Class Certification at Issue in Supreme Court

WASHINGTON (CN) - Lawyers argued before the Supreme Court Monday over whether federal courts should follow state or federal law when certifying class actions. The debate largely surrounded the obscure classification of a policy as either procedural or substantive, and serves as a fresh reminder of the Court's role in unwinding the sometimes daunting ambiguities in the law.

A New York woman and her health provider brought a suit against the woman's car insurance company for compensation after she was treated for injuries from a car accident in 2006.

Shady Grove Orthopedic Associates, the group that treated Sonia Galvez, brought the suit before the Supreme Court as a class action that sought damages for the interest payment Allstate had allegedly failed to pay to those it insured.

Christopher Landau, representing Allstate, argued that under New York law, the case did not qualify for a federal class action and the district court and Second Circuit agreed, dismissing the class action.

Scott Nelson, representing Shady Grove Orthopedic Associates, argued that the New York laws do not apply because members of the class came from various other states. He said that in such a case, federal procedural rules apply.

The arguments predictably swung into a debate over how to distinguish procedural standards from substantive law.

Procedural laws dictate how the court hears and determines cases. For example, a procedural law might limit the amount of time someone has to file a complaint in the courts. Substantive laws govern more broadly the actions of the citizens.

Nelson argued that the New York rules surrounding class action were procedural because they dealt with policy.

Justice Sonia Sotomayor proposed a situation where the state only allows a statutory penalty only if an individual files, and that no statutory penalty is awarded if the case is filed as a class action. She asked whether that policy would be strictly procedural.

Nelson replied that it would.

"You get $100 or you don't get $100. How can you be any less substantive than getting the $100 or not getting the $100?" Sotomayor asked.

"Can the statute be both?" Justice Antonin Scalia asked. "Can a statute both establish a substantive limitation and also establish a rule of procedure for New York courts?"

Nelson replied that a statute could be both procedural and substantive, but that this one was strictly procedural.

"There was always recognition that a so-called built-in statute of limitations was substantive," Justice Ruth Bader Ginsburg said.

The New York is more restrictive than federal law in allowing class actions. The state's law provides that, "Unless a statute creating or imposing a penalty, or a minimum measure of recovery specifically authorizes recovery thereof in a class action, an action to recover a penalty, or a minimum measure of recovery created or imposed by the statute may not be maintained as a class action."

"This Court in its recent decisions has been sensitive to not overriding State limitations, and so has read the Federal rule to avoid the conflict," Ginsburg said.

Ginsburg noted that the class action isn't necessarily addressed by federal rules. "If New York wants to say this kind of claim can be brought only as an individual action, not as a class action," Justice Ruth Bader Ginsburg asked, "why shouldn't the Federal court say that's perfectly fine, we respect the State's position on that?"

Nelson argued that the federal rules do cover the issue and said that the rules apply in all federal courts.

Landau stepped up to the podium to argue on behalf of Allstate. He said federal courts should accept New York's decision not to accept suit as a class action, arguing that the New York policy has a substantive side.

"You don't want to create incentives that will bring people like a magnet to Federal court," he added.

Landau said that if a state only limits particular causes of action or particular penalties - like if the state is concerned about penalties that are too large- then the state is doing it for a substantive reason

"Your position depends upon a characterization of the ban, and the restriction on class actions is either substantive or procedural," Roberts said.

Landau replied essentially that it does.

"Under your theory, any State could pass a law that says no cause of action under State law can be brought as a class action ever," Sotomayor said.

Landau said that could be the case.

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