Avid Bioservices Inc (CDMO)

[cheynew]

PPHM filed their opposition to CSM's Motion for Summary Judgement yesterday.

1. SUMMARY OF ARGUMENTS
Having failed to limit its tort liability through its first motion based on the
limitation of liability provisions of the Master Services Agreement ("MSA"),
Clinical Supplies Management, Inc. ("CSM") now tries to achieve the same
outcome based on assertion of the economic loss doctrine ("ELD"). In presenting
this argument, CSM improperly attempts to redefine its own contract (the MSA and
its Work Orders), and relies on a tortured and incorrect interpretation of its new
"contract" in arguing it is being sued for "breach of contract." Its position unravels
completely.
Moreover, CSM way overstepped its bounds and completely botched this
clinical trial because it did multiple things outside of the contract (the MSA and its
Work Orders) that it was not supposed to do, which must defeat application of the
ELD before CSM's creative journey through the case law is even considered.
CSM's challenges to the negligent misrepresentation claim similarly fail
because it does not describe all relevant communications. CSM expressly
represented it would not do what its Project Manager did, which was to secretly and
without authority swap the "A" and "B" arms of the study, while expressly
confirming to Peregrine and other vendors that it was abiding by the trial protocol.
CSM's challenge to the constructive fraud claim fails because it overlooks the
relationship it assumed when its Project Manager, without telling anyone, performed
her own drug "randomization," and then maintained the only set of records tracking
the actual patient treatments (in violation of FDA regulations), and thus held sole
responsibility for ensuring the trial was properly administered and ultimately
unblinded properly. While CSM may have originally only contracted to put labels
on vials and to deliver them, the Project Manager's unilateral actions fell well
outside the contract and its specified responsibilities, and thereby imposed much
higher duties on CSM. As demonstrated herein, CSM miserably failed to satisfy
those duties.

2. STATEMENT OF FACTS
A. Overview Of The Phase II NSCLC Double-Blind Trial
The subject clinical trial was a randomized, double-blind, placebo-controlled
Phase IIb trial in which bavituximab doses were combined with docetaxel
(chemotherapy) in patients who had previously treated unsuccessfully for locally
advanced or metastatic non-squamous non-small cell lung cancer ("NSCLC"). The
goal was to demonstrate increased anti-tumor activity (shrinking of tumors, delay of
disease progression or extension of life) for the non-placebo patients through the
addition of bavituximab.
The study was designed by Peregrine representatives as a double-blind study,
meaning the various patients and treating physicians would not know the dosage
assignments given to the patients in order to avoid any potential bias in patient
outcome.' Peregrine designed the study to contain three treatment arms. The
control or "A" arm patients would receive docetaxel plus placebo treatments to serve
as a baseline to compare the responses of the other two arms. The "B" arm patients
would receive 1 mg/kg doses of bavituximab plus docetaxel. The "C" arm patients
would receive 3 mg/kg doses of bavituximab plus docetaxel. The trial evaluated
121 patients randomized into the three treatment arms in 40 sites around the world.
Peregrine utilized an experienced clinical trial consultant to coordinate eight
experienced vendors to perform the work needed. One vendor, Perceptive
Informatics ("Perceptive"), specifically was contracted to provide randomization
The term "double blind" can have different meanings. For example, the IHC's
Guidance for Industry E6 Good Clinical Practice (which CSM cites) Consolidated
Guidance section 1.10 entitled "Glossary" defines "Blinding/masking" as "A
procedure in which one or more parties to the trial are kept unaware of the treatment
assignment(s). Single blinding usually refers to the subject(s) being unaware, and
douple blinding usually refers to the subjects), investigator(s), monitor, and, in
some cases, data analyst(s) being unaware of the treatment assignments." Peregrine
need not have been totally blinded, but the trial was designed to reduce perceived
bias by blinding Peregrine to the actual treatments received by patients.

services for assignment of patients to the three treatment groups through a detailed
proprietary protocol called "ClinPhone Compact" ("ClinPhone"). The project
specifications were set forth in detail in the ClinPhone Project Requirements
Specification document ("PRS"), which allocated responsibilities to all contractors
and restated them in flow charts.
Before the trial began, the vendors, including CSM and its Project Manager,
Jeanette Bleecker ("Bleecker"), were assembled for a "kick-off meeting." The roles
of the vendors were already determined, and the kick-off meeting was arranged so
the vendors would coordinate their efforts, develop a line of communication and
establish a central repository of information. (See Plaintiffs Separate Statement of
Facts ("PSS") within the accompanying Statement of Genuine Issues at pp. 43-60.)
The CSM "Contract" is the Master Services Agreement (CSM Comp. Ex. C),
which provides in part:
3. SERVICES
A. CSM hereby agrees toprovide CLIENT the
Services described in each Work Order. In performing the
Services, CSM will comply with any applicable study
rotocol which will be identified by name and number
terein, this Agreement the applicable Work Order, the
written instructions of CLI ENT, relevant professional
standards and all applicable laws, rules and regulations ...
B. CSM's tasks s ecified in the Work Order, including
any. Change Order will constitute the sole tasks
assigned by CLI to CSM pursuant to 21 CFR 312.52.
(emphasis added)
2 In carrying out these tasks, CSM was obligated as a Contract Research
Organization C'CRO") to comply with good clinical practices established by the
International Conference on Harmonization ("ICH") Guidelines and to comply with
various FDA regulations including, without limitation, good manufacturing
ractices ("cGIVW") established by and set forth in 21 Cl-iR Parts 210 (Current Good
Manufacturing Practice in Manufacturing, Processing, Packaging, or Holdingof
Drugs, General), and 211 (Current Good ManufacturingPractice for Finished
Pharmaceuticals). In this regard, CSM was required to comply with numerous
subparts of 211, including, but not limited to, (i) 211.125 Labeling issuance,
subparts (a-f); (ii) 211.130 Packaging and labeling operations, subparts (a-e); (iii)
(footnote continued)

B. The Kick-Off Meeting And Early Stage Of The Trial
CSM sent one representative to the meeting, Bleecker. She came to the
meeting pitching more services for CSM. This was her first such trial kick-off
meeting and she was in over her head.
CSM's role in the trial was reconfirmed at the kick-off meeting. It was
responsible for supply chain activity, ensuring proper labeling and distribution to
sites, and product vial reconciliation to inventory. It would receive shipments of
placebo, 1 mg/kg bavituximab and 3 mg/kg bavituximab in separate lots from Avid
(Peregrine's wholly-owned manufacturing subsidiary) totaling approximately 8,000
vials during the course of the trial. The only judgment Bleecker had to use was to
anticipate adequate amounts of doses to be shipped to the treatment sites so that
inventory was not wasted and vials were always available to patients when needed.
As explained in the kick-off meeting, pursuant to the PRS document
Perceptive would apply the ClinPhone patient randomization program and direct
CSM to distribute placebo, 1 mg/kg or 3 mg/kg doses to the trial sites according to
the treatment group assignment schedule clearly set forth in the PRS document.
(PSS 4, 5, 55.) Peregrine and the other vendors participating in the trial were wholly
dependent on CSM to strictly follow the protocol developed by Perceptive and set
forth in the PRS document. (PSS 11-14.) During the kick-off meeting, Bleecker
asked the group whether Peregrine was inadvertently unblinded due to the parties'
circulation of the PRS document at the meeting because slides reflected that the "A"
arm would be placebo treatments; the "B" arm 1 mg/kg treatments; and the "C" arm
3 mg/kg treatments. Bleecker's question demonstrated a lack of understanding of
the objective of a double-blind trial because (1) Peregrine was neither the doctor nor
the patient; and (2) Peregrine would not be able to inject bias into the trial results
211.142 Warehousing procedures, subparts (a-b); and (iv) 211.150 Distribution
procedures, subparts is-b).

because it would not know what doses the patients were receiving even if it knew
what the "A", "B" and "C" treatments were. (PSS No. 21, 22, 48, 49.)
Following the meeting, Jehlen emailed Bleecker to confirm that she was
following the study protocol (including specifically the treatment group
assignments) set forth in the PRS procedure. She expressly confirmed this several
times. (PSS 55-56.) However, it turns out her confirmation was false because she
already had secretly "shuffled" the "A" and "B" arms so that those patients that were
randomized to the "A" arm (control arm) and were supposed to receive placebo
treatments per the PRS, were actually receiving 1 mg/kg bavituximab treatments,
and vice-versa. Unbelievably, she did not tell a soul she had done so.3
In addition to not telling anyone, the CSM contract never provided for CSM
to provide any randomization services, including "randomizing to the drug" or
anything of the sort. (PSS 59, 63.) She had many subsequent opportunities in
detailed meetings to tell vendors that she had also performed her own extra
"randomization," and clearly concealed this information over and over. (PSS 34.)
She also maintained two file drawers of secret records and an internal chart to track
what she had done, which CSM admits did not comply with FDA regulations.
(PSS 65.) The evidence is clear she tried very hard not to tell anyone that she had
performed a "randomization" at all, even if there were some basis of withholding
from others the details of how she did it. (PSS 25, 26, 27, 30, 33, 58, 80.) 4
3 Today, CSM's party line is that Bleecker "randomized to the drug" after Perceptive
had "randomized the patient dose assignment." Bleecker testified that she discussed
switching the treatment groups after the February 2010 kick-off meeting with CSM's
CEO, Gerald Finken. Fmken denies knowing she did this until Summer 2012, a
year after Bleecker left CSM's employ. (PSS 26.)
4 CSM admits Bleecker violated multiple protocols and FDA regulations while
attempting to rationalize her actions after the fact. (PSS 37, 38, 62, 65, 70, 71.)

C. The Trial At First Appeared To Be A Great Success
Data from the trial announced in May and September 2012 showed a
doubling of overall response rates and an improvement in progression-free survival
in patients treated in the bavituximab-containing arms when compared to patients
treated with placebo. These were very positive developments for very ill patients
and were quite exciting for Peregrine, its most important clinical trial to date.
The trial was designed as a registration study, such that if the results showed a
statistical significance in median overall survival, Peregrine would have had the
ability to seek FDA approval based on the results of the trial and proceed to
commercialization. Peregrine was also on the cusp of partnering with a large global
pharmaceutical company to fund a Phase III trial in NSCLC, seek and obtain FDA
approval, leverage the global pharmaceutical company's commercial sales and
marketing expertise, and to fund future advanced clinical trials in other indications.
D. CSM Botched The Job
Bleecker transgressed many FDA regulations, including those contained in 21
CFR Parts 211.125, 211.130, 211.142 and 211.150 and 312.52. (PSS 88-104.) Had
Bleecker been authorized to make such a change in the treatment arm assignments,
she would have needed to notify certain of the vendors, including Perceptive. Upon
such a change, Perceptive would have needed to redo its validated ClinPhone and
the PRS, which would have taken a significant amount of time and money to revise,
revalidate and obtain approval prior to the trial commencing. (PSS 81, 98.) Her
actions would have to be made known to the vendor who unblinded the study, but it
was not.5(PSS 19, 35.) CSM also did not follow its own Standard Operating
5 Bleecker cannot explain many other things. She inconsistently testified whether
the site pharmacists were blinded or not and had no answer to the question whether
they needed to know the treatments to calculate dosages for patients. (PSS 40-43.)
She did not know who was informed by Perceptive what treatments were given to
patients (testifying inconsistently about this). At best, she was reckless.

Procedures ("SOP"). (PSS 53, 54.) Even if the switch had been well-intentioned
and worked out in the end, she jeopardized the trial from the standpoint of future
FDA approval because she butchered so many protocols.
Peregrine's QA representative, Jeff Masten, visited CSM on September 19-20,
2012 in connection with a "for cause" audit, and met with Angela Buchanan
(Humrich), CSM Director of QA. Buchanan admitted to Masten with dismay that
Bleecker had switched the control and 1 mg/kg arms in violation of the PRS and
CSM SOPs, didn't tell anyone, and Buchanan had no idea why. Later, when Finken
took over Bleecker's role, Buchanan admitted that no one had gone back to check
the PRS document to make sure CSM was following it. (PSS 67, 72-75, 76.)
It got worse. Of the 8,000 vials manufactured by Avid, 7,519 vials were
retrieved from sites, and of those, 99% contained enough volume to determine their
contents. The audit confirmed that all "C" group patients were correctly treated with
3 mg/kg bavituximab doses. However, Masten encountered serious evidence of vial
mislabeling between the placebo and 1 mg/kg groups, use of labels that did not
comply with FDA regulations, and evidence of after the fact tampering (PSS 87-96),
indicating someone at CSM attempted to undo the "switch" ineffectively.
Another huge concern was the post-trial patient serum (blood) study, because
the switch of "A" and "B" arms clearly was done by CSM inconsistently. Some
patients receiving placebo doses (according to CSM) were also given 1 mg/kg doses
for a time. Seven patients dosed with vials labeled as placebo from six clinical sites
around the world demonstrated a significant HACA response, meaning they had an
immunoreaction to bavituximab exposure. Twelve of the 40 patients treated with
placebo (according to CSM's treatment records) either had a positive HACA
response or detectable levels of bavituximab in their serum samples. The audit
revealed no evidence any dosing errors actually occurred at the sites. However, nine
different clinical sites around the world were impacted by the dosing errors
obviously caused by CSM. (PSS 64) (Masten Decl.; PComp Ex. F).

This second switch problem essentially ruined the study. Given CSM's
egregious errors with respect to the placebo and 1 mg/kg arms, the trial can no
longer serve as a registration trial thereby eliminating any chance that Peregrine can
seek FDA approval based on the results of the trial alone. Nor can the data be part
of the registration package when Peregrine seeks approval following its pending
Phase III trial. (PSS 111-115.)
Bleecker left CSM in July 2011, prior to completion of patient enrollment and
well before the completion of the study. Her project management role was taken
over by one of CSM's owners and its CEO, Gerald Finken ("Finken") who not only
did not know the A/B switch occurred until September 2012, but had not bothered to
review the entire project file including the PRS. (PSS 26, 73, 75.) Bleecker
apparently did nothing to assist CSM in carrying out the transition of responsibilities
and maintained secret records for over a year. (PSS 65-68.)
This case is extensively documented, as is industry custom, such that
protocols are spelled out in great detail. There are many emails related to the
decisions to use blinded lot numbers in CSM's shipments, to round off the shipment
vial amounts, and to use the earliest vial expiration dates during packaging, in order
to limit Peregrine's knowledge of what shipments went to what sites. As explained
below, there is literally no support for CSM's position that Peregrine impliedly
"approved" some sort of extra "randomization" of treatment arms through the PLR.
E. Discovery Has Exposed That CSM Knowingly Strayed Beyond Its
Contract Responsibilities And Recklessly Jeopardized The Trial
The deposition testimony of Bleecker, Finken, and Humrich contain profound
contradictions, but a clear theme emerges that Bleecker's actions were absolutely
outrageous and reckless and have no possible legal excuse.
Without telling anyone at the kick-off meeting, without telling any other
vendor, and without telling even CSM itself, Bleeker secretly "randomized the drug
assignment" purportedly to (and erroneously) "keep Peregrine blinded." While she
28
claims in her Declaration that she discussed her kick-off meeting unblinding
"concern" with Peregrine representative A.J. Leyco (this is not true (PSS 25, 46-50),
under even her own version of events, she did not even tell Leyco that she was
going to do any sort of drug "randomization."6
Further, CSM admits that Bleecker's secret files and her "patient/site
document" in which Bleecker tracked what dosages the patients really received,
were not FDA compliant. (PSS 62, 70.) Neither was the vial return process.
(PSS 71.) Bleecker's actions set in motion errors by others at CSM such that 12 of
the 40 placebo patients at 9 different sites around the world received bavituximab
and should not have, even when the CSM secret "randomization" is unwound.
(Masten Decl.; PComp. Ex. F.) Bleecker has no explanation for this (PSS 64), but
the answer clearly lies somewhere in her secret, non-FDA compliant recordkeeping,
CSM's internal lack of knowledge, and confusion among those at CSM
concerning the labeling process. And since Peregrine discovered after the study that
some labels were removed and swapped and were not FDA compliant tamperproof
labels, there is a strong inference of an ineffectual attempt by CSM to correct its
errors, or to ineptly cover its tracks after the fact. There is much more going on this
case than unskilled workers labeling vials and shipping them to sites.
In addition, the evidence shows Bleecker repeatedly, consciously concealed
what she had done. She did not tell anyone that she had performed a randomization
(i.e., even the fact that she did a randomization, without necessarily disclosing
exactly what treatment arms were changed). (PSS 30, 33, 34, 79, 80). She
concealed this on multiple occasions during vendor interactions where she clearly
should have disclosed her transgressions, inferring an ulterior motive. She alone
6Bleecker's carefully drafted Declaration does not allege she told Peregrine she
would do any sort of randomization, shuffle or switch. (PSS 27.)

controlled the critical patient treatment information of the trial, and it was headed
for disaster unless she disclosed to others what she had done.'
Why would Bleecker do this? The most benign explanation is that she was
angling for more business for CSM. Bleecker knew that if she was the only person
who knew what the patients really received, the end-of-study unblinding would have
to proceed through her and that would enhance CSM's positioning to be hired to
perform the unblinding service.8However, she left a mess behind since she told no
one she had done her own "randomization," and there was no assurance that CSM
would actually be hired to do the end-of-study unblinding. CSM was not so hired.
3. ARGUMENT
A. CSM's Challenge To Peregrine's Tort Claims Based On The
Economic Loss Doctrine Is Unavailing.
(1) CSM Has Changed Up The "Contract"
The MSA is a form agreement that incorporates the "Work Orders." In its
first Motion, CSM correctly described the MSA and its Work Orders as "the
contract." The Work Orders actually direct the parties what each is to do. (CSM
Comp. "D".) Importantly, the primary Work Order specifies at page 4 under
Peregrine's responsibilities: "Providing randomization." Nowhere does the Work
Order specify that CSM is supposed to do any sort of "randomization" of its own.
7 As Bleecker left CSM (and the industry altogether) she turned a blind eye to many
other problems involving Peregrine's financial-well-being and patient care itself,
which expose her recklessness. For example, she was aware the site pharmacists
needed to know the actual dosages administered to the patients (so she says), but did
not consider that fact when she did her secret drug randomization. (PSS 40-41.)
Indeed, this could have turned out even more tragic. If a patient had become sick,
there may have been incorrect information imparted to the physician whether the
patient was given placebo (since others in the study all had a different understanding
of the A/B/C assignments than she implemented).
8 Customarily the vendor performing the randomization — in this case as far as
everyone knew was Perceptive — would do the end-of-study unblinding. (PSS 82.)
When confronted after the parties were on the cusp of litigation Bleecker indicated
she assumed as of her departure from CSM in July 2011 that CSM would later be
the vendor performing the unblinding (PSS Ex. 60 and Depo. Ex. 13 (PComp. "K".)

Further down that page CSM is supposed to "Deliver the specified Services in
accordance with this Work Order" ... and to "Notif(y) Peregrine... in writing if the
Work Order requires adjustment by means of a Change Order." Bleecker herself
admits nothing in the contract with Peregrine provides for CSM to perform the
randomization (PSS 63), so CSM's position that her bizarre "drug randomization"
was "just following the contract" is a non-starter.
(2) The PLR Document Also Does Not Authorize Bleecker To
"Randomize The Treatment Groups"
To put the Packaging and Labeling requirements ("PLR") document (the
supposed contract) in context, Bleecker did suggest to Peregrine a protocol by which
the lots of drug shipped from Peregrine to CSM with Peregrine lot numbers would
be reassigned new "blinded lots numbers." (PSS 51.) There was extensive written
communication between Bleecker and Peregrine leading to the blinded lot number
protocol being developed in the PLR. (PSS 52.) The procedure to assign blinded
lot numbers by CSM is also spelled out in its SOP 908. (PSS 53, 54.)
To also put CSM's argument in perspective, Bleecker expressly and
repeatedly confirmed to Peregrine and the other vendors, in writing, that she was
following the "A", "B", and "C" treatment designations of the ClinPhone PRS
(PSS 55). Peregrine understood that these were the treatment designations and so
did the other vendors.9
The language on the PLR document "*Treatment Group to be assigned at
time of packaging to maintain study blind" was confirmation that Bleecker was
going to honor the very same treatment group designations of the PRS she
repeatedly committed in writing to follow when applying the CSM blinded lot
9 Her outrageous excuse today for signing and then not following her representations
to Perceptive, Peregrine and other vendors, was that Peregrine was her client, not
Perceptive. (PSS 44.)
KNLH 1378026.1 8: 12 -cv-O I 608-JGB-AN -11-

numbers to the lot transmissions from Peregrine. (Leyco Decl. ¶ 12; PSS 12, 57.)
There is no document in the case reflecting she ever told Peregrine that this
*Treatment Group ... " language meant something different, and it did not. CSM's
argument is built around this at best, ambiguous "hint" that she might embark on a
secret randomization. She clearly made a conscious effort not to divulge or explain
her intentions — if this really had been her intention all along.
(3) Bleecker's "Hint" Was Too Subtle For Even CSM
CSM nonchalantly argues that the "*Treatment Group ...." language was an
unambiguous direction to CSM to "randomize the drug", but it is anything but that.
Many documents were shared with Peregrine and other vendors where she could
(and should) have disclosed she had done her own randomization, but did not.
(PSS 30, 33, 34, 79, 80.) CSM's internal documents address in great detail the
blinded lot number concept and other details but there is no mention of CSM doing
its first ever randomization. (PSS 30.)
The Court actually has grounds to find Bleecker was not authorized to switch
the treatment arms of the study. Bleecker never used this language before and never
explained its purported meaning to Peregrine (PSS 36). The QA Manager who
approved the PLR for CSM testified in February 2015 that she did not know what
the purpose or intent of the "*Treatment group..." language was. (Buchanan
Depo. 37, PSS 37-38.) Buchanan also adamantly noted that CSM never does
randomizations in clinical trials. (PSS 31.)
When Bleecker left CSM abruptly in July 2011, her Project Manager duties
were taken over by Gerald Finken. Finken did not realize himself for over a year
that Bleecker either had performed this "randomization" or that the "*Treatment..."
phrase meant she had intended to do so. (PSS 33, 73, 74.) If CSM's top people did
not understand what this language meant, there is no basis for CSM to argue CSM
was "just doing what the PLR said." The premise of CSM's motion, that it was "just
following the contract," is flat out wrong. CSM's ELD challenge should end there.

(4) Bleecker Engaged In Multiple Activities Outside The Scope
Of CSM's Contractual Services Which Resulted In The
Errors Of The Study
Bleecker was not supposed to randomize the treatment groups under the MSA
and Work Orders but she "just did it." (PSS 27, 63.) In expanding CSM's activities
outside the contract by switching the treatment groups, she also proceeded on the
assumption that CSM would be the vendor hired to perform the end-of study
unblinding (Depo. Ex. 13 and PSS 35), and she maintained her own Excel
spreadsheet tracking what the patients actually were receiving. She thus took on
end-of-trial unblinding responsibilities outside the Work Orders. Of course another
vendor, Perceptive, did the end-of-study unblinding, and it was not aware Bleecker
had switched two arms of the study. (PSS 82.)10
Finally, CSM, while failing to use cGMP compliant labels in the study,
removed and swapped labels. (PSS 86-89.) The label tampering and switching was
also outside the purview of the MSA and work orders and violated 21 CFR
Parts 211.125 and 211.130.
(5) Setting Aside That CSM Argues An Incorrect Interpretation
Of The Wrong "Contract," And Acted Well Beyond The
Bounds Of The Real Contract, The ELD Does Not Apply In
This Case
(a) CSM Has Not Met Its Burden Of ShowingThat The
Economic Loss Doctrine Would Bar Any Of
Peregrine's Tort Claims
The economic loss doctrine may preclude a plaintiff from recovering tort
damages for "economic losses" simply resulting from breach of contract. See North
American Chemical Co. v. Superior Court, 59 Cal.App.4th 764, 777 (1997). While
lo While a little confusing, there is a completely different unblinding service, the
procedure for "emergency unblinding during the trial" in the event a patient has an
adverse reaction. An emergency unblinding protocol was established to unblind the
specific patient's treatment through defined linesof communication. This was
contracted for with CSM. But it was incorrect for Bleecker to assume CSM would
also be hired to do the end-of-study unblinding. (PSS 82-83.)

the Motion goes to great lengths to establish the purported similarity of certain
allegations in the FAC, these efforts are for naught. Assuming the ELD doctrine
should even be considered, Peregrine's breach of contract claim is limited by the
limitation of liability of the MSA (approximately $600,000), set forth in the Court's
July 30, 2014 Order. Peregrine's tort claims are far more substantial. (CSM
Comp 16-17.) While some things CSM did wrong are within the ambit of the
breach of contract claim, the severe and outrageous actions in the case are not.
CSM engaged in multiple tortious behaviors that were not matters of the contract
described in the previous section. The negligence and constructive fraud claims
encompass all such damages. The negligent misrepresentation claim arises postcontract
and has its own subset of damages caused by the misrepresentation." CSM
surmises incorrectly that all damages are sought as to all claims for relief
(b) The Economic Loss Doctrine Would Not Bar
Peregrine's Negligence Claims In Any Event.
The ELD prevents the law of contract and the law of tort from dissolving into
each other. Robinson Helicopter Co. v. Dana Corp., 34 Cal.4th 979 (2004). The
ELD does not apply to the negligent performance of a services contract that results
in foreseeable economic loss. North American Chemical, supra, 59 Cal.App.4th at
770. This case clearly involves CSM's professional services.
Although CSM suggests there is authority applying ELD to "services" cases, a
careful reading of California law does not support that. See Eads v. Marks, 39
Cal.2d 807 (1952) (California Supreme Court finds that even where there is a
contractual agreement between the parties, a tort cause of action may arise out of the
negligent manner in which the contractual duty is performed or out of a failure to
11 The FAC incorporates by reference "the previous allegations." That does not
mean that all of the claims seek the same exact claim relief For example,
Peregrine's damages claims under its tort theories include damage to Peregrine's
intellectual property interest, the bavituximab platform itself.
KNLI-1\ 1378026.1 8:12-cv-01608-JGB-AN -14-

perform such duty). The decision in City & County of San Francisco v. Cambridge
Integrated Servs. Group, Inc., 2007 WL 1970092 (N.D. Cal) devotes nearly its
entire opinion to a survey on California law, particularly focusing on North
American Chemical and Eads, and concludes that the ELD does not apply to bar tort
claims in a professional services setting notwithstanding developments in case law
since those decisions. CSM's economic loss doctrine challenge must fail in the face
of North American Chemical and City & County of San Francisco.
Notwithstanding that hurdle for CSM, and assuming CSM's contract
obligations were not "services," the ELD still would not apply. The plaintiff in such
a situation may recover tort damages if it can show the existence of a special
relationship between itself and the defendant. North American Chemical, supra, 59
Cal.App.4th at 785.
In North American Chemical, which CSM inexplicably does not cite,12the
plaintiff entered into an agreement with the defendant to bag, containerize, and
transport chemicals to the plaintiffs customers, but the boric acid became
contaminated. 59 CalApp.4th at 770. The Court of Appeal held that the plaintiffs
packaging and shipping contract with the defendant imposed a duty on the defendant
which required it to reasonably and carefully perform its contractual obligations. Id.
at 769, 776. The court reasoned that a contract to perform services gives rise to a
duty of care — an implied promise at law — which requires that such services be
performed in a competent and reasonable manner. Id. at 774.
The special relationship test considered by the Court is based on the following
criteria: (1) the extent to which the transaction was intended to affect the plaintiff;
12 North American Chemical was the central discussion point when counsel met and
conferred before this motion was filed. It appears CSM has repeated its improper
tactic of not citing controlling authority and reserving new argument for its Reply.
J
See Peregrine's Opposition to CSM's July 21, 2014 Motion for Partial Summary
udgment at pp. 9-10). The Court should reject any attempt by CSM to distinguish
North American Chemical stated in its Reply.

(2) the foreseeability of harm to the plaintiff; (3) the degree of certainty that the
plaintiff suffered injury; (4) the closeness of the connection between the defendant's
conduct and the injury suffered; (5) the moral blame attached to the defendant's
conduct; and (6) the policy of preventing future harm.
In this case, as in North American Chemical, the MSA was a contract for
professional services that imposed upon CSM a legal duty to perform the contract
with due care. Specifically, CSM was to receive shipments of the placebo, 1 mg/kg
bavituximab, and 3 mg/kg bavituximab, label them exactly as instructed, and
distribute them to the patient sites and follow FDA regulations so the study had the
potential of being a registration study to bolster Peregrine's chances to
commercialize bavituximab. CSM failed to perform these duties in a competent and
reasonable manner when it labeled the vials improperly, violated its SOPs,
performed a secret randomization outside the contract, set up a failed unblinding,
caused 12 placebo patients to be exposed to bavituximab, and then covered its tracks
by switching labels, resulting in substantial damages to Peregrine.
As in North American Chemical, CSM's performance of the MSA was
expressly intended to affect Peregrine because the purpose of the MSA was to
facilitate Peregrine's Phase II NSCLC double-blind clinical trial, which was
Peregrine's most important clinical trial to date. If CSM did not perform properly
there was a reasonably foreseeable harm to Peregrine's economic interests exactly as
occurred. Peregrine clearly suffered substantial, foreseeable injury because, among
other things, Peregrine could not obtain FDA approval based on the results of the
Phase II trial alone, and Peregrine was required to expand the size of its Phase III
trial from 400 patients to nearly 600 patients in an attempt to rectify the results of
the failed Phase II trial. (PSS 113-116.) There can be no dispute that these injuries
resulted directly from CSM's improper actions. And, CSM's lack of diligence was
particularly blameworthy because, given the blinded nature of the study, Peregrine
was completely dependent on CSM to strictly follow protocol. Finally, just as in

North American Chemical, future harm to others can clearly be avoided by
confirming (as already provided in FDA regulations) a CRO's duty of due care to all
persons in the performance of its duties.
(c) CSM's Reliance On Erlich And Robinson Helicopter Is
Misplaced.
CSM neither disputes North American Chemical's applicability nor attempts
to distinguish it. Instead, CSM ignores North American Chemical altogether and
cites Erlich v. Menezes, 21 Cal.4th 543 (1999) and Robinson Helicopter Co., Inc. v.
Dana Corp., 34 Cal.4th 979 (2004), for the proposition that conduct amounting to
breach of contract becomes tortious only when it violates a duty independent of the
contract arising from principles of tort law.
Importantly, the situation in Erlich — the negligent construction of the home —
was nothing more than a failure to perform the express terms of the contract. There
was no allegation, as there is here and in North American Chemical, that the
defendant failed to perform the contract services in a competent and reasonable
manner. See FAC, at ¶¶30, 32, 36, 46; North American Chemical, 59 Cal.App.4th at
774, 785. Important added facts here are that CSM operated well outside the
boundaries of its contract in doing what it did. Erlich simply does not apply.
Robinson Helicopter supports Peregrine's tort claims. In Robinson
Helicopter, the plaintiff helicopter manufacturer entered into a contract with the
defendant parts manufacturer for the purchase of helicopter parts. The contract
required that the parts conform to certain specifications and that the defendant
supply certificates of conformance. After the defendant changed its manufacturing
process — resulting in parts that no longer met the contract's specifications — it
continued to provide certificates of conformance falsely stating that the parts met the
specifications. Id. at 986.
The California Supreme Court held that the economic loss rule did not bar the
fraud and intentional misrepresentation claims because the affirmative intentional

misrepresentation of fact in the certificates of conformance was an independent tort
separate from the breach of contract, i.e., the supplying of nonconforming parts. Id.
at 991. The California Supreme Court was clear in Robinson Helicopter that the
ELD does not apply where the plaintiff can demonstrate harm above and beyond a
broken contractual promise. Id. at 988.13That is precisely the situation here.14
CSM also cites a number of cases that plainly applied ELD because the fraud
involved was the inducement of the contract itself. See, e.g., United Guar. Mortg.
Indem. Co. v. Countrywide Fin. Corp., 660 F.Supp.2d 1163 (C.D. Cal. 2009). In
none of these cases was the tort alleged to be separate from the contract formation or
performance,15whereas here CSM far transgressed its role in carrying out its torts.
CSM also ignores the highly regulated framework the parties operated under
and the impact on patient safety and care. 21 CFR Parts 312.80, 312.88; see
Moreno v. Sanchez, 106 Cal. App. 4th 1415, 1435 (2003) (denying application of
ELD to a home inspector who failed to discover defects in a residence; the inspector
13 Furthermore, Robinson Helicopter discusses another exception to ELD: where a
party intentionally breaches a contract knowing that such a breach will cause
substantial economic damages. 34 Cal.4th at 990. Bleecker knew the CSM contract
provided that CSM was not to do randomization and she must have anticipated the
devastating consequences of her actions.
14 Perhaps recognizing that the economic loss doctrine does not bar Peregrine's tort
damages, CSM contendsthat none of the "recognized exceptions" to the economic
loss doctrine apply. However, the Erlich court specificall rejected the notion of a
concrete set of "exceptions" to the ELD. See Erlich, 21 Cal.4t h at 554.
15 In Oracle USA, Inc. v. XL Global Services 2009 WL 2084154 (N.D. Cal.), the
defendant was alleged to have fraudulently promised to pay its bills (and is not a
"services" case). Similarly, in Alvarado Orthopedic Research v. Linvatec CO-Fp.
2011 WL 3703192, and Wolf v. Superior Court, 107 Cal. App. 4th 25 (2003) tie
defendant was accused of fraudulently calculating money due under a contract.
Clayton v. Automated Gaming Techs, Inc. 2014 1/1q_, 1334005 (E.D. Cal.), Foster
Poultry Farms v. Alkar-Rqpidpak-MP Equip., 868 F.Supp. 2d 983 (E.D. Cal. 2012)
and Multifamily Captive Group, LLC v. AssurRisk Managers, Inc. 629 F.Supp. 2d
1135 (E.D. Cal. 2009) involved false representation inducing the execution of a
contract, so the fraud and breach were one and the same. Rejects Skate Magazine,
Inc. v. Acutrack, Inc. 2006 WL2458759, another unpublished opinion, relies on yet
another unpublished opinion by the same district judge, which was reversed b the
Ninth Circuit in Kalitta Air LLC v. Cent. Tex. Airborne Sys 315 Fed. Appx. (603 9th
Cir. 2008). (The plaintiff overcame the ELD after remand to the district court.)

was liable both in contract and in tort because he had an independent duty of care by
statute). The FDA regulatory scheme provides another basis of duty establishing the
"special relationship." While CSM now retreats into the notion that it was just hired
to "put on labels and mail vials," it was in a critical role in this trial and the trial was
critical to patient livelihood and Peregrine's own financial well-being. It was
expressly delegated certain of Peregrine's responsibilities under 21 CFR 312.52(a).
The patients in the study were late-stage lung cancer patients hopeful of
experiencing an extension of life who were taking a chance on a drug that was being
studied for extension of life. Bleecker also overlooked that an independent data
monitoring committee reviews the data on such oncology trials, and could in the
right circumstances recommend terminating the placebo treatments so all patients in
the study could benefit and the study could refocus on the optimal treatment dosage.
Bleecker derailed that possibility for these patients. Her actions also undermined
analysis of the optimum dosage size between the 1 mg/kg and 3 mg/kg doses.
Bleecker's misadventure in randomization undercut patient safety and delayed the
availability of this treatment. CSM had an "independent duty" to Peregrine any way
the situation is considered. See City & Co. of San Francisco, 2007 WL 1970092 at
3-4 discussing a professional's duty of care independent of the contract.16
(d) The ELD Does Not Bar Peregrine's Constructive
Fraud and Negligent Misrepresentation Claims.
CSM relies on WeBoost Media S.R.L. v. LookSmart Ltd., 2014 WL 2621465
(N.D. Cal.), an unpublished case from the Northern District of California, which
involved claims for fraudulent concealment and inducement, which require a
heightened pleading standard. The court found that, "as pled," the fraud claims were
16 CSM may argue its FDA regulatory responsibilities are contractual obligations.
However, professionals routinely note in agreements that they will comply with
regulatory responsibilities. There would be no consideration for "adding' that to the
contract. See U.S. Ecology v. State of California, 92 Cal. App. 4th 113, 128 (2000).

barred by the economic loss rule because they arose out of the very execution of the
contract. See id. at 17-20. Further, the case was based on fraudulent overbilling for
the work that was subject to the contract. So again this amounted to a dispute over
the amount of money owed under the contract which the plaintiff claimed was
"fraud" when this just involved the contract itself. CSM's misrepresentation that it
was following the PRS A/B/C protocol, and other activities outside of the contract,
and its attempts to cover its tracks, all are "harm above and beyond a broken
contractual promise" that permit these tort claims to proceed. Robinson Helicopter,
34 Ca1.4th at 988.
B. Peregrine's Claim For Negligent Misrepresentation/Concealment Is
Meritorious Based On Bleecker's Numerous Misrepresentations
and Ensuing Conduct.
CSM argues that Peregrine has not identified a "misrepresentation" as
required to support its claim for negligent misrepresentation/concealment. A
negligent misrepresentation is the assertion, as a fact, of something that is not true,
by one who had no reasonable ground to believe it is true. Cal.Civ.Code § 1710(2);
Ragland v. U.S. Bank National Assn., 209 Cal. App. 4th 182, 196 (2012). A
negligent misrepresentation occurs where one fails to convey accurate information
in a business setting in the course of a business or profession. Hydro-Mill Co., Inc.
v. Hayward, Tilton & Rolapp Ins. Assoc, Inc., 115 Cal. App. 4th 1145, 1154-55
(2004) (citing Friedman v. Merck & Co., 107 Cal. App. 4th 454, 477 (2003).
Bleecker Made Multi le Misrepresentations That She Was
Complying With The PRS And The Treatment Arm
Designations.
Bleecker made an express misrepresentation several times. She signed
version No. 1 of the PRS document (which contained the A/B/C designation).
(PComp. "UU".) The PRS was revised the next day. The A/B/C treatment
designation is absolutely clear in the version No. 2 document. (PComp. "X") (the
Randomization chapter of the PRS). Jahlen, with copies to the other vendors,
(1)
8:12-cv-01608-JGB-AN -20- KNLH\1378026.1
Case 8:12-cv-01608-JGB-AN Document 83 Filed 04/13/15 Page 26 of 33 Page ID #:1615
emailed the A/B/C page excerpt to Bleecker and she commented back to the group
on an issue related to emergency unblinding (PComp. "EE"). Bleecker was
reminded to actually sign version No. 2 on April 13, 2010. She did so and delivered
her signature again on April 15, 2010, stating, "I have reviewed the document and
attached is my approval." (PComp. "W") (See PSS 52-59 and PComp. "W", "X",
"EE", "UU".) This was hardly "pro forma"; Jahlen wanted her A/B/C confirmation
in writing and he got it. And the other vendors and Peregrine saw this.
Bleecker's confirmations were false. The true facts are that at the time of her
confirmations, Bleecker had already switched the "A" and "B" treatment arms in the
vial labeling underway, and continued doing so, such that patients randomized to the
"A" treatment group would receive 1 mg/kg bavituximab, and patients randomized
to the "B" treatment group would receive placebo. Accordingly, when Bleecker
positively asserted that she was complying with the PRS, and was secretly labeling
the investigational drug product differently, she had no reasonable ground to believe
her statements were true. See Civ. Code § 1710(2)."
CSM argues the PRS does not apply to CSM, but this argument ignores the
importance and role of the PRS. In a double-blind trial that utilizes multiple
vendors such as the trial at issue, the PRS is to be strictly followed by all vendors as
spelled out in the pre-meeting and kick-off meeting communications. (PSS 5, 17.)
Bleecker's unequivocal statements that she approved the PRS and was following the
treatment arm designations plainly constitute specific, positive assertions, whether
or not she harbored a misguided view that it was "not binding" on her.
17This if far different than the situation in Diediker v. Peelle Fin Corp.,
60 Cal.App.4th 288, where the defendant, a foreclosure trustee, literally said and
knew nothing about an undisclosed tax lien.

(2) Bleecker's Concealment Of Her Treatment Arm Switch Is
Relevant To Peregrine's Negligent Misrepresentation Claim.
CSM argues that Bleecker's repeated outright concealment of the switch from
Peregrine and vendors after her commitment to follow the PRS is irrelevant.18
Bleecker had many opportunities in detailed meetings to tell others involved in the
trial the fact that she had added in an extra layer of randomization without impacting
her own notion of the study blind. Instead, Bleecker continued to hide this fact, and
kept a set of secret records to track the treatment arm switch. Her continuing
concealment thereafter is certainly evidence she knew she had made a
misrepresentation (just like fleeing from authorities is evidence of guilt). Bleecker's
continued concealment of the treatment arm switch and her second set of secret
records put the entire trial at risk and eventually caused Peregrine extensive damage.
(3) CSM's Other Arguments Do Not Disprove Bleecker's
Misrepresentations.
CSM asserts that it was "Peregrine's responsibility" to verify the treatment
arm descriptions under the PRS to pass the blame. This argument is immaterial.°
Peregrine did verify that the treatment arm descriptions listed in the PRS were
correct; Peregrine, and the other vendors in the trial, understood that "A" was
placebo, "B" was 1 mg/kg, and "C" was 3 mg/kg. Peregrine had nothing to do with
Bleecker's rogue conduct and had no knowledge of it. The fact that Peregrine was
also responsible (to Perceptive) under the PRS for verifying the treatment arm
18CSM cites decisions indicating that concealment at the time of a
misrepresentation supposedly supports only an intentionalrrisrepresentation claim.
However, it cites no law indicating that a defendant's subsequent concealment is not
evidence of guilt. Further, discovery has revealed Bleecker s misrepresentation was
intentional in that, rather than claiming her confirmation she was following the
A/B/C PRS designation was an error, she argues she was "not bound" by it. These
facts fit both the negligent and intentional misrepresentation elements.
19CSM cannot logically argue that the PRS is not binding on it, and then claim to
avail itself of Perceptive's disclaimer language.

descriptions does not change the fact Bleecker misrepresented she was following the
PRS, and CSM is liable for that.
C. Peregrine's Constructive Fraud Claim Is Meritorious.
Constructive fraud is a breach of duty, without actual fraudulent intent, which
gains an advantage to the person in fault, by misleading another to his prejudice.
Cal. Civ. Code § 1573. Constructive fraud "'comprises any act, omission or
concealment involving a breach of legal or equitable duty, trust or confidence which
results in damage to another even though the conduct is not otherwise fraudulent.'"
Salahutdin v. Valley of California, 24 Cal. App. 4th 555, 562 (1994). Either a
traditional fiduciary relationship or a confidential relationship can support a claim
for constructive fraud. Persson v. Smart Inventions, Inc., 125 Cal. App. 4th 1141,
1160 (2005).
"IA] confidential relationship may exist whenever a person with justification
places trust and confidence in the integrity and fidelity of another." Tyler v.
Children's Home Society, 29 Cal. App. 4th 511, 549 (1994). Confidential
relationships "'do not fall into well-defined categories of law and depend heavily on
the circumstances", and the existence of a confidential relationship is a question of
fact. Persson, 125 Cal. App. 4th at 1160-61. A confidential relationship may also
be found based on a moral or social relationship. Id. at 1160. See also Portney v.
CIBA Vision Corp., 2008 WL 5505517 *4 (C.D. Cal.).
(1) Bleecker's Conduct Elevated CSM And Peregrine's
Relationship To A Confidential Relationship.
While it is true that the MSA provides that the relationship between CSM and
Peregrine is that of an independent contractor, Bleecker's actions in this case
elevated CSM and Peregrine's relationship to a confidential relationship.2°The
20 The fact that CSM is designated as an independent contractor in the MSA does
not prevent a finding that a fiduciary relationship existed between CSM and
(footnote continued)

"essence" of a "confidential relationship" for purposes of a constructive fraud claim
is that "the parties do not deal on equal terms, because the person in whom trust and
confidence is reposed and who accepts that trust and confidence is in a superior
position to exert unique influence over the dependent party." Portney v. CIBA
Vision, supra, at *11-13 (quoting Richelle L. v. Roman Catholic Archbishop, 106
Cal. App. 4th 257, 271 (2003).
That is precisely this situation. When Bleecker undertook to switch the "A"
and "B" treatment arms without authorization and without notice to anyone, she
took CSM and Peregrine's relationship outside what was defined in the MSA. At
that point, Bleecker controlled all of the information regarding which treatment
patients received, which she kept in a secret set of records. Peregrine unknowingly
became completely dependent on Bleecker in order to properly unblind the trial.
Bleecker did this because she was angling CSM for more business at the end of the
trial. (PSS 19.) Under these circumstances, Bleecker took complete control of the
trial's success, the patient treatment information, and patient safety.
CSM disputes whether a relationship that starts out merely contractual can
give rise to an "independent duty." That was the situation in Eads, in which the
defendant contracted to deliver milk to a residence, left bottles outside, and was held
liable in both contract and tort. Extrinsic factors may elevate a contractual, nonfiduciary
relationship into a fiduciary relationship.
CSM concentrates its argument on "fiduciary duty" rather than "confidential
relationship," and Peregrine's claim meets that test as well. Here, unlike the
situation in City of Hope National Medical Center v. Genentech, Inc., 43 Cal.4th
375 (2008), CSM was working expressly for Peregrine's benefit, and CSM was
Pere rine. JP Morgan Chase Bank, N.A. v. IDW Group, LLC, 2009 WL 321222
*11 (S.D.N.Y.). In any event, a "fiduciary" relationship is not necessarily the same
thing as a "confidential" relationship. See Persson, 125 Cal. App. 4th at 1160-61.
KNLH\1378026.1 -24- 8:12-cv-01608-JGB-AN

handling an "entrusted secret," particularly at the point when Bleecker was the only
one who knew "the secret" — the actual patient treatments. Bleecker, for whatever
reason, knowingly took on responsibility to exercise trust and confidence in
handling the patient treatment information. The relationship may not have started
out as a "fiduciary" one, but it clearly became exactly that.
(2) Federal Regulations Also Impose A Higher Standard On
CSM.
Moreover, pursuant to 21 CFR § 312.52(a), "[a] sponsor may transfer
responsibility for any or all of the obligations set forth in this part to a contract
research organization." 21 CFR § 312.52(b) further provides that "[a] contract
research organization that assumes any obligation of a sponsor shall comply with the
specific regulations in this chapter . . . and shall be subject to the same regulatory
action as a sponsor for failure to comply with any obligation assumed under these
regulations." When Bleecker did her secret randomization she assumed Peregrine's
responsibility to "provide randomization" and was obligated to carry it out. She thus
also took over unblinding responsibilities (since it could not be done properly
without knowledge of the swap). Bleecker's rogue conduct went above and beyond
CSM's contractual duties as stated in the MSA, Work Orders, and PRS, and elevated
CSM and Peregrine's relationship to a confidential and fiduciary relationship.
4. CONCLUSION
CSM's Motion should be denied.
DATED: April 13, 2015 KIRBY NOONAN LANCE & HOGE LLP
By: /s/ Charles T Hoge
Charles T. Hoge
Genevieve M. Ruch
Attorneys for Plaintiff Peregrine
Pharmaceuticals, Inc.
KNLH\1378026.1 8:12-cv-01608-JGB-AN -25-
Case 8:12-cv-01608-JGB-AN Document 83 Filed 04/13/15 Page 31 of 33 Page ID #:1620
PROOF OF SERVICE
DATE: May 4, 2015
TIME: 9:00 a.m.
DEPT: 1
TRIAL DATE: October 20, 2015
JUDGE: Hon. Jesus G. Bernal
Peregrine Pharmaceuticals, Inc. v. Clinical Supplies Management, Inc.
USDC Central District Case No. 8:12-cv-01608-JGB-AN
I, the undersigned, declare: That I am, and was at the time of service of the papers
herein referred to, over the age of eighteen years, and not a party to the action; and I am
employed in the County of San Diego, California. My business address is 350 Tenth
Avenue, Suite 1300, San Diego, California 92101-8700.
On April 13, 2015, at San Diego, California, I served the following document(s)
described as SEE LIST OF DOCUMENTS on the parties in said action as follows:
Matthew L. Marshall, Esq.
Robert Hernandez, Esq.
Morris Polich & Purdy LLP
1055 West Seventh Street, Suite 2400
Los Angeles, CA 90017
Tel: [phone] — Marshall direct
[phone] — main
Fax: [phone]
[e-mail] [e-mail]
Attorneys for Defendant
El ELECTRONIC TRANSMISSION: I filed the foregoing document with the Clerk
of Court for the USDC Central District, using the Electronic Case Filing ("ECF")
system of the Court. The attorney listed above has consented to receive service by
electronic means and is registered with the Court's ECF system and was served a
"Notice of Electronic Filing" sent by ECF system.
FEDERAL COURT: I declare under penalty of perjury under the laws of the
United States of America that the foregoing is true and correct and that I am
employed in the office of a member of the bar of this Court at whose direction the
service was made.
Executed on April 13, 2015, at San Diego, Californi