As predicted, Great Barrington was sued by three cannabis dispensaries for the return of the $5.9 million in Community Impact Fees (CIF) paid to date, suspension of future fee collection, attorney’s fees, and prejudgment interest at 12 percent per year (by the September 2026 trial, more than $7.5 million will be at issue). Last month in this space, I counseled resolution rather than litigation. Now let’s consider how to minimize the litigation’s damage to the town’s coffers and taxpayers’ wallets.
We must start with the presumption that the town is assuredly going to lose. I say that not as a pessimist but as a litigator. Contrary to what we may have been told, it is not true that all you really need to know you learned in kindergarten. Basic contract law principles continued to progress post-sandbox. Finders keepers, losers weepers is not a thing. Possession is not nine-tenths of the law. “But you said so” is not a legitimate contract defense. Let’s just say the town’s understanding of contract principles, as articulated in a recent statement concerning the threatened litigation, remains mired in “that’s mine, not yours.”
Each of the three cannabis dispensaries has a Host Community Agreement (HCA) with the town. Each agreement is informed by and will be construed by application of preexisting Massachusetts law rather than by what the town would like the provisions to mean. Fundamental to the construction of the agreements is the original version of Massachusetts General Law Chapter 94G §3, which states in pertinent part as follows:
An agreement between a marijuana establishment … and a host community may include a community impact fee for the host community; provided, however, that the community impact fee shall be reasonably related to the costs imposed upon the municipality by the operation of the marijuana establishment … and shall not amount to more than 3 per cent of the gross sales of the marijuana establishment …
Section 3 is plain with respect to what the HCAs may provide. The law says — and the judge will assuredly agree — that CIF must be “reasonably related to the costs imposed upon the municipality.” The provision suggests a fairly simple process: the municipality collects the fee upfront from the establishment (certainly better than trying to collect later), determines costs directly related to the establishment’s cannabis sales, and gets reimbursed for such costs from CIF paid by the establishment. Against this backdrop, it is clear that fees are not, once paid, owned by the town; rather, they are held by the town in trust against incurred costs.
Not spelled out in the cannabis statute, because it need not have been, is the legislated fact that Massachusetts distinguishes between a “fee” and a “tax.” Whereas a municipality has discretion in the collection and use of a “tax,” a municipality has no discretion with respect to the assessment and collection of a “fee.” Municipalities may assess “fees” solely for reimbursement of costs incurred, as the oft-cited case Silva v. City of Fall River so held:
To determine whether a government exaction is a fee or a tax, we consider the following factors: (1) a fee is charged in exchange for a governmental service that benefits the party paying the fee in a manner not shared by other members of society; (2) a fee is paid by choice, in that the fee payer has the option of not utilizing the governmental service and thereby avoiding the charge; and (3) the charge is collected not to raise revenues but to compensate the governmental entity providing the service.
It is on this point, the well-recognized distinction between “tax” and “fee,” that the town’s defense of the dispensaries’ claims runs completely off the rails. Since Massachusetts law provides that fees are intended to reimburse a town for costs incurred, we need to consider if the town’s understanding of its HCAs is consistent with or contrary to Massachusetts law.
If Great Barrington had incurred costs, such as utilizing public safety officers to direct traffic when recreational cannabis sales began, those would have been reimbursable costs for which the town would be permitted to collect a fee. And, in fact, Great Barrington did incur such costs. If you recall the great cannabis rush that began at Theory Wellness in early 2019, the town was asked to provide special police details, incurring reimbursable costs of $73,051.92. The town invoiced Theory Wellness for this amount, which, ironically, Theory Wellness paid directly rather than out of CIF. Still, that is exactly what the cannabis statute contemplated. Incur a cost, get reimbursed for the cost.
According to the town, since May 2019, there have been no other reimbursable costs. Beginning in 2020, the town annually confirmed in writing to each of the dispensaries that no costs were incurred related to their operation. A litigator looking for “smoking gun” evidence in a case would certainly consider these “no costs” incurred letters “smoking guns” … each riddling the town’s claim that it has a legitimate right to withhold funds from the plaintiffs.
In response to the dispensaries’ claims that the town has incurred no reimbursable costs, the town will no doubt argue that it will not know the costs it may incur for years to come. No, that just won’t fly. The town has properly certified each year that no costs were incurred because none were. Looking at the statutory framework, it is plain that dispensaries are on the hook solely for actual out-of-pocket costs, not the town’s conjuring of a fear of possible deep-seated psychic damage that might manifest through therapy some decades from now. It is precisely for the reason that municipalities have offered the “we could be damaged” claims that Massachusetts amended its cannabis statute to make plain that only documented costs are reimbursable going forward. While the HCAs at issue here were entered into prior to the statute’s amendment, the amendment informs us as to the earlier legislative intent.
If you remain puzzled as to how one can be so certain that the town’s chances of winning are essentially nil, I am certainly emboldened by the fact, noted in the earlier column, that KP Law, P.C., the same firm that Great Barrington has employed to defend this suit, apparently shares my views. After nearly two years of litigation, KP Law advised the town of Uxbridge to settle a nearly identical lawsuit, returning about 80 percent of the CIF to the cannabis dispensary because Uxbridge had no viable defense. Maybe a bit inside baseball, but in order to avoid credibility issues with the courts and for other ethical reasons, it is unusual to see a law firm simultaneously take two opposing positions on the same legal matter, but it is not for me to judge.
The good news, if there is any good news, is that the dispensaries commenced their lawsuit before the Warrant for the Town Meeting has been finalized. As of last month, Great Barrington had about $4.98 million of collected CIF in its “free cash” account. While we can do nothing now about the fact that Great Barrington previously distributed $1.4 million in CIF to worthy causes, it is not too late for the Finance Committee, at its March 19, 2024 meeting, to suspend further distributions. As they say, when you are in a mess, don’t make it worse. The Finance Committee has the ability to not make things worse.
It is unfortunate that this matter was not resolved prior to litigation. Shockingly few people believe that every time a lawyer bills a client an angel gets its wings. When I am the taxpayer, I agree with the vast majority on this point. If the cannabis dispensaries succeed, as they will, the town will be responsible for its attorney’s fees, the dispensaries’ potentially considerable attorney’s fees, the return of all CIF (including sums previously distributed), and prejudgment interest growing at 12 percent per year. Ouch.
Hopefully on Tuesday night, the Finance Committee will consider the risks and rewards of distributing funds belonging to others and reconsider the proposed $1.5 million distribution on the draft Town Meeting Warrant. Given the dispensaries’ very legitimate claims, all currently held CIF should remain in trust until such time as the pending litigation is resolved. Proceeding otherwise would be unwarranted.
