The standard for measuring the validity of a Federal Rule of Civil Procedure: the Shady Grove debate between Justices Scalia and Stevens.

Author:Ides, Allan


In Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co., (1) alternative interpretations of [section] 2072(b) of the Rules Enabling Act (REA) (2) were offered by Justices Scalia and Stevens. (3) The focus of this Article is on that disagreement. Neither alternative enjoyed a majority, (4) adding a new complexity to an already challenging area of the law. (5) One hopes that a majority of the Court will soon resolve this intracourt conflict. From a jurisprudential perspective premised on the text of the REA and precedent, I think Justice Stevens has the stronger argument. From a policy perspective premised on ease of application and judicial efficiency, Justice Scalia's alternative is not unattractive. However, as I explain below, since I think a statutory text should trump freestanding judicial policymaking--no matter how attractive that policy may be--I am inclined toward Justice Stevens's interpretation.

The basic background of the Shady Grove decision is simple. New York law requires insurance companies to pay legitimate insurance claims within thirty days of receipt of the claim. (6) A failure to comply with this provision triggers a statutory penalty assessed at two percent per month of the amount owed. (7) Shady Grove filed an insurance claim with Allstate, which Allstate eventually paid, but not within the thirty-day time frame. (8) Allstate refused to pay the statutory penalty--approximately $500--and Shady Grove sued Allstate to recover that penalty in a U.S. district court, invoking that court's diversity jurisdiction. (9)

In its suit, Shady Grove alleged that Allstate routinely failed to tender timely payments on insurance claims. (10) Consistent with this allegation, and in seeming accord with Federal Rule of Civil Procedure 23, Shady Grove filed the suit under the Class Action Fairness Act (11) as a class action. (12) Allstate moved to dismiss, arguing that under New York law, specifically section 901(b) of the New York Civil Practice Law and Rules Code, (13) a suit to recover a statutory penalty cannot be "maintained as a class action." (14) The district court and the court of appeals agreed with Allstate and ordered the case dismissed. (15) The Supreme Court granted certiorari and reversed, holding that whether a class action was to be maintained was controlled by Rule 23 and not by New York law. (16)

In arriving at this conclusion, the Court held that Rule 23 answered the question in dispute--whether a class action may be maintained--and that the rule was valid under the standards of the REA. (17) While the majority of the Court agreed as to why Rule 23 controlled the question in dispute, (18) there was a disagreement within the majority--the Scalia/Stevens debate--as to the proper standards to apply in assessing the validity of a Federal Rule under the REA. (19)

This Article is divided into six Parts. The first describes Justice Scalia's interpretation of [section] 2072 (b); the second describes Justice Stevens's interpretation of that Section; the third provides a detailed discussion of Sibbach v. Wilson & Co., (20) a case that is critical to both opinions; the fourth examines and evaluates the rationale behind each interpretation; the fifth discusses the underlying policy arguments behind each interpretation; and the sixth offers concluding remarks.


    Parts I and II-A of Justice Scalia's opinion reflect the views of a five-person majority. (21) Part I describes the case and the basic question presented (22) while Part II-A concludes that Rule 23 answered the "question in dispute"--in other words, whether a class action may be maintained. (23) Part II-A triggered a spirited, four-person dissent authored by Justice Ginsburg, (24) but that disagreement is not the topic of this Article. For purposes of this Article, I am assuming the majority was "correct" on this preliminary point. (25) In Part II-B of his opinion, Justice Scalia explains why Rule 23 is valid under the terms of the REA and particularly under [section] 2072(h). (26) Three other Justices--the Chief Justice and Justices Thomas and Sotomayor--joined Part II-B. (27)

    Justice Scalia's Part II-B can be easily misunderstood. Read casually, most of the discussion in that section appears to describe and endorse a familiar approach to the REA, one that essentially tracks the statutory language and affirms a strong presumption of Federal Rule validity. It is not until the last few paragraphs of II-B (where Justice Scalia disposes of Allstate's as-applied arguments against the validity of Rule 23) that the exact contours of his model become distinct and less familiar. (28)

    The discussion in Part II-B begins with a standard and generalized description of Erie; (29) it explains why the unguided Erie choice has no bearing on the validity of a Federal Rule (30) and then it provides the following well-established framework:

    Congress has undoubted power to supplant state law, and undoubted power to prescribe rules for the courts it has created, so long as those rules regulate matters "rationally capable of classification" as procedure. In the Rules Enabling Act, Congress authorized this Court to promulgate rules of procedure subject to its review, but with the limitation that those rules "shall not abridge, enlarge or modify any substantive right." (31) Then comes the first hint of a twist. Having invoked the familiar framework, Justice Scalia focuses on the precise meaning to be attributed to [section] 2072(b)--REA's abridge-enlarge-modify limitation (32)--but he does not begin with the text of the REA. Rather, he begins with a quotation from Sibbach v. Wilson & Co.:

    [T]he Rule must "really regulat[e] procedure,--the judicial process for enforcing rights and duties recognized by substantive law and for justly administering remedy and redress for disregard or infraction of them." The test is not whether the rule affects a litigant's substantive rights; most procedural rules do. What matters is what the rule itself regulates.... (33) On first read, this might seem like a boilerplate REA mantra and an unremarkable allusion to the irrelevance of "incidental effects [that] necessarily attend the adoption of the prescribed new rules," referenced in Hanna v. Plumer. (34) But as we will see, it is more than that. The key sentence in the above block quote turns out to be the last one: "What matters is what the rule itself regulates." (35) The word "itself" signals, albeit faintly, a distinction between facial challenges (i.e., the rule itself) and as-applied challenges (i.e., the effect of applying the rule in a particular context). As we will see, under Justice Scalia's version of "really regulates procedure"--a version he believes to be mandated by Sibbach--only facial challenges are allowed.

    Justice Scalia makes this distinction clear when he applies his standard to Rule 23. Thus, after surveying the small universe of cases in which the Supreme Court has affirmed the validity of various Federal Rules, (36) Justice Scalia explains why Rule 23 (and other rules of joinder) are valid under the really-regulates-procedure standard of the REA:

    Such rules neither change plaintiffs' separate entitlements to relief nor abridge defendants' rights; they alter only how the claims are processed. For the same reason, Rule 23--at least insofar as it allows willing plaintiffs to join their separate claims against the same defendants in a class action--falls within [section] 2072 (b)'s authorization. A class action, no less than traditional joinder (of which it is a species), merely enables a federal court to adjudicate claims of multiple parties at once, instead of in separate suits. And like traditional joinder, it leaves the parties' legal rights and duties intact and the rules of decision unchanged. (37) The focus of this analysis is on the rule itself--in other words, on what the text of the rule literally provides: a procedure for joinder that does not alter any substantive right. Thus, Rule 23 literally creates a method for adjudicating multiple claims in a single proceeding and literally nothing in the text of the rule purports to alter any substantive standard under which the joined claims will be adjudicated. As such, the rule is rationally capable of being classified as procedural and does not abridge, enlarge, or modify any substantive right. Thus, in Justice Scalia's view, the rule "really regulates" procedure. (38)

    Allstate made two arguments that Rule 23, as applied in the context of the section 901(b) class action proscription, did, in fact, transgress [section] 2072(b). First, Allstate argued that section 901(b) created a "substantive right ... not to be subjected to aggregated class-action liability." (39) Justice Scalia rejected this argument out of hand. In his view, nothing about section 901(b)--neither its text nor its placement in the New York procedural code--fairly suggested that the limitation on class actions was anything but a procedural device. (40) Moreover, he explained, "the consequence of excluding certain class actions may be to cap the damages a defendant can face in a single suit, but the law itself alters only procedure." (41) Second, Allstate argued that even if one were to construe section 901(b) as exclusively procedural, the section was enacted for "'substantive reasons,'" its end being "not to improve 'the conduct of the litigation process itself' but to alter 'the outcome of that process.'" (42) Put slightly differently, Allstate argued, in essence, that section 901(b) was designed to operate, in practical effect, as an overall cap on damages and not just as a cap on the damages that may be imposed in a single proceeding.

    Instead of addressing the merits of Allstate's second argument, Justice Scalia observed more generally:

    The fundamental difficulty with both these arguments is that the substantive nature of New York's law, or...

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