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  • Shelly Albaum

Elysium Amps Up Its Contract Claim


Elysium has amended its breach of contract complaint against ChromaDex.

You can read this red-lined version that Elysium filed with the Central District of California:

Third Amended Counterclaims (with Redactions)

Because of the redactions and some ambiguous characterizations, I am not entirely sure what is going on or why, but I will give you my best guess.

I THINK that what Elysium is saying is that Niagen had toluene in it from the start, and at the last minute ChromaDex changed their manufacturing process to eliminate the toluene.

Elysium is also suggesting that the presence of the toluene should have triggered a California Prop 65 warning, and that in any case it constitutes a breach of contract, because the Niagen supply agreement included process and purity promises.

The reason I think that the parties are talking about toluene is because the new complaint refers to a "regulated substance" that ChromaDex allegedly "claims in numerous regulatory submissions to FDA...is undetectable in Niagen."

Well, we haven't looked at every regulatory submission to the FDA, but we do know that ChromaDex said that toluene was undetectable in Niagen in a couple recent Citizen Petitions to the FDA, so that is at least a plausible guess as to what Elysium is complaining about.

Although maybe not, because the complaint also says,

"Although, to Elysium's knowledge, the Regulated Substance is not subject to regulation by FDA and is not generally considered to be hazardous to human health, the California voter initiative allows for the imposition of liability and penalties on parties that sell products containing the Regulated Substance above a specified level (the "Safe Harbor Limit") without affixing a warning label." (emphasis added)

Does the FDA regulate toluene? No and yes. No, the FDA only regulates food and drugs, not petrochemicals. But yes, anything that contaminates food and drugs, like dirt or salt or petrochemicals, could be regulated by the FDA as a contaminant.

Is toluene generally considered to be hazardous? No and yes. No, not if you don't eat it, and Elysium says in trace amounts it is safe even in food. But yes, anything subject to Prop 65 warnings would be "known to the state of California to cause cancer or reproductive toxicity," which toluene is, and which sounds hazardous to me.

Is it possible that there is some completely different chemical at stake, and some completely different California Initiative reporting requirement that assesses penalties for failing to disclose substances "not generally considered to be hazardous to human health?" I suppose so, but that's a pretty twisted thing. I am more inclined to believe that this is another of Skadden's riddle-koans. Today's Riddle of the Skadden:

What substance is not regulated by the FDA, and is "not generally considered hazardous to human health," but is subject to California reporting requirements for being "potentially hazardous to human health," so that one can be subject to liability and fines for not reporting it?

My solution to Skadden's riddle contains a four-letter word, a three-letter word, and an exclamation point.

But putting aside whether anything Elysium is alleging here is in fact true -- let's just assume that ChromaDex did all the bad things hinted at, that Niagen was improperly produced and contained an improper contaminant, that the contract was thereby breached, and that Elysium is excused from its contractual obligation to report non-confirming goods within 30 days.

So what?

Elysium is asking the Court to determine that these are material breaches that "denied Elysium the benefit of its bargain," and therefore Elysium does not have to pay for the goods it accepted and re-sold.

As every first-year law student learns in Contracts, that is not how the law works. Even if the contract was breached, Elysium has no damages, since they sold all of the Niagen. And allowing Elysium to retain the profits from selling Niagen without paying for the Niagen would be unjust enrichment, an affirmative defense that ChromaDex has in fact pleaded.

It would be different if Elysium wanted to give back the Niagen to ChromaDex, or if Elysium had been forced dispose of the Niagen, or if Elysium faced some customer class action for contamination.

But none of those apply. So as an amendment to the breach of contract claim, these new allegations seem to be entirely inconsequential.

If you want to get REALLY speculative, then you could imagine the following scenario:

What if Elysium stole two of ChromaDex's employees, which employees taught Elysium the secrets of making Niagen a certain way, which certain way resulted in a trace contamination? And then what if ChromaDex changed the manufacturing process without telling Elysium or the FDA, such that the contaminant was removed? And then what if Elysium THOUGHT that it was making Mystery NR the exact same way that ChromaDex was making Niagen, but really it wasn't, and so then ChromaDex complained to the FDA about a difference that Elysium didn't think existed? And then what if both of the parties were really mad about the whole thing?

This strikes me as a plausible scenario, but not one that has legal significance. Elysium still has to pay for the Niagen that it received and sold, and both parties have to comply with the rules that limit harmful contaminants.

So what should we conclude?

That the parties aren't about to settle the litigation, I guess.

#ElysiumHealth #CDXC #ChromaDex #Litigation

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