Wednesday, 14 Nov 2018
Business

Trial on the pot, the value of the properties could have large impacts

DENVER – A federal lawsuit in Colorado could have a dramatic impact on the nascent marijuana industry in the United States if a jury sits with a couple claiming that the cannabis trade as a neighbor is hurting the value of their property .

The lawsuit that begins Monday in Denver is the first time a jury will consider a lawsuit using the federal anti-racket law to target cannabis-producing companies. But the marijuana industry has been closely monitoring the case since 2015, when lawyers for a company based in Washington, California, filed for the first time their vast complaint on behalf of Hope and Michael Reilly.

One of the couple's lawyers, Brian Barnes, said the Reillys had bought the land in southern Colorado for his view of Pikes Peak and had since built a house on the rural property. They also go hiking and horseback riding.

But they say the "nauseous and smelly odors" of a nearby indoor marijuana grow has undermined the value of the property and its ability to take advantage of it and enjoy it.

"It's just not fair," Barnes said. "It's not fair that people who violate federal law hurt others."

The plaintiff's attorney seeks to argue that the couple's property has not been damaged, relying in part on the county's tax assessments on Reillys lands, which are increasing over time.

Vulnerability to similar lawsuits is one of the many risks faced by state-sanctioned marijuana companies that continue to violate federal law. Lawsuits using the same strategy have been filed in California, Massachusetts and Oregon.

Similar to Reilly's complaint, many have argued that the smell of marijuana affects the ability of neighboring homeowners to enjoy their land or the value of their property.

The question now is whether the jurors accept the argument.

"They can claim a $ 1 million drop in property value, but if a jury disagrees and says $ 5,000, that's not a big deal," said Rob Mikos. Professor of Law at Vanderbilt University. "That's why the case has many eyes."

The Congress created the law on organizations influenced by racketeering and more corrupt – better known as RICO – to target the mafia in the 1970s, allowing prosecutors to argue that the rulers of a company criminals should pay a price equal to that of lower-ranking defendants.

But the anti-racketeering law also allows private parties to sue by claiming that their business or property has been damaged by a criminal enterprise. Those who prove it can be financially compensated three times more, plus legal fees.

As of 2015, opponents of the marijuana industry have decided to resort to the strategy against companies that produce or sell marijuana-based products, as well as investors, insurers, regulators and other actors. Cannabis companies immediately realized the danger of high legal fees or court ordered payments.

This concern only grew when a Denver-based federal court of appeal decided in 2017 that the Reillys could use the anti-racket law to sue the licensed cannabis producer located in near their property. The insurance companies and other entities originally named in the Reillys trial were phased out, some after the conclusion of amicable financial settlements.

The case concerns real estate in Pueblo County, where local officials felt that marijuana was an opportunity to strengthen a region left by the steel industry. Most Colorado counties prohibit outdoor growing, forcing pot growers to find expensive storage spaces.

Pueblo officials have proposed their sunny and sunny plains. They created financial incentives in the hope of attracting producers to outdoor fields or cavernous buildings left vacant by other industries.

Parker Walton was among the first comers, buying 40 acres in the rural town of Rye in 2014.

Barnes said the Reillys had purchased three separate lots between 2011 and 2014, gradually reaching over 100 acres. They learned about the existence of marijuana sale projects on the sidelines of their last purchase four months after the finalization of the sale, he said.

Walton built a 5,000-square-foot building to grow and harvest marijuana plants indoors. The Reillys sued in early 2015. A year later, Walton announced the company's first crop via Instagram, taking a photo of a strain dubbed "Purple Trainwreck," suspended to heal in a dark room.

His lawyer, Matthew Buck, said that fewer than five people, including Walton, worked for the company, which sells its products to retail stores.

Buck said he was confident the jury would decide that the Reillys property had not been damaged. Buck warned, however, that defending against a similar lawsuit was a high cost for marijuana companies, while plaintiffs supported by a large law firm had little to lose.

Cooper & Kirk, the couple's pursuit firm, enjoys a conservative reputation, including as a founding partner who worked for the United States Department of Justice during the Reagan administration. Barnes said the cabinet members were "troubled" as states began to legalize marijuana use by adults because of the conflict inherent in the federal law. They also thought about legal strategies.

Walton created a website this month to raise money for his defense. He wrote that a loss could compromise "all legal cannabis operations in all states".

But some lawyers who have defended companies in similar lawsuits have said that these fears are overexpressed.

Adam Wolf, a California lawyer, said he thought the lawsuits were aimed primarily at deterring third-party companies from cutting ties with marijuana companies or persuading cannabis companies to shut down. But in the long run, Wolf said the US Supreme Court has limited the number of lawsuits filed against the racketeering industry against other industries.

The courts could apply the same logic to cannabis, he argued.

"What the plaintiffs seemed to say is that anyone who has touched on any matter, any marijuana company is potentially liable," Wolf said. "And it's an argument firmly rejected by the courts."

Barnes, however, said the number of pending racket lawsuits suggests that lawyers having no connection with his firm believe in the strategy.

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Kathleen Foody is a member of AP's Marijuana Beat Team. Follow her on twitter.com/katiefoody.

You will find full coverage of AP Marijuana here: apnews.com/tag/LegalMarijuana

Copyright 2018 The Associated Press. All rights reserved. This material may not be published, disseminated, rewritten or redistributed.

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