Duke's Invs. v. Char

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DUKE'S INVESTMENTS LLC, Plaintiff, v. ELIZABETH A. CHAR, M.D., IN HER OFFICIAL CAPACITY AS THE DIRECTOR OF HEALTH OF THE HAWAII STATE DEPARTMENT OF HEALTH; AND HAWAII STATE DEPARTMENT OF HEALTH, Defendants.

CIVIL No. 22-00385 JAO-RT

United States District Court, D. Hawaii

April 28, 2023

ORDER (1) GRANTING DEFENDANTS ELIZABETH A. CHAR, M.D. AND STATE OF HAWAIT DEPARTMENT OF HEALTH'S MOTION TO DISMISS PLAINTIFF'S VERIFIED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF WITH REQUEST FOR A TEMPORARY RESTRAINING ORDER, AND (2) DENYING PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION

JILL A. OTAKE, UNITED STATES DISTRICT JUDGE

Plaintiff Duke's Investments, LLC (“Plaintiff”), a company specializing in the sale of hemp and hemp products sued the State of Hawai‘i Department of Health (“DOH”) and Dr. Elizabeth Char (“Defendant Char”) in her official capacity as the director of DOH (collectively, “Defendants”). Plaintiff challenges certain 2022 amendments to chapter 11-37 of the Hawaii Administrative Rules (“HAR 11-37”) governing hemp processing and hemp products. Plaintiff later moved for a preliminary injunction, which was followed by Defendants' Motion to Dismiss. ECF Nos. 13, 17. For the reasons below, the Court GRANTS the Motion to Dismiss and DENIES the Motion for Preliminary Injunction (“PI Motion”).

I. BACKGROUND

A. The 2018 Farm Act

A basic comprehension of the United States' drug enforcement regime is helpful to understand the context of this case. The Controlled Substances Act (“CSA”) established five controlled substance schedules. See 21 U.S.C. § 812. “Controlled substances are placed on a particular schedule based on their potential for abuse, their accepted medical use in treatment, and the physical and psychological consequences of abuse of the substance.” Raich v. Gonzales, 500 F.3d 850, 854 (9th Cir. 2007) (citing 21 U.S.C. § 812(b)). “Marihuana” is a Schedule I controlled substance.^[1] 21 U.S.C. § 812(c), Sched. I(c)(10).

Marijuana and hemp are different varieties of the Cannabis sativa L plant. ECF No. 1 at ¶ 12. Delta-9-tetrahydrocannabinol (“Delta-9-THC”) is one of many isomeric forms of tetrahydrocannabinols (“THC”) and is the primary cannabinoid isomer that causes a psychoactive reaction in humans when consumed at certain concentrations and levels. Id. at ¶ 11-12. Delta-9-THC “can exist in hemp, but only in a concentration of less than .3% of [D]elta-9 by dry weight.” Id. at ¶ 15. Delta-8-THC and Delta-10-THC are uncontrolled “natural derivatives of hemp.” Id. at ¶ 17.

In 2018, the Farm Act, Pub. L. No. 115-334, 132 Stat. 4490 (“2018 Farm Act”), was enacted, which “legalized the possession and cultivation of hemp.” AK Futures LLC v. Boyd St. Distro, LLC, 35 F.4th 682, 686 (9th Cir. 2022) (citation omitted). The 2018 Farm Act amended the definitions in the CSA to exclude (1) hemp from the definition of “marihuana” and “marijuana” and (2) the type of THC found in hemp from the definition of THC. Pub. L. 115-334, 132 Stat. 4490 § 12619 (Dec. 20, 2018); 21 U.S.C. § 802(16)(B)(i); § 812 Schedule 1, (c)(17). The 2018 Farm Act defines hemp as the “plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.” 7 U.S.C. § 1639o(1). The State of Hawai‘i (“the State”) officially adopted the 2018 Farm Act's definition of hemp when it enacted HAR 11-37 on August 9, 2021. See DOH, Chapter 11-37 (Interim Rules), HAR, available at https://health.hawaii.gov/food-drug/files/2021/08/HAR-11-37-official.pdf.

On February 1, 2022, DOH amended Rule 11-37 (“February Amendment”). See DOH, Chapter 11-37 (Interim Rules), HAR, available at https://health.hawaii.gov/food-drug/files/2022/02/chapter-11-37-HAR-interim-rules-effective-February-24-2022.pdf [hereinafter DOH February Amendment]. Significantly, the February Amendment differs from the 2018 Farm Act in that it prohibits “the sale or distribution of hemp” with Delta-8-THC or Delta-10-THC, in addition to hemp containing Delta-9-THC concentrations exceeding 0.3 percent. See ECF No. 1 at 8 ¶ 24; DOH February Amendment.

DOH again amended the interim rules on April 1, 2022 (“April Amendment”). See DOH, Chapter 11-37 (Interim Rules), HAR, available at https://health.hawaii.gov/food-drug/files/2022/09/chapter-11-37-HAR-interim-rules-cover-sheet-effective-April-29-2022-1.pdf. The April Amendment changed the definition of “total THC” and the requirements for laboratory analysis of hemp products. ECF No. 1 at 9 ¶ 26.

B. Alleged Facts

After the State initially adopted the 2018 Farm Act's definition of “hemp” on August 9, 2021, Plaintiff opened eight retail locations in Honolulu dedicated to the sale of legal hemp and THC products derived from hemp. Id. At 8 ¶ 23. Plaintiff alleges that after DOH “quietly” passed the February Amendment, id. at 8 ¶ 24, and the April Amendment, id. at 9 ¶ 26, (collectively, “amendments”), the Honolulu Police Department and DOH raided Plaintiff's retail locations and arrested two of its employees. Id. at 11 ¶ 31. Plaintiff also alleges that DOH “embargoed” all of Plaintiff's inventory (worth approximately $200,000), including products “undeniably legal under HAR-11-37.” Id. ¶ 32.

C. Procedural History

Plaintiff filed its complaint on August 22, 2022 (“Complaint”), bringing seven claims against both Defendant Char in her official capacity and DOH. ECF No. 1. Plaintiff alleges the following counts:

First Cause of Action: Violation H.R.S. § 91-7. In this claim, Plaintiff seeks a declaration that the February and April Amendments were enacted in violation of H.R.S. § 91-3(a), and so are invalid, id. at ¶ 46, and a preliminary injunction prohibiting Defendants from enforcing the amendments without first complying with H.R.S. § 91-3(a), id. at 14 ¶ 47.

Second Cause of Action: Procedural Due Process, 42 U.S.C. § 1983. In this claim, Plaintiff seeks a declaration that the amendments violate the procedural component of the Due Process Clause, and injunctive relief prohibiting Defendants from enforcing the amendments. Id. at 17-18 ¶¶ 66-67.

Third Cause of Action: Substantive Due Process, 42 U.S.C. § 1983. In this claim, Plaintiff seeks a declaration that the amendments violate the substantive component of the Due Process Clause, and injunctive relief prohibiting Defendants from enforcing the amendments. Id. at 21 ¶¶ 82-83.

Fourth Cause of Action: Equal Protection, 42 U.S.C. § 1983. In this claim, Plaintiff seeks a declaration that the amendments violate the Equal Protection Clause, and injunctive relief prohibiting Defendants from enforcing the amendments. Id. at 22 ¶¶ 92-93.

Fifth Cause of Action: Federal Preemption. In this claim, Plaintiff seeks a declaration that (1) portions of the amendments are preempted by federal law, (2) the federal definition of hemp should serve as the definition of hemp under Hawai‘i law, and (3) the State's prohibitions of Delta-8-THC and Delta-10-THC are illegal alterations of the federal definition of hemp and are therefore void under federal law. Id. at 25 ¶ 109.

Sixth Cause of Action: Fifth Amendment Takings. In this claim, Plaintiff alleges that the amendments deprived Plaintiff of all economically beneficial use of its businesses and leases without just compensation. Plaintiff thus seeks “just compensation in the form of lost income from the use of its property.” Id at 26 ¶¶ 112, 114.

Seventh Cause of Action: Motion for Temporary Restraining Order (“TRO Motion”). Id. at 29 ¶ 128.

On November 22, 2022, District Judge Kobayashi denied Plaintiff's TRO Motion (“TRO Order”). See ECF No. 23; Duke's Invs. LLC v. Char, No. CV 2200385 LEK-RT, 2022 WL 17128976 (D. Haw. Nov. 22, 2022). Before the TRO Order was issued, however, Plaintiff filed the PI Motion on September 22, 2022. See ECF No. 13. Judge Kobayashi subsequently issued a Minute Order on December 1, 2022 (“Minute Order”), finding that the PI Motion made the same arguments as the TRO Motion. ECF No. 23. Judge Kobayashi thus denied the PI Motion, but provided that a written order would be issued superseding the Minute Order. Id.

On December 21, 2022, Judge Kobayashi issued an order recusing herself from the case. ECF No. 28. After the case was reassigned, the Court directed the parties to file briefs addressing whether the Minute Order “constitutes a final order denying Plaintiff's Motion for Preliminary Injunction.” ECF No. 33. Both parties timely filed their briefs, agreeing that the Minute Order was not a final order. ECF No. 36-37. Defendants filed an opposition to the PI Motion on January 27, 2023. See ECF No. 39. Plaintiff did not file a reply.

Defendants filed the Motion to Dismiss on October 18, 2022, which Plaintiff filed an opposition to on December 16, 2022. See ECF Nos. 17, 27. Defendants filed their reply on December 23, 2022. ECF No. 31. The Court held a hearing on both the PI Motion and the Motion to Dismiss on March 10, 2023.

II. STANDARD OF REVIEW

Federal Rule of Civil Procedure (“FRCP”) 12(b)(6) authorizes dismissal of a complaint that fails “to state a claim upon which relief can be granted.” Fed R. Civ. P. 12(b)(6). On a Rule 12(b)(6) motion to dismiss, “the court accepts the facts alleged in the complaint as true,” and “[d]ismissal can be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged.” UMG Recordings, Inc. v. Shelter Cap. Partners LLC, 718 F.3d 1006, 1014 (9th Cir. 2013) (quoting Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1988)) (alteration in original). However, conclusory allegations of law, unwarranted deductions of fact, and...