Bartch v. Barch

• Court: U.S. Court of Appeals — Tenth Circuit
• Writing for the Court: MATHESON, Circuit Judge
• Citation: Bartch v. Barch, 111 F. 4th 1043 (10th Cir. 2024)
• Docket Number: 23-1211, No. 24-1049
• Decision Date: 29 July 2024
• Parties: David Joshua BARTCH, Plaintiff-Appellee, v. Mackie A. BARCH; Trellis Holdings Maryland, Inc., Defendants-Appellants.

111 F.4th 1043

David Joshua BARTCH, Plaintiff-Appellee, v. Mackie A. BARCH; Trellis Holdings Maryland, Inc., Defendants-Appellants.

No. 23-1211

No. 24-1049

United States Court of Appeals, Tenth Circuit

FILED July 29, 2024

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-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-Appellee.

Before HOLMES, Chief Judge, BALDOCK, and MATHESON, Circuit Judges.

MATHESON, Circuit Judge.

David Joshua Bartch ("Josh") and Mackie A. Barch ("Mackie")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 Mackie's company, Trellis Holdings Maryland, Inc. ("Trellis"), 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 "original judgment"). 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 Trellis's equity interest in Culta, to turn over the proceeds from any such sale, and to avoid devaluing Trellis's equity until the sale (the "judgment enforcement order"). Mackie and Trellis appealed (No. 23-1211), arguing—for the first time—that (1) Josh lacked standing to enforce the judgment because the redress he sought would violate the Controlled Substances Act ("CSA"), 21 U.S.C. §§ 801-904; and (2) the district court lacked authority to award the relief under Colorado Rule of Civil Procedure ("C.R.C.P.") 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 ("F.R.C.P.") 60(b)(4), making the same CSA standing argument. The court denied the motion (the "original judgment reconsideration order"), 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 dissent's public policy concerns about the judgment enforcement order but think the better course is to remand to the district court to address them.

BACKGROUND

A. Factual History

Between 2009 and 2015, Josh owned and operated a marijuana business in Colorado. In 2015, Josh and Mackie formed Doctor's Orders Maryland ("DOMD") and sought a license to open a similar business in Maryland. But out of concern that Josh's 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 Josh's ownership interest. The Maryland business, renamed Culta, LLC, operated without Josh. Culta cultivates, processes, and dispenses marijuana.

Culta's operating agreement permits transfer of "all or any portion of [an] [i]nterest in [Culta]" (a) with the consent of Culta's other members, App., Vol. II at 294; or (b) without consent if transferred to certain "Permitted Transferee[s]," including another Culta member, an entity controlled by a member's family, or an "Affiliate[]," 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.

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 execution— and in proceedings supplementary to and in aid of judgment or execution— must 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 "charging orders" —"a remedy provided to the judgment-creditor of a" limited liability company ("LLC") or other business entity "member ... by which the distributions... made to a member ... are attached and diverted to the judgment-creditor in satisfaction of the judgment." 1 Larry Ribstein & Robert R. Keatinge, Ribstein & Keatinge on Limited Liability Companies § 10:2. Maryland's charging order provision states that "a creditor of a debtor [who] hold[s] an economic interest in [an LLC]" may request that a court "charge the economic interest of the debtor in the [LLC] for the unsatisfied amount of the debt." Md. Code Ann., Corps. & Ass'ns § 4A-607(b)(1). Colorado law also permits charging orders. See Colo. Rev. Stat. § 7-80-703.

Colorado law includes an additional relevant procedure: Under C.R.C.P. 69(g), a creditor may request that a court order a debtor "to apply [certain] property ... towards satisfaction of [a] judgment."

C. Procedural History

1. 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 Josh's 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, "Mackie transferred nearly all of his interest in Trellis to two family trusts." 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 "original judgment." Mackie and Trellis did not appeal.

2. Judgment Enforcement Order

Mackie and Trellis failed to pay the $6.4 million judgment. App., Vol. II at 514 ("A little tiny piece of [the $6.4 million] has been paid through garnishment, but [Mackie] has not voluntarily paid any of it."). Josh served post-judgment discovery requests on Mackie and Trellis and learned that Trellis's equity interest in 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 Maryland—where he had registered the original judgment—to issue a charging order against Trellis's membership interest in Culta. On May 16, 2023, the court granted Josh's request, placing a lien on Trellis's 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 Trellis's 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, ___ F.Supp.3d ___, 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 "to (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." 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:

(1) Divestment. Mackie and Trellis must "use their best efforts to sell a sufficient portion of [Trellis's] equity... in [Culta] to fully satisfy the [c]ourt's judgment ... and to pay [certain] taxes." App., Vol. II at 335-36. The court directed that any sale comply with "Culta's operating agreement and applicable Maryland law." Id. at 336.

(2) Proceeds turnover. If any such sale is "consummate[d]," Mackie and Trellis "shall turn over the proceeds of such transaction(s) to [Josh] until the judgment is satisfied in full." Id.

(3) No devaluation. Until such sale is consummated, Mackie and Trellis "may 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." Id.

On June 29, 2023, Mackie and Trellis filed a notice of appeal from the judgment enforcement order—No. 23-1211.⁵

3. 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...