Firefly Health Corp v. Trulieve Inc. et al

2 While the operative pleading is captioned an “Amendment to Complaint” it appears to be a fully contained amended pleading.

Plaintiff alleges as follows. While the Transaction was in process, but before it closed, Truelieve “sent an email to Velvet that (i) amended the disclosure schedule under the SPA and (ii) expressly represented, among other things, that Viscusi was ‘not actively employed and is therefore not a RTC Employee,’ but Viscusi was an employee.” (FAC at ¶ 13.) The email further stated, “‘[a]s such, if Ms. Viscusi is still on leave at the time of the Closing, Velvet shall have no obligation to offer Ms.

Viscusi employment under Section 6.04(a) of the Purchase Agreement.’” (Id. at ¶ 14.) “Defendant further stated that, if Velvet did not intend to offer Viscusi employment at closing, ‘Harvest intends to enter into a severance agreement with Ms. Viscusi,’ and subsequently confirmed that Trulieve would in fact be presenting such a severance agreement following closing obligated to offer her employment.” (Id. at ¶ 15.)

Plaintiff further alleges that it elected to not employ Viscusi in reliance on the foregoing representations. Plaintiff asserts that, as a result, Defendants are obligated to indemnify Plaintiff against Viscusi’s discrimination and wrongful termination lawsuit. To that end, Plaintiff asserts claims against Defendants based in equitable indemnity, promissory estoppel, negligent misrepresentation, and negligence.

B. LEGAL BACKGROUND

A proceeding to compel arbitration is in essence a suit in equity to compel specific performance of a contract. (California Teachers Assn. v. Governing Bd. (1984) 161 Cal.App.3d 393, 399.) Generally, on a motion to compel arbitration, supported by prima facie evidence of a written agreement to arbitrate the underlying controversy, a court must determine whether the agreement exists and, if any defense to its enforcement is raised, whether the agreement is enforceable. (Rosenthal v. Great Western Financial Sec. Corp. (1996) 14 Cal.4th 394, 413.)

The moving party bears the burden of proving the existence of the agreement by a preponderance of the evidence. (Ibid.) The opposing party bears the burden of producing evidence of and proving (by a preponderance) any fact necessary to any defense raised. (Ibid.) California law strongly favors arbitration. (Prima Donna Development Corp. v. Wells Fargo Bank, N.A. (2019) 42 Cal.App.5th 22, 35 (Prima Donna).)

Defendants submit, as evidence, a copy of the SPA. (See Support Memo at 3:5-11; see also Declaration of Brian Manning at ¶ 3 and Exh. A (Manning Decl.).) The SPA contains a provision requiring the parties to submit to arbitration “any disagreement, dispute or claim arises among the Parties hereto with respect to the enforcement or interpretation of this Agreement or otherwise with respect to the transaction contemplated hereby . . ..” (Id. at § 9.11.) Defendants contend that each of the claims asserted by Plaintiff in the action falls within this scope.

Plaintiff argues that because Plaintiff is not a signatory to the SPA, it is not bound to arbitrate its claims. “Plaintiff Firefly Health Corp. dba Velvet Cannabis . . . never consented to arbitrate anything with anyone. Defendant’s motion to compel arbitration is supported solely by an arbitration provision in an agreement that Firefly is not a party to. The Stock Purchase Agreement dated March 31, 2023 (the ‘SPA’) [sic] Firefly did not sign it, did not negotiate it, and is not mentioned in it. The SPA was executed by three parties, and only three parties: Velvet

Holdings, Inc. (a distinct corporation), Harvest of California LLC, and Elliott Taylor.” (Opposition at 1:26-2:5.)

It is true that “Firefly Health Corp.” is not named in the SPA. Rather, the SPA provides that it is “entered into as of March 31, 2023, by and between Velvet Holdings, Inc., a California corporation (‘Buyer’'), Harvest of California LLC, a California limited liability company (‘Harvest’) and Elliott Taylor, an individual (‘Taylor’).” (Manning Decl., Exh. A, at p. 1.)

However, Plaintiff’s assertion (that it is not a party to the SPA) appears to be undermined by its own allegation that “[t]his Complaint arises out of the acquisition of the Napa cannabis dispensary business . . . from Trulieve Inc., by Velvet on or about March 31, 2023 . . . pursuant to [the SPA].” (FAC at ¶ 7.) As used in the FAC, “Velvet” refers to Plaintiff Firefly Health Corp. (See id. at 1:21-22.) The foregoing appears, to the Court, to be a judicial admission that Plaintiff, by obtaining its rights and interests in and to the business pursuant to the SPA, is a party to the SPA.3

Even assuming, arguendo, that Plaintiff were a third-party to the SPA, the Court finds that it is estopped from repudiating the Arbitration Provision.

“In the arbitration context, a party who has not signed a contract containing an arbitration clause may nonetheless be compelled to arbitrate when he seeks enforcement of other provisions of the same contract that benefit him.” (Metalclad Corp. v. Ventana Environmental Organizational Partnership (2003) 109 Cal.App.4th 1705, 1713.) “When a plaintiff brings a claim which relies on contract terms against a defendant, the plaintiff may be equitably estopped from repudiating the arbitration clause contained in that agreement. [Citation.]

There is no reason why this doctrine should not be equally applicable to a nonsignatory plaintiff. When that plaintiff is suing on a contract – on the basis that, even though the plaintiff was not a party to the contract, the plaintiff is nonetheless entitled to recover for its breach, the plaintiff should be equitably estopped from repudiating the contract’s arbitration clause.” (JSM Tuscany, LLC v. Super. Ct. (2011) 193 Cal.App.4th 1222, 1239-1240.)

Plaintiff acknowledges that “the dispositive question is whether the claims rely on the terms of that contract.” (Opposition at 2:18-21.) Plaintiff contends that, while its claims may relate to the SPA, they do not rely on the SPA. “Every one of Firefly’s five causes of action . . . arises from what Defendants said and did outside the four corners of the contract: categorical factual assurances in emails and telephone calls that Bianca Viscusi was ‘not actively employed,’ that no employment offer was required, and most importantly, Defendants’ voluntary promise that they would ‘handle’ Ms. Viscusi’s separation by obtaining a severance agreement and general release, followed by their negligent failure to include Harvest of Napa, Inc. as a releasee despite Firefly's specific written and oral requests. Those statements and undertakings are the gravamen of this action.” (Id. at 2:23-3:2.)

3 Plaintiff’s argument that Section 9.08 of the SPA affirmatively disclaims third-party beneficiaries (see Opposition at 9:1-3) appears to support a finding that the allegations of paragraph 7 of the FAC constitute a judicial admission that Plaintiff is, in fact, a party to the SPA.

Again, Plaintiff’s argument is undermined by its own allegations. Plaintiff alleges that “[p]rior to the closing of the Transaction, . . . Trulieve Inc. communicated with Velvet regarding the roster of Napa employees and whether Velvet would be obligated under the SPA to offer employment to Viscusi at closing.” (FAC at ¶ 12.) Plaintiff then alleges details regarding the “categorical factual assurances in emails and telephone calls” that it, here, admits give rise to “every one of Firefly’s five causes of action . . ..” (Opposition at 2:23-3:2; see also FAC at ¶¶ 13- 15.) Most importantly, Plaintiff alleges that these communications “amended the disclosure schedule under the SPA.” (See id. at ¶ 13.)

Consistent with the foregoing, Defendants present evidence that, at the time they were made, the subject communications were identified by their author, Brian Manning, Assistant General Counsel for Trulieve, to be “a Schedule Supplement under Section 6.03 of the Stock Purchase Agreement, dated March 31, 2023, . . . by and between Velvet Holdings, Inc. (‘Buyer’), Harvest of California LLC (‘Harvest’) and Elliott Taylor. This Schedule Supplement shall replace in its entirety Section 3.15(b) of the Disclosure Schedule which was delivered to Buyer by Harvest upon the execution of the Purchase Agreement (attached for convenience).” (Manning Decl. at ¶ 3, Exh.

B.) The SPA, in turn, provides that “Section 3.15(b) of the Disclosure Schedules sets forth a complete and accurate list of all Persons employed by RTC, who are actively employed by RTC in the business of the Company as of the date hereof (the ‘RTC Employees’), and each RTC Employee’s job title and rate of compensation.” (Id., Exh. A at § 3.15, subd. (b), p. 13.)

From the foregoing, the Court finds that the email communications, from which Plaintiff admits all of its claims arise, constituted disclosures of material fact that the SPA obligated the Seller to make to the Buyer. The Court further finds from this evidence that the email communications were incorporated into, and made a part of the SPA, as a “Schedule Supplement under Section 6.03” thereof. Based on these findings, it is clear to the Court that the duty (or duties) that Plaintiff alleges Defendants breached, are duties arising under SPA and owed by the Seller thereof to the Buyer.

Based on the foregoing, the Court finds that Plaintiff is estopped from repudiating the Arbitration Provision of the SPA.

Finally, Defendants contend, on a number of grounds, that they are each entitled to assert the Arbitration Provision, despite the fact that they are not each a signatory to the SPA. (See, e.g., Support Memo at 10:5, et seq.) The Court finds merit in Defendants’ arguments that they are so-entitled based on equitable estoppel and, independently, based on Plaintiffs’ allegations that each Defendant is an agent of the others. Plaintiff appears to concede the issue by failing to raise it through the Opposition.

Based on the foregoing, the Motion is GRANTED.

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