GREEN CROSS MEDICAL, INC., an Arizona non-profit corporation, Plaintiff/Appellant,
JOHN V. GALLY, Trustee of the John V. Gally Family Protective Trust, Defendant/Appellee.
from the Superior Court in Navajo County No. S0900CV201200208
The Honorable Ralph E. Hatch, Judge
Watkins & Diesel PLLC, Flagstaff By Whitney Cunningham,
John W. Carlson Counsel for Plaintiff/Appellant
Humphrey & Yavitz PLC, Phoenix By Isabel M. Humphrey,
Randall S. Yavitz Counsel for Defendant/Appellee
Donn Kessler delivered the opinion of the Court, in which
Presiding Judge Peter B. Swann and Judge Kent E. Cattani
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.
AND PROCEDURAL HISTORY
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.
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 Medical Inc. v.
Gally, 1 CA-CV 12-0610, 2013 WL 5435817 (Ariz. App. Dec.
31, 2013) (mem. decision).
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"),  to operate a medical marijuana
dispensary. 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).
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).
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 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.
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.
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