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Public Citizen Wins Supreme Court Victory Allowing Class Actions in Federal Court!

By Deepak Gupta

 The U.S. Supreme Court today decided that state laws barring class actions can't trump federal court rules allowing them.  The case, Shady Grove Orthopedic Associates v. Allstate Insurance Company, was argued by Public Citizen's Scott Nelson.  Congratulations, Scott!

Today's decision, written by Justice Scalia and joined by Chief Justice Roberts and Justices Stevens, Thomas and Sotomayor, accepted our argument that the federal rules, by their terms, authorize class actions in any case that meets the criteria set by the rules, and conflicting state laws cannot override the federal rules.  As the majority opinion put it, federal procedural standards "create a categorical rule entitling a plaintiff whose suit meets the specified criteria to pursue his claim as a class action," and that rule "automatically applies" in all cases in federal court, even if a class action would not be allowed in a similar case brought in a state court.

The case ensures that class actions will be available as a means for redress for plaintiffs advancing claims based on both state and federal substantive law if there is a basis for federal court jurisdiction over the case.  Because Congress expanded federal-court jurisdiction over class actions in the so-called "Class Action Fairness Act" (CAFA), state efforts to curtail class actions will not be effective for large numbers of cases over which CAFA provides federal jurisdiction.
 
This particular case, for example, involves a New York law that says that in New York courts, a class action cannot be maintained to seek "statutory penalties." The plaintiff class in this case sought to recover interest on late-paid insurance claims, as required by a New York statute.  If such lawsuits had to be brought on an individual basis, the claims of any one individual would probably not be worth litigating, so New York's rule barring class actions, if it applied, would effectively be the death-knell for the case.  But because the case was filed in federal court, where, under today's ruling, the New York class-action ban does not apply, the class may now have an effective remedy for the insurance company's practice of paying claims late without paying the required interest.

Delaware lawyer John Spadaro originally filed the case in federal district court and persuaded the Supreme Court to hear it after the lower courts had dismissed it on the basis of New York's class action ban.  Mr. Spadaro acted as co-counsel when the case was briefed and argued on the merits before the Supreme Court.  Public Citizen's Brian Wolfman was also co-counsel.

The briefs and opinion in the case are available online here.   Forbes wasted no time in letting us know that they don't like Justice Scalia's opinion.

Full post as published by CL&P Blog on March 31, 2010 (boomark / email).