SHADY GROVE

Facts of the case

Shady Grove Orthopedics Associates (Shady Grove), on behalf of a class of plaintiffs, sued
Allstate Insurance Company (Allstate) in part for Allstate's alleged failure to pay interest
penalties on overdue insurance payments as prescribed by New York statute. Allstate moved to
dismiss relying on New York's rules of civil procedure which instruct that class action lawsuits
are inappropriate unless specifically prescribed by statute. The U.S. District Court for the Eastern
District of New York agreed that Shady Grove's class action claim was not authorized and thus
dismissed its claim.
On appeal, Shady Grove argued that the New York rules of civil procedure conflict with Rule 23
of the Federal Rules of Civil Procedure and thus were not applicable. The U.S. Court of Appeals
for the Second Circuit disagreed with Shady Grove and affirmed the district court. The Second
Circuit, reasoning from the Supreme Court's decision in Erie Railroad Co. v. Tomkins, stated that
the New York rules of civil procedure did not conflict with Rule 23 and thus Rule 23 did not
control.

Question
1) Can a state legislature prohibit federal courts from using a federal class action rule for a state
law claim?
2) Can a state legislature dictate civil procedure in federal courts?

Conclusion
No. No. The Supreme Court held that 901(b) of the New York rules of civil procedure does not
preclude a federal court sitting in diversity from entertaining a class action under Rule 23 of the
federal rules of civil procedure. With Justice Antonin Scalia writing for the majority as to Parts I
and II-A, the Court stated that if Rule 23 answers the question in dispute, it governs, unless it
exceeds its statutory authorization or Congress' rulemaking power. Here, the Court reasoned that
Rule 23 answers the question in dispute whether Shady Grove's suit may proceed as a class
action and is therefore controlling. With Justice Scalia writing for a plurality as to Parts II-B
and II-D, he stated that the Rules Enabling Act, not Erie controls the validity of a federal rule of
civil procedure, even if that results in opening the federal courts to class actions that cannot
proceed in state court. With Justice Scalia writing for a distinct plurality as to Part II-C, he
concluded that the concurrence's analysis conflicted with the Court's precedent in Sibbach that
the federal rules "really regulate procedure."
Justice John Paul Stevens wrote separately, concurring. He agreed that Rule 23 applies in this
case, but also recognized that in some cases federal courts should apply state procedural rules in

diversity cases because they function as part of the state's definition of substantive rights and
remedies. Justice Ruth Bader Ginsburg, joined by Justices Anthony M. Kennedy, Stephen G.
Breyer, and Samuel A. Alito, dissented. She criticized the majority opinion for using Rule 23 to
override New York's statutory restriction on the availability of damages and consequently turning
a $500 case into a $5,000,000 one. She cautioned that it is important to interpret the federal rules
with sensitivity to state regulatory policies.

SHADY GROVE: conflict between Rule 23 and NY law prohibiting certain class
actions
Scalia

(4): a straight Hanna analysis upholds Rule 23, no interest in evaluating

substance of NY law whatsoever
Stevens (1): some cases where Rule cannot apply because it affects a substantive state
right more than federal interest in rule (Byrd-esque), NY law is not substantive
If state law is important read rule narrowly, do Ginsburg RDA analysis.
If state law is not important read rule broadly, do Scalia REA analysis o
If saving construction isnt possible rule violates REA (but bar is a
high one)
Ginsburg (4): Rule 23 and NY law do not directly conflict, applying Yorks twin-aims
would lead to blatant forum-shopping

1. No controlling federal statute or rule Rules of Decision Act 1652

analysis
- Will result in application of state law if:
1
a. A substantive right/duty issue (Erie)
b. Outcome-determinative forum shopping/inequitable administration of law
(York redefined in Hanna)
c. No strong federal interest (Byrd)
1
i. IF strong federal interest (ex. 7th Amendment), apply federal law despite
possibility of outcome-determination

2. Federal rule or statute Hanna (Rules Enabling Act 2072) analysis

- Will result in application of federal rule if:
a. Is it broad enough to cover the issue at hand? Does it conflict with state law? i.
If not, then use Rules of Decision Act 1652 analysis supra
1. Ginsburgs approach in Shady Grove and Gasperini to construe federal
law narrowly so as to avoid collision with state law and then do 1652
analysis
2. Scalias approach of just giving rules their plain meaning to conflict with
state law, as is stated in Walker and do REA analysis
3. Stevens approach of first evaluating the importance of the state policy,
and then going either Ginsburgs route or Scalias route
ii. If yes, then move on in this analysis
b. Does it abridge, modify, or enlarge a substantive right?

i. Two views from Shady Grove

1. Scalia: look only at federal rule
2
a. Sibbach (1941) test: does it really regulate procedure?
2. Stevens: cases where rule just cannot apply because state procedural rule is bound
up with rights as to become substantive and exceeds REA (a high bar though)
a. Must engage in Erie/York (Rules of Decision Act) analysis, as Ginsburg
would from the very beginning.
c. Is it constitutional? (never a problem)

Review:
1. Is a federal rule (arguably) on point?
a. If no, ---- Byrd
If a case with Fed. Procedure, do the Byrd balancing formula: Fed.
Int., State Int, Litigants interest in avoiding ODT, to avoid forum
shopping. (This third factor weighs in favor of state interest. By
following state rule, you are minimizing difference between fed.
and state rule.)
- Byrd is a good example of what we do when a conflict
btw fed. policy and state policy
2. If yes, does the fed. Rule (FCRP, FRAP) actually conflict with the state
rule policy (Ragan, Cohen, Hanna, Plummer, Burlington, Northern,
walker v armco)
a. These 6 cases with fed. rule on point. But is there really a conflict
btw state and fed. rules, is there a way of avoiding the conflict?
b. In ragan and walker, the court used the state rule. Did they
ignore the federal rule? No but narrowed it, found a way of
avoiding the conflict.
3. If there is no conflict, use the state rule (i.e. supplement the fed rule
with state rule/policy).
4. If there is a conflict, the federal rule must be applied and the state rule
disregarded.unless..
5. Unless the federal rule abridges, enlarges or modifies (REA) a
substantive rule/policy of the state.
a. Fed rule says judges have discretion, state rule says they do not
in Burlington, conflict is unavoidable, we will have to follow fed
rule unless REA makes this allowance for state substantive law.
In Burlington it is not a substantive rule/right (10% penalty), its
procedural. Therefore, no problem with REA definition issue.

ShadyGrove:
1. Conflictbetweenrule23andNYLawwhichprohibitsclass

actionsissuitsseekingpenaltiesorstatutoryminimum
damages.
- Goodclaimmadeandtobegivencompensationwithin30days,if
notthenpenaltybutNYsaysnotasaclassactionunder901(b).
$500penaltyamplifiedtomultimillion$classactionisunfair,
NYfelt.
- RULE23doesnthavethis.Ifyoumeet4requirements,youcan
bringclassaction.Statelawdoesntagreeandthatistheconflict.
- Scalia:Likesbrightlinelaws.Favorsfederallaw,following
HannahandfollowingJusticewarrensopiniononHannah.Says
thereisadirectconflict.BetweenNewYorkLawandFedLaw.
Ruledoesnthaveanadditionalrequirement,wewillfollowthe
fedlaw.
- Ginsberg:Nodirectconflict.Why?NYlawhasgoodsubstantive
reasonsliketheCohencase.Thisisanadditionalproceduralbound
upwithremedy.Nodirectconflict.Itsboundupwithsubstantive
reasons.Statefeelsunfairtooverkill(AllState)
- Scalia:ChannelingWarren:Notsubstantive,procedural,no
problemundertheenablingact.NotanEerieProblem.
- Ginsberg:ChannelingHarlen.
- ForGinsberg,stillanEerieproblem.
- Stevens:concurswithmajoritybuttakesHalen,Ginsberg
approach.
- ShadyGroveisalotlikeHannah,followthefederalruleand
ignorestaterule,interpretfedruleverybroadly
- Burlington:Fed.rulebutconflict
- Restallcases(above),staterule.
EXAM : Personal Jurisdiction: 50%
SMJ : 30%
Eerie : 20%
Exam will be in proportion to the time spent on these matters.

Mason v. American
Fed. Ct. sitting in div. has to apply substantive state law.
Mason case: how is that decided?
-

Legally binding supreme court precedent. If SCt. Precendent not

available then lower ct. can be persuasive enough too.

Older rule that changed was never overruled by SCOTUS form

1928. They avoided the issue
This court says, there is a little bit of leeway.
What would the state supreme ct. do today even if there is this
precedent going other way. This gives ct. leeway.
Holding: perfectly permissible for fed. ct. to have a leeway, fed. ct.
can ignore it if they believe that state sup. Ct. will reach a different
result under some different rule today.
Notes:
Fed, Ct. reaching the decision of state law, not binding on state. If
fed. ct. makes a decision and circuit ct of appeals affirms it, then it
will be binding on lower cts. Unless the fed. ct. has evidence has
state sup. Ct. will do something differently.

DICE v. AKRON
-

The converse erie problem: In erie fed ct sitting in div must apply state
subs. law. Here State law applying federal rule.
But where a fed claim can be brought in state ct, state ct has to follow
fed law and policy.
Section 1983 fed statute permitting a person to bring a tort like suit when
a state officer has violated the constitutional right, this section permits
the victim to sue officer for violation of civil right. If goes into state ct, it
will have to fully apply federal law.
What if there are state defenses that might narrow fed law. Can it be
done if congress wont do it otherwise?

In this case, release binding under state law, non-binding under federal
law.
- Fed law has to be given full effect if congress disagrees with state
law, state cannot limit fed law towards state tort defense in this case.
- Who decides? Judge or Jury? Congress says you have to follow the fed
law. Congress can require federal procedures to be followed.
Handouts
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25 SMJ questions
3 short PJ hypos analyze under Pennoyer and Int. Show
An essay length PJ hypo : Due Sunday Nov. 29
An essay length Erie hypo : Due Sunday Nov. 29