I. BACKGROUND

We take the facts from the operative first amended complaint. Plaintiff Granny

Purps, Inc. operates a medical marijuana dispensary in Santa Cruz County that grows and provides medical marijuana to its 20,000 members. It does so in compliance with state

laws governing the production and distribution of marijuana for medical purposes.

The County of Santa Cruz restricts cannabis cultivation. A local ordinance

prohibits any medical cannabis operation from cultivating more than 99 plants, while

plaintiff’s dispensary was growing thousands of marijuana plants. As a result, law

enforcement officers from the county sheriff’s office went to the dispensary in June 2015

and seized about 1,800 plants. The county also issued plaintiff a notice of ordinance

violation. Several months later, law enforcement officers again went to the dispensary

and took about 400 more marijuana plants.

Plaintiff sued the county and two sheriff's deputies in July 2016. The complaint

asserted claims for monetary damages, alleging causes of action for conversion, trespass,

and inverse condemnation. Plaintiff also sought an order requiring the county to return

the seized cannabis plants, by way of a writ of mandate, injunctive relief, and a cause of

action for specific recovery of property. Plaintiff also requested a judgment declaring

that the county cannot lawfully seize cannabis plants from a dispensary operating in

compliance with state medical marijuana laws.

The county demurred to the complaint on the grounds that it failed to state a valid

cause of action and the claims were time barred. The trial court sustained the demurrer

without leave to amend and entered judgment for defendants.

II. DISCUSSION

The county argues the demurrer was properly sustained for two primary reasons:

the claims seeking return of property cannot succeed because plaintiff was in violation of

2 the ordinance restricting cannabis cultivation; and the claims for damages are barred by

the statute of limitations for suits against a government entity. Our review of a decision

sustaining a demurrer is de novo. (Martin v. Bridgeport Community Assn., Inc. (2009)

173 Cal.App.4th 1024, 1031.) We independently review the complaint, assume its

factual allegations are true, and determine whether it states a cause of action under any

legal theory. (Ibid.)

A. CLAIMS FOR RETURN OF SEIZED PROPERTY

Plaintiff seeks an order compelling the county to return the seized marijuana

plants. As a general proposition, a government agency cannot retain an individual’s

property without providing due process of law. (Ensoniq Corp. v. Superior Court (1998)

65 Cal.App.4th 1537, 1548–1549.) Someone whose property is wrongfully withheld by

the government may bring a cause of action specifically for an order compelling return of

the property. (Minsky v. City of Los Angeles (1974) 11 Cal.3d 113, 121–123.) But the

right to regain property withheld by the government is not absolute. One exception

applies to property lawfully seized for use as evidence in a criminal action while the

action is pending. (People v. Lamonte (1997) 53 Cal.App.4th 544, 549.) Another

exception applies to illegal property. The state can retain property that is illegal to

possess, whether it was lawfully seized or not. (Ensoniq Corp., supra,

65 Cal.App.4th 1537, 1548.) It is that second exception the county relies on here. The

county asserts that because plaintiff’s dispensary violated a local ordinance restricting

cannabis cultivation within the county, the marijuana was illegally possessed and plaintiff

has no right to its return.

3 The illegal property exception applies only where the property in question is per se

illegal to possess. (See Minsky v. City of Los Angeles, supra, 11 Cal.3d 113, 121

[government is a bailee of seized property unless it is shown to be contraband]; People v.

Lamonte, supra, 53 Cal.App.4th 544, 552 ); see also United States v. Harrell

(9th Cir. 2008) 530 F.3d 1051, 1057 [“An object is contraband per se if its possession,

without more, constitutes a crime; or in other words, if there is no legal purpose to which

the object could be put.”].) We must therefore determine if the seized marijuana is

contraband per se.

Marijuana, at least for medical purposes, has been legal to possess in California

since 1996. The Compassionate Use Act (Health & Saf. Code, § 11362.5) made

“ ‘possession and cultivation … noncriminal for a qualified patient or primary

caregiver.’ ” (City of Garden Grove v. Superior Court (2007) 157 Cal.App.4th 355, 373.)

For qualifying individuals, possession and cultivation of marijuana became “just as

lawful as the ‘possession and acquisition of any prescription drug.’ ” (Id. at p. 372.)

Protections for medical marijuana increased in 2003 with the passage of the California

Medical Marijuana Program Act (Health & Saf. Code, § 11362.71, et seq.), which

decriminalized medical marijuana-related activities beyond mere possession. The

Legislature “exempted those qualifying patients and primary caregivers who collectively

or cooperatively cultivate marijuana for medical purposes from criminal sanctions for

possession for sale, transportation or furnishing marijuana, maintaining a location for

unlawfully selling, giving away, or using controlled substances, managing a location for

the storage, distribution of any controlled substance for sale, and the laws declaring the

4 use of property for these purposes a nuisance.” (People v. Urziceanu (2005)

132 Cal.App.4th 747, 785.)1

Significantly, California laws allowing access to medical marijuana do not limit

the ability of a local government to make land use decisions. A local government’s

inherent police power gives it broad authority to determine the appropriate uses of land

within its jurisdictional boundary. (City of Riverside v. Inland Empire Patients Health &

Wellness Center, Inc. (2013) 56 Cal.4th 729, 738 (City of Riverside).) As a result, a local

government can by zoning ordinance determine that a medical marijuana dispensary is

not an allowed land use anywhere in the jurisdiction. (See Ibid. [upholding Riverside’s

ban on medical marijuana dispensaries within city limits].) Similarly, a local legislative

body can restrict or disallow entirely the cultivation of medical cannabis. (See County of

Tulare v. Nunes (2013) 215 Cal.App.4th 1188, 1203.) Those local land use restrictions

have been held not to conflict with state laws permitting medical marijuana because of

the narrow scope of the state laws, which merely created an exception to the criminal

laws regulating the possession and use of marijuana. (City of Riverside, supra, at p. 746.)

An exemption from state criminal laws does not preempt local land use regulation. (Id. at

p. 749.)

1After the events in this case, the marijuana laws changed again, with the passage of Proposition 64 in November 2016. That initiative legalized marijuana for recreational use by adults. (City of Vallejo v. NCORP4, Inc. (2017) 15 Cal.App.5th 1078, 1081.) Adults over age 21 can now possess up to 28.5 grams of marijuana. (Health & Saf. Code, § 11362.1, subd. (a)(1).) No one has suggested the new law has any effect on the issues presented here. 5 The stated purpose of the Santa Cruz County ordinance at issue is “to prohibit

medical cannabis cultivation while granting limited immunity from the enforcement of its

prohibition to those medical cannabis cultivation activities that do not violate [certain

restrictions].” (Santa Cruz County Code, § 7.126.010.) It accomplishes that purpose by

declaring all cultivation of cannabis within the county by any cannabis cultivation

business to be a prohibited activity constituting a public nuisance. (Id., § 7.126.030.) At

the same time, the ordinance grants limited immunity from its provisions for any medical

cannabis cultivation business that does not cultivate more than 99 marijuana plants and

complies with certain other requirements. (Id., § 7.126.040.) Taken together, these

provisions essentially impose a 99-plant limit on medical cannabis cultivation within the

county, which is a permissible exercise of the County’s inherent authority to regulate for

public health, safety and welfare.

The County insists its cannabis restriction is a health and safety ordinance and not

a land use regulation, noting that the ordinance is codified in Title 7 of the County Code

which is entitled “Health and Safety.” But on its face the ordinance restricts the manner

in which land can be used, effectively making it a zoning regulation. (See City of

Riverside, supra, 56 Cal.4th 729, 754 [ordinance prohibiting marijuana-related activities

on land within the jurisdiction is a zoning regulation].) And the County is not helped by

characterizing its regulation as something other than zoning. Local land use regulation is

clearly allowed under the state marijuana laws, whereas other regulation of medical

marijuana risks state preemption. (See Id. at p. 754, fn. 8 [state medical marijuana laws

preserved “the authority of local jurisdictions to decide whether local land may be used to

6 operate medical marijuana facilities.”].) The County’s label is ultimately

inconsequential. It is the effect of the ordinance that matters here.

A valid local ordinance restricting the number of marijuana plants that can be

cultivated does not change the status of medical marijuana under state criminal law (nor

could it, as any attempt to do so would be preempted). (People v. Ahmed (2018)

25 Cal.App.5th 136, 143.) Possession of medical cannabis, by those qualified according

to state law, is not a crime. That necessarily means that marijuana possessed for medical

purposes in compliance with state standards is not contraband per se. The concept that

marijuana is not contraband subject to seizure by law enforcement is relatively new;

marijuana (medical or otherwise) for so long was contraband that we may be conditioned

to think of it as such. But with medical marijuana now as legal as “any prescription

drug,” a local ordinance cannot make it illegal to possess, even while the locality remains

free to limit or prohibit commercial dispensing or cultivation. (City of Garden Grove v.

Superior Court, supra, 157 Cal.App.4th 355, 372.)

Plaintiff alleges in the complaint that its cultivation and possession of marijuana

were fully compliant with applicable state laws. We must assume that is true for

purposes of our review, because this case comes to us on demurrer. Based on that

allegation, the marijuana seized by law enforcement is not contraband, and plaintiff can

assert a valid cause of action seeking its return. (See City of Garden Grove v. Superior

Court, supra, 157 Cal.App.4th 355, 362 [local governments are bound by state laws and

“must return materials the state considers legally possessed.”].) The demurrer to the

causes of action for specific return of property, for mandamus relief compelling the return

7 of the seized marijuana, and for declaratory relief therefore should have been overruled.2

(The county’s assertion that a declaratory judgment is a remedy and not an independent

cause of action is incorrect: declaratory relief is a cause of action, one that can be

maintained as long there is an existing legal controversy alleged. (City of Cotati v.

Cashman (2002) 29 Cal.4th 69, 80.) In contrast, the operative complaint also contains a

cause of action entitled “preliminary and permanent injunction”; because injunctive relief

is a remedy rather than a standalone cause of action, the demurrer to that claim was

properly sustained. (McDowell v. Watson (1997) 59 Cal.App.4th 1155, 1159.))

At this procedural stage, plaintiff has the benefit of our accepting as true that its

cultivation of marijuana complied with state law. But to succeed on its claims for return

of property, it will need to prove that fact (among others). If plaintiff was cultivating

marijuana in a manner not allowed by state law, the marijuana would indeed be

contraband and not subject to return. (See Littlefield v. County of Humboldt (2013)

218 Cal.App.4th 243, 256 [summary judgment for county properly granted in action for

wrongful seizure of medical marijuana because grower failed to present evidence

marijuana was being cultivated in compliance with state law]; see also Chavez v.

Superior Court (2004) 123 Cal.App.4th 104, 110 [no right to return of marijuana where

its possession was not in compliance with state law].)

2 The County argues in a footnote that these causes of action are outside the scope of the leave to amend allowed by a prior order sustaining its demurrer to plaintiff’s initial complaint. But the county did not demur to the first amended complaint on that ground, nor raise the argument in the trial court at any time. The argument has therefore been forfeited for appeal. 8 We also observe that limits on law enforcement’s power to seize legitimate

medical marijuana as contraband does not prevent a locality from enforcing a valid

ordinance regulating medical marijuana cultivation. Local governments can cite violators

(an enforcement mechanism specifically provided for in the ordinance here [see Santa

Cruz County Code, § 7.126.070 (A)]), and local governments can seek an injunction to

stop a prohibited use of land. (See, e.g., City of Riverside, supra, 56 Cal.4th 729, 738;

County of Tulare v. Nunes, supra, 215 Cal.App.4th 1188, 1194.) But individual property

rights, including the right to the return of non-contraband property from the government,

are not diminished by the inherent power of local governments to regulate uses of land.

B. APPLICATION OF THE GOVERNMENT CLAIMS ACT

In addition to the claims seeking return of property, plaintiff seeks damages for

trespass, conversion, and inverse condemnation. Claims for money damages against a

public entity are subject to the Government Claims Act (Gov. Code, § 900 et seq.), which

limits the time for filing a lawsuit to six months from the entity’s written notice of its

refusal to pay a claim. (Gov. Code, § 945.6, subd. (a).)

Plaintiff commenced its lawsuit within six months of the county’s rejection of the

two claims for damages it submitted. But plaintiff is a corporation, and at the time it filed

the lawsuit its corporate status was suspended by the Secretary of State for failure to pay

taxes. A suspended corporation loses all rights and privileges under the law, including

the right to prosecute a lawsuit. (City of San Diego v. San Diegans for Open Government

(2016) 3 Cal.App.5th 568, 577.) Plaintiff ultimately paid the taxes it owed and revived

its corporate status, but not until after the six-month limitations period had expired.

9 Plaintiff contends its suit for damages is nonetheless timely under the rule that a

revival of corporate powers retroactively validates any procedural actions taken during

the period of suspension. (See Longview International, Inc. v. Stirling (2019)

35 Cal.App.5th 985, 990.) But application of a statute of limitations is a substantive

defense, not a procedural matter. A corporate revivor that occurs after the time to

commence an action has expired does not retroactively validate a lawsuit filed during

corporate suspension. (ABA Recovery Services, Inc. v. Konold (1988) 198 Cal.App.3d

720, 725.) Plaintiff’s causes of action for damages are therefore time barred under the

Government Claims Act.

The county argues that the statute of limitations applicable to monetary claims

against public entities bars the entire complaint, including the causes of action in equity

seeking return of the marijuana plants. It bases that argument on the complaint's

alternative prayer that, in the event the property is not returned, plaintiff be awarded full

replacement value. We reject the county’s argument because a claim seeking return of

property withheld by the government is not subject to the Government Claims Act “even

though some or all of the property may have been dissipated and [the defendant] may be

compelled to respond in damages in lieu of property.” (Holt v. Kelly (1978)

20 Cal.3d 560, 565.) Were it otherwise, a government entity could convert a “wrongful

dissipation of the property into an advantage by using it to support an essentially dilatory

defense based on failure to comply with the claims statutes.” (Ibid.)

Another of plaintiff’s claims that is not subject to the Government Claims Act is

its cause of action for inverse condemnation, a theory of recovery rooted in the state

10 constitution. (Pacific Bell v. City of San Diego (2000) 81 Cal.App.4th 596, 603.) But

that cause of action fails for a different reason: the complaint’s allegations are

insufficient to state a claim. An inverse condemnation action may be brought by an

individual whose property was either taken or damaged by the government for a public

purpose. (Customer Co. v. City of Sacramento (1995) 10 Cal.4th 368, 377.) An essential

element of the claim is that the property was taken for public use or damaged in

connection with a public work of improvement. (Ibid.) Here, the marijuana was seized

in connection with enforcing the ordinance prohibiting cultivation, violation of which is a

criminal offense. (See Santa Cruz County Code §§ 7.126.070 (A); 19.01.030(A).) But

inverse condemnation has never been applied “to require a public entity to compensate

a property owner for property damage resulting from the efforts of law enforcement

officers to enforce the criminal laws.” (Customer Co. v City of Sacramento, supra, at

p. 377–378.) The complaint contains no allegation indicating the marijuana was taken

for public use or damaged in connection with a public work of improvement, so it

does not state a cause of action for inverse condemnation.

The demurrer was properly sustained as to the causes of action seeking

damages (trespass, conversion, and inverse condemnation).

C. COUNTY’S REQUEST FOR JUDICIAL NOTICE AND MOTION TO DISMISS

The county requests that we take judicial notice of a stipulated judgment it

obtained against plaintiff in another action, and asserts the judgment contains certain

admissions that categorically bar plaintiff’s claims in this case. We deny the request for

11 judicial notice because it was not made in the trial court, and the county’s arguments

based on it are being raised for the first time on appeal. (See Vons Companies, Inc. v.

Seabest Foods, Inc. (1996) 14 Cal.4th 434, 444 fn. 3 [“Reviewing courts generally do not

take judicial notice of evidence not presented to the trial court. Rather, normally ‘when

reviewing the correctness of a trial court's judgment, an appellate court will consider only

matters which were part of the record at the time the judgment was entered.’ ”].)

We also deny the County’s motion to dismiss, filed after briefing was complete.

The County asserts we should exercise our discretion to dismiss the appeal because

plaintiff’s corporate status has again been suspended and an assignment of rights it

apparently made to a third party is ineffective to allow the litigation to continue.

Resolving that issue would require significant fact finding and consideration of matters

outside the record. That is inconsistent with our role as a reviewing court and something

for which the trial court is much better equipped. We will deny the motion to dismiss

without prejudice to the County raising the issue in the trial court on remand.

III. DISPOSITION

The judgment is reversed. The matter is remanded to the trial court with

directions to vacate its order sustaining the demurrer to the first amended complaint and

to enter a new order sustaining the demurrer without leave to amend as to the causes of

action for trespass, conversion, inverse condemnation, and injunctive relief; and

overruling the demurrer as to the petition for a writ of mandate and the causes of action

for specific recovery of property and for declaratory relief.

Appellant shall recover its costs on appeal.

12 ____________________________________ Grover, J.

WE CONCUR:

____________________________ Elia, Acting P. J.

____________________________ Danner, J.

H045387 - Granny Purps, Inc. v. County of Santa Cruz et al. Trial Court: Santa Cruz County Superior Court Superior Court Case No. 16-CV-01899

Trial Judge: Hon. Paul P. Burdick

Counsel for Plaintiff/Appellant GRANNY Andrew F. Pierce PURPS, INC. Pierce & Shearer LLP

Counsel for Defendant/Respondent Jordan Sheinbaum COUNTY OF SANTA CRUZ Office of the Santa Cruz County Counsel