The Eighth Circuit overturned and remanded a district court judgment that refused both a motion to dismiss class action claims and a motion to compel arbitration in Donelson v. Ameriprise Financial Services, Inc.
Defendant Sachse, who worked as a broker and financial advisor at defendant Ameriprise, urged the plaintiff to open an Ameriprise account. Sachse brought a copy of the account application and filled it out himself when the two met for lunch. Sachse was accused of "badly mishandling [Plaintiff's] investment account" after the plaintiff signed but did not read the account application. The plaintiff filed suit alleging breaches of the Securities Exchange Act's 10(b) and 20(a) and Rule 10b-5, as well as a breach of fiduciary responsibility under 15 U.S.C. 80b-6, and sought to represent other Sachse clients in a Rule 23(b)(2) class action. The district court dismissed the defendants' motions to dismiss the class action allegations and compel arbitration. The defendants filed an appeal.
Issue: On appeal, the court considered whether the defendants forfeited their right to arbitrate when they attempted to dismiss the class action charges at the same time.
Another issue, whether the district court made a mistake by dismissing the defendant's petition to strike.
Decision and Analysis
They had not, according to the court. The court ultimately decided that when the defendants attempted to dismiss the class action charges, they were not demanding a judgment on the merits, which would have "significantly invoke[d] the litigation machinery" and waived arbitration. The defendants did not relinquish their right to arbitrate since this did not amount to such a request.
The arbitration clause was also deemed to be legitimate and should be enforced since "it was backed by mutual agreement, was supported by consideration, and was not unconscionable," according to the court. The plaintiff agreed to the arbitration clause when he signed the account application. Despite the fact that he did not read the account application, his signature established mutual acceptance of the arbitration provision. Because the account application stated that "use of your account... shall constitute your acknowledgment and agreement to be bound thereto," consideration exists. Moreover, despite the unilateral nature of the language, which 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 make the provision unconscionable."
To the next issue, the court consulted Rule 12(f), which allows courts to reject pleadings where "a component of the complaint lacks a legal foundation," for example. The Eighth Circuit, recognizing a circuit divide on how Rule 12(f) relates to class action claims, concluded that "a district court may grant a request to strike class action allegations prior to the filing of an application for class action certification." The court determined that this was consistent with Rule 23(c) (1) (A), which enables district courts to certify a class "as soon as possible."
The court ultimately decided that the district court's denial of the petition was an abuse of discretion since "not only was it obvious from the pleadings that Plaintiff could not certify a class, but also the class allegations were all that stood in the way of forcing arbitration." Because the class claims were not coherent – they would require individualized decisions for each class member regarding the alleged misrepresentations at issue – the plaintiff was unable to establish a class action on the 10(b), Rule 10b-5, and 20(a) claims. The plaintiff could not receive the remedy needed by Rule 23(b) (2) because there is "no private cause of action for breaches" of 15 U.S.C. 80b-6, according to the court.
This is a significant decision because it affirms a district court's ability to strike a pleading under Rule 12(f) prior to the filing of a motion for class certification, and it allows a plaintiff to move to strike class action allegations and compel arbitration at the same time without waiving the right to arbitrate.
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