Bank To Shell Out $5M To End Pot Co.'s Tax Payment Claims

A cannabis-friendly banking firm has agreed to pay $5 million to resolve a former client's claims that the firm failed to pay taxes on its behalf to California, the parties told a federal court Wednesday, with the firm asking the court to close the case.

Pacific Banking Corp. and Cann Distributors Inc. have settled the cannabis company's claims that the banking firm breached a contract by failing to pay taxes to the California Department of Tax and Fee Administration on Cann's behalf, according to a stipulation filed with a California federal court. An attorney for Pacific Banking asked the court to close the case, citing the resolution.

Cann filed the case in March 2020, alleging Pacific Banking failed to pay millions of dollars in California tax payments and vendor invoices on its behalf. Cann and CCSAC Inc., an affiliated company, entered into agreements with Pacific Banking to conduct some transactions on their behalf and had asked the banking firm to make a $1 million payment to California for Cann's taxes, according to the complaint. The banking firm has operated as an intermediary between cannabis companies and more traditional banks.

While Pacific Banking said the payment had been made to the California tax department, the department said no payment had been made and assessed penalties and interest for nonpayment, according to the complaint.

Cann and CCSAC believe that their funds had been transferred to a company controlled by Pacific Banking's CEO, the complaint said. The court in April 2020 issued an injunction blocking the banking firm from using its funds while the litigation proceeded.

The parties have since sparred over discovery, and Cann has sought sanctions, contending that Pacific Banking's CEO turned in doctored business records.

The $5 million resolution settles all of Cann and CCSAC's claims in the case, including their bid for sanctions, according to the stipulation.

Steven M. Selna of Benesch Friedlander Coplan & Aronoff LLP, who is representing Cann and CCSAC in the case, told Law360 that "after more than three years of litigation, our client is pleased with the outcome and can now focus all their efforts on expanding and diversifying their cannabis business portfolio."

A representative of Pacific Banking did not respond to a request for comment Wednesday. 

Cann Distributors Inc. and CCSAC Inc. are represented by Steven M. Selna of Benesch Friedlander Coplan & Aronoff LLP and Robert W. Selna of Selna Partners LLP.

Pacific Banking Corp. is represented by Stephen M. Lobbin of SML Avvocati PC.

The case is CCSAC Inc. et al. v. Pacific Banking Corp. et al., case number 3:20-cv-02102, in the U.S. District Court for the Northern District of California.