Court Opinion

ID: 9842381
Source: CourtListenerOpinion
Date Created: 2023-09-22 22:00:36.996857+00
Date Added: 2024-06-11T09:15:07.399555
License: Public Domain

In the

    United States Court of Appeals
                  for the Seventh Circuit
                     ____________________
No. 22-2050
JUAN FINCH, JR., and MARK TOIGO,
                                                 Plaintiffs-Appellants,
                                  v.

MARIO TRETO, JR., Secretary of
the Illinois Department of Financial
and Professional Regulation,
                                                   Defendant-Appellee.
                     ____________________

             Appeal from the United States District Court
        for the Northern District of Illinois, Eastern Division.
         No. 22 C 1508 — Rebecca R. Pallmeyer, Chief Judge.
                     ____________________

 ARGUED SEPTEMBER 15, 2022 — DECIDED SEPTEMBER 22, 2023
                ____________________

   Before SYKES, Chief Judge, and RIPPLE and KIRSCH, Circuit
Judges.
    SYKES, Chief Judge. In June 2019 Illinois legalized the
recreational use of cannabis by enacting the Cannabis Regu-
lation and Tax Act (the “Cannabis Act” or “Act”). 2019 Ill.
Legis. Serv. P.A. 101-0027. The Act established a licensing
system for cannabis dispensaries administered by the Illinois
2                                                 No. 22-2050

Department of Financial and Professional Regulation. Appli-
cations for the first batch of licenses closed in January 2020,
and by mid-2021 the Department had allocated 185 licenses
pursuant to a review and lottery procedure. But the issuance
of the licenses was stayed in connection with state-court
litigation. The Department proposed a different set of rules
for a second group of licenses in 2022.
    The rules for the 2021 licenses established a point system
that heavily favored applicants who were longtime residents
of Illinois. The plaintiffs here—Juan Finch, Jr., and Mark
Toigo—want to own or invest in cannabis dispensaries in
Illinois, but neither of them lived in the state during the
application period. Finch moved to Illinois in 2021 hoping to
participate in the new market; Toigo did not relocate. Be-
cause neither was a longtime resident of Illinois, they
thought it would be useless to apply for a license and did
not do so. Instead, in March 2022 they filed this lawsuit
raising a dormant Commerce Clause challenge to the resi-
dency provisions in the licensing regime. They also moved
for a preliminary injunction halting the completion of the
licensing process for the allocated 2021 licenses and enjoin-
ing the ongoing process for the 2022 licenses. The district
court denied the motion, and the plaintiffs appealed. See
28 U.S.C. § 1292(a)(1).
    We dismiss in part and affirm in part. The district judge’s
denial of the motion for a preliminary injunction cleared the
way for the Department to issue the 2021 licenses, and it did
so. That action largely moots this appeal. To the extent that
some form of relief unwinding the licenses remains possible,
the judge weighed the equities and held that the plaintiffs
waited far too long to challenge the residency provisions. By
No. 22-2050                                                     3

March 2022 when they filed this suit, the 2021 licenses had
already been allocated on a conditional basis. The judge
reasoned that an injunction would severely harm the reli-
ance interests of those who had been awarded the condi-
tional licenses and otherwise disrupt the orderly completion
of the first-round licensing process. We see no basis to
disturb that sensible equitable judgment.
    The judge also declined to enjoin the ongoing process for
the second batch of licenses. At the time of her ruling, the
Department had not yet finalized the regulatory criteria for
this second group. The judge held that the challenge to the
2022 licensing regime was unripe because the Department
might remove the residency provisions or otherwise materi-
ally modify the criteria. That too was a sound decision. The
Department has since finalized the 2022 rules and deleted
the provisions favoring Illinois residents.
                         I. Background
    The district court’s decision thoroughly explains the
complicated regulatory background and the procedural
history of this suit and the parallel state litigation. Finch v.
Treto, 606 F. Supp. 3d 811, 816–24 (N.D. Ill. 2022). Only a
summary is needed here. The Cannabis Act authorized the
Department to issue up to 500 licenses to dispense recrea-
tional cannabis in Illinois. 410 ILL. COMP. STAT. 705/15-
35.20(b). This case primarily concerns a preliminary form of
the license that converts to a full license if the licensee satis-
fies certain conditions.
    The Act authorized the Department to issue up to
75 licenses before May 1, 2020, and to allocate them across
17 distinct geographic regions of Illinois in proportion to
4                                                 No. 22-2050

each region’s population. Id. § 705/15-25(a), (c). The applica-
tion deadline was January 1, 2020, id. § 705/15-25(b), and
applicants had to submit voluminous documentary support
with their applications and pay a nonrefundable $5,000
application fee, id. § 705/15-25(d). The Department received
937 applications by the deadline.
    The Act directed the Department to allocate the licenses
through a competitive point-based system. Each applicant
could receive a maximum of 252 points. Id. § 705/15-30(c)-
(d). Points were awarded to recognize strength in an appli-
cant’s proposal and to promote certain social goals. This case
concerns the points awarded for Illinois residency: for this
first batch of licenses, extra points were awarded to appli-
cants who could establish Illinois residency, or the residency
of a 51% owner, “in each of the past 5 years.” Id. § 705/15-
30(c)(5), (c)(8); § 705/1-10.
    The Department scored the applications and determined
that the number of applicants with a perfect score of
252 points far exceeded the number of licenses available in
each of the 17 geographic regions. To address this dilemma,
the Department decided to allocate the licenses via a lottery
conducted among those with a perfect score. Finch,
606 F. Supp. 3d at 820–21. Around the same time, several
applicants challenged the accuracy of the scoring process in
state court, and the Department announced that it would
conduct a deficiency-notice process before holding the tie-
breaker lottery. Id.
   In July 2021 while the deficiency-notice process was pro-
ceeding, the Illinois legislature amended the Cannabis Act to
codify the tie-breaker procedure for the original 75 licenses
and to establish two additional lotteries for 55 licenses each,
No. 22-2050                                                   5

bringing the total number of 2021 licenses to 185. 410 ILL.
COMP. STAT. 705/15-35, 705/15-35.10. All three lotteries were
effectively limited to Illinois residents who had applied by
the January 2020 deadline. The Department held the three
lotteries in July and August 2021 and allocated all 185 licens-
es on a conditional basis in a final administrative decision on
September 3, 2021.
    Juan Finch and Mark Toigo both aspire to own a recrea-
tional cannabis dispensary in Illinois, but neither lived in the
state at the time of the January 2020 application deadline for
the first batch of licenses. Finch relocated to the state in
December 2021 hoping to participate in the new Illinois
cannabis market. Toigo remained a resident of Pennsylvania
and from his home state has invested in cannabis-related
businesses located in other states. Based on the residency
provisions in the initial Illinois regulatory scheme, Finch and
Toigo thought it would be futile to apply for a license and
did not do so.
     Instead, in March 2022 while the state litigation was still
pending but well along the way toward resolution, Finch
and Toigo filed this suit in federal court against Mario Treto,
Jr., the Secretary of the Department, raising a challenge to
the residency provisions under the dormant Commerce
Clause. (They sued the Secretary in his official capacity,
which amounts to a suit against the agency itself, Connors v.
Wilkie, 984 F.3d 1255, 1260 (7th Cir. 2021), so for simplicity
we refer to the Department as the defendant.) The plaintiffs
also sought a preliminary injunction halting the completion
of the 2021 licensing process as well as the ongoing 2022
licensing process. As we’ve noted, by the time they filed suit,
the 2021 conditional licenses had already been allocated, but
6                                                 No. 22-2050

the Department had not yet issued them because the judge
in the state-court case had issued a stay. The state judge
lifted the stay in late May 2022, leaving the Department free
to issue the 2021 licenses subject only to its commitment not
to do so pending further order of the district court in this
case. Finch, 606 F. Supp. 3d at 822.
     The July 2021 amendments to the Cannabis Act had also
directed the Department to issue at least 50 additional
licenses on or before December 21, 2022. 410 ILL. COMP. STAT.
705/15-35.20(c). On March 25, 2022, just days after the plain-
tiffs filed the motion at issue here, the Department issued a
proposed rule under which it would issue another 55 licens-
es in a lottery to be held sometime in 2022. See 46 Ill. Reg.
5127 (Mar. 25, 2022). The new rule contained slightly differ-
ent residency provisions but continued to favor in-state
applicants. Id. Under Illinois law the proposed rule would
not become final until after a public-notice process and
approval by the Joint Committee on Administrative Rules.
5 ILL. COMP. STAT. 100/5-6, 100/5-10.
    In the meantime, the district judge addressed and denied
the plaintiffs’ motion for a preliminary injunction. Finch,
606 F. Supp. 3d at 844–45. In an exhaustive opinion, the
judge concluded that the plaintiffs had established a likeli-
hood of success on their claim that the residency provisions
in the state’s licensing regime could not survive constitu-
tional scrutiny under the Supreme Court’s dormant Com-
merce Clause jurisprudence. Id. at 830 (citing Pike v. Bruce
Church, Inc., 397 U.S. 137, 142 (1970), and Regan v. City of
Hammond, 934 F.3d 700, 703 (7th Cir. 2019)). She acknowl-
edged, however, that the issue was murky and unsettled
because federal law continues to prohibit cannabis distribu-
No. 22-2050                                                   7

tion. Id. at 834–35. The judge also held that the plaintiffs had
established, “at least in theory,” that they would suffer
irreparable harm in the absence of preliminary injunctive
relief. Id. at 835.
    Moving on to balance the equities, the judge weighed the
harm to the plaintiffs if she denied the motion against the
harm to third parties and the public if she granted it. At this
step in the analysis, the judge ruled against the plaintiffs.
She concluded that they waited far too long to file their
suit—more than two years after the application deadline for
the first batch of licenses and eight months after the lottery
results were announced. Id. at 835–36. Under these circum-
stances, the judge reasoned that halting and unwinding the
2021 licensing process would cause undue harm to the
holders of the allocated conditional licenses and to the
public’s interest in the orderly issuance of the first group of
licenses. For these reasons, the judge declined to enjoin the
finalization of the 2021 licenses, finding the request for
preliminary injunctive relief too “sweeping” and “highly
disruptive.” Id. at 840.
    The judge also declined to enjoin the ongoing 2022 licens-
ing process, though for a different reason. Because the
proposed administrative rule governing the 2022 licenses
was not yet final and the residency provisions might be
modified or deleted, the judge concluded that the plaintiffs’
constitutional challenge was unripe. Id. at 843–44. With that,
the judge gave the Department a green light to issue the
already-allocated 2021 conditional licenses and to move
forward with the 2022 licensing process.
8                                                 No. 22-2050

   The plaintiffs sought interlocutory review, as permitted
by § 1292(a)(1) (authorizing interlocutory appeal of orders
granting or denying injunctive relief).
                        II. Discussion
     Despite the regulatory complexity, the issue before us is
narrow. There is no need for a detailed exploration of the
state’s cannabis-licensing regime or the merits of the plain-
tiffs’ dormant Commerce Clause challenge. We need only
examine the judge’s equitable balancing of harms, and our
review of that determination is quite deferential.
     A preliminary injunction is “an exercise of a very far-
reaching power, never to be indulged in except in a case
clearly demanding it.” Cassell v. Snyders, 990 F.3d 539, 544
(7th Cir. 2021) (quoting Orr v. Shicker, 953 F.3d 490, 501 (7th
Cir. 2020)). To obtain a preliminary injunction, a plaintiff
must show that (1) he has some likelihood of success on the
merits of his claim; (2) traditional legal remedies are inade-
quate; and (3) he would suffer irreparable harm without
preliminary injunctive relief. Speech First, Inc. v. Killeen,
968 F.3d 628, 637 (7th Cir. 2020). If the plaintiff establishes
these threshold requirements, then the court must balance
the equities, weighing the harm to the moving party if the
requested injunction is denied against the harm to the
nonmoving party and the public—including third parties—
if it is granted. Cassell, 990 F.3d at 545.
    “The party seeking a preliminary injunction bears the
burden of showing that it is warranted.” Speech First,
968 F.3d at 637. And because the legal standard for injunc-
tive relief calls for equitable judgment, our standard of
review is especially deferential: we will reverse only if we
No. 22-2050                                                    9

find a clear abuse of discretion. Cassell, 990 F.3d at 545. A
clear error of fact or law counts as an abuse of discretion. Id.
But absent an error of that type, the district judge’s decision
is entitled to significant deference. Id.
    Here the judge determined that the plaintiffs had estab-
lished a likelihood of success on their dormant Commerce
Clause challenge to the residency provisions in the state’s
initial licensing scheme for cannabis dispensaries. Finch,
606 F. Supp. 3d at 830–34. She also held that they had shown
irreparable harm, “at least in theory.” Id. at 835. Although
the plaintiffs satisfied these prerequisites, the judge ultimate-
ly ruled against them after balancing the equities and find-
ing that the scales tipped heavily against an injunction. As
just explained, that equitable judgment is entitled to substan-
tial deference on appeal, leaving the plaintiffs with a steep
hill to climb.
    Before proceeding, however, we must address a thresh-
old jurisdictional question. The Department argues that the
issuance of the 2021 licenses has mooted much of this ap-
peal.
    An appeal becomes moot when, because of an interven-
ing event, the court cannot grant “any effectual relief what-
ever in favor of the appellant.” In re Bullock, 986 F.3d 733, 738
(7th Cir. 2021) (quotation marks omitted); see also
Lauderdale-El v. Ind. Parole Bd., 35 F.4th 572, 575 (7th Cir.
2022) (“A case becomes moot when a court can no longer
grant any redress for the alleged wrong.”). When an appeal
challenges the district court’s denial of a preliminary injunc-
tion, “[o]nce the event in question occurs, any possible use
for a preliminary injunction [has] expired.” A.B. ex rel. Kehoe
v. Hous. Auth. of S. Bend, 683 F.3d 844, 845 (7th Cir. 2012).
10                                                 No. 22-2050

    The event Finch and Toigo primarily sought to prevent—
the issuance of the 2021 conditional licenses—took place
shortly after the district judge issued her decision, which
largely moots their appeal of her refusal to enjoin it. The
plaintiffs resist this conclusion, arguing that effective relief
remains possible notwithstanding the issuance of the licens-
es. They suggest that the district judge could, on remand,
order the Department to conduct a corrective lottery, effec-
tively unwinding the 2021 licenses and starting the process
over. The Department responds that the plaintiffs never
sought a corrective lottery in the district court.
    Setting aside the Department’s procedural point, to the
extent that the plaintiffs now argue for an injunction un-
winding the issuance of the 2021 licenses and restarting the
process—through a corrective lottery or otherwise—the
judge sensibly ruled out any such relief. In balancing the
equities, she concluded that the harm to the plaintiffs was
vastly outweighed by the severe harm to the reliance inter-
ests of the license holders and to the public’s interest in the
orderly completion of the 2021 licensing process.
    More specifically, the judge explained that plaintiffs “had
ample time and opportunity to challenge the Cannabis Act’s
residency-related criteria sooner, but they waited until the
eleventh hour to file suit.” Finch, 606 F. Supp. 3d at 824. This
eleventh-hour timing “threaten[ed] to completely disrupt a
complicated administrative and judicial process” that had
spanned more than two years and involved “numerous third
parties” who had “participated and invested financially” in
the application and lottery processes. Id. The judge gave
significant weight to the interests of the winning applicants,
all of whom had invested substantial time, effort, and ex-
No. 22-2050                                                     11

pense in the application process and in preparing to open
their businesses once the state court lifted its stay. Id. at 837–
38.
    On the other side of the ledger, the judge observed that
the plaintiffs had “identified no costs that they have incurred
during the administrative process or in reliance on the
lottery results.” Id. at 838. Rather, the plaintiffs basically “sat
on the sidelines from June 2019, when the Cannabis Act was
enacted, until March 2022, several months into the state
court litigation over the Department’s final administrative
decision.” Id. Their delay, the judge reasoned, was “substan-
tial and inexplicable.” Id. at 836.
   After carefully balancing the equities, the judge reasona-
bly concluded that enjoining the issuance of the 2021 licenses
and ordering the Department to unwind and restart the
application and lottery process would be a wholly inappro-
priate exercise of her equitable powers. See 11A CHARLES
ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE AND
PROCEDURE § 2948.1 (3d ed. 2022) (“A long delay by [a]
plaintiff after learning of the threatened harm … may be
taken as an indication that the harm would not be serious
enough to justify a preliminary injunction.”). That was an
eminently reasonable judgment.
    The judge also declined to enjoin the continuation of the
2022 licensing process. She held that the plaintiffs’ challenge
was unripe because the Department’s proposed administra-
tive rule governing the 2022 licenses was not yet final and, in
the end, might not contain residency criteria. Finch, 606 F.
Supp. 3d at 843–44.
12                                                 No. 22-2050

    Ripeness doctrine prevents the premature adjudication of
claims that are “premised on uncertain or contingent
events.” Church of Our Lord & Savior Jesus Christ v. City of
Markham, 913 F.3d 670, 676 (7th Cir. 2019). Here the judge
was understandably unwilling to weigh in on a nonfinal
licensing rule that was subject (and perhaps likely) to change
before final adoption, especially when postponing judicial
review would cause no hardship to the plaintiffs. See Metro.
Milwaukee Ass’n of Com. v. Milwaukee County, 325 F.3d 879,
882 (7th Cir. 2003) (explaining that ripeness doctrine focuses
on “the fitness of the issues for judicial decision” and “the
hardship to the parties of withholding court consideration”).
    That too was a sound judgment. Indeed, the Department
has since withdrawn the residency criteria. The rule govern-
ing the 2022 licenses is now final and awards no extra points
for Illinois residency. 68 ILL. ADMIN. CODE tit. 68, § 1291.410.
The plaintiffs’ motion for preliminary injunctive relief was
properly denied.
                         DISMISSED IN PART, AFFIRMED IN PART