Antitrust Law Daily Wrap Up, RICO—EDLa: RICO Claims Proceed in Global Oil Tools Lawsuit, (Nov 20, 2012)

By Tobias J. Gillett, J.D., LLM

The federal district court in New Orleans has granted in part and denied in part motions to dismiss in a RICO lawsuit brought by Global Oil Tools against some of its former executives and employees, as well as two companies formed by the executives (Global Oil Tools, Inc. v. Barnhill, November 19, 2012, Barbier, C.).

The plaintiff Global Oil Tools manufactures wireline tools and downhole flow control systems for the oil and gas industry. The defendants Wilfred Barnhill, Brian Barnhill, and Diane Barnhill were members of the management of Global Oil prior to their resignations in early 2012, while the defendants Denise LeBlanc and Daniel Triche were employees of the company and of the Barnhills. Global Oil alleged that in 2010 Wilfred and Diane Barnhill registered the trade name Global International Tools and began competing with Global Oil. In 2011, the Barnhills also allegedly started another competing company, Downhole-Surface Manufacturing.

Global Oil alleged that the defendants engaged in a variety of fraudulent activities at the expense of Global Oil, including stealing Global Oil’s blueprints, tools, and customers; sending deceptive e-mails, making misleading phone calls, and shipping products through the competing companies to Global Oil’s customers; buying tools at steep discounts from Global Oil; and charging expenses incurred by the competing companies to Global Oil. Global Oil claimed these activities provided the basis for its claims under the RICO Act, the Lanham Act, and various state laws. The defendants argued that Global Oil did not “properly articulate a RICO enterprise,” “fail[ed] to demonstrate a pattern of racketeering activity,” did not show closed-ended or open-ended continuity, and did not sufficiently support its allegations of RICO conspiracy.

RICO Act: Pattern of Racketeering Activity

Global Oil supported its RICO Act by alleging predicate acts of wire fraud, mail fraud, and transportation of stolen goods. Global Oil alleged the wire fraud occurred when the defendants deceived a global oil customer concerning the status of Global Oil’s inventory and directed the customer to Downhole-Surface Manufacturing and when Wilfred Barnhill sent a customer an e-mail from his Global Oil address to a customer giving a Global International Tools quote. The defendants allegedly committed mail fraud when they shipped products through Global Oil and when they mailed false shipping invoices. The defendants allegedly transported stolen goods when they shipped $5,000 worth of shock absorbers. These events allegedly took place over a period of at least eight months, while more general allegations of fraud beginning with the registration of Global International Tools occurred over a period of at least two years. The court concluded that these related acts, committed by the same defendants, for the same purpose of defrauding Global Oil, and with the same victim, sufficiently demonstrated closed-ended continuity to establish a pattern of racketeering activity. Although the court did not issue a formal ruling concerning open-ended continuity, the court indicated that since one of the suspect e-mails had been sent after the Barnhills left Global Oil, and since the defendants still possessed the allegedly stolen intellectual property, tools, and blue prints, the complaint would likely have also satisfied that requirement, despite the defendants’ claim that any threat of harm had ceased when the defendants left Global Oil.

RICO Act: Enterprise

Global Oils’ complaint included two RICO counts. The first count alleged that Downhole-Surface Manufacturing, Global International Tools, the Barnhills, and the employee defendants were all RICO persons, and “formed, maintained, and continue to maintain a close interlocking association for purposes of defrauding Global and committing the unlawful activity.” Although the court found that this sufficiently alleged an “association-in-fact enterprise function[ing] as a continuing unit . . . for long enough to maintain a specific course of conduct,” the court concluded that the first count failed because Global International Tools and Downhole-Surface Manufacturing could not “be both a RICO person and a part of the RICO association-in-fact enterprise.” Moreover, the count only listed one purpose for the enterprise, defrauding Global Oil, and the court determined that the association-in-fact enterprise could not exist under Fifth Circuit precedent without some additional goal beyond the predicate acts.

However, the court observed that the second count properly applied the person/enterprise dichotomy, listing the corporate defendants as enterprises and the Barnhills as RICO persons. In addition, the second count alleged purposes for the enterprises beyond merely defrauding Global Oil. Therefore, the court concluded that the second count properly alleged a RICO claim. Moreover, the court granted Global Oil the opportunity to amend the first count.

RICO Act: Conspiracy

Global Oil also brought a RICO conspiracy claim against the defendants, supported by allegations that the Barnhills worked together to conceal the fraudulent activities from Global Oil’s parent company, and that the Barnhills registered Global International Tools together. The court concluded that these allegations, taken with more general allegations that the defendants were in agreement with each other during commission of the various predicate acts, were sufficient to establish a RICO conspiracy claim.

Louisiana Unfair Trade Practices Act and Other State Law Claims

In addition to the RICO claims, Global Oil also brought suit under Louisiana’s Unfair Trade Practices Act. Under that law, a plaintiff must show that the defendant engaged in conduct which “offends established public policy and . . . is immoral, unethical, oppressive , unscrupulous, or substantially injurious.” Finding an argument by the employee defendants that the Louisiana law did not extend to acts committed by employees as opposed to managers or employers to be “without merit,” the court determined that Global Oil had sufficiently pled its claim against the defendants. The court also declined to dismiss claims regarding breach of fiduciary duties, misappropriation and conversion, and tortious interference with business relationships.

The case is Civil Action No. 12-1507.

L.J. Hymel, Jr. (Hymel Davis & Petersen, LLC) for Global Oil Tools, Inc. Kyle D. Schonekas (Schonekas, Evans, McGoey & McEachin, LLC) for Wilfred J. Barnhill.

Cases: RICO StateUnfairTradePractices LouisianaNews