UNITED STATES COURT OF APPEALS
Filed 10/23/96
FOR THE TENTH CIRCUIT
JOHN F. PERRY and ERIN A.
PERRY,
Plaintiffs-Appellants,
No. 96-6027
v. (D.C. No. CIV-94-0070-L)
(W.D. Okla.)
PHILLIP DON ROBINSON, an
individual, DIXIE OIL COMPANY
INCORPORATED, an Oklahoma
corporation, GENESIS ENERGY
CORPORATION, an Oklahoma
corporation,
Defendants,
and
INVESTORS PLANNING INC., a
Georgia corporation, CHARLES H.
YESSICK, JR., doing business as
Yessick Energy, individually, and IFG
NETWORK SECURITIES INC., a
Florida corporation,
Defendants-Appellees.
ORDER AND JUDGMENT *
Before BRISCOE and MURPHY, Circuit Judges, and VAN BEBBER, ** District
Judge.
After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f) and 10th Cir. R. 34.1.9. The case is
therefore ordered submitted without oral argument.
Appellants John and Erin Perry appeal the district court’s grant of summary
judgment to defendants on their claims for state and federal securities fraud, mail
and wire fraud, RICO, and various state law claims. Plaintiffs’ claims arose from
their failed investment in a series of oil and gas interests in Oklahoma. In
granting summary judgment to defendants, the trial court held that the securities
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
**
Honorable G. Thomas Van Bebber, Chief Judge, United States District
Court for the District of Kansas, sitting by designation.
-2-
claims were barred by the applicable statutes of limitation 1 and that plaintiffs had
failed to allege or demonstrate sufficient facts to survive a motion for summary
judgment on their remaining fraud and breach of contract claims. Because we
agree with the district court in all respects, we affirm.
We review the district court’s grant of summary judgment de novo. Eaton
v. Jarvis Prods. Corp., 965 F.2d 922, 925 (10th Cir. 1992). Under Rule 56(c) of
the Federal Rules of Civil Procedure, summary judgment is to be granted if “there
is no genuine issue as to any material fact and . . . the moving party is entitled to
a judgment as a matter of law.” Here, we view the record in the light most
favorable to plaintiffs, as the nonmovants, and require defendants to show that
they are entitled to judgment as a matter of law. See Ewing v. Amoco Oil Co.,
823 F.2d 1432, 1437 (10th Cir. 1987). Once defendants make this showing,
however, it is up to the plaintiffs to come forth with specific facts demonstrating
the existence of a genuine, dispositive issue on which they will bear the burden of
proof at trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 324, (1986).
The basic facts of this case are familiar to the parties, and we will repeat
them here only in summary fashion. During the summer of 1991, defendant
1
Plaintiffs’ claims under the Oklahoma Securities Act survived defendants’
motion for summary judgment but were later dismissed without prejudice when
the district court, in its discretion, refused to exercise its supplemental
jurisdiction over these state law claims. See App. Vol. 1 at 92. Plaintiffs do not
argue the propriety of this action on appeal.
-3-
Charles Yessick approached plaintiffs with details of an investment opportunity in
Oklahoma oil and gas wells operated by Big Horn Oil Company (Big Horn).
Based on Yessick’s representation to plaintiffs that he was not being paid a
commission or any mark up to market the properties, and that he would be
compensated from the retained holdings of Big Horn, plaintiffs invested over
$500,000 in various wells. Yessick also represented to plaintiffs that he had done
due diligence on Big Horn and its principals and was investing his own money in
the business. It is unclear from the record what precisely happened to plaintiffs’
investment, but, suffice it to say, plaintiffs lost money and eventually sued
Yessick, Big Horn, and various other defendants. We first examine plaintiffs’
claims for violation of federal securities laws.
Plaintiffs’ complaint alleged a claim of fraud under § 12(2) of the
Securities Act of 1933 (the 1933 Act). With regard to this claim, the Supreme
Court has recently clarified that, because actions under § 12(2) lie only when
sellers of securities have made material misstatements or omissions “by means of
a prospectus,” such actions are limited to fraud in the sale of securities sold
through public offerings. See Gustafson v. Alloyd Co., 115 S. Ct. 1061, 1071
(1995). Because plaintiffs present no evidence that the securities here were part
of a public offering, their argument regarding fraudulent concealment is
-4-
irrelevant, and the grant of summary judgment in favor of defendants on this
claim was correct.
Turning to plaintiffs’ fraud claims under § 10(b) of the Securities Exchange
Act of 1934 (the 1934 Act), 15 U.S.C. §§ 78a-78kk, it is clear that such claims
must be brought “within one year after the discovery of the facts constituting the
violation and within three years after such violation,” Lampf, Pleva, Lipkind,
Prupis & Petigrow v. Gilbertson, 111 S. Ct. 2773, 2782 (1991). Plaintiffs urge us
to find error in the district court’s conclusion that a December 14, 1992 letter
should have alerted them by the exercise of reasonable diligence to the existence
of their fraud claims, thus triggering the limitations period for those claims. We
decline to find such error.
The letter of December 14, 1992, from the president of Big Horn to its
investors describes certain operational shortcomings which had been unearthed in
the Big Horn office and management’s response to those problems. App. Vol. I at
307-10. It then discusses a lawsuit filed by Charles Yessick, one of the
defendants here. With respect to that suit, the letter states:
The plaintiffs’ [sic] are principally industry promoters (i.e.,
parties who purchase working interests and resell those interests at a
higher price based upon a “value added” theory. Plaintiffs’ lack of
experience and understanding in the oil and gas business generally
accounts for their approach and handling of their concerns. . . .
Plaintiffs have misrepresented BHOC’s intentions and actions to
working interest owners and third party service providers alike. We
would like to think that this has resulted from their misunderstanding
-5-
and lack of experience, but we are concerned about malicious
intentions as well. . . . Mr. Yessick’s ego has clouded his judgment
and impaired his capacity to reasonably evaluate the current state of
affairs. . . .
The plaintiffs have raised some legitimate issues, all of which
are capable of resolution without litigation. These are not parties
with the experience and capabilities to personally supervise your
interests in the wells. This recent experience has demonstrated that
they were not as capable of evaluating the risks and merits of their
investments as they had led us to believe, i.e., they certainly failed to
recognize the risks of dealings with a turnkey operator. Accordingly,
if plaintiffs are making these evaluations on your behalf, you deserve
to hear all sides of the issues and make some decisions for yourself
armed with all relevant information and points of view.
Id. at 309-10.
Although their complaint and their brief to this court are too general to
clarify with certainty the nature of the alleged fraud worked on plaintiffs, our
review of the record reveals allegations that Yessick misrepresented to plaintiffs
the manner of his compensation, telling them he would be paid with interests from
the operator’s retained interest instead of being paid a mark up or commission,
misrepresented his expertise in the oil business, and falsely led plaintiffs to
believe that he had done appropriate due diligence regarding Big Horn and its
principals before recommending that plaintiffs invest. We agree with the district
court that these issues were discussed in the December 14, 1992 letter with
sufficient specificity to alert plaintiffs that the suppositions they had been
proceeding upon were probably untrue. As we observed in Anixter v. Home-
-6-
Stake Production Co., 977 F.2d 1549, 1552 (10th Cir. 1992), cert. denied, 507
U.S. 1029 (1993):
[A]n aggrieved investor must bring an action once he discovers or
should have discovered the fraud. The purpose of the Securities
Exchange Act is to protect the innocent investor, not one who loses
his innocence and then waits to see how his investment turns out
before he decides to invoke the provisions of the Act.
Id. (quotation omitted). Because plaintiffs did not file their complaint until more
than one year after they should have discovered their cause of action, we affirm
the conclusion of the district court that plaintiffs’ 1934 Act claims are time-
barred.
Plaintiffs also allege a claim for nonregistration brought under § 12(1) of
the 1933 Act. In Anixter, 939 F.2d 1420, we held that the statute of limitations
for express causes of action under § 12 of the 1933 Act, which includes an
express cause of action for nonregistration in subsection (1), see 15 U.S.C. §
77(l)(1), is one year after the date of discovery. Id. at 1433-34. This discovery
rule encompasses the concept of fraudulent concealment because a cause of action
for concealed fraud accrues “after such discovery should have been made by the
exercise of reasonable diligence.” Id. at 1434 (quoting 15 U.S.C. § 77(m)).
Thus, “[i]f a putative plaintiff should have discovered the cause of action, suit
must be filed within one year of the day the discovery should have been made.”
Id.
-7-
The same reasoning which dooms plaintiffs’ 1934 Act fraud claim applies
equally to their 1933 Act nonregistration claim. The December 14, 1992 letter
should have alerted plaintiffs to the existence of their claim; their complaint filed
more than one year after receipt of this letter was untimely.
Plaintiffs next alleged a violation of the Racketeer Influenced and Corrupt
Organizations (RICO) Act, 18 U.S.C. § 1962(c), (d). To avoid summary judgment
on this claim, plaintiffs must show disputed issues of material fact establishing
that defendants “(1) participated in the conduct (2) of an enterprise (3) through a
pattern (4) of racketeering activity.” Resolution Trust Corp. v. Stone, 998 F.2d
1534, 1541 (10th Cir. 1993). A “pattern of racketeering activity” is defined in 18
U.S.C. § 1961(1) to include conduct that is “chargeable” or “indictable” under a
host of state and federal laws, National Org. for Women, Inc. v. Scheidler, 114 S.
Ct. 798, 803 (1994), the so-called predicate offenses. At least two predicate
offenses are required to prove a pattern of racketeering activity. See Stone, 998
F.2d at 1543.
For their predicate offenses, plaintiffs allege that defendants are guilty of
mail fraud, see 18 U.S.C. § 1341, and wire fraud, see id. at § 1343. We will
discuss those contentions below. At this point, however, it is clear that plaintiffs
have failed to present evidence sufficient to establish at least one of the elements
of a RICO claim, namely, the “pattern” requirement.
-8-
In Stone, 998 F.2d 1534, this court extensively discussed the proof
necessary to show a pattern of racketeering activity, including the need for proof
of a relationship between the predicate acts, id. at 1543, and the more difficult
proof of a threat of continuing activity, id. Even a cursory reading of Stone
reveals that plaintiffs have totally failed to advance evidence approaching the
specificity required to state a RICO claim. Plaintiff’s conclusory statements that
they “have met their burden of establishing a prima facie case with respect to
their RICO claims” is insufficient to avert summary judgment on this claim.
As mentioned above, plaintiffs also advanced a claim of mail and wire
fraud. The district court found that this claim, as well as plaintiffs’ claims of
common law fraud and civil conspiracy to defraud, failed for lack of any
established facts to support those claims. We agree.
In order to maintain their state law fraud claims, plaintiffs must prove the
following elements:
(1) a material false representation, (2) made with knowledge of its
falsity, or recklessly made without knowledge of its truth, and as a
positive assertion, (3) with the intention that it be relied upon by
another, (4) reliance thereon by another party to its injury, and (5)
that all elements be proven with a reasonable degree of certainty.
Whitson v. Oklahoma Farmers Union Mut. Ins. Co., 889 P.2d 285, 287 (Okla.
1995). The elements of plaintiffs’ mail and wire fraud claims are (1) the
existence of a scheme to defraud and (2) use of the mails or interstate wire
-9-
communication (as appropriate) to facilitate the scheme. See United States v.
Hanson, 41 F.3d 580, 583 (10th Cir. 1994). Both claims must include evidence
that the defendants intended to work a deception. Id. Further, the evidence
constituting fraud must be stated with particularity, although intent may be
averred generally. Fed. R. Civ. P. 9(b).
Plaintiffs’ complaint is devoid of the specific allegations needed to plead a
case of fraud and would have been properly dismissed under Fed. R. Civ. P.
12(b)(6). Despite this failing, we have examined the record and all depositions,
affidavits and other matters on file as required by Fed. R. Civ. P. 56(c) and find
no evidence regarding defendants’ intent to defraud plaintiffs. All of plaintiffs’
fraud claims suffer from this defect, making the district court’s grant of summary
judgment on these claims not only appropriate but required as a matter of law.
Finally, plaintiffs allege that defendants breached existing contracts
apparently in the form of various letters of agreement contained in the record. In
order to state a claim for breach of contract, a plaintiff must allege (1) the
existence of a valid and binding contract; (2) the plaintiff’s compliance with the
contract and his performance of the obligations under it; (3) a general averment of
the performance of any condition precedent; and (4) damages suffered as a result
of defendant’s breach. 5 Charles A. Wright & Arthur R. Miller, Federal Practice
& Procedure § 1235 (1969).
-10-
The sum of plaintiffs’ allegations in their complaint to support their breach
of contract claim is the following:
103. Plaintiffs entered into a series of written contracts with
Defendants YESSICK and/or BIG HORN.
104. Defendants YESSICK and BIG HORN have breached those
contracts to the Plaintiffs’ detriment.
105. Said breaches have damaged the plaintiffs in excess of Ten
Thousand and No/100 Dollars. ($10,000.00).
App. Vol. I at 51.
Needless to say, this allegation falls far short of the detail needed to state a
claim for breach of contract even under the relaxed pleading standards of Fed. R.
Civ. P. 8. In their brief, plaintiffs discuss defendants’ alleged failure to assign to
them their interests in the specified wells and the fact that they were charged for
work done on the wells. Without further evidence, however, it is unclear whether
or why either of these two actions constituted a breach of contract by these
defendants. Because plaintiffs are unable to establish the facts necessary to
support their claim of breach, the discussion of rescission in the brief as a
possible remedy is irrelevant.
-11-
The judgment of the United States District Court for the Western District of
Oklahoma is AFFIRMED.
Entered for the Court
Michael R. Murphy
Circuit Judge
-12-