Ixchel Pharma, LLC v. Biogen, Inc.

• Citation: 930 F.3d 1031
• Decision Date: 16 July 2019
• Docket Number: No. 18-15258,18-15258
• Parties: IXCHEL PHARMA, LLC, Plaintiff-Appellant, v. BIOGEN, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

930 F.3d 1031

IXCHEL PHARMA, LLC, Plaintiff-Appellant,

v.BIOGEN, INC., Defendant-Appellee.

No. 18-15258

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 15, 2019 San Francisco, California

Filed July 16, 2019

For Plaintiff-Appellant: Christopher Banys, Richard C. Lin, Banys, P.C., 1030 Duane Avenue, Santa Clara, California 95054.

For Defendant-Appellee: Mark S. Popofsky, Ropes & Gray LLP, 2099 Pennsylvania Ave., NW, Washington, D.C. 20006, Rocky Tsai, Ropes & Gray LLP, Three Embarcadero Center, San Francisco, California 94111.

Before: J. Clifford Wallace, Sandra S. Ikuta, and Morgan Christen, Circuit Judges.

ORDER CERTIFYING QUESTIONS TO THE CALIFORNIA SUPREME COURT

ORDER

We ask the California Supreme Court to resolve two open questions of state law. First, we need guidance in determining whether section 16600 of the California Business and Professions Code applies only to contracts between employers and employees, or also applies to contracts between two businesses. Second, the California Supreme Court has held that a plaintiff must plead an independently wrongful act in order to state a claim for intentional interference with an at-will employment contract. We need guidance, however, in determining whether this requirement applies to contracts outside of the employment context, as two California Courts of Appeal districts have suggested that it does not. Accordingly, we certify the following questions:

Does section 16600 of the California Business and Professions Code void a contract by which a business is restrained from engaging in a lawful trade or business with another business?

Is a plaintiff required to plead an independently wrongful act in order to state a claim for intentional interference with a contract that can be terminated by a party at any time, or does that requirement apply only to at-will employment contracts?

Our phrasing of the questions should not restrict the Court’s consideration of the issues involved. The Court may rephrase the questions as it sees fit in order to address the contentions of the parties. If the Court agrees to decide these questions, we agree to accept its decision. We recognize that the Court has a substantial caseload, but we submit these questions in the interests of comity and because of their significance for business torts in California.

I

Ixchel Pharma is a biotechnology company that develops small-molecule drugs for the treatment of mitochondrial disease

. Ixchel has been working on the development of an experimental therapeutic drug to treat Friedreich’s ataxia, a rare neurological disease. The active pharmaceutical ingredient in Ixchel’s drug is dimethyl fumarate.

To further its efforts to develop and commercialize a new dimethyl fumarate drug, Ixchel entered into a Collaboration Agreement with Forward Pharma in January 2016. Forward is a biotechnology company based in Denmark that is in the business of developing drugs containing dimethyl fumarate for the treatment of neurological disease

.

The Collaboration Agreement included the following terms. Ixchel and Forward would work together to develop the new dimethyl fumarate drug. Forward would assess the feasibility of conducting clinical trials for the new drug. If Forward determined that clinical trials were feasible, Forward would be responsible for carrying out the trials and paying for their costs under the terms of the Collaboration Agreement. Ixchel would provide assistance with the clinical trials. If the clinical trials were successful and resulted in FDA approval for the new drug, the parties agreed that Forward would be responsible for managing the manufacturing and commercialization of the drug with Ixchel’s assistance. Ixchel would be entitled to receive a percentage royalty on the sales of the approved product. Forward could terminate the Collaboration Agreement by written notice, which would become effective sixty days after notice was received.

In late 2016, Forward began negotiations with Biogen, another pharmaceutical company, in an effort to settle a longstanding intellectual property dispute. Ixchel alleges that Forward gave Biogen a copy of the Collaboration Agreement without Ixchel’s consent. According to Ixchel, Biogen determined that Ixchel’s development work on the new dimethyl fumarate drug would pose a threat to Biogen’s sales of its own dimethyl fumarate drug designed to treat multiple sclerosis

. Biogen therefore asked Forward to cut off all ties with Ixchel as part of the settlement.

In January 2017, Forward and Biogen executed an agreement (the Forward-Biogen Agreement) in which Biogen agreed to pay Forward $1.25 billion and Forward agreed to stop working with Ixchel to develop a dimethyl fumarate drug. Section 2.13 of the Forward-Biogen Agreement provides:

Ixchel. Each of the Additional Parties¹ and [Forward] shall, and shall cause each of its respective controlled Affiliates to, terminate any and all existing, and not enter into any new, Contracts² or obligations to Ixchel Pharma LLC, Dr. Gino Cortopassi [Ixchel’s CEO] and/or any other Person, to the extent related to the development by any of the Additional Parties, [Forward] or any of their respective controlled Affiliates of any pharmaceutical product having dimethyl fumarate as an [active pharmaceutical ingredient] for the treatment of a human for any indication, including Friedreich’s ataxia

.

Pursuant to this provision, Forward notified Ixchel that it was terminating the Collaboration Agreement and ceasing all work with Ixchel on the development of the new dimethyl fumarate drug, including work relating to the planned clinical trials.

Ixchel filed suit in district court against Biogen, asserting (1) tortious interference with contract; (2) intentional and/or negligent interference with prospective economic advantage; and (3) violations of California’s unfair competition law (UCL), which prohibits "any unlawful, unfair or fraudulent business act or practice," Cal. Bus. & Prof. Code § 17200.³

The district court dismissed Ixchel’s complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure. It determined that Ixchel had failed to state a claim for intentional interference with prospective economic advantage because Ixchel had failed to plead that Forward engaged in an independently wrongful act. For the same reason, the court held that Ixchel had failed to state a claim for tortious interference with contract. Acknowledging that such a claim does not ordinarily require a showing of an independently wrongful act, the district court concluded that Ixchel’s agreement with Forward constituted an at-will contract because Forward could terminate with 60-day notice, and therefore Ixchel was required to plead a wrongful act. Because the court dismissed these claims, the complaint failed to allege an unlawful practice actionable under the UCL, and so the court also dismissed the UCL claim. The district court granted Ixchel leave to amend.

In its amended complaint, Ixchel pleaded that Forward violated section 16600 of the California Business and Professions Code by entering into section 2.13 of the Forward-Biogen Agreement.⁴ Ixchel claimed that section 2.13 wrongfully restrained Forward from engaging in lawful business with Ixchel and therefore was void. By entering into an agreement that violated section 16600, Ixchel argued, Forward had committed an independently wrongful act. The district court disagreed, and again dismissed the complaint. The court reasoned that section 16600 barred only covenants not to compete between employer and employee, and therefore did not apply to section 2.13 of the Forward-Biogen Agreement. Ixchel timely appealed.⁵

II

We require the California Supreme Court’s guidance to resolve the parties’ dispute about the applicability of section 16600.

Prior to the enactment of section 16600, "contractual restraints on the practice of a profession, business, or trade, were considered valid, as long as they were reasonably imposed." Edwards v. Arthur Andersen LLP , 44 Cal. 4th 937, 945, 81 Cal.Rptr.3d 282, 189 P.3d 285 (2008). "However, in 1872 California settled public policy in favor of open competition, and rejected the common law ‘rule of reasonableness,’ when the Legislature enacted the Civil Code." Id. As interpreted by the California Supreme Court, section 16600 provides a broad right for individuals "to pursue any lawful employment and enterprise of their choice," and "an employer cannot by contract restrain a former employee from engaging in his or her profession, trade, or business unless the agreement falls within one of the exceptions to the rule." Id. at 946–47, 81 Cal.Rptr.3d 282, 189 P.3d 285 (internal quotation marks omitted).

The California Supreme Court expressly rejected the Ninth Circuit’s "narrow restraint" exception to section 16600, which held there was an exception to section 16600 for agreements that barred an individual "from pursuing only a small or limited part of the business, trade or profession." Id. at 948, 81 Cal.Rptr.3d 282, 189 P.3d 285. Instead, the California Supreme Court held that "[n]oncompetition agreements are invalid under section 16600 in California, even if narrowly drawn, unless they fall within the applicable statutory exceptions of sections 16601, 16602, or 16602.5." Id. at 955, 81 Cal.Rptr.3d 282, 189 P.3d 285.

In Golden v. California Emergency Physicians Medical Group , we read Edwards as extending beyond covenants not to compete between employers and their employees. 782 F.3d 1083, 1092–93 (9th Cir. 2015). Because the California Supreme Court "has articulated a broad understanding of what constitutes a void contract under section 16600," we concluded that the prohibition imposed by section 16600 extended to all "contractual restraints on professional practice" between employers and employees. Id. at 1093 ; see also Great W. Distillery Prods., Inc. v. John A. Wathen Distillery Co. , 10 Cal. 2d 442, 445–46, 74 P.2d 745 (1937) (applying section 16600 ’s...