City's Denial of Cannabis Business License Didn't Violate Right to Due Process

Since the passage of Proposition 1 in 2018 legalizing recreational cannabis in Michigan, municipalities have done their best to navigate the recreational cannabis application and licensing landscape despite a lack of concrete guidance.

As many municipalities have found, that process is fraught with pitfalls when the municipality caps licenses and receives more applications than available licenses. In that situation, the municipality must enact an ordinance intended to select the applicants best suited to operate in compliance with the law within the municipality. The clear implication of the statute imposing this requirement is that the municipality maintains a level of discretion as to which companies operate within its borders.

There are numerous examples throughout Michigan of instances where a municipality caps available licenses and is then subject to litigation brought by unsuccessful applicants under a multitude of legal theories. This often includes claims under the due process clause of the 14th Amendment of the U.S. Constitution. Such was the case in Cary Investments, LLC v City of Mount Pleasant, a published opinion issued by the Michigan Court of Appeals on July 14.

The due process clause provides both procedural and substantive protections. Succinctly, procedural due process requires “notice and an opportunity to be heard” prior to a deprivation of life, liberty, or property and “a decision by an impartial decision-maker[.]” But as a threshold matter, the allegedly aggrieved party must prove deprivation of a protected property interest.

The trial court held that a cannabis license applicant could not establish the loss of such an interest, citing a long line of cases holding that first-time license applicants are “not even entitled to minimal due process.” The trial court also rejected the notion that a cannabis license applicant could establish a substantive due process violation.

Substantive due process protects against the most egregious and arbitrary government conduct. To serve as the basis for a claim, the governmental action must be “so arbitrary and capricious as to shock the consciences.” The trial court held that “[r]efusal to issue a permit is not the sort of municipal action that constitutes a violation of substantive due process,” so “any effort by plaintiff to rely upon substantive due process [was] a nonstarter.”

Importantly, the appellate court went on to provide the following discussion, which helps to properly frame these types of claims and the courts’ role in adjudicating them:

“The right to due process guaranteed by the United States Constitution and the Michigan Constitution of 1963 does not empower courts to micromanage the decision-making of governmental entities. Asking this Court to second-guess the selection committee’s scoring of the numerous applicants competing for three licenses fundamentally misapprehends our role in enforcing the constitutional right to due process.”  

This clear message from the Michigan Court of Appeals should dissuade unsuccessful cannabis license applicants from pursuing claims under the due process clause, but given the amount of money at stake, that message may go unheeded. Municipalities opting-in to recreational cannabis should ensure that their application and licensing decisions are rational. Those decisions do not have to be beyond all reproach, they need only avoid any appearance of rising to the very high level of being so arbitrary or capricious that is shocks the conscience.  

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