Raz Yaron, V. Sierra Conley ( 2021 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
RAZ YARON, an individual and
Washington State resident, No. 80120-1-I
Appellant, DIVISION ONE
v. PUBLISHED OPINION
SIERRA S. CONLEY, an individual
and Washington State resident,
Respondent.
SMITH, J. — This case presents an issue of first impression involving the
Washington State Liquor and Cannabis Board’s (LCB) tied house regulation,
WAC 314-55-018. Raz Yaron, through his company, and two others individuals
owned commercial property in Kirkland, Washington. The owners leased the
entire property to Jordan River Moving LLC (JRM), and JRM subleased
commercial space on the property to a marijuana production business, Dynamic
Harvest. Yaron and Sierra S. Conley entered into an agreement wherein Yaron
promised to help Conley obtain retail space on the property in exchange for an
ownership interest in her retail marijuana business, Sierra S. Conley LLC, d/b/a
Mary Jane LLC. In a preenforcement letter, LCB determined that Yaron violated
the tied house regulation by having an ownership interest in Mary Jane and
leasing to JRM, which in turn leased to Dynamic Harvest. In response, Conley
unilaterally eliminated Yaron’s ownership interest in Mary Jane. The trial court
agreed with LCB that Yaron’s interests violated the tied house regulation. And it
No. 80120-1-I/2
concluded that the ownership agreement between Yaron and Conley violated
public policy. Therefore, the trial court rescinded the agreement and ordered
Conley to pay Yaron restitution as equitable relief.
As an initial matter, LCB’s preenforcement letter to Conley did not
constitute an agency policy, and the trial court erred in giving it deference.
Furthermore, Yaron and his company did not lease directly to Dynamic Harvest,
the producer, and thus, the purpose of the regulation and statute—i.e., to prohibit
undue influence between two levels of the marijuana industry’s distribution
chain—is not violated in this case. Specifically, the relationship between Yaron
and Dynamic Harvest is too tenuous to conclude that Yaron could improperly
influence either Mary Jane or Dynamic Harvest. Finally, the trial court erred
when it determined that the agreement between Yaron and Conley violated
public policy. And according to the agreement, Conley did not have authority to
unilaterally remove Yaron as part owner of Mary Jane. Therefore, we reverse
and remand for the matter to proceed to trial.
FACTS
The material facts are not in dispute.1 In April 2014, LCB granted Conley,
in the name of her business, Mary Jane, a retail marijuana license for operation
in Kirkland, Washington.
In 2015, Conley approached the owners of AVH & BJ Holdings LLC with
1Because Yaron does not challenge any of the court’s findings of fact,
they are verities on appeal. See State v. O’Neill, 148 Wn.2d 564, 571, 62 P.3d
489 (2003) (“[W]here a trial court’s findings are unchallenged, they are verities on
appeal.”). Therefore, we recite the facts according to the trial court’s findings.
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regard to leasing retail space on their property in Kirkland. Sharon Joseph, Kobi
Bracha, and Auroraview Holdings LLC owned AVH & BJ, which owned the
property. At the time, Yaron was the majority owner of Auroraview. He also was
the personal guarantor and signatory of the $3.4 million commercial loan used to
purchase the property, and he and Joseph were the managers of AVH & BJ.
AVH & BJ leased the entire property to JRM, which Joseph owns.
AVH & BJ and JRM’s lease agreement provides that JRM “shall not assign or
encumber the lease without the prior written consent of” AVH & BJ. And under
AVH & BJ’s operating agreement, its managers had to approve the business’s
affirmative acts. Accordingly, Yaron and Joseph, as AVH & BJ’s managers,
needed to approve JRM’s subleases. One such sublease was to Dynamic
Harvest, a marijuana producer. In accordance with the agreements, Yaron and
Joseph provided written consent for JRM to sublease commercial space on the
property to Dynamic Harvest.
Joseph, Bracha, and Yaron agreed to obtain commercial space for Conley
on the condition that “they became her business partners and were named as
part owners of her [LCB] marijuana retail license.” “With limited options for
commercial marijuana retail space in Kirkland and the possibility of losing her
license if she didn’t secure such space, Ms. Conley agreed to their terms.” Thus,
JRM leased the retail property to Mary Jane. In April and May 2015, the parties
executed an agreement, “Mary Jane LLC and Store – Agreement.” Per the
agreement, Yaron and Conley each would have a 33.33 percent interest in Mary
Jane, and Joseph and Bracha would share the remaining 33.33 percent interest.
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The agreement provided that Mary Jane would “be operated under the
[Washington] state rules and regulations” and that “[a]ll items on this agreement
are conditional on [LCB] approval.” Yaron, Joseph, and Bracha agreed to “bring
the cash needed for the business as a loan to the new LLC.” Bracha later
“abandoned the idea of ownership in Mary Jane,” and Conley agreed to give
Joseph the full 33.33 percent interest in Mary Jane.
Joseph and Yaron submitted “‘Change in Governing Persons’”
applications to LCB as required under WAC 314-55.2 In their applications, Yaron
and Joseph did not disclose their various ownership interests in the property.
And in September 2015, LCB approved Yaron’s application. In its approval
letter, LCB requested that Yaron and Conley execute an operating agreement.
Among other matters, the one-page operating agreement provided a decision-
making policy. Specifically, the operating agreement stated that “[a]ny major
expense, business decision, lease related actions, etc. will be done in agreement
of all parties.” However, it did not define “business decision.”
LCB eventually informed Conley that Joseph could not be added to Mary
Jane’s license. In an e-mail, LCB stated:
Joseph cannot be added as a true party of interest in your
business. After further research it was discovered that Mr. Joseph
who owns the property . . . also leases to a producer/processor
licensee. If Mr. Joseph became a retail licensee, the licensed entity
(Sierra S. Conley LLC) would be in violation of [the tied house
regulation and corresponding statute].
It further stated that the Marijuana Enforcement Division was investigating
WAC 314-55-120(1) provides that “[l]icensees must receive prior board
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approval before making [specified] ownership changes.”
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Yaron’s ownership interests in Mary Jane. And prior to this letter, Conley started
to feel as though Yaron was bullying her. For this reason, she had been
corresponding with LCB’s employees regarding how to remove an individual from
Mary Jane’s license and sought prior approval of a new retail location. She also
had informed LCB of Yaron’s ownership interest in Auroraview and had met with
LCB officers. However, at no time did she inform Yaron of the investigation or
her correspondence with LCB.
On February 2, 2017, LCB sent Conley a letter stating that because of his
interest in Auroraview, “Yaron is . . . prohibited from holding any ownership
interest in Mary Jane.” The letter asserted that Conley “need[ed] to take
immediate steps to remove him from any ownership interest in the business.” It
based its conclusion on the LCB licensing supervisor’s letter to Mary Jane dated
November 2016, which concluded that Joseph’s ownership interests in JRM and
Mary Jane would violate the tied house regulation. LCB gave Mary Jane 45 days
to remedy Yaron’s alleged violation or eliminate Yaron’s ownership interests in
either Mary Jane or Auroraview.
The February letter was the first instance that Yaron received notice of a
potential violation of the tied house regulation or of LCB’s investigation into his
ownership interests in the property and Mary Jane. He immediately began
divesting from Auroraview after confirming that divestment could cure his
violation of the tied house regulation. But in response to the letter, Conley called
a members meeting of Mary Jane for February 12, 2017. Yaron informed her
that he was not available on February 12 but was available on February 14, still
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within the 45-day stay. Conley proceeded with the meeting on February 12
despite Yaron’s unavailability. She and her counsel were the only individuals in
attendance. Conley “voted unilaterally to remove Mr. Yaron as a member of
Sierra S. Conley LLC.”
The next day, February 13, 2017, Yaron sued Conley for breach of
contract, breach of fiduciary duty, and declaratory and injunctive relief. In her
answer, Conley asserted, as an affirmative defense, that the operating
agreement was illegal because it violated public policy.
Prior to trial, LCB sent Yaron a letter stating that (1) prior to his divestment
from Auroraview, Yaron “did not qualify to hold a marijuana retail license due to
his involvement in an entity that leased property to a marijuana
producer/processor licensee” and (2) after his documented divestment from
Auroraview, he “would qualify to hold” such a license.
On June 11, 2019, after a bench trial, the trial court found that “Yaron and
his business partners leveraged Ms. Conley’s need for commercial space in a
limited market and under deadline to secure an ownership interest in her
marijuana retail license.” It gave “great deference to the expertise and opinion of
the [LCB] in this matter” but concluded that, because “Yaron was neither a
licensed marijuana producer or processor nor a partial owner of [ ] such a
business, his ownership interest in” Mary Jane did not violate RCW 69.50.328.
However, the court determined that Yaron’s “ownership interest in a property
leased to a marijuana producer simultaneous to his ownership interest in a
marijuana retailer was a regulatory cross-tier violation under WAC 314-55-018
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because it created the possibility of undue influence exerted over either entity.”
The court concluded that this cross-tier violation was “contrary to the public policy
of protecting the welfare, health and safety of the public in the arena of drug
production, processing and sale.” Accordingly, it determined that the operating
agreement “violated public policy and was unenforceable.” It therefore rescinded
the agreement, and it dismissed Yaron’s claims with prejudice. But as equitable
relief, the trial court awarded Yaron restitution.
Yaron appeals.
ANALYSIS
Tied House Regulation Violation
Yaron asserts that the trial court erred when it concluded that his
ownership in Mary Jane and AVH & BH violated the State’s tied house
regulation. We agree.
Deference to LCB’s Letter
As an initial matter, Yaron contends that we do not owe deference to
LCB’s preenforcement letter and its interpretation of WAC 314-55-018, which
concluded that Yaron’s interests violated the regulation. Because the letter does
not demonstrate that the agency has adopted and applied this interpretation as a
matter of agency policy, we agree.
“If an agency is asserting that its interpretation of an ambiguous statute is
entitled to great weight it is incumbent on that agency to show that it has adopted
and applied such interpretation as a matter of agency policy.” Cowiche Canyon
Conservancy v. Bosley, 118 Wn.2d 801, 815, 828 P.2d 549 (1992). The
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interpretation does not need to be a “formal adoption equivalent to an agency
rule, but it must represent a policy decision by the person or persons
responsible.” Cowiche Canyon Conservancy, 118 Wn.2d at 815. Nonetheless,
an agency’s policy statement is “‘advisory only’” and does “not have the ‘force of
law.’” J.E. Dunn Nw., Inc. v. Dep’t of Labor & Indus., 139 Wn. App. 35, 52-53,
156 P.3d 250 (2007) (quoting RCW 34.05.230(1); Joyce v. Dep’t of Corr., 155
Wn.2d 306, 323, 119 P.3d 825 (2005)).
Here, as discussed below, the meaning of the regulation is ambiguous.
Conley has not shown that LCB’s letter represents a policy decision, and we find
no reason to conclude that it did. The letter did not interpret the regulation; it
simply stated that the regulation prohibited Yaron from having an interest in both
Mary Jane and AVH & BJ. LCB did not explain why Yaron’s interests violated
the regulation or cite a policy that provided as much. Rather, to support its
decision that there was a violation, LCB cited and attached its letter to Joseph.
However, Joseph’s ownership interests were different than Yaron’s: Joseph was
in direct contractual privity with Dynamic Harvest, as Dynamic Harvest’s
sublessor.
LCB Senior Enforcement Captain Thomas Dixon’s testimony at trial further
supports the conclusion that the letter did not represent an agency policy. When
asked whether LCB consistently would find, as a matter of agency policy, that
interests such as Yaron’s interests in Mary Jane and AVH & BJ violate the tied
house regulation, Dixon answered, “[I]n this instance, yes.” In short, Dixon did
not testify that it is an agency policy that ownership interests such as Yaron’s
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violate the tied house regulation. Accordingly, we do not defer to LCB’s
determination in its preenforcement letter.
Conley disagrees and cites Haines-Marchel v. Washington State Liquor &
Cannabis Board3 for the proposition that “[s]ubstantial weight is afforded [to] an
agency’s interpretation of a statute within its expertise and an agency’s
interpretation of rules that the agency promulgated.” However, Haines-Marchel
involved the appeal of an adjudicative proceeding under the Washington
Administrative Procedure Act, specifically, RCW 34.05.570(3). 1 Wn. App. 2d at
745. And RCW 34.05.570(3) applies to a court’s “[r]eview of agency orders in
adjudicative proceedings.” But LCB’s letter is not an agency order based on an
adjudicative proceeding. Accordingly, Haines-Marchel is not analogous.4
Applicability of the Regulation
Yaron contends that the court erred when it concluded that his ownership
interests violated the tied house regulation. Because JRM subleased to Dynamic
Harvest and because Yaron was not a licensed marijuana producer, Yaron could
not unduly influence Dynamic Harvest or Mary Jane and did not violate the tied
house regulation.
31 Wn. App. 2d 712, 745, 406 P.3d 1199 (2017).
4Conley cites no other persuasive authority. See Dep’t of Ecology v.
Ballard Elks Lodge No. 827, 84 Wn.2d 551, 554-56, 527 P.2d 1121 (1974)
(applying deference to the Shorelines Hearings Board’s order following
adjudicative proceedings); Udall v. Tallman, 380 U.S. 1, 16, 85 S. Ct. 792, 13 L.
Ed. 2d 616 (1965) (applying deference to the Secretary of the Interior’s public
land order, which interpreted an executive order); see also Clark v. City of Kent,
136 Wn. App. 668, 675, 150 P.3d 161 (2007) (turning “for guidance on the
meaning of the regulation to the agency’s interpretation of the regulation,” which
the agency had set forth in its published guidelines).
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We interpret regulations, like statutes, de novo. Wash. Cedar & Supply
Co. v. Dep’t of Labor & Indus., 137 Wn. App. 592, 598, 154 P.3d 287 (2007).
“When interpreting an administrative regulation, we follow the general rules of
statutory construction.” Clark v. City of Kent, 136 Wn. App. 668, 672, 150 P.3d
161 (2007). “Under [the] rules of statutory construction, [we] interpret[ ] a WAC
provision to ascertain and give effect to its underlying policy and intent.” Dep’t of
Licensing v. Cannon, 147 Wn.2d 41, 56, 50 P.3d 627 (2002). To this end, we
interpret administrative rules and regulations “as a whole, giving effect to all the
language and harmonizing all provisions.” Cannon, 147 Wn.2d at 57. “If the
language of the regulation is clear, its plain meaning will reveal the agency’s
intent.” Clark, 136 Wn. App. at 672.
Under RCW 69.50.328, “[n]either a licensed marijuana producer nor a
licensed marijuana processor shall have a direct or indirect financial interest in a
licensed marijuana retailer.” And WAC 314.55.018(1), under its authority
provided by the statutory scheme,5 states, “No industry member or licensee shall
enter into any agreement which causes undue influence over another licensee or
industry member.”
We are asked to determine whether Yaron’s ownership interests have the
potential to cause undue influence over Mary Jane and/or Dynamic Harvest. It is
5 LCB adopted WAC 314.55.018 pursuant to authority vested in it by RCW
69.50.325, 69.50.342, 69.50.345, and 69.50.369. See RCW 69.50.325
(regulating the distinct licenses for marijuana producers, processors, and
retailers); RCW 69.50.342 (providing LCB the authority to adopt rules consistent
with the statutory scheme’s spirit); RCW 69.50.345 (requiring LCB to adopt rules
and regulations for licensing); RCW 69.50.369 (regulating marijuana industry
member advertising).
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clear from the regulation’s language that the primary intent is to prevent improper
influence and imbalance in power dynamics within the industry, including
throughout the business and supply chain of process, distribution, and sale of
marijuana. Specifically, the regulation and the statute prohibit cross-tier financial
interests in order to maintain industry members’ free agency to source, buy, and
supply other industry members. See RCW 69.50.325(1)-(3) (providing for three
distinct licenses for each type of marijuana business); RCW 69.50.328
(prohibiting licensed marijuana producers and licensed marijuana processors
from having a direct or indirect financial interest in a licensed marijuana retailer);
WAC 314-55-018 (prohibiting undue influence between marijuana industries).
However, LCB’s regulations do not define “undue influence.” Where the
statute or regulation provides no definition for a term, we use “its usual and
ordinary dictionary definition.” Lyft, Inc. v. City of Seattle, 190 Wn.2d 769, 781,
418 P.3d 102 (2018). The dictionary definition of “undue influence” is “such
influence over another often presumed from the existence of very close
relationships as destroys [their] free agency in the eye of the law.”6 Undue
influence could apply to varying degrees of financial relationships. For example,
it could apply to any landlord that has an interest in marijuana production,
processing, or retail business and rents to a differently tiered marijuana business,
even if the rental is not for its marijuana business. On the other side of the
spectrum, it could apply to no landlords at all. Thus, the regulation is ambiguous
with regard to what constitutes undue influence over another industry member in
6 W EBSTER’S THIRD NEW INTERNATIONAL DICTIONARY 2492 (2002).
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this situation and generally. See Cannon, 147 Wn.2d at 56 (“[A]n administrative
rule or regulation is unclear [or ambiguous] if it can be reasonably interpreted in
more than one way.”). But the statute provides clarity in that it applies
specifically to licensed marijuana producers and processors and thereby points
to a more narrow interpretation.
Here, Yaron was neither a licensed marijuana producer nor a licensed
marijuana processor. However, Yaron was a manager of AVH & BJ, and under
the lease between AVH & BJ and JRM, his prior written consent was required
before JRM could sublease any of the property. AVH & BJ’s lease to JRM
states, “The Tenant shall not assign or encumber the lease without the prior
written consent of the Landlord.” In Dynamic Harvest’s lease, it states that “this
Sublease and Landlord’s consent shall not (a) create privity of contract between
Landlord and Subtenant; . . . Landlord’s consent shall, however, be deemed
evidence of Landlord’s agreement that Subtenant may use the Subleased
Premises for the purpose set forth in [the Sublease].” Nothing in AVH & BJ’s
lease to JRM or in JRM’s lease to Dynamic Harvest provides Yaron with control
over Dynamic Harvest’s business operations or rent. Rather, Yaron’s control of
Dynamic Harvest was limited to the approval of its lease from JRM, which he
provided by signing the sublease as the landlord.
Yaron’s ability to improperly influence Dynamic Harvest ended when he
signed JRM’s lease to Dynamic Harvest, which he did prior to gaining an
ownership interest in Mary Jane. Yaron’s financial interest in Dynamic Harvest is
only by way of JRM’s payment of the lease, which JRM remains entirely
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responsible for, regardless of Dynamic Harvest’s financial prosperity. In short,
Yaron did not have sufficient authority to influence Dynamic Harvest, and
although his interest in Mary Jane subjected him to the statute, because he was
not a licensed producer, the combination of his interests did not violate
RCW 69.50.328. Thus, Yaron’s ability to improperly influence Dynamic Harvest
for the benefit of Mary Jane, or vice versa, was too tenuous to result in undue
influence, and his interest in Dynamic Harvest did not destroy either companies’
free agency, as a matter of law. Yaron’s ownership interests did not invoke
concerns regarding undue influence between industry members and did not
violate the tied house regulation.7
Conley disagrees and contends that a producer’s landlord cannot have an
interest in a retailer without violating the regulation. The trial court agreed and
found that LCB “interprets [the] regulation to prohibit a landlord of a marijuana
producer/processor from holding an ownership interest in a marijuana retailer
because the landlord entity has a financial interest in the success of the
producer/processor.” But Yaron was not the direct landlord to Dynamic Harvest
and did not have a sufficiently indirect or direct financial interest in the producer.
Rather, Joseph owned JRM and had a financial interest in Dynamic Harvest.
Moreover, beyond the preenforcement letter, Conley points to nowhere in the
record or in LCB’s interpretations or regulations that supports the court’s
conclusion that the letter followed agency policy. Accordingly, we are not
7 As an example of an improper financial relationship, JRM’s financial
interest in Dynamic Harvest is indirect and a violation of the tied house
regulation.
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persuaded.
Conley also asserts that Yaron’s ownership interest in the property by
itself caused the potential for undue influence over Mary Jane. The court
correctly noted that it is difficult to secure a legally sufficient property, which limits
Mary Jane’s ability to negotiate and, thus, its ability to resist improper influences,
like those from Yaron seeking an ownership interest in the retail business.
However, it was only Yaron’s status as a landlord in an area that can be leased
to a marijuana business that caused undue influence over Mary Jane, not his
status as a landlord of a producer. Thus, this interest does not create undue
influence as imagined or designed to be prevented by the regulation and statute.
Violation of Public Policy
Yaron asserts that the court erred in concluding that the operating
agreement violated public policy and in rescinding it. Because the operating
agreement did not involve or condone cross-tier financial interests in the
marijuana industry, the operating agreement did not violate public policy, and the
court erred in rescinding it.
Whether a contract violates public policy is a question of law that we
review de novo. Dix v. ICT Grp., Inc., 160 Wn.2d 826, 833-34, 161 P.3d 1016(2007). “As a matter of law, ‘[c]ontract terms are unenforceable on grounds of
public policy when the interest in [their] enforcement is clearly outweighed by a
public policy against the enforcement of such terms.’” LK Operating, LLC v.
Collection Grp., LLC, 181 Wn.2d 48, 85, 331 P.3d 1147 (2014) (first alteration in
original) (quoting State v. Noah, 103 Wn. App. 29, 50, 9 P.3d 858 (2000)).
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Contracts “are not to be held void as being contrary to public policy unless they
are clearly contrary to what the legislature or judicial decision has declared to be
the public policy or they manifestly tend to injure the public in some way.” Motor
Contract Co. v. Van Der Volgen, 162 Wash. 449, 454, 298 P. 705 (1931). And
whether something can be a source of public policy in the context
of contract enforceability should depend on whether it is primarily
intended to promote the public good or protect the public from
injury, and whether it was issued by an entity with the legal power
and authority to set public policy in the relevant context.
LK Operating, LLC, 181 Wn.2d at 86. We determine whether a contract violates
public policy by looking at all of the circumstances surrounding the case. Van
Der Volgen, 162 Wash. at 454.
Here, the tied house regulation and its prohibition of undue influence by
cross-tier interests provide a basis for public policy and promotes the public
good. Specifically, the tied house regulation, which provides that LCB will
suspend or cancel licenses when violations exist, fulfills LCB’s purpose to
promote public health, safety, and welfare in the context of marijuana regulations.
See, e.g., WAC 314-55-050(17) (asserting that LCB acts to deny, suspend, or
cancel marijuana licenses when it is in the “best interest of the welfare, health, or
safety of the people of the state”). In short, the regulation is meant to protect
individuals within the industry from undue influence and consumers from price
gouging and other concerns.
In addition, the regulation was issued by LCB in an area in which it has
authority to set public policy. That is, the legislature granted LCB the legal
authority to create and enforce cannabis regulations “not inconsistent with the
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spirit” of the recreational marijuana law and “necessary for the immediate
preservation of the public peace, health, or safety, or support of the state
government and its existing public institutions, and takes effect immediately.”
RCW 69.50.342(1); LAWS OF 2020, ch. 133, § 5. Because the regulation
promotes the public good and because LCB created the regulation in the context
of marijuana industry regulations, the regulation can be a source of public policy
and can prohibit enforcement of contracts contrary thereto.
However, the public policy that results from the regulation is not affronted
by the operating agreement. The operating agreement stated that Conley would
have a 66.67 percent interest, that Yaron would have a 33.33 percent interest in
Mary Jane, and that Yaron would supply the business with $40,000. It further
provided Mary Jane’s procedures for decision-making and for distributions. The
one-page operating agreement had no provisions offensive to the purpose of
public health, safety, or welfare, and it did not invoke concerns of cross-tier
financial influence or undue influence. Therefore, the trial court erred when it
concluded that the operating agreement violated public policy. And because the
operating agreement did not violate public policy, we reverse the trial court’s
order rescinding the contract.
The trial court and Conley focused on the problematic creation of the
operating agreement, which arose out of a power disparity between Yaron and
Conley due to Conley’s inability to find satisfactory rental space. To this end,
Conley cites LK Operating, LLC, where an attorney, Leslie Powers, and another
individual, Brian Fair, allegedly entered into an agreement regarding a joint debt
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collection venture, The Collection Group LLC (TCG). 181 Wn.2d at 59. At the
time, Powers and their law firm provided free legal services for TCG, and
Power’s company, LK Operating (LKO), sent checks to TCG for the purpose of
purchasing debt portfolios. LK Operating, LLC, 181 Wn.2d at 59-61. Fair
asserted that any agreement was void because Powers did not comply with the
Rules of Professional Conduct (RPC), which “restricts an attorney’s ability to
enter business transactions with current clients.” LK Operating, LLC, 181 Wn.2d
at 62. Powers argued that he did not enter into an agreement with TCG but that
LKO was the partner to the agreement. LK Operating, LLC, 181 Wn.2d at 62.
He, therefore, asserted that the agreement did not violate the RPCs and did not
violate public policy. LK Operating, LLC, 181 Wn.2d at 62.
The court disagreed and concluded that, given “the entire set of
arrangements contemplated by the joint venture proposal,” Powers was a party
to the agreement and entered the agreement as an attorney, implicating the
RPC. LK Operating, LLC, 181 Wn.2d at 74-75, 80. The court held “that the
business transaction contemplated by the joint venture proposal is unenforceable
on public policy grounds” because it violated the RPCs. LK Operating, LLC, 181
Wn.2d at 85-86. It affirmed the trial court’s rescission of the agreement between
LKO and TCG. LK Operating, LLC, 181 Wn.2d at 85.
Unlike LK Operating, LLC, here, the circumstances surrounding the
agreement, including the agreement itself, the transaction, and Yaron’s
ownership interests, did not violate LCB’s regulations, public policy, or affront the
public good. While LK Operating, LLC involved a clear violation of the RPCs,
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Yaron’s ownership interests did not clearly violate the tied house regulation. And
the regulation is not concerned with a landlord’s decision to rent to an industry
member, like Mary Jane, in isolation. Rather, the regulation prohibits
agreements, including rental agreements, which could result in undue influence.
But the operating agreement here could not result in undue influence within the
marijuana industry, and it did not contravene public policy.
We reverse and remand for the matter to proceed to trial.
WE CONCUR:
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