Case Name: The City of San Jose v. Gobias Inc., et al.
Case No.: 15-CV-288980

Currently before the Court is defendants Gobias, Inc. (“Gobias”), Airseco Mechanical, Inc. (“Airseco”), and David Hyland’s (“Hyland”) (collectively, “Defendants”) demurrer to the first amended complaint (“FAC”) filed by plaintiff the City of San Jose (the “City”).

I. Factual and Procedural Background

On January 14, 2016, the City filed its operative FAC against Defendants, in which it alleges the following: Airseco owns commercial property located at 2231 Fortune Drive #A, San Jose, CA (the “Property”). (FAC, ¶ 2.) Airseco permits Gobias and Hyland to operate a medical marijuana dispensary at that location. (FAC, ¶ 3.) Under the San Jose Municipal Code (“SJMC”), it is unlawful to operate a medical marijuana dispensary within the International Business Park boundary or 150 feet from any residential use of property. (FAC, ¶¶ 34-35.) In addition, a medical marijuana dispensary must obtain a notice of completed registration from the City manager to operate in San Jose. (FAC, ¶ 61.) Defendants violated the SJMC by operating or permitting the operation of the dispensary within the International Business Park Boundary and 150 feet of residential property and failing to obtain a notice of completed registration from the City manager. (FAC, ¶¶ 35-37, 64.) The City asserts four causes of action against Defendants for public nuisance.

On March 29, 2016, Defendants filed the instant demurrer to the FAC. The City filed its opposition on July 6, 2016. On July 12, 2016, Defendants filed their reply.

II. Request for Judicial Notice

In connection with their opposition to the motion, the City asks the Court to take judicial notice of the SJMC and a United States Department of Justice Memorandum concerning the Department’s marijuana enforcement policy. The request is GRANTED. (See Evid. Code, § 452, subd. (b); City and County of San Francisco v. Pacello (1978) 85 Cal.App.3d 637, 642, fn. 1 [stating that the court may take judicial notice of sections of a city’s municipal code]; People ex rel. Totten v. Colonia Chiques (2007) 156 Cal.App.4th 31, 38, fn. 3 [taking judicial notice of written law enforcement policy].)

III. Demurrer to the FAC

Defendants demur to the FAC on the ground of failure to state sufficient facts to constitute a cause of action. (See Code Civ. Proc., § 430.10, subd. (e).) They contend that the SJMC violates the 5th Amendment of the United States Constitution and, therefore, may not serve as the basis for an action for public nuisance. (See Welton v. City of Los Angeles (1976) 18 Cal.3d 497, 507 [stating that a public nuisance statute may be enforced only in a manner consistent with constitutional protections].) In particular, Defendants assert that the SJMC compels them to reveal financial and operational information subjecting them to a substantial hazard of self-incrimination under federal drug laws.

A. Legal Standards

The Fifth Amendment of the United States Constitution provides, in pertinent part, that “[n]o person … shall be compelled in any criminal case to be a witness against himself….” (U.S. Const. amend. V.) There are four requirements necessary to trigger the privilege: “the information sought must be (i) ‘incriminating’; (ii) ‘personal to the defendant’; (iii) obtained by ‘compulsion’; and (iv) ‘testimonial or communicative in nature.’” (Izazaga v. Sup. Ct. (1991) 54 Cal.3d 356, 366.) Evidence that does not implicate each of these requirements is outside the scope of the privilege. (Id. at p. 367.) The privilege only applies to individuals and may not be asserted by a corporation, partner, or any other entity. (Braswell v. United States (1988) 487 U.S. 99, 104-108; United States v. Kordel (1970) 397 U.S. 1, 7, fn. 9; Avant! Corp. v. Sup.Ct. (2000) 79 Cal.App.4th 876, 884-885.)

The Fifth Amendment may provide a defense to the enforcement of a statute that compels a defendant to reveal self-incriminating information. (California v. Byers (1971) 402 U.S. 424, 427.) However, “the Fifth Amendment does not always demand substantial undercutting of valid and essential government regulation when the means to effect that regulation necessarily include disclosure of information which could lead to self-incrimination.” (U.S. v. Flores (9th Cir. 1985) 753 F.2d 1499, 1501.) In these circumstances, the conflict between the government’s need to regulate and the privilege against self-incrimination “must be resolved in terms of balancing the public need on the one hand, and the individual claim to constitutional protections on the other….” (Ibid., internal citations omitted.) In determining whether the threat of self-incrimination outweighs the government’s need to regulate, the court considers the following factors: (1) whether the disclosure requirement targets a highly selective group inherently suspect of criminal activities, rather than the public generally; (2) whether the requirement involves an area permeated with criminal statutes, rather than an essentially noncriminal and regulatory area of inquiry; and (3) the extent to which the compelled disclosures would themselves confront the defendant with substantial hazards of self-incrimination. (Ibid.; see also U.S. S.E.C. v. Fehn (9th Cir. 1996) 97 F.3d 1276, 1291-1292.)

B. Gobias and Airseco’s Assertion of the Privilege

Preliminarily, Gobias and Airseco cannot invoke the privilege against self-incrimination as the privilege does not apply to an artificial entity such as a corporation. (See Braswell, supra, 487 U.S. at pp. 104-108.) Accordingly, the demurrer as to Gobias and Airseco is OVERRULED.

C. Hyland’s Assertion of the Privilege

Hyland claims that the enforcement of SJMC sections 6.88.300, 6.88.320, 6.88.330(A)(C), 6.88.600, 6.88.700, and 6.88.820 would subject him to a substantial hazard of self-incrimination. In particular, he contends that the disclosure of financial and operational details of the dispensary he operates would subject him to prosecution under federal drug laws. Accordingly, the Court will consider each of the factors articulated in U.S. v. Flores, supra to determine whether Hyland’s Fifth Amendment privilege outweighs the City’s need to regulate medical marijuana dispensaries, namely,
(1) whether the disclosure requirements target a highly selective group inherently suspect of criminal activities, rather than the public generally, (2) whether the requirement involves an area permeated with criminal statutes, rather than an essentially noncriminal and regulatory area of inquiry, and (3) the extent to which the compelled disclosures would themselves confront the defendant with substantial hazards of self-incrimination.

1. Highly Selective Group Inherently Suspect of Criminal Activities

Hyland argues that the SJMC’s disclosure provisions are directed at medical marijuana producers, a highly selective group inherently suspect of criminal activities rather than the general public. As an initial matter, Hyland does not identify any allegations in the FAC that support its interpretation of the SJMC. In particular, he makes no attempt to demonstrate that medical marijuana producers are inherently suspect of criminal activities or that the disclosure provisions for medical marijuana producers are more stringent than those directed at other applicants for business licenses in the City. (See Blinder v. Division of Narcotic Enforcement (1972) 25 Cal.App.3d 174, 187 [finding a recordkeeping requirement did not target a highly selective group inherently suspect of criminal activities where records sought were no different than those ordinarily kept by those not inherently suspect of criminal activities]; see also Montes v. U.S. (E.D. Cal., July 9, 2012, No. 1:06-CR-00342-LJO) 2012 WL 2798810, at *4 [rejecting Fifth Amendment defense to medical marijuana reporting requirements where a city required all businesses to submit the same information].) Therefore, he fails to establish that this factor supports his assertion of the privilege. In any event, the City persuasively argues that the SJMC’s disclosure requirements for a medical marijuana dispensary are nearly identical to those required for establishing any other business in the City. (Compare SJMC, § 6.88.330 with SJMC, § 6.02.050.) As such, the first factor does not support Hyland’s assertion of the privilege.

2. Criminal Area of Inquiry

Hyland claims that the second factor favors his assertion of the privilege because the SJMC disclosure provisions are focused on detecting criminal violations by medical marijuana producers because they require him to waive his Fourth Amendment rights and warn of potential criminal violations. This argument is not well-taken. First, the requirement that a medical marijuana producer permit the inspection of its premises and records are no different than the same inspection right required of many other San Jose businesses under the SJMC. (Compare SJMC, § 6.88.700 [inspection of medical marijuana dispensary records and premises] with SJMC, §§ 6.14.310 [inspection of automobile dismantling facility records and premises], 6.15.320 [inspection of auto body shop’s records and premises], 6.87.320 [inspection of tobacco retailer’s records and premises].) Given the general applicability of these inspection rights to other businesses, Hyland fails to demonstrate that the SJMC disclosure provisions are focused on detecting criminal violations. Second, Hyland does not identify the specific provisions that in Chapter 6.88 that warn of criminal violations or indicate that the SJMC disclosure provisions are criminal in nature. In any event, the fact that a particular statute is surrounded or references other criminal statutes does not establish that the statute is criminal in nature. (See People v. Kurtenbach (2012) 204 Cal.App.4th 1264, 1286 [finding Pen. Code, § 550, subd. (b)(3) was regulatory rather than criminal in nature].) Accordingly, the SJMC disclosure provisions reference to other criminal statutes would not establish that it is criminal in nature.

In addition, the City argues that the SJMC provisions concern essentially regulatory and non-criminal in nature. In this respect, it relies on SJMC section 6.88.010, which states that the purpose of the disclosure provisions is to prevent drug cartels, criminals, and gangs from cultivating or distributing medical marijuana without interfering with patients’ rights to use medical marijuana. As such, the City demonstrates that the purpose of the disclosure provisions is regulatory, rather than criminal in nature. (See U.S. v. Flores, supra, 753 F.2d at p. 1502 [rejecting a Fifth Amendment defense to a federal gun control act because “[t]he Act is not directed at catching illegal firearm exporters at the airport, but rather at helping the individual states regulate firearm distribution for the safety of their citizens by shutting off the flow of weapons across their borders”].)
Based on the foregoing, the second factor does not support Hyland’s assertion of the privilege.

3. Substantial Hazard of Self-Incrimination

Hyland claims that the SJMC disclosure provisions will subject him to a substantial hazard of self-incrimination. In this respect, he argues that the disclosure of the financial and operational information concerning the medical marijuana dispensary creates a real and appreciable danger of self-incrimination under federal narcotics laws. Hyland is correct that there is at least some possibility that these disclosures could subject him to federal prosecution. (See, e.g., U.S. v. Stacy (S.D. Cal. 2010) 734 F.Supp.2d 1074, 1083 [stating that there is no medical marijuana defense for violations of federal drug laws].) However, the threat of incrimination is not substantial. (California v. Byers (1971) 402 U.S. 424, 428 [stating that the mere possibility of incrimination is insufficient to defeat a regulatory statute].) Under federal law, the Department of Justice is currently prohibited from “wasting its limited law enforcement resources on prosecutions and asset forfeiture actions against medical marijuana patients and providers, including businesses that operate legally under state law.” (United States of America v. Marin Alliance for Medical Marijuana (N.D. Cal. 2015) _ F.Supp.3d _, 2015 WL 6123062, at *6 [quoting a letter to Attorney General Eric Holder from Congressmen Dana Rohrbacher and Sam Farr]; see also Pub.L. No. 113-235 (Dec. 12, 2014) 128 Stat. 2130 [stating that “None of the funds made available in this Act to the Department of Justice may be used, with respect to the States of … California [and 32 other states], to prevent such States from implementing their own State laws that authorize the use, distribution, possession, or cultivation of medical marijuana”].) Given that the disclosures at issue are unlikely to subject Hyland to prosecution under the federal drug laws, this factor does not support his assertion of the privilege.

4. Conclusion

In sum, the regulatory purpose of the SJMC, the fact that the disclosure requirements for medical marijuana dispensaries are broadly similar to those required for other businesses, and the present prohibition on the enforcement of federal drug laws against medical marijuana dispensaries all support a finding that the City’s need to regulate outweighs the Hyland’s Fifth Amendment right. Accordingly, Hyland’s demurrer to the FAC on this basis is OVERRULED.