On Feb. 9, in Oliver v. Navy Federal Credit Union, the U.S. Court of Appeals for the Fourth Circuit issued a 2-1 ruling partially affirming a district court's order striking class allegations from a complaint alleging racial discrimination in mortgage lending before any discovery had occurred.[1]
In addition to the parties' briefs, the Fourth Circuit received briefs from several amici supporting the defendant, indicating substantial interest in the outcome of the appeal.
Navy Federal Credit Union prevailed in 2024 in the U.S. District Court for the Eastern District of Virginia on its motion to strike the class allegations from the complaint pled under Federal Rules of Civil Procedure 23(b)(2) and 23(b)(3).
On appeal, the Fourth Circuit reversed the decision striking the Rule 23(b)(2) allegations because it found that the district court acted prematurely, given the legal standards governing when courts are authorized to do so, which it helpfully clarified.
However, under those same legal standards, the majority concluded that the district court properly struck the plaintiffs' Rule 23(b)(3) allegations. The dissenting judge concurred with the decision to affirm striking the Rule 23(b)(3) allegations but would also have affirmed the ruling striking the Rule 23(b)(2) allegations.
The decision is a helpful illustration of how defendants facing class action litigation can use the mechanism of Rule 23(c)(1)(A) to eliminate classwide exposure early in the process, along with the limitations of such an approach.
Case Background
Laquita Oliver and nine other named plaintiffs, who all are either Black or Latino, brought a putative class action against Navy Federal Credit Union in 2023, alleging that the lender systematically discriminates against minority mortgage loan applicants based on their race.[2]
The plaintiffs alleged that the lender used a "semi-automated underwriting process" and a single form for collecting information from every applicant that includes information that can be proxies for race, resulting in unlawful intentional and disparate impact discrimination.[3]
They sought classwide relief for "all minority residential loan applicants from 2018 through the present" whose loans were denied, issued with less favorable terms or processed more slowly than nonminority applicants.[4]
The plaintiffs sought certification of a class to provide injunctive and declaratory relief generally applicable to the class as a whole under Rule 23(b)(2), and also certification under Rule 23(b)(3) — allowing class treatment where common issues predominate over individualized issues.[5]
The defendant filed a motion to dismiss under Rule 12(b)(6) and a motion to strike the class allegations in the complaint under Rule 12(f) and Rule 23(d)(1)(D).
It argued the case could not proceed as a class action due to myriad differences among the loan products offered, and because the plaintiffs "failed to explain how an undefined underwriting process could produce discriminatory effects for class members who applied for different [loan] products."[6]
The district court denied the motion to dismiss but granted the motion to strike the class allegations, and the plaintiffs appealed to the Fourth Circuit.[7]
The Fourth Circuit's Decision
A divided panel of the Fourth Circuit affirmed the district court's decision striking the Rule 23(b)(3) class allegations from the plaintiffs' complaint before any discovery had occurred, but it reversed the decision to strike the class allegations seeking injunctive and declaratory relief under Rule 23(b)(2). The dissenting judge would have affirmed the district court's decision in full.
As a threshold matter, the Fourth Circuit took the time to sort through a procedural miasma present in Rule 23 litigation relating to motions to strike class allegations. Navy Federal Credit Union, like many other defendants before it, had moved to strike under Rule 12(f) — which allows courts to strike material from complaints that they deem to be "redundant, immaterial, impertinent or scandalous"[8] — along with Rule 23(d)(1)(D), which allows them to order that a party amend pleadings to remove class allegations.[9]
The Fourth Circuit determined that those rules, as a logical and practical matter, cannot form the basis for a district court to issue an order striking class allegations, but instead, Rule 23(c)(1)(A) does.[10] That rule requires district courts to decide class certification issues at "an early practicable time."[11]
Because a decision to strike class allegations necessarily implies that those allegations cannot possibly form the basis for a decision on class certification, the Fourth Circuit concluded that Rule 23(c), which is entirely concerned with the class certification process, is the proper procedural vehicle.[12]
Even though Navy Federal Credit Union did not raise that rule as its procedural mechanism for seeking to strike the class allegations, the Fourth Circuit decided it would do so sua sponte in affirming the order striking the Rule 23(b)(3) class.[13]
Then, the majority helpfully explained how district courts should analyze allegations in class action complaints when defendants move to strike them to determine whether the time is right to do so. In other words, such motions may not be granted prematurely, and district courts within the Fourth Circuit must now do so by looking to the face of the complaint.
Applying the 1978 precedent established in the Fourth Circuit's Goodman v. Schlesinger ruling,[14] it decided that if the class claims fail as a matter of law, district courts may strike them before any discovery has occurred.[15]
However, district courts commit legal error if they grant such motions where the dispute cannot readily be resolved by looking at the complaint alone.[16]
The majority concluded that "just as a district court may never grant class certification based solely on the face of the complaint, a court may deny class certification at that preliminary stage only if the class allegations" do not satisfy Rule 23's class certification requirements as a matter of law.[17]
Finally, the majority examined whether the district court erred when it granted Navy Federal Credit Union's motion to strike both class claims before discovery occurred. It decided that the district court exceeded its discretion when it struck the Rule 23(b)(2) class claim but that it was not an error to strike the Rule 23(b)(3) class claim.[18]
The majority noted that while it was not entirely clear based on the record why the district court ruled the way it did on the defendant's motion, the language used indicated a concern from the district court judge about the manageability of the Rule 23(b)(3) class claims and whether a class action would be a superior method for trying such claims, given the material variations in the types of mortgage products applied for and their various requirements.[19]
Thus, the plaintiffs' factual allegations could not be tried on a classwide basis consistent with Rule 23. But the allegations relating to the Rule 23(b)(2) injunctive relief class were different, the majority concluded. The allegations underlying that class claim are far more cohesive and centralized than the others, making it an error for the district court to strike those allegations under Rule 23.[20]
Implications for Defendants
When companies are sued in class actions, it is crucial for them to understand not only the stakes and extreme exposure risk such lawsuits present, but also the nuances and often-changing jurisprudence governing Rule 23.
Motions to strike class allegations are a very powerful tool for such companies to use, and the Fourth Circuit's decision is a welcome clarification of how to think deliberately and critically about the prospects for such motion practices to succeed.
The key is to understand the relationship between the specific facts alleged in such complaints and the requirements of Rule 23, in all of its nuances.
[1] Oliver, et al. v. Navy Federal Credit Union , Case No. 24-1656 (4th Cir. Feb. 9, 2026).
[2] Slip op. at 3.
[3] Id. at 4, 15-16.
[4] Id. at 4.
[5] Id. at 16.
[6] Id.
[7] Id. at 5.
[8] (id.at 7).
[9] Id. at 8.
[10] Id. at 6, 9.
[11] Fed. R. Civ. P. 23(c)(1)(A).
[12] Id.at 6-9.
[13] Id.at 9, n.1.
[14] Goodman v. Schlesinger , 584 F.2d 1325 (4th Cir. 1978).
[15] Id. at 6.
[16] Id. at 11-12.
[17] Id. at 13.
[18] Id. at 14.
[19] Id. at 14-15.
[20] Id. at 16-18.
Reprinted with permission of Law360.
