[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
FEBRUARY13, 2002
THOMAS K. KAHN
No. 99-8007 CLERK
D. C. Docket No. 92-00147-CV-6
JAMES W. SIKES,
FELIX KEMP, Individually and On
Behalf of All Other Persons Similarly Situated,
Plaintiffs-Appellees,
versus
TELELINE, INC, USA NETWORKS,
Defendants,
AMERICAN TELEPHONE & TELEGRAPH COMPANY,
Defendant-Appellant.
Appeal from the United States District Court
for the Southern District of Georgia
(February 13, 2002)
Before TJOFLAT, WILSON and FLETCHER*, Circuit Judges.
____________________________
*Honorable Betty B. Fletcher, U.S. Circuit Judge for the Ninth Circuit, sitting by
designation.
TJOFLAT, Circuit Judge:
American Telephone & Telegraph Corporation (“AT&T”) appeals the
district court’s certification, pursuant to Fed. R. Civ. P. 23(b)(3), of a class of
plaintiffs who present claims arising from a “900-number” telemarketing program.
We conclude that the district court abused its discretion in holding that the
questions of law or fact common to the members of the proposed class predominate
over any questions affecting only individual members and that,
therefore, the class would be manageable.1 We therefore reverse the certification
of the class and remand for further proceedings.
I.
A.
In Andrews v. American Telephone & Telegraph Co., 95 F.3d 1014 (11th
Cir. 1996), we held that the district court erred in certifying two classes under Rule
23(b)(3)2 of the Federal Rules of Civil Procedure because the plaintiffs had failed
1
Our decertification of the class based upon predominance negates the need to address
whether providing notice of this action by means of publication rather than by individual notice
was proper. See Andrews v. Am. Tel. & Tel. Co., 95 F.3d 1014, 1021 (11th Cir. 1996).
2
Federal Rule of Civil Procedure 23(a) and (b) provide:
(a) Prerequisites to a Class Action. One or more members of a class may sue or
be sued as representative parties on behalf of all only if (1) the class is so
numerous that joinder of all members is impracticable, (2) there are questions of
law or fact common to the class, (3) the claims or defenses of the representative
parties are typical of the claims or defenses of the class, and (4) the representative
parties will fairly and adequately protect the interests of the class.
2
to demonstrate that common issues predominated.3 The first class of plaintiffs, the
“Andrews class,” brought suit against various telecommunications carriers and
(b) Class Actions Maintainable. An action may be maintained as a class action if
the prerequisites of subdivision (a) are satisfied, and in addition:
(1) the prosecution of separate actions by or against individual members of
the class would create a risk of
(A) inconsistent or varying adjudications with respect to individual
members of the class which would establish incompatible standards of conduct
for the party opposing the class, or
(B) adjudications with respect to individual members of the class
which would as a practical matter be dispositive of the interests of the other
members not parties to the adjudications or substantially impair or impede their
ability to protect their interests; or
(2) the party opposing the class has acted or refused to act on grounds
generally applicable to the class, thereby making appropriate final injunctive
relief or corresponding declaratory relief with respect to the class as a whole; or
(3) the court finds that the questions of law or fact common to the
members of the class predominate over any questions affecting only individual
members, and that a class action is superior to other available methods for the fair
and efficient adjudication of the controversy. The matters pertinent to the
findings include: (A) the interest of members of the class in individually
controlling the prosecution or defense of separate actions; (B) the extent and
nature of any litigation concerning the controversy already commenced by or
against members of the class; (C) the desirability or undesirability of
concentrating the litigation of the claims in the particular forum; (D) the
difficulties likely to be encountered in the management of a class action.
3
Andrews involved two related appeals that the court “treat[ed] . . . in the same opinion
because the appellants raise[d] similar issues and appeal[ed] the same class certification order.”
Andrews, 95 F.3d at 1018. The first class was the “Andrews class” and the second class was the
“Harper class.”
3
services providers, alleging that several 900-number telephone programs,4 which
the defendants were providing to the public, were
gambling activity [that] is illegal under the laws of all of the fifty
states, and constitutes racketeering activity in violation of the federal
RICO statute, 18 U.S.C. §§ 1961 to 1968 (1994), the Communications
Act of 1934, 47 U.S.C. §§ 201 to 229 (1994), and the federal common
law of communications law.
[The] complaint further allege[d] that the defendants committed
mail and wire fraud, in violation of 18 U.S.C. §§ 1341 & 1343 (1994),
in furtherance of a RICO enterprise . . . . In addition to the allegations
concerning a national gambling enterprise, [the plaintiffs] allege[d]
that the defendants . . . violated Georgia statutes that prohibit the
operation of a gambling business within that state.
Id. at 1019 (internal citations and quotations omitted).
The district court certified a master class and a Georgia subclass, the master
class consisting of
[a]ll persons who paid for one or more 900-number telephone calls
billed and collected by [two of the defendants], which calls were made
4
The court explained:
Pay-per-call, or “900-number,” telephone service was developed in the early
1980s. It was first used for telephone polling and other interactive programs
designed to disseminate a wide variety of information to customers, who were
usually billed for the calls in their monthly phone bills. After its inception, the
900-number industry rapidly expanded to encompass varied news, sports,
weather, and entertainment information programs, as well as promotional and
giveaway contests. While the specifics of different 900-number programs vary
greatly, their basic operation is the same: callers are enticed by television
commercials, direct mail solicitation, or other advertising materials to call a 900
number, for which the callers are charged either a flat fee per call or a per-minute
rate.
Id. at 1018-19.
4
in connection with programs offering sweepstakes, games of chance,
awards, cash or other prizes, gifts, or information on unclaimed funds.
Id. at 1020-21. Finding that the court had abused its discretion in certifying the
master class,5 we held that while
[i]t may be true that, at a general level, the predominant issue
presented in Andrews is whether the [defendants] were involved in the
operation of illegal gambling schemes that used 900 numbers to
facilitate caller participation . . ., as a practical matter, the resolution
of this overarching common issue breaks down into an unmanageable
variety of individual legal and factual issues.
Id. at 1023. Drawing on Pelletier v. Zweifel, 921 F.2d 1465, 1499-1500 (11th Cir.
1991), for the proposition that “each plaintiff must demonstrate reliance on
deceptive conduct in furtherance of [an] alleged RICO scheme,” we stated that
“[t]he class’s mail and wire fraud allegations . . . are not wholly subject to class-
wide resolution.” Id. at 1023-24. As to the claims based upon state gambling
laws, we held that “the need to interpret and apply the gaming laws of all fifty
states to assess the legality of each 900-number program [is] foremost among the
difficulties in trying the gambling claims on a class basis.” Id. at 1024.
The second class of plaintiffs, the “Harper class,” brought suit against
various telecommunications carriers and services providers that offered several
5
We did not disturb the district court’s determinations regarding standing under Fed. R.
Civ. P. 23(a). Id. at 1022-23.
5
900-number programs to the public. The plaintiffs alleged that the defendants had
committed mail and wire fraud, thereby violating federal RICO and Georgia RICO,
“by approving and mailing misleading promotional and solicitation materials [for
900 numbers regarding credit cards] and by collecting the revenues produced by
caller participation.” Id. at 1021. The court certified a master class and a Georgia
subclass, to include
persons who paid for one or more 900-number telephone calls billed
and collected by [two of the defendants], which calls were made in
connection with programs offering credit cards, financial information
services, catalog cards, or information on obtaining credit cards or
catalog cards.
Id.
We were “even more certain that the Harper class is unsustainable under
Rule 23(b)(3)” than we were about the Andrews class, because “individual issues
abound and are magnified by the necessity of applying diverse state laws to
programs that in many cases have little in common beyond their use of 900
numbers.” Id. at 1024. After noting the significant problem that “the [multiple]
900-number programs at issue . . . differ widely” in many respects, we held that the
class was unsustainable because of the individualized nature of the plaintiffs’
claims:
Even if it could be shown that the appellants were engaged in a
scheme to defraud and made misrepresentations to further that
6
scheme, the plaintiffs would still have to show, on an individual basis,
that they relied on the misrepresentations, suffered injury as a result,
and incurred a demonstrable amount of damages. As [with the
Andrews class], the problems with trying the individualized elements
of the plaintiffs’ claims, as well as handling the unique aspects of the
900-number programs, are compounded by the necessity of
referencing fifty sets of credit card and consumer protection laws.
Id. at 1025 (emphasis added) (internal citations omitted).
B.
The case at bar presents facts that are almost identical to those involved in
the Andrews case, with one variation. Instead of multiple 900-number programs
being challenged, in this case there is only one: the “Let’s Make a Deal” program
(“LMAD”). The district court described LMAD as follows:
This automated interactive telephone game was modeled on the
television game show of the same name. The game had up to six
levels, and at each level the caller could win a prize by selecting the
correct “door” behind which the prize was concealed. Upon winning
a prize, the caller could either accept that prize or advance to the next
level. If the caller chose to advance, any previously awarded prize
was forfeited in exchange for a chance at a larger prize. Plaintiffs
claim that the odds of ultimately winning the maximum $2,000.00
cash prize were 1 in 2,700.
Sikes v. Am. Tel. & Tel. Co., No. CV-692-147 (S.D. Ga. Mar. 26, 1998) at 2-3.6
6
A transcript of a recorded call to the program, appended to the plaintiffs’ complaint,
reveals the following presentation:
Man’s Voice: “Hi, I’m Monty Hall. Welcome to the all new Let’s Make a Deal
Telephone Game.”
7
Woman’s Voice: “Now you have a chance to win $2,000.00[. T]o go right into
the game press one now. Let’s Make a Deal is brought to you by Teleline, Inc., at
a cost of $3.88 per minute and an average length per call is six minutes. If you do
not want to play hang up now.”
Music.
Monty Hall: “Now you have a chance to win great cash prizes at every level, all
the way up to $2,000.00. That’s right, friend, if you reach the top level of the
game you can win $2,000.00 instantly right on this call. And if you win the
$2,000.00 grand prize, you can receive your prize on the next business banking
day. That’s right. You could be $2,000.00 richer on the next business banking
day. So let’s get ready to play.”
Music.
Monty Hall: “Press one if you are calling from a touchtone phone.”
Caller presses one.
....
Monty Hall: “On TV, I used to ask contestants if they had an unusual object. Of
course, I can’t do that now so instead I’m going to ask you a question. Ready?”
Applause.
Monty Hall: “The Kennedy Space Center is named for which [P]resident? Press
one for Franklin Roosevelt, press two for John F. Kennedy, press three for James
Monroe.”
Caller enters number.
Music.
Monty Hall: “You’re right.”
Applause.
Monty Hall: “Now there are three doors up on the stage with me. Behind one of
those doors is a valuable prize. Which door do you choose? Press one, two or
three.”
Caller presses number.
Monty Hall: “Let’s see, yes, that’s the right door and here’s Jane to tell you what
you have chosen.”
Jane: “It’s a bag full of shiny nickels worth $15.00 in cash. (Applause.) The
prize will be paid to you the player in the form of a check made out to you the
player. Congratulations from Let’s Make a Deal.”
Monty Hall: “Now it’s time to make your decision. You can take your prize and
leave the game now or you can keep playing and try for a more valuable prize on
the next level, level 2.”
Jane: “Monty, the prize on the next level is $25.00 cash. Behind one of the doors
on level 2 is $25.00 cash.”
Monty Hall: “But remember, one of the doors will have a bigger prize but two of
the doors will not. Do you want to risk what you have won? Press one if you
want to keep your prize and quit now. Press two if you want to keep playing.”
8
Plaintiffs, individuals who had called LMAD and incurred charges (in
excess of any winnings they may have received), brought suit, individually and on
behalf of all others similarly situated, in the United States District Court for the
Southern District of Georgia.7 The plaintiffs sued: (1) Teleline, Inc. (“Teleline”),
the creator and operator of LMAD; (2) the U.S.A. Network, which broadcast a
portion of the television advertising for LMAD; and (3) AT&T, which acted as
Teleline’s telecommunications carrier and billing contractor.
Caller presses number.
Applause.
Monty Hall: “Great. I’m glad you want to keep playing. Now we are on the
second level. Behind one of the three doors is a valuable prize.”
Jane: “And Monty, that prize is $25.00 in cash.”
Monty Hall: “Which door do you choose? Press one, two or three.”
Caller presses number.
....
Weird noise.
Monty Hall: “Oh, dear, you chose the wrong door. Here’s Jane to tell you what
you could have won.”
Jane: “You could have won [an amount of money].”
(“Ahhhhhhhhhh.”[)]
Jane: “But instead, you chose the wrong door. You gave it a good try and we
hope you enjoyed playing Let’s Make a Deal.”
Music.
7
The named plaintiffs are James W. Sikes and Felix Kemp. These two individuals are
the named plaintiffs for both the master class and the Georgia subclass described infra.
9
Count One of the plaintiffs’ complaint8 asserted that the defendants had
violated the federal Racketeer Influenced and Corrupt Organizations Act, 18
U.S.C. §§ 1961-1968 (“federal RICO”).9 Section 1962(c) criminalizes
participation “in the conduct of an enterprise’s affairs through a pattern of
racketeering activity or collection of unlawful debt.”10 Section 1962(d)
criminalizes conspiracy to do the same.11 Section 1964(c) permits a civil plaintiff
to sue for recovery of costs, attorneys’ fees, and treble damages sustained as a
result of a defendant’s violation of section 1962.12
8
We refer throughout to the plaintiffs’ amended complaint, filed May 7, 1993, simply as
“the complaint.” Plaintiffs’ original complaint was filed on November 11, 1992.
9
We note that the plaintiffs’ complaint is yet another example of what we have often
criticized as “shotgun pleadings,” where each count “incorporates” all of the preceding
paragraphs and counts. We have harshly criticized such shotgun pleadings in the past, and we
repeat our displeasure with this type of complaint now. See, e.g., Magluta v. Samples, ___ F.3d
___, No. 00-12540 (11th Cir. 2001); Cramer v. Florida, 117 F.3d 1258, 1263 (11th Cir. 1997);
Ebrahimi v. City of Huntsville Bd. of Educ., 114 F.3d 162 (11th Cir. 1997); Cesnik v. Edgewood
Baptist Church, 88 F.3d 902, 905 and n.9 (11th Cir. 1996); Anderson v. Dist. Bd. of Trs. of Cent.
Fla. Cmty. Coll., 77 F.3d 364, 366-67 (11th Cir. 1996); Pelletier v. Zweifel, 921 F.2d 1465,
1517-18 (11th Cir. 1991).
10
18 U.S.C. § 1962(c) provides:
It shall be unlawful for any person employed by or associated with any enterprise
engaged in, or the activities of which affect, interstate or foreign commerce, to
conduct or participate, directly or indirectly, in the conduct of such enterprise’s
affairs through a pattern of racketeering activity or collection of unlawful debt.
11
18 U.S.C. § 1962(d) provides:
It shall be unlawful for any person to conspire to violate any of the provisions of
subsection (a), (b), or (c) of this section.
12
18 U.S.C. § 1964(c) provides:
Any person injured in his business or property by reason of a violation of section
10
Count One alleged that the defendants had violated sections 1962(b),13 (c),
and (d) by engaging in a pattern of racketeering activity that included “numerous
acts of connected, related and continuing mail and wire fraud with the
advertisement and solicitation of calls to [LMAD’s 900 numbers], the answering of
each individual 900 number call to these number[s], and the billing and collection
of charges for each such 900 number call.” Such activity was allegedly in
violation of the wire and mail fraud statutes, 18 U.S.C. §§ 1341 and 1343,14 which
satisfy the definition of “racketeering activity” as set forth in section 1961(1)(B).15
Further, Count One asserted that the defendants engaged in an illegal gambling
1962 of this chapter may sue therefor in any appropriate United States district
court and shall recover threefold the damages he sustains and the cost of the suit,
including a reasonable attorney’s fee, except that no person may rely upon any
conduct that would have been actionable as fraud in the purchase or sale of
securities to establish a violation of section 1962. The exception contained in the
preceding sentence does not apply to an action against any person that is
criminally convicted in connection with the fraud, in which case the statute of
limitations shall start to run on the date on which the conviction becomes final.
13
Section 1962(b) provides:
It shall be unlawful for any person through a pattern of racketeering activity or
through collection of an unlawful debt to acquire or maintain, directly or
indirectly, any interest in or control of any enterprise which is engaged in, or the
activities of which affect, interstate or foreign commerce.
14
See infra note 25.
15
18 U.S.C. § 1961(1)(B) defines racketeering activity, in pertinent part, as: “any act
which is indictable under any of the following provisions of title 18, United States Code . . .
section 1341 (relating to mail fraud), section 1343 (relating to wire fraud).”
11
business, in violation of 18 U.S.C. § 1955,16 by operating LMAD. The plaintiffs
alleged that this illegal gambling business constituted racketeering activity under
section 1961(1)(B) and the continued operation of LMAD established a pattern of
racketeering activity. Finally, Count One asserted that each charge incurred by a
caller to LMAD’s 900 numbers constituted a gambling debt, which is an unlawful
debt within the meaning of section 1961(6). The defendants’ billing and collection
of this unlawful debt thus constituted unlawful debt collection. Since Count One
asserted that the defendants had violated sections 1962(c) and (d) by engaging in
and conspiring to engage in a pattern of racketeering activity (wire and mail fraud
and illegal gambling) and collection of unlawful debt, the plaintiffs prayed for
relief according to section 1964(c).17
Count Two of the complaint alleged that the plaintiffs were the beneficiaries
of a contract between AT&T and Teleline, and that AT&T’s failure to enforce the
terms of the contract caused direct injury to the plaintiffs. Count Three alleged that
AT&T violated provisions of the Federal Communications Act of 1934, as
amended, 47 U.S.C. §§ 151 et. seq. Specifically, Count Three asserted that
16
See infra note 42.
17
The substantive discussion infra Part III focuses only on the propriety of class
certification with respect to the federal RICO claims, for that is what the parties have briefed
before this court. Our analysis applies equally, however, to the appropriateness of class
certification with respect to the other counts of the complaint.
12
AT&T’s participation in LMAD was unjust and reasonable in violation of 47
U.S.C. § 201,18 and that AT&T’s crediting or refunding of LMAD charges to some
but not all customers was a discriminatory practice in violation of 47 U.S.C. §
202.19 The plaintiffs thus prayed for relief under 47 U.S.C. § 206.20 Count Four
was brought under the Georgia Racketeer Influenced and Corrupt Organizations
18
47 U.S.C. § 201 provides, in pertinent part:
(a) It shall be the duty of every common carrier engaged in interstate or foreign
communication by wire or radio to furnish such communication service upon
reasonable request therefor; and, in accordance with the order of the Commission,
in cases where the Commission, after opportunity for hearing, finds such action
necessary or desirable in the public interest, to establish physical connections
with other carriers, to establish through routes and charges applicable thereto and
the divisions of such charges, and to establish and provide facilities and
regulations for operating such through routes.
(b) All charges, practices, classifications, and regulations for and in connection
with such communication service, shall be just and reasonable, and any such
charge, practice, classification, or regulations that is unjust or unreasonable is
declared to be unlawful.
19
47 U.S.C. § 202 provides, in pertinent part:
(a) It shall be unlawful for any common carrier to make any unjust or
unreasonable discrimination in charges, practices, classifications, regulations,
facilities, or services for or in connection with like communication service,
directly or indirectly, by any means or device, or to make or give any undue or
unreasonable preference or advantage to any particular person, class of persons,
or locality, or to subject any particular person, class of persons, or locality to any
undue or unreasonable prejudice or disadvantage.
20
47 U.S.C. § 206 provides:
In case any common carrier shall do, or cause or permit to be done, any act,
matter, or thing in this chapter prohibited or declared to be unlawful, or shall omit
to do any act, matter, or thing in this chapter required to be done, such common
carrier shall be liable to the person or persons injured thereby for the full amount
of damages sustained in consequence of any such violation of the provisions of
this chapter, together with a reasonable counsel or attorney’s fee shall be taxed
and collected as part of the costs in the case.
13
Act, O.C.G.A. § 16-14-1 et seq. (“Georgia RICO”), on behalf of those plaintiffs
who had lost money because of their participation in LMAD while in the State of
Georgia (the “Georgia plaintiffs”). The Georgia plaintiffs alleged that the
defendants’ LMAD activities constituted the predicate acts of theft by taking and
theft by collection, and that these acts constituted a pattern of racketeering activity
in violation of O.C.G.A. § 16-14-4. Count Five alleged that the ongoing conduct
of LMAD constituted “a nuisance and a nuisance per se threatening harm to the
general public.” The plaintiffs thus sought “declaratory relief,” as well as
preliminary and permanent injunctions, and asked that “all sums presently held by
any of the Defendants which have been collected in connection with the playing of
[LMAD] be deposited with the registry” of the court.
In sum, the plaintiffs prayed for actual damages, treble damages, punitive
damages, declaratory relief, an order enjoining the defendants from continuing to
advertise or operate LMAD, and costs and attorneys’ fees.21
The district court certified a master class on Counts One through Three
under Fed. R. Civ. P. 23(b)(3), consisting of
[a]ll natural persons who have been billed for telephone calls
originating from their households made to the 900-number “Let’s
21
The prayer for injunctive relief became moot when the defendants ceased operating
LMAD voluntarily.
14
Make a Deal” game and have not received cash prizes exceeding such
charges.
The court also certified a Georgia subclass on the Georgia RICO claim (Count
Four), consisting of
[a]ll members of the class who have been charged for calls made from
the State of Georgia to 900-860-4332 and/or other 900 prefix
telephone numbers used to play “Let’s Make a Deal.”
After this court handed down its opinion in Andrews, AT&T moved the
district court to decertify the master class on the federal RICO claim.22 The district
court denied the motion and AT&T appeals.
II.
A.
We have jurisdiction over this appeal pursuant to 28 U.S.C. § 1292(b),
which provides for appeals from an order that involves “a controlling question of
law as to which there is substantial ground for difference of opinion” if the
immediate appeal from such order “may materially advance the ultimate
termination of the litigation.”23 The district court certified its order denying class
22
AT&T is the only defendant left in the case. As the district court stated in its order
denying AT&T’s motion to decertify the class, “Plaintiffs have . . . voluntarily dismissed their
claims against Teleline, and they entered into a settlement agreement with USA Networks.
Thus, AT&T is the sole remaining Defendant in this action.”
23
28 U.S.C. § 1292(b) reads:
When a district judge, in making in a civil action an order not otherwise appealable under
15
certification for interlocutory appeal, in accordance with the statute. We granted
permission to appeal.
B.
We review the propriety of the district court’s certification of a class for an
abuse of discretion. Rutstein v. Avis Rent-A-Car Sys., Inc., 211 F.3d 1228, 1233
(11th Cir. 2000). “A district court abuses its direction if . . . it applies the wrong
legal standard, Delta Air Lines, Inc. v. ALPA, Int’l, 238 F.3d 1300, 1308 (11th Cir.
2001), or makes findings of fact that are clearly erroneous, In re Celotex Corp., 227
F.3d 1336, 1338 (11th Cir. 2000).” United States v. Sigma Int’l, Inc., 244 F.3d
841, 851-52 (11th Cir. 2001). If “the district court properly exercised its discretion
within the parameters of Rule 23, the court’s determination should stand.”
Andrews v. Am. Tel. & Tel. Co., 95 F.3d 1014, 1022 (11th Cir. 1996). If the
court’s certification was “erroneous as a matter of law,” however, the court
necessarily abused its discretion and the class should be decertified. Jackson v.
this section, shall be of the opinion that such order involves a controlling question of law
as to which there is a substantial ground for difference of opinion and that an immediate
appeal from the order may materially advance the ultimate termination of the litigation,
he shall so state in writing in such order. The Court of Appeals which would have
jurisdiction of an appeal of such action may thereupon, in its discretion, permit an appeal
to be taken from such order, if application is made to it within ten days after the entry of
the order: Provided, however, That application for an appeal hereunder shall not stay
proceedings in the district court unless the district judge or the Court of Appeals or a
judge thereof shall so order.
16
Motel 6 Multipurpose, Inc., 130 F.3d 999, 1006 (11th Cir. 1997) (citing Cooter &
Gell v. Hartmarx Corp., 496 U.S. 384, 405, 110 S. Ct. 2447, 2461, 110 L. Ed. 2d
359 (1990)).
III.
“A class action may be maintained only when it satisfies all the requirements
of Fed. R. Civ. P. 23(a) and at least one of the alternative requirements of Rule
23(b).” Jackson v. Motel 6 Multipurpose, Inc., 130 F.3d 999, 1005 (11th Cir.
1997). The district court certified the plaintiff class in this case pursuant to Rule
23(b)(3), which provides that a class may be maintained if “the questions of law or
fact common to the members of the class predominate over any questions affecting
only individual members” and if a class action is a “superior” method of
adjudicating the controversy. We have made clear that Rule 23(b)(3) “imposes
two additional requirements” for class certification – predominance and increased
efficiency. Jackson, 130 F.3d at 1006. The plaintiffs had the burden of meeting
the requirements of Rule 23(a) and Rule 23(b)(3).24 See Rutstein v. Avis Rent-A-
Car Sys., Inc., 211 F.3d 1228, 1233 (11th Cir. 2000).
A.
24
AT&T does not assert that certification was improper according to Rule 23(a).
17
AT&T contests the district court’s certification of the plaintiff class with
respect to the federal RICO claims predicated on the mail and wire fraud statutes,
18 U.S.C. §§ 1341 and 1343. AT&T asserts that the “predominance” requirement
of Rule 23(b)(3) is not satisfied and that the class is not manageable. The plaintiffs
counter that the manageability issue “is one of practicality and not one of law.”
They assert that “[i]t cannot be error [for the district court] to hold that a case can
be managed if the case, in fact, can be managed.” And, they point out, the district
court claimed in its certification order that “common issues predominate, that
individual issues can be adequately managed, and that class treatment is a superior
method of adjudication.”
While we do not dispute that manageability is generally an issue of fact and
practicality and not one of law, we cannot overlook the fact that the district court
reached its conclusions on manageability based upon a faulty legal premise.
18
A violation of the mail or wire fraud statutes, 18 U.S.C. §§ 1341 and 1343,25
requires proof that a person “(1) intentionally participate[d] in a scheme to defraud
another of money or property and (2) use[d] the mails or wires in furtherance of
that scheme.” Pelletier v. Zweifel, 921 F.2d 1465, 1498 (11th Cir. 1991). When a
25
The substantive elements of mail fraud and wire fraud are identical. Beck v. Prupis,
162 F.3d 1090, 1095 (11th Cir. 1998). “The only difference between the two offenses is their
jurisdictional basis – mail fraud requires proof of the use of the mails, while wire fraud requires
proof of the use of the wires.” Id. at 1095 n.9.
The mail fraud statute reads:
Whoever, having devised or intending to devise any scheme or artifice to defraud,
or for obtaining money or property by means of false or fraudulent pretenses,
representations, or promises, or to sell, dispose of, loan, exchange, alter, give
away, distribute, supply, or furnish or procure for unlawful use any counterfeit or
spurious coin, obligation, security, or other article, or anything represented to be
or intimated or held out to be such counterfeit or spurious article, for the purpose
of executing such scheme or artifice or attempting so to do, places in any post
office or authorized depository for mail matter, any matter or thing whatever to be
sent or delivered by the Postal Service, or deposits or causes to be deposited any
matter or thing whatever to be sent or delivered by any private or commercial
interstate carrier, or takes or receives therefrom, any such matter or thing, or
knowingly causes to be delivered by mail or such carrier according to the
direction thereon, or at the place at which it is directed to be delivered by the
person to whom it is addressed, any such matter or thing, shall be fined under this
title or imprisoned not more than five years, or both. If the violation affects a
financial institution, such person shall be fined not more than $1,000,000 or
imprisoned not more than 30 years, or both.
18 U.S.C. § 1341.
The wire fraud statute reads:
Whoever, having devised or intending to devise any scheme or artifice to defraud,
or for obtaining money or property by means of false or fraudulent pretenses,
representations, or promises, transmits or causes to be transmitted by means of
wire, radio, or television communication in interstate or foreign commerce, any
writings, signs, signals, pictures, or sounds for the purpose of executing such
scheme or artifice, shall be fined under this title or imprisoned not more than five
years, or both. If the violation affects a financial institution, such person shall be
fined not more than $1,000,000 or imprisoned not more than 30 years, or both.
18 U.S.C. § 1343.
19
civil RICO claim is predicated upon mail or wire fraud, the plaintiff must
additionally show that “he was injured by reason of the defendant’s acts of
deception.” Id. at 1499; see also 18 U.S.C. § 1964(c) (providing civil remedies
only to those persons who are injured “by reason of” racketeering activity). Thus,
when a plaintiff brings a civil RICO case predicated upon mail or wire fraud, he
must prove that he was “a target of the scheme to defraud” and that he “relied to
his detriment on misrepresentations made in furtherance of that scheme.” Pelletier,
921 F.2d at 1499-1500; see also Andrews v. Am. Tel. & Tel. Co., 95 F.3d 1014,
1025 (11th Cir. 1996).
We can therefore summarize the elements of a civil RICO claim predicated
upon mail or wire fraud as follows: The plaintiff has the burden of proving: (1) that
the defendant intentionally participated, (2) in a scheme to defraud,26 (3) the
plaintiff of money or property, (4) by means of material misrepresentations,27 (5)
using the mails or wires, (6) and that the plaintiff relied on a misrepresentation
made in furtherance of the fraudulent scheme, (7) that such misrepresentation
26
“A ‘scheme to defraud’ involves the making of misrepresentations intended and
reasonably calculated to deceive persons of ordinary prudence and comprehension.” Beck, 162
F.3d at 1095.
27
The Supreme Court recently clarified that materiality is an element of the offense of
mail or wire fraud. Neder v. United States, 527 U.S. 1, 25, 119 S. Ct. 1827, 1841, 144 L. Ed. 2d
35 (1999) (“[W]e hold that the materiality of falsehood is an element of the federal mail fraud,
wire fraud, and bank fraud statutes.”).
20
would have been relied upon by a reasonable person,28 (8) that the plaintiff suffered
injury as a result of such reliance,29 and (9) that the plaintiff incurred a specifiable
amount of damages.
1.
In its certification order, the district court properly recognized that “reliance
is a necessary element of a civil RICO claim based on mail or wire fraud.” The
court disagreed “with AT&T’s contentions regarding the necessity of conducting
individual inquiries on this element.” Instead, the court determined that “reliance
may be virtually presumed” in this case.30 This was error.
We were faced with an identical presumption in Andrews, 95 F.3d 1014,
wherein the district court employed a “presumption” of reliance using language
very similar to that in the instant case. In Andrews, we made clear that, even
assuming that the plaintiffs could prove a scheme to defraud and
28
“[T]he plaintiff must prove that a reasonable person would have relied on the
misrepresentations.” Beck, 162 F.3d at 1095.
29
In causing the plaintiff to suffer injury, the plaintiff must prove that the racketeering
activity caused the injury. Beck, 162 F.3d at 1095-96 (“[T]he racketeering activity must be more
than simply the ‘but for’ cause of the injury; it must also be the proximate cause.”).
30
In its order on AT&T’s motion to decertify the class in light of Andrews, the court
stated: “I previously concluded that the individual issues of reliance, injury, and damages do not
preclude class certification in this case, and the panel majority’s opinion in Andrews does not
alter that conclusion.” The court reiterated that “reliance could be virtually presumed under the
facts of this case, as any caller who played the game and who was charged more than he or she
won in prizes was necessarily injured ‘by reason of’ the game.”
21
misrepresentations in furtherance of that scheme, “the plaintiffs would still have to
show, on an individual basis, that they relied on the misrepresentations.” Id. at
1025 (emphasis added).
The district court attempted to distinguish Andrews on the basis that the
classes in that case “involved numerous different 900 number programs, whereas
[the instant] case involves only the LMAD game.” Andrews does not permit such
a distinction.
In discussing the Andrews class, we stated that the “overarching common
issue” was overshadowed by “an unmanageable variety of individual . . . issues.”
Andrews, 95 F.3d at 1023. In support of this conclusion, we said that the “mail
and wire fraud allegations, for example, are not wholly subject to class-wide
resolution.” Id. at 1023-24. With respect to the Andrews class, our rejection of the
district court’s use of a presumption regarding reliance and damages31 was our only
comment pertaining to the mail and wire fraud allegations. (The other reasons we
listed for decertifying the Andrews class related only to the gambling claim.)
31
For the reliance presumption, Andrews cited Pelletier, 921 F.2d at 1499-1500, for the
proposition that “each plaintiff must demonstrate reliance on deceptive conduct in furtherance of
the alleged RICO scheme.” Andrews, 95 F.3d at 1024. With respect to damages, Andrews cited
Alabama v. Blue Bird Body Co., 573 F.2d 309, 328-29 (5th Cir. 1978), for the proposition that a
court should have “‘serious reservations about the manageability of a class’ when all damage
questions cannot be handled by one forum.” Andrews 95 F.3d at 1024; see also infra Part
III.A.2.b.
22
With respect to the Harper class, Andrews noted first that the 900-number
programs at issue differed widely, such that “each program must be assessed
individually to determine whether fraudulent tactics were employed by the
appellants.” Id. at 1025. This statement shows that the diversity of the 900-
number programs was probably sufficient grounds, on its own, for decertification.
The next paragraph of the opinion, though, contained an alternate holding.
Therein, we assumed that the plaintiffs could overcome the hurdle of individually
assessing each program to determine whether the appellants used fraudulent tactics
but noted that the plaintiffs would nonetheless have to show on an individual basis
that they relied, suffered injury, and incurred damages. Id.
Thus, with respect to both classes in Andrews, we rejected the propriety of
allowing a presumption that would relieve plaintiffs of their burden of having to
prove every element of a claim. Because we rejected a presumption of reliance in
Andrews, we must do the same in this case.
The function of presumptions supports the conclusion of Andrews. A
presumption is generally employed to benefit a party who does not have control of
the evidence on an issue. A presumption places a burden of production on the
party against whom it is directed; this party must present evidence sufficient “to
rebut or meet the presumption, but [the presumption] does not shift to such party
23
the burden of proof.” Fed. R. Evid. 301. In the case at hand, AT&T has no
evidence regarding whether the plaintiffs “relied” upon misrepresentations. The
plaintiffs themselves are in control of this information. It would be unjust to
employ a presumption to relieve a party of its burden of production when that party
has all the evidence regarding that element of the claim.
The plaintiffs urge us to follow cases in which they say reliance was
“presumed.”32 The cases upon which plaintiffs rely, however, address “fraud-on-
32
Other than the cases cited in the text and notes infra, the plaintiffs cite Eisenberg v.
Gagnon, 766 F.2d 770 (3d Cir. 1985); Peterson v. H & R Block Tax Servs., Inc., 174 F.R.D. 78
(N.D. Ill. 1997); Smith v. MCI Telecommunications Corp., 124 F.R.D. 665 (D. Kan. 1989);
Davis v. S. Bell Tel. & Tel. Co., 1993-2 Trade Cas. (CCH) ¶ 70,480 (S.D. Fla. 1993); Bryan v.
Amrep Corp., 429 F.Supp. 313 (S.D.N.Y. 1977); Cope v. Metro. Life Ins. Co., 696 N.E.2d 1001
(Ohio 1998); Amato v. General Motors Corp., 463 N.E.2d 625 (Ohio Ct. App. 1982); Weinberg
v. Hertz Corp., 499 N.Y.S.2d 693 (N.Y. App. Div. 1986); Occidental Land, Inc. v. Superior
Court of Orange County, 134 Cal. Rptr. 388 (Cal. 1976); Vasquez v. Superior Court of San
Joaquin County, 94 Cal. Rptr. 796 (Cal. 1971).
The plaintiffs also cite a host of cases for the proposition that “[r]eliance upon a fraud
may be proved by circumstantial evidence.” We do not say herein that reliance must be proved
by direct (as opposed to circumstantial) evidence. We merely hold that reliance may not be
presumed such that a plaintiff does not have to come forward and prove an element of the claim.
24
the-market” claims.33 See 17 C.F.R. § 240.10b-5 (“Rule 10b-5”).34 This is an
important distinction, for, as the Supreme Court has stated:
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 statements.
Basic, Inc. v. Levinson, 485 U.S. 224, 241-42, 108 S. Ct. 978, 989, 99 L. Ed. 2d
194 (1988) (quoting Peil v. Speiser, 806 F.2d 1154, 1160-61 (3d Cir. 1986)).35 The
Court’s reason for employing a presumption of reliance in Basic rested upon the
very nature of the market itself and the price as set by the market.
33
To the extent that the plaintiffs cite us to cases that do not address a securities market
context, we find these cases unpersuasive.
34
Rule 10b-5 reads:
It shall be unlawful for any person, directly or indirectly, by the use of any means
or instrumentality of interstate commerce, or of the mails or of any facility of any
national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material
fact necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would
operate as a fraud or deceit upon any person, in connection with the purchase or
sale of any security.
17 C.F.R. § 240.10b-5.
35
The Court, in employing the presumption, emphasized that the defendant could rebut
the presumption by making “[a]ny showing that sever[ed] the link between the alleged
misrepresentation and either the price received (or paid) by the plaintiff, or his decision to trade
at a fair market price.” Basic, 485 U.S. at 248, 108 S. Ct. at 992.
25
An investor who buys or sells stock at the price set by the market does
so in reliance on the integrity of that price. Because most publicly
available information is reflected in market price, an investor’s
reliance on any public material misrepresentations, therefore, may be
presumed for purposes of a Rule 10b-5 action.
Id. at 247, 108 S. Ct. at 992.
Our circuit has adopted the theory that the unique nature of the public
securities market distinguishes fraud on the market from other claims of garden-
variety fraud. Our case law refers to this unique nature of the public securities
market as the “integrity of the market.” Kirkpatrick v. J.C. Bradford & Co., 827
F.2d 718, 722 (11th Cir. 1987); Shores v. Sklar, 647 F.2d 462, 469 (5th Cir. May
1981) (en banc) (holding that reliance may be established by proof that securities
not traded on the open market could not have been issued at all but for a fraudulent
scheme of the defendants; the plaintiff still had to prove that he “relied on the
integrity of the offerings of the securities market”). While Kirkpatrick stated that
the fraud-on-the-market theory did not preclude class treatment when the
purchasers of a security “might have relied on factors other than the integrity of the
market,” 827 F.2d at 723, it clarified that the fact that the plaintiffs “may have
obtained the allegedly misleading information via their individual brokers” did not
preclude class treatment, id. at 724. In other words, Kirkpatrick simply held that,
in the fraud-on-the-market context, class treatment was not precluded just because
26
some plaintiffs may have relied upon a person who owed the plaintiff a fiduciary
duty rather than relying upon the integrity of the market itself.36
The securities market presents a wholly different context than a consumer
fraud case, and neither this circuit nor the Supreme Court has extended a
presumption of reliance outside the context of securities cases. The “integrity of
the market” is not at issue in this case, and AT&T did not owe these plaintiffs a
fiduciary duty in the way that a broker may owe his client a fiduciary duty.
Because the fraud-on-the-market cases are not on point, we are bound to follow
Andrews and Pelletier. See Cargill v. Turpin, 120 F.3d 1366, 1386 (11th Cir.
1997) (holding that a prior panel decision is binding on subsequent panels).
2.
In addition to presuming the reliance element, the district court determined –
as part of the “scheme to defraud” – that “[LMAD] and its promotions appear to
have been fundamentally unchanged and without material variation from the
36
Affiliated Ute Citizens v. United States, 406 U.S. 128, 92 S. Ct. 1456, 31 L. Ed. 2d 741
(1972), does not require a result different from the conclusion we reach in the text. Affiliated
Ute held that, in a securities case, reliance was not a “prerequisite to recovery”; a plaintiff need
only show that the defendant omitted facts that were material, “in the sense that a reasonable
investor might have considered them important in the making of this decision.” Id. at 153-54, 92
S. Ct. at 1472 (emphasis added); see also Basic, 485 U.S. at 245, 108 S. Ct. at 990 (“Requiring a
plaintiff to show a speculative state of facts, i.e., how he would have acted if omitted material
information had been disclosed, or if the misrepresentation had not been made, would place an
unnecessarily unrealistic evidentiary burden on the Rule 10b-5 plaintiff who has traded on an
impersonal market.”) (emphasis added) (internal citations omitted).
27
game’s inception.” The court further determined that “the few individualized
inquiries which might be necessary on the issue of damages or individual claims
cannot be said to predominate over the common issues here.” We cannot agree
with the court on either proposition.
a.
With regard to the scheme to defraud, the district court erroneously
determined that LMAD and its promotions were “without material variation.” The
plaintiffs bear the burden of proving that the advertisement(s) upon which each
class member relied was fraudulent and misleading. See Beck v. Prupis, 162 F.3d
1090, 1097 (11th Cir. 1998) (disallowing a civil RICO claim predicated on mail
and wire fraud where the plaintiff failed to present any evidence “that he actually
saw, let alone relied upon” any false statements). In this case, over 119 different
commercials were broadcast on the U.S.A. Network alone. The advertising for
LMAD included thirty-second commercials, two-minute commercials, thirty-
minute “infomercials,” print advertising (in the National Enquirer, newspapers, and
local publications), and direct mail solicitations. The record indicates that few of
these advertisements are still in existence,37 that LMAD did not retain copies of all
37
For example, only 12 of the 119 commercials on the U.S.A. Network have been
produced in connection with this litigation.
28
of the advertising, that LMAD did not send copies of all of its advertising to AT&T
prior to its use (despite a contractual obligation to do so), and that even the
advertisements that remain in existence vary considerably in terms of content and
language. The plaintiffs’ own expert has conceded that those advertisements that
are still available “vary in terms of their potential to deceive.”38
The upshot of this is that each individual plaintiff is the only person with
information about the content of the advertisement upon which he relied. Of
course, a factfinder cannot determine whether an advertisement was misleading or
fraudulent without knowing its content, and so each plaintiff will have to provide
evidence of the particular advertisement(s) that he heard or saw. The court may
not employ a presumption that all of the LMAD advertisements were misleading,
because each individual plaintiff bears the burden of proving that the ad upon
which he relied was misleading. Use of a presumption is improper because each
individual plaintiff may be the only person with critical information about the
content of the ad upon which he relied; this content is evidence necessary to
determine whether the ad was misleading or fraudulent. Individual issues will
therefore predominate over common issues.
38
The plaintiffs’ expert further testified that “some of the people that saw the ads could
have called and understood a lot about [LMAD]; but I’m thinking that most of them, the large
majority of them, were deceived.” The expert also conceded that he would be unable to know
which particular consumer would or would not be deceived by a particular ad.
29
b.
The district court employed a presumption on the plaintiffs’ behalf on the
issues of injury and damages, deciding to forgo an individualized inquiry on these
elements of the plaintiffs’ claims. The court did so despite the fact that applying
the presumption would provide recovery to some persons who had not proved that
they were injured as a result of LMAD, and, in some instances, would provide
recovery in excess of the damages incurred by a class member. The court’s
rationale was that “such refunds would not significantly harm AT&T”:
Although Local Exchange Carriers (LECs) with whom AT&T
contracted to collect the 900-number charges may have kept poor
records in refunding money for some calls, also affecting the damages
issue, such amounts may be insubstantial compared to the overall
harm to the Plaintiffs’ class. Besides, to the extent that some
percentage of class members might receive a double recovery because
the LECs have already given certain refunds for which no records
were kept, such refunds would not significantly harm AT&T.
Although we could debate whether AT&T would be “significantly
harm[ed]” by paying, in treble damages, money already recovered by a consumer,39
we need not do so now, for the harm to AT&T is not relevant to the question of
whether the plaintiffs’ injuries and damages should be presumed.
39
AT&T has presented evidence to the effect that, at one point in 1992, about 40% of the
calls made to LMAD either were not paid or were credited by AT&T and the local exchange
carriers.
30
A plaintiff suing under civil RICO must demonstrate injury as a result of
racketeering activity and a specifiable amount of damages. See Andrews, 95 F.3d
at 1025 (stating that class members must show, “on an individual basis, that they
relied on the misrepresentations, suffered injury as a result, and incurred a
demonstrable amount of damages”). To allow recovery by persons who have not
been injured or to allow recovery for an injury greater than that caused by the
offending conduct would run counter to the plain language of the statute. 18
U.S.C. § 1964(c) (“Any person injured . . . shall recover threefold the damages he
sustains . . . .”) (emphasis added); see also Sedima, S.P.R.L. v. Imrex Co., Inc., 473
U.S. 479, 497, 105 S. Ct. 3275, 3285, 87 L. Ed. 2d 346 (1985) (stating that a civil
RICO defendant is not “‘liable to those who have not been injured’” (quoting
Haroco, Inc. v. Am. Nat’l Bank & Trust Co., 747 F.2d 384, 398 (7th Cir. 1984)).
We reiterate that class treatment may not serve to lessen the plaintiffs’ burden of
proof.40
In this case, a list of all of the individuals who received a refund or credit or
who refused to pay cannot be created from the records of AT&T, the local
exchange carriers, or Teleline. As we have stated above, a presumption should be
40
This is not to say that it would be impossible to certify any class because of damages
problems. In cases involving damages that may be calculated by a reliable formula – such as
overcharge cases or usury cases – damages are not much of a hurdle at all to certification.
31
employed only on behalf of a party who does not have control of the evidence on
an issue. Each plaintiff in this case received telephone bills, and each plaintiff who
suffered injury by paying for calls to LMAD would have access to a payment
record, which would detail the amount paid (thereby establishing the amount of
damages). A court may not employ a presumption on behalf of a party who has
such evidence at his disposal.
These claims will involve extensive individualized inquiries on the issues of
injury and damages – so much so that a class action is not sustainable. The district
court presumably recognized this or it would not have employed a presumption on
these issues to avoid having to decertify the class. We cannot condone the use of a
presumption as a “shortcut” in resolving issues of injury and damages where such
elements are provable by the plaintiffs and are required for recovery. See
Broussard v. Meineke Disc. Muffler Shops, Inc., 155 F.3d 331, 343 (4th Cir. 1998)
(noting that the fact that a “shortcut was necessary in order for this suit to proceed
as a class action should have been a caution signal to the district court that class-
wide proof of damages was impermissible”).
B.
32
AT&T also contests the propriety of the district court’s certification of a
class with respect to the federal RICO claims predicated on illegal gambling,41 in
41
It is quite rare for a plaintiff to bring a civil RICO claim predicated upon illegal
gambling. We have been unable to locate any such claims in the prior decisions of this court,
and scarcely any in other circuits (although there are a few published district court cases). One
possible reason for this, which we do not address in this opinion, is that it would be quite curious
for a plaintiff to institute a RICO claim predicated on illegal gambling against a defendant, for
the plaintiff would have to therein admit that he violated the gambling laws of a state. This is
because while 18 U.S.C. § 1955 only applies to persons in charge of a gambling business with
more than five persons, see infra note 42, one of the requirements for satisfying section 1955 is
that the gambling business be “a violation of the law of the State or political subdivision in
which it is conducted.” This means that to prove his RICO claim, the plaintiff would have to
show that the defendant violated the law of a state in which the gambling occurred. But since it
takes two parties to gamble, plaintiffs would thus be proving that they participated in conduct
that violated state law. (We recognize that there may be exceptions to this situation, such as in
the instant case, wherein the plaintiffs allege that they were unwitting participants in illegal
gambling; such plaintiffs would likely lack the requisite mens rea for prosecution under state
law.) We do not pass on the issue, but we posit the possibility that the plaintiffs may be barred
from bringing such a claim by the “unclean hands” doctrine.
33
violation of 18 U.S.C. § 1955.42 In a criminal prosecution instituted under section
1955, the government must prove three elements:
first, the enterprise violates state law; second, the illegal gambling
business involves five or more persons who conduct, finance, manage,
supervise, direct or own all or part of such business; and third, the
business was either in substantially continuous operation for a period
in excess of thirty (30) days or had a gross revenue of $2,000.00 in a
single day.
United States v. 18755 N. Bay Rd., 13 F.3d 1493, 1496 (11th Cir. 1994). When a
civil RICO plaintiff attempts to base a RICO claim on illegal gambling, the
plaintiff must prove these same elements. Additionally, the plaintiff must prove
42
Section 1955 provides, in pertinent part:
(a) Whoever conducts, finances, manages, supervises, directs, or owns all or part
of an illegal gambling business shall be fined under this title or imprisoned not
more than five years, or both.
(b) As used in this section –
(1) “illegal gambling business” means a gambling business which
–
(i) is a violation of the law of a State or political
subdivision in which it is conducted;
(ii) involves five or more persons who conduct,
finance, manage, supervise, direct, or own all or
part of such business; and
(iii) has been or remains in substantially continuous
operation for a period in excess of thirty days or has
a gross revenue of $2,000 in any single day.
(2) “gambling” includes but is not limited to pool-selling,
bookmaking, maintaining slot machines, roulette wheels or dice
tables, and conducting lotteries, policy, bolita or numbers games,
or selling chances therein.
(3) “State” means any State of the United States, the District of
Columbia, the Commonwealth of Puerto Rico, and any territory or
possession of the United States.
34
that he was “injured in his business or property by reason of” the illegal gambling.
18 U.S.C. § 1964(c); see also Price v. Pinnacle Brands, Inc., 138 F.3d 602, 607
(5th Cir. 1998) (holding that the plaintiffs did not have standing to bring a civil
RICO claim predicated on illegal gambling because they failed to allege “a
compensable injury”). Thus, just as the plaintiffs must prove injury and damages
when predicating their RICO claim on mail and wire fraud, see Pelletier, 921 F.2d
at 1499-1500, so too must they prove injury and damages when predicating their
RICO claim upon illegal gambling.43
We have previously discussed, in Part III.A.2.b supra, the plaintiffs’
difficulties in showing injury and damages as a class. These difficulties apply
equally whether the predicate act is mail and wire fraud or illegal gambling. Thus,
43
There is also no reason to differentiate the plaintiffs’ federal RICO claim arising from
the defendant’s alleged collection of unlawful debt. The plaintiffs still must prove injury and
damages, and the same difficulties arise with respect to unlawful debt collection as to claims of a
“pattern of racketeering activity” predicated on mail or wire fraud or on illegal gambling.
Further, the allegation that AT&T violated federal RICO by collecting unlawful debt would also
turn on plaintiffs’ establishing that debts incurred by participation in LMAD were “gambling
debts.” This raises the specter of applying the laws of fifty states, as described infra note 44.
18 U.S.C. § 1961(6) defines “unlawful debt”:
“[U]nlawful debt” means a debt (A) incurred or contracted in gambling activity
which was in violation of the law of the United States, a State or political
subdivision thereof, or which is unenforceable under State or Federal law in
whole or in part as to principal or interest because of the laws relating to usury,
and (B) which was incurred in connection with the business of gambling in
violation of the law of the United States, a State or political subdivision thereof,
or the business of lending money or a thing of value at a rate usurious under State
or Federal law, where the usurious rate is at least twice the enforceable rate.
35
the class must be decertified on the illegal gambling claim because individual
issues will overwhelm any common issues.44
IV.
In sum, the district court abused its discretion in certifying the plaintiff class
by erroneously determining that common issues of law or fact would predominate
44
The parties devote much attention in their briefs to whether the district court would
have to apply the laws of all fifty states, or the laws of only four states, in resolving the illegal
gambling claims. (The plaintiffs contend that the court need apply only the laws of California
(where Teleline’s home office was located), Illinois (where some calls were answered and a
relevant AT&T facility was located), New Jersey (where a relevant AT&T office was located),
and Missouri (where most of the calls were answered).) The district court unequivocally ruled
that the gambling laws of all fifty states would have to be applied: “In order to eliminate any
confusion, I now conclude that the laws of each state from which a call was made . . . will be
used to evaluate the gambling claims in this litigation.” Appellant AT&T agrees with the district
court’s determination on choice of law; its only contention is that applying the laws of all fifty
states is not “manageable” under Rule 23(b)(3). Plaintiffs contend that the laws of four states, at
most, apply to these claims. The plaintiffs, however, have not cross-appealed the district court’s
determination on this issue. The plaintiff’s failure to file a cross-appeal violates the requirement
of Fed. R. App. P. 5(b)(2) and means that the plaintiffs have not preserved this issue for appeal.
See United States v. Am. Ry. Express Co., 265 U.S. 425, 435, 44 S. Ct. 560, 564, 68 L. Ed. 1087
(1924) (“[T]he appellee may not attack the decree [of the district court] with a view either to
enlarging his own rights thereunder or of lessening the rights of his adversary” unless the
appellee cross-appeals.); Tranello v. Frey, 962 F.2d 244, 248 (2d Cir. 1992) (holding that the
failure to file a petition for cross-appeal within the statutory time limit is a jurisdictional defect
that bars the court from hearing the cross-appeal); Freeman v. B&B Assocs., 790 F.2d 145, 151
(D.C. Cir. 1986) (holding that failure of an appellee to cross-appeal “ordinarily precludes review
where an appellee seeks to enlarge his rights or lessen those of an adversary,” but is not a
jurisdictional bar); see also Harbor Tug & Barge, Inc. v. Belcher Towing Co., 733 F.2d 823, 825
n.1 (11th Cir. 1984); Campbell v. Wainwright, 726 F.2d 702, 704 (11th Cir. 1984).
Assuming that the district court was correct in ruling that the laws of all fifty states apply,
that alone would render the class unmanageable. See Andrews, 95 F.3d at 1024; Castano v. Am.
Tobacco Co., 84 F.3d 734, 741-43 and n.15 (5th Cir. 1996); In re Rhone-Poulenc Rorer, Inc., 51
F.3d 1293, 1300-01 (7th Cir. 1995).
36
over individual issues. We therefore REVERSE the certification order and
REMAND for further proceedings consistent with this opinion.
SO ORDERED.
37