Arbitration of LLC Dispute

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S. Todd Neal (Bar No. 174827)
Jamie L. Altman (Bar No. 280075i
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PROCOPIO, CORY, HARGREAVE44.1kaperior Court
SAVITCH LLP
525 B Street, Suite 2200
NOV 05 2013
San Diego, CA 92101
Telephone: 619.238.1900
Deputy
By:
Facsimile: 619.235.0398

F' LED
clrk ts superior Court

5 2013
By: A. SEAMONS, Deputy

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Attorneys for Defendant
Medical Marijuana, Inc., a California Corporation

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SUPERIOR COURT OF THE STATE OF CALIFORNIA

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COUNTY OF SAN DIEGO

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DIXIE HOLDINGS, LLC, a Colorado limited
liability company, derivatively on behalf of RED
DICE HOLDINGS, LLC, a California limited
liability company,

V.

REPLY BRIEF IN SUPPORT OF
DEFENDANT MEDICAL MARIJUANA,
INC.'S VERIFIED PETITION TO
COMPEL ARBITRATION AND
APPOINT AN ARBITRATOR AND
MOTION TO STAY

MEDICAL MARIJUANA, INC., a California
corporation,

(CONTRACTUAL ARBITRATION —
C.C.P. §§ 1281 ET SEQ.)

Plaintiff,

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Case No. 37-2013-00058302-CU-BC-CTL

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Defendant.

"IMAGED FILE"

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Date:
Time:
Dept:
Judge:

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November 15, 2013
9:00 a.m.
C-75
Richard E. L. Strauss

Complaint Filed: July 19, 2013
Trial Date:
Not Set

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Defendant Medical Marijuana, Inc. ("MJNA") respectfully submits the following reply
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brief in support of its petition to compel arbitration and appoint an arbitrator and motion to stay
proceedings.
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I.
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INTRODUCTION

Section 13.4 of the Operating Agreement for Red Dice Holdings, LLC ("RDH") contains
broad yet explicit language: Any dispute or claim in law or equity between Members arising out of

this Agreement shall be decided by neutral, binding arbitration and not by Court action, except as
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provided by California law for judicial review of arbitration proceedings.

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In the face of this plainly categorical language, the opposition of Plaintiff Dixie Holdings

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LLC, a/Ida Dixie Elixirs ("Dixie") relies on serious hair-splitting as its primary argument. Dixie

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contends that the arbitration provision is inapplicable because it styled its Complaint as being

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brought derivatively on behalf of RDH (an entity that MJNA owns a greater interest of than

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Dixie!). In short, Dixie (wrongly) maintains that it is RDH that brought this action, and further

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maintains that RDH is not a party to or bound by its own Operating Agreement. Such abstract

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argument misses the point; RDH is comprised of MJNA (60%) and Dixie (40%). But for MJNA

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and Dixie, RDH does not exist, yet minority member Dixie relies on pure fiction by claiming that

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RDH instituted this action. It did not; the action was instituted by Dixie derivatively on behalf of

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RDH. "Derivatively on behalf of' means just that — the action is brought on behalf of another

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entity. It does not mean that the action is brought by the other entity. Here, the express terms of

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the Operating Agreement preclude one member from unilaterally deciding to initiate litigation on

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behalf of RDH. Moreover, the derivative label does not alter the fact that this action is a dispute

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between members arising out of the Operating Agreement and thus it is subject to the contractually

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mandated arbitration provision.

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Dixie further relies on semantics by arguing that the arbitration provision only applies to

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disputes between "members" and "member" is defined in the Operating Agreement as a "person"

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and "Mlle only persons that executed the Operating Agreement are representatives of Dixie and

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MJNA." (Opposition at pg. 1, lines 8-13). 1 According to Dixie, this shows that the arbitration

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provision cannot apply to RDH because it is not a "person." First of all, the definition of "Person"

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contained on page 3 of the Operating Agreement states as follows: "Person" shall mean any

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individual or entity ..." (See Operating Agreement, Ex. A to Declaration of S. Todd Neal filed in

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support of Petition)(Emphasis added). It is not limited to natural persons. Dixie goes on to argue

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that "nowhere in the Operating Agreement is arbitration contemplated by the Members regarding

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enforcement of contractual obligations by Red Dice against its members." (Opposition at pg. 1,

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In violation of court rules, the opposition does not contain page numbers which makes citing to it difficult. However,
MJNA assumes that the first page containing text should be cited as "pg. 1."

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CASE NO. 37-2013-00058302-CU-BC-CTL

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lines 13-14).

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Again, Dixie misstates the nature of the action by taking the position that "Red Dice" is

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seeking to enforce contractual obligations against MJNA. Dixie filed this action through its own

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counsel and it is noteworthy that Dixie's counsel has repeatedly confirmed that he does not

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represent RDH. (Petition ¶ 8; Neal decl. ¶ 6). Furthermore, any reasonable construction of the

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arbitration provision compels the conclusion that this was precisely the type of dispute that the

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parties contractually agreed would be subject to binding arbitration. If a dispute between the sole

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members regarding their respective rights and obligations under the Operating Agreement is not

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subject to arbitration, what would be? It is not remotely credible to suggest that MJNA and Dixie

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negotiated for and agreed to a definitive and sweeping arbitration provision but it was not their

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intent to have it apply to a claim that one would bring against the other relating to breaches of the

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Operating Agreement simply because the claim was pled as a derivative action. That is illogical

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and not a reasonable construction of the contract.

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As its second and final argument Dixie makes a series of false statements in an effort to

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invoke the third-party litigation exception to enforcement of the arbitration provision pursuant to

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C.C.P. § 1281.2. However, as explained more filly below, the referenced Canna Vest action does

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not "aris[e] out of the same transaction or series of related transactions" as the instant action and

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thus there is no possibility of conflicting rulings on a common issue of law or fact. Moreover,

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Dixie's entire argument is predicated on misstatements. Accordingly, the limited statutory

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exception for related third-party litigation is not applicable and thus does not provide a basis to

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deny the petition to compel arbitration.

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II. ARGUMENT
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Dixie Provides No Legal Authority Holding That An Arbitration Provision Found in

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an LLC's Operating Agreement Does Not Apply When a Member Asserts A

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Derivative Claim Against Another Member.

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Dixie's argument that the arbitration provision does not apply because it styled its

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Complaint as being brought derivatively on behalf of RDH is found on pages 5-7 of the opposition ;

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Dixie cites only two case decisions for the general propositions that (1) the existence of an
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agreement to arbitrate is a preliminary question to be determined by the trial court; and (2) a

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party's right to arbitration depends upon contract. (Opposition at pg. 5, lines 19-25). Dixie offers

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no authority whatsoever that even remotely supports the inventive argument that a dispute between

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the only two members of a limited liability company is not subject to an Operating Agreement's

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arbitration provision simply because a lawyer decided to plead the case as a derivative action.

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Dixie's position conflicts with the fundamental policy underlying both the California Arbitration

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Act and the Federal Arbitration Act which "is to ensure that arbitration agreements will be

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enforced in accordance with their terms." (Vandenberg v. Superior Court (1999) 21 Ca1.4th 815,

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836; AT & T Mobility LLC v. Concepcion (2011) 131 S.Ct, 1740, 1745). Additionally, California

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law uniformly recognizes a "strong public policy" in favor of arbitration as a more expeditious and

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less expensive means of resolving disputes than litigation. (Mercury Ins. Group v. Superior Court

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(1998) 19 Ca1.4th 332, 342). Here, Dixie has failed to prove by a preponderance of evidence any

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valid defense to the petition to compel arbitration and thus the petition should be granted.

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It is also important to consider that the terms of the RDH Operating Agreement defeat

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Dixie's self-serving claim that this action was brought by RDH. Pursuant to section 2.1 of the

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RDH Operating Agreement, the rights and liabilities of the members are determined by the

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Operating Agreement, the Articles of Organization and the California Limited Liability Company

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Act. (Ex. A to Neal decl.). Sections 9.2 and 9.4 of the Operating Agreement state that the powers

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of RDH shall be exercised under the authority and direction of a two-person Management

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Committee consisting of one MJNA member and one Dixie member. Section 9.5 delineates

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specific acts and powers that may only be taken with the written approval of the Management

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Committee, including the following:

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Institution, compromise or settlement of any material litigation or
arbitration proceeding, or settlement of any insurance claim for an
amount in excess of fifty thousand dollars ($50,000);
(Ex. A to Neal decl., Section 9.5(e) at pg. 17).
Both members, Dixie and MJNA, lack the unilateral authority to bring an action on behalf of RDH
without Management Committee approval. Therefore, Dixie's argument that RDH brought the
action is unsupportable in all respects.
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B.

Despite Multiple Admissions By Dixie That This Dispute Is Subject To Arbitration t

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Dixie Opted For Court Action As A Delay Tactic After Majority Member MJNA

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Threatened To Terminate The Employment Of Vincent M. ("Tripp") Keber, III.

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Through the declaration of its counsel, Robert Hinckley, Dixie seeks to minimize its

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multiple prior admissions that this matter is subject to arbitration. Mr. Hinckley states that at no

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time did Dixie admit that the claims are subject to arbitration and even though he previously agreed

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to arbitrate the claims, Dixie justifiably reneged on that agreement because of the filing of the

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separate lawsuit by CannaVest. (Hinckley decl. at TT 5-6). Mr. Hinckley contends that "the filing

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of the CannaVest action made it clear that MJNA did not intend to mediate the underlying case in

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good faith and as a result, Dixie withdreW - its preliminary agreement to arbitrate this matter."

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(Hinckley decl. at ¶ 7).

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As an initial matter, the determination of whether an arbitration provision applies is a

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matter of contract law. (Sparks v. Vista Del Mar Child & Family Services (2012) 207 Cal.App.4th

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1511,1517-1518). Consequently, a party's subjective prediction about whether the opposing party

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intends to mediate or arbitrate in good faith is legally irrelevant to the question of law presented as

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to whether an arbitration provision is enforceable. Therefore, Dixie's basis for reneging should not

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be a consideration relative to the Court's analysis. Additionally, Dixie's presentation of facts is

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skewed and misleading.

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Prior to filing the Complaint, counsel for Dixie sent a demand letter to MJNA threatening

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pursuit of an arbitration proceeding if MJNA did not accede to certain demands made by Dixie.

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The letter from Dixie's counsel explicitly states:

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In the event that MINA refuses to take these steps, Dixie intends to
aggressively enforce its rights under the Agreement. This includes pursuit
of an arbitration hearing, as discussed in the Agreement ... Failure to
comply with any of Dixie's demands by the respective dates provided
herein will trigger the arbitration process provided by the Agreement
(Emphasis added)(Petition ig 9; Ex. C to Neal decl.).

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Although MJNA attempted to engage Dixie in good faith discussions seeking to resolve

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their differences, Dixie was entirely unreasonable and continued to demand that MJNA make

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additional capital contributions to RDH even though Dixie refuses to add MJNA as an authorized
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signatory to RDH bath accounts. Submitted with this reply is the declaration of Michelle Sides,

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the Chief Operating Officer and Chairman of the Board of Directors of MJNA. As detailed in her

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declaration, at present MJNA has contributed $806,457 in capital to RDH. 2 (Sides decl. IF 8).

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MJNA has not received a single dollar in return on its investment and Dixie refuses to comply with

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its obligations under the RDH Operating Agreement, including its refusal to add Ms. Sides or any

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other MJNA representative as an authorized signatory to RDH's bank accounts. (Sides decl. dij 9).

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The dispute between Dixie and MJNA intensified in May, 2013, after MJNA learned that

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Vincent M. ("Tripp") Keber, III, Dixie's managing member and the Chief Executive Officer of

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RDH, was arrested for a controlled substance violation in Baldwin County, Georgia, where he had

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traveled to attend a music concert. (Sides decl. ig 6). Attached to Ms. Sides' declaration as Exhibit

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1 is a true and correct copy of Mr. Keber's booking photograph and arrest information obtained

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from the Baldwin County Sheriff's Office website. Given that MJNA is a publicly traded company

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and there are strictly enforced licensing requirements relative to operating a business involved in

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the lawful manufacture and distribution of legal hemp and cannabis based products, Mr. Keber's

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arrest is a very serious matter that could jeopardize MJNA's substantial investment in RDH.

(Id.) ,

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Shortly thereafter, talks between Dixie and MJNA reached an impasse and on July 12,

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2013, MJNA sent a notice to Mr. Keber through counsel informing him that his employment with

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RDH would be terminated if he did not cure Dixie's breaches of the RDH Operating Agreement

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within 14 days. (Sides decl. 11 10). The letter was sent on behalf of MJNA as the majority and

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controlling member of RDH and it demanded that Dixie comply with multiple obligations

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including the transfer of intellectual property into RDH, providing of budgets and updated business

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plan, and providing of information regarding suppliers of cannabidiol. (Sides decl. lj 4). A true

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and correct copy of the July 12, 2013, letter is attached to the Sides declaration as Exhibit 2.

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Six days after the letter was sent to Mr. Keber's counsel informing him that Mr. Keber's

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employment with RDH would be terminated if he did not cure Dixie's breaches of the RDH

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Operating Agreement, Dixie caused the instant Complaint to be filed. Prior to filing the

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None of this sum pertains to the providing of cannabidiol and Dixie is simply wrong in stating that MINA counts the
product that is the subject of the "CannaVest action" as part of MJNA's capital contribution to RDH. (Sides decl. ¶ 8).
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Complaint, Dixie had only mentioned the possibility of an arbitration process, which is not

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surprising since the Operating Agreement of RDH requires arbitration for all disputes between

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members. (Sides decl. ¶ 11).

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It has become clear that Dixie prefers the court process over arbitration because it is

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controlling day-to-day operations of RDH and it is in possession of MJNA's $806,457 in capital

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provided to RDH. Dixie is more than content to let time pass and maintain the status quo and

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Dixie knows that the trial process and appeal will take much longer than private binding

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arbitration. However, the parties contracted for private binding arbitration and it should be

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compelled by this Court.

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C.

The Arbitration Process Does Not Create The Possibility of Conflicting Judgments.

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Dixie contends that arbitration should be denied based on the third-party litigation

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exception pursuant to C.C.P. § 1281.2. In particular, Dixie claims that the Canna Vest action

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"aris[es] out of the same transaction or series of related transactions" as the instant action and thus

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it allegedly creates the possibility of conflicting rulings if this Court grants MJNA's petition to

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compel arbitration. In support, Dixie relies on the following statements:

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"The CannaVest action arises out of MJNA's attempt, through CanriaVest, to

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collect on accounts receivable allegedly owed by Red Dice." (Opposition at pg.

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2, lines 1-2);

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"CannaVest is an affiliate company of MJNA

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substantially all of the assets of a majority owned-subsidiary of MJNA known as

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PhytoSPHERE Systems, LLC. As a result of this transaction, MJNA will own

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approximately thirty-two percent of CannaVest by the end of 2013."

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(Opposition at pg. 2, lines 2-6);

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"MINA is attempting to avoid, by moving this case into arbitration, its

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contractual obligation to contribute 24,166,667 shares of MINA unrestricted

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common stock to Red Dice ... by claiming that it has already fulfilled its capital

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contribution requirements by providing the product that is the subject of the

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CannaVest action." (Opposition at pg. 2, lines 6-11).

CarmaVest purchased

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To be perfectly clear, MJNA does not contend that cannabidiol sold by PhytoSPHERE

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(which accounts receivable were sold to and acquired by CannaVest), somehow counts as a capital

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contribution by MJNA to RDH. That is a complete fabrication and a baseless effort to establish

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that this action "aris[es] out of the same transaction or series of related transactions" as the

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Canna Vest action. There is no merit whatsoever to that contention. As explicitly stated in the

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declaration of Ms. Sides,
At present, MJNA has contributed $806,457 in capital to RDH.
None of this sum pertains to the providing of cannabidiol and
Dixie is simply wrong in stating that MJNA counts the product that
is the subject of the "CannaVest action" as part of MJNA's capital
contribution to RDH.

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(Sides decl. lj 8). Additionally, paragraph 8 of Ms. Sides' declaration itemizes the wire transfers,

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payment of RDH invoices and transfers of stock provided by MJNA to result in total capital

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contributions of $806,457 to RDH.

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Also outrageous is Dixie's false claim that MJNA is "attempting to bankrupt Red Dice

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through the collection efforts of its affiliate company in the Canna Vest action." (Opposition at pg.

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4, line 26 — page 5, line 2). Dixie's vague usage of the term "affiliate" without any supporting

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evidence or foundation is improper. MJNA and CannaVest are completely separate entities

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regardless of whether MJNA owns a small percentage interest in CannaVest and there has been no

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showing of common management, control, offices, products, etc. More importantly, Dixie neglects

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to mention that RDH was not named as a defendant in the Canna Vest Action until after Dixie's

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counsel repeatedly claimed that RDH (the entity that Dixie purportedly is looking after through its

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faux derivative claim in this action) was obligated to CannaVest. On September 6, 2013, counsel

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for Dixie, Robert Hinckley, sent an e-mail after the Canna Vest action was filed stating as follows:

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Regarding your Complaint, please be on notice that Red Dice is the
proper defendant related to your causes of action. Left Bank LLC
and Dixie Holdings are improperly named as defendants. We
hereby demand that you amend your Complaint to remove Left
Bank, LLC and Dixie Holdings, LLC as parties and add Red Dice
Holdings as the correct party in interest.

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(See Ex. 1 to this Opposition).

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It is unconscionable that Dixie claims that MJNA "is attempting to bankrupt Red Dice Holdings,
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LLC through the Cannavest Action" when it was Dixie that insisted that RDH should be added as a

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defendant in that action.

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It is not just Dixie's counsel that is pointing the finger at RDH relative to the CannaVest

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obligation. On July 10, 2013, Charles (Chuck) Smith, a Dixie member and cohort of Mr. Keber,

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responded to an e-mail from Michael Mona, Jr., demanding payment on behalf of CannaVest for

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the shipments of cannabidiol requested and received by Dixie and its related entities. Mr. Smith's

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e-mail, which ironically is affixed over the signature block "Chuck Smith, Chief Operating Officer,

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Red Dice Holdings," states in part as follows:

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- Dixie Botanicals is a product that was developed by Red Dice
Holdings and has been marketed as such.
- All of the invoices from Phytosphere ...were made out to Dixie
Botanicals.
- the majority of revenue associated with sales of Dixie Botanicals
has been recorded on the Red Dice financial statements as well as
collected in Red Dice bank accounts.
- In summary, we have never disputed that the invoices are a
responsibility of Red Dice.
- I understand that when CannaVest purchased the Phytosphere
assets that those included the accounts receivable. So I appreciate
your interest in collecting those funds. However, please
understand that your action needs to be directed toward Red Dice
Holdings.
(True and correct copy of e-mail attached as Ex. 2 to this Opposition).
Clearly, Dixie and its counsel are not acting in the best interest of RDH and they are not
being candid with this Court. There is no common issue of law or fact because the subject matter
of this action is entirely distinct from the subject matter of the Canna Vest action. This action is a
dispute between members of RDH related to their rights and obligations under the Operating
Agreement, period. The Canna Vest action is a collection action relating to shipments of
cannabidiol, period. The fact that MJNA owns a small, minority percentage of CannaVest does not
satisfy the explicit statutory requirements of § 1281.2(c). The third-party litigation exception only
applies when (1) "[a] party to the arbitration agreement is also a party to a pending court action or
special proceeding with a third party"; (2) the third-party action "aris[es] out of the same
transaction or series of related transactions"; and (3) "there is a possibility of conflicting rulings on
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a common issue of law or fact." (§ 1281.2(c).) A trial court has discretion to deny or stay
arbitration only where all three conditions are satisfied.

(Acquire II, Ltd. v. Colton Real Estate

Group (2013) 213 Cal.App.4th 959, 967-68 quoting Laswell v. AG Seal Beach, LLC (2010) 189
Cal.App.4th 1399, 1405). Showing some tangential relationship between parties does not amount
to "same transaction" or "related transactions."
Dixie cites only to inapposite case law wherein trial courts have denied arbitration on the
basis of § 1281.2(c). Dixie's inapplicable and outdated authority includes an insurance coverage
dispute over the proper allocation of a settlement among 11 reinsurance carriers (C. V. Starr & Co.
v. Boston Reinsurance Corp. (1987) 190 Cal.App.3d 1637), a declaratory relief action by taxpayers
challenging a termination agreement reached between a public hospital district and its chief
executive officer — the officer petitioned to compel arbitration under arbitration clauses contained
both in his original employment contract and in the termination agreement (Green v. Mt. Diablo
Hospital District (1989) 207 Cal.App.3d 63), and an action brought by Stanford University against
a contractor for fraud and breach of contract, and sought indemnity from two companies involved
in the design and management of project. The contractor moved to compel arbitration but was
unsuccessful because the other two companies sued by Stanford University had not agreed to
arbitration. (Volt Info. Sciences v. Board of Trustees of Leland Stanibrd, Jr. University (1989) 109
S.Ct. 1248). None of these cases bears similarity to the facts at hand.
III. CONCLUSION
For the reasons stated, MJNA respectfully requests this Court issue an Order compelling
arbitration of the instant action, appointing an arbitrator and staying the action, including
discovery, pending completion of the arbitration proceeding.
DATED: November 4, 2013

PROCOPIO, CORY, HARGREAVES AND
SAVITCH LLP

•

Jamie L. Altman (Bar No. 280075)
Medical Marijuana, Inc.
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CASE No. 37-20I3-00058302-CU-BC-CTL

Culp, Barbara
Subject

RE: Cannavest invoices, etc

From: Robert Hinckley [mallto:rhIncklevramessner.com)
Sent: Friday, September 06, 2013 6:09 PM
To: Neal, S. Todd
Cc: Tracey Zastrow
Subject: FW: Cannavest invoices, etc
Importance: High
Todd:

Regarding your Complaint, please be on notice that Red Dice is the proper defendant related to your causes of action.
Left Bank LLC and Dixie Holdings are improperly named as defendants. The information which follows is conclusive
evidence of this fact

We hereby demand that you amend your Complaint to remove Left Bank, LLC and Dixie Holdings, LLC as parties and
add Red Dice Holdings as the correct party in interest. This detailed email serves to place you on notice of this defect in
your pleading. Failure to amend accordingly will necessitate our office bringing an unnecessary motion to dismiss. Should
we be forced to file said motion, we will seek our attorney fees based on the frivolous nature of the pleading. Nothing in
this email serves to limit any and all defenses and claims we may bring as a result of your lawsuit.
Best,
Rob Hinckley
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MESSNER REEVES LLP
Rober1113. Hinckley, Jr.
Partner
Messner Reeves LLP
116201i:shire Blvd., Suite 900
Los An les, CA 90025
3,10 909 7440 main 1310 909 7889 direct 1303 807 8081 mobile 1310 889 0896 fax
niessner.com

The information contained in this email message and the attachment are attorney privileged and conlidpntial information intended only for the use of the individual or entity named
above. li the reader of this message is not the intended recipient, or the employee or agent responsible to deliver it to the intended recipient, you are hereby notified that any
dissemination, distribution or copying of this communication is strictly prohibited. If you have received this communication in error, please immediately notifr us by telephone at
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2

Begin forwarded message:
From: Chuck Smith <csmithrabtrhilc.com >
Date: July 10, 2013, 9:18:41 AM PDT
To: "michael@cannavest.com " <michael@cannavest.com >
Cc: Tripp Keber <tkebereleftbankllc.com >
Subject: FW: Dixie Balance
Michael:
I have received your email and in an effort to continue a productive relationship I will respond as
thoroughly as possible. However, for you to continue questioning "who is responsible for these
invoices" is not productive. In addition, your reference to this being a "shell game" is offensive
and I request you not say it again.
As follows:
- Dixie Botanicals is a product that was developed by Red Dice Holdings and has been marketed
as such. You are well aware of this as you saw the press releases and were part of many of those
discussions while you were associated with MJNA.
- All of the invoices from Phytosphere, with the exception of one made out in error by
Phytosphere (which we notified them in writing of the mistake), were made out to Dixie
Botanicals.
- Tripp Keber, who you reference as a recipient, is the President of Red Dice Holdings. You are
also aware of this as you were intimately involved in negotiating the RDH Operating Agreement
and Tripp's employment agreement.
- Red Dice Dixie Botanicals production currently operates in the same facility that houses the
Left Bank company that manufactures and distributes the Dixie Elixirs product line, a totally
separate company and product in that it contains THC. You are aware of this since you have
visited these offices in the past as has your son.
- Left Bank production team members, such as Jim Williams, also work on a contract basis
producing Dixie Botanicals for Red Dice. I am certain you are aware of this as you know there
are not 2 separate manufacturing facilities at this time. This shared services type of structure is
not unusual and in fact is typical of small, growing companies.
- the majority of revenue associated with sales of Dixie Botanicals has been recorded on the Red
Dice financial statements as well as collected in Red Dice bank accounts. All of this information
has been reported on the Red Dice financials, which have been provided to MJNA, and in some
fashion have been reported by them in their quarterly filings. You are well aware of thiias you

reviewed those financials and worked directly with the MJNA auditor prior to moving full time
to CannaVest.
As you are also quite aware, Red Dice has been underfunded from inception due to MJNA's
refusal to fund their capital contribution to the company. We are in legal discussions with them,
as they have made you privy to, and we are hopeful that we can work out an amicable solution
which includes at a minimum their funding of the shares they are contractually obligated to
provide. Once that happens, Red Dice will be able to pay it's obligations. Any help you could be
in convincing MJNA to meet their obligations would be beneficial to all parties.
In summary, we have never disputed that the invoices are a responsibility of Red Dice. As you
know, we have questioned the quality of the product, in writing, especially in the most recent
shipment. However, we always assumed we could work out those issues with you.
I understand that when CannaVest purchased the Phytosphere assets that those included the
accounts receivable. So 1 appreciate your interest in collecting those funds. To that end, I respect
whatever action you feel you need to take. However, please understand that your action needs to
be directed toward Red Dice Holdings.
Best regards,

Chuck Smith
Chief Operating Officer
Red Dice Holdings

red dice
hold ngs

Mobile +1 (415) 272-9395
csmithpreddiceholdirms.corn
Facebook.com/Dixienxirs

On Jul 8, 2013, at 6:01 PM, "Michael Mona Jr." <michaelOcannavest.com > wrote:
Hello Chuck,
Hope you enjoyed you weekend at the beach. I have been thinking about our conversation last week regarding
Dixie's balance owed to CannaVEST. Enclosed you will find copies of the invoices that Dixie owes to CannaVEST
totaling $761,495.98 and to date, Ca nnaVEST has only received a $25,000.00 wire making the remaining balance
$736,495.98 before late fees are added. As you can see, these invoices date back to May 20, 2012 and all are
passed due.
When we talked you stated that the debt is a Red Dice Holding debt and I still cannot understand that
statement. All of the oil to date has been sent to either Jim Williams or Tripp Reber at Dixie Elixirs and Edibles
address in Denver, Colorado and to my knowledge all of the sales at this point, totaling over $1,000,000+++, has
only been collected by Dixie. Sounds to me like someone is trying to play a shell game with CannaVEST
funds. Please wire the balance owed to CannaVEST of $736,495.98 by Wednesday July 10, 2013 or propose a
payment plan acceptable to CannaVEST by that date or CannaVEST will be forced to turn this matter over to their
attorney and they can figure out where the funds will be collected from.
Chuck, I do not want to be difficult, however to receive only $25,000 towards at $761,495.98 debt over a 14
month period is ridiculous and unprofessional. I have a responsibility to this company and its shareholders to
collect the money owed to CannaVEST and I will do that one way or another. I would much rather leave the
attorneys out of this and handle this between two businessmen but if you do not either wire the funds or come up
with an acceptable payment plan by July 10, 2013, as stated above, you will leave the company no choice.
2

Michael Mona Jr.

President/CEO
CannaVEST Corp.
2688 S. Rainbow Blvd., Suite B
Las Vegas, NV 89146

<Dixie Balance for Invoice #1.xlsx>
<PhytoSphere INVOICE #1-Dixie Previous Balance.docx>
<PhytoSphere INVOICE #2- Dixie 2-6-I3.docx>
<PhytoSphere INVOICE 43-Dixie 3-8-13.docx>
<PhytoSphere INVOICE 146-Dixie 5-15-13.docx>
<PhytoSphere INVOICE #13-Dixie 5-8-13.docx>

No virus found in this message.
Checked by AVG - www.ave.com
Version: 2013.0.3345 / Virus Database: 3204/6471 - Release Date: 07/07/13

•

F'

LE

D

cm& ef the s,melior court

1
2
3
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SAVITCH LLP
San Diego, CA 92101
Telephone: 619.238.1900
Facsimile: 619.235.0398

5 2013
By: A. SEAMONS. Deputy

5
6


7
8


9

COUNTY OF SAN DIEGO

10
11

12

liability company,
Plaintiff,

13
14
15

V.
corporation,

16

Defendant.

17

Case No. 37-2013-00058302-CU-BC-CTL
DECLARATION OF MICHELLE SIDES
IN SUPPORT OF DEFENDANT
MEDICAL MARIJUANA, INC.'S
REPLY BRIEF RE PETITION TO
COMPEL ARBITRATION AND
APPOINT AN ARBITRATOR AND
MOTION TO STAY
Date:
Time:
Dept:
Judge:

November 15, 2013
9:00 a.m.
C-75

Trial Date:
Not Set

18
19
20

I, Michelle Sides, declare as follows:

21
1.
22
23
24
25
26
27

I am a resident of the County of San Diego. I make this declaration based on

matters within my personal knowledge, save and except for those matters stated on information and
belief, which I believe to be true, and if called would and could testify thereto under penalty of
perjury of the laws of the State of California.
2.

I am the Chief Operating Officer and Chairman of the Board of Directors of

Medical Marijuana, Inc. ("MJNA"). Additionally, I am MJNA's designated member of the

28
DECLARATION OF MICHELLE SIDES IN SUPPORT OF DEFENDANT MEDICAL MARIJUANA, INC.'S REPLY
BRIEF RE PETITION TO COMPEL ARBITRATION AND APPOINT AN ARBITRATOR AND MOTION TO STAY
CASE No. 37-2013-00058302-CU-BC-CTL

1

Management Committee of Red Dice Holdings, LLC ("RDH").

2
3.

Plaintiff Dixie Holdings LLC, a/k/a Dixie Elixirs ("Dixie") and MJNA are the sole

3
members of RDH. RDH was formed in 2012 for the purpose of engaging in the manufacture and
4
distribution of legal hemp and cannabis based products. Pursuant to the RDH Operating
5
Agreement, MJNA owns a 60% interest in RDH and Dixie owns a 40% interest.
6
7

4.

In accordance with the RDH Operating Agreement, MJNA is obligated to make

8

certain capital contributions to RDH. Additionally, the RDH Operating Agreement imposes certain

9

obligations upon Dixie, including but not limited to the following:

10
a. Dixie shall run the day to day operations of RDH pursuant to Section 9.1(j) of
11
RDH's Operating Agreement;
12
13

b. Section 9.1 of RDH's Operating Agreement requires the "transfer of all

14

Intellectual Property, equipment, supplies and all tangible items of [Dixie Holdings, LLC a/k/a

15

Dixie Elixirs] into [RDH]"

16
c. Section 9.1(i) of RDH's Operating Agreement requires Dixie to provide an

17

estimated monthly budget relative to RDH;
18
19
20

d. Section 9.1(p) of RDH's Operating Agreement requires Dixie to provide an
updated business plan relative to RDH;

21
e. Dixie is required to provide complete information regarding all suppliers that

22
23
24

cannabidiol is being purchased from commencing from inception of RDH to the present, including
the name of the supplier, the dates of purchase, the products and amounts purchased and the cost;
and

25
26
27
28

f. Dixie is required to provide proof that all cannabidiol purchases are compliant
with state and federal controlled substances laws and FDA regulations.
2
CASE NO. 37-2013-00058302-CU-BC-CTL
DOCS 1861172.1

1

5.

Several months ago a dispute arose between MJNA and Dixie relative to their

2

respective obligations under the RDH Operating Agreement. In particular, MJNA believes that

3

Dixie has failed to perform many required obligations imposed on it by the RDH Operating

4

Agreement, including the obligations listed in paragraph 4 above. Moreover, while Dixie

5

continued to press MJNA for additional capital contributions to RDH, Dixie refused to add me or

6

any other MJNA representative as an authorized signatory to RDH's bank accounts.

7
6.

Additionally, in May, 2013, MJNA learned that Vincent M. ("Tripp") Keber, III,

8
Dixie's managing member and the Chief Executive Officer of RDH, was arrested for a controlled
9
substance violation in Baldwin County, Georgia, where he had traveled to attend a music concert.
10
Attached hereto as Exhibit 1 is a true and correct copy of Mr. Keber's booking photograph and
11
arrest information obtained from the Baldwin County Sheriff's Office website. This is a very
12
13
14
15

serious matter as there are strictly enforced licensing requirements relative to operating a business
involved in the lawful manufacture and distribution of legal hemp and cannabis based products.
7.

In light of Dixie's refusal to comply with its obligations under the RDH Operating

16

Agreement and Mr. Keber's arrest, MJNA has declined to make additional capital contributions to

17

RDH at least until such time as it is made a signatory to RDH bank accounts and Dixie complies

18

with its other obligations.

19
8.
20
21
22
23

At present, MJNA has contributed $806,457 in capital to RDH. None of this sum

pertains to the providing of cannabidiol and Dixie is simply wrong in stating that MJNA counts the
product that is the subject of the "CannaVest action" as part of MJNA's capital contribution to
RDH. MJNA previously provided the following capital contributions to RDH:

24
25
Date

Capital Contribution

Recipient

June 12, 2012

$25,000 (wire transfer)
3

Right Side Investments, LLC

26
27
28

CASE NO. 37-20I3-00058302-CU-BC-CTL
DOCS 1861172.1

1

3

August 2, 2012


Vincent M. Keber, III

July 19, 2012


Right Side Investments, LLC

August 23, 2012


Red Dice Holdings, LLC

September 10, 2012



October 16, 2012

$34,000 (payment of
Weedmaps invoices on behalf
of RDH)


October 16, 2012

$10,000 (payment of
Dooboons invoices on behalf
of RDH)


November 23, 2012

2



4
5
6
7
8
9
10
11
12
13
14

February 13, 2013

15
April 18, 2013


16
17

August 13, 2012

$102,000 (1,700,000 shares of
MJNA stock)

Dixie Holdings, LLC

•

Dixie Holdings, LLC
R.

Employees

18
19

9.

Despite contributing $806,457 in capital to RDH, MJNA has not received a single

20

dollar in return on its investment and Dixie refuses to comply with its obligations under the RDH

21

Operating Agreement, including its refusal to add me or any other MJNA representative as an

22
23

authorized signatory to RDH's bank accounts.
10.

On July 12, 2013, I instructed our counsel, Procopio, Cory, Hargreaves & Savitch,

24

LLP, to send a notice to Mr. Keber's counsel informing him that Mr. Keber's employment with

25

RDH would be terminated if he did not cure Dixie's breaches of the RDH Operating Agreement

26

within 14 days. Attached hereto as Exhibit 2 is a true and correct copy of the letter from our

27
28

4
CASE NO. 37-2013-00058302-CU-BC-CTL
DOCS 1861172.1

I counsel. The letter was sent on behalf of MJNA as the majority and controlling member of 12D1-1.

11.

Six days after the letter was sent to Mr. Keber's counsel informing him that Mr.

3
Keber's employment with RINI would be terminated if he did not cure Dixie's breaches of the
4
5 RUH Operating Agreement, Dixie caused the instant Complaint to be filed. Prior to filing the
6 Complaint, Dixie had only mentioned the possibility of an arbitration process, as the Operating
Agreement of Roll requires arbitration for all disputes between members.

7
I declare under penalty of perjury of the laws of the State of California that the foregoing is
9

true and correct and that this declaration was executed on J, November 2013 at San Diego,
California.

10
liD

By:
Odle Sides

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73
24

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)8

5
DECLARATION OF MICHELLE SIDES IN SUPPOR r OF DEFENDANT MEDICAL MARIJUANA, INC.'S REPLY
BRIEF RE PETITION TO COMPEL ARBITRATION AND APPOINT AN ARBITRATOR AND MOTION To STAY
CASE No. 37-20I3-00058302-CH-13C-CTL
IX/CS 1861172.1

StnartWEB Jail

Page 1 of 1

Number of Inmate Records Returned: 1

Search Inmates
Last Name:
Keber

KEBER III, VINCENT MARIA (W / MALE / DOB: 6/4/19E
Status:
Released
Booking No:
BCS0133BN003207

First Name:
Middle Name:

Booking Date:
05/18/2013 23:52:19
Age On Booking Date: 44
Bond Amount:

Begin Booking Date:

Enlarge Photo

$5000.00

Address Given:

1301 WAZEE STREET Apt 2E DENVER,

End Booking Date:

CHARGES
STATUTE

Begin Release Date:

COURT CASE NUMBER

CI

[+] 13A-12-212 NEW (BALDWIN COUNTY SHERIFFS OFFICE) POSSESSION OF AC
[+] 13A-12-214 NEW (BALDWIN COUNTY SHERIFFS OFFICE) POSSESSION OF MAF

End Release Date:
Search For:
[Released Inmates Only
Sorted By:

Name

Order:

Ascending

iii

[ Submit [ Reset
Powered By:

k
CTSI:AAmerica -

http://bcsonline.co.baldwin.al.us/smartweb/jail.aspx

11/4/2013

Procopio, Cm,. Hargreaves and Savitch 11.P
San Diego, CA 92101
'1% 619.238.1900
F. 619.235.0398

L-gProcopid
vamprocoplo.cam

S. Todd Neal
Direct 13ial: (619) 525-3890
todd.neal@procopiO.com

July 12, 2013

VIA E-MAIL (SLEVINE@MESSNER.COM AND RHINCKLEYOMESSNER.COM) AND
REGULAR MAIL
NOTICE OF INTENT TO TERMINATE EMPLOYMENT AGREEMENT OF
VINCENT M. KEBER, [II —DEMAND TO CURE BREACHES WITHIN 14 DAYS
Steve Levine
Robert Hinckley
Messner & Reeves, LLC
1430 Wynkoop Street, Suite 300
Denver, Colorado 80202
Re:


Dear Messrs. Levine and flinckley:
On behalf of Medical Marijuana, Inc. ("MJNA"), the majority and controlling member of
Red Dice Holdings, LLC ("RDH"). this letter constitutes formal notice of intent to terminate the
Employment Agreement between your client Vincent M. Keber, III and RDH. on July 26, 2013,
if the material breaches identified in this letter are not cured by that date:
1. Mr. Keber's Employment Agreement explicitly requires him to run RD11 in
accordance with RDII's Operating Agreement. Section 9.1 of RDIPs Operating
Agreement requires the "transfer of all Intellectual Property, equipment, supplies and
all tangible items of [Dixie Holdings, LLC a/k/a Dixie Elixirs] into [RD111" ... This
includes the requires transfer of the following domain names: dixietinctures.com:
dixiebotanicals.com: dixiescripts.com: and all other Dixie related web domains.
These domain names must be transferred to a RINI domain registrar that can be
accessed by RDH management. Additionally, the website dixieelixirs.com must
similarly be transferred to a RDli domain registrar that can be accessed by RDH
management.
2. To date, Mr. Keber has failed and refused to add Michelle Sides as an authorized
signatory to all RDH bank accounts. Further demand is made to add Ms. Sides as an
authorized signatory.

Sor,
1.X./CS 120497-000003/1796201:1

Cariscati-

Dcl

klat Haigats - Orange County

Stla:Lin tragey

Now.

Procopici
Steve Levine
Robert F. Hinckley
July 12, 2013
Page 2

3. Given that the "Dixie".brand of products is owned by RDH, Mr. Keber must cease
and desist from all public statements and press releases concerning the "Dixie" brand
of products unless he ohtains pre-approval fram R011 's Management Committee
regarding the content of /he statement. Additionally, Mr. Keber is advised that he is
not authorized to make any statements that purport to be made on behalf of MJNA.
4.

Mr. Keber must provide RDI-I with an estimated monthly budget in compliance with
section 9.10) of the RDH Operating Agreement.

5. Mr. Keber must provide RDI-1 with an updated business plan in compliance with
section 9.1(p) of the RD!" Operating Agreement.
6. Mr. Keber must provide RDI I with complete information regarding all suppliers that
CBD is being purchased from commencing from inception of RDH to the present,
including the name of the supplier, the dates of purchase, the products and amounts
purchased and the cost, in compliance with, inter cilia, section 9.1 (p) of the RUH
Operating Agreement.
7. Mr. Keber must provide RDI I with proof that all C13D purchases are compliant with
state and federal controlled substances laws. FDA regulations and COMP regulations.
Demand is hereby made for written evidence of compliance with Mr. Keber's obligations
as set forth in this letter on or belbre July 26, 2013. or else he will be terminated for cause.
Additionally, we remind Mr. Keber of his contractual obligation to refrain from making
any statement that is critical of RDI4 or its affiliates, including but not limited to MJNA and its
employees, agents, Consultants and shareholders. See Section 2(a) ofNon-Disclosuce, Non-

(.'ompete. Qmfidemiality Agreement dated April, 2012. Mr. Keber is further reminded of the
prohibition against diverting business opportunities away from RDI-I that is imposed upon him
by that same section.
Sincerely

7
S. Todd Neal

cc: Michelle Sides (via e-mail michellesidesescoivahoo.com )

1 XK'S 1 20497-0 0000 3 11796 2 01 I

a:7
wit

1
2
3
4

E

SAVITCH LLP
San Diego, CA 92101
Telephone: 619.238.1900
Facsimile: 619.235.0398

D

,.f.,pertor Court
'V 05 2013
By: A. SEAMONS, Deputy

5
6


7
8


9

COUNTY OF SAN DIEGO

10
11
12
13

liability company,
Plaintiff,

14
15
16
17
18
19

V.

corporation,
Defendant.

Case No. 37-2013-00058302-CU-BC-CTL
MEDICAL MARIJUANA, INC'S
OBJECTIONS TO EVIDENCE FILED
IN OPPOSITION TO VERIFIED
PETITION TO COMPEL
ARBITRATION AND APPOINT AN
ARBITRATOR AND MOTION TO
STAY
Date:
Time:
Dept:
Judge:

[Date]
[Time]
C-75

Trial Date:
Not Set

20
OBJECTIONS TO DECLARATION OF CHARLES K. SMITH
EVIDENTIARY
PAGE/LINE OBJECTIONS
22
I.
"I am the Chief Operating Officer for Red Page 1,112
Lacks foundation;
Dice Holdings, LLC ("Red Dice")."
23
hearsay; vague; Best
Evidence Rule. Mr.
24
Smith is a member of
Dixie Holdings, LLC
25
and provides services
to Red Dice Holdings,
26
LLC pursuant to a
27
Consulting Agreement.
2.
"Red Dice and PhytoSPHERE are two of the Page 2, ¶6
Lacks foundation;
28 eight "portfolio" companies listed on MJNA's
hearsay.
21

MEDICAL MARIJUANA, INC'S OBJECTIONS TO EVIDENCE FILED
CASE No. 37-2013-00058302-CU-BC-CTL

1
2
3
4
5
6
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9
10
11

website, despite MJNA's sale of PhytoSPHERE to
Cannavest Corp. in March of 2013."
3.
"In May 2012, MJNA, through its majority- Page 2,117
owned subsidiary PhytoSPHERE, began providing
cannabidiol ("CBD") to Red Dice in order for Red
Dice to begin developing products for market through
its innovative development of the CBD product. Over
the next year, PhytoSPHERE continued to provide
CBD to Red Dice and Red Dice continued to
development and manufacture legal hemp products in
accordance with its stated purpose."
4.
"Throughout this period of time, Red Dice Page 2, 18
continue to make demands to MJNA for its initial
capital contribution, 24,166,667 shares of MJNA
unrestricted common stock, in order to fund ongoing
operations; however, these demands were not met and
are the subject of the underlying lawsuit."

12
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25
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5.
"In
March
2013,
MJNA
"sold"
PhytoSPHERE's assets, including accounts
receivable, inventory, supply contracts and licensing
rights to Cannavest for $35,000,000.00 in Cannavest
stock. As a result MJNA will own approximately
thirty-two percent of Cannavest by the end of 2013."
6.
"The President and CEO of Cannavest is
Michael J. Mona, Jr. ("Mona"). Mona is a large stock
holder in MJNA and was MJNA's original Red Dice
Management Committee appointee. Mona was also
actively involved in the negotiation of the Red Dice
deal as a trusted advisor to MJNA's internal
management."
7.
"Prior to MJNA's "sale" of PhytoSPHERE's
assets to Cannavest in March 2013, MJNA made no
efforts to establish a written legal obligation
evidencing Red Dice's receipt of the CBD. In fact,
the most basic terms evidencing any obligation to
repay MJNA and PhytoSPHERE for the CBD, such as
a repayment schedule, interest rate, guaranties, etc.
were never established between Red Dice and
PhytoSPHERE."
8.
"Rather, it was implicitly agreed that once
MJNA made its capital contribution, which it
repeatedly claimed it was in the process of
completing, but has failed to do to date, Red Dice

Page 2, 19

Lacks foundation;
hearsay.

Lacks foundation;
hearsay; Best Evidence
Rule. See Ex. C to
declaration of Todd
Neal in support of
Petition — it was Dixie
Holdings, LLC that
made demands upon
MJNA.
Lacks foundation;
hearsay; irrelevant.

Page 2, 110

Lacks foundation;
vague; hearsay;
irrelevant.

Page 3, 112

Lacks foundation;
hearsay; irrelevant.

Page 3, 113

Lacks foundation;
hearsay.

MEDICAL MARIJUANA, INC'S OBJECT ONS TO EVIDENCE FILED
CASE No. 37-2013-00058302-CU-BC-CTL
DOCS 120497-000003/1861265.1

1
2
3
4
5
6

would repay any amounts owing to PhytoSPHERE for
the CBD."
9.
"To date, without ever making a single capital Page 3, '1116
contribution, MJNA has actually started selling a
competing CBD product based on Red Dice's
intellectual property through another of its portfolio
companies, while attempting to bankrupt Red Dice
through the collection efforts of its affiliate company
in the Cannavest Action."

Lacks foundation;
argumentative;
impermissible opinion.

7
8

DATED: November 4, 2013

9

SAVITCH LLP

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Medical Marijuana, Inc., a California
Corporation

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-Y)

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3
MEDICAL MARIJUANA, INC'S OBJECTIONS TO EVIDENCE FILED
CASE No. 37-2013-00058302-CU-BC-CTL
DOCS 120497-000003/1861265.1

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