Nine applicants for residential mortgage products sued Navy Federal Credit Union, individually and on behalf of a putative class, alleging systematic discrimination against racial minorities. As described by the Court of Appeal: “The facts of each applicant’s case vary. Relevant to this appeal: (1) the applicants live in different States; (2) eight applicants are Black and one is Latino; (3) six applicants applied for a first mortgage, one applied for a first mortgage and a cash–out refinance, one applied for a Veterans Affairs (VA) first mortgage, and one applied for a VA cash-out refinance; and (4) the applicants’ debt, income, and credit scores vary.”

Defendant moved to dismiss the complaint, and, in the alternative, to strike the class allegations under Rules 12(f) and 23(d)(1)(D). The District Court granted the motion to dismiss in part and denied in part, and struck the class allegations, from which the U.S. Fourth Circuit granted interlocutory review.

Initially, the Court of Appeals noted that: “It is common ground that district courts may sometimes make class certification decisions based solely on the pleadings and before any discovery has occurred. Although Navy Federal and the district court cited Federal Rules of Civil Procedure 12(f) and 23(d)(1)(D), we conclude that Rule 23(c)(1)(A) is the source of authority to make such determinations. By directing district courts to make class certification decisions at ‘an early practicable time,’ Rule 23(c)(1)(A) grants district courts considerable discretion about the timing of their class certification decision, including whether to entertain requests to make such decisions at the pleading stage. But … a district court may deny class certification before discovery only if the complaint’s class action allegations fail to satisfy the relevant legal standards as a matter of law.”

In this particular case, the Court concluded that “this is the unusual case in which the district court could determine — based solely on the face of the complaint — that any request to certify a (b)(3) class fails as a matter of law. The nine named plaintiffs alone are residents of five different States who applied for at least four different products and had different outcomes with Navy Federal. The complaint identifies an open-ended class period ‘from 2018 to the present,’ while seeking restitutionary relief, as well as compensatory, statutory, and punitive damages on behalf of each Class member. Although a district court usually should consider more information than the bare allegations of the complaint in making such a determination, this is the rare circumstance where a failure of predominance and/or superiority is readily apparent from a reading of the plaintiffs’ complaint.”

However, with respect to certification under (b)(2), the Court of Appeal reversed: “The district court never used the word ‘commonality,’ referenced the provision that imposes that requirement (Rule 23(a)(2)), or cited the Supreme Court decision (Wal–Mart) that forms nearly the entire basis of Navy Federal’s commonality argument. And, as just explained, the district court’s stated reasons sound more in predominance and superiority than in commonality. Second, we cannot say that the complaint fails to make a prima facie commonality showing as a matter of law. The complaint alleges that Navy Federal requires every applicant to fill out a single form that collects various categories of information that can be proxies for race. The complaint further alleges that Navy Federal runs the data from the application through its proprietary underwriting algorithm – singular – to determine a person’s creditworthiness and decide whether to lend to a particular borrower and on what terms. Finally, the complaint alleges that this at-least semi-automated underwriting process — again, singular — generates a uniquely discriminatory result. These allegations suggest several common questions of law or fact that are capable of class-wide resolution and whose answers will resolve an issue that is central to the validity of each one of the claims in one stroke. For example, does Navy Federal use a single algorithm as part of its process for evaluating every loan applicant regardless of the underlying product? …. If so, does that algorithm — as opposed to some other variable(s) — produce the disparate impacts based on race that are alleged in the complaint? …. If so, is Navy Federal’s use of that algorithm justified by some interest that would defeat all the applicants’ claims? Depending on their resolution, these common questions could produce a common answer to the crucial question why was each class member disfavored.”

 

Oliver v. Navy Federal Credit Union, 167 F.4th 106 (4th Cir. 2026).