United States District Court, W.D. Kentucky, Bowling Green Division
GARY M. ARFORD PLAINTIFF
CHRIS LINK, ET AL. DEFENDANTS
MEMORANDUM OPINION & ORDER
N. Stivers, Judge United States District Court
matter is before the Court on Plaintiff's Motion for
Partial Summary Judgment (DN 82). The deadline for filing a
response to that motion was September 15, 2016. Neither
Defendant Chris Link nor Defendant Angela Stokes Link
(collectively “Defendants”) filed a response.
Therefore, this matter is ripe for adjudication. For the
reasons stated below, Plaintiff's motion is DENIED.
STATEMENT OF FACTS
Gary M. Arford (“Arford”), by virtue of a limited
power of attorney, filed this action on behalf on nine
investors. (Compl., DN 1). The parties' dispute arises
out of an allegedly fraudulent oil-investment scheme
perpetuated by Defendants, among others. (Pl.'s Mot.
Summ. J. 3, DN 82 [hereinafter Pl.'s Mot.]). Defendants
solicited funds from the investors to drill oil wells in
Kentucky. (Pl.'s Mot. 3-4). In exchange, the investors
received “units” in the “Union Light 10
Well Preferred” partnership. (Compl. ¶¶
24-25). These units entitled each investor to a royalty
interest in productive wells. (Compl. ¶ 25). Instead of
drilling and operating oil wells, however, Defendants
diverted the investment funds to other entities and
eventually themselves. (Pl.'s Mot. 3-4).
Court has entered a number of orders in this case. On
December 30, 2015, the Court entered default judgments
against Defendants Brent Phelps, Scott Phelps, Regal
Development Group, LLC, and Minotaur Consulting, LLC, leaving
the Links as the sole Defendants. (DN 58). On May 10, 2016,
the Court pierced the corporate veil of Regal Development
Group, LLC, which rendered its obligations enforceable
against Defendants. (Order 1, DN 77). As a result, the Court
entered judgment against Defendant Chris Link for $432,
954.81. (Order 2). The Court also granted Arford's motion
for partial summary judgment, thereby confirming that
Defendant Chris Link's conduct amounted to conversion and
defalcation. (DN 79). Moreover, due to their failure to
provide Fed.R.Civ.P. 26(a)(1) disclosures, Magistrate Judge
H. Brent Brennenstuhl entered discovery sanctions preventing
Defendants from offering witnesses or exhibits in support of
their defense. (Agreed Order, DN 70; Order Granting Mot. for
Sanctions, DN 73).
Court has subject matter jurisdiction under 28 U.S.C. §
1332 because there is diversity of citizenship between the
parties and the amount in controversy exceeds $75, 000,
exclusive of interests and costs.
asks the Court to enter summary judgment against Defendants
on his claims under 18 U.S.C. § 1964, the Racketeer
Influenced and Corrupt Organizations Act
(“RICO”). (Pl.'s Mot. 1). A review of the
Complaint and First Amended Complaint, however, reveals that
Arford has not asserted a RICO claim. The Complaint alleges
fraud, violations under various sections of the Securities
Exchange Act of 1934 and the Securities Act of 1933,
violations of Kentucky's Blue Sky Law, breach of a common
law fiduciary duty, breach of contract, conversion, civil
conspiracy, and seeks an accounting and audit of the
investment. (Compl. ¶¶ 40-143). The First Amended
Complaint added a claim for piercing the corporate veil of
Defendants Minotaur Consulting LLC and Regal Development
Group LLC. (Am. Compl. ¶¶ 146-151). Since no RICO
claim has been asserted, summary judgment cannot be granted
for such claim.
motion would be denied even if the Complaint could be
construed as asserting RICO claims. Federal Rule of Civil
Procedure 56(a) provides that “the court shall grant
summary judgment if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” Because Arford's RICO
“claims” would be barred by the Private
Securities Litigation Reform Act (“PSLRA”), he is
not entitled to judgment as a matter of law.
civil RICO statute allows “[a]ny person injured in his
business or property” by RICO violations to sue for
damages. 18 U.S.C. § 1964(c). A RICO violation requires
“(1) conduct (2) of an enterprise (3) through a pattern
(4) of racketeering activity.” Heinrich v. Waiting
Angels Adoption Servs., Inc., 668 F.3d 393, 404 (6th
Cir. 2012) (internal quotation marks omitted) (quoting
Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496
(1985)). “Racketeering activity” is defined to
include a number of offenses, such as wire fraud and mail
fraud. 18 U.S.C. § 1961(1). A “pattern”
consists of at least two violations of the included
activities, predicate acts, within the last ten years. 18
U.S.C. § 1961(5).
Complaint fails to mention any of the above elements; Arford
discusses them for the first time in his motion.
Specifically, Arford notes that Defendants committed the
predicate acts of mail fraud and wire fraud in carrying out
their scheme. (Pl.'s Mot. 17, 19-23). He explains that
the moment he put the investors' checks in the mail at
the Defendants' behest, “the Defendants were guilty
of mail fraud, as they had successfully effectuated their
scheme to defraud the victims of their money though false
representations concerning oil wells.” (Pl.'s. Mot.
21). Likewise, he notes that the Defendants committed wire
fraud through a series of fraudulent emails because,
“without the fraudulent emails, there would have been
no investment.” (Pl.'s Mot. 22).
Arford recognizes, Congress amended RICO through the PSLRA.
(Pl.'s Mot. 9). The PSLRA precludes civil RICO claims
that are based on alleged securities fraud. 18 U.S.C. §
1964(c). “The amendment not only eliminates securities
fraud as a predicate act in civil RICO claims, but also
prevents plaintiffs from relying on other predicate acts if
they are based on conduct that would have been actionable as
securities fraud.” Ouwinga v. Benistar 419 Plan
Servs., Inc., 694 F.3d 783, 790 (6th Cir. 2012) (citing
Bald Eagle Area Sch. Dist. v. Keystone Fin., Inc.,
189 F.3d 321, 330 (3d Cir. 1991)). Moreover, “mail or
wire fraud [may not serve] as predicate acts under civil RICO
if such offenses are based on conduct that would have been
actionable as securities fraud.” H.R. Rep. 104-369, at
47 (1995), reprinted in 1995 U.S.C.C.A.N. 730, 746.
“Allowing such surgical presentation of the cause of
action . . . would undermine the congressional intent behind
the [PSLRA].” Bald Eagle, 189 F.3d at 330.
relies on Ouwinga for the proposition that his RICO
“claims” can proceed in spite of the PSLRA. In
Ouwinga, the plaintiffs brought RICO claims against
the purveyors of a financial product, the Benistar 419 Plan.
Ouwinga, 694 F.3d at 789. The purveyors of the Plan
represented that contributions were tax-deductible, that the
plaintiffs could take money of the plan at any time tax-free,
and that the whole transaction was above board. Id.
at 788. Based on those representations, the plaintiffs agreed
to participate. Id. Later, the IRS audited the
plaintiffs' tax returns and penalized them for
participation in the Plan. Id. at 789. The Plan
utilized variable life insurance policies, which qualify as
securities; therefore, the plaintiffs' RICO claims were
based on the purchase of securities. Id. at 790. The
Sixth Circuit, however, held that the plaintiffs' RICO
claims were not barred by the PSLRA because the securities
transactions were “not integral to or ‘in