Cannabis Litigation: Another Federal Court RICO Case Dismissal

rico cannabis litigation

Last week the federal district court in Oregon dismissed with prejudice the plaintiffs’ amended complaint in Ainsworth v. Owenby, Case 6:17-cv-1935. As you may recall, this is one of several cases tracked by this blog in which a group of residential property owners displeased with alleged deleterious effects of a marijuana production or processing facility on nearby land seek relief in a civil RICO action. We have discussed Ainsworth here and here.

The original complaint was filed in late 2017 and alleged one state-law nuisance claim and two RICO claims. In a prior post we discussed the similarities and differences between Ainsworth and another civil RICO case in Oregon, McCart, which appeared to have resolved through a confidential settlement. We noted that the Ainsworth complaint appeared to have learned some valuable lessons from the motions to dismiss in McCart. Ultimately, however, whatever lessons learned were not enough to meet the onerous requirements for a civil RICO claim.

First, let’s set the stage for the recent order. In August 2018 the district court dismissed the plaintiffs’ RICO claims without prejudice, thereby giving them the opportunity to amend. That dismissal turned on the plaintiffs’ failure to plausibly allege a tangible property loss, with the court reasoning that “a plaintiff who has not alleged specific prior attempts to monetize a property interest must plausibly allege at least a present intent or desire to do so.” The court found plaintiffs’ reliance on the abstract harm of a reduction in fair market values insufficient to satisfy RICO. The plaintiffs must, said the court, make good faith allegations that they attempted or currently desire to convert those interests into a pecuniary form.

The plaintiffs then set about amending their complaint to address the shortcomings identified by the court. With respect to RICO, two of the plaintiffs now alleged that the grow operation depressed the value of their property and, as a direct result, prevented them from obtaining a larger home equity loan to finance the construction of a perimeter fence. The defendants again moved to dismiss, contending these plaintiffs still failed to allege a concrete loss as required by RICO.

The question then was whether the plaintiffs’ inability to obtain a larger home equity loan transformed their otherwise intangible injury into one resulting in concrete loss.

On March 27, 2019, the court answered that question in the negative. The key reason was that the plaintiffs’ financial position was no worse than it would have been absent the alleged racketeering activity—since the plaintiffs incurred less debt and, presumably, paid less interest based on the smaller principal. In other words, plaintiffs were in a better position than they otherwise would have been. Could the plaintiffs have potentially pleaded concrete financial harm? The court gives some hints – noting that plaintiffs did not allege they were charged a higher interest rate or otherwise offered the loan on less favorable terms, such that they were in a worse financial position.

Although Ainsworth is out of federal court absent a successful appeal, the recent order does not necessarily end litigation. That’s because the court declined to exercise supplemental jurisdiction over the state-law claims for nuisance and intentional infliction of emotional distress.  Absent a successful appeal, however, plaintiffs can no longer hold RICO’s threat of treble damages and attorneys’ fees over these Oregon cannabis producers.

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