Marriage of Humphrey — Civil Procedure

2018 COA 31

• Court: Colorado Court of Appeals
• Decided: March 8, 2018
• Docket: 16CA1869
• Status: Published

Opinion

The summaries of the Colorado Court of Appeals published opinions constitute no part of the opinion of the division but have been prepared by the division for the convenience of the reader. The summaries may not be cited or relied upon as they are not the official language of the division. Any discrepancy between the language in the summary and in the opinion should be resolved in favor of the language in the opinion.

SUMMARY March 8, 2018

2018COA31

No. 16CA1869, Marriage of Humphrey — Civil Procedure — Receivers — Professions and Occupations — Colorado Medical Marijuana Code — Colorado Retail Marijuana Code — Licensing

A division of the court of appeals decides, as a matter of first

impression, whether a district court’s power to appoint a receiver

trumps Colorado’s marijuana licensing laws. Here, the appointed

receiver was not licensed to operate marijuana businesses as

required by the Colorado Retail Marijuana Code and the Colorado

Medical Marijuana Code.

The division holds that courts may only appoint receivers for

marijuana businesses who are licensed under Colorado marijuana

licensing laws.

Accordingly, the division reverses the district court’s order and

remands the case with directions. COLORADO COURT OF APPEALS 2018COA31

Court of Appeals No. 16CA1869 City and County of Denver District Court No. 16DR30252 Honorable Lael Montgomery, Judge

In re the Marriage of

Kelsey M. Yates,

Petitioner-Appellee,

and

Kiri A. Humphrey,

Respondent,

and Concerning Sterling Consulting Corporation, Receiver,

Appellee,

v.

Michael S. Hartman, in his official capacity as the Executive Director of the Colorado Department of Revenue and State Licensing Authority for the Marijuana Enforcement Division,

Intervenor-Appellant.

ORDER REVERSED AND CASE REMANDED WITH DIRECTIONS

Division VII Opinion by JUDGE BERGER Bernard and Freyre, JJ., concur

Announced March 8, 2018

Griffiths Law PC, Carolyn Witkus, Jon Eric Stuebner, Lone Tree, Colorado, for Petitioner-Appellee Fairfield and Woods PC, John M. Tanner, Denver, Colorado, for Appellee

Cynthia H. Coffman, Attorney General, Claudia Brett Goldin, First Assistant Attorney General, J. Alan Call, Senior Assistant Attorney General, Denver, Colorado, for Intervenor-Appellant ¶1 The question before us is whether a court may appoint a

receiver for a marijuana business if that receiver does not possess

the licenses required by Colorado’s marijuana licensing laws. We

hold that, although courts have the equitable power to appoint

receivers, they must make such appointments in compliance with

the marijuana licensing laws enacted by the General Assembly.

¶2 Because the district court erroneously concluded that its

power to appoint a receiver trumped the marijuana licensing laws,

we reverse the receivership order.

I. Relevant Facts and Procedural History

¶3 Petitioner-Appellee Kelsey M. Yates (Wife) filed a petition to

dissolve her marriage to respondent-appellee Kiri A. Humphrey.

She requested the appointment of a receiver over marital property,

which included the “Frosted Leaf” group of businesses (the

marijuana businesses). The marijuana businesses included a

number of licensed medical and recreational marijuana entities.

¶4 The court granted Wife’s request for a receiver and appointed

appellee Sterling Consulting Corporation (Receiver). The Receiver’s

principal is Richard Block. The receivership order authorized the

Receiver to “take immediate control of the [businesses] and operate

1 the [businesses] on the Court’s behalf in custodia legis.” The

Receiver had the “powers and duties” to “manage, operate,

maintain, repair, and otherwise control the [businesses] as

necessary to preserve [them].”

¶5 It is undisputed that when the court entered the receivership

order, neither Mr. Block nor his employees held the licenses

required by section 12-43.3-103(2)(e), C.R.S. 2017, of the Colorado

Medical Marijuana Code, and section 12-43.4-104, C.R.S. 2017, of

the Colorado Retail Marijuana Code, to own, operate, manage,

control, or work in a licensed marijuana business.

¶6 After it learned of the receivership order, appellant, the

Executive Director of the Colorado Department of Revenue, officially

acting as the State Licensing Authority (SLA), moved to intervene

under C.R.C.P. 24. The SLA moved to modify the receivership order

by removing Sterling Consulting Corporation as the Receiver, at

least until Block and his employees obtained the requisite licenses.1

After a hearing, the court granted the SLA’s motion to intervene,

1 The SLA offered to expedite the licensing application process for the Receiver and its employees.

2 but denied the motion to modify the receivership order.2 The SLA

now appeals that order.3

II. Analysis

¶7 We begin by distinguishing what is at issue in this case from

what is not. The SLA does not challenge the district court’s

authority to appoint receivers for marijuana businesses. Instead,

the SLA only challenges the court’s authority to appoint receivers

who are not licensed to operate marijuana businesses.4

A. Equitable Powers of the Court

¶8 Courts of equity have inherent power to appoint receivers.

Johnson v. El Paso Cattle Co., 725 P.2d 1180, 1182-83 (Colo. App.

1986). This power is codified by C.R.C.P. 66. Consequently, “[t]he

2 After the hearing, two of the Receiver’s employees, but not Richard Block, obtained occupational licenses under Colorado’s marijuana licensing laws. 3 We have appellate jurisdiction to hear this case under C.A.R.

1(a)(4), which provides that an order appointing a receiver is appealable. 4 At oral argument, for the first time, the SLA argued that

paragraph sixteen of the receivership order, which states that any actions brought against the marijuana businesses or the Receiver are stayed “absent express permission” of the appointing court was beyond the authority of the district court. We do not address this argument because it was asserted for the first time at oral argument. McGihon v. Cave, 2016 COA 78, ¶ 10 n.1.

3 appointment of a receiver is governed by general equitable

principles.” Premier Farm Credit, PCA v. W-Cattle, LLC, 155 P.3d

504, 519 (Colo. App. 2006).

¶9 But, “[c]ourts of equity can no more disregard statutory and

constitutional requirements and provisions than can courts of law.”

Immigration & Naturalization Serv. v. Pangilinan, 486 U.S. 875, 883

(1988) (quoting Hedges v. Dixon Cty., 150 U.S. 182, 192 (1893)); see

also Armstrong v. Driscoll Constr. Co., 107 Colo. 218, 222, 110 P.2d

651, 653 (1941). “The courts of a jurisdiction cannot authorize

violations of that jurisdiction’s laws, unless pursuant to the

command of a higher law. It is a fundamental tenet of a

separation-of-powers doctrine that a court’s enforcement powers

are restricted by the dictates of the legislature.” LaShawn A. v.

Barry, 144 F.3d 847, 853 (D.C. Cir. 1998); see also Baker v. David

Alan Dorfman, P.L.L.C., 232 F.3d 121, 122 (2d Cir. 2000). The

Receiver has not cited, and we have not found, any authority

supporting the proposition that when a district court appoints a

receiver the court can disregard marijuana licensing laws enacted

by the General Assembly.

4 B. Colorado Marijuana Licensing Laws

¶ 10 “The General Assembly may prohibit practice of a profession or

operation of a facility in the absence of a statutorily-prescribed

license or permit.” Kourlis v. Dist. Court, 930 P.2d 1329, 1333

(Colo. 1997). The General Assembly exercised this authority when

it prohibited the operation of both medical and recreational

marijuana businesses unless the businesses’ owners and employees

hold the licenses prescribed by statute. § 12-43.3-103(2)(e); § 12-

43.4-104(4).

¶ 11 Moreover, the Colorado Constitution provides as follows:

In the interest of the health and public safety of our citizenry, the people of the state of Colorado further find and declare that marijuana should be regulated in a manner similar to alcohol so that:

...

Legitimate, taxpaying business people, and not criminal actors, will conduct sales of marijuana.

Colo. Const. art. XVIII, § 16(1)(b)(IV). Both the Colorado Retail and

Medical Marijuana Codes similarly state that the licensing of the

marijuana industry, as a part of those codes, “shall be deemed an

exercise of the police powers of the state for the protection of the

5 economic and social welfare and the health, peace, and morals of

the people of this state.” § 12-43.3-102(1), C.R.S. 2017; § 12-43.4-

102(1), C.R.S. 2017. Thus, both the people of Colorado and the

General Assembly have expressed that the regulation of persons

engaged in marijuana businesses is an important state interest.

¶ 12 In 2010, the General Assembly enacted the Colorado Medical

Marijuana Code, sections 12-43.3-101 to -1102, C.R.S. 2017, which

sets forth “the exclusive means by which manufacture, sale,

distribution, and dispensing of medical marijuana may occur in the

state of Colorado,” § 12-43.3-103(2)(e). The code requires not only

licenses for medical marijuana businesses themselves, but also

“[o]ccupational licenses” for “owners, managers, operators,

employees, contractors, and other support staff employed by,

working in, or having access to restricted areas of the licensed

premises, as defined by the state licensing authority.” § 12-43.3-

401(1)(d), C.R.S. 2017; see also Dep’t of Rev. Rule M 204.5(B)(3), 1

Code Colo. Regs. 212-1. “It is unlawful for a person to exercise any

of the privileges granted under a license other than the license that

the person holds or for a licensee to allow any other person to

6 exercise the privileges granted under the licensee’s license.” § 12-

43.3-310(8)(a), C.R.S. 2017.

¶ 13 Two years later, the General Assembly enacted the Colorado

Retail Marijuana Code, which requires similar business and

occupational licenses for the retail marijuana industry. See § 12-

43.4-312(2), C.R.S. 2017; see also Dep’t of Rev. Rule R 204.5(B)(3),

1 Code Colo. Regs. 212-2. The Colorado Retail Marijuana Code also

makes it unlawful “for a person to exercise any of the privileges

granted under a license other than the license that the person holds

or for a licensee to allow any other person to exercise the privileges

granted under the licensee’s license.” § 12-43.4-309(7)(a), C.R.S.

2017.

¶ 14 Thus, under both the Colorado Medical Marijuana Code and

the Colorado Retail Marijuana Code, no person may operate a

marijuana establishment without the required licenses. See § 12-

43.3-313(3), C.R.S. 2017; § 12-43.4-312(2). To operate a marijuana

establishment without these licenses is a criminal offense. § 12-

43.3-901(2), C.R.S. 2017; § 12-43.4-901(2)(a), C.R.S. 2017.

7 C. The District Court Erroneously Appointed Sterling Consulting Corporation as a Receiver

¶ 15 The district court thought that its authority to appoint a

receiver was not subject to the statutory licensing requirements and

therefore gave the Receiver the “powers and duties” to “manage,

operate, maintain, repair, and otherwise control the [businesses] as

necessary to preserve [them],” even though the Receiver did not

have the licenses required by either the Colorado Medical Marijuana

Code or the Colorado Retail Marijuana Code.5 The court reasoned

that its power to appoint a receiver trumped the laws requiring

persons operating marijuana businesses to be licensed. Because

the court’s power to appoint receivers for marijuana businesses is

not in conflict with the licensing laws, we reject this argument. As

well, “it is not an appropriate function of the court to act as a

licensing agency,” Kourlis, 930 P.2d at 1337, and undertake the

5 Wife argues that the receivership order does not give control of the businesses to the Receiver because the businesses remain in the possession of the court. We disagree because this misperceives the actual relationship between the court and the Receiver. The receivership order grants plenary authority to the Receiver to operate the marijuana businesses. The suggestion that the Receiver must ask the court for approval before making every decision regarding the operation of the marijuana businesses is unsupported.

8 agency’s role in determining who may operate marijuana

businesses.

¶ 16 Wife argues that receivers are exempt from holding the

statutorily prescribed licenses to operate marijuana businesses

because receivers are “governmental organizations” and not

“persons” under either the Colorado Medical Marijuana Code or the

Colorado Retail Marijuana Code. We disagree. A receiver “is an

officer of [the] court, appointed by the court, directed by the court,

and paid by the court from the funds in the court. He is in no

sense an agent or employee or officer of the United States.”

Cromelin v. United States, 177 F.2d 275, 277 (5th Cir.

1949), superseded by statute on other grounds as stated in Bell v.

Thornburg, 743 F.3d 84, (5th Cir. 2014).

¶ 17 Further, contrary to the arguments made by both Wife and the

Receiver, requiring courts to appoint receivers who comply with

Colorado’s marijuana licensing laws does not impermissibly limit

courts’ equitable powers and prohibit them from appointing

receivers to operate marijuana businesses. This requirement

9 merely obligates courts, like everyone else, to comply with the law

in appointing such receivers.6

¶ 18 Wife and the Receiver also make numerous policy arguments

against requiring courts to appoint receivers who comply with

Colorado’s marijuana licensing laws. We do not address these

arguments because the language of the Colorado Medical Marijuana

Code and the Colorado Retail Marijuana Code unambiguously

requires a person operating a marijuana business to be licensed.

See §§ 12-43.3-313(3); 12-43.4-312(2).7 “When a statute is

unambiguous, public policy considerations beyond the statute’s

plain language have no place in its interpretation.” Samuel J.

Stoorman & Assocs., P.C. v. Dixon, 2017 CO 42, ¶ 11.

6 Neither Wife nor the Receiver contends that it is impossible to find receivers who are licensed under the marijuana licensing laws. The SLA represents to us that district courts have appointed licensed receivers for other marijuana businesses. At oral argument, the Receiver acknowledged that it does not base its arguments for affirmance on a claim that it is impossible to appoint receivers that have the appropriate licenses for marijuana businesses. 7 We acknowledge that the Colorado Liquor Code provides for

temporary licenses when receivers are appointed. § 12-47-303(5), C.R.S. 2017. No such provision appears in either the Medical or Retail Marijuana Code. Nevertheless, we reject the parties’ reliance on this provision (or its absence) because it does not affect the district court’s obligation to follow the law when appointing receivers for marijuana businesses.

10 ¶ 19 Thus, we hold that the district court may only appoint a

receiver who complies with Colorado’s marijuana licensing laws.

III. Conclusion

¶ 20 The district court’s order appointing the Receiver is reversed,

and the court is instructed to vacate the order and terminate the

appointment of the existing Receiver, unless, as of the date of the

issuance of the mandate of this court, the Receiver has obtained the

necessary licenses. The district court, in the exercise of its

discretion, may appoint a substitute receiver who complies with the

licensing requirements of the Colorado Medical Marijuana and

Retail Marijuana Codes.

JUDGE BERNARD and JUDGE FREYRE concur.