Although most states have consumer protection laws that provide for private rights of action, certain states also hold that such remedies cannot be invoked and pursued on behalf of a class. However, when such a case is filed in federal court, such state-based restrictions conflict with the class action mechanism that is set forth under Rule 23 of the Federal Rules of Civil Procedure.
In Lisk v. Lumber One Wood Preserving LLC, 2015 U.S. App. LEXIS 11891 (11th Cir. July 10, 2015), the Eleventh Circuit held that class actions can still be pursued in federal court when the underlying state statute prohibits class action procedure. To that end, the court reinstated a nationwide class action under the Alabama Deceptive Trade Practice Act (“ADTPA”), despite a provision in the ADTPA prohibiting class actions.
The court’s interpretation of the Supreme Court’s decision in Shady Grove Orthopedic Associates v. Allstate Insurance Co., 559 U.S. 393 (2010), which was critical to its analysis, is contrary to the recent trend in federal district courts prohibiting class actions based on state law when that same state law also prohibits the class action mechanism.
In Shady Grove, a five-member majority ruled that Rule 23 preempted a New York law barring class actions for recovery of a “penalty” even when the claim for a penalty arose under a New York law. Four members of the majority also issued an opinion making clear they viewed the decision as being generally applicable to just about any state law that might limit the right to bring a class action in federal court under state law, while the fifth judge of the majority filed a concurrence indicating that whether a specific state law barring a class action would be preempted in federal court would depend on a detailed analysis of the particular state law.
Embracing the more expansive view of the law adopted by the four justices of the majority in Shady Grove, the Eleventh Circuit held that “how a state chooses to organize its statutes affects the analysis not at all.” To emphasize its point, the court noted that “surely the New York legislature could not change the Shady Grove holding simply by reenacting the same provision as part of the [relevant statute].” The general impact of the Eleventh Circuit’s decision is clear: the door to federal court for class actions to enforce state-law rights has potentially been opened ever further.
Troutman Sanders LLP has extensive experience in defending class actions. We will continue to monitor this case and like developments in other federal circuits.