Amber Pieloor filed a class action against her bank, the Gate City Bank of North Dakota. She accused the bank of re-sequencing a number of her financial transactions. Re-sequencing occurs when a bank records transactions in an order other than that in which they were received. Accusing banks of re-sequencing has become common; and it appears that some banks, in fact, have re-sequenced debits--charging the largest ones first before moving on to smaller debits--in order to maximize the number of overdraw fees they can charge.

There were two problems with Ms. Pieloor's complaint. First, she was not arguing that her bank had resequenced just withdrawals or debits, but that it had resequenced everything.

Second, Gate City Bank had not engaged in any resequencing. It simply wasn't its policy. Moreover, the allegations in Ms. Pieloor's complaint were confusing and ambiguous. In a situation like that, what is a defendant to do?

Gate City chose to answer the complaint, rather than move to dismiss. And then it moved the real fight to the Rule 26 Scheduling Order. Where possible, parties are supposed to file an agreed order, but the plaintiff's theory of the case was so different from the defendant's here that it made sense to have the court decide on how discovery would proceed instead.

And so the District of North Dakota was faced with two separate arguments. Ms. Pieloor's attorneys argued that her class allegations, combined with the other class actions out there, represented a lot of smoke. And where there's smoke, there must be fire. So it made sense to just move on with classwide discovery.

Gate City, on the other hand, argued that it simply didn't resequence. And any quick check of the facts would reveal that. So that's what it advocated: limited discovery into Ms. Pieloor's claims, followed by a summary judgment motion. If she could prove what she was saying happened to her, then class discovery could begin. If not, why spend the money?

The court, in a remarkably thoughtful and nuanced decision (which you can find at Pieloor v. Gate City Bank, 2012 U.S. Dist. LEXIS 148702 (D.N.D. Oct. 15, 2012), or here), largely agreed with the defendant. It ordered:

(1) a preliminary inquiry into whether class proponent(s) can make a sufficient showing that Gate City engaged in re-sequencing of transactions for any of the named plaintiffs in the manner and for the types of transactions alleged in the complaint; and (2) initial discovery that is limited to these issues.

The court set forth a number of reasons justifying its ruling, but two stand out. First, wide-ranging discovery would be needlessly costly.

[T]he savings from the avoided costs of immediate, full-blown class and merits discovery would likely be substantial.

(Emphasis added.)  And second,

if upon preliminary inquiry it is determined that Gate City engaged in some re-sequencing, a significant part of the hard work will have been done with respect to class certification, since it is likely the same types of transactions will have been handled in the same manner for other customers given the nature of the subject matter.

(Emphasis added.  ) The court did not simply adopt the defendant's arguments, however. It also allowed Ms. Pieloor time to identify other potential class representatives, and allowed discovery into their allegations as well, ensuring that discovery would not be limited to a single, flukish claim.

So, what can defendants use in this opinion? Quite a bit. Most class action defense lawyers have run up against the problem of the plaintiff who is just plain wrong. It's frustrating, because the traditional understanding of class-action litigation postpones merits inquiries until after certification, meaning that a deluded theory of the case may survive through months of costly discovery before it gets tested. The Pieloor case offers an alternative strategy: answer the complaint, and bifurcate discovery in order to test the bad theory first.

It's a risky strategy, but the Pieloor opinion shows it can work, with the right preparation and the right judge. The right preparation is crucial: Gate City provided a detailed answer with an account of its actual sequencing policies, rather than waiting to dole that information out in discovery.

But if the strategy is higher risk, it's also higher reward. Instead of facing crushingly expensive e-discovery in the coming months, Gate City is testing whether the plaintiff has a claim at all. And that's the best possible outcome for all parties concerned, because it serves the "just, speedy, and inexpensive determination" of the case.