New York No-Fault at SCOTUS -- Federal Court Class Action Jurisdiction

NO-FAULT – CLASS ACTION LITIGATION – CPLR 901
Shady Grove Orthopedic Associates, P.C. v. Allstate Ins. Co.
(U.S. Sup. Ct., decided 3/31/2010)

New York CPLR § 901(b) provides:

b. Unless a statute creating or imposing a penalty, or a minimum measure of recovery specifically authorizes the recovery thereof in a class action, an action to recover a penalty, or minimum measure of recovery created or imposed by statute may not be maintained as a class action.

Plaintiff commenced this class action in federal court action under Federal Rules of Civil Procedure Rule 23,  alleging that Allstate had routinely refused to pay interest on overdue no-fault benefits. Plaintiff medical provider sought relief on behalf of itself and at least 100 other members of the class.  Allstate sought dismissal of the action based on CPLR 901, arguing that interest on overdue no-fault payments constitutes a "penalty" and the New York Insurance Law does not specifically authorize the recovery of interest in a class action. 

The federal district court agreed with Allstate and dismissed the lawsuit after finding that statutory interest does constitute a "penalty" under New York law.  Plaintiff's individual claim of roughly $500 fell short of the amount that would have allowed its claim to remain in federal court.  The 2nd U.S. Circuit Court of Appeals affirmed.

Last week, the United States Supreme Court reversed and held, in a 5-4 decision, that CPLR 901 is not a state substantive law that trumps FRCP Rule 23.  Writing for the majority, Justice Antonin Scalia noted that "Rule 23 unambiguously authorizes any plaintiff, in any federal civil proceeding, to maintain a class action if the Rules' prerequisites are met."

Some have suggested that the Supreme Court's holding in this case could open federal courts to more class actions or will "upend" a large number of state statutes that limit remedies which can be sought by class actions or that outright prohibit certain class actions.  For a more detailed analysis of the Court's 72-page decision, head over the SCOTUS Blog's post about it.