D. BROOKS SMITH, UNITED STATES DISTRICT JUDGE
Several motions are before the court at this time. Defendants' motion to dismiss Counts VII and XI of the Complaint will be granted. In addition, defendant Laughlin's motion to dismiss due to defective service of process will be granted. All of the remaining motions by the defendants will be denied.
Allegations of Complaint
The Complaint, which consists of one hundred and thirty-two (132) paragraphs and is sixty-seven (67) pages in length, can be summarized briefly as a breach of contract suit. Plaintiff Wood and Locker, Inc. and Energy Minerals, Inc., are engaged in the business of raising capital for investment in oil and gas programs. Defendants Doran and Associates, Inc. and Plateau Resource Development Corp. are engaged in the business of designing and promoting oil and gas investment projects, acquiring sites for oil and gas wells, drilling such wells, and operating, supervising, and maintaining them.
Defendants Lake Plains Energy, Inc., B.J. Humbert Co., and Appalachian Energy, Inc., are engaged in the business of acquiring sites for oil and gas well, drilling such wells, and operating, supervising and maintaining them.
Defendants Weldon Doran, Donald Laughlin, Edmund Rigatti, and Edward Ray owned all or part of the stock of, or controlled and dominated, or were the agents, servants, or officers of Doran and Associates and/or Appalachian Energy, Inc., and/or Plateau Resource Development Corp.
Defendants Bruce Humbert and Janelle Humbert owned all or part of the stock of, or were the agents, servants, or officers of Lake Plains Energy, Inc., and B.J. Humbert Co.
Defendants Doran, Laughlin, and Rigatti designed an oil and gas drilling and operating scheme whereby they induced investors to enter into contractual agreements either with them or with an entity controlled by them to locate drilling sites and to develop and operate oil and gas wells on behalf of investors. Pursuant to their scheme, they induced plaintiff and Energy Minerals, Inc., by means of fraudulent representations, to invest in a number of oil and gas well drilling programs.
On November 8, 1977, plaintiff and Energy Minerals entered into a series of turnkey drilling agreements with Appalachian Energy, Inc., Doran and Associates, and Plateau Resource Development Corp., whereby the latter agreed to drill, complete, and prepare for operation and production various oil and gas wells. On that same date, the same parties also entered into a series of Operating Agreements, whereby the latter agreed to place the wells into production and to connect them to a pipeline, to sell all the oil and gas produced at the best available price, and to collect and hold in trust any proceeds derived therefrom.
Defendants Doran, Laughlin, and Rigatti disregarded the corporate entities of Doran and Associates Appalachian Energy, Inc., and Plateau Resource Development Corp. and through a pattern of stock ownership and control dominated and controlled the latter and dissipated the latter's funds and assets for their own enrichment and to enrich other businesses under their control.
In furtherance of their scheme to defraud plaintiff, defendants Doran, Laughlin, Rigatti, Ray, Doran and Associates, and Plateau Resources Development Corp. entered into certain agreements concerning the turnkey and operating agreements without plaintiff's knowledge with defendants Lake Plains Energy, Inc., B.J. Humbert Co., Bruce Humbert, and Janelle Humbert.
Pursuant to the turnkey and operating agreements, plaintiff paid defendants in excess of $ 20,000,000.00 for completion and operation of one hundred and forty-five (145) wells. Defendants failed to complete the wells and diverted or dissipated those funds.
Plaintiff had the right according to the agreements to terminate them in the event of any gross negligence, willful misconduct, any criminal activity on the part of Doran and Associates, Plateau Resource Development Corp., or Appalachian Energy, Inc. Plaintiff terminated all agreements on January 14, 1983. Defendants have refused to turn control of the wells over to plaintiff.
Counts I and II of the Complaint are for breach of the Turnkey and Operating Agreements, respectively. Count III is for conversion. Count IV is for fraudulent misrepresentation. Count V is brought under Section 10(b) of the Securities Exchange Act of 1934 (15 USC § 78j(b)) and Rule 10b-5 (17 C.F.R. § 240.10b-5). Counts VI and VII are brought under Section 12(2) (15 U.S.C. § 77 l (2)) and Section 17(a) (15 USC § 77q(a)) of the Securities Act of 1933, respectively. Counts VIII - X are brought under the civil RICO act (18 USC §§ 1961 et seq.). Count XI is for willful, wanton, and/or negligent breach of duties arising under the Turnkey and Operating Agreements. Count XII is for common law civil conspiracy.
Statutes of Limitation
As has been indicated, plaintiff terminated all of the Turnkey and Operating Agreements on November 14, 1983. On June 24, 1983, approximately six months after it had terminated the agreements, plaintiff filed a voluntary petition for Chapter 11 reorganization in the United States Bankruptcy Court for the Western District of Texas. On June 21, 1985, approximately two and one-half (2 1/2) years after it had terminated the agreements and just three (3) days less than two (2) years after filing its Chapter 11 petition, plaintiff initiated the present action.
Defendants argue that Counts III - XII are time-barred because the applicable statutes of limitation for each of those Counts had expired by the time plaintiff commenced this action. This contention is without merit. 11 U.S.C. § 108(a) provides in pertinent part that:
If applicable bankruptcy law . . . fixes a period within which the debtor may commence an action, and such period has not expired before the date of the filing of the petition, the trustee may commence such action only before the later of (1) the end of such period, including any suspension of such period occurring on or after the commencement of the case; or (2) two years after the order for relief.
The effect of this provision is to extend any relevant statute of limitation for at least an additional two (2) years after the filing of a Chapter 11 petition, provided that it had not already expired by the time that the petition was filed.
Although 11 U.S.C. § 108 makes reference only to "the trustee," it must be read in conjunction with 11 USC § 1107(a), which provides in relevant part that:
Subject to any limitations on a trustee serving in a case under this chapter, and to such limitations or conditions as the court prescribes, a debtor in possession shall have all the rights . . . of a trustee serving in a case under this chapter. (Emphasis added.)
When they are read in conjunction, 11 USC § 1107(a) grants to a debtor in possession the above rights granted to the trustee under 11 USC § 108. See In re Flying S Land & Cattle Co., 71 Bankr. 183 (Bkrtcy. D.Nev. 1987).
Defendants' assertion that each of Counts III - XII is governed by a statute of limitation of two years or less is incorrect. Many of the claims set forth in those counts have a statute of limitation which exceeds two years. For instance, Count IV, which asserts a claim for fraudulent misrepresentation, is governed by a six-year limitation. See A.J. Cunningham Packing Corp., et al. v. Congress Financial Corp, et al., 792 F.2d 330 (3d Cir. 1986). Counts VIII through X, which are brought under RICO, are governed by a four-year limitation. See Agency Holding Corp. v. Malley-Duff & Associates, Inc., 483 U.S. 143, 97 L. Ed. 2d 121, 107 S. Ct. 2759 (1987).
Assuming arguendo that the applicable statute of limitation for each of the counts in question began to run on January 14, 1983, when plaintiff terminated all of the Turnkey and Operating Agreements, defendants' argument would have to be rejected even if they were correct in asserting that each of these counts is governed by a statute of limitation of two years or less. As has been indicated, plaintiff filed its Chapter 11 petition on June 24, 1983, approximately six months after the claims in Counts III - XII arose. It is undisputed that none of the applicable statutes of limitation for these counts had expired by that date. It therefore follows that the statute of limitation for each of these counts was extended by virtue of 11 USC §§ 108(a) and 1107(a) for at least an additional two years until June 24, 1985. Plaintiff, however, commenced this action within that time period on June 21, 1985. Consequently, none of the claims set forth in Counts III through XII is time-barred.
The claim asserted in Count VII is brought under Section 17(a) of the Securities Act of 1933 (15 USC § 77q(a)).
Defendants assert that Count VII should be dismissed because there is no implied private right of action under Section 17(a).
Those Courts of Appeals which have considered this issue are in disagreement. Four of them have found an implied private right of action. See Stephenson v. Calpine Conifers II, Ltd, 652 F.2d 808, 815 (9th Cir. 1981); Lincoln National Bank v. Herber, 604 F.2d 1038, 1040 n.2 (7th Cir. 1979); Kirshner v. U.S., 603 F.2d 234, 241 (2d Cir. 1978); cert. denied sub nom. Goldberg v. Kirshner, 444 U.S. 995, 62 L. Ed. 2d 426, 100 S. Ct. 531 (1979); and Newman v. Prior, 518 F.2d 97, 99 (4th Cir. 1975). Two of them have not so found. See Landry v. All-American Assurance Co., 688 F.2d 381, 391 (5th Cir. 1982); and Shull v. Dain, Kalman & Quail, Inc., 561 F.2d 152, 159 (8th Cir. 1977), cert. denied, 434 U.S. 1086, 55 L. Ed. 2d 792, 98 S. Ct. 1281 (1978).
The United States Court of Appeals for the Third Circuit has not yet addressed this issue.
The majority of the district courts within this Circuit which have addressed this issue, however, have held that there is no implied private right of action under Section 17(a), see e.g., Mursau Corp v. Florida Penn Oil & Gas, Inc., 638 F. Supp. 259, 261 (W.D.Pa. 1986); Binkley v. Sheaffer, 609 F. Supp. 601, 602-603 (E.D.Pa. 1985); In re Catanella and E.F. Hutton Co., 583 F. Supp. 1388, 1419 (E.D. Pa. 1984); Warner Communications v. Murdoch, 581 F. Supp. 1482, 1496 (D.Del. 1984); and Kimmel v. Peterson, 565 F. Supp. 476, 483 (E.D.Pa. 1983).
This court adopts, without reciting the details thereof, the analysis set forth in Kimmel, 565 F. Supp. at 482-488, and holds that there is no implied private right of action under Section 17(a). Consequently, Count VII will be dismissed.
Counts VIII - X and XII
Counts VIII through X allege violations of RICO. Count XII alleges a common law civil conspiracy.
According to the defendants, Counts VIII through X should be dismissed because the allegations contained therein do not include all of the essential elements of RICO violations. They further maintain that Counts VIII through X and XII should be dismissed because they do not plead the circumstances of fraud underlying those counts with particularity. These contentions are without merit.
Fed.R.Civ.P. 8(a) sets the tone of the federal pleading rules. Unlike their predecessors, the Federal Rules require only "a short and plain statement of the claim showing that the pleader is entitled to relief."
A motion to dismiss for failure to state a claim upon which relief can be granted should be granted only if "it appears beyond doubt that plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957). The question is not whether plaintiff will prevail in the end, but whether plaintiff is entitled to offer evidence in support of its claims. See Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974). The court must, when considering such a motion, presume that the factual allegations are true and draw all reasonable inferences in favor of the non-moving party. See Miree v. DeKalb County, 433 U.S. 25, 27 n.2, 53 L. Ed. 2d 557, 97 S. Ct. 2490 (1977).
The court has reviewed the allegations of the Complaint and is unable to conclude at this time that plaintiff is not able to prove any facts in support of its claims in Counts VIII through X which would entitle it to relief.
Rule 9(b) articulates a somewhat stricter standard to be applied when pleading fraud. It requires the plaintiff to plead with particularity the "circumstances" of the alleged fraud in order to place defendants on notice of the precise misconduct with which they are charged and to safeguard defendants against spurious charges of immoral and fraudulent conduct. See Seville Industrial Machinery v. Southmost Machinery, 742 F.2d 786, 791 (3d Cir. 1984), cert. denied, 469 U.S. 1211, 105 S. Ct. 1179, 84 L. Ed. 2d 327 (1985).
Rule 9(b) serves to reinforce the notice function of pleading and is to be construed in light of Rule 8. 2A Moore's Federal Practice para. 9.03, pp. 38-39 (1987). Rule 9(b) must not be read to defeat the simple pleading requirements of Rule 8. See Christidis v. First Pennsylvania Mortgage Trust, 717 F.2d 96, 100 (3d Cir. 1983).
Precise allegations as to time, date, and place of the alleged fraud, although sufficient, are not necessary under Rule 9(b). A plaintiff is free to use alternative means of injecting the required precision into the allegation of fraud. See Seville, 742 F.2d at 791.
The court has reviewed the allegations of fraud made in the Complaint and finds that they are sufficient to place defendants on notice of the misconduct with which they are charged. The motion to dismiss Counts VIII through X and XII for failure to plead the circumstances constituting fraud will be denied.
Count XI alleges that the defendants "willfully, wantonly, and/or negligently" breached the duty to drill, operate, and supervise the oil and gas wells in a "good and workmanlike manner."
Defendants contend that Count XI should be dismissed because plaintiff has merely attempted to convert its claims for breach of contract in Counts I and II into a tort claim merely alleging that defendants "willfully, wantonly, and/or negligently" breached duties arising out of the Turnkey and Operating Agreements.
In general, Pennsylvania courts have been reluctant to permit tort recovery for contractual breaches. See, e.g., Glazer v. Chandler, 414 Pa. 304, 308-309, 200 A.2d 416, 418 (1964). This reluctance is not, however, iron-clad. Failure to perform a duty imposed by contract may, in limited circumstances, constitute a tort. See Brown v. Moore, 247 F.2d 711, 716 n.6 (3d Cir.), cert. denied, 355 U.S. 882, 2 L. Ed. 2d 112, 78 S. Ct. 148 (1957). A tort claim may be maintained only when "the wrong ascribed to defendant . . . [is] the gist of the action, the contract being collateral." Closed Circuit Corp. of America v. Jerrold Electronics, 426 F. Supp. 361, 364 (E.D. Pa. 1977) (citing 1 C.J.S. Actions § 46).
Careful reading of the Complaint indicates that plaintiff is claiming nothing more in Count XI than that defendants failed to discharge duties arising under the Turnkey and Operating Agreements. The contract is not "collateral" to the injury. The injury for which plaintiff seeks redress is recoverable in an action on the contracts. The court does not believe that Pennsylvania would superimpose tort law on those contracts in the situation presented in this case. Consequently, Count XI will be dismissed for failure to state a claim upon which relief can be granted.
Failure To Join An Indispensable Party
Defendants maintain that the entire Complaint should be dismissed pursuant to Fed.R.Civ.P. 19 because plaintiff has failed to join as an indispensable party Appalachian Energy, Inc., with whom many of the Turnkey and Operating Agreements were made.
Fed.R.Civ.P. 19 comprises two subdivisions and contemplates a two-step analysis. First, it must be determined in accordance with subdivision (a) whether the absent person is to be joined -- i.e., whether they are "necessary" --, if feasible. If the absentee should be joined but joinder is not feasible, it then must be determined in accordance with subdivision (b) whether the absentee is "indispensable" -- i.e., whether "in equity and good conscience" the action should proceed in that person's absence. See 3A Moore's Federal Practice para. 19.07 - 2, pp. 128-129 (1987). If the absentee is not "necessary" under subdivision (a), the determinations set forth in subdivision (b) need not be reached. See Northrop Corp. v. McDonnell Douglas Corp., 705 F.2d 1030, 1042 (9th Cir), cert. denied, 464 U.S. 849, 78 L. Ed. 2d 144, 104 S. Ct. 156 (1983).
Fed. R.Civ.P. 19(a) provides in pertinent part that:
A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if (1) in the person's absence complete relief cannot be accorded among those already parties, or (2) the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person's absence may (i) as a practical matter impair or impede the person's ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest. . . .