953 F.

2d 587
121 Lab.Cas. P 10,005, RICO Bus.Disp.Guide 7943,
14 Employee Benefits Cas. 2457

Allan C. ALDRIDGE, Dennis W. Peterson and Henry A.

Sieron,
Plaintiffs-Appellees, Cross-Appellants,
v.
LILY-TULIP, INC. SALARY RETIREMENT PLAN
BENEFITS COMMITTEE
and Fort Howard Cup Corporation,
Defendants-Appellants, Cross-Appellees.
No. 90-8686.

United States Court of Appeals,

Eleventh Circuit.
Feb. 12, 1992.
Rehearing and Rehearing En Banc
Denied April 9, 1992.

Ted H. Clarkson, Augusta, Ga., Sanford M. Litvack, Dewey & Ballantine,

Jack A. Gordon and Karen A. Estilo, New York City, for defendantsappellants, cross-appellees.
David E. Hudson, Hull, Towill, Norman & Barrett, William F. Hammond,
Augusta, Ga., for plaintiffs-appellees, cross-appellants.
Appeals from the United States District Court for the Southern District of
Georgia.
Before FAY and BIRCH, Circuit Judges, and HOFFMAN* , Senior
District Judge.
BIRCH, Circuit Judge:

This is an interlocutory appeal from the United States District Court for the
Southern District of Georgia in which pension plan participants ("participants")

and the sponsoring company, Lily-Tulip, Inc. ("Lily"), contest the liability of a
pension plan sponsor following termination of a plan. The plaintiff-appellants,
a class of employees and former employees of the defendant company Lily,
appeal the district court's dismissal of their ERISA claim for contingent,
subsidized early retirement benefits which they were not paid upon the
termination of the Lily pension plan. See Aldridge v. Lily-Tulip Inc., 741
F.Supp. 906, 920 (S.D.Ga.1990). For the reasons that follow, we find that the
district court correctly dismissed the participants' ERISA claim and accordingly
AFFIRM.
2

The district court also denied the defendant Lily's motion to dismiss the
participants' RICO claim, and Lily cross-appeals. Id. at 914. Lily argues that
the district court erred in finding that the RICO statute was constitutional as
applied in this situation, that the RICO pattern requirement was met, that the
RICO claim was not barred by the applicable statute of limitations, and that
fraud was pled with sufficient particularity. Finding that the district court erred
in concluding that the complaint alleged a pattern of racketeering activity, we
REVERSE the trial court's denial of Lily's motion to dismiss the participants'
RICO claim.

I. FACTUAL AND PROCEDURAL BACKGROUND

3

Lily was created in September, 1981 by a group of private investors who

acquired it as a cup manufacturing division of Owens-Illinois ("Owens"). On
approximately September 17, 1981, Lily distributed a memorandum to the
employees of the Lily-Tulip cup division of Owens, assuring the employees
that there would be no change in retirement benefits upon Lily's acquisition of
the division. Lily adopted a defined benefit plan called the Lily-Tulip, Inc.
Salary Retirement Plan ("Plan"), which was identical to the plan that had been
sponsored by Owens and gave employees credit under the new plan for their
accumulated service with Owens.

4A. Contingent Subsidized Early Retirement Benefits

5

The Plan provided for normal retirement benefits in the form of a monthly
annuity, commencing at age sixty-five. Additionally, the Plan provided for
subsidized and unsubsidized early retirement benefits. An unsubsidized early
retirement would require the participant's monthly benefit to be reduced to its
actuarial equivalent of the normal retirement benefits commencing at age sixtyfive. The subsidized early retirement benefits provided that an employee could
retire before age sixty-five and receive more than the actuarial equivalent of
their normal retirement. Employees with thirty years of service and fifty-five

years of age or ten years of service and sixty years of age were entitled to fully
subsidized early retirement benefits.
6

In accordance with the plan's provisions, Lily amended the Plan on October 30,
1986 so as to effect its termination, as well as the cessation of future benefit
accruals after December 31, 1986. R5-48 (Ex. 8); see also R5-48 (Ex. 7 at 74)
(setting forth company's right to terminate). At the time of its termination, the
Plan was underfunded. Lily distributed the Plan assets in order to satisfy those
benefits guaranteed by the Pension Benefit Guaranty Corporation ("PBGC").
See ERISA Section 404, 29 U.S.C. 1104 (1988).

The district court certified a class of Plan participants as plaintiffs in this

ERISA dispute. The named plaintiffs were at varying degrees of satisfying the
age and service requirements for subsidized early retirement benefits at the
time of the Plan termination. Lily filed a motion to dismiss the ERISA claim,
asserting that the law did not require it to fund the Plan in order to pay
participants who would meet the conditions for early retirement benefits after
the Plan terminated, if these benefits were unvested and contingent at the time
of Plan termination. The district court granted Lily's motion and certified its
resolution of this issue for immediate appeal to this court.

B. Vacation Pay
8

Lily changed its vacation policy in 1982. In June, Lily reduced by twenty
percent the amount of vacation time its employees would earn in the future. In
November, Lily drafted a memorandum which stated in pertinent part as
follows:

9The new policy incorporates the following major changes:

10The former vacation benefit is substantially restored with regard to service in
1.
relation to length of vacation entitlement, except that there is no partial vacation
earned until the completion of a full year of service.
11Vacation is earned during the current year rather than the prior year and must be
2.
taken in full within the year earned. There is no provision to carry over vacation
periods earned in one year into the following year.
12 policy as you will note is implemented January 1, 1983 and will supersede any
The
and all prior policies at that time. Employees who have existing, untaken vacation
entitlements under the former policy have until the end of the year to avail
themselves of untaken vacation earned under the old policy.

R7-68 (Ex. to McTague Aff.)

13

This memorandum was not received by Lily employees until December 1982.

14

Lily's new vacation policy allowed employees to take their vacation only in the
year it was earned, essentially wiping off the slate any vacation earned in 1982.
For example, an employee who had earned four weeks of vacation in 1980
could take that vacation in 1981. He could then take in 1982 the vacation time
he had earned in 1981, while earning four weeks of vacation time in 1982.
However, the vacation he took in 1983 could only be charged to that vacation
earned in 1983, thus denying the employee the ability to take at any time the
vacation earned in 1982.

15

At the time of the vacation policy change, Lily removed approximately $1.5
million in employees' accrued vacation liability from its record books and
financial statements. The employees were not allowed to take their 1982
vacation time in the weeks remaining in the year after they were notified of the
restriction. The employees believed that they would be compensated when they
terminated employment or retired for the value of their accrued vacation which
they had not been able to take. Certain executives at Lily complained to other
executives that the memorandum announcing the change in vacation policy was
unclear, and that the employees should be informed that Lily's policy of paying
terminated employees for accrued vacation had also been changed. R7-68
(Cross and McTague Affs.). The participants claim that they were unaware that
they would not get paid for the unused vacation until June 1983 when an
employee retired and did not receive payment for his 1982 vacation. R3-22
(Aldridge Aff.).

16

The district court certified a class of plaintiffs consisting of persons seeking

damages under federal RICO and state law for Lily's alleged improper
deprivation of vacation benefits for the year 1982. The participants alleged that
Lily's change in vacation policy and the manner in which it was communicated
were predicate acts of intentional fraud. Lily moved to dismiss both RICO
claims, and the district court denied Lily's motions. Although the district court
concluded that the Plaintiffs stated a RICO claim, it certified the immediate
appeal to this court of its determination of the pattern requirement and the
pleading of fraud with particularity issues.

II. DISCUSSION
A. ERISA Claim

17

The participants claim that the district court erroneously dismissed their ERISA
claim. In reviewing the district court's dismissal, we will read the facts alleged
in the complaint in the light most favorable to participants. "A court may
dismiss a complaint only if it is clear that no relief could be granted under any
set of facts that could be proved consistent with the allegations." Hishon v.
King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984).
The participants' complaint asserts that they were improperly denied the right to
satisfy conditions after plan termination in order to earn the right to subsidized
early retirement benefits which were provided in the Plan.1

18

The Plan was amended and restated effective January 1, 1985 to comply with
the Retirement Equity Act of 1984, Pub.L. No. 98-397, 98 Stat. 1426 (1984)
("REA"). The Omnibus Budget Reconciliation Act of 1986, Pub.L. No. 99-509,
100 Stat. 1874 (1986), enacted new ERISA Title IV provisions to govern
single-employer plan terminations initiated after January 1, 1986 and before
December 17, 1987. These provisions are called the Single-Employer Pension
Plan Amendments Act of 1986, Pub.L. No. 99-272, 100 Stat. 237 (1986)
("SEPPAA"), and along with REA are applicable to the December 31, 1986
Plan termination. REA amended 26 U.S.C. 411(d)(6) of the Internal Revenue
Code and its twin ERISA section 204(g), 29 U.S.C. 1054(g), to provide that
subsidized early retirement benefits are protected from elimination by a plan
amendment or termination for a participant who satisfies the preamendment
conditions for the subsidy either before or after the amendment or termination.2
The participants argue that this ERISA provision, along with identical language
in Section 8.1 of the Plan, obligates Lily to fund the Plan in order to pay the
participants subsidized early retirement benefits upon their post-termination
satisfaction of the age and service requirements.

19

In its amicus curiae brief, the PBGC disagrees with the participants' position
that ERISA obligates Lily to provide funding for the Plaintiffs' contingent,
subsidized early retirement benefits. As we noted in a recent ERISA decision,
"we owe great deference to the interpretations and regulations of the Pension
Benefit Guaranty Corporation ... which [is an] administrative agenc[y]
responsible for enforcing and interpreting ERISA." Blessitt, 848 F.2d at 1167.

20
Furthermore,
we only must determine whether the agency's interpretation is
reasonable. In making this determination, we "need not conclude that the agency
construction was the only one it permissibly could have adopted to uphold the
construction, or even the reading the court would have reached if the question
initially had arisen in a judicial proceeding ... [A] court may not substitute its own
construction of a statutory provision for a reasonable interpretation made by the
administrator of an agency."

21

Id. at 1168 (quoting Chevron U.S.A., Inc. v. Natural Resources Defense

Council, Inc., 467 U.S. 837, 843 n. 11 and 844, 104 S.Ct. 2778, 2782 n. 11 and
2782, 81 L.Ed.2d 694 (1984).

22

All parties are in agreement that ERISA's Title IV distribution sections do not
provide PBGC insurance for the type of contingent benefits which the
participants seek in this case. See ERISA Section 4044, 29 U.S.C. 1344 (1988).
The participants allege that the obligations imposed upon plan sponsors by
ERISA Title I (particularly, section 204(g), 29 U.S.C. 1054(g)) are not
undercut by the lesser requirements of the PBGC insurance program
incorporated into ERISA Title IV (including section 4044(a), 29 U.S.C.
1344(a)) by SEPPAA. This position is supported by language appearing in a
recent Supreme Court opinion: "It is inconceivable that ... section [4044(a) ]
was designed to modify the carefully crafted provisions of Title I," pertaining to
employees' right to benefits. Mead Corp. v. Tilley, 490 U.S. 714, 723, 109 S.Ct.
2156, 2162, 104 L.Ed.2d 796 (1989). However, even if we follow the example
of the Fourth Circuit in Mead, which on remand held that the plan in that case
permitted a reversion of plan funds to the sponsoring company only after the
payment of unreduced early retirement benefits, it will not affect our
disposition of the present ERISA claim. See Tilley v. Mead Corp., 927 F.2d
756 (4th Cir.1991). In the instant case, the question is not whether and when
plan funds may revert to the sponsor, but rather whether ERISA requires the
sponsor to add funds to the plan upon termination.

23

According to the PBGC's reasonable interpretation of the ERISA sections

applicable to this plan termination, the participants' ERISA claim fails on the
issue of funding. The PBGC asserts that Lily was not required to add additional
funds to the Plan upon termination in order to satisfy the participants'
contingent, forfeitable rights to subsidized early retirement benefits. SEPPAA
and ERISA contain clear instructions on this issue. In a plan terminated under
SEPPAA, the contingent early retirement benefits, those which have not vested
upon plan termination, fall into category six of ERISA section 4044(a)(6), 29
U.S.C. 1344(a)(6). As the PBGC stated in its amicus brief, "the benefits
included within Category 6 are protected, if at all, by section 411(d)(3) of the
Code, 26 U.S.C. 411(d)(3). As a condition of tax qualification under section
401(a) of the Code, 26 U.S.C. 401(a), section 411(d)(3) of the Code requires
plans to provide that 'the rights of all affected employees to benefits accrued to
the date of ... termination ... to the extent funded ... are nonforfeitable.' 26
U.S.C. 411(d)(3) (emphasis added)." PBGC Brief at 13-14. Section 8.2 of the
Plan, consistent with section 411(d)(3), provided that the contingent early
retirement benefits would be provided "to the extent funded."3

24

Although present law would prevent a plan sponsor from limiting its liability
upon its own failure to fund, this restriction was imposed in 1987, and Congress
explicitly provided that it would only apply to plan terminations initiated on or
after October 16, 1987. Omnibus Budget Reconciliation Act of 1987, Pub.L.
No. 100-203, 101 Stat. 1330 (1987) ("1987 Act"). Therefore, the participants'
ERISA claim fails because their right to subsidized early retirement benefits
was limited to the extent to which they were funded,4 and in Lily's case, they
were not funded at all.5

25

The participants argue that Lily is unjustly enriched if it obtains the service of
its employees with an illusory promise of consideration in the form of
subsidized early retirement benefits. It seems unfair that Lily can leave a
promised benefit unfunded, effectively denying the very benefit which it has
promised in return for the participants' service. As Congress did in 1987, we
find these policy arguments persuasive. Nevertheless, this court lacks authority
to require more of Lily than the governing law demands. Therefore, we find
that the district court correctly dismissed the participants' ERISA claim.6

B. RICO Claim
26

The participants allege that Lily committed RICO violations with regard to its
change in vacation policy, commencing with the Tucker memo and followed by
a five-year period in which Lily used the mails to alter corporate financial
records as well as to conceal Lily's fraudulent taking from its employees. Lily
challenges the district court's denial of its motion to dismiss the participants'
RICO claim on the grounds that the applicable statute of limitations bars the
claim, the participants did not adequately allege a pattern of racketeering
activity, the participants failed to plead fraud with particularity, and that RICO
is unconstitutional as applied in this case. In light of H.J. Inc. v. Northwestern
Bell Telephone Co., 492 U.S. 229, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989), we
find that the district court should have dismissed the participants' RICO claim
because the participants have failed to allege a pattern of racketeering pursuant
to 18 U.S.C. 1961(5) (1988).7

27

Congress provided that in order to assert a RICO claim a plaintiff must allege a
"pattern of racketeering activity" which is defined as "at least two acts of
racketeering activity." 18 U.S.C. 1961(5). In 1985, the Supreme Court
suggested that the lower courts focus on the concept of "continuity plus
relationship" in developing standards for evaluating the existence of a "pattern
of racketeering activity." Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 n.
14, 105 S.Ct. 3275, 3285 n. 14, 87 L.Ed.2d 346 (1985). The Court offered
further guidance on the "continuity plus relationship" pattern requirements in

H.J. Inc.:
28
Continuity
is both a closed- and open-ended concept, referring either to a closed
period of repeated conduct, or to past conduct that by its nature projects into the
future with a threat of repetition. It is, in either case, centrally a temporal concept-and particularly so in the RICO context, where what must be continuous, RICO's
predicate acts of offenses, and the relationship these predicates must bear to one
another, are distinct requirements.
29

492 U.S. at 241-42, 109 S.Ct. at 2902 (emphasis in original) (citations omitted).

30

The participants allege that Lily used the mails in June, November and
December, 1982 to alter Lily's financial records and to distribute "memoranda
to implement the defrauding of the plaintiffs' vacation benefits." Aldridge, 741
F.Supp. at 912 (quoting the participants' complaint). The participants further
allege in their complaint that Lily "continued to use the mails at least through
February, 1987, to misrepresent the status of the vacation benefits" in order to
prevent the participants from suing Lily to recover these benefits. Id.

31

We must conclude on this record that Lily's alleged illegal activity was not a
pattern of racketeering of the closed-ended type. We find that it was
accomplished in too short a period of time, approximately six months, in order
to qualify as a pattern of racketeering activity. The Tucker memo, announcing
in relatively clear terms Lily's intent to deprive its employees of their 1982
vacation benefits,8 along with the removal of $1.5 million in liability from
Lily's books, effectuated Lily's purported scheme to deprive the employees of
their vacation benefits. As the Court stated in H.J. Inc., "predicate acts
extending over a few weeks or months and threatening no future criminal
conduct do not satisfy the pattern requirement." 109 S.Ct. at 2901.

32

Addressing whether Lily's activity threatens repetition in the future, we find

that the facts alleged by the participants do not describe a pattern of
racketeering under the open-ended concept. Lily's scheme was to deprive its
employees of their 1982 vacation benefits and, thereby, to remove from their
books $1.5 million in corporate liability. There are no allegations which would
allow us to conclude that Lily's act of taking their employees' vacation time and
subsequent acts to conceal that wrongdoing was a scheme which "projects into
the future with the threat of repetition." H.J. Inc., 492 U.S. at 241, 109 S.Ct. at
2902; see also Olive Can Co. v. Martin, 906 F.2d 1147, 1150-51 (7th Cir.1990)
(holding that defendants' scheme to set up a sham corporation in order to divert
funds from their original corporation and its creditors to the sham corporation
to benefit defendants was close-ended activity over a short period of time, with

a natural ending and no threat of ongoing activity which did not satisfy the
pattern of racketeering activity requirement under RICO). Lily's acts after the
initial taking were allegedly performed in order to conceal their wrongdoing;
they did not threaten future harm or a repetition of their illegal acts, nor did they
impart any new injury upon the employees. Therefore, we find that the district
court erred in its denial of Lily's motion to dismiss the participants' RICO
claim.
III. CONCLUSION
33

For the reasons stated, we hold that the district court's dismissal of the
participants' ERISA claim is AFFIRMED, and the district court's denial of
Lily's motion to dismiss the participants' RICO claim is REVERSED.

Honorable Walter E. Hoffman, Senior U.S. District Judge for the Eastern
District of Virginia, sitting by designation

The district court held that the participants' rights to subsidized early retirement
benefits were not created by section 8.1 of the Lily-Tulip Inc. pension plan,
which contained the same language as 29 U.S.C. 1054(g) (1988), because
those provisions treated early retirement benefits as accrued only for the
purpose of an amendment to a plan as opposed to a termination. We hold that
the district court clearly erred in interpreting section 8.1 and 29 U.S.C.
1054(g) as not applying to plan terminations. The legislative history, Internal
Revenue Rulings, and our recent case Blessitt v. Retirement Plan for
Employees of Dixie Engine Co., 848 F.2d 1164 (11th Cir.1988) (en banc)
clearly indicate that this provision applies to plan terminations. See PBGC Brief
at 7-8. Although we disagree with the district court in as much as we deem
these provisions applicable, we affirm the dismissal on the analysis that
follows

ERISA provides that "a plan amendment which has the effect of eliminating ...
a retirement type subsidy ... shall be treated as reducing accrued benefits." 29
U.S.C. 1054(g). The congressional purpose of protecting unvested, contingent,
subsidized early retirement benefits is clearly evinced in the REA legislative
history which provides that "a plan is not to be considered to have satisfied all
of its liabilities ... until it has provided for the payment of contingent liabilities
with respect to a participant who, after the date of the termination of a plan,
meets the requirements for a subsidized benefit." S.Rep. No. 575, 98th Cong.,
2d Sess. (1984), reprinted in 1984 U.S.C.C.A.N. 2547, 2577

Plan section 8.2(d)(8) states that "the Accrued Benefit of each affected
Participant, to the extent funded, shall become fully vested as of the date of
termination."

Participants cite Treas.Reg. 1.411(d)-4, Q & A -6 (1988) which became

effective January 30, 1986 as support for their proposition that the availability
of 411(d)(6) benefits cannot be conditioned on funding because the level of
funding is in the discretion of the employer. This regulation states in relevant
part that "the availability of section 411(d)(6) protected benefits in a plan may
not be conditioned on a determination with respect to the level of the plan's
funded status, because the amount of funding is within the discretion of the
employer." Id. Despite this language, we are convinced by the legislative
history of the Omnibus Budget Reconciliation Act of 1987 that Congress
actually modified the law in order to require sponsors to fund contingent early
retirement benefits upon plan terminations. If this was the state of the law prior
to 1987, the changes effected by the 1987 Act would be superfluous and the
mandate that the act not be applied retroactively would be nonsensical
In explaining its reasons for the 1987 amendments to ERISA, the Senate
Finance Committee stated that "[u]nder present law, plan participants may lose
their right to pension benefits if a plan is terminated with assets less than
termination liability because the employer is not fully liable for unfunded
benefits and because the PBGC has no liability for benefits in excess of
guaranteed benefits." Staff of Senate Comm. on Finance, 100th Cong., 1st
Sess., Explanation of Provisions Approved by the Committee on December 3,
1987 for Inclusion in Leadership Deficit Reduction Amendment 189 (Comm.
Print 1987). In passing the 1987 Act, Congress increased an employer's liability
to plan participants--without regard to the level of plan assets--from "benefit
commitments" to the full amount of "termination liability," i.e., fixed and
contingent liabilities. Prior to the 1987 Act, the law allowed that "[a] plan may
be terminated ... only if it has sufficient assets to pay all benefit commitments
under the plan," but expressly did not require that a plan have sufficient assets
to cover the full termination liability (including contingent liabilities).
H.R.Conf.Rep. No. 495, 100th Cong., 1st Sess., pt. 1, at 879 (1987), reprinted
in 1987 U.S.C.C.A.N. 2313-1625.

Hence, the question of whether or not these benefits are characterized as

"accrued" is irrelevant to our determination of whether the district court
properly granted Lily's motion to dismiss the ERISA claims

We reject the participants' argument that Lily's failure to provide plan assets for
the contingent early retirement benefits was a violation of the exclusive benefit
rule of ERISA section 403(c)(1), 29 U.S.C. 1103(c)(1) (1988). The rule

provides in relevant part that "the assets of a plan shall never inure to the
benefit of any employer and shall be held for the exclusive purpose of
providing benefits ... and defraying reasonable expenses of administering the
plan." Id. The exclusive benefit rule can only be violated if there has been a
removal of plan assets for the benefit of the plan sponsor or anyone other than
the plan participants. See Holliday v. Xerox Corp., 732 F.2d 548, 551-52 (6th
Cir.), cert. denied, 469 U.S. 917, 105 S.Ct. 294, 83 L.Ed.2d 229 (1984). That
the participants' benefits were underfunded does not in itself mean that there
was a removal of plan assets which inured to the benefit of the employer
7

Therefore, we find it unnecessary to consider Lily's challenge to the district

court's other conclusions upholding the participants' RICO claim

The participants argue that they reasonably misunderstood the Tucker memo to
mean that they would lose the opportunity to take their 1982 vacation time, but
that they would be compensated for the value of that time upon termination or
retirement. Even assuming that the participants reasonably misinterpreted the
Tucker memo, they were indisputably informed of the scheme at least when the
first employee retired in June 1983 and was refused compensation for his
accrued vacation benefits. Hence, even accepting the participants' version of the
facts, we still find that Lily's illegal activities were accomplished in too brief a
period of time in order to qualify as a pattern of racketeering activity