By Darren Smith, Weekend Contributor
In a new twist to the bureaucracy retailers in the fledgling retail marijuana business in Washington face, the City Council of Wenatchee has denied a business license to a retailer approved by the State Liquor Control Board, which regulates the industry, to begin setting up shop.
Shaun Preder, an owner on behalf of SMP Retail, LLC last Tuesday filed a lawsuit against the city in Chelan County Superior Court seeking declaratory and injunctive relief for prohibition of plaintiff’s right to sell marijuana. The declaratory relief sought is for the court to find that the city’s prohibition violates state law codified in RCW 69.50.608 and Article XI Section 11 of the Washington Constitution.
If the city elects to litigate the case there could be ramifications throughout the state and possibly others where recreational marijuana is legal.
The precursor of this lawsuit began during a city council meeting on October 24, 2013 when the council voted four to three to uphold a city code, WCC 5.76.020 requiring all business licensees to comply with federal, state, and local laws. An amendment to the code was sought to provide for state licensed marijuana industries to engage in business activities within the city’s jurisdiction. According to the court filings Wenatchee Councilman Bryan Campbell stated “Federal law is superior over the state.” The amendment was rejected.
The lawsuit against the city alleges:
[O]n August, 29, 2013, the United States Department of Justice released the Cole Memo to all United States Attorneys that notes, “[o]utside of [eight listed federal law] enforcement priorities, the federal government has traditionally relied on states and local law enforcement agencies to address marijuana activity through the enforcement of their own narcotics laws.”
The Cole Memo also states that, “enforcement of state law by state and local law enforcement and regulatory bodies should remain the primary means of addressing marijuana-related activity.”
Contrary to the notion that federal law must change before Washington State marijuana laws (as amended by Initiative 502) can take effect and be implemented, the Cole Memo states that a “robust [state regulatory] system may affirmatively address [federal] priorities by, for example, implementing effective measures to prevent diversion of marijuana outside of the regulated system and to other states, prohibiting access to marijuana by minors, and replacing an illicit marijuana trade that funds criminal enterprises with a tightly regulated market in which revenues are tracked and accounted for.
Shaun was one of three prospective retailers to win the Liquor Control Board’s lottery that granted the state licensed right to operate his marijuana business in Wenatchee. Subsequently, he and his business passed the requisite background and financial checks. In an interview with reporters, Shaun has invested nearly $11,000 dollars toward leasing a retail storefront on the expectation he would be granted the right to engage in his business.
According to court papers:
[O]n April 23, 2014 the [State Liquor Control] Board notified SMP Retail that its application had been selected as a potential marijuana retail store in Wenatchee. On May 3, 2014 the Board received a written Notice of Objection to SMP Retail’s marijuana application from Defendant.
Defendant’s Objection stated:
The City disapproves of the application because it violates current City code…It is a conditional precedent to the issuance of a business license under the City code that the business engaged in by the applicant be lawful under any applicable city, state or federal law. The Federal Controlled Substances Act classifies marijuana as a Schedule I Drug. Under federal law it is illegal to grow, manufacture, distribute, or possess marijuana. Consequently, the proposed marijuana production business [sic] would be ineligible to obtain a City business license. If it attempted to operate without a City business license, it would be operating contrary to City code and federal law.
On May 13, 2014 the Board sent SMP Retail a letter stating that SMP Retail had the option to: negotiate with the city concerning its objection, withdraw its retail marijuana license application, or move forward in the State licensing process despite Defendant’s objection. The same day, SMP Retail notified the Board that it would move forward with the State’s licensing process, regardless of Defendant’s objection.
A “catch-22” situation arises with SMP Retail’s bid to enable its business. According to the complaint:
To receive a marijuana retail license from the State, SMP Retail must undergo a final site inspection of its business location by the Board.
The State’s site inspection requires that SMP Retail’s business location be fully operational.
In turn, in order to receive its marijuana retail license, SMP Retail must complete any necessary build-outs prior to the State’s inspection.
SMP Retail has yet to undertake any necessary build-outs for purposes of its State inspection.
Nonetheless, SMP Retail has expended approximately $10,742.50 to date on rental fees to its current landlord, utilities, sewer usage, and the Board’s marijuana license application fee.
In May 2014, SMP Retail applied for a business license from Defendant. To receive a business license from Defendant, Defendant requires that applicants undergo a full site inspection of the business location.
As a result, SMP Retail must complete any necessary build-outs prior to the City’s inspection.
Even if SMP Retail completes a full build-out that would meet the Board’s licensing requirements and also meet Defendant’s licensing requirements, the City will ultimately deny SMP Retail a city business license solely on the basis of the federal law language in WCC 5.76.020.
Though SMP Retail may receive a license to operate from the Board upon a successful final inspection, Defendant will not permit SMP Retail to open its doors due to its prohibition against marijuana businesses.
According to Initiative 502’s author the consequences of Wenatchee challenging the lawsuit, Alison Holcomb said “[I]t could be litigated all the way up to the United States Supreme Court. Expert witnesses, documentary production, and a lot of work time and effort” and could cost the city hundreds of thousands or potentially millions of dollars.
Wenatchee does have possibly a defense in that despite the Cole Memo, federal law is still applicable though the Department of Justice declaring it would not necessarily pursue enforcement against the state legal marijuana industry in Washington. But there do remain issues of pre-emption by Washington State law. Nevertheless it might come down to whether the Wenatchee City Council decides to take on this potentially costly battle; a battle that clearly is against the tide of change. Moreover, Chelan County residents, within which Wenatchee is the county seat, voted fifty two percent in favor of Initiative 502 despite the area being politically conservative.
Wenatchee’s council should take a moment to reflect on the cost of such expensive endeavors. Previously the city voted to construct a general events stadium costing in excess of fifty million dollars, and floating a municipal bond toward its construction. Development costs were over-budget and afterward for a few years the stadium was in the red by millions of dollars per year. The municipal bond to finance the construction was heading toward a default that potentially could bankrupt the city. In the end, the taxpayers rescued the project with a sales tax increase.
The next city council meeting is scheduled for June 12th. Hopefully they will recognize what might be at stake here, because the future might require them to suffer the benefits of their decision.
The court filing can be read HERE. (PDF)
By Darren Smith
Sources:
King5 News
Seattle Times
SMP Retail, LLC v. City of Wenatchee 14-2-00555-0 via Public Disclosure Request
Title XI Section 11: Washington Constitution
Revised Code of Washington: Chapter 69.50 RCW, et seq.
Washington Administrative Code: Chapter 314-55 WAC, et seq.
Wenatchee City Code: WCC 5.76.020
City of Wenatchee, WA
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What’s the matter Paul?
Not a fan of state’s rights?
This one just screams 10th amendment; since the federal government was never empowered to promulgate a general penal law.
Schulte: regarding how cities budget for legal costs and how it relates to this case, you don’t know what you’re talking about
Bob, Esq – I am a fan of states’ rights, however, the way the code is written I think the city made the right decision. Given the inability of the Obama administration to follow laws that they themselves have asked for, what makes you think they will follow a permissive memo?
Another libertarian!
Less Government interference and more business and personal freedoms are the answer.
Conservative jurisdictions did this same horseshit when medical cannabis was passed in Ca. Eventually they had to relent. Both conservative and liberal ideologues love to dig in their heels like little children having temper tantrums. We see that here often.
The hubris of government, expecting lawsuits for official misdeeds. Schulte, unless you can predict the outcome in Wenatchee, you cannot say that this fiasco will not turn into another tax increase for taxpayers. The stadium debacle sure as hell cost taxpayers plenty extra. The reason these things always go wrong is because politicians, who have no accountability for their childish deeds, have no capacity whatsoever for hypothetical or “what if” thought. Let me ask another question. If you were representing this marijuana entrepreneur in a lawsuit against Wenatchee, could you even figure out how to beat the city? Its a hypothetical, so don’t play unfair now and say you wouldn’t represent this guy.
The City of Wenatchee has not filed an Answer to the Complaint, so they have not stated their litigation position in court yet.
Paul C. Schulte
Dredd – the city is relying on federal law, you will notice that Washington only concerns itself with state law. I don’t think the city can be overcome in federal court. They would have a hard time in state court. They could be complying with state law, but still have to comply with the federal law. If states could disregard federal law at their whim, lots of state would have run the feds out long ago.
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The case is filed in a state court, and the complaint cites state law for its basis:
(SMP v City of Wenatchee). How do you see this as a federal case?
Dredd – I see the city relying on the “federal law” portion of their code. That is their best defense, so far, given the facts as presented.
samantha – you ever see a city’s budget or staffing? It is already paid for. They are not taking on extra cost. So, at this point, your question is moot.
Dredd – the city is relying on federal law, you will notice that Washington only concerns itself with state law. I don’t think the city can be overcome in federal court. They would have a hard time in state court. They could be complying with state law, but still have to comply with the federal law. If states could disregard federal law at their whim, lots of state would have run the feds out long ago.
Schulte, I completely understand your point, but that is not what I asked for.
Paul C. Schulte
“enforcement of state law by state and local law enforcement and regulatory bodies should remain the primary means of addressing marijuana-related activity.”
I am with the city on this one.
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You are on the losing side again:
(RCW 69.50.608).
Frankly
What a brave new world! It does seem to me that the city is justified if its code says the establishment must comply with all city, state and federal law. They could of course make an exception but then they have opened the door for other lawsuits. For instance, prostitution is not illegal on the federal level why not an exception for a brothel?
We are going to be navigating a mine field until this is all worked out. Man, I should have gone to law school!
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That reminds me of a story in Harry Reid’s autobiography (“The Good Fight”) …
A Nevada law state that no brothel could be built of set-up within a certain distance from any school.
One brothel violated that law.
The authorities were contacted and a decision was rendered.
They moved the school.
Given Harry Reid’s only passing acquaintance with the truth, I would not put a lot of store in the myth about the brothel.
Schulte, which side would you pick, if you were a taxpayer who is going to bend over for another tax increase to pay for Wenatchee’s legal costs — or even bankruptcy? If the city does not cave on this one, I predict the Institute for Justice will represent the plaintiff in a lawsuit against Wenatchee.
samantha – cities expect to be sued and have a certain amount tucked into their annual budgets for these things. It would be hard to convince a judge that a city should be required to ignore federal law.
City officials are hiding under their mothers skirts, and doing it right after calling their mother a whore. Local politicians all over the west are notorious for their opposition to anything Federal. Their disagreements with the EPA are notorious. The fine citizens of Wenatchee can also have the final say at the next city council meeting.
Politicians never do what’s right for the taxpayers. Not until elected officials are held personally accountable for their actions, will taxpayers ever have relief from the screw ups of politicians. The performance bond and errors and omissions insurance industries exist because entrepreneurs and professionals are held accountable for their screw ups. Imagine how ludicrous it would be if a tax increase was floated every time a construction company or hospital screwed up, to pay for a huge jury award. Yet this is exactly the scenario we have when it comes to elected officials. Sure, voters throw politicians out of office when they screw up. But these same misfit politicians move to another jurisdiction, get elected again, because voters have no memory of their incompetence. But if politicians were held personally accountable, the incompetent would never get elected again because no insurance company would issue errors and omissions insurance to certified idiots. That Wenatchee stadium boondoggle should have been on the backs of the council members — not taxpayers. And this marijuana license denial should be, too.
I am with the city on this one. The language in the memo is permissive and we know this administration is not known for following laws or memos. There is no telling just what the Feds would or would not do. I think a personal letter from Holder saying they are conforming with Federal law, which they are not, would do the trick.
This guy’s problems have only begun. Few banks are going to take his business’s money and no bank is going to loan him money. I am surprised that he found rental space. The minute he opens his doors he is probably violating his lease agreement.
The city has more money to litigate than the pot seller. They probably have at least one attorney on staff already who can do it.
What a brave new world! It does seem to me that the city is justified if its code says the establishment must comply with all city, state and federal law. They could of course make an exception but then they have opened the door for other lawsuits. For instance, prostitution is not illegal on the federal level why not an exception for a brothel?
We are going to be navigating a mine field until this is all worked out. Man, I should have gone to law school!
This will be an interesting conflict-of-laws case.