Federal "Procedural" Rules Undermine Important State Interests in Shady Grove Orthopedic Associates. P.A. V. Allstate Insurance Co

By Redfern, Jeffrey | Harvard Journal of Law & Public Policy, Winter 2011 | Go to article overview

Federal "Procedural" Rules Undermine Important State Interests in Shady Grove Orthopedic Associates. P.A. V. Allstate Insurance Co


Redfern, Jeffrey, Harvard Journal of Law & Public Policy


Since the Supreme Court's decision in Erie Railroad Co. v. Tompkins, (1) federal courts have attempted to apply state "substantive" law and federal "procedural" law when sitting in diversity. (2) Courts draw this distinction differently depending on whether a Federal Rule of Civil Procedure (Federal Rule) "directly conflicts" with the state law. (3) When a court determines that a Federal Rule does not govern a question, it then applies the "twin aims of Erie" test to determine whether state law should apply. (4) This test asks if applying state law is necessary to (1) avoid inequity between in-state and out-of-state litigants, and (2) avoid incentives for forum-shopping. (5) Courts often read a Federal Rule quite narrowly to avoid a conflict with "substantive" state law. (6) In Sibbach v. Wilson & Co., (7) however, the Court held that when a Federal Rule directly conflicts with state law, the Federal Rule must govern unless it is facially invalid for conflicting with the Rules Enabling Act. (8) The Act authorizes the Supreme Court to promulgate rules of procedure for federal courts, with the proviso that such rules not "abridge, enlarge or modify any substantive right." (9) This limitation has been construed as authorizing any federal rule that is "arguably procedural" (10) without regard for the nature of the substantive rights that may be modified by application of the rule in particular cases. Last Term, in Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co., (11) the Supreme Court held that the Federal Rules permit a class action suit to go forward in federal court even though it would have been barred in state court. This ruling frustrates important state legislative objectives and exposes defendants to massive liability in diversity suits. The "arguably procedural" approach is at odds with the plain meaning of the statute and should be retired. In its place, the Court should adopt an "as applied" test for determining how Federal Rules apply in diversity suits.

Petitioner Shady Grove, a healthcare provider, alleged that Allstate Insurance was routinely late in paying out benefits and refused to pay the two-percent monthly interest penalty required by New York law. (12) Shady Grove filed a diversity suit in the Eastern District of New York "on behalf of itself and a class of all others to whom Allstate owes interest." (13) Under New York Civil Practice Law Section 901(b) (Section 901(b)), a class action "may not be maintained" to recover a "penalty" or statutory minimum damages, (14) thus limiting class certification to plaintiffs seeking only actual damages. There is no comparable prohibition in Federal Rule 23, which contains its own, apparently exclusive, criteria for class certification. (15) New York enacted its prohibition out of concern that combining statutory minimum penalties with the class action device could lead to "annihilating punishment." (16) A common purpose of both statutory penalties and the class action device is to incentivize lawsuits that might not otherwise be worth the time, effort, or cost; so combining the two devices would greatly magnify incentives to sue.

Both the Eastern District of New York and the Second Circuit held that Rule 23 and section 901(b) could be applied simultaneously. According to the Second Circuit, the New York statute creates a threshold inquiry--whether certain causes of action are even eligible for class treatment--that must be answered before the procedural criteria of Rule 23 can be applied. (17) Because the court found no conflict between the Federal Rule and the state statute, the court analyzed Section 901(b) under the "twin aims of Erie" test. The obvious conclusion was that a failure to apply the New York prohibition on class actions seeking penalties would create an enormous incentive for plaintiffs to choose the federal forum. (18) In so ruling, the Second Circuit followed "the overwhelming majority of district courts that have concluded that section 901(b) is a substantive law that must be applied in the federal forum, just as it is in state court.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Federal "Procedural" Rules Undermine Important State Interests in Shady Grove Orthopedic Associates. P.A. V. Allstate Insurance Co
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.