Michigan Cannabis Redevelopment Project Collapses Into Massive Lawsuit With City

Rubicon and the city of Pontiac have long been at odds.

This story was republished with permission from Crain’s Detroit Business and was written by Kirk Pinho and Dustin Walsh

A large Michigan cannabis development site is up for sale as Pontiac and the property’s developer battle in a federal court case.

The battle marks an apparent end for a $40 million development plan that aimed to remake a derelict old Kmart site into a site for marijuana business and other retail. And the legal battle has expanded to include allegations of bribery by the city’s current administration against previous officials, including a former mayor.

Rubicon Real Estate Holdings LLC, Browne Design Consultants LLC and Joseph Brown allege in a lawsuit that the city’s intransigence over issuing a medical marijuana license for the redevelopment of the old Kmart Corp. property on Glenwood Avenue caused Rubicon and investors to lose tens of millions of dollars in rental revenue from signed tenants who ultimately abandoned the project due to the delays. Rubicon alleges a loss of $45 million and seeks damages of $60 million.

The city and its clerk, Garland Doyle, have put forward a new defense: That Dwayne Lyons, a former Department of Public Works interim director and an official identified in court filings only as “former-mayor Official No. 1,” were involved in a $5,000 bribe from people with links to the development in order to get a rezoning request placed on a Pontiac Planning Commission agenda.

The lawsuit alleges the bribe was paid early in 2020, when Deidre Waterman was the city’s mayor. Both Waterman and Lyons denied to Crain’s that they took a bribe. Neither has been charged with any crime. An attorney for the developers called the accusations “pretty ridiculous.”

Last week, Magistrate Judge Curtis Ivy Jr. ruled that the city can argue in court that a bribe was paid to secure an agenda spot for a rezoning request. But he did not allow the city to assert that bribes were paid to secure actual votes for the rezoning from the Planning Commission or City Council.

The city, which is now led by Mayor Tim Greimel, said it would not comment on pending litigation or its own public corruption allegations against its former mayor and department director.

Last year, Waterman accused Greimel of embarking on a smear campaign after a forensic audit found what the city described as $1.6 million in misspending on things like personal expenses and unauthorized trips, the Detroit Free Press reported. Waterman has denied wrongdoing in that matter as well.

“I can tell you right now, no such money ever was in my campaign coffers or received by me,” Waterman told Crain’s in response to the city’s accusation of bribery.

And in a later email to Crain’s, she said: ” … I have never accepted any bribe or illegal payment. Any allegations to the contrary are patently false and injurious.”

In an email, Lyons provided the following statement: “These allegations are totally false and unfounded. I have always maintained a high ethical and legal standard in my interactions with the community during my tenure with the city of Pontiac, and would never involve myself in any illegal actions. I am appalled and disheartened to see that the city of Pontiac’s executive office would stoop so low to falsely defame my character in their feeble attempt to defend the $60 million lawsuit that Rubicon Real Estate Holdings LLC has filed against them.”

Yearslong Saga

It’s the latest twist in a yearslong fight between Rubicon — whose members are Brown, Rita Bolis, Manuel Ferraioulo and Brad Klintworth — and Pontiac, where the development group was supposed to turn the decrepit 26.5-acre property northeast of downtown into a $45 million medical cannabis hub with growers and dispensaries, plus other uses including a Hollywood Market grocery store.

Following the property purchase in early January 2020, the Pontiac Planning Commission granted Rubicon a rezoning request and, later that month, the Pontiac City Council signed off on it.

Pontiac alleges in its court filings that on Feb. 6, 2020, Lyons — whose precise role with the city at the time is not clear — sent a $5,000 consulting invoice “to Rubicon and/or Brown” on behalf of Innovative Community Elevations LLC.

That entity was later incorporated by Lyons at a Waterford Township address, state business records show.

A few days before that company was registered, Vladimir Abu-Ali, who is vice president and controller for another company owned by Rubicon partner Klintworth, Southfield-based D-A Contracting LLC, sent a signed $5,000 check to Lyons’ company, Pontiac alleges in its filing.

Klintworth said in emails to Crain’s that Rubicon was responsible for determining “service needs” during biweekly meetings and “most likely” D-A “agreed to the costs and paid the costs.”

“We cannot be involved in all aspects of every item happening on projects,” Klintworth said in emails to Crain’s. “That’s what partnerships are for. As stated, we were heading up the construction of the project.”

And in an emailed statement to Crain’s, Abu-Ali said he was “shocked and disappointed in the allegations made in this lawsuit.”

“At no point in my course of doing business was I made aware that my business partner had an ownership interest in Rubicon,” Abu-Ali said in the statement. “I also have never had any communication or meetings with city of Pontiac officials on this matter. And while my signature is on the check in question, it was done so at the direction of others in our company and I was not given any reason to doubt the legality of the expense.”

The check was deposited March 10, the day after Lyons created Innovative Community Elevations, Pontiac’s legal response says.

The response states “Public Official No. 1” — Waterman is never identified by name, although at one point the response refers to that official as a “former mayor” whose term aligned with Waterman’s — “filed falsified campaign financing statements as a direct and proximate result of receiving bribe payments, including but not limited to bribe payments made by Rubicon.”

Waterman was ultimately disqualified for the 2021 August mayoral primary because she didn’t file campaign finance reports on time. First elected in 2013, she was sworn in in January 2014 and and left office in January 2022 after running as a write-in candidate and placing third. Greimel won that election.

The complaint, which is being litigated in U.S. District Court in Detroit, does not specify a theory of how Waterman allegedly received payments, but it does say Lyons and she — again, not by name — removed documents and destroyed data and information relating to payments received.

The city says a Pontiac Housing Commission employee who is not identified notified it on Jan. 8, 2022, that “Public Official No. 1 and/or Lyons received bribe payments from Rubicon as a condition of placing its zoning request on the City Planning Commission’s agenda.” The city then says that upon receiving that information, Lyons was told to go to City Hall to return electronic devices used by him and the public official, Waterman. The city determined information and data was deleted before returning the electronics.

An internal investigation that included an interview with Lyons resulted in his termination. The city says in its filing that “Lyons admitted that he never performed any work on behalf of Rubicon, despite sending an invoice for ‘consulting’ services.”

The FBI, which is noted as a witness for the city in the case, declined to provide additional information and said it “doesn’t confirm or deny the existence of investigations.”

Brown and his attorney, Cindy Rhodes Victor of The Victor Firm PLLC, who also represents Rubicon and Browne Design Consultants, say the bribe allegations introduced in the case are false.

“There’s no allegation that we paid the mayor a single penny,” Rhodes Victor said.

“(They are saying) that there was a bribe, that this money that went to a contractor, somehow they’re alleging it ended up in the mayor’s pocket with no proof, nothing whatsoever,” the attorney continued. “That something that went to Innovative Community (Elevations), somehow ended up to the mayor but they have … no chain of custody to a check written to a legitimate business by a company who is not identified as a plaintiff in this case is now somehow alleged to be a bribe to the mayor. That really takes a huge leap of faith.”

The attorney also says a bribe to get on the agenda doesn’t make sense because, typically, a mere filing fee would be paid to do that. In addition, it says the alleged bribe was paid after the meetings and votes, not before.

A Halting Cannabis Rollout

The allegations are the latest in the ongoing saga over the former Kmart property and Pontiac’s marijuana licensing process writ large.

The Kmart property was listed for sale about a month ago by The Jonna Group in Birmingham, a division of the Royal Oak office of Colliers International Inc.

“They’re at a position where there’s really not a lot of choice” but to sell the property, Rhodes Victor said. “They would have loved for this to be financially beneficial. We think it would have been very beneficial to the city of Pontiac, brought in tax revenue and brought in people and really have been a positive thing. But you can only fight a battle for so long before it kills you.”

Due to lawsuits like Rubicon’s and others, Pontiac didn’t approve medical marijuana licenses until July last year. By then, medical licenses had lost their value in the market, which is now dominated by adult-use recreational marijuana. In June, medical marijuana sales in the state totaled just $6.6 million, compared to $254.2 million in recreational sales.

As a result, not a single medical marijuana dispensary has opened in Pontiac. Operators would rather get a recreational marijuana license, but the city has yet to launch that part of its licensing process.

The city’s recreational marijuana industry was set to begin in July this year with the opening of its license application process. But a group backed by some of the city’s medical marijuana license holders halted that process with a ballot referendum.

In May, Sensible Cannabis Reform for Pontiac submitted two petitions with the necessary signatures to put a measure on that ballot that voters could vote to repeal the city’s current recreational marijuana ordinance and repeal its related zoning ordinance. The financial backers of the petition drive are East Lansing-based Pleasantrees, Royal Oak-based Pontiac Ops Inc., Oak Park-based GreenHouse Farms Pontiac LLC and real estate investor Dennis Jaboro, according to reporting by The Oakland Press.

Pontiac City Council either had to rewrite its current licensing process or allow the ballot measure to proceed to voters in November, which it allowed, delaying the rollout of the recreational market.

An Expansive Plan

Rubicon and the city have long been at odds.

The company filed its complaint in Oakland County Circuit Court earlier this year before it was moved to federal court. Rubicon alleges that Pontiac and Doyle, its clerk, delayed issuing a medical marijuana license, leading a lender to yank a $45 million commitment and several tenants to drop away from the project. Rubicon and the other plaintiffs were seeking close to $60 million in damages and legal fees.

According to the lawsuit, Rubicon only achieved the conditional rezoning, from local business zoning to commercial and light manufacturing zoning, by agreeing to construct a retail strip and grocery store as part of the development, which would include two medical marijuana licenses.

Rubicon negotiated leases with several retailers and secured a lease obligation from grocer Hollywood Market for the project.

Family Rootz, a medical dispensary, and Pharmaco, a marijuana processor, had planned to move into the development.

The leases held millions of dollars in value, according to the lawsuit. Pharmaco’s 15-year lease is valued at $37.5 million; Family Rootz’s two, three-year leases were valued at $21 million and $15 million for Hollywood Market’s 10-year lease, the lawsuit said.

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