COPY ADAM PAUL LAXALT ‘Atomey Graal Will ? Meketn Bar No, 6740) hit DepucyAtoney Gece Michelle D. Briggs (Ber No. 7617) LJ Senor Depury atomey General Melisa Paley Ber No, 12578) Deputy Artery Generel sin of evade te of be Atoraey General 100 Nord Canon Steet Carson City, NV 89701-4717 Gi S84 00 end) {rshebet0s Smekessdannace st " miladev@eg.tv Attorneys for Nevada Department of Taxation IN THE FIRST JUDICIAL DISTRICT COURT OF THE STATE OF NEVADA IN AND FOR CARSON CITY INDEPENDENT ALCOHOL. Case No. 17 0C 00098 1B DISTRIBUTORS OF NEVADA, INC., Dept. No. IT Plaintiff NEVADA DEPARTMENT OF TAXATION, Defendant, MOTION TO DISMISS ON AN ORDER SHORTENING TIME Defendant, Nevada Department of Taxation (the “Department”, hereby moves to dismiss the Complit filed by Plant Independent Aleohol Distbutors of Nevada, Inc. (TADON"), "This Court granted an ex parte temporary resteining order delaying the implementation of certain INAC 453D regulations forthe reereational sle of marijuana. The Department intends to begin issuing licenses forthe ret sale of recreational marijuana on Tuly 1, 2017. As set forth inthe Declration of Counsel in Support of Order Shortening Time, time is ofthe essence to have this matter resolved. The Department requests that this motion be heard on an Order Shortening Time as pemited by FIDCR 9, This motion is based on Rules 12(6(6) and (6) ofthe Nevada Rules of Civil Procedure ("NRCP") and is supported by the following Memorandum of Points end Page 1 of 18Authors, all he papers and pleadings on file herein, and any argument to be adduced at a bearing on this mater. BOINTS AND AUTHORITIES INTRODUCTION ‘This is # case of straw man (ADON) claiming to speak for other straw men ADON'S purported members) and asserting fictions ijuies allegedly suffered atthe hands ofthe Nevada Department of Taxation (Department). To be clear, the claims at issue do not challenge the Departments authority to regulate the distribution of marijuana —a regulatory scheme approved by Nevada voters when they approved the “Initiative to Regula and Tax Marijuana” (the initiative," codified at NRS Chapter 453D). In November 2016, the voters approved a structured rollout of the regulatory scheme. For an inital 18-month period, the Depariment (subject to approval by the local goveming body) may only isue a license to operate arti establishment 19 persons “holding a medical marijuana establishment repistaton.” Further, it may oaly issue a license to operate a marijuana distribution business (which is anew ieense category under Chapter 453D that did not exist for medical marijuana) to persons who hold “wholesale dealer licenses pursuant to NRS Chapter 369." Notably, the later limitation (on the issuance ofa new marijuana istbutor license) does not apply if the Department finds that this limitation would result in an insufiien numberof marijuana disuibuors" NRS 45302100). TADON purports to represent certain persons that hold licenses under Chapter 369. Complaint 4. A wholesale dale, under Chapter 369, is a “person licensed to sll iquor as itis crignally packaged to real Tiquor stores of to another licensed wholesaler, but not o sell 10 the consumer or general public.” NRS 369.130. A person oblains a liquor wholesaler license ffom the relevant local governing body (iy or county). NRS 369.200. A liquor wholesaler also must comply with federal law tha it be licensed by the Aleohol and Tobscco Tax and Trade Bureau crt. TADON js nota Tiensed liquor wholesaler. Moreover, as IADON aims, the “licensed liquor wholesalers” it purports to represent have decided that they do not want to risk jeopardizing” their federal TTB licenses by applying for marijuana distributor licenses Page 2 of 1310 2 13 u 18 16 rc 18 19 20 a 2 28 4 28 26 a 8 Complaint, Ex.7 at 3. Instead, they have each decided to create a new “separate business” catty, and cause each such newly-created entity to apply for is own new liquor wholeste license withthe local goveraments and TTB. 1d To the extent such an enty obtain anew liquor license, it would then presumably aply fora marjuana distibuor license under NRS 453D.210(3, ‘These facts fil o state a claim for declartory relief, JADON isnot a “person holding wholesale dealer licenses pursuant to NRS Chapter 369." To the extent IADON purports to represent the interest of persons that do hold a liquor wholesale license, it concedes some (or all) of these persons have decided not to apply for & new marijuana distributor license under their existing liquor Leenses (to avoid their perceived risk to their federal TTB licenses). Instead, they have decided to form new legal entities withthe goal of having those other “persons” obtain liquor licenses, and then have cach seck to qualify as a person holding a liquor wholesale license for purposes of NRS 453D.210(3). Such a caleulated business decision may indeed have added self- imposed “hurdles” to the application process but this is not the result of any action or decision of the Department! Moreover, a member of IADON that has or will apply for issuance of a new marjuans distisutor license may face an increased risk that the Department finds that this limitation would result in an “insufficient number of marijuana distributors.” NRS 453D.210(3). Again, however, the increased risk is solely a consequence of the decision by some persons to nor spply fora new marijuana distributor license under their existing liquor licenses. In summary, IADON is nota real party in interest tothe alleged controversy and does not, based om its own admissions, represent any real parties in interest. To the contrary, it represents [persons who mey or may not obtain a liquor wholesale license in the future, or who may be affected by the decisions of other liquor wholesale licensees to not apply for a new marijuana distibutor license under their existing liquor licenses. Accordingly, this case presents an abstract 2 In addon, LADON’s equitable estoppel claim also must fail as is allegation that the Department took any action in connection with the placement of any liquor license applications on any agends ofthe Clark County Commission is entirely false. See Affidavits of A. Thoraley and J. Holloway attached to Defendant's Opposition to Application for Temporary Restraining Order and Preliminary injunction. Page 3 0f 13controversy and is non justciable on that ground alone. Additionally, the complaint is subject to Aismissal onthe ground that [ADON has ale to join necessary o indispensable parties. STATEMENT OF FACTS Tn the 2016 general election, Nevada voters approved the Initiative now codified at NRS [Chapter 455D which decriminalized and regulated the we of marijuana effective January 1, 2017. PNRS 4830.020, Tet law mandates that no later than January 1, 2018, dhe Deparment mst b receiving applications for marijuana establishments—including distributors, manufacturers, and sellers. NRS 453D.200. The Department als is required, for an 18-month period, to licenses for marijuana distributor” only to “persons holding a wholesale dealer license pursuant to Chapter 369 of NRS, unless [it] determines thet an insufficient mumber of marijuana distributors will result from this limitation.” 14. 453.2103), ‘The new law require the adoption of implementing regulations. NRS 453D.200(1). Dring March 2017, the Deparment conducted public workshops in compliance with NRS Chapter 233B, JOn May 8, 2017, the Commission approved temporary regulations to implement NRS Chapter 453D. See LCB File No, 7002-17 (sttached to the Complaint at Exhibit 1) (the “Regulation”), With respect to “persons holding a wholesale dealer license pursuant to Chapter 369 of NRS,”" and those licensed as agents of medical marijuana establishments currently engaged in the business of istibution, the new regulations require the submission of an application for» marijuana distributor license by a deadline of May 31, 20172 Regulation §15. Thereafter the Department may detemine pursuant to NRS 453D.210(3) that an insufficient numberof distbutor licenses would result from limiting licenses o persons holding a wholesale dealer license pursuant to chapter 369 Jof NRS.” 2d §14(2), In making that determination, the Department wil consider factors including tn satus of local zoning andlor special use pets, compliance with security requirements, and capacity to serve different geographic markets. Id. §14(2)(a)(h). The Regulation also requests an ® The deadline of May 31, 2017 for submitting applications for marijuana distributor licenses was consistently referenced in every iteration ofthe draft regulations. See, e.g, March 31, 2017 dra. Page 4 of 13,10 n 2 18 “4 16 16 cg 18 19 20 a 2 2 24 25 26 2 28 spplicant acknowledge the potential jeopardy to a federal TTB license given the conflict between. state and federal law. 1d. §14(2X6). IADON is a Nevada corporation formed in April 20172 IADON does not claim to represent its ovm interests in this action, Instead, it claims to represent the interests of its members,” some of which curently operate under existing liquor wholesale licenses, Complaint 5-6, In this regard, IADON attaches declarations on behalf of three such persons, Two of them, (Ciao Uva, LLC, and Pemberton Distibuting Company, both concede they are nof a person that intends 10 apply under NRS 453D.210(3), but instead have formed “new, separate business entities,” and hope to cause those entities to obtain a liquor wholesale license at some future date* 1d. Ex. 6 and 7, These liquor wholesale dealers have known of their ability to apply fora marijuana distributor license since November 2016. See Complaint 48, 11. The Department is under no legal or equitable obligation to wait for such a person to perfect their scheme for circumventing federal restrictions on their ability to simultaneously distribute liquor and marijuana. Complaint $25. The other, Paladin LLC, states it is person that does intend to apply for a marijuana distributor license under NRS 453D-210(3). Complaint Ex. 2 at] 3. Clearly, this entity, which was formed in early March 2017 (see hitp:/Hnvsos.govlsos) can claim no Department-imposed “hurdles” impeded its ability to apply. Moreover, its conceded ability to apply under NRS 453D.210(3) negates any allegation thatthe Department has made it “impossible” for IADON’s members to apply by the lend of May 2017 my ner 9 See Nevada Secretary of State website: http/invsos.gov sos. Given that IADON did not exist as a legal entity until April 2017, several allegations in the Complaint eannot be true. For Jexample, IADON alleges it “objected to fan agency] determination,” “submitted both oral and. ‘writen comments,” and “voiced objections and concems"—all during March 2017. However, IADON did not exist as a legal entity until April 2017. While a court's review on a 12(bX(5) motion to dismiss is generally limited to the content of the complaint, that limitation is not categorical. See n re CityCenter Construction and Lien Master Litigation v. Eighth Judicial Dis, (Ct, 129 Nev. Adv. Op. 70,n.3, 10 P.3d 574 (2013). “ In fact Pemberton Distributing Company does not even appear as a current entity sccording to the Nevada Secretary of State's database, Se htp:/invsos.gov/so. Page 5 of 13ARGUMENT Under NRCP 12(6)(5), a complaint should be dismissed if it appears beyord a doubt that plaintif’s factual allegations, all accepted as true, are insufficient to tate claim to relief. Blackjack Bonding v. Las Vegas Mun. Ct, 116 Nev. 1213, 1217, 14 P.3d 1275, 1278 (2000). Here, IADON alleges its members are entitled to declaratory relief invalidating (and enjoining exforcement of) Sections 14 and 15 of the Reguletion, and the May 31, 2017 application deadline, These claims are not viable. TADON ha to state a claim for declaratory relief, A complaint for declaratory relief should be dismissed under NRCP 12(0\S) where plaintig’s allegations fail to show: (8) a justciable controversy exists between persons with adverse interests, (b) the party seeking declaratory relief has a legally protectable interest in the controversy, and () the issue is ripe for judicial determination, Knile . Progressive Casualty Ins, Co,, 112 Nev. 8, 98 P24 724 (1996) IADON’s allegations, taken at fice valu, fl to show any ofthese three clement A, LADON cannot allege any justiiable controversy. A jutciable controversy requires a “dispute between two interested and adverse parties, in which the moving party's interest is legally recognized.” Mesagate Homeowner's Assn . Clty of Ferley, 124 Nev. 1092, 1097, 194 P.3d 1248, 1251 (2008). To satisfy this standard, an organization purporting to represent the interests of ts members must assert an “intrest based on Which any members [hve] aright wo relic” UMC Plpsicians y. Ne. Sere, Ep. Union, 124 Nev. 84, 94, 178 P.3d 709 (2008), Alleged harm that is speculative or hypothetical i insufficient: an existing controversy must be present. Lamb v. Doe, 92 Nev. 550, $51, S54 P.24 72, 73 (1976) ‘Tis not the cous business fo render advisory opinions for unknown persons who may or may not havea justcable controversy"), Here, none of IADON's purported members have any legally recognized interest under /NRS 453D.210(3) that has been or could be adversely alfected by the Department, The statute's plain language applies “only to persons holding a wholesale dealer license pursuant io Chapter 369 Jof NRS.” NRS 453D.210(3). Taking IADON’s allegations as tre, its members are comprised of Page 6 of 18.two categories of persons who currently hold existing liquor wholesale licenses. Complaint 5-6, One eategory (@.2, Ciao Uva and Pemberton Distributing), does not intend to apply under NRS 453D.210(3), but instead have formed “new, separate business entities,” and hope st some future date to cause those persons to obtain a liquor wholesale license, Id, Ex. 6 and 7. The other (e.g. Paladin) does intend to apply for a marijuana distributor license under NRS 453D.210(3). (Complaint Ex. 2 a3, IADON has made no allegation—as to either category —that any provision in Sections 14 or 15 of the Regulation, nor any act by the Department, in any way limits or unreasonably restricts the ability ofthese persons to apply fora license under NRS 453D.210(3). As to the frst category, IADON can allege no claim that they have been affected by any act of the Department. To the contrary, such @ person has made a business decision to form new business entity to apply for the ‘marijuana distributor license to avoid or mitigate a perceived risk to its federal TTB license (ating until May to even initiate the process of obtaining a license under Chapter 369). Nothing other than their own personal business decision to form separate entities to circumvent federal law Jeaused these IADON members to decline to apply for their marijuana distributor license by May. 31. Similarly, [ADON can allege no claim thatthe second eategory (a person who wishes to apply under an existing liquor wholesale license) has encountered Department-imposed “hurdles” to its ability to apply. The dearth of applications by the other JADON members may increase the likelihood of a Department finding ofan “insufficient aumber of marijuana distributors” applicants junder NRS 453D.210(3). That again is solely due to the busines decisions of the other members, B._TADON bas: led to allege any legally protectable interests. ‘The interests JADON has slleged on behalf ofits members are at best contingent, and thus do not consul a protectabe interest, Phelps v. Second fudical Dist, Ct, 106 Nev. 917, 920, 803 1.24 1101, 1103 (1990) (holding that where a party's “Tigh” are “contingent on her sucessful Titgation ofa pending tort suit” the party “ean asert no legally protectable interest creating a jusicible controversy ripe for declaratory relief Kntle, 112 Nev. at 11, 908 P2d at 726 (determining that a personal injury plaintiff's action seeking a declaration conceming insurance coverage agaist he alleged tortfeasor‘ insurer isnot ripe before plein has obtained judgment Page 7 of 18against the alleged tortfeasor) Here, the interests ofthe two categories of IADON members are all cootingent on some future event or determination. Again, the frst category is comprised of those persons who do not intend to apply under NRS 483D.210(3), but instead hope to cause other persons to obi Liquor wholesale iense inthe future, The applicable provisions of Sections 14 and 15 of the Regulation nly aply to liquor wholesale dealers that are operating and in good standing, To the exten hat IADON’s members have made a calculated business decision to reste ther licensure options by adding selPimposed obstacles tothe application process, those obstacles are not the result of, nor caused by, any action of the Department, The rights ofthese enites is completely coningent fist on thir bility to obtain a iguor license. Aso those persons who do intend to apply for @ marijuana distTbutor icense under NRS 453D.210(8), TADON alleges that they have an interest in enjoining the Deparment fom evaluating whether the numberof liquor wholesale Hicenses that have applied is “insuften.” The Regulation states thatthe determination ofan insufficient aumber of NRS 369 wholesale dealers may be made based ona list of considerations. See Complaint, Ex. 1 Regulation §14@2)¢)-h). The Deparment has not made such a determination, The Department has not issued marijuana isbutor licenses to any entity and the Deparment has not refused or denied any application submited by a licensed liquor wholesale. C‘Theissue alleged by IADON are not ripe Itimay seem that these issues of standing an ripeness are redundant, but “tipeess focuses on the timing ofthe ection rater than on the party bringing the action... While ham need not already have been suered, it must be probable forthe issue tobe ripe for judicial review." Herbst Gaming, Inc . Heller, 122 Nev. 877, 887, 141 P34 1224, 1250-31 (2006), cing Maver of TR, 119 Wev. 646, 651, 80 P.3d 1276, 1279-80 (2003), When the rights of the plaintiff ae contingent on the happening of some event which cannot be forecast aod which may never ake pice, a court cannot provide declaratory relist, Dep't Mr. Veh v. Jones-West Ford, 114 Nev. 766, 716, 962 p2a6: , 631 (1998) (concluding that petition for the DMV's review of a franchisor's decision to terminate a franchise's license was not ripe until the fanchisee had been denied relief under the Page 8 of 13fanchisor’s internal appeal process). City of No. Las Vegas v. Cluf, 85 Nev. 200, 201, 452 P.2d 461, 462 (1969) (“The question here is whether or not the validity o°a proposed legislative act can be ruled upon in advance of ts enactment, The answer is tha it cannot.” TADON has not demonstrated that the harm alleged in the Complaint is probable, so the issue isnot ripe. No liquor wholesale desler has been denied a marijuana distributor license and no. marijuana distributor licenses have been issued. It is purely conjecture that LADON's members will be denied a license and that entities other than persons holding a liquor wholesale dealer license will be granted licenses for marijuana distribution. The Supreme Court has ruled in other cases that this is nota ripe issue. Resnick v. Nevada Gaming Comm'n, 104 Nev. 60, 752 P.2d 229 (1988) (claim by applicant for a gaming license that constittioral guarantees of due process. required that he be allowed discovery of Gaming Control Boar's investigative report was properly’ rejected as lacking ripeness where it was based on the conjectural 3remise that applicant may be denied a license in the future). T. TADON does not have a right to injunctive relief, Just as IADON's declaratory relief claim fails to meet the requirements for such relief, IADON is not entitled to injunctive relief either. NRS 33.010 allows injunctive relief when the Plaintiff is entitled to the relief requested. As previously diseussed, IADON’s members have had the same opportunity as all other persons to apply for a marijuana distribution license by May 31. They chose not to apply under their existing liquor licenses, but instead form new separate business entities. JADON alleges that these new separate entities are seeking their wholesale dealer licenses under NRS Chapter 369, but have not yet been licensed. Until a person obtains a liquor wholesale dealer license status, a person is not entitled to ciaim any rights under NRS 453.210). # Moreover, the Regulation at issue was adopted by the Nevada Tax Commission on May 8, and as a temporary regulation cannot be filed with the Secretary of State until June 12. Unfiled regulations are not legally binding. “If adopted and filed in accordance with the provisions of this chapter, the following regulations have the force of law and must be enforced... .” NRS 233B.040(1), Like the city ordinance at issue in City of North Las Vegas v. Chyff, a court cannot rule on the validity of a proposed legislative act in advance ofits enactment. d., 85 Nev. at 201, 452 P.24 at 462. Page 9 of 13As IADON states, the Regulation is not effective until June 12. The deadline of May 31 vas included in the Regulation to allow the Department time to review the applications to meet the July 1 start date. The Department is acting in eccordance with its sttutory authority to accept license applications and begin the program on July 1, 2017. To the extent members of IADON want fo try to cireumvent federal law by forming separate eatiies—that is their prerogative, but it does not mean the Department has any obligation to wait for them to do so.6 IADON has no right to prevent the Department from issuing licenses necessary for the recreational sale of marijuana under NRS 453D. Members of JADON had as much opportunity as Jevery other applicant to apply by May 31. They chose not to jeopardize their TTB licenses. IADON has no right to enjoin the Department's ection and its claim for injunctive relief should be ened. 11. IADON's claim for equitable estoppel lacks merit, Even assuming the Indicrous accusations in the Complaint are true, that the Department interfered in the Clark County business license process for some new entity afiliated with some member of IADON, there still is no claim possible for equitable estoppel. “Equitable estoppel functions to prevent the assertion of legal rights that in equity and good conscience should not be available due to a party's conduct.” Topar Mut. Co,, Ine. v. Marsh, 108 Nev. 845, 853, 839 P.2d 606, 611 (1992). Ie“is appli "Id There is no manifest injustice in this ease, and IADON is not an injured party. Equity and good to prevent manifest injustice and hardship to an injured part jconstience are not in [ADON’s favor and do not support IADON’s claim for equitable estoppel ‘As detailed in the Complaint, the Initiative was approved by Nevada voters in November 2016. IADON’s members were on notice then that NRS 369 wholesale dealers had an 18-month ference for marijuana distribution. The Complaint also states that the Department inquired of pee i parm: © An argument also can be made that the Initiative did not contemplate “new” alcohol wholesalers seeking a marijuana distibutor lcease, The 18-moath preference was allowed for those NRS 369 wholesale dealers that existed atthe time the Initiative passed in November 2016, [As the Complaint states, there are approximately 69 NRS 369 wholesale dealers It stands to reason that the entities existing at that time were the entities that were given the 18month preference, not new entities without any history of providing services tothe community. Page 10 of 13NRS 369 wholesale dealers sbout their willingness to be marijuana distributors on or about [November 18, 2016. In March 2017, the Deparment posted proposed temporary regulations identifying July 1 asthe date when licenses would be granted. With allthis time to prepare and apply, itis not a manifest injustice to the members of ADON to begin issuing licenses, ‘As discussed previously, JADON members made a business decision not to jeopardize their TTB license. They chose to form new entities to apply forthe marijuana distributor license, and Waited until May to begin the process to become NRS 369 wholesale dealers Nothing prevented, the IADON members from applying for their marijuans distributor license by May 31, except their personal business decision to form separate entities to circumvent federal law. “In seeking equity, 8 paty is required to do equity.” Overhead Door Co. of Reno, Inc.» Overhead Door Corp., 103, Nev. 126, 127, 734 P.2d 1233, 1235 (1987). IADON’s members did not “do equity” when they ‘waited until a few weeks before the application deadline to apply for a liquor license from Clark County. There is no guarantee that the liquor license would have been provided by County Comission or that even iit were, the entity would satisfy NRS 369 prior to May 31 TV. ‘The Complaint fails to name necessary partes. IADON seeks to invalidate sections of the Regulations. The Regultiens were adopted by tne Commission, yet the Commission isnot named asa party. Nevada law recuires joinder of any person if in their absence complete relief cannot be accorded among those arady parties. NRCP 19(@). The Commission would need to amend the Regulations to the extent they are deemed invalid. This Court could not provide the relief requested by TADON without the Commission being named a party Moreover, the Complaint includes a claim for equitable estoppel based on claims that the Department's deputy director directed Clark County business licensing staff to remove certain unnamed applicents from the County's agenda in May 2017. To the extent Clark County staff improperly removed these spplicants ffom the agenda of the Clark County Board of | Commissioners, Clark County must be named as party a yi Page 11 of 1310 12 13 “ 15 16 vv 18 19 20 a 2 2 m4 25 26 2 28 ONCLUSION For all the foregoing reasons, Defendant respectfully requests the Court grat this Motion 0 Disnis, AFFIRMATION Pursuant to NRS 2390.030, the undersigned docs hereby affirm that the preceding document, MOTION TO DISMISS ON AN ORDER SHORTENING TIME, fled in this case 17 0€ 00098 18, doesnot contain the personal information of any person Dated: June 8,2017. ADAM PAUL LAXALT ‘Atomey General By: | Wiliam. McKean (Bar No. 6740) Chiet Deputy Atiomey General Page 12 of 1310 2 18 uu ro 16 Ww 18 18 20 a 2 23 24 26 27 28 CERTIFICATE OF SERVICE | certify tat I am an employee ofthe Office ofthe Attomey General, State of Nevada, and that on June 8, 2017, I hand delivered a true and comectcapy ofthe foregoing document, addressed to the folowing Kevin K. Benson, Esq Allison MacKenzie, LTD. 402 N. Division Street Carson City, NV 89702 ‘Melis L. Flatley, an employee of the office ofthe Nevada Attomey General Page 19 of 18.