Consolidation in SDNY; and Elysium's Opposition
On Friday, Judge Caproni consolidated the two SDNY lawsuits (Elysium's FDA complaint and ChromaDex's $200M complaint) into a single lawsuit, now re-named "In re: Elysium Health/ChromaDex Litigation." You can read the consolidation order here:
Order Consolidating the Two Cases
The order stays discovery pending dispositive motions, and orders the parties to mediation, and specifically requests "a mediator with expertise in sophisticated corporate disputes." We'll see how that goes. At least it gives a hint that the NY Judge understands that this is a serious dispute, and perhaps will attend to the filings better than we saw in CDCal.
On Thursday, Elysium filed its opposition to ChromaDex's motion to dismiss the FDA complaint, which opposition you can read here:
Elysium's Opposition to ChromaDex's Motion to Dismiss
Elysium's Complaint About a "Sham Petition" with the FDA
Elysium spends most of its time defending against ChromaDex's three immunity arguments: Noerr-Pennington, Litigation Privilege, and anti-SLAPP.
Elysium's core argument is that ChromaDex is not engaged in First Amendment activity, but instead is engaged in "malicious defamation" by way of "a carefully-orchestrated campaign of disparagement against a competitor."
These are the specific allegedly false statements that Elysium argues do not get First Amendment protection:
A public proclamation that Elysium sells a product contaminated with a "toxic industrial solvent found in paint thinner" (omitting that the levels of this purported "contaminant" fall below 1% of those permitted by FDA);
A charge that this "contaminant" renders Elysium's product "injurious to health" (omitting that ChromaDex itself sold products containing the same "contaminant," thus demonstrating that ChromaDex knew it not to be injurious at all);
Repeated descriptions of Elysium's product as "adulterated" based on a purported failure to submit a regulatory notice to FDA (omitting that ChromaDex's own competing product is "adulterated" under that standard, again showing that ChromaDex knows there exists no "public safety" risk); and
A fearmongering demand that FDA immediately seize all supplies of Elysium's product and legally enjoin any further manufacture (omitting that FDA does not even allow such relief in response to petitions like that filed by ChromaDex).
I don't think any of those are false statements, but the fourth bullet in particular does not come anywhere near a false assertion.
When I covered Elysium's complaint, here, I filed my own complaint, which was that the facts recited sounded to me, well, counterfactual. I have that same problem with this Opposition, which, necessarily, recites the same facts that seem to me so foreign.
ChromaDex had the same problem, too, if you believe Elysium. Elysium complains,
On a Motion to Dismiss, "a defendant may not dispute the accuracy of the complaint's factual contentions; rather, on a motion to dismiss, a court must accept all allegations in the complaint as true and draw all inferences in the non-moving party's favor. Rather than argue that Elysium has failed to plead allegations that state a plausible claim for relief, however, ChromaDex in major part simply disputes the truth of Elysium's factual allegations. (See, e.g., Br. at 12 (allegations "should not be credited"); id. at 23 (allegation is "untrue"); id. (allegation is "dishonest").) And where ChromaDex does not dispute the accuracy of Elysium's allegations, it ignores them altogether. Neither practice suffices to establish that ChromaDex is entitled to dismissal here. (citations omitted, emphasis added)
According to Elysium, once Elysium pleaded "sham petition," they stated the claim. Or at least they stated the claim when they included "detailed allegations explaining the basis for its contention that ChromaDex brought the Sham Petition in bad faith and with no belief that it would achieve its stated purpose."
Well, that's the whole question -- whether the allegations add up to that.
ChromaDex's argument, as I understood it, was that Basis was adulterated (legal definition), and the substance with which it was adulterated is unsafe, and one for which the FDA has recognized no safe level in food or supplements. I rate those statements "true."
Elysium's argument is that the FDA HAS set a safe limit for pharmaceuticals.
In its own complaint in this now-consolidated action (paragraph 70), ChromaDex points out that pharmaceuticals are taken on a temporary basis under medical supervision in response to sometimes life-threatening conditions; food supplements are taken daily forever with no supervision. So the FDA is perfectly justified in not conflating the two standards.
Elysium acknowledges the nature of the pharmaceutical standard, but notes that the FDA "regularly accepts submissions that apply the pharmaceutical standards to show that nutritional supplements contain acceptable solvent levels, thereby establishing de facto standards for solvent levels in nutritional supplements." (emphasis added)
Good luck with that one, Elysium.
I am unaware that the FDA is legally capable of setting "de facto standards" by its behavior. I would think that such a legal finding would represent a pretty serious violation of the Administrative Procedure Act (which is about required procedures, and is intended, among other things, to protect the public from de facto standards being pulled out of the FDA's or Elysium's magic hat.) And in any case, whatever legal force a "de facto standard" might have, I can't imagine that it would have so much force that it would be illegal to challenge it.
But just to be sure, I checked the federal case law to see whether any Court had ever recognized the legal significance of an FDA's de facto standard ("FDA /s 'de facto' /s standard"). I found two cases that considered claims that the FDA had created a de facto standard for something, and both cases rejected the claim. Elysium's argument here is novel.
Okay, let's skip to Noerr-Pennington Immunity.
Elysium teaches us that ChromaDex loses First Amendment immunity for its FDA petition if two things happen. The first thing is this:
Success on the Merits
"No reasonable litigant could realistically expect success on the merits."
Here is the actual language of ChromaDex's petition:
That says, "1. Make a determination that the product is adulterated...2. Make a determination that Elysium's Basis product contains a new dietary ingredient...and that Elysium has not submitted an NDIN..."
Those strike me as exceedingly modest requests, upon which a reasonable litigant could realistically expect to succeed. But then there is this additional bit at the end of the Petition:
That says that if Basis is found to be adulterated, then the "FDA should immediately require that Elysium cease distribution of its Basis product and take other appropriate enforcement action, including seizure of violating products and an injunction against the manufacturers and distributors..." As you can see from this FDA press release, that is the kind of thing the FDA sometimes does when it finds food to be adulterated.
Elysium's argument, as I understand it, is that unless ChromaDex succeeds in every respect -- by achieving a mandatory recall -- it does not succeed. I highly doubt that that is the legal definition of "success on the merits." It's more likely, I would think, that any success at all would absolutely vindicate the petition, and therefore the possibility of any success would vindicate filing the petition.
But let's see if Elysium cites any authority on the defintion of "success on the merits."
It does not. But it cites a couple cases in which a petition was found to be a sham because the agency lacked authority to issue the requested relief. That seems to me to cut the other way, because nobody says the FDA lacks the authority to grant relief requested here. And then Elysium cites one case in which a plaintiff challenging an FDA petition survived a motion to dismiss because the relief sought might have been "against FDA practice."
"Against FDA practice" is an ambiguous enough phrase that I went and looked up the case (In re Flonase Antitrust Litigation, 795 F.Supp.2d 300 (2011)) to see what kind of FDA practice might have been involved, and it turns out that it does not sound like the kind of practice involved in our case. In FloNase,
"Plaintiffs present evidence that the FDA could not require the same specifications because the testing methods employed to measure specifications like DSD and SP are proprietary—Plaintiffs argue that because these methods are proprietary, the specifications for different products will necessarily be different."
That sounds an awful lot like the FDA "could not" provide the requested relief in the sense of it being impossible, or illogical, similar to being outside their authority. Elysium does not claim in this case that the FDA is prevented from responding to petitions like this; just that it chooses not to.
But even if Elysium were correct that the FDA had never responded to a citizen petition in history, that would not preclude the FDA from changing its practice. Lawyers are constantly asking courts and agencies to change their practices. That does not sound to me like the standard of baseless and unfounded; at most "unlikely," which is totally different.
So, I think that's the end of it right there -- ChromaDex was entitled to ask the FDA to make some findings and enforce them, which the FDA had legal authority to do, and so Elysium's effort to invoke the sham petition exception to the Noerr-Pennington doctrine falls on the first prong.
The second prong, which I don't think we ever get to, is whether ChromaDex's only real purpose was to harm Elysium by using a government process. ChromaDex says it had legitimate purposes like protecting public health and its own reputation. Elysium's response in this opposition is to re-state its pleadings, which accuse ChromaDex of an improper purpose. There, we pled it, so FRCP 12(b)(6) cannot help you.
Parties aren't required to be correct in their pleadings -- you can honestly disagree about the facts -- but it has to be an honest disagreement. If a party knowingly mischaracterizes the facts or the law in their pleadings, penalties can be imposed.
We saw apparently counter-factual pleadings in the CDCal case, in which Elysium pled that they were paying royalties in exchange for trademarks, which Judge Carney took very seriously:
Elysium does not complain that it was forced to use the licensed trademarks, only that it was forced to buy the license for the trademarks in order to have access to NR.
As I explained here, if in fact the royalty payments were NOT in exchange for trademarks -- if Elysium was not "forced to buy the license for the trademarks" -- but instead the royalties represented deferred compensation for Niagen (which is what the language of the agreement and common sense suggest), and if the parties to the negotiated agreement actually knew what they were paying for (which normally is the case; it's the kind of contract term that demands clarity before you sign), and if there is any evidence that the Elysium and/or its attorneys knew the real purpose of the royalty payments but re-cast them in their pleadings in a counter-factual way in order to support a bogus Patent Misuse claim (which Discovery might or might not reveal), then Rule 11 Sanctions and Inherent Authority Sanctions would be in play.
It is one of the defects of our legal system that there is no good way to stop someone from imposing a lot of legal expenses on the other party by alleging something that did not occur. The UK limits the problem with "The English Rule," which is that loser pays the winning party's attorney fees. But the American Rule is that each party normally bears its own costs.
Oh, sure, after the fact there can be sanctions and all kinds of penalties for abuse of process. But that's after the damage is done. And in the peculiar case of corporations with dubious business models, risky litigation strategies, and just a single product, there may not even BE a continuing business capable of paying any fines and opposing-party attorney fees eventually assessed.
So for prong two, Elysium says that it alleged improper intent, and therefore it gets to wreak Discovery upon ChromaDex (assuming Noerr-Pennington Immunity Exception Prong 1 is also satisfied) and if ChromaDex is capable of showing a different mental state, it will have to do so in Discovery.
I think the law is as Elysium says. So even if ChromaDex can satisfy Prong 2 on the merits (no improper purpose), ChromaDex will still want to prevail on Prong 1 for 12(b)(6) purposes. If Cooley's reply brief addresses this point, we'll take it up again at that time.
We didn't look at the Litigation Privilege that ChromaDex asserted in the motion to dismiss, but Elysium takes a couple whacks at it. First, Elysium says that the Litigation Privilege only applies to administrative action that is judicial or quasi-judicial, which this is not. Second, Elysium invokes the "Williams exception" to the litigation privilege, which removes immunity for false statements designed solely to injure the other party.
I have already said that I don't see any false statements, and I also don't see an improper purpose, because I have no problems with ChromaDex's proffered legitimate purposes for filing the petition (protecting public health and protecting its reputation). In fact, I don't think those are just proffered reasons -- I think they are absolutely real reasons, because I do not for even a moment, as I said here, buy Elysium's story that ChromaDex is in some kind of distressed position where it needs to stop Elysium in order to survive. That's crazy-talk, to me. I think ChromaDex is doing fine, and ChromaDex's problems with Elysium are that (1) Elysium took and sold millions of dollars worth of product without paying for it, and (2) Elysium is creating uncertainty in the NR market by selling Mystery NR that is a less-desirable version of Niagen (for some customers) with inadequate transparency for consumers about the details of the differences in those products. [And that's the same reason that I think ChromaDex eventually succeeds on the Noerr-Pennington immunity prong 2 -- no actual improper purpose.]
So the Williams Exception does not eviscerate any protection from the Litigation Privilege, but does the Litigation Privilege itself apply?
Elysium says that the Litigation privilege applies to judicial and quasi-judicial processes, and that the FDA petition process is not a judicial or quasi-judicial proceeding, and thus concludes that the Litigation Privilege does not apply to ChromaDex's petition before the FDA. This makes intuitive sense, but the law may be otherwise.
Quasi-judicial proceedings means hearings with an adjudication. But it turns out that under New York law the litigation privilege has been extended beyond that context in administrative proceedings, and specifically in proceedings before the FDA.
Elysium and ChromaDex both cite Stega v. New York Downtown Hosp., 44 N.Y.S.3d 417 (2017), which is a New York case from earlier this year involving statements made in the course of an FDA investigation that was initiated by a complaint. The complaint, by a terminated hospital employee, alleged that research protocols at the hospital might be harming patients. That seems to me the same kind of complaint we have in our case, just in a different context -- one person challenges the actions of another, which actions are subject to FDA regulation.
Stega counsels a VERY broad reading of the litigation privilege in administrative proceedings. Stega:
"...The developing law since Toker has broadened the application of absolute privilege in the 'quasi-judicial' context. The Court of Appeals' more recent decision in Rosenberg, 8 N.Y.3d 359, 834 N.Y.S.2d 494, 866 N.E.2d 439 established that a statement made in a preliminary form to a government agency may be entitled to an absolute privilege, even where no further investigation, hearing, or any other processes are conducted by the agency as a result of that statement...The law as it currently stands no longer limits the application of absolute immunity to statements made in the context of administrative hearings."
This sounds like it's on all fours to me: Complaint to the FDA involving safety of a research protocol for new drugs. Elysium points to language in the decision specifically highlighting additional safeguards involved in the IRB process, and additional safeguards later downstream if the FDA decides to act. But that sounds like dicta to me. The holding is right here:
The FDA “is a quasi-governmental entity [with] authority to enforce the requirements of [law],” and the agency's initial investigation into a complaint against an IRB is part of its execution of its responsibility for oversight and regulation of new drug testing. Therefore, statements made to an investigator in the course of the initial investigation by the FDA into the hospital's IRB are protected by an absolute privilege.
If you replace the phrase "new drug testing" with "potential adulteration of food supplements," it sounds like our situation. Moreover, I'm not sure that the FDA does not provide for additional procedural safeguards if it were inclined to pursue some sort of enforcement.
Well, we are clearly on the frontiers of the law here, so I won't wager how this comes out, but I will wager we don't reach the issue because Noerr-Pennington ends it.
Elysium says the Anti-SLAPP law only applies if ChromaDex commented on an application or a permission, which it did not. The actual statutory language is awkward, because the statute is trying to protect large class of potential citizen activity:
Anti-SLAPP applies to civil actions for damages "brought by a public applicant or permittee, and is materially related to any efforts of the defendant to report on, comment on, challenge or oppose such application or permission.”
In other words, Elysium says that it is not an applicant or a permittee, I believe because Elysium never applied for approval of Basis and never applied for permission to sell it. That seems like bootstrapping to me; Elysium's failure to apply for an NDIN is the very action that ChromaDex is challenging, so it is hard for me to see this as outside the protected zone, instead of the dead-center.
Whether the state law applies in a federal proceeding is another question. ChromaDex says yes, because this is a diversity proceeding and so state law applies generally; Elysium says no, this is a federal question. Something tells me we won't ever see a ruling on this.
And The Substance of the Claims
Next comes eight pages of argument that Elysium adequately pled the elements of its claims, with a great attention to whether the FDA has set a safe limit for toluene in food substances. This is the continuation of a lengthy argument beginning with the Petition, and continuing through the Complaint, the Motion to Dismiss, and now the Opposition:
ChromaDex says the FDA has not set a safe level, because it has not.
Elysium says it has, because it set a safe limit in something else (pharmaceuticals), which is, for Elysium, close enough.
I actually don't get this argument at all. Trace amounts of toluene may or may not be safe in food, but the FDA has not expressed an opinion. That means people like you and me and Elysium and ChromaDex get to argue about it, and nobody is lying, we're just trading our opinions. That also means ChromaDex gets to raise the issue with the FDA, and Elysium gets to hire Foley to file an angry public response, and we journalists can speculate about it, too, and the FDA can act or not, but nobody broke the law.
What CAN'T happen is that Elysium can't stop ChromaDex from saying -- anywhere it wants, any way it wants -- that toluene is unsafe, and the FDA has not set a safe limit for toluene in food, because those are true statements.
Elysium ought to stop trying to block public discussion of the issue. If Elysium wants to spend a lot of money on lawyers, they should lobby the FDA to actually make the statement that the FDA has not made. Or if Elysium were REALLY smart, they would stop drawing attention to the issue entirely, or, better still, reformulate their product, because supplement-takers are not always the world's most rational beasts, and a fair number of those supplement-takers, I wager, will still worry about trace quantities of toluene EVEN after the FDA tells them there is nothing to worry about.
For all I know, the FDA is about to decide, with Elysium, that there is no reason to have different safety affordances for food and for pharmaceuticals, and just collapse the two standards into one. But they didn't do that yet. If Elysium's argument is that I, as a consumer, should act as if the FDA did that and enjoy some trace toluene with my NR, that's fine, I might just do that. But if Elysium's argument is that the courts must punish people who refuse to act as if the FDA has done that, that's just batty.
Elysium also says that they properly stated their other claims, too, like a claim for false advertising because a petition filed with the FDA and carefully disseminated is an advertisement for purposes of the false advertising statute. Elysium says that ChromaDex could be liable for disrupting a business relationship that ChromaDex did not even know about because ChromaDex DID know that Elysium had business relationships in general which could be disrupted by targeting market share. And whether "ChromaDex does not at all explain the supposedly 'key distinction' between a toluene-containing ingredient and a toluene-containing 'combination' of ingredients." I thought that explanation was clear enough, and it involved ChromaDex's role as a retailer or a distributor, with different obligations. Stuff like that. We could pick at it for hours, or just let it go.