Appellate Case: 23-1211 Document: 010111086218 Date Filed: 07/29/2024 Page: 1
FILED
United States Court of Appeals
PUBLISH Tenth Circuit
UNITED STATES COURT OF APPEALS July 29, 2024
Christopher M. Wolpert
FOR THE TENTH CIRCUIT Clerk of Court
_________________________________
DAVID JOSHUA BARTCH,
Plaintiff - Appellee,
No. 23-1211
v. No. 24-1049
MACKIE A. BARCH; TRELLIS
HOLDINGS MARYLAND, INC.,
Defendants - Appellants.
_________________________________
Appeal from the United States District Court
for the District of Colorado
(D.C. No. 1:18-CV-03016-RBJ-MDB)
_________________________________
Caitlin C. McHugh, Lewis Roca Rothgerber Christie LLP, Denver, Colorado, (Chad S.
Caby, Lewis Roca Rothgerber Christie LLP, Denver, Colorado; David S. Musgrave,
Gordon Feinblatt LLC, Baltimore, Maryland, with her on the briefs) for the Defendants â
Appellants.
Paul Howard Schwartz, Shoemaker Ghiselli + Schwartz LLC, Boulder, Colorado, (Daniel
Jozwiak, Shoemaker Ghiselli + Schwartz LLC, Boulder, Colorado; Johnathan A.
Helfgott, Lahti Helfgott LLC, Denver, Colorado, with him on the briefs) for the Plaintiff
â Appellee.
_________________________________
Before HOLMES, Chief Judge, BALDOCK, and MATHESON, Circuit Judges.
_________________________________
MATHESON, Circuit Judge.
_________________________________
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David Joshua Bartch (âJoshâ) and Mackie A. Barch (âMackieâ) 1 were partners
in Culta, LLC, a marijuana business licensed to operate under Maryland law. Josh
temporarily relinquished his ownership in Culta. Even though Josh and Mackie had
agreed Josh could later rejoin the business, Mackie prevented him from doing so.
Josh sued Mackie and Mackieâs company, Trellis Holdings Maryland, Inc.
(âTrellisâ), which holds a minority membership share in Culta, for breach of contract.
In response, Mackie and Trellis did not plead an affirmative defense that the contract
was illegal under federal drug laws. After a bench trial, the district court found
Mackie and Trellis liable for breach of contract and awarded Josh $6.4 million in
damages (the âoriginal judgmentâ). Mackie and Trellis never appealed and also
never paid.
Josh sought to enforce the original judgment. The district court granted post-
judgment relief, ordering Mackie and Trellis to use their best efforts to sell Trellisâs
equity interest in Culta, to turn over the proceeds from any such sale, and to avoid
devaluing Trellisâs equity until the sale (the âjudgment enforcement orderâ). Mackie
and Trellis appealed (No. 23-1211), arguingâfor the first timeâthat (1) Josh lacked
standing to enforce the judgment because the redress he sought would violate the
Controlled Substances Act (âCSAâ), 21 U.S.C. §§ 801-904; and (2) the district court
1
Because the parties have similar last names, we refer to them as âJoshâ and
âMackie,â consistent with their appellate and district court briefing.
2
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lacked authority to award the relief under Colorado Rule of Civil Procedure
(âC.R.C.P.â) 69(g).
While that appeal was pending, Mackie and Trellis moved the district court to
reconsider the original judgment under Federal Rule of Civil Procedure (âF.R.C.P.â)
60(b)(4), making the same CSA standing argument. The court denied the motion (the
âoriginal judgment reconsideration orderâ), and Mackie and Trellis appealed (No. 24-
1049). We consolidated the appeals. We affirm the original judgment. We vacate
the judgment enforcement order due to public policy concerns and remand for further
proceedings.
This case presents a question about the nature and extent to which a federal court
may act to resolve a dispute related to a marijuana business that operates legally under
state law. Numerous federal courts have grappled with this question. Like most of them,
we do not discern a simple answer. 2 We share the dissentâs public policy concerns about
2
Although courts have come out in different ways, they have analyzed the
issues presented by marijuana-related contracts without summary disposition. See,
e.g., Shulman v. Kaplan, 58 F.4th 404, 409 (9th Cir. 2023) (holding that âthe fact that
[plaintiffs] s[ought] damages for economic harms related to cannabisâ was irrelevant
to defendantsâ standing challenge); AgriAuto Genetics, LLC v. Harris, No. 22-CV-
273,
2023 WL 8371940, at *2 (E.D. Okla. Dec. 4, 2023) (dismissing contract claims
under Rule 12(b)(6) because the court could not issue orders without violating the
CSA); Barak v. Roosterâs Guide & Outfitting Adventures, No. 19-CV-03556,
2023
WL 3178026, at *4 (D. Colo. May 1, 2023) (sua sponte raising that marijuana-related
contract violated federal law and giving that as an âan additional basis for declining
to enforce any agreement the parties hadâ), reconsideration denied, No. 19-CV-
03556,
2023 WL 7003410 (D. Colo. Oct. 24, 2023); Sensoria, LLC v. Kaweske,
581
F. Supp. 3d 1243, 1258-60 (D. Colo. 2022) (holding that âthe mere fact that unlawful
activity is involved in some wayââi.e., that a contract âmight bear some relationship
to marijuanaâââdoes not automatically foreclose contract reliefâ and weighing
various factors to determine if public policy would be violated by enforcement of the
3
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the judgment enforcement order but think the better course is to remand to the district
court to address them.
contract term); Green Earth Wellness Ctr., LLC v. Atain Specialty Ins. Co., 163 F.
Supp. 3d 821, 834-35 (D. Colo. 2016) (declining to find marijuana-related insurance
contract void on public policy grounds); Hemphill v. Liberty Mut. Ins. Co., No. 10-
861,
2013 WL 12123984, at *2 (D.N.M. Mar. 28, 2013) (holding federal court sitting
in diversity could not require an insurer to pay plaintiffâs future medical expenses for
medical marijuana use because to do so would violate federal law and policy);
Erickson v. Pfiester, No. 1:21-CV-00009,
2023 WL 6297343, at *2-4 (D. Alaska
Sept. 27, 2023) (rejecting defendantsâ illegality defense under federal law because
the court could order return of plaintiffâs investment without causing a party to
violate federal law); Polk v. Gontmakher, No. 2:18-CV-01434,
2020 WL 2572536, at
*2-3 (W.D. Wash. May 21, 2020) (granting motion to dismiss contract action because
remedy would be unlawful under the CSA); J. Lilly, LLC v. Clearspan Fabric
Structures Intâl, Inc., No. 3:18-CV-01104,
2020 WL 1855190, at *11-13 (D. Or. Apr.
13, 2020) (dismissing contract lost profits claim because awarding damages would
require compelling defendants to violate the CSA); Bart St. III v. ACC Enters., LLC,
No. 2:17-cv-00083,
2018 WL 4682318, at *4-6 (D. Nev. Sept. 27, 2018) (declining to
dismiss breach of contract claims based on illegality because the possible remedy
would not mandate illegal activity); Ginsburg v. ICC Holdings, LLC, No. 3:16-CV-
2311,
2017 WL 5467688, at *9 (N.D. Tex. Nov. 13, 2017) (âDefendants . . . posit
that, if a contract has an illegal purpose, it is automatically void and unenforceable.
But . . . federal courts do not take such a âblack-and-whiteâ approach to
enforceability. . . . [A]t the Rule 12(b)(6) stage . . . defendants have not established
. . . that the [promissory] [n]otes are void and unenforceable.â); Mann v. Gullickson,
No. 15-CV-03630,
2016 WL 6473215, at *3-9 (N.D. Cal. Nov. 2, 2016) (concluding
that the purported marijuana-related illegality did not render the partiesâ agreement
unenforceable); Tracy v. USAA Cas. Ins., Co., No. 11-00487,
2012 WL 928186, at
*13 (D. Haw. Mar. 16, 2012) (declining to order insurer to pay proceeds for the
replacement of medical marijuana plants because it would be âcontrary to federal law
and public policyâ).
4
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BACKGROUND
A. Factual History
Between 2009 and 2015, Josh owned and operated a marijuana business in
Colorado. In 2015, Josh and Mackie formed Doctorâs Orders Maryland (âDOMDâ) and
sought a license to open a similar business in Maryland. But out of concern that Joshâs
deferred judgment in Colorado for misdemeanor drug possession could hurt the license
application, Josh and Mackie agreed that Josh would temporarily relinquish his
ownership of DOMD and that Josh would be reinstated after the license was granted. 3
DOMD received the license, but Mackie refused to reinstate Joshâs ownership interest.
The Maryland business, renamed Culta, LLC, operated without Josh. Culta cultivates,
processes, and dispenses marijuana.
Cultaâs operating agreement permits transfer of âall or any portion of [an]
[i]nterest in [Culta]â (a) with the consent of Cultaâs other members, App., Vol. II
at 294; or (b) without consent if transferred to certain âPermitted Transferee[s],â
including another Culta member, an entity controlled by a memberâs family, or an
âAffiliate[],â id. at 295-96.
Trellis owns a roughly 30 percent membership interest in Culta. Mackie is the
sole owner, president, director, and alter ego of Trellis.
3
The dissent mischaracterizes this oral contract between Josh and Mackie. It was
not âto establish Culta.â Dissent at 1, 4. Rather, it was âa contract whereby [Mackie]
would receive both [Josh]âs and [his] DOMD equity stakes from [third parties] and hold
both interests until [Josh] wanted his back.â App., Vol. 1 at 60.
5
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B. Judgment Enforcement
A judgment may be enforced in the judicial district where it was filed or in
another judicial district if the judgment is registered there. See 28 U.S.C. § 1963.
F.R.C.P. 69 provides:
A money judgment is enforced by a writ of execution, unless
the court directs otherwise. The procedure on executionâand
in proceedings supplementary to and in aid of judgment or
executionâmust accord with the procedure of the state where
the court is located, but a federal statute governs to the extent
it applies.
F.R.C.P. 69(a)(1). Maryland and Colorado judgment enforcement procedures are
relevant here.
Both states provide for âcharging ordersâââa remedy provided to the
judgment-creditor of aâ limited liability company (âLLCâ) or other business entity
âmember . . . by which the distributions . . . made to a member . . . are attached and
diverted to the judgment-creditor in satisfaction of the judgment.â 1 Larry Ribstein
& Robert R. Keatinge, Ribstein & Keatinge on Limited Liability Companies § 10:2.
Marylandâs charging order provision states that âa creditor of a debtor [who] hold[s]
an economic interest in [an LLC]â may request that a court âcharge the economic
interest of the debtor in the [LLC] for the unsatisfied amount of the debt.â Md. Code
Ann., Corps. & Assâns § 4A-607(b)(1). Colorado law also permits charging orders.
See Colo. Rev. Stat. § 7-80-703.
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Colorado law includes an additional relevant procedure: Under
C.R.C.P. 69(g), a creditor may request that a court order a debtor âto apply [certain]
property . . . towards satisfaction of [a] judgment.â
C. Procedural History
Original Judgment
Josh, invoking diversity jurisdiction, sued Mackie and Trellis in the United
States District Court for the District of Colorado for breach of contract, conversion,
constructive trust, unjust enrichment, and civil theft. He requested a declaration that
Mackie and Trellis hold an interest in Culta for Joshâs benefit, specific performance
in the form of an order directing Mackie and Trellis to transfer that interest to Josh,
compensatory damages, and treble damages. App., Vol. I at 37. Mackie and Trellis
did not plead an affirmative defense of contract illegality. Before trial, âMackie
transferred nearly all of his interest in Trellis to two family trusts.â App., Vol. III
at 584 n.2.
After a bench trial, the district court found for Josh on the breach of contract
claim and awarded him $6.4 million in damages. As noted above, we refer to this as
the âoriginal judgment.â Mackie and Trellis did not appeal.
Judgment Enforcement Order
Mackie and Trellis failed to pay the $6.4 million judgment. App., Vol. II
at 514 (âA little tiny piece of [the $6.4 million] has been paid through garnishment,
but [Mackie] has not voluntarily paid any of it.â). Josh served post-judgment
discovery requests on Mackie and Trellis and learned that Trellisâs equity interest in
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Culta was likely the only asset that could fully satisfy the judgment. Josh then
sought to enforce his judgment in the United States District Courts for the District of
Maryland and the District of Colorado.
a. Maryland judgment enforcement proceedings
In February 2023, Josh asked the District of Marylandâwhere he had
registered the original judgmentâto issue a charging order against Trellisâs
membership interest in Culta. On May 16, 2023, the court granted Joshâs request,
placing a lien on Trellisâs interest in Culta and directing that Josh receive any Culta
distributions due to Trellis. App., Vol. I at 253. On March 5, 2024, the district court
denied Mackie and Trellisâs motion to vacate the charging order under Federal Rules
of Civil Procedure 60(b)(4) and 60(b)(6). See Memorandum Opinion, Bartch v.
Barch, No. 1:23-cv-0101, 2024 WL 943430 (D. Md. Mar. 5, 2024).
b. Colorado judgment enforcement proceedings
On May 9, 2023, Josh asked the District of Colorado under F.R.C.P. 69(a)(i)
for a C.R.C.P. 69(g) order requiring Mackie and Trellis âto (1) sell or otherwise
monetize their equity in Culta and (2) turn over to [Josh] the proceeds of any
transaction involving their Culta equity . . . until the judgment is fully satisfied.â
App., Vol. I at 74. He did not request a charging order under Colorado law.
On June 8, 2023, the district court granted the motion. As noted above, we
refer to this as the judgment enforcement order. 4 It ordered:
4
Mackie and Trellis refer to this as the âTurnover Order.â Aplt. Br. at 1. Josh
refers to its three components: the âOrder to Divest,â âOrder to Turn Over Proceeds,â
8
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(1) Divestment. Mackie and Trellis must âuse their best efforts to sell a sufficient
portion of [Trellisâs] equity . . . in [Culta] to fully satisfy the [c]ourtâs
judgment . . . and to pay [certain] taxes.â App., Vol. II at 335-36. The court
directed that any sale comply with âCultaâs operating agreement and
applicable Maryland law.â Id. at 336.
(2) Proceeds turnover. If any such sale is âconsummate[d],â Mackie and Trellis
âshall turn over the proceeds of such transaction(s) to [Josh] until the
judgment is satisfied in full.â Id.
(3) No devaluation. Until such sale is consummated, Mackie and Trellis âmay
not make any sale or pledge in respect of their Culta equity, and may not take
any other action, that undermines the value of this equity.â Id.
On June 29, 2023, Mackie and Trellis filed a notice of appeal from the
judgment enforcement orderâNo. 23-1211. 5
Original Judgment Reconsideration Order
On September 5, 2023, Mackie and Trellis moved under F.R.C.P. 60(b)(4) for
relief from the original judgment, which had found Mackie and Trellis liable for
breach of contract. They argued the district court lacked subject matter jurisdiction
to enter the original judgment because the judgment compels a CSA violation.
The district court denied the motion. As noted above, we refer to this as the
âoriginal judgment reconsideration order.â Mackie and Trellis timely filed a notice
of appeal from this orderâNo. 24-1049.
and âOrder Not to Devalue.â Aplee. Br. at 9. We refer to the order as the judgment
enforcement order to distinguish it from the other orders at issue in this appeal, and we
discuss each of the three commands in the order as needed.
The district court denied Mackie and Trellisâs request for reconsideration of the
5
judgment enforcement order.
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Appeals
We consolidated the appeals. 6
In No. 23-1211, the appeal of the judgment enforcement order, Mackie and
Trellis argue that (A) Josh lacked standing to seek an order directing the sale of an
interest in a marijuana business because such an order would violate the CSA, and
(B) the district court lacked authority to enter the judgment enforcement order under
C.R.C.P. 69(g).
In No. 24-1049, the appeal from the original judgment reconsideration order,
Mackie and Trellis similarly argue that Josh lacked standing to seek damages for
6
Although the parties do not contest the issue, we briefly explain why we have
appellate jurisdiction under 28 U.S.C. § 1291.
We have jurisdiction in No. 24-1049 because we may âreach the merits of an
appeal from a denial of a Rule 60(b) motion, [if] the ruling or judgment the Rule 60(b)
motion challenged was a [district courtâs] final decision.â Stubblefield v. Windsor Cap.
Grp., 74 F.3d 990, 993 (10th Cir. 1996) (alterations and quotations omitted). The
original judgment was final, so the original judgment reconsideration order is also
appealable.
We also have jurisdiction in No. 23-1211. A judgment enforcement proceeding is
a separate action for determining finality. In re Syngenta AG MIR 162 Corn Litig., 61
F.4th 1126, 1172 (10th Cir. 2023); 15B Charles Alan Wright & Arthur R. Miller, Federal
Practice and Procedure Jurisdiction § 3916 n.19 (2d ed.). And a post-judgment order is
âfinal if it disposes of all the issues raised in the motion that initially sparked the
postjudgment proceedings.â Mayer v. Wall St. Equity Grp., Inc.,
672 F.3d 1222, 1224
(11th Cir. 2012); see also Hewlett-Packard Co. v. Quanta Storage, Inc.,
961 F.3d 731,
741-42 (5th Cir. 2020) (âOrders permitting enforcement of judgments or requiring
defendants to transfer property . . . dispose of claims to that property. [They] have long
been treated as final and appealable.â); EM Ltd. v. Republic of Argentina,
695 F.3d 201,
205 (2d Cir. 2012), affâd sub nom. Republic of Argentina v. NML Cap., Ltd.,
573 U.S.
134 (2014). The judgment enforcement order is final because it disposed of all the issues
in Joshâs post-judgment collection motion.
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breach of contract in the original proceeding because the relief requested would
violate the CSA.
âŚ
To recap, Josh sued Mackie and Trellis, alleging they breached an oral contract
to restore his ownership in Culta. Mackie and Trellis did not raise illegality at any
time before the district court conducted a bench trial, found a breach, determined the
damages amount, and entered judgment. They did not appeal or pay the judgment.
Josh requested and the district court granted a judgment enforcement order
directing Mackie and Trellis to pay the judgment by selling their Culta equity. They
appealedâNo. 23-1211. They next moved to vacate the judgment under Federal
Rule of Civil Procedure 60(b)(4) and appealed the denial of that motionâ
No. 24-1409. In both appeals, they argue Josh lacks standing.
Because resolution of the original judgment reconsideration order appeal,
No. 24-1049, affects the availability of post-judgment relief at issue in No. 23-1211,
we address No. 24-1049 first. We then turn to No. 23-1211.
NO. 24-1049: RULE 60(b)(4) ORIGINAL JUDGMENT
RECONSIDERATION ORDER
Mackie and Trellis argue the original judgment was void because Josh lacked
standing. We affirm the district courtâs original judgment reconsideration order.
A. Federal Rule of Civil Procedure 60(b)(4)
F.R.C.P. 60(b) âprovides an exception to finality that allows a party to seek
relief from a final judgment, and request reopening of his case, under a limited set of
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circumstances.â United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 269
(2010) (citation and quotations omitted). One of those circumstancesâthe only one
at issue hereârequires relief from a judgment if âthe judgment is void.â
F.R.C.P. 60(b)(4).
A judgment is void âonly in the rare instance where [the] judgment is premised
on eitherâ a â[t]otal want of jurisdictionâ or âa violation of due process that deprives
a party of notice or the opportunity to be heard.â Espinosa, 559 U.S. at 271
(quotations omitted). In the former instance, relief is generally reserved âfor the
exceptional case in which the court that rendered judgment lacked even an arguable
basis for jurisdiction.â Johnson v. Spencer,
950 F.3d 680, 697 (10th Cir. 2020)
(quoting Espinosa,
559 U.S. at 271). 7 If âvoidness is found, relief is . . . mandatory.â
Id. at 694-95.
F.R.C.P. 60(b)(4) has no fixed time limit for filing. See F.R.C.P. 60(c)(1)
(âA motion under Rule 60(b) must be made within a reasonable time . . . .â); Misco
Leasing, Inc. v. Vaughn, 450 F.2d 257, 260 (10th Cir. 1971); 11 Charles Alan Wright
7
See also Travelers Indem. Co. v. Bailey, 557 U.S. 137, 153 n.6 (2009)
(explaining that a collateral attack under F.R.C.P. 60(b)(4) was not permitted because it
was ânot a situation, for example, in which a bankruptcy court decided to conduct a
criminal trial, or to resolve a custody dispute, matters so plainly beyond the courtâs
jurisdiction that a different result might be called forâ (quotations omitted)); Gschwind v.
Cessna Aircraft Co.,
232 F.3d 1342, 1346 (10th Cir. 2000) (requiring âa plain usurpation
of powerâ âand not an error of lawâ for finding voidness under F.R.C.P. 60(b)(4)
(quotations omitted)); In re Evans,
506 F. Appâx 741, 744 (10th Cir. 2012) (unpublished)
(remarking that it is âhard to conceive of such a usurpation actually occurringâ).
All unpublished cases are cited for persuasive value consistent with Fed. R. App.
P. 32.1 and 10th Cir. R. 32.1.
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& Arthur R. Miller, Federal Practice & Procedure Civil § 2862 (3d ed.). But âa
motion under Rule 60(b)(4) is not a substitute for a timely appeal.â Espinosa,
559 U.S. at 270; see also, e.g.,
id. at 275; Servants of the Paraclete v. Does,
204 F.3d
1005, 1009 (10th Cir. 2000).
We review a district courtâs F.R.C.P. 60(b)(4) ruling de novo. Johnson,
950 F.3d at 695.
B. Application
This appeal fails on multiple grounds.
First, although a party may defend against a breach of contract action by
alleging the contract was contrary to public policy, see, e.g., Kaiser Steel Corp. v.
Mullins, 455 U.S. 72, 77 (1982), F.R.C.P. 60(b)(4) does not provide relief from a
final judgment based on that ground. Under Espinosa, relief is available only for âa
[t]otal want of jurisdictionâ or âa violation of due process,â
559 U.S. at 271
(quotations omitted).
Second, faced with this roadblock, Mackie and Trellis try to recast the contract
illegality defense into a jurisdictional challenge, arguing Josh lacked standing. But
because illegality goes to whether Josh has a meritorious contract claim, not whether
Josh has standing, they have not properly challenged jurisdiction. See Steel Co. v.
Citizens for Better Envât, 523 U.S. 83, 92 (1998) (declining to âcall the existence of a
cause of action âjurisdictionalââ because â[i]t would turn every statutory question . . .
into a question of jurisdictionâ).
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Third, Mackie and Trellisâs standing argument fails. Article III standing
requires plaintiffs to show (1) they âsuffered an injury in factâ; (2) âthe injury was
likely caused by the defendantâ; and (3) âthe injury would likely be redressed by
judicial relief.â TransUnion LLC v. Ramirez, 141 S. Ct. 2190, 2203 (2021).
Josh alleged and proved an injury-in-fact: breach of contract. Mackie and
Trellis caused Joshâs breach-of-contract injury. And Joshâs breach-of-contract claim
was redressable because he asked for and the district court awarded general
compensatory damages for Mackie and Trellisâs breach of contract. App., Vol. I
at 37, 66.
General compensatory damages may remedy a breach of contract provided the
damages award does not require a losing party to violate federal law. See Ginsburg,
v. ICC Holdings, LLC, No. 3:16-CV-2311, 2017 WL 5467688, at *8 (N.D. Tex.
Nov. 13, 2017); Mann v. Gullickson, No. 15-cv-03630,
2016 WL 6473215, at *7-8
(N.D. Cal. Nov. 2, 2016); Shulman v. Kaplan,
58 F.4th 404, 409 (9th Cir. 2023)
(holding district court could fashion a money damages remedy for plaintiffsâ alleged
Racketeer Influenced and Corrupt Organizations Act injuries to their cannabis
business and therefore their claim was redressable). The district court did not specify
or require Mackie and Trellis to pay the $6.4 million in damages from any particular
source.
âŚ
The dissent would hold that although Mackie and Trellis never argued before entry
of the original judgment that the contract was against public policy, we should find the
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original judgment invalid. This approach ignores the procedural posture of this appeal
and binding Supreme Court precedent. Recall that the district court held a bench trial,
found that Mackie and Trellis had breached the contract, and ordered compensatory
damages. Because Mackie and Trellis failed to appeal the original judgment, it was final
subject to revision only through F.R.C.P. 60(b). The district court denied Mackie and
Trellisâs F.R.C.P. 60(b)(4) motion.
Even overlooking Mackie and Trellisâs failure to argue contract illegality, 8 we
cannot reverse the district courtâs F.R.C.P. 60(b)(4) order without violating Espinosa,
8
The dissent states, âWhat the [majority] effectively tells us is that Defendants
have waived or forfeited the defense of contract illegality.â Dissent at 5. We have not
said that. The dissent also states that âcontrolling Supreme Court precedentâ holds âthat
the defense of illegality cannot be waived or forfeited.â Id. That may be so, but the
dissent overlooks that our resolution of these appeals does not depend on whether Mackie
and Trellis waived a contract illegality defense.
As discussed above, we affirm in No. 24-1049 based on the limited availability of
relief under F.R.C.P 60(b)(4). And in No. 23-1211, we vacate and remand for the district
court to consider the public policy concerns that both we and the dissent have raised.
We agree with the dissent that we must âapply Supreme Court cases that
directly control.â United States v. Maloid, 71 F.4th 795, 808 (10th Cir. 2023), cert.
denied,
144 S. Ct. 1035 (2024). It cites Coppell v. Hall,
74 U.S. 542 (1868), and
Oscanyan v. Arms Co.,
103 U.S. 261 (1880), for the proposition that contract
illegality cannot be waived.
But we note that the Supreme Court adopted Federal Rule of Civil Procedure
8(c)(1) in 1937. It provides: âIn responding to a pleading, a party must affirmatively
state any avoidance or affirmative defense, including: . . . illegality.â âIf such
defenses are not affirmatively pleaded, asserted with a motion under Rule 12(b) or
tried by the express or implied consent of the parties, such defenses are deemed to
have been waived and may not thereafter be considered as triable issues in the case.â
Radio Corp. of Am. v. Radio Station KYFM, 424 F.2d 14, 17 (10th Cir. 1970); see
5 Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure § 1270 (4th
ed. 2024 update) (stating that F.R.C.P. 8(c) ârequir[es] the defendant to plead any of
the listed affirmative defenses and any other matters of avoidance that it wishes to
raise or risk waiving themâ).
15
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which limits F.R.C.P. 60(b)(4) relief to when the court had âtotal want of jurisdictionâ or
violated due process. 559 U.S. at 271. The dissent offers no authority to the contrary but
contends that our emphasis on F.R.C.P. 60(b)(4) is âmisplaced.â Dissent at 2. 9 Because
this is an appeal of a F.R.C.P. 60(b)(4) order, the ruleâs limitations apply.
âŚ
We affirm the district courtâs denial of the motion for relief from judgment
under F.R.C.P. 60(b)(4).
NO. 23-1211: RULE 69(g) JUDGMENT ENFORCEMENT ORDER
Mackie and Trellis appealed the F.R.C.P. 69 judgment enforcement order,
arguing Josh lacked standing. Aplt. Br. at 13. They contend that the relief he
soughtâan order to sell Trellisâs equity in Culta and turn over the proceeds to Joshâ
In line with Rule 8(c), which the dissent does not address, we have said that
âthe affirmative defense of illegality is waived if not pleadedâ and that âit cannot
thereafter be raised for the first time on appeal.â Intâl Bhd. of Elec. Workers, Loc.
Union Nos. 12, 111, 113, 969 v. Pro. Hole Drilling, Inc., 574 F.2d 497, 500 (10th
Cir. 1978) (citing Radio Corp. of Am.,
424 F.2d at 14); see also Sky Harbor Air Serv.,
Inc. v. Reams,
491 F. Appâx 875, 883 (10th Cir. 2012) (unpublished).
Despite these intervening developments, the old cases may still be good law,
but it does not matter. Our analysis does not depend on waiver of contract illegality.
9
The dissent would bypass the strictures of F.R.C.P. 60(b)(4) and summarily
dismiss a contract case â[w]henever the illegality appears.â Dissent at 2 (quoting
Coppell, 74 U.S. at 558). The dissent entirely ignores Espinosa, a binding Supreme
Court case, and takes both Coppell and Kaiser Steel out of context. Coppellâdecided
nearly 80 years before the Supreme Court adopted Rule 60(b)âs voidness exception, see
Fed. R. Civ. P. 60 (1946)âheld that a defendant could not waive a contract illegality
defense. And Kaiser Steel noted that âa federal court has a duty to determine whether a
contract violates federal law before enforcing it,â
455 U.S. at 83, not whether a contract
that violates public policy strips the court of jurisdiction under F.R.C.P. 60(b)(4).
16
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would require a violation of the CSA, so the district court lacked the power to award
it and therefore Josh lacked standing redressability. They further argue that the
district court lacked authority to issue the judgment enforcement order under
C.R.C.P. 69(g).
We reject Mackie and Trellisâs arguments that Josh lacked standing to pursue
enforcement of his judgment and that the district court lacked authority under
C.R.C.P. 69(g). But we vacate the order and remand for the district court to consider
whether its order would require Mackie and Trellis to violate public policy and, if so,
whether the order should not have issued. 10
A. Standing
Josh had standing to seek enforcement of his judgment. 11 He alleged an
injury-in-fact caused by Mackie and Trellisâs failure to pay the judgment. Mackie
and Trellis challenge only redressability. Their argument fails for reasons similar to
our analysis in No. 24-1049: The district court could âfashion a remedy to redressâ
their failure to pay the judgment. Shulman, 58 F.4th at 409. And it could do so by
10
The focus of No. 23-1211, consistent with Mackie and Trellisâs arguments, is the
judgment enforcement order, not, as the dissent contends, the contract and the original
judgment. Once Josh ârecover[ed] a valid and final personal judgment, his original
claim[s] [were] extinguished and rights upon the judgment are substituted for it.â
Restatement (Second) of Judgments § 18 cmt. a (Am. L. Inst. 1982). And as discussed
below, we remand for the district court to consider whether it went too far in exercising
its equitable authority to issue the judgment enforcement order.
11
Neither party explains whether Josh needed to show standing for his F.R.C.P. 69
request separately from showing standing leading to the original judgment. We assume
he does.
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issuing a writ of execution or an injunction ordering Mackie and Trellis to apply
property to satisfy the judgment under C.R.C.P. 69(g). See F.R.C.P. 69(a)(1)
(âA money judgment is enforced by a writ of execution, unless the court directs
otherwise.â). The property that the court ultimately specified in the order does not
affect Joshâs standing. 12
B. Authority Under C.R.C.P. 69(g)
Mackie and Trellis argue the district court lacked authority under
C.R.C.P. 69(g) to enter the judgment enforcement order. They offer two reasons.
First, âC.R.C.P. 69(g) cannot be used to replace a charging orderâ because a charging
order is the exclusive remedy to apply an LLC memberâs equity interest to a
judgment. Aplt. Br. at 15 (capitalization altered without notation). Second, even if a
charging order is not an exclusive remedy, they lacked sufficient control over
Trellisâs Culta equity for the court to order them to divest it. Id. at 19-20. We
disagree on both counts.
Standard of Review
We review a district courtâs entry of an order under F.R.C.P. 69 for abuse of
discretion. CompaĂąĂa de Inversiones Mercantiles S.A. v. Grupo Cementos de
Chihuahua S.A.B. de C.V., 58 F.4th 429, 468 (10th Cir. 2023). A district court
12
Although discovery showed that Trellisâs equity interest in Culta was likely the
only asset that could satisfy the judgment in full, see, e.g., App., Vol. I at 75; App.,
Vol. II at 365 n.2; App., Vol. III at 587, Mackie also had a home encumbered by other
debts, a vehicle, and a cell phone, App., Vol. I at 75. The district court could have
ordered these assets applied to the judgment.
18
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abuses its discretion if it makes an error of law, which we review de novo. Id.;
El Encanto, Inc. v. Hatch Chile Co., 825 F.3d 1161, 1162 (10th Cir. 2016).
Legal Background
The following discusses (a) the federal rule applicable to money-judgment
enforcement proceedings and (b) the Colorado procedures for money-judgment
enforcement, including C.R.C.P. 69 and charging orders.
a. F.R.C.P. 69
As discussed above, F.R.C.P. 69 directs federal courts to follow state
procedures when enforcing a federal money judgment, unless federal law applies.
F.R.C.P. 69(a)(1); United Intâl Holdings, Inc. v. Wharf (Holdings) Ltd., 210 F.3d
1207, 1235 (10th Cir. 2000), affâd,
532 U.S. 588 (2001). A district courtâs
F.R.C.P. 69 order is âvalid if authorized byâ the relevant state law. Wharf, 210 F.3d
at 1235.
To determine the relevant state law, we look to controlling state supreme court
cases, but when none exist, we âattempt to predict how the highest court would
interpret the issue.â Genzer v. James River Ins. Co., 934 F.3d 1156, 1164 (10th Cir.
2019) (quotations omitted); Matos v. Richard A. Nellis, Inc.,
101 F.3d 1193, 1195
(7th Cir. 1996) (predicting what a state would âlikely . . . permitâ when faced with a
question of state law under F.R.C.P. 69); see Huddleston v. Dwyer,
322 U.S. 232,
236 (1944).
F.R.C.P. 69 requires only âsubstantial compliance with the procedural
provisions of any controlling state statutes or case law.â McCarthy v. Johnson,
19
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172 F.3d 63, at *1 (10th Cir. 1999) (unpublished) (alterations omitted) (quoting
12 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 3012
(1997)); see Thomas, Head & Greisen Emps. Tr. v. Buster,
95 F.3d 1449, 1452
(9th Cir. 1996) (explaining that F.R.C.P. 69(a) is ânot meant to put the judge into a
procedural straitjacketâ and requires only compliance âwith the spirit of the Rulesâ
(quotations omitted)).
b. Colorado judgment enforcement procedures
Colorado provides various procedures for âthe seizure and sale of the
judgment debtorâs real and personal property.â 1C Stephen A. Hess, Colo. Prac.,
Methods of Practice § 40:1 (7th ed.). 13 Writs of execution are the standard remedy.
C.R.C.P. 69(a) provides that â[e]xcept [in garnishment proceedings] or an order of
court directing otherwise, process to enforce a final money judgment shall be by writ
of execution.â âA writ of execution is an order issued by the court that directs an
officer of the court to seize and sell the property of a judgment debtor and transfer
the sale proceeds over to the judgment creditor.â 7 Robert L. Haig, Business and
Commercial Litigation in Federal Courts § 71:5 (5th ed.).
But âa writ of execution . . . is not an exclusive remedy.â First Natâl Bank of
Denver v. Dist. Ct. in & for City & Cnty. of Denver, 652 P.2d 613, 617 (Colo. 1982).
A plaintiff may also âemploy supplemental proceedings in aid of execution to collect
13
An LLC memberâs interest is intangible personal property. See JPMorgan
Chase Bank, N.A. v. McClure, 393 P.3d 955, 958-59 (Colo. 2017);
Colo. Rev. Stat.
§ 7-80-702(1).
20
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the judgment from the defendantsâ property.â Id. This case concerns two
supplemental procedures: the charging order under
Colo. Rev. Stat. § 7-80-703 and
C.R.C.P. 69(g). See CompaĂąĂa de Inversiones Mercantiles S.A.,
58 F.4th at 469
(identifying C.R.C.P. 69(g) as âone [supplemental] procedureâ).
i. Colo. Rev. Stat. § 7-80-703
As noted above, â[a] charging order is a statutorily created remedy that . . .
allows a judgment creditor to realize the value of a judgment debtor-LLC memberâs
distributional interest in an LLCâ while also âprotect[ing] the LLCâs ability to
continue to operate and the interests of its other members.â JPMorgan Chase Bank,
N.A. v. McClure, 393 P.3d 955, 958 (Colo. 2017). It creates âa lien on the economic
value that flows from membership in an LLCâ that âdivertsâ such interest âto the
judgment creditor, until the judgment is satisfied.â
Id. (quotations omitted). â[A]s a
practical matter, the charging order is directed to the LLCâ because it ârequir[es] an
LLC to redirect the debtor-memberâs distributions to the creditor.â
Id. at 959.
Colo. Rev. Stat. § 7-80-703 governs charging orders for LLCs. 14 It allows a
court to âcharge the membership interest of the memberâ or even to âforeclos[e]â on
a memberâs interest.
Colo. Rev. Stat. § 7-80-703.
14
In arguing that âcharging orders are the [only] recognized mechanism for
judgment collectionâ against LLC interests, Aplt. Reply Br. at 9, Mackie and Trellis
reference ⧠7-80-128,â id. at 10, which does not exist. Colo. Rev. Stat. § 7-80-703
governs charging orders for interests in LLCs, and
Colo. Rev. Stat. § 7-60-128
governs charging orders for non-transferable interests in partnerships.
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ii. C.R.C.P. 69(g)
C.R.C.P. 69(g) (emphasis added) provides:
The court . . . may order any party or other person over
whom the court has jurisdiction, to apply any property other
than real property, not exempt from execution, whether in the
possession of such party or other person, or owed the judgment
debtor, towards satisfaction of the judgment. Any party or
person who disobeys an order made under the provisions of
this Rule may be punished for contempt. Nothing in this rule
shall be construed to prevent an action in the nature of a
creditorâs bill.
âColorado courts âinterpret [C.R.C.P.] 69 liberally to assist judgment creditors
in enforcing final money judgments.ââ CompaĂąĂa de Inversiones Mercantiles S.A.,
58 F.4th at 469 (alterations omitted) (quoting Isis Litig., L.L.C. v. Svensk
Filmindustri,
170 P.3d 742, 746 (Colo. App. 2007)). âThe Colorado Supreme Court
has explained that âit is the principle and policy of [C.R.C.P.] 69(g) to subject all
property of the judgment debtor, not specifically exempt, to the payment of his
debts.ââ Id. at 470 (alterations omitted) (quoting Hudson v. Am. Founders Life Ins.
Co. of Denver,
417 P.2d 772, 776 (Colo. 1966)).
Application
The district court did not exceed its authority under C.R.C.P. 69(g) because
(a) a charging order is not an exclusive remedy under Colorado law and (b) Mackie
and Trellis have sufficient possession of Trellisâs Culta equity for the district court to
order them to apply that equity to the judgment under C.R.C.P. 69(g).
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a. Exclusive remedy
Mackie and Trellis argue that a â[c]harging order[]â is the exclusive remedy âfor a
judgment creditor seeking to execute on a debtorâs membership interest in a limited
liability company.â Aplt. Br. at 16. We hold otherwise. Neither the Colorado legislature
nor the Colorado Supreme Court has expressly settled this question. Based on the
relevant available legal materials, we predict the Colorado Supreme Court would reject
Mackie and Trellisâs argument.
First, § 7-80-703 is silent on whether it provides an exclusive remedy for a
creditor seeking to enforce a judgment against an LLC memberâs interest. Other
Colorado charging order provisions (a) are silent on exclusivity, Colo. Rev. Stat.
§ 7-60-128 (non-transferable interests in a partnership);
id. § 7-62-703 (interests in
limited partnerships); (b) state they are exclusive, id. § 7-64-504(5) (transferable
interests in a partnership); or (c) state they are not exclusive, id. § 7-61-123 (interests
of âindebted limited partner[s]â). This varied approach to exclusivity shows the
Colorado legislature could have specified that a charging order remedy is exclusive
and did not do so with § 7-80-703.
Second, the Colorado Supreme Court has not decided this issue. Mackie and
Trellis contend otherwise, citing First National Bank of Denver, Aplt. Br. at 17, but
that case does not help them. First National Bank of Denver held that a forced sale
of partnership interests to satisfy a judgment under Colo. Rev. Stat. § 7-60-128 was
void because it did not comply with that provision.
652 P.2d at 618. Not only was
§ 7-80-703 absent from that case, but the court also did not say that § 7-60-128 was
23
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an exclusive remedy. In this circumstance, we may look for guidance from Colorado
Court of Appeals cases, see, e.g., Marcantel v. Michael & Sonja Saltman Fam. Tr.,
993 F.3d 1212, 1221-22 (10th Cir. 2021), but the parties have not cited any and we
could not find one.
Third, C.R.C.P. 69(g) broadly and unambiguously authorizes an order directing
(1) a party to (2) âapply any propertyâ not specifically exempt (3) âtowards
satisfaction of the judgment.â The judgment enforcement order did that.
Fourth, we recently emphasized that âColorado courts interpret [C.R.C.P.] 69
liberally to assist judgment creditors in enforcing final money judgments.â CompaĂąĂa de
Inversiones Mercantiles S.A., 58 F.4th at 469 (alterations and quotations omitted); see
Aplee. Br. at 12. Interpreting § 7-80-703 to prevent a court from using C.R.C.P. 69(g)
would contradict this courtâs declaration that a plaintiff is âentitled to employ
supplemental proceedingsâ through C.R.C.P. 69(g) âin aid of execution to collect on a
judgment.â CompaĂąĂa de Inversiones Mercantiles S.A.,
58 F.4th at 469 (alterations
omitted) (quoting First Natâl Bank of Denver,
652 P.2d at 617); see
id. (identifying
C.R.C.P. 69(g) as âone such [supplemental] procedureâ). 15
15
Mackie and Trellis argue that a charging order should be the exclusive
remedy for levying or executing on an LLC memberâs interest. Aplt. Reply Br.
at 9-10. Other states and the model Uniform Limited Liability Company Act
(âULLCAâ) make charging orders an exclusive remedy to protect non-judgmentdebtor members in a multi-member LLC. See, e.g., ULLCA § 503, cmt.; id. § 503(f);
id. § 503(f), cmt.; J. William Callison & Maureen A. Sullivan, Limited Liability
Companies § 4:5 (2023 ed.). But Colorado has not adopted the ULLCA. See Nelson v.
Encompass PAHS Rehab. Hosp., LLC, 522 P.3d 707, 710-11 (Colo. 2023). Mackie and
Trellisâs argument is more appropriately directed to the Colorado legislature.
24
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For these reasons, we conclude that the Colorado Supreme Court would hold
that a § 7-80-703 charging order is not an exclusive remedy for an LLC judgment
creditor member seeking to enforce a judgment against a judgment debtorâs interest
in the LLC. The district court did not abuse its discretion in granting the
C.R.C.P. 69(g) judgment enforcement order in lieu of a charging order.
b. Sufficient control
Mackie and Trellis also argue that under C.R.C.P. 69(g), a âcourt cannot force
a turnoverâ of property over which the âdebtor lacks control.â Aplt. Br. at 19. They
assert that because Trellis cannot âfreely sellâ its equity, the district court lacked
authority to order Mackie and Trellis to apply this property. Id. at 20. 16 We hold that
Mackie and Trellis have sufficient âpossessionâ of Trellisâs interest in Culta for the
court to reach it under C.R.C.P. 69(g).
ââ[P]ossessionâ under [C.R.C.P.] 69(g) does not require actual possession,â
and ââit is the principle and policy of [C.R.C.P.] 69(g) to subject all property of the
judgment debtor, not specifically exempt, to the payment of his debts.ââ CompaĂąĂa
de Inversiones Mercantiles S.A., 58 F.4th at 470 (alterations omitted) (quoting
Hudson,
417 P.2d at 776). C.R.C.P. 69(g) âpossessionâ requires only the ability to
âexercise controlâ over the asset. Id. at 471. Although Trellis may face some limits
on how it may sell its equity, it may still âexercise controlâ over it. Id. Mackie
16
We are not convinced Mackie and Trellisâs possession argument implicates the
district courtâs authority, but we address it using the partiesâ characterization in their
briefs.
25
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thought he controlled Trellisâs Culta equity when he tried to use it to raise around
$2 million for himself. App., Vol. II at 423, 436, 438, 514. In its order, the district
court also accounted for Trellisâs control limitations: it directed that Mackie and
Trellis âuse their best effortsâ to sell the equity consistent with Cultaâs operating
agreement and Maryland law. Id. at 335-36. Mackie and Trellis have pointed to no
other limitations on their control of the equity.
Mackie and Trellis have sufficient control over Trellisâs Culta equity for the
district court to direct the sale of that asset under C.R.C.P. 69(g).
C. Whether the Order Violated Public Policy
Mackie and Trellis argue that âcompliance with the [judgment enforcement]
order can only be accomplished by violating the CSA,â Aplt. Br. at 12, and that
âfederal courts cannot grant relief that violates the CSA,â id. at 9 (capitalization
altered without notation). They thus contend the district courtâs remedy to collect the
money judgment would violate public policy and should be vacated.
Although their argument does not show Josh lacked standing, we agree with
the dissent that the public policy issue deserves further consideration. 17 The district
17
Mackie and Trellis did not make this argument in opposition to Joshâs
C.R.C.P. 69(g) motion and are not entitled to appellate review of the public policy
issue if it can be waived. But even so, we may exercise our discretion to address it.
See Margheim v. Buljko, 855 F.3d 1077, 1088 (10th Cir. 2017) (â[W]aiver binds only
the party, not the court.â (alterations and quotations omitted)); Abernathy v. Wandes,
713 F.3d 538, 552 (10th Cir. 2013) (â[T]he decision regarding what issues are
appropriate to entertain on appeal in instances of lack of preservation is
discretionary.â).
26
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courtâs C.R.C.P. 69(g) order to sell equity in a marijuana business was âinjunctive
relief,â Wharf, 210 F.3d at 1236, which is subject to equitable considerations,
including public policy. 18 The order raises public policy concerns about violation of
federal drug law.
Cultaâs business may be legal under Maryland law, but the CSA fully applies
in states that have de-criminalized marijuana. See Gonzales v. Raich, 545 U.S. 1, 5,
15-33 (2005); United States v. Oakland Cannabis Buyerâs Coop.,
532 U.S. 483, 486,
489-91 (2001); Sensoria, LLC v. Kaweske,
581 F. Supp. 3d 1243, 1257 (D. Colo.
2022). Under the CSA, it is a crime âto manufacture, distribute, or dispense, or
possess with intent to manufacture, distribute, or dispense, a controlled substance.â
21 U.S.C. § 841(a)(1). Marijuana is a Schedule I controlled substance.
Id. § 812,
sched. I(c)(10). Culta cultivates, processes, and dispenses marijuana. App., Vol. I
at 21; App., Vol. II at 423. As noted above, Trellisâs Culta equity is likely the only
asset that can fully satisfy the money judgment.
The judgment enforcement order contains three parts. The first part orders
Mackie and Trellis to âuse their best efforts to sell a sufficient portion of [Trellisâs]
18
On appellate review of whether injunctive relief was appropriate, we have said
repeatedly that injunctions should ânot be contrary,â âagainst,â or âadverse to the public
interest.â See, e.g., Wyandotte Nation v. Sebelius, 443 F.3d 1247, 1255 (10th Cir. 2006);
Free the Nipple-Fort Collins v. City of Fort Collins,
916 F.3d 792, 807 (10th Cir. 2019);
Awad v. Ziriax,
670 F.3d 1111, 1132 (10th Cir. 2012); Utah v. Babbitt,
137 F.3d 1193,
1200 n.7 (10th Cir. 1998). Circuit courts have deemed an injunction âvoidâ when it was
âagainst public policy.â See, e.g., CSX Transp., Inc. v. City of Sebree,
924 F.3d 276, 287
(6th Cir. 2019).
27
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equity . . . in [Culta] to fully satisfy the [c]ourtâs judgment.â App., Vol. II at 335-36.
The second requires them to âturn over the proceeds of such transaction(s) to [Josh]
until the judgment is satisfied in full.â Id. at 336. This language does not
specifically instruct Mackie and Trellis to cultivate, process, or sell marijuanaâthey
may only need to sell their equity and compensate Josh for his contract damages.
See Erickson v. Pfiester, No. 1:21-cv-00009,
2023 WL 6297343, at *3 (D. Alaska
2023) (returning plaintiffsâ investment in marijuana cultivation business did not
cause either party to violate the CSA); Mann,
2016 WL 6473215, at *7 (holding a
promissory note to purchase marijuana businesses was enforceable because evidence
did not show payment would require defendant to possess, cultivate, or distribute
cannabis). But they also may need to rely on Cultaâs continued CSA-infringing
business operations to enable them to sell the equity.
The third part of the order says Mackie and Trellis âmay not make any sale or
pledge in respect of their Culta equity, and may not take any other action, that
undermines the value of this equity.â App., Vol. II at 336. This directive against
undermining value is open to interpretation. It does not necessarily require Mackie
and Trellisâwho own a 30 percent share of Culta, id. at 347âto affirmatively
cultivate, process, or sell marijuana. 19 But it may be read as instructing them to âuse
19
This view of the order arguably finds support from the district courtâs temporary
restraining order (âTROâ), compare App., Vol. II at 336-37, with Dist. Ct. Doc. 212,
which was designed to prevent Mackie from continuing his attempts to use Trellisâs
equity in Culta to fundraise for purposes other than paying the judgment, see Dist. Ct.
Doc. 207 at 1; see also App., Vol. II at 493 (Joshâs counsel arguing that if the TRO was
allowed to expire Mackie might âfind[] a way to . . . try and use a gap to dissipate the
28
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best effortsâ to maintain Cultaâs business value by abetting continued operations in
violation of federal law. And their doing so may be necessary to comply with the
order. 20
In sum, the judgment enforcement order does not specifically order Mackie
and Trellis to engage in marijuana activities that would violate the CSA, but
compliance with the order may effectively require them to do so. 21 The record is not
sufficiently developed to answer that question. The district court and the parties have
not provided sufficiently developed analysis to answer others.
The questions, then, include whether
(1) The district court effectively ordered Mackie and Trellis to violate federal drug
law. This question would benefit from further record development, which can
occur only in district court.
assetsâ); id. at 517 (the district court stating, âThe Court orders, although I think itâs
obvious, that the defendants may not make any sale or pledge or anything else that
undermines the value of their equity from this day forward until the sale is concluded.â).
20
Testimony from the only witness at the evidentiary hearing on the
C.R.C.P. 69(g) motion reinforces this reading. Josh called investment banker Brooke
Hayes, who started to work with Mackie in September 2022 to raise funds for him based
on Trellisâs equity in Culta. He ultimately withdrew due to weakness in the cannabis
market. App., Vol. II at 432-34. When Mackie approached him again in April 2023,
Mr. Hayes declined for the same reason, id. at 435-42, even though Maryland had
legalized cannabis for recreational use effective July 2023,
id. at 454-55, which in other
states had increased sales. Mr. Hayesâs testimony suggested that efforts to sell Trellisâs
equity would depend in part on Cultaâs success in selling marijuana.
21
A Colorado federal district court recently said it would decline payment or
redress from any income stream that would be illegal under the CSA, Sensoria, 581
F. Supp. 3d at 1260-61, or from any asset that would be subject to criminal forfeiture,
Sensoria, LLC v. Kaweske, 548 F. Supp. 3d 1011, 1026 (D. Colo. 2021).
29
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(2) The order violates public policy. This question calls for further analysis of
whether federal drug law is the only relevant public policy consideration. 22
(3) The order is a proper equitable remedy. This question requires consideration
of the limits on a federal courtâs formulation of a judgment enforcement order
to facilitate recovery of a money judgment. 23
We think these questions are better addressed in the first instance in the district
court, which can then determine whether it would be âassist[ing] in any way towards
carrying out the terms of an illegal contract.â Kaiser Steel, 455 U.S. at 77.
22
In other words, would the C.R.C.P. 69(g) order be contrary to public policy
based only on the CSA or should other policy concerns such as Maryland marijuana
law and the interest in judgment enforcement also be considered in fashioning relief?
See Kaiser Steel, 455 U.S. at 80 (recognizing the policy âof preventing people from
getting other peopleâs property for nothing when they purport to be buying itâ
(quotations omitted)); see also
Colo. Rev. Stat. § 13-22-601 (âIt is the public policy
of the state of Colorado that a contract is not void or voidable as against public policy
if it pertains to lawful activities authorized by section 16 of article XVIII of the state
constitution and article 10 of title 44.â).
23
For example, we highly doubt a district court order telling Mackie to rob a bank
and turn over the proceeds to satisfy the judgment would survive appellate review. See
Sensoria, 581 F. Supp. 3d at 1256 (âAt issue is whether [the defendant] engaged in illegal
conduct that hinders the Courtâs ability to remedy the damages [the plaintiff] suffered.â).
In Kaiser Steel, the Supreme Court noted the difference between cases in which a court is
asked to order an illegal act and those where the requested relief would not directly order
unlawful conduct. 455 U.S. at 79-80. The latter would leave room for balancing
equitable considerations, but not when the relief ordered âcommand[s] unlawful
conduct.â
Id. at 79; see Bassidji v. Goe,
413 F.3d 928, 939 (9th Cir. 2005) (examining
whether âa plausible remedy exists for [the plaintiff] that would not require a court to
order a legal violationâ).
30
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In sum, we recognize that the judgment enforcement order would be invalid if
it requires Mackie and Trellis to violate public policy. 24 But we do not think the
order is sufficiently clear nor the record sufficiently developed to answer that
question. We remand to address those matters. Rather than being âremissâ or
refusing to âacknowledge the elephant in the room,â as the dissent alleges, Dissent at
6, 8, our resolution allows for more informed consideration of public policy concerns
than the dissentâs call for summary disposition. 25 We therefore vacate the order and
remand for further proceedings
CONCLUSION
We affirm in appeal No. 24-1049. We vacate and remand for further
proceedings in appeal No. 23-1211.
24
The dissent suggests that Josh could seek his remedy in state court, Dissent at 8
n.6, but does not explain why the same federal public policy concerns would be absent
there. See U.S. Const. art. VI.
25
The dissent would summarily dismiss because the original contract involved
marijuana. We join many other courts that opt for more careful analysis consistent with
our âduty . . . to decide cases and controversies properly before [us].â United States v.
Raines, 362 U.S. 17, 20 (1960).
31
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Bartch v. Barch, Nos. 23â1211 & 24â1049
BALDOCK, Circuit Judge, dissenting.
The district court found Plaintiff Bartch and Defendant Barch entered into an oral
contract to establish Culta, LLC (formerly Doctorâs Orders Maryland or DOMD), a
vertically integrated Maryland business enterprise engaged in cultivating, processing, and
dispensing marijuana. Bartch v. Barch, No. 18âCVâ3016âRBJâMDB, Findings of Fact,
Conclusions of Law, and Order of Judgment, at 1â4 (D. Colo. filed Sept. 7, 2022); see
generally https://www.culta.com. As of today, the Federal Criminal Code labels marijuana
an illegal Schedule I controlled substance along with drugs like heroin, ecstasy, and LSD.
21 U.S.C. § 812. This Court cannot dispute that what Culta does, namely produce and
traffic marijuana, remains illegal under both the Federal Controlled Substances Act (CSA)
and the Racketeer Influenced and Corrupt Organizations Act (RICO), and perhaps other
federal enactments. Recognition of these simple facts should have sounded the death knell
of Plaintiff Bartchâs breach of contract claim by summary dismissal in the district court.
Because the underlying contract between Plaintiff and Defendant Barch to establish Culta
directly conflicts with a myriad of federal criminal laws, this Federal Court is bound to
follow binding Supreme Court precedent and refuse to acknowledge its validity.
In short, Plaintiffâs breach of contract claim arises out of an illegal contract, and the
Supreme Court has recognized that â[t]he authorities from the earliest times to the present
unanimously hold that no federal court will lend its assistance in any way towards carrying
out the terms of an illegal contract.â Kaiser Steel Corp. v. Mullins, 455 U.S. 72, 77 (1982)
(emphasis added) (quoting McMullen v. Hoffman,
174 U.S. 639, 654 (1899)). This Courtâs
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focus on whether Defendants raised an illegality defense pre-judgment or whether Fed. R.
Civ. P. 60(b)(4) provides for post-judgment relief based on a claim of illegality, see Courtâs
Op. at 2, 7, 11, 13, 15 n.8, is misplaced because the Supreme Court has told us that
â[w]henever the illegality appears, . . . the disclosure is fatal to the case.â Coppell v Hall,
74 U.S. 542, 558 (1868) (emphasis added). The question of illegality is âone which the
court itself [is] bound to raise in the interest of the due administration of justice.â Oscanyan
v. Arms Co.,
103 U.S. 261, 267 (1880) (emphasis added). In other words, this Court is
bound to raise the question of illegality sua sponte whenever it appears. 15 Corbin on
Contracts § 79.6, at 21 (rev. ed. 2020) (âCourts should take it upon themselves to refuse to
enforce [illegal] contracts because to enforce them would require judges to assist in
unsavory dealings and thus taint and undermine the overall respectability of the judiciary.â).
Despite the Supreme Courtâs plain instruction, this Federal Court chooses to disregard black
letter law and ignore the elephant in the room that is the federally illegitimate business
enterprise known as Culta. That this Court, obliged to say what the law is and bound to
uphold federal public policy based on such law, has chosen to âlend its assistance in any
wayâ to the partiesâ business dealingsâ"unsavory dealingsâ in the eyes of federal lawâ
squarely conflicts with Supreme Court precedent and reflects poorly upon us.
I.
Consistent with Supreme Court authority, this Court should begin its analysis by
acknowledging the subject contractâs indisputable illegality under federal law. 1 For
1
Defense attorneys love to couch their legal arguments in terms of a federal courtâs power
to hear a case and federal courts far too often take the bait. See, e.g., Arbaugh v. Y & H
2
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instance, the CSA makes it âunlawful for any person knowingly and intentionally . . . to
manufacture, distribute, or dispense, or possess with intent . . . [to do so],â marijuana. 21
U.S.C. § 841(a)(1). This Court should acknowledge that manufacture, distribute, and
dispense marijuana is precisely what Culta does. The CSA also makes it unlawful for any
person to conspire or agree with another (no overt act is required) to commit any of the
offenses set forth in section 841(a)(1).
Id. § 846. This Court should acknowledge that such
agreements undoubtedly are necessary to Cultaâs business operation. In fact, the contract
between Plaintiff and Defendant Barch may very well violate section 846. Continuing on,
section 856 of the CSA makes it unlawful for anyone to âknowingly open, lease, rent, use,
or maintain any placeâ for the purpose of manufacturing or distributing marijuana. Id.
§ 856(a). This Court should acknowledge that Culta, according to its website, has multiple
business locations that dispense marijuana.
Consider too RICO. RICO defines unlawful racketeering activity to include the
âfelonious manufacture, . . . selling, or otherwise dealing inâ marijuana. 18 U.S.C.
Corp., 546 U.S. 500 (2006). Jurisdiction, the Supreme Court has observed, ââis a word of
many, too many, meanings.ââ
Id. at 510. Federal courts must be careful not to render
jurisdictional rulings when faced with what is, in law, a merits defense.
Id. at 511. In the
interest of brevity, suffice it to say Defendantsâ belated argument that the affirmative
defense of illegality bears upon the redressability requirement of Plaintiffâs Article III
standing and thus the district courtâs subject matter jurisdiction is incorrect. The Supreme
Court established long ago that âanyone sued upon a contract may set up as a defense that it
is a violation of the act of Congress, and, if found to be so, that fact will constitute a good
defense to the action.â E. Bement & Sons v. Natâl Harrow Co.,
186 U.S. 70, 88 (1901).
More recently, Congress has endorsed the Supreme Courtâs view in Fed. R. Civ. P. 8(c)(1),
which lists illegality as an affirmative defense. Any claim that fails to overcome an
illegality defense is certainly not redressable, but this observation has no bearing whatsoever
on a claimantâs ability to allege, as Plaintiff did in this case, a redressable injury necessary
to establish Article III standing.
3
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§ 1961(1)(D). The Tenth Circuit has recognized, and this Court should acknowledge, that
cultivating marijuana for sale ânecessarily would involve some racketeering activityâ
because âcultivating marijuana for sale . . . is by definition racketeering activity.â Safe Sts.
All. v. Hickenlooper, 859 F.3d 865, 882 (10th Cir. 2017) (first and last emphasis added).
Given our own precedent, Culta is engaged in racketeering activity as proscribed by RICO.
Meanwhile, the Ninth Circuit has observed that in enacting RICO âit is evident that
Congress would have considered a cannabis business to be a form of organized crime.â
Shulman v. Kaplan,
58 F.4th 404, 411 (9th Cir. 2023) (emphasis added).
The foregoing recitation of federal law (one could delve deeper still) is quite enough
to convince me that this Court should recognize Culta for exactly what it is: a criminal
racketeering enterprise as defined by federal law that, to say the least, flouts both RICO and
the CSA. Given the present public policy of the United States regarding marijuana as
reflected in both the Federal Criminal Code and Circuit Court case law, enforcement of the
oral contract between Plaintiff and Defendant Barch in this Court is most certainly
prohibited as violative of this federal policy. See Hanauer v. Doane, 79 U.S. 342, 349
(1870) (âThe whole doctrine of avoiding contracts for illegality . . . is founded on public
policy.â). Plaintiffâs cause of action is based entirely upon an illegal contract to establish
Culta, notably an enterprise in which federal law recognizes no property interest. 2 21 U.S.C.
2
The CSA subjects to forfeiture the following items involved in a CSA violation because
âno property right exist[s]â in them: (1) the marijuana and its containers, (2) âraw
materials, products, and equipment of any kindâ used to process and deliver the marijuana,
(3) proceeds or any other thing of value furnished in exchange for the marijuana, and
(4) any real property used to facilitate such exchange. 21 U.S.C. § 881(a) (emphasis added).
4
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§ 881(a). I simply do not understand why a federal court would lend legitimacy to any of
this. 3
II.
Despite its denials, see Courtâs Op. at 16 n.8, what this Court effectively tells us is
that Defendants have waived or forfeited the defense of contract illegality. But, as I have
already pointed out, see dissent, supra at 1â2, Supreme Court precedent by which this Court
is bound plainly tells us otherwise: This precedent says in no uncertain terms that the
defense of illegality cannot be waived or forfeited. Illegality is a defense that we are
obliged to raise sua sponte. Let us turn to this precedent now.
The Supreme Court has observed that âa federal court[âs] . . . duty to determine
whether a contract violates federal law before enforcing itâ is âwell established.â Kaiser
Steel, 455 U.S. at 83. This duty arises because â[t]he power of the federal courts to enforce
the terms of private agreements is at all times subject to the restrictions and limitations of
3
This is not to say a federal court must strike all contracts that âtouch uponâ a marijuana
enterprise. See, e.g., Kenney v. Helix TCS, Inc., 939 F.3d 1106, (10th Cir. 2019). In
Kenney, an employee of defendant-employer sued, alleging defendant violated the Fair
Labor Standards Actâs overtime obligations. The defendant provided security services for
marijuana enterprises in Colorado. We held defendant was not excused from complying
with the FSLA because âany violations of the CSA are not relevant to whether the FSLAâs
protections apply to workers in the marijuana industry.â
939 F.3d at 1113. The FSLAâs
overtime provisions focus on individual workersâ wellbeing notwithstanding the underlying
nature of the business in which their employer is engaged.
Id. at 1111â12. Pointing out that
illegal enterprises are not exempt from federal tax laws, we relied on the well-established
rule that employers are not excused from complying with federal laws just because their
business practices are federally prohibited.
Id. at 1110â13.
5
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the public policy of the United States as manifested in . . . federal statutes . . . .â 4 Id. at 83â
84 (emphasis added) (ellipses in original) (quoting Hurd v. Hodges,
334 U.S. 24, 34â35
(1948)). Where enforcement of a private agreement would violate this public policy, a
federal court has a duty or âobligation . . . to refrain from such exertions of judicial power.â
Id. at 84 (emphasis added) (quoting Hurd,
334 U.S. at 35). Needless to say, the Court today
is quite remiss in failing to fulfill the duty assigned it by the Supreme Court.
In contrast, one early example of the Supreme Court fulfilling this duty is its decision
in Coppell, 74 U.S. at 542. The relevant background is this: Coppell was a breach of
contract action in which the district court instructed the jury that if the contract was illegal,
âthe illegality had been waived.â
Id. at 558. The Supreme Court explained the instruction
âwas founded upon a misconception of the law.â
Id. âIn such cases there can be no waiver.
The defense is allowed, not for the sake of the defendant, but for the law itself. . . . [The
law] will not enforce what it has forbidden and denounced.â
Id. (emphasis added). The
Court continued: âThe proposition to the contrary strikes us as hardly worthy of serious
refutation. Whenever the illegality appears, . . . the disclosure is fatal to the case. No
consent of the defendant can neutralize its effect. . . . Wherever the contamination reaches,
it destroys.â
Id. at 558â59 (emphasis added).
Another example of the Supreme Court rejecting the proposition that a defendant
may waive or forfeit an illegality defense is its decision in Oscanyan, 103 U.S. at 261, also a
breach of contract action. Oscanyan addressed the issue of whether âthe question of the
4
Defendants raise an illegality defense based on public policy for the first time at page 25
of their opening brief in Appeal No. 24â1049.
6
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illegality of the contract could be considered in the case, the same not having been specially
pleaded[.]â Id. at 263. The Court opined: âThe position of the plaintiff that the illegality of
the contract . . . cannot be noticed, because not affirmatively pleaded, does not strike us as
having much weight.â
Id. at 266. The Court explained âthe objection to a recovery could
not be obviated or waived by any system of pleading, or even by the express stipulation of
the parties. It was one which the court itself was bound to raise in the interest of the due
administration of justice.â
Id. at 267 (emphasis added); cf. Kaiser Steel,
455 U.S. at 81 n.6
(âAnd if it be suggested that Kaiser should not have waited so long to assert its [illegality]
defense, the Court has held that rules of estoppel will not be permitted to thwart the
purposes of statutes of the United States.â) (internal quotations omitted)). This makes
perfect sense: âIn such cases the aid of the court is denied, not for the benefit of the
defendant, but because public policy demands that it should be denied without regard to the
interests of individual parties.â Kaiser Steel, 455 U.S. at 77â78 (quoting Contâl Wall Paper
Co. v. Louis Voight & Sons Co.,
212 U.S. 227, 262 (1909)). 5
The law applicable to these appeals points only one direction while this Court
inexplicably points the other. Given the foregoing Supreme Court authorityâauthority to
5
Unsurprisingly, section 79.6 of Corbin on Contracts, entitled âA Sua Sponte Issue for the
Court,â expresses a view on the matter similar to the Supreme Court. The treatise tells us
that â[b]ecause the public policy issue involves a consideration of the public interest, an
interest much broader than the interests of the parties and one not usually considered by the
parties, the court must take that protectorâs role.â Corbin, supra § 79.6, at 21. Accordingly,
âparties cannot remove the issue from the courtâs purview by not raising the issue, . . . or
otherwise waiving the issue. The corollary to this position is that the validity of a contract
offensive to public policy cannot be waived.â Id. (emphasis added); see also 5 Williston on
Contracts § 12.5, at 1026â27 (4th ed. 2009) (defense of illegality based on public policy
âcannot be evaded by the device of waiverâ).
7
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which this Court does not meaningfully respondâthis Court should acknowledge the
elephant in the room and summarily dispose of this matter by remanding to the district court
with instructions to dismiss. I agree that decisions from the Tenth Circuit appear in conflict
with the Supreme Court. See Courtâs Op. at 16 n.8. When the Supreme Court has spoken as
it has in Coppell and Oscanyan, however, inferior federal court authority to the contrary is
emphatically not the law. This Court should place Plaintiff Bartch and Defendant Barch
back in their original positions. 6 Consistent with binding Supreme Court precedent, I would
remand these appeals to the district court with instructions to vacate its judgment and
dismiss the action as based on a contract that violates the public policy of the United States
as it exists today. This course of action would necessarily dispose of the district courtâs
post-judgment enforcement order. 7 I respectfully dissent.
6
Let us not forget we are here because Plaintiff had a prior Colorado criminal drug
conviction and thought it imprudent to apply directly to Maryland for a state-issued license
to cultivate, process, and dispense marijuana. To solve his problem, Plaintiff entered into an
unlawful agreement with Defendant Barch to make Culta operational in such a way that
Maryland authorities would remain unaware of his criminal record. Barch refused to fulfill
his end of this illegal bargain by returning a portion of Cultaâs ownership to Plaintiff once
Maryland had granted Barch a license. Since then, things have spiraled out of control
because federal courts, bound to uphold the public policy of the United States, have dropped
the ball. If Plaintiff is correct that Defendant Barch breached an oral contract to aid in the
establishment of a marijuana enterprise and the only asset available to redress his injury is
the equity interest in this enterprise held by Barch and his holding company, then absent
Congressional action, maybe Plaintiffâs breach of contract action and his preferred remedy
reside in state court.
7
The post-judgment order, i.e., remedy, directs Defendants Barch and his shell company,
Trellis Holdings, to (1) use their âbest effortsâ to sell Trellisâs equity, i.e., partial ownership
interest, in the marijuana enterprise, (2) turn over the proceeds from any such sale to
Plaintiff until the judgment is satisfied, and (3) avoid devaluing Trellisâs equity in the
meantime. The first two remedial measures are self-explanatory. As for the third measure,
8
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one unversed in corporate finance must understand that ordering Defendants to maintain the
value of Trellisâs equity in Culta pending its sale is effectively the same thing as telling
Defendants to continue cultivating, processing, and dispensing marijuana. Otherwise, the
net worth of Culta and thus the value of Trellisâs equity in it would necessarily decrease.
Like the underlying contract, the district courtâs remedy of choice in this case is also very
much illegal as violative of federal public policy. The post-judgment orderâs terms coupled
with the oral contract that preceded it collectively and directly bear upon the establishment,
ownership, and operation of an enterprise the sole purpose of which is to cultivate, process,
and dispense marijuana. This renders both unenforceable in federal court under the present
state of federal law.
9
