Kenton L. Crowley; John A. Flores v. EpiCept Corporation

This appeal follows the trial on Drs. Crowley and Flores’s

(the Doctors) claims against EpiCept Corporation (EpiCept)

for breach of contract, breach of the implied covenant of good

faith and fair dealing, and fraud. The Doctors’ claims arise

from their assignment to EpiCept of two patents for a non-

FDA approved drug (referred to as “NP-2”) and EpiCept’s

failure to develop those patents into FDA-approved drugs.

Following an adverse jury verdict, the Doctors take issue with

certain jury instructions, the district court’s answer to a jury

question, the evidence supporting the verdict, and the district

court’s exclusion of the Doctors’ expert. The majority of the

Doctors’ arguments center on the jury’s determination that

the Doctors materially breached their contract with EpiCept

by failing to disclose that Dr. Flores treated burn patients with

NP-2. We find that the district court did not abuse its

discretion in formulating the jury instructions, or in

determining that the jury’s verdict was not against the clear

weight of the evidence. Accordingly, neither the jury

instructions given in this case nor the evidence presented at

trial warrants the do-over the Doctors demand. The district

court’s response to the jury’s question also does not merit a

CROWLEY V. EPICEPT CORP. 5

new trial, as the jury’s question was essentially factual and

the court’s answer appropriately directed the jury to consider

its original instructions and the evidence presented at trial.

Finally, because we affirm the jury’s finding that the Doctors

materially breached the contract, the district court’s exclusion

of the Doctors’ damages expert was necessarily harmless.

Accordingly, we affirm.

I. BACKGROUND

A.

The Doctors jointly invented a process for the preparation

of ketamine ointment (U.S. Patent No. 5,817,699) and a

method for the preparation of the same ointment containing

various amounts of ketamine and butamben (U.S. Patent No.

5,817,961). The cream, also referred to as NP-2, is designed

to treat six types of pain. EpiCept was a private

pharmaceutical company that focused on developing

technology for pain management. EpiCept secured funding

through private venture capital.

The Doctors and EpiCept entered into a contract in

December 2000 (the Agreement), in which the Doctors

agreed to “assign to EpiCept [their] entire right, title and

interest in and to the Invention, any Improvements,” and the

patents themselves. Dr. Crowley and Peter Golikov,

EpiCept’s then-President and Chief Operating Officer,

negotiated the Agreement. EpiCept paid a $300,000 up-front

assignment fee and agreed to pay the Doctors royalties on

commercial sales. The Agreement also contained a New

Jersey choice-of-law clause. Section 2.1 of the Agreement

required the Doctors to “provide written notice to EpiCept of

each Improvement within thirty (30) days of the date of

CROWLEY 6 V. EPICEPT CORP.

conception of such Improvement or, if conceived prior to the

Effective Date [of the Agreement], then within ten (10) days

after the Effective Date . . . .” The Doctors were also

required to assign any improvement to EpiCept. Section 1.3

defined an improvement as “any modification of the

Invention that is, on or after the Effective Date, or was, prior

to the Effective Date, invented, conceived and/or reduced to

practice by [the Doctors], provided that such modification or

the use thereof would, if unlicensed,” infringe one of the

patents. Section 10 provided the process by which the parties

could terminate the Agreement. The Doctors had the right to

terminate the Agreement under certain circumstances,

including EpiCept’s failure “to use commercially and

scientifically reasonable efforts to” pursue an Investigational

New Drug Application or a New Drug Application with the

United States Food and Drug Administration (FDA) within

specified time frames. Section 10 further provided that “[i]n

the event of any material breach or default . . . by a party . . .

the other party . . . shall give the Defaulting Party written

notice of the default and its election to terminate this

Agreement at the expiration of a cure period of ninety (90)

days from the date of the notice.” If the Doctors “duly

terminate[d]” the Agreement, EpiCept was to return the

patents to them.

At some point prior to entering the Agreement, Dr. Flores

used NP-2 to treat “a few” first- and second-degree burns at

his clinic. The Doctors never disclosed this use to EpiCept.

Between December 2000 and October 2001, EpiCept

conducted various studies on NP-2 and corresponded with the

FDA regarding the drug’s potential for approval. EpiCept

ultimately decided to postpone direct development of NP-2 in

October 2001, but waited until November 2002 to give notice

CROWLEY V. EPICEPT CORP. 7

of this decision to the Doctors. The parties corresponded

over the next several years regarding the status of NP-2’s

development. On May 18, 2004, the Doctors demanded a

cure under § 10 of the Agreement because EpiCept had done

no work on NP-2 since late 2001. In April 2006, the Doctors

terminated the Agreement and demanded reassignment of the

patents.

B.

Over two and a half years later, in December 2008, the

Doctors filed suit alleging claims for breach of contract,

breach of implied covenant of good faith and fair dealing,

fraud, and rescission.1 On January 26, 2012, the district court

granted EpiCept’s motion for summary judgment. 2012 WL

253153 (S.D. Cal. Jan. 26, 2012). The district court excised

the definition of “Improvement” from the Agreement because

it “produce[d] an absurd outcome,” and concluded that term

“reasonably means and includes any modification of the

patents that is invented, conceived and/or reduced to practice

by [the Doctors].” Id. at *7–8. The Doctors appealed this

decision, and we found that the district court erred by

excising and re-defining “[I]mprovement” because “[a]n

‘improvement’ that updates a component of the technology

used in a method patent . . . could be both a modification and

an infringement.” Crowley v. EpiCept Corp., 547 F. App’x

844, 846 (9th Cir. 2013) (citing Energy Transp. Grp., Inc. v.

William Demant Holding A/S, 697 F.3d 1342, 1352 (Fed. Cir.

2012)).

1 The case was originally filed in the District of New Jersey, but

eventually made its way to the Southern District of California.

CROWLEY 8 V. EPICEPT CORP.

Questions of fact therefore remained as to whether Dr.

Flores’s use of NP-2 to treat burns constituted an

infringement and, if so, whether the Doctors’ failure to

disclose this use constituted a material breach. We explained:

“[E]ven if Plaintiffs’ failure to report this use of the ointment

was a breach, it must have been a material breach—one that

‘defeat[s] the purpose of the contract,’—to excuse Defendant

from the performance of its duties.” Id. (internal citations

omitted).

On remand, the Doctors continued to advance their

breach-of-contract theory. EpiCept’s primary theory of the

case was that the Doctors could not demonstrate the second

element of a contract claim under New Jersey law—that they

“did what the contract required [them] to do”—because

(a) Dr. Flores used the NP-2 ointment on patients suffering

from first- and second-degree burns, (b) the use constituted an

improvement under the Agreement, (c) the Doctors failed to

timely notify EpiCept of an improvement, violating § 2.1 of

the Agreement, and (d) this conduct constituted a material

breach.

As the case progressed towards trial, the Doctors sought

to have Chris Pedersen, a business appraiser, opine as to a

number of issues, particularly on the value of a drug patent.

Following a Daubert 2 hearing, the district court excluded

Pedersen’s opinion testimony because it was unreliable.

Specifically, the court determined that Pederson’s “testimony

regarding FDA approval is either based on pure conjecture,

or simply a parroting of what Dr. Flores told him,” and was

not based on sufficient facts or data because Pederson

“refused to look for any statistics to estimate the risk that the

2 Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993).

CROWLEY V. EPICEPT CORP. 9

FDA would not approve NP-2, because he [thought] that

investors do not consider such things. Instead, he simply

assumed that there was no risk.”

The trial finally began on March 12, 2015, and the

“material breach” issue continued to feature prominently. On

the fifth day of trial, EpiCept moved for judgment as a matter

of law pursuant to Federal Rule of Civil Procedure 50.

EpiCept argued, among other things, that the undisputed

evidence established that the Doctors were required to

disclose any improvements in writing and had failed to

disclose Dr. Flores’s use of NP-2 to treat burn patients, which

constituted a material breach of the contract. The Doctors

responded that, pursuant to the Ninth Circuit’s ruling on the

summary judgment order, the jury should decide whether the

Doctors’ failure to disclose this use of NP-2 was a “material”

breach. In hearing argument on EpiCept’s Rule 50 motion,

the district court inquired whether there was any evidence

that the Doctors had complied with the Agreement’s 90-day

cure provision, but the court’s order denying EpiCept’s

motion neither addressed the Doctors’ compliance with the

90-day cure period nor recognized that issue as a basis for

EpiCept’s Rule 50 motion.

The trial continued, with the parties sparring over the jury

instructions on material breach, waiver, and adoptive

admissions. The Doctors agreed to the jury instruction

entitled “Plaintiffs Failure to Do What the Contract

Required,” but later argued that the “Claims of Breach”

instruction should be modified to make clear that “material

breach” applied to both the Doctors and EpiCept. The

Doctors argued this change was necessary to ensure the jury

understood that Dr. Flores’s treatment of burns with NP-2

could only defeat the Doctors’ breach of contract claim—as

CROWLEY 10 V. EPICEPT CORP.

set forth in the “Elements of Contract Claim” instruction—if

that conduct constituted a “material” breach.3 The court

rejected the Doctors’ arguments. It found that the “Claims of

Breach” instruction was adequately mutual, and that the

Doctors could explain to the jury in closing arguments that if

the jury found that Dr. Flores’s treatment of burns was not a

“material” breach, then the Doctors satisfied the second

element of their breach of contract claim, as set forth in the

“Elements of Contract Claim” instruction.

The Doctors also insisted that the jury should be

instructed regarding adoptive admissions, thereby permitting

the jury to find that, by failing to respond to the Doctors’

written communications accusing them of breach, EpiCept

admitted that it had breached the Agreement. The Doctors

further asserted that the verdict form should reflect that the

jury could find that EpiCept had waived the Doctors’

compliance with the 90-day cure provision.

In response to these and other arguments, the court gave

the jury instructions entitled “Elements of Contract Claim,”

“Claims of Breach,” and “Plaintiffs Failure to Do What

Contract Requires.” The “Plaintiffs’ Failure to Do What

Contract Requires” instruction provides, in full:

EpiCept claims that Plaintiffs cannot establish

a breach of contract because Plaintiffs failed

to do what the contract required of them.

Specifically, EpiCept claims the contract

3 The Doctors’ counsel argued that “there’s no way any reasonable

person could argue that . . . treatment of the burns was such a substantial

breach of the contract it excused all of [EpiCept’s] conduct.”

CROWLEY V. EPICEPT CORP. 11

obligated Plaintiffs to disclose, in writing,

their treatment of burn patients with NP2.

To decide this issue, you must determine

whether:

1. Dr. Flores’ use of NP2 was at all times

covered by the ‘961 patent;

2. The ‘961 patent makes no mention of

treating burn patients;

3. Plaintiffs failed to disclose the treatment of

burn victims with NP2 in writing to EpiCept;

and

4. The failure to disclose the treatment of burn

victims with NP2 in writing to EpiCept was

material. A failure to disclose is material if it

defeats the purpose of the contract.

If you answered yes to all four issues, then

you must find that Plaintiffs cannot prevail on

their breach of contract claim.

The “Claims of Breach” instruction provides:

One of the elements that the plaintiffs must

prove is defendant’s breach of contract.

Failure to perform a contract in accordance

with its terms constitutes a breach of contract.

It does not matter if the failure was purposeful

or inadvertent. The plaintiffs claim the

CROWLEY 12 V. EPICEPT CORP.

defendant breached the contract in the

following manner:

EpiCept stopped its effort to obtain FDA

approval of plaintiffs’ drug and failed to

return the patents after plaintiffs demanded

their return.

The defendant denies this. EpiCept contends

that it never had an obligation to return the

patents because its efforts to obtain FDA

approval were commercially and scientifically

reasonable and Plaintiffs failed to perform its

obligations under the contract.

A breach may be material or minor. Plaintiff

can sue for any breach, even if minor

providing the breach causes the plaintiff

measurable injury or damage. When there has

been a minor breach that may have caused the

plaintiff injury or damage, it is possible for

you to conclude that the defendant has

nevertheless substantially performed the

contract.

To find that the defendant substantially

performed the contract, you would have to

conclude from the evidence that the defendant

made a good faith effort that actually achieved

the essential purpose of the contract and

provide[d] the plaintiff with the fundamental

benefits that plaintiff was supposed to receive

from the contract.

CROWLEY V. EPICEPT CORP. 13

Now, let me explain what happens if you

conclude the breach was not minor but was

material. A breach is material if it affects the

purpose of the contract in an important or

vital way. A material breach defeats the

purpose of the contract and is inconsistent

with the intention of the parties to be bound

by the contract terms. When a defendant

materially breaches a contract, the plaintiff

has a right to terminate the contract and may

be excused from further performance of

plaintiff’s remaining obligations under the

contract. When the plaintiff’s promise under

the contract was dependent upon the

defendant’s performance and the defendant

fails to perform, then the plaintiff is excused

from his/her further performance of his/her

promise.

When a party materially breaches the contract

but does not indicate any intention to

renounce or repudiate the remainder of the

contract, the plaintiff can elect to either

continue to perform or cease to perform. If

the plaintiff elects to perform, plaintiff is

deprived of an excuse for ceasing

performance. But even if the plaintiff elects

to perform, plaintiff can still sue for any

injury or damages suffered because of the

material breach.

The court further instructed the jury that it could only

consider EpiCept’s failure to respond to the Doctors’ written

communication to EpiCept, which stated that EpiCept was in

CROWLEY 14 V. EPICEPT CORP.

breach of the contract, if conditions were satisfied so that

EpiCept’s failure to respond constituted an adoptive

admission. The jury was also instructed regarding EpiCept’s

affirmative defense that the Doctors had waived their right to

insist on return of the patents.

Shortly after it was instructed and retired to deliberate, the

jury asked by note: “Was the burn treatment (patient) before

or after the agreement was entered? Does it matter?

Specifically to plaintiffs [sic] failure to do what contract

required.” The court answered:

In response to your question . . . these are

factual questions that must be determined by

the jury . . . . You must determine the facts in

this case based on the evidence presented.

The jury should review the contractual

provisions in addition to all of the other jury

instructions . . . in arriving at a verdict.

The jury returned a verdict for EpiCept on all counts of the

complaint. The Doctors moved for a new trial under Rule 59,

arguing, among other things, that the instructions failed to

clarify “that the concept of material breach was equally

applicable to the [the Doctors] as to any condition [with

which] they were required to comply.” The court denied the

motion, and entered judgment in the EpiCept’s favor.

The Doctors appealed. We have jurisdiction pursuant to

28 U.S.C. § 1291.

CROWLEY V. EPICEPT CORP. 15

II. DISCUSSION

A.

The Doctors make a number of arguments related to the

jury instructions. First, they contend that the jury instructions

were erroneous because they did not require the jury to decide

whether Dr. Flores’s use of NP-2 to treat burns was an

“improvement” under the Agreement. Second, the Doctors

argue that the jury was not adequately instructed that the

Doctors’ own breach could only defeat their breach of

contract claim if their breach was material. Finally, the

Doctors challenge the instructions, or lack thereof, dealing

with EpiCept’s late-raised argument that the Doctors were not

entitled to return of their patents because they failed to

comply with the Agreement’s 90-day notice-to-cure

requirement. They contend not only that the district court

erred in giving the instructions as it did, but that the district

court abused its discretion in denying the Doctors’ motion for

a new trial on this basis.

“When a party raises a contemporaneous objection to a

jury instruction, we review the jury instruction either de novo

or for abuse of discretion, depending on the nature of the

error.” Chess v. Dovey, 790 F.3d 961, 970 (9th Cir. 2015).

“We review a district court’s formulation of civil jury

instructions for an abuse of discretion, but we consider de

novo whether the challenged instruction correctly states the

law.” Wilkerson v. Wheeler, 772 F.3d 834, 838 (9th Cir.

2014). Similarly, a new trial may be warranted if the district

court has given “erroneous jury instructions” or failed “to

give adequate instructions.” Murphy v. City of Long Beach,

914 F.2d 183, 187 (9th Cir. 1990). We review the district

CROWLEY 16 V. EPICEPT CORP.

court’s denial of a motion for a new trial for an abuse of

discretion. Id. at 186.

Challenges to jury instructions may be waived, however.

A “party forfeits a right when it fails to make a timely

assertion of that right and waives a right when it is

intentionally relinquished or abandoned.” United States v.

Kaplan, 836 F.3d 1199, 1216 (9th Cir. 2016), cert. denied,

137 S. Ct. 1392 (2017) (citing United States v. Olano,

507 U.S. 725, 733 (1993)). “Waiver of a jury instruction

occurs when a party considers ‘the controlling law, or omitted

element, and, in spite of being aware of the applicable law,

proposed or accepted a flawed instruction.’” Id. at 1217

(quoting United States v. Perez, 116 F.3d 840, 845 (9th Cir.

1997) (en banc)). “Forfeited rights are reviewable for plain

error, while waived rights are not.” Perez, 116 F.3d at 845;

see also C.B. v. City of Sonora, 769 F.3d 1005, 1017–18 (9th

Cir. 2014) (discussing plain error standard in civil context).

1.

The Doctors waived their argument that the jury

instructions were faulty because they did not require the jury

“to decide as a preliminary issue whether Dr. Flores’ use of

the ointment, on a few patients for burns, prior to the contract

constituted an improvement under the Agreement.” The

Doctors have likewise waived their argument that the district

court “should not have permitted the instruction at all . . .

[because] there was no testimony presented as to what

constituted an infringement of the Patent, and when home

use, authorized by the contract, would be considered an

improvement.” EpiCept and the Doctors, after a jury

instruction conference, explicitly agreed to use the instruction

“Plaintiffs’ Failure To Do What Contract Required,” and

CROWLEY V. EPICEPT CORP. 17

agreed that this instruction should omit the law regarding

patent infringement. This instruction explained infringement,

improvement, and materiality in a manner requested and

agreed to by the Doctors. The Doctors intentionally

abandoned any argument that the jury was not adequately

instructed regarding improvement or infringement of the

patents, or that the evidence did not permit this instruction.

See Kaplan, 836 F.3d at 1216 (citing Olano, 507 U.S. at 733).

2.

For different reasons, we also find unavailing the

Doctors’ argument that the jury was not adequately instructed

that any breach by the Doctors amounting to a “failure to do

what the contract required” must have been a material breach.

The instructions relevant to this issue were entitled

“Plaintiffs’ Failure to Do What Contract Required,” “Claims

of Breach,” and “Elements of Contract Claim.” After

agreeing on these instructions, the Doctors raised “a

mutuality issue.” They argued that because the “Plaintiffs’

Failure To Do What Contract Required” instruction did not

include a more detailed explication of materiality, and

because the “Claims of Breach” instruction defined

“materiality” only in terms of a defendant’s breach, the

instructions on this issue were inadequate. The Doctors

argued that the “Claims of Breach” instruction should be

modified to make clear that “material breach,” as defined in

that instruction, applied to both the Doctors and EpiCept.

The Doctors’ challenge to these instructions presents an

issue of formulation or wording, which we review for an

CROWLEY 18 V. EPICEPT CORP.

abuse of discretion.4 Wilkerson, 772 F.3d at 838. The third

and fourth elements listed in the “Plaintiffs Failure to Do

What Contract Required” instruction make clear that for

EpiCept to succeed on its theory that the Doctors’ breach of

contract claim failed because the Doctors had not disclosed

their use of NP-2 to treat burns, EpiCept needed to prove that

the failure to disclose was material. This instruction clearly

told the jury that:

EpiCept claims that Plaintiffs cannot establish

a breach of contract because plaintiffs failed

to do what the contract required of them.

Specifically, EpiCept claims that the contract

obligated Plaintiffs to disclose, in writing,

their treatment of burn patients with NP-2. To

decide this issue, you must decide whether:

. . . the failure to disclose the treatment of

burn victims of NP-2 in writing to EpiCept

was material. A failure to disclose is material

if it defeats the purpose of the contract.

The “Claims of Breach” instruction explains “material

breach” both in terms of a “Defendant’s” breach, and in

general terms. For example, that instruction states: “A breach

is material if it affects the purpose of the contract in an

important or vital way. A material breach defeats the purpose

4 Even if the Doctors challenged the jury instructions as an incorrect

statement of the law, requiring us to review the challenged instructions de

novo, Wilkerson, 772 F.3d at 838, we would affirm. The instructions did

not misstate New Jersey’s law regarding material breach, or fail to

adequately inform the jury of it. Cf. Magnet Res., Inc. v. Summit MRI,

Inc., 723 A.2d 976, 981 (N.J. Super. Ct. App. Div. 1998); Medivox Prods.,

Inc. v. Hoffman-La Roche, Inc., 256 A.2d 803, 809 (N.J. Super. Ct. Law

Div. 1969).

CROWLEY V. EPICEPT CORP. 19

of the contract and is inconsistent with the intention of the

parties to be bound by the contract terms.” The Doctors had

every opportunity during closing arguments to argue that the

jury should consider the definition of materiality in more

detail, and the district court reminded them of their

opportunity to do so.

We therefore hold that the district court did not abuse its

discretion in formulating the jury instructions or in denying

the Doctors’ requested modification. The challenged

instructions correctly state the law, and the jury was clearly

and adequately informed that only a material breach by the

Doctors could defeat their breach of contract claim against

EpiCept. Accordingly, the district court did not abuse its

discretion in denying the Doctors’ request for a new trial on

this ground.

3.

The dissent takes issue with these instructions, but for

reasons not advanced by the Doctors. The Doctors do not

argue that the definition of materiality was “wholly

inadequate.” Nor do the Doctors argue that the definition of

material breach—defeating the purpose of the contract—is

incorrect as a matter of New Jersey law. They do not take

issue with the fact that the instructions did not include the

factors from the Second Restatement mentioned in the third

footnote in the New Jersey Model Instructions. The Doctors

had the obligation to raise these issues if they wanted the trial

court to consider them, and they failed to do so. Nor do they

raise these issues on appeal. We have noted:

There are . . . important reasons for holding

that an appellant waives an issue if it fails to

CROWLEY 20 V. EPICEPT CORP.

provide argument about the issue in its

opening brief. Rules are enforced to deter the

type of improper, or inattentive, conduct that

occurred here. Moreover, “appellate courts do

not sit as self-directed boards of legal inquiry

and research, but essentially as arbiters of

legal questions presented and argued by the

parties before them.”

Brown v. Rawson-Neal Psychiatric Hosp., 840 F.3d 1146,

1149 (9th Cir. 2016) (quoting United States v. Mageno,

762 F.3d 933, 954–55 (9th Cir. 2014) (Wallace, J.,

dissenting)).

4.

Finally, we reject the Doctors’ challenge to the jury

instructions, or lack thereof, relating to EpiCept’s position at

trial that even if it had breached the Agreement, the Doctors

were not entitled to return of their patents as a remedy

because the Doctors had not complied with the Agreement’s

90-day notice-to-cure provision. The Doctors contend that

the district court erred by not including their proposed special

instructions on waiver, adoptive admissions, and materiality

in connection with this issue. But EpiCept prevailed on the

basis that the Doctors materially breached the contract by

failing to disclose Dr. Flores’s use of NP-2 on burns. Thus,

even assuming that the jury was not properly instructed

regarding the legal import of EpiCept’s failure to respond to

the Doctors’ written communications or the Doctors’

compliance with the 90-day notice-to-cure provision, those

errors were harmless. See Cheffins v. Stewart, 825 F.3d 588,

596 (9th Cir. 2016).

CROWLEY V. EPICEPT CORP. 21

B.

In addition, the Doctors challenge the district court’s

response to the question posed by the jury during

deliberations, which they characterize as “nearly nonresponsive

and cursory.” The jury queried: “Was the burn

treatment (patient) before or after the agreement was entered?

Does it matter? Specifically to plaintiffs [sic] failure to do

what contract required.” The jury thus asked the court to

resolve a factual issue—whether the Doctors’ breach was

material—that the jury was charged with deciding. The court

properly responded by referring the jury both the evidence

presented at trial and the instructions the court previously

gave.

“The Supreme Court has clearly stated that it is reversible

error for a trial judge to give an answer to a jury’s question

that is misleading, unresponsive, or legally incorrect.” United

States v. Anekwu, 695 F.3d 967, 986 (9th Cir. 2012) (quoting

United States v. Frega, 179 F.3d 793, 810 (9th Cir. 1999)).

“When a jury makes explicit its difficulties a trial judge

should clear them away with concrete accuracy.” Id. (quoting

Frega, 179 F.3d at 809). But we have also recognized that “a

trial judge . . . enjoys wide discretion in the matter of

charging the jury,” and that “discretion carries over to a trial

judge’s response to a question from the jury.” Arizona v.

Johnson, 351 F.3d 988, 994 (9th Cir. 2003) (citations and

internal quotations omitted). “Because the jury may not

enlist the court as its partner in the factfinding process, the

trial judge must proceed circumspectly in responding to

inquiries from the jury . . . .” Id. (quoting United States v.

Walker, 575 F.2d 209, 214 (9th Cir. 1978)). Often the most

prudent approach, under such circumstances, is to “fram[e]

responses in terms of supplemental instructions rather than

CROWLEY 22 V. EPICEPT CORP.

following precisely the form of question asked by the jury.”

Id. (quoting Walker, 575 F.2d at 214). When the jury’s

question does not indicate that “the jurors were affirmatively

interpreting the law incorrectly,” Anekwu, 695 F.3d at 987,

and the court’s original instructions provide a correct

statement of the law and “generally address[] the jury’s

question,” a district court acts “within its discretion by simply

referring the jury to the instructions they had already been

given,” Johnson, 351 F.3d at 995 (citing United States v.

McCall, 592 F.2d 1066, 1068–69 (9th Cir. 1979); United

States v. Collom, 614 F.2d 624, 631 (9th Cir. 1979); Wilson

v. United States, 422 F.2d 1303, 1303–04 (9th Cir. 1970);

Davis v. Greer, 675 F.2d 141, 145–46 (7th Cir. 1982)).

Here, the district court’s original instructions to the jury

were adequate and accurately stated New Jersey law, and the

jury’s question does not indicate that the jury was interpreting

the law incorrectly. Rather, the question indicated that the

jury sought to enlist the judge as its partner in determining

and interpreting the facts. The district court did not abuse its

discretion when it refused to invade the province of the jury,

and instead referred the jury back to the instructions already

given and the evidence presented at trial.

C.

The Doctors raise two challenges to the verdict’s

evidentiary basis. First, they contend that there was

insufficient evidence to support the verdict, and second, they

argue that the district court abused its discretion in finding

that the verdict was not contrary to the clear weight of the

evidence. Before the district court, the Doctors brought a

motion for a new trial under Federal Rule of Civil Procedure

59, but did not file a motion for judgment as a matter of law

CROWLEY V. EPICEPT CORP. 23

under Federal Rule of Civil Procedure 50(a) or (b). “[A]

post-verdict motion under Rule 50(b) is an absolute

prerequisite to any appeal based on insufficiency of the

evidence.” Nitco Holding Corp. v. Boujikian, 491 F.3d 1086,

1089 (9th Cir. 2007) (citing Unitherm Food Sys., Inc. v.

Swift-Eckrich, Inc., 546 U.S. 394 (2006)). The Doctors

waived their right to directly challenge the sufficiency of the

evidence by failing to make the appropriate Rule 50 motions.

See id. We thus assess only the trial court’s denial of the

Doctors’ motion for a new trial under Rule 59.

Under Rule 59, a court may grant a new trial “for any

reason for which a new trial has heretofore been granted in an

action at law in federal court.” Fed. R. Civ. P. 59(a)(1)(A).

Such reasons may include a “verdict [that] is contrary to the

clear weight of the evidence,” a verdict “based upon false or

perjurious evidence,” or “to prevent a miscarriage of justice.”

Passantino v. Johnson & Johnson Consumer Prods., Inc.,

212 F.3d 493, 510 n.15 (9th Cir. 2000) (citations omitted).

We review the trial court’s determination that the verdict was

not against the clear weight of the evidence for an abuse of

discretion. Kode v. Carlson, 596 F.3d 608, 612 (9th Cir.

2010). The district court’s denial of a Rule 59 motion on this

basis is “virtually unassailable. In such cases, we reverse for

a clear abuse of discretion only where there is an absolute

absence of evidence to support the jury’s verdict.” Id.

(emphasis in original) (quoting Desrosiers v. Flight Int’l of

Fla., Inc., 156 F.3d 952, 957 (9th Cir. 1998)).

New Jersey law provides that a party to a contract “may

be considered to have committed a material breach” when,

“during the course of performance,” he “fails to perform

[]essential obligations under the contract . . . .” Medivox

Prods., Inc. v. Hoffmann-La Roche, Inc., 256 A.2d 803, 809

CROWLEY 24 V. EPICEPT CORP.

(N.J. Super. Ct. Law Div. 1969). And, it provides, “[w]here

a contract calls for a series of acts over a long time, a material

breach may arise upon a single occurrence or consistent

recurrences which tend to ‘defeat the purpose of the

contract.’” Id. (quoting Winfield Mut. Housing Corp. v.

Middlesex Concrete Prods. & Excavating Corp., 120 A.2d

655 (N.J. Super. Ct. App. Div. 1956)).

The district court concluded that EpiCept presented

sufficient evidence, through the testimony of the Doctors and

Peter Golikov, that Dr. Flores’s treatment of burn victims was

a material breach of the Agreement under New Jersey law.

This conclusion was by no means an abuse of discretion. The

two witnesses who negotiated the contract both testified that

the clause requiring the Doctors to inform EpiCept of

improvements to the patents practiced by the Doctors was

important. Dr. Crowley testified that “the goal of EpiCept

was to control all of the world patent rights on topical

Ketamine, and with that portfolio, they would be much more

successful than someone who didn’t own all the intellectual

property rights. They didn’t have to worry about assignment

issues, infringement issues, none of that.” He also testified

that he understood that “EpiCept was buying not only the two

patents but also all improvements thereto . . . .” Dr. Flores

testified that he used the patented formula to treat burn

patients, and Dr. Crowley confirmed that Dr. Flores’s use of

NP-2 to treat burn pain was an “improvement” of the patent.

Dr. Crowley testified that he “understood that providing the

information to EpiCept about improvements was important to

EpiCept because it could either help them get through the

FDA process or potentially apply for a new indication with

the FDA . . . .” Nonetheless, all three witnesses confirmed

that disclosure was never made.

CROWLEY V. EPICEPT CORP. 25

Golikov, the President and COO of EpiCept who

negotiated the contract on EpiCept’s behalf, testified that:

The purpose of the improvements clause in

any agreement is to sort of have some

confidence that after you pay all this money

for a particular patent that there isn’t

something around the corner that is slightly

better. So, you know, it’s a way of making a

fair deal for the licensor and licensee to

understand that what they’re getting is what

they’re getting, and there’s not something

better that they don’t know about, or if there

is something better 10 days later, then for all

that compensation, you would get rights to it.

He further testified that he would want to know about

improvements that were practiced “because it could

potentially affect the patient population in human trials. It

could be a better or worse population. We certainly would

like to know . . . .” Finally, he testified that EpiCept would

not have signed the contract if that particular clause was not

included.

The dissent, however, suggests that this evidence

regarding the purported “improvement” is not persuasive.

But whether a breach is material is a question for the jury to

decide, Magnet Res., 723 A.2d at 982, not an appellate court,

and at trial the Doctors themselves recognized that the

evidence on this issue went both ways, such that it was

appropriate for the jury to decide the question. Because it

cannot be said that there was an “absolute absence of

evidence to support the jury’s verdict,” Kode, 596 F.3d at

CROWLEY 26 V. EPICEPT CORP.

612, we find that the district court did not abuse its discretion

in denying the Doctors’ motion for a new trial.

D.

The Doctors finally challenge the district court’s

exclusion of their expert witness, who was to testify regarding

the Doctors’ damages. “We review a district court’s

evidentiary rulings, such as its decisions to exclude expert

testimony . . . for an abuse of discretion, and a showing of

prejudice is required for reversal.” Ollier v. Sweetwater

Union High Sch. Dist., 768 F.3d 843, 859 (9th Cir. 2014).

Pederson was originally to offer opinions not only on whether

the Doctors sustained damages, but on whether EpiCept

breached its contractual obligations to the Doctors, whether

EpiCept’s efforts were commercially reasonable, and whether

the Doctors could have mitigated their damages. After

EpiCept moved to exclude Pederson’s testimony in its

entirety, the trial court concluded that the Doctors opposed

only Pederson’s exclusion as a damages expert. The district

court thus deemed the Doctors “to have admitted that Mr.

Pederson” was not qualified to opine on other topics in this

litigation. It is not clear whether the Doctors contend, on

appeal, that the district court erred in excluding Pederson’s

testimony in its entirety, or only on the issue of damages.

However, even assuming that the district court erred in

excluding Pederson from testifying on all of the topics

included in his expert report, that error was harmless in light

of our affirmance of the jury’s verdict finding EpiCept not

liable. The Doctors do not argue, and the record does not

reflect, that any of Pederson’s proposed testimony would

have any impact on the jury’s determination that the Doctors

failed to do what the contract required them to do.

CROWLEY V. EPICEPT CORP. 27

III. CONCLUSION

For the foregoing reasons, we AFFIRM.

WARDLAW, Circuit Judge, dissenting in part:

EpiCept’s claim that Plaintiffs materially breached the

parties’ agreement by using their patent to treat a few burn

victims was the legal equivalent of a Hail Mary pass. It

worked—miraculously, one might say. But EpiCept was

aided by two significant errors on the part of the district court

which require reversal and a new trial. First, the jury’s

verdict was not supported by substantial evidence because no

rational jury could find material breach on the evidence

presented. Second, the district court inadequately instructed

the jury on this claim.1 Our failure to correct these errors will

only increase uncertainty, and by extension bargaining costs,

for contracting parties.

A material breach is one that “defeats the purpose of the

contract,” Magnet Res., Inc. v. Summitt MRI, Inc., 723 A.2d

976, 981 (N.J. Super. Ct. App. Div. 1998) (internal quotation

marks omitted), leaving the promisee with “something

substantially less or different from that for which he or she

bargained,” 23 Williston on Contracts § 63:3 (4th ed. 2017).2

1 I dissent only with respect to the jury instruction and substantial

evidence issues.

2 The Restatement provides the following factors for determining

whether a breach is material:

CROWLEY 28 V. EPICEPT CORP.

Whether a breach is material is generally a question of fact

for the jury. Magnet Res., 723 A.2d at 982. However, if this

question “admits of only one reasonable answer” in a given

case, “the court should intervene and resolve the matter as a

question of law.” 23 Williston on Contracts § 63:15 (4th ed.

2017) (citing Parker v. Byrne, 996 A.2d 627 (R.I. 2010)).

Here, there is only one reasonable answer: The clear

weight of the evidence demonstrates Plaintiffs’ breach was

not material. Indeed, there is no record evidence that Flores’s

treatment of a few burn patients with the patented formula

harmed EpiCept at all, much less defeated the purpose of the

contract. EpiCept concedes that it decided to stop work on

the NP-2 patent because its time was better spent on drug

candidates that were further along in development. EpiCept

(a) the extent to which the injured party will be

deprived of the benefit which he reasonably

expected;

(b) the extent to which the injured party can be

adequately compensated for the part of that benefit

of which he will be deprived;

(c) the extent to which the party failing to perform or

to offer to perform will suffer forfeiture;

(d) the likelihood that the party failing to perform or to

offer to perform will cure his failure, taking

account of all the circumstances including any

reasonable assurances;

(3) the extent to which the behavior of the party failing

to perform or to offer to perform comports with

standards of good faith and fair dealing.

Restatement (Second) Contracts § 241 (Am. Law Inst. 1981).

CROWLEY V. EPICEPT CORP. 29

does not even attempt to argue that its strategy would have

changed had it known of Flores’s use of the product on burn

victims. That the majority manages to find a material breach

where there is not even a claim for damages is strange indeed.

See, e.g., 23 Williston on Contracts § 63:3 (“In many cases,

a material breach of contract is proved by the established

amount of monetary damages flowing from the breach.”)

The majority incorrectly reasons that the jury’s finding of

material breach was supported by substantial evidence,

pointing to testimony that the use of NP-2 constituted an

“improvement” and testimony that it was an important clause

in the agreement. And I agree with the majority, that if this

were the appropriate inquiry, then evidence was undoubtedly

sufficient to find material breach. However, the question is

not the significance of the breached provision—an issue

courts are ill-equipped to determine—but rather the

significance of the actual breach. We must ask what EpiCept

actually lost, not what it might have lost. See, e.g.,

23 Williston on Contracts § 63:3 (“In many cases, a material

breach of contract is proved by the established amount of

monetary damages flowing from the breach.”). Accordingly,

if we ask what EpiCept lost by the Plaintiffs’ failure to

disclose their use of NP-2 on burns, the answer is “nothing.”

The majority’s holding that a breach is material any time

an important contractual term is breached would render

substantially all breaches material. For example, in a contract

with a single term, to “build a house with a ruby red roof,”

painting the roof maroon would be a material breach because

the term “house with a red roof” is crucially

important—indeed, it is the only thing the offeror receives

from the contract. But this is exactly the kind of situation the

material breach doctrine is designed to avoid. Instead of

CROWLEY 30 V. EPICEPT CORP.

holding that the offeror has no duty to pay the contractor

because he painted the roof maroon, a court will simply

reduce the money owed by the cost of repainting the roof the

desired color.

Accordingly, I would find that the verdict was not

supported by substantial evidence, and that the district court

therefore abused its discretion in denying Plaintiffs’ Rule 59

motion for a new trial.

I would also hold that the district court abused its

discretion in failing to properly instruct the jury on the issue

of material breach. The majority blithely asserts that the

Plaintiffs waived this argument by failing to object to the jury

instructions at trial. This is a blatant misrepresentation of the

record. In fact, Plaintiffs vociferously objected. The district

court refused Plaintiffs’ pleas: “At this point, I leave it the

way it is. Your objection is highly noted.”

Each party claimed that the other was in material breach:

Plaintiffs as part of their prima facie case, EpiCept as an

affirmative defense. In Plaintiffs’ prima facie case, the

district court gave the jury a modified version of the New

Jersey model instruction on breach, including four paragraphs

explaining the concept of material breach in exhaustive detail.

But the court inexplicably refused Plaintiffs’ counsel’s

request for a substantially similar instruction on EpiCept’s

affirmative defense. Instead, the court offered the following

instruction, which is amended for clarity:

To decide [whether EpiCept was excused

from performance], you must determine

whether . . . [t]he failure to disclose the

treatment of burn victims with NP2 in writing

CROWLEY V. EPICEPT CORP. 31

to EpiCept was material. A failure to disclose

is material if it defeats the purpose of the

contract.

This instruction was wholly inadequate. While courts

may issue customized jury instructions so long as they “fairly

and adequately cover the issues presented,” United States v.

Peppers, 697 F.3d 1217, 1220 (9th Cir. 2012), the district

court’s instructions did not come close to doing so. Judges

trained in the law struggle to apply the same definition of

“material breach” that the court gave the jury.3 This difficulty

is precisely why the Restatement, which New Jersey’s

sanctioned jury instruction quotes in full, uses a detailed fivefactor

test, see Restatement (Second) Contracts § 241, and

why the bulk of the New Jersey model instruction on breach

is devoted to explaining the concept of material breach—92

percent by word count. N.J. Model Civ. Jury Instruction

4.10L (2017).

New Jersey strongly favors the use of model jury

instructions, see State v. R.B., 183 N.J. 308, 325 (2005), and

there was particular reason for giving the model instruction

here. The district judge’s statement that jurors would have

found a more detailed explanation than the one he gave

“confusing,” does not square with his assent to four

paragraphs of explanation on the same issue in the instruction

on Plaintiffs’ prima facie case.

The majority reasons that the district court’s instructions

were sufficient because Plaintiffs could have told the jury to

3 See Eric G. Andersen, A New Look at Material Breach in the Law

of Contracts, 21 U.C. Davis L. Rev. 1073, 1091 (1988) (“An ‘essence of

the contract’ approach to materiality, of course, is [not useful].”)

CROWLEY 32 V. EPICEPT CORP.

apply the instruction given on Plaintiffs’ prima facie case to

EpiCept’s affirmative defense, as well. However, the

majority cites no authority for the curious proposition that an

otherwise faulty instruction is acceptable so long as the trial

court does not prevent the challenging party from arguing the

issue to the jury. I sincerely doubt any exists. The judge is

the authority on the jury instructions it gives; the jury

necessarily gives less credence to the advocates’ descriptions

of the law, especially where those descriptions appear to

conflict with the judge’s instructions.

This case is a good illustration of how little understood

the concept of material breach is among lawyers and

judges4—and how important it is to fully instruct lay jurors in

it. The district court initially granted EpiCept’s motion for

summary judgment on the ground that Plaintiffs’ breach

excused EpiCept from performance. A different panel of our

Court reversed on appeal, correctly pointing out that only

material breaches excuse a counterparty’s performance.

Crowley v. EpiCept Corp., No. 12-55376, 547 F. App’x 844,

846 (9th Cir. Dec. 3, 2013) (unpublished). On remand, the

district court again demonstrated its failure to appreciate the

nuances of the doctrine. The disagreement among the judges

4 See William J. Geller, The Problem of Withholding in Response to

Breach: A Proposal to Minimize Risk in Continuing Contracts,

62 Fordham L. Rev. 163, 192 (1993) (“Courts have been accused of

determining the materiality of breach without any coherence, rationality,

or justification.”); Amy B. Cohen, Reviving Jacob and Youngs, Inc. v.

Kent: Material Breach Doctrine Reconsidered, 42 Vill. L. Rev. 65, 67

(1997) (“The problem with the current application of material breach

doctrine is in large part a result of an absence of focus. The courts apply

the test without articulating any foundation or context on which it is

based.”)

CROWLEY V. EPICEPT CORP. 33

on this panel is only further evidence of the concept’s

difficulty.

This is not a purely academic concern. The confusion

engendered by decisions like ours today has real-world

effects. Uncertainty about when courts will find a material

breach increases the cost of private transactions, which in turn

decreases economic welfare. The majority’s disposition only

adds to this uncertainty, and perpetuates an injustice.5

I respectfully dissent.

5 Because the jury found that Plaintiffs materially breached the

contract, it did not reach Plaintiffs’ argument that EpiCept was in breach.

Had Plaintiffs prevailed on this argument, they may have been entitled to

compensatory damages and/or the return of their patents.

Affirmed