Shady Grove Orthopedic Associates v. Allstate Insurance
Citation and Court
559 U.S. 393 (2010) — Supreme Court of the United States
Facts
Shady Grove filed a class action against Allstate in federal district court in New York, invoking diversity jurisdiction, to recover statutory penalties for late insurance payments. New York Civil Practice Law § 901(b) prohibited class actions to recover statutory penalties. Allstate argued the New York rule applied and barred the class action. Federal Rule of Civil Procedure 23 set out the conditions for class certification without any such restriction.
Issue
Whether New York’s prohibition on class actions to recover statutory penalties applies in federal diversity court, or whether FRCP Rule 23 controls.
Holding
FRCP Rule 23 governs class certification in federal court and displaces New York’s conflicting class-action restriction; the class action may proceed.
Rule / Doctrine
Under the Hanna v. Plumer framework, when an FRCP rule directly conflicts with state law, the federal rule applies in diversity cases as long as it is valid under the Rules Enabling Act — i.e., it is procedural and does not abridge, enlarge, or modify substantive rights. Rule 23 is a valid procedural rule and displaces contrary state class-action limitations.
Significance
Shady Grove is the most important recent Erie case, but produced no majority opinion on the key analytical question. Justice Scalia’s plurality applied a categorical test (if the FRCP rule is broad enough to cover the point in dispute, it governs), while Justice Stevens’s concurrence added a narrowing gloss (a state rule that is intertwined with state substantive rights may survive even in the face of a conflicting FRCP). The disagreement over method shapes continuing Erie analysis.