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Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., No. 08-1008

By FindLaw Staff on March 31, 2010 2:41 PM

Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., No. 08-1008, involved a class action seeking to recover interest due under New York law on plaintiff's insurance claim.  The Supreme Court reversed the Second Circuit's order affirming the district court's dismissal of the action for lack of jurisdiction based on a New York law precluding class actions to recover a "penalty" such as statutory interest, on the ground that Fed. R. Civ. P. 23(b) answered the question in dispute -- whether plaintiff's suit may proceed as a class action -- when it stated that "[a] class action may be maintained" if certain conditions are met. Since N. Y. Civ. Prac. Law Ann. section 901(b) attempted to answer the same question, stating that plaintiff's suit "may not be maintained as a class action" because of the relief it sought, that provision could not apply in diversity suits unless Rule 23 was ultra vires.

As the Court wrote:  "New York law prohibits class actions in suits seeking penalties or statutory minimum damages.  We consider whether this precludes a federal district court sitting in diversity from entertaining a class action under Federal Rule of Civil Procedure 23."

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