LIBBY HAINES-MARCHEL and ROCK ISLAND CHRONICS, LLC, Dba CHRONICS, Appellants,
WASHINGTON STATE LIQUOR & CANNABIS BOARD, an Agency of the State of Washington, Respondent.
2012, Washington voters approved Initiative Measure 502. Laws
of 2013, ch. 3, codified as part of chapter 69.50 RCW.
Initiative 502 legalizes the possession and sale of marijuana
and creates a system for the distribution and sale of
recreational marijuana. Under RCW 69.50.325(3)(a), a retail
marijuana license shall be issued only in the name of the
applicant. No retail marijuana license shall be issued to a
limited liability corporation unless all members are
qualified to obtain a license. RCW 69.50.331 (1)(b)(iii). The
true party of interest of a limited liability company is
"[a]ll members and their spouses." Under RCW
69.50.331 (1)(a), the Washington State Liquor and Cannabis
Board (WSLCB) considers prior criminal conduct of the
applicant.Criminal history of eight or more points is
grounds for denial of a retail marijuana license
application. The WSLCB denied the application of Rock
Island Chronics LLC (Chronics LLC) for a retail marijuana
license based on the criminal history of the spouse of the
sole member of the limited liability company, Libby
Haines-Marchel. Chronics LLC and Haines-Marchel appeal the
WSLCB decision to deny the application for a retail marijuana
license. We affirm.
for a Retail Marijuana License
material facts are not in dispute. In 2013, Rock Island
Chronics LLC (Chronics LLC) submitted an application to the
Washington State Liquor and Cannabis Board (WSLCB) for a
retail marijuana license in Douglas County. The application
identifies Libby Haines-Marchel as the sole member and
manager of Chronics LLC with a "100%" ownership
interest. The application identifies Brock Marchel as her
WSLCB determines the maximum number of retail marijuana
locations for each county. WAC 314-55-081(1). If the number
of applications exceeds the allotted number, the WSLCB
conducts a lottery. Former WAC 314-55-081(1) (2013).
69.50.331(1) states the WSLCB shall conduct an evaluation of
the application. The WSLCB may consider the criminal history
of the applicant and has the discretion to grant or deny the
application for a marijuana license. RCW 69.50.331 (1)(a). If
the application "is disqualified for any reason, "
the WSLCB will issue a notice of intent to deny and "the
next application on the lottery list will take its
1, 2014, the WSLCB notified Chronics LLC that following the
lottery for Douglas County, its application was
"selected number 1 " The letter states, in
Your application was selected number 1.
We will begin processing applications for the allotted number
of stores in the coming weeks. If an application is
disqualified for any reason or withdrawn by the applicant,
the next application on the lottery list will take its place.
If an application appears to not qualify, a statement of
Intent to Deny will be issued with the right to appeal that
decision. Once all licenses have been issued in a
jurisdiction the remaining applications will be
Applicants selected in the lottery to move forward in the
licensing process are not guaranteed to receive a license.
The application must undergo our rigorous investigation
process and pass a final inspection prior to
RCW 69.50.331 (1)(b)(iii), "[n]o license of any kind may
be issued to" a corporation "unless all of the
members thereof are qualified to obtain a license." WAC
314-55-035 identifies "What persons or entities have to
qualify for a marijuana license."WAC 314-55-035(1)
defines the true parties of interest for a limited liability
company as "[a]ll members and their spouses" and
"[a]ll managers and their spouses." Because the
"marijuana license must be issued in the name(s) of the
true party(ies) of interest, " Chronics LLC had to
submit a "Personal/Criminal-History Form" for each
member and spouse of the limited liability company. WAC
December 2, 2014, WSLCB License Investigator Tim Lynch met
with Haines-Marchel. For the first time, Haines-Marchel
"disclosed that her spouse, Brock Marchel, is currently
incarcerated." Haines-Marchel told Lynch that she
"was hoping the power of attorney she holds will allow
her to complete the documents for him."
314-55-040 addresses consideration of criminal history for a
retail marijuana license. WAC 314-55-040(1) uses a
"point system" to determine if criminal history
prevents issuance of a retail marijuana license. Under WAC
314-55-040(1), a felony conviction is 12 points. Felony
convictions remain in effect for 10 years. WAC 314-55-040(1).
The WSLCB will not issue a retail marijuana license if an
applicant has "accumulated eight or more points."
asked Haines-Marchel to provide "more information on the
incarceration (the circumstances behind the incarceration and
when Brock may be released)." On December 11, Lynch sent
an e-mail to Haines-Marchel "regarding the requirement
for her husband to complete his own documents"-the
Personal/Criminal History Form. In response, Haines-Marchel
stated her spouse is incarcerated "for a homicide"
and "is serving a 44 ½ year"
sentence. On December 15, Haines-Marchel sent an
e-mail to Lynch and attached a copy of a "Spousal
Renunciation of Rights Affidavit" dated July 3, 2014.
The December 15 e-mail states, in pertinent part:
My husband is currently incarcerated for a homicide charge
and is serving a 44-1/2 year sentence with an ERD (earliest
possible release date) of 2038. The board knows of my
situation however I want to make you of [sic] aware that my
husband has relinquished all community rights to property
pursuant to RCW 26.16.050 which states "a spouse m[a]y
give grant sell or convey directly to the other his or her
community right title interest and all or any portion of
their community real property!.]" [M]y husband has no
community property interest in this business and is not a
true party of interest. I have attached my husband's
Spousal Renunciation of Rights Affidavit.
Spousal Renunciation of Rights Affidavit states Brock
"will relinquish, irrevocably deny and renounce any and
'all' ownership interest and management decisions in
Rock Island Chronics."
December 15, Lynch forwarded his report to the WSLCB
Marijuana Licensing and Regulation Division (Licensing
Division). The comment portion of the report states:
The applicant is currently married to Brock Marchel who
according to the applicant is serving time in prison for a
homicide conviction. The conviction is a felony that holds a
4414 year term. Although the spouse would like to give all
rights to the business over to his wife [WAC] 314-55-035
requires that all true parties of interest have to qualify
for a licenses [sic].
[WAC] 314-55-040 - what criminal history might prevent a
marijuana license applicant from receiving or keeping a
"Felony conviction["] -12 points. Because the
applicant did not complete a criminal history form it is
unclear what other conviction or charges he may have.
of Retail Marijuana License
January 12, 2015, the Licensing Division sent Chronics LLC a
"Statement of Intent to Deny Marijuana License."
The "Summary of Relevant Facts" states, in
2.2 [Haines-Marchel]'s spouse, Brock Marchel, is
currently incarcerated, serving a 44.5 year term for a
homicide conviction. Although the spouse would like to give
all rights to the business over to his wife, they remain
married in the state of Washington. WAC 314-55-035 requires
that all true parties of interest must qualify for a license.
"Relevant Authority and Conclusions" cite RCW
69.50.331(1) and WAC 314-55-035 and -040(1) as "grounds
3.1 The conduct outlined in paragraph 2.2 constitutes grounds
for denial of the marijuana license application under the
provisions of RCW 69.50.331(1) for the purpose of reviewing
any application for a license and for considering the denial,
suspension, revocation or renewal or denial thereof, of any
license, the state liquor control board may consider any
prior criminal conduct of the applicant.
3.2 The conduct outlined in paragraph 2.2 also constitutes
grounds for denial under the provisions of WAC 314-55-035 and
3.3 Paragraphs 3.1 through 3.2 above each establish a
separate and independently sufficient basis for denial.
LLC filed an administrative appeal of the Intent to Deny
Marijuana License application and a motion for summary
judgment. Chronics LLC argued that because Brock Marchel
disclaimed any interest in the limited liability company,
Haines-Marchel was the only true party of interest under WAC
314-55-035. Chronics LLC asserted the Spousal Renunciation of
Rights Affidavit "changed community property to separate
property solely in [Haines-Marchel]." Chronics LLC also
argued denial of the license application infringed on the
constitutional right of Haines-Marchel to work and earn a
living and violated state law on "[m]arital status
discrimination in employment."
Licensing Division filed a cross motion for summary judgment.
The Licensing Division asserted that under WAC 314-55-035 and
-040, Brock Marchel "remains a true party of
interest" and does not "qualify because of his
criminal history." The Licensing Division argued the
true party of interest for a limited liability company is not
based on "a community property interest in the
administrative law judge (ALJ) affirmed the decision of the
Licensing Division to deny the application for a retail
marijuana license. The "Initial Order on Summary
Judgment Motion" sets forth the undisputed facts:
4.6. Chronics applied for a marijuana retailer license during
the application window.
4.7. [The Licensing Division] required each applicant to
submit a Personal/Criminal History [Form].
4.8. Chronics is a limited liability company.
4.9. [The Licensing Division] required each member of a
limited liability company and the spouse of each member to
submit a Personal/Criminal History [Form].
4.10. Chronics's only member is Libby Haines-Marchel.
4.11. Ms. Haines-Marchel is married to Brock Marchel.
4.12. During the initial interview, Ms. Haines-Marchel
disclosed that Mr. Marchel is incarcerated. [The Licensing
Division] sought more information from her. Ms.
Haines-Marchel subsequently advised [the Licensing Division]
that Mr. Marchel is serving a 44.5-year term for a homicide
conviction and will be released no earlier than 2038.
4.13. On or about June 15, 2014, Mr. Marchel signed a Spousal
Renunciation of Rights Affidavit, whereby he irrevocably
relinquished any ownership or management interest in and any
rights to profits from Chronics, and renounced any community
property interest in Chronics that might otherwise be
attributed to him.
4.14. Mr. Marchel did not submit a Personal/Criminal History
[Form] nor did he provide a copy of his fingerprints.
Therefore, [the Licensing Division] was unable to determine
whether he had any criminal history in addition to his
homicide conviction. [The Licensing Division] assigned to Mr.
Marchel 12 criminal history points for the homicide
4.15. As a result of the 12 criminal history points assigned
to Mr. Marchel and consequently attributed to Chronics, [the
Licensing Division] denied Chronics's application for a
marijuana retailer license.
conclusions of law state, in pertinent part:
5.12. [The Licensing Division] may investigate and consider
criminal history when determining whether to grant an
applicant a license. RCW 69.50.331(1); WAC 314-55-020[(6)].
5.13. "A marijuana license must be issued in the name(s)
of the true party(ies) of interest." WAC 314-55-035.
5.14. For the purposes of Title 314 WAC, when the "true
party of interest" is a limited liability company, the
"persons to be qualified" are "all members and
their spouses". WAC 314-55-035(1). In other words, the
criminal history of both member and spouse are attributed to
the limited liability company. Here, Ms. Haines-Marchel is
the only member of Chronics, a limited liability company. Mr.
Marchel is her spouse. Therefore, he must qualify, or put
another way, if his criminal history disqualifies him, it
5.15. Chronics argued that [the Licensing Division] is
interfering with community property law. But the regulation
specifically limits its definition of "true party of
interest" to Title 314 WAC. Title 314 WAC addresses [the
Licensing Division's regulation of tobacco, liquor, and
marijuana. It does not address property rights, much less the
regulation, definition, or application of property rights.
Thus, WAC 314-55-035(1) does not clash with community
5.16. Chronics argued that Mr. Marchel disclaimed any and all
property rights, interest, and control as to Chronics.
However, the definition of "true party of
interest", or perhaps more correctly "persons to be
qualified" is based upon the relationship of the
individual to either the limited liability company or a
member of the limited liability company. It has nothing to do
with property rights, interest, or control. Further,
"true party of interest" is specifically
distinguishable from "financiers" (WAC
314-55-035(3)) and "persons who exercise control of
business" (WAC 314-55-035(4)). Accordingly, that Mr.
Marchel disclaimed any and all property rights, interest, and
control as to Chronics is not relevant.
5.17. Therefore, for the purposes of Title 314 [WAC] and for
the purposes of Chronics qualifying for licensure, Mr.
Marchel is a "true party of interest" and a
"person to be qualified" and his criminal history
must not disqualify him from licensure.
5.18. Mr. Marchel's failure to meet the criminal history
standards outline[d] in WAC 314-55-040 constitutes a basis
for [the Licensing Division] to deny Chronics's marijuana
license application. WAC 314-55-050(4).
5.19. More specifically, a criminal history accumulating
eight or more points as described in WAC 314-55-040(1) is
grounds for denying a marijuana license application. WAC
5.20. Here, Mr. Marchel is serving time for a felony
conviction. A current felony conviction is assigned 12
criminal history point[s]. WAC 314-55-040(1). So, Mr.
Marchel's criminal history points are 12. Moreover, this
conviction is not subject to the exceptions expressed in WAC
314-55-040(3). Further, Mr. Marchel has never submitted a
criminal history [form] or submitted to [a Licensing
Division] investigation of the criminal history. He may have
additional criminal history points for conduct of which [the
Licensing Division] is unaware. [The Licensing Division] will
not normally issue a license to an applicant with eight or
more criminal history points. WAC 314-55-040(1).
5.21. Here, by virtue of Mr. Marchel's criminal history
points, Chronics exceeds the regulatory threshold for a
negative criminal history and its application should, be
LLC filed a petition for review with the WSLCB. The petition
asserts the Licensing Division exceeded its statutory
authority by denying the application of Chronics LLC and
violated the procedural due process rights of Haines-Marchel.
WSLCB affirmed the ALJ decision and entered a "Final
Order" adopting the Initial Order on Summary Judgment.
The Final Order states, in pertinent part:
The Licensing Division of the Liquor and Cannabis Board
issued a Statement of Intent to Deny Marijuana License dated
January 12, 2015, asserting that the Applicant's spouse,
Brock Marchel, is currently incarcerated, serving a 44.5 year
term for a homicide conviction. Although the Applicant's
spouse has offered to disavow any interest in the business or
proceeds from it, the Applicant and her spouse remain married
in the state of Washington. WAC 314-55-035 requires that all
true parties of interest must qualify for a license. Mr.
Marchel's criminal history makes him ineligible for a
marijuana license. In addition, he has not completed the
personal/criminal history portion of the application, thus
the Board has been unable to determine whether he may have
additional disqualifying criminal history.
... [T]he Administrative Law Judge's Initial Order on
Summary Judgment Motion: Denying Applicant's Motion for
Summary Judgment and Granting Agency's Cross Motion for
Summary Judgment is AFFIRMED and adopted as the Final Order
of the Board.