2:21-cv-00314
D. Ariz.Mar 4, 2021Background
- Cardinal Square is an Arizona nonprofit medical-marijuana dispensary and a qualified "early applicant" for a limited number of new recreational marijuana establishment licenses; the application deadline was March 9, 2021.
- Cardinal had a two-member board: Michael Wang and Mina Guiahi. ADHS requires an attestation from each board member on the license application; Guiahi withheld her signature.
- Cardinal contends Guiahi resigned or was validly removed (via resolutions signed by Wang alone) and that she is withholding consent to extort payment; Guiahi denies resigning and disputes the extortion allegation.
- Cardinal attempted to apply without Guiahi’s signature; ADHS denied the application. Cardinal sought a TRO in state court, and the case was removed to federal court on diversity jurisdiction.
- The court found Cardinal would suffer irreparable harm absent relief (loss of a time-limited, valuable license) and that the balance of equities and public interest favor Cardinal, but reserved merits rulings.
- On the merits the court held (1) Guiahi did not validly resign, (2) the Wang-only removal resolutions were invalid under Cardinal’s bylaws because a two-member board requires both members to act, and (3) specific performance compelling Guiahi to sign the attestation is not available because the bylaw cited is too vague.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did Guiahi resign or abandon her board seat? | Guiahi’s June resignation to The Pharm covered Cardinal as an affiliate; her silence justified treating her as resigned. | Her letter was addressed to The Pharm, not Cardinal; she did not follow Cardinal’s resignation procedures. | No serious question that she resigned; court found her June letter did not effect resignation from Cardinal. |
| Were Wang-only resolutions valid to remove Guiahi? | When board has two directors, any director may act and Wang’s single-director resolutions removed Guiahi. | Bylaws require board action as a collective; with two members a majority requires both members. | Resolutions invalid: bylaws require collective/majority action, so a single director cannot remove the other. |
| Can the court order specific performance (force Guiahi to sign ADHS attestation)? | Bylaws impose duties to ensure corporate success; specific performance can compel compliance with bylaws. | Section cited is vague and does not mandate the precise act of signing; specific performance inappropriate. | Denied: Section 6.2 is not sufficiently definite to order specific performance; court will not compel signature. |
| TRO/preliminary injunction factors (irreparable harm, equities, public interest) | Cardinal faces irreparable harm (loss of unique license entitlement); equities and public interest favor relief. | Guiahi argues economic harms are reparable and injunction could restrict her communications. | Court found irreparable harm, equities, and public interest favor Cardinal and therefore proceeded under the "serious questions" standard, but denied relief on the merits described above. |
Key Cases Cited
- Am. Trucking Ass’ns, Inc. v. City of Los Angeles, 559 F.3d 1046 (9th Cir. 2009) (standard for TRO/preliminary injunction and application of Winter)
- Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7 (U.S. 2008) (governing four-factor injunction test)
- All. for the Wild Rockies v. Cottrell, 632 F.3d 1127 (9th Cir. 2011) ("serious questions" sliding-scale test for injunctions)
- Lands Council v. McNair, 537 F.3d 981 (9th Cir. 2008) (en banc) (foundation for sliding-scale injunction analysis)
- Hoxworth v. Blinder, Robinson & Co., 903 F.2d 186 (3d Cir. 1990) (unsatisfiability of money judgment can be irreparable harm)
- Samaritan Health Sys. v. Superior Court, 981 P.2d 584 (Ariz. Ct. App. 1998) (bylaws may constitute a contract)
- Rowland v. Union Hills Country Club, 757 P.2d 105 (Ariz. Ct. App. 1988) (members’ rights governed by articles and bylaws)
- The Power P.E.O., Inc. v. Emps. Ins. of Wausau, 38 P.3d 1224 (Ariz. Ct. App. 2002) (elements for specific performance)
- Univar Corp. v. City of Phoenix, 594 P.2d 86 (Ariz. 1979) (limits and exceptions to administrative exhaustion)