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September 2018

Portland Office Succeeds on a Motion to Dismiss in Nuisance/RICO Case Against Mortgagee

In a case that could have national significance with the ever-increasing legalization of marijuana, Gordon Rees Scully Mansukhani Portland Partner Christopher Hawk and Senior Counsel Greg Lockwood obtained a dismissal with prejudice for a national mortgage company in Federal District Court in Eugene, Oregon. The plaintiffs, home owners who lived near a group of people who grew medicinal marijuana for personal use in a greenhouse on their property, sued their neighbors and the company who held the mortgage on the property. The plaintiffs made two claims, one for nuisance and one for civil RICO. The plaintiffs asserted that the marijuana growth created foul odors and brought additional traffic and crime to the neighborhood. They asserted that they suffered damages from a loss in the value of the property, diminished use and enjoyment of the property, and various expenditures on security.

While marijuana is legal for both recreational and medicinal use in Oregon, it remains an illegal drug under federal law. The plaintiffs asserted that because the growth and distribution of marijuana was illegal under federal law, our clients, the mortgagee, could be held liable for civil RICO violations based on the Controlled Substance Act’s “Crack House” statute.

In a case of first impression in the District of Oregon, the Portland team successfully argued that our client could not be held liable because Oregon is a lien-theory state and thus, the mortgagee did not own or control the property absent a successfully prosecuted foreclosure action. Because the mortgagee could not own or control the property, the mortgagee could neither be held liable for nuisance nor the associated RICO violations. Judge Michael McShane agreed with these arguments and dismissed the case with prejudice. This was the first time this issue has been decided in the District of Oregon, which could have a significant impact on similar litigation in Oregon, Washington, and Massachusetts.

Christopher E. Hawk
W. Gregory Lockwood