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INSIGHT: Up in Smoke? Attacks on Marijuana Farming Under RICO

Aug. 24, 2020, 8:01 AM

Attacks on marijuana farming are cropping up around the country. The underlying legal problem is one of federalism. That is, distribution of marijuana is still a crime under federal law, but some states have legalized its cultivation and sale.

One popular line of attack is for a private plaintiff to sue a neighboring marijuana farm under the Racketeer Influenced and Corrupt Organizations Act.

Novel RICO claims—especially those brought under the citizen-suit provision—are particularly difficult to assess for two reasons.

First, there’s the structural complexity. A private plaintiff must allege:

  1. a “pattern” of enumerated criminal, “predicate” acts,
  2. that are tied to an “enterprise,” and
  3. that causes injury to the plaintiff’s “business or property.”

Second, everyone knows that RICO is an anti-Mafia statute. But it’s not just that, as the U.S. Supreme Court has confirmed time and again. Courts are left to sort out whether recurring fact patterns present actionable RICO claims. And not surprisingly, splits of authority routinely emerge.

Cognizable Injury

The leading case on the “yes” side is Safe Streets Alliance v. Hickenlooper. The plaintiffs alleged the defendants violated the Controlled Substances Act (CSA) and, in so doing, operated or managed a marijuana-growing business through a pattern of racketeering.

The plaintiffs claimed standing to sue because “the recreational marijuana facility adjacent to their land has both interfered with their present use and enjoyment of the land and caused a diminution in its market value—e.g., by subjecting the land to the operation’s noxious emissions and by commencing that criminal enterprise nearby.”

The U.S. Court of Appeals for the Tenth Circuit had no trouble establishing the existence of a criminal RICO violation. One would expect this result because the CSA violations were essentially uncontested, a farming operation fits within even a lay conception of an “enterprise,” and the defendants “operated or managed” the enterprise through the pattern of CSA violations.

The crux of the Safe Streets case consequently turned on whether the substantive RICO violation proximately caused the plaintiffs cognizable injury. The court styled the first type of injury as a species of nuisance and concluded that plaintiffs “have plausibly pled an injury to their property in the form of a present interference with their use and enjoyment of that land, an interference that is caused by the enterprise’s recurring emissions of foul odors.”

Diminution in Property Value

The second injury type—diminution in property value—required more analysis. The court made two arguments here. As an initial matter, the same facts that established nuisance established injury: “We need only draw an eminently reasonable inference to conclude that it is plausible that activities that interfere with one’s use and enjoyment of property diminish the value of that property.”

But this doesn’t rescue plaintiffs’ claim from a charge of “speculation.” To slip this knot, the court eschewed authority mandating a demonstration of “concrete financial loss,” even at the pleading stage.

Here, too, the court drew an inference in favor of loss: “At this stage in the litigation, we conclude that it is reasonable to infer that a potential buyer would be less inclined to purchase land abutting an openly operating criminal enterprise than she would be if that adjacent land were empty or occupied by a lawfully-operating retailer.”

Injury to Business or Property

Courts tacking in the other direction nonetheless tend to find that the plaintiffs have adequately alleged a substantive RICO violation. The focus thus shifts to standing and the ability to plead injury to business or property.

For example, in Shoultz v. Derrick, the facts alleged were similar to Safe Streets, but the result was opposite.

The U.S. District Court for the District of Oregon essentially conceded the RICO violation, but determined that “[t]his Court, unlike the Tenth Circuit, is not at liberty to disregard the Ninth Circuit’s repeated admonitions that ‘concrete financial loss’ is an indispensable element of a RICO claim.”

Thus, absent “good faith allegations that they attempted or currently desire to convert those [property] interests into a pecuniary form,” plaintiffs’ RICO claim must be dismissed.

What’s Next?

As with many issues that have arisen under RICO over the last five decades, this one may ultimately require resolution at the Supreme Court, absent federal legislation legalizing marijuana production or regulatory action declassifying marijuana as a Schedule I drug under the CSA. Federal intervention continues to seem unlikely, though, given that interest groups have made such appeals for decades.

For the time being, would-be marijuana cultivators must await the day when—as king of horror Stephen King once put it—“homegrown dope...would be even better if you could grow it with fertilizers and have greenhouses.” Until then, they must beware the significant costs of civil RICO litigation, even when they prevail.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Randy D. Gordon is a partner at Barnes & Thornburg LLP and co-chairs the antitrust practice group. He is executive professor of law and history at Texas A&M University.

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