Antitrust Law Daily Wrap Up, RICO—SDCal: Annuity Purchasers May Continue to Pursue Class Claims Against National Western Life Insurance, (Feb 21, 2013)

By Tobias J. Gillett, J.D., LLM.

Changes in class action litigation law, including the Supreme Court’s 2011 decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, and in the evidence in the case did not require decertification of classes of annuity purchasers asserting Racketeer Influenced and Corrupt Organizations (RICO) Act claims against an insurance company, the federal district court in San Diego has ruled (In Re: National Western Life Insurance Deferred Annuities Litigation, February 14, 2013, Curiel, G.). The purchasers’ claims presented the common question of whether the insurance company’s sales materials contained misrepresentations, and the purchasers’ reliance on the company’s alleged misrepresentations could be inferred from the “common sense” explanation of their behavior in purchasing annuities allegedly far less valuable than comparable products, combined with evidence of the insurance company’s alleged misrepresentations, the court concluded.

A class of individuals age sixty-five and older who purchased certain deferred annuity investment products from National Western Life Insurance Co. filed suit against the company, claiming that it had “falsely and deceptively represented they would receive a premium bonus, added to their account values, and that the investors would not be charged any sales charges or fees.” Instead, the purchasers asserted, the company “recoup[ed] the bonus, or a portion thereof, by crediting the annuities with less interest than if the annuities did not have a bonus,” and charged sales fees by paying sales commissions to its agents.

In a previous decision prior to transfer of the case to the present court, a district court had certified a national RICO class and a California class of annuity purchasers. In that decision, the court concluded that common questions of causation predominated over individual ones because the purchasers had “established causation by showing reliance on the alleged misrepresentations.” The court determined that a finding of such reliance was “logical” because “consumers are nearly certain to rely on prominent (and prominently marketed) features of a product which they purchase,” and that the inference of reliance could be made on a class-wide basis even though the alleged misrepresentations were found in “written materials about the contract” rather than the contract itself.

In that decision, the court concluded that certification could be based on the “common sense” explanation for the purchasers’ conduct in buying annuity products allegedly far less valuable than other comparable products, combined with the evidence of National Western’s written representations. Moreover, damages could be provable on a class-wide basis. The court also rejected National Western’s argument that none of the named plaintiffs had relied on the alleged misrepresentations, “conclud[ing] that any ambiguity in the named plaintiffs’ deposition testimony was overcome by their subsequent declarations and by their attestations that they read and understood the written materials containing the alleged misrepresentations.” The court “could not find that none of the Named Plaintiffs relied on the alleged misrepresentations.”

In the present case, National Western argued that subsequent “developments in the relevant law and in the evidence in this case,” including the Supreme Court’s 2011 decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, “demonstrate[d] that reliance and causation [could not] be established by common proof,” and therefore that the court should decertify the classes.

Commonality Requirement. The court explained that Federal Rule of Civil Procedure 23(a)(3) requires plaintiffs “to show that there are questions of law or fact common to the class,” but that under Dukes “even a single common question” would satisfy the requirement. The court determined that, whether or not establishing reliance would “require individualized determinations,” the case still presented at least the common question “whether National Western’s sales materials included false representations.” Therefore, the purchasers’ claims still satisfied Rule 23(a)(3)’s commonality requirement.

Reliance. National Western next contended that the purchasers had to demonstrate that they had relied on the alleged misrepresentations to establish causation for their RICO claims, and that reliance could not be inferred because National Western had obtained randomly taken deposition testimony from members of the class that “rebut[ted] any inference of reliance.” The “common sense” inference of reliance applied only when no other explanations could account for the claimed injury, National Western argued, and here other reasons for the purchasers’ acquisition of National Western’s annuities, such as “safety, growth of their funds, tax deferral and estate planning,” could explain their actions.

The court concluded that the purchasers could establish causation class-wide by demonstrating “(1) the prominent nature of the alleged misrepresentations, (2) the fact that seniors were required to sign an acknowledgment that they read and understood the materials containing the alleged misrepresentations, and (3) the availability of class-wide proof connecting the alleged misrepresentations to diminished returns.”

The court observed that other courts had certified classes based on a “common sense” connection between the defendants’ misrepresentations and the plaintiffs’ actions. Although the court in another district court decision had refused to apply a “common sense” inference to a case involving representations in sales materials for annuities, the plaintiffs in that case lacked the “evidence of uniform misrepresentations,” and of the class members having received and read the materials, present in this case.

Moreover, the inference of reliance could not be rebutted by National Western’s randomly taken deposition testimony. The court concluded that “a classwide presumption of reliance can only be rebutted by evidence that can be properly generalized to the whole class.” Since National Western had not “presented evidence that would permit a finding that none of the Named Plaintiffs relied on the alleged misrepresentations,” its evidence could not be “generalized to the whole class,” in the court’s view. Therefore, the court denied National Western’s motion to decertify the class.

The case is No. 3:05-cv-1018-GPC-WVG.

Attorneys: Andrew S. Friedman (Bonnett, Fairbourn, Friedman & Balint, PC) for Marie N. Sweeney. Kent Russel Keller (Barger and Wolen LLP) for National Western Life Insurance Co.

Companies: National Western Life Insurance Co.

Cases: RICO CaliforniaNews