In the

United States Court of Appeals

for the Fifth Circuit

_______________

m 06-40364

_______________

JOHN S. CLARK,

INDIVIDUALLY AND AS TRUSTEE OF THE JOHN S. AND LORETTA J. CLARK TRUST,

Plaintiff-Appellant,

VERSUS

DONALD DOUGLAS,

ALSO KNOWN AS DONNIE DOUGLAS;

CHERYL WALKER DOUGLAS;

CADDO CREEK PRODUCTION, INC.,

A TEXAS CORPORATION;

LYLE J. BRANDON; LANA ROBERTS BRANDON,

Defendants-Appellees.

_________________________

Appeals from the United States District Court

for 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

Clerk
2

Before GARWOOD, SMITH, and DEMOSS,

Circuit Judges.

JERRY E. SMITH, Circuit Judge:*

JohnClark appealsthe dismissal ofthis civil

RICO action pursuant to FederalRule of Civil

Procedure 12(b)(6) and the denial of relief

under Federal Rule of Civil Procedure 60(b).

We affirm.

I.

Clark makes the following allegations as

part of the RICO case statement filed in support of his complaint: On September 5, 1998,

defendant Donald Douglas contacted Clark

about investing in oilwellproduction managed

by Caddo Creek Production, Inc. (“Caddo

Creek”), an oil and gas business of which

Douglas was an officer, director, and shareholder. Based on Douglas’s representation

that he had significant experience in the oil and

gasindustry, Clark, individually and as trustee

for the John S. and Loretta J. Clark Trust (“the

trust”), agreed with Douglas that Lockout

Corporation/21st Century Marketing, Inc.

(“Lockout”), would provide Clark with a 50%

interest in the production of five wells (a “five

well package” to be transferred to the trust by

Lockout representative Elvis Clint McBay);

Lockout would operate the wells and market

the production therefrom at no cost to the

trust; and the trust would pay $85,000 to

Lockout, McBay, and Douglas. 

Clark allegesthat he paid the initial$85,000

fee, then another $30,000 to Caddo Creek,

before he agreed with Douglas and McBay to

the terms of a second lease package. Clark

contends that the second lease package contained the following terms pursuant to an oral

agreement: (1) The trust would acquire the

surface rights for, and the working interest in,

the Temple-Inland Lease; (2) Douglas and

Caddo Creek would operate the more than fifteen wells on the Temple-Inland Lease at their

sole expense; (3) the trust would obtain the

working interests in the T.O. Meaux Lease,

the Compass-Moore Lease, the McClinton

(South 25 Acres) Lease, the McKinney Lease,

the Kalos Lease, the Crawford 5 Lease, the

Garrison Lease, and the 9.99% override on the

McClinton (South 25 Acres) Lease from T.

Johnson, Ltd.; (4) Douglas and Caddo Creek

would operate the wells on these leases at their

sole expense; and (5) after the trust received

the return of allitsinvestment, revenues would

be shared equally between the trust and

Douglas/Caddo Creek.

Clark further avers that, pursuant to the

second agreement, he paid $835,000 to T.

Johnson, Ltd., and received a warranty deed

purporting to grant title to the properties described above. A few months later, Douglas

and McBay informed Clark that all the leases

except the Temple-Inland lease were “doggy

leases” subject to plugging liabilities; they advised Clark to dispose of the leases so as to

avoid these liabilities. Clark then asserts that

he tried to transfer the leases to a third party

but that someone altered the McClinton Lease

and the override assignments to reflect that T.

Johnson, Ltd., was the grantee. T. Johnson,

Ltd., subsequently assigned its interest to

McBay.

In May 2001, Douglas, his wife Cheryl,

Caddo Creek, Lyle Brandon, and Lana Brandon altered a copy of the June 16, 1999, assignment, naming Caddo Creek, rather than

the trust, as owner of the Temple-Inland

* Pursuant to 5THCIR.R. 47.5, the court has determined that this opinion should not be published

and is not precedent except under the limited

circumstances set forth in 5TH CIR. R. 47.5.4.
3

Lease. They then sold an interest in that lease

to a third party for $100,000.

Around June 2001, Douglas and McBay

entered into an agreement with William M.

Knollenberg, an oilman to whom Douglas had

introducedClark. Under the agreement, Knollenberg issued five million shares of common

stock in National Equities Holdings, Inc.

(“NEHI”), a company of which Knollenberg

was president, to Douglas and McBay, in exchange for which Douglas, Caddo Creek, McBay and Lockout transferred interests in the

Temple-Inland Lease to third parties at the direction of Knollenberg. In October 2002,

Knollenberg, on behalf of NEHI, offered to

purchase from Clark the trust’s interest in the

Temple-Inland Lease;Clark rejected the offer.

Thereafter, however, McBay and Knollenberg arranged for NEHI and two other companies allegedly controlled by Knollenberg to

form limited partnerships to drill wells on the

Temple-Inland Lease. Third parties invested

in the partnerships.

II.

NEHI and two other companies controlled

by Knollenberg sued Clark individually and as

trustee ofthe trust in Texas court for breach of

contract, quantum meruit, and promissory estoppel; eventually McBay and Lockout were

joined as defendants. Clark filed the instant

action,seeking damagesfor RICO violations,2

common 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 EnergyCorporation, MPCC Inc.,

and the Knollenbergs. Donald Douglas, Cheryl Douglas, Caddo Creek, and Lyle and Lana

Brandon appeared pro se and did not file motions to dismiss, but the court dismissed the

complaint against them on its own motion for

failure to state a claim.3 Having dismissed

Clark’s federal claim with prejudice, the court

declined to exercise jurisdiction over his supplemental claims and dismissed them without

prejudice pursuant to 28 U.S.C. § 1367(c).

Clark appealed, then dismissed the appeal

against all counseled defendants (NEHI, William and Doris Knollenberg, Virgin America

Energy, Inc., MPCC Inc., Lockout Corporation, and McBay) in an agreement stipulating

that each side shall pay its own attorneys’ fees,

but Clark maintains the appeal against all pro

se defendants(Donald Douglas, Cheryl Douglas, Caddo Creek, Lyle Brandon and Lana

Brandon), who have not filed a brief in this

appeal.

A few days after this case was submitted

without oral argument to the instant 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 grant the

motion, if it wished to in its discretion under

rule 60(b), the panel issued an opinion that denied the motion to vacate and remand but

granted in part the motion to remand, thus remanding for the limited purpose of giving the

district court the latitude of granting the rule

60(b) motion 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 may 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 Plaintiff’s Motion for Relief from Judgment,” the district court denied the rule 60(b)

motion. On September 5, 2007, Clark appealed that order. We consider both appeals

as a consolidated matter.

III.

Apparently feeling that his repeated failure

to comply with discovery orders and briefing

limitationsin the district court wasinsufficient

to convey the full measure of his disrespect for

that court, Clark accuses the district court of

improperly denying his motion for leave to

amend his complaint merely for the purpose of

removing a difficult case from its docket. We

disagree.

Although dismissals on the pleadings without leave to amend are disfavored, see Price v.

Pinnacle Brands, Inc., 138 F.3d 602, 608 (5th

Cir. 1998), the disposition here was correct.

We review denial of leave to amend a complaint for abuse of discretion. Id. Although

Federal Rule of Civil Procedure 15(a) establishes a bias in favor of granting motions to

amend a complaint, leave is not automatic. “In

deciding whether to allow amendment, a district court ‘may considersuch factors as undue

delay, bad faith or dilatory motive on the part

of the movant, repeated failure to cure deficiencies by amendments previously allowed,

undue prejudice to the opposing party, and futilityof amendment.’” Id. (quoting Southmark

Corp. v. Schulte Roth & Zabel (In re Southmark Corp.), 88 F.3d 311, 314 (5th Cir.

1996)).

Clark was unduly dilatory. The court’s

scheduling order provided that pleadings could

be freely amended without motion until December 30, 2005. Clark indicates that he

informed the court on November 21, 2005,

that he intended to amend his complaint, but

the record shows that he failed to file an

amendment. Clark implies that this failure

resulted from a sudden alteration by the court

of itsscheduling order on December 20, 2005,

whereby the court refused to accept further

filings until it ruled on defendants’ motions to

dismiss. Clark avers that he moved to lift that

restriction on case filings and to amend his

complaint but that the motion wasinexplicably

ignored.

Clark failsto mention in his briefthat he did

not file his motion for leave to amend his complaint untilJanuary 21, 2006, a month after the

time period for free amendments had expired,

three weeks after the free-amendment period

had been initially scheduled to end, and nearly

six months after McBay and Lockout had filed

their motion under rule 12(b)(6). Ultimately,

Clark availed himself of three chances to set

forth the factual allegations of his complaint:

the complaint, the RICO case statement (filed

pursuant to counsel’s FED. R. CIV. P. 11 obligation to make a reasonable investigation of

the facts underlying his complaint), and his

reply to the defendants’ response to the RICO

case statement.4 Under these circumstances, it

was not an abuse of discretion to deny Clark

an additional opportunity to amend pursuant

to a motion filed three weeks after the time for

amendment specified by the scheduling order

4

See Herrmann Holdings Ltd. v. Lucent Techs.

Inc., 302 F.3d 552, 566-67 (5thCir. 2002)(affirming refusal to amend permit further amendment

after plaintiff had amended twice). See also Price,

138 F.3d at 608 (affirming refusal to amend after

plaintiff had filed complaint,RICO case statement,

and reply to motion to dismiss).
5

had ended.5

IV.

We likewise affirm the rule 12(b)(6) dismissal, which we review de novo. See Thompson v. Goetzmann, 337 F.3d 489, 494 (5thCir.

2003). Dismissal is appropriate only where it

appears beyond doubt that plaintiff would not

be entitled to recover under any set of facts he

could prove in support of his claim. See

Conley v. Gibson, 355 U.S. 41, 45-46 (1957).

Clark has alleged RICO violations under 18

U.S.C. § 1962(a), (b), (c), and (d), which

“[r]educed to their simplest terms. . . state the

following:

(a) a person who hasreceived income from

a pattern of racketeering activity cannot invest that income in an enterprise;

(b) a person cannot acquire or maintain an

interest in an enterprise through a pattern

of racketeering activity; [and]

(c) a person who is employed by or associated with an enterprise cannot conduct the

affairs ofthe enterprise through a pattern of

racketeering activity.6

Crowe v. Henry, 43 F.3d 198, 203 (5th Cir.

1995). These sections contain common elements, one of which is that “[a] plaintiff asserting a RICO claim must allege the existence

of an enterprise.” Id. at 204. Such an enterprise may be either a formal legal entity or

an association-in-fact. See St. Paul Mercury

Ins. Co. v. Williamson, 224 F.3d 425, 439 (5th

Cir. 2000). 

Clark allegesthat the defendants collectively engaged in an association-in-fact. To prove

that an association-in-fact-type RICO enterprise existed, Clark must eventuallybring forth

“evidence of an ongoing organization, formal

or informal, and . . . evidence that the various

associates function as a continuing unit . . . .

This formulation of an association-in-fact enterprise incorporatesthe notion of continuity.”

Crowe, 43 F.3d at 205. Accordingly, an “‘association-in-fact enterprise 1)must have anexistence separate and apart from the pattern of

racketeering, 2) must be an ongoing organization and 3) its members must function as a

continuing unit as shown by a hierarchical or

consensual decision making structure.’” Id.

(quoting Delta Truck & Tractor Inc. v. J.I.

Case Co., 855 F.2d 241, 243 (5th Cir. 1988)).

The district court ruled that Clark had failed

to plead, outside of conclusionalstatements of

law masquerading as factual conclusions, that

the alleged enterprise had any existence separate from the pattern ofracketeering or that its

members functioned as a continuing unit with

a coherent decision-making structure. Because it is sufficient to sustain the judgment,

we look only to whether Clark has pleaded

that an enterprise existed separately from 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 legitimate business. The “enter5 Although the district court did not specifically

mention that it was denying leave to amend, it is

evident that the court so intended and was doing so

largely for the reason 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

prise” came into being only for the purpose

of engaging in fraudulent activity, i.e.

“Scamming” those who might wish or be

convinced to engage in the oil and gas business and other speculative investments.

Although[allofthe defendants] presumably

all engage inlegitimate activitiesSSsome related to the oil businessSSapart from the

“enterprise,” when the “enterprise” itself

did and do goes [sic] about its intended activities, it engaged only in nefarious activities, albeit allwere not “racketeering activities,” as defined by 18 U.S.C. § 1961(1)

and albeit all were not directed toward

Clark and/or the Clark Trust.

Thatstatement, in conjunction with the factual allegations recounted above, illustrates

that, aside fromhis conclusionalallegation that

the association-in-fact enterprise exists separately from the pattern of racketeering, Clark

has failed to plead specific facts showing that

the association exists for purposes other than

merely to commit the predicate acts. The “enterprise” mentioned by § 1962 may not be the

patternofracketeering activityitself;rather, “it

is an entity separate and apart from the pattern

of activity in which it engages.” United States

v. Turkette, 452 U.S. 576, 583 (1981). 

Based on the pleadings, the association-infact between the defendants existed uniquely

to defraud Clark and the trust of their investment; it did not exist separately and apart from

the pattern ofracketeering activity alleged and

therefore did not exist in violation of § 1962.

Clark’s insistence in his brief that various

members of the alleged enterprise participate

in the oil and gas business and engage in ongoing activities such as oil well operation is

misplaced; the members of any alleged enterprise will have an existence separate from the

pattern of racketeering activity (easily demonstrated by their engaging in such activities as

brushing their teeth), but § 1962 appliessolely

where the enterprise as a whole exists separately and apart from the alleged pattern of

racketeering activity. See Elliot v. Foufas,

867 F.2d 877, 881 (5th Cir. 1989). 

The facts pleaded indicate that it did not.

The complaint was properlydismissed, and the

district court acted within its discretion by dismissing Clark’sstate law claims without prejudice to their being refiled in state court. See

§ 1367(c). 

V.

There is no reversible error in the denial of

the rule 60(b) motion. We affirm that denial,

essentially for the reasons given by the district

court.

The judgment and the order denying rule

60( b) relief are AFFIRMED.