Civil Procedure and the Erie Doctrine

The Erie Doctrine

When should a federal court apply federal law, and when should it apply state law?

 

28 USC §1652: Rules of Decision Act

The laws of the states, except where the constitution, treaties, or US statutes shall otherwise require or provide, shall be regarded as rules of decision in trials at common law in the courts of the US in cases where they apply.

• When a federal constitution, etc on point with regard to an issue, then you apply the federal law. In all other cases, apply state law.
• When absence of fed constitution, etc – then employ Erie Doctrine

• Erie Doctrine mostly arises when you have diversity of citizenship b/c only in federal ct b/c diversity of citizenship, not federal cases
  • Can also come up in federal question cases – may be other issues of a case on which the federal law is silent.

 

Rule Enabling Act: authority that is given to the SC by Congress to enact & develop the FRCP. “The SC shall have the power to prescribe, by general rules, the forms of process, writs, pleading, and motions, and the practice and procedure of the DS of the US in civil actions. Such rules shall not abridge, enlarge or modify any substantive right and shall preserve the right of trial by jury.”

 

Swift v. Tyson(precedent overruled by Erie)

• Do the laws of the several states apply or does federal general common law apply? Swift said apply federal general law
  • Judge made law in certain areas hoping to create uniformity in those areas of law (mostly in commercial law)
    • This notion of general law only applied in federal courts; did not pre-empt state law in state courts.
• Prior to Erie, the Supreme Court defined the Rules of Decision Act as referring only to state statutory law (local law), and not to state common law or judge-made law.
  • Swift introduced grave discriminations by non citizens against citizens. The privilege of selecting the court for resolving disputes rested with the noncitizen, who could pick the more favorable forum.
  • Led to notion of general federal common law.

• Problems: no uniformity.
  • If you went to federal court on one issue, it may come out one way, but if you went to state court, it might turn out something totally different.
  • Unfair for cases of diversity to have the privilege of different laws than if both parties were from the same state.
  • Could just reincorporate in different state so they have diversity of citizenship so they can file action in federal ct which will apply general federal common law which would uphold their case.
  • One law in federal court, completely different state law

 

Erie Railroad – Erie held that while federal courts may apply their own rules of procedure, issues of substantive law must be decided in accord with the applicable state law – usually the state in where the federal court sits.

 

US Supreme Court:

• There is no federal general common law.
• Except in situations when there is federal law on point, the court should apply the law of the state court.

Constitutional Issues:

• Preserving sovereignty of the states.
• Equal Protection
1. Citizens in diversity should not have the benefit of laws that resident citizens would not have.
   • Separation of Power
     • Federal Court should not be making laws where Congress hasn’t already.
   • Reinterpretation of REA:
     • Court shouldn’t apply only state statutes, but state common law.
   • Choice of Law is substantive – must be the state’s choice of law.

Guaranty Trust v. York

HOLDING: A federal court adjudicating a state-created right solely because of the diversity of citizenship of the parties is, for that purpose, only another court of the state. The source of substantive rights enforced by a federal court under diversity jurisdiction is the law of the state.

 

York Outcome Determinative Rule: The question is not whether a statute of limitations is deemed a matter of procedure, the question is whether it would significantly affect the result of litigation for the federal court to disregard a law of a State that would be controlling in state court.

• Question to be asked is: If federal ct disregards the state law, will that substantially affect the outcome of the case?
• Federal ct sitting a diversity case is characterized as just any other state court.

 

Problems with rule: If taken to the logical extreme, it would call into question any procedural law that would cause a different result. What procedural law would survive? So anything the federal ct does that state ct wouldn’t do means that it can’t be followed? What’s left of the federal rules of procedure in diversity cases?

 

Byrd v. Blue Ridge

 

Byrd Balancing Test: Balance the interests of the state and federal laws to decide whose to use. As long as the federal interest is strong and the state interest is weak, you can apply federal law & ignore outcome determinative test. (If dealing with state substantive law, state interest would be very strong).

 

Ex: three different parts of decision: (Rely on assumption that jury will affect outcome of the case for first two parts, and then decide jury won’t really affect decision all the much in the third part).

1. Judge, no jury rule seems to be merely of form and mode and does not deal with the rights and obligations of the parties.

1. State interest: Not a very strong interest, “not a rule intended to be bound up with the rights and obligations of the parties” (another way of saying seems to be mostly procedural & not substantive).

1. The jury is an essential right under the Federal Constitution provision of the 7th Amendment (basically saying that York does not apply here b/c concerned about the weight of the federal policy behind the judge-jury allocation & York does not deal with federal issues).

1. How certain decisions are allocated between judges and juries is an essential characteristic of federal law.

1. The likelihood of a different result is not strong enough to yield to state law.

Analysis:

• In York, the Court stated that the Erie doctrine required that federal courts not tamper with state remedies for violations of state-created rights.
• In Byrd, the Court retreats, stating that questions of mere “form and mode” of remedy (trial by jury or judge) is not necessarily the province of the states where essential federal rights (7th Amendment) are involved.
• Note that the Court does not abandon the York rationale, however (that the outcome of a case should not be affected by the choice of court in which it is filed). The Court expresses doubt that the permitting of trial by jury here will make any different in the final determination of the case. Note the inconsistency of argument here since the Court first states that trial by jury is an essential right, then states that it is really insignificant after all.  

 

Problem: What if both state and federal law view the issue as essential?

 

Hanna v. Plumer

If there is a CONFLICT of state and federal law, which should be applied?

 

Hanna Test: Twin Aims: The court should look forward (rather than backwards) (reinterpret York outcome determinative test).

• Discouragement of forum shopping

• Avoidance of inequitable administration of the laws (Prevent change of result in federal from state court)

Question is not whether it might change the outcome of the suit, but would it run afoul of the twin aims of Erie.

 

Court: If just applying York test, no question that state law would cover it because the outcome would be drastically different b/c the case wouldn’t be able to move forward. BUT

 

This case is different than the others because an FRCP governs the issue. If there is a federal rule ON POINT that is valid under the Rules Enabling Act, then the court should apply it.

• Is the FRCP consistent with the Rules of Enabling Act and Constitution?
• Is it really just procedural?

If there is an FRCP that is in the grey area between substance and procedure, how should you treat the rule?

• If the FRCP is arguably procedural, it is valid.
  • Very difficult to have an FRCP be considered to be beyond the scope of REA.

 

How is this consistent with REA?

• FRCP authorized by REA, which is an act of Congress. Congress already had the chance to veto any of these that previous came up.

 

This case: Would not violate twin aims. P’s aren’t going to forum shop to the federal court just for a different process of service; no distinct benefit to them through federal law.

• Application of federal law is valid.

 

Walker v. Armco Steel Corp.

Hanna – direct collision between fed’l rule and state law.

• If there is a FRCP, than ask, is the scope of the Fed’l rule sufficiently broad to control the issue? If yes, then Hanna applies.
• Ask whether the FRCP is consistent with REA and Constitution.
• If yes, it applies despite contrary state law.

 

Supreme Court –

• In this case, state rule and federal rule aren’t really in conflict.
  • The FRCP R. 3 is not intended to deal with statute of limitations, it is only to about the filing of a complaint with the court.
  • It should just be given its plain meaning
  • Fed’l Rule 3 is not broad enough in scope for it to cover the issue at hand
  • Must be a direct conflict b/w FRCP & state law FRCP is not broad enough to cover issue at hand
• First question you must ask is if the FRCP is sufficiently broad to control.
  • In Hanna – yes it was broad enough to govern the issue.
  • Rule 3, in this case, is not broad enough.

 

Supreme Court leaves open the possibility that Rule 3 would have a different interpretation in a Federal Question case.

• This was a diversity case so no federal question. If a federal question, the FRCP 3 would be ok

 

What role does federal common law play today?

• Procedural
• To what extent is substantive federal common law alive?

 

Ability to apply free-standing federal common law is more limited than it was in Swift.

• Not interpreting fed’l rules that are vague, that is still permissible under REA.

Substantive Federal Common Law is Supreme – It is the law of the land.

• Supremacy clause – federal common law that is substantive is supreme.
• If the federal court engages in it, and its permissible, it will displace state law in federal court and state court.
• Substantive – jurisdiction conferring.
  • If you’re suing on a claim based on federal common law, you have a federal question.
    • Federal general common law (Swift) was not jurisdiction conferring. Could only hear based on diversity.

 

Clearfield Trust Co. v. United States

Ex of federal interest being strong enough to create a federal common law rule

 

 

HOLDING:

1. No Erie doctrine because the U.S. government was exercising a constitutionally-permitted function in disbursing its own funds and paying its debts, the commercial papers it issues should be governed by federal law rather than state law.
2. Thus, the Erie doctrine rule that a US DC must apply the law of the state in which it is sitting did not apply
   • In absence of an applicable Act of Congress, a federal court had the right to fashion a governing common law rule by their own standards.
3. Important federal interest at stake: so, for this case, identified a major federal interest in permitting the court to fashion its own rule: namely, the issue of uniformity in dealing with the vast amount of negotiable instruments and commercial paper issued by the federal government.
4. If each transaction was subject to the application of a multiplicity of different state laws, it would lead to great confusion and uncertainty in the administration of federal programs.

 

Texas Industries v. Radcliff Materials

Under what issue is the debate?

• There’s no authority under substantive law to let a D seek contribution from other co-conspirators. (There is no substantive claim).

 

Two issues to look at:

• Affirmative creation of a right of action by Congress either expressly or clearly implicit or Congress gives courts the power to develop substantive law 
  • There is no statutory authority.
  • If there is to be any basis for the claim, it has to be based on federal common law.
• Federal Common Law:
  • Free standing common law?
  • Federal common law exists in the following types of cases:
    • Rights and obligations of US are concerned (necessary to protect uniquely federal interests).
      • State laws are not uniform – there would be a different right and obligation of the US depending on the states. That is not desirable – it is too important so have a uniform law.
    • Admiralty
      • Traditionally, the federal courts have heard admiralty cases (dealing with high seas or navigatable waters) for uniformity.
    • Interstate and International Disputes
      • Boundary issue, conflict between 2 states, etc.
        • Which state law would you use? It would favor one state over the other. Better to have a uniform federal law. (in absence of statute, will develop common law).

 

Federal common law is case by case. If they don’t fall under one of the categories (above) then its for Congress to decide, not the courts. States can ignore federal common law, only applies to federal courts. Also, has to do with jurisdiction issues.

 

Does this case fall under one of these categories??

• No, this is a private suit, doesn’t concern the US as a whole or an interstate issue.
• Not the proper situation for the federal court to develop and apply federal substantive common law.
• Question for Congress to decide on this case, not one for the court to decide.

This case: no statute, no federal common law. What now?

• Supremacy – there is no cause of action because anti trust is a federal question, and there is no statute and no federal common law.
• No cause of action.

 

How is federal common law consistent with the Rules of Decision Act?

• Not really clear how

 

Deweerth

Ascertaining State Law (How do federal courts know which state law to use?)

 

If there is no state statute or decision by the highest state court, the Fed Ct has to predict what the highest court would do (but doesn’t mean they predict properly).

 

Court can use all resources that the Court of Appeals can use… has to put itself in the shoes of the state ct.

• Look at all sources that would be persuasive to the state courts to make the decision.
  • Policy decisions, other state practices, general considerations of what authority might be useful

Certification statutes (CA has one):

• Could have certified and sent it down to state court for answer on particular issue.
• Didn’t do it because the process should be saved for important questions that will recur with some frequency.

 

After the Guggenheim Case is resolved and DeWeerth hears about the decision, she goes back into federal district court and asks them to satisfy the prior judgment.

District Court:

• Grants Rule 60(b) motion and sets aside the prior judgment motion.
  • Authorizes relief from a judgment
  • Not filing separate lawsuit just going back to the same court and saying the previous judgment was wrong & say why & ask judge to set it aside

• Since the ct got the law wrong, DeWeerth could win.

 

Coda:

• Baldinger brings the case back in court.
• Ct concerned with finality of judgments so decided in favor of Baldinger – can’t have judgments be relooked at just b/c change of law
• Fact that fed ct got decision wrong is not that important
  • They say since she purposefully files in federal court, she assumes the risk that the federal court might ascertain the ruling wrong.
  • Not grounds to overturn the final judgment.

 

Heiser’s point – if they allow for the judgments of the federal court to be overruled by subsequent state court decisions, then courts would be hearing a lot of cases over again. It is against policy and judicial economy.

 

Now that we know what the NY law is, what is the precedential value of the federal rule of DeWeerth?

• Didn’t bind state courts
  • Federal courts interpretation of what the state’s law is does not bind the state courts.

• Only binding on the federal courts until the state law became clarified.
• After Guggenheim, what is the value of the first award for the P?
  • None at all… no longer the view of the state court.

 

Lower court opinions in NY that all went the same way that were recent cases are PERSUASIVE. Very hard for the federal court to ignore it, but they aren’t binding.

 

Mason v. American Emery Wheel Works

 

Federal court must apply the choice of law of the state in which they sit.

• Use Rhode Island’s choice of law doctrine, which pointed to Miss. being the proper law to apply.
• Apply law of place of injury.

 

Reverse-Erie Problem: state courts applying federal law.

Fed Ct not bound by previous case from so long ago when modern trend is different and based on dicta of a more recent case, apply that decision instead. So Fed Ct predicts what the SC would do today. Fed Ct has the obligation to figure out what the state law would be today. (Heiser says its right on the margin for what fed ct is allowed to do).

• State court must apply federal substantive law when it’s adjudicating a federally created right (like FELA). State court can’t apply its own procedural rules to thwart a federal claimant.
  • Strict local rules of pleading can’t be used to impose unnecessary burdens on rights of recovery.

Want an even application of federal laws throughout the states.

Modern trend – role is to predict what highest court of Miss. would do today, not blindly follow what it did in 1928 (prior decision).

• Rely on what has happened since
  • Dicta from other cases
  • Modern trends

• If court relies on old case and then the state SC reverses it, party could ask for relief under Rule 60(b)(6). Motion must be made in timely manner.
• Also, certification process – if there’s no case law, federal court can ask state court to issue a ruling on the question of state law in the federal court.
  • Not a common process.