Peridot Tree, Inc. v. City of Sacramento

94 F.4th 916

PERIDOT TREE, INC.; Kenneth Gay, Plaintiffs-Appellants, v. CITY OF SACRAMENTO; Davina Smith, Defendants-Appellees,andSacramento Office of Cannabis Management, Defendant.

No. 22-16783

United States Court of Appeals, Ninth Circuit

Argued and Submitted November 15, 2023 San Francisco, California

Filed March 4, 2024

Appeal from the United States District Court for the Eastern District of California, Kimberly J. Mueller, Chief District Judge, Presiding, D.C. No. 2:22-cv-00289-KJM-DB

Jeffrey M. Jensen (argued), Jeffrey M. Jensen PC, Beverly Hills, California; Christian E. Kernkamp, Kernkamp Law APC, Los Angeles, California; for Plaintiffs-Appellants.

Lee H. Roistacher (argued), Dean Gazzo Roistacher LLP, Solana Beach, California; Grace L. Pak, Deputy City Attorney; Matthew R. Day, Senior Deputy City Attorney; Susan A. Wood, City Attorney; Sacramento City Attorney's Office, Sacramento, California; for Defendants-Appellants.

Arthur J. Wylene, General Counsel, Rural County Representatives of California, Sacramento, California; Jennifer B. Henning, Litigation Counsel, California State Association of Counties, Sacramento, California; for Amici Curiae California State Association of Counties and League of California Cities.

Patrick J. Hagan, Kabir Chopra, and Taylor C. Wagniere, Deputy City Attorneys; Hydee F. Soto, City Attorney; Los Angeles City Attorney's Office, Los Angeles, California; for Amici Curiae City of Los Angeles.

Before: Sidney R. Thomas and Salvador Mendoza, Jr., Circuit Judges, and Solomon Oliver, Jr.,^* District Judge.

OPINION

MENDOZA, Circuit Judge:

Peridot Tree, Inc. and its majority shareholder, Kenneth Gay (together, "Peridot Tree"), filed suit against the City of Sacramento and Davina Smith (collectively, "Sacramento") over the city's requirement that individuals applying for permits to operate storefront marijuana dispensaries within city limits be Sacramento residents. Peridot Tree argues that Sacramento's residency requirement violates the federal Constitution's dormant Commerce Clause because it impermissibly discriminates between residents and non-residents, unduly restricting interstate commerce. The district court—concerned by the obvious conflict between state and federal law regulating marijuana use and distribution; and that it might have to apply constitutional protections to federally unlawful conduct—abstained from exercising jurisdiction over Peridot Tree's constitutional claim. To justify its abstention, the district court noted the deep conflicts between state and federal marijuana law; invoked an amalgam of the Supreme Court's abstention decisions in Pullman, Burford, Thibodaux, and Colorado River and their progeny; conceded that this case did not "fit neatly" among them; and stayed the suit. In our view, the district court rightly determined that this case does not meet the requirements for abstention under any abstention doctrine established by the Supreme Court. But it erred by choosing to abstain anyway. So we reverse its decision and remand for further proceedings.

I. Factual and Procedural Background

A.

In 2016, California voters legalized recreational marijuana use by adults through a constitutional ballot initiative, commonly called "Proposition 64" or the "Adult Use of Marijuana Act." Control, Regulate and Tax Adult Marijuana Act, 2016 Cal. Legis. Serv. A-92 (West). In the wake of Proposition 64, a new industry blossomed, and many California counties and cities—including its capital, Sacramento—passed ordinances and resolutions to regulate the production, sale, and purchase of recreational marijuana. Some of these ordinances sought to prevent state-level legalization from harming local communities, and they implemented policies to avoid marijuana revenue funding gang activity or marijuana use contributing to impaired driving. See, e.g., San Jose, Cal., 6 Bus. Licenses & Regs. ch. 6.88.010 (2019). Others sought to transition existing medical-marijuana infrastructure into recreational businesses. See, e.g., Oakland, Cal. Code § 5.80.110 (2018) ("Any permit issued . . . may be utilized for medical or adult-use purposes."). And some aimed to expand equitable access to the marijuana industry by providing unique opportunities and programming to those negatively affected by marijuana's past criminalization. See Coachella, Cal., Res. 2019-15 (Mar. 27, 2019); see also Humboldt County, Cal., Ordinance 2623 (Mar. 19, 2019).

One such program is at issue here: Sacramento's 2018 "Cannabis Opportunity Reinvestment and Equity," or "CORE," Program. See Sacramento, Cal., Res. 2018-0323 (Aug. 9, 2018). Designed to "address the negative impacts of disproportionate enforcement of cannabis related regulation," the CORE Program seeks to reduce "barriers of entry" to the marijuana industry for those "negatively impacted" by past marijuana prosecution and criminalization. Id. It offers business and development resources to eligible CORE Program participants, including coaching, criminal-record expungement, business-needs and loan-readiness assessments, and courses in regulatory compliance. Id. And it provides unique economic opportunities to qualifying participants in the city's burgeoning recreational-and medical-marijuana industry. Sacramento, Cal., Res. 2020-0338 (Oct. 13, 2020).

To be a CORE Program participant, an individual must meet one of two "classifications":¹

Classification 1. A current or former resident of the City of Sacramento who previously resided or currently resides in a low-income household and was either [sic]: a) arrested or convicted for a cannabis related crime in Sacramento between the years 1980 and 2011; or is b) an immediate family member of an individual described in subsection a of Classification 1 or Classification 2.

Classification 2. A current or former resident of the City of Sacramento who has lived in a low-income household for at least five (5) years, between the years of 1980 and 2011 in [listed zip codes].

Both CORE Program classifications 1 and 2 facially require participants to be current or former Sacramento residents.

After adopting and implementing its CORE Program, Sacramento's City Council set aside ten "storefront cannabis dispensary permits," and invited classification 1 and 2 participants, and only those participants, to apply for them. See Sacramento, Cal., Res. 2020-0338 (Oct. 13, 2020). By city ordinance, such a permit is needed to operate a storefront cannabis dispensary within city limits, and Sacramento caps the number of active permits at forty. See Sacramento, Cal., Code § 5.150.350. At the time it opened the permitting application to classification 1 and 2 CORE Program participants, thirty of those licenses had already been issued. Thus, Sacramento restricted access to the remaining ten permits exclusively to qualifying CORE Program participants.

Peridot Tree and its majority shareholder, Mr. Gay, applied for one of those ten storefront cannabis dispensary permits. Despite being a member of a low-income household and having been convicted of a marijuana crime between 1980 and 2011, Mr. Gay is not and has never been a resident of Sacramento; he is a citizen of Michigan. He is also not a CORE Program participant. When Sacramento announced the winners of the permit-application process, Peridot Tree and Mr. Gay were not among them. Instead, all ten permits allegedly went to businesses "affiliated with individuals who have resided in Sacramento," and were classification 1 or 2 CORE Program participants.

So Peridot Tree sued Sacramento in federal court under 42 U.S.C. § 1983 and the Federal Declaratory Judgment Act, 28 U.S.C. § 2201, for violating the dormant Commerce Clause. Among other things, Peridot Tree notes that Sacramento's CORE Program and permitting scheme allow only "current or former resident[s] of the City of Sacramento" to apply for storefront cannabis dispensary permits. According to Peridot Tree, this requirement unconstitutionally discriminates between resident and nonresident applicants, unduly burdening interstate commerce. Peridot Tree seeks injunctive, declaratory, and monetary relief.

B.

Peridot Tree's suit against Sacramento under the dormant Commerce Clause does not grow in a vacuum. Instead, its roots lie at the intersection of conflicting state and federal policies related to marijuana legalization, possession, production, and sale. For its part, California has long been at the vanguard of marijuana legalization in the United States. In 1996, California voters approved Proposition 215 and passed the "Compassionate Use Act," codified at Section 11362.5 of the California Health and Safety Code, which legalized marijuana for certain medical purposes. In response, cities like Sacramento issued medical marijuana storefront dispensary permits. Likewise, California's Proposition 64 and its ensuing regulations built on these early efforts, developing a "comprehensive" regulatory system to "control and regulate the cultivation, distribution, transport, storage, manufacturing, processing, and sale of nonmedical marijuana." Cal. Bus. & Prof. Code § 26000(b) (2016). California also amended various health and safety, labor, water, revenue and tax, and food agricultural codes to accommodate its new marijuana industry. See, e.g., Cal. Health & Safety Code § 11362.1 (2016); Cal. Water Code § 13276(a) (2016); Cal. Food & Agric. Code § 81010(b) (2016). Despite creating a Department of Cannabis Control, California does not appear to have created a dedicated administrative agency or judicial tribunal to adjudicate marijuana-related disputes. Other states, many in California's wake, have also legalized recreational and medical marijuana possession, use, and distribution in different contexts. See Gonzales v. Raich, 545 U.S. 1, 5 & n.1, 125 S.Ct. 2195, 162 L.Ed.2d 1 (2005); see also Lisa N. Sacco, Cong. Rsch. Serv., IN11204, The Schedule I Status of Marijuana 1 (2022) ("[M]ost states and territories have deviated from across-the-board...