In This Issue This issue of NAMSDL Case Law Update presents summaries of several new cases related to marijuana, including a Tenth Circuit Court of Appeals case of Vasquez vs. Lewis involving a stop by two Kansas police officers of an individual with a Colorado license plate. Not included in this issue is the U.S. Supreme Court case of Birchfield vs. North Dakota regarding the legality of warrantless blood tests for individuals alleged to be driving under the influence. A full discussion of that case will appear in a forthcoming issue of NAMSDL News. Additionally, NAMSDL continues to follow cases mentioned in previous issues of NAMSDL Case Law Update. Awaiting Action Adams vs. Bute Alwin Lewis vs. Superior Court for the State of California and the Medical Board of California City of Chicago vs. Purdue Pharma, L.P., et al Daniel Maddox vs. City of Brandon, Mississippi, et al Gerlich vs. Leath Named Plaintiffs (29) vs. Tug Valley Pharmacy, et al People of the State of California vs. Purdue Pharma L.P., et al State of California vs. Lisa Tseng State of Colorado vs. Richard Kirk State of West Virginia vs. Cardinal Health State of West Virginia vs. McKesson Corporation United States vs. Moshe Mirilishvili United States vs. Robert Carl Sharp United States vs. Stephen J. Schneider and United States vs. Linda K. Schneider Resolved Since Last Issue Gerald M. vs. Department of Child Safety Menominee Indian Tribe of Wisconsin vs. D.E.A. and U.S. Department of Justice Sorenson vs. Professional Compounding Pharmacists of Western Pennsylvania, Inc., et al State of Arizona vs. Gear United States vs. Jeffrey Green and Karen Hebble United States vs. McFadden United States vs. Real Property and Improvements Located at 1840 Embarcadero, Oakland, California, et al United States vs. Real Property Located at 2106 Ringwood Avenue, San Jose, California CASES IN THIS ISSUE Cristina Barbuto vs. Advantage Sales and Marketing LLC, et al Eve Davis vs. Wal-Mart Stores East, L.P., et al Feinberg, et al vs. Commissioner of Internal Revenue Fourth Corner Credit Union vs. Federal Reserve Bank of Kansas City Fourth Corner Credit Union vs. National Credit Union Administration Green Earth Wellness Center vs. Atain Specialty Insurance Co. Josephine Hensley, et al vs. Attorney General and Another Justin L. Smith, et al vs. John W. Hickenlooper, Governor of the State of Colorado Matthew John Allen, et al vs. Attorney General and Another Olsen vs. Iowa Board of Pharmacy Oregon Prescription Drug Monitoring Program, et al vs. United States Drug Enforcement Administration Patients Mutual Assistance Collective Corporation d.b.a. Harborside Health Center v. C.I.R. Safe Streets Alliance, Phillis Windy Hope Reilly, and Michael P. Reilly vs. John W. Hickenlooper, Jr., Barbara J. Brohl, W. Lewis Koski, and Pueblo County Liquor & Marijuana Licensing Board, et al United States vs. John Ways, Jr. United States vs. Pickard, Scheweder, et al United States vs. Steve McIntosh, et al Vasquez vs. Lewis Wilson vs. Lynch, et al
Page 2 Cases Related to Prescription Monitoring Programs Eve Davis vs. Wal-Mart Stores East, L.P., et al, 4 th Circuit Court of Appeals, Case No. 16-1677. A full summary of this case can be found in previous issues of NAMSDL Case Law Update. As mentioned in the last issue of NAMSDL Case Law Update, the Plaintiff filed a Notice of Appeal to the U.S. Court of Appeals on June 14, 2016. On September 9, 2016, an Order was entered dismissing Defendant James V. Harney, Jr. from the case as the parties had reached an agreement regarding terms with that Defendant. The parties filed corrected Briefs with the court on September 12, 2016. Oregon Prescription Drug Monitoring Program, et al vs. United States Drug Enforcement Administration, 9th Circuit Court of Appeals, Case No. 14-35402. A full summary of this case can be found in previous issues of NAMSDL Case Law Update. On July 29, 2016, the ACLU filed a citation of supplemental authorities citing the Ninth Circuit Court of Appeals case of United States v. Kitzhaber, case number 15-35434, which it claims supports its argument that the use of an administrative subpoena by DEA agents to acquire certain records is an infringement on the Fourth Amendment rights of certain individuals as people have a reasonable expectation of privacy in their prescription records. The Kitzhaber case involved the use of a grand jury subpoena issued for copies of all of Governor Kitzhaber s emails, including emails from his personal account. The Ninth Circuit ruled that the subpoena was overbroad and Governor Kitzhaber had a reasonable expectation of privacy in his personal emails and quashed the subpoena. A Notice of Oral Argument was filed by the court on August 30, 2016 setting this case for oral argument on November 7, 2016. Marijuana and Medical Marijuana Related Cases Cristina Barbuto vs. Advantage Sales and Marketing, et al., Suffolk County, Massachusetts Superior Court, No. 1584CV02677. A more detailed summary of this case can be found in previous issues of NAMSDL Case Law Update. After the trial court dismissed five of the Plaintiff s six causes of action in May 2016, leaving only an invasion of privacy claim, the Plaintiff voluntarily dismissed the remaining portion of her case and filed a Notice of Appeal of the trial court s decision. Feinberg, et al vs. C.I.R, U.S. Tax Court (Denver, CO), Case No. 010083-13. As mentioned in the last issue of NAMSDL Case Law Update, in December 2015, the Tenth Circuit denied two taxpayers request to block the turnover of financial documentation to the IRS about their marijuana business and returned the dispute to the U.S. Tax Court. After informing the court for several months that the parties were engaged in settlement discussions, the IRS filed a motion for summary judgment on July 7, 2016. The Tax Court denied the motion on September 2, 2016, and ordered the parties to advise the court of the case s status by September 23, 2016. Fourth Corner Credit Union vs. Federal Reserve Bank of Kansas City, Tenth Circuit Court of Appeals Case No. 16-1016. A full summary of this case can be found in previous issues of NAMSDL Case Law Update. Since the last issue of NAMSDL Case Law Update, the Court of Appeals has allowed the filing of an amicus brief by the Board of Governors of the Federal Reserve System in support of the Defendant, Federal Reserve Bank of Kansas City and briefs have been filed by the Plaintiff and Defendant.
Page 3 Fourth Corner Credit Union vs. National Credit Union Administration, U.S. District Court for the District of Colorado, Case No. 1:15-cv-01634. A full summary of this case can be found in previous issues of NAMSDL Case Law Update. On July 5, 2016, the District Court entered an Order granting in part and denying in part the Defendant s Motion to Dismiss the Complaint on the grounds that the Plaintiff lacked standing to bring claims for declaratory relief, the court lacks jurisdiction, and the Plaintiff s due process claim lacks merit. The court dismissed the due process and declaratory relief claims but has allowed all other claims to proceed. Since the entry of that Order, the parties have filed a Joint Status Report setting September 28, 2016 as the date by which they must file a joint proposed briefing schedule. Green Earth Wellness Center vs. Atain Specialty Insurance Co., U.S. District Court for the District of Colorado, Case No. 13-CV-03452. A complete summary of the case can be found in previous issues of NAMSDL Case Law Update. The case involves the question of insurance coverage under a general property and liability policy for certain losses suffered by a marijuana business/growing facility. On July 29, 2016, the Plaintiffs advised the court that the parties settled the case, and the case was dismissed. Josephine Hensley, et al. v. Attorney General & Secretary of the Commonwealth, Massachusetts Supreme Judicial Court, Case No. SJC-12106. A more detailed summary of this case can be found in the June 2016 issue of NAMSDL Case Law Update. This case involved a challenge to Massachusetts Initiative Petition No. 15-27, The Regulation and Taxation of Marijuana Act (the Initiative ), which is now certified to be on the November 2016 ballot in Massachusetts. Josephine Henley and 58 other state voters ( Plaintiffs ) sought to decertify the Initiative on the basis of two alleged constitutional deficiencies: (1) a misleading 500-word summary prepared for voters by the Massachusetts Attorney General; and (2) the inclusion of unrelated subjects within one petition. Upon review, the Supreme Judicial Court of Massachusetts rejected the Plaintiffs second contention, holding that the Attorney General did not err in certifying the Initiative because the petition contained only related subjects. As for the first assertion, the court found the 500-word summary of the Initiative prepared by the Attorney General to be fair, but held that the title assigned to the petition and the one-sentence statement describing the effect of a yes vote were both misleading. Accordingly, the court crafted a revised title and one-sentence summary to be used in preparing voting materials. Justin L. Smith, et al vs. John W. Hickenlooper, Governor of the State of Colorado, Tenth Circuit Court of Appeals, Case No. 16-1095; Safe Streets Alliance, Phillis Windy Hope Reilly, and Michael P. Reilly vs. John W. Hickenlooper, Jr., Barbara J. Brohl, W. Lewis Koski, and Pueblo County Liquor & Marijuana Licensing Board, et al, Tenth Circuit Court of Appeals, Case No. 16-1048. A full summary of these cases can be found in previous issues of NAMSDL Case Law Update. Since the last issue, the parties have filed briefs in support of their respective positions, and briefs have been filed by the states of Nebraska and Oklahoma, although no ruling has been made on their Motion to Intervene at this time. Further, amicus curiae briefs have been filed by the states of Washington and Oregon and by four law professors in support of the Defendants. At this time, the parties are in the process of submitting reply briefs and supplemental authority. Matthew John Allen, et al. v. Attorney General & Secretary of the Commonwealth, Massachusetts Supreme Judicial Court, Case No. SJC-12117. A more detailed summary of this case can be found in the June 2016 issue of NAMSDL Case Law Update. This case also involved a challenge to the Massachusetts Initiative Petition No. 15-27, The
Page 4 Regulation and Taxation of Marijuana Act (the Initiative ), which is now certified to be on the November 2016 ballot in Massachusetts. Matthew Allen and 62 other voters ( Plaintiffs ), who are supporters of the Initiative, asserted that both the original short title and one-sentence summary of the Initiative drafted by the state Attorney General for dissemination to voters were misleading and designed to encourage votes against it. Upon review, the Supreme Judicial Court of Massachusetts agreed with Plaintiffs contentions. Accordingly, the court crafted a revised title and one-sentence summary to be used in preparing voting materials. Olsen vs. Iowa Board of Pharmacy, Court of Appeals of Iowa, May 11, 2016, 2016 WL 2745845. A more detailed summary of this case can be found in the June 2016 issue of NAMSDL Case Law Update. In 2014, Plaintiff sought judicial review of the Iowa Board of Pharmacy s decision not to recommend rescheduling marijuana after previously recommending it. The Iowa Court of Appeals affirmed the Board s decision in May 2016. Plaintiff appealed the decision to the Iowa Supreme Court under Case No. 16-1381. The parties appellate briefs have not been filed to date. Patients Mutual Assistance Collective Corporation d/b/a Harborside Health Center v. C.I.R., U.S. Tax Court (San Francisco, CA), Case Nos. 29212-11, 30851-12, 14776-14. Section 280E of the U.S. Tax Code disallows deductions for any trade or business which consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act). As a result, businesses involved in such operations may not deduct reasonable and necessary business expenses other than the cost of goods sold in calculating their taxable income. In recent years, the IRS has asserted that 280E prevents marijuana suppliers and dispensaries from taking such deductions, even in states which allow the medicinal or recreational use of marijuana. In the three consolidated cases listed above, the Plaintiff, one of the largest marijuana dispensaries in the United States, is disputing over $2.4 million in taxes that the IRS claims is owed due to its interpretation of 280E. (Plaintiff is the same entity that was subject to two property forfeiture actions in California that were dropped by the U.S. DOJ earlier this year, as reported in prior issues of the NAMSDL Case Law Update.) Plaintiff argues that 280E should apply only to businesses that operate illegally under state law and, thus, it should be allowed ordinary business deductions prior to determining tax liability. A trial of the consolidated cases began in San Francisco, CA in early June 2016. No decision has been issued by the Tax Court as of the date of this publication. United States vs. Pickard, Schweder, et al, U.S. District Court for the Eastern District of California, Case No. 11-CR- 00449. A more detailed summary of this case can be found in previous issues of the NAMSDL Case Law Update. Defendant Bryan Schweder ( Defendant ) and 15 others were indicted for being part of a marijuana growing operation. The case subsequently gained notoriety when the court held a week-long hearing in October 2014 concerning the constitutionality of the federal classification of marijuana as a Schedule I controlled substance. After the hearing, the court found the classification constitutional. Subsequently, all 16 defendants pled guilty to one or more of their charges prior to trial, with Defendant receiving the longest prison sentence of 13.5 years. In June 2016, Defendant appealed his conviction to the U.S. Court of Appeals for the Ninth Circuit, under Case No. 16-10272. Under the current case schedule, it will be early November 2016 before all appellate briefs are filed. United States v. Steve McIntosh, et al., U.S. Court of Appeals for the Ninth Circuit. August 16, 2016, --- F.3d ----, 2016 WL 4363168. In ten separate criminal actions, Defendants in California and Washington were indicted for conspiracy to manufacture, manufacturing, and possessing marijuana in violation of the Controlled Substances Act.
Page 5 In each case, the Defendant moved to dismiss the cases on grounds that the U.S. Department of Justice ( DOJ ) is prohibited from spending funds to prosecute them pursuant to the rider in 542 of the December 2014 Congressional Appropriations Act that provides that funds authorized by the legislation may not be used to prevent such States [including California and Washington] from implementing their own State laws that authorize the use, distribution, possession, or cultivation of medical marijuana. All motions were denied by the respective federal district courts, and the Defendants sought interlocutory review by the Ninth Circuit. After concluding that it had jurisdiction over the matter and the Defendants had standing to bring their claims, the Ninth Circuit reversed the District Court decisions. The court held that at a minimum, 542 prohibits DOJ from spending funds from relevant appropriations acts for the prosecution of individuals who engaged in conduct permitted by the State Medical Marijuana Laws and who fully complied with such laws. Accordingly, the Ninth Circuit remanded the matters back to the district courts to hold evidentiary hearings on each Defendant s strict compliance with applicable law concerning the use, distribution, possession, and cultivation of marijuana for medical purposes. In concluding, the Ninth Circuit noted that this was a temporal problem for the DOJ only, since it had funding to bring these prosecutions originally, then lost it (at least as to Defendants complying with state law), but could regain funding at any time if Congress so decided. Vasquez v. Lewis, U.S. Court of Appeals for the Tenth Circuit, August 23, 2016, Case No. 14-3278. Plaintiff filed suit against two Kansas police officers for violating his civil rights by detaining him and searching his vehicle without reasonable suspicion after stopping him for having an unreadable temporary license plate. The officers asserted, among other things, that the search was justified because Plaintiff was a citizen of Colorado, driving alone on Interstate 70 through Kansas in the middle of the night, and in a recently purchased, older-model car. At trial, the District Court granted the officers Motion for Summary Judgment, concluding that Plaintiff had not shown that they clearly violated established law, which would be necessary to overcome the officers qualified immunity from suit. On appeal, the Tenth Circuit reversed the decision and remanded the case back to the District Court for trial. The Tenth Circuit found the officers reliance on Plaintiff s Colorado citizenship, allegedly because it is known to be home to medical marijuana dispensaries, to be most troubling and unconvincing. Noting that half of U.S. states permit marijuana use for medical purposes and five jurisdictions permit some recreational use under the law, the Tenth Circuit found it wholly improper to assume that an individual is more likely to be engaged in criminal conduct because of his state of residence. Accordingly, the court continued, it is time to abandon the pretense that state citizenship is a permissible basis upon which to justify the detention and search of out-of-state motorists, and time to stop the practice of detention of motorists for nothing more than an out-of-state license plate. Wilson v. Lynch, et al., U.S. Court of Appeals for the Ninth Circuit, August 31, 2016, Case No. 14-15700. Plaintiff acquired a Nevada medical marijuana registry card and then sought to purchase a firearm. The firearms dealer, however, knew that Plaintiff had a registry card and refused to sell her a gun because of a September 2011 Open Letter from the Bureau of Alcohol, Tobacco, Firearms, and Explosives ( ATF ) to firearm dealers which stated, among other things, that if you are aware that the potential transferee is in possession of a card authorizing the possession and use of marijuana under State law, then you have reasonable cause to believe that the person is an unlawful user of a controlled substance. As such, you may not transfer firearms or ammunition to the person. Plaintiff sued the U.S. Attorney General and others challenging the federal statutes, regulations, and guidance that prevented her from buying a gun. The District Court dismissed the suit. On appeal, the Ninth Circuit affirmed the dismissal. Although the court noted that medical marijuana users may be less likely to commit violent crimes due to
Page 6 their illnesses, it found that such a hypothesis is not sufficient to overcome Congress s reasonable conclusion that the use of such drugs raises the risk of irrational or unpredictable behavior with which gun use should not be associated. Moreover, the court acknowledged that while the laws, regulations and Open Letter will sometimes burden albeit minimally and only incidentally the Second Amendment rights of individuals who are reasonably, but erroneously, suspected of being unlawful drug users, the U.S. Constitution tolerates these modest collateral burdens in various contexts, and does so here as well. Finally, the court rejected Plaintiff s contention that the Open Letter impermissibly makes a blanket assertion that any individual with a registry card is a marijuana user. The court found instead that the Letter simply clarifies that a firearms dealer has reasonable cause to believe an individual is an unlawful user if she holds a registry card, which is a permissible inference since a card is circumstantial evidence of recent marijuana use or possession. Novel Psychoactive Substances Cases United States v. John Ways, Jr., U.S. Court of Appeals for the Eighth Circuit, August 11, 2016, Case No. 15-1716. In August 2014, Defendant, John Ways, Jr., was found guilty by a jury in a federal case of four charges: conspiracy to sell drug paraphernalia, conspiracy to distribute controlled substances, conspiracy to commit money laundering, and being a felon in possession of ammunition. Defendant operated four head shops in Nebraska and Iowa called Exotica. On appeal, Defendant challenged the District Court's denial of a Motion to suppress evidence obtained through allegedly faulty search warrants, asserted that there was insufficient evidence to support his conviction on each charge, and argued that the forfeiture of his property was not supported by evidence. On appeal, the Eighth Circuit affirmed all convictions except for the charge of being a felon in possession of ammunition. With respect to the charge of conspiracy to distribute controlled substances, the court undertook an extensive analysis of the evidence brought at trial, keeping in mind that, under the U.S. Supreme Court s decision in McFadden, there must be evidence that the defendant either knew that the substance in question was a controlled substance, or that he knew the identity of the substance. According to the court, the fact that the Defendant spoke about his business openly to his probation officer, allowed the officer to visit one or more shops, and worked with an accountant and lawyer in an attempt to not violate the law, all tended to show that Defendant was not aware he was selling controlled substances. Nevertheless, the Eighth Circuit noted that there was substantial evidence to the contrary that did show such knowledge, including the descriptions used by sales people talking about the effects of the substances for sale, selling some substances in unmarked packages so that customers wouldn t know who to sue, and keeping misleading lab reports on hand to show if anyone asked about the chemical makeup of substances. Taking account of all the evidence, the Eighth Circuit found that there was sufficient evidence for a reasonable jury to conclude that Defendant knew he was selling illegal controlled substances. 2016 The National Alliance for Model State Drug Laws (NAMSDL). Headquarters Office: 100½ E. Main Street, Suite C, Manchester, IA 52057. This project was supported by Grant No. G1599ONDCP03A, awarded by the Office of National Drug Control Policy. Points of view or opinions in this documents are those of the author and do not necessarily represent the official position or policies of the Office of National Drug Control Policy or the United States Government. The successor to the President s Commission on Model State Drug Laws, NAMSDL is a 501(c)(3) non-profit corporation that was created in 1993. A non-partisan provider of legislative and policy services to local, state, and federal stakeholders, it is a resource for comprehensive and effective state drug and alcohol laws, policies, regulations and programs and is funded by the United States Congress.