Cert Granted in Important Class Action Case

The Supreme Court today granted certification in Shady Grove Orthopedic Assoc., P.A. v. Allstate Insurance Co. (docket no. 08-1008). This may be a case that decides the future of the much-maligned procedural rule - the money damages class action. The case concerns allegations against Allstate arising out of payments of claims for auto accidents under New York's no fault auto insurance regime. 

Here is the outline of the case: In cases where a statute creates a penalty or provides for a minimum measure of recovery, New York law prohibits the certification of a class action unless the statute specifically permits the class action device to be used. (NY Civil Practice Law and Rules Sec. 901(b)).  The plaintiffs sought to bring a class action in Federal Court against Allstate for violating provisions in New York's no fault insurance regime. The lower federal courts (district court and 2nd Circuit) dismissed the suit on the theory that the New York legislature had spoken and no class action could be certified.  The plaintiffs argue that the state legislature cannot dictate the procedural rules used in the federal courts. Scotusblog has linked to the petitions for and against cert.

At stake are the uniformity of the federal rules in diversity cases, as well as the right of states to regulate (or limit regulation) of business through statutory penalties.   It provides the court with an opportunity to revisit the intersection between the Erie doctrine and the federal rules.

The class action is in some ways a special case because it illustrates in an obvious way the uneasy relationship between substance and procedure.  For example, consider a law that creates a statutory penalty of $1000 for the selling of private information by telecom companies. A single person bringing a claim cannot justify the cost of suit.  In that case, the law has no bite.  But if the suit is brought as a class action on behalf of all telecom customers, one million customers means a one billion dollar statutory penalty for the company.  Some opponents of the class action argue that class actions violate due process because it can lead to the distortion of individual claims.  Others argue that class actions are a form of "blackmail" for this reason - even if the claims are weak, the risk of loss is too high and requires settlement.  Even those that think class actions are a good idea because they permit private parties to regulate misconduct that would otherwise go unpunished must admit that the class action device changes the nature of litigation - they just think it changes it in a beneficial way for society.

But anyone who was once a first year law student will remember that all procedural rules to some extent share this quality.  For example, consider a rule that requires individual service of process on the defendant in some cases, but permits service of process to any responsible adult in other cases.  This rule can alter the outcome of the case and is therefore substantive in some sense, but the Supreme Court in Hanna v. Plumer held that this is fundamentally a procedural rule.  In that case, the Federal Rule (which did not require service on individual defendant) trumped the state rule (which did).

The last time something like this came up was in Gasperini v. Center for the Humanities.  In that case, the Supreme Court held that a New York statute dictating a more stringent standard for remittitur should be followed in the federal courts.  If the Court requires the federal courts to apply the New York ban on class actions, this would result in a further fragmentation of the FRCP and perhaps eventually lead to a regime where state procedure is applied in diversity cases. 

I have not even addressed the question of whether the New York statute is a good idea - that is, whether the class action should be a default rule available in all cases or be specially required by legislatures.  I am sure that this will be to some extent the focus of the Supreme Court.  But since the federal rules are structured to be trans-substantive (that is, to apply the same to all cases), a policy-based ruling that the New York legislature is right to carve out the class action will mean a significant change to the Court's approach to the federal rules.  This  change that has already been signaled in the Court's recent pleadings jurisprudence. We'll find out more when Ashcroft v. Iqbal (this link is to Scotusblog on that case) comes down later this term.

ADL