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A Tenth Circuit panel has rejected a cannabis entrepreneur's attempt to undo a $6.4 million judgment in a dispute with an ex-business partner, but it ordered a district court to revisit an enforcement order that could require the entrepreneur to violate federal drug law to pay the damages.
A Maryland federal judge entered a $6.4 million damages award against Mackie A. Barch and his company Trellis Holdings Maryland Inc. for failing to restore David Joshua Bartch's stake in a Maryland cannabis cultivation and dispensary business, Culta Inc.
When they failed to pay up, Bartch filed suit in the District of Colorado seeking an order that would require Barch and Trellis to sell off their equity in Culta to satisfy the judgment, which the court granted.
Barch and Trellis claimed that their ex-partner lacked standing to seek enforcement of the judgment because the order would require them to engage in conduct in violation of the Controlled Substances Act. Cultivating and selling marijuana is legal under Colorado and Maryland laws, but still prohibited under the federal CSA.
A majority of the three-judge panel disagreed, finding in an opinion published Monday that Barch and Trellis have no path for relief from the judgment based on that argument. Case law only allows a party to seek such relief for violations of due process, Judge Scott M. Matheson Jr. wrote in the decision, which was joined by Judge Jerome A. Holmes.
While the majority had concerns that U.S. District Judge R. Brooke Jackson's enforcement order could require the parties to violate federal drug law, they said the order is too unclear to justify such a pronouncement.
The order requires Barch and Trellis to "use their best efforts" to sell their equity in Culta and "turn over the proceeds of such transaction(s)" to Bartch until the judgment is paid.
"This language does not specifically instruct Mackie [Barch] and Trellis to cultivate, process, or sell marijuana — they may only need to sell their equity and compensate Josh [Bartch] for his contract damages," Judge Matheson wrote. "But they also may need to rely on Culta's continued CSA-infringing business operations to enable them to sell the equity."
Another part of the order prohibits Barch and Trellis from undermining the value of their Culta equity, which does not necessarily require them to cultivate, process or sell marijuana, but could require them to maintain "Culta's business value by abetting continued operations in violation of federal law," according to the majority opinion.
In a sharply worded dissent, Judge Bobby R. Baldock contended that the nature of Culta's business should have doomed Bartch's breach of contract suit from the start. By validating the parties' contract, the majority has instead decided to "ignore the elephant in the room that is the federally illegitimate business enterprise known as Culta," Judge Baldock wrote.
"Plaintiff's cause of action is based entirely upon an illegal contract to establish Culta, notably an enterprise in which federal law recognizes no property interest. I simply do not understand why a federal court would lend legitimacy to any of this," according to the dissent.
Monday's decision addresses two separate appeals in the fight over ownership of Culta.
Bartch, a Colorado-based businessman, claims he was asked to temporarily relinquish ownership in Culta out of concerns that his misdemeanor drug possession charge would threaten the dispensary's licensing.
But after the license was issued, Bartch said his ownership was never reinstated, prompting him to sue Barch and Trellis in 2018.
Barch and Trellis first raised the illegality argument while appealing the judgment enforcement order, according to the majority opinion.
Judge Baldock said the majority misplaced its focus when the defendants raised the illegality defense. But U.S. Supreme Court precedent obligates courts to raise the illegality of conduct, and such a defense can't be "waived or forfeited," according to the dissent.
"That this Court, obliged to say what the law is and bound to uphold federal public policy based on such law, has chosen to 'lend its assistance in any way' to the parties' business dealings—'unsavory dealings' in the eyes of federal law — squarely conflicts with Supreme Court precedent and reflects poorly upon us."
The majority said it shares "the dissent's public policy concerns about the judgment enforcement order" but believes the best solution is to remand the issue to the district court.
The dissent also misunderstands the majority's position, Judge Matheson wrote in a footnote.
The majority never claimed Barch and Trellis waived or forfeited their illegality defense, Judge Matheson said. Instead, the opinion says federal law offers limited relief from judgments.
"The dissent overlooks that our resolution of these appeals does not depend on whether Mackie [Barch] and Trellis waived a contract illegality defense," according to the majority opinion.
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