Choice of Law: Erie Flashcards
A plaintiff, a citizen of State A, properly brought suit against a defendant in federal district court in State A, sitting in diversity jurisdiction, for damages resulting from an automobile accident in State B alleged to have been caused by the defendant’s negligence. Under State A’s conflict-of-law rules, the law of State A is required to be applied to any lawsuit involving an automobile accident in which the plaintiff is a resident of State A. Under the law of State B, contributory negligence is not a defense, while under the law of State A, contributory negligence is a defense. The federal district court judge overseeing the case believes strongly that the law of State B, the state in which the alleged negligence occurred, should be applied and that contributory negligence should not be allowed as a defense.
Is the district court judge permitted to apply the law of State B in the case?
No, because the Erie doctrine applies.
Under Erie, a U.S. district court with diversity jurisdiction generally must apply the substantive law of the state in which it is located, including that state’s conflict-of-law rules. The elements of a claim or defense in tort are considered substantive and are generally controlled by state law in a federal diversity action. In this case, the federal district in State A must apply the laws of State A (the state in which it is located).
An actress brought suit in federal district court in State B against her business manager alleging fraud. The suit was properly brought under diversity jurisdiction. The actions constituting the alleged fraud had occurred in State A, where the business manager resided. The actress resided in State B. Under the law of State A, the actress would have the burden to prove each element of fraud. Under the law of State B, once the actress makes a showing of three of the elements of fraud, the burden is on the business manager to prove there was no fraudulent behavior. State B’s conflict-of-law rules provide that procedural matters are controlled by the law of the forum state, while substantive matters are to be controlled by the law of the place where the alleged wrong occurred. The actress has proven three elements of her case, and now claims that the burden of proof should shift to the business manager. There is no federal statute or rule on point, although most federal fraud causes of action keep the burden of proof with the plaintiff.
How should the federal district court rule with regard to this burden of proof?
Shift the burden to the business manager, because burdens of proof are considered procedural, rather than substantive.
In diversity actions, a federal district court is generally bound by the conflict-of-law rules of the state in which the district court is located. Questions about the burden of proof are considered procedural under Klaxon and are determined by the law of the forum state (see Editor’s Note, below). Therefore, the law of State B regarding the burden of proof applies here.
Editor’s Note: Remember that burdens of proof are considered substantive in a choice of law analysis under Erie, but procedural in a conflicts of law analysis under Klaxon. Issues that are generally considered procedural and controlled by the law of the forum state rather than a foreign jurisdiction can be reviewed at Section IV.D.4. of your Civil Procedure outline.
A plaintiff sued a defendant corporation for negligence based on product liability in federal district court sitting in diversity jurisdiction. The plaintiff had been injured when her lawnmower, manufactured by the defendant, shot debris into her eye, permanently blinding her. The defendant corporation asserted the defense of assumption of the risk. At the time of the federal district court case, the forum state’s highest court had never addressed whether assumption of the risk could apply as a defense in a product liability action. The federal district court, relying on lower court rulings in the state, predicted that the forum state’s highest court would not allow the defense of assumption of the risk and refused to instruct the jury on the defense. The defendant lost the case and appealed to the appropriate U.S. court of appeals. During the pendency of the appeal, the forum state’s highest court issued an opinion holding that the defense of assumption of the risk applies in product liability cases in the forum state.
Should the U.S court of appeals allow the defendant to raise the issue of assumption of the risk on appeal?
Yes, because it is bound by the new decision of the forum state’s highest court.
When a forum state’s highest court has not spoken on an issue, a federal district court sitting in diversity must try to determine how the state’s highest court would rule on the issue, if it did consider it. To make this determination, the federal court will generally look to any lower state-court decisions that have considered the issue and will follow a lower court’s view, unless it believes that the highest state court would not follow it. If, after a federal district court action has been completed, the state’s highest court rules on an issue in a way that is different from the way the district court predicted, then a federal appeals court is bound by the state court’s ruling. In this case, the forum state’s highest court had not yet considered the application of assumption of the risk to product liability actions when the federal district court made its ruling. Thus, the district court was permitted to follow the rulings of the state’s lower courts on the issue to predict that the state’s highest court would not allow the defense. However, since the forum state’s highest court subsequently issued an opinion holding that the defense of assumption of the risk applied to product liability actions, the U.S. court of appeals is bound by that ruling. Thus, it should allow the defendant to raise the issue on appeal.
A manufacturer from State A invented a new type of communication device. A competitor from state B built a device of its own that exactly replicated the manufacturer’s device. Once the manufacturer learned of the competitor’s device, it brought suit in federal district court against the competitor for patent infringement under federal law. The manufacturer claimed $75,000 in total damages as a result of the infringement.
What law should the district court apply?
Federal substantive and procedural law.
If an action is based on a federal question claim, then federal substantive and procedural law will control, as well as federal common law. Here, the manufacturer’s claim is for patent infringement, which arises under federal law.
Thus, federal question jurisdiction applies. Accordingly, the district court must apply federal substantive and procedural law to the case.
A spectator at a professional hockey game was injured when an errant hockey puck flew over the glass boards and struck him in the head, causing permanent eye damage. The spectator brought an action for negligence against the facility owner in federal district court under diversity. By statute, the state in which the federal court is located allows the use of assumption of the risk as a defense when a spectator is injured at a sporting event. Although no valid federal statute or rule governs this issue, federal courts have generally not permitted facility owners to raise an assumption of the risk defense, to encourage facility owners to take more stringent precautions regarding spectator safety. The federal court opted to apply federal common law to resolve the issue, and the resolution was in the spectator’s favor. However, a different outcome would have occurred if the district court had applied state law.
Was the court’s application of federal common law proper?
No, because a different outcome would have occurred if state law was applied.
The district court will start by determining whether there is a conflict between state and federal law with respect to the issue before the court. If no conflict exists, then the analysis does not need to proceed any further because the court can apply state and federal law harmoniously to the issue.
If no federal statute or rule is on point, then the court must determine whether federal common law, rather than state law, should be applied. In making this determination with respect to federal common law, a district court will ask whether the failure to apply state law will lead to different outcomes in state and federal court. If the answer is no, then the district court will generally apply federal common law, rather than state law. If the answer is yes, then the court will apply state law, unless affirmative countervailing federal interests are at stake that warrant application of federal law. Here, a different outcome would have occurred if state law was applied and there is no clear federal interest at stake, so the district court erred.
(Note that while the elements of a defense are considered substantive, it is the availability of the defense at issue here, which is arguably procedural, necessitating the Erie analysis.)
A farmer’s property was damaged when a factory from a nearby state dumped hazardous waste on it. The farmer properly brought suit for negligence against the factory in federal district court based on diversity jurisdiction. Throughout discovery, the factory executives intentionally delayed the process and regularly refused to provide relevant documentation requested by the farmer’s attorney, even though they had the documents and had no valid legal reason not to produce them. After a motion to compel by the farmer, the factory executives did eventually provide the evidence a day before trial. The farmer was ultimately successful in his claim, though the delays resulted in far higher litigation costs than would have occurred if the factory executives had produced the evidence in a timely fashion. Despite the fact that the farmer did not request attorney’s fees, and the state in which the district court was located did not allow an award of attorney’s fees, the court, on its own initiative, awarded them to the farmer.
Did the court err by awarding attorney’s fees to the farmer?
No, because the factory executives acted in bad faith.
In a diversity case on a state law claim, the federal court may properly use its inherent power to assess attorney’s fees as a sanction for a defendant’s bad-faith conduct during the litigation, even if the law of the forum state provides that attorney’s fees may not be awarded to a successful party. Here, the court used its proper discretion to award attorney’s fees, even though the farmer did not request them and the forum state did not provide for the award of attorney’s fees.
The producer of an organic pet food shipped his products nationwide. His business and production offices were located in State A, the state in which he lived. After one pet owner’s animal became sick due to toxins that had leaked into the producer’s production supply, the owner filed a lawsuit in federal district court based on diversity jurisdiction in State B, the state in which he lived. A federal food regulation act governed the processes for how nutrition, including that applicable to animals, should be regulated. The producer did not meet those regulations, but did meet the lower standards required by State B. If the district court applied the State B statute, the producer would be absolved of any liability.
Must the district court enforce the federal statute?
Yes, because the federal statute regulates nutrition as it relates to pets.
If the applicable state and federal laws conflict, the district court must ask whether a valid federal statute covers the disputed issue. Here, there is a valid federal statute on point, so the district court must apply federal law rather than the State B law.
Two business partners, who were citizens of neighboring states, entered into an agreement in which one partner would pay 70% of the initial startup costs of a new solar energy business, while the other would pay 30% and repay 20% to the other partner after two years. The parties signed a promissory note outlining this agreement. After the terms outlined in the agreement had passed, the debtor-partner had not paid anything to the creditor-partner, so the creditor-partner appropriately filed suit in federal district court based on diversity jurisdiction. The forum state’s partnership statute contained substantive and procedural provisions that varied somewhat from a federal statute that regulated certain lending in the solar energy industry, though the existence of an actual conflict was dependent upon the facts of the matter.
How should the court proceed?
Evaluate the facts to determine whether a conflict exists.
When the court is faced with a substantive or procedural question for the purpose of applying the Erie doctine, the district court should determine whether there is a conflict between state and federal law with respect to the issue before the court. If there is no conflict between state and federal law, then the analysis does not need to proceed any further because the court can apply both state and federal law.
Here, it is unclear whether there is a conflict, so the court must determine whether there is, in fact, a conflict before proceeding with applying either law.
