In Exclusive Cap. Partners, LLC v. City of Royal Oak (12/4/24), the Michigan Court of Appeals found that the City of Royal Oak’s recreational marijuana ordinance (1) was not void for vagueness, and (2) did not violate the Michigan Regulation and Taxation of Marihuana Act’s (“MRTMA’s”) school-buffer and competitive-process requirements. The Court further found no substantive due process violation. However, the Court did hold that an Open Meetings Act (“OMA”) violation occurred based on Pinebrook Warren, LLC v City of Warren (2024).
The City of Royal Oak adopted a recreational marijuana ordinance authorizing marijuana licenses allowed by the MRTMA. The number of retail licenses available was limited to two. Pursuant to the ordinance, if more applications were received during the application window than licenses allowed, then “the City shall decide among applications by a competitive process intended to select the applicant(s) who are best suited to operate in compliance with the [MRTMA] within the City.” The ordinance set forth a ranking process. It stated that the applicants and their applications “will be ranked in the order of which is best suited to operate in compliance with the [MRTMA] within the City as determined by the City Manager or his or her designee.”
The factors taken into consideration in determining which applicant was best suited to comply with the MRTMA were as follows: (1) the entire application and applicant’s likelihood of success, (2) the applicant’s tax history, (3) whether the applicant has previously operated a business within the City, (4) whether the applicant has a history of criminal convictions, (5) whether the applicant has ever been denied any kind of commercial license, (6) whether the applicant has ever applied for bankruptcy, (7) whether the applicant has conducted any outreach on behalf of the proposed business, (8) whether the applicant has encouraged a successful workforce, (9) whether the applicant has taken steps to introduce equity into the proposed operation, and (10) whether the applicant has proposed a plan incorporating sustainable infrastructure.
The ordinance further provided that “[n]o Marihuana Establishment shall be permitted within a 1,000-foot radius of any school,” consistent with the MRTMA.
The City received 31 applications. The city manager sought the assistance of the deputy city manager and director of economic development, the city manager’s assistant, the director of community development, the city planner, the city engineer, the chief of police, the city treasurer, and the city attorney (the “workgroup”) in evaluating the applications. The discussions with the workgroup occurred in four closed session meetings. The city manager ultimately chose PGSH Holdings, LLC (Gatsby), and Royal Oak Treatment LLC (Royal Treatment) to receive the two retail licenses available. The plaintiffs in this case then brought the instant action.
Plaintiffs Exclusive Capital Partners, LLC (“Exclusive”) and Quality Roots, Inc (“Quality”) filed suit alleging due-process violations, OMA violations, and violations of the MRTMA’s competitive-process and school-buffer requirements, given the fact that Gatsby was located less than 1,000 feet from a K-12 public school. Exclusive alleged that the City failed to comply with its marijuana ordinance because a committee, not the city manager, had selected the successful applicants. It also sought declaratory relief regarding the alleged due-process violations, the alleged OMA violation, and the alleged MRTMA violation.
The Michigan Court of Appeals determined that the Circuit Court correctly granted summary disposition on the plaintiffs’ claims that the marijuana ordinance was void for vagueness and their related argument that it gave the city manager unfettered discretion. The Court explained that “the city manager was not without guidelines, and the public was not without notice as to the ordinance’s application.” While the ordinance gave the city manager discretion in the licensing process, “it d[id] not do so to the extent that it renders the ordinance constitutionally infirm.”
The Court concluded that the Circuit Court properly granted summary disposition in favor of the City. This is because (1) the City’s marijuana ordinance and general zoning scheme did not conflict with MCL 333.27959(3)(c), and (2) awarding the retail license to Gatsby did not violate the MRTMA’s school-buffer requirement despite the close proximity to a school because (a) the school buffer requirement is an operational requirement—not an application or licensing consideration, and (b) MCL 333.27959(3)(c) provides that a municipality may adopt an ordinance reducing that buffer zone, and the City’s ordinance allowed for deviation from its 1,000-foot buffer requirement.
The Court agreed that the City’s marijuana ordinance did not conflict with the competitive-process requirement of MCL 333.27959(4). Nothing in MCL 333.27956 restricts or delineates what type of criteria may be used in formulating a “competitive process.” The City’s ten competitive criteria allowed for meaningful distinctions between applicants.
The Court found that the Circuit Court erred by dismissing the OMA claim. The city manager and his workgroup acted as a public body subject to the OMA when they discussed and evaluated the 31 applications in closed session meetings. The city manager should have notified the public about those discussions and conducted them openly.
The Court held that summary disposition on the plaintiffs’ substantive due process claim was proper. A first-time license applicant has no entitlement to a license. Thus, no property interest was at stake when the plaintiffs submitted their application to the City for consideration. Moreover, the City’s mere denial of plaintiffs’ applications was not so egregious or irrational as to shock the conscious.
