The commercial litigation landscape for CBD, hemp and marijuana is constantly evolving as federal and state courts issue decisions that impact investors, commercial contracts, employment issues, intellectual property and insolvency. The CannaBizDisputes™ blog regularly tracks and reports on these developments.
Please Don't Be My Neighbor: Potential RICO Liability for Marijuana Producer
In a February 15, 2019 CannaBizDisputes™ blog post, we highlighted the decision by the District Court for the Northern District of California in Bokaie v. Green Earth Coffee, 2018 WL 6813212 N.D. Cal. 2018), dismissing a civil RICO claim arising from the defendant’s operation of a cannabis harvesting operation. (Click here.) In that post we noted that, even though the RICO claim in Bokaie was dismissed for a failure to allege cognizable injuries, one could imagine a slightly different set of factual allegations which might be sufficient to survive a motion to dismiss, and posited that “cannabis-related businesses are likely to face an increased risk of potential burdensome civil RICO litigation.” A recent decision by the District Court for the District of Oregon seems to further confirm the RICO-related risks for companies and individuals operating in the cannabis industry.
In Momtazi Family, LLC v. Wagner, 2019 WL 4059178 (D. Or. 2019), the District Court denied a motion to dismiss the plaintiff’s Civil RICO complaint, finding that it had alleged a legally cognizable injury proximately caused by the defendant’s racketeering activities – namely, their operation of marijuana production and processing business. The plaintiff in Bokaiewas unable to allege a cognizable RICO injury based upon the allegedly depreciated value of his real property, because the defendant’s marijuana operation had ceased by the time the lawsuit had been brought, and thus the court concluded that the cause of the depreciation had been removed, and plaintiff’s alleged damages had ceased to exist. By contrast, in Momtazi, the plaintiff alleged RICO damages arising from its inability to sell certain grapes grown on its property due to customer complaints that smells created by the defendant’s marijuana operation on a piece of adjoining real property were contaminating the grapes and affecting the quality of the customer’s wine. This, the court concluded, was sufficient to allege a “concrete financial loss” proximately caused by the defendant’s alleged RICO activities. Momtazi Family, LLC, 2019 WL 4059178 at *5-6.
Although the Momtazidecision, as limited to the sufficiency of the pleading, does not address the ultimate merits of the civil RICO claim, the decision highlights the risk to individuals and companies involved in cannabis-related businesses of potential civil RICO liability. In addition, the Momtazi precedent may make it harder for cannabis-related businesses to dismiss civil RICO claims at the outset of a case thus potentially subjecting would-be RICO defendants to the burdens of a protracted litigation.
For more information on the topic discussed, contact: