HomeMy WebLinkAbout21CV-0734 - Reply Filed82508.00018\40282662.1 -1 -
CITY OF SAN LUIS OBISPO REPLY IN SUPPORT OF DEMURRER
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BEST BEST &KRIEGER LLPATTORNEYS AT LAW18101VON
KARMAN AVENUE,SUITE
1000IRVINE,CALIFORNIA92612JEFFREY V. DUNN, Bar No.
131926 jeffrey.dunn@bbklaw.
com DANIEL L. RICHARDS,
Bar No. 315552 daniel.
richards@bbklaw.com
BEST BEST & KRIEGER
LLP 18101 Von Karman
Avenue Suite 1000 Irvine,
California 92612 Telephone: (949) 263-
2600 Facsimile: (
949) 260-0972 CHRISTINE DIETRICK,
Bar No. 206539 cdietrick@slocity.
org CITY OF SAN LUIS
OBISPO CITY ATTORNEY’S OFFICE Attorneys for Defendants and Respondents City
of San Luis Obispo and City
Council of and for the
City of San Luis Obispo
EXEMPT FROM FILING FEES PURSUANT TO GOVERNMENT
CODE SECTION 6103 SUPERIOR COURT
OF THE STATE
OF CALIFORNIA COUNTY
OF
SAN LUIS OBISPO NHC SLO, LLC,
Petitioner and Plaintiff, v. CITY OF SAN LUIS
OBISPO; CITY COUNCIL OF AND FOR
THE
CITY OF
SAN
LUIS OBISPO; AND DOES
1-10, INCLUSIVE,
Defendants and Respondents. Case
No. 21CV-
0734 Judge: Rita
Federman DEFENDANTS’ REPLY IN
SUPPORT OF DEMURRER Filed
concurrently with: 1. Objections to
Evidence] Date:
July 7, 2022 Time: 9:
00
a.m. Dept.: 2 Action Filed:
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CITY OF SAN LUIS OBISPO REPLY IN SUPPORT OF DEMURRER
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BEST BEST &KRIEGER LLPATTORNEYS AT
LAW18101VON KARMAN
AVENUE,SUITE 1000IRVINE,CALIFORNIA92612MEMORANDUM OF POINTS AND AUTHORITIES I.INTRODUCTION Petitioner NHC SLO, LLC’
s (“Petitioner” or “NHC”) opposition is meritless, and fails to demonstrate that the factual allegations
supporting NHC’s petition for writ of mandate show any entitlement to relief. The gravamen of NHC’s
opposition is that the City could not revoke NHC’s permit, regardless of
any fraud, misrepresentations, or omissions, because the City “issued” an unactivated and inoperative
Cannabis Permit before the City learned of NHC’s fraudulent misrepresentations
and Helios Daysprings’ history of felonies. (Opposition to Demurrer [“Opp.”] at p. 8:5–13:12.) As is explained in the
City’s moving papers, NHC is incorrect, and the City retained its authority to disqualify
NHC and preclude NHC from benefitting from its
fraud and violations of the San Luis Obispo Municipal Code. Perhaps as important as the flaws in
NHC’s arguments is what NHC does not argue. NHC does not argue that the
City presents factual issues unsuitable for demurrer. NHC does not contend with the fact that
Helios Dayspring, on behalf of NHC, agreed that “Applicants providing false or misleading information in
the permitting process will result in rejection of the application and/or nullification or
revocation of any issued permit.” (Request for Judicial Notice [“RJN”] Ex. 3 at p. 6 [emphasis
added].) NHC does not meaningfully argue that Helios Dayspring made no misrepresentations, instead only vaguely
alleging that the City was on notice that he had previously committed crimes related to cannabis’ previous
illegality. (Opp. at pp. 5:26–6:6:7.) A history of crimes related
to cannabis activities prior to state legalization, disclosed on an application to operate a
cannabis dispensary, is meaningfully distinct from a history of felonies, including tax fraud and bribery,
and NHC fails to address the numerous other misstatements and omissions made
by NHC. (See Demurrer at pp. 10:9–14:24.) NHC also fails to address the fact
that its lawsuit is moot and NHC has no beneficial interest in the requested writ – NHC’
s unactivated permit expired by operation of law on October 22, 2021, and NHC did not
take any steps to seek an extension of this deadline. Finally, NHC fails to address
its own undeniably unclean hands, and the fact that these unclean hands preclude NHC
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CITY OF SAN LUIS OBISPO REPLY IN SUPPORT OF DEMURRER
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BEST BEST &KRIEGER LLPATTORNEYS AT LAW18101VON KARMAN AVENUE,SUITE 1000IRVINE,CALIFORNIA92612NHC’s claim fails as a matter of
law, and the
demurrer should be sustained in full without leave
to amend. II.RESPONSE TO NHC’S STATEMENT OF FACTS NHC’s statement of facts
are generally drawn from the Petition. However, some facts are not supported by the allegations in the
Petition (and it is telling that NHC’s factual section contains no citations to the Petition or any other
sources). (E.g., Opp. at pp. 3:9–10 [“Helios Dayspring determined it would be
good for business1 to have NHC SLO primarily owned and controlled by a minority woman . . . .”]; Opp. at
3:24–28 [“On August 25, 2021, local news media in SLO County reported that SLO
Mayor, Heidi Harmon[,] intended to resign as Mayor of the City of San Luis Obispo amid
Helios Dayspring’s pleading guilty to tax evasion and bribing County Supervisor Adam Hill, as
Dayspring had helped Harmon raise campaign funds for her and other SLO City Council Members.”]; 4:17–
18 [“When the City realized that NHC SLO was going to be able to meet the
October 22, 2021 deadline, . . .”]; 5:13–19 [“Notably, Helios Dayspring funded all three of these
applications, even though the other two dispensaries failed to disclose this in their
application disclosures, but subsequently provided information to the City of Dayspring’s financing. To date, the City
has taken no action [to] terminate or revoke the other two permit holders for their
material failure to disclose Dayspring’s financing of their businesses and cannabis applications.”] [emphasis omitted];
6:13–16 [“[T]he City is aware that Mr. Dayspring financially supported
the other two successful cannabis applicants in the City, namely, SLO Cal Roots and Megan’s Organic Market,
yet the City has singled out only NHC SLO, LLC for ‘disqualification’ of NHC SLO’
s permit . . . .”]; 6:19–21 [“Moreover, there is obviously false tax information supporting SLO Cal
Root’s cannabis application, as one of its members touted substantial success selling
cannabis but
submitted tax returns showing earnings below the federal Poverty level.”].) The City objects to
any and all factual arguments unsupported by allegations in
the Petition or by a document subject to judicial notice. 1 Notably, the statement that it
would be “good for business” at least suggests that Dayspring retained some financial interest in
NHC, such that the financial
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CITY OF SAN LUIS OBISPO REPLY IN SUPPORT OF DEMURRER
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BEST BEST &KRIEGER LLPATTORNEYS AT LAW18101VON KARMAN AVENUE,SUITE 1000IRVINE,CALIFORNIA92612Additionally,
several NHC opposition statements are wrong, and contradicted by facts subject to judicial notice. (Compare Opp. at
3:15 [“While Ms. Garcia was the primary owner of NHC SLO and while Helios Dayspring had no
equity in NHC SLO it applied for . . .a license to operate a cannabis retail dispensary in
the City of San Luis Obispo . . . .”] with RJN Ex. 3 application signed by Helios Dayspring
on January 29, 2019] and RJN Ex. 6 [Assignment of ownership interest to Valnette Garcia, dated
September 8, 2020]; compare also Opp. at 2:5–6 The City did this [disqualifying
NHC] without a hearing”] with Petition for
Writ of Mandate
Ex. H at NHCSLO000063 [letter memorializing hearing].) III.LEGAL ARGUMENT
A.NHC’s Disqualification was Authorized by the Municipal Code NHC’s primary argument is that
the City is powerless to rectify the fraud perpetuated by NHC in obtaining a permit
because the permit was “issued” while NHC was still successfully concealing its
fraud and Helios Dayspring’s criminal conduct. NHC is wrong. As explained in the City’s demurrer,
San Luis Obispo Municipal Code section 9.10.070(c) provides that “
an applicant shall be disqualified from . . . obtaining, a commercial cannabis operator permit if . . . [t]he
applicant made one or more false or misleading statements or omissions in the application process.” (RJN Ex.
1 at § 9.10.070(c).) San Luis Obispo Municipal Code section 9.10.070(d) provides a permit is “
activated by the issuance of a use permit for the commercial cannabis activity . . .
together with all other applicable city permits and state licenses, and
the commercial cannabis operator thereafter opening and continuously operating the commercial cannabis activity.” (RJN Ex. 1 at §
9.10.070(d).) As NHC concedes, it did not comply with the requirement of Section 9.10.070(d),
and the permit is not active. (See,
e.g., Pet. at ¶¶ 13, 21–22, 44, 54, 63.) Until the Cannabis Permit
is legally active and an applicant has proceeded through each step of the
application process, including obtaining all requisite city permits, the applicant remains an applicant with
no operative permit, and may still be “disqualified from . . . obtaining” the Cannabis Permit
under San Luis Obispo Municipal section 9.10.070(c). Here, NHC
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CITY OF SAN LUIS OBISPO REPLY IN SUPPORT OF DEMURRER
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BEST BEST &KRIEGER LLPATTORNEYS AT LAW18101VON KARMAN AVENUE,SUITE 1000IRVINE,CALIFORNIA92612misrepresentations became known
to
the City, as the San Luis Obispo Municipal Code authorized.
B.NHC’s Disqualification was Authorized by NHC’s Agreement In connection with
its application for a Cannabis Permit, NHC contractually agreed that any false or
misleading representation or omission would result in disqualification and revocation of any permit, and waived any inconsistent
rights in the Municipal Code. (See, e.g., Simmons v. Ghaderi (2008) 44 Cal.4th 570,
585 [A person may waive rights and privileges, including those
conferred by statute, unless otherwise prohibited by specific statutory provision].) In
NHC’s original commercial cannabis application form, NHC acknowledged that: Applicants providing false
or misleading information in the permitting process will result in rejection of the application and/
or nullification or revocation of any issued permit.” (RJN Ex. 3 at p. 6 [emphasis added].) NHC’
s opposition ignores its agreement, and does not and cannot argue that
NHC provided no false or misleading
information to the City. C.NHC Had no Vested Rights NHC argues at length that it
had vested rights which could not be extinguished by the City. NHC is incorrect; NHC
has no vested rights to operate a commercial cannabis business. First, NHC fails to show that
the decisions it relies upon concerning vested rights apply in the context of a Commercial
Cannabis Permit, which is a wholly discretionary permit which must be renewed, and which is distinct from a
land use permit (e.g., a Conditional Use Permit). (See RJN Ex. 1 at § 17.86.080 (“No
person or entity shall operate or conduct a commercial cannabis activity or
commercial cannabis business without first obtaining both a commercial cannabis operator permit from the city pursuant
to Chapter 9.10, Cannabis Regulations, and a use permit from the city pursuant to
this chapter to conduct
the commercial cannabis activity at a specific location.”) [emphasis added].) NHC seems to conflate
traditional vested rights in the land use and development context which can allow a developer to
complete construction in accordance with the terms of an issued permit regardless
of subsequent legislative changes, see Avco Community Developers, Inc. v. South Coast Regional Com. (1976)
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CITY OF SAN LUIS OBISPO REPLY IN SUPPORT OF DEMURRER
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BEST BEST &KRIEGER LLPATTORNEYS AT LAW18101VON KARMAN AVENUE,SUITE 1000IRVINE,CALIFORNIA92612which determines whether a
court must exercise independent judgment in a writ proceeding. (See Goat Hill Tavern v. City of Costa Mesa (
1992) 6 Cal.App.4th 1519, 1525 [“If an administrative decision substantially affects
a fundamental vested right, the trial court must exercise its independent judgment on the
evidence . . . Preliminarily, we note ‘the term ‘vested’ in the sense of ‘fundamental vested rights’
to determine the scope of judicial review in an administrative mandamus proceeding is not
synonymous with the ‘vested rights’ doctrine relating to land use and development.’”] [
internal alterations omitted] [quoting Whaler's Village Club v. California Coastal Com. (1985) 173 Cal.App.
3d 240, 251].) NHC does not argue that the independent judgment test applies. Nor could NHC have so
argued; NHC’s desire to sell marijuana in the City of San Luis
Obispo involves a quintessentially economic interest, and no “vested, fundamental right.” (Molina v. Board of
Administration, etc. (2011) 200 Cal.App.4th 53, 60.)2 Even if the traditional
vested rights land use doctrine was implicated here, the doctrine generally only provides
protections once an entity has obtained all necessary land use entitlements and the
entity performs substantial work and incurs substantial liabilities in good faith reliance on those land use entitlements. (
Avco Cmty. Devs., Inc. v. S. Coast Reg'l Com. 1976) 17 Cal.3d 785, 797.) A Cannabis
Permit, and especially one that is
not yet active, is merely a step in the process. An aspiring cannabis operator must
also obtain a conditional use permit and a variety of approvals from the City, approvals which NHC
admits it has not obtained. (See RJN Ex. 2 at 17.86.080(E)(1)(a); Pet. at 13, 63.)
The mere intermediate step of obtaining a permit for the sale of cannabis creates no vested
rights. (Compare Consaul v. City of San Diego (1992) 6 Cal.App.4th
1781, 1794 [“Preliminary approvals received from the government for development, such as zoning of land for a particular
purpose, are not sufficient to allow a developer a vested right to build on the land in
accordance with former law. . . . Here, in contrast, the IDO expressly provides that further action, i.e.,
application for a building permit, is required even after the 2 Especially in that the investments
pointed to were made by Helios Dayspring, not NHC. (See Opp. at p. 4:1–4 [“As set
out in Dayspring’s Declaration filed concurrently with this opposition, Dayspring spent over $4,200,000 to
acquire and build out the property to the City’s specification, and, at the City’s urging, spent
another $3,700,000 to
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CITY OF SAN LUIS OBISPO REPLY IN SUPPORT OF DEMURRER
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BEST BEST &KRIEGER LLPATTORNEYS AT LAW18101VON KARMAN AVENUE,SUITE 1000IRVINE,CALIFORNIA92612dwelling unit allocation is made. The scope of
the right created by the IDO is to make further application. . . .”]; Toigo v. Town of Ross (1998)
70 Cal.App.4th 309, 322 [“Courts have yet to extend the vested rights or estoppel
theory to instances where a developer lacks a building permit or the functional equivalent,
regardless of the property owner's detrimental reliance on local government actions and regardless
of how many other land use and other preliminary approvals have been granted.”]; and
Halaco Engineering Co. v. South Central Coast Regional Com. (1986) 42 Cal.3d 52, 73 [“Preparatory work will not give
rise to a vested right, however, when it is done with knowledge that one or more
additional permits will be required . . . .”]; with RJN Ex. 1 at § 9.10.070(d) [A permit is “activated by
the issuance of a use permit for the commercial cannabis activity . . .
together with all other applicable city permits and state licenses . . . .”].) Further, to the
extent funds have been spent to undertake “expensive and extensive renovations of [the] property,” those funds
were expended not by NHC but by its landlord, Helios Dayspring. (Pet. at ¶¶ 61, 23.)3 Additionally,
these funds were not spent in any kind of “good faith,” in that Helios Dayspring
was undeniably aware of his own criminal misconduct and failure to disclose these crimes to the
City – a failure that NHC and Dayspring were expressly informed would result
in disqualification or nullification. (RJN Ex. 3 at p. 6.) Finally, NHC again
ignores that the Municipal Code warns applicants that a cannabis
permit is a revocable privilege which 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 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 at §
17.86.080(E)(2).) D.NHC has Unclean Hands A writ of mandate is
an equitable remedy, and equitable defenses such as unclean hands 3 While not generally relevant
in the context of the demurrer, Dayspring apparently decided to submit admissions that
the expenditures were borne by him,
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CITY OF SAN LUIS OBISPO REPLY IN SUPPORT OF DEMURRER
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BEST BEST &KRIEGER LLPATTORNEYS AT LAW18101VON KARMAN AVENUE,SUITE 1000IRVINE,CALIFORNIA92612can bar the issuance of such equitable
relief. (See, e.g., Blumenthal v. Superior Ct. (1980)103 Cal.App.3d 317, 320 [“[I]t is within
our discretion to deny a petition on such equitable grounds including unclean hands].”]; San Diego Cty. Dep'
t of Pub. Welfare v. Superior Ct. (1972) 7 Cal. 3d 1, 9 [“[T]he writ should not issue in aid
of one who does not come
into court with clean hands.”] [internal citations and alterations omitted].) NHC’s progress in early
application stages was due to NHC and Dayspring’s knowing misrepresentations, made with the intent
that the City rely upon the representations. The City did in fact rely upon the misrepresentations
to its detriment – the City would not have issued a Cannabis Permit had NHC not
lied about Dayspring’s criminal conduct of, e.g., bribing government officials related to cannabis
operations. NHC only proceeded as far as it did because of fraud. NHC has unclean hands, and
equity should not allow it to profit from its fraud. NHC’s opposition, if anything,
confirms that the doctrine of unclean hands bars NHC’s petition for writ of mandate. While
the Declaration of Helios Dayspring cannot be used to cure the deficient allegations in the Petition or rebut
the arguments in the City’s demurrer, it does seem to constitute an admission
that Helios Dayspring has not disentangled himself from NHC (as NHC argues that
he has done). In his declaration, Dayspring makes numerous statements apparently based on personal
knowledge, and not made on information and belief) attesting to information that he could not know if he
were in fact as removed from NHC as NHC contends. See, e.g., Dayspring Decl. at 41–44.)
4 Indeed, a reasonable conclusion that can be drawn from the Dayspring declaration is that Dayspring
to this day is intimately involved with NHC and its prosecution of this action (and
its apparent new
efforts to attack competing applicants). (Id. at 43, 45–54.) Finally, one portion of
Dayspring’s declaration confirms that the writ sought by
NHC would directly inure to the financial benefit of Dayspring: 25. The total costs [
to Helios Dayspring] to acquire the property was $4.2 million, and over $3,700,000
was spent building it to the City’s requirements, plus 4 Dayspring also makes the demonstrably false
and bizarre statement that “[a]t all times, I have operated cannabis business in
a manner that complied with California’s ever changing cannabis laws . . . .” (Dayspring Decl. at 5.)
He pled otherwise in his
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CITY OF SAN LUIS OBISPO REPLY IN SUPPORT OF DEMURRER
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BEST BEST &KRIEGER LLPATTORNEYS AT LAW18101VON KARMAN AVENUE,SUITE 1000IRVINE,CALIFORNIA92612over $1,000,000 to meet
the City’s final requirements to “activate”
the permit, for a total of nearly $9,00,000. 26. Without
a permit, the estimated value of the commercial property at issue [owned by Helios
Dayspring] around $3,000,000, but because it’s a location where
a cannabis retail dispensary may be conducted, it’s likely worth close to $
6,000,000+ if there
is an operational cannabis retail dispensary at the property.[5] 27. Throughout 2021,
the City was threatening that it would take action against the issued Cannabis Business
Operator’s Permit awarded to NHC SLO, LLC if the build outs
demanded by the cIty’s specifications were not timely
completed, requiring that I invest additional monies into the property. Dayspring Declaration at 25–27 [emphasis
added].) In other words, if NHC obtains the writ it seeks, Helios Dayspring will see
an asset he owns immediately appreciate by in excess of 3,000,000. The equities do not weigh
in favor of allowing Helios Dayspring to profit millions of dollars from his fraud. NHC ignores this
argument. NHC does not argue that there is any factual dispute as to whether NHC has unclean hands,
and does not and cannot point to any facts to suggest the
doctrine of unclean hands does not
bar NHC’s claim. E.NHC’s Claim is Moot NHC is not beneficially interested
in the issuance of the requested writ and cannot obtain the relief it seeks for another reason independent
of the failure of NHC’s claim – even if the City’s decision were overturned, NHC’s
permit expired by operation of law on October 22, 2021, as is further explained in the City’s moving
papers. NHC does not respond in
any way to the argument that its claim is moot. F.NHC Does not
Establish the
Unpled Claim that the City had Engaged in Selective Enforcement In lieu of addressing the
actual basis for the City’s demurrer, NHC asserts new allegations, not drawn from
the Petition but from the improper declaration of Helios Dayspring, arguing
that Helios Dayspring “financially supported the other two successful cannabis applications in the City,” and it is
therefore unfair that the City has “only singled out” NHC. Opp. at 6:
13–18.) This argument fails for a number
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BEST BEST &KRIEGER LLPATTORNEYS AT LAW18101VON KARMAN AVENUE,SUITE 1000IRVINE,CALIFORNIA92612First, the Helios Dayspring declaration is
not part of the petition or a proper subject of judicial notice, and cannot show that
the allegations in the petition show any entitlement to relief. See, e.g., Thorburn v. Department of
Corrections (1998) 66 Cal.App.4th 1284, 1288 [Whether a demurrer should be sustained turns
on the allegations contained within the “four corners of the complaint” and matters “which
may be judicially noticed.”].) At most, the only relevance of NHC’s decision to submit a declaration
of Helios Dayspring is, as is discussed above, that NHC has made what amounts to
a judicial admission of Daypring’s continuing involvement with NHC and
that Dayspring stands to benefit financially should a writ issue. More fundamentally, these allegations
are irrelevant, and do not show that the City abused its discretion or failed to proceed in
the manner required by law when it determined that NHC made omissions and
false statements that justified disqualification. Helios Dayspring was not the owner, CEO, landlord, and principal of
any of these other entities, and he made no fraudulent misrepresentations on behalf of
those entities
to the City regarding his own criminal conduct. IV.CONCLUSION For all of
the aforementioned reasons, the demurrer should be sustained
in
full. Dated:June
29, 2022 BEST
BEST & KRIEGER LLP By: JEFFREY
V. DUNN DANIEL L. RICHARDS Attorneys for Defendants
and Respondents City of San Luis Obispo and City
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BEST BEST &KRIEGER
LLPATTORNEYS AT LAW18101VON KARMAN
AVENUE,SUITE 1000IRVINE,CALIFORNIA 92612Proof of Service I, Janice Liu, declare: I am a citizen of the
United States and employed in Orange County, California. I am over the age of eighteen years and not
a party to the within-entitled action. My business address is 18101 Von Karman Avenue, Suite
1000, Irvine, California 92612. On June
29, 2022, I served a copy
of the within document(s): DEFENDANTS’ REPLY IN SUPPORT OF DEMURRER by transmitting via facsimile
the document(s) listed above to the fax number(s)
set forth below on this date before 5:00 p.m. by placing the
document(s) listed above in a sealed envelope with postage thereon fully prepaid,
the
United States mail at Irvine, California addressed as set forth below. by placing
the document(s) listed above in a sealed envelope and affixing a pre-paid air bill,
and
causing the envelope to be delivered to a agent for delivery. by personally delivering
the document(s) listed above
to the person(s) at the address(es) set forth below. by transmitting
via e-mail or electronic transmission the document(s) listed above to the
person(s)
at the e-
mail address(es) set forth
below.John Armstrong Armstrong
Law Group 23232 Peralta
Drive, Suite 102
Laguna Hills, CA
92653 Phone: (949) 942-6069 Email: john@armstronglawgroup.co Attorneys for Petitioner I am readily
familiar with the firm's practice of collection and processing correspondence for mailing. Under that practice it would
be deposited with the U.S. Postal Service on that same day with postage thereon fully prepaid
in the ordinary course of business. I am aware that on motion of the party
served, service is presumed invalid if postal cancellation date or postage meter date is more
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BEST BEST &KRIEGER LLPATTORNEYS AT LAW18101VON KARMAN AVENUE,SUITE 1000IRVINE,CALIFORNIA 92612I declare under penalty of perjury
under the laws of
the State of California that the above is
true and