Compassionate Care Dispensary, Inc. v. Ariz. Dep't of Health Servs.

• Decision Date: 16 January 2018
• Docket Number: No. 1 CA-CV 16-0470,1 CA-CV 16-0470
• Citation: 418 P.3d 978
• Parties: COMPASSIONATE CARE DISPENSARY, INC., Plaintiff/Appellant–Cross Appellee, v. ARIZONA DEPARTMENT OF HEALTH SERVICES, et al., Defendants/Appellees–Cross Appellants.
• Court: Arizona Court of Appeals

418 P.3d 978

COMPASSIONATE CARE DISPENSARY, INC., Plaintiff/Appellant–Cross Appellee,

v.ARIZONA DEPARTMENT OF HEALTH SERVICES, et al., Defendants/Appellees–Cross Appellants.

No. 1 CA-CV 16-0470

Court of Appeals of Arizona, Division 1.

FILED January 16, 2018

May Potenza Baran & Gillespie, PC, Phoenix, By Jesse Callahan, Counsel for Plaintiff/Appellant/Cross–Appellee

Sherman & Howard, LLC, Phoenix, By Gregory W. Falls and Michael W. Wright, Counsel for Defendants/Appellees/Cross–Appellants

Presiding Judge Kenton D. Jones delivered the Opinion of the Court, in which Judge Jon W. Thompson and Judge John C. Gemmill¹ joined.

OPINION

JONES, Judge:

¶ 1 Compassionate Care Dispensary, Inc. (CCD) appeals entry of summary judgment in favor of the Arizona Department of Health Services (the Department) on CCD's complaint for declaratory judgment and mandamus relief. The Department cross-appeals the denial of its motion for sanctions.

¶ 2 CCD argues the evidence establishes that the Department acted arbitrarily and capriciously in interpreting the Arizona Medical Marijuana Act (AMMA) and corresponding regulations in a manner that permitted a competitor to participate in a lottery for a medical marijuana dispensary registration certificate without first obtaining a conditional use permit (CUP). The interpretation and application of these provisions present a question of first impression. We hold that neither the statutes and regulations, nor the applicable municipal code, require applicants to obtain a CUP before applying for a dispensary registration certificate, and the Department did not act arbitrarily and capriciously in its application of the law. We further hold that the "sworn statement" required to accompany a dispensary registration application need not take any particular form so long as it impresses upon the signatory the importance of telling the truth.

¶ 3 Because we find no error in the trial court's resolution of the issues presented on summary judgment and in the Department's motion for sanctions, we affirm.

FACTS² AND PROCEDURAL HISTORY

¶ 4 In 2010, Arizona voters passed Proposition 203, now codified as the AMMA, Ariz. Rev. Stat. (A.R.S.) §§ 36–2801³ to –2819, to allow for the medicinal use of marijuana within the state. See White Mountain Health Ctr., Inc. v. Maricopa Cty. , 241 Ariz. 230, 233, ¶ 3, 386 P.3d 416, 419 (App. 2016). The AMMA requires non-profit medical marijuana dispensaries to register with the Department—the agency tasked with implementing and administering the AMMA. See A.R.S. §§ 36–2803, –2804(A). A prospective dispensary's application for a registration certificate must contain, among other things, documentation that the proposed dispensary location complies with local zoning restrictions. See A.R.S. § 36–2804(B)(1)(d) ; Ariz. Admin. Code (A.A.C.) R9–17–304(C)(5)–(6).

¶ 5 Initially, the A.A.C. authorized the Department allocate only one dispensary registration certificate for each Community Healthcare Analysis Area (CHAA). See A.A.C. R9–17–302 (2011).⁴ If the Department received more than one application for a single CHAA, it would randomly select a qualifying applicant according to the priority set forth in A.A.C. R9–17–302(B).

¶ 6 In May 2012, CCD applied to operate a dispensary at 1600 East Second Street in the City of Winslow (the City), within the Winslow CHAA. CCD established its compliance with applicable zoning restrictions by providing: (1) a "Sworn Statement of Compliance with Local Zoning Restrictions," executed by an officer and board member of CCD; (2) a copy of a CUP for the Second Street location issued by the City; and (3) a Department form entitled "Documentation of Compliance with Local Jurisdiction Zoning" executed by the City's Principal Planner.

¶ 7 Two other entities, Green Cross Medical, Inc. (GCM) and The Medicine Room, L.L.C. (TMR), also submitted applications for the Winslow CHAA. Each application was accompanied by the same type of Department form, again executed by the City's Principal Planner, and a statement of compliance executed by the companies' principal officers. The Department determined all three applications were substantively complete in June 2012 and scheduled a lottery in August 2012 to determine which entity would be awarded the certificate for the Winslow CHAA.

¶ 8 In the meantime, CCD notified the Department it believed GCM's and TMR's applications had been errantly accepted because the proposed locations were not in compliance with City zoning ordinances. At the same time, the City Attorney notified the Department, GCM, and TMR that City ordinances require applicants to obtain a CUP before the City could certify a proposed dispensary location as compliant with zoning restrictions. The City Attorney explained the City's Principal Planner had issued letters of compliance for GCM and TMR by mistake, the Planner believing only that he was affirming the proposed dispensary locations were, generally, in the proper zone. The City Attorney confirmed the proposed locations were in fact "in the commercial zone, and would be ... appropriate location[s] for a medical marijuana dispensary." However, neither GCM nor TMR had yet applied for, let alone received, a CUP.

¶ 9 In July 2012, the Department notified GCM and TMR their applications were not substantively complete because they had not obtained a CUP from the City and therefore were not in compliance with local zoning ordinances. After further discussion with the City Attorney, the Department advised it did not require a CUP at the application stage. The Department explained: "DHS has formulated a two-step process for applicants and does permit them a period of time from when they are awarded a dispensary registration certificate to receive actual documentation (such as certificates of occupancy or conditional use permits) authorizing their occupancy as a dispensary." The Department assured the City that, after a certificate was issued, "DHS will require the applicant to be in full compliance [with the City's zoning and business requirements] before [a dispensary] is allowed to open." The City Attorney admitted he had been unaware of the two-step process but maintained his position that the City independently required "both commercial zoning and a conditional use permit be granted for a marijuana dispensary to be located in the city limits."

¶ 10 Based upon its "two-step process" analysis, the Department accepted the City's prior assurances that the proposed locations would be appropriate for a medical marijuana dispensary and re-designated GCM's and TMR's applications as substantively complete. However, GCM was unable to demonstrate it had the requisite financial backing and lost its preference for selection. See A.A.C. R9–17–302(B). The Department conducted the lottery as between TMR and CCD, and, as the randomly chosen applicant, TMR was awarded a dispensary registration certificate for the Winslow CHAA.

¶ 11 In December 2012, CCD filed a complaint alleging the Department acted arbitrarily and capriciously in permitting TMR to participate in the lottery and sought: (1) a declaration that the Department improperly accepted the application of TMR; (2) a writ of mandamus ordering the Department to void the lottery results and award a dispensary registration certificate to CCD; and (3) an award of damages, attorneys' fees, and costs.⁵ After discovery, both parties moved for summary judgment, and the Department sought sanctions against CCD for maintaining a frivolous claim. After briefing and oral argument, the trial court entered judgment in favor of the Department but denied its motion for sanctions. CCD timely appealed, and the Department timely cross-appealed. We have jurisdiction over both appeals pursuant to A.R.S. §§ 12–120.21(A)(1) and –2101(A)(1).

DISCUSSION

I. Summary Judgment

A. The Department Did Not Violate Rule 56(c)(3).

¶ 12 CCD argues the trial court erred in granting summary judgment to the Department because, it contends, the Department did not submit a separate statement of facts in the form prescribed by Arizona Rule of Civil Procedure 56(c)(3). That rule requires a party filing or opposing a motion for summary judgment to file "a statement separate from the supporting memorandum, [setting forth] the specific facts relied on in support of the motion." Ariz. R. Civ. P. 56(c)(3). We have reviewed the Department's statement of facts and find it contains concise, numbered paragraphs identifying specific relevant events, in chronological order, and referencing supporting portions of the record and exhibits, and therefore find no merit in CCD's contention.

¶ 13 CCD's suggestion that the format of the Department's separate statement of facts made it difficult for CCD to identify the factual issues in dispute is likewise unsupported by the record. CCD's objections to the Department's statement of facts total 593 pages and reflect it had adequate opportunity and ability to address the statements contained therein and to act to protect its interests.

¶ 14 Moreover, the trial court has broad discretion in granting judgment regardless of the form of a party's response. Although the court may enter summary judgment against a party who does not properly oppose a motion, see Ariz. R. Civ. P. 56(e), so may the court "grant summary judgment for a nonmoving party; ... grant summary judgment on grounds not raised by a party; or ... consider summary judgment on its own after identifying for the parties material facts that may not be genuinely in dispute," Ariz. R. Civ. P. 56(f). In determining the appropriate disposition, the court is required to consider the portions of the record brought to its attention by the parties, regardless of their technical compliance with Rule 56(c). See Hunt v. Richardson , 216 Ariz. 114, 122 n.7, ¶ 25, 163 P.3d 1064, 1072 n.7 (App. 2007) (citing State ex rel. Corbin v. Sabel , 138 Ariz. 253, 256, 674 P.2d 316, 319 (App. 1983) ).

¶ 15 CCD has not proved reversal is warranted upon this...