After a long hiatus, we are back with our popular feature, the Reefer Brief. Just kidding, it was never popular, but the hiatus has been long.
Justin Givens is a cannabis consultant and the sole member of Apical Biotek, LLC (Apical). Four related entities (collectively Maitri) operate a tissue culture lab and medical marijuana dispensaries. The parties reached “an understanding on a financial framework” for a consulting contract, including on a tissue culture lab. The parties never entered into a written agreement. There were representations that Mr. Givens would receive an equity interest in one of the Maitri entities, and he and Apical (collectively Plaintiffs) were paid at least $541,588.47 for “products, services, and expenses.”
Plaintiffs sued Maitri for breach of contract and unjust enrichment, among other things. The District Court granted Maitri summary judgment. Plaintiffs had failed to provide sufficient evidence of damages on their contract claim, and on the unjust enrichment claim, Plaintiffs produced no documentary evidence to establish that they were paid at a discounted rate.
In a buzz-killing non-precedential opinion, Apical Biotek, LLC v. Maitri Holdings, LLC, the Third Circuit sua sponte questioned whether a court can grant relief based on an agreement that contemplates distribution of a controlled substance in violation of federal law. Although Pennsylvania has legalized the possession and use of marijuana in limited circumstances, possession, distribution and manufacture of marijuana remain illegal under federal law.
The Court asked the parties for their thoughts, and they do not believe their contract to be illegal, either because it involves hemp, which is not a controlled substance, or because the resolution of the case does not compel the violation of federal law. At least three district courts and the Tenth Circuit have suggested otherwise, noting that enforcing contracts that violate federal law make the courts complicit in that illegal conduct. The Court vacated the District Court’s grant of summary judgment and remanded the case to resolve the legality of the contract at issue.
In a very different context, Justice Gorsuch, writing in dissent, admonished the majority that “There comes a point where we should not be ignorant as judges of what we know to be true as citizens.” I don’t know what things look like in the Third Circuit, but here in Oklahoma, there are dispensaries on every corner, but the Third Circuit cites to precedent from Oklahoma in which at least one court refused to adjudicate an illegal cannabis contract. At the time this opinion came down, federal law treated marijuana as a drug that has no medical benefits. As Judge Matey’s concurring opinion notes, there is medical evidence to the contrary. The strip malls in Oklahoma City provide further support. It seems that prescriptions for medical marijuana are sufficiently plentiful to support an industry with a bigger footprint than Starbucks. And if people are procuring the dreaded weed without a prescription, so much the worse for the efficacy of federal law on this subject.
By My 420 Tours – Own work, CC BY-SA 4.0
The executive branch, meanwhile, has been inching toward the world in which Oklahomans already live. In April, the Justice Department moved state-licensed medical marijuana from Schedule I to Schedule III, the schedule for drugs with accepted medical use. But it did so by administrative order, not statute, and with Schedule I- and II-style controls left in place. A broader rescheduling proceeding is still pending. On remand, the District Court would face a more complicated regulatory framework than obtained when the Third Circuit issued its opinion, but it seems to me unlikely that either party would have any interest in having a court adjudicate the legality of their businesses. That said, a docket search indicates that the parties are seeking to mediate their dispute.
In the end, we can’t really blame the Third Circuit for the predicament. This is a problem that Congress needs to address. Perhaps people should not be ignorant as legislators of what they know to be true as citizens. Or maybe that’s precisely how they need to behave so that they can get re-elected to do not much of use.
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