Federal common law: a structural reinterpretation.

• Author: Clark, Bradford R.

The erection of a new government, whatever care or wisdom may distinguish the work, cannot fail to originate questions of intricacy and nicety; and these may, in a particular manner, he expected to flow from the establishment Of a constitution founded upon the total or partial incorporation of a number of distinct sovereignties.(1)

By design, our constitutional structure is complex and often cumbersome. The founders believed that the structural safeguards provided by federalism and separation of powers outweighed their costs. That calculation, however, has created numerous "questions of intricacy and nicety." "Federal common law," in particular, presents such questions. In every case, courts are confronted with a threshold issue: what is the source of the applicable law? In most cases, state law has been thought to establish background rules of decision that apply unless preempted by positive federal law.(2) In this century, however, federal courts have found it increasingly appropriate in many areas to disregard state law in favor of so-called federal common law.

Federal common law is generally used to refer to "federal judgemade law"(3) - that is, rules of decision adopted and applied by federal courts that have the force and effect of positive federal law, but "whose content cannot be traced by traditional methods of interpretation to federal statutory or constitutional command."(4) Thus understood, federal common law raises serious constitutional questions. First, federal common law, because not clearly rooted in statutory or constitutional sources, appears to involve judicial lawmaking - a task at least in tension with federal separation of powers.(5) To be sure, federal courts undoubtedly engage in interstitial "lawmaking," as part of the process of interpreting positive law.(6) By hypothesis, at least, federal common lawmaking begins where interpretation ends.(7) Such open-ended lawmaking by courts raises constitutional concerns because it bears a troublesome resemblance to the exercise of legislative power - power apparently reserved by the Constitution to the political branches.(8)

Second, because federal common law preempts state law, federal common law also raises two related federalism concerns, at least as applied to matters within the legislative competence of the states. Federal common law arguably intrudes upon state authority by departing from the Constitution and the Rules of Decision Act,(9) which - as interpreted in Erie Railroad Co. v. Tompkins(10) - appear to require federal courts to apply state law "[e]xcept in matters governed by the Federal Constitution or by Acts of Congress."(11) Federal common law further threatens the autonomy and independence of the states by requiring state courts to apply federal judge-made law notwithstanding contrary state law, even though the Constitution's reference to the "supreme Law of the Land" does not obviously include federal judge-made law.(12)

The Supreme Court has responded to these concerns by purporting to limit the scope of federal common law to several well-recognized enclaves. These include "such narrow areas as those concerned with the rights and obligations of the United States, interstate and international disputes implicating the conflicting rights of States or our relations with foreign nations, and admiralty cases."(13) Although this "enclave" approach to federal common law may mitigate the constitutional difficulties identified above, it "simply list[s] areas of law or categories of cases in which federal common law is permissible" without providing any "underlying rationale other than grandfathering."(14)

Commentators have suggested several alternatives. At one end of the spectrum, Professor Martha Field has argued that "judicial power to act is not limited to particular enclaves,"(15) and that "limits on federal common law are incoherent."(16) In her view, "federal [common] law can apply whenever federal interests require a federal solution."(17) At the other end of the spectrum, Professor Martin Redish has argued that federalism and separation of powers concerns inherent in the Rules of Decision Act instruct "that there can be no such thing as `federal common law,' at least to the extent it is used to provide a `rule of decision' and to the extent that the phrase `common law' is construed as a category of lawmaking distinct from constitutional or statutory `interpretation.'"(18)

This Article does not propose to embrace either of these approaches. Rather, it attempts to provide an alternative explanation for at least a portion of the rules that fall within the traditional enclaves of federal common law identified by the Supreme Court. This attempt rests largely upon `the [neglected] method of inference from the structures and relationships created by the constitution in all its parts or in some principal part."(19) Relying on various inferences from the constitutional structure, this Article seeks to show that an important subset of federal common law rules has essentially been mischaracterized by courts and commentators. Careful analysis demonstrates that judicial adherence to these rules is consistent with, and frequently required by, the constitutional structure. So understood, the rules in question do not constitute "federal judge-made law," and therefore do not raise the constitutional difficulties traditionally associated with such law.

In order to qualify under the proposed reconceptualization, a rule must satisfy two criteria derived from the constitutional structure. First, the transactions governed by the rule must fall beyond the legislative competence of the states. Second, the rule must operate to further some basic aspect of the constitutional scheme - for example, by preventing the judiciary and the states from interfering with matters that the Constitution assigns exclusively to the political branches of the federal government, or by implementing the constitutional equality of the states.

Distinguishing between federal common law rules that satisfy the proposed criteria and those that do not places the former on a firmer constitutional foundation. The first criterion relies on constitutional preemption of state authority in certain areas to resolve federalism concerns.(20) The Constitution places certain matters beyond the legislative competence of the states - most notably, matters integral to the conduct of foreign affairs.(21) With respect to such matters, states - whether acting through courts or legislatures - generally lack authority to establish binding rules of decision. Thus, to the extent that federal common law rules concern matters beyond the legislative competence of the states, it is difficult to see how the federal courts' application of such rules could invade rights reserved by the Constitution to the states.

The second criterion alleviates separation of powers concerns. Many of the rules that the Supreme Court today characterizes as federal common law are merely background rules that federal and state courts apply in order to avoid encroaching upon authority committed by the Constitution to Congress and the President. This is particularly true with respect to rules relating to foreign affairs. The Constitution assigns the conduct of foreign relations exclusively to the political branches of the federal government. On occasion, this allocation of power requires federal courts (and states) to adhere to traditional rules derived from the law of nations in order to avoid usurping the political branches' power to conduct foreign affairs. Such adherence does not constitute improper judicial legislation. To the contrary, application of these doctrines furthers the Constitution's allocation of powers by ensuring that Congress and the President, rather than the courts (and the states), exercise powers constitutionally committed to the political branches.

This Article contains three parts. Part I analyzes the Supreme Court's landmark decision in Erie Railroad Co. v. Tompkins.(22) This analysis suggests that Erie's decision to overrule Swift v. Tyson(23) rests on principles of "judicial federalism" - the premise that federal courts, acting on their own authority, have no power to displace state law in areas over which the states possess legislative competence. Next, Part I surveys the rise of modern federal common law following Erie and reviews the Supreme Court's justifications for such law. Finally, Part I critically examines competing proposals to reform federal common law suggested by two of the leading academics in the field.

Part II proposes an approach, derived from the constitutional structure, for reconceptualizing at least a portion of the rules currently thought to be federal common law. This approach suggests that judicial federalism concerns do not apply to "federal common law" rules that satisfy the proposed criteria and that such rules do not, in fact, constitute "federal judge-made law." Rather, rules that satisfy the proposed approach are generally consistent with, and often required by, the constitutional structure.

Next, Part II reexamines the Supreme Court's decision in Swift v. Tyson in light of the proposed approach. It concludes that, although Swift was constitutionally defensible at the time it was decided, the federal courts' subsequent adherence to, and expansion of, the Swift doctrine raised substantial federalism and separation of powers concerns. Nonetheless, this review is useful to the proposed reconceptualization because it illustrates that the federal courts may, under certain circumstances, apply rules derived from customary law without violating federalism and separation of powers principles.

Finally, Part II applies the proposed approach to reconceptualize federal common law rules like the act of state doctrine that govern "international disputes implicating ... our relations with foreign nations."(24) Because such rules generally concern matters beyond the...