## Facts

- Shady Grove Orthopedic Associates, P.A., a medical provider, treated an insured after a car accident and received an assignment of the insured’s rights under an Allstate no-fault policy.
- New York’s no-fault scheme required timely payment of benefits and imposed statutory interest on overdue payments; the parties treated the interest at issue as a “penalty” under state law.
- Allstate paid the principal amount late but refused to pay the statutory interest for the delay.
- Shady Grove filed a putative class action in federal court (diversity jurisdiction) seeking statutory interest on behalf of itself and similarly situated claimants.
- New York C.P.L.R. § 901(b) barred class actions to recover a “penalty” unless the statute authorizing the penalty expressly allowed class treatment.
- Federal Rule of Civil Procedure 23 authorizes class actions that satisfy its prerequisites.

## Issues

1. Whether Rule 23 answers the question whether the suit may proceed as a class action, thereby conflicting with and displacing C.P.L.R. § 901(b) in federal court.
2. If there is a conflict, whether applying Rule 23 would violate the Rules Enabling Act by abridging, enlarging, or modifying a substantive right.

## Decision

- The Supreme Court reversed the Second Circuit and remanded.
- The Court held that Rule 23 directly conflicts with § 901(b) because both address whether an action may be maintained as a class action.
- Because Rule 23 is valid under the Rules Enabling Act, it governs in federal court and permits the class action notwithstanding the state-law bar.
- Justice Stevens concurred in the judgment and supplied the deciding vote on the Rules Enabling Act analysis, reasoning that some state procedural rules may be so bound up with substantive rights that they must be applied, but § 901(b) was not such a rule here.
- The dissent would have applied § 901(b), viewing it as a state limitation reflecting substantive policy about aggregate exposure for penalties.

## Legal Principles

- When a Federal Rule of Civil Procedure answers the question in dispute and conflicts with state law, the Federal Rule applies in federal court unless invalid under the Rules Enabling Act.
- Rule 23 governs whether a class action “may be maintained” when its prerequisites are met; state laws restricting class treatment for particular remedies cannot control if they conflict with Rule 23.
- Under the Rules Enabling Act, a Federal Rule is invalid only if it abridges, enlarges, or modifies a substantive right; the controlling concurrence recognizes that some state procedural rules may function as part of the state’s definition of substantive rights and remedies.
- Erie analysis does not override a valid Federal Rule; the displacement question turns on the Federal Rule’s scope and the Rules Enabling Act’s limitation.

## Conclusion

The Court held that a federal diversity court may certify a class under Rule 23 even when state law would bar class actions seeking statutory penalties, so long as Rule 23 directly conflicts with the state restriction and remains valid under the Rules Enabling Act.


Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 559 U.S. 393 (2010)