Kornea v. Miller

Background

Plaintiffs Illia Kornea and Octavian Kecenovici and Defendant Jeffrey A. Miller represented themselves in the case. In April 2019, they entered into a joint venture agreement with an additional investor to fund the purchase and resale of marijuana in California. The agreement required each Plaintiff to invest $25,000 and Miller to contribute $7,500. It contemplated buying marijuana from licensed wholesalers and reselling it to licensed retailers, with profits distributed under a formula for each transaction.

The parties completed several transactions. Miller told Plaintiffs that he had conducted three successful transactions and paid each investor $3,750 in profit. He later told Plaintiffs that he had earned as much as $40,000 from the transactions and transferred $30,000 in profits to Plaintiffs. The agreement ended in June 2019. Between February 2020 and May 2022, Miller sent Plaintiffs payments totaling $13,650. The opinion states that Miller paid Plaintiffs more than their original $50,000 investment.

Earlier Proceedings

Plaintiffs initially asserted claims for breach of contract, bad faith, and unethical business practices under California and New York law, along with claims under commercial codes and consumer-protection laws and a claim involving an agricultural lien. Miller moved for summary judgment, which is a request to decide claims without a trial when the evidence shows no genuine dispute over important facts.

Magistrate Judge Katharine H. Parker recommended granting summary judgment on all claims except the breach-of-contract claim concerning whether Miller had distributed all profits from marijuana transactions conducted in May and June 2019. The court adopted that recommendation in its entirety. The remaining claim was scheduled for trial until the court questioned whether it could enforce an agreement involving federally illegal marijuana transactions.

The court ordered Plaintiffs to explain why the remaining claim should not be dismissed. Plaintiffs argued that they were passive investors seeking payment of profits already earned, not an order requiring future illegal conduct. They also argued that they could recover through restitution or a constructive trust, which is a court-ordered arrangement requiring someone holding property to transfer it to another person.

Contract-Enforcement Ruling

The court held that the joint venture agreement was illegal and unenforceable as a matter of public policy. The federal Controlled Substances Act criminalizes the unauthorized manufacture, distribution, dispensing, and possession of marijuana, which is classified as a Schedule I drug. The court stated that marijuana remains illegal under federal law even where state law permits medical or recreational marijuana activity.

The court concluded that the agreement directly concerned the purchase and sale of marijuana in bulk quantities. Because the agreement’s object was conduct criminalized by federal law, enforcing it would require the court to give legal effect to an unlawful agreement. The court also noted that the agreement was governed by New York law and that New York likewise generally does not enforce contracts with illegal objects. The opinion further states that neither Plaintiffs nor Miller was properly licensed under state law to purchase or sell marijuana, and that Miller admitted he did not have a license to sell cannabis in California.

The court rejected Plaintiffs’ argument that they could avoid the illegality problem by seeking restitution or other equitable relief. The amended complaint asserted a legal claim for monetary damages for breach of contract, not a restitution claim. The court additionally held that equitable relief would not be available because Plaintiffs sought to share in proceeds from marijuana sales that the court considered illegal under federal law. It described this as an application of the unclean-hands doctrine, which generally prevents a party from obtaining equitable relief based on its own wrongful conduct.

The court distinguished cases involving businesses only indirectly connected to the marijuana industry. Here, the agreement’s purpose was the purchase and sale of cannabis, and the requested relief would require the court to distribute profits from those sales. The court therefore dismissed Plaintiffs’ remaining breach-of-contract claim. The opinion does not state that this dismissal was with or without prejudice.

Sanctions Motion

Plaintiffs also moved for sanctions, alleging that Miller committed perjury, failed to comply with a supposed payment-bond requirement, and violated professional-conduct rules. The court denied the motion. It found that the earlier report had already addressed the claimed level of profits, that the docket entry Plaintiffs identified was the complaint rather than a court order, and that Miller was representing himself rather than appearing as an attorney for Plaintiffs. The court stated that Miller was disbarred but was not appearing before it as a lawyer.

Disposition

The court dismissed Plaintiffs’ remaining breach-of-contract claim and denied Plaintiffs’ motion for sanctions. Because summary judgment had previously been granted on the other claims and counterclaims, the clerk was directed to close the case and terminate all pending motions.