California Hashish Litigation: Who Ought to Be Sued?

Our litigation team has experience representing plaintiffs and defendants in the cannabis industry. We see a lot of times if a person is rightly being sued along with their business. For example, do you sue the company AND its owners, managers and members in the event of a breach of contract? What do you do if you are the owner / manager / member and are individually sued?

As a rule of thumb, most companies protect their clients for legal reasons. Therefore, individuals should not be personally named in litigation unless there are specific facts to demonstrate their individual liability. A prospective plaintiff may want to name anyone and everyone involved in a company to put additional pressure on. However, this strategy is very likely to result in an early childhood intervention that can cost tens of thousands of dollars in the first two months of litigation. If there really is a basis for claiming that an individual is personally liable, that plaintiff should be ready to argue over whether the court should allow the “corporate veil” to be pierced. A single defendant who is wrongly named personally in a lawsuit should be prepared to do so.

According to the Legal Information Institute, “piercing the corporate veil” refers to a situation where courts waive limited liability and hold a company’s shareholders or directors personally liable for the company’s actions or debts. “(Note this is not limited to businesses). “While the law varies from state to state, courts generally have a strong presumption against breaking the corporate veil and will only do so if there is serious wrongdoing.”

In California, the doctrine or theory of “alter ego” is a common basis for arguing that the corporate veil should be pierced. “The alter ego doctrine arises when a plaintiff stands in court and claims that a counterparty is using the corporate form wrongly and in a way that is contrary to the interests of the plaintiff. In certain circumstances the court will disregard the legal person and hold individual shareholders liable for the actions of the company. “There are two elements to be determined:

  1. There is such a unity of interest and property that the separate personalities of the company and the individual no longer exist, and
  2. If the actions are treated like those of the company alone, an uneven outcome follows.

Relevant factors frequently cited in this analysis include the commingling of funds and other assets, the finding of a company that it is liable for an individual’s debts and vice versa, the use of the same offices and staff, and the use of the company as a mere shell or Management for the affairs of the individual.

As a plaintiff, you should know that this is an insanely factual investigation, and as mentioned above, you should be willing to spend considerable money on properly investigating and have the factual basis to pursue this type of claim. Otherwise, the cost-benefit analysis usually does not have a positive effect on the naming of the person.

As an individual accused, you should be prepared to carefully examine whether you have come up short in any of the above ways. If you haven’t done so, it is common practice to file a petition for dismissal, although the standard for a petition for dismissal is hard to come by as the court must accept as true whatever the plaintiff claims in their complaint. However, if you missed out, you can unfortunately ride with us.

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