Horn, et al v. Medical Marijuana, Inc., et al

DECISION AND ORDER: Plaintiffs' motion to amend {{68}} is GRANTED IN PART and DENIED IN PART. Defendants' motions to strike [71, 74] are DENIED. Plaintiffs' motion for partial summary judgment {{60}} is DENIED. Defendants' motions fo r summary judgment {{61}} {{62}} are GRANTED IN PART and DENIED IN PART. As a result of these rulings, the only surviving claims are Douglas's claims for fraudulent inducement and civil RICO. All other claims against Defendants are dismissed. The C lerk of Court is directed to amend the name of Defendant "Dixie Elixirs and Edibles" to "Dixie Holdings, LLC a/k/a Dixie Elixirs." By separate order, the Court will schedule a status conference to hear from the parties on the progress of this action. SO ORDERED. Signed by Hon. Frank P. Geraci, Jr. on 4/17/2019. (MFM) -CLERK TO FOLLOW UP-

Western District of New York, nywd-1:2015-cv-00701

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9 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF NEW YORK DOUGLAS J. HORN, et al., Plaintiffs, Case # 15-CV-701-FPG v. DECISION AND ORDER MEDICAL MARIJUANA, INC., et al., Defendants. INTRODUCTION Plaintiffs Douglas J. Horn and Cindy Harp-Horn bring suit against Defendants Medical Marijuana, Inc. ("MMI"), Dixie Elixirs and Edibles ("Dixie LLC"), Red Dice Holdings, LLC ("RDH"), and Dixie Botanicals. 1 ECF No. 1. Plaintiffs allege that Defendants engaged in fraud, negligence, and unlawful conduct with respect to the sale and marketing of their hemp-based consumable oil—"Dixie X Dew Drops." Before the Court are six motions: (1) Plaintiffs' motion for partial summary judgment (ECF No. 60); (2) Defendants MMI and RDH's motion for summary judgment (ECF No. 61); (3) Defendant Dixie LLC's motion for summary judgment (ECF No. 62); (4) Plaintiffs' motion to amend (ECF No. 68); (5) Dixie LLC's motion to strike (ECF No. 71); and (6) Defendants MMI and RDH's motion to strike (ECF No. 74). The Court resolves all of these motions in this omnibus order. LEGAL STANDARD Summary judgment is appropriate when the record shows that there is "no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 1 In August 2016, the Clerk of Court filed an entry of default against Dixie Botanicals after it failed to appear. See ECF Nos. 22, 28. 1 9 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Disputes concerning material facts are genuine where the evidence is such that a reasonable jury could return a verdict for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In deciding whether genuine issues of material fact exist, the court construes all facts in a light most favorable to the non-moving party and draws all reasonable inferences in the non-moving party's favor. See Jeffreys v. City of New York, 426 F.3d 549, 553 (2d Cir. 2005). However, the non-moving party "may not rely on conclusory allegations or unsubstantiated speculation." F.D.I.C. v. Great Am. Ins. Co., 607 F.3d 288, 292 (2d Cir. 2010) (quotation omitted). BACKGROUND 2 This case concerns a product called CBD oil. CBD is short for "cannabidiol," and it is one of the "unique molecules" found in the Cannabis sativa plant. ECF No. 61-8 at 18. The Cannabis sativa plant is better known as the plant from which marijuana is derived. But it is also the species of plant from which industrial hemp is derived. The Eighth Circuit provides a helpful description: Both industrial hemp and the drug commonly known as marijuana derive from the plant designated Cannabis sativa L. In general, drug-use cannabis is produced from the flowers and leaves of certain strains of the plant, while industrial-use cannabis is typically produced from the stalks and seeds of other strains of the plant. All cannabis plants contain tetrahydrocannabinol (THC), the substance that gives marijuana its psychoactive properties, but strains of the plant grown for drug use contain a higher THC concentration than those typically grown for industrial use. Monson v. Drug Enforcement Admin., 589 F.3d 952, 955 (8th Cir. 2009) (emphasis added). In other words, the distinction is one of degree—while "the marijuana plant and industrial hemp plant come from the same botanical species," the "hemp plant has been crossbred to have low 2 Generally, when cross-motions for summary judgment are filed, the court "must consider each motion independently of the other and, when evaluating each, the court must consider the facts in the light most favorable to the non-moving party." Physicians Comm. for Responsible Medicine v. Leavitt, 331 F. Supp. 2d 204, 206 (S.D.N.Y. 2004). However, for purposes of describing the background of the case, the Court describes the facts as taken in the light most favorable to Plaintiffs, unless otherwise noted. 2 9 concentrations of THC." Shelly B. DeAdder, The Legal Status of Cannabidiol Oil and the Need for Congressional Action, 9 BIOPLR 68, 72 (2015). CBD can be extracted from both the marijuana and hemp varieties of Cannabis sativa. See id. at 72 & n.34. Products containing CBD have become hot commodities in recent years, and sales are "projected to grow tremendously." W. Michael Schuster & Jack Wroldsen, Entrepreneurship and Legal Uncertainty: Unexpected Federal Trademark Registrations for Marijuana Derivatives, 55 AMBLJ 117, 135 (2018). Advocates claim that CBD provides numerous health benefits, particularly in the area of pain management. See id. at 128-29; see also ECF No. 61-8 at 19. The product at issue here is a hemp-derived CBD oil called "Dixie X Dew Drops" (hereinafter "Dixie X"). Cindy Orser, Defendants' scientific expert, explains how these products are generally created. There is an initial "extraction step," where hemp is combined with a solvent like ethanol, butane, pressurized CO2, or propane. ECF No. 61-8 at 79-80. This process yields a CBD extract, which is then distilled to remove plant compounds, solvents, THC, and other materials. Id. at 83. The intended end-product is a pure CBD concentrate that can then be infused into a consumable final product. Like other CBD oil products, Dixie X contains CBD that is "isolate[d] and extract[ed]" from hemp plants. ECF No. 60-8 at 1; see also ECF No. 69-4 at 12-13. The resulting CBD is then "infuse[d] . . . into [a] line of hemp products." ECF No. 60-8 at 1. The label on Dixie X indicates that it contains "[p]ure glycerin, hemp whole plant extract, CBD extract derived from medicinal hemp, [and] cinnamon extract." ECF No. 60-15 at 1 (asterisk omitted). Importantly, despite the extraction and distillation process, Dixie X contains a detectible, albeit small, amount of THC. See, e.g., ECF No. 60-14. 3 9 All three defendants played a role in the sale of Dixie X. MMI and Dixie LLC entered into a joint venture to produce, distribute, and sell Dixie X. See ECF No. 69-2 at 1. They formed RDH for that purpose in April 2012. Id. MMI would hold a 60% ownership stake in RDH, while Dixie LLC would hold a 40% stake. See ECF No. 68-2 at 106. Tripp Keber, who was also Dixie LLC's managing member, would act as the manager of RDH. 3 Id. at 2. In practice, it appears that MMI provided financial support for the venture, Dixie LLC manufactured Dixie X, and RDH was responsible for selling the product. See ECF No. 61-1 ¶¶ 3-5. There is also a question of fact as to whether Keber acted as a director of MMI, though the exact dates of his tenure are unclear from the record. Compare ECF No. 61-11 ¶ 12, with ECF No. 68-2 at 79. In September 2012, Plaintiffs purchased a 500 mg bottle of Dixie X. They had researched the product from various sources, and they hoped it would relieve the pain and inflammation Douglas was then suffering from as a result of a motor vehicle accident. 4 Plaintiffs claimed to have relied on four sources in deciding to purchase Dixie X. Plaintiffs first learned about Dixie X in an issue of "High Times" magazine—a periodical dedicated to marijuana culture and news. In an article titled "High & Healthy" by Elise McDonough, there was the following writeup: CBD for Everyone! Using a proprietary extraction process and a strain of high-CBD hemp grown in a secret, foreign location, Colorado's Dixie Elixirs and Edibles now offers a new product line called Dixie X, which contains 0% THC and up to 500 mg of CBD. This new CBD-rich medicine will be available in several forms, including a tincture, a topical and in capsules. Promoted as "a revolution in medical hemp- powered wellness," the non-psychoactive products will first roll out in Colorado 3 "Tripp" appears to be the nickname of Vincent M. Keber, III. See ECF No. 69-2 at 2 (stating that "Vincent M. Keber, III" acted as manager of RDH); ECF No. 69-4 at 25 (stating that "Tripp Keber" is "President" of RDH). 4 For ease of reference, the Court refers to Plaintiffs by their first names. 4 9 MMCs (medical marijuana centers), with plans to quickly expand outside the medical marijuana market. "It has taken a tremendous amount of time, money and effort, but finally patients here in Colorado—and ultimately all individuals who are interested in utilizing CBD for medicinal benefit—will be able to have access to it," says Tripp Keber, Dixie's managing director. "We are importing industrial hemp from outside the US using an FDA import license—it's below federal guidelines for THC, which is 0.3%—and we are taking that hemp and extracting the CBD. We have meticulously reviewed state and federal statutes, and we do not believe that we're operating in conflict with any federal law as it's related to the Dixie X [hemp-derived] products." ECF No. 61-7 at 42. After reviewing the article, Plaintiffs decided to conduct further research. They watched two YouTube videos of interviews between podcasters and a person who identifies himself as Tripp Keber (the "YouTube interviews"). 5 In these videos, Keber stated that Dixie X did not contain THC. 6 Plaintiffs also reviewed an FAQ on the Dixie X website, which provided further information on the product: Is CBD from hemp legal? Our revolutionary Hemp oil cannabidiol (CBD) wellness products are legal to consume both here in the U.S. and in many countries abroad. The United States currently considers industrial hemp products to be legal as long as they are derived from industrial hemp and not from any part of the plants categorized. . . as marijuana. Dixie x's parent company Medical Marijuana, Inc., is a publicly traded company. . . that does not grow, sell or distribute any substances that violate United States Law or the controlled substance act. . . . . What is the difference between CBD from hemp and CBD from medical cannabis? 5 Plaintiffs cite a third YouTube video in their materials, but it appears that this video was posted on YouTube after Plaintiffs purchased Dixie X. See ECF No. 60-1 ¶ 7(c). The Court therefore disregards that video. 6 Plaintiffs failed to identify with specificity the times at which Keber made the relevant statements in the YouTube videos. The Court did not exhaustively review the YouTube videos, but only reviewed them in part to verify that Keber made the alleged statements. Cf. Fed. R. Civ. P. 56(c)(1)(A) (requiring a party to cite "particular parts of materials in the record" when supporting factual positions). 5 9 While the two plants are botanically related, our hemp contains no THC. . . . Medical cannabis contains THC and may provide relief from various ailments, however, with a psychotropic effect. ECF No. 60-8 at 1-2. Finally, Cindy called a "1-800" number associated with Dixie X and spoke to a customer service representative. ECF No. 61-6 at 88-89. The representative confirmed that Dixie X contained "zero percent THC." Id. at 91. After reviewing all of this information, Plaintiffs decided to purchase Dixie X. On September 17, 2012, Cindy ordered a 500mg tincture of Dixie X through the Dixie X website and had it delivered to Plaintiffs' home in Lockwood, NY. Shortly thereafter, Douglas consumed the product. In October 2012, as part of its normal practice, Douglas's employer, Enterprise Trucking, required that he submit to a random drug test. A few days after the drug test, Enterprise notified Douglas that he had tested positive for THC. At 29 ng/mL, Douglas's sample contained almost double the "cutoff" concentration of THC. Enterprise thereafter terminated Douglas's employment. Cindy, who worked with Douglas at Enterprise Trucking, resigned from the company because she believed it would be unsafe to work alone. Soon thereafter, Plaintiffs purchased a second bottle of Dixie X to determine whether it had caused the positive test result. They sent the bottle to EMSL Analytical, Inc., for testing. Testing confirmed that Dixie X contained THC. In August 2015, Plaintiffs brought this action, alleging that Dixie X caused Douglas's positive drug test and thereby caused him to lose his employment