Krinsk v. Chiron Corp. 6/11/09 CA4/1

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State: California

Court: 1st District Court of Appeal 1st District Court of Appeal

Docket No: D052915

Case Date: 08/27/2009

Preview:Filed 6/11/09 Krinsk v. Chiron Corp. CA4/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT DIVISION ONE STATE OF CALIFORNIA

JEFFREY R. KRINSK, Plaintiff and Appellant, v. CHIRON CORPORATION, Defendant and Respondent.

D052915

(Super. Ct. No. GIC878087)

APPEAL from an order of the Superior Court of San Diego County, Linda B. Quinn, Judge. Affirmed.

Jeffrey R. Krinsk appeals an order of dismissal entered after the superior court sustained without leave to amend a demurrer by Chiron Corporation (Chiron) to his first amended complaint for deceit, negligent misrepresentation and fraud by the company and certain of its officers and directors. He contends that the superior court erred in concluding that he lacked standing to sue Chiron for the diminution in the value of his stock that resulted from the alleged misconduct. We disagree and affirm the order.

FACTUAL AND PROCEDURAL BACKGROUND In accordance with the standards for reviewing a superior court decision sustaining a demurrer without leave to amend, the following factual recitation is based on the allegations of the operative pleading, Krinsk's first amended complaint (see Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126). Chiron is an international biotechnology company that develops vaccines and treatments for cancer and certain infectious diseases. In July 2003, Chiron was desirous of getting a foothold in the U.S. vaccines market and, toward that end, purchased PowerJect Pharmaceuticals (PowerJect), which had a vaccine manufacturing plant in Liverpool, England where the flu vaccine, Fluvirin, was produced. Prior to Chiron's acquisition of PowerJect, the Liverpool plant had (1) a history of citations by the U.S. Food and Drug Administration (the FDA) for violations of applicable regulatory standards, including citations that required prompt corrective action under threat of potential license revocation or suspension, (2) been ordered in 2002 to recall several million doses of oral polio vaccine produced there for possible contamination, and (3) experienced production and operational problems that resulted in the Irish Medicine Board's suspension of PowerJect's license in 2002 as the supplier of a tuberculosis vaccine. A month prior to the closing of Chiron's acquisition of PowerJect, the FDA conducted another inspection of the Liverpool plant and found a number of contamination and other problems at the plant. In part as a result of its due diligence in connection with the acquisition, Chiron was aware of these and other problems at the plant. 2

After Chiron took over the Liverpool plant, the plant continued to experience repeated serious contamination problems. Notwithstanding its knowledge of these problems, Chiron represented to securities analysts and investors that the plant was "one of the most important" assets acquired in the PowerJect acquisition and that the plant had manufacturing "capabilities [able] to satisfy the U.S. [vaccine] market . . . ." Moreover, beginning in January 2004, Chiron embarked on a campaign of overstating its ability to produce its Fluvirin vaccine for the 2004-2005 flu season (including plans to produce approximately 50 million doses of the vaccine in its Liverpool plant) in its public statements and its filings with the Securities and Exchange Commission. (All further dates are in 2004 except as otherwise noted.) As of that time, Krinsk owned 125,000 shares of Chiron stock, but was being encouraged by his financial advisor to sell 100,000 of those shares in a complex transaction known as prepaid forward contract, which would have allowed him to sell the stock for more than $5 million and achieve favorable tax treatment for those proceeds. Krinsk would have sold those shares in accordance with this advice but, based on Chiron's continuing rosy financial projections for the sale of Fluvirin, did not do so. In September, the United Kingdom's Medicines and Healthcare Products Regulatory Agency conducted a "for-cause" investigation of the plant and, after finding conditions there to be unacceptable, informed Chiron that it would conduct a second inspection to determine whether to suspend the company's license to manufacture vaccines at that location and instructed Chiron not to release the Fluvirin in the interim. Notwithstanding this directive and Chiron's preparation of a draft press statement recognizing that its own 3

internal testing of the Fluvirin vaccine "failed to provide results necessary to permit release of the vaccine to the market," the company issued a press release indicating that it intended to ship approximately 48 million doses of flu vaccine to the U.S. Within a week, however, the Agency temporarily suspended Chiron's license to manufacture Fluvirin at the Liverpool plant. On October 5, Chiron publicly disclosed the suspension of its license, admitted that it did not expect to sell any Fluvirin in the 2004-2005 season and substantially reduced its expected pro forma earnings. Immediately after the disclosures, Chiron's stock price dropped from $45.42 to $37.98 per share. The FDA reinspected the plant and issued an October 15 statement that "none of the influenza vaccine manufactured by [Chiron] for the U.S. market [was] safe for use." Krinsk filed this action in January 2007, asserting claims for deceit, negligent misrepresentation and fraud against Chiron and certain of its officers and directors. Chiron demurred to the complaint on the grounds that Krinsk lacked standing to pursue his claims against it, had failed to allege valid causes of action against it and had failed to allege his causes of action with sufficient particularity. The court sustained all of the demurrers with leave to amend and Krinsk filed his first amended complaint. Chiron again demurred on the same grounds and the court again sustained them, but without leave to amend. Krinsk appeals.

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DISCUSSION 1. Appealability After the superior court sustained Chiron's demurrer to the first amended complaint without leave to amend, Krinsk did not seek entry of a judgment of dismissal as to Chiron despite the fact that such a judgment would have been immediately appealable notwithstanding the continuation of his claims against the individual defendants. (Culligan v. State Compensation Ins. Fund (2000) 81 Cal.App.4th 429, 433.) Instead he obtained a stipulation by the individual defendants that the action against them would be dismissed without prejudice. Based on the stipulation, the superior court entered an order dismissing the action, from which Krinsk now purports to appeal. The difficulty is that such an order is not ordinarily appealable (see S.B. Beach Properties v. Berti (2006) 39 Cal.4th 374, 380), thus raising a question as to whether this appeal is proper. While the law is clear that a voluntary dismissal with prejudice for the purpose of expediting an appeal is an appealable order (Stewart v. Colonial Western Agency, Inc. (2001) 87 Cal.App.4th 1006, 1012), it is not as clear that a voluntary dismissal without prejudice is likewise appealable. (See Syufy Enterprises v. City of Oakland (2002) 104 Cal.App.4th 869, 879 ["[b]y definition, a voluntary dismissal without prejudice is not a final judgment on the merits"]; compare Gutkin v. University of Southern California (2002) 101 Cal.App.4th 967, 972-975 [recognizing that a voluntary dismissal without prejudice does not generally have legal effect of a final judgment, but allowing an appeal from an order sustaining a demurrer without leave to amend as to certain causes of action 5

after the plaintiff voluntarily dismissed, without prejudice, his remaining causes of action].) Because, however, Krinsk would have been entitled to appeal a separate judgment of dismissal as to Chiron without dismissing the remaining defendants, we will treat the court's order as a judgment of dismissal as to Chiron, over which we have appellate jurisdiction and proceed to address the merits of his appeal. 2. Standard of Review On appeal from a judgment of dismissal entered after the superior court sustains a demurrer without leave to amend, the appellant must show either that the demurrer was sustained erroneously or that the court's denial of leave to amend constituted an abuse of discretion. (Smith v. County of Kern (1993) 20 Cal.App.4th 1826, 1829-1830.) Where, as here, the appeal arises from a ruling on a general demurrer, the issue raised -- whether the facts set forth in the challenged pleading are sufficient to constitute a cause of action - presents a question of law subject to our de novo review. (Leko v. Cornerstone Building Inspection Service (2001) 86 Cal.App.4th 1109, 1114; see Code Civ. Proc.,

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