Our clients, seven elderly Korean real estate investors ages 64 to 80, including their wives as passive investors, and their LLC, owned a strip mall off Western Avenue in the City of Los Angeles. Occasionally, their tenants would move their business, retire or go out of business and a spot in the mall would become available to lease.
After Proposition 64 became the law, legalizing the adult use of marijuana and setting forth strict guidelines for commercial cannabis businesses, many predicted there would be a wave of unlawful cannabis business prosecutions by people purporting to have business licenses that were in fact fabricated. Others would open with no license at all.
Our clients were quite aware of this danger and so when a vacancy opened in their strip mall and a gentleman expressed interest in leasing the space for a commercial cannabis business, our clients demanded to see his business license allowing such a business.
The gentleman, who purported to be leasing dozens of such spots across California (implying he would be able to pay rent with ease), cleverly explained that the City of Los Angeles would not issue such a license without knowing the location of the proposed business, so he needed to produce a signed lease showing his business had a real address.
Our clients, one of who was an attorney, were skeptical, but agreed. However, they sought to protect themselves by adding that if the City of Los Angeles did not issue such a license for the business within 90 days, the landlord (our clients) would have the right to commence unlawful detainer (UD) proceedings.
The client then signed the lease and never secured the license. Before our clients could file their unlawful detainer action, over 30 City of Los Angeles police officers stormed the facility, removed its contents and locked up the doors.
No sooner had our clients began to search for new clients when the old clients – the illegal dispensary – reclaimed the space and installed special locks on the doors to prevent the police and our clients from entry.
Our clients then filed their UD action and once the tenant was served, they vacated the premises.
Our client thought their troubles had ended at that point, but they were wrong.
They then received a letter stating they faced two lawsuits in the Clara Shortridge Foltz courthouse. In one case, they faced a misdemeanor charge in Los Angeles Superior Court (Clara Shortridge Foltz Superior Court) for an alleged violation of 104.15(a)(1) of the Los Angeles City Code (“Unlicensed Commercial Cannabis / Collective Activity”) arising out of their lease to a company that set up shop as a marijuana dispensary without a city license.
The Los Angeles City Attorney’s office also alleged that our clients violated Los Angeles City Code §§ 104.15(b)(4) (“renting, leasing or otherwise allow an establishment to engage in unlawful commercial cannabis activity without the business having a license or temporary permit), 12.21(a)(1)(A) (“unlawfully erect, alter, enlarge, move and maintain a building . . . without securing the necessary permits and licenses as required by all laws and ordinances”), 104.15(b)(2) (“did establish, operate and participate as an employee, contractor, agent or volunteer of an unlicensed commercial cannabis activity in the City”).
Also named in the first lawsuit were three “bud tenders,” or employees of the cannabis business, who were arrested in the first “raid” of the premises. Such bud tenders were represented by another attorney arranged by the operator of the store, who the City was unable to locate to prosecute.
A second criminal complaint against just five of the clients and not the LLC they formed was also filed, alleging that they rented to an unlicensed business (LA Municipal Code § 104.02(a)).
Greg met with the four male clients on a Sunday afternoon at our office and mapped out a litigation strategy that aimed for diversion since none of the clients had any criminal history, or, as a fallback plan, resolution as an infraction.
Little did Greg or the client know that six months later, judicial diversion under Penal Code §§ 1001.95 to 1001.97 would come into effect, allowing dismissal of the case if our clients performed certain conditions set by the judge.
By the time the fourth court appearance arrived for our clients, judicial diversion was effective and Greg requested this. The judge granted this, agreeing that she would dismiss the cases if six of our clients obeyed all laws for one year and did not rent any space to anyone engaged in the commercial cannabis business, even if they had a proper license / permit. The judge made judicial diversion 18 months for our client who was an attorney, saying he should have known better than to do what he did.
Our clients were happy with the resolution, glad to know that when the cases were dismissed under Penal Code § 1385 they could then petition the court to seal and destroy both the police reports and the court files.
For more information about Prop 64 issues, please click on the following articles: