Green Cross Medical, Inc. v. Gally
242 Ariz. 293
| Ariz. Ct. App. | 2017Background
- Gally owned commercial property in Winslow, Arizona and leased it (2012) to Green Cross to operate a medical‑marijuana dispensary, including an "application first term" pending state licensure.
- Less than two weeks after signing, Gally revoked the lease; Green Cross sued for breach and obtained TRO and preliminary injunctions preventing revocation (prior appeal affirmed those orders).
- On remand, cross‑motions for summary judgment: Gally argued the lease was void as illegal (violating state law and the federal Controlled Substances Act); Green Cross sought damages for wrongful revocation.
- The superior court granted summary judgment for Gally, holding the lease void ab initio under state and federal law; Green Cross appealed.
- The Arizona Court of Appeals reversed: it held (1) the lease is not illegal under Arizona law when used in compliance with the Arizona Medical Marijuana Act (AMMA), and (2) even assuming a conflict with the federal CSA, the lease is enforceable for purposes of a damages remedy given federal enforcement policy, public‑policy considerations, and contract law principles.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a lease to a prospective AMMA dispensary is illegal under Arizona law | Lease enforceable; AMMA protects rights/privileges of dispensaries and associated contracts | Lease illegal; AMMA does not expressly immunize landlords and contract facilitates illegal activity | Lease not illegal under Arizona law; AMMA and implementing rules support enforceability of dispensary leases |
| Whether a lease that would enable operation of a dispensary violates the federal Controlled Substances Act (CSA) so as to void the contract | Even if CSA conflicts, damages claim enforceable; enforcement need not require illegal conduct | Lease violates CSA §856 and is void ab initio, precluding damages | Even assuming CSA violation, court may award damages; lease enforceable for damages given federal non‑enforcement policy and equitable factors |
| Whether permitting damages would produce unjust enrichment or undermine public policy | Voiding lease would permit wrongful breaching landlords to reap windfalls and frustrate AMMA goals | Allowing damages would require enforcing a contract that contemplates federally illegal activity | Awarding damages prevents unjust enrichment, upholds contractual expectations, and is consistent with AMMA policy |
| Standard for treating potentially illegal contracts | Apply common‑law/Restatement §178 balancing (expectations, legislative policy, culpability, forfeiture) | Contract should be void if it contemplates illegal conduct | Court applies Restatement factors and declines to void lease for purposes of damages action |
Key Cases Cited
- Acosta v. Phoenix Indemnity Insurance Co., 214 Ariz. 380 (App. 2007) (standard of review for summary judgment)
- White Mountain Health Center, Inc. v. Maricopa County, 241 Ariz. 230 (App. 2016) (discusses conflict between AMMA and federal law)
- United States v. McIntosh, 833 F.3d 1163 (9th Cir. 2016) (CSA prohibits what state medical‑marijuana laws permit)
- Green Earth Wellness Center, LLC v. Atain Specialty Insurance Co., 163 F. Supp. 3d 821 (D. Colo. 2016) (court enforced contract/insurance obligations despite federal illegality concerns)
- Schrey v. Allison Steel Mfg. Co., 75 Ariz. 282 (1953) (rights/privileges and reasonable regulation)
- Ruelas v. Ruelas, 7 Ariz. App. 98 (1968) (illegality doctrine requires examining legislative intent)
- Kobold v. Aetna Life Ins. Co., 239 Ariz. 259 (App. 2016) (deference to agency interpretation when statute ambiguous)