Antitrust Law Daily Wrap Up, RICO—N.D. Tex.: Investor failed to adequately plead continuity to maintain RICO claims against oil well developers, (Oct 20, 2014)

By Linda O’Brien, J.D., LL.M.

An investor was unable to state Racketeer Influenced and Corrupt Organizations Act (RICO) claims against oil well developers for allegedly misrepresenting profit potential for the purpose of inducing him to invest in the drilling of two Louisiana oil wells, the federal district court in Dallas has ruled (Acosta v. Insignia Energy Group, Inc., October 16, 2014, Fitzwater, S.).

In 2006, investor Francisco Acosta entered into a Working Interest Agreement (WIA) under which Acosta paid $28,000 to acquire an undivided working interest in two oil wells to be drilled in Louisiana. Insignia president Martin Lewis represented to Acosta that the business venture was a “turnkey” operation and the wells would produce a 40 percent return on initial investment. Acosta ultimately received only $700. In October 2008, Insignia sent Acosta an invoice for expenses, representing that the wells would be operational in 30 to 60 days. Acosta paid the invoice in reliance on the representation. In October 2009, Insignia sent Acosta another invoice for expenses. Acosta gave Lewis a promissory note for the amount in order to protect his interest in the wells.

The wells never resumed oil production and were later determined to be dry wells and converted to salt water storage tanks. No payments were sent to Acosta after production allegedly resumed and no accounting of funds was provided. Acosta filed suit against Insignia and Lewis, alleging RICO violations, among other claims. The defendants moved for dismissal.

The court found that Acosta had pleaded sufficient facts to satisfy the requirements of the Federal Rule of Civil Procedure 9(b). Acosta alleged that he paid the October 2008 invoice based on representations from Lewis that the wells would resume production, and Insignia and Lewis represented that he would lose his interest in the wells unless he paid the October 2009 invoice. The court noted that, although the precise dates and methods on which the representations were made – by telephone, email, or letter – were missing, Acosta’s allegations were sufficient to plausibly plead at two predicate acts of racketeering activity.

However, the plaintiff failed to plead the requisite continuity under RICO, according to the court. Acosta’s allegations were limited to two acts of racketeering activity, and he did not assert that the defendants committed any criminal activity beyond the two instances of false statements. Moreover, Acosta did not allege that there were any victims of the defendants’ criminal acts other than himself or assert any facts that would suggest a threat of continued criminal activity. Thus, Acosta’s civil RICO claims were dismissed, the court concluded.

The case is No. 3:13-CV-0861-D.

Attorneys: D. Kristine Skocpol-Saleh (Law Office of Kristine Skocpol-Saleh) for Francisco Acosta. Craig P. Henderson (Wolf & Henderson, PC) for Insignia Energy Group Inc., Addison Capital Inc., Benchmark Operating Company LLC, IEG Permian Basin LLC, Sabine Partnership #1 Ltd., and Lewis II Holdings LLC.

Companies: Insignia Energy Group Inc.; Addison Capital Inc.; Benchmark Operating Company LLC; IEG Permian Basin LLC; Sabine Partnership #1 Ltd.; Lewis II Holdings LLC

Cases: RICO TexasNews