Federal Court Dismisses RICO Suit Against Sonoma County Cannabis Cultivator

For a while, criminal conspiracy lawsuits against cannabis operations looked like a potentially promising strategy for cannabis prohibitionists to try and use litigation to reverse the trend of legalization. The idea is to use the Racketeer Influenced and Corrupt Organizations Act (“RICO”), a federal statute intended to combat organized crime–and which allows private rights of action for lost property value resulting from criminal operations–to enjoin cannabis operations and recover damages to force the operators out of business. The typical set of facts is that a residential neighbor plaintiff claims that his or her property value is damaged by the existence of a nearby cannabis operation, usually outdoor cultivation, and names as a defendant every single person and business that had any conceivable connection to that operation.

There were a handful of relative successes with this strategy early on, culminating in a 10^th Circuit Court of Appeals decision allowing a RICO claim against cannabis cultivators to move forward on a theory of diminished property value. However, that victory was soon followed by a resounding defeat in a jury verdict finding no such diminution of property value. Subsequent U.S. District Court decisions from Oregon continued the backward slide, finding that although the residential neighbor plaintiffs might have potential personal injury claims for nuisance, they were unable as a matter of law to demonstrate a plausible claim for injury to the value of their property.

That trend has now found a secure foothold in California, where a San Francisco federal court recently dismissed a lawsuit by residential plaintiffs in Sonoma County alleging RICO claims against a neighboring cannabis cultivator. While the court acknowledged that the plaintiffs could potentially move forward with their claims for “diminished sense of serenity” and various “cleaning, medical, legal, and other expenses,” it found those damages would have to be pursued though traditional state law nuisance claims, not federal RICO claims, noting that “RICO was intended to combat organized crime, not to provide a federal cause of action and treble damages to every tort plaintiff.” Ouch.

Furthermore, California law added another unique element to the court’s decision. Although California recognizes claims for diminution in the market value of their homes, including prospective future losses, and such losses could potentially be compensable under RICO, under California law, “a plaintiff in a continuing nuisance case may not recover diminution in value damages because the plaintiff would obtain a double recovery if she could recover for the depreciation in value and also have the cause of that depreciation removed.” And in this case, the court found that the alleged cannabis cultivation issues would be better classified as a continuing nuisance and that the defendants had already abated the nuisance while the lawsuit was pending. Therefore, the plaintiffs’ property loss claims were effectively moot.

In the end, although the defendants prevailed on the motion to dismiss, the case was more of a pyrrhic victory because the defendants had to shut down, as they were not properly permitted by the county or licensed by the state, and the court granted leave to amend the complaint to still allow the nuisance claims to proceed. But at least in terms of the viability of RICO lawsuits as a tool to reverse cannabis voter initiatives, this was another nail in the coffin.

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