CGC Holding Co. v. Broad & Cassel
773 F.3d 1076
| 10th Cir. | 2014Background
- Plaintiffs (borrowers led by CGC Holding, Harlem Algonquin, and Medick) allege Sandy Hutchens ran an advance-fee loan scheme: issuing conditional loan commitments, collecting non‑refundable up‑front fees, but lacking intent or ability to fund the loans.
- Hutchens allegedly used multiple aliases and shell entities to obscure his identity and the enterprise’s insolvency; plaintiffs say these omissions were material and induced payment of fees.
- Plaintiffs sued under civil RICO (including conspiracy) on behalf of a putative nationwide class of U.S. borrowers who paid up‑front fees but received no funded loan commitments.
- The district court certified the class under Rule 23(b)(3); defendants appealed under Rule 23(f), primarily arguing individualized reliance and causation issues defeat predominance.
- The Tenth Circuit affirmed certification (with one exception) holding that an inference of classwide reliance from payment of up‑front fees suffices for predominance; it reversed certification only as to Broad & Cassel and two lawyers because plaintiffs conceded lack of standing against them.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether common issues predominate for Rule 23(b)(3) class certification (RICO fraud) | Payment of nonrefundable up‑front fees supports a common, circumstantial inference that all class members relied on defendants’ promises; thus reliance and causation are susceptible to generalized proof | Reliance and causation are highly individualized (different motives, diligence, facts) so individual issues will overwhelm common ones | Predominance satisfied: circumstantial, classwide inference of reliance from payment of the fee is permissible in this transactional context and supports certification |
| Whether plaintiffs may invoke a legal presumption of reliance (fraud‑on‑the‑market / Affiliated Ute style) | District court employed a presumption as an alternative ground | Defendants argued securities presumptions do not apply to RICO fraud | Court rejected application of a securities‑law presumption; accepted only a commonsense evidentiary inference (not a legal presumption) for class certification |
| Whether RICO’s extraterritoriality or subject‑matter jurisdiction bars the claims at certification stage | Plaintiffs relied on domestic effects/predicates to allege domestic application | Defendants urged that RICO is being applied extraterritorially and that is jurisdictional | Court declined to decide extraterritoriality here (a merits question under Morrison); left for merits resolution below |
| Standing / proximate causation and class certification as to Broad & Cassel (law firm defendants) | Plaintiffs initially included Broad but later conceded lack of standing against Broad | Broad argued plaintiffs lack standing and proximate cause, and numerosity as to law‑firm defendants | Court held plaintiffs adequately pleaded standing/proximate cause for the class generally, but accepted plaintiffs’ concession and reversed certification as to Broad & Cassel, Gaché, and Romano and remanded to dismiss claims against them |
Key Cases Cited
- Wal‑Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011) (rigorous Rule 23(a) analysis and commonality requirement)
- Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013) (Rule 23(b)(3) predominance and consideration of damages model at certification)
- Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639 (2008) (proximate cause and RICO causation principles)
- Hemi Group, LLC v. City of New York, 559 U.S. 1 (2010) (but‑for and proximate causation under RICO)
- Basic Inc. v. Levinson, 485 U.S. 224 (1988) (fraud‑on‑the‑market presumption in securities cases)
- Affiliated Ute Citizens v. United States, 406 U.S. 128 (1972) (presumption of reliance for omission‑based securities claims)
- Holmes v. Securities Investor Prot. Corp., 503 U.S. 258 (1992) (RICO proximate‑causation limits)
- In re U.S. Foodservice Inc. Pricing Litig., 729 F.3d 108 (2d Cir. 2013) (circumstantial classwide inference of reliance in transactional fraud)
- Klay v. Humana, 382 F.3d 1241 (11th Cir. 2004) (classwide inference of reliance where common circumstantial evidence exists)