HomeMy WebLinkAbout21CV-0734 - Opposition to Ex PartepdfDEFENDANTS OPPOSITION
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BEST BEST &KRIEGER LLPATTORNEYS AT LAW3390UNIVERSITY
AVENUE,5TH FLOORRIVERSIDE,
CALIFORNIA 92502JEFFREY 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 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
CITY OF SAN LUIS OBISPO AND
CITY COUNCIL OF AND
FOR THE CITY OF SAN LUIS
OBISPO’S OPPOSITION
TO PLAINTIFF NHC
SLO, LLC’S EX PARTE APPLICATION
FOR TEMPORARY
RESTRAINING ORDER AND ORDER
TO SHOW CAUSE RE: PRELIMINARY
INJUNCTION Date:
January
31,
2022 Time: 8:30 a.m.
TABLE OF CONTENTS
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BEST BEST &KRIEGER
LLPATTORNEYS AT LAW18101VON KARMAN AVENUE,
SUITE 1000IRVINE,CALIFORNIA 92612I. INTRODUCTION .............................................................................................................. 5 II. STATEMENT OF FACTS ................................................................................................. 6
A. Helios Dayspring’s Criminal Conduct and
NHC’s Misrepresentations ................. 8 1.
Spending Money for
Illegal Purposes ....................................................... 10 2. Falsification of Documents .......................................................................
10 3. Perjury ....................................................................................................... 10 4. Tax Fraud and Tax
Evasion ...................................................................... 11 B. Falsehoods in NHC’s Cannabis Operator Application ......................................... 11
C. False Statements in
Connection with Transfer to
Valnette Garcia ....................... 12 D. Subsequent History ............................................................................................... 13 III. LEGAL ARGUMENT ...................................................................................................... 13 A. Plaintiff Fails to
Make a Showing of a Need for Ex Parte Relief......................... 13
B. Plaintiff Does Not Seek to Maintain the Status Quo............................................. 15
C. Plaintiff is not Likely to Succeed on the Merits .................................................... 16
1. Plaintiff’s Disqualification was authorized by the Municipal Code ......... 16
2. Plaintiff’s Disqualification was Authorized
by NHC’s
TABLE OF AUTHORITIES
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BEST BEST &
KRIEGER LLPATTORNEYS AT LAW18101VON KARMAN AVENUE,SUITE
1000IRVINE,CALIFORNIA 92612State Cases Alvarez v.
Eden Twp. Hosp. Dist. (1961) 191 Cal.App.2d 309 ................................................................................................................ 16
Am. Bd. Of Cosm. Surgery v.
Med. Bd. Of California (2008) 162 Cal.App.4th 534 ............................................................................................................... 16
Avco Cmty. Devs., Inc. v.
S. Coast Reg'l
Com. (1976) 17 Cal.3d 785 ..........................................................................................................................
17 Bennett v. Lew (1984) 151 Cal.
App. 3d 1177 ............................................................................................................ 19 Carrancho v.
Cal. Air Res. Bd. (2003) 111 Cal.App.4th 1255 ............................................................................................................. 16 Communities
for a Better Envt. v. State
Water Resources Control Bd. (2003) 109 Cal.App.4th 1089 ............................................................................................................. 17 Fibreboard Paper Prod. Corp.
v. E. Bay Union
of Machinists, Loc. 1304, United Steelworkers
of Am., AFL-CIO (1964) 227 Cal.
App.2d 675 ................................................................................................................ 19 People v.
Mobile Magic Sales, Inc. (1979) 96
Cal.App.3d 1 ...................................................................................................................... 16 Shoemaker v.
Cty. of
Los Angeles 37 Cal. App. 4th 618 (1995)....................................................................................................
TABLE OF AUTHORITIES
continued)
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BEST BEST &
KRIEGER LLPATTORNEYS AT LAW18101VON KARMAN
AVENUE,SUITE 1000IRVINE,CALIFORNIA 92612State Statutes Code Civ.
Proc. § 1085 ................................................................................................................. 16 Municipal Code § 9.10.070(
C)..................................................................................................
9, 17 Municipal Code § 17.86.080(E)(
2) ............................................................................................... 18 Rules Cal. Rules of Court Rule
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BEST BEST &
KRIEGER LLPATTORNEYS AT LAW3390UNIVERSITY AVENUE,5TH FLOORRIVERSIDE,CALIFORNIA 92502I.INTRODUCTION In 2019, NHC SLO, LLC (“
Plaintiff” or “NHC”), led and owned by its Chief Executive Officer, majority
owner (88 percent), sole manager, and primary principal, Helios Dayspring, applied for one
of a limited number of Commercial Cannabis Operator Permits (“
Cannabis Permit”) in the City of San Luis Obispo (“City”). As the City later learned, NHC
and Mr. Dayspring concealed and failed to disclose in the application process–
as required – Dayspring’s shocking history of criminal and fraudulent conduct, which included
bribing elected officials to obtain favorable treatment in his various cannabis enterprises and committing felony
tax evasion. Prior to the public learning of the federal government’s criminal indictment of
Dayspring, but clearly during a period of time that such information was known
to Dayspring and presumably his NHC affiliates, he transferred his ownership to his long-time business
and romantic partner, Valnette Garcia.1 It is this transfer also made without disclosure
of Dayspring’s criminal and fraudulent conduct) that NHC now argues precludes the
City from terminating a Cannabis Permit originally approved only because of NHC’s
and Dayspring’s multiple, knowing, and material misrepresentations and omissions upon which Dayspring actively induced
the City to rely on in the application review and contingent permit issuance process.
In other words, a contingent operator permit was issued to NHC only because of Dayspring’s
and NHC’s fraud; and, but for Dayspring’s misrepresentation and concealment of material information
in Dayspring’s and NHC’s sole
control, no permit, contingent or otherwise, could have been obtained.Plaintiff’s ex
parte application for mandatory injunctive relief – mandating the City to hand it a Cannabis Permit that was
procured by fraud, and further requiring the City to cooperate as Plaintiff seeks further City approvals –
should be denied for many reasons. Simply stated, it is not and cannot be the law that the
City can be compelled to be an unwilling and unwitting instrument of fraud and to perpetuate the
operation of the fruits of that fraud in the City. Plaintiff fails to
demonstrate any irreparable harm or immediate danger, much less the 1 RJN Ex. C [Affidavit of
Surety in Dayspring’s federal criminal case, obligating Garcia to guarantee
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BEST BEST &KRIEGER LLPATTORNEYS AT LAW3390UNIVERSITY AVENUE,5TH FLOORRIVERSIDE,CALIFORNIA 92502extreme and certain
harm necessary to justify mandatory injunctive relief. Moreover, the present and irreparable harm to the public
integrity of the City’s cannabis permitting process and the legitimate cannabis business
operators and prospective applicants into the City’s process
is manifest and should not be validated by this court. Plaintiff fails to show a likelihood
of success on the merits. The City’s Municipal Code expressly
warns applicants that misrepresentation and omissions will result in automatic disqualification, and
NHC and each of its principals contractually agreed that misrepresentation and
omissions would lead to their disqualification and Cannabis Permit nullification. Here, NHC’s representations
of Dayspring’s history of legal compliance (and in particular compliance with taxation
laws) and his numerous lies in his background check application constitute false or misleading
statements and/or omissions of material information that was within the sole and
exclusive knowledge and control of Dayspring and the NHC applicant.Finally, injunctive relief is an
equitable remedy, and the equities do not favor an order requiring an award of a permit that was procured
by fraud to a party with unclean hands, and a permit that would
financially benefit Dayspring and his applicant partners and affiliates, despite his bribery of public officials,
tax fraud, and fraudulent procurement of a City cannabis
permit. The public interest
does not favor such an outcome. II.STATEMENT OF FACTS In January of 2019, NHC
applied for one of a limited number of Cannabis Permits available in the City. (Pet. Ex.
A at NHCSLO000026.) When NHC applied for a Cannabis Permit in 2019, Helios Dayspring
was the Chief Executive Officer, majority owner (88 percent), sole manager, and principal of NHC. (Declaration
of Michael Codron [“Codron Decl.”] Ex. A at p. 1; Ex. B at p. 29.) He
signed the application submitted by NHC. (Id. at p. 5.) NHC’s
merits-based application emphasized the expertise, and history of regulatory compliance of Dayspring as a reason why
the City should choose NHC to receive one of the limited number of permits. (Codron Decl. Ex. B at,
e.g., p. 11.) He was one of two people designated as “Responsible Parties” in the
NHC application. (Codron Decl. Ex. A at pp. 1–2.) On the strength of
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BEST BEST &KRIEGER LLPATTORNEYS AT LAW3390UNIVERSITY AVENUE,5TH FLOORRIVERSIDE,CALIFORNIA 92502selected as one of the few
applicants allowed to move forward in the approval process. The remaining steps included a
background check, and obtaining a number of other local permits. Notably, NHC’s Cannabis Permit
would not become active until “the issuance of a use permit for the
commercial cannabis activity.” (Pet. Ex. E at NHCSLO000038, citing Municipal Code section 9.10.070; see also
Request for Judicial Notice [“RJN”] Ex. 1.) The Municipal Code also provides that the City’s issuance
of Cannabis Permits creates no vested right to operate a cannabis business under the
City’s dual permitting structure. (Pet. Ex. E at NHCSCLO000040, citing Municipal
Code section 17.86.080; see also RJN Ex. 2.)As the City
later learned, however, prior to (and apparently continuing through) the submission of this
application and the permitting process, Dayspring engaged in a concealed pattern of fraudulent
and criminal conduct – specifically, conduct involving the operation of Mr.
Dayspring’s cannabis enterprises. (Pet. Ex. H at NHCSLO00078–107). Once the City became
aware of and conducted its due diligence regarding the significance of these concealments
and misrepresentations under the City’s permitting process, the City notified Plaintiff that
it was automatically disqualified from activating, obtaining, or holding a Cannabis Permit on October 6, 2021. (
Pet. Ex. E.) Following an opportunity provided to NHC to review and present any information
or argument to the City Manager that NHC deemed relevant, held on October 14th,2 the
City sent a final memorandum of decision affirming the automatic disqualification on October 19, 2021. (
Pet. ¶ 25 & Ex. H.). The basis for the disqualification was NHC’s
misrepresentations and omissions and ongoing concealment throughout the City’s application and permitting
process concerning the criminal
activities of its CEO, owner, landlord, and principal, Helios Dayspring. Plaintiff’s argument presented by
legal counsel prior to the City’s final determination in the automatic termination and revocation
process, and here, is that Dayspring’s interest in NHC was transferred to his
fellow applicant and business and romantic partner, Valnette Garcia, on October 20, 2020,
before knowledge of Dayspring's various felonies became public knowledge 2 The petition ignores the October 14,
2021 hearing, but the hearing was memorialized in the City Manager’s memorandum of decision. (
See Pet. Ex. H at NHCSCLO000063.) A recording of the hearing is
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BEST BEST &KRIEGER LLPATTORNEYS AT LAW3390UNIVERSITY AVENUE,5TH FLOORRIVERSIDE,CALIFORNIA 92502and known to the City. (See, e.g., Pet at 4:25–
28, id. at ¶ 20, Pet. Ex. F at NHCSLO000046; RJN Ex. 3 [Affidavit of Surety
in Dayspring’s federal criminal case, obligating Garcia to guarantee Dayspring’s
release bond and identifying herself as Mr. Dayspring’s “
girlfriend.”].) However, Plaintiff alleges and acknowledges that Dayspring remains the landlord/property” owner of the building at
which NHC hopes to operate, and thus remains in a position to both exercise
substantial control over the operation and to benefit financially from NHC’s operation. (See, e.g., Pet. at p. 4
fn. 2 [Mr. Dayspring . . . has no interest in the cannabis business or permit, other
than as a landlord/property owner.”]; ¶ 12 [“[NHC’s] landlord Dayspring] has spent approximately $
4.1 million dollars building out the retail cannabis facility. 22 [“NHC anticipates that it
will remain liable under its current lease with the landlord Dayspring], which as [sic] a term of 5 years at
an initial monthly rental of $55,000 per month.3”]; 23 [“NHC anticipates that it will be
liable for the Landlord’s [Helio Dayspring’s] cost and expense of improving the premises, over
of [sic] $4,000,000.00 . . . .”]; ¶ 61 [“Petitioner and its landlord [Dayspring] spent
money in reliance on the permit, undertaking expensive and extensive renovations
of [Dayspring’s] property . . . .”]; Pet. Ex. H at NHCSLO0000148 [Memorandum signed by Sargeant Chad
Pfarr, dated October 8, 2021, memorializing discussion with NHC staff who indicated that
they had had numerous recent conversations with Dayspring regarding the cannabis store, despite his
purported divestiture of interest. Also noting that
updated NHC plans were entitled “Natural Healing Center Helios Dayspring.].)
A.Helios Dayspring’s Criminal Conduct and NHC’s Misrepresentations The City’s decision was
based in substantial part on the criminal conduct of Dayspring. First, as Dayspring has admitted, he committed
federal program bribery, in violation of 18 U.S.C. 666(a)(2). Dayspring
committed this felony by bribing an elected County Supervisor repeatedly from 2016 to 2019.
In 2017, Dayspring unsuccessfully attempted to bribe another
unnamed local mayor. (See Pet. Ex. H at NHCSLO00089–97.) 3 An amount seemingly
well over market value for comparable real estate, supporting an inference of a collusive
arrangement, especially given that the lease was entered by Dayspring and Garcia on July 29, 2021, a single day
after Dayspring’s plea agreement was filed on July 28, 2021. Compare Pet.
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BEST BEST &KRIEGER LLPATTORNEYS AT LAW3390UNIVERSITY AVENUE,5TH FLOORRIVERSIDE,CALIFORNIA 92502From 2014
to 2018, Dayspring admitted that he fraudulently underreported his taxable income by approximately $9,000,000. (
Ibid.) For at least the calendar year 2018, he willfully, knowingly and intentionally submitted a
false tax return that was signed under penalty of perjury in other
words, Dayspring committed perjury. Despite an obligation to disclose, Dayspring failed to disclose any of this criminal
activity to the City in connection with his submission of NHC’s application or the
City’s subsequent extensive background check process during which he was provided ample
opportunity to disclose and explain any information pertinent to the application and
background process. (Declaration of Chad Pfarr [“Pfarr Decl.”] Ex. A.) As the City informed
Plaintiff, Municipal Code section 9.10.070(C) 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 NHCSLO000039 [citing Municipal Code § 9.10.070(C)]; see
also RJN Ex. 1.) In connection with NHC’s application, NHC also agreed and
acknowledged that disqualification and/or nullification would result in the event of false statements
or omissions in connection with its application. The Cannabis Permit Application, signed by
Dayspring on behalf of NHC, provided: “Applicants providing false or misleading information in
the permitting process will result in rejection of the application and/or nullification of any issued
permit.” (Codron Decl. Ex. A at p. 5 [emphasis added].) On
May 19, 2019, Dayspring submitted a signed cannabis background
check questionnaire. When signing this 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.” Pfarr Decl. Ex. A at p. 1.) As
part of this questionnaire, Dayspring was asked whether he had engaged in a variety of illegal
conduct. In a subsequent interview with Detective Suzie Walsh,4 He was asked a number of
follow up questions. In connection with filling out the questionnaire and in the subsequent
interview, the City determined following public disclosure of Dayspring’s 4 In connection with opposing this
application, the City had not yet had an opportunity to transcribe the interview with Detective Walsh,
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BEST BEST &KRIEGER LLPATTORNEYS AT LAW3390UNIVERSITY AVENUE,5TH FLOORRIVERSIDE,CALIFORNIA 92502criminal pleas, that Dayspring
made, at least, the following false
or misleading statements or omissions. (Id.
at pp. 4–6.) 1.Spending Money for Illegal Purposes Dayspring was asked whether
he had ever “spent money for illegal purposes.” He checked the “yes” box. (Id. at p.
4.) At his subsequent police interview, Dayspring clarified that this affirmative answer was only a reference
to illegal purchases of marijuana before it was legal to purchase in California. He did not, either
in response to the written question, or in response to verbal follow up questioning, disclose
the criminal misconduct that was the basis of his federal plea agreement. The
City later determined that this statement and related omissions constitute false and misleading statements
and omissions and that Dayspring spent money for the illegal purpose
of bribing an official. (
Pet. Ex. H at NHCSLO000065–66.) 2.Falsification of Documents Dayspring was asked whether
he had ever engaged in “forgery,” which was explained by the questionnaire to include,
for purpose of the questionnaire, “falsifying any type of document.” He ticked the “no” box.” (Pfarr Decl. Ex. A at
p. 5.) The City determined that the response to the questionnaire and
corresponding statement constitutes a false or misleading statement or omission and that Dayspring committed forgery, as
the term was used in the questionnaire,
by falsifying his tax returns. (Pet. Ex. H at NHCSLO000066.) Additionally, and
as a separate and independent ground for disqualification, the City found that any monies retained or gained
by Dayspring as the result of his fraudulent and/or underreported taxes, if spent for any
purpose other than the payment of taxes as required, would
also constitute
an illegal expenditure of money by Dayspring. (Ibid.) 3.Perjury In reviewing the
application/background forms, the City also noted that Dayspring was asked whether he had ever committed perjury. He
checked the “no” box. (Pfarr Decl. Ex. A at p. 5.) The City found that was a
false or misleading statement or omission. Dayspring pled guilty to submitting intentionally false
and fraudulent tax returns signed under penalty of
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BEST BEST &KRIEGER LLPATTORNEYS AT LAW3390UNIVERSITY
AVENUE,5TH FLOORRIVERSIDE,CALIFORNIA 925024.Tax Fraud and Tax Evasion Dayspring was asked whether he
had been involved “in any matter regarding a tax lien, tax fraud, or evasion of taxes.” He ticked the “no” box. (
Pfarr Decl. Ex. A at p. 6.) The City found that this statement
constitutes a false or misleading statement or omission. Dayspring had committed tax fraud and tax evasion in
2014, 2015, 2016, 2017, and 2018, as evidenced by
his federal plea agreement. (Pet. Ex. H. at
NHCSLO000066–68.) B.Falsehoods in NHC’s Cannabis Operator Application The City also determined that NHC
made a series of false or
misleading statements in its merit-based Cannabis Business Operators Application.
In the application, NHC proactively, voluntarily and affirmatively represented, that Dayspring had
a history of regulatory compliance, and compliance with taxation laws: When
other cannabis businesses were operating in the shadow without paying taxes,
Helios Dayspring raised the bar by implementing self-regulatory policies and complying with all tax laws,
evidence in his 8+ years of tax history and
his operations running with the highest standards in the industry. Codron Decl. Ex. B at p. 11.) The City found
this to be a false or misleading statement and that Helios Dayspring” had not “compl[
ied] with all tax laws.” (Pet. Ex. H at NHCSLO000068.) The City also found
that NHC’s omissions concerning the criminal conduct of Dayspring were misleading and likely
affected NHC’s score. (Pet. Ex. H at NHCSLO000068–70.) NHC’s application also
repeatedly stressed the experience and track record of success of Helios Dayspring and highlighted
this experience and history of success and compliance as a reason why the City should
select NHC for one of the few competitive Cannabis Permits available in the
City. An example of these representations included the following statement: Helios
has a wealth of knowledge in business development, entitlements,
and contract negotiations . . . Helios has also opened six different storefront dispensaries
in the Inland Empire and in Grover beach, gaining invaluable experience
in retail operations . . . Helios has connected all the dots from
cultivation, manufacturing, and retail, completing the seed to sale networks. . . . Helios Dayspring]
is an industry leader and is helping bring cannabis into
mainstream society . . . his experience
and dedication to our community is unmatched in the industry. Codron Decl. Ex. B at pp. 10–
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BEST BEST &KRIEGER LLPATTORNEYS AT LAW3390UNIVERSITY AVENUE,5TH FLOORRIVERSIDE,CALIFORNIA 92502wealth of Dayspring (wealth which was, at
least in part, the result of bribery and tax evasion): NHC has
ample access to funding. Primary principal Helios Dayspring will use personal funds
to build and operate the project. A person financial statement documenting $3.6 million in liquid
assets and $12.3 million in real estate equity is enclosed on
the following page. . . . Additionally, Helios
Dayspring has access to a 3 million loan if needed. Id. at p. 31.) The application
satisfied the “Property Control” merit criteria by indicating that the three APNs associated with the project “
are fully owned by Helios Dayspring.” (Id. at p. 30.) The City found that NHC likely would
not have received the score it did and would not have been allowed to move forward
had the City known of the substantial and ongoing criminal
history of Dayspring. (Pet. Ex. H at pp. NHSCLO000068–70.) The City also concluded
that Dayspring’s failure to disclose the substantial back taxes owed to the IRS on
his personal financial statements constituted a false or misleading statement or omission. (Id. at
NHCSLO000070.) This failure resulted in a substantial overstatement of the financial assets available to
NHC and Dayspring. (Ibid.) The City found that these were misleading omissions that
likely would have affected the outcome of the application process.
C.False Statements in Connection with Transfer to Valnette Garcia The City also concluded that
NHC made a number of false or misleading statements or
omissions in connection with the transfer of ownership to Garcia. The City
concluded that the circumstances surrounding Dayspring’s transfer of ownership to Garcia supported an inference that
Garcia and NHC knew or should have known of the criminal investigation of
Dayspring and potentially the forthcoming criminal charges at or around the time NHC and Dayspring undertook
to transfer his interest to Garcia. (Pet. Ex. H at NHCSLO000070–72.) The City concluded that
the failure to disclose these matters to the City in connection with the
transfer of ownership to Garcia constituted “a continuation and reaffirmation by NHC, Ms. Garcia and Mr.
Dayspring of the prior and ongoing pattern and practice of providing false or misleading
statements or omissions of highly relevant information to the City in order
to obtain and wrongfully maintain the Cannabis Operator Permit.” (Ibid.) In its final memorandum of decision,
the City also reiterated its limited role in the transfer of ownership to Garcia, in light of the
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BEST BEST &KRIEGER LLPATTORNEYS AT LAW3390UNIVERSITY AVENUE,5TH FLOORRIVERSIDE,CALIFORNIA 92502had already been through
the City’s background check process. The applicable process effectively required only a ministerial
acknowledgement from the City that the transfer
satisfies the facial requirements of the ordinance. (Id. at NHCSLO000071.) In its memorandum of decision,
the City also noted that, in each formal communication to NHC since the facts of the criminal
misconduct became known to the City, the City has advised that the City was conducting a separate
inquiry into the implications of the criminal plea and that any actions or communication
related to the construction permits should not be construed as related to the
Cannabis Permit considerations. (Id. at NHCSLO000072.) Finally, the City found that NHC had engaged
in misrepresentations in connection with the revocation process, in that NHC omitted or affirmatively
hid the fact that Dayspring remained NHC’s landlord, continuing to derive substantially
above market financial benefit from NHC, and his continuing involvement with NHC until “
caught” by the
City. (Pet. Ex. H at NHCSLO000072–74.) D.Subsequent History The City
issued its final memorandum of decision, re-affirming the automatic disqualification of NHC, on October
19, 2021. (Pet. Ex. H.) On January 7, 2022 – approximately three months later – Plaintiff served
the petition for writ of mandate. (Richards Decl. Ex. A.) Plaintiff then waited
an additional two
weeks to file the ex parte application. III.LEGAL ARGUMENT A.Plaintiff Fails to
Make a Showing of a Need for Ex Parte Relief5 Rule 3.1202(c) of the
California Rules of Court requires that an applicant “make an affirmative factual
showing in a declaration containing competent testimony based on personal knowledge of irreparable harm,
immediate danger, or any other statutory basis for granting
relief ex parte.” (Rules of Court, rule 3.1202(c).) The Garcia declaration
fails to make an “affirmative factual showing in a declaration containing
competent testimony based on personal knowledge of irreparable harm, immediate danger, or any other statutory
basis for granting relief ex parte.” (Ibid. [emphasis added].) The 5 The City also notes that the ex
parte application fails to indicate whether the City will oppose the application. (Rule of Ct. Rule 3.1204.)
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DEFENDANTS OPPOSITION
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BEST BEST &KRIEGER LLPATTORNEYS AT LAW3390UNIVERSITY AVENUE,5TH FLOORRIVERSIDE,CALIFORNIA 92502only
reference to any potential harm is Garcia’s statement that: I]f a local license is lost, this
results in the State revoking its State license, and if the State license is not
then the application process with the State starts over again, and presently it is taking
12-14 months for the State to approve new cannabis
business licenses from submission, which is significant because you cannot lawfully open
a cannabis business without both local and state authorization. If NHC SLO, LLC does
not have its local cannabis permit reinstated to prevent the loss of its
existing issued State cannabis, NHC CLO, LLC presently faces the immediate threat of
irreparable harm because its [sic] cannot wait for 12-14 months to get
its State license reinstated after resolving this litigation with the City, as the company will
run out of money by then and forced to close.” Garcia Decl. ¶¶ 5–6.) This
statement fails to make an affirmative factual showing of irreparable harm or immediate danger for a number
of reasons. It also fails to acknowledge that any adverse impacts upon NHC lay squarely at the
feet of Ms. Garcia’s “former” business partner and current boyfriend and landlord, Helios Dayspring
and his criminal conduct, for which neither the City nor its
residents should be held to account or compelled to remedy. First, Garcia fails to
make any showing of harm based on personal knowledge. She indicates that, in her opinion, the state will revoke a
State License if a local license is lost and not promptly reinstated,
but does not describe any personal knowledge underlying this apparent belief. Garcia does
not identify any statute or regulation mandating such immediate revocation. Garcia does not describe
any communications with or notification from the state of California demonstrating the
revocation is imminent, or any other evidence of imminent revocation. Second, Garcia fails
to demonstrate that any purported revocation is imminent. She opines that the State of California will, at some
point, revoke NHC’s state permit, but does not explain whether she believes this will occur
tomorrow, next week, next month, or six months from now. In short,
Garcia fails to demonstrate that the alleged harm is imminent. Third, any purported harm is purely monetary (
in the form of lost profits), and not the sort of irreparable harm or
danger that can support the extraordinary remedy of injunctive relief. Garcia opines that her business will “run
out of money,” but does not prove this conjecture with any documentary evidence or
reasoned analysis. Garcia does not describe NHC’s cash reserves, expenditures, assets, whether any
losses could be mitigated, or any other particular that could establish imminent bankruptcy.
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BEST BEST &KRIEGER LLPATTORNEYS AT LAW3390UNIVERSITY AVENUE,5TH FLOORRIVERSIDE,CALIFORNIA 92502interested party that failure to issue
a temporary restraining order will ruin her business. She also fails to acknowledge that the
vast majority of any imminent harm results from purported financial obligations of NHC owed to
Dayspring as the result of his improvements to and contractual obligations associated with
his continuing role as landlord. These purported
harms are as practically meritless as they are legally insufficient. Finally, to the extent there is a
danger of “imminent” harm (harm that could occur before a notice motion could be heard) it is
entirely of Plaintiff’s own creation. Plaintiff waited months to seek the present relief. The City
first informed Plaintiff that its’ license was revoked on October 6, 2021. (Pet. ¶ 13.) Following a meeting
held on October 14th,6 the City sent a final memorandum of decision
affirming the automatic termination on October 19, 2021. (Pet. ¶ 25 & Ex. H.) Plaintiff then waited
until January 7, 2022 – approximately three months - to file and serve the petition for writ of
mandate on Defendant. (Richards Decl. Ex. 1.) Plaintiff then waited until January 21, 2022 – an additional two
weeks – to first attempt to file the ex parte application. Armstrong Decl. ¶ 3.) Plaintiff then waited
an additional week to re-notice the ex parte hearing, apparently due to some logistical
hurdle. (Id.) If there were immediate danger, Plaintiff had ample time to seek a preliminary injunction after
filing a regularly noticed motion. To the extent there is any immediate danger (which Plaintiff
has not shown) it is of Plaintiff’s own making.
B.Plaintiff Does Not Seek to Maintain the Status Quo Contrary to Plaintiff’s
argument, the relief sought would not maintain the “status quo.” App. at pp. 12–14.) The “
status quo” is that Plaintiff was automatically disqualified more than three months ago. Instead,
Plaintiff seeks mandatory injunctive relief; an order requiring the City to “immediately
reinstate NHC’s Cannabis Business Permit” and to further “reasonably cooperate” with NHC’s efforts to
seek further licensure. (Compare Proposed Order at ¶¶ 2–3 with People v. Mobile Magic Sales, Inc. (1979) 96
Cal.App.3d 1, 13 [“The purpose of mandatory relief is to compel the performance of a substantive
act or a change in the relative positions of the parties.”].) In order to
obtain mandatory injunctive relief, a party bears an extremely heavy 6 The petition ignores the October 14,
2021 hearing, but the hearing was memorialized in the City Manager’s memorandum of decision. (
See Pet. Ex. H at NHCSCLO000063.) A recording of the hearing is
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DEFENDANTS OPPOSITION
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BEST BEST &KRIEGER LLPATTORNEYS AT LAW3390UNIVERSITY AVENUE,5TH FLOORRIVERSIDE,CALIFORNIA 92502burden. (See, e.g., Alvarez v. Eden Twp. Hosp.
Dist. (1961) 191 Cal.App.2d 309, 312 [“The rule is well established that a
mandatory preliminary injunction is rarely granted (citation) and it has been held that a very urgent
case is required to justify a mandatory preliminary injunction and that a clear case of prospective
injury is indispensable.”]; Shoemaker v. Cty. of Los Angeles, 37 Cal. App. 4th 618, 625 (1995) [“
The granting of a mandatory injunction pending trial is not permitted except
in extreme cases where the right thereto is clearly established.”].).
C.Plaintiff is not Likely to Succeed on the Merits Plaintiff's underlying claim
seeks a writ of mandate challenging the City’s automatic disqualification of Plaintiff.
Plaintiff's challenge is properly reviewed as petition for ordinary mandamus because no hearing was required
by law, (Code Civ. Proc. § 1085; Am. Bd. Of Cosm. Surgery v. Med. Bd. Of California (2008) 162
Cal.App.4th 534, 547.) 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.”].) Plaintiff’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.”].)
1.Plaintiff’s Disqualification was authorized by the Municipal Code Municipal Code section 9.10.
070(c) provides that “an applicant shall be disqualified from applying for, or obtaining,
a commercial cannabis operator permit if . . . The applicant made one or more false
or misleading statements or omissions in the application process.” 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
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BEST BEST &KRIEGER LLPATTORNEYS AT LAW3390UNIVERSITY AVENUE,5TH FLOORRIVERSIDE,CALIFORNIA 92502cannabis activity.” (Cite.)7 As
Plaintiff admits, it has not complied with the requirement of Section 9.10.070(d),
and the Cannabis Permit is not active. (Garcia Decl. ¶ 8.) Until the Cannabis Permit is
active, Plaintiff has no operative permit, and may still be disqualified from . . . obtaining”
the Cannabis Permit under Section 9.10.070(c). This interpretation comports with
the general law of vested rights, which provides substantially greater protections once a business
has obtained necessary land use entitlements and begins to operate Avco Cmty. Devs., Inc. v. S.
Coast Reg'l Com. (1976) 17 Cal.3d 785, 797). Plaintiff’s claim that it had
a “vested right” to operate a commercial cannabis is without merit. 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 Police, City Fire
Department, etc.” (Garcia Decl. ¶ 8; see also RJN Ex. 2 Municipal § 17.86.080(E)(1)(a)].)
To the extent funds have been spent to undertake “expensive and extensive renovations of [
the] property,” those funds were expended by Plaintiff’s landlord, Helios Dayspring, during a period of time
when he was inarguably aware that he had engaged in, and concealed on an
ongoing basis from the City, disqualifying criminal misconduct. (Pet. at ¶¶ 61, 23.) Further, the
Municipal Code warns applicants 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 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 [Municipal Code § 17.86.
080(E)(2)].) Plaintiff made numerous false statements in
the application process, any one of which would mandate disqualification.
2.Plaintiff’s Disqualification was Authorized by NHC’s Agreement 7 Notably, section 9.10.080,
governing renewals, provide that an application for renewal of a commercial cannabis operator permit “shall
be rejected” if any of the following exists: “Any of the grounds for disqualification for prequalification
set forth in Section 9.10.070(C).” (RJN Ex. 1.) As discussed above, Section 9.
10.070(C)(4) provides for automatic disqualification if “the applicant made one or
more misleading statement or omissions in the application process.” NHC made numerous misleading statements
or omission in the application process. If NHC were to activate its permit, any
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DEFENDANTS OPPOSITION
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BEST BEST &KRIEGER LLPATTORNEYS AT LAW3390UNIVERSITY AVENUE,5TH FLOORRIVERSIDE,CALIFORNIA 92502In 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
permit, and waived any inconsistent rights in the Municipal Code. 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.” (Codron Decl. Ex. A at p. 5 [emphasis added].)8 This
is evidence of the City’s interpretation of its own ordinance, NHC’
s acknowledgement and agreement with this interpretation, and an independent contractual agreement and
waiver of any broader rights provided by the Municipal Code. NHC and Dayspring
provided false or misleading information in the permitting process by failing to disclose Dayspring's crimes,
representing that he had a history of legal and tax compliance, and by falsely indicating that
Dayspring had not engaged in a variety of crimes and other bad acts. As NHC agreed,
this merits “rejection of the application and/or nullification or revocation of any issued
permit.” (Codron Decl. Ex. A
at p. 5 [emphasis added].) D.Plaintiff has Unclean Hands Injunctive relief is an
equitable remedy, and equitable defense such as unclean hands can weigh against the issuance of such equitable
relief. (See, e.g., Fibreboard Paper Prod. Corp. v. E. Bay Union of Machinists,
Loc. 1304, United Steelworkers of Am., AFL-CIO (1964) 227 Cal.App.2d 675, 727 [“It cannot be
questioned that the defense of unclean hands may be urged against a party seeking the aid of equity
by way of an injunction.”]; Bennett v. Lew (1984) 151 Cal. App. 3d 1177, 1186 [“Plaintiff's
hands are rendered unclean within the purview of the maxim by any form of conduct that, in the
eyes of honest and
fair-minded men, may properly be condemned and pronounced wrongful.”].) NHC’s success in the early stages
of the process is because of NHC and Dayspring’s knowing misrepresentations, made with
the intent that the City rely upon the representations, and 8 Similarly, the
background check form, submitted by Helios Dayspring, Valnette Garcia, and others involved with NHC, required
each individual to attest that “all information I have provided is true and correct. I acknowledge that
any information omitted, not disclosed, or found to be false
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BEST BEST &KRIEGER LLPATTORNEYS AT LAW3390UNIVERSITY AVENUE,5TH FLOORRIVERSIDE,CALIFORNIA 92502the 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. Further, Dayspring’s girlfriend,
Garcia has never shown or represented that she did not know of Dayspring’s forthcoming
indictment when she received his transfer of ownership, and it strains credulity to believe that she had
no such knowledge, given Garcia's and Dayspring’s close personal relationship
and because the transfer was, apparently, for no consideration. (Declaration of Christine Dietrick Ex. A at pp. 3–4,9 RJN
Ex. 3.) In other words, NHC now relies on the success of
its wrongful misrepresentations and concealment of criminal misconduct to contend that the City
is precluded from taking action based on its dishonest conduct. Finally, despite Dayspring’
s purported divestiture of interest in NHC, Plaintiff alleges he is still the landlord and stands
to reap substantial financial benefit from the operation of a cannabis enterprise. (Pet. at 4:
25–28.) Dayspring’s undeniably unclean hands weigh against the issuance of an injunction that would inure
to his benefit and that of his fellow applicant and longtime business and romantic
partner, Ms. Garcia. The public interest would be disserved by mandatory injunctive relief and the
public should not be force to permit, facilitate and advance the unjust enrichment of a
cannabis company and an individual who has bribed public officials, evaded tax accountability for
his profits, and fraudulently manipulated a public process to obtain a contingent permit
to which
they clearly had and have no legitimate claim. IV.CONCLUSION For all of
the aforementioned reasons, the application should be denied
in
full. Dated:January
28, 2022 BEST
BEST & KRIEGER LLP By: JEFFREY
V. DUNN DANIEL L. RICHARDS Attorneys for Defendants and Respondents 9 See also Codron Decl. Ex. B at p.
PROOF OF SERVICE
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BEST BEST &KRIEGER LLPATTORNEYS AT LAW18101VON
KARMAN AVENUE,SUITE 1000IRVINE,CALIFORNIA 92612Proof of Service By Overnight Delivery 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 January 28, 2022, I deposited with Federal
Express, a true and correct copy of the within document(
s): DEFENDANTS CITY OF SAN LUIS OBISPO AND CITY COUNCIL OF
AND FOR THE CITY OF SAN LUIS OBISPO’S
OPPOSITION TO PLAINTIFF NHC SLO, LLC’S EX
PARTE APPLICATION FOR
TEMPORARY RESTRAINING ORDER AND ORDER TO SHOW
CAUSE RE:
PRELIMINARY INJUNCTION in
a sealed envelope, addressed as
follows: John Armstrong Armstrong
Law Group 23232 Peralta
Drive, Suite
102 Laguna Hills, CA
92653 Tel. 949-942-6069 john@armstronglawgroup.co Attorneys for Petitioner/Plaintiff Following
ordinary business practices, the envelope was sealed and placed for collection by Federal Express on this date,
and would, in the ordinary course of business,
be retrieved by Federal Express for overnight delivery on this date. I declare under penalty of perjury
under the laws of
the State of California that the above is
true and