Sargon Answer Brief

Sargon Answer Brief:

Supreme Court Case No. S132872
2d Civil Nos. B167519 (consolidated with B169619)

IN THE SUPREME COURT OF THE STATE OF CALIFORNIA

SARGON ENTERPRISES, INC., Respondent,

v.

UNIVERSITY OF SOUTHERN CALIFORNIA; WINSTON W.L. CHEE, B.D.S.; TERRY DONOVAN, D.D.S., WILLIAM BECKER, D.D.S., and MARK HANDELSMAN, D.D.S,

Petitioners.

Appeal from the Los Angeles County Superior Court
The Honorable Marvin M. Lager
Los Angeles Court Case No. BC209992

ANSWER TO PETITION FOR REVIEW

GREINES, MARTIN, STEIN & RICHLAND LLPTimothy T. Coates (SBN 110364)Jens B. Koepke (SBN 149912)5700 Wilshire Boulevard, Suite 375Los Angeles, California 90036(310) 859-7811

Attorneys for Respondent
SARGON ENTERPRISES, INC.

INTRODUCTION

Petitioner for University of Southern California (USC) seeks review of an unpublished opinion on the purported basis that the decision threatens academic medical research by allowing claims for lost profits for breach of a clinical trial agreement. But this is a textbook example of a case that is not appropriate for review.

Even putting aside the fact that the opinion is not published and thus not citable as authority, the plain fact is that USC did not raise this “policy” argument in the Court of Appeal, which, in and of itself, forecloses review by this Court. More fundamentally, USC’s “the sky is falling” approach to the question of whether this clinical trial agreement may give rise to a claim for lost profits damages is singularly inappropriate for resolution by this Court given the fact that (1) no such contract award has been made, nor might ever be made since the Court of Appeal has simply allowed the issue to go to the jury; (2) such damages might be recovered on Sargon’s reinstated – and now unchallenged – tort claims for fraud; and (3) in any event as the Court of Appeal properly found, there was abundant evidence from which the jury could conclude that lost profits were foreseeable as an item of contract damages.

While USC invokes images of ivy-covered halls and academic ivory towers, as the litany of evidence cited in the Court of Appeal’s opinion makes plain, USC well understood the commercial value of the Sargon implant and sought to attach itself to, and indeed to participate in, the anticipated financial success, including a $15,000,000 donation for an addition to the dental school and the restoration of USC as one of the leading dental schools in the world.

Nor does USC offer any basis to review the Court of Appeal’s straight-forward ruling that a plaintiff that wins almost $500,000 on its contract claim and defeats a contract claim on the cross-complaint is a prevailing party for purposes of fee award under Civil Code section 1717. The trial court awarded USC attorney’s fees under section 1717 even though USC lost every contract claim in the action based solely on the court’s conclusion that Sargon’s failure to obtain all the damages which it sought somehow meant Sargon was not a prevailing party. In reversing this unfathomable award the Court of Appeal applied this Court’s plain holding in Hsu v. Abbara (1995) 9 Cal.4th 863. There is nothing extraordinary about the Court of Appeal’s application of established authority by this Court to reverse an untenable, indeed utterly indefensible fee award by the trial court and to correctly apply governing authority to determine that Sargon – the only party to prevail on a contract claim and to do so to the tune of almost a half million dollars – is the prevailing party under section 1717.

The Court of Appeal’s unpublished opinion applied established law to a fact intensive record, to determine that Sargon is entitled to have a jury determine whether or not lost profits were foreseeable in this case, and if so, whether Sargon is entitled to recover those damages based upon evidence to be presented at trial. It similarly applied established law in concluding that Sargon was entitled to litigate his fraud claims against defendants. And, the Court of Appeal applied the uniform decisions of this Court and other California appellate courts to determine that Sargon, the only party to prevail on a contract claim, was clearly the prevailing party for purposes of a fee award section 1717. Despite all of USC’s empty rhetoric, there is simply no issue for review by this Court at all, let alone at this time. Thus, the petition for review should be denied.

ARGUMENT


I. NONE OF THE STATUTORY GROUNDS EXIST TO REVIEW THIS UNPUBLISHED DECISION.
Only limited grounds exist for review by this Court. (Cal. Rules of Court, rule 28.) Indeed, the only conceivably applicable grounds here would be “when necessary to secure uniformity of decision or to settle an important question of law.” (Cal. Rules of Court, rule 28, subd. (b)(1).) Yet petitioners do not identify how the Court of Appeal’s unpublished decision creates conflict between any specific lower court decisions regarding any particular issue on lost profit contract damages or the prevailing party for attorneys’ fees. Indeed, it is hard to image how an unpublished opinion could imperil the uniformity of decisions on these issues, even if petitioners had shown there was a conflict.
Moreover, this case presents no important unsettled questions of law. The Court of Appeal applied well-settled principles of California law relating to the foreseeability of lost profits as contract damages and to determining the prevailing party under Code of Civil Procedure section 1717. Instead, petitioners try to concoct an important legal question by resurrecting a specious public policy argument that the trial court rejected and that petitioners did not pursue on appeal.
II. THIS COURT SHOULD NOT CONSIDER PETITIONERS’ PUBLIC POLICY ARGUMENT REGARDING CLINICAL TRIAL AGREEMENTS BECAUSE THEY DID NOT RAISE IT IN THE COURT OF APPEAL.
This Court’s rules provide that “[a]s a policy matter, on petition for review the Supreme Court normally will not consider an issue that the petitioner failed to timely raise in the Court of Appeal.” (Cal. Rules of Court, rule 28, subd. (c)(1).) Citing this rule, this Court held that a petitioner “abandoned [its equal protection] contentions by failing to raise them in its arguments before the Court of Appeal.” (Associated Builders & Contractors, Inc. v. San Francisco Airports Com. (1999) 21 Cal.4th 352, 381.)
Petitioners ask this Court, based on “paramount public policies,” to take “the opportunity to declare that clinical trial agreements, like the one here, will not support lost profit damages as a matter of law.” (Petition at p. 6.) It is unclear whether petitioners’ proposed rule would apply only to “non-profit” institutions conducting clinical trials or also for-profit companies. (Compare Petition at p. 1 & p. 19.) Irregardless, petitioners did not make such a broad policy argument to the Court of Appeal. (See Respondents’ Brief.) Petitioners failed to do so even though the trial court had expressly considered and rejected petitioners’ public policy argument in its order. (II AA 363-364.) Thus, petitioners could have, but did not raise the policy argument before the Court of Appeal. Nor did petitioners raise this policy argument in their petition for rehearing. (See Petition for Rehearing.) This Court’s rules and its policies bar petitioners from trying to resurrect the policy argument now.
And there is good reason not to address this broad issue for the first time now, because there was no factual record developed below regarding clinical trial agreements or non-profit institutions. There is no evidence on how many clinical trials are done by non-profit institutions like universities versus by for-profit research or manufacturing companies. There is no evidence on whether the agreement here or the relationship between the parties is at all representative of clinical trial agreements. There is no expert testimony on the effect lost profit damages might have on clinical trials. Petitioners admit as much by citing in their petition various websites and journals that they never raised below. (Petition at pp. 2-4.)
That absence of any factual record is fatal. This Court has ruled that “it is our policy not to review issues that are dependent upon development of a factual record when those issues have not been timely raised in the Court of Appeal or not reached in that court, when the latter omission was not brought to the attention of the Court of Appeal by petition for rehearing.” (People v. Peevy (1998) 17 Cal.4th 1184, 1205.)
Petitioners’ call for immunity from lost profit damages is more appropriately a cry for legislative action. Even with a full factual record (which doesn’t exist here) the balancing of policy interests is ill-suited for judicial intervention.
The closest petitioners came to this policy issue before the Court of Appeal was by contending that the agreement here was non-commercial in nature and that therefore lost profit damages were not foreseeable. (See Respondent’s Brief at pp. 36-39.) That is a far cry from contending that, as a matter of policy and law, lost profit damages should never be recoverable for breaches of clinical trial agreements. And the Court of Appeal briefly addressed and rejected petitioners’ non-commercial argument, ruling that they “are attempting to read too much into the Agreement.” (Opinion, at pp. 9-10.) In fact, petitioners’ description of the agreement and relationship of the parties as non-commercial belies the evidence and their own actions, as we will explain below. (See infra, Section IV.)
III. EVEN IF PETITIONERS COULD RAISE THE POLICY ARGUMENT NOW, IT IS PREMATURE.
Even if petitioners could raise their policy argument now, it is procedurally and factually too early to address it. There has never been a judgment against petitioners for lost profit contract damages. And the Court of Appeal did not rule that petitioners are necessarily liable for lost profits: “While plaintiff’s ultimate success in recovering lost profit damages remains to be seen, there was sufficient evidence to preclude a finding that lost profit damages were not foreseeable as a matter of law.” (Opinion at p. 15.) It may well be that, after a jury hears such evidence, they determine that petitioners should not be liable for lost profits. If that happens, petitioners’ policy argument disappears.
Only if a jury finds that petitioners should pay lost profit damages for breaching the clinical trial agreement here would the policy argument even have any factual basis. There might then be a record that this Court could use to address the policy issue posed by petitioners. Until then, the issue is premature and unripe for review.
Even if this could be called a pure legal issue, the need for resolution is also premature. On one hand, petitioners admit the “novelty of the [public policy] issue is established by the absence of any judicial decision anywhere in the nation addressing and resolving the availability of lost profit damages for breach of such [a clinical trial] agreement.” (Petition at pp. 19-20.) Thus, petitioners have not identified anything in the common law of this State or any other state that bars recovery of lost profit damages, as a matter of law, for breaches of clinical trial agreement. Yet, on the other hand, in explaining why this Court should grant review, petitioners nevertheless argue: “Until the decision under review here, a lost profit damages claim was not, as a matter of law, available for breach of such an agreement.” (Petition, at p. 2, emphasis added.)
Petitioners can’t have it both ways. There was no common-law rule regarding the per se availability of lost profit damages for breaches of clinical trial agreements before this decision. After this decision, there still isn’t, because the Court of Appeal did not determine that lost profit damages were necessarily recoverable. And even if the Court of Appeal had made that determination, since it was an unpublished decision it would not impact the common law. Indeed, in spite of petitioners’ overheated rhetoric, the absence of any decisions on this issue strongly suggest that it is not a pressing concern for research institutions.1 Petitioners miscite Postal Instant Press, Inc. v. Sealy (1996) 43 Cal.App.4th 1704 as holding that the absence of authority anywhere in the country regarding recovery of lost profits under franchise agreements led that court to “conclude that lost profit damages were foreclosed under certain franchise agreements.” (Petition at p. 21.) What that court actually said was that “[w]e are not holding a trial court can never appropriately award some ‘lost future profits’ to a franchisor.” (Postal Instant Press v. Sealy, supra, 43 Cal.App.4th at p. 1718, emphasis omitted and added.) Thus, Postal Instant does not support, but rather undercuts, petitioners’ request for this Court to lay down a rule that, as a matter of law, lost profits may never be recovered for breaches of clinical trial agreements.

ARGUMENT

I. NONE OF THE STATUTORY GROUNDS EXIST TO REVIEW THIS UNPUBLISHED DECISION.

Only limited grounds exist for review by this Court. (Cal. Rules of Court, rule 28.) Indeed, the only conceivably applicable grounds here would be “when necessary to secure uniformity of decision or to settle an important question of law.” (Cal. Rules of Court, rule 28, subd. (b)(1).) Yet petitioners do not identify how the Court of Appeal’s unpublished decision creates conflict between any specific lower court decisions regarding any particular issue on lost profit contract damages or the prevailing party for attorneys’ fees. Indeed, it is hard to image how an unpublished opinion could imperil the uniformity of decisions on these issues, even if petitioners had shown there was a conflict.

Moreover, this case presents no important unsettled questions of law. The Court of Appeal applied well-settled principles of California law relating to the foreseeability of lost profits as contract damages and to determining the prevailing party under Code of Civil Procedure section 1717. Instead, petitioners try to concoct an important legal question by resurrecting a specious public policy argument that the trial court rejected and that petitioners did not pursue on appeal.

II. THIS COURT SHOULD NOT CONSIDER PETITIONERS’ PUBLIC POLICY ARGUMENT REGARDING CLINICAL TRIAL AGREEMENTS BECAUSE THEY DID NOT RAISE IT IN THE COURT OF APPEAL.

This Court’s rules provide that “[a]s a policy matter, on petition for review the Supreme Court normally will not consider an issue that the petitioner failed to timely raise in the Court of Appeal.” (Cal. Rules of Court, rule 28, subd. (c)(1).) Citing this rule, this Court held that a petitioner “abandoned [its equal protection] contentions by failing to raise them in its arguments before the Court of Appeal.” (Associated Builders & Contractors, Inc. v. San Francisco Airports Com. (1999) 21 Cal.4th 352, 381.)

Petitioners ask this Court, based on “paramount public policies,” to take “the opportunity to declare that clinical trial agreements, like the one here, will not support lost profit damages as a matter of law.” (Petition at p. 6.) It is unclear whether petitioners’ proposed rule would apply only to “non-profit” institutions conducting clinical trials or also for-profit companies. (Compare Petition at p. 1 & p. 19.) Irregardless, petitioners did not make such a broad policy argument to the Court of Appeal. (See Respondents’ Brief.) Petitioners failed to do so even though the trial court had expressly considered and rejected petitioners’ public policy argument in its order. (II AA 363-364.) Thus, petitioners could have, but did not raise the policy argument before the Court of Appeal. Nor did petitioners raise this policy argument in their petition for rehearing. (See Petition for Rehearing.) This Court’s rules and its policies bar petitioners from trying to resurrect the policy argument now.

And there is good reason not to address this broad issue for the first time now, because there was no factual record developed below regarding clinical trial agreements or non-profit institutions. There is no evidence on how many clinical trials are done by non-profit institutions like universities versus by for-profit research or manufacturing companies. There is no evidence on whether the agreement here or the relationship between the parties is at all representative of clinical trial agreements. There is no expert testimony on the effect lost profit damages might have on clinical trials. Petitioners admit as much by citing in their petition various websites and journals that they never raised below. (Petition at pp. 2-4.)

That absence of any factual record is fatal. This Court has ruled that “it is our policy not to review issues that are dependent upon development of a factual record when those issues have not been timely raised in the Court of Appeal or not reached in that court, when the latter omission was not brought to the attention of the Court of Appeal by petition for rehearing.” (People v. Peevy (1998) 17 Cal.4th 1184, 1205.)

Petitioners’ call for immunity from lost profit damages is more appropriately a cry for legislative action. Even with a full factual record (which doesn’t exist here) the balancing of policy interests is ill-suited for judicial intervention.

The closest petitioners came to this policy issue before the Court of Appeal was by contending that the agreement here was non-commercial in nature and that therefore lost profit damages were not foreseeable. (See Respondent’s Brief at pp. 36-39.) That is a far cry from contending that, as a matter of policy and law, lost profit damages should never be recoverable for breaches of clinical trial agreements. And the Court of Appeal briefly addressed and rejected petitioners’ non-commercial argument, ruling that they “are attempting to read too much into the Agreement.” (Opinion, at pp. 9-10.) In fact, petitioners’ description of the agreement and relationship of the parties as non-commercial belies the evidence and their own actions, as we will explain below. (See infra, Section IV.)

III. EVEN IF PETITIONERS COULD RAISE THE POLICY ARGUMENT NOW, IT IS PREMATURE.

Even if petitioners could raise their policy argument now, it is procedurally and factually too early to address it. There has never been a judgment against petitioners for lost profit contract damages. And the Court of Appeal did not rule that petitioners are necessarily liable for lost profits: “While plaintiff’s ultimate success in recovering lost profit damages remains to be seen, there was sufficient evidence to preclude a finding that lost profit damages were not foreseeable as a matter of law.” (Opinion at p. 15.) It may well be that, after a jury hears such evidence, they determine that petitioners should not be liable for lost profits. If that happens, petitioners’ policy argument disappears.

Only if a jury finds that petitioners should pay lost profit damages for breaching the clinical trial agreement here would the policy argument even have any factual basis. There might then be a record that this Court could use to address the policy issue posed by petitioners. Until then, the issue is premature and unripe for review.

Even if this could be called a pure legal issue, the need for resolution is also premature. On one hand, petitioners admit the “novelty of the [public policy] issue is established by the absence of any judicial decision anywhere in the nation addressing and resolving the availability of lost profit damages for breach of such [a clinical trial] agreement.” (Petition at pp. 19-20.) Thus, petitioners have not identified anything in the common law of this State or any other state that bars recovery of lost profit damages, as a matter of law, for breaches of clinical trial agreement. Yet, on the other hand, in explaining why this Court should grant review, petitioners nevertheless argue: “Until the decision under review here, a lost profit damages claim was not, as a matter of law, available for breach of such an agreement.” (Petition, at p. 2, emphasis added.)

Petitioners can’t have it both ways. There was no common-law rule regarding the per se availability of lost profit damages for breaches of clinical trial agreements before this decision. After this decision, there still isn’t, because the Court of Appeal did not determine that lost profit damages were necessarily recoverable. And even if the Court of Appeal had made that determination, since it was an unpublished decision it would not impact the common law. Indeed, in spite of petitioners’ overheated rhetoric, the absence of any decisions on this issue strongly suggest that it is not a pressing concern for research institutions.1 Petitioners miscite Postal Instant Press, Inc. v. Sealy (1996) 43 Cal.App.4th 1704 as holding that the absence of authority anywhere in the country regarding recovery of lost profits under franchise agreements led that court to “conclude that lost profit damages were foreclosed under certain franchise agreements.” (Petition at p. 21.) What that court actually said was that “[w]e are not holding a trial court can never appropriately award some ‘lost future profits’ to a franchisor.” (Postal Instant Press v. Sealy, supra, 43 Cal.App.4th at p. 1718, emphasis omitted and added.) Thus, Postal Instant does not support, but rather undercuts, petitioners’ request for this Court to lay down a rule that, as a matter of law, lost profits may never be recovered for breaches of clinical trial agreements.

Page 4 of 9

IV. THE COURT OF APPEAL WAS CORRECT IN RULING THAT, WHEN ONE LOOKS AT THE FULL PICTURE OF THE RELATIONSHIP OF THE PARTIES AND THE AGREEMENT HERE, A JURY COULD EASILY DETERMINE THAT LOST PROFIT DAMAGES ARE REASONABLY FORESEEABLE.

Even if petitioners’ lost profits issue could be raised now, and even if it were ripe for review, the Court of Appeal’s opinion glides peacefully down the mainstream of well-settled lost profits foreseeability analysis. Far from creating new law, the court applied the settled so-called Hadley rule of foreseeability for contract damages: They are limited to those which might have been reasonably contemplated or foreseen by the parties, at the time the contract was made, to be a probable result of the breach. (Opinion at

p. 8, citing Lewis Jorge Const. Mgmt., Inc. v. Pomona Unified School Dist. (2004) 34 Cal.4th 960, 969 & Brandon & Tibbs v. George Kevorkian Accountancy Corp. (1990) 226 Cal.App.3d 442, 456.) Petitioners do not dispute that the Court of Appeal correctly applied de novo review, meaning the question was whether disregarding conflicting evidence, and indulging in every legitimate inference from the evidence favorable to plaintiff, could a reasonable jury have found lost profit damages to be reasonably foreseeable. (Opinion at p. 8.)

As the Court of Appeal noted, it was USC that approached Sargon with great interest in the Sargon Implant, and USC that suggested that Sargon pay for a clinical study. (Opinion at p. 13.) Sargon agreed, but only on condition that it be able to use the 1-year interim reports from the study in its ongoing international marketing efforts. (Opinion at pp. 12-13.) Sargon alleged that USC’s failure to provide these reports until some two years after the study began, and even then without much of the necessary information, severely undermined Sargon’s reputation and sales in the marketplace. (Opinion at p. 3, n. 2.) The jury agreed, awarding over $433,000 in compensatory damages—but the jury was never allowed to hear the lost profits evidence. (Opinion at p. 3.) The Court of Appeal correctly ruled that the jury should have had the chance to hear that evidence.

A. Petitioners Once Again Ignore, But The Court Of Appeal Did Not, The Mountain Of Evidence Supporting Foreseeability.

Like it did in its respondent’s brief below, USC, in its petition, disregards the applicable standard of review by ignoring a raft of salient facts that pre-date and post-date the execution of the Agreement. The Court of Appeal, however, adhered to the standard of review and pointed to a host of facts that supported the foreseeability of lost profit damages here:

! “[D]efendants knew when the Agreement was made that the 1- year interim report was crucial for plaintiff’s marketing purposes. . . . USC had agreed during negotiations that plaintiff could use the 1-year interim report to market its implant internationally. . . . [USC’s Dental School Dean, Howard Landesman] felt that [the report] would have a huge effect on the commercial marketability of the implant, providing those reports were favorable.” (Opinion at pp. 12-13.)

!Sargon told USC of specific impending sales and the importance of the 1-year reports to those sales. (Opinion at p. 14.) In fact, Dean Landesman assured Sargon, “Give me one year” and “I will give you the world.” (Ibid.)

! Landesman had said that the Sargon Implant “would reestablish

U.S.C. as one of the leading, if not the leading dental school in the world, a position that it had back in the 40's and the 50's. And having this implant used, and patients treated, and promoted by U.S.C. would make U.S.C. the second Gothenberg, which is the university in Sweden where the Branemark Implant [manufactured by Noble Biocare] was first studied and introduced which became a world center for implant training.” (Opinion at p. 13.) Indeed, at several symposia and conferences, Dean Landesman had described the Sargon Implant as one of the most revolutionary breakthroughs in dentistry. (II RT 421:26424:14.)

! “Dr. Landesman and Dr. Lazarof [Sargon’s founder], before signing the Agreement, had even discussed plans for plaintiff to donate $10 to $15 million to USC to build a new dental implant training center.” (Opinion at p. 14.) The money was to come from Sargon Implant profits and the parties were “already

looking for real estate” around the campus. (Ibid.)

! USC “had given USC professorships to foreign dentists who were teaching the Sargon Implant System abroad” and had appointed Drs. Lazarof and Garfield (who were Sargon’s scientific team) as clinical professors so that Sargon’s marketing efforts would have USC’s name associated with them. (Opinion at p. 14; II RT 414:4-416:2.)

!Before the Agreement was executed, Dean Landesman and another USC representative had a meeting with Sargon representatives in which Landesman “acknowledged that if the study went well, Sargon would make ‘huge’ profits.” (Opinion at p. 17.) Sargon expressed concern about the appointment of Dr. Winston Chee as the study’s principal investigator, because of his lack of objectivity about the Sargon Implant and past personal enmity for Sargon’s founder, and Sargon warned that Dr. Chee could ruin the study and imperil those huge profits. (Ibid.) Sargon “asked whether USC would take responsibility in that case. Dean Landesman responded, ‘Yes we are. You have nothing to worry about.’” (Ibid.)

! In April 1998, USC sponsored (and Sargon paid for) the “First International USC Symposium” in Monte Carlo solely to publicize the successful 1-year study results of this one research subject. (Opinion at p. 14; I AA 8-9; I RT 131:10-132:28; VI RT 1308:8-1309:6.)

! USC conceded that soon after the study began it sponsored “continuing education courses to train dentists to use the [Sargon] Implant”—essentially, USC acting as a marketer of the implant. (Respondents’ Brief 7.) And it “issued USC training certificates” for attendees at these world-wide training sessions, pocketing fees of $30,000 to $40,000. (Opinion at p. 14; III RT 814:10-816:9; I AA 1.)

USC fails to mention any of these important facts in its petition.

And there were several other pieces of evidence that the Court of Appeal

did not expressly mention, but that were brought out during the motion in

limine hearing below and in plaintiff’s appellate briefs:

! USC successfully pressured Sargon to cancel an already-scheduled symposium in mid-1996 designed to promote the Sargon Implant, suggesting that a USC-sponsored symposium relaying the 1-year results of the study would be better. (I RT 74:18-75:9; 265:19-27.)

! A few months before the agreement was executed, USC asked for and received a $100,000 donation from Sargon to the dental program. (I RT 224:13-225:14.)

! USC also unsuccessfully asked Sargon to terminate its employment of Drs. Robert Garfield and Marty Robbins because they were associated with UCLA, not USC. (III RT 819:23-820:21.)

! USC decided to make the Sargon Implant the “system of choice for patient care,” and began using it in classes and on patients in its dental program outside of the clinical study. (I AA 3.) In fact, Dean Landesman promised that if the 1-year study results were good, USC would consider exclusively using the Sargon Implant. (III RT 690:14-691:21.)

Petitioners’ attempt to construe the relationship as simply a modest, one-time research job completely ignores that both parties expected the alliance to be long-term and highly profitable for both of them. Thus, it is not surprising that the Court of Appeal concluded that “[t]his evidence, viewed in the light most favorable to plaintiff, supports a finding that lost profit damages were reasonably foreseeable to USC when the Agreement was made.” (Opinion at p. 15.)

And contrary to petitioners’ spin, the Agreement did not undercut the foreseeability of lost profits. Petitioners contend the Agreement “broadly prohibited [the parties] from using the study for any commercial purpose.” (Petition at p. 10.) The Court of Appeal found this “statement” to be “misleading,” because nothing in the Agreement “imposed a blanket prohibition against the commercial use of the study.” (Opinion at p. 12,

n. 5.) Instead, the Agreement allowed Sargon to use the 1-year reports for marketing purposes, so long as it didn’t exploit USC’s trade name or trademark. (Opinion at p. 12.) And the Court of Appeal also saw through petitioners’ misconstruction of the disclaimers in the Agreement. It held the provisions did not “constitute[] a disclaimer of lost profit damages,” and, in fact, nothing in the Agreement “allocated the risk of lost profit damages.” (Opinion at p. 9.)

This failure to allocate risk highlights another weakness in petitioners’ policy argument. Petitioners admit the Agreement was the product of “extensive arms-length negotiations.” (Petition at p. 9.) Indeed, it is probably safe to say that most clinical agreements are not “form”—they are all products of negotiations. If USC, or any other non-profit or for-profit research institution, wanted to include a provision barring recovery of lost profit contract damages, they could bargain for it. Thus, petitioners’ purported policy concerns can easily be dealt with through contractual bargaining and negotiation in the context of each of the myriad, particular situations where clinical studies are conducted.

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B. The Facts Here Don’t Support Petitioners’ Policy Argument, Because USC Was Not A Disinterested, Impoverished Non-Profit Institution. Given all the evidence of how much “non-profit” USC hoped to profit from its relationship with Sargon, it seems apparent that even without the proper factual development of the record below, the factual premise of USC’s policy argument does not exist. At least in this clinical study relationship, liability for lost profit contract damages is entirely in keeping with the tenor of the relationship. Indeed, as this Court’s decision in Moore v. Regents of University of California (1990) 51 Cal.3d 120 recognized, major universities, like USC, increasingly are joint venturers in highly profitable commercial applications of scientific and medical research. (Id. at pp. 125-127 [leukemia patient states claim for breach of fiduciary duty because UCLA physician, without informed consent, used some of his cells to develop a patented cell line, which was to be commercially developed in joint venture with a private company in a potentially $3.01 billion market]; see also Shaw v. Regents of University of California (1997) 58 Cal.App.4th 44, 47 [dispute over the University of California’s policy of sharing 50/50 the royalties earned from patents developed by employees].)2 USC’s plaintive wail that as an impoverished, nonprofit educational institution it should not have to face lost profit damages rings particularly hollow. Plaintiff pointed out in its reply brief below that “as of 1999 USC had amassed a $1.4 billion endowment,3 and paid its attorneys almost $1.5 million to engage in a scorched-earth litigation strategy—i.e., it admitted it deposed Dr. Lazarof for six days and Dr. Garfield for five (RB 15) and filed an 11-count cross-complaint (I AA 29-51)—rather than quickly conceding its faulty handling of the study and reimbursing Sargon for its compensatory damages.” (Reply Brief at p. 23.)

USC is also rich in patents, with 379 to its name at latest count. 

C. The Policy Question Is Only Academic Here, Because Sargon Could Recover Lost Profits On Its Tort Claims.

Even if somehow lost profits should not be recovered as contract damages, that issue is academic here because petitioners do not directly challenge the Court of Appeal’s decision on Sargon’s fraud claims. The Court of Appeal held that the trial court should not have dismissed Sargon’s related fraud claims alleging that USC deliberately altered patient study records and hid the fact it had accepted a $300,000 donation from Nobel Biocare (Sargon’s chief competitor) while it was conducting the study and while it was deciding whether to begin exclusively using the Sargon Implant, rather than Nobel Biocare’s, at USC. If Sargon wins on any of those various tort claims, it could be entitled to recover lost profits as damages. Thus, petitioners’ attempt to obtain a per se public policy rule barring recovery of lost profits as contract damages would not even remove that species of damages from this case.

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V. THE COURT OF APPEAL WAS CORRECT TO AWARD SARGON ITS ATTORNEYS’ FEES FOR PREVAILING ON A FINAL JUDGMENT, FROM WHICH USC HAS NOT APPEALED.

Petitioners also contend this Court should intervene because the contract claim here “has not been finally resolved and it therefore cannot yet be determined” who is the prevailing party. (Petition, at p. 1.) But it is undisputed that Sargon recovered almost $500,000 on its contract claim against USC, and defeated the contract claim in USC’s cross-complaint. Those victories resulted in a judgment against USC and in favor of Sargon. USC chose not to appeal that judgment, so it is now final. Since there is a final judgment against USC, the Court of Appeal recognized that it could resolve the attorneys’ fees issue:

“[B]ecause plaintiff has won a final judgment, the prevailing

party issue is ripe for review despite our reversal and remand

for further proceedings.” (Opinion at pp. 22-23.)

USC contends that the outcome on remand of plaintiff’s remaining contractual lost profit damages claim could affect who is the prevailing party with regard to the existing final judgment here. (Petition at pp. 33-34.) Not so. Depending on what issues are tried on remand (potentially including various tort claims and contractual lost profit damages), the winning party may have a claim under section 1717 for prevailing party attorneys’ fees. As the Court of Appeal explained: “On remand, plaintiff’s judgment will remain intact even if plaintiff fails to recover additional damages for lost profits and fraud. Plaintiff may recover additional damages on remand, but in no event will plaintiff’s judgment be reduced.” (Opinion at p. 22.) What happens on remand has nothing to do with who prevailed at the already-completed trial that resulted in a final judgment, from which USC chose not to appeal. They are entirely separate for purposes of determining the prevailing party.

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A. The Trial Court’s Prevailing Party Determination Was Directly Contrary To Controlling Law.

Even more surprisingly, USC still persists in trying to defend the

trial court’s startlingly wrong attorneys’ fee award. The Court of Appeal

relied on this Court’s decision in Hsu v. Abbara (1995) 9 Cal.4th 863, and

reversed the trial court’s decision with the brevity it deserved:

“[T]he trial court erred as a matter of law in identifying USC as the prevailing party when it was plaintiff who had prevailed on the only contract claim in the main action, as well as on the cross-complaint. Plaintiff should not be penalized for having failed to recover lost profit damages, when it was the trial court’s error that precluded if from presenting evidence of lost profits. ‘The fact that a party’s recovery in an action under a contract is less than the amount he prayed for does not make his adversary the prevailing party within the meaning of Civil Code section 1717.’ We therefore reverse the finding that USC was the prevailing party under Civil Code section 1717 and we reverse USC’s attorney fee award under that section. We direct the trial court on remand to enter a new order finding plaintiff to be the prevailing party under Civil Code section 1717 and awarding plaintiff its reasonable attorney fees.” (Opinion at pp. 22-23, citations omitted.)

Petitioners claim this result somehow contravenes Hsu. (Petition at p. 34.) Far from it. In Hsu, because defendant obtained a dismissal of plaintiff’s only contract claim, this Court ruled the trial court had no discretion but to award attorneys’ fees to defendant as the prevailing party. (Hsu v. Abbara, supra, 9 Cal.4th at pp. 866-867.) Here, not only was Sargon the winning cross-defendant—enough under Hsu to be the prevailing party—but Sargon also recovered almost $500,000 on its contract claim.

Despite this clear statement of the law, USC still argues that being a prevailing party under section 1717 “does not require net recovery.” (Petition at p. 32.) USC does not cite any case that holds that a plaintiff that wins a half-million dollars on its breach of contract claim and defeats the contract claim in the cross-complaint is not the prevailing party; rather the losing defendant and cross-complainant is. Instead, following a pattern of raising new arguments and authorities in its petition, USC cites a case it relied on in the trial court, then abandoned on appeal, Sears v. Baccaglio (1998) 60 Cal.App.4th 1136. (Petition at p. 32.)

The situation in Sears is nowhere close to the one here. There, the plaintiff, guarantor on a lease, sued the building owner to recover $112,000 it had paid the owner on the guaranty. (Sears v. Baccaglio, supra, 60 Cal.App.4th at pp. 1140-1141.) The plaintiff asserted the owner had breached the lease and that the guaranty had been revoked. (Ibid.) However, the trial court found that the guaranty had not been revoked, thus plaintiff was liable on the guaranty, although it required the building owner to refund to plaintiff $67,000 to offset amounts the owner had been paid from other sources. (Id. at p. 1141.) The court of appeal affirmed the award of fees to the defendant building owner under section 1717, noting that plaintiff had not prevailed on its breach of contract claim—to the contrary, he “lost his contract action.” (Id. at pp. 1158-1159.) By contrast, Sargon prevailed on its contract action (and on USC’s contract cross-complaint) and it obtained a net monetary recovery.4 The Court of Appeal’s prevailing party ruling is not an aberration from the controlling law under section 1717; it is a correction of just such a jarring aberration.

Apparently grasping for straws, USC miscites this Court’s decision in Scott Co. v. Blount, Inc. (1999) 20 Cal.4th 1103 as ruling that the plaintiff there was not a prevailing party because it only recovered part of the damages it sought. (Petition at p. 33.) In fact, the holding was exactly the opposite: the plaintiff was deemed the prevailing party under section 1717 even though it only recovered $442,000 after seeking more than $2 million at trial. (Id. at p. 1109.)

Page 8 of 9

CONCLUSION

The Court of Appeal did not chart a novel course in its opinion here. Even if petitioners can overcome the many procedural hurdles to review here, there is nothing warranting this Court to take the case. The petition should be denied and Sargon should finally have the chance to have its evidence heard by a jury.

Dated: April 26, 2005

Respectfully submitted,

GREINES, MARTIN, STEIN & RICHLAND LLP

Timothy T. Coates

Jens B. Koepke

By Jens B. Koepke

Attorneys for Respondent SARGON ENTERPRISES, INC.

CERTIFICATION Pursuant to California Rules of Court, Rule 14(c), I certify that this ANSWER TO PETITION FOR REVIEW contains 4,839 words, not including the tables of contents and authorities, the caption page, signature blocks, or this Certification page.

Dated: April 26, 2005

Jens B. Koepke

Page 9 of 9

TABLE OF CONTENTS

INTRODUCTION 1

ARGUMENT 3

I. NONE OF THE STATUTORY GROUNDS EXIST TO REVIEW THIS UNPUBLISHED DECISION. 3

II. THIS COURT SHOULD NOT CONSIDER PETITIONERS’ PUBLIC POLICY ARGUMENT REGARDING CLINICAL TRIAL AGREEMENTS BECAUSE THEY DID NOT RAISE IT IN THE COURT OF APPEAL. 4

III. EVEN IF PETITIONERS COULD RAISE THE POLICY ARGUMENT NOW, IT IS PREMATURE. 6

IV. THE COURT OF APPEAL WAS CORRECT IN RULING THAT, WHEN ONE LOOKS AT THE FULL PICTURE OF THE RELATIONSHIP OF THE PARTIES AND THE AGREEMENT HERE, A JURY COULD EASILY DETERMINE THAT LOST PROFIT DAMAGES ARE REASONABLY FORESEEABLE. 8 A. Petitioners Once Again Ignore, But The Court Of Appeal Did Not, The Mountain Of Evidence Supporting Foreseeability. 10 B. The Facts Here Don’t Support Petitioners’ Policy Argument, Because USC Was Not A Disinterested, Impoverished Non-Profit Institution. 15 C. The Policy Question Is Only Academic Here, Because Sargon Could Recover Lost Profits On Its Tort Claims. 16 V. THE COURT OF APPEAL WAS CORRECT TO AWARD SARGON ITS ATTORNEYS’ FEES FOR PREVAILING ON A FINAL JUDGMENT, FROM WHICH USC HAS NOT APPEALED. 17

TABLE OF CONTENTS (cont’d) Page A. CONCLUSION

The Trial Court’s Prevailing Party Determination Was
Directly Contrary To Controlling Law.