Eighth Circuit Rules That Plaintiff Can File Motion to Strike Class Action Without Waiving Right to Compel Arbitration
In Donelson v. Ameriprise Financial Services, Inc., the Eighth Circuit reversed and remanded a district court’s decision that had denied both a motion to strike class action allegations and a motion to compel arbitration. The plaintiff was invited to create an Ameriprise account by defendant Sachse, who worked as a broker and investment advisor at defendant Ameriprise. The two met over lunch, where Sachse brought, and filled out himself, a copy of the account application. After the account application was signed, but not read, by the plaintiff, it was alleged that Sachse “badly mishandled [Plaintiff’s] investment account.” The plaintiff brought suit alleging violations of § 10(b) and § 20(a) of the Securities Exchange Act and Rule 10b-5, as well as breach of fiduciary duty under 15 U.S.C. § 80b-6, and, after finding other Sachse clients who had experienced similar problems with their accounts, sought to represent them in a Rule 23(b)(2) class action. The defendants moved to strike the class action allegations and to compel arbitration, which the district court denied. The defendants appealed.
On appeal, the court addressed the question of whether the defendants waived their right to arbitrate when they simultaneously moved to strike the class action allegations. The court found that they had not. Ultimately, the court determined that when the defendants moved to strike the class action allegations, they were not requesting a decision on the merits, which would have “substantially invoke[d] the litigation machinery” and waived arbitration. Since this did not amount to such a request, the defendants did not waive their right to arbitrate.
The court further found that the arbitration clause was valid and should be enforced, because “it was supported by mutual assent, was supported by consideration, and was not unconscionable.” The plaintiff signed the account application, which expressly incorporated the arbitration clause. Despite not reading the account application, his signing of it created mutual assent to the arbitration clause. Consideration existed because the account application contained language that “use of your account . . . shall constitute your acknowledgment and agreement to be bound thereby.” And, despite the fact that the language was unilateral, meaning it required the plaintiff to arbitrate all claims against Ameriprise but not Ameriprise to arbitrate all claims against the plaintiff, “the fact that an arbitration provision applies to one party but not the other does not itself render the provision unconscionable.”
The court then turned to whether the district court erred in denying the defendants motion to strike. The court looked to Rule 12(f) for guidance, which permits courts to strike pleadings when, for example, “a portion of the complaint lacks a legal basis.” Acknowledging a circuit split on how Rule 12(f) applies to class action allegations, the Eighth Circuit held that a “district court may grant a motion to strike class action allegations prior to the filing of a motion for class action certification.” The court found this to be in line with Rule 23(c)(1)(A), which allows district courts to certify a class “[a]t an early practicable time.”
Ultimately, the court determined that it was an abuse of discretion for the district court to deny the motion – “not only was it apparent from the pleadings that Plaintiff could not certify a class, but also the class allegations were all that stood in the way of compelling arbitration.” The plaintiff was unable to maintain a class action on the § 10(b), Rule 10b-5, and § 20(a) claims because the class claims were not cohesive – they would require individualized determinations for each class member regarding the alleged misrepresentations at issue. As to the breach of fiduciary duty claim, the court determined that the plaintiff could not obtain the relief required by Rule 23(b)(2), as there is “no private cause of action for violations” of 15 U.S.C. § 80b-6.
This decision is an important one, because it endorses a district court’s ability to strike a pleading under Rule 12(f) prior to the filing of a motion for class certification, and allows for a plaintiff to simultaneously move to strike class action allegations and compel arbitration without waiving the right to arbitrate. Since courts are currently split on how to apply Rule 12(f) to class actions, it will be interesting to see whether or not this decision helps to tip the scale in favor of the Rule’s application to class action allegations.