Federal Judge Details Drug Use by Elysium Health CEO
United States District Court Judge Cormac Carney this week issued an order detailing drug use by Elysium Health CEO Eric Marcotulli during the period in which Elysium Health attacked its sole ingredient supplier, ChromaDex.
Judge Carney wrote,
"...Elysium produced text messages from Marcotulli’s phone showing that he—from September 29, 2015 through October 15, 2016—frequently purchased cocaine (referred to in the messages as “fire white,” “fire shit,” “white,” and “the special,” among other terms), including having it delivered to the Elysium office. The messages also show Marcotulli confiding in January 2016 to a friend he met on a dating application that he had been “do[ing] too many drugs,” specifically “[c]oke,” and drinking a lot, for “maybe 6 months,” and how he wanted to stop but has not been able to.
"The text messages also suggest that Alminana knew about Marcotulli’s drug use. For example, on November 25, 2015, at around 10:00 AM, Alminana asked Daniel Fabricant, a former Elysium board member, “[w]hat time did you two assholes finish up last night.” Fabricant reported it was “330 I think,” and added, “[t]here are no drugs left in Manhattan.” Alminana laughed and joked, “Wow early night. I bet Eric [Marcotulli] wakes up around 6pm today.”... "At his March 27, 2019 deposition, Marcotulli lied under oath about the text messages. He stated that he did not recall buying drugs from the dealer, and could not recall who the dealer was or why he had agreed to meet up with the dealer multiple times, including at Elysium’s office. He stated that he did not know what “fire white” was, or what “coke” was. He repeated multiple times that he did not recall buying any illegal drugs from September 2015 to March 2016. He stated that he had never used cocaine, never used cocaine while working at Elysium, and that he had never to his recollection drugs for personal use. "On March 29, 2019, Alminana also lied under oath at his deposition, stating that he was not aware that Marcotulli had used illegal drugs during his time at Elysium...
"Marcotulli and Alminana lied under oath. Marcotulli denied or stated that he did not recall buying or using cocaine dozens of times when the truth was that he did regularly buy and use cocaine during the period about which he was asked. Alminana stated that he was not aware of Marcotulli’s cocaine use when the truth was that he was aware of it..." [citations omitted]
The reason Judge Carney recounts these lurid facts is because during the year identified by Judge Carney -- September 2015 to October 2016 -- Elysium did a number of acts that appear reasonably calculated to destroy ChromaDex.
If "destroy" seems like hyperbole, understand that we have a text message from Mark Morris, ChromaDex's VP of Business Development -- who would become Elysium's VP of Scientific Affairs -- sent to Elysium's Chief Operating Officer stating, "I want to destroy them!" Read it yourself:
Part of the destruction plan apparently was for Elysium to place a huge order that would cost millions of dollars for ChromaDex to fill, and for which Elysium would not pay. That could, on the one hand, create financial distress for ChromaDex. At the same time, the huge order could cover an entire year's sales while Elysium developed an alternative supply, and never purchase from ChromaDex again.
The idea seemed to have been that ChromaDex would pay the bills, while Elysium kept the revenue. And since Elysium owned most of the customers, it would be a lot of revenue, and ChromaDex would have no easy way to battle back to solvency. Morris described the huge order as a "knock-out blow" to ChromaDex by Elysium. Elysium COO Dan Alminana responded, "hahaha exactly!"
The order placed by Elysium was so big that it required 19 pallets to ship. Morris laughed, "You filled a freaking semi! - Haha!"
It's okay to want to destroy your competitors, but you have to do it by selling a better product or at a lower price. You can't do it by luring away your competitor's senior manager, having them breach their fiduciary duty of loyalty to the company by functioning as a double agent and conveying confidential information to use in negotiations with the competitor, placing huge orders under false pretenses that you do not intend to pay for, then interfering with your competitor's contractual relationships with their supplier and patent licensor, and if that fails, simply violating the patents that you were unable to license. You may not destroy your competitors that way; it is illegal.
What I just described is close to how ChromaDex tells the story of what happened, and there is certainly evidence to support that story. The text messages and emails above and below were disclosed as exhibits to the parties' motions for summary judgment in 2019 (e.g., this , this, and this).
In February of 2016 we see that Elysium's courtship of Morris was well underway. "I love you guys and what you're doing," Morris told Alminana, who responded by inviting Morris up to his suite:
In March, after a call with Alminana, Morris said, "You have me so pumped up that I could literally run to New York," where Elysium was headquartered.
In April, Morris declared himself, "beyond excited...to determine whether there was a role for [him] at Elysium!"
Two weeks later, Morris tells Alminana that Morris has other career opportunities, but "Elysium is where I want to be."
In May, Morris feeds Elysium confidential information about ChromaDex's price negotiations with a competitor:
In June, they are discussing a start date for Morris, and working out their plans to destroy ChromaDex. Alminana suggests that maybe Morris should start working for Elysium, and Morris responds, "YES! PLEASE!...I could give my notice as soon as tomorrow...we will make their worst nightmares come true." Alminana runs with that, responding, "Time to take control of everything!" Morris agrees that it's time to "get rid of the scumbags" at ChromaDex. Part of the plan apparently involves W.R. Grace, which is the company that manufactures the ingredient that ChromaDex was selling to Elysium, nicotinamide riboside (Niagen), because Alminana responds, "We need to get Grace deal inked ASAP!"
The following day, Morris says, "I am so proud of who Elysium is!" and Alminana responds, "And we are proud to have you join!"
Two days later Morris and Alminana discuss the "knockout blow by Elysium" that they are going to give to ChromaDex:
The "knockout blow" was a giant order at a low-ball price along with accusations (that Morris had helped Elysium develop), at a moment when ChromaDex was busy fighting other fires.
Once ChromaDex was convinced to accept the giant order, Morris and Alminana celebrated, and apparently began in earnest planning their future together. "I am beside myself right now!!! Thank you so much for everything that you have done!!!" said Morris. Alminana replied, "Cannot wait to get rolling with you! You will be a major addition to this team!"
But before Morris would make his move, there was other business to attend to. First, they hoped to convince ChromaDex's ingredient supplier, W.R. Grace, to supply Elysium directly, instead of selling to ChromaDex. To help Elysium prepare for the meeting with Grace, Morris sent Alminana ChromaDex's quarterly sales numbers:
Morris makes it clear that the purpose of the discussion is to convince Grace to cut out ChromaDex. "In time," Morris reassures Alminana, "Grace will see that and have no choice but to go direct. Elysium owns the vast majority of the market and a distributor like ChromaDex is completely unnecessary and a risk to everyone's business."
Not much happened at the Grace meeting -- the parties "Didn't go into too much depth on any topic."
But I wonder if Grace didn't tell the kids at Elysium that Grace was contractually obligated to manufacture NR for ChromaDex, which was the exclusive licensee of the Dartmouth patents, even if they wanted to switch to Elysium? Because the following week Morris and Alminana were wondering about the agreement between Grace and ChromaDex, speculating that it might just be a "memorandum of understanding," and speculating that a memorandum of understanding might not be a contract:
At about the same time that Elysium was trying to get control of the manufacturing supply for NR, they were also trying to get control of the intellectual property, which primarily consisted of two patents issued to Dartmouth University. A potential investor was expressing interest in ChromaDex, and Elysium was worried that the investor might make it more difficult for Elysium to eventually get the patents. "We need those patents!" said Alminana.
Around this time, Elysium and Morris were also working out the final details of how Morris would quit ChromaDex and start (officially) working for Elysium. Morris had initially wanted "to be truthful in my resignation and describe my endless enthusiasm for what lies ahead with Elysium," but conceded that the had "unconditional loyalty to" Elysium's two top leaders, which is a remarkable admission to anybody familiar with the law of fiduciary duty -- including the fiduciary duty of loyalty that an officer owes to its own organization, not to a competitor's.
But Elysium apparently had a different idea, because two days later Morris wrote to Marcotulli and Alminana, "After speaking with you two, I definitely have a different viewpoint on how to leave. I do not owe ChromaDex an explanation, and it is not their concern what I do with my life. As we discussed, I will resign without details."
They finalized the offer from Elysium two days later -- Morris would be head of technology for Elysium:
The resignation went as planned. ChromaDex, still unaware of Morris's "unconditional loyalty" to Elysium's leaders "were trying to convince [Morris] to stay," and "said they would make changes." Morris reassured Elysium that he had been "very convincing regarding an uncertain future. They bought that completely and do not appear to suspect anything," Morris reported.
As the summer wore on, Elysium continued to attempt to pressure Grace and Dartmouth into working with Elysium instead of with ChromaDex.
On September 6, Elysium believed they had convinced Dartmouth to revoke its patent license from ChromaDex. Perhaps Elysium had told Dartmouth that, as a result of the millions of dollars in orders that Elysium had placed but refused to pay for, ChromaDex was likely to go bankrupt, because Marcotulli said, "Dartmouth is revoking the patent!!...they don't want cdxc declaring chapter 11 and tying it up..."
But it was too good to be true, and Dartmouth did not revoke the patent after all, although two weeks later Elysium was still hopeful that Dartmouth might yet revoke the patent, speculating about a decline in ChromaDex's stock price, "Wonder if this is insider movement and Dartmouth pulled the patent"
But Dartmouth never did. Meanwhile, Elysium also did not convince Grace to sell directly to Elysium:
I think it's perfectly reasonable to ask a CEO -- if their company decides to "destroy" its sole supplier by undermining the supplier's business relationships with its manufacturer, its IP licensor, and its head of business development, and also schemes to place a huge order that it does not intend to pay for -- ARE YOU ON DRUGS?
Because there are laws governing all that stuff. You can't intentionally disrupt other people's contracts -- it's call tortious interference with business relationships. You can't make knowingly false statements to induce someone into doing something that they were not otherwise obligated to do -- it's called fraudulent inducement. And there are other laws that apply, too.
But Elysium tells the story different, and Elysium remembers the events different -- when Elysium remember the events at all. At his deposition, Elysium CEO Eric Marcotulli allegedly responded with variants of "I don't recall" over 600 times.
So that's why Judge Carney is interested in all this. The Court said,
"Marcotulli and Alminana’s lies are troubling, especially since their credibility is important in this case...Some text messages and some of Marcotulli and Alminana’s testimony about the text messages will be admissible at trial. Both are relevant to Marcotulli and Alminana’s credibility—an important issue, especially on the third counterclaim—and Marcotulli’s ability to perceive and remember events during critical contract negotiations between the parties... Because some of the text messages and testimony will be admissible at trial, ChromaDex will be able to show the jury that Marcotulli and Alminana lied under oath. The jury will be allowed to draw inferences from Marcotulli and Alminana’s lies in assessing their credibility, and will be able to decide how much weight to give their testimony accordingly."
I don't care about recreational drug use by someone in New York City, even if they are the CEO of a small start-up company, unless that drug use causes harm to others -- then it becomes a matter of public concern.
The decision-making by the leaders of Elysium during the one-year period in question seems to me highly questionable, and it has undoubtedly resulted in more than four years of litigation, in numerous courts, and probably resulted in $20M to $40M in combined legal expenses to date -- which has benefitted lawyers, and maybe no one else -- and it's not nearly done: there are three very expensive trials scheduled for August and September of this year in New York, California, and Delaware.
And others have suffered, as well.
So although I am no fan of the war on drugs, I do sometimes understand why we have drug laws.
But that is not Judge Carney's concern in this. He is not concerned about the potential criminality of the events in question. He is concerned with the proper administration of justice, and he concludes that the fact that some of the information he disclosed will get to a jury "is sanction enough to protect the orderly administration of justice and the integrity of these proceedings."
I don't know, though, whether it is sanction enough to protect the public from the future consequences of this kind of behavior, or to protect ChromaDex from the present consequences of this particular behavior. All we know is what Judge Carney said in his opinion. NUMEROUS briefs and exhibits were filed with the court related to this matter, but the telling details were all "sealed," which means that they are held secret by the Court.
It's not at ChromaDex's request. ChromaDex said, in one of the briefs,
"ChromaDex took depositions, endured extraordinary hubris and dishonesty, and now seeks basic relief...This is not a secret star chamber proceeding. It is a straightfoward case of deposition perfidy, for which even Elysium concedes there must be some remedy. Why should that discussion, and this Court's decision, be concealed from the public?...The Court should decline to seal the motion and supporting information at issue here." (emphasis added)
But Judge Carney did not agree. At the bottom of his decision he dropped this footnote:
"The parties ask the Court to seal much of the briefing and evidence in support of these motions. (Dkts. 472 [Application to Seal Related to Motion], 480 [Application to Seal Related to Opposition], 484 [Application to Seal Related to Reply].) The motions are GRANTED."
His Honor's footnote is disingenuous, since although there is a technical legal sense in which "the parties" asked the Court to seal the information, in truth only one party -- Elysium -- asked for that, and the other party, ChromaDex, vigorously opposed it. Judge Carney fails to acknowledge that this is a disputed point, and suggests instead that it is uncontested.
And Judge Carney fails to explain his decision to seal the materials, thereby failing to address any of the public interest arguments that ChromaDex made in its brief. For example, ChromaDex said, among other things, "The presumption of access is based on the need for federal courts, although independent—indeed, particularly because they are independent—to have a measure of accountability and for the public to have confidence in the administration of justice.”
So Judge Carney, through his order, and despite his refusal to sanction Elysium for its bad conduct in any way other than to reveal it to the jury, may have done enough to "protect the orderly administration of justice and the integrity of these proceedings."
But has he done enough to protect the public?
I think not.
It's not uncommon for criminal defendants to appear before Judge Carney on drug charges, and specifically charges involving possession of cocaine. Regardless of what you or I think about recreational drug use, possession of cocaine is a felony under federal law.
So I thought I would check Judge Carney's docket to look for other instances when he concluded that simply exposing the truth of the matter would be sanction enough for criminal defendants who come before him on matters involving cocaine.
In U.S. v. Timmy Do Pham, the defendant is set to plead guilty to possession of 217 grams of cocaine with intent to distribute, and has filed a plea agreement that suggests a minimum imprisonment of 18-24 months, or more depending on other factors. The plea agreement was filed barely a week ago, on April 22, 2021.
In U.S. v. Efrain Medero, the defendant is set to plead guilty to possession of methamphetamine 848 grams) and cocaine (98 grams) with intent to distribute, and has filed a plea agreement that suggests a minimum imprisonment of 15-20 years. The plea agreement was filed barely two weeks ago, on April 15, 2021.
In U.S. v. Darren Fitzgerald McGhee, the defendant has pled guilty to a single count of possession with intent to distribute cocaine (6 kilograms), and has filed a plea agreement that suggests a minimum imprisonment of 8-10 years. The plea agreement was filed a little more than two weeks ago, on April 14, 2021.
So it seems that Judge Carney is very familiar with the criminal penalties associated with cocaine. These three cases all involve intent to distribute, but I feel certain that the reason "intent to distribute" is considered an important crime is because on the other side of the sale is a buyer, and we are worried that bad things might happen if that person-who-was-distributed-to uses the cocaine.
I would suggest that such a bad thing might in fact have happened in our case.
I don't really get the logic of punishing the sellers and not the buyers, though. That's kind-of what we do with prostitution, too, right?
But I especially don't get it if the bad thing we're worried about actually comes to fruition. Then it's not a risk of harm, but an actuality of harm -- that should be treated differently, no?
I mean, what if somebody walked into Judge Carney's courtroom, laid out a line of cocaine on the wooden railing, and snorted it in the judge's presence. Would His Honor tell the bailiff to arrest that person? Or would His Honor merely announce the fact in a public order, and assure us that the public shaming of the person that would inevitably ensue was sanction enough to deter such future conduct by that person and by others?
We can't have a well-informed opinion about these matters, because in our case the Court has kept sealed all of the arguments, exhibits, and details about the subject behavior. We have no reason to believe that Elysium's CEO "frequently purchased cocaine" for a year other than that Judge Carney said it. The basis of Judge Carney's opinion remains hidden.
I believe Judge Carney -- he seems honest -- but the difference between courts and churches is that in churches we are expected to have faith, whereas in courts we are expected to have evidence, reasoning, and public accountability.
Perhaps Judge Carney is telling the story in the worst possible light, and if we understood Elysium's side of it we might think less of the matter. Or perhaps Judge Carney has excluded some important details that we would find even more alarming, had they come to light. Perhaps other bad acts were involved, too. Without knowing the evidence that the Court relied on, or the Court's reasoning based on that evidence, we have absolutely know way of assessing whether justice was done or not.
It might be comforting to know that even though we can't see the record, all parties who CAN see the record agree that it should remain hidden, and that justice has been done. Then we might feel safer deferring to the process, since even parties with different interests agree on this much.
But we do not have that. Instead, we have ChromaDex arguing that the details OUGHT to be seen by the public. Judge Carney not only fails to address the argument, His Honor fails to even ACKNOWLEDGE that such an argument exists. Judge Carney instead says, "the parties ask the Court to seal much of the briefing," which is either simply false, or technically true but substantially mischaracterizes the briefs before him. In those briefs, ChromaDex says, in a different brief from the one quoted above, exactly the opposite:
There is no compelling reason to seal ChromaDex’s motion or the evidence on which it is based. Marcotulli and Alminana are the principals of a consumer-facing company that markets and sells a nutritional supplement to the public; they are also the key witnesses in this litigation for Elysium. As explained in ChromaDex’s motion, the conduct described in their declarations—especially when considered together with other evidence adduced in this lawsuit—provides grounds for the Court to immediately dispose of three of Elysium’s counterclaims that are currently slated for trial in September 2021, either as a terminating sanction or on reconsideration of ChromaDex’s motion for partial summary judgment. There is no showing that would justify an exception to the core principle of open public access to court proceedings here...Marcotulli’s actions did not merely affect him; no, his conduct is intertwined with Elysium’s and bears directly on critical issues in this case...Marcotulli and Alminana admit to outrageous conduct in their declarations that, as argued in ChromaDex’s motion, plainly concerns the proper functioning of the judicial process and about which the public should be informed so that it may “have confidence in the administration of justice.”...There is no basis for an exception to the general rule in the Ninth Circuit mandating public access to court records..."
That does not sound to me like "the parties ask the Court to seal much of the briefing." Just the opposite.
And if Judge Carney is obscuring the nature of the parties' position, is it because there is something here to hide? Is he worried that if he had to answer ChromaDex's argument and explain why the relief he has provided (which is much less than the relief sought) was adequate, the argument would not stand up?
We don't know. But if the purpose of public access to court records is so that the public can have good reason to trust the judicial process, I find myself being asked to have faith in Judge Carney, rather than trust in the judicial process.
I can imagine a situation in which I might have a certain level of faith in Judge Carney.
But I do not have that faith, and here is why:
Judge Carney dismissed ChromaDex's fraud claim based on false statements made by Elysium in connection with the big order, on the ground that ChromaDex allegedly had a legal obligation to fill the large order. I complained about that ruling here. However, it is a basic tenet of commercial law that a supplier need not fill an abnormally large order on a requirements contract. Judge Carney did not find that Elysium's order was not abnormally large; he simply disregarded a basic tenet of commercial law.
And not just a basic tenet of commercial law -- it's actually a California statute: Commercial Code Section 2306: "...no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded." That is the law in California -- it's not a secret or subtle point -- and a jurist that fails to acknowledge it lacks the type of judgment that I am inclined to trust.
Similarly, Judge Carney subsequently ruled that ChromaDex failed to moot Elysium's bogus patent misuse claim by disclaiming the amounts due. Not only was the patent misuse claim bogus (based on a faulty -- more likely a careless -- and frankly an implausible -- reading of the documents), but it was completely mooted when ChromaDex disclaimed the challenged conduct. And yet somehow Judge Carney found there might yet still be a remnant of a claim left to litigate. At least he did when we covered this back in November 2017.
But fast-forward to January 2020, and here is what Judge Carney had to say about the continuing viability of Elysium's patent misuse claim:
"...My response to the patent misuse is maybe there were some things that shouldn't have been done. I know ChromaDex disagrees that anything was improper. But they sure seem like they tried to purge. And as I understand the patent misuse, you're trying to get them for conduct that they did a while ago.
"And again, I'm having -- I'm having a little bit of a problem being convinced that there really is an impact on competition by something that happened, which I'm going to assume shouldn't have happened. But they've refunded all the money except to Elysium, as I understand it. And now they're willing to pay that, but I guess as an offset. It just didn't seem to me that that should be an impediment to settlement either. (emphasis added)
In other words, Judge Carney is having a bit of a problem being convinced that the patent misuse claim is not bogus, or in any case that it wasn't mooted. Well that's what I've been saying all along. So who is Judge Carney arguing with? Not me. He's arguing with himself.
So if Judge Carney is not trusting his own judgment, why should we have more faith than that?
Getting a couple rulings wrong doesn't make Judge Carney a bad judge. He's actually a good judge -- very responsible with his docket, disposes of motions relatively quickly, and he writes clear explanations, if not always correct. Judge Carney stands head and shoulders above what we've seen in Delaware, even if he falls short of the gold standard that we have seen in the Southern District of New York, where the Judges are completely savvy about complex commercial litigation and are entirely cognizant of the parties' maneuvering.
But if Judge Carney's primary focus isn't on always getting it right, then that makes it much more important that he explain the bases for his rulings, and share the evidence upon which it is based, and acknowledge when there are competing arguments. He did none of these things this week when he decided to leave sealed the parties' apparently heated arguments about whether to leave the arguments sealed.
It's possible that the sealed briefs contain important exculpatory commentary by Elysium that would help the public understand Marcotulli's behavior as more benign that we might otherwise conclude. Or it is possible that the briefs contain amplifying information from ChromaDex that would make us think much worse of what happened, and cause us to have concerns about whether Judge Carney's remedy was adequate. It seems unlikely that Judge Carney has told us everything there is to tell, or else why keep all the materials sealed? At the very least, there can't be any good justification for concealing the evidence that is consistent with Judge Carney's ruling, that embody the truths that Judge Carney has already disclosed. And even if there are some details that ought to remain hidden, what is the reason to keep every single word hidden, without exception? We don't know. We just have to trust Judge Carney.
I trust him somewhat; but not quite this far.
I don't think anyone in a democracy should be trusting public officials to make decisions when the extent of the decision, the reason for the decision, the evidence relied upon for the decision, and the arguments against that decision, all remain hidden.
It feels instead like Elysium is being protected in some way -- some kind of protection that is not available to people like Timmy Do Phan, Efrain Medero, and Darren Fitzgerald McGee.
Now Judge Carney might reasonably respond -- and I would agree with him! -- that it is not the role of the federal judge to apprehend criminals or to evaluate evidence of criminality not contained in an indictment. If police officers were to arrest a CEO for using a controlled substance, and if a prosecutor were to bring a criminal indictment against a CEO for using a controlled substance, then I am sure Judge Carney would preside over that proceeding just as fairly as he would any other.
However, hasn't His Honor made it a wee bit difficult for the police and the prosecutors to do their jobs when potential evidence relating to the alleged use of the controlled substance by the CEO is sealed by the Judge himself, and thus made inaccessible to both the public and to law enforcement? If I had evidence like that and made it inaccessible, wouldn't I be obstructing justice or destroying evidence, or something like that? So why would a federal judge do that? And with no explanation?
I guess we will never know.
And I guess that's why ChromaDex was urging upon Judge Carney the position that faith in the judiciary depended upon the very kind of transparency that Judge Carney has in this instance resisted.
But the stakes here are not merely a theoretical study in the philosophy of judicial accountability. The stakes are quite tangible. The trial in California is going to cost a fortune, and ChromaDex is going to have to pay a lot of money to prove to a jury what Judge Carney may already know. Why should ChromaDex go to the expense, time, and trouble of disproving claims that should not be tried in the first place, that should have been dismissed on summary judgment? That's why ChromaDex said in one of their briefs in opposition to sealing,
"The conduct described in their declarations—especially when considered together with other evidence adduced in this lawsuit—provides grounds for the Court to immediately dispose of three of Elysium’s counterclaims that are currently slated for trial in September 2021, either as a terminating sanction or on reconsideration of ChromaDex’s motion for partial summary judgment." (emphasis added)
Judge Carney says he has protected the judicial process, and he says he has adequately sanctioned Elysium. But whether he has adequately protected ChromaDex or the public is impossible to say when the record is almost entirely sealed without explanation.