Summary of Action

A class-action lawsuit was filed in the Southern District of Texas against an MLM venture promoting energy services known as Stream Energy.  The plaintiffs alleged, among other things, that the company is actually a pyramid scheme, that they lost money as a result of being deceptively lured in by the company, and that the company is violating the Racketeer Influenced and Corrupt Organizations (“RICO”) Act through its fraudulent activity.

The district court certified the class on the basis that plaintiffs could establish their common reliance on the alleged misrepresentations by showing that Ignite was indeed a pyramid scheme.  Ignite appealed, and the Fifth Circuit — in a 2-to-1 decision — reversed, holding that each class member’s reliance on the alleged misrepresentations is an individualized inquiry and that some class members theoretically knew before joining that the company was a pyramid scheme. Under this holding, which decertifies the class, illegal pyramid schemes will be vaccinated against all civil litigation, “immunizing them not just from class actions but ultimately from all judicial challenges,” as the dissenting opinion correctly noted.

The plaintiffs then petitioned the Fifth Circuit to rehear the case en banc in order to reconsider the panel’s surprising decision, and TINA.org filed an amicus curiae brief in support of that petition.  On March 12, 2016, the Fifth Circuit granted the petition to rehear the case.  TINA.org then filed an amicus curiae brief in support of the District Court’s decision to certify the class and, on September 30, 2016, the Fifth Circuit Court of Appeals affirmed the District Court’s decision, meaning that the case may indeed proceed as a class action, a big win not only for the plaintiffs in this case, but for consumers nationwide deceived by other similar schemes.