Asahi's Morning Sun - Court Holds Parent And Its Managers May Be Liable For Interfering With Subsidiary's Contract

Yesterday's post was intended to set the stage for a discussion of last week's decision by the Court of Appeal in Asahi Kasei Pharma Corp. v. Actelion Ltd., 2013 Cal. App. LEXIS 1017 (Cal. App. 1st Dist. Dec. 18, 2013).  The dispute giving rise to these appeals arose from the termination of an agreement between Asahi Kasei Pharma Corp. and CoTherix, Inc. after the latter corporation had been acquired by Actelion, Ltd.  We left off with the Court of Appeal affirming the trial court's grant of summary judgment in favor of the defendants on Asahi's Cartwright Act claims.

Asahi had more success on its claim for intentional interference against the CoTherix, Actelion and three of Actelion's executive officers.  After a jury trial and various post-trial motions, the trial court entered judgment in favor Asahi for $377,325,000.  The jury also awarded sizable punitive damages against the executives.  It should be no surprise that the defendants appealed.

Corporate Owner May Be A Gershom

The defendants argued that they could not be liable for interfering with the agreement because Actelion had a "legitimate … economic interest in the contractual relationship."  The basis of this argument is found in the California Supreme Court's holding in Applied Equipment Corp. v. Litton Saudi Arabia Ltd., 7 Cal. 4th 503 (1994) that a contracting party cannot be held liable in tort for conspiracy to interfere with its own contract.  The defendants urged that the Court of Appeal read this language broadly to limit liability to complete "strangers" to a contract.  The Court of Appeal, however, was not persuaded, holding that a "stranger" means one who is neither a party to the contract nor an agent of a party to the contract.

Caveant Managers of Parent Companies

The individual defendants invoked the so-called "manager's privilege" under which corporate agents and employees of a corporation cannot be held liable for inducing a breach of the corporation's contract.   The individual defendants faced just one problem, but it was a fatal problem.  They were not managers of the subsidiary corporation.  Thus, the Court of Appeal held that to enjoy the manager's privilege, a manager must be inducing a breach by his or her company.