In the year of the 25th anniversary of Groundhog Day, starring Bill Murray, about a weatherman named Phil Connors who finds himself repeatedly living the same frustrating day, a California court rejected yet another lawsuit by a medical marijuana dispensary to a city’s determination that dispensaries are not a valid local land use and, accordingly, ordering the dispensary to close. The Sixth District Court of Appeal opinion in J. Arthur Properties, II, LLC v. City of San Jose, __ Cal.App.5th __ (2018) (Case No. H042938), filed and published on March 19, 2018, calls to mind several quotable quotes from Groundhog Day, including this gem: “Am I upsetting you, Princess? You know, you want a prediction about the weather, you’re asking the wrong Phil. I’ll give you a winter prediction: It’s gonna be cold, it’s gonna be gray, and it’s gonna last you for the rest of your life.”
The unsurprising result in J. Arthur Properties is consistent with a long and growing line of cases that have rejected various challenges to local land use regulation of marijuana-based land use activities, including outright bans. In perhaps the most well-known of those cases, City of Riverside v. Inland Empire Patients Health & Wellness Center, Inc., 56 Cal.4th 729, 759 (2013), the California Supreme Court held that while California law “permits” the use of “medical marijuana,” it “does not thereby mandate that local governments authorize, allow, or accommodate the existence of” marijuana dispensaries. (Emphasis in original). Thus, under Inland Empire, state laws permitting medical marijuana use and distribution do not preempt “the authority of California cities and counties, under their traditional land use and police powers, to allow, restrict, limit, or entirely exclude facilities that distribute medical marijuana, and to enforce such polices by nuisance actions.” Id. at 762.
J. Arthur Properties involved a dispensary that opened on the subject property in 2010. The property is located in a Commercial Office (“CO”) zoning district, which consists of uses “near residential areas or between residential and commercial areas.” The zoning ordinance did not list dispensaries or any other marijuana uses in the table of permitted uses for the CO zoning district, but it did list “medical offices” as a permitted use in that zone. The zoning ordinance also provided that “uses not listed are not permitted.”
Sometime after the dispensary opened, the voters passed a measure adding a marijuana tax to the City code. The code explained that the marijuana business tax, like business license taxes generally, was “enacted solely to raise revenue for municipal purposes and [was] not intended for regulation.” Thus, the code further explained that “[p]ayment of the tax does not authorize unlawful business.” The dispensary’s business tax certificate contained similar disclaimers.
The City finally issued a compliance order in 2014 stating that dispensaries were “never an allowed use in the CO Zoning District” and that the dispensary was thus in violation of the code and not allowed. At an administrative hearing where the dispensary disputed the compliance order, the dispensary argued that its business was a legal nonconforming use because it met the City’s definition of a medical office: “offices of doctors, dentists, chiropractors, physical therapists, acupuncturists, optometrists and other similar health related occupations, where patients visit on a daily basis.” The City upheld the compliance order, and the trial court denied the dispensary’s petition for writ of administrative mandamus.
On appeal, the dispensary argued the business is a medical office under the City code because it is a health-related profession and because dispensaries provide a medical and health-related service. In response, the City argued that all of the specifically enumerated professions in the code definition of “medical office” have in common the fact that they are physicians or similar professionals and they have patients. The City also argued that dispensaries have neither physicians nor their own patients because dispensary members are patients of the physicians who recommend marijuana.
Although the Court strangely did not openly rely on Inland Empire or other relevant leading cases, the Court had no trouble deferring to the City’s interpretation and agreeing that a dispensary is not a “medical office” under the City code. Thus, because the dispensary was not a permitted use when it opened, it cannot be a legal nonconforming use.
The Court also rejected the dispensary’s argument that even if the business is not a legal nonconforming use, the City should be equitably estopped from enforcing its code because it unreasonably delayed issuing a compliance order and inducing detrimental reliance by collecting business taxes. In short, the Court held that the dispensary’s reliance on delayed enforcement and payment of taxes was unreasonable, that the dispensary failed to demonstrate injustice, and that the City has a fundamental interest in determining where dispensaries are allowed that outweighs any potential impacts to the dispensary.
While there is nothing new or particularly interesting in J. Arthur Properties, the case plainly shows the depth of the local police power when dealing with local land use decisions intertwined with issues of fact, policy, and discretion, such as the decision whether to allow certain land uses that are not mandated to exist by other relevant law.
Questions? Please contact Bryan W. Wenter, AICP of Miller Starr Regalia.
For more than 50 years, Miller Starr Regalia has served as one of California’s leading real estate law firms. Miller Starr Regalia has expertise in all types of real property matters, including full-service litigation and dispute resolution, transactions, acquisitions, dispositions, leasing, financing, common interest development, construction, management, eminent domain and inverse condemnation, exactions, title insurance, environmental law, and land use. Miller Starr Regalia attorneys also write Miller & Starr, California Real Estate 4th, a 12-volume treatise on California real estate law. “The Book” is the most widely used and judicially recognized real estate treatise in California and is cited by practicing attorneys and courts throughout the state. For more information, visit www.msrlegal.com.