January Transcripts in California -- Highlights
On January 13, Judge Carney held a hearing on the Summary Judgment motions.
On January 21st, Judge Carney held a hearing on Baker Hostetler's motion to withdraw as counsel for Elysium.
Transcripts for both hearings eventually got docketed, but instead of having the public pay the court reporter to create transcripts of public proceedings for access by the public -- which would make perfect sense -- courts give court reporters a temporary monopoly over the transcript for three months -- for these transcripts, until April 27 -- so the court reporter can sell them to interested parties at an extortionate rate -- several dollars per page in some states, almost a penny-per-word in California, which for lengthy proceedings like depositions can cost many hundreds of dollars. Court reporters working in complex, multi-party litigation do pretty well by this system.
But it's actually a corruption of the civil justice system, and economically inefficient. The public has to wait months to find out what happened, and the parties -- who will be legally required to buy a copy of the transcript of they want to do something like, say, challenge or reference what happened in the official proceedings -- have to pay a monopoly price.
We have all encountered this situation with event photographers who offer their services for free to event organizers, then charge the participants for photos of themselves or their kids. Such a photographer can make thousands of dollars if a fraction of the participants order one or two photos. But the event organizers have really sold their attendees down the river, because for $1,000 up front to a competent photographer every participant could have access to every photo. That's a much better deal than a few participants having access to a few photos for a lot more. Much better to spread the cost evenly and let everyone have everything.
And yet, event organizers continue to make their attendees pay more to get less, and it is exactly the same when the Courts force two parties to pay a fortune for transcripts and deny public access almost entirely, just so court reporters can enter the transcript lottery and courts don't have to account for the full cost of court reporting fees in their budget.
That is what happens when we cut court budgets indiscriminately and tell the legislatures and the judiciary to make do with less. They make penny-wise, pound-foolish decisions that leave us all poorer and worse off.
So I was glad to see the transcripts get docketed; and sorry to see the transcripts embargoed until April 27 to protect the court reporter's monopoly; but then REALLY glad when the parties foiled the embargo by posting copies of the transcripts as attachments to a court filing in Delaware. That means we don't have to wait until April 27 to find out what was said in January.
So have at it. I hereby further liberate these public court transcripts in derogation of the court reporting system's shitty business model, aided and abetted by our civil justice system*:
The January 13 Transcript -- Motion for Summary Judgment
There's almost 70 pages of transcript here, and there is not much reward for reading them, unless you are really into the case. This is especially true because (1) Every issue discussed in the hearing was subsequently addressed and resolved in the Court's order on summary judgment, and (2) Most of the discussion was around breach of contract claims that we don't care as much about. SO, only the litigation fanatics are going to read this transcript.
But with that said, it's interesting to hear how the parties frame what they are doing, and sometimes goes beyond what we have seen in the briefs. For example, consider this soliloquy by Cooley attorney Michael Attanasio, in which ChromaDex explains to the Court why ChromaDex dramatically reduced the damages it is pursuing in this case:
MR. ATTANASIO: ...I want to be very clear about what we're going to proceed on...
we carefully and cautiously read Your Honor's order and the -- I hesitate to call them signals -- the very direct guidance we were being given. We also, like we would in any trial, stepped back and said what do we really want to try to the jury? What's going to resonate? What should we do?
The combination of those two things leaves us with, as we say in our supplemental brief, I think, a very streamlined case, a case that's responsive to Your Honor's concerns in the October order.
So we propose to proceed on the damages theory, the 8.3 million that we talked about a moment ago, only on our breach of fiduciary duty claim, which takes into account the landscape of Mr. Morris' treachery, aided and abetted by Elysium, and then the single two trade secrets about pricing information, the crown jewels as to Live Cell, and the wholesale price we were paying to our manufacturer, Grace Chemical.
Only those two trade secrets, only as to the claim for damages of 8.3 million arising directly -- direct causation, a very -- Your Honor used the phrase "connect the dots" -- very easy to connect the dots to Elysium's profit from the scheme that involved, among other things, the two trade secrets.
What we're not pursuing that I think gave Your Honor concern and heartburn, we're not pursuing three categories of damages or three damages theories. And I want to reiterate this. It's in our brief, but it's not as clear as I should have made it, so I want to say that now.
One, we are abandoning for purposes of trial the -- what I will call, Your Honor, the Elysium investor theory; that is, Elysium was able to attract investors, investors made decisions to invest based on Elysium's theft of trade secrets, if you will. That's out.
Second, which I think Your Honor also called out with some skepticism, the "Elysium was going out of business" theory. But for the head start from the trade secret theft, but for the quicker path, the shortcut to an alternative supplier in short order, Elysium would have gone out of business, and, therefore, their profits by staying in business should all come to ChromaDex. Your Honor expressed skepticism about those dots being connected. We have dropped that damages theory.
And then, finally, the notion that -- I believe the third one is Elysium's -- ChromaDex's lost profits, rather, from what Elysium should have continued to buy from ChromaDex. If Elysium had not stolen the trade secrets, Elysium would not have gotten a shortcut to a new supplier, Elysium would have continued to purchase from ChromaDex. Therefore, during that period of time, they should have been buying from ChromaDex, and we lost our profits -- ChromaDex lost its profits. That is also off the table.
So we have -- we have very, you know, respectfully -- and, as I said, I meant the word -- cautiously, thoughtfully reviewed Your Honor order -- reviewed Your Honor's order, thought about trial, thought about keeping it short, crisp, and here we are.
And that's how we got to the 8.3 million. And that's the only place, that 8.3 million with a very direct causation to Elysium's profits for the product that was, we say, stolen. That's the only place where the trade secrets will come into play in this case.
This reflects very smart lawyering. What Cooley is laying out here is an iron-clad case for about $12M in damages: $3M in unpaid ingredients, plus $8.3M in wrongful profits on the sale of those ingredients, plus about $600K in compensation to Mark Morris.
The smart thing is that ChromaDex has very tightly defined the damages it is seeking here, which are entirely related to that single order (and Mark Morris's compensation). Not a penny of damages sought relates to Mystery NR or the profits on Mystery NR.
The reason that's smart is two-fold. First, as telegraphed in the phrase "we carefully and cautiously read your Honor's order," Judge Carney was going to make it difficult or impossible to recover those damages on a trade secret theory on the grounds of causality. It would be expensive and difficult to prove that but-for the trade secret theft Elysium would have gone out of business. It will be MUCH easier to prove that but-for the patent infringement, Elysium would have gone out of business. So, since you only get to recover those trebled-damages once, it makes sense to attach them to the easiest provable theory of recovery.
That's why I say that although at first it sounds horrible to read this list of damages that are "dropped" or "off the table" -- they sound like pretty strong damages theories to me! -- they aren't REALLY off the table; they are just moved to New York or Delaware, and they are moved in a very clean way so that there won't be any question about duplication of damages. Instead, ChromaDex is going to squeeze every last drop of damages from the single June 30 transaction -- perhaps as much as $12M -- without having touched the big prize that is years of patent infringement.
Kind, thoughtful readers will object that moving damages to Delaware can't be a good strategy when Delaware has been turned into a temporal black hole of permanent legal stasis while Judge Colm Connolly contemplates his alleged obligation to do his job.
That is a fair point. It feels like the Delaware litigation will never re-start, and so the damages will never be recovered. However, even litigation that feels interminable isn't really. You'll notice that Judge Carney said in the January 13 transcript (and rearticulates in the January 21 transcript) "You are now one of the oldest cases I have on my civil docket, and it's a problem for me."
Soon we will be one of the oldest cases on Judge Connolly's docket, and it will be a problem for him.
Judge Connolly may even realize, eventually, that he is misusing the Court's power to stay actions to achieve judicial efficiency. If in fact an action is likely to be resolved elsewhere sooner and better, it makes sense to wait and see. But the key word is "likely." Courts only grant preliminary injunctions if the party seeking the injunction is likely to win on the merits.
Similarly, courts cannot stay a matter simply because there is some remote possibility that the litigation may go away or be simplified. It has to be reasonably likely. Instead, Elysium is baiting the Court with wild theories, like, "What if an appellate Court reverses our prior loss and deploys reasoning that extends the outcome to another patent not even before it?" Could happen, in theory, but the odds are exceedingly remote. Same with the Patent Misuse allegation. Patent misuse did not happen in the first instance, and even if it did there is no reason to believe that any harm wasn't purged. So holding up the Delaware litigation for that reason -- due to an unsubstantiated, and indeed unsubstantiatable allegation -- is entirely improper.
I'm not trying to argue that the entirely improper thing didn't happen; it did. What I am suggesting is that it's not likely to last forever, or even that much longer. Eventually Judge Connolly may realize he is being played and decide it's time for him to do his job and get this case off his docket.
At least that's not a bad bet. And because we have a much shorter trial in California, Judge Carney was able to squeeze us into his schedule in May, which is a very good thing. And when Delaware finally comes on line, every penny of profits Elysium has made from selling Mystery NR, times three, will be in play. And if New York happens even sooner, and those damages appear recoverable as the fruits of unfair competition, all the better.
The January 21 Transcript -- Baker Hostetler's Motion to Withdraw
The January 21 transcript is a different beast, because it contains little discussion about the merits of the case. Instead, this hearing is entirely about case management, and we have some questions about that.
Withdrawal of Baker Hostetler
Specifically, why is Baker Hostetler leaving the case? We won't get to find out, but here are the hints in the transcript:
Rueven Cohen of Cohen and Williams (Elysium's local counsel) says, "It's my understanding that there are some nuances with respect to the relationship [between Elysium and Baker Hostetler] that sort of induced Ms. Kaplan and our firm getting involved...We would ask for an in-camera hearing to make a short proffer to the Court about some privileged information about this sort of posture of the relationship...The Court should know for its own edification...had we not moved -- or really Ms. Kaplan's firm not eventually moved to come in, current counsel would have sought to withdraw."
... ["in camera" hearing is a private hearing before the judge]
JUDGE CARNEY: Mr. Sacca, now I had the in-camera hearing where I got a very general sense of some of the problems and issues in the relationship. But after hearing that, I am going to approve the substitution of counsel and allow you to withdraw.
MR. SACCA: Thank you, Your Honor.
THE COURT: So you're excused.
MR. SACCA: Thank you.
(Mr. Sacca left the courtroom.)
Next, Judge Carney says, "All right. What are we going to do with this case? This case is a problem for me. It's so old. I don't know how and when, as I'm sitting here, it got off the tracks, but it got off the tracks."
As readers of this blog know well, the case was on track for a trial last October, with dispositive motions and evidentiary motions fully briefed in September, when Judge Carney unexpectedly pulled everything off calendar. Before that, the trial date was moved back twice -- first from April to July, then from July to October, both times at the parties' requests due to breaking developments resulting from late discovery.
So if Judge Carney means that the case got off track when the Magistrate Judge allowed Elysium to engage in poor discovery practices that resulted in numerous discovery disputes and delays, I would understand that. But if he has anything else in mind, then, as I'm sitting here, I DO know how and when it got off the tracks -- it happened in October when Judge Carney pulled the switch that took the case off the track.
The transcript includes several interesting comments related to settlement.
Elysium's new lead counsel, Roberta Kaplan, offered this: "Having litigated cases like this for 20-some years now, given where the bid-ask is, it's not a case that should go to trial. Frankly, it's a case that should settle."
Judge Carney agreed, saying, "There are some cases where you just can't settle because the amount is so big it might be the crown jewel of technology. But this is a case, it just seems to me, that should resolve itself."
So the judge thinks it should settle; even Elysium's counsel thinks it should settle. And nobody wants it settled more than ChromaDex, which experiences all the cost-pressures that a public company does, and has felt the need to re-state its quarterly financials by adding an alternative line representing the outcome-if-you-don't-count-legal-expenses.
So then, if everyone thinks it should settle, why doesn't it settle?
Cooley attorney Barrett Anderson gives us a hint:
MR ANDERSON: Your Honor, I think from our perspective we're always amenable to settlement discussions. I would say the one big issue out here that's not monetary related is the patent misuse counterclaim, which is obviously halting a patent infringement case in Delaware. Now, resolving that might be a little more difficult, but we are amenable to settlement discussions.
Here is how I would translate what Mr. Anderson said: The moment Elysium settles in California, the Patent Misuse claim finally dies, and that means Delaware patent infringement suits recommences. Elysium definitely doesn't want THAT to happen, so they won't settle in California, even though their own counsel thinks they ought to settle.
Judge Carney might have heard that the way I did, because he turned to Elysium's new lead counsel, Roberta Kaplan, and asked,
JUDGE CARNEY: ...Too early, Ms. Kaplan, to get any kind of read, whether there's any kind of reasonable possibility of settlement? Before you answer, 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).
Elysium's counsel could only agree:
ROBERTA KAPLAN: I agree with you, that it's essentially a contracts case.
Nonetheless, unless Judge Connolly lifts the stay in Delaware on his own, we do not anticipate a settlement in California.
* Even for depositions court reporters ought to be paid for their time, and not be playing some weird copyright lottery to extort litigants if the court reporter happens to take down something very important to a lot of people. But for in-court public proceedings, this system is unconscionable.