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Bennett v. Lally

Court of Chancery of Delaware

September 5, 2014


Submitted: June 30, 2014

Scott G. Wilcox, Esquire Whiteford Taylor Preston, LLC

Timothy M. Holly, Esquire Connolly Gallagher LLP

Dear Counsel:

Plaintiffs, A. Judson Bennett ("Bennett"), Jeffrey Siskind ("Siskind"), and Delaware Compassionate Care, Inc. ("Delaware Compassionate Care, " and collectively with Bennett and Siskind, the "Plaintiffs"), initiated efforts to become licensed to operate a medical marijuana facility in the State of Delaware[1] after the General Assembly passed the Delaware Medical Marijuana Act (the "Act").[2] The Act authorized the creation of compassionate care facilities, selling marijuana to patients with serious medical conditions, in Delaware's three counties, but was suspended while its legality was questioned by the United States Department of Justice. The suspension was lifted in August 2013, and the number of care centers was reduced from three to a single pilot center. On December 26, 2013, the State of Delaware Department of Health and Social Services ("DHSS") sought proposals (the "RFP") for the registration and operation of a compassionate care center.

Plaintiffs, through Sussex County Compassion Care Center, Inc., a different entity which was later dissolved, [3] hired Defendant Mark S. Lally ("Lally"), a Delaware resident with a governmental affairs and consulting business, to assist in their endeavors. Specifically, Lally was to serve as a "spokesperson and lobbyist" and to "undertak[e] any and all means necessary to assist . . . in obtaining all necessary licenses to cultivate and distribute medical marijuana in the State of Delaware."[4] This agreement (the "Initial Agreement") provided for Lally to be paid an initial fee and then a monthly stipend for the next twelve months.[5] Lally allegedly met with Delaware officials during this time, including the Secretary of DHSS, and through these meetings gathered information about Delaware's marijuana licensing requirements and information necessary to operate a marijuana dispensary. Lally also provided DHSS's Secretary with information, supplied by Plaintiffs, relating to the successful bid for New Jersey's medical marijuana facility which was used by DHSS in composing its RFP.

The delays in pursuing the license resulting from the suspension of the Act required the parties to consider extending Lally's engagement. Discussion commenced in December 2012, and Bennett promised additional payments to Lally to continue helping Plaintiffs obtain the DHSS license. These negotiations culminated on January 14, 2013, in the execution of the Agreement to Continue Representation (the "Amended Agreement") with Bennett and Siskind.[6]

The Amended Agreement provided Lally additional monthly payments for six months, and Bennett and Siskind had the option to renew or extend that agreement to have the benefit of Lally's continued representation. It set aside $500 each month which would be paid to Lally upon receipt of a license and granted Lally the right to receive 10% of the profits of the medical marijuana facility. It also provided that "Lally shall refrain from assisting others in a similar enterprise unless and until Siskind and Bennett withdraw from pursuing said licensing, and in the event that Lally receives 10% participation as above."[7] When Lally apparently sought to continue his representation, but limited to a six-month term, Bennett informed him that his continued representation and consent not to assist another entity in obtaining a license was a "sticking [or sticky] point."[8]

While Plaintiffs and Lally waited for the RFP's release, Lally continued to work for Plaintiffs through the end of 2013. He submitted comments and questions on behalf of Delaware Compassionate Care to a DHSS representative[9]and wrote to Plaintiffs to keep them updated on the RFP process and other parties seeking the license.[10] On December 28, 2013, Lally sent the just released RFP to Plaintiffs and, at the suggestion of Plaintiffs, agreed to attend a pre-proposal meeting with them at the end of January 2014, and to meet with them in Florida to finalize their proposal. In February, Plaintiffs and Lally discussed the bidding requirements, their strategy for addressing those items, and other information they would include in a proposal to distinguish their proposal from competing proposals. Although the proposal had not yet been completed, Lally executed the signature page representing that he was Delaware Compassionate Care's Executive Director and predated it in advance of the submission date.[11]

Also at that time, Lally notified Plaintiffs that he had been contacted by Sigal Consulting ("Sigal"), which operates a medical marijuana facility in Rhode Island. Sigal asked if Plaintiffs would partner with it to submit a proposal. Lally thought they should meet and, because Plaintiffs needed additional financing to pursue their efforts, they agreed to a meeting, which Lally subsequently arranged.

Between February 19 and 21, 2014, Bennett and Lally met with Sigal at the Rhode Island dispensary to discuss a medical marijuana facility's needs and whether a partnership could be formed. Plaintiffs allegedly told Sigal that they intended for Lally to manage their Delaware facility. Plaintiffs and Lally continued to plan for a possible partnership, and in late February, Lally, on Plaintiffs' behalf, met with Sigal once again in Delaware. He showed Sigal's representatives Plaintiffs' proposed locations for the facility, including the one they had identified as the best possible site (the "Property"). Afterward, the parties again discussed partnership terms, but were unable to agree on the proportionate interest which Plaintiffs should receive. Negotiations broke down, and Plaintiffs abandoned the idea.

Plaintiffs allege that Lally soon thereafter tried to distance himself from Plaintiffs, presumably to initiate a relationship with Sigal. On March 6, 2014, Bennett reminded Lally of Lally's earlier agreement not to work with another party and warned that if he violated his agreement, Bennett would pursue legal action.[12]Plaintiffs contend that Lally contacted Sigal to pursue a proposal, and offered it a Delaware representative, an RFP requirement, as well as information he learned while working for Plaintiffs. Lally was appointed President and Director of Defendant First State Compassion Center, Inc. ("First State"), Sigal's entity created to operate its dispensary in Delaware.

Plaintiffs assert that they were unaware that Lally had become employed by Sigal, and Bennett therefore wrote to Lally on March 20, 2014 to inform him that Plaintiffs had located financial backing which allowed them to meet the RFP's requirements. Bennett informed Lally that he would be their CEO; however, Lally did not accept the position. Plaintiffs also sought to lease the Property. Although they were informed that no other offers for it had been made, they later learned that Sigal had leased the Property. With limited inquiry, they found a request for a zoning certification for the Property, dated April 2, 2014, submitted by Lally on behalf of First State.[13] Soon thereafter and not long before the deadline to submit a proposal to DHSS, Plaintiffs contend, Lally informed them that he no longer intended to represent them and would not supply information and data he collected while working for Plaintiffs.

Plaintiffs "had to scramble to address matters" Lally previously had managed and they had to find a new location, since First State had leased the Property.[14] Nonetheless, they were able to submit a proposal. Because of the RFP's residency requirement, Bennett reestablished his Delaware residency. Defendants also submitted a bid, which Plaintiffs contend could not have been done in such a limited time frame, without Lally's sharing and using confidential information gained from working for Plaintiffs. Plaintiffs sent Lally a cease and desist letter on April 10, 2014, demanding that he withdraw the ...

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