New Age Care, LLC v. Caroline Juran, Executive Director

COURT OF APPEALS OF VIRGINIA
Present: Judges O’Brien, Malveaux and Senior Judge Clements
Argued at Richmond, Virginia
PUBLISHED
NEW AGE CARE, LLC
OPINION BY
v. Record No. 1070-19-2 JUDGE MARY GRACE O’BRIEN
JANUARY 7, 2020
CAROLINE JURAN, EXECUTIVE DIRECTOR,
VIRGINIA BOARD OF PHARMACY AND
DHARMA PHARMACEUTICALS, LLC
FROM THE CIRCUIT COURT OF HENRICO COUNTY
L. A. Harris, Jr., Judge
Gregory J. DuBoff (Stanley A. Roberts; McGuire Woods LLP, on
briefs), for appellant.
James E. Rutkowski, Assistant Attorney General (Mark R. Herring,
Attorney General; Cynthia V. Bailey, Deputy Attorney General;
Allyson K. Tysinger, Senior Assistant Attorney General, on brief),
for appellee Caroline Juran, Executive Director, Virginia Board of
Pharmacy.
J. Scott Sexton (Scott A. Stephenson; Gentry Locke, on brief), for
appellee Dharma Pharmaceuticals, LLC.
This case involves an appeal pursuant to the Virginia Administrative Process Act (“the
VAPA”), Code §§ 2.2-4000 to -4031. New Age Care, LLC (“New Age”) and Dharma
Pharmaceuticals, LLC (“Dharma”) applied to the Virginia Board of Pharmacy (“the Board”) for a
pharmaceutical processor permit to operate a facility for producing and dispensing cannabidiol and
THC-A oils.1 Code § 54.1-3442.6(B) limits the Board to issuing one permit for each of the five
Health Services Areas (“HSAs”) in Virginia. The parties applied for the single permit available in
1
Cannabidiol and tetrahydrocannabinol acid (THC-A) are non-intoxicating Cannabis plant
extracts, and the oils are statutorily defined according to their concentrations. See Code
§ 54.1-3408.3.
HSA III located in southwest Virginia. The Board denied New Age’s application and granted
conditional approval for the permit to Dharma.
New Age appealed to Henrico County Circuit Court. Dharma moved to dismiss the appeal,
and the circuit court granted Dharma’s motion. New Age appeals the dismissal and argues the
circuit court erred by (1) “considering Dharma’s unilateral motion to dismiss;” (2) “granting
Dharma’s motion to dismiss on invalid grounds;” and (3) “prematurely ruling on the merits of New
Age’s appeal.” For the following reasons, we affirm the circuit court’s decision.
BACKGROUND
“Where, as here, ‘no evidence [has been] taken with regard to [a] motion to dismiss[,]
[appellate courts] treat the factual allegations in the petition as we do on review of a demurrer.’”
Bragg v. Bd. of Supervisors, 295 Va. 416, 423 (2018) (quoting Va. Marine Res. Comm’n v. Clark,
281 Va. 679, 686 (2011), overruled in part on other grounds by Woolford v. Va. Dep’t of Taxation,
294 Va. 377, 390 n.4 (2017)). “We accept ‘the truth of all material facts that are . . . expressly
alleged, impliedly alleged, and those that may be fairly and justly inferred from the facts alleged.’”
Id. (quoting Harris v. Kreutzer, 271 Va. 188, 195-96 (2006)). This “inquiry encompasses ‘not only
the substantive allegations of the pleading attacked but also any accompanying exhibit mentioned in
the pleading.’” Id. (quoting Flippo v. F & L Land Co., 241 Va. 15, 17 (1991)). See Rule 1:4(i).
Additionally, “[a] court in ruling upon a demurrer [or motion to dismiss] may consider
documents not mentioned in the challenged pleading when the parties so stipulate.” Flippo, 241 Va.
at 17. See Elder v. Holland, 208 Va. 15, 18 (1967) (considering on demurrer the transcript of a prior
hearing where parties so stipulate). This Court then “review[s] the circuit court’s decision to
dismiss the petition, and any corresponding issues of statutory interpretation, de novo.” Bragg, 295
Va. at 423. See also Graves v. Commonwealth, 294 Va. 196, 199 (2017); Harris, 271 Va. at
195-96. Here, employing these principles, we summarize New Age’s petition for appeal to the
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circuit court, its attached exhibit, and a stipulated subset of exhibits the parties submitted for
consideration along with Dharma’s motion to dismiss.
In 2018, the General Assembly amended 2016 legislation authorizing the Board to issue
pharmaceutical processor permits to operate cannabidiol/THC-A oil production and dispensary
facilities in each of the five HSAs in Virginia. See 2018 Va. Acts ch. 567. The amended statute
only allowed one permit for each HSA. Code § 54.1-3442.6(B). The final legislation also
authorized the Board to adopt regulations establishing health, safety, and security requirements for
the pharmaceutical processors. Code § 54.1-3442.6(C).
Pursuant to this statutory authority, the Board enacted regulations establishing a three-stage
application process: “submission of initial application, awarding of conditional approval, and
granting of a pharmaceutical processor permit.” 18 VAC 110-60-110(A).2 The regulations
identified the information required from each applicant, including the location where the
pharmaceutical processor would be operated; detailed information regarding the applicant’s
financial position; the applicant’s plans for security to prevent diversion, theft, or loss of the
Cannabis plants and the cannabidiol or THC-A oils; previous or current involvement in the medical
cannabidiol oil or THC-A oil industry; business and marketing plans; detailed blueprints; any
compassionate need program the applicant intended to offer; and the applicant’s expertise in
agriculture and other production techniques. 18 VAC 110-60-110(B)(b)-(d), (g), (i), (k)-(m).
The regulations also provided criteria for the Board to consider in evaluating the
applications, including compliance with the application requirements. 18 VAC 110-60-120(A), (B).
The regulations stated that “[t]he decision of the [B]oard not to grant conditional approval to an
applicant shall be final.” 18 VAC 110-60-120(C).
2
The regulations relevant to this appeal were effective from August 7, 2017, through
February 6, 2019, but they have since been amended.
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On April 16, 2018, the Board issued a request for applications (“RFA”) for pharmaceutical
processor permits in the five HSAs.3 The RFA, which was not a regulation, stated that “[t]he
review and scoring of the applications will be performed by an ad hoc committee appointed by the
Board.” The RFA stated that the ad hoc committee would score the applications and make a
recommendation to the Board: “After completing the review and scoring, the ad hoc committee will
rank each application according to its score. The committee will recommend to the Board the
issuance of conditional approval to an [a]pplicant in each [HSA] with the highest ranked score.”
The RFA specified that the ad hoc committee would score applications in the following
areas: the applicant’s financial position; location within the HSA; security plans; authorization to
conduct business; industry involvement and disciplinary action; agriculture, production, and
dispensing expertise; marketing plans; facility exterior and blueprints; product and site safety;
expected hours of operation; and an additional category consisting of plans for compassionate
needs, research, and delivery services to mitigate risks of diversion, theft, or loss.
The RFA also specifically stated that although the ad hoc committee would make a
recommendation to the Board based on its scoring of the applicants, the Board, not the ad hoc
committee, would make the final decision: “The Board will grant conditional approval to the
[a]pplicants which, in its opinion, have made the best application.”
The ad hoc committee, composed of two Board members and three citizen members, met in
closed session on September 4, 2018, to evaluate the applications for HSA III, including those
submitted by New Age and Dharma. The committee scored New Age’s application at 957.5 and
Dharma’s application at 861.75.
On September 25, 2018, the Board met to determine which, if any, applicants should be
awarded conditional approval for a permit. It also received public comments. The Bristol city
3
New Age attached the RFA as an exhibit to its petition for appeal to the circuit court.
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manager and an Abingdon pharmacist both spoke in favor of Dharma’s application. No one spoke
in support of New Age’s application. Twice, the Board voted unanimously to go into closed session
pursuant to Code §§ 2.2-3711(A)(5) and 54.1-108(2).4 First, the Board convened a closed session
to consult with legal counsel regarding FOIA and the consideration of applications; second, the
Board convened a closed session to consider and evaluate the applications. No one objected. The
Board also moved that two of the three citizen members of the ad hoc committee attend the closed
sessions; the third citizen member was not present.
The Board reconvened in open session to record the votes. In a motion addressing the HSA
III permit, seven Board members voted after one member recused himself, for reasons unrelated to
this case, and two others abstained. These seven members, representing a quorum of the ten-person
Board pursuant to Code § 54.1-3305, unanimously approved Dharma’s application.
The Board issued formal orders announcing its decision and reasoning on December 21,
2018. In its order granting conditional approval to Dharma, the Board noted the score given by the
ad hoc committee and made the following findings:
• Dharma’s proposed location is “readily accessible to a large population of potential patients
in [HSA III];”
• Dharma demonstrated a “strong level of collective expertise in agriculture, production[,] and
dispensing techniques;”
• Dharma demonstrated “a strong financial position for initial operations and long-term
stability and sustainability;” [and]
• Dharma demonstrated a “strong compassionate need plan.”
4
Code § 2.2-3711(A)(5), part of Virginia’s Freedom of Information Act (“FOIA”), Code
§§ 2.2-3700 through -3715, allows public bodies to hold closed meetings for purposes of discussing
“a prospective business or industry . . . where no previous announcement has been made of the
business’ or industry’s interest in locating . . . its facilities in the community.” Code § 54.1-108(2)
authorizes regulatory boards to exempt from public disclosure “applications for . . . permitting and
the scoring.”
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The Board concluded that “[b]ased on its review and competitive evaluation of the
applications in [HSA III] in accordance with 18 VAC 110-60-120, including the findings set forth
above regarding the application . . . and its consideration of the ad hoc committee’s scoring
recommendations,” Dharma “should be granted conditional approval in [HSA III].”
The Board denied New Age’s application. Although the Board noted the ad hoc
committee’s score, it made additional findings:
• New Age’s “proposed training opportunities for employees to protect against diversion,
theft, or loss, as required by 18 VAC 110-60-180, lacked sufficient detail;”
• New Age’s “proposed security plan lacked sufficient details to determine compliance with
18 VAC 110-60-240 through 18 VAC 110-60-270;” [and]
• New Age’s “proposed marketing plan lacked sufficient information on effectively educating
patients on how to safely dispose of unwanted oils.”
The order stated that because the Board granted conditional approval to Dharma and could
only approve one applicant in HSA III, New Age’s application “must be denied.”
New Age appealed the Board’s decision to the circuit court pursuant to the VAPA. New
Age served Dharma with notice of the appeal and the petition and identified Dharma as a “necessary
party” to the proceeding. In its assignments of error, New Age contended that (i) the Board “failed
to comply with regulatory authority;” (ii) denial of New Age’s application was “arbitrary and
capricious;” (iii) the Board “failed to afford New Age the constitutional right of due process;”5 and
(iv) the Board’s “closed session violated [FOIA].”
On March 8, 2019, Dharma filed a motion to dismiss with fifteen exhibits attached,
including the agenda and minutes from an ad hoc committee meeting, an agenda and minutes from
the Board’s September 25, 2018 meeting, and the orders issued to New Age and Dharma
concerning their applications for conditional permits. In its motion to dismiss, Dharma argued that
5
New Age abandoned this constitutional due process claim on appeal to this Court.
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the appeal failed to designate any error of law as required by Code § 2.2-4027 of the VAPA. On
May 14, 2019, the Board filed a motion to join Dharma’s motion to dismiss.
On May 31, 2019, New Age filed a brief opposing Dharma’s motion to dismiss and attached
three exhibits duplicative of Dharma’s: the minutes from the Board’s September 25, 2018 meeting,
and the Board’s orders issued to New Age and Dharma. Although New Age noted that the Board
filed its motion to join “months after the deadline for filing a responsive pleading under Rule 3:8,”
New Age did not move to strike the document. The circuit court did not expressly rule on the
Board’s motion to join, but at the June 7, 2019 hearing on Dharma’s motion to dismiss, the Board
reiterated that it agreed with Dharma’s arguments. New Age did not object. The circuit court
subsequently issued a letter opinion granting the motion to dismiss, finding that Dharma was a
“necessary party” with “authority to file” the motion.
Regarding New Age’s first assignment of error, whether the Board had complied with
regulatory authority, the circuit court concluded that “the General Assembly ha[d] authorized the
‘Board’ to make the ultimate decision in this case on a competitive basis. The recommendations of
a subcommittee [were] an element in the ultimate decision, but not the final or determining factor.”
The circuit court found that the Board “considered the scoring by this committee but in conclusion
reached a decision different from scoring alone based on additional factors.”
The circuit court also rejected the second assignment of error that denial of New Age’s
application was arbitrary and capricious. It found that the Board’s orders “cited reasons for its
choice such as compliance with all regulations, location, expertise, financial ability[,] and a plan for
the needy.” Similarly, the Board “found deficiencies in [New Age’s] security and disposal
education.” The circuit court concluded that the Board’s decision “based on its [o]rders was not
arbitrary or capricious but based on legitimate considerations that found Dharma to be the overall
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best choice.” Finally, the circuit court found that “the overall procedures used by the Board were
proper[,] including closed sessions[,] especially when no objection was made at the time.”
The circuit court concluded that “the errors assigned by [New Age] to the action of the
Board are not sufficient to further the appeal.” The final dismissal order incorporating the letter
opinion was entered on July 2, 2019. This appeal followed.
ANALYSIS
New Age, as the party appealing the Board’s decision, had the burden to “designate and
demonstrate an error of law subject to review by the [circuit] court.” See Code § 2.2-4027. “[T]he
circuit court’s role in an appeal from an agency decision is equivalent to an appellate court’s role in
an appeal from a trial court.” Comm’r, Va. Dep’t of Soc. Servs. v. Fulton, 55 Va. App. 69, 80
(2009) (quoting Sch. Bd. v. Nicely, 12 Va. App. 1041, 1062 (1991)). In both the circuit court and
the Court of Appeals, appellate review of agency action is limited to issues of law, including
(i) accordance with constitutional right, power, privilege, or
immunity, (ii) compliance with statutory authority, jurisdiction
limitations, or right as provided in the basic laws as to subject matter,
the stated objectives for which regulations may be made, and the
factual showing respecting violations or entitlement in connection
with case decisions, (iii) observance of required procedure where any
failure therein is not mere harmless error, and (iv) the substantiality
of the evidentiary support for findings of fact.
Code § 2.2-4027. See Va. Bd. of Med. v. Hagmann, 67 Va. App. 488, 499 (2017).
“Under the VAPA, the governing standard of review depends on the nature of the
controversy.” Citland, Ltd. v. Commonwealth ex rel. Kilgore, 45 Va. App. 268, 274 (2005). When
an appeal presents issues of fact, this Court “defer[s] to the agency just as we would a jury or a trial
court.” Id. “Similarly, when the appellant challenges a judgment call on a topic on which ‘the
agency has been entrusted with wide discretion by the General Assembly,’ we will overturn the
decision only if it can be fairly characterized as ‘arbitrary or capricious’ and thus a ‘clear abuse of
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delegated discretion.’” Id. at 275 (quoting Vasaio v. Dep’t of Motor Vehicles, 42 Va. App. 190,
196-97 (2004)).
However, “[a]n agency does not possess specialized competence over the interpretation of a
statute merely because it addresses topics within the agency’s delegable authority.” Finnerty v.
Thornton Hall, Inc., 42 Va. App. 628, 634 (2004). “Pure statutory construction, a matter within the
‘core competency of the judiciary,’ requires de novo review.” Citland, 45 Va. App. at 275 (quoting
Finnerty, 42 Va. App. at 635).
New Age does not challenge whether substantial evidence supports the decision below. See
Code § 2.2-4027(iv). Instead, it argues that the circuit court misconstrued both the rules governing
administrative appeals and the regulations pertaining to pharmaceutical processor permits. This
Court reviews the circuit court’s construction of the rules and regulations de novo. Muse Constr.
Group, Inc. v. Com. Bd. for Contractors, 61 Va. App. 125, 130 (2012) (en banc). Additionally, this
Court reviews a circuit court’s decision to grant a motion to dismiss de novo. Philip Morris USA
Inc. v. Chesapeake Bay Found., Inc., 273 Va. 564, 572 (2007). Corresponding issues of law such as
statutory interpretation also are reviewed de novo. Bragg, 295 Va. at 423.
1. Dharma’s “unilateral” motion to dismiss
New Age argues that Rule 2A:5 barred the circuit court from considering Dharma’s
unilateral motion to dismiss. New Age contends that under the Rule, if an agency does not file its
own motion to dismiss, the circuit court is required to schedule briefing and argument. Dharma
responds that the Rule does not preclude a circuit court from ruling on a non-agency’s motion.
Part Two A of the Rules specifically addresses appeals pursuant to the VAPA. See Rule
2A:1 – 2A:6. Appeals also are “governed by the [R]ules contained in Part Three, where not in
conflict with the Code of Virginia or [Part Two A].” Rule 2A:5. Part Three applies to all civil
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actions, and Rule 3:8 provides that responsive pleadings, including “[a] demurrer, plea, [and]
motion to dismiss” must be filed “within [twenty-one] days after service.” Rule 3:8(a).
Rule 2A:1 contemplates that an administrative appeal will include non-agency parties, in
addition to the agency itself. Rule 2A:1(c) defines “party” as follows:
The term “party” means any person affected by and claiming the
unlawfulness of a regulation, or a party aggrieved who asserts a case
decision is unlawful or any other affected person or aggrieved person
who appeared in person or by counsel at a hearing . . . with respect to
the regulation or case decision as well as the agency itself. Whenever
a case decision disposes of an application for a license, permit or
other benefit, the applicant, licensee or permittee shall be a
necessary party to any proceeding under this part.
(Emphasis added). In its petition for appeal to circuit court, New Age expressly identified Dharma
as a “necessary party” pursuant to Rule 2A:1(c). The circuit court’s ruling granting the motion to
dismiss also noted that Dharma was a “necessary party” to the appeal. However, New Age now
argues that “[t]he concept of Dharma as a ‘necessary party’ . . . has no bearing on [the] issue” of
whether the circuit court had authority to consider Dharma’s motion to dismiss. Instead, New Age
contends that Rule 2A:5 limits a circuit court’s authority to rule only on dispositive motions filed by
an agency.
Rule 2A:5(3) and (4) provides as follows:
Once any motions, demurrers or other pleas filed by the agency have
been overruled, or if none have been filed within the time provided
by Rule 3:8 for the filing of a response to the process served under
Rule 2A:4, the appeal shall be deemed submitted and no answer or
further pleadings shall be required except as provided herein or by
order of the court.
When the case is submitted and the record has been filed as provided
in Rule 2A:3, the court shall establish by order a schedule for
briefing and argument of the issues raised in the petition for appeal.
(Emphasis added). New Age contends the phrase “filed by the agency” in Rule 2A:5(3) instructs
that, although both agency and non-agency parties may file dispositive motions in an administrative
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appeal, those filed by an agency carry particular significance. New Age asserts that if an agency
does not file a dispositive motion within the time allowed under Rule 3:8, the circuit court must
deem the case “submitted,” forego ruling on any dispositive motion filed by a non-agency
defendant, and initiate a review of the merits.
New Age contends that because the Board did not file a motion to dismiss “within the time
provided by Rule 3:8,” the appeal was “deemed submitted” pursuant to Rule 2A:5(3). In turn, once
the case was “submitted,” the circuit court could take no action except to receive the filing of the
administrative record pursuant to Rule 2A:3 and establish a briefing schedule, as provided in Rule
2A:5(4). New Age argues that nothing in Rule 2A:5 authorized the circuit court to consider or grant
a “pre-briefing challenge by a third-party respondent in the absence of a timely motion ‘filed by the
agency.’” We disagree.
Although Rule 2A:5(3) refers to “motions, demurrers or other pleas filed by the agency,” the
language merely triggers a series of procedural steps if a circuit court overrules a dispositive motion
or no motion is filed: at that point the appeal is “deemed submitted,” and the circuit court must
establish a schedule for briefing and argument once the administrative record has been filed. Rule
2A:5(3), (4). Nothing in the Rule compels a circuit court to ignore a non-agency defendant’s
dispositive motion to dismiss. Additionally, Rule 3:8, authorizing any defendant in a civil action to
file a dispositive pleading, does not conflict with Rule 2A:5. Neither Rule provides that a
dispositive motion can only be filed by the agency.
Further, Dharma’s status as a necessary party implies that it has authority to defend its
interests by a motion to dismiss. See Browning-Ferris Indus. of S. Atl., Inc. v. Residents Involved
in Saving the Env’t, Inc., 254 Va. 278, 282 (1997). In Browning-Ferris, the Supreme Court found
that a permit holder was a necessary party in an appeal brought by neighboring property owners
challenging the permit. Id. The property owners could not bring the action against the agency
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alone; the Supreme Court held that the permit holder “was a necessary party to the . . . appeal from
the Department’s ruling, because that ruling conferred specific rights on [the permit holder] which
could be defeated or diminished by [the neighbors’] appeal.” Id.
Likewise, because the Board’s decision “conferred specific rights on [Dharma] which could
be defeated or diminished by [New Age’s] appeal,” Dharma had authority to file the necessary
pleadings to defend these rights. Id. Winning applicants or permit holders routinely file dispositive
motions in administrative appeals brought by parties challenging an agency’s decision. See, e.g.,
Health Sys. Agency of N. Va., Inc. v. Stroube, 47 Va. App. 299, 308 (2005) (noting that the
“Commissioner and Community Hospital filed demurrers and motions to dismiss” the appellant’s
challenge to the approval of the certificate for public need; dismissal affirmed); Laurels of Bon Air,
L.L.C. v. Med. Facilities of Am. LIV Ltd. P’ship, 51 Va. App. 583, 590, 601 (2008) (indicating that
the appellees, which included the agency and nursing homes who were granted relocation approval,
moved to dismiss an appeal brought by competitors; dismissal affirmed).
New Age also argues that because the circuit court did not enter an order granting the
Board’s motion to join Dharma’s motion to dismiss, Dharma’s motion was an impermissible
“unilateral challenge” to New Age’s petition for appeal. However, New Age never moved to strike
the Board’s motion to join, did not object to the Board’s appearance at the June 7, 2019 hearing, and
did not object before or after the circuit court allowed the Board to express its concurrence with
Dharma at that hearing.
Further, New Age’s assignment of error asserts only that the circuit court erred by
considering Dharma’s motion to dismiss, not that the circuit court erred by granting the Board’s
untimely motion to join Dharma’s motion. Having framed the issue in this way, New Age waived
any argument that the Board did not properly join Dharma’s motion. See Rule 5A:18 (a party must
state its objection “with reasonable certainty at the time of the ruling”). See also Dudley v. Estate
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Life Ins. Co. of Am., 220 Va. 343, 348 (1979) (“Elementary is the rule of appellate procedure that
the scope of argument on appeal is limited by the assignments of error.”). Accordingly, we will not
consider this argument on appeal. We conclude that the circuit court did not err by considering
Dharma’s motion to dismiss which the Board joined.
2. Grounds for granting the motion to dismiss
New Age asserts that “an agency may only challenge a circuit court’s ability to hear an
appeal . . . [if] there was a procedural defect in the filing of the petition for appeal or a lack of
standing by the appealing party.” This contention is incorrect. Dispositive motions may address
jurisdictional issues such as standing or a failure to comply with technical filing requirements. See
Reston Hosp. Ctr., L.L.C. v. Remley, 59 Va. App. 96, 107-15 (2011) (reversing dismissal of
hospital’s appeal for lack of standing, finding it sufficiently aggrieved by agency’s decision to
license competitor). However, an appellee also may test the legal sufficiency of a petition for
appeal to determine if the appellant has failed to “designate . . . an error of law subject to review,” as
required by Code § 2.2-4027. See Clark, 281 Va. at 686-89 (holding that a reviewing court must
examine not only the requirements of Rule 2A:4 but also the “statutes relevant to the appeal” in
determining a preliminary dispositive motion), overruled in part on other grounds by Woolford, 294
Va. at 390 n.4.
Judicial review of administrative decisions is limited, and the judiciary cannot substitute its
judgment for that of the agency. Boone v. Harrison, 52 Va. App. 53, 62 (2008). However, a circuit
court may grant a motion to dismiss a petition for appeal without consideration of the entire
administrative record when the appeal presents a pure question of law. See Va. Dep’t of Health v.
NRV Real Estate, L.L.C., 278 Va. 181, 185-89 (2009) (affirming circuit court’s dismissal of petition
for failure to demonstrate that the agency committed an error of law in following applicable
healthcare statutes). Here, New Age’s assignments of error to the circuit court were based on legal
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interpretations of the Board’s regulations, the RFA, and FOIA. Because New Age’s petition
presented questions of law, the circuit court properly considered the grounds stated in Dharma’s
motion to dismiss and determined that the assigned errors were “not sufficient to further appeal.”
3. Dismissal without an evidentiary hearing
New Age contends that the circuit court erred in dismissing its appeal before conducting a
full evidentiary hearing. Dharma responds that New Age’s petition for appeal before the circuit
court presented only questions of law as to whether the Board acted within the scope of its
regulatory authority and did not require an evidentiary hearing.
In its assignments of error to the circuit court, New Age argued that the Board “failed to
comply with regulatory authority,” denial of New Age’s application was “arbitrary and capricious,”
and the Board’s “closed session violated [FOIA].”
a. Whether the Board complied with regulatory authority
New Age argues that because 18 VAC 110-60-120(A) describes the application process as
“competitive,” the Board was required to grant conditional approval to the applicant that received
the highest score from the ad hoc committee. However, the regulation provides that “the [B]oard
shall evaluate each complete and timely submitted application and may grant conditional approval
on a competitive basis based on compliance with requirements set forth in 18 VAC 110-60-110.”
18 VAC 110-60-120(A) (emphasis added). 18 VAC 110-60-110(B) sets forth the information and
documentation to be included in the application. Furthermore, 18 VAC 110-60-120(B) provides
additional criteria the Board must use to evaluate the applications. Nothing in these regulations
requires the Board to follow the recommendation of the ad hoc committee. To the contrary, the
regulations require the Board to make an independent judgment using the criteria expressed therein.
If the term “competitive” required the Board to blindly follow the scoring of the ad hoc committee,
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as New Age suggests, then the other regulations regarding the Board’s evaluation process would
have no import.
The RFA, although not itself a regulation, is consistent with the regulations that the Board
remained the ultimate decisionmaker. Regarding the award of conditional approval, the RFA
specified that the ad hoc committee would make a recommendation to the Board based on its
scoring of the applicants, but the Board would make the final decision based on its own opinion:
After completing the review and scoring, the ad hoc committee will
rank each application according to its score. The committee will
recommend to the Board the issuance of conditional approval to an
[a]pplicant in each [HSA] with the highest ranked score. . . . The
Board will grant conditional approval to the [a]pplicant(s) which, in
its opinion, have made the best application.
(Emphasis added).
The regulation describing the “competitive” process did not require the Board to
automatically adopt the ad hoc committee’s recommendation. See 18 VAC 110-60-120(A).
Instead, the regulation authorized the Board to select an applicant from a pool of competitors after
evaluating all criteria. See id. Because the petition for appeal and stipulated exhibits demonstrate
that the Board evaluated the applications according to the regulations and required criteria, the
circuit court did not err in dismissing this assignment of error without an evidentiary hearing. See
NRV Real Estate, L.L.C., 278 Va. at 185-89.
b. Whether the Board’s decision was arbitrary and capricious
New Age’s second assignment of error to the circuit court asserted that the Board’s decision
granting conditional approval to Dharma was arbitrary and capricious. An agency decision is
arbitrary and capricious “when it is ‘willful and unreasonable’ and taken ‘without consideration or
in disregard of facts or law or without determining principle,’ or when the deciding body ‘departed
from the appropriate standard in making its decision.’” James v. City of Falls Church, 280 Va. 31,
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42 (2010) (first quoting Sch. Bd. v. Wescott, 254 Va. 218, 224 (1997); then quoting Johnson v.
Prince William Cty. Sch. Bd., 241 Va. 383, 389 n.9 (1991)).
Here, the findings in the Board’s orders granting Dharma’s application and denying New
Age’s application were directly tied to the regulations. The Board’s order noted that New Age’s
“training opportunities for employees to protect against diversion, theft, or loss . . . lacked sufficient
detail” and that its security plan was insufficient to determine compliance with specific regulatory
requirements detailed in 18 VAC 110-60-240 through 18 VAC 110-60-270. Both findings
correspond to the evaluation criteria set forth in the regulations. See 18 VAC 110-60-110(B)(1)(d);
18 VAC 110-60-120(B)(3), (4). The Board also critiqued New Age’s marketing plan, which it
considered pursuant to 18 VAC 110-60-110(B)(1)(i).
Likewise, the Board’s order noted four areas where Dharma’s application was particularly
strong: location, industry expertise, financial position, and a compassionate care plan. These
findings also specifically correspond to evaluation criteria set forth in the regulations. See 18 VAC
110-60-110(B)(1)(b), (c), (l), (m); 18 VAC 110-60-120(B)(2), (4).
Although a demurrer or motion to dismiss “admits the truth of the facts alleged,” Philip
Morris USA, Inc., 273 Va. at 572, a circuit court is not required to “accept the veracity of
conclusions of law camouflaged as factual allegations or inferences,” Parker v. Carilion Clinic, 296
Va. 319, 330 (2018) (quoting Coward v. Wellmont Health Sys., 295 Va. 351, 359 (2018)). The
circuit court must “disregard allegations that ‘are inherently impossible, or contradicted by other
facts pleaded’” and reject “inferences [that] are strained, forced, or contrary to reason.” Id. at 330 &
n.2 (first quoting Ames v. Am. Nat’l Bank, 163 Va. 1, 37 (1934); then quoting Coward, 295 Va. at
358). Accordingly, when New Age claimed that the Board “completely disregarded the scoring
committee’s determination of the most qualified eligible applicant,” the circuit court was free to
consider the Board’s orders and meeting minutes which indicated otherwise.
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The General Assembly invested the Board with discretion in granting a limited number of
pharmaceutical processor permits to operate cannabidiol/THC-A oil production and dispensary
facilities in Virginia’s five HSAs. See Code § 54.1-3442.6. Pursuant to this statutory authority, the
Board issued regulations setting forth its evaluation criteria. Because the conclusions in the Board’s
orders expressly relate back to the governing regulations, New Age failed to demonstrate that the
Board’s decision was without a determining principle or that the Board departed from the
appropriate decision-making standard. See James, 280 Va. at 42. It is apparent on the face of the
Board’s orders that the Board followed regulatory guidelines by considering the ad hoc committee’s
recommendation; it ultimately reached an independent conclusion that Dharma presented a superior
application for HSA III. Therefore, the circuit court correctly concluded that the Board’s decision
“based on its [o]rders was not arbitrary or capricious but based on legitimate considerations that
found Dharma to be the overall best choice.”
c. Whether the Board violated FOIA
New Age argues that the circuit court erred in dismissing its claim that the Board violated
FOIA by going into closed session. Because New Age failed to object to the decisions to go into
closed session, we will not consider this assignment of error. See Rule 5A:18 (“[A]n objection
[must be] stated with reasonable certainty at the time of the ruling.”).
The September 25, 2018 meeting minutes demonstrate that after a public comment period,
the Board and ad hoc committee retired into closed session to receive legal advice regarding FOIA
and the consideration of applications for pharmaceutical processor permits. After reconvening in
open session for public statements from Board members, the Board and ad hoc committee again
went into closed session to consider and evaluate the applications. The Board ultimately voted on
the applications during an open session. At no point during the meeting did New Age object to the
Board’s procedural actions.
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“Principles of procedural default, analogous to those governed by Rule 5A:18, apply to
agency decisions judicially challenged on appeal.” French v. Va. Marine Res. Comm’n, 64
Va. App. 226, 232 n.2 (2015). An appellant “may not raise issues on appeal from an administrative
agency to the circuit court that it did not submit to the agency for the agency’s consideration.”
Pence Holdings, Inc. v. Auto Ctr. Inc., 19 Va. App. 703, 707 (1995). Here, New Age had both
notice and opportunity to object to the convening of the closed sessions, and it did not do so. It first
raised the issue in its appeal to circuit court. Accordingly, New Age’s assignment of error was not
properly preserved and is procedurally defaulted.
CONCLUSION
The circuit court did not err in considering the motion to dismiss filed by Dharma and joined
by the Board. Additionally, the circuit court did not err in granting the motion prior to an
evidentiary hearing due to New Age’s failure to “designate and demonstrate an error of law subject
to review,” as required by Code § 2.2-4027 of the VAPA. Therefore, we affirm the dismissal of
New Age’s petition for appeal.
Affirmed.
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