Case Name: DAYLIGHT WAY, INC. v. AMERICAN REDSTONE, ET AL.
Case No.😕 2015-1-CV-280949
This action arises from a commercial landlord/tenant dispute.? Currently before the Court is the demurrer by Plaintiff/Cross-Defendant Daylight Way, Inc. and Cross-Defendant John Chen (?Cross-Defendants?) to the Cross-Complaint filed by Defendant/Cross-Complainant American Redstone (?Redstone?).? The Cross-Complaint states claims for Fraud; Negligent Misrepresentation; Breach of Contract (oral lease agreement), and; Breach of the Implied Covenant of Good Faith and Fair Dealing.
As an initial matter, the Court notes that Cross-Defendants appear to have failed to comply with Code of Civil Procedure (?CCP?) ?430.41, effective on January 1, 2016, as the Demurrer filed on April 6, 2016 is not accompanied by the now required declaration from counsel regarding the parties? efforts to meet and confer on the issues raised.? The absence of such a declaration is noted in Redstone?s Opposition but no extension of time is requested.? The Court will overlook?in this instance only?the parties? presumed failure to meet and confer.? The parties are directed to comply with applicable law in the future.
Redstone?s request for judicial notice
Redstone?s request for judicial notice of two documents ?pursuant to Evidence Code Section 452(d) [&] (h)? is GRANTED in part and DENIED in part.? The request for judicial notice of Exhibit A, a copy of Daylight Way?s operative first amended complaint filed May 22, 2015 is GRANTED pursuant to Evid. Code ?452(d) (court records) only and notice is only taken of the amended complaint?s existence and date of filing, not of the truth of its allegations.? Notice of Exhibit B, a copy of an article purportedly published in the CEB Real Property reporter in March 2013 is DENIED.? The article is not a court record and the truth of its contents is not a matter ?not reasonably subject to dispute,? making notice under Evid. Code ?452(h) inappropriate.
Cross-Defendants? demurrer
The Court in ruling on a demurrer treats it ?as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.?? (Piccinini v. Cal. Emergency Management Agency (2014) 226 Cal.App.4th 685, 688, citing Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)? ?A demurrer tests only the legal sufficiency of the pleading.? It admits the truth of all material factual allegations in the complaint; the question of plaintiff?s ability to prove these allegations, or the possible difficulty in making such proof does not concern the reviewing court.?? (Committee on Children?s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213-214.)
Key among the allegations accepted as true for purposes of this demurrer is the Cross-Complaint?s allegation at 8 that Redstone is legally licensed and authorized to conduct business as a medical marijuana dispensary and the allegation at 18 that Redstone ?obtained Title 20 approval from the City of San Jose? to operate a medical marijuana dispensary at the subject property.
Cross-Defendants demurrer to the entire Cross-Complaint ?on the grounds it does not state facts sufficient to constitute a cause of action.? Cross-Complainant cannot truthfully allege an essential missing fact because the causes of action arise out of an unenforceable illegal contract.? The [Cross-]Complaint and its allegations regarding a contract the parties reached, describes and revolves around the commission of federal offenses.? . . .? The cross-complaint simply pleads facts amounting to an unlawful contract this court may not enforce.? The illegality of the contract is evident in that: 1) the cross-complaint pleads a set of facts that unequivocally describe a violation of the Federal Controlled Substance Act and the causes of action arise out of the illegal conduct; 2) the cross-complaint pleads a set of facts that unequivocally describe a violation of Health & Safety Code ?11359, and 3) even if the cross-complaint did not plead a set of facts that amount to a violation of state criminal law . . . the Court may still not enforce the contract as the legislature has never authorized the enforcement of contracts related to medical marijuana businesses nor amended Civil Code ?1667 nor addressed the issue on any level . . .?? Demurrer at 2:9-3:4, internal citations omitted.
The demurrer to the entire Cross-Complaint is OVERRULED as follows.
Civil Code ?1667 states ?That is not lawful which is: 1. Contrary to an express provision of law; 2. Contrary to the policy of express law, though not expressly prohibited; or 3. Otherwise contrary to good morals.?? Health & Safety Code ?11359 states ?Every person who possesses for sale any marijuana, except as otherwise provided by law, shall be punished by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code.?? Court?s emphasis.
The starting point for a Civil Code ?1667 analysis is California law and the operation of a medical marijuana dispensary is authorized by California law, specifically the Compassionate Use Act (?CUA,? Health & Safety Code ?11362.5) and Medical Marijuana Program (?MMP,? Health & Safety Code ?11362.7 et seq.).? Among other things the MMP (at ?11362.775) states ?Qualified patients, persons with valid identification cards, and the designated primary caregivers of qualified patients and persons with identification cards, who associate within the State of California in order collectively or cooperatively to cultivate marijuana for medical purposes, shall not solely on the basis of that fact be subject to state criminal sanctions under Section 11357, 11358, 11359, 11360, 11366, 11366.5, or 11570.? Court?s Emphasis.? In City of Riverside v. Inland Empire Patients Health & Wellness Center, Inc. (2013) 56 Cal.4th 729, 762, the Supreme Court held ?In section 11362.775, the MMP ? removes state law criminal and nuisance sanctions from the conduct described therein. By this means, the MMP has signaled that the state declines to regard the described acts as nuisances or criminal violations, and that the state?s enforcement mechanisms will thus not be available against these acts.? Clearly Health & Safety Code ?11359 does not support Cross-Defendants? demurrer as the operation of a licensed and authorized medical marijuana dispensary by entities such as Redstone is expressly provided for by California law.
While a claimed violation of federal law can be relevant to a Civil Code ?1667 analysis for purposes of determining whether or not a contract is unenforceable as contrary to California public policy even when not expressly barred by California law (Kashani v. Tsann Kuen China Enterprise Co., Ltd. (2004) 118 Cal.App.4th 531, 543), the operation of a medical marijuana dispensary, licensed and permitted under state and local law, is clearly not contrary to the public policy of California.
Cross-Defendants? main premise is incorrect as it is now settled that the operation of a medical marijuana dispensary in compliance with the CUA, MMP and applicable local regulations does not violate the federal CSA (21 U.S.C. ?801 et seq.).? ?[Appellant] has pointed to no specific provision of the City?s regulation of medical marijuana dispensaries that is in ?positive conflict? with federal drug laws, and indeed the City?s permitting requirements do not require anything the that the federal Controlled Substances Act forbids.? . . . [T]he Controlled Substances Act ?does not direct local governments to exercise their regulatory, licensing, zoning, or other power in any particular way,? so exercise of those powers ?with respect to the operation of medical marijuana that meet state law requirements would not violate conflicting federal law.?? . . . [Appellant] articulates no persuasive reason why the City?s regulatory program for medical marijuana should be considered to stand in as an obstacle to the purposes and objectives of Congress.? ?Congress enacted the CSA to combat recreational drug use and curb drug trafficking.?? Nothing about the City?s regulatory program for medical marijuana stands in the way of those purposes.? To the contrary, common sense suggests that a strong local regulatory regime governing medical marijuana related conduct would tend to prevent the transformation of purported nonprofit medical marijuana dispensaries into ?profiteering enterprises? that contribute to recreational drug abuse and drug trafficking..? In short, we find that the City?s regulatory program for medical marijuana dispensaries neither conflicts with federal law, nor stands as an obstacle to its purposes and objectives.?? (City of Palm Springs v. Luna Crest, Inc. (2016) 245 Cal.App.4th 879, 885-886, internal citations omitted.? See also Kirby v. County of Fresno (2015) 242 Cal.App.4th 940, 962-963 [CUA and MMP not preempted by the CSA.])
The recent passage of the Medical Marijuana Regulation and Safety Act (?MMRSA,? Bus. & Prof. Code ?19300 et seq.), effective January 1, 2016 does not affect the legality of a lease agreement allegedly entered into in September 2014 (Cross-Complaint at 13) and breached in April 2015 (Cross-Complaint at 22 and 36).? Once again the Cross-Complaint alleges that Redstone was authorized to operate a medical marijuana dispensary and had the approval of the City of San Jose to operate such a dispensary at the subject property.
In the absence of express authority to the contrary (and the Court is aware of none), at least during the relevant time period a licensed and permitted medical marijuana dispensary could enter into those usual contracts necessary to conduct its business (leasing a location, paying for utilities, signage, etc.) to the same degree as any other lawful enterprise.? (See People v. Baniani (2014) 229 Cal.App.4th 45, 57 [noting that in passing Health & Safety Code ?11362.768 in 2010 ?The Legislature therefore assumed a qualified patient or organization could, in certain circumstances, charge for medical marijuana.? Thus, the existence of ?retail? storefronts or outlets.?]) Therefore it cannot be said at the pleading stage that the entire Cross-Complaint fails to state sufficient facts to support its claims merely because it alleges a contract involving a medical marijuana dispensary.
As for Cross-Defendants? argument that the breach of contract cross-claim alleges an illusory contract, this is not a basis for sustaining the demurrer.? First, it is not a properly stated ground for demurrer, but rather an argument raised at end of the points and authorities.? Second, a demurrer to an entire pleading can be sustained only if no cause of action states facts sufficient to entitle the plaintiffs (or cross-complainants) to relief on any theory.? (See Warren v. Atchison, Topeka & Santa Fe Ry. (1971) 19 Cal.App.3d 24, 29 [trial court?s sustention of demurrer to entire pleading reversed on ground that cause of action was stated].)? Not only does this argument not apply to the entire Cross-Complaint, it does not even apply to the entire breach of contract claim, and a demurrer does not lie to only part of a cause of action.
Cross-Defendants are granted 10 days? leave to file an answer to the Cross-Complaint, running from the date of service of notice of the Court?s order.? (See Rule of Court 3.1320(g); CCP ?472a(b).)