Mycogen Corp. v. Monsanto Co.

• Citation: 51 P.3d 297,28 Cal.4th 888,123 Cal.Rptr.2d 432
• Decision Date: 08 August 2002
• Docket Number: No. S090337.,S090337.
• Parties: MYCOGEN CORPORATION et al., Plaintiffs and Appellants, v. MONSANTO COMPANY, Defendant and Respondent. Mycogen Plant Science, Inc., Plaintiff and Appellant, v. Monsanto Company, Defendant and Respondent.
• Court: United States State Supreme Court (California)

123 Cal.Rptr.2d 432

28 Cal.4th 888

51 P.3d 297

MYCOGEN CORPORATION et al., Plaintiffs and Appellants, v. MONSANTO COMPANY, Defendant and Respondent.

Mycogen Plant Science, Inc., Plaintiff and Appellant, v. Monsanto Company, Defendant and Respondent.

No. S090337.

Supreme Court of California.

August 8, 2002.

Hayes Simpson Greene, Foley & Lardner, Kenneth S. Klein; Brobeck, Phleger & Harrison, Daniel G. Lamb, Jr., San Diego, Kristen E. Caverly, Kelly C. Wooster, Thomas M. Peterson, San Francisco, and Brett M. Schulman for Plaintiffs and Appellants.

Geoffrey C. Hazard, Jr., as Amicus Curiae on behalf of Plaintiffs and Appellants.

Horvitz & Levy, Ellis J. Horvitz, David M. Axelrad, Jon B. Eisenberg, Andrea M. Gauthier, Encino; Steptoe & Johnson, Lawrence P. Riff, Laurence F. Janssen, Jay E. Smith, Los Angeles; and E. Allan Farnsworth for Defendant and Respondent.

Sedgwick, Detert, Moran & Arnold, Kevin J. Dunne, Frederick D. Baker and Kirk C. Jenkins, San Francisco, for Lawyers for Civil Justice as Amicus Curiae on behalf of Defendant and Respondent.

Rex R. Perschbacher as Amicus Curiae on behalf of Defendant and Respondent.

Walter W. Heiser as Amicus Curiae.

MORENO, J.

This consolidated matter arises out of three appeals from two related actions involving continuing litigation over a license agreement between Mycogen Plant Science, Inc. (MPS) and Monsanto Company (Monsanto) concerning technology to produce genetically altered plant seeds. In the initial action, MPS sought, and was granted, declaratory relief finding that Monsanto had a contractual duty to license its technology to MPS, as well as an order for specific performance requiring Monsanto to do so. MPS later unsuccessfully sought to have Monsanto held in contempt for failure to comply with that order. MPS subsequently filed a second lawsuit seeking damages for breach of the same license agreement. We granted review to decide whether the second action was barred under the doctrine of res judicata. We conclude that it was barred. Accordingly, we affirm the judgment of the Court of Appeal.

I

Monsanto develops transgenic plant seed technology, in which genes for specific desirable qualities, such as resistance to pests and herbicides, are transplanted from the seeds of one species to the seeds of another. Developing commercially marketable seeds with these qualities is a complex, lengthy, and costly process. After a new gene with the desirable characteristics is developed in the laboratory, it must be inserted into a cell; the transformed cell of plant material is called "germplasm." It then can be developed into a fertile plant, which can be cross-bred, field-tested, and, finally, seeds can be produced in commercial quantities for marketing.

In 1989, Monsanto entered a license agreement with Lubrizol Genetics, Inc. (LGI), the predecessor of MPS, providing, among other things, that LGI had an option to negotiate licenses for Monsanto's reengineered genes in corn, cotton, and canola. The agreement did not specify the licensing terms, providing only that the license shall "have terms as favorable [to LGI] as any other third party licensee." At that time, the technology for producing commercially viable crop seed from these genes was in its early stages.¹

In 1992, Mycogen Corporation acquired control of LGI, which it renamed Mycogen Plant Science, Inc. In 1993, MPS, as the successor-in-interest to LGI, sought to exercise an option under the license agreement for Monsanto's gene technology. It warned that any delay in obtaining Monsanto gene technology would "result in substantial damages" and urged that "[t]ime is of the essence for us." Monsanto refused to negotiate licenses, asserting that the agreement was nontransferable.

In 1993, MPS commenced an action (hereinafter Mycogen I) for declaratory relief and specific performance of the license agreement. Notably, MPS did not seek monetary damages. After the parties brought cross-motions for summary judgment, the superior court granted summary judgment for Monsanto; MPS appealed. In 1996, the Court of Appeal reversed the summary judgment in favor of Monsanto and remanded the matter with directions to enter summary judgment in favor of MPS. (D021481 [nonpub. opn.].) The resulting judgment declared, among other things, that MPS was entitled to the benefits of LGI's license agreement and had validly exercised the option under that agreement. The judgment further ordered Monsanto to "specifically perform the relevant terms of the Agreement" by licensing Monsanto's gene technology to MPS and by disclosing the terms of any third party license agreements. The superior court retained jurisdiction to grant MPS "any further relief against Monsanto "as may be necessary and appropriate to actuate the Court's declaration."

Monsanto and MPS failed to agree on what technology MPS was entitled to under the terms of the license agreement. Although Monsanto provided MPS with genes in solution, MPS asserted that Monsanto was obligated to provide MPS not only with genes, but also with germplasm, which would have accelerated its efforts to produce commercially viable seeds. In 1997, Monsanto tendered draft licenses for the same genes in solution; MPS refused to negotiate and the parties did not reach agreement on licensing.

In 1997, hoping to obtain germplasm pursuant to the order for specific performance, MPS initiated contempt proceedings in Mycogen I. MPS alleged that the judgment required Monsanto to deliver germplasm rather than genes alone. In July of 1997, the superior court ruled that Monsanto was not in contempt of the judgment in Mycogen I because the judgment did not clearly and unambiguously obligate Monsanto to provide germplasm. A post-judgment order imposed sanctions against MPS pursuant to Code of Civil Procedure section 128.5,² ruling that the contempt action was frivolous. MPS appealed this ruling. (D032171.)³

In 1996, after the Court of Appeal issued its decision in Mycogen I but before the superior court entered the final judgment, MPS and two of its affiliates commenced a second action in superior court against Monsanto (San Diego County, No. 699882; hereinafter Mycogen II). In Mycogen II, MPS sued Monsanto for breach of the same license agreement that was the subject of Mycogen I. The suit alleged, among other things, that Monsanto breached the licensing agreement by refusing to allow MPS to exercise its option rights. In contrast to the earlier action, MPS now sought money damages, including lost profits from its inability to compete in the market for transgenic seed as a result of Monsanto's breach. Monsanto successfully demurred to the initial complaint on a theory of res judicata.⁴ MPS then filed an amended complaint, which withstood further demurrer, adding new allegations of a continuing breach of the licensing agreement.⁵

Subsequently, the contempt proceedings under Mycogen I and MPS's breach of contract action in Mycogen II were coordinated by the superior court.⁶ The court first held a hearing to determine whether MPS was entitled to genes or germplasm under the 1989 license agreement. Following that hearing, the court ruled in favor of Monsanto, finding that under the terms of the license agreement, Monsanto was obliged only to license genes and improvements to genes, as opposed to licensing the germplasm desired by MPS.

Finally, in 1998, a jury trial commenced in Mycogen II. MPS sought damages for losses from Monsanto's breach, beginning in 1993 and including lost future profits from certain seed sales every year "to perpetuity." After the trial judge entered a directed verdict on the issue of breach of contract, the jury awarded MPS $174.9 million in damages. Monsanto appealed. (D031336.)

In appealing the verdict, Monsanto argued that the doctrine of res judicata precluded MPS from recovering damages in Mycogen II after obtaining specific performance in Mycogen I. According to Monsanto, its contract with MPS was totally breached when Monsanto refused to perform and repudiated the license agreement in 1993 after MPS first attempted to exercise its option, giving rise to a single cause of action. MPS therefore could not recover money damages in a second lawsuit on the identical single cause of action. In response, MPS contended that res judicata did not apply because Monsanto was under a continuing duty to tender licenses for gene technology after MPS sought to exercise its option in 1993, but repeatedly refused to do so. The Court of Appeal rejected MPS's argument, concluding that "[i]t is not a fair characterization of this record to contend that several hypothetical, successive breaches [after Monsanto repudiated the license agreement] occurred on a continuing basis. The definitive breach was in 1993, giving rise to any rights to relief at that time."

The Court of Appeal reversed the judgment of the superior court in Mycogen II, holding that this action was barred by the doctrine of res judicata. The court reasoned that in Mycogen I, MPS had elected the equitable remedy of specific performance, as opposed to the legal remedy of damages, for Monsanto's breach of contract. Although a plaintiff may also obtain an award in equity of monetary relief incidental to a decree of specific performance—for example to fully vindicate its contractual rights—MPS did not seek such relief in its first action. Instead, it brought a second action seeking the legal remedy of damages based on the same breach of contract. This it could not do; the cause of action in Mycogen I must be deemed merged into the judgment, and the judgment serves as a bar to any subsequent lawsuit containing the same cause of action for breach of contract, i.e., "as to those issues litigated or that could have been litigated regarding the delivery of the requested Monsanto technology." The Court of Appeal concluded: "That MPS chose initially to seek only specific performance is not a reason to excuse it from its...