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Shady Grove Orthopedic Assoc. v. Allstate Ins. Co.

    Brief Fact Summary.

    Plaintiff sued Defendant in federal court when Defendant refused to pay the statutory interest that had accrued after Defendant paid insurance benefits for the care of Plaintiff’s patient after the statutorily required time. The court dismissed the case for lack of jurisdiction. The court of appeals affirmed.

    Synopsis of Rule of Law.

    Federal Rule of Civil Procedure 23 provides that a class action may be maintained, provided all of the rule’s criteria are satisfied.

    Facts.

    Shady Grove Orthopedic Associates, P.A. (Plaintiff) provided medical care to Sonia Galvez who sustained injuries in a car accident. As partial payment for the medical care, Galvez assigned to Plaintiff her rights to insurance benefits under a policy by Allstate Insurance Company (Defendant). Although Defendant paid Plaintiff, it failed to do so within the statutorily required time and refused to pay the statutory interest that had accrued on the late payment. Plaintiff filed a diversity class action suit in the Eastern District of New York to recover the statutory interest owed to it and similarly situated parties. The district court dismissed the suit for lack of jurisdiction. There, the court held that the statutory interest sought was a penalty and, consequently, New York Civil Practice Law § 901(b) precluded a class action suit in federal court to recover a “penalty” despite Fed. R. Civ. P. 23 which permits class actions. Plaintiff appealed and the court of appeals affirmed and held that Rule 23 and § 901(b) addressed different issues and thus did not conflict. The U.S. Supreme Court granted certiorari to review.

    Issue.

    Whether Federal Rule of Civil Procedure 23 provides that a class action may be maintained, provided all of the rule’s criteria are satisfied.

    Held.

    Yes. The court of appeals’ ruling is reversed and the case is remanded for further proceedings. Federal Rule of Civil Procedure 23 provides that a class action may be maintained, provided all of the rule’s criteria are satisfied.

    Dissent.

    (Ginsbrug, J.): The majority only focuses on whether the class action may be maintained pursuant to Fed. R. Civ. P. 23 and fails to address the concern of New York to keep certain monetary awards reasonably bounded. There is no inevitable collision between Rule 23 and § 901(b). A court is able to address both equally. Plaintiffs may still pursue a class action under both laws if they forgo statutory damages and instead seek actual damages or injunctive or declaratory relief. Any putative class member who objects can opt out and pursue actual damages if available. Congress envisioned fewer, not more, class actions overall.

    Concurrence.

    (Stevens, J.): The majority is correct in holding that Fed. R. Civ. P. 23 must apply. But the dissent also correctly notes that there are some state procedural rules that a federal court must apply in diversity cases because they function as a part of the state’s definition of substantive rights and remedies. When both a federal rule and state law appear to govern an issue, there is a two-step framework. Both steps require the court to determine what the federal rule and state law mean. First, a court must determine whether the scope of the federal rule is “sufficiently broad” to “control the issue” before the court, thereby “leaving no room for the operation” of conflicting state law. Walker v. Armco Steel Corp., 446 U.S. 740, 749-50 (1980). If the federal rule does not apply or can operate alongside the state rule, then there is no Congressional act governing the question and the Court may conduct its analysis. Second, if the federal rule is broad enough that it creates a “direct collision,” the court must decide if applying the federal rule is a valid exercise of rulemaking authority under the Rules Enabling Act. The majority fails to recognize this second limitation that a federal rule “not abridge, enlarge, or modify any substantive right.”

    Discussion.

    A federal court may certify a class pursuant to Fed. R. Civ. P. 23. A court may do this in each and every case where the Rule’s criteria are met. Defendant argues that Congress carved out certain cases in which Rule 23 does not apply, but rather leaves room for laws like § 901(b) to reject class certification. However, Congress has ultimate authority over the Federal Rules of Civil Procedure, not the State of New York. The fact that Congress carved out specific exceptions to Rule 23 does not mean that the Rule does not apply in the case at bar. If Rule 23 did not authorize class actions across the board, the exceptions would not be necessary. Rule 23 permits all class actions that meet its requirements and a state cannot limit that permission by structuring a state law to track Rule 23 on one hand and enact a part on the other that imposes additional requirements. Under the Rules Enabling Act, Congress authorized the Court to create procedural rules so long as they do not “abridge, enlarge, or modify any substantive right.” 28 U.S.C. § 2072(b). If a court-created rule governs only “the manner and the means” of enforcing litigants’ rights, it is valid. If the rule alters the “rules of decision by which [the] court will adjudicate [those] rights,” it is invalid. Utilizing the test, the Court has found that Fed. R. Civ. P. 23 falls within § 2072(b)’s authorization and is valid in every federal court. It is not the substantive or procedural nature or purpose of the affected state law that matters. What matters is the substantive or procedural nature of the Federal Rule. The validity of a Federal Rule, including Rule 23, depends entirely upon whether it regulates procedure. If it does, which is the case at bar, it is authorized by § 2072 and is valid in all jurisdictions regardless of state-created rights.


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