Court Of Appeals Affirms Receiver’s Power To Reject Leases And Strike Cross-Default Clauses Under The Michigan Receivership Act; Reverses And Remands “Stalking Horse Bidder” Issue

Tropics LP v Green Peak Industries Inc

• Opinion Published: August 26, 2025 (Rick, Boonstra, Letica)

• COA Docket Nos. 368240, 368282, 368446, 368461

• Ingham County Circuit Court

Holding:

Docket No. 368240:

The Court of Appeals affirmed the Trial Court’s decision to allow the receiver to reject a lease because the plain language of the Michigan Receivership Act explicitly allows a receiver to do so.

Docket Nos. 368282, 368446, and 368461:

The Court of Appeals affirmed the Trial Court’s decision to strike cross-default language from Koach’s and 3Fifteen’s contracts with Skymint because it is clearly permitted under MCL 554.1027(2). The Court of Appeals also reversed and remanded for an evidentiary hearing the part of the Trial Court’s order which concluded that the receiver could assign the leases to the stalking horse bidder without making a factual record on the matter because the lease explicitly stated this requirement.

Facts:

Parties involved:

• Tropics, LP (“Tropics”)

• Green Peak Industries, Inc. (“GPI”)

• District Bay, LLC; The District Park, LLC; and GPIMD Corp. – all subsidiaries of GPI; GPI and its subsidiaries collectively do business as “Skymint.”

• 3Fifteen – trade name of Green Skies---Healing Tree, LLC (“Healing Tree”)

• Koach GR II, LLC and Koach Ypsilanti I, LLC (“Koach II” and “Koach I”)

• Gene Kohut – Receiver

In 2021, GPI arranged to purchase the assets of 3Fifteen. In April of 2021, Koach II and Healing Tree entered into a lease for property in Grand Rapids; the lease contained specific terms regarding assignment and a provision regarding default, which stated that default under this lease constituted a default under all other leases between the parties. In April 2022, a lease was entered into between the District Park and an “FL MI” subsidiary of 3Fifteen, which provided the same language as Koach II’s Grand Rapids lease, indicating a cross-default provision. The lease was also subject to the District Park obtaining a state license to open a marijuana facility. In November 2022, Koach I and GPI entered into a lease for property in Ypsilanti. The terms regarding default were almost identical to those in the Grand Rapids lease.

In September 2021, Tropics loaned $70 million to GPI; the terms of the loan included a securities purchase agreement (SPA) and a secured note for principal and interest. In the SPA, Skymint agreed to deliver to Tropics a financial statement within 120 days of the end of each fiscal year and to maintain a cash balance of at least $7.5 million. In the event of a default, Tropics was permitted to declare the note due and payable immediately. The note was secured by a first-priority secured interest in all of Skymint’s assets. Tropics was entitled to the appointment of a receiver in the event of a default. Skymint defaulted in March of 2022, which Tropics and Skymint agreed about. Tropics provided a loan increase of $5 million. Skymint again defaulted in June 2022, and Tropics gave Skymint an additional $6.25 million.

In January 2023, Skymint’s forbearance period expired, and Tropics then demanded repayment of the outstanding balance of $127,037,817.92 and demanded that Skymint make its collateral available. Tropics then filed suit against GPI; District Bay, LLC; The District Park, LLC; and GPIMD Corp., claiming breach of the SPA, the promissory note, and the guaranty and security agreement. Tropics sought a receiver and after the Trial Court found good cause to appoint one, Tropics and Skymint stipulated to the appointment of Gene Kohut.

In May 2023, the Trial Court entered an order based on the receiver’s recommendation to sell the receivership property free and clear of all liens and encumbrances to an entity to be formed by Tropics (the ‘stalking horse bidder’). Both Koach and 3Fifteen objected to the receiver’s notice of cure and assignment. In September 2023, the receiver moved to reject some of 3Fifteen’s leases due to the costs of operation being outweighed by any potential benefits. The receiver argued that the cross-default provisions in the leases conflicted with his contract-rejection rights under the Michigan Receivership Act. The receiver also moved to reject the Ypsilanti lease for substantially the same reasons, as well as because it had never been operational. A hearing was held on the matter and the Trial Court determined that the MRA granted broad powers to the receiver and that it would ultimately not enforce the cross-default provisions. The court also held that the receiver could assign the leases without the landlord’s consent because the assignment provisions of the lease had been met. The Trial Court ultimately granted the receiver’s motions, and the appeal followed.

Key Appellate Rulings:

An order where two parties stipulate to appoint a receiver and grant the receiver the power to enforce or terminate any existing contracts exceeds any cross-default agreement in a lease under MCL 554.1022(2)(d) and MCL 554.1012(e).

The Court of Appeals applied the MRA to this situation, noting that the MRA allows a receiver to “[a]dopt or reject an executory contract of the owner” and that “ ‘[e]xecutory contract’ means a contract, including a lease, under which each party has an unperformed obligation and the failure of a party to complete performance would constitute a material breach.” Thus, the Court of Appeals held that the plain language of the MRA explicitly allows the receiver to reject a lease. Further, the Court noted that although the MRA does not explicitly grant a receiver the power to “terminate” a lease, the words “reject” and “terminate” were intended to be synonymous in this context. Even if there was a large practical difference between terminating and rejecting a lease, nothing precluded the Trial Court from ordering that the receiver could terminate a lease.

As part of its equitable powers, a receivership court may refuse to enforce cross-default language in a lease, as permitted by MCL 554.1027(2).

MCL 554.1027(2) states that “a receiver may adopt or reject an executory contract of the owner relating to receivership property,” and that “[t]he court may condition the receiver’s adoption and continued performance of the contract on terms appropriate under the circumstances.” The Court of Appeals stated that this provision unambiguously provides courts with broad discretion to allow receivers to adopt or reject executory contracts as needed. The Court of Appeals emphasized that the Trial Court was acting in equity and therefore was permitted to do what is necessary to achieve an equitable result.