SUPREME COURT OF THE UNITED STATES
SHADY GROVE ORTHOPEDIC ASSOCIATES, P. A.,
PETITIONER v. ALLSTATE INSURANCE
COMPANY
on writ of certiorari to the united states court of appeals for the second circuit
[March 31, 2010]
Justice Scalia announced the judgment of the
Court and delivered the opinion of the Court with respect to Parts I
and II–A, an opinion with respect to Parts II–B and II–D, in which The
Chief Justice , Justice Thomas , and Justice Sotomayor join, and an
opinion with respect to Part II–C, in which T he Chief Justice and
Justice Thomas join.
New York law prohibits class actions in suits
seeking penalties or statutory minimum damages. We consider whether
this precludes a federal district court sitting in diversity from
entertaining a class action under Federal Rule of Civil Procedure 23. 2
2 Rule 23(a) provides: “(a) Prerequisites. One or more members of
a class may sue or be sued as representative parties on behalf of all
members only if: “(1) the class is so numerous that joinder of all
members is impracticable; “(2) there are questions of law or fact
common to the class; “(3) the claims or defenses of the representative
parties are typical of the claims or defenses of the class; and “(4)
the representative parties will fairly and adequately protect the
interests of the class.” Subsection (b) says that “[a] class action may
be maintained if Rule 23 (a) is satisfied and if” the suit falls into
one of three described categories (irrelevant for present purposes).
I
The petitioner’s complaint alleged the
following: 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), see ibid.
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 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. And, since Shady Grove conceded that its individual claim
(worth roughly $500) fell far short of the amount-in-controversy
requirement for individual suits under 28 U. S. C. §1332(a), the suit
did not belong in federal court.
The Second Circuit affirmed. The court did not dispute that a federal rule adopted in
compliance with the Rules Enabling Act, 28 U. S. C. §2072, would
control if it conflicted with §901(b). But there was no conflict
because (as we will describe in more detail below) the Second Circuit
concluded that Rule 23 and §901(b) address different issues. Finding no
federal rule on point, the Court of Appeals held that §901(b) is
“substantive” within the meaning of Erie R. Co. v. Tompkins , 304 U. S.
64 (1938) , and thus must be applied by federal courts sitting in
diversity.
We granted certiorari.
II
The framework for our decision is familiar. We
must first determine whether Rule 23 answers the question in dispute. If it
does, it governs—New York’s law notwithstanding—unless it exceeds
statutory authorization or Congress’s rulemaking power. We do not wade into
Erie ’s murky waters unless the federal rule is inapplicable or
invalid.
A
The question in dispute is whether Shady
Grove’s suit may proceed as a class action. Rule 23 provides an answer.
It states that “[a] class action may be maintained” if two conditions
are met: The suit must satisfy the criteria set forth in subdivision
(a) ( i.e. , numerosity, commonality, typicality, and adequacy of
representation), and it also must fit into one of the three categories
described in subdivision (b). Fed. Rule Civ. Proc. 23(b). By its terms
this creates a categorical rule entitling a plaintiff whose suit meets
the specified criteria to pursue his claim as a class action. Thus, Rule 23 provides a one-size-fits-all formula for
deciding the class-action question. Because §901(b) attempts to answer
the same question— i.e. , it states that Shady Grove’s suit “may not be
maintained as a class action” (emphasis added) because of the relief it
seeks—it cannot apply in diversity suits unless Rule 23 is ultra vires.
The Second Circuit believed that §901(b) and
Rule 23 do not conflict because they address different issues. Rule 23,
it said, concerns only the criteria for determining whether a given
class can and should be certified; section 901(b), on the other hand,
addresses an antecedent question: whether the particular type of claim
is eligible for class treatment in the first place—a question on which
Rule 23 is silent.
We disagree. [discussion omitted]
...
B
Erie involved the constitutional power of
federal courts to supplant state law with judge-made rules. In that
context, it made no difference whether the rule was technically one of
substance or procedure; the touchstone was whether it “significantly
affect[s] the result of a litigation.” That is not the test for either the
constitutionality or the statutory validity of a Federal Rule of
Procedure. Congress has undoubted power to supplant state law, and
undoubted power to prescribe rules for the courts it has created, so
long as those rules regulate matters “rationally capable of
classification” as procedure. In the Rules
Enabling Act, Congress authorized this Court to promulgate rules of
procedure subject to its review, 28 U. S. C. §2072(a), but with the
limitation that those rules “shall not abridge, enlarge or modify any
substantive right,” §2072(b).
We have long held that this limitation means
that the Rule must “really regulat[e] procedure,—the judicial process
for enforcing rights and duties recognized by substantive law and for
justly administering remedy and redress for disregard or infraction of
them.” The test is not whether the rule affects
a litigant’s substantive rights; most procedural rules do. What matters
is what the rule itself regulates: If it governs only “the manner and
the means” by which the litigants’ rights are “enforced,” it is valid;
if it alters “the rules of decision by which [the] court will
adjudicate [those] rights,” it is not.
Applying that test, we have rejected every
statutory challenge to a Federal Rule that has come before us...
Applying that criterion, we think it obvious
that rules allowing multiple claims (and claims by or against multiple
parties) to be litigated together are also valid. See, e.g. , Fed.
Rules Civ. Proc. 18 (joinder of claims), 20 (joinder of parties), 42(a)
(consolidation of actions). Such rules neither change plaintiffs’
separate entitlements to relief nor abridge defendants’ rights; they
alter only how the claims are processed. For the same reason, Rule
23—at least insofar as it allows willing plaintiffs to join their
separate claims against the same defendants in a class action—falls
within §2072(b)’s authorization. A class action, no less than
traditional joinder (of which it is a species), merely enables a
federal court to adjudicate claims of multiple parties at once, instead
of in separate suits. And like traditional joinder, it leaves the
parties’ legal rights and duties intact and the rules of decision
unchanged.
Allstate contends that the authorization of
class actions is not substantively neutral: Allowing Shady Grove to sue
on behalf of a class “transform[s] [the] dispute over a five hundred
dollar penalty into a dispute over a five million dollar penalty.”
Allstate’s aggregate liability, however, does
not depend on whether the suit proceeds as a class action. Each of the
1,000-plus members of the putative class could (as Allstate
acknowledges) bring a freestanding suit asserting his individual claim.
It is undoubtedly true that some plaintiffs who would not bring
individual suits for the relatively small sums involved will choose to
join a class action. That has no bearing, however, on Allstate’s or the
plaintiffs’ legal rights. The likelihood that some (even many)
plaintiffs will be induced to sue by the availability of a class action
is just the sort of “incidental effec[t]” we have long held does not
violate §2072(b),
Allstate argues that Rule 23 violates §2072(b)
because the state law it displaces, §901(b), creates a right that the
Federal Rule abridges—namely, a “substantive right … not to be
subjected to aggregated class-action liability” in a single suit. To begin with, we doubt that that is so. Nothing in
the text of §901(b) (which is to be found in New York’s procedural
code) confines it to claims under New York law; and of course New York
has no power to alter substantive rights and duties created by other
sovereigns. As we have said, the consequence of excluding certain class
actions may be to cap the damages a defendant can face in a single
suit, but the law itself alters only procedure. In that respect,
§901(b) is no different from a state law forbidding simple joinder. As
a fallback argument, Allstate argues that even if §901(b) is a
procedural provision, it was enacted “for substantive reasons ,” id. ,
at 24 (emphasis added). Its end was not to improve “the conduct of the
litigation process itself” but to alter “the outcome of that process.”
Id. , at 26.
The fundamental difficulty with both these
arguments is that the substantive nature of New York’s law, or its
substantive purpose, makes no difference. A Federal Rule of Procedure
is not valid in some jurisdictions and invalid in others—or valid in
some cases and invalid in others—depending upon whether its effect is
to frustrate a state substantive law (or a state procedural law enacted
for substantive purposes). That could not be clearer in Sibbach:
...
In sum, it is not the substantive or
procedural nature or purpose of the affected state law that matters,
but the substantive or procedural nature of the Federal Rule. We have
held since Sibbach , and reaffirmed repeatedly, that the validity of a
Federal Rule depends entirely upon whether it regulates
procedure. If it does, it is authorized by §2072 and is valid in
all
jurisdictions, with respect to all claims, regardless of its incidental
effect upon state-created rights.
...
D
We must acknowledge the reality that keeping
the federal-court door open to class actions that cannot proceed in
state court will produce forum shopping. That is unacceptable when it
comes as the consequence of judge-made rules created to fill supposed
“gaps” in positive federal law. For
where neither the Constitution, a treaty, nor a statute provides the
rule of decision or authorizes a federal court to supply one, “state
law must govern because there can be no other law.” But divergence from state law, with the attendant consequence of forum
shopping, is the inevitable (indeed, one might say the intended) result
of a uniform system of federal procedure. Congress itself has created
the possibility that the same case may follow a different course if
filed in federal instead of state court. The short of the matter is that a Federal Rule governing
procedure is valid whether or not it alters the outcome of the case in
a way that induces forum shopping. To hold otherwise would be to
“disembowel either the Constitution’s grant of power over federal
procedure” or Congress’s exercise of it.
* * *
The judgment of the Court of Appeals is reversed, and the case is remanded for further proceedings.
It is so ordered.
Justice Stevens , concurring in part and concurring in the judgment.
The New York law at issue, N. Y. Civ. Prac.
Law Ann. (CPLR) §901(b) (West 2006), is a procedural rule that is not
part of New York’s substantive law. Accordingly, I agree with Justice
Scalia that Federal Rule of Civil Procedure 23 must apply in this case
and join Parts I and II–A of the Court’s opinion. But I also agree with
Justice Ginsburg that there are some state procedural rules that
federal courts must apply in diversity cases because they function as a
part of the State’s definition of substantive rights and remedies.
I
It is a long-recognized principle that federal
courts sitting in diversity “apply state substantive law and federal
procedural law.” This
principle is governed by a statutory framework, and the way that it is
administered varies depending upon whether there is a federal rule
addressed to the matter. If no federal rule
applies, a federal court must...make the “relatively unguided Erie
choice,” to determine whether the state law is the “rule of
decision.” [This means looking to the twin aims of Erie.] But when a
situation is covered by a federal rule, [twin aims of Erie] inquiry by
its own terms does not apply. Instead, the Rules Enabling Act
(Enabling
Act) controls. See 28 U. S. C. §2072.
That does not mean, however, that the federal
rule always governs. Congress has provided for a system of uniform
federal rules, under which federal courts sitting in
diversity operate as “an independent system for administering justice
to litigants who properly invoke its jurisdiction,” and not as
state-court clones that assume all aspects of state tribunals but are
managed by Article III judges. But
while Congress may have the constitutional power to prescribe
procedural rules that interfere with state substantive law in any
number of respects, that is not what Congress has done. Instead, it has
provided in the Enabling Act that although “[t]he Supreme Court” may
“prescribe general rules of practice and procedure,” §2072(a), those
rules “shall not abridge, enlarge or modify any substantive right,”
§2072(b). Therefore, “[w]hen a situation is covered by one of the
Federal Rules, … the court has been instructed to apply the Federal
Rule” unless doing so would violate the Act or the Constitution.
Although the Enabling Act and the Rules of
Decision Act “say, roughly, that federal courts are to apply state
‘substantive’ law and federal ‘procedural’ law,” the inquiries are not
the same. The Enabling Act does not
invite federal courts to engage in the “relatively unguided Erie
choice," but instead instructs only that federal rules
cannot “abridge, enlarge or modify any substantive right,” §2072(b).
The Enabling Act’s limitation does not mean that federal rules cannot
displace state policy judgments; it means only that federal rules
cannot displace a State’s definition of its own rights or remedies.
Congress has thus struck a balance:
“[H]ousekeeping rules for federal courts” will generally apply in
diversity cases, notwithstanding that some federal rules “will
inevitably differ” from state rules. But not
every federal “rul[e] of practice or procedure,” §2072(a), will
displace state law. To the contrary, federal rules must be interpreted
with some degree of “sensitivity to important state interests and
regulatory policies,” and applied to diversity cases against the
background of Congress’ command that such rules not alter substantive
rights and with consideration of “the degree to which the Rule makes
the character and result of the federal litigation stray from the
course it would follow in state courts."
This can be a tricky balance to implement.
It is important to observe that the balance
Congress has struck turns, in part, on the nature of the state law that
is being displaced by a federal rule. And in my view, the application
of that balance does not necessarily turn on whether the state law at
issue takes the form of what is traditionally described as substantive
or procedural. Rather, it turns on whether the state law actually is
part of a State’s framework of substantive rights or remedies.
...
In our federalist system, Congress has not
mandated that federal courts dictate to state legislatures the form
that their substantive law must take. And were federal courts to ignore
those portions of substantive state law that operate as procedural
devices, it could in many instances limit the ways that sovereign
States may define their rights and remedies. When a State chooses to
use a traditionally procedural vehicle as a means of defining the scope
of substantive rights or remedies, federal courts must recognize and
respect that choice.
II
...
Justice Scalia believes that the sole
Enabling
Act question is whether the federal rule “really regulates procedure,”
which means, apparently, whether it regulates “the
manner and the means by which the litigants’ rights are enforced,” ante
, at 13 (internal quotation marks omitted). I respectfully disagree.
This interpretation of the Enabling Act is consonant with the Act’s
first limitation to “general rules of practice and procedure,”
§2072(a). But it ignores the second limitation that such rules also
“not abridge, enlarge or modify any substantive right,” §2072(b)
(emphasis added), and in so doing ignores the balance that Congress
struck between uniform rules of federal procedure and respect for a
State’s construction of its own rights and remedies. It also ignores
the separation-of-powers presumption, and
federalism presumption
that counsel against judicially created rules displacing state
substantive law.
[Stevens's argument that §901(b) is not clearly substantive - that is tied up with New York statutory damages actions, omitted]
Because Rule 23 governs class certification,
the only decision is whether certifying a class in this diversity case
would “abridge, enlarge or modify” New York’s substantive rights or
remedies. §2072(b). Although one can argue that class certification
would enlarge New York’s “limited” damages remedy, such arguments rest
on extensive speculation about
what the New York Legislature had in mind when it created §901(b). But
given that there are two plausible competing narratives, it seems
obvious to me that we should respect the plain textual reading of
§901(b), a rule in New York’s procedural code about when to certify
class actions brought under any source of law [not a rule bound up with
New York statutory damages actions], and respect Congress’
decision that Rule 23 governs class certification in federal courts. In
order to displace a federal rule, there must be more than just a
possibility that the state rule is different than it appears.
Accordingly, I concur in part and concur in the judgment.
Justice Ginsburg , with whom Justice Kennedy, Justice Breyer, and Justice Alito join, dissenting.
The Court today approves Shady Grove’s attempt
to transform a $500 case into a $5,000,000 award, although the State
creating the right to recover has proscribed this alchemy. If Shady
Grove had filed suit in New York state court, the 2% interest payment
authorized by New York Ins. Law Ann. §5106(a) (West 2009) as a penalty
for overdue benefits would, by Shady Grove’s own measure, amount to no
more than $500. By instead filing in federal court based on the
parties’ diverse citizenship and requesting class certification, Shady
Grove hopes to recover, for the class, statutory damages of more than
$5,000,000. The New York Legislature has barred this remedy,
instructing that, unless specifically permitted, “an action to recover
a penalty, or minimum measure of recovery created or imposed by statute
may not be maintained as a class action.” N. Y. Civ. Prac. Law Ann.
(CPLR) §901(b). The Court nevertheless holds that Federal
Rule of Civil Procedure 23, which prescribes procedures for the conduct
of class actions in federal courts, preempts the application of §901(b)
in diversity suits.
The Court reads Rule 23 relentlessly to
override New York’s restriction on the availability of statutory
damages. Our decisions, however, caution us to ask, before undermining
state legislation: Is this conflict really necessary? Had the
Court engaged in that inquiry, it would not have read Rule 23 to
collide with New York’s legitimate interest in keeping certain monetary
awards reasonably bounded. I would continue to interpret Federal Rules
with awareness of, and sensitivity to, important state regulatory
policies. Because today’s judgment radically departs from that course,
I dissent.
...
In our prior decisions in point, many of them
not mentioned in the Court’s opinion, we have avoided immoderate
interpretations of the Federal Rules that would trench on state
prerogatives without serving any countervailing federal interest.
“Application of the Hanna analysis,” we have said, “is premised on a
‘direct collision’ between the Federal Rule and the state law.”
...
In sum, both before and after Hanna , the
above-described decisions show, federal courts have been cautioned by
this Court to “interpre[t] the Federal Rules … with sensitivity to
important state interests,” and a
will “to avoid conflict with important state regulatory policies." The Court veers
away from that approach—and conspicuously, its most recent reiteration
in Gasperini —in favor of a mechanical reading of
Federal Rules, insensitive to state interests and productive of discord.
Our decisions instruct over and over again
that, in the adjudication of diversity cases, state interests—whether
advanced in a statute, or a procedural rule —warrant our respectful consideration. Yet today, the Court
gives no quarter to New York’s limitation on statutory damages and
requires the lower courts to thwart the regulatory policy at stake: To
prevent excessive damages, New York’s law controls the penalty to which
a defendant may be exposed in a single suit. The story behind §901(b)’s
enactment deserves telling.
[Ginsburg argues that the NY legislature has substantive purposes in mind in enacting §901(b).]
The Court, I am convinced, finds conflict
where none is necessary. Mindful of the history behind §901(b)’s
enactment, the thrust of our precedent, and the substantive-rights
limitation in the Rules Enabling Act, I conclude, as did the Second
Circuit and every District Court to have considered the question in any
detail, that Rule 23 does not collide with §901(b). [discussion omitted]
* * *
I would continue to approach Erie questions in
a manner mindful of the purposes underlying the ...Rules Enabling Act, faithful to precedent, and respectful of
important state interests. I would therefore hold that the New York
Legislature’s limitation on the recovery of statutory damages applies
in this case, and would affirm the Second Circuit’s judgment.