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Shady Grove Orthopedic Associates v. Allstate Insurance Co.

Citation. 559 US 393 (2010)
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Brief Fact Summary.

Plaintiff brought a class action against Defendant for failure to pay interest on overdue benefits.

Synopsis of Rule of Law.

A state law that prevents certain types of damages from being pursued via class action may not limit federal class actions that satisfy the requirements of FRCP Rule 23.


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 Defendant. Although Defendant paid Plaintiff, it failed to do so within the statutorily required time and also refused to pay the statutory interest that had accrued on the late payment. Plaintiff brought a class action against Defendant in the Eastern District of New York under diversity jurisdiction to recover the statutory interest owed to it and similarly situated parties. The district court dismissed the lawsuit for lack of jurisdiction, holding 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 FRCP Rule 23 which permits class actions. Plaintiff appealed and the court of appeals affirmed and held that FRCP Rule 23 and § 901(b) addressed different issues and thus did not conflict. The U.S. Supreme Court granted certiorari.


May a state law that prevents certain types of damages from being pursued via class action limit federal class actions that satisfy the requirements of FRCP Rule 23?


No. The court reversed, holding that FRCP Rule 23 controlled when a class action lawsuit may be filed in federal court, so states do not have the authority to limit the right to sue.


Justice Ginsburg, Kennedy, Breyer, Alito

The dissent argued that the Court eroded Erie Railroad Co. v. Tompkins. They argued that New York Law §901(b) was not merely procedural but had a strong substantive policy, and Rule 23 should not override its restriction on damages. They criticized the plurality for focusing only on whether the class action may be maintained pursuant to Rule 23 and fails to address the concern of New York to keep certain monetary awards reasonably bounded. If there is a conflict between a federal rule of civil procedure and state law, the federal rule should be narrowly construed to accommodate important state interests. There is no inevitable collision between Rule 23 and §901(b). 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.


Justice Stevens

Justice Stevens concurred in part and concurred in the judgment. He agreed with the application of FRCP Rule 23 in this case, but disagreed with the plurality‘s determination that the substantive nature of state laws would make no difference in a case. He argued that there were 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 appeared to govern an issue, there would be a two-step framework that would require the court to determine what the federal rule and state law mean.


A state law that prevents certain types of damages from being pursued via class action may not limit federal class actions that satisfy the requirements of FRCP Rule 23. A federal court may certify a class pursuant to FRCP Rule 23. A court may do this in each and every case in which the Rule’s criteria are met. Congress has ultimate authority over the Federal Rules of Civil Procedure, not the states. The fact that Congress carved out specific exceptions to FRCP Rule 23 does not mean that the Rule does not apply in this case. If FRCP Rule 23 did not authorize class actions across the board, the exceptions would not be necessary. FRCP Rule 23 permits all class actions that meet its requirements and a state cannot limit that permission by structuring a state law to track FRCP Rule 23 on one hand and enact a part on the other that imposes additional requirements. Under the Rules Enabling Act, procedural rules are valid so long as they govern the manner and means of enforcing rights, and do not alter individual rights, available remedies, or the rules of decision employed by the court.

Here, FRCP Rule 23 fell within the Rules Enabling Act’s authorization and is valid in every federal court because it affected only the number of claims and parties before the 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 FRCP Rule 23, depends entirely upon whether it regulates procedure. If it regulates procedures (as FRCP Rule 23 does), it is authorized by Rules Enabling Act and is valid in all jurisdictions regardless of state-created rights. Therefore, the judgment of the court of appeals is reversed, and the matter is remanded for further proceedings.

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