Parker & Parsley Petroleum Co. v. Dresser Industries

Decision Date03 September 1992
Docket NumberBJ-TITAN,Nos. 91-8194,91-8460,s. 91-8194
Citation972 F.2d 580
PartiesRICO Bus.Disp.Guide 8096 PARKER & PARSLEY PETROLEUM CO., et al., Plaintiffs-Appellees, Cross-Appellants v. DRESSER INDUSTRIES, et al., Defendants-Appellants, Cross-Appellees, andSERVICES COMPANY, et al., Defendants-Third Party Plaintiffs-Appellants, Cross-Appellees, v. Gary LANCASTER, a/k/a Gary "Zeke" Lancaster, Third Party Defendant-Appellee.
CourtU.S. Court of Appeals — Fifth Circuit

Charles R. Dunn, Christopher C. Pappas, Dunn, Kacal, Adams, Pappas & Law, Houston, Tex., James P. Boldrick, Boldrick & Clifton, Midland, Tex., Russell H. McMains, William V. Dorsaneo, III, McMains & Constant, Corpus Christi, Tex., Mike A. Hatchell, Donald W. Cothern, Andy G. Navarro, Molly H. Anderson, Ramey, Flock, Jeffus, Crawford, Harper & Collins, Tyler, Tex., for Dresser.

Roger Townsend, Fulbright & Jaworski, Houston, Tex., Keith A. Jones, Fulbright & Jaworski, Washington, D.C., Ronald D. Secrest Beck, Redden & Secrest, Houston, Tex., for Baker Hughes Prod. Tools, Inc. and BJ-Titan, et al.

Jack N. Price, Price & Williams, Austin, Tex., for Lancaster.

Deborah G. Hankinson, Jerry P. Jones, William T. Hankinson, James M. Underwood, Lisa A. Schumacher, G. Luke Ashley, Thompson & Knight, Dallas, Tex., John A. "Jad" Davis, Jr., Kemp, Smith, Duncan & Hammond, Midland, Tex., for Parker & Parsley, et al.

Mark G. Yudof, Dean and Professor of Law, Univ. of Texas School of Law, Austin, Tex., for BJ-Titan, et al. in No. 91-8460.

Appeals from the United States District Court for the Western District of Texas.

Before SMITH and EMILIO M. GARZA, Circuit Judges, and RAINEY, * District Judge.

JERRY E. SMITH, Circuit Judge:

On behalf of itself and the other interest-holders in 523 West Texas oil wells, Parker & Parsley Petroleum Company ("Parker & Parsley") filed suit in federal district court against Dresser Industries, Inc., Titan Services, Inc., BJ Services U.S.A., Inc., BJ-Hughes Holding Company, Baker Hughes Production Tools, Inc., and Baker Hughes Incorporated (hereinafter collectively "Dresser"), charging that Dresser defrauded Parker & Parsley by shorting it on materials used in oil well stimulation procedures. Parker & Parsley based federal jurisdiction upon violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., and appended Texas state claims for fraud, breach of contract, breach of implied warranty, negligence, and gross negligence.

The district court dismissed the RICO claims but retained pendent jurisdiction over the state claims. After a jury trial on the state claims, the district court entered judgment awarding $85 million actual and $100 million punitive damages. After a separate proceeding, the court awarded the plaintiffs attorneys' fees of approximately $1.8 million. We vacate the judgment and dismiss for lack of federal jurisdiction.

I.

Parker & Parsley operated a large number of oil wells in West Texas. Some of the wells were not as productive as the company wished, so it contracted with Dresser in 1983 and 1984 to "fracture" the wells to stimulate them. Apparently through the efforts of Dresser's Odessa division manager, Gary "Zeke" Lancaster, Dresser shorted Parker & Parsley, using less sand and gel than it had agreed to use for the fracturing, which, Parker asserted, reduced the amount of oil that eventually could be extracted. 1

In 1985, Dresser's Titan subdivision entered into a partnership with a BJ-Hughes Holding Co. subsidiary and remained in the business as BJ-Titan. In 1986 and 1987, Parker & Parsley awarded its fracturing contracts to BJ-Titan, and the shorting apparently continued. In 1987, Baker Hughes Incorporated acquired BJ Holding Co. and later became the corporate parent of all the BJ-Titan partners. The company fired Lancaster for embezzling, and it seems that his attorney informed Dresser of the shorting, which he said had been approved by high executives of his former employers.

II.

The RICO claim was dismissed about nine months after the suit was filed and a month before trial was scheduled to begin. The district court retained jurisdiction over the state law fraud, contract, and tort claims, but then continued the case for three months. Dresser appeals the court's retention of pendent jurisdiction and challenges the award of punitive damages, the measure of actual damages, and the exclusion of evidence relating to a witness's alleged bias and, in a separate appeal now consolidated, attorneys' fees.

III.

Parker & Parsley grounded its RICO claims on 18 U.S.C. § 1962(a) and (c). The district court held that Parker & Parsley had failed to allege a proper RICO enterprise or a cognizable RICO injury, that the BJ-Titan partners were not "persons" for purposes of the statute, and that, because Parker & Parsley's substantive claims had failed, its conspiracy claims should be dismissed as well. Parker & Parsley cross-appeals, arguing that its RICO claim should have survived the dismissal motion. We affirm the dismissal.

As stated in Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S.Ct. 3275, 3285, 87 L.Ed.2d 346 (1985), a viable claim under section 1962(c) "requires (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity." Parker & Parsley averred three potential enterprises. First, it alleged an association-in-fact composed of the "servicing entity's" field employees who carried out the shortchanging. Alternatively, it pleaded that each respective corporate defendant, as the servicing entity, was the enterprise. Third, it alleged that the BJ-Titan partnership, as the servicing entity, was the enterprise. The district court held first that the only bases for the association-in-fact were the employees' relationship with the defendant companies and the alleged wrongful conduct. The court noted that such an association must be "an entity separate and apart from the pattern of activity in which it engages," see Atkinson v. Anadarko Bank & Trust Co., 808 F.2d 438, 441 (5th Cir.) ( quoting United States v. Turkette, 452 U.S. 576, 583, 101 S.Ct. 2524, 2529, 69 L.Ed.2d 246 (1981)), cert. denied, 483 U.S. 1032, 107 S.Ct. 3276, 97 L.Ed.2d 780 (1987), and that the acts of the members of the alleged association took place within the course of their conduct as employees, which basis this court disallowed in Elliot v. Foufas, 867 F.2d 877, 881 (5th Cir.1989). The district court rejected the other possible enterprises because the alleged acts were "committed" by the "enterprise" in the course of its regular business and because the RICO "persons" that were alternatively alleged were not claimed to have committed the predicate acts.

We agree that Parker & Parsley alleged no RICO enterprise under section 1962(c). The initial averred association-in-fact, consisting of the shortchanging field employees, either has no existence as an entity separate and apart from the actual pattern of racketeering, see, e.g., Old Time Enters. v. International Coffee Corp., 862 F.2d 1213, 1217 (5th Cir.1989); Delta Truck & Tractor v. J.I. Case Co., 855 F.2d 241, 243 (5th Cir.1988), cert. denied, 489 U.S. 1079, 109 S.Ct. 1531, 103 L.Ed.2d 836 (1989), or is the defendant corporate entity functioning through its employees in the course of their employment. See Old Time Enters., 862 F.2d at 1217; see also Atkinson, 808 F.2d at 441. Because neither of these can constitute a RICO enterprise, see Elliot, 867 F.2d at 881, 2 and because a corporation cannot be both the enterprise and the RICO perpetrator, Bishop v. Corbitt Marine Ways, 802 F.2d 122, 123 (5th Cir.1986), this association cannot be a RICO enterprise. 3

The alternative RICO enterprises also fail. The corporate partners in the servicing entity, or alternatively, BJ-Titan, committed the predicate acts, if such acts may be attributed to them, in the course of their regular business. Additionally, as the district court noted, if the corporations or partnership are to be held liable as RICO "persons," they must have committed the predicate acts, but Parker & Parsley, despite the claim in its brief, has not alleged that the partners did so. See United States v. Cauble, 706 F.2d 1322, 1332-33 (5th Cir.1983), cert. denied, 465 U.S. 1005, 104 S.Ct. 996, 79 L.Ed.2d 229 (1984).

The acts of the servicing entity, or the partnership, cannot, for RICO purposes, be attributed vicariously to the individual partners. See Schofield v. First Commodity Corp., 793 F.2d 28, 32 (1st Cir.1986). Having determined that the claims were properly dismissed for failure to state a RICO enterprise, we need not address Parker & Parsley's other arguments regarding the section 1962(c) claims.

Heretofore we have not explicitly applied the foregoing analysis to a section 1962(a) claim, but we need not do so now in order to affirm, for the district court also dismissed Parker & Parsley's section 1962(a) claims for failure to allege a RICO injury. We see no reason to disturb this ruling. Section 1964(c) states, "Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor ... and shall recover threefold the damages he sustains." Section 1962(a) provides,

It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity or through collection of an unlawful debt ... to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce.

As the district court noted, it is obvious from the complaint and the RICO case statement that the only damages Parker & Parsley is attempting to recover are those caused by inadequate fracturing jobs, not from any investment of income derived from the alleged shorting. As all but one...

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