Seventh Circuit: It Is Possible to Make a Contract with a Fictitious Entity

I’ve been coming across a lot of cases involving marijuana businesses.  The cases often have facts that are odd or peculiar, as though the people running these businesses are not natural businesspeople or are perhaps engaged in somewhat shady enterprises that border on fraud or illegality.  Rock Hemp Corp. v. Dunn is a relatively mild example. 

Rock Hemp contracted to purchase 6000 hemp seeds from CBDINC, a fictitious business name used by three individuals.  Their agreement included an arbitration clause, but because CBDINC was not a real entity, Rock Hemp, unhappy with the quality of the seeds, chose to sue the three individuals rather than the fictitious entity.

After a lot of boring civ pro stuff, the Seventh Circuit address the issue of whether a fictitious entity could enforce an arbitration clause.  Under Wisconsin law, it can, because a d/b/a is treated as legally identical to the legal actor behind the fictitious name.  The cases cited by the Seventh Circuit do not seem to me to be as clearly on point as the court seems to think, as they involve actual business entities that operate under aliases.  Here, there is no business entity.  It’s just three guys who pretended to be a corporation.  However, Rock Hemp did not claim to have been deceived; it knew who it was dealing with.

But then there’s just some funny stuff that suggests that Rock Hemp was very familiar with its product.  Rock Hemp alleged that the contract was not binding because it was not signed by any of CBDINC’s purported principals.  Rather it was signed by Matt Kahn.  However, as the Court explains, “Kahn’s signature does not appear on the contract. Rather, his name and email address are listed as the person who created the seed order form (which is part of the contract) on behalf of CBDINC.”  This is the kind of mistake that only makes sense if the complaint was heavily dusted with bright orange Doritos’ detritus. 

Rock Hemp also attempted to argue that it should escape arbitration because the entire contract was a product of fraudulent inducement.  However, it did not allege that it was fraudulently induced into arbitration, and under Prima Paint v. Flook & Conklin Manufacturing, a party cannot avoid arbitration by contending that the entire contract was fraudulently induced.  That is an issue that an arbiter can address.  Bummer.