Conflict Between State, Federal Law on Marijuana Did Not Justify Abstention

Tuesday, March 5, 2024

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Ninth Circuit:

Conflict Between State, Federal Law on Marijuana Did Not Justify Abstention

Opinion Calls for Resolution of Issue as to Legality of Residency Requirement for Operating Dispensary

By Kimber Cooley, Staff Writer

The Ninth U.S. Circuit Court of Appeals held yesterday that a district court, in a challenge to dormant Commerce Clause claim arising out city’s residency requirement for a permit to operate a marijuana dispensary, erred in abstaining from exercising jurisdiction based on a conflict between state and federal law on the legality of such operations.

Circuit Judge Salvador Mendoza Jr. wrote for the three-judge panel in reversing the decision of District Court Chief Judge Kimberly J. Mueller of the Eastern District of California. Circuit Judge Sidney R. Thomas and District Court Judge Solomon Oliver Jr. of the Northern District of Ohio, sitting by designation, joined in the opinion.

Peridot Tree, Inc. and its majority shareholder Kenneth Gay filed suit against the City of Sacramento over the city’s requirement that individual applicants for permits to operate storefront marijuana dispensaries within the city boundaries be Sacramento residents.

Peridot Tree is a California company, but Gay, who is its majority shareholder, has never lived in Sacramento. Each of the top 10 identified applicants for permits were affiliated with individuals who have lived in Sacramento. Peridot Tree was not among the list.

Peridot Tree sued Sacramento under 42 U.S.C. §1983 and the Federal Declaratory Judgment Act, 28 U.S.C. §2201, for alleged violations for the dormant Commerce Clause. It alleged that the city’s program discriminates against out-of-state applicants, unduly restricting interstate commerce, requesting declaratory relief and damages, an injunction, as well as costs and fees.

The city moved to dismiss, arguing that the application process was constitutional and that the complaint was too vague to state a viable claim. Before the scheduled hearing date, Mueller sua sponte requested supplemental briefs as to whether the court should abstain from adjudicating the matter.

In her decision to abstain from exercising jurisdiction, Mueller acknowledged that “[t]his case does not fit nearly within any single abstention doctrine the Supreme Court has recognized.” She wrote:

“When cases present difficult federal constitutional questions with significant implications for sensitive state policies, federal courts have often declined to exercise their jurisdiction.”

Finding that a conflict exists between federal and state law regarding the legality of marijuana dispensaries, she said:

“[I]f this case were to proceed, the court would be forced to weigh in on a difficult constitutional dispute in which California’s interests are clear and substantial: it has passed a wide-reaching and complex program designed to foster, regulate, and tax a new cannabis industry. The federal interests, by contrast, are murky: Congress has strictly and unambiguously prohibited all commerce in marijuana, but in recent years, the political branches have expressed no interest in enforcing that prohibition.”

Mueller continued:

“Abstention is the wisest course in these circumstances.”

Exceptional Circumstances

Mendoza disagreed with the decision to abstain, noting that abstention is the exception, not the rule, and is permitted only under exceptional circumstances.

He wrote:

“The district court—rightfully concerned (1) by the apparent conflict between federal and state marijuana laws; (2) by the chance that it might need to apply constitutional protections to federally unlawful conduct; or (3) that it may invalidate California’s new regulatory regime for recreational marijuana—sua sponte asked the parties to consider the propriety of abstention. In the order that followed, the district court noted that ‘[t]his case does not fit neatly within any single abstention doctrine the Supreme Court has recognized.’ Nonetheless, it invoked the policies and justifications underpinning many federal abstention doctrines….”

He found error in invoking those policies and justifications because the federal abstention doctrines does not apply, saying:

“The parties do not dispute that the district court has jurisdiction over Peridot Tree’s lawsuit. On appeal, Peridot Tree argues that its claims under the dormant Commerce Clause do not present the type of ‘exceptional circumstances’ warranting abstention. Not only are the established federal abstention doctrines cited by the district court an imperfect fit, but none of them apply, and Peridot Tree urges us not to craft a new abstention doctrine to fit this case.”

Pullman Abstention

The panel considered whether the abstention doctrine established in the 1941 U.S. Supreme Court case Railroad Commission of Texas v. Pullman Co. applies.

Under Pullman, abstention is appropriate if (1) there are sensitive issues of social policy that federal courts should not interfere on unless no alternative is available, (2) constitutional adjudication could be avoided by a state court ruling, and (3) resolution of the state law issue is uncertain.

Mendoza explained:

“Here, the city’s interest in remedying the consequences of past marijuana criminalization, coupled with the state’s interest in regulating its new, recreational marijuana industry, is broad and of sensitive state concern, so this first Pullman requirement is met.”

However, the second requirement is not satisfied, he opined, explaining:

“But it is unclear how Peridot Tree’s dormant Commerce Clause claim could be avoided by a state-court ruling clarifying Sacramento’s residency requirement for storefront marijuana dispensaries.”

He rejected the city’s argument that the second element could be met because a state court might hold that its residency requirement is unconstitutional under the California Constitution, noting that “[t]his argument is somewhat surprising, given Sacramento’s purported interest in preserving its regulations.”

Mendoza added that “California’s Constitution appears to afford either co-extensive or lesser protections for interstate commerce than the federal Constitution” and “[b]oth this court and the Supreme Court have long held that abstention is unwarranted” in cases of parallel state constitutional provisions.

As to the third Pullman abstention requirement, he found no uncertainty in the residency requirement. Mendoza wrote:

“Here, the district court did not hold—and Sacramento does not argue—that Sacramento’s residency requirement is particularly ambiguous. As noted above, all parties agree that the residency requirement means exactly what it says.”

Burford Abstention

The panel turned to the abstention doctrine established in the 1943 U.S. Supreme Court case of Burford v. Sun Oil Company which involved the protection of complex state administrative processes from undue federal interference.

Mendoza was not convinced that Sacramento’s permitting process for storefront marijuana dispensaries qualified as a complex administrative state process. However, quoting from the 2002 Ninth Circuit case of Southern California Edison Company v. Lynch, which applied Burford, he said:

“But even assuming so, California has ‘not chosen to concentrate suits challenging the administrative action in a particular court,’ and thus, ‘the threshold requirements for the exercise of Burford abstention...have not been satisfied.’ ”

He distinguished the case from one where a state agency has misapplied its lawful authority, and instead asserted: “[T]his case presents ‘pronounced’ federal interests, implicating the ‘substantial federal concern’ of whether the dormant Commerce Clause applies to conduct lawful under state law and unlawful under federal law….So we hold that abstention was improper under Burford.”

1959 Decision

Abstention under the 1959 U.S. Supreme Court case of Louisiana Power & Light Company v. Thibodaux is appropriate where there is a pending state court action that will determine “decisive issues of state law,” he noted.

Mendoza wrote:

“Despite invoking Thibodaux abstention, the district court did not make an explicit case for its application. Nor does Sacramento, although amici California State Association of Counties and League of California Cities maintain that this ‘rarest of birds’ is appropriate here. As with Burford and Pullman abstention, this case will not quietly roost with Thibodaux’s fowl.”

The jurist explained that “Peridot Tree’s case does not present complex issues of state law that are of questionable state constitutionality.”

The 1976 U.S. Supreme Court case of Colorado River Water Conservation District v. United States, finding abstention appropriate where there were concurrent federal and state proceedings, similarly does not support abstention here where there is “no concurrent state court proceeding.”

Comity Principles

Mendoza noted that the Supreme Court has invoked comity in abstention “sparingly” and generally where there were parallel federal and state court proceedings. He was not persuaded that it applied here, explaining that the District Court “abstained not in favor of an ongoing state-court action, but so that Peridot Tree might go to state court and manufacture a state-law claim” and “[w]e see no reason to require that exercise in futility.”

Mendoza remarked:

“We understand the district court’s hesitation to resolve whether the Constitution’s dormant Commerce Clause prohibits Sacramento’s alleged conduct, which may require venturing into the murky forests of state and federal recreational-marijuana law. Nor do we doubt that Peridot Tree’s lawsuit presents ‘difficult’ and significant questions.”

However, he said, “many district courts…have grappled with similar issues” and “[w]e trust the district court will do the same.”