Business Crimes Hotline

CALIFORNIA

Property Forfeiture Hearings Begin for Medical Marijuana Dispensary

On Dec. 20, 2012, in a crowded San Francisco courtroom, a number of players with differing agendas filled the seats while the U.S. Magistrate Judge Maria-Elena James heard the first arguments in a closely watched case involving the sale of medical marijuana. The medical marijuana dispenser, Harborside Health Center, operates out of two leased properties, one in Oakland and the other in San Jose. The business is legally operating under California law, but federal law continues to classify marijuana as an illegal drug, no matter what it is used for.

In July of last year, federal prosecutors moved to seize the leased properties Harborside occupies, claiming they are being used for the purpose of selling illegal drugs. That action prompted the City of Oakland to file suit against the federal government under the Administrative Procedure Act, alleging federal officials promised not to enforce federal drug laws against California entities that acted in accordance with State law, and then went back on that promise. The City of Oakland claims this “new” federal government tactic will deprive it of approximately $1.4 million in tax revenues each year. At the Dec. 20 hearing, Kathryn Wyer, a Justice Department lawyer, asserted that Oakland lacked standing to interfere in the case, and that allowing the city to do so “would overturn the entire forfeiture scheme.”

For their part, Harborside's landlords asked the Judge to order a stop to sales of marijuana at their properties because, as Paul Avilla, lawyer for Concourse Business Center in San Jose, put it, “the very ownership of their property is being threatened.” And Assistant U.S. Attorney Arvon Perteet, who is handling the forfeiture issue for the U.S. Attorney's Office, offered tepid hope to Harborside, saying that by moving to seize the properties, the government sought only to stop their illegal operation, not put them out of business: “They can sell popcorn there [at the leased premises]. They can sell candy there.”

Judge James had reserved her first rulings until Jan. 8, when she declined to order a stop to the sale of marijuana at the leased premises at the landlords' request. Instead, she said, the federal government must make that appeal, as it is the government, not private citizens, who are charged with enforcing federal drug laws. “Claimants are attempting to use a procedural rule in a civil forfeiture proceeding to bring what amounts to an enforcement action under the [Controlled Substances Act] against Harborside,” James wrote. “This is a measure which the government ' the entity charged with enforcing the statute ' has elected not to pursue.” The court also noted that the leases between the landlords and Harborside had clearly stated the type of business that was going to be operated on each property, the contracts were valid and had not been breached. Therefore, wrote James, “While the court understands claimants' concern over the potential forfeiture of their properties,” the landlords were not entitled to invoke federal drug laws to “sever business relationships when they suddenly prove risky or to demonstrate cooperation with the government.”

CALIFORNIA

Property Forfeiture Hearings Begin for Medical Marijuana Dispensary

On Dec. 20, 2012, in a crowded San Francisco courtroom, a number of players with differing agendas filled the seats while the U.S. Magistrate Judge Maria-Elena James heard the first arguments in a closely watched case involving the sale of medical marijuana. The medical marijuana dispenser, Harborside Health Center, operates out of two leased properties, one in Oakland and the other in San Jose. The business is legally operating under California law, but federal law continues to classify marijuana as an illegal drug, no matter what it is used for.

In July of last year, federal prosecutors moved to seize the leased properties Harborside occupies, claiming they are being used for the purpose of selling illegal drugs. That action prompted the City of Oakland to file suit against the federal government under the Administrative Procedure Act, alleging federal officials promised not to enforce federal drug laws against California entities that acted in accordance with State law, and then went back on that promise. The City of Oakland claims this “new” federal government tactic will deprive it of approximately $1.4 million in tax revenues each year. At the Dec. 20 hearing, Kathryn Wyer, a Justice Department lawyer, asserted that Oakland lacked standing to interfere in the case, and that allowing the city to do so “would overturn the entire forfeiture scheme.”

For their part, Harborside's landlords asked the Judge to order a stop to sales of marijuana at their properties because, as Paul Avilla, lawyer for Concourse Business Center in San Jose, put it, “the very ownership of their property is being threatened.” And Assistant U.S. Attorney Arvon Perteet, who is handling the forfeiture issue for the U.S. Attorney's Office, offered tepid hope to Harborside, saying that by moving to seize the properties, the government sought only to stop their illegal operation, not put them out of business: “They can sell popcorn there [at the leased premises]. They can sell candy there.”

Judge James had reserved her first rulings until Jan. 8, when she declined to order a stop to the sale of marijuana at the leased premises at the landlords' request. Instead, she said, the federal government must make that appeal, as it is the government, not private citizens, who are charged with enforcing federal drug laws. “Claimants are attempting to use a procedural rule in a civil forfeiture proceeding to bring what amounts to an enforcement action under the [Controlled Substances Act] against Harborside,” James wrote. “This is a measure which the government ' the entity charged with enforcing the statute ' has elected not to pursue.” The court also noted that the leases between the landlords and Harborside had clearly stated the type of business that was going to be operated on each property, the contracts were valid and had not been breached. Therefore, wrote James, “While the court understands claimants' concern over the potential forfeiture of their properties,” the landlords were not entitled to invoke federal drug laws to “sever business relationships when they suddenly prove risky or to demonstrate cooperation with the government.”