Client Alert: McGlynn Wins Large Piercing the Client Veil Case
On October 10, 2017, by the unanimous vote of a three judge panel, the Massachusetts Appeals Court affirmed the judgment of the Superior Court in favor of Peter McGlynn’s client, Physician’s Academy for Clinical Excellence.
Genentech, Inc., a $40 billion pharmaceutical company, provided approximately $630,000 in grant funds to Physician’s Academy for Clinical Excellence, for a medical related grant program. Physician’s Academy went out of business in 2009 and the grant program was never held. Genentech filed suit against Physician’s Academy, as well as several other companies and their principal stockholder. Genentech sought to “pierce the corporate veil” of these companies, as well as their principal stockholder to hold them liable for Genentech’s claims. This case has been contentious and heavily litigated. When the defendants were represented by prior counsel, they were subjected to a substantial court ordered fine for discovery violations as well as a court order requiring the disclosure of all of the defendants’ privileged communications with the defendants’ prior counsel. In addition to the discovery sanctions imposed by the court against the defendants, Genentech also sought and obtained two separate preliminary injunction orders requiring the defendants to freeze many of their assets as pre-judgment security. The trial court (twice) found that there was a likelihood that Genentech would obtain a substantial judgment against the defendants. The case was also unsuccessfully mediated shortly after Mr. McGlynn entered his appearance in the case. This case is noteworthy in that it involves the use by large pharmaceutical companies of grant funded programs to indirectly promote their drug therapies. These programs have been criticized by Congress because of the role they play in promoting the drug companies’ drug therapies.
Following a nine day trial, the Massachusetts Superior Court found in favor of the defendants. Genentech appealed the trial court’s decision.
The Massachusetts Appeals Court affirmed the judgment of the Superior Court in all material respects. In a 26 page decision, the Massachusetts Appeals Court affirmed Superior Court Trial Judge Robert Tochka’s factual findings and his application of those findings to the proper legal standards regarding Massachusetts for corporate veil piercing and “alter ego” liability. The Appeals Court also upheld Judge Tochka’s decision to preclude Genentech’s efforts to admit into evidence privileged communications between the defendants and their former attorney which a different trial court judge had ordered to be produced by the defendants as a discovery sanction. These privileged communications contained both the attorney’s and the defendants’ trial and settlement strategies and their former counsel’s impressions concerning the difficulties that he expected the defendants would have in disproving Genentech’s allegations. Such communications were prominently displayed by Genentech in numerous pre-trial pleadings filed by Genentech.