Cost-Effective Cannabis Litigation in Washington (and Elsewhere)

Resolve cannabis business disputes better outside of court — IF you have the right clause in your contracts.

You may have heard about contractual agreements for “good faith” negotiations, mediation, arbitration and combinations of these techniques. When used properly, these techniques can save you significant time, money and lost productivity by avoiding a long courtroom trial — and even longer discovery, motions, and other pretrial preparation that can easily run to six figures.

These processes can also dramatically reduce potential bad publicity that may be inspired by a public lawsuit. How? They are almost always private proceedings, thus avoiding the risky glare of unwanted press and public attention. Formal pleadings (e.g., complaints), witness testimony, motion papers and other data — even the fact you’re in a dispute – they’re all kept confidential.

Such out-of-court (“extrajudicial”) dispute resolution processes are available in all states of the United States (and many other countries). These extrajudicial methods are called, collectively, alternative dispute resolution (“ADR”). Federal and most states’ laws recognize, authorize and enforce contractual agreements to substitute ADR for judicial litigation. Most courts favor ADR.

In most states, the principal role courts still play in the ADR process is forcing reluctant parties to honor their contractual agreement to participate in whichever ADR methods the contracting parties agreed to.  The other role for the courts is enforcing whatever decision the ADR process yields, such as an arbitration award.  These judicial powers ensure that ADR is strictly enforced.

None of the benefits of ADR can accrue for you or your company, however, unless you have the most effective possible “ADR Clause.” The ADR Clause is the specific provision in a contract that contains the parties’ agreement for ADR. Many contracts lack ADR clauses because contracting parties misunderstand or forget to consider potential ADR. A precise ADR clause will help you.

In Atkinson v. Rose, the parties agreed to run cannabis retail businesses together and included an ADR clause in their operating agreement. After working together for awhile, the parties ran into serious issues that kept them from working together.  After the parties had filed their case in court, Rose eventually decided he preferred at least some of this lawsuit to be arbitrated.

The Washington Court of Appeals found the parties’ agreement required no arbitration because the ADR clause explicitly applied only to a “deadlock,” which the agreement defined as failure to “reach an agreement” following “negotiations.”  The Court held that because Rose had acted unilaterally and “did not discuss or attempt to reach an agreement” – i.e., “did not engage in negotiations” — the ADR clause did not apply to this dispute.  The ADR clause became useless in this factual scenario. The full dispute was remanded back to the Kitsap County Superior Court.

How could these parties’ disputes have all been made subject to ADR? The Court instructed: the “Operating Agreement does not use broad language such as ‘any disputes’ … Where an arbitration provision uses broad language such as ‘any disputes’, all doubts must be resolved in favor of” ADR.  A clearer, more comprehensive ADR clause could have transformed this case, subsuming all the parties’ disputes in one private, quicker and far less expensive ADR process.