Fate of deal to end marijuana dispensary legal saga uncertain

By: Brian Louwers | Warren Weekly | Published December 4, 2020

 Attorneys representing clients in the Pinebrook Warren LLC vs. City of Warren case met virtually with Macomb County Circuit Court Judge Carl Marlinga on Nov. 30 to address two requested orders in the case and a potential settlement.

Attorneys representing clients in the Pinebrook Warren LLC vs. City of Warren case met virtually with Macomb County Circuit Court Judge Carl Marlinga on Nov. 30 to address two requested orders in the case and a potential settlement.

Zoom video hearing still captured on YouTube

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Editor’s note: The Warren City Council was scheduled to meet after the Warren Weekly went to press at 7 p.m. on both Dec. 8 and Dec. 15. For breaking news about the lawsuits and the proposed settlement visit www.candgnews.com or find us on Facebook @WarrenWeekly.

WARREN — Will it be boom or bust for Warren and the marijuana dispensary business?

The answer was left unclear on Nov. 24, after the Warren City Council passed on a chance to end 18 months of controversy and costly litigation with a blanket settlement to a series of lawsuits over dispensary licensing, in the apparent hope of a better deal. The settlement was reached at the agreement of all parties, including more than two dozen hopeful dispensary operators, and came at the recommendation of attorneys representing the city and the council.

On Nov. 27, Warren Mayor Jim Fouts vetoed the council’s action to reject the deal. It remained uncertain at press time when and if the council would consider a vote to override the veto, whether an eleventh-hour solution would emerge to break the impasse, and what that would mean either way for the future of the litigation and dispensary operation in metro Detroit’s largest suburb.   

    
The lawsuit
Agreement to the proposed settlement, brokered during months of facilitation that began last spring in Macomb County Circuit Court, would have meant the approval of 28 marijuana provisioning center licenses in Warren, 13 more than the final maximum number approved by members of the previous City Council. All but one of the previous council’s members, Councilman Ronald Papandrea, left office in November 2019. Late tweaks to the ordinance they passed would permit Warren dispensaries to provide medical or recreational marijuana in accordance with local and state laws and licensing requirements.  

The City Council originally set the number of dispensaries at 10. It was later expanded to 15.

Members of the current City Council inherited a legal headache in the form of 11 lawsuits and seven cross complaints that one official said has already collectively cost the city of Warren $500,000. The consolidated case, assigned to Macomb County Circuit Court Judge Carl Marlinga and now known as “Pinebrook Warren LLC et al vs. City of Warren et al,” includes 16 plaintiff entities that were denied dispensary licenses in 2019. It also includes the group of 15 original license holders, who were allowed to enter into the lawsuit as intervening parties after their licenses and the city’s process for evaluating them were voided in April by Marlinga, who ruled that the city’s Medical Marihuana Review Committee had violated the Open Meetings Act.

The committee, established under Warren’s medical marihuana ordinance drafted by the previous City Council, was tasked with scoring dozens of dispensary license applications and making final recommendations for approval by the full council. Its members — former Public Service Director Richard Sabaugh, former Council members Cecil St. Pierre and Steven Warner, City Attorney Ethan Vinson, and Papandrea — have also been named as defendants.

The stakes are enormously high, with tens of millions of dollars in private investments and hundreds of thousands of dollars in potential licensing revenue for the city on the line.  An influx of revenue from sales and excise taxes, annual licensing and permit fees, charitable contributions as a condition of licensing, added jobs, revitalized industrial properties, new property tax revenue and a $1 million cash commitment to Warren parks and recreation paint a rosy picture on the upside of welcoming the booming and now legal business under state law.

On the flipside, Warren’s failure to approve the settlement would almost certainly mean a deluge of protracted litigation and a foray into a legal minefield that some fear would ultimately cost the city tens of millions of dollars, if not more, as it plays out over the course of years.


The settlement
The Warren City Council voted 5-2 to deny the blanket settlement of the Pinebrook lawsuit on Nov. 24. Council members Eddie Kabacinski, Jonathan Lafferty, Ronald Papandrea, Angela Rogensues and Gary Watts voted yes on the motion to deny the settlement. Council President Pat Green and Council Secretary Mindy Moore voted no on the motion.

Before the vote was taken, council members heard from the city’s lead outside legal counsel in the case, attorney Andrea Pike, and attorney Jeffrey Schroder, a former assistant city attorney in Warren now representing the Warren City Council through the firm of Plunkett Cooney. Both recommended that they take the deal.

Former Judge Peter Maceroni, the court-appointed facilitator of the proposed blanket marijuana dispensary settlement, also told City Council members during the Nov. 24 meeting that settlement is in the city’s best interest. Maceroni said Warren would risk further litigation and resulting costs that could “just skyrocket” by not accepting the deal. Not covered by insurance in the matter, he speculated that the city could be forced to assess taxpayers to pay the bills if litigation goes forward into legal uncertainty. One source said that assessment could ding every property owner in the city about $2,500.

Moore said she has opposed licensing more than 15 marijuana dispensaries, but that she was concerned about the cost of additional litigation going forward.

“If we don’t accept this settlement today, for sure we won’t have insurance coverage. We are on our own on this one,” Moore said.     
Lafferty made the motion to deny the settlement that was supported by Papandrea.

Regarding the licensing process, Lafferty alleged that members of the previous City Council “fed by greed and corruption” had “charted a course behind closed doors.” He said the proposed legal remedy, which would come at no additional legal cost to the city, was “not a settlement” and that it would represent “an economic time bomb.”

Lafferty went further, saying that awarding 28 licenses would make Warren “the marijuana capital of Michigan.”

Watts said cash donations from cannabis companies to the city and its programs to sweeten the deal was “pay to play.”

“This is not a good deal for Warren,” he said.

Watts added, “My concern is there’s 37 people that applied for licenses that didn’t get one that are not part of this, and they’re going to open up those lawsuits, as well.”

Rogensues said she felt the current City Council was put “between a rock and a hard place.” While she said there were positives in the settlement for the city, she was concerned about how it could affect residents.

“I also am not certain that this is the best that we can do, unfortunately,” Rogensues said. “I believe that our residents have spoken and believe that they deserve better.”

She added, “I really think it’s imperative that we put ourselves in the position of our constituents and what we would want in our own backyard, and being mindful and balancing both our fiduciary responsibility, as well as the land use, and what businesses go up in our community.”

Green placed blame for what he called a “mess” on the city administration, but said he didn’t want to see Warren’s budget in the years to come encumbered by line-item allotments to cover legal expenses related to the controversy.

“We have a better use for those funds,” Green said.


The veto
On the Friday after Thanksgiving, three days after the council’s vote to deny the settlement, the Warren mayor vetoed that decision.

Fouts was in strange territory, having vetoed almost every council action related to marijuana businesses in the city and in apparent agreement with Green and Moore about the deal and the city’s best interests. Fouts has consistently butted heads with Green and Moore since they returned to hold city office in 2019. They’d all served previously on the City Council.

In a letter filed with the office of City Clerk Sonja Buffa, Fouts said the council rejected a settlement that would have avoided the city’s potential exposure to between $60 million and $100 million in costs if it ultimately loses in court. He added that the council majority acted against the advice of all of the attorneys representing the city’s interests including Pike, City Attorney Ethan Vinson and Schroder, whose employment by the City Council Fouts has railed against for a year.

Despite previously opposing steps to welcome the marijuana industry to Warren, Fouts said vetoing the council’s rejection of the settlement was “the most important decision because I am not willing to gamble with Warren taxpayers’ hard earned money and risk everything due to the City Council’s poor decisions.”

“Rejection of this settlement is a very risky venture, not only to the taxpayers but to the City of Warren,” Fouts stated in the letter.

He added, “I have been and continue to be opposed to the expansion of marijuana dispensary business in Warren. However, the financial risk that comes with this lawsuit from 31 parties is too serious to push forward with costly litigation and the risk of such large damage awards. I must listen to the recommendations of the attorneys and mitigate risk. I will not condone action that exposes each Warren resident to a special tax levy and exposes the City.”


The ‘drama’
At a hearing on Nov. 30, Pike and attorney Cheryl Laughren of the Berry Moorman law firm, representing the city, asked Macomb County Circuit Court Judge Carl Marlinga to force Plunkett Cooney to provide information subpoenaed in July as part of an inquiry into an alleged potential conflict of interest in the case. Laughren alleged that Schroder “leaked” information about an earlier settlement to the press this summer and that the inquiry sought to determine why he did that, and if it was related to other representations with any plaintiffs or intervening parties in the Pinebrook case.

Attorneys on the other side argued that the subpoena should be quashed. One labeled the inquiry an “expedition” that was part of an ongoing dispute between the City Council and the mayor. Another attorney said the Warren government “drama” had no merit relative to the case at hand.

Marlinga agreed and denied the motion to compel. However, the judge did say the question about Schroeder might be relevant at a later juncture, when the plaintiffs start talking about damages resulting from protracted and costly litigation.


Now what?
Some attorneys and members of the council have suggested that settlement negotiations remain ongoing and that opportunities to bring closure to the case continue to exist despite the council’s vote to deny the deal.

“I feel that there’s a path,” Green said on Nov. 30. “I’m hopeful that we can find a path to resolve this.”

While the window for council members to reconsider their vote had come and gone, sources said the council could take the settlement up again. The clock is ticking, however. Pike said it would run out 45 days after the deal was last amended on Nov. 24, the date of the vote, when the parties agreed to minor changes.  

She said the chance of so many parties with competing interests reaching another deal — including one involving fewer licenses — was small.  While the proposed blanket settlement covered everything and was signed off on by all parties with the exception of the council, she said finding common ground again would be next to impossible.

“We brainstormed for six months for another option and there isn’t one,” Pike said.

Failure to approve the settlement would lift the court-imposed stay on litigation, allowing all the related lawsuits to move forward.

She added, “I recommended it because it’s the best thing for the city. It’s just too risky to hope that a judge will grant an immunity defense (for the city) and it’s just too risky to hope that a three-member panel in the Court of Appeals will reverse a well-respected circuit court judge.  And it was done through facilitation. We have a facilitator who acknowledged it was the best settlement we could get.

“As an attorney, you don’t want to negotiate with terrorists. You don’t want to give plaintiffs everything they’re asking for, and they’re asking for a license. When you’re in a lawsuit that never ends, you have to see settlement as an option,” Pike said.

She said she believes that if the council fails to reverse course and approve the deal, a deluge of lawsuits will follow, ranging from Court of Appeals filings seeking to overturn Marlinga’s ruling on the Open Meetings Act and reestablish the previously-granted licenses, to Circuit Court claims filed by companies seeking damages ranging from lost investments to lost profits and legal fees.

Again, the amount of money involved is enormous. Sources said just two of the companies originally granted dispensary licenses that were later revoked had invested about $40 million each in properties in the city, potentially at their own peril given the legal circumstances. One of those companies had reportedly already paid $110,000 in city fees alone.

An appeal all the way to the Michigan Supreme Court would be likely, Pike said, and it could take two to three years.

The blanket settlement covered all 11 claims and seven cross complaints. Other parties that filed lawsuits dropped their claims without prejudice, meaning they would live to sue another day.

When the legal filings start to pile up, Pike said attorneys suing the city would begin seeking to depose elected and appointed officials, city employees and “anybody who touched a license application” at City Hall.   

“I think the floodgates will open,” Pike said. “There’ll be a lot of litigation.”

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