# U ni te d S ta te s Co ur t of A pp ea ls

For the Eig hth Circu it

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No. 1 1- 12 13

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Ro be rt L. Mc Crar y ; Ken ne th C. Tho m ps on , Trus te e o f th e Ken ne th C. Tho m ps on Liv in g Tru st U/A DTD 3-2 7- 92 ; Ken ne th C. Tho m ps on , As Ben efi ci ary of

th e Ken ne th C. Tho m

ps on IRA

ll ll ll ll ll ll ll ll ll ll l Pla in ti

ff s - Ap pe ll an ts

v.

St ife l, Ni co la us & Co m

pa ny, Inco rp or at ed ; Nei l Ro ll a Harri so n; Ro ge r Co m pt on

ll ll ll ll ll ll ll ll ll ll l Defe nd

an ts - App el le es

__ __ __ __ __ __
App eal fro m

Uni te d S ta te s Di st ric t Co ur t fo r th e Eas te rn Dis tri ct of M is so ur i - St . Lou is

__ __ __ __ __ __

Su bm it te d: Marc h 1 4, 2 01 2
Fil ed : Au gu st 6, 2 01 2

__ __ __ __ __ __

Befo re MELLOY, SMITH, an d S HEPHERD, Circ ui t J ud ge s.

__ __ __ __ __ __

SHEPHERD, Cir cu it Ju dg e.

Ro be rt L. McC rary an d Ken ne th C. Tho m ps on br ou gh t su it as in di vi du al s an d

on be ha lf of a pu ta ti ve cl as s of in ve st or s, al le gi ng th at St ife l, Nico la us & Co

. (St ife l)

an d two of it s em

pl oyees, Neil Harri so n an d Ro ge r C om pt on , vi ol at ed fed eral

se cu rit ie s la w. St ife l an d Co m pt on (Defe nd an t s ) f

i l ed a m ot io n to di sm is s th eco m

pl ai nt fo r fai lu re to st at e a cl ai m un de r Fed eral Ru le of Ci vi l Pro ced ur e 12 (b )(6 )

an d th e Pri va te Secu rit ie s Lit ig at io n Refo rm Act of 19 95 (PSLRA)

, 15 U.S.C. § 78 u4( b)

. The di st ric t co ur t co nc lu de d th at Pl ai nt iff s’ al le ga ti on s fai le d to sa ti sf y th e

req ui rem en ts fo r cl as s act io n cl ai m s un de r Fed eral Ru le of Ci vi l Pro ced ur e 23 (b )(3 )

an d di sm is se d Pl ai nt iff

s’ co m pl ai nt wit h pr ejud ic e. W e affi rm in pa rt, rev ers e in pa rt,

an d re m an d fo r fu rth er p ro ceed in gs

.

I.

St ife l is a br ok erag e an d in ve st m en t ba nk in g fir m he ad qu art ered in St

. Lou is

, Mi ss ou ri. In Octo be r of 20 05

, St ife l hi red Harri so n to wor k as a br ok er in St if e l ’s

br an ch of fic e in Edwar dsvill e, Ill in oi s. St ife l hi red Harri so n al m os t im m ed ia te ly aft er
he was fir ed by A.G. Edwar ds

, an ot he r in ve st m en t fir m in St

. Lou is

, fo r so li ci ti ng an d

ob ta in in g pe rs on al lo an s fro m hi s cl ie nt s. Dur in g hi s ti m e at St ife l, Harri so n en ga ge d

in si m il ar m is co nd uc t an d frau du le nt be ha vi or , a nd St ife l ev en tu al ly fi red Harri so n

in Octo be r of 20 08

. Co m pt on se rv ed a s H a rri so n’s su pe rv is or at th e Edwar ds vi ll e
br an ch off

ic e.

Pl ai nt iff s he ld in ve st m en t acco un ts wit h St ife l’s br an ch of fic e in Edwar ds vi ll e
be twee n 20 06 an d 20 09

. Fo r th e m ajor it y of th at ti m e, Harri so n se rv ed as Pl ai nt iff s’

reg is te red r e p r es en ta ti ve an d m an ag ed th ei r acco un ts

. Afte r Harri so n was fir ed

, Co m pt on to ok ov er th e res po ns ib il it y of man ag in g Pl ai nt iff s’ acco un ts

. Pl ai nt iff

Tho m ps on al le ge s t h a t hi s acco un ts su st ai ne d a di m in ut io n in va lu e of m or e th an $7 50 ,00 0 as a res ul t of “ ch ur ni ng ” an d un au th or iz ed tra di ng by Harri so n an d th at he 1

was ch arg ed $2 50 ,00 0 in ex ces si ve co m m is si on fees by St ife l an d Harri so n. Pl ai nt iff

“ ‘Chu rn in g’ oc cu rs whe n a b r o k e r, di rect in g th e vo lu m e an d freq ue nc y of 1

tra de s, ab us es hi s cu st om er’s co nf id en ce fo r pe rs on al ga in by in it ia ti ng tra ns act io ns th at are ex ces si ve in vi ew of th e ch arac te r of th e acco un t an d th e cu st om er’s
ob jecti ve s as ex pr es se d to th e br ok er.” Da v i s v

. Mer ril l Ly nc h, Pi erce , Fen ne r &
Sm it h, In c., 90 6 F .2d 12 06 , 12 11 n.3 (8t h C ir. 1 99 0)

.

-2

-McC rary al le ge s da m ag es of $4 00 ,00 0 du e to ch ur ni ng an d un au th or iz ed tra di ng pl us

ex ces si ve co m

m is si on fees in th e am ou nt of $ 40 ,00 0.

On A p r i l 7, 20 09

, Tho m

ps on ex ecu te d a su bm is si on ag reem en t in whi ch he

ag reed to be bo un d by th e ru le s an d th e de ci si on s of a Fi na nc ia l In du st ry Reg ul at or y

Aut ho r it y (FINRA) arb it rat io n pa ne l. Tho m ps on su bs eq ue nt ly fil ed an arb it rat io n
cl ai m ag ai ns t St ife l, Harri so n, an d Co m pt on an d se rv ed St ife l wit h th e cl ai m on Ju ne

30

, 20 09

. On Decem

be r 10

, 20 09

, Tho m

ps on pa rticip at ed in a pr e-h eari ng co nf eren ce
wit h t h e s e l ect ed pa ne l of arb it rat or s an d co un se l fo r St ife l. Ove r th e ne xt few

m on th s, Tho m

ps on fil ed va rio us m ot io ns wit h th e a r b i t r at io n pa ne l an d ev en tu al ly

fil ed a m ot io n to ha ve hi s arb it rat io n di sm is se d wit ho ut pr ejud ic e. Thi s m ot io n was
d e ni ed by t he pa ne l. The arb it rat io n pa ne l th en or de red Tho m ps on to co mp l y w i t h

St ife l’s di sc ov ery req ue st s. Afte r Tho m ps on rep eat ed ly fai le d to res po nd to th e

pa ne l’s or de rs , th e pa ne l he ld a he ari ng on Ju ne 28

, 20 10

, an d di sm is se d Tho m ps on ’s

arb it rat io n c la im

wit h p reju di ce.

On Decem

be r 21

, 20 09

, McC rary fil ed an act io n in Mi ss ou ri st at e co ur t ag ai ns t

St ife l al le gi ng vi ol at io ns of Mi ss ou ri se cu rit ie s la w. Befo re St ife l’s rep ly was du e,

McC rary am en de d hi s pe ti ti on to al le ge cl ai m s ag ai ns t St ife l on be ha lf of a pu ta ti ve
cl as s. St ife l su bs eq ue nt ly rem ov ed th e cas e to fed eral co ur t. McC rary th en fil ed an

am en de d co m

pl ai nt

, ad di ng Tho m

ps on as a na m ed pl ai nt iff an d ad di ng Co m pt on an d

Harri so n as de fen da nt s. In th ei r am en de d co m pl ai nt

, Pl ai nt iff

s al le ge d vi ol at io ns of

se ct io ns 10 (b ) an d 20 (a) of th e Secu rit ie s Exc ha ng e Act of 19 34

, 15 U.S.C. §§ 78 j(b)

a nd 78 t(a ), an d vi ol at io ns of Secu rit ie s an d Exc ha ng e Co m m is si on Ru le 10 b- 5

, 17 C.F.R. § 24 0.1 0b -5

. Sp eci fic al ly, Pl ai nt iff s al le ge d th at : (1 ) Harri so n en ga ge d in

ch ur ni ng an d un au th or iz ed tra di ng , in vi ol at io n of se ct io n 10 (b ) an d Ru le 10 b- 5; (2 )

St ife l, Co m

pt on , an d Harri so n m ad e m at eri al m is rep res en ta t io ns an d om is si on s,

in cl ud in g th e rep eat ed fai lu re to di sc lo se th e n a t u re of Harri so n’s te rm in at io n fro m

hi s pr io r em

pl oym en t at A.G. Edwar ds

, in vi ol at io n of se ct io n 10 (b ) an d Ru le 10 b- 5;

an d (3 ) St ife l an d Co m

pt on fai le d to pr op erl y su pe rv is e an d ta ke st ep s to pr ev en t

-3

-Harri so n’s il le ga l tra di ng , m ak in g th em joi nt ly an d se ve ral ly li ab le fo r Harri so n’s

co nd uc t pu rs ua nt to se ct io n 20 (a). P l a i n t i f fs th en req ue st ed th at th e di st ric t co ur t

en joi n St ife l fro m pr oc eed in g wit h th e th en -o ng oi ng arb i t r a t io n in it ia te d by

Tho m ps on

. The co ur t de ni ed th is req ue st aft er ap pl y in g th e fo ur -fac to r te st se t fo rth

in Data ph as e Sy st em s, In c. v. C L Sy st em s, In c., 6 4 0 F

. 2d 10 9 (8 th Ci r. 19 81 ) (en

ba nc ), fin di ng th at Pl ai nt iff s “ fai le d to sh ow th at an y of th es e fact or s weig h in fav or

of gra nt in g t he pre li m in ary in jun ct io n.”

On Ju ne 4, 20 10

, Pl ai nt iff s fil ed a m ot io n se ek in g cl as s cert ifi cat io n an d th e

ap po in tm en t of Tho m

ps on as le ad pl ai nt iff

. On Ju n e 1 1

, 20 10

, Defen da nt s fil ed a

m ot io n to di sm is s Pl ai nt iff s’ co m pl ai nt fo r fai lu re to st at e a cl ai m un de r Fed eral Ru le

o f C i v il Pro ced ur e 12 (b )(6 ). Sh or tl y th erea fte r, Defen da nt s al so req ue st ed th at th e

co ur t de fer it s co ns id erat io n of Pl ai nt iff s’ m ot io n fo r cl as s cert ifi cat io n un ti l aft er th e

co ur t h ad rul ed on Defen da nt s’ m ot io n t o d is m is s.

On Decem

be r 28

, 20 10

, th e di st ric t co ur t gr an te d Defen da nt s’ m ot io n to

di sm is s. The co ur t reci te d th e st an da rd of rev ie w fo r a Ru le 12 (b )(6 ) m ot io n an d th e

req ui rem en ts fo r cl as s- act io n cl ai m s un de r Fed eral Ru le of Ci vi l Pro ced ur e 23

. The

co ur t th en an al y zed Pl ai nt iff s’ ch ur ni ng an d m at eri al m is rep res en ta ti on a l le ga ti on s

an d de te rm in ed th at ne it he r cl ai m sa ti sf ie d th e req ui rem en ts fo r a cl as s act io n un de r

Ru le 23 (b )(3 ) be cau se of th e in di vi du al iz ed na tu re of t h e a l le ga ti on s. The co ur t

2

co nc lu de d by st at in g: “ Hav in g det erm in ed th at pl ai nt iff s’ cl ai m s fail to sa ti sf

y Ru le

23 (b )(3 ), th e Co ur t fin ds it un ne ces sa ry to de te rm in e whe th er th e co m pl ai nt m eet s th e
he ig ht en ed pl ead in g st an da rd of th e PSLRA.” The co ur t di sm is se d Pl ai nt iff s’ en ti re

Ru le 23 (b )(3 ) st at es th at a cl as s acti on m ay be m ai nt ai ne d if “ th e co ur t fi nd s 2

t h a t th e qu es ti on s of la w or fact co m m on to cl as s m em

be rs pr ed om in at e ov er a n y
qu e st io ns affe ct in g on ly in di vi du al m em be rs , an d th at a cl as s act io n is su pe rio r to

ot he r av ai la bl e m et ho ds fo r fai rly an d effi ci en tl y ad jud ic at in g th e co nt ro ve rs y .” Fed

. R. Ci v. P. 2 3( b) (3 ).

-4

-co m

pl ai nt wit h pr e

ju d i c e a n d de ni ed al l pe nd in g m ot io ns as m oo t. Pl ai nt iff s

ap pe al ed

.

II.

Pl ai nt iff s rai se th ree arg um en ts on ap pe al

, co nt en di ng th at : (1 ) th e co ur t fai le d

to en ga ge in th e pr op er an al y si s be fo re di sm is si ng Pl ai nt iff s’ i nd iv id ua l cl ai m s; (2 )

th e co ur t erre d in di sm is si ng Pl ai nt iff s’ cl as s cl ai m s as in su ffi ci en t un de r Ru le 23 ; an d
(3 ) Tho m ps on ’s arb it rat io n was in va li d an d th e di st ric t co ur t ab us ed it s di sc ret io n by

de nyi ng Pl ai nt iff

s’ m ot io n to en

joi n th e arb it rat io n. W e ad dr es s each of th es e

arg um en ts in tu rn

.

A. Plai nt iff s’ Ind iv id ua l Cl ai m s

W e fir st ad dr es s Pl ai nt iff

s’ arg um en t th at th e di st ric t co ur t erre d in di sm is si ng

th ei r in di vi du al cl ai m s. Gen eral ly, th e di st ric t co ur t’s di sm is sa l of a co m pl ai nt un de r

Ru le 12 (b )(6 ) an d th e PSLRA is su bjec t to de no vo rev ie w. See In re NVE Co rp

. Sec.

Lit ig

., 52 7 F.3 d 74 9, 75 1 (8 th Ci r. 20 08 ). On a Ru le 12 ( b ) ( 6 ) mo t i o n to di sm is s

s ecu rit ie s cl ai m s, a di st ric t co ur t m us t rev ie w th e cl ai m s to de te rm in e th ei r

c o mp l i a n c e wit h th e he ig ht en ed pl ead in g st an da rd s of th e PSLRA. See Elam v

. Neid or ff, 54 4 F.3 d 92 1, 92 6- 27 ( 8 t h C i r. 20 08 ). Gen eral ly, th e co ur t m us t acce pt

Pl ai nt iff s’ fact ua l al le ga ti o n s a s tru e an d sh ou ld dr aw al l reas on ab le in fere nc es in

th ei r fav or

. See Lus tg raaf v. Beh ren s, 61 9 F.3 d 86 7, 87 2- 73 (8 th Ci r. 2 0 1 0 )

. F or
cl ai m s wit h a sc ie nt er co m po ne nt

, whi ch in cl ud es cl ai m s un de r Ru le 10 b- 5, th e

al le ga ti on s s ho ul d g iv e ri se to m or e th an jus t a pl au si bl e or reas on ab le in fere nc e o f

s c i e n te r. Elam

, 54 4 F.3 d at 92 8; 15 U.S.C. § 78 u- 4( b) (2 )(A) (req ui rin g cl ai ms t o

“ st at e wit h pa rti cu la rit y fact s gi vi ng ris e to a st ro ng in fere nc e th at th e de fen da nt act ed

wit h th e req ui red st at e of m in d” ). Fo r m at eri al m is rep res en ta ti on an d om is si on
cl ai m s, th e co ur t mu s t a l s o de te rm in e whe th er th e cl ai m s “ sp eci fy each st at em en t

-5

-al le ge d to ha ve be en m is le ad in g [ a n d ] th e reas on or reas on s why th e st at em en t is

m is le ad in g.” 15 U.S.C. § 7 8u -4 (b )(1 ).

Pl ai nt iff s arg ue th at t h e di st ric t co ur t fai le d to fo ll ow th is an al y si s an d

erro ne ou sl y us ed th e cri te ria fo r cl as s cert ifi cat io n to di sm is s no t on ly Pl ai nt iff s’ cl as s
cl ai m s, bu t th ei r in di vi du al cl ai m s as well

. Pl ai nt iff s po in t ou t th at th e di st ric t co ur t

on ly an al y zed th e co m

pl ai nt un de r Ru le 23 an d e x p r e s s l y de cl in ed to ad dr es s th e

su ffi ci en cy of th e al le ga ti on s un de r th e P S LR A

. Pl ai nt iff s co nt en d th at th e di st ric t

co ur t co ul d no t di sm is s th ei r in di vi du al cl ai m s wit ho ut fir st rev ie win g th e su bs ta nc e

of th os e cl ai m s un de r th e P S LR A

. W e ag ree. The di st ric t co ur t reci te d th e co rrec t

st an da rd of rev ie w for a Ru le 12 (b )(6 ) m ot io n at th e ou ts et of it s or de r; ho wev er, it

fai le d to en ga ge in th e req ui si te an al y si s. In de ed

, th e co ur t ex pr es sl y st at ed th at it

fo un d it “ un ne ces sa ry to de te rm in e whe th er th e co m p l ai nt m eet s th e he ig ht en ed
pl ead in g s t an da rd of th e PSLRA,” al th ou gh a Ru le 12 (b )(6 ) m ot io n to di sm is s

in di vi dual se cu rit ie s cl ai m s req ui res th e co ur t to m ak e th at pr eci se de te rm in at io n. See

Tell ab s, In c. v. Mak o r I s s u e s & Ri gh ts

, Ltd

., 55 1 U.S. 30 8, 32 1 (2 00 7) ; Lus tg raaf

, 61 9 F .3d at 8 73

.

Defen da nt s m ak e se ve ral arg um en ts in de fen se of th e di st ric t co ur t’s de ci si on

. Fi rs t, th ey rel y on Ro we v. Mo rg an S t a n l e y Dean W it te r, 19 1 F.R.D. 39 8 (D.N.J.

19 99 ) an d M o s care ll i v. St am m , 2 88 F. Su pp . 4 53 (E.D.N.Y. 19 68 ), to arg ue th at a

co ur t m ay di sm is s se cu rit ie s frau d al le ga ti on s si m il ar to th e on es in th is cas e whe n th e
cl ai m s do no t sa ti sf

y Ru le 23

. In Ro we, th e co ur t fo un d th at th e pl ai nt iff s’ ch ur ni ng
cl ai m s r es te d “ pr ed om in at el y on in di vi du al is su es of fact

, rat he r th an co m m on

qu e s t i o n s , ” an d co ul d no t sa ti sf y Ru le 23 (b )(3 ). 19 1 F.R.D. at 41 0. Howev er, th e

co ur t in Ro we di sm is se d on ly th e cl as s act io n al le ga ti on s of th e c o mp l a i n t whi le

“ st ay [in g] th e in di vi du al cl ai m s of th e Pl ai nt iff s

. . . pe nd in g th e o u t co m e of

arb it rat io n.” Id

. at 41 9. Si m il arl y , in Mo sc arel li

, th e co ur t fo un d se cu rit ie s frau d an d

ch ur ni ng cl ai m s to be d efi ci en t un de r Ru le 23 an d ul ti m at el y gr an te d a m ot io n “ to

di sm is s th e act io n as a cla ss su it .” 28 8 F. Su pp

. at 46 3 (em ph as is ad de d)

. See als o

-6

-So ut er v. Tatr o, No. 03 -CV-6 14 1, 20 04 W L 15 74 56 2, at * 9 ( W.D.N.Y. Ju ne 21

,

20 04 ) ( “Pl a in ti ffs ’ pr op os ed cl as s act io n cl ai m s are di sm is se d, an d th is act io n is

st ay ed pe nd in g arb it rat io n of pl ai nt iff s’ rem ai ni ng cla im s.”) . Rowe a nd Mo sc arel li

de m on st rat e th at fai lu re to sa ti sf y Ru le 23 is gr ou nd s to di sm is s clai m s on be ha lf of

a cl as s. Howev er, th es e cas es do no t s u p p o r t th e pr op os it io n th at fai lu re to sa ti sf y

Ru le 23 au to m at ic al ly al lo ws fo r th e di sm is sa l of in di vi du al cl ai m s. To th e co nt rary,
cl ai m s th at do no t m eet th e req ui red cri te ria fo r a cl as s act io n m ay st il l be m eri to rio us

if br ou gh t in an in di vi du al cap aci ty. See In re “ Age nt Oran ge ” Pro d. Liab

. Lit ig

., 81 8

F.2 d 19 4, 19 7 (2 d Ci r. 19 87 ) (“ The de ni al of cl as s cer t i f i c a t i o n do es no t pr ecl ud e

in di vi du al pl ai nt iff

s pr op erl y be fo re th e co ur t fro m pr es si ng th ei r own cl ai m s.”)

. Thi s
is bo rn e ou t by th e de ci si on s in bo th Ro we an d Mo sc arel li

, whe re th e co ur ts to ok care

to di st in gu is h t he ir t reat m en t o f th e cl as s cl ai m s an d t he in di vi du al cla im s.

At or al arg um en t, Defen da nt s su gg es te d th at th e di st ric t co ur t di sm is se d th e

co m pl ai nt be cau se it di d no t co nt ai n an y in di vi du al cl ai m s. Defen da nt s al so po si te d

th at th e co ur t di d no t in te nd to di sm is s Pl ai nt iff s’ in di vi du al cl ai m s wit h pr ejud ic e
be cau se “ th e o rd er i s v ery cl ear i n t ha t i t o nl y ad dr es se s t he cla ss act io n a ll eg at io ns

an d t h e v i a b i l i ty of an y in di vi du al cl ai m s [is ] no t ad dr es se d in th [e] or de r.”

Defen da nt s su gg es te d th at McC rary co ul d st il l fil e a de mand to arb it rat e hi s

in di vi du al cl ai m s. Howev er, Defen da nt s wou ld no t who ll y co m m it to th e po si ti on

th at th e di st ric t co ur t’s or de r wou ld ha ve no res ju d i c a t a effe ct on McC rary’ s

in di vi du al cl ai m s, in st ead arg ui ng th at an y res jud ic at a effe ct ou gh t to be de te rm in ed
by an arb it rat io n p an el

.

Afte r care fu ll y rev ie win g Pl ai nt iff s’ co m p l a i nt an d th e di st ric t co ur t’s or de r,

we reject D e f

e n d an ts ’ arg um en ts

. The co m pl ai nt , wh il e pe rh ap s in art fu ll y dr aft ed

, di st in ct ly m ak es ou t in di vi du al cl ai m s on be ha lf of bo th Tho m p s o n an d McC rary.
The co mp l a i n t st at es th at th e ch ur ni ng , m is rep res en ta ti on , an d co nt ro l li ab il it y
al le ga ti on s are br ou gh t by “ Tho m ps on , McC rary, an d ot he r cl as s m em be rs ”; pr ov id es

th e am ou nt of da m ag es al le ge dl y su ffer ed by Tho m ps on an d McC rary in di vi du al ly;

-7

-an d hi gh li gh ts th e al le ge dl y il le ga l tra di ng a c t i vi ty in Tho m ps on an d McC rary’ s

acco un ts

. At va rio us p o i n ts

, th e co m pl ai nt al so di sc us se s m is rep res en ta ti on s an d

om is si on s m ad e sp eci fic al ly to McC rary or Tho m ps on

. It is cl ear th at th e co m pl ai nt

as se rts bo th cl as s cl ai m s an d in di vi du al cl ai m s. The di st ric t co ur t di sm is se d th e en ti re

co m pl ai nt wit h pr ej ud ic e an d dr ew no di st in ct io n be twee n Pl ai nt iff s’ in di vi du al

cl ai m s an d th e cl as s cl ai m s. W he th er th e di st ric t co ur t in te nd ed to or no t, it di sm is se d

Pl ai nt iff s’ in di vi du al cl ai m s wit h pr ejud ic e in it s or de r. W e ack no wled ge th at

Pl ai nt iff s co ul d ha ve br ou gh t th e erro r to th e di st ric t co ur t’s at te nt i o n in a po st

jud gm en t m ot io n, whi ch wou ld ha ve li ke ly res ol ve d th e is su e m or e ex pe di t i o u s ly.

Nev ert he le ss , we fin d th at th e di st ric t co ur t erre d in di sm is si ng Pl ai nt iff s’ in di vi du al

se cu rit ie s frau d cl ai m s wit ho ut ei th er st ay in g th e cl ai m s pe n d i n g arb it rat io n or

un de rta ki ng an an al y si s o f th e cl ai m s u nd er t he PSLRA.

Fi na ll y , Defen da nt s arg ue th at an y erro r by th e di st ric t co ur t was ha rm le ss
be cau se : “ Alt ho ug h no t ru le d up on by th e di st ric t co ur t, th e Co m pl ai nt fai ls to co m

pl y
wit h th e he ig ht en ed pl ead in g st an da rd s of the PSLRA, as it fai ls to pl ead a m at eri al

m is rep res en ta ti on or om is si on in co nn ect io n wit h th e pu rch as e or a sa le of se cu rit y ,

an d do es no t ad eq ua te ly pl ead a st ro ng in fere nc e of sc ie n t e r

. ” D e fen da nt s wou ld

ha ve th is co ur t rev i e w Pl ai nt iff s’ c om pl ai nt us in g th e pr op er st an da rd an d fin d th at

th e di sm is sa l of Pl ai nt iff

s’ in di vi du al cla im s was ul ti m at el y jus ti fie d. It is tru e th at

“ [w]e m ay affi rm th e di st ric t co ur t on an y ba si s th at is s u pp or te d by th e reco rd ,”

Dick en v. Ash cro ft, 97 2 F.2 d 23 1, 23 3 (8 th Ci r. 19 92 ). Howev er, whe re th e di st ric t

co ur t ha s erre d pr oc ed ur al ly an d fai le d to de ci de th e di sp os it iv e is su es pr es en te d by

a m ot io n to di sm is s, th is co ur t ha s th e di sc ret io n to rem an d or de ci de th e is su es

. See

Si ng le to n v. W ul ff, 42 8 U.S. 10 6, 12 1 (1 97 6) (“ The m at te r of wha t qu es ti on s m ay be

ta ke n up an d res ol ve d fo r th e fir st ti m e on ap pe al is on e le ft pr im ari ly to th e di sc ret io n

of th e co ur ts of ap pe al s, to be ex erci se d on th e fact s of in di vi du al cas es .”). Giv en th e

co m pl ex pr oc ed ur al hi st or y of th is cas e, we rem an d Pl ai nt iff s’ in di vi du al cl ai m s fo r

th e di st ric t co ur t’s reco ns id erat io n. The di st ric t co ur t is be tt er pl aced to de te rm in e th e

fat e of Tho m

ps on ’s in di vi du al cl ai m s no w th at hi s arb it rat io n ha s be en di sm is se d, an d

-8

-to de te rm in e whe th er McC rary’ s in di vi du al cl ai m s sh ou ld pro ceed in fed eral co ur t,

be di sm is se d wit h or wit ho ut pr ejud ic e, or be st ay ed pe nd in g arb it rat io n. We 3

th eref or e rev ers e th e di st ric t co ur t’s or de r wit h res pe ct to Pl ai nt iff s’ in di vi du al cl ai m s

an d re m an d t he se cla im s fo r fu rth er co ns id erat io n.

B. Pl ai nt iff

s’ Cla ss Cla im s

Pl ai nt iff s arg ue th at th e co ur t al so erre d in fin di ng Pl ai nt iff s’ cl ai m s in el ig ib le

fo r cl as s trea tm en t. Plai nt iff s ass ert th at th e is su e of cl as s cert ifi cat io n m ay on ly be

ad dr es se d aft e r a R u l e 12 (b )(6 ) an al y si s of Pl ai nt iff s’ in di vi du al cl ai m s oc cu rs

. Howev er, Pl ai nt iff

s ci te no au th or it y fo r th is pr op os it io n, an d we c an no t fin d an y

au th or it y th at req ui res a co ur t to an al y ze th e ap pr op ria te ne ss of cl as s tre at m en t on ly

aft er t he m eri ts of t he in di vi du al cla im s h av e b een ex am in ed

.

As di sc us se d ab ov e, cl as s cl ai m s th at fai l to m eet th e req ui rem en ts of Ru le 23

m ay be pr op erl y di sm is se d by gr an ti n g a R ul e 12 (b )(6 ) m ot io n. The co ur t di d no t

pe rfo rm th e pr op er an al y si s un de r th e PSLRA fo r Pl ai nt iff s’ in di vi du al cl ai m s, bu t it

fo un d th at th e in di vi du al iz ed n a t u r e of th e ch ur ni ng , un au th or iz ed tra di ng , an d

m is rep res en ta ti on cl ai m s ren de red Pl ai nt if f s ’ c la ss cl ai m s in su ffi ci en t un de r Ru le

23 (b )(3 ). W e ag ree wit h th is co nc lu si on

. Fi rs t, a ch ur ni ng cl ai m req ui res th e pl ai nt iff

to sh ow “ th at th e tra di ng in hi s a c c o un t was ex ces si ve in li gh t of hi s in ve st m en t

ob jecti ve s” an d t ha t “ th e b ro ke r act ed wit h . . . th e wil fu l and reck le ss di sr eg ard fo r

th e in te res ts of hi s cl ie nt .” Mi ha ra v. Dean W it te r & Co

., 61 9 F.2 d 81 4, 82 1 (9 th Ci r.

At or a l arg um en t, bo th McC rary an d Defen da nt s ag reed th at McC rary’ s 3

ag reem en t wit h St ife l co nt ai ne d an arb it rat io n cl au se

. The pa rti es di sa gr eed

, ho wev er, as to whe th er Defen da nt s ha d so ug ht to co m pe l arb it rat io n. The on ly pl ace th is is su e is ad dr es se d in th e reco rd is in Defen da nt s’ m ot io n to di sm is s, whi ch no te s th at “ th e cl ai ms are ap pr op ria te ly in arb it rat io n or sh ou ld be or de red to pr oc eed in
arb it rat io n.” Acco rd in gl y , we le av e th is is su e fo r th e di st ric t co ur t to res ol ve on

rem an d.

-9

-1980 ). Pl ai nti ff s’ co m pl ai nt al le ge s th at Defen da nt s’ tra di ng act iv it ie s were ex ce ssi ve

in li gh t of Tho m

ps on ’s ag e an d in li gh t of McC rary’ s job lo ss es an d de si re to pa y fo r

hi s so n’s co ll eg e ed uc at io n. The se are hi gh ly in di vi du al iz ed cl ai m s th at do no t sa ti sf y
th e un ifo rm it y req ui rem en ts of Ru le 23 (b )(3 ). Seco nd

, un au th or iz ed tra di ng cl ai m s

req ui re a sh owi ng t h a t t he tra de s were in fact un au th or iz ed an d th at Defen da nt s

po ss es se d th e req ui si te sc ie nt er for each tra ns act io n. See Ro we, 19 1 F.R.D. at 41 4-

15

. Thi s sh owi ng is di ffi cu lt to m ak e wit ho ut rel y in g on hi gh ly in di vi du al iz ed fact s,

an d Pl ai nt iff

s’ cl ai m s, wit h t h e i r fo cu s on th e tra di ng act iv it y in Tho m ps on an d

McC rary’ s in di vi du al acco un ts

, do no t sa ti sf y Ru le 23 (b )(3 )’s cri te ria fo r cl as s act io n
cl ai ms

. F i n a ll y , th e co m pl ai nt do es no t su ffi ci en tl y al le ge m at eri al ly un ifo rm

m is rep res en ta ti on s an d om is si on s th at were m ad e to al l memb ers of th e cl as s.

In st ead

, th e co m

pl ai nt fo cu se s on om is si on s an d m is rep res en ta ti on s th at were m ad e

to Tho m ps on an d McC rary an d th ei r in di vi du al rel ia nc e on th os e m is rep res en ta ti on s.

Fo r th e s e r e a s o n s , t he di st ric t co ur t co rrec tl y de te rm in ed th at th e co m pl ai nt fai ls to

st at e vi ab le cl as s cl ai m s un de r Ru le 23

. W e th eref or e affi rm th e di st ric t co ur t’s or de r

as it ap pl ie s t o P la in ti ffs ’ cl as s cl ai m s.

C. Tho m ps on ’s Arbi tra ti on

P la in ti ffs ’ br ie f rai se s a ho st of ch al le ng es to Tho m ps on ’s arb it rat io n. Fi rs t

, P l a i n t iff s arg ue th at Defen da nt s waiv ed th ei r rig ht to arb it rat e Tho m ps on ’s d is pu t e
be cau se of t he ir “ su bs ta nt ia l p art ic ip at io n” in th is li ti ga ti on . Usu al ly, “ [w]e revi ew
de no vo th e le ga l de te rm in at io n of waiv er bu t ex am in e th e fact ua l fin di ng s un de rlyin g

th at ru li ng fo r cl ear erro r.” Lewal le n v. Green Tree Serv ic in g, L.L.C., 48 7 F.3 d 10 85

, 10 90 (8 th Ci r. 20 07 ). Howev er, as Defen da nt s co rrec tl y po in t ou t, th e di st ric t co ur t

ne ve r ad dr es se d whe th er Defen da nt s waiv ed th ei r rig ht to arb it rat e be cau se it

di sm is se d Pl ai nt iff

s’ cl ai m s on ot he r gr ou nd s. “ It wou ld

. . . be in ap pr op ria te fo r us

to ex am in e th e is su e of waiv er, whi ch req ui res fact ua l fin di ng s, whe n th e di st ric t

co ur t di d no t m ak e su ch f i n d i n g s be cau se it di d no t reac h th e qu es ti on .” Ban k of

Am

., N.A. v. UMB Fi n. Serv s., 6 1 8 F

. 3 d 9 0 6

, 91 4 (8 th Ci r. 20 10 ). W e th eref or e

-1 0-le av e th is is s u e f or th e di st ric t co ur t to res ol ve whe n it reco ns id ers Tho m ps on ’s

in di vi du al cla im s o n re m an d.

Pl ai nt iff s al so arg ue t ha t FINRA was au to m at ic al ly di ve st ed of juri sd ic ti on

ov er Tho m

ps on ’s cl a i m on ce McC rary fil ed su it on be ha lf of a pu ta ti ve cl as s.

Pl ai nt iff s rel y on th e FINRA Co de of Arb it rat io n Pro ced ur e (Cu st om er Co de ),

sp eci fic al ly Ru le 12 20 4( d)

, whi ch pr oh ib it s en fo rcem en t of an arb it rat io n ag reem en t

ag ai ns t a m em

be r of a cer ti fie d o r pu ta ti ve cla ss act io n u nt il th e cl as s i s ce rti fie d o r
de cert ifi ed

, or un ti l th e m em be r is ex cl ud ed or wit hd raws fro m th e cl as s. Aga in

, th is

is su e was no t d eci de d b y

th e d is tri ct co ur t, an d we t he refo re d ecl in e to ad dr es s i t.

Fi na ll y , Pl ai nt iff

s arg ue th at th e di st ric t co ur t ab us ed it s di sc ret io n by de nyin g

Pl ai nt iff s’ req ue st to en

joi n Tho m

ps on ’s a r b i t r at io n. “ W e rev ie w th e de ni al of a

pr el im in ary in

jun ct io n fo r ab us e of di sc ret io n.” Ro ud ach ev sk i v. All -Am

. Care

Cn trs

., In c., 64 8 F.3 d 70 1, 70 5- 06 (8 th Ci r. 20 11 ). “An a b u s e of di sc ret io n oc cu rs
whe re th e di st ric t co ur t res ts it s co nc lu si on on cle arl y erro ne ou s fa ct ua l fin di ng s or

erro ne ou s le ga l co nc lu si on s.” Lan kf or d v. Sh erm an , 45 1 F.3 d 49 6, 50 3- 04 (8 th Ci r.

20 06 ). In i ts ord er de nyin g pr el im in ary in jun ct iv e rel ie f, th e di st ric t co ur t pr op erl y

ap pl ie d th e fo ur -p art Data ph as e te st

, whi ch weig hs “ (1 ) th e th reat of irr ep arab le ha rm

to th e m ov an t; (2 ) th e s t a t e o f t he ba la nc e be twee n th is ha rm an d th e in jury th at

gr an ti ng th e in

jun ct io n wil l in fli ct on ot he r pa rti es li ti ga nt ; (3 ) t h e p ro ba bi li ty th at

m ov an t wil l su ccee d on th e m eri ts ; an d (4 ) th e pu bl ic in te res t.” Data ph as e, 64 0 F.2 d

at 11 3. As th e d i s t r i ct co ur t no te d, “ [o ]the r th an a co nc lu so ry st at em en t th at

Tho m ps on wou ld su ffer irr ep arab le ha rm , pl ai nt iff s o m it [te d] an y

di sc us si on of t he

rel ev an t Data ph as e fact or s.” The co ur t al so ob se rv ed th at “ pl ai nt iff s

. . . fai le d to

pr ov id e an y le ga l su pp or t fo r th ei r req ue st to st ay th e a r b i t rat io n in li gh t of

Tho m ps on ’s ag reem en t to be bo u n d b y th e pa ne l’s de ci si on .” Und er th e
ci rcu m st an ces , we can no t say th at th e di st ric t cou rt abu se d it s d is cret io n in de nyin g

Pl ai nt iff s’ req ue st for an in

jun ct io n.

-1 1-III.

W e affi rm th e di st ric t co ur t’s refu sa l to en joi n Tho m

ps on ’s arb it rat io n an d th e
di sm is sa l of Pl ai nt iff

s’ cl ai m s on be ha lf of a pu ta ti ve cl as s. W e rev ers e th e di sm is sa l

of Pl ai nt iff

s’ in di vi du al cl ai m s. The cas e is rem an de d to th e di st ric t co ur t fo r fu rth er
di sp os it io n a cco rd in g t o t he ter m s s et for th he rei n.

__ __ __ __ __ __ __ __ __ __ __ __ __ __ __

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