Judge rules against cannabis company alleging corruption
Although some of the city's choices were found to be 'concerning' and 'odd,' the competition for 6 retail licenses was not unfair, judge rules.
El Monte will not need to award a cannabis license to an applicant that alleged it failed to secure one due to arbitrary and potentially corrupt decisions by city officials during the ranking of prospective dispensaries in 2020, according to a court ruling.
Though Los Angeles County Superior Court Judge James Chalfant felt some of the city’s choices were “concerning” and “odd,” he was not sufficiently swayed that the applicant, FEAH LLC, was treated unfairly.
“Specifically, FEAH does not show that the city’s actions in processing and scoring the applications were intended to, or did, benefit the winning applicants,” Chalfant wrote. “Some of the cited actions benefited some applicants and other actions benefited others.”
El Monte’s selection of the six winners of retail cannabis licenses in September 2020 drew more than half a dozen lawsuits, most of which have since been resolved. FEAH LLC, which ultimately ranked seventh, sued almost immediately after the rankings became public, alleging the city violated its duty by not following its own guidelines for the scoring process and by grading certain sections arbitrarily. The company alleged the city was biased toward applicants who had pledged hefty donations both to city coffers and to elected officials.
Their lawsuit asked the courts to either force a do-over, or to give FEAH a license.
Insufficient evidence
In his ruling, Chalfant acknowledged there were “threads of evidence that could support a disparate treatment claim,” though he felt FEAH failed to provide sufficient proof to back up that argument.
Assistant City Attorney Lloyd Pilchen applauded the decision in a statement.
“The City is pleased that the court saw beyond the petitioner’s fanciful allegations and issued a thorough, well-reasoned ruling,” Pilchen stated. “The decision recognizes that City Staff properly exercised discretion in their decisions, and the outcome reflected a fair process.”
A bad precedent
In an interview, FEAH’s attorneys, David Torres-Siegrist and Jayan Hong, said they plan to appeal the decision as they believe it creates a bad precedent that could allow cities to alter rules whenever they want to determine winners and losers in any selection process.
“It sets a very bad precedent for other cities to take similar actions,’ Hong said. “There’s no consequences, according to this court’s ruling.”
Torres-Siegrist and Hong also allege that Chalfant did not do enough to force the city to turn over records related to a third-party investigation into the process. In court, the city’s attorneys stated the investigation looked at whether there were any criminal acts or administrative violations, according to a transcript.
Court filings show the city paid nearly $54,000 for the investigation and was billed for the preparation of a memorandum, but FEAH’s attorneys have been unsuccessful so far in obtaining the investigation’s conclusions through the discovery process. The city denies a final report exists.
Not enough proof
Many of the arguments in the case revolved around the scoring of the “Community Benefits” section, which provided up to 175 points out of the 1,000 point total. That section gave the highest points to companies willing to donate money directly to the city’s general fund.
Chalfant described the city’s decision to weigh contributions to the general fund so heavily as “odd” as it effectively removed any “incentive for a perceptive applicant to contribute to any category besides the one with the highest priority,” according to the ruling.
“This was a trap for the unwary, but not unlawful,” he wrote.
Originally, the city had told applicants that a third party would score every section, but this was changed, after applications were submitted, so that city employees would score the Community Benefits section and a number of other areas, including landscaping, building elevations and renderings.
If the third party had scored every section, the outcome could have been very different, according to FEAH’s attorneys.
‘Changing the rules’
“You’re in the middle of a soccer game and they’re changing the rules as you go,” Torres-Siegrist said.
Chalfant ruled that the city had the authority to make those changes, however, because the cannabis ordinance specifically gives the city manager, or her designee, authority over scoring.
FEAH argued city employees were inconsistent in how they calculated the potential benefits, using different years of revenue for different applicants. Chalfant agreed that the approach was “concerning.”
Still, based on his own calculations, Chalfant estimated FEAH would not have won a license, even after he made score modifications based on the arguments presented to the court. A 10-point gap — down from 19 points — still existed between FEAH and the sixth-place winner, Light Box, according to Chalfant.
“As for FEAH and Light Box, any arbitrariness in the Community Benefits scoring does not affect the outcome,” he wrote.
Chalfant even briefly weighed in on City Manager Alma Martinez’s use of a disappearing message app to give advice to one of the applicants.
Open government experts previously said that Martinez’s use of the app, Signal, potentially violated state laws related to the retention of public records, but Chalfant did not seem to agree, saying “the fact that a city official does not want to create paper trail in her texts is not sinister.”
