Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co.

559 U.S. 393

130 S.Ct. 1431

176 L.Ed.2d 311

SHADY GROVE ORTHOPEDIC ASSOCIATES, P.A., Petitioner,

v.ALLSTATE INSURANCE CO.

No. 08–1008.

Supreme Court of the United States

Argued Nov. 2, 2009.

Decided March 31, 2010.

Scott L. Nelson, Washington, DC, for petitioner.

Christopher Landau, Washington, DC, for respondent.

John S. Spadaro, John Sheehan Spadaro, LLC, Hockessin, DE, Scott L. Nelson, Counsel of Record, Brian Wolfman, Public Citizen Litigation Group, Washington, DC for petitioner.

Andrew T. Hahn, Sr., Seyfarth Shaw LLP, New York, NY, Christopher Landau, P.C., Counsel of Record, Britt C. Grant, Kirkland & Ellis LLP, Washington, DC, for respondent.

Justice SCALIA announced the judgment of the Court and delivered the opinion of the Court with respect to Parts I and II–A, an opinion with respect to Parts II–B and II–D, in which THE CHIEF JUSTICE, Justice THOMAS, and Justice SOTOMAYOR join, and an opinion with respect to Part II–C, in which THE CHIEF JUSTICE and Justice THOMAS join.

New York law prohibits class actions in suits seeking penalties or statutory minimum damages.¹ We consider whether this precludes a federal district court sitting in diversity from entertaining a class action under Federal Rule of Civil Procedure 23.²

I

The petitioner's complaint alleged the following: Shady Grove Orthopedic Associates, P. A., provided medical care to Sonia E. Galvez for injuries she suffered in an automobile accident. As partial payment for that care, Galvez assigned to Shady Grove her rights to insurance benefits under a policy issued in New York by Allstate Insurance Co. Shady Grove tendered a claim for the assigned benefits to Allstate, which under New York law had 30 days to pay the claim or deny it. See N.Y. Ins. Law Ann. § 5106(a) (West 2009). Allstate apparently paid, but not on time, and it refused to pay the statutory interest that accrued on the overdue benefits (at two percent per month), see ibid.

Shady Grove filed this diversity suit in the Eastern District of New York to recover the unpaid statutory interest. Alleging that Allstate routinely refuses to pay interest on overdue benefits, Shady Grove sought relief on behalf of itself and a class of all others to whom Allstate owes interest. The District Court dismissed the suit for lack of jurisdiction. 466 F.Supp.2d 467 (2006). It reasoned that N.Y. Civ. Prac. Law Ann. § 901(b), which precludes a suit to recover a "penalty" from proceeding as a class action, applies in diversity suits in federal court, despite Federal Rule of Civil Procedure 23. Concluding that statutory interest is a "penalty" under New York law, it held that § 901(b) prohibited the proposed class action. And, since Shady Grove conceded that its individual claim (worth roughly $500) fell far short of the amount-in-controversy requirement for individual suits under 28 U.S.C. § 1332(a), the suit did not belong in federal court.³

The Second Circuit affirmed. 549 F.3d 137 (2008). The court did not dispute that a federal rule adopted in compliance with the Rules Enabling Act, 28 U.S.C. § 2072, would control if it conflicted with § 901(b). But there was no conflict because (as we will describe in more detail below) the Second Circuit concluded that Rule 23 and § 901(b) address different issues. Finding no federal rule on point, the Court of Appeals held that § 901(b) is "substantive" within the meaning of Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), and thus must be applied by federal courts sitting in diversity.

We granted certiorari, 556 U.S. 1220, 129 S.Ct. 2160, 173 L.Ed.2d 1155 (2009).

II

The framework for our decision is familiar. We must first determine whether Rule 23 answers the question in dispute. Burlington Northern R. Co. v. Woods, 480 U.S. 1, 4–5, 107 S.Ct. 967, 94 L.Ed.2d 1 (1987). If it does, it governs—New York's law notwithstanding—unless it exceeds statutory authorization or Congress's rulemaking power. Id. at 5, 107 S.Ct. 967; see Hanna v. Plumer, 380 U.S. 460, 463–464, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965). We do not wade into Erie 's murky waters unless the federal rule is inapplicable or invalid. See 380 U.S. at 469–471, 85 S.Ct. 1136.

A

The question in dispute is whether Shady Grove's suit may proceed as a class action. Rule 23 provides an answer. It states that "[a] class action may be maintained" if two conditions are met: The suit must satisfy the criteria set forth in subdivision (a) (i.e., numerosity, commonality, typicality, and adequacy of representation), and it also must fit into one of the three categories described in subdivision (b). Fed. Rule Civ. Proc. 23(b). By its terms this creates a categorical rule entitling a plaintiff whose suit meets the specified criteria to pursue his claim as a class action. (The Federal Rules regularly use "may" to confer categorical permission, see, e.g., Fed. Rules Civ. Proc. 8(d)(2)-(3), 14(a)(1), 18(a) - (b), 20(a)(1)-(2), 27(a)(1), 30(a)(1), as do federal statutes that establish procedural entitlements, see, e.g., 29 U.S.C. § 626(c)(1) ; 42 U.S.C. § 2000e–5(f)(1).) Thus, Rule 23 provides a one-size-fits-all formula for deciding the class-action question. Because § 901(b) attempts to answer the same question—i.e., it states that Shady Grove's suit "may not be maintained as a class action" (emphasis added) because of the relief it seeks—it cannot apply in diversity suits unless Rule 23 is ultra vires.

The Second Circuit believed that § 901(b) and Rule 23 do not conflict because they address different issues. Rule 23, it said, concerns only the criteria for determining whether a given class can and should be certified; section 901(b), on the other hand, addresses an antecedent question: whether the particular type of claim is eligible for class treatment in the first place—a question on which Rule 23 is silent. See 549 F.3d at 143–144. Allstate embraces this analysis. Brief for Respondent 12–13.

We disagree. To begin with, the line between eligibility and certifiability is entirely artificial. Both are preconditions for maintaining a class action. Allstate suggests that eligibility must depend on the "particular cause of action" asserted, instead of some other attribute of the suit, id. at 12. But that is not so. Congress could, for example, provide that only claims involving more than a certain number of plaintiffs are "eligible" for class treatment in federal court. In other words, relabeling Rule 23(a)'s prerequisites "eligibility criteria" would obviate Allstate's objection—a sure sign that its eligibility-certifiability distinction is made-to-order.

There is no reason, in any event, to read Rule 23 as addressing only whether claims made eligible for class treatment by some other law should be certified as class actions. Allstate asserts that Rule 23 neither explicitly nor implicitly empowers a federal court "to certify a class in each and every case" where the Rule's criteria are met. Id. at 13–14. But that is exactly what Rule 23 does: It says that if the prescribed preconditions are satisfied "[a] class action may be maintained " (emphasis added)—not "a class action may be permitted. " Courts do not maintain actions; litigants do. The discretion suggested by Rule 23's "may" is discretion residing in the plaintiff: He may bring his claim in a class action if he wishes. And like the rest of the Federal Rules of Civil Procedure, Rule 23 automatically applies "in all civil actions and proceedings in the United States district courts," Fed. Rule Civ. Proc. 1. See Califano v. Yamasaki, 442 U.S. 682, 699–700, 99 S.Ct. 2545, 61 L.Ed.2d 176 (1979).

Allstate points out that Congress has carved out some federal claims from Rule 23's reach, see, e.g., 8 U.S.C. § 1252(e)(1)(B) —which shows, Allstate contends, that Rule 23 does not authorize class actions for all claims, but rather leaves room for laws like § 901(b). But Congress, unlike New York, has ultimate authority over the Federal Rules of Civil Procedure; it can create exceptions to an individual rule as it sees fit—either by directly amending the rule or by enacting a separate statute overriding it in certain instances. Cf. Henderson v. United States, 517 U.S. 654, 668, 116 S.Ct. 1638, 134 L.Ed.2d 880 (1996). The fact that Congress has created specific exceptions to Rule 23 hardly proves that the Rule does not apply generally. In fact, it proves the opposite. If Rule 23 did not authorize class actions across the board, the statutory exceptions would be unnecessary.

Allstate next suggests that the structure of § 901 shows that Rule 23 addresses only certifiability. Section 901(a ), it notes, establishes class-certification criteria roughly analogous to those in Rule 23 (wherefore it agrees that subsection is pre-empted). But § 901(b)'s rule barring class actions for certain claims is set off as its own subsection, and where it applies § 901(a) does not. This shows, according to Allstate, that § 901(b) concerns a separate subject. Perhaps it does concern a subject separate from the subject of § 901(a). But the question before us is whether it concerns a subject separate from the subject of Rule 23 —and for purposes of answering that question the way New York has structured its statute is immaterial. Rule 23 permits all class actions that meet its requirements, and a State cannot limit that permission by structuring one part of its statute to track Rule 23 and enacting another part that imposes additional requirements. Both of § 901's subsections undeniably answer the same question as Rule 23 : whether a class action may proceed for a given suit. Cf. Burlington, 480 U.S. at 7–8, 107 S.Ct. 967.

The dissent argues that § 901(b) has nothing to do with whether Shady Grove may maintain its suit as a class action, but affects only the remedy it may obtain if it wins. See post at 1464–1469 (opinion of GINSBURG, J.). Whereas " Rule 23 governs procedural aspects of class litigation" by "prescrib[ing] the considerations relevant to class certification and...