Ascend Wellness Holdings, Inc. v. Medmen N.Y., Inc.

1

2023 NY Slip Op 32872(U)

ASCEND WELLNESS HOLDINGS, INC. and AWH NEW YORK, LLC, Plaintiff, v. MEDMEN NY, INC., MM ENTERPRISES USA, LLC, PROJECT COMPASSION NY, LLC, and PROJECT COMPASSION CAPITAL, LLC, Defendants.

No. 650220/2022, MOTION SEQ. No. 013

Supreme Court, New York County

August 21, 2023

Unpublished Opinion

MOTION DATE 01/20/2023

DECISION + ORDER ON MOTION

HON MARGARET CHAN

The following e-filed documents, listed by NYSCEF document number (Motion 013) 155, 156, 157, 158, 159, 160, 161, 162, 163 164, 165, 166, 167, 168, 169, 170, 171, 172, 173, 175, 176 177, 178, 179, 180, 181, 182, 183, 184, 185, 186, 187, 188, 189, 190, 191, 192, 193, 194, 195, 196, 197, 198, 200 were read on this motion to/for DISMISS

Plaintiffs-counterclaim defendants Ascend Wellness Holdings, Inc and AWH New York, LLC (together, Ascend) bring this action, as amended on November 21, 2022, against defendants-counterclaim plaintiffs MedMen NY, Inc., MM Enterprises USA, LLC, Project Compassion NY, LLC, and Project Compassion Capital, LLC (collectively, MedMen), asserting claims for breach of contract, anticipatory breach of contract, and breach of the implied covenant of good faith and fair dealing (NYSCEF # 131 - Compl.). On December 21, 2022, MedMen responded with its Verified Amended Counterclaims, Answer, and Affirmative Defenses, which sets forth ten counterclaims for, inter alia, declaratory relief, breach of contract, and breach of good faith and fair dealing (NYSCEF # 153 - the Counterclaims or SACC). Presently before the court is Ascend's motion to dismiss the Counterclaims pursuant to CPLR 3211(a)(1), (a)(7), and (g) (NYSCEF # 155). For the following reasons, Ascend's motion is granted in part and denied in part.

BACKGROUND^[1]

This action arises from the breakdown of a proposed sale by MedMen of its licensed New York cannabis retailer, MedMen NY (See SACC ¶¶ 44-45, 49; Compl. ¶¶ 14-15). In or around February 2021, following a sales process, MedMen agreed to sell its ownership and control in MedMen NY to Ascend in exchange for a multimillion-dollar investment by Ascend (the Transaction) (SACC ¶ 3, 50; Compl. ¶ 38; NYSCEF # 159 - Investment Agreement §§ 2.1, 2.3, 7.2(n)). In connection with the Transaction, the parties executed various contracts, including, as relevant here, the Investment Agreement among MedMen NY, Inc. and MM Enterprises USA, LLC, AWH New York, LLC, and Ascend Wellness Holdings, LLC, dated as of February 25, 2021 (the Investment Agreement) (SACC ¶¶ 52'57).

Relevant Obligations and Covenants Under the Investment Agreement

The Investment Agreement provided for various closing conditions necessary to consummate the Transaction (SACC ¶¶ 52-57). Chief among them was an obligation that Ascend and MedMen "receive 0 all consents, authorizations, orders and approvals from the Government Authorities referred to in" Section 3.3 of the Investment Agreement "in form and substance reasonably satisfactory" to each party (SACC ¶¶ 53'54; Investment Agreement §§ 3.3[b], 7.1[b]). The closing conditions further provided that MedMen's obligation to close the transaction was subject to "All approvals, consents and waivers that are listed on Section 4.2 of the Disclosure Schedules shall have been received, and executed counterparts thereof shall have been delivered to the Company at or prior to the Closing" (SACC ¶ 56; Investment Agreement § 7.3(d). The requisite government consent required by the Investment Agreement was approval of the Transaction from the "New York Department of Health" (NYDH) (SACC ¶¶ 54, 56).^[2]

Upon satisfaction of all closing conditions, including any government approvals, the parties were to close the Transaction within five days (Investment Agreement § 2.2(a)). But if "any of the [closing] conditions set forth in Section 7.1 shall not have been fulfilled by the Outside Date [December 31, 2021]," either party could terminate the Transaction (SACC ¶ 57; Investment Agreement § 9.1(d)). Similarly, MedMen had the right to terminate the Transaction if it was not in material breach of the Investment Agreement, and the closing conditions were not fulfilled by the Outside Date (SACC ¶ 57; Investment Agreement § 9.1(c)(ii)).

In addition to the foregoing terms, the Investment Agreement set forth various covenants to which the parties agreed. Certain of those covenants related to the parties' government outreach, as well as public announcements concerning the Transaction (Investment Agreement Art. V). For example, under Section 5.8(a), the parties were to submit a request to NYDH for approval of the Transaction and use "commercially reasonable efforts to obtain, or cause to be obtained" NDHYs approval (Investment Agreement § 5.8(a)). Further, under Section 5.8(e), the parties agreed to disclose "[a]ll analyses, appearances, meetings, discussions, presentations, memoranda, briefs, filings, arguments, proposals and other communications • [related to the Transaction] made by or on behalf of either party before any Governmental Authority or the staff or regulators of any Governmental Authority . . . in advance of any filing, submission or attendance" (id. § 5.8(e)). Finally, Section 5.12 prohibited the parties from making "any public announcements in respect of this Agreement or the transactions contemplated hereby or otherwise communicate with any news media without the prior written consent of the other party . . ." (id. § 5.12).

MedMen's NYDH Application, the Disputed CCB Approval Process, and MedMen's Attempted Termination of the Agreement

MedMen submitted two applications to NYDH for approval on January 22, 2021, and March 21, 2021, respectively (SACC ¶¶ 58'60). But ten days after MedMen's second application, New York enacted the Marihuana Regulation &Taxation Act (MRTA) (id. ¶ 63). Notably, MRTA changed how cannabis licenses are regulated in the state and created the Cannabis Control Board (CCB) and Office of Cannabis Management (OCM) (id. ¶¶ 63'66). According to MedMen, under MRTA, CCB has "ultimate decision-making authority over the granting amendment, and revocation of cannabis licenses," while OCM only oversees "various administrative and executive functions" (id. ¶¶ 65'66).

After the enactment of MRTA, Ascend and MedMen worked together, as well as with a public strategy firm, regulatory counsel, and government relations professionals, to advance the government approval process (SACC ¶¶ 67-70). Ascend eventually engaged Greenberg Traurig as a lobbying firm at the end of summer 2021, and, following discussions with MedMen, it sent supplemental material to NYDH in September 2021 (id. ¶¶ 70-71). MedMen alleges that, without its knowledge, Ascend then retained another lobbying firm, Dickinson &Avella, to assist with Ascend's lobbying efforts (id. ¶ 71) MedMen contends that, after CCB did not address the parties' application during its first official meeting, Ascend directed Greenberg Traurig and Dickinson &Avella to arrange for private fundraising events for Governor Kathy Hochul (see id. ¶¶ 72-76, 114).^[3] Despite Ascend's purported efforts, CCB did not address the application for approval during its second meeting held on November 3, 2021 (id. ¶ 75).

On December 9, 2021, CCB announced that it would hold its final board meeting of the year on December 16, 2021 (SACC ¶ 77). This time the agenda for this meeting included the following topic'- "Consideration of Medical Cannabis Program Items" (id.) MedMen avers that CCB included this agenda item following Ascend's purported influence campaign on government officials (see id. ¶¶ 17, 81'84, 113-118, 177; NYSCEF # 188 - Record Aff. ¶¶ 13-14; NYSCEF # 189 at p. 4). After this latest CCB announcement, Ascend allegedly began communicating to MedMen and others that the transaction would close, and it provided MedMen with a draft press release regarding the anticipated approval of the Transaction by NYDH (SACC ¶¶ 79-80).

On December 16, 2021, CCB announced Resolution No. 2021-09, titled "RESOLUTION TO CONDITIONALLY APPROVE THE CHANGE IN OWNERSHIP OF REGISTERED ORGANIZATION MEDMEN NY, INC" (the Resolution) (SACC ¶ 85; NYSCEF # 125). Pursuant to the Resolution, CCB "approve[d] by majority vote . . . the change of ownership of MedMen NY, Inc, contingent on the review of the proposed investment by the Office staff for compliance with the Cannabis Law, its corresponding regulations, and any other contingencies and conditions as determined by the Board and Office" (SACC ¶ 85). In MedMen's view, the Resolution did not constitute final approval of the transaction as contemplated by the Investment Agreement (id. ¶¶ 86'87). MedMen communicated those same concerns to Ascend (See id. ¶¶ 88'90).

On December 23, 2021, Richard Zahnleuter, General Counsel for OCM, emailed MedMen to request a call regarding the status of the Investment Agreement (SACC ¶ 91). Zahnleuter communicated to MedMen that OCM had only recently begun to consider MedMen's application, and its review might take thirty to sixty days to complete (id. ¶¶ 91'93). Zahnleuter also purportedly inquired whether the parties would consider an extension of the Outside Date under the Investment Agreement (id. ¶¶ 93'94). Despite these communications, however, Zahnleuter wrote to representatives of both Ascend and MedMen on December 29, 2021 (the December 29 Email), to

confirm that [CCB], effective December 16, 2021, approved of the referenced change in ownership of MedMen NY, Inc. While such approval constitutes final approval for the purposes of closing the transaction and enacting the transfer of ownership, MedMen NY, Inc., must, as an ongoing Registered Organization, on a continuing basis, comply with all statutory and regulatory requirements, obligations and terms of operation.

(SACC ¶ 95; NYSCEF # 129)....