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  • Shelly Albaum

Elysium's Reply Supporting Third Amended Counterclaims


On Monday Elysium filed its reply brief in support of its Motion to Amend its Counterclaims by asserting two additional contract claims against ChromaDex. You can read Elysium's reply brief here:

Elysium's Reply on Motion to Amend Counterclaims

We covered the original counterclaims here, and ChromaDex's opposition brief here. To recap:

Elysium wants to assert two additional claims against ChromaDex, which are that the Niagen that Elysium used to make the Basis that Elysium never paid for (the "Hot Basis") contained an impurity and was not manufactured with the correct process.

The primary issue being argued in these briefs is not whether Elysium's allegations are true, but whether Elysium is entitled under the rules to Amend its complaint to add these claims at this point in the litigation.

ChromaDex offered four reasons why Judge Carney should refuse to allow Elysium to amend its claims:

(1) ChromaDex would be prejudiced by the late addition of the claims because they would create a lot of new work late in the game;

(2) Elysium unreasonably delayed in adding the claims because it knew about the claims last September or November;

(3) Elysium is acting in bad faith, as demonstrated by its failure to produce discovery documents;

(4) Elysium's claim is futile because Elysium waived its right to complain by accepting the product and not objecting within 30 days.

Elysium's reply runs roughly thus:

(1) There's no prejudice because there's still months of discovery, ChromaDex has known about this all the time, and these claims are consistent with the other claims already being litigated, so it doesn't change the litigation;

(2) Elysium is not acting in bad faith because they learned about these facts during discovery;

(3) There has been no undue delay because the litigation scheduling order does not preclude amendments to pleadings until August 2018; and

(4) The proposed claims are not futile -- Elysium should be excused for failing to complain earlier because the defects were not discoverable, and because ChromaDex was deceitful.

That sounds like a typical he-said / she-said, without any obvious way of resolving. However, because of who filed this Reply, there are some predictably unsavory elements to note. For example,

Could Not Have Discovered

Elysium says,

"Elysium did not discover, and could not have discovered, [the alleged contamination] until recently, when it commissioned testing by an outside laboratory service to confirm the presence of the Regulated Substance in ChromaDex's NR and breaches of the product purity provision."

If your Skadden-speak disingenuity alarm just went off, mine did, too. It is obviously false that they "could not have discovered [the alleged contamination] until recently" because they could have ordered a lab test at any time. In fact, the contract requires them to order a lab test within 30 days if they want to challenge the purity.

A true statement would be, "We could not have KNOWN about the alleged contamination until after we tested the product, and for some reason we did not test the product for a year or more." That's different from "We could not have DISCOVERED" the problem at any time. The legal standard is could not have discovered, and of course they could have tested the product at any time.

If Elysium were into honesty and candor in their judicial papers, I think the better argument would have been, we were excused for not testing the product earlier, not that we could not have done so. But they signed it.

Active Concealment

Elysium also alleges that:

ChromaDex actively concealed its breaches of the Product Purity Provision by providing Elysium with lot-specific certificates of analysis that omitted the results of the testing ChromaDex purportedly conducted on its nicotinamide riboside for [Proposition 65 chemicals].

That actually does not quite sound like concealment to me -- what's wrong with lot-specific certificates? But assuming that omitting results from testing purportedly conducted would constitute "concealment" (I'm hesitant because Skadden's language is just a little too nice -- they don't say that the tests WERE conducted, or that the lot-specific certificates were not representative) -- let's just assume that Elysium's test results show that ChromaDex concealed something it should have revealed.

The problem is that we already know from ChromaDex's opposition that ChromaDex's position is that:

"...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."

That's right; ChromaDex says that it is "scientifically impossible" that Elysium's allegations are true, and ChromaDex also alleges in its Opposition that it offered to share these test results with Elysium, and asked to see Elysium's contrary results, and Elysium refused both times.

Those are really strong statements to file in court.

Which raises the question of whether Elysium is allowed to allege just anything? Like, could Elysium get past a FRCP Rule 12(b) Motion to Dismiss if Elysium alleged that ChromaDex's senior management are blood-sucking vampires who fly through the night to the homes of Elysium senior executives to break mirrors and suck blood? Because if they did prove that, it would absolutely be a judicially cognizable civil wrong.

So are you allowed to allege just anything, even things that are scientifically impossible?

No. The rule is this: "bare assertions" are not enough. Allegations that are "conclusory are not entitled to be assumed true...The Federal Rules do not require courts to credit a complaint's conclusory statements without reference to its factual context." (Ashcroft v. Iqbal, 556 US 662)

I went back to the Michael Powell declarations attached to both the original motion brief and this reply, and I cannot find any evidence that Elysium's test results are real or that they exist. All I can find is this double-hearsay: Michael Powell asserts that

"In reality, counsel for Elysium: (i) explained that testing had revealed the presence of the Regulated Substance..."

That's a long way from presenting or even describing the test results, and I cannot imagine any justification for Elysium to withhold these if they are real. They attach to their filings email exchanges and discovery requests. What is Elysium's reticence in reproducing the one or two pages that they claim to have and that would be the primary proof of the core claim?

I'm not necessarily saying the test results are not there. I just can't find it, and I can't find where Elysium refutes ChromaDex's statement that they did not get the results and that such results cannot exist. Maybe the results are sealed, or maybe it's in a mislabeled docket item, or maybe I just missed it. However, the fact that ChromaDex asserts that legitimate test results CANNOT exist, would be at least be consistent with the difficulty I'm having finding them.

So is Elysium offering merely a bare and conclusory -- even tautological -- assertion that ChromaDex's Niagen was contaminated, because it was tested and the test determined it was contaminated?

A lot will depend on Judge Carney's tolerance for proliferation of litigation.

So far, Judge Carney has shown an extraordinary tolerance. His Honor has the power to look through the pleadings to the arguments and underlying documents and smell a rat. Or, alternatively, he has the power to say, "I've never heard of a vampire flying through the night sky, and no other federal judge in history has ever recognized such a thing, but I'm willing to hear whatever evidence you might have."

There is no denying that every court that requires the retention of local counsel helps line the pockets of the local bar. And there's no denying that every time a court denies a dispositive motion and forces the parties to litigate the matter, the attorneys make more money than if the claim were tossed. And if there were an institutional bias toward indulging frivolous claims, how great a harm is that to the clients? It's just money, and lawyers have to eat, too.

Which brings us to the final piece of Elysium's Reply Brief that warrants additional attention. Elysium spends the most breath asserting that ChromaDex cannot show prejudice from Elysium's adding these two claims.

According to Elysium, ChromaDex cannot show prejudice because they are already in discovery, and (incoherently) the burden of the additional discovery would fall entirely on ChromaDex:

"The relevant evidence...would be largely or entirely in ChromaDex's own possession. This weighs against a finding of undue prejudice to ChromaDex."

This may be another Skadden riddle: How can someone be harmed by something that harms no one but them? It may be that what Skadden is getting at here is that the materials sought are in ChromaDex's own possession as opposed to sitting in a locked chest at the bottom of the sea or in someone else's possession -- but then the discovery requests wouldn't be aimed at ChromaDex at all. Or maybe Skadden means that the discovery materials would be "easily accessible" by ChromaDex, which would be perfectly logical, but is not what the Skadden said.

But that's not the sophistry being employed here.

The undue prejudice that ChromaDex suffers is not whether another phase of discovery and three more months of litigation are peculiarly difficult, but whether they are warranted at all.

It is the FACT of the discovery, not the nature of the discovery, that creates the prejudice. Apparently the Federal Rules of Civil Procedure do not care whether the parties have to spend $10M to resolve a $5M dispute. So the federal judges must police that and say "enough is enough," or else our public dispute resolution mechanism is useless for any size dispute.

One of the takeaway messages from Ryan Holiday's sobering tale "Conspiracy" is that even the simplest, plainest justice -- like Gawker's liability for publishing Hulk Hogan's sex tape -- is not available for less than $10M if your opponent wishes to use the FRCP as a weapon, which is what lawyers are trained to do. The learnings from that book seem entirely consistent with what we are seeing in this litigation.

Conclusion

Given that Elysium does not seem willing to share their damning test results, and given that the product purity claim is probably futile -- either it is precluded by a valid contractual provision, or there are no damages anyway -- I don't suppose that these are claims worth asserting for any purpose other than to vexatiously multiply the litigation.

But given Judge Carney's demonstrated affinity for hearing evidence on VERY marginal claims (e.g., a Patent Misuse claim refuted by the face of the document it is based on; a Fraudulent Inducement claim that is based on representations about subjective intent during negotiations rather than objective facts in the world, and arguably non-falsifiable; and a wholly mooted Patent Misuse claim that might somehow have resulted in damages in excess of what could have occurred in the absence of the Patent Misuse in the first place), it is hard to imagine the court's suddenly taking this opportunity to stop feasting at the trough of the parties' mutual animosity.

But then check out the final footnote from Elysium's Reply brief:

To the extent ChromaDex attacks the merits of any of Elysium's proposed amendments, the Court should defer consideration of ChromaDex's argument "'until after leave to amend is granted and the amended pleading is filed.'" Excela Creative, LLC, 2014 WL 12589653, at *7 (citation omitted).

What Elysium is saying here is that Judge Carney should grant the motion to Amend the pleadings, and then after the new claims are added, let ChromaDex move to dismiss them -- more briefs, more blogs! You'd almost think that Elysium litigated for the pure enjoyment of it.

#CDXC #ChromaDex #ElysiumHealth #Litigation

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