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Keystone ReLeaf LLC v. Pennsylvania Department of Health

Commonwealth Court of Pennsylvania

April 20, 2018

Keystone ReLeaf LLC, Petitioner
Pennsylvania Department of Health, Office of Medical Marijuana; Prime Wellness of Pennsylvania, LLC; Franklin Labs, LLC; Pennsylvania Medical Solutions, LLC; Standard Farms, LLC; Ilera Healthcare, LLC; AES AES Compassionate Care, LLC; Terrapin Investment Fund 1, LLC; GTI Pennsylvania, LLC; Agrimed Industries of PA, LLC; Purepenn, LLC; Holistic Farms, LLC; Cresco Yeltrah, LLC; Holistic Pharma, LLC; Pharmacann Penn, LLC; SMPB Retail, LLC; Terra Vida Holistic Centers, LLC; Chamounix Ventures, LLC; Bay, LLC; Restore Integrative Wellness Center, LLC; Franklin Bioscience-Penn, LLC; Mission Pennsylvania II, LLC; Columbia Care Pennsylvania, LLC; Justice Grown Pennsylvania, LLC; Guadco, LLC; Lebanon Wellness Center, LLC; Organic Remedies, Inc.; KW Ventures Holdings, LLC d/b/a Firefly Dispensaries; Cansortium Pennsylvania, LLC; PA Natural Medicine, LLC; Keystone Center of Integrative Wellness, LLC; Keystone Integrated Care, LLC; The Healing Center, LLC; Maitri Medicinials, LLC; Keystone Relief Centers, LLC d/b/a Solevo Wellness; Dubois Wellness Center, LLC, Respondents

          Argued: February 7, 2018




         Before this Court are Respondents'[1] preliminary objections (POs) and the Department's Application for Summary Relief[2] to Petitioner Keystone ReLeaf LLC's Amended Petition for Review in the Nature of a Complaint in Equity Seeking a Declaratory Judgment and Injunctive Relief (Amended Petition) in this Court's original jurisdiction. Respondents assert that this Court lacks jurisdiction over the Amended Petition because Petitioner failed to exhaust administrative remedies and lacks standing to bring this original jurisdiction action, among other reasons. Upon review, we sustain Respondents' POs in the nature of demurrer and grant the Department's Application for Summary Relief on the basis that Petitioner failed to exhaust administrative remedies and dismiss the Amended Petition with prejudice.

         I. Background

         The General Assembly enacted the Pennsylvania Medical Marijuana Act (Act), [3] which took effect on May 17, 2016, to establish a framework for the legalization of medical marijuana in the Commonwealth for certain medical conditions. The Act identified the Department as the Commonwealth agency responsible for administering the Act and authorized the Department to promulgate regulations, including temporary regulations, necessary to carry out the Act. Section 301 of the Act, 35 P.S. §10231.301; Section 1107 of the Act, 35 P.S. §10231.1107. In accord with this authority, the Department promulgated temporary regulations. See 28 Pa. Code §§1131.1-1191.33.

         The Department established six medical marijuana regions. See Section 603(d) of the Act, 35 P.S. §10231.603(d); 28 Pa. Code §1141.24(a). Between February 20, 2017, and March 20, 2017, the Department accepted applications from entities interested in obtaining a limited number of medical marijuana grower/processor permits and/or dispensary permits. During the application period, the Department received 457 applications - 177 for growers/processors and 280 for dispensaries. The criteria set forth in Section 603(a.1) of the Act, 35 P.S. §10231.603(a.1), and the factors listed in the temporary regulations, 28 Pa. Code §§1141.27-1141.34, govern the application review.

         Petitioner submitted two dispensary permit applications in Region 2, [4]both of which were denied after failing to score higher than other applicants in the region. In addition, Petitioner attempted to submit a grower/processor permit application, also in Region 2, but failed to comply with the submission requirements, specifically failing to submit the application on a USB drive. The Department rejected the application as incomplete and did not score it.

         Petitioner filed administrative appeals on all three unsuccessful permit applications with the Department on June 29, 2017, and July 7, 2017.[5]Notwithstanding the pendency of its appeals, Petitioner sought relief in this Court's original jurisdiction by filing a petition for review and an application for special relief, which it subsequently amended.[6]

         In the Amended Petition, Petitioner challenges the Department's "permitting process" for (1) accepting, reviewing, and scoring medical marijuana grower/processor and dispensary permit applications, and (2) issuing permits to selected applicants pursuant to the Act. The Amended Petition names the Department and the 39 applicants awarded grower/processor permits and/or dispensary permits (Permittees) as Respondents.

         The Amended Petition raises five counts. In Count I, Petitioner asserts that the Department scored the applications inconsistently and arbitrarily and refuses to shed light on how it scored applications or awarded permits. By engaging in a secretive permitting process, the Department has deprived Petitioner and all applicants any fair and meaningful administrative review of their decisions in violation of due process. In Count II, Petitioner contends that the Department acted ultra vires in waiving certain statutory and regulatory requirements and strictly enforcing other requirements. In Count III, Petitioner avers that the Department's permitting process violates the requirements of the Right-to-Know Law (RTKL)[7]because the publicly-released applications contain unlawful redactions. In Count IV, Petitioner claims that, by failing to disclose the identities and qualifications of the scorers, the Department's permitting process may be infected by favoritism or bias in further violation of the due process rights of all applicants. In Count V, Petitioner asserts that the Department's permitting process should be invalidated in its entirety and the previously awarded permits rescinded because they were awarded pursuant to an unlawful process.

         In support of its claim that the Department has scored the applications inconsistently and arbitrarily, Petitioner alleges the following. The Department has not provided objective criteria for scoring necessary for meaningful administrative challenge and review. For example, the scoring rubric made available to applicants assigned 50 of 1000 points (or 5% of the available points) to a section called "Attachment E Personal Identification." This section required applicants to provide two separate, objective items: (1) a photo identification, and (2) a resume for each principal, employee, financial backer and operator. It is unclear how the Department scored this information. No applicant scored fifty (50) points and no applicant scored zero (0) points in this category. Moreover, applicants that submitted the same information received different scores. Amended Petition at ¶¶76-80.

         Petitioner submitted two dispensary applications, which were identical except for dispensary location. Yet, the applications received different scores. Amended Petition at ¶¶96-105.

         The Act requires an applicant for a dispensary application to demonstrate that it has at least $150, 000 in capital deposited in a financial institution. Section 607(2)(vi) of the Act, 35 P.S. §10231.607(2)(vi). Petitioner demonstrated that it had $15, 600, 000 in capital, of which $7, 287, 500 was deposited with Wells Fargo. Despite vastly exceeding the statutory requirement, Petitioner's applications scored 61.80 and 60.60 of 75 points available on the "Capital Requirements" section. The applications were not scaled against each other because no applicant received a score of 100%. Amended Petition ¶¶101, 106-16.

         The "Quality Control and Testing" section contained a "yes" or "no" question, with no request for a narrative or documentation in support, worth a total of 50 points. Inexplicably, published scores ranged from 5 to 41 points in this category.

         In support of its claim that the Department waived certain statutory and regulatory requirements, Petitioner alleges that the Department waived the requirements for criminal background checks under Section 602(a)(4) of the Act, 35 P.S. §10231.602(a)(4), and 28 Pa. Code §1141.31, and tax clearance certificates under 28 Pa. Code §1141.27(c)(2). Yet, the Department strictly enforced submission requirements. Amended Petition at ¶¶136-37, 151-71.

         Petitioner also avers that the Department did not fully release public records subject to the RTKL as mandated by Section 302(b) of the Act, 35 P.S. §10231.302(b), further exacerbating the lack of transparency in the permitting process and hindering meaningful administrative review. Amended Petition at ¶¶62-63. The Department has not scheduled hearings or provided post-award debriefings for Petitioner and other unsuccessful applicants. See 28 Pa. Code §1141.35(b).

         Petitioner seeks declaratory and injunctive relief under the Declaratory Judgments Act.[8] Specifically, Petitioner requests this Court to: (1) declare the permitting process as arbitrary, capricious, unreasonable and ultra vires, and, therefore, invalid, unconstitutional, ineffective and without force of law; (2) declare that the Department has no authority to continue issuing permits under the current scheme; (3) preliminarily and permanently enjoin the Department from continuing the permitting process in violation of the Act; (4) preliminarily and permanently enjoin the Permittees from acting on the issued permits pending the outcome of this litigation; (5) rescind previously awarded permits; and (6) award costs and such other relief as this Court deems appropriate.

         Respondents and Intervenor responded by filing POs. Respondents demur to all counts on the primary grounds that Petitioner failed to exhaust administrative remedies and lacks standing. In addition, some Respondents object because the Amended Petition is legally insufficient to support a claim for injunctive relief and is not sufficiently specific.[9] The Department also filed an Application for Summary Relief seeking dismissal of the Amended Petition with prejudice because Petitioner failed to exhaust administrative remedies, lacks standing, and failed to establish the essential elements required for the issuance of an injunction. After briefing[10] and oral argument, the POs and Application for Summary Relief are ready for disposition.[11]

         II. Discussion

         A. Failure to Exhaust Administrative Remedies

         1. Contentions

         First, Respondents contend that Petitioner failed to exhaust its administrative remedies before invoking this Court's original jurisdiction. Petitioner has a perfectly suited and adequate administrative remedy to address its complaints regarding the denial and scoring of its dispensary permit applications, and rejection of its grower/processor permit application and has availed itself of this remedy. Indeed, Petitioner's administrative appeals are presently pending before the Department's Secretary. The asserted grounds for the administrative appeals are the same grounds asserted in this original jurisdiction action. There is nothing novel or unique about Petitioner's claims in this regard, as more than 140 other unsuccessful applicants feel the same way, i.e., that the Department got it wrong and the unsuccessful applicant should have been awarded the permit. Petitioner's claims amount to little more than a challenge of the Department's proper application of the Act and temporary regulations. Petitioner cannot establish any exception to the exhaustion requirement to invoke this Court's jurisdiction. Petitioner's "as-applied" constitutional challenge to the Department's interpretation and implementation of the Act and temporary regulations does not excuse its failure to exhaust the pending administrative remedies before the Department. Petitioner has not shown that the administrative review process is inadequate or that it will suffer any harm, let alone irreparable harm, during the administrative appeal process. Therefore, Respondents assert that this Court lacks jurisdiction over this action and Petitioner's Amended Petition should be dismissed with prejudice.

         Petitioner responds that its claims are exempt from the exhaustion doctrine. Petitioner is not simply challenging its own unsuccessful applications, but rather the constitutionality and validity of the entire permitting process as applied to all permit applicants. Moreover, the administrative remedy is wholly inadequate. The Department cannot grant the requested relief in that it cannot declare its permitting process or review of that process unlawful or enjoin further administration of the permitting process. Only this Court has the authority to grant the declaratory and injunctive relief requested. In addition, Petitioner asserts that the administrative appeal process does not afford unsuccessful applicants a meaningful opportunity to be heard in violation of due process. The Department has refused to explain or defend its scoring decisions or articulate a rationale for selecting winning applicants, asserting scoring is within its sole discretion. Applicants are severely disadvantaged by the secretive process and undisclosed criteria used by the Department in awarding permits. Because of the lack of transparency and hidden standards, any applicant appealing a permit denial is destined to fail. The Department has not afforded Petitioner the debriefing called for by its own regulations, see 28 Pa. Code §1141.35(b), and it has delayed the administrative hearings. Petitioner claims it will suffer irreparable harm if it is required to first exhaust administrative remedies before seeking relief in this Court. According to Petitioner, potentially less qualified applicants may have received permits and it will become increasingly difficult to remedy once such permittees enter into contracts with third parties. For these reasons, the exhaustion doctrine does not apply and this Court should overrule Respondents' POs in this regard.

         2. Analysis

         This Court's original jurisdiction extends to "all civil actions or proceedings . . . [a]gainst the Commonwealth government." Section 761 of the Judicial Code, 42 Pa. C.S. §761. However, a party must first exhaust its administrative remedies before invoking this Court's jurisdiction in challenging a final agency adjudication. See Canonsburg General Hospital v. Department of Health,422 A.2d 141, 144 (Pa. 1980). The courts must refrain from exercising equity jurisdiction when there exists an adequate statutory remedy. Arsenal Coal Co. ...

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