SHADY GROVE ORTHOPEDICS ASSOCIATES v. ALLSTATE INSURANCE CO.

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Case Basics
Docket No. 
08-1008
Petitioner 
Shady Grove Orthopedic Associates, P.A.
Respondent 
Allstate Insurance Company
Advocates
(argued the cause for the petitioner)
(argued the cause for the respondent)
Term:
Facts of the Case 

Shady Grove Orthopedics Associates (Shady Grove), on behalf of a class of plaintiffs, sued Allstate Insurance Company (Allstate) in part for Allstate's alleged failure to pay interest penalties on overdue insurance payments as prescribed by New York statute. Allstate moved to dismiss relying on New York's rules of civil procedure which instruct that class action lawsuits are inappropriate unless specifically prescribed by statute. The U.S. District Court for the Eastern District of New York agreed that Shady Grove's class action claim was not authorized and thus dismissed its claim.

On appeal, Shady Grove argued that the New York rules of civil procedure conflict with Rule 23 of the Federal Rules of Civil Procedure and thus were not applicable. The U.S. Court of Appeals for the Second Circuit disagreed with Shady Grove and affirmed the district court. The Second Circuit, reasoning from the Supreme Court's decision in Erie Railroad Co. v. Tomkins, stated that the New York rules of civil procedure did not conflict with Rule 23 and thus Rule 23 did not control.

Question 

1) Can a state legislature prohibit federal courts from using a federal class action rule for a state law claim?

2) Can a state legislature dictate civil procedure in federal courts?

Conclusion 
Decision: 5 votes for Shady Grove, 4 vote(s) against
Legal provision: Federal Rule of Civil Procedure 23

No. No. The Supreme Court held that §901(b) of the New York rules of civil procedure does not preclude a federal court sitting in diversity from entertaining a class action under Rule 23 of the federal rules of civil procedure. With Justice Antonin Scalia writing for the majority as to Parts I and II-A, the Court stated that if Rule 23 answers the question in dispute, it governs, unless it exceeds its statutory authorization or Congress' rulemaking power. Here, the Court reasoned that Rule 23 answers the question in dispute – whether Shady Grove's suit may proceed as a class action – and is therefore controlling. With Justice Scalia writing for a plurality as to Parts II-B and II-D, he stated that the Rules Enabling Act, not Erie controls the validity of a federal rule of civil procedure, even if that results in opening the federal courts to class actions that cannot proceed in state court. With Justice Scalia writing for a distinct plurality as to Part II-C, he concluded that the concurrence's analysis conflicted with the Court's precedent in Sibbach – that the federal rules "really regulate procedure."

Justice John Paul Stevens wrote separately, concurring. He agreed that Rule 23 applies in this case, but also recognized that in some cases federal courts should apply state procedural rules in diversity cases because they function as part of the state's definition of substantive rights and remedies. Justice Ruth Bader Ginsburg, joined by Justices Anthony M. Kennedy, Stephen G. Breyer, and Samuel A. Alito, dissented. She criticized the majority opinion for using Rule 23 to override New York's statutory restriction on the availability of damages and consequently turning a $500 case into a $5,000,000 one. She cautioned that it is important to interpret the federal rules with sensitivity to state regulatory policies.

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SHADY GROVE ORTHOPEDICS ASSOCIATES v. ALLSTATE INSURANCE CO.. The Oyez Project at IIT Chicago-Kent College of Law. 04 July 2014. <http://www.oyez.org/cases/2000-2009/2009/2009_08_1008>.
SHADY GROVE ORTHOPEDICS ASSOCIATES v. ALLSTATE INSURANCE CO., The Oyez Project at IIT Chicago-Kent College of Law, http://www.oyez.org/cases/2000-2009/2009/2009_08_1008 (last visited July 4, 2014).
"SHADY GROVE ORTHOPEDICS ASSOCIATES v. ALLSTATE INSURANCE CO.," The Oyez Project at IIT Chicago-Kent College of Law, accessed July 4, 2014, http://www.oyez.org/cases/2000-2009/2009/2009_08_1008.