                                                           FILED
                                              United States Court of Appeals
                                                      Tenth Circuit

                                                   December 8, 2014
                                   PUBLISH        Elisabeth A. Shumaker
                                                      Clerk of Court
                UNITED STATES COURT OF APPEALS

                             TENTH CIRCUIT



CGC HOLDING COMPANY, LLC, a
Colorado limited liability company;
CRESCENT SOUND YACHT CLUB,
LLC, a Florida limited liability
company; HARLEM ALGONQUIN
LLC, an Illinois limited liability
company; and JAMES T. MEDICK, on
behalf of themselves and all others
similarly situated,

           Plaintiffs-Appellees,
v.                                           No. 13-1255
BROAD AND CASSEL, a Florida
general partnership; RONALD
GACHÉ; and CARL ROMANO,

           Defendants-Appellants.
___________________
CGC HOLDING COMPANY, LLC, a
Colorado limited liability company;
CRESCENT SOUND YACHT CLUB,
LLC, a Florida limited liability
company; HARLEM ALGONQUIN
LLC, an Illinois limited liability
company; and JAMES T. MEDICK, on
behalf of themselves and all others
similarly situated,

           Plaintiffs-Appellees,
v.                                           No. 13-1257
SANDY HUTCHENS, also known as
Fred Hayes, also known as Moishe
Alexander, also known as Moshe Ben
Avraham; TANYA HUTCHENS;
JENNIFER HUTCHENS, also known
as Jennifer Araujo; H. JAN
LUISTERMANS, also known as
Herman Luisterman; 1681071
ONTARIO INC., an Ontario
corporation which has changed its
name to Canadian Funding Limited;
NORTHERN CAPITAL
INVESTMENTS LTD, an Ontario
corporation; 2800 NORTH FLAGLER
DRIVE UNITS 106-107 LLC, a
Florida limited liability company;
ESTATE OF JUDITH HUTCHENS;
129 LAREN STREET INC., an
Ontario corporation, also known as
2141250 Ontario Inc.; 3415
ERRINGTON AVENUE INC., an
Ontario corporation, also known as
2129974 Ontario Inc.; 367-369
HOWEY DRIVE INC., an Ontario
corporation, also known as 1714530
Ontario Inc.; 3419 ERRINGTON
AVENUE INC., an Ontario
corporation, also known as 2129982
Ontario Inc.; 17 SERPENTINE
STREET INC., an Ontario corporation,
also known as 1714529 Ontario Inc.;
720 CAMBRIAN HEIGHTS INC., an
Ontario corporation, also known as
2154461 Ontario Inc.; 331 REGENT
STREET INC., an Ontario corporation,
also known as 2126929 Ontario Inc.;
789 LAWSON STREET INC., an
Ontario corporation, also known as
2128417 Ontario Inc.; 110-114 PINE
STREET INC., an Ontario corporation,
also known as 2173061 Ontario Inc.;

                                   -2-
15-16 KEZIAH COURT INC., an
Ontario corporation, also known as
2128412 Ontario Inc.; 193
MOUNTAIN STREET INC., an
Ontario corporation, also known as
2141249 Ontario Inc.; 625 ASH
STREET INC., an Ontario corporation,
also known as 2128413 Ontario Inc.;
364 MORRIS STREET INC., an
Ontario corporation, also known as
2119821 Ontario Inc.; SANTAN
PROPERTY MANAGEMENT INC.;
101 SERVICES ROAD INC.; 146
WHITAKER STREET INC., an
Ontario corporation; JBD HUTCHENS
FAMILY HOLDINGS INC., an
Ontario corporation, also known as
2129981 Ontario Inc.; JBD
HOLDINGS; 1697030 ONTARIO
INC.,

           Defendants-Appellants,
and


308 ELGIN STREET INC.; 1539006
ONTARIO INC.; FIRST CENTRAL
HOLDINGS INC.; FIRST CENTRAL
MORTGAGE FUNDING INC.;
CANADIAN FUNDING
CORPORATION; REALTY 1 REAL
ESTATE SERVICES LTD.,

            Defendants.




                                       -3-
 _________________

 CGC HOLDING COMPANY, LLC, a
 Colorado limited liability company;
 CRESCENT SOUND YACHT CLUB,
 LLC, a Florida limited liability
 company; HARLEM ALGONQUIN
 LLC, an Illinois limited liability
 company; and JAMES T. MEDICK, on
 behalf of the themselves and all others
 similarly situated,

             Plaintiffs-Appellees,
 v.                                                   No. 13-1258
 ALVIN MEISELS,

             Defendant-Appellant.


        APPEAL FROM THE UNITED STATES DISTRICT COURT
                FOR THE DISTRICT OF COLORADO
                  (D.C. No. 11-cv-01012-RBJ-KLM)


James D. Kilroy (Jessica E. Yates with him on the briefs), Snell & Wilmer L.L.P.,
Denver, Colorado, for Case No. 13-1255 Appellants.

Steven A. Klenda, Adroit Advocates, LLC, Denver, Colorado, for Case No. 13-
1257 Appellants.

John M. Palmeri (Heather K. Kelly and Greg S. Hearing with him on the briefs),
Gordon & Rees LLP, Denver, Colorado, for Case No. 13-1258 Appellants.

John F. Head, Head & Associates, P.C., Denver, Colorado, for Appellees.




                                           -4-
Before, KELLY *, TYMKOVICH and PHILLIPS, Circuit Judges.


TYMKOVICH, Circuit Judge.


      This case requires us to consider the certification of a proposed class action

to pursue claims under the Racketeer Influenced and Corrupt Organizations Act

(RICO). A class primarily composed of real estate borrowers sued a group of

lenders, claiming the lenders conspired to create a fraudulent scheme to obtain

non-refundable up-front fees in return for loan commitments the lenders never

intended to fulfill.

      On behalf of the proposed class, the class representatives—Colorado Golf

Club Holding Company LLC (CGC Holding), Harlem Algonquin LLC and James

T. Medick 1—allege that the lenders misrepresented their ability and their

objective to make good on the promises to meet certain financing obligations as

part of a scheme to entice borrowers to pay the up-front fees. In addition, the

class intends to offer generalized proof that the lenders concealed the financial


      *
         The late Honorable William J. Holloway, United States Senior Circuit
Judge, heard oral argument in this appeal. However, he passed away before the
opinion in this case was finalized, and he cast no vote with respect to this
finalized opinion. The Honorable Paul J. Kelly, Jr. substitutes to vote on this
final opinion.


      1
         Throughout the opinion, we also refer to the class representatives simply
as “plaintiffs” or “borrowers.”

                                         -5-
history of Sandy Hutchens, the principal defendant, and his use of pseudonyms, to

preserve the superficial integrity of the operation. Had they known about this

pretense, say the borrowers, no putative class member would have taken part in

the financial transactions that caused each to lose its up-front fees, amounting to

millions of dollars of cumulative losses.

      The lenders oppose class certification under Rule 23 of the Federal Rules of

Civil Procedure. They contend class action is an inappropriate litigation vehicle

because the borrowers are unable to demonstrate that common issues susceptible

to generalized proof will predominate over any issues affecting class members

individually. In particular, the lenders contend that each class member will have

to demonstrate that it relied on the lenders’ misrepresentations or omissions to

satisfy RICO’s causation element, making a single trial unwieldy and unworkable.

      The lenders are wrong, but not because plaintiffs benefit from a legal

“presumption” of reliance as identified by the district court. As we explain,

RICO class-action plaintiffs are not entitled to an evidentiary presumption of a

factual element of a claim. But still we agree with the district court that a class

can be certified in this context. The plaintiffs’ theory of the case rests on a

straightforward premise—that no rational economic actor would enter into a loan

commitment agreement with a party they knew could not or would not fund the

loans. Accordingly, plaintiffs’ payment of up-front fees allows for a reasonable

inference that the class members relied on lenders’ promises, which later turned

                                            -6-
out to be misrepresentations or omissions of financial wherewithal. This theory

sufficiently allays concerns about Rule 23(b)(3)’s requirement that common

issues predominate over those idiosyncratic to individual class members.

      And with the predominance requirement met, the borrowers have

sufficiently proved each of the elements required to certify a class under Rule 23.

For this reason, the district court thus did not err in certifying the class. The

defendants associated with the lenders’ law firm, however, are an exception. For

that subset of the defendants, we reverse because plaintiffs concede that they lack

standing to pursue claims involving the law firm.

      Exercising jurisdiction under Rule 23(f), we AFFIRM the class certification

decision on modified grounds. We also REVERSE the district court’s class

certification decision as to the lenders’ law firm and lawyers, Broad and Cassel,

Ronald Gaché and Carl Romano, and REMAND with instructions to DISMISS the

claims against those defendants.

      Finally, because several claims are not properly before us in this

interlocutory appeal, we decline to address (1) whether plaintiffs’ claims

constitute an impermissible extraterritorial application of RICO, (2) whether the

plaintiffs can prove proximate cause, or (3) whether the district court properly

exercised personal jurisdiction over certain defendants.

                                   I. Background

      A. Hutchens and the Alleged Fraud

                                          -7-
      We take the facts as alleged in the complaint. The complaint alleges that

Sandy Hutchens was the mastermind behind the loan commitment fraud at the

heart of this case. Plaintiffs contend Hutchens is a career criminal with a history

of schemes similar to the one at issue here. In 2004, Hutchens pleaded guilty to

financial fraud charges in Canada and was sentenced to two years of house arrest

followed by two years of probation. 2 For reasons that become relevant later, after

his Canadian conviction, Hutchens converted to orthodox Judaism and changed

his name to Moishe Alexander Ben Avraham. In addition to the moniker Moishe

Alexander, Hutchens maintained several other aliases to conceal his identity,

including Moishe Alexander ben Avrohom, Moshe Ben Avraham, Fred Hayes,

Alexander MacDonald, Matthew Kovce, and Frederick Merchant. 3 Not

surprisingly, Hutchens disagrees with the plaintiffs’ characterization of his

operation and contends that he was a legitimate financial investor and lender with

success closing mortgage transactions, asset purchases, and other investments.



      2
         The amended complaint contains numerous allegations regarding
Hutchens’s past. For example, plaintiffs allege that Hutchens misrepresented
joint venture relationships with prominent North American lenders and invented
certain offshore funding sources. Furthermore, the record reflects that Hutchens’s
history of malfeasance was chronicled in several newspaper articles and on
various internet websites.
      3
         For consistency, we refer to Sandy Hutchens as “Hutchens” throughout
the opinion, even though he went by different names during his interactions with
the putative class members.



                                         -8-
      Plaintiffs’ central claim is that Hutchens and his associates engaged in a

common scheme to defraud distressed, do-or-die borrowers out of up-front

payments. The formula for Hutchens’s alleged cookie-cutter scheme is not

complicated. First, a potential borrower would submit a loan application to one

of several issuing entities through a loan broker. Typically, the applicant would

identify in its application a piece of real estate that could serve as collateral to

secure the loan. After receiving the application, an issuing entity would extend

the applicant a loan commitment agreement. Under its terms, the applicant was

required to pay, among other advanced fees, an up-front, non-refundable payment

known as a “loan commitment fee.” In addition to this up-front fee, as a strict

condition of the terms of the agreement, the applicant was also required to meet

certain eligibility requirements prior to receiving the loan. One of these

conditions set a minimum valuation for the collateral property. If an appraisal

valued the property below the amount necessary to secure the loan, then the

commitment agreement would be annulled. Another condition required that the

applicant timely submit necessary paperwork to facilitate the loan’s approval. At

some point in the process, the issuing entities terminated each of the borrowers’

loan commitment agreements for failing, in one form or another, to comply with

the conditions of the agreement.

      Plaintiffs claim this scheme was subterfuge for a scam to appropriate the

up-front fees without any intent or ability to ultimately fund the committed loan.

                                           -9-
To this end, Hutchens and his cohorts would fabricate a reason to deny the loan or

otherwise blame the borrower for the deal’s dissolution. According to Hutchens’s

former accountant, Martin Lapedus, by the end of 2009 the issuing entities

controlled by Hutchens had received over $8 million in up-front fees from

applicants, but had lent less than $500,000 in total funding. Furthermore,

Lapedus alleges that the issuing entities, and by extension Hutchens, never had

the liquidity to close the substantial loans committed to in the loan agreements.

      Plaintiffs also allege that Hutchens and his syndicate concealed several

material aspects of Hutchens’s criminal or otherwise problematic past, including

his use of aliases to perpetuate false perceptions and obscure his identity. In the

same vein, plaintiffs allege that the physical addresses associated with the issuing

entities were façades used to shield the illusory nature of Hutchens’s business. At

bottom, plaintiffs contend that this deceit amounted to an effort to beguile class

members, ignorant of Hutchens’s unsavory methods, to enter the loan

commitment agreements. But for these active omissions and misrepresentations,

say plaintiffs, no putative class member would have participated in the deals.

      B. Other Defendants

      Plaintiffs also claim a number of other individuals and entities conspired

with Hutchens.

             1. The Hutchens Family and Related Entities




                                         -10-
      First, plaintiffs allege Hutchens’s wife, Tanya, and his daughter, Jennifer,

are co-conspirators. They claim Tanya Hutchens as the person responsible for

operating and maintaining the books of the fraudulent enterprise. She also

controlled the majority of the entities to which the enterprise funneled the

ill-gotten gains of their alleged scheme. Jennifer Hutchens (or Jennifer Araujo)

was the “Manager of Underwriting” for several of the corporate entities.

      Plaintiffs next contend H. Jan Luistermans is a Canadian real estate agent

who worked with the Hutchens’s enterprise. His primary responsibility was

inspecting potential borrowers’ properties to determine whether the property

could serve as acceptable collateral for the loans. During the relevant time

period, Luistermans was employed by Realty 1 Real Estate Services Ltd.

      Additionally, the complaint named five issuing entities as defendants. The

issuing entities—308 Elgin Street Inc. (308 Elgin), Canadian Funding Corporation

(CFC), First Central Mortgage Funding Inc. (FCMF), Northern Capital Investment

Ltd. (NCI), and Great Eastern Investment Fund, LLC (GEIF)—are all Canadian

corporations that allegedly served as vehicles to issue the conditional loan

commitments and accept the up-front fees required to secure those commitments.

A sixth entity, First Central Holdings Inc. (FCH), served a similar function,

allegedly receiving payments via wire transfers from class members. Finally,

Hutchens and his associates used another cadre of entities, collectively referred to

here as the transferees, to funnel or transfer class members’ advance payments.

                                        -11-
The transferees would allegedly purchase real estate with these illicit fees soon

after receipt.

                 2. Meisels

       Alvin Meisels’s relationship with Sandy Hutchens dates back to at least

2004 when Meisels represented Hutchens in connection with criminal charges for

fraud. Meisels is an Ontario, Canada lawyer alleged to have advised Hutchens

throughout the period relevant to this action. Plaintiffs contend that Meisels

frequently certified the legitimacy of Hutchens’s ability to fund loan

commitments. According to the complaint, Meisels was on notice about

Hutchens’s criminal history from the outset of their relationship.

       Meisels also represented Hutchens in a 2006 lawsuit alleging that Hutchens

committed a similar advance-fee loan fraud. Meisels subsequently served as

counsel to Hutchens in an action to secure an injunction against Brent Hillyer,

who was allegedly the source of several defamatory internet postings about

Hutchens. All told, from 2004 until March 2010, Meisels provided legal

representation to Hutchens and various other defendants.

       Plaintiffs specifically allege that Meisels vouched for the bona fides of

several defendant entities on $420 million worth of loan commitments to

borrowers based out of Florida. Meisels also served as a reference for Hutchens

and frequently disseminated positive information while withholding facts that

tended to show Hutchens’s criminal past or other sordid factors.

                                        -12-
             3. The Broad Defendants

      Broad and Cassel is a law firm doing business in Florida. Ronald Gaché

and Carl Romano were partners at the firm during the relevant time period. 4 As

alleged in the amended complaint, Broad represented several defendants at certain

points during 2008. While Broad was counsel to the Hutchens-related entities, it

was involved with loan commitments to seventeen prospective borrowers, only

five of which paid advanced fees.

      C. The Putative Class

      Plaintiffs allege that the lenders issued at least 134 loan commitments

through the issuing entities over the course of nearly nine years. The putative

class, according to plaintiffs, thus includes at least 100 borrowers—consisting of

both individuals and corporate entities spanning across fifteen different

states—who paid advance fees to defendants. The contracted value of each class

member’s loan commitment ranged from $500,000 to $80 million. Based on

plaintiffs’ estimates, the lenders committed to fund at least $760 million in loans,

but only closed on one loan for a Florida condominium worth $265,000. The

circumstances of the three entities currently serving as the class representatives

for the putative class are typical of those of other potential class members.

             1. CGC Holding


      4
        We refer to Broad and Cassel, Gaché, and Romano collectively as
“Broad.”

                                        -13-
         CGC Holding is a Colorado limited liability company, which developed an

eighteen-hole golf course and related community facilities during 2009. After

losing one of its primary investors, CGC Holding sought funding from FCMF and

FCH. CGC Holding signed a commitment letter with FCMF pursuant to which

FCMF agreed to lend $34 million to CGC Holding subject to certain terms. To

comply with the terms, CGC Holding paid FCH at least $182,500 in inspection

fees, administrative fees, and legal fees. CGC Holding did not receive the loan.

The lenders maintain that CGC Holding’s loan commitment was contingent upon

its collateral property commanding a valuation of $43 million, of which it fell

short.

               2. Harlem Algonquin

         Harlem Algonquin was a special-purpose entity operating out of Illinois

that was created to purchase and develop a commercial property. A mortgage

broker introduced Harlem Algonquin to CFC, and CFC ultimately issued a loan

commitment for $3.57 million to facilitate the purchase in June 2010. The parties

continued to negotiate, and Harlem Algonquin eventually paid $42,688 in fees to

CFC. According to the defendants, Harlem Algonquin failed to supply or

untimely delivered the necessary paperwork to complete its application. For this

reason, Harlem Algonquin never received a loan from the lenders. Harlem

Algonquin has since been involuntarily dissolved by the state of Illinois.

               3. Medick

                                         -14-
      James T. Medick wanted to purchase his former home in San Clemente,

California from his ex-wife. For this purpose, Medick was put in touch with

FCMF, which eventually committed to loan Medick $4 million. To secure the

necessary funding, he paid $95,950 to FCH in three payments during the first

three months of 2010. The terms of his commitment contract required that the

existing mortgages and encumbrances on the former home be up to date. Since

two mortgages and property taxes on the home were in arrears, CFC terminated

his application.

      D. Procedural History

      The defendants filed numerous procedural and substantive motions, which

the district court mostly denied in 2011. The court subsequently certified a class

including persons and entities fitting the following definition:

             All U.S. residents or domiciled entities (1) who were
             issued loan commitments between January 1, 2005, and
             April 7, 2013, (2) by Canadian Funding Corporation,
             First Central Mortgage Funding, Inc., 308 Elgin Street
             Inc., Northern Capital Investment Ltd., Great Eastern
             Investments, LLC, or any other entity controlled by
             Sandy Hutchens, (3) whose loan commitments were not
             funded (4) but who paid money to any defendant (5)
             without having been informed that Moishe Alexander,
             Moshe Ben Avraham, Fred Haynes, Alexander
             MacDonald, Mathew Kovce, Fred Merchant, or other
             aliases, as the case might be, were names used by Sandy
             Hutchens, and that that individual had a criminal history
             including a conviction for fraud.




                                         -15-
CGC Holding Co., LLC v. Hutchens, No. 11-CV-01012-RBJ-KLM, 2013 WL

798242, at *13 (D. Colo. Mar. 4, 2013).

      Pursuant to the interlocutory appeal right of Rule 23(f), the defendants

argue the district court erred in finding that questions common to the entire class

will predominate over questions unique to individual class members.

                                     II. Analysis

      The scope of our review under Rule 23(f) is limited to whether the district

court abused its discretion in its certification of the putative class. As we explain,

the district court did not err in certifying the class. While the parties have raised

a number of other issues unrelated to class certification, we do not reach those as

part of this interlocutory appeal.

      A. Class Certification

      Hutchens and Meisels contend that the district court abused its discretion

by certifying the putative class because individual issues will overwhelm the

common issues of fact and law, making class treatment unmanageable and

inappropriate. They argue that, among other things, the motives, levels of

knowledge, diligence, and financial status of each class member are so different

that the district court will be inundated with independent inquiries specific to

each class member. And they contend that unpacking these unique concerns will

dominate the litigation.



                                          -16-
        “When the district court has applied the proper standard in deciding

whether to certify a class, we may reverse that decision only for abuse of

discretion.” Adamson v. Bowen, 855 F.2d 668, 675 (10th Cir. 1988). The district

court abuses its discretion when it misapplies the Rule 23 factors—either through

a clearly erroneous finding of fact or an erroneous conclusion of law—in deciding

whether class certification is appropriate. Vallario v. Vandehey, 554 F.3d 1259,

1264 (10th Cir. 2009); Shook v. El Paso Cnty., 386 F.3d 963, 967–68 (10th Cir.

2004) (Shook I). Our review is only de novo to the extent we must determine

whether the district court applied the correct standard. Trevizo v. Adams, 455

F.3d 1155, 1160 (10th Cir. 2006). In the end, “[a]s long as the district court

applies the proper Rule 23 standard, we will defer to its class certification ruling

provided that decision falls within the bounds of rationally available choices

given the facts and law involved in the matter at hand.” Vallario, 554 F.3d at

1264.

              1. Class Certification Standards

        When addressing class certification, the district court must undertake a

“rigorous analysis” to satisfy itself that the prerequisites of Rule 23 of the Federal

Rules of Civil Procedure are met. See Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct.

2541, 2551 (2011) (Rule 23(a)); Comcast Corp. v. Behrend, 133 S. Ct. 1426, 1432

(2013) (Rule 23(b)). Because class action litigation remains “an exception to the

usual rule that litigation is conducted by and on behalf of the individual named

                                         -17-
parties only,” Califano v. Yamasaki, 442 U.S. 682, 700–01 (1979), the

requirements of Rule 23 are heavily scrutinized and strictly enforced. “[A]ctual,

not presumed, conformance with [Rule 23] remains . . . indispensable.” Gen. Tel.

Co. of Sw. v. Falcon, 457 U.S. 147, 160 (1982).

       Under Rule 23(a), plaintiffs seeking class treatment must establish four

threshold requirements:

             (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.

Fed. R. Civ. P. 23(a) (emphasis added). In other words, the class must

demonstrate the requisite numerosity, commonality, typicality, and adequacy to

proceed with a class action.

       If the class meets the four criteria under Rule 23(a), then the court must

consider whether the class satisfies at least one of the three alternative class-types

under Rule 23(b):

       First, Rule 23(b)(1) addresses situations where “incompatible standards of

conduct for the party opposing the class” would arise without class treatment. Id.

at (b)(1).

                                         -18-
      Second, Rule 23(b)(2) covers class actions for declaratory or injunctive

relief where the party defending against the class “has acted or refused to act on

grounds that apply generally to the class.” Id. at (b)(2).

      Third, as is the case here, Rule 23(b)(3) is available where “questions of

law or fact common to class members predominate over any questions affecting

only individual members, and . . . a class action is superior to other available

methods for fairly and efficiently adjudicating the controversy.” Id. at (b)(3). In

other words, class status is appropriate as long as plaintiffs can establish an

aggregation of legal and factual issues, the uniform treatment of which is superior

to ordinary one-on-one litigation.

      None of the elements of Rule 23(a) is realistically in dispute in this case.5

The real question is whether plaintiffs have sufficiently met their burden under

Rule 23(b)—specifically whether the plaintiffs can show that common questions

subject to generalized, classwide proof predominate over individual questions.

“The Rule 23(b)(3) predominance inquiry tests whether proposed classes are

sufficiently cohesive to warrant adjudication by representation.” Amchem Prods.,

Inc. v. Windsor, 521 U.S. 591, 622–23 (1997). It is not necessary that all of the

elements of the claim entail questions of fact and law that are common to the

class, nor that the answers to those common questions be dispositive. Amgen Inc.

      5
         Broad disputes whether the putative class is sufficiently numerous as
against the law firm defendants. Because we handle Broad separately, see Part
II.C.3 infra, we need not address numerosity at this juncture.

                                         -19-
v. Conn. Ret. Plans & Trust Funds, 133 S. Ct. 1184, 1196 (2013). Put differently,

the predominance prong “asks whether the common, aggregation-enabling, issues

in the case are more prevalent or important than the non-common, aggregation-

defeating, individual issues.” 2 William B. Rubenstein et al., Newberg on Class

Actions § 4:49, at 195–96 (5th ed. 2012) (“Newberg”).

      Predominance regularly presents the greatest obstacle to class certification,

especially in fraud cases. Accordingly, the issues disputed in this case are not

unusual. And given our obligation to ensure that the district court did not err in

conducting its rigorous analysis, we must characterize the issues in the case as

common or not, and then weigh which issues predominate. Id. § 4:50, at 196.

Here, that task requires us to survey the elements of the class’s RICO claims to

consider (1) which of those elements are susceptible to generalized proof, and (2)

whether those that are so susceptible predominate over those that are not.

Wallace B. Roderick Revocable Living Trust v. XTO Energy, Inc., 725 F.3d 1213,

1220 (10th Cir. 2013) (finding that the district court must consider the particular

facts of a case, including the underlying claims, when deciding a motion for class

certification); see also Rutstein v. Avis Rent-A-Car Sys., Inc., 211 F.3d 1228,

1234 (11th Cir. 2000) (“Whether an issue predominates can only be determined

after considering what value the resolution of the class-wide issue will have in

each class member’s underlying cause of action.”). Stated another way,

consideration of how the class intends to answer factual and legal questions to

                                        -20-
prove its claim—and the extent to which the evidence needed to do so is common

or individual—will frequently entail some discussion of the claim itself. See

Falcon, 457 U.S. at 160.

      In this context, it is worth reiterating that our review on appeal is limited.

For the purposes of class certification, our primary function is to ensure that the

requirements of Rule 23 are satisfied, not to make a determination on the merits

of the putative class’s claims. See Anderson v. City of Albuquerque, 690 F.2d

796, 799 (10th Cir. 1982); see also Amgen Inc., 133 S. Ct. at 1195 (“Merits

questions may be considered to the extent—but only to the extent—that they are

relevant to determining whether the Rule 23 prerequisites for class certification

are satisfied.”). But it is impractical to construct “an impermeable wall” that will

prevent the merits from bleeding into the class certification decision to some

degree. See Shook v. Bd. of Cnty Comm’rs of El Paso, 543 F.3d 597, 612 (10th

Cir. 2008) (Shook II); Vallario, 554 F.3d at 1266. So, although class certification

does not depend on the merits of the suit, “[e]valuation of many of the questions

entering into determination of class action questions is intimately involved with

the merits of the claims.” Coopers & Lybrand v. Livesay, 437 U.S. 463, 469 n.12

(1978); see also Shook II, 543 F.3d at 612 (“[W]hile a district court may not

evaluate the strength of a cause of action at the class certification stage, it must

consider, without passing judgment on whether plaintiffs will prevail on the




                                          -21-
merits, whether remedying the harm alleged can be done on a class-wide basis in

conformity with Rule [23].”).

      With these legal principles in mind, “[c]onsidering whether ‘questions of

law or fact common to class members predominate’ begins, of course, with the

elements of the underlying cause of action.” Erica P. John Fund, Inc. v.

Halliburton Co., 131 S. Ct. 2179, 2184 (2011) (quoting Rule 23). For this limited

purpose, we consider the proposed class’s claim for a RICO conspiracy.

             2. Civil RICO

      The Racketeer Influenced and Corrupt Organizations Act (RICO)

establishes a civil cause of action for persons injured as a result of a prohibited

racketeering activity. 18 U.S.C. § 1962(c); see also Bixler v. Foster, 596 F.3d

751, 756 (10th Cir. 2010). To prove a RICO violation, a plaintiff must show that

the defendant violated the RICO statute, and the plaintiff was injured “by reason

of” that violation. 18 U.S.C. §§ 1962, 1964(c). A defendant violates the act

when he (1) participates in the conduct (2) of an enterprise (3) through a pattern

of (4) racketeering activity. See Tal v. Hogan, 453 F.3d 1244, 1261 (10th Cir.

2006). Section 1961(1)(B) describes the qualifying “racketeering activities,” or

“predicate acts,” which include wire fraud. Id. at § 1961(1)(B). Pursuant to

§ 1962(d), conspiracy to commit a RICO violation also constitutes a violation of

the Act when a conspirator adopts the goal of furthering the enterprise, even if the




                                         -22-
conspirator does not commit a predicate act. United States v. Randall, 661 F.3d

1291, 1297 (10th Cir. 2011).

      Under RICO’s “by reason of” requirement, “to state a claim . . . the

plaintiff is required to show that a RICO predicate offense ‘not only was a ‘but

for’ cause of his injury, but was the proximate cause as well.’” Hemi Grp., LLC

v. City of New York, 559 U.S. 1, 9 (2010) (quoting Holmes v. Sec. Inv. Prot.

Corp., 503 U.S. 258, 268 (1992)). Sufficiently establishing the element of

causation—both actual and proximate—is crucial to proving any violation of

RICO. Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639, 656–60 (2008).

“When a court evaluates a RICO claim for proximate causation, the central

question it must ask is whether the alleged violation led directly to the plaintiff’s

injuries.” Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 461 (2006). Tailored

to the predominance inquiry, the question is whether the link between defendants’

actions and the class’s injuries can be adduced through common evidence.

      Although reliance is not an explicit element of a civil RICO claim, it

frequently serves as a proxy for both legal and factual causation. McLaughlin v.

Am. Tobacco Co., 522 F.3d 215, 223 (2d Cir. 2008), abrogated on other grounds

by Bridge, 553 U.S. 639. But despite its usefulness as a stand-in for causation,

strict first-party reliance is not a prerequisite to establishing a RICO violation.

Bridge, 553 U.S. 639; Wallace v. Midwest Fin. & Mortg. Servs., Inc., 714 F.3d

414, 420 (6th Cir. 2013) (“For RICO purposes, reliance and proximate cause

                                         -23-
remain distinct—if frequently overlapping—concepts. While reliance is often

used to prove . . . the element of causation, that does not mean it is the only way

to do so.” (internal quotations omitted)). Nevertheless, in cases arising from

fraud, a plaintiff’s ability to show a causal connection between defendants’

misrepresentation and his or her injury will be predicated on plaintiff’s alleged

reliance on that misrepresentation. Put simply, causation is often lacking where

plaintiffs cannot prove that they relied on defendants’ alleged misconduct.

Ultimately, in cases such as this one, “proving reliance is necessary [because] it is

integral to Plaintiffs’ theory of causation.” Hoffman v. Zenith Ins. Co., 487 F.

App’x 365, 365 (9th Cir. 2012).

             3. The Predominance Element in RICO Class Actions

      Next, we must determine whether reliance in this case is susceptible to

general and classwide proof.

      Reliance, as a means of establishing RICO causation and beyond, takes on

uncommon gravity when it arises in the context of establishing predominance

under Rule 23. In practice, efforts to certify classes based on causes of action

that require an element of causation, including RICO, often turn on whether the

class can demonstrate that reliance is susceptible to generalized proof. Compare

In re U.S. Foodservice Inc. Pricing Litig., 729 F.3d 108, 119 (2d Cir. 2013), cert.

denied 134 S. Ct. 1938 (2014) (certifying RICO class based on a classwide

inference of reliance); Klay v. Humana, 382 F.3d 1241 (11th Cir. 2004) (same),

                                         -24-
abrogated on other grounds by Bridge, 553 U.S. 639; with Poulos v. Caesars

World, Inc., 379 F.3d 654 (9th Cir. 2004) (declining to certify class because

individualized issues of reliance would dominate); Sandwich Chef of Tex., Inc. v.

Reliance Nat. Indem. Ins. Co., 319 F.3d 205, 219 (5th Cir. 2003) (“The pervasive

issues of individual reliance that generally exist in RICO fraud actions create a

working presumption against class certification.”); Gunnells v. Healthplan Servs.,

Inc., 348 F.3d 417, 434 (4th Cir. 2003) (finding reliance not easily proven by

common evidence).

      The status of reliance as a focal point at the class certification stage is

primarily a forward-looking evidentiary concern. Since reliance is often a highly

idiosyncratic issue that might require unique evidence from individual plaintiffs,

it may present an impediment to the economies of time and scale that encourage

class actions as an alternative to traditional litigation. In terms of Rule 23

doctrine, individualized issues of reliance often preclude a finding of

predominance.

      But that is not always the case. Sometimes issues of reliance can be

disposed of on a classwide basis without individualized attention at trial. For

example, where circumstantial evidence of reliance can be found through

generalized, classwide proof, then common questions will predominate and class

treatment is valuable in order to take advantage of the efficiencies essential to

class actions. In re U.S. Foodservice Inc. Pricing Litig., 729 F.3d at 119; Klay,

                                         -25-
382 F.3d at 1258–59. Under certain circumstances, therefore, it is beneficial to

permit a commonsense inference of reliance applicable to the entire class to

answer a predominating question as required by Rule 23. In the RICO context,

class certification is proper when “causation can be established through an

inference of reliance where the behavior of plaintiffs and the members of the class

cannot be explained in any way other than reliance upon the defendant’s

conduct.” In re Countrywide Fin. Corp. Mortg. Mktg. & Sales Practices Litig.,

277 F.R.D. 586, 603 (S.D. Cal. 2011).

      Cases involving financial transactions, such as this one, are the

paradigmatic examples of how the inference operates as an evidentiary matter.

On this point, the Second Circuit’s recent decision in In re U.S. Foodservice Inc.

Pricing Litigation is instructive. 729 F.3d 108. In that case, defendants

challenged the certification of a nationwide RICO class action against a food

distributor for fraudulent overbilling under a “cost-plus” payment plan.

Defendants appealed the district court’s class certification decision on several

grounds, including that the district court ignored particularized issues of reliance

that were bound to predominate. See id. at 119. The Second Circuit disagreed,

finding circumstantial proof of classwide reliance in the fact that class members

made payments pursuant to the agreements:

             In cases involving fraudulent overbilling, payment may
             constitute circumstantial proof of reliance based on the
             reasonable inference that customers who pay the amount

                                         -26-
             specified in an inflated invoice would not have done so
             absent reliance on the invoice’s implicit representation
             that the invoiced amount was honestly owed. Fraud
             claims of this type may thus be appropriate candidates
             for class certification because “while each plaintiff must
             prove reliance, he or she may do so through common
             evidence (that is, through legitimate inferences based on
             the nature of the alleged misrepresentations at issue).”

Id. at 120 (quoting Klay, 382 F.3d at 1258).

      Likewise, the Eleventh Circuit in Klay v. Humana found that an inference

of reliance was appropriate where “circumstantial evidence that can be used to

show reliance is common to the whole class. That is, the same considerations

could lead a reasonable factfinder to conclude beyond a preponderance of the

evidence that each individual plaintiff relied on the defendants’ representations.”

Klay, 382 F.3d at 1259. Klay involved class claims brought by doctors against

health maintenance organizations (HMOs), alleging a conspiracy to systematically

underpay physicians on reimbursements for their services. Id. at 1246. To rebut

the HMOs’ claims that this inference was inappropriate, the court commented that

“[i]t does not strain credulity to conclude that each plaintiff, in entering into

contracts with the defendants, relied upon the defendants’ representations and

assumed they would be paid the amounts they were due.” Id. at 1259.

      In re U.S. Foodservice Inc. Pricing Litigation and Klay are persuasive and

they are hardly alone in reasoning that circumstantial evidence of reliance is

sufficient to allege RICO causation for purposes of Rule 23. Indeed, numerous


                                          -27-
district court decisions, in the process of certifying classes, have accentuated facts

similar to those in this case—primarily, the alleged legitimacy of the counterparty

to an agreement, 6 or the fact that all plaintiffs paid fees in exchange for a

promise 7—as proper grounds to infer reliance on a classwide basis. 8 Moreover,


      6
         See Minter v. Wells Fargo Bank, N.A., 274 F.R.D. 525, 546 (D. Md.
2011) (“[T]he common inference involved in most such cases, as well as in the
case at bar, is that members of the plaintiff class relied upon the purported
legitimacy of the defendant with which they transacted.”); Robinson v.
Fountainhead Title Grp. Corp., 257 F.R.D. 92, 95 (D. Md. 2009) (“[I]t would be
a reasonable inference to assume that a class member who purchased services
from Assurance Title relied on the legitimacy of that organization in paying the
rate charged.”).
      7
         See Huyer v. Wells Fargo & Co., 295 F.R.D. 332, 348 (S.D. Iowa 2013)
(“[T]he civil RICO claim’s reliance element may be established by circumstantial
evidence applicable to the class as a whole—the payment of the amounts shown
in class members’ mortgage statements, which amounts included property
inspection fees.”); Kennedy v. Jackson Nat’l Life Ins. Co., No. C 07-0371CW,
2010 WL 2524360, at *8 (N.D. Cal. June 23, 2010) (finding that an inference of
reliance can arise where class members would not have purchased the product had
they been fully informed of the facts); Cullen v. Whitman Med. Corp., 188 F.R.D.
226, 235 (E.D. Pa. 1999) (“It need not involve time consuming proof of
individual causation or reliance. If the plaintiffs can prove that UDS was a
complete sham, then a fact finder can infer from the evidence that anyone who
paid tuition and attended the school suffered damage.”); Peterson v. H & R Block
Tax Servs., Inc., 174 F.R.D. 78, 84–85 (N.D. Ill. 1997) (“It is inconceivable that
the class members would rationally choose to pay a fee for a service they knew
was unavailable.”).
      8
         Still other cases have generally supported the application of this
inference under the right circumstances. See McLaughlin, 522 F.3d at 225
(stating that “proof of reliance by circumstantial evidence may be sufficient under
certain conditions”); Jenson v. Fiserv Trust Co., 256 F. App’x 924, 926 (9th Cir.
2007) (finding that it was “not unreasonable . . . to infer reliance by all
[class]members” when a trust company made similar fraudulent promises about
the nature of financial returns in an alleged Ponzi scheme); Torres v. SGE Mgmt.
                                                                        (continued...)

                                          -28-
outside the context of class certification, the inference of reliance has also been

deemed appropriate in RICO and similar fraud cases. See In re Neurontin Mktg.

& Sales Practices Litig., 712 F.3d 51, 58 (1st Cir. 2013), cert. denied, 134 S. Ct.

786 (2013) (granting an inference of reliance in a non-class-action RICO case); In

re Park W. Galleries, Inc., Mktg. & Sales Practices Litig., No. 09-2076RSL, 2010

WL 2640256, at *4 (W.D. Wash. June 25, 2010) (same); Smith v. MCI

Telecommunications Corp., 124 F.R.D. 665, 679 (D. Kan. 1989) (finding that with

respect to a common law fraud claim, “[i]t is implausible that, in initiating or

continuing their employment with MCI, the salespersons did not rely on the

commissions plans which they were required to sign. Further, whether their

reliance was reasonable is an objective inquiry common to the entire proposed

class.”).

       The logic of these cases applies here. Under the facts of this case, evidence

of payment for the loan commitment—more specifically, the inference that arises

from it—is sufficient to present a predominating question related to class member

reliance that can resolve a central issue of this litigation in one swoop. Resorting


       8
       (...continued)
LLC, No. 4:09-CV-2056, 2014 WL 129793, at *10 (S.D. Tex. Jan. 13, 2014)
(“Because both logical inference and circumstantial evidence allow the class
members to establish proximate cause on a classwide basis, the Court finds that
common, rather than individual issues, predominate.”); Negrete v. Allianz Life
Ins. Co. of N. Am., 287 F.R.D. 590, 612 (C.D. Cal. 2012) (“The Court
agrees—resort to the ‘common sense’ inference for proving class-wide reliance
remains appropriate in this case.”).

                                         -29-
to this generalized inference of reliance addresses a critical classwide piece of

evidence and will not require individualized consideration that would belie class

treatment. 9 More specifically the fact that a class member paid the nonrefundable

up-front fee in exchange for the loan commitment constitutes circumstantial proof

of reliance on the misrepresentations and omissions regarding Hutchens’s past

and the defendant entities’ ability or intent to actually fund the promised loan.

      Were we deciding the merits of an individual plaintiff’s RICO fraud claim,

we would surely accept the introduction of such an inference—the factfinder’s

ultimate acceptance or rejection notwithstanding—with little analysis. For the

purposes of class certification, we see no reason why a putative class containing

plaintiffs, who all paid substantial up-front fees in return for financial promises,

should not be entitled to posit the same inference to a factfinder on a classwide

basis. When plaintiffs are given the opportunity to present that inference as their

theory of causation, reliance, an issue often wrought with individualized

inquiries, becomes solvable with a uniform piece of circumstantial evidence.

Furthermore, the circumstantial fact of payment of the up-front fee is common to


      9
         We note that the inference of reliance here is limited to transactional
situations—almost always financial transactions—where it is sensible to assume
that rational economic actors would not make a payment unless they assumed that
they were receiving some form of the promised benefit in return. This inference
would not be appropriate in most RICO class actions. And even in financial
transaction cases, there may be individual questions, including components of
class member reliance, that supplant this inference as the predominating concern
for purposes of Rule 23.

                                         -30-
the entire class: all class members paid up-front fees without receiving the

promised loan. This element is subsumed in the definition of the class itself.

And as a result, the putative class is not stymied, for the purposes of class

certification, under Rule 23(b)’s predominance element.

      The defendants point to cases from other circuits that have resisted class

certification in financial transaction cases where reliance cannot be shown

through generalized evidence. But those cases, rather than categorically rejecting

the inference, simply do not permit its application on a classwide basis due to

unique facts surrounding the class claims. In particular, those cases involve

significant individualized or idiosyncratic elements that reasonably preclude the

predomination of common questions.

      For example, Poulos v. Caesers World, Inc., 379 F.3d 654 (9th Cir. 2004),

is unpersuasive because the court found that a given putative class member’s

decision to partake in slot-machine and video-poker gambling was not necessarily

done in reliance on the game machine’s maker’s representations about the odds of

winning. Unlike entering into a serious financial transaction, many people

gamble without any consideration, let alone reliance, on the representations about

the likelihood of striking it rich. Nor does every slot player spend any serious

money expecting something (other than a good time, perhaps) in return.

      A similar, albeit less direct, conclusion derives from Sandwich Chef of

Texas, Inc. v. Reliance National Indemnity Insurance Co., 319 F.3d 205, 219 (5th

                                         -31-
Cir. 2003). In Sandwich Chef, the class alleged that several insurance companies

defrauded policyholders in violation of RICO by charging excessive premiums on

workers’ compensation plans. 10 Plaintiffs asserted that their theory of reliance

was based on a simple financial transaction; namely, that each class member

relied on the accuracy of an inflated invoice when it made payments in

satisfaction of their debt. This act of payment, said the class, was sufficient to

establish circumstantial evidence of reliance on a classwide basis. The Fifth

Circuit disagreed, finding that individualized issues of reliance would take center

stage at trial. According to the court, the uniquely negotiated premiums, among

other bespoke elements of the insurance policies, would require personalized

evidence to establish whether a given plaintiff was aware of the method for

calculating premiums, whether individual policyholders were aware that their

rates deviated from rates filed with regulators, and, most importantly, whether “a

specific policyholder thought an invoice complied with the approved rate and paid

an inflated premium in reliance on that belief.” Id. at 221. Particularly in the

context of insurance negotiations, where myriad factors are considered during the

fact-specific bargaining process, no set of universal facts could predominate over


      10
          We also note that Sandwich Chef, like Poulos, was decided before the
Supreme Court’s decision in Bridge. Accordingly, it focused on the plaintiffs’
inability to demonstrate individual reliance by common evidence. The necessity
of individual reliance is no longer an aspect of a civil RICO claim predicated on
fraud. While we doubt that the slight shift in the law would have completely
changed the Fifth Circuit’s mind, it may have made it a closer case.

                                        -32-
the comprehensive sui generis evidence that would arise at trial with respect to

each putative class member. Under those circumstances, Rule 23(b)’s

predominance requirement cannot be met.

      At bottom, the sort of quid pro quo that is present in this case did not exist

in Sandwich Chef. The putative class members in Sandwich Chef received the

insurance they coveted—even if it was a slightly watered-down or less appealing

version. Moreover, the insurance coverage itself was legitimate, and the

companies offering it were in the business of providing insurance. In this case,

the victims of Hutchens’s fraud were completely deprived of any benefit from

their transaction because Hutchens allegedly did not intend to or have the ability

to fund any of the loans. This fact, if proved at trial, will resolve a central,

predominating issue that is common to all class members. Not so in Sandwich

Chef where common proof simply would not suffice to dispose of any principal

issue in that case.

      Before moving on, a few observations about the limited effect of this

inference on the litigation of the class claims. As we have explained, the sole

result of this inference is that the class members are exempted from

demonstrating causation on a class-member-by-class-member basis. The

inference thus manifests primarily as an evidentiary matter: class members will

not be required to testify as to their reliance on the lenders’ misrepresentations

and omissions. Instead, the putative class members are permitted to use the

                                          -33-
common fact that they all forfeited advanced fees as evidence that the class’s

damages were caused “by reason of” defendants’ alleged RICO violations.

      But this inference does not shift the burden of proof at trial on the element

of RICO causation (or any other elements of the claim)—plaintiffs will still have

to prove RICO causation by a preponderance of the evidence to win on the merits.

See, e.g., Sikes v. Teleline, Inc., 281 F.3d 1350, 1362 n.3 (11th Cir. 2002)

(distinguishing between presumed reliance and an inference of reliance),

abrogated on other grounds by Bridge, 553 U.S. 639. Similarly, the trier of fact

is not required to accept the inference; it is merely permitted to utilize it as

common evidence to establish the class’s prima facie claims under RICO. Given

the significance that RICO’s causation element will play at trial, combined with

lenders’ common misrepresentations and omissions regarding Hutchens’s ability

or intent to fund the promised loans (which are not challenged here), it is clear

that the class’s claims will “prevail or fail in unison.” Amgen Inc., 133 S. Ct. at

1191. That is enough to satisfy the predominance prong of Rule 23. 11

      11
          Apart from the issues of RICO causation, it bears mentioning that
another central, generalized element is at the crux of plaintiffs’ theory of liability:
whether Hutchens and his alleged coconspirators actually misrepresented their
ability or intent to satisfy the loan commitments. See In re Linerboard Antitrust
Litig., 305 F.3d 145, 163 (3d Cir. 2002) (finding that common issues involving
the defendants’ conduct rather than the plaintiffs actions can satisfy the
predominance prong of Rule 23). The parties do not focus on this issue as it
relates to predominance, but we think it deserves attention. In effect, a
predominating question at trial will concern the legitimacy of Hutchens’s
operation, which can be shown with evidence common to the entire class.
                                                                        (continued...)

                                          -34-
             4. Presumption of Reliance

      The foregoing analysis confirms that plaintiffs have satisfied the

predominance prong of Rule 23(b)(3). The district court, however, rather than

crediting an inference of causation, instead borrowed the presumption of reliance

from securities law to give plaintiffs an extra—and ultimately unneeded—boost in

their efforts to establish reliance. As we explain, the presumption of reliance

does not apply to RICO fraud. 12

      The fraud-on-the-market theory arises from the Supreme Court’s

interpretation of federal securities law. In securities cases, plaintiffs can take

advantage of a legal presumption that the defendant’s misrepresentations affected

their investment decision in situations where proving causation is unfeasible. See



      11
         (...continued)
Presumably, plaintiffs intend to prove Hutchens’s low batting average in funding
loans, his lack of capitalization, and other features that reflect the illicitness of
the scheme. By contrast, Hutchens and his associates will try to discredit this
theory, pointing to any available evidence that would probatively communicate
Hutchens’s authenticity as a lender. On both sides, this dispute is resolvable by
common evidence. And the answer to this predominant question may, in many
ways, definitively end the litigation. The existence of such a predominating
question places a thumb on the scale in favor of class certification. All told, we
are satisfied that common questions will predominate over any issue requiring
individualized attention.
      12
          The legal distinction between a presumption and an inference helps
clarify our divergence with the reasoning behind the district court’s class
certification decision. A presumption is a legal conclusion that will alter the
plaintiffs’ burden of proof on the merits of their RICO allegations at trial. By
contrast, an inference is simply a commonsense deduction based on the facts
presented that plaintiffs can use to satisfy Rule 23(b).

                                         -35-
Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, 552 U.S. 148, 159 (2008).

For proceedings under § 10(b) of the Securities Exchange Act of 1934 and Rule

10b-5, “[r]equiring a plaintiff to show a speculative state of facts . . . places an

unrealistic evidentiary burden on the 10(b) plaintiff.” Joseph v. Wiles, 223 F.3d

1155, 1162 (10th Cir. 2000).

      This understanding is based on two seminal Supreme Court cases, Basic

Inc. v. Levinson, 485 U.S. 224 (1988) and Affiliated Ute Citizens of Utah v.

United States, 406 U.S. 128 (1972), which are the cornerstones of this

presumption of reliance. In Basic Inc., the Supreme Court declined to require the

10(b) plaintiff to provide direct proof of reliance on defendant’s

misrepresentation, recognizing that doing so “effectively would . . . prevent[]

[plaintiffs] from proceeding with a class action” in typical securities fraud cases.

Basic Inc., 485 U.S. at 242. And in Affiliated Ute, the Court endorsed a similar

presumption of reliance when the theory of securities fraud centers on defendant’s

failure to disclose material information. Affiliated Ute, 406 U.S. at 153–54.

      The rules from each of these cases largely rest on the unique nature of

publicly traded securities markets. This is because the private causes of action

under the antifraud provisions of the federal securities laws rely on the condition

of the public market at the time of the alleged fraudulent transaction as much as

the subjective decisions by individual investors. See T.J. Raney & Sons, Inc. v.

Fort Cobb, Oklahoma Irr. Fuel Auth., 717 F.2d 1330, 1332 (10th Cir. 1983).

                                         -36-
      Indeed, the fraud-on-the-market theory allows plaintiffs to benefit from a

relaxed pleading standard that grants them a rebuttable presumption of reliance on

the value of an allegedly fraudulent security price. See Basic Inc., 485 U.S. at

229–30. For class certification, this legal presumption of classwide reliance is

particularly accommodating because it helps avoid questions of individualized

reliance and their attendant difficulties under the predominance prong of Rule

23(b)(3). The sui generis nature of securities fraud supports the reasoning behind

entitling plaintiffs to a presumption of reliance because only where an arguably

efficient market provides the backdrop for fraud allegations does the

fraud-on-the-market theory hold any water. See Amgen Inc., 133 S. Ct. at 1192.

This is so because an efficient market incorporates all publicly available

information into a security’s price. Id. Thus, a particular public, material

misrepresentation will artificially inflate the security’s price, and individual

investors, conscious of the nature of the efficient market, will rely on the price of

the security in their decision to invest. Id. By relying on the efficiency of the

market, an investor has essentially relied on the misrepresentation or omission

(even if he never actually heard it). Id.

      Similarly, as we referenced above, the Affiliated Ute presumption posits

that when a theory of securities fraud is based on a fraudulent failure to disclose

material facts, courts do not require the plaintiff to counterfactually demonstrate

that it would have relied on the omitted material information; instead, the court

                                            -37-
permits the factfinder to presume that they would have done so. See Affiliated

Ute, 406 U.S. at 153–54. This presumption typically does not apply to

affirmative misrepresentations made by the defendant. Joseph v. Wiles, 223 F.3d

1155, 1163 (10th Cir. 2000).

      In sum, the presumption is uniquely applicable in the securities context and

it has not gained traction in other fields of law. See generally 2 McLaughlin on

Class Actions § 8:11 (10th ed. 2013). And this presumption is unsuited for RICO

fraud cases because they involve a more self-contained universe of plaintiffs and

conduct by defendants that does not necessitate a legal presumption. Given that,

we decline to apply a species of the presumption to RICO allegations and cannot

endorse the district court’s decision holding otherwise. 13

      13
          Although the district court ultimately did not need to employ the
Affiliated Ute presumption, its predominance analysis was sufficiently rigorous to
support the alternative conclusion that we reach today:

             Plaintiffs have evidence and expect to prove that these
             entities were essentially shell corporations that, like
             Hutchens himself, had no ability to fund the large loans,
             let alone the collection of loans to which they
             committed. The point of the case is that all of this was a
             giant ruse to scam applicants possibly desperate for loan
             funds out of the advance fees that were demanded of
             them. Those questions are common to all members of
             the class.

             If these facts are established, then I am inclined towards
             the view that proof of actual reliance on an individual
             basis is not necessary. Cf. Affiliated Ute Citizens of
             Utah v. United States, 406 U.S. 128, 153–55 (1972). It
                                                                          (continued...)

                                         -38-
               5. Superiority

       In addition to commonality and predominance, Meisels contends the

district court erred in finding that a class action was superior to any other method

of adjudication. He claims that the existence of numerous individual actions

against the lenders shows that a class action is unnecessary.

      Although it is unclear as to the number of individual actions that have been

filed around the country concerning this controversy, the mere existence of

individual actions brought by putative class members does not necessarily defeat

a claim for superiority. Cf. Vassalle v. Midland Funding LLC, 708 F.3d 747, 758

(6th Cir. 2013). It is enough that class treatment is superior because it will

“achieve economies of time, effort, and expense, and promote uniformity of

decision as to persons similarly situated, without sacrificing procedural fairness

or bringing about other undesirable results.” Amchem, 521 U.S. at 615.

      Superiority has been demonstrated here.



      13
           (...continued)
                 is difficult to conceive that any individual or entity
                 contemplating a substantial payment of advance fees in
                 support of a loan application would not consider those
                 facts to be important in the making of their decision.

CGC Holding Co., 2013 WL 798242 at *17. If we omit the reference to Affiliated
Ute, the district court essentially established the “inference” of reliance that we
find supportive of the predominance prong. Simply put, going further to draw a
presumption of reliance was unnecessary.


                                          -39-
      B. Extraterritoriality of RICO

      Entirely separate from the issue of class certification, Meisels raises an

additional claim that challenges whether the district court had subject matter

jurisdiction over the claims in this case. He contends that the extent to which

RICO applies to conduct outside the United States—or “extraterritorially”—

influences the power of the federal courts to hear this matter. By framing this

issue as one of jurisdiction, Meisels in effect broadens the limited scope of Rule

23(f) review and asks us to consider prematurely the merits of plaintiffs’ RICO

claims.

      But this argument contravenes the Supreme Court’s explicit guidance in

Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010). In Morrison,

the Court found that the extent to which a statute applies extraterritorially

proceeds exclusively as a merits issue, not a question of jurisdiction: “[T]o ask

what conduct [a statute] reaches is to ask what conduct [a statute] prohibits,

which is a merits question.” Id. at 2877 (emphasis added). And so, while we can

dismiss a case for want of subject matter jurisdiction at any time during the

pendency of an action, Mires v. United States, 466 F.3d 1208, 1211 (10th Cir.

2006), a Rule 23 interlocutory appeal permits us to consider the merits of the

class’s claims only to the extent that they overlap with the Rule 23 factors. Thus,

an independent review of the merits, untethered to Rule 23, is outside the scope of

that review. Shook I, 386 F.3d at 971.

                                         -40-
      Courts addressing the issue since the Supreme Court’s decision in Morrison

have evenly determined that the extraterritoriality of RICO is a question of

whether the plaintiffs have stated a claim, not whether the court properly has

subject matter jurisdiction. See, e.g., United States v. Chao Fan Xu, 706 F.3d

965, 977 (9th Cir. 2013), as amended on denial of reh’g (Mar. 14, 2013); Norex

Petroleum Ltd. v. Access Indus., Inc., 631 F.3d 29, 31 (2d Cir. 2010). That is the

identifiable lesson from Morrison, and Meisels offers no compelling reason why a

straight-forward application of it does not apply here.

      Despite Morrison’s clear guidance, the parties treat the issue of RICO’s

extraterritoriality as a dispositive jurisdictional issue, even at the class

certification stage of the proceedings. This is in error, but we pause briefly to

address the parties’ contentions. The district court found, and the parties do not

dispute, that RICO does not apply extraterritorially. See CGC Holding Co. v.

Hutchens, 824 F. Supp. 2d 1193, 1210 (D. Colo. 2011). But this case poses a

slightly different issue; namely, whether the complaint alleges a domestic

application of RICO despite its extraterritorial tenor given the Canadian persons

and entities. To understand whether an extraterritorial obstacle exists, the

Supreme Court tells us to consider Congress’s “focus” in enacting the examined

legislation. Morrison, 130 S. Ct. at 2884. In other words, did Congress intend a

statute to encompass conduct outside the United States so as to overcome the




                                          -41-
general “presumption against extraterritoriality,” or was the focus primarily on

domestic conduct? Id.

      Courts have gone in two directions in identifying the “focus” of RICO. On

one side, a collection of courts have found that the focus of RICO is its nerve

center, the nefarious enterprise. Mitsui O.S.K. Lines, Ltd. v. Seamaster Logistics,

Inc., 871 F. Supp. 2d 933, 938–40 (N.D. Cal. 2012); Cedeno v. Intech Group,

Inc., 733 F. Supp. 2d 471, 473 (S.D.N.Y. 2010) aff’d sub nom. Cedeno v. Castillo,

457 F. App’x 35 (2d Cir. 2012); Farm Credit Leasing Servs. Corp. v. Krones, Inc.

(In re Le-Nature’s, Inc.), No. 9-MC-162, 2011 WL 2112533, at *3 n.7 (W.D. Pa.

May 26, 2011); In re Toyota Motor Corp., 785 F. Supp. 2d 883, 914 (C.D. Cal.

2011); European Cmty. v. RJR Nabisco, Inc., No. 02-CV-5771, 2011 WL 843957,

at *5 (E.D.N.Y. Mar. 8, 2011). The appeal of focusing on the nerve center of the

enterprise is its administrative ease and consistency. See Mitsui O.S.K. Lines, 871

F. Supp. 2d at 940–41. Moreover, attention on the nerve center comports with the

purpose of RICO, which punishes racketeering activity in connection with an

enterprise, not simply the predicate acts, which are separate offenses. European

Cmty., 2011 WL 843957, at *5.

      On the other side, a collection of courts have found that RICO’s focus is

the pattern of racketeering activity. United States v. Chao Fan Xu, 706 F.3d 965,

975–76 (9th Cir. 2013); Chevron Corp. v. Donziger, 871 F. Supp. 2d 229, 243–46

(S.D.N.Y. 2012); United States v. Philip Morris USA, Inc., 783 F. Supp. 2d 23, 29

                                        -42-
(D.D.C. 2011). The genesis of this position is pre-Morrison Supreme Court

jurisprudence that insisted that “the heart of any RICO complaint is the allegation

of a pattern of racketeering.” Agency Holding v. Malley-Duff Assoc., 483 U.S.

143, 154 (1987) (emphasis omitted). In addition, “[t]his approach . . . would

afford a remedy to a U.S. plaintiff who claims injury caused by domestic acts of

racketeering activity without regard to the nationality or foreign character of the

defendants or the enterprise whose affairs the defendants wrongfully conducted.”

Donziger, 871 F. Supp. 2d at 244. The landscape surrounding RICO’s enactment

also suggests that it was intended to reach at least some enterprises operating out

of foreign countries.

      The district court’s decision lands within this latter group of courts,

applying the so-called predicate acts approach. See CGC Holding Co., 824 F.

Supp. 2d at 1209. (“[T]he conduct of the enterprise within the United States was

the key to its success.” (emphasis added)). Indeed, the opinion below was cited

as persuasive authority in several subsequent cases, including United States v.

Chao Fan Xu, 706 F.3d 965, 979 (9th Cir. 2013), and Chevron Corp. v. Donziger,

871 F. Supp. 2d 229, 243–45 (S.D.N.Y. 2012).

      Looking to the plain language of the legislation does not provide a

conspicuous answer to which approach Congress favored when it enacted RICO.

And neither approach is unimpeachable. For example, courts applying the

enterprise approach have recognized its limitations, noting “hard cases” may

                                         -43-
present particularized facts surrounding the enterprise’s home base that may not

be as predictable. European Cmty., 2011 WL 843957, at *6. And by a similar

token, the predicate acts approach is subject to criticism because it does not lend

itself to an obvious limiting principle. Under its logic, a RICO claim involving

domestic predicate acts—which is to say, every RICO claim—would be

potentially viable even when the enterprise, victims, and schemes are almost

completely foreign.

      In the end, notwithstanding the parties’ attention to this issue, we need not

resolve finally which approach is preferred in the circuit. On this interlocutory

appeal, we do not decide the merits of plaintiffs’ claims, including the extent to

which those claims involve an extraterritorial application of RICO. Since the

question of the extraterritoriality of a statute is a merits question, resolving it

must await a final disposition from the court below.

      C. Additional Considerations

      Finally, we must briefly address several ancillary issues that the parties

raised in the three separate appeals before us.

             1. Personal Jurisdiction Over Transferees

      First, Hutchens argues the district court erred in finding the court could

exercise personal jurisdiction over the transferees.

      A district court’s decision denying a motion to dismiss for lack of personal

jurisdiction “is not an immediately appealable collateral order.” Van

                                          -44-
Cauwenberghe v. Biard, 486 U.S. 517, 527 (1988). To be sure, we have the

authority to exercise pendent appellate jurisdiction over decisions related to

personal jurisdiction when we have an otherwise valid interlocutory appeal before

us. But our use of pendent appellate jurisdiction “is generally disfavored.”

Vondrak v. City of Las Cruces, 535 F.3d 1198, 1205 (10th Cir. 2008). Indeed,

“[i]t is appropriate to exercise pendent appellate jurisdiction only where

resolution of the appealable issue necessarily resolves the nonappealable issue, or

where review of the nonappealable issue is necessary to ensure meaningful review

of the appealable one.” Buck v. City of Albuquerque, 549 F.3d 1269, 1293 (10th

Cir. 2008) (internal quotation marks omitted). As the Supreme Court has

cautioned, the narrow category of issues that deserve pendent review “includes

only decisions that are conclusive, that resolve important questions separate from

the merits, and that are effectively unreviewable on appeal from the final

judgment in the underlying action.” Swint v. Chambers Cnty. Comm’n, 514 U.S.

35, 42 (1995).

      Despite the parties’ stipulation regarding our power to exercise jurisdiction

over the district court’s decision to take personal jurisdiction over the transferees,

we decline to do so. Quite clearly, the question is beyond the scope of a

traditional Rule 23(f) review, and the parties have completely failed to explain

why pendent appellate jurisdiction is appropriate under the circumstances. At

bottom, the personal jurisdiction issue and the class certification decision are not

                                         -45-
so “inextricably intertwined . . . that review of the former decision [is] necessary

to ensure meaningful review of the latter.” Swint, 514 U.S. at 51. And Rule 23

does not permit a party to shoehorn every decision that went against it into its

petition for interlocutory review.

      Under the circumstances, we refuse to permit an end-run around the general

rule disfavoring interlocutory appeals on this issue.

             2. Standing and Proximate Causation

      By the same token, we reject Hutchens’s suggestion that plaintiffs lack

standing to bring their RICO claims due to a failure to allege proximate

causation. 14 Rightly understood, this is a surreptitious effort to challenge the

merits of the class claims, which are not at issue at the class certification stage.

Yes, sufficiently alleging proximate cause is necessary to establish standing under

RICO, Bixler, 596 F.3d at 756, but accepting plaintiffs’ allegations as true, we are

satisfied that plaintiffs have properly pleaded proximate cause to earn standing to

vindicate the alleged wrongs. Gillmor v. Thomas, 490 F.3d 791, 797 & n.4 (10th

Cir. 2007). By alleging that the putative class members were the “direct targets”

of defendants’ fraudulent scheme (based on the alleged RICO predicate acts),

plaintiffs have adequately established the requisite causal connection between

defendants’ act and each class member’s financial loss. See Brokerage Concepts,


      14
          Meisels makes a version of this argument in his appeal, and we reject it
for the same reason.

                                         -46-
Inc. v. U.S. Healthcare, Inc., 140 F.3d 494, 521 (10th Cir. 1998); see also

Trollinger v. Tyson Foods, Inc., 370 F.3d 602, 612 (6th Cir. 2004); Baisch v.

Gallina, 346 F.3d 366, 373 (2d Cir. 2003); Mid Atl. Telecom, Inc. v. Long

Distance Servs., Inc., 18 F.3d 260, 263–64 (4th Cir. 1994).

      As the natural, foreseeable, and, most importantly, intended victims of the

alleged fraud, plaintiffs have sufficiently pleaded proximate causation to survive

a threshold standing inquiry. In essence, Hutchens alleges that defendants will

eventually win because the facts demonstrate the causal weaknesses in the class’s

RICO claims. 15 That argument may be sound, but it invites an ultimate judgment

about the defendants’ liability, not plaintiffs’ entitlement to bring legal action.

      In sum, saying nothing of the strength of their RICO cause of action,

plaintiffs have a viable theory of causation that is adequate to confer standing

under RICO at this stage in the litigation. 16




      15
          Many of the defendants, for example, point out plaintiffs’ concession
that there may have been legitimate reasons for lenders to deny each class
member’s loan application. According to defendants, this destroys proximate
cause. On the merits, this might be true, and the parties can certainly litigate this
issue at trial. As a threshold matter, however, these arguments of proximate
causation do not divest plaintiffs of standing to bring their well-pleaded RICO
claims.
      16
         We recognize that questions of proximate causation often converge at a
point existing between standing and the merits. Holmes, 503 U.S. at 268–69. But
however large the overlapping space in this metaphorical Venn diagram, the
questions raised by defendants are firmly in the merits circle.

                                          -47-
             3. Standing with Respect to Broad

      Finally, we do accept the plaintiffs’ concession that they lack standing to

pursue their claims against Broad. Regardless of the merits of this about-face,

plaintiffs have relinquished their intent to establish the justiciability of those

claims and can no longer fairly and adequately protect the interests of any

putative class members that could assert valid causes of action vis-a-vis Broad.

Accordingly, we reverse the district court’s decision to the extent it certified a

class against only Broad and Cassel, Gaché, and Romano and remand those claims

to the district court with instructions to dismiss without prejudice. Brereton v.

Bountiful City Corp., 434 F.3d 1213, 1219 (10th Cir. 2006).

                                 III. Conclusion

      Based on the analysis above, we REVERSE and REMAND the district

court’s class certification decision as it pertains to Broad and Cassel, Gaché, and

Romano. In all other respects, we AFFIRM the district court’s decision to certify

a class. The remaining issues raised by defendants are not properly before us on

this Rule 23(f) interlocutory review, and we decline to address them at this

juncture.




                                          -48-
