This post discusses the use of federal “illegality defense” in connection with third party subpoenas in litigation.
Let’s start with an illegality defense review.
Cannabis litigators, investors, and corporations who choose to file a lawsuit as a result of a business transaction are likely familiar with “unlawful defense”. A first question is choosing a forum for a cannabis dispute. The forum can be a federal court, a regional court, or arbitration if there is an agreement to settle disputes.
Filing in federal court is not an option (or at least not the best option) in most cases, as marijuana is a controlled substance under federal law. This means that a contract on marijuana can be declared null and void by a federal court on the grounds of public order, ie unenforceable, because the subject matter (marijuana) is illegal. My colleague Vince Sliwoski has summarized the federal illegality defense related to cannabis as follows:
The touchstone decision made here can be found in Mann v. Gullickson, 2016 WL 6473215 (ND Cal. Nov. 2, 2016). In this case, the court found that “[n]o The legal principle is better regulated than that that a party to an illegal contract cannot come to a court and demand the execution of his illegal objects … “(quoted Wong v. Tenneco, Inc., 39 Cal. 3d 126, 135) (1985) ). That makes sense, doesn’t it? For example, if Party A pays Party B to start a forest fire, but Party B pockets the money and skips town, no court would ask Party B to come back and start the fires. The contract would be null and void for reasons of public order.
As Vince notes, there is some “leeway,” and exactly what contracts and on what occasions a federal court can (or cannot) enforce a contract relating to marijuana is an evolving area of law.
The frequently invoked illegality defense is brought up by a defendant at the beginning of a legal dispute to request that federal judicial proceedings be dismissed. Defense is also available in state courts where marijuana is illegal. But the defense is usually not brought in state courts that have legalized marijuana under that state’s laws. State courts in California, Oregon, Washington hear marijuana-related disputes regularly, and the defense against illegality will not be successful. In fact, a California law specifically states that the defense is unavailable.
Third Party Summons
Let’s turn to the third-party subpoenas with this brief review. In many legal disputes, a party needs to collect relevant documents from people or organizations not involved in the lawsuit (third parties), and a party may want to dispose of a third party. This part of the discovery process is usually carried out by the court or the lawyer authorized according to the relevant regulations, who issues a subpoena to a third party that forces the production documents or the appearance on deposit. (Subpoenas are also used to compel court appearances to testify, but that is not discussed here). Failure to comply with a subpoena without sufficient reason can lead to further court orders and sanctions, including contempt of the court.
Failure to obey a summons is no small matter. The how, when and where of subpoenas is regulated by procedural rules. Each state has its own rules and the federal courts have the federal civil procedure code. The process for serving a subpoena on a non-party within the state or jurisdiction in which the dispute is taking place is straightforward.
Subpoenas are more complicated when the third party is in a different state or federal judicial district. (However, federal regulations were changed in 2013 to make this process much easier.) For example, if a party in Oregon wishes to submit a subpoena to a third party in another state, such as North Dakota, the subpoena must be in compliance with Oregon Rules and the North Dakota rules and procedures for serving a “foreign” subpoena. (The term “foreign” as used herein means any subpoena from a court or judicial authority outside of North Dakota.) In some states, a party seeking a “foreign” subpoena must formally file documents in order to commence a case before the court is requested to authorize the foreign subpoena to be served. Other states require the party to submit a “mutual legal assistance request” or to request a “commission” to serve the foreign subpoena. Although less formal than opening a case, they can be cumbersome in practice.
In general, courts allow subpoenas to be served outside of state without much ado, that is, without hearing or examining the underlying lawsuit. A third party who receives a subpoena can object to the subpoena and “cancel” the subpoena. A motion to set aside will ask the court to rule that the summoned party is not required to comply with some or all of the subpoenas. These requests usually argue that complying with the subpoena would create undue burdens or difficulties, or that the subpoena does not comply with applicable regulations.
Can a third party in a state where marijuana is a controlled substance use the illegality defense to overturn a subpoena from a state where marijuana is legal under the illegality defense?
As far as I know, the question is open. (If you know otherwise, please email me.) Let’s keep using Oregon and North Dakota as examples. For example, let’s say litigation filed in Oregon involves marijuana and the nature of the litigation is such that the illegality defense will be unquestionably applied in federal court. For example, let’s say a key third party witness is in North Dakota (where marijuana is not legal) and has no interest in working with either party. Therefore, the witness asks her lawyer to fight the subpoena. What are the chances of successfully lifting the summons with the help of the illegality defense?
A first question is where to submit the waiver request. In the example above, the motion for waiver must be submitted to the district court where the discovery is to be made. ND Civ. PR 5.1 (b). So that means that a judge in North Dakota and not a judge in Oregon will decide. North Dakota isn’t a state known for its marijuana friendliness.
Another question is whether the rules allow a non-party to bring the illegality defense in a motion for annulment. The Rules of Procedure do not specifically list the defense, but the Rules of Procedure allow a motion to be set aside on the grounds that the subpoena “places an unreasonable burden on a person”. If a person is forced to make a deposit in connection with an “illegal” contract, will an individual be exposed to undue burden? It is at least conceivable that a non-party should not be required to make statements in connection with an “illegal” contract.
The question probably revolves around principles of the interstate community. This basic principle is that states should respect and enforce the laws and judgments of other states and their state courts. The interstate community is a cornerstone of our constitutional system, and cooperation is manifested in intergovernmental pacts, reciprocity laws, unitary laws, and informal practices that stem from a significant number of common law decisions on the subject. Maybe the North Dakota court says, look, even though marijuana is not legal in that state, it’s in Oregon, ergo the non-party can’t push the argument that it is an undue burden to be deposed in connection with a contract that would not be enforceable in North Dakota. But maybe not. Perhaps the North Dakota court believes that while Comity matters, there is no obligation on the North Dakota court to approve and approve the use of its powers to compel a North Dakota resident to testify about a dispute that Unlawful defense under the laws of North Dakota and the federal level.
This can be an interesting topic for a legal review article … for any law student in our readership.