The opinion of the court was delivered by: JOHN R. PADOVA
This case involves alleged violations of state and federal securities laws and the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-68, in connection with a municipal employee deferred compensation plan. Pursuant to Federal Rule of Civil Procedure 12(c), defendant has filed a motion for judgment on the pleadings. For the reasons set forth below, I shall grant in part and deny in part defendant's motion.
Plaintiff's amended complaint contains the following factual allegations, which I must assume as true for purposes of the motion for judgment on the pleadings. Pursuant to Pennsylvania law,
the Philadelphia City Council passed an ordinance in 1982 permitting the City to adopt a deferred compensation plan for municipal employees. The City of Philadelphia's Employee's Deferred Compensation Plan ("Plan") was adopted on October 27, 1982. The Plan permits City employees to defer a portion of their income and to direct the investment of the deferred income among various investment options. Deferred income is not subject to federal income tax until the employee withdraws the funds.
Thus, City employees ostensibly participate in the program in order to avail themselves of the Plan's investment and income tax advantages.
On June 22, 1984, the City entered into an Administrative Services Agreement with defendant, Public Employees Benefit Services Corporation ("PEBSCO"), whereby PEBSCO was appointed as the exclusive administrator and marketer of the Plan. One of PEBSCO's duties under this agreement was to recommend the various investment options that should be included in the Plan. The dispute in this case centers on life insurance investment option that PEBSCO recommended to the City.
In 1986, PEBSCO advised the City that life insurance should be offered under the Plan. After requesting proposals from various life insurance providers, the City followed PEBSCO's recommendation and appointed Peoples Security Life Insurance Company ("Peoples") as a non-exclusive underwriter of universal life and interest-sensitive insurance products. In January 1987, PEBSCO began marketing the insurance option ("Peoples policies") to Plan participants.
The City's amended complaint asserts that PEBSCO made materially misleading statements and failed to state material facts to Plan participants regarding the Peoples policies. First, PEBSCO promoted the tax benefits, but failed to disclose the tax disadvantages, of the Peoples policies. Specifically, PEBSCO stated that Plan members purchase the Peoples policies using pre-tax dollars. PEBSCO did not state, however, that proceeds of the Peoples policies, unlike proceeds of life insurance purchased outside the Plan, are subject to federal income tax. Second, PEBSCO stated that the Peoples policies accumulate cash values at current interest rates. PEBSCO failed to disclose, however, that if the policies were surrendered prematurely, the interest earnings were substantially lower than current interest rates. Third, PEBSCO failed to disclose that its agents and employees received substantial commissions and benefits from the sale of Peoples policies, but did not receive such benefits when Plan participants selected any of the Plan's other investment options. The City alleges that Plan participants relied on PEBSCO's representations and omissions to their detriment: from January 1987 until January 1993, Plan participants directed the investment of over $ 3.8 million into Peoples policies, but the policies have a current aggregate cash value of less than $ 200,000. Further, plaintiff alleges that PEBSCO's commissions from the sale of Peoples policies have exceeded $ 1 million.
Based on these allegations, the City's amended complaint includes claims for violations of § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), Securities and Exchange Commission Rule 10b-5, 17 C.F.R. § 240.10b-5, RICO, 18 U.S.C. § 1962(c), and numerous state law claims.
PEBSCO seeks judgment on the pleadings only with respect to the City's federal claims.
Under Rule 12(c) of the Federal Rules of Civil Procedure, the trial court must view the facts presented in the pleadings
and the inferences to be drawn therefrom in the light most favorable to the non-moving party. See National Iranian Oil Co. v. Mapco Int'l, Inc., 983 F.2d 485, 489 (3d Cir. 1992) (citing Jablonski v. Pan Am. World Airways, Inc., 863 F.2d 289, 290-91 (3d Cir. 1988)). The court may enter judgment on the pleadings only if the moving party clearly establishes that no material issue of fact remains to be resolved and that she is entitled to judgment as a matter of law. See Institute for Scientific Info., Inc. v. Gordon & Breach Science Publishers, Inc., 931 F.2d 1002, 1005 (3d Cir.), cert. denied, 116 L. Ed. 2d 245, 112 S. Ct. 302 (1991).
A. Federal Securities Law Claim
PEBSCO argues that the City lacks standing to assert a claim under Rule 10b-5 because the City has not alleged that it was a purchaser or seller of securities. A private damages action under Rule 10b-5 may only be maintained by actual purchasers or sellers of securities. See Blue Chip Stamps Co. v. Manor Drug Stores, 421 U.S. 723, 95 S. Ct. 1917, 44 L. Ed. 2d 539 (1975). I have reviewed the amended complaint and conclude that plaintiff has sufficiently averred that the City purchased or sold securities. First, paragraph 15 of the amended complaint states that "the City retained legal title to all Plan assets." Second, paragraph 36 of the amended complaint states that "the City, at PEBSCO's direction, made weekly wire transfers of Plan assets . . . for purposes of purchasing the Peoples policies." Finally, paragraph 62 states that "each transfer of funds among the investment options available under the Plan constitutes the purchase or sale of a security." ...