JURIST Guest Columnist Sam Kamin of University of Denver Sturm College of Law evaluates the success of the marijuana suits brought by private businesses in recent months and argues that possible RICO suits will face obstacles due to the difficulty of showing actual damages from marijuana businesses…

Colorado has been the subject of multiple lawsuits in recent months, all of them challenging the state’s first-in-the-nation tax and regulatory system for adult-use marijuana. Most of these suits are grounded in the argument that Colorado’s regulatory system is preempted by the Controlled Substances Act (CSA). As I have argued elsewhere and as David Ball has argued on this website, this argument is without merit. It is clear that Colorado has the power to repeal its marijuana prohibitions; the federal government may not require the states to enforce the Controlled Substances Act, to pass parallel legislation, to enforce their existing prohibitions or to maintain those prohibitions on the books. Given that the state could legalize all marijuana conduct, it seems clear that it may, as it has done, choose to authorize only a limited, regulated marijuana market. The greater power should certainly include the lesser.

This is what intrigued many about the two [PDF] private lawsuits that were filed on February 19, 2015. While one of these suits alleged, at least in passing, that Colorado’s regulatory regime was preempted by federal law, the gravamen of these complaints is the allegation that businesses authorized under state law to manufacture and distribute marijuana nonetheless constitute continuing criminal enterprises under the Racketeer Influenced and Corrupt Organization (RICO) Act. Plaintiffs in the Colorado suits—a rural land owner and an hotelier—alleged that they had suffered financial losses as a result of the opening of these “illegal” businesses moving into adjacent properties. These suits seek treble damages, attorney fees and an injunction against the operation of two licensed marijuana businesses. Included in the complaints were a laundry list of defendants, from state and local regulatory agencies to those involved in the construction and financing of the marijuana businesses.

Originally passed in 1970 to provide federal prosecutors with an additional tool with which to fight the mob, RICO provides significant criminal penalties for any person who runs an organization that affects interstate commerce through a pattern of racketeering activity. In addition RICO provides for a civil cause of action for any plaintiff who can demonstrate that she has been harmed by the operation of such a RICO enterprise. However in order to make out a civil RICO cause of action a RICO plaintiff must plead and prove that she has suffered an injury to her “business or property” as the result of an enterprise being run through a pattern of racketeering activity.

The latter part of the allegation is relatively uncontroversial when pled against a marijuana business; even when authorized by state law, the sale and manufacture of marijuana is always illegal under federal law. Thus a business that engages in marijuana trafficking qualifies as a RICO enterprise—it is by definition a business run through a pattern of racketeering activity. While a recently introduced Senate Bill would exempt from the CSA conduct that complies with state medical marijuana laws, all such conduct is currently criminal under federal law and constitutes the sort of racketeering activity at which the statute is admittedly aimed.

It is there however that plaintiffs’ cases become increasingly more difficult for them to prove. For plaintiffs will have to demonstrate that they have suffered a business or property loss and that their loss is directly attributable to the defendants’ on-going criminal conduct. A number of impediments stand in the way of making such showings:

First, the allegations regarding the losses suffered by the Colorado plaintiffs are almost entirely conjectural. Most obviously they challenge the operation of marijuana businesses that have not yet opened. That certainly makes plaintiffs’ capacity to prove actual monetary damages difficult and might lead a court to dismiss their cases as not yet ripe for adjudication. The US Supreme Court expressed concern in Anza v. Ideal Steel Supply Corp. [PDF] about “intricate, uncertain inquiries [regarding damages] … overrunning RICO litigation.” The calculation of the Colorado plaintiffs’ losses, if any, would be far more speculative and complicated than that required in Anza; here, the losses are almost entirely future-looking.

Relatedly, the loss attributable to the defendants’ conduct must be to a tangible business or property interest and not mere displeasure or aesthetic insult. At least one of the Colorado suits is rife with allegations that imply the harms are more psychic than economic: “[t]he ongoing construction has already marred the mountain views from the [plaintiffs’] property, thus making it less suitable for hiking and horseback riding. The building’s purpose—the manufacture of illegal drugs—exacerbates this injury, for when the [plaintiffs] and their children visit the property they are reminded of the racketeering enterprise next door every time they look to the west.” Such injuries are simply insufficient as a matter of law to make out a RICO claim. RICO requires in every case a demonstration of a loss of tangible financial interest.

Perhaps the largest obstacle though is the requirement that the loss must be directly attributable to the defendants’ criminal conduct. So for example, if the same harm would have occurred if the defendants’ had engaged in wholly lawful conduct, plaintiffs will not be heard to complain simply because the defendants were also engaged in criminal conduct which did not in fact cause them harm. Thus, even if the ranch-owner plaintiff were able to show that her property suffered a diminution in value as a result of the defendants’ grow operation moving into the adjacent property, she would nonetheless have to demonstrate that the losses were caused not by the development of that property itself but by the criminal acts of the defendants themselves. In other words, if the same damage would occur from defendants growing tomatoes rather than cannabis, plaintiffs cannot resort to RICO to challenge the defendants’ actions.

For these reasons, the RICO claims that have been brought to date are unlikely even to survive a motion to dismiss in their current form. This is not to say however that other differently situated plaintiffs would be equally unlikely to prevail. So for example, if a plaintiff were to come forward who could plead and prove empirically that her business lost value because an illegal business moved in next door, she might be able to recover for her losses in a RICO action. Even this would not be a slam dunk case, however; for example, if her theory was that crime had gone up in the neighborhood as a result of the opening of a marijuana dispensary, a court might find that that third party criminal conduct, rather than the operation of the marijuana business itself was the proximate cause of the financial loss. For example in Hemi v. City of New York the US Supreme Court held that it is insufficient for a plaintiff to allege merely that she was one of those indirectly harmed by a RICO enterprise; rather: “Our precedents make clear that in the RICO context, the focus is on the directness of the relationship between the conduct and the harm.” In other words, it is quite difficult to even imagine a scenario that would be an easy win for a RICO plaintiff against a marijuana business.

Whether state marijuana laws are preempted by the Controlled Substances Act is a legal question; a reviewing court will investigate Congressional intent to determine whether it intended to preempt a particular state marijuana regulation. While it is true that the result may be different for different states’ marijuana laws, each state’s regulations will either be preempted or they will not and only a single decision will be necessary to resolve the matter. By contrast, civil RICO claims against marijuana businesses will necessarily have to be adjudicated on their facts on a case-by-case basis. Absent some judicial pronouncement that RICO is simply unavailable to challenge licensed marijuana businesses (a serious possibility given the difficulty of proving proximate cause and damages in any one case), RICO suits will have to be defended case by case, defendant by defendant.

Perhaps the most troubling aspect of the Colorado RICO suits therefore is not the likelihood of their success, but rather their nuisance value to those who seek to undo marijuana law reform in the states. These suits could exert a high cost not just on those operating marijuana businesses, but also on those who might facilitate such businesses. In this regard, it is probably no accident that the Colorado suits were brought not just against those opening marijuana businesses, but also against those who financed, insured, built and funded the businesses. Even if none of these claims is ultimately successful, the possibility of suit and the attendant negative publicity and expense might well be sufficient to discourage businesses from providing the services that the industry needs to survive. It is no surprise then, that when the bank alleged to have financed the medical dispensary named in the hotelier’s suit was dismissed from the case, it made clear that it had not knowingly financed a marijuana project and that “it is against the bank’s policy to offer accounts and financial services to marijuana businesses.” RICO suits, therefore, primarily represent a drag on the regulatory system an increasing number of states are putting into place.

Sam Kamin is Professor of Law and Director of the Constitutional Rights and Remedies Program at University of Denver Sturm College of Law. His research interests include criminal procedure, death penalty jurisprudence, federal courts and constitutional remedies. Professor Kamin has also become one of the nation’s leading experts on the regulation of marijuana; in 2012 he was appointed to Governor John Hickenlooper’s Task Force to Implement Amendment 64 and is currently serving on the ACLU of California’s blue ribbon panel to study marijuana legalization.

Suggested citation: Sam Kamin, Can You Fight Marijuana Laws with RICO Suits?, JURIST – Academic Commentary, Apr. 6, 2015, http://jurist.org/academic/2015/03/sam-kamin-marijuana-rico.php.