White v. Higher Mission, LLC

LAURETTA Z. WHITE, ET AL. v. HIGHER MISSION, LLC, ET AL.

No. 1682

COURT OF SPECIAL APPEALS OF MARYLAND

September Term, 2019

June 25, 2021

Circuit Court for Montgomery County

Case No. 453401V

UNREPORTED

Graeff, Leahy, Sharer, J. Frederick (Senior Judge, Specially Assigned), JJ.

Opinion by Graeff, J.

*This is an unreported opinion, and it may not be cited in any paper, brief, motion, or other document filed in this Court or any other Maryland Court as either precedent within the rule of stare decisis or as persuasive authority. Md. Rule 1-104.

This case arises from an agreement between appellants, Lauretta White and Andrea Wiley, and appellees, Higher Mission, LLC ("Higher Mission") and Higher Purpose, LLC ("Higher Purpose").¹ Pursuant to the agreement, appellant sold 96% of their interest in Sugarloaf Enterprises, LLC ("Sugarloaf"), a limited liability company formed by appellants in 2015. A contractual dispute arose, and appellees sought arbitration. Appellants filed a complaint in the Circuit Court for Montgomery County, alleging that the agreement was invalid and requesting a stay of arbitration. The court denied appellants' motion and granted appellees' motion to compel arbitration and stay the civil action ("motion to compel arbitration"). After the Arbitrator entered an award favoring appellees, the court confirmed the Arbitrators' award.

On appeal, appellants present the following questions for this Court's review, which we have combined and rephrased as follows:

1. Did the circuit court err in denying appellants' right to due process when it denied their motion to stay arbitration and granted appellees' motion to compel arbitration?

2. Did appellants receive ineffective assistance of counsel?

For the reasons set forth below, we shall affirm the judgment of the circuit court.

FACTUAL AND PROCEDURAL BACKGROUND²

In 2015, Ms. White formed Sugarloaf with her daughter, Ms. Barton, and she filed an application for a dispensary license for medical marijuana. In March 2015, Ms. White created Sugarloaf Wellness Center, LLC ("Wellness Center"), with Ms. Wiley and family members as members, reserving 46% of the membership interests for an "option pool" and for "First Employees."

On December 9, 2016, the Maryland Medical Cannabis Commission ("MMCC") granted Sugarloaf a Stage I pre-approval. To receive a Medical Cannabis Dispensary License ("MCDL"), Sugarloaf had to meet certain requirements, including raising substantial capital. Ms. White determined that she would need to raise approximately $1,500,000, and she began to solicit investors. She offered prospective investors a 35% membership interest in Sugarloaf in exchange for a $1,500,000 investment. Ms. White was unable to secure an investor prior to the Stage II application deadline, and she filed for and was granted an extension to March 9, 2018.

On January 29, 2018, approximately six weeks prior to the revised deadline of March 9, 2018, Ms. White and Ms. Wiley met with Mr. and Mrs. Horcasitas, who had expressed interest in investing in Sugarloaf. During that meeting, the Horcasitases advised that they would not invest for a 35% membership interest, but they indicated that they wereamenable to investing capital in exchange for a 55% membership interest. Ms. White agreed to the Horcasitases' proposed terms.

On February 5, 2018, Ms. White, Ms. Wiley, and the Horcasitases resumed discussions regarding the proposed investment. Ms. White suggested that the parties retain Offit Kurman, Attorneys at Law, P.A. to handle the transaction. Following the February 5, 2018 meeting, Ms. White submitted a copy of Sugarloaf's operating agreement to Thomas McDowell, the Horcasitases' business manager.³ On February 20, 2018, Ms. White apprised the Horcasitases that Ms. Wiley was no longer interested in participating in the parties' enterprise, but she sought to be reimbursed for the funds that she had invested into the business venture at that point.

On February 24, 2018, Ms. White requested from appellees the sum of $115,750, which was to be divided among Ms. Wiley, Ms. Barton, and herself to reimburse them for funds that they had invested in Sugarloaf. Ms. White testified that this amount was for non-equity claims, but Ms. Horcasitas testified that the parties agreed that appellees would own 96% of the company, with Ms. Barton retaining 4% with the option to purchaseanother 11% after the dispensary was approved.⁴ That transaction was memorialized in a March 9, 2018 Membership Interest Purchase Agreement ("MIPA"), which stated that appellees purchased 96% of the membership interest in Sugarloaf, with 55% of the membership interest vested in Higher Purpose, 41% of the membership interest vested in Higher Mission, and 4% of the interest remaining in Ms. Barton, the seller.

The agreement contained an arbitration clause that stated, in § 7.10, as follows:

(b) any dispute or controversy arising under this Agreement, which is unable to be resolved by good faith negotiations among the parties, shall be determined and resolved by binding arbitration in Towson, Maryland, in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("AAA") in effect on the date the arbitration is commenced. . . .

Before the MIPA was signed, an Offit Kurman attorney circulated six transaction documents, including an Amended and Restated Operating Agreement of Sugarloaf ("Amended Operating Agreement"). Ms. White testified that she did not have time to read all the documents, given the deadline to submit them, but the Horcasitases told her that, after the documents were filed, they would discuss revisions to the operating agreement.⁵

In June 2018, appellants requested that the parties rescind their agreement. The appellees conditionally agreed to do so, contingent upon appellants' ability to "buyout" their ownership, either themselves or with a potential investor. Appellees stated that they needed to be made "whole for all the money" they had invested in reliance on the agreement. The record reflects that appellants did not obtain funds or another investor to satisfy the requirements to rescind the contract.

On August 3, 2018, appellees filed a demand for arbitration with the American Arbitration Association ("AAA"). They sought, among other things, a declaration that the transaction documents were valid and enforceable and appellees owned 96% of Sugarloaf, as well as $115,434 in compensatory damages to cover debt obligations of Sugarloaf that were not disclosed.

On August 21, 2018, Ms. White, Ms. Wiley, and Ms. Barton filed, in the Circuit Court for Montgomery County, a complaint alleging that the agreement was void because it was induced by fraud. They also filed a motion to stay arbitration. In support, appellants alleged that: (1) they never agreed to the arbitration provision; (2) because the transaction documents were void in their totality, the arbitration agreement also was void; and (3) the dispute did not arise "under this Agreement," but rather, the dispute arose in connection with the formation of the Transaction Documents.

Appellees then filed a motion to compel arbitration. They argued that, when the parties have agreed to arbitrate, but the scope of the arbitration clause is ambiguous, the arbitrator must resolve the ambiguity.

The circuit court determined that appellants did not show that the arbitration provision was invalid or unenforceable. With respect to the scope of the arbitration clause, the court found that it was "ambiguous," and therefore, it was "subject to determination by the arbiter." Accordingly, the court denied appellants' motion to stay arbitration and granted appellees' motion to compel arbitration.

On January 2, 2019, the Arbitrator concluded that the arbitration clause contained in the MIPA governed the scope of the parties' dispute. On February 4, 5, and 6, 2019, the Arbitrator held a hearing.⁶

Following the hearing, appellants filed a motion to reopen testimony, which sought to introduce evidence that one of appellees' exhibits was fraudulent. Although the Arbitrator denied appellants' motion, he granted the motion to strike the exhibit discussed, on the ground of lack of authenticity.

On February 27, 2019, the Arbitrator issued a written opinion. The Arbitrator concluded that appellants' assent to the MIPA had not been fraudulently induced, and it was a valid agreement. It denied appellees request for damages because it found that Ms. White had disclosed the debts of Sugarloaf prior to closing the transaction. The Arbitrator rejected appellants' claim that appellees breached an agreement to rescind the transaction. He found that, on June 16, 2018, "Ms. White and Ms. Barton met with the Horcasitases," during which meeting "[t]he Horcasitases offered three options for going forward," one of which was "rescission of the transaction and reimbursement of their expenses." Although "Ms. White accepted that alternative," appellants neither pursued nor secured an investor whose capital contribution could reimburse appellees the funds that they had invested, and therefore, appellants did not meet the requirements of rescission.

On March 21, 2019, appellants filed with the AAA a motion to clarify, modify, and/or correct the arbitration award. The Arbitrator denied this motion on March 30, 2019.

On July 1, 2019, appellants filed a Petition to Modify, Correct, or Vacate Arbitration Award, seeking a rehearing of the arbitration. On July 3, 2019, appellees filed a Petition to Confirm Arbitration Award, arguing that, because appellants had not sought to vacate the award within 90 days of the Arbitrator's ruling, the court should confirm the Arbitrator's award. Thereafter, appellants and appellees both filed responses to the others' petitions.

On September 23, 2019, the court held a hearing. It noted that appellants were "not arguing any of the statutory grounds in the Maryland Uniform Arbitration Act," but rather,they were "arguing the common law" under the...