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We’re still waiting….

Glass v. Glob. Widget, LLC, No. 2:19-cv-01906-MCE-KJN (E.D. Cal. June 15, 2020)

Kenneth Glass (“Plaintiff”) claimed, on his own behalf and on behalf of others in a similar situation, that Global Widget, LLC d/b/a Hemp Bombs (“Defendant”) marketed misbranded and illegal hemp cannabidiol (“CBD”) products. Plaintiff’s First Amended Complaint alleged eight different causes of action, including breach of express warranty, breach of implied warranty of merchantability, unjust enrichment, and fraud, as well as violations of various state consumer protection, unfair competition, and false advertising laws.

Defendant requested that the Court either dismiss or stay the matter pursuant to the primary jurisdiction doctrine pending imminent regulatory action by the United States Food and Drug Administration (“FDA”) regarding CBD products. They based their argument on the fact that It claims that in 2019, the FDA held a public hearing on CBD and then appointed an agency task group and a public docket for discussion. The FDA released a consumer update on CBD on November 25, 2019 called “What You Need to Know (And What We’re Working to Find Out) About Products Containing Cannabis or Cannabis-derived Compounds, Including CBD.” The FDA noted that it “recognizes the strong public interest” in such chemicals and that it “is working on answering these questions via ongoing initiatives” that include “input from a recent FDA hearing and information and data gathering through a public docket.” The FDA also stated that it “is evaluating the situation.”

The case was stayed by the court until the FDA was to complete its rulemaking on the marketing of hemp-derived ingestible products, including labeling.

Crickets…. When will this be completed?

A windfall in an illegal contract…

Metsch v. Heinowitz, D074999 (Cal. Ct. App. Apr. 22, 2020)

Terry Metsch and Susan Metsch (“Plaintiffs”) sued Jesse Heinowitz for breach of contract, breach of fiduciary duty, and conversion, as well as Rachel King for breach of contract. (“Defendants”). The Plaintiffs’ claims stem from contractual and partnership arrangements for the production and marketing of edible cannabis products, as detailed in the complaint.

The defendants filed a motion for summary judgment and dismissal of plaintiffs’ claims on the grounds that “the commercial cannabis operation at the heart of plaintiffs’ [complaint] is illegal and a violation of criminal law,” claiming that “the commercial cannabis operation at the heart of plaintiffs’ [complaint] is illegal and a violation of criminal law.” As a result, the defendants asserted, plaintiffs have no legal authority to seek restitution or enforcement based on an illegal transaction in court. The alleged agreements involved transactions with Cannabis, a Schedule I controlled substance.  

The court concluded that, “in applying the illegality of contract doctrine as a defense, courts do not consider whether its application results in unjust enrichment in favor of the party opposing enforcement of the contract.” Instead, under California law, courts are required to consider “a higher interest, that of the public, whose welfare demands that certain transactions be discouraged.” More specifically, the court ruled that it would not aid in prosecuting civil claims for relief that were based on illegal activities.

It is interesting to note that this goes against the rule applied in other jurisdictions. In New York, for example, the defense is inapplicable if it would result in “significant forfeiture to one party while permitting the other party, who has already enjoyed the benefit of the transaction, to evade the associated responsibility.” Grape Solutions, Inc. v. Majestic Wines, Inc., 2015 N.Y. Slip Op. 30770 (N.Y. Sup. Ct. 2015).

Read your contract!

Prime Care, Inc. v. Nguyen Phat Real Estate Inv., No. B304910 (Cal. Ct. App. Jan. 19, 2022)

Prime Care, Inc. (“Plaintiff”) filed a lawsuit alleging that Nguyen Phat Real Estate Investment, LLC and Sam Ho (“Defendants’), misrepresented the suitability of the commercial property they leased to plaintiff for the operation of a cannabis company. Plaintiff sought relief for negligence, fraud, negligent misrepresentation, and rescission.  The trial court ruled that based on the terms of the lease agreement, the case would be dismissed.  Plaintiff challenged the trial court’s decision to dismiss the case in favor of the defendants.

The commercial lease stated that the agreed use of the premises was “Commercial Cannabis distribution, manufacturing, cultivation and retail delivery in accordance with all state and local licenses and laws.” When plaintiff and Nguyen Phat entered into the lease, plaintiff had not obtained the City of Montebello’s approval for the agreed use.

The lease contained the following provisions:

Paragraph 2.3: “NOTE: Lessee is responsible for determining whether or not Applicable Requirements, and especially the zoning are appropriate for Lessee’s intended use, and acknowledges that past uses of the Premise may no longer be allowed.”

Plaintiff paid a $150, 000 deposit, advance rent, and other fees after signing the lease. Unfortunately for Plaintiff, before plaintiff began operations, the City of Montebello found the site was not suited for cannabis distribution due to its proximity to a residential sector,

The appellate court affirmed the dismissal.

Federal Legalization Update…

Well, they are at it again.  Will this legislation ever get passed?  According to this article, plans are in the works to get legislation passed in April.  It would be funny if it was signed on 4/20.  See the link below for an update.

Source


LAWYER JOKE OF THE DAY

The New York Times, among other papers, recently published a new James Webb Space Telescope photograph of distant galaxies colliding.

Of course, astronomers have had pictures of colliding galaxies for quite some time now, but with the vastly improved resolution provided by the Hubble, you can actually see the lawyers rushing to the scene.

Jason Morgan Roberts is an Attorney and Legal Commentator in the Chicagoland Area.  He can be reached at [email protected].  His commentary is not to be considered legal advice.