HomeMy WebLinkAbout21CV-0734 - Opposition Filed (1)Objection/Response to New Evidence/Argument in City’s Reply
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John Armstrong
Armstrong Law Group
23232 Peralta Drive
Suite 102
Laguna Hills, CA 92653
Tel. 949-942-6069
Cell. 949-390-4307
Attorneys for Petitioner/Plaintiff
NHC SLO, LLC
john@armstronglawgroup.co
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SAN LUIS OBISPO
NHC SLO, LLC,
Petitioner and Plaintiff,
versus
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
Assigned to: Judge Rita Federman
OBJECTION TO NEW ARGUMENTS
AND EVIDENCE RAISE IN REPLY;
MEMORANDUM
Dept.: 2
Time: 8:30a.m.
Date: 07-07-2022
NHC SLO 0001
ELECTRONICALLY
FILED
7/6/2022 1:18 PM
Objection/Response to New Evidence/Argument in City’s Reply
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MEMORANDUM
1. Introduction
The City of San Luis Obispo raises new arguments and evidence in reply on a demurrer, which is
improper. In Opposition to demurrer, the party opposing must supply all evidence and argument
showing that a valid claim exists if all the facts and presented evidence if believed to be true, for
purposes of demurrer. If additional evidence is given, the trial court is required to grant leave to
amend if the unpleaded proffered evidence in Opposition supports a claim for relief.
The City’s Reply raises new arguments and evidence that it did not raise in its moving papers. For
example, the City initially claimed that under SLO Ordinance 9.10.070, any misstatement or error in
a cannabis permit application prevented the City from issuing a permit, and that its Ordinance
governing applications should be applied to legally support its revocation of Petitioner’s cannabis
permit. Upon the Petitioner showing that binding case law precedent holds that Cities may only
revoke issued permits consistent with their enacted Ordinances governing revocation of permits, the
City then materially changed its legal argument that it was actually relying on language buried at the
bottom of the issued permit that stated that the City could revoke even an issued permit if it later
determined that there was any error or misstate in the permit application.
This shift in argument prevented Petitioner from being able to address this new issue, which is a
red herring in the sense that the City cannot have a permit that is inconsistent with its enacted
Ordinance governing permit revocation. Certainly, the City could have added in its revocation
Ordinance added grounds such as error or misstatements in the cannabis application but failed to do.
Additionally, binding appellate precedent holds that there must be no evidence that the permit holder
or landowner materially changed position on reliance on the permit—issues that the Reply does not
address at all.
Specifically, the City did not address in its Reply that SLO Ordinance 9.10.090, the City
Ordinance expressly regulating suspension and revocation of issued cannabis permits fails to contain
an express provision that the City can revoke an issued permit for misrepresentation. Instead, the City
and cites and relies on language in its cannabis permit, a “regulation” that the City’s Planning
Department issued that is expressly inconsistent with its actual Ordinance governing cannabis permit
NHC SLO 0002
Objection/Response to New Evidence/Argument in City’s Reply
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license suspensions and revocations, SLO Ordinance 9.10.090 and relies on language in the issued
permit that is inconsistent with materially different than its specific Ordinance governing license
revocation, which all permit holders have the right to rely on over anything else.
Finally, the Reply in response to Petitioner’s evidence of selective enforcement focuses on Helios
Dayspring’s funding of the other two permit holders whose licenses that City has not revoked.
But the City ignores that the purpose of this evidence was to show that that the other two cannabis
permit holders both made material misrepresentations in their respective permit applications
regarding their source of funding and presented obviously false tax information in their permit
applications by claiming substantial cannabis sales with Eric Powers of Megan’s Organic Market
claiming as little as $1 in taxable income for a tax year as set out in the Exhibits to the Opposition.
The other cannabis applications show material misrepresentations to the City, yet the City is only
targeting NHC SLO. (See, e.g., attached Ex. 1, true and correct copy of SLO Cal Roots Promissory
Note showing Dayspring funded SLO Cal Roots, which SLO Cal Roots did not disclose to the City
and Ex. 2, a Management Agreement, showing that all the members of the original members of
Megan’s Organic Market, SLO Cal Roots, and NHC SLO agreed to operate their cannabis businesses
together; see attached Dayspring Declaration, ¶ 2-4.])
Yet, the City has done nothing to do either dispensary, showing that it is selectively exercising its
discretion” to unlawfully revoke Petitioner’s permit without a hearing in violation of SLO City
Ordinance 9.10.090.
2. A City’s Agency Cannot Make a Regulation that Contradicts Or Adds to Its Enacted
Ordinances: The Language in Petitioner’s Cannabis Permit Cannot Add to Or
Contradict the City’s Enacted Ordinances: The City Fails to Address Binding Precedent
that the Absent of an Express Ordinance Authorizing Permit Revocation And Lack of
Reliance on Issued Permit Creates Vested Rights That Cannot Be Revoked
Every City may enact any lawful Ordinance. City Agencies, like federal and California State.
Agencies can only enact rules regulations consistent with enacted ordinances and statutes. Here, SLO
Ordinance 9.10.090 is admittedly the only SLO Ordinance expressly dealing with revocation or
suspension of cannabis permits. Knowing this legislative weakness in its position, the City cites
NHC SLO 0003
Objection/Response to New Evidence/Argument in City’s Reply
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language at the bottom of the issued cannabis permit that the City keeps the right to revoke even an
issued cannabis permit if it determines that there were errors or misinformation in the original
cannabis application.
In the case of quasi-legislative regulations, the court has essentially two tasks. The first duty is "to
determine whether the [agency] exercised [its] quasi-legislative authority within the bounds of the
statutory mandate." (Morris v. Williams (1967) 67 Cal.2d 733, 748 (Moms ).) As the Morris court
made clear, this is a matter for the independent judgment of the court. "While the construction of a
statute by officials charged with its administration, including their interpretation of the authority
invested in them to implement and carry out its provisions, is entitled to great weight, nevertheless
Whatever the force of administrative construction... final responsibility for the interpretation of the
law rests with the courts.' [Citation.] Administrative regulations that alter or amend the statute or
enlarge or impair its scope are void and courts not only may, but it is their obligation to strike down
such regulations. [Citations.]" (Ibid., italics added.)1
This duty derives directly from statute. "Under Government Code, section 11373 [now §
11342.1], `[e]ach regulation adopted [by a state agency], to be effective, must be within the scope of
authority conferred....' Whenever a state agency is authorized by statute `to adopt regulations to
implement, interpret, make specific or otherwise carry out the provisions of the statute, no regulation
adopted is valid or effective unless consistent and not in conflict with the statute.... ` ( [§ 11342.2].)"
Morris, supra, 67 Cal.2d at p. 748, fn. omitted, italics added by Morris court.)
Here, the language in the City’s subject cannabis permit, a City “rule,” is inconsistent with its
enacted Ordinance, the City’s statute about when and how the City may suspend or revoke an issued
cannabis permit. The City’s legislative body undoubtedly may wish to correct this, but it cannot
change its Ordinances to enable it to revoke an issued permit retroactively without violating the
federal and California prohibitions on ex post facto laws. (U.S. Const. Art. I, §9, Cl. 3, 2; Calif.
Const. Art. I, § 9; County of San Diego v. McClurken (1951) 37 Cal.2d 683, 669 "[A] permittee who
1 The opinion also references compliance with lawful conditions in an issued permit; however,
language or conditions in a permit that are contrary or materially different from the language in City
Ordinances are not lawful conditions to put in permits since the permits are generated by City
agencies who must follow the enacted City Statutes/Ordinances.
NHC SLO 0004
Objection/Response to New Evidence/Argument in City’s Reply
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has expended substantial sums under a permit cannot be deprived by a subsequent zoning ordinance
of the right to complete construction and to use the premises as authorized by the permit.")
3. Response to New Arguments Regarding Dayspring’s Knowledge of Bribery/Tax Evasion
The City tries to use offensive issue preclusion based on Helios Dayspring’s guilty plea in
criminal court. This is wrong. The California Supreme Court, in Teitelbaum Furs, Inc. v. Dominion
Ins. Co., Ltd. (1962) 58 Cal. 2d 601, at 605-606 held that a person who pleads guilty to a crime is not
estopped to explain the circumstances of the criminal plea and that the plea cannot be used as issue or
claim preclusion on against the criminal defendant because a person may wish to plead guilty to a
crime to avoid the risk of a longer prison sentence even if innocent. We are on demurrer, when the
facts and inferences must be viewed most favorable to the Plaintiff/Petitioner.
There is no evidence that Dayspring intentionally deceived the City regarding his taxes or
criminal record, or that he knowingly “bribed” Adam Hill—especially when had Adam Hill disclosed
the monies and dinners he received from Dayspring, there would not have been any bribery charges
at all—facts that Dayspring would have been unlikely to know about the now deceased former SLO
County Board Member Adam Hill.
Regarding underpayment of taxes, the reality is, as reflected by the tax documentation by
Megan’s Organic Market (“MOM”), cannabis operators under Proposition 215 all under-reported
their taxable income. Given the incredible evidence that members of MOM sold millions of dollars in
cannabis, combined with the members of MOM presenting the City of SLO tax documentation that
these same members only made $1 during these same years that they grossed millions from cannabis
sales, the City willfully overlooked these obvious inconsistencies in MOM’s cannabis application in
granting its permit but has failed to take action. As set out in the attached
To date, the City has made no effort to revoke either of the two cannabis permit holders (MOM
and SLO Cal Roots) despite the City’s possession of evidence that these other applicants also lied on
their cannabis applications about their source of funds and on their filed tax returns.
While the conscious exercise of some selectivity in enforcement does not by itself rise to a
violation of the federal and California constitutional requirements of equal protection, the City’s
failure to prosecute all the cannabis permit holders the same is strong evidence that City does not
NHC SLO 0005
Objection/Response to New Evidence/Argument in City’s Reply
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believe it can lawfully do so under its enacted ordinances, but hopes to prejudice this court against
Petitioner based on Helios Dayspring’s former association with Petitioner and Dayspring’s criminal
conviction, which is a straight appeal to bias, rather than the legality of the City’s decision.
4. The City’s Unlawful Revocation of NHC SLO’s Cannabis Permit Cannot Be Justified
By “Unclean Hands” Because “Equity Follows the Law”
In Reply, the City acknowledges that under its enacted statutes/ordinances, it does not have a
legal ground to revoke NHC SLO’s cannabis permit. However, the City argues in Reply that
Dayspring’s “frauds” show that NHC SLO has “unclean hands” regarding its application, and that
since these proceedings are equitable in nature, the Court can ignore the law, ignore the City’s
enacted Ordinance regarding permit revocation, and just the City’s decision to revoke NHC SLO’s
permit based on this Court’s inherent equitable powers.
That would be reversible error for any one or more of the following reasons. First, it is ancient
maxim followed in this State that, “equity follows the law.” Although a court of equity may employ
broad powers in the application of equitable remedies, it cannot create new rights under the guise of
doing equity. (Rosenberg v. Lawrence (1938) 10 Cal.2d 590, 594-495.) Nor will equity lend its aid to
accomplish by indirection what the law forbids to be done directly. (Marsh v. Edelstein (1970) 9 Cal.
App.3d 132, 140-141.) Equity follows the law, and when the law determines the rights of the
respective parties, a court of equity is without power to decree relief which the law denies. (Shive v.
Barrow (1948) 88 Cal. App.2d 838, 844.) That is, this Court must apply the language that the City
used in its Cannabis Ordinance and cannot fashion an equitable remedy that is inconsistent with SLO
Ordinance 9.10.090 by adding grounds for revocation that are not expressly in the text of the
Ordinance.
This Court must apply SLO Ordinance 9.10.090 by its terms, and those terms do not authorize the
City to revoke issued cannabis permits for misstatements in the cannabis application. Moreover,
binding appellate precedent as cited in the Opposition holds that a City may only revoke an issued
permits for misrepresentation if and only if the City can make a factual showing that (1) it has an
express Ordinance authorizing permit revocation for fraud or misrepresentation and (2) there is no
NHC SLO 0006
Objection/Response to New Evidence/Argument in City’s Reply
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evidence that the permit holder detrimentally relied on the permit by expending substantial sums of
money on the permit—the City fails both tests—especially on demurer.
The Petition alleges that the property owner, Dayspring, spent $4.2 million to acquire the property
based on the City’s granting NHC SLO a permit, and spent another $3.2 million to complete the build
out to the City’s specifications, in exchange for a cap rate on the monthly rents NHC SLO agreed to
pay Dayspring, and NHC SLO spent over $500,000 of its own capital in expectation that it would be
opening on October 22, 2021.
A. The City’s Hands Are Unclean By Failing to Treat Similarly Situated Cannabis Permi
Holders Similarly, Which Is Irrational
While a City has wide discretion on discretionary matters, it must follow its enacted
ordinance. Here, the City admits that it has not followed its cannabis permit revocation Ordinance,
SLO Ordinance 9.10.090 in revoking NHC SLO’s issued cannabis permit. The irrationality of its
position is further shown by its failure to revoke the other two issued cannabis permits that Dayspring
financed, which the other permit holders failed to disclose to the City as required, and the City is and
was well aware of this fact yet has taken no action against the other permit holders. Further, the tax
information submitted to the City for the other two permit holders are facially false, such as Megan’s
Organic Market member, Eric Powers, claiming to harvest thousands of pounds of cannabis by
having little to $1.00 in taxable income.
When a City’s decision is, “arbitrary or capricious, or entirely lacking in evidentiary support,
or whether it has failed to follow the procedure and give the notices required by law" (Court House
Plaza Co. v. City of Palo Alto (1981) 117 Cal. App.3d 871, 880), it must be reversed. Selective
prosecution shows both the arbitrariness of the City’s position and its capri, and the record shows that
the City failed to follow its own notice and procedures regarding revoking NHC SLO’s permit under
SLO Ordinance 9.10.090.
5. Conclusion
The City admittedly has no lawfully enacted Ordinance that expressly authorizes it to revoke an
issued Cannabis Operator Permit for omissions or false statements in the cannabis operator
application. Instead, the City asks this Court to invoke its inherent equitable powers to override the
NHC SLO 0007
Objection/Response to New Evidence/Argument in City’s Reply
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express language in the City’s duly and lawfully enacted Ordinances to reach an equitable result and
to punish Dayspring for his “unclean hands” despite that he is no longer a member of NHC SLO, the
Petitioner.
Appellate courts have only affirmed revocation of issued permits when the City can show both
that it enacted an Ordinance that expressly provides that fraud or misrepresentation in the application
is an express grounds for permit revocation, and if, and only if, the City can show that neither the
permit holder nor the land owner relied on the permit by making changes to the land or incurring
debts on reliance on the issued permit. The City’s evidence fails both these tests.
The record submitted shows that from day one, Dayspring disclosed he would be the owner of
the subject property, and though he initially had control over NHC SLO, he completely divested
control over NHC SLO over 19 months ago with the City’s approval. Even after the City was aware
of Dayspring’s guilty plea, it continued to warn NHC SLO that it needed to keep spending money to
meet all the City’s requirements to be able to open by October 22, 2021, which NHC SLO and
Dayspring continued to do. However, within weeks before the City was set to “activate” NHC SLO’s
permit, it revoked the issued permit without a hearing, citing its Ordinance regulation cannabis
applications because the City knew its Ordinance specifically regulating revocation of cannabis
applications did not authorize the City to revoke NHC SLO’s issued cannabis permit.
While the City attempts to claim that an unactivated permit is still an application, nowhere in any
of its enacted ordinances, permits, etc. does the City provide fair notice that an issued but unactivated
permit is still an “application” and not a permit—an argument that would also mean that the City lied
to the State of California’s Bureau of Cannabis Control in confirming that it has issued NHC SLO a
cannabis permit and not just that it had a pending application, since the State requires proof of an
issued local permit before a business can apply for the State cannabis license.
Thus, the City’s demurrer, which admits all facts and inferences in favor of the Petitioner should
be overruled. ARMSTRONG LAW GROUP
Dated: July 5, 2022 _______________________________
John Armstrong, attorneys for
Petitioner NHC SLO, LLC
NHC SLO 0008
Objection/Response to New Evidence/Argument in City’s Reply
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SUPPLEMENTAL HELIOS DAYSPRING DECLARATION
1. I, Helios Dayspring, have read the foregoing Objection/Response to the City of San Luis
Obispo’s Reply Brief, and believe that all statements of fact are true, and that the statements
of opinion are correct.
2. Additionally, attached as Exhibit 1 to this Objection is a true and correct copy of the
Promissory Note that I signed with the other members of SLO Cal Roots to finance its
cannabis application, which was not disclosed in SLO Cal Roots initial cannabis application,
but the City has taken no action against SLO Cal Roots.
3. Attached as Exhibit 2 is a true and correct of the Management Agreement I signed with the
members of SLO Cal Roots and Megan’s Organic Market showing that the members of all
three successful cannabis applications that ripened into cannabis permits agreed to work
together, which was also not disclosed to the City of San Luis Obispo originally.
4. The City made supplemental requests to SLO Cal Roots, Megan’s Organic Market, and NHC
SLO regarding my involvement in all three successful permit holders, but the City only
decided to revoke NHC SLO, even though my only involvement presently with NHC SLO is
as its landlord.
5. I pled guilty to the federal charges brought against me to avoid the risk of having a longer
prison sentence in the event that I was unable to prove my innocence of the charges.
6. At the time of NHC SLO’s application, there were no tax liens or claims that I had
underreported my taxes. Like all other California cannabis operators, we all underreported our
incomes for fear of federal prosecution for cultivating cannabis until there was protection
under United States v. McIntosh (9th Cir. (Cal.) 2016) 833 F. 3d 1163, which held that the
Farr-Rohrbacker Amendment prevented the U.S. Department of Justice from using federal
funds to prosecute cannabis crimes that were permitted under California state law.
7. Regarding the bribery charges, I was unaware that Adam Hill was not reporting the donations
he asked me to make to his campaign and not reporting the dinners that I paid for, which were
the crux of the bribery charges brought against me.
8. I certify under penalty of perjury under the laws of California that the forgoing is true and
NHC SLO 0009
Objection/Response to New Evidence/Argument in City’s Reply
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correct, and that I signed this declaration in San Luis Obispo County on July 6, 2022.
Helios Dayspring, declarant
NHC SLO 0010
Objection/Response to New Evidence/Argument in City’s Reply
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EXHIBIT 1
NHC SLO 0011
Objection/Response to New Evidence/Argument in City’s Reply
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EXHIBIT 2
NHC SLO 0019
Objection/Response to New Evidence/Argument in City’s Reply
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DECLARATION OF SERVICE BY EMAIL
I, the undersigned, declare as follows:
I am a resident of the County of Orange, and I am over the age of 18 years, and not a party to
the within action. My place of employment is 23232 Peralta Drive, Suite 102, Laguna Hills, CA
92653.
One July 6, 2022, I served Petitioner NHC SLO’s Objection/Response to Reply re Demurrer
and supporting Declaration of Helios Dayspring on the Respondent City of San Luis Obispo’s
attorneys of record, namely, Dan Richards, at Daniel.Richards@bbklaw.com and on Jeffrey Dunn
at Jeffrey.Dunn@bbklaw.com using my email address, John@ArmstrongLawGroup.Co.
I declare under penalty of perjury under the laws of the State of California that the foregoing is
true and correct, and that this declaration was executed on July 6, 2022 at Laguna Hills, California.
John Armstrong, declarant and attorneys for
Petitioner, NHC SLO, LLC
NHC SLO 0027