59
35
35
55
35
35
Several other federal courts have joined the Tarr court. The United States District Court for the Northern District of Texas reached a similar conclusion regarding the uniqueness of cannabis operations under state law, indicating such situations require “nuanced approaches to the illegal contract defense, taking into account such considerations as avoidance of windfalls or forfeitures, deterrence of illegal conduct, and relative moral culpability.” In Mann v. Gullickson, the United States District Court for the Northern District of California quoted Green Earth heavily in explaining that “federal policy regarding enforcement of the [Controlled Substances Act] has been less than clear since 2009.” These courts
took a flexible approach to the illegal contract defense, noting that it would be odd to
allow a party that freely contracted
to provide a cannabis-related
product, service, or investment to
later avoid its obligations by
arguing the contract it signed
was illegal under federal law.
B. Waiver of Defense Clauses.
Another way to nullify the illegal contract defense is to have the contracting parties waive such a defense. The illegal contract defense is known as an “affirmative defense,” which is a way for a defendant to negate civil liability even if the plaintiff can prove the defendant committed the alleged acts. Such affirmative defenses can be waived through contractual provisions.26
Because contract law is a creation of state law, however, contractual waiver of the illegal contract defense is not bulletproof and will vary on a state-by-state basis. Some states, such as California, do not allow waiver of the illegal contract defense.27 Others do.28 Still in others, it remains an open question.29 Guidance from local transactional attorneys can determine whether contractual waiver of the illegal contract defense is viable for specific states.
C. An Express Recognition of the Controlled Substances Act.
In explaining the “nuanced approaches to the illegal contract defense,” the Mann court explained that the “relative moral culpability” of the contracting parties for engaging in “illegal” conduct should be considered.30 This comes from the common sense principle that a contracting party that knows a contract calls for nominally “illegal” activity before executing it should not be allowed to void that contract later based on the same illegal activity. Thus, the Mann court found it relevant that the party wishing to invoke the illegal contract defense in that case knew of the purported federal illegality of cannabis before executing the contract and thus shared moral culpability for the contract’s terms.31 Indeed, the Mann contract expressly recognized that “the sale of cannabis for medicinal or other purposes is not permitted in the majority of the states and/or under federal law.”32
27 See Yoo v. Robi, 126 Cal. App. 4th 1089, 1103 (Ct of App. 2005) (“[T]he court has both the power and duty to ascertain the true facts in order that it may not unwittingly lend its assistance to the consummation or encouragement of what public policy forbids.”).
28 See, e.g., Lawler v. Aramco, Inc., 447 S.W.2d 189, 193 (Tex. Civ. App. 1969) (“Failure to plead illegality of contract ordinarily constitutes a waiver of the defense.”).
29 In Nevada, for example, there is no controlling case law on whether the illegal contract defense can be contractually waived.
30 2016 WL 6473215 at *7.
31 See id. at *8.
32 See id.