Opinion ID: 2833600
Heading Depth: 2
Heading Rank: 5

Heading: the district court’s resolution of

Text: 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 . 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, 15 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). 16 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 . 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).