The Arkansas Supreme Court has determined that a trial court erred in denying class certification at the pleading stage in a case involving allegations that an insurance company violated state deceptive and unlawful business practices statutes by engaging in activity intended to collect unadjudicated, potential subrogation claims as debts. Kersten v. State Farm Mut. Auto. Ins. Co., No. 12-725 (Ark., decided March 28, 2013). While acknowledging that class-action cases may be dismissed at the pleading stage, the court noted that this “should be done rarely and … the better course is to allow an appropriate period of discovery.”

The insurance company sued Brandi Kersten, claiming that she was negligent in an auto accident involving its insured. She filed a counterclaim alleging that the insurance company was unjustly enriched because it caused “collection-styled letters to be mailed” to her and others similarly situated without mentioning that the purported debt was a subrogation claim or an unadjudicated tort claim. Without answering the counterclaim, the insurance company filed a motion to dismiss the counterclaim with prejudice and strike the class allegations. The trial court titled its disposition an “order of dismissal,” but the only dismissal was of the non-party law firm that had sent the letter. The court further denied the request for class certification “for the reasons stated in State Farm’s motion.” It allowed her personal claim to remain.

According to the supreme court, “the ruling allowing her personal claim to proceed is tantamount to a denial of State Farm’s motion to dismiss.” Finding the lower court’s denial of class certification an abuse of discretion, the court opined that the counterclaim’s allegations, “at this early stage of the pleading phase, (i) sufficiently plead a course of State Farm’s conduct that is typical of both Kersten and the class”; and (ii) as to the predominance inquiry under Rule 23, raise at least two alleged common questions, i.e., “some conduct afflicting a group that gives rise to a cause of action,” regardless of the existence of individual issues and defenses and “even in light of the multistate class.” The mere possibility that individualized issues could develop and require the creation of subclasses or decertification at a later time “does not defeat class certification at this stage,” said the court. The court remanded the case for further proceedings.