The federal appeals court based in Denver ruled on Monday that a Maryland man may be required to pay $6.4 million after all for breaching a contract with his intended partner in a cannabis company, so long as it does not require the manufacture or sale of marijuana.

By 2-1, a three-judge panel of the U.S. Court of Appeals for the 10th Circuit acknowledged the Controlled Substances Act deems marijuana illegal on the federal level, even though numerous states have legalized its possession and sale under their laws. Consequently, the multimillion-dollar award in the civil lawsuit may be void if defendant Mackie A. Barch has to engage in prohibited activity to satisfy the debt.

“The record is not sufficiently developed to answer that question,” wrote Judge Scott M. Matheson Jr. in the July 29 opinion, noting there may be other ways Barch and his holding company, Trellis, could pay without treading on the federal cannabis prohibition. “The district court did not specify or require Mackie and Trellis to pay the $6.4 million in damages from any particular source.”

Senior Judge Bobby R. Baldock, writing in dissent, believed the majority was splitting hairs where the answer was straightforward: marijuana is illegal, the cannabis business at the center of the suit was consequently illegal, and entertaining the breach-of-contract claim any further flew in the face of that reality.

The panel “chooses to disregard black letter law and ignore the elephant in the room that is the federally illegitimate business enterprise,” he wrote. “That this Court, obliged to say what the law is and bound to uphold federal public policy based on such law, has chosen to ‘lend its assistance in any way’ to the parties’ business dealings … squarely conflicts with Supreme Court precedent and reflects poorly upon us.”

David Joshua “Josh” Bartch, who operated a marijuana business in Colorado, sought to open a similar company in Maryland known as Culta, LLC shortly after Maryland legalized medical cannabis. Josh Bartch entered into an oral contract with Mackie Barch whereby Mackie Barch would own roughly one-third of Culta and would split the share with Josh Bartch after Culta received its license.

Mackie Barch never did. Josh Bartch then sued for breach of contract, unjust enrichment and other claims. The lawsuit proceeded in federal court in Colorado, culminating in U.S. District Court Senior Judge R. Brooke Jackson siding with Josh Bartch and awarding him $6.4 million in 2022.

After Mackie Barch failed to pay virtually any of the judgment, Josh Bartch obtained an order from a federal judge in Maryland and from Jackson to enforce the award. Jackson’s directive contained three key parts: Mackie Barch was to sell “a sufficient portion” of his share in Culta, “turn over the proceeds” to Josh Bartch and “may not take any other action” to undermine the value of Culta.

Mackie Barch then sought relief from Jackson’s order by raising an argument for the first time: Josh Bartch could not enforce the award because doing so would violate the Controlled Substances Act.

Jackson was unmoved, noting it had taken Mackie Barch five years to make that assertion and, moreover, federal courts were not prohibited from hearing cases that happened to touch on marijuana.

“It does not follow that the only way defendants can pay the damage award is by divestiture of (Mackie Barch’s) interest in Culta,” he added.

Appealing to the 10th Circuit, Mackie Barch argued there was no way federal courts could provide relief to Josh Bartch because the money requested was wrapped up in the cultivation and sale of marijuana that federal law still prohibits.

“Why is that so? The district court entered a money judgment for damages of a certain amount of money, $6 million dollars,” said Chief Judge Jerome A. Holmes during oral arguments, “and said, ‘Pay it.’ If your client was situated to get the money and pay it some other way, they could pay it. Is that not correct?”

Caitlin C. McHugh, an attorney for Mackie Barch, responded that if a similar lawsuit were brought by a partner in a heroin business, courts would obviously decline to hear it.

“But because of the oddity of where marijuana is in the state system,” she said, “it is easy to forget that it is, under federal law, the same as a heroin business.”

Matheson, a Barack Obama appointee, ultimately concluded that Josh Bartch could pursue his breach-of-contract claim despite the illegal nature of the underlying business, but the award was enforceable only if it did not require a violation of federal law. Jackson’s order, he noted, did not specifically instruct Mackie Barch to sell marijuana to pay off the debt.

However, “compliance with the order may effectively require them to do so,” Matheson wrote for himself and Holmes, a George W. Bush appointee. The majority directed Jackson to review whether his order would, in fact, require illegal activity to take place.

Baldock, a Ronald Reagan appointee, slammed Jackson and the trial judge in Maryland for letting the case spiral “out of control” when they should have dismissed it outright. He argued the agreement between the two men amounted to a criminal enterprise and Jackson’s order necessarily required Culta to keep selling marijuana illegally to avoid undermining the business’s value.

“I simply do not understand why a federal court would lend legitimacy to any of this,” he wrote. 

Attorneys for the parties did not respond to an email seeking comment.

The case is Bartch v. Barch et al.