Kathleen Sullivan, Quinn Emanuel Urquhart & Sullivan ()
SAN FRANCISCO — A Swiss pharmaceutical company has brought in high caliber reinforcements as it takes its battle over a $407 million business tort judgment to the California Supreme Court.
Quinn Emanuel Urquhart & Sullivan partner Kathleen Sullivan has joined Actelion’s team at Mayer Brown in a last-ditch attack on a jury award that they say “discourages businesses from investing in California, especially in the pharmaceutical and high-tech sectors that are so vital to the state’s economy.”
The First District Court of Appeal’s December ruling in Asahi Kasei Phama v. Actelion is already being cited by lawyers at Latham & Watkins in a pharmaceutical case between San Francisco-based Medivation Inc. and the University of California that’s pending before another appellate panel.
Sullivan won a major California Supreme Court ruling on lost profit damages in 2012 that forms part of the basis for Actelion’s appeal. In Sargon Enterprises v. University of Southern California, the Supreme Court ruled that trial judges should be skeptical when expert witnesses predict wild commercial success for a product that doesn’t yet have a track record of profitability.
In the Asahi case, the product at issue is a drug that had not yet been approved by the Food and Drug Administration. But research scientists testified that approval was highly likely and Asahi’s drug development partner, Cotherix, had forecast hundreds of millions in revenue. Asahi alleges that Actelion acquired Cotherix—touting those forecasts to its investment bankers—only to shut down development of the drug, fasudil, after the acquisition. The strategy was planned all along to protect Actelion’s monopoly on a competing treatment for pulmonary arterial hypertension, Asahi alleges and a San Mateo jury found.
Sullivan, Mayer Brown partner Evan Tager and other members of Actelion’s team say First District Justice Terence Bruiniers “paid lip service” to Sargon but ignored its teaching. Bruiniers also erred by ruling that Actelion could be liable for the tort of intentional interference against its wholly owned subsidiary, and in upholding $30 million in punitive damages against three Actelion executives, the lawyers argue.
“By ‘tortifying’ ordinary contract actions, the decision below threatens to discourage businesses from investing in California, for it places corporations and their executives at risk of crippling tort damages—magnified by the prospect of punitive damages—whenever a subsidiary incurs contract liability,” they write in their petition. “It thus poses a particular threat to the pharmaceutical and technology sectors in California, where acquisitions are frequent and new ventures often change course.”
In a brief phone interview, Tager put his case for review succinctly: “There’s a lot of money at stake. There are legal principles at stake. And there’s people’s integrity at stake.”
Asahi’s attorneys at Morgan Lewis & Bockius said Tuesday they see no grounds for Supreme Court review. Sargon is inapt because the trial judge in that case found the expert testimony unreliable, whereas the Asahi trial judge carefully scrutinized it before admitting it. “The evidence in that case is not even in the same universe” as in this case, Morgan Lewis partner Rollin Chippey II said.
Sullivan and Quinn Emanuel are the latest in a long line of high-powered law firms to represent Actelion in the dispute. Baker Botts made early appearances in superior court, with Joseph Cotchett Jr. of Cotchett, Pitre & McCarthy brought in to help try the case. Mayer Brown joined in at the First District, with Ropers Majeski Kohn & Bentley representing the Actelion executives in their personal capacities.
The lost profits issue also is in play in biopharmaceutical company Medivation’s litigation with the UC Regents. The university licensed a compound for treatment of prostate cancer to Medivation in 2005, now sold under the brand name Xtandi. Medivation alleges a UC researcher then licensed a virtually identical compound to San Diego-based Aragon Pharmaceuticals and that, assuming Aragon obtains FDA approval, it will cut severely into Medivation’s profits on Xtandi.
San Francisco Superior Court Judge John Munter ruled a year ago that the theory is too speculative under Sargon. It relies on “events prophesized to occur many years into the future,” including that Aragon would “somehow, at sometime, and with someone” strike a partnership with a big drug company and execute a successful development and marketing campaign.
Five months later Aragon was in fact acquired by Johnson & Johnson for $650 million plus $350 million in milestone payments, but Munter ruled it was too late at that point to reopen discovery. Medivation is appealing to the First District.
“As Medivation’s own case suggests,” Latham partner James Lynch wrote earlier this month in a request for publication of Asahi, “this question is likely to recur before other California courts.”
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