1240 S. Bannock, LLC v. Siem
| Docket Number | 2:21-cv-00183 |
| Decision Date | 27 May 2022 |
| Parties | 1240 S. BANNOCK, LLC., Plaintiff, v. DENNIS SIEM, et al., Defendants. |
| Court | U.S. District Court — Western District of Michigan |
REPORT AND RECOMMENDATION
This Report and Recommendation (R&R) addresses two motions to dismiss that were filed by Defendants. (ECF No. 20 (), and ECF No. 21 ().)
The Plaintiff - 1240 S. Bannock LLC (Bannock) - is a Colorado limited liability corporation. Bannock filed this lawsuit against Defendants Coldwell Banker Real Estate Group (Coldwell), Coldwell real estate agent Dennis Siem (Siem), and property owners Donald J. Nerat and Steven A. Nerat (the Nerats).[1] Bannock's amended complaint (ECF No. 16) alleges claims of breach of contract (Count 1), fraud and silent fraud (Count 2) against the Nerats, and a claim of fraud and silent fraud (Count 3) against Siem and Coldwell.
In January 2021, Bannock made an offer to purchase real property consisting of a strip mall located at 2002 to 2013 10th Street, Menominee, MI (the property), which was owned by the Nerats. Bannock's initial offer included an expiration date, and the Nerats failed to accept by that date. The Nerats did, however, accept the offer several days after the expiration date, which led Bannock to make a deposit of earnest money and to begin inspecting the property.
In March 2021, the Nerats agreed to sell the property to another buyer without disclosing the sale to Bannock. Bannock alleges that after this alleged sale to a third-party, Bannock and the Nerats executed an Amendment to the original purchase contract. In the Amendment, Bannock and the Nerats agreed that the sale and purchase of the property was contingent on actions by a third-party business. Specifically, the Amendment provided that the agreement was contingent on Yuma Way MI LLC (Yuma Way) first obtaining from the City of Menominee a retail marijuana license to operate a marijuana establishment at the property. That contingency violates federal law and, in the opinion of the undersigned, is not enforceable in this Court.
In addition, on April 14, 2021, Donald J. Nerat executed a property owner consent form that would allow Yuma Way to operate a marijuana facility or establishment on the property.
Bannock's stated purpose in the Amendment was to purchase the real estate to establish a retail marijuana business. Although, that pursuit is legal under Michigan law, it is not legal under federal law. “[M]arijuana remains a controlled substance at the federal level.” United States v. Lundy, No. 20-6323, 2021 WL 5190899, at *1 (6th Cir. Nov. 9, 2021); see also 21 U.S.C. § 812(c)(10) (identifying “marihuana” as a Schedule I controlled substance); 21 C.F.R. § 1308(d)(23) (same); 21 C.F.R. § 1308(d)(58) (). It is unlawful to manufacture, to distribute, and to possess with intent to distribute a controlled substance - including marijuana - under federal law unless authorized under Subchapter I of Title 21. 21 U.S.C. § 841(a)(1). Furthermore, it is unlawful to attempt or conspire to do any of these acts. 21 U.S.C. § 846. And, pursuant to 18 U.S.C. § 2(a), it is unlawful to aid and abet another in a violation of federal law. Plaintiff has given no indication that the marijuana-related activities discussed in this case are authorized under Subchapter I of Title 21. Although the litigants here have not started to produce and distribute marijuana, their activities appear to be an attempt or a conspiracy to do so, or to aid and abet such an attempt to violate federal law.
In the opinion of the undersigned, Bannock's request that this Court grant it damages against Defendants for breach of contract fails to state a claim upon which relief can be granted because the amendment to the contract is premised on a contingency that is illegal under federal law. It is the undersigned's opinion that the amended contract is unenforceable.
Bannocks claims of fraud arise out the failure to complete the sale of property. These fraud claims arise out of the same transaction at the heart of the breach of the contract claim, and this Court cannot disentangle the fraud claims from the alleged breach of contract. The appropriate cause of action based upon a promise to do a future act is based in contract and not in fraud. Bannock's purpose in purchasing the subject property was to engage in conduct that violated the Controlled Substances Act (CSA). Bannock knowingly revived its offer to purchase the property by presenting an amendment that made the deal contingent on a third-party obtaining a retail marijuana license. Bannock knew or should have known that the sale of marijuana was illegal under the CSA. Finally, Bannock filed this action in federal court, again with at least constructive knowledge that the terms of the agreement violated the CSA.
It is respectfully, recommended that the Court grant Defendants' motions to dismiss this case.
According to the amended complaint and attachments, Bannock offered to buy real property consisting of a strip mall owned by the Nerats for $415, 000 on January 8, 2021. (ECF No. 16-1, PageID.79.) The offer stated an expiration date of January 21 with no year specified but included a closing date of April 28, 2021. (Id., PageID.82, 80.) Bannock alleges that on January 26, 2021, the Nerats accepted the offer. (ECF No. 16, PageID.68, ECF No. 16-2, PageID.83.)
The agreement provided that:
Seller has a right to terminate this agreement within 7 days of acceptance of the contract in case Wild West Tobacco will exercise their right of first refusal.
(ECF No. 16-1, PageID.82.) Bannock interprets this language as providing the Nerats with only 7 days to terminate the agreement from their January 26 acceptance of the agreement to sell to Bannock. (ECF No. 16, PageID.69.) The Nerats did not terminate the agreement by February 2, 2021. (Id.) Bannock deposited $5, 000.00 of earnest funds with Bay Title's trust account for the benefit of the Nerats. (Id.) Bannock then began inspecting the property. (Id.)
Without giving notice to Bannock, the Nerats then executed a buy and sell agreement for the property with Deniro Saco on or about March 3, 2021. (Id.) Bannock alleges that it had no knowledge of a relationship between Saco and Wild West Tobacco, which, as noted above, had a right of first refusal in the original offer. (Id., PageID.70.) Neither the Nerats nor their Coldwell Banker Real Estate Group (Coldwell) agent Dennis Siem disclosed this agreement to Bannock. (Id.)
On April 8, 2021, without any knowledge of the second buy and sell agreement, Bannock submitted an offer to amend the purchase agreement with the Nerats. (Id.) This offer was presented to the Nerats by Coldwell agent Siem, and the Nerats executed the amendment on April 12, 2021. (Id.) The amendment moved the closing date from April 28, 2021, to July 1, 2021, and made the agreement contingent on third-party Yuma Way MI, LLC receiving a license from the City of Menominee to operate a retail marijuana establishment at the property. (Id.) The amendment required the Nerats to sign forms and cooperate with Yuma Way MI, LLC's license request to the City of Menominee. (Id.)
On April 14, 2021, two days after executing the amendment, Donald Nerat executed a Property Owner Consent Form for the benefit of Yuma Way indicating that he “will allow the applicant to engage in the operation of the applied marihuana business on the property.” (Id., PageID.71.)
Not knowing about the second purchase agreement that the Nerats signed with Saco, Bannock contacted Bay Title on June 28, 2021, to confirm the July 1 closing date. (Id.) A Bay Title representative informed Bannock that the Nerats had already sold the property to a third-party. (Id.) Neither the Nerats nor their Coldwell agent Siem had informed Bannock of the property transfer, or of the agreement made with Saco. (Id.)
Bannock asserts a breach of contract, fraud, and silent fraud claims against the Nerats (Counts 1 and 2). (Id., PageID.72-77.) Bannock also asserts fraud and silent fraud claims against Siem and Coldwell (Count 3). (Id., PageID.75-77.)
The Federal Rules provide that a claim may be dismissed for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). To survive a Rule 12(b)(6) motion, “a complaint must contain sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted). Put differently, if plaintiffs do “not nudge[] their claims across the line from conceivable to plausible, their complaint must be dismissed.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678.
In determining whether a claim has facial plausibility, a court must construe the complaint in the light most favorable to the plaintiff, accept the factual allegations as true, and draw all reasonable inferences in favor of the plaintiff. Bassett v. Nat'l Collegiate Athletic Ass'n 528 F.3d 426, 430 (6th Cir. 2008). Those factual allegations “must contain either direct or inferential allegations respecting all the material elements to sustain recovery under some viable legal theory.” League of United Latin Am. Citizens v....
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