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Vida F. Negrete, As Conservator For Everett E. Ow, An Individual and v. Allianz Life Insurance Company of North America

December 27, 2012


The opinion of the court was delivered by: Christina A. Snyder United States District Judge




In these related class action cases, plaintiffs Vida F. Negrete ("Negrete"), as conservator for Everett Ow ("Ow"), and Carolyn B. Healey ("Healey") (collectively, "plaintiffs"), on behalf of themselves and a nationwide class of an estimated 200,000 senior citizens, allege that defendant Allianz Life Insurance Company of North America, Inc. ("Allianz") conspired with a network of affiliated Field Marketing Organizations ("FMOs") to induce class members to purchase deferred annuities issued by Allianz by means of misleading statements and omissions regarding the value of those annuities.

Negrete filed suit against Allianz on September 19, 2005, alleging the following claims for relief: (1) violation of the Racketeer Influenced and Corrupt Organization Act, 18 U.S.C. § 1961, et seq. ("RICO"); (2) elder abuse under Cal. Welf. & Inst. Code §§ 15610 et seq. ("§ 15610"); (3) unlawful, unfair and fraudulent business practices under California's Unfair Competition Law ("the UCL"), Cal. Bus. & Prof. Code §§ 17200, et seq.; (4) false and misleading advertising under Cal. Bus. & Prof. Code §§ 17500, et seq. (the "False Advertising Law" or "FAL"); (5) breach of fiduciary duty; (6) aiding and abetting breach of fiduciary duty; and (7) unjust enrichment and imposition of constructive trust. On December 22, 2005, Healey filed suit against Allianz, alleging similar claims for relief. The Court ordered coordination of the two actions as related cases (collectively, "Negrete"). On November 21, 2006, the Court granted plaintiffs' motion for class certification as to their nationwide RICO claim, as well as a California-only subclass asserting statutory violations, including the UCL. Negrete Dkt. No. 134 ("Class Order").

On March 12, 2010, Allianz moved for summary judgment on the RICO claims of certain Negrete class members which it contended were barred by the doctrine of claim preclusion as a result of the final judgment entered in Allianz's favor on January 29, 2010 in Mooney v. Allianz Life Ins. Co. of N. Am., Case No. CV 06-00545 ADM/FLN (D. Minn) ("Mooney"). In an order issued August 18, 2010 (the "Claim Preclusion Order"), the Court denied Allianz's motion for summary judgment and granted plaintiffs' cross-motion for partial summary judgment on Allianz's affirmative defense of claim preclusion. Claim Preclusion Order at 24.

On June 10, 2011, Allianz filed a renewed motion for summary judgment on the RICO claims. On October 13, 2011, the Court denied the motion, finding that disputed issues of material fact precluded summary judgment on the required elements of (1) a RICO enterprise; (2) an injury "by reason of" the conduct constituting the alleged RICO violation; and (3) a RICO conspiracy. Dkt. No. 805. The Court also denied defendant's motion to exclude the declaration of Dr. Craig McCann, plaintiff's chief expert, on the same date. Dkt. No. 804.

On May 30, 2012, Allianz filed a motion to decertify the class. Dkt. No. 830. On August 14, 2012, plaintiffs filed their opposition. Dkt. No. 851. Allianz filed a reply on October 15, 2012. The Court heard oral argument on November 8, 2012. After considering the parties' arguments, the Court finds and concludes as follows.


A. Factual Background

The facts of this case are well-known to the parties and set forth more fully in the Court's prior orders. In brief, plaintiffs allege that Allianz sold deferred annuities to elderly class members through a standardized sales program premised upon three key misrepresentations: that Allianz's annuities carried "no sales charges," offered an "immediate bonus," and would pay "full value" if certain deferral requirements were met. Plaintiffs allege that these descriptions were false and misleading, as Allianz in fact paid exorbitant commissions to its sales agents, and a policyholder could not receive the "full value" of their annuity unless it remained in deferral for at least five years, with payout taken over at least ten years. In addition, plaintiffs allege that certain annuity purchasers had the value of their annuity further reduced by the "expense recovery adjustment" ("ERA"), which plaintiffs characterize as an undisclosed "reduction to the purchaser's annuitization value, resulting in lower annuitization payments." Along with the ERA, plaintiffs also offer evidence that Allianz lowered the yields of its annuities to recoup the cost of the bonus and the sales commissions ("yield reductions"). Plaintiffs allege that the ERA, coupled with the yield reductions, effectively precluded annuity holders from realizing any premium bonus.

These three key descriptions of the Allianz annuities were contained in sales brochures that Allianz agents were required to provide to prospective purchasers, along with a Statement of Understanding ("SOU"). Upon signing the SOU, annuity purchasers acknowledged that they had received and read the relevant sales brochure. In addition, the sales agent countersigned that he or she had not made any representations that diverged from the content of the brochure. The brochures did not discuss how Allianz allegedly recouped the bonus and sales commissions through reduced annuity yields or the ERA. Plaintiffs contend that the three alleged misrepresentations, as part of Allianz's scheme to defraud elderly purchasers, have caused "direct and quantifiable injury" to the members of the class, because the Allianz "annuities are necessarily worth less as a result of the undisclosed hidden charges" on the date of purchase. Opp'n at 4.

B. Prior Class Order

On November 21, 2006, the Court granted plaintiffs' motion for class certification as to their nationwide RICO claim. Class Order at 26--27. First, the Court found that the Rule 23(a) requirements of numerosity, typicality, and adequacy of representation were met. Id. at 8--10. As to typicality, the Court noted that "plaintiffs' claims are based on an alleged common course of conduct by Allianz to 'illegally target seniors'. . . as part of a 'single overarching fraud scheme.'" Id. at 8. In rejecting Allianz's argument, the Court noted that "variations in the degree of injury allegedly suffered by each class member do not defeat typicality." Id. at 10 n. 8. In addition, the Court found that commonality was satisfied, because "the class members' claims derive from a common core of salient facts, and share many common legal issues." Id. at 9. Theses common factual and legal issues include "whether Allianz entered into the alleged conspiracy and whether its actions violated the RICO statute." Id.

Second, in addressing the Rule 23(b)(3) inquiry, the Court noted that "the crucial question" is whether there is (1) "a plausible class-wide method for proving that the defendant's misstatements or omissions about the economic value and benefits of the annuities in question caused injury to the members of the class"; and (2) "a plausible class-wide method for proving damages." Id. at 12 (emphasis added). The Court first addressed the threshold question of whether reliance is required to state a RICO claim, finding that "this is a case where proof of reliance is 'a milepost on the road to causation.'" Id. at 14 (citing Caesars World, Inc. v. Poulos, 379 F.3d 654, 664 (9th Cir. 2004)). The Court reasoned that "proof that defendant's alleged deceptive practices proximately caused members of the class to suffer concrete financial loss. . . depend[s] on showing that class members made investment decisions based on material misinformation and omissions." Id. (emphasis added). Moreover, the Court rejected plaintiff's argument that reliance could be presumed, as this case is based upon alleged affirmative false written statements, not omissions. Id.

The Court also rejected plaintiff's argument that evidence that defendant and its agents engaged in a common course of deceptive conduct was sufficient to establish defendant's liability for fraudulent misrepresentation. Id. at 15. The Court reasoned that because "the misrepresentations standing alone have little legal significance," plaintiffs must show that each class member (1) received a misrepresentation and (2) relied on this misrepresentation to their detriment. Id. (citations omitted).

Therefore, the Court concluded that plaintiffs could demonstrate that class certification was appropriate, if plaintiffs could demonstrate the following: First, class certification would be appropriate if plaintiffs could prove that "uniform representations were made to all class members which were misleading because they failed to disclose that [1] all of the annuities at issue were worth less than the purchase prices paid for them or [2] are fundamentally inferior to comparable products." Id. at 16. This showing would satisfy the proximate cause requirement of plaintiffs' RICO claim. Second, the Court found that if the annuities are "worth substantially less than the prices paid for them," or if a "common sense inference" is available because "no rational class member would purchase the annuities in question upon adequate disclosure of the facts," then generalized proof based upon the common misrepresentations may supply a means of establishing class-wide proof of damages. Id.

The Court found that plaintiffs could potentially make this showing here. First, based on their evidence of "standardized written presentations, coupled with [their] allegations that class members purchased annuity products far less valuable than other comparable products or the prices paid for them," plaintiffs could establish the existence of a class-wide means of seeking to prove proximate causation under Poulos for purposes of class certification. Id. at 17. This included evidence that Allianz: (1) "prepared standardized consumer brochures and SOUs for each annuity product"; (2) "required both the purchaser of the annuity and the agent sign the SOU at the time of sale," attesting to the fact that the purchaser "had read and understood the information set forth therein, which had also been explained by the sale agent"; (3) the agent's attestation that he or she "had not made statements that differ from the disclosure form." Id. at 17. Second, with regard to class-wide proof of damages, the Court found that the financial circumstances of the individual class members were irrelevant, "because plaintiffs have accepted a high bar for proving their case, namely, that no rational senior would have bought any of the Allianz deferred annuities if they had known the truth." Id. at 18. As such, plaintiffs could rely on an inference of reliance based on the theory that no rational senior would have purchased the annuities, absent the misrepresentations. Id.

C. Developments Since the Court's Class Order

The parties dispute precisely what has transpired in this litigation since the Court initially certified the class. The parties do not dispute that pursuant to this Court's original Class Order, notice was mailed to absent class members apprising them of their right to opt-out. See Dkt. No. 268 (March 8, 2008). Plaintiffs note that they have adopted a "refined" theory of damages, in addition to winnowing the number of Allianz products at issue in this litigation. Friedman Decl. ¶ 4. Plaintiffs' damages theory is discussed in more detail below. As to products, according to plaintiffs, their revised class claims now cover twenty annuity products, as plaintiffs seek to remove nineteen annuity products from the class claims. Id. ¶ 9. These are the Annuitizer, Cash Bonus Elite, Cash Buffet, the Dominator Five through Ten series, Ideal, Ideal Index, Ideal Index 75 and 100, Powerhouse, PowerRate 5, PowerRate 5 Elite, Accumulator X, Accumulator Classic, and the InCommandDex. (collectively, the "Excluded Products"). Id. Plaintiffs contend that the Excluded Products gave rise to only 6% of the total premiums collected by Allianz during the class period. Id. ¶ 12.

Defendant contends that plaintiffs have adopted a new, untested theory of damages and liability. Defendant also objects to any unilateral narrowing of the class products by plaintiffs' counsel, absent new notice being provided to members of the class who will no longer be represented in this litigation. See Reply at 3; Reply Decl. of Denise Fee ¶ 8 (detailing defendant's analysis of the number of potential class claims per product). At oral argument, counsel for plaintiffs agreed that new notice must be provided, and that if the Court is inclined to maintain certification of the class, plaintiffs would bear the cost of providing notice to those current class members who would no longer be members of the class. The Court agrees, and finds that if the class certification order is modified to exclude class members, then under Diaz v. Trust Territory of Pac. Islands, 876 F.2d 1401, 1408 (9th Cir. 1989), such notice is required.


"Class actions have two primary purposes: (1) to accomplish judicial economy by avoiding multiple suits, and (2) to protect rights of persons who might not be able to present claims on an individual basis." Haley v. Medtronic, Inc., 169 F.R.D. 643, 647 (C.D. Cal. 1996) (citing Crown, Cork & Seal Co. v. Parker, 462 U.S. 345 (1983)). Federal Rule of Civil Procedure 23 governs class actions. For a suit to be maintained as a class action, the proposed class must "satisfy the criteria set forth in subdivision (a). . . , and it also must fit into one of three categories described in subdivision (b)." Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., ---- U.S. ----, 130 S.Ct. 1431, 1437 (2010). More than a pleading standard, Rule 23 requires the party seeking class certification to "affirmatively demonstrate . . . compliance with the rule." Wal-Mart Stores, Inc. v. Dukes, 564 U.S. ---, ---, 131 S.Ct. 2541, 2551 (2011). This requires a district court to conduct "rigorous analysis" that frequently "will entail some overlap with the merits of the plaintiff's underlying claim." Id.

First, plaintiffs must demonstrate that the four requirements of Rule 23(a) are met: (1) numerosity; (2) commonality; (3) typicality; and (4) adequacy of representation. These requirements effectively "limit the class claims to those fairly encompassed by the named plaintiff's claims." Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 155 (1982) (quoting Califano v. Yamasaki, 442, U.S. 682, 701 (1979)).

Second, if a court finds that the Rule 23(a) requirements are met, the court must consider whether the class is maintainable under one of the three alternatives set forth in Rule 23(b). Dukes, 131 S. Ct. at 2548. Plaintiffs here seek to maintain certification under Rule 23(b)(3), which requires "that 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).

"The Rule 23(b)(3) predominance inquiry tests whether the proposed classes are sufficiently cohesive to warrant adjudication by representation." Hanlon v. Chrysler Corp., 150 F.3d 1011, 1022 (9th Cir. 1998) (citing Amchem Products, Inc. v. Windsor, 521 U.S. 591 (1997)). If "common questions present a significant aspect of the case and they can be resolved for all members of the class in a single adjudication," then adjudication on a representative basis is appropriate. Id. Otherwise, individualized adjudication is more appropriate. Therefore, the Court must balance concerns regarding the litigation of issues common to the class as a whole with questions affecting individual class members. In re N.D. Cal., Dalkon Shield IUD Products Liability Litig., 693 F.2d 847, 856 (9th Cir. 1982).

In determining superiority, the court must consider the four factors of Rule 23(b)(3): (1) the interests that members in the class have in individually controlling the prosecution or defense of separate actions; (2) the extent and nature of any litigations concerning the controversy already commenced by or against members of the class; (3) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and (4) the difficulties likely encountered in the management of a class action. See Zinser v. Accufix Research Inst., Inc., 253 F.3d 1180, 1190--1193, (9th Cir. 2001) (opinion amended on denial of reh'g, 273 F.3d 1261).

Under Federal Rule of Civil Procedure 23(c)(1)(C), a "[a] district court may decertify a class at any time." Rodriguez v. West Publ'g Corp., 563 F.3d 948, 966 (9th Cir. 2009); see also Officers for Justice v. Civil Serv. Comm'n of City & County of San Francisco, 688 F.2d 615, 633 (9th Cir. 1982) (describing a class certification order as "inherently tentative"). In deciding whether to decertify, a court may consider "subsequent developments in the litigation," Falcon, 457 U.S. at 160, including "previous substantive rulings in the context of the history of the case, and. . . the nature and range of proof necessary to establish the class-wide allegations," Marlo v. UPS, 251 F.R.D. 476, 479 (N.D. Cal. 2008). The standard is the same for class decertification as it is with class certification: a district court must be satisfied that the requirements of Rules 23(a) and (b) are met to allow plaintiffs to maintain the action on a representative basis. Marlo v. United Parcel Serv., Inc., 639 F.3d 942, 947 (9th Cir. 2011).*fn1


Because defendant only moves for decertification based on arguments made regarding Rule 23's requirements of commonality, typicality, and predominance, the Court ...

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