Cannabis Litigation: Attempt to Plead Around the “Illegality” Defense Fails

As the country moves toward decriminalizing and even legalizing marijuana, federal courts largely remain closed to commercial disputes involving marijuana by operation of the illegality defense.  We’ve written about the defense on several occasions, see here and here. Briefly, the illegality defense is an affirmative defense pleaded by a defendant who has been sued for breach of contract or other related business torts. It applies in contexts other than marijuana to be sure but is often raised by a defendant who seeks to dismiss a federal court case on the ground that the contract is void because its subject matter is illegal under the Controlled Substances Act.

Increasingly the mere fact that marijuana is involved does not by itself preclude seeking relief in federal court. For example, the Tenth Circuit has ruled that the Fair Labor Standards Act applies to marijuana industry employers. Other federal courts have permitted cases to go forward where a contract may be enforced in such a way that does not condone or require illegal conduct such as requiring a cannabis company borrower to repay a loan it had received.

A recent ruling from the District of Colorado reflects that federal courts remain wary of civil

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