Aggregate Reliance and Overcharges: Removing Hurdles to Class Certification for Victims of Mass Fraud
Shawn S. Ledingham, Jr.
Victims of consumer fraud often struggle to bring their claims as nationwide class actions under traditional state fraud laws due to (1) the application of many states’ laws to potential class members’ claims and (2) the fact that fraud claims generally raise a significant individual factual issue—whether the claimant personally relied on the defendant’s misrepresentation. The civil remedy provisions in RICO offer an attractive alternative. RICO overcomes the first hurdle by providing plaintiffs with a single federal law under which to file suit. This Note demonstrates that RICO allows plaintiffs to overcome the second hurdle as well. Rather than showing that they incurred harm when they purchased products in reliance on a misrepresentation, plaintiffs can achieve class certification by framing their injury as a harm common to all purchasers of a product: specifically, an increase in the price of the product due to artificially increased demand. Recently, several classes have moved successfully for certification using this approach. This Note provides a theoretical framework to justify this method. Rather than committing the same error as most courts and commentators by viewing this approach as an extension of the fraud-on-the-market presumption of reliance from securities fraud cases, I argue that there is no need to presume reliance because the Supreme Court’s holding in Bridge v. Phoenix Bond & Indemnity Co. makes clear that individual, personal reliance is not necessary to prove causation in RICO claims. Instead, plaintiffs can satisfy RICO’s causation element through statistical analyses that prove aggregate reliance—reliance on the fraud by a large enough number of individuals to increase the price of the product above the price that it would have been absent the fraud. As all purchasers of the product experience the same price differential, the statistical analyses provide common proof of causation of identical harm, eliminating problematic individual inquiries and opening the door to certification of nationwide consumer fraud class actions.