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  • Shelly Albaum

ChromaDex's Fourth Amended Complaint


Holy Toledo! ChromaDex has filed a Fourth Amended Complaint in the Central District of California that adds new claims for theft of trade secrets and conversion, and requesting punitive damages, and IT. IS. A. DOOZY!

You can read it here:

ChromaDex's Proposed Fourth Amended Complaint

A few preliminary points:

  • ChromaDex is requesting permission to file this, but Elysium has consented, so this will very likely become the operative complaint

  • This new complaint is full of redactions protecting confidential details, but the explosive story comes through

  • Skadden will presumably file a motion to dismiss these claims as inadequate and tardy, but maybe they won't even bother - a claim is pretty clearly stated, and the delay in asserting the claim would have resulted from Elysium's alleged concealment

  • You will recall that ChromaDex originally asserted trade secret theft claims last year, and on May 10, 2017, Judge Carney dismissed those claims with leave to amend because at the time ChromaDex had not alleged that any protectable trade secret was stolen. ChromaDex now fills in the details.

  • I would also note that I spent time with ChromaDex's senior executives, including General Counsel Mark Friedman, the same day this amended complaint was publicly filed, and they did not give me a heads up. That is not a sign of contempt, just good discipline. These executives not only stay on message, they keep their secrets.

I encourage you to read the entire Fourth Amended Complaint, even though it is 40 pages long and filled with pesky redactions, because it really adds quite a bit of detail to the story. I'll summarize that detail below, but if you are able to read the complaint, you should.

Executive Summary

Here is a quick overview: Thanks to Discovery, ChromaDex now knows enough about the events surrounding the collapse of the parties' business relationship that it is able to describe Elysium's secret plan to weaken and undermine ChromaDex, and to specifically describe seven stolen documents containing specific trade secrets, and some of the ways in which the documents were used (or misused) by Elysium.

Much of the new information revolves around ChromaDex's former VP of Business Development, Mark Morris, who is now Elysium's Head of Scientific Technology. According to the complaint, "ChromaDex has discovered through documents produced by Elysium in this action, that Morris began working as Elysium’s agent before he even departed from ChromaDex..." The details that emerge in the complaint make me really glad that I am not Mark Morris.

In fact, the details that emerge in the complaint are sufficiently outrageous that I wonder if we haven't strayed into the realm of criminal wrongs, rather than civil wrongs.

ChromaDex summarizes Elysium's actions as

"...fraudulent, willful, malicious, and oppressive and constitute despicable conduct and subjected ChromaDex to unjust hardship in conscious disregard of ChromaDex’s rights so as to justify an award of exemplary or enhanced damages under California Civil Code § 3426.3(c), and attorneys’ fees pursuant to California Civil Code § 3426.4. Elysium’s willful and blatant theft of ChromaDex’s documents and information is so egregious that it warrants punitive damages."

That language is all about punitive damages. So now ChromaDex is asserting tort claims in both New York and California, and the alleged facts underlying those tort claims -- a malicious plan to illegally harm ChromaDex as much as possible -- are aligned in both jurisdictions.

The technical legal issues in the Fourth Amended Complaint involve new tort claims for conversion (that's theft) and trade secret theft, which can warrant very significant damages.

But squinting a little bit and reading between the lines near the redactions, I think we are learning that Elysium planned to take a year's supply of ingredients without paying, and use the time and the money savings to set up an alternate supply chain, and to use ChromaDex's recruited employees' proprietary expertise to do accomplish that. And maybe we also have a new theory as to how Elysium learned about the competitive pricing that they have so far attributed to an erroneously transmitted "blinded" spreadsheet.

If all this is already shown or can be proved through discovery, Elysium will be in a great deal of hot water.

How much? How hot? ChromaDex suggests that once it gets into discovery on the conversion and trade secret claims there is still much to be learned.

Details

Here are some highlights from ChromaDex's Fourth Amended complaint:

"Elysium’s conduct and statements evidence its intent to deliberately weaken and undermine ChromaDex...

"With offers of employment, Elysium induced at least one senior ChromaDex employee to begin feeding Elysium ChromaDex’s confidential information while he was still a ChromaDex employee. This employee acted as Elysium’s inside agent at ChromaDex.

"Based on this wrongfully obtained information, in June 2016, Elysium induced ChromaDex to accept and fill large orders of NIAGEN and pTeroPure while never intending to pay for them, by making false and misleading representations...

"Shortly after ChromaDex shipped the extraordinarily large volumes of ingredients to Elysium, Elysium executed its planned employee raid, hiring the employee who had acted as Elysium’s agent and another senior ChromaDex employee before notifying ChromaDex that it would refuse to pay for the product it ordered...

"These two former ChromaDex employees took several ChromaDex documents with them to Elysium and thereby assisted Elysium in its misappropriation of ChromaDex’s trade secret information and conversion of ChromaDex’s proprietary information and documents.

"Elysium’s breaches and theft have caused millions of dollars of damages to ChromaDex and allowed Elysium to profit at ChromaDex’s expense...

"Elysium secretly recruited two senior ChromaDex employees to help it achieve its goal before it exhausted [REDACTED] worth of ingredients it had stockpiled from ChromaDex.

"...Elysium induced Morris to breach his loyalty and confidentiality obligations to ChromaDex with offers of employment. Morris began feeding Elysium confidential and proprietary information on ChromaDex’s sales to other customers. In May of 2016, Morris gave Elysium a spreadsheet, or the information contained in a spreadsheet, concerning the prices and volumes of NR ordered by another ChromaDex customer (the “Pricing Spreadsheet”).

"The sales information contained in the Pricing Spreadsheet could have only been known to a ChromaDex employee by virtue of his employment with ChromaDex and was ChromaDex property.

"Elysium knew that it should not have been in possession of the information in the Pricing Spreadsheet and kept its illegal possession of the confidential ChromaDex information secret. ChromaDex did not discover Elysium’s possession of the Pricing Spreadsheet until Elysium produced the document in discovery in this action.

"Elysium improperly used the Pricing Spreadsheet information—without revealing its true intentions—to engage ChromaDex in a series of questions about NR pricing for the purpose of seeking out-of-context statements to support its greedy and dishonest aims.

"Elysium conspired with Mark Morris to implement this plan. Elysium and Morris agreed that before Morris left ChromaDex to work at Elysium, he would act as Elysium’s inside agent, ensuring the success of Elysium’s scheme to harm ChromaDex by wrongfully giving Elysium information to inform its strategy and by encouraging ChromaDex’s management to accept the extraordinarily large purchase orders Elysium planned to place.

"Morris—still a ChromaDex employee at the time—remained silent about the fact that Elysium’s orders were expected to last for [REDACTED]...and the supply lasted in fact till [REDACTED].

"When asked about his future professional plans during his exit interview, Morris lied and told ChromaDex that he did not know what his next steps would be. However, Morris had been planning to work for Elysium for months and had already arranged to begin work at Elysium the next business day after his resignation from ChromaDex. Morris is now Elysium’s Head of Scientific Technology...ChromaDex has discovered through documents produced by Elysium in this action, that Morris began working as Elysium’s agent before he even departed from ChromaDex...

"Morris began working with Elysium behind ChromaDex’s back by at least May 2016, nearly two months before he resigned from ChromaDex, when he sent or otherwise relayed the sales information in the Pricing Spreadsheet to Elysium. Morris wrongfully disclosed the confidential ChromaDex information to Elysium for the purpose of helping Elysium negotiate a better price for NIAGEN and to secure employment with Elysium...

"Morris did not tell his then-employer ChromaDex about Elysium’s intention to [REDACTED] and to use the money that Elysium owed ChromaDex for the June 30 Purchase Orders to fund that dishonest goal. Before Morris left ChromaDex, he used his personal email account to send Elysium a list of [REDACTED].

"...Shortly after Morris began his official employment with Elysium, he started working with a [REDACTED] Morris was, and continues to be, Elysium’s main contact with [REDACTED]. Given Morris’s detailed knowledge of ChromaDex’s internal operations, he is well-positioned to use this proprietary information. When it came time for Elysium to provide instruction to [REDACTED], Elysium relied on proprietary ChromaDex documents to do so...

"Elysium, through Morris, converted for its own advantage the NR GRAS Dossier and the valuable information it contains....Elysium converted the NRCl Analytical Method and the NR Specifications when it retyped the ChromaDex documents nearly word-for-word into two separate documents and claimed the resulting document as its own by [REDACTED]...

"Morris and/or Dellinger blatantly converted the Presentations by placing many of the original slides, with only minor changes, on an Elysium PowerPoint template with Elysium logos and by removing all ChromaDex logos and references to ChromaDex’s branded ingredients, NIAGEN and pTeroPure..."

"...Fraudulent, willful, malicious, and oppressive and constitute despicable conduct and subjected ChromaDex to unjust hardship in conscious disregard of ChromaDex’s rights so as to justify an award of exemplary or enhanced damages under California Civil Code § 3426.3(c), and attorneys’ fees pursuant to California Civil Code § 3426.4. Elysium’s willful and blatant theft of ChromaDex’s documents and information is so egregious that it warrants punitive damages.

Still Reading???

Here is a bonus pleading-challenge. Compare how Elysium tells the story in its Third Amended Counterclaims with how ChromaDex tells the story in its Fourth Amended Complaint. It sounds like someone is lying -- and one is not allowed to lie to the court in pleadings.

Elysium's Third Amended Counterclaims

...

72. On May 29, 2016, Alminana requested from Jaksch data listing the prices at which ChromaDex was selling nicotinamide riboside to other customers. At the time Alminana made this request, Elysium recognized that it was an exemplary customer of ChromaDex, even “self-policing” the parties’ contracts to ensure that ChromaDex was receiving the payments prescribed by the contracts. Alminana’s friendly request was intended to confirm that, in light of Elysium’s orders of substantial volumes of nicotinamide riboside and its full performance under the contracts, ChromaDex was similarly upholding its end of the bargain by providing Elysium with the lowest price.

73. On June 13, 2016, in response to that request, Jaksch sought to defraud Elysium by transmitting the Fraudulent Spreadsheet, which purported to list in “blinded” form the prices at which ChromaDex was selling nicotinamide riboside to purchasers other than Elysium, without identifying those other purchasers by name. Jaksch apparently meant to provide Elysium with only his blinded spreadsheet, as he indicated in the text of his e-mail: “Attached is a blinded summary of supply agreements for NR.”

74. The “blinded” sheet of the Fraudulent Spreadsheet purported to list all of ChromaDex’s customers who purchased nicotinamide riboside along with the per- kilogram price and royalty rates of each. The “blinded” sheet plainly was intended to convince Elysium that it was receiving the lowest price ChromaDex charged for nicotinamide riboside and that ChromaDex was in compliance with the MFN Provision.

75. ChromaDex might have succeeded in deceiving Elysium had Jaksch not inadvertently neglected to delete two “unblinded” sheets contained in the Excel spreadsheet that apparently provided the information from which ChromaDex concocted the “blinded” sheet. The “unblinded” sheets list additional customers that Jaksch notably omitted from the “blinded” sheet. The list of omitted customers confirms that ChromaDex had, in fact, agreed to sell nicotinamide riboside to other purchasers at a price far more favorable than the price at which ChromaDex had sold nicotinamide riboside to Elysium...

81. ...At the time Elysium discovered ChromaDex’s breaches of the MFN Provision, it had fully performed all of its obligations under the Agreements. In fact, Elysium had been an exemplary customer, even “self-policing” its contracts with ChromaDex to ensure that it had been paying all that it had agreed to pay under the Agreements...(emphasis added)

Exemplary customer, eh?

ChromaDex's Fourth Amended Complaint

23. ...Elysium induced Morris to breach his loyalty and confidentiality obligations to ChromaDex with offers of employment. Morris began feeding Elysium confidential and proprietary information on ChromaDex’s sales to other customers. In May of 2016, Morris gave Elysium a spreadsheet, or the information contained in a spreadsheet, concerning the prices and volumes of NR ordered by another ChromaDex customer (the “Pricing Spreadsheet”).

24. The sales information contained in the Pricing Spreadsheet could have only been known to a ChromaDex employee by virtue of his employment with ChromaDex and was ChromaDex property.

25. Elysium knew that it should not have been in possession of the information in the Pricing Spreadsheet and kept its illegal possession of the confidential ChromaDex information secret. ChromaDex did not discover Elysium’s possession of the Pricing Spreadsheet until Elysium produced the document in discovery in this action.

26. On information and belief, Elysium used the wrongfully-obtained Pricing Spreadsheet information to construct a plan to try to obtain a market advantage over its competitors, as well as ChromaDex, based on a misconstruction of the NIAGEN Supply Agreement. Elysium improperly used the Pricing Spreadsheet information—without revealing its true intentions—to engage ChromaDex in a series of questions about NR pricing for the purpose of seeking out-of-context statements to support its greedy and dishonest aims.

27. To that end, after Elysium surreptitiously and illegally obtained the information in the Pricing Spreadsheet, Dan Alminana, Elysium’s COO, immediately requested the exact same information from Frank Jaksch, ChromaDex’s CEO, under the false pretense that the information was needed for a potential investor. This was the first time Elysium raised concerns about pricing under the NIAGEN Supply Agreement.

28. Mr. Jaksch reached out to Elysium in an effort to open a dialogue about their concerns and ultimately resolve them. Elysium, however, refused and/or ignored these offers to talk while it schemed to inflict as much harm as possible on ChromaDex.

29. As shown through discovery in this action, [REDACTED]

30. On information and belief, Elysium conspired with Mark Morris to implement this plan. Elysium and Morris agreed that before Morris left ChromaDex to work at Elysium, he would act as Elysium’s inside agent, ensuring the success of Elysium’s scheme to harm ChromaDex by wrongfully giving Elysium information to inform its strategy and by encouraging ChromaDex’s management to accept the extraordinarily large purchase orders Elysium planned to place... (emphasis added)

If ChromaDex's story is correct, then (1) Elysium was not an "exemplary customer," (2) Dan Alminana's request was not "friendly," (3) ChromaDex could not have "succeeded in deceiving Elysium," (4) Elysium's purpose in asking about price was not "self-policing," and (5) Elysium had not "fully performed all of its obligations under the agreements" when it learned of the alleged breach.

I don't believe that the pleadings can both be true.

#CDXC #ChromaDex #Litigation #ElysiumHealth

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