Master Supreme Court held that Federal Rule of Civil Procedure 23 governs class certification in federal court even when a state law would bar the class action, so long as Rule 23 does not violate the Rules Enabling Act. with this comprehensive case brief.
Shady Grove is a cornerstone Erie/Hanna decision on the interplay between Federal Rules of Civil Procedure and state law. It asks whether a federal court sitting in diversity (or under CAFA) may certify a class action under Rule 23 when the forum state would prohibit that class action. The answer—yes, if Rule 23 is on point and valid under the Rules Enabling Act—reaffirmed the primacy of the Federal Rules in federal court and clarified how to analyze federal–state conflicts in procedure.
The Court’s fractured opinions (a four-Justice plurality plus a separate concurrence in the judgment) make Shady Grove particularly important for law students. It refines the Hanna framework through the lens of the Rules Enabling Act: when a valid Federal Rule directly answers the question and does not abridge, enlarge, or modify a substantive right, it governs, even if the outcome differs from state court. At the same time, the controlling concurrence signals that some state rules—those tightly bound up with substantive rights—may still resist displacement by a Federal Rule.
559 U.S. 393 (2010) (U.S. Supreme Court)
Shady Grove Orthopedic Associates, a medical provider, sought to recover statutory interest for late-paid no-fault insurance benefits owed by Allstate under New York Insurance Law § 5106(a), which provides 2% monthly interest on overdue benefits. Shady Grove, proceeding on an assignment of benefits, filed a putative class action in the Eastern District of New York on behalf of itself and thousands of similarly situated claimants whom Allstate allegedly failed to pay on time. Jurisdiction was based on diversity under the Class Action Fairness Act. New York’s Civil Practice Law and Rules § 901(b), however, prohibits class actions to recover a “penalty” or statutory minimum/maximum damages unless the statute specifically authorizes class actions. Because § 5106(a) does not expressly authorize class actions and the interest was treated as a statutory penalty, the district court struck the class allegations. The Second Circuit affirmed, holding that § 901(b) applied in federal court and barred the class action. The Supreme Court granted certiorari.
Does Federal Rule of Civil Procedure 23 permit a federal court to certify a class action seeking statutory interest when the forum state’s law (N.Y. CPLR § 901(b)) would bar such a class action, and if so, is Rule 23 valid under the Rules Enabling Act as applied?
Under the Erie/Hanna framework, a federal court sitting in diversity applies state substantive law and federal procedural law. When a Federal Rule of Civil Procedure directly answers the question in dispute and conflicts with state law, the court must apply the Federal Rule if, as applied, it is valid under the Rules Enabling Act—that is, it regulates procedure and does not abridge, enlarge, or modify any substantive right. Federal Rule of Civil Procedure 23 provides that a class action may be maintained if its prerequisites are satisfied; it governs class certification in federal court unless applying it would violate the Rules Enabling Act. On the controlling, narrowest ground (the concurrence), a state rule resists displacement only if it is so bound up with a state-created right or remedy that displacing it would effectively alter substantive rights.
Yes. Rule 23 directly answers whether a class action may be maintained and therefore governs. Applying Rule 23 here does not violate the Rules Enabling Act because it regulates procedure—the manner and means by which claims are aggregated—without altering substantive rights. Accordingly, the federal court may entertain the class action notwithstanding New York’s CPLR § 901(b). The judgment of the Second Circuit was reversed.
Plurality (Scalia): The analysis proceeds in two steps. First, Rule 23 is on point: it states that a class action “may be maintained” if its criteria are met, which directly collides with § 901(b)’s prohibition on certain class actions. Second, Rule 23 is valid under the Rules Enabling Act because it governs procedure—the process of aggregating claims—without altering the parties’ substantive entitlements or liabilities. A state cannot re-label a procedural limitation as substantive to control litigation in federal court; if a Federal Rule genuinely regulates procedure, it applies regardless of outcome differences. Because Rule 23 answers the class-certification question, and because it lies within the Enabling Act’s authorization, it governs in federal court and displaces § 901(b). Concurrence in the judgment (Stevens): Agreeing that Rule 23 controls, the concurrence emphasized a limiting principle: a Federal Rule cannot apply if, as applied, it would abridge, enlarge, or modify a substantive right. To determine that, courts must ask whether the state rule is so intertwined with a state-created right that displacing it would effectively alter the scope of that right or its remedy. Section 901(b) is a generally applicable class-action limitation not bound up with any particular state right; it is instead a procedural policy choice about aggregate litigation. Applying Rule 23 therefore does not violate the Enabling Act in this case. Dissent (Ginsburg): The dissent would have applied § 901(b). It viewed § 901(b) as embodying New York’s substantive policy of curbing potentially “annihilating” aggregate statutory damages, and it urged reading Rule 23 to avoid a direct collision in light of Erie’s twin aims (discouraging forum shopping and inequitable administration of the laws). In the dissent’s view, allowing the class action solely because it was filed in federal court undermined state policy and invited forum shopping.
Shady Grove confirms that when a valid Federal Rule of Civil Procedure squarely conflicts with a state procedural limitation, the Federal Rule governs in federal court. It is a teaching case for Erie, Hanna, and the Rules Enabling Act, particularly the two-step inquiry: (1) Is the Federal Rule on point and in conflict? (2) If so, is the Rule valid under the Enabling Act as applied? The controlling concurrence refines this by asking whether the state law is tightly bound to a substantive right. Practically, the case opened the door to federal class actions on claims that state courts would not aggregate, especially under CAFA. At the same time, its fractured opinions invite careful analysis: in later cases, courts often treat the concurrence’s “bound up with substantive right” limitation as controlling, preserving room for some state rules—when truly substantive—to resist displacement.
First, ask whether the Federal Rule directly answers the question and conflicts with the state law. If yes, the Federal Rule governs so long as it is valid under the Rules Enabling Act—i.e., it regulates procedure without abridging, enlarging, or modifying substantive rights. On the narrowest grounds (the controlling concurrence), a state rule resists displacement only if it is so bound up with a state-created right or remedy that applying the Federal Rule would effectively alter that right.
Rule 23 expressly states when a class action may be maintained; § 901(b) forbids certain class actions (those seeking statutory penalties) unless authorized. That is a direct collision. Because Rule 23 governs the procedural aggregation mechanism and does not change the underlying substantive entitlement to damages or interest, applying it does not violate the Rules Enabling Act. Therefore, Rule 23 controls in federal court.
The judgment garnered five votes: a four-Justice plurality and a separate concurrence. Under Marks, the narrowest grounds supporting the judgment control; that is the concurrence. It matters because the concurrence preserves a limit: if a state rule is tightly bound to a substantive right, a Federal Rule cannot displace it as applied. Many lower courts use this lens to assess whether a state rule is procedural or substantively bound up with the right.
The dissent warned that it would, because plaintiffs could file in federal court to evade state class-action restrictions. The plurality accepted that outcome differences are tolerable when a valid Federal Rule applies; Erie’s twin aims are not the governing test once a Federal Rule directly controls. The concurrence’s limit mitigates forum-shopping concerns where the state rule is truly substantive.
Yes. The principle that a valid Federal Rule governs procedure applies in all federal civil cases. Erie-specific concerns arise in diversity, but Rule 23’s applicability does not depend on the jurisdictional basis. If Rule 23 is valid and on point, it governs class certification in federal court regardless of whether the claim arises under federal or state law.
Yes, if the state’s limitation is so bound up with the substantive right or remedy that displacing it would alter the right—e.g., where a statute creates a right with an expressly integrated remedial scheme restricting aggregate recovery as a defining feature of the right. In such a case, applying Rule 23 to circumvent that integrated limitation could violate the Rules Enabling Act on the concurrence’s approach.
Shady Grove reaffirmed the primacy of the Federal Rules in federal court by holding that Rule 23 governs class certification even when a state law would bar the action, provided the Rule does not violate the Rules Enabling Act. It instructs courts to proceed via a structured inquiry: identify a direct conflict, then assess the Federal Rule’s validity as applied, rather than defaulting to Erie’s outcome-determinative analysis.
For law students, the case is a roadmap to analyzing federal–state conflicts in civil procedure and a caution to parse fractured Supreme Court decisions. The plurality’s robust view of Federal Rules, tempered by the concurrence’s substantive-rights limitation, continues to shape class-action practice and Erie doctrine across the federal courts.