SAGUARO HEALING LLC, Plaintiff/Appellant, v. STATE OF ARIZONA, ET AL. Defendants/Appellees.
No. CV-19-0129-PR
SUPREME COURT OF THE STATE OF ARIZONA
Filed August 20, 2020
Appeal from the Superior Court in Maricopa County, The Honorable John R. Hannah, Jr., Judge, No. CV2017-054686, REVERSED AND REMANDED. Memorandum Decision of the Court of Appeals, Division One, No. 1 CA-CV 18-0242, Filed March 28, 2019, VACATED
COUNSEL:
Ryan J. Lorenz (argued), Sean M. Carroll, Andrew B. Turk, Christopher T. Curran, Clark Hill PLC, Scottsdale, Attorneys for Saguaro Healing, LLC
JUSTICE BEENE authored the Opinion of the Court, in which VICE CHIEF JUSTICE TIMMER and JUSTICES BOLICK, GOULD, LOPEZ, and PELANDER (RETIRED) joined.* JUSTICE MONTGOMERY concurred in part and dissented in part.
JUSTICE BEENE, Opinion of the Court:
¶1 We address whether the Arizona Department of Health Services’ (“ADHS“) interpretation of Arizona Administrative Code R9-17-303, which governs ADHS‘s allocation of marijuana dispensary registration certificates, violates
BACKGROUND
¶2 Pursuant to its rulemaking authority, ADHS must enact rules to implement and administer the Arizona Medical Marijuana Act (“AMMA“). See
¶3 Each year, ADHS must review existing dispensary certificates to determine if it may issue additional certificates under
¶4 Here, based on the annual review data collected before May 31, 2016, ADHS performed its priority analysis and determined on June 16, 2016, it could issue new registration certificates. See id. at (A). ADHS announced it would accept applications for new certificates between July 18 and July 29, 2016. Because every county had at least one dispensary during the annual review period, ADHS announced it would allocate the registration certificates based on other factors set forth in R9-17-303. See id. at (B)(1), (2). Saguaro Healing LLC (“Saguaro“) timely applied for a certificate, indicating that its dispensary would be in CHAA 36, located in La Paz County.
¶5 During the application period, the only dispensary in La Paz County relocated out of the county. However, because the annual review data still reflected a dispensary in La Paz County, ADHS did not consider the vacancy when prioritizing registration certificates.1 As a result, although Saguaro was the only applicant for La Paz County, and ADHS notified Saguaro that its application was complete and complied with the applicable laws and rules, ADHS did not issue a certificate to Saguaro, and La Paz County was left without a dispensary.
¶7 The court of appeals affirmed. Saguaro Healing LLC v. State, No. 1 CA-CV 18-0242, 2019 WL 1410627, at *1 ¶ 1 (Ariz. App. Mar. 28, 2019) (mem. decision). We granted review to determine whether ADHS‘s application of R9-17-303 as interpreted violated
DISCUSSION
¶8 Pursuant to
[ADHS] may not issue more than one nonprofit medical marijuana dispensary registration certificate for every ten [registered] pharmacies . . . within the state except that the department may issue nonprofit medical marijuana dispensary registration certificates in excess of this limit if necessary to ensure that the department issues at least one nonprofit medical marijuana dispensary registration certificate in each county in which an application has been approved.
¶9 We are asked to decide whether
¶10 We interpret statutes and administrative rules de novo, “apply[ing] the same rules in construing both statutes and rules.” Gutierrez v. Indus. Comm‘n of Ariz., 226 Ariz. 395, 396 ¶ 5 (2011) (citation omitted). We do not defer to the agency‘s interpretation of a rule or statute.
A.
¶11 The State argues
¶12 Although “[t]he word ‘may,’ when used in a statute, usually implies some degree of discretion,” this principle “can be defeated by indications of legislative intent to the contrary or by obvious inferences from the structure and purpose of the statute.” United States v. Rodgers, 461 U.S. 677, 706 (1983). “Words in statutes should be read in context in determining their meaning.” Stambaugh, 242 Ariz. at 509 ¶ 7.
¶13 Here, the words “if necessary to ensure” indicate that “may” is not permissive in this context. The dictionary definitions of “necessary” and “ensure” support this conclusion. See Necessary, Merriam-Webster‘s Collegiate Dictionary (11th ed. 2003) (“[A]bsolutely needed : required.“); Ensure, Merriam-Webster‘s Collegiate Dictionary (11th ed. 2003) (“[T]o make sure, certain, or safe : guarantee.“); see also DBT Yuma, L.L.C. v. Yuma Cty. Airport Auth., 238 Ariz. 394, 396 ¶ 9 (2015) (“Absent statutory definitions, courts generally give words their ordinary meaning and may look to dictionary definitions.” (internal citation omitted)). Accordingly, although “may” often indicates discretion, here the words “if necessary to ensure” indicate that ADHS is required to issue “at least one . . . certificate in each county in which an application has been approved.”
¶14 Further, the interplay between subsections (B) and (C) supports the construction that “may” is mandatory. Subsection (B) requires ADHS to issue a registration certificate if the applicant satisfies the statutory requirements. Subsection (C) sets the maximum number of permissible dispensaries that ADHS “may not” exceed. However, subsection (C) provides one exception, that ADHS “may” exceed the maximum to ensure a county has at least one dispensary. “May” in
¶15 Finally, interpreting “may” as mandatory in this context furthers the AMMA‘s purpose to aid individuals with “debilitating medical conditions” by ensuring access to a dispensary in each county. See
¶16 The State alternatively argues that
¶17 At bottom,
B.
¶18 Because “may” is not discretionary in this context, ADHS‘s application of R9-17-303 as interpreted conflicts with
¶19 Although the AMMA allows ADHS to adopt rules governing dispensaries, see
¶20 In its current form, ADHS‘s rule does not conflict with
¶21 The rule provides that sixty working days after ADHS begins accepting applications, ADHS shall determine how it will prioritize the applications. Id. at (c). However, in this case, ADHS interpreted R9-17-303 as allowing it to prioritize the allocation of new registration certificates based on the annual review data gathered before the opening of the application period—thereby creating a conflict with the statute. Our dissenting colleague would defer to ADHS to determine when it may prioritize applications. We do not defer to ADHS in this case because although R9-17-303 requires that ADHS conduct an annual review, the application prioritization must comply with the statute‘s goal of ensuring one dispensary in each county with a qualified applicant. Deferring to ADHS here would clearly be contrary to law. See
¶22 We agree with our dissenting colleague that “a dispensary can still leave a county regardless of when the prioritization or allocation process occurs.” Infra ¶ 32. But the statute requires that ADHS issue registration certificates, and necessarily open the application process, under two distinct circumstances: (1) if the allocation of dispensary certificates is below the one-in-ten ratio or (2) a county does not have a dispensary.
CONCLUSION
¶23 For the foregoing reasons, we conclude
SAGUARO HEALING LLC v. STATE OF ARIZONA, et al.
JUSTICE MONTGOMERY, concurring in part, dissenting in part
MONTGOMERY, J., concurring in part and dissenting in part:
¶24 Because bad facts make for bad law and an exception should not become the basis for a rule, I would have declined review of the petition in this case. Nevertheless, the matter is before us, and while I agree with the majority‘s interpretation of
I.
¶25 The crux of the issue before us actually concerns when ADHS can determine whether a county is lacking a dispensary and prioritize the allocation of available registration certificates. That Saguaro was unable to
II.
¶26 In this case, ADHS conducted an annual review of existing AMMA dispensary certificates with a record information date of May 31, 2016. The review established that every county had at least one licensed dispensary and, in compliance with
The Department will accept dispensary registration certificate applications from July 18 – July 29, 2016. During this allocation, 31 dispensary registration certificates will be available. The “record date” for the allocation will be May 31, 2016. Because there are no available counties as of the record date, the Department will not allocate certificates under R9-17-303(B)(1). Update - The top 31 CHAAs prioritized under R9-17-303(B)(2) will be made available by June 16. Any certificates not allocated under R9-17-303(B)(2) will be allocated under R9-17-303(B)(3).
¶27 Given that La Paz County had a dispensary in CHAA 36, it was not among the thirty-one CHAAs listed on June 16.4 On or about July 19, two days into the open application period, the dispensary operating in CHAA 36 relocated from La Paz County to a CHAA in Maricopa County.
¶28 Even though CHAA 36 was not allocated a registration certificate, Saguaro went ahead and submitted an application during the open period for the CHAA anyway. Unsurprisingly, and consistent with the notice provided for the application process, ADHS did not allocate a registration certificate to Saguaro. ADHS notified Saguaro on October 6, 2016, that it would not be issued a certificate, and Saguaro subsequently brought a special action complaint against ADHS. The trial court ultimately dismissed the complaint on ADHS‘s motion, which the court of appeals affirmed.
III.
¶29 The majority concludes that ADHS‘s interpretation of R9-17-303 is inconsistent with
A.
¶30 Addressing the second reason first, by faulting ADHS‘s prioritization process because a county ended up without a dispensary after following a rule the majority acknowledges is valid, supra ¶ 20, the majority is effectively requiring ADHS to accommodate applications for certificates whenever a county no longer has a dispensary. There is no basis in the regulatory framework established pursuant to the AMMA to support this directive. The majority reads too much into
B.
¶31 The majority‘s assertion that ADHS cannot prioritize certificates until sixty days after it begins to accept applications is also unsupported by any statute or rule in the AMMA regulatory framework. The rule cited, R9-17-303(A)(1)(c), provides:
Sixty working days after the date the Department begins accepting applications, the Department shall determine if the Department received more dispensary registration certificate applications that are complete and in compliance with A.R.S. Title 36, Chapter 28.1 and this Chapter to participate in the allocation process than the Department is allowed to issue.
There is no reference to the prioritization process, let alone any direction as to when it must occur. The rule simply provides a deadline to ensure the allocation process occurs within the statutory timeframe for issuing registration certificates. See
¶32 The prioritization process is set forth at R9-17-303(B), which directs ADHS to allocate certificates based on prioritization criteria if “the Department receives, by 60 working days after the date the Department begins accepting applications, more dispensary registration certificate applications . . . than the Department is allowed to issue.” Nowhere in the rules or
¶33 “In circumstances like these, in which the [people have] not spoken definitively to the issue at hand, ‘considerable weight should be accorded to an executive department‘s construction of a statutory scheme it is entrusted to administer.‘” Ariz. Water Co. v. Ariz. Dep‘t of Water Res., 208 Ariz. 147, 154 ¶ 30 (2004) (quoting Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 844 (1984)). Even if the Court is not required to give deference to ADHS‘s interpretation of the statute and rules in question, an agency action should be affirmed “unless the court concludes that the agency‘s action is contrary to law, is not supported by substantial evidence, is arbitrary and capricious or is an abuse of discretion.”
1.
¶34 To conclude that ADHS acted contrary to law, the majority reads a timing prohibition into the rules that does not exist in order to accomplish a statutory goal that is not supported when considering the entirety of the regulatory framework. The fact that the information known as of the record date later changed does not place ADHS‘s interpretation of R9-17-303 in conflict with
2.
¶35 There was reasonable information from which ADHS based its determination for prioritizing the allocation of available certificates. An agency‘s consideration of facts and circumstances must look at “the relevant data and articulate a satisfactory explanation for its action including a rational connection between the facts found and the choice made.” Compassionate Care Dispensary, Inc. v. Ariz. Dep‘t of Health Servs., 244 Ariz. 205, 213 ¶ 25 (App. 2018) (quoting Motor Vehicle Mfrs. Ass‘n of U.S. v. State Farm Mut. Auto. Ins., 463 U.S. 29, 43 (1983) (internal
¶36 Providing notice of the allocation priorities in advance of accepting applications also involves simple fairness to those deciding whether to apply in the first place, especially when considering what is required for an application. Pursuant to
¶37 Even Saguaro recognizes that “[t]he subsection (B)(2) prioritization is complex and time-consuming. It is within ADHS‘s discretion and performance of its duties under subsection (B)(2) to get a head start and identify the CHAAs with high patient populations and fewer dispensaries during the subsection (A) review.” To calculate the number of available certificates as required by
¶38 Had the information available as of the May 31, 2016 record date revealed that there was no dispensary in La Paz County, and ADHS then neglected or simply refused to allocate a registration certificate, Saguaro would have a sound and persuasive claim and the majority‘s analysis and application of
3.
¶39 ADHS‘s determination in advance of the application process that there were no certificates to allocate by county is entitled to deference unless the determination was “arbitrary, capricious, or . . . an abuse of discretion.” Silver, 244 Ariz. at 557 ¶ 9 (quoting J.W. Hancock Enters., Inc. v. Registrar of Contractors, 126 Ariz. 511, 513 (1980)). An agency action is arbitrary and capricious when taken “without consideration and in disregard for facts and circumstances.” Maricopa Cty. Sheriff‘s Office v. Maricopa Cty. Emp. Merit Sys. Comm‘n, 211 Ariz. 219, 223 ¶ 17 (2005) (quoting Maricopa County v. Gottsponer, 150 Ariz. 367, 372 (App. 1986)). But, “where there is room for two opinions, the action is not arbitrary or capricious if exercised honestly and upon due consideration, even though it may be believed that an erroneous conclusion has been reached.” Id. (quoting Gottsponer, 150 Ariz. at 372).
¶40 Given the objective and accurate data as of the record date, the complex process for determining prioritizations under the circumstances, and the establishment of a process that was objectively fair and transparent
III.
¶41 Lastly, article 3 of the Arizona Constitution commands that “no one of such departments shall exercise the powers properly belonging to either of the others.” Therefore, we should be even more hesitant to offer our own “fix” for unique issues within the administration of a complex regulatory framework where the responsibility is expressly delegated by the legislative authority to an executive agency. That the majority finds no fault with the rule itself, supra ¶ 20, reveals that the Court simply disagrees with how an executive agency is carrying out its delegated authority. Given the recent passage of
IV.
¶42 ADHS‘s prioritization of available registration certificates in advance of the application process was a reasonable and practical exercise of its delegated responsibility to govern the certificate allocation process. Similarly, its determination that no certificate was available for La Paz County for purposes of allocating registration certificates was not arbitrary, capricious, or an abuse of discretion. Again, while I would not have granted review in the first place, I would affirm the court of appeals’ decision.