Avid Bioservices Inc (CDMO)

[cheynew]

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES—GENERAL
Case No. SACV 12-1608 JGB (ANx) Date June 22, 2015
Title Peregrine Pharmaceuticals, Inc. v. Clinical Supplies Management, Inc.
Present: The Honorable JESUS G. BERNAL, UNITED STATES DISTRICT JUDGE

MAYNOR GALVEZ ADELE C. FRAZIER
Deputy Clerk Court Reporter

Attorney(s) Present for Plaintiff(s): Attorney(s) Present for Defendant(s):
Charles T. Hoge Matthew L. Marshall
Robert Hernandez
Proceedings: Order GRANTING Defendant’s Motion for Partial Summary Judgment
(Doc. No. 82)
Before the Court is Defendant Clinical Supplies Management, Inc.’s Motion for Partial
Summary Judgment. (Doc. No. 82.) After considering the papers filed in support of and in
opposition to Defendant’s Motion as well as the arguments presented at the June 22, 2015
hearing, the Court GRANTS Defendant’s Motion for Partial Summary Judgment.
I. BACKGROUND
On September 24, 2012, Plaintiff Peregrine Pharmaceuticals, Inc. (“Plaintiff” or
“Peregrine”) filed a Complaint against Defendant Clinical Supplies Management, Inc.
(“Defendant” or “CSM”). (Compl., Doc. No. 1.) The Court granted the parties’ stipulation to
stay the case for 120 days beginning on March 8, 2013 to allow them to participate in a dispute
resolution process required by contract. (Doc. No. 11.)
On March 28, 2014, Plaintiff filed the operative First Amended Complaint which states
five causes of action for (1) breach of contract; (2) negligence; (3) negligence per se;
(4) negligent misrepresentation/concealment; and (5) constructive fraud. (“FAC,” Doc. No. 26.)
On June 5, 2014, Defendant filed its first motion for partial summary judgment. (“1st
MPSJ,” Doc. No. 35.) Following a hearing on July 28, 2014, the Court granted in part and
denied in part that motion. (“MPSJ Order,” Doc. No. 45.) Specifically, the Court held that “the
Limitations on Damages clauses in Paragraph 16 of the Master Services Agreement apply to the
FAC’s causes of action for breach of contract, passive negligence, and negligence per se.”
(MPSJ Order at 44.) However, “[t]he damages limitations do not apply to the claims in the FAC
for active negligence, negligent misrepresentation, and constructive fraud.” (Id.)
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On March 27, 2015, Defendant CSM filed a second1
Motion for Partial Summary
Judgment. (“Motion,” Doc. No. 82-1.) In support of that Motion, Defendant filed the following
documents:
? Statement of Uncontroverted Facts, (“SUF,” Doc. No. 82-2);
? Declaration of Matthew L. Marshall, (“Marshall Decl.,” Doc. No. 82-3);
? Declaration of Jeanette Bleecker, (“Bleecker Decl.,” Doc. No. 82-4);
? Declaration of Angela Calkins Humrich, (“Humrich Decl.,” Doc. No. 82-5); and
? Compendium of Exhibits, (“D. Comp.,” Doc. No. 82-6), and Exhibits A through
L, (Doc. Nos. 82-7 to -19).
On April 13, 2015, Plaintiff filed an Opposition to Defendant’s Motion, (“Opp’n,” Doc.
No. 83), along with the following supporting documents:
? Declaration of A.J. Leyco, (“Leyco Decl.,” Doc. No. 83-1);
? Declaration of Charles T. Hoge, (“Hoge Decl.,” Doc. No. 83-2);
? Statement of Genuine Disputes, (“SGD,” Doc. No. 83-2)2
;
? Objections to Evidence, (“P. Obj.,” Doc. 83-4)3
; and
? Compendium of Exhibits, including Exhibits A through DDD, (“P. Comp,” Doc.
Nos. 83-5 & -6).
1
The Court’s Standing Order limits each party to a single motion pursuant to Federal
Rule of Civil Procedure 56. (Doc. No. 16.) However, at the February 3, 2014 Scheduling
Conference, the Court granted Defendant special permission to file an initial motion for partial
summary judgment as to a threshold issue and later bring a subsequent summary judgment
motion as to other issues.
2
Along with the Statement of Genuine Disputes, Plaintiff included Additional Material
Facts. (“AMF,” Doc. No. 83-2 at 44-61.)
3
Peregrine objects to several of the facts included in CSM’s SUF. Three types of
objections are raised: the asserted fact mischaracterizes the cited evidence, lack of foundation,
and improper legal conclusion. At the summary judgment stage, district courts consider
evidence with content that would be admissible at trial, even if the form of the evidence would
not be admissible at trial. See Fraser v. Goodale, 342 F.3d 1032, 1036 (9th Cir. 2003); Block v.
City of Los Angeles, 253 F.3d 410, 418-19 (9th Cir. 2001). “[O]bjections to evidence on the
ground that it is irrelevant, speculative, and/or argumentative, or that it constitutes an improper
legal conclusion are all duplicative of the summary judgment standard itself” and are thus
“redundant” and unnecessary to consider here. Burch v. Regents of Univ. of Cal., 433 F. Supp.
2d 1110, 1119 (E.D. Cal. 2006); see also Anderson, 477 U.S. 242, 248 (1986) (“Factual disputes
that are irrelevant or unnecessary will not be counted.”). The Court does not rely on asserted
facts that mischaracterize the supporting evidence or legal conclusions set forth as facts.
Peregrine’s objections are thus unnecessary and are overruled.
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CSM replied on April 20, 2015, (“Reply,” Doc. No. 844
), and again filed numerous
supporting documents:
? Supplemental Declaration of Angela Calkins Humrich, (“Humrich Decl. 2,” Doc.
No. 84-1);
? Supplemental Declaration of Matthew L. Marshall, (“Marshall Decl. 2,” Doc. No.
84-2);
? Supplemental Compendium of Exhibits, (“D. Comp. 2,” Doc. No. 84-3), and
Exhibits M through S, (Doc. Nos. 84-4 to -10);
? Objections to Evidence, (“D. Obj.,” Doc. No. 84-11)5
; and
? Response to Plaintiff’s Additional Material Facts, (“RAMF,” Doc. No. 84-12).
On April 24, 2015, Plaintiff filed Objections to the Evidence Submitted in Defendant’s
Reply. (“Obj. Reply,” Doc. No. 85.)6
The Court heard oral argument from both parties on Defendant’s second Motion for
Partial Summary Judgment on June 22, 2015.
II. LEGAL STANDARD
A motion for summary judgment shall be granted when there is no genuine issue as to
any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P.
56(a); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). The moving party must
show that “under the governing law, there can be but one reasonable conclusion as to the
verdict.” Anderson, 477 U.S. at 250.
4
Pursuant to the Court’s Standing Order, reply briefs are limited to twelve pages. (Doc.
No. 16.) CSM improperly submitted a reply of over eighteen pages. The Court instructs CSM to
carefully review the Court’s Standing Order before all future filings and cautions that it may
strike future briefs that exceed the Court’s page limit.
5
CSM raises numerous evidentiary objections to Peregrine’s AMF. However, those
objections almost entirely consist of objections on the basis that the asserted facts
mischaracterize or misstate the evidence or that the cited evidence does not support the facts. As
noted above, such objections are duplicative of the summary judgment standard. See Fraser, 342
F.3d at 1036; Block, 253 F.3d at 418-19. If the Court determines that an asserted fact misstates
the evidence or is unsupported by the evidence, the Court does not rely on that fact.
Accordingly, CSM’s objections are unnecessary and are overruled.
6
Peregrine also raises evidentiary objections to the evidence accompanying CSM’s
Reply. Those objections include that the evidence constitutes a legal conclusion, that new
evidence was improperly submitted in reply, and lack of foundation. Where the Court concludes
that new information has been presented in reply, it does not rely on that evidence. As
Peregrine’s other objections mirror those raised in opposition, they are overruled for the same
reasons explained above.
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Generally, the burden is on the moving party to demonstrate its entitlement to summary
judgment. Margolis v. Ryan, 140 F.3d 850, 852 (9th Cir. 1998); Retail Clerks Union Local 648
v. Hub Pharmacy, Inc., 707 F.2d 1030, 1033 (9th Cir. 1983). The moving party bears the initial
burden of identifying the elements of the claim or defense and presenting evidence that it
believes demonstrates the absence of an issue of material fact. Celotex Corp. v. Catrett, 477 U.S.
317, 323 (1986). When the non-moving party has the burden at trial, however, the moving party
need not produce evidence negating or disproving every essential element of the non-moving
party’s case. Id. at 325. Instead, the moving party’s burden is met by pointing out an absence of
evidence supporting the non-moving party’s case. Id. The burden then shifts to the non-moving
party to show that there is a genuine issue of material fact that must be resolved at trial. Fed. R.
Civ. P. 56(e); Celotex, 477 U.S. at 324; Anderson, 477 U.S. at 256. The non-moving party must
make an affirmative showing on all matters placed in issue by the motion as to which it has the
burden of proof at trial. See Celotex, 477 U.S. at 322; Anderson, 477 U.S. at 252; William W.
Schwarzer, A. Wallace Tashima & James M. Wagstaffe, Federal Civil Procedure Before Trial,
14:144. “This burden is not a light one. The non-moving party must show more than the mere
existence of a scintilla of evidence.” In re Oracle Corp. Sec. Litig., 627 F.3d 376, 387 (9th Cir.
2010) (citing Anderson, 477 U.S. at 252). It must do more than demonstrate “some
‘metaphysical doubt’ as to the material facts at issue.” Id. (citing Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475 U.S. 574, 586 (1986)).
A genuine issue of material fact exists “if the evidence is such that a reasonable jury
could return a verdict for the non-moving party.” Anderson, 477 U.S. at 248. When ruling on a
motion for summary judgment, the Court construes the evidence in the light most favorable to
the non-moving party. See Barlow v. Ground, 943 F.2d 1132, 1135 (9th Cir. 1991); T.W. Elec.
Serv. Inc. v. Pac. Elec. Contractors Ass’n, 809 F.2d 626, 630-31 (9th Cir. 1987).
III. DISCUSSION
CSM moves for summary judgment on four of Plaintiff’s five causes of action,
specifically Plaintiff’s claims for negligence, negligence per se, negligent misrepresentation or
concealment, and constructive fraud. (Mot. at 1.) The Court first summarizes the relevant facts
of the case and then turns to CSM’s arguments.
A. Facts
Except as noted, the following material facts are sufficiently supported by admissible
evidence and are uncontroverted. They are “admitted to exist without controversy” for the
purpose of this Motion for Partial Summary Judgment. L.R. 56-3 (facts not “controverted by
declaration or other written evidence” are assumed to exist without controversy); accord Fed. R.
Civ. P. 56(e)(2) (stating that, when a party fails to properly address another party’s assertion of
fact, a court may “consider the fact undisputed for purposes of the motion”).
Peregrine is a biopharmaceutical corporation that develops pharmaceuticals focused on
the treatment of cancer and other diseases. (SUF ¶ 1.) CSM is a clinical trial services company
that is engaged in the business of providing clinical supply management services in support of
clinical research programs. (SUF 2.) In March 2010, Peregrine retained CSM to provide certain
clinical trial services for a Phase II clinical trial of its cancer drug, Bavituximab (the “study
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drug”), evaluating Bavituximab in 121 patients (the “Phase II trial”). (SUF ¶ 3.) On March 18,
2010, CSM signed the final version of the Master Services Agreement between Peregrine and
CSM. (“MSA” at 11, D. Comp., Ex. C; SUF ¶ 4.)
The MSA detailed numerous aspects of the contractual relationship between Peregrine
and CSM. Section 18 of the MSA, entitled “INDEPENDENT CONTRACTOR,” provides in
Part B that “CSM[’s] status and relationship with CLIENT will be that of an independent
contractor. Nothing herein creates, expressly or by implication, a partnership, joint venture,
agency or other associates [sic] of the Parties.” (SUF ¶ 59; MSA at 7.) Both Peregrine and CSM
received a benefit from the terms of the MSA, specifically an exchange of payment for services.
(SUF ¶ 60.) The MSA did not require CSM to undertake any fiduciary obligation to act on
behalf or for the benefit of Peregrine, nor did it provide that CSM was to subordinate its interests
to Peregrine’s interests. (SUF ¶ 617
.) Sectin 14 of the MSA, entitled “INSPECTION AND
AUDITS” expressly provided Peregrine the right to “audit or inspect CSM’s facility, processes
and records that relate to the [contracted-for] [s]ervices.” (MSA at 8.) CSM was one of eight
vendors providing services for Peregrine as part of the Phase II trial. (SUF ¶ 58.)
The specific services that CSM was to provide in the Phase II trial were set forth in
greater detail in a Work Order and Change Orders. (SUF ¶ 5.) The Work Order was dated
March 18, 2010, and signed by Peregrine’s Vice President of Clinical and Regulatory Affairs,
Joseph Shan (“Shan”). (SUF ¶ 6.) Among other things, the Work Order provided that Peregrine
would be responsible for “[p]roviding randomization.” (“Work Order” at 4, D. Comp., Ex. D,
Doc. No. 82-10.)
The Work Order required CSM to prepare a Packaging and Labeling Requirements
document (“PLR”) that outlined its packaging and labeling obligations for the study drug that
CSM was to receive, package, label, and distribute to investigational sites as part of the Phase II
trial. (Id.) CSM prepared a draft PLR and sent it to Peregrine for review and comment on
March 5, 2010. (SUF ¶ 7.) Peregrine revised the draft PLR and returned it to CSM on March 9,
2010. (SUF ¶ 8.) The parties agreed on the final terms of the PLR, and Shan signed the PLR on
March 15, 2010. (SUF ¶ 9.) The PLR repeatedly states, “Treatment Group to be assigned by
CSM at time of packaging to maintain study blind.” (“Final PLR,” D. Comp., Ex. F, Doc. No.
82-12.)
Also incorporated into the agreement between Peregrine and CSM was a document
entitled the ClinPhone Compact Project Requirements Specification. (“PRS,” P. Comp., Ex. X,
Doc. No. 83-6.) The PRS was prepared by Perceptive Informatics (“Perceptive”), a company
that Peregrine retained to provide management services for the Phase II trial. (SUF ¶ 46.) The
PRS set forth a Description of Treatment Groups, which assigned the letter “A” as the treatment
group identifier for the group receiving Docetaxel plus placebo (“Placebo Group”) and the letter
7
Peregrine purports to partially dispute this fact on the basis that Bleecker’s switching of
the trial group identifiers elevated the parties’ relationship to a confidential or fiduciary
relationship. (SGD ¶ 61.) That argument is discussed below, but Peregrine does not dispute that
the MSA did not specify such a relationship.
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“B” as the identifier for the group receiving Docetaxel plus 1mg/kg Bavituximab (“1mg
Group”). (PRS at ¶ 6.2.) The PRS also provided that “PEREGRINE Pharmaceuticals, Inc[.,]
should ensure the above descriptions are correct.” (Id.)
At the outset of Peregrine’s Phase II trial, Jeannette Bleecker was the CSM Project
Manager assigned to that project. (AMF ¶ 15.) Bleecker acknowledges signing off on the PRS,
but she denies that, by signing it, she made a commitment to follow the A/B/C assignments in
the PRS. (AMF ¶ 44.) In an email dated April 15, 2010, Bleecker stated, “I have reviewed the
document and attached is my approval”; she attached a signed “[a]uthorization” indicating her
approval of the PRS. (“4/15/2010 Bleecker Email,” P. Comp., Ex. W, Doc. No. 83-6.) Although
Peregrine baldly asserts that, at the time of sending that email, Bleecker had already switched the
“A” and “B” labels between the Placebo Group and 1 mg Group, Peregrine notably fails to cite
to any evidence supporting that assertion. (Opp’n at 5, 21.)
In June 2010, Peregrine and CSM approved a document entitled “Unblinding Services
Processing Protocol.” (“USPP,” D. Comp., Ex. O.) The USPP provided that, “n the event of a
serious adverse event or any other reason deemed necessary to unblind a specific patient from
the study,” CSM would verbally provide unblinding information to Peregrine’s authorized
representative. (USPP at 1-3.) The USPP also provided that, at the conclusion of the clinical
trial, Peregrine could request and obtain “the randomization codes.” (USPP at 4.)
In contrast to the designations listed in the PRS, Bleecker assigned the letter “B” as the
identifier for the Placebo Group and the letter “A” as the identifier for the 1mg Group. Bleecker
appears not to have used a validated randomization program to perform that switch. (AMF
¶¶ 69-70, 72.) Bleecker testified that, when she switched the treatment groups, nobody told her
to do it; she just did it. (AMF ¶ 27.)
Bleecker was aware that CSM had not been awarded the end-of-study unblinding work
but expected that CSM would be awarded that work. (AMF ¶ 19.) At the clinical trial kick-off
meeting in February 2010, Bleecker offered that CSM could perform the “randomization”
services, but they were not thereafter awarded to CSM. (AMF ¶¶ 16, 20.) By doing its own
randomization of the treatment groups, the end-of-study unblinding would have to proceed
through CSM because only CSM would know what which patients received what dose. (AMF
¶ 35.)
Bleecker never expressly informed Peregrine that she had deviated from the A/B/C
assignments for the treatment groups as set out in the PRS. (AMF ¶ 25.)8
Nothing in the batch
records prepared by CSM and transmitted to Peregrine disclosed that Bleecker was randomizing
or switching the A/B/C assignments of the treatment groups. (AMF ¶ 62.)
The study was unblinded by Perceptive in May 2012. (AMF ¶ 82.) During an audit of
the study by Peregrine’s representative, Jeff Masten, an employee disclosed that Bleecker had
8
CSM purports to dispute the fact asserted in AMF ¶ 25, but its cited evidence does not
sufficiently dispute the fact as rephrased here by the Court. (RAMF ¶ 25.)
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switched the treatment group identifiers (AMF ¶¶ 84-85.) The reversal of the “A” and “B”
labels on certain labels potentially implicated up to twenty-five percent of the total vials provided
to the Placebo Group and 1 mg Group. (AMF ¶ 92.) Some patients apparently received both the
placebo and the 1 mg doses. (AMF ¶ 64.)
The damage resulting to Peregrine from the failure of its clinical trial is many times the
amount paid to CSM for its services. (AMF ¶ 105.) The Phase II study cost in excess of
$12,000,000 in combined direct costs, the costs of internal employee work on the trial, and
associated costs. (AMF ¶ 108.) The Phase II Trial was a registration study; if the trial led to
statistically significant results, Peregrine would have been able to seek FDA approval to
immediately proceed to a Phase III trial or perhaps seek accelerated approval. (AMF ¶ 2.) The
success of the study may also have led to commercial success for Peregrine and reduced the time
to market by three to four years. (AMF ¶¶ 3, 106-07, 109-10.)
B. Economic Loss Rule Bars Peregrine’s Tort Claims
CSM moves for summary judgment on Peregrine’s tort claims—for negligence,
negligence per se, negligent misrepresentation, and constructive fraud—on the basis that those
claims are barred by the economic loss rule. (Mot. at 2-4.) The Court finds this argument
persuasive. Peregrine’s tort claims do not arise out of a legal duty independent from its duties
under the parties’ contract. Accordingly, those tort claims must fail, and Peregrine’s remedies
are limited to those obtainable through its breach of contract claim.
1. The Economic Loss Rule
Economic loss comprises damages for lost profits, disappointed expectations, costs of
repair or replacement, and the like, “without any claim of personal injury or damages to
[physical] property.” See Jiminez v. Superior Court, 29 Cal. 4th 473, 482 (Cal. 2002).
Ordinarily, when a party suffers only economic loss flowing from a contractual relationship, his
remedies are limited to those sounding in contract and not in tort. See Robinson Helicopter Co.
v. Dana Corp., 34 Cal. 4th 979, 988 (Cal. 2004). In other words, such a plaintiff may be limited
to benefit-of-the-bargain damages, and out-of-pocket damages may be unavailable. Id. at 992.
California courts have pointed to the increasingly blurred line between contract and tort
law as the primary rationale for the economic loss rule. See Erlich v. Menezes, 21 Cal. 4th 543,
551 (Cal. 1999). This “uncertain boundar[y] and the apparent breadth of recovery available for
tort actions create pressure to obliterate the distinction between contracts and torts—an
expansion of tort law at the expense of contract principles.” Id. Simply put, “the economic loss
rule ‘prevent[s] the law of contract and the law of tort from dissolving one into the other.’”
Robinson Helicopter, 34 Cal. 4th at 988. The rule “requires a purchaser to recover in contract for
purely economic loss due to disappointed expectations, unless he can demonstrate harm above
and beyond a broken contractual promise.” Id.
2. Exceptions to the Economic Loss Rule
The California Supreme Court has recognized an exception to the general economic loss
rule allowing recovery in contract as well as tort. “[C]onduct amounting to a breach of contract
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becomes tortious only when it also violates a duty independent of the contract arising from
principles of tort law.” Erlich, 21 Cal. 4th at 551. In other words, “[a]n omission to perform a
contract obligation is never a tort, unless that omission is also an omission of a legal duty.” Id.
(internal quotation omitted).
Peregrine posits several theories for why the Court should accept the existence of an
independent legal duty.
a. Services Contracts
Peregrine first asserts that inherent in all services contracts is a duty of care, requiring
that the services be performed in a competent and reasonable manner. (Opp’n at 14-15 (citing N.
Am. Chem. Co. v. Superior Court, 59 Cal. App. 4th 764 (Cal. Ct. App. 1997)).) However, the
case Peregrine cites in support of that contention is North American Chemical, a California
Court of Appeal case, the reasoning and holdings of which appear to have been largely ignored
or distinguished by subsequent opinions of the California Supreme Court. First, North American
Chemical predated two directly relevant California Supreme Court cases—Erlich and Robinson
Helicopter—that clarified the applicability of the economic loss doctrine to cases involving both
contract and tort claims. For example, although Erlich involved a services contract for the
construction of a house, the California Supreme Court did not mention or rely on any implied
duty of care for the competent construction of the house and instead held that the plaintiffs’
negligence claim failed because it was not based on an independent tort duty. See Erlich, 21 Cal.
4th at 553-54 (“This is a claim for negligent breach of a contract, which is not sufficient to
support tortious damages for violation of an independent tort duty). Indeed, when summarizing
the categories of contract cases in which tort damages have been permitted, the court made no
mention of services contracts. See id. at 551-52 (noting the categories of (i) contract breaches
that directly cause physical injury, (ii) breaches of the covenant of good faith and fair dealing in
insurance contracts, (iii) wrongful discharge in violation of public policy, and (iv) contracts that
were fraudulently induced).
Second, in Aas v. Superior Court the California Supreme Court found arguments based
on North American Chemical to be unpersuasive. See Aas v. Superior Court, 24 Cal. 4th 627,
643 (Cal. 2000), superseded by statute, Cal. Senate Bill No. 800 (2001-2002 Reg. Sess.), as
recognized in Rosen v. State Farm General Ins. Co., 30 Cal. 4th 1070, 1079-80 (Cal. 2003)
(explaining that the bill altered the standards of liability for newly constructed housing).
Discussing the plaintiffs’ argument that a services contract gives rise to a duty of care requiring
services to be performed in a competent manner, the court explained that “[a] person may not
ordinarily recover in tort for the breach of duties that merely restate contractual obligations,”
except where the breach violates an important social policy meriting tort remedies. Aas, 24 Cal.
4th at 643, 645 n.11 (essentially rejecting the premise that, when applying the economic loss
rule, services contracts should generally be treated differently than contracts for products).
Accordingly, although the California Court of Appeal’s decision in North American
Chemical has not been expressly overruled, its holding has largely been ignored or contradicted
in subsequent opinions by the California Supreme Court.
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b. Relationship Between Peregrine and CSM as Source of Independent Duty
Peregrine next argues that, even if an independent legal duty cannot be grounded in the
distinction between contracts for goods and those for services, such a duty exists in light of a
special, fiduciary, or confidential relationship between Peregrine and CSM. (Opp’n at 15-17, 23-
25.) However, that alternative reasoning also fails.
i. Fiduciary or Confidential Relationship
Peregrine asserts that a fiduciary or confidential relationship exists between the parties,
sufficient to establish a legal or equitable duty that forms the basis for a constructive fraud claim.
(Opp’n at 23-25.) In contrast, CSM contends that no fiduciary or confidential relationship
existed between the parties. (Mot. at 14-23.) The Court addresses each type of relationship but
concludes that neither is applicable to the relationship between CSM and Peregrine.
(A) Fiduciary Relationship
“[A] fiduciary relationship is a recognized legal relationship such as guardian and ward,
trustee and beneficiary, principal and agent, or attorney and client.” Richelle L. v. Roman
Catholic Archbishop, 106 Cal. App. 4th 257, 271 (Cal. Ct. App. 2003). “[F]iduciary relations
arise out of certain canonical relationships that are legally defined and regulated.” Id. A person
cannot be charged with a fiduciary obligation unless and until he “either knowingly undertake[s]
to act on behalf and for the benefit of another, or . . . enter[s] into a relationship which imposes
that understanding as a matter of law.” City of Hope Nat’l Med. Ctr. v. Genentech, Inc., 75 Cal.
4th 375, 386 (Cal. 2008). In the following categories, a fiduciary relationship can arise as a
matter of law:
(1) principal and agent, (2) attorney and client, (3) partners,
(4) joint venturers, (5) corporate officers and directors, on the one
hand, and the corporation and shareholders, on the other hand,
(6) husband and wife, [(7)] controlling shareholders and minority
shareholders, (8) trustee and trust beneficiary, (9) guardian and
ward, (10) pension fund trustee and pensioner beneficiary, and
(11) executor and decedent’s estate.
Comercializadora Recmaq v. Hollywood Auto Mall, LLC, Civil No. 12cv0945 AJB (MDD),
2014 WL 3628272, at *13 (S.D. Cal. July 21, 2014) (internal citations omitted).
Peregrine acknowledges that its relationship with CSM does not fit within any of the
categories that establish a fiduciary relationship as a matter of law; instead Peregrine asserts that
CSM knowingly undertook to act on behalf and for the benefit of Peregrine. (Opp’n at 24-25.)
Generally, however, a special or fiduciary relationship does not arise from an “ordinary
commercial contractual relationship[].” See Martin v. U-Haul Co. of Fresno, 204 Cal. App. 3d
396, 412 (Cal. Ct. App. 1988). Peregrine points to “no indication in the contract that [CSM]
entered into it with the view of acting primarily for the benefit of [Peregrine].” Cf. City of Hope,
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75 Cal. 4th at 386. Instead, the contract establishes a mutually beneficial independent-contractor
relationship. (SUF ¶ 59.)9
Moreover, “[t]he essence of a fiduciary . . . relationship 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.” Richelle L., 106 Cal. App. 4th at 271. The Court has already rejected
Peregrine’s argument that it was under CSM’s control. (MPSJ Order at 28-29 & n.12.)
Moreover, the contours of CSM’s responsibilities to Peregrine were detailed through specific
contractual provisions, which also gave Peregrine the right to “audit or inspect CSM’s facility,
processes and records that relate to the [contracted-for] [s]ervices.” (MSA at 8.)
In an attempt to compensate for its lack of support for a fiduciary relationship, Peregrine
argues that “[t]he relationship may not have started out as a ‘fiduciary’ one, but it clearly became
exactly that” when Bleecker switched the A/B/C treatmemt group identifiers, making Peregrine
dependent on CSM for the unblinding process. (Opp’n at 24-25.) Thus Peregrine apparently
argues that Bleecker’s alleged breach of both the contract and fiduciary relationship is precisely
what created that fiduciary relationship.10 Logically, that cannot be. Peregrine cites to no
support for its assertion that a breach of a contract can transform a commercial contractual
relationship into a fiduciary relationship. (Opp’n at 24-25.)11 Absent any such legal support or,
in the least, a persuasive argument for why such a conversion should be recognized, the Court
declines to conclude that Bleecker’s actions created a fiduciary relationship.
9
That the relationship between the parties was properly characterized as an independent
contractor relationship is buttressed by federal regulations. Specifically, 21 CFR § 312.3(b)
provides that contract research organizations (such as CSM) are parties that assume an
independent-contractor relationship with a sponsor (like Peregrine).
10 In fact the California Supreme Court has explained that “efore a person can be
charged with a fiduciary obligation,” he must take certain actions to create the requisite fiduciary
relationship. City of Hope, 43 Cal. 4th at 386 (emphasis added). Thus the creation of the
fiduciary relationship must precede the alleged violation of the fiduciary duty.
11 Peregrine cites to only Eads v. Marks, 39 Cal. 2d 807, 810-11 (Cal. 1952). That case
did not address whether any fiduciary or confidential relationship existed between the parties.
Moreover, the continued relevance of Eads is somewhat questionable. See Britz Fertilizers, Inc.
v. Bayer Corp, , *11 (E.D. Cal. Feb. 5, 2008) (“[R]eliance on Eads is misplaced. Eads has been
refuted by later California case law that establishes the independent duty requirement.”). Indeed,
the opinions in neither Robinson Helicopter nor Erlich cite the Eads decision.
Peregrine also looks to 21 CFR § 312.52(a), (b) as placing additional responsibilities on
CSM and thus creating a fiduciary or confidential relationship. (Opp’n at 25.) However, those
regulations merely provide that contract research organizations, like CSM, are required to follow
certain regulatory provisions that govern clinical trials. Peregrine fails to explain why the
regulations should be interpreted as creating a confidential or fiduciary relationship or offer any
support for that assertion. The Court rejects the notion that, merely because two contracting
parties must follow regulatory provisions, the relationship is elevated to a confidential or
fiduciary one.
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Accordingly, the Court concludes that a fiduciary relationship did not exist between CSM
and Peregrine.
(B) Confidential Relationship
Unlike a fiduciary relationship, a confidential relationship “may be founded on a moral,
social, domestic, or merely personal relationship as well as on a legal relationship.” Richelle L.,
106 Cal. App. 4th at 271.
The California Court of Appeal has explained that confidential relationship may exist in
several circumstances: (i) one party is duty bound to act with the utmost good faith for the
benefit of the other party; (ii) one party reposes its confidence in another, who voluntarily
accepts the confidence and then takes advantage of that confidence without the other party’s
knowledge or consent; (iii) one party is in a superior position to exert unique influence over the
other; (iv) one party is vulnerable to the other; and (v) one party surrenders some degree of
control to the other. See Richelle L. v. Roman Catholic Archbishop, 106 Cal. App. 4th 257, 270-
72 (Cal. Ct. App. 2003).
The court in Richelle L. emphasized that “vulnerability” is an “absolutely essential” and
“necessary predicate” of a confidential relationship. Id. at 273. Such vulnerability “usually
arises from advanced age, youth, lack of education, weakness of mind, grief, sickness, or some
other incapacity.” Id. Peregrine does not allege any of the conventional reasons (listed above)
for why a party might be in a vulnerable position with regard to its confidential relation. Instead,
Peregrine argues that the parties did not deal on equal terms because, when Bleecker switched
the A and B trial group identifiers, Peregrine unknowingly became dependent upon CSM and
thus vulnerable. (Opp’n at 23-24.) Again, as discussed above, Peregrine fails to support its
assertion that, by breaching the contract, Bleecker somehow transformed the contractual
relationship into a confidential or fiduciary one. Moreover, Peregrine fails to explain how the
same act that violates the duties of the confidential relationship can simultaneously create the
confidential relationship that it allegedly violates. (Id.)
The relationship between Peregrine and CSM that predated Bleecker’s switching of the
trial group identifiers was one characterized by equal bargaining power between two
sophisticated parties. (MPSJ Order at 28-31.) In Persson v. Smart Inventions, Inc., 125 Cal.
App. 4th 1141 (Cal. Ct. App. 2005), the California Court of Appeal rejected the suggestion that a
confidential relationship could arise “in the course of arms-length buyout negotiations between
two equal shareholders of a corporate enterprise, both of whom are represented by counsel and
accountants,” simply because one relied on the other’s representations of the company’s state of
affairs. Id. at 1162. Although the contract between Peregrine and CSM did not involve a
shareholder buyout, it resulted from arms-length negotiations between two sophisticated parties
with relatively equal bargaining power. (MPSJ Order at 28-31.) Furthermore, the Court has
already rejected Peregrine’s argument that it was under CSM’s control. (MPSJ Order at 28-29 &
n.12.)
Therefore, because, among other things, the vulnerability requirement is not satisfied, the
Court concludes that no confidential relationship existed between the parties.
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ii. Special Relationship
Peregrine also argues that a “special relationship” existed between CSM and Peregrine.
The quintessential example of a special relationship, allowing for a claim for tortious breach of a
contract, is a claim arising from an insurance contract. The California Supreme Court has
explained that a tort action for breach of the covenant of good faith and fair dealing (which is
implied in every insurance contract) is available in light of the “special relationship between
insurer and insured, characterized by elements of public interest, adhesion, and fiduciary
responsibility.” Erlich, 21 Cal. 4th at 552-53. After noting that the special relationship test “has
been criticized as illusory and not sufficiently precise,” the court explained that the test was not
relevant to the facts of that case, which, as stated above, involved a services contract for the
construction of a house. Id. at 553. The court declined to apply the six factors of that test
(perhaps because those six factors would potentially be satisfied). Instead, the court stressed that
“insurance cases represented ‘a major departure from traditional principles of contract law’” and
that “any claim for automatic extension of that exceptional approach, whenever ‘certain
hallmarks and similarities can be adduced in another contract setting’ should be carefully
considered.” Id. (quoting Foley v. Interactive Data Corp., 47 Cal. 3d 654, 690 (Cal. 1988)).
Pursuant to the California Supreme Court’s instructions, this Court must carefully
consider whether the relationship between Peregrine and CSM is sufficiently “special” to warrant
the acknowledgment of an independent legal duty. The Court begins by considering the six
criteria of the special relationship test:
“(1) the extent to which the transaction was intended to affect the
plaintiff, (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.
N. Am. Chem. Co., 59 Cal. App. 4th at 782 (citing J’Aire Corp. v. Gregory, 24 Cal. 3d 799, 804
(Cal. 1979)).
Although the six factors are mostly satisfied, some questions remain as to their full
satisfaction as well as the need for the imposition of a legal duty. First, the transaction was
apparently intended to affect both Peregrine, in facilitating its clinical trial, and the participants
in that trial. Second, harm in the form of an unsuccessful trial was foreseeable as a result of any
failure by CSM to follow the packaging and labeling instructions. Third, Peregrine has suffered
injury, as the results of the Phase II trial cannot be used and it may need to conduct an expanded
Phase III trial. Fourth, because CSM did not label the study drug and placebo as Peregrine
expected, the integrity of the Phase II trial was compromised. Fifth, the degree of moral blame
associated with CSM’s conduct is unclear as the reasons for the mislabeling remains uncertain.
Sixth, although encouraging clinical trial services companies to carefully follow the instructions
of a party conducting clinical trial would be a positive development, such an outcome could
easily be achieved through careful drafting of contracts between those two sophisticated types of
parties.
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The last factor, in particular, draws into question the propriety of recognizing a special
relationship and thus an independent legal duty. The relationship between Peregrine and CSM
starkly contrasts that between, for example, an insurer and an insured, which is “characterized by
elements of public interest, adhesion, and fiduciary responsibility.” Erlich, 21 Cal. 4th at 553.
Unlike an insurer-insured relationship, both Peregrine and CSM are sophisticated parties who
exercised control over the contract terms.12 As in Erlich, Peregrine could have contracted with
any number of other clinical trial services companies if CSM had rejected its desired contract
terms, which could have included an increased limitation on damages or an exception to that
provision in the event of significant mislabeling of the vials. Moreover, any public interest at
stake is no more prevalent than in almost any other run-of-the-mill contract case. In sum,
although several of the requirements of the special relationship test are met, the Court is not
satisfied that a “major departure from traditional principles of contract law” is appropriate here.
Cf. id. Peregrine and other companies administering clinical trials need not rely on tort to
prevent future harm of this sort; additional contract terms may allow for such liability in the
future.
c. Robinson Helicopter: Intentional Acts as Separate from Breach
In Robinson Helicopter, the California Supreme Court discussed a “narrow” exception to
the economic loss rule and reiterated the necessity of an independent duty arising from tort law.”
Robinson Helicopter, 34 Cal. 4th at 990, 993. In that case, the plaintiff contracted with the
defendant for the purchase of helicopter clutches, which were required to conform to exact
specifications. Although the defendant knew that its clutches began to deviate from those
specifications, the defendant continued to provide the plaintiff with false certificates of
conformance, without which the plaintiff would not have accepted the clutches. Id. at 985-86.
The court concluded that the defendant’s “tortious conduct was separate from the breach itself,
which involved [the defendant’s] provision of the nonconforming clutches.” Id. at 991.
Accordingly, the court held that the plaintiff’s fraud and intentional misrepresentation claims
were not barred by the economic loss rule because they were “independent” of the defendant’s
breach of contract. Id. In reaching that conclusion, the court focused on the intentional nature of
the defendant’s acts. Id. at 991-93 & n.7.
The exception to the economic loss rule established by the California Supreme Court in
Robinson Helicopter was “narrow in scope.” Id. at 993. The Robinson Helicopter court
cautioned that courts ought take care “‘to apply tort remedies only when the conduct in question
is so clear in its deviation from socially useful business practices that the effect of enforcing such
tort duties will be . . . to aid rather than discourage commerce.’” Id. at 992 (quoting Erlich, 21
Cal. 4th at 554). The Court’s decision to allow the plaintiff’s fraud and intentional
misrepresentation claims hinged on the element of intentionality underlying those claims.13 “The
12 The Court previously explained that “there was no unequal bargaining power[] [and]
the parties fully negotiated the contract—including revising several provisions of the MSA.”
(MPSJ Order at 29.)
13 Even Peregrine acknowledges that the court “held that the economic loss rule did not
bar the fraud and intentional misconduct claims because the affirmative[,] intentional
(continued . . . )
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economic loss rule is designed to limit liability in commercial activities that negligently or
inadvertently go awry”; however, where intentional conduct is involved, merely enforcing the
benefit of the bargain is not sufficient. See id. at 991 n. 7 (“Dealing with affirmative acts of
fraud and misrepresentation raises different policy concerns than those raised by negligence or
strict liability claims.”). Prosecuting a fraud action “advances the public interest” by punishing
and deterring intentional misrepresentations. Id. Moreover, while sophisticated, contracting
parties are typically expected to anticipate the likelihood of injury resulting from negligent
conduct and allocate the risks of such negligence accordingly, those parties ought not be
expected to anticipate intentional conduct, such as fraud and intentional misrepresentations, and
then properly allocate those risks via the contract terms. See id. at 993. The California Supreme
Court clarified that barring tort claims for intentional acts would “encourag[e] fraudulent conduct
at the expense of an innocent party” instead of enhancing the predictability of contractual
relationships. Id.
The facts of this case are somewhat analogous to those in Robinson Helicopter.
Peregrine alleges that, in addition to breaching the parties’ contract by switching the treatment
group identifiers,14 CSM also negligently misrepresented its compliance with Peregrine’s
labeling designations when, in response to receiving the PRS including the trial group
assignments, Bleecker stated in an April 15, 2010 email: “I have reviewed the document and
attached is my approval.” (Opp’n at 21 (quoting 4/15/2010 Bleecker Email).)15 Similar to
Robinson Helicopter, this case involves a breach of the contract as well as certain representations
regarding the contract terms.16

( . . . continued)
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.” (Opp’n at 17-18 (first
emphasis added).)
14 Assuming the contractual agreement between the parties required CSM to follow the
treatment group identifier assignments provided by Peregrine or Perceptive, labeling them
otherwise—for example, switching the A and B identifiers—constituted a breach of the contract
terms. Characterizing CSM’s reversal of the treatment group identifiers as a contractual breach
mirrors the California Supreme Court’s reasoning in Robinson Helicopter, in which the
defendant breached its contract with the plaintiff by changing its manufacturing process in a way
that deviated from the terms of the contract without notifying plaintiff and then delivering
nonconforming parts. See Robinson Helicopter, 34 Cal. 4th at 986.
15 Although Peregrine’s Opposition asserts that CSM made “multiple
misrepresentations,” the evidence presented supports the existence of only one affirmative
statement that a trier of fact could reasonably consider to be an affirmative misrepresentation—
Bleecker’s April 15, 2010 email. (Opp’n 20-22 (citing 4/15/2010 Bleecker Email).) In fact,
Peregrine’s Opposition fails to assert any other affirmative misrepresentation. (Id.)
16 However, unlike Robinson Helicopter, in which the false certificates of performance
were provided upon delivery of the nonconforming parts, Peregrine has presented no evidence
supporting its assertion that, at the time of Bleecker’s April 15, 2010 email, she had already
(continued . . . )
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Even if Bleecker’s statement can be viewed as separate from the actual breach of
contract, the tort claims alleged by Peregrine do not implicate “a social policy that merits the
imposition of tort remedies” in addition to Peregrine’s contractual remedies. Cf. Robinson
Helicopter, 34 Cal. 4th at 991-92. Unlike the fraud and intentional misrepresentation claims in
Robinson Helicopter, the negligence, negligent misrepresentation, and constructive fraud claims
do not require intentional conduct. Allowing those claims to go forward would exceed the
exception created in Robinson Helicopter and open the door for unintentional acts to create tort
liability between contracting parties. Unintentional acts and misrepresentations are clearly not
the type that the California Supreme Court had in mind as forming the basis of an independent
tort duty when it issued its opinion in Robinson Helicopter. As explained above, the court
narrowly tailored its opinion to include only intentional conduct that is “clear in its deviation
from socially useful business practices.” Cf. id. at 992. The court’s analysis of what constitutes
misrepresentations that are “independent of the contract” versus “simply part of the alleged
breach of contract” turned on the parties’ ability to “negotiate the risk of loss occasioned by a
breach.” Id. The court explained that one “party to a contract cannot rationally calculate the
possibility that the other party will deliberately misrepresent terms critical to that contract.” Id.
at 993 (alteration in original) (internal quotation omitted). Thus, even if Bleecker’s statement
regarding her review and approval of the PRS is theoretically separable from the alleged breach
of contract,17 Peregrine has not pleaded the requisite intentionality to warrant the imposition of
tort remedies based upon that statement.
Although Peregrine now argues that Bleecker’s tortious acts were intentional, the claims
that Peregrine has chosen to pursue do not reflect such intentionality. Prevailing on each of its
tort claims—negligence, negligence per se, negligent misrepresentation, and constructive
fraud—does not require Peregrine to prove that Bleecker’s and/or CSM’s acts were intentional.18
Thus, if those claims proceeded to trial, the trier of fact could rationally conclude that CSM’s act
of switching the labels was completely accidental and yet adjudge CSM liable for Peregrine’s
tort claims. Had Peregrine elected to plead an intentional tort, a trier of fact would not be able to
so find, and Peregrine’s intentional tort claims may have survived a challenge based on the
economic loss rule.
In sum, because Peregrine’s tort claims—its second through fifth causes of action—are
not based on a recognizable, independent legal duty, the Court concludes that they are barred by

( . . . continued)
decided to switch the treatment group identifiers or begun that switch; her email was sent only
one month after the MSA was signed.
17 Such separability is not clear, given that a trier of fact could interpret the statement as a
mere acknowledgment of receipt and not an affirmation that Bleecker was complying with the
treatment arm designations.
18 The Court notes that, although Peregrine alleged in the First Amended Complaint that
CSM’s project manager falsely confirmed on April 15, 2010 that CSM was following the PRS
trial group assignments after CSM had already “secretly and unilaterally swapped the A and B
arms,” (FAC ¶ 17), Peregrine nonetheless elected not to plead claims for intentional conduct.
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the economic loss rule and that Peregrine’s remedies are properly limited to bargain-of-thebenefit
damages obtainable through its breach of contract claim.
C. Negligent Misrepresentation/Concealment and Constructive Fraud Claims
CSM offers alternative arguments for granting summary judgment as to Peregrine’s
negligent misrepresentation/concealment claim and constructive fraud claim. CSM essentially
argues that Peregrine cannot establish certain elements of those claims. (Mot. at 11-23.) First,
CSM contends that Peregrine cannot identify a specific, affirmative misrepresentation by CSM.
(Mot. at 11-13.) Second, Peregrine’s allegations regarding negligent concealment, when viewed
in light of the fact that CSM was not a party to the PRS, are insufficient to state a legal claim.
(Mot. at 13-14.) Third, CSM argues that Peregrine cannot establish the existence of a fiduciary
or confidential relationship between the parties, which is a required element of Peregrine’s claim
for constructive fraud.19 (Mot. at 14-23.)
Because the Court concludes that CSM’s economic loss doctrine argument is dispositive
as to Peregrine’s tort claims, the Court need not address CSM’s other arguments regarding
Peregrine’s negligent misrepresentation/concealment claim and constructive fraud claim.
IV. CONCLUSION
For the reasons stated above, the Court GRANTS Defendant CSM’s second Motion for
Partial Summary Judgment. (Doc. No. 82.)
IT IS SO ORDERED