American Scientific Balks At $1M Sale & $1-Per-Year Leaseback Suit Settlement

By Mark Gutglueck
The deal between the City of Adelanto and American Scientific Consultants, LLC to settle the lawsuit that company brought in December over the city’s November withdrawal of its offer to sell that firm the public works yard and enable American Scientific to pursue production of cannabis-based products at that location appears to have fallen through.
As a consequence, the $5 million lawsuit remains active.
A little more than two weeks ago, at its March 28 meeting, the Adelanto City Council, which since January has been reduced to four-fifths strength because of the removal of former councilman Jermaine Wright, voted 3-to-1 to sell the public works yard, which consists of two buildings and one gross acre of accompanying property, to American Scientific for $1 million.
That vote came during the council’s discussion of a lawsuit filed against the city by American Scientific in a closed session prior to the start of the meeting’s public session. At the beginning of the public portion of the March 28 meeting, city attorney Ruben Duran reported that “The council voted on a motion by the mayor [Rich] Kerr with a second by mayor pro tem [John] Woodard to approve the settlement agreement with American Scientific Consultants 3-to-1, with councilman [Ed] Camargo voting no.”
Under the terms of that agreement, the city agreed to sell the property for $1 million, subject to a $1 per year leaseback arrangement by which the city was to be allowed to continue to make use of the six-year existent emergency operations center located in one of the buildings on the property over the next four years. The agreement called for American Scientific to hereinafter abandon any litigative claims against Adelanto arising out of the city having sought to terminate the deal last November. Additionally, American Scientific agreed to end its appeal of the city’s action in revoking permits it had once granted to the company for a cannabis-related operation on Koala Road the city shuttered after the city’s code enforcement division learned that American Scientific had jumped the gun on initiating operations there prior to having documents for its occupation of that location certified.
The lawsuit was filed in December based upon what American Scientific’s Irvine-based attorney, Rick Augustini, termed the city’s breach of a real estate purchase contract. According to Augustini, in mid-2016 American Scientific Consultants became interested in entering into the medical cannabis business in Adelanto and “spent hundreds of hours and thousands of dollars securing medical cannabis permits and licenses” from the city, while simultaneously seeking property in the city where it could operate. Augustini’s suit on behalf of American Scientific claims that in March 2017 the city resolved to sell its public works yard, located at 17451 Raccoon Avenue, to generate revenue for infrastructure and to resolve a budgetary shortfall. On March 30, 2017, Augustini claims American Scientific offered to purchase the property and that C.B. Nanda on behalf of American Scientific and acting city manager Mike Milhiser on behalf of the city spent roughly three months negotiating the terms of a prospective sale “in an arms-length transaction.” Augustini maintains that on June 28, 2017, city officials told American Scientific it would sell the property for $1 million and that on July 13, 2017 the city accepted a written $1 million offer to purchase the property American Scientific had submitted on July 3, 2017. Augustini says a document setting out the agreement was signed by Nanda and Milhiser.
Curiously, in the suit, Augustini maintains that at that time the city had made no commitment to rezone the property to allow commercial cannabis-related activity there. Nevertheless, according to Augustini, on the strength of its agreement with the city to buy the property, American Scientific assigned its rights to AMN, LLC, a company affiliated with American Scientific Consultants, and entered into an agreement with Canniatric, LLC, a company which makes tinctures of cannabis, to have it operate out of the Raccoon Avenue property. Escrow papers prepared by Milhiser were signed by both the city and American Scientific, according to Augustini, and escrow on the sale opened. Over the next few months both parties thereafter undertook their respective due diligence with regard to the sale.
In August, the city council elevated community development director Gabriel Elliott to the post of city manager.
Kerr, Wright and Woodard, who were then the council’s controlling majority coalition, gave direction to Elliot to orchestrate the expansion of the city’s marijuana cultivation zone from 663.35 acres to 2,214.5 acres, which included the 17000 block of Raccoon Avenue, freeing American Scientific to proceed with its intended commercial cannabis activity. Elliott, who was not in favor of the zoning expansion just as he felt it ill-advised for the city to proceed with the sale of the public works yard, nevertheless acquiesced to the council majority’s instructions and facilitated the zoning change, arranging for the council to cast a confirming vote ratifying the zone change on September 8, 2017.
The council’s action changing the city’s zoning map increased significantly the value of the properties moved into the cultivation zone. Somewhat improbably, Augustini maintains that “American Scientific Consultants, LLC and C.B. Nanda had no involvement in or foreknowledge of defendant’s decision to expand the cultivation zone to include the subject property.”
On November 7, 2017, the FBI arrested Wright in accordance with an arrest warrant prepared by the U.S. Attorney’s Office alleging he had been using his position as a city councilman to facilitate city action in favor of would-be marijuana entrepreneurs seeking to set up businesses in Adelanto in exchange for bribes.
The day after Wright’s arrest, on November 8, the city council went into closed session during which Elliott had scheduled its members to come to a determination with regard to finalization of the sale of the public works yard. Without Wright present, the crucial third vote to support closing the sale of the public works yard to American Scientific was not provided, as councilman Ed Camargo, who had always been opposed to the marijuanization of Adelanto, along with councilman Charley Glasper opposed selling the property.
Just over six weeks later, on December 21, Augustini sued the City of Adelanto on behalf of American Scientific, alleging the city had breached an agreement to sell the city’s public works yard. In that legal action, Augustini is seeking for his client a judgment “for damages according to proof at trial but in no event less than $5,000,000 plus prejudgment interest at the legal rate.”
On March 28, Kerr and Woodard were able to convince Glasper that settling the suit and getting $1 million for the public works yard now is preferable to rolling the dice in fighting the suit and risking the loss of $5 million. A key element of the settlement was the $1-per-year leaseback arrangement contained within it that would allow the city to continue emergency communication and coordination operations out of one of the two buildings on the public works yard property, in which the emergency operations center was set up in 2011-12. The emergency operations center had been built into the site and outfitted through a $375,000 grant from the U.S. Department of Homeland Security the city received expressly for that purpose in 2011. Acceptance of that grant required that the city commit to keeping the emergency operations center functioning for at least a decade. Closing the center would entail the city being required to refund the $375,000.
Apparently, however, American Scientific is concerned that allowing the city to monopolize the square footage within that building for emergency operations will limit the scope of the company’s intended operations, and for that reason does not want to accommodate the city presence there after taking possession of the building.
According to one well placed source within Adelanto City Hall, American Scientific is unwilling to pay the previously agreed-to $1 million for the building and is pressing to have the city honor Kerr’s offer to sell it for $700,000. Furthermore, the Sentinel is told, C.B. Nanda is unwilling to rent the space for the emergency operations center for $1 per year and wants to charge an amount in keeping with the price American Scientific is paying to acquire the property and what comparable lease rates in the area are.
So far, the city is unwilling to budge on the $1 million price and is insisting that the $1-per-year leaseback arrangement be put in place and honored for four years. Without those conditions being met by American Scientific, city officials are resolved to waging a defense of the lawsuit.

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