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HomeMy WebLinkAbout21CV-0734 - Tentative Ruling on DemurrerFILED JUL 072022 V BscN LUIS BISPO SUPERIOR COURTtau ~ NHC SLO,LLC v.City ofSan Luis Obispo,et aL,21CV-0734 ’”am”°'°°""°"'”99“”C'e Hearing:Demurrer Date:July 7,2022 TENTATIVE RULlNG Background In January 2019,Petitioner NHC SLO,LLC (Petitioner)applied for a cannabis operator permit by filing a Commercial Cannabis Business Operators Permit Application (the'Application)with~ Respondent City of San Luis Obispo (the City).(Request for Judicial Notice [RFJN],Ex.3.) 1 At that time,Helios Dayspring (Dayspring)was Petitioner’s chief executive officer and managing member and signed a declaration on its behalf for theissuance of the permit.(Id.at Ex.3,p.0035.) On October 22,2019,Respondents grantedthe issuance of a permit,subject to Petitioner’s compliance with the applicable Municipal Code provisions. On October 20,2020,Dayspring transferred his interest in Petitioner to Valnette Garcia.(Pet,11 20,and Ex.F.at NHCSL0000046.) On or around July 28,2021,Dayspring entered into a plea agreement with the United States Attorney for the Central District of California.(Pet,Ex.H,at NHCSL0000078-000107.) Dayspring pleaded guilty to bribing an elected San Luis Obispo County Supervisor from 2016 to 2019,and attempting to bribe a San Luis Obispo County mayor,as well as violations of the federal tax code.(Pet,Ex.H,NHCSL000089-97.)2 - On October 6,2021,Respondents terminated the permit,and issued a notice of automatic disqualification to Petitioner.(Pet,Ex.E.)The reason cited for this action was Petitioner’s submission of false or misleading information in obtaining and maintaining the permit.The revelations in Dayspring’s plea agreement,in Respondents’View,rendered certain representations made by Petitioner in the AppliCation false and misleading. 0n October 19,2021,the City issued is final memorandum Of-decision,reaffirming the automatic disqualification of Petitioner.(Pet,Ex.H.) On December 23,2021,Petitioner filed this lawsuit asserting one cause of action for “writ of i mandate,prohibition,and declaratory relief.” Respondents’request for judicial notice is granted.(Evid.Code,§452,subds.(b)-(d).) The Court notes that a federal court accepting a guilty plea is required to “determine that there is a factual basis for the plea.”(F ed;R.Crim.Proc.,rule 11,subd.(b)(3).) 1 2 Now before the Court is Respondents’demurrer to the petition.Respondents demur on the basis that the first cause of action is barred as a matter of law because it fails to state facts sufficient to constitute a cause of action.(Code Civ.Proc.,§430.10,subd.(0).) Legal Authorig Mandamus proceedings are subject to the general rules of pleading applicable to civil actions.(Chapman v.Superior Court (2005)130 Cal.App.4th 261,271.)A demurrer tests the legal sufficiency of the allegations in a complaint.It raises issues of law,not fact,regarding the complaint’s form or content.(Code Civ.Proc.,§§422.10,589;Donabedian v.Mercwjy Ins.C0. 2004)116 Cal.App.4th 968,994;Lewis v.Safeway (2015)235 Cal.App.4th 385,388.)A demurrer “admits the truth of all material factual allegations in the complaint the question of plaintiff’s ability to prove these allegations,or the possible difficulty in making such proof,does not concern the reviewing court.”(Alcorn v.Anbro Engineering,Inc.(1970)2 Cal.3d 493,496.) To survive a demurrer,the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged.” CA.v.William S.Hart Union High School Dist.(2012)53 Cal.4th 861,872.) With this action,Petitioner challenges the City’s automatic disqualification of Petitioner’s permit.The standard of review in ordinary mandamus is highly deferential.(See Carrancho v. Cal.Air Res.Bd.(2003)111 Cal.App.4th 1255,1265 [“Mandamus may issue to correct the exercise of discretionary legislative power,but only if the action taken is so palpably unreasonable and arbitrary as to show an abuse of discretion as a matter of law.This is a highly deferential test.”].)'‘ Petitioner’s challenge involves the interpretation of the MuniCipal Code,and the City is entitled to deference in its interpretation of its municipal code.(See,e.g.,Communities for a Better Envt.v.State Water Resources Control Bd.(2003)109 Cal.App.4th 1089,1107 [Courts extend considerable deference to an administrative agency’s interpretation of ...the regulatory scheme which the agency implements or enforces.”].) i Discussion The Municipal Code San Luis Obispo Municipal Code section 9.10.070(C)3 provides for automatic disqualification of an applicant if the applicant “made-one or more false or misleading statements or omissions'in the application proceSs‘.”(Pet.Ex.E at NHCSL0000039,citing Mun.Code,§9.10.070(C);see , also RFJN Ex.1.)In signing the Cannabis Permit Application,Dayspring (on Petitioner’s J behalf)acknowledged the following statement:“Applicants providingfalse 0r misleading information in the permitting process will result in the rejection of the application and/or 3 All statutory references are to the San Luis Obispo Municipal Code unless otherwise noted. 2 nullification of any issued permit.”(RFJN,Ex.3,p.0035,emphasis in original.) In signing the cannabis background check questionnaire,Dayspring acknowledged: I acknowledge that by signing the documents contained in this Background Package,that all information that I have provided is true and correct.I acknowledge that any information omitted,not disclosed,or found to be false is subject to disqualification for a Cannabis Business Operator Permit. RPJN,Ex.5,p.2.) Respondents argue that because the permit was never active,Petitioner has no operative permit and can still be disqualified from obtaining the permit under Section 9.10.070(c).ReSpondents rely on the general law of vested rights,which provides protection once a business has obtained necessary land use entitlements and begins to operate.(Avco Community Developers,Inc.v. South Coast Regional Com.(1976)l7 Cal.3d 785,797.) Respondents argue that the permit provided to Petitioner was merely one step in the process to operate a cannabis facility in the City,noting that an aspiring operator must also obtain a conditional use permit and other approvals from the City.(RFJN,Ex.2,§17.86.080(E)(1)(a).) Respondents note that the Municipal Code further states that licensure creates no vested right: No person shall have any entitlement or vested right to operate a cannabis business solely by virtue of licensing under these regulations.Operation of cannabis activity(ies)requires both the approval of a conditional use permit and a r commercial cannabis operator permit under Chapter 9.10,which is a revocable privilege and not a right in the city.The applicant bears the burden of proving that all qualifications for licensure have been satisfied and continuously maintained prior to conducting a cannabis business at an otherwise allowed location within the , city.' RJN Ex.2,§17.86.080(E)(2).) In opposition,Petitioner argues that Section 9.10.070,“applies to Cannabis applications by its express terms,”not permits.(Opp.,p.8,1.19.) Section 9.10.070(C)states in relevant part: Grounds for Automatic Disqualification.In addition to any other reason that may r be established by the city council as a basis for disqualification,an applicant shall be disqualified from applying for,or obtaining,a commercial cannabis operator permit if: 4.The applicant made one or more false 0r misleading statements or omissions in the application process.(Emphasis added.) Petitioner argues that Section 9.10.070 provides for the disqualification of an applicant applying for a permit or obtaining a permit.According to Petitioner,where a permit already has been issued,the City must follow another provision of the Municipal Code,entitled “suspension or revocation of permit,”which provides as follows: In addition to any,other penalty authorized by law,a commercial cannabis operator permit may be suspended or revoked if the cityfinds,after notice to the permittee and opportunity to be heard,that the permittee or his or her agents or employees have violated any condition of the permit imposed pursuant to,or any provision of,this chapter. A.Upon a finding by the city of a first permit violation within any five~year period, the perrnit shall be suspended for thirty days. B.Upon a finding by the city of a second permit Violation within any five—year period,the permit shall be suspended for ninety days. C.Upon a finding by the city of a third permit violation within any five—year period,the permit shall be revoked. Mun.Code,§9.10.090 (emphasis added).) Petitioner argues that its claim survives demurrer because it was not provided notice and an opportunity to be heard. Respondents’position is that Petitioner’s permit was not “active,”relying on section 9.10.070(d): Each commercial cannabis operator permit issued pursuant to this chapter shall expire twelve months after the date of its activation.The perrnittee may apply for renewal prior to expiration in accordance with this chapter.Each commercial cannabis operator permit must be activated within twelve months of issuance. The permit is activated by the issuance ofa use permit for the commercial cannabis activity pursuant to Section 17.86.080,together with all other applicable city permits and state licenses,and the commercial cannabis operator thereafter opening and continuously operating the commercial cannabis activity.Failure to timely activate the permit shall be deemed abandonment of the permit and the permit shall automatically lapse.(Emphasis added.) i Respondents argue that Petitioner did not comply with this Section,and thus the permit was not active.”Respondents argue that until the permit is legally active,and the applicant proceeds 4 through each step of that application process,the applicant remains an “applicant”with no operative permit,and thus may still be disqualified from obtaining the permit under Section 9.10.070(c).) Respondent’s interpretation of Section 9.10.070(c)is consistent with other provisions in the Code,which as a whole provide for a multi-step process in commencing a commercial cannabis operation.The approval of the operator permit is a precursor to the application for a use permit under section 17.86.080,which provides that “[a]ny permit authorizing commercial cannabis activity pursuant to this chapter shall be conditioned upon the holder obtaining and maintaining a city commercial cannabis operator permit and the appropriate state license for the activity.” Mun.Code,§17.86.080(E).)As discussed above,the same provision makes it clear that the issuance of a permit does not create a vested right to operate a cannabis business.Moreover,the requirement that the operator activate its permit within a specific period indicates that until the permit is activated,it is a conditional permit,and may be revoked.Construing the Municipal Code provisions as a whole,it is only after the operator permit,the use permit,and other required licenses and permits are obtained that the provision in Section 9.10.090 governing suspension or revocation comes into play. The Parties’Agreement Respondents argue that,in the Application,Petitioner contractually agreed that any false or misleading representation or omission would result in disqualification and revocation of the permit,and waived any inconsistent rights in the Municipal Code:“Applicants providing false 0r misleading information in the permitting process will result in rejection 0f the application and/0r nullification or revocation 0f any issued permit.”(RFIN,Ex.3,p.0035,emphasis in original.) Respondents argue this provision evidences the City’s interpretation of its own ordinance,as well as Petitioner’s acknowledgment and agreement with this interpretation,and its independent contractual agreement and waiver of any broader rights provided in the Municipal Code.. Petitioner does not address this argument in its opposition. The Court need not rule on the merits of this argument,but notes that the statement in the Application is consistent with the Court’s interpretation of the Municipal Code provisions as a whole,as outlined above. Unclean Hands Respondents argue that Petitioner only received a permit at all because of fraud,and that equity should not allow Petitioner to profit from its fraud. Although mandamus is “generally classed as a legal remedy,the question of . whether it should be applied is largely controlled by equitable considerations.” Dowell v.Superior Court,47 Cal.2d 483,487.)It has therefore been held that the 5 writ should nOt issue in aid of one who does not come into court with clean hands Wallace v.Board ofEducation,63 Ca1.App.2d 61 1,617),or “Where the conduct of the party applying for the writ has been such as to render it inequitable to grant him relief ...”(Bashore v.Superior Court,152 Cal.1,4.) San Diego County Dept.of Pub.Welfare v.Superior Court (1972)7 Cal.3d 1,9.) As the Court previously ruled in denying Petitioner’s application for a temporary restraining order: Petitioner fails to show a likelihood of success on the merits sufficient to warrant temporary relief.Mr.Dayspring personally signed Petitioner’s application for a cannabis op crator’s permit under penalty of perjury,and made other representations during the permitting process.Respondents have presented persuasive evidence to show that Mr.Dayspring made material misrepresentations in the application process that adversely impacted the approval of the permit.Such acts violate the San Luis Obispo City Municipal Code.The fact that Mr.Dayspring is no longer a member or owner of Petitioner is of no moment,given that his statements formed the basis of the approval. Ruling,Feb.1,2022,p.3,11.17-25.) Petitioner does not address this argument in its opposition and does not dispute‘that Dayspring acted with unclean hands in securing the permit;The demurrer is sustained on this ground. Mootness Independent of Respondents’other arguments,ReSpondent also argues that the relief requested in the petition is moot,because the permit at issue expired by operation of law on October 22, 2021. As set forth above,Section 9.10.070(D)provides that,where a cannabis permit is not activated within l2 months,it will terminate.Through three separate resolutions,the City granted Petitioner a total of one additional year to activate its permit.(RFJN,Exs.7,8,9.)Petitioner’s permit was issued October 22,2019.Because it was not activated by October 22,2021,the two- year deadline,it was “deemed‘abandoned”under Section 9.10.070(D). Petitioner does not address this argument in its opposition.Petitioner does not dispute that the permit has been deemed abandoned and thus any requested relief1n the petition is moot.The demurrer on this ground1s sustained. Evidentiafl Objections Respondents’evidentiary obj ectionvto the declaration of Helios Dayspringiis sustained and the 6 declaration is disregarded in its entirety.The declaration is not signed under penalty of perjury, and the Court is unable to consider it.(See Code Civ.Proc.,§2015.5;Kulshrestha v.First Union Commercial Corp.(2004)33 Ca1.4th'601,610-611.)Even if the Court could consider the i declaration,it is full of Speculation and averments not properly before the Court on demurrer. Petitioner’s Sur-Reply The Court is in receipt of a document filed on July 6,2022,entitled “Objection to New Arguments.”Despite its caption,the document essentially asserts new argument and evidence in support of Petitioner’s opposition.The document contains argument that could have been made in opposition to the demurrer.The Court construes the document as a sur-reply and orders it stricken as thereis no basis for the filing of such a document,and the Court did not grant leave to Petitioner to file the document.v okDERs (TENTATIVE) l)The demurreris sustained with leave to amend.Petitioner shall file an amended complaint on or before July 18,2022.(Cal.Rules of Court,rule 3.1320,subd (g).) 2)Petitioner’s “Objection t0 New Arguments,”filed July 6,2022,is stricken.