383 F. Supp. 3d 114
W.D.N.Y.2019Background
- Plaintiffs Douglas and Cindy Horn purchased a hemp-derived CBD product ("Dixie X") in 2012 after relying on a High Times article, YouTube interviews of Tripp Keber, website FAQs, and a customer-service phone call stating the product contained no THC and was legal.
- After Douglas used Dixie X he tested positive for THC and lost his trucking job; testing of a second bottle confirmed detectable THC in the product.
- Defendants are Medical Marijuana, Inc. (MMI), Dixie Holdings, LLC a/k/a Dixie Elixirs (formerly misnamed), and Red Dice Holdings, LLC (RDH); MMI and Dixie LLC formed RDH to produce/sell Dixie X.
- Plaintiffs asserted claims under New York GBL §§ 349/350, fraudulent inducement, RICO (18 U.S.C. § 1962(c)), strict products liability, negligence, negligent infliction of emotional distress, breach/warranty/unjust enrichment (some later withdrawn).
- Court held that, taking the facts favorably to plaintiffs, Dixie X was a controlled substance under the CSA as enacted in 2012 because it was a mixture/"resin extracted from" Cannabis sativa and not exempted; therefore its manufacture/distribution could constitute racketeering predicate acts.
- After resolving procedural motions, the court dismissed many claims and left only Douglas's fraudulent inducement claim (based on misrepresentation that Dixie X contained no THC) and Douglas's RICO claim (with a proximate-causation dispute); Cindy's claims for monetary relief were dismissed or limited.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Applicability of N.Y. GBL §§ 349/350 (territorial standing) | Horns: defendants marketed/sold product available to NY residents and shipped to NY; statutes protect NY consumers | Defendants: deception occurred and was viewed outside NY; transaction connections to NY are insufficient | Defendants entitled to summary judgment — plaintiffs lack statutory standing because the deceptive transaction did not sufficiently occur in NY |
| Fraudulent inducement (misrepresentations) | Plaintiffs: statements (FAQ, YouTube, phone) falsely said no THC and induced purchase; caused job loss | Defendants: lacked fraudulent intent; some statements are non-actionable puffery/third-party; evidentiary/authentication issues | Fraud claim survives only as to Douglas based on specific misrepresentation that Dixie X contained no THC; other alleged misreps insufficiently supported for fraud |
| RICO (predicate acts = dealing in controlled substance; pattern; proximate cause) | Plaintiffs: sale of Dixie X (a controlled substance in 2012) = predicate acts; business aimed to sell such products, showing pattern and continuity; injuries from job loss | Defendants: challenge pattern, knowledge, and proximate causation between product and positive test | RICO claim survives fact issues: genuine disputes exist on proximate causation (causation of positive test); however Cindy may not recover under RICO (her losses too derivative) |
| Products liability / negligence / NIED | Plaintiffs: economic losses and emotional distress flow from defective product and misrepresentations | Defendants: New York does not allow pure economic loss in negligence/products claims; NIED requires special circumstances or corroboration | Summary judgment for defendants: negligence and strict liability dismissed for lack of personal/property injury; NIED dismissed for lack of corroborating evidence and special circumstances |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment standard)
- Anderson v. Liberty Lobby, 477 U.S. 242 (genuine dispute standard at summary judgment)
- Monson v. Drug Enforcement Admin., 589 F.3d 952 (status of Cannabis sativa varieties under CSA)
- Hemp Indus. Ass'n v. Drug Enforcement Admin., 333 F.3d 1082 (hemp-seed products exemption interpretation)
- Hemp Indus. Ass'n v. Drug Enforcement Admin., 357 F.3d 1012 (resin exception; "exception to the exception")
- Goshen v. Mutual Life Ins. Co. of N.Y., 98 N.Y.2d 314 (territorial limits of GBL §§ 349/350)
- Cruz v. FXDirectDealer, LLC, 720 F.3d 115 (focus on transaction location for GBL standing)
- McFadden v. United States, 135 S. Ct. 2298 (knowledge of substance identity and mens rea issues)
- DeFalco v. Bernas, 244 F.3d 286 (RICO relatedness/continuity pattern requirements)
- Empire Merchants, LLC v. Reliable Churchill LLLP, 902 F.3d 132 (RICO proximate-cause limits)