Buyer Beware: CA Court Awards Damages Against Buyer for Post-Closing Actions

By Mark Tarallo

A California trial court recently awarded substantial damages to a licensee of a takeover target, where the buyer failed to honor the terms of the license after the deal closed.  The decision in Asahi Kasei Pharma Corp v. Actelion Ltd. (No. CIV478533, December 18, 2013, Superior Court of the State of California, County of San Mateo) arose out of actions taken by Actelion Ltd. (“Actelion”) after it completed the purchase of CoTherix, Inc. (“CoTherix”).  Prior to the transaction, CoTherix had entered into a license and development agreement with Asahi Kasei Pharma Corp (“Asahi”) for a drug called Fasudil that had been developed by Asahi.  Under the agreement, CoTherix was to continue development of the drug and seek US and European regulatory approvals.  Actelion had developed a similar drug called Tracleer, and it was alleged that Actelion had purchased CoTherix to slow or stop the development of Fasudil, despite the fact that prior to the merger Actelion had told Asahi that it intended to continue with the development of Fasudil. 

After the closing of the merger, Actelion informed Asahi that it intended to discontinue the development efforts, for business and commercial reasons.  The parties attempted to negotiate a termination agreement, but were unable to reach mutually acceptable terms.  Asahi brought a breach of contract claim to arbitration (under the terms of the license and development agreement) and sued Actelion and certain of its officers in California state court for, among other claims, intentional interference with contractual relations.  The court rejected the defendants’ claims that, as the owner of CoTherix, Actelion had a right to direct its business as it saw fit, and awarded the plaintiff $385 million in compensatory damages and an additional $30 million against the officers in punitive damages, due to the nature of their conduct.  The California Court of Appeals declined to hear an appeal.  The case serves as a warning to buyers to carefully consider existing contracts of the target and how those contracts impact the buyer’s business, and to deal with terminating or amending those contracts by agreement with the counterparty prior to the closing.  

Feel free to contact Mark with any questions on this topic.

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