Osage Creek Cultivation, LLC v. Ark. Dep’t of Fin. & Admin.

Full title: OSAGE CREEK CULTIVATION, LLC; DELTA MEDICAL CANNABIS COMPANY, LLC; BOLD TEAM, LLC; NATURAL STATE MEDICINALS CULTIVATION, LLC; AND GOOD DAY FARM ARKANSAS, LLC APPELLANTS v. ARKANSAS DEPARTMENT OF FINANCE AND ADMINISTRATION; ARKANSAS ALCOHOLIC BEVERAGE CONTROL DIVISION; ARKANSAS MEDICAL MARIJUANA COMMISSION; CARPENTER FARMS MEDICAL GROUP, LLC; RIVER VALLEY RELIEF CULTIVATION, LLC; RIVER VALLEY PRODUCTION, LLC, D/B/A RIVER VALLEY RELIEF CULTIVATION; RIVER VALLEY PRODUCTION, LLC; AND NEW DAY CULTIVATION, LLC APPELLEES

Court: Supreme Court of Arkansas

Date published: Mar 16, 2023

Facts

In 2016, Arkansas voters approved the sale of medical marijuana by passing Amendment 98. This amendment established the Medical Marijuana Commission and authorized the Commission to grant between four and eight marijuana cultivation licenses. Ark. Const. amend. 98, § 8(j). The Commission decided to grant and award five initial licenses in 2018. Appellants are the five entities with the initial licensed cultivation facilities. They filed the lawsuit underlying this appeal. All relevant facts have been taken from their second amended complaint, and we treat the allegations as true for this appeal. E.g.Monsanto Co. v. Ark. St. Plant Bd.2019 Ark 194, at 8576 S.W.3d 8, 13.

In 2020, the Commission, allegedly without following applicable rules, decided to grant three more cultivation licenses. This brought the number of licenses granted to eight, the constitutional maximum. The Commission granted one of these new licenses to Bennet Nolan, operating through River Valley Production, LLC (“River Valley Production I”). 

But there was one problem: River Valley Production I had been dissolved by articles of dissolution filed on March 20, 2019. To rectify this problem, two new entities were formed.

Both the Commission and the Alcoholic Beverage Control Division, an enforcement body, received a complaint from the original five cultivators about the license granted to Nolan because River Valley Production I had been dissolved. They requested that his cultivation license be revoked. But rather than revoke the license, or hold a hearing on the complaints, the ABC Division entered into a settlement agreement with Nolan and River Valley Production II, allowing them to retain the license.

After this settlement, the five initial cultivators sued the Commission; the ABC Division; the Department of Finance and Administration; Nolan’s three River Valley entities; and the two other new cultivation license holders. The complaint sought a declaratory judgment and injunctive relief. The initial cultivators argued the Commission exceeded its constitutional authority when it issued a license to a dissolved legal entity, River Valley Production I. They also argued that the license was void.

The defendants moved to dismiss the lawsuit. The arguments included that the complaint was barred by sovereign immunity; that the circuit court lacked subject-matter jurisdiction; and that the cultivators lacked standing. The cultivators filed a motion for summary judgment. The court granted the motion to dismiss and dismissed the motion for summary judgment as moot.

First, the court concluded the complaint surmounted sovereign immunity because the complaint included sufficient detailed facts that the state actors had acted ultra vires and unconstitutionally. Second, the court found that it lacked subject-matter jurisdiction because no adjudication had occurred within the meaning of the Administrative Procedure Act, a necessary predicate for judicial review of agency decisions in circuit court, and they did not bring an applicability challenge. Third, the court concluded the cultivators lacked standing because their cultivation permits were not “directly affected by the actions of the Commission.”

The five initial cultivators, appellants, filed this appeal. They limited their appeal to a single claim from their complaint, “Count 3,” which challenged the Commission’s decision to allegedly grant a license to a dissolved corporate entity. They argue the circuit court erred by finding it lacked subject-matter jurisdiction because it sought declaratory and injunctive relief only, so the adjudication requirement of the APA did not apply. They also argue the circuit court wrongly held that they lacked standing because the issuance of more cultivation licenses caused an injury to their market share.

Issue

Decision

The Justice ruled in favor of the appellants, stating that the circuit court had subject-matter jurisdiction over their claim that the State acted ultra vires in issuing the River Valley cultivation license. However, the Court of Appeals disagreed, stating that the complaint failed to state sufficient facts to overcome sovereign immunity. The Court argued that the allegation that the MMC contravened Amendment 98 when it issued the license was sufficient to overcome sovereign immunity.

The Court of Appeals affirmed the dismissal of the complaint because the appellants did not have standing. The Circuit Court concluded that the appellants were permittees, not applicants, and their permits were not directly affected by the MMC’s actions. Only a claimant with a personal stake in the outcome of a controversy has standing. The appellants contend that the issuance of a cultivation license to River Valley would dilute their market share, cost them dispensary customers, and reduce their sale of medical marijuana. They cite Arkansas Beverage Retailers Association, Inc. v. Moore and Moore v. Arkansas Alcoholic Beverage Control Bd. as supporting their standing argument. However, the Court of Appeals stated that standing under the APA does not apply to this declaratory-judgment claim, as it does not address allegations of disparate treatment and competitive advantage. The Court also noted that the challenge in Moore v. turned on geographic proximity, which is not present in this case.

The appellants in a case involving a Missouri Municipal Corporation (MMC) were dismissed for lack of standing due to their lack of legally protectable interest in a one-eighth market share. The appellants held cultivation licenses, which were not at stake and were aware of Amendment 98’s authorization for up to eight cultivation licenses. The MMC could issue the eighth license to the next applicant in line, and the appellants could not show any prejudice to their position from the MMC’s decision to award a license to River Valley. The court ruled that the appellant’s claim of loss of market share was not sufficient to confer standing. The court also noted that the judicially created exceptions to sovereign immunity for illegal, unconstitutional, or ultra vires acts are divorced from the plain text and original meaning of the Constitution. The court argued that the power to change Article 5, section 20 lies exclusively with the people of Arkansas, and that the Constitution should control this disposition, not the precedent.

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