Original Investments LLC v. State of Oklahoma et al

Filing 32

ORDER granting 29 Motion to Dismiss on Behalf of Defendants. Plaintiff's Amended Complaint against defendants, Colonel Lance Frye, M.D., Commissioner of the Oklahoma State Department of Health, and Dr. Kelly Williams, M.D., Director of the Oklahoma Medical Marijuana Authority, is DISMISSED WITH PREJUDICE under Rule 12(b)(6), Fed. R. Civ. P. Signed by Honorable Stephen P. Friot on 6/4/2021. (llg)

IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF OKLAHOMA
ORIGINAL INVESTMENTS, LLC,
d/b/a DANK’S WONDER
EMPORIUM, a Washington limited
liability company,
Plaintiff,
-vsTHE STATE OF OKLAHOMA, THE
OKLAHOMA STATE
DEPARTMENT OF HEALTH,
COLONEL LANCE FRYE, M.D.,
COMMISSIONER OF THE
OKLAHOMA STATE
DEPARTMENT OF HEALTH, THE
OKLAHOMA MEDICAL
MARIJUANA AUTHORITY, and
DR. KELLY WILLIAMS, PhD,
DIRECTOR OF THE OKLAHOMA
MEDICAL MARIJUANA
AUTHORITY,
Defendants.

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Case No. CIV-20-820-F

ORDER
Selling marijuana is a criminal offense, punishable by imprisonment,
everywhere in the United States. The dispositive question in the matter now before
the court is whether the court should facilitate the plainly criminal activity in which
plaintiff proposes to engage in the State of Oklahoma. The court declines to do so.

I.
Introduction
Plaintiff Original Investments, LLC, d/b/a Dank’s Wonder Emporium,
commenced this action, pursuant to 42 U.S.C. § 1983 and 28 U.S.C. § 2201, seeking
declaratory and injunctive relief from the enforcement of section 427.14(E)(7) of the
Oklahoma Medical Marijuana and Patient Protection Act, 63 O.S. § 427.1, et seq.,
and implementing rules. In its amended complaint, plaintiff asserts that the statute
violates the dormant Commerce Clause of the United States Constitution because
they discriminate against non-residents of Oklahoma.1

Specifically, plaintiff

challenges section 427.14(E)(7) because it prohibits non-residents of Oklahoma
from receiving Oklahoma medical marijuana business licenses and from owning
more than 25 percent of any Oklahoma entity that has an Oklahoma medical
marijuana business license.
Plaintiff alleges–and the court has absolutely no reason to doubt–that “[t]here
is a vibrant marijuana industry” in the United States and in the State of Oklahoma.
Amended Complaint, doc. no. 28, at 5. Plaintiff, by its account, desires to “profit
from Oklahoma’s lucrative marijuana market.” Id. at 8. In pursuit of that objective,
plaintiff desires to apply for an Oklahoma medical marijuana business license and
to be the majority owner of an entity that has an Oklahoma medical marijuana
business license. To borrow Justice (then Judge) Gorsuch’s phrase from a case
involving distribution of marijuana in Colorado, plaintiff in the case at bar aspires,
with the aid of this court, to “run [its] business with the blessing of state authorities
but in defiance of federal criminal law.” Feinberg v. Comm’r, 808 F.3d 813, 814
(10th Cir. 2015). Plaintiff seeks a judgment declaring that section 427.14(E)(7) and

1

Plaintiff is a Washington limited liability company with its principal place of business in
Olympia, Washington. Plaintiff is wholly owned by residents of Washington State, and all of its
officers are residents of Washington State.

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the implementing rules violate the United States Constitution and enjoining the
enforcement of that section.
In its complaint, plaintiff named as defendants the State of Oklahoma, the
Oklahoma State Department of Health, Colonel Lance Frye, M.D., Interim
Commissioner of the Oklahoma State Department of Health, the Oklahoma Medical
Marijuana Authority and Dr. Kelly Williams, Ph.D., Interim Director of the
Oklahoma Medical Marijuana Authority. After the pleadings closed, the parties
filed motions for judgment on the pleadings under Rule 12(c), Fed. R. Civ. P. The
court dismissed plaintiff’s complaint without prejudice as to all defendants based
upon Eleventh Amendment immunity. However, because it appeared that plaintiff
might be able to amend its pleading to assert its claims against one or both of the
state officials in their official capacities under the Supreme Court’s ruling in Ex parte
Young, 209 U.S. 123 (1908), the court allowed plaintiff to file an amended
complaint.
Plaintiff filed an amended complaint against both named state officials in their
official capacities.2 The amended complaint requests the court to enter a judgment
declaring section 427.14(E)(7) unconstitutional under the United States Constitution
and enjoining Dr. Williams and Dr. Frye, acting in their official capacities, from
enforcing section 427.14(E)(7). In response to the amended complaint, defendants
have moved to dismiss the pleading, under Rule 12(b)(6), Fed. R. Civ. P., presenting
two reasons for dismissal: (1) the Commerce Clause does not implicitly protect an

2

In the body of the Amended Complaint, plaintiff recognizes that Dr. Williams is now Director of
the Oklahoma Medical Marijuana Authority and identifies Dr. Williams as such. Dr. Frye is
identified as Interim Commissioner of the Oklahoma State Department of Health. However,
subsequent to the filing of the amended complaint, the Oklahoma Senate confirmed him as Health
Commissioner. See, https://oklahoma.gov/health/organization/commissioner-of-health.html (last
accessed June 1, 2021). The caption of this action has been amended to reflect the correct official
capacities.

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interstate market for marijuana because Congress has expressly criminalized
distribution of marijuana under the Controlled Substances Act (CSA), 21 U.S.C.
§ 801, et seq., and (2) the court should not use its equitable powers to support, aid,
or encourage illegal conduct. Plaintiff has responded to the motion, opposing
dismissal of its complaint. Defendants have filed a reply brief. Having reviewed
the parties’ submissions, the court concurs with defendants’ second reason for
dismissal and finds that dismissal of plaintiff’s complaint under Rule 12(b)(6) is
appropriate.
II.
The Rule 12(b)(6) Standard
In reviewing a motion to dismiss under Rule 12(b)(6), the court accepts the
well-pleaded allegations of the amended complaint as true and construes them in a
light most favorable to the plaintiff. Doe v. City of Albuquerque, 667 F.3d 1111,
1118 (10th Cir. 2012). To withstand a motion to dismiss, the amended complaint
must contain sufficient factual matter, accepted as true, to state a claim to relief that
is plausible on its face. Id. An affirmative defense, such as illegality, may be
adjudicated on a motion to dismiss if the defense appears plainly on the face of the
complaint. Fourth Corner Credit Union v. Federal Reserve Bank of Kansas City,
861 F.3d 1052, 1058 (10th Cir. 2017) (“‘If the defense appears plainly on the face of
the complaint itself, the motion may be disposed of under [Rule 12(b)(6).]’”)
(quoting Miller v. Shell Oil Co., 345 F.2d 891, 893 (10th Cir. 1965)); see also, Wright
& Miller, Federal Practice and Procedure § 1357 (3d ed. 2020) (assertion of illegality
may be considered on a motion to dismiss under Rule 12(b)(6)).
III.
Defendants’ Illegality Argument is Dispositive
Oklahoma has authorized the sale and use of marijuana for medicinal
purposes. Medical marijuana business licenses have been issued to applicants
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meeting the Oklahoma residency requirements, permitting the growing, processing,
dispensing, transporting, and testing of medical marijuana. See, 63 O.S. § 427.14(A)
(enumerating the categories for which a medical marijuana business license is
created). However, under federal law, specifically, the CSA, marijuana is classified
as a Schedule I controlled substance, and with one exception not applicable here, it
is a crime to produce or distribute marijuana. Gonzales v. Raich, 545 U.S. 1, 14
(2005). “The CSA designates marijuana as contraband for any purpose” and “by
characterizing marijuana as a Schedule I drug, Congress expressly found that the
drug has no acceptable medical uses.” Id. at 27 (emphasis in original).3 It is also a
federal crime to aid, abet or counsel the production or distribution of marijuana. 18
U.S.C. § 2; United States v. Leos-Quijada, 107 F.3d 786, 794 (10th Cir. 1997).
Plaintiff seeks declaratory and injunctive relief to prohibit the enforcement of
the residency requirements in section 427.14(E)(7) so it can obtain an Oklahoma
medical marijuana business license to pursue economic opportunities in Oklahoma’s
medical marijuana market. As stated, defendants argue that the court should not use
its equitable power to facilitate conduct that is illegal under federal law. The court
agrees.
There is no dispute that the relief plaintiff seeks against the defendant state
officials is equitable. It is well-settled, however, that “a court won’t use its equitable
power to facilitate illegal conduct.” Fourth Corner, 861 F.3d at 1054 (citing cases).
Plaintiff invokes the court’s equitable powers to facilitate activity that is illegal under
federal law. Absent the relief plaintiff seeks from this court, plaintiff cannot obtain
a medical marijuana business license. And without that license, plaintiff is unable,

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It is worth noting that, in Gonzales, the Court squarely upheld the CSA when pitted against state
marijuana legislation even on what it called “the troubling facts” of that case, 545 U.S. at 9, facts
which, at least from a humanitarian standpoint, were assuredly more compelling than the facts of
the case at bar.

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on its own,4 to grow, process, dispense, transport, or test medical marijuana in
Oklahoma.
In response, plaintiff argues that the illegality defense overlooks Oklahoma’s
own “wrongdoing” in licensing 2,221 marijuana dispensaries to date and in
discriminating against non-residents in violation of the United States Constitution in
granting licenses. Plaintiff points out that in Johnson v. Yellow Cab Transit Co.,
321 U.S. 383 (1944), the Supreme Court, in discussing the unclean hands doctrine,
found that the doctrine “is not a rigid formula which trammels the free and just
exercise of discretion.” Id. at 387 (internal quotation omitted). The Court explained
that while “a federal court should not, in an ordinary case, lend its judicial power to
a plaintiff who seeks to invoke that power for the purposes of consummating a
transaction in clear violation of law,” the court need not “always permit a defendant
wrongdoer to retain the profits of [its] wrongdoing merely because the plaintiff
[itself] is possibly guilty of transgressing the law in the transactions involved.” Id.
Plaintiff asserts that if it is engaged in any wrongdoing by owning 25 percent of
several marijuana stores, Oklahoma is engaged in wrongdoing on a much larger
scale, by licensing 2,221 dispensaries to sell medical marijuana and in doing so,
discriminating against non-residents. Plaintiff urges the court not to apply the
illegality defense for Oklahoma’s benefit, since it has created, and is now profiting
from, an $800 million medical marijuana market which discriminates against
non-residents of the state.
The court notes that the illegality defense raised by defendants is not based
upon plaintiff’s 25 percent ownership of medical marijuana dispensaries. Rather, it
is based upon plaintiff’s pursuit of a decree from a federal court in order to obtain a

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Plaintiff alleges that it owns 25 percent of multiple licensed medical marijuana dispensaries in
Oklahoma.

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medical marijuana business license solely owned by it. The court concludes that the
Supreme Court’s guidance in Johnson with respect to permitting “a defendant
wrongdoer to retain the profits of [its] wrongdoing merely because the plaintiff
[itself] is possibly guilty of transgressing the law in the transactions involved,” 321
U.S. at 387, is not relevant here. Denial of equitable relief will not permit Oklahoma
to retain any profits of its alleged “wrongdoing” at plaintiff’s expense. Oklahoma
will not be profiting by any alleged “wrongdoing.” Indeed, Oklahoma would benefit
more by way of receipt of tax revenues if plaintiff and other nonresidents were able
to obtain a medical marijuana business license. The factual circumstances present
in Johnson are not present in the case at bar.5, 6
Even assuming that the framework for the court’s evaluation is “the [court’s]
free and just exercise of discretion,” Johnson at 387, the court concludes that the
circumstances confronting the court in this case warrant the denial of equitable relief.
Plaintiff seeks equitable relief so that it may obtain a medical marijuana business
license or own the majority of a company holding such a license. It seeks that relief
in order to engage in activities that Congress has expressly declared to be criminal

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Nor are the factual circumstances in this case similar to those in Northbay Wellness Group, Inc.
v. Beyries, 789 F.3d 956 (9th Cir. 2015), cited by plaintiff, where the Ninth Circuit reversed
application of the unclean hands doctrine that absolved an attorney who stole $25,000 from his
client, a medical marijuana dispensary, from nondischargeabililty of the debt, finding that while
both the attorney and client shared responsibility for the illegal marijuana sales which generated
the $25,000, the attorney’s wrongdoing (stealing the money) outweighed the client’s wrongdoing
and that absolving of the attorney would be contrary to the public interest in holding attorneys to
high ethical standards. As discussed in this order, plaintiff has not identified “wrongdoing” by
Oklahoma that tips the scale against application of the illegality defense. Moreover, in the court’s
view, plaintiff has not identified a public interest that would be frustrated by application of the
illegality defense.
6

The court notes that in Precision Instrument Mfg. Co. v. Automotive Maintenance Machinery
Co., 324 U.S. 806, 814 (1945), the Supreme Court also stated that “[H]e who comes into equity
must come with clean hands . . . It is a self-imposed ordinance that closes the doors of a court of
equity to one tainted with inequitableness or bad faith relative to the matter in which he seeks
relief, however improper may have been the behavior of defendant.” (emphasis added).

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under federal law. The Supreme Court has instructed that “a court sitting in equity
cannot ignore the judgment of Congress, deliberately expressed in legislation.”
United States v. Oakland Cannabis Buyers’ Co-op, 532 U.S. 483, 497 (2001)
(internal quotation omitted). While Oklahoma has authorized the use of marijuana
for medicinal purposes but does not allow non-residents to have a license or own the
majority of an entity that does, the court concludes that that activity (assuming
without deciding that the latter constitutes “wrongdoing”) does not tip the scale in
favor of granting equitable relief in aid of plaintiff’s proposed continuing course of
activity criminalized under the express provisions of the CSA. Granting plaintiff the
equitable relief it seeks here would facilitate criminal activity more (by allowing
non-residents to have medical marijuana business licenses) than would a denial of
equitable relief.
Plaintiff also argues that the relief it requests would not facilitate any activity
that it is not already engaged in since it currently owns 25 percent of multiple
licensed dispensaries in the state. With its ownership in the dispensaries, plaintiff
asserts that it has already been profiting from the sale of marijuana in Oklahoma,
with the state’s blessing. However, plaintiff does not dispute that the relief it
specifically seeks from this court will, in fact, facilitate illegal activity as it will
permit plaintiff to obtain a medical marijuana business license for itself to grow,
process, dispense, transport, or test medical marijuana, all of which is criminal under
the CSA. Because the requested relief would facilitate criminal acts, the court “will
not lend its aid to the perpetration of criminal acts.” Cartlidge v. Rainey, 168 F.2d
841, 845 (5th Cir. 1948).
In Fourth Corner, a state-chartered credit union, intending to service
marijuana-related businesses, applied for a master account from the Federal Reserve
Bank of Kansas City. The bank denied the credit union’s application. The credit
union sought a declaratory judgment that it was entitled to a master account and an
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injunction requiring the bank to establish the master account. The district court
granted the bank’s motion to dismiss, holding that it could not use its equitable power
to grant a mandatory injunction that would facilitate criminal activity.
On appeal, the three Tenth Circuit judges on the panel each reached three
different conclusions. Each wrote a separate opinion, each of the three opinions
effectively dissenting from the other two. Reaching the merits of plaintiff’s claim,
Judge Nancy L. Moritz concluded that the district court’s dismissal with prejudice
should be affirmed based upon the bank’s illegality argument. She found that
providing banking services to the marijuana-related businesses would facilitate
activity that is prohibited by the CSA. She determined that a master account at the
bank would “serve as a linchpin for the [credit union’s] facilitation of illegal
conduct.” 861 F.3d at 1055. Judge Scott M. Matheson, Jr. concluded that the
dismissal with prejudice should be vacated, and the case remanded with instructions
to dismiss without prejudice on prudential-ripeness grounds. In so concluding,
Judge Matheson emphasized that the bank had not addressed whether it would grant
a master account based upon the credit union’s new allegation in the amended
complaint that it would serve marijuana-related businesses only if doing so was
legal. Judge Robert E. Bacharach disagreed with Judge Matheson on the ripeness
issue. Judge Bacharach thought the court should take as true the account applicant’s
allegation that it would service marijuana-related businesses only if it was legal to
do so. 861 F.3d at 1066. He concluded that the dismissal should be reversed because
the district court improperly discounted the credit union’s allegation (also rejected
by Judge Moritz) in the amended complaint that it would obey federal law.
While Judges Matheson and Bacharach approached the case differently than
Judge Moritz, they did so on purely procedural grounds. Indeed, in a reference to
the merits of the matter, Judge Bacharach acknowledged that “servicing
marijuana-related businesses is different, and the district court properly concluded
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that this part of [the credit union’s] plan would have violated federal drug laws.”
861 F.3d at 1066. Taking into account Judge Matheson’s passing reference to the
“Credit Union’s continuing inability to conduct legal business,” 861 F.3d at 1063,
the views of Judges Moritz and Bacharach on the illegality issue may well have been
the view of Judge Matheson as well.
Though the splintered decision in Fourth Corner is not precedent for anything,
it is discernible that, as far as that panel is concerned, an enterprise proposing to
conduct business in violation of the CSA would have tough sledding on the merits
of the illegality issue. In a case ripe for decision, Judge Moritz’s view of the merits
would carry the day. Her view of the matter will be followed here. The court
accordingly concludes that plaintiff’s attempt to distinguish the injunction requested
by the credit union, purportedly “caus[ing] a whole shift in federal banking policy,”
from its requested relief, in this case, of “simply allow[ing] nonresidents to join
residents on equal footing in selling marijuana in Oklahoma,” doc. no. 30, pp. 12
and 13, provides no basis for avoidance of the illegality doctrine.
This conclusion as to the applicability of the doctrine of illegality is consistent
with other decisions in this circuit. A year and a half after the Tenth Circuit’s
decision in Fourth Corner, the Colorado bankruptcy court had before it a debtor
whose main business consisted of selling equipment and supplies for use in growing
marijuana. In re: Way to Grow, Inc., 597 B.R. 111 (Bankr. D. Colo. 2018). The
bankruptcy court, adhering to a pre-Fourth Corner decision from the Tenth Circuit
Bankruptcy Appellate Panel (In re: Arenas, 535 B.R. 845 (10th Cir. BAP 2015)),
concluded that it “cannot enforce federal law in aid of the Debtors because Debtors'
ordinary course activities constitute a continuing federal crime.” Id. at 131-32.
Relying mainly on the Bankruptcy Code’s requirement of a good-faith
reorganization plan, the district court affirmed the dismissal. In re Way to Grow,
Inc., 610 B.R. 338, 346 (D. Colo. 2019).
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IV.
Executive Branch Inaction is Irrelevant to the Court’s Analysis
Plaintiff argues that because “[t]he federal government could shut down [the
marijuana] market if it wished,” but has not done so, the “usual constitutional rules
should apply.” Doc. no. 30, at 4. Plaintiff traces the history of this selective inaction
by the executive branch as follows:
This federal policy is expressed in a document known as the Cole
Memorandum. The Cole Memorandum, issued during the Obama
administration, was purportedly “rescinded” by Attorney General
Sessions, see Memorandum for all United States Attorneys: Marijuana
Enforcement, Office of the Attorney General (Jan. 4, 2018), but his
successor, Attorney General Barr, told Congress that the Justice
Department is “operating under my general guidance that I’m accepting
the Cole Memorandum for now.” Review of the FY2020 Budget Request
for DOJ, 116th Cong. (Apr. 10, 2019) (testimony of William Barr,
Att’y Gen. of the United States). The Biden administration has said
nothing to the contrary.
Doc. no. 30, at 4.
It is a complete answer to this argument to observe that Mr. Cole did not pen
his memorandum, and Mr. Barr did not give his testimony, on the authority of Article
I of the Constitution. As Judge Gorsuch wrote in Feinberg: “[I]n our constitutional
order it's Congress that passes the laws, Congress that saw fit to enact 21 U.S.C.
§ 841, and Congress that in § 841 made the distribution of marijuana a federal
crime.” Feinberg, 808 F.3d at 816. See also, the Colorado bankruptcy court’s
conclusion in Way to Grow: “This Court is bound to follow the law as written and
may not depart therefrom based on enforcement decisions made by the executive
branch.” 597 B.R. at 133.

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V.
Conclusion
Although the court does not (and need not) intimate any conclusion on the
merits of the underlying constitutional claim in this case, it will note that the
underlying claim is not frivolous. In Action Wholesale Liquors v. Oklahoma
Alcoholic Bev. Laws Enforcement Comm’n, 463 F.Supp. 2d 1294 (W. D. Okla.
2006), the undersigned held unconstitutional, under the Commerce Clause, the
provisions of Oklahoma law which allowed in-state wineries, but not out-of-state
wineries, to ship wine directly to retailers and restaurants in Oklahoma. But
trafficking in wine is legal under federal law; trafficking in marijuana is not.
For the reasons stated, the Motion to Dismiss on Behalf of Defendants (doc.
no. 29) is GRANTED. Plaintiff’s Amended Complaint against defendants, Colonel
Lance Frye, M.D., Commissioner of the Oklahoma State Department of Health, and
Dr. Kelly Williams, M.D., Director of the Oklahoma Medical Marijuana Authority,
is DISMISSED WITH PREJUDICE under Rule 12(b)(6), Fed. R. Civ. P.
Judgment shall be entered forthwith.
IT IS SO ORDERED this 4th day of June, 2021.

20-0820p004.docx

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