## Facts

- Michele Hammer loaned $250,000 to Today’s Health Care II, Co. (THC) under a written loan agreement and promissory note.
- The loan documents stated the funds were for financing a “retail medical marijuana sales and growth center” in Colorado.
- At the time, Colorado law allowed medical-marijuana businesses, but federal law (the Controlled Substances Act (CSA)) prohibited manufacturing and distributing marijuana and prohibited using property to carry out marijuana-related activity.
- The promissory note required THC to pay 12% annual interest with monthly interest payments due on the 12th day of each month.
- The loan agreement provided a five-day cure period after a default.
- If THC failed to cure within five days, the loan documents required repayment of principal at a 21% default interest rate, along with attorneys’ fees and costs incurred to enforce and collect.
- THC failed to timely pay interest due March 12, 2011.
- As of March 17, 2011, THC was in default under the loan documents.
- Hammer sued in the Superior Court of Arizona in Maricopa County for breach of contract to enforce the loan agreement and promissory note. The matter proceeded on cross-motions for summary judgment focused on enforceability.

## Issues

1. Whether a court may enforce a loan agreement and promissory note that expressly finance a medical-marijuana facility when the financed activity is prohibited by the federal Controlled Substances Act, even if allowed under Colorado law.
2. If the loan documents are void for illegality, whether the lender may obtain noncontract relief (such as restitution) connected to the same transaction.

## Decision

- The court denied Hammer’s motion for summary judgment.
- The court granted THC’s cross-motion for summary judgment.
- The court held the loan documents void and unenforceable because their stated purpose was to fund conduct prohibited by federal law under the CSA.
- The court entered a judgment of dismissal, leaving the lender without a contract remedy; the court also indicated that equitable relief would not be available where it would require the court to aid a transaction contrary to public policy.

## Legal Principles

- A contract is unenforceable when its purpose or required performance is illegal or contrary to public policy.
- Federal law under the CSA makes marijuana manufacturing and distribution unlawful, and it also prohibits using real property to carry out marijuana-related activity; state authorization does not eliminate the federal prohibition.
- Courts generally will not enforce agreements that directly facilitate criminal conduct under federal law, even where the parties intended compliance with a state regulatory scheme.
- When illegality is central to the transaction described in the contract itself, courts typically leave the parties where they placed themselves and do not award relief that would effectively validate or support the unlawful arrangement.
- Federal authority to prohibit marijuana-related activity applies notwithstanding state medical-marijuana laws (as recognized by federal supremacy principles and cases such as Gonzales v. Raich).

## Conclusion

In *Hammer v. Today’s Health Care II, Co.*, the Maricopa County Superior Court refused to enforce a loan agreement and promissory note that expressly funded a Colorado medical-marijuana sales and grow facility, holding the loan documents void as against public policy because the funded activity violated the federal Controlled Substances Act; the court therefore denied the lender’s summary-judgment request, granted the borrower’s cross-motion, and dismissed the action, with no equitable recovery available for the same illegal transaction.


Hammer v. Today's Health Care II, Co., Nos. CV2011-051310 and -051311 (April 17, 2012)