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Federal appeals court allows private civil RICO to proceed against state-licensed marijuana grower (Safe Streets)

Posted by on Tuesday, July 25, 2017 in News, Updates.

In Safe Streets Alliance v. Hickenlooper (June 2017), the U.S. Court of Appeals for the 10th Circuit reversed the dismissal of a civil RICO lawsuit brought by a private plaintiff against a Colorado licensed marijuana cultivator. The original RICO suit – and the district court’s decision dismissing it – is discussed in the book at pages 403-406. (Safe Streets also involves a preemption claim discussed at page 549. The Tenth Circuit upheld the district court’s dismissal of that claim in a portion of its decision I’ll discuss in a future blog post.)

Some quick background on the case. The RICO claim was brought by private citizens who own a ranch in Pueblo County. The plaintiffs were aggrieved when the defendants opened their licensed marijuana grow facility (Alternative Holistic Healing) on neighboring property. Among other things, the plaintiffs claimed that the facility was emitting foul odors and attracting crime. (Portions of the complaint are excerpted on pages 403-405.) The allegations could have been brought as a run-of-the-mill state law nuisance claim, but the plaintiffs instead choose to pursue a federal civil RICO action against the facility. I’m only speculating, but the plaintiffs might have made this choice because: 1) civil RICO provides treble damages; and 2) civil RICO claims can be brought in federal court.

As discussed in the book, there is little doubt the defendants in this case were violating RICO. Indeed, it seems safe to say that all operational state-licensed marijuana suppliers are doing the same. After all, manufacturing and distributing marijuana are both considered racketeering activity for purposes of the RICO statute. (The elements of a RICO claim are discussed further on pages 400-403 and in my article, A Critical Appraisal, pages 649-656.)

But when the suit was initially filed, it was unclear whether these plaintiffs had suffered a cognizable injury caused by the defendant’s racketeering activity. To spare the federal courts from being flooded by RICO litigation, the RICO statute limits who may file a suit. In particular, the plaintiff must demonstrate that she has suffered injury to her “business or property” (i.e., not her person or her psyche) that was directly (i.e., proximately) caused by the defendant’s racketeering activity.

In Safe Streets, the District Court thought none of the injuries alleged in the complaint satisfied this test, but the Tenth Circuit disagreed, at least with respect to these three claims:

  1. That defendants had impaired the plaintiffs’ enjoyment of their property (e.g., hiking and horseback riding) because they emitted a foul smell from their facility
  2. That defendants had reduced the market value of plaintiffs’ land for similar reasons (i.e., because of the smell)
  3. That defendants had also reduced the market value of plaintiffs’ land because their facility attracted crime to the area

I think the Tenth Circuit’s decision is a reasonable (though not inescapable) interpretation of RICO law, at least as to the first two claims. It is possible, however, that the court erred regarding the third claim. If the plaintiffs are alleging that third parties are preying upon the defendants’ facility (say, because defendants have lots of cash on hand there), the proximate cause of the plaintiffs’ injury would seem to be the third party criminals and not the defendants. But it’s not clear exactly how the plaintiffs have been injured by crime (vs. noxious odors).

In any event, the fact that any of the plaintiffs’ claims survived the motion to dismiss is a potentially important development. So how significant is this case? It’s still early, but let me give you two concluding thoughts:

  1. On the one hand, the (net) impact of Safe Streets could be small. Notwithstanding the decision, there still aren’t many plaintiffs who can satisfy the RICO injury requirements, and most of those (presumably) could have brought a state law nuisance claim against a marijuana supplier anyway. To be sure, RICO increases the damages suppliers would have to pay (because of trebling). But the same pro-active steps those suppliers already take to reduce exposure under nuisance laws – e.g., abating odors and carefully siting facilities – should help reduce their exposure under RICO as well.
  2. On the other hand, Safe Streets might open the door a crack to so-called nuisance suits against marijuana suppliers (a point raised by participants during a recent talk I gave at the NCBA meeting in Denver). Here’s the reasoning: Even if they’d struggle to satisfy RICO’s injury requirements, plaintiffs might file RICO claims if the cost of filing a suit is lower (to them) than the cost (to the defendant) of responding. In such cases, plaintiffs might expect defendants to offer modest settlements (above plaintiffs’ filing costs, but below defendants’ litigation costs) to make any suit (brought or threatened) just go away.

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