Crimson Galeria Ltd. v. Healthy Pharms, Inc.

• Decision Date: 21 August 2018
• Docket Number: Civil Action No. 17-cv-11696-ADB
• Citation: 337 F.Supp.3d 20
• Parties: CRIMSON GALERIA LIMITED PARTNERSHIP, et al., Plaintiffs, v. HEALTHY PHARMS, INC., et al., Defendants.
• Court: U.S. District Court — District of Massachusetts

337 F.Supp.3d 20

CRIMSON GALERIA LIMITED PARTNERSHIP, et al., Plaintiffs,

v.HEALTHY PHARMS, INC., et al., Defendants.

Civil Action No. 17-cv-11696-ADB

United States District Court, D. Massachusetts.

Signed August 21, 2018

Alvin S. Nathanson, Scott A. Schlager, Nathanson & Goldberg, P.C., Boston, MA, Brian W. Barnes, Pro Hac Vice, David H. Thompson, Pro Hac Vice, Peter A. Patterson, Pro Hac Vice, Cooper & Kirk, PLLC, Washington, DC, for Plaintiffs.

Emma M. Quinn-Judge, Ana I. Munoz, David A. Russcol, Zalkind Duncan & Bernstein LLP, John E. Sutherland, Brickley, Sears & Sorett PA, Jackie A. Cowin, Thomas W. McEnaney, KP Law, P.C., Matthew L. Knowles, Robert J. Cordy, Shamis N. Beckley, McDermott Will & Emery, Carrie M. Benedon, Cassandra Bolanos, Office of the Attorney General, Boston, MA, Daniel J. Carr, Peiffer Rosca Abdullah & Carr, LC, New Orleans, LA, Lydia M. Floyd, Pro Hac Vice, Peiffer Rosca Wolf Abdullah Carr & Kane, APLC, Cleveland, OH, Adam B Wolf, Peiffer Rosca Wolf Abdullah Carr & Kane, San Francisco, CA, Samuel A. Aylesworth, City of Cambridge Office of the City Solicitor, Cambridge, MA, for Defendants.

MEMORANDUM AND ORDER ON MOTIONS TO DISMISS

ALLISON D. BURROUGHS, U.S. DISTRICT JUDGE

Plaintiffs are property owners in Harvard Square who claim that they have been injured by the anticipated opening of a licensed marijuana dispensary in their neighborhood. They assert claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1962(c) and (d), and seek declaratory and injunctive relief against the dispensary and other related parties for acting and conspiring to distribute marijuana in violation of the Controlled Substances Act ("CSA"), 21 U.S.C. §§ 801 – 904. Plaintiffs also bring claims against state and local government entities for declaratory and injunctive relief on the grounds that federal law preempts Massachusetts' regulatory regime implementing the legalization of medical marijuana dispensaries.¹

Currently pending before the Court are separate motions to dismiss filed by six groups of defendants: (1) 4Front Advisors, LLC, 4Front Holdings, LLC, and Kristopher Krane (collectively, the "4Front Defendants") [ECF No. 49]; (2) the City of Cambridge [ECF No. 51]; (3) Massachusetts Department of Public Health ("DPH") and Maura T. Healey, in her official capacity as Attorney General of the Commonwealth of Massachusetts (the "Commonwealth") (collectively, the "State Defendants" and with the City of Cambridge, the "Government Defendants") [ECF No. 52]; (4) Century Bank and Trust Company ("Century Bank") [ECF No. 54]; (5) Healthy Pharms, Inc. ("Healthy Pharms"), Timbuktu Real Estate, LLC ("Timbuktu"), Paul Overgaag, Nathaniel Averill, and 3 Brothers Real Estate, LLC ("3 Brothers") (collectively, the "Healthy Pharms Defendants") [ECF No. 57]; and (6) Red Line Management, LLC ("Red Line") and Tomolly, Inc. ("Tomolly") [ECF No. 60].²

For the reasons stated herein, the Government Defendants' motions to dismiss [ECF Nos. 51, 52] are GRANTED and the remaining motions to dismiss [ECF Nos. 49, 54, 57, 60] are DENIED with leave to renew. Plaintiffs filed this action before the dispensary at issue had opened for business, basing their case on the idea that the mere public disclosure of a planned dispensary damaged their property interests. Shortly after the pending motions were filed, the dispensary apparently opened its doors to the public. Plaintiffs ask the Court to take judicial notice of this fact or grant leave to amend the complaint. Despite Plaintiffs' failure to establish an adequate foundation for taking judicial notice, or to properly request leave to amend, the Court grants Plaintiffs leave to file an amended complaint within 30 days, given the early stage of the case, the liberal amendment policy of Fed. R. Civ. P. 15, and the potential for this alleged factual development to impact the entirety of the proceedings.

I. BACKGROUND

In 2012, the Commonwealth of Massachusetts legalized the sale of marijuana for medical use through Registered Marijuana Dispensaries ("RMDs"), and in May 2013, the DPH promulgated regulations that authorized municipalities to regulate the medical use of marijuana. Compl. ¶¶ 32, 46, 47. See Mass. Gen. Laws ch. 94C, §§ 1 – 9 ; 105 Mass. Code Regs. 725.000 et seq. As of March 2017, nine RMDs were open for retail sales in Massachusetts and an additional 88 were registered and at varying stages of completion. Compl. ¶ 48. In contrast, under federal law, the CSA criminalizes the manufacture, distribution, or possession of marijuana. 21 U.S.C. § 841(a)(1), (b)(1)(A)(vii) and (b)(1)(B)(vii). See also Gonzales v. Raich, 545 U.S. 1, 22, 125 S.Ct. 2195, 162 L.Ed.2d 1 (2005) (holding that the CSA does not violate the Commerce Clause by criminalizing intrastate cultivation and possession of marijuana for medical purposes). The United States Attorney General and Department of Justice have at times exercised discretion in the enforcement of the CSA in response to the legalization of the sale of marijuana in certain states, but criminalization of marijuana under the CSA remains in place.³ See United States v. Canori, 737 F.3d 181, 185 (2d Cir. 2013) ("The Attorney General's exercise of [such] discretion ... neither legalizes marijuana nor creates a constitutional crisis."). "The inherent conflict between the [CSA] and [the state's] marijuana regulatory regime lies at the heart of the RICO claims" asserted in this case. Safe Streets Alliance v. Alternative Holistic Healing, LLC, No. 15-cv-00349-REB-MLC, 2016 WL 11384332, at *18–19 (D. Colo. Feb. 8, 2016), aff'd in part, rev'd in part, Safe Streets All. v. Hickenlooper, 859 F.3d 865 (10th Cir. 2017).

Defendant Healthy Pharms operates a marijuana cultivation facility at 401 East Main Street, Georgetown, Massachusetts, pursuant to permits from Defendant Town of Georgetown and a license from Defendant DPH. Compl. ¶¶ 34, 64, 72, 80. Defendant 3 Brothers owns the property in Georgetown where Healthy Pharms operates its facility. Id. ¶ 69. The Georgetown facility can hold "as many as several hundred marijuana plants." Id.

On April 26, 2017, Defendant City of Cambridge issued Healthy Pharms a special permit to operate an RMD at 98 Winthrop Street in Harvard Square. Compl. ¶¶ 33, 58–59, 73. Defendant Timbuktu owns the building at 98 Winthrop Street and leases the property to Healthy Pharms. Compl. ¶¶ 65–66. The individual defendants, Mr. Overgaag and Mr. Averill, are officers or principals of several of the defendant entities. Mr. Averill is the President of Healthy Pharms. Id. ¶¶ 6, 9. Mr. Overgaag is an officer, manager, and/or resident agent of Healthy Pharms, Timbuktu, and 3 Brothers. Id. ¶¶ 6–8, 37. He is also the president of Defendant Tomolly, the tenant at 98 Winthrop Street before Healthy Pharms. Id. ¶¶ 37, 65. Mr. Overgaag and Mr. Averill also have authority to sign documents on behalf of Defendant Red Line, which is involved in the management of the property at 98 Winthrop Street. Id. ¶¶ 9, 37.

As part of an alleged enterprise to cultivate and sell marijuana, the Healthy Pharms Defendants have "taken active steps to prepare 98 Winthrop Street for use as a marijuana [dispensary], including seeking to engage a contractor to make alterations to the property," possessing equipment for the marijuana cultivation at the Georgetown facility, communicating by telephone and email to lease the Georgetown and Cambridge properties, and maintaining a website that advertises the pricing, quality, and sale of marijuana. Id. ¶¶ 69, 71, 81, 138. The 4Front Defendants engaged in "consulting activities" for Healthy Pharms and operate a website that provides support to marijuana companies. Id. ¶ 36. Defendant Century Bank provides banking services to Healthy Pharms knowing that it intends to operate a marijuana business. Id. ¶ 83.

Plaintiffs are entities that own properties that abut 98 Winthrop Street or are located within 200 feet of it. Compl. ¶¶ 1–5, 90–93. They rent these properties to retail and residential tenants. [ECF Nos. 1-15, 1-16, 1-18, & 1-20]. The prospect of an RMD opening at 98 Winthrop Street has allegedly diminished the market value of neighboring properties, because the odor of marijuana "will purportedly disrupt commercial tenants and interfere[ ] with the neighboring owners' use and enjoyment of their property," and there is "stigma" associated with the sale of marijuana. Compl. ¶¶ 95, 97, 102. According to Plaintiffs, the planned opening of the RMD makes Harvard Square a less desirable location for businesses that wish to operate in a "pleasant and historic area," as prospective buyers or renters "reasonably worry" about "increase[d] crime" and "pungent odors." Id. ¶ 97. Moreover, Plaintiffs assert that the proposed RMD has made their properties "more difficult to sell or rent," and "has prevented realization of a development scheme that would bring Plaintiffs' properties to their highest-and-best use." Id. Plaintiffs planned to build three-story additions to certain of their properties, but investors will not finance Plaintiffs' construction projects in light of the proposed RMD. Compl. ¶ 101.

In support of their allegations of injury, Plaintiffs engaged a licensed real estate appraiser, Webster A. Collins, to provide a "determination of damages and lost profits attributable to the stigma of a proposed marijuana dispensary at 98 Winthrop Street." Compl. ¶ 99; [ECF No. 1-10 at 1]. Mr. Collins inspected Plaintiffs' properties and interviewed brokers and leasing agents who opined that the prospect of a marijuana dispensary makes tenants uncomfortable and lowers the market rent and quality of interested tenants. Compl. ¶ 100. In determining that the stigma associated with an RMD is comparable to the stigma of a drug and alcohol treatment center or groundwater-contaminated property that endangers human health, Mr. Collins concluded that the proposed RMD has caused a loss of $18,785,000 in value and $8,290,000 in lost...