[Copyrighted Material Omitted]
[Copyrighted Material Omitted]
Circuit Court. LC No. 17-006650-CK.
ZACHARY ALAN VARELA, Plaintiff-Appellant: JAMES E.R.
BRAD SPANSKI: Defendant-Appellee: SHYLER ENGEL.
Before: TUKEL, P.J., and JANSEN, and RIORDAN, JJ.
Mich.App. 63] Jansen, J.
this civil action involving a contract for the cultivation
and distribution of medical marijuana,[329 Mich.App. 64]
plaintiff appeals as of right the order granting summary
disposition under MCR 2.116(C)(8) in favor of defendants. We
is registered as a qualifying patient and primary caregiver
under the Michigan Medical Marihuana Act (the MMMA),
MCL 333.26421 et seq. In April 2016, defendants offered
to purchase a two-story industrial warehouse building in the
city of Detroit and lease it to plaintiff and his business
partner, Derek Powers, " for the purpose of cultivating
marihuana." Defendants also offered to enter into a
partnership agreement in which defendants would finance the
start-up costs and operating expenses of a marijuana growing
operation in exchange for a return on the investment over a
five-year period. In exchange, plaintiff would be in charge
of growing and harvesting the marijuana. In September 2016,
the parties entered into two agreements: a five-year lease
agreement for the warehouse and a five-year partnership
agreement. The whole of the partnership agreement provided:
1. Anticipated grow start date: July 15, 2016.
2. Revenue generated from harvests will be initially split
as: Investors will calculate their total investment as of the
first harvest less the cost of the building ($150,000) and
divide this amount by 12 in order to generate a 1 year
payback (i.e. $200,000 / 12 = $16,700 per month) — this
amount will be fixed and subtracted from the total revenue
generated from the harvests for this 1 year period, much like
the operating expense. Once investors are fully compensated
for their initial investment total (see investor expense
spreadsheet) then revenue split reverts to 40% Investors and
60% growers. Investor payback shall commence January 2017.
[329 Mich.App. 65]3. Zach Varela and/or Zach's LLC will
sign a building occupancy lease to be effective September 1,
2016 and run for 5 years with month to month renewal
4. The express purpose of lease is to allow Investors to
create a legal device to convert cash revenue from the grow
operation into a financial institution deposit.
5. After each harvest has been monetized, all operating
expenses (i.e. utilities, nutrients, soil, etc.) for the next
grow cycle will be set aside prior to distribution of profits
to Investors and Growers in an escrow account or other
mutually agreed to account for the purpose of producing the
next harvest. Investors will provide documentation of this
operating expense (I.e. utilities, etc.).
6. Investors will pay all applicable taxes and building
insurance through the term of the lease.
7. Should the cultivation operation be temporarily or
permanently halted for any reason (I.e. Government
Intervention, Act of God, etc.) prior to Investors being
fully compensated for their initial investment, Investors
will retain ownership of the building and cultivation
equipment. Otherwise, Investors will transfer ownership of
all grow equipment once reimbursement takes place.
8. It is estimated that each plant given a 15 week growing
period will produce 2.2 lbs. per plant and have a market
value of $2500 per pound based on initial economics provided
9. The maximum number of plants will be strictly enforced
based on the Medical Marihuana Act of Michigan (2008) or
until such time the partners receive a state license to
produce additional plants upon new legislation.
10. Grower's responsibilities: Zach will manage plants on
a d-t-d basis along with necessary equipment maintenance.
Derek will manage the sales and transfer of product to
buyer(s) — Derek will also compensate Investors
immediately after the sale of product or in another mutually
agreeable method and timeframe.
Last, this document is personal and confidential and is a
document to expressly state ownership and compensation[329
Mich.App. 66] of the partnership and in no way shall be
shared with anyone outside of the partnership as stated as
" Investors" and " Growers" above.
partnership agreement was signed and dated by plaintiff, his
business partner, and defendants.
Initially, the parties' execution of their contractual
obligations went smoothly: defendants purchased the subject
property and cultivation equipment and hired contractors to
build out the warehouse in a manner intended for marijuana
cultivation; plaintiff oversaw the build-out and set up a
specialized marijuana cultivation system. However, despite
plaintiff's request to do so, defendants failed to
install a security system, and in December 2016, a street
gang allegedly robbed the building of plaintiff's first
the robbery, plaintiff continued to cultivate 70 marijuana
plants, for which he had valid MMMA registration cards.
However, defendants began showing the property and, in March
2017, informed plaintiff that " new investors" were
taking over the property. In April 2017, defendants ordered
plaintiff to turn over his keys to the building and informed
him that he no longer had authority to use or access the
building. Plaintiff was not permitted to retrieve his
marijuana plants or his personal belongings.
failed attempts to resolve the dispute and retrieve his
possessions, plaintiff filed an eight-count complaint
alleging breach of the lease agreement, breach of the
partnership agreement, tortious interference with contracts,
conversion, misappropriation of trade secrets, unjust
enrichment, and breach of the implied covenant of good faith
and fair dealing. Plaintiff also sought injunctive relief.
However, plaintiff failed to attach the lease agreement and
the partnership agreement to his complaint, claiming that
defendants[329 Mich.App. 67] had destroyed evidence of the
agreements in order to thwart all legal obligations to
Defendants sought summary disposition of all plaintiff's
claims under MCR 2.116(C)(8), arguing that because plaintiff
would have to rely on his illegal conduct to support his
claims, the wrongful-conduct rule prohibited the trial court
from granting him any relief. Moreover, defendants argued,
plaintiff had failed to plead any exception ...