Last month, I wrote this post on the latest development in the trademark infringement lawsuit filed by Veritas Fine Cannabis (“VFC”) against Veritas Farms. Unfortunately for VFC, Magistrate Judge Michael E. Hegarty had issued a recommended order that the Court grant Veritas Farms’ motion to dismiss – and to dismiss the claims with prejudice (meaning, VFC cannot amend or try to bring these claims again).

Since then, both VFC and Veritas Farms have filed responses, and VFC’s primary argument is that it should be allowed to amend its claims and get a second shot. This got me thinking about an issue that often comes up at the very beginning of many cannabis lawsuits we see: should the defendant file a motion to dismiss?

Federal Rule of Civil Procedure 12(b)(6) governs motions to dismiss. Quoting Judge Hegarty:

The purpose of a motion to dismiss under Fed. R. Civ. P. 12(b)(6) is to test the sufficiency of the plaintiff’s complaint. “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Plausibility, in the context of a motion to dismiss, means that the plaintiff pled facts which allow “the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Twombly requires a two-prong analysis. First, a court must identify “the allegations in the complaint that are not entitled to the assumption of truth,” that is, those allegations which are legal conclusions, bare assertions, or merely conclusory. Second, the Court must consider the factual allegations “to determine if they plausibly suggest an entitlement to relief.” If the allegations state a plausible claim for relief, such claim survives the motion to dismiss. (Citations omitted).

As the cannabis industry has generated more and more litigation, complaints have generally improved – but quite a few still come across our desks that are so bare and insufficient under the standard above. When our defendant clients ask what to do about them, we typically run through these considerations:

Advantages of filing a motion to dismiss:

• Forcing plaintiff to clarify an ambiguous complaint will refine the claims to be addressed. Vague claims are harder to defend against. This often also means the scope of discovery will be narrowed.
• It may signal to the judge that there are weaknesses in plaintiff’s case – we’ve seen this result in everything from the judge holding the parties to a higher standard to really pushing the parties towards settlement.
• It may also expose potential defenses that can be used in dispositive motion practice down the line.
• Finally, forcing plaintiff to clarify an ambiguous complaint often sends the signal that you’re ready to fully litigate – even at this very early stage.

Disadvantages of filing a motion to dismiss:

• Clients often experience sticker shock when they see how expensive it can be to file a motion to dismiss, so early in the case. (However, this should be weighed against the potential cost of defending against such claims at a full-blown trial.)
• It may educate the plaintiff and opposing counsel on the weaknesses of their case early on, providing them with foresight on how to strengthen their claims.
• And of course, in most cases, the defect that is raised by a motion to dismiss can be corrected and the courts lean toward granting leave to amend. In such cases, the defendant ultimately gains little (maybe a few months delay).

All of these factors should be carefully considered in every case, as this decision can really set the tone for the next one or two years of litigation that might result. To ensure you are considering all available options from the moment you find yourself dragged into a lawsuit, make sure to consult with a knowledgeable cannabis business litigator from the get-go.

Cannabis Litigation: How Effective Are Motions to Dismiss? on Harris Bricken.