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Did the Supreme Court Open the Door for Class Action Lawsuits?
The Supreme Court's decision in Shady Grove Orthopedics Associates, P.A. v. Allstate Insurance Company, 130 S.Ct. 1431 (March 31, 2010) is of vital importance for any litigator or claims professional who handles class action lawsuits in federal court. It also may have a significant impact on the economics of writing coverage that includes defense costs in industries that are typically subject to class actions. In Shady Grove, the Supreme Court took on the issue of whether, in the context of a state law diversity action pending in federal court, Rule 23 of the Federal Rules of Civil Procedure, which generally permits a plaintiff to maintain a class action in federal court if certain preconditions are met, pre-empts a New York statute (N.Y. Civ. Prac. Law Ann. ' 901(b)) that prohibits a plaintiff from maintaining a class action suit seeking statutory penalties. In a 5-4 decision, the Court held that Rule 23 pre-empts the New York statute and permits the plaintiff to maintain a class action suit in federal court seeking statutory penalties, even though the plaintiff could not have maintained the same action in a New York state court.
Nevertheless, the Court could not agree on a single rationale for holding that Rule 23 pre-empted the New York statute, thus leaving an opening for defendants in other cases to distinguish their particular disputes from the New York statute. Another potential outcome is that state legislatures will attempt to amend their laws in order to potentially avoid the ruling in Shady Grove. More specifically, defendants can argue that other state laws are substantive, as opposed to the statute at issue in Shady Grove, which Justice John Paul Stevens (who gave the critical fifth vote in favor of pre-empting the New York statute) deemed to be procedural because it merely served to prohibit the procedural class action device in certain actions. Alternatively, state legislatures can amend existing laws to make them more “substantive” in nature, such as by tying them to particular substantive rights or expressly limiting the remedies available in certain actions, rather than procedurally barring the class action itself. While such arguments or amendments are not certain to withstand pre-emption in federal courts, Shady Grove leaves some room for that possibility.
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Bit Parts
Summary Judgment Denied Defendant in Declaratory Action by Producer of To Kill a Mockingbird Broadway Play Seeking Amateur Theatrical Rights
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Disconnect Between In-House and Outside Counsel
'Disconnect Between In-House and Outside Counsel is a continuation of the discussion of client expectations and the disconnect that often occurs. And although the outside attorneys should be pursuing how inside-counsel actually think, inside counsel should make an effort to impart this information without waiting to be asked.