Opinion ID: 1103328
Heading Depth: 3
Heading Rank: 1

Heading: Fraudulent-Misrepresentation and Suppression Claims

Text: In its certification order, the trial court recognized this Court's reluctance to certify a class action involving allegations of fraud and suppression; however, it concluded that the plaintiff policyholders met their burden of proving the predominance of common issues regarding their fraudulent-misrepresentation and suppression claims: Whether common issues of fact predominate over individual issues regarding the class members' misrepresentation and suppression claims is a more difficult issue. Alfa contends that it is impossible to know what each insured was told about his or her minimum deposit policy, and that the issue of each person's reliance requires an individualized inquiry. Alfa further argues that class treatment is inappropriate because each policyholder's claimed damages would have to be evaluated individually. [The plaintiff policyholders] respond to Alfa's contentions by asserting that there were no material variations in the representations given each class member. Almost all of the minimum deposit policyholders were provided illustrations generated by Alfa which represented that dividends, and not loans, would pay future premiums. The verbal misrepresentations, according to the [plaintiff policyholders], were consistent with these illustrations. [The plaintiff policyholders] allege that the suppression claim is also suitable for class treatment because Alfa had a corporate policy of nondisclosure regarding the minimum deposit option. Plaintiffs aver that this uniform failure to disclose is appropriate for class treatment. This Court is very aware of our Supreme Court's reluctance to allow certification of fraud and suppression claims. See, e.g., Ex parte AmSouth Bancorporation, 717 So.2d 357 (Ala.1998); Butler v. Audio/Video Affiliates, Inc., 611 So.2d 330 (Ala.1992). Yet this Court is also aware that there is no blanket prohibition against the certification of a fraud class action. See Ex parte Household Retail [Serv.] Inc., [744 So.2d 871, 881 (Ala.1999)]. The determinative issue is whether there was a material variation in the representations made or in the kinds or degrees of reliance by the persons to whom they were addressed. Id. at 881, citing Advisory Committee Notes to [Fed.] R. Civ. P.[, Rule] 23(b)(3) (on 1966 amendments to rules). This Court has reviewed the materials submitted by the parties and listened carefully to the arguments of counsel at the class certification hearing. [The plaintiff policyholders] have submitted substantial proof that there was no material variation among the oral statements made to the class and that no material variation existed between the oral statements and written illustrations. Ex parte Household Retail [Serv.] Inc., [744 So.2d at 878], citing Kirkpatrick v. J.C. Bradford & Co., 827 F.2d 718, 724 (11th Cir.1987); Grainger v. State Sec. Life Ins. Co., 547 F.2d 303, 307 (5th Cir.1977). It is also significant to this Court that this case, having been filed after March 14, 1997, is governed by the reasonable reliance standard. [The plaintiff policyholders] are not required to prove class members' reliance according to a subjective standard; the objective standard described in Torres v. State Farm Fire & Casualty Co., 438 So.2d 757 (Ala. 1983), is the standard upon which the class members' reliance can be compared. Cf. Ex parte Household Retail [Serv.] Inc., [744 So.2d at 882]. Because of the applicability of this objective standard, it will be unnecessary to conduct individualized inquiries into each class member's reliance. Due to [the plaintiff policyholders'] evidence presented this Court finds that [the plaintiff policyholders] have met their burden of proving the predominance of certain issues. [The plaintiff policyholders] have offered convincing evidence that representations made by Alfa agents throughout the State were virtually identical because these agents were trained uniformly and were required to utilize uniform sales illustrations. See In re Prudential Ins. Co. of America [Sales Practices Litigation], 962 F.Supp. 450 (D.N.J.1997); In re New England [Mut.] Life [Ins. Co.] Sales Practices Litigation, 183 F.R.D. 33 (D.Mass.1998); Security Life of Denver Ins. Co. v. Ferguson, [Ms. 05-98-01738-CV, May 28, 1999] (Tex [Ct.] App. 1999) [not designated for publication]. Alfa will undoubtedly present evidence at trial tending to rebut [the plaintiff policyholders'] proof. Such evidence simply frames issues of fact to be resolved by the jury and in no way undercuts the manageability of the class action procedure. The fact that class members may have sustained various degrees of damage also will not render a class action unmanageable. Varying damage levels rarely prohibit a class action if the class members' claims possess factual and legal commonality. Mayer v. Mylod, 988 F.2d 635, 640 (6th Cir.1993). This Court can certainly design procedures to resolve the issue of damages. See, e.g., Arthur Young & Co. v. United States Dist. Ct., 549 F.2d 686, 693-94 (9th Cir. 1977). (Emphasis added.) Alfa claims that the plaintiff policyholders have failed to meet their burden of proving the predominance of common issues of law or fact regarding their fraudulent-misrepresentation claim because, it says, they presented inconsistent testimony of the alleged oral and written misrepresentations by the Alfa agents. Alfa claims that without questioning each class member to determine what questions each class member asked and how each Alfa agent responded to those individualized questions the plaintiff policyholders cannot show that the misrepresentations were uniform. Moreover, Alfa contends that each class member's individual reliance precludes the treatment of the fraudulent-misrepresentation claim as a class action. The plaintiff policyholders argue that the trial court correctly concluded that individualized testimony is not necessary because, they argue, the misrepresentations of the Alfa agents were uniform. According to the plaintiff policyholders, the class-wide liability issues will focus upon Alfa's management-directed scheme to make misrepresentations and omissions. To establish the elements of fraudulent misrepresentation the plaintiff policyholders must show: (1) that the representation was false, (2) that it concerned a material fact, (3) that [they] relied on the false representation, and (4) that actual injury resulted from that reliance. Boswell v. Liberty Nat'l Life Ins. Co., 643 So.2d 580, 581 (Ala.1994); § 6-5-101, Ala.Code 1975. We have recognized the difficulties posed by the certification of a class when a claim of misrepresentation is involved, with numerous representations and varying degrees of reliance. Ex parte Green Tree Fin. Corp., 723 So.2d 6, 10 n. 2 (Ala.1998). Even if numerous representations have a common core, an action may still be unsuited for class-action treatment if material variations exist in the representations or if the degree of reliance varies among the persons to whom the representations were made. Green Tree, 723 So.2d at 10 n. 2 (citing the committee comments, Rule 23(b)(3), Fed.R.Civ.P.). In Ex parte Household Retail Services, Inc., 744 So.2d 871 (Ala.1999), persons selling satellite systems visited the homes of potential purchasers. The salespersons orally communicated the purchase terms for the satellite systems and also presented written financing arrangements to the potential purchasers. 744 So.2d at 878. Kathleen and Eugene Cosby, as class representatives, maintained that the salespersons' oral and written representations were false and that they had relied to their detriment on those false representations. 744 So.2d at 878. We recognized the general rule that the individualized nature of oral communications in fraud claims between class members and defendants typically precludes class certification. 744 So.2d at 877. See also Ex parte AmSouth Bancorporation, 717 So.2d 357, 363-64 (Ala.1998). However, we also stated that a plaintiff can have a class action certified on fraud claims based on oral misrepresentations by showing that the oral misrepresentations were uniform or that they were part of a standardized sales pitch. Household Retail, 744 So.2d at 878. Moreover, class treatment of claims involving both oral and written misrepresentations can be appropriate when the plaintiff demonstrates (1) that no material variation exists among the oral statements made to the class and (2) that no material variation exists between the oral and written statements. 744 So.2d at 878. We held that the trial court should not have certified the Cosbys' fraud claim because the Cosbys did not present evidence indicating that the oral representations were standardized. 744 So.2d at 878-79. The present case likewise involves a mix of alleged written and oral misrepresentations. The trial court discussed Alfa's written misrepresentations and concluded that almost all of the members of the class were presented with written illustrations that represented that future premiums would be paid by dividends, and not policy loans. The plaintiff policyholders describe the alleged written misrepresentations as ESP illustrations. Harper, Alfa's vice president of life and loan operations, testified that he was aware that Alfa agents presented ESP illustrations to potential policyholders. However, based upon a review of the record, it is unclear what written misrepresentations were made to the plaintiff policyholders. Hughes testified that he did not know exactly what the documents were that Alfa agent Frazure presented him with, but he did recall receiving an illustration in a brochure. Cline testified that at some point he saw an illustration. Pursuant to Alfa's request for production, Cline produced an ESP illustration he had received at some point. Alfa agent Scott testified that he showed Cline an illustration of how the minimum-deposit payment plan worked. The Dakes testified that Lord presented an ESP illustration that included his own handwritten notes. Therefore, it is unclear what standardized written misrepresentations the plaintiff policyholders received. The trial court found that the oral misrepresentations were consistent with the written ESP illustrations. The record, however, indicates an absence of such uniformity. Alfa agent Frazure told Hughes that after he paid his premiums for four years, his premiums would be paid from the interest that this money accrued. Alfa agent Scott told Cline that after he paid his premiums for four years, his policy would be self-sustaining through dividends or interest. The Dakes testified that Alfa agent Lord told them that the point at which they could stop paying premiums out-of-pocket depended on Alfa's earnings. The Dakes also testified that Lord told them that their policy would become self-sustaining through dividends. The differences in the experiences of the four named plaintiff policyholders alone illustrates how extensive the individual inquiry would be in determining what representations were made to each class member. The oral misrepresentation claims of the plaintiff policyholders fare no better on the issue of uniformity, thus making it almost impossible to determine if a material variation existed between the oral and written misrepresentations as required under Household Retail, supra. Although the trial court found that Alfa agents were trained uniformly and were required to use uniform sales illustrations, the record reflects that the training material Alfa used to explain its minimum-deposit payment plan to its agents does not contain a standardized sales pitch. Despite Alfa's continuous opposition to the admissibility of Alfa agent Lord's affidavit as presented by the plaintiff policyholders, the affidavit actually shows that Alfa agents were not instructed to use a standardized sales pitch. Lord testified that he did not inform the Dakes that loans were used to pay policy premiums under the minimum-deposit payment plan because, he said, he was not trained to do so. However, Alfa employees O'Neal and Scott testified that they informed Hughes and Cline, respectively, about the loan policy because they had been trained to do so by Alfa. Thus, the record indicates that the Alfa agents' presentations to the plaintiff policyholders were not virtually identical, as the trial court stated. Instead, the record reveals that the Alfa agents were not uniformly trained to submit a standardized presentation of the minimum-deposit payment plan to potential policyholders of Whole Life 110 policies. The trial court recognized that Alfa disputed the plaintiff policyholders' view of the evidence of uniformity but attempted to downplay that evidence, as simply fram[ing] issues of fact to be resolved by the jury and in no way undercut[ting] the manageability of the class action procedure. If such logic were compelling all a plaintiff need do to satisfy the commonality requirement is assert that commonality exists and, if the trial court accepts its assertion over contrary evidence from the defendant, the ensuing trial involving proof of liability specific to each class member would somehow be considered manageable. The United States Court of Appeals for the Seventh Circuit rejected such deference to a plaintiff's view of the evidence in Szabo v. Bridgeport Machines, Inc., 249 F.3d 672, 677 (7th Cir.2001). [4] In Szabo the court held: Certifying classes on the basis of incontestable allegations in the complaint moves the court's discretion to the plaintiff's attorneyswho may use it in ways injurious to other class members, as well as ways injurious to defendants. Both the absent class members and defendants are entitled to the protection of independent judicial review of the plaintiff's allegations. See also Johnston v. HBO Film Mgmt., Inc., 265 F.3d 178, 188 (3d Cir.2001) (recognizing that `sometimes it may be necessary for the court to probe beyond the pleadings before coming to rest on the certification question.... [A]ctual, not presumed[,] conformance with Rule 23(a) remains ... indispensable.') (quoting General Tel. Co. of Southwest v. Falcon, 457 U.S. 147, 160, 102 S.Ct. 2364, 72 L.Ed.2d 740 (1982)). Johnston involved a claim of fraud in the marketing of Cinema Plus, a limited partnership formed to finance the production of motion pictures. The plaintiffs sought to have the action certified as a class action. The district court denied the motion for class certification. 265 F.3d at 181. The court of appeals in Johnston was faced with a situation, similar to the one presented here; it noted the starkly different accounts of plaintiffs Johnston and Fontaine as to how and why they came to invest in Cinema Plus and pointed out that the brokers denied using uniform presentations, and more importantly, there is no evidence that, other than Kaiser and Fontaine's broker, any made the alleged misrepresentation ... at all. 265 F.3d at 191. Finally, the court observed that Johnston and Fontaine both testified that if they received written sales information or prospectuses from defendants prior to purchase, they did not rely on them, nor could they recall their substance. 265 F.3d at 191. The court concluded: Here, however, we do not know the content of the individual representations as they were not standard or scripted but were oral and varied. Moreover, we do not know whether or to what extent the representations facilitated the sales of Cinema Plus units. In the circumstances, we cannot say `that questions of law or fact common to the members of the class predominate over any questions affecting only individual members.' Rule 23(b)(3)[, Fed. R. Civ. P]. 265 F.3d at 191. We prefer this approach to manageability. Even if we were to find that the misrepresentations the Alfa agents made to the plaintiff policyholders were uniform, the issue of each class member's reasonable reliance precludes class certification of the fraudulent-misrepresentation claim. See Foremost Ins. Co. v. Parham, 693 So.2d 409 (Ala.1997). The plaintiff policyholders contend that there was common reliance by the class members and that [e]veryone acted the same. Plaintiff policyholders' brief, p. 62 n. 22. The trial court agreed and concluded that because of the objective reasonable reliance standard, individualized inquiries would not be necessary. However, a determination of each class member's reliance would require individualized inquiry as to whether that reliance was reasonable `based on all of the circumstances surrounding [the] transaction, including the mental capacity, educational background, relative sophistication, and bargaining power of the parties.'  Reynolds Metals, 825 So.2d at 108 (quoting Foremost Insurance, 693 So.2d at 421)). Under the rationale of Reynolds Metals and Household Retail, we hold that the trial court should not have certified a class with regard to the fraudulent-misrepresentation claim. In regard to the plaintiff policyholders' suppression claim, the trial court found that the claim was suitable for class-action treatment because the plaintiff policyholders presented sufficient evidence indicating that Alfa had corporate policy of nondisclosure. The plaintiff policyholders contend that they established that Alfa made materially similar omissions to all class members, including the failure to send the policyholders information about the minimum-deposit payment plan, the failure to inform the class members of the changes in the tax law negating the benefits of the minimum-deposit payment plan, and the failure to warn class members of the substantial taxable gain if they surrendered their policies. In Compass Bank, supra, the plaintiffs sought to certify a class of customers allegedly harmed by Compass Bank's failure to disclose the order in which it posted a customer's checks. 823 So.2d at 668. The plaintiffs alleged fraudulent suppression; however, we concluded that individual issues predominated over the common questions of law or fact, thus making the class unmanageable. 823 So.2d at 672-74. With respect to the reliance element, we stated: It is clear that here, ... individual inquiry will be required to determine at the very least what information, if any, each plaintiff customer received about the posting order, [and] the extent to which each plaintiff customer relied on the Compass defendants' alleged failure to disclose its policies.... 823 So.2d at 674. In the present action, as in Compass Bank, individual inquiries will be required to determine what information regarding the minimum-deposit payment plan was presented to each class member, the extent to which each class member relied upon the oral and/or written information, and whether it was reasonable for each class member to rely upon the alleged misrepresentations of the particular Alfa agent involved. Because reasonable reliance is an essential element of suppression, we find that the individual issues of reliance preclude class-wide treatment of the plaintiff policyholders' suppression claim. See Household Retail, 744 So.2d at 879.