Wednesday, March 31, 2010

Rule 23 Upheld in All State Class Actions

The Supreme Court today released the decision in Shady Grove Orthopedics v. Allstate.  Justice Scalia, writing for the Court, was joined by Thomas, Roberts, Sotomayor & Stevens.  Justices Kennedy, Breyer, Alito joined Ginsburg's dissent.  (h/t Steven Burbank, Penn Law).  You can find the case here. Coverage at Civ Pro Blog here.

The case concerned a class action for statutory damages brought by Shady Grove against Allstate for failing to pay claims.  The cause of action was under New York law and the New York class action rule only permits class actions where the underlying substantive law specifically states that class actions will be available.  The question presented in the case was whether the plaintiffs could sustain a class action in Federal Court based on the state cause of action.  The class action was in Federal Court because of the Class Action Fairness Act.  The Court ruled that the Federal Court could certify a class under Rule 23 even when the underlying cause of action could not have been certified as a class in state court because of the New York procedural rule.

Part II.B. is the key part, although only a plurality agreed on it (Justice Stevens issued a separate concurrence and basically agreed only with the result).  Justice Scalia writes "The test is not whether the rule affects a litigant's substantive rights; most procedural rules do....What matters is what the rule itself regulates: If it governs only "the manner and the means" by which the litigant's rights are "enforced," it is valid; if it alters the "rules of decision by which [the] court will adjudicate [those] rights," it is not.....[W]e have rejected every statutory challenge to a Federal Rule that has come before us....Applying that criterion, we think it obvious that rules allowing multiple claims (and claims by or against multiple parties) to be litigated together are also valid....Such rules neither change plaintiffs' separate entitlements to relief nor abridge defendants' rights; they alter only how the claims are processed."  He went on to analogize joinder and consolidation to class actions. (Slip Op at 13)

What of the argument that New York intended to achieve a substantive effect -- disallowing statutory damages class actions? The Court explains: "...the substantive nature of New York's law, or its substantive purpose, makes no difference.  A Federal Rule of Procedure is not valid in some jurisdictions and invalid in others --or valid in some cases and invalid in others -- depending upon whether its effect is to frustrate a state substantive law (or a state procedural law enacted for substantive purposes."   (Slip op at 15)

The inquiry is not to the state law, but to the nature of the Federal Rule - does it regulate procedure?

More analysis of the decision to come.  ADL

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Great analysis, but could you add a link to the decision, just for convenience?


Posted by: Sergio Campos | Mar 31, 2010 8:50:00 AM

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