As we have noted in prior posts, many states require courts to bifurcate punitive damages trials upon the defendant’s request. The question therefore arises whether a federal court sitting in diversity must or, at least should, require bifurcation when the applicable state law requires bifurcation.

Most federal courts that have confronted the issue have concluded that bifurcation is procedural and that, under Erie, they therefore need not adhere to the bifurcation requirements of the state whose substantive law governs the case. While at first blush, the Supreme Court’s 2010 decision in Shady Grove Orthopedic Associates v. Allstate Insurance Co. may appear to reinforce that conclusion, on closer inspection it does not affect the analysis one way or the other.

In Shady Grove, the Supreme Court addressed whether federal courts must apply New York’s prohibition against entertaining class actions seeking statutory penalties. A plurality of the Court reasoned that the state rule conflicts with Fed. R. Civ. P. 23, which requires courts to allow class actions without limitation if the specified pre-conditions are satisfied. The plurality held that, because Rule 23 regulates procedure, it trumps the state-law rule whether or not the “effect is to frustrate a state substantive law (or a state procedural law enacted for substantive purposes).”

We see Shady Grove as basically a preemption decision. It tells federal courts that they may not apply state rules or policies that conflict with federal procedural rules, but does not stand as an obstacle to applying the state rules when there is no conflict.

And there is no conflict when it comes to bifurcation. No federal rule prohibits bifurcation in punitive damages cases; rather, Rule 42(b) permits courts to bifurcate to avoid prejudice, which is precisely the point of bifurcation in the punitive damages context and precisely the reason why many states have required bifurcation if requested by the defendant.

Even when a federal court might be predisposed to prefer unitary trials, if the state whose law governs the substantive claims requires bifurcation upon the defendants’ request, it seems to us that concerns about comity and forum shopping as between state and federal court dictate acquiescing to the state-law preference for bifurcation unless there are exceptionally weighty reasons in the particular case for not doing so. Accordingly, though there can be little remaining doubt that federal courts are notrequired to apply state bifurcation statutes, defendants seeking bifurcation have a plausible argument that the federal courts should apply those statutes.

Of course, we believe that even in states that do not confer a right to bifurcation, the federal court should, at the defendant’s request, exercise its discretion to separate the “sentencing” stage of the proceeding from the “guilt-determining” phase. But the argument for such relief is especially strong in states that do grant defendants such a right.