Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-87-01671/USCOURTS-ca10-87-01671-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

---

( 

PUBLISH 

FILED 

Unjted States Court of Appeals 

'f'•TJth fiirctl;t 

JAN 0 41989 

UNITED STATES COURT OF APPEALS ROBERT L. H~CKER 

Clerk FOR THE TENTH CIRCUIT 

GUY GRIDER, ) 

) 

Plaintiff-Appellant, ) 

) 

v . ) 

) 

TEXAS OIL & GAS CORP., ) 

a Delaware corporation, TXO ) 

PRODUCTION CORP. , a Delaware ) 

corporation, RATLIFF EXPLORATION ) 

COMPANY, an Oklahoma corporation, ) 

RATLIFF DRILLING COMPANY, an ) 

Oklahoma corporation, ) 

DIVERSIFIED OIL AND GAS ) 

EXPLORATION, INC., an Oklahoma ) 

corporation, DIVERSIFIED WELL ) 

SERVICING CORPORATION, BARTON W. ) 

RATLIFF, and JIM D. BREWER, ) 

) 

Defendants-Appellees. ) 

No~ 87- 1671 

Appeal from the United States District Court 

for the Western District of Oklahoma 

(D.C. No. crv 86 21SSW)} 

G. Robert Blakey (F. Kelly Smith and Greg A. Walker with him on 

the briefs} of McGuire, Cornwell & Blakey, P.C., Denver, Colorado, 

for the Plaintiff-Appellant. 

Robert D. Nelon (Babette Patton with him on the brief) of Andrews 

Davis Legg Bixler Milsten & Murrah, Ok l ahoma City, Oklahoma, for 

Defendants-Appellees Texas Oil & Gas Corp. and TXO Production 

Corp. 

Eric S. Eissenstat (Robert D. Baron and Barbara G. Bowersox with 

him on the brief) of Fellers, Snider, Blankenship, Bailey & 

Tippens, P.C., Oklahoma City, Ok l ahoma, for Defendants-Appellees 

Ratliff Exploration Company, Ratliff Drilling Company, and Barton 

w. Ratliff. 

Appellate Case: 87-1671 Document: 01019674127 Date Filed: 01/04/1989 Page: 1 
Wayne Campbell and Allen Campbell of Merson & Campbell, Oklahoma 

City, Oklahoma, on the brief for Defendants-Appellees Diversified 

Oil & Gas Exploration, Inc., Diversified Well Servicing Corp. and 

Jim D. Brewer. 

Before SEYMOUR, ANDERSON and BRORBY, Circuit Judges. 

SEYMOUR, Circuit Judge. 

-2-

Appellate Case: 87-1671 Document: 01019674127 Date Filed: 01/04/1989 Page: 2 
Guy Grider brought this action for damages allegedly 

resulting from violations of the Racketeer Influenced and Corrupt 

Organizations Act, 18 U.S.C. §§ 1961-1968 (1982) (RICO). The 

district court granted defendants' motion to dismiss for failure 

to state a claim, concluding that Grider had not alleged the 

requisite injury under the substantive RICO provisions and 

therefore had no standing to assert a civil damage claim. The 

court also held that the RICO conspiracy claims based on those 

substantive violations must be dismissed as well. Grider appeals 

and we affirm.l 

I . 

Upon review of the dismissal of a complaint under 

Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which 

relief can be granted, "this court must take the allegations of 

the complaint at face value and must construe them most favorably 

to the pleader." Huxall v. First State Bank, 842 F.2d 249, 250-51 

(lOth Cir. 1988). The grant of such a motion is proper only if it 

1 In addition, Grider alleged federal antitrust violations and 

numerous pendent state law claims, which the district court also 

dismissed. Grider does not contend on appeal that the court erred 

in dismissing the antitrust clai ms, nor does he argue that the 

court abused its discretion in dismissing the pendent claims. The 

defendants named only in the antitrust and state claims assert 

that Grider has abandoned those claims. In response, Grider 

contends that, should we decide to reinstate the RICO claims, he 

has not waived his right to pursue the state claims against these 

defendants under principles of pendent party jurisdiction. In 

view of our decision to affirm the district court, we need not 

address this issue. 

-3-

Appellate Case: 87-1671 Document: 01019674127 Date Filed: 01/04/1989 Page: 3 
appears beyond ·doubt that the plaintiff can prove no set of facts 

in support of his claim that would entitle him to relief. Id. 

(citing Conley v. Gibson, 355 u.s. 41, 45-46 (1957)). 

Viewed in this light, the complaint reveals that Grider, a 

working interest holder in a group of oil and gas wells, asserts 

that defendants, the well operato~s, engaged in two interrelated 

schemes to defraud in connection with the operation of the wellse 

In particular, Grider alleges that in one scheme certain of 

defendants reduced his revenues by illegally venting natural gas, 

stole natural gas from the wells for' drilling operations, sold gas 

without paying h i m the appropriate revenue, unlawfully fixed 

prices, double-billed him, and mishandled an escrow account to his 

detriment. Grider alleges that in the second scheme various 

defendants breached their fiduciary duty to him, conspired to _fix 

prices, failed to pass on his share of rebates and discounts, 

mishandled an escrow account, double-billed him, billed him for 

non-existent goods and services, and withheld his share of 

production revenues. Grider asserted that the acts in both 

schemes involved use of the mails in violation of the federal mail 

fraud statute. See 18 U.S.C. § 1341 (1982). Grider also alleges 

that defendants participating in each scheme conspired with each 

other, other defendants, and others unknown to carry out these 

activities. 

-4-

Appellate Case: 87-1671 Document: 01019674127 Date Filed: 01/04/1989 Page: 4 
Grider asserts two claims for relief under RICO section 

1962(a) corresponding to the two fraudulent schemes described 

above, alleging in the language of the statute that named 

defendants 

"used and invested, directly or indirectly, part of the 

income or the proceeds of the income, in the acquisition 

of an interest in or the establishment or operation of 

the enterprise, which income had been derived, directly 

or indirectly, from a pattern of activity within the 

meaning of 18 U.S.C. §§ 1961(l)(B) and (5) and 1962(a), 

namely, multiple instances of mail fraud in violation of 

18 u.s.c. § 1341. 

Rec., vol. I, doc. 1, at 34, 35. In addition, Grider asserts two 

claims under section 1962(d), alleging conspiracies to commit the 

two substantive violations. 

In granting their motion to dismiss, the district court 

agreed with defendants that Grider's complaint failed to satisfy 

section 1964(c), which provides a civil damage remedy to ''[a]ny 

person injured in his business or property by reason of a 

violation of section 1962." The district court concluded that a 

violation of section 1962(a) occurs through the use or investment 

of racketeering income, and that Grider, although alleging injury 

from the racketeering acts themselves, had not alleged any facts 

showing injury from the use or investment of the income derived 

from the racketeering acts. On appeal, Grider contends that a 

plaintiff asserting a civil claim for damages based on a section 

1962{a) violation need not show injury from the use or investment 

-5-

Appellate Case: 87-1671 Document: 01019674127 Date Filed: 01/04/1989 Page: 5 
of racketeering income if he can show injury from the racketeering 

activity itself. 

II. 

In determining the scope of RICO, "we look first to its 

language. If the statutory language is unambiguous, in the 

absence of 'a clearly expressed legislative intent to the 

contrary, that language must ordinarily be regarded as 

conclusive.'" Russello v. United States, 464 u.s. 16, 20 (1983) 

(quoting U.S. v. Turkette, 452 U.S. 576, 580 (198l)) o 

Section l962(a) states in pertinent part: 

"(a) It shall be unlawful for any person who has 

received any income derived, directly or indirectly, 

from a pattern of racketeering activity ••. 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 . " 

18 U.S.C. § 1962(a) (emphasis added). Significantly, the statute 

does not state that it is unlawful to receive racketeering income; 

rather, as the italicized language underscores, the statute 

prohibits a person who has received such income from using or 

investing it in the proscribed manner. As previously noted, 

section 1964(c) provides a civil damage remedy only to those 

persons injured "by reason of a violation of section 1962.'' It 

thus appears from the plain language of these two provisions that 

-6-

Appellate Case: 87-1671 Document: 01019674127 Date Filed: 01/04/1989 Page: 6 
a plaintiff seeking civil damages for a violation of section. 

1962(a) must plead facts tending to show that he was injured by 

the use or investment of racketeering income . Injury from the 

racketeering acts themselves is not sufficient because section 

1962(a) does not prohibit those acts. 

Although numerous district court decisions have addressed 

this issue, we have found no reported circuit court opinion on 

point. The majority of district courts considering standing to 

assert a section 1962{a) violation have agreed with t h is 

interpretation and have required a plaintiff to show injury from 

the use or investment of racketeering income. See, ~, Leonard 

v. Shearson Lehman/ American Express, Inc., 687 F.Supp . 177, 181 

(E.D. Pa. 1988); In re Rexplore, Inc. Sec. Litig., 685 F.Supp. 

1132, 1141-42 (N.D. Cal. 1988); P.M.F. Services v. Grady, 681 

F.Supp. 549, 555-56 (N.D. Ill. 1988); Omega Constr. Co. v. Altman, 

667 F.Supp. 453, 465 (W.D. Mich . 1987); Ai rlines Reporti ng Corp. 

v. Barry, 666 F.Supp. 1311, 1314-15 (D. Minn. 1987); DeMuro v. 

E.F. Hutton, 662 F.Supp. 308 (S.D.N.Y. 1986); Cincinna t i Gas & 

Elec. Co. v. General Elec. Co., 656 F.Supp. 49, 83-84 (S.D. Ohio 

1986). 

Some of the courts concluding that injury from r a cketeering 

activity alone is suffi cient to support a section 1962(a) civil 

damage claim base their decisions primarily upon language in 

Sedima, S.P.R.L. v . Imrex Co., 473 U.S. 479, 495-97 (1985). See, 

-7-

Appellate Case: 87-1671 Document: 01019674127 Date Filed: 01/04/1989 Page: 7 
~, In re National Mort. Equity Corp. Mort. Pool Certif. Sec. 

Litig., 682 F.Supp. 1073, 1081-82 (C.D. Cal. 1987) ; Smith v. MCI 

Telecommunications Corp., 678 F.Supp. 823, 828-29 (D. Kan. 1987). 

The Sedima opinion does not justify the conclusion that injury 

fr om racketeering activity alone is enough to create standing 

under section 1962(a). The Court there was considering a claim 

based on section 1962(c), which differs significantly from section 

1962{a) in that it specifically prohibits the conduct of an 

"enterprise's affairs through a pattern of racketeering activity," 

18 u.s.c. § 1962(c), thus making unlawful the racketeering 

activity itself. Indeed, in holding that the plaintiff in Sedima 

had standing to assert a section 1962(c) claim upon showing an 

injury from racketeering activity, the Court cautioned that "the 

plaintiff only has standing if, and can only recove r to the extent 

that, he has been injured in his business or property by the 

conduct constituting the violation.•• 473 u.s. at 496; see also 

Cullom Vo Hibernia Nat'l Bank, 859 F.2d 1211, 1214-15 (5th Cir. 

1988) (discussing standing under section 1964(c) in light of 

Sedima). 

Some courts, as a matter of policy, allow a plaintiff to 

recover under section 1962(a) upon a showing of injury from 

racketeering activity, emphasizing that RICO is to be broadly 

construed. See, ~, Smith, 678 F.Supp. at 828. However, the 

general principle that RICO is to be accorded a liberal 

interpretation cannot justify expanding section 1962(a) beyond the 

-8-

Appellate Case: 87-1671 Document: 01019674127 Date Filed: 01/04/1989 Page: 8 
limits of that subsection's own language. See Haroco v. American 

Nat'l Bank & Trust Co., 747 F.2d 384, 400 (7th Cir~ 1984), aff'd, 

473 U.S. 606 (1985}); Schofield v. First Commodity Corp., 793 F.2d 

28, 30 (1st Cir. 1986); P.M.F. Services, 681 F.Supp. at 555. 

Finally, courts have expressed concern that some corporate 

defendants will be beyond the reach of RICO unless a plaintiff may 

assert injury from racketeering activity under section 1962(a), 

because corporations generally cannot be both the person and the 

enterprise under section 1962(c)o2 See, ~, Smith, 678 F.Supp. 

at 829; Louisiana Power & Light v. United Gas Pipe Line, 642 

F.Supp. 781, 806-07 (E.D. La. 1986). However, 11 using the proceeds 

of racketeering activities to infiltrate legitimate businesses can 

obviously cause damage to many persons, who would have a perfect 

2 Section 1962(c) states: 

"(c) It shall be unlawful for any person 

employed by or associated with any enterprise 

engaged in, or the activities of which affect, 

interstate or foreign commerce, to conduct or 

participate, directly or indirectly, in the 

conduct of such enterprise's affairs through a 

pattern of racketeering activity or collection 

of unlawful debt." 

18 U.S.C. § 1962(c). The courts generally agree that the language 

of this section does not permit the person who conducts the 

affairs' of an enterprise through racketeering activity to be one 

and the same as that enterprise. See, ~, Garbade v. Great 

Divide Mining & Milling Corp., 831 F.2d 212, 213 (lOth Cir. 1987); 

Schreiber Distrib. v. Serv-Well Furniture Co., 806 F.2d 1393, 1396 

(9th Cir. 1986); Morgan v. Bank of Waukegan, 804 F.2d 970, 977 

(7th Cir. 1986). Under this construction, a corporation that 

conducts its own affairs through racketeering activity is not 

within the ambit of section 1962(c). 

-9-

Appellate Case: 87-1671 Document: 01019674127 Date Filed: 01/04/1989 Page: 9 
right to sue." Gilbert v. Prudential-Bache Sec. Inc., 643 F.Supp. 

107, 111 (E.D. Pa. 1986). Moreover, "if neither section 1962(a) 

nor section 1962(c) cover all methods of corporate wrongdoing, it 

is up to Congress, and not the courts, to expand the scope of the 

statute." Schofield, 793 F.2d at 31 n.2. 

As one district court noted, RICO was drafted primarily as a 

criminal statute. 

"It should not be forgotten that civil RICO 

(Section 1964) was a late edition, spot-welded to an 

already fully-structured criminal statute with defined 

goals • • . • That being true, it should not occasion 

any surprise, nor should it lead to a strained reading 

of the statutory languager simply because a more normal 

and common-sense reading of Section 1964 does not 

produce a totally seamless result. 

"Viewed in its original (and present) form as a 

criminal statute, Section 1962 attacks the various 

perceived evils flowing from 'racketeering activity,• 

and from the ill-gotten gains derived from that 

activity, that led to the adoption of criminal RICO in 

the first place • • • • In each instance the crime (and 

the proof of crime) is complete without the government•s 

need to identify with particularity every victim (or 

indeed any specific victim) of the offense. 

"By contrast Section 1964's private civil remedy 

mandates the identification of such victims, 1n order 

that they have standing to sue. Most importantly, each 

such victim must have been 'injured in his business or 

property by reason of a violation of section 1962 

•••• • Hence the nature of the claim necessarily 

depends on the nature of the 'violation' -- and in each 

instance the specific subsection of Section 1962 makes 

the violation not the conduct of racketeering activity 

alone, but rather the use of that racketeering activity 

in the particular way the subsection declares unlawful." 

P . M.F. Services, 681 F.Supp. at 555-56 (footnote omitted). This 

quotation explains why one may be criminally convicted of a RICO 

-10-

Appellate Case: 87-1671 Document: 01019674127 Date Filed: 01/04/1989 Page: 10 
violation but not necessarily civilly liable to each victim of the 

pattern of racketeering. 

In sum, we find no justification for disregarding the clear 

language of either section 1962(a), which prohibits the use or 

investment of income from racketeering activity, or section 

1964(c), which requires injury by reason of such a violation. 

Accordingly, we hold that, because Grider has failed to allege any 

facts showing injury from the use or investment of rack eteering 

income, he has no standing to assert a claim for damages based on 

a violation of section 1962(a). We likewise conclude that Grider 

has no standing to assert a claim for damages based on the alleged 

conspiracies to violate section 1962(a}. Because he has not 

alleged injury from ~he substantive violations, he has failed to 

show how the alleged conspiracy to commit those violations caused 

him injury. Cf. Torwest DBC, Inc . v. Dick, 810 F.2d 925, 927 n.2 

(lOth Cir. 1987) . 

The judgment of the district court is affirmed . 

-11-

Appellate Case: 87-1671 Document: 01019674127 Date Filed: 01/04/1989 Page: 11