Peridot Tree, Inc. v. City of Sacramento
| Decision Date | 17 October 2022 |
| Docket Number | 2:22-cv-00289-KJM-DB |
| Parties | Peridot Tree, Inc., et al., Plaintiffs, v. City of Sacramento, et al., Defendants. |
| Court | U.S. District Court — Eastern District of California |
The plaintiffs in this action, Peridot Tree, Inc. and Kenneth Gay, claim the City of Sacramento has wrongly discriminated against interstate commerce in marijuana contrary to the “dormant” aspect of the Constitution's Commerce Clause. Congress, however, has outlawed marijuana distribution. Although that prohibition does not deprive this court of jurisdiction, in these unique circumstances, the court postpones its exercise of that jurisdiction. This action is stayed, as explained below.
In 2016, California voted to legalize marijuana use by adults 21 and older, among other changes. See People v Raybon, 11 Cal. 5th 1056, 1060 (2021); Control, Regulate and Tax Adult Use of Marijuana Act, 2016 Cal. Legis. Serv Prop. 64 (West). The next year, the Sacramento City Council tasked the City's staff with creating a program “to address the negative impacts of disproportionate enforcement of cannabis-related regulation.” Sacramento City Council Res. No. 2018-0323 (Aug. 9, 2018), Req. J. Not. Ex. 1 at 1, ECF No. 13-2.[1] Staff developed the “Cannabis Opportunity Reinvestment and Equity” or “CORE” program. Id. at 2. The CORE program describes its purpose as reducing “barriers of entry and participation” in the cannabis industry to those who “have been negatively impacted by the disproportionate law enforcement of cannabis related crimes.” Id. at 19. It offers “cannabis business development resources, services, and contracting and shareholder opportunities.” Id. To be eligible to participate in the CORE program, an applicant must fit within one of five defined “classifications.” See id. at 23. Only the first two classifications are relevant to this order:
Id. Most importantly for this case, both require applicants to be current or former Sacramento residents.
After the City Council adopted the CORE program, it decided to issue “storefront cannabis dispensary” permits to applicants in the first two CORE classifications. Sacramento City Council Res. No. 2020-0338 (Oct. 13, 2020), Req. J. Not. Ex. 2 at 1, ECF No. 13-2. That is, to be eligible, a person must fit the requirements of classification 1 or 2, so an applicant must be a current or former Sacramento resident. Permits would be awarded in a competitive process, structured around a “request for qualifications” or “RFQ” process, that weighed applicants' qualifications and their likely ability “to successfully apply for and operate a storefront dispensary.” Id. The City decided to “offer the opportunity to apply” for a permit to the ten applicants who score highest in this process. Application Form at 2, Req. J. Not. Ex. 3, ECF No. 13-2.
Peridot is a California company. First Am. Compl. ¶ 1, ECF No. 12. Gay is its majority shareholder. Id. ¶ 2. They applied for a dispensary license and asked to participate in the process, but the City rejected their application because they did not meet the requirements of CORE classifications 1 or 2. Id. ¶¶ 21-22. Gay has never lived in Sacramento. Id. ¶ 17. He otherwise meets the requirement of CORE classifications 1 and 2. Id. ¶¶ 18-19.
The City announced its top ten applicants in April 2021. Id. ¶ 22. Peridot and Gay allege on information and belief that all ten “are affiliated with individuals who have resided in Sacramento.” Id. They filed this lawsuit several months after the results were announced. They claim the City's program is unconstitutional because it discriminates against out-of-state applicants in violation of the “Dormant Commerce Clause,” and they seek declaratory judgment to the same effect. Id. ¶¶ 23-31. In addition to the declaration, their complaint requests damages, an injunction, costs, fees, and whatever other relief the court deems appropriate. Id. at 10.
The City moves to dismiss. See generally Mot., ECF No. 13; Mem., ECF No. 13-1. It argues the plaintiffs lack standing, see Mem. at 5-6, defends its application process as constitutional, see id. at 6-9, and argues the complaint is too vague to make out a viable claim, see id. at 9. The plaintiffs oppose that motion, see generally Opp'n, ECF No. 15, and the City has replied, see generally Reply, ECF No. 17. Before the scheduled hearing date, the court ordered the parties to submit supplemental briefs addressing whether this court should abstain from adjudicating this action, see Order (May 17, 2022), ECF No. 19, and the parties have filed those briefs, see generally Defs.' Suppl Br., ECF No. 20; Pls.' Suppl. Br., ECF No. 21. The court heard oral argument at a combined motion hearing and status conference on June 17, 2022. Mins., ECF No. 25. Christian Kernkamp appeared for the plaintiffs, and Matthew Day appeared for the City.
The City argues first that the plaintiffs lack standing. Article III of the U.S. Constitution limits federal jurisdiction to “Cases” and “Controversies.” U.S. Const. art. III, § 2. The doctrine of standing is rooted in that limitation. See Spokeo, Inc. v. Robins, 578 U.S. 330, 338 (2016).
Standing has three elements. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992). “The plaintiff must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.” Spokeo, 578 U.S. at 338. “The party invoking federal jurisdiction bears the burden of establishing these elements.” Lujan, 504 U.S. at 561. It must do so “for each claim” and “‘each form of relief sought.'” DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 352 (2006) (quoting Friends of the Earth, Inc. v. Laidlaw Envt'l Servs. (TOC), Inc., 528 U.S. 167, 185 (2000)). When, as in this case, the standing question arises at the pleading stage, the plaintiff “must ‘clearly . . . allege facts demonstrating' each element.” Spokeo, 578 U.S. at 338 (quoting Warth v. Seldin, 422 U.S. 480, 518 (1975)). An organization's standing is evaluated using “the same inquiry.” E. Bay Sanctuary Covenant v. Biden, 993 F.3d 640, 662 (9th Cir. 2021) (quoting Havens Realty Corp. v. Coleman, 455 U.S. 363, 378 (1982)).
The court begins with the plaintiffs' claims for damages. First, Peridot and Gay have each suffered the necessary “concrete” and “particularized” injury. Lujan, 504 U.S. at 560. The City denied their permit application. It did not allow them to participate in its competitive process. Second, there is no question it was the City's decision to exclude them from this process. The third element also is satisfied: damages could compensate them for the potential sales the City has barred them from pursuing.
The City argues the plaintiffs do not have standing to pursue damages for two reasons. First, it points out that the “winners” of its competitive process are not guaranteed a permit. See Mem. at 6. The City has offered them only the opportunity to apply and compete for a permit. Application Form at 2, Req. J. Not. Ex. 3. Even if plaintiffs had been allowed to participate in the City's process, it might have denied their application in favor of a more qualified proposal. Mem. at 6. Second, the City argues that any estimation of potential profits would amount to speculation. See Mem. at 6.
These arguments suffer from a common flaw. Winning the 100 meter dash is no guarantee of a podium finish in a decathlon, but an athlete who is wrongly barred from starting that race has certainly been hampered in her hunt for the overall gold. Peridot and Gay similarly fell out of the race right from the start. Here, there is a concrete injury in the necessary sense. See, e.g., NPG, LLC v. City of Portland, Me., No. 20-00208-NT, 2020 WL 4741913, at *6 (D. Me. Aug. 14, 2020) (“Although the Plaintiffs have not been denied a license, their alleged injury is not the denial itself but the disadvantage they face in obtaining a license due to the City's [policy].”). The amount of plaintiffs' alleged damages is uncertain, but that uncertainty does not deprive them of standing. See, e.g., Mendoza v. Zirkle Fruit Co., 301 F.3d 1163, 1172 (9th Cir. 2002). A claim for even nominal damages would suffice for jurisdictional purposes. See Uzuegbunam v. Preczewski, 141 S.Ct. 792, 802 (2021).
In addition to damages, the plaintiffs request “an injunction prohibiting Defendants from processing any applications for storefront cannabis dispensary licenses from the requests for qualifications for cannabis storefront dispensaries held from January 20, 2021 to February 19 2021,” i.e., the period during which their application was denied. First Am. Compl. at 10. Similarly, they request a judicial declaration that the challenged resolutions are unconstitutional, that “the residency preferences may not be enforced,” and that the City “may not process any applications for storefront cannabis dispensary licenses from the requests for qualifications for cannabis storefront dispensaries” over the same period. Id. These equitable forms of relief would redress their alleged injury by preventing the City from giving any preference to current or former...
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