Has the Erie doctrine been repealed by Congress?

• Author: Hazard, Jr., Geoffrey C.

INTRODUCTION

The enactment of the Class Action Fairness Act of 2005 (CAFA) (1) is a congressional pronouncement implying that the Erie Doctrine is seriously erroneous. In broad terms, CAFA allows class actions that have been filed in state courts and that are based on state substantive law to be removed to federal court if they involve out-of-state defendants and more than five million dollars in claimed damages. (2) The legislation is very complex and in many respects ambiguous.

The Act, however, can be interpreted as the most recent legislative affirmation that federal procedure is appropriate for the enforcement of state law rights. This affirmation should be taken seriously by the judiciary, even if legislators are regarded as relatively untutored in the interaction of federal and state law. Put in positive terms, CAFA asserts that, in certain types of cases, the judicious administration of state law is better entrusted to federal courts.

This statement contradicts two pronouncements, themselves conflicting, by the Supreme Court concerning the relationship between state substantive law and federal procedure. On the one hand, the Court famously said in Guaranty Trust Co. v. York that a federal court, in adjudicating state law, is "only another court of the State." (3) On the other hand, the Court notably held in Byrd v. Blue Ridge Rural Electric Cooperative, Inc. that "[t]he federal system is an independent system for administering justice." (4) More recently, in Gasperini v. Center for Humanities, Inc. the Court quoted from Guaranty and Byrd, (5) while acknowledging that dealing with both is a "challenging endeavor." (6)

Rather than the Erie Doctrine, perhaps a better formulation of the relationship between state and federal law would be something like this: State law is the substantive basis of the American legal system, displaced only selectively by federal substantive law. The federal court system, however, provides the premier American model of the judiciary and, as such, is called upon to administer its form of justice in legal disputes. This jurisdiction extends to any subject matter within the power of Congress to regulate and that Congress determines, under the Constitution, to require such attention. (7)

The distinctive character of federal justice begins, first and foremost, with the provision in Article III that federal judges hold office "during good behavior." (8) According to Chief Justice Rehnquist's study of the impeachment proceeding against Justice Chase, "good behavior" translates into life tenure. (9) That proceeding, shortly after adoption of the constitutional regime, established that only very bad behavior--serious criminality, probably--can result in a federal judge's dismissal from office. (10)

The federal courts are also seen as distinct since the subordinate rules of federal procedure seem to be generally less vulnerable to interest group pressures. (11) There is a case for the proposition that all rules of federal procedure, specifically those such as the Federal Rules of Civil Procedure and others promulgated through the federal rule making process, should be given effect in deference to congressional policy. The following analysis may be a step in that direction.

1. ERIE DECISION AND ERIE DOCTRINE

   1. Erie Railroad Co. v. Tompkins

      Erie's (12) actual holding is limited and perhaps too easily forgotten. Addressing the rule in Swift, (13) the Erie Court pivotally states: "Swift v. Tyson introduced grave discrimination by ... [making] rights ... vary according to whether enforcement was sought in the state or in the federal court.... Thus, the doctrine rendered impossible equal protection of the law." (14)

      The key terms are "rights" and "impossible." In Erie, Justice Brandeis had prefaced this proposition by referring to Black & White Taxicab, (15) which clearly involved a question of "rights." (16) Prior to the Black & White Taxicab litigation, one of the parties strategically created federal diversity jurisdiction by incorporating out of state. (17) That was followed by the initiation of litigation in federal court, which fulfilled the anticipated result of applying a federal decisional rule concerning contract validity. Under this federal rule, exclusive-dealing contracts were valid, though they would not have been under the applicable state law. (18)

      Thus, by example as well as statement of the rule, the Erie decision addressed a problem of "rights," which in context translates into substantive law. Importantly, there was nothing in the decision concerning procedure or quasiprocedural rules such as statutes of limitation.

      Furthermore, the improper effect that Justice Brandeis identified was that different versions of "rights" would "render[] impossible equal protection of the law." (19 That effect is virtually axiomatic: if substantive legal rules that are significantly different are applied in two otherwise identical cases, and the cases proceed to the merits, it would be solely coincidental if equal protection of the law were afforded.

      There has been illuminating argument that even the concept of "rights" as used in Erie was overbroad. Professor (now Judge) Fletcher has explained that there was a cogent concept of "general law" under Swift v. Tyson, even if the federal courts thereafter erroneously inflated the concept. (20) There has also been criticism of Justice Brandeis's suggestion that Congress could not enact law on the subjects involved in the Erie case, or for that matter those implicated by Black & White Taxicab. (21) Under now-established concepts of federal authority, Congress could, of course, enact law on those subjects. Indeed, it could enact substantive law on at least most of the subjects involved in the litigation addressed by CAFA.

      However, there seems little ground for dissent from the following propositions: first, that the decision in Erie involved a rule that was unequivocally substantive in the substance/procedure dichotomy; and second, that a broad panoply of distinctive substantive rules of "federal common law" in diversity litigation would "render[] impossible equal protection" in those cases. (22) But this second proposition does not entail the further proposition that federal courts were required to forego other rules, concerning something less than "substance," which could result in different outcomes in cases tried in a federal court and state court. Outcomes in litigation depend on many factors apart from the rules of substantive law that are applied, and perhaps are affected most particularly by rules governing the composition and procedure of the forum.

   2. Erie Doctrine

      Erie v. Tompkins is one thing; the Erie Doctrine is something else. It was in decisions subsequent to Erie that the Erie Doctrine emerged. The basic sequence is familiar, with Klaxon applying the Erie Doctrine to choice of law rules, (223) while Cities Service Oil Co. v. Dunlap and Palmer v. Hoffman applied it, respectively, to issues of burden of proof (24) and the allocation of the burden of pleading contributory negligence between the plaintiff's claim and the defendant's answer. (25) The now orthodox formulation of Erie Doctrine came from the decision in Guaranty, which pronounced the "outcome" test: "[T]he intent of [Erie v. Tompkins] was to insure that ... 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." (26)

      The Erie Doctrine was the basis of subsequent refusals in diversity cases to apply federal law or the Federal Rules of Civil Procedure. (27) But then came Byrd. (28) That case presented the issue of whether the Seventh Amendment right to a jury trial applied to an issue in a diversity case where that issue would be tried by a state court without a jury. (29) It seems clear that the issue was properly classified as one of "fact" under established Seventh Amendment jurisprudence, and hence was jury triable under federal law. It also seems clear that, under the state's jurisprudence, the issue was one whose allocation to the court rather than jury was a matter of constitutional stature. (30) By the time Byrd arrived before the Court, the Erie Doctrine had become solidified to the point of nearly constitutional status: "It expressed a policy that touches vitally the proper distribution of judicial power between State and federal courts." (31) Hence, Byrd can be described as presenting the issue of whether it is a violation of the constitutional "distribution of judicial power between State and federal courts" to apply in federal court a rule of procedure set forth in the Constitution.

      It would be absurd to say that applying a constitutional rule is unconstitutional, but that was the implication of the Erie Doctrine as it would apply in Byrd. The Court in Byrd properly held that a constitutional rule of procedure--the Seventh Amendment--could be applied, (32) but it equivocated, obviously in deference to the Erie Doctrine. Having cited Erie, Justice Brennan said, "[a]n essential characteristic of [the federal] system is the manner in which ... it distributes trial functions between judge and jury ... under the influence--if not the command--of the Seventh Amendment." (33)

      Surely the Seventh Amendment is a "command," not merely an influence. However, so strong has been the pull of the Erie Doctrine that not only has it produced such waffling as in Byrd, but it has also induced the further conclusions that (1) the text of Federal Rule of Civil Procedure 3, in application to the relationship between filing the complaint and tolling a statute of limitations, has differential force in diversity and federal-claim cases, (34) and (2) although a state rule governing service of process in relation to a statute of limitations preempts Rule 3 because it is "part and parcel" of the statute of limitations in one state law structure...