ChromaDex, Inc. v. Elysium Health, Inc.

369 F.Supp.3d 983

CHROMADEX, INC., Plaintiff,

v.ELYSIUM HEALTH, INC., and Mark Morris, Defendants.

Elysium Health, Inc., Counterclaimant,

v.ChromaDex, Inc., Counter-Defendant.

Case No.: SACV 16-02277-CJC(DFMx)

United States District Court, C.D. California, Southern Division.

Signed February 4, 2019

Michael A. Attanasio, Barrett J. Anderson, Eamonn Joseph Gardner, Jayme B. Staten, Jon F. Cieslak, Sophia Marie Rios, Cooley LLP, San Diego, CA, Mitchell A. Kamin, Covington and Burling LLP, Los Angeles, CA, for Plaintiff.

Benjamin D. Pergament, Pro Hac Vice, Esterina Giuliani, Pro Hac Vice, Joseph N. Sacca, Pro Hac Vice, Kristin L. Keranen, Pro Hac Vice, Joseph N. Sacca, Esterina Giuliani, Baker and Hostetler LLP, Bradley E. Honigman, Pro Hac Vice, Michael M. Powell, Pro Hac Vice, Spencer A. Gottlieb, Pro Hac Vice, Skadden Arps Slate Meagher and Flom LLP, New York, NY, Donald R. Ware, Pro Hac Vice, Julia Huston, Pro Hac Vice, Marco J. Quina, Pro Hac Vice, Foley Hoag LLP, Boston, MA, Elizabeth M. Treckler, Michael R. Matthias, Elizabeth M. Treckler, Baker and Hostetler LLP, Julia M. Nahigian, Peter Bradley Morrison, Skadden Arps Slate Meagher and Flom LLP, Los Angeles, CA, for Defendants.

ORDER DENYING ELYSIUM HEALTH, INC.'S AND MARK MORRIS'S MOTION TO DISMISS THE SIXTH, SEVENTH, AND EIGHTH CLAIMS OF THE FIFTH AMENDED COMPLAINT [Dkt. 174]

CORMAC J. CARNEY, UNITED STATES DISTRICT JUDGE

I. INTRODUCTION

Plaintiff ChromaDex, Inc. ("ChromaDex") filed this action against Defendant Elysium Health, Inc. ("Elysium") on December 29, 2016. (Dkt. 1 [Complaint].) On November 27, 2018, pursuant to the Court's order granting leave to amend under Federal Rule of Civil Procedure 15(a), ChromaDex filed a Fifth Amended Complaint. (Dkt. 153 [Fifth Amended Complaint, hereinafter "FAC"].) The Fifth Amended Complaint added Defendant Mark Morris. (Id. ) Before the Court is Defendants' motion to dismiss the sixth, seventh, and eighth claims of the Fifth Amended Complaint. (Dkt. 174 [hereinafter "Mot."].) For the following reasons, the motion is DENIED .¹

II. BACKGROUND

The Fifth Amended Complaint alleges the following facts. ChromaDex is a corporation that develops patented ingredients for use in dietary supplements, food, beverages, skin care, and pharmaceuticals. (FAC ¶ 13.) Elysium is a corporation that sells a dietary supplement named "Basis." (Id. ¶ 2.) ChromaDex alleges that it was "Elysium's sole supplier of the two fundamental active ingredients" in Basis. (Id. ) These two ingredients are NIAGEN®, a health ingredient that is comprised of nicotinamide riboside ("NR"), and pTeroPure®, a health ingredient made of synthetic pterostilbene. (Id. )

ChromaDex and Elysium's dealings were "unremarkable" until 2016. (Id. ¶ 37.) Then, in 2016, Elysium secretly began developing an alternative manufacturing source for NR. (Id. ¶ 83.) To further this plan, Elysium began recruiting Mark Morris, ChromaDex's Vice President of Business Development. (Id. ¶ 38.) Elysium allegedly offered employment to Morris in exchange for his commitment to act as Elysium's inside agent before he terminated his employment with ChromaDex. (Id. ¶ 42.) Morris allegedly began giving to Elysium "confidential and proprietary information on ChromaDex's sales to other customers," including information concerning the prices and volumes of NR ordered by another ChromaDex customer. (Id. ¶ 39.) ChromaDex keeps this information, which is only accessible by its employees, in a highly-confidential document called the "Ingredient Sales Spreadsheet," which tracks quarterly sales for all ingredients since 2012. (Id. ¶ 40.) While at ChromaDex, Morris allegedly texted and used his personal email account to send information to Elysium. (Id. ¶ 99.) Elysium recorded the information that Morris provided in a spreadsheet. (Id. ¶ 40.)

By providing this information to Elysium, Morris allegedly violated two confidentiality agreements that he signed at ChromaDex. On February 26, 2016, Morris executed an agreement entitled Receipt & Acknowledgement of Employee Handbook (the "February Confidentiality Agreement"). (Id. ¶ 19.) In the February Confidentiality Agreement, Morris agreed to protect ChromaDex's proprietary and confidential information and not to duplicate or remove any of ChromaDex's files, documents, and software. (Id. ¶ 20.) On July 15, 2016, Morris signed a Confidentiality and Non-Solicitation Agreement (the "July Confidentiality Agreement"). (Id. ¶ 23.) Sections 2 and 3 of the July Confidentiality Agreement required Morris to return all tangible items, such as computer-stored information and disks, and all ChromaDex trade secret and confidential information upon termination of his employment. (Id. ¶ 24.) Section 3 of the July Confidentiality Agreement also prohibited Morris from disclosing ChromaDex trade secret and confidential information to any other person or business entity or using or permitting others to use such information. (Id. ¶ 25.)

Using Morris's information, Elysium purportedly conspired with Morris and hatched a plan to obtain a market advantage over its competitors, including over ChromaDex. (Id. ¶ 44.) Under this plan, Elysium would order a twelve-month supply of NIAGEN and pTeroPure from ChromaDex. (Id. ¶ 47.) After obtaining a stockpile, Elysium then planned to seek out alternate sources of ingredients and eventually compete with ChromaDex in the manufacture of NR and synthetic pterostilbene. (Id. ¶ 49.) While still at ChromaDex, Morris apparently knew of Elysium's plans to displace ChromaDex in the market. (Id. )

Elysium then put its plan to action. On June 28, 2016, Elysium submitted two extraordinarily large purchase orders for NIAGEN and pTeroPure. (Id. ¶ 50.) These purchase orders contained a demand for the two products at less than half of the parties' agreed price. (Id. ) Morris arranged a phone call between the two companies to discuss the orders. (Id. ¶ 53.) On the phone call, Elysium's management represented that Elysium was ramping up production and would continue to place additional large orders in the next quarters. (Id. ¶ 55.) Based on these promises, ChromaDex offered Elysium a discounted price for NIAGEN. (Id. ) On June 30, 2016, Elysium submitted two revised purchase orders for pTeroPure and NIAGEN at a smaller quantity than the June 30 purchase orders, but still at three times the size of any of Elysium's previous fulfilled orders. (Id. ¶ 57.)

At this time, Morris, who remained a ChromaDex officer, 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. (Id. ¶ 58.) ChromaDex sent its first shipment to fulfill the purchase orders on July 1, 2016. (Id. ¶ 61.) On July 15, 2016, Morris resigned from ChromaDex after one week's notice and allegedly started working for Elysium the next day. (Id. ¶¶ 70, 73.) On August 9, 2016, ChromaDex shipped the final shipment to fulfill the purchase orders and sent invoices to Elysium for $ 2,983,350. (Id. ¶¶ 61–63.)

Since then, Elysium has refused to pay the amount due on the invoices. (Id. ¶ 68.)

In its sixth, seventh, and eighth causes of action, ChromaDex brings claims for breach of the July Confidentiality Agreement, breach of fiduciary duty, and aiding and abetting breach of fiduciary duty. (See generally id. ) Defendants now move to dismiss these claims under Federal Rule of Civil Procedure 12(b)(6). (Mot.)

III. LEGAL STANDARD

A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the legal sufficiency of the claims asserted in the complaint. The issue on a motion to dismiss for failure to state a claim is not whether the claimant will ultimately prevail, but whether the claimant is entitled to offer evidence to support the claims asserted. Gilligan v. Jamco Dev. Corp. , 108 F.3d 246, 249 (9th Cir. 1997). Rule 12(b)(6) is read in conjunction with Rule 8(a), which requires only a short and plain statement of the claim showing that the pleader is entitled to relief. Fed. R. Civ. P. 8(a)(2). When evaluating a Rule 12(b)(6) motion, the district court must accept all material allegations in the complaint as true and construe them in the light most favorable to the nonmoving party. Moyo v. Gomez , 32 F.3d 1382, 1384 (9th Cir. 1994). The district court may also consider additional facts in materials that the district court may take judicial notice, Barron v. Reich , 13 F.3d 1370, 1377 (9th Cir. 1994), as well as "documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading," Branch v. Tunnell , 14 F.3d 449, 454 (9th Cir. 1994), overruled in part on other grounds by Galbraith v. Cty. of Santa Clara , 307 F.3d 1119 (9th Cir. 2002).

However, "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ; see also Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (stating that while a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, courts "are not bound to accept as true a legal conclusion couched as a factual allegation" (citations and quotes omitted) ). Dismissal of a complaint for failure to state a claim is not proper where a plaintiff has alleged "enough facts to state a claim to relief that is plausible on its face." Twombly , 550 U.S. at 570, 127 S.Ct. 1955. In keeping with this liberal pleading standard, the district court should grant the plaintiff leave to amend if the complaint can possibly be cured by additional factual allegations. Doe v. United States , 58 F.3d 494, 497 (9th Cir. 1995).

IV. DISCUSSION

1. Breach of July Confidentiality Agreement

ChromaDex brings its sixth cause of action against Morris for breach of...