Is the Fight Over Federal Preemption Inevitable?

Preemption

On Jan. 5, 2016, the Federal District Court for the District of Colorado dismissed Fourth Corner Credit Union’s request for a mandatory injunction directing the Federal Reserve Bank of Kansas City to grant it a master account. Court watchers thought it possible that the court might rule against the credit union but expected it to be on very narrow grounds involving the interpretation of banking regulations.

Silly us.

Instead, U.S. District Judge R. Brooke Jackson swung for the fences, ruling that the Controlled Substances Act makes cannabis banking illegal and calling for the reform of federal law.

Mark Mason, attorney for Fourth Corner, told MJINews,

The Fourth Corner Credit Union understands Judge Jackson’s decision, which called out the inconsistencies of the FinCEN guidance and the Cole Memorandum for providing banking to MRBs [Marijuana Related Businesses]. We believe the judge’s decision isn’t an ending, but a beginning to a dialog that has needed to take place for some time. This industry needs clarification on the banking issue and as our charter mandates, the Fourth Corner Credit Union will continue to advocate for federal clarity.

 

Federal/State Conflict

Although the District Court’s ruling attempts to side-step the preemption issue, the clash between federal and state law simmers underneath. Not an “unmitigated disaster,” the court’s ruling is nonetheless a setback. A full-fledged legal fight over federal preemption would be a battle for cannabusiness to lose.

In oral argument, however, Mason made the case that the conflict between state and federal law in Fourth Corner’s situation is an illusion. With its origin in the Solicitor General’s amicus brief in the recent Supreme Court case of Nebraska v. Colorado, the argument may be the ticket to success for cannalitigants. But it takes getting deep into the legal weeds.

 

Beyond Preemption 101

The basic rule, of course, is that when state and federal law conflict, federal law usually wins.

The more interesting question: what does “conflict” mean? Whether a conflict exists depends largely on Congress’ intent in enacting a federal law.

In some situations, Congress clearly intends to occupy the entire legislative field, in which case all state laws on that subject, even if consistent with federal law, are preempted.

This is not the case with marijuana. Congress has expressly indicated that its intention in enacting the Controlled Substances Act was not to totally preempt all state drug laws. States have long enacted their own criminal laws relating to marijuana possession, for example.

Given that states may enact laws relating to marijuana, the question becomes whether a “positive conflict” exists. The term “positive conflict” is used to describe a situation in which it is impossible to comply with both legal requirements. Whether such a conflict exists may also depend of Congress’ intention in passing the law.

For example, Congress’s intention in passing federal wage laws was to protect workers, so there is no positive conflict in a state’s requirement that they be paid more than the federal minimum. Conversely, were Congress’ intention to protect employers from having to pay more than a fixed maximum wage, there would be a positive conflict in state’s requirement that workers be paid more than the stated federal limit.

Bringing it back to relevance, if a state were to require medical marijuana dispensaries to open seven days a week and the federal government prohibited them from opening on Sunday, there would also be a positive conflict.

 

So what was Congress’s intention in passing the CSA?

The Supreme Court has determined that Congress has the power to regulate marijuana under the Commerce Clause. That Constitutional provision grants the federal legislature broad powers to regulate both interstate commerce and intra-state commerce that has an effect on interstate commerce.

It might be argued that the intention of the CSA has been recently restated and reaffirmed in the Cole Memorandum’s listing of eight priorities for federal enforcement. It is a tough argument to make that the Department of Justice, part of the executive branch of government, can speak administratively for a dysfunctional national legislature, but nature abhors a vacuum.

Skipping over that problem, the question then to be answered is whether Colorado’s (or any other state’s) regulatory scheme for marijuana is so inconsistent with the purposes of the CSA, as interpreted in Department of Justice guidelines, as to produce a positive conflict.

In its amicus brief, the Solicitor General of the United States argued that there was no positive conflict and that, therefore, no question of preemption should arise. Mason thinks this line of argument has legs.

 

What Happens Next?

The litigants in this case are not commenting about the future, which leaves everyone else to speculate.

If the legal marijuana industry has to go into a dirt fight about federal preemption, the results may not be favorable. But Fourth Corner’s stated goal is clarity. Actually, the greater good might be banking and tax paying and perhaps even interstate commerce—those goals that a national government is generally thought to further. Weird that this should be so hard.

Anne Wallace is a New York lawyer who writes extensively on legal and business issues. She also teaches law and business writing at the college and professional level. Anne graduated from Fordham Law School and Wellesley College.

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