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  • Shelly Albaum

ChromaDex's Motion to File 5th Complaint Granted


On November 8, ChromaDex asked Judge Carney in California for permission to file a Fifth Amended Complaint adding new claims against Mark Morris and Elysium. Today Judge Carney granted ChromaDex's motion. You can read the motion and the proposed 5AC:

Judge Carney's Order Granting Motion to File 5AC

Proposed Fifth Amended Complaint

Operative Fifth Amended Complaint (Filed)

Morris allegedly provided proprietary and confidential information to Elysium while he was at ChromaDex. Morris apparently texted trade secret information to Elysium concerning the prices and volumes of orders from ChromaDex’s other customers, which Elysium recorded in a spreadsheet.

Here is what Judge Carney wrote:

ChromaDex seeks to add Morris as a defendant and assert five causes of action against him, including misappropriation of trade secret claims, breach of certain confidential agreements between Morris and ChromaDex, and breach of fiduciary duty. (Id. at 4–5.) ChromaDex also seeks to add two new causes of action against Elysium for aiding and abetting Morris’s breach of fiduciary duty and for breach of contract with respect to Elysium’s confidentiality obligations to ChromaDex. (Id. at 5.) For the following reasons, the motion is GRANTED....

The Court finds that the circumstances here warrant giving ChromaDex leave to amend. Neither Morris nor Elysium would be unduly prejudiced by the amendment. Discovery is still ongoing. (Mot. at 6.) The same law firm that represents Elysium will also represent Morris. (Anderson Decl. ¶ 13.) Neither party has taken a deposition or exchanged expert reports, so Morris will be able to take part in those discovery efforts. (Mot. at 7.) Morris, as former ChromaDex employee and current Elysium employee, has also had at least constructive notice of the dispute. He was served with a subpoena in August 2017, (Anderson Decl. ¶ 2), he was referenced by name repeatedly in the Fourth Amended Complaint, (see, e.g., FAC ¶¶ 22–23, 30), and his conduct has been the subject of several of ChromaDex’s discovery requests to Elysium, (Mot. at 7). Rule 15(a)(2)’s mandate that leave to amend should be “freely give[n]” also weighs in favor of granting ChromaDex’s motion. ChromaDex has not unduly delayed, as it served the proposed fifth amended complaint on Elysium only six weeks after Elysium produced the latest batch of documents under a new confidentiality declaration. (Anderson Decl. ¶ 10.) ChromaDex’s proposed claims are based on new information learned through proper discovery.

The Proposed Fifth Amended Complaint, which was actually filed with the original motion a few weeks ago but I missed it because it was in an ambiguously titled exhibit attachment, provides additional detail:

Beginning in at least the spring of 2016, Elysium became openly antagonistic towards—and increased efforts to undermine, attack, and harm— ChromaDex. With offers of employment, Elysium induced Morris, then ChromaDex’s Vice President of Business Development, to begin feeding Elysium ChromaDex’s confidential and trade secret information while he was still a ChromaDex officer. Morris acted as Elysium’s inside agent at ChromaDex for nearly two months in breach of his fiduciary duty to ChromaDex and its shareholders before terminating his employment with ChromaDex and beginning official employment with Elysium.

Based on this wrongfully obtained information and with Morris’s inside and influential help, in June 2016, Elysium induced ChromaDex to accept and fill large orders of NIAGEN and pTeroPure while never intending to pay for them, all by making false and misleading representations. On information and belief, Elysium intended to make ChromaDex its unwilling banker and lender, supporting Elysium’s business by supplying Elysium with nine months’ worth of the two essential ingredients required for Elysium’s product, all while Elysium invested the money it owed to ChromaDex into developing its own alternative sources of NR and pterostilbene.

Shortly after ChromaDex shipped most of the extraordinarily large volumes of ingredients to Elysium, Morris, having achieved his goals for Elysium, left ChromaDex, taking ChromaDex’s trade secrets along with him to Elysium. Shortly after the remaining ingredients shipped, Elysium executed the remainder of its planned employee raid, hiring another senior ChromaDex employee Morris had recruited on its behalf, before notifying ChromaDex that it would refuse to pay for the product it ordered

ChromaDex's bases its claims against Morris on the signed confidentiality agreement in the employee handbook, and another agreement signed near the time of Morris's departure (both of which are attached to the complaint), as well as on Morris's fiduciary duty as an officer of the company.

The complaint is nearly 50 pages, and contains a lot of familiar detail. Indeed, ChromaDex's story has not changed much through the five iterations of the complaint, but each time more details come into focus.

Below I have excerpted some of the paragraphs that I think might contain newer information, such as details about Mark Morris's actions, and a suggestion that Elysium might also have used ChromaDex's information to set up a pterostilbene supply chain (all emphases added).

In May of 2016, Morris texted Elysium ChromaDex trade secret information concerning the prices and volumes of NR ordered by another ChromaDex customer. Elysium recorded this wrongly obtained trade secret information in a spreadsheet...

Elysium encouraged Morris to continue acting on its behalf in violation of his fiduciary duty to ChromaDex by making a firm offer of employment to Morris in exchange for his commitment to act as Elysium’s inside agent before he terminated his employment with ChromaDex. Morris accepted that offer, stole proprietary information from ChromaDex on his way out the door, and began working for Elysium. With a ChromaDex insider in its pocket, Elysium saw an opportunity to execute on its long- held desire to take ChromaDex out of the equation, destroy the competition, and execute its campaign to own NR...

Elysium conspired with 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 abusing the trust ChromaDex’s management and shareholders placed in him to manipulate ChromaDex into accepting the extraordinarily large purchase orders Elysium planned to place.

Elysium and Morris further agreed to keep Elysium’s plan to compete with ChromaDex in the manufacture of NR and synthetic pterostilbene secret from ChromaDex and to use ChromaDex’s confidential and proprietary documents to help Elysium bring its alternate sources of ingredients to market before it exhausted the stockpile of NR and pterostilbene it planned to obtain from ChromaDex. Morris knew that such competition would harm ChromaDex, which has certain patent rights to both ingredients, and had a fiduciary duty to inform ChromaDex of Elysium’s plans to displace ChromaDex in the market...

Alminana and Marcotulli falsely stated that Elysium intended to be a good business partner to ChromaDex and explained that Elysium was ramping up, which was the reason the June 28 Purchase Orders were far larger than their past orders. Alminana and Marcotulli dishonestly represented that, due to the ramp up, Elysium expected to use all the NIAGEN ordered over the next few months and would place additional large orders in Q3 and Q4 2016. In reliance on Elysium’s statements and promises, ChromaDex offered Elysium a discounted price for NIAGEN...

Morris—still a ChromaDex officer at the time—failed to inform ChromaDex that Elysium’s orders were expected to last for nine months, that Elysium did not intend to pay for the orders, and that Elysium was preparing to compete with ChromaDex by obtaining an alternate source of NR. Morris purposely remained silent despite knowing that the June 30 Orders would cause damage to ChromaDex...

Morris helped Elysium recruit Dellinger while he was still a ChromaDex officer, in further breach of his fiduciary duty to ChromaDex...

When asked about his future professional plans during that 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, had already been acting as Elysium’s agent, and had already arranged to begin work at Elysium the day after his resignation from ChromaDex.

Morris also reaffirmed his contractual obligations of confidentiality and stated that he had returned all ChromaDex information in his possession. Those statements and promises were also lies. Morris already intended to disclose ChromaDex’s confidential and trade secret information to Elysium after his departure and had likely already saved confidential ChromaDex documents for the purpose of conveying those documents to Elysium.

Morris also turned in his company cell phone, which he had previously used to communicate information to and plot with Elysium, knowing that ChromaDex would re-issue it to another employee after he departed and thereby hide or otherwise destroy evidence of his conspiracy with Elysium.

Morris’s acts violated his fiduciary duty to ChromaDex and its shareholders. Morris’s failure to inform ChromaDex of Elysium’s scheme to harm it by withholding payment and further its own competing development of alternate supplies of NR and pterostilbene, lies concerning his intent to work for Elysium, lies regarding his return of all ChromaDex information, and failure to otherwise execute his duties in good faith and in the best interests of ChromaDex, violated Morris’s fiduciary duty to ChromaDex...

Morris failed to inform ChromaDex that, at the time Marcotulli and Alminana spoke on the June 30 Call, Elysium was in possession of ChromaDex’s trade secret sales information concerning another NR customer and had no intention of (1) ever working with ChromaDex to resolve Elysium’s concerns about the NIAGEN Supply Agreement, (2) paying for the NIAGEN or pTeroPure ordered in the June 30 Purchase Orders, or (3) ramping up their sales to the degree they represented. Instead, unbeknownst to ChromaDex, Elysium was scheming with Morris to exploit Morris’s and another former ChromaDex employee’s knowledge about ChromaDex and its business to assist Elysium as it developed its own manufacturing capabilities...

Just days after Elysium placed the June 30 Purchase Orders and while he was still working for ChromaDex, Morris and Elysium agreed that when Morris began working for Elysium, his main duty would be to assist Elysium in developing its alternative supply of NR. Morris did not tell his then-employer ChromaDex about Elysium’s intention to develop a competing source of NR 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 manufacturers who could potentially produce NR for Elysium. He also attached a ChromaDex document that described the manufacturing process for NR. Morris told Elysium it could use the manufacturing information as a shortcut in developing its own commercial supply of NR.

Also before he left ChromaDex, Morris saved copies of several ChromaDex documents, some containing trade secret, confidential and/or proprietary information, with the intent of using that stolen information for Elysium’s purposes. On information and belief, Morris deleted all evidence of the documents and information he stole on behalf of Elysium to prevent ChromaDex from ever discovering the truth. The methods by which Morris saved the ChromaDex documents and the content of those documents can only be revealed through further discovery.

As shown in discovery in this action, on July 18, 2016, Elysium came into possession of the spreadsheet containing highly-valued ChromaDex trade secret information: the “Ingredient Sales Spreadsheet.” The Ingredient Sales Spreadsheet is the highly-confidential central document at ChromaDex tracking all sales for all ingredients by quarter since 2012. The spreadsheet contains the detailed purchasing history of every customer who purchased any ingredient from ChromaDex—including customer names, prices, volumes, and dates of purchases. More importantly to Elysium, the spreadsheet contains the detailed purchasing histories of all its closest competitors; companies selling NR or chemically synthesized pterostilbene.

On information and belief, Elysium induced Morris to steal the Ingredient Sales Spreadsheet from ChromaDex while he was still a ChromaDex officer, in obvious breach of his contractual obligations to ChromaDex.

Elysium knew that it should not have possessed the stolen trade secret information contained in the Ingredient Sales Spreadsheet. However Elysium saved the stolen spreadsheet to its servers, did not delete it, and kept its possession of the information secret from ChromaDex. ChromaDex did not discover Elysium’s possession of the Ingredient Sales Spreadsheet until Elysium produced the document in discovery in this action.

Shortly after Morris began his official employment with Elysium as its Head of Scientific Technology, he started working with a third-party manufacturer to develop a new commercial supply of NR independent of ChromaDex. Morris was Elysium’s main contact with the manufacturer and closely oversaw the development of a manufacturing process. Given Morris’s detailed knowledge of ChromaDex’s internal operations, he is well-positioned to use this proprietary information to advance Elysium’s competing development. Elysium later promoted Morris to Vice President of Research and Development.

When it came time for Elysium to provide instruction to its alternative manufacturer on how to manufacture NR, Elysium relied on proprietary ChromaDex documents to do so...

In September of 2016, Elysium sent ChromaDex’s Pterostilbene Specifications to at least one potential manufacturer in violation of the pTeroPure Supply Agreement’s confidentiality provisions. Only further discovery can reveal if Elysium further wrongfully disclosed the Pterostilbene Specifications in attempt to develop a competing source of synthetic pterostilbene.

(emphases added)

#ChromaDex #CDXC #ElysiumHealth #Litigation

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