SANTA ANA, Calif., March 09, 2023 (GLOBE NEWSWIRE) — Unrivaled Brands, Inc. (OTCQB: UNRV) (“Unrivaled,” “Unrivaled Brands,” or the “Company”), a cannabis company with retail and cultivation operations throughout California, entered into a binding term sheet to resolve outstanding litigation with People’s California, LLC (“People’s California”), subject to final documentation. Upon execution of the binding term sheet, the parties agreed to inform the court of the settlement and request a stay of all pending litigation.

Sabas Carrillo, Unrivaled’s Chief Executive Officer stated, “The People’s California team built an outstanding asset and made the People’s First Choice dispensary in Santa Ana, California one of the best cannabis retail experiences in the nation. This settlement is a testament to what can be achieved by bringing people together who are motivated to find workable solutions to challenging problems. Importantly, it unlocks our ability to complete the development of additional cannabis retail stores in Riverside, CA and Costa Mesa, CA. We are thrilled to put this months-long legal battle behind us.”

Robert Baca, Unrivaled’s Interim Chief Legal Officer, expressed gratitude, stating “By putting this dispute behind us, we can all move forward and focus on growing our respective businesses. This is another significant step in the restructuring of Unrivaled. With the completion of this settlement, our team of legal advisors continue to prove to be exceptional and we would not have gotten to an amicable result without their efforts. The hard work and reliable counsel of Roger Scott and his team at Buchalter, including Mark Cramer, Susan White, and Ali Montes, have been instrumental in navigating both the litigation and the settlement negotiation. The dedication of our securities counsel, including Randolf Katz at Clark Hill, Faith Charles, Naveen Pogula, and Ben Russell at Thompson Hine, has been remarkable. We are grateful for the unwavering support and commitment by so many folks that have contributed to achieving a positive result from challenging circumstances.”

About Unrivaled Brands

Unrivaled Brands is a company focused on the cannabis sector with operations in California. Unrivaled Brands operates four dispensaries and direct-to-consumer delivery, a cultivation facility, and several leading company-owned brands. Unrivaled Brands is home to Korova, known for its high potency products across multiple product categories, currently available in California, Oregon, Arizona, and Oklahoma.

For more info, please visit: https://unrivaledbrands.com.

Cautionary Language Concerning Forward-Looking Statements

Certain statements contained in this communication regarding matters that are not historical facts, are forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, known as the PSLRA. These include statements regarding management’s intentions, plans, beliefs, expectations, or forecasts for the future, and, therefore, you are cautioned not to place undue reliance on them. No forward-looking statement can be guaranteed, and actual results may differ materially from those projected. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise, except to the extent required by law. The Company uses words such as “anticipates,” “believes,” “plans,” “expects,” “projects,” “future,” “intends,” “may,” “will,” “should,” “could,” “estimates,” “predicts,” “potential,” “continue,” “guidance,” and similar expressions to identify these forward-looking statements that are intended to be covered by the safe-harbor provisions of the PSLRA. Such forward-looking statements are based on the Company’s expectations and involve risks and uncertainties; consequently, actual results may differ materially from those expressed or implied in the statements due to a number of factors.

New factors emerge from time-to-time and it is not possible for the Company to predict all such factors, nor can the Company assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. These risks, as well as other risks associated with the combination, will be more fully discussed in the Company’s reports with the SEC. Additional risks and uncertainties are identified and discussed in the “Risk Factors” section of the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other documents filed from time to time with the SEC. Forward-looking statements included in this release are based on information available to the Company as of the date of this release. The Company undertakes no obligation to update such forward-looking statements to reflect events or circumstances after the date of this release.

Contact:

Jason Assad
LR Advisors LLC.
jassad@unrivaledbrands.com
678-570-6791

This article was published by CFN Enterprises Inc. (OTCQB: CNFN), owner and operator of CFN Media, the industry’s leading agency and digital financial media network dedicated to the burgeoning CBD and legal cannabis industries. Call +1 (833) 420-CNFN for more information.

About Ryan Allway

Mr. Allway has over a decade of experience in the financial markets as both a private investor and financial journalist. He has been actively involved in the cannabis industry since its inception, covering public and private companies.

As usual, we’ve been monitoring both brewing and active trademark disputes in the cannabis space, and the most recent example involves the institution that is the Girl Scouts. For background, here are some of the other disputes we’ve covered in the past:

According to a recent article in Forbes, California cannabis-edibles company Kaneh Co. was promoting its cannabis-infused cookies as similar to several of the Girl Scouts’ cookie brands. According to the article, Kaneh was comparing its “Toasted Coconut Caramels (‘flecked with vanilla and sea salt’) to the Scouts’ Samoas; its Lemon Sugar Cookies to the Scouts’ Lemonades; and its Salted Toffee Blondies (‘a brown sugar blondie swirled with toffee chips and a generous dose of sea salt’) to the Scouts’ Toffee-tastic cookies.” All of these descriptions were included in an emailed advertisement for Kaneh’s goods, and a representative from Kaneh stated that the Girl Scouts comparison would not appear in any print or online advertisements.

The Girl Scouts, however, were not amused by Kaneh’s likening of its products to the Girls Scouts’ cookies, particularly given the connection to cannabis. A statement from the Girl Scouts said, “We consider … such use of our [cookie names] trademarks to be misappropriation, which we take seriously and, when applicable, [we] will send a cease and desist request.”

This is not the first time the Girl Scouts have gone to bat against a cannabis company, previously having clamped down on the use of the strain name “Girl Scout Cookies.” See: How an LA Weed Dispensary Pissed Off the Girl Scouts.

Quite frankly, it’s understandable that a youth organization would object to the use of its intellectual property in conjunction with a Schedule I controlled substance. But what is interesting about the Girl Scouts’ current beef with Kaneh’s use of its intellectual property (IP) is that the Girl Scouts representative didn’t argue that Kaneh was infringing the Girl Scouts’ trademarks (as was the case in the disputes we’ve covered in the past and linked to above). The representative instead asserted that such use of the Girl Scouts’ cookie names was “misappropriation,” and this is an important distinction.

As we’ve covered before, a trademark is a word, phrase, symbol, and/or design that identifies and distinguishes the source of the goods of one party from those of others. And trademark infringement is the “unauthorized use of a trademark or service mark on or in connection with goods and/or services in a manner that is likely to cause confusion, deception, or mistake about the source of the goods and/or services.” In the case at hand, the Girl Scouts would be hard pressed to show that Kaneh’s use of the names of its cookies (which are protected by trademark registrations), was likely to cause consumer confusion or mistake about the source of the goods, since Kaneh was only referencing the cookies in a comparative manner, to explain to customers what its cookies tasted like. In fact, this comparative manner of use would make it very clear to customers that Kaneh’s cookies were not Girl Scout cookies.

But are companies allowed to make these kinds of comparative statements? And what is “misappropriation” in the context of trademarks? The theory of misappropriation in a trademark context is tenuous, but there are three basic elements (J. THOMAS MCCARTHY, 2 MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION § 10.72 (4th ed. 2006)):

1. Plaintiff has made a substantial investment of time, effort and money into creating the thing misappropriated such that the court can characterize that “thing” as a kind of property right [the creation element].
2. Defendant had appropriated the “thing” at little or no cost, such that the court can characterize defendant’s action as “reaping where it has not sown” [the appropriation element].
3. Defendant has injured plaintiff by the misappropriation [the injury element].

The idea here would be that Kaneh was free-riding on the goodwill that the Girl Scouts have worked to establish over the years. But there are also “fair use” exceptions to trademark infringement, including for comparative advertising. It is unclear whether such comparative advertising principles would apply in this case, since traditional girl scout cookies fall within a completely different product category from cannabis-infused cookies. Still, this is something that all cannabis business owners should be mindful of. Use of another company’s trademark in comparative advertising may be allowed under certain circumstances, but businesses must be very careful to avoid advertisements that could be deemed false and misleading.

Even if you think that your use of another’s trademark does not constitute trademark infringement, or that your use falls within a fair use exception like comparative advertising, it is important to consider claims that could be made against you like misappropriation, or false and misleading advertising, and it is important to run these types of advertisements by your IP lawyer.

We’ve written a good amount on how ugly litigation will be. There’s federal illegality and the possibility that a court refuse to rule on a contract dispute because cannabis is federally illegal. Companies can be sued for false advertising and have all of their profits attributable to the false advertising disgorged by competitors. Allegedly false claims can also be the subject of class-action shareholder suits. If a company is engaged in ongoing wrongs, courts can literally order them to stop via injunctions, and if they do not, people could be held in contempt and go to jail. Courts can award punitive damages just to punish companies who do very wrong things like engage in fraud. The list goes on.

One thing that many cannabis companies may not even have on their radars is the damage that can arise through pleadings and during the discovery process in court litigation. Pleadings are the complaint and answers in any case. Plaintiffs file complaints and make allegations about defendants, and defendants answer those complaints and admit or deny the allegations. All of this is public unless companies are in arbitration or a court has ordered that it not be public (and good luck getting that order).

When it comes to the discovery process, during litigation, parties can make requests for the other parties to produce documents or information and can even force certain people to sit for hours under oath and testify (this is often videotaped and almost always transcribed for later use). Discovery is not necessarily public, but outside of arbitration and without “protective orders” signed off on from the court, the information learned in discovery often winds up in the public domain.

Cannabis companies should not overlook the importance of pleadings and discovery and their potential public nature. By now, everyone is familiar with this fact pattern: allegations are made against a public cannabis company, and overnight, its stock value plummets significantly. Even for non-public companies, having allegations of things like fraud, false advertisement, breach of contract, etc. out in the ether can be problematic when trying to raise funds and get licenses. Moreover, even if a cannabis company gets a case dismissed, the complaint is still public record without a court order sealing it, and again, that’s probably not going to happen.

What makes the risk of publicity all the more problematic is the potential for rule violations to come to light. Given the fact that all state-level cannabis regulations are murky and complicated, it is understandable that some companies may not have strictly complied with the rules. That may come out in discovery. What also may come out in discovery are the internal conversations about those rule violations. Imagine an email chain where the owners of a company talked about, acknowledged, and agreed to sweep under the rug a severe rule violation. That could be part of the record in litigation.

Also problematically, cannabis regulations require licensees to keep records of just about everything, and to keep them for years. Parties to litigation will have a hard time saying that records don’t exist, and if they truly don’t exist…. well, that’s another potential rule violation that could come out.

Litigation is almost always ugly and unpleasant for the parties. But in this industry, parties will have a lot of leverage over each other given the nature of cannabis regulations and the industry as a whole. In the first quarter of 2020, our cannabis attorneys have already seen a huge uptick in disputes, and we don’t expect it to relent anytime soon. Stay tuned to the Canna Law Blog for more on the wave of disputes that are about to hit.

Welcome to the final post in our litigation series on California cannabis claims. For our last post, we’ll be touching on California’s Unfair Competition Law.

Introduction

California’s “Unfair Competition Law,” also known as the Unfair Competition Act, Unfair Business Practices Act, or the Unfair Practices Act, is codified at Business & Professions Code § 17200, et seq. As its name suggests, it generally prohibits “any unlawful, unfair or fraudulent business act or practice.” If this seems a little ambiguous or vague, that’s exactly the point – it’s purposefully written in “sweeping language” to prevent “anything that can properly be called a business practice and that at the same time is forbidden by law.”

Statute of Limitations

An Unfair Competition Law (“UCL”) claim must be initiated within four years.

Elements of an Unfair Competition Claim

There are five elements to any UCL claim:

1. Proper Parties. Any person may sue or be sued under the UCL – that includes corporations, partnerships, associations, or other organizations of people.
2. Parties may sue only if, as a result of the unfair competition they claim, they have (1) suffered injury in fact, and (2) lost money or property. “Injury in fact” requires an actual, legally protected interest that is invaded in a concrete and particularized way. A plaintiff can also establish “lost money or property” in a number of ways other than straight economic loss, such as acquiring less in a transaction than a plaintiff otherwise would have or having a present or future interest diminished.
3. Enumerated violation of the UCL. There must be an unlawful, unfair, fraudulent business act or practice:
   • Unlawful: claims based on the “unlawful” prong of the UCL use other laws and assert that violation of those other laws is actionable under the UCL. The plaintiff must allege: (1) the specific violation, (2) that the unlawful conduct is a “business practice” of the defendant, and (3) as a result of this practice, the defendant received ill-gotten gains (like the plaintiff’s money and/or property).
   • Unfair: this is more nebulous, but the California Supreme Court has defined “unfair” as “conduct that threatens an incipient violation of an antitrust law … or otherwise significantly threatens or harms competition.”
   • Fraudulent: this is also somewhat nebulous, but a defendant violates the “fraudulent” prong of the UCL when it engages in conduct by which “members of the public are likely to be deceived” based on an objective, reasonable person standard.

4. There must be a causal link between the alleged unfair competition and the plaintiff’s injury.
5. And finally, the plaintiff must have sustained harm as a result of the defendant’s actions.

Remedies

Unlike most other claims, UCL claims do not provide for compensatory or punitive damages. Instead, UCL claims authorize the court to:

1. Order injunctive relief. The Court can issue an order enjoining (stopping) any business practice that is found to violate the UCL. Sometimes, the Court will seek to enforce this by also appointing a receiver.
2. Order restitution. The Court can order the defendant to “restore” the money or property that was acquired by the defendant’s violation. The point of restitution is to restore the status quo.

Conclusion

And that’s a wrap on our five-part series! If you’re interested in getting a quick rundown on the other popular California cannabis claims, those links are below. As always, if you have any questions on these or other claims potentially available to you, don’t hesitate to reach out to our Litigation Team.

Welcome back to our litigation series on California cannabis claims. Today, we’ll be discussing intentional interference or “tortious interference” – which may apply to your situation if you find that a third party is improperly interfering with you and your contractual relationships.

Introduction

This claim stems from California’s basic recognition that contractual relationships are worthy of protection from the acts of third parties. Therefore, any third party that intentionally seeks out to disrupt or otherwise interfere with an existing contractual relationship can be liable for the damage that results from interference.

Statute of Limitations

The statute of limitations on an intentional interference with contractual relations is two years. That clock starts ticking on the date of the third party’s wrongful act or, if unknown, no later than the date the contract is breached as a result of the tortious interference.

Elements of an Intentional Interference with Contractual Relations Claim

The elements of a cause of action for intentional interference with contractual relations are:

1. A valid contract: a valid agreement must exist between the plaintiff and a third party.
2. The defendant is not itself a party to the contract: this claim only applies to a third party that isn’t involved in your contractual relationship. Courts are somewhat vague about how distant that third party needs to be, but generally, the third party cannot be a party or an agent of a party to the contract. On the other end, the third party doesn’t have to be a total stranger either – it can have some kind of relationship to the contracting parties. This is a determination of facts made on a case by case basis.
3. The defendant has knowledge of the contract: pretty basic, but the third party has to know the contract exists. (This is because of the next element, intent.)
4. The defendant has intent to interfere with the contract: the third party’s acts must have been “designed” to induce a breach or other interference with the contract. Note: intent can be inferred if the third-party’s conduct was “substantially certain” to cause interference.
5. A breach or interference of the contractual relationship: there must be a breach of, or interference with, the contractual relationship between the parties. Even making either party’s ability to perform the terms of the contract more burdensome or costly will qualify – you don’t need to show that the third party’s action resulted in a total breach of the contract.
6. Causation: the plaintiff has to show that, but for the third party’s interference, the contract would have been performed.
7. Damages/harm: finally, the plaintiff has to show actual damages that resulted from the interference.

Remedies

Two types of damages are available here:

• Compensatory damages: the plaintiff can potentially recover all damages flowing from the third party’s interference, including expenses, lost profits, and prospective profits. Again, lost and future profits are only recoverable when “their nature and occurrence can be shown by evidence of reasonable reliability.”
• Punitive damages: if the plaintiff can show by clear and convincing evidence that the third party acted with “oppression, fraud or malice,” punitive damages are recoverable as well.

We’ll be wrapping up this series with our final claim, violation of California’s Unfair Practices Act, shortly! For previous posts in this series check out the following:

Last week, I presented oral argument to the Fifth District Court of Appeal in support of the people’s right of referendum. Long story short, the Kern County Board of Supervisors banned medical marijuana dispensaries in 2011, the people protested via referendum petition, and to this day the County has refused to comply with the legal mandate to submit the ban to voters before giving it effect. The County contends that they may reenact a protested ordinance after the passage of time; however, neither the California Constitution nor the Elections Code allow for such limitation on the people’s right to referendum.

The Court of Appeal granted our motion for calendar preference in light of the upcoming March election, at which the people and the Board of Supervisors have submitted competing ballot measures on medical marijuana for consideration by the voters.

Measure D is a people’s initiative measure, meaning it originated with the people, and will be submitted to a vote of the people. If and when the people adopt this measure (it would need to get more votes than Measure E), the Kern County Board of Supervisors will not have the ability to amend or repeal it. In other words, the Kern County electorate would gain control over the issue.

Enter Measure E. The County Board has demonstrated over the past decade that it is unwilling to relinquish control over the issue of medical marijuana, and has persistently interferes with the will of the voters. Upon the qualification of Measure D for the ballot, the County Board cooked up Measure E, which would give the Board full control over the issue. If the voters approve Measure E, the Board could amend or repeal it at any time in the future.

The Board’s agenda, as shown through its actions over the past decade, is to continue to ban medical cannabis in Kern County. The Board’s proposal of Measure E is yet another maneuver to silence the voices of the electorate and maintain control over the issue.

The initiative and referendum are powerful direct democratic tools reserved to Californians to use when their institutions are unresponsive. Measure D is the people’s way of taking control on this issue and giving power their voices. We believe the voters in Kern County are smart enough to see through the County’s intentions with Measure E, and expect it to be rejected in March.

A lawyer I know once told me that the primary motivation behind drafting a contract should not be making each party’s obligations clear or negotiating better terms, but instead should be ensuring that when there is litigation,  that party is in the best possible position to win. Having written and litigated numerous contracts, I could not agree more. There is so much that parties can miss if they are not looking forward towards inevitable disputes. But an even better way to put oneself in a terrible position in a dispute (and to cause more disputes) is to do handshake deals.

For those of you who aren’t lawyers, there are two main types of contract: written contracts and oral agreements (i.e., handshake deals). There can also be some kinds of implied contracts, but I won’t get into that here. Decades ago, people did not enter into written cannabis agreements for very obvious reasons. But from a modern lawyer’s point of view, there are almost zero circumstances in which parties should still enter into oral agreements. In fact, there are numerous reasons why parties should not do so, and I’ll flag some of the more important ones below. All in all, I would be suspect of anyone saying “you don’t need a contract for this deal”.

First, oral agreements are not enforceable in many circumstances. There is a very old legal doctrine called the “statute of frauds”, which all or nearly all states have adopted, and which lists certain kinds of contracts that are not enforceable unless in writing. In California, for example, the statute of frauds includes contracts that can’t be performed in a year (goodbye multi-year terms in handshake deals), leases with more than one year terms, contracts for the sale of real property or an interest in real property, etc. This can be a huge problem for people who have handshake deals who may learn too late that they have no recourse in the courts in a dispute.

Second, they will cost tons of time and money. One thing I’ve heard many times before is that it will be much more expensive to have a lawyer draft X type of contract than just to get started on work. What most non-lawyers don’t think about is how much the inevitable blow back will be if they use an oral agreement. Because the terms aren’t set out in writing, and because people generally have terrible memories, the likelihood of disputes over what the parties are actually supposed to do under a handshake deal are much, much higher. In some cases, disputes are virtually guaranteed.

To that point, if a party under a handshake deal has to sue the other party, the litigation will be much more complicated. In every kind of breach of contract suit, the party alleging breach has to prove the existence of a contract. It’s very easy to do if there is a written contract: generally, you just produce and properly authenticate the contract. If the deal is a handshake one, you will have to have people testify about (1) the fact that there was an agreement, and (2) what the terms were. And the other side is almost guaranteed to testify that the terms were different or that the contract was never made. Sure, parties can dispute the existence or validity of written contracts (someone could claim their signature was forged, for example), but the existence/validity of a contract is rarely at issue in those cases because you can look at and hold a written contract and evaluate such claims pretty easily.

Third, you don’t get to recover any attorneys’ fees! The general rule in the U.S. is that each party bears its own attorneys’ fees in litigation. In other words, you pay your lawyer for litigating your dispute, whether your win or lose. Some laws will force the losing party to pay the other party’s attorneys’ fees (for example, in some trade secret cases). But for straight breach of contract cases, the only way to get your fees paid back if you win, in most cases, is to have an attorneys’ fees provision in the contract. I have never once heard a party legitimately trying to claim that their handshake deal included an attorneys’ fees provision; in fact, that would be a guaranteed way to lose face in front of a court.

Fourth, and along the same lines, no arbitration. I just wrote a post about why arbitration is such a good idea for cannabis companies. The gist is that arbitration avoids going to federal court, where the court is much more likely to toss a case on the grounds that cannabis is federally illegal. Parties generally cannot be forced into arbitration unless they agree to it, either at the point of a dispute being initiated (the party who would benefit from getting the case thrown out would never do this), or in a written contract. Here too, I have never heard of someone arguing that there was an oral agreement to arbitrate.

Fifth, good luck complying with the regulations! Every state’s broad cannabis regulations touch virtually every part of a business’ operations. It is always good practice to address the things that the parties must do or cannot do to comply with the regs in a written contract. For example, if a contract would render parties owners or financial interest holders in a licensed cannabis business, it’s a good idea for the contract to obligate that party to make disclosures. Without it, the party could refuse to do so and jeopardize the other party’s license. If the parties enter into handshake deals, there is virtually no visibility into regulatory compliance. It’s probably not a good defense to an enforcement action that a contract wasn’t written and a licensee was confused as to how they should comply.

All of this is to say, oral contracts are a bad idea. Parties don’t need to have 80-page deals for every minor transaction, but getting something down in writing almost always helps. That said, I do plan to write a post in the near future about how it can be equally terrible to have a contract that is too short. There is a healthy balance when it comes to contract drafting, but the main point is that almost all problems inherent in oral contracts can be avoided, and in many cases very easily.

For more on this under-discussed but very important issue, check out the following:

Welcome back to our litigation series on California cannabis claims. Fraud is one of those claims that clients believe will be easy to pursue, but it actually requires a lot of factual development and proof, even just to assert it in a complaint.  Below is a primer.

Introduction

A fraud claim requires six elements: (1) a misrepresentation, (2) knowledge of that representation’s falsity, (3) an intent to induce reliance, (4) reliance, (5) causation, and (6) resulting damages. Even in a complaint, fraud must be pleaded specifically – a plaintiff must plead facts that show the how, when, where, to whom, and by what means the misrepresentations were made. This level of detail is not typically required of a plaintiff’s first filing, which is why we commonly see fraud claims challenged early via a demurrer, which is a defendant’s first chance to challenge a plaintiff’s claim as legally insufficient on its face.

Statute of Limitations

The statute of limitations for fraud is three years. The clock starts ticking when a plaintiff discovers the facts constituting the misrepresentation. So if you wait three years and a day after discovery of facts leading to a fraud claim, your claim will likely be barred.

Elements of a Breach of Fiduciary Duty Claim

1. The misrepresentation. While it’s clear a false representation would qualify, note that a failure to disclose facts or a promise made with no intent to perform also qualify as misrepresentations. Most opinions, puffery (“seller’s talk”), and statements about the future on the other hand, do not qualify. One really important thing to note: the failure to perform a promise is not enough to constitute a misrepresentation in itself. While we understand it’s completely frustrating, we often have clients ask to “throw in” a fraud claim because something they were promised doesn’t end up happening. We need more facts (for example, maybe evidence of the defendant’s behavior after making the promise) that tend to prove the defendant never intended to perform.
2. Knowledge of that representation’s falsity. Also known as “scienter,” the defendant must know that the statement is false or act with “reckless disregard” of its truth or falsity when making the representation.
3. Intent to induce reliance. The defendant must also intend to induce the plaintiff to act in reliance on the misrepresentation. This is different from an intent to deceive the plaintiff, or an intent to cause some particular harm. The standard is much lower.
4. Justifiable reliance. Logically, the next thing a plaintiff must prove is that he/she did, in fact, justifiably rely on the misrepresentation in taking some action. The misrepresentation doesn’t need to be the sole motivating factor. It doesn’t even need to be the predominant factor. As long as the plaintiff truly believed the representation and decided to do (or not do) something, this element is satisfied.
5. Causation. As with most tort claims, the plaintiff must demonstrate that the defendant’s fraud proximately caused the plaintiff’s damages.
6. Damages.  Finally, the plaintiff must prove his/her damages that were proximately caused by defendant’s fraud.

Remedies

Like I wrote above, fraud is hard to plead and prove. If done successfully though, it opens doors to more remedies than most causes of action because it’s considered a more egregious, malicious harm.

• Compensatory damages. Again, this remedy attempts to compensate the plaintiff for all his/her harm caused by the fraud. How this is measured depends on the relationship of the parties and the transaction itself. Perhaps most commonly, we see damages measured by the “out of pocket” rule – the plaintiff will receive the difference in value between what he/she gave to the defendant and what he/she received (in an attempt to restore the plaintiff to the position just before the fraud occurred). Sometimes, damages are measured by the “benefit of the bargain” rule – the plaintiff will receive the value of what he/she was promised.
• Punitive damages. If the plaintiff is able to show that the defendant is guilty of malice, oppression, or fraud, punitive damages are also awarded.
• Damages for physical harm or emotional distress. The contexts in which these types of damages are limited (for example, they’re not recoverable in property transactions) but these should also be considered in every case.
• Statutory damages. Similarly, there are limited situations in which a fraud claim also opens the door to additional remedies provided by statute. For example, if the defendant receives stolen property due to the fraud, Penal Code s. 496 also allows recovery of treble damages (tripling of your damages), costs of suit, and reasonable attorneys’ fees.

Hope this helps clarify this commonly sought claim! We also covered breach of contract here and breach of fiduciary duty here. As always, if there’s a specific claim you have questions about or would like to see covered, don’t hesitate to reach out!

Not long ago Hemp Industry Daily reported on a decision by U.S. District Judge Ursula Ungaro in the Southern District of Florida in which the Court stayed a putative class action lawsuit against a seller of CBD products until the FDA completes rulemaking regarding the marketing, including labelling, of hemp-derived ingestible products. The case is Snyder v. Green Roads of Florida, 0:19-cv-62342-UU.

We have tracked the growing number of lawsuits against companies selling CBD products:

We also regularly write about the need for companies to tread carefully in the marketing, labeling, and selling of CBD products in this uncertain regulatory environment:

So does the Snyder decision mean that companies selling CBD products may forge ahead and worry about the consequences later? The answer is a resounding “no” for three reasons. But before getting into that, a bit of background.

The Snyder plaintiffs allege Green Roads misrepresented the amount of CBD in its products

According to the complaint, Green Roads sells a number of CBD products including oil, gummies, capsules, topicals, syrups, tea and coffee. Snyder purchased a 250mg version of CBD oil and another plaintiff purchased a “Relax Box” containing gummies, tea, and oil. Both plaintiffs allege they relied on the product labels in making the decision to purchase and that the product labels misrepresented the amount of CBD that each product contained and that, as a result, each was over-charged for the products. (This is quite similar to the allegations in the JustCBD lawsuit). The plaintiffs seek to represent a class of all purchasers of all of Green Roads’ products within the applicable statute of limitations period. The complaint alleges two claims for relief: unjust enrichment and violation of the Florida Deceptive and Unfair Trade Practices Act (the “FDUPTA”).

Green Roads moved to dismiss the complaint for lack of standing, failure to state a claim for relief, and, in the alternative, to stay the lawsuit based on the primary jurisdiction doctrine. The Court granted portions of Green Roads’ motion and stayed the remainder of the lawsuit. The Court dismissed the lawsuit for lack of standing to the extent plaintiffs sought to maintain claims regarding products they did not purchase. This ruling limited plaintiffs’ lawsuit to the products they purchased. The Court denied Green Roads’ motion for failure to state a claim—so for the products plaintiffs did purchase, they can maintain the claims for unjust enrichment and violation of the FDUPTA.

The Court granted Green Roads’ motion to stay based on the primary jurisdiction doctrine. Generally, that doctrine applies where a plaintiff’s claims implicate a federal agency’s expertise with a regulated product. In finding the doctrine applicable, the Court noted that regulatory oversight of CBD ingestible products, including labeling, is currently the subject of rulemaking at the FDA and that the FDA is “under considerable pressure from Congress” to expedite the publication of regulations and policy guidance.

After weighing the factors applicable to primary jurisdiction analysis, the Court found that the plaintiffs would suffer little prejudice if the action was stayed and that guidance from the FDA would benefit the Court greatly. As the Court intimated: if Green Roads’ labeling practice were compliant with FDA standards, plaintiffs likely could not prevail on the FDUPTA claim; if not, plaintiffs chances of success are much improved. So the Court stayed the lawsuit pending the FDA issuing regulations, which regulations will have a huge, and perhaps decisive, affect on the merits of the lawsuit.

But the ruling should not be viewed as a great victory for CBD companies faced with consumer class action lawsuits.

The decision in Snyder is not binding on other federal or state courts

A decision issued by a federal district court is not binding on other courts (setting aside the controversy surrounding nationwide injunctions). This is constitutional law 101, but nonetheless critically important here. Although other courts may find Snyder persuasive, no other federal district court or state court is required to reach the same result in a similar case; unlike a decision by the U.S. Supreme Court or a decision by a federal Circuit Court of Appeals, which binds all federal district courts within the circuit. This means that the practical effect of the Snyder decision may be minimal; not all CBD lawsuits are automatically stayed because of this decision. On the other hand, a CBD company that finds itself defending a marketing-related lawsuit should examine whether it makes sense to ask the court to stay the litigation and may rely on Snyder for its persuasive value.

The decision in Snyder only pressed “pause” on the litigation

That the Court stayed the litigation is far from a victory for Green Roads. Once the FDA promulgates rules, it is full steam ahead on the plaintiffs’ claims for unjust enrichment and violation of the FDUPTA. The victory for Green Roads was that the Court limited plaintiffs’ claims to only those products they actually had purchased. Recall that the plaintiffs had sought to represent purchasers of all of Green Roads’ products, but the Court ruled plaintiffs do not have standing to assert claims (i.e. have suffered no injury) with respect to the marketing of products they did not purchase. This ruling dampens significantly the risk to Green Roads.

The rules and regulations that the FDA ultimately issues may not be favorable for the defendant

Ultimately, the issue for Green Roads is that the FDA issues rules and regulations which make it more likely to be found liable. Plaintiffs may end up in a better position without having to incur attorneys’ fees and other litigation costs. In that respect, this is not necessarily a bad decision for the plaintiffs. On the other hand, Green Roads may find itself off the hook. You can bet both sides are crossing their fingers.

As each state’s cannabis industry matures past the licensing and permitting phases, expect to see a huge uptick in internal and external issues with cannabis businesses: promising partnerships turn into bitter rivalries, companies go broke, permits and licenses get voided, etc. All of these issues need to be resolved, and many companies or their execs or owners will end up slugging it out in court. However, many, if not most cannabis disputes will be resolved behind closed doors and generally out of the public view, in private arbitration.

If you don’t know what arbitration is, check out my post here from back in 2018. For a cliff notes version, private arbitration is basically a trial before a private arbiter who is usually a former judge or lawyer. Arbitration can only happen if the parties agree to it, and that usually translates to disputes over a contract with an arbitration clause. If your contract doesn’t have one, chances are you’ll be stuck in the courts. In this post, I want to get into some of the pros and cons of arbitration.

The Good

The upside to arbitration, in my opinion, far outweighs the downside. Here are some of the reasons why cannabis arbitration can be such a benefit to the parties:

• The arbitrator can focus on your case. I have appeared in many courtrooms where the judges have hundreds of active cases. I once heard a judge say that she gets more than thirty motions to dismiss A WEEK. The bottom line is that these kinds of judges just cannot devote the same attention to each case that an arbitrator can.
• It is typically much faster than litigation, for the same reason as the last point.
• The rules of procedure and evidence are typically more relaxed than in a state or federal courtroom.
• Proceedings are usually confidential in nature. Even if the parties don’t agree in their arbitration agreement to keep the proceedings confidential, arbitrators don’t typically have publicly viewable dockets like courts do, so the whole proceeding will be much less publicly involved. This can provide obvious benefits to the cannabis industry.
• Arbitration keeps disputes out of the federal courts. One defense that lots of cannabis litigants may want to raise is that the court should not enforce a contract that deals in federally unlawful substances. While many courts have not gone along with this argument,  federal courts have recently indicated that this may be a valid defense in certain cases. While an arbitrator may reach the same conclusion, it is probably less likely to occur than in federal court.

The Bad

Though there are obvious benefits to arbitration, it’s not always good:

• Arbitration can be expensive. Unlike in the court system, the parties pay the costs of the arbitrator, which can be like paying a second lawyer. If multiple arbitrators are involved, or if there are a high amount of proceedings, the cost can be prohibitive for smaller parties.
• Proceedings are usually confidential in nature. While this is a benefit to some parties, one card that litigants often have up their sleeves is the fact that the proceedings shine a light on alleged misconduct. This leverage may not be available in a private arbitration proceeding.
• Arbitration may be final and binding and not allow appeal rights.

The Ugly

There are some aspects of arbitration that can be pretty bad if the parties don’t consider them up front:

• There can be lengthy court disputes over whether arbitration should even occur. Often times, one party to a contract with an arbitration clause may not want to arbitrate and may resist efforts to force them to arbitrate. I’ve personally been stuck in months’-long court battles over the simple issue of whether arbitration can occur. This is why it’s so critical to have strong and clear arbitration clauses in cannabis contracts.
• Arbitration can be expensive. I have seen cannabis contracts that call for panels of three arbitrators. For some larger disputes, this may make sense. But for small companies or small disputes, the arbitration fees can rack up very, very quickly with a panel of arbitrators and even surpass the value of the case.

In conclusion, the benefits of arbitration still outweigh the downsides in many cases. Even though it can be expensive, it may be a worthy cost for many cannabis companies. Stay tuned to the Canna Law Blog for more information on cannabis arbitration.