In Oliver v. Navy Federal Credit Union, decided today, the Fourth Circuit clarified both the procedure and substantive standards that govern when defendants ask a court to deny class certification before discovery.
Oliver was a putative class action challenging Navy Federal’s underwriting process for loan applicants as racially discriminatory. Navy Federal moved to dismiss under Rule 12(b)(6) and to strike class allegations under Rules 12(f) and 23(d)(1)(D). The district court granted the motion to strike, and the Fourth Circuit granted interlocutory review.
Affirming in part and reversing in part, the Fourth Circuit first explained that Navy Federal and the district court had relied upon the wrong provisions of the Rules, explaining instead that Rule 23(c)(1)(A) is the relevant provision, as it allows district court to make class certifications at an “early practicable time.” Rule 12(f), the court held, “simply does not work” as a basis to eliminate class allegations, since there is nothing “impertinent” about class action allegations prior to resolution of a Rule 23 certification motion. Rule 23(d)(1)(D) similarly is not a vehicle for denying class certification–but is rather “an optional housekeeping provision” for modification of pleadings after a court finds class certification inappropriate for some reason. Instead, the court held, “the appropriate procedure for a defendant to challenge class certification—at the pleading stage or any other time—is to make a motion to deny class certification under 23(c)(1)(A), coupled with a motion to strike under 23(d)(1)(D) should the motion to deny class certification be granted.”
As to the standard governing such a motion, the court held, citing Fourth Circuit precedent from 1978, that “a district court may deny class certification before discovery only if the complaint’s class action allegations fail to satisfy the relevant legal standards as a matter of law.” Applying that standard in this case, the court held that the district court properly denied class certification under Rule 23(b)(3), but not under Rule 23(b)(2). The court explained it was “the unusual case” in which the complaint itself showed that (b)(3) certification should be denied, as the lack of predominance and superiority was apparent on the face of the complaint. As to a (b)(2) class, though, the court found sufficient allegations of common questions of law or fact capable of class-wide resolution.
Concurring in part and dissenting in part, Judge Richardson would have relied on Rule 23(d)(1)(D), and held the district court permissibly struck all class allegations as a matter of docket management.
