Justice For All? How COVID-19 Is Affecting Litigation in the Cannabis Industry
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The pandemic has affected every industry in the U.S., some worse than others, and the cannabis industry has not been immune. Unfortunately, some cannabis companies seeking justice in court could face such long delays that they may never get resolution.
Courts have never been known for speedy turnarounds even in the best of times, and in the midst of a pandemic, many legal proceedings have come to a grinding halt. To put things in perspective, in Denver, prior to COVID-19, a lawsuit typically took about a year from start to finish. And that’s extremely quick compared to other cities. In Chicago, for example, lawsuits can drag on for years.
The current court closures are adding to the timing backlog that already existed and making it even more difficult for injured parties to recoup money they are owed. So what does this mean to cannabis companies currently pursuing or seeking to pursue legal action?
Civil cases on hold
Courts throughout the country essentially have been closed for trials and in-person hearings for the past two months, and all signs indicate this will continue for at least another month or more. For example, the Colorado Supreme Court recently announced that no state juries will be called to duty prior to July 6.
Even when courts do re-open, it will be a gradual process and criminal trials are likely to take precedence over civil ones. As a result, civil cases that were nearing trial could be looking at many months of delay.
The impact on cases that were filed just prior to COVID-19 shutdowns or those soon to be filed should be minimal because typically in-person hearings are not needed at the beginning of a case. Fortunately, there are a number of written procedures and written discovery that can occur at the beginning of a case without the needing to see a judge face-to-face.
But for cases that were nearing trial—or had a trial planned during the shutdown—the delay could be significant. For cases that were in the midst of discovery, delaying depositions for a few months likely will impact when the case will be ready for trial. And for those that were ready or nearly ready for trial, the question is when their trials will be rescheduled and how.
There are a lot of moving parts to be considered, including the schedules of the parties, their attorneys, witnesses, and last but certainly not least, the court. Courts often are booked months in advance. The grim reality may be that trials initially set for spring or summer of 2020 will get pushed into 2021. And if the virus returns this fall, delays could be even more prolonged.
Cannabis companies hit hard
Anyone seeking their day in court is facing the same frustrations with delays as those in the cannabis industry, but cannabis companies have some additional challenges.
For one thing, state-regulated and legal cannabis companies (i.e. those who buy, sell, or grow THC) are not able to participate in Paycheck Protection Program loans or other federal stimulus packages, which makes cash flow more difficult and delays more painful.
There also tends to be more litigation in the cannabis industry than others due to companies being victimized by unscrupulous vendors and/or partners. There are those in the industry who still conduct business as they did prior to legalization, which means more poorly documented deals in the cannabis industry than in other industries. This is sometimes the result of bad lawyering and sometimes the result of people conducting handshake deals instead of formalized legal agreements. The confluence of these issues means more litigation in cannabis.
The economic hardship perpetrated by COVID-19 shutdowns is exacerbating already difficult conditions for cannabis litigation. Even if a company has legitimate claims against a defendant for breach of contract, fraud, failure to deliver product, if a defendant’s company goes out of business before the case comes to trial, then the claims are likely worthless. In other words, even excellent legal claims are only as valuable as the business against whom you have them.
Collecting on judgment may prove more difficult as well. Defendants may opt not to pay or be unable to pay due to current economic difficulties. And with present legal delays, there is likely to be even more of an uphill battle to use tools of collection such as seizing assets, garnishing wages or bank accounts, or putting liens on property.
Is arbitration an option?
Arbitration might seem like a good option when faced with such daunting court delays. But it is unlikely to provide much relief. Both sides must agree to arbitration and if the parties had an arbitration provision in their original agreement, they’re likely already arbitrating. If they filed in court, they are deemed to have waived the arbitration provision.
Theoretically, the parties could subsequently agree to switch over to arbitration to speed things up. But the parties typically have disparate views on whether they want a speedy resolution. Typically plaintiffs want to move to trial as quickly as they can because they believe they are owed money while defendants want to delay as long as possible because they want to hold on to the money they owe the plaintiffs. As a result, it’s unlikely that both sides would agree to switch to arbitration since they do not usually have parallel interests.
What to do
As delays mount, parties should absolutely take a hard look at the pros and cons of prolonged litigation and determine whether it makes sense to take a fresh look at resolving their differences. If reaching a settlement proves impossible, conducting elements of the case virtually can help keep the process moving.
The Supreme Court has begun communicating virtually and some local courts have also made this option available. Both parties must agree and complex cases can be difficult to present at trial via video technology, but it is an option that could make sense for smaller or simpler cases.
If a solely virtual trial isn’t an option, forward momentum can be maintained by conducting as much of the upfront casework virtually as possible. Discovery disputes, discovery requests, testimony subpoenas, and depositions can all be handled via telephone or video, which has the additional benefit of eliminating the need for travel and lowering costs.
Looking ahead, the current need to work from home and reliance on technology could lead to positive long-term changes for the legal system. Taking elements of litigation online and offering more flexibility about the need to meet in-person or physically be on-site in a courtroom could help speed up the legal process in the future, which would be a win for all parties. Overall, becoming more efficient at working remotely may be a small silver lining to the current situation.