If you’ve been keeping up with cannabis litigation recently, you’ve probably noticed a growing number of cases brought against cannabis cultivators and dispensaries by angry neighbors alleging violations under the Racketeer Influenced and Corrupt Organizations Act (RICO), the federal anti-racketeering laws.
This blog provides an update on the current status of these “cannabis RICO” cases, along with a prediction for the future. “RICO” was enacted to fight organized crime. Because cannabis is still a controlled substance under federal law, neighbors who object to cannabis for one reason or another have found it appealing to sue their neighborhood cannabis operators using both nuisance claims under state law as well as federal law RICO civil claims. RICO provides plaintiffs with the potential to recover three (3) times their actual damages as well as recover their attorneys’ fees. It also allows these plaintiffs to present their cases in federal court, which could be more conservative and less accepting of state law
permissiveness than state courts.
So far, there have been four cannabis RICO cases in the news. In all of them, the plaintiffs alleged (1) a drop in their housing prices because of conduct that is criminal under federal law, and (2) vexatious odors, sounds and/or threatening behaviors coming from their cannabis operation neighbors. So far, these cases have had a mixed success rate in the federal courts. And over the past few weeks there have been a number of important developments.
(1) Ainsworth v. Owenby (6:17-cv-01935-MC)
In this case, the defendant cultivators essentially argued that the plaintiffs’ RICO allegations were infirm as a matter of law because: (1) all of their alleged injuries were either too speculative or “personal” in nature and therefore not injuries to “business or property” as required under RICO; and (2) the injuries alleged were too remote from the operators’ activities to be actionable. The district court of Oregon agreed with the first argument, but not the second, and dismissed the RICO claims while granting the plaintiffs a right to amend their complaint.
Specifically, in its published decision, the district court concluded: Here, the ‘use and enjoyment’ injury alleged by Plaintiffs is not an injury to property. Like the homeowners in Wilson, whose senses were offended by the neighborhood garbage dump, Plaintiffs’ complaints of overwhelming odors and noise form a personal injury. Although actionable under Oregon nuisance law, such harms to human comfort are not compensable under RICO. . . . The Court also agrees with Defendants that Plaintiffs’ out-of-pocket expenses for firearms, fencing, gates, and security cameras derive from personal injuries and are therefore not compensable under RICO. Ainsworth v. Owenby, 326 F.Supp.3d 111, 1123 (Or. Dist. Court 2018).
However, the story here is not over. In September 2018, the plaintiffs in the case filed a First Amended Complaint against the cannabis operators, alleging five nuisance causes of action, two intentional infliction of emotional distress causes of action, and one RICO cause of action under 18 U.S.C. sections 1962(c) and (d). The Defendants have not yet filed a response to the Amended Complaint. The Amended Complaint tries to avoid the district court’s earlier decision by now alleging for the first-time harm to a financial property interest, specifically that one of the plaintiffs was unable to secure an equity line of credit on terms to his liking because the property appraised below-market. It remains to be seen whether these new allegations will survive judicial review. As the district court noted in its earlier decision, a RICO claimant must “show proof of concrete financial loss, and not mere injury to a valuable intangible property right.” Other cases have held that trying to apportion a drop in “valuation” between RICO violations and other market forces would be an exercise in “sheer speculation.” Sheperd v. Am. Honda Motor Co., 822 F.Supp. 625, 630 (N.D. Cal. 1993).
(2) Safe Streets Alliance v Hickenlooper (1:15-cv-00349, 1:15-cv-00462)
In this case, the Colorado district court concluded that the RICO causes of action were legally infirm. The trial court dismissed them short of trial. However, the 10th Circuit disagreed, concluding that the plaintiffs had alleged an injury to “property” under Colorado law, and the case went to trial in October 2018. Earlier this month, the jury returned a verdict in favor of the cannabis cultivators and all causes of actions were dismissed with prejudice. This case reminds potential plaintiffs that even if they can overcome the purely legal arguments against applying RICO to their cases, they still need to prove actual injury and an entitlement to relief.
(3) Crimson Galeria Ltd., et al. v. Healthy Pharms, Inc. (17-cv-11696-ADB)
In this case, the Massachusetts district court was asked to decide RICO claims brought by property owners in Harvard Square against a licensed marijuana dispensary. An initial motion to dismiss was granted in part and denied in part, with leave to renew. The court seemed inclined to listen to the 10th Circuit’s analysis in Safe Streets and find the neighbors had the legal right to bring a RICO case against the cannabis dispensary. However, the case was closed on November 13, 2018, before the Defendants renewed their legal objections through another motion to dismiss the RICO causes of action, with the claims dismissed with prejudice. Notably, the plaintiffs in the case did not recover costs or attorneys’ fees. We believe the case was settled to each party’s satisfaction.
(4) Bokaie v. Green Earth Coffee (3:18-cv-5244)
Lastly, our firm represents the Defendant Cultivators in this case. In October, on behalf of our clients, we filed a (12)(b)(6) motion to dismiss the RICO causes of action. (You can access copies of our moving brief and reply brief). We are expecting oral argument on the motion at the end of November. Stay tuned.
To sum up, we believe that several good arguments exist why neighbors should not be allowed to transform what are essentially land use disputes into anti-racketeering cases under RICO. Readers are encouraged to review our briefing in the Green Earth Coffee case for details. Beyond this, the outcomes in Safe Streets and Crimson Galeria remind us that there remains a significant difference between (A) having standing to bring a suit by alleging enough to avoid dismissal on the face of the pleadings, and (B) prevailing in the suit before judge and jury at trial. Ultimately, state laws regulating cannabis have been heavily debated and carefully crafted to help ensure that cannabis operations do not adversely impact the properties and people around them. While the legal arguments concerning the standing of neighbors to sue under RICO and concerning what constitutes an injury to “business or property” under RICO are fascinating and deserve careful consideration by the courts, these cannabis RICO cases seem largely destined to fail for factual reasons. It is probably too high a hurdle to recover damages under federal RICO law against operators engaging in activities which are expressly authorized under state law.
Beyond this, even the creative arguments for stretching RICO to cover cannabis operations will disappear should the federal government decriminalize the drug.
January 2, 2019 Update: A rightful victory!
A federal judge has ruled that a group of Petaluma neighbors cannot sue a cannabis company and its lead grower under a federal racketeering and corruption law because bad odors and noise are nuisances that don’t cause the kind of measurable financial losses required to pursue the case.
Attorney Joe Rogoway, who represents Zambrano and his partners, said the judge’s ruling was a win for his clients and other marijuana operators facing opposition from neighbors who don’t like the smell of marijuana.
Read more about this important ruling here:
A federal judge has ruled that a group of Petaluma neighbors cannot sue a cannabis company and its lead grower under a federal racketeering and corruption law because bad odors and noise are nuisances that don’t cause the kind of measurable financial losses required to pursue the case. U.S.