The Florey Institute of Neuroscience and Mental Health v. Kleiner Perkins Caufield & Byers et al

Filing 41

Order by Hon. Samuel Conti granting in part and denying in part 30 Motion to Dismiss.(sclc2, COURT STAFF) (Filed on 9/26/2013)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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United States District Court

For the Northern District of California

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)
)
THE FLOREY INSTITUTE OF
)
NEUROSCIENCE AND MENTAL HEALTH, )
)
Plaintiff,
)
)
v.
)
)
KLEINER PERKINS CAUFIELD &
)
BYERS, DOMAIN ASSOCIATES LLC,
)
SEARS CAPITAL MANAGEMENT, CAXTON )
ADVANTAGE VENTURE PARTNERS LP, )
STANLEY E. ABEL, AND PETER M.
)
BREINING,
)
)
Defendants.
)
)

Case No. CV 12-6504 SC
ORDER GRANTING IN PART AND
DENYING IN PART MOTION TO
DISMISS

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I.

21

INTRODUCTION
Now before the Court is the above-captioned Defendants' motion

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to dismiss Plaintiff the Florey Institute of Neuroscience and

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Mental Health's ("Plaintiff") complaint.

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("MTD").

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("Reply"), 39-1 ("Surreply").

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appropriate for resolution without oral argument.

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1(b).

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The motion is fully briefed.

ECF Nos. 1 ("Compl."), 30

ECF Nos. 32 ("Opp'n"), 35

The Court finds the matter
Civ. L.R. 7-

The Court GRANTS Defendants' request for judicial notice

1

("RJN"), ECF No. 31, under Federal Rule of Evidence 201, and takes

2

under advisement Plaintiff's response to the RJN, ECF No. 34.

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that document, Plaintiff makes clear that it does not object to the

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Court's granting Defendants' request but reserves its right to

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object to the documents later, under other Rules of Evidence.
As discussed below, the Court GRANTS in part and DENIES in

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7

In

part Defendants' motion to dismiss.

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9 II.

United States District Court

For the Northern District of California

10

BACKGROUND
Plaintiff is an Australian brain research organization.

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Compl. ¶¶ 1-3, 12.

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relaxin, a naturally occurring peptide whose many uses include

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treating acute heart failure.

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possesses intellectual property and know-how concerning relaxin's

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pharmaceutical applications, Plaintiff itself does not

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commercialize relaxin.

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with outside firms that seek to do so.

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Plaintiff for the use of its know-how and other intellectual

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property.

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Plaintiff conducts extensive research into

See id. ¶¶ 5, 9.

See id. at ¶¶ 9-11.

Though it

Instead, it partners

These firms tend to pay

In 1982, Plaintiff partnered with Genentech, Inc. to share

21

know-how, materials, and funding.

Id. ¶¶ 24-25.

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the "1982 Agreement," Genentech agreed to pay Plaintiff royalties

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on the proceeds of the net sales price of any relaxin-related

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products, and a third of any other payments Genentech received for

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sublicensing related to Plaintiff's technology.

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1982 and 1987, Plaintiff and Genentech worked closely to solve

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difficult problems in recombinant DNA technology relating to

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relaxin's commercial production.

Id. ¶¶ 24-26.

2

In a contract,

Id. ¶ 25.

Between

In 1987, Genentech

1

and Plaintiff re-executed an amended agreement (the "1987

2

Agreement") that added a term granting Plaintiff payments in the

3

event of a successful clinical trial.

Id. ¶ 27.

4

In 1993, Genentech established a separate entity that became

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Connectics Corporation ("CNCT"), which would continue work on the

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relaxin project, and to which Genentech would provide an exclusive

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sublicense of Plaintiff's technology.

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Genentech permission to do so, resulting in a 1993 sublicensing

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agreement from Genentech to CNCT (the "1993 Sublicense").

Id. ¶ 28.

Plaintiff granted

Id. ¶

United States District Court

For the Northern District of California

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29.

In 1994 that agreement was replaced by an amendment that

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granted Genentech the right to receive royalties on any licensed

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product sales by CNCT, and CNCT in turn agreed to pay Plaintiff

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royalties and other payments that would be due from Genentech per

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the 1982 Agreement.

Id. ¶ 30.

In 1995, CNCT told Plaintiff that it wanted to enter a new

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16

research agreement.

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authority to negotiate an amendment to the 1987 Agreement directly

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with CNCT.

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agreement, because it believed the high rate would deter corporate

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partners, so it proposed reducing the royalty rate and adding terms

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that would give Plaintiff a share of future up-front and milestone

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payments paid by CNCT's future drug-development partners.

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Such partners would be necessary for this project, since CNCT was

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too small to develop and commercialize relaxin by itself.

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32.

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Id.

Id. ¶ 31.

Genentech granted Plaintiff

CNCT wanted to reduce the royalty rate under that

CNCT and Plaintiff negotiated between 1995 and 1998.

Id.

Id. ¶

Id. ¶¶

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32-34.

Plaintiff alleges that during these negotiations, it was

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concerned that CNCT might try to avoid future payment obligations

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1

to structure future drug-development agreements in a way that would

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allow it to avoid having to pay Plaintiff.

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Plaintiff states that it feared the possibility of CNCT structuring

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a partnership deal in a way that would allow a drug-development

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partner to pay CNCT for the use of Plaintiff's IP and know-how

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without falling under the term of the agreement that would require

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CNCT to give Plaintiff a portion of those payments.

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CEO apparently told Plaintiff that its concerns were unfounded and

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that it would never do such a thing, so Plaintiff agreed to enter a

United States District Court

For the Northern District of California

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new research agreement with CNCT.

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Id. ¶ 34.

For example,

Id.

CNCT's

Id.; Defs.' RJN Ex. A ("1998

Agreement").

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The new agreement reduced Plaintiff's royalties, granted CNCT

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a license to Plaintiff's IP and know-how, and required CNCT to pay

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Plaintiff 3 percent of the future net sales of a relaxin-based

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product, 1 percent of up-front payments from drug-development

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partners, and 15 percent of development milestone payments from its

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"Partner," defined as "a third party who has entered into an

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agreement with CNCT for the manufacture, use or sale of a Licensed

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Product," with "Licensed Product" referring to relaxin-based

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products.

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CNCT entered various sublicensing agreements with drug-development

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partners that were seeking to develop relaxin for the treatment of

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scleroderma, an autoimmune disease, and it paid Plaintiff the

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required up-front and milestone fees associated with those

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development programs.

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development efforts after its clinical trials for scleroderma were

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deemed unsuccessful, and in 2002, its relaxin team established a

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new commercial entity, Corthera (then called BAS Medical, Inc.).

Id. ¶ 36; 1998 Agreement ¶ 1.3.

Id. ¶¶ 37-39.

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Between 1998 and 2001,

In 2001, CNCT ceased its

In 2003, Defendants Kleiner Perkins and Breining, a Corthera

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founder, approached Plaintiff to seek assignment of the relaxin-

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related license from CNCT to Corthera.

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Corthera negotiated an amendment to the 1998 Agreement that

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extended the agreement's terms, permitted assignment of CNCT's

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rights and obligations under the 1998 Agreement to Corthera, and

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further reduced Plaintiff's royalty rates to 2 percent of net

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sales.

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percent up-front payments and 15 percent milestone payments,

Id. ¶ 41.

In 2003,

Id. ¶¶ 42-44; Defs.' RJN Ex. B ("2003 Agreement").

The 1

United States District Court

For the Northern District of California

10

described in the 1998 Agreement, would remain the same.

Id.

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Corthera's rationale for negotiating these changes was the same as

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CNCT's: it was too small to commercialize relaxin itself, so it

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needed to license Plaintiff's IP and know-how to a bigger partner,

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which might balk at the royalty payments -- thus the change in

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payment terms.

See id.

From 2003 through 2009, Plaintiff and Corthera collaborated on

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relaxin research.

Id. ¶¶ 45-49.

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Perkins and other yet-unknown defendants -- funders and board

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members of Corthera -- recruited Defendant Abel as CEO of Corthera,

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and Corthera switched its relaxin focus to cardiovascular

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treatment.

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he thought Corthera could grow into a public company if it could

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partner with a drug-development company to take a relaxin-based

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cardiac treatment program through phase III clinical trials.

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47.

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and initiated phase III clinical trials in October 2009.

Id. ¶ 46.

In 2007, Defendants Kleiner

In 2008, Defendant Abel told Plaintiff that

Id. ¶

Corthera completed its phase II clinical trials in March 2009
Id. ¶ 48.

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The following facts go to the core of Plaintiff's complaint.

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In December 2009, Plaintiff learned from a press release that the

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pharmaceutical company Novartis had agreed to purchase Corthera up-

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front for $120 million in cash, characterized as a stock-purchase

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agreement that would leave Corthera as a wholly owned subsidiary of

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Novartis.

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Defs.' RJN Exs. C ("Merger Agreement"), E ("Merger Certificate").

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Corthera had apparently not given Plaintiff notice of the sale or

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provided it with documentation related to the sale or any putative

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assignments of rights in Plaintiff's IP.

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Id. ¶ 49; Defs.' RJN Ex. D ("Press Release"); see also

Id.

According to the press release through which Plaintiff learned

United States District Court

For the Northern District of California

10

of the sale, Novartis would pay Corthera's shareholders up to $500

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million in milestone payments related to relaxin commercialization,

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as well as up-front payments.

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Agreement confirms this.

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made from Novartis to Corthera's shareholders, contingent on

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Corthera and Novartis's using diligent efforts to achieve the

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milestone events.

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Corthera a wholly owned subsidiary of Novartis and converted all

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existing Corthera stock to cash and contingent rights to receive

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additional cash based on those milestone payments.

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Defs.' RJN Ex. E.

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Id. ¶¶ 49, 52-53.

The Merger

It sets out six milestone payments to be

Merger Agreement ¶¶ 9.1-9.3.

The merger made

Compl. ¶ 49;

The key language from the original 1998 Agreement, as amended
by the 2003 Agreement, is as follows:
5.2. Revenue Received from Partners
(a) CNCT shall pay [Plaintiff] one
percent
(1%)
of
Up-front
Payments
[defined as payments "from a Partner in
the nature of a one-time license fee,
option fee or like payment on account
of the grant by CNCT . . . of a license
. . . to manufacture, use or sell
Relaxin . . . ."]
(b) CNCT shall pay [Plaintiff] fifteen
percent (15%) of the Net Revenues, if

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any: (i) from payments received by CNCT
from a Partner for the achievement of
key
development
milestones
(e.g.,
initiation of Phase III studies, BLA
filing
and
approval)
for
Licensed
Products . . . .

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2
3
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1998 Agreement ¶¶ 1.5, 5.2; 2003 Agreement ¶ 5.2(b).
The 2009 press release also apparently stated that Novartis

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bought Corthera so it could acquire rights to Plaintiff's relaxin

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IP, so that Novartis could develop and commercialize relaxin.

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¶ 49.

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Domain Associates, Sears Capital, and Breining were on Corthera's

United States District Court

For the Northern District of California

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Id.

At the time of the acquisition, Defendants Kleiner Perkins,

board, and Defendant Abel was Corthera's CEO.

Id. ¶ 51.

Plaintiff states that it does not know at this stage whether

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Novartis has made any payments under the Merger Agreement.

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55.

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Corthera indicated that they would not pay Plaintiff any portion of

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the payments Novartis might make under its agreement with Corthera,

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and on September 26, 2012, Novartis announced successful results

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from phase III clinical studies of relaxin's application to

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patients with acute heart failure.

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suggests to Plaintiff that Novartis used Plaintiff's IP and know-

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how without a license.

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Id. ¶

However, it alleges that in September 2011, Novartis and

Id. ¶¶ 54-56.

This apparently

The crux of Plaintiff's complaint is that the fears it

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expressed during its 1995-98 negotiations with CNCT have been

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realized: CNCT, now Corthera, structured an agreement with a drug-

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development partner in a way that allowed the partner to use

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Plaintiff's IP and know-how without having to make any payments to

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Plaintiff.

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four causes of action against Defendants: (1) conversion, (2)

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misappropriation, (3) unjust enrichment, and (4) constructive trust

Based on the facts described above, Plaintiff asserts

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under California Civil Code sections 2223 and 2224.

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Defendants now

move to dismiss.

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4 III.

LEGAL STANDARD

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A motion to dismiss under Federal Rule of Civil Procedure

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12(b)(6) "tests the legal sufficiency of a claim."

Navarro v.

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Block, 250 F.3d 729, 732 (9th Cir. 2001).

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on the lack of a cognizable legal theory or the absence of

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sufficient facts alleged under a cognizable legal theory."

"Dismissal can be based

United States District Court

For the Northern District of California

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Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir.

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1988).

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should assume their veracity and then determine whether they

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plausibly give rise to an entitlement to relief."

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Iqbal, 556 U.S. 662, 679 (2009).

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must accept as true all of the allegations contained in a complaint

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is inapplicable to legal conclusions.

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elements of a cause of action, supported by mere conclusory

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statements, do not suffice."

19

Twombly, 550 U.S. 544, 555 (2007)).

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generally "limited to the complaint, materials incorporated into

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the complaint by reference, and matters of which the court may take

22

judicial notice."

23

540 F.3d 1049, 1061 (9th Cir. 2008) (citing Tellabs, Inc. v. Makor

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Issues & Rights, Ltd., 551 U.S. 308, 322 (2007)).

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///

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///

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///

28 IV.

"When there are well-pleaded factual allegations, a court

Ashcroft v.

However, "the tenet that a court

Threadbare recitals of the

Id. (citing Bell Atl. Corp. v.
The court's review is

Metzler Inv. GMBH v. Corinthian Colls., Inc.,

DISCUSSION

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A.

Alter Ego

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Defendants' motion to dismiss raises an alter ego theory:

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Plaintiff's complaint fails because it is trying to hold a

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corporation's former stockholders liable for the corporation's

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alleged acts.

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See MTD at 8-14.

"Ordinarily, a corporation is regarded as a legal entity

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separate and distinct from its stockholders, officers and

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directors.

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corporation is used by an individual or individuals, or by another

Under the alter ego doctrine, however, where a

United States District Court

For the Northern District of California

10

corporation, to perpetrate fraud, circumvent a statute, or

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accomplish some other wrongful or inequitable purpose, a court may

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disregard the corporate entity and treat the corporation's acts as

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if they were done by the persons actually controlling the

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corporation."

15

Ct. App. 1997).

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liable for its torts, but personal liability may attach to them

17

through application of the 'alter ego' doctrine . . . , or when the

18

shareholder specifically directed or authorized the wrongful acts."

19

Wyatt v. Union Mortgage Co., 24 Cal. 3d 773, 785 (Cal. 1979).

20

Robbins v. Blecher, 52 Cal. App. 4th 886, 892 (Cal.
"Shareholders of a corporation are not normally

Defendants contend that Plaintiff fails to pierce the

21

corporate veil using the alter ego theory.

MTD at 9-11.

The

22

problem with this argument is that Plaintiff has alleged that

23

Defendants specifically directed or authorized the torts in

24

question here.

25

78 Cal. App. 4th 1368, 1382 (Cal. Ct. App. 2000) (shareholders and

26

directors can be held liable alongside corporations if they are

27

shown to have participated in an intentional tort).

28

insistence that Plaintiff fails to plead an alter ego theory is

See Opp'n at 21-23; see also PMC, Inc. v. Kadisha,

9

Defendants'

1

therefore irrelevant.

2

relies in naming Defendants in its complaint.

3

that Plaintiff's pleadings are conclusory on this point, Reply at

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8-9, but the Court finds that Plaintiff has pled enough to survive

5

a motion to dismiss on these grounds, since their claims as to

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Defendants' actions are particular and plausible enough to meet the

7

standards of Rule 8, Twombly, and Iqbal.

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51-53 (describing specific Defendants' actions in relation to

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Novartis's acquisition of Corthera and their knowledge of

United States District Court

For the Northern District of California

10

It is not the theory on which Plaintiff
Defendants contend

See Compl. ¶¶ 41-42, 47,

Plaintiff's property and contracts).
Defendants counter that even this theory must fail because

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12

Plaintiff is seeking to hold Defendants liable for Corthera's

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contractual obligations.

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stage.

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not exactly saying that Corthera should have paid Plaintiff --

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Plaintiff is saying that Defendants' actions were constructed

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specifically to preempt those contractual payments and to divert

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future payments to Defendants.

This argument is inappropriate at this

Contracts may underlie Plaintiff's claims, but Plaintiff is

Accordingly, at this point, the Court cannot find as a matter

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20

of law that Plaintiff's claim should be dismissed for failure to

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plead alter ego.

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B.

Assignment

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The parties also dispute whether Novartis's merger with

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Corthera transferred Corthera's licenses of Plaintiff's IP and

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know-how to Novartis.

26

licensee of Plaintiff's IP and know-how, no property or interest in

27

property could have been converted or misappropriated.

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7.

According to Defendants, if Corthera remains

Reply at 5-

Plaintiff contends that as a result of Novartis's merger with

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1

Corthera, Novartis assumed Corthera's license agreement with

2

Plaintiff, because the merger alone effected a legal transfer or

3

Corthera's rights to Novartis without Plaintiff's permission.

4

Surreply at 3 (citing SQL Solutions, Inc. v. Oracle Corp., No. C-

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91-1079 MHP, 1991 WL 626458 (N.D. Cal. Dec. 18, 1991)).

6

Novartis's merger with Corthera was structured as a "reverse

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triangular merger," in which the acquisition target survives the

8

merger intact, as a wholly-owned subsidiary of the acquiring

9

corporation, instead of being merged into a corporation or a

United States District Court

For the Northern District of California

10

separate subsidiary as in a standard "forward merger."

11

Ballentine & Sterling, California Corporation Laws 12-15 (4th ed.

12

2003).

13

See 2

In a reverse triangular merger, the target corporation

14

continues to own its assets even though the acquiring corporation

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owns all of the target's stock.

16

Court has found in the past that reverse triangular mergers result

17

in the transference of the acquired company's rights, by law, to

18

the acquiring company.

19

The reasoning in SQL was based in part on Trubowitch v. Riverbank

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Canning Co., 30 Cal. 2d 335, 344-45 (Cal. 1947), which held that

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"if an assignment results merely from a change in the legal form of

22

ownership of a business, its validity depends upon whether it

23

affects the interests of the parties protected by the

24

nonassignability of the contract."

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this issue.

26

As Plaintiff notes, however, the

SQL Solutions, 1991 WL 626458, at *3-4.

No other cases have analyzed

Defendants are correct that there was no assignment, but not

27

for the reasons they gave.

See Reply at 5-6 (citing, among other

28

things, inapposite Delaware cases).

11

Under California law,

1

Trubowitch is the controlling precedent on this matter, and its

2

rule is conditional: "if an assignment results merely from a change

3

in the legal form of ownership of a business, its validity depends

4

upon whether it affects the interests of the parties protected by

5

the nonassignability of the contract."

6

means that for a court to assess the validity of a purported

7

assignment, there must first have been an assignment by virtue of a

8

business's change in legal form of ownership.

9

assignment would probably affect Plaintiff's interests under the

30 Cal. 2d at 344-45.

While such an

United States District Court

10
For the Northern District of California

This

nonassignment clause, it is entirely unclear as to whether a

11

reverse triangular merger actually effects an assignment of a

12

target corporation's assets.

13

No California state court has resolved this matter, and the

14

Court is not inclined to guess at possible conclusions.

15

therefore begins from the presumption that a reverse triangular

16

merger, which leaves intact the acquired corporation, does not

17

effect a transfer of rights from the wholly owned subsidiary to its

18

acquirer as a matter of law.

19

could be analogized from California cases on stock sales, like

20

Farmland Irrigation Co. v. Dopplmaier, 48 Cal. 2d 208, 223 (Cal.

21

1957), which suggested that if a plaintiff had sold all of his

22

stock in a corporation, there could be no contention that the

23

corporation's licenses would be extinguished as a matter of law,

24

since the two contracting parties were still extant and in privity.

25

The Court

What little applicable law there is

Plaintiff relies solely on SQL Solutions to argue that

26

assignment occurred as a matter of law when an acquired corporation

27

became another corporation's wholly owned subsidiary.

28

did not analyze nonassignment clauses and also found that federal

12

That case

1

copyright law forbid transfer.

1991 WL 626458, at *5.

In any

2

event, on this point the Court is bound by the California Supreme

3

Court's longstanding decision from Trubowitch.

4

Court finds that Corthera, Novartis's wholly owned subsidiary,

5

remains licensee of Plaintiff's IP and know-how.

Accordingly, the

6

C.

Conversion

7

The elements of a claim for conversion are (1) ownership or

8

right to possession of property, (2) wrongful disposition of the

9

property right, and (3) damages.

Kremen v. Cohen, 337 F.3d 1024,

United States District Court

For the Northern District of California

10

1029 (9th Cir. 2003).

11

absolute ownership of the property.

12

Cal. App. 3d 1324, 1329 (Cal. Ct. App. 1988).

13

that it is entitled to immediate possession of the property at the

14

time of conversion.

15

2d 217, 236 (Cal. Ct. App. 1954).

16

right of payment, without more, will not suffice to state a claim

17

for conversion.

18

452 (Cal. Ct. App. 1997).

19

A plaintiff need not have legal ownership or
Messerall v. Fulwider, 199
It need only allege

Bastanchury v. Times-Mirror Co., 68 Cal. App.
However, a mere contractual

Farmers Ins. Exch. v. Zerin, 53 Cal. App. 4th 445,

If, however, "there is a specific, identifiable sum involved,

20

such as where an agent accepts a sum of money to be paid to another

21

and fails to make the payment," a cause of action for conversion

22

exists.

23

App. 1998).

24

proper action is in contract or for debt. Baxter v. King, 81 Cal.

25

App. 192, 194 (Cal. Ct. App. 1927).

26

Burlesci v. Petersen, 68 Cal. App. 4th 1062, 1066 (Cal Ct.
If money is not specifically identified, then the

Plaintiff's conversion claim critically fails to distinguish

27

what Defendants converted: intellectual property, know-how, payment

28

rights, or something else.

So far as Plaintiff pleads that

13

1

Defendants converted Plaintiff's intellectual property rights,

2

Plaintiff's conversion claim fails because Plaintiff has not

3

plausibly alleged that Defendants themselves wrongly disposed of

4

the rights in question.

5

suggest that Novartis obtained access to the intellectual property

6

rights that Corthera licensed from Plaintiff, but nothing in

7

Plaintiff's complaint states that Defendants themselves -- as

8

opposed to Corthera or Novartis -- managed to dispose of

9

Plaintiff's intellectual property.

Plaintiff's pleadings and arguments

In any event, no assignment

United States District Court

For the Northern District of California

10

took place, so if any wrongful disposition of a property right

11

occurred, its remedy would appear to lie against Corthera or

12

Novartis in contract or under state and federal intellectual

13

property laws, because, Plaintiff has failed to allege how

14

Defendants actually caused Plaintiff's IP or know-how to be

15

converted.

16

If Plaintiff is arguing that Defendants wrongfully disposed of

17

Plaintiff's right to be paid under a contract, no conversion claim

18

can lie for that.

19

Plaintiff was to be paid if Corthera entered a partnership deal,

20

but Corthera's merger and acquisition was not such a transaction.

21

Plaintiff has therefore not pled that it was entitled to the

22

payments it claims Novartis made to Corthera.

23

the contracts that govern those parties' relationships, and

24

Plaintiff has not adequately alleged that any payment was

25

specifically being sent to Plaintiff.

26

According to the 1998 and 2003 Agreements,

They fall outside

In any event, the money at the center of Plaintiff's claim is

27

not quite the "contractual right of payment" that California law

28

generally forbids as the predicate for a conversion claim, but it

14

1

is also not a plausible enough basis to support this cause of

2

action.

3

and attenuated.

4

that an equitable lien was created at any point, since it is not

5

clear from Plaintiff's pleadings that Defendants themselves

6

promised Plaintiff anything.

7

Trust Funds for S. Cal. Admin. Co., 137 Cal. App. 4th 410, 414

8

(Cal. Ct. App. 2006) (equitable lien created by oral agreement

9

where defendants were aware of reliance by plaintiff of promise of

United States District Court

For the Northern District of California

10

Moreover, Plaintiff has not pled enough to show

See Cnty. of L.A. v. Constr. Laborers

payment in exchange for work).
Plaintiff's conversion claim is DISMISSED with leave to amend,

11
12

Plaintiff's allegations on this point are simply too vague

to allow Plaintiff to plead a more precise and plausible claim.

13

D.

Misappropriation

14

Plaintiff's misappropriation claim fails for the same reason

15

as its conversion claim.1

16

support the charge that Defendants actually appropriated and used

17

Plaintiff's property.

18

be plausible, and it fails to make clear exactly what Defendants --

19

as opposed to some other party -- took or misused, whether IP,

20

know-how, payment, or something else.

Plaintiff's allegations simply do not

The claim is so attenuated that it fails to

If anyone actually appropriated or used Plaintiff's

21
22

intellectual property and know-how, Plaintiff's pleadings seem to

23

point more to Corthera or Novartis.

24

for Corthera's up-front payments and milestones, then apparently

If Defendants are being paid

25
26
27
28

1

The Court declines to entertain the parties' arguments about
preemption at this point. It is not clear that any preemption
argument would be relevant to the tort claims Plaintiff makes,
which do not rely solely on intellectual property claims. In any
event, Defendants raise the issue only in a footnote, a tactic both
parties decry at different turns.
15

1

Corthera is partnering with someone and is therefore breaching the

2

terms of its contracts with Plaintiff, or Novartis is infringing

3

some property right.

4

should be held liable for that by virtue of a merger, even if

5

Plaintiff does allege that Defendants structured the sale to

6

benefit themselves at Plaintiff's expense.

7

with leave to amend for the same reasons as Plaintiff's conversion

8

claim.

9

E.

Plaintiff has not made clear why Defendants

This claim is DISMISSED

Unjust Enrichment

United States District Court

For the Northern District of California

10

Plaintiff also brings a claim for unjust enrichment or quasi-

11

contract, the elements of which are (1) a defendant's receipt of a

12

benefit and (2) unjust retention of that benefit at the plaintiff's

13

expense.

14

(Cal. Ct. App. 2008).

15

sounds in implied or quasi-contract.

16

Gen. Elec. Capital Corp., 96 F.3d 1151, 1167 (9th Cir. 1996).

17

doctrine applies where plaintiffs, having no enforceable contract,

18

nonetheless have conferred a benefit on defendant which defendant

19

has knowingly accepted under circumstances that make it inequitable

20

for the defendant to retain the benefit without paying for its

21

value."

22

App. 2009).

23

Peterson v. Cellco P'ship, 164 Cal. App. 4th 1583, 1593
Unjust enrichment is an equitable claim that
See Paracor Fin., Inc. v.
"The

Hernandez v. Lopez, 180 Cal. App. 4th 932, 938 (Cal. Ct.

Plaintiff alleges that Defendants knew of Plaintiff's

24

contracts with Corthera but wanted to use Corthera's future work

25

with Novartis to enrich themselves instead of Plaintiff.

26

claims that in order to accomplish this, Defendants set up a merger

27

between Novartis and Corthera that predicted Novartis having some

28

form of access to Plaintiff's relaxin IP and know-how, but since

16

Plaintiff

1

the transaction was not technically a "Partnership" per the 1998

2

and 2003 Agreements, Defendants -- not Plaintiff -- would receive

3

up-front and milestone payments that could be classified instead as

4

payments from the Merger Agreement.

5

First, Defendants argue that Plaintiff fails to describe a

6

"benefit" to which it is entitled, because Corthera, not

7

Defendants, was the party responsible for making contractual

8

payments to Plaintiff .

9

statement of Plaintiff's claim.

MTD at 18.

This is not an accurate

Plaintiff's complaint fully

United States District Court

For the Northern District of California

10

accounts for the fact that Corthera was responsible for making

11

payments to Plaintiff in the event of a partnership.

12

49, 51-53, 57.

13

however, is that Defendants set up an arrangement that would

14

essentially work as a partnership between Corthera and Novartis,

15

but that would be structured in a way that diverted Corthera's

16

payments from Plaintiff to Defendants.

17

See Compl. ¶¶

The point of Plaintiff's unjust enrichment claim,

Second, Defendants claim that Plaintiff alleges no facts that

18

would permit the Court to treat Novartis's payments to Defendants

19

as benefits allegedly owed to Plaintiff under the 1998 and 2003

20

Agreements.

21

Defendants' first argument on this point, and it fails for the same

22

reasons.

23

MTD at 19.

This is essentially a restatement of

Third, Defendants argue that Plaintiff's unjust enrichment

24

claim fails because it is governed by the express terms of a

25

contract.

26

claim exists if express agreements define the parties' rights.

27

Cal. Med. Ass'n, Inc. v. Aetna U.S. Healthcare of Cal., Inc., 94

28

Cal. App. 4th 151, 172 (Cal. Ct. App. 2001).

MTD at 19-20.

It is true that no unjust enrichment

17

But no contract

1

governing payments from Novartis to Defendants exists between

2

Defendants and Plaintiff, who are the only parties to this action.

3

That is the point of Plaintiff's unjust enrichment claim, and it is

4

also the point of the unjust enrichment doctrine.

5

180 Cal. App. 4th at 938.

6

See Hernandez,

Finally, Defendants contend that the Court has previously

7

disallowed claims for unjust enrichment pled on their own and not

8

as an alternative avenue of relief.

9

ZonePerfect Nutrition Co., No. 12-2907 SC, 2012 WL 6737800, at *10

Reply at 14 (citing Colucci v.

United States District Court

For the Northern District of California

10

(N.D. Cal. Dec. 28, 2012)).

11

use the magic word "alternatively" to indicate that its claim was

12

made in the alternative.

13

Standard Life Ins. Co., 288 F. Supp. 2d 1116, 1120 (E.D. Cal. 2003)

14

("Under Rule 8, plaintiff need not use particular words to plead in

15

the alternative as long as it can be reasonably inferred that this

16

is what [he was] doing.") (internal citations and quotations

17

omitted).

18

enrichment was made in the alternative to its conversion and

19

misappropriation claims, and declines to dismiss this cause of

20

action on a technicality.

21
22

That is true, but Plaintiff need not

See Fed. R. Civ. P. 8; Coleman v.

The Court finds that Plaintiff's claim for unjust

Defendants' motion to dismiss Plaintiff's unjust enrichment
claim is therefore DENIED.

23

F.

Constructive Trust

24

Plaintiff asserts a cause of action for constructive trust

25

against Defendants.

"A constructive trust is an involuntary

26

equitable trust created by operation of law as a remedy to compel

27

the transfer of property from the person wrongfully holding it to

28

the rightful owner."

Burlesci v. Peterson, 68 Cal. App. 4th 1062,

18

1

1069 (Cal. Ct. App. 1998).

2

unjust enrichment.

3

Registrations Sys., Inc., No. C 11-03142 WHA, 2011 WL 5975055, at

4

*3 (N.D. Cal. Nov. 29, 2011) (constructive trust is a remedy, not a

5

claim for relief).

6

grounds that a constructive trust is a remedy, not a claim.

7

20-21.

See id.; see also Malfatti v. Mortg. Elec.

Defendants move to dismiss the claim on the

The Court agrees with Defendants.

8
9

It is an equitable remedy to prevent

MTD at

Plaintiff's constructive

trust claim must be dismissed because a constructive trust is only

United States District Court

For the Northern District of California

10

a remedy.

Defendants' motion to dismiss Plaintiff's claim for

11

constructive trust is GRANTED with prejudice, but Plaintiff has

12

leave to clarify its request for constructive trust as a remedy.

13
14
15

V.

CONCLUSION
For the reasons described above, the Court GRANTS in part and

16

DENIES in part the above-captioned Defendants' motion to dismiss

17

Plaintiff Florey Institute of Neuroscience and Mental Health's

18

complaint.

19

All other claims are DISMISSED.

20

from this Order's signature date to file an amended complaint, if

21

it chooses to do so.

22

result in the deficient claims being dismissed with prejudice.

Plaintiff's unjust enrichment claim is undisturbed.
Plaintiff has thirty (30) days

Failure to file an amended complaint may

23
24

IT IS SO ORDERED.

25
26

Dated: September 26, 2013

27

UNITED STATES DISTRICT JUDGE

28

19