Rowe et al v. Bankers Life and Casualty Company et al

Filing 189

MEMORANDUM Opinion and Order Signed by the Honorable Robert M. Dow, Jr on 3/29/2012. Mailed notice(tbk, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
ESTELLA ROWE, on behalf of herself
and all others similarly situated,
Plaintiffs,
v.
BANKERS LIFE AND CASUALTY
COMPANY and BANKERS LIFE
INSURANCE COMPANY OF ILLINOIS,
Defendants.

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Case No. 09-cv-491
Judge Robert M. Dow, Jr.

MEMORANDUM OPINION AND ORDER
Plaintiff Estella Rowe sued Bankers Life and Casualty Company and its former affiliate,
Bankers Life Insurance Company of Illinois1 (collectively, “Bankers”), on behalf of herself and
all others similarly situated. Rowe alleges that Bankers conspired with its independent sales
agents and others to induce elderly consumers to buy equity-indexed deferred annuities, which,
according to Rowe, are unsuitable investment vehicles for anyone over sixty-five years old.
Before the Court is Rowe’s motion for class certification and to appoint class counsel [94]. For
the reasons stated below, the Court denies Rowe’s motion – although the denial is without
prejudice to the filing of a new motion to certify a California subclass.

1

In their answer, the Defendants state that Bankers Life Insurance Company of Illinois was an affiliate of
Bankers Life and Casualty Company until 2007, when Bankers Life and Casualty Company assumed the
obligations, debts, and liabilities of Bankers Life Insurance Company of Illinois. (Answer to 2d Am.
Compl. ¶¶ 11-12.)

I.

Background
A.

Class Allegations

Bankers is an Illinois corporation that sells life insurance, long-term care insurance, and
annuities to senior citizens and others in California, Illinois, and other states. An annuity is a
type of insurance product. When purchasing an annuity, a consumer agrees to make an upfront
lump-sum payment (a premium), or a series of payments, to the insurance company. In return,
the insurance company agrees to make payments to the purchaser over a period of time. With a
deferred annuity, the product at issue here, the insurance company does not begin making
payments immediately upon receipt of the premium. During this period, the premium grows on
a tax-deferred basis. In this sense, a deferred annuity is a savings vehicle, not an immediate
income stream.
There are different types of deferred annuities. A “fixed” deferred annuity is an annuity
in which the insurance company pays the consumer a guaranteed interest rate on his or her
premium payments for a set period of time. An “equity-indexed” deferred annuity, on the other
hand, typically guarantees a lower rate of interest on the consumer’s premium payments, but is
also tied to a market index. If the market index goes up, the rate of interest and, thus, the value
of the annuity also will increase, although not by the same percentage as the rise in the market
index. Bankers’ equity-indexed deferred annuities are linked to the S&P 500. The “cost” of a
deferred annuity is limited liquidity, or, as Bankers puts it, “full liquidity at a price.” (Resp. at
6.)

A purchaser of one of Bankers’ equity-indexed deferred annuities, for example, may

withdraw a small percentage of her money each year after the first year without a penalty, but
incurs a “surrender charge” if she needs to withdraw a larger amount before the maturity date.

2

Rowe alleges that Bankers, its independent sales agents, UVEST Financial Services
Group, Inc., and 40/86 Advisors, Inc. constitute an “enterprise” as defined in 18 U.S.C. §
1961(4), over which Bankers maintains systemic control.

Rowe contends that Bankers

“develops and underwrites the [a]nnuities, and develops standardized marketing materials[,]”
while UVEST “facilitates replacement transactions[,]” 40/86 “provides investment advice and
services” for the funds that Bankers takes in, and the independent sales agents “market and sell
the [a]nnuities.” (2d Am. Compl. ¶ 139.) Rowe alleges that the structure of the enterprise is
critical to Bankers’ ability to market and sell its equity-indexed deferred annuities to seniors for
whom such annuities are unsuitable.
Most important to the scheme, Rowe contends, is Bankers’ use of independent sales
agents to sell its annuities. By using independent contractors instead of employees, Bankers is
able to “evade its responsibilities and obligations by contending that it lacks control or oversight
over the actions of its [a]gents.” (2d Am. Compl. ¶ 145.) Bankers markets and sells its annuity
products through a network of more than 4,600 independent sales agents located in over 200
nationwide sales offices. According to Rowe, using standardized recruiting techniques, Bankers
hires sales agents without regard to their skills or ethics. She contends that despite the fact that
its annuities are complex products, Bankers does not require that its prospective sales agents
have prior annuity sales experience. Further, once Bankers hires sales agents, Rowe alleges, it
does not require them to complete any substantive, written training on the features of its
annuities or the suitability of such products for seniors.2 Rowe also asserts that despite its large
network of independent sales agents, Bankers does not have a nationwide program to determine

2

Although Rowe acknowledges that some annuity training is available, she contends that it is not
mandatory.

3

when an annuity is suitable for a senior.

Nor does Bankers supervise or review the sale

processes of its independent agents.
What Bankers does require, according to Rowe, is sales technique training. Rowe alleges
that Bankers teaches its sales agents “aggressive, predatory sales practices designed to threaten,
intimidate and scare seniors,” (2d Am. Compl. ¶ 32), and that it provides lavish incentives,
bonuses, and commissions to its sales agents that successfully target seniors for annuities,
regardless of their suitability. Rowe also contends that Bankers instructs its agents to use
marketing and sales materials that contain omissions and misrepresentations. According to
Rowe, Bankers’ sales materials do not disclose the fact that (1) its annuities contain loads and
other expenses; (2) it uses a cadre of untrained, unsupervised, and inexperienced agents to sell its
annuities; (3) its annuities are poor-performing assets; and (4) deferred annuities in general are
illiquid and ill-suited for seniors.
Rowe asserts that in order to effectuate the scheme described above, Bankers and its coconspirators have committed numerous acts indictable as mail or wire fraud, in violation of 18
U.S.C. §§ 1341 and 1343, respectively. Rowe points to a number of annuity-related forms that
she claims contain material omissions and that, “on information and belief,” Bankers sent to each
of its customers nationwide. “[M]ost egregious” among them, according to Rowe, is a statement
in the Annuity Disclosure Form that specifically states that Bankers does not charge for any
loading. (2d Am. Compl. ¶ 164.) Rowe contends that despite this statement, there is a loading
expense charge inherent in its annuities.
B.

Rowe’s Allegations

Rowe asserts that in July of 2007, she and her late-husband, Samuel Rowe (“the
Rowes”), both of whom were over sixty-five years old at the time, fell victim to Bankers’

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scheme.

According to Rowe, two sales agents working for Bankers made an unsolicited

telephone call to the Rowes to arrange an in-home meeting to discuss the Rowes’ long-term care
insurance. The Rowes agreed to meet with the agents. During their meeting, the agents learned
that the Rowes had a variable annuity with another company that had a cash value of
approximately $105,000.00. The agents recommended that the Rowes liquidate that annuity and
purchase one of Bankers’ annuities instead and, at their second in-person meeting with the
agents, the Rowes agreed to do so. The Rowes purchased the annuity with a lump sum payment
of $101,985.92.
The equity-indexed deferred annuity that the Rowes purchased started with a ten percent
surrender charge. It also had a maturity date of July 16, 2025, meaning that the Rowes would
not receive any payment or return on the annuity until Samuel Rowe was ninety-nine years old.
In December of 2007, however, because the Rowes needed money, they surrendered their
annuity and incurred a charge of more than $10,198.59. Rowe claims that the sales agents never
discussed with the Rowes the relative strengths and weaknesses of the Rowes’ existing annuity
compared to the annuity that they bought from Bankers. Nor did the agents discuss the tax
implications of Bankers’ annuity. According to Rowe, had she and her husband known all of
“the undisclosed and concealed risks and infirmities of their investment,” they would not have
purchased one of Bankers’ annuities. (2d Am. Compl. ¶¶ 133-35.)
Believing that through the pattern of alleged racketeering activities described above,
Bankers has violated and conspired to violate §§ 1962(c) and 1962(d) of RICO, Rowe sued
Bankers on behalf of herself and all others similarly situated. Rowe also alleges that Bankers has
violated the California Elder Abuse Code, Cal. Welfare & Inst. Code §§ 15600, et seq.; the
California False and Misleading Advertising Act, Cal. Bus. & Prof. Code §§ 17200, et seq.; and

5

the California Unfair Trade Practices Act, Cal. Bus. & Prof. Code §§ 17500, et seq.; has
breached and aided and abetted the breach of fiduciary duties owed to the potential class
members; and has been unjustly enriched. In her second amended complaint, Rowe seeks
injunctive relief; disgorgement and restitution; compensatory, special, and general damages;
punitive and exemplary damages; treble and double damages; the imposition of a constructive
trust; and reasonable attorneys fees and costs.
Now before the Court is Rowe’s motion to certify two classes pursuant to Federal Rule of
Civil Procedure 23. The first is a nationwide class relating to Rowe’s RICO claims (“the
nationwide class”):
All persons in the United States [who], while 65 years of age or older, purchased
one or more Bankers Life and Casualty Company equity-indexed deferred
annuities, form numbers LA-07A, LA-07C, or LA-07G, after January 1, 2004.
The second class Rowe seeks to certify is a sub-class of California residents that relates to
Rowe’s California statutory and common law claims (“the California subclass”):
All California residents [who], while 65 years of age or older, purchased one or
more Bankers Life and Casualty Company equity-indexed deferred annuities,
form numbers LA-07A, LA-07C, or LA-07G, after January 1, 2004.
Rowe also requests that the Court appoint Rowe’s counsel as counsel for the two classes.
Rowe argues that class certification is appropriate in this case because (1) all of the
potential members of the nationwide class (and thus, the California subclass) were subjected to
the same marketing and sales materials that omitted and misrepresented material facts, and (2)
Bankers failed to establish and maintain a system to ensure that each annuity was suitable for
each customer.

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II.

Procedural History
This Court previously ruled on several motions that are directly related to Rowe’s motion

to certify. In an order dated September 30, 2011 [186], the Court granted in part and denied in
part Rowe’s request for judicial notice [93], granted in part and denied in part without prejudice
Bankers’ motion to exclude the testimony of Rowe’s expert [138], and granted in part Bankers’
motion for leave to file a sur-reply to Rowe’s motion to certify the class [173].
As an initial matter, the Court found that it was compelled by American Honda Motor
Co. v. Allen, 600 F.3d 813, 815-16 (7th Cir. 2010), to address Bankers’ motion to exclude the
testimony of Rowe’s expert, Thomas Bakos, at this juncture because at least part of Bakos’
testimony was “critical to class certification.” Specifically, the Court concluded that Bakos’
view as to the suitability of equity-indexed deferred annuities for people over the age of sixtyfive figured centrally in its class certification analysis. [186 at 2.] The Court then concluded that
Bakos’ opinion number five – an absolutist view that all equity-indexed deferred annuities are
always unsuitable for all persons over the age of sixty-five – was unsupported by his
methodology and data. [186 at 5.] Accordingly, for purposes of its motion to certify, Rowe may
not rely on Bakos’ opinion number five to support her theory that Bakers’ equity-indexed
deferred annuities are “flawed investments that no senior should be sold” and that “no rational
person would purchase one of Bankers’ annuities.” (Mot. to Cert. Class at 12, 22.) The Court
denied without prejudice Bankers’ motion to exclude the remainder of Bakos’ report.
The Court also granted in part and denied in part Rowe’s request that the Court take
judicial notice of (1) an appendix filed by a plaintiff in another Northern District of Illinois case
to which Bankers was a party; (2) Bankers’ answer in that same Northern District of Illinois
case; (3) the National Association of Insurance Commissioners’ Suitability in Annuity

7

Transactions Model Regulations; and (4) a reproduction of a CBS Inside Edition documentary
investigative report of Defendant’s sales practices. The Court denied outright Rowe’s request as
to the CBS documentary. And while the Court agreed to take judicial notice of the fact that
Bankers filed the documents in the previous case, Bankers’ position in that case, and the fact that
the National Association of Insurance Commissioners have model regulations as to the suitability
of annuity transactions, the Court declined to conclude that anything within those documents
establishes anything as a matter of fact in this case. [186 at 6.]
III.

Legal Standard
To be certified as a class action, a proposed class must satisfy the requirements of Federal

Rule of Civil Procedure 23(a), as well as one of the three alternative requirements in Rule 23(b).
Messner v. Northshore University HealthSystem, 669 F.3d 802, 811 (7th Cir. 2012). “As a
threshold matter, a proposed class must always meet the Rule 23(a) requirements of numerosity,
typicality, commonality, and adequacy of representation.”

Id.

Rule 23(b) sets forth four

circumstances under which a class action may be maintained, two of which Rowe relies on here,
Rule 23(b)(2) and Rule 23(b)(3). See Fed. R. Civ. P. 23(b). Rule 23(b)(2) permits class
certification if “the party opposing the class has acted or refused to act on grounds that apply
generally to the class, so that final injunctive relief or corresponding declaratory relief is
appropriate respecting the class as a whole.” Rule 23(b)(3) permits class certification if (1)
questions of law or fact common to the members of the proposed class predominate over
questions affecting only individual class members; and (2) a class action is superior to other
available methods of resolving the controversy. Messner, 669 F.3d at 811.
Plaintiffs bear the burden of proving that they are entitled to class certification. Oshana
v. Coca-Cola Co., 472 F.3d 506, 513 (7th Cir. 2006). Although class certification proceedings

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are not “a dress rehearsal for the trial on the merits,” Messner, 669 F.3d at 811, for purposes of
deciding the certification question, the Court does not presume that all well-pleaded allegations
are true. Szabo v. Bridgeport Machs., Inc., 249 F.3d 672, 676-77 (7th Cir. 2001). Rather, before
it allows a case to proceed as a class action, the Court “should make whatever factual and legal
inquiries are necessary under Rule 23.” Id. at 676. “A party seeking class certification must
affirmatively demonstrate his compliance with th[e] Rule – that is, he must be prepared to prove
that there are in fact sufficiently numerous parties, common questions of law or fact, etc.” WalMart Stores v. Dukes, 131 S. Ct. 2541, 2551 (2011). But the showing need not be “to a degree of
absolute certainty.

It is sufficient if each disputed requirement has been proven by a

preponderance of evidence.” Messner, 669 F.3d at 811. The Court exercises broad discretion in
determining whether class certification is appropriate given the particular facts of the case.
Keele v. Wexler, 149 F.3d 589, 592 (7th Cir. 1998).
IV.

Analysis
A.

Nationwide Class

Rowe first seeks certification of a nationwide class of senior citizens to prosecute her
RICO claims. Rowe argues that the nationwide class satisfies the threshold requirements of Rule
23(a) and seeks certification of that class pursuant to Rule 23(b)(2) or Rule 23(b)(3). Bankers
does not contest the fact that the nationwide class meets the requirements of Rule 23(a). Instead,
it argues that Rowe has not satisfied the requirements of either 23(b)(2) or 23(b)(3). Although
the Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes has made the question of
whether the nationwide class satisfies the commonality requirement in Rule 23(a) a more

9

challenging one,3 a thorough analysis of that issue is not necessary here because, as explained
below, Rowe has not met the requirements of either Rule 23(b)(2) or 23(b)(3).
1.

Rule 23(b)(2)

Rowe first contends that the nationwide class satisfies the requirements of Rule 23(b)(2).
Rule 23(b)(2) allows for certification of a class when “the party opposing the class has acted or
refused to act on grounds that apply generally to the class, so that final injunctive relief is
appropriate respecting the class as a whole.” As the Supreme Court recently made clear, the rule
“applies only when a single injunction or declaratory judgment would provide relief to each
member of the class,” and “does not authorize class certification when each class member would
be entitled to an individualized award of money damages.” Dukes, 131 S. Ct. at 2557. Here,
Rowe argues that the proposed class qualifies for Rule 23(b)(2) certification because Bankers has
acted or refused to act on grounds that apply generally to all of the proposed members of the
nationwide class through the use of uniform illicit sales practices and misleading sales
representations and documents.
Rowe does not contend, nor can she, that a single order granting declaratory or injunctive
relief would end this case. Along with injunctive relief, Rowe also demands individual monetary
relief for each member of the nationwide class, as well as punitive, treble, and statutory damages
for Bankers’ alleged violations of RICO and California law.

This would not defeat class

certification under Rule 23(b)(2) if Rowe’s request for monetary relief was “merely incidental to
the grant of an injunction or declaratory relief: ‘incidental’ in the sense of requiring only a
mechanical computation.” Randall v. Rolls-Royce Corp., 637 F.3d 818, 825 (7th Cir. 2011).
3

See, e.g., Pennsylvania Chiropractic Ass’n v. Blue Cross Blue Shield Ass’n, No. 09 C 5619, 2011 WL
6819081, at *9 n.3 (N.D. Ill. Dec. 28, 2011) (“The Supreme Court’s decision in Wal-Mart Stores, Inc. v.
Dukes suggests that plaintiffs’ failure to establish that all of the defendants engaged in a common course
of misconduct may also defeat their ability to satisfy the less demanding commonality requirement of
Rule 23(a).”).

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The Court is not persuaded, however, that individual monetary relief is merely incidental here.
In fact, the Court questions whether Rowe’s inclusion of injunctive claims was simply a creative
“effort to make [her] case more amenable to class certification * * *.” See Kartman v. State
Farm Mut. Auto. Ins. Co., 634 F.3d 883, 889 (7th Cir. 2011) (suggesting that the plaintiff called
for an injunction to give itself “a fallback position on the class-certification question”).
Regardless, because “individualized monetary claims belong in Rule 23(b)(3),” Dukes, 131 S.
Ct. at 2558, certification under Rule 23(b)(2) is not appropriate here.
2.

Rule 23(b)(3)

Next, Rowe argues that the nationwide class satisfies the requirements set forth in Rule
23(b)(3). According to Rowe, certification is appropriate here because Bankers subjected all of
the potential nationwide class members to the same unfair treatment; specifically, Bankers’
“common course of conduct in making uniform material omissions,” (Reply at 3), and its failure
to maintain a system to ensure suitability. As set forth above, Rule 23(b)(3) permits class
certification where common questions of law and fact predominate over individualized
questions, and where a class action is superior to other available methods of resolving the
controversy. Bankers focuses its challenge on the issue of predominance.
a.

Predominance

The predominance inquiry tests whether the proposed class is “sufficiently cohesive to
warrant adjudication by representation.” Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 623
(1997)).

Although related to the commonality requirement found in Rule 23(a), “the

predominance criterion is far more demanding.” Id. at 624. A party meets the predominance
requirement if she can show that “‘common questions represent a significant aspect of [a] case
and * * * can be resolved for all members of [a] class in a single adjudication.’” Messner, 669

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F.3d at 815 (quoting 7AA Wright & Miller, FEDERAL PRACTICE & PROCEDURE § 1778 (3d ed.
2011)). “‘If, to make a prima facie showing on a given question, the members of a proposed
class will need to present evidence that varies from member to member, then it is an individual
question. If the same evidence will suffice for each member to make a prima facie showing, then
it becomes a common question.’” Messner, 669 F.3d at 815 (quoting Blades v. Monsanto Co.,
400 F.3d 562, 566 (8th Cir. 2005)).
In determining whether questions of law or fact common to potential class members
predominate over individual questions, the Court begins with the elements of the underlying
cause of action. Erica P. John Fund, Inc. v. Halliburton Co., --- U.S. ---, 131 S. Ct. 2179, 2185
(2011); Messner, 669 F.3d at 815. Section 1964(c) provides a private right of action to “[a]ny
person injured in his business or property by reason of a violation of section 1962 * * *.” Here,
Rowe alleges that Bankers violated both §§ 1962(c) and 1962(d) (conspiracy to violate §
1962(c)). To state a claim for relief under § 1962(c), Rowe must allege “‘(1) conduct (2) of an
enterprise (3) through a pattern of racketeering activity.’” DeGuelle v. Camilli, 664 F.3d 192,
199 (7th Cir. 2011) (quoting United States v. Shamah, 624 F.3d 449, 454 (7th Cir. 2010)). To
have standing to sue, Rowe must also establish that she and the other potential class members (1)
suffered injury to their business or property, and (2) that Bankers’ RICO violation was both the
“but for” and proximate cause of that injury. See DeGuelle 664 F.3d at 199.
Bankers concedes that there are some common issues of law and fact as to Rowe’s RICO
claims, and the Court agrees. The questions of whether Bankers participated in the “conduct” of
the enterprise’s affairs, whether Bankers and its alleged coconspirators constitute an “enterprise,”
and whether any alleged racketeering activity amounted to a “pattern” of activity are all common
to the class and could be proven with class-wide evidence. Bankers argues, however, that a

12

determination of (1) whether Bankers engaged in racketeering activity, and (2) whether Bankers’
alleged RICO violation was the “but for” and proximate cause of any injury suffered will require
individualized inquiries for each potential member of the nationwide class.4
i.

Racketeering Activity

Rowe alleges that Bankers has violated §§ 1962(c) and 1962(d) by conducting its affairs
through a pattern of racketeering activity involving numerous acts of mail or wire fraud, in
violation of 18 U.S.C. §§ 1341 and 1343. To allege a violation of the mail or wire fraud statutes,
a plaintiff must show that (1) “the defendant knowingly devised or participated in a scheme to
defraud or obtain money or property by means of materially false pretenses, representations,
promises, or omissions”; (2) “the defendant did so knowingly and with the intent to defraud”;
and (3) “the defendant used the United States mail [or wires] as a carrier.” United States v.
Thyfault, 579 F.3d 748, 751 (7th Cir. 2009) (citing 18 U.S.C. § 1341).
Rowe

contends

that

Bankers

implemented

its

scheme

through

standardized

misrepresentations and omissions as to the essential characteristics and true costs of its equityindexed deferred annuities. Although Rowe broadly claims that Bankers “required its sales
agents to strictly adhere to written sales materials and contracts, while simultaneously failing to
give the agents adequate product training in order to understand the annuities they were selling,”
(Mot to Cert. Class at 21), when pressed to provide common evidence of a scheme to defraud,
Rowe relies primarily on what she claims is Bankers’ “common course of conduct in making
uniform material omissions” to the potential members of the nationwide class. (Reply at 3).
Specifically, Rowe points to the “Annuity Disclosure Form” (“disclosure form”), which she and

4

Bankers also questions whether the issue of damages could be established through class-wide proof.
Because individualized questions of damages will not defeat class certification, however, and because
Rowe cannot meet the predominance requirement on other grounds, the Court need not reach that issue.

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her husband received – and her husband signed. Among other things, the disclosure form
explains what a loading charge is (“a sales or an administrative charge which is deducted from
your premium or your policy’s Cash Value”), and then explicitly states that Bankers does not
charge for any loading. (2d Am. Compl., Ex. 49.) Rowe asserts that (1) this form was presented
to each potential member of the nationwide class, and (2) the form is false and misleading
because Bankers’ annuities actually do have a built-in loading charge. Rowe contends that
Bankers stopped disclosing this material fact in 2005 because it had been impairing its ability to
sell annuities.
The problem with Rowe’s argument is that she has not identified any uniform
misrepresentations or omissions made to each potential member of the nationwide class. First,
Rowe asserts “on information and belief” that Bankers mailed the disclosure form to each
potential member of the nationwide class. (2d Am. Compl. ¶ 171(c).) But that is not enough to
affirmatively demonstrate, by a preponderance of the evidence, that every potential member of
the nationwide class received this document. See Dukes, 131 S. Ct. at 2551; Messner, 669 F.3d
at 811. That is particularly true in light of the declaration that Bankers has submitted from Karen
A. Martinez, Bankers’ Field Compliance Manager, which states that the disclosure form that
Rowe has identified is used only in California. (Sur-reply, Ex. B ¶ 3.)5 As outlined above, when
ruling on a motion for class certification, the Court must “make whatever factual and legal
inquiries are necessary under Rule 23.” Szabo, 249 F.3d at 676. Rowe’s bald assertion that each
potential member of the nationwide class received the same disclosure form that she and her

5

Although Bankers provides this evidence in its sur-reply, Rowe had the opportunity to contradict
Martinez’s declaration with evidence of her own in her response in opposition to Bankers’ motion for
leave to file a sur-reply. [See 176.] She did not do so.

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husband received is not enough to convince the Court that Bankers’ allegedly fraudulent conduct
was systematically directed to each potential member of the class.
Likewise, Rowe cites to no evidence to support her assertion that Bankers independent
sales agents use only Bankers’ approved sales literature. In the face of Bankers’ evidence that its
agents’ use of Bankers’ sales brochures was entirely optional, (Resp., Ex 2 ¶ 13; Ex. 4 ¶ 12; Ex.
3 ¶ 9; Ex. 1 ¶ 9), the Court cannot conclude that Rowe has demonstrated by a preponderance of
the evidence that Bakers’ independent sales agents nationwide used the same allegedly
fraudulent sale literature.6
Nor has Rowe demonstrated that any alleged oral misrepresentations or omissions are
uniform to the nationwide class.

“[C]lass certification of fraud claims based on oral

misrepresentations is appropriate only where the misrepresentations relied upon were materially
uniform, allowing such misrepresentations to be demonstrated using generalized rather than
individualized proof.” Moore v. PaineWebber, Inc., 306 F.3d 1247, 1249 (2d Cir. 2002).7 To
show predominance, it is not enough for a plaintiff to assert, as Rowe does here, that the
defendant engaged in “a common course of conduct * * * because a common course of conduct
is not sufficient to establish liability of the defendant to any particular plaintiff.” Id. at 1255,
1253-54 (agreeing with the Third, Fourth, Fifth, Sixth, and Seventh Circuits that oral
6

Rowe states that the disclosure form “is merely one example” of core documents containing omissions
that Bankers presented to each potential nationwide class member. (Reply at 5 (emphasis omitted).) To
support this claim, Rowe cites to her Second Amended Complaint, in which she alleges, “on information
and belief,” that each potential member of the nationwide class received each document that allegedly
contained a misrepresentation or omission. Again, that is not enough for the Court to conclude that
Bankers used any of these documents on a systemic, nationwide scale.

7

After the Supreme Court’s decision in Bridge v. Phoenix Bond & Indemnity Co., one court has opined
that Moore is “no longer good law on the question of whether a plaintiff must show that he or she was
personally a recipient of a material misrepresentation.” Spencer v. Hartford Fin. Servs. Group, 256
F.R.D. 284, 297 (D. Conn. 2009). Assuming that to be the case, to satisfy the predominance requirement
in a RICO claim based on mail and wire fraud, a plaintiff “must still demonstrate that defendants made
standardized misrepresentations * * *.” Id.

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misrepresentations must be based on evidence of materially uniform misrepresentations, not
simply a common course of conduct); but see In re First Alliance Mortg. Co., 471 F.3d 977, 990
n.3 (9th Cir. 2006) (distinguishing its “common course of conduct” approach from the approach
adopted by other circuits, which instead highlights “the importance of uniformity among
misrepresentations made to class members in order to establish that element of fraud on a classwide basis”).
Here, while Rowe again makes sweeping allegations and charges in her second
amended complaint and her brief, she has not provided evidence suggesting that Bankers’ agents
used “uniform, scripted, and standardized sales presentations.” See, e.g., In re LifeUSA Holding
Inc., 242 F.3d 136, 146 (3d Cir. 2001) (citing In re The Prudential Ins. Co. of Am. Sales
Practices Litig., 148 F.3d 283 (3d Cir. 1998)); In re Countrywide Fin. Corp. Mortg. Marketing
and Sales Practices Litig., 2011 WL 4809846, at *14 (S.D. Cal. Oct. 11, 2011) (concluding that
individualized questions predominate over common ones where the defendant used 30,000
independent brokers, no script, no standard sales materials, and no standardized training
program). Instead, the evidence before the Court demonstrates that each of Bankers’ 4,600
independent sales agents located in over 200 nationwide sales offices had the discretion to
conduct their home visits – where the actual sales transactions occurred – as they saw fit. (See
Resp., Ex 3 ¶ 5; Ex. 4 ¶ 6; Ex. 1 ¶ 4; Ex. 11 at 104; Ex. 9 at 72). Further, there is evidence that
Bankers’ agents were willing to share with their clients the fact that they were receiving a
commission on the sale, (Resp., Ex. 4 ¶ 11; Ex. 1 ¶ 12), and frequently highlighted the fact that
withdrawing money from the annuity during the surrender period would result in a penalty.
(Resp., Ex. 1 ¶ 10; Ex. 3 ¶ 11; Ex. 4 ¶ 10.) It is true that in the face of evidence of uniform
misrepresentations or omissions, the testimony as to “the independent, voluntary actions taken by

16

a handful” of a defendant’s agents does not destroy predominance. See Kennedy v. Jackson
Nat’l Life Ins. Co., No. C 07-0371 CW, 2010 WL 2524360, at *7 (N.D. Cal. June 23, 2010). But
that is not the case here. Because Rowe has failed to demonstrate that potential members of the
nationwide class received uniform written or oral misrepresentations or omissions, she cannot
show predominance on the element of racketeering activity. See, e.g., Frahm v. Equitable Life
Assurance Soc’y, 137 F.3d 955, 957 (7th Cir. 1998) (approving the district court’s decision to not
certify a class where “everything depend[ed] on what was said or sent to each [plaintiff]
personally, and different benefits advisers said or wrote different things to different [plaintiffs]”);
Szabo, 249 F.3d at 677 (vacating the district court’s grant of class certification where it was
“unlikely that dealers in different parts of the country said the same things to hundreds of
different buyers”); In re LifeUSA Holding, Inc., 242 F.3d at 146 (reversing the district court’s
grant of class certification where, among other things, marketing materials that were sent to
potential class members were not uniform and the product was not sold according to uniform,
scripted sales presentations).
Finally, the Court does not see how Rowe’s contention that Bankers failed to ensure that
each annuity that it sold was suitable for each customer strengthens Rowe’s position. Rowe is
challenging Bankers’ lack of policy, not a uniform policy that applied to each potential member
of the nationwide class. The “‘policy’ of allowing discretion” by agents, however, “is just the
opposite of a uniform * * * practice that would provide the commonality needed for a class
action.” Dukes, 131 S. Ct. at 2554. And although Rowe has alleged “a common mode of
exercising discretion that pervades the entire company,” id. at 2554-45, Rowe’s allegations
amount to, at most, a common course of conduct toward the potential class members, which is
not enough to establish predominance on a RICO claim based on mail and wire fraud.

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ii.

Causation

Individualized inquiries also predominate over common questions of law and fact when it
comes to the causation requirement. Section 1964(c) limits recovery to any person injured in her
business or property “by reason of a violation of section 1962.” Thus, to bring a claim under
RICO, a plaintiff must show that the defendant’s violation was both a “but for” cause of her
injury, as well as the proximate cause. See Holmes v. Securities Investor Protection Corp., 503
U.S. 258, 268 (1992). Individual reliance on the defendant’s alleged misrepresentations is
neither an element of a RICO mail or wire fraud claim, nor a requirement for establishing
proximate cause. Bridge v. Phoenix Bond & Indemnity, 553 U.S. 639, 661 (2008). Nevertheless,
proof of reliance is often used to prove causation; indeed, “it may well be that a RICO plaintiff
alleging injury by reason of a pattern of mail fraud must establish at least third-party reliance in
order to prove causation.” Id. at 658.
Rowe argues that she can prove causation using both direct and circumstantial evidence
of class-wide reliance on Bankers’ misrepresentations and omissions. For direct evidence or
reliance, Rowe points to the disclosure form, which she contends was signed by each potential
member of the nationwide class before the potential member decided whether to purchase one of
Bankers’ equity-indexed deferred annuities. Rowe argues that this document confirms that each
potential member of the nationwide class was “subjected to the same misrepresentations and
omissions concerning Bankers’ annuities,” (Reply at 10), and that courts readily find causation
and reliance where potential class members have signed standardized documents that omit or
misrepresent material facts.
As discussed above, however, Bankers only sent the disclosure form to its California
customers. Furthermore, Bankers has submitted evidence demonstrating that the disclosure form

18

generally is not used during the sales process; rather, it is sent to the customer to sign after the
customer has decided to purchase one of Bankers’ annuities. (Sur-reply, Ex. B ¶ 4.) Again,
where Rowe has provided only allegations and Bankers has provided evidence that contradicts
those allegations, the Court cannot conclude that Rowe has affirmatively demonstrated that
Bankers made uniform misrepresentations or omissions to the potential members of the
nationwide class, and that class members relied on those misrepresentations or omissions. See
Kennedy, 2010 WL 2524360, at *8 (concluding where the defendant provided evidence that its
contracts vary from product to product and the plaintiff did not respond to the defendant’s
proffer of evidence that a theory of causation resting on the defendant’s written materials would
require an individualized inquiry into which documents each class member received).
As for circumstantial evidence, Rowe argues that class-wide reliance and causation can
be inferred in this case based on the “clear and logical connection” between Bankers’ uniform
misrepresentation and omission of material facts and the injury suffered by purchasers as a
result. (Reply at 11.) “[C]ausation can be established through an inference of reliance where the
behavior of plaintiffs and the members of the class cannot be explained in any way other than
reliance upon the defendant’s conduct.” In re Countrywide, 2011 WL 4809846, at *16; see also,
e.g., McLaughlin v. Am. Tobacco Co., 522 F.3d 215, 225 (2d Cir. 2008) (abrogated on other
grounds by Bridge, 553 U.S. at 661) (stating that “proof of reliance by circumstantial evidence
may be sufficient under certain conditions”); Klay v. Humana, Inc., 382 F.3d 1241, 1259 (11th
Cir. 2004) (concluding that, based on the nature of the misrepresentations at issue, circumstantial
evidence common to the entire class could be used to prove reliance); Poulous v. Caesars World,
Inc., 379 F.3d 654, 667-668 (9th Cir. 2004) (suggesting that “classwide circumstantial evidence”
could, in the proper case, suffice to prove causation). Thus, in certain instances, courts have

19

inferred class-wide reliance – and thus, causation – where the failure to disclose material
information “gives rise to a common sense inference that no rational class member would
purchase” the product had they known all of the facts, “regardless of their individual
circumstances.” Negrete v. Allianz Life Ins. Co. of N. Am., 238 F.R.D. 482, 492 (C.D. Cal.
2006); see also, e.g., Kennedy, 2010 WL 2524360, at *8 (finding that an inference of reliance can
arise where class members would not have purchased the product had they been fully informed
of the facts); Peterson v. H&R Block Tax Servs., Inc., 174 F.R.D. 78, 84-85 (N.D. Ill. 1997)
(assuming class-wide reliance where the misrepresentations were all contained in standardized
documents and the only logical explanation for the potential class members’ behavior was that
they relied on the misrepresentations).
Nevertheless, courts are only willing to infer reliance and causation on a class-wide basis
where potential class members have been subject to standardized misrepresentations because, in
such a case, “an individual plaintiff’s receipt of and reliance upon the misrepresentation may
then be [a] simpler matter[] to determine.” Moore, 306 F.3d at 1255; see also, e.g., Kennedy,
2010 WL 2524360, at *8 (inferring reliance based on the defendant’s “uniform use of the term
‘bonus,’ its failure to disclose material information and class members’ purchase of annuities that
are ‘high cost, illiquid and poorly-performing’”); Negrete, 238 F.R.D. at 492 (concluding that
“evidence of standardized written presentations, coupled with plaintiff’s allegations that class
members purchased annuity products far less valuable than other comparable products or the
prices paid for them, adequately establishes proximate causation”); Garner v. Healy, 184 F.R.D.
598, 602 (N.D. Ill. 1999) (certifying a class of consumers using circumstantial evidence of
reliance after finding that the alleged fraud “was perpetrated in a uniform manner against
members of the class”); Peterson, 174 F.R.D. at 85 (determining, in a case in which members of

20

the class was subject to misrepresentations presented in standard documents, that causation could
be inferred because reliance on the defendant’s misrepresentations was the only logical
explanation for the plaintiffs’ behavior). Again, Rowe has not demonstrated that the potential
members of the nationwide class received standardized misrepresentations, either in written form
or orally. Without evidence of uniform misrepresentations or omissions, the Court cannot infer
that each potential member of the nationwide class relied on the same thing in deciding whether
to purchase one of Bankers’ equity-indexed deferred annuities.
Furthermore, the “common sense approach to causation” does not apply here because
“there is more than one logical explanation for the plaintiff’s participation in the transaction or
conduct at issue.” In re Countrywide, 2011 WL 4809846, at *17 (citing Poulous, 379 F.3d at
667-68); see also, e.g., Siegel v. Shell Oil Co., 612 F.3d 932, 936 (7th Cir. 2010) (affirming the
district court’s determination that it would be required to make individual determinations as to
proximate cause where there were a number of reasons why the plaintiff chose a particular brand
of gasoline); Martinelli v. Petland, Inc., 274 F.R.D. 658, 662 (D. Ariz. 2011) (declining to infer
reliance based on the defendant’s representations of its puppies’ health because the potential
class members could have purchased a puppy from the defendant for a variety of reasons). Rowe
argues that no rational person would purchase one of Bankers’ annuities if she knew all of the
facts because the annuities are inherently flawed products. Rowe wants the Court to infer from
the facts that (1) potential members of the nationwide class purchased one of Bankers’ equityindexed deferred annuities, and (2) no rational person would purchase such a product, that the
potential class members must have been misled. In making this argument, Rowe relies, in part,
on the report of her expert, Thomas Bakos.

21

The Court, however, has excluded Bakos’ absolutist view of Bankers’ annuities and their
suitability for those over sixty-five. As the Court pointed out in its September 30, 2011 order,
seniors buy equity-indexed deferred annuities for a multitude of reasons, including saving for
retirement, saving for some other purpose, or keeping money safe during the purchaser’s lifetime
so that it can be passed on to his or her heirs. [186 at 4 (citing Panis Decl. ¶¶ 15-35).]
Additionally, people age sixty-five and over have varying degrees of need for liquidity and,
while some seniors may need to keep all of their assets liquid, that is not the case for all seniors.
Thus, because the Court is not convinced that there is no logical reason for a person over the age
of sixty-five to purchase one of Bankers’ annuities other than the fact that she was misled, it is
not appropriate to infer class-wide reliance or causation in this case. Accordingly, Rowe has
failed to demonstrate that common issues predominate on the question of causation, or that
reliance can be inferred through common evidence.
In sum, the Court concludes that individualized questions of law and fact relating to
whether Bankers engaged in mail and wire fraud and whether that alleged mail and wire fraud
was the cause of each class member’s injuries predominate over any common questions.8
Accordingly, the Court denies Rowe’s motion to certify the nationwide class.
B.

California Subclass

Rowe also seeks certification of a subclass of California customers. Rowe contends that
her claims under California statutory and common law “are predicated on the same wrongful
course of conduct by Bankers in marketing and selling its [a]nnuities to seniors that forms the
basis of [her] RICO claims * * *.” (Reply at 12.) Rowe has demonstrated that each potential

8

Because the Court has concluded that common issues of law and fact do not predominate over
individual questions, it need not reach the question of whether a class action would be superior to other
available methods of adjudication.

22

member of the California subclass received the disclosure form, which Rowe contends contains
material omissions. And the Court agrees that it may be appropriate, in certain cases involving
uniform misrepresentations, to certify a class to determine the question “of whether they were
indeed misrepresentations * * * with the question of reliance, and damages suffered, by
individual class members left for satellite proceedings.” Carnegie v. Household Int’l, Inc., 376
F.3d 656, 662 (7th Cir. 2004).
Neither party, however, has given the issues related to the California subclass more than a
page or two of discussion, and without the element-by-element analysis of whether each claim
meets the predominance requirement, the Court cannot determine whether the subclass satisfies
Rule 23. In light of that fact, and the fact that the Court has denied Rowe’s motion to certify the
nationwide class, the Court denies without prejudice Rowe’s motion to certify a California
subclass as to Rowe’s California state law claims. Rowe is given until 4/27/2012 to file, if she so
desires, a renewed motion to certify the California subclass, focusing on whether the proposed
class meets the requirements of Rule 23(a) and Rule 23(b)(3) and how the Court’s denial of the
nationwide affects the subclass, if at all.9 If Rowe does file such a motion, Bankers is given until
5/25/2012 to respond. If the Court desires a reply, it will advise the parties.
V.

Conclusion
For the foregoing reasons, the Court denies Rowe’s motion for class certification and for

appointment of class counsel [94]. Rowe’s motion is denied in part as to her motion to certify
the nationwide class, and denied in part without prejudice as to her motion to certify the
California subclass. Rowe has until 4/27/2012 to file, if she so desires, a renewed motion to

9

For the reasons outlined above, certification of the California subclass is not appropriate under Rule
23(b)(2).

23

certify the California subclass.

If Rowe does file such a motion, Bankers is given until

5/25/2012 to respond.

Dated: March 29, 2012

______________________________
Robert M. Dow, Jr.
United States District Judge

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