Case 1:18-cv-03016-RBJ-MDB Document 175 Filed 09/07/22 USDC Colorado Page 1 of 12
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF COLORADO
`Senior Judge R. Brooke Jackson
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`Civil Action No. 18-cv-03016-RBJ-NYW
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`DAVID BARTCH,
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`Plaintiff,
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`v.
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`MACKIE A. BARCH and
`TRELLIS HOLDINGS MARYLAND, INC.,
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`Defendants.
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`FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDER OF JUDGMENT
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`This case was tried to the Court from July 11 to July 14, 2022. Plaintiff David Joshua
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`Bartch, who goes by “Josh,” sued defendants Mackie Barch and Trellis Holdings Maryland for
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`allegedly refusing to return plaintiff’s interest in a medical marijuana company, Doctor’s Orders
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`Maryland (DOMD)1. Due to the similarity in the plaintiff’s and defendant Barch’s names, I will
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`refer to them as “plaintiff” and “Mackie” or “defendant” in this order.
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`I. BACKGROUND
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`This section summarizes the parties’ dispute and lays out uncontroversial facts. I resolve
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`the disputed factual questions in later sections. In describing the background and making my
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`findings of fact, the Court has considered the reporter’s unofficial transcript, the exhibits
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`admitted into evidence, and the Court’s own notes, recollections, and impressions of the
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`evidence.
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`1 Doctor’s Orders Maryland is currently doing business as Culta, LLC. When I refer to DOMD, I mean
`the company currently called Culta.
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`1
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`Plaintiff took over a small marijuana business in Colorado, Doctor’s Orders Denver, and
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`grew it into a successful company. He connected with Mackie, who had a more traditional
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`business background, and the two of them collaborated on plaintiff’s Denver business. They also
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`contemplated a new venture in Maryland, which had recently legalized medical marijuana.
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`Plaintiff signed a deal with the preeminent marijuana law firm, Vicente Sederberg LLP, to
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`represent him in Maryland. With the help of Vicente Sederberg and defendant, plaintiff founded
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`Doctor’s Orders Maryland (DOMD) on June 6, 2015. He owned 70% of the company as Class
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`A dilutable shares through a subsidiary, DO Maryland OP LLC (DOMD OP). A prominent
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`philanthropic family, the Weinbergs, owned the other 30% as Class B non-dilutable shares.
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`DOMD’s sole focus was getting a license from the Maryland Medical Cannabis
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`Commission. The commission was soliciting applications for a small number of growing
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`licenses, processing licenses, and distribution licenses. Plaintiff’s cannabis experience and the
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`Doctor’s Orders brand were an important part of DOMD’s optimism about receiving a license.
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`Over the next few months, plaintiff, defendant, the Weinbergs, and Vicente Sederberg worked
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`together to position DOMD for the competitive application process. Plaintiff contributed at least
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`$251,000 to the business. Defendant worked hard, and all expected that he would be rewarded
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`with a substantial equity interest. Vicente Sederberg received a 4.5% ownership interest in
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`DOMD in October 2015, reducing plaintiff’s ownership to 65.5%.
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`Although plaintiff’s inclusion in DOMD was important for the company’s prospects, it
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`was legally suspect. Plaintiff had, in 2014, entered into a deferred judgment in Denver District
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`Court for misdemeanor drug possession. In June 2015 that court clarified that plaintiff would
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`violate the conditions of his deferred judgment if he owned a marijuana business, but the court
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`would allow him reasonable time to divest if he chose to do so. Less than a month later, plaintiff
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`2
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`formed DOMD.2 The parties apparently thought this was okay because DOMD was technically
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`not a marijuana business, just a corporate entity exploring the possibility of applying for licenses
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`to become a marijuana company.
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`DOMD submitted its applications on November 6, 2015. In preparation, the DOMD
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`team connived and obfuscated whenever they felt it would help their application chances.3 In
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`one September email, Brian Vicente of the Vicente Sederberg law firm encouraged the team to
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`find people they could put down as “CFO, CEO, Security Head, etc.” for application purposes,
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`but assured the team that “[o]f course, that does not mean we [DOMD] have to hire them once
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`the license is awarded.” Ex. 53. A number of email threads show that DOMD planned to
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`conceal the company’s true ownership for one reason or another. Vicente Sederberg advised
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`them that “Maryland residents look better on paper than non-residents.” Ex. 23. Defendant, who
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`at this point had worked hard enough to merit an ownership interest, was kept off the application
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`because of possible tax and/or legal issues. And, plaintiff, whose deferred drug-possession
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`conviction would have torpedoed the application, was nowhere to be found on the final
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`document DOMD submitted.
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`A new operating agreement, enacted the day before DOMD’s application, shows a new
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`ownership structure. The Weinbergs held 30%, Vicente Sederberg had 4.5%, a new investor
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`named Herb Wilkins had, in exchange for $1 million, acquired a 5% interest, and DOMD OP
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`held 60.5%. But in this new agreement, DOMD OP was no longer owned by plaintiff but by Jeff
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`2 Over the next two years, plaintiff and defendant also formed similar companies in Oregon and Hawaii
`— which they split 50/50 — for similar purposes.
`3 DOMD and their lawyers sought to cover their tracks with emails saying things like “we need to avoid
`creating ‘side deals,’” or “the goal . . . is 100% transparency with the commission.” Ex. 20. 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.
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`3
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`Black and Ashley Peebles. Plaintiff had transferred his entire interest to Black and Peebles. The
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`parties dispute whether Black and Peebles had agreed to return the interest to plaintiff (less a
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`small fee) or whether plaintiff’s transfer was a permanent divestiture.
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`DOMD was pre-approved for two licenses on August 16, 2016. This meant that it had
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`won the application process and, if it successfully built out the business and passed additional
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`regulatory checks in the coming months, would be awarded final licenses. DOMD’s ownership
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`changed again in the interim. It took on some new investors, which diluted DOMD OP’s
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`ownership interest. Black and Peebles gave most of their interest to defendant through a holding
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`company, Trellis Holdings Maryland, that defendant had created. Plaintiff took the position that
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`half of the interest transferred to Trellis was rightfully his. Defendant did not transfer plaintiff
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`any interest in DOMD. After plaintiff sued for an interest in DOMD, defendant transferred
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`nearly his entire ownership interest to a trust.
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`Plaintiff sued on November 23, 2018, asserting seven claims: (1) for a declaratory
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`judgment that Trellis legally holds and is obligated to transfer 50% of its Class A member
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`interest in DOMD to plaintiff; (2) civil theft; (3) conversion; (4) constructive trust; (5) breach of
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`contract (specific performance); (6) breach of contract (damages); and (7) unjust enrichment.
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`ECF No. 1. Plaintiff ultimately withdrew claims one and five, and the Court granted defendant’s
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`motion for judgment on the pleadings as to claim four. See ECF No. 149 at 3, 7. Claims two,
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`three, six, and seven were tried to the Court.
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`II. BREACH OF CONTRACT
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`A party attempting to recover on a claim for breach of contract must prove: (1) the
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`existence of a contract; (2) performance by the plaintiff or some justification for
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`nonperformance; (3) failure to perform the contract by the defendant; and (4) resulting damages
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`4
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`to the plaintiff. Harper v. Mancos Sch. Dist., 837 F. Supp. 2d 1211, 1217–18 (D. Colo. 2011)
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`(citing Western Distributing Co. v. Diodosio, 841 P.2d 1053, 1058 (Colo.1992)). The parties
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`dispute (1) the existence of a contract and (4) damages.
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`A. Plaintiff and Defendant Had an Enforceable Contract
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`The parties disagree about whether the oral contract plaintiff seeks to enforce existed. A
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`contract’s existence is a question for the factfinder, particularly when “the evidence is conflicting
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`or admits of more than one inference.” I.M.A., Inc. v. Rocky Mountain Airways, Inc., 713 P.2d
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`882, 887 (Colo. 1986). A contract only exists when the parties have a meeting of the minds as to
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`all essential terms of the contract. See Jorgensen v. Colorado Rural Properties, LLC, 226 P.3d
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`1255, 1260 (Colo. App. 2010). The parties need not discuss every material term for there to be a
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`meeting of the minds if a party can show that both parties knew and agreed to the term. Harper
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`v. Mancos School Dist. RE-6, 837 F. Supp. 2d 1211, 1218 (D. Colo. 2011).
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`To start, plaintiff did not allege, as defendant claims, the existence of a single contract
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`governing all of plaintiff’s transactions involving DOMD ownership interests. Such a contract
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`would have required that plaintiff temporarily transfer his interest to Black and Peebles, entitled
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`Black and Peebles to retain a portion of that equity, and required that they split the remaining
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`shares between plaintiff and defendant. Defendant, assuming that this is the contract alleged by
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`plaintiff, argues that the contract is unenforceable because it was made for an improper purpose.
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`But plaintiff did not allege this contract. If he had, then Black and Peebles would have breached
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`the contract by transferring their entire interest to defendant instead of splitting it between
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`plaintiff and defendant. Plaintiff would have sued Black and Peebles in that case, not Mackie.
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`Nor did plaintiff allege breach of a nationwide partnership agreement whereby plaintiff
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`and defendant agreed to split their equity interests in all marijuana businesses across the country.
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`Plaintiff advanced this theory in closing arguments. He claimed that the contract’s existence is
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`shown by 50/50 splits of similar companies in Oregon and Hawaii and obligated defendant to
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`give him half of defendant’s DOMD interest, no matter when or how acquired. The problem
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`with this theory, as defendant pointed out, is that it simply was not pled in the complaint. The
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`complaint alleges that “Mackie and Trellis [Maryland] agreed that Trellis would hold 50% of the
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`[DOMD] Class A Membership interest held by Trellis for the benefit of Josh.” ECF No. 1 ¶ 82.
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`This alleges an agreement about ownership of only DOMD. It says nothing about a nationwide
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`partnership agreement. In fact, nowhere in the complaint is there mention of Oregon, Hawaii, or
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`any broad partnership agreement between plaintiff and defendant.4
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`Plaintiff actually alleged — and must prove the existence of — a contract whereby
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`defendant would receive both plaintiff’s and defendant’s DOMD equity stakes from Black and
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`Peebles and hold both interests until plaintiff wanted his back. This agreement was alleged by
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`the complaint’s representation “that Trellis would hold 50% of the [DOMD] Class A
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`Membership interest . . . for the benefit of Josh,” ECF No. 1 ¶ 82. It also comports with an
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`earlier ruling in this case by Senior Judge Krieger, who described the ostensible agreement as
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`one made “with Defendant Barch to ‘share’ equally the ownership of DO Maryland. ECF No.
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`104 at 11.
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`I find that plaintiff proved the existence of such a contract. Defendant’s own statements
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`confirm two key points that allow me to infer the contract’s existence: (1) when Black and
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`Peebles owned the relevant DOMD shares, defendant believed that he and plaintiff were entitled
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`to equal portions of those shares; and (2) after the shares were turned over to defendant, he
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`believed that at least some of the shares belonged to plaintiff.
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`4 The closest that the complaint comes is a statement that plaintiff alone formed a Delaware LLC that he
`would use to establish medical marijuana businesses in other states. It does not mention a partnership.
`ECF No. 1 at ¶ 14.
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`6
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`First, defendant affirmatively facilitated Black and Peebles’ turning over shares to both
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`plaintiff and defendant. When Black and Peebles still possessed DOMP OP’s entire interest in
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`DOMD, defendant was, ironically, worried that Black and Peebles would refuse to turn over the
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`shares they temporarily held. He helped create a document formalizing Black and Peebles’
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`obligation to return the shares. The contract specified what would happen upon approval of a
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`final license. The first draft said simply that Black would retain a 4.75% interest — it made no
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`mention of Mackie or Josh. Mackie himself then edited the contract to clarify that defendant
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`would receive no less than 26.875%, and plaintiff would receive no less than 26.875%. He and
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`plaintiff both signed this document. To me, this is clear evidence that, before Black and Peebles
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`transferred their interest to Trellis, defendant understood that half of the interest that would be
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`transferred by Black and Peebles belonged to plaintiff.
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`Defendant then confirmed that plaintiff owned some shares of DOMD over which
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`defendant exercised complete control. Black and Peebles eventually transferred all relevant
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`shares to defendant rather than splitting them between plaintiff and defendant. Plaintiff claims
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`that this was done pursuant to a contract whereby defendant would hold half of the shares for
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`plaintiff. Defendant confirmed that he was holding some shares owned by plaintiff. When
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`defendant set up Trellis Holdings Maryland — a name that plaintiff had invented and used for
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`the Oregon company that the parties split 50/50 — he emailed plaintiff to keep him abreast of
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`what was happening to plaintiff’s equity interest. He wrote “just an FYI, moving our shares into
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`this entity.” (emphasis added). This confirms defendant’s understanding that some of the shares
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`held by Trellis were owned by plaintiff. Overall, the evidence convinces me that plaintiff and
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`defendant had come to a meeting of the minds that required defendants Barch and Trellis hold
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`half of the DOMD interest for plaintiff.
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`Defendant argues that if such an agreement existed, it is unenforceable because it was
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`made for an improper purpose. In Colorado, courts generally will not enforce a contract whose
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`purpose seeks to achieve an unlawful end. See generally Guardian Title Agency, LLC v. Matrix
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`Capital Bank, 141 F.Supp.2d 1277, 1281 (D. Colo. 2001), citing Sender v. Simon, 84 F.3d 1299,
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`1307 (10th Cir. 1996). A contract may be unenforceable even if the performances called for
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`under its terms are themselves permissible if the purpose the contract seeks to achieve is
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`wrongful. Sender, 84 F.3d at 1307. Judge Krieger held in this case that unenforceability due to
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`improper purpose “is generally treated as an affirmative defense, such that the party asserting
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`unenforceability bears the burden of proof.” ECF No. 104 at 11 (citing Mulligan v. Smith, 76 P.
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`1063, 1066 (Colo. 1904)).
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`Defendants did not meet their burden of showing that the contract was made for an
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`improper purpose. Defendants argued primarily that the contract was made to hide Josh’s
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`ownership interest from the Colorado court overseeing his deferred judgment. That may have
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`been true of Josh’s decision to give Black and Peebles his interest in 2015, but it cannot have
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`been plaintiff’s purpose in making the contract at issue in this case. When plaintiff and
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`defendants agreed to have defendants hold plaintiff’s interest in DOMD, plaintiff’s deferred
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`judgment had already ended.
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`Defendants also seemed to argue that the contract improperly sought to hide Josh’s
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`ownership interest from the Maryland Cannabis Commission. Defendants did not convince me
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`that this was the purpose. The Commission had already granted DOMD a preliminary license
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`when plaintiff and defendant made their agreement. Defendants presented evidence showing
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`that having Josh’s name on the initial application during his deferred judgment would have hurt
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`DOMD’s chances of securing a license, but they did not show why plaintiff and defendant would
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`want to keep Josh’s name off the documents after the preliminary license had been granted and
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`after the deferred judgment had ended. In fact, the evidence seems to show that the importance
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`of cultivating an appealing ownership structure evaporated after the preliminary license was
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`issued. Mackie was kept off of the initial license application because the partners thought he
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`would look bad to the Commission. But he owned a substantial stake in the time between the
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`preliminary and final license. Defendants did not show that plaintiff and defendants conspired to
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`hide Josh’s name from the Maryland Commission.
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`Because I find that plaintiff proved an enforceable contract breached by defendants, I
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`next turn to the issue of damages.
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`B. Damages
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`Awarding damages requires answering two questions: First, how much of Culta (formerly
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`DOMD) does the contract specify that plaintiffs owns? Second, what is the value of that
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`ownership interest?
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`On the first question, I find that the contract entitled plaintiff to half of defendants’
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`current interest in Culta. Plaintiff claims to own 26.875% of the company, which is half of the
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`amount initially transferred from Black and Peebles to Mackie. This is too much to ask. Mackie
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`diluted his shares as the company grew, and the evidence shows that those dilutions were
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`essential to Culta’s success. Josh wants to have his cake and eat it too. He wants half of
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`Mackie’s non-diluted interest, but he wants those shares at the sky-high valuation they reached
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`because Mackie wisely agreed to dilute. I find that Josh is entitled to half of Mackie’s interest,
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`which I define as all shares Mackie holds, exercises control over, or has transferred for reasons
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`other than as part of an ownership dilution deal to raise funds for the business.
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`The best estimate of defendants’ ownership comes from Mackie’s recent estate planning.
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`The details are complex, but the bottom line is that Mackie transferred ownership of the DOMD
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`shares to a trust (though he retained control over those shares). In exchange, he received two
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`promissory notes with a $12.8 million face value and present value of $5.7 million. The estate
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`planning documents show that Mackie owned 30.784% of Culta. Using these numbers, I find
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`that the contract entitles Josh to damages equal to 15.392% of Culta.
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`The parties dispute Culta’s value. Plaintiff’s damages expert, using the average of three
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`company-valuation methods, estimated Culta to be worth $55 million. That valuation would
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`mean that Mackie holds $17 million worth of Culta and entitle plaintiff to about $8.5 million.
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`Defendant primarily poked holes in the expert’s methods. Defendants did not seem to take issue
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`with the expert’s claim that the present value of Mackie’s promissory notes — $5.7 million —
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`set the “floor” for that Mackie’s interest in Culta might be worth.
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`Both the high estimate ($8.5 million) and the low estimate (one-half of $5.7 million, or
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`$2.85 million) have flaws. The high estimate relies on three different imperfect estimates of
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`Culta’s value. As defendants pointed out, there are reasons to think that each of these methods
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`overestimate Culta’s worth. The low estimate is also untrustworthy. In Mackie’s estate
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`planning, his goal was in-part to undervalue his Culta shares for tax-avoidance reasons.5 Given
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`the strength of Culta’s business, valuing the shares Mackie holds at $5.7 million seems far too
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`low.
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`I cannot calculate Culta’s value with perfect precision — nobody can. But I think it fair,
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`reasonable, and supported by the evidence to award damages that fall between the high and low
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`estimates. A good number is provided by the face value of the promissory notes Mackie
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`5 Plaintiff claims that Mackie’s transfer was an attempt to insulate him from judgment. Testifying at trial,
`however, Mackie said the following: “let me be very clear on this. My estate planning, I plan to fully
`comply with whatever court order is awarded. I did this strictly for estate planning. It was no attempt to
`hide anything.” I take him at his word and expect him to comply with the Court’s order.
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`received in exchange for his shares of Culta. Those notes totaled $12.8 million. Half of that
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`interest would therefore be $6.4 million. I find $6.4 million in damages appropriate in the
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`circumstances and award plaintiff that amount for defendants’ breach of contract.
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`III. OTHER CLAIMS
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`Plaintiff also brings claims for conversion, unjust enrichment, and civil theft. I decline to
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`award them damages on these measures.
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`The economic loss rule precludes plaintiff’s conversion claim. This rule prevents
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`duplicative recovery under contract and tort law. See Town of Alma v. AZCO Constr., Inc., 10
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`P.3d 1256, 1264 (Colo. 2000); Great Am. Opportunities, Inc. v. Kent, 352 F. Supp. 3d 1126,
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`1138 (D. Colo. 2018). Because plaintiff has not shown that defendants had a tort duty
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`independent of their contractual duties, I find that he cannot recover on his conversion claim.
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`Plaintiff’s unjust enrichment claim fails for similar reasons. Unjust enrichment is an
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`equitable claim that relies on a quasi-contract, also called an implied-in-law contract, to restore a
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`plaintiff something valuable unjustly retained by a defendant. Unjust enrichment has a built-in
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`equivalent to the economic loss rule: a plaintiff cannot recover unjust enrichment “when an
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`express contract covers the same subject matter because the express contract precludes any
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`implied-in-law contract.” Interbank Invs., LLC v. Eagle River Water & Sanitation Dist., 77 P.3d
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`814, 816 (Colo. App. 2003). Because I find that the express oral contract covers the same
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`subject matter as the quasi-contract under which plaintiff tries to recover, I hold that plaintiff
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`cannot recover on an unjust enrichment claim.
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`Plaintiffs’ civil theft claim must also be denied. The elements of civil theft are that a
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`person “knowingly obtains, retains, or exercises control over anything of value of another
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`without authorization or by threat or deception, and acts intentionally or knowingly in ways that
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`deprive the other person of the property permanently.” Van Rees v. Unleaded Software, Inc., 373
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`P.3d 603, 608 (Colo. 2016) (citing Colo. Rev. Stat. (C.R.S.) § 18-4-405). The civil theft statute
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`requires “the specific intent to permanently deprive the owner of the benefit of property.” Id. at
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`608. I find that plaintiff did not prove that he owned the shares held by defendants, only that he
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`had a contractual right to be transferred the shares upon request. Because defendants retained the
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`shares (in violation of the contract) but did not somehow “obtain” or “retain” plaintiff’s
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`contractual right, I decline to award damages based on civil theft.
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`IV. ORDER
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`I find defendants liable for breach of contract and award plaintiff $6.4 million in
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`damages. As the prevailing party plaintiff is awarded reasonable costs to be taxed by the Clerk
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`pursuant to Fed. R. Civ. P. 54(d)(1) and D.C.COLO.LCivR 54.1. Judgment shall enter
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`accordingly.
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`DATED this 7th day of September, 2022.
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`BY THE COURT:
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`___________________________________
`R. Brooke Jackson
`Senior United States District Judge
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