Waltz Healing Ctr., Inc. v. Ariz. Dep't of Health Servs.

• Decision Date: 04 December 2018
• Docket Number: No. 1 CA-CV 18-0135,1 CA-CV 18-0135
• Citation: 433 P.3d 14,245 Ariz. 610
• Parties: WALTZ HEALING CENTER, INC, Plaintiff/Appellant, v. ARIZONA DEPARTMENT OF HEALTH SERVICES, Defendant/Appellee.
• Court: Arizona Court of Appeals

245 Ariz. 610

433 P.3d 14

WALTZ HEALING CENTER, INC, Plaintiff/Appellant,

v.ARIZONA DEPARTMENT OF HEALTH SERVICES, Defendant/Appellee.

No. 1 CA-CV 18-0135

Court of Appeals of Arizona, Division 1.

FILED December 4, 2018

Barrett & Matura, PC, Scottsdale, By Jeffrey Matura, Melissa J. England, Tabitha R. Myers, Counsel for Plaintiff/Appellant

Sherman & Howard, LLC, Phoenix, By Gregory W. Falls, Matthew A. Hesketh, Counsel for Defendant/Appellee

Presiding Judge Diane M. Johnsen delivered the opinion of the Court, in which Judge Randall M. Howe and Judge Paul J. McMurdie joined.

JOHNSEN, Judge:

¶ 1 The Arizona Department of Health Services denied an application for a medical marijuana dispensary registration certificate because the applicant failed to comply with a legal requirement to show that the dispensary's proposed location "is in compliance with" local zoning restrictions. The applicant appealed to the superior court, arguing it satisfied the requirement by submitting a four-year-old letter from the City of Tempe. The superior court affirmed the denial of the application, and we affirm the superior court's judgment.

FACTS AND PROCEDURAL BACKGROUND

¶ 2 The Arizona Medical Marijuana Act limits the number of marijuana dispensaries across the state to not more than one per ten registered pharmacies. Ariz. Rev. Stat. ("A.R.S.") § 36-2804(C) (2018).¹ The Department first accepted dispensary registration applications and issued dispensary certificates in 2012. Waltz Healing Center, Inc. applied for a certificate then but did not receive one. The Department later determined it could issue 31 more certificates and opened another application process in July 2016.

¶ 3 Under the law, dispensary certificate applications must contain certain information, including the physical address of the proposed dispensary, and:

[i]f the city, town or county in which the nonprofit medical marijuana dispensary would be located has enacted zoning restrictions, a sworn statement certifying that the registered nonprofit medical marijuana dispensary is in compliance with the restrictions.

A.R.S. § 36-2804(B)(1)(d). By regulation, applicants must comply with the zoning-documentation requirement by providing the following:

Documentation from the local jurisdiction where the dispensary's proposed physical address is located that:

a. There are no local zoning restrictions for the dispensary's location, or

b. The dispensary's location is in compliance with any local zoning restrictions.

Ariz. Admin. Code ("A.A.C.") R9-17-304(C)(6). See Compassionate Care Dispensary, Inc. v. Ariz. Dep't of Health Servs. , 244 Ariz. 205, 213, ¶ 21, 418 P.3d 978, 986 (App. 2018).

¶ 4 When the Department opened the 2016 application process, Waltz submitted an application for a service area located in Tempe. With its application, Waltz submitted a letter dated May 8, 2012, from a senior planner in the Tempe Community Development Department, Planning Division. The letter, which was on City letterhead, stated in relevant part:

For the purpose of zoning clearance, the City of Tempe ... has determined the site ... is in compliance with the Zoning and Development Code ... for a medical marijuana dispensary only.

This determination is contingent on compliance with the following conditions:

1. The determination for WALTZ HEALING CENTER INC., ... will expire after sixty (60) calendar days from the date of this letter (July 7, 2012) unless an application is submitted to the Arizona Department of Health Services in order to receive an approved dispensary certificate. An expiration of the State's application process will result in expiration of this determination.

¶ 5 On September 19, 2016, the Department emailed Waltz a formal request for information, saying "some items need to be corrected or are missing" from its application. The email identified 17 missing or incorrect items in the Waltz application packet, including three deficiencies concerning zoning documentation:

8. The local jurisdiction zoning documentation of the dispensary's proposed physical address does not appear to be from the local jurisdiction (i.e., no letterhead, no contact information, no signature, etc). R9-17-304(C)(6).

9. The local jurisdiction zoning documentation of the dispensary's proposed physical address does not include one of the following statements: "There are no local zoning restrictions for the dispensary's location" or "The dispensary's location is in compliance with any local zoning restrictions." R9-17-304(C)(6)(a) and (b).

10. The local jurisdiction zoning documentation of the dispensary's proposed physical address does not include the dispensary's proposed physical address. R9-17-304(C)(6).

¶ 6 On October 3, 2016, the last day to respond to the Department's request, Waltz responded to items 8-10 above simply by referring to the 2012 letter from the City of Tempe and provided the Department with another copy of the letter. At 11:36 a.m. the following day, the Department emailed Waltz that "[t]he information [Waltz] provided does not satisfy" the three deficiencies. The email further directed Waltz to "submit current local zoning" by 5 p.m. Waltz did not submit any other information to the Department, nor did it attempt to contact the City of Tempe or the Department to resolve the matter.

¶ 7 The Department allocated the new certificates among the successful applicants a few days later. In a subsequent letter to Waltz, the Department stated it denied Waltz's application because Waltz did not fully respond to the Department's September 19 request for information. In particular, the Department identified Waltz's failure to provide the information identified in item 9 above, documentation from the local jurisdiction addressing zoning restrictions.

¶ 8 Waltz sought administrative review of the denial of its application. After an evidentiary hearing, an Administrative Law Judge ("ALJ") recommended affirming the denial. The Director of the Department then adopted the recommendation, with certain modifications, and affirmed the denial of the application.² Waltz appealed the decision by filing a complaint in the superior court, which affirmed the decision. Waltz timely appealed. We have jurisdiction pursuant to Article 6, Section 9, of the Arizona Constitution, and A.R.S. §§ 12-120.21(A)(1) (2018) and -913 (2018).

DISCUSSION

¶ 9 We will affirm an agency's decision on review unless it is "contrary to law, is not supported by substantial evidence, is arbitrary and capricious or is an abuse of discretion." A.R.S. § 12-910(E) (2018). We defer to the agency's factual findings if they are supported by substantial evidence, even if other evidence before the agency would support a different conclusion. See Webb v. State ex rel. Ariz. Bd. of Med. Exam'rs , 202 Ariz. 555, 557, ¶ 7, 48 P.3d 505, 507 (App. 2002) ; DeGroot v. Ariz. Racing Comm'n , 141 Ariz. 331, 336, 686 P.2d 1301, 1306 (App. 1984). We consider the evidence in a light most favorable to upholding the agency's decision. Baca v. Ariz. Dep't of Econ. Sec. , 191 Ariz. 43, 46, 951 P.2d 1235, 1238 (App. 1997). Nevertheless, we are not bound by the agency's legal conclusions. See Sanders v. Novick , 151 Ariz. 606, 608, 729 P.2d 960, 962 (App. 1986).

A. Sufficiency of the 2012 Letter.

¶ 10 The Department denied Waltz's application because it concluded Waltz failed to comply with the mandate of § 36-2804(B)(1)(d) and R9-17-304(C)(6) to provide documentation that the dispensary would comply with local zoning requirements. Waltz argues the Department's denial of its application was arbitrary, capricious and an abuse of discretion because the 2012 Tempe letter satisfied the requirement.

¶ 11 As the Department points out in its answering brief, the letter from the City of Tempe stated that its "determination" of zoning compliance would expire (1) if Waltz did not submit a dispensary application to the Department within 60 days after the date of the letter and, in any event, (2) upon expiration of the Department's application process. Waltz argues the letter did not expire because Waltz in fact submitted an application for a dispensary certificate within 60 days of the date of the letter, as the letter required. The Department does not dispute that Waltz applied for a dispensary certificate in 2012. It argues, however, that the letter's determination expired due to the termination of the 2012 application process, which, according to the record, ended on August 7, 2012.

¶ 12 The Department did not abuse its discretion or act arbitrarily or capriciously by concluding that the letter Waltz submitted had expired by 2016. The letter plainly stated that "expiration of the State's application process will result in expiration of this determination." The "application process" then ongoing was the process for which Waltz originally had obtained the letter, namely, the Department's allocation of dispensary registration certificates in 2012. Waltz does not argue otherwise. Because the letter had expired by its own terms long before 2016, it failed to comply with the zoning-determination requirement of A.A.C. R9-17-304(C)(6). See, e.g. , Tucson Title Ins. Co. v. D'Ascoli , 94 Ariz. 230, 234, 383 P.2d 119 (1963) (provisions in escrow agreement "were of no effect after the expiration of" a stated period; result was that party was left "without authority" to act).

¶ 13 As a separate reason for denying Waltz's application, the Department also concluded the 2012 letter failed to show that the proposed location of the dispensary complied with local zoning restrictions in effect at the time of the 2016 application process. The Department adopted the ALJ's conclusion that "[t]he sensible (and plain) reading of R9-17-304(C)(6) is that the applicant must show that the dispensary's location complies with any local zoning requirements at the time the application is submitted to the Department (i.e., that the location is currently in compliance)."

¶ 14 Waltz argues on appeal that the Tempe letter...