Opinions of the United
2001 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


3-5-2001

In Re: LifeUSA Holding, Inc.
Precedential or Non-Precedential:

Docket 00-1775




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Filed March 5, 2001

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 00-1775

IN RE: LIFEUSA HOLDING INC.,

LifeUSA Holding, Inc.,

Appellant

On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civ. No. 97-cv-07827)
District Judge: Honorable J. Curtis Joyner

Argued: Thursday, December 14, 2000

Before: SCIRICA, FUENTES and GARTH,
Circuit Judges

(Filed: March 5, 2001)
James F. Jorden (Argued)
Waldemar J. Pflepsen, Jr.
Paul A. Fischer
Richard Karpinski
Stephen H. Goldberg
Jorden Burt Boros Cicchetti
 Berenson & Johnson LLP
1025 Thomas Jefferson Street, N.W .
Suite 400 East
Washington, D.C. 20007

William T. Hangley
Michael Lieberman
Hangley Aronchick
 Segal & Pudlin
One Logan Square - 27th Floor
Philadelphia, PA 19103

 Attorneys for Appellant

John M. Elliott
Thomas J. Elliott
Henry F. Siedzikowski (Argued)
Mark A. Kearney
Timothy T. Myers
Brian J. McCormick
Elliott Reihner Siedzikowski
 & Egan, P.C.
925 Harvest Drive
P.O. Box 3010
Blue Bell, PA 19422

 Attorney for Appellees

Evan M. Tager
Mayer, Brown & Platt
1909 K Street, N.W.
Washington, D.C. 20006

Victoria E. Fimea
American Council of Life Insurers
1001 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2599

 Attorneys for Amicus-Appellant
American Council of Life Insurers

                           2
OPINION OF THE COURT

GARTH, Circuit Judge:

LifeUSA appeals the January 13, 2000 order (filed
January 19, 2000) of the District Court which certified a
class of plaintiffs who had purchased LifeUSA
"Accumulator" annuity policies between August 1, 1989 to
the present. In its order certifying a class, the District
Court focused entirely on the alleged pr e-sale
misrepresentations of LifeUSA agents in the marketing,
advertising, and sales of the Accumulator, stating ". . . that
the gravamen of plaintiffs' claims is that Defendant's sales
techniques and advertising constituted an allegedly
fraudulent scheme." (A-16). The District Court's focus was
not on the alleged post-sale misr epresentations contained in
quarterly statements issued to purchasers of the
Accumulator.

This emphasis on the pre-sale marketing of the
Accumulator is not surprising, considering the allegations
of the plaintiffs' Complaint. However, on appeal for the first
time, we learned that the plaintiffs' claims were not and are
not based upon the sales presentations made by each of
LifeUSA's agents. Rather, the plaintif fs have since shifted
their emphasis from pre-sale fraud and misconduct in
connection with the sale and marketing of the annuities, to
post-sale fraud and misconduct: "The gravamen of this case
is the nondisclosure of the real inter est rate in every
uniform annuity and identical quarterly statement."
Appellees' Br., at 20.

Because the plaintiffs have alleged no br each of contract
claim in their Complaint and because their claims ar e no
longer based on the sales presentations -- the predicate of
the District Court's class certification -- but are rather
centered on the interest rates reported in post-sale
quarterly statements and because the requir ements of
Federal Rule of Civil Procedure 23(a) and (b) have not been
met, we will vacate the District Court's class certification,
which resulted from facts, allegations, and a theory

                               3
differing materially from the facts, allegations, and theory
presented to us on appeal.

We will, however, remand to the District Court to give
that Court an opportunity to consider, together with the
other issues identified in its summary judgment opinion,1 if
the present interest rate and real interest theory of the
plaintiffs as explicated in their briefs on appeal and at oral
argument warrant relief and if so, class certification. On
remand, if a class meets class certification standards and
is then certified, the District Court must also ascertain
whether it may exercise jurisdiction over all class plaintiffs
consistent with this Court's ruling in Meritcar e, Inc. v. St.
Paul Mercury Ins. Co., 

(3d Cir. 1999), and
whether jurisdiction pursuant to the Employee Retir ement
Income Security Act of 1974 ("ERISA"), 29 U.S.C. SS 1001-
1461, is available.

I

Plaintiffs/appellees represent a class of persons
who purchased "Accumulator" annuities fr om
defendant/appellant LifeUSA Holding, Inc. ("LifeUSA"). The
Accumulator is a two-tiered deferred annuity contract,2
whereby upon the deposit of the purchaser's premiums, a
one-time bonus is paid on the amount deposited and
interest is then credited to that incr eased amount.
_________________________________________________________________

1. See Benevento v. LifeUSA Holding, Inc., 

(E.D. Pa.
1999). The District Court's denial of summary judgment does not bear
on Rule 23 class certification. It does not implicate Rule 23(a)
requirements of numerosity, commonality, typicality, and adequacy of
representation, nor the predominance and superiority requirements of
Rule 23(b)(3). See Fed. R. Civ. P. 23(a), (b)(3), and see note 11, infra.

2. An annuity is a savings instrument which accumulates sufficient
funds to pay a fixed income to the annuitant for a definite period of time
or for the annuitant's lifetime. It receives interest on a tax-deferred
basis.
A two-tiered annuity has two fund balances and two different credited
interest rates. A higher interest rate is credited on accumulated sums
used to purchase an annuity payout option, with a lower rate credited
on funds payable upon lump sum surrender of the contract.

                               4
The Contract Provisions

The Accumulator is a two-tiered annuity because it
contains both an "Annuitization Value" and a "Cash Value."
The Annuitization Value is the amount paid to the owner if
the funds deposited are held under the contract for at least
one year and annuitized over at least five years. The
contract provides that the owner "will r eceive the
Annuitization Value if the policy has been in force for at
least one year and the proceeds are paid in a settlement
extending over at least five years." (A-510). The
Annuitization Value consists of premiums, bonuses credited
to such premiums, and accumulated inter est. The contract
guarantees that the "minimum interest rate credited to the
Annuitization Value is 4%," (id.), but provided that LifeUSA
"may declare a higher interest rate than the guaranteed
rate." (Id.).

The Cash Value of the contract is the amount the
contract owner receives in the event that he or she elects a
full or partial lump sum surrender. The Cash Value reflects
a front-end load, no bonus, and, if the contract has been in
deferral for less than ten years, a credited interest rate
lower than that used to calculate the Annuitization Value.
The contract explains:

       Cash Value -- Cash Value premium payment are equal
       to 80% of the first year premium payment and 90% of
       the premium payment in years two throughfive. Cash
       Value premium payments after year five are equal to
       100% of the payment made.

       Premium paid during the first five policy years in
       excess of the planned annual premium will be cr edited
       to the Cash Value in an amount equal to 95% of the
       excess amount paid. After the first five policy years,
       any excess premium will be credited to the Cash Value
       in an amount equal to 105% of the excess amount
       paid.

       The guaranteed minimum interest rate cr edited to the
       Cash Value is 4%. We may declar e a higher interest
       rate than the guaranteed rate. The rate in ef fect for the
       Cash Value on the policy date is guaranteed for the
       first policy year. After the first policy anniversary, we

                               5
         may change the declared rate at our option. The rate
         declared will never be lower than the guaranteed
         minimum interest rate.

         The interest rate credited to the Cash V alue will be
         equal to the rate credited to the Annuitization Value
         after the tenth policy anniversary.

(Id.).

The contract further provides that "Policy values before
the Annuity Date are based on 4% interest compounded
annually." (Id.). All Accumulator contracts contained a 20-
day "free look" period providing the prospective purchaser
the opportunity to review the contract and r eturn it within
20 days if not satisfied.3 Significantly, the Complaint filed
by the plaintiffs does not contain any claims that LifeUSA
has breached any of the contract provisions. Moreover, in
depositions, the named plaintiffs testified that they either
failed to read or merely glanced at the contracts after they
had received them.

LifeUSA's Marketing of the Accumulator

LifeUSA sold the Accumulator through 30,271
independent agents. Indeed, the record discloses that a
number of Accumulator purchasers were themselves
independent agents who sold annuities. Agents wer e not all
trained by LifeUSA. Agents learned about the Accumulator
from (1) written materials describing the pr oduct, (2) the
contract itself, and (3) from voluntary seminars sponsored
by LifeUSA and independent Field Marketing Or ganizations
("FMOs"). Marketing materials sent by LifeUSA to agents
were not uniform. Decl. Of Charles Kavitsky P 17, (A-2588)
("While some of the product information LifeUSA created
was mailed to all LifeUSA or Allianz agents and FMOs,
other items were distributed only to agents and FMOs
licensed in a particular state.").

Agents also employed marketing materials generated by
FMOs, not LifeUSA. Agents were permitted to use their own
_________________________________________________________________

3. Florida law was amended to provide Florida residents, such as Plaintiff
Rita Baskin, with a 30-day free look period. McKay Decl. P 42, (A-1198).

                                 6
sales material, provided that the material was approved by
LifeUSA, for the purpose of complying with state r egulation.
Agents did not uniformly rely on the marketing materials in
learning about LifeUSA's Accumulator. In fact, some
discarded the materials entirely. Appr oximately 10-15% of
LifeUSA's agents have attended the seminars, and the oral
content of the seminars varies.

The Accumulator was sold typically in face-to-face
meetings between agents and clients. The District Court
found that the Accumulator was not sold accor ding to
uniform, scripted sales presentations . (A-22) ("the
information provided to each of the plaintiffs by the
individual sales agents who sold them their policies was not
identical."). Agents used varying sales pr esentations that
they developed themselves, based on the prospective
purchaser's financial objectives and sophistication, and the
agent's knowledge and experience. Agents did not employ
LifeUSA's marketing materials uniformly. For example,
some agents always used illustrations provided by LifeUSA,
while other agents never used them. Four of the plaintiffs
testified that they might have received literature from their
agents before purchasing the Accumulator , but none of
them relied on such literature and none could recall the
substance of it.

Plaintiffs' Class Allegations

Plaintiffs' Complaint asserts claims of fraudulent
nondisclosures and misrepresentations (Count II), negligent
misrepresentation (Count III), breach of duty of good faith
and fair dealing (Count IV), negligence (Count V), and
unjust enrichment (Count VI). In Count I, plaintif fs seek
injunctive relief.

Although the plaintiffs' Complaint alleges that LifeUSA
misrepresented the Accumulator annuities provisions and
the post-sale quarterly statements fraudulently
misrepresented the interest rates cr edited to the annuities,
the District Court's class certification opinion was directed
entirely to the pre-sale marketing and sales of the
Accumulator. With respect to plaintiffs' allegations
concerning pre-sale marketing and sales tactics, the

                                7
Complaint alleges that LifeUSA "induc[ed]" and "train[ed]"
agents to misrepresent the terms of the Accumulator
"through standardized and unifor m misrepresentations and
nondisclosures" at point of sale. (Compl.PP 1(a), (b)).
Plaintiffs charged that LifeUSA "conceal[ed] and fail[ed] to
disclose the true terms of the LifeUSA Accumulator annuity
from the purchasers, who are given no written materials
from LifeUSA and provided with only an application and the
uniform representations of LifeUSA agents based upon
LifeUSA's standardized misrepresentations and material
omissions taught to the agents." (Id.P 1(c)). They alleged
that "LifeUSA marketed its Accumulator annuities through
standardized and a uniform patter n and practice of
deceptive misrepresentations and nondisclosures to
agents." (Id. P 43. See also 

Despite the alleged misrepresentations which plaintiffs
claim induced them to purchase Accumulator annuities (a
claim now apparently abandoned) the plaintif fs also
charged that quarterly accounting statements r eceived after
purchase of an Accumulator uniformly misr epresented the
true interest rate credited to a pur chaser's account. In
essence, the plaintiffs charged that". . . the interest rate is
less than the interest rate misr epresented by LifeUSA in
quarterly statements to LifeUSA annuity purchasers."
(Compl. P 83(a)).

The District Court granted plaintiffs' Rule 23 class
certification motion, relying on LifeUSA's pre-sale activities,
holding, as we have earlier noted, that "the gravamen of
plaintiffs' claims is that Defendant's sales techniques and
advertising constituted an allegedly fraudulent scheme."4
(A-16). While conceding that it was presented with a "close
case," (A-12), and that LifeUSA's argument"has some
merit," (A-22), the District Court nonetheless ruled that the
requirements of Rule 23(a) and (b) wer e satisfied. With
_________________________________________________________________

4. Although the plaintiffs claim that a paragraph of the District Court's
class certification opinion refers to inter est rates, withdrawal of
funds,
penalties, and loads, thereby indicating that the District Court's
attention was drawn to the post-sale activities and quarterly statements
now stressed by the plaintiffs, a fair r eading of the District Court's
January 13, 2000 opinion is that these allegations all pertain to the pre-
sale sales presentations of the LifeUSA agents.

                               8
respect to the predominance requir ement of Rule 23(b)(3),5
the District Court stated:

       While [LifeUSA's] argument has some merit in that the
       information provided to each of the plaintiffs by the
       individual sales agents . . . was not identical, it
       nevertheless appears that the source of the plaintiffs'
       misinformation and/or confusion was the advertising,
       sales and marketing literature which Life USA prepared
       and disseminated to its clients and its agents either
       directly or indirectly through its Field Marketing
       Organizations ("FMOs").

(A-22) (emphasis added). The District Court emphasized
that "the basis for plaintiffs' claims against Defendant is
that they [the plaintiffs] and the agents who sold them [the
plaintiffs] their policies were intentionally misled by
Defendant's sales literature and advertising." (Id.).

The District Court also ruled that the superiority
requirement of Rule 23(b)(3) was satisfied, with the
following analysis:

       In addition, in light of the fact that the potential class
       in this matter could number over 280,000, we believe
       that the class action device is superior to other
       methods of adjudicating this dispute. Obviously,
       joinder of all class members would be impracticable
       and duplicative individual trials would impose an
       inordinate burden on the litigants and the court.
       Accordingly, we conclude that the prer equisites of Rule
       23(b) are present in this case.

(A-23) (citations and footnote omitted). Oddly enough, the
District Court made no mention of the approximately
30,000 independent agents who sold the policies to the
plaintiffs. The District Court then certified the following
class:
_________________________________________________________________

5. Rule 23(b)(3) of the Federal Rules of Civil Pr ocedure requires that
after
the conditions of Rule 23(a) have been satisfied, the District Court must
determine that common questions predominate over any questions
affecting only individual members, and that class representation is
superior to other available methods for the fair and efficient
adjudication
of the controversy. Fed. R. Civ. P. 23(b)(3). The full text of Rule 23(a)
and
(b) is reprinted in the Appendix, attached to this opinion.

                               9
       All persons who purchased an Accumulator annuity
       from Life USA between August 1, 1989 and the pr esent
       and are not officers or directors of Life USA or
       members of the immediate family of any officer or
       director of Life USA or any entity in which Life USA has
       a controlling interest or the heir , successor or assign of
       any such excluded party.

(A-26). LifeUSA has timely appealed.

II

Plaintiffs filed this class action complaint against LifeUSA
in the United States District Court for the Easter n District
of Pennsylvania. The District Court's jurisdiction was
premised on 28 U.S.C. S 1332, as this case is an action
between citizens of different states wher ein the amount in
controversy ostensibly exceeds $75,000, exclusive of
interests and costs. (Compl. P 22). After extensive discovery,
on September 29, 1999, the District Court denied LifeUSA's
motion for summary judgment, and on January 13, 2000,
granted plaintiffs' motion for class certification. (A-3-24).
LifeUSA moved before us to appeal pursuant to Rule 23(f)
of the Federal Rules of Civil Procedure. On June 5, 2000,
this Court granted LifeUSA's motion.

A threshold issue which came to our attention is whether
the District Court had diversity jurisdiction under 28
U.S.C. S 1332 over the class, as the plaintif fs alleged.6
Federal courts have diversity jurisdiction wher e there is
complete diversity among the parties, and the amount in
controversy meets the jurisdictional minimum. Each
member of a class action must independently meet the
jurisdictional amount requirement in or der to establish
_________________________________________________________________

6. Because we were concerned about the District Court's jurisdiction, we
required supplemental memoranda fr om the parties. We called attention
to our Court's decision in Meritcare, Inc. v. St. Paul Mercury Ins. Co.,

, 218 (3d Cir. 1999). The memoranda that we received referred
not only to diversity but also to possible jurisdiction deriving from
employee benefit plans governed by ERISA, 29 U.S.C. S 1001 et seq. Our
disposition remanding to the District Court will permit the parties to
explore the existence of ERISA jurisdiction with the District Court on
remand.

                               10
diversity jurisdiction under 28 U.S.C. S 1332. Each member
who fails to meet the jurisdictional amount must be
dismissed from the case. Zahn v. Inter national Paper Co.,

, 301 (1973) (holding that "[e]ach plaintiff in a
Rule 23(b)(3) class action must satisfy the jurisdictional
amount, and any plaintiff who does not must be dismissed
from the case."); 

. "Zahn does not
require that an entire class action be dismissed for lack of
subject matter jurisdiction over some of the class members.
Rather, the court is required only to dismiss those class
members whose claims appear to a `legal certainty' to be
less than the jurisdictional amount." In r e School Asbestos
Litig., 

, 1315 (3d Cir . 1990).7

As a general rule, the jurisdictional amount is determined
from the good faith allegations appearing on the face of the
complaint. St. Paul Mercury Indem. Co. v. Red Cab Co., 

, 288 (1938). A complaint will be deemed to satisfy
the required amount in controversy unless the defendant
can show to a legal certainty that the plaintif f cannot
recover that amount. 

The Complaint here alleges
generally that the amount in controversy in this action
_________________________________________________________________

7. In Meritcare, this Court ruled that the supplemental jurisdiction
statute, 28 U.S.C. S 1367, does not overrule Zahn and thus does not
disturb its holding that every class plaintif f must meet the
jurisdictional
amount requirement of 28 U.S.C. S 1332. 

(holding that "Section 1367 . . . preserves the prohibition against
aggregation outlined in Zahn v. Inter national Paper Co., and Clark v.
Paul
Gray, Inc., and thus maintains the traditional rules governing diversity
of citizenship and the amount in controversy under 28 U.S.C. S 1332.").
See also Trimble v. Asarco, Inc., 

(8th Cir. 2000). In so
holding, we explicitly rejected the decisions r elied upon here by
plaintiffs:
In re Abbott Labs., 

, 527-29 (5th Cir. 1995), aff'd by equally
divided court sub nom., Free v. Abbott Labs., Inc., 

(2000),
and Stromberg Metal Works, Inc. v. Press Mech., Inc., 

(7th
Cir. 1996). The Supreme Court has not r esolved this circuit split,
affirming the Fifth Circuit by "an equally divided Court," with no
opinion.
Free v. Abbott Labs., Inc., 

(2000). However, an affirmance
by an equally divided Supreme Court has no pr ecedential value. See
Rutledge v. United States, 

, 304 (1996). Therefore, Meritcare
remains the law of this Circuit: each member of a class action must
independently meet the jurisdictional amount r equirement, and those
that do not must be dismissed from the action.

                               11
exceeds $75,000. (Compl. PP 22, 23). The Complaint also
alleges that the named plaintiffs pur chased Accumulator
annuities in the amount of $10,000, (id.P 7) (plaintiff
Krapf), $75,000, (id. PP 5, 9) (plaintiffs Benevento and
Rosenblum), $1,000,000, (id. P 13) (plaintiff Maze),
$110,364.44, (id. P 15) (plaintif f Baskin), and $123,332. (Id.
P 11) (plaintiff Compaine).

However, whereas the Complaint alleges that "Plaintiffs
and all members of the Class sustained damages," (id.
P 33), it does not allege that each class member suffered
damages in the amount of $75,000. Our remand to the
District Court will require that court, among other things,
to ascertain whether all members of the putative class
suffered injury in the amount of $75,000, or to limit any
class that may be certified to individuals with r equisite
diversity, as Meritcare requir es.8

III

We review a District Court's decision to certify a class
action for an abuse of discretion. Holmes v. Pension Plan of
Bethlehem Steel Corp., 

, 136 (3d Cir. 2000); In
re The Prudential Ins. Co. of Am. Sales Practices Litig., 

, 299 (3d Cir. 1998). W e may find an abuse of
discretion "where the district court's decision rests upon a
clearly erroneous finding of fact, an errant conclusion of
law or an improper application of law to fact." 

(citations and internal quotations omitted).
A finding is "clearly erroneous when the r eviewing court on
the entire evidence is left with the definite and firm
conviction that a mistake has been committed." United
States v. Igbonwa, 

, 440 (3d Cir. 1997)
(citations and internal quotations omitted).
_________________________________________________________________

8. In this connection, we call the District Court's attention to Georgine
v.
Amchem Prods., Inc., 

, 626 (3d Cir. 1996), aff'd Amchem
Prods., Inc. v. Windsor, 

(1997). In Georgine, we declined to
reach the issue of jurisdiction because it"would not exist but for the
[class action] certification." 

. The Supreme Court
held that "[t]he class certification issues are dispositive; because their
resolution [there] is logically antecedent to the existence of any Article
III
issues, it is appropriate to reach themfirst." 

(citing 

).

                               12
A

In order to be certified, a class must satisfy the four
requirements of Rule 23(a) of the Federal Rules of Civil
Procedure: (1) numerosity, (2) commonality, (3) typicality,
and (4) adequacy of representation. Fed. R. Civ. P. 23(a);
Amchem Prods., Inc. v. Windsor, 

, 613 (1997).
If these Rule 23(a) requirements ar e satisfied, the court
must also find that the class is maintainable under Rule
23(b)(1), (2), or (3). Fed. R. Civ. P. 23(b). See note 

,
and Appendix. Rule 23(b)(3) provides that common
questions must predominate over any questions affecting
only individual members, and class repr esentation must be
superior to other available methods for the fair and efficient
adjudication of the controversy. The Rule 23(b)(3)
predominance inquiry tests whether the class is sufficiently
cohesive to warrant adjudication by repr esentation, and
mandates that it is far more demanding than the Rule
23(a)(2) commonality requirement. 

.

In this case, the District Court found that the Rule 23(a)
requirements had been satisfied, and that the conditions of
Rule 23(b)(3) were met. LifeUSA appeals only the District
Court's conclusions with respect to Rule 23(b)(3). See
Appellant's Br., at 4-5, 23-24. Thus we ar e not concerned
on this appeal with the Rule 23(b)(1) and (b)(2) subsections.

To qualify for certification under Rule 23(b)(3), a class
must meet two requirements beyond the Rule 23(a)
prerequisites:

       Common questions must predominate over any
       questions affecting only individual members; and class
       resolution must be superior to other available methods
       for the fair and efficient adjudication of the
       controversy. . . . Rule 23(b)(3) includes a nonexhaustive
       list of factors pertinent to a court's `close look' at the
       predominance and superiority criteria.

(emphasis added and internal
quotation marks omitted).

       In adding "predominance" and "superiority" to the
       qualification-for-certification list, the Advisory

                               13
       Committee sought to cover cases "in which a class
       action would 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."

The Rule 23(b)(3) r equirements protect
the same interests in fairness and efficiency as the Rule
23(a) requirements. Georgine v. Amchem Prods., Inc., 

, 626 (3d Cir. 1996), af f'd Amchem Prods., Inc. v.
Windsor, 

(1997).

Having reprinted in full Federal Rule of Civil Procedure
23(a) and (b) in the attached appendix, we do not list all the
factors here. Rather, in this case, wefind particular
significance in the last recited factor of Rule 23(b)(3)(D)
which stresses "the difficulties likely to be encountered in
the management of a class action." Fed. R. Civ. P .
23(b)(3)(D). We also recognize that because the Rule 23(b)(3)
predominance requirement incorporates the commonality
requirement of Rule 23(a) we must tr eat them together,

, and as we have noted above, even
if Rule 23(a)'s commonality requirement is satisfied,
predominance may not be, as it is mor e demanding.

.

Thus our focus is on testing whether the class certified
by the District Court here meets all the r equirements of
predominance (i.e., that common questions predominate
over questions affecting only individual members) and that
class treatment is a superior method of adjudication.
Factored into those questions is the difficulty to be
encountered in the management of a class action.

B

Predominance

As noted, the District Court found that the plaintif fs
satisfied all four of the Rule 23(a) requir ements including
commonality (Rule 23(a)(2)). However, in light of the record,
we find unconvincing the District Court's explanation that:

                                14
       While [LifeUSA's] argument has some merit in that the
       information provided to each of the plaintiffs by the
       individual sales agents who sold them their policies
       was not identical, it nevertheless appears that the
       source of the plaintiffs' misinfor mation and/or
       confusion was the advertising, sales and marketing
       literature which LifeUSA prepared and disseminated to
       its clients and its agents either directly or indirectly
       through its Field Marketing Organizations ("FMO's").

(A-22). Equally unpersuasive is the District Court's
statement that "[w]hile there ar e unquestionably individual
issues of fact in each case, we find that the pr edominant
issues in each such case of necessity are whether or not
the defendant intentionally misled and deceived the
plaintiffs, through its product and sales information and
the training provided to its agents." (A-22-23).

The District Court also noted that the "pr edominance test
has also been found to have been easily satisfied in cases
involving a common scheme to defraud millions of life
insurance policy holders," (A-21), relying on In re The
Prudential Ins. Co. of Am. Sales Practices Litig. , 

(3d Cir. 1998). LifeUSA had argued that predominance
was not established because the purported class members'
claims arose from individual and non-standardized
transactions involving non-uniform oral
misrepresentations. (A-21-22). Because common questions
(commonality) must be established before pr edominance
can be found, we turn to that element.

Commonality

We have held that class certification is inappropriate in
mass tort claims (i.e., asbestos, Georgine , 

, and
tobacco, Barnes v. American Tobacco Co., 

(3d
Cir. 1998)) which present questions of individualized issues
of liability.

In Georgine, we vacated a district court's certification of
a nationwide settlement class of people exposed to
asbestos. There we recognized that mass torts involving a
single accident may be amenable to class action tr eatment,
but observed that "the individualized issues can become

                               15
overwhelming in actions involving long-term mass torts
(i.e., those which do not arise out of a single accident)."

. W e continued: "Furthermore, the
alleged tortfeasor's affirmative defenses (such as failure to
follow directions, assumption of the risk, contributory
negligence, and the statute of limitations) may depend on
facts peculiar to each plaintiff's case." 

In addition, we held that the predominance r equirement
was not satisfied in Georgine, 

because

       Initially, each individual plaintiff's claim raises
       radically different factual and legal issues from those of
       other plaintiffs. These differences, when exponentially
       magnified by choice of law considerations, eclipse any
       common issues in this case. In such circumstances,
       the predominance requirement of Rule 23(b) cannot be
       met.

Id.9 LifeUSA claims, and we are compelled to agree that on
the record before us, in this case the plaintiffs' claims raise
"different factual and legal issues fr om those of other
plaintiffs."

In Barnes, we affirmed the decertification of a
conditionally-certified statewide class of cigar ette smokers
who asserted state law claims against a cigar ette
manufacturer. 

. We stated:
"Because of the individual issues involved in this case --
nicotine addiction, causation, the need for medical
monitoring, contributory/comparative negligence and the
statute of limitations -- we believe class tr eatment is
inappropriate." 

(footnote omitted). While we
recognize that Amchem and Bar nes are multiple tort cases,
the principles and reasoning in those cases ar e applicable
here.

Here the plaintiffs assert claims arising not out of one
single event or misrepresentation, but claims allegedly
_________________________________________________________________

9. The Advisory Committee Notes to Rule 23(b)(3) provide that "although
having some common core, a fraud case may be unsuited for treatment
as a class action if there was material variation in the representations
made or in the kinds or degrees of reliance by the persons to whom they
were addressed." Fed. R. Civ. P . 23(b)(3), Advisory Committee Note.

                               16
made to over 280,000 purchasers by over 30,000
independent agents where the District Court found that the
sales presentations (hence the alleged misr epresentations)
were neither uniform nor scripted. Indeed, the District
Court, while acknowledging that the claims or defenses of
the class must arise from the same event, pattern, or
practice, or be on the same legal theory, never identified
any uniform misrepresentation made to the plaintiffs nor
did it detail any material fact which was not disclosed to
class members, and which accordingly, could have misled
them. Significantly, in its class certification opinion, the
District Court, in discussing commonality in connection
with Rule 23(a)(2), found this case to be a "close" one. (A-
12).

The District Court's principal reliance on In re The
Prudential Ins. Co. of Am. Sales Practices Litig. , 

(3d Cir. 1998), in certifying the LifeUSA class was
misplaced and unfortunate. In Prudential, we affirmed the
certification of a settlement10 class action involving
Prudential's allegedly deceptive sales practices af fecting
over 8 million claimants nationwide. However , Prudential,
unlike this case, involved uniform, scripted, and
standardized sales presentations. The district court opinion
in Prudential found that "the oral component of the
fraudulent sales presentations did not vary appreciably
among class members. Plaintiffs' allegations and the
evidence presented to the Court demonstrate that
throughout the country, Prudential agents uniformly misled
class members with virtually identical oral
misrepresentations." In re The Prudential Ins. Co. of Am.
Sales Practices Litig., 

, 514 (D. N.J. 1997)
(citation omitted) (emphasis supplied).

In Prudential, the agents were car eer agents who worked
exclusively for Prudential. 

e not independent
agents like the 30,271 agents who sold Accumulator
annuities to the plaintiffs. Prudential's agents were
uniformly trained and Prudential requir ed its agents to use
the uniform sales materials which Prudential furnished. Id.
_________________________________________________________________

10. A settlement class, as distinct from a class action to be tried, does
not implicate trial management problems. 

.

                               17
at 515. Moreover, audits and state r egulatory investigations
of Prudential revealed that Prudential agents had indeed
committed uniform, deceptive sales practices nationwide.

The facts here in the extensive evidentiary r ecord of this
case (depositions, affidavits, declarations, and the like)
contrast starkly with the facts found in Prudential. In this
case, as we have earlier pointed out, the Accumulator was
not sold according to standard, unifor m, scripted sales
presentations. In fact, the District Court found that "the
information provided to each of the plaintiffs by the
individual sales agents . . . was not identical." (A-22).
LifeUSA agents are independent agents, not"captive"
agents, as were Prudential's agents. LifeUSA's agents learn
about the Accumulator from written materials describing
the product, from the contract itself and from voluntary
seminars sponsored by LifeUSA, but only 10-15% of agents
attend LifeUSA's seminars. Marketing materials sent to
LifeUSA agents are not uniform and many utilized
marketing materials generated by Field Marketing
Organizations who are not affiliated with LifeUSA.

Moreover, the selling agents did not employ LifeUSA's
marketing materials uniformly. Some agents discarded the
marketing materials entirely. Agents' sales pr esentations
were individually tailored to each customer's financial
objectives. Significantly, when the plaintif fs testified on
deposition, they admitted that if they r eceived information
from sales agents prior to purchase, they did not rely on it,
nor could they recall its substance. Indeed, a number of the
plaintiffs failed to read or merely glanced at the contracts,
leading to the District Court's observation that"it was
incumbent upon the plaintiffs to read these materials,
particularly in light of the defendant's twenty-day
examination and return policy." (A-17).

Hence, the facts of this case differ markedly from those
which were found in Prudential. Accor dingly, even if the
District Court had not centered its attention on pre-sale
LifeUSA marketing activities, as the plaintif fs now claim it
should not have, the record is uncompr omising in revealing
non-standardized and individualized sales "pitches"
presented by independent and differ ent sales agents, all

                               18
subject to varying defenses and differing state laws, thus
making certification of individualized issues inappropriate.
Thus, the District Court's finding from the r ecord that
LifeUSA "has engaged in standardized conduct," (A-13),
affecting the class members cannot be sustained.

Moreover, the District Court in denying summary
judgment to LifeUSA identified at least four major factual
and legal issues that had to be resolved.11 The District
Court failed to consider how individualized choice of law
analysis of the forty-eight different jurisdictions12 would
impact on Rule 23's predominance requir ement, see

, as well as individual
determinations of causation, adjudications of contract law,
reliance, the fiduciary status of defendant, and LifeUSA's
defenses of contributory/comparative negligence and
limitations.

If commonality in the pre-sale marketing context does not
exist, then common questions cannot predominate over
individual issues because as Georgine found, each
individual plaintiff's claim raises radically differing factual
and legal issues from those of other plaintif fs. This, too, is
the case here. Accordingly, we cannot uphold the District
Court's exercise of discretion in concluding from its
findings that commonality and predominance have been
demonstrated.
_________________________________________________________________

11. See Benevento, 

. The four issues were (1) the
independence of LifeUSA's agents; (2) plaintif fs' justifiable reliance on
defendant's alleged misrepresentations and non-disclosures; (3) whether
plaintiff could recover under the economic loss doctrine under Florida
and New Jersey law; and (4) whether plaintif fs were entitled to relief
for
breach of contractual duty of good faith and fair dealing under the laws
of Pennsylvania, New Jersey, and Florida. Those issues which included
differing and independent defenses available to LifeUSA and which
require individualized choice of law analysis to each of the plaintiffs'
claims, see 

(noting that where variations in
state law exist, "the proliferation of disparate factual and legal issues
is
compounded exponentially."), all operate to discourage class treatment
and therefore class certification. Her e, among other litigable matters,
LifeUSA will be confronting differing aspects of causation, differing
state
laws, and different defenses. See Benevento, 

.

12. LifeUSA represents that the "Accumulator" has been approved for
sale in 47 states and the District of Columbia.

                               19
C

Superiority

Having determined that the class certified by the District
Court does not meet the "predominance" r equirement of
Rule 23(b)(3), we need not dwell at length on the superiority
requirement of the rule, inasmuch as failure to meet any of
the requirements of Rules 23(a) and (b) pr ecludes
certification of a class. See, e.g., W ilcox v. Commerce Bank
of Kansas City, 

, 345 (10th Cir. 1973);
Harriston v. Chicago Tribune Co., 992 F .2d 697, 703 (7th
Cir. 1993).

It will be recalled that the District Court her e dealt with
the "superiority" test in one cursory paragraph:

       In addition, in light of the fact that the potential class
       in this matter could number over 280,000, we believe
       that the class action device is superior to other
       methods of adjudicating this dispute. Obviously,
       joinder of all class members would be impracticable
       and duplicative individual trials would impose an
       inordinate burden on the litigants and the court.
       Accordingly, we conclude that the prer equisites of Rule
       23(b) are present in this case.

(A-23) (citations and footnote omitted). This discussion, of
course, gives little indication as to how a trial of this
controversy, if tried as a class action, could be efficiently
and fairly managed, which is the polestar of Rule 23(b)(3).
In Georgine which decertified a class action we concluded in
discussing the superiority prong of Rule 23(b)(3) that

       The proposed class action suffers serious problems in
       both efficiency and fairness. In ter ms of efficiency, a
       class of this magnitude and complexity could not be
       tried. There are simply too many uncommon issues,
       and the number of class members is surely too large.
       Considered as a litigation class, then, the difficulties
       likely to be encountered in the management of this
       action are insurmountable.

.

                               20
In Georgine, admittedly, the size of the purported class
was much larger than the class here. It ranged from
250,000 to two million individuals. However, in the present
case, LifeUSA has issued well over 280,000 annuities to the
class members, and the individual agents who sold the
policies numbered over 30,000. Moreover , as we discussed
under the section of this opinion dealing with
predominance, there are individualized issues that would
require individual determinations of defenses,
representations, state laws, and the like. 13 Without going
into detail as to the management of how a trial which
would require proofs of individual claims of the plaintiffs
and proofs of varying defenses of the defendant could be
conducted, it is sufficient for our purposes to r ecognize that
attempting to adjudicate plaintiffs' various claims through
a class trial would not only be inordinately time consuming
and difficult, but it would impermissibly transgress upon
the required standards of fair ness and efficiency.

Thus having concluded that the requirement of
predominance has not been met, and that the superiority
and the management of the trial could not be fairly and
efficiently conducted as a class action, we ar e obliged to
hold that the District Court improperly exer cised its
discretion in certifying a pre-sale class. Accordingly, we will
vacate the January 13, 2000 order of the District Court
which certified the plaintiff class in a pr e-sale context, and
remand this case to the District Court with instructions to
decertify the class.14
_________________________________________________________________

13. Although plaintiffs' claims are r elatively modest and separate suits
may be impracticable, cf. 

, that factor by itself
is insufficient to overcome the hurdles of predominance and superiority
and efficient and fair management of a trial, which Rule 23(b) requires.
The individual adjudications of causation, r eliance, LifeUSA's multiple
defenses, and application of differing state laws would make trying the
plaintiffs' claims in a class action a thor oughly unwieldy endeavor and
in the terms of Georgine make it impossible to conclude that this class
action is superior to alternative means of adjudication.
14. LifeUSA and Amicus argue that segr egation of individual issues of
fact from common issues would violate LifeUSA's Seventh Amendment
right to have its claims adjudicated by a single jury. See Appellant's
Br.,
at 46 n.35. Although this issue is of serious concer n, we have not
addressed it because we have concluded that the putative class must be
decertified because it fails the predominance, superiority, and
management requirements of Rule 23(b)(3).

                               21
IV

Even though we have concluded that the class
certification decreed by the District Court cannot be upheld
because it rested on the pre-sale marketing, advertising,
and "sales pitches" of the Accumulator , we nevertheless are
seriously troubled by the constant assertions made by the
plaintiffs in their appellate briefs and their appellate
arguments that LifeUSA misrepresented interest rates and
amounts all of which apparently stem not fr om the pre-sale
representations but from quarterly statements which could
only come about subsequent to the purchase of the
annuities by the plaintiffs. As a consequence, we asked at
oral argument for post-argument memoranda which would
expound upon the real interest rate and the amounts
actually paid.

Plaintiffs furnished us with exhibits detailing calculations
which allegedly illustrate the actual interest rate credited
assuming daily compounding of interest. Those
computations purported to show that, assuming daily
compounding, the amount of interest credited represented
a lower interest rate than the rate stated on the quarterly
statements. In response, LifeUSA argued that plaintiffs'
calculations incorrectly assumed that LifeUSA r epresented,
in quarterly statements, that it would engage in daily
compounding of the declared current rate of interest.
Instead, it argued, the contract, the quarterly statements,
and the marketing literature circulated to agents
demonstrate that contract values are calculated based on
an annual compounding of the declared current rate.15

We had anticipated that these submissions would clarify
the issue of post-sale misrepresentations which was
emphasized by the plaintiffs in their appellate briefs and
oral argument. We did so because, among other
_________________________________________________________________

15. Additionally, LifeUSA asserts that, even if quarterly statements
uniformly failed to disclose the actual inter est rate, individualized
issues
remain with respect to this theory of liability, precluding class
certification. It states that multiple variants of the quarterly
statements
existed, and that individual determinations of reliance, on the agents'
representations as well as on quarterly statements themselves, would be
required in order to determine liability.

                               22
considerations, plaintiffs had not claimed and do not claim,
any breach of contract in their Complaint. This is not
surprising to us because the contract entered into by each
of the named plaintiffs provides no mor e than a guaranteed
4% interest rate and also provides for dif ferent features of
payments as well as representing that interest would be
compounded annually. Thus we found it difficult to
understand the shift in the plaintiffs' emphasis and even
more difficult to understand allegations of standard
uniformity in LifeUSA's representations.

However, we found that we could not r econcile the post-
argument briefs nor could we determine whether in light of
the arguments therein made, a class meeting the standards
of Rules 23(a) and (b) could be certified. In any event, it is
not our function to make these determinations, but we
would be loath to disregard these allegations just because
they had not been ruled upon by the District Court. It is
true that we had anticipated that the post-ar gument
submissions would be conclusive in establishing either
plaintiffs' claims or LifeUSA's defenses. Unfortunately this
was not to be, and because we are not factfinders, see
Pullman-Standard v. Swint, 

, 291 (1982)
("[F]actfinding is the basic responsibility of district courts,
rather than appellate courts"); Chalfant v. The Wilmington
Inst., 

, 749-750 & n.3 (3d Cir. 1978) (Garth,
J., dissenting), we now determine that the questions of
alleged post-sale representations and standard uniformity
as well as all requirements of Rule 23(a) and (b) should be
found in the first instance by the District Court just as the
District Court should resolve those issues it identified in its
summary judgment decision. We suggest that if the
plaintiffs desire to seek class certification again based on
these post-sale activities of LifeUSA rather than on the
marketing of the policies, it is the District Court that
should consider and act upon such submissions.

It may be, however, that when the District Court takes
evidence of the post-sale representations and activities of
LifeUSA it may determine that there ar e no grounds for
relief or that if the grounds for r elief exist, that they do not
comply with the stringent requirements of Rules 23(a) and
23(b) due to individualized claims and individualized

                               23
defenses, and the requirements of pr edominance,
superiority, and the management of a fair and efficient trial.
Accordingly, our direction to decertify the class which was
based on pre-sale activities will not preclude consideration
by the District Court of claims with respect to post-sale
activities that are viable and perhaps certifiable.

V

We have determined that the class certified by the
District Court looking to pre-sale actions of LifeUSA was an
abuse of the District Court's discretion because the record
does not support the findings made which ar e required by
Rules 23(a) and (b). Nor does the recor d support the
District Court's conclusions leading to a certification of a
pre-sale class. However, because of the consistent
arguments of the plaintiffs which emphasize post-sale
activities of LifeUSA and post-sale misr epresentations with
respect to interest, we will remand to the District Court for
consideration of those claims and if applied for by the
plaintiffs for consideration as to whether those post-sale
claims comply with Rules 23(a) and (b), all in accor dance
with the foregoing opinion.

                               24
APPENDIX

Rule 23. Class Actions

(a) Prerequisites to a Class Action. One or more members
of a class may sue or be sued as representative parties on
behalf of all only if (1) the class is so numer ous that joinder
of all members is impracticable, (2) there ar e 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 repr esentative parties will
fairly and adequately protect the inter ests of the class.

(b) Class Actions Maintainable. An action may be
maintained as a class action if the prer equisites of
subdivision (a) are satisfied, and in addition:

       (1) the prosecution of separate actions by or against
       individual members of the class would create a risk of

       (A) inconsistent or varying adjudications with r espect
       to individual members of the class which would
       establish incompatible standards of conduct for the
       party opposing the class, or

       (B) adjudications with respect to individual members
       of the class which would as a practical matter be
       dispositive of the interests of the other members not
       parties to the adjudications or substantially impair
       or impede their ability to protect their inter ests; or

       (2) the party opposing the class has acted or r efused to
       act on grounds generally applicable to the class,
       thereby making appropriate final injunctive relief or
       corresponding declaratory relief with r espect to the
       class as a whole; or

       (3) the court finds that the questions of law or fact
       common to the members of the class predominate over
       any questions affecting only individual members, and
       that a class action is superior to other available
       methods for the fair and efficient adjudication of the
       controversy. The matters pertinent to the findings
       include: (A) the interest of members of the class in
       individually controlling the prosecution or defense of
       separate actions; (B) the extent and nature of any

                               25
       litigation concerning the controversy alr eady
       commenced by or against members of the class; (C) the
       desirability or undesirability of concentrating the
       litigation of the claims in the particular forum; (D) the
       difficulties likely to be encountered in the management
       of a class action.

Fed. R. Civ. P. 23(a), (b).

A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit

                               26