A Chandler medical-marijuana lawyer's license could go up in smoke in a State Bar of Arizona discipline case that involves accusations of shady deals, backstabbing her own clients, and making a dishonest grab for tainted cash.
The allegations of ethical misconduct, conflict of interest, and lying appear in an explosive 25-page complaint filed by the State Bar in late September against Kathryne Ward, a former Virginia attorney who's been practicing in Arizona since 2002. Unless she cuts a deal with the State Bar, she'll be required to attend a hearing before the state Supreme Court's disciplinary judge and two panelists, who'll then decide what sort of punishment — including the possibility of suspension or disbarment — she'll get.
Ward has some challenges ahead, considering the large range of serious-sounding scenarios described in the complaint. The bulk of the document by David Sandweiss, senior bar counsel, concerns a complex, fouled relationship between would-be cannabis-business partners and a tricky real estate deal conducted as part of an attempt to open a state-licensed dispensary in Winslow.
One of the most eyebrow-raising anecdotes involves a small stack of cash found by police in the safe of a unlicensed compassion club in Tempe.
In March 2013, the complaint says, Tempe police were busy raiding the MERC medical-marijuana facility at 1811 East Southern Avenue when Ward showed up and announced that she was the owner of $7,900 in cash found in the club's safe.
Ward was the club's lawyer and shared office space at the premises, she explained. Police confiscated the cash anyway.
A few months later, Ward appealed a forfeiture action by the Maricopa County Attorney's Office, claiming that $7,185 from the seizure was retainer money paid by her clients and technically was being held in trust. The money had been seized "from the premises of the Law Firm," she wrote in the appeal, identifying her clients as Jane and John Does. Her "auxiliary" office was clearly marked "Suite C" and "Law Office," she argued. But cops had photographed the interior of the place thoroughly — there was no such signage on the doors or walls.
She didn't mention in the appeal that the MERC club was, at least for a time, a family business she operated with her husband, Steven Smigay, and her son, Michael Colburn.
When County Attorney Bill Montgomery's office asked Ward to name the clients who had paid the retainer, Ward tried to back out of the claim for the money and told the court the civil action over the forfeiture case "could lead to self-incrimination."
The State Bar asked Ward about her attempts to obtain the cash in its screening letter before the complaint's filing — she told them her clients, whom she never named, had left the cash for her in an envelope to pay their accounts with her law firm. She told an attorney with the bar "she is unaware of any connection between her husband or son to MERC." Yet public records show Smigay owned MERC and Colburn was a co-operator, according to the complaint in which the bar accuses Ward of misconduct and lying to it and others about the cash.
Ward and her family already were experienced in the industry by then, according to the complaint, having jumped in a few months after voters approved the Arizona Medical Marijuana Act in November 2010.
She and Colburn's wife, Erica Brown, became directors of a company called Compassionate Care Dispensary, which had been created in April 2011 by Colburn and his business partner, Joe Kendall. They sought to obtain a state license to open a dispensary in Winslow, and soon entered in a relationship with John Gally, a wealthy property owner in his 70s who "does business on a handshake."
The would-be partners soon had problems. The CCD principals moved into a building owned by Gally while posing as a water-conditioning company, apparently in a bid to throw competitors off their trail. But Gally locked them out the next year in a dispute over rent and sold off their office equipment. That left a highly sought-after opening for a dispensary location in Winslow, and William Brothers, president of Green Cross Medical, stepped in with an offer to lease Gally's building.
Representing CCD, Ward warned Gally that he couldn't do the deal with Green Cross for a host of reasons, informing him further that according to the terms of the water-conditioning company's lease deal, Gally actually didn't own his building anymore, the complaint says.
Gally canceled his deal with Green Cross, which sued him. Ward represented Gally in the lawsuit while helping to negotiate a lease deal in his building for CCD. Ward reportedly wrote to Coconino County Judge Jaqueline Hatch, claiming falsely that Gally no longer owned the building and that Hatch should rule against Green Cross because it wanted to run a business that violated federal law.
Hatch prevented Gally from voiding the Green Cross lease. Ward then advised Gally to transfer ownership of his building to a company owned by her son "to circumvent Judge Hatch's ruling and prevent Green Cross from gaining access" to the building.
Gally eventually recovered his property when Colburn's company defaulted on purchase payments, the complaint states. But Green Cross won the battle on appeal, and Gally had to pay $25,000 in legal fees.
Clients and Partners
The Arizona Grass Roots Dispensary in Mayer is where Colburn now works. Besides offering its state-authorized service to card-holding clients, it also supplies the facility at 1811 East Southern Avenue in Tempe, which continues to operate an outlet for the Mayer business. But Colburn wasn't a part of the Mayer dispensary, at first.
A company called Natural Earth Providers won the August 2012 lottery held by the state Department of Health Services for the Mayer region. Partner Timothy Thiess owned half while a group of investors calling itself NEP Holding held the other half. They contracted with Ingrid-Joy Warrick, a lawyer with a suspended license, to run the planned dispensary.
Interestingly, the NEP Holding group included Bruce Bedrick of Medbox, a penny-stock company covered in a New Times article two years that was once worth more than $1 billion in estimated stock holdings, but has since all but gone bust. Attorney Jeffrey Kaufman, who sued the investors for alleged unpaid legal fees, wrote about his lawsuit against them in 2013 on his legal firm's blog. Bedrick and Medbox later transferred its interest to NEP Holding member Jennifer Sanchez, Kaufman wrote.
The Bar complaint says Warrick introduced Ward to Sanchez, John Romero, and Hector Martinez of NEP Holding. All four would eventually file grievances with the bar that would lead to the official complaint against Ward by Sandweiss.
The unraveling of the partnership began with the fight between NEP Holding and Thiess.
"Amidst charges and counter-charges of theft, fraud, and forgery of [state] Corporation Commission documents and the dispensary certificate, NEP Holding decided to buy out Thiess of Natural Earth for $175,000," the complaint states.
Ward told the group she had a client, QPAC LLC, that could invest $360,000 in the business, buying out Thiess in the process. NEP holding would then pay back QPAC the $175,000 with revenue from the planned dispensary. Her son, Colburn, was a principal member of QPAC.
With her son then part of a business that owned half of the dispensary under development, Ward sued NEP Holding, alleging breach of contract, civil conspiracy, and misrepresentation. While still representing NEP Holding in a separate lawsuit that developed against Warrick — and also in the previously mentioned lawsuit against Kaufman over his legal fees — Ward was trash-talking her clients in legal documents.
She claimed Sanchez had stolen money from the dispensary business, cleaned out one of its bank accounts, and "other bad acts ... including theft, embezzlement, alcoholism, failure to pay her rent and volatile behavior in public," the complaint says. As her case against NEP Holding continued, she made additional harsh allegations about Martinez and Romero.
Ward Denies Allegations
Reached this morning, Ward tells New Times that Sandweiss' case is a "bunch of crap" and "full of lies." She claims he's helping the city of Tempe retaliate against her for a $3 million lawsuit she's launched for a "beating" she received by a Tempe police officer that has left her unable to walk for two years.
The injury occurred during a second raid against the MERC club in August 2012, she says. She says she went "to the belly of the jail" at the Tempe Police Department, where she hoped to meet with the club's detained employees. There, she says, an officer swung a metal door into her head, sending her flying.
"They brutally injured me because I asked for a glass of water," she claims. The blow and fall broke her nose and hurt her spine, she says, continuing that she just had surgery for the latter in Dallas.
Ward maintains that except for her son, her family has nothing to do with the medical-marijuana industry. She declined to say what her son does for the Mayer dispensary or what her husband does for a living. However, she adds that her husband has a security clearance with the Department of Defense and is considering legal action against Sandweiss because of the allegations in the bar complaint. Ward says she intends to file a bar complaint of her own against Sandweiss, who she says she's never met.
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A newer document filed with the State Bar by Sandweiss strips out many of the allegations against her, including the rumored family connections, she says, but she declined to e-mail it to New Times. After the interview, Ward sent a written statement that said, in part:
"[Sandweiss] filed this bar complaint two years later only after MCAO complained that I would not release attorney client privileged information that it believed would support its raid and taking of private property and detention of patient card holders.
"Sandweiss names my husband, son and daughter law in the complaint making outrageous allegations without basis or foundation. When Sandweiss released his Initial Disclosure Statement in his case last week, under threat of Rule 11 sanctions, [he] removed all allegations as to my husband, son and daughter-in- law.
"My husband intends to bring a bar complaint and suit for defamation against Sandweiss for knowingly and intentionally making false allegations to a tribunal, specifically, the PDJ. The allegations against my family are completely false, and were only included in the complaint to inflame and prejudice the Judge against me."
The State Bar of Arizona declined to discuss the case, but a spokesman for the bar tells New Times no date has been set for the disciplinary hearing. Ward, however, says she's been told it will occur in January.
With Ward vowing to fight the bar complaint vigorously, the hearing could be a must-see event for observers of the medical-marijuana industry.