The United States District Court for the Northern District of Illinois recently refused to certify a proposed class in a dispute against an insurance company selling annuities to seniors because individualized inquiries into the company’s sales presentations precluded satisfaction of the predominance criterion required for certification.  In Rowe et al. v. Bankers Life and Casualty Company et al., Case No. 1:09-cv-00491, the plaintiff asserted that Bankers conspired with its independent sales agents to induce seniors to buy deferred annuities, investments which were allegedly unsuitable for anyone over sixty-five years old because the deferred payments begin too late for the purchaser to benefit. 

The plaintiff brought the action on behalf of herself and two putative classes: a nationwide class relating to the federal Racketeer Influenced and Corrupt Organizations (“RICO”) Act and a sub-class of California residents relating to state business and senior protection laws.  The classes included all persons in the United States and all California residents sixty-five years of age or older who purchased one or more of Bankers’ equity-indexed deferred annuities. 

To show common evidence of a scheme to defraud as required under RICO, the plaintiff relied on what she claimed was Bankers’ “common course of conduct” in making uniform material misrepresentations to members of the nationwide class.  This common course of conduct was allegedly implemented by Bankers’ independent sales agents who used the company’s approved sales literature and made oral misrepresentations in their pre-scripted sales presentations.  The plaintiff argued that class-wide reliance and causation could be inferred based on the “clear and logical connection” between Bankers’ uniform conduct and the injury suffered by the purchasers.  The argument was that but-for these uniform misrepresentations, no rational senior would have purchased the deferred annuities.   

The primary arguments against certification were that individualized inquiries were necessary both to determine whether the company engaged in racketeering activity and whether the alleged RICO violation was the cause of any injury suffered.  The court found these arguments persuasive, and noted favorably that each of Bankers’ 4,600 independent sales agents had the discretion to conduct their sales presentations as they saw fit.  Citing Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2554 (2011), the court stated that Bankers’ policy of allowing its agents this discretion “is just the opposite of a uniform practice that would provide the commonality needed for a class action.”  The court ruled that plaintiff’s allegation of a “common course of conduct” is “not enough to establish predominance on a RICO claim based on mail and wire fraud.”  The court also found no inference of causation could be sustained on a class-wide basis where there was no evidence that each class member relied on the same misrepresentation when deciding whether to purchase an annuity. Key to the court’s decision was an earlier decision holding inadmissible certain expert testimony proffered by the plaintiff, which had included the opinion that the products at issue would not have been suitable for any person over age 65, regardless of individual circumstances.  Without this evidence, the plaintiff was left with no evidence to support the inference that the alleged misrepresentations caused injury to all class members.

U.S. District Judge Robert M. Dow Jr. left open the issue of whether certification of the California sub-class was proper because the evidence showed that Bankers might have sent the same sales literature to residents throughout the state.  However, where the named plaintiff could not demonstrate that potential members of the nationwide class received uniform written or oral misrepresentations — or that these misrepresentations caused the alleged injury — the plaintiff could not show the predominance necessary to certify the nationwide class. 

Banker’s Life is good persuasive authority for anyone defending a consumer fraud class action in a common fact scenario; that is, where the alleged fraud might have been relied upon by and caused injury to some members of the would-be class but almost certainly was not relied upon by and did not cause injury to all of the class members.  As the court reasoned, certification may be appropriate where the inference can be drawn that all class members relied on the fraud.  However, it is not appropriate where the only inference that can be drawn is that some indeterminate subset of class members relied on the alleged fraud.  It is also an important case to consider in dealing with pre-certification Daubert issues.