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  • Shelly Albaum

CDXC Opposes Elysium's Proposal to Amend Its Claims


A few weeks ago, Elysium proposed to amend its counterclaims against ChromaDex, complaining that the Niagen Elysium ordered, accepted, sold, but did not pay for was defective in two respects. First, ChromaDex allegedly did not follow the correct manufacturing process. Second, the product it received was allegedly contaminated with something, presumably toluene.

We covered Elysium's proposed third amended counterclaims here.

Today ChromaDex responded with its brief opposing Elysium's request to add these claims, and it is INTENSE!

You can read ChromaDex's brief here:

CDXC's Opposition to Elysium's Third Amended Counterclaims

The short story goes like this:

Elysium proposed last month to add these two contract claims, and ChromaDex now raises four strong objections, which are: (1) ChromaDex would be prejudiced by the late amendment, (2) Elysium's delay was not reasonable, (3) Elysium's purpose is improper, and (4) Any claim Elysium has related to these matters was waived.

It adds up to this:

"Elysium’s proposed amendments are a Trojan Horse designed to publish bogus 'test results' in an attempt to defame ChromaDex and harm its business."

For those watching closely, the really interesting parts of this brief reveal details about what has been going on out of the public eye. Here is an example of something we did not know:

"In the nine months leading up to the filing of this Motion, Elysium has produced a meager 5,000 documents out of what it previously represented is a pool of more than 100,000 potentially responsive documents...with most of that 5,000 coming as a result of the Court’s order in the face of Elysium’s intransigence."

And

"ChromaDex has diligently pursued discovery related to the topics at issue in this Action, but has been stymied by Elysium at every turn."

And although Elysium is complaining about a contaminant in Niagen [presumably toluene],

"...ChromaDex’s testing [of retained samples] conclusively revealed that it is scientifically impossible for ChromaDex’s NR to have caused any of the third-party commercial products to have the Regulated Substance in excess of the safe harbor limit in the California voter initiative."

ChromaDex says that it notified Elysium of these findings, which disproved Elysium's allegations, and offered to share with Elysium the test results. Nonetheless, Elysium included in its proposed Third Amended Counterclaims "the specific names of third party products" that were allegedly contaminated, which was "wholly unnecessary to alleging the claims Elysium wishes to make."

It's great reading.

We noted that in Elysium's most recent FDA letter (covered here) that Elysium claimed that toluene had been removed from Basis without attaching any test results evidencing the removal. ChromaDex has a similar complaint with respect to this motion:

"Much of the information on which Elysium" relies in its proposed Third Amended Counterclaims is "information that Elysium has refused to provide to ChromaDex— [including] the testing Elysium purportedly performed...Elysium’s refusal to review ChromaDex’s testing and provide its testing to ChromaDex, and the fact its proposed allegations contradict its own advertising, evidences a willingness to sling mud entirely without support."

But there is no way to summarize the matter better than Cooley did in its introduction to the brief, which I reproduce here. For litigation junkies, I recommend not just this introduction, but all 25 pages.

I. INTRODUCTION

This is a breach-of-contract case about Elysium Health, Inc.’s (“Elysium’s”) willful refusal to pay for valuable product it ordered and received from ChromaDex, Inc. (“ChromaDex”) in the summer of 2016. Elysium ordered and stockpiled enormous shipments of ChromaDex product far in excess of what it usually obtained, then profited immensely from its use in Elysium’s retail sales. Yet to this day Elysium has refused to pay one nickel for what it accepted and used. Elysium’s misappropriation, and the profits that followed, became its war chest in an offensive designed to drive ChromaDex from the retail market. Elysium’s campaign included the brazen breach of contract at issue here, the stealth recruitment of key employees from ChromaDex, the exploitation of those employees’ technical know-how to develop Elysium’s own production capability, and a failed challenge to ChromaDex’s intellectual property at the U.S. Patent and Trademark Office. Seeking to mask its overarching strategy to put ChromaDex out of business, Elysium now requests leave to add “new” claims that it has known about for months and even years, that will dramatically alter the scope and the timeline of this litigation, and that are verifiably false. The Court should reject Elysium’s motion for leave to file its Proposed Third Amended Counterclaims (“PTACC”). The factors in Foman v. Davis, 371 U.S. 178 (1962)—including unfair prejudice to ChromaDex, Elysium’s undue delay and bad faith, and futility of Elysium’s additional allegations—each weigh in favor of denial. 1

First, ChromaDex would be significantly prejudiced by the addition of additional, case-altering allegations at this stage of the action. This straightforward breach-of-contract case was filed by ChromaDex well over one year ago. Elysium does not even dispute the core fact of this case: that it ordered huge shipments of ChromaDex’s ingredients and sold products containing them to the public for a significant profit, but did not pay and has not paid ChromaDex what it owes. Rather, up to this point, Elysium has only contended that it has been charged too much for the products it received, as well as various (untrue) allegations surrounding the execution of the contracts between the parties. Now, Elysium seeks to fundamentally expand, and necessarily delay, this litigation by adding allegations that are wholly different from that core contract dispute. In particular, Elysium seeks to transform this case into a dispute over the composition and manufacturing of an ingredient made by ChromaDex called nicotinamide riboside (“NR”). The facts involved in these additional allegations would necessitate burdensome new discovery, scientific testing, and expert opinions. Allowing Elysium to add these allegations, more than sixteen months after the case began and only a few months before the Court-ordered discovery deadline, would be unduly prejudicial to ChromaDex.

Second, Elysium’s proposed allegations are not “new” to Elysium, and Elysium has unreasonably delayed asserting them in this case. For example, as to Elysium’s purportedly “new” Current Good Manufacturing Practices (“cGMP”) allegations, Elysium expressly alleged in a complaint filed in the Southern District of New York that it “discovered” its cGMP claims in September 2016 (a year and a half before it filed the instant Motion). Likewise, as to Elysium’s supposedly “new” “Regulated Substance” allegations, Elysium has been aware of the underlying grounds for these allegations since at least November 3, 2017—the date when Elysium’s counsel levied extrajudicial threats against ChromaDex based on the same alleged facts. Whatever strategic basis Elysium may have had for waiting, its undue delay in bringing these allegations in this litigation weighs against its Motion.

Third, Elysium’s apparent bad faith in filing the PTACC also weighs against its Motion, as shown by its discovery gamesmanship and its insistence in including unnecessary and untrue defamatory statements in its proposed additional allegations. Although Elysium contends that there is ample time to pursue discovery on its added claims in the next few months, Elysium fails to mention that it has thus far withheld providing any meaningful discovery in response to ChromaDex’s requests. ChromaDex first requested documents on June 30, 2017, but Elysium did not produce anything until December 1, 2017. In the nine months leading up to the filing of this Motion, Elysium has produced a meager 5,000 documents out of what it previously represented is a pool of more than 100,000 potentially responsive documents, and most of those only in response to this Court’s order compelling it to do so. 2 In essence, Elysium wants this Court to grant it permission to investigate its “new” allegations, while it has been constantly and brazenly delaying providing discovery into the claims that have long been at issue.

Elysium’s true intent in bringing its “new” allegations is demonstrated by the false and inflammatory allegations Elysium includes in the PTACC, notwithstanding (i) ChromaDex’s offer to provide testing results showing the allegations are baseless and (ii) the fact that the allegations are not actually necessary to Elysium’s additional claims. Despite repeated cautions from ChromaDex, Elysium insisted on naming many of ChromaDex’s third-party customers in its public filing, and alleging that those products contain excessive amounts of a certain “Regulated Substance.” ChromaDex’s own diligent scientific testing reveals that any Regulated Substance in those third-party products, to the extent there is any, could not have come from ChromaDex’s NR. ChromaDex offered to share its test results with Elysium, but Elysium refused. And when ChromaDex then requested that Elysium at least re-word its proposed Regulated Substance allegations to generally reference the third parties—thus permitting them without specifically identifying the products—Elysium also pointedly rejected the compromise. Elysium’s unwarranted refusal to consider clear scientific evidence and Elysium’s determination to name ChromaDex’s customers lays bare its bad-faith motive in bringing the PTACC, and the Court should decline to reward such conduct.

Fourth, Elysium has contractually and permanently waived any claim based on its proposed allegations, and any amendment now would be an exercise in futility. Under the NIAGEN Supply Agreement—the terms of which the Court may consider on this Motion—“all claims made with respect to the product shall be deemed waived by Elysium Health unless made in writing and received by ChromaDex within thirty (30) days of delivery” of the shipment (“the Waiver Provision”). Elysium’s PTACC does not aver that Elysium made written claims about ChromaDex’s NR within thirty days of receiving any shipment. Nor does it allege that Elysium provided ChromaDex an opportunity to cure any alleged non-conformity in any shipment. Instead, Elysium sold its product containing ChromaDex’s NR to the consuming public, and profited handsomely from those sales. Elysium’s attempt to creatively plead around its waiver of these claims is unavailing; the Waiver Provision is proper and enforceable, and ChromaDex cannot be blamed for Elysium’s failure to test the NR it received. Elysium’s PTACC allegations are thus waived and it would be futile to assert them here.

Elysium’s Motion fails under the Foman factors. In a bid to distract from these deficiencies, Elysium misrepresents the parties’ negotiations to make ChromaDex appear dilatory. Nothing could be further from the truth. On January 4, 2018, after learning of Elysium’s plan to propose amended allegations, ChromaDex repeatedly requested that Elysium provide the proposed PTACC, but Elysium repeatedly refused. ChromaDex did not receive even a draft version of Elysium’s PTACC until January 24, 2018. Once it did, ChromaDex diligently conducted its own scientific testing and, as soon as it was completed, presented its findings to Elysium. In the meantime, ChromaDex sought to reduce the prejudice of the PTACC and to seek additional time for the extensive discovery that they would require. ChromaDex is not the dilatory party here. Elysium’s Motion should be denied, and its PTACC allegations rejected.

I don't know whether Elysium gets to file a reply brief, or if we now await Judge Carney's ruling.

#CDXC #ChromaDex #ElysiumHealth #Litigation

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