The Safe Streets Alliance out of Washington D.C. has filed two lawsuits in federal court in Denver that pose a full frontal attack on the legalized recreational and medical marijuana industry in Colorado. Service providers, regulators, landlords and investors to the marijuana industry will take notice and follow these cases. These cases seek not only damages for the individual plaintiffs named, but also injunctive and declaratory relief shutting down the (proposed) marijuana facilities in question as well as a definitive ruling from the federal courts on preemption of federal law over the states on the issue of marijuana’s illegality.
The first case [1:15-cv-00349-REB-CBS] involves the Safe Streets Alliance and co-plaintiffs Phillis Reilly and Michael Reilly (landowners in Rye, Colorado). The second case [1:15-cv-00350-MSK] involves co-plaintiff New Vision Hotels Two, LLC (owner of the Holiday Inn in Frisco, Colorado). Both were filed on February 19, 2015. Both allege interesting legal theories centered on the Racketeer Influenced and Corrupt Organizations Act (“RICO”) claims against anyone and seemingly everyone that Safe Streets believes to have a finger in the alleged “enterprise.”
What are likely to be Safe Streets’ known weaknesses in these cases become apparent when reading each of the two complaints in their entirety. The plaintiffs filed these as two separate cases. While there will be significant overlap between the cases in several areas, it is notable that two cases were filed as if one is the back-up of the obviously mission critical goal. At least one of the plaintiffs, in one of the cases, must demonstrate standing and otherwise survive a motion to dismiss in order for a single case to proceed to the merits. In both cases it is alleged that the co-plaintiffs are members of Safe Streets, critical to Safe Streets’ ability to maintain standing as an organization (more on that in a separate post). As to actual damages or injuries, the yet-to-open marijuana facilities in both cases are alleged to have already caused reduction in the “value” of the plaintiffs’ respective properties. See New Vision’s Complaint at paragraph 60, Reillys’ Complaint at paragraph 79. Such allegations of impact on property value may become issues of proof. Other allegations of damages–such as the bricks-and-mortar construction of the facility affecting “the mountain views” from an unoccupied property–appear more tenuous.
The immediate issues that were apparent to me on reading the two complaints were standing and causation. Both issues will likely be in the top three or four issues any defense lawyer retained on these cases will be looking at very closely. The strain exerted in the two complaints to allege actual damages or injuries related to the mere prospect of marijuana trade in the vicinity of the plaintiffs’ business or property is palpable, and in some places bordering speculative on its face.
A recent (December 8, 2014) opinion of the Tenth Circuit Court of Appeals (sitting in Denver, Colorado), has articulated these central issues as follows:
Under RICO’s “by reason of” requirement, to state a claim the plaintiff is required to show that a RICO predicate [unlawful] offense not only was a “but for” cause of his injury, but was the proximate cause as well. Sufficiently establishing the element of causation—both actual and proximate—is crucial to proving any violation of RICO. When a court evaluates a RICO claim for proximate causation, the central question it must ask is whether the alleged violation led directly to the plaintiff’s injuries. (internal citations and quotes omitted).
Whether in response to a motion to dismiss or later in these proceedings, it may be difficult for the plaintiffs here to show “proximate cause” in addition to “injury in fact.” The federal courts also limit “standing” in such cases to plaintiffs who suffer injuries that are proximately and factually caused by the alleged violations of RICO. While the courts treat “standing” and “causation” of damages as interrelated concepts, the U.S. Supreme Court has held in Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 461 (2006) that:
When a court evaluates a RICO claim for proximate causation, the central question it must ask is whether the alleged violation led directly to the plaintiff’s injuries. (emphasis added).
The U.S. Supreme Court has interpreted the RICO statute in civil cases to require the plaintiff to demonstrate conduct that is the “but-for” cause of plaintiff’s injury and also the “proximate cause.” To establish standing under RICO, the Safe Streets plaintiffs must show that they have been “injured in [their] business or property by reason of a violation of section 1962.” 18 U.S.C. § 1964(c).
The allegations of damages by the plaintiffs in the two Safe Streets cases filed in Denver are seemingly thin, prospective, and may be the type of issues in the immediate cross-hairs of the defendants that will surely be seeking to dismiss this case. A decision on whether the plaintiffs’ allegations withstand the first round of motions in this case is months away. I’ll be digging deeper into the allegations of injuries set forth in the complaints, as well as the prospective nature of the operations alleged to have even caused any damages. How a yet to operate business is engaged in activities affecting interstate commerce (also an element to prove a RICO violation) is yet another worthy of exploration.