CIVIL RICO SUITS AGAINST HARM-CAUSING MARIJUANA OPERATIONS: MOMTAZ1 FAMILY, LLC V. WAGNER AS A CASE STUDY.

• Author: Dunham, Kassadie F.

1. INTRODUCTION

   As the cannabis industry increases in South Dakota and elsewhere, more and more landowners arc learning that marijuana operations can be bad neighbors. (1) Some of these landowners are suing the neighboring marijuana operations for the "dead skunk stench" they produce and other harms. (2) In several of these cases, the landowners have asserted civil claims under the federal Racketeering Influenced and Corrupt Organizations Act ("RICO"). (3) Many of these "civil RICO" claims arc dismissed on the ground that the plaintiffs lack statutory standing. (4) But the recent case of Momtazi Family, LLC v. Wagner (Momtazi) (5) could signify a major change in how courts determine standing for these types of civil RICO claims in the future, in South Dakota, and elsewhere. (6)

   In Momtazi, a family winery ("the Momtazis") asserted a civil RICO claim against a neighboring marijuana operation for harming their business and land. (7) The Momtazis' central factual allegation was that a customer cancelled an order for six tons of wine grapes because of a belief that the grapes were tainted by the smell of the nearby marijuana. (8) The defendants moved to dismiss, arguing that the Momtazis could not show that they had been "injured in [their] business or property by reason of a violation of RICO, as required to establish civil liability under RICO. (9) The district court denied the motion to dismiss, distinguishing two prior cases in which plaintiffs had unsuccessfully asserted civil RICO claims against neighboring marijuana operations. (10) The Momtazis' provisional victory is significant within the cannabis industry because, unlike suits based on other legal theories, like nuisance, civil RICO suits can yield treble damages and attorneys' fees."

   This article provides a case study of Momtazi with the goal of identifying situations in which landowners, particularly including landowners in South Dakota, can successfully sue nearby marijuana operations for federal racketeering under RICO. The prospect of civil RICO liability will likely strike many readers as odd and perhaps even improper. After all, most states have "legalized" marijuana for medical or recreational uses, (12) and the federal executive branch is letting them do so. (13) One of the few remaining groups of people who are not "chill" with the liberalizing trend are the civil RICO claimants who have marijuana operations for neighbors. You might say they are the skunks at the picnic. (14)

   Following this introduction comes four parts. Part II provides the background on RICO. Part III explores cases in which property owners have brought civil RICO suits against nearby marijuana operations, focusing on the Momtazi case. Part IV discusses the situation in South Dakota. Part V concludes the piece. (15)

2. BACKGROUND ON RICO

   1. ORIGIN OF RICO AND ELEMENTS OF A CIVIL RICO ACTION

      RICO was part of the Organized Crime Control Act of 1970. (16) "RICO was written broadly to allow federal authorities greater discretion to attack organized crime." (17) On one hand, RICO "is not designed to cover ordinary business disputes." (18) On the other hand, RICO is not limited to situations involving organized crime of the dramatic sort depicted in movies and television. (19) This section summarizes what conduct violates the RICO statute and what remedies are available for RICO violations.

      As relevant to this article, RICO makes it "unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity...." (20) An "enterprise" can be an individual, a legal entity, like a corporation, or "any union or group of individuals associated in fact although not a legal entity." (21) A "pattern of racketeering activity" means "at least two acts of racketeering activity...." (22) "[Racketeering activity," in turn, encompasses a wide range of crimes, including "the felonious manufacture, importation, receiving, concealment, buying, selling, or otherwise dealing in a controlled substance or listed chemical (as defined in section 102 of the Controlled Substances Act), punishable under any law of the United States." (23) In sum, to establish a RICO violation, the plaintiff must adequately plead and prove "that the defendant engaged in (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity...." (24)

      Given RICO's goal of targeting organized crime, you might think that RICO is just a criminal law, but that is not the complete picture. RICO does prescribe stiff criminal penalties for violations, including life in prison and forfeiture of property associated with RICO violations. (25) But RICO also creates a private cause of action for "[a]ny person injured in his business or property by reason of a violation of [RICO]...." (26) And RICO adds that the successful plaintiff, with exceptions not relevant here, "shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney's fee...." (27) These generous remedies reflect Congress's objective to turn private plaintiffs into "private attorneys general" who would "supplement Government efforts to deter and penalize...." RICO violations. (28)

      Congress's objective has been achieved--arguably to a fault--judging by the large number and variety of civil RICO lawsuits. For example, the yearly number of civil RICO lawsuits filed in the federal courts each year grew from somewhat over 600 in 2008 to more than 1,400 in 2018. (29) In the year ending March 31, 2020, they numbered more than 1,500. (30) One commentator contends that civil RICO has "run amok" in terms of its breadth:

      [Recently,] federal courts have upheld civil RICO complaints in vastly different contexts, including: misrepresentations by pharmaceutical companies, real estate fraud, misconduct in divorce and child custody proceedings, and Fourth Amendment violations by police officers. It is fair to say that, if someone were to survey recent civil RICO cases, she would be very surprised to learn that organized crime was the primary target--or a major target at all--in its creation. (31) The U.S. Supreme Court has "recognizefd] that, in its private civil version, RICO is evolving into something quite different from the original conception of its enactors."- (12) The Court has attributed this evolution to (1) "Congress" self-consciously expansive language"; (2) its "overall approach" of designing RICO to encompass a broad range of federal and state criminal activity; and (3) "its express admonition that RICO is to 'be liberally construed to effectuate its remedial purposes.'" (33)

   2. "STATUTORY STANDING" TO BRING CIVIL RICO CLAIMS

      As discussed above, RICO extends a private cause of action to anyone "injured in his business or property by reason of a violation of...." RICO. (34) A plaintiff who shows that he or she has suffered the statutorily required injury to "business or property" and that the injury occurred "by reason of a violation of (1) RICO is said to have "statutory standing" or "RICO standing." (35) The term "standing" is misleading here because it is used to refer to the elements of the civil RICO cause of action, whereas "standing" in its true sense refers to a jurisdictional restriction on the powers of the federal courts. (36) In any event, the U.S. Supreme Court and lower federal courts have construed civil RICO's requirements of (1) an injury to business or property and (2) a causal connection between the injury and a RICO violation to put meaningful restrictions on civil RICO lawsuits. As discussed in part III of this article, those restrictions have defeated some civil RICO claims against marijuana operations. (37)

1. Injury "to [B]nsiness or [P]roperty " (38)

   The Ninth Circuit, tasked with hearing the Momtazi case, interpreted RICO to put two restrictions on plaintiffs with respect to the statutory injury requirement. First, consistent with the text of the statute and U.S. Supreme Court dicta, the Ninth Circuit held that plaintiffs cannot recover for personal injury, as distinguished from injury to their business or property. (39) Second, despite a lack of textual support in the statute, the Ninth Circuit has held that the plaintiff must show "concrete financial loss." (40)

   The Ninth Circuit applied both restrictions in its en banc decision in Oscar v. University Students Co-Operative Ass'n. (41) The en banc Ninth Circuit again addressed the "concrete financial loss" requirement in Diaz v. Gates. (42) Both cases figure prominently in several of the civil RICO suits against marijuana operations. The plaintiff in Oscar, Ruth Oscar, rented an apartment close to a residential building called Barrington Hall, which was owned by the defendant, University Students Co-Operative Association. (43) Ms. Oscar claimed that Barrington Hall was a drug den:

   At least nineteen different individuals within the co-operative sold drugs there, and drug sales have allegedly been going on at Barrington for over twenty years.... [A]ccording to the complaint, defendants posted lookouts on neighboring property, and dumped the bodies of persons suffering from drug overdoses on their neighbors' land. The conspiracy was also responsible, we are told, for "filth, risk of disease, and noise"; for "violence, throwing of garbage on property, urinating on cars [and] vandalism"; and for numerous other crimes, misdemeanors, nuisances, and annoyances. (44) Ms. Oscar alleged that these conditions caused a (1) "decrease in the value of her property" and (2) loss in her "use and enjoyment of [her] property." (45)

   The Ninth Circuit held that the alleged decrease in property value did not "entail a financial loss" to Oscar and was therefore not cognizable in a civil RICO claim. (46) The court first distinguished Ms. Oscar's...