The Cato Institute has filed an amicus brief in support of a petition from Stream Gas & Electric and related entities for the U.S. Supreme Court to review an appellate court's decision regarding whether a suit filed against Stream could be certified as a class action suit.

A district court initially certified class action status (see story here), but a three-judge panel of the Fifth Circuit Court of Appeal decertified the lawsuit in an October 16, 2015 opinion. In such opinion, the panel found that, as the suit was brought under the Racketeer Influenced and Corrupt Organizations (RICO) Act, questions regarding individual plaintiffs’ reliance on the defendants’ alleged fraudulent representations predominated over any common issues, and thus the action failed to meet the threshold for class action certification under Federal Rule of Procedure 23(b)(3). At a high level, the panel found that individual allegations of misrepresentation must be proven when brought under RICO

However, an en banc review by the Fifth Circuit overturned the panel's opinion and essentially re-certified class action status.

The en banc opinion said reliance on individual proof in determining class action status, "is at odds with recent decisions from the Supreme Court and this court emphasizing that RICO claims predicated on mail and wire fraud do not require first-party reliance to establish that the injuries were proximately caused by the fraud."

"[T]he class members here can prove injury 'by reason of' a pattern of mail fraud even if [they have] not relied on any misrepresentations.' The participants’ injuries arise from the scheme’s payment structure, and the inherent concealment of the inevitableness of those injuries," the en banc opinion said

The en banc opinion addressed only the legal question of certification and not the merits of the underlying allegations or suit.

See full story on the en banc opinion here

Stream has petitioned the Supreme Court for a writ of certiorari for the Supreme Court to review the question of whether, at a high level, plaintiffs must show individual reliance on a misrepresentation to establish proximate cause in civil RICO fraud suits.

In a blog post concerning the matter, Cato noted, "If individual reliance on a misrepresentation need not be proven, savvy investors may search out multi-level marketing programs, knowingly put their money in such risky ventures, and then sue for fraud if their investment doesn’t yield a profit. This significantly increases the likelihood of improper class-action lawsuits—potentially subjecting undeserving defendants to crushing liability."

Commenting in October 2016 when the en banc opinion was released, Stream had at that time said: "Stream will continue to vigorously defend its rights and the rule of law, and strongly upholds the position that the company sells real services to real people (as cited by Judges Jones and Clement in their dissenting opinions). Keeping customers as the company’s number one focus, Stream is committed to growing the company and offering the best possible service experience."

See below for more:

Cato blog post

Cato amicus brief

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Multi-level marketing   Network marketing   MLM  

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