On June 3, 2021, the U.S. Court of Appeals for the Eighth Circuit held that a district court should have stricken the plaintiff’s class action allegations at the pleading stage. Donelson v. Ameriprise Financial Services, Inc., 999 F.3d 1080 (8th Cir. 2021). The decision indicates when class action defendants should consider deploying what is typically a disfavored procedural mechanism to neutralize a class action before discovery begins.
In Donelson, the plaintiff sued Ameriprise Financial Services for securities fraud and breach of fiduciary duty after his stock broker mishandled his investment account. Although the plaintiff’s claims turned on oral misrepresentations requiring individual proof of reliance (which almost always preclude class treatment), plaintiff brought suit as a class action on behalf of all customers who experienced similar improprieties—ostensibly to avoid the arbitration clause in his account agreement, which required him to arbitrate all disputes with Ameriprise except for class actions.
Ameriprise moved to strike the plaintiff’s class allegations under Fed. R. Civ. P. 12(f) —which permits a court to strike “any redundant, immaterial, impertinent, or scandalous matter”— and to compel arbitration. The trial court denied the motions, but the Eighth Circuit reversed. The appellate court held that the trial court abused its discretion by denying Ameriprise’s motion to strike because (1) “it was apparent from the pleadings that [plaintiff] could not certify a class,” and (2) “the class allegations were all that stood in the way of compelling arbitration.”
Donelson is an unusual endorsement of what is typically a “disfavored” practice in federal court. It also deepens a split among federal courts about whether a court can strike class allegations at the pleadings stage, before the plaintiff moves for class certification. While some federal courts have stricken class allegations before class discovery, Pilgrim v. Universal Health Card, LLC, 660 F.3d 943, 949 (6th Cir. 2011), others have held that doing so is premature, Francis v. General Motors, LLC, 504 F. Supp. 3d 659 (E.D. Mich. 2020).
The critical task for defendants will be discerning when it is “apparent from the pleadings that plaintiff cannot certify a class.” That sort of pleading will be rare. In many cases, the plaintiff’s legal and factual theories will not be sufficiently developed in the pleadings to allow a defendant to demonstrate, based on the allegations alone, that class treatment is clearly impossible. In Donelson, Ameriprise could make the required showing because the plaintiff’s claims relied on individualized oral misrepresentations made to the plaintiff by his broker. In most putative class actions, however, plaintiffs allege some common course of action by the defendant that, on its face, might be susceptible to common proof.
Donelson also indicates that moving to strike class allegations would be most prudent only when doing so will dispose of the entire case. In Donelson, for example, the court was obviously influenced by the fact that the plaintiff’s class allegations were the only thing standing in the way of arbitration. It would have been inefficient, the court said, to needlessly force the parties to remain in court when they previously decided to arbitrate. Moving to strike class allegations may also be a viable strategy when the named plaintiff’s damages are so small that the case will not proceed on an individual basis.
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