Wednesday, March 31, 2010

Recap of Today's Decision in Shady Grove v. Allstate

Here's a brief recap of today's SCOTUS decision in Shady Grove Orthopedic Assocs. v. Allstate Ins. Co., which considers whether New York's bar on class actions for certain statutory-damages claims (N.Y. C.P.L.R. 901(b)) precludes class certification in a federal court diversity action. The result is essentially a 5-4 decision, with Scalia writing the Opinion of the Court. Justice Stevens, however, is the tie-breaking vote, and he joins only certain parts of Scalia's opinion and writes a separate concurrence. Justice Ginsburg writes the dissent. The fractured ruling means that considerable uncertainty remains on how federal courts should resolve other potential conflicts between state law and the Federal Rules of Civil Procedure.

The first issue the Court confronts is whether Federal Rule 23 "is sufficiently broad to control the issue before the court, thereby leaving no room for the operation of seemingly conflicting state law." On this issue, five Justices (Scalia, joined by Roberts, Stevens, Thomas and Sotomayor) hold that Rule 23 does control the issue. Therefore, Rule 23 will trump New York's 901(b) unless Rule 23 violates the Rules Enabling Act. (This is Part II-A of Scalia's opinion.)

The same five Justices then hold that Rule 23 does not violate the Rules Enabling Act, but Stevens does not join Scalia's reasoning on this and writes a separate concurrence. Channeling Sibbach, Scalia reasons that a Federal Rule passes muster as long as it "really regulates procedure." Stevens' approach is more deferential to state law: a Federal Rule "cannot govern a particular case in which the rule would displace a state law that is procedural in the ordinary use of the term but is so intertwined with a state right or remedy that it functions to define the scope of the state-created right." Despite their different approaches, Scalia and Stevens agree that Rule 23 is validly applied.

In dissent, Justice Ginsburg (joined by Kennedy, Breyer & Alito) reasons that Rule 23 should be construed not to collide with New York law. Therefore the applicability of New York law presents what has been called a relatively unguided Erie choice, not one that hinges on Rule 23's validity under the Rules Enabling Act. Under this approach, Ginsburg reasons, New York's 901(b) is binding in federal court if (per Hanna v. Plumer) "application of the state rule would have so important an effect upon the fortunes of one or both of the litigants that failure to apply it would be likely to cause a plaintiff to choose the federal court." Thus, Ginsburg reasons that New York's 901(b) should apply: "Shady Grove seeks class relief that is ten thousand times greater than the individual remedy available to it in state court. As the plurality acknowledges, forum shopping will undoubtedly result if a plaintiff need only file in federal instead of state court to seek a massive monetary award explicitly barred by state law."

For additional coverage and commentary on Shady Grove, see SCOTUSblog and the Mass Tort Litigation Blog.


Class Actions, Federal Rules of Civil Procedure, Recent Decisions, Supreme Court Cases | Permalink


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