Crimson Galeria Limited Partnership et al v. Healthy Pharms, Inc. et al
Judge Allison D. Burroughs: MEMORANDUM AND ORDER entered. "For the foregoing reasons, the Government Defendants motions to dismiss [ECF Nos. 51 , 52 ] are GRANTED and the remaining motions to dismiss [ECF Nos. 49 , 54 , 57 , 60 ] are DENIED with leave to renew. Plaintiffs may file an amended complaint within 30 days. SO ORDERED.(McDonagh, Christina)
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
CRIMSON GALERIA LIMITED
PARTNERSHIP, et al.,
HEALTHY PHARMS, INC., et al.,
Civil Action No. 17-cv-11696-ADB
MEMORANDUM AND ORDER ON MOTIONS TO DISMISS
Plaintiffs are property owners in Harvard Square who claim that they have been injured
by the anticipated opening of a licensed marijuana dispensary in their neighborhood. They assert
claims under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§
1962(c) and (d), and seek declaratory and injunctive relief against the dispensary and other
related parties for acting and conspiring to distribute marijuana in violation of the Controlled
Substances Act (“CSA”), 21 U.S.C. §§ 801–904. Plaintiffs also bring claims against state and
local government entities for declaratory and injunctive relief on the grounds that federal law
preempts Massachusetts’ regulatory regime implementing the legalization of medical marijuana
The Complaint [ECF No. 1] sets forth the following claims: (1) violation of 18 U.S.C. §
1962(c) against the Healthy Pharms Defendants and Red Line; (2) violation of 18 U.S.C. §
1962(d) against all defendants except the Government Defendants and Town of Georgetown; (3)
violation of 18 U.S.C. § 1962(c) against Mr. Averill and Mr. Overgaag; (4) violation of 18
U.S.C. § 1962(d) against the Healthy Pharms Defendants, Red Line, Tomolly, Century Bank, the
4Front Defendants, and John Does 1-4; (5) federal preemption of state marijuana licensing
against the State Defendants; (6) federal preemption of local marijuana licensing against the City
of Cambridge and Town of Georgetown; and (7) declaratory judgment.
Currently pending before the Court are separate motions to dismiss filed by six groups of
defendants: (1) 4Front Advisors, LLC, 4Front Holdings, LLC, and Kristopher Krane
(collectively, the “4Front Defendants”) [ECF No. 49]; (2) the City of Cambridge [ECF No. 51];
(3) Massachusetts Department of Public Health (“DPH”) and Maura T. Healey, in her official
capacity as Attorney General of the Commonwealth of Massachusetts (the “Commonwealth”)
(collectively, the “State Defendants” and with the City of Cambridge, the “Government
Defendants”) [ECF No. 52]; (4) Century Bank and Trust Company (“Century Bank”) [ECF No.
54]; (5) Healthy Pharms, Inc. (“Healthy Pharms”), Timbuktu Real Estate, LLC (“Timbuktu”),
Paul Overgaag, Nathaniel Averill, and 3 Brothers Real Estate, LLC (“3 Brothers”) (collectively,
the “Healthy Pharms Defendants”) [ECF No. 57]; and (6) Red Line Management, LLC (“Red
Line”) and Tomolly, Inc. (“Tomolly”) [ECF No. 60].2
For the reasons stated herein, the Government Defendants’ motions to dismiss [ECF Nos.
51, 52] are GRANTED and the remaining motions to dismiss [ECF Nos. 49, 54, 57, 60] are
DENIED with leave to renew. Plaintiffs filed this action before the dispensary at issue had
opened for business, basing their case on the idea that the mere public disclosure of a planned
dispensary damaged their property interests. Shortly after the pending motions were filed, the
dispensary apparently opened its doors to the public. Plaintiffs ask the Court to take judicial
notice of this fact or grant leave to amend the complaint. Despite Plaintiffs’ failure to establish
an adequate foundation for taking judicial notice, or to properly request leave to amend, the
Court grants Plaintiffs leave to file an amended complaint within 30 days, given the early stage
of the case, the liberal amendment policy of Fed. R. Civ. P. 15, and the potential for this alleged
factual development to impact the entirety of the proceedings.
The Town of Georgetown answered the Complaint. [ECF No. 34]. The John Doe Defendants
are four unidentified insurance companies that allegedly issued insurance policies to Defendants.
In 2012, the Commonwealth of Massachusetts legalized the sale of marijuana for medical
use through Registered Marijuana Dispensaries (“RMDs”), and in May 2013, the DPH
promulgated regulations that authorized municipalities to regulate the medical use of marijuana.
Compl. ¶¶ 32, 46, 47. See Mass. Gen. Laws ch. 94C, §§ 1 9; 105 Mass. Code Regs. 725.000 et
seq. As of March 2017, nine RMDs were open for retail sales in Massachusetts and an additional
88 were registered and at varying stages of completion. Compl. ¶ 48. In contrast, under federal
law, the CSA criminalizes the manufacture, distribution, or possession of marijuana. 21 U.S.C. §
841(a)(1), (b)(1)(A)(vii) and (b)(1)(B)(vii). See also Gonzales v. Raich, 545 U.S. 1, 22 (2005)
(holding that the CSA does not violate the Commerce Clause by criminalizing intrastate
cultivation and possession of marijuana for medical purposes). The United States Attorney
General and Department of Justice have at times exercised discretion in the enforcement of the
CSA in response to the legalization of the sale of marijuana in certain states, but criminalization
of marijuana under the CSA remains in place.3 See United States v. Canori, 737 F.3d 181, 185
(2d Cir. 2013) (“The Attorney General’s exercise of [such] discretion . . . neither legalizes
marijuana nor creates a constitutional crisis.”). “The inherent conflict between the [CSA] and
[the state’s] marijuana regulatory regime lies at the heart of the RICO claims” asserted in this
case. Safe Streets Alliance v. Alternative Holistic Healing, LLC, No. 15-cv-00349-REB-MLC,
For instance, in August 2013, then-Deputy Attorney General James Cole issued a guidance
memorandum (“Cole Memorandum”) that, while leaving intact the authority of the Department
of Justice to enforce federal law regardless of state law, declared that “enforcement of state law
by state and local law enforcement and regulatory bodies should remain the primary means of
addressing marijuana-related activity,” unless the state’s “regulatory structure” and “enforcement
efforts” are not “sufficiently robust.” See West v. Lynch, 845 F.3d 1228, 1232 (D.C. Cir. 2017).
The Cole Memorandum was rescinded as of January 4, 2018. See Office of Att’y Gen.,
Memorandum for All United States Attorneys (Jan. 4, 2018), https://www.justice.gov/opa/ pressrelease/file/1022196/download.
2016 WL 11384332, at *18 19 (D. Colo. Feb. 8, 2016), aff’d in part, rev’d in part, Safe Streets
All. v. Hickenlooper, 859 F.3d 865 (10th Cir. 2017).
Defendant Healthy Pharms operates a marijuana cultivation facility at 401 East Main
Street, Georgetown, Massachusetts, pursuant to permits from Defendant Town of Georgetown
and a license from Defendant DPH. Compl. ¶¶ 34, 64, 72, 80. Defendant 3 Brothers owns the
property in Georgetown where Healthy Pharms operates its facility. Id. ¶ 69. The Georgetown
facility can hold “as many as several hundred marijuana plants.” Id.
On April 26, 2017, Defendant City of Cambridge issued Healthy Pharms a special permit
to operate an RMD at 98 Winthrop Street in Harvard Square. Compl. ¶¶ 33, 58 59, 73.
Defendant Timbuktu owns the building at 98 Winthrop Street and leases the property to Healthy
Pharms. Compl. ¶¶ 65 66. The individual defendants, Mr. Overgaag and Mr. Averill, are
officers or principals of several of the defendant entities. Mr. Averill is the President of Healthy
Pharms. Id. ¶¶ 6, 9. Mr. Overgaag is an officer, manager, and/or resident agent of Healthy
Pharms, Timbuktu, and 3 Brothers. Id. ¶¶ 6 8, 37. He is also the president of Defendant
Tomolly, the tenant at 98 Winthrop Street before Healthy Pharms. Id. ¶¶ 37, 65. Mr. Overgaag
and Mr. Averill also have authority to sign documents on behalf of Defendant Red Line, which is
involved in the management of the property at 98 Winthrop Street. Id. ¶¶ 9, 37.
As part of an alleged enterprise to cultivate and sell marijuana, the Healthy Pharms
Defendants have “taken active steps to prepare 98 Winthrop Street for use as a marijuana
[dispensary], including seeking to engage a contractor to make alterations to the property,”
possessing equipment for the marijuana cultivation at the Georgetown facility, communicating
by telephone and email to lease the Georgetown and Cambridge properties, and maintaining a
website that advertises the pricing, quality, and sale of marijuana. Id. ¶¶ 69, 71, 81, 138. The
4Front Defendants engaged in “consulting activities” for Healthy Pharms and operate a website
that provides support to marijuana companies. Id. ¶ 36. Defendant Century Bank provides
banking services to Healthy Pharms knowing that it intends to operate a marijuana business. Id. ¶
Plaintiffs are entities that own properties that abut 98 Winthrop Street or are located
within 200 feet of it. Compl. ¶¶ 1 5, 90 93. They rent these properties to retail and residential
tenants. [ECF Nos. 1-15, 1-16, 1-18, & 1-20]. The prospect of an RMD opening at 98 Winthrop
Street has allegedly diminished the market value of neighboring properties, because the odor of
marijuana “will purportedly disrupt commercial tenants and interfere with the neighboring
owners’ use and enjoyment of their property,” and there is “stigma” associated with the sale of
marijuana. Compl. ¶¶ 95, 97, 102. According to Plaintiffs, the planned opening of the RMD
makes Harvard Square a less desirable location for businesses that wish to operate in a “pleasant
and historic area,” as prospective buyers or renters “reasonably worry” about “increase[d] crime”
and “pungent odors.” Id. ¶ 97. Moreover, Plaintiffs assert that the proposed RMD has made their
properties “more difficult to sell or rent,” and “has prevented realization of a development
scheme that would bring Plaintiffs’ properties to their highest-and-best use.” Id. Plaintiffs
planned to build three-story additions to certain of their properties, but investors will not finance
Plaintiffs’ construction projects in light of the proposed RMD. Compl. ¶ 101.
In support of their allegations of injury, Plaintiffs engaged a licensed real estate appraiser,
Webster A. Collins, to provide a “determination of damages and lost profits attributable to the
stigma of a proposed marijuana dispensary at 98 Winthrop Street.” Compl. ¶ 99; [ECF No. 1-10
at 1]. Mr. Collins inspected Plaintiffs’ properties and interviewed brokers and leasing agents who
opined that the prospect of a marijuana dispensary makes tenants uncomfortable and lowers the
market rent and quality of interested tenants. Compl. ¶ 100. In determining that the stigma
associated with an RMD is comparable to the stigma of a drug and alcohol treatment center or
groundwater-contaminated property that endangers human health, Mr. Collins concluded that the
proposed RMD has caused a loss of $18,785,000 in value and $8,290,000 in lost profits to
Plaintiffs’ properties. Compl. ¶¶ 99, 105; [ECF Nos. 1-4 at 1; 1-43 at 1].
Although the Complaint describes 98 Winthrop Street as a “planned” facility, because it
had not opened at the time of the filing of the Complaint, Plaintiffs report in their opposition that
the RMD opened for business on December 30, 2017. See Compl. ¶ 80; [ECF No. 65 at 10].
STANDARD OF REVIEW
On a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6), the Court
must accept as true all well-pleaded facts, analyze those facts in the light most hospitable to the
Plaintiffs’ theory, and draw all reasonable inferences from those facts in favor of the Plaintiffs.
United States ex rel. Hutcheson v. Blackstone Med., Inc., 647 F.3d 377, 383 (1st Cir. 2011). The
facts alleged must be sufficient to “state a claim to relief that is plausible on its face.” A.G. ex
rel. Maddox v. Elsevier, Inc., 732 F.3d 77, 80 (1st Cir. 2013) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007)). The plausibility standard invites a two-step analysis. Id.
“At the first step, the court ‘must separate the complaint’s factual allegations (which must be
accepted as true) from its conclusory legal allegations (which need not be credited).’” Id.
(quoting Morales-Cruz v. Univ. of P.R., 676 F.3d 220, 224 (1st Cir. 2012)). “At the second step,
the court must determine whether the remaining factual content allows a reasonable inference
that the defendant is liable for the misconduct alleged.” Id. (internal quotations and citation
omitted). “[T]he combined allegations, taken as true, must state a plausible, not a merely
conceivable, case for relief.” Sepúlveda-Villarini v. Dep’t of Educ. of P.R., 628 F.3d 25, 29 (1st
A motion to dismiss for lack of subject matter jurisdiction pursuant to Rule 12(b)(1) “‘is
subject to the same standard of review’ as a motion to dismiss under Rule 12(b)(6).” Breda v.
McDonald, 153 F. Supp. 3d 496, 499 (D. Mass. 2015) (citing Castino v. Town of Great
Barrington, No. 13-cv-30057-KPN, 2013 WL 6383020, at *1 (D. Mass. Dec. 4, 2013)). Courts
may, however, consider evidence outside the pleadings in determining jurisdiction. Gonzalez v.
United States, 284 F.3d 281, 288 (1st Cir. 2002), as corrected (May 8, 2002).
When Plaintiffs filed the Complaint on September 7, 2017, the RMD at 98 Winthrop
Street had not begun operating. Compl. ¶ 69. Defendants filed their motions to dismiss on
December 15, 2017, arguing in part that because the RMD had not opened and might never open,
Plaintiffs lacked standing under Article III of the United States Constitution, had failed to plead a
pattern of racketeering activity, and could not demonstrate an injury that was proximately caused
by the alleged RICO violations. [ECF Nos. 49 61]. Two weeks later, the RMD apparently
opened and, according to Plaintiffs, is “now selling marijuana from that location.” [ECF No. 65
at 12]. Plaintiffs refer to and rely upon this alleged factual development throughout their
opposition. See, e.g., id. at 10 12, 15 16, 23, 36, 49. They ask that the Court take judicial notice
of this fact, or alternatively, allow them to amend the Complaint. [ECF No. 65 at 12 n.1].
“Under Fed. R. Evid. 201(b), a judge may take notice of an adjudicative fact only if it is
‘not subject to reasonable dispute in that it is either (1) generally known within the territorial
jurisdiction of the trial court or (2) capable of accurate and ready determination by resort
to sources whose accuracy cannot reasonably be questioned.’” Sarvis v. Polyvore, Inc., No. 12-
cv-12233-LTS, 2015 WL 5934759, at *4 (D. Mass. Aug. 24, 2015), report and recommendation
adopted, 2015 WL 6182226 (D. Mass. Sept. 14, 2015) (quoting Lussier v. Runyon, 50 F.3d
1103, 1113 (1st Cir. 1995)). Plaintiffs offer no support for finding that this allegation is
“generally known within the territorial jurisdiction of the trial court.” Id. They instead provide
(1) an undated printout of the homepage of Healthy Pharms’ website announcing that Healthy
Pharms is “[now open] in historical Harvard Square in Cambridge, MA as of Saturday,
December 30th 2017” and (2) an undated printout of a Boston Globe newsletter titled “This
Week in Weed” which reads, “We hear Healthy Pharms will finally open its medical marijuana
dispensary in Harvard Square around noon Saturday.” [ECF Nos. 65-1 at 2, 65-2 at 5].
First, neither source indicates that Healthy Pharms has completed sales of marijuana at its
Cambridge location as Plaintiffs assert in their opposition. The newsletter does not report that
Healthy Pharms opened but that it “will” open on a future date. [ECF No. 65-2 at 5]. Moreover,
Plaintiffs do not merely request judicial notice of the website’s existence or the newsletter’s
publication, but also that the Court “take notice of the truth of the matters asserted”
therein. Greenspan v. Ramdom House, Inc., No. 12-1594, 2012 WL 5188792, at *1 (1st Cir. Oct.
16, 2012) (denying motion requesting that court take judicial notice of truth of matter asserted in
newspaper article); Cofield v. Ala. Pub. Serv. Comm’n, 936 F.2d 512, 517 (11th Cir. 1991)
(“That a statement of fact appears in a daily newspaper does not of itself establish that the stated
fact is capable of accurate and ready determination by resort to sources whose accuracy cannot
reasonably be questioned.” (internal quotation marks omitted)). Plaintiffs essentially relegate
their entire argument to a footnote that contains no legal basis for concluding that their new
allegations are properly noticeable from the sources provided. Accordingly, the request for
judicial notice is denied.
REQUEST FOR LEAVE TO AMEND
Plaintiffs contend that the Complaint is adequately pled as is but nonetheless ask for
leave to amend if the request for judicial notice is denied. [ECF No. 65 at 12 n.1]. Even if it were
appropriate under the circumstances, taking judicial notice of the mere opening of the RMD—
without additional allegations regarding the conduct occurring at the RMD or the resulting
injuries—would not sufficiently account for this material development in a way that would allow
the case to proceed in a practical or logical manner. Plaintiffs would be relying on the predicate
acts and damages occurring at the RMD now that it is open, but proceeding with a Complaint
that is solely based on allegations that it might open. Rather than seeking leave to amend,
contingent on the merits of their request for judicial notice, Plaintiffs should have filed an
amended or supplemental pleading when the RMD opened, which would have saved time and
resources and provided the Court with a more complete and accurate set of allegations to assess
the plausibility of the claims. See Fed. R. Civ. P. 15(a) & (d). In Kader v. Sarepta Therapeutics,
Inc., 887 F.3d 48, 61 (1st Cir. 2018), the First Circuit affirmed this Court’s denial of leave to
amend, even assuming that the proposed amended complaint was not futile, where plaintiffs
“waited for the [c]ourt’s ruling on the [m]otion to [d]ismiss” for three months after discovering
new information. As the First Circuit has repeatedly stated, “Plaintiffs may not, having the
needed information, deliberately wait in the wings” to see if the Complaint will survive the
motion to dismiss. ACA Fin. Guar. Corp. v. Advest, Inc., 512 F.3d 46, 57 (1st Cir. 2008).
Although the Court does not countenance Plaintiffs’ “wait and see approach,” Kader, 887
F.3d at 61, or the consequent delay in fully addressing the issues presented, Fed. R. Civ. P.
15(a)(2) provides that the Court should “freely give leave [to amend] when justice so requires.”
“[Rule 15] reflects a liberal amendment policy,” and “the district court enjoys significant latitude
in deciding whether to grant leave to amend.” Advest, 512 F.3d at 55 (citation omitted). A court
may deny leave to amend for reasons including “undue delay, . . . undue prejudice to the
opposing party by virtue of allowance of the amendment, [and] futility of amendment.” Foman v.
Davis, 371 U.S. 178, 182 (1962). A request to amend a complaint “requires the court to examine
the totality of the circumstances and to exercise its informed discretion in constructing a balance
of pertinent considerations.” Palmer v. Champion Mortg., 465 F.3d 24, 30–31 (1st Cir. 2006).
For the reasons stated herein, although leave to amend cannot cure the threshold
deficiencies in the claims against the Government Defendants, the Court cannot determine at this
stage that an amendment would be futile with regard to the non-government Defendants.
Plaintiffs are therefore granted 30 days to file an amended complaint consistent with this order.
To further explain why the Court cannot determine that an amendment would be futile at this
time, and to provide the parties with additional guidance should the Plaintiffs choose to file an
amended complaint, the Court addresses the issues raised in the non-government Defendants’
motions to dismiss. See Glassman v. Computervision Corp., 90 F.3d 617, 623 (1st Cir. 1996)
(“In reviewing for ‘futility,’ the district court applies the same standard of legal sufficiency as
applies to a Rule 12(b)(6) motion.”); see also Pruell v. Caritas Christi, 678 F.3d 10, 15 (1st Cir.
2012) (helpful on remand for court “to indicate to plaintiffs what deficiencies remain” and what
court expects to be improved in amended complaint).
GOVERNMENT DEFENDANTS’ MOTIONS TO DISMISS
Plaintiffs’ claims against the Government Defendants (Counts V, VI, and IX) assert that
Massachusetts’ state and local regulation of RMDs conflicts with the CSA and is therefore
preempted by federal law. Plaintiffs also argue that the Court has the equitable power to enjoin
the Government Defendants from enforcing regulations that conflict with the CSA, even if
neither the Supremacy Clause nor the CSA provide a private right of action.
The Tenth Circuit appears to be the only federal Court of Appeals to address a civil RICO
action brought by neighboring property owners against a licensed marijuana cultivation facility
and related governmental entities. See Safe Streets Alliance v. Hickenlooper, 859 F.3d 865 (10th
Cir. 2017). Safe Streets Alliance arose out of the legalization of recreational marijuana in
Colorado by constitutional amendment. 589 F.3d at 876. The owners of property adjacent to a
functioning marijuana cultivation facility brought civil RICO claims alleging that the public
disclosure and completed construction of the facility interfered with the use and enjoyment of
their property and diminished its market value. Id. at 879. The plaintiffs also asserted causes of
action in equity against the state and county, claiming that the CSA preempted Colorado’s
constitutional amendment. Id. at 876 77, 891 92.
Like the plaintiffs in that case, Plaintiffs here do not contend that the preemption
provision or any other section of the CSA “vests private citizens with any relevant substantive
rights.” Id. at 894. Rather, Plaintiffs “are simply invoking [the Article III court’s] equitable
authority to enjoin actions by state officers that are preempted by the CSA and thus violate the
Supremacy Clause.” Id. (internal quotation marks omitted). As in Safe Streets Alliance, however,
Plaintiffs in this case do not “purport to identify any substantive rights . . . that serve as the
foundation for their alleged causes of action in equity for sweeping injunctive relief.”4 Id. The
Tenth Circuit sufficiently addressed this same argument as follows:
Courts have also consistently held that the CSA does not confer a private right of action. See,
e.g., Quillinan v. Ainsworth, No. 17-cv-00077-KAW, 2018 WL 2151936, at *6 (N.D. Cal. May
10, 2018) (“[T]he [CSA] does not permit a civil action to be brought by a private-citizen plaintiff
to enforce compliance.”); Durr v. Strickland, 602 F.3d 788, 789 (6th Cir. 2010). Similarly, the
Supreme Court recently affirmed that there is no private right of action to enforce the Supremacy
Clause. See Armstrong v. Exceptional Child Ctr., Inc., 135 S. Ct. 1378, 1383 (2015) (“It is
[T]he Supreme Court has explained that “to invoke the” Article III courts’ equitable
powers, a plaintiff asserting a cause of action to enforce a federal statute must have
“a federal right that [he or she] possesses against” the defendant. Va. Office for
Prot. & Advocacy v. Stewart, 563 U.S. 247, 260 (2011). “Such litigation cannot
occur unless the” plaintiff “has been given a federal right of” his or her “own to
vindicate . . . under the . . . statute at issue” in the case. Id. at 261 n.8 (emphasis
added). Therefore, unless a private plaintiff has been given a federal right of her or
his own to vindicate in the CSA, the plaintiff cannot maintain a cause of action—in
law or in equity—against any defendant for violating the CSA. Id.
Safe Streets Alliance, 859 F.3d at 902. The court further explained that “to determine whether a
private plaintiff may enforce the CSA, [the court] must first determine whether that plaintiff has
substantive rights in the CSA that he or she is seeking to vindicate . . . . Only if the CSA includes
such rights will [the court] have any call to determine what causes of action are available to
enforce those rights, and for what remedies.” Id. at 903. The Plaintiffs in this case, like the Safe
Street Alliance plaintiffs, “were . . . required to plausibly allege that they are vindicating a
federal substantive right to be able to maintain a cause of action in equity.” Here, Plaintiffs did
not assert such a right and therefore have not stated a viable cause of action against the
Government Defendants. Id. at 903 04.
Presumably aware of this, Plaintiffs rely on Armstrong v. Exceptional Child Ctr., Inc.,
135 S. Ct. 1378 (2015) and the interpretation thereof in the Safe Street Alliance concurring
opinion, to argue that the absence of a substantive right does not foreclose the availability of
equitable relief. Even if Plaintiffs were correct, applying the analysis articulated by the
Armstrong court actually demonstrates that equitable relief is unavailable under the CSA. As an
initial matter, the Armstrong court reiterated that “[t]he power of federal courts of equity to
enjoin unlawful executive action is subject to express and implied statutory limitations,” and that
“[c]ourts in equity can no more disregard statutory and constitutional requirements and
equally apparent that the Supremacy Clause is not the ‘source of any federal rights,’ . . . and
certainly does not create a cause of action.” (citation omitted)).
provisions than can courts of law.” Armstrong, 135 S. Ct. at 1385 (citation omitted). The
Armstrong court then identified statutory language that can signal Congress’s “intent to
foreclose” equitable relief under a particular statute. Id. First, the statute at issue (here, the CSA)
may demonstrate intent to preclude private enforcement through the “express provision of one
method of enforcing a substantive rule,” which “suggests that Congress intended to preclude
others.” Id. Second, the “judicially unadministrable nature” of a statute, and Congress’s explicit
delegation of sole enforcement of a statute’s “judgment-laden standard” to an agency, shows that
Congress “wanted to make the agency remedy that it provided exclusive.” Id. (citation omitted).
Here, the CSA provisions that criminalize the possession and distribution of marijuana,
see, e.g., 21 U.S.C. §§ 841, 843, 848, 854, 856, “may be enforced criminally, civilly, or
administratively,” but the authority to enforce these provisions rests only with the United States
Attorney General and the Department of Justice. Safe Streets Alliance v. Alternative Holistic
Healing, LLC, No. 15-cv-00349-REB-CBS, 2016 WL 223815, at *4 (D. Colo. Jan. 19, 2016),
aff’d sub nom., Safe Streets Alliance, 859 F.3d 865; see Schneller ex rel. Schneller v. Crozer
Chester Med. Ctr., 387 F. App’x 289, 293 (3d Cir. 2010) (CSA is “enforceable only by the
Attorney General and, by delegation, the Department of Justice”); Ringo v. Lombardi, No. 09cv-4095-C-NKL, 2010 WL 3310240, at *3 (W.D. Mo. Aug. 19, 2010) (“Congress provided
specific means of remedying CSA violations via the Attorney General. There is no indication
that anything outside the statute would expand that remedy to encompass a private right of
As to the second Armstrong factor, the district court in Safe Street Alliance appropriately
described the CSA as follows:
The recognition of [the Attorney General’s] sweeping prosecutorial discretion
addresses directly the second factor identified in Armstrong as suggesting an intent
to foreclose equitable relief: the “judicially unadministrable nature” of the CSA.
Armstrong, 135 S. Ct. at 1385. There certainly can be no more “judgment-laden
standard” than that which confers almost complete discretion on the Attorney
General to determine whether to assert the supremacy of federal law to challenge
arguably conflicting state marijuana laws. See id.
Safe Streets Alliance, 2016 WL 223815, at *5. In reference to the Cole Memorandum, the
district court explained that allowing private litigants to interfere with the Department of
Justice’s discretionary decision to allow states to develop their own regulatory schemes
regarding medical marijuana “would create precisely the type of ‘risk of inconsistent
interpretations and misincentives’ which strongly counsel against recognizing an implicit right to
a judicially created equitable remedy.” Id. (quoting Armstrong, 135 S. Ct. at 1385). Although the
Department of Justice has since rescinded the Cole Memorandum, the discretion to enact, repeal,
and enforce such policies nonetheless continues to rest with the government and not private
litigants. In sum, even if the absence of substantive rights under the CSA alone did not foreclose
Plaintiffs’ claims for equitable relief against the Government Defendants, the text of the CSA
and the analysis under Armstrong demonstrate that Plaintiffs cannot invoke the Court’s equitable
power through this lawsuit. See Safe Streets Alliance, 895 F.3d at 904 05 (holding that “[n]o
modern authority supports [the plaintiffs’] hypothesis” that Article III courts provide “freefloating injunctive relief”). Accordingly, the claims against the Government Defendants are
The Court does not reach the merits of the claims against the Government Defendants but notes
the outcome of cases challenging the regulation of marijuana dispensaries on preemption
grounds in other jurisdictions. See White Mountain Health Ctr., Inc. v. Maricopa Cnty., 386 P.3d
416, 419 (Ariz. Ct. App. 2016) (“The CSA does not preempt the [Arizona Medical Marijuana
Act] to the extent [it] requires the [county] to pass reasonable zoning regulations for
[dispensaries] and process papers concerning zoning compliance or requires the State to issue
documents to allow [dispensaries] to operate.”); Joe Hemp’s First Hemp Bank v. City of
Oakland, No. 15-cv-05053 WHA, 2016 WL 375082, at *3 (N.D. Cal. Feb. 1, 2016) (finding that
CSA did not preempt the City of Oakland’s marijuana dispensary permitting scheme); see also
Ter Beek v. City of Wyoming, 846 N.W.2d 531, 534 (Mich. 2014) (CSA does not preempt
NON-GOVERNMENT DEFENDANTS’ MOTIONS TO DISMISS
Article III Standing and Ripeness
The non-government Defendants assert that Plaintiffs lack standing and that their claims
are unripe under Article III of the United States Constitution, because the Complaint is premised
on the hypothetical opening of an RMD. “Much as standing doctrine seeks to keep federal courts
out of disputes involving conjectural or hypothetical injuries, the Supreme Court has reinforced
that ripeness doctrine seeks to prevent the adjudication of claims relating to ‘contingent future
events that may not occur as anticipated, or indeed may not occur at all.’” Reddy v. Foster, 845
F.3d 493, 500 (1st Cir. 2017) (quoting Texas v. United States, 523 U.S. 296, 300 (1998)). Given
that Fed. R. Civ. P. 15(d) allows for the supplemental pleading of “newly arising facts necessary
to demonstrate standing,” even if Plaintiffs lacked standing at the time of filing of the Complaint,
Plaintiffs may amend the complaint to demonstrate that the case has become ripe upon the
opening of the RMD. United States ex rel. Gadbois v. PharMerica Corp., 809 F.3d 1, 5 (1st Cir.
2015). Defendants do not appear to press their Article III objections following the alleged
opening of the RMD; lack of standing or ripeness at this time therefore does not establish the
futility of an amended pleading.
Century Bank suggests that the Court should stay this case pursuant to the Burford or
Colorado River abstention doctrines in light of an earlier-filed and currently pending appeal of
the City of Cambridge’s decision to grant Healthy Pharms a special permit to operate the RMD.
See Crimson Galeria Ltd. P’ship v. Healthy Pharms, Inc., No. 1781-cv-01356 (Mass. Super. Ct.
Michigan Medical Marihuana Act that immunizes registered qualifying patients from penalty for
specified medical marijuana use).
May 4, 2017). “[F]ederal courts have a ‘virtually unflagging obligation . . . to exercise the
jurisdiction given them.’” Chico Serv. Station, Inc. v. Sol P.R. Ltd., 633 F.3d 20, 29 (1st Cir.
2011) (quoting Ankenbrandt v. Richards, 504 U.S. 689, 705 (1992)). The Supreme Court,
however, “has carved out a discrete set of ‘exceptional circumstances’ in which the exercise of
jurisdiction may be declined. As a general proposition, these ‘exceptional circumstances’ lie
‘where denying a federal forum would clearly serve an important countervailing interest,’ such
as ‘regard for federal-state relations’ or ‘wise judicial administration.’” Id. (quoting
Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 716 (1996)). The appropriate circumstances for
abstention are “rare,” as “abstention must always be ‘the exception, not the rule.’” Id. (quoting
Fragoso v. Lopez, 991 F.2d 878, 882 (1st Cir. 1993)).
Century Bank raises Burford abstention based on the potential impact of this case on the
medical marijuana regulatory regime in Massachusetts. Where timely and adequate state-court
review is available, “the Burford abstention doctrine states that federal courts: ‘must decline to
interfere with proceedings or orders of state administrative agencies: (1) when there are difficult
questions of state law bearing on policy problems of substantial public import . . .; or (2) where
the exercise of federal review . . . would be disruptive of state efforts to establish a coherent
policy with respect to a matter of substantial public concern.’” Guillemard-Ginorio v. ContrerasGomez, 585 F.3d 508, 523–24 (1st Cir. 2009) (citation omitted). “Burford abstention is
concerned with avoiding the ‘awkward circumstance of turning the federal court into a forum
that will effectively decide a host of detailed state regulatory matters.’” Id. at 524 (citation
Here, after dismissal of the claims against the Government Defendants, what remains in
the case are RICO counts against private defendants that do not directly challenge any state law
or require this Court to review an order of a state or local government body. See id. at 525
(“[B]ecause the district court was not called upon to decide any issues of Puerto Rico insurance
law, it cannot be said that the exercise of federal review in this case would be ‘disruptive of state
efforts to establish a coherent policy’ under its regulatory scheme.”); Fragoso, 991 F.2d at 883
(“Burford abstention is implicated when the federal courts are asked to interfere with state
processes by reviewing the proceedings or orders of state administrative agencies.”). The
resolution of the RICO claims may indirectly impact state and local regulation, but these claims
are predicated on violations of the CSA and do not require this Court to specifically decide issues
of state or local law. A civil RICO action may also be the subject of a stay under Burford, see
DeMauro v. DeMauro, 115 F.3d 94, 98 (1st Cir. 1997), but the benefit or need for one here has
not been established. While Century Bank argues that “[r]egulating medical marijuana through
RICO decisions in the District Courts would trample the political branches’ compromises on
these difficult public policy questions,” a temporary stay will only serve to delay, and not to
prevent, the alleged impact on state public policy issues. Therefore, Burford abstention is
Century Bank’s application of Colorado River abstention is also premised on the pending
permit appeal in state court, as that action involves some of the same issues raised in this case.
Colorado River abstention “is to be approached with the most caution” of all abstention
doctrines. Jimenez v. Rodriguez–Pagan, 597 F.3d 18, 27 (1st Cir. 2010). It allows federal courts
in limited instances to stay or dismiss proceedings that overlap with concurrent litigation in state
court, although the presence of parallel litigation in state court alone does not warrant abstention.
Id. at 21, 27. To determine whether there are exceptional circumstances to justify abstention, the
Court considers a non-exhaustive list of factors:
(1) whether either court has assumed jurisdiction over a res; (2) the [geographical]
inconvenience of the federal forum; (3) the desirability of avoiding piecemeal
litigation; (4) the order in which the forums obtained jurisdiction; (5) whether state
or federal law controls; (6) the adequacy of the state forum to protect the parties’
interests; (7) the vexatious or contrived nature of the federal claim; and (8) respect
for the principles underlying removal jurisdiction.
Rio Grande Cmty. Health Ctr., Inc. v. Rullan, 397 F.3d 56, 71–72 (1st Cir. 2005). Here, certain
factors are neutral: the federal and Massachusetts forums are equally convenient (second factor);
the federal lawsuit is not vexatious or contrived (seventh factor); and removal jurisdiction is not
implicated (eighth factor). Although the state-court action concerns the permit issued to Healthy
Pharms (first factor) and was filed before this case (fourth factor), the state-court action is limited
to an appeal of a city planning board’s permitting decision and does not appear to be an adequate
means of adjudicating the RICO claims that are predicated on alleged violations of federal law
(sixth factor). Further, the need to avoid piecemeal litigation (third factor) should weigh in favor
of dismissal “only if there is some ‘exceptional basis’ for dismissing one action in favor of the
other.” KPS & Assocs., Inc. v. Designs By FMC, Inc., 318 F.3d 1, 11 (1st Cir. 2003) (citation
omitted). “[D]ismissal is not warranted simply because related issues otherwise would be
decided by different courts, or even because two courts otherwise would be deciding the same
issues.” Id. at 10 (citation omitted). Further, considering that the preemption-based claims
against the Government Defendants are dismissed, there is minimal overlap between this case
and the state-court action. Because the relevant factors weigh against abstention, the case will not
RICO “is a statute that Congress enacted as a tool in the federal government’s ‘war
against organized crime,’ to help combat ‘enduring criminal conduct.’” Home Orthopedics Corp.
v. Rodriguez, 781 F.3d 521, 527 (1st Cir. 2015) (quoting United States v. Turkette, 452 U.S. 576,
587 (1981) and Libertad v. Welch, 53 F.3d 428, 445 (1st Cir. 1995)). “In addition to allowing the
criminal prosecution of RICO violators, see 18 U.S.C. § 1962, the statute’s reach also provides a
generous private right of action—successful plaintiffs are entitled to triple damages if they can
prove they were ‘injured in [their] business or property by reason of a violation of section
1962.’” Id. (quoting 18 U.S.C. § 1964(c)). To plead a violation of section 1962(c), Plaintiffs
must plausibly allege “(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering
activity.” Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985). “Section 1962(d) also
prohibits any person from conspiring to violate § 1962(c).” United States v. Ramírez-Rivera, 800
F.3d 1, 18 (1st Cir. 2015). Because RICO’s private right of action is available to persons who
have been injured “by reason of” a substantive RICO violation, a plaintiff may sue “only if the
alleged RICO violation was the proximate cause of the plaintiff’s injury.” Anza v. Ideal Steel
Supply Corp., 547 U.S. 451, 453 (2006) (citing Holmes v. Secs. Investor Prot. Corp., 503 U.S.
258, 268 (1992)).
Here, Plaintiffs bring four RICO counts against the non-government Defendants. Count I
(§ 1962(c)), which names the Healthy Pharms Defendants and Red Line, is premised on an
enterprise encompassing the non-government Defendants, the Town of Georgetown, and the City
of Cambridge. Count II (§ 1962(d)) arises out of the same alleged enterprise and is brought
against all of the non-government Defendants. Only Mr. Averill and Mr. Overgaag, as the
owners of Healthy Pharms (the alleged enterprise), are named in Count III (§ 1962(c)). Count IV
(§ 1962(d)) covers all the remaining Defendants except Healthy Pharms (the alleged enterprise).6
At this stage, the Healthy Pharms Defendants do not challenge the assertions that the nongovernment Defendants, the City of Cambridge, and the Town of Georgetown form a plausible
enterprise in support of Counts I and II, or that Healthy Pharms constitutes a plausible enterprise
under Counts III and IV.
The Healthy Pharms Defendants
The Healthy Pharms Defendants primarily move to dismiss all of the RICO counts on the
grounds that Plaintiffs have not suffered an injury that was proximately caused by the alleged
predicate acts.7 To plausibly state an injury, “a RICO damages claim may not be based on mere
speculation.” Circiello v. Alfano, 612 F. Supp. 2d 111, 114 (D. Mass. 2009). “[A] cause of action
does not accrue under RICO until the amount of damages becomes clear and definite.” First
Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 768 (2d Cir. 1994). Although Plaintiffs do
not need to “cite statistics, appraisals, attempts to sell, or other ‘concrete evidence’ to ‘quantify’
their [injury]” at this stage, Safe Streets Alliance, 859 F.3d at 888, the injury pled must be a
“concrete financial loss and not mere injury to a valuable intangible property interest.” Maio v.
Aetna, Inc., 221 F.3d 472, 483 (3d Cir. 2000); In re Celexa & Lexapro Mktg. & Sales Practices
Litig., No. 14-cv-13848-NMG, 2015 WL 3751422, at *6 (D. Mass. June 15, 2015) (same).
The claimed injuries include (1) that the proposed RMD might emit odors of marijuana
that will interfere with use and enjoyment of Plaintiffs’ properties; (2) that banks and investors
will not finance certain planned projects due to the anticipated RMD; and (3) that the stigma
associated with marijuana and the fear of increased crime have already diminished the market
value of Plaintiffs’ properties. Compl. ¶¶ 95, 97, 101, 102. Although the Complaint ostensibly
asserts a ripe injury based on the appraisal, Plaintiffs do not dispute that their damages theory
The Healthy Pharms Defendants also argue that Plaintiffs allege only one predicate act—the
cultivation and possession of marijuana with the intent to distribute it at the Georgetown
facility—and therefore have not pled a pattern of racketeering activity. A “pattern” of
racketeering activity requires, among other things, at least two racketeering acts. In re Neurontin
Mktg. & Sales Practices Litig., 712 F.3d 21, 34 (1st Cir. 2013) (citing 18 U.S.C. § 1961(5)).
Regardless of the sufficiency of the allegations as currently pled, an amended complaint will
likely describe sales of marijuana occurring at the 98 Winthrop Street RMD to bolster the
predicate acts alleged. Therefore, leave to amend is not futile with regard to pleading a pattern of
relies on the public disclosure of the future possibility of an RMD. They cite no analogous cases
in support of their theory other than Safe Streets Alliance, 859 F.3d at 879, where the marijuana
facility at issue was in actual operation. The arguably hypothetical or speculative nature of
Plaintiffs’ injuries, however, may have materially changed since the opening of the RMD.
Accordingly, leave to amend is not deemed futile based on the types of injuries alleged.8
Assuming that Plaintiffs sufficiently plead an injury, it must be proximately caused by the
alleged RICO violations. The Supreme Court in Holmes set forth the standard for RICO
proximate causation. In re Neurontin, 712 F.3d at 34. Rather than “announce a black-letter rule
that will dictate the result in every case,” the RICO proximate cause inquiry focuses on a
“directness concern” and “three functional factors.” Id. at 35 36 (citing Holmes, 503 U.S. at
271–74). Directness means there must be “some direct relation between the injury asserted and
the injurious conduct alleged,” such that the link between the conduct and the harm suffered is
not “too remote.” Id. at 35 (quoting Holmes, 503 U.S. at 268, 271).
The first functional factor considers proof of damages, to the extent that “the less direct
an injury is, the more difficult it becomes to ascertain the amount of a plaintiff’s damages
attributable to the violation, as distinct from other, independent, factors.” Id. at 36 (quoting
The Healthy Pharms Defendants also argue that because RICO adopts common law principles
for evaluating a cognizable injury to business or property, Plaintiffs cannot plausibly plead an
injury arising out of the proposed RMD because it will operate pursuant to a special permit and,
under Massachusetts law, “acts which might otherwise be nuisances may be legalized by statute,
license or permit.” Marshall v. Holbrook, 177 N.E. 504, 506 (Mass. 1931); see Hub Theaters,
Inc. v. Mass. Port Auth., 346 N.E.2d 371, 373 (Mass. 1976). The Healthy Pharms Defendants,
however, have not shown that the unavailability of a cause of action to recover for certain
nuisances addresses the pertinent question of whether, under state law, “a particular interest is
‘property’ within the meaning of § 1964(c).” Magnum v. Archdiocese of Phila., 253 F. App’x
224, 228 (3d Cir. 2007). It is also conceivable that, even if Hollbrook and Hub Theaters are
applicable, the dispensary may be subject to a nuisance claim because it caused such a significant
disturbance that the decision to grant a special permit was “unwholesome and unreasonable.”
Hub Theatres, Inc., 346 N.E.2d at 373. The non-government Defendants may renew this
argument on a later motion.
Holmes, 503 U.S. at 269). As to the second functional factor, the Holmes court noted its concern
about the “administrability and the avoidance of multiple recoveries,” because “[r]ecognizing
claims of the indirectly injured would force courts to adopt complicated rules apportioning
damages among plaintiffs removed at different levels of injury from the violative acts.” Id.
(quoting Holmes, 503 U.S. at 269). The third functional factor focuses on “the societal interest in
deterring illegal conduct and whether that interest would be served in a particular case.” Id.
“[T]he need to grapple with these problems [of indirectness] [may be] simply unjustified by the
general interest in deterring injurious conduct, since directly injured victims can generally be
counted on to vindicate the law as private attorneys general, without any of the problems
attendant upon suits by plaintiffs injured more remotely.” Holmes, 503 U.S. at 269–70.
Here, the directness concern and the first functional factor appear to favor the
Defendants. Defendants did not target or direct the sale of marijuana to harm Plaintiffs as nearby
property owners and real estate market participants. The cause of the alleged harm is a set of
circumstances (people in Cambridge losing interest in renting or purchasing properties at the
market rate in Harvard Square) that is at least somewhat removed from the asserted misconduct
(selling marijuana in the neighborhood). See also Hemi Group, LLC v. City of New York, 559
U.S. 1, 9 (2010) (plurality opinion) (no proximate cause where conduct directly responsible for
the city’s harm was the online cigarette customers’ failure to pay their taxes, but the conduct
constituting the alleged RICO violation was defendant’s failure to file online customer
information with the State). As the Healthy Pharms Defendants argue, the independent choice of
third parties not to rent or buy Plaintiffs’ properties and other housing market forces might break
the causal chain. See, e.g., Steamfitters Local Union No. 420 Welfare Fund v. Philip Morris,
Inc., 171 F.3d 912, 933 (3d Cir. 1999) (“[I]f the [union health and welfare funds] are allowed to
sue, the court would need to determine the extent to which their increased costs for smokingrelated illnesses resulted from the tobacco companies’ conspiracy to suppress health and safety
information, as opposed to smokers’ other health problems, smokers’ independent (i.e., separate
from the fraud and conspiracy) decisions to smoke, smokers’ ignoring of health and safety
warnings, etc.”); see also First Nationwide Bank, 27 F.3d at 772 (“[W]hen the plaintiff’s loss
coincides with a marketwide phenomenon causing comparable losses to other investors, the
prospect that the plaintiff’s loss was caused by the fraud decreases.”).
The second and third functional factors, however, seem to weigh toward finding
proximate causation. The Healthy Pharms Defendants assert that Plaintiffs cannot establish a
direct causal link because they are not the “primary and intended victim[s]” of the RICO
violations, but the Healthy Pharms Defendants have identified no other “more immediate
victim . . . better situated to sue.’” In re Neurontin Mktg., 712 F.3d at 37 (quoting Bridge v. Phx.
Bond & Indem. Co., 553 U.S. 639, 658 (2008)). Unlike in Bridge or In re Neurontin, this case
does not involve a “scheme to defraud” such that the primary or intended victim is more readily
identifiable. Id. at 37. Defendants have not demonstrated that the proximate cause inquiry, which
the Supreme Court explained does not rigidly apply black-letter rules, hinges on showing that
Plaintiffs are the “primary and intended victim[s]” if the RICO violations do not sound in fraud
or unfair competition, or involve injury to a party that is plainly derivative of the injury to
another. See id. Although there might not be a civil RICO plaintiff for every conceivable
racketeering act, courts are nevertheless concerned when accepting a theory of proximate
causation that would mean “no viable plaintiffs would remain to ‘vindicate the law as private
attorneys general.’” Id. at 38 n.12 (quoting Holmes, 503 U.S. at 269 70)).9
The Healthy Pharms Defendants also suggest that under Plaintiffs’ causation theory, nearly any
business owner or property owner in the vicinity of a proposed RMD may claim damages for the
Turning to Safe Streets Alliance, 859 F.3d at 888, the case most analogous to the present
action, the Tenth Circuit held that the neighbors to a marijuana growing facility plausibly pled
that similar injuries to those alleged in this case—the diminished market value of their property
and the nuisance of noxious odors of marijuana—were proximately caused by the public
operation of the facility. See id. (“[I]t is reasonable to infer that a potential buyer would be less
inclined to purchase land abutting an openly operating criminal enterprise than [he or she] would
be if that adjacent land were empty or occupied by a lawfully-operating retailer.”). Plaintiffs in
this case, by filing an amended complaint, may add allegations that actual marijuana odors are
interfering with the use of their properties, and that the open operation of the RMD has
diminished the market value of the Plaintiffs’ properties. The critical question of whether it is
sufficient under Holmes and its progeny that the injuries alleged are direct “byproducts” of the
location and manner in which the RMD operates in violation of the CSA, or whether the injury
must more directly emanate from the sale of marijuana, will be better assessed once the Plaintiffs
clearly set forth the alleged RICO violations and their injuries. Safe Streets Alliance, 859 F.3d at
891. A determination on proximate cause might also be suited “for a [summary judgment]
motion under Rule 56 [more so] than a motion to dismiss under Rule 12(b)(6),” but the issue at
least merits allowing the request for leave to amend. Trollinger v. Tyson Foods, Inc., 370 F.3d
same RICO violations. The number of potential victims suffering injuries to separate properties
does not appear to raise the same concern at issue in Holmes, “that a violator might be obligated
to pay double compensation if required to compensate those directly injured and those injured by
the injury to those directly injured.” Commercial Cleaning Servs., L.L.C. v. Colin Serv. Sys.,
Inc., 271 F.3d 374, 384 (2d Cir. 2001); see In re Neurontin Mktg., 712 F.3d at 37 n.11 (“There
are, of course, other potential victims of Pfizer’s scheme, such as uninsured individuals who paid
for their own prescriptions. But any such injury would be different in kind from [plaintiff’s]
injury and could not be considered ‘multiple’ in that respect.”). Unlike in Holmes, Plaintiffs here
“are not alleging an injury that was derivative of injury to others,” and are therefore not seeking
to recover based on “the misfortunes visited upon a third person by the defendant’s acts.”
Commercial Cleaning Servs., 271 F.3d at 384 (quoting Holmes, 503 U.S. at 268).
602, 615 (6th Cir. 2004) (“[A] RICO case with a derivative-injury problem is better suited to
dismissal on the pleadings than a RICO case with a traditional proximate-cause problem (e.g., a
weak or insubstantial causal link, a lack of foreseeability, or a speculative or illogical theory of
damages).”).10 The Healthy Pharms Defendants’ motion to dismiss is therefore denied with leave
Plaintiffs bring only Count IV against Century Bank for violating § 1962(d) which makes
it “unlawful for any person to conspire to violate any of the [substantive RICO provisions].” 18
U.S.C. § 1962(d). “To survive a motion to dismiss, a RICO conspiracy count must allege (1) that
an enterprise affecting interstate commerce existed, (2) that the defendant knowingly joined the
conspiracy, and (3) that the defendant intended to further an endeavor which, if completed,
would have satisfied the pattern requirement of RICO.” Laverty v. Massad, No. 08-cv-40126FDS, 2009 WL 1873646, at *6 (D. Mass. Mar. 10, 2009) (citing Aetna Cas. Sur. Co. v. P & B
Autobody, 43 F.3d 1546, 1561 (1st Cir. 1994) and United States v. Cianci, 378 F.3d 71, 88 (1st
Cir. 2004)). “The plaintiff does not need to allege that each conspirator agreed to commit (or
actually committed) two or more predicate acts.” Laverty, 2009 WL 1873646, at *6 (citing
Salinas v. United States, 522 U.S. 52, 64 (1997)); see Salinas, 522 U.S. at 65 (“A conspirator
must intend to further an endeavor which, if completed, would satisfy all of the elements of a
The Healthy Pharms Defendants may raise their argument that civil RICO does not provide an
avenue for injunctive relief if the amended complaint presents the issue. See Absolute Activist
Value Master Fund Ltd. v. Devine, No. 15-cv-328, 2016 WL 1572388, at *4 (M.D. Fla. Apr. 19,
2016) (“The circuits are split as to whether the federal RICO statute provides injunctive relief for
private civil litigants.”); compare Nat’l Org. for Women, Inc. v. Scheidler, 267 F.3d 687, 695
(7th Cir. 2001), rev’d on other grounds, 537 U.S. 393 (2003), with Religious Tech. Ctr. v.
Wollersheim, 796 F.2d 1076, 1084 (9th Cir. 1986); see also Lincoln House, Inc. v. Dupre, 903
F.2d 845, 848 (1st Cir. 1990) (“[I]t is not clear whether injunctive or other equitable relief is
available at all in private civil RICO actions.”).
substantive criminal offense, but it suffices that he adopt the goal of furthering or facilitating the
criminal endeavor. He may do so in any number of ways short of agreeing to undertake all of the
acts necessary for the crime’s completion.”). “No overt act is required.” Id. (citing Salinas, 522
U.S. at 64). “[A] defendant may be part of a RICO conspiracy even if he has not committed a
substantive RICO violation.” Id. (citing Cianci, 378 F.3d at 92).11
“Outsiders who help the enterprise accomplish its illicit goals, thereby evidencing their
agreement to advance the cause, are fully liable under § 1962(d).” United States v. Cornell, 780
F.3d 616, 631 (4th Cir. 2015). To be liable, an outsider “must knowingly agree to perform
services of a kind which facilitate the activities of those who are operating the enterprise in an
illegal manner.” Brouwer v. Raffensperger, Hughes & Co., 199 F.3d 961, 967 (7th Cir. 2000);
see Reyes v. Zion First Nat’l Bank, No. 10-cv-345, 2012 WL 947139, at *6 (E.D. Pa. Mar. 21,
2012) (“Where a defendant is alleged to have conspired with a RICO enterprise to violate
§ 1962(c) by providing it what would ordinarily be lawful professional services, ‘liability will
arise only from services which were purposefully and knowingly directed at facilitating a
criminal pattern of racketeering activity.’” (quoting Salinas, 522 U.S. at 537 & n.11)). Neither
mere knowledge of, nor association with, the alleged conspiracy, however, makes Century Bank
The Court may address, after the filing of the amended complaint, whether Century Bank
correctly asserts that the First Circuit requires a showing that an outsider like Century Bank
managed or operated some aspect of the criminal enterprise to establish liability under § 1962(d).
Compare Ramírez-Rivera, 800 F.3d at 20 (to prove RICO conspiracy, government must show
“that the defendant participated in the conduct of the affairs of the enterprise” (citing United
States v. Shifman, 124 F.3d 31, 35 (1st Cir. 1997))), with Cianci, 378 F.3d at 90 (RICO
conspirator “must intend to further an endeavor which, if completed, would satisfy all of the
elements of a substantive criminal offense, but it suffices that he adopt the goal of furthering or
facilitating the criminal endeavor” (quoting Salinas, 522 U.S. at 65)); cf. United States v.
Fernandez, 388 F.3d 1199, 1230 (9th Cir. 2004), modified, 425 F.3d 1248 (9th Cir. 2005) (“[A]
defendant is guilty of conspiracy to violate § 1962(c) if the evidence showed that she ‘knowingly
agree[d] to facilitate a scheme which includes the operation or management of a RICO
enterprise.’” (quoting Smith v. Berg, 247 F.3d 532, 538 (3d. Cir. 2001))).
a conspirator. See Abbott Labs. v. Adelphia Supply USA, No. 15-cv-5826-CB-ALB, 2017 WL
57802, at *9 (E.D.N.Y. Jan. 4, 2017); In re Reciprocal of Am. (ROA) Sales Practices Litig., No.
04-cv-2313, 2006 WL 1699403, at *7 (W.D. Tenn. June 13, 2006) (“[A]ssociation with
conspirators and awareness of illegal activity alone are not sufficient to demonstrate conspiracy
to violate RICO.”).12
Here, the non-conclusory allegations are that Century Bank had a banking relationship
with Healthy Pharms and knew that Healthy Pharms intended to operate a marijuana business.
The Complaint contains no specific information about the nature of the banking relationship or
the extent of the services that Century Bank provided. Plausible claims under § 1962(d)
generally involve allegations of a financial institution’s involvement with the RICO enterprise
beyond providing ordinary banking services. Compare Meeks–Owens v. Indymac Bank, F.S.B.,
557 F. Supp. 2d 566, 569 (M.D. Pa. 2008) (denying dismissal of § 1962(d) claim by borrowers
against bank for fraudulent lending scheme where bank allegedly knew that the contract price
and mortgaged value of property substantially exceeded market value of property and provided
plaintiff false information about nature of the loan); and OSRecovery, Inc. v. One Groupe Int’l,
Inc., 354 F. Supp. 2d 357, 376 (S.D.N.Y. 2005) (denying dismissal of § 1962(d) claim against
bank alleged to have facilitated Ponzi scheme because plaintiff pleaded facts directly showing
knowledge of fraud); with Johnson v. U.S. Bank Nat’l Ass’n, No. 1:09-cv-492, 2010 WL
Century Bank may also reassert its argument that it may only be liable for injuries caused by
its own RICO violations, and not the violations of its co-conspirators. But see Holmes, 503 U.S.
at 264 & n.6 (assuming without deciding that Ninth Circuit correctly held that defendant “could
be held responsible for the acts of all his co-conspirators”); United States v. Corrado, 286 F.3d
934, 937 (6th Cir. 2002) (“Unlike the general conspiracy statute, § 1962(d) requires no ‘overt or
specific act’ in carrying the RICO enterprise forward. Furthermore, ‘the supporters are as guilty
as the perpetrators . . . so long as they share a common purpose, conspirators are liable for the
acts of their co-conspirators.” (quoting Salinas, 522 U.S. at 63–64)); FCM Capital Partners LLC
v. Regent Corp. Consulting Ltd., No. 14-cv-07099-ODW, 2015 WL 420170, at *7 (C.D. Cal.
Jan. 30, 2015) (“[A]ll co-conspirators are liable for each other’s acts in a RICO conspiracy.”).
11538380, at *11 13 (S.D. Ohio May 12, 2010) (dismissing § 1962(d) claim against bank where
plaintiff did not allege more than mere provision of basic services and no facts plausibly
supported allegation that bank “agreed to conspire” with the enterprise).13
Moreover, the United States Treasury has issued guidance that “clarifies how financial
institutions can provide services to marijuana-related businesses consistent with their [Bank
Secretary Act] obligations, and aligns the information provided by financial institutions in the
[Bank Secrecy Act] reports with federal and state law enforcement priorities,” in order to
“enhance the availability of financial services for . . . marijuana related businesses.” United
States Treasury, BSA Expectations Regarding Marijuana-Related Businesses, FIN-2014-G001
(issued Feb. 14, 2014). This guidance was effective at the time that Century Bank allegedly
joined the conspiracy (and remains in effect), and Century Bank is not accused of committing
any violation thereof.
At this stage, Plaintiffs have not adequately shown that providing ordinary banking
services to marijuana-related businesses, in compliance with Treasury Department guidance
aimed at enabling banks to provide such services, sufficiently demonstrates that it joined and
intended to further a RICO conspiracy. Given, however, that the Court cannot fully assess the
conspiracy claims without understanding the nature and extent of the alleged enterprise and
predicate acts, the motion to dismiss is denied with leave to renew. Plaintiffs’ amended
In a similar context, “[c]laims that lawyers have conspired with their clients are insufficient in
the absence of allegations that the arrangement involves more than standard legal
representation.” Domanus v. Locke Lord LLP, 847 F.3d 469, 482 (7th Cir. 2017); see RSM Prod.
Corp. v. Freshfields Bruckhaus Deringer U.S. LLP, 682 F.3d 1043, 1051 (D.C. Cir. 2012)
(“[T]he complaint alleges no conduct by [defendant] beyond the provision of normal legal
services in arbitration and so fails to support a reasonable inference that [defendant] agree[d] to
assist others in the commission of unlawful acts.” (internal quotation marks and citation
omitted)); cf. Brennan v. Ferreira, 251 F. Supp. 3d 338, 342 (D. Mass. 2017) (“The First Circuit
consistently has held that RICO liability does not attach [under section 1962(c)] where an
accountant engages in no more than ordinary accounting functions on behalf of an enterprise.”).
complaint may further develop the allegations regarding the relationship between Century Bank
and Healthy Pharms, although providing basic banking services to a known medical marijuana
dispensary in compliance with the Treasury Department’s guidance, without more, may be
insufficient to state a § 1962(d) claim.
Plaintiffs apparently recognize that the allegations concerning the remaining named
defendants—Red Line, Tomolly, and the 4Front Defendants—may be insufficiently detailed, as
they make a contingent request for leave to file an amended complaint after conducting
discovery. [ECF No. 65 at 22].
The Complaint contains little to no allegations that connect either Red Line or Tomolly to
the alleged enterprise or conspiracy. Plaintiffs assert that Mr. Averill and Mr. Overgaag are
authorized to execute documents on behalf of Red Line, that Red Line has an insurance policy
through one of the John Doe insurance companies, and that “Red Line is used by Healthy
Pharms’ principals to extract profit from a supposed ‘non-profit’ entity.” Compl. ¶ 35. Plaintiffs
further allege that Red Line in some manner contributes to the management of the property at 98
Winthrop Street. The only allegations relevant to Tomolly are that (1) it is the existing tenant at
98 Winthrop Street, (2) Healthy Pharms’ lease as the incoming tenant includes a $1 million buyout payment to Tomolly, and (3) Mr. Overgaag once owned 98 Winthrop Street “through
Tomolly.” Compl. ¶¶ 37, 65, 87.
Plaintiffs have not sufficiently pled under § 1962(c) that Red Line participated in its
operation and management. “[P]articipation in the operation or management of the criminal
enterprise” is to be “plainly integral to carrying out the enterprise’s activities.” Ramirez-Rivera,
800 F.3d at 20 (quoting Shifman, 124 F.3d at 35 36). Here, the Complaint never identifies Red
Line’s contribution to the enterprise, relying instead on the mere overlap of principals or
directors among Red Line, Tomolly, and the Healthy Pharms Defendants to draw an inference as
to Red Line’s involvement. Plaintiffs provide no information about the nonprofit from which
Red Line extracted profits, or how that organization or its funds relate to the marijuana business.
Plaintiffs similarly provide no details about Red Line’s alleged role in managing the property at
98 Winthrop Street. The Court cannot assume that Red Line was part of the enterprise and
plainly integral to its operation, based solely on the overlap of officers between it and Healthy
Moreover, the Complaint lacks the requisite level of detail to plausibly show that Red
Line and Tomolly knowingly joined a conspiracy and intended to further it as required by §
1962(d). Although Plaintiffs claim that Tomolly was owed $1 million under Healthy Pharms’
lease, Plaintiffs do not allege that Tomolly actually received that payment, that the payment was
made from the proceeds of the marijuana business, or that Tomolly used such funds to support
the conspiracy. Similarly, the allegation that Mr. Overgaag or Mr. Averill use Red Line to extract
profit from a nonprofit is insufficient to infer that Red Line thereby intended to further the
criminal purposes of the enterprise, because the Complaint draws no connection between the
nonprofit, the extracted funds, and the dispensary. The mere fact that officers of Healthy Pharms
also occupy a role in Red Line and Tomolly does not sufficiently show that these entities joined
the conspiracy and furthered its criminal endeavors.
The conspiracy claim against the 4Front Defendants is similarly based on vague
generalities. 4Front Advisors, LLC allegedly maintains a website “that facilitates the providing
of material support to marijuana companies,” including Healthy Pharms. Compl. ¶ 36. On
information belief, Plaintiffs allege that Mr. Krane and employees of 4Front Advisors, LLC
communicated with the Healthy Pharms Defendants about their dispensary. Id. Although the
meaning of this allegation is unclear, Plaintiffs state that “[u]pon information and belief, 4Front
Holdings provides or has provided monetary and material support and/or is the beneficiary of
consulting activities concerning marijuana conducted by [4Front Advisors, LLC] that has
materially supported Healthy Pharms and the other defendants.” Id. The Complaint does not
describe with any detail the “consulting activities” or “material support” provided by the 4Front
Defendants, nor is it clear that Healthy Pharms ever received such benefits. The 4Front
Defendants may have interacted with the Healthy Pharms Defendants, but there is no basis to
infer that they joined the conspiracy or intended to further a pattern of racketeering activity.
Plaintiffs are granted leave to amend their allegations as to the 4Front Defendants, Red
Line, and Tomolly but they must satisfy the standards of Rules 8(a) and 12(b)(6) prior to
discovery. See Kalimantano GmbH v. Motion in Time, Inc., 939 F. Supp. 2d 392, 409 n.4
(S.D.N.Y. 2013) (rejecting plaintiffs’ assertion that with an opportunity to serve a subpoena on a
third party, they can satisfy the pleading standard). They provide no justification for the Court, at
this stage, to preemptively grant them leave to amend during or after discovery. See Pruell v.
Caritas Christi, 678 F.3d 10, 15 (1st Cir. 2012) (requiring plaintiffs to plead a claim that “looks
plausible based on what is known,” where information may have been in defendants’ control).
Accordingly, the motions to dismiss filed by the 4Front Defendants, Red Line, and Tomolly are
denied with leave to renew.
For the foregoing reasons, the Government Defendants’ motions to dismiss [ECF Nos.
51, 52] are GRANTED and the remaining motions to dismiss [ECF Nos. 49, 54, 57, 60] are
DENIED with leave to renew. Plaintiffs may file an amended complaint within 30 days.
August 21, 2018
/s/ Allison D. Burroughs
ALLISON D. BURROUGHS
U.S. DISTRICT JUDGE
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?