C.Y. Wholesale, Inc. v. Holcomb

• Decision Date: 08 July 2020
• Docket Number: No. 19-3034,19-3034
• Parties: C.Y. WHOLESALE, INC., et al., Plaintiffs-Appellees, v. Eric HOLCOMB, et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

965 F.3d 541

C.Y. WHOLESALE, INC., et al., Plaintiffs-Appellees,

v.Eric HOLCOMB, et al., Defendants-Appellants.

No. 19-3034

United States Court of Appeals, Seventh Circuit.

Argued April 14, 2020

Decided July 8, 2020

Rehearing Denied August 6, 2020

Tyler John Moorhead, Attorney, Justin Swanson, Attorney, Paul Delmar Vink, Attorney, for Indianapolis, IN, for Plaintiffs-Appellees

Thomas M. Fisher, Attorney, Kian James Hudson, Attorney, Julia Catherine Payne, Esq., Attorney, Office of the Attorney General, Indianapolis, IN, for Defendants-Appellants

Before Easterbrook, Kanne, and Wood, Circuit Judges.

Wood, Circuit Judge.

A group of Indiana-based hemp sellers and wholesalers sued the State of Indiana and its governor, seeking to enjoin the enforcement of the state's criminal prohibition on the manufacture, delivery, or possession of smokable hemp. Ind. Code § 35-48-3-10.1. The plaintiffs (collectively "C.Y. Wholesale") argue that Indiana's law is preempted by the Agriculture Improvement Act of 2018 and barred by the Commerce Clause of the Constitution. The district court issued the requested injunction, and Indiana has appealed.

We conclude that although C.Y. Wholesale may have been entitled to block certain aspects of Indiana's law, the injunction before us sweeps too broadly. We therefore vacate it and remand to the district court for further proceedings.

I

As part of the 2014 Farm Law, Congress permitted states and research institutions to cultivate industrial hemp for research purposes without needing first to obtain approval from the Drug Enforcement Administration (DEA). Industrial hemp is a product derived from the cannabis plant, but it is distinguishable from conventional marijuana in one crucial respect: it has a much lower concentration of tetrahydrocannabinol (THC), the principal psychoactive constituent of cannabis. The law defines industrial hemp as "the plant Cannabis sativa L. and any part of such plant, whether growing or not," with a delta-9 THC concentration of 0.3% or less. Pub L. No. 113-79, § 7606. The 2014 Law allowed states to continue to prohibit the production of industrial hemp, and it permitted cultivation only where it was "allowed under the laws of the State." Id. Under the 2014 Law, industrial hemp plants and seeds (as before) could "not be transported across State lines." 81 Fed. Reg. 53,395 (Aug. 12, 2016).

In 2018, Congress passed another Farm Law. This one expands the definition of industrial hemp to include not only all parts of the cannabis plant with a low THC concentration but also all low-THC cannabis derivatives. The 2018 Law excludes industrial hemp from the federal definition of marijuana, thus removing it from the DEA's schedule of controlled substances. Pub. L. No. 115-334, § 12619 (codified at 21 U.S.C. §§ 802(16)(B)(i), 812 ). Nonetheless, the 2018 Law expressly provides that the states retain the authority to regulate the production of hemp. 7 U.S.C. § 1639p ("Nothing in this subsection preempts or limits any law of a State ... that regulates the production of hemp and is more stringent than this subchapter."). Of interest here, the 2018 Law forbids the states from "prohibit[ing] the transportation or shipment of hemp or hemp products ... through the State." Id . § 1639o note.

In 2019, Indiana passed Senate Enrolled Act 516 (Act 516), which brings Indiana's definition of industrial hemp into line with the 2018 federal definition and legalizes the commercial production of hemp in the state. The Act sets up a regulatory framework for the Indiana hemp industry, including the establishment of an advisory committee to create rules and regulations for hemp production. It criminalizes the possession of "smokable hemp," which it defines as any industrial hemp product "in a form that allows THC to be introduced into the human body by inhalation of smoke." Ind. Code § 35-48-1-26.6. The law stipulates that "[a] person who knowingly or intentionally manufactures, finances the manufacture of, delivers, finances the delivery of, or possesses smokable hemp ... commits dealing in smokable hemp, a Class A misdemeanor." Ind. Code § 35-48-4-10.1. In this litigation, Indiana has represented to the court that one reason for these provisions in the Act is that its law enforcement officers find it nearly impossible to distinguish between low-THC smokable hemp and marijuana in the field.

Days before Act 516 was to go into effect, C.Y. Wholesale filed this suit, seeking a preliminary injunction against the provisions of the law that criminalized the manufacture, financing, delivery, and possession of smokable hemp. C.Y. Wholesale argued that Act 516's prohibition on the possession and delivery of smokable hemp was preempted by the Farm Law's mandate that states allow all forms of industrial hemp to be transported through their territories. It additionally argued that Act 516 violated the federal Constitution's Commerce Clause. The district court found that the hemp sellers had shown a strong likelihood of success on the merits of their express preemption theory, and some likelihood of success on their conflict-preemption theory. It therefore issued an injunction blocking "the portions of [Act] 516 that criminalize the manufacture, financing, delivery, or possession of smokable hemp." The court did not address the plaintiffs’ arguments under the Commerce Clause, but it did comment that it found this point "less convincing." Indiana has appealed from the issuance of the injunction. See 28 U.S.C. § 1292(a)(1).

After briefing in this appeal but before oral argument, Indiana passed Senate Enrolled Act 335 (Act 335), which limits the scope of Act 516. Act 335 clarifies that Indiana's prohibition on the delivery and possession of smokable hemp does "not apply to the shipment of smokable hemp from a licensed producer in another state in continuous transit through Indiana to a licensed handler in any state." Ind. Code § 35-48-4-10.1(c). Indiana asserts that this new language resolves any ambiguity in the statute that might have given rise to a problem with the express preemption clause of the Farm Law. At the time of oral argument before this court, Act 335 had been signed into law, but had not yet gone into effect. Both for that reason, and because many of the arguments are unaffected by Act 335, we focus primarily on Act 516.

II

As a preliminary matter, we note that the district court failed to enter a standalone document containing the injunction, as required by Federal Rules of Civil Procedure 65(d)(1)(C) and 58(a). We asked the parties to address the significance of this omission in their briefs. Both parties took the position that it was not a jurisdictional flaw. See Bankers Trust Co. v. Mallis , 435 U.S. 381, 387, 98 S.Ct. 1117, 55 L.Ed.2d 357 (1978) ("[P]arties to an appeal may waive the separate judgment requirement of Rule 58."); Metzl v. Leininger , 57 F.3d 618, 619 (7th Cir. 1995) ("[V]iolations of Rule 58 are not jurisdictional."). We agree with that conclusion.

Nonetheless, the district court's failure to abide by the separate-document command is not, at least in this case, a technical nit that we can disregard. Instead, it has an effect on the clarity of the injunction. The court reasoned that Act 516 would put market participants who transport industrial hemp through Indiana at risk of criminal prosecution, in violation of the express preemption clause of the 2018 Farm Law. Yet it broadly enjoined the portions of Act 516 that criminalize much more than transportation, including the manufacture, financing, delivery, or possession of smokable hemp. It did so without any explanation of why that breadth was necessary. It seems to us that there is a missing step in the district court's reasoning. The failure to enter an independent injunction requires one to infer the scope of the injunction from the opinion, and regrettably, the opinion's conclusion is not fully supported by its analysis. The discipline of the separate-order rule would likely have averted this problem, and so we once again remind district judges not to overlook it.

III

We now move to the injunction itself. A preliminary injunction is appropriate where the party seeking it: (1) is likely to succeed on the merits; (2) is likely to suffer irreparable harm in the absence of preliminary relief; (3) has shown that the balance of equities tips in her favor; and (4) has shown that an injunction is in the public interest. Winter v. Natural Resources Defense Council, Inc. , 555 U.S. 7, 20, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008).

When reviewing the issuance of a preliminary injunction, this court "review[s] the district court's findings of fact for clear error, its legal conclusions de novo , and its balancing of the factors for a preliminary injunction for abuse of discretion." D.U. v. Rhoades , 825 F.3d 331, 335 (7th Cir. 2016). "The question for [this Court] is whether the judge exceeded the bounds of permissible choice in the circumstances, not what we would have done if we had been in his shoes." Cooper v. Salazar , 196 F.3d 809, 813 (7th Cir. 1999).

Our focus here, as is often the case, is on the first issue: likelihood of success on the merits. At the district court, C.Y. Wholesale offered three principal reasons why it cleared that hurdle. First, it argued that Act 516 was expressly preempted by the terms of the 2018 Farm Law. Second, it argued that Act 516 was preempted by the 2018 Farm Law under principles of conflict preemption. Finally, it argued that Act 516 violates the Commerce Clause of the Constitution. We address these contentions in that order.

A

The district court found that federal law expressly preempted Act 516's provisions criminalizing the possession, manufacture, and delivery of smokable hemp. Express preemption exists when Congress "declares its intention to preempt state regulation through a direct statement in the text of federal law." Fifth Third Bank ex rel. Trust Officer v. CSX Corp. , 415 F.3d 741, 745 (7th Cir....