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David Bartch and Mackie Barch were partners in Culta, LLC, a marijuana business licensed to operate under Maryland law. Bartch temporarily relinquished his ownership in Culta. Even though Bartch and Barch had agreed Bartch could later rejoin the business, Barch prevented him from doing so.
Bartch sued Barch and Barch’s company, Trellis Holdings Maryland, Inc., which holds a minority membership share in Culta, for breach of contract. In response, Barch and Trellis didn’t plead an affirmative defense that the contract was illegal under federal drug laws.
After a bench trial, the district court found Barch and Trellis liable for breach of contract and awarded Bartch $6.4 million in damages. Barch and Trellis never appealed and also never paid, according to the opinion.
Bartch sought to enforce the original judgment. The district court granted post-judgment relief, ordering Barch and Trellis to use their best efforts to sell Trellis’s equity interest in Culta, to turn over proceeds from any such sale and to avoid devaluing Trellis’s equity until the sale.
Barch and Trellis appealed, arguing—for the first time—that Bartch lacked standing to enforce the judgment because the redress he sought would violate the Controlled Substances Act and the district court lacked authority to award relief.
While that appeal was pending, Barch and Trellis moved the district court to reconsider the original judgment, making the same CSA standing argument. The court denied the motion and Barch and Trellis appealed.
The 10th Circuit Court of Appeals consolidated the appeals. It affirmed the original judgment but vacated the judgment enforcement order due to public policy concerns and remanded for further proceedings.
According to the opinion, this case presented a question about the nature and extent to which a federal court may act to resolve a dispute related to a marijuana business that operates legally under state law.
The opinion noted that numerous federal courts have grappled with this question, and, like most of them, the 10th Circuit didn’t discern a simple answer. It shared the public policy concerns outlined in the dissent but thought it the better course to remand to the district court to address them.
Judge Bobby Baldock dissented. Baldock wrote that Bartch’s breach of contract claim arose out of an illegal contract. He argued that the 10th Circuit’s focus on whether the defendants raised an illegality defense pre-judgment or whether Federal Rule of Civil Procedure 60(b)(4) provides for post-judgment relief based on a claim of illegality is misplaced.
He wrote that the 10th Circuit is bound to raise the question of illegality sua sponte when it appears. He added that the 10th Circuit, obliged to say what the law is and bound to uphold federal public policy based on such law, has chosen to “lend its assistance in any way” to the parties’ business dealings—”unsavory dealings” in the eyes of federal law—squarely conflicts with Supreme Court precedent and reflects poorly on them.
He wrote that consistent with Supreme Court precedent, he would remand these appeals to the district court with instructions to vacate its judgment and dismiss the action as based on a contract that violated the public policy of the U.S. as it exists today, which would necessarily dispose of the district court’s post-judgment enforcement order. Baldock respectfully dissented.
Dr. Francis Joseph was the founder of Springs Medical Associates, a medical practice based in Colorado Springs, Colorado. Following an ill-fated corporate governance agreement, which installed a new chief operating officer, Joseph concocted a scheme for the alleged purpose of regaining control of the practice, according to the opinion.
Between March and June 2020, he submitted several false and unauthorized applications to federal COVID-19 relief programs on Springs Medical’s behalf. Joseph received over $250,000 in federal aid, which he disguised from Springs Medical leadership and ultimately misspent for personal gain, according to the opinion.
In 2023, a jury convicted Joseph of two fraud-based counts. On appeal, he argued insufficient evidence existed to demonstrate he possessed the requisite intent to commit the offenses.
He also presented several challenges to his trial and sentencing proceedings, including that the district court improperly limited his cross-examination and introduction of evidence, admitted expert testimony as lay testimony, allowed the government to introduce propensity evidence, declined to provide clarifying jury instructions and miscalculated the economic loss under the sentencing guidelines occasioned by his offenses.
The 10th Circuit Court of Appeals concluded the record was replete with direct and circumstantial evidence that Joseph intended to commit fraud through his relief program applications.
It also found that except for the district court’s admission of expert testimony in the guise of lay testimony, which was harmless, the district court neither erred in sentencing nor abused its discretion in conducting Joseph’s trial.
The 10th Circuit affirmed.