MICHAEL J. MELLOY, United States District Court Chief Judge.
Before the Court is a resisted Plaintiffs' motion for class certification. The Plaintiffs, Mark Cunningham, Jill Cunningham, Mary McKever, Linda Boyd, and Rosemary Breland ("the Plaintiffs"), purchased life insurance from the Defendants, AEGON USA, Inc. ("AEGON"), PFL Life Insurance Company ("PFL"), Banker's United Life Assurance Company ("Banker's"), and Life Investor's Company of America ("Life Investor's") (collectively, "AEGON and its subsidiaries" or "the Defendants"). The crux of the Plaintiffs' complaint is that AEGON and its subsidiaries fraudulently marketed and sold the life insurance policies by misrepresenting the policies as "retirement plans," "savings plans," or other "investment" vehicles. The Plaintiffs move to certify a class of similarly situated individuals who purchased policies from AEGON and its subsidiaries with the belief that they were actually purchasing retirement, pension, investment, savings, or college funding plans or programs, between January 1, 1985 and December 31, 1996. The Court heard oral argument, and the matter is ready for decision.
The Plaintiffs originally defined the class as individuals who purchased the policies between January 1, 1990 and December 31, 1996. In the motion for class certification, the Plaintiffs expanded the relevant timeframe back to January 1, 1985.
I. Background
The five named Plaintiffs in this case allege that they were victims of a "systematic scheme of marketing fraud" formulated by AEGON and its subsidiaries to surreptitiously sell life insurance policies. The Plaintiffs maintain that the "overarching scheme" was formulated, orchestrated, and directed by the Defendants' top level corporate management and employed in a systematic fashion against the putative class members. The Plaintiffs' Amended Complaint asserts state common law claims for (1) fraud, (2) breach of fiduciary duty, (3) reckless failure to train and supervise, (4) negligent misrepresentation, (5) breach of the duty of good faith and fair dealing, (6) unjust enrichment, (7) conspiracy, (8) injunctive relief, and (9) punitive damages. The Plaintiffs Amended Complaint also asserts a federal claim under the Racketeer Influenced and Corrupt Organization Act (RICO), 18 U.S.C. § 1961 et seq. Id.
The Court's April 7, 1999, Order which denied the Defendant's motion to dismiss fully laid out the factual background of this case. Accordingly, the Court will provide a more limited discussion of the facts in this Order.
While the case was originally filed in the Middle District of Florida, it was transferred to the Northern District of Iowa pursuant to 28 U.S.C. § 1404(a). The Defendants moved to dismiss the Plaintiff's complaint while the case was still pending in Florida. This Court denied the outstanding motion to dismiss on April 7, 1999. Cunningham v. PFL Life Ins. Co., 42 F. Supp.2d 872, 892 (N.D. Iowa 1999).
The Plaintiffs move under Rule 23 of the Federal Rules of Civil Procedure to certify a class they have formally defined as:
all persons and/or entities who purchased a permanent life policy (including all riders and endorsements attached thereto) (the `policy' or `policies') issued by defendants PFL, Life Investors or Bankers United (or their predecessors) as retirement, pension, investment, savings or college funding plans or programs, between January 1, 1985 and December 31, 1996 (the `class period'), and were harmed thereby (the `Class' or `class members.').
The Plaintiffs estimate that the nationwide class numbers in the "hundreds of thousands." The Defendants assert that, under the Plaintiffs' definition, the "true count" of putative class members may equal as many as 4,199,635.
II. Analysis
Rule 23 provides the guiding principles on class certification questions. The Plaintiffs have the burden of establishing that they have satisfied each of the prerequisites of Rule 23. Coleman v. Watt, 40 F.3d 255, 259 (8th Cir. 1994). The Court may only certify the class if it is satisfied "after rigorous analysis" that all of Rule 23's prerequisites are met. Hervey v. City of Little Rock, 787 F.2d 1223, 1226 (8th Cir. 1987).
Rule 23 provides, in pertinent part:
(a) Prerequisites to a Class Action. One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.
(b) Class Actions Maintainable. An action may be maintained as a class action if the prerequisites of subdivision (a) are satisfied, and in addition:
(1) the prosecution of separate actions by or against individual members of the class would create a risk of
(A) inconsistent or varying adjudications with respect to individual members of the class which would establish incompatible standards of conduct for the party opposing the class, or
(B) adjudications with respect to individual members of the class which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests; or
(2) the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole; or
(3) the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. The matters pertinent to the findings include:
(A) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; (D) the difficulties likely to be encountered in the management of a class action.
The Court may refer to allegations in the Amended Complaint in deciding whether the requirements of Rule 23 are met. Parkhill v. Minnesota Mut. Life Ins. Co., ___ F. Supp.2d ___ 1999 WL 614013, *6 (D. Minn., Aug. 13, 1999). However, when necessary, the Court also may go beyond the Amended Complaint and look at the evidence to examine the factual and legal issues. See, e.g., General Tel. Co. v. Falcon, 457 U.S. 147, 160 (1982); Castano v. American Tobacco Co., 84 F.3d 734, 744-45 (5th Cir. 1996).
Subsection (a) of Rule 23 sets forth four threshold requirements that must all be met before a class can be certified:
One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.
If each of the Rule 23(a) prerequisites are satisfied, the movant must also show that the action falls within one of the categories listed in Rule 23(b).
The Plaintiffs in this case move for class certification under only Rule 23(b)(3). Rule 23(b)(3) class certification requires first that "questions of law or fact common to the members of the class predominate over any questions affecting only individual members." Fed.R.Civ.P. 23(b)(3). Second, the Court must find that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. Id.
A. Rule 23(a)
Courts often refer to the four preliminary requirements of Rule 23(a) as numerosity, commonality, typicality, and adequacy. See, e.g., Ortiz v. Fibreboard Corp., 119 S.Ct. 2295, 2299 (1999). Although the Plaintiffs have easily carried their burden on numerosity and adequacy, the Defendants assert that the Plaintiffs have failed to establish typicality and commonality.
The Defendants do not dispute that the potential class of "hundreds of thousands" of Plaintiffs would satisfy the numerosity requirement and, therefore, the Court will not elaborate further on the issue. The Court also finds that counsel for the Plaintiffs have ably represented the Plaintiffs in these proceedings, including a successful resistance to the Defendant's motion to dismiss. Moreover, the Plaintiffs' lead counsel is one of the country's leading class action law firms.
Typicality under Rule 23(a)(3) means that there are "other members of the class who have the same or similar grievances as the plaintiff." Donaldson v. Pillsbury Co., 554 F.2d 825, 830 (8th Cir.), cert. denied, 434 U.S. 856 (1977).
The burden is "fairly easily met so long as other class members have claims similar to the named plaintiff[s]." DeBoer v. Mellon Mortg. Co., 64 F.3d 1171, 1175 (8th Cir. 1995), cert. denied sub nom., Michael Thomas Crehan v. Gretchen DeBoer, 517 U.S. 1156 (1996). A strong similarity of legal theories will satisfy the typicality requirement despite substantial factual differences. Appleyard v. Wallace, 754 F.2d 955, 958 (11th Cir. 1985); Lockwood Motors v. General Motors, 162 F.R.D. 569, 575 (D. Minn. 1995).
In the present case, the Plaintiff's claims and the claims of the putative class are based on the same general legal theories. The Plaintiffs have stated claims under RICO and state common law for the harm stemming from the alleged "systematic scheme of marketing fraud." The Plaintiffs assert that the putative class suffered the same harm.
AEGON and its subsidiaries argue that the Plaintiffs' claims are atypical because the misrepresentations allegedly made to each Plaintiff and putative class member were not identical. However, the differences to which AEGON and its subsidiaries point are differences incidental to the legal theories and alleged wrongful conduct that the Plaintiffs base their claims and their motion for class certification. Keeping in mind that the typicality requirement is "fairly easily met," see Donaldson, 554 F.2d at 830, it is fair to state that the putative class has the same or similar grievances as the named plaintiffs. See DeBoer, 64 F.3d at 1175. Accordingly, the Court finds that the Plaintiffs have established that "the claims or defenses of [the named Plaintiffs] are typical of the claims or defenses of the [putative] class." Fed.R.Civ.P. 23(a)(3).
Rule 23(a)(2) requires that "there are questions of law or fact common to the members of the class," and Rule 23(b)(3) requires "that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members." Fed.R.Civ.P. 23. The Supreme Court has recognized that Rule 23(a)(2)'s "commonality" requirement is "subsumed under, or superseded by, the more stringent Rule 23(b)(3) requirement that questions common to the class `predominate over' other questions." Amchem Products, Inc. v. Windsor, 521 U.S. 591, 609 (1997). Additionally, Rule 23(b)(3)'s predominance inquiry is "far more demanding" than Rule 23(a)'s commonality requirement. Id. at 624. Consequently, this Court will "train its attention on [Rule 23(b)(3)'s] predominance inquiry" and will not discuss the commonality requirement. Id. at 609.
The Court notes that bypassing the commonality inquiry is appropriate only where the parties seek certification under Rule 23(b)(3). In Rule 23(b)(1) cases or Rule 23(b)(2) cases, courts must conduct a distinct commonality inquiry. See Georgine v. Amchem Products, Inc., 83 F.3d 610 (3d Cir. 1996), aff'd sub nom., Amchem Prod., 521 U.S. 591, 609 (1997). However, the Court also notes that conducting a separate commonality inquiry in a Rule 23(b)(3) case such as this is unnecessary. See Id.
B. Rule 23(b)(3)
There are no bright lines for determining whether common questions of law and fact predominate over individual questions of law and fact. Lockwood, 162 F.R.D. 569, 580 (D. Minn. 1995); 7A Charles A. Wright, Arthur R. Miller, Mary Kay Kane, Federal Practice and Procedure, § 1778 at 526 (2d ed. 1986 Supp. 1994). Rule 23(b)(3)'s predominance inquiry "tests whether proposed classes are sufficiently cohesive to warrant adjudication by representation." Amchem Prod., 521 U.S. at 623. A claim will satisfy the predominance requirement only "when there exists generalized evidence which proves or disproves an element on a simultaneous, class-wide basis, since such proof obviates the need to examine each class member's individual position." Parkhill, 1999 WL 614013, at *6.
The Defendants' fraudulent marketing scheme is the "core theory" of the Plaintiffs' case. The Plaintiffs assert that the Defendants' systematic scheme to market the life insurance as an investment vehicle impacted all the members of the putative class. This nationwide scheme, the Plaintiffs insist, was the product of a systematic plan originated from AEGON's home office in Cedar Rapids, Iowa by AEGON's corporate executives. The Plaintiffs maintain that AEGON then disseminated "uniform sales materials" to their sales agents nationwide, and deployed the agents to sell the policies via misrepresentation and outright deceit. The Plaintiffs assert that proof of this common course of misconduct is integral to the question of the Defendants' "general liability" on each of the putative class's claims and will predominate over individual questions.
The Plaintiffs have cited a number of decisions to buttress their argument that the marketing scheme was "monolithic and universal" and, therefore, common issues predominate in the case. However, the decisions to which the Plaintiffs cite involved the fraudulent sale of registered securities or other investment products based on written prospectus, private placement memorandum, or offering memorandum presented to each purchaser. See e.g., Eisenberg v. Gagnon, 766 F.2d 770, 786 (3d Cir. 1985), cert. denied, Weinstein v. Eisenberg, 474 U.S. 946 (1985) (cited in Pla's Mem. in Supp. of Class Cert.); Metge v. Baehler, 77 F.R.D. 470, 476-77 (N.D. Iowa 1978), aff'd in part, rev'd in part, 762 F.2d 621 (8th Cir. 1985), cert. denied, 474 U.S. 1057 (1986) (same). In each case, the written offering was identical or substantially identical as presented to each purchaser.
The Plaintiffs concede that there was no written prospectus in this case. Employees of AEGON and its subsidiaries did not directly communicate with the members of the putative class. Independent insurance agents contacted the prospective purchasers and presented nonuniform, individual sales presentations. The Plaintiffs conceded at oral argument that the agents were not required to follow a uniform sales script. Each individual agent presented an individual "sales pitch" to each individual purchaser. (Heaton Decl., at 2-3.) The content of the oral representations made to each putative class member is relevant to develop whether each Plaintiffs' asserted claim is meritorious. Accordingly, the matter requires individualized fact development.
Materiality and reliance are integral elements of both the Plaintiffs' fraud claim and the Plaintiffs' misrepresentation claim. In re Jackson Nat. Life Ins. Co. Premium Litig., 183 F.R.D. 217, 221 (W.D. Mich. 1998). The Plaintiff must prove both elements before they are entitled to recover damages. The materiality of the misrepresentations that each agent made to each putative plaintiff is a fact issue that warrants individualized treatment. Similarly, each putative plaintiffs' reliance on the alleged misrepresentations raises important individualized questions. Peoples, 176 F.R.D. at 643. Accordingly, the variations present in the oral presentations militate against a finding that common questions of fact predominate. Jackson, 183 F.R.D. at 221.
If the Court were to grant certification of the putative class in this case, it would have to delve into the content of each sales presentation, the expectations and questions asked by each putative plaintiff, and the reliance each putative plaintiff placed on the representations made by each sales agent. This is not the type of generalized factual evidence which proves or disproves an element on a simultaneous class-wide basis under Rule 23(b)(3). Accordingly, certification under Rule 23 is improper.
The putative class is ill-suited for certification for an additional reason. In addressing the certification question, the Court is required to determine whether variations in state law will defeat predominance. In re American Med. Sys., Inc., 75 F.3d 1069, 1085 (6th Cir. 1996); Castano, 84 F.3d at 750. Plaintiffs have the burden of establishing that variations in state law do not "swamp any common issues." Castano, at 741; In re Ford Motor Co. Vehicle Paint, 182 F.R.D. 214, 222 (E.D. La. 1998); In re Ford Motor Co. Ignition Switch Products, 174 F.R.D. 332, 349 (D. N.J. 1997).
The Plaintiffs maintain that differences in state law should not affect the putative class, and that the Court should apply Iowa law, the law of the forum state, uniformly to all claims. The Plaintiffs have failed, however, to consider this Court's choice of law analysis in its Order denying the Defendant's motion to dismiss. While the Order stated that Iowa law would apply to the majority of the claims of the named Plaintiffs, the Court expressly stated that the choice of law analysis did not bind the putative class members. Indeed, choice-of-law analysis is a matter of due process, and cannot be altered in a nationwide class action simply because it may otherwise result in procedural and management difficulties. Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 821-22; Amchem Prod., 83 F.3d at 627. Accordingly, the Court finds that the state law variations present in this litigation compound the disparate factual and legal questions. Therefore, the Court finds that the Plaintiffs have failed to show that common questions of law and fact predominate over individualized questions and class certification under Rule 23 is inappropriate.
Even if the Court decided that its earlier choice of law decision would bind the entire nationwide putative class, the Court decided that at least one of the named Plaintiffs' claims, the claim for breach of good faith and fair dealing, would be decided under a different state's law. Accordingly, the laws of numerous states are implicated even as to the named Plaintiffs under the Court's earlier decision.
Other Courts have denied similar motions to certify putative nationwide classes of insurance purchasers. On August 13, 1999, Judge Doty of the District of Minnesota denied certification to a class that alleged a fraudulent "vanishing premium" insurance marketing scheme. The Court stated that if certification were granted, the Court would have to "conduct thousands of individual inquiries into the content of each sales presentation." Parkhill, 1999 WL 614013, at * 1.
In a "vanishing premium" insurance policy, the insurance policy premiums are paid by the investment income of the policy. In theory, the policy provides self-sustaining permanent insurance. In Parkhill, the plaintiffs alleged that they were fraudulently induced to purchase the "vanishing premium" policies by agents who provided unrealistic and inaccurate investment income forecasts. Parkhill, 1999 WL 614013, at *1.
Judge McKeague of the Western District of Michigan denied class certification on similar grounds last year in another "vanishing premium" case. Jackson, 183 F.R.D. at 221. The Court stated that the variations in state law "represented legitimate and unavoidable considerations which substantially compound[ed] the proliferation of disparate factual and legal issues. Id. at 223. Finally, Magistrate Judge Davis of the Northern District of Florida denied certification in a "vanishing premium" case in 1997. The Court stated: "[T]he facts related to [the] individual purchasers are too diverse and complex to make this case manageable as a class action." Peoples, 176 F.R.D. at 645. Since, the Plaintiffs have failed to distinguish these cases and show that class-wide issues of fact or law predominate over individualized questions, the Court must deny the Plaintiffs' motion for class certification.
Rule 23(b)(3) also requires that the Court find the class action mechanism "superior to other available methods for the fair and efficient adjudication of the controversy." Rule 23(b)(3). The "superiority" prerequisite of Rule 23(b)(3) requires the Court to "balance, in terms of fairness and efficiency, the merits of a class action against those of `alternative available methods' of adjudication." Amchem Prod., 83 F.3d at 632.
The differences in state law implicated by certification of the putative nationwide class also weigh against certification under the "superiority" prerequisite of Rule 23(b)(3). Castano, 84 F.3d at 747. If the Court certified the putative class, due process concerns would dictate that the Court make a separate choice-of-law determination for each individual class member. Moreover, if the case proceeded to trial, the Court would "face an impossible task of instructing [the] jury on the relevant law" of the different states. American Med. Sys., 75 F.3d at 1085. The Plaintiffs assert, in conclusory fashion, that the application of the law of fifty different states to the claims of the putative class members is manageable. However, this Court cannot rely on "assurances of counsel that any problems with predominance or superiority can be overcome." Castano, 84 F.3d at 742. The Court believes that trying a case with such disparate legal questions is inefficient, impractical, and will most likely confuse the jurors.
The Plaintiffs place great reliance on the Third Circuit's decision in In re Prudential Ins. Co. America Sales Litig., 148 F.3d 283 (3d Cir. 1998), cert. denied, 119 S.Ct. 890 (1999). In Prudential, the court approved the certification of a nationwide class of insurance purchasers in a "vanishing premium" case. Id. at 346. However, Prudential is procedurally distinguishable. The nationwide class in Prudential was certified for settlement purposes only. Id. In contrast, the Plaintiffs in this case seek to certify for trial a nationwide class of "hundreds of thousands" of plaintiffs with claims that entangle the law of dozens of different states and may implicate hundreds of thousands of oral misrepresentations. Unlike the trial court in Prudential, this Court must actually contemplate trying such a case on the merits. Accordingly, the Court finds that the Plaintiffs have failed to establish that a class action is the superior method for fair and efficient adjudication of this controversy. Jackson, 183 F.R.D. at 223-24.
ORDER
Accordingly, IT IS ORDERED that the Plaintiffs' motion for class certification is DENIED. The Court finds that the Plaintiffs have failed to establish the prerequisites of "predominance" and "superiority" under Rule 23(b)(3).