1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 NORTHERN DISTRICT OF CALIFORNIA 9 ROBERT CRAGO, et al., 10 Case No. 16-cv-03938-RS Plaintiffs, 11 v. ORDER GRANTING MOTION TO 12 COMPEL ARBITRATION AND CHARLES SCHWAB & CO., INC., et al., DENYING RENEWED MOTION FOR 13 CLASS CERTIFICATION Defendants. 14
15 16 Pending here are two competing motions. Lead Plaintiff Robert Wolfson and named 17 Plaintiff K. Scott Posson (collectively, “Plaintiffs”) filed a renewed motion for class certification, 18 which seeks certification of an issues class under Federal Rule of Civil Procedure 23(c)(4). See 19 Dkt. 204. Defendants Charles Schwab & Co., Inc., and The Charles Schwab Corporation 20 (collectively, “Schwab”), move to compel arbitration. See Dkt. 203. For the reasons discussed 21 below, Defendants’ motion is granted, and Plaintiffs’ renewed motion is denied as moot. 22 The factual background of this action has been adequately discussed in prior orders and 23 need not be restated. E.g., Dkt. 192 (“Class Cert. Order”), at 2–4. Relevant here is the fact that 24 Plaintiffs previously moved for class certification under Federal Rules of Civil Procedure 23(b)(1) 25 and (b)(3). That motion was denied on October 27, 2021, on the grounds that there was “no 26 presumption of reliance in this case, and requiring individualized proof of reliance as to each 27 plaintiff defeat[ed] the commonality requirement of Rule 23(a). Further, the lack of a presumption 1 The order did not specify whether class certification was denied with prejudice. To address the 2 deficiencies identified in the order, Plaintiffs filed a renewed motion for class certification on 3 September 23, 2022, seeking a narrower issues class under Rule 23(c)(4). 4 Defendants, meanwhile, argue that Plaintiffs’ renewed motion must be denied, and 5 arbitration must now be compelled, under the terms of Schwab’s Account Agreement. The parties 6 agree that the Agreement contains the following provision: 7 No person shall bring a putative or certified class action to arbitration, nor seek to enforce any predispute arbitration agreement against any 8 person who has initiated in court a putative class action; or who is a member of a putative class who has not opted out of the class with 9 respect to any claims encompassed by the putative class action until: (1) the class certification is denied; (2) the class is decertified; or (3) 10 the client is excluded from the class by the court. 11 Dkt. 203, at 3 (emphasis added). Since class certification was denied as of October 27, 2021, 12 Defendants argue, the claims must now be arbitrated. Plaintiffs argue that their claims “remain 13 part of this putative class action” and that the pendency of their renewed motion “rebuts 14 Defendants’ premise that this proceeding is no longer a class action.” Dkt. 206, at 3. 15 The operative question, then, is what it means for class certification to be “denied” in the 16 context of the Agreement. Clearly class certification has already been denied once, but whether the 17 Agreement contemplates renewed motions for class certification, such as the one Plaintiffs now 18 bring, is far from clear. Defendants contend that the Agreement cannot possibly permit “unlimited 19 opportunities to move for class certification or forestall arbitration with procedural 20 gamesmanship,” Dkt. 203, at 10, while Plaintiffs dismiss this as a “doomsday argument” and 21 argue Defendants are “proposing a rule saying that a plaintiff attempting to certify a class only 22 gets one opportunity to do so” in this scenario, yet “[n]o such rule exists or should exist,” Dkt. 23 206, at 6 (quoting Abraham v. WPX Energy Prod., LLC, 322 F.R.D. 592, 640 (D.N.M. 2017)). 24 Two background principles affect the resolution of this question. First, federal courts have 25 wide latitude to allow plaintiffs in a putative class action to renew their class certification motions 26 after an initial denial, a procedure implicitly allowed under the Federal Rules. See Fed. R. Civ. P. 27 23(c)(1)(C) (“An order that grants or denies class certification may be altered or amended before 1 final judgment.”). That being said, courts “rarely grant” these motions, in part due to a “reluctance 2 to allow parties to have a second bite at the apple by relitigating issues that have already been 3 decided.” 3 NEWBERG AND RUBENSTEIN ON CLASS ACTIONS § 7:35 (6th ed. 2022). This policy, in 4 turn, “incentiviz[es] parties to put their best foot forward at the outset and avoid[s] costly delays to 5 the proceedings.” Id. Courts reviewing such renewed motions therefore “have routinely applied 6 the ordinary standards for reconsideration.” English v. Apple Inc., No. 14-cv-01619-WHO, 2016 7 WL 1108929, at *5 (N.D. Cal. Mar. 22, 2016). This altogether underscores that plaintiffs bring 8 such motions at the court’s discretion, rather than as of right. 9 Second, Supreme Court and Ninth Circuit precedent has repeatedly commanded that, under 10 the Federal Arbitration Act (“FAA”), 9 U.S.C. § 2 et seq., “due regard must be given to the federal 11 policy favoring arbitration, and ambiguities as to the scope of the arbitration clause itself resolved 12 in favor of arbitration.” Volt Info. Scis., Inc. v. Bd. of Trs. of the Leland Stanford Jr. Univ., 489 13 U.S. 468, 476 (1989); accord Goldman, Sachs & Co. v. City of Reno, 747 F.3d 733, 742 (9th Cir. 14 2014). “The court’s role under the [FAA] is therefore limited to determining (1) whether a valid 15 agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at 16 issue.” Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). 17 Applying these two principles here leads to the conclusion that class certification has in 18 fact been “denied” within the meaning of the Schwab Agreement, and the claims should now be 19 sent to arbitration. While the Agreement is potentially ambiguous on this point, precedent 20 mandates resolving any ambiguity in favor of arbitration. Plaintiffs, who bear the burden here of 21 rebutting the presumption of arbitrability, see Wynn Resorts, Ltd. v. Atlantic-Pacific Capital, Inc., 22 497 Fed. App’x 740, 742 (9th Cir. 2012), have not pointed to anything in the legislative history of 23 the FAA nor relevant rulemaking history that would suggest a different outcome is appropriate. 24 Cf. Dep’t of Enf’t v. Charles Schwab & Co., Inc., No. 2011029760201, 2014 FINRA Discip. 25 LEXIS 5 (Apr. 24, 2014) (discussing relevant rulemaking history of FINRA disclosure rules 26 regarding mandatory disclosures in predispute arbitration agreements). Further, this conclusion is 27 consonant with the principle that plaintiffs seeking class certification should put their best foot 1 forward in their first motion. Nothing prevented Plaintiffs here from alternatively seeking class 2 certification under Rule 23(c)(4) in their initial motion; they thus have been offered a “meaningful, 3 but not unbounded, opportunity to seek class certification.” Dkt. 207, at 6 n.4. 4 The cases Plaintiffs cite, besides being noncontrolling, are also readily distinguishable. 5 Klein v. TD Ameritrade Holding Corp., No. 14-cv-00396, 2021 WL 6075865 (D. Neb. Dec.
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1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 NORTHERN DISTRICT OF CALIFORNIA 9 ROBERT CRAGO, et al., 10 Case No. 16-cv-03938-RS Plaintiffs, 11 v. ORDER GRANTING MOTION TO 12 COMPEL ARBITRATION AND CHARLES SCHWAB & CO., INC., et al., DENYING RENEWED MOTION FOR 13 CLASS CERTIFICATION Defendants. 14
15 16 Pending here are two competing motions. Lead Plaintiff Robert Wolfson and named 17 Plaintiff K. Scott Posson (collectively, “Plaintiffs”) filed a renewed motion for class certification, 18 which seeks certification of an issues class under Federal Rule of Civil Procedure 23(c)(4). See 19 Dkt. 204. Defendants Charles Schwab & Co., Inc., and The Charles Schwab Corporation 20 (collectively, “Schwab”), move to compel arbitration. See Dkt. 203. For the reasons discussed 21 below, Defendants’ motion is granted, and Plaintiffs’ renewed motion is denied as moot. 22 The factual background of this action has been adequately discussed in prior orders and 23 need not be restated. E.g., Dkt. 192 (“Class Cert. Order”), at 2–4. Relevant here is the fact that 24 Plaintiffs previously moved for class certification under Federal Rules of Civil Procedure 23(b)(1) 25 and (b)(3). That motion was denied on October 27, 2021, on the grounds that there was “no 26 presumption of reliance in this case, and requiring individualized proof of reliance as to each 27 plaintiff defeat[ed] the commonality requirement of Rule 23(a). Further, the lack of a presumption 1 The order did not specify whether class certification was denied with prejudice. To address the 2 deficiencies identified in the order, Plaintiffs filed a renewed motion for class certification on 3 September 23, 2022, seeking a narrower issues class under Rule 23(c)(4). 4 Defendants, meanwhile, argue that Plaintiffs’ renewed motion must be denied, and 5 arbitration must now be compelled, under the terms of Schwab’s Account Agreement. The parties 6 agree that the Agreement contains the following provision: 7 No person shall bring a putative or certified class action to arbitration, nor seek to enforce any predispute arbitration agreement against any 8 person who has initiated in court a putative class action; or who is a member of a putative class who has not opted out of the class with 9 respect to any claims encompassed by the putative class action until: (1) the class certification is denied; (2) the class is decertified; or (3) 10 the client is excluded from the class by the court. 11 Dkt. 203, at 3 (emphasis added). Since class certification was denied as of October 27, 2021, 12 Defendants argue, the claims must now be arbitrated. Plaintiffs argue that their claims “remain 13 part of this putative class action” and that the pendency of their renewed motion “rebuts 14 Defendants’ premise that this proceeding is no longer a class action.” Dkt. 206, at 3. 15 The operative question, then, is what it means for class certification to be “denied” in the 16 context of the Agreement. Clearly class certification has already been denied once, but whether the 17 Agreement contemplates renewed motions for class certification, such as the one Plaintiffs now 18 bring, is far from clear. Defendants contend that the Agreement cannot possibly permit “unlimited 19 opportunities to move for class certification or forestall arbitration with procedural 20 gamesmanship,” Dkt. 203, at 10, while Plaintiffs dismiss this as a “doomsday argument” and 21 argue Defendants are “proposing a rule saying that a plaintiff attempting to certify a class only 22 gets one opportunity to do so” in this scenario, yet “[n]o such rule exists or should exist,” Dkt. 23 206, at 6 (quoting Abraham v. WPX Energy Prod., LLC, 322 F.R.D. 592, 640 (D.N.M. 2017)). 24 Two background principles affect the resolution of this question. First, federal courts have 25 wide latitude to allow plaintiffs in a putative class action to renew their class certification motions 26 after an initial denial, a procedure implicitly allowed under the Federal Rules. See Fed. R. Civ. P. 27 23(c)(1)(C) (“An order that grants or denies class certification may be altered or amended before 1 final judgment.”). That being said, courts “rarely grant” these motions, in part due to a “reluctance 2 to allow parties to have a second bite at the apple by relitigating issues that have already been 3 decided.” 3 NEWBERG AND RUBENSTEIN ON CLASS ACTIONS § 7:35 (6th ed. 2022). This policy, in 4 turn, “incentiviz[es] parties to put their best foot forward at the outset and avoid[s] costly delays to 5 the proceedings.” Id. Courts reviewing such renewed motions therefore “have routinely applied 6 the ordinary standards for reconsideration.” English v. Apple Inc., No. 14-cv-01619-WHO, 2016 7 WL 1108929, at *5 (N.D. Cal. Mar. 22, 2016). This altogether underscores that plaintiffs bring 8 such motions at the court’s discretion, rather than as of right. 9 Second, Supreme Court and Ninth Circuit precedent has repeatedly commanded that, under 10 the Federal Arbitration Act (“FAA”), 9 U.S.C. § 2 et seq., “due regard must be given to the federal 11 policy favoring arbitration, and ambiguities as to the scope of the arbitration clause itself resolved 12 in favor of arbitration.” Volt Info. Scis., Inc. v. Bd. of Trs. of the Leland Stanford Jr. Univ., 489 13 U.S. 468, 476 (1989); accord Goldman, Sachs & Co. v. City of Reno, 747 F.3d 733, 742 (9th Cir. 14 2014). “The court’s role under the [FAA] is therefore limited to determining (1) whether a valid 15 agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at 16 issue.” Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). 17 Applying these two principles here leads to the conclusion that class certification has in 18 fact been “denied” within the meaning of the Schwab Agreement, and the claims should now be 19 sent to arbitration. While the Agreement is potentially ambiguous on this point, precedent 20 mandates resolving any ambiguity in favor of arbitration. Plaintiffs, who bear the burden here of 21 rebutting the presumption of arbitrability, see Wynn Resorts, Ltd. v. Atlantic-Pacific Capital, Inc., 22 497 Fed. App’x 740, 742 (9th Cir. 2012), have not pointed to anything in the legislative history of 23 the FAA nor relevant rulemaking history that would suggest a different outcome is appropriate. 24 Cf. Dep’t of Enf’t v. Charles Schwab & Co., Inc., No. 2011029760201, 2014 FINRA Discip. 25 LEXIS 5 (Apr. 24, 2014) (discussing relevant rulemaking history of FINRA disclosure rules 26 regarding mandatory disclosures in predispute arbitration agreements). Further, this conclusion is 27 consonant with the principle that plaintiffs seeking class certification should put their best foot 1 forward in their first motion. Nothing prevented Plaintiffs here from alternatively seeking class 2 certification under Rule 23(c)(4) in their initial motion; they thus have been offered a “meaningful, 3 but not unbounded, opportunity to seek class certification.” Dkt. 207, at 6 n.4. 4 The cases Plaintiffs cite, besides being noncontrolling, are also readily distinguishable. 5 Klein v. TD Ameritrade Holding Corp., No. 14-cv-00396, 2021 WL 6075865 (D. Neb. Dec. 23, 6 || 2021), presented a factually similar situation in which defendants sought to compel arbitration 7 (under an identical arbitration provision) after the Eighth Circuit partially reversed the district 8 court’s grant of class certification. See id. at *1. There, however, the Eighth Circuit only reserved 9 || one of plaintiffs’ grounds for class certification, leaving the district court free to consider 10 || plaintiffs’ other grounds in a renewed motion for class certification. See id. at *2. Here, by 11 contrast, class certification was never granted to begin with. Plaintiffs further cite Abraham □□□ 12 WPX Energy Production, LLC, 322 F.R.D. 592 (D.N.M. 2017), for the proposition that putative 5 13 class plaintiffs should not be limited to one shot at class certification. See id. at 640. This may be 14 || true generally, but Abraham did not make this pronouncement in the context of an agreement to 3 15 arbitrate — which, for the reasons noted above, militates the opposite way. 16 Since class certification here has been “denied” within the meaning of the Schwab 3 17 Agreement, and because this Agreement is both valid and encompasses Plaintiffs’ claims, 18 arbitration must now be compelled. Defendants’ motion is therefore granted, and Plaintiffs’ 19 || renewed motion for class certification is denied as moot. This action is stayed pending the 20 || outcome of the arbitration. 21 22 || ITISSO ORDERED. 23 24 Dated: February 2, 2023 25 6 RICHARD SEEBORG _ Chief United States District Judge 27 98 ORDER ON MOTION TO COMPEL ARBITRATION AND CLASS CERTIFICATION CASE No. 16-cv-03938-RS