[00:00:00] Speaker 02:
Before taking up the cases today, let me just make one housekeeping announcement after the

[00:00:06] Speaker 02:
Third case of the morning, 23-1213, estate of Alir versus Guajira.

[00:00:16] Speaker 02:
After that case, we will be taking about a 10-minute break.

[00:00:20] Speaker 02:
With that said, we're ready to hear.

[00:00:24] Speaker 02:
I'm sorry, I apologize.

[00:00:26] Speaker 02:
After 23-3074.

[00:00:30] Speaker 02:
We versus state of Kansas after that case will be taking a 10-minute break.

[00:00:35] Speaker 02:
Apologize for that.

[00:00:37] Speaker 02:
Now we're ready to hear the first case of the morning.

[00:00:39] Speaker 02:
Please.

[00:00:42] Speaker 01:
And don't count this against her time, please.

[00:00:45] Speaker 01:
But as you argue, whichever case that you're arguing, whether it's 12-11 or 10-49, would you please be sure and tell me which case that this argument is going to so that I can follow

[00:01:01] Speaker 00:
Yes, Your Honor.

[00:01:01] Speaker 01:
Thank you.

[00:01:08] Speaker 05:
May it please the court.

[00:01:10] Speaker 05:
My name is Caitlin McHugh, and I represent Defendants Mackie Burch and Trellis Holdings Maryland Pink.

[00:01:16] Speaker 05:
This case is about a federal court's power to reward damages based on ownership in a company that is illegal under federal law.

[00:01:25] Speaker 05:
This question is central to both appeals.

[00:01:27] Speaker 05:
Regarding the 2024 appeal, this court should vacate the judgment as void under Rule 60B4 because the district court lacks subject matter jurisdiction.

[00:01:38] Speaker 05:
Regarding the 2023 appeal, this court should reverse the Rule 69G turnover order because the district court lacks subject matter jurisdiction to enter the order.

[00:01:49] Speaker 05:
I'd like to discuss three points today, starting with the second appeal, the 2024 appeal.

[00:01:55] Speaker 05:
First, why the district court lacks subject matter jurisdiction to award money damages.

[00:01:59] Speaker 05:
And second, why the argument basis test should not be applied to challenges of constitutional standing under Rule 60E4.

[00:02:06] Speaker 05:
And then I would like to turn to the 2023 appeal and discuss why the district court lacked jurisdiction to enter the Rule 69G turnover order.

[00:02:18] Speaker 05:
First, subject matter jurisdiction.

[00:02:19] Speaker 05:
The district court lacked subject matter jurisdiction because it could not provide relief where the only remedy sought by plaintiff was to share in the financial gain of cultist cultivation and distribution of marijuana.

[00:02:32] Speaker 05:
The district court improperly vindicated an unlawful ownership interest by awarding damages that could only be derived based on future profits in selling marijuana.

[00:02:42] Speaker 05:
A necessary component of standing is that the injury is redressable.

[00:02:47] Speaker 05:
And an injury is only redressable if the court has the power to order such relief.

[00:02:52] Speaker 05:
Kaiser Steele talks about these ideas in very mandatory terms.

[00:02:57] Speaker 02:
Let me be clear on one point.

[00:02:58] Speaker 02:
At least I heard you say, and correct me if I'm wrong, that the only way that the damages can be

[00:03:05] Speaker 02:
gained as to the sale of marijuana.

[00:03:08] Speaker 02:
Why is that so?

[00:03:09] Speaker 02:
I mean, the district court entered a money judgment for damages of a certain amount of money, $6 million some amount of that sort, and said, pay it.

[00:03:20] Speaker 02:
I mean, if your client was situated to get the money and pay it some other way, they could pay it.

[00:03:26] Speaker 02:
I mean, is that not correct?

[00:03:28] Speaker 05:
That is correct, Your Honor, but my point is slightly different, is that while the judgment could be satisfied with any monies that is fungible, the basis for the judgment could only come as a result of the sale of marijuana.

[00:03:42] Speaker 05:
In this case, the only injury complained of was a lack of ownership, deprivation of an ownership right in a marijuana company.

[00:03:50] Speaker 05:
and under the 10th Circuit Baca case, there must be a substantial nexus between the injury complainant and the relief granted.

[00:03:57] Speaker 01:
So if you are different... Well, Council, now let me ask you this.

[00:04:01] Speaker 01:
In regards to that, in the complaint that was filed, I think, there were eight or nine different causes of action, one of which was just simply breach of contract, which is what the district court granted its verdict on, was a breach of contract,

[00:04:18] Speaker 01:
for money damages of six million plus dollars.

[00:04:23] Speaker 01:
That hadn't got anything to do with the marijuana or anything like that.

[00:04:28] Speaker 05:
I respectfully disagree, Your Honor.

[00:04:30] Speaker 01:
Well, I didn't expect you not to.

[00:04:33] Speaker 05:
The contract at issue was whether he owned an interest in marijuana.

[00:04:37] Speaker 05:
And because you have to have a substantial nexus between the injury and the relief, what the district court was looking to do in vindicating that contract interest was saying, yes,

[00:04:46] Speaker 05:
we will award money damages based on your ownership in a marijuana company.

[00:04:52] Speaker 02:
Is that a way of saying that you contend that the contract is illegal?

[00:04:57] Speaker 05:
The contract is illegal and the remedy sought is illegal.

[00:05:00] Speaker 02:
And you did not argue that the contract was illegal on appeal in the other appeal where you should have made that argument.

[00:05:07] Speaker 02:
And so why isn't that waived?

[00:05:09] Speaker 02:
I mean, how can you make that argument now, particularly in the context of a collateral attack under 60B4?

[00:05:15] Speaker 02:
Why can you make that argument?

[00:05:17] Speaker 05:
Your Honor, first, this is not a collateral attack.

[00:05:20] Speaker 05:
It is a 60B4 is considered a direct attack under the Gladhill case.

[00:05:24] Speaker 02:
It is not a direct appeal.

[00:05:26] Speaker 02:
And therefore, it is after judgment.

[00:05:29] Speaker 02:
And so let's go with that.

[00:05:31] Speaker 02:
How can you make an argument of that sort after judgment?

[00:05:36] Speaker 02:
when you did not make that argument prior to the judgment being entered?

[00:05:41] Speaker 05:
Because this type of illegality is a subspecies of illegality where vindicating the contract would require the court to actually order illegal conduct.

[00:05:51] Speaker 05:
And the standing is so important within our constitutional system.

[00:05:55] Speaker 05:
that it can be raised directly at any time.

[00:05:59] Speaker 02:
OK, let's break that apart, because those are two different things.

[00:06:02] Speaker 02:
I mean, one is the question of whether there is some act of ordering.

[00:06:08] Speaker 02:
By virtue of what the district court does, affording a remedy, it is requiring the exercise of legal conduct that that take place.

[00:06:17] Speaker 02:
That's one thing.

[00:06:18] Speaker 02:
The other question is whether the underlying contract itself

[00:06:22] Speaker 02:
is illegal.

[00:06:23] Speaker 02:
And I heard you to be talking about that initially, were you not?

[00:06:28] Speaker 05:
I'm talking about both your arguments.

[00:06:30] Speaker 02:
Okay, well, let me take the one about the contract being illegal.

[00:06:33] Speaker 02:
And the point I'm making is you've waived that argument.

[00:06:37] Speaker 02:
I mean, we're talking about whether the remedy is going to be a violation of the Controlled Substances Act.

[00:06:43] Speaker 02:
Other than that, in the context of this 60B4 action, what authority do you have that would allow you

[00:06:52] Speaker 02:
to raise this argument, which essentially is saying the contract is illegal now, this shouldn't be the basis for it.

[00:07:00] Speaker 02:
Well, you had a chance to make that argument.

[00:07:02] Speaker 02:
You didn't make that argument.

[00:07:04] Speaker 05:
Your Honor, I believe it can be raised because the illegality of the contract goes to whether the court can enter the relief under Kaiser Steel and if it is a remedy that the court does not have the power to order.

[00:07:16] Speaker 02:
That's the point I'm making.

[00:07:18] Speaker 02:
That's a conflation of two different issues.

[00:07:21] Speaker 02:
The one issue is, is the contract illegal?

[00:07:24] Speaker 02:
The other is, by virtue of the remedy that the court chooses to exercise, be it, you know, in this instance, it's a question of simply, you have the turnover order in the other case, or just the entry of damages.

[00:07:36] Speaker 02:
Well, let's assume for the moment,

[00:07:40] Speaker 02:
that you've weighed the issue of the contract's illegality.

[00:07:43] Speaker 02:
Aren't you really just stuck with the question of whether the award of damages for an assumed legal contract is somehow or other a flawed matter, jurisdictionally?

[00:07:57] Speaker 05:
Yes, Your Honor, I would agree that it does have, it cannot just be the illegality of the contract.

[00:08:02] Speaker 05:
It has to go to whether the court have the power to enter the remedy.

[00:08:06] Speaker 02:
Okay, then let's then just go with my assumption for one second.

[00:08:09] Speaker 02:
I know you're not conceding anything.

[00:08:11] Speaker 02:
Just go with that assumption.

[00:08:12] Speaker 02:
If you, if for whatever reason, we cannot challenge the illegality of the contract, what is it that's going on here that would render the judgment void?

[00:08:23] Speaker 05:
is because the court is vindicating an interest in a cannabis company, which is contrary to the CSA, contrary to the Controlled Substances Act.

[00:08:34] Speaker 05:
And under several cases, district court cases, including the Sensoria case, those courts have consistently held that a court cannot vindicate an interest in a marijuana company.

[00:08:47] Speaker 04:
Counsel, I think that circles back to the first question.

[00:08:51] Speaker 04:
You were asked this morning, the court ordered $6.4 million in damages.

[00:09:00] Speaker 04:
It didn't order divestment of an interest.

[00:09:02] Speaker 04:
It ordered a general order about damages.

[00:09:06] Speaker 04:
Why couldn't the defendant satisfy that damage award through something independent of the business?

[00:09:15] Speaker 04:
In other words, if they had other assets, they could sell a house, they could sell a car, borrow the money.

[00:09:23] Speaker 04:
What makes it tied

[00:09:25] Speaker 04:
to the business at that point in time.

[00:09:27] Speaker 05:
I'm not talking about the next case, I'm just talking about this one.

[00:09:43] Speaker 05:
And here what the court did is it looked at what the value of Colta, the marijuana company, is.

[00:09:48] Speaker 05:
And so for Colta to have any value at all, it required the court to assume that it is going to consider selling marijuana.

[00:09:56] Speaker 04:
Well, counsel, assuming that your client did have assets independent of your business and could satisfy the award, where's the violation of the Controlled Substances Act?

[00:10:10] Speaker 04:
He writes out a check for 6.4 because he has a mansion somewhere, a yacht somewhere that he could sell and satisfy the award.

[00:10:20] Speaker 04:
Where's the violation of the Controlled Substances Act?

[00:10:23] Speaker 05:
It's, again, vindication of an ownership interest.

[00:10:26] Speaker 05:
In the Inri Malal case, the bankruptcy court there discussed

[00:10:31] Speaker 05:
that not only is it contrary to the CSA to own a marijuana company, but also to sell an interest in it or to use any monies from that interest.

[00:10:43] Speaker 04:
Could I just, before we leave this, I have a slightly different question.

[00:10:48] Speaker 04:
In connection with the 60B4 motion, you argue that subject matter jurisdiction can be raised at any time.

[00:10:57] Speaker 04:
Of course, it was five years before

[00:11:01] Speaker 04:
It was raised.

[00:11:03] Speaker 04:
There was no appeal from the original judgment.

[00:11:06] Speaker 04:
So why isn't the no arguable jurisdiction test from a case like Espinosa the applicable test here?

[00:11:18] Speaker 05:
Yes, Your Honor.

[00:11:19] Speaker 05:
The no arguable basis test within the 10th Circuit

[00:11:22] Speaker 05:
has only been applied, aside from one unpublished case, in circumstances where the lack of subject matter jurisdiction came from interpretation of a statutory grant of subject matter jurisdiction.

[00:11:35] Speaker 05:
So that within the subject matter jurisdiction system, the first level for a lower court to have any power is it must be a case of controversy.

[00:11:44] Speaker 05:
And that is determined by standing.

[00:11:46] Speaker 05:
And only once you have standing can you build upon that second layer, the statutory grant of subject matter jurisdiction.

[00:11:54] Speaker 05:
And those two are different because the constitutional piece is immutable.

[00:11:58] Speaker 05:
It's not changing.

[00:11:59] Speaker 05:
It's a fundamental basis of our system that ensures separation of powers.

[00:12:04] Speaker 05:
Whereas at the second level, when the courts come in, excuse me, Congress comes in and gets a statutory grant of power, that changes over time.

[00:12:12] Speaker 05:
an arguable basis is necessary to ensure that subsequent changes in authority or changes in the law would not cause the... Espinosa said that Espinosa was 10th Circuit, was it?

[00:12:23] Speaker 05:
No, but Espinosa also found that it was not a case where the U.S.

[00:12:28] Speaker 05:
Supreme Court would determine the bounds of when 60 before could be raised.

[00:12:32] Speaker 05:
In fact, it says that this is not a case where we get to this issue.

[00:12:36] Speaker 05:
And it also relied on a second circuit case

[00:12:39] Speaker 05:
whose basis relies primarily on issues of res judicata, whereas in this circuit, res judicata is inapplicable to 60B4.

[00:12:48] Speaker 04:
I'm interested in how far this could go.

[00:12:51] Speaker 04:
What if you'd waited 20 years to file the 60B4 motion?

[00:12:56] Speaker 04:
Could you still make the same arguments?

[00:12:58] Speaker 05:
If you identified that there was a lack of subject matter jurisdiction based on the constitutional infirmity, I believe that you could.

[00:13:08] Speaker 05:
But I think those circumstances would also be exceedingly rare.

[00:13:11] Speaker 05:
This has come up one time in the 23 years since Gushwin was decided.

[00:13:16] Speaker 05:
I would like to turn now to the second appeal quickly and talk about that the arguable basis would not, standard would not apply to that case because it was timely appeals.

[00:13:28] Speaker 05:
And TransUnion states that any time there's a remedy,

[00:13:31] Speaker 05:
or excuse me, for each different remitting, you must separately analyze standing.

[00:13:36] Speaker 05:
Here it was ordering, the court was ordering Mr. Barch to divest an ownership in an illegal company and under Henry Malau that would be illegal.

[00:13:46] Speaker 01:
Well, counsel, that presupposes though that your contract argument fails.

[00:13:52] Speaker 01:
In other words, the adjudication of the $6.1 million, that judgment stands because your second appeal is saying,

[00:14:00] Speaker 01:
What we're saying now in order to collect the $6.2 or $6.4 million, what the trial court did in aid of execution was actually ordering a violation of the

[00:14:18] Speaker 01:
whatever it is in recovery.

[00:14:22] Speaker 01:
You follow what I'm saying?

[00:14:23] Speaker 01:
So that's a different argument.

[00:14:26] Speaker 01:
You have to give up on the first argument to argue that in aid of execution, the trial court in the second case could not order what he did because that would be ordering a violation of the

[00:14:40] Speaker 01:
the felony laws of this country.

[00:14:43] Speaker 05:
Yes, Your Honor.

[00:14:44] Speaker 05:
I believe if we were to prevail in the 60B4 motion, it would vacate all judgments because there wouldn't be a judgment.

[00:14:50] Speaker 05:
But if the court disagrees and upholds the district court on the 60B4 judgment, we could still prevail on the 2023 appeal because the court did not have standing to issue that order.

[00:15:04] Speaker 01:
Well, I'd like to hear you go in depth a little more about why

[00:15:09] Speaker 01:
That constitutes a violation of the laws.

[00:15:13] Speaker 01:
What authority do you have?

[00:15:15] Speaker 05:
That would be the Inri Malal case and in that case the court held it was illegal for a marijuana company to incorporate, to solicit investments and to sell securities and co-contaminantly it was illegal for the person who has the securities to do anything with them.

[00:15:32] Speaker 05:
I believe that that would be a violation according to that court of section 854 of the CSA.

[00:15:37] Speaker 05:
It would also be 856

[00:15:39] Speaker 05:
and 18 USC 2.

[00:15:41] Speaker 05:
Additionally, I believe it would violate RICO and money laundering acts under 1956 and 1957.

[00:15:48] Speaker 05:
I can reserve for my last 15 seconds.

[00:15:51] Speaker 02:
You can just take another minute and I'll give the other side another minute if you want it.

[00:15:57] Speaker 05:
Sure.

[00:15:59] Speaker 02:
You can either go now or take it in rebuttal.

[00:16:00] Speaker 05:
I want to take it in rebuttal, please.

[00:16:02] Speaker 05:
All right.

[00:16:03] Speaker 05:
Thank you.

[00:16:06] Speaker 01:
Counsel, I'll be sure and ask you to do the same thing, identify which one of the two number cases we're talking about as we discuss our end.

[00:16:14] Speaker 03:
Yes, your honor.

[00:16:15] Speaker 01:
Thank you.

[00:16:16] Speaker 03:
Good morning to Judge Holmes.

[00:16:17] Speaker 03:
May it please the court?

[00:16:19] Speaker 03:
I'm going to start with 1049, the second appeal, which is really where most of the discussion took place.

[00:16:25] Speaker 03:
Most of what you heard from my friend Ms.

[00:16:27] Speaker 03:
McHugh was simply an argument of an affirmative defense of illegality that was never raised

[00:16:36] Speaker 03:
that is waived, that is nothing to do with jurisdiction.

[00:16:41] Speaker 03:
Ms.

[00:16:43] Speaker 03:
McHugh cites Kaiser v. Mullins, which was a case that they discussed a lot in the district court, didn't even put in these briefs, now have resurrected.

[00:16:57] Speaker 03:
That's a case that talks about illegality, antitrust illegality in that case, but it's not a standing case.

[00:17:04] Speaker 03:
It's not a jurisdictional case at all.

[00:17:06] Speaker 03:
Sensoria, which they rely on to say that courts may not adjudicate issues like this, contracts like this involving the CSA, the court exercised

[00:17:23] Speaker 03:
adjudicated the merits of the case.

[00:17:26] Speaker 03:
Dismissed some claims on 12b6.

[00:17:30] Speaker 03:
In Miser v. Bush, I believe it was Chief Judge Holmes, noted that a 12b6 decision is an adjudication on the merits.

[00:17:39] Speaker 03:
So there is no jurisdictional issue here, even if there were.

[00:17:45] Speaker 03:
What we're talking about under Rule 60 before is voidness.

[00:17:51] Speaker 03:
And the Supreme Court has told us

[00:17:53] Speaker 03:
for 199 years, that the mere erroneous exercise of jurisdiction does not equal void.

[00:18:04] Speaker 03:
So in Espinoza, the Supreme Court logically said that a void judgment is a judgment that is a legal nullity.

[00:18:16] Speaker 03:
Going back to 1825, McCormick v. Sullivan,

[00:18:22] Speaker 03:
in the Chico County case from the Supreme Court in 1940 that has been cited multiple times by this court.

[00:18:31] Speaker 03:
The Supreme Court made clear that while inferior federal courts are courts of limited jurisdiction, that

[00:18:40] Speaker 03:
If such a court exercises jurisdiction erroneously, then, quote, their judgments and decrees are erroneous and may upon a writ of error or appeal be reversed for that cause, but they are not absolute nullities.

[00:19:00] Speaker 04:
So could I just ask you to clarify one point in your brief

[00:19:06] Speaker 04:
You rely on diversity to say that there was an arguable basis for jurisdiction.

[00:19:11] Speaker 04:
But what if there was no arguable basis for jurisdiction based on standing?

[00:19:18] Speaker 03:
Well, I think that's one basis that we assert.

[00:19:23] Speaker 04:
Well, how can that be right?

[00:19:25] Speaker 04:
I mean, you can have diversity.

[00:19:27] Speaker 04:
But if there is a complete lack of jurisdiction under Article III,

[00:19:32] Speaker 04:
then you don't have an arguable basis for jurisdiction, do you?

[00:19:36] Speaker 03:
Well, the question is whether there is an arguable basis for having standing or to flip it around.

[00:19:43] Speaker 04:
I'm just questioning whether your reliance on diversity is a complete answer to this issue.

[00:19:52] Speaker 03:
Well, we've never said it's a complete answer.

[00:19:53] Speaker 04:
Well, I think you did in your brief.

[00:19:55] Speaker 04:
You said that the fact that there was diversity means that there was an arguable basis for jurisdiction.

[00:20:01] Speaker 04:
That can't be right.

[00:20:03] Speaker 03:
Well, what we were referring to there, Your Honor, was the court statement in United States v. Lambert, on which Your Honor sat, where the court noted that because jurisdictional statutes were applicable, that provided an arguable basis for the court to exercise jurisdiction.

[00:20:31] Speaker 04:
But that isn't what they're arguing here.

[00:20:33] Speaker 04:
They're saying there was no standing.

[00:20:35] Speaker 04:
And so was there an arguable basis for standing here?

[00:20:39] Speaker 04:
Why don't you address that?

[00:20:42] Speaker 03:
Sure.

[00:20:42] Speaker 03:
The arguable basis for standing was that this was an ordinary contract case in which any judge would think

[00:20:52] Speaker 03:
that there was standing because the plaintiff was injured.

[00:20:56] Speaker 03:
He got injured.

[00:20:58] Speaker 03:
He sued for those injuries.

[00:21:00] Speaker 03:
He sought damages.

[00:21:01] Speaker 03:
Damages.

[00:21:02] Speaker 03:
If his merits argument was accepted, those damages would redress his injuries.

[00:21:15] Speaker 03:
And what my friends are doing is saying they're posing

[00:21:19] Speaker 03:
an incredibly novel theory for why that ordinary standing analysis in an ordinary contract damages case should not apply.

[00:21:31] Speaker 03:
And that theory is that there is something special

[00:21:35] Speaker 03:
about the CSA that changes that.

[00:21:39] Speaker 02:
They're saying the underlying subject matter is illegal, that therefore we could not vindicate a harm related to an illegal substance.

[00:21:50] Speaker 02:
So my question initially for you is, to the extent that law has to determine whether there's a property interest here, is this state or federal law?

[00:22:00] Speaker 02:
What law determines

[00:22:01] Speaker 02:
how, whether there's a property interest in it.

[00:22:04] Speaker 03:
This is a diversity case.

[00:22:06] Speaker 03:
It was state law that applied.

[00:22:09] Speaker 02:
And as it relates to state law, obviously, in both Maryland and in Colorado, it's legal.

[00:22:15] Speaker 02:
Absolutely.

[00:22:15] Speaker 02:
Well, all right.

[00:22:16] Speaker 02:
But let's go beyond that now.

[00:22:18] Speaker 02:
And so their argument is that you cannot vindicate an interest in a legal substance.

[00:22:26] Speaker 02:
And so that's what makes us different.

[00:22:28] Speaker 02:
That's what makes this not an ordinary contract.

[00:22:31] Speaker 02:
What do you say to that?

[00:22:32] Speaker 03:
Well, I say a number of things, different layers of the analysis.

[00:22:37] Speaker 03:
Starting with whether it's illegal, they assert that vindicating an interest in equity

[00:22:47] Speaker 03:
in a campus company violates the CSA, but there is no provision of the CSA that that violates.

[00:22:54] Speaker 03:
They filed two briefs in case 1049.

[00:22:58] Speaker 03:
They did not cite a single provision of the CSA that prohibits anything.

[00:23:04] Speaker 04:
Well, they cited three statutes, and Rico, this morning.

[00:23:10] Speaker 04:
And we have this case that they also, your friends also cited.

[00:23:16] Speaker 04:
I may be mispronouncing, Inre Malou.

[00:23:19] Speaker 04:
Could you respond to that?

[00:23:20] Speaker 03:
Yeah.

[00:23:21] Speaker 03:
Inre Malou is a bankruptcy court case that made general statements to that effect, citing only, citing Section 854, 21 U.S.C.

[00:23:36] Speaker 03:
854, which we address in our briefs in the first appeal, which has nothing to do with it.

[00:23:43] Speaker 03:
That's a statute that says,

[00:23:45] Speaker 03:
It is illegal for a principal violator of the CSA to take proceeds and invest those proceeds in an interstate or foreign enterprise, except there's even exceptions.

[00:24:03] Speaker 03:
It's not completely barred.

[00:24:05] Speaker 03:
You can take your million dollars of cannabis proceeds

[00:24:23] Speaker 03:
equity of the company or get the power to elect a director, then it's not even illegal in that circumstance.

[00:24:32] Speaker 03:
Well, that has nothing to do with what we're talking about here.

[00:24:36] Speaker 03:
The relief that Judge Jackson ordered is simply pay money.

[00:24:42] Speaker 03:
Pay money.

[00:24:43] Speaker 03:
He didn't order anybody to

[00:24:51] Speaker 03:
grows cannabis simply to pay money.

[00:24:53] Speaker 03:
And actually, even if the judgment were to be paid with proceeds from a cannabis operation, that would not be improper.

[00:25:06] Speaker 03:
Because since 1872, the US Supreme Court in the case Planters Bank and Union Bank has made it clear that course has the power to order parties

[00:25:20] Speaker 03:
you funds to pay a judgment with funds that are the proceeds of illegal activity, as long as the court does not affirmatively aid the illegal activity.

[00:25:32] Speaker 03:
Because otherwise, eval breakers would claim and would have a special immunity from federal judgments by invoking their own

[00:25:44] Speaker 04:
Would you say that the Ninth Circuit Shulman decision is the closest case to support that point in terms of the cannabis business?

[00:26:00] Speaker 03:
I mean, it's related.

[00:26:01] Speaker 03:
It is the one that specifically addresses and rejects

[00:26:06] Speaker 03:
their Article III standing theory based on redressability.

[00:26:13] Speaker 03:
And I would submit that alone shows that the district court in this case

[00:26:19] Speaker 03:
cannot have plainly usurped its power by not conjuring up their CSA standing theory.

[00:26:31] Speaker 01:
Well, counsel, before we get too far along, I want to go to the second, where we're talking about an aid of execution on the judgment that the trial court in this case ordered that the interest be sold in a marijuana business.

[00:26:49] Speaker 01:
and that that money be paid over to your client.

[00:26:53] Speaker 01:
Now why, I'm just saying for purposes of argument, I'm assuming that the original judgment is a good judgment and all we're arguing about is an aid or execution of a lien or whatever.

[00:27:06] Speaker 01:
But why specifically isn't the trial court's order in that case

[00:27:12] Speaker 01:
violate the terms of ordering the sale or possession or dealing in a marijuana business.

[00:27:20] Speaker 01:
And that to me is pretty clear could be a violation.

[00:27:24] Speaker 01:
Here's why it's not.

[00:27:26] Speaker 03:
Because the district court's order will not foster the sale, one additional sale, of cannabis.

[00:27:37] Speaker 03:
If the defendants comply with the district court's order, the cannabis company, CULTA, which has the operations, will receive no capital, will receive no other financial services.

[00:27:55] Speaker 03:
All that will happen is instead of judgment debtors being the passive owner of a minority 31% interest in the company,

[00:28:06] Speaker 03:
then that 31% will be owned some smaller amount by somebody else and by judgment debtors in a smaller amount.

[00:28:16] Speaker 03:
But it is entirely neutral to the operations of the cannabis company.

[00:28:23] Speaker 03:
And this is the same argument that was made by a United States trustee and rejected by the Bankruptcy Court for the Central District of

[00:28:36] Speaker 03:
a very thoughtful opinion that actually addresses also the same argument was made about 18 U.S.E.

[00:28:45] Speaker 03:
1956, the money laundering statute.

[00:28:51] Speaker 03:
And the court says that when there is a divestment order of this sort and there is a sale of cannabis interests or equity

[00:29:04] Speaker 03:
in order to pay creditors, then there is no fostering of any additional sale, any additional growth of marijuana, and therefore there is no violation of the statutes that actually are in the CSA, like 21 U.S.C.

[00:29:24] Speaker 03:
section 841, which prohibits

[00:29:26] Speaker 03:
you know, the manufacturer distribution, possession with intent to distribute of marijuana.

[00:29:33] Speaker 03:
It's simply taking equity, selling it,

[00:29:37] Speaker 03:
And the money then gets distributed to pay creditors because the money is not going to further the criminal activity or conceal criminal activity.

[00:29:51] Speaker 03:
That's why the money laundering statute doesn't apply.

[00:29:58] Speaker 04:
What if the enforcement order

[00:30:03] Speaker 04:
does violate the Controlled Substances Act, what's your argument then about standing?

[00:30:11] Speaker 03:
Well, I think it has nothing to do with standing.

[00:30:15] Speaker 03:
I think if there is an extant order that violates

[00:30:21] Speaker 03:
The law, the court can say that that particular order, that particular enforcement mechanism should not be enforced, but that's not a matter of

[00:30:36] Speaker 03:
And that's why it's also important here to review.

[00:30:40] Speaker 02:
Why isn't it?

[00:30:40] Speaker 02:
I mean, what you've got, there are cases in recent gente being one that talks about this notion of post-judgment actions on providing remedies and talks about the fact that that's essentially a separate litigation.

[00:30:56] Speaker 02:
And then the question becomes, is there standing to get that remedy?

[00:31:02] Speaker 02:
I mean, why is that not a remedy?

[00:31:06] Speaker 03:
Well, I think if the court... The case law is, I think, clear that... Go ahead, please.

[00:31:18] Speaker 03:
That if the court had jurisdiction to issue the underlying judgment, if the underlying judgment is not void,

[00:31:28] Speaker 03:
then the district court has ancillary jurisdiction to enforce it and to consider enforcement mechanisms.

[00:31:39] Speaker 03:
If an enforcement mechanism is not proper, then the decision of this court should be that that mechanism is not proper.

[00:31:52] Speaker 03:
But that doesn't change that ancillary jurisdiction that

[00:31:59] Speaker 03:
to consider requests for enforcement.

[00:32:06] Speaker 02:
Okay.

[00:32:06] Speaker 02:
I mean, I think I understand that point, but the way that would play out then is that we're focused really on the order itself and whether that order is a violation of the CSA and therefore, or in some other way, infirm.

[00:32:21] Speaker 02:
But at least I conceived of this as being a two-pronged

[00:32:26] Speaker 02:
of analysis, one being the question of whether this order, whether the court had the ability to redress the injury of

[00:32:38] Speaker 02:
the person of your client, and therefore the question would be whether there was standing to do that.

[00:32:47] Speaker 02:
And I look at that, I look at that in the context of, I spoke of Henry Syngenta, which was an attorney's fees case.

[00:32:53] Speaker 02:
And in that case, you began again.

[00:32:55] Speaker 02:
And at that point, the question was, do you have standing to make the request for the remedy that you're seeking?

[00:33:02] Speaker 02:
Why is that not an appropriate way to look at this?

[00:33:06] Speaker 03:
I must say I'm not familiar with Sejenta, so I can't comment on that.

[00:33:12] Speaker 03:
But I'm not sure that I have more to say than what I have.

[00:33:18] Speaker 03:
Supplemental proceedings are supplemental enforcement proceedings.

[00:33:23] Speaker 03:
But it's not a new case.

[00:33:29] Speaker 03:
And the jurisdiction comes from the underlying jurisdiction.

[00:33:35] Speaker 03:
and Atlas and other cases.

[00:33:37] Speaker 03:
But just to clarify.

[00:33:38] Speaker 04:
Can I ask you about Atlas since you just raised it?

[00:33:40] Speaker 04:
Because I thought this panel, as a matter of fact, after the panel determined the district court had ancillary enforcement jurisdiction, which I think is your argument, didn't the court go on then to determine whether the plaintiff had standing?

[00:34:03] Speaker 03:
I don't recall, Your Honor.

[00:34:05] Speaker 03:
I must say.

[00:34:06] Speaker 03:
But the one final point that I'd like to make, though, is just to make sure that the court is clear, because my friends have tried to, in their brief, their reply brief in the first appeal, the 23 appeal, try to conflate different parts

[00:34:31] Speaker 03:
of the District Court's Rule 69G order into one.

[00:34:38] Speaker 03:
So there's the part which is paragraphs one through four of the District Court's June 8th order, which is the order to divest, which is what we've been talking about.

[00:34:49] Speaker 03:
But then in paragraph five,

[00:34:52] Speaker 03:
There's just a separate part that is just a straight, ordinary Rule 69G garden variety turnover order that says, regardless of whether judgment debtors are forced to make a sale or really forced to exercise their best efforts to try to make a sale,

[00:35:20] Speaker 03:
that if they voluntarily make a sale and therefore have money from that sale, that they must turn over those proceeds to the judgment creditor to pay the judgment.

[00:35:42] Speaker 03:
That's not in order to sell.

[00:35:43] Speaker 03:
Even if they voluntarily sell, they must turn over

[00:35:54] Speaker 03:
classic Rule 69G turnover order of the type that Chief Judge Holmes and Judge Matheson dealt with in, for example, the Grupo Cementos case.

[00:36:07] Speaker 02:
And so... As fascinating as this is, we're going to have to wrap it up.

[00:36:11] Speaker 02:
Okay.

[00:36:12] Speaker 02:
So I understand your argument.

[00:36:14] Speaker 02:
Thank you.

[00:36:15] Speaker 02:
Thank you.

[00:36:20] Speaker 02:
Let's go with four minutes.

[00:36:24] Speaker 05:
I disagree with my colleague.

[00:36:27] Speaker 05:
The property interest analysis is federal law.

[00:36:30] Speaker 05:
It's the Barnhill v. Johnson case, and it's cited in footnote one of our supplemental briefs.

[00:36:37] Speaker 05:
That case says that generally speaking, when looking at if there's a property interest,

[00:36:41] Speaker 05:
You look at state law unless there is an overriding federal interest.

[00:36:46] Speaker 05:
And here there is an overriding federal interest because of the Congress's comprehensive scheme under the CSA.

[00:36:54] Speaker 05:
I believe also the Supreme Court's decision in Raich talking about that upholding the CSA would also go.

[00:37:07] Speaker 05:
Regarding the illegality of the acts, in addition to the statutory authority, there are numerous cases that have found that vindicating an ownership interest in marijuana violates the CSA.

[00:37:19] Speaker 05:
In addition to Ingrid Malol, I point you in a briefing to the Gopal case, Ingrid Barton, Jay Lilly, Next Steps Advisors,

[00:37:29] Speaker 05:
Polk and Sensoria.

[00:37:31] Speaker 05:
All of them have looked at the issue and concluded that a federal court cannot vindicate an interest in marijuana.

[00:37:39] Speaker 02:
Well, didn't Schulman undermine next step?

[00:37:42] Speaker 05:
Respectfully, no.

[00:37:44] Speaker 05:
Schulman said that there was statutory standing.

[00:37:49] Speaker 05:
Excuse me.

[00:37:50] Speaker 05:
constitutional standing where the injury complained of was a business injury or excuse me, an injury to a campus business and other property.

[00:38:00] Speaker 05:
And so in considering standing the Schumann court was not looking at the narrow issue of

[00:38:06] Speaker 05:
is their standing to vindicate an ownership interest.

[00:38:10] Speaker 05:
It was looking much more broadly, and it was doing this at the 12b6 stage.

[00:38:14] Speaker 02:
Constitutional standing to vindicate an interest and a harm to a cannabis property.

[00:38:21] Speaker 02:
How is that different than having a property interest or an equity interest in a cannabis business?

[00:38:26] Speaker 05:
It's different because the courts have found that if there is an injury that is different than seeking profits or ownership, they can in fact do that.

[00:38:36] Speaker 05:
For example, in the Jay Lilly case, it was an equipment lease, a lawsuit brought by a Canada's company to enforce an equipment lease.

[00:38:46] Speaker 05:
And what the district court said is, we can enforce the equipment lease because that's not

[00:38:51] Speaker 05:
the dealing in cannabis, but we cannot award profits because that would violate the CSA.

[00:38:58] Speaker 05:
And that's the distinction that numerous courts have taken.

[00:39:01] Speaker 05:
That's what Sensoria has done.

[00:39:03] Speaker 05:
Some of them have said, we can return an investment, but what we can't do is give you profits.

[00:39:10] Speaker 05:
And here, all the plaintiff wanted was profits because the company had been very profitable.

[00:39:15] Speaker 05:
It was asking the district court to award millions of dollars

[00:39:19] Speaker 05:
that was the value of the company because it had been selling marijuana.

[00:39:24] Speaker 05:
Whereas Schulman, at the 12b6 stage, it was really only talking about an injury to a business, and the pleadings were broader.

[00:39:32] Speaker 05:
It talked about it did seek profits, but it also sought an injury to some land, and that some salaries hadn't been paid.

[00:39:42] Speaker 05:
It was broader, and so there was room for standing.

[00:39:46] Speaker 02:
Let me just make sure I get to one point, though.

[00:39:51] Speaker 02:
What I understood you say is that we need to look at these cases that have concluded that there wasn't standing that sort of thing in this context.

[00:40:00] Speaker 02:
Well, I mean, in terms of a mode of analysis, why isn't it appropriate to look at the CSA and essentially juxtapose it to what we have at play here and say, what terms of the CSA does this violate?

[00:40:13] Speaker 02:
And doing that, I scratched my head to figure out why this is illegal, certainly when you're talking about the turnover order.

[00:40:20] Speaker 02:
So why isn't that an appropriate mode of analysis?

[00:40:25] Speaker 05:
It is a place that you can start, Your Honor.

[00:40:28] Speaker 05:
I see my time is up.

[00:40:28] Speaker 02:
Now go ahead, finish your answer.

[00:40:30] Speaker 05:
But once you realize that marijuana itself, the sale of marijuana is illegal,

[00:40:36] Speaker 05:
There are vast statutory schemes or statutes that make it legal to do really anything with that business.

[00:40:46] Speaker 05:
And so it's not just the CSA that is implicated that Congress has done a good job.

[00:40:52] Speaker 05:
Consider, for example, if this was heroin.

[00:40:55] Speaker 05:
And a person came into court and said, I would like to vindicate my interest in a heroin business.

[00:41:02] Speaker 05:
it would be very easy to say, no, you can't do that in federal court.

[00:41:05] Speaker 05:
Congress has said heroin is illegal.

[00:41:08] Speaker 05:
But because of the oddity of where marijuana is with the state system, and you can't walk down the street without seeing a marijuana business, it's easy to forget that it is, in fact, under federal law, the same as a heroin business.

[00:41:22] Speaker 02:
OK.

[00:41:23] Speaker 02:
I'll take that point and consider it.

[00:41:26] Speaker 02:
Thank you, counsel, for your arguments.

[00:41:28] Speaker 02:
Very well done.

[00:41:29] Speaker 02:
Appreciate the case is submitted.