Source: https://law.justia.com/cases/federal/appellate-courts/F3/136/1317/553615/
Timestamp: 2020-06-06 05:37:13
Document Index: 563471463

Matched Legal Cases: ['§ 1331', '§ 1357', '§ 1689', '§ 1577', '§ 1577', '§ 11', '§ 1689', '§ 1572', '§ 2', '§ 2', '§ 2', '§ 1573', '§ 1689']

Daniel W. Bradley, Plaintiff-appellant, v. Chiron Corporation, William J. Rutter, Edward E. Penhoet,michael Houghton, Qui Lim Choo, George Kuo Andortho Diagnostic Systems, Inc.,defendants-appellees, 136 F.3d 1317 (Fed. Cir. 1998) :: Justia
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Daniel W. Bradley, Plaintiff-appellant, v. Chiron Corporation, William J. Rutter, Edward E. Penhoet,michael Houghton, Qui Lim Choo, George Kuo Andortho Diagnostic Systems, Inc.,defendants-appellees, 136 F.3d 1317 (Fed. Cir. 1998)
US Court of Appeals for the Federal Circuit - 136 F.3d 1317 (Fed. Cir. 1998) Feb. 20, 1998
Daniel W. Bradley, a research scientist employed until 1994 at the Centers for Disease Control and Prevention (CDC) in Georgia, brought suit in the United States District Court for the Northern District of California, seeking to rescind a settlement agreement he had entered into with Chiron Corporation. He also requested declaration of his inventorship of certain patents, damages, and other monetary relief. The defendants (collectively "Chiron") moved to dismiss the original complaint pursuant to Fed. R. Civ. P. 12(b) (6) for failure to state a claim upon which relief could be granted.1 Dr. Bradley amended his original complaint as of right, and the defendants moved to dismiss the amended complaint pursuant to Rule 12(b) (6). The district court held that Dr. Bradley had not pled facts sufficient to state a claim upon which relief could be granted. However, the court granted leave to amend the first amended complaint to state additional facts in support of the asserted ground of unilateral mistake. Bradley v. Chiron Corp., No. C 94-04342 CW (N.D. Cal. Nov. 15, 1995) (order). Dr. Bradley then filed a second amended complaint. In this complaint he made several factual allegations that differed from the allegations in the first amended complaint. The district court struck the changed allegations as false and sham, and then dismissed the complaint. Bradley v. Chiron Corp., No. C 94-04342, 1996 WL 441022 (N.D. Cal. Jul. 15, 1996) (order). Dr. Bradley challenges the dismissal, asserting that his pleadings contained facts sufficient to support rescission of the settlement agreement, and that the changed allegations did not warrant being struck.
Federal Circuit jurisdiction of this appeal derives from the counts for declaration of inventorship and unenforceability under the patent laws. See 28 U.S.C. §§ 1331, 1338(a), 1295(a) (1). For the reasons we shall discuss, the decision of the district court is affirmed.
In keeping with the rules governing dismissal under Rule 12(b) (6) the factual statements in the complaint are accepted as true. The dismissal of a claim under Rule 12(b) (6) is proper only when, on the complainant's version of the facts, the premises of a cognizable claim have not been stated. Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S. Ct. 2229, 2232-33, 81 L. Ed. 2d 59 (1984); Advanced Cardiovascular Systems, Inc. v. Scimed Life Systems, Inc., 988 F.2d 1157, 1160, 26 USPQ2d 1038, 1041 (Fed. Cir. 1993); Epstein v. Washington Energy Co., 83 F.3d 1136, 1139 (9th Cir. 1996). The appellate court, like the district court, tests the sufficiency of the complaint as a matter of law, accepting as true all well-pleaded allegations of fact, construed in the light most favorable to the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S. Ct. 1683, 1686, 40 L. Ed. 2d 90 (1974); Advanced Cardiovascular, 988 F.2d at 1160-61, 26 USPQ2d at 1041; NL Industries, Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). Conclusory allegations of law and unwarranted inferences of fact do not suffice to support a claim. See Epstein, 83 F.3d at 1140; see also 5A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1357 at 315-18 (1990).
Under California law2 settlement of disputes is a strongly favored public policy, for settlement reduces costs for all parties, conserves judicial and private resources, and promotes good will. Neary v. Regents of the Univ. of California, 3 Cal. 4th 273, 10 Cal. Rptr. 2d 859, 860-61, 834 P.2d 119, 121 (1992); cf. Foster v. Hallco Mfg. Co., 947 F.2d 469, 477, 20 USPQ2d 1241, 1247 (Fed. Cir. 1991) (there is a "strong public interest" in settlements). In Neary the court observed that " [t]he need for settlements is greater than ever before" and " [w]ithout them our system of civil adjudication would quickly break down." 10 Cal. Rptr. 2d at 861, 834 P.2d at 121 (citations omitted). Although the courts well recognize the public as well as private interest in the finality of settlements, as for all contracts a settlement will not be enforced if it is tainted by fraud or another condition that warrants its rescission.
The policy favoring settlement is bolstered by the rule that "a party who signs a written agreement generally is bound by its terms, even though he neither reads it nor considers the legal consequences of signing it." Operating Eng'rs Pension Trust v. Gilliam, 737 F.2d 1501, 1504 (9th Cir. 1984). Accordingly, rescission based on unilateral mistake, although available, see Cal. Civ.Code § 1689(b) (1) (West 1997), requires either a showing that the mistaken party did not neglect a legal duty, or a showing that the nonmistaken party knew of the mistake:
The rules of pleading require that "the circumstances constituting fraud or mistake shall be stated with particularity," Fed. R. Civ. P. 9(b); see In re GlenFed, Inc., 60 F.3d 591, 593 (9th Cir. 1995), and Dr. Bradley filed a detailed complaint containing facts on which he based his assertions that he had made mistakes of both fact and law. Chiron argued that the complaint did not show either a mistake of fact or a mistake of law as those claims have been codified in §§ 1577 and 1578.
The district court concluded that the contract provisions were unambiguous, fully consistent as written, and not consistent as construed by Dr. Bradley. We agree with the district court's reading of the contract. It is "the general rule of law in California" that "when a person with the capacity of reading and understanding an instrument signs it, he is, in the absence of fraud and imposition, bound by its contents, and is estopped from saying that its provision is contrary to his intentions or understanding." Dobler v. Story, 268 F.2d 274, 277 (9th Cir. 1959). The district court concluded that if Dr. Bradley were in fact mistaken it was due to his neglect of the legal duty imposed by Cal. Civ.Code § 1577.
Whitney Co. v. Johnson, 14 F.2d 24, 25-26 (9th Cir. 1926). See also Taff v. Atlas Assurance Co., 58 Cal. App. 2d 696, 137 P.2d 483, 487 (1943) (the "experience and intelligence of plaintiff [are] factors to prove his neglect" of a legal duty).
The district court did not err in requiring the pleading of facts sufficient to show that, in the absence of fraud and misrepresentation, Dr. Bradley had complied with the duty to obtain legal advice appropriate to the circumstances. The weight of public policies favoring settlement of disputes, the integrity of contracts, and the stability of agreements that had been fully performed by a party, require "reasonable inquiry to ascertain or effort to understand the meaning and content of the contract upon which one relies." Wal-Noon Corp. v. Hill, 45 Cal. App. 3d 605, 119 Cal. Rptr. 646, 652 (1975).
However, the district court granted Dr. Bradley leave to amend the complaint in order to allege facts to show that he had not neglected his legal duty to use reasonable care to understand the agreement before signing it. The court stressed the need to show "a plausible meaning or effect he mistakenly understood," to support the position that he acted reasonably. See Roller v. California Pacific Title Ins. Co., 92 Cal. App. 2d 149, 206 P.2d 694, 697 (1949) (a person alleging a mistake with respect to a writing must have exercised "at least the degree of diligence 'which may be fairly expected from a reasonable person' " (quoting Grymes v. Sanders, 93 U.S. (3 Otto) 55, 61, 23 L. Ed. 798 (1876))).
The district court pointed out the discrepancies between the second and the first amended complaints, and struck the new facts as "false and sham." See Ellingson v. Burlington Northern, Inc., 653 F.2d 1327, 1329-30 (9th Cir. 1981) (a trial judge has the authority to strike pleadings that are "false and sham"); see generally 2 James Wm. Moore, Moore's Federal Practice § 11.24 at 11-55 (Rel. Mar. 1997). The district court described Dr. Bradley's changed recitations as a transparent attempt to conform the facts to the requirements of the cause of action. The court drew analogy to Schwartz v. Esmark, Inc., No. 78-C-1909 (N.D. Ill. Mar. 31, 1990) wherein a plaintiff, in order to avoid dismissal of his case due to the lapsing of the statute of limitations, amended his complaint and changed his account of when certain events occurred. The court in Schwartz remarked that the "plaintiff could not, in good faith, have so diametrically reversed his recollection and position between the time of the filing of his original complaint and that of his second amended pleading." No. 78-C-1909 (N.D. Ill. Mar. 31, 1990); see 1996 WL 441022 at * 4 (quoting Schwartz) . Similarly, the district court in the case at bar pointed out that Dr. Bradley's original and first amended complaints were written a year earlier and thus represented a fresher recollection, remarking that "the original complaint was 104 pages in length (excluding glossary, exhibit list and exhibits), and clearly constituted a comprehensive statement of Plaintiff's allegations and claims." 1996 WL 441022 at * 5. The court remarked on the consistency between the original and first amended complaints, and suggested that Dr. Bradley's position on the facts was then "fixed and clear." Id. Although Dr. Bradley in his brief explains the changed facts as an "eventual recollection," the district court did not abuse its discretion in rejecting the changes as sham.
Although Dr. Bradley in his brief describes these differences as "hardly material," we must agree with the district court that the new pleadings exceeded permissible adjustment of factual allegations. See Reddy v. Litton Industries, Inc., 912 F.2d 291, 296 (9th Cir. 1990) (grant of leave to amend is grounded on expectation of facts reasonably consistent with those already pled). The allegations were changed in material ways that were not adequately explained. The district court did not err in concluding that "as in Schwartz [v. Esmark, supra ], Plaintiff's self-serving explanation [that he was simply complying with the trial court's directive to state the circumstances surrounding his mistakes] lacks credibility." 1996 WL 441022 at * 5.
Dr. Bradley stresses the liberal pleading policy of the Federal Rules, citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 101-02, 2 L. Ed. 2d 80 (1957). He argues that since an amended complaint supersedes any prior pleadings, consistency is irrelevant, citing King v. Atiyeh, 814 F.2d 565 (9th Cir. 1987) and International Controls Corp. v. Vesco, 556 F.2d 665 (2d Cir. 1977); and that the court is obligated to accept the second amended complaint as filed and to construe the allegations in a manner most favorable to him. The district court observed that the second amended complaint was filed not as of right, but pursuant to leave to amend, and held that "the amended complaint may only allege 'other facts consistent with the challenged pleading.' " 1996 WL 441022 at * 3 (quoting Reddy, 912 F.2d at 296 (internal citations omitted)). We agree that the court was not required to accept as true the inconsistent allegations in the second amended complaint. Neither Conley v. Gibson nor the other cases cited by Dr. Bradley hold otherwise.
Fraud is a ground for contract rescission. See Cal. Civ.Code § 1689(b) (1) (West 1997). The charge of actual fraud requires that the accused party made a material representation or omission with knowledge of its falsity, with the intent to deceive, or to induce the other party to enter into the contract. The accused party must have intentionally induced a misunderstanding of the contract terms, or known of it and fostered it. See Cal. Civ.Code § 1572 (West 1997).
Dr. Bradley alleged that Chiron defrauded him by failing to submit the issue of inventorship to the PTO, as Dr. Bradley expected under § 2.3 of the agreement. He also alleged that although there was no contact between Chiron and Dr. Bradley, Chiron fraudulently induced him to enter into the agreement by writing § 2.3 in a way that led him to believe that inventorship would be resolved by the PTO, despite the prohibition in § 2.2 against his maintaining an interfering patent application. Dr. Bradley thus acknowledged that his allegation of fraudulent misrepresentation by Chiron was based on his reading of the contract provisions, and not on any communication from Chiron. Chiron responds that any patent attorney could have advised Dr. Bradley on PTO procedures, and that Chiron had no special knowledge that it withheld. Cf. Cohen v. Wedbush, Noble, Cooke, Inc., 841 F.2d 282, 287 (9th Cir. 1988) (plaintiffs' failure to inquire about the ramifications of arbitration clause precluded fraud claim); Lingsch v. Savage, 213 Cal. App. 2d 729, 29 Cal. Rptr. 201, 206 (1963) (rejecting fraud claim where alleged misrepresentations went to facts that were not "beyond the reach of the plaintiff").
Dr. Bradley also argues that he stated a claim of constructive fraud under Cal. Civ.Code § 1573 (West 1996). An action for constructive fraud requires a confidential or fiduciary relationship. Odorizzi v. Bloomfield School District, 246 Cal. App. 2d 123, 54 Cal. Rptr. 533 (1966). Although Dr. Bradley states that there was a confidential collaboration between himself and Chiron, it is not alleged that a relationship of trust existed when the contract was entered into. Nor did Chiron have a duty to explain the contract terms to Dr. Bradley. See Cohen, 841 F.2d at 287 ("We know of no case holding that parties dealing at arm's length have a duty to explain to each other the terms of a written contract"). We do not discern error in this position. See Racine & Laramie, Ltd. v. California Dep't of Parks and Recreation, 11 Cal. App. 4th 1026, 14 Cal. Rptr. 2d 335, 339 (1992) (implied covenants of good faith and fair dealing are limited to assuring compliance with the express terms of the contract and can not be extended to create obligations not contemplated in the contract).
In the second amended complaint Dr. Bradley provided additional pleadings directed to the fraud claim. The district court had not authorized this amendment to the complaint, and declined to receive it. Dr. Bradley states that this is error, and that he perfected the fraud claim in his second amended complaint. We review this action for abuse of discretion, Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 331-32, 91 S. Ct. 795, 802-03, 28 L. Ed. 2d 77 (1971); see Allwaste, Inc. v. Hecht, 65 F.3d 1523, 1530 (9th Cir. 1995). The liberal pleading requirements of the Federal Rules encourage the grant of leave to amend, Foman v. Davis, 371 U.S. 178, 182, 83 S. Ct. 227, 230, 9 L. Ed. 2d 222 (1962), unless such amendment would not cure the flaw in the pleadings. See Bonin v. Calderon, 59 F.3d 815, 845 (9th Cir. 1995) (the court may deny leave to amend when the amendment would be futile).
California law permits rescission of an agreement " [i]f the consideration for the obligation of the rescinding party fails, in whole or in part, through the fault of the party as to whom he rescinds." Cal. Civ.Code § 1689(b) (2) (West 1997). The right to rescission for failure of consideration exists if the failure is material or goes to the essence of the contract. Wyler v. Feuer, 85 Cal. App. 3d 392, 149 Cal. Rptr. 626, 633 (1978).
For substantive issues not exclusively assigned to the Federal Circuit, we apply the law and look to the precedent of the forum in which the case was tried. Sun Studs, Inc. v. Applied Theory Assoc., Inc., 772 F.2d 1557, 1561, 227 USPQ 81, 83 (Fed. Cir. 1985). The forum state's conflict of law rules apply. Erie Railroad v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938). California applies the law of the state having the "most significant relationship" to the case. Grant v. McAuliffe, 41 Cal. 2d 859, 264 P.2d 944 (1953). The district court, without objection by either party, applied California contract law. Chiron now argues that "federal common law" applies to contracts to which the government is a party. Because Chiron did not object to the district court's choice of California law as governing the contract issues, we apply California contract law