Haines-Marchel v. Wash. State Liquor & Cannabis Bd.

• Decision Date: 18 December 2017
• Docket Number: No. 75669-9-I,75669-9-I
• Citation: 406 P.3d 1199
• Court: Washington Court of Appeals
• Parties: Libby HAINES-MARCHEL and Rock Island Chronics, LLC, Dba Chronics, Appellants, v. WASHINGTON STATE LIQUOR & CANNABIS BOARD, an Agency of the State of Washington, Respondent.

406 P.3d 1199

Libby HAINES-MARCHEL and Rock Island Chronics, LLC, Dba Chronics, Appellants,

v.WASHINGTON STATE LIQUOR & CANNABIS BOARD, an Agency of the State of Washington, Respondent.

No. 75669-9-I

Court of Appeals of Washington, Division 1.

FILED: December 18, 2017

Robert Harold Stevenson, Attorney at Law, 11 W. Aloha St., Apt. 325, Seattle, WA, 98119-4748, for Appellants.

Rose Weston, Washington Attorney General, P.O. Box 40100, Olympia, WA, 98504- 0100, S. Kim O'Neal, Attorney at Law, 212 S. 46th St., Tacoma, WA, 98418-7718, for Respondent.

PUBLISHED OPINION

Schindler, J.

¶1 In 2012, Washington voters approved Initiative Measure 502. LAWS OF 2013, ch. 3, codified as part of chapter 69.50 RCW. Initiative 502 legalizes the possession and sale of marijuana and creates a system for the distribution and sale of recreational marijuana. Under RCW 69.50.325(3)(a), a retail marijuana license shall be issued only in the name of the applicant. No retail marijuana license shall be issued to a limited liability corporation unless all members are qualified to obtain a license. RCW 69.50.331(1)(b)(iii). The true party of interest of a limited liability company is "[a]ll members and their spouses."¹ Under RCW 69.50.331(1)(a), the Washington State Liquor and Cannabis Board (WSLCB) considers prior criminal conduct of the applicant.² Criminal history of eight or more points is grounds for denial of a retail marijuana license application.³ The WSLCB denied the application of Rock Island Chronics LLC (Chronics LLC) for a retail marijuana license based on the criminal history of the spouse of the sole member of the limited liability company, Libby Haines-Marchel. Chronics LLC and Haines-Marchel appeal the WSLCB decision to deny the application for a retail marijuana license. We affirm.

Application for a Retail Marijuana License

¶2 The material facts are not in dispute. In 2013, Rock Island Chronics LLC (Chronics LLC) submitted an application to the Washington State Liquor and Cannabis Board (WSLCB) for a retail marijuana license in Douglas County. The application identifies Libby Haines-Marchel as the sole member and manager of Chronics LLC with a "100%" ownership interest. The application identifies Brock Marchel as her spouse.

¶3 The WSLCB determines the maximum number of retail marijuana locations for each county. WAC 314-55-081(1). If the number of applications exceeds the allotted number, the WSLCB conducts a lottery. Former WAC 314-55-081(1) (2013).

¶4 RCW 69.50.331(1) states the WSLCB shall conduct an evaluation of the application. The WSLCB may consider the criminal history of the applicant and has the discretion to grant or deny the application for a marijuana license. RCW 69.50.331(1)(a). If the application "is disqualified for any reason," the WSLCB will issue a notice of intent to deny and "the next application on the lottery list will take its place."

¶5 On May 1, 2014, the WSLCB notified Chronics LLC that following the lottery for Douglas County, its application was "selected number 1."⁴ The letter states, in pertinent part:

Your application was selected number 1.

We will begin processing applications for the allotted number of stores in the coming weeks. If an application is disqualified for any reason or withdrawn by the applicant, the next application on the lottery list will take its place. If an application appears to not qualify, a statement of Intent to Deny will be issued with the right to appeal that decision. Once all licenses have been issued in a jurisdiction the remaining applications will be administratively closed.

Applicants selected in the lottery to move forward in the licensing process are not guaranteed to receive a license. The application must undergo our rigorous investigation process and pass a final inspection prior to issuance.^[5]

¶6 Under RCW 69.50.331(1)(b)(iii), "[n]o license of any kind may be issued to" a corporation "unless all of the members thereof are qualified to obtain a license." WAC 314-55-035 identifies "What persons or entities have to qualify for a marijuana license."⁶

WAC 314-55-035(1) defines the true parties of interest for a limited liability company as "[a]ll members and their spouses" and "[a]ll managers and their spouses." Because the "marijuana license must be issued in the name(s) of the true party(ies) of interest," Chronics LLC had to submit a "Personal/Criminal History Form" for each member and spouse of the limited liability company. WAC 314-55-020(6)(a), - 035(1).

¶7 On December 2, 2014, WSLCB License Investigator Tim Lynch met with Haines-Marchel. For the first time, Haines-Marchel "disclosed that her spouse, Brock Marchel, is currently incarcerated." Haines-Marchel told Lynch that she "was hoping the power of attorney she holds will allow her to complete the documents for him."

¶8 WAC 314-55-040 addresses consideration of criminal history for a retail marijuana license. WAC 314-55-040(1) uses a "point system" to determine if criminal history prevents issuance of a retail marijuana license. Under WAC 314-55-040(1), a felony conviction is 12 points. Felony convictions remain in effect for 10 years. WAC 314-55-040(1). The WSLCB will not issue a retail marijuana license if an applicant has "accumulated eight or more points." WAC 314-55-040(1).

¶9 Lynch asked Haines-Marchel to provide "more information on the incarceration (the circumstances behind the incarceration and when Brock may be released)." On December 11, Lynch sent an e-mail to Haines-Marchel "regarding the requirement for her husband to complete his own documents"—the Personal/Criminal History Form. In response, Haines-Marchel stated her spouse is incarcerated "for a homicide" and "is serving a 44 ½ year" sentence.⁷ On December 15, Haines-Marchel sent an e-mail to Lynch and attached a copy of a "Spousal Renunciation of Rights Affidavit" dated July 3, 2014. The December 15 e-mail states, in pertinent part:

My husband is currently incarcerated for a homicide charge and is serving a 44-1/2 year sentence with an ERD (earliest possible release date) of 2038. The board knows of my situation however I want to make you of [sic] aware that my husband has relinquished all community rights to property pursuant to RCW 26.16.050 which states "a spouse m[a]y give grant sell or convey directly to the other his or her community right title interest and all or any portion of their community real property[.]" [M]y husband has no community property interest in this business and is not a true party of interest. I have attached my husband's Spousal Renunciation of Rights Affidavit.

The Spousal Renunciation of Rights Affidavit states Brock "will relinquish, irrevocably deny and renounce any and 'all' ownership interest and management decisions in Rock Island Chronics."

¶10 On December 15, Lynch forwarded his report to the WSLCB Marijuana Licensing and Regulation Division (Licensing Division). The comment portion of the report states:

The applicant is currently married to Brock Marchel who according to the applicant is serving time in prison for a homicide conviction. The conviction is a felony that holds a 44½ year term. Although the spouse would like to give all rights to the business over to his wife [WAC] 314-55-035 requires that all true parties of interest have to qualify for a licenses [sic].

[WAC] 314-55-040 —what criminal history might prevent a marijuana license applicant from receiving or keeping a marijuana license.

"Felony conviction["]—12 points. Because the applicant did not complete a criminal history form it is unclear what other conviction or charges he may have.

Denial of Retail Marijuana License

¶11 On January 12, 2015, the Licensing Division sent Chronics LLC a "Statement of Intent to Deny Marijuana License." The "Summary of Relevant Facts" states, in pertinent part:

2.2 [Haines-Marchel]'s spouse, Brock Marchel, is currently incarcerated, serving a 44.5 year term for a homicide conviction. Although the spouse would like to give all rights to the business over to his wife, they remain married in the state of Washington.

WAC 314-55-035 requires that all true parties of interest must qualify for a license.

The "Relevant Authority and Conclusions" cite RCW 69.50.331(1) and WAC 314-55-035 and - 040(1) as "grounds for denial."

3.1 The conduct outlined in paragraph 2.2 constitutes grounds for denial of the marijuana license application

under the provisions of RCW 69.50.331(1) for the purpose of reviewing any application for a license and for considering the denial, suspension, revocation or renewal or denial thereof, of any license, the state liquor control board may consider any prior criminal conduct of the applicant.

3.2 The conduct outlined in paragraph 2.2 also constitutes grounds for denial under the provisions of WAC 314-55-035 and WAC 314-55-040(1).

3.3 Paragraphs 3.1 through 3.2 above each establish a separate and independently sufficient basis for denial.

Administrative Appeal

¶12 Chronics LLC filed an administrative appeal of the Intent to Deny Marijuana License application and a motion for summary judgment. Chronics LLC argued that because Brock Marchel disclaimed any interest in the limited liability company, Haines-Marchel was the only true party of interest under WAC 314-55-035. Chronics LLC asserted the Spousal Renunciation of Rights Affidavit "changed community property to separate property solely in [Haines-Marchel]." Chronics LLC also argued denial of the license application infringed on the constitutional right of Haines-Marchel to work and earn a living and violated state law on "[m]arital status discrimination in employment."

¶13 The Licensing Division filed a cross motion for summary judgment. The Licensing Division asserted that under WAC 314-55-035 and - 040, Brock Marchel "remains a true party of interest" and does not "qualify because of his criminal history." The Licensing Division argued the true party of interest for a limited liability company is not based on "a community property interest in the...