Verdict for Marijuana Grower May Reduce Threat of Ruinous RICO Liability

One of the many problems that state-licensed marijuana businesses face as a result of continuing federal prohibition is potentially ruinous liability under the Racketeer Influenced and Corrupt Organizations Act (RICO), which allows people injured by illegal enterprises to sue for triple damages. Judging from the outcome of the first such case to reach a verdict, that threat may be less serious than it first seemed.

Last week a Denver jury rejected RICO claims by a couple who complained that an indoor marijuana cultivation facility had impaired their enjoyment of their property and reduced its value. Michael and Hope Reilly, who own a horse ranch in Pueblo County, said a nearby warehouse (right) where state-licensed cultivator Parker Walton grows marijuana had spoiled their view, generated noise and unpleasant odors, and offended them with its flagrant violation of federal law. During the three-day trial, Walton’s lawyer, Matthew Buck, presented evidence that the warehouse was not the source of the smell that bothered the Reillys and noted that the value of their property has been rising in recent years.

“We came in with hard science to show there was no odor,” Walton told Denver’s CBS station. The warehouse has an odor control system that does not vent to the outside, and there are several outdoor marijuana grows in the area, both legal and illegal.

While the Reillys argued that the value of their property would have risen more but for Walton’s warehouse, Buck told The Denver Post, “proving damages is almost impossible in cases like these in a state like Colorado, where property values are skyrocketing.” The plaintiffs’ closing argument, Buck told Westword, “was basically that my client was producing odor and that it couldn’t possibly be from any of the other numerous legal and illegal grows in Pueblo County, that marijuana has increased crime in the area, and that the plaintiff’s property values had been decreased.” Buck, meanwhile, argued that “the plaintiffs had presented no evidence my client had damaged them.”

The Reillys’ lawsuit, which they filed in 2015 along with the anti-drug group Safe Streets Alliance, was dismissed by a federal judge in 2016 but revived last year by the U.S. Court of Appeals for the 10th Circuit. “We are not suggesting that every private citizen purportedly aggrieved by another person, a group, or an enterprise that is manufacturing, distributing, selling, or using marijuana may pursue a claim under RICO,” the appeals court said. “Nor are we implying that every person tangentially injured in his business or property by such activities has a viable RICO claim. Rather, we hold only that the Reillys alleged sufficient facts to plausibly establish the requisite elements of their claims against the Marijuana Growers here. The Reillys therefore must be permitted to attempt to prove their RICO claims.”

The jury took just a few hours to decide that the Reillys had failed to show Walton’s operation was the proximate cause of any injury to them. University of Denver law professor Sam Kamin thinks the verdict will take some wind out of efforts by opponents of legalization to use RICO lawsuits as a weapon against cannabusinesses. “This isn’t the kind of loss where plaintiffs would be forever forbidden from bringing these kinds of suits,” he told the Post. “But it might chill the enthusiasm for bringing them in the future.”