Did the Legal Position of State-License Marijuana Growers Become More Hazy?: Tenth Circuit Opens Door for Private Right of Action Against Marijuana Growers

July 20, 2017
Did the Legal Position of State-License Marijuana Growers Become More Hazy?: Tenth Circuit Opens Door for Private Right of Action Against Marijuana Growers

Since medical marijuana was first legalized in California, in 1996, there has been a gradual easing of state marijuana laws, specifically states following California’s lead to legalize medical marijuana, the decriminalization of marijuana in a number of states, and the legalization of marijuana for recreational use in Alaska, California, Colorado, Maine, Massachusetts, Oregon and Washington. However, an omnipresent tension has always existed between state legalization and federal law, which categorizes marijuana as an illegal drug. Although marijuana growers and distributors are well aware of the legal threat posed by the federal government, the Tenth Circuit’s rulings in Safe Streets Alliance v. Alternative Holistic Healing, LLC has opened the door (slightly) for a new concern: private rights of action.

In Safe Streets Alliance, a Colorado state-licensed marijuana grower, Alternative Holistic Healing, along with a number of other state-licensed growers and distributors, were sued by the Reillys, neighbors to the facilities where the marijuana is grown. The Reillys brought a Racketeer Influenced and Corrupt Organization Act (RICO) suit against Alternative Holistic Healing and the other partners, claiming the growers collectively violated the Controlled Substances Act (CSA) by forming an organization with the sole purpose of manufacturing and distributing marijuana for recreational use.

Under the CSA, which establishes the federal drug policy, marijuana is still listed as an illegal substance, thus making Alternative Holistic Healing’s legal on the state-level, but illegal on the federal-level. The Reillys argued that the parties’ violation of the CSA caused them several injuries, specifically the “noxious odors” from the facility interfered with the enjoyment of their property and the presence of the facility itself lowered the value of their property based on both the “noxious odor” and the “ongoing criminal activity” taking place on the land.

It is important to note, The Tenth Circuit agreed to hear this matter to review the trial court’s decision to dismiss the RICO claims based on the Reillys inability to plead plausible injury to their property caused by Alternative Holistic Healing and the marijuana growers. Therefore, the Tenth Circuit’s decision is solely based on whether the Reilly’s claim met the requisite standards of pleading to remand the case back to the trial court and move forward with litigation, not whether the marijuana growers did in fact violate RICO and caused the subsequent injuries claimed by the Reillys.

In its ruling, the Tenth Circuit reversed the trial court’s dismissal, in part, holding that the Reilly’s have “plausibly alleged at least one” RICO claim by showing that conceivably the defendants violated RICO, the Reilly’s property was harmed, and the RICO violation cause the Reilly’s injuries. Thus, at least from the Tenth Circuit’s point of view, state-licensed marijuana growers and distributors are still in violation of federal drug policy and their activities may in fact bring about harm to private citizens; ultimately, opening up the door for a private right of action against marijuana operations in states where marijuana is legalized, based on the specific facts of the case.

There are three additional aspects of the opinion, however, that must be addressed and, as opposed to the private right of action, works in state-licensed marijuana growers favor by offering them greater protection against litigation in some instances. First, the Tenth Circuit dismissed a separate argument made by both the Reillys and prosecutors and sheriffs from Colorado, Kansas, and Nebraska that Colorado’s and Pueblo county’s decision to license marijuana growers brought about injuries, stating that private citizens without injuries to rights enumerated in the CSA cannot enforce the CSA’s preemption provision; also, the Court affirmed that the Supremacy Clause is not the source of any federal rights and does not create a cause of action. In addition, the Court dismissed a claim brought by the states of Nebraska and Oklahoma that Amendment 64 (i.e., state statute that legalized marijuana in Colorado) is preempted by the CSA, ruling this issue can only by heard by the Supreme Court because it involves a dispute between states.

Second, the Court held that a contractor delivering water to a marijuana grower does not make the party a member of the marijuana operations, stating, “a defendant must do more than simply provide, through its regular course of business, goods and services that ultimately benefit the enterprise;” thus, the contractor does not meet the conducting, or carrying out, the enterprise’s affairs prong of the RICO analysis. Lastly, the Tenth Circuit, although it reversed in part, cemented that a “plaintiff cannot recover for emotional, personal, or speculative injuries” nor claim future, speculative diminution in the value of land; overall, this helps marijuana growers because it limits the injuries private citizens can successfully bring against them.

Ultimately, the Tenth Circuit’s ruling in Safe Streets Alliance has caught the attention of everyone involved in the operation of growing and distributing marijuana and must be taken seriously moving forward. The decision seemingly opens the door for private citizens to bring suit against marijuana “enterprises,” creating a new private right of action not previously considered. However, the facts of the case are still not decided and the Tenth Circuit’s decision to allow the case to move forward does not necessarily mean marijuana growers and distributors are at risk of facing substantial jury verdicts. Regardless, those involved in the operation of growing marijuana with the intent to distribute have to be aware of not only the possibility of private citizens suing them, but also cognizant of the ever-changing, and somewhat volatile, laws surrounding marijuana legalization on both the state and federal level.

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