California Agencies Win Discovery Stay in Hemp Destruction Dispute

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Back in April 2020, Apothio sued the County of Kern and the California Department of Fish and Wildlife, alleging that in October 2019, state and county law enforcement agents entered its farm fields and ordered the destruction of 500 acres of hemp crops worth approximately $1 billion. Apothio claims the agencies’ search warrant was defective because it included an incorrect description of Apothio’s principal, Trent Jones, the acreage grown, and because it ignored Apothio’s status as a research entity under California law. Most recently, the defendant agencies filed motions to dismiss Apothio’s case is in its entirety because its crops constitute contraband under federal law, and Apothio can not have a property interest in such contraband.

While the civil case commenced, Mr. Jones was then arraigned for criminal misdemeanor charges for the illegal cultivation and sale of marijuana (based on the facts of this case) in October 2020. Based on this development, the defendant agencies filed for a motion to stay discovery (essentially, pause discovery) in the case pending (1) completion of the criminal investigation of Mr. Jones, or (2) at least a decision on the motions to dismiss.

For everyone’s benefit, the Court issued a lengthy opinion breaking down its decision.  It started with the defendant agencies’ request to stay discovery pending completion of the criminal investigation. It noted: “a party has no constitutional right to a stay of civil proceedings during the pendency of a criminal investigation or prosecution, nor does the Constitution protect a party from being forced to choose between the consequences of asserting or waiving his Fifth Amendment rights in the civil proceedings.” In considering whether to issue a stay, the court should consider the extent to which the defendant’s Fifth Amendment rights are implicated, as well as the following five Keating factors:

  • The interest of the plaintiffs in proceeding expeditiously with this litigation or any particular aspect of it, and the potential prejudice to the plaintiffs of a delay;
  • The burden which any particular aspect of the proceedings may impose on defendants;
  • The convenience of the court in the management of its cases, and the efficient use of judicial resources;
  • The interests of persons not parties to the civil litigation; and
  • The interest of the public in the pending civil and criminal litigation.

Overall, the Court was not convinced that Mr. Jones’ Fifth Amendment privilege would implicate great issues in the civil case:

Even if the criminal case cause Jones, in his individual capacity, to assert his Fifth Amendment privilege given the factual and legal overlap between the investigation and the civil case here, corporate defendants are entitled to no such privilege. Nor does the privilege extend to corporate records. Moreover, a custodian of corporate records “has no privilege to refuse production [even if] their contents tend to incriminate him.” … Defendants may still elicit valuable testimony from unnamed corporate representatives and compel production of relevant records given the inapplicability of the Fifth Amendment privilege to the corporate entities. The extent to which Jones’s Fifth Amendment rights are implicated does not warrant a stay of this action. (Citations omitted).

The Court then discussed each Keating factor, finding that on balance, those factors favored Apothio’s position as well:

  • “This factor weighs in [Apothio’s] favor” – Apothio had claimed an interest in collecting evidence while it is still fresh, before witnesses’ memories fade and evidence becomes stale; Apothio had also claimed its continued financial viability was threatened as long as the litigation continued.
  • “To the extent that the Plaintiff is attempting to misuse the civil discovery process and obtain materials from an ongoing criminal investigation, the Court finds that a stay would be warranted” – this was incredibly fact-dependent and was largely a wash.
  • “This factor weighs in Plaintiff’s favor” – Apothio had contended the efficient use of judicial resources would be to proceed with discovery, as that could lead to a quicker resolution of the case and facilitate realistic settlement negotiations.
  • As to the interest of parties and non-parties, the Court found that the general principle of “the public has an interest in relatively speedy resolution of civil matters” to outweigh any argument the defendant agencies provided.

Ultimately, the Court refused to stay discovery based on the ongoing criminal proceedings. However, it then considered the defendant agencies’ request to stay discovery pending resolution of their motions to dismiss. In deciding this issue, it noted the overall consideration would be to balance “the harm produced by a delay in discovery against the possibility that the motion will be granted and entirely eliminate the need for such discovery.” Two requirements must be met for a stay to be issued:

  • The pending motion must be potentially dispositive of the entire case, or at least dispositive on the issue at which discovery is aimed.
  • The pending, potentially dispositive motion can be decided absent additional discovery.

As to the first prong, the defendant agencies argued their pending motions to dismiss will dispose of the complaint essentially because Apothio’s crops are legally and factually contraband under federal law, and Apothio can have no property interest in such contraband. The Court agreed, writing it had taken a “preliminary peek” at Apothio’s opposition and found it unconvincing on its face, without any need for further discovery. Therefore, the Court granted the defendant agencies’ request for a stay pending a decision on their motions to dismiss. This was a pretty big blow to Apothio – now, the parties are essentially frozen in their efforts until the defendants’ motions are heard.

This case and opinion will definitely be one to watch – not only for the high stakes at play, but also for the insight into how civil and criminal proceedings intersect, how the federal courts are generally looking at and treating hemp companies, and the deference shown to government agency parties. We will report back when the motions are heard, as that decision will certainly be telling.

The post California Agencies Win Discovery Stay in Hemp Destruction Dispute appeared first on Harris Bricken.

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