Dave Gottlieb has posted extensively on this case, and has some good insights on it. This case represents a course in Civil Procedure and its effects on no-fault are minimal. But I will sort this out for the non attorneys who read this, or the attorneys that forgot first year Civil Procedure in law school.
Shady Grove apparently filed a class action lawsuit in Federal court, arguing that Allsate failed to pay interest on numerous cases. The action was based solely upon New York no-fault law. Therefore, the federal court would only have jurisdiction to entertain this matter if there was diversity between any of the parties and $5 million in dispute. According to New York State law and, as is relevant to this case, a class action may not be brought when the damages solely consist of a penalty. Statutory interest and the resulting attorney fees are clearly penalties. Under the Federal Rules of Civil Procedure, a class action can be brought irrespective of whether the object of the action is to collect a penalty. So, you would think that since this case was brought in Federal court, the Federal Rules ipso facto would apply. This is not necessarily true.
In the last century, the Supreme Court held in the Erie and Hannah line of cases that where State substantive law applies, a Federal Court in a diversity matter must apply the state substantive law. The Court, however, held that where the difference between state law and federal law only applies procedural rules, the Federal procedural rules would apply.
The question then is whether the New York class action statute is procedural or substantive. The Second Circuit observed that it is, for the most part, hybrid and held that it is substantive to the extent that Shady Grove could not bring this action in Federal Court since it could not be brought in State Court.
The Supreme Court in a very divided opinion reversed the Second Circuit and held, as far as I am concerned, that the dispute is procedural. Therefore, since the action may be brought in Federal Court in accordance with the Federal Rules of Civil Procedure, the Second Circuit was incorrect in allowing for this lawsuit’s dismissal.
This case now allows for massive forum shopping, for the minimal amount of class action litigation that no-fault has spawned. However, it opens up the door to perhaps more class action lawsuits and the massive discovery, which is always advantageous to the plaintiff class members in this type of litigation. Perhaps, we have entered a new era in no-fault litigation? I do not think so, but as to issues involving interest and attorney fee disputes on a more global level, it is definitely possible.
