Shoultz v. Derrick
Shoultz v. Derrick
Opinion of the Court
*1123Plaintiffs Gary Rodney Shoultz and Judy Ann Shoultz (collectively, "Plaintiffs") allege that Defendants Patrick Lee Derrick, Katherine Kinslow, Judith E. Lucke, and Samuel Stocks-Ladd (collectively, "Defendants") have conspired and engaged in a pattern of racketeering activity, in violation of the federal Racketeer Influenced and Corrupt Organizations Act ("RICO"),
Defendants move to dismiss Plaintiffs' Complaint for two reasons: (1) Plaintiffs fail to establish two of the elements of a RICO claim-that Defendants conduct or participate in the conduct of an association-in-fact enterprise, and that the alleged marijuana operation in this case is an association-in-fact, as defined by RICO; and (2) Plaintiffs fail to establish RICO standing because they do not allege injuries compensable under RICO. The Court grants Defendants' motion to dismiss because Plaintiffs fail to allege injuries compensable under RICO.
BACKGROUND
Plaintiffs, retired senior citizens, bought property in Colton, Oregon, in 1980. Compl. ¶ 1, 15, ECF 1. They built a home, raised a family, and continue to live on the property.
Lucke, along with Defendants Derrick, Kinslow, and Stocks-Ladd, invested capital and developed a marijuana production facility (the "marijuana operation") on the Elwood Property.
Defendants' marijuana operation has negatively impacted Plaintiffs by interfering with their use and enjoyment of their property.
*1124STANDARDS
A motion to dismiss for failure to state a claim may be granted only when there is no cognizable legal theory to support the claim or when the complaint lacks sufficient factual allegations to state a facially plausible claim for relief. Shroyer v. New Cingular Wireless Servs., Inc. ,
DISCUSSION
To maintain a federal civil RICO claim, a plaintiff must allege that the defendant engaged in: "(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity." Chaset v. Fleer/Skybox Int'l, LP ,
Here, Defendants challenge the first and second elements of Plaintiffs' claim. Defendants argue that Plaintiffs fail to set forth adequate allegations as to Defendants' conduct and the characterization of the marijuana operation as an "association-in-fact enterprise." In addition, Defendants contend that Plaintiffs fail to establish RICO standing because they do not allege injuries compensable under RICO.
The Court agrees with Defendants as to Plaintiffs' failure to allege compensable injuries and, thus, dismisses the case. However, because the Court grants Plaintiffs leave to amend, it provides its analysis on all of Defendants' grounds for moving to dismiss the case.
I. Conduct
Defendants argue that Plaintiffs fail to plausibly allege that Defendants conduct or participate in the conduct of the marijuana operation. While the Court acknowledges the generalized nature of Plaintiffs' allegations, it finds that they are adequate to withstand a motion to dismiss for failure to state a claim.
The Ninth Circuit has explained that, in order for a defendant to conduct or participate in the conduct of an enterprise, the defendant must have "some part of directing its affairs." Walter v. Drayson ,
*1125in a RICO case). While "[s]imply performing services for the enterprise does not rise to the level of direction," a defendant can be a part of an enterprise "without having a role in its management and operation."
Plaintiffs allege the existence of a criminal enterprise, the "marijuana operation," created by Defendants. Compl. ¶ 1. Plaintiffs allege that Defendants agreed that Lucke would acquire the Elwood Property for the purpose of marijuana production by the marijuana operation. Id. at ¶¶ 7, 8. In addition, Plaintiffs allege that each defendant engaged in the following: (1) invested capital in the marijuana operation, (2) developed the Elwood Property for marijuana production by the marijuana operation, (3) produced marijuana on the Elwood Property for the marijuana operation, (4) trafficked marijuana produced by the marijuana operation, and (5) knowingly received proceeds from such trafficking. Id. at ¶¶ 5-8. In furtherance of the goal of producing and distributing marijuana, "Defendants pooled their resources and achieved enterprise efficiency that no one Defendant could have achieved individually." Id. at ¶ 25.
Such allegations are sufficient to show that each defendant has "some part" in directing the affairs of the marijuana operation. Their roles in the marijuana operation go far beyond the level of participation in the cases cited by Defendants. For example, Defendants cite Walter v. Drayson , a case in which an attorney who provided legal services to trustees was found to have played no part in directing the enterprise's affairs because she did not occupy a position in the chain of command, she did not knowingly implement decisions of upper management, she was not indispensable to achievement of the enterprise's goal, and she was not vital to the enterprise's success.
In contrast, all defendants in this case are alleged to have played significant roles in directing the affairs of the marijuana operation, including producing and trafficking the marijuana. As the case proceeds, Plaintiffs will have to produce evidence to support these allegations as to each defendant. However, at this stage, Plaintiffs have adequately alleged Defendants' conduct in the enterprise.
II. Enterprise
RICO defines the term "enterprise" as "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity."
Defendants argue that the "common purpose" element is unmet when the *1126alleged association-in-fact is "merely a routine contract for services." Def.'s Mot. Dismiss 15 (quoting Gomez v. Guthy-Renker, LLC , No. EDCV1401425JGBKKX,
Plaintiffs also adequately allege an ongoing organization. An ongoing organization is "a vehicle for the commission of two or more predicate crimes," but does not require any particular organizational structure or formality. Odom ,
Finally, Plaintiffs have sufficiently alleged that Defendants function as a continuing unit. "The continuity requirement focuses on whether the associates' behavior was ongoing rather than isolated activity." Odom ,
III. Injuries
Despite the Court's rulings as to the two elements discussed above, the Court agrees with Defendants that Plaintiffs fail to state a claim because they do not plead a compensable injury under RICO.
A civil RICO plaintiff "only has standing
In their Complaint, Plaintiffs allege that Defendants injured Plaintiffs' property interest by "interfering with Plaintiffs' use and enjoyment of Plaintiffs' Property, burdening it with noise pollution, diminishing its market value and making it more difficult to sell." Compl. ¶ 38. However, in their response to Defendants' motion to dismiss, Plaintiffs make clear that their allegations regarding use and enjoyment and noise pollution are not stand-alone allegations of injury but, rather, they are examples of the ways in which Defendants have diminished Plaintiffs' property value.
Defendants do not dispute that a reduction in Plaintiffs' property value is an injury to property. Instead, they argue that Plaintiffs' allegations of a diminished market value of their property are too speculative and conclusory to constitute the "concrete financial loss" required by the Ninth Circuit in a RICO claim. Plaintiffs respond by relying on the Tenth Circuit Court of Appeals' decision in Safe Streets Alliance v. Hickenlooper ,
Neither party cites a recent case from this District, involving very similar facts and the same plaintiff's attorney as the present case. See Ainsworth v. Owenby ,
As the Ainsworth opinion explains, the Tenth Circuit's Safe Streets Alliance decision does not square with Ninth Circuit precedent.
However, "[t]his Court, unlike the Tenth Circuit, is not at liberty to disregard the Ninth Circuit's repeated admonitions that 'concrete financial loss' is an indispensable element of a RICO claim." Ainsworth ,
IV. Effect of the Oregon Right to Farm Act
Defendants argue that the Oregon Right to Farm Act (Oregon Revised Statute § (O.R.S.) 30.930 ) precludes Plaintiffs' RICO claim and that Defendants are entitled to attorney fees and costs incurred in defending against Plaintiffs' RICO allegations, because the RICO claim is "derived from state-law nuisance allegations." Def.'s Mot. Dismiss 19. Defendants argue that the Oregon Right to Farm Act prohibits nuisance claims based on conditions caused by marijuana production. Defendants also contend that the Oregon Right to Farm Act entitles them to fees and costs associated with defending the RICO claim, "insofar as said defense necessarily requires state law nuisance analysis."Id. Defendants point to the Act, which provides for attorney fees and costs to a prevailing party in a nuisance claim arising from a "farming practice." O.R.S. 30.938.
*1129Plaintiffs only bring one claim-a RICO violation under federal law. Whether they are precluded by the Oregon Right to Farm Act, a state law, in bringing a state law nuisance claim is not before this court. Similarly, Defendants are not entitled to attorney fees pursuant to RICO just because Plaintiffs' RICO claim shares factual allegations with what possibly could be alleged in a state-law nuisance claim or because, in their RICO claim, Plaintiffs describe a "farming practice" as defined by Oregon statute. The Court rejects Defendants' argument for attorney fees and costs.
V. Leave to Amend
Federal Rule of Civil Procedure 15(a) provides that a trial court shall grant leave to amend freely "when justice so requires." "[A] district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts." Doe v. United States ,
CONCLUSION
Defendants' motion to dismiss [10] is granted. Plaintiffs are granted leave to amend the Complaint within 14 days of the date below.
IT IS SO ORDERED.
Defendants raise for the first time in their Reply that the Complaint fails to satisfy the notice requirements of Rule 8 and the separate statements requirement of Rule 10. The Court declines to address these arguments because they were raised for the first time in Defendants' Reply. See, e.g., Turtle Island Restoration Network v. U.S. Dep't of Commerce ,
Plaintiffs satisfy the pleading standard based on their allegations regarding the predicate crimes of violations of the Controlled Substances Act. The Court notes, however, that allegations of money laundering may constitute a predicate act involving fraud, in which case the heightened standard of Rule 9(b) would apply. See e.g., Desoto v. Condon ,
The question of statutory standing is properly resolved under Rule 12(b)(6). Canyon Cty. v. Syngenta Seeds, Inc. ,
Alternatively, if Plaintiffs intended to claim an independent injury based on their impaired use and enjoyment of land, such injury would be a non-compensable personal injury as opposed to an injury to property that could be alleged in a RICO claim. See Ainsworth v. Owenby ,
Defendants also argue that Plaintiffs' alleged injuries are abatable and, thus, not a concrete financial loss. Because the Court holds that Plaintiffs fail to adequately allege compensable injuries, it declines to consider whether what is alleged is abatable and whether that would affect Plaintiff's ability to plead injury at this stage.
Reference
- Full Case Name
- Gary Rodney SHOULTZ and Judy Ann Shoultz v. Patrick Lee DERRICK, Katherine Kinslow, Judith E. Lucke and Samuel Stocks-Ladd
- Cited By
- 2 cases
- Status
- Published