Attorney General Paxton reaches $1.175 million settlement with Katz Boutique for selling synthetic marijuana

By Tara Mapes | Sep 13, 2016

AUSTIN – Texas Attorney General Ken Paxton announced Sept. 8 that the Office of the Attorney General (OAG) and the Harris County Attorney’s Office (HCAO) reached a settlement of $1.175 million with the Katz Boutique stores and their owner, Bao Quoc Nguyen, also known as Tony Nguyen. AUSTIN – Texas Attorney General Ken Paxton announced Sept.8 that the Office of the Attorney General (OAG) and the Harris County Attorney’s Office (HCAO) reached a settlement of $1.175 million with the Katz Boutique stores and their owner, Bao Quoc Nguyen, also known as Tony Nguyen.

The settlement stems from a lawsuit filed in 2015 against Nguyen and his nine Katz Boutiques for violating the Texas Deceptive Trade Practices Act and the Texas nuisance law numerous times by selling synthetic marijuana.

The Katz Boutique lawsuit was the first synthetic cannabinoid lawsuit filed jointly by the OAG and HCAO. According to the OAG, evidence collected during the lawsuit revealed the stores sold more than 90,000 packets of synthetic drugs to Texas consumers since 2013 and made millions of dollars from the sale of illegal drugs.

The Katz Boutique stores are located throughout Harris County and sell adult novelty items and smoking accessories. As a part of the investigation, OAG and HCAO teamed up with the Harris County Sheriff’s Office Narcotics Task Force and Vice Unit (HCSO), who conducted undercover operations. 

"Over the course of four months in 2015, undercover HCSO officers purchased multiple packets of synthetic cannabinoids labeled as 'Kush' from Katz Boutique," Paxton said in his announcement. "The packets deceptively labeled the main ingredients as innocuous-sounding legal plant substances such as 'lemon balm,' 'passion flower' and 'wild lettuce.' Furthermore, the packets also claimed to be 'lab certified' and legal for sale in all 50 states.” 

The OAG said businesses often market synthetic cannabinoids as being safe without disclosing that they are dangerous and illegal. Synthetic cannabinoids, or synthetic marijuana, are dried herbs and spices sprayed with chemicals designed to induce a marijuana-type high. The synthetic drugs are widely available, despite laws prohibiting them.

According to the U.S. Drug Enforcement Administration (DEA), the illegal cannabinoids found in the products can cause severe paranoia, psychotic episodes, violent behavior and delusions, kidney damage, elevated blood pressure, heart palpitations and self-harming tendencies, all of which can lead to death. The DEA said synthetic cannabinoids are the most abused substance by high school seniors; overdoses of these dangerous drugs are increasing in Texas.

The Centers for Disease Control and Prevention (CDC) issued a report in March stating that synthetic marijuana was first available for sale on the internet and in Western Europe in 2004. In 2008, the United States executed its first seizure of the drugs. Since 2011, thousands of adverse reactions to the drugs have been reported nationwide, including acute kidney injury and death by overdose and suicide.

Synthetic marijuana also has been in the news for causing violent reactions resulting in the assault and death of others. The CDC said in its report that it saw the largest multi-state outbreak in 2015. The synthetic drug problem continues to rise along with the challenges faced by the DEA. The DEA faces an ongoing battle identifying ingredients to add to its controlled substance list because, “with the passing of each regulation to control synthetic marijuana, drug manufacturers and suppliers are quickly changing the ingredients to new, non-controlled variations.”

The settlement agreement, signed by all parties Aug. 19, states that Nguyen denies all allegations but agreed to settle the lawsuit for $1.175 million. The agreement designates $300,000 of the total settlement to reimburse the plaintiff’s attorney fees broken down as follows: the OAG will receive $153,000, and the HCAG will receive $147,000.

The remainder of the settlement funds received by the state, “shall be allocated in accordance with Texas Code §402.007(b) (l) to the Supreme Court judicial fund or general revenue as appropriate.”

In exchange for the settlement, Nguyen and Katz are “released from any and all civil claims, causes of actions, damages, restitution, fines, costs and penalties based on, arising out of or in any way related, in whole or in part, directly or indirectly, to conduct, acts or omissions occurring prior to the effective date [Aug. 19, 2016].”

In addition to the settlement, Nguyen and Katz entered into an agreed final judgment and permanent Injunction (AFJPI) banning them from selling synthetic drugs and controlled substances.

In the AFJPI, Nguyen and Katz are expressly prohibited from selling any product containing a controlled substance as defined by the Texas Health and Safety Code, or any substance with a substantially similar chemical structure of a controlled substance. The injunction also bars Nguyen and Katz from selling products with a label claiming them to be “lab certified” unless Katz Boutiques know with certainty the products were inspected by a bona fide laboratory, which the ruling describes as the operations and practices of which are generally certified by a recognized third party accreditation agency. The injunction also requires any product Katz sells or offers to purchase to contain a label identifying the manufacturer and location of the manufacturer or the manufacturer information must be available on display in the stores.

This is just one of many lawsuits filed by the OAG against boutiques for selling marijuana in its crackdown on the illegal practice of selling synthetic marijuana. On Aug. 11 the OAG announced it had obtained a temporary restraining order and had filed a lawsuit against Spice Boutique and its owners, brothers Minh Dang and Tuan Dang, for the same violations indicated in the Katz lawsuit. The suit came after an investigation prompted by 16 synthetic marijuana overdoses in Hermann Park that led Houston Police Department Narcotics investigators back to the Spice Boutique.

The Spice Boutique lawsuit is the 10th lawsuit the OAG has filed in Harris County with the goal of stopping retail stores from selling synthetic drugs in Houston.

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Harris County Attorney Harris County Sheriff's Office Texas Office of the Attorney General U.S. Centers for Disease Control and Prevention

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