Parker & Parsley Petroleum Co. v. Dresser Industries

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________
No. 91-8194
No. 91-8460
_______________
PARKER & PARSLEY PETROLEUM CO., et al.,
Plaintiffs-Appellees,
Cross-Appellants
VERSUS
DRESSER INDUSTRIES, et al.,
Defendants-Appellants,
Cross-Appellees,
and
BJ-TITAN SERVICES COMPANY, et al.,
Defendants-Third Party
Plaintiffs-Appellants,
Cross-Appellees,
VERSUS
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-
tion.
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.
I.
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
2
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
extracted.1
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.
II.
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
1
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.
3
to a witness's alleged bias and, in a separate appeal now
consolidated, attorneys' fees.
III.
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
4
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.
denied, 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,
5
867 F.2d at 881,2 and because a corporation cannot be both the
enterprise and the RICO perpetrator, Bishop v. Corbitt Marine
Ways, 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.
denied, 465 U.S. 1005 (1984).
The acts of the servicing entity, or the partnership,
cannot, for RICO purposes, be attributed vicariously to the
2
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.
3
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.
6
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
7
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
claims.
IV.
A.
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
4
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.
Bartle, 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).
5
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).
8
maintenance of the case." Dresser argues that the court erred in
exercising its pendent jurisdiction.6
B.
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
Bank, 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
6
Citing Williamson v. Tucker, 645 F.2d 404 (5th Cir. May 1981), cert.
denied, 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
415).
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).
9
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).
C.
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.,
10
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.
D.
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
11
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
7
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.
12
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.
V.
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
n.7.
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.
13
A.
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
trial.
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
14
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
15
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.
B.
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.
C.
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
16
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
here.
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
17
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.
D.
Finally, although it appears that the district court did
18
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
8
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).
9
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,
19
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
unbiased.
The Federalist No. 80, at 475 (Alexander Hamilton) (Clinton Rossiter ed.,
1961).
10
During the proceedings addressing the motion for attorneys' fees, even
Parker & Parsley stressed the complexity and difficulty of the case.
11
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.
20
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
exceptions.
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
fractured.12
12
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.
21
VII.
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.
22