Court Opinion

ID: 4161080
Source: CourtListenerOpinion
Date Created: 2017-04-18 17:02:49.599411+00
Date Added: 2024-06-11T07:46:47.193231
License: Public Domain

IN THE
            ARIZONA COURT OF APPEALS
                            DIVISION ONE

  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.

                         No. 1 CA-CV 16-0019
                           FILED 4-18-2017

           Appeal from the Superior Court in Navajo County
                       No. S0900CV201200208
                The Honorable Ralph E. Hatch, Judge

                   REVERSED AND REMANDED

                             COUNSEL

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
                        GREEN CROSS v. GALLY
                          Opinion of the Court

                                OPINION

Judge Donn Kessler delivered the opinion of the Court, in which Presiding
Judge Peter B. Swann and Judge Kent E. Cattani joined.

K E S S L E R, Judge:

¶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.

               FACTUAL AND PROCEDURAL HISTORY

¶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 Cross

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                         GREEN CROSS v. GALLY
                           Opinion of the Court

Medical, Inc. v. Gally, 1 CA-CV 12-0610, 2013 WL 5435817 (Ariz. App. Dec.
31, 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).

                               DISCUSSION

¶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 (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
(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

1      We cite to the current versions of any statute unless the statute was
amended after the pertinent events and such amendment would affect the
result of this appeal.

2      For a detailed explanation of how an applicant for a medical
marijuana dispensary can obtain permission to operate under the AMMA,
see White Mountain Health Ctr., Inc. v. Maricopa County, 241 Ariz. 230, 233-
34, ¶¶ 3-7 (App. 2016).

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                        GREEN CROSS v. GALLY
                          Opinion of the 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

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                         GREEN CROSS v. GALLY
                           Opinion of the Court

issue is one of first impression in Arizona, and there are conflicting
superior court decisions on this issue.3

I.    Illegality Under State Law

¶10           We conclude the lease is not illegal under Arizona law for
several reasons. First, the AMMA protects the rights of dispensaries to
enter into leases and contracts if they are in compliance with the AMMA.
Section 36-2811(E) provides that a registered nonprofit medical marijuana
dispensary is

      not subject to prosecution . . . and may not be denied any right
      or privilege . . . by a court or . . . entity, for acting pursuant to
      [the AMMA] and department regulations to acquire,
      possess, cultivate, manufacture, deliver, transfer, . . . sell or
      dispense marijuana or related supplies . . . to . . . qualifying
      patients [or] . . . designated caregivers.

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 (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 (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 (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

3     Compare Hammer v. Today’s Health Care II, Nos. CV 2011-051310 and
-051311 (Maricopa Cty. Super. Ct. Apr. 17, 2012) (holding dispensary
contract void as illegal) with Weiss v. Fortin, No. CV 2013-00278 (Maricopa
Cty. Super. Ct. Sept 20, 2013) (holding dispensary contract enforceable
under AMMA).

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                        GREEN CROSS v. GALLY
                          Opinion of the Court

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 (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 (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.

4       Gally cites State v. Cheatham, 237 Ariz. 502 (App. 2015), for the
conclusion that the AMMA does not decriminalize marijuana possession
or use, but only provides immunity for such possession or use consistent
with the AMMA. Id. at 504-05, ¶ 9. Thus, he argues that since there is no
express immunity for landlords renting to dispensaries, the lease here is
still in violation of the AMMA. That reliance is misplaced for several
reasons. First, Cheatham was vacated by the Arizona Supreme Court after
Gally’s answering brief was filed. State v. Cheatham, 240 Ariz. 1 (2016).
Second, as the supreme court noted, the only issue in Cheatham was
whether the smell of marijuana supported probable cause for a search
after enactment of the AMMA. Id. at 3, ¶¶ 9-10. Cheatham has no bearing
on the AMMA’s provisions for AMMA-compliant dispensaries; the
AMMA prohibits a court from denying any right or privilege to an entity
“acting pursuant to [the AMMA] and department regulations to acquire,
possess, cultivate, manufacture, deliver, transfer, . . . sell or dispense
marijuana or related supplies . . . to . . . qualifying patients or . . .
designated caregivers.” A.R.S. § 36-2811(E). Third, as we explain infra, ¶¶
11-12, the State may not prosecute landlords for renting property
compliant with the AMMA.

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                         GREEN CROSS v. GALLY
                           Opinion of the Court

¶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 secured facility and that the dispensary has
permission from the landowner to operate a dispensary. See A.R.S. § 36-
2804(B)(1) (2010) (providing that the department shall register a
dispensary if, inter alia, the prospective dispensary shows it has a physical
address for the dispensary and for cultivation of marijuana); Ariz. Admin.
Code R9-17-304(C)(7)(a) (2012) (requiring documentation of permission
from owner of the physical address of the proposed dispensary). When a
statute is silent or ambiguous on a specific issue, we defer to the
implementing agency’s interpretation of the statute if the agency’s
construction is a permissible construction even if it is not the most
reasonable construction. Kobold v. Aetna Life Ins. Co., 239 Ariz. 259, 262, ¶ 9
(App. 2016) (citations omitted). To ensure proper administration of the
AMMA and protect the public interest, the department is empowered to
ensure that any property to be used as a dispensary has the landowner’s
authorization and to adopt implementing rules. A.R.S. § 36-2803(A)
(2016). To hold that a court can void or refuse to enforce an otherwise
enforceable dispensary lease authorized by the AMMA and the
implementing regulations simply because the property would be used as
a dispensary—in compliance with the AMMA—would violate those
regulations, lead to an absurd result, and frustrate the purpose of the
statute.5

¶13           Gally argues that despite the passage of the AMMA, under
Arizona law a landlord could still be prosecuted for accomplice liability,
conspiracy liability, and facilitation liability.6 The criminal statutes for
conspiracy, accomplice, and facilitation liability each require that a
criminal offense be attached to the action in some way. See A.R.S. §§ 13-

5      Indeed, taken to its logical conclusion, if a court could void or
refuse to allow a damages action for breach of a lease to a compliant
dispensary based solely on the proposed use of the property, it could also
void a sale of property to a dispensary. Similarly, such a conclusion
would allow dispensaries who wanted to get out of their leases to simply
bring an action to void the lease ab initio, leaving the landlords at risk of
loss.

6      Gally also argues that even if the lease were legal under the
AMMA, the AMMA is preempted by the CSA. That argument was made
before our decision in White Mountain, which held that the CSA does not
preempt the AMMA. White Mountain, 241 Ariz. at 237-57, ¶¶ 25-56.

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                            GREEN CROSS v. GALLY
                              Opinion of the Court

1003(A) (2016) (“A person commits conspiracy if, with the intent to
promote or aid the commission of an offense . . .”); 13-1004(A) (2016) (“A
person commits facilitation if, acting with knowledge that another person
is committing or intends to commit an offense . . .”); 13-303(A)(1) (2008)
(“The person is made accountable for [another’s criminal] conduct by the
statute defining the offense . . .”). Gally could not lawfully be prosecuted
for any of these underlying crimes because running a medical marijuana
dispensary in compliance with the AMMA is not an offense. Cheatham,
240 Ariz. at 3 ¶ 9 (holding the “AMMA has made the possession and use
of marijuana lawful for medicinal purposes under the terms and
conditions set forth in that Act”).

¶14          Gally also argues that a landlord could be prosecuted for the
possession, use, or sale of marijuana. However, nothing in the lease even
suggests that Gally would be using, selling, or possessing marijuana
simply because he leased the Property to a dispensary compliant with the
AMMA.

¶15           We emphasize that nothing in the AMMA requires a
landlord to rent a property to a proposed dispensary. Gally was free not
to enter into the lease if he was uncomfortable with the proposed use of
the Property. But once he chose to do so, he was not free to rescind his
contractual commitments without facing potential monetary liability.
Accordingly, leasing property to a medical marijuana dispensary that is in
compliance with the AMMA is not illegal under Arizona law. Thus, the
superior court erred when it found the lease was void and dismissed the
complaint seeking damages for the breach.

II.    Federal Illegality

¶16           Gally also argues and the superior court held that the lease
was illegal under the CSA. As we explained in White Mountain Health Ctr.,
Inc. v. Maricopa County, 241 Ariz. 230 (App. 2016), the sale and use of
marijuana for medical purposes is illegal under federal law. Id. at 238, ¶
30; see also United States v. McIntosh, 833 F.3d 1163, 1167 (9th Cir. 2016)
(reiterating that “the CSA prohibits what the State Medical Marijuana
Laws permit”). Similarly, it is illegal under the CSA to lease property
knowing it would be used for the illegal production or distribution of
controlled substances. See 21 U.S.C. § 856(a)(1)-(2).

¶17            However, that does not render the contract in this case
unenforceable under all circumstances. “[E]ven where contracts concern
illegal objects, where it is possible for a court to enforce a contract in a way

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                        GREEN CROSS v. GALLY
                          Opinion of the Court

that does not require illegal conduct, the court is not barred from
according such relief.” Mann v. Gullickson, 2016 WL 6473215, *7 (N.D. Cal.
Nov. 2, 2016). Thus, just as Arizona law notes that the rule of voiding
illegal contracts is flexible and we must look to the legislative intent,
Ruelas, 7 Ariz. App. at 101, other courts have held that before voiding a
contract on the basis that it violates a statute, the court must consider the
policy behind the statute and whether voiding the agreement will result in
a disproportionate forfeiture, unjust enrichment, windfalls, and deterrence
of illegal conduct. Mann, 2016 WL 6473215 at *6-7 (collecting cases). The
court must also weigh the relative moral culpability of the contracting
parties. Id.

¶18            Here, in analyzing whether the lease was void ab initio we
find persuasive the reasoning in Mann and Green Earth Wellness Ctr., LLC
v. Atain Specialty Ins. Co., 163 F. Supp. 3d 821, 832-33 (D. Colo. 2016). In
Mann, the issue was whether a contract to sell a business that involved
consulting for medical marijuana dispensaries and related businesses and
selling plant growing equipment and related information was void for
illegality under federal law. Mann, 2016 WL 6473215 at *1-2. Even though
those activities were legal under state law, the buyer refused to pay on the
notes owed to the seller and sought to dismiss the seller’s breach of
contract action on the grounds that the contracts were void ab initio for
violation of federal law. Id. at *2. The court rejected that argument,
concluding that the contract related to lawful activity under California
law, and federal policy on medical marijuana authorized by states was in
a state of flux. Id. at *7-8. The court also held that requiring the buyer to
pay the notes would not require her to violate the CSA because the buyer
was not required under the note to possess or sell marijuana in violation
of federal law. Id. As to the third factor of disproportionate forfeiture and
unjust enrichment, the court reasoned that voiding the note would be
contrary to state policy on medical marijuana because California, like
other states, had authorized use, possession, and distribution of medical
marijuana for the health of their residents. Id. at *9. The court also found
that the buyer understood upon signing the contract that possession, sale,
and use of marijuana was prohibited by the CSA so that the moral
culpability factor could equally lie with both parties. Id. The court also
weighed the effect on the public if the contract was found to be void. It
noted that such a holding would encourage other potentially illicit
conduct such as the nonpayment for services rendered pursuant to a
contract. Id.

¶19        Similarly, in Green Earth, the court rejected a claim that a
commercial insurance policy protecting a retail medical marijuana

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                         GREEN CROSS v. GALLY
                           Opinion of the Court

business was unenforceable. Green Earth, 163 F. Supp. 3d at 823. The
plaintiff in that case had purchased commercial insurance for its medical
marijuana business. Id. The plaintiff later filed claims for smoke and ash
damage from a nearby wild fire and for theft of some of its product. Id.
When the insurer denied those claims, the plaintiff sued the insurer on a
number of grounds including breach of contract. Id. The court rejected
the insurer’s assertion that in light of the CSA, it would be illegal to pay
for the plaintiff’s damages. The court noted that the United States had
shown an ambivalence in prosecuting medical marijuana cases when the
use or distribution was authorized by state law, and it was doubtful the
plaintiff would be prosecuted. Id. at 832-33. The court concluded that the
parties had entered into the policy of their own will, knowingly and
intelligently, and given the lack of clear and consistent federal public
policy in the area, the insurer was obligated to comply with the contract.
Id.

¶20            Here, balancing the federal government’s interest in
enforcing the CSA with Arizona’s interest in effectuating the AMMA
leads us to conclude that the contract action seeking damages is not barred
simply because the lease would violate the CSA. As to public policy,
Mann explained federal policy as to medical marijuana has been in flux for
years. Mann, 2016 WL 6473215 at *4. As Green Cross pointed out,
beginning in 2009, before this lease was signed, the United States
Department of Justice had instructed United States Attorneys not to
prosecute persons acting in compliance with state medical marijuana
laws. Similarly, as we noted in White Mountain, 241 Ariz. at 246-47, ¶ 54,
in 2016, Congress barred the Department of Justice from using any
funding to prosecute people using or distributing medical marijuana in
compliance with state laws. Consolidated Appropriations Act, 2016, Pub.
L. No. 114–113, 129 Stat. 2242 (2015). Pursuant to that act, the Department
of Justice may not use any of its funding “with respect to . . . Arizona . . .
to prevent [it] from implementing [its] own laws that authorize the use,
distribution, possession, or cultivation of medical marijuana.” Id. at § 542,
2332–33. The United States Court of Appeals for the Ninth Circuit has
held that the Appropriations Act prohibits the Department of Justice from
interfering with the implementation of such laws not simply by suing
states with medical marijuana laws, but also by prosecuting private
individuals under the CSA for conduct compliant with the state medical
marijuana law in their jurisdiction. McIntosh, 833 F.3d at 1176–78. Thus,
while the lease might technically be in violation of 21 U.S.C. § 856(a)(1)-
(2), Congress has, for the time being, forbidden enforcement of that
section for all purposes relevant to this case.

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                        GREEN CROSS v. GALLY
                          Opinion of the Court

¶21           In contrast, Arizona voters passed the AMMA to allow such
use and distribution and prevented denials of rights and privileges related
to compliant medical marijuana distribution and use. Given the federal
government’s lack of interest in prosecuting individuals in compliance
with the AMMA, as well as a public policy that favors enforcement of the
lease compliant with state law, the purported illegality here does not
render the lease void as illegal, at least for purposes of a damages action.7
Cf. Reed-Kaliher v. Hoggatt, 237 Ariz. 119, 124, ¶ 21 (2015) (noting that by
prohibiting AMMA-compliant marijuana use, a trial court would not be
authorizing or sanctioning a violation of federal law, but merely
recognizing the statutory limit on the court’s authority to impose
probation conditions).

7      In response to our request for further briefing, Gally contends that
the Appropriations Act’s ban on use of federal funds to enforce
prohibitions against medical marijuana when the actions are compliant
with state medical marijuana laws might not survive into the next
Congressional term. However, we cannot predict the future and must
apply the law as it exists at the time we render our decision barring a
manifest injustice. Bradley v. Richmond Sch. Bd., 416 U.S. 696, 711 (1974).
We find no manifest injustice in holding Gally to his contract with Green
Cross for purposes of damages. If Congress ends the ban on such actions
and the Department of Justice decides to prosecute persons operating in
compliance with state medical marijuana laws, such action might affect
the length of time for which damages can be sought, but that does not
support voiding the lease from its inception.
       Gally also contends in his Supplemental Brief that the
Appropriations Act limitation was passed after he had breached the lease
and should have no bearing on his decision not to want to abide by a lease
in violation of the CSA. As we note, prior to the lease being signed, the
Department of Justice had already decided not to bring prosecutions for
conduct compliant with state medical marijuana laws.                   The
Appropriations Act merely codified that policy. Moreover, Gally was
more than willing to lease to a dispensary in violation of the CSA when he
knew that the lease violated federal law. Indeed, he was willing to lease it
on two different occasions to two different AMMA dispensary applicants.
He cannot later escape liability for his breach. Nor does Gally cite to us
any authority that merely by possibly being liable for damages for
breaching such a lease he would be subject to criminal liability under 21
U.S.C. § 856(a)(1)-(2).

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                         GREEN CROSS v. GALLY
                           Opinion of the Court

¶22           Second, just as in Mann and Green Earth, allowing a damage
action for wrongful termination of the lease would not be requiring
persons to violate the CSA. It would only be enforcing Green Cross’s
contract rights under the lease at least for an award of damages.

¶23          Third, voiding leases relating to property used for medical
marijuana dispensaries could lead to unjust enrichment or an
unconscionable windfall for the person who breaches the lease. The
lessee-dispensary might incur damages from the futile development of the
property and certainly would have relied on the lease for its application to
run a dispensary under the AMMA. To allow a landlord carte blanche to
void the lease simply because it might violate the CSA, even though the
landlord knew the proposed use of the land when he entered the lease,
would undermine the sanctity of contracts and leave a dispensary without
a remedy for any monetary losses caused by the breach. Conversely, it
would allow lessees to breach leases when it suited their needs to relocate.

¶24          Fourth, there is no question of moral responsibility here.
Both parties knew the purpose for which the land would be used under
the lease if Green Cross obtained the necessary approval from the
Department of Health Services. Moreover, Gally was not surprised that
the land would be put to that use since his initial argument against
enforcement of the lease was that another proposed medical marijuana
dispensary had a superior interest in the Property.

¶25           Accordingly, we conclude that enforcing the lease at least for
purposes of a damages action is appropriate. Such an approach is
consistent with state law and the policies behind the AMMA, would
enforce the right of contract for dispensaries or applicants for
dispensaries, would deter wrongful breaches of leases with persons who
had leased the premises for AMMA-compliant purposes, and would
avoid unjust enrichment by a party seeking to terminate such a lease after
gaining the benefit of the lease.

III.   Restatement (Second) of Contracts

¶26            Our conclusion that the court erred in dismissing a damages
action for a breach of the lease is further supported by the Restatement
(Second) of Contracts § 178 (1981), which sets forth factors to consider
when applying the common law doctrine of illegality. Those factors
include the parties’ justified expectations regarding the contract, as well as
the legislative and public policy interests in enforcing or not enforcing the
terms of the contract.

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                         GREEN CROSS v. GALLY
                           Opinion of the Court

¶27           Here, to void the lease at issue for illegality so as to preclude
a breach of contract action for damages would be contrary to the parties’
contemplated expectations and would contradict both the legislative
intent and public policy underlying the AMMA. The use of medical
marijuana under the AMMA requires dispensaries, and dispensaries
require contracts, including lease agreements. To hold dispensary leases
void ab initio because they involve lawful distribution of medical
marijuana under state law could make the AMMA futile and undermine
the policy behind it.

¶28           Finally, there is a strong public interest in enforcing
contracts and leases compliant with state law. Otherwise, parties to a
lease of this nature could feel free to breach the lease after gaining
advantage from it. This is especially true for dispensaries who have to
certify that the lease and property is appropriate and authorized for
dispensary use.

¶29           In applying these factors, we recognize there is a tension
between the CSA and the AMMA because the CSA still criminalizes the
sale, use, or possession of medical marijuana whereas the AMMA offers
immunity and protections for those persons operating in compliance with
the AMMA. Nevertheless, refusing to enforce such contracts would
undermine the medical marijuana program the voters approved.
Enforcing such contracts leaves the federal government in the same
position it has chosen with respect to medical marijuana in Arizona. If the
federal government wishes to end such programs by enforcing the CSA, it
has the power to do so provided Congress permits use of federal funds to
conduct such prosecutions and the Department of Justice desires to bring
such actions. We conclude the lease was enforceable at least for purposes
of a damages action for its breach.

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                       GREEN CROSS v. GALLY
                         Opinion of the Court

                            CONCLUSION

¶30         For the foregoing reasons, we reverse the superior court’s
judgment and remand for further proceedings consistent with this ruling.
We grant Green Cross’s request for taxable costs and attorneys’ fees
incurred on appeal under A.R.S. §§ 12-341 and 12-341.01 upon timely
compliance with Arizona Rule of Civil Appellate Procedure 21.

                        AMY M. WOOD • Clerk of the Court
                        FILED: AA

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