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MCCOOL v. STRATA OIL CO.

November 16, 1989

DANIEL McCOOL, TED R. POTEMPA, JOHN PELLETTIERE and KENNETH A. STANKIEVECH, Plaintiffs,
v.
STRATA OIL COMPANY, an Illinois corporation, RICHARD A. MILLER and JOSEPH JOCHEIM, Defendants



The opinion of the court was delivered by: BUA

 NICHOLAS J. BUA, UNITED STATES DISTRICT JUDGE

 Plaintiffs in this action bring claims under federal securities laws and the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-1968. Plaintiffs also assert various pendent state claims. Based on statute of limitations arguments, defendants have now moved for summary judgment on plaintiffs' securities and RICO claims and for dismissal of plaintiffs' pendent state claims. For the reasons stated herein, defendants' motion is granted in part and denied in part.

 FACTS

 Sometime prior to 1984, defendants Richard A. Miller and Joseph Jocheim formed a partnership named "Strata Oil." *fn1" The partnership was formed to procure investments in certain oil wells located in Illinois and Oklahoma and to manage and operate the oil wells. Some of these oil wells were situated on a tract of land in Oklahoma known as the "Lowe Property." In January 1984, Miller met with plaintiffs Daniel McCool, Ted Potempa, and John Pellettiere to discuss investing in the oil wells located on the Lowe Property. Plaintiffs claim that at the meeting, Miller represented that for an investment of $ 24,000, plaintiffs would receive: (1) a tenancy in common interest in a mineral lease on the Lowe Property, (2) a working interest in the first well drilled on the Lowe Property, and (3) the opportunity to invest in additional wells drilled on the Lowe Property by Strata Oil. According to plaintiffs, Miller stated that the $ 24,000 would be paid in two installments: an initial payment of $ 17,000 ($ 13,000 for a tenancy in common interest in the leasehold and $ 4,000 for drilling the first well) and a second payment of $ 7,000 for completion costs on the first well. Miller allegedly stated that the second payment would be made only if the well was "commercially successful." Plaintiffs claim Miller also made the following representations: that maintenance costs for each well drilled on the Lowe Property would be $ 80 per month, that the Lowe Property has not been worked extensively by previous oil drillers, and that wells drilled on the Lowe Property would not be considered commercially successful unless they produced at least fifty barrels of oil per day.

 Not long after the meeting, McCool contacted plaintiff Kenneth Stankievech. With Miller's knowledge and approval, McCool informed Stankievech of the investment opportunity offered by Miller. In February 1984, McCool, Potempa, Pellettiere and Stankievech each paid $ 17,000 to Strata Oil. Each plaintiff signed a written agreement evidencing his investment. In relevant part, the agreements provided:

 
This will acknowledge receipt of the sum of $ 17,000.00 . . . said sum of money being payment in consideration of 1/32nd working interest, subject to a 11/42 of 7/8 overriding royalty interest in a certain portion of a leasehold estate . . .
 
* * * *
 
1. It is understood that payment of said sum of money . . . is a payment for the drilling expense for a test well to be drilled on said leasehold estate. That it is further understood that [each plaintiff] shall provide and will pay $ 7,000.00 of the cost of completing and equipping said test well in the event oil and/or gas is found. It is further understood that the legal effect of this agreement is that [each plaintiff] bears a 1/32 share of the cost of operation and maintenance of said well when it is placed on production.
 
* * * *

 On March 9, 1984, Strata Oil and its joint venture partner, Quest Petroleum, Ltd., purchased a mineral lease in the Lowe Property. Defendants did not name plaintiffs as owners of tenancy in common interests in the lease. On about May 31, 1984, plaintiffs made their second payments of $ 7,000 each. Subsequently, based on Miller's representations at the January 1984 meeting, plaintiffs made further investments in other oil wells developed by Strata Oil and Quest Petroleum, Ltd. Each plaintiff invested an additional $ 12,000 in October 1984, $ 12,900 in May or June of 1985, and $ 12,900 in August of 1985. These additional investments were made pursuant to signed form contracts containing the same provisions as the contracts evidencing plaintiffs' initial investments.

 From 1984 to present, defendants mailed various newsletters and other correspondence to plaintiffs describing the status and progression of the oil wells. Plaintiffs claim that this correspondence fraudulently misled them and concealed from them the fact that defendants had not named them as tenants in common in the mineral lease on the Lowe Property. Defendants also periodically mailed "division orders" to plaintiffs. These division orders were supposed to confirm the percentage interests in the royalty payment stream due to each investor. Plaintiffs maintain that these division orders were fraudulently redacted and edited so as to mislead plaintiffs and prevent them from discovering that they did not really own tenancy in common interests in the Lowe Property mineral lease. Plaintiffs contend that because of defendants' fraud, they had no indication that they did not own tenancy in common interests until September or October of 1985, when defendants mistakenly mailed unredacted division orders to them. In August 1988, plaintiffs obtained title abstracts which confirmed that they did not own tenancy in common ...


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