City of Dana Point v. Beach Cities Collective CA4/3 ( 2014 )

Filed 5/14/14 City of Dana Point v. Beach Cities Collective CA4/3
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
CITY OF DANA POINT,
G047839
Plaintiff and Respondent,
(Super. Ct. No. 30-2010-00352103)
v.
OPINION
BEACH CITIES COLLECTIVE, et al.,
Defendants and Appellants.
Appeal from a judgment of the Superior Court of Orange County, Kirk H.
Nakamura, Judge. Affirmed.
Schwartz Law and Jeffrey M. Schwartz for Defendants and Appellants.
Rutan & Tucker, A. Patrick Muñoz, Jennifer Farrell and Alisha Patterson
for Plaintiff and Respondent.
* * *
David Lambert appeals from the trial court’s decision after a bench trial
finding the dispensary he operated, Beach Cities Collective (Beach Cities or BCC), did
not comply with state medical marijuana law. The trial court therefore sustained the City
of Dana Point’s (the City’s) nuisance petition, enjoined Lambert and BCC from operating
the dispensary, and imposed fines and penalties under the nuisance abatement law
(Health & Saf. Code, §§ 11570, 11581)1 and under Business and Professions Code
section 17200 for operating an unlawful business.2
Lambert contends the trial court erred by drawing an adverse inference
from Lambert’s repeated invocation of the Fifth Amendment during his deposition and
from BCC’s similar claim of privilege in response to the City’s document discovery
requests. Lambert also argues the trial court erred in granting the City’s motion to
exclude his testimony because he had invoked the Fifth Amendment on certain subjects
at his deposition. He further argues the testimony of the City’s expert concerning BCC’s
1 All further statutory references are to this code unless noted.
2 We grant the City’s unopposed request for judicial notice of documentation
from the secretary of state reflecting suspension of BCC’s corporate status. (Evid. Code,
§§ 452, 459.) BCC therefore may not prosecute this appeal (Grell v. Laci Le Beau Corp.
(1999) 73 Cal.App.4th 1300, 1306), and it proceeds as to Lambert only.
For the reader’s convenience, we also note there have been two prior
appeals in this matter. In the first, we concluded Malinda Traudt, a BCC member, could
not intervene in the City’s lawsuit to shut down the dispensary because she did not have
individual standing, apart from the dispensary itself, to challenge the City’s dispensary
ban. (People ex rel. City of Dana Point v. Beach Cities Collective (G043831, filed Dec.
21, 2011) [nonpub. opn.] (hereafter Beach Cities I).) In the second, we reversed the trial
court’s summary judgment in favor of the City because there were triable issues of fact
on whether BCC complied with state medical marijuana law. (People ex rel. City of
Dana Point v. Beach Cities Collective (G044971, filed Mar. 29, 2012) [nonpub. opn.]
(hereafter Beach Cities II).)
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expenses, profits, and compliance with state medical marijuana law was “speculative and
unsupported,” and therefore should have been excluded. Finally, he challenges the
dismissal of his cross-complaint, arguing the trial court erred when it found he lacked
standing to contest the City’s ban against dispensaries. The Supreme Court, however, has
now upheld local dispensary bans in City of Riverside v. Inland Empire Patients Health
& Wellness Center, Inc. (2013) 56 Cal.4th 729 (Inland Empire). As we explain,
Lambert’s contentions on appeal are without merit, and we therefore affirm the judgment.
I
FACTUAL AND PROCEDURAL BACKGROUND
The City filed its nuisance complaint against Beach Cities in March 2010,
alleging four causes of action, all predicated on the dispensary’s allegedly illegal
marijuana “cultivation, distribution, possession, and sales taking place at” Beach Cities’
location. The City’s first three causes of action consisted of: (1) abatement under the
narcotics abatement legislation (§ 11570) based on Beach Cities’ alleged failure to
comply with state medical marijuana law; (2) public nuisance (Civ. Code, §§ 3479, 3480)
similarly based on lack of compliance with state medical marijuana law; and (3) violation
of the City’s zoning code, which did not provide for medical marijuana dispensaries and
barred as a public nuisance uses not specifically enumerated in the zoning code. The City
based its fourth cause of action for unfair business practices (Bus. & Prof. Code, § 17200)
on the state and local violations alleged in the first three causes of action.
On its first two causes of actions, the City alleged Beach Cities failed to
comply with state medical marijuana law because “the Dispensary is (a) neither a
collective nor a cooperative . . . ; (b) not operating as a non-profit entity . . . ; (c) not
comprised solely of patients and primary caregiver members . . . ; [and] (d) not
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purchasing marijuana from, or selling to, those members . . . .” (Original italics and
boldface.) The City also alleged Beach Cities’ failings included ignoring “requirements
relating to membership applications . . . , record keeping . . . , [and] business licenses,
sales tax and sellers permits . . . .” Finally, the City also alleged Beach Cities failed to
comply with Corporations Code requirements applicable to entities organized as a
consumer cooperative.
During discovery the City focused its attention on establishing whether
Beach Cities violated state law by selling marijuana for profit. (See § 11362.765, subd.
(a) [“nothing in this section shall authorize . . . any individual or group to cultivate or
distribute marijuana for profit”].) In the City’s words, it sought to learn whether
defendants “were operating within the parameters of the CUA, the MMPA, and the AG
Guidelines, or if instead they are nothing more than an illegal, for profit, business
enterprise engaged in illegally ‘selling’ marijuana.” As we noted in Beach Cities II, the
City’s discovery efforts did not go smoothly.
At his deposition, Lambert refused to answer most questions concerning
Beach Cities’ activities involving marijuana, invoking the Fifth Amendment.3 For
example, according to the City, Lambert declined to answer questions concerning
whether (1) Beach Cities sells marijuana products; (2) when it began selling marijuana;
(3) the types or strains of marijuana sold; (4) whether Beach Cities receives monetary
compensation in exchange for marijuana; (5) whether Beach Cities acquires all of its
marijuana from its members; (6) whether Beach Cities tracks the source of its marijuana;
3 Counsel explained Lambert’s and Beach Cities’ position at the deposition
this way: “Any questions that have to do with any specifics — timelines, money,
quantities — my client will assert the Fifth. That has to do with how federal law works,
federal sentencing guidelines, all that stuff.”
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(7) whether Beach Cities takes any steps to ensure marijuana is not distributed to
nonmembers; (8) the cash value of the marijuana sold by Beach Cities and the price it
pays, if any, for marijuana; (9) the cost to grow marijuana it distributes; (10) how it
determines a price for marijuana it sells; or (11) the efforts, if any, to learn whether
members or suppliers profited by providing marijuana to Beach Cities.
Meanwhile, Lambert had answered many questions at his deposition that
shed light on the nature of Beach Cities’ operation. When asked, “What does Beach
Cities Collective do,” Lambert responded, “It’s a medical — medical cannabis
collective.” He acknowledged that Beach Cities members visit its location “from time to
time to obtain medical marijuana.” He testified that of the two types of medical
marijuana entities recognized in the A.G. Guidelines, cooperatives and collectives, Beach
Cities chose to operate as a collective, not a cooperative. He testified Beach Cities
incorporated as a nonprofit mutual benefit corporation with a board of directors, and
acknowledged he was a Beach Cities director, officer, and employee. He testified Beach
Cities had three employees, including himself.
Lambert testified none of Beach Cities’ directors or corporate officers
received any compensation or paid incentive for their role in those positions. He testified
“the only compensation that is paid out by Beach Cities Collective to officers, directors
or employees is paid in the form of compensation to employees.” Employees received a
“fixed” or “flat” monthly salary. None received “any sort of benefits such as insurance,
profit sharing, automobile allowance, or any other benefits.”
Lambert testified Beach Cities only provided marijuana to its members.
Beach Cities required its members to present a physician’s referral for the use of medical
marijuana, and before allowing the member to obtain marijuana, Beach Cities verified the
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validity of each referral by direct telephone or online contact with the referring
physician’s office. Beach Cities verified with the doctors’ offices the period for which
each referral was valid, which was usually one year. Beach Cities kept a computer
database of information that included its members’ names and the expiration date of each
member’s physician referral. It also required members to present a driver’s license on
each visit, which Beach Cities scanned with a barcode reader or similar device to access
its database and verify the member’s current eligibility to receive marijuana. Beach
Cities kept track of all of its members by recording their information in its database, and
it did not distribute marijuana to individuals not in the database.
The City scheduled the deposition of Beach Cities’ custodian of records
but, recognizing the custodian would assert the same Fifth Amendment claims as
Lambert, the parties stipulated to forego the deposition pending resolution of their dispute
about the validity of the Fifth Amendment claim.
The day after the parties’ stipulation, the City moved for summary
judgment or, in the alternative, summary adjudication. The City asserted it was entitled
to judgment as a matter of law on its first and second causes of action, nuisance
abatement (§ 11570) and public nuisance (Civ. Code, §§ 3479, 3480), because there was
no dispute Beach Cities distributed marijuana and Beach Cities “fail[ed] to produce any
evidence . . . in support of the[] only possible affirmative defense,” i.e., compliance with
state medical marijuana law. The City also asserted Beach Cities’ undisputed distribution
of marijuana entitled the City to judgment on its third cause of action, public nuisance for
violation of its zoning laws. Specifically, City zoning law impliedly banned dispensaries
by not recognizing them as a permitted use.
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Based on these first three causes of action, the City asserted it was entitled
to judgment on its fourth cause of action for unfair business practices, and entitled to a
permanent injunction enjoining Beach Cities and Lambert from distributing marijuana at
the Beach Cities location or anywhere in the City.
Beach Cities opposed the motion on grounds disputed issues of material
fact remained, particularly on whether it complied with state medical marijuana law. The
trial court granted the City summary judgment, but on appeal we reversed. (Beach Cities
II, supra.) We explained that while Beach Cities had not introduced much evidence
opposing summary judgment, it was “not accurate” to conclude it had introduced none.
“A reasonable trier of fact might conclude from [Lambert’s] asserted facts, if believed,
that Beach Cities conducted its marijuana-related activities in compliance with state
medical marijuana law. Or the trier of fact might disbelieve Lambert’s version of the
facts, and on that basis conclude Beach Cities’ marijuana distribution was unlawful.” (Id.
at p. 18.) But this was for the trier of fact to decide, not the trial court on summary
judgment.
On remand, the matter was assigned to a new trial judge. Before a two-day
bench trial began, the court dismissed Lambert’s cross-complaint challenging the City’s
ban on dispensaries because Lambert lacked standing. As we explain more fully below,
the trial court granted the City’s motion in limine to exclude newly-proffered evidence
Lambert sought to introduce, and denied Lambert’s motion to exclude the City’s expert
witness. Following the trial, the court issued a detailed 36-page statement of decision.
The court explained “the evidence demonstrated that BCC was not a nonprofit
corporation, failed to enforce membership application and verification requirements and
did not show that it acquired, possessed and distributed only lawfully cultivated
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marijuana.” Consequently, the court found BCC’s activities constituted a nuisance and
sustained the City’s nuisance petition. The court also imposed fines and penalties on
Lambert and Beach Cities consisting of $25,000 for violating the narcotics abatement law
(§ 11581) and $297,500, calculated at $500 a day for the 595 days BCC illegally sold
marijuana to the public. Lambert now appeals.
II
DISCUSSION
A. Evidence Code section 913
Lambert contends the trial court erred by drawing adverse inferences from
his invocation of the Fifth Amendment, effectively punishing him for exercising his civil
rights, and thereby violating Evidence Code section 913. That section provides: “If in
the instant proceeding or on a prior occasion a privilege is or was exercised not to testify
with respect to any matter, or to refuse to disclose or to prevent another from disclosing
any matter, neither the presiding officer nor counsel may comment theron, no
presumption shall arise because of the exercise of the privilege, and the trier of fact may
not draw any inference thereon as to the credibility of the witness or as to any matter at
issue in the proceeding.” (Evid. Code, § 913.)
The City argues that “[n]otwitstanding” this clear statutory prohibition, an
adverse inference was nevertheless permissible because the Fifth Amendment does not
bar it. (See Baxter v. Palmigiano (1976) 425 U.S. 308, 318 (Baxter) [“the Fifth
Amendment does not forbid adverse inferences against parties to civil actions when they
refuse to testify in response to probative evidence offered against them”].) This is no
answer, however, to the broader protection enacted by the Legislature in the Evidence
Code. Simply put, Lambert invoked statutory, not constitutional protection, so the City’s
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reliance on Baxter is unavailing. As our Supreme Court observed in People v. Holloway
(2004) 33 Cal.4th 96, 131, fn. 9 (Holloway), federal case law allowing for adverse
inferences under the Fifth Amendment “says nothing about whether the California law of
evidence sanctions such inferences.” (Original italics.)
The City’s reliance on Avant! Corp. v. Superior Court (2000)
79 Cal.App.4th 876 (Avant!) is similarly misplaced. Avant! quoted Keating v. Office of
Thrift Supervision (9th Cir. 1995) 45 F.3d 322, 326, for the proposition that “‘it is even
permissible for the trier of fact to draw adverse inferences from the invocation of the
Fifth Amendment in a civil proceeding.” (Avant!, supra, at pp. 885-886.) But as the
Avant! court later recognized, “After that decision, the California Supreme Court relied
on Evidence Code section 913 in overruling authority allowing adverse inferences to be
drawn when the privilege is invoked in a civil proceeding.” (Oiye v. Fox (2012)
211 Cal.App.4th 1036, 1054, fn. 6, citing Holloway, supra, 33 Cal.4th 96, 131.) In
Holloway, the high court explained that with the enactment of Evidence Code
section 913, “‘no inference may be drawn from an exercise of a privilege either on the
issue of credibility or on any other issue . . . .’” (Holloway, at p. 131, italics added.)
Thus, “California law . . . makes no distinction between civil and criminal litigation
concerning adverse inferences from a witness’s invocation of the privilege against self-
incrimination,” and such inferences “are forbidden . . . in both types of cases.” (Ibid.)
The City’s counsel nevertheless repeatedly invited the trial court to draw
such inferences. Counsel argued, for example: “So you can make negative inferences
from the assertion of the Fifth Amendment;” “You [the trial court] asked the question,
should you draw any negative inferences? And the answer is, absolutely yes”;and “Yeah,
you should draw inferences from the failure to — inferences from the destruction of those
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documents, just like you should draw inferences from taking the Fifth Amendment,
which was the basis of those documents not being produced.” But we may not presume
the trial court blindly repeated counsel’s mistake. (Evid. Code, § 664.) Nothing in the
court’s detailed statement of decision suggests it agreed with counsel’s erroneous view of
Evidence Code section 913.
Lambert cites several exchanges between the trial court and the City’s
counsel to suggest the trial court drew a prohibited adverse inference from Lambert’s
invocation of the Fifth Amendment. But the exchanges are consistent with permissible
inferences from testimony by other witnesses, from the dispensary’s admitted shredding
of evidence, and from Lambert’s failure and the dispensary’s failure to produce evidence
to support their claims their marijuana activities were lawful.
For example, Lambert notes: “[A]t trial Dana Point argued, ‘So you can
make negative inferences from the assertion of the Fifth Amendment. And certainly one
negative inference you can make in this case, based on Sergeant Lambi’s testimony, is
that it is a common practice [for dispensaries] to purchase marijuana from vendors’”
(italics added), instead of growing it themselves, as required by California medical
marijuana law. Lambert asserts “that is exactly what the trial court did,” drawing a
prohibited negative inference by concluding in its statement of decision that “the most
convincing evidence presented was by the City to the effect that the marijuana obtained
was unlawful marijuana from Northern California.” But as noted in the italicized portion
of counsel’s statement, the basis for the trial court’s conclusion about the origin of BCC’s
marijuana rested in Lambi’s testimony, not an adverse inference from Lambert’s
invocation of the Fifth Amendment in his deposition.
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Lambert’s other attempts to impute to the trial court an adverse inference
founded in his Fifth Amendment privilege similarly fail. As we noted in this case in
Beach Cities I, the Supreme Court has explained in the criminal context that California
medical marijuana law affords only an affirmative defense (People v. Mower (2002)
28 Cal.4th 457, 477 (Mower)), and we assume the burden to demonstrate facts supporting
the defense similarly applies in the civil context here. (Beach Cities II, supra, at p. 16.)
Accordingly, Lambert and BCC bore a burden under the rule of “convenience and
necessity” (Mower, at p. 477) to produce and prove facts supporting the lawfulness of
their admitted possession and distribution of marijuana.
Lambert argues the trial court could not infer BCC’s marijuana activities
were unlawful based on BCC’s admitted shredding of documents concerning its
operations or from Lambert’s silence at his deposition on questions pertaining to
marijuana. But even accepting this proposition, it was also true the document shredding
and Lambert’s silence did nothing to establish the lawfulness of BCC’s activities.
Lambert in essence attempts to twist the prohibition against drawing
adverse inferences from asserting the Fifth Amendment privilege into a theory that the
absence of evidence resulting from BCC’s document shredding and Lambert’s silence at
his deposition both constitute evidence BCC acted lawfully. Not so. The absence of
evidence is indeed evidence of absence. In other words, wholly absent, so-called
“evidence” is no evidence at all. Accordingly, while counsel for the City urged the trial
court to draw negative inferences from Lambert’s silence, including a credibility
determination that he shredded documents to conceal evidence, we do not assume the
trial court’s judgment in the City’s favor establishes it drew those inferences. To the
contrary, the court instead reasonably could conclude based on other evidence that
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Lambert and BCC failed to demonstrate their marijuana activities were lawful. In other
words, the court found no merit in their affirmative defense.
Thus, Lambert was entitled at his deposition to assert the Fifth Amendment,
but his decision not to answer virtually all questions concerning marijuana did not
somehow furnish evidence that BCC’s activities were lawful. The trial court reasonably
could determine the questions Lambert did answer and the admissible evidence he did
provide, including the declarations and other submissions in opposition to summary
judgment, simply did not carry the day in establishing BCC’s marijuana activities were
lawful. It was for the trial court as the trier of fact to weigh the admitted evidence. We
therefore find no merit in Lambert’s challenge asserting the trial court drew prohibited
inferences.
B. Exclusion of Evidence
Lambert contends the trial court violated due process by barring him from
testifying and offering “key witnesses” and evidence in his defense. In particular, he
argues the trial court erroneously granted the City’s motion in limine at the outset of trial
to preclude him from testifying on matters to which he had invoked the Fifth Amendment
at his deposition. He also challenges the court’s ruling precluding him from introducing
documentary evidence he or BCC’s custodian of records had refused on Fifth
Amendment grounds to produce in discovery. We review the “trial court’s decision to
admit or exclude evidence . . . for abuse of discretion.” (People v. Vieira (2005)
35 Cal.4th 264, 292.)
Relying on our opinion in People ex rel. City of Dana Point v. Holistic
Health (2013) 213 Cal.App.4th 1016 (Holistic Health), Lambert contends the trial court
“erred by refusing to permit [him] to testify in his own defense without following the
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proper procedures . . . .” In Holistic Health, we considered a novel scenario in which a
trial court denied a city’s motion for a protective order that would have barred a
dispensary operator from testifying or offering evidence on topics he earlier refused to
discuss at his deposition based on his Fifth Amendment privilege. The trial court then
inexplicably and summarily excluded the defendant’s evidence opposing summary
judgment. Specifically, without a hearing and despite denying the protective order, the
court granted the city’s request under Evidence Code section 352 at summary judgment
to strike the operator’s declarations and evidence opposing summary judgment, which
were directly relevant to key areas in dispute. (Id. at p. 1031.) We explained section 352
“furnished no basis to exclude Holistic Health’s evidence, and the trial court abused its
discretion by effectively granting discovery sanctions without a motion or a hearing on
the motion.” (Ibid.)
Drawing on A & M Records, Inc. v. Heilman (1977) 75 Cal.App.3d 554(A & M Records) and Fuller v. Superior Court (2001) 87 Cal.App.4th 299 (Fuller), we
explained those cases “illustrate[] the established procedure that a trial court must
consider a protective order or otherwise hold a hearing to evaluate the important interests
at stake before excluding testimony or other evidence when a defendant asserts the Fifth
Amendment in a civil trial.” (Holistic Health, supra, 213 Cal.App.4th at p. 1031.) Thus,
in A & M Records, the plaintiff obtained a protective order under which the trial court
ordered the recalcitrant defendant “to turn over the requested documents by a specified
date before trial, or the defendant would be barred from introducing them at trial, and the
court also precluded the defendant ‘“from testifying at trial respecting matters [and]
questions . . . he refused to answer at his deposition[.]’” [Citation.]” (Holistic Health, at
p. 1031.)
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Lambert relies on our discussion of Fuller, and in particular on suggestions
the Fuller court made to resolve the important interests that collide when civil plaintiffs
seek discovery and defendants invoke the Fifth Amendment because they also may face
criminal prosecution. (See Fuller, supra, 87 Cal.App.4th at p. 307 [noting court’s inquiry
may show an asserted privilege does not apply, or does not preclude discovery or
discovery sanctions]; see also Pacers, Inc. v. Superior Court (1984) 162 Cal.App.3d 686,
690 [court must “weigh the parties’ competing interests with a view toward
accommodating . . . both . . . , if possible”].) Thus, we explained in Holistic Health that a
trial court “should employ any one of several procedural accommodations the Fuller
court suggested, or fashion a new one. [Citation.] As pertinent here, for example, when
civil defendants invoke the privilege against self-incrimination in pretrial depositions,
‘[i]nstead of precluding altogether their trial testimony, the trial judge should consider
setting a deadline shortly before the trial date for them to announce whether they will be
waiving the privilege during the trial. If they indicate an intent to waive it during the
trial, the court should order them to submit to deposition questioning designed to reveal
the forthcoming testimony. If they persist in resisting even this eleventh-hour discovery,
the trial judge should preclude them from waiving the privilege at the time of the trial.’”
(Holistic Health, supra, 213 Cal.App.4th at p. 1032, italics added.)
Here, counsel for the City correctly recognized on remand from our
reversal of summary judgment that important competing interests were at stake in
Lambert’s Fifth Amendment invocation and the City’s need for discovery to prosecute its
nuisance action. Accordingly, the City’s counsel sought a continuance to conduct
discovery along the lines we later suggested in Holistic Health. Specifically, in a hearing
addressing the City’s continuance request, counsel stated: “If we’re going to go to trial
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and Mr. Schwartz [counsel for Lambert] wants to have these gentlemen testify, let’s take
their depositions and find out what they’re going to say.” (See Holistic Health, supra,
213 Cal.App.4th at p. 1032 [if defendants formerly invoking Fifth Amendment intend to
testify at trial “‘the court should order them to submit to deposition questioning to reveal
the forthcoming testimony’”].)
As an alternative to a continuance, the City’s lawyer requested a protective
order preventing Lambert from testifying about or introducing documents withheld in
discovery on topics to which he or BCC had asserted the Fifth Amendment. At the
hearing, counsel for the City highlighted his predicament: “[A]s long as the PMQ
[person most qualified] for Beach Cities Collective, which is Mr. Lambert, is not allowed
to put on evidence to which he took the 5th Amendment, I am ready to go to trial. As
long as also . . . the custodian of records who refused to produce any documents because
of the 5th Amendment . . . is not allowed to produce any documents that we don’t already
have, I am ready to go to trial. [¶] . . . [¶] As long as they’re not able to produce
documents they refused to produce previously, I am good to go. What I don’t want to
have happen is we show up on the first day of trial, we have this big fight for three hours
over whether [defendants] can testify notwithstanding their prior exercise of the 5th
Amendment.”
Lambert’s attorney steadfastly opposed a continuance, agreeing at the
hearing that “if Mr. Lambert took the 5th on something, then he can’t testify to it at trial.
I have no problem with that. . . . [¶] . . . There is no reason to continue this trial. There
is no more discovery game playing. Let’s go to trial.” The record also discloses that
after the hearing, Lambert’s lawyer further stipulated that Lambert would “be barred
15
from submitting as evidence documents that were not produced in the earlier
depositions.”
Based on Lambert’s stipulations, the trial court found the City’s requests
for a continuance or a protective order both moot, subject to the City renewing its request
for a protective order at trial if Lambert sought to testify. In an abundance of caution, the
City renewed on the first day of trial its request for a protective order, Lambert in turn
sought to testify, and the trial court granted the City’s motion barring his testimony on
topics addressed at his deposition or in the City’s document production requests.
Although the City requested and Lambert opposed a continuance for the
very purpose discussed in Holistic Health — “deposition questioning to reveal the
forthcoming testimony” — Lambert now claims on appeal the trial erred by barring him
from testifying without following Holistic Health’s “proper procedures.” Given the
procedural history we have described, Lambert’s claim has a decidedly hollow ring.
According to Lambert, “The questions [he] sought to answer at trial were
distinct from those to which he had invoked his Fifth Amendment rights. Therefore, the
trial court erred in refusing to let him testify.” The trial court offered to allow Lambert to
read his deposition testimony so the court would have an opportunity to assess his
credibility as a testifying witness, but Lambert declined. The court also invited Lambert
to make an offer of proof concerning his proposed testimony on matters he claimed were
not addressed at his deposition or in the City’s document requests. Lambert made a
lengthy offer of proof on issues he insisted were outside the scope of his deposition or the
document requests.
But as the trial court explained in its statement of decision, “[I]t is clear that
the breadth and scope of the deposition questions were such that the deposing attorney
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could be assured that it would be futile to ask any questions regarding the subject area
upon which the defendant asserted the Fifth Amendment and that the defendant was
asserting his Fifth Amendment [p]rivilege on that area of inquiry. Similarly, the blanket
assertion of privilege on the request for production of documents supported the . . .
determination to exclude any documents that had not already been produced.” The trial
court made in its statement of decision a detailed assessment of the document requests
and deposition questions that the custodian of records and Lambert refused to answer on
Fifth Amendment grounds, including “All Records in your possession, custody and
control that evidence your compliance” with California medical marijuana law, and any
“General Corporate Documents” pertinent to “whether the entity was formed and
operated as a lawful collective in compliance with the CUA, MMPA, and AG
Guidelines.”
We have reviewed Lambert’s offer of proof in light of the questions he
refused to answer at his deposition and the documents BCC declined to produce and, with
two exceptions, we conclude his offer presented nothing new. But the trial court did not
err in excluding the testimony on the two exceptions because Lambert refused the City’s
proposed continuance for an 11th-hour deposition.
Specifically, one of the topics Lambert wanted to explain in his testimony
was his reason for starting the dispensary, presumably to show that it was for a non-profit
purpose as required by state medical marijuana law. Lambert complained the City “is
saying that why Mr. Lambert started the collective . . . is irrelevant. Well, it is not
irrelevant at all. The allegation is that he started this as a money-making scheme to — to
use the auspices of medical marijuana to make a fortune for himself. So his intent is very
relevant in this case.” As a related matter, Lambert sought to testify concerning his
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current financial condition: “he just is now, he and his family are being evicted from
their home. If he were making the millions of dollars, it is certainly a reasonable
assumption that he would have used some of those millions.”
Lambert points to the deposition testimony of the dispensary operator in
Holistic Health, who emphasized, “‘I want it noted how much money we lost last year,’”
and explained “his dire financial predicament reflected that Holistic Health was not
profitable: ‘My house has been foreclosed on. My boat was repossessed. My
motorcycles have been repossessed,’ and he expressed frustration at the notion ‘that I'm
getting rich when all my stuff is being taken and my credit has been ruined over this
whole thing.’” (Holistic Health, supra, 213 Cal.App.4th at p. 1027.) We explained the
trial court in Holistic Health could not summarily exclude this testimony under Evidence
Code section 352 at summary judgment after denying the city’s protective order because
it “was tailored precisely to the dispositive issue of profit. Accordingly, the time
necessary for the court to consider the evidence can in no way be characterized as
‘undue.’” (Id. at p. 1029.)
Here, the trial court in its in limine ruling relied on Evidence Code
section 352 to exclude Lambert’s proposed testimony about why he started the dispensary
and his current financial condition. But in its statement of decision, the trial court
properly explained it excluded Lambert’s proffered evidence because “the defendant’s
tactics of producing [evidence] at the last instance prior to trial deprived the plaintiff of
the ability to conduct discovery . . . , including verifying the authenticity of the
documents, asking follow up questions to the deponents . . . etc.” Unlike Holistic Health,
where the dispensary operator complained about his financial condition at his deposition
well before trial, and therefore the city could follow up with further questions and
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discovery to verify his testimony, here Lambert sought at trial to spring on the City his
financial condition and reasons for starting the dispensary. We note Lambert’s proposed
testimony was similar in substance to the topics on which the City had sought to depose
him and had propounded discovery requests, i.e., Lambert’s compensation and the
dispensary’s organization and operation, including its finances and whether it operated as
a nonprofit. Additionally, Lambert refused the City’s suggestion for a pretrial deposition
to “find out what they’re going to say.” Given these considerations, the trial court did not
err in excluding Lambert’s proposed testimony.
A second category in Lambert’s offer of proof that the trial court rejected
concerned document shredding. Lambert admitted at his deposition that BCC shredded
patient records and other documents. At trial, Lambert sought to testify that he did so
upon the recommendation of his data security consultant, after the records were scanned
and preserved electronically, and he sought to have the consultant testify. The trial court
acknowledged the consultant’s proffered testimony was to “rebut the contention by the
City that the defendant was shredding documents to destroy relevant evidence showing
that BCC was a for profit enterprise.” The consultant, Mr. Ewar, was a dispensary
member and BCC had refused to disclose its member lists based on federal privacy
provisions in the Health Insurance Portability and Accountability Act (HIPAA). The trial
court excluded Ewar’s testimony because “the defendants had objected to providing the
City a record of its membership on HIPAA grounds and the late disclosure of Mr. Ewar
as a member and witness was not justified.”
We agree with Lambert the fact Ewar had not been disclosed as a
dispensary member was of minimal relevance because his patient status had little
pertinence to his testimony. Moreover, if the trial court believed Ewar’s member status
19
was crucial to evaluating his credibility, a patient can volunteer his or her own medical
information without violating HIPAA, even if Lambert could not. But the trial court
properly excluded Ewar based on Lambert’s late disclosure of him as a witness. (See
Grupe Co. v. Workers’ Comp. Appeals Bd. (2005) 132 Cal.App.4th 977, 988 [“If a party
fails to disclose the identity of a witness or an exhibit in the pretrial conference statement,
such evidence is inadmissible”].) This is particularly true given Lambert refused the
City’s offer of a continuance for pretrial depositions of belated witnesses “to find out
what they’re going to say.” Lambert could not in fairness oppose disclosure of potential
witnesses during discovery, but later have a new witness testify at trial.
We also note that while Lambert suggests he only shredded documents on
his consultant’s recommendation “after the records were scanned and preserved
electronically,” he made no effort to provide those documents in electronic format or
hard copies in response to the City’s numerous discovery requests. Lambert also rejected
the City’s offer of a pretrial continuance to examine potential new evidence. Nor did
Lambert include the purportedly preserved documents in the exhibit binders that must be
exchanged before trial under the superior court’s local rules. Effectively, then, the
documents did not exist.
The trial court explained in its statement of decision that it made “no
finding of intentional destruction for the purposes of avoiding adverse evidence.
However, it is clear that relevant evidence was destroyed, and that this was the best
evidence to demonstrate the financial condition of the defendant’s operation relating to its
compliance with the CUA, MMPA, and AG Guidelines. As such, the court may presume
that such evidence would have been unfavorable to the defendant’s case.” The trial
court’s comments appear contradictory in both suggesting a presumption undisclosed
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evidence may have been unfavorable but also that it was not willfully suppressed or
intentionally destroyed for an improper purpose.
But we find no error because the court’s comments boiled down to the
simple and correct observation that Lambert failed to produce the dispensary’s records,
whether in electronic or original form, and instead offered only his limited explanation at
his deposition of the dispensary’s operations. The trial court reasonably could take a
jaundiced view of such testimony without the support of the underlying documents.
(Evid. Code, § 412 [“If weaker and less satisfactory evidence is offered when it was
within the power of the party to produce stronger and more satisfactory evidence, the
evidence offered should be viewed with distrust”].) In sum, Lambert’s challenges
concerning exclusion of evidence and the manner in which the trial court weighed his
evidence are without merit.
C. The City’s Expert
Lambert challenges the trial court’s decision to admit the testimony of
Orange County Sheriff’s Department Sergeant Thomas Lambi, who investigated BCC
and numerous other medical marijuana dispensaries. The City designated Lambi as a
percipient expert witness before trial. As the City explained in its designation, “While
not formally retained as an expert witness, [Lambi] may have percipient knowledge and
may provide testimony concerning the relevant medical marijuana laws . . . and
Defendants’ compliance with (or lack thereof) that could fairly be characterized as
‘expert testimony,’ and therefore, in the interests of full disclosure and out of an
abundance of caution, the City designates this individual as an ‘expert witness’ although
not formally retained by it in this case.”
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Lambert contends the trial court erred in permitting Lambi to offer
“unqualified” and “speculative” expert testimony. Lambert also argues the trial court
erred in denying his request for a hearing under People v. Kelly (1976) 17 Cal.3d 24(Kelly) to challenge the reliability of Lambi’s testimony. Specifically, Lambert claimed
Lambi’s method of estimating dispensary revenue and profits implicated Kelly because it
amounted to a new, pseudoscientific technique. As we explain, Lambert’s challenges are
misplaced and furnish no basis for reversal.
In asserting Lambi’s testimony was unqualified and speculative, Lambert
does not attack Lambi’s general expertise concerning medical marijuana dispensaries
based on his numerous local investigations. Instead, Lambert challenges the evidentiary
foundation for Lambi’s opinions concerning BCC’s revenues and profitability. He argues
the trial court “abdicated its gatekeeping responsibility by admitting unsupported and
speculative expert testimony.” Lambert relies on the rule stated in Pacifica Gas &
Electric Co. v. Zuckerman (1987) 189 Cal.App.3d 1113, 1135: “Where an expert bases
his conclusion upon assumptions which are not supported by the record, upon matters
which are not reasonably relied upon by other experts, or upon factors which are
speculative, remote or conjectural, then his conclusion has no evidentiary value.” As our
Supreme Court has explained, the trial court “acts as a gatekeeper to exclude expert
opinion testimony that is (1) based on matter of a type on which an expert may not
reasonably rely, (2) based on reasons unsupported by the material on which the expert
relies, or (3) speculative.” (Sargon Enterprises, Inc. v. University of Southern California
(2012) 55 Cal.4th 747, 771-772.)
Lambert repeatedly challenged the foundation for Lambi’s testimony. For
example, he asserted a general treatise Lambi cited concerning marijuana cultivation was
22
of no value because the author grew his marijuana in the Netherlands, and did not
account for costs such as electricity and water. According to Lambert, Lambi’s cost
estimates for growing or obtaining marijuana locally failed to include overhead expenses
such as initial equipment, rent, labor, legal costs, insurance, replacement equipment, and
an alarm system.
Lambert also attacked as unfounded Lambi’s estimate that BCC garnered as
much as $10,000 a day based on up to 100 daily marijuana sales transactions at an
average of $100 each. Lambert calculated this figure based in part on observations made
by the City’s manager and assistant manager outside BCC’s storefront location, counting
customer traffic in and out of the store in 15- to 60-minute intervals. Additionally, an
undercover officer purchased $20 worth of marijuana at BCC to establish it was engaged
in marijuana distribution.
But Lambert argues the $20 transaction actually undercuts Lambi’s revenue
estimates because it “is a mathematical non sequitur” to infer a $100 average purchase
price from that figure. He complains Lambi did not account for possible bias in the city
managers’ customer counts, nor their unreliably brief sample intervals. Lambert notes
Lambi had “no expertise in mathematical modeling,” he “never tested the reliability of
his estimates,” nor “established an error rate for his model,” nor an error rate for “his
statistical conclusion that dispensaries average 100 patients per day.” Consequently,
Lambert contends Lambi’s “method is scientifically invalid and not the type of
information experts typically rely on,” and therefore the trial court erred by denying his
motions to strike Lambi’s testimony.
Lambert’s challenges are misplaced, however, for three reasons. First, we
observed in Beach Cities II that it was BCC’s obligation to establish as an affirmative
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defense that its admitted marijuana sales transactions were lawful, including that it did
not turn a profit. (Beach Cities II, supra, at p. 16; see § 11362.765, subd. (a) [“nothing in
this section shall authorize . . . any individual or group to cultivate or distribute marijuana
for profit”].) As we noted in Beach Cities II, the Supreme Court explained in Mower,
supra, 28 Cal.4th at p. 477 that “the ‘burden of proving an exonerating fact may be
imposed on a defendant if its existence is “peculiarly” within his personal knowledge and
proof of its nonexistence by the prosecution would be relatively difficult or
inconvenient.’” The high court concluded this rule was particularly apt in the medical
marijuana context where state law provides an exemption from otherwise generally
applicable criminal laws barring marijuana distribution. (Ibid.)
In Beach Cities II, the limited evidence BCC presented concerning the
nonprofit nature of its operations was enough for the dispensary to survive the City’s
summary judgment motion. But the trial court was not required to credit that evidence at
trial, nor the scant additional evidence BCC introduced. Indeed, the trial court as the trier
of fact reasonably could conclude that BCC’s failure to produce its books or other direct
evidence of its costs, expenses, profits, or manner of operation was fatal to its affirmative
defense that it operated as a nonprofit entity and that it complied in all respects with state
medical marijuana law, including lawfully growing its marijuana. Consequently, given
BCC’s failure to support its affirmative defense at trial, Lambi’s revenue and profit
calculations were not essential to the trial court’s conclusion BCC operated unlawfully.
Any potential flaws in Lambi’s testimony therefore do not require reversal of the
judgment.
Second and related, the trial court did not rely on Lambi’s calculation of
$10,000 in daily proceeds from BCC’s illegal marijuana sales. Indeed, the trial court
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expressly noted “the evidence supporting the assertion of 100 customers a day was rather
weak . . . .” The trial court instead imposed a lower civil penalty of $500 a day for each
day BCC unlawfully operated its business enterprise, and ample evidence supported that
figure, which Lambert does not challenge. In particular, nothing suggested BCC was an
atypical dispensary, and therefore the trial court reasonably could infer at least $500 in
daily marijuana sales from Lambi’s uncontroverted testimony based on his experience
investigating local dispensaries and the market for medical marijuana, including their
online published price lists. In any event, the trial court’s authority to impose the penalty
is not based on net or gross proceeds from an unlawful venture, but instead on factors
including the willfulness and persistence of the misconduct and the harm to the
community and businesses operating lawfully. (Bus. & Prof. Code, § 17206, subds. (a) &
(b); see People ex rel. Lockyer v. Brar (2005) 134 Cal.App.4th 659, 668 [upholding fine
of $1,000 for each “shakedown” letter attorney sent nail salons he alleged were operating
illegally].) Accordingly, Lambert’s attack on the allegedly unscientific nature of Lambi’s
testimony furnishes no grounds for reversal.
Finally, Lambert’s reliance on Kelly is misplaced. He was not entitled to a
hearing under Kelly to challenge Lambi’s method of estimating dispensary revenue and
profits as a new, untested, and pseudoscientific technique. (See generally Kelly, supra,
17 Cal.3d 24.) There was nothing novel or revolutionary in Lambi’s attempt to gauge
BCC’s financial position in the local medical marijuana market. He simply estimated
dispensary costs and profit based on likely expenses, product pricing, and sales volume,
absent BCC’s cooperation but in accord with prevailing local market conditions that he
knew well. Lambert’s challenges went to the weight, not the admissibility of Lambi’s
25
testimony, and consequently the trial court did not err in denying Lambert’s motions to
exclude or strike the evidence.
Lambert also argues in his reply brief that the trial court erred in allowing
Lambi to testify as an expert witness when the City had not designated him as a retained
expert witness. The argument is forfeited by Lambert’s failure to raise it in his opening
brief and, in any event, has no merit. Lambert relies on the distinction the Supreme Court
has drawn in the medical context between “retained” and “percipient” experts.
(Schreiber v. Estate of Kiser (1999) 22 Cal.4th 31, 34-35.) A “retained” expert is a
witness a party employs “‘for the purpose of forming and expressing an opinion in
anticipation of the litigation or in preparation for trial,’” while a “percipient” expert
“acquires his information independently of the party that expects to be calling him” (id. at
p. 35). The City explained Lambi did not conduct his investigation or form any opinions
at the City’s behest, but instead “any opinion Sergeant Lambi formed about Defendants’
operations was part of his regular duties as an investigating officer.” The trial court
reasonably admitted Lambi’s testimony as a percipient expert. Moreover, given the City
expressly notified Lambert in its expert witness designation that it intended to call Lambi
as an expert, there is no conceivable harm in the trial court’s ruling.
D. Lambert’s Standing to Challenge the City’s Ban on Dispensaries
Lambert also contends the trial court erred in dismissing his cross-
complaint challenging the City’s ban on dispensaries. The trial court concluded Lambert
lacked standing to contend state law preempted the City’s ban. The trial court relied on
our opinion Traudt v. City of Dana Point (2011) 199 Cal.App.4th 886, review granted
Jan. 18, 2012, S197700, rev. dism. Mar. 14, 2012.) There, we concluded “an individual
medical marijuana patient is not the proper party to challenge generally applicable zoning
26
provisions because—whatever the contours of the right to engage in cooperative or
collective medical marijuana activity (see, e.g., § 11362.775)—the Legislature invested
this right in cooperative and collective groups and entities, not in individuals.”
Lambert argues that because he was not merely a member, but also the
founder and an owner of the dispensary, he had standing to challenge the City’s ban.
Even assuming that is true, however, the point is moot in light of the Supreme Court’s
decision in Inland Empire upholding local bans. Additionally, the trial court’s injunction
and imposition of fines and penalties under Business & Professions Code section 17206
was not based solely on BCC’s unlawful conduct in violating the City’s ban on
dispensaries (third cause of action), but rather because of BCC’s violation of state
medical marijuana law. Accordingly, BCC violated the narcotics abatement law
(§ 11570) as alleged in the City’s first cause of action, and therefore constituted a public
nuisance (second cause of action), and was subject to the fines and penalties under 17200
(fourth cause of action).
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III
DISPOSITION
The judgment is affirmed. The City is entitled to its costs on appeal.
ARONSON, J.
WE CONCUR:
RYLAARSDAM, ACTING P. J.
FYBEL, J.
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