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Varela v. Spanski

Court of Appeals of Michigan

July 11, 2019

ZACHARY ALAN VARELA, Plaintiff-Appellant,

          Wayne Circuit Court LC No. 17-006650-CK

          Before: Tukel, P.J., and Jansen, and Riordan, JJ.

          JANSEN, J.

         In this civil action involving a contract for the cultivation and distribution of medical marijuana, 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 where 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.
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 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.
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 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 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 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 had destroyed evidence of the agreements in order to thwart all legal obligations to plaintiff.

         Defendants sought summary disposition of all of plaintiff's claims under MCR 2.116(C)(8), arguing that all of plaintiff's claims were barred by the wrongful conduct rule. Defendants argued that plaintiff would have to rely on his illegal conduct to support all of 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 to the wrongful conduct rule, and therefore his complaint must be dismissed in its entirety.

         The trial court agreed. Specifically, the trial court concluded that "the party's contracts would be enforceable if they called for the production of marijuana consistent with the terms of the MMMA." However, the MMMA "does not grant caregivers and patients a license to possess, to manufacture or to distribute marijuana," and that the MMMA only grants an affirmative defense for criminal chargers. Moreover, plaintiff was the only party to the contract with caregiver status under the MMMA, and that under the statute, he was precluded from growing marijuana for more than five patients. Observing that the party's agreement required plaintiff to pay over $16, 000.00 in rent each month, the trial court deduced that plaintiff would have to produce over one pound of marijuana each month for each patient, which would not be consistent with conduct permitted by the MMMA. Finally, the allegations in plaintiff's complaint were conclusory and plaintiff had failed to "establish even a question of fact as to whether the conduct called for in the party's agreement would be legal or otherwise consistent with Michigan Public Policy." Accordingly, the trial court granted summary disposition in favor of defendants. This appeal followed.


         We review a trial court's decision on a motion for summary disposition under MCR 2.116(C)(8) de novo. Bedford v White, 318 Mich.App. 60, 64; 896 N.W.2d 69 (2016).

A motion under MCR 2.116(C)(8) tests whether the opposing party has failed to state a claim on which relief can be granted. When deciding a motion under (C)(8), this Court accepts all well-pleaded factual allegations as true and construes them in the light most favorable to the nonmoving party. A trial court may grant summary disposition under MCR 2.116(C)(8) only when the claim is so clearly unenforceable as a matter of law that no factual development could possibly justify a right of recovery. [Mendelson Orthopedics PC v ...

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