Chapter 6: Conflict of Laws in the Federal System - Federal or State Law? Flashcards
Eerie Key Takeaways
- Provides a new, corrected understanding Section 34 of the Judiciary Act of 1789: Congress intended federal courts sitting in diversity to apply both the statutory and common law of the states where they sit.
- Eerie is a constitutional decision. Under its legislative powers, the federal government lacks any enumerated powers to create ordinary state tort, contract, or property law. As a matter of structural federalism, federal courts should not create law when Congress lacks the power to do so
Eerie and Choice of Law: Klaxon Co. v. Stentor Electric Manufacturing Co
Facts: Respondent, a New York corporation, transferred its entire business to petitioner, a Delaware corporation. Petitioner contracted to use its best efforts to further the manufacture and sale of certain patented devices covered by the agreement, and respondent was to have a share of petitioner’s profits. The agreement was executed in New York, the assets were transferred there, and petitioner began performance there although later it moved its operations to other states. Respondent was voluntarily dissolved under New York law in 1919. Ten years later it instituted this action in the United States District Court for the District of Delaware, alleging that petitioner had failed to perform its agreement to use its best efforts. Jurisdiction rested on diversity of citizenship. In 1939 respondent recovered a jury verdict of $100,000, upon which judgment was entered. Respondent then moved to correct the judgment by adding interest at the rate of six percent from June 1, 1929, the date the action had been brought. The District Court granted the motion, taking the view that the rights of the parties were governed by New York law and that under New York law the addition of such interest was mandatory. The Circuit Court of Appeals affirmed.
Rule: The prohibition against independent determinations by the federal courts extends to the field of conflict of laws. The conflict of laws rules to be applied by the federal court in Delaware must conform to those prevailing in Delaware’s state courts. Otherwise, the accident of diversity of citizenship would constantly disturb equal administration of justice in coordinate state and federal courts sitting side by side. Whatever lack of uniformity this may produce between federal courts in different states is attributable to the federal system, which leaves to a state, within the limits permitted by the Constitution, the right to pursue local policies diverging from those of its neighbors. It is not for the federal courts to thwart such local policies by enforcing an independent “general law” of conflict of laws.
Eerie and Choice of Law: Ferens v. John Deere Co.
Facts: Albert Ferens lost his right hand when it became caught in his combine harvester, manufactured by Deere & Company. The accident occurred while Ferens was working with the combine on his farm in Pennsylvania. For reasons not explained in the record, Ferens delayed filing a tort suit, and Pennsylvania’s 2-year limitations period expired. The farmer filed an action raising warranty claims, for which the Pennsylvania limitations period had not yet run. Later that same year, the farmer and his wife filed a second diversity action against the manufacturer, raising tort claims of negligence and products liability in the United States District Court for the Southern District of Mississippi. The statute of limitations for tort claims under Mississippi law, which law governed diversity actions in Mississippi District Courts under Mississippi choice-of-law principles, was 6 years. Subsequently, the couple–acting on the assumption that the Mississippi limitations statute would continue to govern the tort claims thereafter–filed a motion in the Mississippi District Court, pursuant to 28 USCS 1404(a), to transfer the action to the District Court for the Western District of Pennsylvania, on the ground that Pennsylvania was a more convenient forum. The Mississippi District Court granted the motion, and the action was transferred to the Pennsylvania District Court and there consolidated with the pending warranty action. On the manufacturer’s motion for summary judgment, the Pennsylvania District Court invoked Pennsylvania’s 2-year limitations period for tort actions and dismissed the couple’s tort claims.
Rule: Following a transfer under 28 U.S.C.S. § 1404(a) initiated by a defendant, the transferee court must follow the choice-of-law rules that prevailed in the transferor court.
Substance v. Procedure after Eerie
- A federal procedural rule will apply even if it incidentally affects a party’s rights, if it only regulates the process for enforcing those rights
- But, if a federal procedural rule would displace a state “procedural” law that defines the scope of the state-created right, then the federal procedural rule must give way
Eerie Issues Wrap Up
- After Eerie, federal courts in diversity now apply the substantive law, statutory and common law, of the states where they sit. On procedural matters, they apply the FRCP
- Where a FRCP conflicts with state law, modern federal courts may still be called upon to classify certain issues as substantive or procedural
