Much Ado About RICO and Cannabis, Part 4

09 Feb Much Ado About RICO and Cannabis, Part 4

In this series (Part 1, Part 2, and Part 3) we have been looking at two RICO cases filed in District Court in Oregon against cannabis producers. The first, McCart v. Beddow, appears to have settled pursuant to a confidential settlement agreement. The second, Ainsworth et. al. v. Owenby et. al., is just getting started. The common thread here is that the pro se (self-represented) plaintiff in McCart v. Beddow, is an attorney who is now representing the plaintiffs in Ainsworth.

Due to this common thread, we think we can draw some likely conclusions about the contents of the confidential McCart settlement from the issues raised in the Ainsworth complaint. Note that the Ainsworth complaint was filed just about two months after the McCart defendants filed their motions to dismiss. As discussed below, it is clear that the Ainsworth complaint learned some valuable lessons from the motions to dismiss. Let’s engage in a bit of idle speculation:

Dispensaries can breathe a sigh of relief.

The McCart lawsuit named each and every OLCC licensed retailer that purchased the defendant farm’s product. In sharp contrast, the Ainsworth complaint doesn’t name any such “dispensary defendants.” Given that one of the goals of these RICO cases is to get a windfall under RICO’s treble damages clause, it is probably safe to assume that the McCart dispensary defendants didn’t end up being a pot of gold at the end of the RICO rainbow. Perhaps the attorney now agrees with our initial assessment: “It seems unlikely the Dispensary Defendants in this case had anything to do with operating or managing the enterprise. They appear to have merely been customers, in which case they shouldn’t have liability here.” This suggests that dispensaries are unlikely to be targets of future RICO suits based on the conduct of their suppliers.

The protections of ORS 30.936 (Right to Farm Act) played an important role in the McCart settlement negotiations.

As we explained in a previous entry in this series:

“ORS 30.936(1) . . . provides farmers in farming areas with immunity from suit for any trespass or nuisance claims, defined elsewhere as claims ‘based on noise, vibration, odors, smoke, dust, mist from irrigation, use of pesticides and use of crop production substances.’ Since RICO case law suggests that harms to property interests should be determined by state law, plaintiffs’ diminution of value claims are likely dead on arrival.”

The Ainsworth complaint takes pains to avoid the protections of 30.936. For example, paragraph 91 reads:

“Defendants are not entitled to ‘right to farm’ immunity pursuant to ORS 30.936 because Defendants’ use of the [Defendant] Property does not comply with applicable laws. For example, the [Defendant] Property is zoned ‘rural residential’ and therefore Defendants’ use of the [Defendant] property to produce and process marijuana commercially violates Linn County Ordinance 940.400(A) and 940.500(A).”

Plaintiffs are correct that Ordinances 940.400 and 940.500 appear to bar marijuana production on the Defendants’ property, but that only suggests that Defendants must have been grandfathered in when Chapter 940 (Marijuana Code) was adopted. Otherwise, they presumably would not have been able to receive state authorization to cultivate cannabis. If the Defendants’ use was grandfathered in, then the Ainsworth trespass and nuisance claims should still be barred by ORS 30.937, which extends the farming immunity to any “preexisting nonconforming use” as a farm.

Lessons Learned

Like with the McCart complaint, we can also analyze the Ainsworth complaint to draw some broader lessons for cannabis businesses that want to avoid similar lawsuits.

As quick reminder, we identified two initial lessons from the allegations in the McCart case:

• Don’t be a jerk.
• Control the odors.

Taking the allegations at face value, the Ainsworth defendants violated both of these rules. Like in McCart, there are (as yet unsubstantiated) allegations of harassment (although much less severe than in McCart). Also as in McCart, a major sticking point for the Ainsworth plaintiffs is the “unmistakeable skunk-like stench” that “pervades” the neighborhood, “stagnates” in the Plaintiffs’ yards, and “completely overpowers the gentle and pleasant scents of [one of] the [Plaintiffs’] flower gardens.” These lessons still clearly apply: Be a good neighbor, and control the odors.

We can pull a few new lessons from the Ainsworth complaint:

• Avoid smoke. The Ainsworth complaint alleges that the Defendants regularly burned cannabis debris in their yard, causing smoke to trespass onto their neighbors’ property. Producers seeking to avoid similar lawsuits should think twice before lighting bonfires.
• Limit noise. The Ainsworth plaintiffs complain of the noise caused by the industrial fans in the defendants’ greenhouses. Producers would be wise to take any reasonable steps to limit noise pollution.
• Try to limit traffic. Both McCart and Ainsworth complained about the increased traffic caused by the cannabis farm at all hours of the night. It seems the ideal farm will have direct access to a major road instead of access through residential roads. Barring that, producers should at least try to limit after-hours traffic.
• Don’t live next to a county commissioner. One of the plaintiffs is Linn County Commissioner John Lindsey. One would expect that Mr. Lindsey will recuse himself from any future attempts to rewrite Linn County’s cannabis ordinances.

The Ainsworth defendants have only recently lawyered up, so it may be a few weeks before we can see their answer to these charges. We’ll keep you updated.