Matter of Kloud NYC LLC v Office of the City Sheriff of the City of N.Y.

Supreme Court, Queens County

Decided on March 23, 2026

Index No. 722733/2025

Leonard Livote, J.

The following e-filed documents, listed by NYSCEF document number (Motion 001) 6, 12, 13, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29 ARTICLE 78 (BODY OR OFFICER).

The following e-filed documents, listed by NYSCEF document number (Motion 002) 8, 9, 10, 11, 14, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44 were read on this motion to/for ARTICLE 78 (BODY OR OFFICER)

The above-numbered papers were read on this petition (Motion Sequence 001) petitioner-respondent Kloud NYC, LLC against respondent-petitioner The Office of the City Sheriff of the City of New York ("Sheriff's Office") seeking relief of "a) Declaring that Respondent's closure of Petitioner's business was arbitrary, capricious, and unlawful; b) Vacating and annulling the closure order issued by the Office of the City Sheriff; c) Directing Respondent to immediately [*2]reopen the premises of Kloud NYC, LLC; d) Awarding Petitioner costs and disbursements of this proceeding, including reasonable attorneys' fees; and e) Granting such other and further relief as this Court deems just and proper.

The above-numbered papers were read on this motion (Motion Sequence 002) brought via order to show cause by Kloud NYC, LLC against Sheriff's Office seeking: "reversing the closure of Kloud NYC, LLC as the business will become bankrupt if it cannot continue to operate, and any continued length of time would result in irreparable harm to the business thus causing it to have to go out of business and such other and further relief as may seem just and proper, for the reasons that: the business Kloud NYC, LLC is going to become insolvent because it cannot pay rent for the space where the store is, and the store has been closed since July 11, 2025, despite Hearing Officer Klein's recommendation that the closure order be lifted."

Upon review of the foregoing documents, the petition and motion are determined as follows.

Kloud NYC, LLC is a corporation doing business at the premises located at 183 Johnson Avenue in Kings County ("Property"). The Sheriff's Office is an agency of the City of New York charged with enforcing judgments and orders of city agencies and is located at 30-10 Starr Avenue in Queens County.

The Sheriff's Office is authorized to enforce regulations and issue summonses pertaining to the Marijuana Regulation and Taxation Act ("MRTA"), codified as New York State Cannabis Law ("Cannabis Law") §§ 1-139. Pursuant to Cannabis Law §§ 72 and 125, persons seeking to sell cannabis within the State of New York must have a license duly issued by the State of New York. New York prohibits the unlicensed sale or distribution of cannabis.

Cannabis Law § 138-a, enforced through New York City Administrative Code ("Administrative Code") § 7-551 authorizes the Sheriff's Office to conduct regulatory inspections of buildings and premises for unlicensed cannabis activity. Pursuant to Cannabis Law § 138-b, the Sheriff's Office also has the authority to issue an immediate sealing order ("Sealing Order") of a building of any business engaged in unlicensed activity. Pursuant to Cannabis Law § 138-b [3], a Sealing Order may be issued based upon a finding of an imminent threat to the public health, safety, and welfare. Factors which determine an imminent threat to public health, safety, and welfare are listed in Cannabis Law §138-b [4] [e] and include proximity of the premises to a school. Whether the unlicensed activity is de minimis in nature is similarly based on a list of factors contained in Cannabis Law § 138-b [7].

Pursuant to Administrative Code § 7-551, any person who engages in the unlicensed sale of cannabis in violation of Cannabis Law § 125 is issued a civil summons subject to a fine. Chapter 6 of the Rules of the City of New York ("RCNY") Sections 8-18 authorize the New York City Office of Administrative Trials and Hearings ("OATH") to conduct hearings and adjudicate such summonses. Pursuant to Administrative Code § 7-551 [c], any OATH decision followed from a hearing constitutes a judgment.

Pursuant to Administrative Code § 7-552, the Sheriff's Office has the authority to conduct inspections of any business where cannabis products are sold. Administrative Code § 7-552 [b] [2] provides, in relevant part: "The hearing officer of [OATH] shall make a determination on such civil summons, which shall be deemed a final decision of such office, and shall also make a recommendation to the [Sheriff's Office] with respect to whether [the sealing order] was properly issued in accordance with the provisions of this section. The [Sheriff's Office] shall thereafter make a determination with respect to continuation of [the sealing order] [*3]upon review of such recommendation." Thus, when the civil summons and sealing order have been issued, OATH holds a hearing and makes a determination with respect to the summons and a recommendation with respect to the sealing order. Thereafter, the Sheriff is vested with the authority to independently determine whether or not to adopt OATH's recommendation with respect to the sealing order only (id.).

On May 31, 2025, Kloud NYC, LLC was issued summons #0215079453 ("Prior Summons") for purportedly engaging in the unlicensed sale of cannabis activity as prohibited by Cannabis Law and Administrative Code § 7-551 (NYSCEF Doc. No. 40).

On July 11, 2025, Kloud NYC, LLC was issued summons #0215099226 ("Summons") (NYSCEF Doc. No. 17) for purportedly engaging in the unlicensed sale of cannabis activity as prohibited by Cannabis Law and Administrative Code § 7-551, and a sealing order #BK183JohnsonAvenue07112025 ("Sealing Order"). On July 18, 2025, a hearing before OATH was conducted by hearing officer James Klein ("Hearing Officer") (NYSCEF Doc. No. 24). At that time, the Prior Summons had not yet been adjudicated by OATH.

As to the Summons, the Hearing Officer, after reviewing the evidence and testimony presented from Sheriff's Office and Kloud NYC, LLC, ultimately held: "As I have found that the Sheriff's Office did not meet the burden of proving the facts of the case by a preponderance of the evidence, the summons is dismissed on that basis." As to the Sealing Order, the Hearing Officer made the following recommendation: "[The Sheriff's Office] has not even established by a preponderance of the evidence that the cannabis products found at the place of occurrence were offered for sale by [Kloud NYC, LLC]. Accordingly, they have also not established any of the enumerated circumstances that would support that the closure order be sustained. For the foregoing reason, I recommend the order of closure be lifted" (NYSCEF Doc. No. 24).

On July 24, 2025, however, the Sheriff's Office issued a Final Decision on Order of Closure ("Final Order") (NYSCEF Doc. No. 3) indicating that the Sheriff's Office "does not adopt the recommended decision to the extent that it found the above-reference [Sealing Order] was improperly issued" for several reasons, to wit: (i) the Sheriff's Office discredited Kloud NYC, LLC's witness testimony; and (ii) the Prior Summons which, although had not yet been adjudicated at the time of OATH hearing related to this Summons, served as "confirmation that [Kloud NYC, LLC] continued to engage in unlicensed cannabis activity more than ten days after a notice of violation and order to cease unlicensed activity were issued."

Kloud NYC, LLC then commenced the within special proceeding via petition ("Petition") (Motion Sequence 001) against the Sheriff's Office for causes of action sounding in "arbitrary and capricious action — CPLR § 7803 [3]," "violation of lawful procedure — CPLR § 7803 [3]," and "unlawful taking of property — CPLR § 7803 [1]." Kloud NYC, LLC seeks the following relief in its Petition: (a) declaring that Sheriff's Office's closure of Kloud NYC, LLC's business was arbitrary, capricious, and unlawful; (b) vacating and annulling the closure order issued by the Sheriff's Office; (c) directing Sheriff's Office to immediately reopen the premises of Kloud NYC, LLC; (d) awarding Kloud NYC, LLC costs and disbursements of this proceeding, including reasonable attorneys' fees; and (e) granting such other and further relief as this Court deems just and proper" (NYSCEF Doc. No. 1).

The Court will first address the Sheriff's Office request to transfer this proceeding to the Appellate Division under CPLR § 7804 [g] on the grounds that a question of substantial evidence was raised.

CPLR § 7804 [g] provides, in relevant part: "Hearings and determinations, transfer to [*4]appellate division[:] Where the substantial evidence issue . . . is raised, the court shall first dispose of such other objections as could terminate the proceeding . . . If the determination of the other objections does not terminate the proceeding, the court shall make an order directing that it be transferred . . . to a term of the appellate division . . . " (CPLR § 7804 [g]).

Judicial review of an administrative decision made after a hearing is limited to whether the determination is supported by substantial evidence (Matter of Lau v. NYC DOB, 209 AD3d 858, 176 NYS3d 152 [2d Dept. 2022]). Substantial evidence means "such relevant proof as a reasonable mind may accept as adequate to support a conclusion of ultimate fact" (id.) (internal citations omitted). Where substantial evidence exists, a court is not permitted to substitute its judgment for that of the agency, even if the court would have decided the issue differently (Matter of Haug v. State Univ. of NY at Potsdam, 32 NY3d 1044, 87 NYS3d 146, 112 NE3d 323 [2018]).

Here, Kloud NYC, LLC's Petition seeks adjudication pursuant to CPLR § 7803 [3], specifically, whether the Final Order was, inter alia, arbitrary and capricious or an abuse of discretion. Since the Final Order was determined and issued by the Sheriff's Office without a hearing, rather than after a hearing, and since the Hearing Officer's recommendation regarding the Sealing Order was merely a recommendation, the "substantial evidence" standard is inapplicable here. Only where a substantial evidence issue must be decided does the process outlined in CPLR §7804 [g] apply. Since no substantial evidence question applies herein, the within special proceeding does not meet the qualifications for a transfer to the Appellate Division. As such, the Court denies the Sheriff's Office's request to transfer.

The Court now turns to the question of whether the Sheriff's Office's Final Order was arbitrary and capricious.

In an Article 78 proceeding involving a decision made by an administrative agency without a hearing, such as the Final Order here, the scope of the court's review is limited to a determination as to whether the Sheriff's Office used improper procedure, was erroneous as to the law, or rendered an arbitrary and capricious decision (Kripalani v State Div. Of Housing & Community Renewal, 126 AD3d 904, 5 NYS3d 508 2d Dept [2015]). A court has the power to review the agency's determinations and may overturn determinations if the action is arbitrary and capricious, in that, it lacks a rational basis (Ward v City of Long Beach, 20 NY3d 1042, 1043, 985 NE2d 898, 962 NYS2d 587 [2013]; CPLR § 7803[3]). Arbitrary action is without sound basis in reason and is generally taken without regard to the facts, and the "arbitrary or capricious test" relates to whether a particular action by an agency should have been taken or is justified and whether the administrative action is without foundation in fact (Matter of Peckham v Calogero, 12 NY3d 424, 431 [2009]).

Here, the Court finds the Sheriff's Office's decision in its Final Order to maintain the Sealing Order was arbitrary and capricious. Contrary to the Sheriff's Office's contention, the power to dismiss the Summons rests with OATH and the Hearing Officer made a determination, not a recommendation, dismissing the Summons. Administrative Code § 7-552 [b] [2] limits the Hearing Officer to make a determination as to the Summons and only a recommendation as to the Final Order: "The hearing officer of the office of administrative trials and hearings shall make a determination on such civil summons, which shall be deemed a final decision of such office, and shall also make a recommendation to the office of the city sheriff with respect to whether such order to seal was properly issued in accordance with the provisions of this section." The Hearing Officer's decision regarding the Summons here was a final administrative [*5]determination and cannot be appealed at OATH or to the Sheriff's Office pursuant to Administrative Code § 7-552 [b] [2]. Because the Summons was dismissed, the result is no finding of unlicensed activity at the Property.

While the Administrative Code permits the Sheriff's Office to disregard OATH's recommendation as to the Sealing Order, there must still be a rational basis for the Sheriff's Office's determination (Ward, 20 NY3d 1042 [2013]). Here, the Sheriff's Office failed to provide a rational basis for its decision to reject the OATH recommendation as to the Sealing Order. At the OATH hearing, the Sheriff's Office submitted numerous evidentiary items in support of their position that Kloud NYC, LLC permitted the sale of cannabis or cannabis marked products without a license. Kloud NYC, LLC, by counsel, presented the testimony of Mr. Darnell Thomas ("Mr. Thomas"). Mr. Thomas testified he was an employee of Kloud NYC, LLC, that he was present during the police's inspection of the Property, and that he was the owner of a crossbody bag in which the subject cannabis products were found during the police inspection. It was undisputed at the hearing that all the products seized during the police inspection came only from Mr. Thomas' bag. Mr. Thomas testified that said products were his personal property and were not being offered for sale by Kloud NYC, LLC. The Hearing Officer credited Mr. Thomas' testimony and found no unlicensed activity on the part of Kloud NYC, LLC. The Sheriff's Office merely repeated its main arguments from the OATH hearing in its Final Order, to wit, that Mr. Thomas' testimony was not credible and that the issuance of the Prior Summons, although not adjudicated at the time of the OATH hearing, confirmed that Kloud NYC, LLC continued to engage in unlicensed activity.

The Court notes that, although the Prior Summons was ultimately sustained by OATH on September 2, 2025, it had not been adjudicated at the time of the hearing relevant to the within proceeding, and, even if it had been, the Sherriff's Office failed to provide any basis for its contention that a finding on that Prior Summons warranted an identical finding in this Summons.

As to the credibility of Mr. Thomas, the Court declines to overturn the Hearing Officer's finding. The Court of Appeals has held that "the decision by an Administrative Hearing Officer to credit the testimony of a given witness is largely unreviewable by the courts, who are disadvantaged in such matters because their review is confined to a lifeless record" because "the Hearing Officer before whom the witnesses appeared . . . was able to perceive . . . all the nuances of speech and manner that combine to form an impression of either candor or deception (Berenhaus v Ward, 70 NY2d 436, 443-444 [1987]). Further, "when there is conflicting evidence or different inferences may be drawn, the duty of weighing the evidence and making the choice rests solely upon the [administrative agency], [and] [t]he courts may not weigh the evidence or reject the choice made by [such agency] where the evidence is conflicting and room for choice exists" (Rockland County Sheriff's Deputies Assn. v County of Rockland, 202 AD3d 693, 694 [2d Dept 2022]). Here, the Sheriff's Office's evidence, including the sworn affirmation of the police officer who issued the Summons, and the sworn testimony of Mr. Thomas were conflicting at the OATH hearing. As such, the duty of weighing the evidence rests solely on the OATH Hearing Officer who was able to perceive all the nuances of speech and manner to form an impression of either candor or deception.

The Court's findings herein do not affect in any way any determinations and/or recommendations by OATH or the Sheriff's Office of any other summonses that may have been issued to Kloud NYC, LLC.

Accordingly, it is

ORDERED that the branch of Kloud NYC, LLC's motion (Motion Sequence 002) seeking to reverse the closure of Kloud NYC, LLC is granted to the extent that the Sheriff's Office's Final Decision on the Order of Closure dated July 24, 2025 (NYSCEF Doc. No. 3) is vacated; and it is further

ADJUDGED that the first branch of the Petition (Motion Sequence 001) of Kloud NYC, LLC seeking to "declar[e] that Respondent's closure of Petitioner's business was arbitrary, capricious, and unlawful" is granted; and it is further

ADJUDGED that the second branch of the Petition (Motion Sequence 001) of Kloud NYC, LLC seeking to "vacat[e] and annu[l] the closure order issued by the Office of the City Sheriff" is granted.

Any such other relief not described herein is denied. This constitutes the Order and Judgment of the Court.

DATE 3/23/2026

LEONARD LIVOTE, J.S.C.