Hsu v. Vet-A-Mix, Inc.

Citations: 479 N.W.2d 336; 1991 Iowa App. LEXIS 365; 1991 WL 281409Docket: 90-1404

Court: Court of Appeals of Iowa; October 29, 1991; Iowa; State Appellate Court

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Walter H. Hsu, a veterinary pharmacology professor at Iowa State University, entered into a collaborative agreement with W. Eugene Lloyd, president of Vet-A-Mix, Inc., to develop Yohimbine as an antidote for Xylazine, a veterinary analgesic. The agreement involved Hsu conducting animal research at the University, funded by Vet-A-Mix, which would also secure FDA approval and manage production and distribution. The collaboration included three main agreements on confidentiality, cost-sharing with the University, and royalty payments. Although Hsu was to receive royalties for his research, specific terms were never finalized, leading to disputes over the proposed royalty percentages and conditions.

Hsu dedicated 508 hours to the project while receiving his University salary. At one point, he received $7,380 from Vet-A-Mix, which he later returned to the University after discussions with officials. Disagreements arose regarding Hsu's testing performance and data submission to expedite FDA approval, resulting in Vet-A-Mix hiring other researchers. The relationship ended on May 27, 1986, when Vet-A-Mix terminated Hsu's involvement, prompting Hsu to seek damages for breach of contract, promissory estoppel, quantum meruit, and tortious interference. Vet-A-Mix counterclaimed for breach of contract and fiduciary duty.

The case was bifurcated, with liability and damages considered separately. The judge ruled against Vet-A-Mix's counterclaim and most of Hsu's claims, except for quantum meruit. The damages phase concluded with the court denying Hsu's claims due to an inability to differentiate between consultation time and contractual obligations. Hsu appealed, with the appellate court's review limited to the sufficiency of evidence supporting the trial court's factual findings, as Hsu did not request amendments to those findings.

Hsu presents three primary arguments on appeal. The first two focus on the trial court's findings regarding liability, while the third addresses the judgment on damages. 

1. Hsu's first argument claims the trial court erred by not considering specific sections of the Uniform Commercial Code and the Restatement (Second) of Contracts in evaluating whether he breached the contract. The appellate court notes that these issues were not raised in a timely manner through a 179(b) motion, thus failing to preserve them for review. Additionally, Hsu contests the trial court's determination that he breached the contract by claiming his agreement to expedite FDA approval implicitly required him to provide raw data and submit to audits. The court clarified that its ruling was based on the conclusion that the royalty agreement was too indefinite to be enforceable, rejecting Hsu's breach of contract and promissory estoppel claims. The court highlighted that clear and ascertainable terms are essential for an enforceable contract and affirmed that Vet-A-Mix justified its nonperformance due to Hsu's failure to meet conditions precedent. Hsu's failure to contest the indefiniteness of the royalty agreement led to the waiver of any related arguments.

2. Hsu's second argument contests the dismissal of his claim against Lloyd for tortious interference with a contractual relationship. Hsu asserts that the trial court misapplied the law regarding corporate fiduciaries' qualified privilege to interfere in corporate matters. The appellate court affirms the trial court's decision, referencing the Iowa Supreme Court's established elements for the tort of interference: an existing valid contract, knowledge of the contract by the interferer, intentional interference leading to a breach, and resulting damages. The court cites precedents to support the dismissal of Hsu's claim.

The Supreme Court referenced Wilson v. McClenny, affirming that directors or stockholders may rightfully cause a corporation not to renew a contract if they act in good faith and without improper means to protect the corporation's interests. This establishes a qualified privilege for corporate fiduciaries to interfere with contracts. The court ruled that Lloyd’s actions, including involving Hsu's superiors and highlighting Hsu's work issues, were permissible as they were aligned with Lloyd's corporate responsibilities and aimed at protecting Vet-A-Mix’s interests. Hsu's claim that Lloyd acted outside his corporate role was not preserved for review due to the lack of a motion for expanded findings. The trial court found no impropriety in Lloyd’s actions, noting Vet-A-Mix’s valid concerns about Hsu’s research quality. Hsu's argument regarding insufficient evidence for damages was also rejected, as the court determined he failed to prove his entitlement to compensation for consulting work, which was limited by university policy. Hsu's claims were found unsubstantiated, leading to the affirmation of the trial court's judgment, with costs of the appeal taxed to Hsu.