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  • Shelly Albaum

Uncertain Result in New York -- Stay Tuned!


We have an unexpected treat today -- Chief Judge McMahon has written a 27-page opinion regarding the parties' cross-motions to dismiss. You can read the opinion here:

SDNY Motion Granting and Denying In Part

Summary

Here is what it comes to: All but one of ChromaDex's claims survived, and nearly all of Elysium's claims either did-survive-or-did-not-survive, but we don't know which yet. More detail:

(1) ChromaDex's bid to dismiss Elysium's claims now depends entirely on the Noerr-Pennington defense (much as we predicted here at Right of Assembly), and the Chief Judge has granted the parties 30 additional days to submit evidence regarding the applicability of Noerr-Pennington;

(2) But if Elysium survives Noerr-Pennington, then apparently all of its claims survive;

(3) All of ChromaDex's claims against Elysium for false advertising and unfair competition also survived, but not ChromaDex's claim for tortious interference with business advantage.

So instead of "granting in part and denying in part," we might more precisely understand this as Elysium's motion to dismiss was mostly denied, and ChromaDex's motion was mostly deferred.

Now, on to the specifics, starting with ChromaDex's motion:

ChromaDex's Motion

Judge McMahon cursorily dispenses with ChromaDex's SLAPP and Litigation Privilege defenses, and instead focuses on the applicability of Noerr-Pennington immunity.

Noerr-Pennington immunity protects anti-competitive activity if it occurs in the context of legitimately petitioning the government under the First Amendment. The only issue in our case is whether ChromaDex's petition was a legitimate petitioning of the government (immunity applies) or if the petition was objectively baseless because the FDA could not respond to it (immunity does not apply if ChromaDex also had an improper purpose).

It appears that if immunity applies, then all of Elysium's claims will be dismissed. If immunity does not apply, then all of Elysium's claims will survive.

But whether Noerr-Pennington immunity survives will depend on whether ChromaDex's FDA petition was improper, and to determine that Chief Judge McMahon would like to see some evidence.

Chief Judge McMahon views it as significant that the FDA had stated the prior year that a seizure of goods was beyond the purview of a citizens petition.

Chief Judge McMahon said that the "most damning" potential evidence of the baselessness of ChromaDex's petition was Elysium's suggestion that ChromaDex's own product (pterostilbene) contained the same levels of toluene that ChromaDex was complaining about.*

On the other hand, Judge McMahon appears unimpressed by Skadden's gesticulations:

"While Elysium may regard the evidence as specious, and may vehemently disagree with the position CMDX espouses, Elysium's belief about the Petition's lack of merit does not render it a sham."

Moreover, said the Court,

"At this stage of the analysis, evidence that CMDX intended to injure Elysium is wholly irrelevant: unless Elysium can show that the Citizen Petition was objectively baseless, CMDX cannot be deprived of Noerr-Pennington immunity based on the sham exception."

Although Elysium asserted that ChromaDex's certificates of analysis showed toluene in ChromaDex's pTeropure, the certificates were not attached to the pleadings or motion (similar to what we also saw with Elysium's comment to the FDA alleging without apparent documentation the removal of toluene from Basis).

So since evidence was required, Chief Judge McMahon converted the motion to dismiss into a motion for summary judgment limited to Noerr-Pennington grounds, and the parties have 30 days to submit any additional evidence.

Last year I did not hazard much of a guess as to how ChromaDex's other defenses would fare, but I thought the Noerr-Pennington defense was very strong.

I thought (and still think) that ChromaDex should win on Noerr Pennington regardless of whether the FDA does in fact ever seize goods in response to a citizen petition, because the FDA is *capable* of responding even if they choose not to. It is within FDA's ability to seize adulterated health supplements in EXACTLY the way that grounding Boeing's entire fleet of 737's for a safety check is NOT within the FDA's ability.

And ChromaDex requested VARIOUS kinds of relief -- certainly the FDA was capable of responding to some, if not all, of those requests.

Judge McMahon addressed the partial-success point:

I understand CMDX to argue (though not in a very articulate way) that its petition could be granted in part. In other words, even if the portion seeking enforcement action were to be denied (and it will be), CMDX points to the fact that the Citizen Petition requests other relief, including (1) the issuance of an order from the FDA declaring that Elysium's Basis product is adulterated within the meaning of 21 U.S.C. § 342(a); (2) an order declaring that Basis "contains a new dietary ingredient under 21 U.S.C. § 350b," i.e., the Mystery NR for which Elysium had not submitted a NDIN (Id. Ex. A at 2.); and (3) "all appropriate remedial action," including ordering Elysium to cease distributing Basis. I gather that these forms of relief are administrative in nature and do not require recourse to the United States Attorney or to the courts.

Additionally, the Commissioner is empowered to take other action if action is warranted. CMDX argues that if the FDA, on the basis of the evidence in the Citizen Petition, decides to open an investigation into the allegations regarding Basis, this would constitute a "favorable outcome." It argues that the Citizen Petition contains ample evidence to support its claims regarding the possible adulteration and regulatory compliance of Basis, so that it cannot be said that "no reasonable litigant could realistically expect success on the merits."

But the Court did not resolve the question of "favorable outcome" versus absolute complete victory.

My sense is that Chief Judge McMahon's position is that if ChromaDex's petition complains about actions that ChromaDex itself was engaged in, then by definition ChromaDex could not have expected that the FDA would act on the petition. The Court says,

"It would be objectively baseless for [ChromaDex] to argue to the FDA that a competitor's product is adulterated because it contains an ingredient that is found in CMDX's own competing product."

There is some logic to that position. But I don't think it is correct. I can't quite square that statement with Chief Judge McMahon's other statements that:

  • "Evidence that CMDX intended to injure Elysium is wholly irrelevant,"

  • "Evidence of anticompetitive intent or purpose alone cannot transform otherwise legitimate activity into a sham,"

  • "Even if [Elysium's] contention is correct [that ChromaDex filed the petition in bad faith], it does not mean that the Citizen Petition is a sham..."

It is logically possible that the FDA could bust both Elysium and ChromaDex for doing the same thing. For example, if you rob my house and I call the police, the fact that I am also robbing YOUR house doesn't mean that my police call is baseless, or that the police should not or would not respond.

So evidence that ChromaDex was also engaging in the same behavior that it complained about seems to me, if anything, to suggest ChromaDex's bad intentions, and cannot tell us whether a petition complaining about the allegedly bad thing that they are allegedly both doing is in fact a legitimate or baseless petition.

In any case, we will hear more about that in the future.

In the meantime, UNLESS Noerr-Pennington immunity applies, Elysium has stated claims for trade libel, false advertising, deceptive business practices, and may get a chance to try to prove it.

Elysium's Motion

ChromaDex alleged false advertising and unfair competition under the Lanham Act.

The Court said that it would not hazard a guess as to whether it was true advertising or false advertising to say that Basis was safe despite the presence of toluene. Apparently the FDA will have to address that issue before the Court will.

However, the court DID consider ChromaDex's claims that Elysium:

(1) Should not have characterized Basis as "Pure"

(2) Should not have characterized Basis as "FDA-Approved,"

(3) Should not have suggested that Elysium was responsible for the science behind Basis," and

(4) Should not have suggested that Elysium's clinical study involved Basis when the substance Elysium was selling was not the ChromaDex NRPT used in the study

The Court determined that ChromaDex had stated claims with respect to all four of these allegations under the Lanham Act, and also stated claims under one section of New York's Unfair Competition Law. And ChromaDex also adequately alleged injury.

So ChromaDex will get to try to prove those claims.

However, the Court rejected ChromaDex's claim that Elysium tortiously interfered with prospective economic advantage, because the Court interpreted that tort as requiring interference with a specific third party business relationship, such as a ChromaDex customer or supplier, and not just interfering with ChromaDex's business prospects generally.

CONCLUSION

So it was a good day for ChromaDex and its attorneys, because ChromaDex gets to proceed on most of its claims.

Elysium certainly will be cheered that they have cleared the lower level immunity bosses and now must only defeat one last Immunity Boss -- Noerr-Pennington -- before being allowed to proceed. Elysium should also be cheered that Chief Judge McMahon appears to be embracing a theory that Elysium could potentially establish, if in fact they can show that PteroPure had toluene comparable to Basis at the time of the petition.

But Noerr-Pennington is still a formidable foe. By my light, ChromaDex's "Partial Relief" argument is exceptionally strong, and the question of whether ChromaDex was being hypocritical or self-destructive with respect to pterostilbene when ChromaDex filed the petition misses the mark, and cannot establish the petition's baselessness, only ChromaDex's bad intentions.

To prove my point, all the FDA would have to do is send a letter to both Elysium and ChromaDex directing them both to either get the toluene out of their supplements or declare it on the label. Because the FDA is perfectly capable of doing so, I don't see how the petition can be baseless.

_________________________________

* Although ChromaDex might respond that it is improper for the Court to conflate disclosed wholesale ingredient sales with undisclosed consumer product sales.

#CDXC #ChromaDex #ElysiumHealth #Litigation

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