§4.4 C. Class Actions In State Court Are Barred Under The Donnelly Act

• Jurisdiction: New York

C. Class Actions in State Court Are Barred under the Donnelly Act

In Sperry v. Crompton Corp.,³⁹² the Court of Appeals held that private class actions are barred under the Donnelly Act. The Court reasoned that the treble damages authorized by the Act³⁹³ are a penalty for class action purposes, and CPLR 901(b) bars a class action to recover a penalty unless the statute that imposes the penalty specifically provides for class actions, which the Donnelly Act does not do.³⁹⁴ The Court explained that the legislative purpose of the CPLR 901(b) penalty exception was to bar class actions where statutes provide individual plaintiffs with sufficient incentive to bring cases by authorizing something beyond actual damages, in this case the Donnelly Act’s treble damages, unless the Legislature makes a specific exception in a particular statute.³⁹⁵ The Court found evidence of the punitive nature of treble damages in the fact that the Act does not characterize these damages as compensatory, and that its legislative history does not clearly state a compensatory purpose.³⁹⁶

The Sperry court declined to decide whether the plaintiff could maintain a class action under the Donnelly Act by waiving treble damages in favor of actual damages, because the plaintiff in that case had not previously sought to waive the treble damages.³⁹⁷ At least one trial court has held that even if a plaintiff could waive the treble damages for class members to avoid the bar to class actions under CPLR 901(b), doing so would cast doubt on its capacity to fairly and adequately protect the interests of the class as required by CPLR 901(a)(4), thus requiring denial of class certification.³⁹⁸

Practitioners should note, however, that the Sperry holding likely will no longer apply in federal court after the U.S. Supreme Court’s 2010 decision in Shady Grove Orthopedic Assocs. v. Allstate Insurance Co.³⁹⁹ In that case, the Court held that Fed. R. Civ. P. 23 governs the maintenance of class actions in federal court, and CPLR 901(b) has no relevance to the maintenance of a class action in federal court, even in cases grounded exclusively in New York law. The Court observed that “[t]he central difficulty is that even artificial narrowing cannot render [CPLR] 901(b) compatible with Rule 23. . . . Rule 23 unambiguously authorizes any plaintiff, in any federal civil proceeding, to maintain a class action if the Rule’s prerequisites are met.”⁴⁰⁰ Thus, a plaintiff class may maintain a treble damages suit under...