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  • Shelly Albaum

ChromaDex Objects to Elysium's Amended Counterclaims in NY


Although this is a legal technicality mostly of interest to lawyers, it is nonetheless a fascinating development in the litigation.

Two weeks ago Elysium answered ChromaDex's FAC in New York, and, strangely, took the opportunity to amend their counterclaims. I call this strange because elsewhere throughout the litigation parties have asked leave to amend, not simply dumped a new version onto the docket. Although leave to amend is usually granted, you still have to ask permission.

Here is what I wrote two weeks ago:

I don't normally spend too much time on Answers, because they mostly consist of endless denials.

But this answer is different, because Elysium has, without mentioning it, AMENDED their counterclaims.

I don't know why a First Amended Complaint is not met with a First Amended Counterclaims, but that is what we have.

Cooley didn't like it, either, but they spoke more directly than I did when today ChromaDex objected to the amended counterclaims -- and answered, them, too, just to be safe. You can read ChromaDex's Objection and Answer here:

Objection and Answer to Elysium's Amended Counterclaims

Here is how the document begins:

ChromaDex objects to Elysium's so-called “Amended Counterclaims” on the grounds that Elysium failed to obtain leave of the Court or ChromaDex’s consent before filing these counterclaims, as required by the Federal Rules of Civil Procedure and established case law. The “Amended Counterclaims” will be treated by ChromaDex as null and void for the remainder of this action. The Counterclaims filed by Elysium on October 12, 2018, and answered by ChromaDex on November 2, 2018, continue to be the operative counterclaims.

Out of an abundance of caution, ChromaDex, by and through its undersigned attorneys, hereby submits this Answer... (emphasis added, citations omitted, party characterizations simplified)

The Answer itself is about what you'd expect.

We'll be watching to see of Judge McMahon agrees with ChromaDex that Elysium's filing is null and void and inoperative.

What's curious is how this could have happened?

Although we do not see it in the docket, the parties are in constant communication with each other through their attorneys. They are exchanging routine information, scheduling meetings, agreeing on dates, and, informing the other side of their proposed moves, such as their intent to amend their pleadings.

Baker Hostetler is #56 on the current list of America's largest law firms (Cooley is #27). And Joe Sacca, the senior partner managing Elysium's commercial litigation, earned his Sith helmet by litigating for 23 years at Skadden. So Elysium's legal team, unlike me, knows whether or not you are required to request permission to amend your counterclaims.

I get it that if your opponent amends their complaint, you are obligated to amend your answer, so permission would not be required.

But counterclaims operate the same as a complaint, and so I don't get how Elysium could think that if ChromaDex gets to amend its complaint, then that entitles Elysium to amend their own complaint. All the attorneys at Cooley and Baker Hostetler know that.

So what happened?

I can imagine three possibilities.

First, Baker Hostetler goofed -- there was some miscommunication about a new answer and some proposed counterclaims, and somebody was planning to ask permission, and someone else was drafting the new version, and they got combined into a single document, and someone approved the filing of the amended answer and didn't realize that the amended counterclaims were attached, and there was much horror and sorrow.

That would seem to be the most likely explanation, but were it correct then we would have expected for Cooley to have delivered a curt note to Baker Hostetler which would have resulted in the rapid withdrawal of the amended answer, with an apology, etc. This would be embarrassing and make Elysium wonder why they were paying so much for sloppy legal work, but no real harm.

Why didn't we see that?

The second theory would be that the first possibility is correct BUT when the curt note from Cooley arrived, the curt note included a pointed observation that the time for filing an answer to the First Amended Complaint had now passed.

THAT means that if Baker Hostetler withdrew its filing, then it would have failed to answer the complaint, which would put ChromaDex in a position to request a default judgment or brew some other unpleasant remedy.

That in turn left Baker Hostetler in the awkward position of being unable to withdraw and replace the counterclaims, but also unable to assert them, and so they are just soldiering on, knowing that their new counterclaims are vulnerable to procedural attack, like this, but consoled that at least the complaint remains answered, so if Cooley successfully makes a stink about the procedural error in the amended counterclaims the worst that will happen is harm to what appear to be relatively minor copyright claims, assuming that the new answer and the old counterclaims can someone both be operative even if they are contained in different filings, which is different from what Cooley has proposed.

A third possibility is that Baker Hostetler thinks it is entitled to amend its counterclaims whenever it wants -- or at least as often as ChromaDex gets to, and they are prepared to make some new law to find out whether it's true.

That seems unlikely to me, but at least it is susceptible of investigation.

Curiously, ChromaDex based its argument on "the FRCP and established case law," but did not actually cite any rule or any case. Let's see what I can find.

Hmmm....

It looks like Cooley didn't spend its client's money on legal research because the rule is crystal clear. Federal Rule of Civil Procedure 15 states:

Rule 15. Amended and Supplemental Pleadings

(a) Amendments Before Trial.

(1) Amending as a Matter of Course. A party may amend its pleading once as a matter of course within:

(A) 21 days after serving it, or

(B) if the pleading is one to which a responsive pleading is required, 21 days after service of a responsive pleading or 21 days after service of a motion under Rule 12(b), (e), or (f), whichever is earlier.

(2) Other Amendments. In all other cases, a party may amend its pleading only with the opposing party's written consent or the court's leave. The court should freely give leave when justice so requires.

The rule is very clear, and federal district courts in the 2nd Circuit seem to apply it in a straight-forward way (see, e.g., Chiacchia v. Schitkedanz, 2016 WL 3024167 (W.D.N.Y. 2016), denying leave to amend where 21 days had passed, making subsection (a) unavailable, and opposing party did not offer written consent).

Since more than 21 days have passed since Elysium filed its original counterclaims, it clearly needs permission from the judge or the other party to amend.

So there is basically no chance that Baker Hostetler believes it is entitled to amend its counterclaims, and this is probably an embarrassing screw-up on their part. ChromaDex and/or Cooley might well have an understandable aversion to making it easy for Elysium to file what ChromaDex likely believes are bogus copyright infringement claims, and hence ChromaDex's refusal to consent to the amended counterclaims.

However, although Baker Hostetler may have gotten itself and its client into a sticky position in which they are unable to withdraw a motion that is partly against the rules, Judge McMahon can with the stroke of her pen make everything right for Elysium by simply allowing Elysium to amend their counterclaims under 15(a)(2).

Will Judge McMahon do so? Most likely.

She is supposed to allow amendments if there is no prejudice, and ChromaDex hasn't asserted any prejudice. The outcome may depend on whether Judge McMahon views the proposed new claims as serious, and whether she is under the impression that Elysium's recent litigiousness (e.g., their motion for reconsideration) suggests bad faith litigation behavior.

If I had to guess, I would guess that Judge McMahon will allow the amendment and admonish Elysium's counsel to bide by the rules in the future. As a fallback, I would predict that Judge McMahon would sustain ChromaDex's objection and require Elysium to request permission, and then grant it. It seems to me unlikely that Elysium will be entirely barred from asserting its copyright infringement claims, even if they turn out to be bogus claims.

Conclusion

Concededly little is at stake, but the incident does suggest two interesting inferences: (1) Elysium might be cutting corners on its legal spend, forcing its law firm to act without the benefit of their complete internal process of double-checks, thereby creating risk, and (2) The parties seem to be a little testy, and the law firms might be feeling it, too. ChromaDex and Cooley could have just granted permission to amend the counterclaims, since it appears to be a fairly innocuous amendment, and Baker Hostetler might then have owed it a favor. Apparently Cooley owes Baker Hostetler no favors at this point, and the reverse is certainly now true. We can't know how it came to this between the parties, but we can guess.

#CDXC #ChromaDex #ElysiumHealth #Litigation

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