RECENT DEVELOPMENTS IN BUSINESS LITIGATION

• Published in: Tort trial & insurance practice law journal Vol. 55; no. 2; pp. 193 - 215
• Main Authors: Cates, Van, Walsh, Court, Paul, Niall A, Wall, Dennis
• Format: Journal Article
• Language: English
• Published: Chicago American Bar Association 01.04.2020
• Subjects: Crime prevention; Drug trafficking; Federal court decisions; Injuries; Landowners; Marijuana; Organized crime; Racketeering; RICO 1970-US; Oregon; United States > US
• ISSN: 1543-3234; 1943-118X

Remedies.213 I.CIVIL RICO A.Introduction The Racketeer Influenced and Corrupt Organizations Act ("RICO")1 was enacted as Title IX of the Organized Crime Control Act of 1970.2 RICO includes both criminal3 and civil remedies,4 triggered by "racketeering activity," which is broadly defined by a long list of state and federal predicate crimes.5 One instance of "racketeering" is not sufficient to trigger RICO; there must be a "pattern" of racketeering activity, which is defined as two or more acts of racketeering activity that approaches long-term, organized criminal conduct.6 Although civil RICO is not limited to organized crime,7 it also is not designed to cover ordinary business disputes.8 RICO was originally enacted to combat organized crime in the United States, including, among other things, racketeering and illegal drug trafficking, but has morphed over the past fifty years to be asserted by governments against a wide variety of individuals and entities in the United States that have nothing to do with organized crime, e.g., against Hollywood movie stars who want to get their children into the University of Southern California or into the Ivy League in Operation Varsity Blues.9 Similarly, the civil RICO remedies,10 which include, among other things, the right to sue in state or federal court11 to recover treble damages and attorney fees, have morphed over the years to be asserted by private plaintiffs against a wide variety of defendants that have nothing to do with organized crime, like Bank of America.12 In many instances, the threat of treble damages, the high costs of defense, and the stigma of being alleged to be in violation of RICO are enough to cause defendants to settle civil RICO claims for substantial amounts,13 which is exactly why some commentators have concluded that civil RICO is the "Weapon of Choice" in business litigation14 and other commentators have concluded that civil RICO is "running amok. In Shoultz v. Derrick,30 the United States District Court for the District of Oregon (Portland Division) granted a motion to dismiss the civil RICO claims by property owners living in a residence in the immediate vicinity of the defendants' recently created marijuana production facility because the plaintiffs failed to allege injuries compensable under RICO.31 Among other things, the plaintiffs alleged that: (1) the defendants' marijuana operation negatively interfered with their use and enjoyment of their property; (2) the defendants used two large greenhouses, equipped with loud, large, commercial exhaust fans which operated twenty-four hours a day, seven days a week, which became unbearably loud at times, making it difficult for the plaintiffs to sleep and scaring the plaintiffs' dog; (3) the marijuana operation created a strong and pervasive stench on the plaintiffs' property, particularly on warm or humid days; (4) the noise and the odors from marijuana production made the plaintiffs no longer enjoy gardening or being outside on their property; (5) the plaintiffs were afraid of the prospect of violence after participants in the marijuana operation repeatedly fired automatic weapons into the field immediately adjacent to plaintiffs' property on October 15, 2017; and (6) the defendants diminished the market value of the plaintiffs' property by "making it more difficult to sell. "32 The court held that by conducting the marijuana operation,33 the defendants acted as an "associated-in-fact enterprise,"34 and the defendants were guilty of the predicate crimes of drug trafficking by violating the Controlled Substance Act.35 The court, however, dismissed the plaintiffs' civil RICO claims because the plaintiffs failed to allege "concrete financial loss" under the decisions of the Ninth Circuit which required the plaintiffs to make good faith allegations that they attempted or currently desire to convert their property interests into a pecuniary form, e.g., by selling or attempting to sell the property.36 The court contrasted the Ninth Circuit position with the position held by the Tenth Circuit that the plaintiffs can merely allege a diminution of market value and do not need to plead unsuccessful attempts to sell their property.37 The Tenth Circuit found that "it is reasonable [for a judge or jury] to infer that a potential buyer would be less inclined to purchase [plaintiff's] land" due to the neighboring marijuana operation.38 Relying in part on the reasoning in Shoultz v. Derrick, the marijuana operation defendants' motion to dismiss the plaintiff's civil RICO claim on similar grounds in Momtazi Family, LLC v. Wagner et al.39 was denied by the United States District Court for the District or Oregon because the plaintiffs properly pleaded "concrete financial loss" by alleging specific negative impacts on the ability of the plaintiffs to "convert their property interests into pecuniary form. "40 The plaintiff in Momtazi owned and operated (and later leased to another entity to operate) a certified biodynamic vineyard on its property that grew and sold grapes to other wine producers from 2014 to present, and the defendants purchased adjacent property in 2016 on which the defendants produced and processed marijuana.41 The plaintiff alleged the value of its property was diminished, it had been unable to market its grapes, a reservoir on its property was damaged, a calf was killed, and another cow damaged as a direct and proximate result of the defendants' activities to grow marijuana on their property.42 The plaintiff further alleged that an order for grapes was cancelled as a result of the customer's concern that the grapes were contaminated by the marijuana smell, which would adversely affect the wine made from the grapes.43 The plaintiff further alleged it was unable to sell grapes grown on the Momtazi property adjacent to the defendants' property because of buyers' concerns about contamination.44 The plaintiff alleged this impact on the marketability of its grapes diminished the value of its property, including rental fees charged for the property.45 Additionally, the plaintiff alleged that the terracing on the defendants' property caused dirt to flow downhill into the reservoir on the plaintiff's property, damaging fish and wildlife.46 Based on the detailed allegations in the plaintiff's complaint, the court concluded that the plaintiff had sufficiently alleged a direct link between the its alleged injuries and the defendants' alleged violations of RICO and, therefore, the plaintiff had sufficiently alleged proximate cause for standing under RICO.47 Accordingly, the court denied the defendants' motion to dismiss because the plaintiff had alleged injuries in fact that were sufficiently "concrete, particularized, and actual" as to establish the plaintiff's constitutional standing to pursue civil RICO claims against the defendants.48 Overall, the cases of Shoultz and Momtazi appear to provide direction as to how adjacent land owners can allege civil RICO claims against marijuana growers that will