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  • Writer's pictureShelly Albaum

Two New Discovery Disputes in CA

Two new Discovery Disputes appeared on the Southern California docket yesterday (and a third one got resolved in Utah).

Don't get too excited, because we don't have enough information yet to conclude that these are important. I am covering them here mostly for completeness, and also to illustrate that even while the litigation looks quiet to us, the attorneys are nonetheless behind the scenes furiously at work.

The December 6th Discovery Hearing

It turns out that there was a Discovery Hearing held before Magistrate McCormick on December 6, which resulted in one ruling that favored ChromaDex and one ruling that favored Elysium.

The minutes of the hearing are here. They are entirely useless. The minutes were also snuck onto the docket a few days later and back-dated to December 6, so I didn't realize that anything on the docket had changed, which is an annoying practice by the Court.

The December 6 briefing relied on December 5 letter briefs, which were not placed on the docket at all. At the December 6 meeting the Magistrate judge requested additional briefing for December 13. The additional December 13 briefing also did not make it onto the docket. Therefore, we don't have enough context to really understand what is at stake in these rulings.

Legal journalism is quite a bit more difficult when the Court hides the ball. One of the resulting rulings was so legally significant that Magistrate Judge McCormick wrote a lengthy opinion resolving a technical issue upon which the Ninth Circuit has not yet ruled. Another ruling was so controversial that Elysium has petitioned Judge Carney to set it aside. The public should have a better view than we are being afforded.

Use of California Discovery Materials in New York

The thing that Elysium is so mad about goes like this.

In the New York proceeding, ChromaDex requested discovery of everything that had already been produced in California. Elysium objected to that because what was relevant in California might not be relevant in New York.

ChromaDex then (I think) asked Magistrate Judge McCormick to modify the protective order in California so that it did not preclude transfer of produced materials in California to the New York action. Magistrate McCormick then (I think) modified the protective order in such a way that it actually authorized the use of the California materials in New York.

The offending language is as follows:

Any Designated Material produced in this Action, along with the information contained in such Designated Material, shall be used by a Receiving Party only for the purpose of this Action or Case No. 1:17-cv-07394 (CM) (S.D.N.Y.) (the “New York Action,” together with the Action the “Actions”) (including any appeals), and not for any other purpose...

Elysium went apoplectic and asked Judge Carney to undo it:

It's not hard to guess the subtext here. Elysium accidentally produced a bunch of highly prejudicial text messages in California, and they don't want those text messages causing trouble in New York.

Elysium's legal argument is that the inadvertently produced material would not be relevant in New York, and the New York court is entitled to manage its own discovery. I am sure that there is some counter-argument about a common nucleus of operative facts, and you can't un-ring a bell. But because we don't have real minutes of the hearing and we don't have the parties' briefs, we really can't have much of an opinion yet on the legal merits of the claims. That might change, though, when ChromaDex files its opposition brief in defense of the Magistrate Judge's ruling.

I would have been inclined to conclude, though, from Elysium's rage-level that their attorneys have not yet taken their foot off the gas pedal in zealously advocating on behalf of their client, despite rumors that Baker Hostetler has asked to withdraw...EXCEPT: The brief itself (Elysium's Motion for Review above) is not a very artful thing. There's a kind of frenzy to it that suggests haste, and some of the arguments seem to me like straw-grasping (counting the overlap, whether the parties are the same, and whether the parties stated for a different purpose that the actions were or were not similar). However, Baker Hostetler has at least switched back to using Westlaw cites, instead of Lexis cites, whereas an earlier brief had me wondering if they were outsourcing their legal research.

The Reserve Memo

The other issue of great contention is whether ChromaDex must produce an accounting memo ("The Reserve Memo") drafted by ChromaDex's controller and sent to ChromaDex's outside accountant for use in preparing a 10-Q filing. The problem was that the memo also included some legal analysis from ChromaDex's law firm.

Normally, Elysium would not be entitled to see legal analysis of a case by ChromaDex's attorneys -- that would be protected by an attorney-client or work product privilege. But Elysium says that since the attorneys shared that analysis with an outside accountant, the privilege was waived.

Whether Elysium is right turns on some technical legal questions, like whether federal or state law applies, and whether the accountant was acting as an agent of the attorney in preparing the 10-Q.

Magistrate McCormick ruled that federal privilege law applied, and that the accountant was providing business advice, not legal advice. That second part sounds like the Magistrate Judge applied the wrong standard, because no accountant can ever provide legal advice without risking penalties for the unauthorized practice of law. And giving legal advice TO A LAWYER would really not frequently occur, so I don't think that's the standard. I would think that the proper inquiry would instead be whether the lawyer were using the accountant's business advice to perform a legal task or a non-legal task.

These are very boring technical questions. What would be interesting is knowing what the lawyers said about the case that is so interesting to Elysium.

If the Magistrate's ruling goes unchallenged, then Elysium will get to see what the lawyers said.

ChromaDex tends not to challenge bad rulings, though. The Magistrate Judge's ruling on Slack, earlier this year, as we discussed, bordered on outrageous, but got no challenge. ChromaDex's failure to challenge these rulings probably results from ChromaDex's desire to NOT slow things down and NOT to increase costs, plus a belief that they are going to win anyway and don't need to negate every improper advantage Elysium gets.

But we'll see.

Meanwhile in Utah

Meanwhile, a discovery dispute was resolved in the Utah Novex litigation.

People who pay too much attention to this litigation will recall that Novex produced the claim substantiation file for Oxydrene -- pile of publicly available documents -- journals, articles, textbook chapters, and government reports -- but designated them "Attorneys Eyes Only" because the collection itself might be used to reverse-engineer Novex's secret formula. ChromaDex's counsel thought that was ridiculous and asked the Magistrate Judge to remove the AEO designation, but the Magistrate Judge ruled this week:

Plaintiff presents compelling evidence suggesting that the documents sought are compiled and distilled in a unique manner not known to the industry, rendering them highly sensitive business and marketing information that warrants protection from disclosure.

That just seems ridiculous to me. I didn't see compelling evidence; I saw a bare assertion.

The Magistrate Judge is less obviously wrong when he says,

Conversely, ChromaDex has not shown the information is relevant or necessary to the action. ChromaDex states, in a conclusory fashion, that counsel's ability to litigate the case is harmed by not being able to share the documents with in-house scientific experts. However, ChromaDex does not claim its attorneys require assistance in understanding the materials, nor does ChromaDex address the potential damage to Novex if sensitive competitive information is shared with ChromaDex..."

I still don't get why Novex's bare assertions are "compelling evidence," whereas ChromaDex's are not.

I also don't get why ChromaDex has to specifically allege that commercial law attorneys at Sidley Austin could use some help deciphering scientific documents. Somehow it is obvious to His Honor that a pile of publicly available documents are highly sensitive, even without any explanation of how the specific combination or ordering of the documents could be used to reverse engineer the formula, but not obvious that commercial lawyers lack scientific training.

I don't think the Utah litigation is going to end up being important at all, but it serves as a reminder that Cooley is not the only law firm that runs into absurd legal obstacles when trying to protect ChromaDex's legal interests. Sidley Austin has so far had no better luck.

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