Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co.
2010 U.S. LEXIS 2929, 176 L. Ed. 2d 311, 559 U.S. 393 (2010)
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Rule of Law:
If a Federal Rule of Civil Procedure is valid under the Rules Enabling Act and directly answers the question in dispute, it governs in federal court, even if it conflicts with a state law, regardless of whether that state law is considered substantive or procedural.
Facts:
- Sonia E. Galvez was injured in an automobile accident and received medical care from Shady Grove Orthopedic Associates, P.A.
- As partial payment, Galvez assigned her rights to insurance benefits under a policy issued by Allstate Insurance Co. to Shady Grove.
- Shady Grove submitted a claim for these benefits to Allstate.
- Under New York Insurance Law, Allstate was required to pay or deny the claim within 30 days.
- Allstate paid the claim after the 30-day deadline had passed.
- Allstate refused to pay the statutory interest of two percent per month that New York law mandates for overdue insurance benefits.
- Shady Grove alleged that Allstate has a routine practice of refusing to pay this statutory interest on overdue benefits.
Procedural Posture:
- Shady Grove filed a diversity suit against Allstate in the U.S. District Court for the Eastern District of New York, seeking to represent a class.
- The District Court dismissed the suit for lack of jurisdiction, ruling that New York's § 901(b) barred the class action and Shady Grove's individual claim did not meet the amount-in-controversy requirement.
- Shady Grove, as appellant, appealed the dismissal to the U.S. Court of Appeals for the Second Circuit.
- The Second Circuit, with Allstate as appellee, affirmed the District Court's decision, holding that there was no direct conflict and that § 901(b) was a substantive state law applicable in federal court under Erie.
- The U.S. Supreme Court granted Shady Grove's petition for a writ of certiorari.
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Issue:
Does Federal Rule of Civil Procedure 23, which permits a class action to be maintained if its criteria are met, displace a New York state law that prohibits class actions for claims seeking statutory penalties in a diversity jurisdiction case?
Opinions:
Majority - Justice Scalia
Yes. Federal Rule of Civil Procedure 23 displaces the conflicting New York state law. When a valid Federal Rule directly conflicts with a state law, the Federal Rule controls. First, there is a direct conflict because Rule 23 provides a comprehensive, one-size-fits-all set of criteria for determining if a class action 'may be maintained,' while New York's § 901(b) states that an action to recover a penalty 'may not be maintained as a class action.' The court rejects any distinction between 'eligibility' for class treatment and 'certifiability,' as well as any analysis based on the state legislature's underlying purpose; the plain text of the two rules directly collides. Second, Rule 23 is a valid exercise of rulemaking authority under the Rules Enabling Act. Following the test from Sibbach v. Wilson & Co., a Rule is valid if it 'really regulates procedure.' Rule 23, like rules governing joinder or consolidation, regulates procedure by governing the 'manner and the means' by which rights are enforced; it does not alter the underlying substantive rights themselves. The validity of a Federal Rule depends on its own procedural nature, not on the nature or purpose of the state law it happens to displace.
Concurring - Justice Stevens
Yes. Rule 23 applies in this case because the specific New York law it displaces is a procedural rule that is not part of New York's substantive law. While a federal rule cannot abridge, enlarge, or modify a substantive right, this requires an analysis of the state law at issue. Some state procedural rules are so intertwined with a state-created right or remedy that they effectively define its scope; in such cases, applying a conflicting Federal Rule would violate the Rules Enabling Act. However, New York's § 901(b) is not such a rule. Its text is not limited to New York-based claims but applies broadly to any claim for penalties, including those under federal or other states' laws. Therefore, it functions as a general procedural rule for New York's courts, not as a component of New York's substantive rights or remedies. Because § 901(b) is purely procedural, applying the conflicting Federal Rule 23 is permissible.
Dissenting - Justice Ginsburg
No. Rule 23 should be interpreted with sensitivity to important state regulatory policies to avoid a conflict with the state law. There is no 'direct collision' because Rule 23 and § 901(b) address different concerns. Rule 23 governs the procedural fairness and efficiency of class litigation, whereas § 901(b) is a substantive provision that defines the dimensions of the available remedy. The New York Legislature enacted § 901(b) with the specific substantive goal of preventing 'annihilating punishment' by prohibiting the aggregation of statutory penalties, which were created with individual suits in mind. Since the rules do not directly conflict, the Erie doctrine requires the federal court to apply the state law to prevent forum shopping and the inequitable administration of laws. Allowing the suit to proceed as a class action in federal court would transform a $500 individual claim into a potential $5 million award, a result explicitly forbidden by the state that created the underlying right.
Analysis:
This decision reinforces a bright-line, text-focused application of the Hanna framework, prioritizing the uniform application of the Federal Rules of Civil Procedure over state substantive policies. The plurality's approach narrows the Rules Enabling Act inquiry to whether the Federal Rule itself is procedural, largely ignoring the substantive or procedural nature of the state law it displaces. However, the fractured 5-4 decision, with Justice Stevens' crucial concurring opinion, creates ambiguity, as his analysis suggests that the nature of the state law is still relevant. This outcome will likely encourage forum shopping, as plaintiffs can now bring state-law class actions in federal court that are expressly prohibited in the courts of the state that created the cause of action.
