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New Age Care, LLC v. Juran

Court of Appeals of Virginia

January 7, 2020



          Gregory J. DuBoff (Stanley A. Roberts; McGuire Woods LLP, on briefs), for appellant.

          James E. Rutkowski, Assistant Attorney General (Mark R. Herring, Attorney General; Cynthia V. Bailey, Deputy Attorney General; Allyson K. Tysinger, Senior Assistant Attorney General, on brief), for appellee Caroline Juran, Executive Director, Virginia Board of Pharmacy.

          J. Scott Sexton (Scott A. Stephenson; Gentry Locke, on brief), for appellee Dharma Pharmaceuticals, LLC.

          Present: Judges O'Brien, Malveaux and Senior Judge Clements Argued at Richmond, Virginia



         This case involves an appeal pursuant to the Virginia Administrative Process Act ("the VAPA"), Code §§ 2.2-4000 to -4031. New Age Care, LLC ("New Age") and Dharma Pharmaceuticals, LLC ("Dharma") applied to the Virginia Board of Pharmacy ("the Board") for a pharmaceutical processor permit to operate a facility for producing and dispensing cannabidiol and THC-A oils.[1] Code § 54.1-3442.6(B) limits the Board to issuing one permit for each of the five Health Services Areas ("HSAs") in Virginia. The parties applied for the single permit available in HSA III located in southwest Virginia. The Board denied New Age's application and granted conditional approval for the permit to Dharma.

         New Age appealed to Henrico County Circuit Court. Dharma moved to dismiss the appeal, and the circuit court granted Dharma's motion. New Age appeals the dismissal and argues the circuit court erred by (1) "considering Dharma's unilateral motion to dismiss;" (2) "granting Dharma's motion to dismiss on invalid grounds;" and (3) "prematurely ruling on the merits of New Age's appeal." For the following reasons, we affirm the circuit court's decision.


         "Where, as here, 'no evidence [has been] taken with regard to [a] motion to dismiss[, ] [appellate courts] treat the factual allegations in the petition as we do on review of a demurrer.'" Bragg v. Bd. of Supervisors, 295 Va. 416, 423 (2018) (quoting Va. Marine Res. Comm'n v. Clark, 281 Va. 679, 686 (2011), overruled in part on other grounds by Woolford v. Va. Dep't of Taxation, 294 Va. 377, 390 n.4 (2017)). "We accept 'the truth of all material facts that are . . . expressly alleged, impliedly alleged, and those that may be fairly and justly inferred from the facts alleged.'" Id. (quoting Harris v. Kreutzer, 271 Va. 188, 195-96 (2006)). This "inquiry encompasses 'not only the substantive allegations of the pleading attacked but also any accompanying exhibit mentioned in the pleading.'" Id. (quoting Flippo v. F & L Land Co., 241 Va. 15, 17 (1991)). See Rule 1:4(i).

         Additionally, "[a] court in ruling upon a demurrer [or motion to dismiss] may consider documents not mentioned in the challenged pleading when the parties so stipulate." Flippo, 241 Va. at 17. See Elder v. Holland, 208 Va. 15, 18 (1967) (considering on demurrer the transcript of a prior hearing where parties so stipulate). This Court then "review[s] the circuit court's decision to dismiss the petition, and any corresponding issues of statutory interpretation, de novo." Bragg, 295 Va. at 423. See also Graves v. Commonwealth, 294 Va. 196, 199 (2017); Harris, 271 Va. at 195-96. Here, employing these principles, we summarize New Age's petition for appeal to the circuit court, its attached exhibit, and a stipulated subset of exhibits the parties submitted for consideration along with Dharma's motion to dismiss.

         In 2018, the General Assembly amended 2016 legislation authorizing the Board to issue pharmaceutical processor permits to operate cannabidiol/THC-A oil production and dispensary facilities in each of the five HSAs in Virginia. See 2018 Va. Acts ch. 567. The amended statute only allowed one permit for each HSA. Code § 54.1-3442.6(B). The final legislation also authorized the Board to adopt regulations establishing health, safety, and security requirements for the pharmaceutical processors. Code § 54.1-3442.6(C).

         Pursuant to this statutory authority, the Board enacted regulations establishing a three-stage application process: "submission of initial application, awarding of conditional approval, and granting of a pharmaceutical processor permit." 18 VAC 110-60-110(A).[2] The regulations identified the information required from each applicant, including the location where the pharmaceutical processor would be operated; detailed information regarding the applicant's financial position; the applicant's plans for security to prevent diversion, theft, or loss of the Cannabis plants and the cannabidiol or THC-A oils; previous or current involvement in the medical cannabidiol oil or THC-A oil industry; business and marketing plans; detailed blueprints; any compassionate need program the applicant intended to offer; and the applicant's expertise in agriculture and other production techniques. 18 VAC 110-60-110(B)(b)-(d), (g), (i), (k)-(m).

         The regulations also provided criteria for the Board to consider in evaluating the applications, including compliance with the application requirements. 18 VAC 110-60-120(A), (B). The regulations stated that "[t]he decision of the [B]oard not to grant conditional approval to an applicant shall be final." 18 VAC 110-60-120(C).

         On April 16, 2018, the Board issued a request for applications ("RFA") for pharmaceutical processor permits in the five HSAs.[3] The RFA, which was not a regulation, stated that "[t]he review and scoring of the applications will be performed by an ad hoc committee appointed by the Board." The RFA stated that the ad hoc committee would score the applications and make a recommendation to the Board: "After completing the review and scoring, the ad hoc committee will rank each application according to its score. The committee will recommend to the Board the issuance of conditional approval to an [a]pplicant in each [HSA] with the highest ranked score."

         The RFA specified that the ad hoc committee would score applications in the following areas: the applicant's financial position; location within the HSA; security plans; authorization to conduct business; industry involvement and disciplinary action; agriculture, production, and dispensing expertise; marketing plans; facility exterior and blueprints; product and site safety; expected hours of operation; and an additional category consisting of plans for compassionate needs, research, and delivery services to mitigate risks of diversion, theft, or loss.

         The RFA also specifically stated that although the ad hoc committee would make a recommendation to the Board based on its scoring of the applicants, the Board, not the ad hoc committee, would make the final decision: "The Board will grant conditional approval to the [a]pplicants which, in its opinion, have made the best application."

         The ad hoc committee, composed of two Board members and three citizen members, met in closed session on September 4, 2018, to evaluate the applications for HSA III, including those submitted by New Age and Dharma. The committee scored New Age's application at 957.5 and Dharma's application at 861.75.

         On September 25, 2018, the Board met to determine which, if any, applicants should be awarded conditional approval for a permit. It also received public comments. The Bristol city manager and an Abingdon pharmacist both spoke in favor of Dharma's application. No one spoke in support of New Age's application. Twice, the Board voted unanimously to go into closed session pursuant to Code §§ 2.2-3711(A)(5) and 54.1-108(2).[4] First, the Board convened a closed session to consult with legal counsel regarding FOIA and the consideration of applications; second, the Board convened a closed session to consider and evaluate the applications. No one objected. The Board also moved that two of the three citizen members of the ad hoc committee attend the closed sessions; the third citizen member was not present.

         The Board reconvened in open session to record the votes. In a motion addressing the HSA III permit, seven Board members voted after one member recused himself, for reasons unrelated to this case, and two others abstained. These seven members, representing a quorum of the ten-person Board pursuant to Code § 54.1-3305, unanimously approved Dharma's application.

         The Board issued formal orders announcing its decision and reasoning on December 21, 2018. In its order granting conditional approval to Dharma, the Board noted the score given by the ad hoc committee and made the following findings:

• Dharma's proposed location is "readily accessible to a large population of potential patients in [HSA III];"
• Dharma demonstrated a "strong level of collective expertise in agriculture, production[, ] and dispensing techniques;"
• Dharma demonstrated "a strong financial position for initial operations and long-term stability and sustainability;" [and]
• Dharma demonstrated a "strong compassionate need plan."

         The Board concluded that "[b]ased on its review and competitive evaluation of the applications in [HSA III] in accordance with 18 VAC 110-60-120, including the findings set forth above regarding the application . . . and its consideration of the ad hoc committee's scoring recommendations," Dharma "should be granted conditional approval in [HSA III]."

         The Board denied New Age's application. Although the Board noted the ad hoc committee's ...

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