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United States v. Gentile

United States District Court, E.D. California

April 24, 2017

UNITED STATES OF AMERICA, Plaintiff,
v.
RAYMOND A. GENTILE, Defendants.

ORDER DENYING DEFENDANT'S MOTION TO RECONSIDER, ENJOIN GOVERNMENT FROM SPENDING FUNDS, AND SET ASIDE CONVICTION (DOC. NO. 178, 204)

         INTRODUCTION

         Before the court is defendant Raymond Gentile's September 14, 2016 motion to: (1) correct the court's pretrial order denying defendant's motion to dismiss or enjoin the government's expenditure of funds in connection with his prosecution; (2) enjoin the government's expenditure of funds to prosecute this case and for evidentiary hearing; and (3) set aside his conviction. (Doc. No. 178.) On October 11, 2016, the government filed its opposition to the motion. (Doc. No. 182.) On October 24, 2016 defendant Gentile filed his reply and declarations in support thereof. (Doc. Nos. 184, 185, 186.) On October 25, 2017, the government filed a surrebuttal in opposition to defendant's motion. (Doc. No. 187.) On October 31, 2016, defendant submitted exhibits in reply to the government's surrebuttal. (Doc. Nos. 188, 189.)

         On October 31, 2016, a hearing was held on defendant's motion. Attorney Eric Fogderude appeared on behalf of defendant Gentile. Assistant U.S. Attorney Karen Escobar appeared on behalf of the government. Defendant's request for an evidentiary hearing was granted and evidence was taken at that time. (Doc. No. 191.) Specifically, the parties stipulated to the evidentiary hearing being based on consideration of declarations submitted by the parties, the evidence presented at trial and in other proceedings held in this case as well as live testimony presented at the hearing. (Doc. No. 210 at 25, 35.) Bakersfield Deputy City Attorney Richard Iger and DEA Special Agent Christopher Grimm were called to testify at the evidentiary hearing. (Id. at 9-38.) At the end of the evidentiary hearing, the parties agreed that the submission of additional evidence by way of declaration was appropriate. (Id. at 41-42.)

         On November 4, 2016, the government filed a supplemental memorandum in opposition to defendant's motion along with supporting exhibits. (Doc. No. 195.) On November 21, 2016, the government submitted additional documents under seal in support of its opposition. (Doc. No. 203.) On November 28, 2016, defendant filed a reply to the government's supplemental opposition and declaration in support thereof. (Doc. Nos. 205, 206.) After seeking and being granted a limited opportunity to do so, on December 2, 2016, the government filed a surrebuttal to defendant's latest reply. (Doc. No. 209.) On December 9, 2016, defendant Gentile filed a reply to the government's surrebuttal, arguing that the government's filing should be stricken as exceeding the scope of the court's limited authorization permitting its filing.[1] (Doc. No. 211.)[2]

         After considering the parties' arguments, all of the evidence submitted as well as the briefing of the parties, and for the reasons set forth below, defendants' motion will be denied save and except as to his request for an evidentiary hearing.[3]

         PROCEDURAL HISTORY

         This criminal proceeding has a lengthy and somewhat complicated procedural history which the court will summarize before turning to the merits of the pending motion. The Indictment returned on October 18, 2013, charged defendant Raymond Gentile with conspiracy to manufacture, distribute, and/or possess with the intent to distribute marijuana in violation of 21 U.S.C. §§ 846, 841(a)(1) and 841(b)(1)(b) (Count 1); manufacture of marijuana and aiding and abetting in violation of 21 U.S.C. § 841(a)(1) and 18 U.S.C. § 2 (Count 2); possession with the intent to distribute marijuana and aiding and abetting in violation of 21 U.S.C.§§ 841(a)(1) and 841(b)(1)(B) and 18 U.S.C. § 2 (Count 3); and false statements in violation of 18 U.S.C.§ 1001 (Counts 4 and 5).

         After extensive pretrial proceedings, on April 22, 2016, defendant filed a motion to dismiss or, alternatively, to enjoin the government from spending funds to prosecute the case against him. (Doc. No. 101.)[4] In that motion, defendant Gentile argued that what has been referred to as the Farr-Rohrabacher Amendment to the Consolidated and Further Continuing Appropriations Act of 2015, Pub. L. No. 113-235 § 538, 128 Stat. 2130, 2217 (2014), required either dismissal of the indictment brought against him or, alternatively, an order enjoining the government from spending funds to prosecute him on those charges.[5] (Id.) Defendant also argued in passing that the continued classification of marijuana as a Scheduled I controlled substance lacks a rational basis, is arbitrary, violative of equal protection and that the selective enforcement of the federal marijuana law violates the principle of equal sovereignty. (Id.) The motion was fully briefed and argument was heard.[6] (Doc. Nos. 103, 107, 111.) By written order filed June 30, 2016 and amended July 8, 2016, defendant's motion was denied with the court concluding that the district courts addressing similar arguments based on the Farr-Rohrabacher Amendment had all concluded that it did not entitle defendants to either dismissal of federal marijuana charges brought against them nor to an order enjoining the expenditure of funds in connection with their prosecution. (Doc. Nos. 131, 138.)

         Trial of this action commenced on July 19, 2016. On July 22, 2016, the jury returned their verdict, finding the defendant guilty of all five counts of the indictment. (Doc. No. 160.) A sentencing hearing was then scheduled and the matter referred to the U.S. Probation Office for preparation of a presentence report.

         However, on August 16, 2016, the Ninth Circuit Court of Appeals issued its decision in United States v. McIntosh, 833 F.3d 1163 (9th Cir. 2016) in which the court held that criminal defendants charged with marijuana offenses in federal court were entitled to an evidentiary hearing to determine whether their conduct was completely authorized and in strict compliance with state law governing the use, distribution, possession, and cultivation of medical marijuana such that § 542 of the Consolidated Appropriations Act of 2016 prohibited the U.S. Department of Justice from expending funds to prosecute them. See Pub. L. No. 114-113, 129 Stat. 2242, 2332-33, § 542.[7] In light of the decision in McIntosh, on September 14, 2016, counsel on behalf of defendant Gentile filed the motion that is now before the court. (Doc. No. 178.)

         ARGUMENTS OF THE PARTIES

         I. Defendant Gentile

         In his pending motion defendant Gentile argues that in light of the decision in McIntosh his pretrial motion to dismiss all charges against him or to enjoin the government from prosecuting this case should have been granted and that this court should now issue a corrected order granting it. (Doc. No. 178 at 2; Doc. No. 185 at 3.) Defendant Gentile also renews his pretrial motion and seeks an order enjoining the government from continuing with this prosecution as well as prohibiting his sentencing. (Id.) Next, he seeks an evidentiary hearing which would include consideration of declarations and evidence previously submitted in this action as well as the testimony presented at trial.[8] (Id. at 5.) Finally, defendant contends that because the government violated § 542 by pursuing this prosecution, the appropriate remedy is to “dismiss, ” vacate, or set aside all of his conviction, including those on Counts 4 and 5 for making false statements in violation of 18 U.S.C. § 1001, and to stay any further prosecution pending any developments with respect to § 542. (Id. at 5-6.) However, defendant later altered that position, stating that the proper remedy here was to vacate his three marijuana convictions and proceed to sentencing on the unrelated false statement convictions. (Doc. No. 205 at 4.)

         In support of this motion defendant's counsel argues, and defendant Gentile himself declares in many instances, as follows. Defendant operated the ANP Medicinal Cooperative, Inc. (hereinafter “ANP”) in Bakersfield as a non-profit “medical Marijuana” collective or dispensary in compliance with California law up until the time of his arrest. (Doc. Nos 178 at 2; 184 at 2.) At no time did ANP sell marijuana for profit, but rather members of ANP would make cash donations to cover the costs of ANP's overhead and operating expenses in exchange for marijuana. (Doc. Nos. 184 at 2; 205 at 5.)[9] In any event, the sale of marijuana for cash by cooperatives is allowed under California law as long as such fees are reasonably calculated to cover overhead and operating expenses. (Doc. No. 205 at 5.) Here, DEA Agent Grimm failed to confirm the exact amount of ANP's expenses. (Id.) ANP staff always verified that members were qualified patients by contacting the recommending physician and verifying the physician's license. (Doc. Nos. 184 at 2; 185 at 3.) Requiring that its members sign membership agreements was not a sham to mask unlawful sales of marijuana but rather was a recommended practice for collectives to follow. (Doc. No. 185 at 4.) Neither ANP nor defendant was required under state law to serve as a primary caregiver for members. (Doc. No. 205 at 5-6.) ANP received a business license from the City of Bakersfield. (Doc. Nos. 184 at 2; 185 at 3.)[10] Up until defendant's arrest, ANP's taxes were always paid in accordance with law. (Doc. Nos. 184 at 3; 185 at 5.) ANP's 2011 tax returns were not due to be filed until September 15, 2012, because its accountant had obtained an extension until that date. (Doc. Nos. 205 at 6; 206 at 2.) The $68, 173 in cash seized by federal agents from ANP at the time of the search consisted of “earnings and savings of the business” which was intended to be used to pay expenses of ANP including the purchase of a permanent site, presumably in the future. (Doc. Nos. 184 at 3; 185 at 6.) Agent Grimm's trial testimony that defendant had reported ANP's monthly revenue as being between $20, 000 and $30, 000 was not evidence that it was selling marijuana for a profit because defendant also said that all revenues were allocated to cover overhead and operating expenses and not to profit. (Doc. No. 185 at 3.) The fact that a small amount of methamphetamine was found at ANP at the time of the search does not indicate that defendant was not operating in compliance with California medical marijuana law because, as he testified at trial, he was unaware of its presence and was never prosecuted for it. (Doc No. 185 at 6.) Finally, the fact that a Mossberg shotgun and a Glock pistol were seized at ANP at the time of the search likewise fails to establish a lack of compliance with state law because he was not charged with any offense in connection with the weapons and their possession is not prohibited. (Id.; Doc. No. 205 at 7.)

         With respect to the law governing consideration of the pending motion, defendant argues that the burden of establishing that § 542 does not enjoin his prosecution rests with the government since that provision is directed at the government. (Doc. Nos 185 at 2; 205 at 2.) Alternatively, defendant suggests that if he bears an initial burden in this regard, the burden is a slight one which, once met, shifts to the government to prove beyond a reasonable doubt that he was not compliance with state law. (Doc. No. 205 at 2-3.)

         II. The Government

         The government contends that defendant Gentile is not entitled to relief under the decision in McIntosh because the evidence makes clear that he did not strictly comply with state medical marijuana laws and, therefore, § 542 does not prohibit the federal government's expenditure of funds in prosecuting him. (Doc. No. 182 at 2, 5-6.) The government also contends that it is the defendant's burden under these circumstances to establish by a preponderance of the evidence that he was in strict compliance with California's laws governing medical marijuana. (Doc. Nos. 182 at 6-7; 187 at 1-2; 195 at 2-5.) The government suggests that this is the case because, under California law, a medical marijuana defense is an affirmative defense. (Doc. Nos. 187 at1-2; 195 at 3-4.) In addition, the government also points to the fact that Congress could have but did not place this burden on the government in enacting § 542 and that placing the burden on defendant is in keeping general principles relating to imposition of the burden of proof. (Doc. No. 2-5.) The government asserts, however, that regardless of who bears the burden of proof on this issue, the evidence in this case clearly establishes that defendant was not in strict compliance with California law applicable to this area and that § 542 served as no impediment to his federal prosecution. (Doc. No. 182 at 7.)[11]

         Regarding defendant Gentile's lack of compliance with state law, the government asserts as follows.[12] Trial testimony established that defendant was selling marijuana at ANP for a profit. (Id.) Specifically, the defendant told DEA Agent Grimm that his marijuana revenue was between $25, 000 and $30, 000 per month. (Doc. Nos. 182 at 7; 200-1 at 29; 210 at 23.) Given his known expenses for rent, utilities and a single employee paid in cash as opposed to marijuana, as well as the lack of records reflecting any other expenditures on his part, defendant's profit from marijuana sales can be conservatively estimated to be $20, 150 per month, whereas California law prohibits the cultivation or distribution of marijuana for a profit. (Doc. Nos. 182 at 4, 7-8; 187 at 2; 195 at 9.) Moreover, ANP did not operate as a cooperative in adherence to the California Attorney General Guidelines for the Security and Non-Diversion of Marijuana Grown for Medical Use (“AG Guidelines”) because it simply supplied marijuana to its members for a price. (Doc. Nos. 182 at 8; 195 at 8.) There is no evidence, other than defendant's word, that he ever verified that ANP “members” were qualified patients or ever contacted recommending physicians to verify the validity of those recommendations. (Doc. Nos. 182 at 8; 187 at 2.) There is also no indication that defendant or his employees were primary caregivers to the over 1, 000 members of ANP as required under California law. (Doc. Nos. 182 at 8; 187 at 2; 195 at 9-11.) While defendant may have applied for a business license, he did not receive one, but rather was merely issued a business tax certificate by the City of Bakersfield. (Doc. Nos. 182 at 9; 187 at 2-3.) In any event, he was prohibited from dispensing marijuana within the City of Bakersfield pursuant to that City's Resolution and zoning laws banning medical marijuana dispensaries because, under state law, cities are free to prohibit facilities that distribute marijuana and Bakersfield did so. (Doc. Nos. 182 at 9-10; 187 at 3; 195 at 6-8.)[13] The agreements defendant required ANP members to sign were a mere sham to disguise marijuana sales as a cooperative effort and have been recognized as such in the AG Guidelines. (Doc. Nos. 182 at 9-10.) During at least part of its existence ANP was not incorporated and thus not in compliance with state law in that respect. (Id. at 10.) ANP was also not a democratically controlled cooperative as required by the AG Guidelines. (Id. at 11-12.) The AG Guidelines state that the failure to follow state and local laws is evidence of an unlawful marijuana operation. Nonetheless, ANP last filed a state corporate tax return in 2010, failing to do so in 2011 and 2012, and its corporate status was suspended for nonpayment of taxes. (Doc. Nos. 182 at 12; 187 at 4; 195 at 12.) Finally, seized during the search of ANP was an excessive amount of cash ($68, 173), methamphetamine and firearms - all identified as indicia of an unlawful operation in the AG Guidelines. (Doc. Nos. 182 at 13; 187 at 5.)

         In short, the government argues that the evidence submitted at trial and in connection with this motion establishes that defendant Gentile operated ANP as a for profit marijuana storefront business in a city that had banned such businesses and did so in a manner not otherwise in compliance with California law. (Doc. No. 195 at 13.)

         Below, the court will address the decision in McIntosh and each aspect of defendant Gentile's pending motion.

         ANALYSIS

         I. Section 542 and the McIntosh Decision

         On December 18, 2015, Congress enacted an act appropriating funds through the fiscal year ending September 30, 2016. Section 542 of that Consolidated Appropriations Act of 2016 provides, “[n]one of the funds made available in this Act to the Department of Justice may be used, with respect to any of the States . . . to prevent them from implementing their own laws authorize the use, distribution, possession, or cultivation of medical marijuana.” Pub. L. No. 114-113, 129. Stat. 2242, 2332-33, § 542.

         As noted above, in United States v. McIntosh, 833 F.3d 1163 (9th Cir. 2016), the Ninth Circuit addressed the impact of § 542 on federal marijuana prosecutions of those claiming to have acted in compliance with state law governing marijuana related activities. In McIntosh the court construed the plain text of the appropriations rider at issue in assessing the appellants' assertion that their criminal prosecution must be enjoined and concluded

that § 542 prohibits the federal government only from preventing the implementation of those specific rules of state law that authorize the use, distribution, possession, or cultivation of medical marijuana. DOJ does not prevent the implementation of rules authorizing conduct when it prosecutes individuals who engage in conduct unauthorized under state medical marijuana laws. Individuals who do not strictly comply with all state-law conditions regarding the use, distribution, possession, and cultivation of medical marijuana have engaged in conduct that is unauthorized, and prosecuting such individuals does not violate § 542. Congress could easily have drafted § 542 to prohibit interference with laws that address medical marijuana or those that regulate medical marijuana, but it did not. Instead, it chose to proscribe preventing states from implementing laws that authorize the use, distribution, possession, and cultivation of medical marijuana.
* * *
If DOJ wishes to continue these prosecutions, Appellants are entitled to evidentiary hearings to determine whether their conduct was completely authorized by state law, by which we mean that they strictly complied with all relevant conditions imposed by state law on the use, distribution, possession, and cultivation of medical marijuana. We leave to the district courts to determine, in the first instance and in each case, the precise remedy that would be appropriate.
We note the temporal nature of the problem with these prosecutions. The government had authority to initiate criminal proceedings, and it merely lost funds to continue them. DOJ is currently prohibited from spending funds from specific appropriations acts for prosecutions of those who complied with state law. But Congress could appropriate funds for such prosecutions tomorrow. Conversely, this temporary lack of funds could become a more permanent lack of funds if Congress continues to include the same rider in future appropriations bills. In determining the appropriate remedy for any violation of § 542, the district courts should consider the temporal nature of the lack of funds along with Appellants' rights to a speedy trial under the Sixth Amendment and the Speedy Trial Act, 18 U.S.C. § 3161.

833 F.3d at 1179 (emphasis added). The court in McIntosh did not, however, address who has the burden of proving strict compliance with state law in this regard and what that burden is.

         II. Defendant's Motion to Correct Order Denying His Pretrial Motion to Dismiss

         Although somewhat unclear, it appears that defendant Gentile has requested that the court: (1) “correct” its pretrial order denying his motion for a stay; and (2) dismiss all charges, or alternatively all marijuana related charges, brought against him in this action. (Doc. No. 178.) Under ...


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