Business

Judge Rules Against Columbia Care in IP Dispute

avatar Willis Jacobson / Sep 14, 2020

A multi-state operator accused of squeezing a company out of a deal and using that company’s trade secrets to operate a Florida cannabis business had its request to dismiss aspects of a $50M lawsuit rejected by a New York judge.

New York-based Columbia Care, which operates dispensaries in 11 states and Washington D.C., had asked the New York Supreme Court to dismiss claims involving trade secrets that were included in a May lawsuit filed against the company by fellow cannabis operator Florida MCBD. 

New York Supreme Court Justice Jennifer Schecter denied that motion on grounds that whether the disputed information constitutes trade secrets is “fact intensive…[and] require[s] discovery.” (Read the ruling here.)

The Sept. 9 ruling, which only affects the trade secrets portion of the more expansive lawsuit, is the latest in a legal battle involving three companies and centered on a lucrative Florida MED license.

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Florida MCBD had initially entered into a joint venture with Sun Bulb Company Inc., a decades-old Florida nursery, in 2015 to obtain a Florida medical license. MCBD sought out the partnership because of a 2014 Florida law limiting medical marijuana licenses to applicants affiliated with nurseries that had operated in the state for at least 30 years, among other qualifications.

In its lawsuit, Florida MCBD claims that the two partners worked together to prepare the license application, but that Sun Bulb’s name was on all paperwork due to the 2014 law. Florida MCBD says it spent more than $800,000 on the application process, with the understanding that it would have a 65% ownership stake in the resulting business.

The relationship between the partners turned sour after the application was rejected, Florida MCBD claims.

The company alleges that Columbia Care, which had also had a license application rejected in Florida, moved in and offered Sun Bulb $11M for a 70% stake in the planned operation. A key part of that agreement, according to Florida MCBD’s suit, was that Columbia Care also offered to cover any litigation costs that Sun Bulb may face from Florida MCBD.

Ultimately, Sun Bulb and Columbia Care obtained a Florida medical marijuana license in 2017, but Florida MCBD alleges that the successful application utilized proprietary information that Florida MCBD had provided to Sun Bulb. Further, according to the suit, the license was placed under a Columbia Care subsidiary, rather than Sun Bulb, which made it inaccessible to Florida MCBD.

Columbia Care has argued that it stepped into the picture after Sun Bulb and Florida MCBD had already terminated their relationship, making the lawsuit from Florida MCBD baseless.

Florida MCBD and Sun Bulb have entered into separate arbitration regarding their severed partnership; that process will not involve the trade secret claims.

Because of that arbitration, Justice Schecter had previously stayed all claims in the suit against Columbia Care, except for those involving trade secrets. In her Sept. 9 ruling, Justice Schecter both rejected Columbia Care’s motion to dismiss the claims, as well as its motion to have the claims stayed with the others.

“The confidential manner in which plaintiffs trade secrets were submitted in applying for the license permits a reasonable inference that the parties understood that this information was to be kept secret,” read a portion of her ruling. “Defendants do not proffer any documentary evidence establishing that plaintiff agreed that its information could be used if plaintiff was not involved in the business.”

As for her decision to not grant Columbia Care’s request to have the trade secret aspects of the suit stayed with the rest of the claims, Justice Schecter wrote: “The scope of the stay, which encompasses the bulk of the action, ensures that the claims at issue in the arbitration will be decided there and afforded appropriate preclusive effect.”

A representative of Columbia Care declined comment for this story. Neither Sun Bulb nor an attorney representing Florida MCBD immediately returned requests for comment.

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