1

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_____________

No. 14-1228

_____________

REYNALDO REYES,

on behalf of himself and all others similarly situated,

 Appellant

v.

NETDEPOSIT, LLC; MP TECHNOLOGIES d/b/a Modern 

Payments; TELEDRAFT, INC.; NATIONAL PENN BANK; 

WELLS FARGO BANK, N.A.; WACHOVIA BANK, N.A.;

ZIONS FIRST NATIONAL BANK 

________________

APPEAL FROM THE UNITED STATES DISTRICT 

COURT FOR THE EASTERN DISTRICT OF 

PENNSYLVANIA

(D.C. No. 2-10-cv-00345)

District Judge: Honorable Juan R. Sánchez

________________

Argued 

September 11, 2014

____________

Before: MCKEE, Chief Judge, SMITH and SHWARTZ, 

Circuit Judges

(Opinion Filed: September 2, 2015)

______________

Howard I. Langer, Esq. (ARGUED)

John J. Grogan, Esq.

Edward Diver, Esq.

Irv Ackelsberg, Esq.
2

Peter E. Leckman, Esq.

LANGER, GROGAN & DIVER, P.C.

1717 Arch Street, Suite 4130

Philadelphia, PA 19103

Attorneys for Appellant

Jason A. Snyderman, Esq. (ARGUED)

Grant S. Palmer, Esq.

William R. Cruse, Esq.

Bridget E. Mayer, Esq.

Blank Rome LLC

One Logan Square

Philadelphia, PA 19103

Attorneys for Appellees

Charles L. Becker, Esq. (ARGUED)

Kline & Specter, PC

1525 Locust Street, 19th Floor

Philadelphia, PA 19102

Attorney for Amici Curiae 

Public Interest Law Center of Philadelphia and 

Community Legal Services 

Julie Nepveu, Esq.

AARP Foundation Litigation

Room B4-245

601 E Street, N.W.

Washington, DC 20049

Attorney for Amici Curiae AARP, National

Association of Consumer Advocates, National

Consumer Law Center and Consumer Federation of

America

Richard B. Tucker, III, Esq.

Tucker Arensberg

1500 One PPG Place

Pittsburgh, PA 15222

Attorney for Amici Curiae American Bankers
3

Association and Independent Community Bankers of

America

Robert J. LaRocca, Esq.

Kohn, Swift & Graf

One South Broad Street

Suite 2100

Philadelphia, PA 19107

Attorney for Amici Curiae Richard Blumenthal, 

Robert Casey, Edward J. Markey and Allyson Y. Schwartz

Francis X. Riley, III, Esq.

Charles M. Rowan, Jr., Esq.

Saul Ewing

650 College Road East

Suite 100

Princeton, NJ 08540

Attorney for Amicus Curiae Risk Management

Association 

______________

OPINION OF THE COURT

______________

McKEE, Chief Judge.

Reynaldo Reyes appeals the District Court’s denial of

his motion to certify a class to sue for alleged civil violations 

of the Racketeer Influenced and Corrupt Organizations Act 

(“RICO”), 18 U.S.C. §§ 1962(c), (d). The defendants are 

Zions First National Bank (“Zions Bank”) and its paymentprocessor subsidiaries, Netdeposit, LLC and MP 

Technologies (together, “Modern Payments”).

Reyes alleges that the defendants conspired to conduct 

a fraudulent telemarketing scheme that caused unauthorized 

debits from bank accounts owned by himself and members of 

the proposed class.
4

The District Court held that class certification was 

inappropriate because there were no issues common to the 

class and Reyes could therefore satisfy neither the 

commonality requirement of Federal Rule of Civil Procedure 

23(a), nor the predominance requirement of Rule 23(b)(3). 

This interlocutory appeal followed.1

I. BACKGROUND

Reyes alleges that the defendants conspired to conduct 

a fraudulent scheme whereby certain telemarketing firms

would contact unsuspecting individuals and offer them 

something of little or no value. Reyes alleges that, during 

unsolicited phone calls with unsuspecting consumers, the 

telemarketers would obtain bank account information which 

was used to make unauthorized debits from the the 

consumers’ bank accounts.2 In Reyes’ case, in an unsolicited 

phone call in November 2007, telemarketer NHS Systems 

told Reyes that he qualified for a free government grant. 

NHS Systems then requested Reyes’ bank account 

information, which he provided.

Telemarketers such as NHS Systems cannot readily 

obtain funds directly from consumers’ bank accounts because 

most banks are extremely reluctant to allow them to debit 

accounts. Accordingly, telemarketers usually contract with 

payment processing entities that debit bank accounts on the 

 

1 See 28 U.S.C. § 1292(e); Fed. R. Civ. P. 23(f). The 

District Court also granted various amici curiae leave to file 

briefs in support of Reyes’ motion for class certification.

2 Reyes alleges that, besides phone-based marketing, 

the scheme included deceptive mailers, Internet solicitation, 

and “slamming,” a process whereby a telemarketer acquires a 

consumer’s bank account information from another entity and 

either contacts the consumer under the pretense of attempting 

to verify the information or simply transfers money from the 

consumer’s account. JA 513-15.

Because Reyes alleges that the merchants operated in 

the same way and as part of a fraudulent enterprise, Appellant 

Br. at 18, we refer to all of them as “telemarketers” for the 

sake of simplicity.
5

telemarketer’s behalf. In Reyes’ case, NHS Systems did 

exactly that. It provided Reyes’ bank account information to 

Modern Payments, a third-party payment processing agency

and subsidiary of Zions Bank. Modern Payments then caused 

Zions Bank to initiate an Automated Clearing House 

(“ACH”) debit of Reyes’ bank account at Commerce Bank. 

Pursuant to Zions Bank’s request, Reyes’ funds on deposit 

with Commerce Bank were transferred to Modern Payments’ 

account at Zions Bank, and ultimately transferred to NHS 

Systems, the Originator. Two debits were processed from 

Reyes’ account using this ACH debit process, one for $29.95 

and another for $299.95.3 Reyes v. Zions First Nat’l Bank, ---

F. Supp. 2d ---, Civ. Action No. 10-345, 2013 WL 5332107, 

at *1 (E.D. Pa. Sept. 23, 2013).

The ACH debit process is an alternative to traditional 

checking which is based on the transfer of paper instruments. 

When an ACH transfer occurs, an Originating Depository 

Financial Institution, like Zions Bank, initiates an ACH entry 

at the request of an Originator (such as NHS Systems). Such 

requests can also be made through third parties at the request 

of the Originator. As we have just explained, Reyes alleges 

that Modern Payments caused Zions Bank to take ACH debits 

from bank accounts owned by him and other members of the 

putative class at the request of the telemarketers, like NHS 

Systems.

The Originating Depository Financial Institution (here, 

Zions Bank) aggregates payments from customers and 

transmits the payments in batches to an ACH Operator (either 

the Federal Reserve or the Clearing House). The Operator 

receives and sorts the batched payments and makes the funds 

available to the Receiving Depository Financial Institution. 

That institution, in turn, debits or credits the relevant account 

based on the ACH entry. Here, Reyes alleges that Modern 

 

3 Although many (if not all) of the debits involved in 

this appeal are sufficiently small to be considered de minimis

by some, the cumulative amount is substantial. In fact, the 

conduct alleged here has attracted the attention of the 

impressive array of amici who have filed briefs in this matter, 

including the AARP, four members of the United States 

Congress, and the American Bankers Association.
6

Payments credited the accounts of each of the telemarketers 

in the amount of funds fraudulently debited from 

unsuspecting victims. Both Modern Payments, as payment 

processor, and Zions Bank, as the processor’s bank, would 

have collected a fee and then deposited the balance of 

amounts debited from consumers directly into the account of 

the telemarketer.4

Reyes alleges that his bank account and the accounts 

of other consumers subjected to this fraudulent enterprise did 

not have sufficient funds to satisfy many of the unauthorized 

debits.5 Reyes called NHS Systems to complain about the 

two withdrawals from his account, but he alleges NHS 

Systems provided him with a misleading audio recording.

6

 

Thereafter, Reyes initiated this action on behalf of 

himself and a class of all individuals in the United States as to 

whom ACH debit entries or [remotely created check] drafts 

on their accounts were prepared by defendants Netdeposit, 

Modern Payments, or Teledraft during the four-year period 

immediately preceding the filing of this action and finally 

charged to the class members’ bank accounts by a 

Telemarketer, or pursuant to information provided to 

defendants [Netdeposit, Modern Payments, or Teledraft] by 

 

4 Though this sounds cumbersome, it is nothing more 

than a series of computer entries or lines of computer code; 

the entire series of transactions can easily be completed, and 

the funds transferred and received, in one to two business 

days.

5

It is not difficult to understand why the accounts did 

not have a sufficient balance to pay the amount of the 

attempted debits. If the depositors had never authorized the 

debits, they would have had no way of knowing that the 

balance in their accounts was not sufficient to satisfy the 

amounts of the attempted withdrawals and no reason to take 

steps to ensure that their balances were sufficient to cover 

those debits.

6 According to NHS Systems, the recording 

established that Reyes consented to the disputed debits.
7

the Telemarketers, or who otherwise incurred any bank 

charges as a consequence of such ACH debit entries or 

[remotely-created checks].

JA 526 ¶ 63.

The legal theory underlying this suit is that the 

defendants were operating a RICO enterprise that was a total 

sham.7 The proof that Reyes offers to support that claim 

includes the inordinately high “return rates” of the 

telemarketers who did business with Modern Payments and 

Zions Bank. “Return rates” refer to how often an ACH debit 

cannot be completed. There are many reasons why a 

transaction may not be completed. These include (but are not 

limited to) insufficient funds or a customer complaint 

regarding the transaction. These complaints can result in the 

debited funds being credited back to the consumer’s bank 

account. Return rates are collected by NACHA (previously 

known as the “National Automated Clearing House 

Association”), a not-for-profit association that administers 

and manages the ACH Network and other electronic 

transactions.

Reyes stresses that “the lowest return rate at issue 

[here] was 25 times the national average of 1.25%.” 

Appellant Br. at 26 (emphasis in original). Moreover, that 

was the telemarketer with the lowest rate. As Reyes notes, he 

produced testimony that “[m]ost were over 50 times that 

average.” Id. at 25-26 (citing JA 661, 663). According to 

Reyes, the high return rates establish that Zions Bank and 

Modern Payments had reason to know that the telemarketers 

were engaged in fraudulent conduct.

Reyes produced additional evidence to support his 

argument. That evidence included internal e-mails wherein 

Zions Bank, Netdeposit, and Modern Payments discussed the 

 

7 As noted, Reyes alleges that this fraudulent scheme 

constituted an “enterprise” under RICO, 18 U.S.C. § 1962(c). 

However, since the only issue before us is the District Court’s 

refusal to certify a class under Rule 23, we need not discuss 

the elements needed to prove a RICO conspiracy except 

insofar as they may bear upon issues of class certification.
8

“staggering” return rates, JA 686, and the “alarm” that their 

high return rates had caused NACHA. Id. at 814-15. 

According to Reyes, “[w]ithin the first three months of 

opening Modern Payments, for example, Zions was notified 

of the likelihood of fraud by the Federal Trade Commission 

(“FTC”), NACHA, and its own officers.” Appellant Br. at 

28. There was also evidence that these defendants 

communicated concern that they may be at risk for some of 

their business lines being used for money laundering. JA 

692.

Reyes claims the evidence establishes that “[e]ach of 

the[] frauds operated in the same way, luring consumers with 

some kind of ‘card’ or ‘benefit’ to obtain their bank account

information.” Appellant Br. at 18.8 These included 

“promises of un-secured loans, pre-paid credit cards, 

merchandise-club cards, identity-theft protection plans, and 

health-care discount plans.” Meyer Decl., JA 1639-40 ¶ 19. 

Thus, although there is some variation in the “benefits” 

offered and the particular way each fraud was perpetrated, 

Reyes asserts that there is no need to examine each individual 

transaction “[b]ecause the business model of these schemes is 

inherently fraudulent[.]” Appellant Br. at 19.

A. REYES’ EXPERT WITNESSES

Reyes offered several witnesses at the hearing on class 

certification, including three experts. Amelia H. Boss, a 

Drexel Law School Professor, testified as an expert on 

banking and banking practices. Robert J. Meyer, a Wharton 

Business School Professor, and Barbara A. Blake, a former

investigator for the Iowa Attorney General, both testified as 

experts on fraudulent marketing practices. Although we refer 

 

8 Reyes also cites numerous proceedings against some 

of the telemarketers involving the FTC and other entities that 

led to conclusions that the telemarketers were engaged in 

fraud. See Appellant Br. at 4, 16, 20-21. The defendants 

point out, and Reyes does not dispute, that the government 

enforcement actions involving the telemarketers in this case 

were initiated after the defendants stopped doing business 

with them, and the defendants were not themselves parties to 

any of those actions. Appellee Br. 49.
9

to their testimony throughout our discussion, it is helpful to 

provide an initial summary of the testimony of each.

1. Amelia H. Boss

Professor Amelia Boss repeatedly highlighted “the 

excessively high rates of returns generated by Modern 

Payments and its clients, of which Zions was well aware,”

and asserted that the rates provided clear evidence of 

fraudulent activity. Boss Decl., JA 582-92 ¶¶ 66-87. 

According to Professor Boss, most “banks never (or rarely) 

have debits returned as ‘unauthorized.’” Id., JA 582 ¶ 66. 

Indeed, Zions Bank did not have any unauthorized returns 

until it began working with Modern Payments. Boss pointed 

out that when Modern Payments and Zions Bank began 

working together in September 2006, the “number of 

unauthorized returns immediately began to increase 

dramatically from zero . . . to 799” in two months, and up to 

2,632 unauthorized returns by February of the following year. 

Id., JA 587-88 ¶ 78 (emphasis in original). According to 

Professor Boss, when adjusted for size, Zions Bank had the 

worst return rate of any bank in the country. Id.

Professor Boss also testified that Zions Bank had 

numerous NACHA violations, knew that many of its 

customers were high risk, and yet it completed inadequate 

due diligence. Id., JA 587 ¶ 77. She explained that NACHA 

“prohibits the use of the ACH system for telemarking

payments initiated by outbound telemarketing.” Id., JA 575 ¶ 

46.9 NACHA imposed this prohibition because it recognized 

that telemarketers have a high likelihood of fraud. Id., JA 

575 ¶ 46.

NACHA requires that transmission of debit and credit 

entries and entry of data over the ACH Network be entered 

with an appropriate label or code. Id., JA 561-63 ¶¶ 15-16, 

 

9 See also Appellant Br. at 11-12 (discussing “rules 

that prohibit banks from entering transactions derived from 

outbound telemarketing (i.e., the type of cold-calling that Mr. 

Reyes experienced).”) (citing JA 672 (2008 ACH Rules, 

NACHA, Subsection 14.1.63)); Boss Decl., JA 597-601 ¶¶ 

98-107.
10

18. For instance, transactions originating on the Internet, like 

those from the allegedly fraudulent Internet merchants here, 

are labeled “WEB,” while certain telephone-initiated debits, 

like those from telemarketers, are labeled “TEL.” Id., JA 

562-63 ¶ 18. According to Professor Boss, Zions Bank and 

Modern Payments failed to adhere to this policy because 

Modern Payments often labeled TEL or WEB transactions as 

“PPD” transactions. “PPD” refers to transactions that are 

“obtained in pre-existing, signed writings.” Id., JA 597-98 ¶ 

99. They are, therefore, the safest category of transaction. 

Mislabeling made it appear that the consumer had actually 

authorized his or her bank account to be debited even though 

there were no such written agreements. 

“Zions knew that th[ese] representation[s] w[ere]

false.” Id., JA 597-98 ¶ 99. Yet, “[d]espite being advised of 

[its] use of improper codes[,] Zions continued to attach the 

false codes and continued to misrepresent the warranties.” 

Id., JA 598 ¶ 101. According to Reyes, the mislabeling made 

it possible to “hid[e] . . . the true source of the debits[]” “from 

victims’ banks and regulators[.]” Appellant Br. at 30 (citing 

Boss Decl., JA 597-99 ¶¶ 98-102). If accepted by a 

factfinder, this testimony could obviously establish that the 

PPD code was used to conceal the true nature of these 

transactions. Accordingly, Professor Boss concluded that 

Zions Bank

knowingly allowed the system to be used by 

High Risk originators[, like Modern Payments,] 

whom it had to know were engaged in fraud in 

clear disregard of the governing rules and 

standards, . . . made knowing 

misrepresentations to the other participants in 

the ACH system (including the consumer 

receivers), . . . facilitated the misuse of the 

system by Modern Payments and its customers, 

and . . . did all this knowing of facts from 

which, as a banking institution, it had to know 

fraud was taking place.

Boss Decl., JA 601 ¶ 107.

2. Robert J. Meyer
11

Professor Robert Meyer testified that the Federal 

Reserve Bank has concluded that 10% return rates are prima 

facie evidence of fraud.

10

 Meyer Decl., JA 1636 ¶ 11.b. 

Here, the return rates “rang[ed] from 30% to almost 90%[.]” 

Id., JA 1636 ¶ 11.a. In addition, Professor Meyer pointed to

FTC enforcement actions and these telemarketers’ products 

and services to conclude that the telemarketers operated 

“schemes designed to obtain victims’ bank account 

information by deception and to use that information to debit 

victims’ accounts as quickly [and] as often as possible before 

the victim understood what had occurred.” Id., JA 1634-35 

¶¶ 8-9.

According to Professor Meyer, telemarketers 

NHS/PHS, the Platinum Benefit Group, Vexeldale (also 

known as Market Power Marketing Solutions, Sourdale, and 

ZaZoom), RxSmart, Low Pay, and Group One Networks 

offered a variety of products that were either valueless or 

significantly devalued. Id., JA 1633, 1639-40 ¶¶ 6, 19. 

Although there was some variation in the manner in which 

the unauthorized debits were accomplished, Professor Meyer 

concluded that they had the same components of deception: 

(1) each was obtained from a first party at a small or 

 

10 The defendants contest this statement, noting that 

“[t]here is no law or regulation supporting this contention.” 

Appellee Br. at 47 (emphasis in original). Professor Meyer, 

like Investigator Blake and Reyes, who also refer to the 

Federal Reserve Bank’s prima facie evidence of fraud, fails to 

include a source. The record presented, however, does 

contain an unrelated complaint quoting an unnamed Federal 

Reserve official as writing that a 10% return rate “would 

likely be regarded by bank supervisory agencies and/or law 

enforcement agencies as prima facie evidence that your bank 

knew or should have known that your [third-party payment 

processors and/or merchants] had engaged in fraudulent 

activities.” JA 1695 ¶ 64 (alteration in original). Despite 

whatever dispute the parties have regarding the Federal 

Reserve Bank’s position on return rates, neither party disputes 

that the vast majority of U.S. banks have rates of returns that 

are close to (or actually are) zero, while here, that number is 

30% to 90%.
12

negligible cost; (2) all were used to debit consumer accounts 

for exorbitant amounts, (3) none of these items conveyed any 

net value to the consumers, and (4) all were sufficiently 

complex, initially concealing their fraudulent nature to the 

victim. Id., JA 1639-40 ¶ 19. Professor Meyer based his 

opinion on his review of “telephone scripts and web landing 

pages used in the marketing of the products and/or programs, 

internal e[-]mails, and tables of ACH return rates for the 

programs[.]” Id., JA 1633 ¶ 6.

3. Barbara A. Blake

Reyes’ expert Investigator Barbara Blake examined 

each scheme in detail and also stated that return rates over 

10% were prima facie evidence of fraud. Blake Decl., JA 

1614-15 ¶ 19. 

Investigator Blake looked at the operations of each 

entity and other evidence before concluding that the 

telemarketers operate “fundamentally fraudulent schemes[.]” 

Id., JA 1627-28 ¶ 85. She noted that the “[h]igh return rates 

are the plainest hallmark of mass-marketing fraud conducted 

through the banking system. This has been recognized in 

publications of the Comptroller of the Currency, FinCen, 

NACHA and the FDIC.” Id., JA 1614 ¶ 18.

Investigator Blake concluded that “each of the 

schemes at issue was a totally fraudulent mass-marketing 

fraud” because each of them “uses purported ‘products’ and 

‘services’ that are routinely used as part of mass-marketing 

fraud schemes.” Id., JA 1613 ¶ 15. “Th[e] strong 

presumption of fraud [evidenced by the high return rates] is 

confirmed by the nature of the schemes . . . , which, once they 

are understood, are plainly fraudulent on their face.” Id., JA 

1615 ¶ 21. Investigator Blake’s conclusion was based on the 

telemarketers’ sales scripts, the worthless nature of the 

purported “products,” and the history of regulatory actions 

taken against the telemarketers and their principals. Id., JA 

1613-27 ¶¶ 15-84.

B. FACT WITNESSES
13

The District Court also heard the testimony of two fact 

witnesses whose testimony will be discussed in greater detail 

below.11 They were: Wayne D. Geisser, who was installed as 

the NHS Systems receiver after the FTC obtained a 

preliminary injunction against NHS Systems, and Jeanette A. 

Fox, who was a senior director of risk investigation at 

NACHA. Appellant Br. at 12, 26. Geisser and Fox testified 

that high return rates are not dispositive of fraud. Fox Dep., 

JA 2987-2991; Geisser Dep., JA 1155, 3055. Fox explained 

that an unauthorized return could be the result of a dispute 

over an agreement, the amount charged, or the timing of the 

charge. Fox Dep., JA 2975. Nevertheless, Fox did believe 

that the rate of returns here was high enough to warrant an 

investigation. Id., JA 1145. Even she agreed that the rates 

strongly suggested fraud. Id., JA 2977 (stating there is 

“[p]robably not” a legitimate reason for excessive return 

rates). Geisser testified that the NHS Systems health discount 

program brochures, fulfillment packages, purchase orders, 

and contracts with call centers appeared to be legitimate,

Geisser Dep., JA 3049-50, even though he agreed that NHS 

Systems was totally fraudulent. Id., JA 1161.

C. DEFENDANTS’ EXPERT WITNESSES

The defendants presented two experts: Kathleen O. 

Milner, an expert in the ACH Network and NACHA rules and 

guidance, who worked for many years in private financial 

services, and Peter G. Djinis, a lawyer who specializes in 

compliance concerning federal anti-money laundering and 

Bank Secrecy Act laws and regulations with experience in the 

Department of the Treasury.

1. Kathleen O. Milner

Kathleen Milner provided an overview of the ACH 

system and NACHA. She explained that, although “NACHA 

Operating Rules are contractually binding on parties to ACH 

payments,” like the NACHA Operating Guidelines, they do 

not “have the force of law[.]” Milner Decl., JA 3781-82 ¶ 11. 

 

11 Fox and Geisser were called by plaintiff’s counsel as 

“fact witnesses.” JA 2696; Fox Decl., JA 2972.
14

Milner also discussed high return rates, noting that 

high returns rates “may be indicative of fraud,” but believed 

that they are not “conclusive evidence of fraud.” Id., JA 3784 

¶ 17. In support of this assertion, Milner summarized various 

return codes that are used to identify transactions that are not 

properly authorized, highlighting the ones used in this case 

that are not dispositive of fraud. Id., JA 3785-89 ¶¶ 20-29. 

She believed that, “without investigating the facts and 

circumstances of each purported fraudulent transaction, you 

are left simply with conjecture[]” about whether fraud is 

involved. Id., JA 3789 ¶ 29. She also testified that, “[t]o 

conclude that the merchants were in fact complete frauds and 

to further conclude that the Zions Defendants knew them to 

be so would require an individualized analysis of each 

merchant and the Zions Defendants’ relationship with each 

merchant.” Id.

Milner rejected Reyes’ assertion that the mislabeled

codes (labeling “TEL” and “WEB” transactions as “PPD” 

transactions) indicate fraud. Rather, she concluded that the 

mislabeled classifications were the result of a problem with 

Modern Payments’ software. Id., JA 3791 ¶ 33. According 

to Milner, using the TEL code liberally, not solely when there 

was a preexisting relationship or consumer-initiated call was 

not fraud, but due, in part, to the fact that “the requirements of 

the TEL rule were broken up throughout the NACHA 

rulebook and were, therefore, difficult to locate and confusing 

to follow.” Id., JA 3794-95 ¶ 39. 

Finally, Milner asserted that charging a fee for 

returned transactions was also not indicative of fraud because 

it is “accepted industry practice” to do so “as a disincentive 

for Originators having returned transactions and an incentive 

to obtain proper authorizations.” Id., JA 3795 ¶ 40.

2. Peter G. Djinis

Peter Djinis discussed various laws and regulations not 

at issue here, including Office of the Comptroller of the 

Currency bulletins, the Bank Secrecy Act, and the U.S. 

Patriot Act, Djinis Decl., JA 3767-70 ¶¶ 13, 16, 18-20, since 

Reyes alleges a RICO violation. Djinis also opined that 

Modern Payments and Zions Bank conducted adequate due 
15

diligence of the telemarketers at issue. Id., JA 3772-76, ¶¶ 

25-36.

D. REYES’ USE OF THE EVIDENCE

Reyes relies on this record to allege that the defendants 

operated a RICO enterprise that was a “complete sham” 

lacking any legitimate business substance. He draws upon 

this theory to overcome potential challenges to the 

predominance requirement for class certification. Under the 

“complete sham” theory, the reviewing court can focus on the 

defendant’s or defendants’ conduct as a whole in order to find 

proof of elements that normally require evidence about each 

plaintiff, like plaintiff’s reliance. Rosario v. Livaditis, 963 

F.2d 1013 (7th Cir. 1992); Cullen v. Whitman Med. Corp., 

188 F.R.D. 226 (E.D. Pa. 1999); see also In re Cmty. Bank of 

N. Va. Mortg. Lending Practices Litig., --- F.3d ---, Civ. 

Action No. 13-4273, 2015 WL 4547042, at *19, *21 (3d Cir. 

July 29, 2015). “[T]he causation element of fraud and breach 

of contract can be satisfied through objective circumstantial 

evidence on a classwide basis.” Elizabeth J. Cabraser, Trends 

and Developments in the Filing, Certification, Settlement, 

Trial and Appeal of Class Actions, SE99 A.L.I.-A.B.A. 743, 

821 (2000) (“[I]t is unnecessary and unfair to impose 

modalities of proof that are specific to such nonexistent 

personal relationships to insulate defendants from classwide 

liability to those with whom they related on a classwide 

basis.”).

E. THE DISTRICT COURT’S RESOLUTION OF 

REYES’ LEGAL THEORY

The District Court acknowledged the “complete sham” 

theory, explaining that in order for Reyes to succeed on this 

theory under Rule 23, he must demonstrate that the 

“defendant’s conduct is so wrought with fraud as to be a 

complete sham[.]” Reyes, 2013 WL 5332107, at *6. Thus, 

the District Court realized that, in an appropriate case, “the 

class members’ participation or involvement with the 

defendant is sufficient evidence that each class member 

suffered damages, rendering an analysis of individual 

transactions unnecessary.” Id. As the District Court also 

recognized, pursuant to the “complete sham” theory, 
16

misrepresentations by the defendant resulting in the plaintiffs 

experiencing common damages can prove common injury in 

a RICO class action. Id. (citing Cullen, 188 F.R.D. at 235).12 

In fact, the District Court even went so far (with some 

justification) as to compare this to the “fraud on the market” 

theory. Id. (citing Lester v. Percudani, 217 F.R.D. 345, 352 

(M.D. Pa. 2003).13 

However, the District Court concluded that class 

treatment was inappropriate here because Zions Bank and 

Modern Payments collaborated with separate mass-marketing 

firms and did so in different ways. The District Court 

 

12 As discussed further below, the Supreme Court has 

held that predominance requires that plaintiffs show that their 

individual injuries are capable of proof at trial through 

common evidence and that their damages are measurable on a 

classwide basis. Comcast Corp. v. Behrend, 133 S. Ct. 1426, 

1430, 1432-33 (2013); but see In re Nexium Antitrust Litig., 

777 F.3d 9, 21 (1st Cir. 2015) (“But it is well-established that 

the individuation of damages in consumer class actions is 

rarely determinative under Rule 23(b)(3). Where common 

questions predominate regarding liability, then courts 

generally find the predominance requirement to be satisfied 

even if individual damages issues remain.” (internal quotation 

marks, alterations, and citation omitted)).

13 The fraud on the market theory is based on 

the hypothesis that, in an open and developed 

securities market, the price of a company’s 

stock is determined by the available material 

information regarding the company and its 

business. . . . Misleading statements will 

therefore defraud purchasers of stock even if the 

purchasers do not directly rely on the 

misstatements. . . . The causal connection 

between the defendants’ fraud and the 

plaintiffs’ purchase of stock in such a case is no 

less significant than in a case of direct reliance 

on misrepresentations.

Basic Inc. v. Levinson, 485 U.S. 224, 241-42 (1988)

(internal quotation marks omitted).
17

stressed that “Reyes almost completely relies on the high 

return rates as his proof of the complete sham, [but] the 

returns are different for each telemarketer, [therefore] he 

cannot prove this complete sham theory on evidence common 

to the class since members of the class interacted with 

different telemarketers.” Id. at *8. The District Court also 

emphasized that, although the high return rates were common 

to the telemarketers, they are insufficient to prove fraud.

With this background as our analytical compass, we 

will now discuss class certification within the context of 

Reyes’ claim that he produced sufficient evidence of a sham 

enterprise to satisfy the requirements for class certification 

under Rule 23(b)(3).

II. DISCUSSION

“The class action is an exception to the usual rule that 

litigation is conducted by and on behalf of the individual 

named parties only.” Wal-Mart Stores, Inc. v. Dukes, 131 S. 

Ct. 2541, 2550 (2011) (quotation marks omitted).

Federal Rule of Civil Procedure 23 sets out 

requirements for bringing a class action. All potential classes 

must initially satisfy four prerequisites to be certified: (1) 

numerosity, (2) commonality, (3) typicality, and (4) adequacy 

of representation. Fed. R. Civ. P. 23(a). Additional 

requirements must then be satisfied depending on whether a 

plaintiff seeks certification under Rule 23(b)(1), (2), or (3). 

Marcus v. BMW of N. Am., LLC, 687 F.3d 583, 590 (3d Cir. 

2012). Reyes is attempting to proceed under Rule 23(b)(3). 

Accordingly, he must satisfy the additional requirements of 

predominance and superiority.14 Fed. R. Civ. P. 23(b)(3).

 

14 When an action proceeds as a class action under 

Rule 23(b)(3), “the court finds that the questions of law or 

fact common to class members predominate over any 

questions affecting only individual members, and that a class 

action is superior to other available methods for fairly and 

efficiently adjudicating the controversy.” Fed. R. Civ. P. 

23(b)(3).
18

The District Court did not reach all of the prerequisites 

of Rule 23(a) or the superiority requirement in Rule 23(b)(3) 

because it concluded that Reyes had not established 

commonality as required under Rule 23(a) or predominance

under Rule 23(b)(3).

“Commonality” is a consideration of whether there are 

“questions of law or fact common to the class[.]” Fed. R. 

Civ. P. 23(a)(2). Commonality is satisfied when there are 

classwide answers. Wal-Mart Stores, Inc., 131 S. Ct. at 2551-

52; Sullivan v. DB Invs., Inc., 667 F.3d 273, 298-300 (3d Cir. 

2011) (en banc) (considering “whether the defendant’s 

conduct was common as to all of the class members[]” and 

common questions led to common answers such that the 

“alleged misconduct and the harm it caused would be 

common as to all of the class members[]”).

The predominance inquiry then focuses on whether 

“the questions of law or fact common to class members 

predominate over any questions affecting only individual 

members[.]” Fed. R. Civ. P. 23(b)(3). “Predominance tests 

whether proposed classes are sufficiently cohesive to warrant 

adjudication by representation[.]” In re Hydrogen Peroxide 

Antitrust Litig., 552 F.3d 305, 310-11 (3d Cir. 2008) 

(quotation marks omitted). Though related, this standard is 

“‘far more demanding’ than the commonality requirement of 

Rule 23(a),” id. (quoting Amchem Prods., Inc. v. Windsor,

521 U.S. 591, 623-24 (1997)), and requires “more than a 

common claim.” Newton v. Merrill Lynch, Pierce, Fenner & 

Smith, Inc., 259 F.3d 154, 187 (3d Cir. 2001).

Reyes seeks to represent a class that may include tens

of thousands of claimants with potential civil RICO claims

arising from the defendants’ operation of a sham enterprise. 

“Establishing liability under [§ 1962(c)] of the RICO statute 

requires (1) conduct (2) of an enterprise (3) through a pattern 

(4) of racketeering activity, plus an injury to business or 

property.” In re Ins. Brokerage Antitrust Litig., 579 F.3d 241, 

269 (3d Cir. 2009) (internal quotation marks and citations 

omitted).

Reyes must show that the racketeering activity was the 

“but for” cause as well as the proximate cause of the injury 
19

purportedly suffered by the members of the proposed class. 

Holmes v. Sec. Investor Prot. Corp., 503 U.S. 258, 268 

(1992). Proximate cause requires “some direct relation 

between the injury asserted and the injurious conduct 

alleged.” Id.

Accordingly, we must determine if Reyes produced 

sufficient evidence to show that he could prove his RICO 

claim based on facts or evidence common to the class, and 

whether such proof predominates over facts and 

circumstances that are particular to given individuals within 

the proposed class.

The District Court concluded that Reyes established 

neither but-for cause, nor proximate cause because “Reyes 

would not be able to establish there was an impact that 

affected each class member in the same way.” Reyes, 2013 

WL 5332107, at *8. In reaching that conclusion, the District 

Court focused on the fact that potential class “[m]embers 

were contacted by telemarketers through different mediums 

about different products, and some, according to Reyes, were 

not contacted at all because the telemarketers bought their 

account information from other telemarketers.” Id.

We must determine whether the District Court (1) 

applied the proper standard for assessing predominance and 

commonality, (2) appropriately reviewed Reyes’ experts’

opinions and the other evidence on the record, and (3) 

properly determined that commonality and predominance 

were not established based on the evidence presented. Much 

of our inquiry is guided by our analysis in In re Hydrogen 

Peroxide Antitrust Litigation.

A. STANDARD OF REVIEW

In reviewing a denial of class certification, we subject 

the District Court’s legal rulings to de novo review. In re 

Hydrogen Peroxide Antitrust Litig., 552 F.3d at 312; see also

In re Initial Pub. Offerings Sec. Litig., 471 F.3d 24, 32 (2d 

Cir. 2006).

We review the District Court’s findings of fact, its 

application of law to facts, and its decision regarding class 
20

certification for an abuse of discretion. In re Hydrogen 

Peroxide Antitrust Litig., 552 F.3d at 312, 320 (citations 

omitted). “The district court abused its discretion if its 

decision rests upon a clearly erroneous finding of fact, an 

errant conclusion of law or an improper application of law to 

fact.” Newton, 259 F.3d at 165-66 (footnote and quotation 

marks omitted). “To illustrate . . . using the example of 

numerosity, review of the factual finding as to the size of the 

proposed class would be for clear error, review of the judge’s 

articulation of the legal standard governing numerosity would 

be de novo, and review of the ultimate ruling that applied the 

correct legal standard to the facts as found would be for abuse 

of discretion.” In re Initial Pub. Offerings Sec. Litig., 471 

F.3d at 41.

B. RULE 23 LEGAL STANDARDS

“Class certification is proper only if the trial court is 

satisfied, after a rigorous analysis, that the prerequisites of 

Rule 23 are met.” In re Hydrogen Peroxide Antitrust Litig., 

552 F.3d at 309 (footnote and quotation marks omitted). In 

conducting its inquiry, a district court must rigorously assess 

“the available evidence and the method or methods by which 

plaintiffs propose to use the evidence to prove impact at 

trial.” Id. at 312 (citations omitted); see also Comcast Corp. 

v. Behrend, 133 S. Ct. 1426, 1432 (2013) (“[T]he court’s duty 

[is] to take a ‘close look’ at whether common questions 

predominate over individual ones.” (quoting Amchem 

Products, Inc., 521 U.S. at 615). On appeal, we do not 

“speculate as to what the District Court must have intended

[regarding a Rule 23 requirement]. We cannot just assume 

the District Court conducted the appropriate analysis under 

Rule 23. ‘Rigorous analysis’ requires more of the District 

Court than that[.]” Neale v. Volvo Cars of N. Am., LLC, ---

F.3d ---, Civ. Action No. 14-1540, 2015 WL 4466919, at *15 

(3d Cir. July 22, 2015).

We have also explained that the Rule 23 inquiry may 

require the district court to “delve” behind the pleadings. In 

re Hydrogen Peroxide Antitrust Litig., 552 F.3d at 316 

(quotation marks omitted). This means that, at the 

certification stage, the district court “cannot be bashful. It 

must resolve all factual or legal disputes relevant to class 
21

certification, even if they overlap with the merits—including 

disputes touching on elements of the cause of action.” 

Marcus, 687 F.3d at 591 (quotation marks omitted).

Without this searching inquiry, a district court cannot 

determine if class certification is appropriate. Certification 

“calls for findings by the court, not merely a ‘threshold 

showing’ by a party, that each requirement of Rule 23 is met. 

Factual determinations supporting Rule 23 findings must be 

made by a preponderance of the evidence.” In re Hydrogen 

Peroxide Antitrust Litig., 552 F.3d at 307.

1. Reyes’ Burden of Proof

The District Court imposed a burden of absolute proof 

on Reyes at the certification stage. Reyes now correctly 

argues that “the ‘absolute proof of fraud’ standard . . . 

exceeds this Court’s holding that factual issues bearing on the 

class certification ‘must be made by a preponderance of the 

evidence.’” Appellant Br. at 35 (quoting In re Hydrogen 

Peroxide Antitrust Litig., 552 F.3d at 320).

The District Court realized that “[t]o obtain class 

certification, a plaintiff must demonstrate the proposed class 

satisfies all four elements of Federal Rule of Civil Procedure 

23(a), along with one of the three requirements under Rule 

23(b)[,]” and that “the court’s findings as to the Rule 23 

requirements must be supported by factual determinations 

made by a preponderance of the evidence[.]” Reyes, 2013 

WL 5332107, at *3 (citations omitted). However, the District 

Court’s analysis suffered from the same malady that troubled 

us in In re Hydrogen Peroxide Antitrust Litigation. “[S]ome 

statements in [the District Court’s] opinion depart from the 

standards we have articulated.” 552 F.3d at 321. The District 

Court stated the correct standard but misunderstood the 

burden of proof placed on a plaintiff seeking class 

certification. 

In concluding that there was insufficient commonality, 

the District Court relied on the fact that “Reyes’s experts have 

[not] testified that the return rates are . . . absolute proof of

fraud[.]” Reyes, 2013 WL 5332107, at *8. The District Court 

also believed that proof must be so persuasive that the 
22

certifying court “cannot have any doubt as to whether the 

Rule 23 requirements are met.” Id. at *7.

The fact that the District Court imposed a burden of 

absolute proof is illustrated by the following statement: “since 

Reyes’s experts have testified that the return rates are only 

‘red flags’ of fraud and not absolute proof of fraud, the 

factfinder would have to analyze each telemarketer separately 

to determine whether or not it is a complete sham.” Id. at *8 

(emphasis added). The District Court also stated that it “must 

assess how Reyes will use the evidence at trial to prove 

impact on a classwide basis, and the Court cannot have any 

doubt as to whether the Rule 23 requirements are met.” Id. at 

*7 (emphasis added) (citation omitted).

In re Hydrogen Peroxide Antitrust Litigation requires 

that a district court “not suppress doubt as to whether a Rule 

23 requirement is met[.]” 552 F.3d at 321 (internal quotation 

marks omitted). While a district court must consider how the 

evidence will be used at trial, id. at 311 & n.8, the plaintiff’s 

burden is not proof beyond “any doubt” as the District Court 

required, but whether the claims are supported by a 

preponderance of the evidence. Id. at 320.

We agree with the District Court’s conclusion that “it 

is possible that not every telemarketer named in the Amended 

Complaint is a complete sham.” Reyes, 2013 WL 5332107, at 

*7. However, the standard is not whether it is mathematically 

or scientifically possible that one of these telemarketers is not 

a complete sham. Rather, Reyes must establish that it is more 

likely than not that each of the telemarketers and the 

defendants operated a complete sham as alleged. Reyes 

“must affirmatively demonstrate his compliance” with Rule 

23, Wal-Mart Stores, Inc., 131 S. Ct. at 2551, and “satisfy 

[the trial court] through evidentiary proof [of] at least one of 

the provisions of Rule 23(b).” Comcast Corp., 133 S. Ct. at 

1432; see also Byrd v. Aaron’s Inc., 784 F.3d 154, 163 (3d 

Cir. 2015). However, “the Rules and our case law have 

consistently made clear that plaintiffs need not actually 

establish the validity of claims at the certification stage.” 

Sullivan, 667 F.3d at 306 (footnote omitted).
23

Here, as in In re Hydrogen Peroxide Antitrust 

Litigation, in remanding this matter to the District Court, we 

“recognize that the able District Court did not have the 

benefit of the standards we have articulated.” 552 F.3d at 

322. Nevertheless, it is now clear that the District Court must 

(1) conduct rigorous analysis, (2) review all avenues of 

inquiry in which it may have doubts (even if it requires 

reviewing the merits) in order to (3) be satisfied and (4) make 

a definitive determination on the requirements of Rule 23, or 

even (5) require that a plaintiff demonstrate actual, not 

presumed conformance with Rule 23 requirements. We 

stress, however, that the preponderance of the evidence 

standard governs. The perfection of proof that the District 

Court demanded here is simply not required. Moreover, it is 

important for the District Court to remember that an inability 

to calculate damages on a classwide basis will not, on its own, 

bar certification. Neale, 2015 WL 4466919, at *17 & n.10 

(collecting cases). A district court errs when it holds a 

plaintiff seeking class certification to a higher standard of 

proof than proof by a preponderance of the evidence, and 

remand is thus appropriate. See In re Hydrogen Peroxide 

Antitrust Litig., 552 F.3d at 322 (“To the extent that the 

District Court’s analysis reflects application of incorrect 

standards, remand is appropriate.”).

2. Evidence of Commonality and Predominance

It is often appropriate to discuss commonality and 

predominance together because the commonality inquiry is

subsumed into the predominance inquiry. See, e.g., Danvers 

Motor Co. v. Ford Motor Co., 543 F.3d 141, 148 (3d Cir. 

2008) (“[W]here an action is to proceed under Rule 23(b)(3), 

the commonality requirement is subsumed by the 

predominance requirement.” (internal quotation marks 

omitted)). We have also concluded that “[r]eading the 

District Court’s commonality and predominance analyses 

together . . . is appropriate in [the RICO] context[.]” In re 

Ins. Brokerage Antitrust Litig., 579 F.3d at 266-67 (citation

omitted).

Therefore, we do not fault the District Court for 

combining its discussions of commonality and predominance. 

Reyes, 2013 WL 5332107, at *5-9. However, in the interest 
24

of clarity, we will address each requirement separately. We 

will first discuss commonality, and then discuss 

predominance. In re LifeUSA Holding, Inc., 242 F.3d 136, 

145 (3d Cir. 2001) (“[C]ommon questions (commonality) 

must be established before predominance can be found . . . .”

(emphasis added)); see generally Marcus, 687 F.3d at 597, 

600-12.

a. Commonality

As explained above in relation to the different return

rates, the District Court concluded that because Reyes’ 

evidence “result[s] in individual inquiries as to each 

telemarketer,” class certification is precluded. Reyes, 2013 

WL 5332107, at *8. The focus of the District Court’s inquiry 

was whether the proposed class would “generat[e] common 

answers apt to drive the resolution of the litigation, such that 

a determination of the truth or falsity of the contention will 

resolve an issue that is central to the validity of each one of 

the claims in one stroke.” Id. at *4 (emphasis in original) 

(internal quotation marks omitted).

Federal Rule of Civil Procedure 23(a)(2) merely 

requires that there be “questions of law or fact common to the 

class[.]” Commonality does not require perfect identity of 

questions of law or fact among all class members. Rather, 

“even a single common question will do.” Wal-Mart Stores, 

Inc., 131 S. Ct. at 2556 (quotation marks and alterations 

omitted); Baby Neal v. Casey, 43 F.3d 48, 56 (3d Cir. 1994) 

(discussing how Rule 23(a)(2) “is easily met[]”). “A putative 

class satisfies Rule 23(a)’s commonality requirement if the 

named plaintiffs share at least one question of fact or law with 

the grievances of the prospective class.” Rodriguez v. Nat’l 

City Bank, 726 F.3d 372, 382 (3d Cir. 2013) (internal 

quotation marks omitted). A court’s focus must be “on 

whether the defendant’s conduct [is] common as to all of the 

class members[.]” Sullivan, 667 F.3d at 298. “Again, th[e]

bar is not a high one.” Rodriguez, 726 F.3d at 382.

When a party seeks to certify a class to bring a RICO 

claim, the focus is on the defendant’s conduct. As we said in 

In re Insurance Brokerage Antitrust Litigation:
25

[p]roving the first element of a RICO violation 

in this case would involve common questions 

about the activities of the . . . Defendants and, in 

particular, whether the . . . Defendants

participated or engaged in conduct with other . . 

. Defendants. The second element also involves 

common questions of law and fact, namely 

whether an enterprise of . . . Defendants existed 

. . . either as an association in fact or as a more 

formal organization or entity. Proving the third 

and fourth elements would encompass common 

questions of law and fact as well, including 

whether activities that constitute racketeering 

were taking place through the enterprise (such 

as mail or wire fraud) and whether these 

racketeering activities were recurring such that 

a pattern could be established.

579 F.3d at 269-70 (emphasis added). These elements focus 

on the defendants’ joint conduct vis-à-vis the plaintiffs. 

Likewise, the District Court in this case noted that “the first 

four elements of a RICO claim . . . focus[] on the defendants’ 

conduct and the effect of that conduct.” Reyes, 2013 WL 

5332107, at *5 (citation omitted). Thus, a properly supported 

RICO allegation will often contain common issues because, 

like “commonality[, a RICO allegation,] is informed by the 

defendant’s conduct as to all class members and any resulting 

injuries common to all class members[.]” Sullivan, 667 F.3d 

at 297; see also In re Ins. Brokerage Antitrust Litig., 579 F.3d 

at 269-70. “Whether the evidence presented proves a RICO 

conspiracy[]” is a question “common to each class member 

and will generate common answers[.]” In re Cmty. Bank of 

N. Va. Mortg. Lending Practices Litig., 2015 WL 4547042, at 

*13-14.

We also note that the elements of a RICO claim fit 

Wal-Mart’s commonality requirement because determining 

the “truth or falsity” of a “common contention[,]” here an 

element of RICO, “will resolve an issue that is central to the 

validity of each one of the claims in one stroke.” Wal-Mart 

Stores, Inc., 131 S. Ct. at 2551; see In re Cmty. Bank of N. 

Va. Mortg. Lending Practices Litig., 2015 WL 4547042, at 
26

*13 (distinguishing a putative RICO class action from the 

pitfalls of the class action rejected in Wal-Mart).

Reyes has presented evidence which, if accepted, 

could establish by a preponderance of the evidence that (1) 

“Zions and Modern Payments were processing transactions 

for a number of entities -- in addition to NHS Systems -- that 

government agencies [later] determined were fraudulent[,]” 

Appellant Br. at 15; Appellee Br. at 48-49, (2) Zions Bank, 

Netdeposit, and Modern Payments sent e-mails 

communicating a sense of shock regarding the “staggering” 

return rates, JA 686, and concerns that they may be at risk for 

some of their business lines being used for “money 

laundering[,]” id. at 692, (3) Zions Bank was aware that its 

high return rates “alarm[ed]” NACHA,” id. at 814-15, and (4) 

Modern Payments was “afraid of” a probe by the FTC 

regarding potential fraud, id. at 693, and Zions Bank received 

warnings from other banks that they “will disput[e] all 

charges” generated by NHS Systems. Id. at 1061-62. On 

remand, the District Court should consider whether this 

evidence, if accepted as credible, is sufficient to conclude that 

there is “actual, not presumed, conformance” with Rule 23. 

Marcus, 687 F.3d at 591 (quotation marks omitted); see also 

Wal-Mart Stores, Inc., 131 S. Ct. at 2551 (requiring “[a] party 

seeking class certification [to] affirmatively demonstrate” 

compliance with Rule 23).

We are not persuaded that the evidence here is similar 

to that which was deemed insufficient for class certification in 

Wal-Mart. Wal-Mart affirmed that commonality can be 

satisfied when there is “significant proof” that the defendant 

“operated under a general policy of discrimination.” Id. at 

2553-54 (quotation marks omitted).

In Wal-Mart, the defendant operated in a discretionary,

and thus arguably individualized way toward the members of 

the proposed class. The record did not establish a national 

policy or any single individual or group of individuals 

responsible for the exercise of discretion.

Here, there are slight variations in the telemarketers’ 

and defendants’ conduct underlying the putative class 

members’ claims. For example, some plaintiffs were offered 
27

government grants, while others were offered healthcare 

discount cards, and still others had no direct involvement at 

all as their account information was purchased by a 

defendant. However, unlike Wal-Mart, we are not concerned 

with damages that result from the exercise of anyone’s 

discretion.

Further, in Wal-Mart, the plaintiffs’ statistical and 

anecdotal evidence failed to demonstrate a “common mode of

exercising discretion that pervades the entire company[.]” Id. 

at 2554-55. Without that, commonality could not be 

established.

In stark contrast, the sham theory used here relies on a 

“common mode” of behavior and a “general policy” of fraud. 

See In re Cmty. Bank of N. Va. Mortg. Lending Practices 

Litig., 2015 WL 4547042, at *13 (distinguishing Wal-Mart

and reasoning that “the Plaintiffs in this case have alleged that 

the class was subjected to the same kind of illegal conduct by 

the same entities, and that class members were harmed in the 

same way, albeit to potentially different extents[]”).

Reyes alleges that the defendants operated together in 

a common, fraudulent scheme that was a complete sham 

masquerading as a legitimate business undertaking. When a 

plaintiff alleges that a defendant’s disputed conduct is a 

complete sham, the relevant inquiry is whether there was an 

ongoing scheme to defraud or deceive, Rosario, 963 F.2d at 

1017-19, and whether the defendant fails to meet the most 

basic standard of its purported commercial undertaking, 

Cullen, 188 F.R.D. at 235. If so, a common harm will be 

presumed from the mere fact that class members were all 

similarly injured by the sham. A court can then conclude that 

there are common issues and that those common issues will 

predominate over individual issues.

15

When viewed at this macroscopic level, rather than the 

microscopic level that may be required when allegations 

implicate a defendant’s exercise of discretion, it is clear that 

we are not faced with the individual circumstances that were 

 

15 Because the “complete sham” theory also applies to

the predominance inquiry, it will be discussed further below.
28

fatal to certification in Wal-Mart. As said, it is for the 

District Court to determine in the first instance whether Reyes 

has presented evidence that demonstrates commonality.

b. Predominance

Reyes also contends that the District Court erred in 

finding that class claims did not predominate over individual 

claims. He argues that the District Court mistakenly focused 

on the return rates instead of considering that evidence in 

context with all of the testimony of his three experts, the FTC 

proceedings,

16 and all other evidence that the defendants 

knew that they were operating a fraudulent enterprise.

“The Rule 23(b)(3) predominance inquiry tests 

whether proposed classes are sufficiently cohesive to warrant 

adjudication by representation.” Amchem Products, Inc., 521 

U.S. at 623 (citation omitted). It is important to note that 

Reyes is alleging a kind of consumer fraud. “[T]he Supreme 

Court has observed that predominance is a test readily met in 

certain cases alleging consumer or securities fraud or 

violations of the antitrust laws.” In re Hydrogen Peroxide 

Antitrust Litig., 552 F.3d at 321-22 (quotation marks 

omitted). One relevant “guidepost[] that direct[s] the 

predominance inquiry[]” is “that commonality is informed by 

the defendant’s conduct as to all class members and any 

resulting injuries common to all class members[.]” Sullivan, 

667 F.3d at 297. “[Wal-Mart v.] Dukes actually bolsters [this] 

position, making clear that the focus is on whether the 

defendant’s conduct was common as to all of the class 

members, not on whether each plaintiff has a ‘colorable’ 

claim.” Id. at 299. Rule 23 does not require the absence of 

all variations in a defendant’s conduct or the elimination of 

all individual circumstances. Rather, predominance is 

satisfied if common issues predominate. In re Linerboard 

Antitrust Litig., 305 F.3d 145, 162 (3d Cir. 2002). “[T]he 

 

16 As noted supra note 8, the proceedings came after 

the defendants’ involvement here. But, if admissible, it 

would be for the factfinder to determine if the record, taken as 

a whole, supports the conclusion (or an inference) that the 

defendants were aware of the facts underlying the 

proceedings, or the proceedings themselves.
29

focus of Rule 23(b)(3) is on the predominance of common 

questions[.]” Amgen Inc. v. Connecticut Ret. Plans & Trust 

Funds, 133 S. Ct. 1184, 1195 (2013) (emphasis in original). 

A district court “analyze[s] predominance in the context of 

Plaintiffs’ actual claims.” Neale, 2015 WL 4466919, at *14.

When Rule 23 is the mechanism to redress alleged 

RICO violations, predominance and commonality are 

satisfied if each element of the alleged RICO violation 

involves common questions of law and fact capable of proof 

by evidence common to the class. In re Ins. Brokerage 

Antitrust Litig., 579 F.3d at 269-70. This is true even if 

“establishing an injury is not as conducive to common 

proof[,]” so long as a court is “satisfied that the plaintiffs 

have presented a plausible theory for proving a class-wide 

injury as a result of the racketeering activities of the alleged 

enterprises at issue[.]” Id. at 270; see also Neale, 2015 WL 

4466919, at *17 & n.10 (collecting cases regarding how an 

inability to calculate damages on a classwide basis will not, 

on its own, bar certification). “The question is not what valid 

claims can plaintiffs assert; rather, it is simply whether 

common issues of fact or law predominate.” Sullivan, 667 

F.3d at 305 (citation omitted); In re Hydrogen Peroxide 

Antitrust Litig., 552 F.3d at 311-12.

The predominance inquiry seeks to resolve whether 

there are “reliable means of proving classwide injury[.]” In 

re Rail Freight Fuel Surcharge Antitrust Litig., 725 F.3d 244, 

252-53 (D.C. Cir. 2013); see also In re Nexium Antitrust 

Litig., 777 F.3d 9, 21 (1st Cir. 2015). This is often done with 

the assistance of experts.

The District Court relied on Johnston v. HBO Film 

Management, Incorporated, 265 F.3d 178, 190 (3d Cir. 

2001), and In re LifeUSA Holding, Incorporated, 242 F.3d 

136, 146 (3d Cir. 2001), to conclude that, because these 

“telemarketers . . . interacted with consumers in different 

ways (by telephone, internet, and slamming),” Reyes, 2013 

WL 5332107, at *7, and because return rates are not absolute 

proof that the defendants are a complete sham, “the only way 

to determine if a class member was defrauded was to

individually examine the interaction between the defendant 
30

and each class member.” Id. at *6. Neither case persuades 

us.

In In re LifeUSA Holding, Incorporated, the fraud 

involved a product that “was not sold according to standard, 

uniform, scripted sales presentations.” 242 F.3d at 146. We 

concluded that simply focusing on whether all potential class 

members were misled by the same product was inappropriate. 

Id. We also stated that when “the record is uncompromising 

in revealing non-standardized and individualized sales 

‘pitches’ presented by independent and different sales agents, 

all subject to varying defenses and differing state laws, . . . 

certification of individualized issues [is] inappropriate.” Id. 

at 147; cf. Moore v. PaineWebber, Inc., 306 F.3d 1247, 1255 

(2d Cir. 2002) (“[M]aterial uniformity in the 

misrepresentations may be established without the use of a 

standardized sales script[, for example.]”). 

In Johnston, we again held that oral misrepresentation 

must be uniform in order to establish predominance under 

Rule 23(b)(3). See 265 F.3d at 190. Thus, “it has become 

well-settled that, as a general rule, an action based 

substantially on oral rather than written communications is 

inappropriate for treatment as a class action.” Id. (internal 

citations omitted).

However, both of those cases involved legitimate 

businesses and Reyes relies upon that to distinguish the 

circumstances here, arguing instead that the defendants and 

telemarketers here were not legitimate business entities. See 

In re Cmty. Bank of N. Va. Mortg. Lending Practices Litig., 

2015 WL 4547042, at *19, *21 (affirming the District Court’s 

finding that individual issues of reliance will not predominate 

when the plaintiffs “allege[] that [the defendant] performed 

absolutely no services to earn the . . . fees[]”). Rather, Reyes 

asserts that they all acted in concert to perpetrate fraud 

through a sham enterprise and that each of the defendants had 

to have known the real nature of that fraudulent enterprise. 

He also claims that any variations in the manner in which 

various individuals were defrauded is irrelevant and not 

sufficient to preclude common issues of law from 

predominating. The argument is based on his claim that the

defendants “engaged in systematic fraud and operated solely 
31

to debit victims’ accounts[]” and “there is no evidence of any 

cohort of class members who were not victims.” Appellant 

Br. at 64.

Likewise, in Cullen, plaintiffs claimed that, while the 

“defendants represented that they were providing a program 

that would prepare students for careers as ultrasound 

sonographers[,]” they “misrepresent[ed] the nature of the 

ultrasound program, and failed to provide the education 

represented.” 188 F.R.D. at 228. Even though the institution 

was accredited, the program that the plaintiffs were enrolled 

in was not. That prevented the program’s graduates from 

sitting for the relevant registration examination. Id. at 228-

29. The plaintiffs contended that the “defendants’ operation 

was a ‘complete sham,’ and did not provide even a minimal 

education.” Id. at 228. Cullen held that the sham theory 

satisfied the predominance requirement and it certified a 

RICO class. Cullen explained: “plaintiffs’ proof will be 

focused on the defendants’ conduct; plaintiffs’ case will 

revolve around evidence that the school did not meet the most 

basic standards of an educational program. It need not 

involve time consuming proof of individual causation or 

reliance.” Id. at 235. Instead, at trial, “[i]f the plaintiffs can 

prove that [the defendant] was a complete sham, then a fact 

finder can infer from the evidence that anyone who paid 

tuition and attended the school suffered damage.” Id.

Cullen relied on Rosario, which had similar facts and 

involved a similar fraudulent scheme. The trial evidence in 

Rosario established that the defendant failed to provide 

students with the skills, equipment, or environment to prepare 

for a cosmetology career for which the school was supposed 

to train students. Rosario, 963 F.2d at 1016-17. The Court of 

Appeals for the Seventh Circuit affirmed the District Court’s 

certification of the class. It held that the operative question 

was whether the “schools operated pursuant to an ongoing 

scheme to defraud and deceive prospective students[,]” thus 

applying a “complete sham” theory. Id. at 1018. The 

defendants attempted to negate that approach by relying on 

evidence that some students were satisfied with their 

education and two students who graduated did become 

licensed and were working in the field. The Seventh Circuit 

refused to conclude that the defendant-institution was not a 
32

complete sham merely because “some class members were 

satisfied with their teachers, and at least two class members 

graduated from [the defendant’s] schools and passed the state 

licensing exam.” Id. at 1017. Rather, the Court concluded 

that “[t]he fact that there is some factual variation among the 

class grievances will not defeat a class action.” Id. at 1017-18

(citation omitted).

While the District Court here recognized Reyes’ theory 

of a sham enterprise, it nevertheless concluded that the 

evidence Reyes offered in support of that theory was 

insufficient to satisfy predominance because different sales 

pitches were used and different products were pitched. 

However, if absolute conformity of conduct and harm were 

required for class certification, unscrupulous businesses could 

victimize consumers with impunity merely by tweaking the 

language in a telemarketing script or directing some (or all) of 

the telemarketers not to use a script at all but to simply orally 

convey a general theme designed to get access to personal 

information such as account numbers.

We do not believe that our discussion of predominance 

in our prior cases intended to either license such behavior by 

placing it beyond the reach of Rule 23 or to supply a roadmap 

that would guide the unscrupulous in designing fraudulent 

schemes that would be beyond the reach of Rule 23. 

Otherwise, although such subtle but irrelevant variations in 

the manner of defrauding members of the public would not 

insulate unscrupulous marketers from liability in individual 

suits, it would -- for all practical purposes -- insulate them 

from class actions. An interpretation of Rule 23 that places 

class actions beyond the reach of consumers who have been 

victimized by fraudulent schemers who are wise enough to 

adopt schemes with subtle (but meaningless) variations would 

invite the kind of consumer fraud that Reyes is alleging here.

Class actions are often the only practical check against

the kind of widespread mass-marketing scheme alleged here. 

The individual claims arising from such conduct are usually 

too small to justify suit unless aggregated in a class action. 

This is particularly true when, as is often the case, the scheme 

targets unsophisticated consumers with little disposable 

income and without the means or wherewithal to seek 
33

assistance of legal counsel. As a practical matter, the average 

victim of such a scheme nearly always finds it far easier --

and much cheaper -- to reluctantly accept any loss and move 

on than to undertake the expense and inconvenience endemic 

in the protracted process of trying to recover a few dollars 

years later.

A class action “permit[s] the plaintiffs to pool claims 

which would be uneconomical to litigate individually. . . . 

[M]ost of [such] plaintiffs would have no realistic day in 

court if a class action were not available.” Phillips Petroleum 

Co. v. Shutts, 472 U.S. 797, 809 (1985). “[C]onsumers have 

little interest in litigating their claims individually because of 

the small amount of money per plaintiff that is at stake.” 

Cabraser, supra, at 822 (quotation marks omitted). 

Moreover, obtaining counsel to pursue such a claim is usually 

the height of impracticality -- even for those who can afford 

to do so. “What rational lawyer would have signed on to 

represent the [party] in litigation for the possibility of fees 

stemming from a $30.22 claim?” AT&T Mobility LLC v. 

Concepcion, 131 S. Ct. 1740, 1761 (2011) (Breyer, J., 

dissenting).

In such cases, the class action can “create[] greater 

access to judicial relief[.]” Marcus, 687 F.3d at 594. “[I]t is[, 

in fact,] possible to think of consumer class actions as 

providing an indispensable mechanism for aggregating claims 

when the individual stake is low and the similarity of the 

challenged conduct is high.” Samuel Issacharoff, Group 

Litig. of Consumer Claims: Lessons from the U.S. 

Experience, 34 Tex. Int’l L.J. 135, 149 (1999).17 Thus, class 

actions have the practical effect of allowing plaintiffs who 

have suffered relatively de minimis loss to nevertheless 

function as private attorneys general and thereby deter fraud 

in the marketplace.

 

17 See Fed. R. Civ. P. 23 advisory committee’s note to 

the 1966 amendment (“[A] fraud perpetrated on numerous 

persons by the use of similar misrepresentations may be an 

appealing situation for a class action, and it may remain so 

despite the need, if liability is found, for separate 

determination of the damages suffered by individuals within 

the class.”).
34

The “complete sham” theory, if supported by an 

appropriate record, can satisfy the predominance prong of 

Rule 23(b)(3) by focusing on the overarching material and 

defining aspects of a defendant’s conduct. This allows a 

court to certify a class despite subtle (but meaningless) 

variations that may occur while perpetrating a fraudulent 

scheme. Thus, as Reyes contends “[u]ltimately, the question 

is the extent to which fraud can be shown to have been 

committed on the class by common evidence.” Appellant Br. 

at 64. On remand, the District Court should consider the 

entire record to determine if it supports that contention.

Investigator Blake testified “each of the schemes at 

issue was a totally fraudulent mass-marketing fraud.” Blake 

Decl., JA 1613, ¶ 15. She concluded that these were all 

“precisely the kind of fundamentally fraudulent schemes that, 

in [her] experience, have been routinely adjudicated on the 

basis of common evidence of fraud.” Id., JA 1627-28, ¶ 85. 

Professor Meyer reviewed the evidence and concluded that 

the proof of fraud was classwide. He identified four key 

features common to the way each telemarketer obtained bank 

account information and initiated debits from bank accounts. 

He concluded that although “these ‘products and programs’ 

appear to vary, all had [those] four common features essential 

to their use as props in the scheme of deception[.]” Meyer 

Decl., JA 1639-40 ¶ 19. The court-appointed receiver for 

NHS Systems, Geisser, testified that NHS Systems was 

“totally fraudulent and that no consumer who . . . had money 

taken from their account was not injured in the amount of 

money taken from their account[.]” Geisser Dep., JA 1161.

The District Court may consider that the defendants’

experts offer little reason to conclude that predominance 

cannot be satisfied here. As noted above, Milner testified for 

the defendant. Milner did not agree that a return rate in 

excess of 10% was prima facie evidence of fraud. However, 

she also explained that pursuant to its Operating Rules, 

“NACHA gathers specific information concerning individual 

Originators with high rates of unauthorized returns . . . [and] 

may send the bank of an originator producing unauthorized 

returns in excess of 1% a written request for information 
35

about specific originators.” Milner Decl., JA 3787, ¶ 25 

(citation and footnote omitted).

Professor Boss testified that “the overwhelming 

majority of banks in the United States have no unauthorized 

returns at all . . . .” Boss Decl., JA 590 ¶ 82. Reyes focuses 

our attention on testimony that Zions Bank, like most U.S. 

banks, had no unauthorized returns in August of 2006. It then 

started working with its wholly-owned subsidiary, Modern 

Payments, and its unauthorized returns began to “immediately 

. . . increase dramatically from zero in August 2006 to 799 in 

October, [and] 2,095 to 2,632 by February 2007.” Id., JA 

587-88 ¶ 78 (emphasis in original). As noted earlier, when 

adjusted for its size, Zions Bank had the highest rate of 

returns of any U.S. bank. 

Reyes also offers the following chart summarizing the 

evidence regarding the return rates of the telemarketers:

NHS 64.79% 51.90% 15

RX Smart 54.21% 42.00% 3

Market Power Entities

Market Power 86.73% 85.10% 11

Payday loan 73.46% 70.98% 4

Get Your Credit Rept 62.48% 55.94% 4

Vexeldale 74.09% 70.52% 4

Platinum Benefit Group 30.83% 37.98% 39

Group 1 Entities 51.67% 65.41% 21

Low Pay Inc 68.83% 65.41% 10

* JA 661 ** JA 663

41

55

Total Return Rates

Return Rate as a 

Multiple of 2007 

National Average 

(1.25%)**

52

43

69

59

50

59

25

Fraud Scheme

Average 

Return 

Rate*

First 

Month 

Return 

Rate*

Total 

Months 

With 

Zions*

Appellant Br. at 25 (footnote omitted).18

 

18 We are not, of course, suggesting that the District 

Court had to accept the conclusions in the chart or the expert 

testimony that the scheme here is susceptible to class 

treatment. That determination remains left to the sound 

discretion of the District Court. However, the District Court 
36

The crux of the Rule 23(b)(3) predominance inquiry

here is whether a preponderance of the evidence supports 

Reyes’ proposition that the defendants operated a complete 

sham, and whether an affirmative answer to that inquiry 

would establish the required element of predominance. Reyes 

claims that if the evidence supports such a finding by a 

preponderance of the evidence, the predominance 

requirement of Rule 23(b)(3) is satisfied, even though the 

telemarketers did not read from a uniform script or use the 

same method of defrauding each of the members of the 

putative class. Appellant Br. at 62-63 (distinguishing this 

case from In re LifeUSA Holding, Incorporated and Johnston

because there is a “question about the legitimacy of the 

[entity] itself[]” in which Reyes alleges the existence of one 

“systematic fraud”). 

As we have reiterated, Reyes argues the District Court 

erred in relying only on high return rates to deny class 

certification. As detailed above, Reyes also introduced proof 

of the structure of each of the schemes and FTC 

investigations. In particular, Reyes points to “broader 

eviden[ce] . . . includ[ing] three experts (all of whom opined 

that the underlying mass-marketing schemes were completely 

fraudulent), the related government proceedings, Mr. 

Geisser’s testimony, and a wealth of documentary evidence 

and deposition testimony reflecting Defendants’ knowledge 

of the fraud they were furthering.” Id. at 54.19 According to 

 

is not free to simply ignore such testimony without explaining 

why it is rejecting it. That is the antithesis of the thorough 

and rigorous inquiry that the law demands at the certification 

stage.

19 See also Appellant Reply Br. at 9-12 (discussing 

additional evidence, including “internal bank documents 

showing that Defendants were aware that they were providing 

services to frauds,” warnings from regulators, other banks, 

and employees “directly inform[ing] [the defendants] that 

they were carrying out transactions for frauds[,]” expert 

testimony, testimony from Geisser, “documents and 

declarations from both regulatory actions that identified each 

of the mass-marketing entities as frauds and those that 
37

Reyes, the “evidence [presented about the fraudulent 

companies] applies to the class as a whole, [therefore] the 

jury’s consideration of th[e] evidence would apply to each 

class member’s claim.” Id. at 37. If accepted, the District 

Court may conclude that this evidence supports a finding that 

there was a single fraudulent RICO enterprise, that each 

defendant participated in that enterprise, and that all members 

of the proposed class were damaged in the amount of the 

funds debited from their bank accounts pursuant to the 

fraudulent scheme. We leave it for the District Court to 

assess this on remand.

Reyes further asserts that the District Court could have 

specified subclasses for each defendant if it were concerned 

about proving fraud with respect to each entity. Id.; 

Appellant Reply Br. at 6 n.4. On remand, to the extent that 

 

ordered complete restitution of their victims[,]” data 

demonstrating the “explo[sion]” of unauthorized returns 

following the formation of the alleged RICO enterprise, and 

“documents showing that Defendants closely monitored the 

entities’ extreme return rates—which they openly 

acknowledged were staggering[.]” (citations and quotation 

marks omitted)).

In mentioning this evidence, we in no way suggest that 

we agree with the District Court’s conclusion that evidence of 

high return rates cannot establish fraud on this record. We 

refrain from concluding that return rates can never be prima 

facie evidence of fraud or knowledge of fraud, no matter how 

much they vary from industry norms. See Blake Decl., JA 

1612-13 ¶ 14.d (“The schemes at issue here involve unusually 

high numbers of returns even compared to other fraudulent 

schemes I have investigated. It is therefore highly likely that 

most of these schemes engaged in what is commonly known 

as ‘slamming.’”); Boss Decl., JA 587-88, 590 ¶¶ 78, 82 

(“Anyone in possession of the[] facts [about the return rates] 

would have to have known fraud was involved. . . . It is 

obvious that the high rates of unauthorized returns are 

indicative of fraudulent activity by these companies.”); Meyer

Decl., JA 1637-38 ¶¶ 12.a, 14 (“For there to be such high 

return rates there had to be fraud involved. . . . I conclude 

with reasonable certainty that the return rates alone establish 

that each of the entities at issue was fraudulent.”).
38

the District Court is concerned with the commonality and 

predominance requirements because of variations in the way 

the affairs of the allegedly fraudulent enterprise was 

conducted, it can consider whether Reyes’ proposed 

subclasses would adequately address those concerns. Fed. R. 

Civ. P. 23(c)(5), (d); see also Neale, 2015 WL 4466919, at 

*15 (“[T]he District Court should evaluate the relevant claims 

(grouping them where logical and appropriate) and rule on the 

predominance [and commonality] question[s] in light of the 

claims asserted and the available evidence.” (citation 

omitted)); Tobias Barrington Wolff, Discretion in Class 

Certification, 162 U. Pa. L. Rev. 1897, 1898 (2014) 

(“[D]istrict courts sometimes exercise discretion in defining 

the parameters of the class definition and deciding when 

subclasses are necessary, often acting independently of any 

proposals made by the parties.” (footnote omitted)).20 We 

note, however, “[t]he court has no sua sponte obligation so to 

act.” U.S. Parole Comm’n v. Geraghty, 445 U.S. 388, 408 

(1980). “[I]t is not the District Court that is to bear the 

burden of constructing subclasses. That burden is upon the 

[plaintiff] . . . who is required to submit proposals to the 

court.” Id.

As we have already explained, Reyes is correct in 

asserting that the District Court erred when it “examined one 

piece of evidence -- the mass-marketers’ extreme return rates 

-- and concluded that these rates alone were not ‘absolute 

proof’ of fraud.” Appellant Br. at 37. The law does not 

permit a district court to only consider and analyze the “most 

significant evidence[.]” Reyes, 2013 WL 5332107, at *2. 

Rather, the trial court must consider “all relevant evidence 

and arguments, including relevant expert testimony of the 

parties [unless there is a reason to reject certain testimony].” 

In re Hydrogen Peroxide Antitrust Litig., 552 F.3d at 325 

(emphasis added); see also In re Blood Reagents Antitrust 

Litig., 783 F.3d 183, 187 (3d Cir. 2015). Moreover, as we 

have also explained, we do not require “absolute proof.” 

Indeed, such a burden would be prohibitive, as few things are 

capable of absolute proof that removes all possibility of 

 

20 For a very thorough development of the evolution of 

discretion under Rule 23, see Wolff, Discretion in Class 

Certification, 162 U. Pa. L. Rev. at 1911-39.
39

doubt. Here, the District Court’s analysis singled out the 

“most significant evidence” (return rates) and then improperly 

applied a heightened standard to that evidence while ignoring 

all of the other testimony.

However, there is an even more fundamental flaw in

the District Court’s analysis. The District Court relied on fact 

witnesses while ignoring expert testimony, and confused the 

testimony of the witnesses it did consider.21 As noted above, 

Reyes presented declarations from three expert witnesses: 

Professors Boss and Meyer, and Investigator Blake. 

However, the District Court failed to mention, let alone 

closely scrutinize, any of Reyes’ experts. See Amchem 

Products, Inc., 521 U.S. at 615-16 (referring to the trial 

court’s “close look” before finding predominance and 

superiority); In re Hydrogen Peroxide Antitrust Litig., 553 

F.3d at 320 (“[A] district court errs as a matter of law when it 

fails to resolve a genuine legal or factual dispute relevant to 

determining the requirements.”). The District Court then 

referred to Geisser and Fox as Reyes’ expert witnesses. 

Reyes, 2013 WL 5332107, at *7. Geisser and Fox were not 

expert witnesses, but fact witnesses. Geisser was installed as 

the NHS Systems receiver after the FTC obtained a 

preliminary injunction against NHS Systems; Fox was a 

senior director of risk investigation at NACHA. Appellant 

Br. at 10, 12, 26.

Perhaps because it confused their role and expertise, 

the District Court relied on a concession by the fact witnesses 

to justify limiting its analysis to evidence of high return rates.

Reyes, 2013 WL 5332107, at *7 (relying on Geisser’s 

concession and Fox’s silence to conclude that the high return 

rates are not dispositive of fraud). However, not only did 

Reyes’ expert witnesses fail to make this concession, Blake 

Decl., JA 1612-13 ¶ 14.d; Boss Decl., JA 587-88, 590 ¶¶ 78, 

82; Meyer Decl., JA 1637-38 ¶¶ 12.a, 14, they also based 

their conclusions on the additional evidence discussed above.

 

21 Much of the confusion here is understandable. The 

District Court inherited the rather voluminous record in this 

case from another judge.
40

The defendants correctly remind us that “[d]istrict 

courts are not required under Hydrogen Peroxide, or any 

other authority, to cite specifically to the declarations of every 

expert or every other piece of evidence relevant to class 

certification merely to prove that they were considered in its 

rigorous analysis of the Rule 23 requirements.” Appellee Br. 

at 32-33 (emphasis in original) (citations omitted). That is 

undoubtedly true. However, a “rigorous analysis” is 

nevertheless mandated, and the defendants do not contest 

that.

Quite obviously, an analysis of testimony that refers to 

individuals as expert witnesses when they are merely fact 

witnesses and confuses one party’s fact witnesses with 

experts, while not correctly citing any expert testimony, is 

inconsistent with the demanding scrutiny required under Rule 

23. “[T]he court’s obligation to consider all relevant 

evidence and arguments extends to expert testimony, whether 

offered by a party seeking class certification or by a party 

opposing it.” In re Hydrogen Peroxide Antitrust Litig., 552 

F.3d at 307 (emphasis added).

We have not required a district court to refer to, or cite,

every expert that either party presents and we do not do so 

now.

22

 Rather, we merely apply the holding of In re 

Hydrogen Peroxide Antitrust Litigation: “[T]he district court 

must make whatever factual and legal inquiries are necessary 

and must consider all relevant evidence and arguments 

presented by the parties.” 552 F.3d at 307 (emphasis added) 

(citation omitted).23

The defendants argue that the District Court’s 

mistaken reference to fact witnesses as Reyes’ experts did not 

 

22 See, e.g., Marcus, 687 F.3d at 603 (failing to 

interpret In re Hydrogen Peroxide Antitrust Litigation as 

requiring a district court to explicitly discuss every expert 

opinion).

23 As we have explained above, In re Hydrogen 

Peroxide Antitrust Litigation merely “emphasize[s] the need 

for a careful, fact-based approach, informed, if necessary, by 

discovery.” 552 F.3d at 326.
41

result in an abuse of discretion because the District Court 

addressed the key arguments that each of Reyes’ experts 

made. This record belies that argument. The District Court 

merely focused on high return rates, without more. Reyes, 

2013 WL 5332107, at *7-8. Not only did the District Court 

minimize the probative value of that evidence by requiring 

absolute proof of fraud, thereby undermining its relevance to 

the requirements of Rule 23(a) and Rule 23(b)(3), it also 

failed to confront Reyes’ experts’ arguments on the

importance of the return rates. See, e.g., Boss Decl., JA 582-

92 ¶¶ 66-87; Meyer Decl., JA 1637-38 ¶ 12.b. Further, as 

discussed above, the District Court failed to confront Reyes’ 

experts’ arguments of “clear indications of fraud[]” based on 

more than return rates. Boss Decl., JA 587 ¶ 77. See, e.g., 

Blake Decl., JA 1613 ¶ 15; Boss Decl., JA 592 ¶ 87; Meyer 

Decl., JA 1639 ¶ 18.24

A district court errs as a matter of law when it confuses 

testimony, as the District Court did here, and fails to carefully 

scrutinize the relevant, disputed testimony.25

III. CONCLUSION

For the reasons set forth above, we will vacate the 

order denying class certification and remand for proceedings 

consistent with this opinion.

 

24 Amici remind us that Milner testified that 

“transactions may be returned to a merchant under 68 

different return codes, each of which has a different definition 

and covers different return scenarios. None of these codes are 

defined to identity fraud.” American Bankers Ass’n & Indep. 

Cmty. Bankers of America Br. at 5. That does not negate the 

force of the evidence of rate of return of each of the defendant 

merchants here. It is fair to assume that similarly situated 

banks would generally have roughly equivalent return rates. 

Indeed the testimony here supports that assumption.

25

 We may have a different situation if the District 

Court quoted the expert witnesses, but mistakenly referred to 

them as fact witnesses. That is not what happened. Here, we 

have the fact witnesses’ arguments and names, not the 

experts’.