Docklight Brands Inc v. Tilray Inc

Opinion

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE DOCKLIGHT BRANDS INC, Plaintiff-Counterclaim Defendant, CASE NO. 2:21-cv-01692-TL v. ORDER GRANTING IN PART, TILRAY INC. and HIGH PARK COMPEL COMPLIANCE WITH Defendants-Counterclaimants.

High Park Holdings, Ltd. (“High Park”) moves pursuant to Fed. R. Civ. P. 45(d)(2)(B)(i) for an order compelling Turning Point Brands (“TPB”) to comply with a third-party subpoena. Dkt. 98. The parties agree that this District is the place of compliance for the subpoena and this Court is the proper venue for this motion.1 The motion is granted in part and denied in part. A. Licensing Agreement Between Docklight and Tilray This case concerns a license agreement (the “License”) between Docklight Brands, Inc. (“Docklight”) and High Park for the manufacture, distribution, and advertising of, among other things, Bob Marley–branded cannabis products in Canada. Dkt. 100, Declaration of Jacob P.

1 The Subpoena as served commands production at the offices of High Park’s New York counsel but High Park and TPB have agreed the Subpoena shall be modified to require compliance in Seattle, Washington. Dkt. 100, Freeman Decl. ¶ 19; Ex. A. ORDER GRANTING IN PART, HIGH Freeman, ¶ 6; see also Dkt. 1-1 & 66. In an amendment to the License, Docklight granted certain rights to High Park regarding unlicensed products, including an exclusive window for the negotiation of rights to certain products, the right to notice of any efforts to license these products to others, and a Right of First Offer to High Park regarding such products. The Right of

First Offer, Section 1.6(f) is at issue in this motion to compel: (f) Licensor agrees in good faith to keep Licensee apprised of its efforts to license the Licensed Property on, for or in connection with the manufacture, sale, distribution, marketing, advertising and other related activities for Cannabis Products that are not Licensed Products (“Other Cannabis Products”) in the Territory. The parties agree to discuss in good faith the opportunity for license of Other Cannabis Products for a period of ninety (90) days following execution of this Amendment. Thereafter, subject to any confidentiality requirements, Licensor shall provide Licensee an anonymized summary term sheet and ten (10) business days to match the terms of any such proposed license for Other Cannabis Products (“Licensee Offer”), before signing a third-party definitive license agreement for the use of the Licensed Property for Other Cannabis Products. Licensor may accept or reject Licensee’s Offer at its sole discretion.

Dkt. 100, Freeman Decl., Ex. E, at 7 (emphasis added.) B. TPB and Discussions With Docklight TPB distributes and sells smoking accessories and consumables, including cannabidiol (“CBD”) products in the United States. In April 2021, TPB announced a strategic investment in Docklight and as part of that investment, TPB obtained the exclusive distribution rights for Marley-branded CBD topical products in the United States (the “U.S. License”). Dkt. 40 at 29- 30. TPB and TPB Canada are separate entities that target different marketplaces and offer different products. Dkt. 132, Declaration of Mikail Fancy2, ¶ 4. TPB is a United States-based

2 Mikail Fancy is the Chief Operating Officer for Turning Point Brands (Canada) Inc. (“TPB Canada”), formerly known as ReCreation Marketing. TPB Canada is the Canadian majority- owned subsidiary of non-party TPB. Dkt. 132, Fancy Decl., ¶ 1. ORDER GRANTING IN PART, HIGH manufacturer, marketer, and distributor of branded consumer products with active ingredients. TPB sells a wide range of products in the United States exclusively to adult consumers, including smoking accessories and hemp-based consumables that contain cannabidiol (CBD). Id., ¶ 2. TPB Canada is a specialty marketing and distribution company focused on building brands in the

Canadian smoking accessory and vaping market. TPB Canada does not offer any consumables that contain CBD. Id., ¶ 3. TPB Canada is not legally licensed by Health Canada to market, distribute, or sell cannabis in Canada and thus, is not authorized to market, distribute, or sell either CBD or tetrahydrocannabinol (THC) products in Canada. Id., ¶ 4. In the first quarter of 2021, Docklight and TPB Canada engaged in exploratory discussions about distributing Marley-branded products in the Canadian market. Dkt. 132, Fancy Decl., ¶ 4. Those discussions did not result in any licensing offers, term sheets, agreements, or definitive licensing agreements with respect to the Canadian market. Id. As of this date, TPB Canada does not have, nor has it ever had, any licensing agreement with Docklight for any Marley-branded products in the Canadian market. Id., ¶ 5.

In its Answer to Docklight’s Complaint in this case, High Park asserted an Affirmative Defense alleging that Docklight breached Section 1.6(f) of the License because “at no time has Docklight presented High Park with a term sheet, or given High Park a right of first offer, with respect to any expansion or contemplation of expansion of distribution of Marley-branded products into Canada.” Dkt. 66 at 31 ¶ 74. This Affirmative Defense is the subject of a pending motion for partial summary judgment filed by Docklight. Dkt. 90. TPB requested the Subpoena be tabled pending a ruling on the motion for partial summary judgment as the ruling could moot the need for the Subpoena. High Park declined the request. Dkt. 131, Buckley Decl., Exs. A, B.

ORDER GRANTING IN PART, HIGH C. High Park’s Document Subpoena High Park’s original document subpoena contained nine Requests for Production (“Requests”) and nine “Deposition Topics” relating to a separate subpoena seeking to compel deposition testimony. Dkt. 100, Freeman Decl., Ex. A. After several discussions3, High Park

proposed revising the document subpoena to exclude documents that it could obtain from Docklight, and is limited to documents relating to: (1) High Park and/or Tilray; (2) TPB’s contemplated, potential, and/or actual rights with respect to Marley-branded products in Canada; (3) Performance of and value of the Marley brand generally; and (4) TPB’s due diligence (or similar) review in connection with its investment in Docklight, limited to Docklight’s rights with respect to the Marley brand (including but not limited to Docklight’s actual and/or forecasted profits, revenues, obligations, etc., in connection with such rights). Dkt. 100, ¶ 11 & Ex. G. The revised subpoena is hereafter referred to as the “Narrowed Subpoena.” TPB did not commit to respond to the proposed Narrowed Subpoena but agreed to consider and continue discussions regarding its scope. Dkt. 131, Buckley Decl., ¶ 6.

On October 27, 2022, TPB stated there are no documents reflecting any definitive terms or meaningful discussions between TPB and Docklight, regarding licensing cannabis products in the Canadian market. TPB’s diligence materials revealed that TPB did not consider any such licensing opportunities after it became aware of the terms of Docklight’s Licensing Agreement with Tilray. TPB offered to produce documents showing that both Docklight and TPB knew that Docklight would be required to check with Tilray before it offered TPB a license for Marley- branded cannabis products in Canada. Dkt. 121, Buckley Decl. ¶ 7. Counsel also discussed

3 A detailed recitation of counsel’s discussion can be found in the parties’ filings. ORDER GRANTING IN PART, HIGH whether memorializing these facts (i.e., the absence of any definitive licensing agreement or offer) in a declaration would be the simplest response to the subpoena. Id. The next day, High Park’s counsel offered to meet and confer with TPB but received no response. Dkt. 100, Freeman Declaration, ¶ 6. On November 3, before TPB produced any

documents, High Park’s counsel asked TPB’s counsel to advise by November 8 whether TPB agreed to search for and produce documents responsive to the four requests comprising the narrowed Subpoena. Id., ¶ 7. On November 4, 2022, TPB produced diligence materials relating to its 2021 investment in Docklight. Dkt. 121, Buckley Decl. ¶ 8. The production included a spreadsheet showing that before Docklight could license Marley-branded CBD to TPB in Canada, Docklight would first “[h]ave to see if Tilray wants” that opportunity. See id., Ex. A, TPB_00000003. On December 2, 2022, High Park alerted TPB it would file a motion to compel. Dkt. 121, Buckley Decl. ¶ 9, Ex. B. A The parties conferred again, on December 5, 2022, but came to no agreement.

On December 16, 2022, TPB made a supplemental document production of TPB personnel emails reflecting TPB personnel knew Docklight could not license Marley-branded CBD products to TPB in Canada without first offering that opportunity to Tilray. Dkt. 121, Buckley Decl. ¶ 11; Ex. C (TPB_000000142-44). On December 28, 2022, counsel discussed TPB’s email search methodology and file format for its December 16th production. Id. It is well-settled in the Ninth Circuit that non-parties subject to subpoena requests deserve extra protection from the courts. See, e.g., Exxon Shipping Co. v. United States Dep’t of Interior, 34 F.3d 774, 779 (9th Cir. 1994) (“The Federal Rules … afford nonparties special protection

ORDER GRANTING IN PART, HIGH against the time and expense of complying with subpoenas.”); see also United States v. Columbia Broadcasting Sys., Inc., 666 F.2d 364, 371-72 (9th Cir. 1982) (similar). The Court has liberty and broad discretion to limit discovery to protect non-parties from harassment, inconvenience, or disclosure of confidential information. See, e.g., Dart Indus. Co., Inc. v.

Westwood Chem. Co., Inc., 649 F.2d 646, 649 (9th Cir. 1980). The Court should keep the “distinction between a party and a nonparty in mind when determining the propriety of a nonparty’s refusal to comply with a subpoena by balancing the relevance of the discovery sought, the requesting party’s need, and the potential hardship to the party subject to the subpoena.” Venegas v. Southwest Airlines Co., No. 07-cv-1259, 2007 WL 9776384, at *1 (W.D. Wash. Sept. 18, 2007) (internal quotations omitted). While the scope of discovery allowed under Rule 45 conceptually is the same as under Rule 26, “restriction[s] may be broader when a nonparty is the target of discovery, in order to protect nonparties from harassment, inconvenience, or disclosure of confidential documents.” Dominguez v. Corp. of Gonzaga Univ., 2018 WL 3338181, at *1 (E.D. Wash. Apr. 19, 2018)

(internal quotations omitted). For a non-party, “[t]he compulsion of production of irrelevant information is inherently an undue burden.” Discovery requests must accordingly be “tailored with some particularity to the relevant information that the requesting party hopes to gain.” Rollins v. Traylor Bros., No. C14-1414JCC, 2017 WL 1756576, at *2 (W.D. Wash. May 5, 2017). “The party who resists discovery has the burden to show that discovery should not be allowed, and has the burden of clarifying, explaining, and supporting its objections” with competent evidence. Doe v. Trump, 329 F.R.D. 262, 270 (W.D. Wash. 2018) (quoting Blemaster v. Sabo, No. 2:16-CV-04557 JWS, 2017 WL 4843241, at *1 (D. Ariz. Oct. 25, 2017)).

ORDER GRANTING IN PART, HIGH A. Impasse Between Parties Prior to Filing Motion to Compel TPB contends High Park’s motion to compel is premature because the parties had not yet reached an impasse in their discussions. High Park asserts the parties have been at an impasse since at least November 8 – when TPB failed to agree to search for and produce documents

responsive to the Narrowed Subpoena. However, the record does not reflect that the parties ever agreed to the scope of the Narrowed Subpoena. TPB asserts that the parties were not at an impasse because High Park never raised any issues relating to TPB’s November 4 document production and the parties never resolved whether a declaration from TPB would be useful or necessary. A motion to compel is premature when the parties have not yet reached an impasse with respect to outstanding discovery disputes. See Advanced Hair Restoration, LLC v. Hair Restoration Centers, LLC, No. C17-709RSM, 2018 WL 828213, at *2 (W.D. Wash. Feb. 12, 2018) (denying motion to compel where “[t]here is no evidence that the parties reached an impasse in their discussions” and defendant was “attempting in good faith to resolve the

discovery dispute outside of Court by producing the requested records”). High Park argues TPB is engaging in delay tactics and that High Park has repeatedly met and conferred to resolve this dispute. However, the record reflects TPB also repeatedly met and conferred to narrow the scope of the Subpoena, produced responsive documents, and offered declaratory evidence to resolve the dispute. The record does not reflect bad faith or delay tactics but rather, reflects a good faith effort to resolve the issue short of Court involvement. In fact, the parties left several items for discussion on the table, i.e., whether TPB’s November 4 production negated the need for this motion (at least in part); and whether a declaration from TPB memorializing the absence of any definitive licensing agreement, offer, or extracontractual

ORDER GRANTING IN PART, HIGH agreement between Docklight and TPB negated the need for this motion. High Park argues its motion does not concern what TPB has “unilaterally decided to produce, but instead what it has refused to disclose.” High Park also alleges that TPB acknowledges that its productions to date represented “a reasonable response” to the document

requests, not an exhaustive one. Dkt. 137, Freeman Reply Decl, ¶ 12. Based on the escalating tone of the parties’ filings and communications, the Court concludes that further negotiation is futile. B. Merits of Motion to Compel on Narrowed Subpoena High Park contends each of the categories of documents contained in the Narrowed Subpoena are relevant to its counterclaim and affirmative defense that Docklight breached Section 1.6(f) of the Licensing Agreement. However, in its Response to Docklight’s Motion for Partial Summary Judgment, High Park argues that it essentially seeks confirmatory discovery from TPB merely to “test … whether extra contractual representations were made from Docklight to TPB or others, in an attempt to avoid documentation triggering” Docklight’s

Section 1.6(f) obligations. Dkt. 103 at 11. The record reflects no such agreement (whether “extra contractual” or otherwise) between Docklight and TPB exists and TPB, through its Canadian subsidiary, is not authorized to market, sell, or distribute cannabis products in Canada. Dkt. 132, Fancy Decl. ¶¶ 3, 5. The Court turns to the specific categories of the Narrowed Subpoena: 1. TPB’s documents discussing High Park or its parent, Tilray, Inc. High Park argues these documents are relevant to show the extent to which TPB and Docklight were aware of High Park’s exclusivity period and right of first offer with respect to the Canadian market and whether Docklight knowingly violated Section 1.6(f), which requires

ORDER GRANTING IN PART, HIGH Docklight to act “in good faith.” First, because High Park seeks information relating to its “right of first offer with respect to the Canadian market,” this category of documents should be limited to the Canadian market and/or the specific factual claims at issue (Marley-branded cannabis products).

Second, the documents produced by TPB show that TPB and Docklight were aware of High Park’s rights under its Licensing Agreement with Docklight. Dkt. 131, Buckley Decl., Ex. A, TPB_00000003; Ex. C, TPB_00000142; see also Dkt. 100, Freeman Decl. Ex. I, (DOCK002673). The Court denies High Park’s motion to compel further response to this category of documents. 2. TPB’s documents regarding its contemplated, potential, or actual rights with respect to Marley-branded products in Canada High Park argues the documents in this category would tend to show if Docklight breached the License by offering such rights to TPB and if Docklight made any side representation to TPB about the possibility of such licensing, which was not included in a final written agreement. High Park also contends the documents may show Docklight took measures in bad faith to avoid alerting High Park to its negotiations with TPB. The documents and declaratory evidence produced by TPB reflect Docklight never offered TPB a definitive license agreement for Marley-branded cannabis products in Canada; TPB is not authorized to market, sell, or distribute cannabis products in Canada; and evidence of TPB’s internal understanding of its “contemplated, potential, and/or actual rights” to Marley- branded CBD products in Canada has been produced by Docklight (DOCK002673) and by TPB (TPB_00000003; TPB_00000142). These documents reflect TPB was aware of High Park’s ORDER GRANTING IN PART, HIGH rights under Section 1.6(f) and was aware Docklight could not license Marley-branded CBD products to TPB in Canada without first offering that opportunity to Tilray. High Park argues that “TPB’s self-serving and undocumented assertion that it made no deal with Docklight regarding Canada does not prove that fact—that is what discovery is for.”

Dkt. 136, p. 6. High Park ignores the declaration of TPB’s Chief Operating Officer Mikail Fancy stating that the brief exploratory discussions between Docklight and TPB Canada about distributing Marley-branded products in the Canadian market did not result in any licensing offers, term sheets, agreements, or definitive licensing agreements with respect to the Canadian market and that TPB Canada does not have, nor has it ever had, any licensing agreement with Docklight for any Marley-branded products in the Canadian market. Dkt. 132, Fancy Decl., ¶¶ 4,5. The Court denies High Park’s motion to compel further response to this category of documents. 3. TPB’s documents regarding the performance and value of the Marley brand generally. 4. TPB’s due diligence review of Docklight with respect to the Marley brand (actual and/or forecasted profits, revenues, obligations).

High Park broadly asserts TPB’s internal documents on these issues (if any) are relevant to “claims and defenses by both sides concerning whether a decline in sales of Marley-branded products in Canada was attributable to High Park’s acts or omissions, problems with the Marley brand generally, or other causes.” Dkt. 98, at 7-8. High Park points to evidence of TPB’s exploratory discussions with Docklight about the Canadian market in early 2021 (Dkt. No. 103, Ex. 23 (DOCK005301)) and a March 2021 slide deck about the TPB/Docklight investment, which refers to the possibility of TPB’s Canadian ORDER GRANTING IN PART, HIGH arm, ReCreation Marketing, “enter[ing] into licensing agreement for exclusive use of Marley brand for CBD products in Canada.” Dkt. 100, Freeman Decl., Ex. H (TPB_00000073–77). TPB states this was merely an internal exploratory document to see if TPB’s Canadian subsidiary had the network and capability to distribute or sell Marley-branded cannabis products but because

TPB’s Canadian subsidiary is not authorized to distribute or sell cannabis in Canada, TPB and Docklight never agreed on any terms for any license for any product in Canada. TPB also states that it has made a diligent search and has produced what it has been able to locate. The exploratory discussions between TPB and Docklight are at issue and may be relevant to High Park’s Section 1.6(f) breach-of-contract claim. The Court grants High Park’s motion to compel further response to these two categories of documents. TPB should state whether it performed a due diligent review of the performance and value of the Marley brand generally and specifically as to Docklight’s actual and/or forecasted profits, revenues, and obligations as to the Marley brand. If it performed a due diligent review, TPB should produce documents related to its review or state that it has no such

documents, or identify the documents already produced satisfying these requests. TPB is ORDERED to provide its response and documents, if any, to these category of documents within ten (10) days of this Order. DATED this 30th day of January, 2023. A BRIAN A. TSUCHIDA United States Magistrate Judge ORDER GRANTING IN PART, HIGH