Academic journal article Defense Counsel Journal

Removal of Class Actions: What Danger Lurks in Shady Grove

Academic journal article Defense Counsel Journal

Removal of Class Actions: What Danger Lurks in Shady Grove

Article excerpt

IN 2010, the Supreme Court of the United States delivered a landmark decision in Shady Grove Orthopedic Associates v. Allstate InsuranceThe case presented an extraordinarily complex combination of procedural issues, primarily concerning a crossroads between federal and state law in the context of class certification. The result was nothing short of bewildering. In a plurality opinion, a majority agreed that a New York statute prohibiting class actions in suits seeking penalties or statutory minimum damages was preempted by Rule 23 of the Federal Rules of Civil Procedure.2 As a result, the pedtioner's suit could proceed as a class action in federal court, while ironically it would not have been able to do so in state court.

In the opening opinion, Justice Scalia gave a broad, sweeping application of Rule 23, finding that it "unambiguously authorizes any plaintiff, in any federal civil proceeding, to maintain a class action if the Rules' prerequisites are met."3 But while Justice Stevens agreed with the result in this particular case, he disagreed with Justice Scalia's rationale, opining that if a federal procedural rule "would displace a state law that is procedural in the ordinary use of the term but is so intertwined with a state right or remedy that it functions to define the scope of the state-created right," then the federal procedural rule "cannot govern" such a case.4

Following Shady Grove, depending upon the proclivity of a district court to apply Justice Scalia's rigid, FRCP-deferential rationale, or Justice Stevens's more pragmatic theory, a motion for class certification could have strikingly different odds of success. If a district court follows Justice Scalia's approach, then the decision to remove a putative class action to federal court would result in the loss of the very grounds-a state law prohibiting class certification-that would otherwise defeat class certification in state court. However, should a district court follow Justice Stevens's approach, that same state law might apply even after removal, depending on whether it is so intertwined with the ability to proceed as a class action that it functions to define the scope of this right. Thus, before removing a putative class action, defense attorneys must be wary of the hidden dangers that lurk in the wake of Shady Grove.

Part I of this Article will discuss the Shady Grove decision in further detail, outlining the factual and procedural background, the majority's judgment, and the divergence between Justice Scalia and Justice Stevens on the issue of whether Rule 23 preempts every state law regarding class actions. Part II will examine the practical effect that judges employing Justice Scalia's rationale will have on the future of class actions, and will analyze recent court decisions affected by this reasoning. Part III will explore the practical effect that courts using Justice Stevens's approach will have in forthcoming class action cases, and outline a series of cases that were determined under this method.

This Article should provide defense practitioners with a sense of awareness when faced with the decision of whether to remove a class action to federal court, including the possibility that, ironically, this could result in certification of a class that otherwise might have been defeated in state court.

I. The Shady Grove Decision

A. Background

The underlying dispute arose when a medical facility, Shady Grove Orthopedic Associates, attempted to revive a $5 million class action suit it had filed in federal court against Allstate Insurance Co.5 In the suit, Shady Grove contended that Allstate regularly failed to provide timely payments of claims under a New York law that required insurance companies to pay legitimate claims within thirty days of receipt." Alleging that Allstate routinely refused to pay interest on overdue benefits, and invoking the Class Action Fairness Act, Shady Grove sought relief on behalf of itself and a class of all others to whom Allstate owed interest. …

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