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Controversies Between Citizens of Different States

Controversies Between Citizens of Different States

The records of the Federal Convention are silent with regard to the reasons the Framers included in the judiciary article jurisdiction in the federal courts of controversies between citizens of different States,985 but since the Judiciary Act of 1789 “diversity jurisdiction” has been bestowed statutorily on the federal courts.986 The traditional explanation remains that offered by Chief Justice Marshall. “However true the fact may be, that the tribunals of the states will administer justice as impartially as those of the nation, to parties of every description, it is not less true that the Constitution itself either entertains apprehensions on this subject, or views with such indulgence the possible fears and apprehensions of suitors, that it has established national tribunals for the decision of controversies between aliens and a citizen, or between citizens of different states.”987 Other explanations have been offered and controverted,988 but diversity cases constitute a large bulk of cases on the dockets of the federal courts today, though serious proposals for restricting access to federal courts in such cases have been before Congress for some time.989 The essential difficulty with this type of jurisdiction is that it requires federal judges to decide issues of local import on the basis of their reading of how state judges would decide them, an oftentimes laborious process, which detracts from the time and labor needed to resolve issues of federal import.

979 383 U.S. 301 (1966). The State sued the Attorney General of the United States as a citizen of New Jersey, thus creating the requisite jurisdiction, and avoiding the problem that the States may not sue the United States without its consent. Minnesota v. Hitchcock, 185 U.S. 373 (1902); Oregon v. Hitchcock, 202 U.S. 60 (1906); Kansas v. United States, 204 U.S. 331 (1907). The expedient is, of course, the same device as is used to avoid the Eleventh Amendment prohibition against suing a State by suing its officers. Ex parte Young, 209 U.S. 123 (1908).

980 79 Stat. 437 (1965), 42 U.S.C. § 1973 et seq.

981 The Court first held that neither of these provisions were restraints on what the Federal Government might do with regard to a State. It then added: “Nor does a State have standing as the parent of its citizens to invoke these constitutional provisions against the Federal Government, the ultimate parents patriae of every American citizen.” South Carolina v. Katzenbach, 383 U.S. 301, 324 (1966).

982 The Court did not indicate on what basis South Carolina could raise the issue. At the beginning of its opinion, the Court did note the “[o]riginal jurisdiction is founded on the presence of a controversy between a State and a citizen of another State under Art. III, § 2, of the constitution. See Georgia v. Pennsylvania R. R. Co., 324 U.S. 439.” Id. at 307 But surely this did not have reference to that case’s parens patriae holding.

983 See Massachusetts v. Mellon, 262 U.S. 447 (1923); Florida v. Mellon, 273 U.S. 12 (1927); Jones ex rel. Louisiana v. Bowles, 322 U.S. 707 (1944). See especially Georgia v. Stanton, 73 U.S. (6 Wall.) 50 (1867); Mississippi v. Johnson, 71 U.S. (4 Wall.) 475 (1867). In Oregon v. Mitchell, 400 U.S. 112 (1970), four original actions were consolidated and decided. Two were actions by the United States against States, but the other two were suits by States against the Attorney General, as a citizen of New York, seeking to have the Voting Rights Act Amendments of 1970 voided as unconstitutional. South Carolina v. Katzenbach was uniformly relied on by all parties as decisive of the jurisdictional question, and in announcing the judgment of the Court Justice Black simply noted that no one raised jurisdictional or justiciability questions. Id. at 117 n.1. And see id. at 152 n.1 (Justice Harlan concurring in part and dissenting in part). See also South Carolina v. Baker, 485 U.S. 505 (1988); South Carolina v. Regan, 465 U.S. 367 (1984).

984 Bickel, The Voting Rights Cases, 1966 SUP. CT. REV. 79, 80-93.

985 Friendly, The Historic Basis of Diversity Jurisdiction, 41 HARV. L. REV. 483 (1928).

986 1 Stat. 78, 11. The statute also created alienage jurisdiction of suits between a citizen of a State and an alien. See Holt, The Origins of Alienage Jurisdiction, 14 OKLA. CITY L. REV. 547 (1989). Subject to a jurisdictional amount, now $50,000, 28 U.S.C. § 1332, the statute conferred diversity jurisdiction when the suit was between a citizen of the State in which the suit was brought and a citizen of another State. The Act of March 3, 1875, § 1. 18 Stat. 470, first established the language in the present statute, 28 U.S.C. § 1332(a)(1), merely requiring diverse citizenship, so that a citizen of Maryland could sue a citizen of Delaware in federal court in New Jersey. Snyder v. Harris, 394 U.S. 332 (1969), held that in a class action in diversity the individual claims could not be aggregated to meet the jurisdictional amount. Zahn v. International Paper Co., 414 U.S. 291 (1974), extended Snyder in holding that even though the named plaintiffs had claims of more than $10,000 they could not represent a class in which many of the members had claims for less than $10,000.

987 Bank of the United States v. Deveaux, 9 U.S. (5 Cr.) 61, 87 (1809).

988 Summarized and discussed in C. WRIGHT, HANDBOOK OF THE LAW OF FEDERAL COURTS 23 (4th ed. 1983); AMERICAN LAW INSTITUTE, STUDY OF THE DIVISION OF JURISDICTION BETWEEN STATE AND FEDERAL COURTS 99-110, 458-464 (1969).

989 The principal proposals are those of the American Law Institute. Id. at 123-34.

The Meaning of “State” and the District of Columbia Problem.—In Hepburn v. Ellzey,990 Chief Justice Marshall for the Court confined the meaning of the word “State” as used in the Constitution to “the members of the American confederacy” and ruled that a citizen of the District of Columbia could not sue a citizen of Virginia on the basis of diversity of citizenship. Marshall noted that it was “extraordinary that the courts of the United States, which are open to aliens, and to the citizens of every state in the union, should be closed upon them. But this is a subject for legislative, not for judicial consideration.”991 The same rule was subsequently applied to citizens of the territories of the United States.992

990 6 U.S. (2 Cr.) 445 (1805).

991 6 U.S. at 453.

992 City of New Orleans v. Winter, 14 U.S. (1 Wheat.) 91 (1816).

Whether the Chief Justice had in mind a constitutional amendment or a statute when he spoke of legislative consideration remains unclear. Not until 1940, however, did Congress attempt to meet the problem by statutorily conferring on federal district courts jurisdiction of civil actions, not involving federal questions, “between citizens of different States, or citizens of the District of Columbia, the Territory of Hawaii, or Alaska and any State or Territory.”993 In National Mutual Ins. Co. v. Tidewater Transfer Co.,994 this act was upheld in a five-to-four decision but for widely divergent reasons by a coalition of Justices. Two Justices thought that Chief Justice Marshall’s 1804 decision should be overruled, but the other seven Justices disagreed; however, three of the seven thought the statute could be sustained under Congress’ power to enact legislation for the inhabitants of the District of Columbia, but the remaining four plus the other two rejected this theory. The statute was upheld because a total of five Justices voted to sustain it, although of the two theories relied on, seven Justices rejected one and six the other. The result, attributable to “conflicting minorities in combination,”995 means that Hepburn v. Ellzey is still good law insofar as it holds that the District of Columbia is not a State, but is overruled insofar as it holds that District citizens may not utilize federal diversity jurisdiction.996

Citizenship of Natural Persons.—For purposes of diversity jurisdiction, state citizenship is determined by the concept of domicile997 rather than of mere residence.998 That is, while the Court’s definition has varied throughout the cases,999 a person is a citizen of the State in which he has his true, fixed, and permanent home and principal establishment and to which he intends to return whenever he is absent from it.1000 Acts may disclose intention more clearly and decisively than declarations.1001 One may change his domicile in an instant by taking up residence in the new place and by intending to remain there indefinitely and one may obtain the benefit of diversity jurisdiction by so changing for that reason alone,1002 provided the change is more than a temporary expedient.1003

993 54 Stat. 143 (1940), as revised, 28 U.S.C. § 1332(d).

994 337 U.S. 582 (1948).

995 337 U.S. at 655 (Justice Frankfurter dissenting).

996 The statute’s provision allowing citizens of Puerto Rico to sue in diversity was sustained in Americana of Puerto Rico v. Kaplus, 368 F.2d 431 (3d Cir. 1966), cert. denied, 386 U.S. 943 (1967), under Congress’ power to make rules and regulations for United States territories. Cf. Examining Board v. Flores de Otero, 426 U.S. 572, 580-597 (1976) (discussing congressional acts with respect to Puerto Rico).

997 Chicago & N.W.R.R. v. Ohle, 117 U.S. 123 (1886).

998 Sun Printing & Pub. Ass’n v. Edwards, 194 U.S. 377 (1904).

999 Knox v. Greenleaf, 4 U.S. (4 Dall.) 360 (1802); Shelton v. Tiffin, 47 U.S. (6 How.) 163 (1848); Williamson v. Osenton, 232 U.S. 619 (1914).

1000 Stine v. Moore, 213 F.2d 446, 448 (5th Cir. 1954).

1001 Shelton v. Tiffin, 47 U.S. (6 How.) 163 (1848).

1002 Williamson v. Osenton, 232 U.S. 619 (1914).

1003 Jones v. League, 59 U.S. (18 How.) 76 (1855).

If the plaintiff and the defendant are citizens of different States, diversity jurisdiction exists regardless of the State in which suit is brought.1004 Chief Justice Marshall early established that in multiparty litigation, there must be complete diversity, that is, that no party on one side could be a citizen of any State of which any party on the other side was a citizen.1005 It has now apparently been decided that this requirement flows from the statute on diversity rather than from the constitutional grant and that therefore minimal diversity is sufficient.1006 The Court has also placed some issues beyond litigation in federal courts in diversity cases, apparently solely on policy grounds.1007

Citizenship of Corporations.—In Bank of the United States v. Deveaux,1008 Chief Justice Marshall declared: “That invisible, intangible, and artificial being, that mere legal entity, a corporation aggregate, is certainly not a citizen; and consequently cannot sue or be sued in the courts of the United States, unless the rights of the members, in this respect, can be exercised in their corporate name.” The Court upheld diversity jurisdiction because the members of the bank as a corporation were citizens of one State and Deveaux was a citizen of another. The holding was reaffirmed a generation later,1009 but the pressures were building for change, because of the increased economic role of the corporation and because the Strawbridge rule1010 would have soon closed the doors of the federal courts to the larger corporations with stockholders in many States.

1004 28 U.S.C. § 1332(a)(1).

1005 Strawbridge v. Curtiss, 7 U.S. (3 Cr.) 267 (1806).

1006 In State Farm Fire & Casualty Co. v. Tashire, 386 U.S. 523, 530-531 (1967), holding that congressional provision in the interpleader statute of minimal diversity, 28 U.S.C. § 1335(a)(1), was valid, the Court said of Strawbridge. “Chief Justice Marshall there purported to construe only ‘The words of the act of Congress,’ not the Constitution itself. And in a variety of contexts this Court and the lower courts have concluded that Article III poses no obstacle to the legislative extension of federal jurisdiction, founded on diversity, so long as any two adverse parties are not co-citizens.” Of course, the diversity jurisdictional statute not having been changed, complete diversity of citizenship, outside the interpleader situation, is still required. In class actions, only the citizenship of the named representatives is considered and other members of the class can be citizens of the same State as one or more of the parties on the other side. Supreme Tribe of Ben-Hur v. Cauble, 255 U.S. 356 (1921); Snyder v. Harris, 394 U.S. 332, 340 (1969).

1007 In domestic relations cases and probate matters, the federal courts will not act, though diversity exists. Barber v. Barber, 62 U.S. (21 How.) 582 (1858); Ex parte Burrus, 136 U.S. 586 (1890); In re Broderick’s Will, 88 U.S. (21 Wall.) 503 (1875). These cases merely enunciated the rule, without justifying it; when the Court squarely faced the issue quite recently, it adhered to the rule, citing justifications. Ankenbrandt v. Richards, 504 U.S. 689 (1992).

1008 9 U.S. (5 Cr.) 61, 86 (1809).

1009 Commercial & Railroad Bank v. Slocomb, 39 U.S. (14 Pet.) 60 (1840).

1010 Strawbridge v. Curtiss, 7 U.S. (3 Cr.) 267 (1806).

Deveaux was overruled in 1844, when after elaborate argument a divided Court held that “a corporation created by and doing business in a particular State, is to be deemed to all intents and purposes as a person, although an artificial person, an inhabitant of the same State, for the purposes of its incorporation, capable of being treated as a citizen of that State, as much as a natural person.”1011 Ten years later, the Court abandoned this rationale, but it achieved the same result by creating a conclusive presumption that all of the stockholders of a corporation are citizens of the State of incorporation.1012 Through this fiction, substantially unchanged today,1013 the Court was able to hold that a corporation cannot be a citizen for diversity purposes and that the citizenship of its stockholders controls but to provide corporations access to federal courts in diversity in every State except the one in which it is incorporated.1014 The right of foreign corporations to resort to federal courts in diversity is not one which the States may condition as a qualification for doing business in the State.1015

Unincorporated associations, such as partnerships, joint stock companies, labor unions, governing boards of institutions, and the like, do not enjoy the same privilege as a corporation; the actual citizenship of each of its members must be considered in determining whether diversity exists.1016

1011 Louisville, C. & C.R.R. v. Letson, 43 U.S. (2 How.) 497, 558 (1844).

1012 Marshall v. Baltimore & Ohio R.R., 57 U.S. (16 How.) 314 (1854). See Muller v. Dows, 94 U.S. 444 (1877); St. Louis & S.F. Ry. v. James, 161 U.S. 545 (1896). The Court has more than once pronounced that the Marshall position is settled. E.g., United Steelworkers v. R. H. Bouligny, Inc., 382 U.S. 145, 147 (1965); Carden v. Arkoma Associates, 494 U.S. 185, 189 (1990).

1013 § 2, 72 Stat. 415 (1958), amending 28 U.S.C. § 1332(c), provided that a corporation is to be deemed a citizen of any State in which it has been incorporated and of the State in which it has its principal place of business. 78 Stat. 445 (1964), amending 28 U.S.C. § 1332(c), was enacted to correct the problem revealed by Lumbermen’s Mutual Casualty Co. v. Elbert, 348 U.S. 48 (1954). In Hertz Corp. v. Friend, 130 S. Ct. 1181 (2010), the Court recounted the development of the rules on corporate jurisdictional citizenship in deciding that a corporation's “principal place of business” under the statute is its “nerve center,” the place where the corporation's officers direct, control, and coordinate the corporation's activities.

1014 See United Steelworkers v. R.H. Bouligny, Inc., 382 U.S. 145, 148 (1965).

1015 In Terral v. Burke Construction Co., 257 U.S. 529 (1922), the Court resolved two conflicting lines of cases and voided a state statute which required the cancellation of the license of a foreign corporation to do business in the State upon notice that the corporation had removed a case to a federal court.

Manufactured Diversity.—One who because of diversity of citizenship can choose whether to sue in state or federal court will properly consider where the advantages and disadvantages balance; one who perceives the balance clearly favoring the federal forum where no diversity exists will no doubt often attempt to create diversity. In the Judiciary Act of 1789, Congress exempted from diversity jurisdiction suits on choses of action in favor of an assignee unless the suit could have been brought in federal court if no assignment had been made.1017 One could create diversity by a bona fide change of domicile even with the sole motive of creating domicile.1018 Similarly, one could create diversity, or defeat it, by choosing a personal representative of the requisite citizenship.1019 By far, the greatest number of attempts to manufacture or create diversity have concerned corporations. A corporation cannot get into federal court by transferring its claim to a subsidiary incorporated in another State,1020 and for a time the Supreme Court tended to look askance at collusory incorporations and the creation of dummy corporations for purposes of creating diversity.1021 But in Black & White Taxicab & Transfer Co. v. Brown & Yellow Taxicab & Transfer Co.,1022 it became highly important to the plaintiff company to bring its suit in federal court rather than in a state court. Thus, Black & White, a Kentucky corporation, dissolved itself and obtained a charter as a Tennessee corporation; the only change made was the State of incorporation, the name, officers, shareholders, and location of the business remaining the same. A majority of the Court, over a strong dissent by Justice Holmes,1023 saw no collusion and upheld diversity, meaning that the company won whereas it would have lost had it sued in the state court. Black & White Taxicab probably more than anything led to a reexamination of the decision on the choice of law to be applied in diversity litigation.

1016 Great Southern Fire Proof Hotel Co. v. Jones, 177 U.S. 449 (1900); Chapman v. Barney, 129 U.S. 677 (1889); Thomas v. Board of Trustees, 195 U.S. 207 (1904); United Steelworkers v. R.H. Bouligny, Inc., 382 U.S. 145 (1965); Carden v. Arkoma Associates, 494 U.S. 185 (1990). But compare Navarro Savings Ass’n v. Lee, 446 U.S. 458 (1980), distinguished in Carden, 494 U.S. at 195-197.

1017 § 11, 1 Stat. 78, sustained in Turner v. Bank of North America, 4 U.S. (4 Dall.) 8 (1799), and Sheldon v. Sill, 49 U.S. (8 How.) 441 (1850). The present statute, 28 U.S.C. § 1359, provides that no jurisdiction exists in a civil action “in which any party, by assignment or otherwise, has been improperly or collusively made or joined to invoke the jurisdiction of such court.” See Kramer v. Carribean Mills, 394 U.S. 823 (1969).

1018 Williamson v. Osenton, 232 U.S. 619 (1914); Morris v. Gilmer, 129 U.S. 315 (1889).

1019 Mecom v. Fitzsimmons Drilling Co., 284 U.S. 183 (1931).

1020 Miller & Lux v. East Side Canal & Irrigation Co., 211 U.S. 293 (1908).

1021 E.g., Southern Realty Co. v. Walker, 211 U.S. 603 (1909).

1022 276 U.S. 518 (1928).

1023 276 U.S. at 532 (joined by Justices Brandeis and Stone). Justice Holmes here presented his view that Swift v. Tyson, 41 U.S. (16 Pet.) 1 (1842), had been wrongly decided, but he preferred not to overrule it, merely “not allow it to spread ... into new fields.” 276 U.S. at 535.

The Law Applied in Diversity Cases.—By virtue of § 34 of the Judiciary Act of 1789,1024 state law expressed in constitutional and statutory form was regularly applied in federal courts in diversity actions to govern the disposition of such cases. But in Swift v. Tyson,1025 Justice Story for the Court ruled that state court decisions were not laws within the meaning of § 34 and though entitled to respect were not binding on federal judges, except with regard to matters of a “local nature,” such as statutes and interpretations thereof pertaining to real estate and other immovables, in contrast to questions of general commercial law as to which the answers were dependent not on “the decisions of the local tribunals, but in the general principles and doctrines of commercial jurisprudence.”1026 The course of decision over the period of almost one hundred years was toward an expansion of the areas in which federal judges were free to construct a federal common law and a concomitant contraction of the definition of “local” laws.1027 Although dissatisfaction with Swift v. Tyson was almost always present, within and without the Court,1028 it was the Court’s decision in Black & White Taxicab & Transfer Co. v. Brown & Yellow Taxicab & Transfer Co.,1029 which brought disagreement to the strongest point and perhaps precipitated the overruling of Swift v. Tyson in Erie Railroad Co. v. Tompkins.1030

1024 The section provided that “the laws of the several states, except where the constitution, treaties, or statutes of the United States shall otherwise require or provide, shall be regarded as rules of decision in trials at common law in the courts of the United States in cases where they apply.” 1 Stat. 92. With only insubstantial changes, the section now appears as 28 U.S.C. § 1652. For a concise review of the entire issue, see C. WRIGHT, HANDBOOK OF THE LAW OF FEDERAL COURTS ch. 9 (4th ed. 1983).

1025 41 U.S. (16 Pet.) 1 (1842). The issue in the case was whether a pre-existing debt was good consideration for an indorsement of a bill of exchange so that the endorsee would be a holder in due course.

1026 41 U.S. at 19. The Justice concluded this portion of the opinion: “The law respecting negotiable instruments may be truly declared in the language of Cicero, adopted by Lord Mansfield in Luke v. Lyde, 2 Burr. R. 883, 887, to be in great measure, not the law of a single country only, but of the commercial world. Nun erit alia lex Romae, alia Athenis; alia munc, alia posthac, sed et apud omnes gentes, et omni tempore una eademque lex obtenebit.” Id. The thought that the same law should prevail in Rome as in Athens was used by Justice Story in DeLovio v. Boit, 7 Fed. Cas. 418, 443 (No. 3776) (C.C.D. Mass. 1815). For a modern utilization, see United States v. Jefferson County Board of Education, 372 F.2d 836, 861 (5th Cir. 1966); 380 F.2d 385, 398 (5th Cir. 1967) (dissenting opinion).

1027 The expansions included: Lane v. Vick, 44 U.S. (3 How.) 464 (1845) (wills); City of Chicago v. Robbins, 67 U.S. (2 Bl.) 418 (1862), and Baltimore & Ohio R.R. v. Baugh, 149 U.S. 368 (1893) (torts); Yates v. City of Milwaukee, 77 U.S. (10 Wall.) 497 (1870) (real estate titles and rights of riparian owners); Kuhn v. Fairmont Coal Co., 215 U.S. 349 (1910) (mineral conveyances); Rowan v. Runnels, 46 U.S. (5 How.) 134 (1847) (contracts); Lake Shore & M.S. Ry. v. Prentice, 147 U.S. 101 (1893). It was strongly contended that uniformity, the goal of Justice Story’s formulation, was not being achieved, in great part because state courts followed their own rules of decision even when prior federal decisions were contrary. Frankfurter, Distribution of Judicial Power Between Federal and State Courts, 13 CORNELL L.Q. 499, 529 n. 150 (1928). Moreover, the Court held that while state court interpretations of state statutes or constitutions were to be followed, federal courts could ignore them if they conflicted with earlier federal constructions of the same statute or constitutional provision, Rowan v. Runnels, 46 U.S. (5 How.) 134 (1847), or if they had been rendered after the case had been tried in federal court, Burgess v. Seligman, 107 U.S. 20 (1883), thus promoting lack of uniformity. See also Gelpcke v. City of Debuque, 68 U.S. (1 Wall.) 175 (1865); Williamson v. Berry, 49 U.S. (8 How.) 495 (1850); Pease v. Peck, 59 U.S. (18 How.) 595 (1856); Watson v. Tarpley, 59 U.S. (18 How.) 517 (1856).

1028 Extensions of the scope of Tyson frequently were rendered by a divided Court over the strong protests of dissenters. E.g., Gelpcke v. City of Debuque, 68 U.S. (1 Wall.) 175 (1865); Lane v. Vick, 44 U.S. (3 How.) 463 (1845); Kuhn v. Fairmont Coal Co., 215 U.S. 349 (1910). In Baltimore & Ohio R. Co. v. Baugh, 149 U.S. 368, 401-404 (1893), Justice Field dissented in an opinion in which he expressed the view that Supreme Court disregarding of state court decisions was unconstitutional, a view endorsed by Justice Holmes in Black & White Taxicab & Transfer Co. v. Brown & Yellow Taxicab & Transfer Co., 276 U.S. 518, 533 (1928) (dissenting opinion), and adopted by the Court in Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938). Numerous proposals were introduced in Congress to change the rule.

1029 276 U.S. 518 (1928). B. & W. had contracted with a railroad to provide exclusive taxi service at its station. B. & Y. began operating taxis at the same station and B. & W. wanted to enjoin the operation, but it was a settled rule by judicial decision in Kentucky courts that such exclusive contracts were contrary to public policy and were unenforceable in court. Therefore, B. & W. dissolved itself in Kentucky and reincorporated in Tennessee, solely in order to create diversity of citizenship and enable itself to sue in federal court. It was successful and the Supreme Court ruled that diversity was present and that the injunction should issue. In Mutual Life Ins. Co. v. Johnson, 293 U.S. 335 (1934), the Court, in an opinion by Justice Cardozo, appeared to retreat somewhat from its extensions of Tyson, holding that state law should be applied, through a “benign and prudent comity,” in a case “balanced with doubt,” a concept first used by Justice Bradley in Burgess v. Seligman, 107 U.S. 20 (1883).

1030 304 U.S. 64 (1938). Judge Friendly has written: “Having served as the Justice’s [Brandeis’s] law clerk the year Black & White Taxicab & Transfer Co. v. Brown & Yellow Taxicab & Transfer Co. came before the Court, I have little doubt he was waiting for an opportunity to give Swift v. Tyson the happy dispatch he thought it deserved.” H. FRIENDLY, BENCHMARKS 20 (1967).

“It is impossible to overstate the importance of the Erie decision. It announces no technical doctrine of procedure or jursidiction, but goes to the heart of the relations between the federal government and the states, and returns to the states a power that had for nearly a century been exercised by the federal government.”1031 Erie was remarkable in a number of ways aside from the doctrine it announced. It reversed a 96-year-old precedent, which counsel had specifically not questioned, it reached a constitutional decision when a statutory interpretation was available though perhaps less desirable, and it marked the only time in United States constitutional history when the Court has held that it had undertaken an unconstitutional action.1032

1031 C. WRIGHT, HANDBOOK OF THE LAW OF FEDERAL COURTS 355 (4th ed. 1983). See Judge Friendly’s exposition, In Praise of Erie—And of the New Federal Common Law, in H. FRIENDLY, BENCHMARKS 155 (1967).

1032 304 U.S. at 157-164, 171 n.71.

Tompkins was injured by defendant’s train while he was walking along the tracks. He was a citizen of Pennsylvania, and the railroad was incorporated in New York. Had he sued in a Pennsylvania court, state decisional law was to the effect that inasmuch as he was a trespasser, the defendant owned him only a duty not to injure him through wanton or willful misconduct;1033 the general federal law treated him as a licensee who could recover for negligence. Tompkins sued and recovered in federal court in New York and the railroad presented the issue to the Supreme Court as one covered by “local” law within the meaning of Swift v. Tyson. Justice Brandeis for himself and four other Justices, however, chose to overrule the early case.

First, it was argued that Tyson had failed to bring about uniformity of decision and that its application discriminated against citizens of a State by noncitizens. Justice Brandeis cited recent researches1034 indicating that § 34 of the 1789 Act included court decisions in the phrase “laws of the several States.” “If only a question of statutory construction were involved we should not be prepared to abandon a doctrine so widely applied throughout nearly a century. But the unconstitutionality of the course pursued has now been made clear, and compels us to do so.”1035 For a number of reasons, it would not have been wise to have overruled Tyson on the basis of arguable new discoveries.1036

1033 This result was obtained in retrial in federal court on the basis of Pennsylvania law. Tompkins v. Erie Railroad Co., 98 F. 49 (3d Cir.), cert. denied, 305 U.S. 637 (1938).

1034 Erie Railroad Co. v. Tompkins, 304 U.S. 64, 72-73 (1938), citing Warren, New Light on the History of the Federal Judiciary Act of 1789, 37 HARV. L. REV. 49 84-88 (1923). See C. WRIGHT, HANDBOOK OF THE LAW OF FEDERAL COURTS 353 (4th ed. 1983).

1035 304 U.S. at 77-78 (footnote citations omitted).

1036 Congress had re-enacted § 34 as § 721 of the Revised Statutes, citing Swift v. Tyson in its annotation, thus presumably accepting the gloss placed on the words by that ruling. But note that Justice Brandeis did not think even the re-enacted statute was unconstitutional. 304 U.S. at 79-80. See H. FRIENDLY, BENCHMARKS 161-163 (1967). Perhaps a more compelling reason of policy was that stated by Justice Frankfurter rejecting for the Court a claim that the general grant of federal question jurisdiction to the federal courts in 1875 made maritime suits cognizable on the law side of the federal courts. “Petitioner now asks us to hold that no student of the jurisdiction of the federal courts or of admiralty, no judge, and none of the learned and alert members of the admiralty bar were able, for seventy-five years, to discern the drastic change now asserted to have been contrived in admiralty jurisdiction by the Act of 1875. In light of such impressive testimony from the past the claim of a sudden discovery of a hidden latent meaning in an old technical phrase is surely suspect.”

“The history of archeology is replete with the unearthing of riches buried for centuries. Our legal history does not, however, offer a single archeological discovery of new, revolutionary meaning in reading an old judiciary enactment. [Here, the Justice footnotes: ‘For reasons that would take us too far afield to discuss, Erie Railroad Co. v. Tompkins, 304 U.S. 64, is no exception.’] The presumption is powerful that such a far-reaching, dislocating construction as petitioner would now have us find in the Act of 1875 was not uncovered by judges, lawyers or scholars for seventy-five years because it is not there.” Romero v. International Terminal Operating Co., 358 U.S. 354, 370-371 (1959).

Second, the decision turned on the lack of power vested in Congress to have prescribed rules for federal courts in state cases. “There is no federal general common law. Congress has no power to declare substantive rules of common law applicable in a State whether they be local in their nature or ‘general,’ be they commercial law or a part of the law of torts. No clause in the Constitution purports to confer such a power upon the federal courts.”1037 But having said this, Justice Brandeis made it clear that the unconstitutional assumption of power had been made not by Congress but by the Court itself. “[W]e do not hold unconstitutional § 34 of the Federal Judiciary Act of 1789 or any other Act of Congress. We merely declare that in applying the doctrine this Court and the lower courts have invaded rights which in our opinion are reserved by the Constitution to the several States.”1038

Third, the rule of Erie replacing Tyson is that “[e]xcept in matters governed by the Federal Constitution or by Acts of Congress, the law to be applied in any case is the law of the State. Whether the law of the State shall be declared by its Legislature in a statute or by its highest court in a decision is not a matter of federal concern.”1039

Since 1938, the effect of Erie has first increased and then diminished, as the nature of the problems presented changed. Thus, the Court at first indicated that not only were the decisions of the highest court of a State binding on a federal court in diversity, but also decisions of intermediate appellate courts1040 and courts of first instance,1041 even where the decisions bound no other state judge except as they were persuasive on their merits. It has now retreated from this position, concluding that federal judges are to give careful consideration to lower state court decisions and to old, perhaps outmoded decisions, but that they must find for themselves the state law if the State’s highest court has not spoken definitively within a period which would raise no questions about the continued viability of the decision.1042 In the event of a state supreme court reversal of an earlier decision, the federal courts are, of course, bound by the later decision, and a judgment of a federal district court, correct when rendered, must be reversed on appeal if the State’s highest court in the meantime has changed the applicable law.1043 In diversity cases which present conflicts of law problems, the Court has reiterated that the district court is to apply the law of the State in which it sits, so that in a case in State A in which the law of State B is applicable, perhaps because a contract was made there or a tort was committed there, the federal court is to apply State A’s conception of State B’s law.1044

1037 304 U.S. at 78. Justice Brandeis does not argue the constitutional issue and does not cite either provisions of the Constitution or precedent beyond the views of Justices Holmes and Field. Id. at 78-79. Justice Reed thought that Article III and the necessary and proper clause might contain authority. Id. at 91-92 (Justice Reed concurring in the result). For a formulation of the constitutional argument in favor of the Brandeis position, see H. FRIENDLY, BENCHMARKS 167-171 (1967). See also Bernhardt v. Polygraphic Co. of America, 350 U.S. 198, 202, 208 (1956); Hanna v. Plumer, 380 U.S. 460, 471-472 (1965).

1038 304 U.S. at 79-80.

1039 304 U.S. at 78. Erie applies in equity as well as in law. Ruhlin v. New York Life Ins. Co., 304 U.S. 202 (1938).

1040 West v. American Tel. & Tel. Co., 311 U.S. 223 (1940); Six Companies of California v. Joint Highway District, 311 U.S. 180 (1940); Stoner v. New York Life Ins. Co., 311 U.S. 464 (1940).

1041 Fidelity Union Trust Co., v. Field, 311 U.S. 169 (1940).

1042 King v. Order of Commercial Travelers of America, 333 U.S. 153 (1948); Bernhardt v. Polygraphic Co. of America, 350 U.S. 198, 205 (1956) (1910 decision must be followed in absence of confusion in state decisions since there were “no developing line of authorities that cast a shadow over established ones, no dicta, doubts or ambiguities . . . , no legislative development that promises to undermine the judicial rule”). See also Commissioner v. Estate of Bosch, 387 U.S. 456, 465 (1967).

1043 Vanderbark v. Owens-Illinois Glass Co., 311 U.S. 538 (1941); Huddleston v. Dwyer, 322 U.S. 232 (1944); Nolan v. Transocean Air Lines, 365 U.S. 293 (1961).

1044 Klaxon Co. v. Stentor Manufacturing Co., 313 U.S. 487 (1941); Griffin v. McCoach, 313 U.S. 498 (1941); Wells v. Simonds Abrasive Co., 345 U.S. 514 (1953); Nolan v. Transocean Air Lines, 365 U.S. 293 (1961).

The greatest difficulty in applying the Erie doctrine has been in cases in which issues of procedure were important.1045 The process was initiated in 1945 when the Court held that a state statute of limitations, which would have barred suit in state court, would bar it in federal court, although as a matter of federal law the case still could have been brought in federal court.1046 The Court regarded the substance-procedure distinction as immaterial. “[S]ince a federal court adjudicating a state-created right solely because of the diversity of citizenship of the parties is for that purpose, in effect, only another court of the State, it cannot afford recovery if the right to recover is made unavailable by the State nor can it substantially affect the enforcement of the right as given by the State.”1047 The standard to be applied was compelled by the “intent” of the Erie decision, which “was to insure that, in all cases where a federal court is exercising jurisdiction solely because of the diversity of citizenship of the parties, the outcome of the litigation in the federal court should be substantially the same, so far as legal rules determine the outcome of a litigation, as it would be if tried in a State court.”1048 The Court’s application of this standard created substantial doubt that the Federal Rules of Civil Procedure had any validity in diversity cases.1049

1045 Interestingly enough, 1938 marked what seemed to be a switching of positions vis-a-vis federal and state courts of substantive law and procedural law. Under Tyson, federal courts in diversity actions were free to formulate a federal common law, while they were required by the Conformity Act, § 5, 17 Stat. 196 (1872), to conform their procedure to that of the State in which the court sat. Erie then ruled that state substantive law was to control in federal court diversity actions, while by implication matters of procedure in federal court were subject to congressional governance. Congress authorized the Court to promulgate rules of civil procedure, 48 Stat. 1064 (1934), which it did in 1938, a few months after Erie was decided. 302 U.S. 783.

1046 Guaranty Trust Co. v. York, 326 U.S. 99 (1945).

1047 326 U.S. at 108-09.

1048 326 U.S. at 109.

1049 Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541 (1949) (state rule making unsuccessful plaintiffs liable for all expenses and requiring security for such expenses as a condition of proceeding applicable in federal court); Woods v. Interstate Realty Co., 337 U.S. 535 (1949) (state statute barring foreign corporation not qualified to do business in State applicable in federal court); Ragan v. Merchants Transfer & Warehouse Co., 337 U.S. 530 (1949) (state rule determinative when an action is begun for purposes of statute of limitations applicable in federal court although a Federal Rule of Civil Procedure states a different rule).

But in two later cases, the Court contracted the application of Erie in matters governed by the Federal Rules. Thus, in the earlier case, the Court said that “outcome” was no longer the sole determinant and countervailing considerations expressed in federal policy on the conduct of federal trials should be considered; a state rule making it a question for the judge rather than a jury of a particular defense in a tort action had to yield to a federal policy enunciated through the Seventh Amendment of favoring juries.1050 Some confusion has been injected into consideration of which law to apply—state or federal—in the absence of a federal statute or a Federal Rule of Civil Procedure.1051 In an action for damages, the federal courts were faced with the issue of the application either of a state statute, which gave the appellate division of the state courts the authority to determine if an award is excessive or inadequate if it deviates materially from what would be reasonable compensation, or of a federal judicially-created practice of review of awards as so exorbitant that it shocked the conscience of the court. The Court determined that the state statute was both substantive and procedural, which would result in substantial variations between state and federal damage awards depending whether the state or the federal approach was applied; it then followed the mode of analysis exemplified by those cases emphasizing the importance of federal courts reaching the same outcome as would the state courts,1052 rather than what had been the prevailing standard, in which the Court balanced state and federal interests to determine which law to apply.1053 Emphasis upon either approach to considerations of applying state or federal law reflects a continuing difficulty of accommodating “the constitutional power of the states to regulate the relations among their citizens . . . [and] the constitutional power of the federal government to determine how its courts are to be operated.”1054 Additional decisions will be required to determine which approach, if either, prevails. The latter ruling simplified the matter greatly. Erie is not to be the proper test when the question is the application of one of the Rules of Civil Procedure; if the rule is valid when measured against the Enabling Act and the Constitution, it is to be applied regardless of state law to the contrary.1055

1050 Byrd v. Blue Ridge Rural Electric Cooperative, 356 U.S. 525 (1958).

1051 Gasperini v. Center for Humanities, Inc., 518 U.S. 415 (1996). The decision was five-to-four, so that the precedent may or may not be stable for future application.

1052 E.g., Guaranty Trust Co. v. York, 326 U.S. 99 (1945).

1053 E.g., Byrd v. Blue Ridge Rural Elec. Coop., 356 U.S. 525 (1958).

1054 19 C. WRIGHT, A. MILLER & E. COOPER, FEDERAL PRACTICE AND PROCEDURE § 4511, at 311 (2d ed. 1996).

1055 Hanna v. Plumer, 380 U.S. 460 (1965).

Although it seems clear that Erie applies in nondiversity cases in which the source of the right sued upon is state law,1056 it is equally clear that Erie is not applicable always in diversity cases whether the nature of the issue be substantive or procedural. Thus, it may be that there is an overriding federal interest which compels national uniformity of rules, such as a case in which the issue is the appropriate rule for determining the liability of a bank which had guaranteed a forged federal check,1057 in which the issue is the appropriate rule for determining whether a tortfeasor is liable to the United States for hospitalization of a soldier and loss of his services,1058 and in which the issue is the appropriate rule for determining the validity of a defense raised by a federal officer sued for having libeled one in the course of his official duties.1059 In such cases, when the issue is found to be controlled by federal law, common or otherwise, the result is binding on state courts as well as on federal.1060 Despite, then, Justice Brandeis’ assurance that there is no “federal general common law,” there is a common law existing and developing in the federal courts, even in diversity cases, which will sometimes control decision.1061

1056 Maternally Yours v. Your Maternity Shop, 234 F.2d 538, 540 n.1 (2d Cir. 1956). The contrary view was implied in Levinson v. Deupree, 345 U.S. 648, 651 (1953), and by Justice Jackson in D’Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 466-467, 471-472 (1942) (concurring opinion). See Wichita Royalty Co. v. City National Bank, 306 U.S. 103 (1939).

1057 Clearfield Trust Co. v. United States, 318 U.S. 363 (1943). See also National Metropolitan Bank v. United States, 323 U.S. 454 (1945); D’Oench, Duhme & Co. v. FDIC, 315 U.S. 447 (1942); United States v. Standard Rice Co., 323 U.S. 106 (1944); United States v. Acri, 348 U.S. 211 (1955); Ivanhoe Irrigation District v. McCracken, 357 U.S. 275 (1958); Bank of America Nat’l Trust & Savings Ass’n v. Parnell, 352 U.S. 29 (1956). But see United States v. Yazell, 382 U.S. 341 (1966). But see O’Melveny & Myers v. FDIC, 512 U.S. 79 (1994).

1058 United States v. Standard Oil Co., 332 U.S. 301 (1947). Federal law applies in maritime tort cases brought on the “law side” of the federal courts in diversity cases. Pope & Talbot v. Hawn, 346 U.S. 406 (1953).

1059 Howard v. Lyons, 360 U.S. 593 (1959). Matters concerned with our foreign relations also are governed by federal law in diversity. Banco National de Cuba v. Sabbatino, 376 U.S. 398 (1964). Federal common law also governs a government contractor defense in certain cases. Boyle v. United Technologies Corp., 487 U.S. 500 (1988).

1060 Free v. Bland, 369 U.S. 663 (1962); Yiatchos v. Yiatchos, 376 U.S. 306 (1964).

1061 The quoted Brandeis phrase is in Erie Railroad Co. v. Tompkins, 304 U.S. 64, 78 (1938). On the same day Erie was decided, the Court, in an opinion by Justice Brandeis, held that the issue of apportionment of the waters of an interstate stream between two States “is a question of ‘federal common law.”’ Hinderlider v. La Plata River & Cherry Creek Ditch Co., 304 U.S. 92, 110 (1938). On the matter, see Illinois v. City of Milwaukee, 406 U.S. 91 (1972).

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Last modified: June 9, 2014