Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co.

Opinion

 [**1436] 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 [*396]  which The Chief Justice, Justice Thomas, and Justice Sotomayor join, and an opinion with respect to Part II-C, in which The Chief Justice and Justice Thomas join.

 [***316]  New York law prohibits class actions in suits seeking penalties or statutory minimum damages.¹ We consider whether this precludes a federal district court sitting in diversity from entertaining a class action under Federal Rule of Civil Procedure 23. [****7] ²

 [*397]  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. See N. Y. Ins. Law Ann. § 5106(a) (West 2009). 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  [****9] 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 [**1437]  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. 466 F. Supp. 2d 467 (2006). 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  [***317] suits under 28 U.S.C. § 1332(a), the suit did not belong in federal court.³

 [*398]  The  [****10] Second Circuit affirmed. 549 F.3d 137 (2008). 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, 58 S. Ct. 817, 82 L. Ed. 1188 (1938), and thus must be applied by federal courts sitting in diversity.

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