559 U.S. 393 (USSC 2010)
Shady Grove Orthopedic Associates, P.A., provided medical care to Sonia E. Galvez for injuries she suffered in an automobile accident. As partial payment for that care, Galvez assigned to Shady Grove her rights to insurance benefits under a policy issued in New York by Allstate Insurance Co. Shady Grove tendered a claim for the assigned benefits to Allstate, which under New York law had 30 days to pay the claim or deny it. Allstate apparently paid, but not on time, and it refused to pay the statutory interest that accrued on the overdue benefits at two percent per month.1
Shady Grove filed this diversity suit in the Eastern District of New York to recover the unpaid statutory interest. Alleging that Allstate routinely refuses to pay interest on overdue benefits, Shady Grove sought relief on behalf of itself and a class of all others to whom Allstate owes interest. The individual claim was worth roughly $500, which fell far short of the amount-in-controversy requirement for individual suits under 28 U.S.C. § 1332(a).2
The District Court dismissed the suit for lack of jurisdiction. It reasoned that N.Y. Civ. Prac. Law Ann. § 901(b), which precludes a suit to recover a penalty from proceeding as a class action, applies in diversity suits in federal court despite Federal Rule of Civil Procedure 23. Concluding that statutory interest is a penalty under New York law, it held that § 901(b) prohibited the proposed class action.3
Whether New York law prohibiting class actions in suits seeking penalties or statutory minimum damages precludes a federal district court sitting in diversity from entertaining a class action under Federal Rule of Civil Procedure 23?4
Yes. Rule 23 provides a categorical rule that a class action may be maintained if the prerequisites in subdivision (a) are met and the suit fits one of the categories in subdivision (b).7 In the established facts, Shady Grove filed a diversity suit in the Eastern District of New York.8 It sought to recover unpaid statutory interest on behalf of itself and a class of others to whom Allstate owed interest after Allstate paid benefits late under the assigned policy.9
Section 901(b) attempts to answer the same question by stating that such a suit may not be maintained as a class action because it seeks a penalty.10 The federal rule therefore controls and displaces the state provision.11
Rule 23 governs the availability of the class action mechanism in this diversity suit and New York law does not apply to bar the proceeding.12
Related opinions on this issue
Justice Stevens concurred in the judgment and joined Parts I and II-A.13 He agreed that Rule 23 must apply because section 901(b) is a procedural rule that is not part of New York's substantive law defining rights or remedies.14 He stressed that federal courts must interpret rules with sensitivity to important state interests and regulatory policies.15
The bar for finding an Enabling Act violation is high.16 Section 901(b) does not meet it here because the provision applies to claims under any source of law and does not define the scope of New York's rights or remedies.17
Joined by Justice Kennedy, Justice Breyer, And Justice Alito
Justice Ginsburg dissented and would have held that Rule 23 does not collide with section 901(b).18 She reasoned that the state provision addresses the remedial dimension of the claim by limiting the size of monetary awards in class actions.19 Rule 23 addresses only procedural aspects of certification.20
Both can operate together without conflict.21 A federal court can respect both prescriptions by allowing plaintiffs to forgo statutory damages and seek only actual damages in a class action.22
Whether Federal Rule of Civil Procedure 23 answers the question in dispute regarding maintenance of a class action and, if so, whether the Rule exceeds statutory authorization or Congress's rulemaking power?23
Yes. Rule 23 answers the question by creating a one-size-fits-all formula for class actions that applies in all civil actions in federal district courts.26 Applied to the established facts, the rule permits Shady Grove to maintain its class action for statutory interest because the suit satisfies the numerosity, commonality, typicality, and adequacy requirements and fits within one of the categories in subdivision (b).27 The rule regulates only procedure because it enables joinder of claims without changing the parties' legal rights or the rules of decision.28
Therefore it falls within the authorization of the Rules Enabling Act.29
Rule 23 is valid and controls the class action determination in this case.30
Related opinions on this issue
Justice Stevens agreed that Rule 23 controls class certification.31 He emphasized that the second step of the analysis requires determining whether application of the federal rule would abridge, enlarge, or modify a state-created right.32 He concluded that section 901(b) does not function as part of New York's definition of substantive rights and remedies.33
Therefore it presents no Enabling Act obstacle to application of the federal rule.34 Stevens stressed the high bar for finding a violation and noted that the state provision applies broadly to claims under any law without defining New York's own rights or remedies.35
Whether a state law that limits remedies available in class actions or addresses the eligibility of claims for class treatment can coexist with Federal Rule of Civil Procedure 23 in diversity cases?36
No. Section 901(b) cannot coexist with Rule 23 because it flatly contradicts the federal rule by precluding class actions that Rule 23 permits.39 In the established facts, the District Court dismissed the suit precisely because section 901(b) barred the proposed class action for statutory interest even though the claim met Rule 23's criteria.40 The state law addresses the same subject as Rule 23 and therefore yields in federal court.41
The state law cannot coexist with Rule 23 and must give way in diversity proceedings.42
Related opinions on this issue
Joined by Justice Kennedy, Justice Breyer, And Justice Alito
Justice Ginsburg dissented on the ground that no direct conflict exists.43 She explained that Rule 23 governs procedural aspects of class litigation.44 Section 901(b) defines the dimensions of the claim by controlling the size of the monetary award a class plaintiff may pursue.45
A federal court can respect both by allowing plaintiffs to forgo statutory damages and seek only actual damages in a class action.46 The fair and efficient conduct of class litigation is the legitimate concern of Rule 23 while the remedy for an infraction of state law is the legitimate concern of the State's lawmakers.47