Appellate Court Upholds San Jose Zoning in Marijuana Collective Use Case

Case of the Month Arthur Properties, II, LLC et al, Plaintiffs and Appellants v. City of San Jose et al, Defendants and Respondents


By Jennifer Felten 

Plaintiff SV Care operated a marijuana collective in a building owned by Plaintiff J. Arthur Properties, II, LLC. The building was in a commercial zoning district in the city of San Jose, California. The city determined the marijuana collective was not operating in a properly zoned area of the city and ordered it to cease operations. The operators of the collective as well as the owners of the building sued the city and lost. They then appealed the decision.

Plaintiffs’ collective opened in 2010. At that time, the Municipal Code for the City of San Jose did not list any medical marijuana collectives or any other marijuana-specific uses in their table of permitted uses. The Municipal code contained a list of permitted businesses and stated that any “uses not listed on [the applicable table] are not Permitted.” The table did include “medical offices” as a permitted use in the Commercial Office zone, so that’s what the Plaintiffs put on their application.

After the collective opened, voters passed a local measure adding a marijuana business tax to the Municipal Code. The tax applies to anyone “engaging in marijuana business” within the city. The Municipal Code also stated the tax was “enacted solely to raise revenue for municipal purposes and [was] not intended for regulation.” When the collective paid their business tax, they were clearly instructed that the payment of the tax does not mean they can legally operate a marijuana collective at that facility and there may be zoning laws prohibiting them from doing so. The Plaintiffs continued on with their operation anyway.

The Municipal Code was amended in 2014 specifically to regulate medical marijuana. Under the amendments, “medical marijuana collective” is not listed as a permissible use in the Commercial Office district. It is listed as a restricted use in certain industrial zoning areas. In 2014, the Plaintiffs received a compliance order that they are not allowed in the CO Zoning District and that they are in violation of the City’s Municipal Code. The Plaintiffs argued that they were a medical office during the trial but lost the argument.

Upon appeal, the “medical office” argument was addressed again. The Municipal Code defines medical office as “offices of doctors, dentists, chiropractors, physical therapists, acupuncturists, optometrists, and other similar health related occupations, where patients visit on a daily basis.” The Plaintiffs argue that their collective is a medical office because it is a health-related occupation. Included in their argument is the term “medical” generally means something curative or related to healing. They even cited the Health and Safety Code section 11362.5 subdivision (b)(1)(A), which states that one purpose of the Compassionate Use Act of 1996 is to “ensure that seriously ill Californians have the right to obtain and use marijuana for medical purposes where that medical use … has been recommended by a physician who has determined that the person’s health would benefit from the use of marijuana in the treatment” of various ailments. They argue that since they provide a medical and health-related service that they should be considered as a medical office under the Municipal Code. The City countered the argument by stating a medical office has physicians or similar professions and patients. A marijuana collective, on the other hand, does not have physicians and patients. On the contrary, the collective is made up of patients that were prescribed marijuana. The appellate court agreed with the city. Not only did the collective have zero physicians or similar professions, none of the approved listed professions provides a good or service that is illegal under federal law.

The Plaintiffs second argument was that the City should be stopped from enforcing the Municipal Code because it unreasonably delayed issuing a compliance order and it also induced detrimental reliance by collecting marijuana business taxes from the plaintiffs. The Plaintiffs had no way to prove the city delayed issuing the compliance order. The City consistently enforced the rules to all collectives. The Plaintiffs were also informed when they applied for the business license that they were most likely not in the correct zoning. The taxes collected were clearly stated that they were not for any enforcement or approval of a license, but for revenue collection only.

The Appellate Court also noted that the Plaintiffs acknowledge that applying equitable estoppel against a public entity requires a showing that “the avoidance of injustice in the particular case justifies any adverse impact on the public interest.” However, the Plaintiffs were unable to provide any evidence of an injustice in this matter. The space can be rented to another tenant. The collective can move to a location that is permitted. It would cost both parties some funds, but it is not a major injustice to the public. Therefore, the appellate upholds the ruling of the trial court and the City is entitled to its costs on appeal.

Jennifer Felten

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Jennifer Felten, Esq., Relaw Ms. Felten specializes in representing both individuals and legal entities, providing representation and guidance on a variety of real estate related matters.  Relaw APC 699 Hampshire Road, Suite 105 Westlake Village, CA  91361 US Phone: (805) 265-1031 or email her at: [email protected] 

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