Thursday, December 31, 2009

The Future of Class Actions After Shady Grove

As Adam Steinman writes on the Civil Procedure & Federal Courts Blog, people interested in civil procedure, federalism, consumer law and class actions are eagerly awaiting the Court's decision in the Shady Grove case.  The question in that case is whether a New York Civil Procedure Law (NYCPLR) prohibiting class actions in a certain class of cases will bar a class action on that type of case from being certified in Federal Court under Rule 23.  

Steinman argues that a ruling that the NYrule prohibiting class actions will be applied by the federal court may not be so bad for plaintiffs.  Although in this particular case it will bar plaintiffs' class action, in jurisdictions where the state class action rule is more lenient than the federal rule the Court may end up permitting classes to be certified under state procedural law that couldn't have been certified under Rule 23. So the case may end up badly for these plaintiffs, but not for plaintiffs generally because now plaintiff-friendly state class action law will be imported into the federal courts thanks to the Class Action Fairness Act of 2005 (CAFA).

I disagree.  I predict that this case will end up being a one way ratchet.  I think the Court will rule that because the NY rule bars class actions entirely for this type of case, Rule 23 does not even kick in.  But when plaintiffs seek to have a class certified in the absence of an outright ban, Rule 23 does apply and whatever restrictive reading of Rule 23 the federal courts have given will trump more lenient state rules.  In other words, the Court is likely to distinguish between cases where the rule bars class actions entirely (the state rule trumps) and cases where the state rule permits class action (the Federal rule trumps).  I am not saying this is right or analytically sound, just that this is what I think the outcome will be.

Can this distinction be sustained?  I think it will produce a pretty unstable doctrine. But then again, Erie is already pretty unstable and we seem to be living with the instability for some time now. 

The more sensible ruling would probaby be to say that CAFA brought these cases into federal court, the manifested intent of Congress in changing the jurisdictional balance of power between the states and the federal courts was that federal rules occupy the field in class actions, and therefore rule 23 should apply to this case.  As Steinman points out, this outcome may seem plaintiff friendly today, but given the federal courts' treatment of choice of law issues in national class actions, this is not necessarily a bad outcome for defendants.


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