## Facts

- Miles, Inc. and Scripps Clinic and Research Foundation jointly owned Scripps-Miles, Inc., formed to prepare and sell immunochemical materials.
- Scripps retained Dr. Theodore S. Zimmerman as a consultant in diagnostic immunology; he provided an antigen that led to creation of a monoclonal cell line (2.2.9).
- Using the cell line, Zimmerman developed a process to purify Factor VIII:C for hemophiliacs and obtained a patent on the process, assigning the patent rights to Scripps.
- Scripps licensed the patent rights to Armour Pharmaceutical Co. and Revlon, Inc.; the license later moved to Rorer Group, Inc. after it acquired Armour.
- Scripps-Miles dissolved in 1982; Miles acquired ownership of the monoclonal laboratory as part of the dissolution arrangements.
- After dissolution, Scripps and Zimmerman continued using the cell line and commercializing the Factor VIII:C technology through licensing arrangements.
- Miles alleged that before dissolution Scripps, Zimmerman, and a Scripps-Miles executive conspired to transfer commercialization rights in the cell line to Scripps, depriving Miles of its asserted ownership or co-ownership interest in commercialization.
- The action was initially dismissed on limitations grounds; the Ninth Circuit reversed and remanded, and defendants renewed merits-based motions to dismiss or for judgment on the pleadings.

## Issues

1. Whether Miles alleged a cognizable property interest in the cell line or an independent “right to commercialize” it sufficient to support conversion under California law.
2. Whether Scripps owed Miles fiduciary duties based solely on their status as equal (50/50) shareholders in a closely held corporation/joint venture.
3. Whether the alleged conduct stated a viable corporate-opportunity or breach-of-fiduciary-duty claim absent a qualifying duty and identifiable corporate property right.
4. Whether derivative theories (including fraud and constructive trust) could proceed where the asserted property and duty predicates failed.

## Decision

- The court granted defendants’ motions to dismiss (or for judgment on the pleadings) and dismissed the complaint in its entirety.
- The court held that Miles did not plead a property interest supporting conversion based on an asserted “right to commercialize” the cell line.
- The court held that, on these facts, equal shareholders in a closely held California corporation did not owe each other controlling-shareholder-type fiduciary duties merely by virtue of equal ownership.
- The court rejected corporate-opportunity and related theories as legally insufficient because they depended on the same absent property interest and fiduciary duty.
- The court dismissed ancillary claims (including fraud and constructive trust) as derivative of the failed property and duty allegations.

## Legal Principles

- Under California law, conversion protects possessory interests in property; it generally applies to tangible personal property and only limited categories of intangible property, typically where the intangible is merged into or identified with a document.
- A claimed economic expectancy or generalized “right to commercialize” technology, without an established proprietary or possessory interest, is not a sufficient property interest to support conversion.
- Equal shareholders in a closely held California corporation do not automatically owe each other fiduciary duties analogous to those owed by majority shareholders to minority shareholders; a fiduciary obligation must arise from a recognized relationship and duty, not share equality alone.
- Corporate-opportunity and related fiduciary-based claims require an applicable fiduciary duty and a corporate interest or entitlement in the opportunity; absent these, the claims fail as a matter of law.
- Equitable remedies such as constructive trust require a recognized equitable interest and a wrongful retention of identifiable property or proceeds; they cannot rest solely on an asserted entitlement to share profits.

## Conclusion

The court dismissed Miles’s state-law claims arising from post-dissolution commercialization of a cell line and patented purification process, holding that Miles alleged no cognizable property interest in a free-standing “right to commercialize” supporting conversion and no fiduciary duty between equal shareholders on these facts; without those predicates, corporate-opportunity, fraud, and constructive-trust theories also failed.


Miles, Inc. v. Scripps Clinic & Research Found., 810 F. Supp. 1091 (S.D. Cal. 1993)