Glenridge Pharm. v. Questcor Pharm		CASE NO. 111CV203554
DATE: 24 October 2014	TIME: 9:00	LINE NUMBER: 22

This matter will be heard by the Honorable Judge Socrates Peter Manoukian in Department 19 in the Old Courthouse, 2nd Floor, 161 North First Street, San Jose. Any party opposing the tentative ruling must call Department 19 at 408.808.6856 and the opposing party no later than 4:00 PM Thursday 23 October 2014.  Please specify the issue to be contested when calling the Court and counsel.

On 24 October 2014, the motion of Defendant Questcor Pharmaceuticals, Inc. (“Questcor”) to strike the supplemental expert witness designation list of Plaintiff Glenridge Pharmaceuticals, LLC (“Glenridge”) was argued and submitted.

Plaintiff Glenridge filed formal opposition to the motion.

1. Statement of Facts.

This action arises from a contract dispute between Glenridge and Questcor. In late December 1999, Glenridge identified a promising pharmaceutical product known as Acthar Gel (“Acthar”). At the time, the rights to Acthar were owned by Aventis Pharmaceutical Products, Inc. (“Aventis”). Aventis was interested in selling its rights to Acthar to a company which could more successfully produce, market, and sell the product. In June 2000, Glenridge and Aventis reached an agreement “in principle” by which Glenridge would purchase Acthar from Aventis.

In July 2000, Glenrdige informed Questcor about Acthar’s potential if Glenridge’s regulatory and manufacturing strategy was pursued. Questcor and Glenridge agreed that Questcor would substitute in for Glenridge in the agreement with Aventis. Questcor and Glenridge further agreed that if Questcor and Aventis consummated the deal already negotiated by Glenridge, Questcor would pay a royalty to Glenridge based on any future sales of Acthar. In July 2001, Questcor and Aventis entered into an asset purchase agreement by which Questcor acquired the rights to Acthar.

In January 2002, Questcor and Glenridge entered into a Royalty Agreement providing a royalty to Glenridge based on net sales of Acthar. Until December 2010, Questcor made royalty payments to Glenridge using a cash-basis accounting method when calculating the net sales for which royalties were due. In early 2011, Questcor told Glenridge that it intended to switch to an accrual accounting method, instead of cash-basis accounting. Glenridge asserts that Questcor breached the Royalty Agreement by using accrual accounting, failing to timely make payments, and improperly deducting payments to the National Organization of Rare Disorders (“NORD”) when calculating net sales.

Questcor filed an action against Glenridge (Case No. 1-12-CV-237225), which has been consolidated with this action. Questcor alleges that the Royalty Agreement is invalid because Ken Greathouse (“Greathouse”), a former Questcor officer and owner of Glenridge, secretly assisted his Glenridge partners in negotiating the terms of the transaction after representing to Questcor that he would recuse himself from the process.

1. Discovery Dispute.

On 13 June 2014, Questcor served a demand for simultaneous exchange of expert witness information on Glenridge. On 15 September 2014, both parties served their witness disclosure lists on each other. Questcor designated Professor Eric Talley to testify regarding corporate governance practices, conflict of interest transactions, and corporate opportunity. On 6 October 2014, Glenridge served a supplemental expert witness designation identifying Professor Michael Klausner to testify, inter alia, regarding corporate governance matters, conflict of interest issues, and corporate opportunities.

On 13 October 2014, Questcor corresponded with Glenridge objecting to the supplemental designation.

On 20 October 2014, Questcor made application ex parte to shorten time to hear a motion to strike Professor Klausner’s designation. This Court granted the application and set the matter for hearing on 24 October 2014.

Trial on this matter is set for 3 November 2014.

III.     Analysis.

1. Motion to Strike

Parties, on demand, must simultaneously disclose their intended expert witnesses to each other. Code Civ. Proc. § 2034.260(b)(1). This disclosure must include a declaration signed by the party’s counsel that describes the qualifications of that expert, the general substance of the expert’s testimony, a representation that the expert agrees to testify at trial, a representation that the expert will be sufficiently knowledgeable of the facts of the matter, and the expert’s fees. Code Civ. Proc. §2034.260(c). Within 20 days of this disclosure, a party may disclose a supplemental expert who will testify about a matter that party’s experts would not originally testify to, but that the adverse party’s expert indicates he or she will testify to. Code Civ. Proc. §2034.280(a).

As to the issues that both parties anticipate will be disputed at trial, a party must either designate an expert or indicate that it will not retain an expert for that purpose.  Fairfax v. Lords (4th Dist. 2006) 138 Cal.App.4th 1019, 1021. It is improper to wait to see whether the other party will declare an expert and who the party will declare. Ibid. at 1027.

Glenridge submitted its supplemental expert list on 6 October 2014, identifying Professor Michael Klausner. It argues that it properly supplemented its expert list because Questcor’s expert list included an expert, Professor Talley, who would testify to corporate governance issues and conflict-of-interest transactions, matters for which Glenridge did not identify an expert.  Glenridge focuses on the statutory requirements of section 2034.280 and states that Professor Klausner was not previously retained to discuss any matters and therefore his testimony could not be struck.[1]  Glenridge argues that Fairfax is not applicable to the instant matter because it submitted an initial designated list in a timely fashion.

The difference between sending nothing and not including something that should have been included in a group of other material is functionally the same thing. The matters that Questcor indicated about which Professor Talley would testify were known to be issues that would come up. As this Court understands, matters of corporate governance and conflict-of-interest are typically subject to expert, not lay, opinion.

The purpose of the statutes pertaining to disclosure of experts in particular as well as civil discovery in general is to minimize gamesmanship. See Barboni v. Tuomi (4th Dist. 2012) 210 Cal.App.4th 340, 353. Glenridge never argued that the late retention of Professor Klausner was error, or that this was an otherwise unintentional mistake or misunderstanding. It appears to the Court, instead, that Glenridge was waiting to see what Questcor would do, in a similar fashion as the defendant in Fairfax. This is reinforced by Glenridge’s assertion that it would withdraw Professor Klausner if Questcor were to withdraw Professor Talley. Even Glenridge’s supporting authority, Kennedy v. Modesto City Hosp (5th Dist. 1990) 221 Cal.App.3d 575, 580 n.3, is explicitly dicta made in a footnote years prior to the Fairfax and Barboni decisions.

Glenridge argues that Questcor is not prejudiced by the introduction of Professor Klausner. Glenridge cites Dickison v. Howen (3d Dist 1990) 220 Cal.App.3d 1471, 1479 for the proposition that a party is not prejudiced simply because a new expert will give testimony adverse to the party. The Court agrees with this statement, but Dickison involved a motion to augment a witness list made under former section 2034(k) (now Code Civ. Proc. §2034.610, et seq.) That is not the motion before the Court.[2] Glenridge has provided no authority for the proposition that Questcor must show prejudice in a motion to strike.

Glenridge then cites Rangel v. Graybar Elec. Co. (1977) 70 Cal.App.3d 943, 948-50 for the proposition that courts should not exclude untimely-designated experts where there is a lack of substantial evidence indicating willful concealment of the identity of an intended witness.  Rangel involved the former Code of Civil Procedure section 2034 which dealt with the application of sanctions (later absorbed into current sections 2023.010, et seq. and portions of other sections such as 2030.300). Specifically, Rangel involved the effect of not answering an interrogatory seeking the identification of a witness. The procedures were different then and the current section 2034.210, et seq., which speaks to the exchange of expert witness identification did not exist. Rangel does not apply to this case.

The concerns raised in Fairfax and Barboni are directly pertinent to this case. If this Court allowed the testimony of Professor Klausner, regardless of whether he was intentionally concealed or innocently retained as a response, this would encourage more gamesmanship, an aspect that the Legislature specifically sought to avoid when enacting the Civil Discovery Act. (See Davies v. Superior Ct. (1984) 36 Cal.3d 291, 299; Greyhound Corp. v. Superior Ct. (1961) 56 Cal.3d 355,376.)  Defendants, knowing the contested issues, would be encouraged to submit expert witness lists with only peripheral witnesses, thus attempting to avoid the issue in Fairfax, and see who plaintiffs would choose for those matters at the heart of the case. If Plaintiffs choose no one, then Defendants have the benefit of knowing the need not call anyone as an expert. If Plaintiffs do choose an individual on an important contested matter, the Defendants can analyze the individual and choose an expert, and retain them, without any disadvantage to themselves. This strategy contravenes the purpose for simultaneous exchange of expert witnesses. See Barboni, supra, 210 Cal.App.4th at 353.

Glenridge knew the issues would be contested. They chose not to designate an expert as to those issues. They do not get to profit from Questcor’s compliance with the statute.

The motion of Plaintiff Questcor Pharmaceuticals to strike the designation of Professor Klausner is GRANTED.  Defendants shall not call Professor Klausner as an expert witness.

1. Order.

The motion of Plaintiff Questcor Pharmaceuticals to strike the designation of Professor Klausner is GRANTED.  Defendants shall not call Professor Klausner as an expert witness.

 

________________­­­____________ DATED:

_________________________­­­________________________ HON. SOCRATES PETER MANOUKIAN Judge of the Superior Court County of Santa Clara

[1] Glenridge argues that this Court is not the trial court for the purposes of a motion to strike and therefore lacks authority to hear this motion. It provided no authority for the proposition that a court that hears discovery motions in a master calendar system is not a trial court for the purposes of the statute and somehow different from a court hearing discovery motions in a direct calendar system, which would also hear the trial.  The supervision of the conduct of discovery proceedings is peculiarly the province of the trial judge.”  (See Fuss v. Superior Court of Los Angeles County (1969) 273 Cal. App. 2d 807, 819-820.)

[2] Glenridge also cites Hernandez v. Superior Ct. (2d Dist 2004) 115 Cal.App.4th 1242, 1247, which involved a trial court’s abuse of discretion for failing to reopen discovery after the appellant’s attorney was ill and died in the final stages of litigation. The court determined that the appellant was prejudiced, potentially to near the start of the litigation, due to appellant’s then-attorney’s illness. The instant motion does not raise the question of such egregious prejudice.