IN THE COURT OF CHANCERY IN THE STATE OF DELAWARE
`
`C.A. No.: 2020-0675-MTZ
`
`UL HOLDINGS NV LLC, a Nevada
`limited liability company,
`Plaintiff,
`
`v.
`UL NUEVEDA HOLDINGS LLC, a
`Delaware
`limited
`liability company;
`NUVEDA LLC, a Delaware limited
`liability company; CLARK NMSD LLC,
`a Nevada limited liability company; NYE
`NATURAL MEDICINAL SOLUTIONS
`LLC, a Nevada limited liability company;
`PEJMAN BADY, M.D.; POUYA
`MOHAJER; and JOSEPH KENNEDY,
`Defendants
`
`
`DEFENDANTS, NUVEDA LLC, CLARK NMSD LLC, NYE NATURAL
`MEDICINAL SOLUTIONS LLC, PEJMAN BADY, M.D., DR POUYA
`MOHAJER, AND JOSEPH KENNEDY’S OPENING BRIEF IN SUPPORT
`OF THEIR MOTION FOR PARTIAL SUMMARY JUDGMENT AND/OR
`TO DISMISS PLAINTIFF’S COMPLAINT
`
`GORDON REES SCULLY MANSUKHANI LLP
`Michael C. Heyden, Jr. (#5616)
`Tianna S. Bethune (#6138)
`1000 North West Street, 12th Floor
`Wilmington, DE 19801
`Telephone: (302) 992-8954
`mheyden@grsm.com
`
`Attorneys for Defendants,
`Nuveda LLC, Clark NMSD LLC, Nye Natural
`Medicinal Solutions LLC, Dr. Pejman Bady, M.D.,
`Dr. Pouya Mohajer, and Joseph Kennedy
`
`Dated:
`
`October 6, 2020
`
`1
`
`EFiled: Oct 06 2020 04:35PM EDT
`Transaction ID 65995064
`Case No. 2020-0675-MTZ
`
`

`

`TABLE OF CONTENTS
`
`NATURE AND STAGE OF THE PROCEEDINGS………….........………...…1
`
`INTRODUCTION………………………………………..……………………….1
`
`STATEMENT OF QUESTIONS INVOLVED…………...……………………..3
`
`STATEMENT OF FACTS…………………………………………………….....6
`
`ARGUMENT……………………………………………………..........................15
`
`I.
`
`II.
`
`Summary Judgment should be entered on the request for
`Declaratory Relief, Specific Performance of Section 30 of MIPA
`and breach of Section 30 of MIPA (Counts I, II and III of
`Complaint…...…………………………………………..…………..15
`
`Claims for Indemnification in Count IV of Complaint should be
`dismissed for failure to comply with Section 13(e)(iii) of the MIPA;
`Alternatively, the parties hereto request dismissal under Rule
`12(b)(6) for Count IV of Complaint………………………………18
`
`III. Breach of the Implied Covenant of Good Faith and Fair Dealing
`(Count V) fails as a matter of law because it relies on conduct
`expressly permitted by the Operating Agreement for UL-
`NuVeda……………………………………………………………...23
`
`IV. ULNV is not entitled to contractual attorneys’ fees from NuVeda
`DE, Clark NMSD or Nye Natural…………………………………26
`
`CONCLUSION………………………………………………………...………...26
`
`i
`
`

`

`TABLE OF AUTHORITIESCases
`
`Cypress Assocs., LLC v. Sunnyside Cogeneration Assocs. Project, 2006 WL 668441, at *1 (Del.
`Ch. Mar. 8, 2006).......................................................................................................................25
`Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434, 445 (Del. 2005)........................................24
`Glidepath v. Beumer Corp., 2019 WL 855660, at *17 (Del. Ch. Feb. 21, 2019)..........................24
`In re Maull, C.A. No. 1533, 1994 WL 374302, at *2 (Del.Ch. June 9, 1994) ..............................15
`Klein v. Wasserman, C.A. No. 2017-0643-KSJM, at *24 n.66 (Del. Ch. May 29, 2019) ............24
`Kuroda v. SPJS Hldgs., LLC, 2010 WL 925853, at *10 (Del. Ch. Mar. 16, 2010) ......................24
`Mehiel v. Solo Cup Co., 2005 WL 1252348, at *5 (Del. Ch. May 13, 2005)...............................19
`MetCap Sec. LLC v. Pearl Senior Care, Inc., 2007 WL 1498989, at *6 (Del. Ch. 2007).............18
`Modern Telecomms., Inc. v. Modern Talking Picture Serv., C.A. No. 8688, 1987 WL 11286, at
`*3 (Del.Ch. May 27, 1987)........................................................................................................16
`N WDev. Co. v. Carey, C.A. No. 6885, 1983 WL 17997, at *3 (Del.Ch. Jan. 27, 1983).............15
`Nemec v. Shrader, 991 A.2d 1120, 1125 (Del. 2010) ...................................................................23
`Nw. Nat'l Ins. Co. v. Esmark, Inc., 672 A.2d 41, 43 (Del. 1996)..................................................16
`REJV5 AWH Orlando, LLC v. AWH Orlando Member, LLC, 2018 WL 1109650, at *3 n.27
`(Del. Ch. Feb. 28, 2018) ............................................................................................................25
`Renco Gp., Inc. v. MacAndrews AMG Hldgs. LLC, 2015 WL 394011, at *6 (Del. Ch. Jan. 29,
`2015)..........................................................................................................................................25
`United Rentals, Inc. v. RAM Hldgs., Inc., 937 A.2d 810, 830 n.93 (Del. Ch. 2007)....................16
`Rules
`
`Court of Chancery Rule 56.............................................................................................15
`Rule 12(b)(2), (3) and (6)...............................................................................................18
`NATURE AND STAGE OF THE PROCEEDINGS
`
`1
`
`

`

`Nuveda LLC, a Delaware limited liability company (“NuVeda DE”), Clark
`
`NMSD LLC, a Nevada limited liability company (“Clark NMSD”), Nye Natural
`
`Medicinal Solutions LLC, a Nevada limited liability company (“Nye Natural”), Dr.
`
`Pejman Bady, Dr. Pouya Mohajer, and Joseph Kennedy, file the above-referenced
`
`motion for partial summary judgment and/or dismissal of the Complaint of Plaintiff,
`
`UL Holdings NV LLC, a Nevada limited liability company (“ULNV”). The motion
`
`is supported by the Declarations of Dr. Bady and Mr. Kennedy filed separately
`
`(together with the exhibits attached thereto).
`
`INTRODUCTION
`
`ULNV’s Complaint is a transparent attempt to re-negotiate a Nevada
`
`transaction. While ULNV now attempts to cast itself as the hero, the fact of the
`
`matter is that this case is about ULNV’s failure to perform under the terms and
`
`conditions of the transaction documents it prepared and negotiated. Now that ULNV
`
`has failed to uphold its end of the bargain, it now seeks to frame separate, unrelated
`
`issues that have no bearing on the deal as basis to wrongfully get back its investment.
`
`Each and every one of ULNV’s allegations are a post-hoc reimagining of the
`
`events and operative documents that are invented to extricate ULNV from the deal
`
`it struck. In reality, the deal between the parties was fully consummated. It was the
`
`responsibility of ULNV to manage the dispensaries until the joint venture could be
`
`rolled up as part of a public offering or other merger, acquisition or consolidation. It
`
`2
`
`

`

`was only later, after ULNV was cut off from its lenders and investors, that ULNV
`
`began looking for a way out. Drs. Bady and Mohajer and Mr. Kennedy made their
`
`required, and accurate disclosures to ULNV. Further, these individual defendants
`
`never had any duty to contribute additional funds of which ULNV now complains.
`
`Rather, these allegations were created for economic convenience, and should be
`
`resolved as part of this motion.
`
`STATEMENT OF QUESTIONS INVOLVED
`
`1.
`
`Should summary judgment be entered on Counts I-III of the Complaint,
`
`where the transactions identified in the membership interest purchase agreement
`
`dated as of July 5, 2019 (“MIPA”) were fully consummated, and the basis for
`
`terminating the MIPA by ULNV after the closing fails to constitute regulatory
`
`impossibility pursuant to Section 30 of the MIPA?
`
`2. Whether Counts I-III of the Complaint fail to state a claim upon which
`
`relief can be granted because NuVeda DE, Clark NMSD and Nye Natural are not
`
`parties to the MIPA?
`
`3. Whether Count IV of the Complaint fails to state a claim upon which
`
`relief can be granted because ULNV did not comply with the requirements for
`
`indemnification under the MIPA?
`
`4. Whether Count IV of the Complaint fails to state a claim upon which
`
`relief can be granted because: (1) ULNV did not and could not have sustained a
`
`3
`
`

`

`“Material Adverse Effect” as that term is defined in the MIPA; and (2) the
`
`representations of Drs. Bady and Pouya and Mr. Kennedy were true when made?
`
`5. Whether Count V of the Complaint fails to state a claim upon which
`
`relief can be granted because it relies on conduct expressly permitted by the parties’
`
`operating agreement, which required no member to contribute any further capital?
`
`6. Whether Count VI of the Complaint fails to state a claim upon which
`
`relief can be granted because it seeks attorneys’ fees from NuVeda DE, Clark NMSD
`
`and Nye Natural, who are not parties to the MIPA?
`
`STATEMENT OF FACTS
`
`The parties to this action came together following a failed joint venture
`
`between NuVeda, LLC, a Nevada limited liability company (“NuVeda NV”), Clark
`
`NMSD and Nye Natural, on the one hand, and CWNevada, LLC, a Nevada limited
`
`liability company (“CWNevada” and the joint venture with CWNevada, the
`
`“CWNevada JV”), on the other. CWNevada breached its obligations under the
`
`CWNevada JV, and the CWNevada JV was terminated. See Exhibits A-1 and A-
`
`2.1 After the CWNevada JV was terminated, a receiver was appointed over
`
`CWNevada in Case No. A-17-755479-B, in the Eighth Judicial District Court, State
`
`of Nevada (the “Receivership Action”).
`
`1 The reference to Exhibits (Exhibits A-K) in this motion shall refer to the Exhibits attached to
`the Declaration of Dr. Bady and Mr. Kennedy filed separately but concurrently herewith in
`support of the motion.
`
`4
`
`

`

`The receiver for CWNevada filed a complaint on or about June 30, 2020 in
`
`the Eighth Judicial District Court, State of Nevada (Case No. A-20-817363-B),
`
`which has been consolidated with the Receivership Action, pursuant to which the
`
`receiver on behalf of CWNevada seeks a declaratory judgment that the CWNevada
`
`JV is valid and enforceable. In that case, other plaintiffs assert additional causes of
`
`action: Shane Terry asserts an interest in NuVeda NV, and Phil Ivey asserts an
`
`interest in Nye Natural.
`
`Dr. Bady directly connected with Willie Senn, who Dr. Bady believed at the
`
`time was the principal founder of a “successful” cannabis business operating under
`
`the trade name “Urbn Leaf” in San Diego, California. Defendants understand Mr.
`
`Senn to own UL Holdings, Inc., a California corporation, which owns ULNV. Mr.
`
`Senn represented to Dr. Bady that Urbn Leaf was at the time in the process of raising
`
`money through private placements and/or loans to fund its expansion plans
`
`(including into the Las Vegas market) with the ultimate goal of consummating a
`
`public offering or merger/consolidation with a larger cannabis business enterprise.
`
`Dr. Bady provided full disclosure to Mr. Senn regarding the status of the
`
`CWNevada JV and of the judgment by 4Front Advisors, LLC (“4Front”), in the
`
`approximate amount of $3,741,803.92. As such, on or about April 3, 2020, the
`
`parties negotiated, executed, and delivered a letter of intent (“ULNV LOI”) pursuant
`
`5
`
`

`

`to which ULNV agreed to satisfy the judgment due 4Front (among other things).
`
`ULNV or its designee directly paid 4Front to satisfy the judgment.
`
`The ULNV LOI was subsequently replaced by various transaction
`
`agreements, and the deal originally negotiated as part of the ULNV LOI was
`
`substantially and materially restructured. These final transaction agreements include
`
`the MIPA, an operating agreement, a management services agreement, and a roll-up
`
`agreement.
`
`After execution and delivery of the ULNV LOI, NuVeda DE became the sole
`
`owner of Clark NMSD and Nye Natural pursuant to a series of exchange and
`
`contribution transactions approved by ULNV, which closed on June 12, 2019. UL
`
`NuVeda Holdings LLC, a Delaware limited liability company (“UL-NuVeda”), was
`
`formed on June 28, 2019, to own the issue and outstanding membership interests in
`
`NuVeda DE.
`
`ULNV, Dr. Bady, Dr. Mohajer, and Mr. Kennedy executed and delivered an
`
`operating agreement for UL-NuVeda dated as of July 5, 2019 (the “UL NuVeda
`
`Holdings Operating Agreement”). A true and correct copy of the UL NuVeda
`
`Holdings Operating Agreement is attached as Exhibit B. Pursuant to the terms of
`
`the UL Nuveda Holdings Operating Agreement, the members of UL-NuVeda are
`
`not liable for the debts and obligations of UL-Nevada pursuant to Section 3.1(ii) and
`
`(iii) of the UL NuVeda Holdings Operating Agreement and Delaware law. Further,
`
`6
`
`

`

`Sections 3.1(i) and 3.5 of the UL NuVeda Holdings Operating Agreement expressly
`
`provide that no member of UL-NuVeda shall be required to contribute additional
`
`funds or other property to UL-NuVeda.
`
`UL-NuVeda, ULNV, Dr. Bady, Dr. Mohajer, and Mr. Kennedy entered into
`
`the MIPA. A true and correct copy of the MIPA (without exhibits) is attached as
`
`Exhibit C. NuVeda DE, Clark NMSD and Nye Natural are not parties to the MIPA,
`
`and they are not bound by its terms.
`
`Pursuant to the MIPA, ULNV purchased from UL-NuVeda, and UL-NuVeda
`
`sold and issued to ULNV 5,000,000 Class B Units of UL-NuVeda at a price of $1.00
`
`per Class B Unit (the “ULNV Purchased Securities”). Payment for the ULNV
`
`Purchased Securities was made by (i) cancellation or conversion of indebtedness in
`
`the aggregate amount of three million eight hundred thousand dollars ($3,800,000)
`
`(money attributable to judgement in favor of 4Front), and (ii) payment to UL-
`
`NuVeda of one million two hundred thousand dollars ($1,200,000). In accordance
`
`with the UL NuVeda Holdings Operating Agreement and MIPA, UL-NuVeda
`
`disbursed approximately $1,200,000 to pay down debt, cover legal fees and make
`
`distributions to Drs. Bady and Mohajer and Mr. Kennedy.
`
`As required by the MIPA, ULNV and Clark NMSD entered into a
`
`management services agreement pursuant to which ULNV had the sole
`
`responsibility for the general management, administration, and operation of Clark
`
`7
`
`

`

`NMSD’s two dispensaries addressed as 2113 Las Vegas Boulevard North, N. Las
`
`Vegas, Nevada 89030 and 1320 S. 3rd Street, Las Vegas, Nevada 89104
`
`(“Management Services Agreement”). A true and correct copy of the Management
`
`Services Agreement (including only Exhibits C, D and F thereto) is attached as
`
`Exhibit D.
`
`ULNV agreed to perform services under the Management Services
`
`Agreement (including the completion of all capital improvements to the dispensaries
`
`(upgrades, change or buildouts)) at its sole cost and expense. No government
`
`authority prohibited ULNV from managing, administering or operating Clark
`
`NMSD’s dispensaries.
`
`Pursuant to the Management Services Agreement, ULNV was entitled to a
`
`management fee equal to three percent (3%) of Clark NMSD’s revenues plus all
`
`costs and expenses paid by ULNV (including, but not limited to, operating expenses,
`
`cost of goods, rent, interest, and taxes). ULNV operated Clark NMSD’s dispensaries
`
`under the trade name of “Canopi” (which was the name used by CWNevada)—not
`
`Urbn Leaf.
`
`Prior to entering the ULNV LOI, in early 2019, Clark NMSD had applied for
`
`a special use permit to relocate one of its dispensaries to a shopping center located
`
`2424 South Las Vegas Boulevard, in Las Vegas, Nevada (“Special Use Permit”).
`
`The staff of the City of Las Vegas recommended approval, and the Special Use
`
`8
`
`

`

`Permit was approved by the Las Vegas Planning Commission on March 26, 2019.
`
`However, the City of Las Vegas denied the application for the Special Use Permit
`
`on the August 7, 2019,
`
`A few months after taking over the dispensaries and undertaking the work
`
`required by
`
`the Management Services Agreement (including paying for
`
`improvements and operating costs), ULNV refused to continue to fund operations
`
`of the dispensaries, which caused a dispute between the members of UL-NuVeda,
`
`including Dr. Bady, Dr. Mohajer, and Mr. Kennedy.
`
`By this time, and independent of any issues pertaining to the relocation of one
`
`of Clark NMSD’s dispensaries, ULNV began having financial difficulties. Through
`
`Nathan Shaman, the General Counsel and Chief Compliance Officer for Urbn Leaf,
`
`ULNV emailed on December 9, 2019 as follows with respect to the Management
`
`Services Agreement:
`
`ULNV will no longer pay any expenses without the
`establishment of a legitimate reserve to ensure it can
`be reimbursed, with the exception of the cost and
`expense of all furniture, fixtures, and equipment, and
`the development and construction costs for any
`improvements, as provided by Exhibit C to the
`[Management Services Agreement]. Given that many
`expenses are due to be paid in the near future, there is
`an imminent need for a capital call.
`A true and accurate copy of the email dated December 9, 2019 is included as part of
`
`the emails attached as Exhibit E.
`
`9
`
`

`

`Displeased with Drs. Bady and Mohajer and Mr. Kennedy’s decision to hold
`
`ULNV’s feet to the fire, ULNV attempted to avoid its obligations under the
`
`Management Services Agreement by demanding a capital call from the membership
`
`of UL-NuVeda. Presumably, the capital would be used to fund NuVeda DE, and
`
`NuVeda DE would fund Clark NMSD. Further, as proposed, Dr. Bady, Dr. Mohajer
`
`and Mr. Kennedy would be responsible for 70% of the contributions because of their
`
`ownership in UL-NuVeda.
`
` ULNV was attempting to shift its financial
`
`responsibilities.
`
`On Monday, January 6, 2020, ULNV through Mr. Shaman, emailed in
`
`pertinent part the following:
`
`As I expressed on the call, we are currently hemorrhaging
`money every month that is not covered by operations and
`likely will not be for at least 2 quarters. We do not have
`the funds to sustain this cash burn on our own, and
`furthermore, we are not being reimbursed for what we
`have already paid, which is required by the management
`agreement.
`(emphasis added). A true and accurate copy of the email dated January 6, 2020 is
`
`included in the emails attached as Exhibit F.
`
` Dr. Bady, Mr. Kennedy, and representatives of ULNV (including Mr. Senn,
`
`Skip Motsenbocker, and Mr. Shaman) personally met on January 30, 2020 to discuss
`
`the financial dispute. During the meeting on January 30, 2020, representatives of
`
`Urbn Leaf advised Dr. Bady and Mr. Kennedy that investors, lenders, and/or advisors
`
`10
`
`

`

`of UL Holdings wanted ULNV to withdraw from the cannabis market in Las Vegas,
`
`Nevada.
`
`Notably, there was no vehicle through which ULNV could require Mr.
`
`Motensbocker, Dr. Bady and Mr. Kennedy as managers to fund ULNV’s end of its
`
`deal. They are the sole members of the Board of Managers for UL-NuVeda. None
`
`of them executed and delivered the UL NuVeda Holdings Operating Agreement as
`
`members of the Board of Managers. They did not approve or agree to a capital call.
`
`Having been unsuccessful in attempting to shift the risk imposed upon it by
`
`the transaction agreements, on January 31, 2020, ULNV declared a breach of the
`
`Management Services Agreement. A true and correct copy of the letter is attached
`
`as Exhibit G. In the letter declaring the breach, ULNV through Mr. Shaman offered
`
`two buy-out scenarios for resolution. The first scenario contemplated ULNV selling
`
`its interest in UL-NuVeda for cash. The second scenario contemplated Dr. Bady,
`
`Dr. Mohajer, and Mr. Kennedy exchanging their interests in UL-NuVeda for stock
`
`in UL Holdings. Clark NMSD responded to the letter from Mr. Shaman dated
`
`January 31, 2020, which email is attached as Exhibit H.
`
`On February 10, 2020, ULNV issued a stop work order and ceased paying
`
`disbursements under the construction agreement it signed on behalf of Clark NMSD
`
`to renovate the dispensary at 2113 Las Vegas North, Las Vegas, Nevada 89030. The
`
`next day, ULNV abandoned Clark NMSD’s dispensaries and removed all the cash
`
`11
`
`

`

`on hand. At the time ULNV abandoned the dispensaries, ULNV failed to pay
`
`amounts which it incurred in the name of Clark NMSD (including payroll taxes) as
`
`the manager of the dispensaries. Clark NMSD thereafter settled outstanding
`
`liabilities required to be paid by ULNV under the Management Services Agreement.
`
`The damage caused by ULNV to the dispensary at 2113 Las Vegas North, Las Vegas,
`
`Nevada 89030, was repaired at a cost of approximately $400,000.00.
`
`Only after ULNV had defaulted on its obligations and ceased operation of the
`
`dispensaries did it attempt to take issue with the unsuccessful relocation of one of
`
`Clark NMD’s dispensaries. Particularly, on March 6, 2020, ULNV sent a letter to
`
`Drs. Bady and Mohajer and Mr. Kennedy invoking Section 30 of the MIPA, which
`
`provides as follows:
`
`If any Government Authority does not approve of, or
`otherwise prohibits, prevents or enjoins, the execution
`and delivery of this Agreement or any of the other
`Transaction Agreements or consummation of the
`transactions contemplated hereby or
`thereby or
`imposes any conditions upon such approval that would
`dilute, in any material respect, the benefits to ULNV
`of the transactions contemplated by the Transaction
`Agreements, then (i) this Agreement and the other
`Transaction Agreements shall terminate, including the
`Intellectual Property License Agreement, and the
`transactions contemplated hereby and thereby shall be
`unwound, including, but not limited to, the return by
`the Issuer to ULNV of $5,000,000 in respect of the
`consideration for the ULNV Purchased Securities, (ii)
`the
`transactions contemplated by
`the Roll-Up
`Agreement shall not be consummated, and (iii) the
`parties agree in good faith to obtain a reasonable
`
`12
`
`

`

`valuation of any monetary and non-monetary
`contributions, including, but not limited to build-outs
`and capital improvements, made by ULNV in addition
`to
`the consideration for
`the ULNV Purchased
`Securities and the amount of such valuation shall be
`paid by Issuer and Company Parties to ULNV.
`A true and accurate copy of the letter is attached as Exhibit I.
`
`Mr. Shaman in his March 6, 2020 letter claimed that Section 30 of the MIPA
`
`applied based on the following events:
`
`On August 7, 2019, the Las Vegas City Council denied
`Clark NMSD LLC's application for a special use
`permit
`to
`relocate
`its Las Vegas marijuana
`establishment doing business as "Canopi" from 1324
`S. 3rd St. to the Bonanza Gift Shop at the comer of
`South Las Vegas Boulevard and West Sahara Avenue.
`This relocation was and always has been a material
`term of the Agreement and the loss of the opportunity
`is highly dilutive to ULNV's benefits under the MIPA
`and the Transaction Agreements.
`
`In addition, on October 17, 2019, the Nevada
`Department of Taxation issued a moratorium on the
`processing of transfers of ownership interests of
`marijuana establishments, stating, in relevant part, "the
`Department will not process any existing or new
`applications for ... regulatory activities while this
`extended review is in place .... " The Department has
`not processed any changes of ownership since October
`2019 and does not appear to be inclined to do so for
`the foreseeable future. This moratorium makes the
`transactions contemplated by the MIPA a regulatory
`impossibility, eviscerating the vast majority of the
`beneficial value contemplated to accrue to ULNV
`under the MIPA and the Transaction Agreements.
`
`13
`
`

`

`All of this was despite the fact that Clark NMD’s dispensaries could have, at
`
`all times continued to do business in their original locations. In fact, it was only the
`
`actions of ULNV that prevented their operation. In truth, termination of the MIPA
`
`and related transaction agreements pursuant to Section 30 of the MIPA was a mere
`
`pretext for ULNV’s decision to withdraw from the cannabis market in Las Vegas,
`
`Nevada after it could not financially perform under the Management Services
`
`Agreement. Further, ULNV has never, until the filing of its Complaint, requested
`
`indemnification for any claims.
`
`The MIPA required parties to enter into a roll-up agreement pursuant to which
`
`ULNV would be merged into UL Holdings, and Drs. Bady and Mohajer and Mr.
`
`Kennedy would exchange their interests for stock in UL Holdings based on a
`
`minimum appraised value of UL-NuVeda (“Roll-Up Agreement”). A true and
`
`correct copy of the Roll-Up Agreement is attached as Exhibit K. UL Holdings did
`
`not voluntarily trigger the roll-up under the Roll-Up Agreement any time after the
`
`closing on July 5, 2019.
`
`Importantly, the Roll-Up Agreement specifically contemplated the situation
`
`where the Special Use Permit was not approved. Pursuant to the Roll-Up
`
`Agreement, UL Holdings had two (2) years to complete a change of control
`
`transaction that would provide new equity of $10,000,000. At the time of the roll-
`
`up, the value of UL-NuVeda was subject to a minimum appraisal value of
`
`14
`
`

`

`$25,000,000. If the Special Use Permit was approved by the City of Las Vegas, the
`
`floor value would be set at $35,000,000.
`
` At the present time, Clark NMSD’s dispensaries are open and being operated
`
`at a profit. Before ULNV filed its complaint, the Nevada Cannabis Compliance
`
`Board lifted the moratorium on processing change of ownership applications on or
`
`about July 21, 2020. Clark NMSD intends to sue ULNV for breach of the
`
`Management Services Agreement in Las Vegas, Nevada. Dr. Bady, Dr. Mohajer,
`
`and Mr. Kennedy also intend to seek specific performance of the Roll-Up Agreement
`
`in the same case.
`
`ARGUMENT
`
`I.
`
`Summary Judgment should be entered on the request for
`Declaratory Relief, Specific Performance of Section 30 of MIPA
`and breach of Section 30 of MIPA (Counts I, II and III of
`Complaint).
`
`Counts I-III of the Complaint are not legally viable in light of the clear
`
`language of the MIPA. Summary judgment under Court of Chancery Rule 56 allows
`
`for resolution of legal issues without the “delay and expense of a trial.” See In re
`
`Maull, C.A. No. 1533, 1994 WL 374302, at *2 (Del.Ch. June 9, 1994) ("The purpose
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`of summary judgment is to avoid the delay and expense of a trial where there is
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`nothing for the fact finder to decide."); N WDev. Co. v. Carey, C.A. No. 6885, 1983
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`WL 17997, at *3 (Del.Ch. Jan. 27, 1983) ("The purpose of summary judgment is the
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`avoidance of a useless trial where there is no genuine issue as to any material
`
`15
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`

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`fact."), aff'd, 474 A.2d 138 (Del. 1983); United Rentals, Inc. v. RAM Hldgs., Inc.,
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`937 A.2d 810, 830 n.93 (Del. Ch. 2007).
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`When the matter before the court is the interpretation of a contract, summary
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`judgment is appropriate only if the contract in question is unambiguous. Nw. Nat'l
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`Ins. Co. v. Esmark, Inc., 672 A.2d 41, 43 (Del. 1996). Accordingly, to succeed on a
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`motion for summary judgment, the parties hereto must establish that their
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`construction of the MIPA (particularly Section 30) is the only reasonable
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`interpretation. See Modern Telecomms., Inc. v. Modern Talking Picture Serv., C.A.
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`No. 8688, 1987 WL 11286, at *3 (Del.Ch. May 27, 1987).
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`As such, Section 30 of the MIPA is not ambiguous. In fact, none of the
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`transaction agreements address the Special Use Permit except the Roll-Up
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`Agreement, and the treatment of the Special Use Permit in the Roll-Up Agreement
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`demonstrates exactly why Section 30 is not applicable. The Roll-Up Agreement sets
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`the appraisal floor for the roll-up transaction at $25M without the Special Use Permit,
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`or $35M if the Special Use Permit was approved. Stated differently, the only
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`consequence under the transaction agreements of the failure to obtain the Special
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`Use Permit is the minimum appraised value for purposes of rolling up the joint
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`venture into UL Holdings was reduced by $10M. ULNV’s statements in the
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`complaint to the contrary are simply not consistent with the transaction agreements.
`
`16
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`

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`In addition, the moratorium issued by the Nevada Department of Taxation on
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`October 17, 2019 did not affect any of the transactions contemplated by the MIPA.
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`The parties closed the transactions set forth in the MIPA on July 5, 2019—several
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`months before the moratorium. Pursuant to the MIPA, on July 5, 2019, ULNV
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`purchased from UL-NuVeda, and UL-NuVeda sold and issued to ULNV, the ULNV
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`Purchased Securities. On July 5, 2019, ULNV also became the manager and operator
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`of Clark NMSD’s dispensaries. The only remaining transaction was the roll up. The
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`roll up transaction was not conditional on the approval of a change of ownership
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`application by any government authority. The roll up could occur voluntarily by
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`UL-Holdings after raising $10M in a change of control event or automatically after
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`two (2) years.
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`The moratorium did not prevent ULNV from receiving any benefits of the
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`transaction: it received its share of ownership in UL-NuVeda Holdings and became
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`the exclusive manager/operator of Clark NMSD’s dispensaries. Even assuming a
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`change of ownership application was practically required to complete the roll-up,
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`UL Holdings never exercised the right and the parties had two (2) years from the
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`closing on July 5, 2019 to automatically roll-up. Regardless, the moratorium on
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`processing change of control applications ended on July 21, 2020—before ULNV
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`filed its complaint.
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`

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`Assuming arguendo that Section 30 of the MIPA was triggered, the court
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`should still dismiss Counts I-III against NuVeda DE, Clark NMSD and Nye Natural
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`under Court of Chancery Rules 12(b)(2), (3) and (6). NuVeda DE, Clark NMSD and
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`Nye Natural are not parties to the MIPA. Further, under Section 30 of the MIPA,
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`UL-NuVeda (not NuVeda DE, Clark NMSD, Nye Natural, Dr. Bady, Dr. Mohajer,
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`or Mr. Kennedy) is required to return to ULNV $5,000,000 for the ULNV Purchased
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`Securities.
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`Basic contract principles provide that a person or entity not a party to a
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`contract cannot be held to be liable under it. See MetCap Sec. LLC v. Pearl Senior
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`Care, Inc., 2007 WL 1498989, at *6 (Del. Ch. 2007) (quoting WSFS v. Chillibilly's
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`Inc., 2005 WL 730060, at * 19 (Del. Super. Mar. 30, 2005)). NuVeda DE, Clark
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`NMSD, and Nye Natural did not agree to return any money contributed by ULNV
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`to UL-NuVeda in the event of regulatory impossibility under Section 30 of the
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`MIPA. If ULNV wanted a contractual right to be enforceable against NuVeda DE,
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`Clark NMSD or Nye Natural with respect to regulatory impossibility, then ULNV
`
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`should have contracted for it. See Mehiel v. Solo Cup Co., 2005 WL 1252348, at *5
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`(Del. Ch. May 13, 2005).2
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`II. Claims for Indemnification in Count IV of Complaint should be
`dismissed for failure to comply with Section 13(e)(iii) of the MIPA;
`Alternatively, the parties hereto request dismissal under Rule
`12(b)(6) for Count IV of Complaint.
`
`Count IV of the Complaint, seeking indemnification, is both premature and
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`non-viable. The MIPA requires written notice of a claim for indemnification before
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`any such claim becomes actionable. Section 13(e)(iii) of the MIPA governs the type
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`of claims for indemnification (i.e., direct claims) asserted by ULNV. Section
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`13(e)(iii) of MIPA requires (a) written notice of each such claim in “reasonable
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`detail” within fifteen (15) business days after ULNV became aware of such claim;
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`(b) Drs. Bady and Mohajer, and Mr. Kennedy have forty-five (45) days after receipt
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`of each claim to respond; and (c) ULNV must allow Drs. Bady and Mohajer and Mr.
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`Kennedy to investigate the matter and circumstances of the claim (including whether
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`and to what extent any amount is payable).
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`2 The parties to the MIPA also negotiated for a contractual right to the Delaware
`forum selection clause set forth in Section 25(b) of the MIPA. Like regulatory
`impossibility, ULNV did not bargain for the right to sue NuVeda DE, Clark NMSD
`or Nye Natural in Delaware for liability under a contract to which they are not
`parties. Neither Clark NMSD nor Nye Natural have any contacts with Delaware
`other than their role as subsidiaries of NuVeda DE. The forum selection allows
`ULNV to initiate an action in Delaware, and prohibits parties thereto from
`challenging such venue choice; however, NuVeda DE, Clark NMSD and Nye
`Natural are not required to consent to ULNV’s choice.
`
`19
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`

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`ULNV did not provide written notice of the claims to Dr. Bady, Dr. Mohajer
`
`or Mr. Kennedy as required by the MIPA. ULNV’s representations in paragraphs
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`80-81 of the complaint are not accurate. If the claim for indemnification is not
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`resolved as contemplated by Section 13(e)(iii) of the MIPA, ULNV has the right to
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`seek redress (but not before). Further, the request for indemnification, as currently
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`pled still requires dismissal subject to Rule 12(b)(6) for the reasons set forth below.
`
`ULNV requests indemnification under the MIPA for breaches of Sections
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`8(a), 8(c)(v) and 8(j)(2) of the MIPA in accordance with Section 13(b) of the MIPA.
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`Section 13(b) of
`
`the MIPA qualifies
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`indemnification on
`
`inaccuracies
`
`in
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`representations or warranties or breaches of the same, which have a “Material
`
`Adverse Effect.” This term is defined in Section 1(x) of the MIPA and applies to an
`
`inaccuracy or breach which is “materially advers