1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA
9 Cardinal Square Incorporated, No. CV-21-00314-PHX-JAT
10 Plaintiff, ORDER
11 v.
12 Mina Guiahi,
13 Defendant. 14 15 Pending before the Court is Plaintiff Cardinal Square Incorporated’s Motion for 16 Temporary Restraining Order (Doc. 2). The motion is fully briefed (Doc. 9; Doc. 10; Doc. 17 12; Doc. 15), and the Court held oral argument on the motion on Wednesday, March 3, 18 2021. The Court now rules. 19 I. BACKGROUND 20 This case presents a corporate dispute related to Arizona’s budding recreational 21 marijuana industry. Cardinal currently holds a license to cultivate and sell medical 22 marijuana under the Arizona Medical Marijuana Act. It is presently striving to acquire a 23 license from the Arizona Department of Health Services (ADHS) to sell marijuana for 24 recreational consumption as well. And the clock is ticking. The deadline for Cardinal to 25 apply for such a license is March 9, 2021. If Cardinal blows that deadline, its right to a 26 license goes up in smoke. 27 Seemingly, the only obstacle in Cardinal’s path is Defendant Mina Guiahi, one of 28 Cardinal’s board members—though the parties disagree as to whether she is actually a 1 board member. Guiahi is withholding her consent to submit the application, which is 2 required under Arizona law. Guiahi claims she is doing so because her fellow board 3 member, Michael Wang, has been involved in criminal activities (aside from generally 4 operating a business prohibited by federal law), and these activities put Cardinal’s future 5 in jeopardy. Cardinal claims Guiahi is actually withholding her consent because she wants 6 a personal payoff, in violation of Arizona’s corporate and criminal law. 7 After failed attempts at a resolution between the parties, before ADHS, and briefly 8 before the Maricopa County Superior Court, this sordid tale now finds itself before this 9 Court on diversity jurisdiction. Cardinal now seeks a temporary restraining order (TRO) 10 enjoining Guiahi from preventing it from acquiring the license it seeks. For reasons that 11 follow, the Court will deny the motion in part. The Court will resolve the remaining issues 12 following a preliminary injunction hearing. 13 a. Regulatory Background 14 In the November 3, 2020 general election, Arizona voters approved Proposition 207, 15 known as the Smart and Safe Arizona Act. Now codified as Arizona’s Responsible Adult 16 Use of Marijuana laws, the new state laws allow adults age 21 and over to consume 17 marijuana recreationally. See A.R.S. §§ 36-2850 to -2865. 18 The laws and related regulations also create a system for licensing “marijuana 19 establishments,” which are entities licensed by ADHS to operate a single marijuana retail 20 location; an off-site cultivation location; and an off-site facility for manufacturing, 21 packaging, and storing marijuana products. A.R.S. § 36-2850(18)(a)–(c). The laws, 22 however, limit the number of such licenses ADHS may issue, tying the maximum number 23 of marijuana establishment licenses to the number of registered pharmacies in Arizona. See 24 A.R.S. § 36-2854(A)(1)(b). ADHS may issue no more than one marijuana establishment 25 license for every ten registered pharmacies in the State. Id. Perhaps unsurprisingly, a 26 limited license to sell marijuana to adults for recreational use is rather valuable; Cardinal 27 asserts it is worth “tens of millions” of dollars. (Doc. 1-8 at 17). 28 Qualified early applicants, including “nonprofit medical marijuana 1 dispensar[ies] . . . registered and in good standing with [ADHS],” get first dibs at these 2 licenses, and the parties do not dispute that Cardinal meets this requirement. A.R.S. § 36- 3 2850(10)(b). Early applicants must submit an application for a marijuana establishment 4 license by March 9, 2021. A.R.S. § 36-2854(A)(1)(d). And the law provides that ADHS 5 “shall issue a marijuana establishment license to each qualified early applicant.” Id.1 6 The Arizona Administrative Code provides the required elements of a marijuana 7 establishment license application. See A.A.C. R9-18-303. Among them is the requirement 8 that the application include “[a]n attestation from each principal officer and each board 9 member approving the application for a marijuana establishment license.” A.A.C. R9-18- 10 303(C)(1). 11 b. Factual Background2 12 Cardinal is an Arizona nonprofit corporation with no members. (Doc. 1-3 at 36, 38). 13 As of February 21, 2020, Cardinal had two board members and principal officers, Guiahi 14 (Vice-President) and Wang (President). (Id. at 35). Prior to her appointment to Cardinal’s 15 board, Guiahi served as the chief financial officer of The Pharm, a for-profit cannabis- 16 centered Delaware corporation. (Doc. 10 at 2). At the time, Wang served as The Pharm’s 17 chief operating officer and co-chief executive officer. (Id.). 18 On June 8, 2020, Guiahi received a letter on behalf of the Pharm’s board of directors 19 informing her that the board decided to “temporarily transition to others [her] primary day- 20 to-day responsibilities with the company and its affiliates and subsidiaries.” (Doc. 1-4 at 21 2). In response, Guiahi sent a letter to the Pharm’s board on June 20, 2020, which she 22 described as her “immediate resignation.” (Id. at 4). Her letter stated that Guiahi believed 23 she was being constructively discharged for raising concerns regarding the illegal conduct 24 of others within the company. (Doc. 10-1 at 50). About a month prior, Guiahi alleges she 25 1 If additional licenses remain after ADHS issues early applicants licenses, the remainder 26 are to be awarded by random selection. A.R.S. § 36-2854(A)(1)(e). And ADHS must also issue 26 additional licenses under a yet-to-be-defined “social equity ownership program.” 27 A.R.S. § 36-2854(A)(1)(f). Neither the random selection nor social equity systems are relevant to the issues here. 28 2 To provide context, the Court derives some background facts from uncontested (or not- yet-contested) allegations in the complaint and statements in the parties’ filings. 1 refused Wang’s request to approve a transaction involving the interstate shipment of 2 marijuana seeds. (Doc. 10 at 3). 3 Following Guiahi’s letter, Cardinal emailed her on three separate occasions 4 requesting that she sign resignation documents related to her position at Cardinal, to which 5 Guiahi did not respond. (Doc. 1-4 at 11–19). On July 14, 2020, Cardinal, through Wang’s 6 vote alone, adopted a resolution accepting what it interpreted to be Guiahi’s resignation 7 from Cardinal’s board, replacing her with another member, and adopting new bylaws. 8 (Doc. 1-4 at 6–7). Cardinal subsequently informed the Arizona Corporation Commission 9 (ACC) of its resolution, and the ACC removed Guiahi from Cardinal’s publicly available 10 records. (Doc. 1-3 at 13). On August 4, 2020, Cardinal informed ADHS that its directors 11 changed consistent with its July 2020 resolution. (Doc. 1-4 at 21–22). 12 Sometime after ADHS accepted Cardinal’s change of officers, Guiahi contacted 13 ADHS and informed the department that she had not resigned from her position on 14 Cardinal’s board. (Doc. 1-3 at 15). On November 2, 2020, Cardinal again sent Guiahi an 15 email requesting her resignation (Doc. 1-5 at 15), and Guiahi did not respond. On 16 December 1, 2020, Cardinal’s counsel emailed Guiahi’s counsel to request Guiahi sign a 17 board resolution allowing Cardinal to relocate its dispensary. (See Doc. 1-3 at 15; Doc. 12- 18 1 at 12). 19 A phone call between Cardinal’s and Guiahi’s counsel followed, the substance of 20 which is hotly disputed. Cardinal alleges Guiahi “refused to sign the resolution[;] [i]nstead, 21 through counsel, she demanded $1,000,000 to buy her cooperation.” (Doc. 1-3 at 15). This 22 million-dollar demand was allegedly related to money Guiahi believed The Pharm still 23 owed her. (Id. at 16). Guiahi’s counsel characterizes the conversation as “a very friendly 24 call and short call with someone [she] considered a colleague and a friend.” (Doc. 12-1 at 25 2). Guiahi’s counsel further asserts that although they generally discussed outstanding 26 issues related to The Pharm, she “never told [Cardinal’s counsel] that [Guiahi] was 27 categorically refusing to sign documents” or “demanded any sort of payment from anybody 28 for [Guiahi’s] cooperation as a board member of Cardinal Square.” (Id. at 3). 1 Following this discussion, Wang executed another resolution on December 8, 2020, 2 removing Guiahi from her role as a board member and officer of Cardinal for cause. (Doc. 3 1-5 at 21–22). The resolution stated that “Guiahi violated her fiduciary obligations to the 4 Corporation by attempting to leverage a financial settlement only for Guiahi’s personal 5 benefit . . . .” (Id. at 21). Cardinal also sent a letter to ADHS informing the department that 6 Guiahi had been removed for cause. (Id. at 20). 7 On January 25, 2021, Cardinal sent Guiahi’s counsel an email requesting that Guiahi 8 sign forms required for Cardinal to obtain a marijuana establishment license. (Doc. 1-7 at 9 11–12). Guiahi did not respond. That same day, the ACC received a document signed by 10 Guiahi re-adding herself as an officer of Cardinal. (Id. at 16). 11 Cardinal proceeded to apply for a marijuana establishment license without Guiahi’s 12 authorization, which ADHS denied on February 11, 2021. (Doc. 1-8 at 6–7). ADHS held 13 an informal settlement conference between Cardinal and Guiahi on February 17, 2021, but 14 the parties did not reach an agreement. (See Doc. 1-3 at 21). On February 19, 2021, 15 Cardinal filed the instant case in the Maricopa County Superior Court and sought a TRO. 16 (Id. at 8). Guiahi timely removed the case to this Court on February 22, 2021. (Doc. 1). 17 II. LEGAL STANDARD 18 For a court to issue a TRO or preliminary injunction, a plaintiff “must establish that 19 he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the 20 absence of preliminary relief, that the balance of equities tips in his favor, and that an 21 injunction is in the public interest.” Am. Trucking Ass’ns, Inc. v. City of Los Angeles, 559 22 F.3d 1046, 1052 (9th Cir. 2009) (quoting Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 23 7, 20 (2008)). Under the Ninth Circuit “serious questions” test, the four Winter factors may 24 be evaluated on a sliding scale, and a TRO or preliminary injunction “is appropriate when 25 a plaintiff demonstrates that serious questions going to the merits were raised and the 26 balance of hardships tips sharply in the plaintiff’s favor.” All. for the Wild Rockies v. 27 Cottrell, 632 F.3d 1127, 1134–35 (9th Cir. 2011) (quoting Lands Council v. McNair, 537 28 F.3d 981, 987 (9th Cir. 2008) (en banc)). 1 III. DISCUSSION 2 a. Equitable Factors 3 Cardinal argues that the likelihood of irreparable harm, balance of equities, and 4 public interest factors tip sharply in its favor, so the Court should consider whether serious 5 questions exist regarding the merits of its claims, rather than a strong likelihood of success 6 on the merits. The Court agrees. 7 1. Likelihood of Irreparable Harm 8 First, Cardinal has demonstrated a strong likelihood of irreparable harm if relief is 9 denied. As discussed above, the number of marijuana establishment licenses ADHS may 10 issue, and the period during which Cardinal may apply for such a license, are restricted by 11 law. Although it is unclear on the record presently before the Court exactly how much a 12 marijuana establishment license is worth, the fact that it is extremely valuable is beyond 13 legitimate dispute. 14 Further, assuming Cardinal is a qualified early applicant, Cardinal has a statutory 15 right to a license if it submits a complete application to ADHS by March 9, 2021. If 16 Cardinal is unable to submit its application by March 9, it loses that entitlement. At that 17 point, assuming ADHS issues additional licenses, Cardinal’s only chance to enter the 18 market would be to apply to receive a license through Arizona’s random selection system. 19 Guiahi argues that Cardinal is not facing irreparable harm because “economic harm 20 is not generally considered irreparable,” see E. Bay Sanctuary Covenant v. Trump, 950 21 F.3d 1242, 1280 (9th Cir. 2020), and Cardinal’s potential harms “are all quantifiable and 22 reducible to a damages award” (Doc. 10 at 15). Cardinal’s potential harm here, however, 23 is not as simple as a loss of income. If Cardinal cannot submit a complete application by 24 March 9, it is unlikely Cardinal will be able to enter the recreational marijuana market at 25 all. Much like a business that derives its income from gambling, an otherwise illegal 26 enterprise requiring a specific state license, a marijuana establishment license may well be 27 critical to Cardinal’s ability to compete in a rapidly changing and heavily regulated 28 1 marketplace.3 See TP Racing, L.L.L.P. v. Simms, No. 1 CA-CV 14-0348, 2016 WL 423803, 2 at *5 (Ariz. Ct. App. Feb. 4, 2016) (finding that “the loss of a permit essential to [a horse- 3 racing facility’s] operations” constituted “a significant threat of irreparable harm”). 4 Moreover, depending on the income Cardinal stands to lose, it may end up being 5 unable to actually collect a money judgment from Guiahi. See Hoxworth v. Blinder, 6 Robinson & Co., 903 F.2d 186, 206 (3d Cir. 1990) (“[T]he unsatisfiability of a money 7 judgment can constitute irreparable injury[.]”). 8 Accordingly, the Court finds that Cardinal is likely to suffer irreparable harm in the 9 absence of this Court’s intervention. 10 2. Balance of Equities 11 Second, Cardinal also demonstrates that the balance of equities tip sharply in its 12 favor. Cardinal is facing the potential loss of a marijuana establishment license, and 13 regardless of whether Guiahi ultimately prevails, granting Cardinal’s TRO will cause 14 Guiahi no harm. 15 Put simply, if Guiahi prevails and remains a member of Cardinal’s board, Cardinal 16 in the meantime would have acquired a license that substantially increases the value of the 17 business. Although Guiahi asserts that acquiring this license would put the company in 18 jeopardy by allowing Wang to violate the law and lead to the company’s demise, avenues 19 exist under both Cardinal’s bylaws and Arizona corporate law for her to challenge Wang’s 20 actions. If Cardinal prevails and Guiahi does not remain a member of Cardinal’s board, it 21 would be inequitable to allow her to deprive Cardinal of the opportunity to acquire the 22 license. 23 Guiahi’s argument to the contrary is unpersuasive. Primarily, she argues that an 24 injunction preventing her from communicating with ADHS would violate her First 25 3 The Court, however, is unpersuaded by Cardinal’s argument that obtaining a marijuana 26 establishment license “is the sole purpose of the entity” or that its failure to acquire the license will cause it to go out of business. (Doc. 2 at 17). This statement is inconsistent 27 with Cardinal’s own bylaws, which describe Cardinal’s purpose as providing marijuana products and related services within the scope of the Arizona Medical Marijuana Act, 28 rather than the then-nonexistent Responsible Adult Use of Marijuana laws. (Doc. 1-3 at 38). 1 Amendment right to speak with the government. (Doc. 10 at 15–16). Because the Court is 2 not issuing such an injunction, Guiahi’s argument on this point is inapposite. 3 3. Public Interest 4 The public interest at issue here also favors Cardinal. By approving Proposition 207 5 in the November 2020 general election, Arizona voters approved a set of laws under which 6 existing medical marijuana license holders have priority access to marijuana establishment 7 licenses. To the extent Cardinal is a qualified early applicant, public policy favors its ability 8 to acquire the license. 9 In sum, because the three factors discussed above weigh strongly in Cardinal’s 10 favor, the Court considers whether serious questions exist regarding the merits of its claims, 11 rather than a strong likelihood of success on the merits. 12 b. Serious Questions Going to the Merits 13 Cardinal’s complaint raises several causes of action that Cardinal argues would 14 justify the relief it seeks. Specifically, Cardinal argues that Guiahi is no longer an officer 15 or member of the board because she either resigned her position or was removed by 16 Cardinal resolutions. (Doc. 1-3 at 24–25). Alternatively, Cardinal argues that if Guiahi is 17 still a member of the board, she breached Cardinal’s bylaws and her fiduciary duty to 18 Cardinal and should be removed from her position with Cardinal for engaging in illegal 19 conduct. (Id. at 25–27). The Court addresses each in turn.4 20 1. Resignation and Abandonment Theories 21 First, the Court does not find a serious question as to whether Guiahi resigned or 22 abandoned her position on the board. 23 On June 8, 2020, a representative of The Pharm board sent Guiahi a letter informing
24 4 Guiahi argues that this Court may not consider whether Guiahi continues to be a member of Cardinal’s board because Cardinal has not exhausted its administrative remedies with 25 ADHS. Because the Court, conducting an independent review, agrees with ADHS that Guiahi continues to be a member of Cardinal’s board, the Court need not address this issue. 26 Concerning Cardinal’s remaining claims (breach of contract, breach of fiduciary duty, and judicial removal), under the circumstances of this case, the Court disagrees that Cardinal 27 was required to present these issues to ADHS. See Univar Corp. v. City of Phoenix, 122 Ariz. 220, 224, 594 P.2d 86, 90 (1979) (noting that the “exhaustion of remedies rule should 28 not be summarily applied under . . . circumstances . . . in which the agency’s expertise is unnecessary[] or in which irreparable harm will be caused if the rule is followed.”). 1 her that the board decided to “temporarily transition to others [her] primary day-to-day 2 responsibilities with the company and its affiliates and subsidiaries.” (Doc. 1-4 at 2). 3 Cardinal cites a heavily redacted version of the letter Guiahi sent The Pharm board in 4 response, which states, “In response to [the] June 8th letter entitled ‘Transition of 5 Responsibilities’ . . . , please accept this letter as my immediate resignation.” Because the 6 scope of The Pharm board’s letter included The Pharm’s “affiliates and subsidiaries,” and 7 Cardinal is an affiliate of The Pharm (a fact Guiahi disputes), Cardinal argues that Guiahi’s 8 letter is a resignation from both The Pharm and Cardinal. Guiahi’s unredacted letter, 9 however, plainly does not indicate Guiahi’s intent to resign from the Cardinal’s board, nor 10 does it comply with Cardinal’s procedures for doing so. 11 Section 6.10 of Cardinal’s bylaws5 provides that “[a]ny Director may resign from 12 his or her office, at any time by delivering written notice of his or her resignation, to the 13 Corporation.” (Doc. 1-3 at 41) (emphasis added). Guiahi’s resignation is addressed to the 14 board of The Pharm, not Cardinal. (Doc. 10-1 at 50). Further, the letter describes various 15 grievances Guiahi had specifically with The Pharm’s corporate governance. (Id.). It refers 16 specifically to “the Company”—rather “than Companies” or “the Company and its 17 affiliates”—and states a concern specifically for “owners and stakeholders of The Pharm.”6 18 (Id.). 19 Cardinal asserts it “understood Guiahi’s ‘immediate resignation’ to include the 20 unpaid board position she held at Cardinal only by virtue of her work for The Pharm.” 21 Cardinal further argues that it demonstrated this understanding by “sen[ding] three written 22 communications to Guiahi in July asking that she sign . . . a resolution for Cardinal 23 accepting her resignation and approving the appointment of a new director and officer,” 24 and “[Guiahi] never contested Cardinal’s understanding that her resignation included
25 5 Because they were the last bylaws approved by both of Cardinal’s directors, the Court cites to the third amended bylaws. (Doc. 1-3 at 35-50). 26 6 The Court is dismayed at Plaintiff’s decision to redact Guiahi’s letter in the way it did. It is difficult to see this decision as anything other than a conscious effort to distort the facts 27 and lead the Court to issue a TRO or preliminary injunction without a complete understanding of the relevant circumstances. The Court expects more of the attorneys who 28 practice before it, particularly under circumstances requiring a decision in the limited time frame presented here. 1 Cardinal.” But the contents of her resignation letter to The Pharm and her refusal to sign a 2 Cardinal-specific resignation resolution make clear that Guiahi had a different 3 understanding. And as discussed below, Cardinal’s bylaws set forth a specific procedure 4 to remove a member of Cardinal’s board. These procedures do not allow the board of The 5 Pharm to remove Guiahi from her membership on the Cardinal’s board. Although the 6 parties’ arguments before the Court made clear that there is certainly some level of 7 involvement between The Pharm and Cardinal, the two remain distinct legal entities. 8 Cardinal also notes that Guiahi accepted a position with another New-York-based 9 cannabis company and did not communicate with Cardinal until December 2020. But 10 nothing in the record indicates that Guiahi was not allowed to take a position with another 11 cannabis company while serving on Cardinal’s Board or that Cardinal made any effort to 12 communicate with Guiahi before December 2020 (other than to request her resignation). 13 Accordingly, the Court does not find a substantial issue regarding whether Guiahi resigned 14 her position on Cardinal’s board. 15 2. Bylaw Removal Theory 16 Cardinal also argues that Guiahi is no longer a member of Cardinal’s board because 17 she was removed by two resolutions of Wang on behalf of Cardinal. (Doc. 2 at 9–14; Doc. 9 18 at 3). The Court disagrees. 19 A director of a nonprofit corporation “may be removed from office pursuant to any 20 procedure provided in the articles of incorporation or bylaws.” A.R.S. § 10-3808(A). 21 Section 6.1 of Cardinal’s bylaws provides that a director remains in office “until he or she 22 resigns or is removed from office pursuant to the provisions [t]herein.” (Doc. 1-3 at 39). 23 Section 6.9 sets forth the procedure by which a Cardinal board member may be removed. 24 It states that “[t]he Board of Directors shall have the authority to remove a Director for 25 cause or without cause, pursuant to the consent and approval of the Directors then serving.” 26 (Id. at 40). Section 6.5 describes how the Board may act: 27 Section 6.5 Director Consent. The Board of Directors shall have the authority to act on behalf of the Corporation, take any 28 actions necessary, and/or execute any document, contract or agreement, as deemed necessary, pursuant to the terms, 1 covenants and requirements of these Bylaws. Unless otherwise excepted herein, if the Corporation has greater than two (2) 2 Directors, all such actions shall require the consent and approval of a majority of the Directors then serving. 3 4 (Id. at 39). 5 Cardinal and Guiahi offer two diametrically opposed views of what the bylaws 6 require when Cardinal’s board consists of only two members. Cardinal argues that “when 7 Cardinal has two directors, no majority is required, and either director can act” (Doc. 2 at 8 11); Guiahi argues that “a less-than-unanimous Board may act only if it has more than two 9 directors.” (Doc. 10 at 11). The Court agrees with Guiahi’s reading. 10 Cardinal’s bylaws consistently refer to the board of directors as a collective. (See, 11 e.g., Doc. 1-3 at 35 (“The Corporation shall be managed, controlled and governed by a 12 Board of Directors (sometimes collectively referred to herein as the ‘Directors’ and 13 individually as a ‘Director’)”); id at 39 (“The Board of Directors shall have the authority 14 to act on behalf of the Corporation . . . .”)). And no provision anywhere in the bylaws 15 permits less than a majority of the board to act on behalf of the board. It logically follows 16 that when the board is composed of only two members, the support of both members is 17 required to take an action on behalf of the board as a collective. An action by a single 18 director can hardly be seen as an action of the two-member board, as one is not a majority 19 of two. Accordingly, neither of Cardinal’s resolutions authorized by Wang alone removing 20 Guiahi from the board was valid, and Cardinal’s arguments to the contrary are 21 unpersuasive. 22 Because some provisions of the bylaws specifically require a unanimous or majority 23 vote of the board to take certain actions, Cardinal argues the remaining actions–including 24 removing a director–necessarily do not require a majority vote. (Doc. 2 at 11–13). For 25 example, Section 6.6 of the bylaws requires unanimous consent of the board to “take any 26 action which may in any way cause the Corporation to fail to be in compliance with the 27 [Arizona Medical Marijuana Act].” (Doc. 1-3 at 39). Section 6.7 requires “the approval 28 and consent of a majority of the Directors” to elect directors to serve on the board. (Id. at 1 39). Cardinal argues that requiring both board members’ approval to remove a board 2 member, which is not an action specifically set forth in Section 6.6 or specifically requiring 3 a majority vote, would render other sections of the bylaws superfluous. (Doc. 2 at 11). 4 But the bylaws as written contemplate that the size of the board may change, (see 5 Doc. 1-3 at 39 (“Section 6.4 . . . [T]he Board of Directors shall consist of not less than two 6 (2) Directors and not more than nine (9) Directors.”)), and are consequently written to 7 apply regardless of the present size of the board. Requiring both members of a two-member 8 board to act on behalf of Cardinal would not render other sections of the bylaws 9 superfluous, but rather inapplicable under the Board’s current structure. If Cardinal were 10 to increase its board to more than two members, Sections like 6.6 and 6.7 serve the purpose 11 of distinguishing circumstances under which a unanimous versus majority vote of the board 12 is required. Accordingly, this reading of its bylaws would not render any terms superfluous, 13 see Taylor v. State Farm Mut. Auto. Ins. Co., 175 Ariz. 148, 158 (1993), meaningless, see 14 Tucker v. Byler, 27 Ariz. App. 704, 707 (1976), or mere surplusage, see Ohio Cas. Ins. Co. 15 v. Henderson, 189 Ariz. 184, 187 (1997). 16 Cardinal further argues that its removal of a provision from a previous version of its 17 bylaws indicates its intent to require only one vote of a two-member board to act. 18 Specifically, a previous version of Section 6.5 included a provision that stated, “if the 19 Corporation has two (2) Directors, all actions shall require the unanimous consent and 20 approval of the Directors then serving.” (Doc. 9-1 at 6). Cardinal argues that “[b]y 21 removing that provision, Cardinal articulated its clear intent to be free from the requirement 22 that two directors must act unanimously . . . .” (Doc. 2 at 13). Even assuming this change 23 in language weighs in Cardinal’s favor (rather than merely removing an unnecessary clause 24 from the bylaws), the Court does not find this lack of language sufficient to overcome the 25 plain text of the bylaws requiring the board to act as a collective. 26 Finally, at oral argument, Cardinal argued that requiring the vote of both members 27 of Cardinal’s board would result in “perpetual deadlock.” But it is not the role of this Court, 28 through interim injunctive relief, to rescue the parties from the consequences of their less- 1 than-ideally-drafted bylaws or less-than-ideally-structured two-member board. 2 Because Cardinal fails to raise a substantial issue on either of its theories as to why 3 Guiahi is no longer a member of Cardinal’s board, the Count denies any requested relief 4 related to these claims. 5 3. Specific Performance Theory 6 Next, Cardinal argues that Guiahi breached its bylaws and requests the Court order 7 “specific performance” of “requir[ing] her to sign the attestation” form provided by ADHS. 8 (Doc. 2 at 14–16). Because the Court determines that such a remedy is unavailable for 9 Cardinal’s claim, the Court declines to do so. 10 Under Arizona law, corporate bylaws may constitute a contract. See Samaritan 11 Health Sys. v. Superior Court, 981 P.2d 584, 588 (Ariz. Ct. App. 1998) (holding that 12 bylaws can constitute a contract); Rowland v. Union Hills Country Club, 757 P.2d 105, 108 13 (Ariz. Ct. App. 1988) (“The rights of members of a private organization are governed by 14 the articles of incorporation and by-laws, which constitute a contract between the members 15 and the organization, and among the members themselves.”). Typically, specific 16 performance requires five elements: 17 (1) there must be a contract; (2) the terms of that contract must be certain and fair; (3) the party seeking specific performance 18 must not have acted inequitably; (4) specific enforcement must not inflict hardship on the other party or public that outweighs 19 the anticipated benefit to the party seeking specific performance; and (5) there must be no adequate remedy at law. 20 21 The Power P.E.O., Inc. v. Emps. Ins. of Wausau, 38 P.3d 1224, 1228 (Ariz. Ct. App. 2002). 22 Here, Cardinal alleges that Guiahi breached Section 6.2 of its bylaws, which 23 requires directors to “perform whatever tasks and actions are necessary to ensure the 24 Corporation’s success and positive impact on the community, now and in the future.” (Doc. 25 1-3 at 39). Because it believes7 acquiring a marijuana establishment license is in its long- 26 term best interest, Cardinal argues Guiahi is breaching this provision by refusing to take 27 7 On this record, it would appear the “belief” of Cardinal being advanced by counsel is 28 solely Wang’s belief, and thus, may not ultimately prove to be a correct statement of Cardinal’s belief to the extent Guiahi remains 50% of the board. 1 steps to ensure Cardinal successfully acquires the license. 2 Even assuming Guiahi is breaching Section 6.2, the Court does not find that 3 Cardinal is entitled to the injunctive relief it seeks because Section 6.2 is not sufficiently 4 “certain and fair” to allow for an order of specific performance. Section 6.2 does not define 5 any specific action a board member must take or describe what metrics it uses to determine 6 the “Corporation’s success and positive impact on the community.” 7 Cardinal’s request for specific performance requires the Court to first determine that 8 acquiring a marijuana establishment license is essential for Cardinal’s success and then 9 order Guiahi to sign the attestation consistent with the Court’s determination. On this 10 record, the Court is in no position to make such a judgment considering the only two 11 Cardinal board members’ competing arguments regarding the ideal direction of the 12 company. 13 Accordingly, even assuming a substantial issue exists regarding whether Defendant 14 has breached this section of the bylaws or her fiduciary duties, the Court denies Cardinal’s 15 request for relief. 16 4. Remaining Issues 17 The Court has thoroughly reviewed the complaint (Doc. 1-3 at 8–29), motion for 18 TRO filed in Superior Court (Doc. 2), and Cardinal’s supplement for this Court (Doc. 9). 19 Given the Court’s conclusion on the issues discussed above, the Court is unable to grant 20 Cardinal’s requested relief. 21 Because the Court does not find a serious question as to whether Guiahi remains a 22 member of Cardinal’s board, it does not find that any declaration reflecting that she is not 23 a member of the board appropriate. (Doc. 1-3 at 28; Doc. 2 at 18; Doc. 9-2 at 3). Although 24 Cardinal seeks a TRO “enjoining Guiahi from taking any action to obstruct or interfere 25 with Cardinal’s application for a marijuana establishment license,” such an order would 26 still not allow Cardinal to submit a complete application to ADHS because the 27 department’s form requires Guiahi’s signature. (Doc. 1-3 at 28; Doc. 2 at 18; Doc. 9-2 at 28 2–3). Because the Court does not find that specific performance is an available remedy 1 under its claim for breach of Section 6.2 of its bylaws, the Court will not order specific 2 performance of what Cardinal interprets to be Guiahi’s contractual obligation to sign the 3 attestation form at issue. (Doc. 1-3 at 28; Doc. 2 at 14–16). 4 Although Cardinal’s complaint requests in the alternative that the Court “remov[e] 5 Guiahi as a Director and Officer of Cardinal pursuant to A.R.S. § 10-3810(A),” its motion 6 does not request any sort of removal on a temporary basis. (Doc. 1-3 at 29). Nor does 7 Cardinal explain how such an order could actually operate. Since its bylaws require its 8 board of directors to be composed of at least two members (Doc. 1-3 at 39), it seems likely 9 that Guiahi would have to be replaced, at least in the interim, for the board to take any 10 action on behalf of Cardinal. It is unclear if Guiahi was replaced how the Court could 11 restore the status quo if Guiahi ultimately prevailed on the merits. And if the Court could 12 not restore the status quo, it is similarly unclear what an appropriate bond amount would 13 be to compensate Guiahi for the loss of her seat on the board or ability to contribute to 14 corporate decision-making during the time an injunction remains in force, since Cardinal 15 has only requested a waiver of a bond in this case. 16 Further, for the first time at oral argument, Defendant requested a declaration from 17 the Court that Guiahi breached the bylaws by acting in her personal interest rather than 18 Cardinal’s interest. The Court has had no briefing on whether providing such a declaration 19 as interim relief is within the scope of Federal Rule of Civil Procedure 65. Further, whether 20 Guiahi’s actions constitute self-dealing is ultimately an issue of fact. It is not apparent that 21 the Court, rather than a jury, could make such a finding to issue a final declaration at this 22 stage in the litigation. 23 Accordingly, the Court will require Plaintiff to submit a proposed form of order 24 which specifies the relief the Court could grant it, including any specific factual findings 25 the Court must make, and the legal authority for such relief. This proposed form of Order 26 must include a proposed bond amount; if Plaintiff continues to urge the Court to waive the 27 bond rather than propose a dollar amount, the Court will deem such refusal to comply with 28 a Court Order to be a withdrawal of any request for a preliminary injunction. This proposed || form of order must be lodged by 8:00 a.m., Friday, March 5, 2021. 2|| IV. CONCLUSION 3 For the foregoing reasons, 4 IT IS ORDERED that Cardinal’s motion for Temporary Restraining Order (Doc. 5|| 2) is DENIED IN PART as set forth above. The Clerk of Court shall not terminate the 6 || motion until the Court resolves the remaining issues. 7 IT IS FURTHER ORDERED that Cardinal’s motion for an expedited trial on the 8 || merits (Doc. 9) is DENIED. 9 IT IS FURTHER ORDERED that the March 5, 2021 hearing (see Doc. 18) is 10 || confirmed. 11 Dated this 4th day of March, 2021. 12 13 i C 14 James A. Teilborg 15 Senior United States District Judge 16 17 18 19 20 21 22 23 24 25 26 27 28
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