Monday, November 9, 2009
Scotusblog has a very nice recap of the Shady Grove oral argument, better than the real thing in my opinion. I was lucky to be teaching Erie last week in my civil procedure class and have been thinking a lot about this case.
Among other things, this case raises the question of whether a class action is a remedy, which would be "substantive" under Erie, or merely a method for dealing with large numbers of claims, which would be "procedural" under Erie. I think the class action is both things. It is a means to aggregate claims and permits large-scale remedial action that would otherwise be impossible because most people do not bring their small claims at all. The Court will have to choose between these competing interpretations.
The oral argument demonstrated to me that we do not have a good theory of what a class action is. If we buy entity theory (that the class action is an entity like a corporation) then to me the class looks more remedial. This would mean that in order to be consistent with Cohen v. Beneficial Loan, 337 U.S. 541 (1949) the Court would have to hold that the NY Rule trumps Rule 23. Why? In that case the Court reasoned that the state legislature wanted to limit costly derivative litigation and therefore the state rule regarding that type of litigation ought to govern regardless of Rule 23. (At that time Rule 23 governed derivative suits). Justice Ginsburg kept bringing up Cohen in the oral argument, so dealing with it is important. (Set aside for the moment what this interpretation means for the legitimacy of class actions under the Rules Enabling Act).
On the other hand, if the class action is simply a mechanism for aggregating similar individual cases, then the class looks more like a "housekeeping" rule. Under this theory, a class is nothing more than a collection of individual cases that plaintiffs are otherwise entitled to bring, and nothing about the class action changes that fact. Advocates of this version of the class action might be against cy pres distributions, for example, because the money doesn't go to individual class members which is the only place it belongs. If aggregation of individual claims is the theory of the class action, then the federal rule should govern because no change is wrought to the underlying substantive law by the aggregation - its just that all the small cases are adjudicated together. Nor does the class action create an inequity in the law because in state citizens can still bring their claims just as well. The availability of aggregation doesn't change that. In this view, Shady Grove is more like Hanna v. Plumer, 380 U.S. 460 (1965), where the Court upheld the federal rule on service of process.
In his recent book, Wholesale Justice, Martin Redish argues that the class action does distort the substantive causes of action brought by this mechanism and is therefore a violation of the Rules Enabling Act (which states that the federal rules cannot abridge enlarge or modify any substantive right). Redish is making an argument about democratic accountability, but his theory fits nicely with Ginsberg's apparent view of class actions from oral argument - that they are a remedy that alters the substantive law.
Proponents of class actions make similar arguments. Myriam Gilles has argued in an excellent article Exploding the Class Action Agency Costs Myth, that in a class action what matters is deterrence, not whether individuals actually get compensation. This theory is particularly resonant in statutory damages cases where the amount collected is small and uniform, perfectly suited to the class action mechanism. And the ability to bring statutory damages class actions are what is at stake in Shady Grove.
This brings me to what Justice Story, the author of Swift v. Tyson, would say about this. Story was the author of the first treatise of Equity in the U.S. and a big fan of distinguishing between law and equity. (The class action is a procedural mechanism with its roots in equity). He was also a staunch Federalist. His opinion in Swift requiring that federal judges apply a "general common law" in commercial cases (later expanded to all cases) was a move to consolidate power over the national economy in the federal government. We see echos of this in the Class Action Fairness Act (barely discussed at oral argument but I think quite relevant to the case), which brought class actions exceeding $5 million into federal court with some limited restrictions on local class actions. Erie recognized that the Swift rule did not bring the uniformity of law that it promised and overturned it. Its not clear to me that Erie is about uniformity at all. Ed Purcell in his wonderful book Brandeis and the Progressive Constitution, reads Erie as Brandeis' reaction against the centralization wrought by the Federal Rules, which were adopted the same year. Will Shady Grove, if it comes out in favor of the NY rule, be read as a reaction against the attempt at centralization wrought by CAFA? Or as a corporatist move by the Court? Or simply part of the larger struggle of this Court against litigation in general? (For an excellent discussion of this trend, see Andrew Siegel, The Court Against the Courts: Hostility to Litigation as a Theme in the Rehnquist Court's Jurisprudence, Siegel could write a great update to this piece based on Twombly, Iqbal and probably Shady Grove given how oral argument went).
Finally, would this case come out differently if the state law at stake favored class actions? There seemed to be an argument floating around that a rule favoring class actions would not be applied under Erie because the methods of certifying class actions is governed by Rule 23 and this would be a direct conflict, whereas the case at hand presents an indirect conflict because the state has banned class actions altogether for certain categories of cases. I don't really buy this one way ratchet idea - it seems to me that if you say that the state's interest in not having class actions is paramount, so too should the state's interest in enabling litigation be paramount.