Plaintiffs’ Case Not “Up In Smoke,” as Tenth Circuit Reverses Lower Court Dismissal of Civil RICO Claim Involving Marijuana Cultivation

Safe Streets Alliance et al v. John W. Hickenlooper et al., __ F.3d __, 2017 WL 2454359 (10th Cir., June 7, 2017)

The lower court had dismissed two Colorado landowners challenge under section 1964(c) against certain affiliates of a State- and county-licensed marijuana manufactory that allegedly has injured the landowners’ adjacent property.  The Court held that that the landowners have plausibly alleged at least one § 1964(c) claim against each of those defendants, and therefore reversed, in part, the dismissal of those claims and remand for further proceedings.

Plaintiffs (Reillys) brought civil RICO claims under § 1964(c) against a host of individuals and entities purportedly affiliated with that neighboring marijuana enterprise.  Plaintiffs allege that the Marijuana Growers are each subject to civil liability under § 1964(c) for the injuries they have caused to the Plaintiffs property by operating their association-in-fact enterprise, which by definition violates the Controlled Substances Act (CSA), and therefore violates RICO.

The Court reversed the lower court, looking favorably at the Plaintiffs’ complaint, first finding clearly that marijuana cultivation is “racketeering activity” which is defined to include “dealing in a controlled substance or listed chemical [ ]as defined in” the CSA.

Second, the Court found that the Defendants (Marijuana Growers) purportedly “pooled their resources, knowledge, skills, and labor to achieve through th[at] enterprise efficiencies in the cultivation and distribution of marijuana that none of them could have achieved individually.”  Thus, the Court found that the Reillys’ allegations of purpose, relationship, and longevity are sufficient for them to proceed on the basis that the Marijuana Growers together created an association-in-fact enterprise.*7. The Court also stated that  the Reillys’ alternative enterprise theories did not undermine their well-supported allegations that the Marijuana Growers are each participating in a distinct, larger, association-in-fact enterprise.

Third, following Reves, the Court took a very liberal view of the Conduct Element, stating that “a plaintiff can easily satisfy Reves’ operation and management test by showing that an enterprise member played some part—even a bit part—in conducting the enterprise’s affairs.”  The Marijuana Growers had admitted that they all “agreed to grow marijuana for sale” at the facility adjacent to the Reillys’ property, a facility at which they allegedly have been doing just that, and the Court found that the Marijuana Growers thus each conducted the enterprise’s affairs.

Fourth, regarding pattern, the Court found that “a RICO victim need not have actual knowledge of exactly who committed the RICO predicate act resulting in the injury for a civil RICO claim to accrue.” Id., at *8.   The Court stated that in each of the Reillys’ alleged various actions each of the Marijuana Growers took to establish and operate the enterprise, an entity that is now purportedly pursuing those illegal ends. When coupled with the Reillys’ assertion that the Marijuana Growers began cultivating marijuana at their facility, the Court concluded those allegations plausibly stated the requisite pattern of predicate acts that present a threat of ongoing criminal activity.

Injury

Last, the Court discussed in detail that Plaintiffs plausibly pleaded (1) injuries to their property (2) that were caused by those violations.   The Court rejected Defendants’ argument that a plaintiff must submit evidence of a “concrete financial loss” (e.g., an appraisal quantifying the diminution in property value or comparator results of attempts to sell predating and postdating a RICO violation) to plausibly allege an injury to his property caused by a defendant’s § 1962 violation.

The Court concluded, however, that neither § 1964(c)‘s text nor any ruling by the Supreme Court or this court establishes the novel statistical evidentiary pleading standard that the district court applied.  In fact, the statute and applicable precedents compel the opposite conclusion with respect to the Reillys’ allegations that their property has been directly injured by their neighbors’ odorous and publicly-operating criminal enterprise. Id., at *9.

Importantly, the Court stated that a claim would be sufficient if Reillys plausibly alleged injuries to their property rights, and found that the noxious odors emanating from the Marijuana Growers’ criminal enterprise presently interfered with the use and enjoyment of their land.

Also, relying on a previous case, the Court also allegations that injury resulting from  reducing the development potential (and thus the value) of their properties were not conclusory” and were “sufficient” to proceed under § 1964(c).

Ed. Note:   The court is focusing on the liberal interpretation of civil RICO from Supreme Court decisions, and ignoring the noise and rattle from previous circuit decisions, which do not follow Supreme Court dictates.

David J. Stander is a civil RICO Attorney who focuses on fraud and civil RICO litigation. 

 

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