TerrAscend USA has asked a federal judge to dismiss the U.S. government’s lawsuit seeking the return of an $8.36 million tax refund, arguing that federal attorneys sued a nonexistent entity, filed the case in the wrong venue and made a series of jurisdictional and procedural errors.
In a 38-page motion filed September 17 in the U.S. District Court for the District of New Jersey, TerrAscend is seeking dismissal of the complaint with prejudice and without allowing the government to amend it.
The federal lawsuit, filed in May, seeks to recover an $8,360,683.19 refund issued following an amended 2020 corporate tax return. The broader dispute stems from TerrAscend’s effort to claim deductions previously disallowed under Section 280E of the federal tax code because of its marijuana-related business activities.
TerrAscend’s new motion, however, does not challenge the government’s position on Section 280E. Instead, the company is seeking dismissal based on how the lawsuit itself was filed.
At the center of the motion is the government’s decision to name “TerrAscend USA, Inc. & Subsidiaries” as the defendant.
TerrAscend argues that no legal entity by that name exists. According to the filing, the phrase is a label used for a consolidated federal tax return group, rather than a corporation or other entity capable of being sued. TerrAscend USA, Inc. is the common parent of that consolidated group.
The company says the distinction triggered what it describes as a series of “cascading” errors affecting jurisdiction, venue, service and the government’s ability to state a legally valid claim.
TerrAscend also disputes the government’s allegation that the defendant is a New Jersey corporation headquartered in Union City.
TerrAscend USA was organized in Delaware, and the company says its officers direct and coordinate its activities from Florida, Ohio and Connecticut. Although it uses a Union City address, TerrAscend says the location is only a virtual mail service comparable to a post office box. It says it has no physical office there, owns or leases no property at the address, and has no employees, contractors or officers working from it.
TerrAscend further says a similarly named company, TerrAscend NJ, LLC, is a separate New Jersey entity and was not part of the consolidated federal tax group involved in the 2020 return.
Those facts, the company argues, mean the New Jersey federal court lacks both general and specific personal jurisdiction.
The company says the events underlying the tax dispute also were not directed at New Jersey. Its original 2020 return was electronically filed by an accountant in California, while its amended return was mailed to the Internal Revenue Service in Utah. TerrAscend argues that the refund claim therefore does not arise from conduct directed at New Jersey.
TerrAscend separately argues that New Jersey is an improper venue. Under federal tax venue rules, the company says the government could bring such a case where the taxpayer resides, where the tax liability accrued or where the return was filed. TerrAscend argues none of those circumstances points to New Jersey.
The motion also attacks the government’s efforts to serve the lawsuit.
TerrAscend says the summons itself was issued to “TerrAscend USA, Inc. & Subsidiaries,” which it argues is a nonexistent consolidated-return label rather than a legal entity. The company contends that makes the summons defective.
The filing additionally points to problems with service. TerrAscend says its attorneys gave federal counsel the identity of its correct registered agent, Capitol Corporate Services, by July 8, but the government initially attempted service through another company. According to TerrAscend, more than 40 days passed between federal attorneys receiving the correct information and service on the registered agent.
TerrAscend also highlights what it describes as an earlier government error in issuing the refund itself. The company says the government acknowledged in its complaint that it did not submit the refund for review by the congressional Joint Committee on Taxation before issuing it, as required under the circumstances by federal tax law. TerrAscend argues that issue, combined with the alleged errors in filing and serving the lawsuit, weighs against allowing the government to simply amend its complaint.
The refund check was dated June 18, 2024, for $8,360,683.19 and was deposited by TerrAscend USA on June 26, according to the company’s filing.
TerrAscend is asking the court to dismiss the lawsuit with prejudice, which, if granted as requested, would prevent the government from correcting the complaint and pursuing the same case through an amended filing.
The government has until October 5 to respond to the motion. TerrAscend’s reply is due October 13, with October 19 listed as the motion date.
