Use of Racketeering Law in Tenant Lawsuit Upheld

In a decision with broad implications, a federal appeals court ruled Friday that Berkeley tenants can use a federal racketeering law to recover damages for the diminished value of their apartments caused by the unlawful conduct of a neighboring student housing co-operative.

In a 2-1 decision, the U.S. 9th Circuit Court of Appeals in San Francisco said Ruth Oscar and Charles Spinosa can recover damages under the Racketeer Influenced and Corrupt Organizations Act (RICO) from a cooperative whose tenants were notorious for drug use and loud parties.

One of the nation’s leading experts on the controversial RICO law hailed the decision, saying that if it stands, the ruling will give residents of many poor areas “a legal weapon” to rid their neighborhoods of crack houses.

“This is squarely within what RICO was supposed to do,” said Prof. G. Robert Blakey of Notre Dame University Law School, who helped draft the law while he was a Senate aide.

The RICO statute under which the tenants sued has been used frequently by the government for prosecuting mobsters and by individuals suing over complex business deals.

In the majority opinion, Appellate Judge Alex Kozinski said the tenants were entitled to compensation for the loss of their apartments’ market value.

“Their loss is economic: They paid good money for their leasehold interests, which included a right of quiet enjoyment,” Kozinski wrote. “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.”

And, he added, the “plaintiffs’ injury is conceptually no different than if a portion of their apartments had been flooded or damaged by fire.”

Friday’s decision stemmed from a longstanding controversy about Barrington Hall, one of UC Berkeley’s 18 cooperative housing units.

“If Berkeley, Calif., was the last bastion of ‘60s counterculture, Barrington . . . , the city’s oldest and largest student housing cooperative, was surely the last rampart,” Kozinski wrote in an unusually colorful majority opinion.

He said the co-op was characterized by “bizarre and irreverent rituals” including nude gatherings with themes like “Satan’s Village Wine Dinner.”

In April, 1986, the University Students Co-Operative Assn. threatened to close Barrington after two heroin overdoses occurred there. In the fall of 1987, several students were sent to a hospital after drinking LSD-laced punch at a Barrington party.

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

However, San Francisco attorney Ephraim Margolin, who represents the association, said city officials never attempted to close the facility as a legal nuisance.

He said that the decision is appalling and added that he intends to ask for a rehearing. “There is no doubt that RICO was never meant to apply to anything like this,” Margolin said in a telephone interview from San Francisco.

The law has come under considerable fire in recent years from a host of business people who say that they have been unfairly prosecuted under a statute whose goal was to prosecute mobsters.

Prof. Philip Johnson of the UC Berkeley law school said it is amazing that such a case would come to trial in a federal court.

But Kozinski said the Berkeley tenants had “alleged the type of unlawful conduct that lies at the heart of RICO: the sale of illegal drugs and the crime and violence associated therewith.”

Kozinski rejected the defendants’ argument that RICO protects only business property. Appellate Judge Melvin Brunetti joined in the decision.

Appellate Judge Pamela A. Rymer issued a sharp dissent, saying that the tenants had failed to show they had the sort of economic loss required for the RICO law to be applicable. She said the tenants had not alleged that they could rent their units to others, “much less rent them for higher prices than they were paying.”

Rymer added that the proper remedy for the plaintiffs would be a nuisance suit brought under state law. In fact, some aggrieved neighbors of Barrington have just such a nuisance case pending in Alameda County Superior Court in Oakland.

For several years, there has been an abundance of litigation stemming from disputes between the co-op and its neighbors. Attorney Donald P. Driscoll filed a suit in federal district court in San Francisco in 1989 seeking damages for Oscar and Spinosa, who contended the drug dealing at Barrington Hall injured their property.

U.S. District Judge Stanley A. Weigel dismissed the suit, saying that the plaintiffs were not entitled to a trial. He agreed with the co-op that the plaintiffs had failed to show that there was a causal relationship between activity at Barrington and any damages they had suffered.

Judges Kozinski and Brunetti disagreed and sent the case back to Weigel for a trial.

To prevail at a trial, the plaintiffs will have to prove, according to Driscoll, that co-op officials were involved in drug dealing. Driscoll said some people at Barrington had been arrested for drug dealing, but was unaware of any that had been successfully prosecuted.