Nova v. Mesa Board

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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

NOVA DEVELOPMENT SERVICES, LLC; ARIZONA WELLNESS
COLLECTIVE 3 INC., Plaintiffs/Appellants,

v.

CITY OF MESA BOARD OF ADJUSTMENT; CITY OF MESA; VALLEY
HEALING GROUP INC., Defendants/Appellees.

No. 1 CA-CV 21-0016
FILED 12-28-2021

Appeal from the Superior Court in Maricopa County
No. LC2017-000321-001
The Honorable Margaret R. Mahoney, Judge

REVERSED AND REMANDED

COUNSEL

Bues Gilbert McGroder PLLC, Phoenix
By Cory L. Broadbent, Cassandra H. Ayres
Counsel for Plaintiffs/Appellants

Osborn Maledon PA, Phoenix
By Mary R. O’Grady, Jeffrey B. Molinar, Hayleigh S. Crawford
Counsel for Defendant/Appellee
 NOVA, et al. v. MESA BOARD, et al.
Decision of the Court

MEMORANDUM DECISION

Judge Jennifer M. Perkins delivered the decision of the Court, in which
Presiding Judge Cynthia J. Bailey and Judge Maria Elena Cruz joined.

P E R K I N S, Judge:

¶1 Nova Development Services, LLC appeals the superior
court’s ruling affirming the Mesa Board of Adjustment’s (“Board”)
decision. For reasons below, we reverse.

FACTUAL AND PROCEDURAL BACKGROUND

¶2 This dispute involves the registration process for two medical
marijuana dispensaries in Mesa, owned by Nova Development Services
and Arizona Wellness Collective 3 (collectively “Nova”) and Valley
Healing Group (“Valley”).

I. Arizona Legalizes Medical Marijuana and Mesa’s
Implementation

¶3 The Arizona Medical Marijuana Act (“AMMA”) authorizes
municipalities and counties to enact reasonable zoning regulations which
limit land use for medical marijuana dispensaries. The AMMA also
authorizes the Arizona Department of Health Services (“DHS”) to regulate
dispensaries. DHS created a system of community health analysis areas
(“CHAAs”). There are 127 CHAAs in Arizona, some with overlapping local
jurisdictions.

¶4 Mesa restricts medical marijuana dispensaries through
zoning regulations and other various restrictions. At issue here, those
restrictions include that a dispensary shall not: (1) be located within 5,280
feet (one mile) of another facility used as a dispensary or to cultivate
marijuana; (2) be located within 1,200 feet of a church; (3) be located within
1,200 feet of a school; or (4) exceed 2,500 square feet in space. Mesa City
Code § 11-31-34 (2016). Mesa established a “by right” system for medical
marijuana facilities, which allows City staff to administratively approve a
facility if it satisfies all requirements under § 11-31-34. The location of the
first dispensary to satisfy the requirements establishes the one-mile
boundary for other dispensaries. Id.

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II. Nova’s Application

¶5 In July 2016, Nova filed a dispensary application with the
Mesa Planning Division for its first site. Mesa approved Nova’s provisional
zoning registration in August 2016. Nova soon learned that the site required
improvements to meet zoning regulations and selected a second site
(“Nova’s Site”), which would not require significant improvements. On
October 6, 2016, DHS awarded Nova a license for the West Mesa CHAA at
Nova’s Site. Soon after, on October 17, 2016, Nova submitted an updated
registration form to the Mesa Planning Division for Nova’s Site.

¶6 Mesa issued Nova a Certificate of Occupancy on October 25,
2016. Mesa also notified Nova the city required the property owner’s signed
authorization to operate a medical marijuana dispensary. See Mesa City
Code § 11-67-2 (2016) (property owner’s authorization is needed for
applicants who are lessees). On November 8, 2016, Mesa “deem[ed] Nova’s
application complete” after receiving signed approval from Nova Site’s
property owner. At the time of approval, Mesa had not received the
issuance notice for Valley’s Certificate of Occupancy. Nova’s Site complied
with the zoning ordinance’s separation requirements.

¶7 Valley was also working with Mesa to register a dispensary
for the West Mesa CHAA. Seven months before Nova’s initial application,
Valley proposed moving its dispensary from Bullhead City to the West
Mesa CHAA. The proposed location sat within one mile of the location later
identified as Nova’s Site. In January 2016, Mesa approved Valley’s
provisional medical marijuana dispensary registration. Valley began tenant
improvements to their dispensary location in the summer of 2016. Mesa
issued Valley a Certificate of Occupancy dated November 8, 2016. Valley’s
location was, at all relevant times, within 1,200 feet of both a church and a
school.

¶8 Confronted with determining which dispensary location
established the one-mile boundary for another dispensary location, Mesa’s
zoning administrator (“Administrator”) issued a Zoning Interpretation
(“Interpretation”) in February 2017. The Interpretation evaluated the
pending dispensary registrations by Valley and Nova and described the
Administrator’s process for determining which dispensary set the one-mile
boundary. To be first in time, the Administrator required: (1) registration
with DHS; (2) a filed application for zoning registration; and (3) a Certificate
of Occupancy. Viewed through the lens of these requirements, the

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Administrator concluded Nova and Valley established their dispensaries
on the same date. He also recognized Valley did not meet the church
separation requirement but excused the zoning violation because he
determined the church was “inconspicuous.”

¶9 Based on his conclusion that Nova and Valley both completed
the requirements on the same day, the Administrator determined neither
application could be approved without invalidating the other given the
one-mile-boundary requirement. To resolve this apparent tie, the
Administrator allowed both dispensaries to operate by recognizing each as
a legal nonconforming use.

III. Nova’s Appeal

¶10 Nova appealed the Interpretation to the Board in March 2017,
listing five grounds in its initial notice of appeal: (1) the Administrator
incorrectly interpreted the City’s zoning code on timing of establishing a
medical marijuana use; (2) the Administrator consistently informed Nova
the Certificate of Occupancy was the deciding factor in establishing a
medical marijuana use and Nova obtained its Certificate of Occupancy
before Valley; (3) the Administrator created an illogical three-step process
for establishing a medical marijuana use; (4) the Administrator improperly
created a new “inconspicuous church” exception to the separation
requirement between a medical marijuana dispensary and a church; and (5)
the Administrator ignored that Valley’s dispensary exceeds the maximum
size allowed for a dispensary. The Board scheduled Nova’s appeal for
August 2, 2017 (“Hearing”).

¶11 Mesa’s Planning Director emailed Nova in May 2017, and
informed Nova the Mesa City Council was considering a modification to
the medical marijuana zoning ordinance which would moot Nova’s appeal
on the church separation ground. That same month, Mesa updated the
medical marijuana dispensary registration form to require the property
owner’s signature. In June 2017, Mesa amended the church separation
requirement so that it only applies to dispensaries in mostly residential
districts, effective July 19, 2017. See Mesa City Code § 11-31-34.

¶12 In July 2017, Nova submitted a letter to the Board, identified
as its “brief,” raising four grounds for appeal: (1) the three-step process
created by the Administrator was illogical; (2) Valley’s dispensary location
is too close to a church; (3) Valley’s dispensary location is too close to a
school; and (4) Valley’s building exceeds the size limitations for

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dispensaries. Nova asked the Board to overturn the Interpretation and
revoke Valley’s Certificate of Occupancy and zoning authorization.

¶13 At the Hearing, Mesa moved to preclude the Board from
considering Nova’s school separation argument because Nova raised it for
the first time in its July 2017 letter. Mesa acknowledged, however, that
Nova submitted the letter to the Board two weeks before the Hearing and
Mesa was prepared to address the arguments raised in the letter. The Board
denied Mesa’s motion to exclude the July 2017 letter and considered it as
part of the appeal.

¶14 After the Hearing, the Board split three-three to overturn the
appeal. Because Mesa’s City Code requires a vote of four Board members
to reverse an Administrator’s decision, Nova’s appeal failed, and the
Interpretation was upheld. See Mesa City Code § 11-66-3 (2017). Nova
sought review of the Board’s decision through a complaint for special action
in the superior court. See A.R.S. § 9-462.06(K). After briefing and oral
argument, the court affirmed the Board’s decision and determined the
Board’s decision was “supported by substantial evidence.” This appeal
followed, and we have jurisdiction under A.R.S. § 12-2101(A)(1).

DISCUSSION

¶15 We review here only the decision before the Board. See Levine
v. City of Phoenix, 1 CA-CV 15-0357, 2016 WL 5436413, at *5, ¶ 19 (Ariz. App.
Sept. 29, 2016) (mem. decision); see also A.R.S. § 9-462.06(C), (K). The
Administrator issued the Interpretation because “the [Administrator] was
unable to determine which applicant satisfied [Mesa’s] requirements first.”
The Administrator determined Nova and Valley completed Mesa’s
requirements on the same day and each could operate as a legal
nonconforming use. The record shows the decision before the Board was
whether to affirm, overturn, or modify the Interpretation and its
conclusions.

¶16 Mesa argued before this court that Nova had to appeal other
steps in the registration process to obtain the relief it seeks. Nova does not
ask this court to overturn Valley’s Certificate of Occupancy, only Valley’s
zoning clearance. But Mesa City Code limits appeals in this context to the
Administrator’s “final decisions.” See Mesa City Code § 11-77-1 (2017). And
no action taken before the Interpretation issued was an appealable “final
decision.” See Aegis of Ariz., L.L.C. v. Town of Marana, 206 Ariz. 557, 566, ¶
33 (App. 2003) (zoning administrator’s initial decision whether a proposed
use is permitted in a zone is not a final decision). Indeed, the Administrator

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recognized this in the Interpretation, which deemed both dispensaries
“registered” for the first time and authorized each to complete steps
required by DHS. Nova correctly sought relief from the Interpretation, the
first appealable decision in this matter.

I. Evidence We May Consider

¶17 In reviewing the Board’s decision, we consider the entire
administrative record before the Board at the time of its decision. See Austin
Shea (Ariz.) 7th St. and Van Buren, L.L.C. v. City of Phoenix, 213 Ariz. 385, 392,
¶ 29 (App. 2006). Section 11-77-4(D)(2) (2017) of the Mesa City Code
provides that, when considering an appeal, the Board must conduct a
public hearing de novo and must consider all relevant information, which
includes but is not limited to, the application, plans, and related materials
that were the subject of the original decision, any other materials presented
at the appeal hearing, and—notably—“any written correspondence
submitted after the appeal has been filed.”

¶18 “Failure to raise an issue at an administrative hearing that the
administrative tribunal is competent to hear waives that issue.” Neal v. City
of Kingman, 169 Ariz. 133, 136 (1991). A notice of appeal need not contain
any magic words or comply with technical rules of pleading, nor is it
required to specify every precise legal theory on which an appellant relies.
Id. Rather, a party must give fair notice of what will be challenged on appeal
by setting forth the facts that form the basis and nature of the complaint
itself. Id.

¶19 Mesa argues, citing A.R.S. § 9-462.06(D) and Mesa City Code
§ 11-77-4(B)(1), Nova waived any arguments not contained in its March
2017 letter. Yet § 11-77-4(D)(2) requires the Board to consider the
information in Nova’s July 2017 letter. And the Board did so at the Hearing.

¶20 Both Mesa and Nova presented evidence and addressed the
school-separation requirement during the Hearing. The Board considered
this argument before it upheld the Interpretation. The July 2017 letter,
although not specifically titled a notice of appeal, served as Nova’s brief in
support of its appeal and provided fair notice to the Board and Mesa of the
grounds on which Nova was appealing the Interpretation.

¶21 Mesa also contends Nova waived its arguments relating to the
Administrator’s determination that its dispensary operated as a legal
nonconforming use because Nova did not raise them in either letter to the
Board. But the Board raised the legal nonconforming use issue during the

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Hearing and the parties discussed it at length. The Board thus properly
considered the legal nonconforming use issue under § 11-77-4(D)(2) (2017).

¶22 We will therefore consider the entire record before the Board,
including the school-separation requirement and the legal nonconforming
use designation.

II. The Administrator’s Interpretation was Erroneous

¶23 We review de novo the interpretation of statutes and
ordinances and “presume the validity of the Board’s determination unless
it is against the weight of the evidence, unreasonable, erroneous, or illegal
as a matter of law.” Pawn 1st, LLC v. City of Phoenix, 242 Ariz. 547, 551, ¶ 9
(2017) (cleaned up). We may, however, draw our own conclusions on
whether the Board properly applied the law and substitute our judgment
for the Board’s assessment of the legal effect of the facts. See Whiteco Outdoor
Advert. v. City of Tucson, 193 Ariz. 314, 317, ¶ 7 (App. 1998).

A. The Administrator May Adopt a Registration Process for
Dispensaries

¶24 Nova challenges the Administrator’s power to adopt a
registration process. Mesa City Code required medical marijuana
dispensary applicants to register their proposed facilities with the Planning
Division and prescribed the minimum information that such registration
requires. See Mesa City Code § 11-31-34(E) (2016). And the City Council
gave the Administrator and Planning Division discretion to devise an
applicant registration process. See Mesa City Code § 11-67-1, 67-2(B)(2)-(3)
(2016) (applicants must submit “[t]he required documents and information
in a form acceptable to the Planning Division,” and “[t]he Zoning
Administrator may require the submission of supporting materials as part
of the application”). Because the Administrator was acting within the
powers granted by the Mesa City Council, we find the Board did not abuse
its discretion in affirming the Administrator’s registration process.

B. Exempting “Inconspicuous Churches” was an Improper
Expansion of the Administrator’s Powers

¶25 At the Hearing, Mesa contended the Administrator may
create exceptions for “inconspicuous” code violations. But such acts
directly violate § 11-66-7, which provides the Administrator shall not
“make any change in the terms of the Zoning Ordinance.” The
Administrator may interpret zoning ordinances but is prohibited from
creating exceptions to them. See Mesa City Code § 11-66-7(B); see also Aegis,

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206 Ariz. at 566, ¶ 32 (zoning administrators do not have exclusive or final
authority to decide whether certain uses are permitted within a particular
zone). That power lies with the City Council and was exercised here when
the Mesa City Council amended the church-separation requirement to
apply only to churches in residential districts.

¶26 On appeal, Mesa contends the Board acted reasonably and
properly exercised its discretion to reject Nova’s church-separation
arguments because the issue became moot after the Council amended the
requirement. Because we find reversible error on other grounds, we do not
address whether the Board could properly uphold the Interpretation on the
church-separation requirement given the City’s post-hoc modification.

C. Legal Nonconforming Uses Must Have First Been
Conforming

¶27 Nonconforming use means “any building, structure, or use
that was lawfully established and in compliance with all applicable
ordinances and laws, but no longer complies with all applicable
regulations and standards of development in the zone in which it is
located.” Mesa City Code § 11-36-2(B) (2017) (emphasis added); see also
Rotter v. Coconino County, 169 Ariz. 269, 271 (1991) (nonconforming use is a
lawful use maintained after the effective date of a zoning ordinance
prohibiting such use). We review de novo the Administrator’s identification
of Valley’s dispensary as a legal nonconforming use. See Pingitore v. Town
of Cave Creek, 194 Ariz. 261, 264, ¶ 18 (App. 1998).

¶28 At the time of the Interpretation, Valley’s dispensary was
located within 1,200 feet of a church and a school. The Administrator
purported to create an “inconspicuous churches” exemption to excuse
Valley’s noncompliance with the church-separation requirement but did
not explicitly address Valley’s distance from the school. Mesa later changed
the church-separation requirement to apply only in residential districts. But
the record establishes Valley remains in violation of the school-separation
requirement.

¶29 Mesa argued at the Hearing that the Administrator sought to
craft a solution that was “fair” and “equitable.” Mesa also argued the
Administrator used the legal nonconforming use description to excuse the
violation of the school-separation requirement and resolve the apparent tie.
But the Mesa City Code restricts the Administrator’s authority to
interpreting ordinances; the Administrator simply lacks the authority to
consider Valley a legal nonconforming use when that conclusion

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contradicts the statutory definition. See Mesa City Code § 11-66-7(B); Aegis,
206 Ariz. at 566, ¶ 32. The Board’s power is similarly restricted to that
granted by the zoning ordinance in accordance with the statute. Pawn 1st,
242 Ariz. at 551–52, ¶ 11. The Administrator erred by identifying Valley as
a legal nonconforming use because Valley’s site was never in compliance
with the applicable ordinance and laws. See Mesa City Code § 11-36-2(2).
And the Board in turn erred by affirming the Interpretation. See Pawn 1st,
242 Ariz. at 551–52, ¶ 11 (a board’s action that exceeds its statutory
authority is ultra vires and invalid).

¶30 Because we find the Administrator’s designation of Valley as
a legal nonconforming use was erroneous, we do not address whether
Valley’s facility exceeded the size limits or whether the Board could
properly uphold the legal nonconforming use as it relates to the church-
separation requirement.

CONCLUSION

¶31 The Board abused its discretion by affirming the
Interpretation. We reverse and remand to the superior court with
instructions to enter judgment for Nova declaring the Interpretation
invalid.

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

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