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Posts Tagged ‘affiliated ute’

In April, the Colorado Supreme Court decided Farmers Ins. Exchange v. Benzing, 206 P.3d 812 (Colo. 2009), in which it rejected the “fraud on the market” theory of reliance in a consumer class action.  Now, Garcia v. Medved Chevrolet, Inc., No. 09CA1465 (Colo. Ct. App., Nov. 12, 2009), the Colorado Court of Appeals has rejected the alternative reliance theory that the Benzing court  declined to address: the presumed reliance theory first recognized in the securities class action context in Affiliated Ute Citizens v. United States, 406 U.S. 128 (1972) could apply to establish common proof of reliance in a consumer class action involving alleged fraud by omission.  A synopsis, along with a copy of the opinion, is available at Law Week: http://www.lawweekonline.com/?p=1914

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The Colorado Supreme Court issued one of its most significant class action decisions in recent years today in Farmers Ins. Exch. v. Benzing, No. 07SC483 (Colo., April 27, 2009), rejecting the so-called “fraud on the market” theory of reliance and loss causation in an insurance class action.  Justice Bender authored the decision on behalf of a unanimous court, with two justices not participating.  The key issues addressed in the opinion include:

1) the trial court had discretion to decertify a previously certified class, despite the court of appeals’ finding that the facts and arguments presented in connection with the  decertification motion could have been raised at the initial certification stage, as part of the court’s “continuing obligation to review whether proceeding as a class action is appropriate”, Benzing, slip op. at 19; and

2) the fraud-on-the-market theory of reliance and loss causation was not applicable in an insurance class action where there was no efficient market and where the information alleged to have been concealed was a matter of public record.  Benzing, slip op. at 23-31.

The Court declined to address an alternative theory, also borrowed from the securities context, that common reliance or injury could be established by presumption or inference in a case involving a material omission of fact, as articulated in Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 153-54 (1972).  The court acknowledged a split of authority on whether the Affiliated Ute doctrine could be applied in consumer class actions, but declined to rule one way or another, stating that the issue been “insufficiently raised” before the trial court and court of appeals.  Benzing, slip op. at 32-33 & n.9.

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