Parker & Parsley Petroleum Co. v. Dresser Industries ( 1992 )

                                 FOR THE FIFTH CIRCUIT
                                       No. 91-8194
                                       No. 91-8460
                       PARKER & PARSLEY PETROLEUM CO., et al.,
                              DRESSER INDUSTRIES, et al.,
                          BJ-TITAN SERVICES COMPANY, et al.,
                                           Defendants-Third Party
                                   GARY LANCASTER,
                             a/k/a Gary "Zeke" Lancaster,
                                           Third Party Defendant-Appellee.
                   Appeals from the United States District Court
                         for the Western District of Texas
                     (September 3, 1992)
    Before SMITH and EMILIO M. GARZA, Circuit Judges, and RAINEY,*
    District Judge.
    JERRY E. SMITH, Circuit Judge:
                District Judge of the Southern District of Texas, sitting by designa-
          On behalf of itself and the other interest-holders in 523
    West Texas oil wells, Parker & Parsley Petroleum Company ("Parker
    & Parsley") filed suit in federal district court against Dresser
    Industries, Inc., Titan Services, Inc., BJ Services U.S.A., Inc.,
    BJ-Hughes Holding Company, Baker Hughes Production Tools, Inc.,
    and   Baker   Hughes    Incorporated        (hereinafter    collectively
    "Dresser"), charging that Dresser defrauded Parker & Parsley by
    shorting it on materials used in oil well stimulation procedures.
    Parker & Parsley based federal jurisdiction upon violations of
    the Racketeer Influenced and Corrupt Organizations Act ("RICO"),
    18 U.S.C. § 1961 et seq., and appended Texas state claims for
    fraud,   breach   of   contract,        breach   of   implied   warranty,
    negligence, and gross negligence.
          The district court dismissed the RICO claims but retained
    pendent jurisdiction over the state claims.           After a jury trial
    on the state claims, the district court entered judgment awarding
    $85 million actual and $100 million punitive damages.            After a
    separate proceeding, the court awarded the plaintiffs attorneys'
    fees of approximately $1.8 million.         We vacate the judgment and
    dismiss for lack of federal jurisdiction.
          Parker & Parsley operated a large number of oil wells in
    West Texas.   Some of the wells were not as productive as the
    company wished, so it contracted with Dresser in 1983 and 1984 to
    "fracture" the wells to stimulate them.          Apparently through the
    efforts    of    Dresser's    Odessa     division       manager,    Gary    "Zeke"
    Lancaster, Dresser shorted Parker & Parsley, using less sand and
    gel than it had agreed to use for the fracturing, which, Parker
    asserted, reduced the amount of oil that eventually could be
          In   1985,     Dresser's    Titan      subdivision     entered       into     a
    partnership with a BJ-Hughes Holding Co. subsidiary and remained
    in the business as BJ-Titan.          In 1986 and 1987, Parker & Parsley
    awarded its fracturing contracts to BJ-Titan, and the shorting
    apparently      continued.       In    1987,    Baker     Hughes    Incorporated
    acquired BJ Holding Co. and later became the corporate parent of
    all the    BJ-Titan    partners.       The     company   fired     Lancaster      for
    embezzling, and it seems that his attorney informed Dresser of
    the shorting, which he said had been approved by high executives
    of his former employers.
          The RICO claim was dismissed about nine months after the
    suit was filed and a month before trial was scheduled to begin.
    The   district     court   retained    jurisdiction      over    the   state      law
    fraud, contract, and tort claims, but then continued the case for
    three months.       Dresser appeals the court's retention of pendent
    jurisdiction and challenges the award of punitive damages, the
    measure of actual damages, and the exclusion of evidence relating
            On June 23, 1992, Lancaster pleaded guilty to one count of conspiracy
    to commit mail fraud, in violation of 18 U.S.C. § 371, and was sentenced to 33
    months' imprisonment.
    to    a    witness's          alleged       bias    and,      in   a    separate      appeal    now
    consolidated, attorneys' fees.
              Parker    &       Parsley   grounded          its   RICO      claims   on    18    U.S.C.
    § 1962(a) and (c).              The district court held that Parker & Parsley
    had failed to allege a proper RICO enterprise or a cognizable
    RICO injury, that the BJ-Titan partners were not "persons" for
    purposes of the statute, and that, because Parker & Parsley's
    substantive claims had failed, its conspiracy claims should be
    dismissed as well.               Parker & Parsley cross-appeals, arguing that
    its RICO claim should have survived the dismissal motion.                                        We
    affirm the dismissal.
              As stated in Sedima, S.P.R.L. v. Imrex Co., 
    473 U.S. 479
    496       (1985),       a    viable     claim      under      section       1962(c)    "requires
    (1) conduct             (2) of an enterprise (3) through a pattern (4) of
    racketeering            activity.       a    viable       claim    under      section       1962(c)
    "requires (1) conduct (2) of an enterprise (3) through a pattern
    (4) of racketeering activity."                          Parker & Parsley averred three
    potential enterprises.                First, it alleged an association-in-fact
    composed of the "servicing entity's" field employees who carried
    out   the     shortchanging.                Alternatively,             it   pleaded    that    each
    respective corporate defendant, as the servicing entity, was the
    enterprise.         Third, it alleged that the BJ-Titan partnership, as
    the servicing entity, was the enterprise.                                   The district court
    held first that the only bases for the association-in-fact were
    the employees' relationship with the defendant companies and the
    alleged   wrongful    conduct.            The    court     noted    that   such   an
    association    must   be    "an    entity       separate    and    apart   from   the
    pattern   of   activity     in    which    it    engages,"    see     Atkinson     v.
    Anadarko Bank & Trust Co., 
    808 F.2d 438
    , 441 (5th Cir.) (quoting
    United States    v.   Turkette,       
    452 U.S. 576
    ,    583    (1981)),   cert.
    483 U.S. 1032
     (1987), and that the acts of the members of
    the alleged association took place within the course of their
    conduct as employees, which basis this court disallowed in Elliot
    v. Foufas, 
    867 F.2d 877
    , 881 (5th Cir. 1989).                 The district court
    rejected the other possible enterprises because the alleged acts
    were "committed" by the "enterprise" in the course of its regular
    business and because the RICO "persons" that were alternatively
    alleged were not claimed to have committed the predicate acts.
         We agree that Parker & Parsley alleged no RICO enterprise
    under section 1962(c).           The initial averred association-in-fact,
    consisting of the shortchanging field employees, either has no
    existence as an entity separate and apart from the actual pattern
    of racketeering, see, e.g., Old Time Enters. v. International
    Coffee Corp., 
    862 F.2d 1213
    , 1217 (5th Cir. 1989); Delta Truck &
    Tractor v. J.I. Case Co., 
    855 F.2d 241
    , 243 (5th Cir. 1988),
    cert. denied, 
    489 U.S. 1079
     (1989), or is the defendant corporate
    entity functioning through its employees in the course of their
    employment.    See Old Time Enters,             See Old Time Enterprises, 862
    F.2d at 1217; see          also Atkinson, 808 F.2d at 441.                  Because
    neither of these can constitute a RICO enterprise, see Elliot,
    867 F.2d at 881,2 and because a corporation cannot be both the
    enterprise and the RICO perpetrator, Bishop v. Corbitt Marine
    802 F.2d 122
    , 123 (5th Cir. 1986), this association cannot
    be a RICO enterprise.3
         The alternative RICO enterprises also fail.                     The corporate
    partners in the servicing entity, or alternatively, BJ-Titan,
    committed the predicate acts, if such acts may be attributed to
    them, in the course of their regular business.                 Additionally, as
    the district court noted, if the corporations or partnership are
    to be held liable as RICO "persons," they must have committed the
    predicate acts, but Parker & Parsley, despite the claim in its
    brief, has not alleged that the partners did so.                       See United
    States v. Cauble, 
    706 F.2d 1322
    , 1332-33 (5th Cir. 1983), cert.
    465 U.S. 1005
         The    acts   of   the   servicing       entity,     or   the    partnership,
    cannot,    for   RICO   purposes,   be       attributed    vicariously     to   the
              Parker asserts that Elliot stands only for the proposition that a
    plaintiff cannot simply allege that "some or all" of the RICO defendant's
    employees constitute an association-in-fact enterprise.    This is incorrect.
    First, the plaintiff's claim in that case was significantly more specific,
    although conclusionary.   Second, our analysis in the case was much broader
    and, relying principally upon Atkinson, stated that "[t]he fact that officers
    or employees of a corporation, in the course of their employment, associate to
    commit predicate acts does not establish an association-in-fact enterprise
    distinct from the corporation." 867 F.2d at 881.
            Parker relies upon some Third Circuit cases for the proposition that a
    group of employees can be an association separate from the corporate
    defendant.   E.g. Brittingham v. Mobil Corp., 
    943 F.2d 297
     (3d Cir. 1991);
    Petro-Tech, Inc. v. Western Co., 
    824 F.2d 1349
     (3d Cir. 1987). Brittingham
    does state that "[i]t is theoretically possible for a corporation to take a
    separate 'active' role in RICO violations also committed by its employees."
    At the same time, however, the court held that the Petro-Tech court "clearly
    did not intend for plaintiffs to circumvent this rule merely by alleging the
    enterprise as an association-in-fact consisting of the corporation and the
    individual employees who acted on its behalf."     943 F.2d at 302.   A useful
    basis for the distinction comes from Elliot, 867 F.2d at 881: The employees
    must not be acting in the usual course of business to constitute part of the
    enterprise association separate from the employer.
    individual partners.             See Schofield v. First Commodity Corp., 
    793 F.2d 28
    , 32 (1st Cir. 1986).                   Having determined that the claims
    were properly dismissed for failure to state a RICO enterprise,
    we need not address Parker & Parsley's other arguments regarding
    the section 1962(c) claims.
         Heretofore           we    have    not    explicitly     applied      the   foregoing
    analysis to a section 1962(a) claim, but we need not do so now in
    order to affirm, for the district court also dismissed Parker &
    Parsley's       section 1962(a) claims for failure to allege a RICO
    injury.      We see no reason to disturb this ruling.                              Section
    1964(c) states, "Any person injured in his business or property
    by reason of a violation of section 1962 of this chapter may sue
    therefor    .    .    .    and    shall       recover   threefold     the     damages    he
    sustains."      Section 1962(a) provides,
         It shall be unlawful for any person who has received
         any income derived, directly or indirectly, from a
         pattern of racketeering activity or through collection
         of an unlawful debt . . . to use or invest, directly or
         indirectly, any part of such income, or the proceeds of
         such income, in acquisition of any interest in, or the
         establishment or operation of, any enterprise which is
         engaged in, or the activities of which affect,
         interstate or foreign commerce.
         As    the       district         court    noted,   it    is    obvious      from   the
    complaint    and      the      RICO    case    statement     that    the    only   damages
    Parker & Parsley is attempting to recover are those caused by
    inadequate fracturing jobs, not from any investment of income
    derived    from      the       alleged   shorting.       As    all    but    one   of   the
    circuits that have considered the issue have held,4 the causal
    language of section 1964(c) requires that the compensable injury
    stem from the violation of the RICO section in question, so any
    injury under section 1962(a) must flow from the use or investment
    of racketeering income.                Parker & Parsley's injury does not stem
    from the investment of the income from racketeering activity;
    therefore,      it     has      pleaded      no    cause       of    action   under       section
    1962(a),    and      the     district        court      properly         dismissed      the     RICO
         The district court refused to surrender jurisdiction over
    the pendent5 state claims, noting that the suit had been filed
    more than nine months earlier, since which time it had survived a
    "serious     attack          upon      the    propriety             of    venue,"       "rigorous
    deposition schedules," "ungodly amounts of discovery documents,"
    and a hearing on discovery disputes.                                The court stated that
    dismissal    would         be    a    tremendous        financial         drain    to    all    the
    parties    as    well      as     a   waste       of    judicial         resources;      it     thus
    concluded       that       "the       equities         weigh        heavily   in        favor     of
            Danielson v. Burnside-Ott Aviation Training Ctr., 
    941 F.2d 1220
    , 1229
    (D.C. Cir. 1991); Craighead v. E.F. Hutton & Co., 
    899 F.2d 485
    , 494 (6th Cir.
    1990); Ouknine v. MacFarlane, 
    897 F.2d 75
    , 82-83 (2d Cir. 1990); Rose v.
    871 F.2d 331
    , 357-58 (3d Cir. 1989); Grider v. Texas Oil & Gas Co.,
    868 F.2d 1147
    , 1150-51 (10th Cir.), cert. denied, 
    493 U.S. 820
     (1989). Contra
    Busby v. Crown Supply, 
    897 F.2d 833
    , 837-38 (4th Cir. 1990).
            What was formerly called "pendent jurisdiction" is now included within
    the term "supplemental jurisdiction." See Samaad v. City of Dallas, 
    940 F.2d 925
    , 928 n.2 (5th Cir. 1991).
    maintenance of the case."        Dresser argues that the court erred in
    exercising its pendent jurisdiction.6
         We   review    the   decision   to    retain   jurisdiction   over   the
    pendent state claims for abuse of discretion.              Rosado v. Wyman,
    397 U.S. 397
    , 401 (1970); La Porte Constr. Co. v. Bayshore Nat'l
    805 F.2d 1254
    , 1257 (5th Cir. 1986).              The Supreme Court
    explained   the    extent   of   pendent    jurisdiction   in   United    Mine
    Workers v. Gibbs, 
    383 U.S. 715
    , 726 (1966), noting that the
    justification for pendent jurisdiction
         lies in considerations of judicial economy, convenience
         and fairness to litigants; if these are not present a
         federal court should hesitate to exercise jurisdiction
         over state claims, even though bound to apply state law
             Citing Williamson v. Tucker, 
    645 F.2d 404
     (5th Cir. May 1981), cert.
    454 U.S. 897
     (1981), Dresser argues that the RICO claim was so
    insubstantial that it never provided any ground for federal jurisdiction, so
    we need not even consider the exercise of pendent jurisdiction. We disagree.
    As the Supreme Court has stated,
         Jurisdiction . . . is not defeated . . . by the possibility that
         the averments might fail to state a cause of action on which
         petitioners could actually recover. For it is well settled that
         the failure to state a proper cause of action calls for a judgment
         on the merits and not for a dismissal for want of jurisdiction.
         Whether the complaint states a cause of action on which relief
         could be granted is a question of law and just as questions of
         fact it must be decided after and not before the Court has assumed
         jurisdiction over the controversy . . . . The previously carved
         out exceptions are that a suit may sometimes be dismissed for want
         of jurisdiction where the alleged claim under the Constitution or
         federal statutes clearly appears to be immaterial and made solely
         for the purpose of obtaining jurisdiction, or where such a claim
         is wholly insubstantial and frivolous.
    Bell v. Hood, 
    327 U.S. 678
    , 682-83 (1946) (cited in Williamson, 645 F.2d at
          We have held that the Hood standard is met only where the plaintiff's
    claim "has no plausible foundation" or is clearly foreclosed by a prior
    Supreme Court decision. Williamson, 645 F.2d at 416 (citing Bell v. Health-
    Mor, Inc., 
    549 F.2d 342
    , 344-45 (5th Cir. 1977)). In light of our preceding
    discussion, we cannot say that Parker & Parsley's complaint, particularly as
    to § 1962(a), meets that onerous standard.     See Employers Ins. v. Suwanee
    River Spa Lines, 
    866 F.2d 752
    , 759 (5th Cir. 1989).
          to them.   Needless decisions of state law should be
          avoided both as a matter of comity and to promote
          justice between the parties, by procuring for them a
          surer-footed reading of applicable law. Certainly, if
          the federal claims are dismissed before trial, even
          though not insubstantial in a jurisdictional sense, the
          state claims should be dismissed as well. [Footnotes
          and citations omitted.]
          The Court has not treated Gibbs as establishing a bright-
    line rule for pendent jurisdiction but has called for a more
    flexible analysis, balancing the values of economy, convenience,
    fairness, federalism, and comity.               See, e.g., Carnegie-Mellon
    Univ. v. Cohill, 
    484 U.S. 343
    , 350 & n.7 (1988) (citing Rosado,
    397   U.S.   at   403-05).     The    Carnegie-Mellon     Court    did    state,
    though, that when the single federal-law claim is eliminated at
    an "early stage" of the litigation, the district court has "a
    powerful     reason   to     choose     not    to   continue      to   exercise
    jurisdiction."     Id. at 351.       Our general rule is to dismiss state
    claims when the federal claims to which they are pendent are
    dismissed.    Wong v. Stripling, 
    881 F.2d 200
    , 204 (5th Cir. 1989).
          Dresser argues that the federal claim was dismissed at a
    "preliminary stage" in the proceedings and that the district
    court failed to articulate specific considerations of judicial
    economy, convenience, and fairness that would support pendent
    jurisdiction, perhaps because there were none.                 Thus, Dresser
    contends that when the RICO claims were dismissed, there had been
    no    "substantial    commitment       of     judicial   resources       to   the
    nonfederal claims," W.R. Grace & Co. v. Continental Casualty Co.,
    896 F.2d 865
    , 872 (5th Cir. 1990), as the court had conducted
    only one hearing, other proceedings having been held before a
    magistrate judge.
           Parker & Parsley responds that the court did not abuse its
    discretion in maintaining jurisdiction over the state-law claims.
    It    stresses    our     deference      to    the   discretion      of   the   district
    court, see id. at 870, and argues that weighing the equities and
    factors set out in Carnegie-Mellon should lead us to affirm.
           The instant case is distinguishable from the cases each
    party finds dispositive.            Parker & Parsley argues that we should
    follow Hudak v. Economic Research Analysts, Economic Research
    Analysts , 
    499 F.2d 996
    , 1001 (5th Cir. 1974), cert. denied, 
    419 U.S. 1122
     (1975), in which the district court tried the state
    claims with the federal claims in a seemingly appropriate use of
    pendent jurisdiction.           When we found that the limitations period
    had run on the federal claim, in which the district court tried
    the    state     claims     with    the       federal   claims,      in   a     seemingly
    appropriate use of pendent jurisdiction.                     When we found that the
    limitation period had run on the federal claim, so that the claim
    should have been dismissed at the beginning of the litigation, we
    held    that     to   dismiss      the    state      claim   would    not     serve   the
    interests of judicial economy, convenience, and fairness.                         Id.
           Hudak is not controlling here, however.                  In the instant case
    the court knew that it had no federal question before it before
    trial began, while in Hudak the court conducted a trial as though
    the   federal   claim       were   before      it.      It   makes       no    sense,   for
    purposes of judicial economy, convenience, or comity, to "punish"
    a district court for abusing discretion it does not know it has;
    given the apparent vitality of the federal claim, the Hudak court
    properly retained jurisdiction.7
           Dresser asserts that this case is indistinguishable from La
    Porte   Construction,        where   we     stated      that      when    a    litigant's
    federal cause        of   action    has   been       dismissed     at    a    preliminary
    stage, we must remand with instructions to dismiss the state
    claims for lack of subject matter jurisdiction.                               805 F.2d at
    1257.    La Porte Construction is persuasive but does not control
    our decision, either; it predated Carnegie-Mellon and did not
    establish a rule that where federal claims are dismissed before
    trial, the pendent state claims must be treated similarly.
           Rather, we stated that where the federal claim was dismissed
    at an "early stage" of the proceedings (which we did not define),
    so    that   there    had    been    no     commitment       of    federal       judicial
    resources, dismissal would not prejudice the litigants (namely,
    the non-moving defendants), who had not devoted much effort to
             Parker & Parsley also directs our attention to Newport Ltd. v. Sears,
    Roebuck & Co., 
    941 F.2d 302
     (5th Cir. 1991), cert. denied, 
    112 S. Ct. 1175
    (1992), holding that a district court had abused its discretion when it
    declined to exercise its pendent jurisdiction over state-law claims after it
    had dismissed a RICO claim. Newport is distinguishable, though, on all of the
    Carnegie-Mellon factors. In Newport, the district court dismissed the state
    claims on the eve of trial, after the case had consumed hundreds of hours of
    the court's time during over four years of litigation, and after the
    preparation of a pretrial order exceeding 200 pages, as well as 14 motions to
    compel   and   for  protective   orders,  three   protective  orders,   and  a
    confidentiality designation.     Additionally, we noted that the remaining
    matters were pedestrian questions of state law, issues that the federal court
    could readily and routinely resolve. Id. at 307-08.
    defending the claim.           Thus, dismissal was required, particularly
    in   light    of    the   Gibbs      Court's    caution   against   unnecessary
    decisions of state law.           Accordingly, we must weigh the equities
    as laid out in Gibbs and Carnegie-Mellon.
           As the Supreme Court noted in Carnegie-Mellon, under Gibbs a
    court "should consider and weigh in each case, and at every stage
    of the litigation, the values of judicial economy, convenience,
    fairness,     and   comity"     to    decide   whether    to   exercise   pendent
    jurisdiction.       484 U.S. at 350.           The Court further stated that
    "in the usual case in which all federal-law claims are eliminated
    before trial, the balance of factors to be considered under the
    pendent jurisdiction doctrine SQ judicial economy, convenience,
    fairness, and comity SQ will point toward declining to exercise
    jurisdiction over the remaining state-law claims."                   Id. at 350
           No single factor )) such as whether the case is in an "early
    stage" or involves novel issues of state law )) is dispositive.
    Rather,      we    look   to    all    the     factors    under   the     specific
    circumstances of a given case.            Having done so here, we conclude
    that this matter justified no departure from the usual rule that
    dismissal was required.
           Obviously, to retry in state court a matter that already has
    been   tried   in    the   federal   courts    would    not   in    itself   serve
    judicial economy.          But that is not the issue; a court cannot
    obtain jurisdiction over a case merely by trying it; otherwise,
    its    decision     to   retain   jurisdiction       would    be,   effectively,
    unreviewable.       Thus we must look at the case as of the filing of
    the motion to dismiss and not with the benefit of hindsight.
           At the stage of the proceedings when the motion was filed,
    judicial economy would have been better served by dismissal.                      It
    is true that some substantial development had occurred in this
    case, which was pending before a district judge with a reputation
    for moving cases promptly to trial.                 For example, a number of
    discovery matters had been presented to, and decided by, the
    magistrate     judge.       Nonetheless,      the    proceedings     were    at    a
    relatively early stage compared to those in, e.g., Newport.                       The
    case had been pending for only nine months, not four years; trial
    was scheduled soon but was still a few weeks away; and discovery
    had not been completed.        In short, the parties were not ready for
           Second, only one week before Dresser filed its motion to
    dismiss, Parker & Parsley filed a second amended complaint that
    markedly revised its theories of recovery.              That complaint added
    new theories as to damages, including an assertion that they
    should be measured by the reduction in the market value of the
    damaged wells; added claims involving acidizing treatments for
    wells;      and    requested        that      the    district      court     "pierce       the
    corporate     veils"    of        several     of     the   defendants.        The     second
    amended complaint also appended an allegation that a defendant
    shorted other customers besides Parker & Parsley, added two bases
    for liability stemming from the relationship of the defendants
    and Lancaster, and changed the number of wells included in the
    underlying dispute by roughly ten percent.
          The    filing    of     a    pleading         that   so   substantially        changed
    important aspects of the case meant that the case was at an
    earlier stage than the parties and the court previously might
    have thought, for the new theories needed development before
    trial.      We also note that by filing the second amended complaint,
    Parker & Parsley brought this problem upon itself.
          Third, although the magistrate judge had been active in
    overseeing        discovery       and    other      related     matters,     there    is    no
    indication that the district judge had substantial familiarity
    with the merits of the case when the motion to dismiss was filed.
    For example, the judge had conducted only one hearing on the
    case, a June 8 status conference.                      In any event, the amount of
    judicial resources that the case has consumed is most important
    for our analysis as an indication of the familiarity of the forum
    with the case and its ability to resolve the dispute efficiently.
    See Shaffer v. Board of School Directors, 
    730 F.2d 910
    , 912 (3d
    Cir. 1984).        Here, the trial court was not so intimately involved
    in,   and    familiar    with,          the   case    that      proceeding    further       in
    federal court would have prevented redundancy and would have
    conserved substantial judicial resources.                    Nor would it serve
    judicial    economy   to   reward      a    plaintiff    by    allowing      it    into
    federal court when it pleads a baseless RICO suit.
         Dismissal would not have caused undue inconvenience to the
    litigants.      The   district       court       emphasized        the    "tremendous
    financial    drain"   to   the   parties,         but   we    do    not    find    that
    convincing.    Little new legal research would be necessary, as the
    surviving claims were governed by state law, in either forum, and
    any additional factual research would have had to be conducted
    anyway.     See Financial Gen. Bankshares v. Metzger, 
    680 F.2d 768
    774 (D.C. Cir. 1982).
         Additionally,     the    most     expensive        element      of    the    trial
    preparation,     discovery,      was       largely      usable      in    the     state
    proceeding, as we discuss below.                Moreover, while in some cases
    the likelihood that backlogged state courts could not resolve the
    dispute promptly might be a factor weighing against dismissal,
    the record reflects no such factor here.
         The fairness factor concerns the prejudice to the parties
    that would arise from dismissal, and it too weighs in favor of
    dismissal.     Parker & Parsley argues that it would be prejudiced
    by having to start over in state court, fearing that it would
    have to relitigate all the procedural motions that already had
    been ruled upon.          It also argues that it might have a statute of
    limitations        problem,       because          Texas       Civ.     Prac.     &    Rem.    Code
    §    16.064(b)     does    not    block        a       limitations      defense       if    federal
    claims      were      "made       with     intentional              disregard         of      proper
    jurisdiction."            Thus,    Parker          &    Parsley     might   have       to    oppose
    Dresser's claim that it intentionally filed suit in the wrong
    court and if it fails, it would lose the right to litigate its
    claims altogether.
           We do not agree.            The proscription problem is limited, as
    Parker &     Parsley's        claim      would          not    be   time-barred.            Section
    16.064(a) provides that the statute of limitations is tolled
    while a case is pending in a court that lacks jurisdiction.
    Although section 16.064(b) says that the tolling does not apply
    if    the   plaintiff       filed        its       initial       suit     "with       intentional
    disregard of proper jurisdiction," that should not be a problem
           Parker & Parsley asserts that it will be prejudiced because
    it will have to prove that it was not guilty of such intentional
    disregard.       First, however, that claim is speculative.                                 Second,
    and more significantly, the plain language of the statute puts
    the    burden    of    proof      on     the       party      asserting     the       intentional
    disregard, not on Parker & Parsley.                           Third, given the widespread
    abuse of civil RICO, it does not seem unreasonable to require
    that a party risk losing its state claims if it insists upon
    bringing a groundless RICO claim.
           Parker & Parsley also asserts that it will be prejudiced
    because it will have wasted some of its discovery, as the Texas
    Rules of Civil Procedure provide only for the use of depositions
    in   later-filed     state    court    proceeding,    not    for   the   blanket
    admissibility of all discovery.               See Tex. R. Civ. P. 207(b).
    Thus, the defendants would have the opportunity to re-contest the
    procedural motions and discovery rulings. the defendants would
    have the opportunity to recontest the procedural motions and
    discovery rulings.
          This    argument   is   not     compelling.     Not    all   discovery    is
    admissible, anyway.      The point is that the parties would not have
    to repeat the effort and expense of the discovery process.                     See
    Waste Sys. v. Clean Land Air Water Corp., 
    683 F.2d 927
    , 931 (5th
    Cir. 1982) (fact that discovery could be used in state court
    proceeding weighs in favor of dismissal of case from federal
    court).      See also Financial Gen. Bankshares, 680 F.2d at 774.               In
    any event, the state court is a "surer-footed" arbiter of the
    relevance of pieces of evidence for state law claims.                See Gibbs,
    383 U.S. at 726.
          Moreover, we do not expect the relitigation of other matters
    to   pose    undue   hardship.        The    defendants   can   hardly   contest
    jurisdiction, and we do not see other obstacles to resolution of
    the case in the state court, save those that ought to be there,
    as we discuss next.
          Finally, although it appears that the                 district court did
    not consider the matter, dismissal would serve the important
    interests of federalism and comity.8                     The federal courts are
    courts of limited jurisdiction, Aldinger v. Howard, 
    427 U.S. 1
    14-15       (1976),   and       often     are    not   as       well   equipped   for
    determinations of state law as are state courts.                       Aside from the
    state       courts'     superior        familiarity      with     their    respective
    jurisdictions' law, the federal courts' construction of state law
    can be "uncertain and ephemeral."                Pennhurst State School & Hosp.
    v. Halderman, 
    465 U.S. 89
    , 122 n.32 (1984).                       "[F]ederal courts
    are not the authorized expositors of state law; there is no
    mechanism by which their errors in such matters can be corrected
    on    appeal     by     state     courts."         Herbert       Wechsler,    Federal
    Jurisdiction and the Revision of the Judicial Code, 13 Law &
    Contemp. Prob. 216, 232 (1948) (cited in Gibbs, 383 U.S. at 726
    n.15, and quoted in Financial Gen. Bankshares, 680 F.2d at 776).
    See United Gas Pipe Line Co. v. Ideal Cement Co., 
    369 U.S. 134
    135   (1962)     (per     curiam)       (state   court      defines     authoritative
    meaning of state law).9
            See Shaffer, 730 F.2d at 913 (after federal claim dismissed, district
    court abused its discretion in retaining jurisdiction over state claims, where
    claims presented issue of first impression, notwithstanding inconvenience and
    expense to plaintiffs).
             The framers of the Constitution did not contemplate that a federal
    trial court could assume jurisdiction over exclusively state-law claims in the
    absence of diversity jurisdiction.    Alexander Hamilton, for example, states
    that the judicial power of the United States ought to extend only
          1st, to all those which arise out of the laws of the United
          States, passed in pursuance of their just and constitutional
          powers of legislation; 2nd, to all those which concern the
          execution of the provisions expressly contained in the articles of
          Union; 3rd, to all those in which the United States are a party;
          4th, to all those which involve the PEACE of the CONFEDERACY,
          whether they relate to the intercourse between the United States
          and foreign nations or to that between the States themselves; 5th,
          In the instant case, the interests of federalism and comity
    point strongly toward dismissal.                  All of the remaining legal
    issues of the case, of course, are of state law, and as the
    district court later acknowledged, they are difficult ones.10
          Among      the    most    significant     issues     that   arose   from   the
    complaint are, first, whether the claim sounds in contract, for
    which        punitive   damages     were    not     available     in   Texas,    see
    Bellefonte Underwriters Ins. Co. v. Brown, 
    704 S.W.2d 742
    , 745
    (Tex. 1986), or is a tort claim for fraud, for which punitive
    damages may be awarded. Although Texas courts base their analysis
    of the distinction upon the nature of the injury, Jim Walter
    Homes v. Reed, 
    711 S.W.2d 617
    , 618 (Tex. 1986), and the conduct
    of the defendant, Spoljaric v. Percival Tours, 
    708 S.W.2d 432
    434   (Tex.      1986),   the    state     courts   have    not   given   us    plain
    guidance.         The Texas rule that where a party enters into a
    contract with no intention of performing, that misrepresentation
    may give rise to a tort action, see Crim Truck & Tractor Co. v.
    Navistar Int'l Transp. Corp., 
    823 S.W.2d 591
    , 597 (Tex. 1992),
    does not tell us how to address claims that may turn out to be
    fraud in performance.11
          to all those which originate on the high seas, and are of
          admiralty or maritime jurisdiction; and lastly, to all those in
          which the State tribunals cannot be supposed to be impartial and
    The Federalist No. 80, at 475 (Alexander Hamilton) (Clinton Rossiter ed.,
             During the proceedings addressing the motion for attorneys' fees, even
    Parker & Parsley stressed the complexity and difficulty of the case.
             We note that the Texas Supreme Court did not decide Crim Truck until
    January 22, 1992, well after the trial in the instant case had ended.
         Second, as the defendants noted in their motion to strike
    the second amended complaint, Parker & Parsley was proposing a
    measure of market value that seems non-standard, at best.                   Under
    Texas law, the usual measure of damages is the difference in the
    reasonable     cash   market    value   of   an   oil     well,   "as   equipped,
    immediately before and immediately after" the damaging event.
    Atex Pipe & Supply v. Sesco Prod. Co., 
    736 S.W.2d 914
    , 917 (Tex.
    App. )) Tyler 1987, writ denied).
         Parker     &   Parsley's     methodology,       as   put   forward    by    its
    expert, was a method of calculation based upon a different set of
    dates.     Although     we     note   that   where    the   normal      method    of
    calculating damages would result in an unjust outcome, a court
    may vary the method, B.A. Mortg. Co. v. McCullough, 
    590 S.W.2d 955
    , 957 (Tex. Civ. App. )) Fort Worth 1979, no writ), comity
    would be better served if the federal court avoided making such
         The measure-of-damages difficulty was to re-occur.                    As the
    district court recognized, the measure-of-market-value damages
    that it ultimately sent to the jury constituted an exception to
    the Texas general rule, as it compared the market value of each
    well (as that well would have been if properly serviced) with its
    value to a buyer who knew only that it had been improperly
               We express no opinion as to the merits of the district court's
    decisions. Nor do we imply that a court may not make such determinations of
    state law, when state legal issues are properly before it, as such is the
    essence of, for example, diversity jurisdiction. We merely stress that the
    interests of comity and federalism are better served when federal courts avoid
    unnecessary determinations of state law.
         After considering and weighing all the factors present in
    this case, we thus conclude that the district court, with the
    admirable intention of moving its docket, abused its discretion
    in retaining jurisdiction over the state law claims after it had
    dismissed   the   federal   RICO   claims.   Because   we   find   that,
    consequently, the court had no jurisdiction, we cannot reach any
    of the other issues raised on appeal.        The judgment is VACATED,
    and a judgment of dismissal is hereby RENDERED.

Document Info

DocketNumber: 91-8194

Filed Date: 9/3/1992

Precedential Status: Precedential

Modified Date: 3/3/2016

Authorities (40)

Bell v. Hood , 327 U.S. 678 ( 1946 )

United Gas Pipe Line Co. v. Ideal Cement Co. , 369 U.S. 134 ( 1962 )

Mine Workers v. Gibbs , 383 U.S. 715 ( 1966 )

Rosado v. Wyman , 397 U.S. 397 ( 1970 )

Aldinger v. Howard , 427 U.S. 1 ( 1976 )

United States v. Turkette , 452 U.S. 576 ( 1981 )

Pennhurst State School and Hospital v. Halderman , 465 U.S. 89 ( 1984 )

Sedima, SP RL v. Imrex Co. , 473 U.S. 479 ( 1985 )

Carnegie-Mellon Univ. v. Cohill , 484 U.S. 343 ( 1988 )

Blue Sky L. Rep. P 71,161, Fed. Sec. L. Rep. P 94,784 Cyril ... , 499 F.2d 996 ( 1974 )

Fed. Sec. L. Rep. P 96,007 Willie Bell, Jr. v. Health-Mor, ... , 549 F.2d 342 ( 1977 )

John D. Williamson, Plaintiffs-Appellants-Cross v. Gordon G.... , 645 F.2d 404 ( 1981 )

Financial General Bankshares, Inc. v. Eugene J. Metzger, ... , 680 F.2d 768 ( 1982 )

waste-systems-inc-v-clean-land-air-water-corporation-v-rollins , 683 F.2d 927 ( 1982 )

United States v. Rex C. Cauble, Individually and Doing ... , 706 F.2d 1322 ( 1983 )

Rebecca J. Schofield v. First Commodity Corporation of ... , 793 F.2d 28 ( 1986 )

Brenda Bishop, A/K/A Brenda Boone v. The Corbitt Marine ... , 802 F.2d 122 ( 1986 )

La Porte Construction Company, Inc. And Floyd G. Dicus v. ... , 805 F.2d 1254 ( 1986 )

gm-atkinson-and-ed-atkinson-individuals-dba-lazy-le-cattle-company , 808 F.2d 438 ( 1987 )

petro-tech-inc-robert-chuckrow-gary-goldberg-sterling-keystone , 824 F.2d 1349 ( 1987 )

View All Authorities »