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Analysis: Shady Grove edges on slippery slopes


Sometimes, the Supreme Court seems not so concerned about the case actually before it, as it is about the next case: where might a decision in the first case lead in the future?  In lawyers’ shorthand, is the Court about to put a legal issue on a logical “slippery slope”? Will dire consequences occur if a ruling’s reasoning runs too far?  The Justices found themselves looking down slippery slopes on Monday, as they heard argument in an important case pitting state sovereignty against federal court authority, the Shady Grove Orthopedic case (08-1008).

One version of unwanted consequences, emerging from comments both from the bench and from a lawyer for Shady Grove Orthopedic Associates, was that the Court risked encouraging states to cut off entirely the right of consumers to join together to pursue their legal claims in class-action lawsuits in federal court.  A different version, also emanating from both the bench and a lawyer for Allstate Insurance Co., was that the Court risked overturning, by implication, an array of existing state laws defining what remedies consumers may seek for wrongs that are defined by state law.

There were several exchanges about basic fairness, but nothing like a consensus on that emerged.  Shady Grove’s counsel contended that the right to aggregate claims in a class action is not only fair but also an efficient way to resolve similar complaints that multiple plaintiffs may share, and Allstate Insurance’s counsel contended that, if a state has created a legal claim, it is only fair that it be allowed to define its terms.

New York State, fearing that class-action lawsuits seeking monetary penalties for misconduct defined by state laws would unduly magnify those penalties, simply barred lawsuits combining such claims, forcing individuals to sue for them one at a time.

In the Shady Grove case, Allstate Insurance persuaded the Second Circuit Court that New York’s class-action ban must be enforced even when claims based on those state laws are pursued in federal court.  Reviewing the Circuit Court ruling, the Justices are considering whether that contradicts the federal court rule — Rule 23 — that allows collective lawsuits.

It was no surprise that much of Monday’s argument focused — as did the briefs — on whether New York’s class-action curb is procedural in nature (Shady Grove’s view), and thus is trumped by federal Rule 23 when the claim is brought in federal court, or whether it is substantive in nature (Allstate’s view), and thus trumps any federal interest asserted if the litigation goes to federal court.  (The procedural vs. substantive dichotomy traces, of course, to the Supreme Court’s interpretation of its 1938 ruling in Erie Railroad v. Tompkins.)

Justice Ruth Bader Ginsburg, who started the questioning (and quickly showed sympathy for Allstate’s labeling of the New York ban as substantive), likened the restriction to a control on remedies, such as a ceiling on the amount of damages that could be recovered under a state law.

She told Shady Grove’s lawyer, Scott L. Nelson, “If New York wants to say this kind of claim can be brought only as an individual action, not as a class action, why shouldn’t the federal court say that’s perfectly fine; this class of cases can’t be brought as a class action; we respect the state’s position on that.”  In effect, she said, if Nelson’s view prevailed, a federal court, having a case before it only because the parties were from different states, would be creating “a claim [under state law] that the state never created.”

Championing states’ rights, Ginsburg said the Court “has been sensitive to not overriding state limitations.”  Nelson’s sparring with her took up much of his time at the podium.  But he encountered the slippery-slope argument that Allstate wanted the Court to think about when Chief Justice John G. Roberts, Jr., pressed Nelson to confront the potential impact of Shady Grove’s argument on a list of state laws (in the appendix to Allstate’s merits brief) restricting class-action remedies.

Nelson tried, without notable success, to argue that the state laws listed were different, although he did concede that the validity of some of them might be in question under his argument.  That led Ginsburg into a series of questions implying that Nelson was pushing his theory too far.  Justice Sonia Sotomayor chimed in, intepreting Nelson’s responses as indicating that “there is absoluely nothing, no law that the state could pass that would not conflict with Rule 23 — with respect to class actions.”  Shady Grove’s lawyer then backtracked a bit, and then returned to his central theme that the specific  New York law at issue was clearly procedural.

Responding to a question from Justice Antonin Scalia, Nelson suggested that laws like New York’s might not only restrict class actions on claims arising under New York law, but under other states’ laws, as well — another slippery slope.  The ban, he argued, “clearly is applicable to rights of action brougth under any source of law.”   At no point, however, was he able to deter Ginsburg’s aggressive questioning.

When Christopher Landau, Allstate’s lawyer, rose, he began to exploit the points that Justice Ginsburg had made.  The case, he said,  “falls within the heartland of Erie” because it was an attempt to allow a recovery under state law in federal court that could not be obtained in state court,

He had barely begun, however, when a deeply skeptical Justice Sotomayor pressed Nelson’s point about the potentially wide sweep of restrictions like New York’s.  “Under your theory,” she told Landau, “any state could pass a law that says no cause of action under state law can be brought as a class action ever.  That would be your theory because it’s substantive” under the Erie dichotomy.  She suggested that would seriously undercut federal Rule 23.

Landau, however, insisted that Rule 23 only provided criteria for when a class could be recognized in federal court, and did not deal at all with whether a class could be recognized in the first place, when a state law at issue categorically barred such a lawsuit.  But he did not disagree with the implication of Sotomayor’s broad question, saying that “if the state is talking about its own state law cause of action, the state is the master.”

After a few exchanges along those lines, Sotomayor said Landau had answered her question, so “under your view, a state could say, no class actions…and a federal court, sitting in diversity, could never aggregate those claims, those state law claims?” Allstate’s lawer said yes, for state law claims.

Picking up on the implicatons, the Chief Justice expressed implied concern about “an across-the-board” state ban on class actions when state law claims were at issue.   And Landau soon was confronted with further skepticism, this time from Justice Stephen G. Breyer.   If a state tries to curb class actions because it considers them to “lead to unjust, inefficient settlement of disputes,” Breyer asked, why isn’t that second-guessing the federal rule’s recognition of class litigation as an efficient way to achieve justice.

Landau and Breyer sparred a bit on the point, with the Justice ultimately suggesting that what New York had done was no different from a state’s attempt to dictate the timing of when appeals could be pursued in federal court — an intrusion, Breyer said, that “wouldn’t last for two seconds.”

Allstate’s lawyer quickly turned back to the slippery slope issue that works in his favor — the potential threat of Shady Grove’s argument to the state laws that Landau listed in his appendix to the brief.  Shady Grove, he said, clearly did not have “a clear answer” to the Chief Justice’s concerns on that point.

But that did not deter Justice John Paul Stevens from picking up on the answers Landau had given to Sotomayor, which she had interpreted as indicating a potential for a broad state assault on Rule 23.  “Is it your position,” Stevens asked, “that if we follow your view in this case” that New York could pass a law “saying no cause of action based on New York law may be maintained as a class action.”

“Yes, Your Honor,” Landau replied.  And he went on to concede that New York’s authority to bar class actions would apply not only to state statutes, but to New York common-law claims, too.  The Chief Justice interpreted Landau’s responses as indicating that New York could pass an across-the-board law simply because it did not like class actions as a general matter.

When Justice Scalia moved in to explore the breadth of Landau’s arguments, the Allstate lawyer eased off a bit, saying that New York could not apply its ban to a cause of action based on out-of-state law.

Justice Ginsburg moved in to provide an assist, seeking to counter the questions by Justices Sotomayor and Stevens by noting that New York did not, in fact, have an across-the-board law attacking class action litigation as a general policy approach.  “It has picked out a particular kind of action,” she noted.  “Precisely, Your Honor,” Landau said, accepting the favor.  He then returned to his central theme that what New York had done was, in fact, the adoption of a substantive policy.

Justice Stevens, though, had become aroused by the sweep of Landau’s argument, at least as characterized by Justice Sotomayor, and left no doubt that he was troubled.  “It seems to me,” Stevens said, “that your position basically is that New York can decide what kinds of cases shall be brought as class actions. Period.”  If New York did that for “substantive reasons,” Landau said, it could, for “New York causes of action.”   The Chief Justice again expressed some sensitivity about the responses.

Again, though, Justice Ginsburg came back to aid Landau, suggesting that states should have the power to keep “clutter” out of their courts.

In the end, Landau tried to pull the Court back to the slippery slope of invalidating a host of other states’ laws.   He said that his adversary in essence had been arguing that “Rule 23 requires that every cause of action that comes before it [a federal court] be eligible for class certificaetion.  That would knock out each and every one of the statutes” in the appendix to his brief.  Nelson, he said, had been unsuccessful in trying to minimize the threat to those other laws.

Nelson’s few minutes of rebuttal were taken up with sparring anew with Justice Gisnburg.

(The Court is expected to decide the case in late winter.)