v. Litton Saudi Arabia Ltd. The court clarified that Applied Equipment applies to actual parties to a contract, which Actelion was not. Instead, following Woods v. Fox Broadcasting Sub., Inc., the court held that an ownership interest only confers a qualified privilege or justification defense. This privilege is not absolute and is defeated if the defendant uses 'unlawful means'—such as intentional misrepresentation, concealment, and extortion—to interfere. The jury was properly instructed on this standard and found that Actelion and its executives had used such unlawful means, thereby negating any justification for their interference.
Analysis:
This decision solidifies the principle in California law that a parent corporation's economic interest in its subsidiary does not provide absolute immunity for interfering with the subsidiary's contracts. It clarifies that the 'stranger to the contract' doctrine does not shield non-contracting parties who have an economic stake; instead, their actions are evaluated under a qualified privilege standard. The ruling creates significant legal risk for acquiring companies by confirming that the use of fraudulent or coercive tactics to terminate a target's pre-existing agreements can lead to substantial tort liability, far exceeding standard breach of contract damages. This precedent pressures acquiring entities to conduct such terminations transparently and without resorting to wrongful conduct.
