method of interest payment. Extensive recapitulation and consideration of these arguments in unnecessary. This issue is clearly one of material fact that may not be appropriately resolved on a motion for summary judgment.
VALIC also asserts that Otto and the plaintiff class cannot satisfy the requirement that the alleged fraud be in connection with the purchase or sale of a security. Specifically, VALIC asserts that Otto cannot satisfy this requirement because the mere accrual of interest does not constitute the purchase or sale of a security. VALIC is correct that a Rule 10b-5 plaintiff must establish that the alleged fraud occurred in connection with the purchase or sale of a security. Abrams v. Oppenheimer Government Securities, Inc., 737 F.2d 582, 586 (7th Cir. 1984); Ray v. Karris, 780 F.2d 636, 640 (7th Cir. 1985). However, VALIC's assertion that Otto can not satisfy this requirement is incorrect. The annuity itself is a security. Otto v. Variable Annuity Life Ins., 814 F.2d 1127 (7th Cir. 1986). Because Otto purchased the annuity, the alleged fraud is in connection with the purchase or sale of a security.
Finally, we cannot grant summary judgment in favor of Separate Account and AG on the basis of VALIC's bald assertion that these entities were not involved in the alleged fraud. VALIC has failed to establish, as a matter of law, the role that these entities played in the administration of the fixed annuity.
B. Otto's Motion For Summary Judgment And Order of Default.
Otto claims that she is entitled to summary judgment on her securities fraud claim, as well as an order of default against the individual defendants on Count IV. We can dispose of both of these motions summarily.
In order to prevail on her motion with respect to the securities claim, Otto must demonstrate that there are no material issues of fact regarding any element of her claim. She cannot meet this burden. As noted above, there are material issues of fact regarding actual damages and the statute of limitations. In addition, there is a material issue of fact as to whether nondisclosure of banding was material. "An omission or misstatement is material if a substantial likelihood exists that a reasonable investor would find the omitted or misstated fact significant in deciding whether to buy or sell a security, and on what terms to buy and sell." Rowe v. Maremont Corp., 850 F.2d 1226, 1233 (7th Cir. 1988), citing Basic, Inc. v. Levinson, 485 U.S. 224, 108 S. Ct. 978, 983, 99 L. Ed. 2d 194 (1988). There is an issue of fact as to whether an investor would view VALIC's use of the banding method a material element of the decision whether or not to buy the annuity.
Otto claims that the individual defendants are in default, as they have failed to answer the allegations directed against them in Count IV. VALIC counters by asserting that the dismissal of this count was affirmed by the Seventh Circuit. VALIC also contends that, even if Count IV survives, an order of default would be inappropriate.
We find that the Seventh Circuit's second opinion reinstated Count IV, to the extent that it states a claim for conspiracy to violate securities laws. However, given the rather confusing procedural history and complexity of this case, an order of default against the individual defendants is not warranted. We order the individual defendants to answer the allegations against them on or before February 16, 1990.
C. Motion to Expand the Class and Add Additional Named Plaintiffs.
Otto seeks to expand the class in three ways. First, she seeks to expand the class from a class of Illinois citizens who participated in the fixed annuity to a nationwide class. Second, she seeks to extend the class period from August 2, 1983 to December 31, 1983. Finally, Otto requests that we add three additional named plaintiffs; Frank DeBoer, Dwain Dedrick, and Ruth Armstrong.
Essentially, Otto's motion is for leave to amend the class action allegations in her complaint. Despite the liberal amendment policy expressed in Fed.R.Civ.P. 15, a motion for leave to amend should be denied when the moving party has unduly delayed the motion or if the proposed amendment would prejudice of the opposing party. Textor v. Board of Regents, 711 F.2d 1387, 1391 (7th Cir. 1983); Samuels v. Wilder, 871 F.2d 1346, slip op. at 8-9 (7th Cir. 1989). We find undue delay and prejudice in the present case.
Otto claims that her motion was spurred by newly discovered evidence. However, the parties have engaged in over six years of extensive discovery. Otto has offered no persuasive explanation as to why this information was only discovered recently. We find Otto's proposition particularly curious given the fact that this "new information" came from VALIC officers, who were presumably available for discovery at any time during the past decade.
In addition, the proposed amendment would prejudice both the defendants and the existing class members. The defendants would be forced to duplicate years of extensive discovery at considerable expense. Otto argues that this constitutes no real prejudice because VALIC maintains its records on a nationwide basis. However, Otto initially sought to certify a nationwide class, but then chose to proceed with a class composed only of Illinois residents. As a result, VALIC spent considerable time, money and effort defending an action against the claims of an Illinois class. Expanding the class at this time would force VALIC to engage in wasteful and duplicative measures. More importantly, the members of the present class would be prejudiced by the enormous delay in the litigation that would unavoidably result from the proposed radical expansion of the class.
In addition to expanding the class, Otto also seeks to add three additional named plaintiffs. However, there seems to be no reason to add additional named plaintiffs at this late date. Moreover, Otto has made no showing that these individuals fulfill the requirements for class representatives outlined in Fed.R.Civ.P. 23. Accordingly, we deny Otto's motion in its entirety.
D. Motion to Approve Class Action Notice.
Otto has submitted a proposed notice to members of the Illinois class.
VALIC has raised several objections to the proposed notice. We find that only one of VALIC's objections has merit. The notice fails to inform the potential class members that they may be required to respond to individual discovery requests. VALIC may be inclined to issue individual discovery requests, given that some issues may have to be determined on an individual basis.
Therefore, while we approve the existing contents of the notice, language informing the class of the possibility of individual discovery requests must be inserted. Otto is to submit an amended notice on or before February 16, 1990.
For the reasons given above, we deny VALIC's motion for summary judgment and deny Otto's motion for summary judgment and order of default. The individual defendants are to answer on or before February 16, 1990. We deny the motion to expand the class and add additional named plaintiffs. Otto should submit her amendment to the class action notice on or before February 16, 1990. It is so ordered.
DATED January 19, 1990