Court Opinion

ID: 4692476
Source: CourtListenerOpinion
Date Created: 2021-06-03 15:04:35.712148+00
Date Added: 2024-06-11T08:05:16.541239
License: Public Domain

United States Court of Appeals
                        For the Eighth Circuit
                    ___________________________

                            No. 19-3691
                    ___________________________

Mark Donelson, individually and on behalf of all others similarly situated

                                  Plaintiff - Appellee

                                    v.

                   Ameriprise Financial Services, Inc.

                                Defendant - Appellant

                             Mark J. Sachse

                                         Defendant

James Cracchiolo; Kelli Hunter Petruzillo; Neal Maglaque; Patrick Hugh
                              O’Connell

                             Defendants - Appellants
                    ___________________________

                            No. 19-3693
                    ___________________________

Mark Donelson, individually and on behalf of all others similarly situated

                                  Plaintiff - Appellee

                                    v.

                   Ameriprise Financial Services, Inc.

                                         Defendant
                                  Mark J. Sachse

                                     Defendant - Appellant

     James Cracchiolo; Kelli Hunter Petruzillo; Neal Maglaque; Patrick Hugh
                                   O’Connell

                                         Defendants
                                  ____________

                     Appeal from United States District Court
                for the Western District of Missouri - Kansas City
                                 ____________

                           Submitted: January 13, 2021
                              Filed: June 3, 2021
                                 ____________

Before GRUENDER, BENTON, and STRAS, Circuit Judges.
                          ____________

GRUENDER, Circuit Judge.

       Plaintiff Mark Donelson filed suit against Defendants Mark Sachse,
Ameriprise Financial Services, Inc., and individual Ameriprise officers (collectively
“Defendants”), alleging violations of federal securities law. He also sought to
represent other Sachse and Ameriprise clients in a class action. Defendants moved
to strike Donelson’s class-action allegations and to compel arbitration. The district
court denied these motions. Defendants appeal. We reverse and remand for entry
of an order striking Donelson’s class-action allegations and compelling arbitration.

                                         -2-
                                            I.

       According to his first amended complaint,1 Donelson is a high school graduate
with no training in trading securities. Donelson had an investment account with
Robert W. Baird & Co. in 2008. In 2008, Sachse, who worked for Baird, contacted
Donelson and told him that Sachse had heard that Donelson was adept at trading
options. Sachse told Donelson that he was a former attorney who had stopped
practicing law because he no longer enjoyed it. Unbeknownst to Donelson, Sachse
had been disbarred by the Kansas Supreme Court in 2007 after multiple former
clients filed ethics complaints.

       In 2010, Sachse stopped working at Baird and became a broker and
investment advisor at Ameriprise. At Sachse’s invitation, Donelson then moved his
investment account from Baird to Ameriprise. In the process of doing so, Donelson
and Sachse met at a restaurant so that Donelson could sign the papers needed to open
his new Ameriprise account. At the restaurant, Sachse had a copy of the Account
Application, which he filled out himself, checking each box that, according to him,
required checking. Donelson instructed Sachse that under no circumstances was he
to trade on margin any securities in or for the account. Nevertheless, Sachse checked
a box in the Account Application that authorized margin borrowing. Sachse told
Donelson he checked the box as a formality and assured Donelson that he would not
trade any securities on margin. Donelson signed the Account Application as Sachse
instructed, without reading it.

      The Account Application included a recitation that stated:

      You acknowledge that you have received and read the Agreement and
      agree to abide by the terms and conditions as currently in effect or as
      they may be amended from time to time. You hereby consent to all
      these terms and conditions with full knowledge and understanding of
      the information contained in the Agreement. This account is governed
      by a predispute arbitration clause which is found in Section 26, Page 3
      1
          For the purposes of this opinion, we accept Donelson’s allegations as true.

                                           -3-
      of the Agreement.       You acknowledge receipt of the predispute
      arbitration clause.

The Account Application defined “Agreement” as “the Ameriprise Brokerage Client
Agreement for Non-Qualified Accounts” (“Client Agreement”), which included an
arbitration clause. That arbitration clause provided for arbitration of “ALL
CONTROVERSIES THAT MAY ARISE BETWEEN US . . . , WHETHER
ARISING BEFORE, ON OR AFTER THE DATE THIS ACCOUNT IS OPENED,”
except for “PUTATIVE OR CERTIFIED CLASS ACTION[S].”

       After Donelson signed the Account Application, Sachse badly mishandled
Donelson’s investment account by, among other things, misrepresenting the account
value, trading on margin when expressly instructed not to, and misrepresenting
reparations Ameriprise would make for problems with Donelson’s account. In
response, Donelson filed suit against Defendants, bringing three counts against
them. In Count I, Donelson asserted violations of § 10(b) of the Securities Exchange
Act of 1934, 15 U.S.C. § 78j(b), and related Securities and Exchange Commission
Rules 10b-5(a) and (c), see 17 C.F.R. § 240.10b-5. In Count II, he asserted
violations of § 20(a) of the Securities Exchange Act. See 15 U.S.C. § 78t(a). And
in Count III, he asserted breach of fiduciary duty under § 206 of the Investment
Advisors Act. See 15 U.S.C. § 80b-6. Alleging that other Sachse clients
experienced similar improprieties, Donelson sought to represent them in a class
action.

       Defendants moved to strike Donelson’s class-action allegations and to compel
arbitration. The district court denied these motions. Defendants appeal, challenging
the district court’s denials. In Section II, we consider whether we have jurisdiction.
In Section III, we determine whether Defendants waived their right to arbitrate. In
Section IV, we address whether the district court or the arbitrator should have
decided arbitrability. And in Section V, we address whether a valid arbitration
clause exists and whether it encompasses the dispute between the parties.
Ultimately, we reverse the district court’s denial of Defendants’ motions to strike

                                         -4-
the class-action allegations and to compel arbitration, and we remand for entry of an
order striking the class-action allegations and compelling arbitration.

                                           II.

       First, we address Donelson’s arguments that either we do not have jurisdiction
to hear this appeal or, alternatively, at a minimum, we lack jurisdiction over the
denial of the motions to strike the class-action allegations. See, e.g., Anderson ex
rel. Anderson v. City of Minneapolis, 934 F.3d 876, 880 (8th Cir. 2019) (“Before
reaching the merits of the dispute, we begin with jurisdiction, which is always our
first and fundamental question.” (brackets and internal quotation marks omitted)).
Neither argument has merit.

       First, the Federal Arbitration Act (“FAA”) gives us jurisdiction to review the
denial of the motions to compel arbitration. Section 16 of the FAA provides that
“[a]n appeal may be taken from . . . an order . . . denying a petition under section 4
of [the FAA] to order arbitration to proceed.” 9 U.S.C. § 16(a)(1)(B). Here,
Defendants invoked § 4 of the FAA in their motions to strike the class-action
allegations and to compel arbitration. See id. § 4 (permitting a “party aggrieved by
the alleged failure . . . of another to arbitrate under a written agreement for
arbitration” to “petition any United States district court . . . for an order directing
that such arbitration proceed in the manner provided for in such agreement”). The
district court denied these petitions in its order denying Defendants’ motions to strike
and to compel arbitration. Therefore, we have jurisdiction to hear an appeal of this
denial.

        Donelson claims that the district court’s order denying Defendants’ motions
to strike class-action allegations and to compel arbitration was not an order denying
a petition under § 4 because the district court did not hold the trial required by that
section. Section 4 states: “If the making of the arbitration agreement . . . be in issue,
the court shall proceed summarily to the trial thereof.” However, the fact that the

                                          -5-
district court did not hold a trial does not mean that the district court did not deny a
petition under § 4 and does not preclude appellate jurisdiction.

       Donelson also argues that even if we have jurisdiction to review the district
court’s denial of the motions to compel arbitration, we do not have jurisdiction to
review the district court’s denial of the motions to strike the class-action allegations.
We disagree. Under § 4, which permits an appeal to be taken from an “order,” we
have jurisdiction to review the entire order. See Yamaha Motor Corp., U.S.A. v.
Calhoun, 516 U.S. 199, 205 (1996) (holding that 28 U.S.C. § 1292(b)’s grant of
appellate jurisdiction over certain interlocutory orders permitted the appellate court
to review “any issue fairly included within the certified order because it is the order
that is appealable” (internal quotation marks omitted)). Here, § 16 of the FAA
provides for the appeal of “order[s].” 9 U.S.C. § 16(a)(1). Thus, we have appellate
jurisdiction to review the district court’s denial of Defendants’ motions to strike
class-action allegations because this denial was contained in an order reviewable
under 9 U.S.C. § 16(a)(1)(B).

                                          III.

        Next, we consider Donelson’s claim that Defendants waived their right to
arbitrate by moving to strike his class-action allegations at the same time they moved
to compel arbitration. “The issue of waiver of arbitration is one of law and subject
to de novo review.” Dumont v. Saskatchewan Gov’t Ins., 258 F.3d 880, 886 (8th
Cir. 2001). “A party may be found to have waived its right to arbitration if it:
(1) knew of an existing right to arbitration; (2) acted inconsistently with that right;
and (3) prejudiced the other party by these inconsistent acts.” Lewallen v. Green
Tree Servicing, L.L.C., 487 F.3d 1085, 1090 (8th Cir. 2007) (internal quotation
marks omitted). But “[i]n light of the strong federal policy in favor of arbitration,
any doubts concerning waiver of arbitrability should be resolved in favor of
arbitration.” Id. Here, there is no dispute that Defendants knew of an existing right
to arbitration. Therefore, we consider whether Defendants acted inconsistently with
their right to arbitrate and prejudiced Donelson by their inconsistent acts.

                                          -6-
        Donelson fails to show that Defendants acted inconsistently with their right to
arbitrate. “A party acts inconsistently with its right to arbitrate if the party
substantially invokes the litigation machinery before asserting its arbitration right.”
Id. (brackets and internal quotation marks omitted). “A party substantially invokes
the litigation machinery when, for example, it files a lawsuit on arbitrable claims,
engages in extensive discovery, or fails to move to compel arbitration and stay
litigation in a timely manner.” Id. “[R]equest[ing] [that a court] dispose of a case
on the merits before reaching arbitration is inconsistent with resolving the case
through arbitration” and also counts as substantially invoking the litigation
machinery. Hooper v. Advance Am., Cash Advance Ctrs. of Mo., Inc., 589 F.3d 917,
921 (8th Cir. 2009) (holding that moving to dismiss for failure to state a claim three
months prior to moving to arbitrate “substantially invoked the litigation
machinery”).

       Donelson argues that Defendants substantially invoked the litigation
machinery by filing motions to strike his class-action allegations in his first amended
complaint at the same time they moved to compel arbitration, which Donelson
contends counts as requesting disposition on the merits. Donelson is mistaken. The
motions to strike Donelson’s class-action allegations did not request a decision on
the merits. They only requested that the district court rule that Donelson’s claims
were individual and could not be class claims under Federal Rule of Civil Procedure
23 so that the court could compel arbitration under the terms of the Client
Agreement. A motion to strike class-action allegations (without an accompanying
motion to dismiss the underlying individual allegations) is not a request for the court
to dispose of the case “on the merits.” See Black’s Law Dictionary (11th ed. 2019)
(defining “judgment on the merits” as “[a] judgment based on the evidence rather
than on technical or procedural grounds”); see also Dumont, 258 F.3d at 886-87
(holding that a party’s motion to dismiss based on jurisdictional or quasi-
jurisdictional grounds, which included a statement that it would seek to compel
arbitration, was not inconsistent with a known right to compel arbitration). This is
especially the case here, where the purpose of moving to strike was so that the district

                                          -7-
court could compel arbitration under the terms of the Client Agreement. See Morgan
v. Sundance, 992 F.3d 711, 714 (8th Cir. 2021) (holding that, when a party makes
efforts to avoid invoking the litigation machinery, this weighs in favor of finding
that the party did not act inconsistently with its right to arbitrate).

       Defendants did not substantially invoke the litigation machinery by moving
to strike Donelson’s class-action allegations. Therefore, they have not acted
inconsistently with their right to arbitrate, meaning they have not waived this right.

        Thus, we have jurisdiction to hear this case, and Defendants have not waived
their right to arbitrate.

                                         IV.

       Next, we turn to the merits of Defendants’ appeal. We begin by addressing
Defendants’ argument that, under Prima Paint Corp. v. Flood & Conklin
Manufacturing Co., 388 U.S. 395 (1967), the district court erred by determining the
enforceability of the contract containing the arbitration clause because an arbitrator
should have made that determination. Ordinarily, we review de novo whether the
district court or the arbitrator should have determined arbitrability. See Fallo v.
High-Tech Inst., 559 F.3d 874, 877 (8th Cir. 2009). As Donelson points out,
however, Defendants forfeited the Prima Paint argument by not raising it in the
district court. Therefore, we review this issue for plain error at most. See Plummer
v. McSweeney, 941 F.3d 341, 345 (8th Cir. 2019) (holding that the argument that an
arbitrator rather than a court should have decided a matter relating to contract
enforceability was “an entirely new issue” on appeal rather than “merely a new
argument” and therefore was reviewed, at most, for plain error when it was not made
in the district court). Defendants cannot satisfy the plain-error standard because “the
requirement to proceed in a federal court can hardly be considered a miscarriage of
justice necessitating plain-error relief.” Id. (internal quotation marks omitted).
Thus, the district court’s determination of arbitrability does not require reversal
under plain-error review.

                                         -8-
                                         V.

       Next, we consider Defendants’ claim that the district court erred in denying
their motions to compel arbitration. The district court denied the motion to compel
arbitration because it found that there was no valid arbitration clause between the
parties due to the absence of mutual agreement and lack of consideration. The
district court went on to deny the motions to strike the class-action allegations,
suggesting that Donelson’s allegations met Rule 23(a)(2)’s “single common
question” requirement and that the Defendants’ arguments to the contrary were
“more appropriate on a motion for class certification.”

       We review de novo a district court’s ruling on a motion to compel arbitration
under § 4 of the FAA. See M.A. Mortenson Co. v. Saunders Concrete Co., 676 F.3d
1153, 1156 (8th Cir. 2012). Under the FAA, “[a] motion to compel arbitration must
be granted if a valid arbitration clause exists which encompasses the dispute between
the parties.” Id. at 1156-57 (internal quotation marks omitted). We conclude both
that a valid arbitration clause exists and that it encompasses the dispute between the
parties.

                                         A.

       With respect to the validity issue, the parties disagree about the threshold
question of which law governs this issue. Donelson argues that Missouri substantive
law governs whether the arbitration clause is valid. Sachse claims that Minnesota
substantive law controls in light of a choice-of-law clause in the Client Agreement
so providing. We need not resolve this dispute because, even assuming that
Donelson is right about Missouri substantive law governing this issue, we agree with
Defendants that the arbitration clause is valid. See Am. Broad. Cos. v. Aereo, Inc.,
573 U.S. 431, 445 (2014) (assuming for the sake of argument that one part of the
losing party’s argument was correct but holding that, even so, the losing party would
not prevail for other reasons).

                                         -9-
       On the merits of this issue, Defendants argue that the district court erred when
it refused to enforce the arbitration clause on the basis that it was not supported by
mutual assent or consideration. Donelson also argues that the arbitration clause was
invalid because it was unconscionable. We agree with Defendants that the
arbitration clause was valid because it was supported by mutual assent, was
supported by consideration, and was not unconscionable.

       First, the parties mutually assented to the arbitration clause. Under Missouri
law, “[a] valid arbitration clause . . . requires mutuality of agreement, which implies
a mutuality of assent by the parties to the terms of the contract.” State ex rel. Hewitt
v. Kerr, 461 S.W.3d 798, 810 (Mo. 2015) (internal quotation marks omitted). Parties
may assent to terms expressly in a contract or “incorporated into the contract by
reference” so long as “[t]he intent to incorporate [is] clear.” See id. “To incorporate
terms from another document, the contract must make clear reference to the
document and describe it in such terms that its identity may be ascertained beyond a
doubt.” Id. at 810-11 (brackets and internal quotation marks omitted); see also Dunn
Indus. Grp. v. City of Sugar Creek, 112 S.W.3d 421, 435 (Mo. 2003) (holding that
an arbitration clause can be incorporated by reference into a contract).

       Defendants argue that the district court erroneously ruled that Donelson had
not “knowingly accept[ed] the terms of the Client Agreement” based on its findings
that Donelson never signed or received the Client Agreement (which included the
arbitration clause) and Donelson was not shown the Account Application.
Defendants are correct.

       Though Sachse did not provide Donelson with a copy of the Client
Agreement, which contained the arbitration clause, Donelson still agreed to the
arbitration clause because he was presented with and signed the Account
Application, which expressly incorporated the arbitration clause in the Client
Agreement. It stated:

                                         -10-
      You acknowledge that you have received and read the [Client]
      Agreement and agree to abide by the terms and conditions as currently
      in effect . . . . You hereby consent to all these terms and conditions with
      full knowledge and understanding . . . . This account is governed by a
      predispute arbitration clause which is found in Section 26, Page 3 of the
      [Client] Agreement . . . .

Thus, the arbitration clause was clearly incorporated by reference in the Account
Application. See Kerr, 461 S.W.3d at 810-11. And because Donelson signed the
Account Application, there was mutual assent to the arbitration clause. See
Chochorowski v. Home Depot U.S.A., 404 S.W.3d 220, 228 (Mo. 2013) (“A signer’s
failure to read or understand a contract is not, without fraud or the signer’s lack of
capacity to contract, a defense to the contract.”).

        Second, the arbitration clause was supported by consideration because
Ameriprise provided a client account to Donelson. In general, “bilateral contracts
are supported by consideration and enforceable when each party promises to
undertake some legal duty or liability.” Baker v. Bristol Care, Inc., 450 S.W.3d 770,
776 (Mo. 2014). But when the promises of one party are illusory rather than binding,
there is no consideration. Id. “A promise is illusory when one party retains the
unilateral right to amend the agreement and avoid its obligations.” Id. But, “[i]f two
considerations are given for a promise, one . . . legally sufficient . . . and the other
not . . . , the promise is enforceable.” Id. at 774.

       Relying on Baker, Donelson argues that the arbitration agreement lacks
consideration because Ameriprise retained the unfettered right to amend the Client
Agreement containing the arbitration clause. In Baker, an employee and her
employer entered into an agreement in which the parties agreed to arbitrate all legal
claims against the other. Id. at 773. This arbitration agreement stated that
consideration consisted of the employee’s continued employment and mutual
promises to resolve claims through arbitration. Id. But the agreement also clarified
that the employee was an at-will employee and that the employer could unilaterally
amend, modify, or revoke the agreement upon thirty days’ prior written notice to the

                                         -11-
employee. Id. at 773. The Missouri Supreme Court held that the arbitration
agreement failed for lack of consideration because the two sources of consideration
were illusory. Id. at 776-77.

       But Baker is inapposite here because the source of consideration supporting
the arbitration clause is not illusory and because Ameriprise does not have the
unilateral right to amend the Client Agreement. The Client Agreement states:

      You agree that we shall have the right to amend this Agreement by
      modifying or rescinding any existing provisions or by adding any new
      provision. You understand and acknowledge that we may modify or
      change the terms and conditions of this Agreement by mailing a written
      notice of the modification or change or a new printed Agreement to
      you . . . . Such written notice or posting of the amendment will include
      the effective date of the modification or change. No such amendment
      shall become effective prior to 30 days from the date of such notice . . . .
      The use of your account after the mailing of any written notice . . . shall
      constitute your acknowledgement and agreement to be bound thereby.

Though this provision permits modification of the Client Agreement, it also specifies
that “use of your account . . . shall constitute your acknowledgement and agreement
to be bound thereby.” Thus, the amendment provision presupposes that an account
will still be provided, which constitutes consideration. See id. at 774 (defining
consideration in part as “the transfer . . . of something of value to the other party”).
In addition, unlike in Baker, Ameriprise does not have the right to unilaterally
change the Client Agreement. See id. at 773. Rather, any change requires
“acknowledgement and agreement” by Donelson in the form of “use of [his]
account.”

       Third, the arbitration agreement is not unconscionable. Donelson claims that
the arbitration provision is unconscionable because it requires him to arbitrate all
claims he may have against Ameriprise, but Ameriprise is not required to arbitrate
all claims it may have against him. “Unconscionability is defined as an inequality
so strong, gross, and manifest that it must be impossible to state it to one with

                                         -12-
common sense without producing an exclamation at the inequality of it.” Eaton v.
CMH Homes, Inc., 461 S.W.3d 426, 432 (Mo. 2015) (internal quotation marks
omitted). The unconscionability doctrine “guards against one-sided contracts,
oppression, and unfair surprise.” Id. But the fact that an arbitration provision applies
to one party but not the other does not itself render the provision unconscionable.
Id. at 433-34. Therefore, even assuming that the arbitration provision applied only
to Donelson, it would not be unconscionable.

      Because the arbitration clause was supported by mutual consent, was
supported by consideration, and was not unconscionable, it is valid and thus
enforceable.

                                          B.

        Because the arbitration clause is valid, we must consider whether it
“encompasses the dispute between the parties.” See M.A. Mortenson, 676 F.3d at
1156-57. By its own terms, the arbitration clause provides for arbitration of “ALL
CONTROVERSIES THAT MAY ARISE BETWEEN US[2] . . . , WHETHER
ARISING BEFORE, ON OR AFTER THE DATE THIS ACCOUNT IS OPENED,”
except for “PUTATIVE OR CERTIFIED CLASS ACTION[S].” Thus, whether the
arbitration clause encompasses this case turns on whether the class-action allegations
should be stricken, as Defendants argue they should. Accordingly, we consider
whether the district court abused its discretion when it denied Defendants’ motions
to strike Donelson’s class-action allegations. See Nationwide Ins. v. Cent. Mo. Elec.
Co-op., Inc., 278 F.3d 742, 748 (8th Cir. 2001) (reviewing a motion to strike for
abuse of discretion).

      Under Federal Rule of Civil Procedure 12(f), “the court may strike from a
pleading any insufficient defense or any redundant, immaterial, impertinent, or

      2
       Before the district court, Donelson argued that “US” did not include Sachse
or the Ameriprise officers, but this issue has not been raised on appeal.

                                         -13-
scandalous matter.” “Judges enjoy liberal discretion to strike pleadings under Rule
12(f).” BJC Health Sys. v. Columbia Cas. Co., 478 F.3d 908, 917 (8th Cir. 2007).
And because this remedy is “drastic” and “often is sought by the movant simply as
a dilatory or harassing tactic,” see 5C Charles Alan Wright & Arthur R. Miller,
Federal Practice and Procedure § 1380 (3d ed.), “[s]triking a party’s pleading . . .
is an extreme and disfavored measure,” BJC Health, 478 F.3d at 917; see Wright &
Miller, supra, § 1380. But despite this, it is sometimes appropriate to strike
pleadings, such as when a portion of the complaint lacks a legal basis. See, e.g., BJC
Health, 478 F.3d at 916-18 (affirming a district court’s grant of a motion to strike
the plaintiff’s prayer for punitive damages on the basis that fraud had not been
pleaded with the particularity required by Rule 9(b)).

       Federal courts are split as to whether class-action allegations may be stricken
under Rule 12(f) prior to the filing of a motion for class-action certification when
certification is a clear impossibility. Some courts permit this. See Pilgrim v.
Universal Health Card, LLC, 660 F.3d 943, 949 (6th Cir. 2011); cf. John v. Nat’l
Sec. Fire & Cas. Co., 501 F.3d 443, 444-45 (5th Cir. 2007) (affirming dismissal of
unsupportable class-action allegations on Rule 12(b)(6) motion). Others deny as
premature motions to strike class-action allegations made before a plaintiff moves
to certify a class. See, e.g., Weske v. Samsung Elecs., Am., Inc., 934 F. Supp. 2d 698,
706-07 (D.N.J. 2013).

       We agree with the Sixth Circuit that a district court may grant a motion to
strike class-action allegations prior to the filing of a motion for class-action
certification. It is “sensible . . . to permit class allegations to be stricken at the
pleading stage” if it is “apparent from the pleadings that the class cannot be certified”
because “unsupportable class allegations bring ‘impertinent’ material into the
pleading” and “permitting such allegations to remain would prejudice the defendant
by requiring the mounting of a defense against claims that ultimately cannot be
sustained.” Wright & Miller, supra, § 1383. This is consistent with Rule 23(c),
which governs class-action certification, because Rule 23(c)(1)(A) directs district
courts to decide whether to certify a class “[a]t an early practicable time,” and

                                          -14-
nothing in Rule 23(c) indicates that the court must await a motion by the plaintiffs.
See Pilgrim, 660 F.3d at 949.

        We conclude it was an abuse of discretion for the district court to deny the
motions to strike the class-action allegations. We reach this conclusion because not
only was it apparent from the pleadings that Donelson could not certify a class but
also the class allegations were all that stood in the way of compelling arbitration. As
for Counts I and II, Donelson cannot maintain a class action because the class claims
would not be cohesive. As for Count III, Donelson cannot maintain a class action
because that cause of action could not provide the injunctive or declaratory relief
required by Rule 23(b)(2). 3 Under these circumstances, delaying the decision on
whether Donelson could certify a class would needlessly force the parties to remain
in court when they previously agreed to arbitrate. It also risks forcing Defendants
to litigate, until the district court rules on Donelson’s not-yet-filed motion for class
certification, with one hand tied behind their backs to avoid substantially invoking
the litigation machinery and waiving their right to arbitrate.

        With respect to Counts I and II, the class-action allegations should have been
stricken because class claims based on these counts would not be cohesive. Rule
23(b)(2) permits “[a] class action [to] be maintained if Rule 23(a) is satisfied and if
. . . the party opposing the class has acted or refused to act on grounds that apply
generally to the class, so that final injunctive relief or corresponding declaratory
relief is appropriate respecting the class as a whole.” To certify a class under Rule
23(b)(2), the “class claims . . . must be cohesive.” In re St. Jude Med. Inc., 425 F.3d
1116, 1121 (8th Cir. 2005). “[T]he cohesiveness requirement of Rule 23(b)(2) is
more stringent than the predominance and superiority requirements for maintaining
a class action under Rule 23(b)(3).” Ebert v. Gen. Mills, Inc., 823 F.3d 472, 480
(8th Cir. 2016). The existence of a significant number of individualized factual and
legal issues defeats cohesiveness and is a proper reason to deny class certification

      3
       At oral argument, Donelson clarified that he seeks to maintain a class action
only under Rule 23(b)(2).

                                         -15-
under Rule 23(b)(2). St. Jude, 425 F.3d at 1122. A significant number of
individualized factual and legal issues exist “where members of a proposed class
will need to present evidence that varies from member to member” such that the
class claim is not “susceptible to generalized, class-wide proof.” See Ebert, 823 F.3d
at 478-79 (internal quotation marks omitted).

       Here, Donelson cannot bring a Rule 23(b)(2) class action with respect to
Counts I and II because a significant number of individualized determinations must
be made in deciding whether the class members’ claims have merit. Count I asserts
violations of § 10(b) of the Securities Exchange Act and Rule 10b-5. Count II asserts
violations of § 20(a) of the Securities Exchange Act. For Count I, the putative class
would have to show “(1) misrepresentations or omissions of material fact or acts that
operated as a fraud or deceit in violation of the rule; (2) causation, often analyzed in
terms of materiality and reliance; (3) scienter on the part of the defendants; and
(4) economic harm caused by the fraudulent activity occurring in connection with
the purchase and sale of a security.” In re K-tel Int’l, Inc. Sec. Litig., 300 F.3d 881,
888 (8th Cir. 2002). At least three of these four elements would require a significant
number of individualized factual and legal determinations to be made, as the
allegations in the first amended complaint demonstrate. For instance, whether
Sachse or any of the other defendants committed misrepresentations, whether those
misrepresentations were material, whether class members relied on the
misrepresentations, and whether economic harm resulted from the
misrepresentations would need to be resolved separately for each class member. See
Ebert, 823 F.3d at 479-81 (noting that “even if a determination [could] be made
class-wide on the fact and extent of [the defendant’s] role,” a number of matters
would “still need to be resolved household by household” and therefore the claims
lacked cohesiveness); Avritt v. Reliastar Life Ins., 615 F.3d 1023, 1037 (8th Cir.
2010) (holding that a class was “not cohesive enough to satisfy Rule 23(b)(2)”
because “resolution of the plaintiffs’ claims would require numerous individual
determinations regarding [the defendant’s] representations and each purchaser’s
reliance”); cf. McCrary v. Stifel, Nicolaus & Co., 687 F.3d 1052, 1059 (8th Cir.
2012) (affirming a district court’s dismissal of a Rule 23(b)(3) class action alleging

                                         -16-
churning, unauthorized trading, and misrepresentation by a broker and his firm on
the basis that such claims are highly individualized).

       The same is true for Count II. For a § 20(a) violation, Donelson must prove
“(1) that a primary violator violated the federal securities laws; (2) that the alleged
control person actually exercised control over the general operations of the primary
violator; and (3) that the alleged control person possessed—but did not necessarily
exercise—the power to determine the specific acts or omissions upon which the
underlying violation is predicated.” Lustgraaf v. Behrens, 619 F.3d 867, 873 (8th
Cir. 2010) (internal quotation marks omitted). Here, the violations of the federal
securities laws needed for element (1) are the alleged violations of § 10(b) and Rule
10b-5 on which Count I is based. Therefore, Count II requires the same
individualized determinations as Count I, which defeat cohesiveness.

        As for Count III, breach of fiduciary duty under 15 U.S.C. § 80b-6, the class-
action allegations should have been stricken because Donelson cannot obtain the
relief required by Rule 23(b)(2) for this count. There is no private cause of action
for violations of this section of the statute. See Transamerica Mortg. Advisors, Inc.
v. Lewis, 444 U.S. 11, 19-20 (1979) (holding that Congress did not provide a private
right of action for § 80b-6 because the statute expressly provided other means of
enforcing compliance with its terms). Rule 23(b)(2) permits a class action to be
maintained if “final injunctive relief or corresponding declaratory relief is
appropriate respecting the class as a whole.” Because § 80b-6 does not afford any
relief to private litigants, much less injunctive or declaratory relief, Donelson cannot
certify class claims under Rule 23(b)(2) for violations of § 80b-6. 4

      4
        To the extent Donelson claims that he can establish a class under § 80b-15 of
the Investment Advisors Act, he has waived this argument. Section 80b-15 permits
private parties to bring a cause of action solely to declare certain contracts void
because they were made in violation of the Investment Advisors Act. Transamerica,
444 U.S. at 16-19. Even assuming this would be sufficient injunctive or declaratory
relief under Rule 23(b)(2), the only contracts Donelson seeks to avoid are the
arbitration clauses in the Client Agreements. But Donelson does not even hint at

                                         -17-
       The district court abused its discretion by denying Defendants’ motions to
strike without considering whether Donelson could bring a class action under Rule
23(b), as it is “apparent from the pleadings that the class cannot be certified” under
Rule 23(b)(2). See Wright & Miller, supra, § 1383. Because the class-action
allegations should have been stricken, the dispute between the parties here should
have been deemed one encompassed by the arbitration clause. See M.A. Mortenson,
676 F.3d at 1156.

                                    *     *      *

       In sum, the arbitration clause in question here is valid, and it encompasses the
dispute between the parties. See id. Therefore, Defendants’ motions to compel
arbitration “must be granted,” see id. at 1156-57, and the district court erred in
denying them.

                                         VI.

       Thus, we reverse the district court’s denial of Defendants’ motions to strike
the class-action allegations and to compel arbitration, and we remand for entry of an
order striking the class-action allegations and compelling arbitration.
                         ______________________________

how the arbitration clauses violate the Investment Advisors Act. Because his
argument that the arbitration clause violates the Investment Advisors Act consists of
nothing more than a sentence in his brief without argument or citation to legal
authority, we deem this argument waived and hold that he cannot certify a class
under § 80b-15 to invalidate the arbitration agreements. See Milligan v. City of Red
Oak, Iowa, 230 F.3d 355, 360 (8th Cir. 2000) (“[I]nasmuch as [the appellant’s] brief
does not support his assertion with any argument or legal authority, he has waived
the issue and we do not address it.”).

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