Court Opinion

ID: 9396742
Source: CourtListenerOpinion
Date Created: 2023-05-23 17:03:33.326563+00
Date Added: 2024-06-11T17:19:19.330574
License: Public Domain

NOTICE: NOT FOR OFFICIAL PUBLICATION.
 UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
                 AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

                                    IN THE
             ARIZONA COURT OF APPEALS
                                DIVISION ONE

    HOLBROOK HEALTH CENTER, LLC, et al., Plaintiffs/Appellants,

                                        v.

             STATE OF ARIZONA, et al., Defendants/Appellees.

                             No. 1 CA-CV 22-0520
                               FILED 5-23-2023

           Appeal from the Superior Court in Maricopa County
                          No. CV2021-018275
                 The Honorable Jay R. Adleman, Judge

                                  AFFIRMED

                                   COUNSEL

Wilenchik & Bartness P.C., Phoenix
By Dennis I. Wilenchik, Ross P. Meyer
Counsel for Plaintiffs/Appellants

Sherman & Howard, L.L.C., Phoenix
By Gregory W. Falls, Matthew A. Hesketh, Jake Tyler Rapp
Counsel for Defendants/Appellees
               HOLBROOK HEALTH, et al. v. STATE, et al.
                      Decision of the Court

                      MEMORANDUM DECISION

Presiding Judge Samuel A. Thumma delivered the decision of the Court, in
which Judge Randall M. Howe and Judge Anni Hill Foster joined.

T H U M M A, Judge:

¶1             Plaintiffs Williams Health Center, LLC and Holbrook Health
Center, LLC challenge an order dismissing their claims against defendants
State of Arizona, the Arizona Department of Health Services and Arizona
Department of Health Services Director Don Herrington. Because the
plaintiff health centers have shown no error, the order is affirmed.

                FACTS AND PROCEDURAL HISTORY

¶2             The Arizona Medical Marijuana Act (AMMA), a voter
enacted initiative, “establishe[d] conditions allowing medicinal use of
marijuana” in Arizona. State v. Okun, 231 Ariz. 462, 464 ¶ 4 (App. 2013). To
implement and administer the AMMA, the Department was tasked with
adopting and enforcing “a regulatory system for the distribution of
marijuana for medical use.” State v. Matlock, 237 Ariz. 331, 336 ¶ 20 (App.
2015) (citation omitted). The AMMA allows for marijuana to be distributed
through “[n]onprofit medical marijuana dispensar[ies].” Ariz. Rev. Stat.
(A.R.S.) § 36-2801(12) (2023).1 To operate a dispensary, a nonprofit entity
must receive a certificate from the Department. A.R.S. § 36-2804. The
AMMA restricts the number of certificates available to one for every ten
qualified pharmacies in Arizona, also ensuring that each county has at least
one dispensary. A.R.S. § 36-2804(C).

¶3            Two statutes pertinent to this appeal give the Department
rulemaking authority. See A.R.S. §§ 36-136(G) and -2803. More than a
decade ago, the Department promulgated rules to govern the application
process. Ariz. Admin. Code (A.A.C.) R9-17-301 to -324. The rules provide
the Department will conduct an annual review to determine whether it can
issue additional certificates. A.A.C. R9-17-303(A) (Rule 303). If the
Department determines that it can issue additional certificates, it provides
public notice and opens an application period. A.A.C. R9-17-303(A)(1). An

1Absent material revisions after the relevant dates, statutes and rules cited
refer to the current version unless otherwise indicated.

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               HOLBROOK HEALTH, et al. v. STATE, et al.
                      Decision of the Court

application received outside the application period is returned to the
applicant, along with the application fee, and no further action is taken.
A.A.C. R9-17-303(F).

¶4             Until recently, the last application period the Department
opened was in 2016. In 2020, the Arizona Supreme Court explained that
“[i]f, based on the annual review, [the Department] determines it may issue
more certificates, it will open the application process.” Saguaro Healing LLC
v. State, 249 Ariz. 362, 366 ¶ 20 (2020). Saguaro Healing noted that the
Department was required to “open the application process, under two
distinct circumstances: (1) if the allocation of dispensary certificates is
below the one-in-ten ratio or (2) a county does not have a dispensary.” Id.
at 366 ¶ 22 (emphasis added).

¶5            The plaintiff health centers are Arizona non-profit entities
formed for the sole purpose of obtaining a dispensary certificate. In
December 2020, the health centers sought to open dispensaries in Williams
and Holbrook and submitted applications for certificates to the
Department. At that time, the ratio of dispensaries to pharmacies was less
than the statutorily allowed 1:10. Also at that time, five Arizona counties
did not have dispensaries. The Department refused both applications and
returned them and the application fees to the health centers, noting they
had not been submitted during an application period.

¶6            In November 2021, the health centers filed this action seeking
a declaration, among other things, that the Department must immediately
open an application period any time a county does not have a dispensary
or the number of dispensaries falls below the 1:10 ratio. The health centers
also sought a declaration that the Department must accept and consider an
application submitted during such a situation. The health centers sought
mandamus relief compelling the Department to accept and process their
applications as though they had been accepted when submitted in
December 2020.

¶7            The Department moved to dismiss for failure to state a claim,
arguing that the declaratory relief sought was not available. The
Department argued that Rule 303 required an annual review and
authorized the rejection of applications submitted outside application
periods, adding that it was not required to open an application period any
time a certificate could be issued. The Department also argued that
mandamus relief was not appropriate because the application process was
not a “purely ministerial duty.” See Ponderosa Fire Dist. v. Coconino Cnty.,
235 Ariz. 597, 601 ¶ 19 (App. 2014) (“An action for mandamus ‘does not lie

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               HOLBROOK HEALTH, et al. v. STATE, et al.
                      Decision of the Court

if the public officer is not specifically required by law to perform the act.’ A
mandamus action may only be brought if the statutory duty imposed on
the public official or board is purely ‘ministerial.’”) (citations omitted). The
health centers countered that Rule 303 was contrary to the authority
granted to the Department under A.R.S. § 36-2803, and the Department’s
actions were contrary to Saguaro Healing, which required the relief sought.

¶8            After oral argument and taking the matter under advisement,
the court granted the Department’s motion to dismiss, concluding that the
health centers had not shown Rule 303 was contrary to the authority
granted the Department and that Saguaro Healing did not “mandate[] the
issuance of [certificates] ‘at any time.’” The court also found that the
allocation of certificates involved discretionary “investigation, judgment,
and regulatory conduct” that were not subject to mandamus relief.
Additionally, the court noted that the Department was not statutorily
mandated to accept untimely applications, which also supported denying
the health centers’ requested mandamus relief.

¶9           The health centers timely filed a notice of appeal. This court
has appellate jurisdiction under Article 6, Section 9, of the Arizona
Constitution and A.R.S. sections 12-120.21(A)(1) and -2101(A)(1).

                               DISCUSSION

¶10            The health centers argue that the AMMA does not authorize
the Department to promulgate rules that limit when applications for
certificates are accepted and therefore Rule 303 exceeds the Department’s
statutory authority. Based on this argument, the health centers also argue
that the superior court erred in dismissing their complaint for failure to
state a claim upon which relief can be granted. The court addresses these
arguments in turn.

¶11            In reviewing the grant of a motion to dismiss for failure to
state a claim, this court assumes the truth of all well-pleaded facts alleged
in the compliant. Fidelity Sec. Life Ins. Co. v. State, 191 Ariz. 222, 224 ¶ 4
(1998). To prevail on a motion to dismiss for failure to state a claim, the
moving party must establish that the claimant would not be entitled to relief
under any set of facts susceptible of proof. Id. This court reviews de novo
an order dismissing a complaint for failure to state a claim. Coleman v. City
of Mesa, 230 Ariz. 352, 355 ¶ 7 (2012).

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               HOLBROOK HEALTH, et al. v. STATE, et al.
                      Decision of the Court

¶12           A recent opinion, addressing similar issues for entities
seeking dispensary certificates in “open” counties, concluded the
Department had the authority to promulgate Rule 303. See Joshua Tree Health
Ctr., LLC v. State, --- Ariz. ---, --- (App. 2023). The analysis in Joshua Tree
applies with equal force here.

I.     The Department Did Not Exceed Its Statutory Authority in
       Promulgating Rule 303.

¶13           “’[T]he scope of an agency’s power is measured by statute and
may not be expanded by agency fiat.’” Saguaro Healing, 249 Ariz. at 365 ¶ 19
(citation omitted). It is undisputed that two applicable statutes give the
department rulemaking authority in this case. Applied here, the
Department has broad statutory authority to “make and amend rules
necessary for the proper administration and enforcement of the laws
relating to the public health.” A.R.S. § 36-136(G). Rule 303 establishes the
process of allocating dispensary certificates by implementing an annual
review to determine whether additional certificates can be granted. A.A.C.
R9-17-303(A). The health centers have not shown how the Department’s
promulgation of Rule 303 falls outside this broad grant of authority.

¶14            The health centers argue that the Department’s authority is
limited to only one grant of rulemaking authority found in A.R.S. § 36-2803.
Although a specific provision can control over a general provision, the
“principle applies only when two statutes actually conflict.” State v. Gagnon,
236 Ariz. 334, 336 ¶ 7 (App. 2014). In this case, A.R.S. § 36-2803 does not
conflict with the broader provision because § 36-2803 directs specific rules
that the Department must promulgate. See A.R.S. § 36-2803(A) (“[t]he
department shall adopt rules . . .”). Section 36-2803 does not, however,
restrict the Department’s rulemaking authority to the topics listed in it. See
also Ban v. Quigley, 168 Ariz. 196, 198 (App. 1990) (this court should
“construe provisions to harmonize rather than contradict one another”).
The health centers also cite A.R.S. § 36-2802(E), and the definition for
“Medical use” in A.R.S. § 36-2801(11), to argue that the Department is only
“authorized under this chapter” to promulgate rules relating to marijuana
use. However, the “Medical use” provision in Section 36-2801(11)
establishes limits to those using marijuana, not on the Department’s
rulemaking authority in accepting and considering dispensary certificates.

¶15           As the superior court found, Saguaro Health does not require
the Department to disregard Rule 303 and accept applications “at any
time.” In Saguaro Health, during an open application period, one county lost
its one dispensary and the court was tasked with deciding whether the

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               HOLBROOK HEALTH, et al. v. STATE, et al.
                      Decision of the Court

statute required the Department to fill the opening. 249 Ariz. at 363–64
¶¶ 4–8. The court concluded that, “during the annual review,” the
Department was required to open the application process when a county is
without a dispensary or the ratio of dispensaries to registered pharmacies
is less than 1:10.2 Id. at 366 ¶ 20 n.3. In concluding Rule 303 contemplated
doing so annually, not daily as the health centers argue here, Saguaro Health
concluded that “in its current form, [Rule 303] does not conflict with [the
statute].” Id. at 365 ¶ 20. Nor did Saguaro Health suggest that the Department
exceeded its authority in creating Rule 303. Therefore, the health centers
have not shown that the Department exceeded its rulemaking authority
under A.R.S. § 36-136(G) in promulgating Rule 303.

II.    The Superior Court Properly Dismissed the Complaint.

¶16           Because Rule 303 is proper, the court properly dismissed the
health centers’ request for declaratory judgment striking Rule 303. The
health centers also sought a writ of mandamus compelling the Department
to accept their applications as though they had been accepted when
tendered and determine whether they complied with A.R.S. § 36-2804(B).
The court did not err in rejecting that claim for relief.

¶17             “Mandamus is an extraordinary remedy issued by a court to
compel a public officer to perform an act which the law specifically imposes
as a duty.” Sears v. Hull, 192 Ariz. 65, 68 ¶ 11 (1998) (citation omitted); see
also A.R.S. § 12-2021. Mandamus is only appropriate “if the statutory duty
imposed on the public official or board is purely ‘ministerial.’” Ponderosa
Fire Dist., 235 Ariz. at 601 ¶ 19 (citation omitted). “A ministerial duty is one
that specifically describes the manner of performance and ‘leaves nothing
to the discretion’ of the public official or board.” Id. at 601–02 ¶ 19 (citation
omitted).

¶18             As explained, the AMMA does not impose a duty on the
Department to accept applications at any time. Moreover, Rule 303 requires
the Department to reject and return applications that are received outside
an open application period. A.A.C. R9-17-303(F). Therefore, the health
centers have not shown they are entitled to mandamus relief. See Ponderosa
Fire Dist., 235 Ariz. at 601 ¶ 19 (“An action for mandamus does not lie if the
public officer is not specifically required by law to perform the act.”)

2 Unlike the provision ensuring at least one dispensary in a county
addressed in Saguaro Health, A.R.S. § 36-2804(C) does not have a
requirement ensuring there is one dispensary for every ten qualified
pharmacies.

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               HOLBROOK HEALTH, et al. v. STATE, et al.
                      Decision of the Court

(citation omitted). Accordingly, the superior court did not err in dismissing
their complaint.

                              CONCLUSION

¶19           The superior court’s decision is affirmed.

                           AMY M. WOOD • Clerk of the Court
                           FILED: AA

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