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Varela v. Spanski

Court of Appeals of Michigan

July 11, 2019

ZACHARY ALAN VARELA, Plaintiff-Appellant,

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[Copyrighted Material Omitted]

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         Wayne Circuit Court. LC No. 17-006650-CK.


          For ZACHARY ALAN VARELA, Plaintiff-Appellant: JAMES E.R. FIFELSKI.

          For BRAD SPANSKI: Defendant-Appellee: SHYLER ENGEL.

          Before: TUKEL, P.J., and JANSEN, and RIORDAN, JJ.


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         [329 Mich.App. 63] Jansen, J.

          In 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 affirm.


         Plaintiff 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 thereafter.
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 to Investors.

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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.

          The 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 harvest.

          After 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.

          After 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 plaintiff.

          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 ...

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