The Supreme Court Invalidates State Restriction on Federal Class Actions in Shady Grove v. Allstate

The United States Supreme Court recently held that Federal Rule of Civil Procedure 23 trumps a state rule that forbids all class action relief based on a state statutory penalty. With the Court splitting along ideologically diverse lines, three separate opinions vigorously debated matters of state policy prerogative and legislative interpretation. The Justices appeared to agree, however, that the decision will surely result in increased forum shopping for class action plaintiffs under the Class Action Fairness Act, 28 U.S.C. § 1332(d) (2006) (“CAFA”). The irony, not lost on the dissent, was that CAFA was enacted to protect class action defendants from state judges overeager to certify large classes. It now acts to submit the same defendants to federal class action liability where state class action liability does not exist.

The ripples from Shady Grove likewise reach antitrust law. For instance, the same state rule at issue in Shady Grove also restricts class action relief under New York’s antitrust provision, the Donnelly Act. Coupled with CAFA, Shady Grove may lead to more antitrust class actions in federal court based on state law provisions like the Donnelly Act.