POT LAWYERS WALK FINE LINE

Taking on commercial pot growers as clients leads to hazy areas involving
liability and ethics

Joshua Hedlund will soon be sentenced for his connections to an indoor
marijuana farm in Berkeley, Calif., where police found more than 5,000
plants.

Years before pleading guilty, though, he appeared in tax solo Zachary
Epstein's office as a young, clean-cut real estate developer on the make.
Hedlund's father had been a Humboldt County, Calif., supervisor, and his
grandfather, Earl Hedlund, was once district attorney in rural Tehama
County, Calif.

"He was a very bright guy, college educated, his father was in politics,"
Epstein said. "Seemingly this is the kind of client I want."

California's booming, half-legitimate marijuana economy is throwing off
all kinds of legal work, and not just to attorneys advising medical
co-ops. It's also meant fees for real estate and tax lawyers who may or
may not know their clients' true revenue source. Because of the tension
between state and federal law, these lawyers walk a delicate line between
business adviser and criminal conspirator.

Under the Bush administration, federal prosecutors targeted real estate
agents who allegedly facilitated marijuana growing operations, but not
attorneys, said McGregor Scott, recently the U.S. Attorney in California's
Eastern District. In theory, Scott said, attorneys who know clients are
involved in marijuana could be subject to aiding and abetting charges.

President Obama may take a softer line with medical pot: Last week, in
response to DEA raids on dispensaries, a White House spokesman said
"federal resources should not be used to circumvent state laws."

Still unclear, though, is how the feds -- and, for that matter, state
prosecutors -- will treat large-scale commercial growers and the lawyers
they hire. Beyond potential criminal liability, the professional ethics
for attorneys are untested.

"I don't see why growers looking for real property would not be entitled
to consult an attorney on real estate issues if the lawyer doesn't know
it's for 'new growth,'" said San Francisco ethics expert Richard Zitrin.
"And my sense is that, if a marijuana dispensary is attempting to comply
with the law in California, I find it difficult to believe that the
dispensary can't consult a lawyer."

Ask Epstein if he knew Hedlund made money from marijuana, and the lawyer's
volume rises a few decibels. "Absolutely and unequivocally not!" the
Berkeley-based attorney said.

Over the course of a few years, Epstein, who charged between $200 and $300
an hour, set up several limited liability companies so Hedlund could buy
real estate. Among the properties Hedlund acquired were a coffee shop in
Santa Cruz, the Berkeley warehouse and thousands of acres in Humboldt
County, documents show.

Police raided Hedlund's warehouse in March 2006 and shut down the massive
indoor grow, leading to his indictment. Federal prosecutors contend
Hedlund partnered with the grow operators from the beginning and received
a share of the proceeds. Hedlund, meanwhile, argues in sentencing papers
that he found out about the grow only after the fact, and that he
mistakenly failed to evict his tenants.

Epstein said he merely provided Hedlund with tax advice related to real
estate. As time went on, though, the attorney's relationship with his
client deteriorated, according to a defense investigator's interview with
Epstein filed in court. Hedlund used Epstein's address for process service
without authorization; on one occasion, Hedlund's personal license plates
showed up in the lawyer's mail.

When prosecutors subpoenaed Epstein's records, a lawyer friend helped him
comply. The experience kept him up at night, he said.

"It's a little scary, quite frankly," he said. "I'm not in that world.
Getting a federal subpoena is 'wow.' It's not something I'd ever
contemplated."

Lawyers who advise dispensaries describe a mixture of satisfaction for
helping sick patients, and caution over federal law. San Francisco-based
litigator Matthew Kumin of Kumin Sommers devotes a small part of his civil
rights practice to helping collectives incorporate, pay taxes and comply
with wage-and-hour and other California laws.

But there are boundaries Kumin won't cross: He doesn't like to visit the
co-ops themselves, for instance.

"I don't want to get involved with their growers, or any contracts with
growers," he continues. "That's a place I don't really want to go to."

According to the government, Hedlund's growing income came from more than
just the Berkeley warehouse. And his real estate projects touched many
people around the Bay Area, including former Alameda County Judge Richard
Hodge, who bought property from Hedlund in Santa Cruz. Hodge's son and
Hedlund were business partners in the coffee shop there.

In a letter to Northern District Judge D. Lowell Jensen, Hodge vouched for
Hedlund's good character, though the retired judge said he didn't know the
"details" of the charges.

For his criminal defense, Hedlund has cycled through well-known federal
practitioners, starting with Doron Weinberg, Dennis Riordan and William
Osterhoudt, then Paul Meltzer, then Randolph Daar, and now Santa Rosa,
Calif., solo Chris Andrian. He hired former federal prosecutor Scott
Frewing, a Baker & McKenzie partner, to help negotiate with the IRS,
according to a court filing.

Hedlund's indictment didn't put the brakes on his real estate deals,
though. And when he embarked on a second, monster land acquisition in
Humboldt County, he hooked up with attorney Steven Schectman.

GREEN THUMB

According to prosecutors, Hedlund's agricultural land buys are part of his
overall strategy to make money from marijuana: The developer secured
thousands of acres from defunct timber companies, sold them to buyers with
criminal histories, and cloaked the transactions with LLCs.

In response, Hedlund says he required his buyers to sign prohibitions
against growing weed. But the government maintains in sentencing papers
that Hedlund loaned money to his buyers knowing it would be repaid in
marijuana proceeds; the DEA has consistently observed marijuana grows on
the properties.

Schectman, who keeps offices in Arcata, Calif., and Los Angeles, is well
known for representing pot dispensaries -- he's led the fight against DEA
pressure on landlords who rent to co-ops. But Schectman first made a name
for himself in Humboldt County prosecuting environmental claims against
the timber industry, and it was his credibility in this arena that Hedlund
says he found valuable.

"We thought that Steve was especially qualified to deal with any
timber-related litigation," Hedlund told The Recorder. "Steve's knowledge
of the timber industry and local activists helped greatly."

In 2006, three months after Hedlund's indictment, he had Schectman
establish Vilica LLC, according to corporate filings. That company then
bought 7,600 acres in Humboldt County. Schectman became Vilica's president
and chief legal officer, according to documents filed in court. Schectman,
who once ran for district attorney in Humboldt County, wouldn't answer
questions about his responsibilities as Vilica's president.

Vilica ran into problems with the authorities. In June 2007, the federal
Bureau of Land Management received a complaint about a new gate wrongly
installed on public land adjacent to a Vilica parcel. Rangers checked out
the scene, where they met two of Vilica's property buyers operating heavy
equipment, according to a BLM incident report.

Schectman and his client showed up at BLM offices the following week.
Hedlund promised to move the gate, the incident report says. The
authorities were also concerned about the environmental impact of
unauthorized building on the land, BLM chief ranger Jeffrey Knisley told
The Recorder.

The following month, Knisley returned to the property area and was able to
see 10 greenhouse structures with marijuana plants, according to a
Humboldt County code enforcement affidavit. Knisley said last week that he
never saw Schectman on the property, and the attorney didn't respond when
asked via e-mail whether he knew marijuana was being grown on Vilica land.
Schectman has never been charged with any wrongdoing in connection with
Vilica.

Within days of Knisley's visit, cops raided the property and arrested the
two people who allegedly built the greenhouses.

In his plea agreement, Hedlund admits his land was used to facilitate a
crime. Still, his defense attorney, Andrian, argues that it is not
uncommon in Humboldt County for property owners to have problems with
people growing pot. "His interest was in real estate development, not
clandestine marijuana grows," Andrian wrote in sentencing papers.

Beyond Vilica, Hedlund and Schectman's relationship is murky. In a letter
to the federal probation office, Schectman said he took Hedlund under his
wing as a paralegal and a clerk, and even tried to help him gain a State
Bar apprenticeship.

However, after pleading guilty, Hedlund told the government that he had
moved his office into Schectman's "to protect [my] documents from seizure
by federal authorities," according to a DEA affidavit.

Hedlund entered his plea on Feb. 4, 2008, after preparing his holdings for
forfeiture. On Feb. 3, Schectman resigned as Vilica's president. Hedlund's
sentencing is scheduled for the end of this month; the government is
seeking 63 months in prison.

Thinking back, Epstein, the Berkeley tax attorney, said his experience
with Hedlund made him consider whether he should vet clients more closely.
Yet, he said, it wasn't so uncommon during the real estate boom for a
client to have Hedlund's legal needs.

"Truly, I think I met both the black and white strictures of law, as well
as the spirit," he said. "I did not venture over the line."