Judgment Issued in Three Way Cannabis Processing Case

On Tuesday, Judge William M. Skretny of the Western District of New York issued a decision and order in Thar Process, Inc. v. Sound Wellness, LLC v. Plant Science Laboratories, LLC and Michael Barnhart granting and denying in part motions to dismiss from the plaintiffs and defendants over fraud and breach of contract claims surrounding cannabis oil production. 

The case arose from Thar suing Sound Wellness when they refused to pay for CBD oil that the plaintiffs processed for them, according to the opinion. The defendants brought counter-claims alleging breach of contract and fraud when they “failed to inform Sound Wellness that the oil it processed would be of unmarketably low potency.” Then, Sound Wellness brought third party claims against Plant Science Laboratories (PSL) for “fraudulently induc[ing] Sound Wellness to buy low-potency hemp.”

This order addressed Thar and PSL’s motions to dismiss. The defendants ordered hemp biomass from PSL which allegedly had a CBD concentration of 13.1% but “was not representative of the Biomass as a whole, but rather, was gleaned by PSL intentionally selecting only certain, high-potency, parts of the Biomass.” Thar tested the potency of the hemp and found it had only about 6% of CBD concentration, far less than promised. PSL moved to dismiss Sound Wellness’ claims of fraud in the inducement and fraud, but not the breach of contract claim against them. The Court dismissed the fraud case since Sound Wellness did not “plead a duty on PSL’s part to disclose Thar’s test result” but let the fraud in the inducement claim remain.

The court dismissed Sound Wellness’ claims of breach of contract, breach of good faith and fraud against Thar since they failed to allege that Thar had a duty to disclose the results of the CBD concentration test directly to the defendants. Furthermore, the Court concluded that Thar was not being deceitful for their actions since they did not have an explicit “duty to disclose this fact.”

The court granted Thar’s motion to dismiss the counterclaims in full. PSL’s motion to dismiss was granted in part and denied in part, with the breach of contract and fraud in the inducement claims remaining. Finally, Sound Wellness was granted leave to amend their amended counterclaims against Thar.

Thar is represented by Bernstein-Burkley. Sound Wellness is represented by Fox Rothschild. PSL is represented by Duke Holzman Photiadis & Gresens.