Cannabis RICO Lawsuits Are Failing: Oregon and Colorado Updates

We’ve been writing about RICO lawsuits on this blog for a while. These lawsuits are typically brought by neighbors of state-licensed cannabis farms, who allege they are bothered by noise and smells associated with cannabis production, and that their property values have been damaged by extension. Generally speaking, these plaintiffs tend to have strong prohibitionist beliefs. Filing RICO lawsuits has also become a cottage industry for certain lawyers, and there are even educational courses for attorneys who want to spend their time on this sort of thing.

As a reminder, RICO is a federal statute that provides for a civil cause of action for acts performed as part of an ongoing criminal organization (in addition to criminal penalties). Because RICO complaints sound in federal law and implicate supply chain and vendor defendants, these cases differ from your ordinary nuisance-and-trespass actions, which pursue only the marijuana grower itself, and are also occasionally brought against cannabis farms.

The first RICO lawsuits started popping up a few years ago, and some of them are backed by prohibitionist groups attempting to rattle the industry. One common strategy of RICO plaintiffs, particularly in the early litigations, was to name every vendor doing business with the cannabis farm, including those that never touched the plant itself: e.g., banks, insurance vendors and equipment providers. The RICO plaintiffs would then dismiss these defendants one by one, as each defendant cut ties with the defendant farm— which seems like a racket if there ever was one.

Although pot-neighbor litigation is probably not what Congress had in mind back when it wrote the Racketeer Influenced and Corrupt Organizations Act, RICO litigants have found some success with their approach, most notably in a 10^th Circuit case called Safe Streets v. Hickenlooper, which allowed a RICO lawsuit to proceed in Colorado. More recently, however, the U.S. District Court for the District of Oregon dismissed a RICO lawsuit brought by a different marijuana farm neighbor for “failure to state a claim.” That case is known as Ainsworth v. Owenby and Judge McShane’s well-reasoned decision tees up a potential circuit split.

Like most leading business law firms who specialize in the cannabis industry, we have had quite a few clients ensnared in RICO lawsuits. These client defendants have included everyone from the property owners themselves, to far-off dispensaries that were unaware the cannabis they sold came from a defendant farm. Fortunately, these lawsuits aren’t really panning out for plaintiffs and we expect to see the RICO trend wind down. Recent case law developments in both Oregon and Colorado show why.

Oregon

Last month, a case known as Rice v. Ambrocio settled relatively quickly, having been filed only five months before. Rice was a waste of time and money, and it’s a good example of why people don’t like lawyers. The 56-page complaint named almost 50 defendants, although not all of them “appeared” in the case and a few were never served. The parties ultimately settled for a $60,000 collective payment to the plaintiffs (a guy who runs an anti-cannabis website, and his partner), which pencils out to a measly $1,200 per defendant on average. Most importantly for defendants, the settlement agreement is non-confidential.

This unimpressive plaintiffs’ outcome should make potential RICO litigants think twice about filing a lawsuit—especially one where it appears that the marijuana activity has all but ended on the defendant property before papers are even filed. Ultimately, if you want to file a complaint in federal court and take on 50 defendants, you are going to burn a LOT of cash just getting the thing filed and served. And, even if you battle your way through months or even years of motion practice, counterclaims, appeals, etc., the likelihood of success may not be great. Which brings us to Colorado.

Colorado

Earlier this week, we had what may have been the first jury verdict in a cannabis RICO case, and it came down in favor of the cannabis grower defendant. The plaintiffs were represented by a Washington, D.C. law firm with ties to Jeff Sessions, and apparently backed by a national anti-cannabis group known as Safe Streets Alliance. For all of that firepower, however, the plaintiffs could not prove their property value had been damaged by the cannabis grow they despised. The jury believed the defendants’ real estate expert, and reached a verdict relatively quickly in favor of the cannabis business. This case had been going for three years or so, and the plaintiffs had previously had the larger portion of their lawsuit—which sought to invalidate Colorado’s marijuana program entirely—thrown out.

The “no damages” finding by this jury is an extraordinary end to a protracted piece of litigation. When my law firm has potential clients come to us who are interested in filing litigation, we always look at a couple of things right away in addition to whether the claims seem viable. One of those is whether the potential plaintiff has been damaged. If the answer is “yes” (and the possibility of collection seems reasonable) we can usually proceed. But if the answer is “no”, bringing a lawsuit is probably a bad idea, regardless of whether the other side has breached a contract, done something “illegal”, etc.

If juries in cannabis RICO cases are going to find that cannabis production does not diminish the value of nearby properties, and that grower activity does not damage neighbor plaintiffs, these wasteful lawsuits may finally disappear altogether.

For more on RICO marijuana litigation, check out the following posts in our series: