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Nature of Suit Code: 470
Nature of Suit: Civil (Rico)
Cause of Action: 

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FILED 

United State5 Co!Jrt of Appeals 

UNITED STATES COURT OF APPEALS Tenth Circuit 

FOR THE TENTH CIRCUIT FEB 4 199 

THE DROVER CORPORATION, an 

Oklahoma corporation; FRANK R. 

WEST, d/b/a F.R. WEST & COMPANY, 

individually, 

Plaintiffs, 

v. 

WALTER J. GILLISPIE, individually; 

A.R. McCURLEY, individually; 

MIKE MATHEWS, individually, 

Defendants-Appellees, 

LEO WOODARD, individually; 

WOOD/GATE ENGINEERING, INC., 

d/b/a CORAL RESERVES GROUP, INC., 

an Oklahoma corporation, 

Defendants, 

JAMES CRAIG DODD; CRAIG DODD & 

ASSOCIATES, 

Movants-Appellants. 

ROBERT L. HOECKER 

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) No. 89-6379 

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) (D.C. No. CIV-87-527-B) 

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ORDER AND JUDGMENT* 

* This order and judgment has no precedential value and shall 

not be cited, or used by any court within the Tenth Circuit, 

except for purposes of establishing the doctrines of the law of 

the case, res judicata, or collateral estoppel. 10th Cir. R. 

36.3. 

Appellate Case: 89-6379 Document: 010110098420 Date Filed: 02/04/1991 Page: 1 
Before BALDOCK, BARRETT, and EBEL, Circuit Judges. 

This case is an appeal of Rule 11 sanctions imposed against 

the attorneys of plaintiffs below. After thorough review of the 

record on appeal, we find that sanctions were not warranted, and 

we reverse. 

James Craig Dodd and his law firm, Craig Dodd & Associates 

(collectively Dodd), served as counsel for plaintiffs in their 

assertion of claims of fraud, RICO violations, and federal and 

state securities violations against the defendants. The district 

court granted summary judgment in favor of defendants and imposed 

Rule 11 sanctions against Dodd in the amount of $76,062.11, plus 

interest. 1 

Summarizing, the district court imposed sanctions on Dodd 

based on its conclusion that "[p]laintiffs' counsel's behavior was 

an informed attempt to subvert the law and mislead the court." 

West v. Gillispie, No. CIV-87-527-B, slip op. at 7 (W.D. Okla. 

Dec. 12, 1988)(Order Granting Application of Defendants Walter 

Gillispie, A.R. Mccurley and Mike Mathews for Costs and Attorney's 

Fees and Motion for Sanctions)(R. Vol. IV tab 193)("Order"). 

Specifically, the district court found, first, that the plaintiffs 

failed to state a cause of action for their RICO claim, despite 

multiple attempts to amend the complaint and clarify that claim. 

1 The district court also noted that, "A copy of 

being sent to the United States District Court 

Western, Eastern and Northern Districts of Oklahoma 

distributed to the judges of those districts 

information." Order at 8. 

2 

this order is 

Clerks for the 

and shall be 

only for their 

Appellate Case: 89-6379 Document: 010110098420 Date Filed: 02/04/1991 Page: 2 
The district court was particularly adamant that Dodd failed to 

show the necessary pattern of racketeering activity, income from 

the racketeering activity, or use of interstate commerce in 

furtherance of the activity. 2 Id. at 2, 4. Second, the district 

court found that Dodd did not make sufficient effort to determine 

the truth of the statements of fact alleged in the complaint and 

the amended complaint. Id. at 4. 3 Third, the district court 

2 Although plaintiffs brought claims under four causes of 

action, the district court focused primarily on the RICO claim in 

its order for sanctions. The Order stated: 

4. The Complaint and First Amended Complaint did 

not allege that the Defendants received any income from 

any pattern of racketeering activity or collection of 

any unlawful debt of invested or used income so derived 

in the acquisition, establishment or operation of any 

continuing activity which affected interstate commerce 

as required by RICO. 

5. Neither the Complaint nor the First Amended 

Complaint contained allegations of a prior violation or 

activity by the Defendants which demonstrated any 

"pattern of activity" as required by RICO. 

7. Construed in the light most favorable to the 

Plaintiffs, the Complaint and First .Amended Complaint 

constituted an amalgamation of statements of irrelevant 

and immaterial facts which, even if true, would not 

state the elements necessary to constitute a cause of 

action for violation of either RICO under 18 U.S.C. 

§ 1962(b) or fraud under 15 u.s.c. § 77(v). 

knew or should have 

prior activities by 

enterprise by the 

a RICO violation 

9. The Plaintiffs' counsel 

known that absent any evidence of 

the Defendants or continuing 

Defendants, no cause of action for 

could be stated. 

Order at 2, 4. 

3 The Order stated: 

(continued on next page) 

3 

Appellate Case: 89-6379 Document: 010110098420 Date Filed: 02/04/1991 Page: 3 
found that Dodd did not perform a reasonable investigation of the 

law prior to filing the action. Id. at 5. 4 And finally, the 

order imposing sanctions listed six statements of fact included in 

the complaint and first amended complaint which the district court 

characterized as blatant misstatements of fact calculated to 

mislead the court. Id. at 2-4, 5. 5 

(continued from previous page) 

8. The unrebutted facts stated in the affidavits 

of Gillispie, Mccurley and Mathews attached to their 

Motions for Summary Judgment filed herein and the facts 

deduced from the hearing held October 3, 1988, 

demonstrate conclusively that Plaintiffs and Plaintiffs' 

counsel made no effort to determine the truth of the 

statements of fact set forth in the Complaint and First 

Amended Complaint and in fact included statements of 

fact which they knew, or should have known, were 

blatently [sic] false in those pleadings. 

Order at 4. 

4 The Order stated: "11. Plaintiff's counsel has not 

presented evidence to show that a reasonable investigation of the 

facts and the law was undertaken before filing this action." 

Order at 5. 

5 The Order stated: 

6. The Complaint and First Amended Complaint did 

contain numerous blatent [sic] misstatements of material 

facts including the following: 

a. West loaned Gillispie $300,000.00 which Plaintiff's 

counsel admitted was false under oath, and in fact was 

loaned to Onyx. See Complaint p. 3, 1 11; First Amended 

Complaint p. 5, 11 20. 

b. "Prior to the January 11, 1985, Agreement, and 

unknown to the plaintiffs, Gillispie had been sued in 

Louisiana for securities fraud." See First Amended 

Complaint p. 4, 1 17. The January 11, 1985 agreement 

specifically referred to the Louisiana suit. Thus, the 

Plaintiffs had knowledge of the Louisiana suit on 

January 11, 1985, if not earlier. 

c. The Defendants placed false or misleading materials 

(continued on next page) 

4 

Appellate Case: 89-6379 Document: 010110098420 Date Filed: 02/04/1991 Page: 4 
We will overturn the imposition of Rule 11 sanctions only in 

the face of abuse of discretion. White v. General Motors Corp., 

908 F.2d 675, 678 (10th Cir. 1990). After a thorough review of 

the record, we find that Dodd sufficiently pled the RICO claim 

under Tenth Circuit precedent, that Dodd exhibited objectively 

reasonable legal and factual investigation in the briefs and 

documents filed with the district court, and that the statements 

of fact to which the district court objected were either 

(continued from previous page) 

in the United States mail, see Complaint p. 8, 1 31, 

which was denied by the affidavits of Defendants and 

which was subsequently admitted to be false by 

Plaintiffs' counsel. 

d. Prior to February 22, 1985, the Defendants had 

knowledge that a suit, Whitaker v. Austin, had been 

filed. This knowledge was denied by the affidavits of 

the Defendants, and the Plaintiffs failed to rebutt 

[sic] the affidavits. 

e. In the Reserve Report, Gillispie, Mccurley and 

Mathews made false and misleading representations of 

material fact to West, and West relied on those 

representations in purchasing Onyx. In fact, plaintiff 

West did not see the Reserve Report before the purchase 

of Onyx (Deposition of West). Thus, the alleged 

inducement could not have occurred. 

f. The Defendants conspired with Defendant Wood/Gate 

Engineering to produce a bogus engineering report of the 

oil and gas reserves owned by Onyx. See First Amended 

Complaint p. 11, 1 34. This statement was denied by the 

affidavits of the Defendants and sworn testimony of 

Defendant Woodard and is totally unsupported by any 

evidence offered by the Plaintiffs. 

13. [T]he court concludes that the filing of the 

Complaint and First Amended Complaint by the ... Plaintiffs' counsel was not done in good faith, but was 

in fact an attempt to defraud this court through the 

misrepresentation of material facts. 

Order at 2-4, 5. 

5 

Appellate Case: 89-6379 Document: 010110098420 Date Filed: 02/04/1991 Page: 5 
immaterial or were adequately supported by documents filed with 

the court. Therefore, the district court's imposition of 

sanctions in this matter constituted abuse of discretion, and we 

reverse that court's imposition of sanctions. We briefly review 

these four items seriatim below. 6 

A. Stating a RICO cause of action. 

RICO renders criminally and civilly liable "any 

person" who uses or invests income derived "from a 

pattern of racketeering activity" to acquire an interest 

in or to operate an enterprise engaged in interstate 

commerce, [18 u.s.C.] § 1962(a); who acquires or 

maintains an interest in or control of such an 

enterprise "through a pattern of racketeering activity," 

§ 1962(b); who, being employed by or associated with 

such an enterprise, conducts or participates in the 

conduct of its affairs "through a pattern of 

racketeering activity," § 1962(c); or, finally, who 

conspires to violate the first three subsections of 

§ 1962. 

H.J. Inc. v. Northwestern Bell Tel. Co., 109 S. Ct. 2893, 2897 

(1989). The statute's "pattern of racketeering activity" produced 

a wide diversity of definition among the circuits, a difficulty 

the Supreme Court attempted to rectify in Sedima, S.P.R.L. v. 

Imrex Co., 473 U.S. 479 (1985), by requiring at least two 

predicate acts demonstrating (i) a relationship between the acts, 

and (ii) continuity of action. Id. at 496 n.14. In H.J., the 

Court elaborated on this two-pronged "pattern requirement" of 

relationship plus continuity by holding that predicate acts used 

6 This appeal, No. 89-6379, is part of a complex appellate 

history subsequent to district court action regarding plaintiffs' 

claims. In its review of the record on appeal, this court has 

attempted to isolate those documents which relate to plaintiffs' 

claims against Mr. Gillispie, Mr. Mathews, and Mr. Mccurley, as 

all other aspects of the case on appeal have been dismissed due to 

settlement and/or stipulation of the parties involved. 

6 

Appellate Case: 89-6379 Document: 010110098420 Date Filed: 02/04/1991 Page: 6 
by RICO plaintiffs to illustrate a pattern of racketeering 

activity may have been committed in furtherance of multiple 

schemes, or may be composed of "multiple predicates within a 

single scheme that were related and that amounted to, or 

threatened the likelihood of, continued criminal activity." H.J., 

109 S. Ct. at 2899. 

In Torwest DBC, Inc. v. Dick, 810 F.2d 925 (10th Cir. 1987), 

decided after the Supreme Court ruled in Sedima but before its 

decision in H.J., this court stated that "(a] violation of section 

1962(c) 'requires (1) conduct (2) of an enterprise 

(3) through a pattern (4) of racketeering activity.'" Id. at 927 

(quoting Sedima, 473 U.S. at 496). Both the Supreme Court and 

this court have reiterated that the RICO statute is to be 

liberally interpreted. H.J., 109 S. Ct. at 2899, 2900; Sedima, 

473 U.S. at 498; Torwest, 810 F.2d at 928. 

Dodd attempted7 to describe a pattern of fraudulent activity 

7 Plaintiffs, acting through Dodd, attempted to establish their 

claims through the following documents: Complaint, R. Vol. I tab 

1; RICO Case Statement, R. Vol. I tab 15; First Amended 

Complaint, R. Vol. I tab 30; Motion for Leave to Amend and 

Supplement Plaintiffs' First Amended Complaint and to Add an 

Additional Party, R. Vol. I tab 59; Motion for Leave to File 

Second Amended Complaint, R. Vol. III tab 140b; Motion for Leave 

to File an Amended Complaint or in the Alternative, a Third Party 

Action, R. Vol. III tab 143. 

Plaintiffs' claims were amplified through the following 

responsive documents filed with the district court: Plaintiffs' 

Brief in Opposition to Motion for Summary Judgment, R. Vol. II tab 

94; Motion to Supplement Plaintiffs' Brief in Opposition to 

Defendants Gillispie, Mccurley and Mathews Motion for Summary 

Judgment, R. Vol. II tab 105; Supplement to Plaintiffs' Brief in 

Opposition to Defendants' Motion for Summary Judgment, R. Vol. III 

tab 117; Plaintiffs' Rebuttal to Defendants' Brief in Response to 

Plaintiffs' Opposition to Defendants' Motion for Summary Judgment, 

R. Vol. III tab 124; Response in Opposition to Defendants' Walter 

(continued on next page) 

7 

Appellate Case: 89-6379 Document: 010110098420 Date Filed: 02/04/1991 Page: 7 
by defendants through allegations of the following conduct: the 

allegedly fraudulent Onyx oil and gas limited partnership 

investments scheme, see, e.g., R. Vol. I tab 30 at 14-18; R. Vol. 

III tab 140 ex.Bat 3-8; the allegedly fraudulent Whitaker oil 

and gas investment scheme, see, e.g., R. Vol. I tab 30 at 12-14; 

R. Vol. III tab 140 ex.Bat 8-14,; and the allegedly fraudulent 

sale of Onyx/Vertex, through the sale of the "Orlando Field," to 

Dover, an entity owed 50% by West. See, e.g., R. Vol. I tab 30 at 

9-12; R. Vol. III tab 140 ex.Bat 14-17. In their pleadings and 

submissions to the district court, plaintiffs described each of 

these allegedly fraudulent schemes in relationship to oil and gas 

investments, and supported each with relatively specific 

references to dates of the use of the telephone and mails for 

communication between the defendants and the purported victims of 

the schemes. With respect to each scheme, plaintiffs also alleged 

that the victim surrendered funds to defendants or to entities 

consisting of or controlled by defendants for the defendants' 

profit. 

Pursuant to the Tenth Circuit and the Supreme Court precedent 

cited above, we find that the factual allegations of the 

complaints filed herein are adequate to state the elements 

(continued from previous page) 

Gillispie, A. R. Mccurley and Mike Mathews Application for Costs, 

Attorney Fees and Sanctions, R. Vol. IV tab 166; Supplemental 

Exhibits to [R. Vol. IV tab 166], R. Vol. IV tab 174. 

In addition, Dodd filed numerous briefs and motions on behalf 

of plaintiffs in attempts to satisfy the district court's 

directives concerning what the district court perceived as 

deficiencies in plaintiffs' statement of the case, including 

Motion to Reconsider and Supporting Brief, R. Vol. III tab 144, 

and Request for Directions, R. Vol. III tab 145. 

8 

Appellate Case: 89-6379 Document: 010110098420 Date Filed: 02/04/1991 Page: 8 
required for pleading a RICO claim. Dodd, acting on behalf of 

plaintiffs, adequately alleged a pattern of racketeering activity 

utilizing the interstate telephone and mail facilities producing 

income accruing on behalf of the defendants. Accordingly, the 

award of sanctions for this supposed error constituted abuse of 

discretion. 

B. Showing of reasonable investigation of facts prior to filing 

the complaint. 

This court has held that "[a]n attorney's signature on the 

complaint or other pleading in a suit in federal court constitutes 

a certificate 'that to the best of the signer's knowledge, 

information, and belief formed after reasonable inquiry it is well 

grounded in fact.'" White, 908 F.2d at 679 (quoting Fed. R. Civ. 

P. 11). Further, the attorney's conduct must be "objectively 

reasonable, [and] in accord with what a reasonable, 

competent attorney would believe under the circumstances." Id. at 

680. Thus, in order for the sanctions to have been properly 

imposed, Dodd must have failed to perform objectively reasonable 

inquiry concerning the underlying factual allegations of the 

plaintiffs' claims. 

Our review of the record on appeal convinces us that Dodd 

performed lengthy factual investigation prior to filing the 

complaint. See, e.g., R. Vol. IV tabs 166, 174. This 

investigation meets the required "objectively reasonable" 

standard. Accordingly, the award of sanctions for this supposed 

error constituted abuse of discretion. 

9 

Appellate Case: 89-6379 Document: 010110098420 Date Filed: 02/04/1991 Page: 9 
C. Showing of reasonable investigation of applicable law prior to 

filing the complaint. 

This court has also held that "[a]n attorney's signature on 

the complaint or other pleading in a suit in federal court 

constitutes a certificate 'that to the best of the signer's 

knowledge, information, and belief formed after reasonable inquiry 

it is . . . warranted by existing law or a good faith argument 

for the extension, modification, or reversal of existing law." 

White, 908 F.2d at 679. Further, the attorney's conduct must be 

"objectively reasonable, ... [and] in accord with what a 

reasonable, competent attorney would believe under the 

circumstances." Id. at 680. Thus, in order for the sanctions to 

have been properly imposed, Dodd must have failed to perform 

objectively reasonable inquiry concerning the legal posture of his 

client's claims prior to submitting the complaint. 

Our review of the record on appeal convinces us that the 

claims adequately satisfied statutory and/or common law pleading 

requirements. See, e.g., R. Vol. IV tab 171. This support 

constitutes evidence that Dodd exhibited a good 

present legally sufficient claims on behalf 

Accordingly, the award of sanctions for this 

constituted abuse of discretion. 

D. Specific factual matters. 

a. West loaned Gillispie $300,000. 

faith effort to 

of his client. 

supposed error 

While the district court was correct in noting that West 

loaned Onyx $300,000, rather than loaning the money to Gillispie 

individually as suggested in plaintiffs' complaint, the record 

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Appellate Case: 89-6379 Document: 010110098420 Date Filed: 02/04/1991 Page: 10 
also shows that it was Gillispie or Gillispie's agents who placed 

the calls requesting the loan, see, e.g., R. Vol. I tab 15 at 3, 

tab 30 at 4, ostensibly to prevent Gillispie from going to jail, 

see, e.g., R. Vol. I tab 30 at 4, and Gillispie who, along with 

Mathews, signed the documents on behalf of Onyx, mortgaging Onyx' 

rights to the Orlando Field to Drover and assigning 100% of 

Vertex' stock in exchange for the loan. R. Vol. II tab 94 ex. J. 

This error reflects inartful drafting, but it is not pivotal to 

the RICO claim, and it was an error which was corrected in 

subsequent versions of the complaint. See R. Vol. III tab 140b, 

ex.Bat 12. Accordingly, the award of sanctions for this 

supposed error constituted abuse of discretion. 

b. Unknown to West, Gillispie had been sued in Louisiana for 

securities fraud. 

The sentence to which the district court objected was drawn 

from the First Amended Complaint. It stated: "Prior to the 

January 11, 1985, Agreement, and unknown to the plaintiffs, 

Gillispie had been sued in Louisiana for securities fraud." This 

statement, contained only in the first amended complaint, can be 

interpreted in a manner so as to be true on its face: the 

plaintiffs were unaware of the lawsuit until long after it had 

been filed. The district court interpreted the statement as 

claiming that plaintiffs did not know about the Louisiana lawsuit 

when they signed the January 11, 1985, agreement. Because the 

lawsuit is referenced in the January 11, 1985, agreement itself, 

this interpretation is contrary to competent documentary evidence 

presented to the court by Dodd and as such did not support the 

imposition of sanctions against Dodd. 

11 

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c. Defendants placed false or misleading materials in the 

U.S. mails. 

Apparently, the district court found that this was a 

misstatement of fact because the Reserve Report containing false 

information about the Orlando field was hand delivered to West's 

agents rather than being mailed to them. However, again, this 

fact is not pivotal to the plaintiffs' claims. Plaintiffs 

detailed numerous other documents which were placed in the mail 

and numerous interstate telephone calls placed by defendants in 

association with each of the schemes which plaintiffs claimed were 

part of defendants' pattern of racketeering behavior. See, e.g., 

R. Vol. I tab 15 at 13, tab 30 at 21-24; Vol. III tab 117, tab 

140b ex.Bat 5-6, 9-10, 13, 16-17. Even if the Reserve Report 

was hand-delivered, therefore, this fact does not render 

plaintiffs' allegations false and does not justify imposition of 

sanctions. 

d. Prior to February 22, 1985, defendants had knowledge of 

the Whitaker lawsuit. 

Although defendants denied such knowledge in affidavits, 

there is ample circumstantial evidence offered by plaintiffs to 

create a question of fact concerning the defendants' knowledge of 

this lawsuit on the stated date. See, e.g., R. Vol. II tab 94 at 

7-8, and exhibits attached thereto. It constituted abuse of 

discretion for the district court to award Rule 11 sanctions based 

on its pretrial conclusion concerning a hotly contested question 

of fact supported by competent evidence on both sides. 

12 

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' . 

e. West relied on misrepresentations in the Reserve Report 

when buying Onyx. 

It is axiomatic that the knowledge of an agent is attributed 

to the principal. The misrepresentations contained in the Reserve 

Report, that the Orlando Field had $30,000,000 of proven untapped 

reserves, was communicated to West's agents, John and Brodie 

Pitts, see R. Vol. I tab 30 at 3; Vol. II tab 94 ex. K, prior to 

the sale of Onyx as an inducement to the sale. ~, Vol. II tab 

94 ex. J at 3-5. Thus, the conclusion of the district court was 

incorrect as a matter of law and cannot serve as the basis for 

Rule 11 sanctions. 

f. The Gillispie defendants conspired with Wood/Gate 

Engineering to produce the false Reserve Report. 

Again, while defendants deny this claim by affidavit and 

sworn deposition testimony, plaintiffs produced sufficient 

evidence to create a question of fact regarding whether the 

report, produced by Wood/Gate Engineering for Onyx, misrepresented 

information concerning the Orlando oil field. See, e.g., R. 

Vol. III tab 140b ex. B at 16; Vol. IV tab 171 ex. E. The 

district court therefore abused its discretion in awarding Rule 

11 sanctions based on its pretrial conclusion concerning a hotly 

contested question of fact supported by competent evidence on both 

sides. 

Under the abuse of discretion standard of review, this court 

grants wide discretion to the district court judge in imposing 

Rule 11 sanctions. However, after reviewing the record on appeal, 

we must conclude that the award of sanctions was unmerited in this 

case. The judgment of the United States District Court for the 

13 

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.. 

Western District of Oklahoma awarding sanctions against appellants 

in favor of appellees Gillispie, Mathews, and Mccurley is 

REVERSED. 

Entered for the Court 

David M. Ebel, 

Circuit Judge 

14 

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