UL Chula Two v. City of Chula Vista CA4/1 ( 2022 )

Filed 10/24/22 UL Chula Two v. City of Chula Vista CA4/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or
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COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
UL CHULA TWO LLC, D079215
Plaintiff and Appellant,
v. (Super. Ct. No. 37-2020-
00041554-CU-MC-CTL)
CITY OF CHULA VISTA et al.
Defendants and Respondents;
MARCH AND ASH CHULA VISTA,
INC. et al.,
Real Parties in Interest and
Respondents.
APPEAL from a judgment of the Superior Court of San Diego County,
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.
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
2
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).)
3
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 Café,
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
1 UCV’s application included Senn’s resume, describing the Holistic Café
as “[o]perating in Hillcrest without issue since its inception.”
4
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 Café 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 Café 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
Café matter and the fact that the law surrounding medicinal marijuana sales
was unsettled at the time of the stipulated judgment.
2 The City subsequently amended its notice to conduct the hearing by
video conference due to the Covid-19 pandemic.
5
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 Café matter. Varga explained
that during the background investigation, Senn was identified as an owner
operator of the Holistic Café, 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 Café, 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 Café, 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 Café’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 Café filed
by the property’s owner, as well as the City of San Diego’s complaint seeking
6
civil penalties and a permanent injunction requiring the business to cease
operating the marijuana dispensary in violation of the municipal code. The
complaint named Senn as a defendant and described him as the president
and/or chief operating officer of the business. The complaint alleged that City
officials verified the property was being operated as a marijuana dispensary
and asserted the defendants were “blatantly and willfully in violation of the
[San Diego Municipal Code].”
Also through Varga, the City introduced the stipulated judgment
ending the City of San Diego’s lawsuit against the Holistic Café. The
judgment contained a provision stating, “[n]either this Stipulated Judgment
nor any of the statements or provisions contained herein shall be deemed to
constitute an admission or an adjudication of any of the allegations of the
Complaint.” The judgment imposed a permanent injunction enjoining Senn
from operating a marijuana dispensary and required closure of the Holistic
Café. The judgment also required payment of $20,000 in civil penalties and
additional fees.
UCV presented no evidence at the hearing. UCV’s counsel, however,
objected to the documents that the City presented concerning the Holistic
Café matter on the grounds they were unreliable hearsay, not properly
authenticated, lacked foundation, and were irrelevant. The hearing officer
overruled the objections, noting after each ruling that the documents would
be entered into evidence subject to his determination of the documents’
weight.
After the presentation of evidence and arguments by counsel, the
hearing officer took the matter under submission. On August 26, 2020,
Halbert issued his decision rejecting UCV’s appeal. Specifically, he found no
due process violation since the denial and documentation provided to UCV by
7
the City made clear that the rejection of UCV’s application was based on
Senn’s involvement in the Holistic Café matter. Halbert also rejected UCV’s
argument that there were no laws in the City of San Diego related to
cannabis dispensaries, which UCV asserted precluded the application of
Chula Vista Municipal Code section 5.19.050, subdivisions (A)(5)(f) and (g).
Halbert reiterated his decision to overrule UCV’s objections to the evidence
presented by the City, noting the regulations made clear that the formal
rules of evidence did not apply to the City’s review of the decision to reject
UCV’s application. Halbert also found the City had adequately established
the documents were reliable and relevant to its determination. Finally,
Halbert denied UCV’s request that he exercise discretion to overrule the
City’s determination, noting that UCV presented no evidence in support of its
request.
UCV filed its petition for writ of mandate in the Superior Court on
November 13, 2020. Therein, UCV asserted a writ was required because:
(1) civil zoning violations (the unlawful activity alleged by the City of San
Diego in its civil complaint) are not disqualifying under the Chula Vista
Municipal Code as a matter of law; (2) the City violated UCV’s due process
rights by not disqualifying its application earlier, by providing insufficient
notice of the hearing, and by having the City Attorney’s office act both as
advisor to the hearing officer and advocate for the City in the proceeding; and
8
(3) substantial evidence did not support Halbert’s decision because all of the
evidence presented by the City was inadmissible hearsay.3
Following briefing and a hearing, the trial court issued an order
rejecting each of UCV’s arguments and denying the petition in its entirety.
The court found that UCV had failed to establish that the “operation of a
medicinal marijuana storefront does not fall under the definition of
‘Commercial Cannabis Activity.’ ” Additionally, the court concluded ample
evidence supported the City’s rejection of its application and that UCV had
not shown that the hearsay evidence was improperly considered by the City
or the hearing officer. With respect to UCV’s due process arguments, the
court found there was no evidence to support UCV’s assertion that McClurg
had acted both as advocate and advisor in the same proceeding and that it
had waived its argument concerning the hearing notice by not objecting to
the City.
After the court entered judgment in favor of the City, UCV filed its
notice of appeal.
DISCUSSION
I
Standard of Review
“Review of an administrative decision made as a result of a proceeding
in which a hearing is required is governed by Code of Civil Procedure
3 The petition also requested an injunction, which was eventually denied,
preventing the City from issuing licenses to other operators. UCV also
amended its petition to add its competitors for the license, real parties March
and Ash Chula Vista, Inc. and TD Enterprise, LLC, as defendants. After
briefing in this case was complete, the City filed a request that this court
take judicial notice of the licenses it issued to the real parties after the trial
court denied UCV’s petition. Because we find these documents irrelevant to
the issues on appeal, the request is denied.
9
section 1094.5. The standard of review is abuse of discretion. (Id., subd. (b).)
Subdivision (c) of section 1094.5 provides that where, as here, the proceeding
does not involve a fundamental vested right, ‘abuse of discretion is
established if the court determines that the findings are not supported by
substantial evidence in the light of the whole record.’ ” (Hauser v. Ventura
County Bd. of Supervisors (2018) 20 Cal.App.5th 572, 575.) “Under this
standard, the trial court will affirm the administrative decision if it is
supported by substantial evidence from a review of the entire record,
resolving all reasonable doubts in favor of the findings and decision.” (M.N.
v. Morgan Hill Unified School Dist. (2018) 20 Cal.App.5th 607, 616.)
“To the extent that the administrative decision rests on the hearing
officer’s interpretation or application of the [o]rdinance, a question of law is
presented for our independent review.” (MHC Operating Limited Partnership
v. City of San Jose (2003) 106 Cal.App.4th 204, 219.) While “[t]he
interpretation of statutes and ordinances ‘is ultimately a judicial function[,]’
… “the hearing officer’s interpretation of the [o]rdinance is entitled to
deference. ‘The courts, in exercising independent judgment, must give
appropriate deference to the agency’s interpretation.’ ” (Ibid.) “ ‘[B]ecause
the agency will often be interpreting a statute within its administrative
jurisdiction, it may possess special familiarity with satellite legal and
regulatory issues. It is this “expertise,” expressed as an interpretation …,
that is the source of the presumptive value of the agency’s views.’ ” (Ibid.)
II
The City’s Findings Were Supported by Substantial Evidence
and Those Findings Supported Its Decision
UCV contends that the City’s findings were not supported by
substantial evidence because none of the evidence relied on by Halbert was
10
admissible. It further argues that there was no evidence that Senn had been
adversely sanctioned for a violation of law related to commercial cannabis
activity because the stipulated judgment entered by Senn disclaimed any
liability. In addition, UCV contends there was no evidence of unlawful
commercial cannabis activity because that legal phrase did not exist until
2016. As we explain, we reject UCV’s narrow interpretation of the Chula
Vista Municipal Code and find no abuse of discretion in the City’s hearing
officer’s decision.
A
Admissibility of Evidence
UCV first argues that the documentation obtained by the City through
its Public Records Act request was unauthenticated hearsay that was
improperly relied on by the hearing officer. As an initial matter, the
Evidence Code does not apply to this administrative proceeding. Rather, the
City’s hearings are governed by general principles of due process and its own
regulations. In particular, the regulation the City adopted “to clarify and
facilitate implementation of [Chula Vista Municipal Code] Chapter 5.19,”
states that an appeal challenging the City’s rejection of an application “shall
not be conducted according to technical rules of procedure and evidence
applicable to judicial proceedings.” Rather, “[e]vidence that might otherwise
be excluded under the California Evidence Code may be admissible if it is
relevant and of the kind that reasonable persons rely on in making decisions.
Irrelevant and unduly repetitious evidence shall be excluded.”
Thus, by its terms, the City’s regulation authorized the use of hearsay
evidence in the administrative appeal pursued by UCV. (See In re Lucero L.
(2000) 22 Cal.4th 1227, 1244 [Noting that the “admissibility of hearsay
evidence in various administrative contexts has long been authorized by
11
statute.”].) Therefore, contrary to UCV’s contention, the hearing officer’s
reliance on the documents was not improper. The documents at issue,
consisting of court filings in the City of San Diego’s lawsuit against Senn and
the unlawful detainer suit pursued by the landlord of the Holistic Café, are
not inherently unreliable. Rather, they are documents that “reasonable
persons rely on in making decisions.”
To support its evidentiary arguments, UCV relies on a case involving
an agency that, unlike here, was not authorized to use hearsay evidence. In
Walker v. City of San Gabriel (1942) 20 Cal.2d 879 (Walker), the court
reversed a judgment entered after the denial of a petition for writ of
mandamus to correct the revocation of a license to operate an automobile
wrecking business. At the hearing on the revocation, which was required by
ordinance, the City of San Gabriel provided only a hearsay police statement
alleging various violations of the license’s conditions. (Id. at p. 880.) The
Supreme Court reversed the judgment, holding the city had failed to carry its
burden to show its revocation was based on the operator’s violation of a term
or condition of the license because the hearsay alone was not “substantial
evidence to support” the ruling. (Id. at p. 881.) The court noted that
“hearsay, unless specially permitted by statute, is not competent evidence to
that end.” (Ibid., italics added.) In contrast, the City’s regulations here
specifically permit hearsay evidence so long as it “is relevant and of the kind
that reasonable persons rely on in making decisions.” 4
4 UCV also cites Government Code section 11513, subdivision (d). The
statute, contained in the Administrative Procedure Act (APA, Gov. Code,
§§ 11400, et seq.), applies primarily to administrative proceedings of the
State. The APA does not apply to local agencies, like the City, except to the
extent its provisions are made applicable to them by statute or when the local
agency elects to be governed by the APA. (Gov. Code, §§ 11410.30, subd. (b),
11410.40.) Neither exception applies in this case.
12
We also note that UCV failed to offer any evidence to refute the
information contained in the documents and instead chose to stand on its
evidentiary objections and regulatory interpretation arguments. Unlike the
petitioner in Walker, which involved the revocation of a vested right, UCV
had the evidentiary burden of showing that the City’s decision to reject its
application was error. UCV’s failure to introduce any evidence in support of
its assertion that the City’s decision was arbitrary frustrates its evidentiary
argument. Because it did not establish any affirmative case, UCV cannot
show the hearing officer’s decision to consider the hearsay evidence was
prejudicial. (See F.P. v. Monier (2017) 3 Cal.5th 1099, 1107 [“the California
Constitution … expressly preclude[s] reversal absent prejudice”].)
B
Commercial Cannabis Activity
UCV next contends that the City’s decision must be overturned
because, even if the hearsay evidence was properly relied on by Halbert,
there was no evidence showing Senn was “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.” UCV
argues that the hearing officer found “there were no laws related to
commercial cannabis activity in the state or city … until 2016, four years
after the City of San Diego entered into a stipulated judgment in Holistic
Café.” Therefore, Halbert had no basis to reject UCV’s application under
Chula Vista Municipal Code section 5.19.050, subdivision (A)(5)(f), “which
requires a material violation of a law or regulation related to commercial
cannabis activity.”
First, UCV’s assertion that Halbert found there were no laws in San
Diego regulating commercial cannabis activity is a distortion of the decision.
13
Halbert explains clearly that although “[s]pecific state and local licensing of
cannabis dispensaries went into effect in 2016,” prior to that time San Diego
regulated cannabis dispensaries “via zoning laws and in particular in the
City of San Diego as unpermitted businesses.”5
Next, UCV’s interpretation of the Chula Vista Municipal Code imports
a requirement into the regulations that does not exist and fails to account for
the basis of the complaint filed by the City of San Diego against Senn, which
asserted that operation of a medical marijuana dispensary within San Diego
was unlawful because the property where the dispensary was located was not
zoned for such activity. UCV argues that the zoning regulations at issue in
that case are unrelated to commercial cannabis activity. We agree with the
City, the hearing officer, and the trial court, that UCV’s interpretation of the
regulations is too narrow.
The regulation defines “Commercial Cannabis Activity” as “the
commercial Cultivation, possession, furnishing, manufacture,
distribution, processing, storing, laboratory testing, packaging, labeling,
transportation, delivery or sale of Cannabis or Cannabis Products.” (Chula
Vista Mun. Code, § 5.19.020.) The administrative record contains unrefuted
evidence that the Holistic Café was operating as an unpermitted medical
marijuana dispensary that sold cannabis, and that the operation was
unlawful under the City of San Diego’s municipal code. The fact that the
zoning regulations themselves did not refer specifically to commercial
cannabis activity does not mean there were no laws related to such activity.
Rather, as the City and real parties assert in their brief, local governments
have the constitutional authority “to determine the allowable land uses
5 UCV’s request for judicial notice of the City of San Diego’s municipal
code and zoning ordinance is granted.
14
within their jurisdictions” and when a use “violates applicable zoning rules,
the responsible agency may obtain abatement—i.e., removal of the violation
and restoration of legal use.” (IT Corp. v. Solano County Bd. of Supervisors
(1991) 1 Cal.4th 81, 89.)
Under permissive zoning, “where a particular use of land is not
expressly enumerated in a city’s municipal code as constituting a permissible
use, it follows that such use is impermissible.” (City of Corona v. Naulls
(2008) 166 Cal.App.4th 418, 433.) As the City of San Diego’s complaint
stated, “[t]he operation or maintenance of a marijuana dispensary [was] not a
permitted use in any zone designation under the [municipal code].” Thus,
Senn’s operation of the dispensary, which involved the commercial enterprise
of selling medical cannabis, was a material violation of the City of San
Diego’s regulations, which related to commercial cannabis activity as defined
by the Chula Vista Municipal Code.
C
Stipulated Judgment
UCV also asserts there was no evidence of a violation of a law or
regulation related to commercial cannabis activity because the stipulated
judgment entered in the Holistic Café matter denied any wrongdoing by
Senn. As noted, the judgment contained a provision stating that it did not
“constitute an admission or an adjudication of any of the allegations of the
15
[City of San Diego’s] Complaint.”6 The City and real parties respond that the
provision disclaiming liability in the stipulated judgment does not negate the
fact that the judgment imposes specific sanctions against UCV, including
requiring the closure of the Holistic Café and the imposition of both an
injunction prohibiting Senn from operating a marijuana dispensary and civil
penalties.
The City correctly points out that the Chula Vista Municipal Code does
not require a judgment or admission of unlawful conduct for an applicant to
be disqualified thereunder. Rather, the regulations disqualify applicants
both (1) who have been “adversely sanctioned or penalized … for a material
violation of State or local laws or regulations related to Commercial Cannabis
Activity” (Chula Vista Mun. Code, § 5.19.050, subd. (A)(5)(f)) and (2) those
who have “conducted, facilitated, caused, aided, abetted, suffered, or
concealed unlawful Commercial Cannabis Activity in the City or any other
6 UCV asserts Senn did not admit liability “to a violation of the civil
zoning laws” because at the time “there was significant uncertainty about
whether local governments could use zoning regulations to ban legal
medicinal cannabis storefronts.” UCV explains that after the stipulated
judgment, the California Supreme Court resolved that uncertainty in City of
Riverside v. Inland Empire Patients Health & Wellness Center, Inc. (2013) 56
Cal.4th 729 (Riverside), which held that California’s Compassionate Use Act
and Medical Marijuana Program Act did not preempt local zoning bans on
medical marijuana dispensaries. (Id. at p. 738.) UCV also points out that the
stipulated judgment allowed amendments for future changes to the law and
asserts that the judgment was amended on May 3, 2019 to allow the
defendants in that case to engage in cannabis activities. The amended
judgment was submitted as part of UCV’s appellant’s appendix and is
contained within its request for judicial notice, which was denied by the trial
court. UCV requests that we take judicial notice of the amended judgment
and the articles of incorporation for the Holistic Café. The request is denied
as irrelevant to our decision and outside of the administrative record.
16
jurisdiction” without the requirement of a sanction or penalty (id.,
subd. (A)(5)(g)).
Even though Senn continues to assert that his operation of the Holistic
Café was lawful—a possible outcome in the earlier litigation that was later
foreclosed by the Supreme Court’s decision in Riverside—and that the
stipulated judgment was not a penalty or adverse sanction, the evidence
submitted by the City supported the hearing officer’s determination that
Senn had conducted unlawful commercial cannabis activity. This evidence
brought Senn within the second category of disqualification. Specifically, the
photographs of the Holistic Café indicating medical cannabis sales, the
unlawful detainer action filed by the business’s landlord, and the City of San
Diego’s notice of violation and complaint for civil penalties, all supported the
hearing officer’s finding that Senn had engaged in unlawful cannabis activity.
As discussed, UCV presented no evidence to refute this finding. Thus,
Halbert did not abuse his discretion by finding UCV failed to carry its burden
to show the City acted impermissibly by rejecting its application.
D
Medical Marijuana
UCV argues that disqualifying unlawful commercial cannabis activity
under the Chula Vista Municipal Code does not include the operation of a
dispensary for medical-use cannabis. The City and real parties respond that
because this argument was not raised in the administrative proceedings,
UCV failed to exhaust its remedies and review by this court is not available.
Alternatively, they assert the distinction advanced by UCV is not supported
17
by the language of the Chula Vista Municipal Code. We agree with the City
and real parties on both accounts.
The exhaustion of administrative remedies doctrine requires
“[a]dministrative agencies [to] be given the opportunity to reach a reasoned
and final conclusion on each and every issue upon which they have
jurisdiction to act before those issues are raised in a judicial forum.” (Sierra
Club v. San Joaquin Local Agency Formation Com. (1999) 21 Cal.4th 489,
510.) “The rule is a jurisdictional prerequisite in the sense that it ‘is not a
matter of judicial discretion, but is a fundamental rule of procedure laid down
by courts of last resort, followed under the doctrine of stare decisis, and
binding upon all courts.’ ” (Citizens for Open Government v. City of Lodi
(2006) 144 Cal.App.4th 865, 874.)
Under the doctrine, issues not presented in the administrative
proceedings cannot be raised for the first time on review. The exhaustion
doctrine “recognizes and gives due respect to the autonomy of the executive
and legislative branches, and can secure the benefit of agency expertise,
mitigate damages, relieve burdens that might otherwise be imposed on the
court system, and promote the development of a robust record conducive to
meaningful judicial review. [Citations.] Additionally, absent an exhaustion
rule, a litigant might have an incentive to ‘sandbag’—in other words, to ‘avoid
securing an agency decision that might later be afforded deference’ by
sidestepping an available administrative remedy.” (Hill RHF Housing
Partners, L.P. v. City of Los Angeles (2021) 12 Cal.5th 458, 478–479.)
Further, the doctrine applies even if the only issue is legal rather than
factual. (Contractors’ State License Bd. v. Superior Court (Black Diamond
Elec., Inc.) (2018) 28 Cal.App.5th 771, 782‒783.)
18
Contrary to UCV’s assertion, it did not argue in its administrative
appeal that the sale of medicinal marijuana was outside the Chula Vista
Municipal Code’s disqualifying factors to receive a retail sales license.
Rather, it argued that because no law specifically related to commercial
cannabis activity existed at the time the City of San Diego filed its complaint
against Senn and the other Holistic Café defendants, the City improperly
disqualified UCV. This argument did not give the City the opportunity to
address UCV’s contention, first raised in the trial court, that its regulation
did not apply to the sale of medicinal marijuana. Thus, we lack authority to
consider the argument.
Even if we were to conclude the issue was encompassed within the
arguments UCV made in the administrative proceeding, we would agree with
the trial court that the disqualifying regulation, Chula Vista Municipal Code
section 5.19.050, subdivisions (A)(5)(f) and (g), does not exclude the sale of
medicinal cannabis in the manner UCV contends. UCV asserts that the
City’s regulations “make clear that ‘commercial’ cannabis activity does not
include ‘medicinal cannabis’ ” because “section 5.19.020 separately defines
‘commercial’ and ‘medicinal cannabis’ and ‘medicinal cannabis product,’ ” and
“ ‘the City’s licensing scheme for commercial cannabis activities expressly
prohibits commercial cannabis storefronts from selling medicinal cannabis
and products.’ ”
Again, UCV’s interpretation of the regulations is too narrow.
Consistent with California’s Uniform Controlled Substance Act (Health &
Saf. Code, § 11018) and Medicinal and Adult Use Cannabis Regulation and
Safety Act (Bus. & Prof. Code, § 26001, subd. (e)), the Chula Vista Municipal
Code’s definitional provision, section 5.19.020, defines “Cannabis” as “all
parts of the Cannabis sativa Linnaeus, Cannabis indica, or Cannabis
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ruderalis, whether growing or not; the seeds thereof; the resin, whether crude
or purified, extracted from any part of the plant; and every compound,
manufacture, salt, derivative, mixture, or preparation of the plant, its seeds,
or resin. ‘Cannabis’ also means the separated resin, whether crude or
purified, obtained from cannabis.”
As stated, the provision defines “Commercial Cannabis Activity” as “the
commercial Cultivation, possession, furnishing, manufacture, distribution,
processing, storing, laboratory testing, packaging, labeling, transportation,
delivery or sale of Cannabis or Cannabis Products.” (Chula Vista Mun. Code,
§ 5.19.020.) The terms “sale” and “sell” are defined as “any transaction
whereby, for any consideration, title to Cannabis or Cannabis Products is
transferred from one person to another.” (Ibid.; see also Bus. & Prof. Code,
§ 26001, subd. (au).) “Medicinal Cannabis” is defined as “Cannabis or a
Cannabis Product for use pursuant to the Compassionate Use Act of 1996
(Proposition 215), found at California Health and Safety Code
Section 11362.5, by a medicinal cannabis patient in California who possesses
a physician’s recommendation.” (Chula Vista Mun. Code, § 5.19.020; Bus. &
Prof. Code, § 26001, subd. (a).)
Under these regulations, “Medicinal Cannabis” is a subset of
“Cannabis,” not, as UCV argues, a different category altogether.
Additionally, the sale or transfer of medicinal cannabis is not excluded from
commercial cannabis activity. As the City and real parties point out, this
understanding of the regulations is also supported by the existence of “M-
Licenses,” which are “a State License for Commercial Cannabis Activity
involving Medicinal Cannabis.” (Chula Vista Mun. Code, § 5.19.020; see also
Bus. & Prof. Code, § 26001, subd. (af).) Under the Chula Vista Municipal
Code, “Commercial Cannabis Activity” embraces both medicinal and non-
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medicinal licenses: “ ‘State License’ means a License issued by the state of
California, or one of its departments or divisions, under State Laws to engage
in Commercial Cannabis Activity. License includes both an ‘A-license’ (adult
use) and an ‘M-license’ (medicinal use), as defined by State Laws, as well as a
testing laboratory license.” (Chula Vista Mun. Code, § 5.19.020.)
UCV also argues that the Chula Vista Municipal Code prohibition on
storefront retailers selling medicinal cannabis means the sale of medicinal
cannabis is not commercial cannabis activity. We disagree. This is a
qualification on the activities of storefront retailers, not a method to
determine whether a certain prior activity by a license applicant is
disqualifying. The distinction asserted by UCV does not exist in the Chula
Vista Municipal Code. As the trial court found, UCV does not “identify any
language which would exclude the sale [of] medicinal cannabis from being
subsumed into the definition of commercial cannabis activity. The fact that
other sections are specific to medicinal marijuana does not exclude it from
rules which have broader application.”
III
The Trial Court Did Not Abuse Its Discretion
UCV next asserts that the trial court abused its discretion by denying
its request for judicial notice of documents concerning other rejected
applicants that UCV obtained through a Public Records Act request. In the
same section of its brief, it argues that the City abused its discretion because
it did not choose the most qualified applicant and did not make “additional
factual findings to demonstrate its reasons to reject” UCV’s application.
With respect to the request for judicial notice, we do not agree the trial
court’s failure to grant the request was error. “ ‘The general rule is that a
hearing on a writ of administrative mandamus is conducted solely on the
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record of the proceeding before the administrative agency. [Citation.]’
[Citation.] Augmentation of the administrative record is permitted only
within the strict limits set forth in section 1094.5, subdivision (e) which
provides as follows: ‘Where the court finds that there is relevant evidence
which, in the exercise of reasonable diligence, could not have been produced
or which was improperly excluded at the hearing before respondent, it may
enter judgment as provided in subdivision (f) remanding the case to be
reconsidered in the light of that evidence; or, in cases in which the court is
authorized by law to exercise its independent judgment on the evidence, the
court may admit the evidence at the hearing on the writ without remanding
the case.’ ” (Pomona Valley Hospital Medical Center v. Superior Court (1997)
55 Cal.App.4th 93, 101 (Pomona Valley).)
“In the absence of a proper preliminary foundation showing that one of
the exceptions noted in section 1094.5, subdivision (e) applies, it is error for
the court to permit the record to be augmented. [Citation.] Determination of
the question of whether one of the exceptions applies is within the discretion
of the trial court, and the exercise of that discretion will not be disturbed
unless it is manifestly abused.” (Pomona Valley, supra, 55 Cal.App.4th at
p. 101.)
UCV asserts the trial court abused its discretion by not taking judicial
notice of rejection letters that the City sent to other applicants and written
decisions of the City’s hearing officers in two appeals by other applicants.
The rejection letters all predate UCV’s hearing on June 10, 2020, while the
appeal decisions are dated in July and August 2020. UCV’s briefing does not
explain how these documents are relevant to the issues presented here or
why the letters could not have been sought before UCV’s appeal to the City.
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For these reasons, the trial court did not abuse its discretion by denying
UCV’s request that it take judicial notice of the documents.7
We also see no merit in UCV’s assertion that the City abused its
discretion by “failing to exercise any discretion by rejecting [UCV]’s
application without making additional factual findings to demonstrate its
reasons to reject the application.” The City’s rejection letter stated the
reason for its denial. UCV’s argument amounts to a request for this court to
overrule the City’s proper exercise of its discretionary authority. That is not
our role. (See Daily Journal Corp. v. County of Los Angeles (2009) 172
Cal.App.4th 1550, 1555 [“Although a court may order a government entity to
exercise its discretion in the first instance when it has refused to act at all,
the court will not ‘compel the exercise of that discretion in a particular
manner or to reach a particular result.’ ”].)
IV
UCV Has Not Shown Its Due Process Rights Were Violated
UCV argues it was deprived of a fair appeal of the City’s rejection of its
application because the hearing officer’s advisor, Simon Silva, was a City
Attorney and another City Attorney, Megan McClurg, served as counsel for
the City in the proceeding. Specifically, UCV argues that the City was
required to show evidence that it took sufficient screening measures to
separate Silva and McClurg. UCV also contends McClurg’s representation of
the City was unfair because she was involved in drafting the cannabis
regulations at issue.
7 We likewise deny UCV’s request for judicial notice of the same
documents, and of a published list of cannabis business applicants
downloaded from chulavista.gov.
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A
“Absent a financial interest, adjudicators are presumed impartial.
[Citations.] To show nonfinancial bias sufficient to violate due process, a
party must demonstrate actual bias or circumstances ‘ “in which experience
teaches that the probability of actual bias on the part of the judge or
decisionmaker is too high to be constitutionally tolerable.” ’ [Citation.] The
test is an objective one. [Citations.] While the ‘degree or kind of interest …
sufficient to disqualify a judge from sitting “cannot be defined with
precision” ’ [citation], due process violations generally are confined to ‘the
exceptional case presenting extreme facts.’ ” (Today’s Fresh Start, Inc. v. Los
Angeles County Office of Education (2013) 57 Cal.4th 197, 219 (Today’s Fresh
Start).)
“[A] party seeking to show bias or prejudice on the part of an
administrative decision maker [must] prove the same with concrete facts:
‘ “Bias and prejudice are never implied and must be established by clear
averments.” [Citation.] Indeed, a party’s unilateral perception of an
appearance of bias cannot be a ground for disqualification unless we are
ready to tolerate a system in which disgruntled or dilatory litigants can
wreak havoc with the orderly administration of dispute-resolving tribunals.’ ”
(BreakZone Billiards v. City of Torrance (2000) 81 Cal.App.4th 1205, 1237.)
B
UCV argues that the City has a burden to show it took sufficient efforts
to screen McClurg from Silva, and that it failed to do so. UCV’s argument is
not supported by the law. Rather, the burden is on the party asserting its
rights were violated to show bias. “[A]n agency’s participation in an
accusatory portion of administrative proceedings need not give rise to
constitutional concerns.” (Today’s Fresh Start, supra, 57 Cal.4th at p. 221.)
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“ ‘[B]y itself, the combination of investigative, prosecutorial, and adjudicatory
functions within a single administrative agency does not create an
unacceptable risk of bias and thus does not violate the due process rights of
individuals who are subjected to agency prosecutions.’ ” (Ibid.) “To prove a
due process violation based on overlapping functions thus requires something
more. ‘[T]he burden of establishing a disqualifying interest rests on the party
making the assertion.’ ” (Ibid.)
“That party must lay a ‘specific foundation’ for suspecting prejudice
that would render an agency unable to consider fairly the evidence presented
at the adjudicative hearing [citation]; it must come forward with ‘specific
evidence demonstrating actual bias or a particular combination of
circumstances creating an unacceptable risk of bias’ [citations]. Otherwise,
the presumption that agency adjudicators are people of ‘ “conscience and
intellectual discipline, capable of judging a particular controversy fairly on
the basis of its own circumstances” ’ will stand unrebutted.” (Today’s Fresh
Start, supra, 57 Cal.4th at pp. 221–222.)
UCV does not point to any specific evidence to support its assertion
that the hearing officer was biased against it. Instead, UCV argues that the
City failed to establish that it sufficiently separated Silva and McClurg. This
argument turns the law on its head, and provides no basis for this court to
find UCV’s due process rights were violated. UCV relies on Quintero v. City
of Santa Ana (2003) 114 Cal.App.4th 810 (Quintero) to support its assertion
that the City had the burden to show it adequately separated McClurg and
Silva for purposes of the appeal hearing.
Quintero, criticized in Morongo Band of Mission Indians v. State Water
Resources Control Bd. (2009) 45 Cal.4th 731, 740, fn. 2, held that due process
was violated by the appearance of bias where a deputy city attorney acted as
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prosecutor of the plaintiff, a discharged city employee, before the city’s
personnel board and concurrently represented the personnel board in civil
mandate proceedings of other discharged employees. (Quintero, supra, 114
Cal.App.4th at p. 812.) Quintero does not support UCV’s argument. Unlike
Quintero, which involved a single attorney simultaneously representing the
City both as a prosecutor and advisor, the two city attorneys here permissibly
occupied separate roles. Further, UCV presented no specific evidence that
McClurg and Silva were insufficiently screened for purposes of the hearing.
We also decline to reach the merits of UCV’s assertion that because
McClurg gave presentations to the City Council, including Halbert, on the
local regulation of cannabis in 2017 and 2018, that Halbert was
unconstitutionally biased against UCV. As an initial matter, UCV did not
present this argument in the administrative proceedings, resulting in
forfeiture of the argument. (Niles Freeman Equipment v. Joseph (2008) 161
Cal.App.4th 765, 787.)
In addition, UCV has failed to provide a basis for this court to consider
the evidence it contends shows bias. The documents UCV references are the
minutes of four City Council meetings held on August 3, 2017, October 26,
2017, December 12, 2017, and February 27, 2018. The documents are not
part of the administrative record, and were presented by UCV in a request
for judicial notice that was denied by the trial court. In this court, UCV
relegates the evidentiary issue to a footnote in its opening brief. It states
without any elaboration or argument that the documents are “admissible
pursuant to Code of Civil Procedure section 1094.5, subdivision (e).”
As discussed, this exception to the general rule that reviewing courts
are bound to the confines of the administrative record applies only where the
party seeking to augment the record establishes that the new evidence, “in
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the exercise of reasonable diligence, could not have been produced” or “was
improperly excluded at the hearing.” (Code Civ. Proc., § 1094.5, subd. (e).)
UCV makes no attempt to show why it could not have included its argument
and the documents it now relies on (all predating the hearing) in the
administrative proceeding. Accordingly, we decline to consider this extra-
record evidence and reject UCV’s argument that the hearing officer was
unconstitutionally biased based on McClurg’s alleged involvement in the
City’s cannabis regulations.8 (See Oliveira v. Kiesler (2012) 206 Cal.App.4th
1349, 1362 [It is appellant’s burden “to present an adequate record for
review” and failure to do so requires affirmance.].)
DISPOSITION
The judgment is affirmed. The costs of appeal are awarded to the City
of Chula Vista and Real Parties in Interest.
McCONNELL, P. J.
WE CONCUR:
IRION, J.
DO, J.
8 UCV’s separate request for judicial notice here includes the minutes.
As the basis for the request, UCV states that the documents are relevant to
“demonstrate that the City Attorney’s Office improperly served [UCV] with
notice of the hearing.” UCV, however, does not argue reversal is required
based on improper notice. We deny the request for judicial notice of the
minutes as irrelevant and on the additional grounds the documents are
outside the administrative record.
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