Momtazi Family, LLC v. Wagner

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF OREGON

MOMTAZI FAMILY, LLC, 3:19-cv-00476-BR

Plaintiff, OPINION AND ORDER

v.

MARY E. WAGNER; RICHARD

WAGNER; STEVEN R. WAGNER; and

YAMHILL NATURALS, LLC,

Defendants.

RACHEL E. MCCART

Preserve Legal Solutions, P.C.

38954 Proctor Blvd., Ste. 186

Sandy, OR 97055

(844) 468-2388

Attorneys for Plaintiff

ALLISON C. BIZZANO

MATTHEW A. GOLDBERG

Lotus Law Group

5200 SW Macadam Ave., Ste. 500

Portland, OR 97239

(503)606-8930

Attorneys for Defendants

BROWN, Senior Judge.

This matter comes before the Court on the Motion (#9) to

Dismiss with Prejudice filed by Defendants Mary E. Wagner,

Richard Wagner, Steven R. Wagner, and Yamhill Naturals, LLC.

The Court concludes the record is sufficiently developed, and,

therefore, oral argument is not necessary to resolve Defendants'

Motion.

For the reasons that follow, the Court DENIES Defendants'

Motion.

BACKGROUND

On April 2, 2019, Plaintiff Momtazi Family, LLC, filed a

Complaint against Defendants for violation of the Racketeer

Influenced and Corrupt Organizations Act (RICO), 18 U.S.C.

§ 1962. The following facts are taken from Plaintiff's

Complaint and the pleadings filed by the parties.

Plaintiff is an Oregon limited liability company that

operated the Momtazi Vineyard, a certified biodynamic vineyard,

on property in McMinnville, Oregon (the Momtazi property). From

2016 through 2018 Plaintiff grew grapes on the property and sold

the grapes to other wine producers including Maysara Winery,

which Plaintiff also owns. On August 1, 2018, Plaintiff began

leasing the Momtazi property to Maysara, which now operates the

vineyard.

On December 19, 2016, Defendants Mary and Steven Wagner,

husband and wife, purchased real property adjacent to the

Momtazi property. In January 2017 Defendant Richard Wagner, the

son of Mary and Steven, moved onto the Wagner property.

Plaintiff alleges Defendants invested in the development of

the Wagner property to produce and to process marijuana, built

structures and installed fixtures for the production of

marijuana, and moved large amounts of soil to the Wagner

property to form terraces in order to increase the size of the

outdoor marijuana-grow area. Plaintiff alleges Defendants

market or intend to market the marijuana grown on their property

under the brand name "Yamhill Naturals." Although Richard

Wagner directs the operations of Defendant Yamhill Naturals,

Plaintiff alleges each Defendant will receive a portion of the

proceeds of the marijuana operation.

According to Plaintiff, one of its customers cancelled an

order for six tons of grapes grown on Plaintiff's property

because of the marijuana operation on Defendants' property.

Plaintiff alleges the customer cancelled the order because it

contained grapes grown on the section of the Momtazi property

adjacent to Defendants' property. The customer believed the

smell created by the marijuana contaminated the grapes and would

affect the wine made from those grapes. Plaintiff alleges it

now is unable to sell grapes grown on its property next to

Defendants' property.

Plaintiff also alleges the terracing on Defendants'

property caused large amounts of dirt to flow downhill into one

of the fish-stocked reservoirs located on Plaintiff's property.

Plaintiff contends this created a hazard to the fish and

wildlife that form "an essential part of Plaintiff's biodynamic

operation." Plaintiff also contends Defendants or their agents

trespassed onto Plaintiff's property, killed a calf, and

amputated part of another cow's tail.

In summary, Plaintiff alleges the marijuana operation on

Defendants' property has "directly and materially diminished the

Momtazi property's fair market value," decreased the

"marketability of grapes grown on that vineyard property," and

decreased the rental income of the property.

STANDARDS

I. Motion to Dismiss for Lack of Subject-Matter Jurisdiction

Pursuant to Federal Rule of Civil Procedure 12(b)(1)

“[F]ederal courts are limited to deciding ‘cases’ and

‘controversies.’” Bova v. City of Medford, 564 F.3d 1093, 1095

(9th Cir. 2009)(quoting United States Const. Art. III,

§ 2). “Two components of the Article III case or controversy

requirement are standing and ripeness.” Id. at 1096 (citing

Colwell v. Dep’t of Health & Human Servs., 558 F.3d 1112, 1121

(9th Cir. 2009)). A motion to dismiss pursuant to Federal Rule

of Civil Procedure 12(b)(1) tests the subject-matter

jurisdiction of a federal court.

To satisfy the standing requirement of Article III, a

plaintiff must show “‘an injury in fact’; ‘a causal connection

between the injury and the conduct complained of’ and a

conclusion that it is ‘likely,’ as opposed to merely

‘speculative,’ that the injury will be ‘redressed by a favorable

decision.’” Arizona Christian Sch. Tuition Org’n v. Winn,

131 S. Ct. 1426, 1437 (2011)(quoting Lujan v. Defenders of

Wildlife, 504 U.S. 555, 560-61 (1992)). See also Spokeo, Inc.

v. Robins, 136 S. Ct. 1540, 1547 (2016). “The party invoking

federal jurisdiction bears the burden of establishing these

elements.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 561

(1992). See also Renee v. Duncan, 623 F.3d 787, 801 (9th Cir.

2010).

The plaintiff must also establish standing for each form of

relief sought. Friends of the Earth, Inc. v. Laidlaw Envt’l

Servs., Inc. (TOC), 528 U.S. 167, 185 (2000). See also Mayfield

v. U.S., 599 F.3d 964, 969 (9th Cir. 2010). The “elements of

standing must be supported in the same way as any other matter

for which a plaintiff bears the burden of proof, i.e., with the

manner and degree of evidence required at the successive stages

of the litigation.” Gest v. Bradbury, 433 F.3d 1177, 1181 (9th

Cir. 2006). General factual allegations of injury resulting

from the alleged wrongful conduct may suffice at the pleading

stage. Id.

II. Motion to Dismiss for Failure to State a Claim Pursuant to

Federal Rule of Civil Procedure 12(b)(6)

To survive a motion to dismiss pursuant to Federal Rule of

Civil Procedure 12(b)(6) for failure to state a claim, a

complaint must contain sufficient factual matter, accepted as

true, to “state a claim for relief that is plausible on its

face.” Bell Atlantic v. Twombly, 550 U.S. 544, 545 (2007). A

claim has facial plausibility when the plaintiff pleads factual

content that allows the court to draw the reasonable inference

that the defendant is liable for the misconduct alleged. Id. at

556. “The plausibility standard is not akin to a ‘probability

requirement,’ but it asks for more than a sheer possibility that

a defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S.

662, 678 (2009)(quoting Twombly, 550 U.S. at 546). When a

complaint is based on facts that are “merely consistent with” a

defendant's liability, it “stops short of the line between

possibility and plausibility of entitlement to relief.” Iqbal,

556 U.S. at 678 (citing Twombly, 550 U.S. at 557). See also

Bell Atlantic, 550 U.S. at 555-56. The court must accept as

true the allegations in the complaint and construe them in favor

of the plaintiff. Din v. Kerry, 718 F.3d 856, 859 (9th Cir.

2013).

The pleading standard under Federal Rule of Civil

Procedure 8 “does not require ‘detailed factual allegations,’

but it demands more than an unadorned, the-defendant-unlawfully-

harmed-me accusation.” Iqbal, 556 U.S. at 678 (quoting Twombly,

550 U.S. at 555). See also Federal Rule of Civil Procedure

8(a)(2). “A pleading that offers ‘labels and conclusions’ or ‘a

formulaic recitation of the elements of a cause of action will

not do.’” Id. (citing Twombly, 550 U.S. at 555). A complaint

also does not suffice if it tenders “naked assertion[s]” devoid

of “further factual enhancement.” Id. at 557.

“In ruling on a 12(b)(6) motion, a court may generally

consider only allegations in the pleadings, exhibits attached to

the complaint, and matters properly subject to judicial notice."

Swartz v. KPMG LLP, 476 F.3d 756, 763 (9th Cir. 2007)(citing

Jacobson v. Schwarzenegger, 357 F. Supp. 2d 1198, 1204 (C.D.

Cal. 2004)). A court, however, "may consider a writing

referenced in a complaint but not explicitly incorporated

therein if the complaint relies on the document and its

authenticity is unquestioned." Id. (quoting Parrino v. FHP,

Inc., 146 F.3d 699,706 (9th Cir. 1998), superseded by statute on

other grounds as stated in Abrego v. Dow Chem. Co., 443 F.3d 676

(9th Cir. 2006)).

DISCUSSION

Defendants contend this Court lacks subject-matter

jurisdiction to decide this case because Plaintiff either lacks

constitutional standing under the United States Constitution or

statutory standing under RICO to assert its claims. Defendants

also contend Plaintiff fails to allege facts that state a

plausible RICO claim even if the Court has jurisdiction.

I. Plaintiff has alleged facts that establish it has

constitutional standing.

Defendants contend Plaintiff cannot show a "personal

interest" in this lawsuit, and, therefore, Plaintiff lacks

standing under the United States Constitution. To support its

position Defendants' only argument is that "Plaintiff cannot

show . . . it has a 'personal interest' in this lawsuit because

Plaintiff has already represented to another court under penalty

of perjury that another entity is the real party in interest."

Defs.' Mot. to Dismiss (#9) at 7. Specifically, Defendants

point out that Plaintiff has represented in a related state-

court case that Maysara Winery, the current lessee of

Plaintiff's property, "is the one most immediately threatened by

defendants' anticipated development of a marijuana farm

operation." Decl. of Allison C. Bizzano (#10) at 2.

In response Plaintiff contends it has standing based on the

allegation that it owns the Momtazi property adjacent to the

Wagner property; that it operated a commercial vineyard on the

property until August 1, 2018; and that it has sustained

"injuries in fact" caused by Defendants' illegal conduct.

A. Standards

As noted, the "irreducible constitutional minimum" of

standing consists of three elements: The plaintiff must have

(1) suffered an injury in fact (2) that is fairly traceable to

the challenged conduct of the defendant and (3) that is likely

to be redressed by a favorable judicial decision. Spokeo, 136

S. Ct. at 1547. See also Lujan, 504 U.S. at 560. To establish

an injury in fact a plaintiff must show he suffered "an invasion

of a legally protected interest" that is "concrete and

particularized" and "actual or imminent, not conjectural or

hypothetical." Id. at 1548 (quoting Lujan, 540 U.S. at 560).

For an injury to be "particularized," it "must affect

the plaintiff in a personal and individual way." Id.

Particularization is necessary to establish injury in fact, but

the injury in fact must also be "concrete." Id. A "concrete"

injury must be "de facto"; that is, it must actually exist. Id.

B. Analysis

As noted, Plaintiff states it owns the Momtazi

property adjacent to Defendants' property. Plaintiff alleges

the value of its property has been diminished, it has been

unable to market its grapes, a reservoir on its property was

damaged, a calf was killed, and another cow damaged as a direct

and proximate result of Defendants' activities to grow marijuana

on their property. Plaintiff also alleges an order for grapes

was cancelled as a result of the customer's concern that the

grapes were contaminated by the marijuana smell, which would

adversely affect the wine made from the grapes. Plaintiff

further alleges it has been unable to sell grapes grown on the

Momtazi property adjacent to Defendants' property because of

buyers' concerns about contamination. Plaintiff alleges this

impact on the marketability of its grapes has diminished the

value of its property, including rental fees charged for the

property. In addition, Plaintiff alleges the terracing on

Defendants' property has caused dirt to flow downhill into the

reservoir on Plaintiff's property and has been damaging fish and

wildlife.

On this record the Court concludes Plaintiff has

alleged injuries in fact that are concrete, particularized, and

actual. These allegations are sufficient to establish

Plaintiff's constitutional standing, and, therefore, the Court

has subject-matter jurisdiction over this case. Accordingly,

the Court denies Defendants' Motion to Dismiss pursuant to

Federal Rule 12(b)(1) for lack of subject-matter jurisdiction.

II. Plaintiff has alleged facts that establish its statutory

standing under RICO.

Defendant contends Plaintiff has not established it has

statutory standing under RICO.

A. Standards

RICO allows "[a]ny person injured in his business or

property by reason of a violation of" RICO to bring a civil suit

for damages. 18 U.S.C. § 1964(c). To show standing under RICO

a plaintiff must allege (1) he suffered “harm to a specific

business or property interest” and (2) the injury was "a

proximate result of the alleged racketeering activity.” Newcal,

513 F.3d at 1055. A plaintiff asserting injury to property must

allege (1) the injury is proprietary as opposed to "personal" or

"emotional" and (2) the proprietary injury resulted in "concrete

financial loss." Canyon Cty. v. Syngenta Seeds, Inc., 519 F.3d

969, 975 (9th Cir. 2008). Whether an interest is proprietary is

"typically determined by reference to state law." Diaz v.

Gates, 420 F.3d 897, 900 (9th Cir. 2005).

B. Analysis

Defendants contend Plaintiff has not alleged a

concrete financial loss to a cognizable business or property

interest or that such alleged injuries were proximately caused

by Defendants' violation of RICO.

1. Concrete Financial Loss

Plaintiff alleges it suffered financial loss as a

result of lost sales of grapes, decreased marketability of its

grapes, reduced rental income for its property, and lost or

diminished value of two cows. Defendants, however, contend none

of these injuries are "concrete" under the Ninth Circuit's

standard for recovery under RICO.

As noted, the Ninth Circuit in Canyon County held an

alleged injury must be a concrete financial loss to a recognized

property interest. 519 F.3d at 975. The court found the

county's expenditures in providing public services did not

qualify as injury to property and that the county did not have a

property interest in the services it provided to enforce the law

and to promote public welfare. Id. Similarly, in Imagineering,

Inc. v. Kiewit Pacific Co., another case relied on by

Defendants, the Ninth Circuit held there was not any proof of

concrete loss under RICO when the plaintiffs did not receive the

subcontracts to which they were entitled. 976 F.2d 1303, 1310

(9th Cir. 1992). Neither of these cases, however, is factually

on point with the case now before this Court.

In this District the court has held in two recent

cases that mere allegations of diminished use or enjoyment of

property or the costs of increased security measures as a result

of a marijuana-grow operation on adjacent property do not

constitute injury to property. See, e.g., Ainsworth v. Owenby,

326 F. Supp. 3d 1111 (D. Or. 2018); Shoultz v. Derrick, 369 F.

Supp. 3d 1120 (D. Or. 2019). Each of these cases turned on

whether an allegation of diminished market value was sufficient

to constitute injury. In Ainsworth the court determined even

though a reduction in the fair market value of land is an injury

to property, a RICO claimant must also show proof of concrete

financial loss rather than mere injury to a valuable, intangible

property interest. 326 F. Supp. 3d at 1124 (citing Chase v.

Fleer/Skybox Int'l, LP, 300 F.3d 1083, 1087 (9th Cir. 2002)).

The court noted a plaintiff's alleged financial loss cannot be

"purely speculative." Id. (citation omitted). The court held

the plaintiff had not alleged "specific prior attempts to

monetize a property interest and must plausibly allege at least

a present intent or desire to do so"; i.e., the bare allegation

of diminished value without more was insufficient. Id. at 1126.

Similarly, in Shoultz the court held a RICO plaintiff

must allege in good faith that she attempted or currently

desired to convert her property interest into a pecuniary form,

and the plaintiff failed to do so. 369 F. Supp. 3d at 1128.

Again, the mere allegation of diminished market value was

insufficient.

Here Defendants contend Plaintiff has not suffered a

concrete financial loss because Plaintiff "fails to offer even

an estimate of the fair market value of its real and personal

property, let alone any sources or methodologies for determining

the value(s)." Defs.' Mot. (#9) at 9. Defendants' reliance on

Eclectic Properties East, LLC v. Marcus & Millichap Co., 751

F.3d 990 (9th Cir. 2014), to support their proposition, however,

is misplaced. In Eclectic the plaintiffs alleged a RICO claim

based on the defendants' alleged fraudulent representation about

the value of the properties that the plaintiffs bought from the

defendants. The plaintiffs alleged the properties sold to them

for $30 million were, in fact, only worth $11.1 million and that

the defendants spent $8.1 million on rent to maintain the

fraudulent price scheme until the properties were sold. The

defendants challenged the sufficiency of the plaintiffs'

allegations. The Ninth Circuit noted the predicate act for the

plaintiffs' RICO claim was alleged to be mail and wire fraud,

which required the pleading of sufficient facts to establish a

specific intent to defraud. The court held the allegations in

the plaintiff's complaint did not state sufficient "factual

specificity" to infer reasonably that the defendants' conduct

was fraudulent. 751 F.3d at 998.

In this case Plaintiff has not alleged any "fraudulent

scheme" by Defendants that requires the "factual specificity" as

in Eclectic. Plaintiff merely alleges a decrease in rental

income and a decrease in the marketability of grapes grown on

the property as a result of Defendants' marijuana operation.

Plaintiff also alleges at least one customer cancelled its order

as a result of concerns over the quality of grapes grown on the

property adjacent to Defendants' property. Thus, Plaintiff's

losses arise from injury to property and are not based merely on

Plaintiff's use and enjoyment of its property. Although

Plaintiff does not allege specific amounts of loss, the amounts

would be calculable in a pecuniary form based on evidence that

would be discoverable.

On this record the Court concludes Plaintiff's

allegations establish "injury to a property interest" that

constitutes a "concrete financial loss" sufficient for standing

under RICO.

2. Direct or Proximate Cause

Plaintiff must also plausibly allege any compensable

property injury was proximately caused by Defendants'

racketeering activity. 18 U.S.C. § 1964(c). Defendants contend

Plaintiff has failed to allege any of its injuries, including

the alleged cancellation of an order for wine grapes based on

the customer's subjective beliefs or the loss of Plaintiff's

cattle, were directly caused by Defendants' violations of RICO.

"When a court evaluates a RICO claim for proximate

causation, the central question it must ask is whether the

alleged violation led directly to the plaintiff's injuries."

Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 461 (2006). A

plaintiff, however, need not plead he is a victim of the

defendant's underlying crime. See Bridge v. Phoenix Bond &

Indem. Co., 553 U.S. 649, 649-50 (2008).

The Ninth Circuit has noted three factors are relevant

to determine whether a plaintiff has shown proximate cause:

(1) whether there are more direct victims of the

alleged wrongful conduct who can be counted on to

vindicate the law as private attorneys general;

(2) whether it will be difficult to ascertain the

amount of the plaintiff's damages attributable to

defendant's wrongful conduct; and (3) whether the

courts will have to adopt complicated rules

apportioning damages to obviate the risk of

multiple recoveries.

Newcal Indus., 513 F.3d at 1055. These factors are

“nonexhaustive” (Mendoza v. Zirkle Fruit Co., 301 F.3d 1163,

1169 (9th Cir. 2002)) and no single factor is dispositive

(Canyon Cty., 519 F.3d at 983). The controlling inquiry remains

whether an injury is the “direct” or “indirect” result of the

defendant's conduct. See id. at 982 (analyzing “whether the

alleged violation led directly to the plaintiff's injuries”).

Here, as noted, Plaintiff alleges it has been unable

to sell grapes grown on its property because of Defendants'

marijuana-grow operation adjacent to Plaintiff's property. As

an example, one customer cancelled its order for grapes over a

concern that the smell from the marijuana on Defendants'

adjacent property would contaminate the grapes and affect the

taste of the wine made from those grapes. The customer's

concerns, whether valid or invalid, arose directly from the

proximity of Defendants' marijuana-grow operation.

On this record the Court concludes Plaintiff has

alleged a direct link between its injuries and Defendants'

alleged violations of RICO, and, therefore, Plaintiff has

sufficiently alleged proximate cause for standing under RICO.

Accordingly, the Court denies Defendants' Motion to Dismiss for

lack of standing under Federal Rule 12(b)(6) based on this

reason.

III. Plaintiff has alleged facts that state a plausible

claim for a RICO violation.

Defendants contend Plaintiff fails to allege facts that

plausibly state a claim for relief under RICO. Defendants

contend Plaintiff fails to allege facts that tend to show

Defendants are conducting or participating in an association-in-

fact enterprise of racketeering activity.

A. Standards

Section 1962 prohibits "any person . . . associated

with any enterprise . . . to conduct or participate, directly or

indirectly, in the conduct of such enterprise's affairs through

a pattern of racketeering activity." To show a violation of

RICO pursuant to § 1962 a plaintiff must allege “(1) conduct

(2) of an enterprise (3) through a pattern (4) of racketeering

activity.” Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479,

496 (1985). See also Newcal Indus., 513 F.3d at 1055.

B. Analysis

The Court finds the reasoning in the Ainsworth case,

which was also a marijuana-grow case, persuasive on the issue of

whether Plaintiff has a plausible claim under Rico. The

Ainsworth court relied on Safe Streets Alliance v. Hickenlooper

in which the Tenth Circuit "methodically walked through the

Supreme Court's various formulations of the 'indirect injury'

limitation and easily concluded that the plaintiffs had

plausibly alleged a direct link between the defendants'

marijuana operation and the claimed reductions in property

value." Ainsworth, 326 F. Supp. 3d at 1127 (citing Safe Streets

Alliance v. Hickenlooper, 859 F.3d 865, 890-91 (10th Cir.

2017)).

The court explained that the landowners were

suing to “recover for injuries to their own land,

not harms to third parties,” and that “no

intermediary [had broken] the causal chain . . .

between the enterprise's foul emissions” and the

plaintiffs' claimed property injuries. In

addition, it reasoned that the declines in

property value were “caused by the Marijuana

Growers' criminal cultivation of marijuana

itself” and that the defendants' enterprise was

the “direct source of all the alleged injuries to

the [plaintiffs'] land.” “[I]t is sufficient,”

the court concluded, that the plaintiffs' reduced

property values were the “direct by[-]product[ ]

of the location and manner in which the Marijuana

Growers [were] conducting their operations.”

Ainsworth, 326 F. Supp. 3d at 1127. The Ainsworth court

concluded the plaintiffs had plausibly alleged a direct link

between the defendants' marijuana-grow operation and the

plaintiffs' alleged injuries.

Defendants point to no persons more directly

injured by their alleged racketeering activities.

If Plaintiffs cannot sue to vindicate the federal

drug laws and recover for any compensable

injuries, it is difficult to imagine a person who

could. In addition, there is no reason to assume

that ascertaining the existence and amount of

Plaintiffs' damages attributable to Defendants'

racketeering activity will be too difficult.

Plaintiffs allege facts detailing how and why

Defendants' activities are causing a present drop

in the fair market value of their properties, and

“[i]t is inappropriate at this stage to

substitute speculation for the complaint's

allegations of causation.” If, as alleged,

Defendants' activities are producing putrid

odors, constant noise, excessive traffic, and

reputational harms, a decline in the fair market

value of Plaintiffs' land “is at least plausible

enough to survive a motion to dismiss, whatever

difficulty might arise in establishing how much

lower” the values have become.

Id. at 1128 (citations omitted). The Court finds the same

reasoning applies to Plaintiff's factual allegations in this

case: "The presence of the Marijuana Operation on the Wagner

Property and the effects of its operation on the Momtazi

Property have directly and materially diminished the Momtazi

Property's fair market value," the marketability of grapes grown

on the Momtazi Property has declined as a direct result of the

Marijuana Operation's to the Momtazi Property," and "the rental

income that Plaintiff receives from renting the Momtazi Property

is materially less that it would be without the presence of the

Marijuana Operation on the Wagner Property." Compl. (#1) at

¶ 21.

On this record the Court concludes Plaintiff has

stated "a claim for relief [against Defendants] that is

plausible on its face" under RICO, and, therefore, the Court

denies Defendants' Motion to Dismiss pursuant to Federal

Rule 12(b)(6) based on this reason.

CONCLUSION

For these reasons, the Court DENIES Defendants' Motion (#9)

to Dismiss.

IT IS SO ORDERED.

DATED this 27th day of August, 2019.

/s/ Anna J. Brown

___________________________________

ANNA J. BROWN

United States Senior District Judge