Tailored Herb Company, LLC v. Wise Health Solutions, LLC et al

Filing 50

ORDER granting 5 motion to dismiss case.. Signed on 3/26/24 by District Judge M. Douglas Harpool. (View, Pat)

IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
TAILORED HERB CO., LLC.,

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Plaintiff,
vs.
WISE HEALTH SOLUTIONS, LLC,
VERACIOUS INVESTIGATIVE
COMPLIANCE COLUTIONS
INTERNATIONAL, LLC, and
OAKSTERDAM UNIVERSITY,
Defendants.

Case No. 6:23-cv-03144-MDH

ORDER
Before the Court are Defendants Wise Health Solutions and Veracious Investigative
Compliance Colutions International’s Motions to Dismiss.1 Defendants move to dismiss Plaintiff’s
claims because it has failed to exhaust its administrative remedies; Plaintiff lacks standing to bring
any claims; and/or Defendants owed no independent duty to Plaintiff. Plaintiff initially filed its
case in Howell County, Missouri. Defendant Wise filed a motion to dismiss in state court.
Defendant Veracious removed the case and filed a motion to dismiss. (Doc. 5). 2 On October 24,
2023, the Court held a hearing on the motions to dismiss. The Court Ordered the parties to file a
status report regarding any administrative appeals, court decisions, or other adjudications of any
issues that are relevant or material, or are arguably relevant or material, to the Court's
determination of the pending motions. The parties have filed a joint status report stating in this
case Plaintiff currently has three pending appeal actions before the Missouri Administrative

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Defendant Oaksterdam University has previously been dismissed.
Defendant Veracious’s Motion to Dismiss joins in the original motion filed in state court. (See
Doc. 5).
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Hearing Commission, consolidated under Case Number 20-0657, with a hearing currently
scheduled for May 6-7, 2024. In addition, the status report states no court decisions or other
adjudications of any issues that are relevant or material, or are arguably material, to the Court’s
ruling on the pending motions to dismiss. The motions are fully briefed and ripe for review.
BACKGROUND
Plaintiff’s claims stem from the submission of applications to the State of Missouri for a
medical marijuana commercial cultivation facility license, a medical marijuana commercial
dispensary facility license, and a medical marijuana commercial infused products manufacturing
facility license. The State denied Plaintiff’s applications and Plaintiff did not receive licenses.
Plaintiff’s allegations against the Defendants are based on Defendants’ “role” in evaluating
Plaintiff’s applications, specifically the scoring of the applications that were submitted to the State.
It is undisputed that Defendants did not make the decision regarding whether Plaintiff was
granted a license. The Missouri Department of Health and Senior Services (“DHSS”), who is not
a named party to this lawsuit, is the entity who ultimately approved or denied the applications,
including the decision to deny Plaintiff’s applications. DHSS was also responsible for drafting the
license application questions and creating the instructions for the scoring and evaluation of the
applications. The scoring methodology was set forth in the Missouri Code of State Regulations
and subjected the applications to a two-tiered scoring system. Defendants did not create the scoring
methodology or the scoring system.3

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Article XIV of the Missouri Constitution1 and the Missouri Code of State Regulations and
established the criteria and procedures by which all medical marijuana commercial facilities
licensing applications are to be processed and evaluated, including the requirements for numerical
scoring, and contain a basic framework of the required qualifications for commercial facility
licensure, including a specific overview of the criteria on which an applicant was to be judged.
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Under this scoring system, initially the names and/or other identifying information of the
applicants were removed from the applications and then scored, with the applications being
identified solely by an applicant’s selected or generated alphanumeric “code” or “ID.” After
scoring, the names and/or other identifying information of the applicants were added back to the
applications by DHSS and the applications were then ranked by score from highest to lowest.
The State of Missouri Office of Administration (“OA”) determined it would select and
employ an outside entity to assist DHSS in scoring the applications. In order to find that entity the
OA issued a Request for Proposal for Medical Marijuana Facility Application Scoring Services
(“RFP”). The first RFP received no responses. The OA then issued a second RFP. The second
RFP contained language forbidding any conflict of interests or apparent conflict of interest in
relation to the services provided by the scoring entity. Plaintiff’s claims are based in part on the
language contained in the RFP that forbid conflicts of interest or apparent conflicts of interest.
Defendant Wise Health Solutions submitted a response to the second RFP, along with six
other entities, seeking to obtain the scoring contract with the state. The OA ultimately selected
Wise after it obtained the highest score of the proposals. 4 The State of Missouri awarded Wise a
vendor contract to score all medical marijuana commercial facilities applications for the state.
WHS bid a total cost of $2,537,795.00 for its application scoring duties, to be paid by the State of
Missouri, with an estimated cost during the “first period” of the contract (one year) of $525,919.00.
Wise was the highest scoring applicant for the contract.
The General Requirements portion of the vendor contract between WHS and the State of
Missouri, Section 2.1.3, requires:

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Plaintiff’s Complaint contains detailed allegations (or argument) regarding the selection process,
the other bids, the due diligence of the OA, etc. that the Court finds irrelevant to the analysis of
the issues presented in the pending motions. Neither the OA, nor DHSS, are parties to this lawsuit.
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in accordance with Section 2.8, Conflict of Interest...the contractor and contractor’s
personnel, including all subcontractor personnel on the project, shall submit to the
state agency a signed copy of Attachment 2, Confidentiality and Conflict of
Interest, Missouri Medical Marijuana Contract Services.
In the Scope of Work portion of the contract, Conflict of Interest Section 2.8.1, the agreement
states:
During the term of the contract, the contractor shall not have a conflict of interest
or apparent conflict of interest…Such conflicts may include, but are not limited to,
any of the following actions by the contractor or its officers, contractor’s personnel,
consultants, subcontractors, suppliers or agents: (d) The contractor, its personnel,
or any person within two degrees of contractor kinship…shall not have any
financial interest in the business of a third party that causes, or would appear to
cause, a conflict of interest in connection with the contractor’s performance under
the contract.
Wise affirmed it had no conflict of interest.
Plaintiff also states that the terms of the contract between Wise and the State required Wise
to affirm that all application reviewers would have appropriate experience for the project, be
college-degreed, or demonstrate expert practitioner, peer-reviewed status. Plaintiff claims despite
agreeing that the reviewers would be well versed in the subject area from previous experience
evaluating applications from other states and industry experience that Wise failed to provide
“qualified” evaluators to score the applications.5
On or about September 30, 209, Plaintiff submitted an application for a medical marijuana
commercial cultivation license. On or about November 6, 2019, Plaintiff submitted an application
for a medical marijuana commercial dispensary facility license. On or about November 13, 2019,
Plaintiff submitted to DHSS Plaintiff’s application for a medical marijuana commercial infused
products manufacturing facility license. Plaintiff paid application filing fees totaling $22,000.00 -

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Plaintiff alleges multiple appeals filed by other entities that were denied licenses have found that
Wise did not consistently score the applications.
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$10,000.00 for the cultivation facility application and $6,000.00 each for the dispensary
application and infused products manufacturing facilities applications.
Sometime prior to December 26, 2019, WHS scored Plaintiff’s application for a medical
marijuana commercial cultivation facility. The score was 1,275.48 points and the minimum score
awarded licensure was 1479.41 points, a difference of 203.93 points. Sometime prior to January
10, 2020, WHS scored Plaintiff’s application for a medical marijuana commercial infused products
manufacturing facility. The score of this application was 1,448.87 points and the minimum score
needed for licensure was 1526.16 points, a difference of 77.29 points. Sometime prior to January
23, 2020, WHS scored Plaintiff’s application for a medical marijuana commercial dispensary
facility. The score of this application as determined by WHS was 1345.83 points and the minimum
score needed for licensure of a dispensary in Plaintiff’s Congressional District 8 was 1468.27
points, a difference of 122.44 points.
On or about, December 26, 2019, Plaintiff received notice from DHSS that Plaintiff’s
application for a medical marijuana commercial cultivation facility license had been denied. On or
about, January 10, 2020, Plaintiff received notice from DHSS that Plaintiff’s application for a
medical marijuana commercial infused products manufacturing facility license had been denied.
On or about, January 23, 2020, Plaintiff received notice from DHSS that Plaintiff’s application for
a medical marijuana commercial dispensary facility license had been denied. Plaintiff has appealed
DHSS’ denial of each of its three medical marijuana commercial facility applications, and those
administrative appeals are pending before the Missouri Administrative Hearing Commission.
Plaintiff brings its claims against Defendants alleging the following Counts – I) Tortious
Interference with a Business Expectancy; II) Civil Conspiracy; III) Conflict of Interest; and IV)
Negligence, Misfeasance, and Malfeasance. Plaintiff contends that the Defendants failed to abide

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by the rules established by DHSS and the Missouri statutes and regulations authorizing medical
marijuana sales and issuing licenses. Plaintiff’s allegations include, but are not limited to, alleged
conflicts of interest in the scoring, failure to uniformly score according to the guidelines,
instructions and contract terms, failure to train the individuals conducting the scoring, and
unqualified employees conducting the scoring.
Plaintiff argues conflicts existed between some of the scorers working for Defendants
because they also worked for companies seeking applications. Plaintiff alleges Wise submitted an
affidavit that there would be no conflicts but then violated the terms of the agreement. Plaintiff
also argues that despite the State being the ultimate decision maker it did not independently
conduct a review and relied on “faulty” scores. Defendants move to dismiss all the claims and for
the reasons set forth herein, the Court grants the motions to dismiss.
STANDARD
“To survive a motion to dismiss, a claim must be facially plausible, meaning that the
‘factual content...allows the court to draw the reasonable inference that the defendant is liable for
the misconduct alleged.’” Cole v. Homier Distrib. Co., Inc., 599 F.3d 856, 861 (8th Cir. 2010)
(quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). The Court must “accept the allegations
contained in the complaint as true and draw all reasonable inferences in favor of the nonmoving
party.” Id. (quoting Coons v. Mineta, 410 F.3d 1036, 1039 (8th Cir. 2005)). However,
“[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory
statements,” will not pass muster. Iqbal, 556 U.S. at 678. To that end, the court is “free to ignore
legal conclusions, unsupported conclusions, unwarranted inferences and sweeping legal
conclusions cast in the form of factual allegations.” Wiles v. Capitol Indem. Corp., 280 F.3d 868,
870 (8th Cir. 2002).

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To survive a 12(b)(6) motion to dismiss, a complaint must do more than recite the bare
elements of a cause of action. Ashcroft v. Iqbal, 556 U.S. 662, 687 (2009). It must include “enough
facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007). “While a complaint . . . does not need detailed factual allegations,” a plaintiff
must provide the grounds of his entitlement with more than mere “labels and conclusions,” or “a
formulaic recitation of the elements of a cause of action.” Benton v. Merrill Lynch & Co., Inc., 524
F.3d 866, 870 (8th Cir. 2008) (quoting Twombly, 550 U.S. at 555).
DISCUSSION
Plaintiff’s claims stem from a denial by DHSS of its applications for medical marijuana
licenses. Plaintiff does not dispute that Defendants did not have authority to determine whether
DHSS ultimately granted a license to Plaintiff. Defendants’ role was simply to score the
applications pursuant to the scoring methodology set forth in the Missouri Code of State
Regulations and the State’s two-tiered scoring system. Plaintiff further acknowledges the
application score was only one factor DHSS considered when determining whether to grant a
medical marijuana license. For the reasons set forth herein, the Court finds Plaintiff has failed to
state a claim against Defendants.
Tortious Interference with a Business Expectancy
A claim for tortious interference with a contract or business expectancy requires five
elements: (1) a contract or valid business expectancy; (2) defendant’s knowledge of the contract
or relationship; (3) a breach induced or caused by defendant’s intentional interference; (4) absence
of justification; and (5) damages. Community Title v. Roosevelt Fed. Sav. & Loan, 796 S.W.2d
369, 372 (Mo. banc 1990).

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Plaintiff alleges that by filing the applications with DHSS, and paying the application fees,
Plaintiff created a valid business expectancy that its applications would be fairly scored by Wise,
that the scoring would be performed according to the State’s requirements, and according to the
terms of the contract between Wise and the State. Plaintiff further alleges Wise breached its
contract with the State that resulted in tortious interference with Plaintiff’s business expectancy.
Defendants move to dismiss this claim arguing Plaintiff fails to allege facts, even taken in
a light most favorable to Plaintiff, to satisfy a claim for tortious interference. First, Defendants
contend that submitting an application for a license does not create a contract or business
expectancy. Plaintiff’s submission, and payment of a fee, did not create a business relationship
with the State.
Plaintiff argues it expended money on the preparation, and the filing, of the applications
and as a result this expenditure creates a basis for the claim against Wise. However, this does not
create a business expectancy or a contract between Plaintiff and the State, nor Plaintiff and Wise.
Further, DHSS made the decision to deny Plaintiff a license. While the scores given to the
applications were a factor, it is undisputed that the scores and evaluations submitted to DHSS were
not binding on DHSS or its decision on whether to grant a license to an applicant.
Plaintiff then argues its business expectancy was that its applications would be fairly and
thoroughly scored, without any conflicts, in accordance with the guidelines. The parties have not
presented the Court with any cases where a court has found that a plaintiff has a business
expectancy when it has filed an application for a governmental license. Although not binding, this
Court has reviewed the decision by the United States District Court Eastern District of Arkansas
that found the governmental licensing process does not create a business expectancy as a matter
of law. Absolute Essence, LLC v. Pub. Consulting Grp. LLC, No. 4:22CV294 JM, 2023 WL

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2603996 (E.D. Ark. Mar. 22, 2023).6 The Arkansas district court cited to cases from other
jurisdictions that have reached similar conclusions. Id. at *3, citing State ex rel. CannAscend Ohio
LLC v. Williams, 2020 WL 554226, *17 (Ohio App. 2020); Bakri v. Daytona Beach, No. 6:08CV-1572-ORL-28GJK (M.D. Fla. June 5, 2009); Asia Invest. Co. v. Borowski, 133 Cal. App. 3d
832, 840-41 (1982); Itasca v. Lisle, 817 N.E.2d 160, 352 Ill. App. 3d 847, 858 (2004); Wagner v.
Nottingham Assocs., 464 So. 2d 166, 169, fn. 4, 5 (Fla. App. 1985); Blank v. Kirwan, 703 P.2d 58,
39 Cal. 3d 311, 316-17 (1985).
In addition, Plaintiff’s arguments that it had an expectation to have its applications scored
“fairly” does not create a business expectancy. Further, Plaintiff’s business expectancy (to conduct
medical marijuana business) was subject to the contingency that the State grant Plaintiff a license.
Again, Defendants had no authority to grant, or deny, Plaintiff’s license. The parties have not
submitted any binding authority on whether the governmental licensing process creates a business
expectancy and for the reasons set forth herein, the Court finds it does not.
Negligence, Misfeasance, and Malfeasance
Count IV of Plaintiff’s First Amended Petition brings claims for Negligence, Misfeasance,
and Malfeasance. Plaintiff alleges that Defendants were negligent in their scoring of the
applications and that the negligent scoring caused Plaintiff’s applications to be scored improperly.
Plaintiff alleges as a result Plaintiff received an insufficient ranking for licensure. Plaintiff claims
Defendants are responsible for economic damages to Plaintiff based on the “negligent” scoring.
In Missouri, to prevail on a claim for negligence Plaintiff must establish: 1) a duty owed
by the defendant to the plaintiff; 2) a breach of that duty by the defendant; 3) causation; and 4) an
injury or actual damages. Payne v. Fiesta Corp., 543 S.W.3d 109, 118 (Mo. Ct. App. 2018). “[T]o

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This decision is currently pending on appeal in the Eighth Circuit. Case No. 23-1642.
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prove a causal connection to establish negligence, the plaintiff must show both causation in fact
and proximate causation.” Housel v. HD Dev. of Maryland, Inc., 196 F.Supp.3d 1039, 1051 (W.D.
Mo. 2016) (citing Robinson v. Mo. State Hwy. & Transp. Comm’n, 24 S.W.3d 67, 77 (Mo. App.
W.D. 2000)).
Here, Plaintiff does not dispute that Defendants could not grant or deny an application.
Plaintiff further does not dispute that the State was not bound by the scores or evaluations
submitted by Wise. A review of Plaintiff’s allegations, even taken in a light most favorable to
them, does not establish that Defendants owed a duty to Plaintiff. Defendants contracted with the
State to evaluate and score the applications. The scoring was to be done pursuant the State’s
requirements. Defendants’ evaluations and scores presented to the State pursuant to that contract
did not create a duty to Plaintiff. The Court further discusses this in the standing section below.
Further, even if Plaintiff could establish a duty, Defendants’ conduct is not the causation
of Plaintiff’s alleged damages. Plaintiff has conceded that the State was the only entity that could
grant a license and that the State was not bound by the evaluations and scores submitted by Wise.
If Plaintiff believes the scores were insufficient or inadequate based on the State’s two-tiered
scoring system the recourse is, and was, to appeal that score through the State’s administrative
process. The Court finds Plaintiff has failed to state a claim against Defendants.
Standing
In addition to the reasons discussed above, Plaintiff claims also fail for lack of standing.
“Under Missouri law, ‘[b]efore an act is said to be negligent, there must exist a duty to the
individual complaining.” Nelson v. Freeman, 537 F. Supp. 602, 607 (W.D. Mo. Apr. 7, 1982),
aff’d, 706 F.2d 276 (8th Cir. 1983) (citations omitted). The Public Duty Rule, adopted by Missouri
courts, “clearly recognize and apply an established state court rule of decision, that a statute which

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creates a duty to the public, and to individuals only as member of the public, will not support a
private cause of action in favor of individuals.” See Nelson, 537 F.Supp. at 609. These cases apply
to public employees.
Here, Defendants were hired to perform certain services for DHSS. DHSS contracted with
Defendants to fulfill its constitutional mandate as set forth in Article XIV. The defined purpose of
Article XIV was “to permit state-licensed physicians and nurse practitioners to recommend
marijuana for medical purposes to patients with serious illnesses and medical conditions…..and to
allow for the limited legal production, distribution, sale and purchase of marijuana for medical
use.” Art. XIV, §1.
Defendants cite to Nelson as analogous to this case. In Nelson, the district court found that
the Missouri Child Abuse Statute was found to have created “only a public duty and not a duty to
individuals” and followed the Missouri Supreme Court’s precedent in Parker v. Sherman, 456
S.W.2d 577 (Mo. 1970). Id. The Court further found that even when it is an alleged willful refusal
to perform the duties mandated by the statute, that there is still no cause of action under Missouri
Law. Id. at 612. However, Nelson involved public employees.
Here, Defendants argue its duties, if any, are owed to the public at large. Defendants were
contracted by DHSS and contend under the public duty rule they are not liable to Plaintiff for the
denial of its applications. This reasoning also applies to Plaintiff’s conflict of interest allegations.
However, as stated throughout this Order, Plaintiff’s claims are appropriate claims to be raised
with the State in an appeal for the denial of the applications. Plaintiff’s conflict of interest claim
alleges each score assigned to the application questions was a result of a score that was obtained
with a conflict of interest. The Court finds the application of the public duty doctrine, or the
analysis of this theory, is unnecessary.

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The Court does not disagree that Plaintiff’s allegations, when taken as true, paint a picture
of an application process that contains flaws. However, Plaintiff’s allegations stem from the State
of Missouri’s actions with regard to legislation, rule-making, decision-making (in both hiring
Defendants to score the applications and in their reliance on Defendants’ scores), and review of
the applications. The State of Missouri, however, is not a defendant. Wherefore, for the reasons
set forth herein the Court finds Plaintiff’s claims should be dismissed.
Civil Conspiracy
The elements of civil conspiracy are: (1) two or more persons; (2) an object to be
accomplished; (3) a meeting of the minds on the object or course of action; (4) one or more
unlawful overt acts, and (5) resulting damages. Mackey v. Mackey, 914 S.W.2d 48, 50 (Mo. App.
W.D. 1996). The essence of a civil conspiracy is an unlawful act agreed upon by two or more
persons. Id.
Here, for the reasons set forth herein, the Court finds Plaintiff’s other claims fail to state a
claim. As a result, Plaintiff’s civil conspiracy claim must also fail. There is no underlying tort for
which Plaintiff can state a claim to survive a motion to dismiss.
Defendant Veracious
In addition, Defendant Veracious argues Plaintiff’s Petition makes no direct allegations
against it and that there is no allegation that Veracious did business within the state of Missouri.
Veracious states Plaintiff fails to allege it had any contracts or connection to DHSS or the Plaintiff.
As set forth in the briefing, the First Amended Petition references Veracious five times in
the seventy-four page pleading. Veracious is first named in the caption and then identified in
paragraph 3 as “Defendant Veracious Investigative & Compliance Solutions International LLC
(hereinafter “Veracious”) is a Texas corporation whose principal place of business is in Carson

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City, NV, and whose registered agent’s office is located in Houston, TX.” Plaintiff also references
Veracious in the prayer for relief.
The only specific allegation regarding Veracious is in paragraph 19 that alleges:
On information and belief, at some point in June of 2019, Defendant Wise Health
Solutions, LLC was created when Defendants Veracious Investigative and &
Compliance Solutions International, LLC, and Oaksterdam University entered into
an arrangement whereby those two entities joined together in their efforts to secure
a vendor contract from the State of Missouri to score the applications for Missouri
medical marijuana commercial facility licenses.
In response, Plaintiff argues that Veracious should somehow be held liable for the acts of
Wise. However, Plaintiff does not allege any basis for this liability. Further, for the reasons set
forth herein the Court has found that Plaintiff has failed to state a claim against Wise. After a
review of the record before it, the Court finds Plaintiff has failed to state a claim against Veracious
and any such claims should also be dismissed.
Failure to Exhaust
Finally, Defendants move to dismiss Plaintiff’s claims arguing it has not exhausted its
administrative remedies. “The doctrine of exhaustion of administrative remedies is a jurisdictional
requirement.” McDonald v. City of Brentwood, 66 S.W.3d 46, 49 (Mo. App. W.D. 1998). “As a
general rule, courts will refrain from acting until the litigants have exhausted all available
administrative remedies provided by the statute.” Council House Redevelopment Corp. v. Hill, 920
S.W.2d 890, 892 (Mo. banc 1996). According to Missouri law, the Missouri Administrative
Hearing Commission (AHC) is the appropriate body for initial redress of issues concerning
medical marijuana licenses being denied by the DHSS. Art. XIV, § 1.3(23) and R.S.Mo. § 621.120.
In this case, Plaintiff currently has three pending appeal actions before the Missouri
Administrative Hearing Commission, consolidated under Case Number 20-0657, with a hearing
currently scheduled for May 6-7, 2024. However, the Court finds the exhaustion argument is not
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dispositive for purposes of the Court’s rulings. The Court agrees that Plaintiff’s recourse for its
alleged claim to have not received a license, whether it was through inaccurate scoring, the State’s
hiring of Wise, or other allegations of a “flawed” process are claims to be raised against the State
and/or through the administrative process.
Here, Plaintiff’s claims are separate and distinct from the administrative claims and raise
tortious actions against a third party in that process. As discussed herein, Plaintiff’s claims are
predicated on allegations that Defendants’ misconduct in scoring the applications caused them
harm. Plaintiff argues it is not appealing the license denial and concede Defendants did not have
authority to grant a license. Rather, Plaintiff claims Defendants have caused them economic
damages through the evaluations of the applications. However, Plaintiff has also conceded that
the State was not bound by the scores it received from Defendants and there is no allegation that
the scores alone were the only basis for the granting of, or the denial of, the license.
For the reasons set forth herein, the Court finds Plaintiff has failed to state a claim against
Defendants. As a result, the Court does not address the administrative exhaustion issues. However,
the Court agrees that Plaintiff’s claims based on the arguments it has raised, including the “flawed”
scoring system created and implemented by the State, the entity the State contracted with to assist
in scoring the applications, and the overall allegations of “conflicts” in the system are proper issues
to be raised in any appeal of the denial of Plaintiff’s applications and not against these Defendants.
CONCLUSION
Wherefore, for the reasons stated herein, the Court hereby GRANTS Defendants’ Motions
to Dismiss. Plaintiff’s claims are hereby dismissed in their entirety.

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IT IS SO ORDERED.
DATED: March 26, 2024
/s/ Douglas Harpool
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DOUGLAS HARPOOL
UNITED STATES DISTRICT JUDGE

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