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).


     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.


     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.


     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]



     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.


     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.


     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.


     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.