UL Chula Two LLC v. City of Chula Vista
| Decision Date | 24 October 2022 |
| Docket Number | D079215 |
| Parties | UL CHULA TWO LLC, Plaintiff and Appellant, v. CITY OF CHULA VISTA et al. Defendants and Respondents; MARCH AND ASH CHULA VISTA, INC. et al., Real Parties in Interest and Respondents. |
| Court | California Court of Appeals Court of Appeals |
UL CHULA TWO LLC, Plaintiff and Appellant,
v.
CITY OF CHULA VISTA et al. Defendants and Respondents;
MARCH AND ASH CHULA VISTA, INC. et al., Real Parties in Interest and Respondents.
D079215
California Court of Appeals, Fourth District, First Division
October 24, 2022
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of San Diego County No. (Super. Ct. No. 37-2020-00041554-CU-MC-CTL), Richard E.L. Strauss, Judge. Affirmed.
Lewis Brisbois Bisgaard &Smith, Lann G. McIntyre, Gary K. Brucker, Jr., Anastasiya Menshikova for Plaintiff and Appellant.
Colantuono, Highsmith &Whatley, Alena Shamos, Matthew C. Slentz for Respondent City of Chula Vista and the Chula Vista City Manager.
McCONNELL, P. J.
Allen Matkins Leck Gamble Mallory &Natsis, Heather S. Riley, Rebecca Williams for Real Party in Interest March and Ash Chula Vista, Inc.
Tencer Sherman, Philip C. Tencer for Real Party in Interest TD Enterprise.
In accordance with a recently-enacted ordinance, UL Chula Vista (UCV) applied for one of a limited number of licenses offered by the City of Chula Vista (City) to operate a retail cannabis store. The City rejected UCV's application because the company's principal had been involved in a medical cannabis operation deemed unlawful by the City of San Diego, which was an excluding criteria under the new regulations created by the ordinance. UCV unsuccessfully appealed to the City. UCV then brought a petition for writ of administrative mandate in the superior court challenging the City's decision. The court denied the petition and entered judgment against UCV.
On appeal, UCV argues that the City abused its discretion in rejecting its application by misinterpreting its regulations and considering hearsay evidence, and that the City violated its due process rights. UCV also argues that the trial court erred by denying its request to consider extra-record evidence. As we explain, we reject each of UCV's arguments and affirm the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
On March 6, 2018, the City enacted Ordinance No. 3418, which added Chapter 5.19 to the Chula Vista Municipal Code. The purpose of the new regulations was "to mitigate the negative impacts brought by unregulated Commercial Cannabis Activity." Chapter 5.19 established a mandatory license program for engaging in "Commercial Cannabis Activity," as defined by the regulations. The regulations limit the number of cannabis retailers in the City to twelve, three for each of the City's four council districts, and also establish a phased application process for obtaining a license to operate one
of the eight permitted retail operations. (Chula Vista Mun. Code, §§ 5.19.040 &5.19.050.)
The first phase consisted of an application showing compliance with certain requirements, including experience managing a lawful commercial cannabis business or regulated pharmaceutical business, ownership experience, sufficient liquid assets and business plan, and each owner and officer of the operation submitting to fingerprinting and a background check by the City's police department. (Chula Vista Mun. Code, § 5.19.050, subd. (A).) In addition, applicants were required to provide "[a] statement, under penalty of perjury ... that he/she has not conducted, facilitated, caused, aided, abetted, suffered, or concealed unlawful Commercial Cannabis Activity in the City or any other jurisdiction." (Id., subd. (A)(1)(j).)
After the submission of the application, the regulations direct a review of the applications by the City's Finance Director and Chief of Police. (Chula Vista Mun. Code, § 5.19.050, subd. (A)(4) &(5).) Those officials then have discretion to reject applications for specified reasons, including if (1) "[t]he Applicant, or any Owner of the Commercial Cannabis Business, Officer, or Manager has been adversely sanctioned or penalized by the City, or any other city, county, or state, for a material violation of State or local laws or regulations related to Commercial Cannabis Activity or to pharmaceutical or alcohol licensure" and (2) "[t]he Applicant, or any Owner of the Commercial Cannabis Business, Officer, or Manager has conducted, facilitated, caused, aided, abetted, suffered, or concealed unlawful Commercial Cannabis Activity in the City or any other jurisdiction." (Chula Vista Mun. Code, § 5.19.050, subd. (A)(5)(f) &(g).) If an applicant is rejected during this phase, the regulations provide for an appeal to the City Manager. (Chula Vista Mun. Code, § 5.19.050, subd. (B)(6).)
In 2019, UCV applied for a storefront retail license. The application included a letter from UCV's counsel explaining that UCV's sole shareholder, William Senn, had submitted the required affirmation that he" 'has not conducted, facilitated, caused, aided, abetted, suffered, or concealed unlawful Commercial Cannabis Activity in the City or any other jurisdiction.'" However, counsel also explained that Senn had entered a stipulated judgment with the City of San Diego in City of San Diego v. The Holistic Cafe, Inc. et al., Case No. 37-2012-00087648-CU-MC-CTL, and that the judgment was related to allegations" 'that Senn, along with other defendants, operated a medical marijuana dispensary in the City of San Diego in violation of local law.' "[1]
On June 10, 2019, the City notified UCV it was scheduled for an interview and requested payment of fees to proceed with background checks. The letter warned UCV "that although [its] application [was] being forwarded for further assessment within Phase One of City's application process, [the] application ha[d] not been approved at [that] time." The letter further stated that the "City reserve[d] the right to reject or approve any and all applications based on the standards set forth in all applicable laws and regulations, or otherwise in its sole discretion, taking into account the health, safety and welfare of the community, and in accordance with its general police powers authority."
On May 6, 2020, the City issued a notice of decision rejecting UCV's application for a retail license. As reasons for the rejection, the notice explained: (1) that Senn had been sanctioned by the City of San Diego for a material violation of state or local laws or regulations related to commercial
cannabis activity, citing Chula Vista Municipal Code section 5.19.050, subdivision (A)(5)(f); and (2) that Senn had been "involved in unlawful Commercial Cannabis activity in the City of San Diego from approximately 2010 to 2012," citing section 5.19.050, subdivision (A)(5)(g). (Italics omitted.) In accordance with the Chula Vista Municipal Code, on May 21, 2020, UCV appealed the denial of its application. On May 26, 2020, the City notified UCV that a hearing was set for June 10, 2020.[2] The City also provided UCV with the documentation that it had reviewed in reaching its decision to deny the application and that it intended to use at the appeal hearing. The materials included the City's scoring matrix and several documents uncovered by a Public Records Act request during the background check investigation concerning the Holistic Cafe matter.
UCV filed an appeal brief in advance of the hearing, asserting that (1) the reasons given for rejecting its application were too vague, violating UCV's due process rights; (2) Senn could not have been sanctioned by the City of San Diego or involved in unlawful "Commercial Cannabis activity" from 2010 to 2012 because there were no laws or regulations governing such activity, as defined by the Chula Vista Municipal Code, at that time in the City of San Diego; and (3) there was no relevant, admissible evidence that Senn was sanctioned or penalized by the City of San Diego for engaging in unlawful activity because the Holistic Cafe matter was settled by a stipulated judgment in which Senn admitted no wrongdoing. UCV also asked the City to set aside the rejection on equitable grounds based on the age of the Holistic Cafe matter and the fact that the law surrounding medicinal marijuana sales was unsettled at the time of the stipulated judgment.
The hearing took place as scheduled. City Manager Gary Halbert acted as hearing officer and was advised by Deputy City Attorney Simon Silva. Senn, represented by counsel, appeared for UCV. The City was represented by Deputy City Attorney Megan McClurg. McClurg offered testimony by three witnesses, Chula Vista Police Department Sergeant Mike Varga, Developmental Services Director Kelly Broughton, and Matthew Eaton, whose employer, HdL Companies, developed the scoring criteria used by the City in its application process. Through Varga, the City introduced the documents it obtained concerning the Holistic Cafe matter. Varga explained that during the background investigation, Senn was identified as an owner operator of the Holistic Cafe, which prompted a Public Records Act request to the City of San Diego for related information.
The Public Records Act request uncovered the City of San Diego's notice of violation to the Holistic Cafe, which asserted the business was an unlawful, unpermitted medical marijuana dispensary. The notice also stated that the owners of the business had misrepresented its activity for purposes of its business tax certificate as the sale of herbal remedy teas and health products. The notice set forth various violations of the municipal code related to the unlawful operation of the dispensary and included a demand to immediately cease operations. The City introduced photographs of the Holistic Cafe, showing signage indicative of medical marijuana sales. The City also introduced an email exchange between the City of San Diego's building inspector and the Holistic Cafe's counsel in which the business declined an inspection request.
Also through Varga, the City introduced a copy of the unlawful detainer complaint initiating the legal proceedings to evict Holistic Cafe filed by the property's...
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