In a recent case before the U.S. Tenth Circuit Court of Appeals, the issue of enforcement of a judgment arising from an illegal contract involving a marijuana business was addressed. The case involved Josh and Mackie Bartch, who had a dispute over a marijuana business venture called Doctor’s Orders Maryland. Josh relinquished his interest in the business temporarily due to a prior drug possession charge, with the understanding he could reassert his interest later. However, when the time came, Mackie prevented Josh from rejoining the business, which was renamed Culta LLC and continued without him. Josh sued Mackie and a company owned by her for breach of contract and won a $6.4 million judgment in the U.S. District Court of Colorado.
Following the judgment, Josh sought to enforce it, ultimately obtaining a charging order against the company’s interest in Culta. Subsequently, an order was made for Mackie to sell the company’s interest in Culta to satisfy the judgment. Mackie and the company appealed, arguing that Josh lacked standing to sue in a marijuana-related business due to federal drug laws, and that the judgment enforcement violated Colorado law. Additionally, they claimed that the agreement between Josh and Mackie was illegal under the Controlled Substances Act (CSA).
The Tenth Circuit denied the appeal on technical grounds, focusing on the judgment enforcement issue based on Colorado law. Colorado law provides for a charging order remedy against a debtor’s interest in an LLC, but also allows a court to order a debtor to apply their property towards the judgment. Mackie and the company argued for the charging order’s exclusivity, but the court found that Colorado law did not make it the sole remedy, allowing for the sale of the debtor’s interest to satisfy the judgment.
Regarding the argument that enforcing the judgment would violate public policy due to the federal laws on controlled substances, the Tenth Circuit chose not to make a definitive decision and remanded the case for further development on the issue. Meanwhile, Circuit Judge Baldock filed a dissent stating that a federal court should not enforce contracts related to illegal activities under federal law.
The case highlights the complexity of enforcement of judgments in LLCs, showing that a charging order may not always be the exclusive remedy for a creditor. Conflict of laws and issues related to charging order exclusivity were noted in the case, with the Tenth Circuit ultimately applying Colorado law. The case also raised questions about single-member LLCs and the limitations of charging order exclusivity in such situations.
Ultimately, the case serves as a reminder that charging order exclusivity has limitations and creditors may find ways to navigate around it. The outcome of the case emphasizes the importance of understanding state-specific laws and the complexities involved in enforcing judgments against debtors in LLCs, particularly in cases involving illegal contracts.
