999 F.3d 1080
8th Cir.2021Background
- Donelson, a non-expert investor, moved his brokerage account to Ameriprise at the urging of broker Mark Sachse, who filled out the Account Application for him and checked a margin-authorization box despite Donelson’s instruction not to use margin.
- The Account Application incorporated by reference a Client Agreement that contained a predispute arbitration clause covering “all controversies” but exempting “putative or certified class action[s].”
- Donelson sued Sachse, Ameriprise, and individual Ameriprise officers for securities fraud (§10(b)/Rule 10b-5), control-person liability (§20(a)), and breach of fiduciary duty under the Investment Advisers Act (§206/15 U.S.C. § 80b-6), and sought to pursue a Rule 23(b)(2) class.
- Defendants moved to strike the class allegations under Rule 12(f) and to compel arbitration under the Client Agreement; the district court denied both motions.
- Defendants appealed; the Eighth Circuit held it had jurisdiction under the FAA to review the denial, found no waiver of arbitration, concluded the arbitration clause was valid and covered the dispute, and reversed—ordering the class allegations stricken and arbitration compelled.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Appellate jurisdiction to review denial of motion to compel arbitration and motion to strike class allegations | No jurisdiction because district court did not hold the §4 trial and the motion-to-strike denial is not separately appealable | FAA §16 permits appeal of an order denying a §4 petition; whole order is reviewable | Court has jurisdiction under FAA §16 to review the district court’s order |
| Waiver of arbitration by moving to strike class allegations while moving to compel arbitration | Donelson: moving to strike class allegations invoked litigation machinery and waived arbitration | Defendants: motion to strike targeted class status, not merits; did not substantially invoke litigation machinery | No waiver—Defendants did not substantially invoke litigation machinery |
| Who decides arbitrability (court vs. arbitrator) | Donelson: court should decide enforceability | Defendants: prima paint/separability means arbitrator should decide some issues; but they forfeited that argument below | Prima Paint argument forfeited below; reviewed only for plain error and not reversible |
| Validity/scope of arbitration clause and whether class allegations must be stricken | Donelson: no mutual assent/consideration; clause unconscionable; class allegations permissible | Defendants: Account Application incorporated the Client Agreement (including arbitration clause); consideration exists; clause covers all controversies except putative/certified class claims; class allegations are legally unsupportable and should be stricken | Arbitration clause is valid (mutual assent, consideration, not unconscionable); class allegations are not certifiable under Rule 23(b)(2) and should be stricken; compel arbitration |
Key Cases Cited
- Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (arbitration-separability principle)
- Yamaha Motor Corp., U.S.A. v. Calhoun, 516 U.S. 199 (appeal of an order permits review of issues fairly included in the order)
- Dumont v. Saskatchewan Gov’t Ins., 258 F.3d 880 (standard for waiver of arbitration)
- Lewallen v. Green Tree Servicing, L.L.C., 487 F.3d 1085 (factors for finding waiver of arbitration)
- M.A. Mortenson Co. v. Saunders Concrete Co., 676 F.3d 1153 (motion to compel arbitration standard under the FAA)
- Pilgrim v. Universal Health Card, LLC, 660 F.3d 943 (district court may strike class allegations at pleading stage when certification is impossible)
- In re St. Jude Med. Inc., 425 F.3d 1116 (Rule 23(b)(2) cohesiveness requirement)
- Transamerica Mortg. Advisors, Inc. v. Lewis, 444 U.S. 11 (no private right of action under certain Investment Advisers Act provisions)
- Ebert v. General Mills, Inc., 823 F.3d 472 (individualized issues defeat Rule 23(b)(2) cohesiveness)
- Avritt v. Reliastar Life Ins., 615 F.3d 1023 (individual determinations on reliance defeat class cohesion)