TPCO US Holdings, LLC v. Ned Fussell

• Court: District Court, N.D. California
• Decided: July 3, 2023
• Docket: 3:23-cv-01324
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 TPCO US HOLDING, LLC, Case No. 23-cv-01324-EMC

8 Plaintiff, ORDER GRANTING PLAINTIFF’S 9 v. MOTION TO REMAND

10 NED FUSSELL, et al., Docket No. 11 11 Defendants.

12 13 14 I. INTRODUCTION 15 Plaintiff TPCO US Holding (“TPCO”) filed suit against Defendants Ned Fussell, Mosaic 16 Ag., Inc., Paula Bruning, Christopher Potter, Sukanya Lauer, Lacy O’Callaghan, and Does 1 17 through 10 (collectively, “Defendants”). Docket No. 1 (“Compl.”). Plaintiff originally filed suit 18 in state court alleging four state-law causes of action for breach of contract regarding a land 19 purchase agreement, cultivation and supply agreements, loan for outdoor cannabis cultivation, and 20 declaratory relief. Id. Defendants Fussell and Mosaic (“Removing Defendants”) removed the 21 case to federal court. 22 Now pending is Plaintiff’s Motion to Remand to state court and request for attorneys’ fees 23 and costs. Docket Nos. 11, 13, 15. For the following reasons, the Court GRANTS Plaintiff’s 24 Motion to Remand to state court as well as the request for attorneys’ fees and costs. 25 II. FACTUAL AND PROCEDURAL BACKGROUND 26 A. Factual Background 27 Plaintiff TPCO is a direct-to-consumer cannabis company registered in Delaware with its 1 northern and southern California through its e-commerce platform via a mobile app that offers 2 branded cannabis product through delivery and pick-up at retail locations. Id. Ned Fussell is a 3 resident of California and the CEO of Mosaic Ag., Inc. (“Mosaic”)—a cannabis management, 4 cultivation, and manufacturing company registered in California with its principal place of 5 business in Santa Rosa, California. Id. ¶¶ 13–14. Paula Bruning, Christopher Potter, Sukanya 6 Lauer, and Lacy O’Callaghan (the “Other Named Defendants”) are all California residents who 7 hold all the membership interests of their respective one-acre cannabis farms which would have 8 been transferred to TPCO if the deal had closed. Id. ¶¶ 15–19. 9 In mid-May 2021, Plaintiff TPCO entered into a contract (the “Purchase Agreement”) with 10 Defendants Fussell and the Company Holders. Id. ¶ 2. Plaintiff was to acquire four one-acre 11 parcels of licensed outdoor cannabis cultivation property located in Sonoma County, California. 12 Id. As a part of the purchase price, Plaintiff advanced Fussell a personal loan of $5,650,000 (the 13 “Note”) that would be deemed satisfied if the transaction closed on or before June 1, 2022, 14 otherwise Fussell would be personally liable and required to repay the Note. Id. ¶ 3. Plaintiff also 15 entered into a cultivation and supply agreement (the “Supply Agreement”) for each of the parcels 16 with one of Fussell’s companies, Mosaic. Id. ¶ 4. 17 Fussell failed to complete his obligations under the Purchase Agreement, and the 18 transaction could not close. Id. ¶ 7. Specifically, under the Purchase Agreement, Fussell failed to 19 provide disclosure statements in a timely manner, obtain state and local regulatory approvals to 20 transfer the cultivation license to Plaintiff, secure landlords consents to assign the cultivation 21 licenses to Plaintiff and extend the terms of the existing licenses, provide due diligence 22 information and documents to Plaintiff, and produce a minimum quantity of cannabis that met 23 identified criteria of at least 12,000 pounds total after drying and bucking. Id. ¶ 6. Because the 24 transaction did not close before June 1, 2022, the Note became due and owing on June 1, 2022. 25 Id. ¶ 7. Fussell’s company Mosaic also failed to fulfill its deliverable obligations under the Supply 26 Agreements and thus owes $1,499,086 to Plaintiff. Id. ¶ 9. 27 On June 30, 2022, Plaintiff terminated the Purchase Agreement and Supply Agreements 1 Neither Fussell nor Mosaic have made any payments to TPCO despite repeated demands and 2 instead sought to renegotiate and redraft the agreements. Id. ¶ 11. 3 B. Procedural History 4 Plaintiff filed suit on December 16, 2022 in the Superior Court of California in Santa Clara 5 County with four state-law causes of action: (i) a breach of contract claim against Fussell for 6 breach of the Note, (ii) a breach of written contract claim against Mosaic for breach of the Supply 7 Agreements, (iii) a breach of implied-in-fact contract claim against Mosaic for breach of payment 8 obligations, and (iv) a declaratory relief claim against Fussell and the Company Holders seeking a 9 declaration that the Purchase Agreement has been terminated. Id. ¶¶ 154–93. 10 On March 21, 2023, Removing Defendants Fussell and Mosaic removed the suit to the 11 U.S. District Court for the Northern District of California. Docket No. 1 (“Notice of Removal”). 12 Now pending is Plaintiff’s Motion to Remand to state court, filed on April 20, 2023, on grounds 13 that the Notice of Removal was procedurally deficient, and the Court lacks federal jurisdiction 14 over the case. Docket No. 11 (“Motion to Remand”). Removing Defendants filed a response on 15 May 4, 2023. Docket No. 13. (“Defendants’ Opp.”). Plaintiff filed a reply on May 11, 2023. 16 Docket No. 15. (“Plaintiff’s Repl.”). 17 III. LEGAL STANDARD 18 A. Motion to Remand to State Court 19 The party seeking removal bears the burden of establishing federal jurisdiction. Provincial 20 Gov’t of Marinduque v. Placer Dome, Inc., 582 F.3d 1083, 1087 (9th Cir. 2009). “The removal 21 statute is strictly construed, and any doubt about the right of removal requires resolution in favor 22 of remand.” Moore-Thomas v. Alaska Airlines, Inc., 553 F.3d 1241, 1244 (9th Cir. 2009). A suit 23 may be removed from state court to federal court only if the federal court would have had subject 24 matter jurisdiction over the case. See 28 U.S.C. § 1441(a); Caterpillar Inc. v. Williams, 482 U.S. 25 386, 392 (1987) (“Only state-court actions that originally could have been filed in federal court 26 may be removed to federal court by the defendant.”). If it appears at any time before final 27 judgment that the federal court lacks subject matter jurisdiction, the federal court must remand the 1 IV. DISCUSSION 2 A. Notice of Removal 3 Plaintiff argues that removal is improper for the three following reasons: (i) the Court lacks 4 federal question jurisdiction in this case, (ii) Removing Defendants failed to obtain consent from 5 Other Named Defendants for removal, and (iii) the Notice of Removal was brought by a non- 6 party. See Motion to Remand at 2:8–14. The Court addresses each argument in turn. 7 1. Federal Question Jurisdiction 8 This Court never held federal question subject matter jurisdiction over this case and 9 Removing Defendants do not meet their burden of establishing federal jurisdiction in their Notice. 10 First, as required by the well-pleaded complaint rule, there is no federal claim on the face of the 11 Complaint to serve as a basis for removal. Second, the Notice of Removal similarly fails to set 12 forth a short and plain statement of the factual grounds for federal question jurisdiction. 13 a. Well-Pleaded Complaint 14 Only state court actions that could have originally been filed in federal court – i.e., where 15 there is federal jurisdiction – may be removed to federal court by the defendant. Caterpillar, 482 16 U.S. at 392. The well-pleaded complaint rule applies when determining whether federal question 17 jurisdiction exists for the purposes of removal. Saldana v. Glenhaven Healthcare LLC, 27 F.4th 18 679, 686 (9th Cir. 2022). The well-pleaded complaint rule “provides that federal jurisdiction 19 exists only when a federal question is presented on the face of the plaintiff’s properly pleaded 20 complaint.” Caterpillar, 482 U.S. at 392. Further, “removal must be based on the plaintiff’s 21 claims and cannot be based on a defendant’s federal defense.” Saldana, 27 F.4th at 686 (citing 22 Caterpillar, 482 U.S. at 392). However, there are two rare exceptions to the well-pleaded 23 complaint rule: (1) when the state law claim arises under federal law because it raises a substantial 24 federal question, and (2) when the federal statute has been recognized to have complete 25 preemption over the state law claim. City of Oakland v. BP PLC, 969 F.3d 895, 905–906 (9th Cir. 26 2020). As resolution of Plaintiff’s breach of contract claims do not raise a “substantial question as 27 to the interpretation or validity” of the Controlled Substances Act (“CSA”), nor do they 1 category of state law claims which arises under the first exception. Id. at 904–905 (9th Cir. 2020). 2 Furthermore, under the second exception, the Supreme Court has only recognized three complete 3 preemption statutes: § 301 of the Labor Management Relations Act, § 502(a) of the Employment 4 Retirement Income Security Act of 1974 (ERISA), and §§ 85 and 86 of the National Bank Act. 5 Id. at 905–906. 6 The second exception does not apply. There is no complete preemption under the CSA. 7 The CSA has not been recognized by the Supreme Court (or any other court) as one of the few 8 complete preemption statutes. The CSA’s federal statutory scheme is not “so comprehensive that 9 it entirely supplants state law causes of action,” as is required in a complete preemption statute. 10 Saldana, 27 F.4th at 688. A contrary holding would preempt all state laws throughout the nation 11 which have decriminalized and made legal the sale of marijuana. 12 Nor does the first exception apply. The state law claims pled herein do not raise a 13 substantial federal question. The CSA is not “‘a necessary element of the . . . claim for relief’” in 14 this present dispute. City of Oakland, 969 F.3d at 904, 906 (adjudication over the state claim did 15 not require resolution of a substantial federal question nor the interpretation of a federal statute or 16 the Constitution) (citing Empire Healthchoice Assur., Inc. v. McVeigh, 547 U.S. 677, 699 (2006)). 17 Although Removing Defendants claim a federal question appears on the face of the 18 Complaint because “Plaintiff seeks compensation and lost profits related to the growing, 19 cultivation, processing, and/or sales of marijuana, which is illegal under the CSA,” Defendants’ 20 Opp. at 4:2–4; see also Fed. R. Civ. P. 8(c)(1) (listing illegality), the CSA is asserted as an 21 affirmative defense. It is well-settled law that a federal defense “is not a sufficient basis to find 22 embedded federal question jurisdiction.” Saldana, 27 F.4th at 688. See Franchise Tax Bd. v. 23 Constr. Laborers Vacation Trust, 463 U.S. 1, 2 (1983) (reaffirming that a state law claim “may not 24 be removed on the basis of a federal defense . . . even if the defense is anticipated in the 25 complaint”). 26 b. Notice of Removal 27 Moreover, as a matter of procedure, the Notice of Removal herein does not sufficiently 1 proving federal jurisdiction and must provide “a short and plain statement of the grounds for 2 removal.” 28 U.S.C. § 1446(a). The notice of removal “may not offer mere legal conclusions; it 3 must allege the underlying facts supporting each of the requirements for removal jurisdiction.” 4 Leite v. Crane Co., 749 F.3d 1117, 1122 (9th Cir. 2014). The notice here simply concludes that 5 the Court has federal question jurisdiction under 28 U.S.C. § 1331 and that the suit may be 6 removed pursuant to 28 U.S.C. § 1441(a) because it arises under the CSA:

7 This action is a civil action of which this Court has original jurisdiction under Section 1331 of Title 28 of the U.S. Code; and is 8 one which may be removed to this Court by Defendants pursuant to the provisions of Section 1441(a) of Title 28 of the U.S. Code in that 9 it arises under the Controlled Substances Act (21 U.S.C. § 801 et seq.). See also Sauk-Suiattle Indian Tribe v. City of Seattle, 56 F.4th 10 1179 (2022) (recognizing that “action arises under federal law when ‘a well-pleaded complaint establishes . . . that the plaintiff’s right to 11 relief necessarily depends on resolution of a substantial question of federal law’”). 12 13 See Notice of Removal at 2:1–4. However, the Notice of Removal lacks any facts to support a 14 basis for federal jurisdiction, fails to address the absence of a federal claim or federal cause of 15 action on the face of the Complaint itself, and seems to be based solely on a potential affirmative 16 defense under the CSA, an insufficient basis for federal question jurisdiction. 17 2. Consent of All Defendants 18 Removal is defective for yet another reason. “When a civil action is removed solely under 19 section 1441(a), all defendants who have been properly joined and served must join in or consent 20 to the removal of the action.” 28 U.S.C. § 1446(b)(2)(A). “[T]he filing of a notice of removal can 21 be effective without individual consent documents on behalf of each defendant,” if “[o]ne 22 defendant’s timely removal notice containing an averment of the other defendants’ consent and 23 signed by an attorney of record is sufficient.” Proctor v. Vishay Intertechnology Inc., 584 F.3d 24 1208, 1225 (9th Cir. 2009). 25 Removing Defendants failed to obtain or aver the consent of all defendants under the Ninth 26 Circuit’s Proctor standard for joinder in removal. 27 Here, the averred consent by co-defendants is insufficient. The Other Named Defendants 1 joined in or consented to the Notice of Removal but failed to do so. See 28 U.S.C. § 2 1446(b)(2)(A). Removing Defendants failed to obtain consent from the Other Named Defendants 3 prior to filing their Notice of Removal. Instead, the Notice of Removal states: “Defendants will 4 use reasonable efforts to notify the other named defendants of this action’s removal to federal 5 court.” Notice of Removal at 2:8–9 (emphasis added). Evidently, at the time of the Notice, the 6 consent of all defendants, a fact which must appear in the notice of removal itself, see 28 U.S.C. § 7 1446(b)(2)(A); Proctor, 584 F.3d at 1225, was not obtained. 8 In a declaration attached to their Opposition, Removing Defendants clarified they had 9 alerted Other Named Defendants of the removal and “[n]one of them objected to the removal.” 10 Defendants’ Opp. at 4:19–21. However, in the absence of affirmative consent by co-defendants, 11 other district courts have largely (if not unanimously) found a lack of affirmative consent and 12 remanded back to state court. See Tilley v. Tisdale, 914 F. Supp. 2d 846, 852 (E.D. Tex. 2012) 13 (ruling that “silence is not valid consent and does not satisfy the provisions of § 1446”); see also 14 Luckett v. Harris Hosp.-Fort Worth, 764 F. Supp. 436, 442 (N.D. Tex. 1991) (remanding when the 15 only evidence of co-defendants’ consent was an unsupported notice of non-opposition to removal 16 attached to the notice of removal). “An expression of no objection to an act of another party does 17 not mean consent to or joinder in what that other party is doing.” Alejandro v. Philadelphia Vision 18 Ctr., 271 F. Supp. 3d 759, 761 (E.D. Pa. 2017) (remanding an action back to state court when co- 19 defendants simply wrote they “did not object” in response to a notice of removal). 20 In any event, an averment of notice and consent filed after the fact of removal does not 21 satisfy the concern in Proctor “that one defendant might game the system by silently allowing 22 another to remove and, if the federal forum proves disadvantageous, belatedly object that he had 23 not consented.” 584 F.3d at 1225. If there is an averment of consent, it must appear in the Notice 24 of Removal. Where it is unclear if removal was proper, the Ninth Circuit favors remand. See 25 Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992). 26 3. Notice of Removal Brought by a Non-Party 27 The parties dispute whether the proper Mosaic entity was named in the suit and notice of 1 Supply Agreements), with Notice of Removal at 1:20–22 (naming “Mosaic Ag., LLC”). Plaintiffs 2 now assert that “Mosaic Ag., LLC” was not a named defendant and thus lacked standing to 3 remove the action from state court. Motion to Remand at 11:14–23. 4 The naming error amounts to a technical defect that is not dispositive. Amendments to a 5 notice of removal “are permissible only to allow for the correction of a technical defect in the form 6 of a notice.” Green v. Minnesota Life Ins. Co., No. C 05-02410 JSW, 2005 WL 8162635, at *3 7 (N.D. Cal. Nov. 1, 2005); see also ARCO Env’t Remediation, LLC v. Dep’t of Health & Env’t 8 Quality of Montana, 213 F.3d 1108, 1117 (9th Cir. 2000) (permitting amendment to a notice of 9 removal to correct jurisdictional facts upon scrutiny of the record of the case). Here, the typo 10 between “Mosaic Ag., Inc.” and “Mosaic Ag., LLC” appears to be a technical defect in the Notice 11 that Removing Defendants are amenable to fixing. Counsel for Mosaic have clarified there had 12 been “miscommunication between Mr. Fussell and his counsel . . . with respect to the proper name 13 of the entity sued” and that the Notice of Removal contained a “typographical error” listing 14 “Mosaic Ag., LLC” as party to the suit and as the Removing Defendant. Defendants’ Opp. at 5:8– 15 14. To be clear, counsel for Mosaic has now confirmed that the correct party to the suit is Mosaic 16 Ag., Inc., the entity originally listed in the Complaint, not the entity named in the Notice of 17 Removal. Id. This naming error is not dispositive as to the motion to remand. 18 B. Attorneys’ Fees and Other Costs Incurred 19 A motion to remand “may require payment of just costs and any actual expenses, including 20 attorney fees, incurred as a result of the removal.” 28 U.S.C. § 1447(c). The power to grant 21 attorneys’ fees is discretionary power of the Court. Dall v. Albertson’s Inc., 349 Fed. App’x. 158, 22 160 (9th Cir. 2009). “‘Courts may award attorney’s fees under § 1447(c) only where the 23 removing party lacked an objectively reasonable basis for seeking removal.’” Id. (citing Martin v. 24 Franklin Capital Corp., 546 U.S. 132, 141 (2005)). In determining attorneys’ fees, the Supreme 25 Court considers the “desire to deter removals sought for the purpose of prolonging litigation and 26 imposing costs” balanced against “Congress’ basic decision to afford defendants a right to 27 remove.” Martin, 546 U.S. at 140. 1 objectively reasonable basis for seeking removal. See Martin, 546 U.S. at 141. Although 2 Removing Defendants argue the case was properly removed on the basis of a substantial federal 3 question issue under the CSA, Defendants’ Opp. at 8:19–20, Defendants’ removal was improper 4 and unreasonable in light of the clearly established law in this realm. See Maglesini v. Malley, No. 5 22-15625, 2023 WL 1281664, at *1 (9th Cir. 2023) (holding “removal is objectively unreasonable 6 when relevant case law at the time clearly forecloses the removing party’s asserted basis for 7 removal”). The Complaint plainly only raises state-law breach of contract claims and does not 8 implicate any federal laws; only the anticipatory defense of the illegality of cannabis under the 9 CSA arguably implicates a federal question. See Compl. ¶¶ 154–93. But it is a bedrock principle 10 that an affirmative federal defense cannot serve as the basis for removal to a federal court. See 11 Caterpillar, 482 U.S. at 392. Defendants lacked objectively reasonable grounds to believe the 12 removal was legally proper, thus an award of fees is warranted. See Martin, 546 U.S. at 140. 13 Moreover, removal was improper procedurally as noted above. 14 The Court grants Plaintiff all attorneys’ fees and other costs that have been incurred in 15 association with the removal. See Moore v. Kaiser Found. Hosps., Inc., 765 F. Supp. 1464, 1466 16 (N.D. Cal. 1991), aff’d in part, remanded in part sub nom. Moore v. Permanente Med. Grp., Inc., 17 980 F.2d 738 (9th Cir. 1992), and aff’d sub nom. Moore v. Permanente Med. Grp., Inc., 981 F.2d 18 443 (9th Cir. 1992) (“[T]he court concludes that Congress has placed no limit on the amount of 19 payment which the court may require of just costs and any actual expenses, including attorney 20 fees, incurred as a result of the removal. The court may award none, some, or all of the fees 21 incurred by the remanding party.”) (emphases added). 22 V. CONCLUSION 23 For the foregoing reasons, the Court GRANTS Plaintiff’s Motion to Remand the action to 24 the Superior Court of the State of California, County of Santa Clara and awards Plaintiff TPCO its 25 costs and any actual expenses, including attorneys’ fees, incurred as a result of the removal. The 26 Court orders the parties to meet and confer regarding a stipulation as to attorneys’ fees and costs, 27 as detailed by Krista Enns’s Declaration in Support of Plaintiff’s Request for Fees, Docket No. 18; 1 Plaintiff’s attorneys’ fees and costs two weeks from the date of this order; Defendants may file a 2 response one week thereafter. 3 This order disposes of Docket No. 11. 4 5 IT IS SO ORDERED. 6 7 Dated: July 3, 2023 8 9 ______________________________________ EDWARD M. CHEN 10 United States District Judge 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27