Take the following ingredients, stir the pot and you have a recipe for a big-time lawsuit:
- $12,000,000 allegedly invested in or on behalf of Ultra Health, LLC, an Arizona LLC owned by Duke Rodriguez (51% membership interest + 40% of profits) and CA2 Capital, LLC (49% membership interest + 60% of profits). CA2 Capital, LLC, is owned by Alan Abrams and Christopher Carra.
- A fight for control of two Arizona medical marijuana dispensaries called Broken Arrow Herbal Center, Inc. and CJK, Inc. These non-profit corporations have dispensary registration certificates for Sahuarita (Ultra Health Green Valley) and Kingman (Ultra Health Kingman), respectively.
- Disagreements among three major shareholders of Zoned Properties, Inc., a publicly traded company. Zoned Properties, Inc., claims in its March 31, 2015, disclosure statement that it “focuses on properties within the medical marijuana industry.” Zoned Properties’ major shareholders as of March 31, 2015, include Duke Rodriguez’ company Cumbre Investment, LLC, (2,251,552 shares – 12.18%), Alan Abrams (3,526,669 shares – 19.08%) and Christopher Carra (2,043,335 shares – 11.06%).
The lawsuit filed in Maricopa County Superior Court on March 26, 2015, is CA2 Capital, LLC; Alan B. Abrams; Broken Arrow Herbal Center, Inc.; & CJK, Inc.; vs. Duke Rodriguez, a/k/a Rueben Duke Montenegro Rodriguez; Stormwind Group, LLC; Cumbre Investment, LLC; CVUH, LLC; & Sold By Group, LLC. The litigation is a fight over money and control of two Arizona medical marijuana dispensaries and Ultra Health, LLC. Alan Abrams seeks court approval of his attempt to remove Duke Rodriguez as a manager of Ultra Health and a director and officer of Broken Arrow and CJK.
This is the sixth seventh (Duke was sued again after this case was filed) time since 2011 that Duke Rodriguez, Arizona’s would-be medical marijuana czar, has been a party in a Maricopa County Superior Court lawsuit. The lawsuits are CV2011-095146, CV2013-055265, CV2014-003047, CV2014-005642, CV2014-007302, CV2015-003778 and CV2015-004225. To learn about the seventh Duke Rodriguez lawsuit read “Zoned Properties, Inc., Sues Duke Rodriguez for Fraud.”
Summary of the Complaint
For those of you who don’t have the time to read the juicy allegations in the Complaint that are quoted below, here’s a short summary of the plaintiffs’ allegations:
- CA2 Capital, LLC, invested $12 million in Ultra Health, LLC or on its behalf.
- On information and belief, Rodriquez did not have substantial personal assets in the Summer of 2013.
- Ultra Health, LLC, distributed a Prospectus that falsely claimed Ultra Health possessed three Arizona medical marijuana dispensary certificates.
- Rodriguez made reassuring but false representations to Abrams at that time that Ultra Health could still obtain those three dispensary registration certificates through litigation with the non-profit companies which had actually been awarded the three certificates.
- Abrams’ funds were indeed used to pay for litigation with the control persons of the non-profits which held the three dispensary registration certificates which Rodriguez had represented had been “awarded” to Ultra Health, funded the acquisition of control and management rights for two additional non-profit companies awarded dispensary registration certificates, and funded the acquisition of a large medical marijuana cultivation facility in Chino Valley, Arizona. See “Ultra Health, LLC Sued Again: Now in 4 Lawsuits.”
Here are the court documents filed in the case as of April 1, 2015:
Plaintiffs’ Documents
- Complaint
- Exhibit 1 – the Ultra Health, LLC, Prospectus
- Exhibit 2 – Removal of Duke Rodriguez as Manager of Ultra Health, LLC
- Exhibit 3 – Ultra Health, LLC, Operating Agreement
- Exhibit 4 – Financial Records
- Exhibit 5 – Broken Arrow Herbal Center Bylaws.
Defendants’ Documents
- Opposition to Application for Temporary Restraining Order – Defendants’ response to the Complaint
- Exhibit 1 – Declaration of Duke Rodriguez
- Exhibit 2 – Christopher Carra’s FINRA Letter of Consent
- Exhibit B – Joint Venture Agreement between Ultra Health, LLC & MACCAM, LLC
Public Company Zoned Properties, Inc.
Alan Abrams, Christopher Carra and Cumbre Investments, LLC, (owned by Duke Rodriguez) are all shareholders of Zoned Properties, Inc., a publicly traded corporation (symbol ZDPYD) that claims to “focus on properties in the medical marijuana industry.” See page 8 of ZPI’s April 15, 2014, Company Information & Disclosure Statement. In 2014, Zoned Properties, Inc., was involved in three property purchase transactions with Ultra Health, LLC according to Note 3 of its 2014 annual report issued on March 31, 2015. To learn more about Zoned Properties, Inc., read “Zoned Properties, Inc. Public Disclosures.”
Zoned Properties, Inc., had a market value of $926,315,200 on April 1, 2015, despite a 2014, year end financial statement that disclosed:
- $439,887 total revenue
- ($1,483,840) loss from operations
- ($1,744,258) net loss
- $7,240,885 stockholder’s equity
- $10,492,616 total assets
Zoned Properties, Inc.’s Total Cash Flow From Operating Activities for the years 2011 – 2014 was -$1,184,000. Its total revenue for the same four year period was $439,887.
Adversaries Alan Abrams and Duke Rodriguez Acquire Control of Two Arizona Medical Marijuana Dispensaries
Broken Arrow Herbal Center, Inc. and CJK, Inc. are Arizona non-profit corporations that have licenses to operate Arizona medical marijuana dispensaries. Alan Abrams and Duke Rodriguez gained control of these two corporations in 2014. AZDHS regulation R9-17-306.A states: “A dispensary may not transfer or assign the dispensary registration certificate.” Does change of control constitute a transfer of the dispensary license?
Duke Rodriguez claims that Alan Abrams was a founding stockholder of Zoned Properties, Inc. See Exhibit 1 – Declaration of Duke Rodriguez. As of March 31, 2015, Zoned Properties’ major stockholders were Alan Abrams (19.08%), Christopher Carra (11.06%) and Cumbre Investment, LLC (12.18%), which is owned by Duke. What is the relationship, if any, between Zoned Properties, Inc., and the two dispensaries now controlled by major stockholders of Zoned Properties, Inc.?
The Players
Here’s a score card to help keep track of the players in this lawsuit:
Plaintiff Entities
- CA2 Capital, LLC, is an Arizona limited liability company owned by Alan B. Abrams and Christopher Carra.
- Broken Arrow Herbal Center, Inc., is an Arizona nonprofit corporation whose directors prior to March 26, 2015, were Duke Rodriguez, Alan Abrams and Bryan W. Hill. Duke Rodriguez was the President before March 26, 2015. This corporation owns and operates an Arizona medical marijuana dispensary in Sahuarita, Arizona, that leases its dispensary premises at 1732 W. Commerce Point Place, Sahuarita, AZ, from Green Valley Group, LLC, an LLC that is 100% owned by Zoned Properties, Inc.
- CJK, Inc., is an Arizona nonprofit corporation whose directors prior to March 26, 2015, were Duke Rodriguez and Alan Abrams. Duke Rodriguez was the President before March 26, 2015. This corporation owns and operates an Arizona medical marijuana dispensary in Kingman, Arizona, that leases its dispensary premises at 2095 Northern Ave., Kingman, AZ, from Kingman Property Group, LLC, an LLC that is 100% owned by Zoned Properties, Inc.
- MAC CAM, LLC, an Arizona limited liability company whose members are Alan Abrams, Christopher Carra and Marc Brannigan (former President and former majority stockholder of Zoned Properties, Inc. As of April 15, 2014, MAC CAM, LLC, owned 700,000 shares of preferred stock, but its shares apparently have been redeemed.
Defendant Entities
- Stormwind Group, LLC, is an Arizona limited liability company owned by Duke Rodriguez.
- Cumbre Investment, LLC is an Arizona limited liability company owned by Duke Rodriguez.
- CVUH, LLC, is an Arizona limited liability company owned by Ultra Health, LLC, and managed by Duke Rodriguez.
- Sold By Group, LLC, is an Arizona limited liability company owned and managed by Duke Rodriguez.
Allegations Stated in the Complaint
Here are some of the more interesting allegations made in the 45 page Complaint (paragraph numbers are the paragraph numbers in the Complaint):
1. Plaintiff CA2 Capital, LLC . . . (“CA2”) . . . has provided and . . . nearly $12,000,000.00 . . . in financing for an entity known as Ultra Health, LLC, . . . (“Ultra Health”).
5. Defendant Duke Rodriguez . . .
[is] the former Manager of Ultra Health, who has been removed as Manager of Ultra Health and is succeeded in that role by the current Manager of Ultra Health, plaintiff Alan B. Abrams.14. Plaintiffs have invested nearly $12,000,000.00 . . . in Ultra Health or on its behalf, by directly financing and arranging for financing which has occurred in that amount to date, essentially all of the funding by, for and behalf of that entity.
35. On information and belief, Rodriquez did not have substantial personal assets in the Summer of 2013.
39. In the Summer of 2013, Rodriguez caused to be produced and distributed a written investment prospectus which he used to solicit investment in Ultra Health (the “Ultra Health Prospectus“), entitled “Financial and Market Analysis & Recommendations on Entering the Arizona Medical Marijuana Market”.
41. The Ultra Health Prospectus contained numerous false and misleading statements.
42. Ultra Health, LLC (UH) was awarded three dispensary certificates: Duncan/Morenci (No. 83), Graham County (no. 84), and Gilbert E (No. 77). With these certificates, UH has the right to acquire, possess, cultivate, manufacture, deliver, transfer, supply, sell, and dispense medical marijuana to qualifying patients and designated caregivers.
44. Ultra Health was, in fact, “awarded” zero dispensary registration certificates.
Author’s Comment: This allegation states a fact. See “Arizona Dept. of Health Services Confirms Ultra Health, LLC Lacks a License for a Medical Marijuana Dispensary.” See also the letter from the Arizona Department of Health Services, submitted to the judge on March 14, 2014, that contains the statement “AZDHS can confirm that it does not recognize Ultra Health, LLC as a holder of this or any other dispensary registration certificate.”
47. The Ultra Health Prospectus also represented . . . that Ultra Health “has made a capital call of $300,000 to its partners to be used as start-up capital.” Ultra Health Prospectus, p. 23.
49. The statement which Rodriguez caused to be made in the Ultra Health Prospectus that a $300,000 capital call has been “made” on Ultra Health’s “partners” was false, on information and belief.
51. Rodriguez provided the Ultra Health Prospectus to Abrams and Christopher Carra as part of an investment presentation he made to them, and which he referenced in numerous related discussions in which he repeatedly but falsely represented to Abrams and Carra that Ultra Health “was awarded three dispensary certificates“.
52. As a result of the false representations Rodriguez made in the Ultra Health Prospectus, and his identical, false oral representations, Rodriguez successfully convinced Abrams and Carra became investors in Ultra Health through an entity named MACCAM, LLC, an Arizona a limited liability company (“MACCAM”).
53. MACCAM later transferred its investment in Ultra Health to CA2 with the knowledge and consent of Ultra Health.
54. Abrams made substantial payments and incurred substantial out of pocket costs in making the initial investments encouraged by Rodriguez, which roughly total around one-half of Abrams’ total investment of nearly $12,000,000.00 . . . .
57. He later learned that Ultra Health in fact had not been awarded three dispensary registration certificates, but instead had been awarded zero dispensary registration certificates.
60. Rodriguez made reassuring but false representations to Abrams at that time that Ultra Health could still obtain those three dispensary registration certificates through litigation with the non-profit companies which had actually been awarded the three certificates.
Author’s Comment: This is a troubling allegation. See “Zoned Properties, Inc. & Duke Rodriguez Lawsuits.” This article starts “Holistic Patient Wellness Group, LLC, East Valley Patient Wellness Group, LLC, and Natural Remedy Patient Center, LLC (all clients of mine) hold Dispensary Registration Certificates issued by the Arizona Department of Health Services. These companies were involved in lawsuits with Duke Rodriguez, Zoned Properties, Inc. (aka ZDPYD), Ultra Health, LLC, and Cumbre Investment, LLC.”
67. Abrams’ funds were indeed used to pay for litigation with the control persons of the non-profits which held the three dispensary registration certificates which Rodriguez had represented had been “awarded” to Ultra Health, funded the acquisition of control and management rights for two additional non-profit companies awarded dispensary registration certificates, and funded the acquisition of a large medical marijuana cultivation facility in Chino Valley, Arizona and related real estate and water rights.
68. The aggregate investment of CA2 in Ultra Health today is nearly $12,000,000.00 . . . substantially all of which consists of funds invested by Abrams in or for Ultra Health through MACCAM and CA2. A true and correct compilation of documents summarizing much of the plaintiffs’ monies invested as alleged herein is attached hereto as Exhibit 4.
69. Rodriguez represented to Abrams that he (Rodriguez) had invested $1,000,000.00 of his own money in Ultra Health which, on information and belief, was untrue.
72.g. Rodriguez has placed himself in a position of substantial ownership of Ultra Health’s cultivation facility in Chino Valley and has not transferred ownership of that property and facility to Ultra Health
72.l. [Rodriguez] has not caused the preparation of audits for either of the two nonprofit dispensary companies managed by Ultra Health, nor has he properly accounted for financial transactions between Ultra Health and those entities
73. Rodriguez’s conduct alleged herein constitutes acts or omissions in breach of the OA [Operating Agreement] and or which constitute fraud, gross negligence, willful misconduct and or breach of fiduciary duty to Ultra Health and or plaintiffs
74. . . . Rodriguez convinced Abrams and CA2 to make substantial payments for and on behalf of Ultra Health to entities controlled by Rodriguez, which entities were supposed to convey their assets into Ultra Health and or for the benefit of CA2 and Abrams, but Rodriguez has failed or refused to cause those transfers to occur.
75. Specifically the following entities have received transfers from Abrams and/or CA2 directly of monies intended to be used to acquire assets for Ultra Health, which were supposed to have been ultimately conveyed to and for the benefit of Ultra Health, but with respect to which, today, substantial monies, and assets purchased with those monies, remain m the possession, custody and control of the entities and not Ultra Health: Cumbre; Stormwind; CVUH; Sold By Group.
Plaintiffs’ Claims for Relief
The plaintiffs’ Complaint asks for the following twelve claims for relief:
1. First Claim for Relief: The court issue a declaratory judgment that: (i) Rodriguez has been removed, effective as of March 26, 2015, as the Manager of Ultra Health, and (ii) Rodriguez is not entitled to any indemnity under the OA on grounds that his wrongful conduct as alleged herein constitutes acts or omissions in breach of the OA, constituted fraud, gross negligence willful misconduct and or breach of fiduciary duty to Ultra Health and or plaintiffs.
2. Second Claim for Relief: The court issue temporary and preliminary injunctive relief that Rodriguez was removed as a manager of Ultra Health.
3. Third Claim for Relief: CA2 and Abrams request for Uniform Fraudulent Transfer Act (“UFTA”) injunctive relief and will file a motion for appointment of a Special Master pursuant to Rule 53(a), Ariz. R. Civ. P. Plaintiffs seek a UFTA injunction on a temporary and preliminary basis against Rodriguez, Stormwind, Cumbre, Sold By Group and CVUH.
4. Fourth Claim for Relief: CA2 seeks damages and specific performance.
5. Fifth Claim for Relief: CA2 seeks damages for breach of fiduciary duty.
6. Sixth Claim for Relief: CA2 and Abrams seek damages for violations of the Arizona Consumer Fraud Act.
7. Seventh Claim for Relief: CA2 and Abrams seek any and all applicable restitutionary remedies from Rodriguez, Stormwind, Cumbre, Sold By Group and CVUH with respect to any monies or assets, if any, not otherwise covered by the investment contract, the OA, including without limitation disgorgement.
8. Eighth Claim for Relief: Broken Arrow seeks two declaratory judgments against Rodriguez, first for his removal from the board of directors and second for a determination that he is not entitled to indemnification from the corporation.
9. Ninth Claim for Relief: Plaintiff Broken Arrow seeks temporary and preliminary injunctive relief that Rodriguez was removed as an officer and director.
10. Tenth Claim for Relief: CJK seeks two declaratory judgments against Rodriguez, first for his removal from the board of directors and second for a determination that he is not entitled to indemnification from the corporation.
11. Eleventh Claim for Relief: CJK seeks temporary and preliminary injunctive relief that Rodriguez was removed as an officer and director.
12. Twelfth Claim for Relief: CA2 and Abrams seek punitive damages.
Defendants’ Response to the Complaint
The defendants filed an Opposition to Application for Temporary Restraining Order in which they generally deny all of the allegations made in the Complaint. A hearing was held on the plaintiffs’ application for a temporary restraining order and the court denied the application. The following are interesting statements in the Opposition to Application for Temporary Restraining Order (paragraph numbers are from the Opposition):
II. Having passed through the difficult start-up period, CA2 Capital and Mr. Abrams are attempting a coup that would oust Mr. Rodriguez from the company he founded to take control over the operations.
II.B. Messrs. Abrams and Carra arc founding shareholders of an entity known as Zoned Properties, Inc. . . . Upon information and belief virtually all of the properties Zoned Properties holds are properties operated by Ultra Health, with one critical exception – the Chino Valley Property. The Chino Valley Property would be a great additional asset for Zoned Properties, Inc. to acquire and then lease-back to Ultra Health. Unfortunately, however, Ultra Health retains ownership and control over the Chino Valley Property through its wholly owned subsidiary CVUH, LLC and it is not in Ultra Health’s best interest to sell the property to Zoned Properties under an exorbitant lease-back scenario. The only group this would benefit is the Zoned Properties, Inc. shareholders – Abrams and Carra aka CA2 Capital, LLC. [Author’s Comment: Duke Rodriguez’ company Cumbre Investments, LLC, owns 12.18% of Zoned Properties.]
II.B. [Mr. Carra] has experience selling and promoting penny stocks, such as Zoned Properties, Inc. (OTC: ZDPY). In fact, Mr. Carra entered into a Letter of Consent with FINRA and paid a fine arising from FINRA’s allegations that he used multiple names or “handles” on internet message boards to promote certain stocks. Attached here as Exhibit 2.
Stay tuned. This case should get very interesting.