CBD companies must face trucker’s fraud lawsuit
September 16, 2021
A New York federal judge is allowing a trucker to proceed with a lawsuit accusing CBD oil companies of costing him his job after he tested positive for marijuana.
On Tuesday, Sept. 14, Judge Jonathan Feldman of the Western District of New York doubled down on an earlier decision to dismiss civil Racketeer Influenced and Corrupt Organizations claims in Douglas Horn’s case against Medical Marijuana Inc., Dixie LLC and other CBD companies. However, Judge Feldman also ruled that Horn’s lone claim of fraudulent inducement remains intact and is suitable for recovering lost earnings.
In August, the court dismissed the RICO claims without explanation. Seven of nine claims had been previously dismissed, leaving only the fraud claim.
CBD results in positive drug test
In February 2012, Horn, an over-the-road hazmat trucker at the time, suffered injuries from a vehicle crash. Several months after the crash, Horn looked into natural medicine as an alternative to the prescription medication he was taking because of the crash.
Approximately six months later, Horn responded to a “High Times” magazine ad from Dixie Botanicals regarding an industrial hemp product called Dixie X. The ad stated the product contained “0.00 THC.” THC, or tetrahydrocannabinol, is the main psychoactive compound in marijuana.
Rather, the product contained CBD, formally known as cannabidiol. Along with THC, CBD is one of 113 cannabinoids in marijuana. Dixie claimed that the product treats inflammation and pain.
In October 2012, Horn submitted a random drug screening as required by the U.S. Department of Transportation. A few days later, he was told that he had tested positive for a high level of THC. Horn was subsequently fired. He had worked for the company for 10 years and had driven professionally for nearly 30 years.
Following his termination, Horn bought some more of the Dixie X CBD oil to have a laboratory independently test the product for THC. The laboratory explained to Horn that they could not return the product to him after discovering it contained levels of THC well over the federal limit per U.S. Drug Enforcement Administration regulations and therefore illegal.
RICO does not apply
In his latest order, Judge Feldman explained his decision in August to dismiss RICO claims. Essentially, it comes down to business/property injuries versus personal injuries.
Horn’s loss of earnings claim is based on “the bodily invasion (Horn) allegedly sustained when THC was introduced into his system through the ingestion of (the CBD product),” the order states. However, RICO allows someone to recover damages when there is an injury in business or property. This includes harm to commercial interests and enterprises, but not personal injuries.
In this case, Horn does not directly attribute the companies’ alleged fraud scheme to loss of employment. Rather, his connection to the scheme and his loss of employment and earnings is the personal injury of the bodily invasion from unknowingly ingesting THC. Therefore, a jury cannot award damages through RICO claims.
Fraud claims valid for lost earnings
The second question is whether or not precedent regarding New York’s fraud laws allows the case to continue. The CBD companies argue that the law only allows recovery for out-of-pockets losses, not recovery of lost earnings. The court disagreed.
Although New York law measures fraud damages by taking the difference between the amount paid and the value of the item received, there is more to it. Court precedent allows a plaintiff to recover damages when the fraud proximately causes other consequential expenses. In this case, the loss of employment and wages.
Specifically, New York determines fraud damages by calculating what the plaintiff lost, not what they could have gained. Here, Horn is not seeking lost earnings from “an unrealized opportunity” that could have presented itself if it were not for the fraud. Rather, he is seeking lost wages from an actual job he lost. As Judge Feldman phrases it, “We are not dealing with a hypothetical alternative bargain, but a realized, demonstrable loss of employment.”
Essentially, New York attempts to restore a plaintiff to the position they were in before the fraud.
Whereas the CBD companies want the court to dismiss fraud claims as a matter of law, Judge Feldman ruled that proximate causation is a matter of fact. Specifically, can Horn establish a strong causal connection between the companies’ alleged fraud and the claimed injury (bodily invasion of THC) and damages (loss of employment and wages)? That is a question that only a jury can answer through fact-finding.
With the fraud claim still alive and the federal court retaining jurisdiction, Horn’s case survives. The court will reschedule the trial at a later date. LL