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More destruction of text messages emerges as Seattle pays $1.5M to settle cannabis shop’s lawsuit

In 2018, Marigold Products sought to relocate a cannabis store from Sodo to this location on Market Street in Ballard, Wash., and was blocked by the city.  (Ken Lambert/The Seattle Times)
By Jim Brunner Seattle Times

SEATTLE – The city of Seattle has agreed to pay $1.5 million to a cannabis retailer to settle a lawsuit in which the company blasted the city for deleting text messages.

The lawsuit by Marigold Products accused city officials of “playing favorites” by reversing a licensing decision after meeting with a rival’s lobbyists.

Seattle settled the case in April, days after Marigold asked a judge to penalize the city for intentionally destroying evidence while violating the state’s public records law and its own policies.

The settlement is among the largest lawsuit payouts by Seattle this year, according to the City Attorney’s Office, and adds to concerns about city government employees failing to retain texts.

State law generally requires government records to be saved and available to the public to ensure voters have unvarnished information to hold their elected officials accountable.

Last year, a whistleblower in then-Mayor Jenny Durkan’s office revealed that Durkan’s texts from a 10-month period, including the tumultuous summer of 2020, had been deleted. The Seattle Times subsequently discovered that other officials had failed to retain their texts from approximately the same period, including the police chief and fire chief.

Last month, the city agreed to pay nearly $200,000 and make policy changes to settle a lawsuit brought by The Times over those missing texts and over how public records requests had been handled.

The City Attorney’s Office declined to say this week whether the allegations of records destruction played a role in its Marigold settlement decision.

“The City Attorney’s Office is pleased that it was able to resolve this matter,” spokesperson Anthony Derrick said in an email. “We note that the City did not admit liability in settling the case and have no further comment.”

Licensing dispute

The texts at issue in the Marigold lawsuit were from 2018, when the company began working on a plan to relocate a pot shop from Sodo to Ballard and ran into a city rule that prohibits clusters of marijuana stores.

Initially, officials said Marigold couldn’t get a marijuana business license from the city for the Ballard location, because other marijuana retailers were already registered in the vicinity. When Marigold complained, noting one of the other companies, Washington OG, had yet to obtain a marijuana business license and had yet to open its doors, certain officials changed their minds and said Marigold could move ahead with the licensing process.

Fred Podesta, director of the city’s Finance and Administrative Services department at the time, reversed that stance the next month, blocking Marigold. Podesta made the decision after meeting with lobbyists hired by Washington OG: Sandeep Kaushik and Tim Hatley. Kaushik had consulted on Durkan’s campaign and continued to serve as an informal political adviser, Marigold’s lawsuit noted.

Podesta said he had listened to all the parties involved and then made a decision based on the law. “My door is open to talk to anyone,” he said in a 2018 interview. “This wasn’t a political decision. It was a technical decision.”

Washington OG subsequently opened in Ballard with the store name American Mary, and the Seattle Hearing Examiner, which handles administrative appeals, upheld Podesta’s decision later in 2018. In 2020, Marigold sued the city in King County Superior Court, seeking more than $10 million in damages. Marigold’s owners, Douglas Waun and Andrew Elliott, declined to be interviewed for this story. Washington OG’s owner didn’t return calls seeking comment.

Lawyers for the city sought to have the case dismissed in April, writing that Marigold’s license application was repeatedly denied in writing and that the company’s lawsuit rested “on a strained interpretation of a single email.”

Spoliation motion

In April, Marigold filed a motion saying the city had “purposefully destroyed” evidence. When Podesta left his job with Seattle in 2019, he turned his phone over to an assistant. The phone’s data was then wiped, city officials have acknowledged, according to Marigold’s April 18 spoliation motion. Podesta’s deputy left in 2020 and his data was also wiped, the motion said.

The deletions occurred after Marigold had provided the city with notice that the company had legal claims and might sue, the motion said, alleging the texts likely contained “relevant and important evidence” and asked a judge to issue a default ruling on Marigold’s claims in the lawsuit.

“The city may not assert with impunity there was no improper communication among the lobbyists, Podesta, or Carey after unlawfully destroying the evidence,” the motion said.

In a deposition in March, a city records manager testified that phones should be reviewed when employees leave and substantive records retained. But that process is left to each department to carry out, with no one at the city responsible for verifying compliance, Jennifer Winkler testified.

A week after the spoliation motion, on April 25, the city and Marigold filed to settle the case.

Marigold’s lawsuit also sought texts from Kaushik and Hatley via subpoenas, but the lobbyists had deleted their texts “and produced none in response to the subpoenas,” according to the spoliation motion.

In an interview this week, Kaushik said there was “nothing untoward or even unusual” about his conversation with Podesta. Kaushik said he and Hatley, who both had lobbied for a state association of cannabis retailers, merely pointed out that “the city was violating the clear language of its own law” by initially greenlighting Marigold’s license.

Hatley said the city “made a mistake in terms of their interpretation of the code – we brought that to their attention.”

The Marigold settlement is the latest in a string of cases that have highlighted instances of top Seattle officials not properly preserving public records. The city paid $17,000 in 2019 to settle a lawsuit by the Times over failing to turn over certain text messages sent in 2017 by then-Mayor Ed Murray, who resigned that year over allegations he’d sexually abused teens decades earlier.

In the 2019 settlement, Seattle agreed to conduct “refresher” trainings for employees on retaining public records, using city-owned devices for government business and avoiding smartphone apps that automatically delete communications.

In addition, last month’s $200,000 settlement over the Durkan texts requires the city to program all city-issued cellphones to retain texts permanently and train all city employees on public records by the end of 2022.

Durkan’s office piloted a new records-retentions system in 2021. Seattle’s 2022 budget increased funding for the city’s public records management program from about $140,000 to about $1.49 million, adding five employees and three new technology systems.