Opinion ID: 1288403
Heading Depth: 3
Heading Rank: 1

Heading: Minn. R. Civ. P. 23.09 and Fed. R.Civ.P. 23.1

Text: We begin our analysis of the certified question by considering the contention that Minn. R. Civ. P. 23.09 and Fed. R.Civ.P. 23.1 define the boundaries of the Minnesota business judgment rule. Under Minn. R. Civ. P. 23.09, a derivative suit shall not be dismissed or compromised without the approval of the court. The state plaintiffs assert that this rule forecloses the application of the business judgment rule; the PSLRA plaintiffs and the Minnesota Attorney General make similar arguments. These arguments implicate the Erie doctrine concerning the applicability of state procedural law in federal court. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). It is well-settled under the Erie doctrine that federal courts sitting in diversity apply state substantive law and federal procedural law. Gasperini v. Ctr. for Humanities, 518 U.S. 415, 427, 116 S.Ct. 2211, 135 L.Ed.2d 659 (1996). The Erie doctrine also applies when a federal court exercises supplemental jurisdiction over state law claims. See Felder v. Casey, 487 U.S. 131, 151, 108 S.Ct. 2302, 101 L.Ed.2d 123 (1988). Because the federal district court in this instance is exercising supplemental jurisdiction over matters of state law, we must determine whether Rule 23.09 is substantive or procedural. A court determines whether a rule is substantive or procedural by examining whether the rule is outcome-determinative. Hanna v. Plumer, 380 U.S. 460, 468, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965). To ascertain whether a rule is outcome-determinative, in turn, a court considers how a failure to apply that rule would implicate the twin aims of the Erie doctrinediscouragement of forum-shopping and avoidance of inequitable administration of the laws. Id. In accordance with the Erie doctrine, we hold that Rule 23.09 is a procedural rule and therefore cannot be applied by a federal court exercising supplemental jurisdiction over claims asserted under state law. A failure to apply Rule 23.09 instead of Fed.R.Civ.P. 23.1 implicates neither of the core Erie concerns identified in Hanna. Because the language of Rule 23.09 substantially mirrors that of its federal counterpart, it is unlikely that a party would choose a federal forum to evade the strictures of the rule. See Fed.R.Civ.P. 23.1(c) (A derivative action may be settled, voluntarily dismissed, or compromised only with the court's approval.). Furthermore, because Rule 23.09 sets forth no substantive standards to guide the consideration and approval of a settlement and grants no rights that one party may enforce against another, it is unlikely that a failure to apply Rule 23.09 rather than the similar federal rule would lead to inequitable results. Finally, even if Rule 23.09 were substantive, it would be invalid under Minn.Stat. § 480.051 (2006), which forbids the promulgation of procedural rules that abridge, enlarge, or modify the substantive rights of any litigant. Because Minn. R. Civ. P. 23.09 is clearly procedural, its scope has no relevance to our analysis of the certified question. Under Fed.R.Civ.P. 23.1(c), a shareholder derivative action may be settled, voluntarily dismissed, or compromised only with the court's approval. The lead plaintiffs assert that this rule mandates review of a proposed settlement for its reasonableness and fairness, regardless of the content of the Minnesota business judgment rule. In essence, the lead plaintiffs urge us to interpret Rule 23.1(c) so as to foreclose application of the Minnesota business judgment rule to proposed derivative settlements. Because the federal district court did not  and could not  certify to this court a question of federal procedural law, we decline to address the lead plaintiffs' argument. As a number of courts have observed, the certified question process provides no opportunity for a state court to render an opinion on matters of federal law. See, e.g., Ramos v. Town of Vernon, 254 Conn. 799, 761 A.2d 705, 718 (2000); Mardirossian v. Paul Revere Life Ins. Co., 376 Md. 640, 831 A.2d 60, 64 (2003); Lumbermens Mut. Cas. Co. v. Belleville Indus., Inc., 407 Mass. 675, 555 N.E.2d 568, 574 (1990). Thus, Fed.R.Civ.P. 23.1 is not properly before us at this time.