ChromaDex, Inc. v. Elysium Health, Inc.

535 F.Supp.3d 906

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 April 27, 2021

Amended April 30, 2021

Michael A. Attanasio, Craig Edward TenBroeck, Jayme B. Staten, Cooley LLP, Sophia Marie Rios, Berger Montague PC, San Diego, CA, Barrett J. Anderson, Cooley LLP, Joedat H. Tuffaha, Prashanth Chennakesavan, LTL Attorneys LLP, Mitchell A. Kamin, Covington and Burling LLP, Los Angeles, CA, Philip A. Irwin, Pro Hac Vice, Covington and Burling LLP, New York, NY, for Plaintiff/Counter-Defendant.

David Shieh, Pro Hac Vice, Gabrielle Elizabeth Tenzer, Pro Hac Vice, Kaplan Hecker and Fink LLP, New York, NY, Donald R. Ware, Pro Hac Vice, Marco J. Quina, Pro Hac Vice, Rachel L. Davidson, Pro Hac Vice, Donald R. Ware, Marco J. Quina, Foley Hoag LLP, Boston, MA, Gabriel L. Pardo, Marc S. Williams, Reuven L. Cohen, Cohen Williams LLP, Los Angeles, CA, Roberta A. Kaplan, Pro Hac Vice, Kapslan Hecker and Fink LLP, New York, CA, for Defendant/Counterclaimant Elysium Health, Inc.

David Shieh, Pro Hac Vice, Gabrielle Elizabeth Tenzer, Pro Hac Vice, Kaplan Hecker and Fink LLP, New York, NY, Gabriel L. Pardo, Marc S. Williams, Reuven L. Cohen, Cohen Williams LLP, Los Angeles, CA, Roberta A. Kaplan, Pro Hac Vice, Kapslan Hecker and Fink LLP, New York, CA, for Defendant Mark Morris.

AMENDED ORDER DENYING CHROMADEX'S MOTION FOR SANCTIONS [Dkt. 474]

CORMAC J. CARNEY, UNITED STATES DISTRICT JUDGE

I. INTRODUCTION

In this 2016 case, Plaintiff ChromaDex, Inc. ("ChromaDex") and Defendant Elysium Health, Inc. ("Elysium") each allege that the other party breached 3 of the parties' contracts. Two of Elysium's executives recently filed declarations with the Court admitting that they lied in their depositions about one of the executive's cocaine use. ChromaDex now moves for terminating sanctions on 3 of Elysium's counterclaims based on the deception. For the following reasons, ChromaDex's motion for sanctions is DENIED .

II. BACKGROUND

A. Case Background

ChromaDex supplied Elysium with nicotinamide riboside ("NR"), which ChromaDex sold under the trade name Niagen, and pterostilbene ("PT"), which ChromaDex sold under the trade name pTeroPure. (Dkt. 295-1 ¶ 1.) Elysium used the NR and PT it bought from ChromaDex in its dietary supplement called "Basis." (Id. ¶¶ 4–5.) Eric Marcotulli and Daniel Alminana are the co-founders and principal executives of Elysium. Marcotulli is CEO, and Alminana is COO.

After the Court's summary judgment order, (Dkt. 413), only certain of the parties' claims remain. As relevant to this motion, Elysium's third, fourth, and fifth counterclaims remain for trial. Elysium's third counterclaim alleges that ChromaDex fraudulently induced Elysium to sign the Trademark License and Royalty Agreement, dated February 3, 2014 (the "TLRA"), by falsely representing that, in order to purchase Niagen, Elysium was required to pay royalties on product sales for use of ChromaDex marks. (Dkt. 103 [Third Amended Counterclaims] ¶¶ 162–69.) Elysium's fourth counterclaim seeks a declaratory judgment of patent misuse based on the allegation that ChromaDex conditions some customers' ability to purchase NR on their agreement to use ChromaDex's trademarks. (Id. ¶¶ 170–81.) Relatedly, Elysium's fifth counterclaim seeks restitution for ChromaDex's alleged unjust enrichment due to its patent misuse. In other words, Elysium alleges that by requiring entities to use the Niagen mark, ChromaDex unlawfully strengthened the Niagen mark and decreased brand competition among NR products.

What the parties said during the negotiation of the TLRA is disputed and important to the resolution of Elysium's third, fourth, and fifth counterclaims. Most critical to the third counterclaim is a December 16, 2013 phone call between Frank Jaksch (ChromaDex's former CEO), Marcotulli (Elysium's CEO), and Alminana (Elysium's COO). (See id. ¶¶ 52, 165.) Marcotulli and Alminana testified that Jaksch falsely represented that ChromaDex customers were required to sign separate trademark license and royalty agreements, whether or not they wanted or intended to use ChromaDex marks. (Dkt. 306-1, Ex. 12 at 93:6–9 [Marcotulli testifying that Jaksch told Elysium "that all customers pay a royalty and that was their way of doing business, given their ownership of the NR supply chain"]; id. , Ex. 13 at 168:1–3 [Alminana testifying that Elysium was "told that everyone has to sign this," that "[e]veryone pays a royalty," and "[t]his is the standard royalty"].) Jaksch, on the other hand, testified that he made no such statement. (Dkt. 240-2, Ex. 72 at 134:23–25 [Jaksch testifying that he did not tell Elysium that all ChromaDex customers must execute a license and royalty agreement to do business with ChromaDex]; see Dkt. 233-2 ¶ 5 [Jaksch stating that trademark licensing was never a requirement for purchasing NR].) At summary judgment, the Court cited this factual dispute and concluded that summary judgment was not warranted on Elysium's third, fourth, and fifth counterclaims.

B. Text Messages

The facts relevant to this motion begin on December 18, 2018, when 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. (Dkt. 284-7.) 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. (Dkts. 284-8, 284-9; Dkt. 473-6 at 149–50.)

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." (Dkt. 284-14 at 14.) Fabricant reported it was "330 I think," and added, "[t]here are no drugs left in Manhattan." (Id. ) Alminana laughed and joked, "Wow early night. I bet Eric [Marcotulli] wakes up around 6pm today." (Id. )

On February 14, 2019, Elysium filed an ex parte application attempting to claw back the text messages. Magistrate Judge Douglas F. McCormick denied the application. (Dkt. 194.)

C. Depositions

At his March 27, 2019 deposition, Marcotulli lied under oath about the text messages. (Dkt. 473-6 [Transcript of Deposition of Eric Marcotulli].) 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. (Id. at 128–35.) He stated that he did not know what "fire white" was, or what "coke" was. (Id. at 129, 152.) He repeated multiple times that he did not recall buying any illegal drugs from September 2015 to March 2016. (Id. at 130, 132, 145.) 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. (Id. at 144, 147, 155–56.)

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. (Dkt. 473-6 [Transcript of Deposition of Daniel Alminana] at 30.)

D. Events Between the False Testimony and the Corrections

On June 3, 2019, Elysium produced an errata sheet for Marcotulli's deposition, outlining 10 typographical errors, transcription errors, and clarifications (none having to do with the text messages), and a copy of the transcript with Marcotulli's signature. (Dkt. 472, Exs. 8, 9.) Marcotulli signed the errata sheet on May 30, 2019 with this statement:

I, ERIC MARCOTULLI, having appeared for my deposition on March 27, 2019, do this date declare under penalty of perjury that I have read the foregoing deposition, I have made any corrections, additions or deletions that I was desirous of making in order to render the within transcript true and correct.

(Dkt. 472, Ex. 10.) On August 7, 2019, Elysium produced an errata sheet and signed transcript for Alminana's deposition, which contained the same statement. (Dkt. 472, Exs. 11–13.) Alminana also did not make any corrections related to the text messages.

On August 22, 2019, Elysium filed a motion in limine to exclude the text messages and Marcotulli's and Alminana's testimony about them. (Dkt. 269-1 at 1, 7.) ChromaDex argued in opposition that Marcotulli and Alminana had committed perjury in their depositions. (Dkt. 284-1 at 9–11.) In reply, Elysium called "ChromaDex's irresponsible and inflammatory accusations of perjury ... a collateral sideshow on a collateral issue that fails to address the merits of the admissibility of the evidence," and described the perjury accusation as "hyperbolic charges [that] are factually, logically, and legally baseless." (Dkt. 344-1 at 12 n.8.) Elysium repeatedly denied that Marcotulli used drugs. (See generally Dkt. 344-1.) The Court denied without prejudice all motions in limine because many of the issues to be resolved in the motions in limine overlapped with the pending summary judgment motions, and stated that it would set a new deadline for motions in limine after ruling on summary judgment. (Dkt. 369 at 10.)

The text messages came up again in December 2019 when ChromaDex sought to modify the protective order to allow the parties to use discovery from this case in a New York case between them involving overlapping facts and issues. (See Dkt. 398-4 [ChromaDex's letter brief]; see also Dkt. 398-3 [Elysium's letter brief].) At the hearing on ChromaDex's motion, it became clear that Elysium opposed ChromaDex's motion principally because it did not...