Reynaldo Reyes v. Netdeposit
2015 U.S. App. LEXIS 15577
3rd Cir.2015Background
- Plaintiff Reynaldo Reyes sued Zions First National Bank and its payment‑processor subsidiaries (Modern Payments/Netdeposit) alleging they participated in a telemarketing‑driven scheme that caused unauthorized ACH debits from consumers’ bank accounts and asserting RICO claims on behalf of a nationwide class.
- The alleged scheme involved telemarketers obtaining account data, funneling debits through Modern Payments/Zions via the ACH network, and defendants collecting fees and remitting balances to telemarketers; many debits were returned (unauthorized) at extraordinarily high rates compared to industry norms.
- Reyes identified high return rates (many merchants with 30–90% return rates vs. ~1.25% national average) and offered expert testimony and documentary evidence (internal emails, regulatory warnings, FTC actions) to show defendants knew or should have known merchants were fraudulent.
- The District Court denied class certification, finding no common issues apt to resolve the case for all class members and treating return‑rate evidence as insufficient/not dispositive of fraud; it required a high level of proof at the certification stage.
- The Third Circuit vacated and remanded, holding the District Court applied an overly rigorous (near‑absolute) proof standard, mischaracterized and failed to consider plaintiff’s expert evidence, and instructed the court to perform a rigorous, record‑wide predominance/commonality analysis (including considering the “complete sham” theory and subclasses if appropriate).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper standard for class certification (commonality/predominance) | Reyes: district court should apply Rule 23 standards and preponderance of evidence, not require absolute proof; focus on whether common questions predominate. | Defendants: evidence (varying merchant practices, different contact modes) shows individualized issues requiring individual adjudication. | Court: District Court applied too demanding a standard; plaintiff need only show Rule 23 requirements by a preponderance and court must conduct rigorous, record‑wide analysis. |
| Can “complete sham” theory support class certification for RICO claims | Reyes: defendants’ conduct (high return rates, internal warnings, mislabeling codes, regulator probes) shows an enterprise that was a complete sham; classwide proof of sham can establish common injury and predominance. | Defendants: variations among telemarketers (different scripts, channels, merchants) and return rates require individualized inquiry into each class member’s transaction. | Court: "complete sham" can satisfy commonality/predominance if supported by the record; district court must evaluate all evidence (experts, documents) to decide. |
| Role and weight of return‑rate statistics | Reyes: extreme return rates are strong circumstantial evidence of fraud and knowledge by defendants when combined with other evidence. | Defendants: high return rates alone are not dispositive; many return codes exist and individualized investigation is necessary. | Court: return rates are relevant and may be probative but cannot be isolated; court must assess them in context with expert testimony and other evidence. |
| Treatment of expert vs. fact witness evidence at certification | Reyes: experts (banking, fraud investigators, economists) provided classwide proof methods; district court must consider expert evidence. | Defendants: point to fact witnesses and argue individualized analysis required; challenge plaintiffs’ experts. | Court: District Court erred by failing to meaningfully consider plaintiff’s expert testimony and by misidentifying fact witnesses as experts; must review and weigh experts on remand. |
Key Cases Cited
- Wal‑Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011) (commonality requires at least one question common to class and a classwide answer will resolve central issues)
- In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305 (3d Cir. 2009) (district court must perform rigorous, fact‑based Rule 23 analysis and resolve disputes by a preponderance of the evidence)
- In re Insurance Brokerage Antitrust Litig., 579 F.3d 241 (3d Cir. 2009) (RICO/antitrust class certification: elements focusing on defendants’ conduct may generate common questions suitable for class treatment)
- Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013) (predominance requires that classwide methodology be capable of measuring damages across the class)