Our decision that VALIC's fixed annuity is not a security is
supported by the SEC's view that "neither the general account
nor any interests therein are generally subject to the
provisions of the 1933 or 1940 Acts. . . ."*fn6 Although not
controlling, the Commission's interpretation of the securities
laws is entitled to considerable weight. United States v.
National Association of Securities Dealers, Inc., 422 U.S. 694,
718-19, 95 S.Ct. 2427, 2442, 45 L.Ed.2d 486 (1975).
Accordingly, we hold that Otto's securities fraud claim must
fail because VALIC's fixed annuity is not a security.
Defendants make a two-pronged attack on the complaint's
ERISA count. First, they argue that ERISA does not cover
VALIC's fixed annuity because the annuity is not "employer
maintained" — and ERISA applies only to plans or funds
"established or maintained by an employer."
29 U.S.C. § 1002(2)(A), 1003(a).*fn7 Second, defendants argue that even if
the fixed annuity were considered to be "employer maintained,"
the annuity would be excluded from ERISA's coverage because
Otto's employer is a governmental subdivision.
29 U.S.C. § 1002(32), 1003(b)(1). Defendants' first argument is
Both Otto and defendants agree that the school district does
no more than: (1) permit annuity contractors to publicize
their products to employees, and (2) collect and remit to
contractors the contributions designated by participating
employees. These minimal, ministerial activities do not render
VALIC's fixed annuity plan one "established or maintained" by
the school district.*fn9 VALIC's annuity therefore does not
fall within the statutory definition of "employee pension
benefit plan" or "employee benefit plan" and therefore is not
covered by ERISA. The ERISA claims of Otto and all other
members of the plaintiff class must be dismissed.*fn10
Otto alleges in Count III that each of the thirty-one
individual and four corporate defendants have violated the
civil RICO statute. She claims that the defendants went astray
from 18 U.S.C. § 1962(c), which prohibits a person from
conducting the affairs of an enterprise that is engaged in, or
whose activities affect, interstate commerce through a "pattern
of racketeering activity." Section 1961 defines a pattern of
racketeering activity as at least two occurrences within ten
years of any of several predicate offenses, including mail
fraud, bribery and fraud in the sale of securities.
The Seventh Circuit recently discussed the elements of a
section 1962(c) claim in Haroco, Inc. v. American National Bank
and Trust Co. of Chicago, 747 F.2d 384 (7th Cir. 1984), cert.
granted, ___ U.S. ___, 105 S.Ct. 902, 83 L.Ed.2d 917 (1985):
To allege a violation of section 1962(c), the
plaintiff must allege that the defendant (1) was
employed by or associated with (2) an enterprise
engaged in, or the activities of which affected,
interstate or foreign commerce, and (3) that the
person conducted or participated in the conduct
of the enterprise's affairs (4) through a pattern
of racketeering activity.
Id., 747 F.2d at 387. Defendants claim that Otto's allegations
are deficient in various respects, requiring dismissal of the
RICO count. We agree with at least two of defendants'
Defendants first argue that the RICO count is fatally
defective because it fails to identify any "enterprise."
Indeed, the complaint uses the term "enterprise" twice (in
paragraphs 74 and 75), but nowhere explains what enterprise
was involved. Otto's response brief does nothing to clear up
matters; to the contrary, it simply states at different points
that the enterprise might be VALIC or VAMCO or a board of
directors or an association in fact of the individual
defendants and "the corporation."*fn11
To establish an enterprise, Otto must plead and prove that
"the various associates function[ed] as a continuing unit" and
that the enterprise existed "separate and apart from the
pattern of activity in which it engage[d]." United States v.
Turkette, 452 U.S. 576, 583, 101 S.Ct. 2524, 2528-29, 69
L.Ed.2d 246 (1981). Moreover, the same individual or
corporation may not be both the liable "person" and the
"enterprise" under section 1962(c). Haroco, 747 F.2d at 400.
Unless Otto specifies the enterprise involved in this case, it
is impossible to determine if she has satisfied these other
requirements as to each of the defendants. Accordingly, the
RICO claim as stated in Count III is insufficient. E.g.,
Bennett v. Berg, 685 F.2d 1053, 1061-62 (8th Cir. 1982), aff'd
in part and rev'd in part, 710 F.2d 1361 (8th Cir. 1983) (en
banc), cert. denied, ___ U.S. ___, 104 S.Ct. 527, 78 L.Ed.2d
710 (1983); see also Laterza v. American Broadcasting Co.,
Inc., 581 F. Supp. 408, 414 (S.D.N.Y. 1984) (general assertion
that combination of defendants constituted an "enterprise,"
without allegation as to continuity of structure or personnel,
Defendants also point out a second, perhaps greater
deficiency — Otto's failure to specify each defendant's role
in a "pattern of racketeering activity." The complaint refers
to three kinds of predicate offenses which might be a part of
such a pattern: mail fraud, wire fraud (which Otto incorrectly
calls "false pretenses"), and violations of the federal
securities laws. As explained above, Otto has failed to state a
claim for any securities laws violation. Thus, to establish a
pattern of racketeering activity, Otto must allege at least two
instances of mail of wire fraud.
There is little doubt that Fed.R.Civ.P. 9(b), which requires
that allegations of fraud specify "with particularity" the
circumstances of the alleged fraud, applies to fraud
allegations in civil RICO complaints. Haroco, 747 F.2d at 405.
Defendants contend that Otto has not satisfied Rule 9(b)
because she fails to identify any allegedly false documents and
fails to specify how any of the defendants were involved in
sending any documents. We disagree with defendants' first
contention, as the complaint refers to (and attaches as
exhibits) three specific "investment prospectuses, financial
and interest statements." Complaint, paragraph 73(a). However,
we do agree with defendants' second contention, that the
complaint fails to sufficiently plead each defendant's
respective involvement in any fraudulent activity. In fact, the
complaint is devoid of any factual allegations concerning
particular defendants. The complaint's conclusory allegations,
which merely attribute fraudulent representations to
collectively, are not specific enough to satisfy Rule 9(b).
Hudson v. LaRouche, 579 F. Supp. 623, 628-29 (S.D.N.Y. 1983); D
& G Enterprises v. Continental Illinois National Bank and Trust
Company of Chicago, 574 F. Supp. 263, 267 (N.D.Ill. 1983). The
inadequacy of the fraud allegations is especially great
regarding the individual defendants, many of whom left VALIC
before 1978 or joined VALIC after the purportedly fraudulent
documents were issued. Accordingly, the complaint's RICO count
In Count IV, Otto alleges that all the defendants conspired
to violate the Securities Exchange Act of 1934, ERISA and
RICO, the same statutes on which she relies in Counts I, II
and III. At a minimum, a conspiracy requires allegations and
proof of one overt act by a defendant in furtherance of the
conspiracy, and the assent of each defendant to the operation
of the conspiracy. United States v. Sutherland, 656 F.2d 1181,
1186-87 n. 4 and 1193 (5th Cir. 1981), cert. denied,
455 U.S. 949, 102 S.Ct. 1451, 71 L.Ed.2d 663 (1982). The defendants
argue that Otto's allegations fail to meet even this minimum
requirement. We agree.
It may be theoretically possible for defendants to have
conspired to violate RICO or even the federal securities laws
or ERISA (which, as explained above, defendants actually could
not have violated).*fn12 However, general allegations of a
conspiracy which are unsupported by facts are not enough to
state a cause of action. Saine v. A.I.A., Inc., 582 F. Supp. 1299,
1307 (D.Colo. 1984). The allegations in Count IV are even
sketchier than those in Count III, which we have found
inadequate to state a RICO claim against any particular
defendant. There are simply no facts alleged which permit a
reasonable inference that the dozens of defendants, many of
whom were no longer affiliated with VALIC when other defendants
began their association with the company, ever assented to a
conspiracy to violate various federal laws. Thus, Count IV
fails to state a cause of action and must be dismissed.
Counts V and VI
In Counts V and VI, Otto asserts two state law claims:
breach of contract and common law fraud. Because the federal
claims in Counts I through IV are all dismissed, there is no
longer any basis for this Court to exercise pendent
jurisdiction over the state law claims. United Mine-workers of
America v. Gibbs, 383 U.S. 715, 725-26, 86 S.Ct. 1130, 1138, 16
L.Ed.2d 218 (1966); Americana Healthcare Corp. v. Schweiker,
688 F.2d 1072, 1087 (7th Cir. 1982), cert. denied,
459 U.S. 1202, 103 S.Ct. 1187, 75 L.Ed.2d 434 (1983). Therefore, these
counts are dismissed as well.
Accordingly, defendants' motion to strike and dismiss and
for summary judgment is granted. It is so ordered.