Our class action federalism: Erie and the Rules Enabling Act after Shady Grove.

Author:Steinman, Adam N.

INTRODUCTION I. ERIE AND THE RULES ENABLING ACT II. THE SHADY GROVE DECISION A. Does a Federal Rule Control? B. The REA's Substantive-Rights Provision C. Forum Shopping and Erie's Twin Aims III. CONTROL, CONFLICT, AND COLLISION: CATEGORIZING ERIE CHOICES AFTER SHADY GROVE A. The Role of State Class Action Law in Applying Federal Rule 23 1. The Lesson of Gasperini 2. Our Two-Dimensional Federal Rules B. The Relevance of State Class Action Law to Post-Certification Issues 1. State Class Action Law and Remedies 2. State Class Action Law and Preclusion 3. State Class Action Law and Statutes of Limitations IV. THE RULES ENABLING ACT AFTER SHADY GROVE A. Class Actions and the REA: Unanswered Questions B. Openings in Justice Scalia's Reasoning C. Openings in Justice Stevens's Reasoning V. FRAMING THE ISSUES: HOW COURTS SHOULD CONCEPTUALIZE THE ROLE OF STATE CLASS ACTION LAW UNDER ERIE/REA A. Step One: Identify the Relevant State Law Principles B. Step Two: Determine the Preemptive Scope of the Federal Rule C. Step Three: Determine Whether Following the Federal Rule Would Violate the REA 1. Sparring Justices May Be Closer than They Appear 2. Rule 23 and the REA VI. CLOSING THOUGHTS: ON IDEOLOGY, POLITICS, AND HEADCOUNTING CONCLUSION INTRODUCTION

"Our Federalism," as Justice Black described it, "is a system in which there is sensitivity to the legitimate interests of both State and National Governments." (1) During the first decade of the twenty-first century, class action litigation has been a significant and contentious aspect of Our Federalism. At first, the focus was which forum--state court or federal court--was better suited to adjudicate high-stakes class actions. This was the principal subject of the 2005 Class Action Fairness Act, which expanded federal diversity jurisdiction to encompass a wider range of class actions, even when the class's claims arise exclusively under state law. (2)

With this Term's decision in Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co., (3) the Supreme Court began to confront the logical next question: once a putative class action is pending in federal court, what role does state class action law play? Put another way: if state law assesses the propriety of a class action differently than a federal court would, when (if ever) must the federal court follow state law rather than the prevailing federal approach? The answer to this question lies in the so-called Erie doctrine--the thorny patch of jurisprudence that, when the Federal Rules of Civil Procedure are involved, encompasses both the limits on federal rulemaking enshrined in the Rules Enabling Act (REA) (4) and the venerable line of cases that began with Erie Railroad Co. v. Tompkins. (5) In a 5-4 decision authored by Justice Scalia, Shady Grove held that New York's bar on class actions for certain statutory-damages claims does not displace the framework set forth in Federal Rule 23 for determining whether a class action may be maintained in federal court, even when the action arose under New York's substantive law. (6)

Thus Shady Grove begins the next chapter in what one might call "Our Class Action Federalism." (7) Some have read Shady Grove as making state class action law irrelevant to lawsuits pending in federal court. This would be a drastic overreading, however. In fact, many open questions remain about the role of state class action law in federal court. Under several lines of argument that were neither made nor considered in Shady Grove, the Erie doctrine and the REA may require federal courts to apply state class action law, whether state law is more or less tolerant of class actions than the prevailing federal approach.

The goal of this Article is not to advocate that state class action law should be binding in federal court via the Erie doctrine and the REA. Although I will address some of the normative and doctrinal concerns relevant to the choice between state and federal class action law, my principal purpose is to identify the many fundamental, unresolved questions that remain after Shady Grove. At the end of the day, Shady Grove may be best remembered for the questions it failed to answer rather than the ones that it did. As courts, litigants, and the academy begin to make sense of Shady Grove, it is crucial to consider these continued areas of uncertainty.

Part I of this Article summarizes the black-letter basics of the Erie doctrine and the REA. Part II describes the Court's fractured decision in Shady Grove. Part III considers Shady Grove's handling of the Erie doctrine's threshold question: whether an issue is controlled by a Federal Rule of Civil Procedure. It explains how Shady Grove's holding that Rule 23 "answers the question in dispute" (8) still leaves considerable room for the operation of state class action law, both in applying Rule 23 and in resolving certain issues that may arise after a class is certified. Part IV considers Shady Grove's handling of Rule 23's validity under the REA. It argues that Shady Grove has not ruled out the possibility that ignoring state class action law can impermissibly "abridge, enlarge or modify [a] substantive right" (9) in violation of the REA. Part V situates these arguments into a conceptual framework that brings into focus the three issues that courts will need to confront in assessing the role of state class action law under Erie and the REA. Finally, Part VI offers some thoughts on the unusual split between the Justices in Shady Grove, emphasizing that the choice between state and federal class action law can confound the ideological labels that are often assigned to each Justice.


    The modern Erie doctrine's basic framework (10) has been fairly well established since the Court's 1965 decision in Hanna v. Plumer. (11) In Hanna, Chief Justice Warren enshrined a bifurcated approach that hinged on whether the particular issue was "covered by one of the Federal Rules [of Civil Procedure]" or, alternatively, presented a "typical, relatively unguided Erie choice." (12) Thus, the Erie doctrine's threshold inquiry is which of these two modes of analysis--"unguided" or "guided"--applies to a given issue. Because of the different standards that apply to each kind of Erie choice, (13) this initial characterization is crucial, and it was at the core of the disagreement between the majority and dissenting Justices in Shady Grove. (14)

    In the so-called "unguided" Erie situation, the court's choice between state and federal law must vindicate "the twin aims of the Erie rule: discouragement of forum-shopping and avoidance of inequitable administration of the laws." (15) If following the federal standard "would disserve these two policies," then the federal court must follow state law. (16) On the other hand, where an issue "is covered by one of the Federal Rules," the federal court must apply that Federal Rule unless the Rule violates either the Rules Enabling Act (the statutory authority for the Federal Rules) or the U.S. Constitution. (17) The Rules Enabling Act (REA) provides that such rules must be "general rules of practice and procedure" (18) and "shall not abridge, enlarge or modify any substantive right." (19)

    As important as the distinction between "guided" and "unguided" Erie choices is, the Supreme Court has yet to concretely demarcate the line between the two. (20) It has also used an array of different phrases to articulate the standard for categorizing such choices:

    --whether the issue "is covered by one of the Federal Rules" (21)

    --whether a Federal rule "answers the question in dispute" (22)

    --whether there is a "'direct collision' between the Federal Rule and the state law" (23)

    --whether the "clash" between state law and a Federal Rule is "unavoidable" (24)

    --"whether the scope of the Federal Rule in fact is sufficiently broad to control the issue before the Court" (25)

    --whether following state law would "command[ ] displacement of a Federal Rule by an inconsistent state rule" (26)

    --whether the Federal Rule "leav[es] no room for the operation of [state] law" (27)

    --whether the Federal Rule and state law "can exist side by side, ... each controlling its own intended sphere of coverage without conflict" (28)

    --whether "the purposes underlying the [Federal] Rule are sufficiently coextensive with the asserted purposes of the [state law] to indicate that the Rule occupies the [state law's] field of operation." (29)

    Likewise, precise guidance has been lacking for both the "twin aims" standard that governs unguided Erie choices and the REA's substantive- rights provision that governs the validity of a Federal Rule. It is clear, however, that the REA is relatively more favorable to federal law, while the twin-aims test is relatively more favorable to state law. (30) Indeed, no Supreme Court decision has ever refused to apply a Federal Rule of Civil Procedure on the ground that it violated the REA. (31)


    At issue in Shady Grove was section 901(b) of New York's Civil Practice Law and Rules, which provides that actions to recover certain kinds of statutory penalties "may not be maintained as a class action." (32) The plaintiff Shady Grove Orthopedic Associates brought a class action in federal court against Allstate for failing to pay insurance benefits in a timely manner, basing federal jurisdiction on the expanded form of diversity jurisdiction set forth in the 2005 Class Action Fairness Act (CAFA). (33) According to the lower court, the statutory interest penalties sought by Shady Grove and its putative plaintiff class would be covered by section 901 (b) if the case had been in New York state court. (34)

    Allstate argued that New York's section 901 (b) was binding in a federal court diversity action and, therefore, precluded certification of Shady Grove's class action. Shady Grove argued that the court must decide the propriety of a class action in accordance with Federal...

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