The cannabis industry is in a bad way right now, and almost everyone is feeling it. As customers new and old consider filing breach of contract and other claims against failing cannabis companies, one question seems to keep popping up: Can we sue the cannabis company owner(s) personally for the company’s failures (omissions)? payment, non-delivery of promised goods or services, etc.)?
Unfortunately, the short answer is generally no, you can’t. Most states generally adhere to the principle of limited liability, which relieves owners of personal liability for company debts and obligations. This includes cannabis company owners.
exceptions to the rule
However, there are certain circumstances in which you may be able to personally sue the owner of a cannabis business. These are exceptions and situations where you may be able to penetrate the corporate veil and hold owners personally liable:
Fraud and Misrepresentation. If the owner of a cannabis business engages in fraudulent or deceptive behavior that harms you or your business, you may be able to sue them personally for damages. This may include situations where the owner intentionally misrepresents information or omits material facts in order to persuade you to enter into a transaction. Note that fraud claims come with an increased standard of proof – so you need to know details of the fraud in order to make a fraud claim (and hold an owner liable for it).
criminal behavior. This is very factual, but if a cannabis business owner’s acts or negligence result in damage or other harm, you may be able to sue them individually. This may be the case in situations where the owner’s actions go beyond the normal course of business of the company.
Personal Guarantees. Of course, if an owner personally vouches for a company’s debts or liabilities, you may be able to sue them personally for breach of that guaranty. Personal guarantees are a direct contractual obligation on the owner to be personally liable for the debt. In times like these, we are increasingly using personal guarantees in settlements, knowing only too well that people can just jump ship and leave their A/P behind.
Penetrate the corporate veil. That’s quite difficult, but California courts can “penetrate the corporate veil” and hold owners personally liable for the company’s debts if it can be shown that the company was not organized as a separate legal entity. The most common evidence of this is that the owner mixes personal and business finances, disregards company formalities, or engages in fraudulent or illegal activities.
Alter Ego Doctrine. Similar to penetrating the corporate veil, the alter ego doctrine can be used to hold owners personally liable if they use the company to commit fraud or to provide an unwarranted shield of personal liability.
It is important to note that under California and other state laws, successfully bringing a personal lawsuit against a cannabis business owner can be complex and requires a thorough analysis of the specific facts and circumstances of the case. It is imperative to consult an experienced litigation team specializing in business and corporate law to determine if there is a basis for including an owner as a sole defendant.