Divided U.S. Supreme Court Rules States Cannot Limit Right to Sue

WASHINGTON, D.C. - (Mealey's) A sharply divided U.S. Supreme Court ruled on March 31 that states do not have the authority to limit the right to sue because Federal Rule of Civil Procedure 23 controls when a class action lawsuit may be filed in federal court (Shady Grove Orthopedic Associates P.A. v. Allstate Insurance Co., No. 08-1008, U.S. Sup.).

By a margin of 5 to 4, a majority of the U.S. high court found that New York Civil Practice Law Section 901(b) does not preclude a federal district court sitting in diversity from entertaining a class action lawsuit under Rule 23.  The majority opinion reverses a ruling by the Second Circuit U.S. Court of Appeals, which found that the New York law must be applied by federal courts sitting in diversity because the law is substantive within the meaning of Erie R. Co. v. Tompkins (304 U.S. 64 [1938]).

Justice Antonin Scalia delivered the opinion for the majority and was joined by Chief Justice John Roberts and Justices John Paul Stevens, Clarence Thomas and Sonia Sotomayor.  Justice Stevens filed a separate opinion concurring in part and dissenting in part, while Justice Ruth Bader Ginsburg filed a dissenting opinion and was joined by Justices Anthony Kennedy, Stephen Breyer and Samuel Alito.

Shady Grove sought to recover the unpaid statutory interest.  The medical provider further alleged that Allstate routinely refuses to pay interest on overdue benefits in violation of New York law.  Shady Grove sought relief on behalf of itself and a class of all others to whom Allstate owes interest.

The majority held that Federal Rule of Civil Procedure 23(b) answers the question in dispute regarding whether Shady Grove's suit may proceed as a class action when it states that a class action may be maintained if certain conditions are met.  The majority found that because Section 901(b) attempts to answer the same question, the state law cannot apply in diversity suits unless Rule 23 is ultra vires.  The majority held that the dissent's claim that Section 901(b) can coexist with Rule 23 because the state law addresses only the remedy available to class plaintiffs is foreclosed by Section 901(b)'s text.  The majority found that the principle that courts should read ambiguous federal rules to avoid overstepping the authorizing statute does not apply in this case because Rule 23 is clear.

In a dissenting opinion, Justice Ginsburg held that the majority reads Rule 23 relentlessly to override New York's restriction on the availability of statutory damages.  She said the court should exercise caution before choosing to undermine state legislation.

[Editor's Note:  Full coverage will be in the April 1 issue of Mealey's^TM Litigation Report: Class Actions.  In the meantime, the opinion is available at www.mealeysonline.com or by calling the Customer Support Department at 1-800-833-9844.  Document #43-100401-019Z.  For all of your legal news needs, please visit www.lexisnexis.com/mealeys.]

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For more information, call editor David Eldreth at 610-205-1118, or e-mail him at david.eldreth@lexisnexis.com.