U.S. Supreme Court Holds Federal Law Restricts State Authority to Limit Availability of Class Actions

On March 31, the U.S. Supreme Court ruled that state laws barring class actions cannot override the Federal Rules of Civil Procedure (FRCP), which determine when a class action lawsuit may be filed in federal court. Shady Grove Orthopedic Associates, P.A. v. Allstate Ins. Co., No. 08-1008, 2010 WL 1222272 (U.S. Mar. 31, 2010). At issue was a New York state law that does not allow class actions that seek a penalty as part of the remedy and its conflict with FRCP Rule 23, which does not impose this restriction; thus, the FRCP and New York state law conflicted as to whether the class action in this case could proceed. The case turned on whether the New York rule was “substantive,” and would therefore apply to federal courts considering cases based on diversity jurisdiction, or “procedural,” and would therefore infringe upon the FRCP to the extent that the state and federal rules conflicted. The lower federal courts held that the state rule controlled and dismissed the suit for lack of jurisdiction, reasoning that Rule 23 is only a procedural rule and that the New York law limiting the remedy is substantive. In a 5-4 decision, the U.S. Supreme Court reversed and remanded, holding that, because the New York law and Rule 23 were directly contradictory and both seek to determine whether a class action lawsuit may be filed in federal court, the New York law did not override Rule 23. Justice Scalia, writing for the court, stated that “Rule 23 unambiguously authorizes any plaintiff, in any federal civil proceeding, to maintain a class action if the Rules’ prerequisites are met. We cannot contort its text, even to avert a collision with state law that might render it invalid.” While a majority of justices held that the New York rule may not bar this particular class action, the opinion was splintered on the issue of whether federal procedural rules would always trump state procedural rules in diversity cases.