Saguaro v. State

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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

SAGUARO HEALING, LLC, Plaintiff/Appellant,

v.

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

No. 1 CA-CV 22-0614
FILED 10-01-2024

Appeal from the Superior Court in Maricopa County
No. CV2017-054686
The Honorable Alison S. Bachus, Judge, (Retired)
The Honorable Michael D. Gordon, Judge

AFFIRMED

COUNSEL

Clark Hill PLC, Scottsdale
By Ryan J. Lorenz, Sean M. Carroll
Counsel for Plaintiff/Appellant

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

MEMORANDUM DECISION

Presiding Judge Maria Elena Cruz delivered the decision of the Court, in
which Judge Samuel A. Thumma and Judge Andrew M. Jacobs joined.

C R U Z, Judge:

¶1 Saguaro Healing LLC (“Saguaro”) appeals the superior
court’s August 2022 order finding that a 2021 judgment remanding to
ADHS to issue a medical marijuana dispensary registration certificate for a
La Paz County dispensary was fully satisfied. For the following reasons,
we affirm.

FACTUAL AND PROCEDURAL HISTORY

¶2 Under the Arizona Medical Marijuana Act (“AMMA”),
Arizona Revised Statutes (“A.R.S.”) sections 36-2801 to -2822, an individual
or entity must apply to ADHS for a dispensary registration certificate before
ADHS may approve the individual or entity to operate a dispensary. Ariz.
Admin. Code (“A.A.C.”) R9-17-304(C)-(D), -305(A). ADHS may only issue
a limited number of certificates. A.R.S. § 36-2804(C). Each year, it is
directed to review current valid dispensary certificates to determine if it
may issue additional dispensary registration certificates pursuant to A.R.S.
§ 36-2804(C). A.A.C. R9-17-303(A).

¶3 In 2016, ADHS determined it could issue new registration
certificates and announced it would accept applications between July 18
and July 29, 2016. Saguaro Healing LLC v. State, 249 Ariz. 362, 363, ¶ 4 (2020).
Saguaro applied for a certificate and indicated its dispensary would be
located in La Paz County. Id. During the application period, the only
dispensary operating in La Paz County left the county. Id. at ¶ 5. When
ADHS did not issue a certificate to Saguaro or any other applicant, Saguaro
filed a special action complaint in superior court seeking a declaratory
judgment. Specifically, Saguaro sought a judgment holding that ADHS
violated A.A.C. R9-17-303 by failing to award a certificate to Saguaro or any
other qualified applicant in La Paz County. Saguaro asked the superior
court to order ADHS to (1) review the July 2016 applications to determine
whether there were competing applications, and (2) award a certificate to
Saguaro or one of the competing applicants in accordance with Arizona
law.

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¶4 The superior court granted ADHS’ motion to dismiss the
complaint. Saguaro appealed, and this court affirmed. Saguaro
successfully petitioned for review, and our supreme court held that A.R.S.
§ 36-2804(C) required ADHS to issue at least one medical marijuana
dispensary registration certificate in each county with a qualified applicant,
and it had failed to do so in La Paz County. Saguaro Healing, 249 Ariz. at
363, 366, ¶¶ 1, 4, 23. The Court remanded to the superior court for further
proceedings. Id. at ¶ 23.

¶5 In November 2021, the superior court remanded the case to
ADHS for further administrative proceedings for ADHS to issue a
“registration certificate consistent with the Arizona Supreme Court’s
[opinion] in Saguaro Healing, . . . under the applicable statutes and rules in
effect on October 6, 2016, after having considered applications submitted
for potential dispensaries in La Paz County between July 18, 2016 and July
29, 2016.” No party appealed the November 2021 judgment.

¶6 On remand, ADHS analyzed the three applications submitted
during the relevant time period that were eligible to be considered for the
La Paz County medical marijuana dispensary registration certificate and
awarded the certificate to Sherry Dunn, LLC, the highest scoring applicant.
In February 2022, ADHS filed a notice of compliance1 in the superior court
indicating it had awarded a marijuana dispensary registration certificate.

¶7 Saguaro opposed the notice of compliance and moved to
compel ADHS to produce documentation proving it had properly issued
the dispensary certificate in compliance with the laws and regulations in
effect in 2016. ADHS opposed the motion to compel, relying on the AMMA
confidentiality provision. See A.R.S. 36-2810(A). The superior court
granted the motion to compel in part, ordering ADHS to submit the
requested documents to the court for an in camera review.

1 The parties treated ADHS’ notice of compliance as a motion for relief
from judgment as satisfied under Arizona Rule of Civil Procedure 60(b)(5).

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¶8 ADHS submitted a thumb drive containing six documents to
the superior court ex parte for in camera inspection.2 In August 2022, after
reviewing the documents, the superior court found that ADHS had
complied with the court’s order on remand. The court concluded:

After reviewing the documents, the Court finds ADHS
complied with the administrative rules and statutes that were
in effect on October 6, 2016 in its December 2021 allocation
process. The court further finds that ADHS considered the
applications submitted for potential dispensaries in La Paz
County between July 18, 2016 and July 29, 2016. The Court
further finds that ADHS issued its certificate [to Sherri Dunn,
LLC] consistent with the Arizona Supreme Court’s Opinion
in Saguaro Healing, LLC v. State, 249 Ariz. 362 (2020).

¶9 Saguaro appealed. About a month after filing its notice of
appeal, Saguaro filed a motion in the superior court requesting the court to
unseal the ex parte documents and the superior court’s sealed minute entry
order. The superior court denied the motion in January 2023 and filed its
minute entry order under seal.

¶10 We stayed Saguaro’s appeal after it filed a special action in
this court seeking relief from the superior court’s January 2023 order
denying its request to unseal the ex parte documents. In Saguaro Healing,
LLC v. Bachus, 255 Ariz. 505, 508-09, ¶¶ 12-14 (App. 2023), we accepted
special action jurisdiction and granted relief in part, ordering the superior
court to unseal the two sealed minute entries and any ex parte documents
not subject to the confidentiality protections of A.R.S. § 36-2810(A). The
superior court did so, and we lifted the stay in this appeal. We have
jurisdiction pursuant to A.R.S. § 12-2101(A)(2).

2 The documents included (1) the rules and statutes applied by ADHS
in its December 2021 allocation process- “Relevant 2016 AMMA Statutes
and Rules;” (2) the scoring rubric used by ADHS during the December 2021
allocation process, as specified in A.A.C. § R9-17-303(B)(1)(b); (3) the
number of applicants considered in the 2021 allocation process (three); (4)
the 2016 applications of Sherry Dunn, LLC, Saguaro, and the third applicant
plus documents obtained by ADHS in its due diligence process and maps
and notes made as part of that process; (5) each applicant’s score; and (6)
the certificate issued to Sherri Dunn, LLC.

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DISCUSSION

¶11 As a preliminary matter, ADHS argues its decision to allocate
the dispensary certificate to Sherri Dunn, LLC was a discretionary act not
subject to mandamus relief. Saguaro’s special action complaint in the
superior court did not seek the issuance of a writ of mandamus pursuant to
A.R.S. § 12-2021. Nor was ADHS’ mandamus argument properly
developed in the superior court. See Mathews ex rel. Mathews v. Life Care
Ctrs. of Am., Inc., 217 Ariz. 606, 611, ¶ 23 (App. 2008) (declining to address
arguments that “were not the basis of the trial court’s ruling and were either
not raised or not fully developed before the trial court.”).

¶12 Saguaro argues the superior court abused its discretion by
finding that ADHS complied with its judgment on remand. According to
Saguaro, the court erred because “ADHS selected an applicant for the
dispensary certificate without proof that the applicant had the most medical
marijuana cardholder patients within a ten-mile radius.”

¶13 We review the superior court’s determination of whether a
judgment is satisfied for an abuse of discretion. City of Phoenix v. Geyler, 144
Ariz. 323, 328 (1985). “The interpretation of statutes and regulations
presents a question of law we review de novo.” Compassionate Care
Dispensary, Inc. v. Ariz. Dep’t of Health Servs., 244 Ariz. 205, 211, ¶ 17 (App.
2018). This court is “free to draw [its] own legal conclusions in determining
if the agency properly interpreted the law.” Sharpe v. Ariz. Health Care Cost
Containment Sys., 220 Ariz. 488, 494, ¶ 18 (App. 2009) (citations and internal
quotation marks omitted). “We may affirm the trial court’s ruling if it is
correct for any reason apparent in the record.” Forszt v. Rodriguez, 212 Ariz.
263, 265, ¶ 9 (App. 2006).

¶14 The scoring rubric ADHS used for allocating the dispensary
certificate was the rubric set forth in A.A.C. R9-17-303(B)(1), the applicable
regulation in 2016, which provided, in relevant part:

b. If more than one dispensary registration certificate
application for a dispensary located in the county is received,
the Department shall prioritize and allocate a dispensary
registration certificate to an applicant whose proposed
dispensary location will provide dispensary services to the
most qualifying patients based on:

i. The number of registry identification cards issued to
qualifying patients who reside within 10 miles of the
applicant’s proposed dispensary location, and

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ii. The number of dispensaries operating within 10 miles of
the applicant’s proposed dispensary location.

“For purposes of subsection (B), ’10 miles’ includes the area contained
within a circle that extends for 10 miles in all directions from a specific
location.” A.A.C. R9-17-303(C).

¶15 Saguaro acknowledges that the “winner” of the dispensary
certificate should have been the applicant with the most cardholder patients
within a ten-mile radius of its proposed dispensary location. It first argues
that ADHS misinterpreted A.A.C. R9-17-303(B)(1) by counting the existing
dispensary that relocated out of La Paz County during the application
period as a second dispensary operating within the ten-mile radius of
Saguaro’s proposed dispensary, thereby cutting its score in half.

¶16 Here, ADHS applied A.A.C. R9-17-303(B)(1)’s scoring rubric
to each of the 750 applications it received during the 2016 application
period, including the three La Paz County applications. It hired a
professional mapping company to determine the number of qualifying
patients residing within ten miles of each proposed dispensary based on
the patients’ addresses. If, and only if, there was a dispensary operating
within the proposed dispensary’s ten-mile radius, ADHS then divided the
number of patients by the number of dispensaries, resulting in a “net”
rubric score.

¶17 Based on the number of qualifying patients within ten miles,
Sherri Dunn, LLC received a gross score of 93, while Saguaro and the third
applicant each received a gross score of 52. If the only dispensary operating
in La Paz County had not left the county during the application period,
Saguaro’s gross score would have been further lowered to 26, because as
the ten-mile map indicated, the departing dispensary was located within
ten miles of Saguaro’s proposed dispensary. The record reflects, however,
that on remand, ADHS considered only the gross scores of the applicants.
Although the 2022 minute entry incorrectly stated that Saguaro would not
have been the only dispensary within its ten-mile radius, the fact remains
that Saguaro’s gross score of 52 was significantly lower than Sherri Dunn,
LLC’s gross score of 93. Under ADHS regulations, the highest score was
the winner. See A.A.C. R9-17-303(B)(1).

¶18 Saguaro further argues the ten-mile radius maps of the three
applicants’ proposed locations ADHS provided to the superior court for in
camera review failed to show plot points of cardholder addresses, and thus
the superior court had no evidence supporting ADHS’ figures. The maps

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Decision of the Court

were part of the three applications submitted to the court on a thumb drive
for in camera review. Although the plot points are difficult to see, they are
not invisible. Either way, the outcome here does not turn on counting plot
points. The record shows that ADHS’ data indicated there were 93
qualifying patients within a ten-mile radius of Sherri Dunn, LLC’s
proposed dispensary location and only 52 qualifying patients within a ten-
mile radius of Saguaro’s and the third applicant’s proposed dispensary
locations. Because substantial evidence supported the superior court’s
determination that the November 2021 judgment was satisfied after ADHS
awarded the La Paz County dispensary certificate to Sherri Dunn, LLC,
Saguaro has shown no abuse of discretion.

¶19 Saguaro requests costs pursuant to A.R.S. § 12-341 and
attorneys’ fees pursuant to A.R.S. § 12-348(A)(4), (7). Because it is not the
prevailing or successful party in this appeal, we deny the request.

CONCLUSION

¶20 For the foregoing reasons, we affirm.

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

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