The Standard for Measuring the Validity of a Federal Rule of Civil Procedure: The Shady Grove Debate between Justices Scalia and Stevens

INTRODUCTION In Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co., (1) alternative interpretations of [section] 2072(b) of the Rules Enabling Act (REA) (2) were offered by Justices Scalia and Stevens. (3) The focus of this Article is on that disagreement. Neither alternative enjoyed a majority, (4) adding a new complexity to an already challenging area of the law. (5) One hopes that a majority of the Court will soon resolve this intracourt conflict. From a jurisprudential perspective premised on the text of the REA and precedent, I think Justice Stevens has the stronger argument. From a policy perspective premised on ease of application and judicial efficiency, Justice Scalia's alternative is not unattractive. However, as I explain below, since I think a statutory text should trump freestanding judicial policymaking--no matter how attractive that policy may be--I am inclined toward Justice Stevens's interpretation. The basic background of the Shady Grove decision is simple. New York law requires insurance companies to pay legitimate insurance claims within thirty days of receipt of the claim. (6) A failure to comply with this provision triggers a statutory penalty assessed at two percent per month of the amount owed. (7) Shady Grove filed an insurance claim with Allstate, which Allstate eventually paid, but not within the thirty-day time frame. (8) Allstate refused to pay the statutory penalty--approximately $500--and Shady Grove sued Allstate to recover that penalty in a U.S. district court, invoking that court's diversity jurisdiction. (9) In its suit, Shady Grove alleged that Allstate routinely failed to tender timely payments on insurance claims. (10) Consistent with this allegation, and in seeming accord with Federal Rule of Civil Procedure 23, Shady Grove filed the suit under the Class Action Fairness Act (11) as a class action. (12) Allstate moved to dismiss, arguing that under New York law, specifically section 901(b) of the New York Civil Practice Law and Rules Code, (13) a suit to recover a statutory penalty cannot be "maintained as a class action." (14) The district court and the court of appeals agreed with Allstate and ordered the case dismissed. (15) The Supreme Court granted certiorari and reversed, holding that whether a class action was to be maintained was controlled by Rule 23 and not by New York law. (16) In arriving at this conclusion, the Court held that Rule 23 answered the question in dispute--whether a class action may be maintained--and that the rule was valid under the standards of the REA. (17) While the majority of the Court agreed as to why Rule 23 controlled the question in dispute, (18) there was a disagreement within the majority--the Scalia/Stevens debate--as to the proper standards to apply in assessing the validity of a Federal Rule under the REA. (19) This Article is divided into six Parts. The first describes Justice Scalia's interpretation of [section] 2072 (b); the second describes Justice Stevens's interpretation of that Section; the third provides a detailed discussion of Sibbach v. Wilson & Co., (20) a case that is critical to both opinions; the fourth examines and evaluates the rationale behind each interpretation; the fifth discusses the underlying policy arguments behind each interpretation; and the sixth offers concluding remarks. I. JUSTICE SCALIA AND FEDERAL RULE VALIDITY" THE RULE ITSELF Parts I and II-A of Justice Scalia's opinion reflect the views of a five-person majority. (21) Part I describes the case and the basic question presented (22) while Part II-A concludes that Rule 23 answered the "question in dispute"--in other words, whether a class action may be maintained. (23) Part II-A triggered a spirited, four-person dissent authored by Justice Ginsburg, (24) but that disagreement is not the topic of this Article. For purposes of this Article, I am assuming the majority was "correct" on this preliminary point. …