Reefer Brief: Cannabis Dispensary Deploys Illegality Defense to Get Out of Paying Rent!
According to Keyla Prince of California News, MedMen Enterprises (Medmen), a dispensary, entered into a fifteen-year lease with Thor Equities (Thor) on a warehouse-style building in Chicago in 2019. The annual rent was to be $800,000/year, rising to $1.2 million after five years. But MedMen did not pay rent, or utilities, or insurance. At the time Thor Equities filed its claim for back rent in a federal district court in New York, MedMen owed over $1 million.
That’s when MedMen’s attorneys came up with a brilliant solution: they argued that the lease agreement was unenforceable in federal court because it was a contract to engage in activities that are considered criminal under federal law. Thor responded by seeking voluntary dismissal so that it could refile its claim in state court, a jurisdiction that does not consider dispensing marijuana a criminal act. MedMen struck back, as William M. X. Wolfe explains here, accusing Thor of forum shopping. District Court Judge J. Paul Oetken noted that Thor should have anticipated MedMen’s defense but also noted that it was still early in the litigation, and so a voluntary dismissal was warranted.
Too bad. If the district court had heard the case, it would have paired nicely with Carroll v. Beardon. Readers may recall that Carroll involved the sale of a bordello as a going concern. The court nonetheless chose to treat the seller as non in pari delicto (not equally culpable) with the buyer and enforced the contract under an exception to the illegality rule. Here, a court could decide to treat this as an ordinary real estate transaction. If the lease terms were no different from what Thor would have gotten leasing its premises to a tenant engaged in lawful activities, Thor could argue that it did not benefit from the illegality and thus was non in pari delicto.