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Ex-partner sues Kutak Rock over soured cannabis venture

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A man walks past a hemp leaf sticker on display on a shop in Nice, France, June 23, 2021. REUTERS/Eric Gaillard

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(Reuters) - A Chicago attorney is accusing his former law firm, Kutak Rock, of legal malpractice after the firm allegedly tried to usurp control of his cannabis business and put its own out-of-state clients in charge instead.

In a 40-page lawsuit filed in Cook County Circuit Court, Lance Tyson's company claims Kutak Rock botched a bid to obtain 10 cannabis licenses under a provision in Illinois law that gives preferential treatment to business owners who live in poor neighborhoods, causing Tyson to lose out on millions of dollars in revenue and profits.

Tyson, who left Kutak Rock to join Detroit-based Miller, Canfield, Paddock and Stone in January 2020, alleges through his company PBKM LLC that Kutak Rock structured the business so that two other firm cannabis clients, Delaware-based Cannabis Capital Group LLC and Colorado-based Trees LLC, would control PBKM and its licenses.

"I don’t know their motivation," said Tyson, who was a partner at Kutak Rock before leaving the firm. "Greed, incompetence, maliciousness, or maybe all of the above. But the fact of the matter is they clearly violated the duties owed to us, and we’re going to hold them accountable."

Illinois' cannabis law gives benefits, like low interest rate loans, to "social equity applicants" who live in an Illinois neighborhood that meets certain criteria, like having a poverty rate of at least 20%. Tyson said he and his company are now forbidden from re-applying for a cannabis license as a social equity applicant, thanks to Kutak Rock's malpractice.

"We're screwed. We're totally barred," said Tyson, who is PBKM's general manager.

PBKM's lawsuit includes claims of legal malpractice and breach of fiduciary duty against Kutak Rock and Christopher Parrington, a Minneapolis-based of counsel who prepared the company's cannabis license applications.

The complaint also names Cannabis Capital Group and Trees, as well as their respective CEOs, Eddie Armstrong and Timothy Brown, as defendants, accusing them of aiding and abetting the scheme.

None of the defendants responded to requests for comment. Cannabis Capital's website lists the group's address as Chicago, but PBKM's lawsuit said it was formed in Delaware.

For its lawsuit, PBKM has retained Gary Grasso, an attorney who also serves as the mayor of Chicago suburb Burr Ridge and who was a Republican primary candidate for Illinois attorney general in 2018.

According to the complaint, PBKM retained Kutak Rock in July 2019, and the firm assigned Parrington to handle the company's legal matters. Kutak Rock isolated Tyson, insisting he "play no role in the strategy, creation, or formation of the applicant entity, or drafting of the application documents," the lawsuit said.

Parrington brought in his clients Cannabis Capital and Trees to allegedly bolster PBKM's application credentials. Tyson acquiesced, as the Jan. 2, 2020 deadline was fast approaching, the complaint said.

But Cannabis Capital and Trees were given controlling votes despite their minority ownership, according to PBKM's lawsuit. PBKM said the law firm waited until Jan. 1, the day before the final deadline, to send the documents to Tyson and PBKM for their review.

The lawsuit said PBKM signed off on Kutak Rock's paperwork, trusting the law firm where Tyson was a partner. Illinois regulators denied PBKM's cannabis license applications in June 2020, permanently disqualifying it from applying as a social equity applicant due to its ownership and control provisions, per the lawsuit.

Tyson said he and his business partners have no interest in applying for a cannabis license as a regular applicant, saying he has been "disgusted" by the process.

"We’re pretty much done, at least at this point," he said.

Tyson said he didn't leave Kutak Rock over the dispute, but his days were numbered at the firm anyway given his outside business interests. Had the state granted his applications, Tyson said he would have been forced to leave the firm.

The case is PBKM LLC v. Kutak Rock LLP, Cook County Circuit Court, 2021L007458.

For PBKM LLC: Gary Grasso and Adam Bowers of Grasso Law

David Thomas reports on the business of law, including law firm strategy, hiring, mergers and litigation. He is based out of Chicago. He can be reached at d.thomas@thomsonreuters.com and on Twitter @DaveThomas5150.

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