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How RICO became the new tool of anti-marijuana crusaders: An exclusive conversation with Seth Goldberg and David McTaggart of the Duane Morris cannabis practice
In Bokaie v. Green Earth Coffee LLC, plaintiffs alleged that a “skunk-like stench” caused by a nearby grow operation caused them diminished enjoyment of their property and led to a decrease in its value. What on the surface appeared to be a common law nuisance case among neighbors was filed as a civil RICO claim against both the owners and operators the Sonoma County cannabis grow and their landlord, elevating the issue from a spat between neighbors to a criminal conspiracy.
According to an alert put out last week by Duane Morris LLP, one of the largest law firms serving the Cannabis industry, “The Bokaie case is part of a growing trend of RICO lawsuits filed in legalized states that seek to exploit the tension between state law and the federal Controlled Substances Act."
In other words, plaintiffs are threatening the cannabis industry by exploiting a law that, in the words of the folks at Duane Morris, was designed to combat organized crime.
“There are going to be lawyers in what we call the plaintiffs’ bar that are going to try and find issues that can be raised within the context of that industry,” said Seth Goldberg, a trial lawyer who litigates commercial matters and who heads up the cannabis practice at Duane Morris. Along with his colleague, David McTaggart, he spoke exclusively with PotNetwork about the issue.
“It seems that these types of RICO claims have gotten the attention of some of the lawyers in the plaintiffs' bar,” Goldberg continued.
“There’s an appeal to the plaintiff's attorney anytime you can get triple damages and attorneys fees, and a plaintiffs attorney will look for angles in that respect,” added McTaggart, noting that, in RICO cases, the damages are triple what they would be in a typical civil case.
“And there’s indication that they’re going to go full speed ahead.”
Goldberg, a seasoned trial lawyer who, according to his bio, focuses on highly-regulated industries, such as healthcare and pharmaceuticals, as well as cannabis and hemp. He began Duane Morris’ cannabis practice in 2014 and helped the firm formally establish it three years later. Today, they’ve amassed a cadre of attorneys across the country that assist clients in the cannabis industry with everything from banking and finance to real estate transactions, mergers and acquisitions, and more.
The group represented a vertically integrated cannabis company in connection with its all-stock merger agreement with MPX Bioceutical Corp., a deal valued at CA$835 million ($638.3 million). And while it’s still subject to shareholder approval, it’s the first “public to public” merger in U.S. cannabis history.
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Duane Morris is one of the only Am Law 100 firms practicing cannabis litigation on a national basis, according to Goldberg.
In the alert put out by his group it was noted that the Bokaie case, as it’s come to be known, was dismissed by the Northern District of California at the end of December. In the decision the court put out a strong statement, telling plaintiffs: “RICO was intended to combat organized crime, not to provide a federal cause of action and treble damages to every tort plaintiff.” Still, cannabis operators aren’t out of the woods yet, as cases such as Bokaie are far from settled law.
In fact, there’s some evidence to show that these cases are a small but concerted effort by anti-cannabis crusaders to disrupt a growing industry.
“Your intuition is correct, there are certainly public statements out there,” said McTaggart, who joined Goldberg's group because, in his own words, he found the topic of cannabis fascinating. “There was a lawsuit out in Colorado that recently ended in a jury verdict on behalf of the defendants after probably a little more than three years of litigation that went up to the appeals court and down again that ended in the trial — I want to say it was Halloween.”
The decision McTaggart referred to was Safe Street vs. Hickenlooper, a case out of Colorado that was initially dismissed before being overturned in appeal by the Tenth Circuit. According to the alert put out by Duane Morris, that court saw cause that both the enjoyment and property value reasons could proceed under RICO. Eventually, a jury found in favor of the defendants.
“After the verdict was handed down plaintiffs counsel didn't seem particularly troubled, stating we will move forward and there’s other defendants out there,” said McTaggart. “The Tenth Circuit gave them a case that they find useful as mentioned in our piece. And there’s indication that they’re going to go full speed ahead.”
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“...take the wind out of the sails of any of these kinds of claims.”
As the team at Duane Morris noted, the Bokaie case relied partly on a decision handed down by the Ninth Circuit, Ainsworth v. Owenby, which found no alleged RICO injury according to Oregon law. Unfortunately, for those operating in the cannabis space, the decision by the Tenth Circuit means there are conflicting decisions without a solid answer.
Similar to the overall cannabis situation in the United States right now, RICO exposure is a state-by-state situation which may rely on said state’s property laws.
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And while the number of these cases shouldn’t be exaggerated — to date there has only been a handful — the implications of these decisions can’t be understated. Groups like Safe Streets Alliance have made it clear that cannabis legalization is a net negative that they wish stopped.
“After five years of federal non-enforcement, the inevitable result has been easy youth access to marijuana, the deterioration of neighborhoods where the marijuana industry openly operates, and the rise of the drug culture everywhere,” states a Safe Streets Alliance website about, in their own words, their lawsuit to block the legalization of marijuana.
“It’s very hard to predict the extent to which these cases will increase in number,” Goldberg told PotNetwork.
Asked if the team at Duane Morris had any advice for how a cannabis operation may attempt to avoid such litigation, Goldberg and McTaggart agreed that compliance was key.
“The best protection for a claim like this is for a cannabis business to be able to demonstrate that it is complying with the state laws in which it is licensed, to be complying with all of the state regulations that govern its operations,” said Goldberg. “A cannabis business that is acting in accordance with state law — operating in compliance with state regulations —will take the wind out of the sails of any of these kinds of claims.”
Interestingly, in the Bokaie case, while the court did dismiss the RICO claims, it did allow a separate claim under California’s Unfair Competition Law, leaving open, at least for now, another avenue for plaintiffs’ to explore.
McTaggart was clear not to draw any inferences about the court's sympathies.
He stated: “I think there were arguments that probably could have been made that weren't; it looks like there were arguments that the court overlooked. I wouldn’t infer any sympathy by the court. You know judges, they try and get the law right and we’ll see how it plays out.”
“...complaining about the smell of your neighbor's property.”
The Duane Morris alert noted that solutions to this issue might need to come from the legislative branch of local and state governments. As they noted in one example, up in Oregon, defendants argued that state’s Right to Farm statute to try and preclude RICO, citing “No farming or forest practice on lands zoned for farm or forest use shall give rise to any private right of action or claim for relief based on nuisance or trespass.”
As for what’s next in the judiciary, as with anything it’s wait-and-see.
“I think there’s going to be more of these kinds of lawsuits, but they don’t raise the kinds of issues that would be of interest the Supreme Court,” said Goldberg when asked if one of these cases could make it up to the highest court in the land. “These are not raising constitutional issues.”
Still, he was clear that the cannabis industry takes note of these cases. “[Cannabis businesses need] to operate in a compliant and sound way with respect to their state regulations, to know their neighbors, and if they have any concern to seek legal advice so that they can stay ahead of the issue on these kinds of claims.”
McTaggart once again brought up the fact that the court in the Bokaie case was clear that RICO was a statute designed for organized crime.
“It’s one thing to have your business muscled out of the territory by an illegitimate racketeering operation; it’s quite another to have a neighbor complaining about the smell of your neighbor's property,” he said.
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