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In what may be the culmination of a years-long brawl between former partners who apparently fell out after bringing Colorado-based Doctor’s Borders, now known as CULTA, to Maryland, Judge R. Brooke Jackson of the U.S. District Court for the District of Colorado on June 8 ordered co-defendants Mackie Barch and Trellis Holdings Maryland to sell CULTA equity in order to pay an outstanding judgment of $6.4 million that the court ordered the defendants to pay plaintiff David Bartch following a four-day trial held last year and presided over by Judge Jackson.
The June 8 Order also required Barch and/or Trellis to “pay taxes in the amount of $665,000 that the Defendants owe to the Internal Revenue Service and to the State of Maryland,” and in a reprimand by the court for “misconduct” committed in the aftermath of the trial, Barch was directed to personally pay all “reasonable costs and attorneys’ fees incurred in uncovering Defendants’ spoliation, including all fees and costs incurred in connection with presenting Plaintiff’s Motion for Sanctions to the Court.”
The court also mandated, “From May 31, 2023, until such time as a sale of equity as described in Paragraphs 1-4 of this Order is concluded, Defendants may not make any sale or pledge in respect of their Culta equity, and may not take any other action, that undermines the value of this equity.”
The trial, held July 11-14, 2022, culminated in a 12-page Findings of Fact, Conclusions of Law, and Order of Judgment by Judge Jackson that described a plan devised in 2015 by Barch and Bartch, with the help of Vicente Sederberg LLP, to create an entity called Doctor’s Orders Maryland (DOMD), about which Judge Jackson says in a footnote, “Doctor’s Orders Maryland is currently doing business as Culta, LLC. When I refer to DOMD, I mean the company currently called Culta.”
DOMD ownership was delineated as follows, per the court: “With the help of Vicente Sederberg and defendant (Barch), plaintiff (Bartch) founded Doctor’s Orders Maryland (DOMD) on June 6, 2015. He owned 70% of the company as Class A dilutable shares through a subsidiary, DO Maryland OP LLC (DOMD OP). A prominent philanthropic family, the Weinbergs, owned the other 30% as Class B non-dilutable shares.”
The purpose of DOMD was to get a license from the Maryland Medical Cannabis Commission, which was beginning the process of “soliciting applications for a small number of growing licenses, processing licenses, and distribution licenses,” wrote Judge Jackson. “Plaintiff’s cannabis experience and the Doctor’s Orders brand were an important part of DOMD’s optimism about receiving a license. Over the next few months, plaintiff, defendant, the Weinbergs, and Vicente Sederberg worked together to position DOMD for the competitive application process. Plaintiff contributed at least $251,000 to the business. Defendant worked hard, and all expected that he would be rewarded with a substantial equity interest. Vicente Sederberg received a 4.5% ownership interest in DOMD in October 2015, reducing plaintiff’s ownership to 65.5%.”
This is where the situation veered off the rails. Because of a 2014 misdemeanor drug possession charge by Bartch that resulted in a deferred judgment that precluded him from ownership in a cannabis business, DOMD had been formed in an attempt to mitigate the situation, According to Jackson, “The parties apparently thought this was okay because DOMD was technically not a marijuana business, just a corporate entity exploring the possibility of applying for licenses to become a marijuana company.”
But the licensees further hedged their bets, according to the court. “DOMD submitted its applications on November 6, 2015,” it found. “In preparation, the DOMD team connived and obfuscated whenever they felt it would help their application chances…Defendant, who at this point had worked hard enough to merit an ownership interest, was kept off the application because of possible tax and/or legal issues. And, plaintiff, whose deferred drug-possession conviction would have torpedoed the application, was nowhere to be found on the final document DOMD submitted.”
Those were not the only changes being made to the endeavor. As noted by Judge Jackson, “A new operating agreement, enacted the day before DOMD’s application, shows a new ownership structure. The Weinbergs held 30%, Vicente Sederberg had 4.5%, a new investor named Herb Wilkins had, in exchange for $1 million, acquired a 5% interest, and DOMD OP held 60.5%. But in this new agreement, DOMD OP was no longer owned by plaintiff but by Jeff Black and Ashley Peebles. Plaintiff had transferred his entire interest to Black and Peebles. The parties dispute whether Black and Peebles had agreed to return the interest to plaintiff (less a small fee) or whether plaintiff’s transfer was a permanent divestiture.” That dispute forms the basis of the entire court battle, as well as, presumably, the inaction by the defendant to meet the terms of the court’s initial ruling that has resulted in its subsequent order that Barch sell CULTA equity to do so.
Clearly unimpressed with the tactics used by DOMD to put a legitimate face on their application, Judge Jackson in a footnote said of the questionable methods employed by the applicants and their attorneys, “These legalistic fig leaves were meant to conceal the dishonesty with which DOMD approached the application process. The Court, which had the opportunity to peer behind the curtain, was not fooled. The Maryland Medical Cannabis Commission, which was not shown how the sausage was made, apparently was.”
The scheme worked. “DOMD was pre-approved for two licenses on August 16, 2016,” wrote Judge Jackson in her 2022 ruling. “This meant that it had won the application process and, if it successfully built out the business and passed additional regulatory checks in the coming months, would be awarded final licenses. DOMD’s ownership changed again in the interim. It took on some new investors, which diluted DOMD OP’s ownership interest. Black and Peebles gave most of their interest to the defendant through a holding company, Trellis Holdings Maryland, that defendant had created. Plaintiff took the position that half of the interest transferred to Trellis was rightfully his. Defendant did not transfer plaintiff any interest in DOMD. After plaintiff sued for an interest in DOMD, defendant transferred nearly his entire ownership interest to a trust.”
David Bartch filed suit in November 2018, asserting seven claims, per the order: “(1) for a declaratory judgment that Trellis legally holds and is obligated to transfer 50% of its Class A member interest in DOMD to plaintiff; (2) civil theft; (3) conversion; (4) constructive trust; (5) breach of contract (specific performance); (6) breach of contract (damages); and (7) unjust enrichment.”
Mackie Barch offered a somewhat ironic defense. “The defendant’s argued that the contract was made for an improper purpose and improperly sought to hide the plaintiff’s ownership interest from the Maryland Cannabis Commission,” lawstreetmedia.com reported last year. “However, Judge Jackson determined that the plaintiff had demonstrated an enforceable contract, which the defendant had breached, and determined $6.4 million in damages.
“Judge Jackson declined to award the plaintiff any damages on their civil theft, conversion, and unjust enrichment claims since they had not demonstrated that the defendant had a tort duty to them independent of their contractual duty,” added the site. “Further, the plaintiff could not recover damages for a quasi-contract on the same matter as the express oral contract.”
The order by Judge Jackson in September was unambiguous. “I find defendants liable for breach of contract and award plaintiff $6.4 million in damages,” she wrote for the court. But that was not the end of it. In May, David Barch filed a 13-page Motion for Sanctions that opens with the following allegation: “Through a third-party subpoena, Plaintiff recently learned that, earlier this year, Defendants Mackie Barch and Trellis Holdings Maryland, Inc. purposefully caused evidence to be altered, and withheld damaging documents, to deceive Plaintiff and delay Plaintiff’s judgment enforcement efforts. What is more, after procuring and using falsified documents to claim that market conditions preclude them from monetizing their most valuable asset – the equity in Culta, LLC that was at issue in this lawsuit – to pay the Court’s judgment, Defendants began taking steps to use the equity to raise $2.1 million for purposes other than satisfying the Court’s judgment.”
Following an evidentiary hearing held May 31, Judge Jackson issued her recent ruling ordering the defendants to “use their best efforts to sell a sufficient portion of the equity that Defendant Trellis Holdings Maryland, Inc. owns in Culta, LLC” to satisfy the original judgment, owed taxes, and lawyers’ fees, signing off with the admonition, “Failure to comply with any provision of this Order may result in contempt proceedings.”
CULTA responded to a request for comment with the following statement: “This case relates to a CULTA Shareholder’s personal business and CULTA as a company is not involved. It has no bearing on CULTA’s day-to-day operations, management, or corporate structure. And, since we are not involved in the case, we unfortunately cannot provide any more clarity for you.”
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