In Shady Grove Orthopedic Associates, P.A. v. Allstate Ins. Co., — S.Ct. —-, 2010 WL 1222272 (2010), Justice Scalia addressed the case where a medical provider brought putative class action against automobile insurer, alleging breach of contract, bad faith breach of contract, and violation of New York law in failing to pay statutory interest penalties on overdue payments of insurance benefits owed under no-fault automobile insurance policies.  Justice Scalia held that a New York law prohibiting class actions in suits seeking penalties or statutory minimum damages conflicted with Federal Rule of Civil Procedure governing class actions.   Justice Scalia acknowledged that creation of a rule allowing a class action to proceed in federal court notwithstanding a state rule that would prohibit it from proceeding in state court would encourage forum shopping.  That’s just federalism, and so be it. 


We must acknowledge the reality that keeping the federal-court door open to class actions that cannot proceed in state court will produce forum shopping. That is unacceptable when it comes as the consequence of judge-made rules created to fill supposed “gaps” in positive federal law. See Hanna, 380 U.S. at 471-472, 85 S.Ct. 1136. For where neither the Constitution, a treaty, nor a statute provides the rule of decision or authorizes a federal court to supply one, “state law must govern because there can be no other law.” Ibid.; see Clark, Erie‘s Constitutional Source, 95 Cal. L.Rev. 1289, 1302, 1311 (2007). But divergence from state law, with the attendant consequence of forum shopping, is the inevitable (indeed, one might say the intended) result of a uniform system of federal procedure. Congress itself has created the possibility that the same case may follow a different course if filed in federal instead of state court. Cf. Hanna, 380 U.S. at 472-473, 85 S.Ct. 1136. The short of the matter is that a Federal Rule governing procedure is valid whether or not it alters the outcome of the case in a way that induces forum shopping. To hold otherwise would be to “disembowel either the Constitution’s grant of power over federal procedure” or Congress’s exercise of it. Id. at 473-474, 85 S.Ct. 1136.



Okay, so why does this matter to anyone other than a first year law student trying to understand the Erie doctrine?  Maybe TCPA relevance?  (Justice Ginberg, dissenting).  


Shady Grove’s suggestion that States must specifically limit their laws to domestic rights of action if they wish their enactments to apply in federal diversity litigation misses the obvious point: State legislators generally do not focus on an interstate setting when drafting statutes.  [FN omitted]  Shady Grove also observes that a New York court has applied § 901(b) to a federal claim for relief under the Telephone Consumer Protection Act of 1991 (TCPA), 47 U.S.C. § 227, see Rudgayzer & Gratt v. Cape Canaveral Tour & Travel, Inc., 22 App. Div.3d 148, 799 N.Y.S.2d 795 (2005), thus revealing § 901(b)’s “procedural” cast. Brief for Petitioner 36. We note first that the TCPA itself calls for the application of state law. See Rudgayzer, 22 App. Div.3d, at 149-150, 799 N.Y.S.2d, at 796-797 (federal action authorized in state court “if otherwise permitted by the laws or rules of the court of [the] State” (quoting 47 U.S.C. § 227(b)(3))). See also Gottlieb v. Carnival Corp., 436 F.3d 335, 342 (2d Cir.2006) (SOTOMAYOR, J.) (“Congress sought, via the TCPA, to enact the functional equivalent of a state law.”). The TCPA, the Supreme Court of Connecticut has recognized, thus “carves out an exception to th[e] general rule” that “when Erie … is reversed …, a state court hearing a federal case is normally required to apply federal substantive law”: “Under § 227(b)(3) … it is state substantive law that determines, as a preliminary matter, whether a federal action under the act may be brought in state court.” Weber v. U.S. Sterling Securities, Inc., 282 Conn. 722, 736, 924 A.2d 816, 826 (2007) (in TCPA action governed by New York substantive law, § 901(b) applied even though the claim was pursued in Connecticut state court).