Green Cross Med., Inc. v. Gally
| Decision Date | 18 April 2017 |
| Docket Number | No. 1 CA–CV 16–0019,1 CA–CV 16–0019 |
| Citation | 395 P.3d 302 |
| Parties | GREEN CROSS MEDICAL, INC., an Arizona non-profit corporation, Plaintiff/Appellant, v. John V. GALLY, Trustee of the John V. Gally Family Protective Trust, dated January 11, 1993, Defendant/Appellee. |
| Court | Arizona Court of Appeals |
Aspey Watkins & Diesel PLLC, Flagstaff, By Whitney Cunningham, John W. Carlson, Counsel for Plaintiff/Appellant
Hunter Humphrey & Yavitz PLC, Phoenix, By Isabel M. Humphrey, Randall S. Yavitz, Counsel for Defendant/Appellee
OPINION
¶ 1 Appellant Green Cross Medical ("Green Cross") appeals the superior court's summary judgment dismissing its breach of contract complaint against John V. Gally, Trustee of the John V. Gally Family Protective Trust ("Gally"). We hold that the lease between Gally and Green Cross to permit Green Cross to operate a medical marijuana dispensary was not void from its inception, and to the extent Green Cross is seeking damages for the breach, the lease was enforceable. Accordingly, we remand for further proceedings consistent with this opinion.
¶ 2 The relevant facts are undisputed. Gally is the owner of commercial property located in Winslow, Arizona ("Property"). In 2012, Gally entered into a lease agreement with Green Cross for the Property to allow Green Cross to operate a medical marijuana dispensary. The lease provided that there was an "application first term" allowing Green Cross to lease the property until it was issued a dispensary operating license from the State of Arizona. The lease did not specify how long the application first term would run, but it provided for an increase in the rent once the first term ended.
¶ 3 Less than two weeks after entering into the lease, Green Cross received a letter from Gally's attorney stating that Gally was revoking the lease. Green Cross filed this breach of contract complaint, a motion for a temporary restraining order ("TRO"), and a motion for a preliminary injunction. Gally argued that he was required to revoke the lease because a prior month-to-month lessee who had wanted to operate a medical marijuana dispensary on the Property allegedly had a superior interest in the Property. The superior court issued the TRO and later a preliminary injunction, barring Gally from revoking the lease. Gally appealed that decision and the superior court stayed further proceedings pending the appeal. We affirmed the superior court's orders. Green CrossMedical, Inc. v. Gally , 1 CA–CV 12–0610, 2013 WL 5435817 (Ariz. App. Sep. 26, 2013) (mem. decision).
¶ 4 On remand, the parties filed cross-motions for summary judgment. For the first time in the superior court, Gally argued that he was entitled to judgment as a matter of law because the lease was illegal and therefore unenforceable. Green Cross did not obtain the necessary permission under the Arizona Medical Marijuana Act, Arizona Revised Statutes ("A.R.S.") §§ 36–2801, et seq . ("AMMA"),1 to operate a medical marijuana dispensary.2 However, Green Cross sought partial summary judgment on liability for possible damages for Gally's revocation of the lease. The superior court denied Green Cross's motion and granted Gally's, holding that the lease violated both federal and state law and was therefore void for illegality. Green Cross timely appealed. We have jurisdiction pursuant to Arizona Revised Statutes § 12–2101(A)(1) (2016).
¶ 5 We review a grant of summary judgment de novo as an issue of law. Acosta v. Phx. Indem. Ins. Co. , 214 Ariz. 380, 381, ¶ 2, 153 P.3d 401 (App. 2007) (citation omitted). We will affirm if there are no disputed issues of material fact and the prevailing party is entitled to judgment as a matter of law, viewing the facts in the light most favorable to the party against whom summary judgment was entered. Id. (citations omitted). Additionally, we review issues of statutory construction and interpretation de novo. Stein v. Sonus USA, Inc. , 214 Ariz. 200, 201, ¶ 3, 150 P.3d 773 (App. 2007) (citation omitted).
¶ 6 The issue presented is whether a contract for the lease of real property to a party applying to operate a medical marijuana dispensary is void for illegality. The superior court held that the lease was illegal under state law for, "among other things, production of marijuana and conspiracy to sell or transfer marijuana." Additionally, the superior court found that the lease agreement violated the Controlled Substances Act, 21 U.S.C. §§ 801 et seq . ("CSA"). Specifically, the court cited 21 U.S.C. § 856(a)(1)–(2) (2003), which states:
[I]t shall be unlawful to—knowingly open, lease, rent, use, or maintain any place, whether permanently or temporarily, for the purpose of manufacturing, distributing, or using any controlled substance; manage or control any place, whether permanently or temporarily, either as an owner, lessee, agent, employee, occupant, or mortgagee, and knowingly and intentionally rent, lease, profit from, or make available for use, with or without compensation, the place for the purpose of unlawfully manufacturing, storing, distributing, or using a controlled substance.
¶ 7 At the time Gally terminated the lease, Green Cross had not received the necessary permission to operate a dispensary. But the lease permitted Green Cross to sublease the Property—a valuable commercial right that existed independent of any concerns over the legality of medical marijuana. And nothing in the lease suggested it would be void or voidable if Green Cross did not receive a license to run a dispensary.
¶ 8 We find no statute, state or federal, that bars leasing property to a person or business that is applying for a license to run a medical marijuana dispensary under the AMMA with a right to sublease. Even assuming, arguendo, that the operation of a dispensary would have violated federal law, the right to sublease was a valuable property right that involves no controversy over its legality. As such, Green Cross can seek damages for the loss of the lease.
¶ 9 Gally argues that Green Cross is not entitled to any damages, asserting that the lease was void from the outset because it would have violated state and federal law if Green Cross ever used the Property for an AMMA-compliant medical marijuana dispensary. Accordingly, we will address the interplay between state and federal law to determine if Gally can be liable for any damages to Green Cross. The issue is one of first impression in Arizona, and there are conflicting superior court decisions on this issue.3
A.R.S. § 36–2811(E) (2010) (emphasis added). The ability to enforce a lease or contract is a right or privilege under Arizona law, subject only to reasonable regulation by the government when a public interest is involved. Schrey v. Allison Steel Mfg. Co ., 75 Ariz. 282, 286–87, 255 P.2d 604 (1953). Parties have the legal right to make whatever contracts they desire, subject to liability for their breach except when "the acts to be performed under the contract are themselves illegal or contrary to public policy, or if the legislature has clearly demonstrated its intent to prohibit maintenance of a cause of action, then recovery should be denied." E & S Insulation Co. of Ariz., Inc. v. E.L. Jones Const. Co ., 121 Ariz. 468, 470, 591 P.2d 560 (App. 1979). That limitation, however, is not inflexible and the court must look to the legislative intent. Ruelas v. Ruelas , 7 Ariz.App. 98, 101, 436 P.2d 490 (1968) (citations omitted). Given the language of the AMMA, a court may not void or refuse to enforce a dispensary's lease with a landlord simply because the dispensary would be supplying marijuana in compliance with the AMMA.4
¶ 11 Second, while Gally correctly notes that no provision of the AMMA expressly lists landlords as entitled to immunity for leasing property to authorized dispensaries, we will not interpret a statute in a manner that would lead to an absurd result. City of Phoenix v. Superior Court In & For Maricopa County , 101 Ariz. 265, 267, 419 P.2d 49, 51 (1966) (citations omitted). The AMMA provides protection against arrest and prosecution for qualifying patients, caregivers, physicians, providers, and dispensaries so long as they are in compliance with the AMMA and administrative rules promulgated under the AMMA. See A.R.S. § 36–2811. An interpretation that allows a dispensary to lease premises for use compliant with the AMMA, but authorizes the State to prosecute a landlord leasing property to a dispensary compliant with the AMMA (or a court to void an AMMA-compliant lease) would render the statute futile and violate A.R.S. § 36–2811(E). If the State is prohibited from acting directly, it cannot circumvent the law by acting indirectly to obtain the same result. See Danielson v. Evans , 201 Ariz. 401, 409, ¶ 27, 36 P.3d 749 (App. 2001) (citations and quotations omitted). Accordingly, Gally's proposed interpretation of the AMMA as not providing immunity for landlords would lead to an absurd result and is untenable. We therefore reject it.
¶ 12 This conclusion is reinforced by the fact that to operate under the AMMA, a dispensary must certify to the Arizona Department of Health Services that it has a...
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