Medford-based Century Bank, the only known financial institution in Massachusetts that banks marijuana businesses, has been named a co-conspirator in a civil Racketeer Influenced and Corrupt Organizations Act case that hopes to shut down the Georgetown-based medical marijuana dispensary Healthy Pharms. 

The plaintiffs, a group of abutting or nearby property owners, allege in court documents that the marijuana dispensary has driven down their property values. 

Because marijuana is still illegal on the federal level, the plaintiffs allege Healthy Pharms and its co-conspirators have engaged in a pattern of racketeering activity.  

The case casts a wide net, naming a range of defendants including Attorney General Maura Healey, the Massachusetts Department of Health, the town of Georgetown, the city of Cambridge, individual Healthy Pharms employees, the insurance companies and various real estate limited liability companies. 

“This is a case of first impression in Massachusetts – it presents complex questions of law regarding federal preemption and RICO liability for those that choose to participate in the marijuana industry,” Scott Schlager, an associate at the Boston-based law firm Nathanson & Goldberg and lead counsel for the plaintiffs, said in an email to Banker & Tradesman. “We have engaged an army of experts to substantiate our claims through evidentiary support and our client is prepared to pursue them vigorously.” 

The plaintiffs have also engaged special litigation consultants Cooper & Kirk, a Washington, D.C.-based law firm with a history of participation in similar lawsuits. 

Bram Berkowitz

Cooper & Kirk represented the plaintiffs in the first marijuana RICO case against a dispensary in Colorado in early 2015. Since that case, which was quickly settled, the law firm is representing plaintiffs in another case in Colorado and civil RICO cases in the state of Oregon involving marijuana growth facilities located on properties with mortgages from banks. 

“There is a bunch of different things a plaintiff in a civil RICO case has to prove, but what makes marijuana legislation unusual is that the vast majority of big challenges are not of serious dispute with marijuana,” said Brian Barnes, a partner at Cooper & Kirk, which developed the legal theory being used in the marijuana RICO cases. “You need to prove the defendant engaged in a pattern of racketeering activity … Here it’s quite straightforward. The crime in racketeering is violating federal drug law.” 

Consequences for Banks 

Co-conspirators are on the hook for all damages caused by a conspiracy, and RICO cases mean that if a plaintiff is successful, they can collect treble damages. 

According to Barnes, a commercial real estate appraiser has said the plaintiff’s property has lost around $26 million in market value as result of having a marijuana facility nearby, meaning damages could well exceed $75 million. 

Century Bank, which did not respond to requests for comment, could be liable for a good deal of that, according to Barnes, considering many of the other defendants may not have the necessary funds should they lose. 

“In light of Attorney General [Jeff] Sessions revocation of the Cole Memorandum and other guidance that provided potential safe harbors to financial institutions, anyone who chooses to participate is playing with fire,” said Schlager. “Banks that have consciously decided to enter the cannabis market have taken a calculated risk.” 

Not all, however, think the case will be easy to win. 

“I have a hard time believing they will prevail against the state,” said Scott Moskol, co-chair of the Cannabis Advisory Group at the Boston-based law firm Burns & Levinson, who also thinks the plaintiffs will have a hard time prevailing against bank or insurance company. “I personally think it’s a stretch to include these folks who aren’t doing anything but providing a service.” 

Century Bank’s parent company in a recent regulatory filing noted “that the claims and allegations against the bank set forth in the complaint are without merit, and the company and the bank intend to vigorously defend against them.” 

Progress in Other Cases 

Another bank, San Francisco-based Bank of the West, which also did not respond to requests for comment, was initially involved in the Colorado case that was eventually settled. Shortly after being named in the lawsuit, attorneys representing the bank called Cooper & Kirk and said they didn’t know the alleged business had been operating a marijuana business, and the bank closed the account. The plaintiffs then removed the bank from the lawsuit because a charge of money laundering can’t be brought against those who have been deceived. 

Century Bank is a bit of a different story. 

“That experience, frankly, made me a little surprised at how Century Bank reacted,” said Barnes. “Their lawyers came into court and said, ‘We do this, and we are not going to stop doing this.’” 

The second case in Colorado is still going. The defendants initially were successful on a motion to dismiss, but that case was then appealed. 

The 10th Circuit Court of Appeals eventually vacated the dismissal and ruled the defendants needed to present more evidence before the case could be dismissed. 

In the case involving Healthy Pharms and Century Bank, Moskol, who is keeping a close eye on the case, said the defendants have filed a motion to dismiss, but roughly two months have gone by and no opinion has been issued and the judge has yet to ask for oral arguments.  

Either way, Moskol said whichever side loses will likely end up making an appeal. 

For Barnes, the fact that the 10th Circuit vacated the appeal in the Colorado case, and that things are where they are in the Massachusetts case, is proof to him that his clients have a strong argument. 

“I do expect you will see more of these cases,” he said. “We are interested in bringing more and I think as the cases out in Oregon underscore, other attorneys are starting to wake up to the fact that this is viable legal theory.”