Waltz Healing v. Adhs

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

WALTZ HEALING CENTER, INC,
Plaintiff/Appellant,

v.

ARIZONA DEPARTMENT OF
HEALTH SERVICES,
Defendant/Appellee.

No. 1 CA-CV 18-0135
FILED 12-4-2018

Appeal from the Superior Court in Maricopa County
No. LC2017-000140-001
The Honorable Patricia A. Starr, Judge

AFFIRMED

COUNSEL

Barrett & Matura, PC, Scottsdale
By Jeffrey Matura, Melissa J. England, Tabitha R. Myers
Counsel for Plaintiff/Appellant

Sherman & Howard, LLC, Phoenix
By Gregory W. Falls, Matthew A. Hesketh
Counsel for Defendant/Appellee

OPINION

Presiding Judge Diane M. Johnsen delivered the opinion of the Court, in
which Judge Randall M. Howe and Judge Paul J. McMurdie joined.
 WALTZ HEALING v. ADHS
Opinion of the Court

J O H N S E N, Judge:

¶1 The Arizona Department of Health Services denied an
application for a medical marijuana dispensary registration certificate
because the applicant failed to comply with a legal requirement to show
that the dispensary's proposed location "is in compliance with" local zoning
restrictions. The applicant appealed to the superior court, arguing it
satisfied the requirement by submitting a four-year-old letter from the City
of Tempe. The superior court affirmed the denial of the application, and
we affirm the superior court's judgment.

FACTS AND PROCEDURAL BACKGROUND

¶2 The Arizona Medical Marijuana Act limits the number of
marijuana dispensaries across the state to not more than one per ten
registered pharmacies. Ariz. Rev. Stat. ("A.R.S.") § 36-2804(C) (2018).1 The
Department first accepted dispensary registration applications and issued
dispensary certificates in 2012. Waltz Healing Center, Inc. applied for a
certificate then but did not receive one. The Department later determined
it could issue 31 more certificates and opened another application process
in July 2016.

¶3 Under the law, dispensary certificate applications must
contain certain information, including the physical address of the proposed
dispensary, and:

[i]f the city, town or county in which the nonprofit medical
marijuana dispensary would be located has enacted zoning
restrictions, a sworn statement certifying that the registered
nonprofit medical marijuana dispensary is in compliance
with the restrictions.

A.R.S. § 36-2804(B)(1)(d). By regulation, applicants must comply with the
zoning-documentation requirement by providing the following:

Documentation from the local jurisdiction where the
dispensary's proposed physical address is located that:

a. There are no local zoning restrictions for the dispensary's
location, or

1 Absent material revision after the relevant date, we cite the current
version of a statute or rule.

2
 WALTZ HEALING v. ADHS
Opinion of the Court

b. The dispensary's location is in compliance with any local
zoning restrictions.

Ariz. Admin. Code ("A.A.C.") R9-17-304(C)(6). See Compassionate Care
Dispensary, Inc. v. Ariz. Dep't of Health Servs., 244 Ariz. 205, 213, ¶ 21 (App.
2018).

¶4 When the Department opened the 2016 application process,
Waltz submitted an application for a service area located in Tempe. With
its application, Waltz submitted a letter dated May 8, 2012, from a senior
planner in the Tempe Community Development Department, Planning
Division. The letter, which was on City letterhead, stated in relevant part:

For the purpose of zoning clearance, the City of Tempe . . . has
determined the site . . . is in compliance with the Zoning and
Development Code . . . for a medical marijuana dispensary
only.

This determination is contingent on compliance with the
following conditions:

1. The determination for WALTZ HEALING CENTER INC.,
. . . will expire after sixty (60) calendar days from the date of
this letter (July 7, 2012) unless an application is submitted to
the Arizona Department of Health Services in order to receive
an approved dispensary certificate. An expiration of the
State's application process will result in expiration of this
determination.

¶5 On September 19, 2016, the Department emailed Waltz a
formal request for information, saying "some items need to be corrected or
are missing" from its application. The email identified 17 missing or
incorrect items in the Waltz application packet, including three deficiencies
concerning zoning documentation:

8. The local jurisdiction zoning documentation of the
dispensary's proposed physical address does not appear to be
from the local jurisdiction (i.e., no letterhead, no contact
information, no signature, etc). R9-17-304(C)(6).

9. The local jurisdiction zoning documentation of the
dispensary's proposed physical address does not include one
of the following statements: "There are no local zoning
restrictions for the dispensary's location" or "The dispensary's

3
 WALTZ HEALING v. ADHS
Opinion of the Court

location is in compliance with any local zoning restrictions."
R9-17-304(C)(6)(a) and (b).

10. The local jurisdiction zoning documentation of the
dispensary's proposed physical address does not include the
dispensary's proposed physical address. R9-17-304(C)(6).

¶6 On October 3, 2016, the last day to respond to the
Department's request, Waltz responded to items 8-10 above simply by
referring to the 2012 letter from the City of Tempe and provided the
Department with another copy of the letter. At 11:36 a.m. the following
day, the Department emailed Waltz that "[t]he information [Waltz]
provided does not satisfy" the three deficiencies. The email further directed
Waltz to "submit current local zoning" by 5 p.m. Waltz did not submit any
other information to the Department, nor did it attempt to contact the City
of Tempe or the Department to resolve the matter.

¶7 The Department allocated the new certificates among the
successful applicants a few days later. In a subsequent letter to Waltz, the
Department stated it denied Waltz's application because Waltz did not fully
respond to the Department's September 19 request for information. In
particular, the Department identified Waltz's failure to provide the
information identified in item 9 above, documentation from the local
jurisdiction addressing zoning restrictions.

¶8 Waltz sought administrative review of the denial of its
application. After an evidentiary hearing, an Administrative Law Judge
("ALJ") recommended affirming the denial. The Director of the Department
then adopted the recommendation, with certain modifications, and
affirmed the denial of the application.2 Waltz appealed the decision by
filing a complaint in the superior court, which affirmed the decision. Waltz
timely appealed. We have jurisdiction pursuant to Article 6, Section 9, of
the Arizona Constitution, and A.R.S. §§ 12-120.21(A)(1) (2018) and -913
(2018).

DISCUSSION

¶9 We will affirm an agency's decision on review unless it is
"contrary to law, is not supported by substantial evidence, is arbitrary and

2 In its briefs on appeal, Waltz distinguishes the Department's initial
denial of the application from the Director's later order affirming the ALJ's
recommendation. We address both decisions collectively when we refer to
actions by "the Department."

4
 WALTZ HEALING v. ADHS
Opinion of the Court

capricious or is an abuse of discretion." A.R.S. § 12-910(E) (2018). We defer
to the agency's factual findings if they are supported by substantial
evidence, even if other evidence before the agency would support a
different conclusion. See Webb v. State ex rel. Ariz. Bd. of Med. Exam'rs, 202
Ariz. 555, 557, ¶ 7 (App. 2002); DeGroot v. Ariz. Racing Comm'n, 141 Ariz.
331, 336 (App. 1984). We consider the evidence in a light most favorable to
upholding the agency's decision. Baca v. Ariz. Dep't of Econ. Sec., 191 Ariz.
43, 46 (App. 1997). Nevertheless, we are not bound by the agency's legal
conclusions. See Sanders v. Novick, 151 Ariz. 606, 608 (App. 1986).

A. Sufficiency of the 2012 Letter.

¶10 The Department denied Waltz's application because it
concluded Waltz failed to comply with the mandate of § 36-2804(B)(1)(d)
and R9-17-304(C)(6) to provide documentation that the dispensary would
comply with local zoning requirements. Waltz argues the Department's
denial of its application was arbitrary, capricious and an abuse of discretion
because the 2012 Tempe letter satisfied the requirement.

¶11 As the Department points out in its answering brief, the letter
from the City of Tempe stated that its "determination" of zoning compliance
would expire (1) if Waltz did not submit a dispensary application to the
Department within 60 days after the date of the letter and, in any event, (2)
upon expiration of the Department's application process. Waltz argues the
letter did not expire because Waltz in fact submitted an application for a
dispensary certificate within 60 days of the date of the letter, as the letter
required. The Department does not dispute that Waltz applied for a
dispensary certificate in 2012. It argues, however, that the letter's
determination expired due to the termination of the 2012 application
process, which, according to the record, ended on August 7, 2012.

¶12 The Department did not abuse its discretion or act arbitrarily
or capriciously by concluding that the letter Waltz submitted had expired
by 2016. The letter plainly stated that "expiration of the State's application
process will result in expiration of this determination." The "application
process" then ongoing was the process for which Waltz originally had
obtained the letter, namely, the Department's allocation of dispensary
registration certificates in 2012. Waltz does not argue otherwise. Because
the letter had expired by its own terms long before 2016, it failed to comply
with the zoning-determination requirement of A.A.C. R9-17-304(C)(6). See,
e.g., Tucson Title Ins. Co. v. D'Ascoli, 94 Ariz. 230, 234 (1963) (provisions in
escrow agreement "were of no effect after the expiration of" a stated period;
result was that party was left "without authority" to act).

5
 WALTZ HEALING v. ADHS
Opinion of the Court

¶13 As a separate reason for denying Waltz's application, the
Department also concluded the 2012 letter failed to show that the proposed
location of the dispensary complied with local zoning restrictions in effect
at the time of the 2016 application process. The Department adopted the
ALJ's conclusion that "[t]he sensible (and plain) reading of R9-17-304(C)(6)
is that the applicant must show that the dispensary's location complies with
any local zoning requirements at the time the application is submitted to
the Department (i.e., that the location is currently in compliance)."

¶14 Waltz argues on appeal that the Tempe letter specifically
stated that Waltz "is in compliance" with local zoning requirements, which
is all the law requires. The Department responds in its answering brief by
pointing out that Tempe zoning regulations changed between 2012 and
2016, and argues the 2012 letter therefore said nothing about whether the
Waltz dispensary location was in compliance with zoning in 2016. See
A.A.C. R9-17-304(C)(6).

¶15 We "decide all questions of law, including the interpretation
of a . . . statutory provision or a rule adopted by an agency, without
deference to any previous determination that may have been made on the
question by the agency." A.R.S. § 12-910(E). In analyzing the regulation,
we "give clear language its usual, ordinary meaning." Rivera-Longoria v.
Slayton, ex rel. County of Coconino, 228 Ariz. 156, 159, ¶ 17 (2011).

¶16 Consistent with A.R.S. § 36-2804(B)(1)(d), the regulation at
issue here uses the present tense – "is" – to describe the requirement that a
dispensary applicant must demonstrate compliance with applicable
zoning. Compare A.R.S. § 36-2804(B)(1)(d) (applicant must submit "sworn
statement certifying that the registered nonprofit medical marijuana
dispensary is in compliance" with applicable zoning restrictions) with
A.A.C. R9-17-304(C)(6) (where applicable, applicant must submit
"[d]ocumentation from the local jurisdiction . . . that: . . . [t]he dispensary's
location is in compliance with any local zoning restrictions"). The
regulation's use of the present tense – "is in compliance" – means that an
applicant must submit documentation confirming that the dispensary
would comply with local zoning restrictions in effect at the time of the
application. See State v. Hinden, 224 Ariz. 508, 510, ¶ 10 (App. 2010); see also
Shella H. v. Dep't of Child Safety, 239 Ariz. 47, 50, ¶ 12 (App. 2016) (use of
present tense in a statute implies intent to focus on "the circumstances
existing at the time"). Because "the present tense generally does not include
the past," Carr v. United States, 560 U.S. 438, 448 (2010), whether a proposed
dispensary location complied with zoning restrictions in the past is
irrelevant.

6
 WALTZ HEALING v. ADHS
Opinion of the Court

¶17 For that reason, beyond the fact that the determination in the
letter from the City of Tempe had expired of its own terms, we agree that
the letter did not satisfy the requirement of R9-17-304(C)(6) to show
compliance with current zoning. The dated nature of the letter – it was
more than four years old when Waltz submitted it in 2016 – by itself calls
into question whether the letter gave satisfactory assurances that the
proposed dispensary would comply with Tempe zoning restrictions in
2016. More than that, however, Steve White, an attorney who helped
prepare Waltz's 2016 application, acknowledged during the administrative
hearing that Tempe amended its zoning restrictions applicable to medical
marijuana dispensaries after the 2012 letter was issued. The fact that the
zoning changed after the letter was written in 2012 further supports the
Department's conclusion that the letter did not satisfy the requirement to
show that the proposed dispensary location would comply with current
zoning requirements.3

B. October 4, 2016 Email.

¶18 Waltz further argues it lacked adequate notice of the
Department's view that the 2012 letter would not comply with the local-
zoning requirement. Waltz contends the Department's formal request for
information, sent on September 19, 2016, did not explicitly reject the letter
or state that it had expired. According to Waltz, when Waltz resubmitted
the 2012 letter in response to the September 19 request, Waltz believed it
had resolved the Department's concerns. Waltz argues the Department did
not demand "current" zoning documentation from Waltz until the email
late the morning of October 4.

¶19 The September 19 request for information listed three issues
concerning the letter from the City of Tempe. The Department did not
specify that the 2012 letter was deficient because it had expired or because
it did not provide assurances that the proposed location would comply with
zoning restrictions in effect in 2016. Although more specificity would have
been helpful, the Department's September 19 request stated clearly that
Waltz had not satisfied the requirement of R9-17-304(C)(6) to provide "local
jurisdiction zoning documentation." Thereby on notice that the

3 See Tempe, Ariz., Ordinance No. 2015.48 (Nov. 12, 2015) &
Ordinance No. 2015.49 (Dec. 3, 2015),
https://library.municode.com/az/tempe/codes/zoning and developme
nt code?nodeId=ZONING DEVELOPMENT CODE PT3 LAUS CH4 S
PUSST S3-426MEMA (last visited Nov. 9, 2018). See Roseland v. City of
Phoenix, 14 Ariz. App. 117, 122 (1971) (taking judicial notice of city code).

7
 WALTZ HEALING v. ADHS
Opinion of the Court

Department had found the 2012 Tempe letter wanting, Waltz did not follow
up with the Department for specifics, ask for an explanation or ask how it
might solve the problem. Instead, just before the deadline to respond to the
Department's request, Waltz simply resubmitted the same letter that the
Department had rejected.

¶20 As stated above, by its own terms, the letter from the City had
expired, and due to the passage of time, it did not satisfy the requirement
to provide assurances that a dispensary location would comply with then-
current zoning restrictions. These defects should have been obvious to
Waltz, but if Waltz did not understand why the Department was
questioning the letter on September 19, it should have inquired. Having
failed to do so, Waltz cannot complain of lack of notice.

¶21 Waltz also argues the October 4 email, which gave Waltz until
the end of the day to respond, was a supplemental request for information
to which Waltz was entitled an additional ten days to respond. See A.A.C.
R9-17-107(E)(2) (when Department issues "supplemental request for
information," applicant's response is due within ten working days). The
Department, on the other hand, contends the communication was a
"courtesy" email that did not trigger a mandatory ten-day response period.

¶22 Under A.A.C. R9-17-107(D)(3), the Department "[m]ay make
one written comprehensive request for more information, unless the
Department and the applicant agree in writing to allow the Department to
submit supplemental requests for information." Here, Waltz checked a box
on its application agreeing to allow the Department to submit supplemental
requests for information. As the Director noted in amending the ALJ's
findings of fact, "The Department emails RFIs [requests for information]
using a distinct computer-generated form that is titled 'Request for
Information.'" The October 4 email was not that, but instead was a brief
stand-alone email sent to Waltz's attorney, the subject line of which was
"Waltz Healing Center, Inc./Application . . . / Response to Request for
Information."

¶23 We conclude the October 4 email did not constitute a
supplemental request for information under the regulation because it
merely restated – albeit more clearly – that the Tempe letter Waltz had
submitted did not satisfy R9-17-304(C)(6). In any event, Waltz has failed to
present any evidence that it would have been able to comply with R9-17-
304(C)(6) within ten days after the email. At the hearing, White testified
that if the Department had made it clear to Waltz on September 19 that the
2012 letter was insufficient, Waltz would have tried to obtain another letter

8
 WALTZ HEALING v. ADHS
Opinion of the Court

from the City of Tempe. As to whether the City would have provided Waltz
with documentation of current zoning compliance, however, White
responded, "I don't know for sure if they would've, . . . I don't know what
they would've said."

C. Purported Inconsistent Treatment of Applicants.

¶24 Finally, Waltz argues the Department violated Waltz's equal
protection rights under the Arizona Constitution and acted arbitrarily and
capriciously because it treated Waltz differently than other applicants.4 The
right of equal protection is a guarantee "that persons in like circumstances
and like conditions be treated equally." Book-Cellar, Inc. v. City of Phoenix,
150 Ariz. 42, 45 (App. 1986). "To establish an equal protection violation, a
party must establish (1) that it was treated differently than those who are
similarly situated, and (2) when disparate treatment does not implicate
fundamental rights or suspect classification, that the classification bears no
rational relation to a legitimate state interest." Curtis v. Richardson, 212 Ariz.
308, 313, ¶ 18 (App. 2006).

¶25 Waltz did not raise equal protection in the administrative
hearing, so the ALJ did not make a finding on whether the Department
treated Waltz differently than it treated other similarly situated applicants.
See DeGroot, 141 Ariz. at 340 ("The general rule is that failure to raise an
issue before an administrative tribunal precludes judicial review of that
issue on appeal unless the issue is jurisdictional in nature."). In any event,
even if we were inclined to address Waltz's equal-protection argument, the
record contains insufficient evidence to support Waltz's contention that, by
declining to accept the 2012 letter, the Department treated Waltz differently
than other similarly situated applicants. See Curtis, 212 Ariz. at 313.

¶26 Waltz argues that the Department has "accepted zoning
documentation from other applicants that did not reflect 'current' zoning
compliance when the dispensary registration certificates were issued." In
support of that proposition, Waltz cites White's testimony that the
Department accepted applications he had prepared for other clients using
zoning letters from 2012. Waltz did not offer any corroborating evidence
or further detail in support of that assertion, however, and a Department

4 Although Waltz mentions due process in its opening brief, it
provides no legal or record authorities in support of any due-process
argument, so we will not address the issue. See ARCAP 13(a)(7); AMERCO
v. Shoen, 184 Ariz. 150, 154, n.4 (App. 1995) (failure to develop argument or
present supporting authority on appeal waives issue).

9
 WALTZ HEALING v. ADHS
Opinion of the Court

employee testified that the Department does not accept "expired" zoning
letters.

¶27 Waltz also cites evidence that a Department employee
telephoned the City of Tempe about the Waltz application during the
application process, and contends that, in other application contests, the
Department has stated it "does not check to see if the proposed dispensary
location actually complies with local zoning restrictions." The record does
not support Waltz's assertion that the Department violated its equal-
protection rights by contacting the City of Tempe. To begin with, Waltz
does not argue that the Department is not allowed to confirm the reliability
of an applicant's document when it doubts the document's pertinence. In
fact, White testified that he had facilitated direct contact between the City
of Tempe and the Department to resolve documentation issues with other
applications. In any event, a Department employee testified he called the
City to find out whether the 2012 letter was still current and about its
"expiration date," but did not ask whether Waltz's proposed site complied
with then-current zoning restrictions.5

¶28 To support its argument that the Department acted contrary
to the position it has publicly taken in other cases, Waltz cites a motion the
Department filed in an unrelated lawsuit brought by another unsuccessful
applicant. Waltz contends that in that case, the Department argued that it
"need only ensure that successful applicants for dispensary registration
certificates . . . provide an enumerated set of documents and information,"
and at the application stage, "applicants are not required to demonstrate
they currently meet the requirements to obtain approval to operate (i.e., that
they have already obtained a special use permit or conditional use permit);
they are required to demonstrate only that their location falls within a
zoning classification that could allow a dispensary to operate there."

¶29 The quoted statement is not inconsistent with the
Department's position here that it checks an application to ensure an
applicant has provided local zoning documentation, see R9-17-304(C)(6),
but does not check for additional documentation, such as a use permit or
occupancy permit, that would be required before the applicant actually
would be allowed to operate a dispensary, see R9-17-305(A)(2). Here, the
Department rejected Waltz's application because it failed to provide
adequate zoning documentation in compliance with R9-17-304(C)(6) and

5 The Department employee was not asked at the hearing to recount
what he learned from the City, but testified he found out that the City
employee who had signed the 2012 letter no longer worked there.

10
 WALTZ HEALING v. ADHS
Opinion of the Court

not because Waltz could not currently prove that it could operate a
dispensary under R9-17-305(A)(2). Waltz cites Compassionate Care
Dispensary, Inc. v. Arizona Department of Health Services, 1 CA-CV 13-0133,
2015 WL 1395271 (App. Mar. 24, 2015), but the issue in that case was
whether the Department arbitrarily treated two competing applications
differently. No such evidence was presented here.

CONCLUSION

¶30 For the foregoing reasons, we conclude substantial evidence
supports the Department's decision and the decision was not contrary to
law, arbitrary, capricious or an abuse of discretion. Therefore, we affirm
the superior court's judgment upholding the Department's decision.

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

11