What changed in this filing

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Item 3. Legal Proceedings

2023-03-03 compared with 2022-03-16 · 26 added, 163 removed, 3 unchanged (98% of the section changed)

Legal Proceedings

Terminated Employment

July 2019, Thomas Kidrin, the former chief executive officer and a former director of the Company, filed a complaint in the Massachusetts

Superior Court which alleged the Company failed to pay all wages owed to him and breached his employment agreement, and requested

multiple damages, attorney fees, costs, and interest.

The Company moved to dismiss certain counts of the complaint and asserted

counterclaims against Mr.

Kidrin which alleged breach of contract, breach of fiduciary duty, money had and received, and unjust

While the Company’s

motion to dismiss was pending, the parties entered into a settlement agreement and general release in August 2021 whereby, among other

conditions, (i) Mr.

Kidrin’s complaint was dismissed with prejudice, (ii) the Company issued to Mr.

Kidrin five-year warrants to

purchase up to 1,000,000 shares of the Company’s common stock at an exercise price of $0.50 per share, (iii) the Company irrevocably

transferred intangible assets relating to the online virtual worlds business the Company had conducted in early 2014, prior to its pivot

into the legal cannabis industry (such assets had zero carrying value on the Company’s balance sheet), and (iv) each party released

and discharged the other from all claims, losses, and liabilities.

Maryland Litigation

previously discussed in Part I, Item 1.

Business in this report, in 2019, the members of Kind had sought to renege on the parties’

original agreement to a partnership/joint venture made in 2016 and subsequent MOU.

The Company engaged with the members of Kind in good

faith in an attempt to reach updated terms acceptable to both parties;

however, the members of Kind failed to reciprocate in good faith,

resulting in an impasse.

Incrementally, both parties through counsel further sought to resolve the impasse;

however, such initiative

resulted in both parties commencing legal proceedings.

November 2019, Kind commenced an action by filing a complaint against the Company in the Circuit Court for Washington County,

MD captioned Kind Therapeutics USA, Inc.

MariMed, Inc., et al.

C-21-CV-19-000670) (the “Complaint”).

Complaint, as amended, alleges breach of contract, breach of fiduciary duty, unjust enrichment, intentional misrepresentation,

rescission, civil conspiracy, and seeking an accounting and declaratory judgment and damages in excess of $75,000 (the Court has

subsequently dismissed Kind’s claims for declaratory judgment on the lease, rescission of the lease, and civil conspiracy).

On November 15, 2019, the Company filed counterclaims against Kind and a third-party complaint against the members of Kind (Jennifer

DiPietro, Susan Zimmerman, and Sophia Leonard-Burns) and William Tham (the “Counterclaims”).

The Counterclaims, as amended,

allege breach of contract with respect to each of the partnership/joint venture agreement, the MOU, the MSA, the Lease, and the Licensing

and Manufacturing Agreement (“LMA”), unjust enrichment, promissory estoppel/detrimental reliance, fraud in the inducement,

breach of fiduciary duty, and seeks reformation of the MSA, a declaratory judgment regarding enforceability of the partnership/joint

venture arrangement and/or the MOU, specific performance of the parties’ various contracts, and the establishment of a constructive

trust for the Company’s benefit.

The Counterclaims also seek damages.

the time the Complaint and Counterclaims were filed, both

parties, the Company (including its subsidiaries Mari Holdings MD LLC and MariMed Advisors Inc.) and Kind, brought

motions for a temporary restraining order and a preliminary injunction.

By Opinion and Order entered on November 21, 2019, the Court

denied both parties motions for a temporary restraining order.

In its opinion, the Court specifically noted that, contrary to Kind’s

allegations, the MSA and the Lease “appear to be independent, valid and enforceable contracts.”

hearing on the parties’ cross-motions for preliminary injunction was held in September 2020 and November 2020.

Also in November

2020, the Court granted the Company’s motion for summary judgment as to the Lease, determining that the Lease is valid and enforceable.

Based on this ruling, the Company is seeking judgment at trial in the amount of approximately $5.4 million for past due rent and expenses

owed by Kind under the Lease.

December 2020, the Court entered a Preliminary Injunction Order, accompanied by a Memorandum Opinion, denying Kind’s motion for

a preliminary injunction (which Kind had withdrawn at the conclusion of the hearing) and granting the Company’s request for preliminary

The Court determined that the Company is likely to succeed with respect to the validity and enforceability of the MSA and

the LMA, that the Company would suffer substantial and irreparable harm without the preliminary injunction, and that the balance of convenience

and public interest both warranted the issuance of a preliminary injunction in the Company’s favor.

The Court ordered, inter

alia, that the MSA and LMA are in effect pending judgment after trial on the merits, and that Kind and its members, and their attorneys,

agents, employees, and representatives, are prohibited from (a) interfering with the Company’s duties and responsibilities under

the MSA and (b) withdrawing funds, making any distribution, paying any loans, returning any capital, or making any payment towards a

debt from any Kind bank or other financial account(s) without written consent of the Company or Order of the Court, thereby preserving

the Company’s control of Kind’s operations and finances at least through the jury trial currently scheduled to begin on March

Further, the Court ordered Kind to pay management and licensing fees to the Company beginning January 1, 2021.

Kind has noted

an appeal of the Order to the Maryland Court of Special Appeals, which the Court denied in December 2021, leaving the preliminary

injunction order in effect.

addition to the favorable rulings on the Lease, MSA, and LMA, the Company believes that its claims for declaratory relief, specific performance,

and/or breach of contract with respect to the partnership/joint venture agreement claims are meritorious.

Further, the Company believes

that Kind’s claims against the Company are without merit.

On March 18, 2021, the Court issued an opinion and order on Kind’s

motion for summary judgment finding that the MOU was not enforceable by the Company against Kind as a final binding agreement.

is evaluating an appeal of this ruling which under Maryland rules can only be pursued upon final judgment.

March 2021, the Kind parties filed motions to modify the preliminary injunction order or, alternatively, for direction from the Court

based on Kind’s claim to have terminated the MSA.

In September 2021, the court denied the motion to modify the preliminary injunction

and granted, in part, the motion for direction, but only with respect to Kind’s request to pay litigation costs.

The preliminary

injunction remains in full effect, and the Company filed a petition for civil contempt against the Kind parties for interfering with

the Company’s management of Kind.

The contempt petition remains pending.

December 31, 2021, the parties to the foregoing Maryland litigation entered into a global Confidential Settlement and Release Agreement,

along with the parties to the DiPietro lawsuit (described below).

Also on such date, as previously discussed in Part I, Item 1.

in this report, the Company entered into (i) a membership interest purchase agreement with the members of Kind to acquire 100% of

the equity ownership of Kind, and (ii) a membership interest purchase agreement with one of the members of Kind to acquire such member’s

entire equity ownership interest Mari-MD and Mia.

January 4, 2022, the Maryland court entered an order staying the litigation and rescheduling the jury trial to October 24, 2022, to November

4, 2022, in the event the transactions contemplated by the Confidential Settlement and Release Agreement are not consummated.

simultaneous with the closing of the transactions contemplated by the Confidential Settlement and Release Agreement, the foregoing Maryland

litigation will be dismissed with prejudice, along with the DiPietro lawsuit.

the event the transactions contemplated by the Confidential Settlement and Release Agreement are not consummated, the Company intends

to aggressively prosecute and defend the action.

DiPietro Lawsuit

In August 2020, Jennifer

DiPietro, directly and derivatively on behalf of Mari-MD and Mia,

commenced a suit against the Company’s CEO, CFO, and wholly-owned subsidiary MariMed Advisors Inc.

(“MMA”), in Suffolk

Superior Court, Massachusetts.

this action, DiPietro, a party to prior ongoing litigation in Maryland involving the Company and Kind as discussed above, brings claims

for breach of fiduciary duty, breach of contract, fraud in the inducement, aiding and abetting the alleged breach of fiduciary duty,

and also seeks access to books and records and an accounting related to her investments in Mari-MD and Mia.

DiPietro seeks unspecified

money damages and rescission of her interest in Mari-MD, but not of her investment in Mia, which has provided substantial returns to

her as a member.

Company has answered the complaint and MMA filed counterclaims against DiPietro on its own behalf and derivatively on behalf of Mari-MD

for breach of her fiduciary duties to each of those entities, and for tortious interference with Mari-MD’s lease and MMA’s

management services agreement with Kind.

December 31, 2021, the parties to the foregoing Massachusetts litigation entered into a global Confidential Settlement and Release Agreement,

along with the parties to the Maryland lawsuit described above.

Because the Massachusetts litigation

involves derivative claims, the Massachusetts Superior Court must approve the parties’ proposed dismissal of those claims.

parties to the Massachusetts litigation have filed a joint motion seeking to dismiss the derivative claims.

Simultaneous with

the closing of the transactions contemplated by the Confidential Settlement and Release Agreement, all

direct claims in the foregoing Massachusetts litigation will be dismissed with prejudice, along with the Maryland lawsuit.

the event the transactions contemplated by the Confidential Settlement and Release Agreement are not consummated, the Company believes

that the allegations of the complaint in the foregoing Massachusetts litigation are without merit and intends to defend the case vigorously.

The Company’s counterclaim seeks monetary damages from DiPietro, including the Company’s legal fees in the Maryland lawsuit.

2019, the Company’s MMH subsidiary sold and delivered hemp seed inventory to GenCanna Global Inc., a Kentucky-based cultivator,

producer, and distributor of hemp (“GenCanna”).

Bankruptcy Claim

During 2019, the Company’s MMH subsidiary sold and delivered hemp seed inventory to OGG, Inc.

(f/k/a GenCanna Global Inc.), a Kentucky-based cultivator, producer, and distributor of hemp (“GenCanna”).

At the time of sale, the Company owned a 33.5% ownership interest in GenCanna.

The Company recorded a related party receivable of approximately $29.0 million from the sale, which was fully reserved on December 31,

February 2020, GenCanna USA, GenCanna’s wholly-owned operating subsidiary, under pressure from certain of its creditors including

MGG Investment Group LP, GenCanna’s senior lender (“MGG”), agreed to convert a previously-filed involuntary bankruptcy

proceeding with the U.S.

Bankruptcy Court in the Eastern District of Kentucky (the “Bankruptcy Court”) into a voluntary Chapter

11 proceeding.

In addition, GenCanna and GenCanna USA’s subsidiary, Hemp Kentucky LLC (collectively with GenCanna and GenCanna

USA, the “GenCanna Debtors”), filed voluntary petitions under Chapter 11 in the Bankruptcy Court.

May 2020, after an abbreviated solicitation/bid/sale process, the Bankruptcy Court, over numerous objections by creditors and shareholders

of the GenCanna Debtors which included the Company, entered an order authorizing the sale of all or substantially all of the assets of

the GenCanna Debtors to MGG.

After the consummation of the sale of all or substantially all of their assets and business, the GenCanna

Debtors n/k/a OGGUSA, Inc.

and OGG, Inc.

(the “OGGUSA Debtors”) filed their liquidating plan of reorganization (the “Liquidating

Plan”) to collect various prepetition payments and commercial claims against third parties, liquidate the remaining assets of the

ODDUSA Debtors, and make payments to creditors.

The Company and the unsecured creditors committee filed objections to such Liquidating

Plan, including opposition to the release of litigation against the OGGUSA Debtors’ senior lender, MGG, for lender liability, equitable

subordination, and return of preference.

As a part of such plan confirmation process, the OGGUSA Debtors filed various objections to

proofs of claims filed by various creditors, including the proof of claim in the amount of approximately $33.6 million filed by the Company.

Through intense and lengthy negotiations with the OGGUSA Debtors and the unsecured creditors committee regarding the objections to the

Liquidating Plan, the Company reached an agreement with the OGGUSA Debtors to withdraw the objections to the Company’s claim and

to have it approved by the Bankruptcy Court as a general unsecured claim in the amount of $31.0 million.

the approval of the Liquidating Plan, the OGGUSA Debtors have been in the process of liquidating the remaining assets, negotiating and

prosecuting objections to other creditors’ claims, and pursuing the collection of accounts receivable and Chapter 5 bankruptcy

avoidance claims.

In January 2022, the

Company, at the request of the Liquidating Plan administrator for the OGGUSA Debtors, executed a written release of claims, if any, of

the Company against Huron Consulting Group (“Huron”), a financial consulting and management company retained by the senior

lender of the OGGUSA Debtors to perform loan management services for the lender and OGGUSA Debtors prior to and during their Chapter

11 bankruptcy cases.

Such release was executed in connection with a comprehensive settlement agreement between the OGGUSA Debtors and

In consideration for the Company’s execution of the release, Huron paid an additional $40,000 to the bankruptcy estates

of the OGGUSA Debtors to be included in the funds to be distributed to creditors, including the Company.

of the date of this filing, there is still insufficient information as to what portion, if any, of the Company’s allowed claim

will be paid upon the completion of the liquidation of the remaining assets of the OGGUSA Debtors.

The Company recorded a related party receivable of approximately $29 million from the sale, which was fully reserved at December 31, 2019.

On January 24, 2020, an involuntary bankruptcy proceeding under Chapter 11 was filed against GenCanna and its wholly-owned subsidiary, OGGUSA Inc.

(f/k/a GenCanna Global US, Inc.) ("OGGUSA" and together with GenCanna, the "OGGUSA Debtors") in the U.S.

Bankruptcy Court in the Eastern District of Kentucky (the "Bankruptcy Court").

In February 2020, the OGGUSA Debtors, under pressure from certain of its creditors including its senior lender MGG Investment Group LP (MGG"), agreed to convert the involuntary bankruptcy proceeding into a voluntary Chapter 11 proceeding.

The OGGUSA Debtors' subsidiary, Hemp Kentucky LLC, also filed voluntary petitions under Chapter 11 in the Bankruptcy Court.

In May 2020, after an abbreviated solicitation/bid/sale process, the Bankruptcy Court, over numerous objections by creditors and shareholders of the OGGUSA Debtors, which included the Company, entered an order authorizing the sale of all or substantially all of the assets of the OGGUSA Debtors to MGG.

After the consummation of the sale of all or substantially all of their assets and business, the OGGUSA Debtors filed their liquidating plan of reorganization (the “Liquidating Plan”) to collect various prepetition payments and commercial claims against third parties, liquidate the remaining assets of the OGGUSA Debtors, and make payments to creditors.

The Liquidating Plan was confirmed by the Bankruptcy Court on November 12, 2020.

Since the approval of the Liquidating Plan, the OGGUSA Debtors have been in the process of liquidating the remaining assets, negotiating and prosecuting objections to other creditors’ claims, and pursuing the collection of accounts receivable and Chapter 5 bankruptcy avoidance claims.

In January 2022, the Company, at the request of Oxford Restructuring Advisors LLC, the administrator of the Liquidating Plan for the OGGUSA Debtors (the "Plan Administrator"), executed a written release of claims, if any, of the Company against Huron Consulting Group (“Huron”), a financial consulting and management company retained by the senior lender of the OGGUSA Debtors to perform loan management services for the lender and OGGUSA Debtors prior to and during their Chapter 11 bankruptcy cases.

Such release was executed in connection with a comprehensive settlement agreement between the OGGUSA Debtors and Huron.

In consideration for the Company’s execution of the release, Huron paid an additional $40,000 to the bankruptcy estates of the OGGUSA Debtors to be included in the funds to be distributed to creditors, including the Company.

In connection with the discussions of the Company with the OGGUSA Debtors relating to the Huron settlement, the Plan Administrator raised issues relating to a potential claim against MariMed Hemp, Inc.

("MHI") for certain preferential transfers of assets, which were valued at $250,000 by the Plan Administrator, of the OGGUSA Debtors alleged to have been made to MHI in payment of a $600,000 loan made by the Company prior to the Chapter 11 bankruptcy of the OGGUSA Debtors (the "Preferential Claim").

On April 20, 2022, the Plan Administrator filed its Complaint to Avoid and Recover Transfers Pursuant to 11 U.S.C.

§§547 and 550 and to Disallow Claims Pursuant to 11 U.S.C.

§502 (the "Complaint"), asserting the Preferential Claim seeking the recovery of an amount no less than $200,000 and to disallow the MHI claim until such time as such preferential transfer has been repaid to the OGGUSA Debtors.

On August 1, 2022, an answer to the Complaint was filed, asserting counterclaims and third-party claims against OGGUSA, the Plan Administrator, and Huron for declaratory judgment (the "Related Claims") in relation to terms of the Plan of Reorganization (the "Plan") and the allowance of the MHI claim under the Plan.

The Company has and continues to vigorously deny that any of the Preferential Claim exists in that such claims were waived and released in connection with the Company's settlement agreement and stipulations for its support of and voting for the Plan.

As such, the Company believes that such claims are meritless and have no basis in fact or law.

As of the date of this filing, there is insufficient information as to how much of the Company's allowed general unsecured claim, if any, will be paid upon the completion of the liquidation of the remaining assets of the OGGUSA Debtors.

Mine Safety Disclosures

Not applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 3. Legal Proceedings