Spot On Evergreen III, Inc. v. Wash. State Liquor & Cannabis Bd.
| Decision Date | 13 April 2020 |
| Docket Number | No. 80210-1-I,80210-1-I |
| Court | Washington Court of Appeals |
| Parties | THE SPOT ON EVERGREEN III, INC. (d/b/a THE SPOT ON EVERGREEN), a limited liability company incorporated in Washington, Respondent, v. THE WASHINGTON STATE LIQUOR AND CANNABIS BOARD, Appellant. |
UNPUBLISHED OPINION
SMITH, J. — The Washington State Liquor and Cannabis Board (Board) appeals the superior court's order reversing the Board's denial of an application for a marijuana retail license in Mukilteo submitted by The Spot on Evergreen III Inc. (Spot). The Board denied Spot's application because it had allocated the last license available in Mukilteo to another applicant, Rengar LLC. The Board contends that contrary to the superior court's determination, the Board properly determined that Traxx Indoor Raceway and the Mukilteo YMCA, both located within 1,000 feet of Rengar's location, were not restricted entities under the Board's regulations. The Board also contends that the superior court erred by determining that the Board's decision to allocate the license to Rengar was arbitrary and capricious.
We agree with the Board. Thus, we reverse the superior court and reinstate the order of the Board denying Spot's application for a marijuana retail license in Mukilteo.
BACKGROUND
In Washington State, only a limited number of marijuana retail licenses are issued in each jurisdiction. RCW 69.50.345(2). The Board determines the maximum number of marijuana retail locations per jurisdiction based on estimated consumption data and population data from the state Office of Financial Management. RCW 69.50.345(2).
In 2015, the legislature merged Washington's medical and recreational marijuana systems and directed the Board to make additional retail licenses available to address the needs of the medical market. See LAWS OF 2015, ch. 70, §§ 2, 8. It is undisputed that as a result, the maximum number of marijuana retail licenses for the city of Mukilteo was increased from one to two.
As part of the 2015 legislation, the Board was directed to "develop a competitive, merit-based application process" for marijuana retail licensure. Former RCW 69.50.331(1)(a) (LAWS OF 2015, ch. 70, § 6(1)(a)).1 According to the declaration of Nicola Reid, the compliance and policy manager for the Board's Licensing and Regulation Division (Licensing), "[t]here were usually far more applicants for the licenses than there were spaces available." Accordingly, "the applicants would be competing to see who would be able to secure thelicenses." Also according to Reid, Licensing would process applications "in the order that they were able to submit the necessary documentation." Reid explained that "[t]his meant that the applicants who were more prepared, and who could most quickly provide the necessary documentation would be the first to be allocated a spot in the jurisdiction." Also according to Reid, "[t]he spot would be allocated as soon as the applicants made it through to the final step of the licensing process: the final inspection of the physical location by . . . Board Enforcement Officers." Thus, Reid explained, "applicants were . . . trying to be the first to complete the licensing process up to the final inspection in order to secure a spot in the jurisdiction." "If the applicant failed the inspection, they would lose the allocation and be sent back to the licensing process again." If that occurred, it "would allow another applicant to have a chance to secure one of the allocations."
Spot applied for a marijuana retail license in 2016 and, in November 2017, moved its application to Mukilteo. It is undisputed that at that time, Mukilteo had only one marijuana retail license allotment remaining. It also is undisputed that Rengar was competing with Spot for that final allotment. In December 2017, after it became clear that there were more applicants than licenses available for Mukilteo, Licensing sent Spot a letter asking Spot to indicate whether it wished to proceed in Mukilteo. Spot did not respond to this letter until February 22, 2018.
On March 5, 2018, Licensing determined that Rengar had completed the application process. Licensing thus moved Rengar forward to final inspection and allocated the last remaining marijuana retail license in Mukilteo to Rengar.Rengar passed its final inspection on March 13, 2018, and was ultimately licensed on May 9, 2018.
Meanwhile, Licensing notified Spot that Mukilteo had met its allotment of retail licenses and offered Spot an opportunity to find another location (other than Mukilteo) to proceed with its application. After Spot indicated that it wished to appeal Licensing's determination, Licensing issued a "Statement of Intent to Deny Proposed Location in the City of Mukilteo" setting forth its reasons for seeking denial of Spot's application.
On April 6, 2018, Spot requested an adjudicative proceeding and a hearing before an administrative law judge (ALJ). In mid-September, both Licensing and Spot moved for summary judgment before the ALJ. In Spot's motion, Spot argued that Rengar's proposed site was within 1,000 feet of three restricted entities: (1) Traxx Indoor Racing (Traxx), which Spot contended was a "game arcade" under WAC 314-55-010(11); (2) a 13-acre, City-owned property that the Boys and Girls Club "is developing into use for minors"; and (3) the Mukilteo YMCA, which Spot contended was a "recreation center" under WAC 314-55-010(27). Spot argued that because the Board's regulations prohibited issuing a license to Rengar due to its proximity to these entities, the Board would violate its obligation to conduct a "'comprehensive, fair, and impartial'" evaluation by denying Spot's application based on a decision to allocate the final remaining license in Mukilteo to Rengar. Meanwhile, Licensing argued that (1) Traxx primarily featured go-karts and thus was not a "game arcade," (2) the YMCA was not a "recreation center" because it was not intendedprimarily for use by people under the age of 21, and (3) although the Boys and Girls Club planned to build facilities on the city's 13-acre property, they had not yet been constructed and, thus, the property did not qualify as a restricted entity.
On October 22, 2018, the ALJ entered an initial order in which she determined that (1) Traxx was not a "game arcade," (2) the YMCA "is not intended primarily for use by persons under the age of 21" and instead "is primarily used by adults taking exercise classes," and (3) the Boys and Girls Club ballfield "has not yet been built and wasn't built at the time [Licensing] moved Rengar forward for final inspection, nor at the time its license was issued." The ALJ granted Licensing's motion for summary judgment and denied Spot's motion.
On November 30, 2018, Spot petitioned the Board for review of the ALJ's initial order.2 In its petition for review, Spot renewed its arguments about Traxx but did not rebrief its arguments regarding the YMCA or the future Boys and Girls Club park. It did, however, raise a new argument about the alleged mobility of Rengar's proposed location. Specifically, Spot contended that Rengar's building was mobile (and thus not licensable) because it had a trailer hitch and wheels attached to it. In support of this contention, Spot relied on a March 12, 2018, e-mail from Jody Boranian, a Spot principal, to a city of Mukilteo planning manager. In that e-mail, on which licensing investigator Michael Roe was copied, Boraniannotified the city planning manager that Rengar's building was a "temporary mobile structure." Roe forwarded the e-mail to others in Licensing the same day and noted, "It looks like the hitch is still hooked up to the modular trailer so I'm not sure if this was caught prior." Spot also relied on another March 12, 2018, e-mail from Mistie Jones, a licensing specialist supervisor, to others in Licensing, in which Jones wrote:
I just spoke with [Spot] . . . which is not able to proceed since your application for [Rengar] just went to inspection and took the last allotment in Mukilteo. [Spot] had several complaints about [Rengar] but the one that might be an issue is the fact [Spot] states it's a mobile building with a trailer hitch hooked up to it, so it can be hooked up and towed away at any time. I didn't see any pictures before it went to inspection so this might be something to look into. I don't believe we are moving forward with licensing those types of buildings any longer because of the fact they can be moved at any time.
Finally, Spot relied on photographs of Rengar's building taken on October 27, 2018, by Spot's attorney, purporting to show a trailer hitch and wheels still attached to the structure. The March 12, 2018, e-mails and the photographs were not previously made a part of the record before the ALJ.
In its response to Spot's petition, Licensing argued, among other things, that the Board should decline to consider new evidence and arguments that were not before the ALJ, including Spot's argument about the mobility of Rengar's building. Licensing argued further that even if the trailer hitch argument were considered, it should be rejected because (1) Licensing did not overlook the hitch and wheels but instead made a determination that they were not an issue and (2) the mere presence of a trailer hitch would not, in any event, preclude licensure. In support of its argument, Licensing submitted a declaration from Frank O'Dell, aBoard administrative regulations analyst, in which he declared, "I participated in discussions regarding Rengar, LLC in which it was determined that a trailer hitch present on the building at the time of the final inspection would not prevent issuance of a license." Attached to O'Dell's declaration was a March 13, 2018, e-mail in which O'Dell informed Roe that Lauren Ware, the licensing investigator for the Rengar application, ...
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