FRANCINE SHULMAN, ET AL V. TODD KAPLAN, ET AL, No. 20-56265 (9th Cir. 2023)
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The question presented in this case is whether Appellants, a cannabis entrepreneur and two cannabis businesses, have standing to bring claims arising pursuant to the Racketeer Influenced and Corrupt Organizations Act (RICO), based on alleged harms to their cannabis business and related property. The district court granted Appellees’ motion to dismiss with prejudice, holding that Appellants lacked standing to bring their RICO claims. The court also dismissed Appellants’ Lanham Act claims on standing grounds as well as their state law claims, declining to exercise supplemental jurisdiction. Appellants appealed the district court’s order only as to their RICO claims.
The Ninth Circuit affirmed the district court’s dismissal. The panel held that while Appellants had Article III standing, they lacked statutory standing under RICO. As to Article III standing, the panel held that Appellants satisfied the injury requirement, which requires a showing of an invasion of a legally protected interest because cannabis-related property interests are recognized under California law. Appellees argued that Appellants’ alleged injuries were not redressable because they related to a cannabis business, which was illegal under the Controlled Substances Act. The panel held that the fact that Appellants sought damages for economic harms related to cannabis was not relevant to whether a court could, theoretically, fashion a remedy to redress their injuries. Further, the panel held that Appellants lacked statutory standing to bring their claims under RICO Section 1964(c). The panel concluded that the statutory purpose of RICO and the congressional intent animating its passage conflicted with the California laws recognizing a business and property interest in cannabis.
Court Description: RICO / Standing The panel affirmed the district court’s dismissal of claims brought by a cannabis entrepreneur and two cannabis businesses under the Racketeer Influenced and Corrupt Organizations Act, based on alleged harms to their cannabis business and related property through acts of mail and wire fraud by a former business partner and other defendants. The panel held that while appellants had Article III standing, they lacked statutory standing under RICO. As to Article III standing, the panel held that appellants satisfied the injury requirement, which requires a showing of an invasion of a legally protected interest, because cannabis- related property interests are recognized under California law. Appellants satisfied the causation requirement because * The Honorable Gershwin A. Drain, United States District Judge for the Eastern District of Michigan, sitting by designation. SHULMAN V. KAPLAN 3 they pleaded that their alleged injuries were caused by appellees’ actions. Appellants also satisfied the requirement that their injury would likely be redressed by legal relief. Appellees argued that appellants’ alleged injuries were not redressable because they related to a cannabis business, which was illegal under the Controlled Substances Act. The panel held that the fact that appellants sought damages for economic harms related to cannabis was not relevant to whether a court could, theoretically, fashion a remedy to redress their injuries. Appellants sought money damages, and an award of money damages is the quintessential remedy for a civil RICO violation. Therefore, the alleged harm was redressable by a federal court, and appellants had Article III standing. The panel held that appellants nonetheless lacked statutory standing to bring their claims under RICO Section 1964(c). Statutory standing requires plaintiffs to show (1) that their alleged harm qualifies as injury to their business or property and (2) that their harm was by reason of the RICO violation, which requires a showing of proximate causation. The panel concluded that, for appellants to establish RICO standing, the statute’s use of the term “business or property” must encompass businesses and property engaged in the cultivation, sale, and marketing of cannabis—an enterprise that was legal under California law, but was illegal under federal law. Agreeing with other circuits, the panel held that state law does not control where RICO’s statutory purpose or congressional intent in enacting the statute conflicts with the relevant state law. The panel concluded that the statutory purpose of RICO and the congressional intent animating its passage conflicted with the California laws recognizing a business and property interest in cannabis. Looking to RICO as a whole, and 4 SHULMAN V. KAPLAN considering RICO in tandem with the Controlled Substances Act, which was enacted almost contemporaneously, the panel found it clear that Congress did not intend “business or property” to cover cannabis-related commerce. Accordingly, the panel held that appellants lacked a statutory right to bring a claim under RICO.
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