Crago v. Charles Schwab & Co., Inc.

Background

Lead Plaintiff Robert Wolfson and named Plaintiff K. Scott Posson filed a renewed motion to certify an “issues class” under Federal Rule of Civil Procedure 23(c)(4). Charles Schwab & Co., Inc., and The Charles Schwab Corporation moved to compel arbitration.

The plaintiffs had previously sought class certification under Rules 23(b)(1) and 23(b)(3). The court denied that motion on October 27, 2021, finding that there was no presumption that plaintiffs relied on the alleged conduct and that individualized proof of reliance defeated the commonality requirement for class certification. The prior order did not specify whether the denial was with prejudice. Plaintiffs later filed the renewed motion, seeking a narrower issues class.

The Schwab account agreement stated that a person could not bring or pursue certain class-action claims in arbitration—or enforce an arbitration agreement against someone involved in a putative class action—until class certification was denied, the class was decertified, or the person was excluded from the class. Schwab argued that the earlier denial triggered the agreement’s arbitration requirement. Plaintiffs argued that their claims remained part of the putative class action because their renewed certification motion was pending.

Court’s Analysis

The court explained that Federal Rule of Civil Procedure 23(c)(1)(C) permits a class-certification order to be changed before final judgment, but that renewed motions are generally considered through ordinary reconsideration standards and are allowed at the court’s discretion rather than automatically.

The court also applied the Federal Arbitration Act, a federal law governing agreements to arbitrate. Under that law, the court’s role was to determine whether a valid arbitration agreement existed and whether it covered the dispute. Ambiguities about the scope of arbitration are generally resolved in favor of arbitration.

The court held that class certification had been “denied” within the meaning of the Schwab agreement. Although the agreement was potentially ambiguous about renewed class-certification motions, the court resolved that ambiguity in favor of arbitration. It also reasoned that Plaintiffs could have sought certification of an issues class in their initial motion and therefore had a meaningful, though not unlimited, opportunity to seek class certification.

The court distinguished the cases Plaintiffs cited. In one case, an appellate court had left one ground for class certification available after partially reversing a certification decision; here, class certification had never been granted. Another case discussed multiple opportunities to seek class certification but did not involve an arbitration agreement.

Disposition

The court found that the arbitration agreement was valid and encompassed Plaintiffs’ claims. It granted Defendants’ motion to compel arbitration, denied Plaintiffs’ renewed motion for class certification as moot, and stayed the action pending the outcome of arbitration.