Federal Class Actions Don't Yield to State Laws

Abstract

Commentary and analysis of the Supreme Court’s decision in Shady Grove Orthopedic Associates P.A. v. Allstate Insurance Co. in which the Court rescued federal class actions from demise at the hands of the states. 

The Court decided that Federal Rule of Civil Procedure 23 takes precedence in federal diversity class actions and preempts state statutory provisions that limit class litigation. Shady Grove, however, is muddled by an array of decisions, with the alignment of justices defying ideological predispositions. Thus, Justice Sonia Sotomayor joined Scalia, Justice Clarence Thomas and Chief Justice John Roberts Jr. to save the federal class action; Justice Samuel Alito Jr. joined dissenting justices Ruth Bader Ginsburg, Anthony Kennedy and Stephen Breyer in support of state prerogative. 

There is no majority opinion in the case. The Court split, 4-1-4, with the departing Justice John Paul Stevens concurring, to supply the pivotal vote in support of Rule 23. However, his  concurrence simultaneously disagrees with Scalia's opinion and agrees with Ginsburg's dissent.

New York State's civil practice code provides for state class actions in N.Y. Civ. Prac. Law Ann. 901(a) and (b). Section 901(a) sets forth the prerequisites for class certification, which replicate federal class certification requirements. Subsection 901(b), however, precludes class actions to recover statutory penalties. The underlying Shady Grove litigation presented a clash between the New York class action rule and Federal Rule 23, and whether New York federal courts were obliged to apply the more restrictive New York procedural rule. 

In an opinion by Justice Scalia, he indicated that the Court first had to determine whether Rule 23 answered the Erie question and that if it did, then Rule 23 would govern, unless the rule exceeded statutory authorization or Congress' rulemaking power. Scalia wrote that Rule 23 and 901(b) address the same issue: whether a class action may proceed for a given lawsuit. Thus, Rule 23 sets forth a categorical rule entitling a plaintiff to maintain a class action if certain criteria are satisfied. Section 901(b) attempts to answer the same question, indicating what types of suits may not be maintained as class actions. 

Rule 23 and 901(b) were in direct conflict, then, because "Rule 23 permits all class actions that meet its requirements, and a State cannot limit that permission by structuring one part of its statute to track Rule 23 and enacting another part that imposes additional requirements." Having determined that Rule 23 and 901(b) raised a Hanna conflict in which a state rule must give way to the federal rule Scalia next addressed whether Rule 23 fell within statutory authorization that is, whether the federal rule "really regulated procedure." 

Scalia acknowledged that, by keeping federal courts open to class actions that otherwise could not proceed in state court, the Shady Grove decision would produce forum-shopping. But this consequence "is the inevitable result of a uniform system of federal procedure," and the fact that Congress created the possibility that the same case might follow a different course if filed in federal instead of state court.