10th Circuit: Neighbors may file federal RICO lawsuit against state-licensed marijuana growing operation

Marijuana has been decriminalized and regulated by various states, but it remains forbidden by federal law. This means that state-legal marijuana growers might still face federal charges, though federal prosecutors could choose not to enforce the federal ban in such situations.

But it also means that private citizens (here, a couple named the Reillys) could sue neighboring marijuana growers under the federal RICO statute, on the theory that the growers are interfering with the neighbors' use of their land—as the U.S. Court of Appeals for the 10th Circuit just held Wednesday in Safe Streets Alliance v. Alternative Holistic Healing, LLC. And this would not be affected by a Justice Department policy of not enforcing the criminal ban on marijuana production and distribution in those states that allow marijuana. The decision thus further highlights the precarious status of marijuana in Colorado, Washington, California and other such states, so long as Congress declines to officially allow such state legalization.

The federal Racketeer-Influenced and Corrupt Organization Act (RICO) lets people sue "racketeering" enterprises that injure the plaintiff's "business or property." Drug growing or distribution that is a felony under federal law qualifies as racketeering activity.

And, the 10th Circuit concluded, injuries to "property" include some examples of what property law calls "nuisance"—serious interference with the enjoyment of property, often accompanied by decline in property value. In particular, plaintiffs alleged that the marijuana enterprise produced "noxious odors" that wafted onto their property; such an "odorous nuisance" could qualify as an injury to property, assuming plaintiffs could show that the interference with their property was substantial enough.

Plaintiffs also alleged that "the open operation of the Marijuana Growers' criminal enterprise has caused the value of their land to decline, independent of the harms attending the nuisance"; that too could be a sufficient "injury to property," the court concluded, if the decline in value could be shown. Perhaps "the value of the Reillys' land" has actually "increased because of the now-booming market in Colorado for land on which to cultivate marijuana," but that is a factual question to be determined later—for now, the Reillys' claim can go forward:

At this stage in the litigation, we conclude that it is reasonable to infer that a potential buyer would be less inclined to purchase land abutting an openly operating criminal enterprise than she would be if that adjacent land were empty or occupied by a lawfully-operating retailer. Based on the Reillys' assertion that the Marijuana Growers' operation is anything but clandestine, the Reillys' land plausibly is worth less now than it was before those operations began. Therefore, we conclude that the Reillys pled a plausible diminution in the value of their property caused by the public operation of the Marijuana Growers' enterprise.

In principle, this same claim could be made by neighbors of a wide range of marijuana growers and distributors, assuming they could show substantial interference with enjoyment of land or decline in property value. And while some such claims could have in any event been brought under state nuisance law in state court, RICO provides much better remedies—potentially, a recovery of three times the actual damages plus a reasonable attorney's fee—and likely isn't subject to any state law defenses (as there might be against some nuisance claims brought against licensed, regulated businesses). So the decision is bad news for marijuana businesses, and for the uneasy coexistence between state legalization regimes and the federal marijuana prohibition.