## In the



# United States Court of Appeals for the Fifth Circuit

_______________


### m 06-40364

_______________



### J OHN 

### S. C LARK 

### , I NDIVIDUALLY AND AS T RUSTEE OF THE J OHN S. AND L ORETTA J. C LARK T RUST , 

### Plaintiff-Appellant,

VERSUS



### D ONALD 

### D OUGLAS 

### , ALSO K NOWN AS D ONNIE D OUGLAS ; 

### C HERYL 

### W ALKER 

### D OUGLAS 

### ; C ADDO 

### C REEK 

### P RODUCTION 

### , I NC 

### ., A T EXAS C ORPORATION ; 

### LYLE 

### J. B RANDON 

### ; LANA 

### R OBERTS 

### B RANDON 

### , Defendants-Appellees.

_________________________ Appeals from the United States District Court fo r the Eastern District of Texas 

### m 4:05-CV-290

______________________________ United States Court of Appeals Fifth Circuit 

## F I L E D January 4, 2008 Charles R. Fulbruge III Clerk2

Before G ARWOOD , S MITH , and D EM OSS , Circuit Judges.

J ERRY E. S MITH , Circuit Judge: *

John Clark appeals th e dismissal of this civil RICO action pursuant to Federal Rule of Civil Procedure 12(b)(6) and th e denial of relief under Federal Rule of Civil Procedure 60(b). We affirm.

I. Clark makes th e fo llo wing allegations as part of th e RICO case statement filed in support of his com

plaint : On September 5, 1998, defendant Donald Dougl as contacte d Cl ark about invest ing in oil well production managed by Caddo Creek Production, Inc. (“Caddo Creek”), an oil and gas business of which Dougl as was an of

ficer, director, and shareho lder. Based on Douglas’s representation th at he had significant experience in th e oil and gas industry, Clark, individually and as trustee fo r th e John S. and Loretta J. Clark Trust (“the trust”), agreed wit h Dougl as th at L ockout Corporation/21st Century Marketing, Inc. (“Lockout”), would provide Clark wit h a 50% int erest in th e production of five wells (a “five well package” to be transferred to th e trust by Lockout representative Elvis Cl int McBay); Lock out would operate the wells and market th e production th eref

rom at no cost to the trust; and th e trust would pay $85,000 to Lockout, McBay , and Douglas.

Clark alleges th at he paid th e init ial $85,000 fee, th en another $30,000 to Caddo Creek, before he agreed with Douglas and McBay to t he terms of a second lease package. Clark contends th at the second lease package contained the fo llo wing terms pursuant to an oral agreem ent: (1) The trust would acquire the surface rights fo r, and the working int erest in, the Tem ple-Inl and Lease; (2) Dougl as and Caddo Creek would operate the mo re th an fifteen wells on the Tem

ple-Inland Lease at their sole expense; (3) the trust would obtain t he working int erests in the T.O. Meaux Lease, the Com pass-Moore Lease, t h e McClint on (South 25 Acres) Lease, the McKinney Lease, the Kalo s Lease, the Crawford 5 Le ase, the Garrison Lease, and the 9.99% override on the McClint on (South 25 Acre s) Lease from T. Johnson, Ltd.; (4) Dougl as and Caddo Creek would operate the wells on these leases at their sole expense; and (5) af

ter the trust received the return of all it s invest ment , revenues would be shared equally between the trust and Dougl as/Caddo Creek.

Clark further avers th at , pursuant to the second agreement, he paid $835,000 to T. Johnson, Ltd., and received a warranty deed purp orti ng to grant title to the properties described above. A few months lat er, Dougl as and McBay info r med Clark th at all the leases except the Tem

ple-Inland lease were “doggy leases” subject to plugging liabilit ies; they advised Clark to dispose of the leases so as to avoid these liabilit ies. Clark then asserts that he tried to tr a nsfer the leases to a thir d party but th at som

eone alt ered the McClint on Lease and the override assignments to reflect th at T. Johnson, Ltd., was the grantee. T. Johnson, Ltd., subsequently assigned its interest to McBay.

In May 2001, Dougl as, his w ife Cheryl, Caddo Creek, Lyle Brandon, and Lana Brandon alt ered a copy of the June 16, 1999, assignment , naming Caddo Creek, rather th an the trust, as o wner of the Temple-Inland * Pursuant to 5 TH C IR

. R. 47.5, the court has determined that this opinion should not be published and is not precedent exc ept under the limited circumstances set forth in 5 TH C IR

. R. 47.5.4.3

Lease. They then sold an interest in that lease to a thi rd party fo r $100,000.

Around June 2001, Dougl as and McBay ent e red int o an agreement wit h William M. Kno llenberg, an oilman to whom Dougl as had int roduced Clark. Under the agreement, Knollenberg issued five millio n s hares of com mo n stock in National Equities Holding s, In c. ( “NEHI”), a com

pany of which Kno llenber g was president, to Dougl as and McBay, in exchange fo r which Dougl as, Caddo Creek, McBay and Lockout tran sferred interests in the Tem ple-Inland Lease to thir d parties at the direction of Kno llenb erg. In October 2002, K nollenberg, on behalf of NEHI, offered to purchase from Clark the trust’s int erest in t he Tem ple-Inland Lease; Clark rejected th e of fer.
Thereafter, however, McBay and Kno llenberg arranged fo r NEHI and two oth er companies allegedly cont rolled by Kno llenberg to fo rm limit ed partnerships to drill wells on the Tem ple-Inland Lease. Third parties invested in t he partnerships.

II. NEHI and two oth er com panies controlled by Kno llenberg sued Clark individually and as trustee of th e trust in Texas court fo r breach of contract, quantum meruit, and prom issory estoppel ; eventually McBay and Lockout were jo ined as defendants. Clark filed t he instant action, seeking damages fo r RICO vio lat io ns, 2
com mo n law fraud, and conversion; Clark also seeks an accounting.

The district court dismissed this action pursuant to rule 12(b)(6), acting on motions to dismiss filed by McBay, Lockout, NEHI, Virgin America Energy Corporation, MPCC Inc., and the Kno llenbergs. Donald Douglas, Cheryl Do uglas, Caddo Creek, and Lyle and Lana Brandon appeared pro se and did not file mo
tions to dismiss, but the court dismissed the com plaint against them on it s own mo tion for failure to state a claim. 3 Having dismissed Clark’s federal claim wit h prejudice, the court declined to exercise jurisdiction over his supplem ental claims and dismissed them without prejudice pursuant to 28 U.S.C. § 1367(c).

Clark appealed, then dismissed th e appeal against all counseled defendants (NEHI, William and Dori s Knollenberg, Virgin America Ene rgy , Inc., MPCC Inc., Lockout Corporation, and McBay) in an agreement sti pulating th at each side shall pay it s own attorney s’ fees, but Clark maint ains the appeal against all pro se defendants (Donald Dougl as, Cheryl Douglas, Caddo Creek, Lyle Brandon and Lana Brandon), who have not filed a brief in this appeal.

A few days aft er this case was submit ted wit hout oral argument to the inst ant panel, Clark filed in the district court a “ Motion to Vacate and To Remand or To Remand Issue of Newly Discovered Evidence.” To confer jurisdiction on the district court to gr ant the
mo tio n, if it wished to in its discretion under rule 60(b), the panel issued an opinio n th at denied the mo tion to vacate and remand but granted in part the mo tion to remand, thus remanding fo r the limit ed purpose of giving the district court the lat it ude of grant ing the rule 60(b) mo tion if it wished. The panel retained jurisdiction. Clark v. Douglas , 229 Fed.

2 See 18 U.S.C. § 1962(a),(b), (c). 3 See Bazrowx v. Scott , 136 F.3d 1053, 1054 (5th Cir. 1998) (“The district court ma y dismiss an action on its own motion under Rule 12(b)(6) ‘As long as the procedure employed is fair.’”) (citation omitted).4

App’x 314 (5th Cir. 2007) (per curiam).

In an order entered on August 30, 2007, styled “Memorandum Opinion and Order Denying Pl aint iff’s Motion fo r Relief from Judgment ,” th e district court denied the rule 60(b)
mo tion. On September 5, 2007, Clark appealed th at order. We consider both appeals as a consolidated matter.

III. Apparently feeling that his repeated failure to com ply wit h d iscovery orders and briefing limit ations in th e district court was insufficient to convey th e full measure of his disrespect fo r th at cour t, Cl ark accuses the district court of improperly denying his mo tion fo r leave to amend his com

plaint merely fo r th e purpose of removing a difficult case from it s docket. We disagree.

Alt hough dismissals on th e pleadings wit hout leave to amend are disfavored, see Price v. Pinnacle Brands, Inc. , 138 F.3d 602, 608 (5th Cir. 1998), th e dis p osition here was correct. We review denial of leave to amend a com
plaint fo r abuse of discretion. I d. Alt hough Federal Rule of Civil Procedure 15(a) establishes a bias in favor of granti ng m otions to amend a com

plaint , leave is not automatic. “In deciding whether to allo w amendme nt , a di strict court ‘may consider such factors as undue delay, bad faith or dilatory mo tive on the part of th e mo v ant, repeated failure to cure deficiencies by amendments previou sly allo wed, undue prejudice to th e opposing party , and futilit y of amendment.’” I

d

. (quoting Southmark Corp. v. Schulte Roth & Zabel (In re Southmark Corp.) , 88 F.3d 31 1, 314 (5th Ci r. 1996)).

Clark was unduly dilat ory
. The court’s scheduling order provided th at pleadings could be freely amend ed with out m otion until December 30, 2005. Clark indicates that he

info rm ed the cour t on November 21, 2005, th at he int ended to amend his com plaint , but the record shows th at he failed to file an amendment. Clark implies that this failure resulted from a sudden alt eration by the court of it s scheduling order on December 20, 2005, whereby the court refused t o accept f urther filings unt il it ruled on defendants’ mo tions to dismiss. Clark avers that he moved to lift that restriction on case filin gs and to amend his
com plaint but th at the mo tion was inexplicably ignored.

Clark fails to ment io n in his brief th at he did not file his mo tion fo r leave to amend his com
plaint until January 21, 2006, a mo nt h aft er the time period fo r free amendments had expired, th ree weeks aft er the free-amen d ment period had been init ially scheduled to end, and nearly six mo nt hs aft er McBay and Lockout had filed their motion under rule 12(b)(6). Ult imat ely, Clark availed himself of three chances to set fo rth the factual allegatio ns of his complaint: the com plaint , the RICO case statem ent (filed pursuant to counsel’s FED

. R. C IV

. P. 11 obligation to make a reasonable investigation of the facts under lying his complaint), and his reply to the defendants’ response to the RICO
case statem

ent. 4 Under these circumstances, it
was not an abuse of discretion to deny Clark
an additional opportunity to amend pursuant to a mo tion filed th

ree weeks aft er the time fo r amendment spe cified by the scheduling order

4 See Herrmann Holdings Ltd. v. Lucent Techs. Inc. , 302 F.3d 552, 566-67 (5th Cir. 2002) (affirming refusal to am

end permit further am

endment after plaintiff had am

ended twice). S ee also Price , 138 F.3d at 608 (affirming refusal to am end after plaintiff had filed complaint, RICO case statement, and reply to motion to dismiss).5

had ended. 5

IV. We likewise affirm th e rule 12(b)(6) di smissal, which we review de novo
. S ee Thompson v. Goetzmann , 337 F.3d 489, 494 (5th Cir. 2003). Dismissal is appropriate only where it appears beyo nd doubt th at plaint iff would not be entitled to recover under any set of facts he could prove in support of his cl aim. S ee Conley v. Gibson , 355 U.S. 41, 45-46 (1957).

Clark has alleged RICO vio lat io ns under 18 U.S.C. § 1962(a), (b), (c) , and (d), which “[r]educed to th eir simplest terms
. . . state the fo llo wing:
(a) a person who has received inco me from
a pattern of racketeering activit y cannot invest that income in an enterprise; (b) a person cannot acquire or maintain an int erest in an enterpris e th rough a pattern of racketeering activity; [and]
(c) a person who is employed by or associated wi th an enterprise cannot conduct the affairs of th e enterprise th

rough a pattern of racketeering activity. 6

Crowe v. Henry , 43 F. 3d 198, 203 (5th Ci r. 1995). These sections contain common element s, one of which is th at “[a] plaint iff as
serting a RICO claim must allege the existence of an enterprise.” Id . at 204. Such an enterpri se ma y be eit her a fo rmal legal entity or an associati on-in-fact. S ee St. Paul Mercury Ins. Co. v. Williamson , 224 F.3d 425, 439 (5th Cir. 2000).

Clark alleges th at the defendants collectively engaged in an association-in-fact. To prove th at an a s soci ation-in-fact-type RICO enterpri se existed, Clark must eventually bring fo rth “evidence of an ongoing organization, fo rmal or info rmal, and

. . . evidence that the various associ ates function as a continuing unit . . . . This fo rm ulation of an association-in-fact enterpri se inco rporates the notion of continuit y. ” Crowe , 43 F.3d at 205. Accordingly, an “‘associ ation-in-fact enterprise 1) must have an exist ence separate and apart from the pattern of racketeering, 2) must be an ongoing organization and 3) its m

embers must function as a continuing unit as shown by a hierarchical or consensual decision making structure.’” I d

. (quoting Delta Truck & Tr actor Inc. v. J.I. Case Co. , 855 F.2d 241, 243 (5th Cir. 1988)).

The district court ruled th at Clark had failed to plead, outside of conclusional statem ents of law masquerading as factual conclusions, th at the alleged enterprise had any existence separate from the pattern of racketeering or th at it s members functioned as a continuing unit with
a coherent decision-making structure. Because it is suffic ient to sustain t he judgment,
we lo ok only to whether Clark has pleaded th at an enterprise existed sep aratel y fr om the alleged pattern of racketeering.

He did not. Clark’s RICO case statement declares the following:The “enterprise” itself was to and did engage in no legit imat e business. The “enter5 Although the district court did not specifically mention tha t it was denying leave to amend, it is evident that the court so intended and was doing so largely for the re ason that Clark had missed the deadline and had had other opportunities to correct any deficiency.

6 Section 1962(d) prohibits only conspiracy to violate the first three sections.6

pri se” came int o being only fo r th e purpose of engaging in fraudulent a ctivit y, i .e. “Scamming” th ose who might wi sh or be convinced to engage in th e oil and gas busines s and other speculative investments. Alt hough [all of th e defendants] pres umably all engage in legit imat e activit ies 

### SS som e relat ed to th e oil business 

### SS apart fr o m the “enterprise,” when th e “ent erpri se” it self did and do goes [sic] about it s int ended activit ies, it engag ed onl

y in nefario us activit ies, albeit all were not “racketeering activities,” as defined by 18 U.S.C. § 196 1 (1) and albeit all were not directed toward Clark and/or the Clark Trust.

That statem

ent, in conjunction wit h the factual allegations recounted above, illust rates th at, aside from his conclusional allegation th at t he association-in-fact enterprise exists separatel y from th e pattern of racketeering, Clark has failed to plead specific facts showing th at th e association exists fo r purposes oth er th an merely to com

mit th e predicate acts. The “enterpri se” ment io ned by § 1962 may not be the pattern of racketeering activit y it self; rather, “it is an entity separate and apart from th e pattern of activit y in which it engages.” U nited States v. Turkette , 452 U.S. 576, 583 (1981).

Based on th e pleadings, th e association-infact between th e defendants existed uniquely to defraud Clark and th e trust of th eir invest

ment ; it did not exist separately and apart from th e pattern of racketeering activit y alleged and th erefore did not exi st in vio lat io n of § 1962. Clark’s insist ence in hi s brief that various members of th e allege d enterpri se participate in th e oil and gas business and eng age in ongoing activit ies such as oil we ll o peration is misplaced; th e members of any alleged enterpri se will have an existence separate from the pattern of racketeering activit y (easily demonstrated by th eir engaging in such activities as brushing their teeth), but § 1962 applies solely where the enterprise as a whole exists separatel y and apart from the alleged pattern of racketeering activit y. S ee Elliot v. Foufas , 867 F.2d 877, 881 (5th Cir. 1989).

The facts p l eaded indicate th at it did not. The com plaint was properl

y dismissed, and the district court acted wit hin it s discretion by dismissing Clark’s state law claims wit hout prejudice to thei

r being refiled in state court. S ee § 1367(c).

V. There is no reversible error in the denial of the rule 60(b) motion. We affirm t hat denial, essentially fo r the reasons given by the district court.
The judgment and the order denying rule 60( b) relief are AFFIRMED.