Moore v. Painewebber, Inc.
| Decision Date | 10 October 2002 |
| Docket Number | Docket No. 01-9212. |
| Parties | Robert L. MOORE and Jeannette S. Parry, Petitioners-Appellants, v. PAINEWEBBER, INC., Respondent-Appellee. |
| Court | U.S. Court of Appeals — Second Circuit |
Edward Labaton, Goodkind Labaton Rudoff & Sucharow (Joel H. Bernstein, James W. Johnson, Michael Hanzman, Marc H. Edelson, Ira Neil Richards, on the brief), New York, NY, for Petitioners-Appellants.
Kenneth B. Forrest, Wachtell, Lipton, Rosen & Katz (Jeffrey M. Wintner, Dhananjai Shivakumar, Hannah Berkowitz, Jacqueline O. LiCalzi, on the brief), New York, NY, for Respondent-Appellee.
Before: STRAUB and SOTOMAYOR, Circuit Judges, and GOLDBERG,* Judge.
Plaintiffs appeal from a decision of the United States District Court for the Southern District of New York (Keenan, J.) denying class certification under Fed. R. Civ. P 23(b)(3). Plaintiffs based their RICO and fraud claims on the oral misrepresentations made by PaineWebber's brokers, arguing that PaineWebber engaged in a common scheme to misrepresent one of its products. The district court determined that individual factual questions regarding the specific oral misrepresentations provided to each potential class member predominated over any questions of law or fact common to the potential class because the misrepresentations varied materially among individual plaintiffs. We hold that class certification of fraud claims based on oral misrepresentations is appropriate only where the misrepresentations relied upon were materially uniform, allowing such misrepresentations to be demonstrated using generalized rather than individualized proof.
We assume familiarity with the facts of this case as outlined in our previous decision, Moore v. PaineWebber, Inc., 189 F.3d 165 (2d Cir.1999), and the district court's prior opinions, Moore v. Painewebber, Inc., Nos. 96 Civ. 6820(JFK), 97 Civ. 4747(JFK), 1998 WL 661486, (S.D.N.Y. Sept. 24, 1998); Moore v. Painewebber, Inc., Nos. 96 Civ. 6820(JFK), 97 Civ. 4757(JFK), 2001 WL 228120 (S.D.N.Y. Mar. 7, 2001), and recount only those facts relevant to the instant appeal.
PaineWebber is a financial services company that offers a variety of investment and insurance products to its clients. Plaintiffs allege that changes in the federal tax code in the late 1980s prompted many investors to reduce the amount of money they put into IRAs, thus making the IRA business less lucrative for PaineWebber. Plaintiffs further allege that, in order to recapture its lost IRA investment stream and boost life insurance sales, PaineWebber decided to market a universal life insurance policy — the "Provider" — as if it were an IRA or an IRA substitute.
According to the complaint, PaineWebber used a variety of deceptive techniques in its attempt to present the Provider as a kind of IRA. PaineWebber is alleged to have advertised the Provider as a retirement savings plan offering "cash accumulation," competitive interest rates, and tax-advantaged status. The size of the investment that clients were told to make in their Provider accounts — $2000 each year — was allegedly chosen because $2000 is both the maximum and the typical amount that people contribute annually to IRAs. PaineWebber, in its marketing of the Provider, deliberately avoided insurance-associated terms like "premium" and instead used misleading words such as "contribution" or "deposit." Finally, plaintiffs allege PaineWebber's internal training materials explicitly acknowledged that the targeted customer base could be easily persuaded to invest large amounts of money in the Provider, so long as the customers did not think of the Provider as a life insurance policy. PaineWebber did tell some clients that purchasers of the Provider would get life insurance coverage, but presented this insurance as an added benefit rather than the investment itself. In reality, the Provider was a universal life insurance policy and nothing more.
The named plaintiffs, Robert L. Moore and Jeannette S. Parry, are both PaineWebber clients who were sold the Provider package in 1989. They both allege that they were approached by PaineWebber and told that the Provider would be a good replacement for their existing IRAs. Moore contributed $2000 to the Provider in 1989 and each year thereafter through the filing of the complaint in 1997. Parry contributed $2000 in each of 1989, 1990, 1992, and 1993. After they had "invested" in the Provider, plaintiffs received account statements in the mail that detailed the full range of the portfolios they held with PaineWebber. In these statements, PaineWebber listed the annual Provider "deposits" as part of plaintiffs' holdings, along with their stocks, bonds, and so forth, as if the Provider were a cash savings plan. But the moneys paid for the Provider were not held as deposits in an account; instead, they were used to pay insurance premiums on a universal life insurance policy. As a result, at least for the first several years, the cash value of the Provider was substantially less than the actual dollar amount contributed. Both named plaintiffs retain their "investments." Nevertheless, they assert that had they known the true nature of the Provider, they would not have purchased it, but instead would have invested their money in actual IRAs. Moore and Parry brought class action against PaineWebber, alleging violations of RICO and common-law fraud. These actions were consolidated in the district court.
The district court dismissed the consolidated action for failure to state a claim, holding that plaintiffs lacked standing under RICO because the alleged misrepresentations were not the proximate cause of their damages. The Second Circuit reversed. See Moore v. PaineWebber, Inc., 189 F.3d 165 (2d Cir.1999). On remand, plaintiffs moved for certification of the class under Fed.R.Civ.P. 23(b)(3). Defendant opposed certification on the grounds that the plaintiffs' claims were not typical of the class, plaintiffs lacked the ability to protect the class fairly and adequately, and questions of law or fact common to the class members did not predominate over questions affecting only individual class members.
In support of their motion for class certification, plaintiffs presented evidence that PaineWebber developed a centralized marketing scheme through which it marketed the Provider as an IRA alternative. Specifically, plaintiffs demonstrated that PaineWebber prepared marketing materials and information pieces presenting the Provider as an IRA alternative; PaineWebber's brokers used these materials in promoting the Provider. Moreover, PaineWebber held training sessions in which brokers were instructed to emphasize the Provider's investment features. One of these seminars, "David Macchia Presents: The Alternative Plan," encouraged brokers to market the Provider as an IRA alternative while downplaying the insurance aspects. A memo to all divisional vice-presidents stated that it was PaineWebber's "intention to mobilize our efforts around the David Macchia client seminar," and commanded the vice-presidents to memorize a script prior to an upcoming marketing meeting. Plaintiffs further point to a document entitled "New York Version — Sales Presentation," which again emphasized the investment aspects of the Provider package, and a certification submitted by a former PaineWebber divisional vice-president, which discusses the fact that the "overriding theme" of all the marketing materials prepared by PaineWebber was that, if sales brokers wished to sell the Provider, they could not focus on the insurance aspects of the product.
Plaintiffs also presented evidence that PaineWebber's brokers used at least three different telephone scripts for "cold calling" prospective investors. One script states that the "Provider is a universal life insurance policy" that can be used to "supplement... retirement benefits" by offering a "competitive interest rate and tax-free income before and after retirement." A second script states that the Provider is an "exciting new retirement product" "featuring a universal life insurance policy." The third does not mention life insurance at all, but simply refers to the Provider as a "retirement program" or a "systematic savings program, $2000 a year like [an] IRA, [that] will compound under a tax umbrella just like [an] IRA, but will pay you or your estate all of its benefits free of any tax." These scripts conclude with a suggestion from the broker for further informational meetings.
Finally, plaintiffs submitted complaint letters from purchasers of the Provider policy, who all alleged that their PaineWebber broker had induced them to purchase the Provider by falsely representing the policy as a retirement investment program. Some purchasers claimed that they were never informed that life insurance was a part of the Provider program, and thought they were purchasing an IRA. Others were informed that life insurance was attached for tax purposes, but that they would not be charged any administrative fees for the insurance and that the funds they invested would remain fully accessible. Still others were told that charges would be levied against their account for a life insurance policy, but that the Provider rate of return would be high enough that, notwithstanding the deduction of these charges, the Provider investment would still yield a return of approximately eight percent.
In opposition to plaintiffs' motion, PaineWebber submitted affidavits from brokers who testified that they did not employ a standardized sales presentation, and had not participated in the training sessions plaintiffs mentioned.
The district court held that plaintiffs had not shown that class-wide issues predominated over issues subject to individualized proof. The district court reasoned that fraud claims founded upon oral misrepresentations are not appropriate...
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