A Massachusetts state judge will allow a cannabis testing lab to pursue unfair competition claims against more than half a dozen competitors it accuses of fudging potency and purity test results to lure growers to their businesses, but not claims of unjust enrichment or tortious interference.
Suffolk County Superior Court Justice Debra Squires-Lee's ruling Tuesday gives the defendant labs — Analytics Labs LLC, Green Valley Analytics LLC, SafeTiva Labs LLC, Kaycha, Green Analytics, Assured Testing and Massbiolytics — a partial win in the lawsuit by rival MCR Labs LLC.
MCR sued its competitors in January, alleging that it had lost more than a dozen customers among cannabis growers that are required by the state regulations to have their products tested before they can be offered for sale. MCR cited data reported to the state that, it said, points to intentional manipulation of results to "pass" the testing or boost the value of the products by reporting that it contains more THC, the active ingredient in cannabis.
The defendants moved to dismiss the complaint in June.
Justice Squires-Lee found that MCR had adequately pled that the defendant labs "improperly inflated the THC-A levels of the products it tested and/or improperly deflated their contamination levels" in order to lure cultivators to use their businesses rather than MCR.
"Put succinctly, to increase their market share, defendants are alleged to have violated regulations put in place to protect cannabis consumers and thereby facilitated the false advertising of THC potency levels and enabled the sale of cannabis products with illegal (and arguably dangerous) levels of mold," Justice Squires-Lee wrote.
If proved, that allegation "certainly could constitute 'unfair methods of competition'" under the state's consumer protection statute, the judge found.
The judge also found that MCR could potentially show harm arising from the loss of customers who went to one of the competitors.
The court rejected the defendants' argument that MCR needs to show a business relationship with them, saying that is not required in a case based on a theory of unfair competition.
While the law does require certain thresholds to prevent random parties from "acting as roving attorneys general" in pursuit of multiple damages, the judge said, the defendants' alleged conduct concerns the "market of labs" offering cannabis testing, and in that context, it harmed the competitor in that market who followed the rules.
Justice Squires-Lee found, however, that MCR had not adequately pled a claim of tortious interference. While MCR identified one grower that used both its lab and a competitor, it hasn't shown that the other lab knew the grower had switched based on a promise of more favorable, if false, results, the court ruled.
"To the contrary, the overall gist of the complaint is that cannabis cultivators in the Massachusetts market learned about those labs that reported higher THC-A levels and lower contamination failure rates and themselves migrated to use those laboratories in lieu of MCR," Justice Squires-Lee said. "Intentional interference requires more than unfair competition that results in a competitive advantage. It requires intentional conduct directed [at] a specific consumer."
Similarly, MCR could not establish unjust enrichment against competitors solely on the basis that it complied with the law while others did not, the judge found.
"One's compliance with the law is required regardless of whether others comply with the law, and such compliance does not confer any benefit on wrongdoers," the judge said.
The judge also rejected arguments by some defendants that state regulator the Cannabis Control Commission, not the court, has jurisdiction over the matter, saying the CCC has no power to grant the relief sought by MCR.
Even if the regulatory agency conducted an investigation into the defendants, it could not compensate MCR, the court said.
Three defendants that are based in western Massachusetts also lost a bid to dismiss the claims against them because they are outside the jurisdiction of Suffolk County, with the judge concluding that as a practical matter, even if she granted their motion, MCR could refile against Green Analytics and Green Valley in Hampden County and SafeTiva in Franklin County and then seek to consolidate the cases with the others back in Suffolk County.
A complaint against an eighth defendant, CDX, was dismissed without prejudice because it appears to have shut down and was never served.
Messages seeking comment from counsel for MCR and the defendants did not immediately receive responses on Wednesday.
MCR Labs LLC is represented by Patrick J. Sheehan of Whatley Kallas LLP, Edwin Kilpela and David Slade of Wade Kilpela Slade LLP and Alex Barlow of Scott + Scott Attorneys at Law LLP.
Green Analytics LLC is represented by Kevin Polansky of Nelson Mullins Riley & Scarborough LLP.
Analytics Labs LLC, Green Valley Analytics LLC and SafeTiva Labs LLC are represented by Michael D. Roundy of Bulkley Richardson & Gelinas LLP.
Massbiolytics is represented by Roger A. Peace of the Peace Law Office.
Kaycha is represented by Joseph D. Lipchitz and Paige V. Schroeder of Saul Ewing LLP.
Assured Testing Laboratories LLC is represented by David B. Mack and Stephanie R. Parker of O'Connor Carnathan & Mack LLC.
The case is MCR Labs LLC v. Analytics Labs LLC et al., case number 2584CV00260, in the Suffolk County Superior Court of the Commonwealth of Massachusetts.

Oct 22