Bartch v. Barch.

Nos. 23-1211 & 24-1049. 7/29/2024. D.Colo. Judge Matheson. Marijuana Business—Controlled Substances Act—Standing to Enforce Judgment—Judgment Enforcement Order.

July 29, 2024

Josh Bartch (Josh) owned and operated a marijuana business in Colorado between 2009 and 2015. In 2015, Josh and Mackie Barch (Mackie) formed Doctor’s Orders Maryland (DOMD) and sought a license to open a marijuana business in Maryland. Because Josh had a Colorado deferred judgment for misdemeanor drug possession, Josh and Mackie agreed that Josh would temporarily relinquish his ownership of DOMD but would be reinstated after they obtained the Maryland license. DOMD received the license, but Mackie refused to reinstate Josh’s ownership interest. Mackie renamed the Maryland business Culta, LLC, and he operated it without Josh. Josh sued Mackie and Mackie’s company, Trellis Holdings Maryland, Inc. (Trellis), which holds a minority membership share in Culta, for, among other things, breach of contract. Mackie and Trellis did not plead an affirmative defense of contract illegality, and before trial, Mackie transferred almost all of his interest in Trellis to two family trusts. The district court found Mackie and Trellis liable for breach of contract and awarded Josh $6.4 million in damages (the original judgment). Mackie and Trellis did not appeal the original judgment. They never paid, and Josh sought to enforce the judgment. The district court granted post-judgment relief, ordering Mackie and Trellis to use their best efforts to sell Trellis’s equity interest in Culta, to turn over the proceeds from any such sale, and to avoid devaluing Trellis’s equity until the sale. Mackie and Trellis appealed, arguing that Josh lacked standing to enforce the judgment because the remedy he sought would violate the Controlled Substances Act (CSA) and the district court lacked authority to award relief under CRCP 69(g). While that appeal was pending, Mackie and Trellis moved the district court to reconsider the original judgment under Fed. R. Civ. Proc. 60(b)(4), making the same CSA standing argument. The court denied the motion (the original judgment reconsideration order), and Mackie and Trellis appealed. The Tenth Circuit consolidated the appeals.

Because resolution of the original judgment reconsideration order appeal, No. 24-1049, affects the availability of post-judgment relief at issue in No. 23-1211, the Tenth Circuit first addressed No. 24-1049. Mackie and Trellis argued that the original judgment was void because Josh lacked standing as his requested relief would violate the CSA. A party may defend against a breach of contract action by alleging the contract was contrary to public policy, but Fed. R. Civ. Proc. 60(b)(4) does not provide relief from a final judgment based on that ground. As relevant here, Fed. R. Civ. Proc. 60(b)(4) requires relief from a void judgment. A judgment is void only if it is premised on either lack of jurisdiction or a due process violation that deprives a party of notice or the opportunity to be heard. General compensatory damages may remedy a breach of contract if the damages award does not require a losing party to violate federal law. Here, Josh alleged and proved breach of contract, an injury-in-fact; Mackie and Trellis caused that injury; and Josh’s claim was redressable because he asked for and the district court awarded general compensatory damages for Mackie and Trellis’s breach of contract. Accordingly, the district court did not err.

In No. 23-1211, Mackie and Trellis appealed the judgment enforcement order, arguing that Josh lacked standing to seek an order directing the sale of an interest in a marijuana business because such order would violate the CSA. However, Josh had standing for the original judgment and to seek enforcement of the judgment, the district court had authority to create a remedy to redress Mackie’s and Trellis’s failure to pay the judgment, and the property that the court specified in the order does not affect Josh’s standing.

Mackie and Trellis also argued in No. 23-1211 that the district court lacked authority to enter the judgment enforcement order under CRCP 69(g). Fed. R. Civ. Proc. 69 directs federal courts to follow state procedures when enforcing a federal money judgment, unless federal law applies, and a district court’s Rule 69 order is “valid if authorized by” the relevant state law. CRS § 7-80-703 allows a court to charge the membership interest of an LLC member or to foreclose on such member’s interest, and CRCP 69(g) subjects all property of the judgment debtor, not specifically exempt, to the payment of their debts. The Tenth Circuit concluded that the Colorado Supreme Court would hold that a § 7-80-703 charging order is not an exclusive remedy for an LLC judgment creditor member seeking to enforce a judgment against a judgment debtor’s interest in the LLC, and Mackie and Trellis have sufficient control over Trellis’s Culta equity for the district court to direct the sale of that asset under CRCP 69(g). Therefore, the district court did not abuse its discretion in granting the CRCP 69(g) judgment enforcement order in lieu of a charging order. However, the court’s CRCP 69(g) order to sell equity in a marijuana business was injunctive relief, which is subject to equitable considerations, including public policy. Here, the order raises public policy concerns about violation of federal drug law because while the judgment enforcement order does not specifically order Mackie and Trellis to engage in marijuana activities that would violate the CSA, compliance with the order may effectively require them to do so. Therefore, the judgment enforcement order would be invalid if it requires Mackie and Trellis to violate public policy. And the record is not sufficiently developed to determine whether compliance with the order would require violation of the CSA.

The order in appeal No. 24-1049 was affirmed. The order in appeal No. 23-1211 was vacated and the case was remanded for further proceedings.