California Judge Orders Kushy Punch Inc. Defendants to Pay $128 million

Largest cannabis fine to date in the United States.

20CHCV00560 December 5, 2022 CALIFORNIA DEPARTMENT OF PUBLIC HEALTH, et al. vs VERTICAL BLISS, INC., et al. 8:30 AM 

Judge: Honorable Stephen P. Pfahler

CSR: None

Judicial Assistant: Adrina Chebishyan

ERM: None Courtroom Assistant: Christy Andrade

Deputy Sheriff: None

APPEARANCES: For Plaintiff(s): ETHAN A. TURNER (Telephonic) by Michael Yun For

Defendant(s): No Appearances

NATURE OF PROCEEDINGS: Hearing on Motion for Summary Judgment; Status Conference; Order to Show Cause Re: Sanctions against the Defendants for failure to appear on 10/12/2022 The matters are called for hearing. The Court reads and considers the moving papers in support of Hearing on Motion for Summary Judgment. The Court’s Tentative Ruling is published. Moving Party submits to the Court’s Tentative Ruling in open court, and the Court adopts its tentative ruling as its final ruling as follows:

PLAINTIFF DEPARTMENT OF CANNABIS CONTROL’S MOTION FOR SUMMARY JUDGMENT RULING:

Granted.

Request for Judicial Notice: Granted under Evidence Code sections (b), (c), and (d).

“A plaintiff … has met his or her burden of showing that there is no defense to a cause of action if that party has proved each element of the cause of action entitling the party to judgment on the cause of action. Once the plaintiff … has met that burden, the burden shifts to the defendant … to show that a triable issue of one or more material facts exists as to the cause of action or a defense thereto.” (Code Civ. Proc., § 437c, subd. (p)(1).) “There is a triable issue of material fact if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof.” (Aguilar v. Atlantic Richfield, Co. (2001) 25 Cal.4th 826, 850.) The defendant “shall not rely upon the allegations or denials of its pleadings to show that a triable issue of material fact exists but, instead, shall set forth the specific facts showing that a triable issue of material fact exists as to the cause of action or a defense thereto.” (Code Civ. Proc., § 437c, subd. (p)(1).)

Plaintiff moves for summary judgment on the seven Defendants, subjecting them to civil penalties in the amount of $128,061,000. The penalties were calculated based on Business and Professions Code section 26038 subdivision (a) which states that a person engaged in unlicensed cannabis activity is “subject to civil penalties of up to three times the amount of the license fee for each violation.” Here, Plaintiff provides evidence showing (1) that the seven Defendants violated section 26038; (2) that they did so for 527 separate days of violation; and (3) that they were subject to total licensing fees of $81,000 for each day of commercial cannabis activity operation.

Defendants Vertical Bliss, Inc., Kushy Punch Inc., Conglomerate Marketing, LLC, and More Agency, Inc. (“Business Entity Defendants”) have each admitted to engaging in (1) unlicensed commercial manufacturing cannabis activity and (2) unlicensed commercial distributor cannabis activity. (SSUMF Nos. 10-11, 13-14, 18-19, 21-22, 26-27, 29-30, 34-35, and 37-38; RJN, Exhibits D, E, F, and G; Yun Decl., Exhibits 2, 4, 6, and 8 (RFA Nos. 4, 12, 19, and 27 in each Exhibit).) The three individual Defendants, Kachian, Barsamyan, and Toroyan (“Individual Defendants”) have each admitted to engaging in (1) unlicensed commercial manufacturing cannabis activity and (2) unlicensed commercial distributor cannabis activity in the City of Canoga Park in the State of California, by admitting that they are “OWNER[s]” of Vertical Bliss, Inc., Kushy Punch, Inc., Conglomerate Marketing, LLC, and More Agency, Inc. (SSUMF Nos. 4-7 and 40-48; RJN, Exhibits A, C, and H; Yun Dec, Exhibit 1 [as to Kachian] (RFA Nos. 8, 11, 14, and 17), Exhibit 10 [as to Barsamyan] (RFA Nos. 1, 5, 8, 11, and 14), and Exhibit 12 [as to Toroyan] (RFA Nos. 2, 5, 8, and 11).) In addition, the declaration of Eileen Del Rosario provides further uncontroverted evidence that the individual Defendants engaged in unlicensed commercial cannabis activity. Specifically, during CDPH’s investigation there were ongoing communications with Defendants Kachian and Toroyan in their capacity as active representatives of the Business Entity Defendants. (Del Rosario Decl., ¶ 4-8, 22, 25-29, and 33.) Thus, there are no triable issues to any material facts that Defendants violated section 26038, subdivision (a), and are subject to civil penalties of up to three times the amount of the license fee for each day of the violation(s).

The Business Entity Defendants have each admitted to (1) engaging in unlicensed commercial manufacturing cannabis activity in the State of California on 527 separate days and (2) engaging in unlicensed commercial distributor cannabis activity in the State of California on 527 separate days. (SSUMF Nos. 10-11, 13-14, 18-19, 21-22, 26-27, 29-30, 34-35, and 37-38.) Likewise, the Individual Defendants, as owners and persons with direct control over the Business Entity Defendants, are also deemed to have engaged in unlicensed commercial cannabis activity on 527 separate days in the State of California. (SSUMF Nos. 4-7, 10-11, 13-14, 18-19, 21-22, 26-27, 29-30, 34-35, 37-38, and 40-48.) Thus, there is no triable issue as to this fact when determining the civil penalty that should be assessed in this case.

The Business Entity Defendants have each admitted they received gross revenue exceeding $10,000,000 and $1,000,000, annually, from unlicensed commercial cannabis manufacturing and distributor activities, respectively, during the relevant period. (SSUMF Nos. 12, 15, 20, 23, 28, 31, 36, and 39.) As to the individual Defendants, they each engaged in illegal commercial cannabis activity by virtue of their admitted ownership of, ownership interest in, and/or control and managing power over, the Business Entity Defendants. Also, the Del Rosario Declaration gives facts which further confirm Defendants’ undisputed admissions as to the gross revenue generated by their illegal activities. (See Del Rosario Decl., ¶¶ 10, 11, 39, 44.) Thus, there are no triable issues as to the licensing fees to which the Defendants were subject and which form the basis of the civil penalty that should be assessed in this case.

Defendants have not filed an opposition.

The unopposed motion for summary judgment is granted in the amount of $128,061,000 as Plaintiff requests.

Plaintiff is to give notice.

Order to Show Cause Re: Sanctions against the Defendants for failure to appear on 10/12/2022 is held and the court rules as follows:

In light of the Defendants second consecutive failure to appear, the Court is hereby striking all Defendants Answers and entering Default forthwith, except Defendant KEVIN HALLORAN.

The Notice of Appearance of ARUTYUN BARSAMYAN, Defendant on the Complaint filed by CALIFORNIA DEPARTMENT OF PUBLIC HEALTH, et al. on 09/23/2020, filed herein on 02/08/2021 is ordered stricken and the default is entered this date.

The Notice of Appearance of CONGLOMERATE MARKETING , LLC, Defendant on the Complaint filed by CALIFORNIA DEPARTMENT OF PUBLIC HEALTH, et al. on 09/23/2020, filed herein on 02/08/2021 is ordered stricken and the default is entered this date.

The Notice of Appearance of KUSHY PUNCH, INC., Defendant on the Complaint filed by CALIFORNIA DEPARTMENT OF PUBLIC HEALTH, et al. on 09/23/2020, filed herein on 02/08/2021 is ordered stricken and the default is entered this date.

The Notice of Appearance of MIKE A. TOROYAN,, Defendant on the Complaint filed by CALIFORNIA DEPARTMENT OF PUBLIC HEALTH, et al. on 09/23/2020, filed herein on 02/08/2021 is ordered stricken and the default is entered this date.

The Notice of Appearance of MORE AGENCY, INC.,, Defendant on the Complaint filed by CALIFORNIA DEPARTMENT OF PUBLIC HEALTH, et al. on 09/23/2020, filed herein on 02/08/2021 is ordered stricken and the default is entered this date.

The Notice of Appearance of RUBEN KACHIAN, Defendant on the Complaint filed by CALIFORNIA DEPARTMENT OF PUBLIC HEALTH, et al. on 09/23/2020, filed herein on 02/08/2021 is ordered stricken and the default is entered this date.

The Notice of Appearance of VERTICAL BLISS, INC., Defendant on the Complaint filed by CALIFORNIA DEPARTMENT OF PUBLIC HEALTH, et al. on 09/23/2020, filed herein on 02/08/2021 is ordered stricken and the default is entered this date.

The Court notes that Defendant Kevin Holloran fails to appear today for today’s duly noticed Status Conference.

On the Court’s own motion, the Status Conference scheduled for 12/05/2022 is continued to 01/05/2023 at 08:30 AM in Department F49 at Chatsworth Courthouse.

Order to Show Cause Re: Sanctions against the Defendant Holloran, only for failure to appear on 12/05/2022 is scheduled for 01/05/2023 at 08:30 AM in Department F49 at Chatsworth Courthouse.

Defendant is ordered to file a declaration in response to the OSC 10 calendar days before the next OSC on 01/05/2023 as to why the Court should not impose sanctions for the failure to appear.

Plaintiff is to give notice and is to file proof of that notice with the Court within 10 days from today’s date.