People For the American Way

Biden Judge Reverses Lower Court and Rules that Consumers Can Pursue Class Action Against Insurance Company for Investment Fraud

News and Analysis
Biden Judge Reverses Lower Court and Rules that Consumers Can Pursue Class Action Against Insurance Company for Investment Fraud

Judge Veronica Rossman, nominated by President Biden to the US Court of Appeals for the Tenth Circuit, wrote a 2-1 opinion that reversed a district court ruling in favor of an insurance company and ruled that consumers could proceed with a nationwide class action against the company for investment fraud. The March 2023 decision was in Clinton v Security Benefit Life Ins. Co.


What’s the Background of the Case?

 In 2010-11, Security Benefit developed and marketed to consumers several investment products that, among other things, claimed that they would produce significantly “favorable investment returns” because of their features. These representations proved false, and most consumers received “near zero returns” at best. For example, Ella Clinton stated that she received “0.00% interest” at the end of her investment period, “lost the use” of her investment funds during the period, and by its end, the investments were actually “worth less than what she paid for them.”

In 2019, Ms. Clinton and several others filed a nationwide class action lawsuit for damages against the corporation. They contended that it had committed a “fraudulent scheme” to sell the investment products involving fraudulent misrepresentations to consumers. Among other violations, the complaint maintained that the company had violated federal civil racketeering laws because the misrepresentations included mail and wire fraud. A district court dismissed the case without full discovery or trial, however, claiming that the complaint did not allege fraud with sufficient “particularity” or specificity, and that the fraud allegations were not plausible. The consumers appealed to the Tenth Circuit.


How did Judge Rossman rule and why is it important?

 Judge Rossman wrote a 2-1 decision that reversed the lower court. The ruling sent the case back to  the district court and held that the class action suit against the insurance company should proceed.

Contrary to the lower court and the dissent, Judge Rossman found that the complaint clearly met the federal requirement that fraud be alleged with “particularity.”  Based on applicable precedent, she explained, the complaint “taken as a whole” was sufficiently specific, particularly when the corporation’s allegedly fraudulent documents, which were incorporated into the complaint, were also considered. With respect to plausibility, she continued, the lower court erroneously looked only at the individual features of the fraudulent investments and did not consider the “whole complaint.” Based on the proper standard, Judge Rossman wrote for the majority, the complaint was clearly sufficient, and the case should be allowed to go forward.

Judge Rossman made an important ruling in deciding that the nationwide consumer class action can go forward, contrary to the lower court. The decision is also significant because, particularly in the 10th Circuit, it makes clear the standards for evaluating fraud complaints, and rejects the narrow, pro-corporate view used by the district court. The ruling also provides another illustration of the importance of promptly confirming fair-minded judicial nominees by President Biden like Judge Rossman, a former public defender.



Biden judges, Consumer Rights