ChromaDex and Elysium each filed their reply briefs last week, defending the merits of their respective motions to dismiss each other's tort claims.
Here are the two briefs:
Here is where we are in the litigation:
Just to recap the tort claims:
ChromaDex accuses Elysium of:
Fraudulent deceit
Misappropriation of trade secrets
Elysium accuses ChromaDex of:
Fraud
Patent Misuse
Unfair Competition
I have previously predicted with some confidence that Elysium's claims are all going to be dismissed as a result of the hearing at 1:30pm PDT on Monday April 24th. I have been less certain of ChromaDex's claims, guessing that the Fraud claim would probably survive the hearing and the Trade Secrets claim probably would not.
After considering ChromaDex's reply (analogous to a closing argument), I am more convinced than ever that Elysium's tort claims will be dismissed. I would be shocked if they weren't, and I will express my shock right here on this blog should it happen.
There isn't anything I can say more clear and compelling than Cooley's account on ChromaDex's behalf, so I'll just quote the brief's intro -- but read the entire thing so you can experience the full force of a large law firm grinding other people's arguments to dust:
Elysium’s third counterclaim for fraudulent inducement, fourth counterclaim for patent misuse, and fifth counterclaim for unfair competition are all infirm as a matter of law, and only evidence a buyer’s remorse over a deal that it freely struck.
Regarding Elysium’s third counterclaim for fraudulent inducement, Elysium attempts to downplay its burden under Rule 9(b) by minimizing the fact that it relies on a spreadsheet, drafted in 2016, to purportedly show the falsity of a statement allegedly made in 2013. Elysium cites no cases where a court, without more, has inferred falsity based on such attenuated circumstantial evidence. Given the strictures of Rule 9(b), this failing is no surprise. Moreover, Elysium provides no explanation for its failure to allege reasonable or actual reliance: the First Amended Counterclaim (“FACC”) does not even allege that Elysium paid more, or would not have entered the transaction, but for the alleged misstatement. Instead, Elysium only argues that it might have negotiated differently but for the alleged misrepresentation. The law does not recognize this as reliance.
Elysium’s fourth counterclaim for declaratory judgment of patent misuse is also wholly deficient and has been rejected before as a matter of law. An assertion of patent infringement is a necessary predicate to a claim of patent misuse, and no such assertion of patent infringement is made in this case. Indeed, Elysium cites no case where a declaratory relief patent misuse claim was allowed to proceed as an affirmative cause of action in the absence of a claim or assertion of patent infringement, because no such cases exist. Elysium’s counterclaim for patent misuse is not a cognizable cause of action and should be dismissed with prejudice.
Elysium’s fifth counterclaim for violation of the UCL is also infirm. Elysium does not attempt to support the FACC’s failure to specify which practices are allegedly unlawful and which are allegedly unfair with even a single cite to a case considering the UCL, and Elysium’s patent misuse counterclaim cannot constitute the basis for its UCL claim. Elysium further fails to address and refute clear California law holding that a party cannot bring a claim under the UCL based on a contract which does not affect the public at large, and instead concerns a mere “business to business dispute,” as is the case here.
For all of these reasons, the Court should grant ChromaDex’s Motion and
dismiss Elysium’s third, fourth, and fifth counterclaims, with prejudice.
Boom. Not to minimize what Cooley has done, because they have done it brilliantly, but this is kind of first-year law stuff -- Elysium simply cannot satisfy the elements of its claims.
And Elysium should feel pleased with Skadden's work, too, because I don't know what more could be done on their behalf under the circumstances.
With respect to ChromaDex's tort claims, I'm still not sure. Elysium's reply brief is unconvincing on the limits of the economic loss rule. It is really a stretch to characterize Elysium's alleged behavior as being within the contractual relationship, either in scope or economic effect.
I also do not buy Elysium's claim that the deal was not a requirements contract, and therefore no reasonableness limit applied to Elysium's orders and ChromaDex had no choice but to fill the extraordinary orders. That matters because if the extraordinary orders were outside the contract, then Elysium's alleged misrepresentations could fraudulently induce behavior that ChromaDex was not obligated to do under the contract. But Elysium's argument is backwards: the law says that EVEN a requirements contract has reasonable limits. So if this was not a requirements contract, the obligation to fill "any order" would be reduced, not increased, compared to a requirements contract. I think this is what is meant by "sophistry.".
Then Elysium raises a technical argument about the pleadings that I am less certain how to analyze. Elysium's concern is that ChromaDex's fraud Complaint inadequately details the discussions during which the fraudulent statements were made. I just don't know the law on this.
It would seem to me that the details in complaint are entirely consistent with ChromaDex's argument in the brief, and obviously there has never been any doubt that the MFN clause was the point of contention. I would be surprised if the Court prevented the parties from getting to discovery on this issue when the details that Elysium is hunting for are exactly what comes from discovery.
I noticed the new language in the brief, too (Oh, Skadden, why don't you hire ME???), but I understood that phrase to anticipate what discovery would show, not to change the argument that was already adequately supported by the complaint. I think that Elysium is being more clever than smart here, but we'll see. Elysium does not cite any cases for their position, which suggests that they are tossing us a red herring (or, to quote Elysium, their point is "ipse dixit").
For what it's worth, Elysium makes the same argument in the second half of their brief with respect to the trade secrets claim, and my response is the same: I think Elysium is confusing the particularity standard for pleading with the specific evidence that might be elicited in discovery. If ChromaDex already knew exactly what Elysium might have wanted to do with its trade secrets, then discovery would be unnecessary.
Elysium suggests that the nature of the research underway could not be a trade secret because some of that information is already very public. True, but that doesn't speak to all the information that is NOT public.
But in the end I don't know what to say about the trade secrets claim. There seems to me to be good arguments on both sides, and I wouldn't wager a guess as to how it turns out.
SUMMARY
So, no change from before: Elysium should lose its fraud claims in a rout; but at least one of ChromaDex's fraud claims could survive.