Applied Medical Corp. v. Thomas, A145867M

Background

Thomas, an Applied Medical director, received director stock options under 1998 and 2008 Plans that gave Applied a repurchase right; the plans required the optionee to sell shares upon exercise and specified the Compensation Committee’s good-faith FMV determination "shall be conclusive and binding."
Thomas had an alleged side/proceeds‑sharing agreement with his IVP/IVM partners; Applied learned of a suggestion he "might share" proceeds in Feb 2011 and received a December 2011 e‑mail expressing concern the options were shared with IVP.
After Thomas was removed from the board, he exercised options on Feb 1, 2012 to buy 37,950 shares; Applied promptly exercised its repurchase right, paid $13.05/share, and demanded stock powers; Thomas disputed valuation, delayed transfer, cashed the check on Sept. 6, 2012 and returned a signed assignment on Sept. 10, 2012 while reserving rights.
Applied sued Aug. 31, 2012; after amendments the operative SAC (filed Aug. 15, 2014) asserted breach of contract, conversion and aiding/abetting conversion, and fraud‑based claims (fraudulent concealment, aiding/abetting, breach of fiduciary duty) tied to nondisclosure of the sharing agreement.
The trial court granted summary judgment for defendants in June 2015. The Court of Appeal (published in part) reversed summary adjudication as to breach of contract and conversion claims, and affirmed dismissal of fraud‑based claims as time‑barred.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Breach of contract — timing to deliver stock‑assignment	Thomas had an immediate/short duty to transfer upon Applied’s exercise; his 7‑month delay breached (Civil Code §1657 implies reasonable time).	No express deadline in agreements; no breach and no cognizable harm.	Disputed fact exists whether delay was unreasonable; summary adjudication on contract was improper.
Damages for breach — scope (valuation challenge & costs)	Damages include costs from defending/confirming valuation and pursuing return of shares; valuation challenge was the means of delay.	Damages stem from privileged prelitigation demand letter; litigation privilege bars recovery.	Whether litigation privilege applies is a factual issue; damages for breach remain triable.
Conversion — must plaintiff own or have possession at time of conversion?	Applied had a right to immediate possession after repurchase exercise; refusal to transfer is conversion.	Thomas had title/possession so no conversion.	A conversion claim may be based on either ownership or right to immediate possession; triable issues exist.
Fraudulent concealment & fiduciary duty — statute of limitations (discovery rule & relation back)	Claims relate back to original complaint or are timely under discovery rule because Applied did not actually discover the sharing agreement until later.	Applied learned (or had notice of) the sharing arrangement by Feb/Dec 2011 so claims filed in 2014 are time‑barred; relation‑back does not apply.	Fraud claims are time‑barred: discovery rule not shown (Applied failed to prove delayed discovery); relation‑back doctrine does not apply.

Key Cases Cited

Miller v. Department of Corrections, 36 Cal.4th 446 (standard of review for summary judgment)
Lee v. Hanley, 61 Cal.4th 1225 (conversion may be based on ownership or right to immediate possession)
Fox v. Ethicon Endo‑Surgery, Inc., 35 Cal.4th 797 (discovery rule for accrual of action)
Action Apartment Assn., Inc. v. City of Santa Monica, 41 Cal.4th 1232 (prelitigation communications protected only when litigation is in serious contemplation)
Wagner Construction Co. v. Pacific Mechanical Corp., 41 Cal.4th 19 (reasonable‑time questions under Civil Code §1657 are factual)
Blanchard v. DIRECTV, Inc., 123 Cal.App.4th 903 (litigation privilege scope re: prelitigation communications)
Norgart v. Upjohn Co., 21 Cal.4th 383 (relation‑back doctrine: same facts, injury, instrumentality)
Grudt v. City of Los Angeles, 2 Cal.3d 575 (relation‑back fosters decisions on merits)