ASSOCIATED PETRO. PROD. v. Treco 3 Rivers Energy

• Decision Date: 19 August 1988
• Docket Number: No. 85-2246C(6).,85-2246C(6).
• Citation: 692 F. Supp. 1070
• Parties: ASSOCIATED PETROLEUM PRODUCERS, INC., et al., Plaintiffs, v. TRECO 3 RIVERS ENERGY CORPORATION, et al., Defendants.
• Court: U.S. District Court — Eastern District of Missouri

692 F. Supp. 1070

ASSOCIATED PETROLEUM PRODUCERS, INC., et al., Plaintiffs, v. TRECO 3 RIVERS ENERGY CORPORATION, et al., Defendants.

No. 85-2246C(6).

United States District Court, E.D. Missouri, E.D.

August 19, 1988.

George S. Hecker, Bruce C. Oetter, Leo J. Asaro, Bryan, Cave, McPheeters & McRoberts, St. Louis, Mo., for Wheeler, Coleman, Justice, Handmaker, Tranex Corp., Tranex Dev., Tranex Lease, Mid-East Energy, East Kentucky Oil and Drew Drilling.

Warren W. Davis, Davis & Davis, Richard D. Lageson, Michael Bakewell, St. Louis, Mo., for plaintiffs.

Randall J. Thompson, St. Louis, Mo., pro se.

MEMORANDUM

GUNN, District Judge.

This matter is before the Court on various motions filed by the parties.

In their first amended complaint, Associated Petroleum Producers, Inc. ("APP") and various entities affiliated with APP assert claims against defendants under the Racketeer Influenced Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961, et seq., and state law. Plaintiffs essentially allege that defendants, individually and in concert with each other, deprived them of their rights, property and business expectancies, including oil and gas leases, drilling permits, contractual relationships and interest in a pipeline and natural gas transportation system. Jurisdiction of this Court is invoked under both the federal question and the diversity of citizenship provisions of 28 U.S.C. §§ 1331 and 1332.

Insofar as it is pertinent here the allegations giving rise to plaintiffs' first amended complaint are as follows. APP is engaged in oil and gas exploration, production and transportation, owns leasehold interests for natural gas production and provides management services to affiliated entities engaged in natural gas exploration, production and transportation. Defendant Treco 3 Rivers Energy Corp. ("Treco"), a shareholder in APP, is controlled by defendant Randall Thompson ("Thompson"), who is a former officer and agent of APP. Defendant Virgil Wheeler ("Wheeler") was retained by APP to prepare financing proposals for a project APP was developing and as such represented himself to be an officer and agent of APP.

Treco, Thompson and Wheeler breached fiduciary and contractual obligations owed to plaintiffs by secretly competing against plaintiffs and by appropriating documents and opportunities of APP and delivering these documents and opportunities to defendant Burlin Coleman ("Coleman"), chairman and president of the National Bank of Pikeville, and defendant Paul Justice ("Justice"), president of corporate defendants East Kentucky Oil & Gas Co. ("EKOG"), Mideast Energy, Inc., Drew Drilling and Tranex Development Corp. and Tranex Lease Co. (collectively "Tranex"). In return, Treco, Thompson and Wheeler received pecuniary benefits. The principal object of defendants' actions was to misappropriate an 8-inch natural gas transportation system originating in Clay County, Kentucky, which APP was in the process of developing. In addition, and as a natural outgrowth of these actions, defendants also conspired to take APP's leasehold interests and natural gas production and to prevent APP from discovering their plan and the participants therein. The scheme was abetted by the advice and financing of Justice, Coleman and defendant Stuart Handmaker ("Handmaker"), their longtime friend and legal counsel.¹

Presently before the Court are defendants Coleman, Justice, Tranex, EKOG, Mideast Energy, Inc., Drew Drilling and Handmaker's motion to dismiss Count XVI (RICO) of plaintiffs' first amended complaint for failure to state a claim, motion to dismiss for lack of subject matter jurisdiction, motion to dismiss for lack of personal jurisdiction and improper venue or in the alternative to transfer, and motion to strike and plaintiffs' motion for sanctions under Rule 11 and Rule 26(g). For the following reasons, the Court grants defendants' motions to dismiss Count XVI and to dismiss for lack of subject matter jurisdiction and denies plaintiffs' motion for sanctions. The Court dismisses defendants' remaining motions as moot.

A. Motion to Dismiss Count XVI (RICO)

In support of their motion to dismiss, defendants contend that plaintiffs have failed to sufficiently plead all of the elements necessary to state a private cause of action under RICO, 18 U.S.C. § 1961, et seq. The Court agrees. Defendants' alleged conduct, even if proven, would not constitute a "pattern of racketeering activity" as that term has been construed by the United States Supreme Court and the Eighth Circuit Court of Appeals and accordingly fails to state a claim under RICO.

In considering defendants' motion to dismiss, the Court notes that it is required to view the facts alleged in the complaint in the light most favorable to the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974); Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). Moreover, a complaint should not be dismissed unless it "appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley, 355 U.S. at 45-46, 78 S.Ct. at 101-102.

In order to state a claim under 18 U.S.C. § 1962(c), the section upon which plaintiffs rely in asserting their RICO claim, they must allege "(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity." Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S.Ct. 3275, 3285, 87 L.Ed.2d 346 (1985). The "pattern" element requires plaintiffs to allege "more than one `racketeering activity' and the threat of continuing activity...." Superior Oil Co. v. Fulmer, 785 F.2d 252, 257 (8th Cir.1986). Indeed, it requires them to allege prohibited conduct which is characterized by "continuity plus relationship." Superior Oil, 785 F.2d at 257 (citing Sedima, 473 U.S. at 496 n. 14, 105 S.Ct. at 3285 n. 14).

In applying the two-prong requirement of the "pattern" element, the Eighth Circuit Court of Appeals has consistently held that proof of multiple predicate acts, absent more, is insufficient to constitute a "pattern" of racketeering activity. In Superior Oil, for example, the Court held that, while plaintiff had satisfied the "relationship" prong by proving multiple acts of wire fraud on the part of the defendants in pursuit of their scheme to convert gas from plaintiff's interstate pipeline, it failed to satisfy the "continuity" prong as it failed to prove the continuity sufficient to form a "pattern" of racketeering activity. "The actions of defendants comprise one ... scheme.... There was no proof that defendants had ever done these activities in the past and there was no proof that they were engaged in other criminal activities elsewhere." Superior Oil, 785 F.2d at 257. As the Court reasoned, "it places a real strain on the language to speak of a single fraudulent effort, implemented by several fraudulent acts, as a `pattern of racketeering activity.'" Superior Oil, 785 F.2d at 257. See also Allright Missouri, Inc. v. Billeter, 829 F.2d 631 (8th Cir.1987) (allegation of multiple acts of wire and mail fraud undertaken for the purpose of effecting a transfer of real estate from one limited partnership to another did not constitute a "pattern" of racketeering activity); Ornest v. Delaware North Companies, Inc., 818 F.2d 651 (8th Cir.1987) (single scheme over eight years to defraud plaintiffs of their share of vending sales did not constitute a "pattern" of racketeering activity); Madden v. Gluck, 815 F.2d 1163 (8th Cir.), cert. denied, ___ U.S. ___, 108 S.Ct. 86, 98 L.Ed.2d 48 (1987) (check kiting scheme to keep business afloat in order to loot it did not constitute a "pattern" of racketeering activity); Deviries v. Prudential-Bache Securities, Inc., 805 F.2d 326 (8th Cir.1986) (single scheme over six years to generate excessive sales commissions by recommending unsuitable investments and churning plaintiff's account did not constitute a "pattern" of racketeering activity).

It is clear that in the case at hand plaintiffs have failed to adequately allege a "pattern" of racketeering activity. In their first amended complaint, plaintiffs allege that defendants engaged in a scheme which was "designed to and did deprive plaintiffs of their property, rights and business expectancies, including leasehold interests, drilling permits, contractual relationships and interests in an 8-inch pipeline and natural gas transportation system originating in Clay County, Kentucky." First Amended Complaint, ¶ 20. Plaintiffs further allege that the purpose of this scheme was "to use APP's assets, properties, interests, business opportunities, business relationships, information, and materials for their own personal benefit and gain." First Amended Complaint, ¶ 207. Although plaintiffs have alleged that defendants engaged in multiple fraudulent acts these acts constitute subdivisions of a single scheme: to appropriate plaintiffs' oil and gas opportunities in the State of Kentucky. There are no allegations that defendants have done these activities in the past or that they were engaged in similar activities elsewhere. Accordingly, the Court grants defendants' motion to dismiss Count XVI of plaintiffs' first amended complaint.

B. Motion to Dismiss for Lack of Subject Matter Jurisdiction

In their motion to dismiss for lack of subject matter jurisdiction, defendants contend that plaintiffs' sole basis for invoking the Court's jurisdiction is under the diversity of citizenship provisions of 28 U.S.C. § 1332 and that, as APP is a citizen of the State of Kentucky and as defendants are also citizens of that state, the Court cannot exercise jurisdiction over plaintiffs' claims as there is no complete diversity between the parties.² In essence, defendants request the Court to reconsider its Order and Memorandum of December 18, 1985 which held that APP is a citizen of the State of Missouri as it found that its "nerve center" is in Missouri. Based on the information...