Columbia Natural Resources, Inc. v. Tatum

• Decision Date: 05 September 1995
• Docket Number: No. 93-4299,93-4299
• Citation: 58 F.3d 1101
• Parties: , RICO Bus.Disp.Guide 8845 COLUMBIA NATURAL RESOURCES, INC.; Stocker & Sitler Oil Company, Plaintiffs-Appellants, v. Zachary TATUM; Strata Exploration, Inc.; Tatum Petroleum Ohio, Inc.; Tatum Petroleum Corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1101

58 F.3d 1101

64 USLW 2058, RICO Bus.Disp.Guide 8845

COLUMBIA NATURAL RESOURCES, INC.; Stocker & Sitler Oil Company, Plaintiffs-Appellants, v. Zachary TATUM; Strata Exploration, Inc.; Tatum Petroleum Ohio, Inc.; Tatum Petroleum Corporation Defendants-Appellees.

No. 93-4299.

United States Court of Appeals Sixth Circuit.

Argued Oct. 12, 1994.

Decided July 11, 1995.

Rehearing and Suggestion for Rehearing En Banc Denied Sept. 5, 1995.

David D. Noble, Noble & Sullivan, Cleveland, OH, Jo Ellen Diehl Yeary, Columbia Natural Resources, Inc., Charleston, WV, for Columbia Natural Resources, Inc.

David D. Noble (argued and briefed), John E. Sullivan, III (briefed), Noble & Sullivan, Cleveland, OH, Jo Ellen Diehl Yeary, Columbia Natural Resources, Inc., Charleston, WV, for Stocker & Sitler Oil Co.

Jack R. Baker, Baker, Meekison & Dublikar, Canton, OH (argued and briefed), for defendants-appellees.

Before: MILBURN, BOGGS, and NORRIS, Circuit Judges.

BOGGS, Circuit Judge.

Columbia Natural Resources, Inc. and Stocker & Sitler Oil Company appeal an order holding that the phrase "pattern of racketeering activity" in the RICO statute, 18 U.S.C. Sec. 1962(c), is "void for vagueness" as applied to these defendants and granting a motion to dismiss for failure to state a claim under Fed.R.Civ.P. 12(b)(6). For the reasons set out below, we reverse.

I

This case arises out of a series of oil and gas contracts between Columbia Natural Resources and Zachary Tatum and his affiliated companies. ¹ Columbia held approximately 47 leases allowing it to drill for oil on various pieces of real property belonging to Ohio farmers. These leases, which represented both shallow and deep drilling rights, were valid for a period of years, unless Columbia drilled wells and began to extract resources, in which case they were valid for the entire period of production. Apparently, in 1980 and 1981, Columbia executed several "farmout" agreements with Tatum and his companies. These farmout agreements authorized Tatum to begin shallow drilling on the land. The effect of this, once a well began producing, was to "validate" Columbia's lease, making it effective for the entire period of production. Columbia alleges that these farmout agreements opened a door for Tatum to commit a pattern of mail and wire fraud.

In particular, Columbia alleges that Tatum engineered various schemes that could be called "claim jumping." Columbia alleges that Tatum signed "topleases" with the landowner, which would be effective if Columbia's lease were not "validated." Tatum would then, through fraud and artifice, including letters and phone calls, deceive Columbia about the status of drilling on the wells and about its interest in any topleases. In effect, Tatum would deliberately refrain from drilling wells and bringing them into production. This prevented Columbia from validating the leases and caused the leases to expire at the end of their term. Tatum would then use the toplease to secure the right to drill on the land.

Columbia was, by virtue of an "extension, renewal and replacement clause" in the original farmout agreements, entitled to royalties and the rights represented by any topleases secured by Tatum. Columbia alleges that Tatum misrepresented the status of drilling on the sites, lulling it into believing that its leases would be validated. Columbia also alleges that, after failing to drill the wells, Tatum evaded the effect of the extension clause by misrepresenting its interest in the topleases so that it could retain all of the royalties.

Columbia also alleges that on the leases Tatum validated by drilling, Tatum defrauded Columbia of its royalties. It did this, again using the mail and telephone, by misrepresenting the amount of resources it had extracted from the well and by deducting unauthorized expenses from the royalties owed to Columbia.

Columbia alleges that Tatum began another scheme in 1989. Tatum now used front men to obtain topleases and then capped producing wells. This deprived Columbia of a validated lease and caused its shallow and deep drilling rights to lapse. Columbia again alleges that Tatum did so with the intent to defraud Columbia and that Tatum used the phones and mail to further the scheme.

Finally, Columbia alleges that Tatum encouraged and assisted lawsuits designed to break Columbia's leases so that Tatum could utilize concealed topleases. In particular, Columbia alleges that Tatum assisted at least one lease-holder in such an effort, and then misrepresented his role to Columbia, through the mail and on the telephone, in an attempt to conceal his involvement.

Columbia sued Zachary Tatum and his affiliated companies for approximately $10,000,000 in actual damages. Columbia's complaint included a series of contract and tort claims, as well as civil RICO claims. The claims of wire fraud, mail fraud and Travel Act violations served as the basis for the RICO suit.

The district court dismissed plaintiffs' first complaint for failing to comply with Fed.R.Civ.P. 9(b)'s requirement that "in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Columbia amended the complaint within the required 30 days, providing the court with a 75-page complaint and 34 exhibits totalling approximately 260 pages, alleging numerous RICO violations and pendent state law claims. The district court dismissed this complaint, apparently because the court held that the phrase "pattern of racketeering activity" was unconstitutionally vague and because the complaint failed to state a claim under Rule 12(b)(6). Furthermore, the court declined to exercise jurisdiction over the pendent state law claims.

Columbia argues, first, that the term "pattern of racketeering activity" is not void for vagueness as applied to these defendants; and, second, that it has alleged sufficient facts to allow the claim to proceed past a motion to dismiss.

II

The due process clause of the Constitution provides the foundation for the void for vagueness doctrine. U.S. Const. amend. V. The Supreme Court did not accord vagueness a constitutional dimension until Waters-Pierce Oil Co. v. Texas, 212 U.S. 86, 108, 29 S.Ct. 220, 225, 53 L.Ed. 417 (1909). From the earliest cases to hold that a statute was unconstitutionally vague, (see International Harvester Co. v. Kentucky, 234 U.S. 216, 34 S.Ct. 853, 58 L.Ed. 1284 (1914), and Collins v. Kentucky, 234 U.S. 634, 34 S.Ct. 924, 58 L.Ed. 1510 (1914)), to the present, the Supreme Court has made it clear that the vagueness doctrine has two primary goals. First, to ensure fair notice to the citizenry; second, to provide standards for enforcement by the police, judges, and juries.

The requirement that the government write statutes that provide fair notice to those who must obey them is a traditional basis of the vagueness doctrine. "A statute which either forbids or requires the doing of an act in terms so vague that men of common intelligence must necessarily guess at its meaning and differ as to its application, violates the first essential of due process of law." Connally v. General Constr. Co., 269 U.S. 385, 391, 46 S.Ct. 126, 127, 70 L.Ed. 322 (1926). The requirement of fair notice is not applied mechanically or without regard for the common sense judgment that people do not review copies of every law passed.

The second concern, that of minimal enforcement standards, is related to the first. While the first involves notice to those charged with obeying the law, the second part relates to notice to those who must enforce the law, be they the police, judges, or juries. The standards of enforcement must be precise enough to avoid "involving so many factors of varying effect that neither the person to decide in advance nor the jury after the fact can safely and certainly judge the result." Cline v. Frink Dairy Co., 274 U.S. 445, 465, 47 S.Ct. 681, 687, 71 L.Ed. 1146 (1927).

As a practical matter, the Supreme Court considers the latter concern the most important. This reflects the common sense understanding that the average citizen does not read, at his leisure, every federal, state, and local statute to which he is subject. See, e.g., Kolender v. Lawson, 461 U.S. 352, 357, 103 S.Ct. 1855, 1858, 75 L.Ed.2d 903 (1983) ("Although the doctrine focuses both on actual notice to citizens and arbitrary enforcement, we have recognized recently that the more important aspect of vagueness doctrine 'is not actual notice, but the other principal element of the doctrine--the requirement that a legislature establish minimal guidelines to govern law enforcement.' ") (quoting Smith v. Goguen, 415 U.S. 566, 574, 94 S.Ct. 1242, 1248, 39 L.Ed.2d 605 (1974)).

The Supreme Court clearly stated the jurisprudential basis for these two parts in Grayned v. City of Rockford, 408 U.S. 104, 108-09, 92 S.Ct. 2294, 2298-99, 33 L.Ed.2d 222 (1972).

It is a basic principle of due process that an enactment is void for vagueness if its prohibitions are not clearly defined. Vague laws offend several important values. First, because we assume that man is free to steer between lawful and unlawful conduct, we insist that laws give the person of ordinary intelligence a reasonable opportunity to know what is prohibited, so that he may act accordingly. Vague laws may trap the innocent by not providing fair warning. Second, if arbitrary and discriminatory enforcement is to be prevented, laws must provide explicit standards for those who apply them. A vague law impermissibly delegates basic policy matters to policemen, judges, and juries for resolution on an ad hoc and subjective basis, with the attendant dangers of arbitrary and discriminatory application.

Underlying part of the second test is a concern over the implications for the constitutionally mandated separation of powers, because vague laws pass much of the burden of "legislating" from Congress to the judiciary. See, e.g., James v. Bowman, ...