Case 5:21-cv-01328-JWH-SHK Document 76-1 Filed 08/31/22 Page 1 of 19 Page ID

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1 Timothy L. Alger (Cal. Bar No. 160303)

2 EMERGE LAW GROUP
100 Spectrum Center Drive, Suite 900
3 Irvine, California 92618
4 Telephone: 949-936-2610
[email protected]
5

6 James R. Gourley (TX Bar No. 24050679 (Admitted Pro Hac Vice))
CARSTENS & CAHOON LLP
7 13760 Noel Rd., Suite 900
8 Dallas, Texas 75240
Telephone: 972-367-2001
9 [email protected]
10
Attorneys for Defendants
11 COASTAL HARVEST, LLC and
12 ANM, INC.
13 UNITED STATES DISTRICT COURT
14 CENTRAL DISTRICT OF CALIFORNIA
15 SOUTHERN DIVISION
16 GENE POOL TECHNOLOGIES, Case No.: 5:21-cv-01328-JWH-SHK
17 INC., Consolidated with 2:21-cv-08756
18
Plaintiff, DEFENDANTS’ SUPPORTING
19 v. MEMORANDUM OF POINTS AND
AUTHORITIES
20
COASTAL HARVEST, LLC,
21 Hon. Judge W. Holcomb
Defendant.
22
Hearing:
23 Date: October 7, 2022
AND CONSOLIDATED MATTERS Time: 9:00 a.m.
24
Ctrm: 9D, 9th Floor
25

26

27

28

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MOTION TO DISMISS
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2 TABLE OF CONTENTS
3

4 I. Introduction ..................................................................................................... 6

5
II. Legal Standard ................................................................................................. 7
6

7 A. It is illegal for a person to participate in violations of the CSA,

whether it is done directly, as an aider and abettor, or as a co-
8 conspirator. It is also illegal for a person to engage in financial
transactions involving proceeds of unlawful activity. .......................... 8
9

10 B. Courts routinely dismiss or limit claims that involve illegal

activity and have a long history of doing so. ........................................ 9
11

12 III. This Court lacks subject matter jurisdiction over Gene Pool’s claims
because its complaints facially allege (1) that Defendants are engaging
13 in federally illegal conduct and owe Gene Pool proceeds from that
illegal conduct, and (2) that Gene Pool is aiding or abetting, and
14 attempting to conspire or conspiring, to violate the CSA, and attempting
to engage in money laundering. .................................................................... 14
15

16 A. Even if Gene Pool’s complaint does not facially show that it is

engaged in criminal activity, its allegations and prayer are asking
17 the Court to award it past damages and future royalties from
allegedly illegal conduct. .................................................................... 15
18

19 B. Gene Pool’s attempts to collect royalties both outside of court

and within this lawsuit constitute conspiracy, an attempt to
20 conspire, or aiding or abetting a violation of the CSA, and
attempted money laundering. .............................................................. 15
21

22 IV. This Court should dismiss Gene Pool’s claims for failure to state a
claim because the Court cannot provide any relief to Gene Pool that
23 does not involve federally illegal cannabis-derived assets. .......................... 16

24
V. Conclusion ..................................................................................................... 18
25

26

27

28

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1 Cases
2
Tailford v. Experian Info. Sols., Inc.,
3 26 F.4th 1092 (9th Cir. 2022)................................................................................. 7
4 Augustine v. United States,
5 704 F.2d 1074 (9th Cir. 1983)................................................................................ 7

6 Bell Atlantic Corp. v. Twombly,

550 U.S. 544 (2007) .......................................................................................... 7, 8
7

8 Emrich v. Touche Ross & Co.,

846 F.2d 1190 (9th Cir. 1988)............................................................................... 7
9
Everett v. Williams
10
9 L.Q. Rev. 197 (1893) .......................................................................................... 9
11
Ewell v. Daggs,
12 108 U.S. 143 (1883) ............................................................................................... 9
13
Fourth Corner Credit Union v. Fed. Reserve Bank of Kansas City,
14 861 F.3d 1052 (10th Cir. 2017)...................................................................... 11, 17
15 Gonzales v. Raich,
16 545 U.S. 1 (2005) ................................................................................................... 8
17 Gopal v. Luther,
18
No. 2:21-cv-00735-KJM-CKD, 2022 U.S. Dist. LEXIS 30221, (E.D. Cal. Feb.
18, 2022)......................................................................................................... 13, 16
19
In re Arenas, 514 B.R.
20 887 (Bankr. D. Colo. 2014) .................................................................................. 10
21
In re CWNevada LLC,
22 602 B.R. 717 (Bankr. D. Nev. 2019) ................................................................... 10
23 In re Johnson,
24 532 B.R. 53 (Bankr. W.D. Mich. 2015) ............................................................... 10
25 In re Medpoint Mgmt.,
26 528 B.R. 178 (Bankr. D. Ariz. 2015) ................................................................... 10

27 In re Rent-Rite Super Kegs W. Ltd.,

484 B.R. 799 (Bankr. D. Colo. 2012) .................................................................. 10
28

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1 J. Lilly, LLC v. Clearspan Fabric Structures Int’l, Inc.,

2 No. 18-cv-01104, 2020 WL 1855190 (D. Or. Apr. 13, 2020) ...................... 12, 16

3 Kiva Health Brands LLC v. Kiva Brands Inc.,

Case No. 19-cv-03459- CRB, 2019 U.S. Dist. LEXIS 152501, (N.D. Cal. Sept.
4
6, 2019)................................................................................................................. 13
5
Mischalski v. Ford Motor Co.,
6 935 F. Supp. 203 (E.D.N.Y. 1996) ..................................................................... 11
7
Roberts v. Corrothers,
8 812 F.2d 1173 (9th Cir. 1987)............................................................................... 7
9 Safe Air for Everyone v. Meyer,
10 373 F.3d 1035 (9th Cir. 2004)............................................................................... 7
11 Scott v. Breeland,
792 F.2d 925 (9th Cir. 1986).................................................................................. 7
12

13 Sensoria, Ltd. Liab. Co. v. Kaweske,

Civil Action No. 20-cv-00942-MEH, 2022 U.S. Dist. LEXIS 12459, (D. Colo.
14 Jan. 24, 2022) ........................................................................................... 11, 16, 17
15
Shulman v. Kaplan,
16 2020 WL 7094063 (C.D. Cal. Oct. 29, 2020) ................................................ 12, 16
17 Spokeo, Inc. v. Robins,
18 578 U.S. 330 (2016) ............................................................................................... 7
19 Street v. ACC Enters., LLC, Case No. 2:17-cv-00083-GMN-VCF, 2018 U.S.
20
Dist. LEXIS 167299, (D. Nev. Sept. 27, 2018) ................................................... 13

21 The Florida,
101 U.S. 37 (1879) ................................................................................................. 9
22

23
Tracy v. USAA Cas. Ins. Co.,
Case No. 11-00487 LEK-KSC, 2012 U.S. Dist. LEXIS 35913, (D. Haw. Mar.
24 16, 2012)............................................................................................................... 13
25
United States v. Shabani,
26 513 U.S. 10 (1994) ................................................................................................. 8
27

28

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1 Statutes
2
18 U.S.C. § 1956(c)(7)(B)(i).................................................................................. 16
3
18 U.S.C. § 2 ...................................................................................................... 8, 16
4
18 U.S.C. § 1956(a)(1)(A)(i) ................................................................................... 8
5

6 21 U.S.C. § 801 et seq .............................................................................................. 6

7 21 U.S.C. § 802(16)(B)(i) ...................................................................................... 14
8 21 U.S.C. § 841(a)(1) ............................................................................................... 8
9
21 U.S.C. § 846 ........................................................................................................ 8
10
7 U.S.C. § 1639o ..................................................................................................... 14
11
Fed. R. Civ. P. 12(b)(1) ............................................................................................ 7
12

13 Fed. R. Civ. P. 12(b)(6) ............................................................................................ 7

14 Fed. R. Civ. P. 12(c)................................................................................................. 7
15 Fed. R. Civ. P. 12(h)(3) ............................................................................................ 7
16

17
Other Authorities
18

19 William J. McNichol, Jr., The New Highwayman: Enforcement of U.S. Patents

on Cannabis Products.
20 101 J. Pat. & Trademark Off. Soc’y 24 ................................................................. 9
21

22

23

24

25

26

27

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1 I. Introduction
2 In this lawsuit, Plaintiff Gene Pool Technologies, Inc. (“Gene Pool”) seeks
3 to use the power of United States District Courts to demand patent infringement
4 royalties from cannabis oil extraction. A long line of precedent, dating from the
5 1700s to today, requires the Court to dismiss this case because it lacks subject
6 matter jurisdiction and cannot provide relief on these claims; the Court cannot
7 divvy up revenues that, under federal law, are derived from illegal activity.
8 Gene Pool bills itself as “a technology aggregation, development, and
9 licensing company focused on cannabis and hemp extraction technologies.” (Dkt.
10 1 at para. 3.) Gene Pool’s only allegation of infringement involves Defendants’
11 alleged use of equipment to “extract products from cannabis.” (Dkt. 1 at para. 6.)
12 Gene Pool is also asking this Court for damages amounting to at least a reasonable
13 royalty for cannabis extraction that is alleged to infringe. (Dkt. 1, p. 8, para. B.)
14 Regardless of whether any state laws allow it, the production, distribution,
15 and sale of cannabis (or marijuana) remains illegal under the Federal Controlled
16 Substances Act, 21 U.S.C. § 801 et seq. (“CSA”). Dismissal is warranted here
17 because federal courts do not get involved in civil disputes over the proceeds of
18 illegal activity. This Court is not empowered to provide Gene Pool with any
19 remedy from Defendants Coastal Harvest, LLC and ANM, Inc.
20 In bringing this motion, Defendants do not concede that they have broken
21 any federal law. This motion is based on the allegations Gene Pool has made in
22 its complaints, and the question presented is solely whether Gene Pool’s
23 allegations give rise to subject matter jurisdiction or state a claim upon which this
24 Court may grant relief. They do not and this action should be dismissed with
25 prejudice.
26 ///
27 ///
28

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1 II. Legal Standard

2 Defendants move to dismiss this case under Fed. R. Civ. P. 12(b)(1) and
3 12(h)(3) for lack of subject matter jurisdiction, and Rules 12(c) and 12(b)(6) for
4 failure to state a claim upon which relief can be granted.
5 The party seeking to invoke federal jurisdiction bears the burden of
6 establishing that jurisdiction exists. Scott v. Breeland, 792 F.2d 925, 927 (9th Cir.
7 1986). “A Rule 12(b)(1) jurisdictional attack may be facial or factual.” Safe Air
8 for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). “In resolving a
9 factual attack on jurisdiction, the district court may review evidence beyond the
10 complaint without converting the motion to dismiss into a motion for summary
11 judgment.” Id. In such a case, a court is “free to hear evidence regarding
12 jurisdiction and to rule on that issue prior to trial, resolving factual disputes where
13 necessary.” Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987) (quoting
14 Augustine v. United States, 704 F.2d 1074, 1077 (9th Cir. 1983)). “The subject
15 matter jurisdiction of the district court is not a waivable matter and may be raised
16 at any time by one of the parties, by motion or in the responsive pleadings, or sua
17 sponte by the trial or reviewing court.” Emrich v. Touche Ross & Co., 846 F.2d
18 1190, 1194 n.2 (9th Cir. 1988).
19 Standing is a constitutional requirement for the exercise of subject matter
20 jurisdiction over disputes in federal court. Tailford v. Experian Info. Sols., Inc.,
21 26 F.4th 1092, 1099 (9th Cir. 2022). The factual allegations must show (1) an
22 injury in fact that is (2) fairly traceable to the challenged conduct and (3) likely to
23 be redressed by a favorable judicial decision. Spokeo, Inc. v. Robins, 578 U.S.
24 330, 338 (2016).
25 To survive a motion to dismiss under Rule 12(b)(6), a pleading must allege
26 sufficient facts to “state claim to relief that is plausible on its face.” Bell Atlantic
27 Corp. v. Twombly, 550 U.S. 544, 570 (2007). Although a complaint “does not
28 need detailed factual allegations,” the “[f]actual allegations must be enough to

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1 raise a right to relief above the speculative level . . . .” Twombly, 550 U.S. at 555.
2 A. It is illegal for a person to participate in violations of the CSA,
3 whether it is done directly, as an aider and abettor, or as a co-
4 conspirator. It is also illegal for a person to engage in financial
5 transactions involving proceeds of unlawful activity.
6 Federal law prohibits the “manufacture, distribut[ion], or dispens[ing], or
7 possess[ion] with intent to manufacture, distribute, or dispense, a controlled
8 substance[.]” 21 U.S.C. § 841(a)(1). Marijuana is classified as a Schedule I
9 controlled substance, with one exception not applicable here. Gonzales v. Raich,
10 545 U.S. 1, 14, 27 (2005). (“The CSA designates marijuana as contraband for any
11 purpose.”)(emphasis in original).
12 Under federal law, aiding and abetting criminal activity is itself criminalized
13 pursuant to 18 U.S.C. § 2, which provides: “Whoever commits an offense against
14 the United States or aids, abets, counsels, commands, induces or procures its
15 commission, is punishable as a principal.”
16 The conspiracy provision in the CSA states: “Any person who attempts or
17 conspires to commit any offense defined in this title shall be subject to the same
18 penalties as those prescribed for the offense, the commission of which was the
19 object of the attempt or conspiracy.” 21 U.S.C. § 846. Further, conspiracy under
20 Section 846 does not require proof of an overt act in furtherance of the conspiracy;
21 the agreement to carry out the conspiracy is the actus reus. United States v.
22 Shabani, 513 U.S. 10, 17 (1994).
23 Under federal law, it is also illegal for a person “knowing that the property
24 involved in a financial transaction represents the proceeds of some form of
25 unlawful activity,” to conduct or attempt to conduct the financial transaction
26 “which in fact involves the proceeds of specified unlawful activity, with the intent
27 to promote the carrying on of specified unlawful activity.” 18 U.S.C.S. §
28 1956(a)(1)(A)(i). This is generally known as money laundering.

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1 B. Courts routinely dismiss or limit claims that involve illegal activity

2 and have a long history of doing so.
3 What is currently known as the “illegality rule” or “illegality doctrine”
4 started out as the doctrine of Ex turpi causa non oritur actio (“From a dishonorable
5 cause an action does not arise.”). The earliest recorded application of the doctrine
6 of Ex turpi causa is the 1725 English case of Everett v. Williams, better known as
7 The Highwayman’s Case. (This case is noted at 9 L.Q. Rev. 197 (1893).) There,
8 one highwayman sued another highwayman, claiming that he had been cheated
9 out of his proceeds of a series of robberies the two had committed together. Id.
10 The court refused to consider the suit and turned the two men over to the sheriff.
11 Id.
12 In the United States, the Supreme Court has reiterated this longstanding
13 maxim of law, holding that “[n]o court will lend its aid to a party who founds his
14 claim for redress upon an illegal act.” The Florida, 101 U.S. 37, 43, 25 L. Ed. 898
15 (1879). The denial of relief based on that maxim is “not for the sake of the
16 defendant, but because [courts] will not lend their aid to such a plaintiff.” Ewell v.
17 Daggs, 108 U.S. 143, 149, 2 S. Ct. 408, 27 L. Ed. 682 (1883). This doctrine is
18 deeply rooted in the common law and operates to protect the integrity of the law
19 and the courts. (See William J. McNichol, Jr., The New Highwayman:
20 Enforcement of U.S. Patents on Cannabis Products. 101 J. Pat. & Trademark Off.
21 Soc’y 24.)
22 Federal courts consistently refuse to hear cases that would necessarily
23 require them to distribute the proceeds of illegal activity. For example, federal
24 bankruptcy courts dismiss bankruptcy petitions involving companies that either
25 violate or conspire to violate the CSA. In the bankruptcy case of In re Medpoint
26 Mgmt., the bankruptcy court noted that the debtor owned IP and licensed that IP
27 for $8,000 per month to companies engaged in the federally illegal, but state-legal,
28 Arizona medical marijuana business. In re Medpoint Mgmt., 528 B.R. 178, 181

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1 (Bankr. D. Ariz. 2015). This was the debtor’s “only current source of revenue.”
2 Id. After noting that cannabis is illegal under the CSA, the bankruptcy court
3 “observe[d], without deciding, that it is quite possible that [debtor’s] IP and the IP
4 licensing revenues could be seized or forfeited, and that [debtor] could be or could
5 have been guilty of facilitation of a crime under the CSA.” Id. at 185. Due to the
6 unacceptable risk of violating federal law in administering the bankruptcy estate,
7 the court dismissed the case. Id. at 186.
8 Similarly, the bankruptcy court in In re Rent-Rite Super Kegs W. Ltd., 484
9 B.R. 799, 805 (Bankr. D. Colo. 2012) concluded that the debtor’s “operations
10 constitute a continuing criminal violation of the CSA and a federal court cannot
11 be asked to enforce the protections of the Bankruptcy Code in aid of a Debtor
12 whose activities constitute a continuing federal crime.” See also In re Johnson,
13 532 B.R. 53, 56 (Bankr. W.D. Mich. 2015) (stating that “federal judicial officers
14 take an oath to uphold federal law, and countenancing the Debtor’s continued
15 operation of his marijuana business under the court’s protection is hardly
16 consistent with that oath”); In re Arenas, 514 B.R. 887, 892 (Bankr. D. Colo. 2014)
17 (finding cause to dismiss the debtor’s case because the debtor’s assets included
18 marijuana and marijuana-related assets); In re CWNevada LLC, 602 B.R. 717,
19 727- 37 (Bankr. D. Nev. 2019) (discussing bankruptcy cases involving debtors
20 connected in various ways to marijuana businesses).
21 Federal courts have reached similar conclusions outside of the bankruptcy
22 context. For example, in Sensoria v. Kaweske, the District of Colorado provided
23 a detailed consideration of a federal court’s ability to hear claims involving
24 conduct that violates the CSA. When the plaintiff tried to distinguish the
25 bankruptcy decisions involving cannabis-related companies, the court in Sensoria
26 noted that “the same obstacles a trustee faces in managing marijuana assets the
27 Court has in providing means of redress.” Sensoria, Ltd. Liab. Co. v. Kaweske,
28 Civil Action No. 20-cv-00942-MEH, 2022 U.S. Dist. LEXIS 12459, at *30 (D.

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1 Colo. Jan. 24, 2022). Further, in concluding that the CSA barred most of the relief
2 sought by the plaintiffs in that case, Sensoria made the following findings relevant
3 to this case:
4 • “The involvement of marijuana was neither tangential nor unexpected.
5 Plaintiffs knew what the essential nature of the undertaking would be.”
6 Id. at *28.
7 • “Illegality can bar a tort claim.” Id. at *29 (citing Mischalski v. Ford
8 Motor Co., 935 F. Supp. 203, 205 (E.D.N.Y. 1996) (noting that the
9 defense also applies “to actions arising in tort, under the theory that
10 one should not be rewarded for voluntary participation in an illegal act
11 or profit from his or her own wrongdoing.”)).
12 • A court may not use its equitable power to facilitate conduct that
13 implicates the CSA even if that same conduct is lawful under state law.
14 Id. at *30 (citing Fourth Corner Credit Union v. Fed. Reserve Bank of
15 Kansas City, 861 F.3d 1052, 1055 (10th Cir. 2017).)
16 • “[T]he Court may not vindicate equity in or award profits from a
17 business that grows, processes, and sells marijuana.” Id. at *32.
18 • “Relief may not be in a form that endorses violating the CSA. It can
19 neither require an act that would violate the CSA nor award monetary
20 damages paid from a marijuana asset or income stream.” Id. at *32-
21 33.
22 • “This Court cannot award Plaintiffs lost profits from a marijuana
23 business.” Id. at *38.
24 • Marijuana assets and the ability to profit from them that were lost
25 because of “Defendants’ acts of mismanagement, fraud, and theft
26 [were] injuries that the illegality defense does not permit this Court to
27 remedy.” Id. at *44.
28 The court in Sensoria did allow Plaintiffs to proceed on claims that sought

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1 “refund of their investment principal,” but only because the court presumed that
2 “if the Defendants, presumably the individual Defendants, have assets
3 independent of a marijuana business, then the illegality defense would not be an
4 impediment.” Id. at *44-45. But the limitation on recovery was clear: “This only
5 applies to Plaintiffs’ direct claims against the individual Defendants,” and only to
6 the extent they could pay from non-marijuana assets. Id.
7 Courts in this district and elsewhere have found the same. Recently, in
8 Shulman v. Kaplan, 2020 WL 7094063 (C.D. Cal. Oct. 29, 2020), Judge Birotte
9 dismissed RICO and Lanham Act claims because the court could not provide
10 plaintiffs with the remedy they sought. “The Court cannot remedy Plaintiffs’
11 injuries because doing so would result in an illegal mandate; in short, Plaintiffs’
12 injuries to their cannabis business are not redressable under RICO. . . . [Also,]
13 because Plaintiffs claim for false advertising rests wholly on Defendants’ use of
14 its trademark to advertise marijuana products, it encompasses an unlawful use such
15 that Plaintiffs are not within the ‘zone of interest’ protected by the Lanham Act.”
16 Id. at *2-3.
17 Judge Birotte rejected the plaintiffs’ contention that dismissing the action
18 would improperly reward wrongdoing:
19 [T]he Court finds that any potential remedy in this case would
20 contravene federal law under the CSA. A court order requiring
21 monetary payment to Plaintiffs for the loss of profits or injury to a
22 business that produces and markets cannabis would, in essence (1)
23 provide a remedy for actions that are unequivocally illegal under
24 federal law; and (2) necessitate that a federal court contravene a federal
25 statute (the CSA) in order to provide relief under a federal statute
26 (RICO). The Court finds this approach to be contrary to public policy.
27 Id. at *2. See also J. Lilly, LLC v. Clearspan Fabric Structures Int’l, Inc., No. 18-
28 cv-01104, 2020 WL 1855190 (D. Or. Apr. 13, 2020) (holding that plaintiff was

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1 precluded from proceeding on its breach of contract and negligence claims because
2 the court could not award plaintiff lost profits from the sale of marijuana); Gopal
3 v. Luther, No. 2:21-cv-00735-KJM-CKD, 2022 U.S. Dist. LEXIS 30221, at *9
4 (E.D. Cal. Feb. 18, 2022) (in abstaining and remanding the case to state court,
5 finding: “This court cannot enforce an ownership interest in a marijuana business
6 or order damages derived from the cultivation and sale of marijuana.”); Street v.
7 ACC Enters., LLC, Case No. 2:17-cv-00083-GMN-VCF, 2018 U.S. Dist. LEXIS
8 167299, *2, 6-7, 15-16 (D. Nev. Sept. 27, 2018) (concluding in action involving
9 breach of promissory notes that the court could not enforce portions of the notes
10 because it could not “order any remedy that permits Defendants to directly use
11 Plaintiff’s funds for cannabis cultivation or to gain ownership in Defendant’s
12 cannabis business” as doing so would contravene the CSA); Tracy v. USAA Cas.
13 Ins. Co., Case No. 11-00487 LEK-KSC, 2012 U.S. Dist. LEXIS 35913, *2-4, 30,
14 38-39 (D. Haw. Mar. 16, 2012) (concluding that, although plaintiff had an
15 insurable interest in her marijuana plants under Hawaii law, the federal court could
16 not enforce that interest “because Plaintiff’s possession and cultivation of
17 marijuana, even for State-authorized medical use, clearly violates federal law”);
18 Kiva Health Brands LLC v. Kiva Brands Inc., Case No. 19-cv-03459- CRB, 2019
19 U.S. Dist. LEXIS 152501, *18-25 (N.D. Cal. Sept. 6, 2019) (concluding that
20 because the trademark owner’s use of its mark in California to brand marijuana
21 products was not lawful use under federal law, it could not assert California
22 common law, prior use rights to the mark in defense to a federal trademark claim).
23 The bottom line is federal courts will not adjudicate civil disputes involving
24 violations of federal law or the distribution of proceeds therefrom.
25 ///
26 ///
27 ///
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1 III. This Court lacks subject matter jurisdiction over Gene Pool’s claims
2 because its complaints facially allege (1) that Defendants are engaging
3 in federally illegal conduct and owe Gene Pool proceeds from that illegal
4 conduct, and (2) that Gene Pool is aiding or abetting, and attempting to
5 conspire or conspiring, to violate the CSA, and attempting to engage in
6 money laundering.
7 Gene Pool repeatedly alleges in its complaints that Defendants are engaged
8 in conduct that is illegal under federal law, that such alleged conduct infringes its
9 patents, and that it is seeking at least a reasonable royalty based on such conduct.
10 For example, paragraph 7 of the complaint against ANM alleges that it uses
11 specific equipment “to extract products from cannabis thereby infringing system
12 and method claims of Gene Pool patents.” Paragraph 8 supports its jurisdictional
13 position by alleging that this is “an action for patent infringement arising out of
14 ANM’s unauthorized manufacture, distribution, offering for sale, and selling of
15 cannabis extracts and related products.” Paragraphs 9, 19, 30, 41, 52, 62, and
16 Exhibits 6, 7, 8, 9, 10 all allege that the infringing activity involves extraction of
17 compounds from cannabis. The complaint against Coastal Harvest makes
18 essentially identical allegations.
19 Gene Pool’s complaints also make an important distinction between
20 cannabis and hemp. Again, in the ANM complaint at paragraph 3, Gene Pool
21 describes itself as “a technology aggregation, development, and licensing
22 company focused on cannabis and hemp extraction technologies.” Hemp is not a
23 controlled substance under federal law, but cannabis or marijuana is. See 21
24 U.S.C. § 802(16)(B)(i) (“The term ‘marihuana’ does not include (i) hemp, as
25 defined in section 297A of the Agricultural Marketing Act of 1946” [7 USC §
26 1639o].) There is not a single allegation in the complaint about Defendants
27 processing, extracting, or selling hemp.
28 Gene Pool has also failed to allege that Defendants have any non-marijuana-

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1 related assets from which it can pay any damages.

2 Gene Pool further alleges that it sent letters to Defendants demanding
3 payment of royalties for this alleged infringement. (Dkt. 1, para. 35)
4 A. Even if Gene Pool’s complaint does not facially show that it is
5 engaged in criminal activity, its allegations and prayer are asking
6 the Court to award it past damages and future royalties from
7 allegedly illegal conduct.
8 There is no dispute that Gene Pool’s allegations of infringement implicate
9 alleged violations of the CSA. There are no infringement allegations involving
10 anything other than alleged activity that constitutes a violation of the CSA. Under
11 the reasoning of the many bankruptcy, tort, statutory, and contract cases that were
12 discussed above and were dismissed, this Court should do the same and find that
13 it cannot adjudicate this dispute because it involves divvying up the proceeds of
14 violations of federal law. Gene Pool has not alleged a legally cognizable injury in
15 fact, and this Court does not have the power to provide Gene Pool with the redress
16 it seeks.
17 B. Gene Pool’s attempts to collect royalties both outside of court and
18 within this lawsuit constitute conspiracy, an attempt to conspire,
19 or aiding or abetting a violation of the CSA, and attempted money
20 laundering.
21 Gene Pool’s complaint also discusses a letter sent to Defendants on July 9,
22 2021 asserting infringement allegations that are essentially the same as those
23 asserted in the complaints against ANM and Coastal Harvest. (Dkt. 1, para. 35)
24 The July 9, 2021 letter also references several previous correspondence with
25 Defendants accusing them of infringement for performing cannabis extraction.
26 These letters are an attempt to profit from federally illegal activity by threatening
27 to drag Defendants into a court of law and subject them to defending an expensive
28 patent infringement lawsuit.

15
MOTION TO DISMISS
Case 5:21-cv-01328-JWH-SHK Document 76-1 Filed 08/31/22 Page 16 of 19 Page ID
#:2304

1 First, Gene Pool’s attempt to get an agreement from Defendants to pay them
2 a royalty based on the federally illegal activity of cannabis extraction is an attempt
3 at criminal conspiracy to violate the CSA. Gene Pool’s letters demonstrate in no
4 uncertain terms that it had specific intent for Defendants to violate the CSA and
5 pay Gene Pool an ongoing royalty for the cannabis oil being extracted. The same
6 facts also show that Gene Pool is guilty of aiding and abetting under 18 U.S.C. §
7 2.
8 Second, Gene Pool’s demand letters and patent infringement lawsuits
9 seeking the proceeds of federally illegal activity are brazen attempts at money
10 laundering. The federal money laundering statute prohibits anyone from
11 knowingly engaging in a financial transaction involving “proceeds of specified
12 unlawful activity” and lists “the manufacture, importation, sale, or distribution of
13 a controlled substance (as such term is defined for the purposes of the Controlled
14 Substances Act)” as one example of such specified unlawful activity. 18 U.S.C. §
15 1956(c)(7)(B)(i). Further, Gene Pool plainly had intent that the unlawful activity
16 should continue because their complaint and their demand letters suggest that they
17 want an ongoing royalty.
18 Again, this Court lacks subject matter jurisdiction because Gene Pool’s
19 alleged injury is not one that is redressable by this Court. The Court simply cannot
20 get in the middle of a civil dispute over allocation of the proceeds of criminal
21 activity. To do so would be to condone and facilitate criminal conspiracy, aiding
22 and abetting, and money laundering.
23 IV. This Court should dismiss Gene Pool’s claims for failure to state a claim
24 because the Court cannot provide any relief to Gene Pool that does not
25 involve federally illegal cannabis-derived assets.
26 The federal district courts in Sensoria, Shulman, J. Lilly, and Gopal all
27 agreed that they could not award damages derived from an illegal marijuana
28 business. Virtually every bankruptcy court agrees that the estates of illegal

16
MOTION TO DISMISS
Case 5:21-cv-01328-JWH-SHK Document 76-1 Filed 08/31/22 Page 17 of 19 Page ID
#:2305

1 marijuana businesses cannot be administered because the illegality of the

2 underlying business prevents the trustee from paying creditors.
3 Here, Gene Pool has made no allegation that any of its claimed damages or
4 royalty can be paid out of non-cannabis assets. Unlike Sensoria, Gene Pool has
5 no initial investment in Defendants, and the damages it requests cannot be
6 recovered under a legal theory that does not touch marijuana revenue. Gene Pool’s
7 entire claim for damages is inextricably tied to federally illegal cannabis oil
8 extraction.
9 Further, this Court should not grant any request by Gene Pool to amend its
10 complaint. Even if Gene Pool were to amend to request only an injunction, the
11 Court would still be powerless to provide relief. Again, a court may not use its
12 equitable power to facilitate conduct that implicates the CSA even if that same
13 conduct is lawful under state law. See, e.g., Fourth Corner Credit Union, 861 F.3d
14 at 1055. Gene Pool’s only motivation for such a request would be to use it as a
15 cudgel to force Defendants into a settlement that would have Defendants pay Gene
16 Pool to allow them to perform cannabis extraction in the way that Gene Pool
17 alleges is infringing. Gene Pool is a patent monetization entity, not a competitor,
18 and an injunction not designed to force Defendants to pay Gene Pool would be
19 useless under Gene Pool’s business model.
20 Moreover, any injunction fashioned by this Court to prevent ongoing
21 infringement would not completely prevent Defendants from violating the CSA.
22 Instead, it would only prevent the use of one specific method or system of violating
23 the CSA, as there are design arounds available for the patents in suit that would
24 allow Defendants perform cannabis extractions without fear of infringement.
25 Thus, the injunction would involve this Court telling a business how it can or
26 cannot violate the CSA. The court in Sensoria rejected the plaintiff’s suggestion
27 that it could enjoin the defendants “to operate the business in a CSA-compliant
28 way.” Sensoria, 2022 U.S. Dist. LEXIS 12459, at *33. There is simply no relief,

17
MOTION TO DISMISS
Case 5:21-cv-01328-JWH-SHK Document 76-1 Filed 08/31/22 Page 18 of 19 Page ID
#:2306

1 injunctive or otherwise, available for a federal court to provide to Gene Pool in

2 this case.
3 V. Conclusion
4 Gene Pool should not be allowed to use the power of the federal judiciary
5 to violate the CSA or benefit from others’ alleged violations of the CSA. The
6 patents in suit could conceivably be asserted against any number of entities who
7 are engaged in extracting compounds from legal plants. But Gene Pool’s own
8 complaint establishes that it wants to be a part of the “green rush” into the cannabis
9 industry. This may be a good business model someday, but today, while cannabis
10 remains illegal under federal law, Gene Pool is faced with the same constraints on
11 access to the federal court system as any other business that deals with illegal
12 cannabis. This case should be dismissed.
13

14 DATED: August 31, 2022 EMERGE LAW GROUP

15

16
By:/s/ Timothy L. Alger
Timothy L. Alger
17 EMERGE LAW GROUP
18 100 Spectrum Center Drive, Suite 900
Irvine, California 92618
19

20 James R. Gourley
CARSTENS & CAHOON LLP
21 13760 Noel Rd., Suite 900
22 Dallas, Texas 75240

23

24

25

26

27

28

18
MOTION TO DISMISS
Case 5:21-cv-01328-JWH-SHK Document 76-1 Filed 08/31/22 Page 19 of 19 Page ID
#:2307

1 PROOF OF SERVICE
2 My business address is 100 Spectrum Center Drive, Suite 900, Irvine,
California 92618; my e-mail address is [email protected]. I am
3
employed in Fresno County, California. I am over the age of 18 years and am not
4 a party to this case.
5 On the date and time indicated below, I served the foregoing
document(s) described as DEFENDANTS’ SUPPORTING MEMORANDUM
6 OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANTS’
7 MOTION TO DISMISS BASED ON THE ILLEGALITY DOCTRINE on all
interested parties in this action as follows:
8

9 Ryan R Owens Attorneys for Plaintiff,

Andrew J Fossum Gene Pool Technologies, Inc.
10 Kristopher M. Dawes
11 SPEARHEAD LEGAL LLP
620 Newport Center Drive Suite 1100
12 Newport Beach, CA 92660
13 Email:[email protected]
[email protected]
14 [email protected]
15
Tracy M. McGovern Attorneys for Plaintiff,
16
FROHNMAYER DEATHERAGE JAMIESON Gene Pool Technologies, Inc.
17 MOORE ARMOSINO AND MCGOVERN
2592 East Barnett Road
18
Medford, OR 97504
19 Email: [email protected]
20

21 __XX__ (BY ELECTRONIC TRANSMISSION) A PDF version of said

document was served by CM/ECF via electronic mail to the party(s)
22
identified above using the e-mail address(es) indicated.
23

24 EXECUTED ON August 31, 2022, at Fresno, California. I declare that I am

25 employed in this office of a member of the bar of this court at whose direction this
service was made.
26 __________________________________
27 Heather Bowman

28