ARKANSAS DEPARTMENT OF FINANCE AND ADMINISTRATION; ARKANSAS ALCOHOLIC BEVERAGE CONTROL DIVISION; AND ARKANSAS MEDICAL MARIJUANA COMMISSION v. CARPENTER FARMS MEDICAL GROUP, LLC
No. CV-19-739
SUPREME COURT OF ARKANSAS
May 28, 2020
2020 Ark. 213
RHONDA K. WOOD, Associate Justice
APPEAL FROM THE PULASKI COUNTY CIRCUIT COURT, FIFTH DIVISION [NO. 60CV-18-8555], HONORABLE WENDELL GRIFFEN, JUDGE
Opinion Delivered: May 28, 2020
AFFIRMED IN PART; REVERSED AND DISMISSED IN PART; REMANDED.
The Arkansas Medical Marijuana Commission disqualified Carpenter Farms Medical Group, LLC‘s application for a marijuana-cultivation facility. Carpenter Farms sued and asserted it was the only
We affirm in part; reverse and dismiss in part; and remand. Carpenter Farms can proceed with its claim that the Commission failed to adopt model rules. It can also proceed with its declaratory-judgment action alleging an equal-protection violation. But the lawsuit cannot go forward regarding the Commission‘s application of its own rules or as an administrative appeal.
Part I. Procedural Background and Relevant Facts
A. Factual Allegations
The people of Arkansas legalized medical marijuana by constitutional amendment.
Carpenter Farms sued the Commission, the Arkansas Department of Finance and Administration (DFA), and the Arkansas Alcoholic Beverage Control Division (ABC) (collectively, the “State“). The facts as alleged in the complaint are as follows. Carpenter Farms applied for a medical-marijuana cultivation license. Carpenter Farms contended it was the only 100 percent minority-owned applicant. After Carpenter Farms submitted its application, ABC staff concluded that Carpenter Farms’ application was “complete and . . . contain[ed] requisite supporting documentation.”
A second, substantive review then took place. The Commission sent Carpenter Farms an email stating that “[t]he application you submitted has now been verified.” ABC staff sent Carpenter Farms a follow-up email stating that “[o]ur office now considers your application complete and it will go before the Commission for scoring.” Four of the five commissioners later returned their scores for all the cultivation-facility applications, including Carpenter Farms‘.
But before the Commission released scores for all cultivation-licensing applications, ABC staff member Mary Robin Casteel again reviewed Carpenter Farms’ application. (At this point, Carpenter Farms alleged it was ranked fifth or higher by the four commissioners who had submitted their scores, with the five highest-scored applicants receiving licenses.) Upon this review, Casteel unilaterally disqualified Carpenter Farms and removed it from the list of scored applicants. The stated reason for the disqualification was a discrepancy in Carpenter Farms’ ownership structure, which purportedly violated Amendment 98‘s ownership requirements. (Carpenter Farms maintained that this discrepancy was a scrivener‘s error.)
Casteel communicated her decision to disqualify Carpenter Farms to Travis Story, the sole commission member whose scores remained outstanding. She also specifically
After all the commissioners returned their scores, the Commission released the raw scores publicly and awarded five tentative cultivation-facility licenses. Carpenter Farms was not among the scored applications—its first notice that its application was disqualified. Carpenter Farms alleged it was the only applicant with a verified application that did not receive a public score. It also alleged that its was the only application that was disqualified after being scored. Carpenter Farms also maintained that its disqualification occurred without the Commission being notified. Counsel for DFA initially agreed to present Carpenter Farms’ motion for reinstatement to the Commission. But the Commission later obtained its own counsel and, upon her advice, denied Carpenter Farms an opportunity to be heard at two Commission meetings.
The Commission ratified Carpenter Farms’ disqualification at its July 2018 meeting. Carpenter Farms then submitted a motion for reconsideration and a request for a hearing. The Commission denied the motion and issued a formal letter to Carpenter Farms disqualifying its application for a license.
B. Legal Allegations
Carpenter Farms’ complaint rests mainly on two legal theories: (1) the Commission violated the APA and MMC Rules and (2) the Commission violated equal protection by subjecting Carpenter Farms’ application to disparate treatment.
Under its APA legal theory, Carpenter Farms maintained that the Commission failed to adopt model rules as required by
Under its disparate-treatment theory, Carpenter Farms alleged that the Commission and Casteel permitted scoring of other applicants and issued licenses despite their applications containing similar errors that should have barred their scores under Amendment 98 or MMC Rules. For example, it maintains that some applicants failed to submit adequate documentation proving residency; had outstanding tax liabilities in violation of Commission rules; and would have placed a facility impermissibly close to a church. Carpenter Farms also maintained that Casteel‘s heightened review of its application was “arbitrary, capricious, biased and lawless,” violated the MMC Rules, and violated the U.S. and Arkansas Constitutions’ due-process and equal-protection clauses.
Carpenter Farms requested that the circuit court reinstate its application; allow its score to stand; declare that its disqualification was ultra vires, arbitrary, capricious, and contrary to law; declare that the Commission‘s failure to adopt model rules was improper; and reject Story‘s score and recalculate Carpenter Farms’ score “to be five times the average of the other four scores.” If the court denied its request to reinstate its score, Carpenter Farms asked the court to vacate the disqualification; order a hearing under
The State moved to dismiss based on sovereign immunity. It argued that Carpenter Farms’ complaint impermissibly sought to control the lawful action of the State. It also argued that appeals under the APA are limited to agency “adjudications” and that no adjudication had taken place.
The circuit court held a hearing and denied the motion by written order. The court found that Carpenter Farms’ complaint contained detailed allegations that the Commission violated equal protection. The court reasoned that the complaint sufficiently alleged the “illegal-act” or “ultra vires” exception to sovereign immunity. The State appeals this order. The State also alleges that the circuit court displayed injudicious conduct at the hearing and should be barred from considering any case involving the Attorney General.
C. Standard of Review and Sovereign Immunity
In reviewing a circuit court‘s decision on a motion to dismiss, “we treat the facts alleged in the complaint as true and view them in the light most favorable to the plaintiff.” McGhee v. Ark. State Bd. of Collection Agencies, 360 Ark. 363, 368, 201 S.W.3d 375, 377 (2005). We focus “only to the allegations in the complaint and not to matters outside the complaint.” Id., 201 S.W.3d at 378. We will resolve all reasonable inferences in the complaint‘s favor and construe the pleadings liberally. Monsanto Co. v. Ark. State Plant Bd., 2019 Ark. 194, at 8, 576 S.W.3d 8, 13. The State here asserts that sovereign immunity bars Carpenter Farms’ complaint. We review this issue de novo. Ark. Cmty. Corr. v. Barnes, 2018 Ark. 122, at 2, 542 S.W.3d 841, 842.
The State‘s sovereign immunity originates in
But when a party appeals from an agency adjudication, the sovereign-immunity doctrine does not apply. Ark. Oil & Gas Comm‘n v. Hurd, 2018 Ark. 397, at 11, 564 S.W.3d 248, 255. In these appeals, the State‘s role is that of a “quasi-judicial decision-maker rather than a real party in interest.” Id. at 10, 564 S.W.3d at 255. Further, in Martin v. Haas, a post-Andrews case, we reiterated that “our sovereign immunity cases allow actions that are illegal, unconstitutional or ultra vires to be enjoined.” 2018 Ark. 283, at 7, 556 S.W.3d 509, 514 (cleaned up). Thus, an allegation of “ultra vires” or “illegal” acts by the State remains an exception to sovereign immunity that even following Andrews is “alive and well.” See Monsanto, 2019 Ark. 194, at 9, 576 S.W.3d at 13; see also Ark. Game & Fish Comm‘n v. Heslep, 2019 Ark. 226, at 6, 577 S.W.3d 1, 5 (noting exception to sovereign immunity for state‘s illegal acts); Ark. State Plant Bd. v. McCarty, 2019 Ark. 214, at 7, 576 S.W.3d 473, 477 (same). Even so, a plaintiff must still comply with our fact-pleading rules when alleging an exception to sovereign immunity. See Williams v. McCoy, 2018 Ark. 17, at 3, 535 S.W.3d 266, 268.
Section 212 of the APA permits judicial review of agency adjudications.
We addressed a similar challenge to the Commission‘s licensing decision in Arkansas Department of Finance and Administration v. Naturalis Health, LLC, 2018 Ark. 224, 549 S.W.3d 901. There, a failed cultivation-facility applicant sued to enjoin the Commission; it alleged the Commission‘s application process was flawed, biased, and arbitrary. The circuit court agreed and declared the Commission‘s licensing decision void and enjoined the Commission from issuing further licenses.
We reversed and dismissed, concluding that the circuit court lacked subject-matter jurisdiction. We noted that courts lack “jurisdiction to examine administrative decisions of state agencies.” Id. at 6, 549 S.W.3d at 906. We explained that the courts have limited review under APA section 212 only for quasi-judicial “adjudications“; if there is no agency adjudication, then there is no action for a court to review. Id. at 7, 549 S.W.3d at 906. We held that the Commission‘s decision to grant cultivation licenses to certain applicants was not an adjudication and that as a result, the circuit court lacked subject-matter jurisdiction under section 212. Id. at 7–8, 549 S.W.3d at 906.
Naturalis controls here to the extent Carpenter Farms’ complaint rests on section 212. Indeed, all agree that the Commission‘s decision to disqualify Carpenter Farms took place without notice or a hearing. Nor did the Commission hear testimony, make factual findings, or render legal conclusions. The Commission issued a disqualification letter and never acted quasi-judicially. Indeed, the Commission‘s decision to disqualify Carpenter Farms took place administratively, and no party suggests that the Commission must make this “determination [disqualification] after notice and hearing,” the statutory definition of an adjudication.1 We therefore reverse and dismiss Carpenter Farms’ complaint to the extent it rests on section 212 as a jurisdictional basis.
Part III. Administrative Procedure Act (Section 207)
A. Application Challenge
Section 207 permits an injured party to bring a declaratory-judgment action challenging a rule‘s “validity or applicability.”
We held in Naturalis that an agency‘s case-specific “application” of its rules was not subject to judicial review under section 207. 2018 Ark. 224, at 9, 549 S.W.3d at 907. A court cannot review “how the rule should be applied given a particular set of facts or circumstances.” Id. Carpenter Farms here alleges, in part, that the Commission should have acted differently—that is, scored the application per MMC Rules—given the set of circumstances surrounding the submission. Naturalis prohibits this type of challenge.
B. Applicability or Validity Challenge
Carpenter Farms makes another allegation absent from Naturalis: the Commission failed to adopt model rules promulgated by the Attorney General under section 215 of the APA. Unlike the above challenge to a rule‘s application, this is a permissible challenge to the validity of the MMC Rules. Under section 215, the Attorney General should publish model rules, and the agency ”shall adopt . . . those model rules that are practicable.”
In Naturalis, this court did not address a challenge involving section 215. And Carpenter Farms’ claim that the Commission failed to follow a mandatory provision of the APA is an allegation of ultra vires or illegal action, an exception to sovereign immunity. See Monsanto, supra; Heslep, supra; and McCarty, supra. Carpenter Farms maintains that the MMC Rules were invalid because (i) they are not the ones promulgated by the Attorney General and (ii) the Commission failed to explain why it adopted rules different from the model. We agree that this particular claim can proceed under section 207 because it involves the applicability or validity of the Commission‘s rules, rather than the Commission‘s application of those rules to Carpenter Farms’ set of circumstances.
The State challenges this in several ways. First, it argues that Carpenter Farms’ application was “disqualified” not “denied.” This distinction is semantic. From Carpenter Farms’ perspective, a denial and disqualification are substantively the same thing—Carpenter Farms cannot obtain a cultivation license. This argument lacks merit.
Second, the State argues that Carpenter Farms lacks standing and failed to exhaust its administrative remedies. But these issues are not ripe in an interlocutory appeal regarding sovereign immunity. Only sovereign immunity is properly before this court under
Finally, the State asserts that the Commission‘s rule-making authority pronounced in Amendment 98 abrogated section 215‘s requirement to adopt model rules. But the Amendment lacks such broad language. It states merely that “the commission . . . shall adopt rules necessary to . . . [c]arry out the purposes of . . . and perform its duties under this amendment.”
In conclusion, the circuit court lacked subject-matter jurisdiction over Carpenter Farms’ challenge to the Commission‘s application of its own rules pursuant to Naturalis. But Carpenter Farms’ allegation that the Commission failed to adopt model rules as required by law, or give a reason for not doing so, can proceed in the face of sovereign immunity under the “ultra vires” or “illegal acts” exception.
Part IV. MMC Rule 19
Carpenter Farms also asserts that the Commission‘s own internal rule established an independent basis for the circuit court‘s subject-matter jurisdiction. We disagree. Under MMC Rule 19, the Commission provides that if it “denies an application for a cultivation license, the commission‘s decision may be appealed to . . . circuit court.” The Naturalis court did not review this issue because, there, the Commission had not yet issued denial letters. Naturalis, 2018 Ark. 224, at 10, 549 S.W.3d at 908. But here, Carpenter Farms received a disqualification letter. The issue is live, despite the State‘s contention that Carpenter Farms cannot oblige itself of this rule because its application was “disqualified” rather than “denied.”
Even so, the Commission‘s rule violates our holding in Andrews that the legislature‘s waiver of sovereign immunity in cases involving the minimum-wage act violated the Arkansas Constitution. 2018 Ark. 12, at 10, 535 S.W.3d at 622. If the legislature cannot create a waiver by statute, then neither can the executive branch (here, the Commission) by its own internal rule.
Indeed, a court obtains subject-matter jurisdiction through the Arkansas Constitution or by constitutionally authorized statutes or court rules. Edwards v. Edwards, 2009 Ark. 580, at 4, 357 S.W.3d 445, 448. A state agency‘s internal rule cannot independently establish subject-matter jurisdiction in the judicial branch. MMC Rule 19 cannot and does not create an independent basis for the circuit court‘s jurisdiction that does not otherwise exist under the APA. And because MMC Rule 19 would expand judicial review from that authorized under the APA, the lawsuit cannot go forward with Rule 19 as the jurisdictional hook.
Part V. Declaratory Judgment (Equal Protection)
Carpenter Farms titled its complaint, in part, as one seeking declaratory judgment. It pled specifically that the Commission violated the Equal Protection Clauses of the U.S. and the Arkansas Constitutions. Its prayer for relief requests a declaratory judgment that the Commission‘s disqualification was contrary to law. “Pleadings are to be liberally construed and are sufficient if they advise a defendant of his obligations and allege a breach
The circuit court has subject-matter jurisdiction to determine whether the Commission violated Carpenter Farms’ constitutional rights in this regard. See
349 Ark. 600, 80 S.W.3d 332 (2002) (striking down anti-sodomy statute in declaratory-judgment action).
As explained above, our sovereign-immunity doctrine allows this claim because it is premised on the State‘s unconstitutional actions. See Martin, 2018 Ark. 283, at 7, 556 S.W.3d at 514. One caveat is that a complaint alleging illegal and unconstitutional acts must comply with our fact-pleading rules. See Williams, 2018 Ark. 17, at 3, 535 S.W.3d at 268. At the interlocutory stage, Carpenter Farms meets this initial threshold. An equal-protection claim must first show that there is state action that differentiates among individuals. Ghegan & Ghegan, Inc. v. Barclay, 345 Ark. 514, 521, 49 S.W.3d 652, 656 (2001). Carpenter Farms has at least made a plausible case that there is state action (by the Commission) that differentiates among individuals (the 100 percent minority-owned applicants and everyone else).
Carpenter Farms alleged specific facts absent from other cases in which we have dismissed at the complaint stage. See Ark. State Claims Comm‘n v. Duit Constr. Co., 2014 Ark. 432, 445 S.W.3d 496. There, the plaintiff asserted, without factual support, that the claims commission recommended higher damages awards to resident contractors than to nonresident contractors. Id. at 8, 445 S.W.3d at 503. In contrast, Carpenter Farms here highlighted multiple, similar defects in other applications that did not result in disqualification.
Whether this allegation can be proved and the appropriate remedy are questions left for another day. For now, Carpenter Farms has alleged a plausible equal-protection violation. Liberally construing the allegations of disparate treatment in its complaint, we
hold that Carpenter Farms may proceed with a declaratory-judgment action that the Commission violated equal protection.2
Part VI. Reassignment
The State also argues that if the case can proceed, we should reassign this matter to a different circuit judge. The State maintains that this judge should be prohibited from all cases involving the Attorney General‘s Office. The State complains that the judge exhibited injudicious behavior. It highlights specifically what it characterizes as the judge‘s demeaning behavior during a hearing in this case.
The legal basis for removing the judge, the State argues, rests with Amendment 80. Amendment 80 establishes this court‘s general superintending control over all the courts of the state.
Part VII. Conclusion
To conclude: we affirm on the limited basis of Carpenter Farms’ section 207 challenge to the validity and applicability of the Commission‘s own rules. But any claims
arising from section 212 or MMC Rule 19 are reversed and dismissed. We remand with instructions to permit the complaint to go forward only under section 207 and the declaratory-judgment action alleging an equal-protection violation.
Affirmed in part; reversed and dismissed in part; remanded.
BAKER, HUDSON, HART, WYNNE, and WOMACK, JJ., concur in part; dissent in part.
KAREN R. BAKER, Justice, concurring in part and dissenting in part. While I concur in the result reached by the majority in Parts II, III(A), IV, and VI, I dissent from the remainder of the opinion. Because I cannot agree with the majority‘s interpretation of the precedent established in Board of Trustees of the University of Arkansas v. Andrews, 2018 Ark. 12, 535 S.W.3d 616, I would also reverse and dismiss Part III(B) and Part V for the reasons explained below.
This majority is inconsistent with Andrews. As I explained in my dissent in Arkansas Oil & Gas Commission v. Hurd, 2018 Ark. 397, at 13, 564 S.W.3d 248, 258, Andrews does not provide for exceptions to its broad language barring suit against the State. In Andrews, the court held that “never means never,” and did not identify exceptions. Accordingly, despite the majority‘s attempt to narrow Andrews, the broad language of Andrews does not permit such suit. Here, like Hurd, Carpenter Farms alleges that the appellants’ actions were beyond the appellants’ authority as a state board and acted in an ultra vires manner. Therefore, state conduct is at issue, and Andrews bars suit.
Accordingly, I concur in part and dissent in part.
ROBIN F. WYNNE, Justice, concurring in part and dissenting in part. I join Part III of the majority opinion allowing Carpenter Farms to challenge the validity and applicability of the Medical Marijuana Commission‘s rules under
In Arkansas Department of Finance & Administration v. Naturalis Health, LLC, 2018 Ark. 224, 549 S.W.3d 90, this court examined whether section 25-15-212 allows judicial review of MMC licensing decisions. In Naturalis, we explained that judicial review under the Administrative Procedure Act is limited to agencies’ judicial functions, which are basically adjudicatory or quasi-judicial in nature. Id. at 6–7, 549 S.W.3d at 906. In the case of an applicant who did not receive a cultivation license, but was not formally denied one either,
we identified no adjudicatory or quasi-judicial action on the part of the MMC. We concluded that because no adjudication occurred at the agency level, judicial review was not available under section 25-15-212. Id. at 8, 549 S.W.3d at 906.
Relying on Naturalis, the majority concludes that the MMC‘s decision on Carpenter Farms’ license application is not an adjudication subject to judicial review. But Naturalis can be distinguished. The plaintiff in Naturalis had not been denied a license; rather, it simply had not been granted one. There was no final agency decision to review. In contrast, the MMC issued a formal letter denying Carpenter Farms’ license application.
The MMC denied Carpenter Farms’ application without providing notice and a hearing and now argues that the circuit court cannot review that decision because it did not provide notice and a hearing. I disagree. An agency cannot evade judicial review of its licensing decisions simply by adopting rules that do not allow for notice and a hearing. In my view, the MMC‘s decision to deny Carpenter Farms’ application for a cultivation license is an order subject to judicial review. It is a final determination. It is not legislative, such as rulemaking, or administrative, such as terminating an employee. I would conclude that the MMC‘s denial of Carpenter Farms’ license application is a final agency decision subject to judicial review, so sovereign immunity would not bar Carpenter Farms’ action under section 25-15-212. See Ark. Oil & Gas Comm‘n v. Hurd, 2018 Ark. 397, at 11, 564 S.W.3d 248, 255.
Because I would conclude that the circuit court has jurisdiction under section 25-15-212, I would decline to consider whether MMC Rule 19 independently confers jurisdiction. And while I agree with the majority that Carpenter Farms may proceed with
its equal protection claim, I think judicial review of this claim is available under section 25-15-212. Therefore, I do not join Parts IV and V of the majority opinion.
HUDSON and HART, JJ., join.
SHAWN A. WOMACK, Justice, concurring in part and dissenting in part. I respectfully disagree with the majority‘s conclusion that Carpenter Farms may pursue declaratory judgment for MMC‘s alleged failure to comply with the model rule requirement under
Under Amendment 98 to the Arkansas Constitution, the MMC is vested with broad discretion to adopt any rules necessary to carry out the purposes of the amendment and to perform its duty to issue cultivation licenses. See
The APA does, however, have limited applicability to the MMC. Rules adopted by the MMC under Amendment 98 are “rules as defined in the [APA].”
Leslie Rutledge, Att‘y Gen., by: Jennifer L. Merritt, Sr. Att‘y Gen., for appellants.
Law Offices of Matt Simmons, Esq., by: Matt Simmons, pro hac vice; and R. Victor Harper, P.A., by: R. Victor Harper, for appellee.