U.S. Court Rejects Renters’ Suit Under Racketeering Law

In a major decision, a federal appeals court ruled Thursday that Berkeley tenants cannot use a federal racketeering law to recover damages for the allegedly diminished enjoyment of their apartments caused by drug dealing at a nearby apartment building.

Thursday’s ruling by the U.S. 9th Circuit Court of Appeals limits the scope of the controversial Racketeer Influenced and Corrupt Organizations Act (RICO).

The 8-3 decision held that the tenants had failed to show that they had a suffered a tangible financial loss, rather than “mere injury” to their intangible interest in the quiet enjoyment of their apartments.

“Personal injuries are not compensable under RICO,” wrote Judge Dorothy Nelson for the majority. Even if a renter can prove that “she values her apartment less than she otherwise would have because there are drug dealers living next door . . . this diminution in enjoyment is not a tangible injury to property,” Nelson wrote.

The judge said the appropriate remedy for the plaintiffs would be a nuisance suit brought under state law. In fact, two other aggrieved neighbors of the student housing cooperative where the drug dealing occurred have filed such a case in Alameda County Superior Court.

“RICO was intended to combat organized crime, not to provide a federal cause of action and treble damages to every tort plaintiff,” Nelson added.

Three dissenting judges contended that the majority had interpreted the RICO statute in a narrow fashion that would preclude individuals of modest means from using the law as a weapon against drug dealers.

“One of the primary purposes underlying the Organized Crime Control Act of 1970, of which RICO formed a part, was combatting the ‘trade in narcotics’ that ‘causes whole cities virtually to be trapped in their home by fear of’ the maladies associated with drug use,” wrote Judge Andrew Kleinfeld. “Here we have . . . a case where the ‘racketeering’ alleged is exactly what Congress intended the statute to scourge.”

Kleinfeld said a plaintiff did not have to prove a tangible financial loss in order to invoke RICO.

Experts on the RICO law differed on the ruling’s merits.

“This is a case of tremendous national significance,” said Los Angeles attorney Barry Tarlow, a specialist in white-collar crime. “The federal courts have been filled with garbage which has snuck in under the RICO umbrella. The court has drawn a well-reasoned line, closing the door to the use of RICO for a purpose for which it was never intended.”

Notre Dame University law professor G. Robert Blakey sharply disagreed. “I cannot conceive of a case closer to the core of what the statute was all about,” he said, “when you generalize this case beyond the unique facts of a college co-op, and place it in the context of the urban scourge of crack houses.”

Blakey, who helped draft the law when he was an aide to the late Sen. John McClellan (D-Ark.) said: “The single-minded pursuit by the federal courts of an anti-RICO policy . . . has finally culminated in the denial of a claim for relief squarely within the intent of its framer.”

Thursday’s ruling overturned a 2-1 decision by a smaller panel of 9th Circuit judges last July. That panel said the tenants were entitled to have a trial on their claim that the value of their apartments had been diminished by the unlawful acts at the adjoining Barrington Hall Student Cooperative. Judge Alex Kozinski described the co-op as “the last rampart” of the 1960s counterculture.

Kozinski wrote last July that the tenants were entitled to compensation for the loss of their apartments’ market value.

“There can be no doubt that a leasehold in an ordinary apartment is worth more than a leasehold in a unit besieged by narcotics traffickers,” he wrote.

But Nelson stressed in the majority opinion Thursday that one tenant, Ruth Oscar, had not alleged the sort of losses needed to bring the RICO statute into play.

“She has not alleged any out-of-pocket expenditures as a direct or indirect result of the racketeering activity at Barrington, for example costs incurred to repair damage to her personal property or even to purchase a security system,” Nelson wrote.

The suit, filed in 1989 by Oscar and another student, Charles Espinosa, alleged that Barrington residents had agreed collectively to allow drug dealing that had a detrimental impact on the neighborhood.

In April, 1986, two students suffered heroin overdoses at Barrington. Then, in the fall of 1987, several students were sent to a hospital after drinking LSD-laced punch at a Barrington party.

Barrington was shut down by the co-op association in April, 1990, after a lengthy dispute between residents and the co-op board.

Ephraim Margolin, the San Francisco attorney who represented the co-op association in the federal case, praised Thursday’s decision as one that would preclude the “floodgates of litigation” from opening.

“What the court said is when you try to use a weapon as serious as RICO, then more than ever you have to plead a reasonable case first,” Margolin said. “You have to show in which way there is a harm that would be compensable under the extremely heavy RICO penalties.”

Oscar lawyer, Don Driscoll of San Francisco, said he was disappointed in the decision and was considering an appeal to the U.S. Supreme Court. But he called the decision a partial victory because it would not preclude homeowners--as opposed to renters--from filing such a suit because they could show that the value of their property had been diminished by drug dealers in their neighborhood.