Plaintiff ChromaDex, Inc. (“ChromaDex”) filed a motion for terminating sanctions against defendant Elysium Health, Inc. (“Elysium”) based on admissions that Elysium’s executives lied in their depositions regarding one of the executive’s cocaine use. The production of text messages ignited the issue.

Elysium had produced text messages from Elysium’s CEO’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 showed that the CEO confided 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 had not been able to stop. The text messages also suggest that others knew about the CEO’s drug use.

Elysium filed an ex parte application attempting to claw back the text messages, which the Magistrate Judge denied.

At his deposition, the CEO lied under oath about the text messages, stating 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.

Subsequently, Elysium filed a Notice of Correction of Depositions, with a declaration from the CEO. In the CEO’s declaration, he explained that he came to the deposition prepared and “expect[ing] to answer questions relating to Elysium’s contracts with ChromaDex,” not to face questions “about sensitive and wholly personal matters relating to the personal text messages that, without my knowledge, had been produced inadvertently.” He stated that when he was asked questions about his cocaine use, he “was caught by surprise, unprepared, and embarrassed, and [he] gave answers that were not truthful.” He then identified particular untruthful statements regarding the cocaine use that were provided at the deposition.

Nonetheless, the district court was not persuaded that sanctions—much less terminating sanctions— were an appropriate remedy. Dismissal “is so harsh a penalty it should be imposed as a sanction only in extreme circumstances.” Thompson v. Hous. Auth. of City of Los Angeles, 782 F.2d 829, 831 (9th Cir. 1986). It is a “drastic substitute for the adversary process of litigation” and should only be used when absolutely necessary to protect the orderly administration of justice and integrity of judicial proceedings. Halaco, 843 F.2d at 382. Dismissal is appropriate only when the complained-of activity is a “pattern of deception” that “threaten[s] to interfere with the rightful decision of the case” or makes it impossible to conduct a trial “with any reasonable assurance that the truth would be available.” Valley Eng’rs Inc. v. Elec. Eng’g Co., 158 F.3d 1051, 1057 (9th Cir. 1998).

The district court found that the standard was not met here. The district court concluded that although “the lies are troubling, especially since their credibility is important in this case, the lies do not in the Court’s judgment ‘threaten to interfere with the rightful decision of the case’ or make it impossible to conduct a trial ‘with any reasonable assurance that the truth would be available.’ Valley Eng’rs, 158 F.3d at 1057. Instead, the ordinary adversary process of litigation is an adequate remedy…”

The district court then explained that some of the text messages and testimony regarding the message would be admissible at trial as both are relevant to credibility and to the CEO’s ability to “perceive and remember events during critical contract negotiations between the parties. The prejudice to Elysium from admitting the text messages and related testimony does not substantially outweigh the significant probative value of the evidence, and a jury will be able to evaluate the import of the evidence without making a decision on an improper basis. Nor will the Court permit a mini-trial on the issue.”

Finally, the district court concluded that “[b]ecause some of the text messages and testimony will be admissible at trial, ChromaDex will be able to show the jury that [the CEO and another executive] lied under oath. The jury will be allowed to draw inferences from [the] lies in assessing their credibility, and will be able to decide how much weight to give their testimony accordingly. This is sanction enough to protect the orderly administration of justice and the integrity of these proceedings.”

Chromadex, Inc. v. Elysium Health, Inc., Case No. SACV 16-02277-CJC (DFMx) (C.D. Cal. April 27, 2021)