Court Opinion

ID: 4417170
Source: CourtListenerOpinion
Date Created: 2019-07-16 17:00:27.469563+00
Date Added: 2024-06-11T14:24:38.427812
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

IXCHEL PHARMA, LLC,                  No. 18-15258
      Plaintiff-Appellant,
                                      D.C. No.
            v.                2:17-cv-00715-WBS-EFB

BIOGEN, INC.,                  ORDER CERTIFYING
     Defendant-Appellee.       QUESTIONS TO THE
                              CALIFORNIA SUPREME
                                    COURT

      Appeal from the United States District Court
         for the Eastern District of California
      William B. Shubb, District Judge, Presiding

         Argued and Submitted May 15, 2019
              San Francisco, California

                  Filed July 16, 2019

      Before: J. Clifford Wallace, Sandra S. Ikuta,
         and Morgan Christen, Circuit Judges.
2                  IXCHEL PHARMA V. BIOGEN

                            SUMMARY*

                California Law/Business Torts

    The panel certified to the California Supreme Court 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?

    *
      This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
                IXCHEL PHARMA V. BIOGEN                      3

                          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
4               IXCHEL PHARMA V. BIOGEN

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.
                  IXCHEL PHARMA V. BIOGEN                          5

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

    1
     The “Additional Parties” are defined as Aditech Pharma AG, NB FP
Investment General Partner ApS, NB FP Investment SLP ApS, and Tech
Growth Invest ApS. None of these entities is a party to this appeal.
6                   IXCHEL PHARMA V. BIOGEN

         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

    2
      “Contract” is defined as “any contract, agreement, deed, lease or
similar instrument, and any legally binding obligation, commitment,
arrangement or understanding, whether written or oral.”
    3
      Ixchel also brought antitrust claims under the Sherman Act and
California Cartwright Act but did not appeal the district court’s dismissal
of these claims for lack of antitrust standing.
                    IXCHEL PHARMA V. BIOGEN                       7

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

    4
        Section 16600 provides:

          Except as provided in this chapter, every contract by
          which anyone is restrained from engaging in a lawful
          profession, trade, or business of any kind is to that
          extent void.

Cal. Bus. & Prof. Code § 16600.
8                   IXCHEL PHARMA V. BIOGEN

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 (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 (internal quotation
marks omitted).

     5
       Biogen argues that we lack jurisdiction under Article III of the U.S.
Constitution because Ixchel has not suffered a concrete and particularized
injury required for Article III standing. See Spokeo, Inc. v. Robins, 136 S.
Ct. 1540, 1548 (2016). We conclude that Ixchel has adequately alleged
an injury-in-fact for purposes of Article III standing because it alleges that
the termination of the Collaboration Agreement resulted in the loss of a
$150,000 grant from the Friedrich’s Ataxia Research Alliance, as well as
other harms. Cf. Fleming v. Charles Schwab Corp., 878 F.3d 1146, 1551
(9th Cir. 2017). Accordingly, we have jurisdiction over this appeal.
                 IXCHEL PHARMA V. BIOGEN                      9

    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. 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.

    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 (1937)
(applying section 16600’s predecessor statute in the non-
employment setting).

    Neither the California Supreme Court, nor we, have
considered whether section 16600 extends beyond the
employment setting entirely to contractual restraints on
business operations. As Ixchel points out, nothing in the
plain language of the statute limits its applicability to the
employment setting. By its terms, it applies to contracts
restraining “anyone” from engaging in a lawful business of
any kind. Cal. Bus. & Prof. Code § 16600. The term
“anyone” is not defined, but to the extent it means “any
10              IXCHEL PHARMA V. BIOGEN

person,” Anyone, Webster’s New Int’l Dictionary (3d ed.
2002), other statutes regulating competition in the same
chapter define “person” to include “a corporation,
partnership, or other association,” Cal. Bus. & Prof. Code
§ 16604; see also id. § 16605 (same).

    Ixchel argues that under the interpretive approach
mandated by Edwards, section 16600 should be read broadly
to bar any contracts restraining a business from engaging in
a lawful business. Under such a reading, section 2.13 of the
Forward-Biogen Agreement would likely violate that
provision, Ixchel argues, because it precludes Forward from
entering into any new contract with Ixchel to develop new
drugs containing dimethyl fumarate. Further, Ixchel claims,
entering into a contract that is void pursuant to section 16600
is an unfair business practice, and therefore violates the
California UCL. See Dowell v. Biosense Webster, Inc.,
179 Cal. App. 4th 564, 575 (2009). A violation of the UCL
constitutes an independently wrongful act that is “proscribed
by some constitutional, statutory, regulatory, common law, or
other determinable legal standard.” Korea Supply Co. v.
Lockheed Martin Corp., 29 Cal. 4th 1134, 1159 (2003); cf.
Marsh v. Anesthesia Servs. Med. Grp., Inc., 200 Cal. App. 4th
480, 505 (2011). Therefore, Ixchel argues, it has stated an
independently wrongful act for purposes of its claims for
intentional interference with prospective economic advantage
and intentional interference with contract.

    In response, Biogen argues that section 16600 applies
only in the employment context. Biogen asserts that applying
section 16600 to any restraint of trade between two
businesses would be contrary to the rule of reason in the
federal antitrust context and invalidate ordinary commercial
restrictions and contracts. For instance, Biogen claims, such
                    IXCHEL PHARMA V. BIOGEN                              11

a broad interpretation of section 16600 would limit California
businesses’ ability to contract for exclusive-dealing
arrangements or a manufacturer’s location clause limiting
where its dealers can sell. See Golden, 782 F.3d at 1086; see
also Steven M. Perry & Sean F. Howell, A Tale of Two
Statutes: Cipro, Edwards, and the Rule of Reason,
24 Competition: J. Anti., UCL & Privacy Sect. St. B. Cal.
21–22 (2015) (“If the California Supreme Court in Edwards
did, in fact, intend to hold that all agreements restraining
trade are void, regardless of their procompetitive or limited
nature, then every joint venture, lease, distribution agreement,
license agreement and many other widely used business
agreements that fall under California law would be at
substantial risk of invalidation under section 16600.”).
According to Biogen, the California legislature could not
have intended such a broad application of this section.

    Because the applicability of section 16600 determines
whether the inclusion of section 2.13 in the Forward-Biogen
Agreement constituted an independently wrongful act, and
thus whether Ixchel has stated a claim that survives a motion
to dismiss, the California Supreme Court’s guidance on this
issue will decide this case.

                                    III

    We also require the California Supreme Court’s guidance
to resolve the parties’ dispute about whether a claim for
intentional interference with contractual relations requires the
plaintiff to plead and prove an intentionally wrongful act.6

    6
      We recognize that, should the California Supreme Court determine
that section 16600 of the California Business and Professions Code
applies to businesses as well as to individuals, it need not reach this issue
12                IXCHEL PHARMA V. BIOGEN

Biogen argues that under California law, the plaintiff must
plead such a wrongful act when the contract at issue may be
terminated at will by either party. Ixchel claims that this
wrongful-act requirement applies only in the context of at-
will employment contracts.

    The California Supreme Court has not yet resolved this
issue. Under long-standing California law, to prevail on a
cause of action for intentional interference with contractual
relations, a plaintiff must plead and prove “(1) a valid
contract between plaintiff and a third party; (2) defendant’s
knowledge of this contract; (3) defendant’s intentional acts
designed to induce a breach or disruption of the contractual
relationship; (4) actual breach or disruption of the contractual
relationship; and (5) resulting damage.” Pac. Gas & Elec. Co.
v. Bear Stearns & Co., 50 Cal. 3d 1118, 1126 (1990).

     The California Supreme Court subsequently determined
that in order to state a claim for an intentional interference
with contractual relations in the context of an at-will
employment contract, a plaintiff also has to plead an
independently wrongful act. Reeves v. Hanlon, 33 Cal. 4th
1140, 1152 (2004). The court’s determination was based on
a number of considerations. First, the Court held that
“[w]here no unlawful methods are used, public policy
generally supports a competitor’s right to offer more pay or
better terms to another’s employee, so long as the employee
is free to leave,” id. at 1151.

because Ixchel would have adequately pleaded an independently wrongful
act. We leave the order in which to answer these questions to the
discretion of the Court.
                IXCHEL PHARMA V. BIOGEN                     13

    Second, “[t]he interests of the employee in his own
mobility and betterment are deemed paramount to the
competitive business interests of the employers, where
neither the employee nor his new employer has committed
any illegal act accompanying the employment change.” Id.
(quoting Diodes, Inc. v. Franzen, 260 Cal. App. 2d 244, 255
(1968)).

    Third, the California Supreme Court reasoned that “the
economic relationship between parties to contracts that are
terminable at will is distinguishable from the relationship
between parties to other legally binding contracts.” Id.
Whereas an ordinary contract is generally “deemed worthy of
protection from interference by a stranger to the agreement,”
in circumstances where “a party to a contract with the
plaintiff is free to terminate the contractual relation when he
chooses,” then “any interference with it that induces its
termination is primarily an interference with the future
relation between the parties, and the plaintiff has no legal
assurance of them.” Id. Because “an interference as such is
primarily an interference with the future relation between the
contracting parties,” Reeves held that the “standard applicable
to claims for intentional interference with prospective
economic advantage” applied, meaning that “a plaintiff must
plead and prove that the defendant engaged in an
independently wrongful act—i.e., an act proscribed by some
constitutional, statutory, regulatory, common law, or other
determinable legal standard—that induced an at-will
employee to leave the plaintiff.” Id. at 1152–53 (internal
quotation marks omitted).

    Following Reeves, two different California Courts of
Appeal districts have suggested that Reeves does not apply
outside of the employment context. See Redfearn v. Trader
14              IXCHEL PHARMA V. BIOGEN

Joe’s Co., 20 Cal. App. 5th 989, 1003 (2018); Popescu v.
Apple Inc., 1 Cal. App. 5th 39, 62 (2016). According to
Popescu, Reeves was based on “the dual public policy
considerations of employee freedom of movement and
a business’s right to legitimately compete in the
marketplace.” 1 Cal. App. 5th at 62. Although “[t]hose
policy considerations apply when a former employer sues the
current employer for inducing its employee to terminate his
or her at-will employment,” they are not furthered when a
third party interferes with an at-will employment contract for
reasons unrelated to hiring an employee away from a
competitor (as in Popescu) or when the contract at issue is not
an employment contract. Redfearn, 20 Cal. App. 5th at
1004–05.

    The California Supreme Court has not spoken to whether
Reeves applies beyond the at-will employment context.
Although the reasoning in Reeves was based in part on the
policy of protecting employees’ interests, the California
Supreme Court also considered the special nature of a
contract that allowed a party “to terminate the contractual
relation when he chooses.” 33 Cal. 4th at 1151. As Reeves
explained, interference with a contract terminable at will was
more like an interference with the future relation between
the contracting parties, similar to claims for intentional
interference with prospective economic advantage. See id.
Reeves does not state that its rule is limited to the
employment context.

    In this case, the Collaboration Agreement was terminable
on 60-day notice by Forward. If Reeves is applicable to at-
will contracts outside the employment context, then Ixchel
must plead an independently wrongful act in order to state a
claim for intentional interference with contract. On the other
                IXCHEL PHARMA V. BIOGEN                     15

hand, if the Reeves rule applies only to at-will employment
contracts, then Ixchel has stated a claim for tortious
interference of contract that could survive a motion to dismiss
regardless of the California Supreme Court’s interpretation of
the applicability of section 16600. The California Supreme
Court’s answer to these questions will also be dispositive of
this issue, and we will follow its decision in this case.

                              IV

    The Clerk of Court is hereby directed to transmit
forthwith to the California Supreme Court, under official
seal of the Ninth Circuit, a copy of this order and request for
certification and all relevant briefs and excerpts of record
pursuant to California Rule of Court 8.548. Submission of
this case is withdrawn, and the case will be resubmitted
following receipt of the California Supreme Court’s opinion
on the certified questions or notification that it declines
to answer the certified questions.           The Clerk shall
administratively close this docket pending a ruling by the
California Supreme Court regarding the certified questions.
The panel shall retain jurisdiction over further proceedings in
this court. The parties shall notify the Clerk of this court
within one week after the California Supreme Court accepts
or rejects certification. In the event the California Supreme
Court grants certification, the parties shall notify the Clerk
within one week after the Court renders its opinion.

  CERTIFICATION REQUESTED; SUBMISSION
VACATED.
16              IXCHEL PHARMA V. BIOGEN

                           COUNSEL

For Plaintiff-Appellant:

Christopher Banys
Richard C. Lin
Banys, P.C.
1030 Duane Avenue
Santa Clara, California 95054
(650) 308-8505

For Defendant-Appellee:

Mark S. Popofsky
Ropes & Gray LLP
2099 Pennsylvania Ave., NW
Washington, D.C. 20006
(202) 508-4624

Rocky Tsai
Ropes & Gray LLP
Three Embarcadero Center
San Francisco, California 94111
(415) 315-6358