883 F.3d 739 (9th Cir. 2018), 15-56571, Crowley v. Epicept Corporation

Docket Nº:15-56571
Citation:883 F.3d 739
Opinion Judge:PER CURIAM:
Party Name:Kenton L. CROWLEY; John A. Flores, Plaintiffs-Appellants, v. EPICEPT CORPORATION, Defendant-Appellee.
Attorney:Karen A. Larson, Karen A. Larson P.A., Dana Point, California, for Plaintiffs-Appellants. Philip Tencer, TencerSherman LLP, San Diego, California, for Defendant-Appellee.
Judge Panel:Before: Kim McLane Wardlaw and Consuelo M. Callahan, Circuit Judges, and Gordon J. Quist, Senior District Judge. WARDLAW, Circuit Judge, dissenting in part:
Case Date:February 13, 2018
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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883 F.3d 739 (9th Cir. 2018)

Kenton L. CROWLEY; John A. Flores, Plaintiffs-Appellants,

v.

EPICEPT CORPORATION, Defendant-Appellee.

No. 15-56571

United States Court of Appeals, Ninth Circuit

February 13, 2018

Submitted April 5, 2017 [*] Pasadena, California

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Appeal from the United States District Court for the Southern District of California, M. James Lorenz, Senior District Judge, Presiding, D.C. No. 3:09-cv-00641-L-BGS

Karen A. Larson, Karen A. Larson P.A., Dana Point, California, for Plaintiffs-Appellants.

Philip Tencer, TencerSherman LLP, San Diego, California, for Defendant-Appellee.

Before: Kim McLane Wardlaw and Consuelo M. Callahan, Circuit Judges, and Gordon J. Quist, Senior District Judge.[**]

SUMMARY[***]

Jury Instructions

The panel affirmed the district court's judgment in favor of EpiCept Corporation in a diversity action brought by doctors alleging claims arising from their assignment to EpiCept of two patents for a non-FDA approved drug and EpiCept's failure to develop those patents into FDA-approved drugs.

The panel held that the district court did not abuse its discretion in formulating the jury instructions, or in determining that the jury's verdict was not against the clear weight of the evidence.

Specifically, the panel held that the doctors waived two of their challenges to the jury instructions. The panel further held that the challenged instructions correctly stated the law, and the jury was clearly and adequately informed that only a material breach by the doctors could defeat their breach of contract claim against EpiCept. Accordingly, the district court did not abuse its discretion in denying the doctors' request for a new trial on this ground. Finally, the panel rejected, as harmless error, the doctors' challenge to the jury instructions, or lack thereof, relating to EpiCept's position at trial that even if it had breached the parties' agreement, the doctors were not entitled to return of their patents as a remedy.

The panel rejected the doctors' challenge to the district court's response to the question posed by the jury during deliberations. The panel concluded that the district court's original instructions to the jury were adequate and accurately stated New Jersey law, and the jury's question did not indicate that the jury was interpreting the law incorrectly. Accordingly, the district court did not abuse its discretion in referring the jury back to the instructions already given and the evidence presented at trial.

The panel rejected the doctors' challenges to the verdict's evidentiary basis. The panel held that the doctors waived their right to directly challenge the sufficiency of the evidence by failing to make the appropriate Fed.R.Civ.P. 50 motions. Concerning the doctors' motion for a new trial under Fed.R.Civ.P. 59, the panel held that the district court did not abuse its discretion in denying the motion where there was sufficient evidence of a material breach of the agreement under New Jersey law.

Judge Wardlaw dissented, and would reverse and remand for a new trial. Judge Wardlaw would hold that the jury's verdict was not supported by substantial evidence because no rational jury could find material breach on the evidence presented, and, that the district court inadequately instructed the jury on this claim.

OPINION

PER CURIAM:

This appeal follows the trial on Drs. Crowley and Flores’s (the Doctors) claims against EpiCept Corporation (EpiCept) for breach of contract, breach of the implied covenant of good faith and fair dealing, and fraud. The Doctors’ claims arise from their assignment to EpiCept of two patents for a non-FDA approved drug (referred to as " NP-2" ) and EpiCept’s failure

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to develop those patents into FDA-approved drugs. Following an adverse jury verdict, the Doctors take issue with certain jury instructions, the district court’s answer to a jury question, the evidence supporting the verdict, and the district court’s exclusion of the Doctors’ expert. The majority of the Doctors’ arguments center on the jury’s determination that the Doctors materially breached their contract with EpiCept by failing to disclose that Dr. Flores treated burn patients with NP-2. We find that the district court did not abuse its discretion in formulating the jury instructions, or in determining that the jury’s verdict was not against the clear weight of the evidence. Accordingly, neither the jury instructions given in this case nor the evidence presented at trial warrants the do-over the Doctors demand. The district court’s response to the jury’s question also does not merit a new trial, as the jury’s question was essentially factual and the court’s answer appropriately directed the jury to consider its original instructions and the evidence presented at trial. Finally, because we affirm the jury’s finding that the Doctors materially breached the contract, the district court’s exclusion of the Doctors’ damages expert was necessarily harmless. Accordingly, we affirm.

I. BACKGROUND

A.

The Doctors jointly invented a process for the preparation of ketamine ointment (U.S. Patent No. 5,817,699) and a method for the preparation of the same ointment containing various amounts of ketamine and butamben (U.S. Patent No. 5,817,961). The cream, also referred to as NP-2, is designed to treat six types of pain. EpiCept was a private pharmaceutical company that focused on developing technology for pain management. EpiCept secured funding through private venture capital.

The Doctors and EpiCept entered into a contract in December 2000 (the Agreement), in which the Doctors agreed to " assign to EpiCept [their] entire right, title and interest in and to the Invention, any Improvements," and the patents themselves. Dr. Crowley and Peter Golikov, EpiCept’s then-President and Chief Operating Officer, negotiated the Agreement. EpiCept paid a $300,000 up-front assignment fee and agreed to pay the Doctors royalties on commercial sales. The Agreement also contained a New Jersey choice-of-law clause. Section 2.1 of the Agreement required the Doctors to " provide written notice to EpiCept of each Improvement within thirty (30) days of the date of conception of such Improvement or, if conceived prior to the Effective Date [of the Agreement], then within ten (10) days after the Effective Date...." The Doctors were also required to assign any improvement to EpiCept. Section 1.3 defined an improvement as " any modification of the Invention that is, on or after the Effective Date, or was, prior to the Effective Date, invented, conceived and/or reduced to practice by [the Doctors], provided that such modification or the use thereof would, if unlicensed," infringe one of the patents. Section 10 provided the process by which the parties could terminate the Agreement. The Doctors had the right to terminate the Agreement under certain circumstances, including EpiCept’s failure " to use commercially and scientifically reasonable efforts to" pursue an Investigational New Drug Application or a New Drug Application with the United States Food and Drug Administration (FDA) within specified time frames. Section 10 further provided that " [i]n the event of any material breach or default ... by a party ... the other party ... shall give the Defaulting Party written notice of the default and its election

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to terminate this Agreement at the expiration of a cure period of ninety (90) days from the date of the notice." If the Doctors " duly terminate[d]" the Agreement, EpiCept was to return the patents to them.

At some point prior to entering the Agreement, Dr. Flores used NP-2 to treat " a few" first- and second-degree burns at his clinic. The Doctors never disclosed this use to EpiCept.

Between December 2000 and October 2001, EpiCept conducted various studies on NP-2 and corresponded with the FDA regarding the drug’s potential for approval. EpiCept ultimately decided to postpone direct development of NP-2 in October 2001, but waited until November 2002 to give notice of this decision to the Doctors. The parties corresponded over the next several years regarding the status of NP-2’s development. On May 18, 2004, the Doctors demanded a cure under § 10 of the Agreement because EpiCept had done no work on NP-2 since late 2001. In April 2006, the Doctors terminated the Agreement and demanded reassignment of the patents.

B.

Over two and a half years later, in December 2008, the Doctors filed suit alleging claims for breach of contract, breach of implied covenant of good faith and fair dealing, fraud, and rescission.1 On January 26, 2012, the district court granted EpiCepts motion for summary judgment. 2012 WL...

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