GUEST POST: Shady Grove Not the Last Word?
Today is a first for this blog: a guest post. While I am laboring away on a couple of projects, I asked my good friend and colleague Rob Herrington to step in and keep you folks entertained. Or at least educated. Rob hails from the Left Coast, is a Counsel at my firm, and defends companies in consumer class actions. Today he updates us on some of the aftermath from the Supreme Court's recent Shady Grove decision. Take it away, Rob:
They say that “he who laughs last, laughs loudest.” In a recent decision, the Second Circuit appears to be the one left chuckling (at least for now), notwithstanding the Supreme Court’s recent decision in Shady Grove holding that FRCP 23 trumps a state law barring certain types of class actions.
You remember Shady Grove, right? It pitted a New York state law that barred class actions seeking statutory damages (C.P.L.R. 901(b)) against FRCP 23. In the end, FRCP 23 won. The Court held that “Rule 23 provides a one-size-fits-all formula for deciding the class-action question,” and thus generally preempts a state law that bars use of the class action procedure. Shady Grove Orthopedic Associates, P.A. v. Allstate Ins. Co., 130 S. Ct. 1431, 1437 (2010).
Several cases were caught up in the wake of this decision, including Holster v. Gartco, Inc., 2008 U.S.App. Lexis 23203 (2d Cir. Oct. 31, 2008). Holster was a case brought under the federal Telephone Consumer Protection Act (“TCPA”)—that lovely statute providing a statutory penalty of $500 for each instance of an unsolicited, commercial fax transmission.
Before Shady Grove, the Second Circuit ruled that a TCPA class action could not be brought in New York for two reasons: (i) C.P.L.R. 901(b)’s bar on class actions seeking statutory damages; and (ii) specific language in the TCPA that allows a person to sue only “if otherwise permitted by the laws or rules of court of a state.” Id. The court held that C.P.L.R. 901(b) was just such a law or “rule of court” and thus a class action was unavailable. Id.
After Shady Grove, the Supreme Court vacated Holster and remanded for further consideration. Justice Scalia penned a concurrence to the remand order, taking at shot at Holster’s second reason for not allowing the class action. The concurrence asserted that the second reason was untenable because it would create the absurd result of a litigant losing his putative federal right under the TCPA for failing to follow trivial state court rules about “the color and size of the paper.” Holster v. Gatco, Inc., 130 S. Ct. 1575, 1576 (2010) (Scalia, J., concurring).
On remand, the Second Circuit agreed that Shady Grove abrogated its first ground for not allowing a class action. Holster v. Gatco, Inc., 2010 WL 3307468 (2d Cir. Aug. 24, 2010) (“Shady Grove’s holding that Rule 23 generally preempts C.P.L.R. 901(b) abrogates our holding.”).
But notwithstanding Justice Scalia’s concurrence, the court reaffirmed its decision that a class action could not be brought in New York under the TCPA. In language sure to make strict-constructionists’ skin crawl, the Second Circuit started with the proposition that “there exists no rule prohibiting courts from reading a law with an eye to the legislature’s goals in enacting the statute.” Id. at *2. The court reasoned that, in “light of this principle, nothing prevents us from saying that Congress intended some, but not necessarily all, the state ‘rules of court’ to define what causes of action could lie under the TCPA.” Id. at *3.
Thus, the court held that, notwithstanding Shady Grove and notwithstanding Justice Scalia’s concurrence, the TCPA should be read to incorporate state laws that limit substantive relief, including C.P.L.R. 901(b). Answering Justice Scalia, the court noted that, whether “Congress intended to let a TCPA suit be barred by a state due to the particulars of the paper used in filing seems unlikely, but that is a question for another day.” Id.
Although the argument between Justice Scalia and the Second Circuit certainly is entertaining, the Holster decision is notable for another reason. It provides defense counsel with a potential tool (albeit a limited one) for attacking class actions. If you are facing a class action asserting claims under a federal statute and that federal statute incorporates state law limitations (like the TCPA), it may be worth investigating whether state law could be used to limit the scope of the case, as in Holster.
