Order, Motion for Entry of Judgment — United States v. Docklight Brands Inc. (W.D. Wash., Document 27)

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Order filed September 27, 2024 as Document 27 in United States of America v. Docklight Brands Inc., Case No. 2:22-cv-1371, in the U.S. District Court for the Western District of Washington at Seattle. The Court grants Plaintiff United States of America's Motion for Entry of Judgment and directs the Clerk to enter judgment for $989,438.00, to be paid to the United States by Defendant Docklight Brands, Inc. The order recites a qui tam action filed September 27, 2022 by Relator Sidesolve LLC under the False Claims Act and a Settlement Agreement executed December 11, 2023. It rejects the Receiver's arguments that RCW 7.60.110 stays the action and that Burford abstention applies, and treats the request to stay collection as premature. It is dated the 27th day of September, 2024.

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“Order, Motion for Entry of Judgment — United States v. Docklight Brands Inc. (W.D. Wash., Document 27).” Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/court-filing-w-d-wash-no-2-22-cv-01371-dkt-27-w-d-wash-e8dfb0e023/, SHA-256 0231420855481d4cda723c1a146377cd281d4610a842b7bc3d0be9d38378601f.

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Case 2:22-cv-01371-JNW Document 27 Filed 09/27/24 Page 1 of 11

5
UNITED STATES DISTRICT COURT
6 WESTERN DISTRICT OF WASHINGTON
AT SEATTLE
7
UNITED STATES OF AMERICA, CASE NO. 2:22-cv-1371
8
Plaintiff, ORDER
9
v.
10
DOCKLIGHT BRANDS INC.,
11
Defendant.
12

13
1. INTRODUCTION
14
This matter comes before the Court on Plaintiff United States of America’s
15
Motion for Entry of Judgment. Dkt. No. 20. Having considered the record, the law,
16
and the parties’ briefing, the Court hereby GRANTS the motion and DIRECTS the
17
Clerk of Court to enter judgment for $989,438.00, to be paid to the United States of
18
America by Defendant Docklight Brands, Inc.
19
2. BACKGROUND
20
On September 27, 2022, Relator Sidesolve LLC filed a qui tam action against
21
Defendant Docklight Brands, Inc. (“Docklight”), a cannabis brand holding company,
22
alleging it violated the False Claims Act, 31 U.S.C. § 3729, when it represented to
23

ORDER - 1
Case 2:22-cv-01371-JNW Document 27 Filed 09/27/24 Page 2 of 11

1 the Government that it was not engaged in illegal activity under federal law to

2 obtain financial assistance via the Paycheck Protection Program (PPP) under the

3 Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Dkt. No. 1. On

4 November 6, 2023, after being served with a copy of the Complaint and

5 investigating the allegations, the Government moved to partially unseal this matter

6 for purposes of settlement discussions. Dkt. No. 13. On December 11, 2023, the

7 parties executed a Settlement Agreement. Dkt. No. 20-2. Under the agreement,

8 Docklight promised to pay $989,438.00 to the Government, due in full immediately,

9 in exchange for a release from liability. Id.

10 Three days after executing this agreement, Docklight voluntarily assigned all

11 its assets to an assignee (“Receiver”) to serve as a general receiver. Dkt. No. 20-3 at

12 2-3. The King County Superior Court of the State of Washington issued an order

13 formally placing the Receiver in charge of Docklight’s assets under RCW 7.08 and

14 RCW 7.60. Id.

15 In February 2024, the Government communicated with the Receiver,

16 requesting to jointly present a consent judgment to this Court consistent with the

17 parties’ Settlement Agreement. Dkt. No. 20-4 at 3. The Receiver declined, asserting

18 that “[t]he laws of the state governing the receivership direct me to go through the

19 claims process in the Superior Court and impose a stay of proceedings against the

20 company outside of that process.” Id. at 2.

21 To date, the United States has not received the $989,438.00 that Docklight

22 agreed to pay under the Settlement Agreement. Dkt. No. 20-1 at 2; see also Dkt. No.

23 24. The Government seeks a judgment against Docklight for the amount owed. Dkt.

ORDER - 2
Case 2:22-cv-01371-JNW Document 27 Filed 09/27/24 Page 3 of 11

1 No. 20. The Receiver opposes, arguing that (1) under RCW 7.60.110, ongoing state

2 court receivership proceedings stay the Government’s action against Docklight; (2)

3 under the Burford abstention doctrine, the Court should discretionarily decline to

4 exercise jurisdiction, see Burford v. Sun Oil Co., 319 U.S. 315 (1943); and (3) if the

5 Court does enter judgment in line with the Settlement Agreement, the Court should

6 discretionarily stay any collection actions pending the outcome of the receivership

7 proceeding. Dkt. No. 22.

8 3. DISCUSSION

9 3.1 RCW 7.60.110 does not stay the Government’s action against
Docklight.
10
The Receiver argues that, under RCW 7.60.110, the state court receivership
11
proceeding “operates as a stay of actions—including the continuation of existing
12
actions by third parties—against the debtor.” Dkt. No. 22 at 2. This argument fails.
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In general, the appointment of a general receiver will stay actions,
14
proceedings, and enforcement of judgments against the person over whose property
15
the receiver is appointed. RCW 7.60.110(1). The King County Superior Court Order
16
creating the receivership over Docklight’s assets not only incorporates this statutory
17
stay, but it also states that “the Stay is hereby extended to remain in effect until the
18
earlier of (a) the termination of the receivership, or (b) upon motion of any party in
19
interest, and entry of an order terminating the stay resulting from the same.” Dkt.
20
No. 20-3 at 9-10.
21
However, as the Receiver concedes, “the ‘police powers’ of the government are
22
exempted” from this statutory stay. Dkt. No. 22 at 2. “The entry of an order
23

ORDER - 3
Case 2:22-cv-01371-JNW Document 27 Filed 09/27/24 Page 4 of 11

1 appointing a receiver does not operate as a stay of… [t]he commencement or

2 continuation of an action or proceeding by a governmental unit to enforce its police

3 or regulatory power.” RCW 7.60.110(3)(e). Here, the Government pursues its claim

4 against Docklight to enforce its police or regulatory powers under the False Claims

5 Act. Thus, neither the statutory stay nor the Order incorporating the statutory stay

6 precludes continuation of this action.

7
3.2 Burford abstention is not appropriate in this matter.
8 The usual forum to enforce a contract is state court. Yet the Receiver does not
9 dispute that a federal district court has “inherent power summarily to enforce a
10 settlement agreement with respect to an action pending before it.” See Dacanay v.
11 Mendoza, 573 F.2d 1075, 1078 (9th Cir. 1978) (citing Kukla v. Nat’l Distillers Prod.
12 Co., 483 F.2d 619, 621 (6th Cir. 1973) (“Such a judgment is in the nature of a
13 judgment by consent.”)). Thus, rather than challenging the Court’s authority to
14 enter judgment enforcing the Settlement Agreement, the Receiver instead argues
15 that the Court should discretionarily abstain from doing so under “principles of
16 comity espoused in Burford and its progeny.” Dkt. No. 22 at 2-3 (arguing that
17 federal judgment enforcement would “flip the orderly liquidation of Docklight on its
18 head and potentially abrogate the state law receivership process”).
19 “Abstention is well recognized as an ‘extraordinary and narrow exception’ to
20 the general rule that a federal court should adjudicate cases otherwise properly
21 before it.” Blumenkron v. Multnomah Cnty., 91 F.4th 1303, 1311-2 (9th Cir. 2024)
22 (citing Colo. River Water Cons. Dist. v. United States, 424 U.S. 800, 813 (1976)).
23

ORDER - 4
Case 2:22-cv-01371-JNW Document 27 Filed 09/27/24 Page 5 of 11

1 “Burford abstention is designed to protect complex state administrative processes

2 from undue federal interference.” Id. (cleaned up) (citing Poulos v. Caesars World,

3 Inc., 379 F.3d 654, 671 (9th Cir. 2004) (quoting Tucker v. First Md. Sav. & Loan,

4 Inc., 942 F.2d 1401, 1404 (9th Cir. 1991)). The Supreme Court has explained:

5 Where timely and adequate state-court review is available, a federal
court sitting in equity must decline to interfere with the proceedings or
6 orders of state administrative agencies: (1) when there are “difficult
questions of state law bearing on policy problems of substantial public
7 import whose importance transcends the result in the case at bar”; or (2)
where the “exercise of federal review ... would be disruptive of state
8 efforts to establish a coherent policy with respect to a matter of
substantial public concern.”
9
New Orleans Pub. Serv., Inc. v. Council of New Orleans, 491 U.S. 350, 360 (1989)
10
(quoting Colo. River Water Conservation Dist., 424 U.S. at 814). “The Supreme
11
Court has held that abstention from jurisdiction is ‘the exception, not the rule’ and
12
described ‘federal courts’ obligation to adjudicate claims within their jurisdiction as
13
virtually unflagging.’” Ozone Int’l, LLC v. Wheatsheaf Grp. Ltd., No. 2:19-CV-01108-
14
RAJ, 2021 WL 2569960, at *11 (W.D. Wash. June 23, 2021) (quoting New Orleans
15
Pub. Serv., 491 U.S. at 359) (holding federal jurisdiction “would not be disruptive to
16
state receivership policy”).
17
“In the Ninth Circuit, application of Burford abstention requires: (1) ‘that the
18
state has chosen to concentrate suits challenging the actions of the agency involved
19
in a particular court;’ (2) ‘that federal issues could not be separated easily from
20
complicated state law issues with respect to which the state courts might have
21
special competence;’ and (3) ‘that federal review might disrupt state efforts to
22
establish a coherent policy.’” Blumenkron, 91 F.4th at 1312 (quoting United States
23

ORDER - 5
Case 2:22-cv-01371-JNW Document 27 Filed 09/27/24 Page 6 of 11

1 v. Morros, 268 F.3d 695, 705 (9th Cir. 2001)). When all three requirements are met,

2 the decision to abstain under Burford is a matter of judicial discretion. Id.; see also

3 Hawthorne Sav. F.S.B. v. Reliance Ins. Co. of Illinois, 421 F.3d 835, 844 n.8 (9th

4 Cir. 2005), amended, 433 F.3d 1089 (9th Cir. 2006); Quackenbush v. Allstate Ins.

5 Co., 517 U.S. 706, 723-8 (1996). The Court considers each of the Ninth Circuit

6 Burford abstention requirements in turn.

7
3.2.1 The receivership scheme at-issue does not concentrate suits
challenging agency actions into state court.
8
In line with the purpose of Burford abstention to protect “complex
9
administrative processes from undue federal interference,” the first requirement for
10
the doctrine’s application is a state-law scheme in which the state has chosen to
11
concentrate review of state agency orders in a state court. Blumenkron, 91 F.4th at
12
1312; see generally, e.g., Burford v. Sun Oil Co., 319 U.S. 315 (1943) (affirming
13
dismissal of complaint challenging order of Texas Railroad Commission granting oil
14
drilling permit where such orders, by statute, were reviewable by state courts).
15
This case does not present such a scheme. Docklight’s receivership proceeding
16
is taking place in state court, not an administrative agency forum. See generally
17
RCW 7.60; Dkt. No. 20-3; see also, e.g., WAC 197-11-714 (defining “agency” to
18
exclude judiciary). “As this case does not concern the review of state agency
19
proceedings or orders, Burford abstention does not apply.” See Exec. Risk Indem.,
20
Inc. v. Pac. Educ. Servs., Inc., 451 F. Supp. 2d 1147, 1155 (D. Haw. 2006) (declining
21
to apply Burford in relation to state court receivership proceeding).
22

ORDER - 6
Case 2:22-cv-01371-JNW Document 27 Filed 09/27/24 Page 7 of 11

1 The Receiver cites AMS Mktg., State of Idaho ex rel. Soward, and Navajo Life

2 for the proposition that federal courts in the Ninth Circuit do, and should, decline to

3 exercise jurisdiction over claims against entities undergoing state court receivership

4 proceedings. Dkt. No. 22 at 2-3. But these cases involve insurance companies and

5 are therefore distinguishable. See AMS Mktg. v. Fid. Sec. Life Ins. Co., 830 F. Supp.

6 1284 (D. Ariz. 1993); State of Idaho ex rel. Soward v. United States, 858 F.2d 445

7 (9th Cir. 1988); Navajo Life Ins. v. Fid. and Deposit, 807 F. Supp. 1485 (D. Ariz.

8 1992). Under the federal McCarran-Ferguson Act, 15 U.S.C. § 1011, “states alone

9 may regulate the ‘business of insurance.’” State of Idaho ex rel. Soward, 858 F.2d at

10 450. “Thus, federal courts have been reluctant to intrude in state proceedings,

11 adhering to the view that whether it be liquidation or reorganization, the handling

12 of the affairs of insolvent insurance companies is a responsibility retained by the

13 states.” Id.; see also First Penn-Pac. Life Ins. Co. v. Evans, 304 F.3d 345, 350 (4th

14 Cir. 2002) (citing numerous cases in which federal courts decline to exercise

15 jurisdiction over claims against insolvent insurers); Riley v. Simmons, 45 F.3d 764,

16 771 (3d Cir. 1995) (“Burford abstention has particular relevance to claims arising in

17 the course of state regulation of insolvent insurance companies.”).

18 Here, the Receiver argues that Docklight is analogous to an insolvent

19 insurance company because, akin to insurance companies, “Docklight can only avail

20 itself of a state-court insolvency proceeding due to its nexus to the state-regulated

21 cannabis industry.” Dkt. No. 22 at 3 n.1. In a narrow sense, this may be true. See,

22 e.g., In re Kojima, No. 8:23-CV-00167-RGK, 2023 WL 4602623 (C.D. Cal. July 17,

23 2023 (“As a result of the conflict between federal and state law when it comes to

ORDER - 7
Case 2:22-cv-01371-JNW Document 27 Filed 09/27/24 Page 8 of 11

1 cannabis, federal bankruptcy courts seeking to dispose of cannabis related assets

2 risk violating the [Controlled Substance Act] themselves, or at least becoming a

3 conduit to a CSA violation.”). But unlike insolvent insurance companies, Docklight

4 is subject to the general statutory scheme that governs all state-court receivership

5 proceedings in the State of Washington. See generally RCW 7.60. By contrast,

6 insurance companies are excepted from that scheme. RCW 7.60.300 (“This chapter

7 does not apply to any proceeding authorized or commenced under Title 48 RCW.”).

8 Under the scheme governing insurance companies, the Insurance Commissioner

9 serves as the receiver, taking direct charge of the insolvent insurer’s assets. RCW

10 48.99.020. This represents a level of agency involvement categorically distinct from

11 the agency involvement, if any, in Docklight’s general receivership proceeding. 1

12 As such, the Court finds the first Burford requirement is not met.

13
3.2.2 Federal issues are easily separated from relevant state-law
issues.
14
The second requirement for Burford abstention is that the federal issues
15
presented are not easily separated from “complicated state law issues with respect
16
to which the state courts might have special competence.” Blumenkron, 91 F.4th at
17
1312. Courts must answer this question because abstention is inappropriate where
18

20 1 Granted, the Washington State Liquor and Cannabis Board does have a

regulatory scheme requiring cannabis-business licensees who file a receivership
21 action to serve the board with notice of the action and to receive board approval of
the receiver. WAC 314-55-137. But this is vastly different from the agency itself
22 assuming control of the licensee’s business, as in the insurance context. Further, the
filings to-date do not make clear whether Docklight, as a brand holding company, is
23 itself a licensee subject to this administrative scheme.

ORDER - 8
Case 2:22-cv-01371-JNW Document 27 Filed 09/27/24 Page 9 of 11

1 “the federal questions… can readily be identified and reserved without colliding

2 with what are essentially state claims.” Id. at 1314.

3 The Government’s federal claim against Docklight can be easily separated

4 from the state-law issues involved in the receivership proceeding. The parties

5 executed the Settlement Agreement, with the settlement amount due in full upon

6 execution, before Docklight entered receivership proceedings. See, e.g., Tis v.

7 Waupaca Elevator Co., Inc., No. 7:21-CV-200-BO, 2022 WL 3590318 (E.D.N.C. Aug.

8 22, 2022) (declining to apply Burford where “case was filed prior to the Wisconsin

9 receivership proceeding, which was entered into voluntarily by defendant”). The

10 Settlement Agreement is governed by “the laws of the United States,” involves the

11 United States directly as a party, and provides that this Court retains “exclusive

12 jurisdiction” and is the exclusive “venue for any dispute relating to” the agreement.

13 Dkt. 20-2 ¶ 21. Resolving the federal issues underlying Docklight’s liability requires

14 no analysis of Washington state receivership law and policy. As a result, the Court

15 finds that the second requirement for Burford abstention is not satisfied.

16
3.2.3 The exercise of federal jurisdiction will not disrupt state
efforts to establish a coherent policy.
17
The third requirement for Burford abstention is that “federal review might
18
disrupt state efforts to establish a coherent policy.” Blumenkron, 91 F.4th at 1312.
19
Here, the relevant state policy is embodied in Washington’s Receivership Act,
20
RCW 7.60, which the legislature adopted “to create more comprehensive,
21
streamlined, and cost-effective procedures applicable to proceedings in which
22
property of a person is administered by the courts of this state for the benefit of
23

ORDER - 9
Case 2:22-cv-01371-JNW Document 27 Filed 09/27/24 Page 10 of 11

1 creditors and other persons having an interest therein.” Ch. 165, sec. 1, 2004 Wash.

2 Sess. Laws 591, 591. Included in the Act is a scheme prioritizing the order in which

3 different categories of creditor claims are to receive distribution from the assets in a

4 receivership estate. RCW 7.60.230.

5 The Receiver argues that “enter[ing] judgment and allow[ing] plaintiff to

6 execute on the judgment through garnishments and otherwise… will flip the orderly

7 liquidation of Docklight on its head and potentially abrogate the state law

8 receivership process.” Dkt. No. 22 at 3. But the motion currently before the Court is

9 not for execution of judgment; it is only for entry of judgment. Merely entering

10 judgment, absent a writ of execution, does not allow the Government to bypass the

11 receivership or subvert the state-law creditor prioritization scheme. “Nothing in the

12 bare existence of a judgment would interfere with the forum court’s resolution of

13 priority issues.” Hawthorne Sav. F.S.B. v. Reliance Ins. Co. of Illinois, 421 F.3d 835

14 (9th Cir. 2005), amended, 433 F.3d 1089 (9th Cir. 2006); see also Arctic Zero, Inc. v.

15 Aspen Hills, Inc., No. 17-CV-00459-AJB-JMA, 2017 WL 5569850 (S.D. Cal. Nov. 20,

16 2017) (“As an in personam action, the Court would merely be reducing a claim to

17 judgment, which would not interfere with the receivership property.”) (citing U.S.

18 Bank Nat. Ass’n v. Johnny A. Ribeiro, Jr. Family Trust, No. 3:11–cv–00691–RCJ-

19 WGC, 2012 WL 280709, at *1 (D. Nev. Jan. 31, 2012) (“[T]he present case is an in

20 personam contract action for a money judgment against Guarantors, not an in rem

21 case seeking to control the real estate securing the Note. The present case therefore

22 cannot conflict with the state court's control over the res.”)).

ORDER - 10
Case 2:22-cv-01371-JNW Document 27 Filed 09/27/24 Page 11 of 11

1 Moreover, even if entry of judgment did obstruct the receivership process, the

2 Receiver has not shown that such an obstruction would broadly hinder the creation

3 of coherent state policy around receiverships. Thus, the Court finds that the third

4 requirement for Burford abstention is not satisfied.

5
3.3 The Receiver’s request to stay any collection actions is premature.
6 Finally, the Receiver requests that “[a]t the very least, should this Court
7 proceed to enter a judgment in this matter… any collection actions with respect to
8 the judgment [should] be stayed pending the outcome of the state court receivership
9 proceeding.” Dkt. No. 22 at 3. As discussed above, see supra § 3.2.3, the motion
10 currently before the Court is for entry of judgment, not enforcement of judgment.
11 Thus, the Receiver’s request to stay a future enforcement action is premature and
12 does not affect the Court’s decision regarding entry of judgment.
13
4. ORDER
14
For the reasons stated above, the Court GRANTS the Government’s Motion
15
to Enter Judgment and DIRECTS the Clerk of Court to enter judgment for
16
$989,438.00, to be paid to the United States of America by Defendant Docklight
17
Brands, Inc.
18
It is so ORDERED.
19
Dated this 27th day of September, 2024.
20

21 a
Jamal N. Whitehead
22 United States District Judge

ORDER - 11

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