Keystone Releaf LLC v. Pa. Dep't of Health

• Citation: 186 A.3d 505
• Decision Date: 20 April 2018
• Docket Number: No. 399 M.D. 2017,399 M.D. 2017
• Parties: KEYSTONE RELEAF LLC, Petitioner v. PENNSYLVANIA DEPARTMENT OF HEALTH, Office of Medical Marijuana; Prime Wellness of Pennsylvania, LLC; Franklin Labs, LLC; Pennsylvania Medical Solutions, LLC; Standard Farms, LLC; Ilera Healthcare, LLC; AES AES Compassionate Care, LLC; Terrapin Investment Fund 1, LLC ; GTI Pennsylvania, LLC; Agrimed Industries of PA, LLC ; Purepenn, LLC; Holistic Farms, LLC; Cresco Yeltrah, LLC; Holistic Pharma, LLC; Pharmacann Penn, LLC; SMPB Retail, LLC; Terra Vida Holistic Centers, LLC; Chamounix Ventures, LLC; Bay, LLC; Restore Integrative Wellness Center, LLC; Franklin Bioscience–Penn, LLC ; Mission Pennsylvania II, LLC; Columbia Care Pennsylvania, LLC; Justice Grown Pennsylvania, LLC; Guadco, LLC ; Lebanon Wellness Center, LLC; Organic Remedies, Inc.; KW Ventures Holdings, LLC d/b/a Firefly Dispensaries; Cansortium Pennsylvania, LLC; PA Natural Medicine, LLC; Keystone Center of Integrative Wellness, LLC; Keystone Integrated Care, LLC; The Healing Center, LLC; Maitri Medicinials, LLC; Keystone Relief Centers, LLC d/b/a Solevo Wellness; Dubois Wellness Center, LLC, Respondents
• Court: Commonwealth Court of Pennsylvania

186 A.3d 505

KEYSTONE RELEAF LLC, Petitioner

v.PENNSYLVANIA DEPARTMENT OF HEALTH, Office of Medical Marijuana; Prime Wellness of Pennsylvania, LLC; Franklin Labs, LLC; Pennsylvania Medical Solutions, LLC; Standard Farms, LLC; Ilera Healthcare, LLC; AES AES Compassionate Care, LLC; Terrapin Investment Fund 1, LLC ; GTI Pennsylvania, LLC; Agrimed Industries of PA, LLC ; Purepenn, LLC; Holistic Farms, LLC; Cresco Yeltrah, LLC; Holistic Pharma, LLC; Pharmacann Penn, LLC; SMPB Retail, LLC; Terra Vida Holistic Centers, LLC; Chamounix Ventures, LLC; Bay, LLC; Restore Integrative Wellness Center, LLC; Franklin Bioscience–Penn, LLC ; Mission Pennsylvania II, LLC; Columbia Care Pennsylvania, LLC; Justice Grown Pennsylvania, LLC; Guadco, LLC ; Lebanon Wellness Center, LLC; Organic Remedies, Inc.; KW Ventures Holdings, LLC d/b/a Firefly Dispensaries; Cansortium Pennsylvania, LLC; PA Natural Medicine, LLC; Keystone Center of Integrative Wellness, LLC; Keystone Integrated Care, LLC; The Healing Center, LLC; Maitri Medicinials, LLC; Keystone Relief Centers, LLC d/b/a Solevo Wellness; Dubois Wellness Center, LLC, Respondents

No. 399 M.D. 2017

Commonwealth Court of Pennsylvania.

Argued February 7, 2018

Decided April 20, 2018

Robert M. Donchez and Seth R. Tipton, Bethlehem, for petitioner.

Judith D. Cassel, Harrisburg, for intervenor Patient–First Association of Companies.

Jared W. Handelman, Harrisburg, for respondent Pennsylvania Department of Health, Office of Medical Marijuana.

Clifford B. Levine, Pittsburgh, for respondents Pennsylvania Cannabis Coalition, Pennsylvania Medical Solutions, Standard Farms, LLC, Ilera Healthcare, LLC, AES Compassionate Care, LLC, Terrapin Investment Fund 1, LLC, GTI Pennsylvania, LLC, Agrimed Industries of PA, LLC, Holistic Farms, LLC, Holistic Pharma, LLC, SMPB Retail, LLC, Terra Vida Holistic Centers, LLC, Bay, LLC, Franklin Bioscience–Penn, LLC, Mission Pennsylvania II, LLC, Columbia Care Pennsylvania, LLC, Justice Grown Pennsylvania, LLC, Guadco, LLC, Lebanon Wellness Center, LLC, Organic Remedies, Inc., KW Ventures Holdings, LLC, Firefly Dispensaries, Keystone Relief Centers, LLC, Solevo Wellness, Dubois Wellness Center, LLC, and Keystone Center of Integrative Wellness, LLC.

Dennis A. Whitaker, Harrisburg, for respondents Patient–First Association of Companies, Chamounix Ventures, LLC, Hanging Gardens, LLC, Teava Investments I, LLC, Natural Care, LLC, Keystone State Laboratory, LLC, Verdant Health, LLC, Extra Step Assurance, and Cannabis Expertise.

BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge, HONORABLE P. KEVIN BROBSON, Judge, HONORABLE PATRICIA A. McCULLOUGH, Judge, HONORABLE ANNE E. COVEY, Judge, HONORABLE MICHAEL H. WOJCIK, Judge, HONORABLE CHRISTINE FIZZANO CANNON, Judge, HONORABLE ELLEN CEISLER, Judge

OPINION BY JUDGE WOJCIK

Before this Court are Respondents'¹ preliminary objections (POs) and the Department's Application for Summary Relief² to Petitioner Keystone ReLeaf LLC's Amended Petition for Review in the Nature of a Complaint in Equity Seeking a Declaratory Judgment and Injunctive Relief (Amended Petition) in this Court's original jurisdiction. Respondents assert that this Court lacks jurisdiction over the Amended Petition because Petitioner failed to exhaust administrative remedies and lacks standing to bring this original jurisdiction action, among other reasons. Upon review, we sustain Respondents' POs in the nature of demurrer and grant the Department's Application for Summary Relief on the basis that Petitioner failed to exhaust administrative remedies and dismiss the Amended Petition with prejudice.

I. Background

The General Assembly enacted the Pennsylvania Medical Marijuana Act (Act),³ which took effect on May 17, 2016, to establish a framework for the legalization of medical marijuana in the Commonwealth for certain medical conditions. The Act identified the Department as the Commonwealth agency responsible for administering the Act and authorized the Department to promulgate regulations, including temporary regulations, necessary to carry out the Act. Section 301 of the Act, 35 P.S. § 10231.301 ; Section 1107 of the Act, 35 P.S. § 10231.1107. In accord with this authority, the Department promulgated temporary regulations. See 28 Pa. Code §§ 1131.1 – 1191.33.

The Department established six medical marijuana regions. See Section 603(d) of the Act, 35 P.S. § 10231.603(d) ; 28 Pa. Code § 1141.24(a). Between February 20, 2017, and March 20, 2017, the Department accepted applications from entities interested in obtaining a limited number of medical marijuana grower/processor permits and/or dispensary permits. During the application period, the Department received 457 applications—177 for growers/processors and 280 for dispensaries. The criteria set forth in Section 603(a.1) of the Act, 35 P.S. § 10231.603(a.1), and the factors listed in the temporary regulations, 28 Pa. Code §§ 1141.27 – 1141.34, govern the application review.

Petitioner submitted two dispensary permit applications in Region 2,⁴ both of which were denied after failing to score higher than other applicants in the region. In addition, Petitioner attempted to submit a grower/processor permit application, also in Region 2, but failed to comply with the submission requirements, specifically failing to submit the application on a USB drive. The Department rejected the application as incomplete and did not score it.

Petitioner filed administrative appeals on all three unsuccessful permit applications with the Department on June 29, 2017, and July 7, 2017.⁵ Notwithstanding the pendency of its appeals, Petitioner sought relief in this Court's original jurisdiction by filing a petition for review and an application for special relief, which it subsequently amended.⁶

In the Amended Petition, Petitioner challenges the Department's "permitting process" for (1) accepting, reviewing, and scoring medical marijuana grower/processor and dispensary permit applications, and (2) issuing permits to selected applicants pursuant to the Act. The Amended Petition names the Department and the 39 applicants awarded grower/processor permits and/or dispensary permits (Permittees) as Respondents.

The Amended Petition raises five counts. In Count I, Petitioner asserts that the Department scored the applications inconsistently and arbitrarily and refuses to shed light on how it scored applications or awarded permits. By engaging in a secretive permitting process, the Department has deprived Petitioner and all applicants any fair and meaningful administrative review of their decisions in violation of due process. In Count II, Petitioner contends that the Department acted ultra vires in waiving certain statutory and regulatory requirements and strictly enforcing other requirements. In Count III, Petitioner avers that the Department's permitting process violates the requirements of the Right–to–Know Law (RTKL)⁷ because the publicly-released applications contain unlawful redactions. In Count IV, Petitioner claims that, by failing to disclose the identities and qualifications of the scorers, the Department's permitting process may be infected by favoritism or bias in further violation of the due process rights of all applicants. In Count V, Petitioner asserts that the Department's permitting process should be invalidated in its entirety and the previously awarded permits rescinded because they were awarded pursuant to an unlawful process.

In support of its claim that the Department has scored the applications inconsistently and arbitrarily, Petitioner alleges the following. The Department has not provided objective criteria for scoring necessary for meaningful administrative challenge and review. For example, the scoring rubric made available to applicants assigned 50 of 1000 points (or 5% of the available points) to a section called "Attachment E Personal Identification." This section required applicants to provide two separate, objective items: (1) a photo identification, and (2) a resume for each principal, employee, financial backer and operator. It is unclear how the Department scored this information. No applicant scored fifty (50) points and no applicant scored zero (0) points in this category. Moreover, applicants that submitted the same information received different scores. Amended Petition at ¶¶ 76–80.

Petitioner submitted two dispensary applications, which were identical except for dispensary location. Yet, the applications received different scores. Amended Petition at ¶¶ 96–105.

The Act requires an applicant for a dispensary application to demonstrate that it has at least $150,000 in capital deposited in a financial institution. Section 607(2)(vi) of the Act, 35 P.S. § 10231.607(2)(vi). Petitioner demonstrated that it had $15,600,000 in capital, of which $7,287,500 was deposited with Wells Fargo. Despite vastly exceeding the statutory requirement, Petitioner's applications scored 61.80 and 60.60 of 75 points available on the "Capital Requirements" section. The applications were not scaled against each other because no applicant received a score of 100%. Amended Petition ¶¶ 101, 106–16.

The "Quality Control and Testing" section contained a "yes" or "no" question, with no request for a narrative or documentation in support, worth a total of 50 points. Inexplicably, published scores ranged from 5 to 41 points in this category.

In support of its claim that the Department waived certain statutory and regulatory requirements, Petitioner alleges that the Department waived the requirements for criminal background checks under Section 602(a)(4) of the Act, 35 P.S. § 10231.602(a)(4), and 28 Pa. Code § 1141.31, and tax clearance certificates under 28 Pa. Code § 1141.27(c)(2). Yet, the Department strictly enforced submission requirements. Amended Petition at ¶¶ 136–37, 151–71.

Petitioner also avers that the Department did not fully release public records subject to the RTKL as mandated by Section 302(b) of the Act, 35 P.S. § 10231.302(b), further...