Court Finds “Common Sense Inference of Reliance” in Finding a Civil RICO Claim Properly Alleged

White v. Symetra Assigned Benefits Service Co., 2022 WL 3092849 (W.D. Wash., August 3, 2022)

Defendant Symetra Assigned Benefits Service Company’s (“SABSCO”) and Defendant Symetra Life Insurance Company’s (“Symetra”) purchased future payments under structured settlement annuities (“SSAs”) they administered. Plaintiffs are two individuals who settled personal-injury lawsuits for lump sum and periodic payments. The tortfeasors in those settlements assigned their obligations to make periodic payments to SABSCO. SABSCO then purchased an SSA from its affiliate Symetra to fund and administer the future payments. Plaintiffs later sold their rights to future payments to SABSCO in exchange for immediate lump sum payments at a significant discount. Plaintiffs alleged Defendants’ solicitation of their rights to the future payments under the SSAs was predatory and the result of an illegal business scheme designed to induce annuitants into selling their future payments at a steep discount. Plaintiffs pursued claims including RICO claims.  Plaintiffs bring this action individually and on behalf of others who similarly sold their right to future payments to Defendants.

Enterprise Elements Not Correctly Discussed

The court analyzed the civil RICO elements, first, for enterprise: (1) common or shared purpose between the individuals associated with it; (2) it must be an ongoing, functioning organization; and (3) there is an ascertainable structure distinct from the conduct the racketeering activity. See United States v. Turkette, 452 U.S. 576, 583 (1981).  Importantly, the court did not cite to the Supreme Court’s most recent opinion on association in fact enterprise, Boyle v. United States, which found the “ascertainable structure” element for an association in fact enterprise not relevant.  The Court found Plaintiffs have demonstrated that the elements to their 1962 RICO claim will be shown through common proof, which suffices to show predominance.

Reliance Can Be Inferred From the Facts

The court addressed the “reliance” element when alleging a mail or wire fraud.   The court found that Plaintiffs correctly asserted that a common sense inference of reliance should apply to the claims asserted. The court discussed that the Second, Fifth, Tenth, and Eleventh Circuits have applied a common sense inference of reliance when it follows logically from that nature of the alleged scheme. In In re U.S. Foodservice Inc. Pricing Litig., the Second Circuit affirmed a class of customers who were allegedly overbilled by a food distributer. 729 F.3d 108, 120 (2d Cir. 2013). The court reasoned that “customers who pay the amount specified in an inflated invoice would not have done so absent reliance upon the invoice’s implicit representation that the invoice amount was honestly. owed.” Id. Similarly, in Klay v. Humana, Inc., the Eleventh Circuit upheld the certification of a class of physicians claiming that health maintenance organizations misrepresented that they would pay them for services, but instead underpaid them. 382 F.3d 1241, 1259-61 (11th Cir. 2004). The Court explained that a jury could find a common inference of reliance on the misrepresentations by concluding that plaintiffs “in entering into contracts with defendants relied upon the defendants’ representations and assumed they would be paid the amount due.” Id. at 1259. The Court also reasoned that “while each plaintiff must prove reliance, he or she may do so through common evidence (that is, through legitimate inferences based on the nature of the alleged misrepresentations at issue).” Id. at 1258.

In CGC Holding Co., LLC v. Broad & Cassel, the Tenth Circuit approved a common sense inference of reliance to certify a class when a class of borrowers alleged that lender defendants fraudulently induced plaintiffs into paying up-front fees in exchange for loan commitments that the lenders had no intention of providing. 773 F.3d 1076, 1091–92 (10th Cir. 2014). In affirming the class certification, the Court explained that class wide payment of a nonrefundable up-front fee lended itself to a generalized inference of reliance on the misrepresentation and omissions regarding defendants’ ability or intent to actually fund the promised loan. Id. Lastly, in Torres v. S.G.E. Mgmt., L.L.C., the Fifth Circuit concluded that if plaintiffs could prove defendant’s company was a fraudulent pyramid scheme, they were entitled to use a common sense inference of reliance to prove causation. 838 F.3d 629, 643 (5th Cir. 2016). The court held that “a jury may reasonable infer that, in deciding to pay to [join the company], the Plaintiffs relied on [defendant’s] implicit representation that it is a legal multi-level marketing program …” Id.

These cases are distinguishable from the facts in the Ninth Circuit case Poulos in that the schemes alleged by plaintiffs in each respective case lends themselves to a logical inference of reliance and plaintiffs put forth common, circumstantial evidence that class members relied on the fraud. See also Kennedy v. Jackson Nat. Life Ins. Co., No. C 07-0371 CW, 2010 WL 2524360 (N.D. Cal. June 23, 2010) where Kennedy involved the purchasing of a deferred annuity that plaintiff later learned was worth substantially less. There, the court found that a common sense inference could be found because no reasonable person would have purchased “such an unsatisfactory investment product had [d]efendant disclosed the facts [p]laintiff alleges it either misrepresented or failed to disclose.” Id. at *2.

The Court finds that a common sense inference of reliance applies to Defendants’ misrepresentations and omissions. The Court finds the facts presented here are similar to those in Kennedy. There, the court reasoned that “[d]efendant’s uniform use of the term ‘bonus,’ its failure to disclose material information, and class members’ purchase of annuities that are high cost, illiquid and poorly performing …” was evidence of a class wide inference of reliance. 2010 WL 2524360 at *8. The court explained that “a reasonable inference could be drawn that class members would not have purchased [the annuities] had they been fully informed about material facts.” Id. The same logic applies here. Common, uniform marketing materials that are misleading and designed to capitalize on a pre-existing relationship give rise to a common sense inference that no individual would factor with a company whose rates are subpar and whose transactions are not in the individual’s best interest, unless that individual relied on the representations. Given the inference of reliance will be imparted to the class as a whole, individual issues of reliance will not predominate such that it defeats predominance and commonality.

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