CANWELL, LLC, CANWELL PROCESSING (RI), LLC and CANWELL PROCESSING (ME), LLC, Petitioners
HIGH STREET CAPITAL PARTNERS, LLC, d/b/a ACREAGE HOLDINGS, INC., and as the Successor-in-interest to THE WELLNESS AND PAIN MANAGEMENT CONNECTION, LLC, and KEVIN MURPHY JOHN AND JANE DOES 1-20, Respondents. CANWELL, LLC, Petitioner
THE WELLNESS AND PAIN MANAGEMENT CONNECTION, LLC and Its Successor in Interest, HIGH STREET CAPITAL PARTNERS, LLC d/b/a ACREAGE HOLDINGS, INC., NORTHEAST PATIENTS GROUP d/b/a WELLNESS CONNECTION OF MAINE LLC, KEVIN MURPHY, and JOHN DOES 1-20, Respondents.
Plaintiff: Vincent A. Indeglia, Esq. John C. Revens, Jr.,
Esq. William M. Russo, Esq. Thomas A. Tarro, III, Esq.
Defendant: Preston W. Halperin, Esq. Jeffrey S. Brenner, Esq.
see infra pp. 2-3, have filed two different
Miscellaneous Petitions for Mandating Arbitration Pursuant to
Contract seeking to compel Respondents, see infra
pp. 3-4, to arbitrate certain claims in Rhode Island. Each of
the Respondents has moved under various provisions of Super.
R. Civ. P. 12 to dismiss the petitions. Since the facts and
travel relating to each petition are so similar, there will
be one opinion dealing with both petitions. The Court will,
however, identify those areas where different facts apply.
matters involve a complicated collection of corporate
entities that operate and/or invest in the State-authorized
cannabis industry; therefore, the Court begins by delineating
the various parties in turn.
Petitioners: CanWell, LLC (CanWell), CanWell Processing (RI),
LLC (CanWell RI), and CanWell Processing (ME), LLC (CanWell
a Delaware limited liability company, formed on December 1,
2014. CanWell is headquartered in Rhode Island and is
involved in the alternative dosage, otherwise referred to as
"edibles," aspect of the cannabis industry.
CanWell's state-specific subsidiaries, CanWell RI and
CanWell ME, are also Delaware limited liability companies
involved in the alternative dosage side of the cannabis
industry. All three CanWell entities are registered and
authorized to do business in Rhode Island and maintain
business addresses within the state. The CanWell entities
provide intellectual property and production services to
state-licensed cannabis businesses in Rhode Island, Maine,
and Massachusetts. The CanWell entities' operational
expertise includes all aspects of the cannabis industry
including cultivation, extraction, processing, alternative
dosage development, and dispensing. CanWell owns the most
significant interest in the CanWell Subsidiaries. The members
of CanWell itself are "unknown" to the Court at
this time. Respondent The Wellness and Pain
Management Connection, LLC (WPMC) owns a three-percent
interest in both state-specific CanWell Subsidiaries,
Wellness Connection Consulting, LLC (WCC) owns a four-percent
interest in the same.
High Street Capital Partners, LLC, d/b/a Acreage Holdings,
is a Delaware limited liability company formed on April 29,
2014. Its members include Kevin Murphy, the Chief Executive
Officer, Acreage Holdings America, Inc., and various minority
investors. By 2018, Acreage had become a high-growth cannabis
operator with operations in at least nineteen states
comprised of cultivation, processing, and dispensing.
Kevin Murphy (Murphy)
is the Chief Executive Officer of Acreage and the President
Northeast Patients Group d/b/a Wellness Connection of Maine
Northeast is a Maine nonprofit
corporation formed on June 16, 2010. In 2010, Northeast was
awarded license rights by the state of Maine to cultivate and
dispense medical marijuana at four medical marijuana
dispensaries that Northeast owns and operates. It was also
allowed to develop and run facilities to accommodate such
Wellness and Pain Management Connection, LLC (WPMC)
a Delaware limited liability company formed on August 3,
2011. Currently, WPMC is a Maine-based for-profit service
provider for Northeast involved in the "flower"
side of the cannabis industry. Acreage, Northeast, and
CanWell are all members, or "Class A Shareholders,"
of WPMC. Acreage currently owns a 97.4% interest in WPMC;
Northeast owns a 2% interest; and CanWell owns a 0.1%
interest.  Petitioners allege that Acreage is
WPMC's successor-in-interest and alter-ego.
Other Relevant Persons or Entities Not Parties
Terrence Fracassa (Fracassa)
is CanWell's Chief Executive Officer.
Wellness Connection Consulting, LLC (WCC).
a for-profit affiliate of Respondents, established by the
Northeast Board Members as a for-profit entity to house
Northeast's intellectual property.
are several agreements which are central to the issues
involved in these cases.
The Alternative Dosage Services Agreement (ADA)
October 1, 2015, CanWell entered into the ADA with Northeast,
WCC, and WPMC to sublicense the edible side of the Maine
cannabis industry, specifically, by providing proprietary
extraction equipment, processing best practice, intellectual
property, and production facilities by and through WPMC for
the benefit of Northeast. See ADA §§ 2, 3.
In consideration of CanWell's obligations under the ADA,
CanWell secured a significant royalty stream: Northeast would
remit royalty payments to WPMC, and WPMC would retain a
percentage and remit the balance payment to CanWell.
Id. § 4.1. The initial term of the ADA was
eight years from its effective date (October 1, 2015); the
Agreement was to be automatically renewed for a succeeding
second term of eight years, then automatically renewed for a
third term of seven years, subject to termination by either
written mutual consent of the parties or upon material breach
by Northeast or CanWell, provided certain conditions were met
in the instance of breach (e.g., the opportunity to
cure). Id. § 4.2.
also contained a noncompete covenant, providing that
Northeast, WPMC, WCC, "and their respective successors
or assigns shall not pursue contracts or operations similar
to that which is contemplated herein within Maine or other
States within New England without the prior written consent
of Canwell." Id. § 5.2. The noncompete
covenant was to remain in effect during the term of the
agreement and for two years after termination. In recognition
of the noncompete covenant, WPMC and WCC would receive
three-percent and four-percent equity interests,
respectively, in each of the state-specific CanWell
Subsidiaries (CanWell RI and CanWell ME). The ADA also
contained a forum-selection clause, which provides that the
ADA is "governed by and construed in accordance with the
laws of Maine," and that "[e]ach of the parties
hereby submits to the exclusive jurisdiction of the courts of
Maine, with respect to any dispute between the parties
pertaining to [the ADA]." Id. § 13.7.
January 1, 2018, CanWell assigned its entire interest in the
ADA to CanWell ME. On that same day, all of the parties to
the ADA reaffirmed that all "terms and conditions of the
[ADA] remain in effect and unchanged." Resp't
Acreage, WPMC, and Murphy's Mot. to Dismiss Ex. D
(Assignment and Assumption of Agreement).
WPMC Operating Agreements
May 3, 2012, WPMC was formed pursuant to an Operating
Agreement (the 2012 WPMC OA). Included as Class A
Shareholders or members were Northeast, Murphy, and Fracassa.
As of October 26, 2015, WPMC, Northeast, CanWell, Acreage,
and others executed an Amended and Restated Operating
Agreement (the 2015 WPMC OA). For purposes of this
litigation, the only significant difference between the 2012
WPMC OA and the 2015 WPMC OA is that the latter agreement
changed the forum for arbitration pursuant to the clause
discussed below from Portland, Maine to Providence, Rhode
Island and that CanWell replaced Fracassa as a Shareholder.
In KM-2019-1047, CanWell cites the Arbitration Clause in the
2015 WPMC OA as the basis why WPMC, Northeast, Acreage, and
Murphy must submit to arbitration in Rhode Island, which
"The parties hereby agree that unless otherwise
specifically required by law, any and all disputes, and legal
and equitable claims arising between or among the
Shareholders, the Directors, the officers, the Company, or
any of them or any combination of them, which relate to the
rights and obligations of such Persons under the terms of
this Agreement, any agreement contemplated hereby, or any
future agreement, understanding or instrument to which two or
more such Persons may be parties, shall be submitted to
binding arbitration in Providence, Rhode Island in
accordance with the commercial rules of the American
Arbitration Association." The 2015 WPMC OA, Art. 17.
2015 WPMC OA makes no specific mention of the ADA. Further,
the Court has already referred a dispute arising under the
2015 WPMC OA to arbitration in Rhode Island in accordance
with Article 17 of the 2015 WPMC OA; namely, WPMC's
alleged redemption of CanWell's interest in WPMC.
CanWell RI and CanWell ME Subsidiary Operating Agreements
January 1, 2018, CanWell, CanWell RI, CanWell ME, WPMC, and
WCC executed the CanWell OAs for CanWell RI and CanWell
ME. Northeast is not a party to these
agreements. The CanWell OAs memorialized WPMC's
three-percent interest and WCC's four-percent interest in
both the state-specific CanWell Subsidiaries. CanWell
maintained the remaining ninety-three-percent membership
interests. Article III of the CanWell OAs governs Members,
Article IV governs Managers, and Article V governs Officers;
each of these Articles references the noncompete covenant in
the ADA and expressly incorporates it by reference into the
CanWell OAs. See CanWell OAs §§ 3.9, 4.16,
5.8. The CanWell OAs list "Alternative Dosage
Agreement" as a defined term meaning "that certain
Alternative Dosage Agreement effective as of October 1, 2015
by and among Northeast , CanWell, LLC or its designee,
[WCC], and [WPCM]. Id. § 1.1. Pertinent here,
Section 3.9 of the CanWell OAs provides:
"Notwithstanding anything in here to the contrary, all
Members and parties hereto and their respective successors or
assigns shall be and hereby are at all times bound and
restricted by, and shall at all times adhere to and comply
with, the last sentence of Section 5.2 of the Alternative
Dosage Agreement, which sentence is hereby incorporated
herein by reference and which provision and Alternative
Dosage Agreement the Members and parties hereto hereby
acknowledge and agree was the basis for, and was
detrimentally relied upon by, Canwell, LLC and Company in
their expenditure of time, resources and energy, incurring of
opportunity costs, and formation of this Agreement and all of
the rights, covenants, duties, obligations and other
provisions contained herein. The Members and parties hereto
acknowledge and agree, and covenant, to make their respective
successors or assigns aware of and agree to the provisions of
this Agreement as such applies by reference or otherwise to
such Persons and their obligations with respect thereto, and
in particular the provisions of this Section 3.9. The Members
and parties hereto hereby acknowledge and agree that they
shall be liable to the Company with respect to any violations
of Section 3.9 by any of their respective successors or
assigns."  Id. § 3.9.
the CanWell OAs each contain identical arbitration
provisions, which CanWell cites in its First Petition as a
basis for Respondents to submit to arbitration in Rhode
"The parties hereby agree that unless . . . required by
law, any and all disputes, and legal and equitable claims
arising between or among the Members, the Managers, the
officers, the Company, or any of them or any combination
of them, which relate to the rights and obligations of such
Persons under the terms of this Agreement, any agreement
contemplated hereby, or referenced herein, or any future
agreement, understanding or instrument to which two or more
such Persons may be parties, shall be submitted to binding
arbitration in . . . Rhode Island . . ."
Id. at Art. 17 (emphasis added).
Court has already referred a dispute arising under the
CanWell OAs to arbitration in Rhode Island in accordance with
Article 17 of the CanWell OAs; namely, WPMC's alleged
withdrawal from CanWell RI and CanWell ME.
Court pauses to note that the complicated web of transactions
and occurrences underlying these Petitions have voyaged into
five different forums: (1) Petitioners' two Petitions
Demanding Arbitration pending before this Court; (2) this
Court referred WPMC's alleged withdrawal from CanWell to
arbitration before retired Rhode Island Supreme Court Chief
Justice Frank Williams; (3) this Court referred WPMC's
alleged redemption of CanWell's membership in WPMC to
arbitration before the American Arbitration Association
(AAA); (4) Northeast filed a Complaint in Maine alleging
CanWell breached its obligations under the ADA; (5) and, most
recently, Respondents filed suit in Delaware seeking
the two issues already referred to arbitration, there are two
events that triggered the pending litigation in these
consolidated cases. First, in 2018, Acreage entered into an
agreement to acquire ownership interest in Greenleaf
Compassion Care Center in Portsmouth, Rhode Island. Second,
on July 12, 2019, Northeast and WPMC served a
"Termination Notice," attempting to terminate the
ADA because CanWell and CanWell ME allegedly breached their
obligations under the ADA. See ADA § 4.2.
KM-2019-0948 (First Petition)
August 21, 2019, Petitioners CanWell, CanWell RI, and CanWell
ME filed a Miscellaneous Petition for Mandating Arbitration
Pursuant to Contract and Request for a Stay of Proceedings in
Aid of Arbitration (the First Petition). Petitioners base
their argument for arbitration on the two CanWell OAs and/or
the ADA. Although Acreage is not a signatory to the ADA or
CanWell OAs, the First Petition alleges that Acreage is a
successor-in-interest or alter-ego of WPMC and is therefore
bound by the noncompete covenant and other restrictions
therein. See First Pet. at 4, ¶ 3. Notably,
Northeast is not a named Respondent in the First Petition nor
a party to the CanWell OAs. In their Demand for Arbitration,
Petitioners request arbitration in Rhode Island regarding
Respondents' alleged breach of the ADA's noncompete
covenant, First Pet. Ex. D at 26-32, and Respondents'
alleged wrongful termination of the ADA, id. at
34-41. Petitioners allege that if Respondents are not
enjoined from competing with CanWell in Rhode Island and the
other New England states and from successfully terminating
the ADA, CanWell will face significant irreparable harm in
the form of economic and reputational damage. Petitioners
assert causes of action for Breach of ...