Originally published May 4, 2009
Keywords: Erie Doctrine, diversity jurisdiction, class actions, Shady Grove Orthopedic Associates, federal jurisdiction, Supreme Court
Today the Supreme Court granted certiorari in one case of interest to the business community:
Erie Doctrine—Class Actions
Under the well-known rule of Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938), federal courts exercising diversity jurisdiction apply state substantive law and federal procedural law. As the Supreme Court has noted in subsequent cases, distinguishing between substance and procedure can be challenging. In Shady Grove Orthopedic Associates v. Allstate Insurance Co. (No. 08-1008), in which certiorari was granted today, the Supreme Court will again consider which laws apply to the adjudication of state-law claims in federal court.
In Shady Grove, the plaintiff filed a putative class action seeking statutory penalties under New York law for overdue payments of no-fault automobile insurance benefits. The plaintiff asserted federal jurisdiction under 28 U.S.C. § 1332(d)(2)(A), which authorizes class actions seeking more than $5 million in damages with a minimal showing of diversity. The defendant insurer moved to dismiss under Section 901(b) of the New York Civil Practice Law and Rules (CPLR), which provides that "an action to recover a penalty[] or minimum measure of recovery created or imposed by statute may not be maintained as a class action." The district court granted the motion, and the Second Circuit affirmed. Applying Erie and its progeny, the court of appeals concluded that CPLR 901(b) establishes a substantive rule that neither conflicts with Rule 23 of the Federal Rules of Civil Procedure (which governs class actions) nor threatens the federal court system. Thus, the court reasoned, CPLR 901(b) prevented the plaintiff's suit from proceeding as a class action, and destroyed the only basis for federal jurisdiction.
The plaintiff petitioned for certiorari, contending that, under the Second Circuit's interpretation, statutes such as CPLR 901(b) could jeopardize the availability of class actions in federal diversity cases and give the States undue influence over procedures employed in federal court. Although the Supreme Court has agreed to decide only the status of CPLR 901(b), its ultimate resolution of the case will probably have broader implications for the business community, in that the decision is likely to affect how state-law class actions may proceed in federal court and whether States may condition the availability of statutory remedies against corporations.
Absent extensions, which are likely, amicus briefs in support of the petitioner are due June 25, 2009, and amicus briefs in support of the respondent are due July 27, 2009.
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