Despite the significant passage of time since the U.S. Supreme Court’s ruling in Shady Grove Orthopedic Associates v. Allstate Insurance, courts continue to wrestle with whether state statutory class action bars are enforceable in federal court. Eight years ago the U.S. Supreme Court ruled that a New York class action seeking statutory penalties could proceed in federal court despite New York’s prohibition on class actions seeking statutory penalties. In Shady Grove, the court compared N.Y. Civil Practice Law Ann. § 901(b), which bars class actions seeking statutory penalties, with Federal Rule of Civil Procedure 23, which permits class actions in federal court. Writing for the majority, Justice Antonin Scalia acknowledged that Rule 23 and § 901(b) directly conflict, and subsequently ruled that Rule 23 preempted application of New York’s state bar on certain class actions.
In light of this decision, plaintiffs lawyers now could circumvent state law bars against class actions by bringing the state law claim in federal court. However, since Shady Grove was decided, the lower courts have been inconsistent in its application. This inconsistency likely results from the fractured disposition of the case. Justice Scalia only garnered a majority for the decision that Rule 23 supersedes § 901(b). No majority opinion exists as to the extent to which state law class action bars can be preempted by Rule 23. A plurality recognized that under the Rules Enabling Act, any valid federal procedural rule should always control over conflicting state law. In his concurrence, Justice John Paul Stevens, the fifth vote in the majority, disagreed, believing that a federal procedural rule may not be applied when it directly displaces a substantive state right.
Originally published in Law 360 on April 24, 2018.
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