A legal battle over a cannabis cultivation facility worth more than $30 million in Shelton, Wash., alleges an acquiring company’s former directors stole the property and business in a breach of fiduciary duties, conversion and unjust enrichment.
The lawsuit was filed Sept. 13 by boutique litigation law firm Dovel & Luner in the Superior Court of Mason County on behalf of Agrios Global and its wholly owned subsidiary, Timberland Bay Properties.
Founded in 2017 in Vancouver, British Columbia, Agrios leases and manages properties and equipment to eco-sustainable agronomy and provides services to support all aspects of aeroponic cultivation in the cannabis sector. Timberland is its limited liability subsidiary in Washington.
The lawsuit names former Agrios directors and Timberland officers James Foster and Christopher Kennedy as defendants in the case, which stems from Agrios’ 2018 acquisition of the Shelton facility for roughly $20 million. The title to the facility was held in Timberland’s name.
Foster was the board chairman at Agrios, while Kennedy was the CEO.
Foster previously owned the Shelton facility before Agrios acquired it in 2018. That transaction allowed Foster to invest in Agrios without providing cash in exchange for approximately 26% of the shares in the publicly traded company.
Under the direction of Foster and Kennedy, Agrios invested an additional $6 million in the facility to increase capacity and install new hydroponic equipment. That expansion and renovation was completed by 2020, and the facility had been leased out and was generating “millions of dollars in annual net profits” for Agrios and Timberland, according to the lawsuit.
At that point, the facility was worth in excess of $30 million, according to the complaint, and Agrios’ only debt was to a bank with an outstanding balance of less than $3 million. But in September 2020, Foster and Kennedy arranged for JRV Finance & Lease LLC, which was controlled by Foster, to replace the bank as a lender on the bank loan, according to the lawsuit.
Soon after, JRV—now doing business as Flora Real Estate LLC—called the loan despite Agrios not having $3 million in cash immediately on hand to pay the entire balance, according to the lawsuit.
“Under the terms of the loan, JRV’s remedy would be to commence foreclosure proceedings, which would give Agrios and Timberland at least four months to arrange debt or equity financing to pay off the $3 million loan,” the lawsuit states. “As directors and officers of Agrios and Timberland, Foster and Kennedy had fiduciary duties to arrange that financing. And because the Shelton facility was worth in excess of $30 million and was generating millions of dollars in net profits, arranging for $3 million in capital would have been relatively easy to accomplish.”
Instead of arranging for that financing, Foster and Kennedy had Timberland sign a deed in lieu of foreclosure, according to the lawsuit. That deed transferred the entire Shelton facility to JRV, allowing Foster’s company “to reap the benefits of the business that Agrios had created by investing millions of dollars and years of effort,” according to the lawsuit.
“Directors and officers are supposed to act for the interests of the company they serve—not in their own self-interest,” Alexander Erwig, of Dovel & Luner, who submitted the complaint to the court, said in a press release provided to Cannabis Business Times. “Plaintiffs brought this case to reclaim their business and stop Foster and Kennedy from profiting from their breaches of duty.