Gray, Steel Say Lawsuit Against Them Aims To Extort

Enlightened in Heber Springs. Legal filings say attorney Marshall Wright tried to sell his stake and the stakes of two partners in the dispensary in 2022. (Jason Burt)

The attorney defendants in two lawsuits claiming that they set up straw owners for two medical marijuana dispensaries have accused a former law partner of filing suit as a means of extortion.

An Oct. 26 filing by prominent Little Rock lawyers Alex Gray and Nate Steel is the latest development in a St. Francis County lawsuit filed by their former law partner, Marshall Wright. And that suit is just one in an increasingly complex legal battle now being waged in three counties.

In their counterclaim, Gray and Steel accuse Wright of trying to harass and embarrass them and “to extort and coerce” the firm and its business associates to buy Wright’s stake in Enlightened Dispensary of Heber Springs.

Wright and Josh Landers, also a minority owner of the Heber Springs outlet, sued Gray and Steel in November 2022 for legal malpractice and fraud. Their law firm, Steel Wright Gray LLC, and a sister company, Capitol Law Group LLC, were also named as defendants.

Another lawsuit, filed a year ago in Pope County by the former registered owners of Enlightened Dispensary in Morrilton, names the same defendants and was filed by the same lawyer who filed the St. Francis County lawsuit, Scott Poynter of Little Rock.

The owners, including Wright, a founding partner of Steel Wright & Collier, the predecessor to Steel Wright Gray, allege that Gray and Steel set them up in figurehead ownership arrangements that deprived them of marijuana sales profits while saddling them with huge tax bills.

Gray, Steel and the other defendants have denied wrongdoing in legal filings and asked that the cases be dismissed. And in a separate lawsuit, Gray, Steel and SWG have accused Wright and Scott Pace, a pharmacist and lawyer who was formerly CEO of the Arkansas Pharmacists Association, of conspiracy and defamation. They are seeking  unspecified damages. That lawsuit and the counterclaim were filed by attorneys John Tull III and Thomas H. Wyatt of Quattlebaum Grooms & Tull of Little Rock.

As of Tuesday, Wright and Pace hadn’t filed a response to that suit, which is filed in Pulaski County Circuit Court.

Meanwhile Poynter, who is representing the owners and former owners in their two lawsuits against Gray, Steel and SWG, filed a 19-page response to Steel and Gray’s attempt to have him disqualified from the case.

Gray and Steel say Poynter should be disqualified from the cases because he worked at Steel Wright Gray from 2015 to 2019 in an “of counsel” arrangement.

Poynter said in his response filed Oct. 26 that the defendants in their motion “misstate the facts, misapply the law, and altogether fail to provide evidence of any conflict of interest.”

Poynter said in the filing that he was “never a member, partner, associate, employee, or authorized agent of SWG, and only sparingly advised attorneys there on litigation matters.” He said he was never involved in medical marijuana matters.

Poynter asked for an evidentiary hearing on the motion and said that he will show that Gray and Steel’s motion was filed for an improper purpose. That motion is pending.

Poynter told Arkansas Business last week that he doesn’t want to battle the case in the media. “I think that we will prove that we’re right on our claims and in defending the counterclaims,” he said.

Steel and Gray are being defended in the lawsuits filed by Poynter by Clifford Plunkett of the Rogers office of Friday Eldredge & Clark. Plunkett didn’t return a call for comment last week. But he said in a previous statement that the lawsuits “contain numerous factual inaccuracies and errors” and “many are blatantly false.”

The lawsuits have shone a spotlight on the Arkansas medical marijuana industry’s licensing process, which has been rife with accusations for years.

Plaintiffs’ Allegations

The plaintiffs in the lawsuits filed in St. Francis and Pope counties claimed that SWG used them as decoy owners for dispensaries in Heber Springs and Morrilton to gain favor in the licensing process and meet a constitutional requirement that 60% of owners be Arkansans. The suits allege SWG was actually working on behalf of a Virginia client, Edward S. “Eddie” Garcia, who hoped to be “in the best position possible to be awarded several medical dispensary licenses.” Garcia died in 2019.

Lawyer David Couch, who wrote the 2016 amendment that legalized medical cannabis in Arkansas, has said that the amendment intended for Arkansans to own these companies, not outsiders.

The Arkansas Medical Marijuana Commission is the industry’s licensing body, and the state Alcoholic Beverage Control Division is its code enforcement agency.

State spokesman Scott Hardin told Arkansas Business last week that the state follows all requirements of the amendment and associated rules before awarding licenses. Those requirements include applicants passing state and federal background checks, he said. In addition, applicants must provide numerous documents to prove residency for those that count toward the 60% Arkansas ownership, Hardin said.

The complaints in the St. Francis and Pope County cases say Steel and Gray never disclosed to the plaintiffs, who were their clients, that the firm was also working for Garcia and his companies, including medical cannabis management company Pure Health Products LLC.

Steel and Gray helped Pure Health obtain management contracts with four Arkansas dispensaries, including Big Fish of North Central Arkansas LLC of Heber Springs and River Valley Dispensary LLC of Morrilton, which both operate under the brand Enlightened Dispensary. The other Enlightened dispensaries, in Arkadelphia and Clarksville, are not parties to the lawsuits.

In the St. Francis County case, Wright and Landers say Steel, Gray and another of their former law partners, Jeremy Hutchinson, had a clear conflict of interest as lawyers for them and for Garcia. The complaint also says that Steel and Gray crafted a management agreement that gave operational and monetary control to Pure Health and eventually Revolution Cannabis of Chicago, which bought Pure Health in 2019. (Hutchinson isn’t named as a defendant in the lawsuits. He is serving an eight-year federal prison sentence for bribery and tax fraud in unrelated cases.)

Management agreements are common for dispensaries, but in the case of Big Fish and River Valley, the lawsuits say, out-of-state firms got the profits and Arkansans got the tax bills.

Landers’ purported stake in Big Fish was 25%, Wright’s 19%. The majority owner, Dr. Regina Thurman, is not a party to the litigation. Thurman is medical director of Optimal Pain & Wellness of Fayetteville and didn’t return messages seeking comment.

Hardin told Arkansas Business last week that if a permit holder has a management agreement in place, the current agreement must be submitted each year as a component of permit renewal. Attorneys for ABC review all renewal documents to ensure compliance, and this includes management agreements, he said.

Counterclaim

Steel and Gray, in their counterclaim against Wright, said that Gray sent an engagement letter to potential applicants about the work the attorneys would be doing preparing legal documents for an application for medical marijuana dispensary licenses. “The engagement letter also disclosed the representation of the management company,” the counterclaim said.

The engagement letter said that SWG represented the management company and that “you are encouraged to have independent legal counsel review all documents,” according to the counterclaim.

Wright alleged in his complaint that he didn’t know the contents, provisions or repercussions of an operating agreement with Garcia’s company, Pure Health Products. He also alleged that his signature on the operating agreement is “not genuine.” (See Correction below.)

But the counterclaim says that Wright had reviewed and approved the 2018 operating agreement. And the counterclaim said that on Nov. 30, 2018, “Wright emailed his executed signature page to Gray.”

Tax Bills an Issue

Wright and Landers said in their lawsuit that they didn’t receive any income from the dispensary, but they were left paying the company’s taxes. Last year, they told the court, Landers paid $133,923 in federal and state income taxes on Big Fish. Wright’s 2022 tax bill was $74,844.

Wright sent an email to Gray on March 15, 2022, saying that he, Landers and Thurman were willing to sell their interest in the dispensary for $5.5 million “plus the reimbursement of personal income taxes we have incurred, and will continue to incur, in the amount of $850,000.” The email is attached as an exhibit in the counterclaim.

Wright said they “have seen zero in distributions and we don’t want to include this amount in the sales price, because we don’t want to pay taxes on what would be considered capital gains, when that particular amount is more of a reimbursement.” He said they would consider a larger purchase price if it covered the taxes that were incurred.

Gray declined Wright’s offer. But Wright again asked that Gray and SWG help him sell his interest in the dispensary, the counterclaim said.

“After repeated and unsuccessful attempts” to have Steel and Gray’s business or business associates buy Wright’s dispensary license, Wright and Landers filed the lawsuit against Steel, Gray and the law firm in November 2022, according to the counterclaim.

After filing the lawsuit, Steel and Gray said that “Wright communicated that this matter could be resolved if Steel and Gray’s business and/or business associates would buy Wright’s medical marijuana dispensary license and, if not, Wright would embarrass and publicize salacious and false allegations against Steel and Gray.”

After an amended complaint was filed in September, Wright again said the matter could be resolved if Steel and Gray’s business or business associates would buy his interest, the counterclaim said. “If not, Wright would follow through on the threat to embarrass and publicize the salacious and false allegations against Steel and Gray alleged in the Amended Complaint,” the counterclaim said.

Correction
An Oct. 16 cover story on two lawsuits against the Little Rock attorneys Alex Gray and Nate Steel and their law firm reported that the “litigation says plaintiffs’ signatures on management contracts were forged,” and a story subheading read “Forgery Alleged.” However, the word “forged” does not appear in either lawsuit. Rather, one of the lawsuits contends that two of the plaintiffs’ signatures on an operating agreement “are not genuine.” The other lawsuit alleges that a plaintiff’s signature on a management agreement “was simply lifted” from a previous agreement and “appended to the new document.” Arkansas Business has removed mentions of “forgery” and corrected versions of that story that appeared online and in the digital edition.

Steel and Gray accused Wright of causing the “erroneous allegations to be publicized through local, statewide, and national media.”

The lawsuits were first reported by the nonprofit Arkansas Advocate. Arkansas Business covered the dispensary owners’ allegations in a front-page story on Oct. 16.

Steel and Gray are suing Wright for abuse of process, which is filing a lawsuit with an attempt to harm the other party, and are seeking an unspecified amount of damages.

Tull, their attorney in the case, declined to comment.