Shady Grove Orthopedic Associates v. Allstate Insurance Co.

Brief Fact Summary.

After Galvez was injured in a car accident, she assigned her rights under her insurance policy to Petitioner.  Respondent paid on the  claim, but refused to pay statutory interest that had accrued on the payment.  Petitioner sued Respondent on behalf of itself and a class of others to recover the unpaid statutory interest. The district court dismissed the lawsuit, and the Court of Appeals affirmed. The Supreme Court granted certiorari.

Synopsis of Rule of Law.

A  Federal Rule that regulates procedure is authorized by 28 U.S.C. 2072 and is valid in all jurisdictions as to all claims, regardless of any incidental effect on state-created rights.

Facts.

Galvez, who suffered injuries in a car accident, was insured by Respondent. She assigned her rights under her insurance policy to Petitioner, a medical care provider.  Respondent paid on the insurance claim, but apparently late, and refused to pay statutory interest that had accrued on the overdue benefit payment.  Petitioner sued Allstate on behalf of itself and a class of others to recover unpaid statutory interest on the insurance benefits. The district court dismissed the lawsuit because a New York law prohibited the use of a class action lawsuit to recover a “penalty.” The Court of Appeals affirmed, finding no conflict between the New York law and Federal Rule of Civil Procedure 23. The Supreme Court granted certiorari.

Issue.

Was the class action lawsuit properly dismissed for lack of jurisdiction?

Held.

No. The New York law prohibiting class actions in lawsuits seeking penalties or statutory minimum damages did not preclude the federal court action.

Dissent.

Justice Ginsburg

Justice Ginsburg would not have recognized a conflict between Federal Rule of Civil Procedure 23 and the New York restriction on the availability of statutory damages.

Concurrence.

Justice Stevens

Justice Stevens agreed with the dissent that some state procedural rules, to the extent that they  function as part of the state’s definition of substantive rights and remedies, must apply in diversity cases, but concluded that in this case, the New York law at issue was a procedural rule that was not part of New York’s substantive law.

Discussion.

Federal Rule of Civil Procedure 23 and the New York law at issue (which prevented class actions to recover penalties) were in conflict in this case. The validity of the Federal Rule depended on whether it regulated procedure, which it did in this case. As such, it was authorized by 28 USC 2072 and was valid regardless of its effect upon state-created rights.