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EABY v. RICHMOND

March 11, 1983

EARL M. EABY, ELMER MARTIN, JR., DR. RALPH WEIRICH, LUTHER EARHART, ELI S. LAPP, RUSSEL W. BRONG, LILLIAN WITTLE and RICHARD BRONG
v.
JOHN R. RICHMOND, JUNE RICHMOND, JOHN D. SNAVELY, JERRY W. HANWELL, GEORGE McCARRIHAN, GEORGE DAWSON, D'APPOLONIA PETROLEUM, INC., BARRIE P. BARRETT, P.E., CHARLES F. SMITH, ANGELINA NAU, AMERICAN ENERGY DEVELOPERS, INC., and JAMES E. CAPIN



The opinion of the court was delivered by: TROUTMAN

 TROUTMAN, J.

 Asserting that defendants' conduct for almost a decade amounts to a violation of the Racketeer Influenced and Corrupt Organization Act, 18 U.S.C. § 1961 et seq., (RICO), plaintiffs commenced this civil action seeking treble damages for their injuries. Defendants, moving to dismiss, argue that the complaint fails to properly state a RICO claim, that mere allegations of "fraud" and "conspiracy" impermissibly lack factual specificity and that venue is not properly laid in this district. We grant defendants' motions pro tanto.

 According to the complaint, defendants John and June Richmond acquired leasehold interests in the mineral rights of various properties located in Ohio and West Virginia. For a seven-year period, 1973-1980, the Richmonds, acting through their agent, defendant Snavely, made material misrepresentations when selling fractional interests in these leaseholds to various plaintiffs. During this same time, defendant, American Energy Developers, Inc. (AED) wrote to the leases' co-owners, plaintiffs, and offered to develop the leases.

 From 1975-1979, the Securities and Exchange Commission (SEC) investigated the above described transactions and, apparently in reaction to this, the Richmonds and Snavely ceased selling fractional leasehold interests and commenced selling shares of AED stock. Although AED, incorporated by defendants McCarrihan, Dawson, Smith and John Richmond, was not authorized to develop mineral rights or mineral interests, defendants nevertheless represented to prospective shareholders that the corporation would engage in such activities. Further, defendants subverted AED to their own impermissible goals by wrongfully voting the proxy of plaintiff, Richard Eaby and failing to make designated royalty and other payments which were due and owing to other plaintiffs.

 The complaint then alleges a litany of purportedly wrongful conduct and includes statements of numerous methods by which various defendants sold stock to named plaintiffs. In any case, in February 1980, Snavely, then acting in his capacity as president of AED, improperly contracted with defendant D'Appolonia Petroleum, Inc. (DPI) which agreed to develop a designated mineral lease. Upon completion of this contractual obligation, DPI submitted an inflated bill to AED. Worse, the work was completed in an unworkmanlike manner.

 Shortly thereafter, plaintiffs attempted to secure financial information regarding AED. They were, however, effectively blocked from doing so; Snavely sold AED's assets to DPI and then converted the purchase money to his own use. Subsequently, DPI wrote to various plaintiffs and demanded, upon the pain of stock forfeiture, that they pay the development costs which the corporation had incurred.

 We accept as true the veracity of these factual allegations, Walker Proces Equipment Co. v. Food Machinery & Chemical Corp., 382 U.S. 172, 15 L. Ed. 2d 247, 86 S. Ct. 347 (1965); Kaiser Aluminum & Chemical Sales, Inc. v. Avondale Shipyards, Inc., 677 F.2d 1045, 1050 (5th Cir. 1982); Western Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981); Bartholomew v. Fischl, 534 F. Supp. 161, 164 (E.D. Pa. 1981), and consider below the challenges to the RICO count and the propriety of venue in this district.

 RICO

 Moving to dismiss, DPI argues that plaintiffs have failed to state a proper RICO claim against it. Plaintiffs, objecting generally to DPI's reliance upon cases which considered RICO criminal prosecutions, respond that they have, in fact, more than adequately alleged a civil RICO claim.

 Plaintiffs' broad assertion that criminal cases which considered RICO prosecutions have little, if any, application to this civil case, is misplaced. True, the Government, in a criminal RICO prosecution, must prove each and every element of the charged offense beyond a reasonable doubt. United States v. Kopituk, 690 F.2d 1289, 1323 (11th Cir. 1982). On the other hand, civil RICO plaintiffs need only prove a violation by a preponderance of the evidence. Parnes v. Heinold Commodities, Inc., 487 F. Supp. 645, 647 (N.D. Ill. 1980). Accord, Bennett v. Berg, 685 F.2d 1053 (8th Cir. 1982); Engl v. Berg, 511 F. Supp. 1146, 1154-56 (E.D. Pa. 1981) (discussing civil RICO claim in the context of a Fed. R. Civ. P. 12(b) (1) and (6) motion). See also, United States v. Cappetto, 502 F.2d 1351, 1357 (7th Cir. 1974), cert. denied, 420 U.S. 925, 43 L. Ed. 2d 395, 95 S. Ct. 1121 (1975). The variation in the standard of proof between the two types of RICO actions does not, however, alter the essential elements of the offense or the claim. The different standards of proof alter only the degree of certainty to which a jury must be convinced; they do not change the elements of the offense.

 This conclusion finds support in a literal reading of the statute. United States v. Turkette, 452 U.S. 576, 593, 69 L. Ed. 2d 246, 101 S. Ct. 2524 (1981) (noting that the "language of the [RICO] statute" is the "most reliable evidence of [Congressional] intent".) Cf. Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 102 S. Ct. 3245, 3250, 73 L. Ed. 2d 973, 980 (1982) (Courts must give effect to the will of Congress where "its will has been expressed in reasonably plain terms, th[e] statutory language must ordinarily be regarded as conclusive".) (quotation omitted). Permission to bring a civil action for a RICO violation, 18 U.S.C. § 1964(c), extends to those injured by a violation of the criminal RICO prohibitions, 18 U.S.C. § 1962. Had the Congress not intended civil RICO plaintiffs to prove the same elements which the Government must prove in a criminal case, it undoubtedly would not have defined a civil violation with specific reference to a criminal one. Therefore, in deciding whether plaintiffs have properly alleged a civil RICO claim, we may properly draw upon those criminal RICO cases which have described the essential elements of such a claim.

 In order to state a RICO claim against any individual defendant, plaintiff must allege with regard to that defendant the:

 
(1) existence of an enterprise; (2) that the enterprise affected interstate commerce; (3) that the defendant was employed by or associated with the enterprise; (4) that he participated, either directly or indirectly, in the conduct of the affairs of the enterprise; and (5) that he participated through a pattern of racketeering activity, i.e., through the commission of at least two racketeering acts.

 United States v. Kopituk, 690 F.2d at 1323 (emphasis added).

 In the case at bar, defendant DPI argues that plaintiffs' complaint is fatally defective in that it fails to allege: the existence of an "enterprise", that DPI was "employed by" or "associated with" an "enterprise" and that DPI's hypothesized enterprise activities amount to "racketeering activity". Moreover, DPI urges that plaintiffs' complaint improperly alleges a RICO conspiracy. 18 U.S.C. § 1962(d).

 Responding, plaintiffs argue that the "enterprise", which had different names at various times, consisted of a scheme to defraud them by the sale of unregistered securities without disclosure of highly relevant information. Specifically, the enterprise is identified by plaintiffs as bearing the name of each security or leasehold interest fraudulently sold by the defendants. Plaintiffs, still responding to the motion, asseverate that DPI "managed" the illegal "enterprise" after AED stepped aside and that DPI committed a sufficient number of mail-fraud acts to rise to the level of a "pattern of racketeering activity". 18 U.S.C. § 1961(1) and (5). United States v. Sheeran, 699 F.2d 112, 115, n. 6 (3d Cir. 1983). Finally, plaintiffs urge that they have properly alleged a conspiracy. We now consider these issues.

 Whether plaintiffs had alleged an "enterprise" turns upon whether the complaint discloses the existence of an "entity", a "group of persons associated together for a common purpose of engaging in a course of conduct"; i.e., an "organization, formal or informal, [which] . . . function[s] as a continuing unit". United States v. Turkette, 452 U.S. at 583; United States v. Dickens, 695 F.2d 765, 773 (3d Cir. 1982). Enterprise allegations may assert "diversified activity" or a "myriopod criminal network, loosely connected but connected nonetheless". United States v. Elliott, 571 F.2d 880, 899 (5th Cir.), cert. denied, 439 U.S. 953, 58 L. Ed. 2d 344, 99 S. Ct. 349 (1978). Cf., United States v. Palermo, 410 F.2d 468, 470 (7th Cir. 1969) (a single conspiracy properly described as "one overall agreement to extort money . . . in any way possible").

 In the case at bar, a "fair reading" of the complaint, Farmers Bank v. Bell Mortgage Co., 452 F. Supp. 1278, 1282 (D. Del. 1978), discloses that defendants were involved in the sale of a series of fractional leasehold interests. Mindful of the deference which we must accord plaintiffs' factual allegations, Engl v. Berg, 511 F. Supp. at 1155, and recognizing that the exact relationship between the parties is somewhat imprecisely alleged, the complaint nevertheless articulates sufficiently "connected" activity to rise to the level of a RICO "enterprise". United States v. Elliot, 571 F.2d at 899.

 DPI fares better, however, with its second argument. In order to succeed on their RICO claim, plaintiffs must allege, but have not, that DPI participated in the enterprise's affairs through a pattern of racketeering activity. Specifically, plaintiffs fail to allege that DPI committed at least two predicate racketeering acts. United States v. Kopituk, 690 F.2d at 1323; United States v. Peacock, 654 F.2d 339, 348 (5th Cir. 1981), vacated in part on other grounds, 686 F.2d 356 (5th Cir. Unit B 1982); United States v. Martino, 648 F.2d 367, 383 (5th Cir. 1981), vacated in part on other grounds, 681 F.2d 952 (5th Cir. 1982) (In order to sustain a substantive RICO claim, proof that each individual defendant committed at least two racketeering acts is necessary); 18 U.S.C. § 1965(d).

 We now examine this deficiency with regard to DPI and other moving defendants.

 The complaint fails to allege that defendant, DPI's conduct amounts to racketeering activity. Plaintiffs' meager factual allegations which relate to DPI's conduct are essentially contained in paras. 37, 38, 39, 42, 44 and 45 of the complaint. Plaintiffs allege therein that defendant Snavely improperly entered into an agreement with DPI, that DPI overcharged defendant AED for well development work which was not performed in a workmanlike manner, that defendant Snavely improperly sold corporate assets to DPI, that AED's failure to expeditiously develop specified leases resulted in a forfeiture thereof to DPI and that DPI wrote to some plaintiffs demanding payments. These allegations simply complain that Snavely twice engaged in improper conduct, that DPI charged an excessive price for poor quality work, that DPI benefitted from AED's inaction and that DPI sought payment directly from plaintiffs. Most importantly, plaintiffs have not alleged that Snavely's misconduct is attributable to DPI or the product of any Snavely-DPI conspiracy. Neither have they alleged that the overcharges and poor workmanship were part of a scheme or plot to defraud, nor that AED's inaction which benefitted DPI, to the detriment of plaintiffs, was in any way part of an illicit agreement. Finally, the complaint does not purport to assert that DPI's demand letters to plaintiffs were part of any fraudulent scheme. Briefly spoken, the complaint is totally barren of any allegation which attacks DPI's motive or intent with respect to the described ...


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